The Claims

On 5/6 July 2011 the Brillante Virtuoso was boarded by a group of armed men as she was drifting off the coast of Aden late at night. The vessel was ordered towards Somalia but sailed only a short distance after which her main engines were stopped and an improvised explosive incendiary device was detonated causing a fire in her engine room.  The fire spread and caused severe damage to the vessel. 

The Owners claimed this was a result of a fortuitous hostile third-party attack on the vessel and together with the mortgagee bank as separate co-assured brought a claim under their war risks policy.  The war risk insurers denied liability.  They did so, primarily on the basis that the vessel had been scuttled although various other defences were also raised. They counterclaimed for declarations of non-liability under the policy. 

The vessel was found to be a constructive total loss by Flaux J in 2014 (see [2015] EWHC 42 (Comm)).  In 2016 the Owners’ claim was struck out for failing to disclose documents and a subsequent application for relief for sanctions was refused by Flaux J (see [2016] EWHC 1085 (Comm)) leaving the bank’s claim and the war risk insurers’ counterclaim to proceed to trial.

The Court’s Decision

After a lengthy enquiry into the circumstances of the loss at trial, Teare J held that the Owners had scuttled the vessel. 

Nevertheless the bank argued that from its perspective what had occurred was an act of “piracy” or “malicious mischief” or “persons acting maliciously” or “vandalism” or “sabotage.”   Teare J did not share that view.   

He held that this was an attempted insurance fraud against the war risk insurers and in such circumstances:-

1. It was not piracy: to establish piracy as an insured peril there must not only be an unlawful attack at sea but conduct which a business man would say amounted to piracy. The events which had occurred did not amount to piracy in the popular or business sense.  There was no attack on the vessel.  The motives of the armed men were not to steal or ransom the vessel or steal from the crew but to assist the Owners to commit a fraud upon their insurers.  Irrespective of whether the events were considered from the point of view of the Owners or of the innocent bank, an attempted insurance fraud is not an act of piracy.
2. It was not “persons acting maliciously”: following the Supreme Court decision in the B Atlantic [2018] UKSC 26 an element of “spite ill-will or the like” was required to be involved and this was absent in the present case.  There was an intention to damage the vessel but this was in furtherance of a fraudulent plan and no doubt with an intention to profit from doing so. As in The Salem [1982] QC 946 the vessel was not lost or damaged because of a desire to harm the vessel or the Owners.  It was damaged because the armed men wanted to assist the Owners and make money from their actions and whatever threats were made to the crew in the carrying out of the plan, that element of ill-will was not sufficient to colour the operation as a whole.
3. It was not “malicious mischief”: this must bear the same meaning as “malicious” for the peril of “persons acting maliciously.”
4. It was not vandalism: vandalism is not just damage to property but wanton or senseless damage to property. The damage in this case was not undirected or mindless violence or damage which was ordinarily described as vandalism. 
5. It was not sabotage: sabotage is damage to, or disabling of, property so as to frustrate the use of that property for its intended purpose.

The war risk insurers also succeeded on alternative defences including breaches of specific warranties in the policy relating to navigational limits and a compliance with BMP3 with respect to anti-piracy measures.

Commentary

Given that the war risk insurers were required to establish wilful misconduct to the usual high standard, the decision is in many ways a classic investigation into a maritime casualty and those that practice in this area would do well to heed the practical guidance given by Teare J as to what documents are useful to those charged with such task and the general approach to the evaluation of the evidence in such cases.

Even to those who are unfamiliar with the maritime peril of “piracy,” it is unlikely to come as much of a surprise that a pretend pirate attack is not such an act. 

A theme common to Teare J’s analysis of the other perils is that it confirms that it is not only the physical damage which must be proved but also an additional element relevant to the motive or manner in which such damage is carried out.  Thus for “malicious damage” and “malicious mischief” the requirement of “spite ill-will or the like”; for “vandalism” the “undirected or mindless violence or damage” and for “sabotage” an intention to “frustrate the use of the property for its intended purpose.”  As these classes of perils are not exclusive to marine policies, the approach taken by Teare J to them is likely to be of interest beyond the seas of marine insurance.

Accordingly The Brillante Virtuoso decision may well yet be known as something other than (or at least not just) a unique scuttling case.

This case note and commentary has been prepared by Nichola Warrender who acted for the war risk insurers led by Jonathan Gaisman QC, Richard Waller QC and together with Keir Howie (all of 7KBW), instructed by Chris Zavos, Jo Ward, Anna Haigh, Suzy Oakley and Jacob Hooper at Kennedys Law LLP.

Download the judgment here.

Nichola Warrender

Nichola is an experienced junior who enjoys a broad commercial litigation and arbitration practice with particular emphasis on shipping, carriage of goods, commodities, shipbuilding, energy and construction and related insurance and finance disputes.

Nichola undertakes drafting and advisory work in all of her practice areas.  She regularly appears as an advocate in the High Court and in arbitration, as sole counsel and as a junior.  She has a good balance between led and non-led work and is frequently recommended as a junior by those with whom she has previously worked.

Nichola is a meticulous and persuasive advocate with a wide range of experience within her fields of specialism and in more general commercial disputes.  Many of her cases involve issues of jurisdiction, private international law or require careful analysis of complex factual, expert and technical or legal issues.  She has experience in various forms of pre-emptive remedies such as freezing orders, anti-suit injunctive and other pre-action relief and has obtained or resisted most forms of pre-trial applications.

Nichola is recommended as a leading junior for shipping law. Latest quotes include:  "Her attention-to-detail is outstanding, she is highly personable, and is a persuasive orator."

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Background 

In Natixis v Marex and Access World [2019] EWHC 2549 (Comm), the Court considered a four handed dispute. The background can be summarised as follows. Marex entered into various purchase and repurchase contracts with a Chinese company, CHH, for the sale of various parcels of nickel.  Natixis agreed to buy the nickel from Marex pursuant to further spot purchase and re-purchase contracts (referred to as PC1 to PC5). The nickel was stored at warehouses owned by Access World and both purchases involved a set of transferable warehouse receipts which had originally been issued by Access World. By the time of the trial, it was common ground that the warehouse receipts provided by CHH to Marex which were in turn provided to Natixis were counterfeit. Following this discovery, Natixis closed out its futures position and claimed the sum of US$32 million in damages from Marex. Marex in turn brought claims against Access World in contract and for negligence and against its marine cargo insurers for an indemnity under the terms of its insurance policy.

The decision

In a wide-ranging judgment, the Judge considered each of the claims in turn, save for that against the insurers, Marex’s claim against them having been compromised following cross examination of its witnesses. As a result, the Judge did not need to consider (for what would have been the first time) whether there had been a failure to present the risk fairly under the new Insurance Act 2015. However, he did consider a number of other important issues.

Natixis, succeeded on its straightforward case that Marex had breached its purchase contract in various respects, notably because Marex had failed to pass title in the nickel to Natixis.  Marex’s construction argument, that it had simply promised to deliver whatever warehouse receipts Marex had been provided with, even if (as was the case) they were forgeries, was described by the Judge as contrary to the ordinary and natural meaning of the clauses, uncommercial and un-businesslike. He found that, on the wording of the contracts, the obligation was to provide genuine warehouse receipts and that since Marex had failed to do so it was in breach of contract.

The Judge also rejected Marex’s argument that the contracts should be avoided on the grounds of common mistake. Having decided against Marex on the issue of construction, the Court found that it bore the risk and assumed responsibility for any forged documents. Accordingly, in accordance with the principles set out by the Court of Appeal in The Great Peace [2003] QB 679, which confirmed that before a plea of common mistake can succeed, it must be shown that the contract itself does not already provide for one party to bear the particular risk, Marex’s reliance on the doctrine was stillborn.

Accordingly, the Court awarded damages to Natixis in the full amount of its claim, namely $32 million.

In its claim against Access World, Marex brought claims in contract and in tort. Its primary claim was one based on alleged contractual warranties and associated alleged estoppels which were said by Marex to give rise to an obligation on the part of Access World to deliver up the nickel the subject of two of the transactions which Marex had entered into. In this context, Marex argued for the existence of a contract in a number of ways and, in particular it relied upon emails from Access World in which Access World had incorrectly confirmed the authenticity of two of the relevant warehouse receipts. The Court rejected this argument and in so doing, considered the nature and status of the relationship between a warehouse and the holder of a warehouse receipt. Perhaps surprisingly, as the Court observed, the status of such receipts has not received a great deal of attention from the English courts. However, the Judge was clear that they do not constitute a document of title in the common law sense and that the relationship between the warehouse keeper and the relevant person who has the right to possession of the goods is that of bailment. As the Judge observed, where there is a warehouse receipt there is a bailment of goods between the first order party (in this case a company called Straits) and Access World, that bailment being contractual in nature and at least evidenced by the terms of the warehouse receipt. When another party presents a duly completed original warehouse receipt to Access World, the latter may attorn to that party. However, there is no relationship between a warehouse keeper and any buyer from the first order party unless and until the warehouse keeper attorns to the buyer, the warehouse receipt not being a document of title within the Sale of Goods Act 1979. A fortiori, presentation of a false warehouse receipt could not give rise to an attornment.

Marex also sought to argue that a genuine warehouse receipt would give rise to a unilateral contract between its holder and Access World on the basis that it contains a statement by Access World to whoever may become endorsee that Access World would deliver the goods to the endorsee upon presentation of the original warehouse receipt. The Judge considered this to be fundamentally flawed. First of all, it failed to have regard to the fact that the relationship between Access World and Straits was one of bailment, to which neither Marex nor Natixis was party and the fact that it is only upon attornment on presentation of a genuine warehouse receipt that any relationship is created between Access World and the endorsee. It also failed on the facts because no genuine warehouse receipt had ever been presented.

The Court also rejected an argument that there was a warranty in the form of a collateral contract, there being no evidence of any intention to create legal relations nor any contractual offer.

Finally, the Court noted that in the absence of a contract the estoppel upon which Marex had also relied could not exist because otherwise estoppel would be used as a sword and not as a shield.

Turning to the case in negligence, the Court found that Access World owed Marex, but not Natixis, a duty of care in authenticating the receipts and that it had not exercised reasonable skill and care in its authentication of the receipts presented to it for this purpose, which related to the PC4 to PC5 transactions only. However, the Court also found that Marex’s conduct in the transactions that it had entered into with CHH constituted contributory negligence which should lead to the recoverable damages being reduced by 25%, but rejected the argument that it was sufficient to break the chain of causation.

Nevertheless, the Court also held that, notwithstanding the gratuitous/non-contractual nature of the authentication exercise, Access World was entitled to rely on the limitation of liability contained in its standard terms and conditions. In this regard, Marex had argued that if (as the Judge found) there was no binding contract between Access World and Marex there was no proper basis for holding Marex to be bound by Access World’s terms and conditions. Secondly, it argued that if those terms and conditions applied, the limitation of liability provision did not meet the reasonableness requirement within the Singaporean equivalent to the UCTA 1977.

In rejecting these arguments, the Court found that what was required in order for there to have been an effective disclaimer of liability was reasonable notice of that disclaimer. That in turn depends on the consideration of two related issues. First, whether the relevant provisions particularly are onerous or unusual and secondly whether Marex had sufficient notice of those provisions. As the Judge noted, these are interrelated issues because the more outlandish a particular clause is, the greater degree of notice required. In this context, the Judge found that the terms in question were neither onerous nor unusual and that, Access World having (amongst other things) issued thousands of warrants to Marex over the course of 10 years, each of which expressly referred to its terms and conditions, and Access World having also issued invoices to Marex containing a similar reference, and reference to its terms and conditions appearing on every email sent by Access World, sufficient notice had been given.

With regard to the argument that the terms and conditions did not apply to gratuitous services as opposed to contractual ones, the Judge held that the reasonable person in the position of Marex would have understood that the terms and conditions, on their wording, applied to extracontractual services such as the authentication services provided by Access World.

Finally, having weighed up all the relevant factors, including the fact that Marex was a commercially sophisticated LME broker with access to legal advice, the Judge had little hesitation in finding that the limitation provisions in Access World’s terms and conditions were reasonable. In fact, the provision reflected similar clauses in the industry, which the Judge considered were appropriate in circumstances where the warehouse keeper generally has no knowledge of the commercial considerations and risks that are in play, in contradistinction to the customer who can assess those risks and take other steps to ameliorate risks that it faces.  Interestingly, the Judge also found that the inclusion of a limitation clause is an integral part of the very assumption of responsibility which Access World was prepared to undertake and that any intervention by the Court would be to disrupt the equilibrium of the very circumstances in which an assumption of responsibility arose, which, he said, the Court should be extremely reluctant to do.

A copy of the judgment can be found here. 

Robert Thomas QC and Nicola Allsop acted for Access World Logistics, instructed by Adrian Marsh and Iain Kennedy of Hill Dickinson LLP.

Robert Thomas QC

Robert's practice has moved from strength to strength since taking silk in 2011. He retains a strong presence in the traditional areas of his practice and has recently complemented this with substantial experience in commercial fraud and related relief. He is ranked as a Leading Silk in the latest editions of both directories, and has been praised in previous editions for having a "fantastically effective and intellectual style", for "consistently deliver[ing] a first-class service" and for his ability to handle "difficult cases on a tight timetable". He is a registered practitioner in the DIFC and is also receiving an increasing number of appointments as an arbitrator.

Robert is ranked as a leading barrister in Chambers & Partners UK and Global editions and in the Legal 500 UK, Asia-Pacific and EMEA editions. 

"He is a real fighter and an exceptional advocate." (Legal 500, 2020)

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Nicola Allsop

Nicola specialises in civil fraud, insolvency, company law (particularly shareholder disputes) and banking litigation. Nicola's practice has a strong international element; she was called to the Bar of the BVI in 2012, in the Cayman Islands in 2016 (limited admission) and many of her cases raise cross-border and jurisdictional issues. Nicola has a wealth of trial experience both as sole counsel and as part of a team. Notable cases include the Weavering litigation which occupied her throughout most of 2016 and concerned a claim against the Fund’s Cayman auditors arising out of a large-scale fraud perpetrated by the Fund’s founder Magnus Peterson; a 10-week fraud trial Sita v Serruys; a series of matters arising out of the collapse of the Arch Cru Fund; and a long-running shareholder dispute involving the Barclay Brothers and the affairs of Coroin Limited, the owner of Claridges, the Berkeley and the Connaught.

Nicola is recommended as a leading Junior for Commercial Litigation in the Legal 500 UK Bar.

"Very hands-on and user-friendly, she is a real team player and integrates very well." (Legal 500, 2020)

“A decisive and thorough advocate who often has the ear of the court.” (Legal 500, 2019)

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nicola.allsop@quadrantchambers.com

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Facts

D’s claim in the arbitration was (amongst other matters) for repayment of loans made to P.

P contended that at a meeting in August 2015 between Mr E of P and Mr D of D, it was agreed that D would not demand repayment until 1 January 2018, which was then extended to 1 January 2020. P also contended that that agreement was confirmed at a further meeting with Mr D in June 2016.

P, therefore, argued that D was estopped from claiming that the sums loaned were repayable, demand having been made prior to 1 January 2020.

Both Mr E and Mr D gave written and oral evidence in the arbitration.

There was no support for the alleged agreement in the documentary evidence. There was some hearsay evidence supportive of Mr E from other witnesses. A Mr J of D was present at the June 2016 meeting. When cross-examined, he said that he had no recollection of there being any discussion about repayment of the loans.

Against that backdrop, Sir Michael Burton said at paragraph 14:

“The stage was thus set for a contest of credibility between the two prime participants to be cross-examined in relation to what had been said, if anything, about an extension at the August 2015 meeting, said by P to have been confirmed at the June 2016 meeting”.

In the event, the advocate for D did not cross-examine Mr E about the August 2015 meeting. In the course of the cross-examination of Mr E, the chairman of the tribunal pointed out to the advocate that he had not yet put any questions in respect of “the core issue”, as it had been described by the advocate for P.

At paragraph 16 of the judgment, the judge set out the limited exchanges in cross-examination pertaining to the August 2015 meeting which, in fact, were raised by Mr E himself when being cross-examined about the June 2016 meeting.

Mr D was cross-examined about the August 2015 meeting.

The award

In the award, the tribunal noted the following:

“Mr E was not cross-examined at all on his version of events at this meeting. Whilst we do not expect each and every matter in dispute to be put punctiliously to witnesses in commercial arbitration, the decision not to put Mr D’s account of this potentially significant meeting to him in cross-examination was somewhat surprising”.

Notwithstanding that observation, the tribunal held that P did not fully succeed in its estoppel argument in that the tribunal held that there was only an estoppel precluding a demand being made before 1 January 2018. The reason why the tribunal rejected P’s case that an estoppel arose preventing a demand before 1 January 2020 was because:

• There was no agreement or promise extending the period of the loan to 1 January 2020 at the August 2015 meeting. In other words, Mr E’s evidence was rejected.
   
• If there had been, “at most there was a promise, representation or common assumption that an extension [until January 2020] would need to be incorporated into a wider package which would cover other things as well”. In other words, any such estoppel would have been conditional on matters which were never fulfilled.
   

The challenge to the Commercial Court

There is no entitlement directly to challenge or appeal findings of fact contained in arbitral awards under the Arbitration Act 1996 (AA 1996).

However, P brought a challenge to the award under section 68(2)(a) of the AA 1996, contending that there had been a failure by the tribunal to conduct the proceedings fairly, and to give it a reasonable opportunity of putting its case and dealing with that of its opponent as part of the tribunal’s general duty under section 33 of the AA 1996. P relied upon:

• The fact that Mr E’s evidence that there was an agreement until January 2020 was not challenged in cross-examination and yet was rejected (ground one).
   
• The fact that the argument that any common assumption or promise was conditional upon being “incorporated into a wider package…” formed no part of D’s case or Mr D’s evidence and was never put to Mr E (ground two).

Ground one was an argument that it would not be a fair procedure for a tribunal to determine a core issue as to credibility against a particular witness of a party, unless that witness’ evidence had been directly challenged in cross-examination.

Ground two was an argument that it would be unfair for the tribunal to determine an issue against a party by reference to a case not argued against it. (The failure to cross-examine also applied equally to ground two).

The judgement and analysis

P succeeded on both grounds.

The court’s reasoning on ground two seems unobjectionable as there is no indication in the judgment that P could reasonably have understood that D was advancing the argument in question or, for that matter, that the tribunal was contemplating deciding the claim on that basis. Furthermore, the finding challenged under ground two was a major area of material primary fact. As Professor Merkin QC and Louis Flannery put it in Arbitration Act 1996 (5th edition):

“… it may be normally contrary to the arbitrator’s duty to fail to give the parties an opportunity to address them on proposed findings of major areas of material primary facts which have not been raised during the hearing…”

Given the judge’s conclusion on ground two, it is perhaps unsurprising that the judge reached the conclusion that he did on ground one given how connected the two grounds were. Indeed, at paragraph 34 he acknowledged that the inter-relationship between the two grounds made it much more difficult to determine whether there was an exception on the facts to the principle set down in Browne v Dunn that a party could not impugn the credibility of a witness without cross-examining on the relevant part of his or her evidence.

Had it been possible to consider ground one in isolation from ground two, the court’s ruling would have been more finely balanced.

Notwithstanding the judge’s characterisation that Mr E’s evidence as to the meeting of August 2015 was not challenged at all, the advocate for D, in the brief exchanges set out at paragraph 16 of the judgment:

• Put it to Mr E that his evidence that an extension had been agreed prior to the June 2016 meeting was a “nonsense”.
   
• In effect put it to Mr E that there was no credible basis upon which the parties would have ever agreed an extension until 2020.  

Whilst the cross-examination was brief and at the highest level of generality, Mr E’s evidence was challenged. Furthermore, it appears from the judgment that the witness statement evidence of Mr D was such as to restrict the scope of permissible cross-examination, given that his evidence was limited to denying that there was an agreement without condescending to any particular detail of what was in fact discussed. Indeed, in his oral evidence, he said he had no recollection of the August 2015 meeting. Further, Mr E had had the opportunity to set out in detail his account of the meeting in his witness statement and, indeed, a supplemental statement made with knowledge of, and in response to, Mr D’s account.

Given all of these matters, it may be questioned whether Mr E had not been given sufficient “opportunity of affirming or commenting on the challenge” to his evidence (see Floyd LJ in Edwards Lifesciences LLC and others v Boston Scientific Scimed Inc at paragraph 66).

Be that is may, the case demonstrates that where, as here, a tribunal is concerned that a particular witness’ evidence on a key issue has not been sufficiently explored in cross-examination, the tribunal will need either to:

• Make clear to the advocate for the other party both that it would be assisted by further cross-examination and the possible consequences if the evidence was not properly challenged, that is, that the tribunal might be left with no choice but to accept that evidence.
   
• Assume the burden itself of asking questions of the relevant witness to satisfy itself of the credibility and correctness of that account.

Paul Toms

Paul is an experienced junior barrister practising across a wide range of commercial disputes. He is described as “A delight to work with. He is approachable, astute and commercially minded” (Chambers UK 2018). 

He appears regularly in the High Court (mainly the Commercial and Circuit Commercial Courts) and in domestic and international arbitrations. He also has twice appeared in the Court of Appeal as sole counsel in addition to several other appearances alongside Queen’s Counsel. In 2017, he appeared in the Supreme Court in The Longchamp, which considered the meaning of Rule F of the York Antwerp Rules. Paul has particular expertise in commercial dispute resolution across a number of commercial sectors including information technology, insurance, energy, international trade, sale of goods, shipping and shipbuilding. As to commodities, he handles a significant number of GAFTA, FOSFA and ANEC disputes. 

> To view Paul's full profile, please click here.

paul.toms@quadrantchambers.com

John Russell QC

John is an experienced and determined advocate and has acted as lead Counsel in numerous Commercial Court trials, international and marine arbitrations and appellate cases, including in the Supreme Court. He relishes both detailed legal argument and cross-examination of lay and expert witnesses. He will always ensure that a client's case is presented in the most persuasive manner possible, both in writing and orally. John provides advice to a wide range of clients. He combines first rate technical legal analysis with a pragmatic, commercial, problem solving approach to cases. John accepts instructions in many fields of commercial dispute resolution with a particular focus on shipping, commodities, international trade and marine insurance.

"Very easy to work with and a very good litigator." ..."An excellent advocate whose assessment of cases is invaluable." (Chambers UK, 2019)
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"...Particularly highly rated, he has a sharp mind and provides clear advice...." (Legal 500, 2017)

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Benjamin Coffer

Ben's broad international commercial practice has a particular emphasis on commodities, insurance / reinsurance and shipping. He undertakes the full spectrum of shipping work, including every species of charterparty and bill of lading claim, as well as shipbuilding and ship finance disputes. He has developed a particular specialisim in cases involving carriage of goods under the Hague and Hague-Visby Rules, and has appeared in several of the leading cases on such claims in recent years.  

His significant recent cases include: The Aqasia [2018] EWCA Civ 276, settling a 90-year dispute as to whether Article IV.5 applies to bulk cargoes; Al Khattiya c/w Jag Laadki [2018] EWHC 389 (Admlty), which concerns the significance of the place of a collision in a forum non conveniens application; The Maersk Tangier [2018] EWCA Civ 778, the leading English case on package limitation for containerised cargoes under the Hague-Visby Rules; Volcafe v. CSAV [2017] QB 915, addressing the inherent vice defence and the burden of proof in cargo claims; The Lady M [2017] EWHC 3348 (Comm), the first modern decision on the meaning of 'barratry' and its effect on the defences availabe under the Hague Rules; and, The Sea Miror [2015] 2 Lloyd's Rep 395, the first case to consider the meaning of a term that cargo is to be loaded and discharged "at the expense and risk of Shippers/Charterers" .

Ben is described by the directories as “a standout shipping and commodities junior" (Chambers & Partners, 2018), "a rising star" (Legal 500, 2019) and "He is truly the standout rising star for shipping and trading disputes work." (Chambers & Partners, 2019). He is also recognised as a leading junior in the Legal 500 Asia Pacific Guide.

To view Ben's website profile, please click here.

The twin requirements of s. 31(1) CJJA are that: (a) the overseas judgment would have been so recognised and enforced if it had not been given against a State, and (b) that the overseas Court would have had jurisdiction in the matter if it had applied rules corresponding to those applicable to such matters in the UK in accordance with s. 2-11 of the State Immunity Act 1978.  These requirements are cumulative.  The burden of proof is on the Claimants to show they are each satisfied.

s. 31(1)(a) - Presence

As regards (a), the Claimants needed to show that the US Judgments would have been enforceable even if not entered against a State, this being a matter governed by English rules of private international law.  As the Judgment explains at para 60, those rules require either that the defendant had a presence in the overseas jurisdiction when the proceedings were instituted; or else some form of submission to the overseas Court.

This was the first case to hear full argument at the inter partes stage on how the “presence” requirement is to be satisfied in the case of a State Defendant. The difficulty for the Claimants was that, as the Judge explained, State-to-State business is conducted through official channels such as diplomatic missions, consulates and the like, but “no such Iranian presence has been in the United States since the 1980s when the Government of Iran was officially expelled from United States’ territory” (see paragraph 70 at footnote 20).  The Claimants therefore sought to identify entities in the US through which it argued the Iranian State could be found to be “present”, or failing that sought to argue that the requirement of “presence” should be ignored altogether in the case of State Defendants. 

The Judge had no difficulty rejecting the latter argument, which would have required the Court to simply ignore the express requirement of s. 31(1)(a), by which the requirement of presence was imported- see the various factors at paragraph 70 of the Judgment.  As the Judge explained, in the previous case of Adams v Cape [1990] 1 Ch 433, the Court of Appeal explained how the rules on presence as developed in the context of individual defendants were to be adapted and applied in the context of corporate defendants: the test being whether the company had established and maintained at its own expense a fixed place of business in the place where the Judgments were issued, and carried out the company’s business there for more than a minimal period of time (this being a multi-factorial test on all the evidence).  These requirements therefore similarly had to be adapted and applied in the context of State defendants.

In adapting the multi-factorial test to State Defendants, the Court was influenced by the definition of a “State” in the UN Convention on Jurisdictional Immunities of States and their Properties, and by the guidance in s. 14(1) of the State Immunity Act 1978 (under which  references to States include agencies and instrumentalities of the State and representatives thereof acting in that capacity, as opposed to separate entities distinct from the executive organs of the Government of the States), as applied by the Privy Council in the case of La Générale des Carrieres et des Mines (Gecamines) v FG Hemisphere Associates LLC [2012] 2 CLC 709 at [29].  In particular, where a separate entity is formed for what on the face of it are commercial or non-sovereign purposes, with its own management and budget, the “strong presumption is that its separate corporate status should be respected, and that it and the State forming it should not have to bear each other’s liabilities”, and it will take “quite extreme circumstances to displace this presumption”.  See paragraph 83 quoting the relevant passages from Gecamines.

Ultimately, the Claimants’ attempts to show presence failed on the facts.  The Claimants had therefore identified two entities in the US through which they argued the Defendants were “present”; however they had failed to adduce any admissible evidence to rebut the strong presumption which arises from their separate corporate status.  See paragraph 84 of the Judgment explaining that the admissible evidence adduced came “nowhere near the required threshold”.  An attempt to introduce a last-minute argument to the effect that the Iranian government was “present” in the US via its diplomatic mission to the United Nations in New York was rejected as it had been raised far too late and raised any number of new evidential enquiries- see paragraph 89.

s. 31(1)(b) – State Immunity

As regards limb (b) of s. 31(1) CJJA, this provides that the US Judgments could not be recognised or enforced unless the US Court would have had jurisdiction over the State Defendants “if it had applied” rules “corresponding to”  those applied in this jurisdiction under the State Immunity Act 1972 (“SIA”).  The difficulty here for the Claimants was that the US Courts had taken jurisdiction in tort claims regardless of the place in which the relevant acts/omissions were allegedly committed.  By contrast, applying rules corresponding to s. 5 of the SIA the State would have been immune from suit in tort claims unless these involved acts/omissions committed within the jurisdiction.  The Claimants therefore advanced various creative arguments on the meaning of “corresponding to” under s. 31(1)(b), and the meaning of “act” under s. 5 SIA.

Unlike limb (a), limb (b) has been the subject of authoritative guidance from the Supreme Court in the case of NML Capital Ltd v Republic of Argentina [2011] 2 AC 495, which the Judge cited at paragraph 102 and proceeded to apply.  In that case, the Supreme Court held that the natural meaning of “corresponding to” is that: “mutatis mutandis the foreign State would not have been immune if the foreign proceedings had been brought in the United Kingdom”.  As the Judge explained, the Claimants’ submissions were contrary to that guidance, and would have imported so much “elasticity” into s. 31(1)(b) as to effectively disregard the hypothesis which that section requires to be applied- see paragraph 108.

The Claimants also advanced alternative arguments along the lines that s. 31(1)(b) should be read down under s. 3 of the Human Rights Act 1998 if it did not produce the result which they were contending for, on the basis that such result would be contrary to customary international law and incompatible Art. 6 ECHR (by analogy with the very different case of Benkharbouche v Embassy of Sudan, in which aspects of the SIA relating to State Immunity over employment law claims were held incompatible with Art. 6).  The Judge had no hesitation rejecting that argument.  Amongst other things, the compatibility of s. 5 SIA with Art.6 ECHR had already been established by the European Court on Human Rights in the case of Al Adsani v UK - see para 130.  Moreover, the Supreme Court in Benkharbouche itself had considered that s. 5 was not inconsistent with customary international law in cases involving sovereign acts, since it merely introduced a further restriction to the doctrine of State Immunity in respect of such acts in cases where these were tortious and took place within the relevant jurisdiction- see paragraph 129 of the Judgment.

The Judge also rejected imaginative arguments based on interpreting the word “act” within the jurisdiction for s. 5 SIA purposes as if it had read “damage” within the jurisdiction; as well as a late attempt by the Claimants to bring the case within s. 3 of the SIA.

The Service Issues

Since the proceedings fell to be dismissed on the basis of the State Immunity Issues and non-compliance with the requirements of s. 31 CJJA, the further set of issues before the Judge relating to service technically did not arise. Nevertheless, the Judge went on to decide the issues of whether the English proceedings and default judgment therein had been served within the mandatory requirements of s. 12 SIA.

In so doing, the Judge gave valuable guidance on the meanings of “transmission” by the English FCO and “receipt at the Ministry” of Foreign Affairs of the State Defendant overseas.  In particular, the Judge held that physical “receipt” connotes more than just the leaving of documents at the Ministry and requires a positive act of assuming possession on the part of the Defendant.  Thus, where the Defendants refuse to receive documents, they cannot be held to have “received” them (see paragraph 236).  The Judgment also corrects a line of ex parte decisions in which the Court had been prepared to grant orders permitting service by email.  The requirements of s. 12 are mandatory, so no such order could be granted by way of alternative service, and service by email cannot be said to be already inherently permitted by s. 12 (see paragraph 239). 

Simon Rainey QC and Paul Henton acted for the successful defendants, instructed by Mark Howarth and Liz Wild of Eversheds Sutherland. 

A copy of the judgment can be found here. 

Simon Rainey QC

Simon Rainey QC is one of the best-known and most highly regarded practitioners at the Commercial Bar with a high reputation for his intellect, advocacy skills and commercial pragmatism. He has a broad commercial advisory and advocacy practice spanning substantial international contractual disputes, energy and natural resources, trade and commodities, and shipping and maritime law in all its aspects, in arbitration and at all Court levels, including three recent leading cases in the Supreme Court (Bunge SA v Nidera SA [2015] UKSC 43: sale of goods damages; The Global Santosh [2016] UKSC 20: liability for delegated performance and Volcafe v CSAV [2018] UKSC 61; Hague Rules burden of proof). His practice regularly involves substantial high profile and high value commercial disputes, typically involving fraud aspects, and heavy interlocutory stages centred around pre-emptive strike applications such as worldwide freezing injunctions and anti-suit and other injunctive relief, a recent example of which is the hard-fought Gerald Metals v Timis litigation in England, Cayman and the BVI (2017-2018). Cases  usually with an international aspect and often involving complex issues relating to jurisdiction, conflicts of law and enforcement. Of particular note, he was involved in the Antonio Gramsci litigation concerning a massive alleged fraud by the management of Latvian state owned companies and, in particular, by a number of leading Latvian politicians. The cases have led to a number of hard fought jurisdiction hearings and a consideration of entirely new principles of ‘piercing the corporate veil’, developed by him and successfully advanced for the first time in this case.

He has extensive experience of international arbitration, regularly appearing as advocate under all of the main international arbitral rules (LCIA; SIAC, UNCITRAL; ICC, Swiss Rules etc) and also sitting as arbitrator. Current examples of his work as counsel are in arbitration before the Permanent Court of Arbitration in a US 13billion gas supply dispute; under Nigerian Law and seat in relation to an offshore oilfield redetermination dispute between oil majors, under UNCITRAL Rules in a mining supply take or pay dispute involving one of the world’s leading mine conglomerates; an ICC arbitration concerning a new mine development in Russia and an ICC Dubai seat arbitration involving specialist offshore vessels and in associated s67 and s68 LCIA challenges in the A v B [2017] EWHC 3417 (Comm) litigation in the Commercial Court.

He is highly ranked by Chambers and Partners and Legal 500 as a first division international arbitration and energy specialist and as a leading commercial litigation practitioner. He features in the Legal 500 ‘International Arbitration Powerlist’.  He was nominated for both “International Arbitration Silk of the Year and Shipping Silk of the Year 2019” by Legal 500 and for “Shipping & Commodities Silk of the Year 2018” by Chambers & Partners. He was awarded “Shipping & Commodities Silk of the Year” 2017 by both Chambers & Partners and Legal 500.

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

“A fantastically intelligent and tactically astute barrister who is immensely erudite”; “A pleasure to work with. Fantastically intelligent and tactically astute.” ...”Personable and intellectually brilliant. He has the ability to sift through numerous documents and turn arguments into razor-sharp points that get straight to the core issues”; .”Meticulous and very thoughtful”;  “Simon is just brilliant at conveying the meaning of agreements and making complex things simple and persuasive.”... “He’s a very fluent advocate and a very good cross-examiner.”   (Chambers UK 2019)

“Incredibly user friendly; a great advocate”; “Absolutely charming and probably the best cross-examiner I’ve ever seen”;  “A class act who’s proved himself to be a stellar performer; he’s fighting at the top of his game”; “One of the best commodities barristers – diligent and responsive, he is an excellent example of the modern QC.”; A senior QC with gravitas and an ability to provide crystal clear advice that gets to the bottom line”; ‘He is a gift to the Bar – he can always think a few steps ahead and understands both the legal and commercial perspectives.”;  ‘A first-choice QC for the very complicated cases” (Legal 500 2019)

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simon.rainey@quadrantchambers.com

Paul Henton

Paul has a broad commercial practice with an emphasis on shipping and commodities, international trade, energy, banking, aviation, and insurance.  Within these fields his work covers the full range of disputes from charterparties to international sales to shipbuilding and FPSO construction/conversion disputes to banking/trade finance to insurance and reinsurance towers to State Immunity disputes to multi-million dollar international arbitrations and much more.

For several years he has been recommended as a leading practitioner in the leading independent guides to the market.  He holds recommendations in Chambers UK, Chambers Global, Who’s Who Legal, Legal 500 UK, Legal 500 Asia Pacific, where he is recommended in a number of fields. The most recent (2019) described him as follows: "An excellent member of the team. He gets to grips with the technical issues quickly and is level-headed under pressure. His written work is excellent." (Chambers UK/ Global); “"Very responsive, articulate and clear, he thinks commercially rather than in a legal vacuum"(Legal 500 Asia Pacific); “Bright and commercial, he is very responsive and goes out of his way to help” (Legal 500 UK)

Paul appears led and unled, or as part of a team where he leads more junior barristers. He has appeared at all levels of the Court system, including the Court of Appeal and the Privy Council. His first instance Court work is primarily in the Commercial and Admiralty divisions; but he also appears in the Chancery Division, Companies Court and Mercantile Courts.  He also acts in related interlocutory matters such as jurisdictional challenges, freezing orders and anti-suit injunctions and in appeals from/challenges to arbitration awards.  Paul’s practice has a strong international flavour and in recent years his work has taken him to Shanghai, Singapore, Dubai, Bahrain, Trondheim, Piraeus, Geneva, Jersey, and (ahem) Liverpool.

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paul.henton@quadrantchambers.com

Two very recent decisions (The Chartered Institute of Arbitrators v B and others and Cape Intermediate Holdings Ltd v Dring, which focus, directly and indirectly, upon the first and third contexts above) illustrate that the requirement of confidentiality in arbitration may be diluted (or third party access to court documents may be permitted) where that is justified by considerations as to the “interests of justice”.

First, in The Chartered Institute of Arbitrators v B and others, the Chartered Institute of Arbitrators (CIArb) appointed an arbitrator in a dispute between A and B at the request of A. B made an application under section 24(1)(a) of the AA 1996 for the removal of the arbitrator on grounds of bias. That was granted. Independently, the CIArb had commenced disciplinary action against the same arbitrator further to a complaint from a third party (also alleging bias and improper conduct).

In order to facilitate its disciplinary proceedings, the CIArb made two applications to the court under the CPR: for copies of documents relating to the section 24 application by B (that is, statements of case, witness statements, written submissions and skeleton arguments), and for permission to rely on the same.

The court (per Moulder J) granted the applications.

As to access, Moulder J observed that non-parties have an express right to sight of statements of case and any judgment or order made in public in court proceedings (per CPR 5.4C(1)), whereas non-party access to other documents can only be permitted under the court’s discretion, and only where such documents are considered to be on the court record.

In the latter regard, the court determined that it must strike a balance between preserving confidentiality and the interests of open justice, whether there is a legitimate interest on the part of the party seeking the documents, the reasons for seeking to preserve confidentiality, and any harm that might be caused by non-party access. Given that the disciplinary process against the arbitrator would be barred unless the documents were made available to the CIArb, access to the documents was therefore necessary in the interests of justice. As to the approach under CPR 5.4C, the court relied upon Cape Intermediate Holdings Ltd v Dring; as to the wider question of overriding arbitral confidentiality, the court relied upon Ali Shipping, Glidepath, Emmott, and City of Moscow.

As regards reliance on the documents, the court granted declaratory relief under CPR 3.10 on the basis that this furthered the overriding objective in the CPR (applying Rolls-Royce Plc v Unite the Union and LD Commodities Rice Merchandising LLC and another v The owners/charterers of the vessel Styliani Z).

Second, in Cape Intermediate Holdings Ltd v Dring, the Supreme Court confirmed the approach of the Court of Appeal to access to documents under CPR 5.4C (which was the approach adopted by Moulder J in the CIArb case above) and further emphasised the breadth of the courts’ inherent discretion as to access.

In this regard, the court observed that, for the purposes of CPR 5.4C, “records of the court” connotes only documents and records that the court holds for its own purposes. It does not indicate every single document generated in connection with a case and filed, lodged or kept at court.

However, Lady Hale went on to emphasise that (beyond CPR 5.4C, and pursuant to the principle of open justice), unless inconsistent with statute or rules of court, all courts and tribunals exercising the judicial power of the state have an inherent jurisdiction to determine what open justice requires in terms of access to documents or other information. In principle, the public should be allowed access not only to written submissions and arguments, but also to documents placed before the court and referred to during the hearing. This should not be limited to those which the judge has been asked to read or has said he or she has read. However, an application for access requires the kind of balancing undertaken in the CIArb case.

Thus, the Supreme Court (in a case which was not concerned specifically with arbitration) expanded the scope for overriding the confidentiality of arbitral documents which derive from court proceedings (by indicating that it may be possible for a third party to obtain sight of and to rely upon documents which are beyond those which are “records of the court” for the purposes of the CPR).

Accordingly, these recent decisions continue the trend under English law to acknowledge that arbitral confidentiality is not an absolute bar to disclosure of or access to arbitral documentation. Moreover, they emphasise that third party access to documents generated in arbitral applications before the courts remains possible, despite confidentiality, where an appropriate and sufficient interest can be made out; and such access is not limited by the wording of the CPR.

Nevil Phillips

Nevil’s practice envelops all aspects of commercial advisory and advocacy work, encompassing the broadest spectrum of commercial, international trade, commodities, shipping, energy, insurance, finance, and jurisdictional disputes and associated areas and remedies. He appears regularly in commercial arbitration (both domestic and international, with experience before a wide variety of arbitral institutions, bodies and trade associations, including LMAA, GMAA, LCIA, ICC and associated bodies), the Commercial Court, and the appellate courts. A significant proportion of Nevil’s practice involves high-value (unreported) International Arbitration work, especially in the Energy and Shipbuilding fields. 

Nevil also has substantial experience as an arbitrator, and has also given expert evidence on English law to courts in other jurisdictions. 

 > To view Nevil's full profile, please click here.

nevil.philips@quadrantchambers.com

Must there have been a prior determination of the scope of the arbitration agreement before an AAI can be granted?

Two claims were advanced in the Lebanese arbitration in Sabbagh, a “share claim” and an “assets claim”. The court held the share claim was within the scope of an arbitration agreement. As to the asset claim, the court had previously determined on the defendant’s stay application that it was not within the scope of the arbitration agreement notwithstanding the arbitrators’ decision to the contrary.

Having found that the share claim was within the scope of the arbitration agreement, the court found that it had no jurisdiction to grant an AAI in relation to that claim. The appropriate test was to consider whether if such a claim had been brought in English proceedings, the court would be required to stay those proceedings under section 9 of the Arbitration Act 1996 (AA 1996). If so, the court had no jurisdiction to grant an AAI.

More specifically, a stay must be granted where the claim is in respect of a matter which, under the agreement, is to be referred to arbitration unless the agreement is null and void, inoperative, or incapable of being performed. The correct characterisation of a “matter” was set out by Popplewell J in Sodzawiczny v Ruhan at paragraph 43: the court should treat as a “matter” any issue which is capable of constituting a dispute or difference which may fall within the scope of an arbitration agreement.

Sabbagh is authority, then, for the proposition that an AAI will not be granted to the extent that the issues under consideration in the arbitration are issues which are capable of constituting a dispute or difference which may fall within the scope of the agreement, so long as the agreement is not null and void, inoperative, or incapable of being performed.

This wide wording is likely to be a difficult threshold for future applicants to cross. Consequently, it will only be in exceptional cases that an AAI could not be resisted on those grounds.

However, it appears that it is not the inverse of that test that is required before an AAI could in principle be granted, subject to the discretionary factors. In that regard, Richards LJ cited Andrew Smith J’s comments in AmTrust Europe Ltd v Trust Risk Group SpA. There must be “no room for argument… either because it is common ground between the parties or because of a previous determination”.

Richards LJ then concluded, at paragraph 113, that given the prior consideration of that issue on the stay application, it was within Andrew Smith J’s “category of a previous determination” and there could be no objection in principle to an AAI being granted in relation to the asset claim.

Where does this leave a party who applies for an AAI, but where there has been no previous determination as to validity or scope of the arbitration agreement? Richards LJ considered that this was “a difficult question” (paragraph 111).

Difficult, perhaps, but surely important as it goes to the heart of how jurisdictions honour the principle of kompetenz-kompetenz. It is also one which the English court, post-Sabbagh, is likely to grapple with sooner rather than later.

If the AAI applicant asserts that there simply was no agreement at all, then it may be that, as in a stay application, the court will determine the issue of whether there was such an agreement (Dallah Real Estate v Ministry of Religious Affairs of the Government of Pakistan). Whether the court will determine scope is less clear. It is hard to imagine that, in the clearest of cases, it would refuse to do so.

How does the approach in Sabbagh compare internationally?

Despite the New York Convention and Model Law making some progress towards international harmonisation of arbitral law, and the international application of the kompetenz-kompetenz principle, the absence of explicit provision in either for or against AAIs has promulgated a disparity of approach internationally. Sabbagh does not reverse that trend.

Hamblen J, as he then was, granted the first AAI, which relied, at least partly, on grounds of vexatious and oppressive conduct, in Claxton Engineering v TXM. In doing so, he noted that the issue of AAIs was a matter of “great international debate and controversy”. Controversial, perhaps, because of the disputed incursion into the kompetenz-kompetenz principle.

The English position is now clear: the arbitral regime introduced by the New York Convention and, domestically, the AA 1996, did not explicitly or impliedly displace the underlying jurisdiction under section 37 of the Senior Courts Act 1981. For that reason, in exceptional cases, an AAI can be granted.

However, it is notable that in considering whether the AA 1996 precluded the court’s power to grant an AAI, Richards LJ, at paragraph 57, drew particular attention to the deliberate substitution of “should” for “shall” in section 1(c) of the AA 1996 which adopted Article 5 of the UNCITRAL Model Law (the principle of non-intervention). The intention was not to preclude intervention but to ensure caution.

This appears to solidify an English divergence from jurisdictions where the kompetenz-kompetenz principle and more stringent UNCITRAL regime have been adopted. For example, in France, the Civil Procedure Code provides that a court shall decline jurisdiction when a dispute subject to an arbitration agreement is brought before a court, except if an arbitral tribunal has not yet been seized of the dispute and if the arbitration agreement is manifestly void or not applicable. In other jurisdictions, such as the USA, the position remains unclear.

For the moment, at least, any move towards reducing differences of national arbitral procedural law will continue to struggle with AAI jurisdiction.

William Mitchell

Will has a broad and growing practice spanning all areas of Chambers’ work, particularly in Arbitration. He appears regularly as sole counsel in the County Court and High Court on a wide range of matters as well as in arbitrations under LMAA and ICC rules. He recently appeared in the High Court (as sole counsel, against leading counsel) for the defendant airline in relation to applications concerning an anonymous witness. He is also regularly instructed as a junior alongside other members of Chambers on complex matters. Recent and ongoing cases include him acting with Nigel Cooper QC and Gemma Morgan for a designer in relation to claims arising out of the capsize of a high-performance racing multi-hull; and advising and pleading in numerous bill of lading and charterparty disputes.

> To view William Mitchell full website profile, please click here.

william.mitchell@quadrantchambers.com