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  • Shipbuilding contracts and the prevention principle after Cyden Homes - James M Turner QC & Joseph England View More

    Tue, 26 March, 2019

    This article was first published in Lloyd's Shipping and Trade Law on February 19 2019, Volume 19 - Issue 1.

    The contractor in North Midland Building Ltd v Cyden Homes Ltd [2018] EWCA Civ 1744; [2018] BLR 565 ran a novel and ambitious argument: that the “prevention principle” could override an express term of the contract dealing with concurrent delay. The argument was rejected. That much is unsurprising. However, the Court of Appeal’s analysis of the nature of the prevention principle (as an implied term) has more far-reaching implications, particularly in ship- building contracts, where “employer acts of prevention” are often less well-regulated than in the JCT Forms at issue in Cyden Homes.

    What is the “prevention principle”?

    The prevention principle is concerned with two aspects of delay: liquidated damages and the contractual due date for performance. The two are invariably closely linked, the former being triggered by the failure to perform by, or within a certain period after, the latter. Phillimore LJ rationalised this in Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd (1976) 1 BLR 111 at page 127:

    “The reason for that is that when the parties agree that if there is delay the contractor is to be liable, they envisage that the delay shall be the fault of the contractor and, of course, the agreement is designed to save the employer from having to prove actual damage which he has suffered.”

    The prevention principle is thus that no party may require the other to comply with a contractual obligation where that party has itself prevented it. If an employer has prevented its contractor from carrying out works by a specified time, such as by the completion date stated in the contract (and the contract does not provide for how the delay is to be dealt with), the employer cannot insist that the contractor meets the original date for completion. If a delay event occurs that is the employer’s fault and the contract does not make  provision for that delay, the original completion date falls away and time is put “at large”. This means the contractor is obliged to complete the works within a reasonable time, rather than by the specified date, and that clauses requiring liquidated damages to be paid for delay cannot operate.

    The Victorian judiciary’s hostility towards penalties and its consequent suspicion of liquidated damages clauses are well-known. The prevention principle is cut from similar cloth. Its journey is most often traced from the Victorian decision of Holme v Guppy (1838) 3 M&W 387. The court in Guppy declared it wrong in principle for an employer to hold a contractor to a completion date, and therefore liable in liquidated damages, where at least part of the delay was caused by the employer (see Coulson LJ in Cyden Homes, paras 10 to 11). 

    Guppy and cases like it led to the development of extension of time clauses, triggered by events including “acts of prevention” by the employer (Cyden Homes, para 12). These clauses extend the due date for completion so that liquidated damages cannot be levied before that extended date. As Phillimore LJ put it in Peak (page 127):

    “However, the problem can be cured if allowance can be made for that part of the delay caused by the actions of the employer; and it is for this purpose that recourse is had to the clause dealing with extension of time. If there is a clause which provides for the extension of the contractor’s time in the circumstances which happen,  and if the appropriate extension is [on the contract   in that case] certified by the architect, then the delay due to the fault of the contractor is  disentangled  from that due to the fault of the employer and a date is fixed from which the liquidated damages can be calculated.” [Emphasis added.]

    This, however, created problems when extension of time clauses were drawn too narrowly, and the courts leaned against construing times for performance  as  being  of  the essence or as conditions (see Hudson’s Building and Engineering Contracts, paras 6-012 to 6-014). This explains the increasing complexity of extension of time clauses in the 1980s and beyond (noted by Coulson LJ in Cyden Homes at paras 12 and 14).

    Such a clause came before the court in the important case of Multiplex Constructions (UK) Ltd v Honeywell Control Systems Ltd (No 2) [2007] EWHC 447 (TCC); [2007] BLR195. Jackson J (as he then was) set out three important propositions concerning the prevention principle (para 56) (cited in Cyden Homes at para 15):

    i. Actions by the employer which are perfectly legitimate under a construction contract may still be characterised as prevention, if those actions cause delay beyond the contractual completion date.

    ii. Acts of prevention by an employer do not set time at large, if the contract provides for extension of time in respect of those events.

    iii. Insofar as the extension of time clause is ambiguous, it should be construed in favour of the contractor.”

    The Cyden Homes case

    Cyden Homes Ltd (the employer) engaged North Midland Building Ltd (the contractor) to design and build a substantial residential property under a JCT Design and Build Contract, 2005 edition (DB 2005), with bespoke amendments. The bespoke amendments included changes to the extension of time provisions. Clause 2.25.1 was amended to provide that:

    “2.25.1 If on receiving a notice and particulars under clause 2.24:

    1. any of the events which are stated to be a cause of delay is a Relevant Event; and
    2. completion of the Works or of any Section has been or is likely to be delayed thereby beyond the relevant Completion Date,
    3. and provided that
      1. the Contractor has made reasonable and proper efforts to mitigate such delay; and
      2. any delay caused  by  a  Relevant  Event  which is concurrent with another delay for which the Contractor is responsible shall not be taken into account then, save where these Conditions expressly provide otherwise, the Employer shall give an extension of time by fixing such later date as the Completion Date for the Works or Section as he then estimates to be fair and reasonable.” [Emphasis added.]

    Liquidated damages for delay were payable at the rate of £5,000 per week. The works were delayed and the contractor claimed an extension of time. The employer allowed a partial extension of time. However, it cited clause 2.25.1.3(b) in order to reject other elements of the contractor’s claim on the basis that those delays had been caused by a “Relevant Event” which was concurrent with delays for which the contractor was responsible. The contractor commenced Part 8 proceedings, seeking declarations that clause 2.25.1.3(b) offended the prevention principle, rendering time at large and  any liquidated damages provision void. The contractor’s primary argument was that clause 2.25.1.3(b) offended the prevention principle as described by Jackson J in Multiplex and was impressible. The contractor’s alternative argument was that, regardless of the correct interpretation of clause 2.25.1.3(b), the prevention principle operated in relation to the liqudated damages provision, so that the contractor did not have to pay liquidated damages.

    The decision

    At first instance Fraser J rejected the claim ([2017] EWHC 2414 (TCC); [2017] BLR 605). In particular, he held that:

    1. The contractual wording was “crystal clear”, so no point of interpretation arose. There was no support in Multiplex for this type of clause not being permitted. The definition of “Relevant Event” also included “any impediment, prevention or default, whether by act or omission …”, which was consistent with the parties having set out a clear regime that dealt with extensions of time, including employer acts of prevention. This also fell within the four corners of the proposition in Multiplex that acts of prevention by an employer do not set time at large, if the contract provides for extension of time in respect of those events.
    1. In cases of concurrent delay, the prevention principle is not engaged. The court took the opportunity to clarify obiter dicta in previous judgments on that topic.

    Coulson LJ (with whom Sir Terence Etherton MR and Sir Ernest Ryder agreed) upheld Fraser J. Coulson LJ held that a contractual provision allocating the risk of concurrent delay to the contractor was valid and effective, and was not contrary to the prevention principle. He held that the bespoke provision here was clear, and that there was no authority to suggest that parties cannot contract out of  some or all of the effects of the prevention principle (paras 22 to 28). He further held that the prevention principle is not an overriding rule of public or legal policy and had no obvious connection with the separate issues that may arise from concurrent delay (paras 29 to 30).

    He also rejected the contractor’s second ground of appeal that, if the contractor was not entitled to an extension of time for concurrent delay, there was an implied term that prevented the employer levying liquidated damages. His numerous reasons included that the proposed implied term was contrary to the express terms of the contract, which the parties were free to agree or not (paras 36 to 39).

    The prevention principle as an implied term

    For many construction lawyers, the importance of Cyden Homes lies in its clarification of the position in relation to concurrent delay. It has been welcomed as bringing certainty to the entitlement to an extension of time arising in relation to concurrent delay, and as a vindication of parties’ express choices and risk allocation. Much less remarked-upon, but with potentially troubling implications, is the following short passage in the judgment of Coulson LJ (para 28):

    “… the fact that the  mechanism  of  implied  terms  does not  help  the  appellant  on  the  particular  facts  of this case does not mean that such terms are not    the right vehicle by  which,  in  a  conventional  case,  the prevention principle is given contractual force. … Moreover, when time is set at large, the obligation to complete by a fixed date is replaced with an implied obligation  to  complete  within  a  reasonable  time   (see para 48 of Multiplex). In my view, therefore, the prevention principle can only sensibly operate by way of implied terms. …” [Emphasis supplied.]

    Coulson LJ drew support from the fact that Lewison, The Interpretation of Contracts (6th Edition) deals with the prevention principle as an implied term (para 28). That analysis is equivocal, however. As Lewison recognises (at para 6.14):

    “It is possible that the duty does not rest upon the implication of a term, but may be a positive rule of the law of contract that conduct of either the promisor or the promisee, which can be said to amount to himself of his own motion bringing about the impossibility of performance, is itself a breach of the contract.”

    Although he goes on to add: “However, since ultimately the rule of law (if such it is) depends upon the intention of the parties, it is submitted that it may properly be categorised as an implied term.”

    In Cyden Homes, Coulson LJ showed in the context of concurrent delay how the prevention principle as an implied term would cut across an express clause and so fail the test for implication. Although he said that this would not stop the prevention principle applying in “a conventional case” (para 28), it is not readily apparent what he meant by that.

    Practicality

    The main practical concern with the implied term analysis is its interplay with express terms. If the prevention principle is a rule of law, acts of prevention not covered  by the contract will engage  it.  If,  on  the  other  hand,  the prevention principle is  an  implied  term,  then  rules of construction might prevent its implication. Indeed, where a contract contains detailed provisions  dealing  with the consequences of one party being prevented from performing, that is likely to militate against the implication of a term (see, for example, Sabic UK Petrochemicals Ltd v Punj Lloyd Ltd [2013] EWHC 2916 (TCC)).

    It is here that the relegation of the prevention principle to the status of an implied term could have unexpected consequences. Consider,  for  example,  a  requirement  in relation to employer acts of prevention that the  employer accept that it had caused delay for time to be extended. It might well be difficult to argue that a term  was nevertheless to be implied that a delay that the employer disputed should set time at large. As a matter   of the construction of the contract, such an implication  might well jar. Yet the non-application of the prevention principle in such a setting could produce precisely the unjust consequence that the prevention principle was developed to address.

    Such a result could (depending on the facts) also be inconsistent with a long line of cases, including Alghussein Establishment v Eton College [1988] 1 WLR  587, establishing what Lord Ellenborough CJ described in Rede v Farr (1817) 6 M&S 121 at page 124 as the “universal principle of law, that a party shall never take advantage   of his own wrong”. In Cyden Homes,  that  problem  was less pronounced because of the “Relevant Event” clause. In many construction contracts, the problem might be mitigated by an “open up, review and revise” power.

    In the shipbuilding context, however, the failure to deliver on time usually gives rise not just to a right to liquidated damages, but also (if the failure continues) to a right of cancellation. This makes the ex post facto reversal by a tribunal of an employer’s rejection of a delay functionally useless as a means of re-setting the parties’ positions under the contract. That is because the contract will by then – in most cases – have been brought to an end, either by the employer lawfully exercising its right of termination, or (if that purported exercise was unlawful) by the contractor’s termination for repudiatory breach or renunciation.

    It would be an odd outcome if the contractor’s ex hypothesi wrongful refusal to accept responsibility for a delay entitled it to liquidated damages and to cancel the contract.

    Yet it is difficult to see how – if the prevention principle is to be viewed as an implied term – it could be avoided. This scenario was not at issue in Cyden Homes and so was not addressed. It is therefore submitted that Coulson LJ’s view, whilst understandable in the context in which he reached it, should be treated with caution. The prevention principle is better viewed not as an implied term, but as a rule of law that operates whenever the express terms of a contract do not exclude it.

     

    James M Turner QC

    James M. Turner QC is a highly regarded and well-known Commercial Advocate. He was called to the Bar in 1990 and appointed Queens Counsel in 2013. 

    His practice encompasses commercial contractual disputes across sectors including International & Commercial Arbitration, Energy, Shipbuilding, Off Shore Construction, Shipping and Banking.

    In the UK he appears frequently in the Commercial Court and the Appellate Courts (Court of Appeal and Supreme Court) and has extensive experience of Arbitration, appearing before all the main domestic and international arbitral bodies (HKIAC, UNCITRAL, LCIA, ICC, LMAA) as well as in ad hoc matters.

    Many of his cases require the co-ordination of a range of expert specialisms, ideally suited to James’s down to earth approach, team-building skills and highly-regarded technical knowledge. Reflecting the invariably international character of his practice, James has extensive experience in dealing with foreign law and multi-jurisdictional disputes. He has a particular eye for appreciating and addressing cultural barriers in international arbitration.

    To view James' full profile, please click here.

    james.turner@quadrantchambers.com

    Joseph England

    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 [2015] 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.

    To view Joseph's full profile, please click here.

    joseph.england@quadrantchambers.com

  • Quadrant Chambers International Arbitration Newsletter Spring 2019View More

    Mon, 25 March, 2019

    The latest edition of the Quadrant Chambers International Arbitration Newsletter is now available.

    The editorial is provided by Chris Smith QC with articles on the Prague Rules from James M Turner QC and a guide to preparing for a dispute from guest author Deborah Ruff of Pillsbury Winthrop Shaw Pittman LLP. 

    There's a look at our latest news and recent and upcoming events. Highlights include:

    • Simon Rainey QC and Luke Parsons QC are to feature in the Legal 500 Arbitration Powerlist. 
    • Quadrant Chambers have authored 'Arbitration Law: 2018 in Review' - to be published by Informa in March 2019

    Chris Smith QC took silk in 2019.He has a broad practice encompassing all areas of commercial law, with a particular focus on dry shipping, commodities, energy, and insurance disputes. He appears regularly in both domestic and international arbitrations, and has undertaken cases before tribunals in London, Zurich and Hong Kong.

    James M Turner QC,  a highly regarded and well-known Commercial Advocate and an expert in  commercial contractual disputes across sectors including International & Commercial Arbitration, Energy, Shipbuilding, Off Shore Construction, Shipping and Banking.

    Deborah Ruff leads Pillsbury’s Arbitration - U.S. & International practice. She has extensive experience in multi-jurisdictional disputes, with a focus on high-value and complex international arbitration in the energy, infrastructure and construction, telecommunications and financial sectors.

     

    > Download the Quadrant Chambers International Arbitration Newsletter Spring 2019
     

  • What is an “ordinary” seizure? Government interferences and laytime under the Sugar Charter Party 1999 – Simon Rainey QC and Andrew CarruthView More

    Tue, 19 March, 2019

    Sucden Middle-East v Yagci Denizcilik ve Ticaret Limited Sirketi (The Muammer Yagci) [2018] EWHC 3873 (Comm)

    Introduction

    On 2 November 2018, the Commercial Court allowed an appeal under section 69 of the Arbitration Act 1996 relating to the meaning of the phrase “government interferences” in clause 28 of the Sugar Charter Party 1999. The question of law for the Court was whether a seizure of the cargo by customs authorities at the discharge port amounted to “government interferences”. The Court held that such a seizure did amount to “government interferences”, so that time lost as a result would not count as laytime or time on demurrage. The formal judgment has only now been made available by the Court.

    Simon Rainey QC and Andrew Carruth represented the successful Appellant, instructed by Nicholas Fisher and Henry Clack of HFW.

    The Seizure of the Cargo

    In December 2014, the vessel “Muammer Yagci” arrived at Annaba, Algeria carrying a cargo of sugar under a voyage charterparty on the Sugar Charter Party 1999 form (the “Charterparty”). The receiver of the cargo submitted import documents to the Annaba Customs Directorate (the “ACD”) for clearance and the assessment of customs duties. A discrepancy between the invoice value and market value of the cargo led the ACD to suspect that there had been a false declaration in an illegal attempt to transfer capital abroad.

    After consulting with the Central Customs Administration in Algiers, the ACD seized the cargo. It was then placed under the control of the State Property Directorate (the “SPD”). The Governor of the Trade and Commerce Directorate gave permission for it to be sold, which it eventually was, with the proceeds to be held by the Treasury. The receiver of the cargo was prosecuted, but the prosecution failed.

    As a result of the actions of the authorities, the discharge of the cargo was delayed by about four and a half months. A dispute arose between the owners and the charterers as to whether that time counted as time on demurrage.

    The Arbitration and the Award

    The demurrage dispute was referred to arbitration. The charterers said that the time lost as a result of the seizure did not count as laytime or time on demurrage. They relied upon clause 28 of the Sugar Charter Party 1999, which states (with the relevant words emphasised):

    STRIKES AND FORCE MAJEURE

    In the event that whilst at or off the loading place or discharging place the loading and/or discharging of the vessel is prevented or delayed by any of the following occurrences: strikes, riots, civil commotions, lockouts of men, accidents and/or breakdowns on railways, stoppages on railway and/or river and/or canal by ice or frost, mechanical breakdowns at mechanical loading plants, government interferences, vessel being inoperative or rendered inoperative due to the terms and conditions of employment of the Officers and Crew, time so lost shall not count as laytime or time on demurrage or detention.

    The Tribunal found that the ACD and the SPD operated under the umbrella of and were supervised by the Algerian Ministry of Finance. Moreover, their actions had caused the delay to discharge of about four and a half months. However, this did not amount to “government interferences” because the actions of the authorities had been an ordinary, foreseeable performance of their appointed functions.

    The Appeal to the Commercial Court

    The charterers appealed to the Commercial Court under section 69 of the Arbitration Act 1996. They said that the Tribunal’s interpretation of “government interferences” was wrong. The Tribunal had failed to consider the ordinary meaning of the language of the provision, which ought to have been the starting point for the interpretative exercise. The ordinary meaning of the words “government interferences” did not require the governmental acts to be out of the ordinary or unforeseeable.

    The charterers also said that the Tribunal had been influenced by the incorrect belief that the words “force majeure” in the heading of clause 28 meant that it could only apply to acts which were out of the ordinary or unforeseeable. The words “force majeure” in this context were merely a label which denoted that what followed was a list of events beyond the control of the parties. They did not imply any requirement of extraordinariness or unforeseeability.

    Finally, the charterers said that the Tribunal had incorrectly focussed on considerations of commercial common sense, when in fact the language of clause 28 was clear and there was no scope for such considerations. At any rate, commercial common sense favoured the charterers’ interpretation. It would be difficult to produce a laytime and demurrage statement if doing so required factual enquiry into whether the actions of the authorities had been “ordinary”. The parties could not have intended to introduce such uncertainty.

    The Owners argued that the Tribunal’s interpretation was correct. The actions of the authorities did not amount to “interference”, they were simply an ordinary part of the process of discharging the cargo. There was a difference between the process itself and interference with the process. As such, the Tribunal’s interpretation was consistent with the language of the provision. Moreover, commercial common sense supported the Tribunal’s interpretation. If the charterers were correct, a wide range of ordinary actions would interrupt laytime.

    Both parties relied upon the judgment of Eder J in The Ladytramp [2012] EWHC 2879 (Comm); [2012] 2 Lloyd’s Rep. 660, which was the only previous decision on the meaning of “government interferences” in clause 28 of the Sugar Charter Party 1999. In that case, the port authority carried out an administrative rescheduling of berthing following a fire which damaged a conveyor belt at the loading terminal. The charterers argued that this amounted to “government interferences”.

    Eder J held that: (1) the charterers’ argument failed in limine because there was no finding in the award that the port authority was a government entity; and (2) what was required, at the least, was an act of a government entity which amounted to the discharge of a sovereign function and which differed from an ordinary administrative act which any port authority (state-owned or otherwise) would be capable of.

    The owners said that Eder J’s judgment supported their argument that the governmental act had to be extraordinary or unforeseeable. The charterers, for their part, said that The Ladytramp was a case about the meaning of “government” rather than “interferences”. Furthermore, it supported their argument that all that was required was a sovereign act by a government entity.

    The Judgment of the Commercial Court

    Knowles J held that the Tribunal had erred in law by finding that the phrase “government interferences” only applied if the governmental acts were extraordinary or unforeseeable. In particular:

    1. The ordinary meaning of the language of the provision did not require the governmental acts to be extraordinary or unforeseeable;
    2. The Tribunal had been entitled to refer to the heading of clause 28 when construing the provision. However, in this context the phrase “force majeure” did not mean that the clause could only apply to acts which were extraordinary or unforeseeable. It meant only that what followed was a list of events which were beyond the control of the parties and would trigger the operation of the clause;
    3. Considerations of commercial common sense favoured the charterers’ argument. It would not be clear to the parties how the clause was to apply if there was a requirement that the relevant acts be extraordinary or unforeseeable;
    4. It was unnecessary for the Court to produce a general meaning of the phrase “government interferences”. It was sufficient to say that on the facts of the present case, in particular the seizure of the cargo, the discharge of the cargo had been delayed by “government interferences”.

     

    A copy of the judgment can be found here.

     

    Simon Rainey QC

    Simon is one of the best-known practitioners at the Commercial Bar with a broad commercial advisory and advocacy practice spanning substantial commercial contractual disputes, international trade and commodities, shipping and maritime law in all its aspects, energy and natural resources and insurance and reinsurance and has extensive experience of international arbitration. Simon regularly acts in ground-breaking cases including NYK Bulkship (Atlantic) NV v Cargill International SA (The Global Santosh) [2016] UKSC 20 where Simon was brought in to argue the case in the Supreme Court and represented the successful appellants, Cargill. The decision is a landmark one in relation to a contracting party’s responsibility for the vicarious or delegated performance by a third party of its contractual obligations, both in the common charterparty and international sale of goods contexts and more generally. In Bunge SA v Nidera SA [2015] UKSC 43 Simon successfully represented Bunge in a landmark decision by the Supreme Court on GAFTA Default Clause and sale of goods damages after The Golden Victory on points which had been lost at every stage below. In Volcafe v CSAV [2018] UKSC 61 Simon represented Owners in the Supreme Court in the most important case on the Hague Rules in the last 50 years. 

    Ranked as the “Star Individual” for shipping by Chambers UK in 2015, 2016, 2017 and again in 2018, Simon: ‘impresses with his mastery of the brief... exceptionally gifted, he has the strong confidence of his clients, and is an excellent presenter of complex material....’ and ‘….is one of those super silk guys who has judges eating out of his hands.” “He has the gift of going straight to the problem." He was ranked as Shipping Silk of the year 2017 by both Chambers and Partners UK and Legal 500 UK Awards and one of the Top Ten Maritime Lawyers 2017 and again in 2018 by Lloyd’s List. He has also been cited for many years as a leading Silk in the areas of Commodities, Commercial Litigation and Dispute Resolution, International Arbitration, Energy and Natural Resources, and Insurance and Reinsurance by Chambers UK and/or Legal 500. He was shortlisted for Shipping Silk of the Year at the Chambers UK Bar Awards 2018 and for Shipping Silk of the Year and International Arbitration Silk of the Year at the Legal 500 UK Awards 2019. 

    He is frequently appointed as arbitrator (LCIA, ICC, LMAA, SIAC, UNCITRAL and ad hoc, sitting both sole and as co-arbitrator) and has given expert evidence of English law to courts in several countries. He also sits as a Recorder in the Crown Court and as a Deputy High Court Judge (Queen’s Bench and Commercial Court).

    To view Simon's full profile, please click here.

    simon.rainey@quadrantchambers.com

    Andrew Carruth 

    Andrew undertakes a broad range of commercial work with an emphasis on shipping (wet and dry), energy, commodities, international trade and insurance (marine and non-marine).  

    Andrew regularly appears in the High Court (including the Commercial Court and the Admiralty Court) as well as in arbitrations. Notable cases from 2018 include:

    • LCIA Arbitration (ongoing) (led by Luke Parsons QC and Paul Henton) - an arbitration concerning an FPSO conversion project which was substantially delayed and over-budget, resulting in a claim and counterclaim valued at more than US$125 million.
    • BB Energy (Gulf) DMCC v Al Amoudi & ors [2018] EWHC 2595 (Comm) (led by Luke Parsons QC) - counsel for the successful respondent in an application for a stay of English proceedings against the directors of an insolvent company. The stay was sought in favour of insolvency proceedings in Morocco. The claim involves allegations of fraud and conspiracy against the directors.
    • The Baltic Strait [2018] EWHC 629 (Comm) (led by Alistair Schaff QC) - a section 69 appeal concerning the interpretation of section 2(4) of the Carriage of Goods by Sea Act 1992 and whether a receiver of damaged goods can recover full damages despite having had no proprietary or possessory interest in them at the time of damage.
    • Deleclass Shipping Co Ltd v Ingosstrakh Insurance Co Ltd [2018] EWHC 1149 (Comm) - sole counsel in a claim for a constructive total loss under a policy of marine insurance.
    • High Court Case (2018) (led by John Kimbell QC) - a claim for £40m of damage to a subsea pipeline caused by a vessel's anchor.

    Prior to joining Chambers, Andrew completed an LLM in International Commercial Law with a particular focus on the carriage of goods by sea, international trade and marine insurance. He won the Inner Temple advocacy prize during his pupillage year. He has also undertaken secondments at a leading London shipping law firm and in the insurance industry.

    To view Andrew's full profile, please click here.

    andrew.carruth@quadrantchambers.com

  • Unseaworthiness and Passage Planning – The CMA CGM LIBRA – John Russell QC and Emmet ColdrickView More

    Mon, 18 March, 2019

    A copy of the judgment can be found here

    The Admiralty Court’s decision in Alize 1954 v Allianz Elementar Versicherungs AG (The CMA CGM LIBRA) [2019] EWHC 481 (Admlty) (8 March 2019) is an interesting modern illustration of the application of well-established principles relating to seaworthiness in the context of the grounding of a large container ship.

    The incident

    On 17 May 2011, the CMA CGM LIBRA grounded whilst leaving the port of Xiamen, China.  Salvage and other general average expenses totalling US$13 million were incurred as a result.

    The vessel had been navigated outside the buoyed fairway and ran aground on a shoal in an area where there were charted depths of over 30 metres.  The shoal was not marked on the paper Admiralty charts available at the time, but recent Notices to Mariners had warned that numerous depths less than the charted depths existed in the approaches to the port.

    The vessel’s passage plan had not provided for the vessel to leave the buoyed fairway.  But nor did it contain a clearly marked warning of the danger created by the presence of depths less than those charted.

    92% of the Cargo Interests paid their contribution to GA but 8% refused to do so.  They submitted that the unsafe and negligently prepared passage plan rendered the vessel unseaworthy and caused the casualty, and as such that they had a defence of actionable fault.

    The trial

    The Owners’ GA claim was tried before the Admiralty Judge, Teare J, over 6 days in January and February 2019.  Several witnesses were cross-examined, including the vessel’s Master and two master mariner expert witnesses called by the parties.

    The Owners sought to defend the Master’s navigational decisions as reasonable in the circumstances and also defended the passage plan, maintaining that it was sufficient that the relevant Notice to Mariners was attached or adjacent to the vessel’s working chart.

    The Cargo Interests submitted that (1) the vessel was unseaworthy before and at the beginning of the voyage because it carried a defective passage plan; (2) due diligence to make the vessel seaworthy was not exercised by the Owners because the master and second officer failed to exercise reasonable skill and care when preparing the passage plan; and (3) that the defective passage plan was causative of the grounding of the vessel.  All of this was disputed by the Owners.

    The Court’s decision: navigation, unseaworthiness and causation

    The Court reached clear conclusions of fact that the navigation of the vessel had been negligent, that the passage plan was defective and that the defective passage plan was causative of the grounding.  The Court found that if there had been a warning on the working chart about charted depths being unreliable, the master would not have attempted the manoeuvre that he did outside the buoyed fairway.

    Given the negligent navigation exception in the Hague Rules, however, these conclusions were not of themselves sufficient to give rise to a defence of actionable fault.  The court had to be persuaded that the defective passage plan rendered the vessel unseaworthy.  In that regard, the Owners had submitted that passage planning is part of navigation and not itself an aspect of seaworthiness.

    The Court rejected that submission and held that the vessel was unseaworthy.  The long established and authoritative test of unseaworthiness is whether a prudent owner would have required the relevant defect, had he known of it, to be made good before sending his ship to sea; McFadden v Blue Star Line [1905 1 KB 697 at p.706.  Applying that test to the facts of the case, Teare J reasoned that:

    “Given that, as stated in the IMO Resolution of 1999, a "well planned voyage" is of "essential importance for safety of life at sea, safety of navigation and protection of the marine environment" one would expect that the prudent owner, if he had known that his vessel was about to commence a voyage with a defective passage plan, would have required the defect to be made good before the vessel set out to sea.”

    As the Court observed, seaworthiness extends to having on board the appropriate documentation, including the appropriate chart, and a proper passage plan is now, like an up to date and properly corrected chart, a document which is required at the beginning of the voyage.

    The Court also rejected an argument by the Owners that, in relation to matters like passage planning, a carrier's duty under Article III r.1 of the Hague Rules was discharged by putting in place proper systems and ensuring that the requisite materials were on board to ensure that the master and navigating officer were able to prepare an adequate passage plan.  Teare J observed that the same could be said about chart corrections/ updating, but that if the officer charged with correcting the chart fails to do so in a material respect before the beginning of the voyage, then his failure is capable of rendering the vessel unseaworthy within the McFadden test.

    The Court’s decision: due diligence

    The Court also rejected a submission on behalf of Owners that due diligence was exercised because their SMS contained appropriate guidance for passage planning and their due diligence obligation did not concern things done by the crew in their capacity as navigators.  The actions of the master and second officer in preparing the passage plan were matters of navigation, it was submitted, rather than matters for Owners as carrier.

    The Court reviewed the relevant authorities and noted that it has long been recognised that in order to comply with Article III r.1 it is not sufficient that the owner has itself exercised due diligence to make the ship seaworthy. It must be shown that those servants or agents relied upon by the owner to make the ship seaworthy have done so, as the duty is non-delegable.  The provision of a proper passage plan is necessary to ensure, so far as reasonably possible, that the vessel will be safely navigated.  The master and second office could, by the exercise of reasonable care and skill, have prepared a proper passage plan and as such due diligence was not exercised.

    Conclusion

    The Court therefore concluded that the Cargo Interests had established causative unseaworthiness and that the Owners had failed to establish the exercise of due diligence to make the vessel seaworthy.  That was, as the Court observed, the consequence of applying established propositions of law to the facts of the case: the traditional test of seaworthiness, the principle that proper navigational documentation is an aspect of seaworthiness and the non-delegable nature of the duty to exercise due diligence.

    John Russell QC, instructed by Jai Sharma, John Reed, Jessica Cooke at Clyde & Co LLP, acted for the successful Cargo Interests.  

    John Russell QC

    John is an experienced and determined commercial 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 has also appeared as counsel in inquests and public enquiries.

    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,  marine insurance, aviation and travel.

    He is ranked in the Legal 500 and Chambers & Partners in Shipping, Commodities,Aviation and Travel.

    View John's full profile here. 

    john.russell@quadrantchambers.com

    Emmet Coldrick

    Emmet has a broad commercial practice, with a particular emphasis on shipping and transport, international trade and commodities,  general commercial/ contractual disputes (including civil fraud) and arbitration.

    In addition to his work as part of a team of counsel, Emmet has extensive experience as a sole advocate, from final hearings in London arbitrations and Commercial Court trials, to applications relating to freezing injunctions, jurisdiction and anti-suit injunctions, ship arrest and orders for sale, security for costs and summary judgment.

    Emmet has acted for a wide range of UK and overseas based clients, from clearing banks and well known global corporations to SMEs and individuals.  He is frequently instructed by lawyers based in other jurisdictions, including Singapore, Hong Kong, Dubai and Switzerland.

    View Emmet's full profile here. 

    emmet.coldrick@quadrantchambers.com

  • The “LADY M” – The Court of Appeal considers the meaning of the ‘fire’ exception - Robert Thomas QC and Benjamin CofferView More

    Thu, 14 March, 2019

    A copy of the judgment can be found here.

    The Court of Appeal’s judgment in the “LADY M”, handed down today, provides definitive guidance on the scope of the ‘fire’ defence in Article IV Rule 2(b) of the Hague Rules, and the proper approach to the construction of the Article IV defences more generally. Robert Thomas QC and Benjamin Coffer appeared for the cargo interests, instructed by Andrew Nicholas and Cameron Boyd of Clyde & Co LLP.

    The Court has held that the carrier can rely on the fire defence even where the fire is caused intentionally by the crew, unless the vessel was causatively unseaworthy in breach of Article III.1, or the fire was caused with the actual fault or privity of the carrier. In construing the fire defence, the Court took a restrictive view of the relevance of the pre-existing common law prior to the Hague Rules, and the relevance of thetravaux preparatoires, instead concentrating on the literal wording of the Rules.

    The case concerned a fire in the engine room of “LADY M” while she was carrying a cargo of 62,250 mt of fuel oil from Russia to the US. The fire did not take hold but was said to have been sufficient to immobilise the vessel such that salvage services were required and cargo interests incurred a substantial liability to the salvors. In these proceedings, cargo interests sought to claim that sum (together with associated costs and expenses) from Owners, together with a declaration of non-liability for general average. Owners counterclaimed a general average contribution.

    The cargo interests relied on the fire as a breach of Article III Rule 1. In Owners’ defence, it was admitted that the fire had been started deliberately by a member of the crew with the intent to cause damage. Owners’ case was that the culprit was the Chief Engineer and that at the time that he set the fire he was under extreme emotional stress and/or anxiety due to the illness of his mother, alternatively suffering from an unknown and undiagnosed personality order and/or mental illness.

    Cargo interests argued that the fire defence was not applicable to fires caused by acts of barratry. They relied principally on pre-existing common law cases in which it had been held that contractual defences in bills of lading (even when apparently clearly worded) were inapplicable when the excluded peril was caused by deliberate conduct on the part of the crew.

    At first instance, Popplewell J determined as a preliminary issue that the fire defence was capable of applying even if the fire was caused by barratry on the part of the crew, but rejected the owners reliance on Article IV Rule 2(q). He also held that there could be no barratry if the Chief Engineer was insane: for an act to constitute barratry, it required the mental element necessary to make the conduct criminal, which would not be present in a case of insanity.

    The Judge’s decision that the carrier could rely on Article IV.2(b) was upheld on appeal. The Court of Appeal held that it was not permissible to refer to the pre-existing case law, because the words of Article IV.2(b) were clear. The Court endorsed the Judge’s view that it was only permissible to make reference to prior authorities where they established that a particular word or phrase already had a judicially settled meaning. It held that there was no settled meaning of ‘fire’ prior to the enactment of the Rules. In reaching that view, the Court declined to follow the decision of the New Zealand Supreme Court inThe Tasman Pioneer [2010] 2 Lloyd’s Rep 13 that the Article IV defences are not applicable to acts of barratry.

    The Court of Appeal went on to consider the Judge’s analysis of the requirements for an act to constitute ‘barratry’. The Court held that the Judge should not have determined whether the assumed insanity of the Chief Engineer would prevent his conduct constituting barratry, because insanity had not been pleaded by the shipowners. All three judges were critical of the shipowners for asking the Court to determine the preliminary issue on the basis of a hypothetical and unpleaded assumption (“the Owners were acting as if they were conducting a tutorial group”).

    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 frequently ranked as a leading barrister in the Chambers & Partners as well as the Legal 500 directories for Shipping & Commodities.

    To view Robert's full profile, please click here.

    robert.thomas@quadrantchambers.com

    Benjamin Coffer

    Ben is described by the directories as  "a rising star" (Legal 500, 2019); “a standout shipping and commodities junior" (Chambers & Partners, 2018) and “a star of the future” (Chambers & Partners, 2017). He is also recognised as a leading junior in the Legal 500 Asia Pacific Guide. His significant recent cases include: 

    • Volcafe v. CSAV [2018] UKSC 61, the first authoritative analysis of the inherent vice defence and the burden of proof in cargo claims;
    • The Aqasia [2018] 1 Lloyd's Rep 530, settling a 90-year dispute as to whether Article IV.5 applies to bulk cargoes; 
    • Al Khattiya c/w Jag Laadki [2018] 2 Lloyd's Rep. 243, which concerns the significance of the place of a collision in a forum non conveniens application;
    • The Maersk Tangier [2018] 2 Lloyd’s Rep 59, the leading English case on package limitation for containerised cargoes under the Hague-Visby Rules; and,
    • The Lady M [2018] Lloyd's Rep Plus 22, the first modern decision on the meaning of 'barratry' and its effect on the defences available under the Hague Rules. 

    Ben's broad international commercial practice has a particular emphasis on commodities, insurance / reinsurance and shipping. He appears as sole and junior counsel in the Court of Appeal, the Commercial Court and the London Mercantile Court, and before arbitral tribunals under the rules of many different international organisations including the LMAA, the LCIA, the ICC, the SIAC, the HKIAC, the Swiss Chambers' Arbitration Institution, FOSFA and GAFTA. 

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

    benjamin.coffer@quadrantchambers.com

  • What on earth happens next? Foreseeing the impact of Brexit on international arbitration - Tom NixonView More

    Mon, 11 March, 2019

    This was first published on the Practical Law Arbitration Blog on 1 March.

    On 12 February 2019, Quadrant Chambers hosted an evening where the international arbitration community could gather and ventilate their experiences, concerns, and hopes as the United Kingdom moves closer towards exiting the European Union.

    Entitled What on earth happens next? Foreseeing the impact of Brexit on International Arbitration, the evening was chaired by Chris Smith of Quadrant Chambers, and hosted a panel of four experts who each brought a unique perspective; Liisa Lahti of Quadrant Chambers; Andrew Cannon, Partner at Herbert Smith Freehills; Dr Jacomijn van Haersolte-van Hof, Director-General of the London Court of International Arbitration (LCIA); and Professor Loukas Mistelis, the Clive M. Schmitthoff Professor of Transnational Commercial Law and Arbitration at Queen Mary University of London.

    Liisa Lahti started the evening by considering the effect of Brexit on choosing the UK for dispute resolution in general, including the use of English courts, citing data gathered by Thomson Reuters over 2018. In October 2018, 64% of respondents, comprising local and international businesses and law firms, stated that they were already conducting a review of their jurisdiction and choice of law clauses in light of Brexit, with a further 14% intending to do so. The data also shows that some businesses have already made the decision to change the choice of law or jurisdiction clauses commonly used in their contracts. The data is stark and rewards close examination.

    There is a general consensus that leaving the EU will not generally affect substantive arbitration law, arbitration being excluded from the scope of the European jurisdiction and enforcement regime under Regulation 1215/2015 (Brussels Recast Regulation). The same cannot be said of English court work. While choice of law and jurisdiction can be implemented unilaterally by the UK post-Brexit, the ease of enforcement of UK judgments around the EU requires multilateral cooperation. There is no guarantee that any alternative to Brussels Recast will be adopted, especially in the short term. 57% of respondents to one survey cited the ease of enforcement of English judgments as a reason for choosing English courts. This ought not be ignored.

    Andrew Cannon focused on arbitration itself. It is easy to assume that Brexit will not affect arbitration, again, with arbitration being excluded from Brussels Recast and being subject to its own regime under the New York Convention 1958. There may be minor exceptions, for example, anti-suit injunctions against member state courts in support of an arbitration may be unavailable under the European regime and could be reintroduced, but these are unlikely to be a major factor in choosing London.

    The wider concern is, Andrew argued, one of perception. Statistics from QMUL showed that, generally, London is a very popular choice of arbitral seat; 64% of respondents stated that it was in their top five locations globally, beating Paris and Singapore in second and third place. But as the UK’s departure from the EU moves closer, there is an assumption in the international community that Brexit will have a negative impact. There is a general sense of uncertainty that affects the perception of London as a business environment. Even if arbitration itself does not change, if London is considered a less attractive place to do business, it may stop feeling like such a natural and comfortable choice to resolve disputes. The legal community in, say, Paris, are likely to try to capitalise on this uncertainty.

    Dr Jacomijn van Haersolte-van Hof was able to provide a completely different perspective as Director-General of the LCIA, because she is engaged with the practicalities of organising and overseeing international arbitration. She began by explaining the strength of English law; its international prominence in banking and finance, as well as shipping and commodities disputes, helps to legitimise London as a seat for dispute resolution, alongside a robust judiciary.

    Nonetheless, she explained that her primary concerns had nothing to do with law and nothing, really, to do with arbitration. Would it be difficult for European parties to obtain visas to enter the United Kingdom? Would queues at London’s airports get longer? A lot of small, practical difficulties may add up and will have to be addressed. Nevertheless, she concluded on a positive note (in some respects), by stating that there was little doubt that the transition to a post-Brexit situation would lead to numerous disputes.

    Professor Loukas Mistelis explained that the success of London was down to the legal community embracing internationality. There is a culture of openness within our legal professions. In particular, the legal education sector is, and has always been, very international; foreign lawyers come to London to study, and return to their home jurisdiction will full confidence that London will be able to provide a high level of service and accommodate their needs.

    However, Professor Mistelis considered that there was a perception that Brexit amounted to a xenophobic message. The legal community needs to be keenly aware of this perception and take active steps to maintain its open and international culture. He spoke in particular of the impact of Brexit on investor-state dispute settlement and the increasing competition of places such as Singapore. He further noted that, post-Brexit, the UK will be a good place of incorporation for businesses wishing to invest in the EU and benefit from UK bilateral investment treaties.

    Each speaker, taken in isolation, raised more concerns than opportunities and pointed to more problems than solutions. Nonetheless, it would be inaccurate to describe the evening as pessimistic. Each speaker could not help but speak with fondness for how far London has come as a global centre for dispute resolution, and praise the international outlook and pro-activity of the various sectors of the legal community that allowed this to happen: solicitors, barristers, arbitrators, institutions, universities, the judiciary. None of that needs to change.

    The concluding remarks of the panel indicated that the one thing we must take from Brexit is that London can no longer be complacent. If it wants to remain a globally popular seat for arbitration, it will have to not only be aware of its own strengths, but actively educate itself of the competitive advantages of its competitors and be willing to confront them. It is nothing that cannot be overcome. Perhaps the challenge will be a healthy one.

     

    Tom Nixon

    Tom has developed a practice that matches the breadth of Chambers’ practice areas, including international commercial disputes, shipping, conflicts of laws, commodities, aviation, commercial chancery and company work. He has acted, both as sole counsel and as a junior, on claims varying in value from hundreds of pounds to multiple billions. He enjoys difficult cases, and prides himself on being responsive and easy to work with.

    > view Tom's full profile

    tom.nixon@quadrantchambers.com

     

     

  • Scope of Bank’s duties to non-customers - Chudley & Ors v Clydesdale Bank PLC [2019] EWCA Civ 344 - Christopher JayView More

    Wed, 06 March, 2019

    On 6th March 2019, the Court of Appeal handed down judgment in Chudley & OrsClydesdale Bank PLC [2019] EWCA Civ 344.  The decision is of particular interest in relation to the scope of a bank’s duties to non-customers.  More generally: it provides a useful illustration of how s. 1(3) Contracts (Rights of Third Parties) Act 1999 is to be applied; and welcome clarification that a claimant is not required to plead and prove a “counterfactual” for a claim in breach of contract to succeed.

    Christopher Jay (led by Stephen Cogley QC of XXIV Old Buildings) represented the successful appellants (“the investors”).

    The Facts:

    The case concerned a failed property investment scheme in Cape Verde called Paradise Beach.  The scheme was operated by an entity called Arck LLP.  Arck has since gone into liquidation and its principals have been prosecuted and convicted in separate criminal proceedings.

    Arck held an account described as “Arck LLP - Segregated Client Account” with Yorkshire Bank (“the Bank”).  In the course of Arck’s relationship with the Bank, a senior partner of the Bank had been requested to sign various “letters of instruction” from Arck to the Bank, each of which stated that the Bank was to open an account and hold client moneys there on certain terms.

    The Chudley case concerned the last of these letters of instruction (the Paradise Beach letter of instruction, or “PB LoI”).  The PB LoI provided that the Bank would open an account called “Arck LLP – Segregated Client Account” for the sole purpose of the development of the Paradise Beach resort, and that it would hold moneys in that account until 1st August 2010 subject to one exception:

    “Sums may be withdrawn from the Account and paid to such persons as Arck LLP may direct before 1 August 2010 on receipt by the Bank of an unconditional undertaking from Jose Limon Cavaco, the solicitor acting on behalf of Oliveira, Martins, Esteves e Associados Sociedade De Advogados, the lawyer for Paradise Beach Aldeamento Turistico Algodoeiro SA confirming that such withdrawn sums will forthwith be applied towards project costs and repaid before 1st August 2010.”

    The investors made investments into the scheme via Arck’s pre-existing account, and these moneys were then advanced by Arck to Paradise Beach for the development.  However, Paradise Beach failed to repay the investments with the agreed “turn” on the redemption date.

    The investors later discovered that the moneys had been released from Arck’s bank account without the prior provision of the Oliveira Martins LoU.

    The First Instance Decision:

    The investors brought proceedings against the Bank for (amongst other things) breach of the PB LoI under the Contracts (Rights of Third Parties) Act 1999.  The case was heard by Christopher Hancock QC, sitting as a Deputy High Court Judge, over 8 days in 2017.

    The Judge found that the investors had not seen the PB LoI at any relevant time (and had only come to discover its existence afterward the redemption date).  However, he rightly concluded that this, in itself, did not preclude a claim by the investors under the Contracts (Rights of Third Parties) Act 1999.

    However, he determined that the investors’ contractual claim failed for two reasons:

    First, he held that the contract was subject to a condition precedent (a “precondition”) not to be found in the agreement itself (albeit one that he could not identify) that had not been satisfied.  Accordingly, he found that there was no binding contract to which rights under the 1999 Act could attach.

    Secondly, he found that, even if there was a binding contract, the investors had not established that they had suffered loss, because he held that there was insufficient evidence of what would have happened if the Bank had complied with its obligations.

    The Court of Appeal’s Decision:

    The investors appealed the Judge’s relevant two findings above.  Additionally, by a Respondent’s Notice, the Bank sought to challenge the Judge’s finding that, if the PB LoI was binding, the investors were entitled to claim under the 1999 Act.

    Flaux LJ, with whom Longmore and Moylan LJJ agreed, found in favour of the investors in relation to each of these points:

    Condition Precedent

    One of the oddities of the case was that neither party had alleged that the PB LoI was subject to a condition precedent not included in the document itself.  Accordingly, there had been no evidence in relation to what the relevant “condition” might be.

    Flaux LJ noted that ‘I suppose it is theoretically possible for a contract to be subject to a pre-condition but for the party relying upon it not to be able to inform the court what its terms were or how and when it was agreed, but it would seem inherently unlikely that such a case would succeed on the balance of probabilities… The judge seems to have lost sight of this.’

    Flaux LJ analysed the evidence and determined that there was nothing to support the existence of such a condition precedent over other possibilities (such as breach).  He held that, in concluding that the PB LoI was subject to a condition precedent and therefore not binding, the judge made a finding that was unsupported by the evidence and he erred in law.

    Contracts (Rights of Third Parties) Act 1999

    The Bank’s main argument under this heading was that there was no express identification of the investors by name, as a member of a class, or as answering a particular description in the PB LoI (s. 1(3) of the 1999 Act).  The Bank contended that, to the extent that there was any identification, it could only be ascertained by a process of implication (which was inconsistent with the language of the Act).  In this regard, it relied on the case of Avraamides -v.- Bathroom Trading Company [2007] 2 Lloyd’s Rep 76, in which Waller LJ had held that s. 1(3) ‘simply does not allow a process of construction or implication.’

    Flaux LJ comprehensively rejected this analysis, as had the Judge at first instance.  The Court of Appeal confirmed that the correct approach is to construe the contract as a whole in accordance with the principles described in “The Laemthong Glory” (No. 2) [2005] 1 Lloyd’s Rep 688.

    On the facts, the PB LoI specifically related to a “client account”.  This was held to be sufficient identification of a class, bearing in mind the specific reference to the Paradise Beach project in the agreement.  Flaux LJ noted that ‘The principal purpose of the LOI would seem to be to protect investors and, in that context, the provision for the opening of a segregated client account is clearly intended to benefit those investors by ensuring that their monies are held by the bank in a segregated client account subject to specific conditions.’

    Loss and Damage

    The Bank successfully argued at first instance (by reference to cases involving the SAAMCO principle) that, in order to succeed with their claim, the investors had to prove the “counterfactual” (i.e. what would have happened if the Bank had opened the relevant account and the Bank had not paid moneys out of it?).

    The Court of Appeal rejected this analysis.  As Flaux LJ explained, ‘the loss suffered by the appellants as a consequence of the bank’s breach was the payment out of their monies in 2009 without any OM undertaking.  Contrary to the judge’s view, it is not a necessary part of the appellants’ claim that they demonstrate what would have happened to the monies if there had not been a breach.’

    In any event, the Court of Appeal held that, if the counterfactual had fallen within the scope of their burden of proof, that burden had been discharged.

    Download a copy of the judgment here

    Christopher Jay

    Chris has a broad international commercial practice that encompasses dry shipping, shipbuilding, commodities, energy, banking, cross-border insolvency and insurance.

    He is typically instructed as junior counsel in respect of particularly complex or high value disputes, and prides himself on finding innovative solutions to difficult problems, and on providing a user-friendly and client-focussed service.  Chris also regularly accepts instructions as sole counsel in all areas of his practice, and has represented clients in the High Court and arbitration.

    > view Chris's full profile

    Christopher.Jay@quadrantchambers.com

  • “Trusts over money transfers? Don’t bank on it” - Court of Appeal rejects imposition of trust in international banking dispute - Poonam Melwani QC & Paul HentonView More

    Fri, 01 March, 2019

    On 1 March 2019 the Court of Appeal handed down judgment in First City Monument Bank Plc v Zumax Nigeria Ltd [2019] EWCA Civ 294, a decision which will provide welcome clarity to those engaged in international banking and the financing of international trade. 

    Poonam Melwani QC and Paul Henton (neither of whom appeared below), instructed by Andrew Preston and Harriet Thornton of Clyde & Co LLP, comprised the fresh legal team instructed on behalf of the successful appellant bank - itself a successor entity to IMB, a former Nigerian bank for whose historic business activities the bank had recently assumed responsibility.

    The case involved a number of international bank transfers involving IMB.  The transactions were performed via correspondent accounts, the likes of which are an everyday feature of international commercial life.  Correspondent banks provide services for other financial institutions, and are used in particular to service transactions originating in a foreign country in which it does not have a physical presence.  Transfer instructions such as SWIFT messages or similar will be used to identify the ultimate recipient of the funds.

    Unusually if not uniquely in an international funds transfer case of this sort, the Judge at first instance had held that such arrangements gave rise to an express trust or alternatively a “Quistclose” trust in favour of the intended recipient of the transfers.  This analysis was comprehensively rejected and overturned on appeal.

    The facts and decision below

    The transfers in question represented payment for engineering and other services provided by a Nigerian company (Zumax) to oil companies and other international clients invoiced in dollars.  Zumax had accounts denominated in Naira with IMB in Nigeria but did not hold bank accounts denominated in US Dollars. For US Dollars, Zumax  instead used a nominee company incorporated in the Isle of Man (“Redsear”) to receive the dollar payments into an account held in London. When funds were to be transferred from the Redsear Account back to Nigeria, the mechanism used was that Redsear would instruct its London bank (Chase), to transfer the relevant amount to one of three correspondent accounts held by IMB with Commerzbank in London, for IMB to then account to Zumax in respect thereof in Nigeria.  In each case, Redsear gave manuscript transfer instructions to its bank, Chase, to effect the relevant transfer from the Redsear Account into the relevant IMB Commerzbank Account.  The wording of the manuscript instructions varied but usually included words identifying the intended eventual recipient such as “for further credit to Zumax”- words similar to those found on SWIFT payment messages or other transfer instructions which are again a routine feature of international commercial finance. 

    Whilst there was no evidence of what passed between Chase and Commerzbank, it was common ground that the manuscript transfer instructions were acted upon by Chase, and the relevant amounts were remitted into the IMB Commerzbank Accounts as instructed.   The Commerzbank account statements contained entries which in most (but not all) cases reflected the substance of the manuscript instructions which initiated the transactions.

    So far so unremarkable.  However, as above, the first instance Judge concluded that such arrangements gave rise to either an express trust in favour of Zumax; or else a Quistclose trust (i.e., a trust of the sort found in Barclays Bank v Quistclose [1970] AC 567), whereby IMB held the funds on trust for Redsear with a power to apply them for the stated purpose of crediting Zumax, failing which they would be returnable to Redsear. 

    This “trust” analysis had been advanced for two main reasons:

    1. First, to circumvent the Bank’s inevitable limitation defence in circumstances where the transfers dated back to 2000 – 2002.  Per s. 21 of the Limitation Act 1980, no period of limitation prescribed by the Act applies to claims to recover trust property.  An ordinary claim in breach of mandate would not benefit from this exclusion.
    2. Second, because Zumax were claiming an account of profits which they pleaded at some US$211 million as at January 2017 (on a principal claim of around US$3.5 million)- a figure which dwarfed the amounts usually claimable as simple interest on an ordinary contractual or debt claim.

    The Court of Appeal’s decision

    Accepting the submissions of Miss Melwani QC and Mr Henton, the Court of Appeal has comprehensively rejected the “trust” analysis, in a decision which will be seen as a welcome return to the status quo in international banking and trade finance.

    For the imposition of an express trust, the Judge needed to find that each of the so-called “three certainties” were met: that is- certainty of objects, subject matter, and crucially certainty of words/intention to create a trust. 

    For a “Quistclose” trust on terms described above, the Judge needed to be satisfied amongst other things that it was objectively intended by both the paying party (Redsear) and the recipient (IMB) that the money passing between them was not to be at the free disposal of the recipient on receipt.  The Judge would also need to be satisfied that Zumax somehow acquired the right to enforce any such trust instead of Redsear (i.e., the party advancing the funds for the stated purpose, and thus the obvious “beneficiary” if the Quistclose analysis were to work).

    The relevant thresholds for the imposition of such trust were not met.  As the leading judgment of Lord Justice Newey explained at [47]: “…having accepted the various transfers that had been made for the credit of one of its customers (viz. Zumax), IMB was obligated to credit Zumax with them, either through Zumax’s Naira account in Lagos or… potentially in some other way… I do not, however, consider that IMB became a trustee.  Its obligations were personal”.

    Various factors were cited in support of this conclusion, both by Newey LJ and in the further supporting judgment of Lewison LJ (with both of whom Lord Justice Males agreed), including in particular:-

    1. The fact that a particular bank transfer might have been made for a particular purpose or to credit a particular ultimate recipient does not of itself mean that it was intended to be the subject of a trust
    2. The Redsear instructions and the entries in the Commerzbank statements (only the latter reached IMB) did not manifest an intention that the funds should not be at IMB’s free disposal.  It was necessary to identify the entity for whose benefit the transfers were made simply as a matter of book-keeping and to facilitate the transfers.  As Newey LJ explained: “Payers must routinely seek to identify to whom a payment is to be credited without any trust being intended” [34]
    3. Unlike in the Quistclose line of cases, the funds could not be said to have been “segregated” in any meaningful way.  On arrival into the IMB Commerzbank accounts the transfers were mingled with other money transferred from numerous sources for the ultimate credit of a range of recipients, and with funds that on any view were IMB’s alone.
    4. It was necessary to consider “the structure of the arrangements and the contractual mechanisms involved” [36] (citing Patten LJ in Bieber v Teathers Ltd [2012] EWCA 1466): all of which suggested there was to be no trust.  In this regard both Judgments emphasised the fundamental principle that money placed in the custody of a banker is, to all intents and purposes, that of the bank to do as it pleases.  As Lewison LJ points out at [76]: “In point of law, the payment instruction is an instruction to the bank to debit the customer’s account in the amount of the payment; and to credit (or procure the credit) of the payee’s account with a credit in the equivalent amount”.  It is not an instruction to hold a segregated fund on trust.
    5. Their lordships also emphasised the well-rehearsed warnings in the leading cases against “the wholesale importation into commercial law of equitable principles inconsistent with the certainty and speed which are essential requirements for the orderly conduct of business affairs” (per Lord Browne-Wilkinson in Westdeutsche Landesbank v Islington LBC  [1996] AC 669).
    6. Other factors relied upon by the Judge in support of his conclusion, such as documents referring to account balances “belonging to” Zumax or similar, amounted to the sort of loose parlance which is commonly adopted (e.g. “your bank account contains £xx”) but which is not intended to describe the legal arrangements involved in any meaningful way.

    This conclusion will provide welcome certainty and a return to the status quo for those engaged in international banking.  If a trust was created in the present case then it was difficult to see why it was not created in almost every other international funds transfer case involving correspondent banks, or indeed every bank transfer involving a bank-to-bank stage coupled with some sort of transfer instruction identifying the ultimate recipient. 

    As the ramifications in this case show (in terms of limitation and account of profits, as explained above), the obligations of a trustee are something which those handling the transfer instructions neither want or expect or need.  Equally it would be impossible to justify affording “super claimant” priority status to transferees whose funds were still in the banking system at the time of an insolvency, as compared with the simple debtor/creditor relationship applicable to those whose transfers had been completed (e.g. once the funds show as balance in the transferee’s account).

    In view of their lordships’ conclusions on trust, the title to sue point did not arise- although Newey LJ (with whom the others agreed) made clear that he would not wish to be taken to have endorsed the Judge’s analysis on this point either [50]. 

    Finally, the Court of Appeal also held that, if Zumax were able to amend its pleaded case to formulate a cause of action against the Bank which was not limitation barred, then the Bank had shown a reasonable prospect of successfully establishing at trial that all bar one of the transfers had indeed been paid to Zumax or otherwise accounted for. 

    A copy of the judgment can be found here. 

    Poonam Melwani QC

     

    Poonam Melwani QC is a commercial silk who practises across the full spectrum of commercial, insurance, energy and shipping law, providing advisory and advocacy services. Praised as "...always in demand, she is as good on her feet as she is adept at mastering complex legal, factual and expert material...." (Chambers UK) Poonam has been ranked as a 'Leading Silk' over many years by the Legal Directories. She represents clients in a wide variety of jurisdictions and arbitral regimes including ICC, LCIA, LMAA and ad hoc, as well as English High Court Litigation, mainly in the Commercial Court and the Appellate Courts.

    Poonam’s clients want her for their “difficult cases” where innovative thinking and oversight of a large team, complex issues and mult-strands are necessary. In Commerzbank v Pauline Shipping [2017] 1 WLR 3497 Poonam successfully argued that asymmetrical jurisdiction clauses, prevalent in banking agreements, are exclusive jurisdiction clauses for the purposes of Brussels 1 Recast, an issue and judgment which has attracted widespread attention. She concluded the CSAV v Hin Pro Litigation [2015] 2 Lloyds Rep 1 (Court of Appeal) and [2015] 1 Lloyds Rep 301 where a new approach to damages for breach of exclusive jurisdiction clause was adopted.  Poonam recently concluded Latin American Investments v Maroil Trading involving joint venture shareholders of a fleet of vessels and complex allegations of breach of fiduciary duty, secret profits and fraud and where Poonam successfully obtained a WWFO of over US$60 million.  She currently leads an entirely new team in the action of Zumax v FCMB where Poonam is seeking to appeal a summary judgment finding of breach of trust and fraud and resisting a claim for an account of profits of over US$200 million.

    To viel Poonam's full profile, click here.

    poonam.melwani@quadrantchambers.com

    Paul Henton

    Paul has a broad commercial practice with an emphasis on international trade and commodities, energy, shipbuilding, charterparty disputes, banking, aviation, and insurance related issues.

    For several years he has been recommended as a leading practitioner in the leading independent guides to the market.  The fields in which Paul holds recommendations are Shipping & Commodities (Chambers UK); Shipping, Commodities and Aviation (Legal 500); and International Trade & Commodities (Who’s Who Legal).  Over the years he has been variously described as “a highly regarded junior praised for his advocacy skills”, "personable and commercially minded", "phenomenally hard-working, phenomenally bright and phenomenally nice", “a standout junior”, “[having] brainpower and knowledge way ahead of his experience or years", who is "unstinting in his energy and intellectually rigorous in his approach".  

    Paul appears led and unled, or as part of a team where he leads a more junior barrister. In recent years he has increasingly appeared unled against silks, including in final hearings and appeals. 

    To view Paul's full profile, click here.

    paul.henton@quadrantchambers.com

  • Quadrant Chambers features in Chambers Global guide - leading set for commercial disputes, energy, shipping & commoditiesView More

    Fri, 22 February, 2019

    Quadrant Chambers is delighted to feature in the latest Chambers Global Guide. We feature as a leading set in the areas of commercial disputes, energy & natural resources and shipping & commodities. As well as our set rankings, we received 24 individual recommendations.  

    Leading Set - Dispute Resolution: Commercial 

    A tried and tested set known for its strength in aviation and marine disputes in particular, but with an enviable track record of undertaking all manner of commercial disputes. Members are noted for their skill in handling matters both at home and abroad (international instructions account for 65% of revenue) and are expert at handling jurisdictional disputes. Barristers from Quadrant Chambers have acted in several noteworthy cases in recent times, including Taurus Petroleum v State Oil Marketing Company of the Republic of Iraq, which raised key queries around the level of state immunity afforded by the central banks of oil producing countries. Sources report that "they're real experts in international trade, shipping and trade finance, and their knowledge is second to none."

    Client service

    "They always assist in finding practical solutions to problems, they encourage cross-business opportunities, and they have a general down-to-earth attitude which is both reassuring and refreshing." "It is easy to negotiate fees as the clerks are straightforward and easy to work with." Gary Ventura and Simon Slattery are the senior clerks.

    Leading Set - Energy & Natural Resources

    An impressive roster of experienced barristers leverage the chambers' broader shipping and commodities experience in order to capably advise clients in significant energy disputes. In particular, the set possesses a great deal of oil and gas industry knowledge, in both the upstream and downstream spaces. Members frequently appear in high-value international arbitrations in the role of advocate or arbitrator. The set has recently taken on a number of notable instructions including DSME v Songa Offshore, a case concerning allegations that three North Sea exploration semi-submersible drilling rigs designed by DSME had fundamental design faults.

    Client service

    Senior clerks Gary Ventura and Simon Slattery "are a brilliant double act in managing clients and keeping barristers under control." "It's a really professional outfit; the clerks are personable, direct and people keep you in the loop."

    Leading Set - Shipping & Commodities

    An excellent set for shipping and commodities work with a large group of silks and juniors who specialise in the area. Its knowledge base encompasses dry and wet shipping, marine insurance, insolvency, finance and fraud cases. The set is a force to be reckoned with in the commodities sphere, routinely handling disputes relating to coal, minerals, rice and other types of cargo. Its clients range from major corporations and shipowners to underwriters, charterers and repairers. Members possess significant international expertise and are well able to act in multi-jurisdictional litigation and arbitrations. Recently they have appeared in a string of Supreme Court cases including The Longchamp, which deliberated the meaning of Rule F of the York-Antwerp Rules 1974.

    Client service

    "They are very good and easy to deal with." "Very professionally run." "The clerks are friendly and approachable, and respond promptly." Gary Ventura and Simon Slattery head up the clerking team.

  • Set-off against freight: freight-forwarding and project cargoes - Emmet ColdrickView More

    Fri, 22 February, 2019

    A copy of the jugment can be found here. 

    In Globalink Transportation and Logistics Worldwide LLP v DHL Project & Chartering Ltd [2019] EWHC 225 (Comm) (19 February 2019), the Commercial Court considered the scope of the rule in The “Aries” [1977] 1 WLR 185 (HL), which precludes set-off against freight, and decided that the rule does not extend to freight-forwarding contracts.

    Defendants to claims for money due under commercial contracts often seek to defend on the basis that they have a counterclaim, which should be set-off to extinguish or reduce the claimant’s claim.  Broadly speaking, English law allows this sort of defence to be advanced, particularly where the counterclaim arises out of the same contract as the claim.

    But there is an exception in the case of claims for freight under a contract of carriage.  In such cases, no defence of set-off is permitted.  The carrier is entitled to its freight – and can obtain summary judgment for it – even if the defendant has a counterclaim with a real prospect of success.  The defendant must pay the freight and decide whether to pursue the counterclaim as a freestanding claim.

    Since the no set-off rule was confirmed in The Aries, it has been held to apply to all sorts of counterclaims (see, for example, The “Elena” [1986] 1 Lloyd's Rep 425) and to extend to claims in respect of carriage by land as well as carriage by sea; see RH&D International Ltd v IAS Animal Air Services Ltd [1984] 1 WLR 573 (international land carriage) and United Carriers v Heritage Food Group (UK) Ltd [1996] 1 WLR 371 (domestic land carriage).  Recently, it was held to extend to carriage by air; Schenker Ltd v Negocios Europa Ltd [2018] 1 WLR 718.

    However, in Globalink v DHL the Commercial Court declined to extend the rule further, whether to freight forwarding contracts generally or to the particular project cargo forwarding contract in issue.

    DHL was engaged by its client, Sinopec, to arrange the carriage of large items of plant and machinery from China to Atyrau, Kazakhstan, where they were required for use in a refinery modernisation project.  DHL sub-contracted the arrangement of carriage from Novorossiysk on the Black Sea to Atyrau to the claimant, Globalink, and a price was agreed for the transportation.

    2 barges laden with the cargo set out from Novorossiysk on the same day.  One of them made it to Atyrau in good time.  The other failed to reach its destination.  It had made slow progress and its draught was too deep to complete the final leg of the voyage, from the Caspian Sea to Atyrau, before the Ural-Caspian Canal closed to navigation for winter.  The cargo was stored over winter.  The next spring, DHL engaged Globalink to arrange for the carriage, to Atyrau from the place of storage, to be completed, and it was completed, at substantial additional cost.

    DHL refused to pay the final two instalments in respect of the transportation to Globalink.  It maintained that breaches of the contract on Globalink’s part had caused the cargo to fail to reach Atyrau as originally planned and that it had a counterclaim that extinguished Globalink’s claim.

    Globalink applied for summary judgment.  It contended both that DHL’s counterclaim had no real prospect of success and that in any case the rule in The “Aries” applied and so a set-off defence was unavailable.

    Although it was a summary judgment application, the Judge (Nicholas Vineall QC) decided to ‘grasp the nettle’ and finally decide the set-off point.  Having been satisfied that the counterclaim was well arguable, he concluded that a set-off defence was in principle available, holding that “the rule in The Aries does not extend, and should not be extended, to cover the services provided by a freight forwarding agent, when those services are to arrange the carriage of goods”.

    Summary judgment was accordingly refused.  The Court was willing, however, to make a conditional order, requiring payment into court of a small proportion of sum claimed.  In Britannia Distribution v Factor Pace [1998] 2 Lloyds Rep 420, it was held that freight forwarders acting as agents had the benefit of the no set-off rule to the extent that they could show that the sum of which they sought payment was in respect of freight that they had paid to a carrier.  Here, the Judge was satisfied that an underlying US$113,000 of the c.US$1.65 million claimed had been shown to be freight payable to a carrier, albeit in the absence of proof of payment by Globalink the appropriate course was a conditional order in respect of the sum in question, rather than summary judgment for it.

    Emmet Coldrick, instructed by Barrett Solicitors, acted for DHL.

    Emmet Coldrick

    Emmet has a broad commercial practice, with a particular emphasis on shipping and transport, international trade and commodities,  general commercial/ contractual disputes (including civil fraud) and arbitration.

    Emmet has almost 15 years of experience of practice as a shipping barrister.  His work encompasses a wide range of shipping and transport matters, from charterparty and bill of lading claims to project cargo/ heavylift/ off-shore support matters, and from Admiralty and ‘wet shipping’ matters to shipbuilding and ship sale contract disputes.

    To view Emmet's full profile, please click here. 

    emmet.coldrick@quadrantchambers.com