Last week the Commercial Court (Mr Justice Bryan) handed down judgment in a case which has important implications for commodity financing, warehousing and more generally in relation to reliance upon contractual limitation provisions.
(i) affirmed that estoppel can only be used as a shield and not as a sword;
(ii) included an insightful analysis as to the relationship between the holder of a warehouse receipt and the warehouse;
(iii) considered what is required by way of notice in order to permit a party to rely on its standard terms and conditions to limit its liability in negligence;
(iv) contained a detailed discussion of the reasonableness requirement contained in UCTA.
In Natixis v Marex and Access World  EWHC 2549 (Comm), the Court considered a four handed dispute. The background can be summarised as follows. Marex entered into various purchase and repurchase contracts with a Chinese company, CHH, for the sale of various parcels of nickel. Natixis agreed to buy the nickel from Marex pursuant to further spot purchase and re-purchase contracts (referred to as PC1 to PC5). The nickel was stored at warehouses owned by Access World and both purchases involved a set of transferable warehouse receipts which had originally been issued by Access World. By the time of the trial, it was common ground that the warehouse receipts provided by CHH to Marex which were in turn provided to Natixis were counterfeit. Following this discovery, Natixis closed out its futures position and claimed the sum of US$32 million in damages from Marex. Marex in turn brought claims against Access World in contract and for negligence and against its marine cargo insurers for an indemnity under the terms of its insurance policy.
In a wide-ranging judgment, the Judge considered each of the claims in turn, save for that against the insurers, Marex’s claim against them having been compromised following cross examination of its witnesses. As a result, the Judge did not need to consider (for what would have been the first time) whether there had been a failure to present the risk fairly under the new Insurance Act 2015. However, he did consider a number of other important issues.
Natixis, succeeded on its straightforward case that Marex had breached its purchase contract in various respects, notably because Marex had failed to pass title in the nickel to Natixis. Marex’s construction argument, that it had simply promised to deliver whatever warehouse receipts Marex had been provided with, even if (as was the case) they were forgeries, was described by the Judge as contrary to the ordinary and natural meaning of the clauses, uncommercial and un-businesslike. He found that, on the wording of the contracts, the obligation was to provide genuine warehouse receipts and that since Marex had failed to do so it was in breach of contract.
The Judge also rejected Marex’s argument that the contracts should be avoided on the grounds of common mistake. Having decided against Marex on the issue of construction, the Court found that it bore the risk and assumed responsibility for any forged documents. Accordingly, in accordance with the principles set out by the Court of Appeal in The Great Peace  QB 679, which confirmed that before a plea of common mistake can succeed, it must be shown that the contract itself does not already provide for one party to bear the particular risk, Marex’s reliance on the doctrine was stillborn.
Accordingly, the Court awarded damages to Natixis in the full amount of its claim, namely $32 million.
In its claim against Access World, Marex brought claims in contract and in tort. Its primary claim was one based on alleged contractual warranties and associated alleged estoppels which were said by Marex to give rise to an obligation on the part of Access World to deliver up the nickel the subject of two of the transactions which Marex had entered into. In this context, Marex argued for the existence of a contract in a number of ways and, in particular it relied upon emails from Access World in which Access World had incorrectly confirmed the authenticity of two of the relevant warehouse receipts. The Court rejected this argument and in so doing, considered the nature and status of the relationship between a warehouse and the holder of a warehouse receipt. Perhaps surprisingly, as the Court observed, the status of such receipts has not received a great deal of attention from the English courts. However, the Judge was clear that they do not constitute a document of title in the common law sense and that the relationship between the warehouse keeper and the relevant person who has the right to possession of the goods is that of bailment. As the Judge observed, where there is a warehouse receipt there is a bailment of goods between the first order party (in this case a company called Straits) and Access World, that bailment being contractual in nature and at least evidenced by the terms of the warehouse receipt. When another party presents a duly completed original warehouse receipt to Access World, the latter may attorn to that party. However, there is no relationship between a warehouse keeper and any buyer from the first order party unless and until the warehouse keeper attorns to the buyer, the warehouse receipt not being a document of title within the Sale of Goods Act 1979. A fortiori, presentation of a false warehouse receipt could not give rise to an attornment.
Marex also sought to argue that a genuine warehouse receipt would give rise to a unilateral contract between its holder and Access World on the basis that it contains a statement by Access World to whoever may become endorsee that Access World would deliver the goods to the endorsee upon presentation of the original warehouse receipt. The Judge considered this to be fundamentally flawed. First of all, it failed to have regard to the fact that the relationship between Access World and Straits was one of bailment, to which neither Marex nor Natixis was party and the fact that it is only upon attornment on presentation of a genuine warehouse receipt that any relationship is created between Access World and the endorsee. It also failed on the facts because no genuine warehouse receipt had ever been presented.
The Court also rejected an argument that there was a warranty in the form of a collateral contract, there being no evidence of any intention to create legal relations nor any contractual offer.
Finally, the Court noted that in the absence of a contract the estoppel upon which Marex had also relied could not exist because otherwise estoppel would be used as a sword and not as a shield.
Turning to the case in negligence, the Court found that Access World owed Marex, but not Natixis, a duty of care in authenticating the receipts and that it had not exercised reasonable skill and care in its authentication of the receipts presented to it for this purpose, which related to the PC4 to PC5 transactions only. However, the Court also found that Marex’s conduct in the transactions that it had entered into with CHH constituted contributory negligence which should lead to the recoverable damages being reduced by 25%, but rejected the argument that it was sufficient to break the chain of causation.
Nevertheless, the Court also held that, notwithstanding the gratuitous/non-contractual nature of the authentication exercise, Access World was entitled to rely on the limitation of liability contained in its standard terms and conditions. In this regard, Marex had argued that if (as the Judge found) there was no binding contract between Access World and Marex there was no proper basis for holding Marex to be bound by Access World’s terms and conditions. Secondly, it argued that if those terms and conditions applied, the limitation of liability provision did not meet the reasonableness requirement within the Singaporean equivalent to the UCTA 1977.
In rejecting these arguments, the Court found that what was required in order for there to have been an effective disclaimer of liability was reasonable notice of that disclaimer. That in turn depends on the consideration of two related issues. First, whether the relevant provisions particularly are onerous or unusual and secondly whether Marex had sufficient notice of those provisions. As the Judge noted, these are interrelated issues because the more outlandish a particular clause is, the greater degree of notice required. In this context, the Judge found that the terms in question were neither onerous nor unusual and that, Access World having (amongst other things) issued thousands of warrants to Marex over the course of 10 years, each of which expressly referred to its terms and conditions, and Access World having also issued invoices to Marex containing a similar reference, and reference to its terms and conditions appearing on every email sent by Access World, sufficient notice had been given.
With regard to the argument that the terms and conditions did not apply to gratuitous services as opposed to contractual ones, the Judge held that the reasonable person in the position of Marex would have understood that the terms and conditions, on their wording, applied to extracontractual services such as the authentication services provided by Access World.
Finally, having weighed up all the relevant factors, including the fact that Marex was a commercially sophisticated LME broker with access to legal advice, the Judge had little hesitation in finding that the limitation provisions in Access World’s terms and conditions were reasonable. In fact, the provision reflected similar clauses in the industry, which the Judge considered were appropriate in circumstances where the warehouse keeper generally has no knowledge of the commercial considerations and risks that are in play, in contradistinction to the customer who can assess those risks and take other steps to ameliorate risks that it faces. Interestingly, the Judge also found that the inclusion of a limitation clause is an integral part of the very assumption of responsibility which Access World was prepared to undertake and that any intervention by the Court would be to disrupt the equilibrium of the very circumstances in which an assumption of responsibility arose, which, he said, the Court should be extremely reluctant to do.