• The Donald vs The Rocket Man - Simon Croall QC and David WalshView More

    Tue, 26 September, 2017

    Potential Legal Issues Under Time Charterparties for Vessels Operating in the Asia Pacific Region

    The escalating tensions on the Korean peninsula reached new heights following President Trump’s speech to the United Nations General Assembly last Tuesday in which he said that the United States could “totally destroy” North Korea (the DPRK). The DPRK’s Foreign Minister, Ri Yong-ho, who compared Mr Trump's speech to "the sound of a barking dog", warned on Friday that Pyongyang could conduct an atmospheric hydrogen bomb test in the Pacific in response to the US president's threat. Most recently he accused the United States of declaring war on the DPRK.

    The prospect of a hydrogen bomb test in the Pacific by the DPRK raises serious legal questions for ship owners and time charterers operating in the Asia Pacific region. We examine three such questions below.

    Might ports in the region be considered legally “unsafe” by reason of the latest DPRK threat?

    The classic English law definition of a safe port is that given by Sellers LJ in The Eastern City [1958] 2 Lloyd’s Rep 127, in which he stated at page 131 of the report that: “a port will not be safe unless, in the relevant period of time, the particular ship can reach it, use it and return from it without, in the absence of some abnormal occurrence, being exposed to danger which cannot be avoided by good navigation and seamanship…”

    This test was recently approved by the Supreme Court in The Ocean Victory [2017] 1 WLR 1793. In that case, the Supreme Court focused, among other things, on the meaning of the words “abnormal occurrence” in Sellers LJ’s formulation. Lord Clarke JSC said at paragraph 25 of the judgment that the key question when considering whether something is an “abnormal occurrence” is to ask: “Was the danger…something rare and unexpected, or was it something which was normal for the particular port for the particular ship's visit at the particular time of the year?”

    Based on this approach it is hard to see how the threat of a hydrogen bomb test in the Pacific could, in the current circumstances, be anything other than an “abnormal occurrence” in the context of any potentially affected port. Assuming this is right, it seems likely that, for the time being, ports in the region will not be considered unsafe as a matter of English law: whilst the spectre of a hydrogen bomb test might be a danger to which a ship is exposed which cannot be avoided by good navigation or seamanship, it will almost certainly be an “abnormal occurrence” so far as particular ports are concerned.

    The position might be different, however, if extra-territorial weapons tests more generally by the DPRK became a regular occurrence. It might then be argued that for ports potentially affected by such tests the associated dangers had become features of such ports.

    It is also important to remember that the charterers’ obligation is to nominate a port which is prospectively safe. Thus, in The Evia (No. 2) [1982] 2 Lloyd’s Rep 307, it was held that although the vessel had become trapped after discharging at the port of Basrah during the Iran/Iraq war, this was unexpected at the time the port was nominated and so the charterers were not in breach of the safe port warranty. Unless there is greater clarity from the DPRK about where precisely such a test might take place, it would appear difficult to argue that any particular port in the region is prospectively unsafe.

    Might owners be entitled to refuse to sail to the region in light of the threat by relying on war risks clauses?

    Time charters often incorporate one of the BIMCO war risks clauses and the 1993 Conwartime clauses are often seen reproduced in full towards the end of the charterparty terms. The provisions entitle owners, among other things, to refuse to sail to areas which, in the “reasonable judgement of the Master and/or the Owners, may be, or are likely to be, exposed to War Risks”.

    What do these words mean?

    The words “reasonable judgement of the Master and/or the Owners” import an element of objectivity into the analysis. The court or tribunal considering the clause would be asking what a reasonable owner or master would think in the particular circumstances. The subjective instincts of a particularly sensitive owner or master would not be relevant.  

    In The Triton Lark [2012] 1 Lloyd’s Rep 151, Teare J suggested that the degree of probability required by the words "may be, or are likely to be” could include an event which had a less than an even chance of happening but would not include a bare possibility.

    “War Risks” are defined broadly in the clauses and include “any war (whether actual or threatened), act of war, civil war, hostilities, revolution, rebellion, civil commotion, warlike operations, the laying of mines (whether actual or reported), acts of piracy, acts of terrorists, acts of hostility or malicious damage, blockades (whether imposed against all vessels or imposed selectively against vessels of certain flags or ownership, or against certain cargoes or crews or otherwise howsoever), by any person, body, terrorist or political group, or the Government of any state whatsoever, which, in the reasonable judgement of the Master and/or the Owners, may be dangerous or are likely to be or to become dangerous to the Vessel, her cargo, crew or other persons on board the Vessel.”

    In light of the above, one can certainly see scope for arguments between owners and charterers about whether orders to the potentially affected region can be refused. The tests themselves (especially set in a context where DPRK have indicated that the regard the US as having declared war upon them) might well be regarded as an act of war or a war-like operation. A more difficult question is likely to be the stage at which the risk of being exposed to a weapons test (or similar action) becomes more than a bare possibility for a particular vessel under time charter. This difficult issue is complicated further by the apparent unpredictability of the DPRK regime and the hyperbolic rhetoric which has recently been used on both sides.

    If the DPRK’s threat materialises, could owners or charterers cancel their charters by relying on the war cancellation provisions?

    A hydrogen bomb test in the Pacific, particularly if takes place anywhere near US territories such as Guam, could be construed by the US as an act of war by the DPRK. Indeed, as the DPRK’s most recent comments suggest, it is possible to envisage events short of such a test that will be regarded by one or both sides as meaning there is a state of war.

    War cancellation provisions are commonplace in time charters and can be found, for example, in Shelltime 4 (clause 33), NYPE 93 (clause 32), Asbatime (optional clause 31) and in the pre-2001 version of the Baltime (clause 21(E)). They do not usually require a formal declaration of war to be engaged (see for example the NYPE 93 form) but they are usually drafted by the parties such that the right to cancel arises only when two or more identified parties are at war. Clauses often identify those parties as the permanent members of the UN Security Council (the P5); sometimes the member states of the European Union and the flag state of the vessel are also included. One might not, therefore, expect such clauses to respond to an outbreak of war between the DPRK and the US.

    However, the Sino-North Korean Mutual Aid and Cooperation Friendship Treaty, signed between the PRC and DPRK in 1961, states in Article 2 that the two states will undertake all necessary measures to oppose any country or coalition of countries that might attack either nation.

    Might this open the door to arguments by owners or charterers that they are entitled to cancel because there has been an outbreak of war between two members of the P5, even if there are no actual hostilities between the US and PRC? We suspect such an argument would be difficult. The decision of the Court of Appeal in The Northern Pioneer [2003] 1 Lloyd’s Rep 212 suggests that the English courts would probably construe the ambit of such clauses restrictively. (In that case, NATO operations in Kosovo were not deemed to be a “war” for the purposes of the war cancellation clause.) The answer will, in the end though, depend on the precise formulation of the war cancellation clause in question. Indeed, given the current tensions, owners and charterers trading in the Asia Pacific region may think it worthwhile to include a more extensive list of countries in their war cancellation clauses than had hitherto been considered necessary.


    As the war of words between the US and the DPRK intensifies, it is inevitable that some owners will become increasingly jittery about the prospect of sending their vessels into the region. They would no doubt be well advised to check that they have the necessary protections written into their time charters as it surely only a matter of time before these issues arise and are tested before courts and arbitration tribunals.

    Simon Croall QC

    Simon Croall is an established commercial silk who has appeared in every court (including twice in the House of Lords). 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.

    He led the team for Owners in landmark House of Lords case on remoteness in contract damages Transfield Shipping v Mercator Shipping ("The Achilleas") [2009] 1 AC 61. Recent reported highlights include another important case on damages Fulton Shipping v Globalia (The New Flamenco) in both the Court of Appeal [2015] EWCA 1299 and below [2014] 2 Lloyd’s Rep. 230, Essar Shipping v Bank of China [2015] EWHC 3266 on factors relevant to the grant of anti suit injunctions, AET Inc v Arcadia Petroluem (“The Eagle Valencia”) [2010] 2 Lloyd’s Rep. 257 (Court of Appeal), Mediterranean Salvage v Seamar [2009] 2 Lloyd's Rep. 639/ [2009] 2 All ER 1127 (Court of Appeal) on implied terms and Dalwood Marine v Nordana Lines (“The Elbrus”) [2010] 2 Lloyd’s Rep. 315.

    > view Simon's full profile

    David Walsh

    David is a highly regarded commercial junior with a strong reputation for intellectual rigour, skillful advocacy and client service. He has a broad practice with particular experience of insurance and reinsurance, shipping, commodities, shipbuilding and offshore construction disputes. He appears regularly in trials, interlocutory matters and on appeals in the English courts and also has a strong international arbitration practice, having been involved in numerous arbitrations on ICC, UNCITRAL, ARIAS, FOSFA, GAFTA, LMAA, LCIA and HKIAC terms.

    David is ranked as a leading junior in the Legal 500 UK, Chambers UK, Chambers Global and the Legal 500 Asia Pacific directories, in which he has been described as "incredibly bright and very easy to get on with", "an 'unflappable' dry shipping junior who is particularly noted for his skilful advocacy" and "a 'go-to' junior for marine insurance".

    > view David's full profile

  • Can Cyber Risk Challenge Traditional Concepts such as Seaworthiness? Luke Parsons QC & Julian ClarkView More

    Thu, 14 September, 2017

    By Luke Parsons QC and Julian Clark, Hill Dickinson LLP 

    This article was originally published in The Charterer, the newsletter of the Charterers P&I Club on 1 Aug 2017.

    Cyber Risk and security in the shipping industry is a relatively new concern that has only begun receiving industry-wide attention over the past five or so years. This is largely a result of the increased frequency and publicity of cyber-attacks in other high value industries, and the increased integration of the internet and satellite-based information exchange system into ships to improve safety, their operational capabilities, and comply with international standards and Flag Administration requirements. Once again, however, the drive for greater efficiency and safety has opened up an entirely new category of risk.

    New though the concern may be, the reality is that most legal issues that will arise as a consequence of cyber-attacks will fall to be considered against a legal framework that is now centuries old. In this piece, we focus on one (albeit, a significant) element of that traditional legal frame- work: the seaworthiness of the vessel.

    Various hypothetical scenarios involving the compromise of a ship’s cyber security may be envisaged: the ECDIS or AIS systems on board may be attacked to facilitate piracy or other criminal or terrorist objectives; shippers of dangerous cargoes could electronically make changes to cargo manifests so as to give the appearance of carrying non-dangerous cargo; or criminals intent on stealing high value cargo could facilitate such a theft by electronically manipulating cargo handling systems (as recently took place in a major European port).

    In each scenario, there is high likelihood of legal claims and cross-claims involving shipowners, charterers, cargo interests, and insurers: in the piracy scenario shipowners (or their subrogated underwriters) may seek general average contributions in respect of any ransom and other payments; in the dangerous cargo scenario an explosion or a fire causing damage to other cargo will give rise to significant claims; and in the theft scenario, a claim by the owners of the stolen property can be expected. The adequacy of the ship’s preparedness to deal with the nature of the relevant cyber-attack will almost certainly fall to be considered in each case.

    In this respect, it is worth remembering three central tenets of the traditional concept of the seaworthiness of a vessel:

    First, a ship is seaworthy if she has that degree of fitness which the ordinary careful owner would re- quire his vessel to have at the commencement of her voyage having regard to all the probable circumstances of it. In short, the question is: would a prudent owner have required it should be made good before sending his ship to sea, had he known of it?

    Second, a vessel’s seaworthiness extends beyond its physical fitness of the relevant voyage. It extends to ensuring that the vessel has (i) sufficient, efficient and competent crew, and (ii) adequate and sufficient systems on board to address matters that might be encountered during the relevant contractual voyage.

    Third, whether a vessel is seaworthy is to be considered by reference to the state of knowledge in the industry at the time.

    Viewed against these tenets, the first observation in the context of the threat of cybercrime in shipping is that its precise parameters   are currently unknown. It will, however, become increasingly difficult for shipowners to argue successfully that the state of knowledge in the industry is such as to permit them to do nothing to address the potential of cyberattacks. P&I Clubs, international organisations, and critically, the IMO, have done a great deal over the past few years   to raise awareness of the threat which cyber security poses to the shipping industry. Take for example,  the “Be Cyber Aware At Sea” campaign supported by many significant players  in the industry, the “Guidelines on Cyber Security On Board Ships” produced by BIMCO, CLIA, ICS, INTERCARGO, and INTERTANKO in February 2016, and the IMO’s recent “Interim Guidelines on Maritime Cyber Risk Management” is- sued on 1 June 2016. If it is not there already, the industry is certainly moving closer to a world where shipowners will be expected to take positive steps to address potential cyber-crime risks that may arise in the course of a voyage, in order for the vessel to be considered seaworthy.

    Precise positive steps that would be required to ensure the seaworthiness of a ship in this respect are beyond the scope of this piece. However, it is noteworthy that two of the central themes of most of the publicly-available guidance on how to address the risk are described in terms that closely mirror two of the central tenets of seaworthiness – the implementation of cyber risk management systems and protocols (both on shore and at sea) designed to avoid, transfer, and mitigate the risk of cyber-attacks; and the training and education of relevant crew and personnel on the identification and mitigation of cyber-risks. In the absence of being able to show positive steps taken in line with either of these themes, a shipowner caught in a hypothetical claim of the type discussed above may well find itself in an uphill battle to establish the fitness of its vessel.

    The following are just two examples of recent cases that involve these issues. In case one unidentified cyber terrorists managed to hack remotely into the stability programs of an offshore platform. They were able to make changes that destabilised the rig which in turn led to its shut down and the loss of production for 48 hours. No direct demand or responsibility statement was received and it is believed that this could well have been the action of a protest group or simply an individual “trying their hand” at infiltrating the systems.

    Case two involved the hacking into accounting systems of both operators and their brokers changing two digits in a standard bank account number.  This lead to the mis-payment of funds to   a re-directed bank account. Initially when a query was raised the hacker (who had planted a virus in the system) was able to intercept email correspondence in order to pose as the client and explain the reason for the change in details. It was only due to the perseverance of the accounts personnel that the fraud was discovered and steps taken to intercept the accounts to prevent funds being removed from the duplicate account.

    From a charterers’ perspective, as highlighted during a series of presentations recently given by the Club to charterers and operators in China, there are a number of areas where in the future charterers’ liability could well be extended into the arena of cyberattack. Take for example the charterers’ obligations in relation to providing a safe port. In circumstances where a vessel suffers damage as a result of a ports cyber security being compromised and it can be shown that the port had inadequate cyber security systems in place, could it be argued that the port is rendered unsafe for the vessel in question? Likewise in relation to the obligations for safe stowage which often may rest with charterers as a matter of contract, in circumstances where the loading operation is affected due to a cyber-attack could resulting damage, both physical and financial, ultimately be found to  be the responsibility of the charterer?

    Currently there is no direct case law which considers such issues in a maritime context. Further the extent to which existing clauses in commercial contracts and insurance policies effectively address the concerns is unclear, not least as every day new developments in cyber technology modify the way in which such crimes are carried out. While previously existing clauses were often aimed at “computer viruses” it is now regularly the case that the infiltration is not by means of something which can properly be termed a virus. Also the intentions of the person responsible may not fall within existing definitions of “intentional harm” - see case one above.

    Luke Parsons QC and Julian Clark (Global Head of Shipping at international law firm Hill Dickinson LLP)  

    Luke Parsons QC

    Luke is Head of Quadrant Chambers and a Commercial and Admiralty silk whose practice encompasses insurance and reinsurance, international trade, energy, sale of goods, banking, commercial contracts, and shipping. Shipping Silk of the Year at the Chambers UK Bar Awards, 2014, Luke is ranked by Chambers UK. Legal 500 UK, Chambers Global and the Legal 500 Asia Pacific legal directories. He has been described by the directories as: “…an excellent team leader and team player…who gives pragmatic, sound, commercial advice…” Legal 500 2014 and “very persuasive in advocacy, down-to-earth and easy to work with…..he has the ability to boil down different issues into a few important points that are easy for clients to understand.” Chambers UK 2016.

    Luke is often called in to handle the highest value, most complex claims, involving coordinating large teams of experts and has acted on many precedent-setting cases in the High Court, and Court of Appeal.

    Given the frequently international dimension of his practice, Luke has extensive experience in dealing with foreign law and multi-jurisdictional disputes.  In particular he frequently acts in arbitrations with a cross-border element and is experienced in making applications to the High Court in support of English arbitrations and also in support of foreign arbitrations in the English courts and advises on the enforcement of awards under the New York Convention.

    Before coming to the Bar, Luke worked with a firm of international Lloyd’s brokers and then with a multi-national underwriting company. This experience in the London and International Markets assists with his practical and commercial approach to disputes whilst maintaining the intellectual rigour for which he is well-known.

    > view Luke's full profile

  • Shortlisted for three awards at The Chambers UK Bar Awards 2017View More

    Wed, 30 August, 2017

    We are delighted to announce that Quadrant Chambers, Luke Parsons QC and Nevil Phillips have been shortlisted for The Chambers UK Bar Awards 2017 in association with Saunderson House.

    • Shipping Set of the Year
    • Luke Parsons QC – Shipping Silk of the Year
    • Nevil Phillips - Shipping Junior of the Year


    The awards ceremony will be held at The London Hilton on Park Lane on Thursday, 26th October 2017. Full nominations can be viewed here.


  • Applications to remit sentences for contempt of court - Jeremy RichmondView More

    Wed, 30 August, 2017

    Jeremy Richmond recently appeared for an overseas national in the Commercial Court case A v. B [2017] EWHC 2116 (Comm) where he successfully obtained the full remission of an 18-month prison sentence for contempt of court arising from breaches of court orders.

    Based on the particular circumstances of the case and further evidence, the Court granted full remission notwithstanding the fact that Jeremy's client had not served any of his sentence and for good reason did not appear at the application itself.

    The Judgment can be found here.


    Jeremy Richmond

    Jeremy specialises in commercial and modern chancery law.  He is described in Chambers and Partners as a “superb advocate” whose “expertise in chancery, commercial and banking matters is a useful complement to his insolvency skills”. 

    Jeremy’s practice encompasses a broad range of matters including contentious insolvency (covering a wide variety of cross-border insolvency issues in particular in relation to insolvency / restructuring in Chambers’ core areas of shipping, commodities, insurance and aviation e.g. Jeremy has advised and / or appeared for key parties in OW Bunker, Hanjin Shipping and Arik Airlines), company law (including directors misfeasance), shareholder and joint venture disputes, sale of goods (both international and domestic), fraud (with an emphasis on asset recovery) and all aspects of general commercial law.  He regularly appears in the Chancery Division as well as in the Commercial and Mercantile Courts.  Jeremy often works in conjunction with Counsel from other jurisdictions and with experts. 

    Many of his cases involve a cross-over between ‘modern’ chancery and commercial litigation. 

    Jeremy was admitted to the New York Bar in 1996 and has worked as a New York lawyer for blue chip law firms in Manhattan and then the City.  

    > View Jeremy's full profile

  • Which has priority “design” or “performance”? It’s all about performance - Jonathan ChambersView More

    Thu, 17 August, 2017

    MT Hojgaard AS v E.ON Climate and Renewables UK Robin Rigg East Ltd [2017] UKSC 59

    Jonathan Chambers

    This case should be required reading for those in the offshore infrastructure and ship-building industries and sets out the modern approach to conflicting design and performance obligations under infrastructure contracts and who bears the risk when compliance with design does not result in contractual performance.

    The Issue

    The issue before the Supreme Court was whether a designer and manufacturer (MTH) of the foundation structures of two offshore wind farms at Robin Rigg in the Solway Firth were in breach of contract. The structures failed shortly after their installation.

    The problem arose because under the contract MTH was required to design and install foundations which both (a)  complied with a particular design principle (called “J101”) and which also (b) “ensure[d] a lifetime of 20 years”.

    MTH produced the foundations in accordance with the required design principle but within 2 years the foundations failed. This was because the design principle (J101) contained a mathematical error such that compliance with the design standard could not give a lifetime of 20 years.

    This was not the first time that the English Courts have been called on to consider a contract which includes two terms, one requiring the contractor to provide an article which is produced in accordance with a specified design, the other requiring the article to satisfy specified performance criteria; and where those criteria cannot be achieved by complying with the design. However it is the most complete examination of the issue by the Supreme Court to date.

    The Decision

    The Supreme Court decided that MTH were liable for the costs associated with the failure of the foundations on the basis that:-

    1. The reconciliation of the conflicting terms and the determination of their combined effect is to be decided by reference to ordinary principles of contractual interpretation (Wood v Capita Insurance Services Ltd [20l7] 2 WLR l095);
    2. A contractor who bids on the basis of a defective specification provided by the employer only has himself to blame if he does not check their practicality and they turn out to be defective;
    3. Where a contract contains terms which require an item (i) which is to be produced in accordance with a prescribed design, and (ii) which, when provided, will comply with prescribed criteria, and literal conformity with the prescribed design will inevitably result in the product falling short of one or more of the prescribed criteria, it does not follow that the two terms are mutually inconsistent.
    4. Instead, the proper analysis is likely to be that in most contracts the contractor has to improve on any aspects of the prescribed design which would otherwise lead to the product falling short of the prescribed criteria, and in other contracts, the correct view could be that the requirements of the prescribed criteria only apply to aspects of the design which are not prescribed.
    5. Thus the English Courts “are generally inclined to give full effect to the requirement that the item as produced complies with the prescribed criteria, on the basis that, even if the customer or employer has specified or approved the design, it is the contractor who can be expected to take the risk if he agreed to work to a design which would render the item incapable of meeting the criteria to which he has agreed” (Lord Neuberger paragraph 44).


    The trenchant comments of the UK Supreme Court ought to be a warning to manufacturers working to design principles that they need to both adopt more careful drafting of their guarantees of performance limiting these where necessary and to check that compliance with design requirements will in fact give the desired performance before signing contracts.


    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 (2018) commenting that he is “Noted by peers for his meticulous preparation, strong advocacy skills and easy manner with clients” and Legal 500 (2017) describing him as "...always 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

  • Insurers’ Duty to Speak: Silence is not always golden - Tim MarlandView More

    Fri, 11 August, 2017

    In Ted Baker v AXA [2017] EWCA Civ 4097 the Court of Appeal has for the first time considered the issue of whether and in what circumstances an insurer might be under a duty to speak during the claims process, ie is required to make its position plain in order to avoid being estopped from running certain procedural defences in due course. The Court of Appeal did not confine the duty to speak to insurance contracts but made it clear that the principle was of general application.

    The dispute in question arose out of the sustained theft over a number of years of stock from Ted Baker’s distribution centre by a trusted employee. When the cause of the losses became apparent, Ted Baker duly claimed under its Commercial Combined insurance, in respect of which AXA was the lead underwriter, for both stock losses and loss of profit as a result of the thefts.

    In a trial of preliminary issues centred around the coverage afforded by the policy the defendant insurers “lost on every issue” (CofA judgment para. [2]) having run a defence which “left “no stone unturned” and seemed to ignore all sense of proportionality” (Ted Baker v AXA [2014] EWHC 4178 at [19] per Eder J). At the subsequent trial of issues relating to notification, alleged breach of condition precedent and quantum, at first instance Eder J found in favour of insurers on breach of condition precedent (the non-provision of management accounts which had been requested by the loss adjusters) and quantum: essentially the finding was that it was impossible to find any single loss in the series of thefts which exceeded the policy, deductible on the balance of probabilities. What that means for business interruption claims of a similar nature is likely to be a matter of some debate.

    The learned judge noted that: “I have to say that I do not reach this conclusion with any great enthusiasm having regard, in particular, to the facts that (i) as I previously concluded in the earlier trial of preliminary issues, the policy covered theft by an employee; (ii) there is no doubt that TB suffered substantial losses arising out of the thefts which I have held were carried out by JON who was, of course, one of TB's employees; (iii) such losses amounted, even on the defendants' experts' evidence, to some £2.16 million; and (iv) the legal costs apparently incurred by TB were in excess of £2.5 million even before the beginning of this trial.” Ted Baker v AXA [2014] EWHC 3548 at [175].

    Ted Baker duly appealed. At the Court of Appeal, as it had been throughout, Ted Baker was represented by Tim Marland of Quadrant Chambers and Stephen Cogley QC, XXIV Old Buildings, instructed by Nichola Evans of Browne Jacobson LLP.

    Although Ted Baker was ultimately unsuccessful in its attempts to reverse the judge’s findings on quantum, in reversing his decision on the condition precedent point the Court of Appeal addressed directly for the first time the circumstances in which an insurer might be under a duty to speak.

    The factual scenario was that the loss adjuster appointed by insurers had, as was routine, requested a ‘shopping list’ of documentation which he required to substantiate the claimed quantum. One of the items on the list was copies of Ted Baker’s management accounts for the relevant years. Some of this documentation (although not the management accounts) would have been time-consuming and expensive to produce. Ted Baker, in concert with its broker, therefore took the position that it was not prepared to produce the documentation until either liability was admitted in principle or insurers confirmed that the costs of retaining accountants to produce the information would be covered by the Professional Accountant’s Clause (‘PAC’) in the policy.

    The loss adjuster left matters stating that he would take instructions from AXA and revert. In the event he never did revert; the requests were not renewed and at no stage until AXA filed its pleaded defence in the case was the point taken by insurers that the failure to produce the requested documentation was a breach of condition precedent.

    At first instance Eder J had held that, because the management accounts would have been easy to produce and because their production would not have required outside accountants to be involved, they were not covered by any ‘agreement to park’ production of material until the instructions of AXA were received and communicated by the loss adjuster and the defence based on breach of condition precedent succeeded.

    The Court of Appeal disagreed. They agreed with the judge that there was no unequivocal agreement that production of the management accounts was parked, and agreed that those accounts were not covered by the PAC. They did, however, find that in circumstances where insurers knew that the insured regarded the production of all quantum documentation as parked pending resolution of liability issues, a duty to speak arose if that was not in fact the position as far as insurers were concerned. In staying silent and then subsequently seeking to take the point as a breach of condition precedent, AXA was acting with the requisite degree of ‘impropriety’ and the estoppel founded on breach of the duty to speak succeeded.

    The importance of this judgment is that it establishes for the first time that there may be circumstances where an insurer is obliged to spell out to an insured that its actions (or inactions) during the claims process may risk jeopardising a claim. This is in spite of the fact that, as was common ground between the parties, there is no general duty on insurers to warn an insured of the need to comply with policy conditions, in particular there is no general duty to warn an insured that its conduct is or might amount to a breach of a condition precedent or that the insurer will later insist on procedural requirements having been met (see eg Diab v Regent Insurance [2006] UKPC 29).

    Moreover, the Court of Appeal did not confine this to insurance contracts. Although Sir Christopher Clarke observed that the fact that insurance is a contract of utmost good faith “will, if it does anything, increase the likelihood of a party having a duty to speak” (para [89]) he made it clear that the principle was of general application. Drawing on previous case law in the general contractual arena, the Court of Appeal found that the duty to speak “may arise if, in the light of the circumstances known to the parties, a reasonable person in the position of the person seeking to set up the estoppel would expect the other party acting honestly and responsibly to take steps to make his position plain.” (para.[82])  As to previous suggestions that some kind of impropriety or dishonesty was an essential ingredient, the Court observed that “An estoppel of this nature in a contract of this kind does not require dishonesty or an intention to mislead; nor any impropriety beyond that inherent in the conclusion that the insurers should have spoken but did not.”  (para.[88]). As such, it should be easier in the future to establish an estoppel of this kind in the right factual circumstances.

    A copy of the judgment is available here.

    Tim Marland

    Tim is consistently recommended as a leading junior by the Chambers & Partners and Legal 500 legal directories where he is praised as: "the epitome of what we look for in a modern barrister; he doesn't just sit in chambers, but gets involved in cases and sees clients with you…”"He's good at giving strong, commercial, practical and down-to-earth advice..” and “is able to guide a court through complex case law in a very simplistic way and convey technical points that would otherwise take days at trial". Tim is currently the only practising junior listed in Who’s Who Legal: Transport 2017 and recommended in the Insurance & Reinsurance Barristers Guide 2017.

    Tim has particular expertise in insurance, travel regulation and aviation, including aviation-related finance. Prior to joining Chambers, Tim worked for a number of years at Lloyd's, specialising in contentious insurance and reinsurance matters, predominantly in the field of aviation. Tim's experience includes handling excess of loss problems and direct insurance coverage issues arising out of the September 11th terrorist attacks and liability issues arising in multi-jurisdictional aviation disasters. Tim's industry experience has given him invaluable knowledge of the workings of the London insurance market and the commercial aspects of case handling.

    Tim's practice continues to be aviation and insurance-focused, but embraces all aspects of commercial law and he appears regularly in the High Court and Court of Appeal, as well as in arbitration and mediation.

    Tim is co-editor of Margo on Aviation Insurance (4th Edition).

    > read Tim's full profile

  • Procedural agreement to accept service is not a jurisdiction agreement for the purposes of the Brussels Regulation Recast - John Russell QC and Tom BirdView More

    Fri, 04 August, 2017

    John Russell QC and Tom Bird win in Court of Appeal:

    The sole issue on this appeal was whether an interlocutory agreement reached by the parties’ solicitors in correspondence constituted an exclusive jurisdiction agreement in favour of the English courts within the meaning of Regulation (EU) No 1215/2012 on jurisdiction and enforcement of judgments in civil and commercial matters (“the Brussels Regulation Recast”).

    The judgment can be found here.

    The agreement in question concerned the appellant’s application to join two French companies, PHP Trading and SODIPAM, as third and fourth parties to additional claims. As part of an exchange of correspondence on procedural issues, the respondents’ solicitors agreed to accept service of the joinder application “without prejudice to their position on jurisdiction” and, if the application were successful and the respondents’ jurisdictional challenge failed, to accept service of the additional claims.

    Although the appellant succeeded on its joinder application, the judge stayed the additional claim under article 29 of the Brussels Regulation Recast because, before the hearing, PHP Trading and SODIPAM had issued proceedings in the French court, which became first seised of the dispute.

    On appeal, the appellant argued that the respondents’ agreement to accept service of the additional claims amounted to an exclusive jurisdiction agreement within the meaning of the Brussels Regulation Recast. Agreeing to accept service of the additional claims, the appellant submitted, was inconsistent with a stay of the proceedings.

    The Court of Appeal dismissed the appeal. It noted the practical difference between an agreement about conferring jurisdiction on the courts of a Member State and an agreement, such as the one in the present case, about handling interlocutory matters. There was nothing in the correspondence which looked like a jurisdiction agreement, let alone could be clearly said to be one.

    Two points of interest arise:

    Although the court ultimately rejected the appellant’s position, the facts provide a salutary reminder, whenever drafting interlocutory correspondence, to be alert to the possibility that a straightforward agreement to accept service might have unforeseen jurisdictional consequences.

    The Court of Appeal left open an interesting point of EU law. The parties disagreed as to the scope of application of EU law when determining whether there was a jurisdiction agreement for the purposes of Article 25. The appellant’s argument was that the autonomous EU concept was simply¸ “an agreement”. If there was an Article 25 agreement, then everything else was a question of construction to be determined by the national law. The respondents contended that the EU concept was “an agreement conferring jurisdiction” and so at an EU law level the court had to be satisfied that jurisdiction was clearly and precisely conferred. The Court of Appeal considered it unnecessary to decide this point, since even on the appellant’s preferred approach, they lost as a matter of construction.

    John Russell QC   Tom Bird

    John Russell QC is an experienced and determined advocate and has acted as lead Counsel in numerous Commercial Court trials, international and marine arbitrations and appellate cases.

    "The kind of barrister you would want to have on your side. He's not afraid to challenge anyone on anything." "He's bright, commercial, user-friendly and he delivers when you need it."  (Chambers UK Bar 2017)

    John accepts instructions in many fields of commercial dispute resolution with a particular focus on shipping, commodities, international trade and marine insurance. He is ranked in the Legal 500 and Chambers & Partners in Shipping, Commodities, Aviation and Travel.


    Tom Bird has a broad commercial practice with a focus on shipping, commodities, aviation, insurance and reinsurance. 

    Chambers UK recommends him as “a rising star ... He's responsive, accessible, bright, tenacious, and user-friendly."

    Tom has represented clients in the High Court, Court of Appeal and Supreme Court. He is equally at home in arbitration. His significant cases include appeals to the Supreme Court in The DC Merwestone – a marine insurance dispute concerning the fraudulent device doctrine – and Stott v Thomas Cook, the leading case on the exclusivity of the Montreal Convention and its relation to EU law.


  • “Weighing Anchors”: assessing the merits of claims against “anchor defendants” after Sabbagh v Khoury [2017] EWCA Civ 1120? - Michael McParland QC View More

    Thu, 03 August, 2017

    The Court of Appeal’s 28 July 2017 decision in Sabbagh v Khoury [2017] EWCA Civ 1120 is compulsory reading for anyone involved in cross-border cases where EU domiciled defendants are joined to proceedings in England and Wales under the ancillary jurisdiction rules of the Brussels I Regulation.


    Those rules, formerly found in Article 6(1) of the original Brussels I Regulation (44/2001) and which are now found in identical terms in Article 8(1) of the Brussels I (Recast) Regulation (1215/2012), provide that:

     “A person domiciled in a Member State may also be sued:

    1. where he is one of a number of defendants, in the courts for the place where any one of them is domiciled, provided the claims are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings;”

    Within the Brussels I jurisdiction regime this rule serves a similar function to the “necessary or proper party” jurisdiction joinder rule found in CPR 6.37 and PD6B para. 3.1(3). But the Regulation’s rule is much narrower than the common law. One defendant has to be domiciled in the UK (the so-called “anchor defendant”) and the exercise of ancillary jurisdiction under the Regulation is subject to the proviso that the claims brought against that anchor defendant and the other EU domiciled defendants are “… so closely connected” that it is “expedient” to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings.

    In cross-border litigation, this rule have provided a fertile source of dispute, and there has been repeated concerns expressed about it being used abusively to deprive EU defendants of the right to be sued in their Member State of domicile. How can such abuse be avoided? The European Court of Justice (“CJEU”) has provided guidance of sorts on the operation of Article 6(1) in a series of piecemeal and occasionally Delphic judgments. For example, in Reisch Montage AG (C-103/05) [2006] E.C.R. I-6827, at [32], the CJEU Stated that Article 6(1):

     “… cannot be interpreted in such a way as to allow a plaintiff to make a claim against a number of defendants for the sole purpose of removing one of them from the jurisdiction of the courts of the Member State in what that defendant is domiciled”.

    But in Freeport plc v Arnoldsson (Case C-98/06) [2008] QB 34, the CJEU stated (at [54]) that Article 6(1) can be applied

     “without there being any further need to establish separately that the claims were not brought with the sole object of ousting the jurisdiction of the member state were one of the defendants is domiciled”.

    But should a national court apply a “merits test” in evaluating the claim against an anchor defendant before exercising its ancillary jurisdiction over defendants domiciled in other EU Member States?

    In Aeroflot – Russian Airlines v Berezovksy [2013] EWCA Civ 784, [2013] 2 Lloyd’s Rep. 242, the Court of Appeal considered that there was no place in assessing the merits of the claims against the other foreign defendants who had been joined to the action under Article 6(1). But what about the merits of the claim against the anchor defendant himself?

    In Sabbagh, the Court of Appeal engaged in a very detailed obiter discussion of this question, with the majority opinion being that the merits of the claim against the anchor defendant is a relevant consideration for the national court when considering whether ancillary jurisdiction should be exercised under Article 6(1).

    The Majority

    The majority (Lord Justices Patten and Beatson) considered that if the claim against the anchor defendant was “hopeless or presents no serious issue to be tried”, then it could be inferred from the “bringing of an unsustainable claim” against the anchor defendant that the claimant’s real purpose was to remove the co-defendants domiciled in other Member States from the jurisdiction of the courts of those states. It would amount to “a misuse of Article 6(1) to allow hopeless claims to oust the jurisdiction of domicile of foreign co-defendants”, something which they considered was prohibited under “sole purpose” or “sole object” analysis that is found in the CJEU’s existing case-law, especially the decision in Reisch Montage AG (C-103/05) [2006] E.C.R. I-6827 highlighted above. Their Lordships observed (at [69]) that:

     It is important, and the CJEU is clearly concerned to ensure, that Article 6(1) is not misused. In our judgment, it would be a misuse of Article 6(1) to allow hopeless claims to oust the jurisdiction of domicile of foreign co-defendants. To allow the claim to proceed in the present appeal would undermine the   principle that a defendant may be sued only before the courts for the place where he is domiciled. It is said that the merit of an approach which eschews any examination of the merits of the claim absent evidence of abuse or fraudulent intention to artificially fulfil the requirement of connection under Article 6(1) is that it avoids the risk of irreconcilable judgments and protracted disputes about the substance of a claim at the jurisdiction stage. But it does so by a bright line binary rule which does not address the fact that derogations from the general principle that civil actions are to be bought against defendants in the courts of the place where they are domiciled must be restrictively interpreted. It is open to question whether this is justified or whether this is the true import of the decisions of the CJEU which have not directly addressed the question that is before us. It is also said that defendants may, subsequently, if they wish, attempt to strike out the claims. That, however, would simply shift to strike out and summary judgment applications what is said to be undesirable and impermissible in the context of jurisdiction”.

    The Vice-President, Lady Justice Gloster, dissented from the majority’s obiter conclusions. In a detailed and careful analysis of the existing authorities, Her Ladyship held that there was clear authority that Article 6(1) could be used to establish jurisdiction against non-anchor defendants even if the claim against the anchor defendant will not proceed, unless the claimant is engaged in a fraudulent abuse of Article 6(1). That qualification of the operation of Article 6(1) would only arise when a national court was satisfied there was firm evidence to demonstrate fraudulent abuse. There was no scope for an evaluation of the merits of the claim against the anchor defendant.

    Her Ladyship also considered that English courts could not incorporate a merits test in relation the claim against the anchor defendant within the requirement in Article 6(1) of establishing a close connection between the claims. Gloster LJ considered that the defendant’s submissions in support of the adoption of a merits test were inconsistent with the CJEU’s decisions, especially that of Reich Montage. Her Ladyship then made a number of observations on the decision in Aeroflot – Russian Airlines v Berezovksy [2013] EWCA Civ 784, [2013] 2 Lloyd’s Rep. 242, which concerned the application of a merits test to the claims against the foreign, non-anchor, co-defendants. Gloster LJ considered Aeroflot must be “approached with a degree of caution”.


    There is much benefit to be gained from a reading of the conflicting conclusions in Sabbagh. The difference between the two positions is both important and subtle. In practical terms, defendants challenging the exercise of jurisdiction may well wish to argue that a merits test should be applied. Claimants, especially those asserting jurisdiction based on relatively weak claims against an anchor defendant, who may well not be the main target of their claim, are likely to argue the opposite. But it is abundantly clear that the issues raised in these obiter conclusions in the Court of Appeal will have to be fought out in future cases. There may well have to be a lot more “weighing anchors” before the issue as to the correct approach to the exercise of this ancillary jurisdiction is finally resolved.


    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. “

    > read Michael's full profile

  • A return to a stricter approach to time-limits? - Jonathan ChambersView More

    Mon, 31 July, 2017

    Lakhani v Mahmud [2017] EWHC 1713 (Ch)

    The modern and oft-repeated advice to legal practitioners is that non-compliance with time-limits may lead to sanctions and will result in the costs and embarrassment of a potentially unsuccessful application for relief from the sanctions under CPR 3.14. The best advice is comply and failing that make your application for relief from sanctions promptly.

    A good example of the pitfalls of a dilatory approach leading to arguably ‘disproportionate’ sanctions centre in Lakhani v Mahmud [2017] EWHC 1713 (Ch).

    As is standard practice, parties were ordered to file and serve updated costs budgets 21 days before a costs and case management conference (CCMC). This was to enable the parties to communicate with each other in good time prior to the hearing to limit disputes over costs budgeting. The Claimant’s solicitor complied but the Defendant’s solicitor failed and filed and served it a day late. The automatic consequence under the CPR was that, unless relief from sanctions was permitted, the Defendant would be unable to recover any more than court costs if successful.

    In the meantime and prior to the CMCC the parties’ solicitors got on with the exercise of commenting on each other’s costs proposals. Thus the Defendant argued on its application at the CMCC for relief from sanctions on the basis that the Claimant had suffered no prejudice by missing the deadline by a day.

    The Decision
    At first instance HH Judge Lochrane held that being one day late with a costs budget “might not be regarded as terribly serious”.  However in this case it was serious because (i) it was only accepted belatedly that the costs budget was late, (ii) the situation was made worse by the solicitor’s annual Christmas closure, (iii) the solicitor was aware that filing late would restrict a period already limited, (iv) the fact that budgets had not been agreed in any event was irrelevant and (v) late service had ‘created an environment’ which was not conducive to agreement.

    Thus although no actual prejudice had been suffered, it was a serious not a trivial breach and there was no sensible excuse for the breach (applying Clearway Drainage Systems Ltd v Miles Smith Ltd [2016] EWCA Civ 1258).

    The Appeal and the Test
    On appeal to the Chancery Division, Daniel Alexander QC upheld the decision at first instance and held that relief from sanctions should not be given.

    As a matter of principle Case Management decisions should not be interfered with if the court below has “applied the correct principles and…has taken into account matters which should be taken into account and left out of account matters which are irrelevant, unless the court is satisfied that the decision is so plainly wrong that it must be regarded as outside the generous ambit of the discretion entrusted to the trial judge”.

    The High Court applied the 3 stage test in Denton [2014] EWCA Civ 906 which is as follows:

    1. The first stage is to identify and assess the seriousness and significance of the "failure to comply with any rule, practice direction or court order”. If the breach is neither serious nor significant, the court is unlikely to need to spend much time on the second and third stages.
    2. The second stage is to consider why the default occurred.
    3. The third stage is to evaluate "all the circumstances of the case, so as to enable [the court] to deal justly with the application including [factors (a) and (b)]"."

    At the first stage the test is not whether a future hearing date is imperilled. A breach may be incapable of affecting the efficient progress of the litigation and may still be serious. At the second stage, the fact that solicitors may be under pressure and have too much work will rarely be a good reason for a default. As to the third stage, the factors set out in CPR 3.9(1) (a) and (b) ((a) efficient conduct of litigation at proportionate cost and (b) enforcement of rules, PDs and Orders) may not be of paramount importance but are of particular importance.

    The High Court considered that the following factors rendered the breach ‘serious’.

    (i) The absolute and relative amount of time lost by missing the deadline had to be considered. Although a comparatively generous period for compliance was provided in terms of number of days the effective useable time was more limited. It is legitimate for a court to take account of the effective amount of time available and how much of that was lost as a result. The amount of time lost can be more significant where a task involves a degree of co-operation, such as attempting to agree a matter, rather than the unilateral performance of an act.

    (ii) Whether missing the deadline affected the litigation or a procedural step in it or was likely to do so. If litigation is adversely affected as a result of breach of an Order, necessitating an adjournment or by making it much harder to reach agreement without a hearing on given issues or by making other steps in litigation more difficult or complex to perform, that is a powerful factor in favour of finding that the breach was serious or significant. However it is not an over-riding factor and in the case of orders whose performance requires a degree of co-operation it may make it more inconvenient and costly, since extra time may need to be made available.

    (iii) The direct consequences of missing the deadline and how it was addressed. The mere fact that an application for relief from sanctions might need to take place at the same time as an attempt to complete the tasks required by the Order does not mean that the breach should necessarily be regarded as serious on the basis that such may risk distraction. However, where a party in default makes “a mountain of procedural annoyance out of a molehill of missing a deadline” it may be serious.

    (iv) The impact of missing the deadline on litigation generally. In this case what should have been a short hearing on costs-budgeting turned into a long one dominated by relief from sanctions, using valuable court time.

    Secondly, the High Court also found that there was no reasonable excuse for the default. An error made by a legal representative as to a particular deadline for compliance should not be treated as a reasonable excuse.

    Thirdly, the High Court held that the sanction dealt justly with the breach. Although “on the tougher end of the spectrum” the simple effect of the Rules is that the Defendant is deprived of their budgeted costs in the event that they succeed and if they lose at trial the sanction will have had a limited adverse impact on the Defendant

    Thus the moral of the story must be to diarise, diarise and diarise and then comply with Court deadlines. As Shakespeare wrote “Better three hours too soon than a minute too late” (The Merry Wives of Windsor)

    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.

    Related News:

    Challenging jurisdiction (well) out of time – justice trumps time-limits - Jonathan Chambers

  • Challenging jurisdiction (well) out of time – justice trumps time-limits - Jonathan ChambersView More

    Mon, 31 July, 2017

    Newland Shipping and Forwarding Ltd v Toba Trading FZC [2017] EWHC 1416 (Comm) (Ms Sara Cockerill QC)

    The English Commercial Court recently dealt with a dual application by the Fifth Defendant (D5) for relief from sanctions under CPR 3.9 and to dispute jurisdiction late under CPR 11. The High Court found that the justice of the challenge to jurisdiction trumped the long delay in making the application and gave relief from sanctions.

    The claim arose out of a contract for the sale of gasoil made between the Claimant (C) (as seller) and the First Defendant (D1) (as buyer) in February 2011. The Claimant alleged that it shipped the cargo in March 2011 but D1 failed to pay. In August 2014 D5 was added to the claim on the basis that D5 was a necessary and proper party as “the director and shareholder” of D1 and served out of the jurisdiction by email.

    Procedural History
    D5 did not acknowledge service or challenge jurisdiction within the time prescribed by the CPR as he did not receive the emailed Claim Form or know of the claim until October 2016. In October 2014 C entered judgment in default against D5 for more than US$7 million. D5 entered an acknowledgement of service 4 months after the proceedings came to his knowledge and issued applications to challenge jurisdiction and for relief to make such application within 28 days thereafter in January/February 2017.

    The Issues
    The issues for the Court were whether (i) D5 should have relief from sanctions under CPR Part 3.9 and an extension of time to make its application to challenge jurisdiction not having not entered an acknowledgement of service within 28 days of service and whether (ii) D5 had been properly joined to the proceedings and service out had been properly affected.

    Preliminary Issue – A challenge to jurisdiction without submitting to the jurisdiction?
    D5, intentionally, did not make an application to set aside the judgment in default on the basis that such a challenge might amount to a submission to the English jurisdiction thereby rendering the jurisdictional challenge nugatory.

    The Court held that it was arguable that a challenge to a default judgment in partnership with a jurisdictional challenge might amount to a submission on the basis that taking any step in relation to the merits of the claim can amount to a submission (Global Multimedia International v ARA Media Services [2006] EWHC 3612 and Deutsche Bank AG London Branch v Petromena ASA [2015] EWCA Civ 226).

    The Court also held that, if the jurisdictional challenge succeeded the default judgment could not stand. The Court’s reasoning was that if a claim form was set aside the basis for the default judgment would be removed and the judgment itself could not stand. Thus an application to set aside default judgment was strictly unnecessary.

    How should a dual application to challenge jurisdiction and for additional time to make such a challenge be dealt with?
    Logically the issue of whether D5 could bring an application to challenge jurisdiction should have preceded the issue of whether there was jurisdiction against D5.  However, sensibly, the Court regarded the that merits of whether there was jurisdiction was an important issue as to whether procedural relief from sanctions should be granted under CPR Part 3.9.

    Was there Jurisdiction?
    C’s joinder of and service out on D5 was founded on the assertion that he was both the director and shareholder of D1. There was however no evidence that D5 was the director and shareholder of D1 at the relevant time i.e. in 2011, whatever may have been the position when proceedings were commenced or default judgment entered. On that basis the Court held it did not have jurisdiction, D5 should not have been joined, service out should not have been effected and judgment in default should not have been entered.

    Should there be relief from sanctions?
    On that basis the Court then had to decide whether there should be relief from the sanctions consequential on the failure to challenge jurisdiction and whether what would otherwise be a successful challenge to jurisdiction should be permitted 2 years and 4 months late.

    In the usual course of events a party wishing to dispute jurisdiction must make such an application, supported by evidence, within 28 days after filing an acknowledgment of service: (CPR 11.4). However, the English Courts have jurisdiction to grant a retrospective extension of time where appropriate, Texan Management Ltd v Pacific Electric Wire and Cable Co Ltd [2009] UKPC 46. However an application for retrospective extension (made out of time) falls to be decided in accordance with CPR 3.9 as clarified by the 3-stage test in Denton v TH White Ltd [2014] EWCA Civ 906. This 3-stage test is as follows

    1. The first stage is to identify and assess the seriousness and significance of the "failure to comply with any rule, practice direction or court order”. If the breach is neither serious nor significant, the court is unlikely to need to spend much time on the second and third stages.
    2. The second stage is to consider why the default occurred.
    3. The third stage is to evaluate "all the circumstances of the case, so as to enable [the court] to deal justly with the application including [factors (a) and (b)]"."

    As to the first stage of Denton, the Court found that the breach by D5 was serious and significant.  However with respect to the second stage, the Court found that there was a good explanation for the failure to make an application up to at least October 2016 in that the proceedings did not come to D5’s knowledge until then. Conversely for the period between October 2016 and January 2017, the period of 4 months, from the receipt of Court documents until service of the acknowledgement, was not covered by a good reason. Thus the default position at stage 3 of Denton was that there should be no relief from sanctions.

    However at the third stage of the Denton test the Court held that it must consider whether there are other “circumstances” which indicate against refusing the application. The Court indicated that in addition to the 2 explicit factors set out in CPR Part 3.9(1)(a) and (b) the following might be relevant factors:-

    1. whether the sanction imposed is proportionate to the breach in question;
    2. whether the application for relief from sanctions was made promptly; and
    3. whether the defaulting party has a poor record as to compliance with proper court procedures.

    The Result
    The Court granted relief. The Court held that the need for litigation to be conducted efficiently and at proportionate cost in CPR Part 3.9(1)(a) was not engaged on the facts as there were no ‘knock-on’ effects on the litigation, in the form of adjournments or other manifest inconvenience. Similarly the objective of enforcing compliance with rules, practice directions and orders (CPR Part 3.9(1)(b), there was a good excuse for most of the delay, there was no flouting of  the rules and no history of non-compliance. In the absence of relief, the CPR also provided for an “unusually disproportionate sanction” since D5 would have been entitled to set aside the Claim Form and its service and to deprive him of the opportunity to challenge a baseless assertion of jurisdiction when there was no prejudice would be disproportionate.

    The Court held that a refusal to grant relief would be “a display of judicial musculature […] hard to square with [CPR Part 3.9’s] wording”.

    The Procedural Lesson
    Thus the lesson of the case is that although some latitude will be given to a litigant in challenging the jurisdiction of the English Court, such challenges should be made immediately a party has knowledge of the proceedings. Such challenged will only generally be allowed to be made late when the merits for setting aside service are overwhelming.

    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.

    Related News:

    A Return to a Stricter Approach to Time Limits? - Jonathan Chambers