News

  • Quadrant Chambers one of the most recommended sets in Legal 500 Asia-Pacific 2018View More

    Thu, 30 November, 2017

    We are delighted to have been one of the most recommended sets in the latest edition of the Legal 500 Asia-Pacific Guide. We have 13 new rankings, bringing us to 18 silk and 15 junior recommendations across the commercial, energy and shipping practice areas.  

    Quadrant Chambers is ‘highly regarded for shipping and insurance matters, with members who are exceptionally knowledgeable, user-friendly and supportive in complex cases’. Although best known in the shipping space, it also handles a range of commercial disputes. The joint senior clerks ‘provide a reliable and helpful service throughout’: Gary Ventura is ‘standout’ and Simon Slattery is also ‘particularly good’.

    The English Bar - Commercial

    Quadrant Chambers is ‘equipped with highly experienced commodities barristers, both senior and junior, so can provide an all-round service’. Members have expertise across ‘hard’ and ‘soft’ commodities work, as well as other commercial matters.

    Luke Parsons QC - ‘He appears in heavyweight commodities cases’.

    Paul Toms - ‘He appears in commodities disputes’.

    The English Bar - Energy

    Quadrant Chambers has a number of members involved in oil rig construction cases, as well as energy commodity matters and London litigation surrounding the enforcement of arbitral awards. Luke Parsons QC represents TMT Asia in its long-running dispute with BHP Billiton regarding energy transportation.

    Luke Parsons QC - ‘Instructed in disputes at the interface of shipping, commodities and energy.’

    Lionel Persey QC - ‘He is super-efficient, straightforward and very strong on the analysis of complex cases.’

    Simon Rainey QC - ‘A first-choice QC for the very complicated cases.’

    Nigel Cooper QC - ‘Instructed in oil rig building disputes.’

    James Turner QC - ‘A popular choice for offshore vessel construction cases.’

    Chris Smith - ‘He is outstanding in his legal analysis and presentation of cases before tribunals.’

    The English Bar - Shipping

    Quadrant Chambers is ‘well known as one of the leading maritime sets in London’. It handles a range of dry shipping work as well as being ‘particularly strong in admiralty matters’. Simon Rainey QC and Andrew Leung are instructed to represent a Malaysian party in a charterparty dispute regarding the closure of an iron ore mine after a dam in Minas Gerais collapsed in 2015.

    Luke Parsons QC - ‘He appears in multi-faceted matters spanning litigation and arbitration.’

    Lionel Persey QC - ‘A pleasure to work with: considered, thorough and extremely user-friendly.’

    Simon Rainey QC - ‘He is a gift to the Bar – he can always think a few steps ahead and understands both the legal and commercial perspectives.’

    Simon Kverndal QC - ‘His knowledge of shipping law is excellent – he provides prompt responses on complex issues.’

    Nigel Jacobs QC - ‘His work includes shipping and commodities arbitrations across Asia.’

    Simon Croall QC - ‘He approaches his cases methodically and with clear thinking.’

    Nigel Cooper QC - ‘He appears in dry and wet shipping cases.’

    Robert Thomas QC - ‘His work ranges from charterparty disputes through to unusual vessel construction.’

    Chirag Karia QC - ‘His work includes a range of chartering and award enforcement matters.’

    James Turner QC - ‘He provides clear and authoritative advice’.

    Michael Davey QC - ‘His work spans shipping and commodities.’

    Michael Nolan QC - ‘His work includes wet shipping matters.’

    Nevil Phillips - ‘User-friendly, innovative, proactive, and the best advocate money can buy.’

    Thomas Macey-Dare - ‘A dry and wet shipping junior, also admitted in New York.’

    Stewart Buckingham - ‘Involved in cases regarding some of the world’s most challenging jurisdictions.’

    Chris Smith - ‘He is often the equal of silks on the other side.’

    Caroline Pounds - ‘She is incredibly thorough and immerses herself in the details of complex cases.’

    Paul Toms - ‘He regularly represents Chinese shipyards.’

    Paul Henton - ‘His work covers shipping and commodities.’

    Gemma Morgan - ‘She is led by top silks in challenging shipbuilding cases.’

    David Walsh - ‘He appears for Asian ship financiers, charterers and builders in London and Hong Kong arbitrations.’

    Natalie Moore - ‘She appears in charterparty and cargo claims.’

    Benjamin Coffer - ‘He appears in cases concerning cargos and charter parties.’

    Henry Ellis - ‘A shipping junior with experience in Singapore arbitrations.’

    Andrew Leung - ‘Excellent on detail, strategy and responsiveness.’

  • Quadrant Chambers shortlisted 8 times for the 2018 Legal 500 AwardsView More

    Fri, 24 November, 2017

    We are delighted to announce the following nominations for the 2018 Legal 500 UK Bar Awards.
     

     

    Full details of the nominations can be viewed here

  • Arbitration Blog: Relief and confidentiality - Nevil PhillipsView More

    Mon, 20 November, 2017

    Relief and confidentiality: Sowden v Smyth-Tyrrell and UMS Holdings Ltd v Great Station Properties SA

    By Nevil Phillips

    (This blog was first published on the Practical Law Arbitration Blog on 3 November 2017. To view the original post. please click here.)

    Two recent decisions of the High Court have provided salutary illustrations, reminders and guidance as to substantive and procedural aspects of English arbitration law: one in the context of the requirements for relief under section 68 of the Arbitration Act 1996 (AA 1996), and the other as regards arbitral confidentiality and the extent to which that may survive (or be protected in) a challenge process via the High Court.

    Relief under section 68

    In Sowden v Smyth-Tyrrell, the court was concerned with a statutory arbitration. The decision reminds us of five things.

    First, the AA 1996 is no less applicable to statutory/mandatory arbitration than to consensual arbitration (see paragraph 56, citing Compton Beauchamp Estates Ltd v Spence per Morgan J at paragraph 37.

    Second, that for the purposes of sections 57 and 70(2) of the AA 1996, where, on a fair reading, the application to the tribunal under section 57 seeks in substance the clarification which is relevant to the subsequent application under section 68, the fact that it may not have done so in so many words will not bar the latter by reason of section 70(2) (see paragraph 22).

    Third, for the purposes of section 68, it must be shown that what has happened is “so far removed from what could reasonably be expected of the arbitral process” (per the Departmental Advisory Committee on Arbitration (DAC) Report at paragraph 280) that the court can answer “yes” to the question: “Is this so unfair that it cannot reasonably have been expected of the process?”. Without that, there will have been no “substantial injustice”: see paragraphs 55-60.

    Fourth, where a party seeks to argue that section 68 is triggered because of a failure of the tribunal to address an argument advanced before it, “Arbitrators do not have to deal with every argument on every point raised; they should deal with essential issues” (per Morison J in Fidelity Management SA v Myriad International Holdings BV at paragraph 9). As stated by Clarke J in Van der Gieesen-de-Noord v Imtech Marine at paragraph 14:

    “A failure to deal with an issue is not the same as a failure to set out the reasoning for rejecting a particular argument.”

    Fifth, the fact that the tribunal admits to an irregularity for the purposes of the section: see paragraphs 21, 25 and 38.

    Confidentiality

    Meanwhile, in UMS Holdings Ltd v Great Station Properties SA, Teare J provided guidance on the scope of arbitral confidentiality in the context of a challenge to an arbitral award in the High Court (there, under section 68 of the 1996 AA 1996, further to a reference under the London Court of International Arbitration (LCIA) Rules).

    The respondents challenged an award under section 68, and the hearing of that challenge was heard in public (further to an order of the court). The challenge under section 68 failed and the resulting judgment was also treated as public.

    The respondents contended that the claimants remained under an obligation of confidentiality under Article 30 of the LCIA Rules and that the challenge process under section 68 AA 1996 (and any judgment or order made as part of that process) did not serve to discharge that. They therefore applied for an order to the effect that the award may not be used by that party for any purpose other than the proceedings.

    Teare J (applying NAB v Serco Limited at paragraphs 26 and 36) concluded that, by the section 68 process, the award had entered the public domain: see paragraph 20.

    Against that backdrop, Teare J therefore concluded that the obligation under Article 30 of the LCIA Rules (which he concluded, on balance, gave rise to an undertaking “to keep confidential” all awards) no longer continued to exist: see paragraph 21.

    However, the judge was “troubled by the suggested conclusion that the Claimants should therefore be able to do with the Award as they wish”. This was especially so “in circumstances where the court does not know what the Claimants intend to do with the Award” and where “The Award was a confidential document and has only entered the public domain because the court considered, having regard to the principle of open justice, that the section 68 challenge should be heard in public”: see paragraph 22.

    Accordingly, as part of the court’s “inherent jurisdiction to regulate the consequences of its order that the section 68 challenge be heard in public”, Teare J made the order sought by the respondents, stating, at paragraphs 22 and 23, that:

    “It does not appear to me to follow that where the Award has entered the public domain because of the court’s own order the Claimants should be free to do what they like with the Award. Some uses of the Award (for example, showing it to a business associate) would be inimical to the confidentiality which normally attaches to awards”.

    Nevil Phillips

    Nevil Phillips has been listed for many years as a Leading Junior in Shipping, Commodities, and Trade & Customs by The Legal 500, Chambers UK, Chambers Asia-Pacific, and Who's Who Legal, and Best Lawyers where he has been variously cited as "an outstanding advocate, incredibly fast thinking and a real problem solver", and "a very polished advocate, who gets results through his preparation and through his clear and compelling presentation of the client's case". Nevil was Acquisition International's "Best Shipping Barrister – UK" in their 2015 Legal Awards.

    He has featured as successful counsel in a number of recent high-profile commercial and shipping cases. These include SBT Star Bulk and Tankers (Germany) GmbH Co KG v Cosmotrade SA (The Wehr Trave) [2016] EWHC 583 (Comm) (the leading case regarding the scope of charterers' rights under a time charter trip), Spar Shipping AS v Grand China Logistics Holding (Group) Co Ltd [2015] EWHC 718 (Comm) (the leading case regarding renunciation under time charters and whether payment of timely advance hire is a condition), and Libyan Navigator Ltd v Lamda Maritime Holdings Sp. z. o. O [2014] EWHC 1399 (Comm) (the leading case regarding the interpleader procedure in the context of liened sub-hires and sub-freights.

    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.

    He has substantial experience as an arbitrator, and has also given expert evidence on English law to courts in other jurisdictions. He has also written and/or contributed to a number of leading text books in his fields, including his own authoritative work on "The Merchant Shipping Act 1995 – An Annotated Guide".

    Nevil is a popular and regular choice as a presenter/speaker at legal and corporate functions, seminars and lectures.

    > View Nevil's full profile
    nevil.phillips@quadrantchambers.com

  • COMI Factors and Improper Motive Reviewed - Liisa LahtiView More

    Fri, 17 November, 2017

    Thomas v Frogmore: COMI Factors and Improper Motive Reviewed

    By Liisa Lahti

    This article was originally published in International Corporate Rescue, Volume 14 Issue 5, 2017.  Please click here to read the original article.

    The recent case of Thomas & another v Frogmore Real Estate Partners & others [2017] EWHC 25 (Ch) provides useful guidance for analysing the centre of main inter- ests (‘COMI’) of a company not registered in the UK or other EEA state and therefore of the circumstances in which UK courts will allow insolvency proceedings to be instigated within the jurisdiction in the relating to such a company.

    Further the judgment is one of only a few cases to comment on the scope of the ‘improper motive’ provi- sion, contained in paragraph 81 of Schedule B1 to the Insolvency Act 1986 (the ‘Act’), which provides that the court may terminate an administration where the appointor had an ‘improper motive’ for making the appointment.

    The facts

    The case involved three companies, FREP (Knowle) Limited, FREP (Ellesmere Port) Limited and FREP (Belle Vale) Limited (the ‘Companies’). The Companies form part of Frogmore group, which specialises in real estate investment  and management  in the  UK.

    The Companies were special purpose vehicles, formed for the acquisition of three shopping centres. Each of the Companies owns a shopping centre located in England (‘the Shopping Centres’). The Companies were registered in Jersey (which is not a EEA state). However, they did not carry on any trading operations in Jersey, did not have employees of their own, their principal assets (namely the Shopping Centres) were situated in England and the sole shareholder of the Companies, Frogmore Real Estate Partners GP1 Limited (the ‘Share- holder’), was an English company.  Further each of  the Shopping Centres was managed by Frogmore Real Estate Investment Managers Limited (‘FREPIM’), an English company with its registered office and base in London

    Nationwide Building Society (‘Nationwide’) had advanced substantial sums to the Companies under a facility agreement (the ‘Facility Agreement’). Security in respect of this loan had been provided by the Compa- nies by a combination of debentures (the ‘Nationwide Debentures’). Pursuant to these arrangements, the Companies owed and were required to repay over £106 million to Nationwide on 1 October 2016. They failed to do so. Therefore in November 2016 administrators were appointed by Nationwide under floating charges granted in its favour. There had also been on-going pro- ceedings since December 2014 between the Companies and FREPIM against Nationwide, after Nationwide decided to transfer its economic interest in the loans to another company (the ‘2014 Litigation’).

    The issues

    It was common  ground  that  for  the  administrators to be validly appointed the Companies had to have their COMI in England and Wales. The administrators applied for a declaration as to the location of the Com- panies’ COMI.

    Further, the Companies applied for an order termi- nating the administrators’ appointment arguing that Nationwide had had acted with an improper motive   in that the purpose of appointing the administrators had been to stifle the progress of the December 2014 litigation.

    Therefore the issues were (1) the location of the Companies’ COMI and (2) whether the administrators’ appointment should be terminated on the basis of an improper motive on Nationwide’s part.

    Issue 1: COMI

    The starting point is that a company’s COMI is where its registered office is located. Paragraph 111(1B) of the Act and Article 3 of the EC Regulation together create a rebuttable presumption that the location of the regis- tered office of a company will be its COMI.

    Existing case law, in particular the decisions of the European Court of Justice, in Re Eurofood IFSC Ltd (Case 341/04) [2006] Ch 508 and Interedil Srl v Fallimento Interedil Srl (Case C-396/09) [2012] Bus LR 1582 provide guidance as to what might rebut the presumption.

    In Eurofood the European Court of Justice explained that the COMI must be identified by reference to crite- ria that are both objective and ascertainable by third parties.

    ‘[The] presumption in the second sentence of article 3(1) of  the Regulation may be rebutted, however, where, from the viewpoint of third parties, the place in which a company‘s central administration is lo- cated is not the same as that of its registered office. As the court held in In re Eurofood IFSC (Case C-341/04) [2006] Ch 508, para 34, the simple presumption laid down by the European Union legislature in favour of the registered office of that company can be rebutted if factors which are both objective and ascertainable by third parties enable it to be established that an actual situation exists which is different from that which locating it at that registered office is deemed to reflect’ (Interedil, para. 51).

    Further

    ‘[t]he factors to be taken into account include, in par- ticular, all the places in which the debtor company pursues economic activities and all those in which it holds assets, in so far as those places are ascertainable by third parties’ (Interedil, para. 52).

    Applying the existing case law and guidance the court held that the COMI of all three of the Companies was in England rather than in Jersey where the Companies were registered.

    The day-to-day conduct of the business was in the hands of an agent (namely FREPIM) that was an English company, appointed in England, pursuant to an English law governed agreement. The actions of FREPIM were not just limited commercial activities but included the types of function that one would expect a head office to discharge, including working on investment strat- egy and business plans for the Companies, instructing lawyers, surveyors and consultants for them, negotiat- ing the purchase and sale of properties on their behalf and so on. Similarly, the day-to-day dealings with third parties were carried out from the offices of FREPIM in London. For example the companies’ VAT returns stated that the FREPIM London office was the business address for the Companies.

    Further the Facility Agreement and Nationwide Debentures were governed by English law and made ref- erence to Nationwide’s ability to appoint administrators under the Act. Nationwide was the Companies’ largest creditor, and therefore its views were important when deciding the issue of the Companies’ COMI.

    The Companies sought to establish that their COMI was in Jersey and relied on the fact that Board meetings were held in Jersey. However the court did not find this persuasive. A third party would not know where Board meetings are taking place. In any event the location of the board was of limited importance in circumstances where the day-to-day  conduct and business dealings  of the Companies were carried out through FREPIM in London.

    This aspect of the decision serves as an important reminder, for debtors and creditors alike, of the court’s objective approach in ascertaining the COMI of a com- pany not registered in the EEA but operating in the UK.

    Though the starting point is to look at a company’s reg- istered address that is not the end of the matter. A case and fact specific analysis needs to be carried out.

    Issue 2: Improper motive

    In respect of the second issue, the Companies submit- ted that Nationwide had acted with an improper motive in that the purpose of appointing the administrators had been to stifle the progress of the December 2014 litigation.

    Paragraph 81 of Schedule B1 of the Act provides:

    ‘(1) On the application of a creditor of a company the court may provide for the appointment of an administrator of the company to cease to have effect at a specified time.

    (2) An application under this paragraph must allege an improper motive (a) in the case of an admin- istrator appointed by administration order, on the part of the applicant for the order, or (b) in any other case, on the part of the person who appointed the administrator.
    On an application under this paragraph the court may -

    • adjourn the hearing conditionally or unconditionally;
    • dismiss the application;
    • make an interim order;
    • make any order it thinks appropriate (whether in addition to, in consequence of or instead of the order applied for).’

    This provision was introduced as an amendment to the 1986 Act the by the Enterprise Act 2002, Schedule 16, paragraph 1. The court observed that there was little in the way of explanation as to what lay behind this amendment. No guidance was to be found in the mate- rial published by the relevant government departments and agencies which sponsored the amendment nor was there any debate on the provision recorded in Hansard. The court held that it was invidious to attempt to pinpoint precisely what form the motivation must take for the statutory jurisdiction to be invoked. The test is whether there is a motive that is not in harmony with the statutory purpose of administration and that is causative of the decision to appoint. If there is no dis- harmony it is difficult to see why the motive should be treated as a material matter militating towards termination of the administration.

    Further, following the reasoning in the Northern Irish case of Cursitan v Keenan [2011] NICh 23, the court held that even where there is a finding of an improper motive, the court has a wide discretion as to whether to terminate an administration.

    ‘If the statutory purpose of administration would be likely to be achieved, notwithstanding the motives of the appointor, like McCloskey J. in Cursitan it seems to me that this would normally be the main touch- stone for the court. The existence of an improper motive may become of relative insignificance in such circumstances, particularly where the appointor’s improper objective was not actually achieved.’ (para. 47 of the Judgment).

    The court did not find a improper motive on the facts of the case. The date of repayment for Nationwide’s loans had been set as October 2016 for some years, Nationwide had offered to extend the date for repayment by six months and the deadlines set had not been unreasonable. Further, even if there had been an im- proper motive, there was no satisfactory evidence that the statutory purposes of the administration were not likely to be achieved. Therefore the court did not inter- fere with the administrators’ appointment.

    This aspect of the decision is likely to be welcomed by administrators and potential appointors alike because it provides certainty. Essentially as long as the statu- tory purpose of administration is reasonably likely to be achieved, the motivation for the appointment is irrelevant. Therefore it appears that courts will only interfere with appointments in limited and somewhat extreme circumstances.

     

    Liisa Lahti

    Liisa has a broad commercial practice work covering banking & finance, international trade, shipping and insurance. She is commended in the latest editions of the legal directories as: "very intelligent and very to the point."..."hard-working, bright, commercially minded and a real joy to work with."...."proactive, very responsive and someone whose legal analysis is very good" and that she "grasps the issues, has a good handle across the piece and is good at suggesting routes forward".

    Before coming to the Bar Liisa spent two and a half years at Freshfields Bruckhaus Deringer, where she gained experience in the Corporate, Finance and Litigation Departments and spent time on secondment to ExxonMobil.

  • Do not fret over air-freight - the freight rule applies to freight earned in carriage by airView More

    Tue, 14 November, 2017

    Schenker Ltd v Negocios Europa Ltd (6th October 2017) Moulder J (unreported) - Jonathan Chambers

    In an under-reported judgment the English Courts have finally confirmed the oft-presumed position that the English freight rule applies to carriage by air.

    The common law rule does not require contractual incorporation. It provides that a claim in respect of damage, loss or delay to cargo cannot be asserted by way of deduction from a freight invoice. Thus a cargo claimant must pay freight in full notwithstanding that his cargo may not have arrived or have arrived damaged or late. The rationale for the rule is that there should be prompt payment, avoidance of delay, protection of cash flow and some assurance that a carrier is not disadvantaged in providing credit.

    The English common law “freight rule” has been established for more than 100 years in carriage of goods by sea (The Brede [1974] Q.B. 233 & The Aries [1977] 1 W.L.R. 185) and has been extended to domestic and international road haulage (United Carriers Ltd v Heritage Food Group (UK) Ltd [1996] 1 W.L.R. 371).

    Despite the significant difference between the time and cost of transportation by air and sea, the English Court held there was no logical or sensible distinction to be made between different forms of transport and applied the common law rule.

    The effect is that summary judgment for freight will now be a potent weapon in the hands of air carriers where cargo claimants seek to withhold payment.

     

     Jonathan Chambers

    Jonathan has a broad practice covering all aspects of commercial and transport law.  He is consistently ranked by Chambers UK and Legal 500 as a Leading Senior Junior  with Chambers UK (2016)  commenting that he is  “Noted by peers for his meticulous preparation, strong advocacy skills and easy manner with clients” and Legal 500 (2016) describing him as “Very well prepared”.

    Jonathan has a strong international practice and he is qualified to practise in England & Wales, Northern Ireland (practising) and Australia (currently non-practising). He has also advised on disputes involving Australia, Canada, the Channel Islands, Hong Kong, Northern Ireland, Scotland, Singapore, and the United States of America.

    > View Jonathan's full profile

    jonathan.chambers@quadrantchambers.com

  • International Arbitration Newsletter Issue 05 - Winter 2017View More

    Fri, 10 November, 2017

    Quadrant Chambers is delighted to announce the Winter 2017 issue of our International Arbitration Newsletter.

     Click the image to view the newsletter

    Ruth Hosking provides the editorial of this 5th edition on information technology and how it can continue to facilitate the use of international arbitration as a dispute resolution mechanism.

    This issue includes a guest article by Omar Omar, Head of the Transport & Insurance Department and Partner at Al Tamimi & Company on the opening of the Emirates Maritime Arbitration Centre in Dubai.

    Quadrant’s Simon Rainey QC looks at two recent cases that provide a reminder of the fundamentals of good practice by members of arbitral tribunals, and the consequences of forgetting those fundamentals.

    Please click here to view the publication.

     

    Previous Publications - Please click on the publication below to view

  • Retired Supreme Court Judge The Rt Hon Lord Clarke Joins Arbitrators at 10 Fleet StreetView More

    Tue, 07 November, 2017

    Arbitrators at 10 Fleet Street is honoured to welcome The Rt Hon Lord Clarke as an Arbitrator. Lord Clarke, who was one of the first Supreme Court Justices, retired from the Supreme Court in September this year and is now accepting appointments as arbitrator in commercial disputes. 

    Lord Clarke has had an illustrious career, first at the commercial bar, before being appointed a High Court Judge in 1993, sitting in the Admiralty, Commercial and Crown Court. He was appointed to the Court of Appeal and Privy Council in 1998 and was Master of the Rolls from 2005 to 2009. He was the first High Court judge to be appointed directly to the Supreme Court. He was appointed to the Court of Final Appeal in Hong Kong in 2011 as a non-permanent judge.

    We are delighted that The Rt Hon Lord Clarke has chosen to join Arbitrators at 10 Fleet Street. His outstanding experience, legal ability and unfailing charm will no doubt make him a much sought after arbitrator for international commercial disputes”. Luke Parsons QC, Head of Quadrant Chambers

    To appoint Lord Clarke, please contact John Walker or Megan Parker on 0845 262 0310.

    "Arbitrators at 10 Fleet Street" is a separate arbitrator wing set up by Quadrant Chambers. Full-time arbitrators include Sir David Steel, David Steward, Richard Lionberger and His Honour Harvey Crush. Additionally, a number of members of Quadrant Chambers regularly accept appointments as international commercial arbitrators.

  • “Fake Views” - internet falsehoods and European cross-border jurisdiction rules for tort claims ...View More

    Tue, 07 November, 2017

    "Fake Views" - internet falsehoods and European cross-border jurisdiction rules for tort claims brought by corporations after Bolagsupplysningen and Ilsjan in the European Court - Michael McParland QC

    Companies and other legal persons can claim to have suffered serious damage to their reputations and their businesses by the publication of allegedly false information on the internet. As with natural persons, such “internet falsehoods” may seriously infringe a victim’s personality rights. But in the light of the ubiquitous nature of the information and any content placed online on a website, and the fact that the scope of their distribution is, in principle, universal, where can a corporate victim sue an alleged internet publisher who is domiciled in another EU Member State?

    In their important recent judgment of 17 October 2017 in Bolagsupplysningen and Ilsjan (Case C-194/16, EU: C: 2017: 766) the European Court of Justice has extended their previous interpretation of the special jurisdiction rules for tort, delict or quasi-delict (now found in Article 7(2) of the Brussels I (Recast) Regulation (1215/2012) to permit claimant companies to take advantage of a more favourable jurisdictional criterion for such claims, adopting a criterion previously applied only to claims brought by natural persons.  

    The special jurisdiction rules under Article 7(2)

    Article 7(2) of the Brussels I (Recast) Regulation (1215/2012) provides special jurisdictional rules that enable a court of a Member State to depart from the general rule which requires persons domiciled in a Member State shall, whatever their nationality, be sued in the courts of that Member State. Article 7(2) provides that:

    “A person domiciled in a Member State may be sued in another Member State…

    (2) in matters relating to tort, delict or quasi-delict, in the courts for the place where the harmful event occurred or may occur”.

    The wording of Article 7(2) is identical to the now-repealed wording of Article 5(3) of the original Brussels I Regulation (44/2001) and corresponds to the terms of Article 5(3) of the 1968 Brussels Convention. The CJEU’s settled case law on those provisions has long established that the expression “the place where the harmful event occurred or may occur” is intended to cover both the place where the damage occurred or may occur and the place of the event giving rise to it.

    But where does the damage occur when a person’s personality rights have been infringed by false claims made against them? In this respect, the Court’s rulings have evolved, reflecting advances in technology and the distribution of information.

    In their 1995 judgment in Shevill (C-68/93, EU: C: 1995: 61) the CJEU had held that where a libel results from an article published in a printed newspaper distributed in several Member States, a claimant could chose to bring their action for non-material damage before the courts of two places. Either:

     (1)   The courts of the Member State in which the harmful event originated, which corresponds to the place of the establishment of the publisher (and which may often be where they are domiciled in any event), or

    (2)    In the courts of each Member State in which the publication in question was distributed and where the victim alleged that they had suffered harm to their reputation. But the jurisdiction of the latter courts would be limited solely to the injury caused in that Member State.

    This second type of territorially limited competence created by the Court in Shevill has been described as the ‘mosaic’ approach. Its application has the potential for claims being brought in piecemeal fashion in various different Member States who each claim jurisdiction over a limited piece of the resulting damage.

    But Shevill was concerned with old-world technology, where evidence could be provided as the number of papers published and distributed in the various countries involved. But the publication of false and damaging information on the almost universally accessible internet is a very different matter.  

    eDate Advertising and the creation of the “centre-of-interests” jurisdiction criterion

    Accordingly, in the specific context of the internet and of a natural person’s personality rights, the Court departed from their mosaic approach in eDate Advertising & Others (C-509/09 and C-161/10, EU: C: 2011:685) and created a new criterion for determining where “damage” had occurred. The Court held in eDate that a natural person who claimed their personality rights had been infringed because of information placed on a website had the option of bringing an action for damages in respect of “all the harm caused” to them before the courts of the Member State in which the “centre of his interests” is based. For a natural person this generally coincides with the Member State of their habitual residence. This new criterion was more favourable to the victim than the mosaic approach adopted by the Court in Shevill.

    The Court’s decision in eDate to create this new “centre-of-interests” criterion was controversial, and was heavily criticised by European commentators as giving rise to a lack of foreseeability and an increased risk of forum shopping.[1]

    Bolagsupplysningen and Ilsjan

    In Bolagsupplysningen and Ilsjan, the first claimant (Bolagsupplysningen) was a company established in Tallinn, Estonia, who did most of its business in Sweden. The defendant (Svensk Handel AB) was a Swedish trade federation. The Swedish defendant had included the company in a ‘blacklist’ section on its website, claiming that Bolagsupplysningen engaged in questionable business practices, and declaring that “it deals in lies and deceit”.

     As a consequence of this publication, the evidence before the CJEU was that a discussion forum on the defendant’s website contained approximately 1,000 comments, a number of which were direct calls for acts of violence against the claimant company and its employees, including Ms Iljan (the second claimant).

    When requested, the Swedish defendant refused to remove the Estonian claimant from its blacklist on its website or to delete the comments, thereby allegedly paralysing the company’s business activities in Sweden and causing it material damage on a daily basis. Litigation followed in Estonia.

    At first instance and on appeal the Estonian courts declined jurisdiction, holding that the claimants had not proved the occurrence of damage in Estonia for the purposes of Article 7(2) of the Brussels I (Recast) Regulation. As the company’s claim for loss of and damage for a fall in turnover was calculated in Swedish Kronor, the Estonian courts found this was indicative that the harm was actually sustained in Sweden. Furthermore, the comments on the discussion forum had been published in Swedish, and without a translation they were incomprehensible to persons residing in Estonia. The fact that the defendant’s website was accessible in Estonia could not automatically establish the jurisdiction of the Estonian court.

    On a second appeal to the Supreme Court of Estonia (Riigikohus), the arguments raised by Bolagsupplysningen had changed. They now emphasised that the published online content infringed their right to pursue a business activity. The company accordingly claimed that the Estonian courts had jurisdiction to hear the case because the centre of the company’s interests was in Estonia. Its management, economic activity, accounting, business development and personnel departments were all located in Estonia, and its income was transferred from Sweden to Estonia. It did not have a foreign representative or branch abroad. Thus the effects of the tortious acts had been felt in Estonia.

    Faced with this change of tack, the Supreme Court of Estonia made two decisions. Firstly, they decided to separate the actions of the company and Ms Ilsjan with the latter’s action being referred back to the first-instance court to reconsider its admissibility. Secondly, as regards the company’s action, it considered that the Estonian courts did have jurisdiction over its claim for damage possibly suffered in Estonia, but it doubted that Estonia had jurisdiction over other aspects of the claim. Accordingly, they stayed the proceedings by the Company and referred a series of three questions to the CJEU, including (in essence) the key question whether the e-Date “centre-of-interests criterion” should be extended to claims brought by companies.

    Extending the centre-of-interests criterion to legal persons

    In Bolagsupplysningen and Ilsjan, despite objections from the Commission and others, the Court of Justice decided to extend the eDate “centre-of-interests” jurisdiction criterion to include any legal persons bringing legal actions claiming that their personality rights have been infringed by internet falsehoods.

    Before the Court there were extensive arguments as to whether legal persons actually had personality rights at all, or whether such rights as they did have could justify the extension of the “centre-of-interests” criterion to them? The Estonian government considered that the personality rights protected under the Court’s judgment in eDate could by definition only be for natural persons. The UK considered that damage claim in response to harmful information published on the internet corresponded in reality to commercial loss for legal entities, which gives rise to issues that are different from those which arise for a natural person whose reputation is affected. The Commission admitted that personality rights were protected in some Member States but argued that jurisdiction based on the centre-of-interests criteria should not be extended to legal persons.

    Advocate General Bobek disagreed, indicating, in the light of both the rulings of the European Court of Human Rights, and EU law generally, that he could see no reason why legal persons could not enjoy the protection of their personality rights as a fundamental right provided that it was appropriate in the context of the individual case. The Court of Justice implicitly agreed with him.

    In doing so, the Court in Bolagsupplysningen and Ilsjan emphasised that for the purposes of Article 7(2) of the Brussels I Recast Regulation, the criterion of ‘the victim’s centre of interests’ reflects the place where, in principle, the most significant damage caused by online material occurs, and the courts of that Member State is consequently best placed to assess the impact of such contents on the rights of that person, whether they be a natural or legal person.

    Locating the centre-of-interests for legal persons

    The Court gave guidance as to how this criterion was to be applied in the case of companies, holding that the “centre-of-interests” of a legal person pursuing an economic activity must reflect the place where its commercial reputation is most firmly established, and therefore, must be determined by reference to the place where it carries out “the main part of its economic activities”. This may coincide with the place of its registered office (when it carries out all or the main part of its activities in the Member State in which that office is situated), but the location of that office is not, in itself, a conclusive criterion for the purposes of such an analysis. As with natural persons, the application of the criteria is ultimately fact specific.

    On the facts of the case, the clear indication from the Court was that Bolagsupplysningen carried out the main part of its activities in Sweden, a Member State other than Estonia in which its registered office was located. In such circumstances:

    “… it is necessary to assume that the commercial reputation of that legal person, which is liable to be affected by the publication at issue, is greater in that Member State than in any other and that, consequently, any injury to that reputation would be felt most keenly there. To that extent, the courts of that Member State are best placed to assess the existence and the potential scope of that alleged injury, particularly given that, in the present instance, the cause of the injury is the publication of information and comments that are allegedly incorrect or defamatory on a professional site managed in the Member State in which the relevant legal person carries out the main part of its activities and that are, bearing in mind the language in which they are written, intended, for the most part, to be understood by people living in that Member State” (paragraph 42).

    Thus the indication to the Estonian court was clear: they had no jurisdiction based on “the centre-of-interests” criterion, despite the essentially “back-office” functions relied on by the claimant before the Estonian Supreme Court to suggest the contrary.

    The Court also made it clear that in a case where a legal entity wishes to take advantage of this “centre of interests” jurisdiction, the burden rests squarely on them to provide sufficient proof to the forum court that their “centre of interests” are in that court. If that court cannot determine in which Member State that the main part of the company’s economic activities takes place, then it can only exercise jurisdiction over claims in respect of damage that has definitely occurred in that Member State alone.

    The nature of the damage claimed is irrelevant for jurisdictional purposes

    The Court also emphasised that in the case of both natural and legal persons, it is irrelevant for jurisdictional purposes whether the damage allegedly suffered is material or non-material in nature, even though (depending on the applicable law) that distinction may have an influence on whether the claimed damage is reparable.

    Ordering rectification and / or the removal of the offending material?

    The Court also went on to declare in their ruling in Bolagsupplysningen and Ilsjan that only courts of Member States who had jurisdiction to rule on “the entirety of an application for compensation for damage” (pursuant to the case law resulting from Shevill and eDate) had jurisdiction to hear a claim for an order for rectification of the false information or for an order it should be removed from a website. In practical terms, this further limited the operative scope of the Shevill mosaic effect. If the objective in any particular case is to have the offending material removed, then unless the claimant sues the defendant in (1) their Member State of domicile, or (2) where the offending publication originated (if different from (1)), or (3) in the Member State of the claimant’s centre-of-interests, then such rectification / removal claims cannot be brought in courts whose jurisdiction is limited to only a piece of the damages pie. This aspect of the ruling may limit the likelihood of forum shopping.

    Conclusion

    The Court’s ruling in Bolagsupplysningen and Ilsjan decision may well prove controversial and may well give rise to an increase in cross-border litigation in this field. Whether it proves to be open to abuse remains to be seen.

    [1]              See e.g. S Bollée, and B. Haftel, “Les nouveaux (dés)équilibres de la compétence internationale en matière de cyberdélits après l'arrêt eDate Advertising et Martinez”, (2012) Recueil Le Dalloz, pp. 1285-1293; T. Thiede, “Bier, Shevill und eDate — Aegrescit medendo?”, (2012) Zeitschrift für das Privatrecht der Europäischen Union, pp. 219 to 222; J.-J Kuipers, J.-J., “Joined Cases C‑509/09 & 161/10”, (2012) Common Market Law Review, pp. 1211 to 1231.

    Michael McParland QC

    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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  • David Goldstone QC re-focusing his practice to act as ArbitratorView More

    Mon, 06 November, 2017

    We are delighted to announce that David Goldstone QC is refocusing his practice to act as an arbitrator in international commercial disputes. David continues to take on advisory work in his specialist areas. 

    David Goldstone QC 

    David Goldstone QC is accepting appointments as an arbitrator in international commercial disputes. He continues to take on advisory work in his specialist areas. His practice extends across the full spectrum of shipping law. He has appeared in the High Court, Court of Appeal and Supreme Court and has acted for most of the UK`s leading commercial and shipping solicitors and has worked closely with foreign lawyers from many jurisdictions. 

    From 1999 until 2006 David acted as First Standing Counsel to the Admiralty and regularly advises and in that capacity was responsible for advising and acting for the United Kingdom Government in relation to admiralty and related shipping matters.

    He is consistently ranked by Chambers UK and Legal 500 for his work within shipping and commodities:  "A very clever brain, he gets straight to the nub of the point and advises clearly and concisely."   "Incredibly cerebral and really excellent." (Chambers and Partners 2017),  “very forensic in his approach and nothing gets past him”  “Incredibly intelligent and switched on” (Chambers and Partners 2016),  “extremely bright and capable of getting on top of a lot of material very quickly.” “one of these excellent brains that surprises you.”  (Chambers and Partners 2015).  "Smart and incisive, he sees clearly to the heart of the issue" (Legal 500 2016).  “Fiercely intelligent.”   “Very clever; he often spots points that others don’t see” (Legal 500 2015).

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    david.goldstone@quadrantchambers.com

  • Unjust Enrichment and the Direct Transfer Rule - Claudia Wilmot-SmithView More

    Fri, 03 November, 2017

    Unjust Enrichment and the Direct Transfer Rule: Investment Trust Companies v Revenue and Customs Commissioners

    By Claudia Wilmot-Smith

    This article was originally published in International Corporate Rescue, Volume 14 Issue 5, 2017.  Please click here to read the original article.

    On 11 April 2017 the Supreme Court handed down judgment in Investment Trust Companies v Revenue and Customs Commissioners [2017] UKSC 29 [2017] 2 WLR 1200. This judgment, given by Lord Reed, provides a welcome analysis of the requirement that a defendant must have been unjustly enriched ‘at the expense of ’ a claimant if he is to claim restitution from him.

    The basic requirements of a claim in restitution are well established. A claimant must establish that: (1) the defendant has been enriched; (2) at the claimant’s expense; and (3) the enrichment was unjust. If these factors can be made out, and the defendant has not been able to rely on any defences, his claim will succeed.1 Where the claimant directly conferred the benefit on the defendant, the application of this test is, in principle, straightforward.

    Complications arise, however, where the claimant has not dealt with the defendant directly. In these circumstances, a question arises as to what it means to say that a defendant’s enrichment has been ‘at the expense of ’ the claimant. Recovery in these circumstances was recently allowed by the Supreme Court in Menelaou v Bank of Cyrpus UK Ltd [2015] UKSC 66.

    In that case the defendant bank had lent the appellant’s parents money, secured by a charge over their home. They decided to sell and purchase another property, which they wanted to (and in the event did) gift to the appellant (Melissa). The bank agreed to release its charges on their property so that the sale could go through, on the condition (inter alia) that they have a legal charge over the new property. The solicitors confirmed that these conditions would be complied with. A legal charge was drawn up, purportedly signed by the appellant.

    The charge had not been signed by Melissa and, so, was not enforceable against her. She was thus better off than she would have been if her parents had complied with the terms of their agreement with the bank. The issue was whether she was required to make restitution to the bank in respect of this gain. The gain was a result of two separate transfers:

     – First, from the bank to the appellant’s parents. This transfer was defective: the Menelaous subsequently failed to comply with its conditions.

    – Second, from Melissa’s parents to her. This transfer was not defective. The property was gifted to her, and it was accepted that she had no knowledge of her parents’ dealings with their bank.

    In these circumstances the Supreme Court found that the bank had been unjustly enriched at her expense.

    Commenting on the Supreme Court’s judgment in Menelaou in an earlier edition of this publication, the present writer noted that the basis upon which the Supreme Court had made this finding was unclear; and lamented the lack of guidance as to what it meant to say that the defendant’s enrichment has been ‘at the expense of ’ a claimant with whom he has had no direct dealing.2  

    Happily, the Supreme Court has since had the opportunity to consider the matter afresh. Lord Reed’s judgment in ITC v Revenue and Customs Commissioners directly engages with the issue, with a rigour which earlier case law has lacked.

    ITC: the facts  

    Varies investment companies (the ‘Managers’) had made supplies of investment management services. These supplies were treated as taxable, as a result of the incorrect transposition of an EU VAT directive into UK law Their customers (the ‘Companies’) paid the amounts charged,

    The Managers received these amounts, and in turn accounted to the Commissioners in respect of the same. In carrying out this accounting process, the Managers deducted from the tax chargeable on its supplies (known as ‘input tax’) the tax which it had itself paid on taxable supplies received for the purposes of its business (known as ‘output tax’). It paid to the Commissioners the remaining surplus, if any.  

     Thus, for example, if the Managers made supplies to an ITC, and charged £100 VAT, but had purchased taxable supplies during the relevant period on which the VAT was £25, the Manager would apply the £25 against the £100, and pay the Commissioners the balance (£75).

    The Managers’ obligation to account for VAT was triggered by the supply of the relevant services, rather than the VAT being charged to, or paid by, the Customer. The Customers’ liability was contractual.

    The Managers had statutory claims against the Commissioners for repayment of the VAT which they had accounted for, under the Value Added Tax Act 1994. They successfully claimed back the VAT they had accounted for in respect of the amounts paid by them to the Customers, with two exceptions:

    – They were unable to claim in respect of accounting periods ending on or after 4 December 1996, which were time-barred under s.80 of the Value Added Tax Act 1994;

    – The amounts repaid to the Managers were calculated on the basis that, under s.80(2A), it was necessary to set the amount of input tax which they had deducted against the output tax for which they had accounted. Taking the notional figures set out above, the Managers were entitled to repayment of the £75 which they had actually paid to the Commissioners, but not the £25.

    The Managers passed on the amounts they were repaid to the Customers, with the result that they obtained a refund of the amounts they had paid, subject to these two exceptions.

    The customers’ claims against the commissioners  

    The Customers brought proceedings against the Commissioners, claiming restitution of the amounts covered by the two sections above – i.e., they claimed:

    – the full £100 in respect of payments made during periods which were subject to the statutory time bar; and

    – the £25 which they had paid to the Managers, but which the Managers had not paid over the to the Commissioners because of the accounting process referred to above.

    The 3 key questions before the Supreme Court were identified by Lord Reed as follows:

    – Did the claimants have a common law claim against the Commissions in principle (subject to any statutory exclusion)?

    – If so, did s.80 of the 1994 VAT Act bar such a claim?  

    – If there was no claim, or any such claim was barred, was this result compatible with EU law?

    This casenote addresses the first of these questions, which raises the issue outlined above.

    Recovery of the £25  

    It was accepted that the Commissioners were enriched by the notional £75 which they received from the Managers. Both heads of claim required the Court to consider whether they were also enriched by the notional £25. It held that they were not. This conclusion turned on the way in which VAT is accounted for and since the question is unlikely to arise in other cases, it will not be covered here. Suffice to say, the Supreme Court held that any argument that the Commissioners were enriched by moneys which they did not actually receive depending on establishing that the Managers were entitled to factor the VAT received on the relevant supplies into their input and output tax calculations. This was inconsistent with the claim to recover the £75 on the basis that it was not due. If the Commissioners were required to repay the notional £25, they would in fact be £25 worse off.

    Recovery of the £75  

    Of broader interest is the question as to whether the Commissioners’ receipt of the £75 enriched them at the expense of the Claimants. The relevant facts were as follows:

    The Managers accounted to the Commissioners for their output tax liability in respect of the relevant periods.

    When doing so, they took into account the £100 that they had received from the Claimants.

    The net result, therefore, was that the Commissioners were better off as a result of the Claimants’ payments to the Managers (and the Claimants were, of course worse off).

    However, the Claimants had not directly paid anything to the Commissioners.

    Moreover, the Managers liability to account for the £100 arose because they had charged the Claimants this amount in respect of the services, not because the Claimants had actually paid it.

    Enrichment ‘at the expense of’ a claimant  

    When considering whether a defendant has been enriched ‘at the expense of ’ a claimant with whom he has not directly dealt, Lord Clarke, in Menelaou,  stated that ‘the question in each case is whether there is a sufficient causal connection, in the sense of a sufficient  nexus or link, between the loss caused and the benefit received by the defendant. ’ (at [27])

    However, this does not tell us what type of nexus or link will be considered sufficient. Lord Reed criticised the ‘test’ in Menelaou  as being ‘too vague to provide clarity … [it] leaves unanswered the critical question, namely, what connection, nexus, or link is sufficient[to justify such a remedy]?’ (at [37])3  

    When considering a claim in unjust enrichment, the Court must determine whether it can justify compelling the defendant to pay his gains over to the claimant. The requirement that the defendant’s enrichment be ‘at the expense of ’ the claimant is directed at this question: it is designed to ensure that such disgorgement can be justified.

    Further, he noted:

    ‘the questions [e.g. whether the enrichment is at the expense of the claimant] are not themselves legal tests, but are signposts towards areas of inquiry involving a number of distinct legal requirements. In particular, the words ‘at the expense of ’ do not express a legal test, and a test cannot be derived by exegesis of those words, as if they were words of a statute.’ (at [41])4  

    Lord Reed underlined the necessity for a careful legal analysis of individual cases, by reference to the purpose of the law of unjust enrichment, namely, to correct normatively defective transfers, usually by restoring the parties to their pre-transfer positions (at [42]). To this end, the requirement that the enrichment be ‘at the expense of ’ the claimant is designed to ensure that there is a transfer of value from the claimant to the defendant, with the claimant having suffered a loss, which loss has benefitted the defendant (at [43]).

    If the law of restitution is about reversing defective transfers, it is not immediately obvious that the remedy should be allowed in a three party case, especially if only one of the transfers is defective (as in Menelaou ).

    Lord Reed recognised that ‘it has often been suggested that there is a general rule, possibly subject to exceptions, that the claimant must have directly provided a benefit to the defendant’ if he is to claim that the latter has been unjustly enriched at his expense (at [50]).

    He set out the following examples of cases in which a claimant will have a remedy in unjust enrichment, despite not having dealt directly with the defendant:

    – Where one or both parties have dealt through an agent. Here, the series of transactions is legally equivalent to a direct transaction between the claimant and defendant. (at [48])  

    – Where the right to restitution has been assigned, the claimant assignee stands in the shoes of the assignor. He is, therefore, treated as if he had been a party to the relevant transaction, and the transaction is treated as if it were a direct one (at [48]).

     – An intervening transaction may be created in order to conceal the connection between the claimant and the defendant. If it is found to be a sham, the arrangements may be treated as ‘equivalent to a direct payment’ (as in Relfo Ltd v Varsani (No 2)  [2014] EWCA Civ 360, see that case at [103] and [115]).

    – If the property received by the defendant is one into which the claimant can trace an interest, the law will treat the property as if it were the claimant’s. Thus ‘the defendant is therefore treated as if he had received the claimant’s property’. ([48])

    – Where a claimant discharges a debt owed by the defendant to a third party, the defendant is directly enriched

    – not by the payment, but by the discharge of his debt. If the transfer of value is defective, the law reverses it, so far as possible, by subrogating the claimant to the rights formerly held by the third party. ([49])

    – There are also cases in which a series of transactions are treated as if they formed a single scheme or transaction, ‘on the basis that to consider each individual transaction separately would be unrealistic’ ([48])

    Taking Lord Reed’s 5 categories of case:

    – The first three encompass circumstances in which there is in truth a single transfer of value from the claimant to defendant. They are cases which, on analysis, do not fall foul of any general principle that the law of restitution provides a remedy only where the defendant’s gain was the direct result of his dealing with the claimant.

    – In the fourth, the ‘at the expense of ’ requirement is satisfied by dint of the fact that the claimant’s property can be traced directly into the defendant’s hands. Lord Reed sees this situation as one which can be reconciled with the ‘direct benefit rule’ on the basis that the defendant is treated as if he were the recipient of the claimant’s property. If the claimant had an interest in the property at the time it was transferred to the defendant, such a transfer is normatively equivalent to a direct transfer from claimant to defendant.  

    – In cases where a claimant discharges a defendant’s debt owed to a third party creditor, the defendant is directly enriched. Thus, on Lord Reed’s analysis, the claimant has directly provided a benefit to the defendant.

    – The last, however, is problematic.

    Lord Reed acknowledged that, where the defendant has not received a benefit directly from the claimant, and in circumstances falling outwith the first four categories listed above, it is ‘generally difficult to maintain that the defendant has been enriched at the claimant’s expense.’ (at [51]) He clarified that:

    – A ‘but for’ causal connection between the claimant being worse off and the defendant being better off is not sufficient to constitute a transfer of value from one to the other.

    – Nor is the ‘at the expense of ’ requirement satisfied by a connection between the benefit and loss that exists merely as a matter of economic or commercial reality. ‘Economic reality’ is not a criterion that can be applied with any rigour or certainty – especially where there have been chains of suppliers or consumers. As has been recognised in other jurisdictions, it can be extremely difficult to ascertain whether the economic burden of an unjust enrichment has been passed on. Moreover, as Lord Reed highlighted, since unjust enrichment is not concerned with compensation for loss, an approach which seeks to identify the party who ultimately bears a particular loss is not one which accords with the purpose of restitution law (at [60]).

    Despite these difficulties, there are cases where the courts have allowed unjust enrichment claims brought by claimants who have not dealt directly with the defendant (whether through agents, or because any intervening transactions were shams), and who cannot trace their property into the defendant’s hands.

    Lord Reed explains these as cases in which recovery is allowed because the relevant transactions are ‘co-ordinated’, such that it is ‘unrealistic’ to consider them individually. They are instead considered to form part of a single scheme or transaction – to which both claimant and defendant are parties.

    Unfortunately, he did not provide any guidance as to the circumstances in which the courts will hold that it is ‘unrealistic’ to treat each individual transaction in a series as separate transactions. This was treated as a separate category of case from those where the intervening transaction is a found to be a sham.  

    The two examples Lord Reed gave of this category of case were Banque Financiere de la Cite SA v Parc (Battersea) Ltd  [1991] 1 AC 221, and Menelaou .

    – Banque Financiere  is a complicated case, and this case note is not the place to engage in an analysis thereof. Suffice to say, however, that it has been subject to academic criticism – notably by Professor Peter Watts, who described the result as ‘problematic’.5  It is not clear that Lord Reed’s ‘coordinated transactions’ test sheds any further light on the analytical basis for the decision in that case.

    – Lord Reed’s judgment does not help make sense of the result in Menelaou . In particular, there was no explanation as to why the transactions in Menelaou should be treated differently from those in ITC , i.e. why it was ‘unrealistic’ to treat the transactions in one case as if they were a single transfer, but not in the other.

    Without any guidance as to what it means to say that a series of (non-sham) transactions cannot ‘realistically’ be considered to be separate, the breadth of this exception to a general rule that a claimant must have directly provided a benefit to a defendant if the court is to strip the defendant of his gains is unclear.

    This is perhaps unsurprising: Lord Reed thought that it would be ‘unwise to attempt in this appeal to arrive at a definitive statement of the circumstances in which the enrichment of a defendant can be said to be at the expense of the claimant’ (at [38]) and ‘unwise at this stage of the law’s development to exclude the possibility of genuine exceptions [to the direct transfer rule], or to rule out other possible approaches.’ (at [50])

    He was, however, clear that it could not be said that the Commissioners had been enriched at the expense of the Customers. This was based on his rejection of the notion that there had been a transfer of value from the Claimants to the Commissioners.

    – There was a transfer of value from the Claimants to the Managers (the notional £100).

    – There was a further transfer of value from the Managers to the Commissions (the £75).

    Both transfers were defective (the former, because it was made in performance of a contractual obligation which was mistakenly believed to be owed; the latter because it was made in compliance with a statutory obligation which was incompatible with EU law). However, ‘These two transfers cannot be collapsed into a single transfer of value.’ (at [71])

    Given Lord Reed’s warning that he was not seeking to lay down a definitive test, this conclusion should perhaps not be understood as requiring a claimant  in an indirect transfer case to show that a number of transfers can be ‘collapsed’ into a single transfer of value from himself to the defendant if he is to recover. Given the lack of clarity as to the circumstances in which transfers can be so collapsed, this is probably good.

    The scope of the exception will have to be worked out in later cases. However, Lord Reed’s judgment provides valuable guidance to practitioners when considering how to analyse cases involving multiple transfers.   

     

    Claudia Wilmot-Smith

    Claudia joined Quadrant Chambers following the successful completion of her pupillage in 2009.  Since completing pupillage, Claudia has been acquiring experience in a broad range of commercial disputes, and accepts instructions in all areas of Chambers' work.  She has appeared as sole and junior counsel in the High Court and in arbitration proceedings.

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    claudia.wilmot-smith@quadrantchambers.com