Weekly Update A summary of recent developments in insurance, reinsurance and litigation law 03/10 CONTENTS Habas Sinai v Sometal 2 A Clyde & Co case on the incorporation of an arbitration clause from earlier contracts between the same parties BOTHCA v Leicestershire County Council 2-3 A case on whether waiver of privilege extended to other privileged documents Safeway Stores & Ors v Twigger & Ors 3 A decision on the scope of the ex turpi causa defence Bhamra v Dubb 4 A case on the scope of caterers' duties - of possible interest to liability insurers Tandrin Aviation Holdings v Aero Toy Store 4-5 A case on force majeure clauses and the economic downturn Supershield v Siemens 5 A case on remoteness of loss www.clydeco.com 1
This Week's Caselaw Habas Sinai v Sometal Incorporation of arbitration clause from earlier contracts between the same parties Clyde & Co for the winning party It is well established by caselaw that in a two-contract situation, where A and B make a contract incorporating terms agreed between A (or B) and C, or between C and D, general words of incorporation will not be construed as incorporating an arbitration clause (instead, there must be a specific reference to the arbitration clause in the incorporating clause). In this case, although there were multiple contracts involved, they were all entered into between the claimant and the respondent and Clarke J concluded that this was therefore not a "two contract" case. He also held that a less restrictive approach to incorporation should be adopted by the court where A and B enter into a contract in which they incorporate standard terms or (as here) they make a contract incorporating terms previously agreed between them in another contract (or contracts) to which they were also both parties. Although lawyers would understand that an arbitration clause is a separate contract collateral to the main contract, "a businessman would have no difficulty in regarding the arbitration clause...as part of a contract and as capable of incorporation, by appropriate wording, as any other term of such a contract, and it is...to a businessman's understanding that the court should be disposed to give effect". Accordingly, general words of incorporation are capable of incorporating terms which include an arbitration clause, without specifically referring to it. The judge then considered whether, on the particular facts of the case, there had been incorporation. The contract in question had used the phrase "all the rest will be the same as our previous contracts". Clarke J agreed that the term was, in context, ambiguous, but the parties must have intended it to have some effect. It should not be assumed that the parties intended to refer to all their previous contracts. In this case, the last of the contracts between the parties which had not included the arbitration clause was concluded almost 3 years ago. If regard was had (as it must be) to the sequence of contracts, it was clear that the words of incorporation in a later contract were apt to incorporate the arbitration clause. BOTHCA v Leicestershire County Council Whether waiver of privilege extended to other privileged documents The issue in this case was whether privilege in certain communications had been waived because privilege had been waived in other privileged material (ie whether "collateral waiver" had taken place). In Fulham Leisure Holdings Ltd v Nicholson Graham Jones [2006], Mann J held that waiver applied to the "transaction" in question (so, if the transaction is wider than eg one piece of advice from counsel on one occasion, the whole of the wider transaction must be disclosed as well if there would otherwise be unfairness or misunderstanding). In this case, Mann J again considered the issue of what is meant by a "transaction". He rejected the argument that the transaction should be taken as being all the legal advice which the defendant had received across a certain period or in relation to a particular dispute. There was no support for the contention that it is wrong to let the defendant rely on advice at the beginning and end of a period and not deal with what happened in between. Instead, each act of waiver must be examined and put in its context. www.clydeco.com 2
Privilege in the following documents had been waived: A report drafted by the defendant's legal adviser. The adviser had discussed this report in draft with the claimants and then voluntarily provided the final draft to them. It was questionable whether the adviser had had authority to waive privilege, but even if he did, there was no indication of any purpose or circumstance which pushed the transaction wider than that one act of waiver; An opinion from counsel was provided to the claimants by a third party. If this was an act of waiver, it did not bind the defendant. Just because the defendant had not objected to the opinion being circulated did not mean that the scope of the waiver extended into surrounding documents or circumstances: "There is hardly any transaction at all, and certainly nothing going beyond the opinion". Fairness did not require any additional disclosure; and A report produced by the defendant's firm of solicitors. Again, looking at the circumstances of the case, there was nothing to persuade the judge that there had been a waiver going beyond the contents of the report itself. Safeway Stores & Ors v Twigger & Ors Scope of ex turpi causa defence The claimant companies sued some of their former directors and employees for taking part in initiatives which the OFT investigated for breaches of the Competition Act 1988 (the claimants having later admitted the breaches and settled with the OFT). The defendants brought an application for summary judgment and/or strike out on the ground that the claim infringes the ex turpi causa rule. The following two issues arose: What illegal or unlawful acts will engage the rule? It is clear that a claimant cannot rely on his own criminal conduct. However, as Flaux J explained in his judgment, the rule is not limited to criminal acts. In a non-criminal context, the claimant's conduct must have an element of moral turpitude or moral reprehensibility. The judge concluded that a breach of Chapter 1 of the Competition Act did involve the necessary element of moral reprehensibility and was sufficiently serious to engage the ex turpi causa rule in principle; and Had the claimants committed the unlawful act? The unlawful conduct relied on must be that of the claimant himself and not conduct for which he is vicariously liable as an employer. On the evidence before the court, no defendant here was the "directing mind or will" of the claimant companies. On the pleaded case of the claimants, the basis on which the claimants are liable is that the relevant wrongful acts were committed in the name of the claimants by the defendants, who as directors and employees were acting in the course of their employment. Accordingly, those acts are to be attributed to the claimants by virtue of the general law of agency. That is not enough to establish that the company was primarily or directly liable and nor could it be said that the company was guilty of turpitude. Therefore, the claimants had a real prospect of successfully defeating any defence based upon ex turpi causa at trial. (Furthermore, as the companies were not "personally" at fault, there was no public policy preventing them from recovering the "fine" which they had paid to the OFT from the individuals responsible for the wrongful acts which led to the penalty). www.clydeco.com 3
Bhamra v Dubb Scope of caterers' duties - of possible interest to liability insurers Mr Bhamra was a guest at a Sikh wedding. A dish served at the wedding contained eggs, even though the Sikh religion forbids the consumption of eggs. The eggs were fit for human consumption, but unfortunately, Mr Bhamra was allergic to eggs. He had an anaphylaxic reaction and later died. There was no dispute that the caterer who had served the dish owed a duty of care to Mr Bhamra, but the issue in this case was the nature and scope of that duty. The Court of Appeal found as follows: Since only 0.1% of the adult population is allergic to eggs, the risk of causing injury to those with the allergy was not significant and there is therefore no general duty on caterers and restaurateurs routinely to provide warnings that dishes contain, or may contain, eggs; However, in this case, it had been important to avoid the use of eggs for religious reasons. Any guest attending a Sikh wedding would expect the food to be completely free of eggs and accordingly Mr Bhamra had every reason to rely, without inquiry, on the caterer to supply food which did not contain eggs. "In our view, that very unusual combination of circumstances is sufficient to extend [the caterer's] duty of care to harm in the form of personal injury suffered as a result of eating food containing eggs"; and Although the facts proved by the claimant were not sufficient of themselves to establish that the caterer had breached this duty, in the absence of some explanation of how the error occurred, the fact that the dish in question did typically contain eggs was sufficient to support the conclusion, on the balance of probabilities, that the caterer had failed to take reasonable care (CPR r52 allows an appeal court to draw such inferences of fact as it considers justified by the evidence). Tandrin Aviation Holdings v Aero Toy Store Force majeure clauses and the economic downturn The defendant allegedly failed to accept the claimant's tendered delivery of an executive jet aircraft or to pay the balance of the purchase price. One of the arguments raised by the defendant was that the "unanticipated, unforeseeable and cataclysmic downward spiral of the world's financial markets" triggered the force majeure clause in the contract between the parties, thereby postponing the time for the defendant to complete the purchase. It is well established under English law that a change in economic/market circumstances, affecting the profitability of the contract or the ease with which the parties' obligations can be performed, is not generally regarded as being a force majeure event. Hamblen J noted that the question whether a force majeure clause has been triggered depends on the proper construction of the wording of the clause. www.clydeco.com 4
There were a "number of hurdles" for the defendant arising out of the particular wording used in this case: The phrase "any other cause beyond the Seller's reasonable control" should be read in the context of the entire clause, and none of the other force majeure events were even remotely connected with economic or market circumstances; There was no reference to the purchaser's reasonable control - only the seller can rely on the force majeure clause; The seller could never have been expected to be concerned about the purchaser's financing arrangements; and An alleged inability by the purchaser to obtain finance cannot be construed as a "cause" beyond the seller's reasonable control. The clause in issue required a causal link between any inability of the seller to control the credit markets and the purchaser's inability to pay. There was therefore no triable argument that the defendant could rely on the force majeure clause. Further information If you would like further information on any issue raised in this update please contact: Nigel Brook nigel.brook@clydeco.com Clyde & Co 51 Eastcheap London EC3M 1JP Tel: +44 (0) 20 7623 1244 Fax: +44 (0) 20 7623 5427 Further advice should be taken before relying on the contents of this summary. Clyde & Co LLP accepts no responsibility for loss occasioned to any person acting or refraining from acting as a result of material contained in this summary. No part of this summary may be used, reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, reading or otherwise without the prior permission of Clyde & Co LLP. Supershield v Siemens Remoteness of loss This case contains a useful summary of the law relating to remoteness of loss. The standard position is that the loss recoverable by the victim following a breach of contract should be limited to loss for which the party in breach may reasonably be taken to have assumed a responsibility to protect the victim. Accordingly, questions of remoteness of loss cannot be separated from a consideration of the purpose of the contract and the scope of the contractual obligation. South Australia [1997] and Transfield Shipping [2008] are authority that there may be cases where the court, on examining the contract and the commercial background, decides that the standard approach would not reflect the expectation or intention reasonably to be imputed to the parties. Although in those two cases the effect was exclusionary (ie the contract breaker was held not to be liable for the loss which resulted from its breach, even though some loss of that kind was not unlikely) in some cases the effect can be inclusionary. So, if the loss was within the scope of the duty, it cannot be regarded as too remote, even if it would not have occurred in ordinary circumstances. On the facts of this case therefore, loss resulting from a flood was not too remote even though the failure of a ball valve was very unlikely to result in a flood. Clyde & Co LLP is a limited liability partnership registered in England and Wales. Regulated by the Solicitors Regulation Authority. Clyde & Co LLP 2010 Clyde & Co LLP offices and associated* offices: Abu Dhabi Bangalore* Belgrade* Caracas Doha Dubai Guildford Hong Kong London Moscow Mumbai* Nantes New York Paris Piraeus Rio de Janeiro Riyadh* San Francisco Shanghai Singapore St Petersburg* www.clydeco.com 5