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  • Jurisdiction Clauses in Standard Terms and Conditions Referred to in Invoices - Michael McParland QCView More

    Tue, 13 March, 2018

    Jurisdiction Clauses in Standard Terms and Conditions Referred to in Invoices: Not worth the paper they’re written on?

    When used properly contractual jurisdiction clauses are a key component of any cross-border transaction. But when the necessary formalities are ignored, the case law of the European Court of Justice shows that they may not be worth the paper they are written on. In this respect, the 8 March 2018 decision of the CJEU in Case C-67/17 Saey Home & Garden NV/SA v Lusavouga-Máquinas e Acessórios Industriais SA (EU: C: 2018:713) is a salutary reminder.

    In Saey Home & Gardens, a Belgian manufacturer of kitchen equipment and utensils entered into an oral concession agreement with a Portuguese company to sell the former’s products in Spain. About 7 months later, the Belgians decided to terminate the relationship. The Portuguese claimant sued in Portugal, and the Belgian defendant challenged jurisdiction, inter alia, on the basis that a paragraph in their general terms and conditions which was referred to in invoices they had submitted to the Portuguese company contained a Belgian jurisdiction clause.

    Was this jurisdiction clause valid and binding on the parties? Section 7 of the Brussels I (Recast) Regulation (1215/2012) is entitled "Prorogation of Jurisdiction". Article 25(1) makes express provision for the formal requirements needed to establish the existence of a jurisdiction agreement made by the parties in favour of the courts of an EU Member State. Article 25(1) provides that:

    "The agreement conferring jurisdiction shall be either:

    1. in writing or evidenced in writing;
    2. in a form which accords with practices which the parties have established between themselves, or
    3. in international trade or commerce, in a form which accords with a usage of which the parties are or ought to have been aware and which in such trade or commerce is widely known to, and regularly observed by, parties to contract of the type involved in the particular trade or commerce concerned.

    A question for the Court of Justice was whether a reference in commercial invoices issued by one party which mentions the existence of their general terms and conditions which themselves contain a jurisdiction clause is sufficient to satisfy the requirements of being "in writing or evidenced in writing" in Article 25(1) (a) of the Regulation?

    The Court’s answer was a resounding "no". The Court had previously held in Hőszig that a jurisdiction clause stipulated in a party’s general terms and conditions could be lawful and binding on the parties where the text of the contract signed by both parties itself contains an express reference to the general conditions which includes a jurisdiction clause. But in Saey Home & Gardens the commercial concession agreement between the parties was concluded orally and not evidenced in writing, and the general terms containing the jurisdiction clause were only mentioned in the Belgian company’s invoices. As such, it could not satisfy the formal requirements of Article 25(1) (a). Whether either of the other limbs of Article 25 (1) (b) and (c) were satisfied was left to the national court to decide.

    Saey Home & Gardens is a useful reminder to clients that, even though their standard terms and conditions may contain a jurisdiction clause, this, by itself, is not sufficient to satisfy the formal requirements of Article 25(1) (a). Something more is needed to show consensus between the parties on the choice of forum.

    Michael McParland QC

    Michael is an international lawyer, with a wide ranging practice in commercial, civil and international advocacy and advice in the courts, arbitral and regulatory tribunals of England and Wales and overseas. He regularly appears in the Commercial Court, Chancery Division and Queen’s Bench Division for a wide variety of domestic and international clients. Michael is admitted to practice in the British Virgin Islands (since 2008) and appears in the Eastern Caribbean Supreme Court and Court of Appeal. He is also a Member of the State Bar of California (since 1990), and has appeared before the Gibraltar Courts and Financial Services Authority.

    Michael has been described by clients in the Chambers UK and the Legal 500 legal directories as “phenomenal”, “incredibly knowledgeable and a tremendous advocate who is a very powerful person to have on your side” , “a thorough, knowledgeable and intelligent advocate”, “incredibly bright and hardworking, a real team player”,  “a really powerful operator” with “complete control of the facts of a case” who “really thinks about things and then steamrollers the opposition”.  He is said to have “real commercial intelligence and an easy client manner”, his advocacy is “effective and persuasive” and his “attention to detail prepares him for all eventualities in the course of litigation”.

    Michael’s practice often includes complex and novel cross-border battles featuring jurisdiction and choice of law disputes, issues over the recognition and enforcement of foreign judgments and orders and the enforcement of English judgments abroad, forum non coveniens challenges, anti-suit and international asset freezing injunctions, as well as sovereign and other immunities from jurisdiction. His work covers a full range of activities and clients, including shipping and maritime claims, civil fraud, aviation; insurance, major cross-border injury claims, company and partnership law matters, including director’s liabilities, shareholder, partnership and joint venture actions, as well  cross-border insolvency battles both in the UK and elsewhere. He has long comparative law experience. Many of his cases involve causes of action governed by foreign laws.

    Michael is a recognised international law expert. He is the author of The Rome I Regulation on the Law Applicable to Contractual Obligations (Oxford University Press, 2015), a leading textbook on private international law that is cited with approval by the Advocate-General in the European Court of Justice and by judges in the Commercial Court. “This is a marvellous book, an absolute must for anyone who is seriously concerned with the private international law of what we once called contracts…”; Michael’s research was “truly amazing” and his book is “… a magnificent achievement, for which all serious commercial lawyers will be in the author’s debt”: Prof. Adrian Briggs QC (Hons), LMCLQ, 2015, p. 597. In Germany, Michael’s book was reviewed as being “in the best tradition of English textbooks…the praise heaped upon the work so far is well deserved… ” and it displays “a very fine and sophisticated humour”: Prof. Peter Mankowski,  Zeitschrift für das Privatrecht der Europäischen Union, GPR 5/ 2015, p. 259. In his foreword, The Hon. Mr Justice Teare describes it as ‘… a book which will be an essential addition to the library of the advisor, the advocate and the academic in their respective searches for the true meaning and effect of the Regulation...’. 

    > view Michael's full profile

    > michael.mcparland@quadrantchambers.com  

  • Internal EU Bilateral Investment Treaties Arbitration Clauses declared incompatible with EU LawView More

    Fri, 09 March, 2018

    “BITing the bullet”: Arbitration Clauses in Internal EU Bilateral Investment Treaties are struck down by the European Court of Justice. - Michael McParland QC 

    In their landmark decision of 6 March 2018 in Case C-284/16 Slovak Republic v Achmea BV (EU: C: 2018: 158), the Court of Justice of the European Union (“CJEU”) has declared that arbitration clauses in bilateral investment treaties between EU Member States are incompatible with EU law. In a world where there are approximately 200 bilateral investment treaties in force between EU Member States, the consequences of the Court’s decision could prove to be far reaching.

    The Facts

    On 1 January 1992, a bilateral investment treaty (‘the BIT’) was entered into by the Netherlands and (what was then) the Czech and Slovak Federative Republic. As is common, this BIT contained an arbitration clause at Article 8 which provided:

    1. All disputes between one Contracting Party and an investor of the other Contracting Party concerning an investment of the latter shall if, possible, be settled amicably.
    2. Each Contracting Party hereby consents to submit a dispute referred to in paragraph 1 of this Article to an arbitral tribunal, if the dispute has not been settled amicably within a period of six months from the date on which either party to the dispute requested amicable settlement.
    3. The arbitral tribunal referred to in paragraph 2 of this Article will be constituted for each individual case in the following way: each party to the dispute appoints one member of the tribunal and the two members thus appointed shall select a national of a third State as Chairman of the tribunal. Each party to the dispute shall appoint its member of the tribunal within two months, and the Chairman shall be appointed within three months from the date on which the investor has notified the other Contracting Party of his decision to submit the dispute to the arbitral tribunal.
    4. If the appointments have not been made in the abovementioned periods, either party to the dispute may invite the President of the Arbitration Institute of the Chamber of Commerce of Stockholm to make the necessary appointments. If the President is a national of either Contracting Party or if he is otherwise prevented from discharging the said function, the Vice-President shall be invited to make the necessary appointments. If the Vice-President is a national of either Contracting Party or if he too is prevented from discharging the said function, the most senior member of the Arbitration Institute who is not a national of either Contracting Party shall be invited to make the necessary appointments.
    5. The arbitration tribunal shall determine its own procedure applying the United Nations Commission on International Trade Law (UNCITRAL) arbitration rules.
    6. The arbitral tribunal shall decide on the basis of the law, taking into account in particular though not exclusively:
      • the law in force of the Contracting Party concerned;
      • the provisions of this Agreement, and other relevant agreements between the Contracting Parties;
      • the provisions of special agreements relating to the investment;
      • the general principles of international law.
    7. The tribunal takes its decision by majority of votes; such decision shall be final and binding upon the parties to the dispute.’

    In 1993, the Slovak Republic succeeded to the rights and obligations of the former Czech and Slovak Federative Republic under the BIT. On 1 May 2004, it also acceded to the EU.

    In 2004, as part of a reform of its health system, the Slovak Republic opened its internal market to national operators and those of other Member States offering private sickness insurance services. Achmea, an undertaking belonging to a Netherlands insurance group, obtained authorisation as a sickness insurance institution and set up a subsidiary in Slovakia through which it offered sickness insurance on the Slovak Market.

    In 2006, the Slovak Republic had a change of heart and partially reversed the liberalisation of their private sickness insurance market. In particular, a 2007 law prohibited the distribution of profits generated by private sickness insurance activities. Achmea considered that the Slovak laws had caused it damage and had brought arbitration proceedings against the Slovak Republic in October 2008 in Frankfurt, Germany, pursuant to Article 8 of the BIT. German law was applied to the arbitration proceedings.

    In response, the Slovak Republic challenged the jurisdiction of the arbitral tribunal. The State argued that, as a result of its accession to the EU, recourse to an arbitral tribunal provided for in Article 8(2) of the BIT was incompatible with EU law. The Slovak Republic’s challenge failed before the tribunal and subsequently before the German courts at first instance and on appeal.

    A substantive award was therefore sought and obtained, and by an arbitral award of 7 December 2012, the arbitral tribunal ordered Slovak Republic to pay Achmea damages in the sum of €22.1 million.

    The Slovak Republic in response brought an action before the German Courts seeking to set aside the award, failed and appealed on a point of law to the Bundesgerichtshof (Federal Court of Justice, Germany). In their challenge, the Slovak Republic expressed doubts as to the compatibility of the arbitration clause in the BIT with Articles 18, 267 and 344 of the Treaty on the Functioning of the European Union (“TFEU”). The German court did not share those doubts but considered that a reference to the Court was necessary, as the CJEU had not yet ruled on those questions, which were of considerable importance because of the numerous investment treaties still in force between Member States which contain similar arbitration clauses, then 

    Accordingly, the Bundesgerichtshof referred the following questions to the Court:

    1. Does Article 344 TFEU preclude the application of a provision in a bilateral investment protection agreement between Member States of the European Union (a so-called intra-EU BIT) under which an investor of a Contracting State, in the event of a dispute concerning investments in the other Contracting State, may bring proceedings against the latter State before an arbitral tribunal where the investment protection agreement was concluded before one of the Contracting States acceded to the European Union but the arbitral proceedings are not to be brought until after that date?

      If Question 1 is to be answered in the negative:
       
    2. Does Article 267 TFEU preclude the application of such a provision?

      If Questions 1 and 2 are to be answered in the negative:
       
    3. Does the first paragraph of Article 18 TFEU preclude the application of such a provision under the circumstances described in Question 1?’

    The Court’s answer

    The Court of Justice decided to deal only with questions 1 and 2 together, treating them as essentially asking whether Articles 267 and 344 TFEU must be interpreted as precluding a provision in an international agreement concluded between Member States, such as Article 8 of the BIT, under which an investor from one of those Member States may, in the event of a dispute concerning investments in the other Member State, bring proceedings against the latter Member State before an arbitral tribunal whose jurisdiction that Member State has undertaken to accept.

    Contrary to the earlier answers suggested by Advocate-General Wathelet, the Court of Justice decided such arbitration clauses in such BIT treaties were in fact incompatible with EU law. 

    The Court held that the provisions of both Articles 267 and 344 TFEU must be interpreted as precluding a provision in an international agreement concluded between Member States, such as Article 8, under which an investor from one of those Member States may, in the event of a dispute concerning investments in the other Member State, bring proceedings against the latter Member State before an arbitral tribunal whose jurisdiction that Member State has undertaken to accept.

    The Court held the disputes which the arbitral tribunal constituted in Article 8 of the BIT was called on to resolve may to relate to the interpretation or application of EU law: in particular, the provisions concerning the fundamental freedoms, including freedom of establishment and free movement of capital. Yet, any tribunal established under Article 8 of the BIT was not part of the judicial system of either the Netherlands or Slovakia. Indeed, it was precisely the exceptional nature of the tribunal’s jurisdiction compared with that of the courts of those two Member States that was one of the principal reasons for the existence of Article 8.

    In such circumstances, such a tribunal could not be regarded as ‘a court of tribunal of a Member State’ within the meaning of Article 267 TFEU and was not therefore entitled to make a reference to the Court of Justice for a preliminary ruling. 

    Was the effective operation of EU law sufficiently protected in such circumstances?

    The Court decided that it was not. The BIT arbitral tribunal was different from commercial arbitration proceedings which derive from the freely expressed wishes of the parties (for the Court’s earlier cases on them and the indirect supervisory role of the CJEU discussed in Michael McParland, The Rome I Regulation (OUP, 2015), paras [2.30]-[2.43]). In contrast, the BIT system is derived from a treaty by which Member States agreed to remove from the jurisdiction of their own courts, and thus from the system of judicial remedies that Article 19(1) TEU requires them to establish in the field covered by EU law, disputes which may concern the application or interpretation of EU law.

    In such circumstances, the Court considered that the limited review available by the German courts of any German seated BIT tribunal was insufficient to ensure the full effectiveness of EU law. The Court concluded that, apart from the fact that the disputes falling within the jurisdiction of the arbitral tribunal referred to in Article 8 of the BIT may relate to the interpretation both of that agreement and of EU law, the possibility of submitting those disputes to a body which is not part of the judicial system of the EU was provided for by an agreement which was concluded not by the EU but by Member States. Article 8 of the BIT therefore also called into question not only the principle of mutual trust between the Member States but also the preservation of the particular nature of the law established by the Treaties, ensured by the preliminary ruling procedure provided for in Article 267 TFEU, and was therefore not therefore compatible with the principle of sincere cooperation. In those circumstances, Article 8 of the BIT was considered to have “an adverse effect on the autonomy of EU law”.

    Consequences

    The matter will now be returned to the German courts, but the only answer that can logically be given by them is that the original arbitral award is null and void. Where does that leave the investor, and indeed any other investor operating under such a BIT?

    The Court’s decision therefore opens up a whole series of questions that may need to be answered in the future regarding both the role of arbitration in existing BIT treaties (including possibly also matters arising under the Energy Charter Treaty), as well as the status of existing arbitrations. 

    In an age of increasing uncertainty, the Court of Justice as added another factor to challenge existing thinking.

    Michael McParland QC 

    Michael is an international lawyer, with a wide ranging practice in commercial, civil and international advocacy and advice in the courts, arbitral and regulatory tribunals of England and Wales and overseas. He regularly appears in the Commercial Court, Chancery Division and Queen’s Bench Division for a wide variety of domestic and international clients. Michael is admitted to practice in the British Virgin Islands (since 2008) and appears in the Eastern Caribbean Supreme Court and Court of Appeal. He is also a Member of the State Bar of California (since 1990), and has appeared before the Gibraltar Courts and Financial Services Authority.

    Michael has been described by clients in the Chambers UK and the Legal 500 legal directories as “phenomenal”, “incredibly knowledgeable and a tremendous advocate who is a very powerful person to have on your side” , “a thorough, knowledgeable and intelligent advocate”, “incredibly bright and hardworking, a real team player”,  “a really powerful operator” with “complete control of the facts of a case” who “really thinks about things and then steamrollers the opposition”.  He is said to have “real commercial intelligence and an easy client manner”, his advocacy is “effective and persuasive” and his “attention to detail prepares him for all eventualities in the course of litigation”.

    Michael’s practice often includes complex and novel cross-border battles featuring jurisdiction and choice of law disputes, issues over the recognition and enforcement of foreign judgments and orders and the enforcement of English judgments abroad, forum non coveniens challenges, anti-suit and international asset freezing injunctions, as well as sovereign and other immunities from jurisdiction. His work covers a full range of activities and clients, including shipping and maritime claims, civil fraud, aviation; insurance, major cross-border injury claims, company and partnership law matters, including director’s liabilities, shareholder, partnership and joint venture actions, as well  cross-border insolvency battles both in the UK and elsewhere. He has long comparative law experience. Many of his cases involve causes of action governed by foreign laws.

    Michael is a recognised international law expert. He is the author of The Rome I Regulation on the Law Applicable to Contractual Obligations (Oxford University Press, 2015), a leading textbook on private international law that is cited with approval by the Advocate-General in the European Court of Justice and by judges in the Commercial Court. “This is a marvellous book, an absolute must for anyone who is seriously concerned with the private international law of what we once called contracts…”; Michael’s research was “truly amazing” and his book is “… a magnificent achievement, for which all serious commercial lawyers will be in the author’s debt”: Prof. Adrian Briggs QC (Hons), LMCLQ, 2015, p. 597. In Germany, Michael’s book was reviewed as being “in the best tradition of English textbooks…the praise heaped upon the work so far is well deserved… ” and it displays “a very fine and sophisticated humour”: Prof. Peter Mankowski,  Zeitschrift für das Privatrecht der Europäischen Union, GPR 5/ 2015, p. 259. In his foreword, The Hon. Mr Justice Teare describes it as ‘… a book which will be an essential addition to the library of the advisor, the advocate and the academic in their respective searches for the true meaning and effect of the Regulation...’. 

    > view Michael's full profile

    > michael.mcparland@quadrantchambers.com 

  • Jurisdiction in passenger claims arising from problems with connecting flights- Michael McParland QCView More

    Thu, 08 March, 2018

    The European Court’s latest rulings

    On 7 March 2018, the European Court of Justice (“CJEU”) handed down judgment in the three joined cases of flightright GmbH v Air Nostrum, Líneas Aéreas del Mediterráneo SA (C-274/16), Becker v Hainan Airlines Co. Ltd (C-447/16), and Barkan & Others v Air Nostrum, Líneas Aéreas del Mediterráneo SA (C-448/16). The Court’s ruling deals with some key questions about the relationship between the exercise of jurisdiction over air carriers by national courts under the Brussels I Regulation and claims by air passengers for delay and / or denial of boarding brought under Regulation (EC) 261/2004 arising from problems with connecting flights.

    The Court ruled that:

    The concept of “matters relating to a contract” found in the special jurisdiction provisions of Article 5(1) (a) of the Brussels I Regulation (44/2001) covered a claim brought by air passengers for compensation for a long delay of a connecting flight that was brought under Regulation (EC) 261/2004 against an operating air carrier with which the passenger concerned does not have contractual relations. The Court reasoned that, while the rule of special jurisdiction for matters relating to contract does not require the conclusion of a contract between two persons, it nevertheless presupposes the existence of a legal obligation freely consented to by one person in respect of another and on which the claimant’s action is based. These rules of special jurisdiction in contract are based on the cause of action not the identity of the parties. In that regard, the Court noted that Article 3(5) of Regulation 261/2004 provides that were an operating air carrier that has no contract with the passenger performs obligations under that regulation, it is regarded as doing so on behalf of the person having a contract with that passenger. Therefore, that carrier must be regarded as fulfilling the freely consented obligations vis-à-vis the contracting partner of the passengers concerned. Those obligations arise under the contract for the carriage by air.

    In the case of a dispute concerning a connecting flight, the concept of the “place of performance” for the purpose of the special jurisdiction provisions found in Article 5(1) (b) of the Brussels I Regulation (44/2001) and now Article 7(1) (b) of the Brussels I (Recast) Regulation (1215/2012) must be interpreted as meaning that the “place of performance” of that flight is the place of arrival on the second leg. This is so even where the carriage on both flights was operated by two different air carriers and the action for compensation for the long delay of that connecting flight under Regulation (EC) No. 261/2004 is based on an irregularity which took place on the first of those flights; a leg that was operated by the air carrier with which the passengers concerned did not have contractual relations. In reaching their conclusion, the Court reaffirmed their previous decision in Rehder (C-204/08) in relation to a direct flight operated by the contracting partner of the passenger concerned, which held that a claimant seeking compensation could choose the court in whose territorial jurisdiction either the place of departure or the place of arrival of the aircraft took place. The Court also considered that the Rehder principles applied mutatis mutandis to a booked connecting flight consisting of two legs. But here the Court’s conclusion was that a single booking for the entire journey establishes the obligation for an air carrier to carry a passenger from point A to point C, and the Court considered that such a carriage operation constitutes a service of which one of the principal places of provision is at point C. It is that location only which meets the requirements of legal certainty.

    The second ident of Article 5(1) (b) of the Brussels I Regulation (which provided that “(b) for the purpose of this provision and unless otherwise agreed, the place of performance of the obligation in question shall be:… -- in the case of provision of services, the place in a Member State where, under the contract, the services were provided or should have been provided”) must be interpreted as not applying to a defendant domiciled in a Third State. Any questions of jurisdiction over such a defendant carrier which is not domiciled in the EU is to be determined by the national law of the Member State and not by the Brussels I Regulation.

    Michael McParland QC

    Michael is an international lawyer, with a wide ranging practice in commercial, civil and international advocacy and advice in the courts, arbitral and regulatory tribunals of England and Wales and overseas.  He regularly appears in the Commercial Court, Chancery Division and Queen’s Bench Division for a wide variety of domestic and international clients. Michael is admitted to practice in the British Virgin Islands (since 2008) and appears in the Eastern Caribbean Supreme Court and Court of Appeal. He is also a Member of the State Bar of California (since 1990), and has appeared before the Gibraltar Courts and Financial Services Authority.

    Michael has been described by clients in the Chambers UK and the Legal 500 legal directories as “phenomenal”, “incredibly knowledgeable and a tremendous advocate who is a very powerful person to have on your side” , “a thorough, knowledgeable and intelligent advocate”, “incredibly bright and hardworking, a real team player”,  “a really powerful operator” with “complete control of the facts of a case” who “really thinks about things and then steamrollers the opposition”.  He is said to have “real commercial intelligence and an easy client manner”, his advocacy is “effective and persuasive” and his “attention to detail prepares him for all eventualities in the course of litigation”.

    Michael’s practice often includes complex and novel cross-border battles featuring jurisdiction and choice of law disputes, issues over the recognition and enforcement of foreign judgments and orders and the enforcement of English judgments abroad, forum non coveniens challenges, anti-suit and international asset freezing injunctions, as well as sovereign and other immunities from jurisdiction. His work covers a full range of activities and clients, including shipping and maritime claims, civil fraud, aviation; insurance, major cross-border injury claims, company and partnership law matters, including director’s liabilities, shareholder, partnership and joint venture actions, as well  cross-border insolvency battles both in the UK and elsewhere. He has long comparative law experience. Many of his cases involve causes of action governed by foreign laws.

    Michael is a recognised international law expert. He is the author of The Rome I Regulation on the Law Applicable to Contractual Obligations (Oxford University Press, 2015), a leading textbook on private international law that is cited with approval by the Advocate-General in the European Court of Justice and by judges in the Commercial Court. “This is a marvellous book, an absolute must for anyone who is seriously concerned with the private international law of what we once called contracts…”; Michael’s research was “truly amazing” and his book is “… a magnificent achievement, for which all serious commercial lawyers will be in the author’s debt”: Prof. Adrian Briggs QC (Hons), LMCLQ, 2015, p. 597. In Germany, Michael’s book was reviewed as being “in the best tradition of English textbooks…the praise heaped upon the work so far is well deserved… ” and it displays “a very fine and sophisticated humour”: Prof. Peter Mankowski,  Zeitschrift für das Privatrecht der Europäischen Union, GPR 5/ 2015, p. 259. In his foreword, The Hon. Mr Justice Teare describes it as ‘… a book which will be an essential addition to the library of the advisor, the advocate and the academic in their respective searches for the true meaning and effect of the Regulation...’. 

    > view Michael's full profile

    michael.mcparland@quadrantchambers.com

  • Court Clarifies Construction of “Consent not to be Unreasonably Withheld” - Robert-Jan Temmink QCView More

    Fri, 02 March, 2018

    Crowther & Crowther v Arbuthnot Latham & Co Ltd

    In a considered judgment by HHJ Waksman QC on 1 March 2018 the Court determined a question of contractual construction. The relevant clause was in a facility agreement between a bank and its customer and provided that a property could be sold, subject to the bank’s consent (such consent not to be unreasonably withheld).

    At the time the clause was agreed the property, which was held as s security for a loan from the bank, was not worth as much as the loan. An offer was made by an independent third party to purchase the property at a fair market value, but the bank refused its consent to the sale. The bank wished to make it a condition of sale that the borrower provided alternative security for the shortfall between the value of the property and the value of the loan. The borrower contended that the bank was acting unreasonably - there was no evidence that the property would be worth any more at the termination of the loan period; the purchase price was at a fair market value; and the bank was really seeking an uncovenanted-for advantage.

    The Court agreed with the borrower that the clause was to be construed according to the principles in a landlord and tenant case: Mount Eden v Straudley Investments (and the other earlier cases referred to in that case) rather than in accordance with the principles in Barclays Bank v Unicredit - which considered a different sort of clause entirely.

    Robert-Jan Temmink QC acted for the borrower.

     

    Robert-Jan Temmink QC

    Robert-Jan Temmink QC is widely-recognised as a talented advocate and is listed as a leading practitioner in the legal directories.   Robert’s practice is broad, ranging from financial services, fraud and insolvency to multi-jurisdictional issues in insolvency and commercial law often in Chambers’ core areas of aviation, construction, energy and shipping.  Robert is a registered practitioner at the Dubai International Financial Centre Courts and appears there frequently.  He is called to the Bar in Northern Ireland and as a Foreign Legal Consultant in the State of New York.  He is often asked to work on cases in the Caribbean arising out of contractual, commercial or chancery disputes.  Robert is a Fellow of the Chartered Institute of Arbitrators and is a registered arbitrator at all of the large international arbitral institutions between London and Hong Kong. He is recommended as a leading silk for commercial dispute resolution, aviation and international arbitration. He is described as "...An extremely good advocate, who is very good at dealing with difficult situations and anxious clients. His written work is very strong and he brings clarity to cases..."

    > View Robert's full Profile

    > robert.temmink@quadratnchambers.com

  • Judgment: Al Khattiya v. Jag Laadki, The “Jag Pooja” [2018] EWHC 389 (Admlty)View More

    Thu, 01 March, 2018

    The Admiralty Court has handed down judgment in Al Khattiya v. Jag Laadki, The “Jag Pooja” [2018] EWHC 389 (Admlty), rejecting an application by the defendant owners of the Jag Laadki for a stay of English proceedings on the grounds of forum non conveniens and declining to set aside an anti-suit injunction. Robert Thomas QC, Thomas Macey-Dare QC and Benjamin Coffer from Quadrant Chambers appeared in the case.

    The application arose out of a collision between the Al Khattiya and the Jag Laadki in UAE territorial waters. The owners of Al Khattiya brought in rem proceedings in the English Admiralty Court claiming damages, and founded jurisdiction by serving them on a sister ship of the Jag Laadki, the Jag Pooja. Shortly afterwards, the owners of the Jag Laadki commenced proceedings in Fujairah claiming damages and a declaration of non-liability. The Al Khattiya owners sought and obtained an anti-suit injunction from the English court to restrain the Fujairah proceedings on the basis that they were hopeless and thus vexatious and oppressive. The owners of the Jag Laadki subsequently admitted liability for the collision. This was the hearing of an application by the Jag Laadki owners to stay the English claim, and to set aside the anti-suit injunction.

    The case is significant in two major respects. First, the judgment contains an important analysis of the relevance of the place where the tort occurs in considering the appropriate forum in forum non conveniens cases. Mr Justice Bryan, sitting in the Admiralty Court, considered in detail the line of cases deriving from The Albaforth [1984] 2 Lloyd’s Rep 91 and the application of those authorities to a claim arising out of a collision in territorial waters. Declining to stay the English claim, he rejected the argument of the Jag Laadki owners that the location of the collision was, in and of itself, a weighty factor in favour of the Courts of Fujairah as the natural forum, giving more weight to other factors such as the language of the evidence and the location of the witnesses which made England the natural forum.

    The second significant aspect of the decision concerns the nature of the connection with England required before the court will grant an anti-suit injunction restraining foreign proceedings on vexatious and oppressive grounds. In refusing to set aside the anti-suit injunction, the judge held that even if England was not the natural forum for the foreign proceedings themselves, it was sufficient that England was the natural forum for determining whether the foreign proceedings were vexatious and/or oppressive, following Thomas J in Shell International Petroleum v Coral Oil [1999] 2 Lloyd’s Rep 606.

    The judge also rejected an argument that substantial justice was not available to the Qatari owners of Al Khattiya in Fujairah, as a result of the diplomatic dispute between the UAE and Qatar, holding that the English court would require “cogent evidence” before reaching such a conclusion.

    A copy of the judgment can be found here

     

    Robert Thomas QC

    "...Very quick, friendly and an excellent communicator."... "Very smart and someone who gets fully involved in the case..." (Chambers UK, 2018)

    > view Robert's profile

    Thomas Macey-Dare QC

    "He was spectacular. The judge was impressed by his knowledge of technical matters. (Chambers UK, 2018)

    > View Tom's profile

    Benjamin Coffer

    "He is truly the standout rising star for shipping and trading disputes work." (Chambers UK, 2018)

    > view Ben's profile

  • “Sanderson” and “Bullock” Orders - Nevil PhillipsView More

    Tue, 27 February, 2018

    What are they?

    1. "Sanderson" and "Bullock" Orders are each a species of costs order which may be appropriate in circumstances in which a claimant proceeds against multiple defendants. They derive from decisions made at the turn of the 20th Century: Sanderson v. Blyth Theatre Company Limited [1903] 2 KB 533, and Bullock v. London General Omnibus Company [1907] 1 KB 264.

    In what circumstances are they relevant?

    • Thus, the orders are relevant where, in the same proceedings, a claimant (C) sues two defendants (D1 & D2) and succeeds against only one of them (e.g. D1).
    • In that scenario, two parties have been successful (C, as against D1; and D2, as against C), and two parties have been unsuccessful (C, as against D2; and D1, as against C). Thus, in simple terms, C is both a receiving party (from D1) and a paying party (to D2).
    •  The general rule as to costs (see CPR 44.2(2)(a)) is that "the unsuccessful party will be ordered to pay the costs of the successful party".
    • In the scenario considered in para 3 above, a straightforward application of the general rule as to costs would have the consequence that C pays D2’s costs (the former having failed in its claim against the latter), and that D1 pays C’s costs (the latter having succeeded against the former).
    • However, the Court has a discretion "as to whether costs are payable by one party to another" (see CPR 44.2(1)(a)), and as to whether to "make a different order" from the general rule (see CPR 44.2.(2)(b)).
    • It is in this regard that the Court may consider making either a "Sanderson" or a "Bullock" Order. Both are intended to streamline the costs consequences of proceedings against multiple defendants, and to avoid the complications which may arise from an application of the general rule as to costs.
    • However, there is no compulsion to make either order, and it is a matter of judicial discretion as to whether any such order is made: Hong v A & R Brown Ltd [1948] 1 K.B. 515.

    What is their effect?

    A "Sanderson" Order

    • A "Sanderson" Order is simpler than a Bullock Order. It has the effect that D2 (as the successful defendant), where sued in the alternative to another defendant (D1), recovers its costs directly from its unsuccessful co-defendant (i.e. D1) rather than from the claimant.
    • Of a "Sanderson" Order, in King v Zurich Insurance Company [2002] EWCA Civ 598, Keane LJ stated "The judge had to deal with a not uncommon situation where a claimant was unsure which of the defendants would be liable for his injury and where – in the event – he succeeded against one but failed against the other. In the days before the Civil Procedure Rules came into effect, this situation would often be met by a Bullock order… ordering the plaintiff to pay the successful defendant's costs but ordering the unsuccessful defendant to pay those costs over to the plaintiff."

    A "Bullock" Order

    • A "Bullock" Order is a variation on the same theme: D2 (as the successful defendant), where sued in the alternative to another defendant (D1), recovers its costs from the claimant (C); and C then recovers the value of D2's costs from D1 (as the unsuccessful Defendant) as part of C's own costs of the claim.
    • Of a "Bullock" Order, in King v Zurich Insurance Company Keane LJ added "The judge had to deal with a not uncommon situation where a claimant was unsure which of the defendants would be liable for his injury and where – in the event – he succeeded against one but failed against the other. In the days before the Civil Procedure Rules came into effect, this situation would often be met by a Bullock order… ordering the plaintiff to pay the successful defendant's costs but ordering the unsuccessful defendant to pay those costs over to the plaintiff."

    In what sort of cases are they made?

    • The orders tend to be made in circumstances where proceedings are begun against multiple defendants because a claimant is unsure (at the time of commencing) of which defendant to sue, and where a time-bar is looming (meaning that the claimant is reluctant to take the chance of suing the wrong defendant, only to find that its claim against the correct defendant is time-barred when suit is finally commenced against the latter).
    • As a result, the orders occur mostly in tort cases. There is much less scope for them in contractual disputes (in which, by virtue of the bilateral nature of the relationship, there is rarely uncertainty as to the identity of the correct defendant and, accordingly, seldom reason for a second defendant to be party to the claim).
    • Indeed, it has been suggested that the orders are appropriate only where the reason for the claimant commencing against two defendants is that it did not know which party was properly at fault: see Whitehead v Searle [2007] EWHC 2046 (QB). However, this has very recently been called into question at first instance – see below.
    • "Sanderson" Orders are more commonly made in cased where the claimant enjoys Legal Aid (because, in the situation described in para 3 above, they remove the need for the State to pay the costs of the successful defendant in the first instance).
    • Where a claimant fails against both defendants (even where D1 blames D2 for causing the loss in respect of which C sues both), there is, of course, no scope for a "Sanderson" or "Bullock" Order: see Beoco Ltd v Alfa Laval Co Ltd [1995] 1 Q.B. 137; McGlinn v Waltham Contractors Ltd [2007] EWHC 698.

    What is their rationale?

    • The Court of Appeal explained in Irvine v Commissioner of Police for the Metropolis [2005] EWCA Civ 129 that the rationale for the discretion to make "Sanderson" or "Bullock" Orders is the scope to avoid injustice to a claimant in the circumstances described above, i.e. where C does not know which of two or more defendants should be sued for a wrong done, and faces the unpalatable prospect of depleting or exhausting any recovery in damages from D1 by reason of the effect of an order for costs against C in respect of the (unsuccessful or ultimately superfluous) action against D2.
    • However, it has also been acknowledged that the discretion must be exercised with care, given that its exercise has the effect of making D1 liable for the costs of more than just the claimant (and, therefore, more than just one party): see again Irvine v Commissioner of Police for the Metropolis.

    What justifies the exercise of the discretion to make them?

    • Where a claimant succeeds against one of the defendants (in contrast to the position referred to in para 15 above), earlier authorities suggested that a "Sanderson" or "Bullock" Order might more readily be made in circumstances where it could be shown that one defendant had blamed the other for the claimant's loss. In that event, the claimant could argue with force that it was right to commence proceedings against both defendants in order to avoid the risk that a claim against D1 failed and a claim against D2 became time-barred in the interim.
    • However, more recent decisions have suggested that there is no certainty in this assumption and that the exercise of the discretion in favour of the orders is more unpredictable.
    • As it is, the touchstone of the exercise of the discretion is the need to have regard to the Overriding Objective in CPR 1, and the need to comply with the specific provisions of CPR 44.2: see again Irvine v Commissioner of Police for the Metropolis.
    • The effect of this is that there are no rigid parameters which govern the exercise of the discretion. Rather, its exercise must be guided by regard to a variety of factors which must be weighed before the decision is made to render one defendant liable for the costs of another.
    • There are two leading authorities which now provide the most valuable guidance: Irvine v Commissioner of Police for the Metropolis (supra), and Moon v Garrett [2006] EWCA Civ 1121. Other authorities tend merely to illustrate the more nuanced exercise of the discretion in practice.
    • In Irvine v Commissioner of Police for the Metropolis it was held by the Court of Appeal that, where an action founded on either contract or tort against two defendants is successful against one and unsuccessful against the other:
      1. The Court has a discretion to order the unsuccessful defendant to pay the successful defendant’s costs.

      2. This may be done in one of two ways: either (i) by way of a "Sanderson" Order (ordering the unsuccessful defendant to pay costs directly to the successful defendant), or (ii) by way of a "Bullock" Order (ordering the claimant to pay the successful defendant’s costs, and then permitting the claimant to add them to the costs ordered to be paid to him by the unsuccessful defendant).

      3. However, neither order is appropriate in favour of a claimant who has sued more than one defendant where the causes of action against each are quite distinct, or where the respective claims are not alternative, or are based on quite distinct sets of facts.

      4. The matters which were relevant to (although not exhaustively determinative of) the exercise of the discretion included (i) most importantly, whether it had been reasonable for the claimant to pursue the successful defendant; (ii) the connection (if any) between the causes of action advanced against the respective defendants); (iii) whether the claims were made in the alternative (that being the scenario at which a "Sanderson" Order is primarily directed; although the fact that the claims were not truly alternatives does not preclude the court from ordering D1 to pay D2’s costs); (iv) the success or otherwise of the claimant; and (v) whether one defendant had blamed another.

      5. The Judge had been correct to state "It does seem to me that this is a case where, as in all cases, parties and their legal teams have to take a careful and close look at the basis on which they seek to bring in another party to proceedings and to make a judgment for themselves on the basis of the information available to them as to whether or not they are likely to succeed in claims against those parties. They cannot expect, simply because one party seeks to lay the blame at the door of another, that they can necessarily pursue that other party at the expense of the one who is pointing the finger. Parties must give careful thought to how they are going to pursue their claims."

      6. Accordingly, the trial judge (where she had found to the effect that, although the claimant had succeeded against the first defendant, he had failed to establish a sustainable claim against the second defendant, and in relation to the third defendant it was only sued in the alternative 15 months after the proceedings had started: the claimant had produced no cogent evidence in support of his claim against it) had been entitled to refuse a "Sanderson Order" and to conclude that, although the first defendant should pay the costs of the claimant, the claimant should pay the costs of the two defendants against which his claims in negligence had failed.

    • In Moon v Garrett, the claimant, in the course of delivering concrete blocks to the first defendant’s premises, fell and rolled into a pit. The claimant brought his claim both against the first defendant and his own employers, but only succeeded against the first defendant. The Judge made a "Bullock" Order against D2 and D3 in favour of D1, despite D1's unreasonable denial of liability and the fact that he blamed C's employers (D2 and D3) in correspondence. The Court of Appeal (in upholding the Judge) held that, where an action founded in tort against two defendants is successful against one and unsuccessful against the other:

      1. There is no hard and fast rule as to when it is appropriate to make a "Sanderson" or a "Bullock" order as to costs.

      2. In making a "Sanderson" Order, the judge took into account the way in which the first defendant had responded to the claim, both in laying blame on the employers and in making a threat that he was asset-less.

      3. In these circumstances, it would be hard if the claimant ended up paying the costs of the defendant employer against whom he had not succeeded.

    • Thus, as Waller LJ observed:

      "It seems to me that ... there are no hard and fast rules as to when it is appropriate to made a Bullock or Sanderson Order. The Court takes into account the fact that, if a Claimant has behaved reasonably in suing two Defendants, it would be harsh if he ends up paying the costs of the Defendant against whom he has not succeeded. Equally, if it was not reasonable to join one Defendant because the cause of action was practically unsustainable, it would be unjust to make a Co-Defendant pay those Defendants’ costs. Those costs should be paid by a Claimant. It will always be a factor where one Defendant has sought to blame another.

      The fact that cases were in the alternative so far as they are made against two Defendants would be material, but the fact that claims were not truly alternative does not mean that the Court does not have the power to order one Defendant to pay the costs of another. The question of who should pay whose costs is peculiarly one for the discretion of the Trial Judge."

    • These decisions suggest that the dominant consideration is whether the decision to commence against D2 was reasonable.

    • If the decision was not reasonable, C cannot seek to pass to D1 the burden in costs payable to D2 by C.

    Where the decision was reasonable, that will not of itself justify an order that D1 should pay D2’s costs, either by way of a "Sanderson" Order or a "Bullock" Order.

    • Indeed, even if the decision to proceed against D2 was reasonable, the court will weigh in the balance the position of D1. If D1 has not caused or contributed to the decision to commence against D2, that will weigh against a "Sanderson" or "Bullock" Order.

    • However, it has been suggested in New Zealand that, by the same token, the latter principle operates in reverse: see Lane Group Ltd v D I & L Paterson Ltd [2000] 1 N.Z.L.R. 129.

    • Likewise, where (i) the claimant recovers from D1 substantially less than the amount originally claimed, and (ii) that creates a risk that the costs recoverable by C from D1 will be less than those payable by C to D2, that risk may justify a refusal to make either a "Sanderson" or "Bullock" Order: see again Whitehead v Searle.

    Are there any more recent illustrations of them being made in practice?

    • There are recent examples of the discretion to make "Sanderson" and "Bullock" Orders being invoked.
    • In Dixon v Blindley Heath Investments Ltd [2016] EWCA Civ 548, the Court of Appeal observed that the fact that the claimant was not suing two or more defendants for the same loss was not a powerful factor against the making of an order. It echoed that it will be relevant (but not determinative) that one of two or more defendants sued has blamed the other. It further recorded that the fact that the claimant's case against one group of defendants (in effect, for rescission and/or damages) was inconsistent with its claims against another group of defendants (seeking registration of the transfer of shares) was not necessarily "a disqualifying feature".

    • In Jabang v Wadman and Ors [2017] EWHC 1993 (QB), the High Court determined (contrary to what was suggested at first instance in Whitehead v Searle – see para 13 above) that "Bullock" Orders are not limited to those cases where the claimant does not know which party is at fault.

    • There, C succeeded in his claim against the D2, but not against the D3, D4 and D5. He accepted that he should be ordered to pay the costs of D3 and D4, but argued for a "Bullock" Order in his favour (mean that D2 would indemnify him for his liability to pay those costs to D3 and D4).

    • D2 submitted that it would not be fair to make a "Bullock" Order, contending that the case was not one in which C had to sue more than one defendant because he was unsure which of them had caused his loss (and relying upon what was stated in Whitehead v Searle – see para 13 above).

    • However, Nicol J identified "a number of difficulties with that submission".

    • First, the underlying judgment in Whitehead v Searle was reversed by the Court of Appeal and, thus, there was no reason for the Court of Appeal to review the statement of principle. That did not mean that such statement was correct.

    • Second, the statement of principle in Whitehead v Searle "sits uncomfortably" with what Waller LJ stated in Moon v Garrett (see para 26(4) above).

    • Third, in Whitehead v Searle the Court was in any event dealing with a situation where both defendants succeeded in defending a large part of the claim, and that was not the case in Jabang v Wadman.

    • Nicol J therefore concluded that a "Bullock" Order was appropriate in (or despite) circumstances where (i) the claims against D3 and D4 were not unreasonable, (ii) they were not alternative claims, (iii) no one defendant was blaming another, but (iv) if D2 had accepted his responsibility at the outset, there would have been no claim brought against the other defendants. He stated that "Weighing all the factors, it seems to me to be fair, right and consistent with the overriding objective that the second defendant should ultimately bear the costs of the third and fourth defendants."

    Can they be made in arbitration proceedings?

    • There is no practical scope for "Sanderson" or "Bullock" Orders in ordinary commercial (i.e. non-statutory or court-operated arbitration proceedings). That is because the jurisdiction of commercial arbitrators (as to costs, and otherwise) is contractual in its origin and scope. Thus, there is no legal basis for an arbitral tribunal to make costs affecting any party beyond those who are bound by the contractual agreement to arbitrate.
    • It is for that reason that, ordinarily, costs as between parties to "string" arbitrations are only recoverable as damages, and according to the ordinary principles of causation and remoteness which govern the same: see The Antaios [1981] 2 Lloyd’s Rep 284; The Vakis T [2004] 2 Lloyd’s Rep 465; Occidental Chartering Inc v Progress Bulk Carriers Ltd [2012] EWHC 3515 (Comm). There is, therefore, ordinarily no jurisdiction (and, ergo, no discretion) on the part of any arbitral tribunal to order one respondent to bear the costs of another (directly or indirectly).

     

    Nevil Phillips

    Nevil Phillips is among the most highly-regarded advocates at the Commercial Bar. He has consistently been listed for many years as a first-ranked Leading Junior in Commodities, Trade & Customs and shipping by The Legal 500, Legal 500 Asia Pacific, Chambers UK, Chambers Global, Who's Who Legal, and Best Lawyers where he has been variously cited as:

    "Absolutely top-notch"

    "User-friendly, innovative, proactive, and the best advocate money can buy."

    "Excellent. Extremely approachable and very bright"

    "an outstanding advocate, incredibly fast thinking and a real problem solver"

    "a very polished advocate, who gets results through his preparation and through his clear and compelling presentation of the client's case".

    Nevil's practice envelops all aspects of commercial and shipping advisory and advocacy work, encompassing the broadest spectrum of contractual, international trade, commodities, shipping, maritime, energy, insurance, reinsurance, banking, and jurisdictional disputes and associated areas and remedies. He appears regularly in commercial arbitration (both domestic and international, with experience before a wide variety of arbitral institutions, bodies and trade associations, including LMAA, GMAA, LCIA, ICC and associated bodies), the Commercial Court, and the appellate courts.

    > Nevil's full profile

    > nevil.phillips@quadrantchambers.com

  • Arguing ‘retroactive deprivation’ of arbitral jurisdiction ...and how not to make your s67 challengeView More

    Mon, 26 February, 2018

    Simon Rainey QC

    Overview

    Close upon the heels of the decision in A v B [2017] EWHC 3417 (Comm) (see Commencing LCIA Arbitration: The Perils of Non-Observance of the LCIA Rules) which considered when a challenge to arbitral jurisdiction must be made in an arbitration under the rules of the LCIA and considered the impact of section 73 of the Arbitration Act 1996 upon the interpretation of the relevant LCIA provision, the recent Commercial Court decision in Exportadora de Sal SA de CV v Corretje Maritimo Sud-American Inc [2018] EWHC 224 (Comm) emphasises the need to act swiftly in raising an objection to substantive jurisdiction under section 67.

    The context was a highly unusual one: namely, where arbitral jurisdiction existed when the arbitration was commenced under an admitted contract and arbitration agreement but where it was argued that it had been removed subsequently by a supervening governmental act which declared the contract (and arbitration agreement) null and void ab initio.

    Does that argument give rise to a section 67 challenge to jurisdiction at all? If so, how do sections 31 and 73 apply to it?

    The decision gives stringent guidance on the test under section 73(1) of the Arbitration Act 1996 which is to be applied where a party  contends that it “did not know and could not with reasonable diligence have discovered the grounds for the objection” to jurisdiction.

    Further, the Court’s decision is important in emphasising that on any section 67 (or indeed section 68) challenge, the purpose of the witness statement is to set out evidence and not argument. The habit, into which most practitioners have fallen, of setting out one’s case in full in the witness statement was disapproved by the Court. This reflects the Commercial Court’s increasing insistence upon the proper (and therefore much more limited) deployment of factual witness statements.

    The Factual Background to the Section 67 Challenge

    Exportadora de Sal is a Mexican salt mining company owned 51% by the Mexican Government and 49% by Mitsubishi Corporation. By reason of the majority state ownership, it was viewed in Mexican law as a state entity and was therefore subject to Mexican administrative law governing the tender and contracting procedures contained in a local Mexican law (the Law of Procurement, Leasing and Public Sector Charges).

    Exportadora contracted as buyer with a shipbuilder, Corretje Maritimo, for the construction and sale of a specialist salt barge on 3rd July 2014. The shipbuilding contract and arbitration agreement were governed by English law.

    The builder (as the arbitrator held) lawfully terminated the contract on 27th May 2015 leaving a substantial instalment owing from Exportadora. The builder commenced arbitration against the buyer in August 2015.

    Initially the buyer took no part in the arbitration. However, a hearing date having been fixed by the arbitrator for September 2016, in July 2016 and shortly before the hearing the buyer appointed solicitors who came on the record stating that they would “contest both liability and quantum (and possibly jurisdiction)”. Jurisdiction as a separate issue was not then pursued but other defences (including one of illegality) were raised. The hearing of liability and quantum was adjourned to 5th December 2016.

    Separately, Exportadora’s Órgano Interno de Control (OIC) carried out an audit on 10th August 2016 to ascertain whether Exportadora had complied with the requirements of the Mexican law in question. The OIC audit led to various interventions by the OIC, culminating in a decree by the OIC on 16th November 2016 that the tender process had been irregular and that the award of the contract to the builder was and had been a nullity. Exportadora issued an ‘early termination declaration’ in respect of the contract, as directed by the OIC.

    Surprisingly, Exportadora than participated fully in the December 2016 hearing on the merits. Its counsel, taxed by the tribunal with the need to explain matters if it was being alleged that the arbitral process was irregular in some way by reason of the OIC ruling, confirmed that this was “a separate matter” and recognised the validity of the arbitral process.

    Shortly after the hearing, on 22nd December, Exportadora then raised the issue and made a jurisdictional challenge. The arbitrator allowed further submissions and then rejected the challenge as raised too late.

    Exportadora lost the arbitration.

    It then commenced a section 67 challenge, contending that the effect of the OIC decree under Mexican law was to deprive the tender of validity, with the result that it did not have power or capacity to enter into the contract and that as from 16th November 2016 the contract was null and void.

    The three points dealt with by the Court

    (1) ‘Retroactive deprivation’: a matter going to substantive jurisdiction at all?

    While there was contested evidence of Mexican law as to the effect of the OIC decree, the highest that Exportadora could put its case was that, while the arbitrator had not lacked substantive jurisdiction at the outset of the proceedings, “this became so after the OIC Resolution” and that from that time on the arbitrator did not have substantive jurisdiction to decide any of the matters in the arbitration.

    Andrew Baker J. held that the section 67 claim failed at the first hurdle, because the effect of Exportadora’s Mexican law argument as to ‘invalidity’, even if correct, was a matter going to the subsequent discharge of an existing contract and not a matter of initial and original capacity to contract and therefore arbitral jurisdiction.

    As he put it at [39]: “A doctrine that accepts and acknowledges that a valid and binding contract was concluded, including a valid and binding arbitration agreement, but requires by reason of the act of an administrative body over two years later that it thereafter be treated as if it had never been validly concluded is, by nature, not a doctrine concerning capacity to contract.” Accordingly a ‘retroactive deprivation’ of authority to contract could not impugn the arbitrator’s substantive jurisdiction to make the award.

    (2) How does Section 31 apply to a ‘retroactive deprivation’ case?

    Section 31 deals with objections to the substantive jurisdiction of the arbitral tribunal at two stages: (a) under section 31(1), lack of jurisdiction “at the outset of the [arbitral] proceedings” and (b) under section 31(2), “during the course of those proceedings” where the tribunal “is exceeding its substantive jurisdiction”.

    Objectively, Exportadora was to be taken to know that it was contracting with the builder in contravention of Mexican law and (if true) in an unauthorised manner. Accordingly, any objection on that ground, even if it went to jurisdiction, was one which had to have been raised by Exportadora before taking any step in the arbitration. Under section 31(1) of the 1996 Act “must be raised by a party not later than the time he takes the first step in the proceedings to contest the merits”. The time for raising that jurisdictional issue was long past.

    For this reason, Exportadora had to put its case as one founded on the OIC decree and on the contention that that decree, as from 16th November 2016, deprived the arbitrator of substantive jurisdiction. In other words, it was a matter which arose “during the course of the arbitral proceedings”. In these circumstances, Exportadora sought to put itself within the “as soon as possible” requirement under section 31(2) (: “Any objection … must be made as soon as possible after the matter alleged to be beyond its jurisdiction is raised”), arguing that its raising of the point on 22nd December shortly after the hearing and before the award met this requirement.

    The builder argued that section 31(2) was inapplicable and that only section 73(1) applied, which thereby imposed a more exacting timescale for raising an objection as to jurisdiction than simply “as soon as possible”, namely “forthwith”. It was argued that continuing to act as arbitrator where the arbitrator had jurisdiction initially but then has lost it was not a case of “exceeding” jurisdiction as such, and that section 31(2) deals only with going beyond a jurisdiction which the tribunal has, not a case of subsequent loss of all jurisdiction.

    It might be said that this was a hair-splitting argument in that it sought to distinguish “forthwith” from “as soon as possible”. However, the language of section 31(2) does not sit very happily with a “retroactive deprivation of all jurisdiction” argument. This is not surprising since the framers of the Model Law and then the 1996 Act were unlikely to have such a possibility in mind as a bar to arbitral jurisdiction.

    The Judge approached the matter on the robust basis that section 31 should be read so as to avoid any gap in coverage, stating at [45]: “That may make the case unusual. But if it were nonetheless viable, I find it entirely natural to describe an arbitrator who continues to act after his temporally limited jurisdiction has expired as exceeding his jurisdiction. This reading of section 31(2) avoids a lacuna in section 31 that seems to me unlikely to have been intended.”

    (3) Section 73(1) and the exception for late challenges to jurisdiction

    Section 73(1) bars a late objection “unless [the party] shows that, at the time he took part or continued to take part in the proceedings, he did not know and could not with reasonable diligence have discovered the grounds for the objection”.

    The obvious problem for Exportadora was that it had known about the matters on which it relied since, at the latest, 16th November 2016 when the OIC made its decree of nullity or, at the earliest, August 2016 when the OIC carried out its audit and instituted its ‘intervention’ for breaches of the Mexican law in respect of tender procedures. It then took part in the December hearing.

    In those circumstances, there was little doubt as to the outcome.

    But the Court usefully stressed that given the importance of jurisdiction, a party had to act very quickly indeed, and within a timescale of days not weeks, treating the investigation of any potential jurisdictional argument as one of “the highest priority”. The Judge explained the rational for this as follows at [48]: “The general context in which that question of reasonable diligence falls to be assessed is that when faced with a legal claim asserted through arbitration, logically and practically the first question any respondent can fairly be expected to consider and keep under review throughout is whether it accepts the validity of the process.”

    The Court held that Exportadora should have taken “urgent advice” as soon as it learnt of the OIC decree and “treated with appropriate priority” should have objected within one week. The Court would have gone further if necessary and said that with the background since August, it should have objected “within a working day or two” of receiving the decree.

    Witness Statements in section 67 (and section 68) challenges: the Correct Approach?

    The general guidance to witness statements in the Commercial Court Guide (at Part H1.1(a) of the 10th Edition) is that “the function of a witness statement is to set out in writing the evidence in chief of the witness”. The Court is increasingly hard on statements that argue the case or recite documentation with strict page limits.

    No specific guidance on witness statements is given in Part O, dealing with Arbitration Claims, (beyond in relation to section 68 challenges, that these “must be supported by evidence of the circumstances on which the claimant relies as giving rise to the irregularity complained of and the nature of the injustice which has been or will be caused to the claimant”: O8.4). Generally the place to argue the case is in the Claim Form which “must contain, among other things, a concise statement of the remedy claimed and, if an award is challenged, the grounds for that challenge”: O3.1.

    However, as the Judge noted in this case, on section 67 (and 68) applications, a practice has grown up of serving a very full witness statement with the Arbitration Claim Form. He saw as this as having arisen because of “the perceived convenience in a section 67 claim of setting out the claimant's detailed case as to the material facts, with explanatory comment or an outline of the proposed argument, in a single, main supporting witness statement from the claimant's solicitor.” [25].

    Andrew Baker J. in the course of his judgment disapproved of this practice.

    He laid down some ‘reminders’ which practitioners will do well to bear in mind for the future: see at [25] to [27].

    • “Where the material facts will be proved by contemporaneous documents, whether generated by the original transaction or by the arbitral proceedings, the proper function of a witness statement may well be only to serve as the means by which those documents can be got into evidence by being exhibited.”
    • “The claimant's case as to what those documents prove, and as to the conclusions to be drawn, can and should be set out in the Arbitration Claim Form as part of the statement of the "Remedy claimed and grounds on which claim is made", a statement often produced in the form of a statement of case attached to the Claim Form.”
    • “The content of any witness statement, beyond a bare identification of exhibited documents, can and should be limited to matters of fact intended to be proved, if disputed, by calling the maker of the statement as a factual witness at the final hearing of the claim.”

    Where (as is likely) this approach has not been taken or ‘old-style’ statements are being considered, then a further requirement was stressed:

    • “If a witness statement served with the Arbitration Claim Form has not been properly limited in that way, … it is essential, if the maker of the statement is to be called as a witness at the final hearing of the claim, that proper thought is given to which parts of the statement it is necessary or appropriate to take as their factual evidence in chief. That should preferably be done well ahead of the hearing. Any dispute over what should be allowed as evidence in chief can then be identified and resolved, by the court if necessary; the parties can then prepare cross-examination limited accordingly; and the hearing can then be listed upon the basis of a time estimate that is better informed.”

    In cases where the underlying facts are not in reality contentious but how they are to be argued is, this restatement of approach is likely to see the disappearance of any proper need for a full witness statement. The case can be summarised in pleading form in the Claim Form (and argued at fuller length in the skeleton, which witness statements often seek to foreshadow) and the accompanying statement limited to a vehicle for appending the relevant underlying documentation. 

    Simon Rainey QC

    simon.rainey@quadrantchambers.com 

    Simon Rainey QC is one of the best-known and most highly regarded practitioners at the Commercial Bar with a high reputation for his intellect, advocacy skills, commercial pragmatism and commitment to client care. He has established a broad commercial advisory and advocacy practice spanning substantial commercial contractual disputes, international trade and commodities, energy and natural resources, insurance and reinsurance shipping and maritime law in all its aspects,. He appears in the Commercial Court and Court of Appeal and also the Supreme Court (with two recent landmark victories in NYK v Cargill [2016] UKSC 20 and Bunge SA v Nidera SA [2015] UKSC 43.) He regularly handles Arbitration Act 1996 challenges.

    He has extensive experience of international arbitration, regularly appearing as advocate under all of the main international arbitral rules (LCIA; SIAC, UNCITRAL; ICC, Swiss Rules etc) and also sitting as arbitrator.

    Current examples of his work as counsel are in arbitration before the Permanent Court of Arbitration in a US 13billion gas supply dispute; under Nigerian Law and seat in relation to an offshore oilfield redetermination dispute between oil majors, under UNCITRAL Rules in a mining supply take or pay dispute involving one of the world’s leading mine conglomerates; an ICC arbitration concerning a new mine development in Russia and an ICC Dubai seat arbitration involving specialist offshore vessels and in associated s67 and s68 LCIA challenges in the A v B [2017] EWHC 3417 (Comm) litigation in the4 Commercial Court. Recent arbitral appointments include an ICC Paris seat arbitration concerning a power station failure, a French law and seat arbitration relating to an oil rig drilling contract, an offshore construction contract claim under SIAC Rules and a long-term ore supply contract claim under Swiss Rules.

    He is highly ranked by Chambers and Partners and Legal 500 as a first division international arbitration specialist (“Highly regarded for his expertise in handling high-profile international arbitrations in connection with complex oil and gas, banking and finance and trade issues. He is well known for his prowess in advising and representing clients in disputes in countries as far flung as Turkey, Russia, the USA, China and India” 2018; “Incredibly good, with a particular skill in reducing the complicated to the elegantly simple, which when you're trying to present a case to a tribunal or court is one of the more valuable things you need to have” 2018; “Clearly now one of the top commercial silks and a delight to work with.” 2018; “A mixture of brilliance and brevity, his written submissions are like poetry” 2018), He was nominated for “International Arbitration Silk of the Year 2017” by Legal 500 and has also been awarded “Shipping & Commodities Silk of the Year” 2017 by both Chambers & Partners and Legal 500.

    He sits as a deputy High Court Judge in the Commercial Court and is Honorary Professor of Law, Business and Economics, University of Swansea.

    > view Simon's full profile

  • The Aqasia [2018] EWCA Civ 276: appeal dismissedView More

    Fri, 23 February, 2018

    The Court of Appeal has dismissed the carrier’s appeal in The Aqasia, upholding the judgment of Sir Jeremy Cooke at first instance. The decision confirms that Article IV Rule 5 of the Hague Rules does not apply to bulk or liquid cargoes, and that there is therefore no ‘unit’ or ‘package’ limitation for such cargoes under the Rules. Approving the unreported decision of Leggatt J in The Jamie (13 July 1988), the Court of Appeal held that ‘units’ under the Hague Rules are “identifiably separate items of cargo, as in fact shipped” [64].

    Lionel Persey QC and Benjamin Coffer appeared for the successful respondents in the appeal. A copy of the judgment is available by clicking here.

  • Chambers & Partners Global Guide 2018 - 29 recommendations for Quadrant ChambersView More

    Fri, 23 February, 2018

    Quadrant Chambers is delighted to have 29 recommendations in the latest edition of Chambers & Partners Global guide, with over a third our barristers featured. We are recommended across the areas of commercial dispute resolution, energy & natural resources, international arbitration and shipping. 

    "It has excellent bench strength in the form of both silks and juniors, whom clients describe as "exceptional in their own right" and "willing to listen to solicitors' needs." Arbitration and mediation services are offered in addition to skilled courtroom advocacy. Many members are multilingual, which aids their participation in international cases." (Chambers & Partners Global Guide 2018)

  • The “RENOS” – A Trojan Horse in the LOF Citadel? - James M. Turner QCView More

    Thu, 22 February, 2018

    In The “RENOS” [2018] EWCA Civ 230, the Court of Appeal ruled that SCOPIC expenditure could be included in ascertaining whether a casualty was a constructive total loss.  The author considers that conclusion against the historical background to and purpose of the SCOPIC clause, suggesting that it cannot have been intended by the authors of either SCOPIC or the Marine Insurance Act 1906, and that it may weaken the support of the London market for the Lloyd’s Open Form Salvage Contract.

    Insurance

    Most if not all commercial vessels will carry insurance to cover against the risks of (amongst others) damage to the ship itself (hull and machinery, or “H&M” cover) and to the environment (protecting and indemnity, or “P&I” cover).  H&M cover will typically provide for an indemnity against physical damage to the vessel caused by marine perils, as well as the cost of measures taken to avert or minimise a loss, once a marine peril is at least imminent (so-called “sue and labour” expenses).  P&I insurance covers against certain classes of liability to which shipowners are commonly exposed. The two most relevant for present purposes are liability for pollution and for wreck removal.

    Salvage

    Where a ship is in the grip of a marine peril and beyond self-help, she is often referred to as a “casualty”.  Her owner may choose to engage a third party to assist.  Such third parties are known as “salvors”, whether or not salvage is in fact their profession. 

    Salvors may be engaged upon terms akin to towage contracts, i.e., providing for a daily rate of remuneration which is payable whether or not the salvage effort succeeds. Alternatively, no remuneration may be fixed.  In the latter case, a salvage award will only be payable if and to the extent that the salvage effort is successful. This is sometime referred to as the “no cure, no pay” principle. It applies whether or not the salvage service was rendered voluntarily or pursuant to the terms of a contract.  We are concerned in this case only with this latter form of arrangement, i.e., not with the one in which remuneration is fixed in advance.

    “No cure, no pay” has a long history, and was part of the English law of salvage well before the earliest international conventions.  It was enshrined in the Brussels Convention on Salvage 1910; it was also the bedrock of the world’s oldest standard form of salvage agreement: the Lloyd’s Open Form (“LOF”).

    The “no cure, no pay” principle had benefits from the shipowner’s (and hull underwriter’s) point of view.  If the salvage effort was unsuccessful, nothing needed to be paid to the salvor.  And even if it succeeded, the amount payable to the salvor could not exceed the “salved fund”: the total value of the property salved as at the termination of the salvage services, i.e., the casualty (including her stores and fuel) and any cargo (taking into account any damage to them).

    The corollary to the “no cure, no pay” principle was this: where a salved fund was more than adequate to reward a salvor for his efforts, he could expect a handsome reward.  Just how handsome would depend upon various factors, such as:

    • The size (in monetary terms) of the salved fund;
    • The difficulty and duration of the salvage services;
    • The nature and severity of the dangers which the salved fund had faced;
    • The level of out of pocket expenditure incurred by the salvor in rendering the services; and
    • The professional status of the salvor and his investment in salvage (if any).  This factor reflected the benefit to shipowners (and their hull underwriters) in general of the existence of a professional class of salvors.

    As is consistent with the cover extended to sue and labour expenses, hull and machinery insurance generally covered shipowners against any liability incurred in salvage.

    Salvage and the Environment

    Historically, the law of salvage took no account of the environment: a salvage award was not increased merely because the salvage had prevented pollution.  If a salvor removed the bunkers from a stranded casualty, he might well have prevented a serious incident.  But he could expect no reward beyond the value (if any) of the bunkers removed, if he was otherwise unsuccessful in salving the casualty.  That was so, even though the pollution incident averted might have cost very large sums to clean up.

    However, in the 1960s and 1970s there were a number of high profile casualties involving very large crude carriers, such as the Torrey Canyon, wrecked off the coast of Cornwall in 1967; and the Amoco Cadiz, wrecked off the Brittany coast in 1978.

    A consensus developed that the framework of the law of salvage required overhaul.  A number of factors lay behind that consensus.  They included:

    • The reality that the salvage industry was the industry sector best placed and most suitable to intervene in marine casualties threatening serious pollution incidents.
    • The fact that the “no cure, no pay” principle was at least capable of operating as a disincentive for professional salvors to intervene in those cases which most urgently required intervention if pollution was to be averted, e.g., a badly damaged ship (which, even if salved, might have a low or no salved value), presenting a difficult and thus expensive challenge to the salvor in removing pollutants which might themselves already be contaminated with seawater (and thus be of low or no value), particularly where the chances of any sort of “cure” were perceived to be low.
    • The perceived iniquity that where salvage services were effective in minimising pollution, nothing was paid by one of the parties which derived the greatest benefit of the services, namely the ship’s P&I insurers.

    In the 1980s, that consensus led to two distinct (though related) developments: the publication, in 1980, of a new edition of the LOF (“LOF 1980”); and the International Convention on Salvage 1989 (“the 1989 Salvage Convention”).

    LOF 1980

    LOF 1980 contained for the first time in the history of the LOF form an exception to the principle of “no cure, no pay”.  The exception only operated where the casualty was a laden oil tanker; in such cases the contractor assumed the obligation – in addition to the traditional obligation that he use his best endeavours to salve the property at risk – to exercise his best endeavours to prevent the escape of oil from the casualty.

    In applicable cases, the salvor was entitled – as a top-up, or “safety net” to the conventional salvage award, if any – to be paid up to 115% of his reasonably incurred expenses.  The “safety net” applied only if and to the extent that the conventional salvage award did not itself cover that amount.  The “safety net” payment was the responsibility of the shipowner alone: no part of it could be recovered from the cargo owner.  In practice, it was covered by the shipowner’s P&I Club – as the owner’s pollution liability insurer – rather than by hull underwriters.  That was so, even though some or potentially all the salvors’ expenses had been incurred in attempting to salve the casualty and her cargo, rather than in a direct attempt to prevent the escape of oil from the casualty.

    At the same time, LOF 1980 also introduced the concept of an “enhanced award”, by which the conventional salvage award could be “enhanced” where the salvor had also prevented pollution.  Like the “safety net”, the “enhanced award” operated only where the casualty was a laden oil tanker.

    In terms of the allocation of insurance risk as between hull (and, indeed, cargo) underwriters and P&I insurers, the “enhanced award” marked something of a shift.  For the first time, property insurers would have to pay something – how much exactly is, practically speaking, near-impossible to determine – towards efforts made to protect the wider environment.  That area had historically been covered by P&I insurers.

    The 1989 Salvage Convention

    The 1989 Salvage Convention came into force in July 1996, though several of its key provisions had already been incorporated in the 1990 and 1995 editions of the LOF contract.  The Convention fundamentally revised salvage law.  Its most important provisions, both generally and for present purposes, are Articles 13 and 14.

    Article 13

    Article 13 sets out the factors to be taken into account in assessing a conventional salvage award (now known as an “Article 13 award”).  For the first time in the history of the general law of salvage, one of those factors (indeed, the second listed: Art. 13.1(b)) was “the skill and efforts of the salvors in preventing or minimising damage to the environment”.

    Art. 13(1)(b) provided the basis for remunerating the salvor for the express obligation, introduced by the 1990 and continued in subsequent editions of the LOF contract, that he exercise his best endeavours not just to salve the property in danger, but “while performing the salvage services[,] to prevent or minimise damage to the environment” – a somewhat wider duty than that provided for in LOF 1980.

    An Article 13 award is payable by all of the property interests in proportion to their respective salved values (Article 13.2), thus embedding the shift already noted above.

    Article 14 – Special Compensation

    Article 14 contained a further innovation for the law of salvage: “special compensation” payable for preventing or minimising damage to the environment – also known as an “Article 14 award”.  Like the LOF 1980 “safety net”, “special compensation”:

    • Is payable only if and to the extent that it exceeded the Article 13 award.
    • Is calculated on the basis of the expenses incurred by the salvor, though the notion of “expenses” was widened to include “a fair rate for equipment and personnel”.
    • Provides for an uplift on the salvor’s expenses.  The Article 14 uplift is more generous: it can be as much as 100% of the expenses incurred.
    • Is the sole liability of the shipowner and, in practice, has been paid by P&I insurers.  Again, that is so, even though some or potentially all the salvors’ expenses may have been incurred in attempting to salve the casualty and her cargo, rather than in a direct attempt to prevent or minimise damage to the environment.

    Unlike the LOF 1980 “safety net”, an Article 14 was available – but available only – in any case in which the vessel “by itself or its cargo threatened damage to the environment” (Art. 14.1) and the salvage operations “prevented or minimised damage to the environment” (Art. 14.2).

    Article 14 was a well-meaning but flawed attempt at balancing the competing interests at stake.  In practice, its provisions resulted in uncertainty and enormous legal costs:

    • In relation to the requirement that damage to the environment should both have been threatened and averted (or minimised): this necessitated expert environmental impact reports.
    • On the question of what amounted to a “fair rate”.  In The Nagasaki Spirit [1997] AC 455, the House of Lords decided that “fair rate” referred to indirect or overhead expenses, rather than a (higher but more readily identifiable) commercial rate for the employment of the personnel or equipment in question.  This necessitated very detailed, intrusive and expensive accountancy reports into the salvor’s business operation.  

    The resulting dissatisfaction with the Article 14 regime led to discussions between the International Salvage Union (the “ISU”), the International Group of P&I Clubs (the “IG”) and representatives of hull and cargo insurers (the property insurers).  Those discussions culminated in 1999 in a further industry solution: SCOPIC.

    SCOPIC

    SCOPIC – or the “Special Compensation P&I Clause” – was thus conceived as a solution to the problems experienced in practice with Article 14.  In order to avoid the expense associated with the issues outlined above:

    • SCOPIC applies whenever it was incorporated into the LOF salvage contract and invoked by the salvor.  There is no need to demonstrate that any damage to the environment has been threatened or averted.
    • In place of the “fair rate” debacle, SCOPIC provides a pre-agreed tariff of rates for different types of vessel, equipment and personnel.
    • Accordingly, “the method of assessing Special Compensation under Convention Article 14 … [is] substituted by the method of assessment set out hereinafter”.

    SCOPIC leaves the Article 13 regime unaffected (SCOPIC cl. 6(ii)).

    Like Article 14 and the LOF 1980 “safety net”, SCOPIC:

    • Is payable only to the extent that it exceeds the Article 13 award.
    • Is calculated on the basis of the expenses incurred by the salvor, but in place of the Article 14 “fair rate” in respect of the salvor’s own equipment and personnel, the tariff referred to above applies.  (In fact, the same tariff can also apply to some or all of the genuinely “out of pocket” expenses, but that is irrelevant for present purposes).
    • Provides for an uplift on the total of the salvor’s expenses and tariff rates.  The standard SCOPIC uplift is 25%.
    • Is the sole liability of the shipowner (SCOPIC cl. 14) and, in practice, has been paid by P&I insurers – even though some or potentially all the salvors’ expenses may have been incurred in attempting to salve the casualty and her cargo.

    This last characteristic is no coincidence: SCOPIC was intended to cover precisely the same gap as the LOF 1980 “safety net” and Article 14: the gap in environmental protection which existed under the old “no cure, no pay” regime.  That gap, in the absence of Article 14, would have continued, largely unaffected by the introduction of environmental factors into the assessment of the Article 13 award.  

    All three of these regimes (the LOF 1980 “safety net”, Article 14 and SCOPIC) thus provide a financial incentive, to those who are best placed to do so, i.e., the professional salvage industry, to intervene and prevent maritime accidents from resulting in environmental catastrophe.

    The Codes of Practice

    At the time the SCOPIC clause was negotiated by the industry, it was recognised that neither P&I Clubs nor hull and machinery insurers would ordinarily be parties to a salvage contract.  It followed that they would not strictly speaking be bound by, or in a position to enforce the terms of a new clause of this type incorporated into a salvage contract.

    To capture the agreements reached, two Codes of Practice were agreed:

    • The first was a Code of Practice between the IG, property underwriters and the ISU, concerning who would pay for the “special casualty representative” (“SCR”) (“the SCR Code”).[1]  Against the background that liability and property underwriters required day by day information as to the progress of the salvage operation itself, it was agreed that it would be fair for the SCR’s costs to be split between hull underwriters and P&I insurers.
    • The second was a Code of Practice between the ISU and the IG (“the ISU/IG Code”).  It deals with various matters, including:
      • Prompt advice by the salvor to the P&I Club “if they consider that there is a possibility of a Special Compensation claim arising” (cl. 1);

    [1] The SCR is intended to function as an independent observer (hull and cargo insurers have the option of appointing their own special representatives, SCOPIC para 12, App. C) and to report to all parties on the progress of the salvage operation. The SCR is in practice appointed whenever SCOPIC is invoked and this may be before the stage where it is clear that there will actually be a SCOPIC award (since the amount of the salved fund for example may well not be clear at that early stage).

    • Prompt advice by P&I Club to salvor as to whether the shipowner is covered for “Special Compensation or SCOPIC Remuneration” liability (cl. 3);
      • The provision and acceptance of security in respect of such liability (cll. 4-7);
      • Termination of the salvage contract under SCOPIC clause 9(ii) (cl. 8); and
      • Exclusion of SCOPIC claims from general average (cl. 9).

    The Industry Consensus

    Both of the Codes of Practice are agreed not to be legally binding.  Nevertheless they embody and reflect the perception and agreement of the industry – consistent with the history and scheme of remunerating salvors for protecting the environment when a conventional salvage award is unavailable or inadequate – that:

    • Article 13 awards, like the LOF 1980 “enhanced awards” before them, would continue to be covered by property insurers; and
    • SCOPIC awards, like the LOF 1980 “safety net” and Article 14 before them, would continue to be covered by liability (i.e., P&I) insurers.

    The industry consensus has held up well: The “RENOS” apart, the author is aware of only one claim where the P&I insurer has attempted to recoup its payment of SCOPIC remuneration from a property underwriter.

    That consensus is clearly reflected in (at least) two other provisions.  The first is Rule VI(c) of the York-Antwerp Rules 2004, which provides that SCOPIC compensation is not allowable in general average.  The second is paragraph 15 of SCOPIC itself, under the heading “General Average”:

    “SCOPIC remuneration shall not be a General Average expense to the extent that it exceeds the Article 13 award; any liability to pay such SCOPIC remuneration shall be that of the Shipowner alone and no claim whether direct, indirect, by way of indemnity or recourse or otherwise relating to SCOPIC remuneration in excess of the Article 13 award shall be made in General Average or under the vessel’s Hull and Machinery Policy by the owners of the vessel” [emphasis supplied].

    The consensus is also reflected in the Institute Time Clauses (Hulls), which exclude Article 14 special compensation claims and any other claims “similar in substance”, such as SCOPIC claims.

    The “RENOS”

    The factual background to and other issues in the case have been ably summarised elsewhere.[2]  The issue relevant for present purposes was whether the shipowner’s liability in SCOPIC could be taken into account in assessing whether the casualty was a constructive total loss.  Hamblen LJ addressed this issue at [86]-[94] of his judgment (with which the other members of the Court agreed).

    There was no difficulty in identifying the SCOPIC costs: they are set out, alongside the distinct (though notional) Article 13 award in [86].[3]  H&M underwriters argued that the SCOPIC costs could not be taken into account as “costs of repairs” for the purposes of the CTL calculation.  They took two points: that such costs were not a “cost of repair” for the purpose of s. 60(2)(ii) of the Marine insurance Act 1906; and that such a claim was precluded by paragraph 15 of SCOPIC. 

    On the first point, underwriters argued that SCOPIC was “conceptually distinct from the Article 13 Award payable to salvors as the reasonable cost of their services in saving the vessel”.  The difficulty with that argument, whatever the background to and purpose of SCOPIC, is that the obligation upon the salvor is precisely the same under SCOPIC as it is under the LOF Contract (of which it forms part): to exercise best endeavours to salve the casualty.  That was not, however, the reason given by Hamblen LJ for rejecting the argument: his reason was that the whole amount due to salvors had to be paid for the owners to recover the vessel, so whether it was salvage or SCOPIC remuneration made no difference.

    On the second point, the obvious problem with reliance on paragraph 15 of SCOPIC is that the underwriters were not party to the salvage agreement.  Underwriters sought to escape their privity difficulty by relying on the Contracts (Rights of Third Parties) Act 1999.  Hamblen LJ acknowledged the argument but made no finding on it. He appears simply to have assumed that paragraph 15 could be invoked.  Instead, he rejected underwriters’ argument at [93] on the ground that –

    [1] The Article 13 Award will have been payable in respect of the cargo which was successfully salved.  Even if a settlement has been entered into between salvors and cargo interests, the Lloyd’s arbitrator hearing a SCOPIC claim would always need to determine the notional Article 13 Award as SCOPIC is only payable to the extent that it exceeds the Article 13 Award.

    “The claim in the present case is for the total loss of the Vessel.  No claim for an indemnity or recourse or otherwise is made relating to SCOPIC remuneration.  Its only relevance is as part of the cost of repair which is to rank for the purpose of determining whether the Vessel is a CTL.  Ranking costs for the purpose of a CTL do not have to be incurred.  They may be future or hypothetical.  No indemnity or recourse is sought in relation to such costs. …”

    Commentary

    Hamblen LJ’s reasoning is – with respect – not wholly convincing.  Without the SCOPIC claim counting, there would have been no CTL, with the shipowner confined instead to a claim for the cost of repair (in relation to which SCOPIC could not be claimed).  With the SCOPIC claim brought into account, there was a CTL and the whole insured value (typically well in excess of the vessel’s actual value) could be claimed.  It is very difficult – standing back from the tangled thicket of hypothetical CTL componentry – to see this as anything other than an indirect claim relating to SCOPIC remuneration.  If that is right, then then the claim is squarely barred by paragraph 15 of SCOPIC (always assuming – as Hamblen LJ did – that underwriters can invoke it).

    Moreover, the result in the case is one that the architects of neither the 1906 Act nor SCOPIC can have intended: 

    • In 1906, there would have been no question of a shipowner being liable to pay salvors amounts that – then and now – could not be recovered as salvage remuneration.
    • In 1999, whatever the ‘shift’ embodied by Art. 13(1)(b) of the 1989 Salvage Convention, there was no question of hull underwriters’ exposure being affected (other than by way of a potential slight increase in the Article 13 salvage award) by either Article 14 or the SCOPIC replacement of it. 
    • The outcome of The “RENOS”, however, shows that hull underwriters may be exposed to a CTL claim which in the past could never have been brought.

    Could P&I underwriters recover from their assured (by way of subrogation) “their” share of the CTL payout from the vessel’s owners?  After all, the CTL payout would (in the great majority of cases) comfortably exceed the vessel’s value immediately before the casualty.  Why should the owners “scoop the pool”, leaving the P&I insurer (whose outlay helped them to scoop it) out of pocket? 

    That question did not feature in the Court of Appeal’s judgment, but probably it was not argued.  That is (no doubt) because it is very difficult to see that P&I should be able to reach into the payment of an agreed sum for loss or destruction of property in order to recoup its outlay in relation to (in effect) avoided liability for environmental damage.  To that extent, there may be little danger that The “RENOS” will dim the bright line of the industry consensus described above – although the very fact that the oil and water of property and liability insurance do not mix grates with Hamblen LJ’s reasoning.

    There is, however, a non-legal aspect to this: it is no secret that LOF is not universally popular in the London insurance market.  The reasons why are beyond the scope of this article (and in some respects disputed).  The relevant point is this: for as long as the decision in The “RENOS” stands, it has obvious potential to reduce market support for the LOF Contract.  That is because a property insurer may feel that it can far better control its exposure by insisting upon daily rate contracts, improving its chances of managing – and thus avoiding – the risk of a back-door CTL if LOF and SCOPIC are used.

    The architects of SCOPIC (and, indeed, the 1989 Salvage Convention) sought to protect and support LOF.  As The “RENOS” shows, though, it is hard to contract out of the law of unintended consequences.  SCOPIC, as it now appears, may after all be a Trojan Horse in the LOF citadel.  It will be ironic and tragic if, as those who support LOF would claim, that contributes in turn to the long term decline and disappearance of the salvage industry and, with it, the enhancement in environmental protection which the developments described above were supposed to deliver. 

     

    [1] The SCR is intended to function as an independent observer (hull and cargo insurers have the option of appointing their own special representatives, SCOPIC para 12, App. C) and to report to all parties on the progress of the salvage operation. The SCR is in practice appointed whenever SCOPIC is invoked and this may be before the stage where it is clear that there will actually be a SCOPIC award (since the amount of the salved fund for example may well not be clear at that early stage).

    [2] For example at http://bit.ly/DTQC_RNS

    [3] The Article 13 Award will have been payable in respect of the cargo which was successfully salved.  Even if a settlement has been entered into between salvors and cargo interests, the Lloyd’s arbitrator hearing a SCOPIC claim would always need to determine the notional Article 13 Award as SCOPIC is only payable to the extent that it exceeds the Article 13 Award.

    James M. Turner QC 

    James M. Turner QC  is a specialist shipping and commercial advocate with over 20 years' experience right across those fields - from shipbuilding to collision and salvage; from unsafe port, bareboat and other charterparty disputes to demand guarantees, bills of exchange and letters of credit; from commodities to joint ventures. 

    His experience as a team leader, stretching well back before taking silk, is in high-value, technical and expert-heavy cases, particularly involving shipbuilding contracts and charterparties.  He is valued for his technical knowledge and his ability to direct the collation of evidence. 

    James appears regularly in the Admiralty and Commercial Courts and in arbitration in London. In addition, the international nature of his practice frequently takes him to continental Europe and to the Far East.

    > View James M. Turners' full profile
    > james.turner@quadrantchambers.com