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  • Coincidentally Collateral or Causally Connected? Dancing around Post-Breach Benefits:Simon Rainey QCView More

    Fri, 30 June, 2017

    A Short Question of Fact?

    An owner of an elderly cruise ship lets her on time charter, extended by two years. The charterer redelivers in 2007 the vessel two years early, in repudiatory breach of the charter. The owner accepts the breach and terminates the charter. The time charter market for an old lady like the ‘New Flamenco’ is non-existent. The owner decides to sell the vessel rather than to continue to trade her. The arbitrator finds variously “it would not have been possible for the Owners to conclude an alternative substitute two year time charterparty. The need to sell the vessel was clearly caused by the breach” and “in this case it was clear that the necessity for the sale had been brought about by the refusal to perform the two year extension”.

    The New Flamenco (Globalia Business Travel SAU v Fulton Shipping Inc) [2017] UKSC 43

    When the owner sells the vessel he (perhaps surprisingly) finds a buyer for her willing to pay US$23.7 million. Had the charterer performed the charterparty, the vessel would have been worth much less at the end of the two years in 2009: had the owner wanted to sell her then, it would have received only in the region of US$ 7 million.

    Should the owner have to give credit to the charterer for the difference in value (23.7 – 7) against its claim for damages for loss of profit over the two years (based on the difference between the charter rate and spot and other employment)?

    The dance (a minuet, rather than a flamenco perhaps) then began. The arbitrator held that the owner did have to give credit, in the light of his findings of fact. Popplewell J held that it did not. A strong Court of Appeal was of the same view as the arbitrator. A strong Supreme Court this week unanimously rejected that view and restored Popplewell J’s approach, holding that to oblige the owner to give credit was wrong in principle and wrong on the facts as found by the arbitrator.

    The short answer of the Supreme Court (expressed succinctly in six paragraphs) was that while the breach and early redelivery was the occasion or ‘trigger’ for the owner’s sale of the vessel, it was not the legal cause of the sale taking place nor could the sale sensibly be described as a step taken by the owner in mitigating the loss of charter earnings over the two years.

    The decision is important in focussing on what needs to be shown in terms of legal causation in the breach and mitigation contexts, rather than pointing simply at acts which are factually connected. It is also noteworthy in the way it demonstrates the tension on a section 69 Arbitration Act 1996 appeal between “findings of fact” and findings, which while expressed as ones of fact, are on proper analysis ones of law.

    The To-and-fro of the Decisions Below

    At first instance, Popplewell J had distilled no fewer than eleven principles after an extensive review of the cases: see [2014] EWHC 1547 (Comm) at [64]. Of these perhaps the most important are the first four, which stressed that for a benefit to be taken into account, the critical test was one of legal causation linking the reception or creation of the benefit with the breach, so that the breach is the actual legal cause of the benefit being conferred. The Judge regarded mitigation as governed by the same principles. As his fifth to eighth principles, he therefore analysed how the requirement of legal causation applies to mitigation, pointing out “The fact that a mitigating step, by way of action or inaction, may be a reasonable and sensible business decision with a view to reducing the impact of the breach, does not of itself render it one which is sufficiently caused by the breach. A step taken by the innocent party which is a reasonable response to the breach and designed to reduce losses caused thereby may be triggered by a breach but not legally caused by the breach” (citing The Elena d’Amico [1980] 1 Ll. Rep 75.)

    The Judge disposed of the case on the basis that the difference in value of the vessel between the date of the sale and the date of the expiry of the two years had nothing to do with the breach: it was simply caused by the drop in the market which would have occurred anyway. Similarly, the effect of fluctuating market values for the capital value of the vessel was only produced by a decision to sell the vessel, which decision the owner could take and could have taken at any time, irrespective of the breach. If the owner could not be criticised if it had decided not to sell the vessel but chose to sit tight for two years, on the basis of a failure to mitigate, how could the sale which it chose to make be treated as “mitigation” caused by the breach? If it could not, then the benefit was not a benefit accruing from mitigation but was entirely collateral.

    The Court of Appeal (Longmore, Christopher Clarke, Sales LJJ) approached the matter from a different standpoint. Its starting point was that “It is notoriously difficult to lay down principles of law in the realm of mitigation of loss particularly when it is said that a benefit received by a claimant is to be brought into account as avoiding the loss. The judge is to be commended for having tried to do so but his use of the word “indicative” is itself indicative that hard and fast principles are difficult to enunciate. In appeals from an arbitrator's award a court has to be particularly respectful of the boundaries between fact and law which the parties, by their choice of tribunal, have created.” [20]

    Thereafter, the Court of Appeal based itself on the arbitrator’s decision of the factual connection between the owner’s decision to sell the vessel as being a sufficient legal connection: “Viscount Haldane's formulation in British Westinghouse that the benefit must ‘arise from the consequences of the breach’ remains, in my view, entirely apposite. The issue of mitigation arises when the breach has had harmful consequences which the injured party has taken steps to ameliorate … the finding of fact made by the arbitrator was in effect that the benefit did arise from the consequences of the breach” (Christopher Clarke LJ at [47-48].

    The Reasoning of the Supreme Court

    In the Supreme Court, Lord Clarke (with whom Lords Neuberger, Mance, Sumption and Hodge agreed) preferred the reasoning of Popplewell J. While, perhaps unhelpfully, the Court did not comment expressly on the ‘eleven point’ guide set out by the Judge, the Court’s adoption of the reasoning and result arrived at by him is likely to mean that parties are likely to go back to them as a stepped approach to similar post-breach benefit problems.

    The Court stressed, as had the Judge, that the question was simply one of legal causation: was the post-breach benefit in law to be regarded as having been caused by the breach or by mitigation of the loss caused by the breach? It rejected the argument that to be legally relevant the benefit had to be ‘of the same kind’ as the loss. This was too vague and arbitrary a test. Causation alone is key.

    Lord Clarke dealt first with the argument that the difference in value (23.7 – 7) was to be treated as a benefit to the owner because it was “the benefit of having avoided a loss” by the owner selling the vessel in 2007 rather than on redelivery in 2009.

    The obvious fallacy in this way of putting the argument might be thought to be that the owner did not need to sell the vessel at any time, including at the end of the charter term. It was simply a matter of the owner’s commercial decision-making as to how and when it ran its capital book.  As Lord Clarke explained, the owner could not have claimed from the charterer as damages for its breach if the vessel would have been worth more in 2009 than in 2007. Further, why take 2009 as the date of comparison simply because it represented the end of the charter period when the owner could have continued to trade? The owner might not have sold then. While a premature termination might lead an owner to sell earlier than it would otherwise have done, that had nothing to do with the charterer: it was “the disposal of an interest in the vessel which no part of the subject matter of the charterparty and had nothing to do with the owners” [32].

    Lord Clarke dealt next with the mitigation argument based on the sale being an act taken by the owner to mitigate the loss of hire resulting from the breach.

    Here, rather than analyse the matter as the Judge did, from the starting point that the owner could not be faulted for not mitigating if he had chosen not to sell the vessel, therefore any sale he chose to do was not ‘mitigation’ properly understood, Lord Clarke focussed on the precise nature of the loss. The loss was the loss of an income stream under the charter. Realising the capital value of the vessel did not and could not mitigate the loss of that income stream which, irrespective of the sale, remained lost [34]. While it might be thought that the Court here looked at the nature of the benefit and the nature of the loss (having deprecated just such a test), the nature of the loss and the benefit may be relevant in a causation enquiry. As Popplewell J, who had similarly rejected the ‘of the same kind’ argument, pointed out: “There is no requirement that the benefit must be of the same kind as the loss being claimed or mitigated … but such a difference in kind may be indicative that the benefit is not legally caused by the breach” [64(8)] (emphasis added; this proposition was expressly approved by the Supreme Court at [30]).

    The Court pointed out that a sale of the vessel might be relevant to the compensatory principle if it could be shown, for example, that the owner would have sold the vessel during the two years had the charterer performed, because then that would on Golden Victory principles cut down the period of loss. But that had nothing to do with a collateral decision by an owner, post breach, to sell his vessel on a poor trading market.

    Conclusions

    The decision, and the procedural history, shows the difficulty that may lie in distinguishing between an act taken post-breach from which the claimant benefits and an act which is legally to be viewed as caused by that breach.

    Where mitigation is concerned, if the claimant was not obliged to take such a post-breach step at all, then it seems clear that if he does take it, the defendant cannot seek to bring the benefits of so doing into account.

    Coda: the Arbitral Context

    It was strongly argued that, as causation was a question of fact, to be approached in a commonsense way, the decision of the arbitrator (extracts from which as reported are cited above) was one which was not open to challenge. Popplewell J. accepted that “whether a benefit is caused by a breach is a question of fact and degree which must be answered by considering all the relevant circumstances in order to form a commonsense overall judgment on the sufficiency of the causal nexus between breach and benefit” [64(9)] but considered that the arbitrator had simply gone wrong in treating things as sufficiently ‘caused’ when in law they could not be so regarded. Lord Clarke endorsed this approach at [24].

    This gives rise to the apparent oddity of an arbitrator finding that the sale of the vessel was in consequence of and resulted from the breach and was a step taken by the owner to prevent loss from not being able to trade the vessel but this “not [being] legally sufficient to establish the necessary causative link between breach and benefit”.

     

    Simon Rainey QC is one of the best-known practitioners at the Commercial Bar with a broad commercial advisory and advocacy practice spanning substantial commercial contractual disputes, international trade and commodities, shipping and maritime law in all its aspects, energy and natural resources and insurance and reinsurance and has extensive experience of international arbitration.

    Simon regularly acts in ground-breaking cases including NYK Bulkship (Atlantic) NV v Cargill International SA (The Global Santosh) [2016] UKSC 20 where Simon was brought in to argue the case in the Supreme Court and represented the successful appellants, Cargill. The decision is a landmark one in relation to a contracting party’s responsibility for the vicarious or delegated performance by a third party of its contractual obligations, both in the common charterparty and international sale of goods contexts and more generally. In Bunge SA v Nidera SA [2015] UKSC 43 Simon successfully represented Bunge in a landmark decision by the Supreme Court on GAFTA Default Clause and sale of goods damages after The Golden Victory on points which had been lost at every stage below.

    Ranked as the “Star Individual” for shipping by Chambers UK in 2015, 2016 and 2017, Simon: ‘impresses with his mastery of the brief...exceptionally gifted, he has the strong confidence of his clients, and is an excellent presenter of complex material....’ and ‘….is one of those super silk guys who has judges eating out of his hands." "He has the gift of going straight to the problem.’ He was ranked as Shipping Silk of the year 2017 by Chambers and Partners UK and Legal 500 UK Awards and one of the Top Ten Maritime Lawyers 2017 by Lloyd’s List.

    Simon Croall QC and Ben Gardner (with Door Tenant Peter Ferrer) acted for the Charterers

    Related News:

    The New Flamenco – the Supreme Court places limits on the rules of mitigation of damages - Simon Croall QC and Ben Gardner

  • The New Flamenco – the Supreme Court places limits on the rules of mitigation of damagesView More

    Wed, 28 June, 2017

    The Supreme Court has today handed down the long awaited judgment in Globalia Business Travel SAU (formerly TravelPlan SAU) of Spain v Fulton Shipping Inc “The New Flamenco”. An appeal under section 69 of the Arbitration Act, the appeal addressed the nature and scope of mitigation of damage and whether certain benefits obtained by an innocent party have to be brought into account when assessing damages for the repudiation of as time charterparty. 

    Simon Croall QC and Ben Gardner (with Door Tenant Peter Ferrer) acted for the Charterers

    The judgment can be found here

    The New Flamenco was a cruise ship that had been chartered for a two-year extension to a time charter.  Shortly before the two-year extension was due to start, the Charterers repudiated the extension and redelivered the vessel.  The Owners responded by selling the vessel in October 2007 for US$23.8m. On the findings of the Arbitrator the sale was made in mitigation of the losses caused by the repudiation and gave rise to a gain. The latter finding arose from his conclusion that the Vessel would only have been worth US$7m at the time when she should have been redelivered under the extended time charter in November 2009 (i.e. the first point when she could have sailed).  The difference in value was at least in part due to the collapse of the cruise market in late 2008 in the light of the financial crisis. 

    The arbitrator decided that the benefit of selling the New Flamenco two years early was an act of mitigation caused by Charterers’ repudiation of the charterparty and credit should be given for it.  On an appeal on a point of law under section 69 of the Arbitration Act, Popplewell J held that as a matter of law the sale was not caused by the repudiation and could not be regarded as mitigation of the Owners’ loss of revenue under the repudiated time charterparty.  The Court of Appeal disagreed, reinstating the arbitrators’ decision.  Their analysis involved applying the principles in British Westinghouse Electric & Manufacturing Co. Ltd v Underground Electric Railways Company of London Ltd [1912] AC 673. They concluded that in the light of the finding of mitigation made by the Arbitrator the benefit was to be taken account of as a successful act of mitigation. The Owners appealed to the Supreme Court.

    In a short judgment, Lord Clarke (with whom the other Justices agreed) indicated a preference for Popplewell J’s conclusion and approach and allowed the appeal.  He considered that the sale of the Vessel was not caused by the repudiation of the charterparty and “was not itself an act of mitigation because it was incapable of mitigating the loss of the income stream”. In so doing it has placed a limitation upon the types of actions which can, as a matter of law, be regarded as mitigation such that under established principles the results of such acts are brought into account. That limitation must arise as a matter of law because being an appeal from an Arbitrator the court’s jurisdiction only extended to issues of law.

    What is less clear is the applicable principle in determining whether the results of actions taken in response to a breach are to be regarded as successful mitigation. The Court rejected the Owners’ argument that a benefit could only be taken into account if it is of the same kind as the loss. It emphasised that “the relevant link is causation”.  However the rationale for rejecting the sale as a successful act of mitigation does not appear to relate to causation but instead suggest that some kinds of benefit cannot be treated as mitigating some kinds of loss. This comes quite close to adopting something like the difference in kind test and suggests that such differences are potentially significant in the context of the relevant enquiry.

    The judgment leaves a number of questions unanswered, including the extent to which a benefit of a different kind can ever mitigate a loss.  It is also unclear to what extent the Court endorsed some of the elements of Popplewell J’s judgment which troubled the Court of Appeal, such as his two-step causation test and his emphasis on the policy reasons for Owners bearing the benefits and burdens of investing in the vessel.  Finally it is unclear whether the principles set out in British Westinghouse (which have long been thought to govern this area of law but were not directly addressed in the judgment) have by implication been revised. These questions will doubtless be explored in future cases.

    AUTHORS  

     

    Simon Croall QC is an established commercial silk. He is a sought after trial advocate as well as being respected in the appellate courts.  In recent years much of his work has been in the context of International Arbitrations.

    Click to view Simon's full profile

    Ben Gardner practises primarily in shipping, commodities and international trade, insurance, conflict of laws, banking and aviation, within a broad commercial practice.  He is recommended as a leading junior by Chambers & Partners 2017, where he is described as "very impressive", "a great junior counsel and very user-friendly", "solution driven, helps you make a decision and is very personable" and "very helpful, sensible and willing to get stuck in as much as required".

    Ben often appears in the High Court and in the Court of Appeal, as sole counsel and as part of a counsel team. He has also appeared in the Supreme Court twice in 2016.

    Click to view Ben's full profile

    Related News:

    Coincidentally Collateral or Causally Connected? Dancing around Post-Breach Benefits - Simon Rainey QC

  • The Lawyer Awards, Quadrant Chambers runner up for Chambers of the Year 2017View More

    Wed, 28 June, 2017

    A fantastic evening at The Lawyer Awards, at which Quadrant Chambers were named runner up for Chambers of the Year 2017.

    Full details regarding the winners and nominations for all categories can be found here.

  • Will Brexit reduce London’s dominance as a litigation centre? Michael McParland QC examines the potential impact on use of English jurisdiction and choice of law agreements.

    This article was first published in Counsel Magazine, June 2017. View More

    Thu, 22 June, 2017

    A PDF copy of the original article can be downloaded here

    ‘One of the attractions of English law as a legal system of choice in commercial matters is its stability and continuity…’ Wood v Sureterm Direct Ltd [2017] UKSC 24, para [15]

    The High Court in London is the leading court centre for international dispute resolution in Europe; a status achieved by the widespread use of English jurisdiction and choice of law agreements in international business transactions. Both of these private international law mechanisms are supported by EU rules or international conventions to which the UK belongs through its EU membership. Will Brexit reduce the attractiveness of these agreements and thus London’s dominance as a litigation centre?

    The rules we leave behind

    Unless some alternative and novel agreements are reached, upon leaving the EU the UK will immediately drop out of the Brussels I (Recast) Regulation (1215/2012). This Regulation grants a high degree of legal certainty for English jurisdiction agreements, has anti-abuse provisions to prevent contract-breakers avoiding their choice of jurisdiction, and provides a relative easy system of recognition and enforcement of English judgments based on such agreements. The UK will also cease to be a party to the Lugano II Convention (2007), which gives reduced levels of protections in the courts of Iceland, Norway, and Switzerland; and to the Hague Convention on Choice of Court Agreements (2005), which currently gives an even narrower range of protections in the courts of Mexico and Singapore.

    The Rome I Regulation (593/2008) governs choice of law in contracts concluded as from 17 December 2009, and Art 14 of the Rome II Regulation (864/2007) enables parties to select the applicable law of non-contractual obligations since 11 January 2009. Both will no longer be directly applicable in English courts.

    Parliamentary concern

    Committees of both Houses of Parliament have expressed concern about the potential damage to the UK’s legal business and of diversion of work elsewhere by the loss of those instruments. The House of Commons Justice Committee said:

    ‘We recommend that protecting the UK as a top-class commercial law centre should be a major priority for the government in Brexit negotiations given the clear impacts on the UK economy of failure to do so. Protecting court choices and maintaining mutual recognition and enforcement of judgments are central to this objective: the government should aim to replicate the provisions of Brussels I Recast as closely as possible, perhaps using the EU-Denmark agreement as a blueprint. As a minimum, it must endeavour to secure membership of Lugano II and the 2005 Hague Convention in its own right. Rome I and II should be brought into domestic law.’ (House of Commons Justice Committee, 9th Report, Implications of Brexit for the justice system, HC 750. See also House of Lords EU Committee: 20th Report, Brexit: justice for families, individuals and businesses?, HL Paper 134.)

    The government has also said:

    ‘We recognise that an effective system of civil judicial cooperation will provide certainty and protection for citizens and businesses of a stronger global UK.’ (HM Government, The United Kingdom’s exit from and new partnership with the European Union, Cm 9417, February 2017, para 8.19.)

    What will a red, white and blue Brexit look like?

    Despite hopes that a new arrangement can be reached with the EU-27, for this exercise we should assume that a ‘Red, White and Blue Brexit’ will see the UK drop out of the Brussels I Recast regime, which was created to enhance the operation of the internal market which the UK is leaving. With no competence to negotiate its own admission to international conventions pre-Brexit, joining the Lugano II Convention might be more difficult and time-consuming than the UK would like; as this would require an application after re-joining EFTA or applying as a non-member and obtaining the consent of all signatories, which includes the EU (Lugano II, Arts 70-73). The Hague Convention is nowhere near as comprehensive as the Brussels I Recast, and will only affect exclusive jurisdiction agreements entered into after it entered into force in the UK, and shall not apply to proceedings instituted before that date (Hague: Art 16). Unfortunate ‘gaps’ in protections may well arise.

    Attempts to steal a march

    Consequently, a number of the UK’s competitors are seeking to take advantage. On 30 March 2017, the day after the UK’s Art 50 notice was given, the German Federal State of Hesse promoted a conference entitled Brexit: an opportunity for Frankfurt to become a new hub of litigation in Europe. This is part of their Frankfurt Justice Initiative, which proposes wide-ranging organisational and procedural improvements to bring its courts closer to the English system and thus more attractive to Anglophone businesses.

    In Europe, such developments are supported by a burgeoning academic cottage industry which argues that Brexit creates substantial uncertainty regarding the recognition and enforcement of English choice of law and choice of jurisdiction clauses, and the enforcement of English judgments. Unless the UK and the EU agree on the continued application of the Rome I, Rome II and the Brussels I (Recast) or enter into a new treaty, Brexit will make it less attractive to settle international disputes in London. (A recent example is G Rühl, ‘Die Wahl englischen Rechts und englischer Gerichte nach dem Brexit. Zur Zukunft des Justizstandorts England’ (2017) 2 JuristenZeitung p 72.)

    Is there anything positive that can be said in response? Despite the uncertainties, a few points can be made.

    Don’t panic, Mr Mainwaring

    First, regarding English choice of law agreements, any claims that agreement between the UK and the EU-27 on the continued application of the Rome I and II is required to avoid adverse post-Brexit consequences are misplaced. Neither depends on mutual reciprocity. EU courts will be obliged to give effect to English choice of law agreements under Rome I and II in exactly the same way as they did pre-Brexit. This is because the rules contained in both regulations are of ‘universal application’ and are not limited to a choice of law of EU member states. Consequently, Brexit will have little, if any, practical effect on the operation of English choice of law agreements in EU-27 courts.

    In the UK, both Rome I and Art 14 of the Rome II Regulation can be transposed into domestic law via the so-called Great Repeal Bill. English courts will continue to apply an essentially similar regime post-Brexit. While differences between the ‘Catholic’ and ‘Protestant’ texts will eventually arise, this should not damage London in the foreseeable future.

    In contrast, the Brussels I Recast Regulation depends upon reciprocity and sincere cooperation between member states. If the UK is not a member of the agreed scheme then transposing the Brussels I rules into UK domestic law is of no assistance.

    Instead of the common, autonomous criteria for deciding whether parties can and did consent to English jurisdiction now found in Art 25 of the Brussels I Recast, EU-27 courts will apply their own national laws. The new anti-abuse protections in Art 31 that gave precedence to the courts of a member state selected by such an agreement will also no longer apply. Consequently we may see proceedings in EU-27 courts by disgruntled parties suing in their home courts and alleging that any English jurisdiction is invalid.

    But the uncertainties in such circumstances can be exaggerated. Some EU-27 states have aligned their own national private international law rules with the common EU rules, and there may be little substantive difference in practice. Furthermore, when parties sue in countries willing to allow them to bring claims in breach of an English jurisdiction clause, then outside of the Brussels regime, English courts would be free to restrain them by issuing anti-suit injunctions and imposing fines and penalties for contempt. For some of London’s clients this may be a positive attraction. Indeed, the need to preserve anti-suit powers may give pause for considering whether joining an unmodified Lugano II is appropriate at all.

    It is undoubtedly correct that the relative ease of recognition and enforcement of judgments under the Brussels I Recast would be a loss. But it is not the end of the world. While there are interesting arguments that the superseded international conventions (the Brussels Convention 1968 and the Lugano Convention 1988) might spring back to life, there are also old judgment recognition conventions with a number of our major European trading partners (such as (West) Germany, The Netherlands, Italy, Belgium, Austria and Norway) that may definitely revive in significance after Brexit.

    Whether it is really the fear of disruption of their business with London and its markets that causes Europeans to honour English judgments, rather than the recognition of their enforceability under the Brussels Regime, remains to be seen. While short-term things may get messy, don’t bet against London anytime soon.

    Contributor Michael McParland QC, Quadrant Chambers and author of The Rome I Regulation on the Law Applicable to Contractual Obligations (OUP 2015)

     

     

     

    Michael McParland QC 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.  

    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 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. “

     

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  • Lifting Automatic Stays under Cross-Border Insolvency Regulations - Joseph EnglandView More

    Wed, 14 June, 2017

    Ronelp Marine Ltd & Others v STX Offshore & Shipbuilding Co. Ltd [2016] EWHC 2228 (Ch) is an example of the Court lifting the automatic stay on proceedings under the Cross-Border Insolvency Regulations 2006 (‘CBIR’), and allowing an English Commercial Court action, i.e. an unsecured claim, to continue on the basis of exceptional factors. 

    Joseph England outlines the repercussions of the above decision in a case review which was originally published in Volume 14, Issue 3 of International Corporate Rescue and which is available to read here with the kind permissions of the publishers, Chase Cambria. 

    Please click on the attached link to view the full article.

    Author: Joseph England

     

    Joe England practises in a wide range of commercial disputes.

    Joe began his legal career qualifying as a solicitor at Allen & Overy LLP before transferring to the Bar, where Joe spent the first year of his practice as the Judicial Assistant to Lord Sumption and Lord Wilson at the Supreme Court. He soon returned as counsel to the Supreme Court in Bank of Cyprus UK Limited v Menelaou [2015] UKSC 66, a case which has been the subject of much academic and judicial debate.

    Since starting practice in August 2013, Joe has also been engaged, on a near full-time basis, in a major ICC oil and gas arbitration in London and Geneva, and substantial related litigations, working and appearing with legal teams in Poland, The Netherlands, Ireland, Curaçao, Scotland, the US, London and Switzerland.

    Click to view Joe's full profile.

  • Admiralty Court judgment - Jurisdiction over torts committed within the UK’s Exclusive Economic ZoneView More

    Fri, 09 June, 2017

    The Admiralty Registrar has today handed down judgment in the matter of Virgin Media Ltd v Joseph Whelan T/A M & J Fish.  The judgment considers whether torts committed within the UK’s Exclusive Economic Zone (“EEZ”) are subject to the jurisdiction of the Courts of England and Wales by reason of Article 7 of the recast Judgments Regulation. 

    A copy of the judgment can be found here

    The scheme of the United Nations Convention on the Law of the Sea (“UNCLOS”) is to divide the sea into principal parts or zones.  An EEZ is “beyond and adjacent to the territorial sea” up to 200 nautical miles from the baselines from which the breadth of the territorial sea is measured.  Part V of UNCLOS grants the Coastal State (i.e. the state whose EEZ it is) certain exclusive or sovereign rights in respect of the EEZ and confers jurisdiction on the Coastal State over the EEZ for certain limited purposes. 

    The Claimant is the owner of the fibre optic telecommunications cable named Sirius South which runs across the Irish Sea between Lytham St Annes and Dublin. The Claimant alleged that the Defendant’s fishing trawler damaged the cable at a location which was outside UK territorial waters but within its EEZ. The Defendant was domiciled in the Republic of Ireland.

    The Claimant commenced proceedings in the English Courts claiming damages in negligence.  It contended that the Admiralty Court had jurisdiction over its claim by reason of Article 7 of the recast Judgments Regulation on the basis that the harmful event occurred within England and Wales.  It put particular reliance on the decision of Burton J in Conocophillips (UK) Ltd v Partnereederei MS Jork [2010] EWHC 1214 (Comm) where it was held that a claim for damages caused by a Vessel colliding with an unmanned oil platform located within the UK’s EEZ was subject to the English Court’s jurisdiction under the predecessor to Article 7 of the recast Judgments Regulation.

    The Defendant disputed jurisdiction on the basis that the mere fact that a tort occurred within the UK’s EEZ was not enough to ground jurisdiction in the English Courts and that Conocophillips should be distinguished.  In particular, the Defendant relied upon the differential treatment in UNCLOS of, for example, oil platforms (as in Conocophillips) and submarine cables (as in this case).   

    In the case of oil platforms, Articles 56 and 60 of UNCLOS granted the Coastal State the sovereign right to explore and exploit the natural resources of the waters, the seabed and subsoil, and the exclusive right to construct installations and structures for the purposes of exploration and exploitation of those resources.  Further, Article 60(2) expressly granted the Coastal State “exclusive jurisdiction” over installations and structures constructed for the purposes of exploration and exploitation of those natural resources.

    By contrast, Article 58(1) provided that all States (i.e. not just the Coastal State) had the freedom to lay submarine cables and pipelines within EEZs just as they had on the High Seas.

    In other words, UNCLOS does not grant exclusive or sovereign rights to, or confer jurisdiction upon, the Coastal State in respect of all matters and activities within the EEZ.  Rather the grant of rights and conferral of jurisdiction is functional and limited to specific matters or activities.  Those matters or activities do not include the laying of submarine cables.

    The Defendant, therefore, argued that there was no necessary connection between the Coastal State and the laying of submarine cables, since any State could lay a cable within any other State’s EEZ.  Given this lack of connection and the absence of any grant by UNCLOS on the Coastal State of a sovereign or exclusive right, still less a conferral of jurisdiction, in respect of submarine cables there was no reason why the UK’s EEZ should be treated as being part of the UK for the purposes of a claim for compensation for damage to a submarine cable. 

    The Admiralty Registrar accepted the Defendant’s arguments and held that the Court did not have jurisdiction over the Claimant’s claim.  

    Paul was instructed by Dale Stevens LLP on behalf of the successful Defendant.

  • Mediterranean Shipping Company SA v Glencore International AG [2017] EWCA Civ 365 - MSC EugeniaView More

    Thu, 08 June, 2017

    Mediterranean Shipping Company SA (“MSC”) and Glencore International AG (“Glencore”) are major carriers and traders respectively. This dispute between them involved a claim which was not large in money terms, but which raised a number of questions of some general importance in relation to (a) electronic bills of lading and delivery orders and (b) waiver and estoppel. Michael Howard QC looks at the decision. 

    Counsel for Appellants: Michael Howard QC and Yash Kulkarni, instructed by Duval Vassiliades

    Counsel for Respondents: John Passmore QC instructed by Gateley PLC

    Between January 2011 and June 2012, 70 consignments of drums of cobalt briquettes were shipped by Glencore and carried by MSC to Antwerp on a standard form MSC bill of lading. On the last occasion, when the receiver’s haulier went to collect the goods from the port, two of the three containers had gone missing, and it was common ground that they had been misappropriated by persons unknown who had succeeded in penetrating the release procedures.

    The bill of lading was a “to order” bill, on the front of which appeared the following provision:-

    If this is a negotiable (To Order/of) Bill of Lading, one original Bill of Lading, duly endorsed must be surrendered by the Merchant to the Carrier (together with outstanding freight) in exchange for the Goods or a Delivery Order.

    In 2005 the Port Authority in Antwerp had introduced a new procedure, the Electronic Release System, or ERS. Under this procedure, when bills of lading are presented, the carriers provide computer generated electronic numbers to the relevant receivers or their agents and the port terminal. These numbers are given instead of Delivery Orders or Release Notes, and are not seen by the Carriers, who generate them through the Port Authority. The holders of the bills then present the pin codes to the terminal to take delivery of the goods, normally by the collecting driver entering the pin codes at the terminal. This system is not mandatory and is not adopted by all the carriers using the port; but it had been employed for all 69 previous shipments of cobalt by MSC and Glencore’s port agents, Steinweg.

    MSC operated the system by sending a release note providing the pin codes by email on presentation of a bill of lading (and payment of all outstanding charges). The trial judge found that Glencore was unaware at the time of shipment that Steinweg and MSC were using the ERS. He also held that the port agents had no authority to vary the contract of carriage. These two conclusions were not challenged on appeal. He held that MSC were liable for misdelivery and that the release note, whether or not coupled with the pin code, did not amount to a delivery order as required by the bill of lading; nor in any event to a ship’s delivery order within the meaning of section 1(4) of the Carriage of Goods by Sea Act 1992. He also held that Glencore were not estopped by the conduct of their agents in accepting the varied procedure on 69 previous occasions from insisting on strict performance on the seventieth.

    Four grounds of appeal were advanced, namely:-

    i. that there had been a symbolic delivery, because the provision of the pin codes was equivalent togiving the receiver the key to the warehouse;

    ii. that the release notes coupled with the pin codes amounted to a delivery order and that was sufficient;

    iii. that the release notes coupled with the pin codes did in any event amount to a delivery order within the meaning of the 1992 Act; and

    iv. that the conduct of Glencore’s agents gave rise to an estoppel against challenging the revised delivery procedure.

    There was also an application to add a further ground on the basis of evidence coming to light after the trial, but the application was dismissed.

    Ground (i), symbolic delivery failed on the facts, and calls for no further comment.

    Sir Christopher Clarke gave the only reasoned judgment in the Court of Appeal, Lewison and Henderson LJJ agreeing. He held in relation to ground (ii) that the term delivery order might have several meanings, but in the context of this bill of lading meant a ship’s delivery order, as that expression was defined in Section 1(4) of the Carriage of Goods by Sea Act 1992 which provides as follows:-

    4. References in this Act to a ship's delivery order are references to any document which is neither a bill of lading nor a sea waybill but contains an undertaking which—

    a. is given under or for the purposes of a contract for the carriage by sea of the goods to which the document relates, or of goods which include those goods; and

    b. is an undertaking by the carrier to a person identified in the document to deliver the goods to which the document relates to that person.

    In relation to ground (iii), he rejected Glencore’s submission that the electronic release note was not a document, but he upheld their submission that it was not a delivery order within section 1(4) either because it did not contain an undertaking to deliver to anyone, or because it did not contain an undertaking to deliver specifically to Glencore or its port agent. It seems therefore that the Court required an express identification of the obligor and the obligation.

    So far as estoppel, ground (iv), is concerned, the Court rejected the submission that the 69 previous transactions where the ERS had been followed by the parties gave rise to an estoppel in favour of MSC. It was held that there was no representation by Steinweg that the Release Notes coupled with the PIN codes were to be treated as the equivalent of delivery orders for the purposes of the bill of lading. Rather they were merely repeated instances of toleration by the receivers of breach of contract by the carriers in tendering documents in exchange for the bill of lading other than a delivery order as required by the terms of the bill. The decision therefore illustrates the distinction between contractual waiver and waiver/equitable estoppel. The Court also held that just as Steinweg lacked authority to vary the contract, so they lacked authority to waive the terms so as to create an equitable estoppel even though they could waive the breach.

    The decision is of general interest for three main reasons. First, there was no previous guidance as the interpretation of the expression “ship’s delivery order” in section 1(4) of the 1992 Act. Secondly, the case concerned a commonly used term in a bill of lading in the context of what is a procedure increasingly to be found in ports, particularly large container ports, which have throughout this century been introducing systems whereby containers may or must be retrieved from a container park by reference to computer codes rather than the presentation of physical documents. The result of the Court’s decision is in effect to transfer of the risk of theft from the receiver to the carrier in such cases. Thirdly, the decision on estoppel is a striking illustration of the way in which the rules relating to variation of contract, equitable estoppel, waiver and the authority of agents as regards all of these may intersect. 

    To download a copy of the Judgment, click here.

  • Case Update: The Primacy of Language in the Construction of (Commercial) ContractsView More

    Mon, 05 June, 2017

    Simon Rainey QC and John Russell QC

    Gard Shipping v Clearlake Shipping [2017] EWHC 1091 (Comm) Sir Jeremy Cooke 12 May 2017

    Persimmon v Ove Arup [2017] EWCA Civ 373 Court of Appeal (Jackson, Beatson, Moylan LJJ) 25 May 2017

    In this update, we draw attention to two recent cases addressing the correct approach to the construction of contracts.

    The Gard Shipping case is of interest, as it is the first application in a first instance decision, of the recent Supreme Court decision in Wood v Capita Services, which rejected the suggestion that there was any tension between the Supreme Court’s earlier decisions in Rainy Sky v Kookmin Bank and Arnold v Britton.  It also considers the application of the Supreme Court decision on the implication of terms in Marks & Spencer v BNP Paribas.

    The decision in Persimmon is striking, not so much for what it decides, as to the doubt it casts on the continuing relevance in commercial contracts, of the principle of contra proferentem and the rule in relation to exemption clauses flowing from the Canada Steamship case.

    Gard Shipping v Clearlake
    The Supreme Court decision Rainy Sky in 2011 opened the floodgates: no case on construction could be argued without it being asserted or, indeed, “trumpeted” (per Eder J in Aston Hill Financial) by each side that its interpretation made more commercial sense.

    This development was not embraced with enthusiasm by most first instance judges. How could advocates or judges discern what, objectively, made commercial sense in myriad different circumstances?  And even if they could, construing a contract in accordance with objective commercial sense risked rewriting the bargain actually struck by the parties.

    Such doubts seemed to be reflected in the subsequent Supreme Court judgment in Arnold v Britton in June 2015.  This was widely seen as being a “rowing back” from the free-for-all of Rainy Sky.  Although there was no criticism of Rainy Sky per se, the Supreme Court emphasized the importance of the language of the provision which was to be construed.  Commercial common sense was not to be invoked to undervalue the importance of the language.

    Then, in March of 2017, came the Supreme Court decision in Wood v Capita Services. Giving the only judgment, Lord Hope emphatically rejected the submission that Arnold was a rowing back from or recalibration of Rainy Sky.  What the court has to do, in any case, is, in the unitary exercise of construction, balance the indications given by the language and the commercial implications of competing constructions.  The balancing exercise is key to the approach.

    As to how that balance is to be struck, Lord Hodge identified 3 factors (which must be viewed as non-exhaustive): (1)  the quality of the drafting - the poorer the drafting the more the balance may tip away from a strict semantic reading;  (2) the court should bear in mind that one party may simply have made a bad bargain; and (3) the court should bear in mind that the drafting may be a negotiated compromise, with the parties unable to agree more precise terms.

    Gard shows the first application of Wood in a first instance decision.

    A voyage charterparty based on BPVOY4 contained standard laytime/ demurrage provisions. It also contained specifically agreed terms that the charterers had the liberty to order the vessel to stop and wait for orders.  If they exercised that liberty, waiting time was to count as laytime and demurrage was to be payable at enhanced and escalating rates.  The charterers did not give a “stop and wait” order.  Instead, after the vessel tendered a Notice of Readiness (NOR) at the discharge port, the charterers simply gave no discharge orders at all for over 2 months.

    The owners argued that it was clear that the commercial purpose of the clause was to make the charterers pay at the enhanced rates, where they used the vessel as floating storage. They had used the vessel as floating storage at the discharge port.  It could make no commercial sense if the charterers could avoid the enhanced rate by the tactic of giving no orders, after NOR, rather than giving a “stop and wait” order.  Commercially the two amounted to the same thing, and should attract the same consequences.

    Sir Jeremy Cooke had no hesitation in rejecting this argument. The wording of the specially agreed terms required a “stop and wait” order to trigger the enhanced rates.  There was no such order.  Therefore, the enhanced rates were not triggered.  The ordinary demurrage rate applied.  He also firmly rejected the owners’ alternative argument based on an implied term on the grounds of lack of commercial necessity.

    This case, therefore, provides an early indication that in charterparties, which are indeed often a negotiated compromise, in carrying out Lord Hodge’s balancing exercise judges will give more weight to the words the parties have actually used, rather than arguments based on supposed commercial common sense. Notwithstanding Lord Hodge’s assertion that Arnold did not recalibrate Rainy Sky, the post-Arnold focus on the actual words of the contract is likely to be maintained.

    Persimmon v Ove Arup
    The correction of approach to the relevance and utility of the so-called “commercial” approach to construction of commercial contracts post Arnold v Britton and the current emphasis on the primacy of the language used by the parties as usually the best and surest guide to what they intended to achieve has found an echo in the rather different field of exemption clauses. The traditional approach that an exclusion or exemption clause is to be construed contra proferentem (once one has decided who the proferens is) in the event of any ambiguity has ruled the field for many years, although there have been many statements to the effect that it is not to be deployed where the words are themselves sufficiently clear. But the trend has increasingly been to give effect to exclusion clauses in commercial contracts without resort to maxims of hostile construction where the wording is subjected to some special linguistic threshold or a more demanding need for clarity.

    An early indication of the new approach was given by Lord Neuberger MR in K/S Victoria Street v House of Fraser [2011] EWCA Civ 904, although was perhaps lost sight of. The position was reviewed more clearly and emphatically in the context of the mutual indemnities and exclusions in Transocean Drilling v Providence Resources (The Arctic III) [2016] EWCA Civ 372 where the Court of Appeal ruled that the principle had no role to play in the case of a mutual clause “especially where the parties are of equal bargaining power”, and stressed the parallels with Arnold v Britton. The Court distinguished the sort of mutual exclusion clause before it from what it described as “a typical exclusion clause, by which a commercially stronger party seeks to exclude or limit liability for its own breaches of contract.” The decision raised a number of questions in particular as to equality of bargaining power and the consistency of the Court’s approach in the light of a case decided by the Court of Appeal just shortly before (: Nobahar-Cookson v The Hut Group Ltd [2016] EWCA Civ 128) in which the contra proferentem approach appeared to receive restatement and approval. However the Court was clear that it was not intending to cast any doubt on the allied principle of construction that clear words were required to exclude liability for negligence and the ‘Rule’ in Canada Steamship.

    The recent decision in Persimmon Homes v Ove Arup appears to continue the trend towards minimising the scope for a contra proferentem approach generally, and not just in the context of mutual exclusion or exemption clauses. The case raised issues of construction under a contract for consultancy and surveying services rendered by Ove Arup to Persimmon and other parties relating to a redevelopment project for the Barry Docks. Asbestos was found in more than expected quantities for which it was alleged that Ove Arup was responsible by negligently failing to detect and manage that risk. A number of issues arose as to the application of exclusion and limitation clauses. In particular a clause which read “Liability for any claim in relation to asbestos is excluded”.

    The Court of Appeal re-endorsed in terms the approach in K/S Victoria Street to the effect that the language used should be and usually is enough to resolve the meaning without resort to “rules” of construction and the approach taken in The Arctic III.  But more importantly it went a step further and doubted the relevance and applicability of the Canada Steamship principles (by which a clause must either expressly refer to negligence or some synonym of it or, if it does not, must indicate that it covers negligence with general words being read as covering non-negligent liability if possible to do so and unless such liability is fanciful).

    The Court stressed that it was necessary to distinguish between a simple exclusion of liability and an indemnity clause requiring a party to hold the other harmless from the consequences of that party’s negligence and that, at least in the former case, the Court’s “impression” was that Canada Steamship guidelines “in so far as they survive” are “now more relevant to indemnity clauses than to exemption clauses” and that in commercial contracts between sophisticated parties, such as a large construction contract, it should all turn on the language. The Court made it clear that the wording in question (referred to above) was clear enough to cover liability for negligence and that Canada Steamship was simply not of assistance. As belt and braces the Court then applied Canada Steamship and held that any liability other than liability for negligence was indeed fanciful.

    The case represents a further cutting back of the application of technical canons of construction to exclusion clauses in the commercial context in favour of simply giving ordinary language its effect. It also states, perhaps more clearly than before, that the same approach applies generally and that Canada Steamship is not exempt from the process.

    Although the Court was at pains to stress that the issues before it were not such as to merit a general review of Canada Steamship, its words will be likely to be cited generally as building on an Arnold v Britton approach, even to exclusion clauses: “Exemption clauses are part of the contractual apparatus for distributing risk. There is no need to approach such clauses with horror or with a mindset determined to cut them down.”

  • Commercial Chancery specialist Nicola Allsop joins Quadrant ChambersView More

    Thu, 18 May, 2017

    We are delighted to welcome commercial chancery specialist Nicola Allsop to Quadrant Chambers. Nicola specialises in civil fraud, insolvency and company law (particularly shareholder disputes) and litigation arising out of the breakdown of business relationships. Her practice has a strong international element, including cross-border and jurisdiction disputes.  She was called to the Bar of the BVI in 2012 and the Cayman Islands in 2016.

    Nicola brings with her a wealth of trial experience both as sole counsel and as part of a team. Notable cases include the Weavering litigation which occupied her throughout most of 2016 and concerned a claim against the Fund’s Cayman auditors arising out of a large-scale fraud perpetrated by the Fund’s founder Magnus Peterson; a 10-week fraud trial Sita v Serruys; a series of matters arising out of the collapse of the Arch Cru Fund; and a long-running shareholder dispute involving the Barclay Brothers and the affairs of Coroin Limited, the owner of Claridges, the Berkeley and the Connaught.

    “I am delighted to be joining Quadrant Chambers, I am particularly impressed with the professional, commercial and business attitude adopted to the running of chambers and the approachability of barristers and clerks. I look forward to adding strength to their already dynamic commercial chancery team.” Nicola Allsop

    “It is a pleasure to welcome Nicola to Quadrant Chambers, with her commercial chancery and international experience she will be a tremendous asset to our highly regarded commercial chancery team”. Luke Parsons QC, Head of Quadrant Chambers

    Nicola joining Quadrant Chambers further strengthens the commercial chancery team and is part of the active recruitment of commercial chancery practitioners to chambers. 2017 has seen two new commercial silks for chambers, with the elevation of Michael McParland QC and Robert-Jan Temmink QC. We are recommended in the UK, Asia-Pacific and Global legal directories and as a leading set in the fields of commercial dispute resolution, aviation, commodities, energy, insurance & reinsurance, international arbitration and shipping. Quadrant was named International Arbitration set of the year at the 2017 Legal 500 UK Awards and has been shortlisted for Chambers of the Year at The Lawyer Awards 2017.

    We welcome applications from established individuals or teams. Enquiries and applications in the first instance should be made in confidence to Chirag Karia QC.

  • Michel Kallipetis QC Awarded Who’s Who Legal Mediator of the Year 2017View More

    Wed, 17 May, 2017

    We are delighted to announce that Michel Kallipetis QC has been awarded Mediator of the year 2017 and listed in Who’s Who Legal Global Thought Leaders for Mediation.

    Please click here  to view all Who's Who Legal Practice Area Awards 2017.