Tue, 07 August, 2018
We are delighted to bring you the Summer 2018 issue of Quadrant Chambers’ International Arbitration Newsletter.
Arbitrator and former Supreme Court Judge Lord Clarke of Stone-cum-Ebony provides the editorial, considering the recent 2018 International Arbitration Survey by Queen Mary University of London and White & Case.
This issue includes a guest article on the recent Halliburton v Chubb decision on apparent bias from Peter Ashford at Fox Williams.
Quadrant’s John Russell QC looks at two recent decisions and asks if the Fiona Trust “one-stop” presumption is under attack.
Over recent months, members of Quadrant Chambers have authored a number of articles and blog posts on interesting and highly topical issues arising in arbitration. We have brought these together in an extended version of this newsletter.
If you would like to catch up on this extended version, please download here.
Date for the diary - our next international arbitration event will be taking place on 14 November, further details will follow
Thu, 26 July, 2018
A seller enters into a sale contract with a buyer for the sale and purchase of generic goods. The buyer in turn enters (or has already entered) into a sale and purchase contract (‘the sub-sale’) with a sub-buyer for the sale and purchase of the same generic goods. The seller breaches its contract with the buyer, in that the goods are either (for example) not delivered at all (‘non-delivery’) or delivered in a defective condition (‘defective delivery’).
Is the sub-sale relevant to the assessment of the buyer’s damages for breach of the sale contract?
In a judgment handed down on 25 July 2018, the Court of Appeal (‘CA’) has considered this issue in the context of a claim analogous to one for non-delivery. The answer that the CA has given is that it “depends on the particular circumstances”, being an answer which it is suggested accords with both basic contractual principles and earlier authority (properly understood).
The Starting Point – Sections 51 / 53 of the Sale of Goods Act (‘SOGA’) 1979
The starting point of any assessment of damages for claims in respect of non-delivery or defective delivery is sections 51 and 53 (respectively) of the SOGA 1979.
As regards non-delivery, section 51 of the SOGA provides:
“ …(2) The measure of damages is the estimated loss directly and naturally resulting, in the ordinary course of events, from the seller’s breach of contract.
(3) Where there is an available market for the goods in question, the measure of damages is prima facie to be ascertained by the difference between the contract price and the market or current price of the goods at the time or times when they ought to have been delivered or (if no time was fixed) at the time of the refusal to deliver.”
In similar vein, as regards defective delivery, section 53 of the SOGA 1979 provides:
“…(2) The measure of damages is the estimated loss directly and naturally resulting, in the ordinary course of events, from the seller’s breach of contract.
(3) In the case of breach of warranty of quality such loss is prima facie the difference between the value of the goods at the time of delivery to the buyer and the value they would have had if they had fulfilled the warranty.”
Sub-sections 51/53(2) amount to a statutory codification of the well-known rule in Hadley v Baxendale (1854) 9 Exch. 341. Sub-sections 51/53(3) then lay down a presumption of a market replacement measure (in the case of non-delivery) and a difference in market value measure (in the case of defective delivery), i.e. in both cases, a ‘market measure’. Whilst this is trite law, it is worthy of repetition. In the words of Lord Sumption in Bunge SA v Nidera BV  UKSC 43 at , “Section[s] 51 … reflect[s] common law principles which had already been established at the time of the earlier Act. Section 51(2) states the compensatory principle in the context of a seller's non-delivery. Subsection (3) states the prima facie measure of damages where there is an available market, but it is not so much a rule as a technique which is prima facie to be treated as satisfying the general principle expressed in subsection (2)”.
The rationale for this presumptive market measure is straightforward; put simply, the law presumes that, where there is an available market, the buyer both can and should go out into the market to purchase replacement goods in the event of a default by the seller.
The Apparent Controversy and Earlier Case Law / Commentary
The question that has given rise to some controversy (arguably more apparent than real) in both the case-law and commentary is: in what circumstances might this presumptive market measure be displaced? In particular, when might it be possible – and appropriate – to take a sub-sale into account? Early case law has often been understood as suggesting that, in the event that there was an available market, then such circumstances are very few (if any). In Rodocanachi v Milburn (1886) 18 QBD 67 (CA) (at pages 76-77), Lord Esher MR held it to be “well settled that in an action for non-delivery or non-acceptance of goods under a contract of sale the law does not take into account in estimating the damages anything that is accidental as between the plaintiff and the defendant, as for instance an intermediate contract entered into with a third party for the purchase or sale of the goods”. Whilst this dictum was made in the context of a claim for non-delivery under a contract of carriage, its reasoning was followed and endorsed by the House of Lords (‘HL’) in Williams Bros v Agius  AC 510, in which the HL held that, in a claim for non-delivery, where goods sold were available on the market and there was evidence of a market price at the date of the seller’s breach, the buyer’s damages for non-delivery were not to be reduced by reference to the fact that they were in fact resold at a price below the market price at the time fixed for delivery. Lord Moulton noted (at page 530) that “Rodocanachi v. Milburn case rests on the sound ground that it is immaterial what the buyer is intending to do with the purchased goods.”
Similar reasoning was applied by the CA in the later well-known case of Slater v Hoyle & Smith Ltd  2 KB 11, being a case of defective delivery under a contract for the sale of cloth. The buyer had entered into a sub-contract for the sale of the cloth and was in fact able to deliver the defective cloth under its sub-contract without facing any claim for damages by its sub-buyer. The CA nonetheless upheld the buyer’s claim for damages based on the market measure (i.e. the difference between the market value of the sound cloth and the damaged cloth), rejecting the seller’s argument that damages should be assessed with reference to the sub-sale. In so doing, Scrutton LJ reasoned as follows (at page 20):
“Neither sub-contract formed the basis of the original contract; the buyers were under no obligation to deliver the goods of the original contract to the sub-buyer … It is well settled that damages for non-delivery or delay in delivery of goods, where there is a market price, do not include damages for the loss of any particular contract unless that contract has been in contemplation of the parties to the original contract: Horne v. Midland Ry. Co. The value of the goods in the market independently of any circumstances peculiar to the plaintiff is to be taken”
This reasoning suggests two potential ‘exceptions’ to what Scrutton LJ expressed as the general ‘rule’ (i.e. the irrelevance of the sub-sale): the first, where the buyer is under a legal obligation to deliver the very same goods sold under the original contract under the sub-contract; and the second where the sub-sale is in the contemplation of the parties to the original contract. What is not immediately obvious from Slater v Hoyle, however, is why a legal obligation to on-sell the very same goods should matter, or the sort of situation when a sub-sale may properly be taken to have been in the contemplation of the parties such that it may be taken into account in the assessment of damages.
This second point arose directly for consideration in the equally well-known case of Bence Graphics International Ltd v Fasson UK Ltd  QB 87. The claim was one for damages by a buyer in respect of the defective delivery of vinyl film bought from the seller as raw material for the buyer’s manufacture of decals (self-adhesive transfers for use in identifying bulk containers) to be sold to multiple third parties. The vast majority of the film was sold on as decals before the buyer discovered the defect and, whilst the film was found by the trial judge to be worthless, very few of the ultimate users complained. The trial judge nonetheless awarded the market measure of damages. On appeal, the CA (by majority) overturned that decision, finding as a fact that the seller had had detailed knowledge of the buyer’s business and knew at the time of contracting the specific use to which the buyer intended to put the film. In those circumstances, the CA reduced the damages award in respect of the film that had been on-sold to one based on the buyer’s liability (if any) to the ultimate users. In other words – and in what some have (it is suggested mistakenly) viewed as a volte face in terms of the earlier case law – the buyer’s damages were based on the sub-contract, notwithstanding that there was an available market.
Whilst the majority’s reasoning in Bence Graphics v Fasson was not entirely consistent in all respects, on the key points, its reasoning was unanimous:
(1) Otton LJ emphasised (at 97C) that section 53(3) laid down only a prima facie rule, from which the court could depart in appropriate circumstances (the burden of proof lying on the party who sought such a departure).
(2) Otton LJ also held that (at 100B) that, in circumstances where the cloth had been converted in the manner contemplated by the parties then damages were to be assessed with reference to the sub-sale, “whether the plaintiff likes it or not”. He made the further point that it was not for the claimant to choose the outcome most favourable to it; rather it was for the court to determine the correct measure of damages.
(3) Otton LJ summarised his reasoning at 101A as follows: “Thus, in my view, at the time of making their contract the parties were aware of facts which indicated to both that the loss would not be the difference between the value of the goods delivered and the market value and accordingly the prima facie measure ceased to be appropriate.”
(4) The reasoning of Auld LJ at 102B-C was similar in all essential respects: “As to section 53(3), there is, in my view, a danger of giving it a primacy in the code of section 53 that it does not deserve. The starting point in a claim for breach of a warranty of quality is not to determine whether one or other party has “displaced” the prima facie test in that subsection. The starting point is the Hadley v. Baxendale principle reproduced in section 53(2) … namely an estimation on the evidence, of “the . . . loss directly and naturally resulting in the ordinary course of events from the breach of warranty.” The evidence may be such that the prima facie test in section 53(3) never comes into play at all.”
The CA’s reasoning in Bence Graphics v Fasson was the subject of criticism by G.H. Treitel in his article “Damages for Breach of Warranty of Quality” LQR (1997) Vol. 113 at pp. 188-195. Treitel’s criticisms are adopted in Chitty on Contracts and received a measure of obiter endorsement at both first instance and in the CA in OVM Petrom SA v Glencore International AG  EWHC 666 (Comm);  2 CLC 651 (CA). Treitel’s criticisms found themselves on two main points. First, Treitel states that the CA wrongly treated the issue as one of remoteness; whereas remoteness is not relevant where the claim is simply for the difference in value between what was contracted for and what was received. Second, Treitel stresses the significance of whether or not the buyer is under a legal obligation to use the identical goods purchased under the sale contract for the purposes of the sub-contract. In the absence of such a legal obligation, according to Treitel, the sub-contract is irrelevant.
It is respectfully suggested that neither point is correct. The first merely begs the question of the buyer’s actual loss (assuming the actual loss in all cases to be equivalent to the market measure) and puts the cart before the horse: the proper starting point is ss. 51/53(2) and not ss. 51/53(3) SOGA 1979 (as per Lord Sumption and Auld LJ above). That is contrary to both the compensatory principle and the rule in Hadley v Baxendale. The second point seeks to ascribe too much significance to Scrutton LJ’s reference in Slater v Hoyle to the relevance of such a legal obligation (see above). The reason why such a legal obligation to on-sell the very same goods is relevant is because, in that situation, the buyer neither cannot – nor can the buyer be expected to – go out into the market and mitigate its loss. It is thus merely one example – perhaps the paradigm example – of where the market measure (which itself internalises questions of causation and mitigation) may be displaced. But as Bence Graphics v Fasson and now the decision in Euro-Asian Oil SA v Credit Suisse AG make clear, it is not necessarily the only situation in which it may be so, even where there is an available market.
The Facts of Euro-Asian Oil SA v Credit Suisse SA
It is pertinent at this juncture to consider the facts of Euro-Asian Oil SA v Credit Suisse AG. The claim arose out of a sale contract concluded between Abilo UK and Euro-Asian for the sale and purchase (respectively) of Ultra-Low Sulphur Diesel (‘ULSD’). Pursuant to a sub-contract concluded between Euro-Asian and a further company, Real Oil (on the same date), Euro-Asian agreed to sell an identical quantity of ULSD to Real Oil. Cranston J at first instance found as a fact that both Abilo UK and Real Oil were creatures of a Mr Igniska and that the raison d’être of the transactions was that it was a financing arrangement for the benefit of Mr Igniska (enabling him to obtain larger quantities of gasoil than he could otherwise afford, and save on costs such as freight), the incentive for Euro-Asian being its ‘financing fee’, comprising the difference between contract sale price and the sub-contract price.
The sale contract which was the subject of the claim was the fourth in a series of similar contracts (and sub-contracts). As regards those earlier sale contracts, Cranston J found that they had been performed by way of what was described as ‘carousel’. In short, the carousel operated by way of Abilo UK presenting documents (comprising a letter of indemnity (‘LOI’) and invoice in lieu of a bill of lading) under the relevant letter of credit in respect of a shipment previously discharged at the discharge terminal and providing a holding certificate (representing the physical ULSD in the terminal) based on the subsequent sale contract concluded with Euro-Asian. Upon the collapse of the carousel, Euro-Asian was left in the position whereby it had paid for four cargoes of ULSD, but received only three. It accordingly brought a claim against Credit Suisse as co-signatory to the LOI on the ground that Credit Suisse had warranted to it that Abilo UK had passed title to Euro-Asian of a cargo of ULSD, which was never in fact delivered to Euro-Asian (i.e. the claim was analogous to one for non-delivery). It was common ground that there was an available market for the ULSD and Euro-Asian claimed the sound arrived value of the ULSD, agreed at US$18,360,320. Credit Suisse, however, sought to limit Euro-Asian’s damages to US$15,889,500, being the sale price under its sub-contract with Real Oil.
Decision of Cranston J
Cranston J found that Credit Suisse was liable to Euro-Asian under the LOI. Having recorded that there was an available market for the ULSD (at ), Cranston J rejected Euro-Asian’s argument on damages in brief terms, holding that (in a single paragraph at ):
“In my judgment Euro-Asian’s damages should be capped at US$15,889,500, the price which Euro-Asian invoiced Real Oil under the Fourth Real Oil contract. It was always contemplated that Euro-Asian would nominate the same cargo to perform the Real Oil contracts which Abilo had nominated to perform the sale contracts. The market value rule for damages for failure to deliver goods under section 51(3) of the Sale of Goods Act 1979 is displaced.”
The Arguments on Appeal
Cranston J’s ruling on damages was the subject of a cross-appeal by Euro-Asian, on the alleged ground that there was no proper basis for disapplying the measure of loss set out in s. 51(3) of the SOGA 1979 in circumstances where there was an available market for the ULSD. The thrust of Euro-Asian’s case was that Cranston J’s decision was inconsistent with what Euro-Asian described as the ‘classic damages logic’ represented by Slater v Hoyle (namely, on Euro-Asian’s case, the irrelevance of the sub-contract). For good measure, Euro-Asian also sought to adopt the criticisms of Treitel summarised above.
Credit Suisse’s case in response was two-fold. First and foremost, Credit Suisse emphasised that, on the facts as found by Cranston J, Euro-Asian’s actual loss was US$15,889,500, being the price it would have been paid for the ULSD by Real Oil. The considerably greater market measure of US$18,360,320 was an entirely theoretical loss which in no sense reflected the position that Euro-Asian would have been in, had the sale contract been properly performed. The sole purpose of both transactions was for Euro-Asian to acquire ULSD that it would immediately sell to Real Oil and there was never, submitted Credit Suisse, any possibility of (and neither party would ever have contemplated) Euro-Asian doing anything else with the ULSD. Nor was there ever any realistic prospect of Euro-Asian ever going out into the market to purchase a replacement cargo in the event of Abilo UK’s failure to deliver the ULSD under the fourth sale contract – a fortiori in light of the carousel (of which the Judge had found Euro-Asian was well aware at the time of conclusion of the fourth sale contract).
On these particular facts, it was Credit Suisse’s case that the Real Oil sub-sale was not res inter alios acta (as the sub-contract in Slater v Hoyle was found to be: see Scrutton LJ at p. 22) and was not too remote (as were the sub-contracts in each of Rodocanachi v Milburn, Williams v Agius and Slater v Hoyle). On the contrary, on the particular facts of the case, the sub-sale was inextricably linked with the principal sale contract and both parties had contracted with reference to it. They would accordingly have contemplated, in the event of breach, that Euro-Asian’s loss would be the price it would have been paid for the ULSD under its contract with Real Oil. In those circumstances, Cranston J had properly awarded damages with reference to the sub-sale. Indeed, it was Credit Suisse’s case that not to do so would flout both the compensatory principle and the rule in Hadley v Baxendale, for it would be contrary to the basis on which the parties had contracted and would serve to put Euro-Asian in a much better position than it ever would have been in but for the breach.
As regards any alleged tension between Slater v Hoyle and Bence Graphics v Fasson, it was Credit Suisse’s case that, properly analysed, there was in fact no such tension, with the consequence that Treitel’s criticisms were misplaced. Rather, each case was correctly decided on its own particular facts in accordance with the basic principles of causation, mitigation and remoteness. But Credit Suisse also submitted that it was not in fact necessary for the CA to determine that point in light of Credit Suisse’s case that the application of the reasoning in Slater v Hoyle itself to the particular facts of the case led to the conclusion that the sub-sale was to be taken into account.
The CA Decision
In its judgment handed down yesterday, the CA dismissed Euro-Asian’s cross-appeal and upheld Cranston J’s damages award based on Euro-Asian’s sub-contract with Real Oil. In so doing, the CA expressly referenced the compensatory principle and the rule in Hadley v Baxendale (as relied upon by Credit Suisse) and considered the earlier case-law such as Williams v Agius, which it relied on as making clear that “in such cases what was referred to as ‘accidental between the plaintiff and the defendant’ for example a contract between the plaintiff and a third party was irrelevant” (see the Judgment at , emphasis added).
Having done so, however, the CA then returned to the wording of section 51 of the SOGA 1979 and the particular facts of the case, and held as follows at -:
“72. The normal measure of damages for a failure to deliver goods is the estimated loss directly and naturally resulting, in the ordinary course of events from the seller's breach of contract, see s.51(2). Where there is an available market for the goods, the measure of damages is prima facie the difference between the contract price and the market or current price of the goods at the time or times when they ought to have been delivered or (if no time was fixed) at the time of the refusal to deliver, see s.51(3). However, the application of s.51(2) may mean that the prima facie rule in s.51(3) is not applied, or may be ‘displaced’ in the particular circumstances of the case. An example was given by Devlin J in the Kwei Tek Chao case (above): a string contract for specific goods. The issue in each case depends on the particular circumstances.
73. In the present case, the sale contracts formed part of a series of what were effectively financing transactions involving Abilo, Euro-Asian and Real Oil (or another of Mr Igniska’s companies). They were not exactly string contracts, and I would accept that Euro-Asian could have performed its delivery obligation under the sub-sale other than through the purchase from Abilo. Nevertheless, there was a proper factual foundation, as set out at - of the judgment, which I have endeavoured to summarise at  to  above, for the Judge’s conclusion that ‘it was always contemplated’ that Euro-Asian would nominate the same cargo to perform the Real Oil contracts that Abilo nominated to perform the sale contracts, so that he was entitled to his view that the damages he awarded was the measure of loss contemplated by the parties.”
Thus, the CA found that, in circumstances where the parties would only ever have contemplated a loss based on the sub-contract, the prima facie market measure was displaced and Euro-Asian’s damages fell to be assessed with reference to its sub-contract with Real Oil.
It is submitted that the CA’s decision was correct on the facts before it. Properly understood, even the case-law relied upon by Euro-Asian does not support the existence of any ‘rule’ that a sub-contract cannot be taken into account in the assessment of damages where there is an available market (or that it can only be taken into account where the buyer is under a legal obligation to supply the very same goods under the sub-contract). Rather, and as the CA has confirmed, whether or not a sub-contract should be taken into account will depend on the particular facts and the application of the basic principles of causation, mitigation and remoteness to those particular facts.
As numerous judges at all levels have emphasised, and the CA in Euro-Asian Oil SA v Credit Suisse AG has reiterated, the presumptive market measure in sections 51/53 SOGA 1979 is based on a presumption that losses can – and can reasonably be expected to be – avoided by a particular type of mitigation, i.e. going out into the market. Where, as in Euro-Asian Oil SA v Credit Suisse AG, there are facts to rebut that presumption, it should not apply.
The fact that a loss is not too remote is a necessary – but not in and of itself sufficient – factor that may lead to the displacement of the presumption. By parity of reasoning, the presence of a legal obligation to use the identical goods under the sub-contract might suffice to render the sub-contract relevant, but it is not necessary.
Put another way, it is suggested that a sub-contract will determine the assessment of damages for non-delivery (or defective delivery) where that sub-contract is within the reasonable contemplation of the parties and the parties contemplate that, in the event of non-delivery / defective delivery, the buyer could not or would not buy replacement goods in the market and his action in not doing so would be reasonable. In such circumstances, where the buyer cannot reasonably be expected to go out into the market to mitigate its loss, or cannot do so in fact, the parties would never have contemplated that the innocent party would suffer a loss in the amount of the market measure. Nor, in such circumstances, does the breach in question cause the innocent party to suffer a loss in the amount of the market measure. Instead, in these circumstances, the buyer’s actual loss based on the sub-contract is the loss directly and naturally resulting in the ordinary course of things from the seller’s breach of contract. Such reasoning has the benefit of principle and, once applied to the particular facts of the particular cases, obviates any suggestion of inconsistency between cases such as Bence Graphics v Fasson and Slater v Hoyle.
A decision on Euro-Asian’s application for permission to appeal is awaited as at the time of writing.
Caroline Pounds acted on behalf of Credit Suisse AG, led by Jeffrey Gruder Q.C. and instructed by Jeremy Davies, Olivier Bazin and Caroline West of HFW, Geneva. A copy of the judgment is available here.
 Credit-Suisse having (in the event, unsuccessfully) appealed the finding that it was liable to Euro-Asian.
Caroline’s practice encompasses the broad range of general commercial litigation and arbitration. Her particular areas of specialism include shipping, carriage of goods, shipbuilding, energy and commodities. She undertakes drafting and advisory work in all areas of her practice and regularly appears in the Commercial Court and in arbitration, both as sole counsel and as junior. She is a sought after junior and enjoys a significant amount of led work. In particular, she is regularly led by Luke Parsons QC, Simon Rainey QC, Lionel Persey QC, and Simon Croall QC
Thu, 26 July, 2018
Trade finance banks facilitate international trade by providing short-term, “self-liquidating” finance to their trader customers. Being able to hold the bills of lading covering the cargoes they have financed to secure repayment of the purchase price, without getting involved in the underlying contract of carriage unless absolutely forced to, is crucial to their business model.
Such banks are likely to find the ruling of Popplewell J in Sea Master Shipping Inc v. Arab Bank (Switzerland) Limited (“The Sea Master”)  EWHC 1902 (Comm), handed down on 25th July 2018, surprising to say the least. That is because he held that such banks are subject to the jurisdiction of an arbitral tribunal appointed under bills of lading previously held by them as security, even if they were merely intermediate holders who had neither rights nor obligations under those bills at the time the arbitration was commenced.
In the underlying arbitration, the shipowners claimed demurrage from a Swiss trade finance bank that had financed the purchase of a cargo of soyabeanmeal by the ship’s charterers. As the charterers were no longer good for the money, the owners claimed the demurrage from the bank, arguing inter alia that the bank was liable because it was the original party to the contract contained in and/or evidenced by a replacement/“switch” bill of lading issued at the bank’s counters in Zurich in exchange for the original bills of lading held by the bank as security for its loan to the charterers. The charterers needed the “switch” bill because they had lost their buyer at the discharge ports in Morocco named in the original bills and their substitute sale contract required delivery in Lebanon. They therefore paid the owners an additional sum to sail to, and issue a switch bill of lading providing for discharge in, Lebanon.
The tribunal held that it lacked jurisdiction because, inter alia, the bank was not an original party to the switch bill of lading. The owners challenged that decision under section 67 of the Arbitration Act 1996 on the sole ground that, contrary to the tribunal’s ruling, the bank was the original party to the switch bill; and the parties argued only that question.
However, Popplewell J approached the jurisdictional question from a different angle. He held that the tribunal had jurisdiction over the bank even though the bank possessed neither rights nor obligations under the switch bill at the time the arbitration was commenced. He held that the fact that the bank had, albeit as an intermediate holder of the switch bill and only temporarily, previously been vested with rights of suit under that switch bill pursuant to section 2 of the Carriage of Goods by Sea Act 1992 (“COGSA 1992”) gave the tribunal the required jurisdiction. He ruled that to be the case even though the bank (i) never became subject to any obligations under the switch bill pursuant to section 3 of COGSA 1992 and (ii) had even lost its right of suit under section 2 by the time the arbitration was commenced as a result of its endorsement of the switch bill to the new Lebanese buyer.
Popplewell J reached that conclusion in reliance on the doctrine that the arbitration agreement “has a separate and independent existence from that of the matrix contract in which it is found,” such that it may confer jurisdiction on the arbitrators to determine disputes “notwithstanding the termination or even initial invalidity of the matrix agreement giving rise to the disputes”. In his view, that doctrine of separability meant that one could not assume that COGSA intended to treat rights and obligations under the arbitration agreement in the same way as the substantive rights and obligations of the parties under the bill of lading contract.
He concluded that the effect of the bank becoming a lawful holder of the switch bill “was to subject the Bank to an obligation to arbitrate disputes falling within the scope of the arbitration clause it contained ”; and that was so even though the bank had ceased to have any rights of suit under that bill.
Popplewell J’s analysis certainly provides an interesting and different perspective on the effect of COGSA 1992 on arbitral jurisdiction. However, with respect, it is difficult to understand how the operation of section 2 of COGSA 1992 could be said to impose “an obligation to arbitrate” on the bank given that it explicitly deals only with “rights of suit” (emphases added), and sections 2 and 3 draw a clear distinction between rights and obligations. The fact that the bank did not even have those rights of suit at the time the arbitration was commenced makes the analysis even more difficult. Furthermore, his ruling is directly inconsistent with the obiter analysis of Aikens J in Primetrade AG v Ythan Ltd (“The Ythan”)  1 Lloyd’s Rep 457, which mirrored that of the dissenting arbitrator in that case, Mr Anthony Diamond QC, a recognised expert on COGSA 1992.
It is respectfully submitted that Aikens J’s analysis in The Ythan is to be preferred over that of Popplewell J in The Sea Master: the correct position is that an intermediate bill of lading holder is not under any obligation to arbitrate unless it has become subject to the liabilities under the bill of lading contract pursuant to section 3 of COGSA 1992 or it seeks to make a claim against the owner falling within the terms of the bill of lading’s arbitration clause. However, since Popplewell J decided the issue as a matter of ratio whereas Aiken J’s analysis was obiter, The Sea Master will be followed until the Court of Appeal gets an opportunity to review this issue.
Chirag Karia QC acted for the defendant bank in the Commercial Court action. A copy of the judgment is available here.
Chirag Karia QC has a broad commercial, shipping, insurance and international trade practice. He appears regularly in the Commercial Court, the Court of Appeal and international arbitrations. He is listed as a ‘Leading Silk’ for Shipping and Commodities disputes by both Chambers UK and The Legal 500.
Chirag is instructed on high level and important shipping and commodities cases, usually multi-jurisdictional and vigorously fought. Over the past few years he has acted on: Unipec v BP & others, a complex series of inter-related Commercial Court actions and LCIA arbitrations claiming over US$80 million in damages from multi-national oil companies as a result of the sale of salt-contaminated crude oil; The Ratna Suradha, a multi-party dispute, involving the sovereign states of Sudan and South Sudan as parties as to title to a US$60 million cargo of oil; Great Elephant Corp. v. Trafigura Beheer BV (“The Crudesky”), a five party “chain” dispute in which Chirag’s clients succeeded in the Commercial Court and then secured a substantially increased recovery from the Court of Appeal; and The Yusuf Cepnioglu, in which Chirag secured anti-suit injunctions against actions brought against his P&I Club client by third parties under Turkey’s right of direct action against liability insurers.
Wed, 25 July, 2018
Dera Commercial Estate v Derya Inc  EWHC 1673 (Comm) is the first opportunity the English Courts have had to examine, in any depth, the principles applicable to the operation of s. 41 (3) of the Arbitration Act 1996 when an arbitral tribunal is asked to dismiss a claim for “inordinate” and “inexcusable” delay.
For maritime lawyers, the decision of Mrs Justice Carr clarifies the longstanding debate as to whether it is still the case that, in a contract of carriage governed by the Hague Rules, a geographic deviation from the contractual route displaces the entire bill of lading contract, including the timebar provisions in Article III Rule 6 of the Rules.
The matter came before the Court by way of the Appellant cargo claimant’s (“Dera’s”) appeal under s. 68 and s. 69 of the Arbitration Act against the dismissal by a LMAA Tribunal of its cargo claim for want of prosecution.
Dera were the owners of a cargo of maize carried from ports in India to the port of Aqaba in Jordan. The vessel arrived at Aqaba on 16th August 2011 but discharge of the cargo was not permitted by the authorities due to its damaged condition. On 8th November 2011 her Owners instructed the vessel to sail from Aqaba to Turkey without obtaining the Jordanian authorities’, or Dera’s, permission to leave port. Dera’s case was that the vessel had absconded from Aqaba in circumstances where it was still trying to discharge the cargo in Jordan and that Owners thereby converted the cargo and/or caused the vessel to deviate from the contractual voyage.
The arbitration proceedings were commenced in September 2011. Dera’s cargo claim was particularised in June 2015. In May 2016, the vessel’s Owners applied to have Dera’s claim struck out for want of prosecution. The Tribunal’s Award dismissing Dera’s claim pursuant to s. 41 (3) was issued in June 2017.
Dera obtained permission to appeal under s. 69 on the following four questions of law:
(a) Whether a claim which is particularised within the 6 year limitation period applicable to contractual claims pursuant to s. 5 of the Limitation Act 1980 can nevertheless be struck out for “inordinate delay” under s. 41 (3) of the Act because the parties have contracted for a shorter limitation period (here 1 year under Article III Rule 6 of the Hague Rules)?
(b) Whether, in a contract evidenced by a bill of lading subject to the Hague Rules, a geographic deviation precludes a carrier from relying on the 1 year time bar created by Article III Rule 6 of the Hague Rules?
(c) In circumstances where the 1 year time bar created by Article III Rule 6 of the Hague Rules is applicable, is the period between (i) the time the cause of action arises, and (ii) the expiry of the contractual time limit, to be taken into account when assessing whether the delay is “inordinate” under s. 41 (3) of the Act?
(d) What is the proper order, burden and/or standard of proof applicable to a Tribunal’s assessment of whether a delay is “inexcusable” within the scope of s. 41 (3) of the Act?
In assessing the Court’s own power to strike out claims for delay the Court of Appeal held in Trill v Sacher that only in exceptional cases can a claim be struck out for want of prosecution within the limitation period. The issue for Mrs Justice Carr was whether the position is different where the contractual limitation period was (arguably) 1 year pursuant to Article III Rule 6 of the Hague Rules.
Dera argued that it was wrong to focus on the one-year Hague Rules timebar as the yardstick for assessing whether a delay in particularising a cargo claim is “inordinate” and that inordinate delay in the context of cargo claims should be measured instead against what is regarded as acceptable according to the standards of those normally involved in that type of arbitration.
Mrs Justice Carr disagreed, holding that absent any agreed extensions of time or consent to the delay, “…there is no reason why the one-year rule is not objectively relevant for the purpose of assessing delay. It sets the tone and content for that exercise.”  However, the Judge was careful to stress at  that “It would nevertheless be wrong to elevate the relevant limitation period to the status of being “the” yardstick. Rather it is “a” yardstick, albeit an important one…”.
On the second question, Mrs Justice Carr found at  that the Tribunal had erred in law in concluding that a geographic deviation does not preclude a carrier from relying on the one year time bar created by Article III Rule 6.
In reaching this conclusion, the Judge found that she was bound by the ratio of the House of Lords’ decision in Hain Steamship v Tate & Lyle that a geographic deviation displaces all the terms of a contract of carriage in the event it is accepted by the shipowner’s counterparty as bringing the contract to an end. She held that this had not been overruled in the House of Lords’ subsequent decisions in Suisse Atlantique and Photo Production. Mrs Justice Carr confirmed however that absent such binding precedent, she would have reached the same conclusion as the Tribunal.
The relevance of the period prior to the expiry of the contractual limitation period for assessing “inordinate delay”
The Tribunal had stated that it was “entitled to consider the full period of the delay from the time the cause of action arose, once the limitation period has expired…” when comparing this to the 1-year Hague Rules time limit. Dera argued that the Tribunal had applied this period mechanistically, without regard to the usual or inevitable delays inherent in any arbitral proceedings.
Mrs Justice Carr confirmed that this exercise cannot be “a purely mechanical” one, and that “[in] cases where there are periods of procedural activity and non-activity, it will normally be appropriate to assess individual periods of delay separately and distinctly, arriving at a cumulative picture of overall delay…”  However, she concluded that on the facts of this case the Tribunal had not adopted a purely mechanical approach because here there had been no substantive procedural activity which would have obliged the Tribunal to demarcate individual periods of delay.
Dera said that the Tribunal had erred by failing to take into account the difference between an evidential burden and a legal burden when assessing whether its delay was inexcusable.
Mrs Justice Carr confirmed at  that the legal (or persuasive) burden of proof lies at all times on the applicant on a s. 41 (3) application to establish (on a balance of probabilities) not only that there was inordinate, but also inexcusable, delay.
The Judge said at , that “beyond the question of legal burden, as presaged in Trill v Sacher, it could be said that there is a shift of evidential burden on to the responding party once inordinate delay is established by the applying party…” but expressed the view that it will seldom be necessary, or helpful, to talk of a shift of evidential burden.
This was on the basis that “…[if] the responding party has good reason for the delay it will no doubt come forward with that evidence, for the applying party then to address as it can…” and that “… although each case will be fact specific, as a matter of practice it will be the responding party that identifies what it contends to be a credible excuse for the delay. Otherwise, a tribunal will normally be driven to the conclusion that there is (probably) no such excuse.” 
Mrs Justice Carr remitted the Award back to the Tribunal for findings as to whether there had, on the facts, been a geographic deviation which Dera had elected to accept as bringing the contract of carriage to an end. The Owners were given permission to appeal the Judge’s finding that she was bound by the ratio in Hain Steamship. However, the Court granted the Owners an extension of time to file their Appellant’s Notice pending the Tribunal’s reconsideration of their Award on remission.
David Semark represented the Appellant cargo claimants in the High Court proceedings. A copy of the judgment is available here.
David ‘Produces excellent work and represents exceptional value for an experienced litigator.’ (Legal 500). A former army officer David also previously trained in the Shipping Department of one of South Africa's leading maritime and international trade firms, before joining and later becoming a partner at what is now known as Reed Smith. He retrained as a barrister and became a member of Quadrant in 2010.
David specialises in commercial law, with a particular emphasis on shipping and maritime law (especially dry shipping disputes), international trade and commodities, jurisdictional disputes and insurance. Although his practice is primarily as an advocate, he is also an LCIA arbitrator.
He is the co-author of P&I Clubs: Law and Practice (2010, 4th ed.) and Maritime Letters of Indemnity (2014, 1st ed.)
Mon, 09 July, 2018
Matthew is advising Captain Wayne Bayley on his recent application, commenced in the Administrative Court, for a judicial review of the CAA’s position in respect of the prohibition for commercial pilots flying over the age of 64, and specifically to enforce the requirement that the CAA have due regard, under its statutory public sector equality duty, to the need to advance equality of opportunity to commercial pilots over that age.
Captain Bayley is a former captain with TUI airlines, with nearly 26,000 hours of flying time.
Earlier this year Captain Bayley, a former captain with TUI airlines, with nearly 26,000 hours of flying time, turned 65. Under EU Aircrew Regulations, this means he is now prohibited from acting as a pilot in commercial air transport.
Captain Bayley was a training captain for over 22 years and spent four years as a fleet manager with TUI Airways, in which role he was responsible for over 30 aircraft and associated pilots. He has passed all medical and competency examinations during his career at an above average level. In 2013 Captain Bayley flew the first ever Boeing 787 Dreamliner to his native Barbados from the UK.
The Aircrew Regulations prevent commercial pilots from flying over the age of 59 unless in the cockpit with another pilot under the age of 60. Additionally, the upper limit of 64, which is the issue in this case, prohibits any flying even when alongside a younger pilot.
Non-EU countries including Australia, New Zealand and Canada do not have upper age limit restrictions on pilots; they base a pilot’s competency to fly on medical tests.
Matthew Reeve is instructed by Simon Elcock, of DMH Stallard, who is handling the matter for Captain Bayley.
Matthew is a highly experienced barrister with a wide-ranging commercial practice. He appears as the front-line advocate at all levels of the senior courts, especially the Commercial Court, the Court of Appeal and the House of Lords, as well as in international commercial arbitrations (in which he also receives appointments as an arbitrator).
He has attracted recognition for his handling of larger cases requiring complex legal and factual analysis and the coordination of large teams of lawyers and experts on cases from around the world including (recently) Saudi Arabia, Brunei, Bermuda, Dubai, China, Korea, Cayman Islands, India and New Zealand. Clients include members of royal families, senior military figures, three premiership football clubs, international sportsmen and well-known business personalities in the United States and UK, aviation authorities (in the UK and abroad), insurance regulatory authorities, as well as international insurance and reinsurance companies and airlines.
Matthew's international aviation and travel practice is acknowledged in both Chambers UK and The Legal 500. It spans all aspects of airline liability, passenger/air accident claims, carriage of cargo, aircraft manufacturer and maintainer liability, air accident investigation and inquests, airline regulation, tour operators, aircraft and engine financing, conflicts of laws and aviation insurance/reinsurance disputes. It regularly involves the management of multiparty and disaster litigation. Matthew was elected a Fellow of the Royal Aeronautical Society in 2012.
Matthew combines the highest standards of advocacy (including traditional cross-examination skills) with the application of the most modern litigation-management techniques. He is consistently ranked as a 'Leading Junior' in the latest editions of both Chambers UK and The Legal 500 for Aviation, Shipping and International Arbitration.
Tue, 03 July, 2018
Creditors are often faced with a situation where their debtors try to make themselves judgment proof by transferring their assets to third parties. As a consequence, all EU Member States provide legal remedies in various forms that enable a creditor to ask a court to declare such transfers ineffective as against them. These remedies, which originated in Roman law, are often grouped under the Latin name of ‘actio pauliana’. They have been described as a ‘series of techniques for granting protection to creditors in cases where the debtor diminishes his seizable assets to avoid paying his debts’ (per I. Pretelli, (2011) 13 Yearbook of Private International Law, p. 590).
But where the legal ownership of assets have allegedly been fraudulently transferred to third parties in different Member States, which courts have jurisdiction under the Brussels I (Recast) Regulation to declare such transfers invalid?
This has been a long-standing problem, with the ECJ having declared in a number of cases that actio pauliana actions cannot fall within the material scope of the heads of exclusive or special jurisdiction concerning (a) tort / delict; (b) rights in rem in immovable property; (c) enforcement of judgments; and (d) provisional measures.
Now, in Case C-337/17 Feniks (21 June 2018), Advocate General Bobek, has advised that the ECJ should also rule that such claims cannot fall within the scope of the special jurisdiction provisions for ‘matters relating to contract’ under Article 7(1)(a) of the Brussels I (Recast) Regulation either. If this is upheld by the Court, this will have serious practical implications for claimant creditors.
The claim in Feniks arose after a Polish debtor had transferred the ownership of immovable property in Poland under a contract of sale to a Spanish company (Azteca, the Defendant). The contract of sale had been concluded and performed entirely in Spain. The Polish creditor brought an action in Poland against the Defendant under Polish law seeking a declaration that this contract for sale of the Polish property was ineffective in relation to them. The Polish courts wondered whether they had jurisdiction under Article 7(1) (a)?
Advocate General Bobek thinks they do not. If the ECJ agrees with him, then this will effectively rule out any jurisdiction under the Regulation other than domicile. (One can safely assume that third parties who have received a debtor’s assets will not submit to the jurisdiction of a foreign court or agree (ex post facto) to such courts having jurisdiction). The Court’s forthcoming decision will also likely be of considerable relevance in determining which side of the Rome I / Rome II divide such claims should fall into for choice of law purposes. This is a judgment which is definitely worth watching out for.
Michael is an international lawyer, with a wide ranging practice in commercial, civil and international advocacy and advice in the courts, arbitral and regulatory tribunals of England and Wales and overseas. He regularly appears in the Commercial Court, Chancery Division and Queen’s Bench Division for a wide variety of domestic and international clients. Michael is admitted to practice in the British Virgin Islands (since 2008) and appears in the Eastern Caribbean Supreme Court and Court of Appeal. He is also a Member of the State Bar of California (since 1990), and has appeared before the Gibraltar Courts and Financial Services Authority.
Michael has been described by clients in the Chambers UK and the Legal 500 legal directories as “phenomenal”, “incredibly knowledgeable and a tremendous advocate who is a very powerful person to have on your side” , “a thorough, knowledgeable and intelligent advocate”, “incredibly bright and hardworking, a real team player”, “a really powerful operator” with “complete control of the facts of a case” who “really thinks about things and then steamrollers the opposition”. He is said to have “real commercial intelligence and an easy client manner”, his advocacy is “effective and persuasive” and his “attention to detail prepares him for all eventualities in the course of litigation”.
Michael’s practice often includes complex and novel cross-border battles featuring jurisdiction and choice of law disputes, issues over the recognition and enforcement of foreign judgments and orders and the enforcement of English judgments abroad, forum non coveniens challenges, anti-suit and international asset freezing injunctions, as well as sovereign and other immunities from jurisdiction. His work covers a full range of activities and clients, including shipping and maritime claims, civil fraud, aviation; insurance, major cross-border injury claims, company and partnership law matters, including director’s liabilities, shareholder, partnership and joint venture actions, as well cross-border insolvency battles both in the UK and elsewhere. He has long comparative law experience. Many of his cases involve causes of action governed by foreign laws.
Michael is a recognised international law expert. He is the author of The Rome I Regulation on the Law Applicable to Contractual Obligations (Oxford University Press, 2015), a leading textbook on private international law that is cited with approval by the Advocate-General in the European Court of Justice and by judges in the Commercial Court. “This is a marvellous book, an absolute must for anyone who is seriously concerned with the private international law of what we once called contracts…”; Michael’s research was “truly amazing” and his book is “… a magnificent achievement, for which all serious commercial lawyers will be in the author’s debt”: Prof. Adrian Briggs QC (Hons), LMCLQ, 2015, p. 597. In Germany, Michael’s book was reviewed as being “in the best tradition of English textbooks…the praise heaped upon the work so far is well deserved… ” and it displays “a very fine and sophisticated humour”: Prof. Peter Mankowski, Zeitschrift für das Privatrecht der Europäischen Union, GPR 5/ 2015, p. 259. In his foreword, The Hon. Mr Justice Teare describes it as ‘… a book which will be an essential addition to the library of the advisor, the advocate and the academic in their respective searches for the true meaning and effect of the Regulation...’.
Mon, 02 July, 2018
4 July 2018
Quadrant Chambers is delighted to be co-hosting an Arbitration Pledge event along with HFW and 20 Essex Street. The event is to introduce female commodities arbitrators to those in a position to appoint them. This is the second in a series of similar events across different arbitration sectors.
The Pledge was established to increase, on an equal opportunity basis, the number of women appointed as arbitrators in order to achieve a fair representation as soon practically possible, with the ultimate goal of full parity.
To learn more about the Pledge, please see here.
To attend the event please contact Sarah Longden.
Thu, 28 June, 2018
Quadrant Chambers is very pleased to congratulate former member Sir Charles Haddon-Cave on his appointment as Lord Justice of Appeal.
Sir Charles Haddon-Cave was a member of Quadrant Chambers and was called to both the English and Hong Kong Bars. He practised in shipping, aviation and commercial law. He acted in many notable cases, including representing all the victims of the Herald of Free Enterprise/ Zeebrugge disaster, the Marchioness disaster and the Kegworth Air crash. He conducted the inquiry into the loss of RAF Nimrod XV230 (2007 to 2009).
He was appointed as Queen’s Counsel in 1999 and a Recorder in 2000. He was appointed to Queen’s Bench Division of the High Court in 2011. He was Chair of the Advocacy Training Council (2007 to 2011) and Master of Education at Gray’s Inn (2012 to 2016). He was Chair of the Judicial College International Committee (2013 to 2017).
He was Presiding Judge of the Midland Circuit (2013 to 2017). He was appointed a member of the Criminal Procedure Rule Committee in 2018. He is currently Judge in charge of the Terrorist List.
Wed, 27 June, 2018
We are very happy to announce that Jamie Hamblen, William Mitchell and Tom Nixon have accepted our offer of tenancy. They will join Quadrant Chambers as tenants upon successful completion of pupillage in October 2018.
Jamie, William and Tom will be developing their practices in line with our core areas of work.
Quadrant Chambers holds a pre-eminent position as a leading international commercial disputes set with a strong sector driven approach. We are market leaders with a reputation for excellence in our areas of focus: aviation and travel, banking and financial services, commercial disputes, commodities and international trade, energy and natural resources, insurance and reinsurance, international commercial arbitration and shipping.
Thu, 21 June, 2018
What happens when an alleged fraudster pays tax on moneys which the claimant alleges are trust moneys belonging to the claimant? Can the claimant seek disclosure from HMRC, including with a view to asserting proprietary claims over the moneys held by HMRC?
XL Insurance Company SE (“the Claimant”) brought a debt claim for over £4 million against a coverholder for unpaid premiums. As the premiums received by the coverholder were, under the terms of the agreement, to be held on trust for the Claimant, the Claimant also brought a variety of proprietary and equitable claims against: the coverholder, its sole director and shareholder (“D2”), and another company associated with D2.
Having obtained numerous freezing and disclosure orders, the Claimant obtained disclosure of D2’s bank statements. These revealed payments to HMRC by D2 which, on the Claimant’s case, were wrongly based on “income” D2 had received, when in fact the moneys received were the Claimant’s trust funds. As a result, on the Claimant’s case, there was no tax due on the Claimant’s trust moneys. The Claimant therefore intimated proprietary claims to those sums, alleging that HMRC had no defence of bona fide purchaser for value, as no “value” had been given.
The Claimant sought disclosure of D2’s tax records pursuant to the Court’s equitable jurisdiction in tracing claims and pursuant to CPR 31.17. HMRC could not provide disclosure without a Court order, but decided to oppose application on the basis that the disclosure sought was irrelevant to the primary issue of misappropriation and because any tracing could be done post-judgment. However, HMRC then adopted a neutral position by the time of the hearing, save for points over the scope of the order and costs.
HHJ Waksman QC (Sitting as a Judge of the High Court), in an ex tempore judgment, found there to be strong grounds for the broad disclosure sought by the Claimant. He rejected the original basis for objection by HMRC.
On the question of costs, the Judge accepted that only in exceptional cases would the Court depart from the general rule in CPR 46.1(2) was that the third party should have its costs, and noted that HMRC was a public body with duties of confidentiality. The Claimant submitted that, in this case, there was reason to depart from that rule due to HMRC’s unreasonable opposition, relying on CPR 46.1(3). The Judge held that the appropriate costs order was for HMRC to have half its costs and the Claimant be allowed to recover those costs (and its own costs of the application) against D2.
The case raises interesting questions of tracing against innocent third parties/public bodies, including where a claimant asserts that trust moneys belonging to it have been treated as income by a defendant, and whether such moneys can be followed into the hands of HMRC.
The decision is significant in showing the Court’s ability to make wide disclosure orders in this context in relation to a defendant’s tax affairs rather than, as is more commonly the case, against third party banks. It is also an example of the Court’s exercise of discretion in relation to costs in the context of third party disclosure.
Joseph England appeared for the Claimant (instructed by Neel Robb of XL Catlin Services SE).
Joe practises in a wide range of commercial disputes.
Joe began his legal career qualifying as a solicitor at Allen & Overy LLP before transferring to the Bar. Joe spent the first year of his practice as the Judicial Assistant to Lord Sumption and Lord Wilson at the Supreme Court. He soon returned as counsel to the Supreme Court in Bank of Cyprus UK Limited v Menelaou  UKSC 66.
Since starting practice in August 2013, Joe has been engaged, on a near full-time basis, in a major ICC oil and gas arbitration in London and Geneva, and subsequent related litigations, working and appearing with legal teams in Poland, The Netherlands, Ireland, Curaçao, Nigeria, Mauritius, Scotland, the US, London and Switzerland.