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  • Confidentiality and transparency in arbitral applications - Nevil PhillipsView More

    Tue, 27 August, 2019

    This article was first published in the Practical Law Arbitration Blog and can be found here.

    The extent to which confidentiality debars disclosure or inspection of documents, or an award or associated document, in arbitration proceedings has long fuelled debate within the law reports.

    This has been the case in three differing contexts:

    • Applications to the court by a non-party (A) for sight of documents from an arbitration between B and C: see, for example, Dolling-Baker v MerrettLondon and Leeds Estates Ltd v Paribas Ltd No (2), and Glidepath BV v Thompson.
       
    • Applications to the court or to an arbitral tribunal by party A as against party B for permission to use in arbitration or court proceedings (between A and C) documents from the arbitration between A and B: see, for example, Ali Shipping v Shipyard Trogir and Emmott v Michael Wilson & Partners Limited.
       
    • Publication and anonymisation of documents and determinations in arbitral applications before the courts (for example, challenges under sections 24, 68 and 69 of the Arbitration Act 1996 (AA 1996)): see, for example, City of Moscow v Bankers Trust Co and Symbion Power LLC v Venco Imtiaz Construction Company.

    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

  • Anti-arbitration injunctions: the implications of Sabbagh - William MitchellView More

    Tue, 20 August, 2019

    This article was first published in the Practical Law Arbitration Blog and can be found here.

    In Sabbagh v Khoury, the Court of Appeal confirmed the court’s jurisdiction to grant an anti-arbitration injunction (AAI) in exceptional cases where it would be vexatious and oppressive because of proceedings in England. Additionally, it held that it was not necessary for the exercise of that jurisdiction to show that England was forum conveniens.

    This blog briefly considers the implications of that judgment for parties seeking an AAI in the future and international progress towards harmonisation of the lex arbitri.

    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

  • Quadrant Chambers to welcome Robert Ward as a new memberView More

    Mon, 29 July, 2019

    Quadrant Chambers is delighted to welcome Robert Ward as a new member of chambers. Robert has accepted our offer of tenancy and will join on successful completion of pupillage in October 2019. 

    Robert will develop his practice in line with our core areas of work. 

    Quadrant Chambers holds a pre-eminent position as a leading international commercial disputes set with a strong sector driven approach. We are market leaders with a reputation for excellence in our areas of focus: aviation and travel, banking and financial services, commercial disputes, commodities and international trade, energy and natural resources, insurance and reinsurance, international commercial arbitration and shipping.

    Robert Ward

    During pupillage Robert has sat with Chris Smith, Tim Marland, Paul Toms and Stewart Chirnside, working on aviation, commercial, civil fraud, insurance and shipping matters. He will continue to develop his practice in chambers' core areas. 

    Education

    • Bar Professional Training Course: University of Law (2014-15) - Very Competent
    • Postgraduate: Trinity College, Oxford – BCL (2013-14) - Distinction
    • Undergraduate: Worcester College, Oxford – BA in Jurisprudence (2010-13) - Distinction in Moderations; 2.1 in Finals
    • Secondary School: St Marys RC Comprehensive, Menston, Leeds - 11A* Grades at GCSE; A-Levels: Geography (A*) History (A*) English Literature (A*) French (A*) General Studies (A*) Maths (A)

    Awards and Prizes

    • Best A-Level results at St Marys
    • Undergraduate Scholar at Worcester College
    • Hogan Lovells Prize Runner-Up 
    • Michael and Judith Beloff Scholarship
    • Fitzgerald Award, Middle Temple 
    • Chancery Prize, University of Law 

    Legal Employment

    • Robert was a full time as a legal research assistant with the Law Commission as a member of the Commercial and Common Law Team. He was involved was reform of the Bills of Sale Acts. The final report has now been published.
    • Robert also worked on a project with the Law Commissioner for Commercial and Common Law, Stephen Lewis, looking at possible reform of the Arbitration Act 1996 in its 20th anniversary year.
    • From October 2016 to August 2017 Robert worked as judicial assistant to Lord Justice Longmore in the Court of Appeal. 
    • From November 2017 to August 2018 he was a freelance County Court advocate with LPC Law, acting in a variety of small hearings such as mortgage repossession cases, landlord and tenant matters, and bankruptcy hearings.

    Publications

    • Bills of Sale, Dear IP, Issue No 69, September 2015 (co-written with Fan Yang)
    • Bills of Sale, Law Commission Report No 369

    robert.ward@quadrantchambers.com

  • Simon Oakes appointed to the Attorney General’s C Panel for CounselView More

    Fri, 19 July, 2019

    Congratulations to Simon Oakes who has been appointed to the London C Panel of Junior Counsel to the Crown. Simon is appointed to the panel for a period of 5 years commencing 2 September 2019. 

    Simon practises in commercial law, with a particular focus on banking & financial services, and complex commercial fraud cases.

    Simon has a wealth of experience in some of the most significant banking and financial services cases of recent years, from major interest rate hedging product litigation to regulatory investigations against individuals. He has a deep knowledge of the allegations of LIBOR misconduct against several major banks, a great deal of experience in misselling cases, and a wealth of experience of developing legal and tactical arguments in major commercial litigation.

    Significant recent instructions include:

    • Three ongoing multi-million pound deceit claims against Bank of Scotland and/or Lloyds Banking Group
    • Providing expert advice in multiple, High Court cases as to the impact of Brexit on the security of European motor insurers, and FSCS protection.
    • Aldersgate & Ors v Bank of Scotland & Anor [2018] EWHC 2601 (Comm): a Commercial Court claim in excess of £100 million, alleging fraudulent and negligent misrepresentation arising out of LIBOR manipulation. The case also involved a ground-breaking interlocutory application by the defendant, attempting to withdraw pleaded admissions of findings by global regulators.
    • The LIBOR test case of Graiseley Properties Ltd v Barclays Bank Plc, Deutsche Bank AG v Unitech Global Ltd [2013] EWCA Civ 1372 (CA), in the Court of Appeal and in the High Court. One of The Lawyer’s ‘Top 20 cases’ of 2013.
    • Hockin v Royal Bank of Scotland in the High Court: a £55 million Financial List banking case concerning interest rate products and the bank’s Global Recovery Group (‘GRG’), and involving issues of misrepresentation, LIBOR manipulation, unlawful means conspiracy and implied duties of good faith.
    • Viavi v Shannan & Others [2018] EWCA Civ 681: a significant dispute about the validity of deeds, the principle in Re Duomatic, and estoppel by deed.

    Having been seconded to both the Financial Services Authority and the Pensions Regulator, Simon has an excellent understanding of how regulators approach cases. He has acted both for and against the targets of regulatory action, including in multi-jurisdictional cases.

    Simon is frequently instructed as sole advocate in the High Court, County Court and Employment Tribunals. He also acts as part of larger counsel teams on long-running commercial litigation.

    > view Simon's full profile

    simon.oakes@quadrantchambers.com

  • Beware of taking too many bites of the cherry: the effect of res judicata by merger - Robert-Jan Temmink QCView More

    Wed, 17 July, 2019

    In a characteristically careful and considered judgment handed down today, Chief Master Marsh declared that the Court had no jurisdiction to hear a claim for €36,000,000 and dismissed the Claimant’s action against the Defendant.

    The Claimant, Zavarco PLC, sought €36m and accrued interest as a debt from the Defendant, Mr Nasir.  The basis of the claim was that the Defendant had formerly held shares in the claimant company; he was required to pay for the shares in cash but had failed to do so.  The Defendant maintained that his shares in the Claimant had been paid for by the transfer to the Claimant of valuable shares in another company.  That defence was dismissed in a claim brought in 2016 and, as a result, the Claimant forfeited the Defendant’s shares.  Despite forfeiting the shares the Defendant remained liable to the Claimant as a debtor for the nominal value of the shares.

    The Court in the first proceedings made two declarations:

    1. That the Defendant’s shares in the Claimant were unpaid;
    2. That the Claimant having taken steps under the Articles to call for payment, and payment not having been made, the shares could be forfeited by the Company.

    It was not suggested by the Claimant that it had been unable to include a claim for payment in the 2016 proceedings either in addition to, or in the alternative to, the claims for declarations.  Nor did the Claimant assert that the 2016 proceedings were simply preliminary issues, leaving over an entitlement to pursue further relief, or that the Claimant could have sought further relief in the 2016 proceedings.

    Faced with a second claim, served on the Defendant in Singapore, the Defendant applied pursuant to CPR Part 11.1 for a declaration that the Court had no jurisdiction to hear the claim through the operation of the doctrine of res judicata by merger.

    The basis of the claim was that the facts pleaded in both sets of proceeding were identical; the parties were identical and the causes of action were identical.

    The Chief Master considered the leading cases on res judicata by merger: the judgment of Arden LJ in Clark v In Focus Asset Management [2014] 1 WLR 2502; Lord Goff in Republic of India v India Steamship Co Ltd (No.2) [1998] AC 878; and Lord Sumption in Virgin Atlantic Airways Ltd v Premium Aircraft Interiors UK Ltd [2014] AC 160.  The Chief Master also carefully considered passages from Palmer on Companies and Spencer, Bower & Handley on Res Judicata.

    The Claimant’s submissions contended there had been no merger and accepted that there was no authority within England & Wales which either supported or contradicted the view in Spencer Bower & Handley that the doctrine of res judicata by merger did not apply in the case of a declaratory judgment.  The Defendant submitted that the text book did no more than express an opinion on that issue and in any event the declarations sought and obtained by the Claimant in the 2016 proceedings were valuable (enabling the Claimant to forfeit 360,000,000 shares).  The Chief Master agreed with the Defendant’s submissions: whilst the grant of a declaration may not lead to merger in every case, that depends on the nature of the claim and the terms of the declaration: the doctrine of merger will only apply if the cause of action in both claims is the same.  As for determining whether the cause of action is the same in two claims, it is right to look at the substance of the claims and to consider whether they arise from the same breach.

    In this case all the essential elements of merger had been made out.  The Claimant’s cause of action merged in the judgment of the Court in the 2016 proceedings and was thereby extinguished.  Accordingly, the court had no jurisdiction to deal with the claim and the Claimant’s second proceedings were struck out.

    What this case really highlights is the necessity to bring all elements of a claim before the Court in one go.  The Court will look to the substance of a cause of action to determine whether there has been res judicata by merger and will be astute to ensure that Claimants can’t keep using the Court’s resources on a repeated and piecemeal basis when all matters could have been dealt with in one go.  On this occasion the Court did not need to consider the Defendant’s further submissions about Henderson v Henderson abuse which might also have been a route by which the Court managed further proceedings by the same parties on the same facts arising from the same cause of action.

    Robert-Jan Temmink QC of Quadrant Chambers acted for the successful Defendant and was instructed by Lee Donoghue of Teacher Stern in London.

    The judgment can be read here: Zavarco PLC v Tan Sri Syed Mohd Yusof Bin Tun Syed Nasir [2019] EWHC 1837 (Ch)

            

    Robert-Jan Temmink QC

    Robert is recognised as a talented advocate with a commercial practice encompassing a broad spectrum, from Chambers' core areas of aviation and shipping, to energy, construction, and insurance law together with financial services, insolvency and fraud. Many of Robert's cases involve cross-border, or other jurisdictional issues both in the UK and abroad and he most regularly appears in the Commercial, Chancery and Technology & Construction courts in the United Kingdom. He is also registered to practice at the Dubai International Financial Centre Court where he has frequently appeared and is called to the Bar in Northern Ireland and as a Foreign Legal Consultant in the State of New York. He is often asked to work on cases in the Caribbean (he is called to the bar of the Eastern Caribbean) arising out of contractual or commercial chancery disputes.

    Robert is a Fellow of the Chartered Institute of Arbitrators and is one of the arbitrators at the Dubai International Arbitration Centre. He is also a panel arbitrator at the Kuala Lumpur International Arbitration Centre and the Hong Kong International Arbitration Centre.  He has appeared in a wide variety of arbitral proceedings under different institutions' rules, and as sole or a panel arbitrator in ICC and LCIA proceedings. Robert is an accredited commercial mediator in the UK and abroad and is a TECBAR-accredited adjudicator, arbitrator and mediator.

    Robert is ranked as a leading barrister in the current editions of Chambers UK and The Legal 500. Areas include commercial dispute resolution, international arbitration and aviation.

    "An excellent advocate who is charming, very agile and someone with a very creative mind." ... "He gives clear, well-argued advice on how to proceed, and his drafting is excellent."  (Chambers & Partners 2019)

    robert.temmink@quadrantchambers.com

    > view Robert's profile

  • Charterparty ‘keep vessel in class’ obligations… are NOT conditions - Simon Rainey QC and Natalie MooreView More

    Wed, 10 July, 2019

    Ark Shipping Company LLC v Silverburn Shipping (IOM) Ltd, “ARCTIC” [2019] EWCA Civ 1161

    Overview

    A demise charterer is under an obligation to keep the vessel in class during the term of the charter. Is that a condition of the charter so that if the vessel is out of class for a day, the owner can terminate the charterparty and claim damages for the remainder of the term, even if the effect on it is nugatory (if there is any effect at all)?

    The sole question of law on this appeal was whether the term in a bareboat charterparty obliging charterers to “keep the vessel with unexpired classification of the class indicated in Box 10 and with other required certificates in force at all times” was a condition or an innominate term.

    In their partial final award, two experienced LMAA arbitrators held that the term was not a condition.

    Reversing the arbitrators and allowing the Owners’ appeal, brought pursuant to s.69 of the Arbitration Act 1996, Carr J held that the term was a condition, breach of which entitled the Owners to terminate the charterparty for any breach, however slight and of whatever duration and irrespective of the effect on Owners. The Charterers appealed from that judgment to the Court of Appeal.

    The Court of Appeal strongly disagreed with the analysis of the ‘keep vessel classed’ term as a condition and, in line with the modern and very sparing approach to ‘conditions’ (cf. Spar Shipping on non-payment of hire), the Court held it was an innominate term, not a condition. To be able to terminate for breach of the term therefore required the owner to show a breach going to the root of the contract and depriving it of substantially the whole benefit of the charter (something the owner did not even allege).  Given the similarity of wording of time charter terms where the corresponding obligation is on the owner, the decision is of importance in this context also.

    The charterparty

    The vessel was chartered to the Charterers under a 15 year charter on an amended BARECON 89 Form dated 17 October 2012.

    Box 10 provided for the vessel to be classed by Bureau Veritas. 

    The classification obligation set out above appeared in the middle of a clause 9A which dealt with the Charterers’ obligations in relation to the maintenance and operation of the ship.

    Clause 13 of the charterparty required the charterers to insure the vessel against P&I risks. If the Charterers failed to keep the ship so insured, the Owners were to notify the charterers and charterers were to rectify the position within seven running days, failing which the Owners had the right to withdraw the vessel from service.

    The facts

    The vessel was delivered into service in 2012. 

    On 31 October 2017, the Vessel arrived at the Caspian port of Astrakhan for repairs and maintenance.  Her class certificates expired on 6 November 2017, before she entered dry dock for repairs and some five years after her last special survey.

    On 7 December 2017, the Owners sent a notice to the Charterers purporting to terminate the charterparty.   The notice raised an issue with hire payments and complained about the condition of the vessel and the fact that the vessel’s class certificates were overdue.

    The Charterers denied any breach and resisted the Owners’ demands for redelivery of the vessel.

    The Owners therefore commenced arbitration and sought relief including an order for delivery up of the vessel under s.48(5) of the 1996 Act.

    The award

    The arbitrators dismissed the Owners’ application.  With regard to the alleged non-payment of hire, they held that the December notice was wrongful and invalid.  They held that the charterers’ obligations under clause 9A to maintain the vessel and keep her in class were not “absolute”, but merely required the exercise of due diligence.  The arbitrators held that the obligation to keep the vessel in class was part and parcel of the obligation to maintain and repair the vessel.  They also rejected the submission that the classification obligation was a condition.

    The first instance decision

    On the Owners’ s. 69 appeal, Carr J held that the classification obligation in clause 9A was “absolute” rather than merely requiring the exercise of due diligence.  There was no appeal against that ruling because the Judge did not give permission to appeal against that aspect of her decision.

    The Judge further concluded that the classification obligation in clause 9A was a condition of the contract. 

    In the Judge’s view, although the classification obligation was not a time clause strictly speaking, it had an “obvious temporal element”. 

    Furthermore, though not a condition precedent, breach of the obligation had “significant sequencing consequences” for third parties such as cargo interests, sub-charterers, ports and flags. 

    Classifying the obligation as a condition “had clear and important advantages in terms of certainty”. 

    The consequences of breach (including in relation to flag, finance and insurance) were likely to be serious.  

    As to Charterers’ reliance on the apparently wide wording in clause 9A relating to “other required certificates in force at all times”, this only applied to “certificates” (not plans) and must be taken to refer only to that which was required for class purposes. 

    The Court of Appeal

    The Court of Appeal unanimously overturned the Judge’s decision and held that the obligation to maintain the vessel in class was an innominate term and not a condition.

    Giving the leading judgment, Gross LJ emphasised that the question of the classification of the term was one of construction.  Contrary to the Owners’ submissions, it was not an evaluative exercise where a range of conclusions was open.  But even if it had been, the Court’s reluctance to interfere with the commercial judgment of arbitrators would have applied to the appeal from the award to the Commercial Court, not the appeal from the Commercial Court to this Court.

    Gross LJ reviewed the key authorities on the classification of terms and reiterated the general guidance summarised in Spar Shipping v Grand China Logistics [2016] EWCA Civ 982; [2016] 2 Lloyd’s Rep 447 (in which Simon Rainey QC and Natalie Moore also appeared for the successful Owners).

    Both “textually and contextually” the Court came to the firm conclusion that the term was not a condition. 

    1. Wording. The term was not expressed to be a condition.  This was a consideration of some significance, especially given that the BARECON 89 Form is an industry standard drafted after consideration by an industry drafting committee.
    2. Not a time clause. The term was not a time clause of the nature under consideration in Bunge v Tradax [1981] 1 WLR 711. 
    3. No inter-dependence. There was no interdependence of obligations.  There were no sequencing issues in relation to the performance of the contract.
    4. Type of breach. Although the term goes to the classification status of the vessel (the general importance of which the Court did not seek to minimise) and only one kind of breach is possible, this was outweighed by a plethora of other factors.
    5. Clause 9A as a whole. The term was found in the middle of clause 9A dealing with Charterers’ maintenance obligations. If the classification obligation was intended to be a condition, this was a surprising place to find it.  The classification and maintenance obligations are closely connected and Charterers’ obligation as to the physical maintenance of the vessel was plainly not a condition.  
    6. “other required certificates”. The term also required Charterers to keep “other required certificates in force at all time”.  This wording could not be limited to certificates required by class because it would add nothing to Charterers’ obligation to maintain class.  Therefore the Owners were driven to say either that only part of the term is a condition (not including the “other required certificates” wording or the maintenance obligation) or that Charterers’ obligation as to “other required certificates” forms part of the condition for which they contend.  The former was unattractive and improbable.  The latter was hopelessly open ended and would mean that this 15 year charterparty could be terminated by Owners if Charterers committed any breach in respect of various minor certificates.
    7. The scheme of the charterparty: insurance. An important strand of Owners’ case was that breach of the term puts at risk Owners’ insurance arrangements.  But Charterers’ obligation in clause 13B to insure the vessel against P&I risks is not a condition.  If leaving the vessel uninsured does not constitute a breach of condition, putting the vessel at risk of being uninsured is or ought not to be classified as a condition.  The same scheme applied in relation to hull or war risks cover under clause 12 of the standard BARECON 89 Form.  
    8. Consequences of breach. The consequences of breach of the term may likely result in trivial, minor or very grave consequences, thus suggesting that the term is innominate rather than a condition. On the facts of this case, the breach of the term resulted in no adverse consequences. There was nothing to suggest that repairs and maintenance were required at any earlier time, nor that dry-docking was required immediately or at any time before she was actually drydocked.  The vessel’s class certificates expired on 6 November.   The repair and maintenance work conducted in drydock thereafter, took place under the supervision of BV. 
    9. A continuing obligation. It is one thing to conclude that a statement as to the vessel’s class at the commencement of the charterparty is a condition or condition precedent (as suggested by Rix LJ in The Seaflower [2001] 1 All ER (Comm) 24).  However, there is no authority which decides that a continuing warranty as to classification status is to be categorised as a condition.  The law should not be developed in that direction.

    Comment

    The case provides a (further) clear statement of the principles that apply to the classification of contractual terms as conditions or innominate terms.  It is particularly important for shedding light on the proper interpretation of the parties’ continuing obligations during the life of a charterparty in relation to ostensibly important matters such as classification status.  Whilst the case considers the position under a bareboat charter, it has important implications for the classification of similar obligations in the time charter context: cf. clause 1 of the NYPE form.

    Simon Rainey QC and Natalie Moore (neither of whom appeared below) were instructed for the successful appellant in the Court of Appeal by Menelaus Kouzoupis, Hyun Woo Kang and Margaux Harris at Stephenson Harwood LLP.

    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 shipping and commodity cases including NYK Bulkship (Atlantic) NV v Cargill International SA (The Global Santosh) [2016] UKSC 20 where Simon represented Cargill. The decision is the leading 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. InBunge SA v Nidera SA [2015] UKSC 43 Simon represented Bunge in a landmark decision by the Supreme Court on GAFTA Default Clause and sale of goods damages after The Golden Victory. His most recent appearance in the Supreme Court was in Volcafe Ltd v Compania Sud Americana de Vapores SA [2018] UKSC 61 one of the most important shipping appeals in recent times, dealing with issues as to the burden of proof under the Hague / Hague-Visby Rules and the inherent vice defence. He has been brought in to argue the prospective Supreme Court appeal in Evergreen Marine Ltd v Nautical Challenge Ltd (The Ever Smart) [2018] EWCA Civ 2173, on the application of the ‘crossing rule’ under the Collision Regulations.

    Ranked as the “Star Individual” for shipping and commodities by Chambers UK in 2015, 2016, 2017, 2018 and again in 2019, Simon 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 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 (Commercial Court).

    “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)

    > view Simon's full profile

    simon.rainey@quadrantchambers.com

    Natalie Moore

    Natalie has a broad commercial practice with particular experience in international commerce and shipping. She regularly appears in the Commercial Court and in arbitration, both as sole and junior counsel.

     Natalie is ranked by Chambers UK Bar 2019 as a leading junior barrister.  She is described as: “"Very switched-on and enthusiastic. She is hard-working, easy to deal with and personable." ..."An excellent junior and a strong team player." (Chambers 2019)  Recent commentary recognises that “She has a razor sharp legal mind, is very commercially minded and is an excellent advocate’ (Legal 500 2019).

    Significant cases include:

    • Ark Shipping Company LLC v Silverburn Shipping (IOM) Ltd (The “ARCTIC”) [2019] EWCA Civ 1161 - Natalie and Simon Rainey QC (neither of whom appeared below) acted for the successful appellant in the Court of Appeal in this important ruling on the classification of the charterers’ obligation to keep a vessel in class under a bareboat charter.  Simon and Natalie successfully overturned the Judge’s decision that the term was a condition. The Court of Appeal held that the obligation was an innominate term and that the owners were not entitled to terminate for breach of this obligation in the absence of a repudiatory breach.  
    • Lukoil Asia Pacific PTE Ltd v Ocean Tankers (PTE) Ltd (THE “OCEAN NEPTUNE”) [2018] 1 Lloyd’s Rep Plus 31 - Natalie acted for the Claimant charterers on their s 69 appeal from an arbitration award on a demurrage time bar.  The arbitrators decided that a claim brought by owners for time lost waiting for charterers’ orders was not time barred.  Natalie overturned the decision, successfully arguing that the owners’ claim was a claim for demurrage and therefore time barred by reason of the owners’ failure to provide the required supporting documents within the time limit specified in the demurrage time bar clause in the charterparty.
    • Spar Shipping AS v Grand China Logistics Holding (Group) Co Ltd [2016] EWCA Civ 982 - Natalie appeared with Simon Rainey QC and Nevil Phillips in the Court of Appeal in the leading case on whether payment of hire is a condition of a time charter.

    > view Natalie's profile

    natalie.moore@quadrantchambers.com

  • Legal Focus: Insured’s intentions remain central to determining reinstatement damages - Mark StiggelboutView More

    Fri, 05 July, 2019

    This article was first published in Insurance Day on 4 July.

    Commercial Court considers the Appropriate Measure of Indemnity under a Property Loss or Damage Policy.

    In Sartex Quilts & Textiles v. Endurance Corporate Capital [2019] EWHC 1103 (Comm), the Commercial Court considered the appropriate measure of indemnity under a Property Loss or Damage Policy. In particular, it considered (1) the relevance of an insured’s post-loss intentions in determining whether to award damages on the reinstatement (as opposed to market value) basis, and (2) whether reinstatement-based damages should factor in a betterment discount.

    Background

    The Policy issued by the Defendant provided material damage cover in respect of the buildings, plant and machinery at the Claimant’s manufacturing premises. In May 2011, a fire severely damaged the buildings, and the plant and machinery were destroyed.

    The Defendant admitted liability in October 2011, but the parties were unable to agree on the appropriate basis of the indemnity. As the Claimant had not reinstated the buildings, plant and machinery – even some eight years after the loss – the Defendant disputed that there was a relevant intention to reinstate. It contended that the (lower) market value should be applied. The Claimant contended for the reinstatement basis, arguing that its post-loss intentions were irrelevant.

    The Defendant also contended that, if the reinstatement basis was appropriate, a betterment discount should be made, as reinstatement would be ‘new for old’. The Claimant argued that, as it would have no choice but to incur betterment, no discount should be applied.

    Appropriateness of the Reinstatement Basis

    The Policy provided that the Defendant agreed “…to indemnify the Insured against loss or destruction of or damage to Property caused by or arising from …” perils including fire. The Court accordingly had to determine the value of the property to the insured at the date of the fire.

    In such cases, it is established that an insured's intentions immediately before and at the time of a loss are important factors in determining the value of the property to the insured at that date: see Leppard v. Excess [1979] 1 W.L.R. 512. Thus, if an insured had intended to sell, or demolish, the property, it would likely have had a different value to them than if they had intended to use it for manufacturing purposes.

    However, the issue arising in the instant case was whether one could look to the Claimant’s intentions as they were and developed after the loss. This potentially mattered because, after the fire, the Claimant explored various alternative premises for its business and various alternative uses for the original site (including non-manufacturing uses). The Defendant accordingly contended that there was no relevant intention to reinstate. The Claimant argued that post-loss intentions were irrelevant, save in exceptional cases such as Great Lakes v. Western Trading [2016] 2 C.L.C. 478 (where the property’s value had increased because of the loss).

    Mr. David Railton Q.C., sitting as a Deputy High Court Judge, held that, in determining the appropriate measure of indemnity in any particular case, it is necessary to look at all the circumstances, including the intentions of the insured up to the date of trial. Such an approach was not confined to exceptional cases. At [76], he said that, in determining what measure fairly and fully indemnifies the insured:

    “…the primary focus is on the position as at the time of (and immediately before) the fire. If the insured intended then to use the property, as opposed (for example) to selling, or demolishing it, the appropriate measure of indemnity, and the best reflection of the value of the property to him at that time, is likely to be the reinstatement basis. But subsequent events (and not just those foreseeable at the time of the fire) may show that such measure would over-compensate the insured, in which case the court at trial is likely to consider another measure of loss to be more appropriate. …”

    On the facts, the judge concluded that the Claimant had, at all times since the fire, genuinely intended to reinstate the plant and machinery, at an appropriate manufacturing site, even though there remained a real possibility that reinstatement may not take place. Thus, taking into account all the circumstances, including pre- and post-fire events, the reinstatement basis was the appropriate measure, being that which most fully indemnified the Claimant for the loss caused by the fire. It was accordingly unnecessary to make a declaration – along the lines made in Great Lakes v. Western Trading – that the Claimant would only be entitled to reinstatement costs if it carried out the reinstatement.

    Betterment

    Given the judge’s decision that the reinstatement basis was appropriate, the issue arose whether a deduction should be made to reflect the incidental betterment that the Claimant would enjoy from reinstatement.

    The principle of betterment “…is simply that an allowance must be made because the assured is getting something new for something old…”: see Reynolds v. Phoenix [1978] 2 Lloyd's Rep. 440. However, the principle can work hardship, particularly where the insured has no practicable alternative to repairing real property: see MacGillivray on Insurance Law (14th edn.), at §21–020. In a comparable tort and general contract context, a betterment discount is not made unless the claimant would have been able to mitigate its loss at less cost: see Lagden v. O'Connor [2004] 1 A.C. 1067, at [34]. Reflecting such views, in Great Lakes v. Western Trading, at [80], Christopher Clarke L.J. had stated that “…the justification for a deduction for betterment is itself open to question…”.

    At [115] of Sartex Quilts, the judge noted that there was “…considerable force …” in the argument that betterment in this area of insurance law should, absent contrary contractual provision, be treated in the same way as in other areas of the law. He considered that, where the benefit is an unavoidable consequence of the loss, “…It is very arguable that in such circumstances making a deduction for betterment deprives the insured of a full indemnity for his loss…”. However, at [116], he considered that the insurance betterment principle was too well established to depart from.

    However, whether any betterment deduction should be made is fact sensitive, depending on the damage suffered, and the repairs proposed. The onus is on the insurers to identify, and justify, any particular reductions contended for. In this case, the judge found that evidential shortcomings made it impossible to make any betterment deduction.

    Conclusion and Implications

    The Commercial Court accordingly confirmed that (1) an insured’s intentions – even post-loss – are a key factor in determining whether reinstatement damages should be awarded, and (2) the betterment principle continues to enjoy a special status in this area of insurance law. The decision also highlights the need for satisfactory evidence on each aspect. An insured seeking reinstatement damages should provide satisfactory evidence of its intention to reinstate, and an insurer seeking a betterment discount should provide detailed evidence to justify any reductions contended for. The latter will likely require detailed pre- and post-loss specifications of the property concerned.

      

    Mark Stiggelbout

    Mark has a broad international commercial practice, with particular emphasis in shipping, commodities, insurance, international arbitration, aviation, and energy disputes. He is recommended as a leading practitioner in both of the independent guides to the market - Chambers UK and the Legal 500.

    Mark’s recent cases include:

    • Deleclass Shipping v. Ingosstrakh Insurance (The Siderfly) [2018] EWHC 1149 (Comm) and [2018] EWHC 1135 (Comm) (successfully establishing a ‘stifling’ defence to a security for costs application);
    • The Bulk Indonesia [2017] 2 Lloyd's Rep. 385 (successfully resisting an arbitration appeal under s.69 concerning the BIMCO Piracy Clause 2009); and
    • Bunge SA v. Nidera BV [2015] 3 All E.R. 1082 (acting for the successful appellants in this leading Supreme Court decision on the compensatory principle and the GAFTA Default Clause).

    Mark regularly acts as sole counsel in litigation and arbitration proceedings, which has included obtaining freezing injunctions against persons unknown and a Norwich Pharmacal order.

    Mark has published articles in leading journals in the fields of contract, tort and the conflict of laws. These have been cited in leading practitioner texts, academic articles and student textbooks.

    ‘He is always approachable and extremely modest despite his clear talent.’ (Legal 500 2019)

    ..."Very bright and approachable. He has a good eye for detail." ..."His written work is exceptional and thorough. He is creative in thinking of arguments."... (Chambers UK, 2019)

    mark.stiggelbout@quadrantchambers.com

    To view Mark's profile please click here.

  • Court of Appeal rejects imposition of trust in international funds transfer context - Poonam Melwani QC & Paul HentonView More

    Thu, 04 July, 2019

    This article was first published in the June edition of the Journal of International Banking & Financial Law. To see the original, please click here

    Key Points

    • The Court of Appeal’s decision in First City Monument Bank Plc v Zumax Nigeria Ltd firmly rejects the imposition of an express or “Quistclose” trust in the context of routine international funds transfers via correspondent banks.
    • The decision is an orthodox analysis of well-established trust principles to the international banking context, and a welcome return to the status quo.
    • Moving forward, the imposition of a trust in the context of international bank transfers would require something out of the norm.
    • The latest advances in cross-border and cross-currency funds settlement systems only serve to diminish the likelihood for claims against participating banks to be founded on trust rather than conventional contractual principles.

    The Court of Appeal’s decision in First City Monument Bank Plc v Zumax Nigeria Ltd [2019] EWCA Civ 294 provides welcome clarity to those engaged in international banking and the financing of international trade.The case involved a number of international bank transfers executed via correspondent accounts. Transfer instructions were provided in manuscript to the payer’s bank, identifying the ultimate intended recipient, the substance of which was largely passed on to the correspondent bank and in turn the payee’s bank. The Court of Appeal unanimously overturned a finding that these arrangements gave rise to a  trust relationship of any sort.

    The Facts and First Instance Decision 

    The transfers in question represented payment for engineering andother services provided by a Nigerian company (Zumax) to oil companies and other international clients invoiced in dollars. Zumax held accounts in Nigeria, denominated in Nigerian Naira, with its Nigerian bankers (IMB), 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 denominated in dollars with its London bankers (Chase). When funds were to be transferred from the Redsear Account back to Nigeria, the mechanism used was that Redsear would instruct Chase to transfer the relevant amount to one of three accounts held by IMB with correspondent bankers in London (Commerzbank), 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 IMB account and the intended eventual recipient such as “for further credit to Zumax”. 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 which were what would have been seen by IMB contained entries which in most (but not all) cases reflected the substance of the manuscript instructions which initiated the transactions.

    These facts are unlikely to strike the reader as particularly remarkable. The use of correspondent banks to provide services for other financial institutions is an everyday feature of international commercial life. Such arrangements are particularly common in the servicing of transactions originating in a foreign country in which the payee’s bank has no physical presence. The manuscript transfer instructions used wording similar to those found on SWIFT payment messages or similar, which are again a routine feature of international commercial financing- serving the important function of identifying the ultimate intended recipient of the funds, to whom the final party in the banking chain should give credit.

    However, the surprising feature of this case was that the first instance judge (Barling J) had concluded that such arrangements gave rise to either an express trust in favour of Zumax; or else a Quistclose trust (ie 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:
    • First, the claim was brought against FCMB (the Bank), a successor entity to IMB’s historic business activities, many years after the transfers in question – which dated back to 2000-2002. A “trust” analysis was put forward by Zumax to circumvent the Bank’s inevitable limitation defence under s 21 of the Limitation Act 1980: pursuant to which no period of limitation prescribed by the Act applies to claims to recover trust property. An ordinary contractual or debt claim against the Bank would not benefit from this exclusion.
    • Second, based on a claim in trust Zumax claimed an account of profits which it pleaded at some US$211m as at January 2017 (on a principal claim of around US$3.5m) – a figure which dwarfed the amounts usually claimable as simple interest on an ordinary contractual or debt claim.

    The Court of Appeal’s decision

    The Court of Appeal’s decision comprehensively rejected and overturned Barling J’s “trust” analysis, providing a welcome return to the status quo in international banking and trade finance disputes.

    As the 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.”

    This analysis was approved and buttressed in a further supporting judgment of Lord Justice Lewison. Lord Justice Males agreed with both leading judgments. The analysis en route to this conclusion was in truth no more than an orthodox application of well-established principles of trust law to the relevant commercial context. The threshold tests which apply are as follows:

    • For a finding of an express trust, there would have needed to be evidence establishing each of the so-called “three certainties”: certainty of objects, subject matter and crucially certainty of words/ intention to create a trust.
    • For a “Quistclose” trust on terms described above, the evidence would have needed to establish 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 IMB’s “free disposal” upon receipt into the correspondent bank accounts (which, in the usual way, were accounts into which the funds were mingled with various other transfers and other monies destined for other customers). This test had to be applied bearing in mind the structure of the arrangements and the contractual mechanisms involved.

    The various factors cited demanding the conclusion that these thresholds were not met included, in particular, the following:

    • 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 (Newey LJ at [33]);
    • The Redsear instructions and the entries in the Commerzbank statements (only the latter reached IMB) did not manifest the necessary intention that the funds should not be at IMB’s free disposal.
    • The instructions were needed in order to identify the entity for whose benefit the transfers were made 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” (Newey LJ at [34]).
    • Contrary to the findings at first instance, in fact 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: Newey LJ at [35]; Lewison LJ at [81]. Per Lewison LJ the recording of the credit in the correspondent account was “no more than bookkeeping” [82];
    • 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). The commercial arrangements in this case were commonplace in international banking and essential for international funds transfers where the payee’s bank has no presence in the originating country. Zumax’s Counsel had been unable to explain how a recipient bank in an international funds transfer case could go about avoiding the onerous obligations of a trustee – short of simply returning the funds to sender. As Lewison LJ noted [81], this would almost certainly be a breach of contract between the payee’s bank (IMB) and its customer (Zumax) and extremely damaging to the banker/customer relationship.
    • Both judgments further 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 (per long-established caselaw such as Foley v Hill (1848) 2 HLC 28; Joachimson v Swiss Bank Corporation [1921] 3 KB 110. As Lewison LJ pointed 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.
    • 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).
    • 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 (eg“your bank account contains £xx”) but which is not intended to describe the legal arrangements involved in any meaningful way.

    Quite apart from all of this, the Court of Appeal recognised that for Zumax to bring a claim under a Quistclose trust, Barling J would have also needed to be satisfied that Zumax had acquired the rights to enforce that trust instead of Redsear (the settlor and beneficiary if the Quistclose analysis were to work). The point ultimately did not arise, but Newey LJ expressly did not wish to be taken as approving the judge’s analysis that Zumax had exceptionally established some exception to the usual position on title to enforce the trust: Newey LJ at [50].

    Ramifications for the Future

    The Court of Appeal’s analysis provides welcome certainty and a return to the status quo for those engaged in international bank transfers via correspondent banks. A similar result had already been reached at first instance in the first instance decision of Abou-Rahmah v Abacha [2006] 1 Lloyd’s Rep 484: a case involving funds transfer via a correspondent bank coupled with a Swift Transfer instruction identifying the ultimate intended recipient. The Barling J decision in Zumax had created conflicting first instance decisions in factually analogous circumstances, which the Court of Appeal’s judgment has now firmly resolved.

    As the ramifications in this case show, the obligations of a trustee are something which those handling the transfer instructions neither want or expect or need. Moreover, subject to limitation, recipients are perfectly adequately protected by personal remedies in contract/debt, without the “super-added” cause of action in trust. Yet if the “trust” analysis had been upheld in the present case, then it is difficult to see why a Quistclose trust would not have been imposed 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. This would be a most unsatisfactory conclusion which would effectively paralyse international transfers. Moving forward, it seems unlikely that such a radical “trust” analysis would be upheld again in a routine international funds transfer case. The imposition of a Quistclose trust over funds in transit remains possible but very much the exception rather than the norm. Special factors will be needed in order to show that the objective intention in the relevant contractual context was that the funds should not be at the free disposal of the recipient bank upon receipt (subject to the usual promissory obligation to credit an equivalent amount to the ultimate payee).

    Exceptional Fact Scenarios

    Of prime importance in every case will be the evidence of the objective intention of the settlor. As cases such as Zumax show, routine transfer instructions which merely identify to the payee’s bank which of its customers the transfer is for, will almost certainly be insufficient to manifest an intention to create a trust or that the monies should not be at the Bank’s free disposal. Something out of the routine will be required.

    An example of such an exceptional situation might be the first instance Isle of Man decision of Magenta Finance and Trading Company v Savings and Investment Bank Ltd [1984-86] MLR 116. In that case, the plaintiff had arranged to buy a painting from a gallery and borrowed money for that purpose, to be remitted by the lender into a specific correspondent account held by the plaintiff’s bank SIB at Barclays. The court found as a fact that SIB was given specific instructions from its customer that upon receipt of the funds from a third party they were to be remitted to the gallery. This was sufficient for an exceptional finding that the funds were objectively intended to be held on trust. It remains to be seen whether the English courts would be prepared to reach the same conclusion on similar facts in the light of Zumax and Abou-Rahmah, but clearly Magenta involved special and unusual facts well outside the context of ordinary international commercial funds transfers. Notably the subsequent Manx appellate decision of du Preez v Kaupthing Singer & Friedlander (2010) 12 ITELR 943 (cited by Lewison LJ at [81]) disavowed any trust in the absence of objective evidence establishing a common understanding, communicated by the payer to the recipient at the time of the transfer, and accepted by the recipient, that the monies were to be used for a specific purpose, and not to form part of the general funds of the recipient (albeit hypothesising that on different facts and with an express instruction from a customer to its own bank as to a forthwith payment from a specific fund, a trust could be found). On any view the opportunities for such circumstances to arise in the context of routine international funds transfers will be limited.

    Contexts for Future Arguments

    A further question is what factors might drive claimants to attempt this unorthodox analysis again in an international funds transfer context. Besides cases involving historic transfers where limitation defences are available to contractual claims, or cases involving very large account of profits claims (as in Zumax itself), the most likely candidate would be an insolvency context. However, there is every reason to expect precisely the same restrictive analysis in that context too. In particular, 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 opposed to the simple debtor/ creditor relationship applicable to those whose transfers had been completed (eg once the funds show as a balance in the transferee’s account)- absent some compelling circumstances which showed that this was objectively intended.

    Advances in cross-currency clearing systems

    Finally, mention should also be made of the most recent advances in cross-border automated clearing and settlement systems. Providers such as Earthport and Ripple (recently acquired by Visa) offer real-time cross-border bank payments, with instant settlement of monies across borders such that the funds are credited to the destination account instantly alongside the messaging notification. Participants no longer have to rely on third party correspondents for transactions involving multiple currencies (nor bear the charges associated therewith), and no longer have to wait days before the funds show in their accounts.

    It is too early to say whether these instant settlement systems will in due course challenge or even replace the existing hegemony of the traditional correspondent banking approach to cross-currency payments (recognised at eg Newey LJ [26]: “An international funds transfer will require the services of at least one correspondent bank unless the payer’s bank and the payee’s bank are themselves correspondents (i.e., hold accounts with each other)”). However, what seems clear is that even the removal of the correspondent bank from the equation altogether would be most unlikely to yield a fresh wave of successful actions founded on trust. Indeed, direct transfer to the destination account should if anything support and buttress the conclusion that the default position is a cause of action against the payee’s bank in contract/debt – with the imposition of a trust being neither necessary nor objectively intended by the participants in such transfer systems.

     

    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.

    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.  Poonam led an entirely new team in the action of Zumax v FCMB on the imposition of trusts/equitable obligations in the context of international bank transfers involving correspondent banks, successfully overturning the judgment entered against the bank, in a claim pleaded at over US$210 million.

    "Pragmatic, clear-sighted and very user-friendly." "Very much dedicated to the case and a pleasure to work with." (Chambers UK, 2019)

    poonam.melwani@quadrantchambers.com

    To view Poonam's profile please click here. 

    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.  He is recommended in a number of fields comprising Shipping, Commodities, International Trade and Aviation.  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.henton@quadrantchambers.com

    To view Paul's profile please click here.

  • Quadrant Chambers welcomes Marcus Bowman as an Associate Member and MediatorView More

    Mon, 01 July, 2019

    Quadrant Chambers is very pleased to welcome Marcus Bowman as an associate member. Marcus has joined Quadrant to focus full time on his role as a mediator in commercial disputes, particularly in the shipping, energy, mining and logistics sectors. 

    Marcus is a CEDR accredited mediator. He spent over 30 years at leading international law firm HFW, which culminated in four years as managing partner from April 2015. As a lawyer, he specialised in dispute resolution with a particular interest in shipping, energy and mining, and logistics, advising on disputes arising out of commercial contracts, corporate transactions and insolvencies. He also advised on regulatory and risk management matters within these sectors.

    “I am honoured to join Quadrant Chambers as an associate member. They one of the leading commercial sets with an excellent and long-standing reputation in the market. I look forward to our association being one of mutual benefit.” Marcus Bowman

    “On behalf of Quadrant I am delighted to welcome Marcus as an Associate Member. As a mediator he will be able to draw upon his outstanding experience and knowledge of the legal and commercial aspects of shipping, energy and related areas. He will be a brilliant addition to Chambers and to our growing number of mediators, increasing the Quadrant offering in this important field.” Simon Croall QC, Head of Quadrant Chambers

    Marcus is a CEDR accredited mediator, specialising in commercial disputes, particularly in the shipping, energy, mining and logistics sectors. He spent over 30 years at leading international law firm HFW, which culminated in four years as managing partner from April 2015. As a lawyer, he specialised in dispute resolution with a particular interest in shipping, energy and mining, and logistics, advising on disputes arising out of commercial contracts, corporate transactions and insolvencies. He also advised on regulatory and risk management matters within these sectors.

    On the shipping side, his experience includes charterparties, bills of lading, shipbuilding, collisions, fire and explosion, salvage, general average, groundings, total loss, towage, offshore and limitation. Marcus was previously employed on the claims side in two P&I clubs and has had first-hand experience in dealing with P&I and FDD claims.

    Marcus was President of the UK Chamber of Shipping for the year 2014-15.

    marcus.bowman@quadrantchambers.com

  • “But you weren’t going to perform anyway!”: A new hurdle when invoking Force Majeure - Classic Maritime Inc v Limbungan Makmur SDN BHD - Simon Rainey QC and Andrew LeungView More

    Mon, 01 July, 2019

    Classic Maritime Inc v Limbungan Makmur SDN BHD [2019] EWCA Civ 1102

    Is it necessary when a party seeks to rely on a force majeure or exceptions clause to show that it would have performed “but for" the force majeure or excepted event? And if the party is liable for failing to perform, but performance would have been impossible in any event, is the innocent party entitled to damages?

    These important questions were considered by the Court of Appeal in Classic Maritime Inc v Limbungan Makmur SDN BHD [2019] EWCA Civ 1102. The judgment, which is the sequel to the first instance decision discussed here, clarifies that:

    1. Contrary to what textbooks such as Chitty and Treitel on Frustration and Force Majeure suggest, there is no general principle that it is not necessary to show “but for” causation in order to invoke a force majeure or exceptions clause.
    2. The innocent party is entitled to substantial damages even if it would never have received performance in any event.

    The dam burst and the COA

    The litigation was fuelled by the Samarco dam burst on 5 November 2015. The charterer under a COA, Limbungan, claimed it was prevented from supplying cargoes for shipment as a result and was excused from having to perform under Clause 32 of the COA, which provided in material part:

    “Neither the Vessel, her Master or Owners, nor the Charterers, Shippers or Receivers shall be responsible for…failure to supply, load…cargo resulting from: Act of God…floods…landslips…accidents at mine or production facility…or any other causes beyond the Owners’, Charterers’, Shippers’ or Receivers’ control; always provided that such events directly affect the performance of either party under this Charter Party.”

    The first instance decision

    At first instance, Teare J held that though the dam burst had rendered performance impossible, Limbungan could not rely on Clause 32 as it required the charterer to prove that it would have performed but for the collapse of the dam, and Limbungan would have defaulted anyway. However, the owner, Classic, was only entitled to nominal damages. Even if Limbungan had been able and willing to perform, the dam burst would inevitably have prevented performance. The compensatory principle would be breached if Classic was awarded substantial damages when it would never have received freight in any event.

    The Court of Appeal’s decision

    The Court of Appeal upheld Teare J’s decision that Clause 32 required Limbungan to prove but for causation and reversed his decision in relation to damages.

    Limbungan had submitted that the House of Lords decision in Bremer Handelgesellschaft v Vanden Avenne-Izegem PVBA [1978] 2 Lloyd’s Rep 109 laid down the general principle that a party relying on force majeure need not show it would have performed but for the event.

    However, the Court of Appeal, like Teare J, treated Bremer v Vanden as a case concerning a “contractual frustration” clause (Clause 21 of the GAFTA 100 form), i.e. a clause which automatically discharged the parties from an obligation to perform in the future, much like the common law doctrine of frustration. The automatic cancellation effected by Clause 21 meant it was not necessary to meet the test of but for causation.

    Starting from first principles, it was open to the parties to agree a clause which only excused non-performance if that test was met. The Court of Appeal considered that Clause 32 was just such a clause. Unlike the “contractual frustration” clause in Bremer v Vanden, it was an exemption clause which relieved a party of liability for a past breach. It was hard to see why the dam burst should make any difference to Limbungan’s liability when it was never going to perform anyway.

    On the issue of damages, what Teare J thought was an orthodox application of the compensatory principle the Court of Appeal viewed as a “sleight of hand”. When assessing Classic’s loss, the Judge should have compared the freights Classic would have earned with the actual position it was in due to Limbungan’s breach. Teare J had instead drawn a comparison between Classic’s actual position and its position if Limbungan had been ready and willing to perform.

    The Court of Appeal distinguished the present case from two cases in which events occurring after a breach of contract were taken into account:

    1. In The Golden Victory [2007] 2 A.C. 353, the House of Lords held that the owners could not recover hire for the full-term of a charterparty prematurely cancelled by the charterers. The charterparty would not have run its full course anyway as the charterers would have lawfully cancelled due to the Second Gulf War.
    2. In Bunge v Nidera [2015] 3 All E.R. 1082, the Supreme Court held that a buyer had suffered no loss despite the repudiation of a sale contract by the seller. A subsequent embargo would have prevented the sale from taking place in any event.

    Both cases were concerned with assessing damages for an anticipatory breach. Contrastingly, the present case was concerned with an actual breach. Since Clause 32 gave Limbungan no defence to liability, Limbungan had to pay damages for failing to perform.

    Comment

    The Court of Appeal has underlined the fact that, whatever the current understanding of Bremer v Vanden in the textbooks, there is no default position whereby it is unnecessary to prove but for causation in order to rely on a force majeure or exceptions clause. The specific force majeure remedy afforded by Clause 21 of GAFTA 100 was held to be the reason that clause did not import a requirement of but for causation. Why this remedy should determine the test for causation is not entirely clear, when the effect of contractual cancellation and an exemption from liability is for practical purposes the same: the non-performing party cannot be successfully sued.

    In other respects, this case presents a number of novelties:

    1. The Court of Appeal held that Clause 32 was not even a force majeure clause, but an exemption clause. It was not previously clear that these categories were mutually exclusive (see e.g. Lewison, Interpretation of Contracts, 13.02).
    2. Both Treitel and Lewison suggest in the light of the authorities that a clause which makes provision for the consequences of supervening events which occur without the fault of either party and are beyond their control (i.e. Clause 32) defines the parties’ obligations rather than operating as an exemption clause. This now needs to be reconsidered.
    3. The Court of Appeal’s take on The Golden Victory and Bunge v Nidera is that subsequent events and their potential effect on the parties’ rights and obligations are only relevant when assessing damages caused by an anticipatory breach accepted as terminating the contract. They are not relevant in the case of an actual breach. This is arguably a new development and suggests there is not one compensatory principle, but two.

    Permission to appeal was refused by the Court of Appeal but an application for permission to appeal is being made to the Supreme Court. The authors are Counsel for Limbungan and appeared below and in the Court of Appeal. Simon and Andrew were instructed by Julian Clark and Winnie Mah at Hill Dickinson LLP. 

    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 noted for his intellect and advocacy. 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. Recent arbitral appointments include an ICC Paris seat arbitration concerning a power station failure, a French law and seat arbitration relating to an oil rig drilling contract, an offshore construction contract claim under SIAC Rules and a long-term ore supply contract claim under Swiss Rules.

    He is highly ranked by Chambers and Partners and Legal 500 as a first division international arbitration specialist, Simon was shortlisted for both International Arbitration Silk of the Year and Shipping Silk of the Year at the Legal 500 UK awards 2019. 

    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)

    simon.rainey@quadrantchambers.com

    > view Simon's full profile

    Andrew Leung

    Andrew has a broad commercial practice which encompasses commercial dispute resolution, international arbitrations, shipping, commodities, insurance and reinsurance, and banking and financial services.

    Andrew appears in the High Court (including the Commercial Court, the London Mercantile Court, Queen’s Bench Division and the Chancery Division) and the Court of Appeal as well as arbitrations.

    Andrew’s notable recent experience includes a 5-week arbitration involving a dispute under a contract for the construction of a deep sea  drill ship giving rise to issues as to deliverability, contractual termination and whether the buyer was responsible for delaying the project (with Duncan Matthews QC and Christopher Smith), and Classic Maritime v Limbungan [2018] EWHC 2389 (Comm), a 2-week Commercial Court trial in which Andrew (led by Simon Rainey QC) acted for the charterers under a long-term contract of affreightment who claimed the Samarco dam collapse in Brazil in 2015 was a force majeure event excusing their subsequent non-performance. An appeal and cross-appeal from the latter decision was heard by the Court of Appeal in June 2019: [2019] EWCA Civ 1102.

    "A future star of the English commercial Bar" (Legal 500 Asia Pacific, 2019)

    ‘He is a great communicator, thorough and hardworking.’ (Legal 500, 2019)

    ‘Excellent on detail, strategy and responsiveness.’ (Legal 500 Asia Pacific, 2018)

    andrew.leung@quadrantchambers.com

    > view Andrew's full profile