1 ARBITRATION... 2 1.1 ENFORCEMENT OF PEREMPTORY ORDER... 2 2 CONTRACT... 3 2.1 AFFIRMATION... 3 2.2 BINDING CONTRACT EXCHANGE OF EMAILS... 3 3 COSTS... 5 3.1 SECURITY FOR COSTS OF COUNTERCLAIM... 5 4 JURISDICTION... 6 4.1 CONCLUSIVENESS OF ENGLISH PROCEEDINGS... 6 5 PRACTICE... 7 5.1 AMENDMENTS TO PARTICULARS OF CLAIM... 7 5.2 SERVICE DISPENSING WITH... 7 5.3 UNLESS ORDERS... 8 6 SHIPPING... 10 6.1 CREW MANAGEMENT AGREEMENT... 10 6.2 WITHHOLDING PAYMENTS... 11 6.3 STATUTORY INSTRUMENTS... 12
1 ARBITRATION 1.1 ENFORCEMENT OF PEREMPTORY ORDER In John Forster Emmott v Michael Wilson and Partners Ltd Lawtel 16.1.09, pending resolution of the arbitration between the parties the tribunal made an order requiring the Respondent to procure that its 27 per cent shareholding in a company, which was nominally held by a bank, be held to the order of the chairman of the arbitral panel. The Respondent made attempts to comply with the order but did not do so and the Applicant obtained a peremptory order in the same terms. When the time for compliance had expired, the Applicant applied under s 42 Arbitration Act 1996 for an order requiring the Respondent company to comply with the peremptory order made by an arbitration tribunal and also applied for a freezing order. The Respondent sought to challenge the tribunal's substantive jurisdiction. The Respondent submitted that the tribunal had not had power under s.38(4) to make the peremptory order because that section applied only to physical property, and that the court should not make an order under s.42 because there was no risk of the shares being dissipated. The Respondent also submitted that the tribunal had no jurisdiction in respect of the Applicant's counterclaim because it had not arisen out of the original agreement to which the arbitration clause applied. The Commercial Court held that judicial interference with the arbitral process should be kept to a minimum, the proper role of the court was to support the arbitral process rather than to review it and the circumstances in which the court could properly interfere with or review the arbitral process were limited to those within s.67 to s.69 of the Act. Section 42 conferred a discretion on the court and it would be inconsistent with that discretion if the court acted as a rubber stamp on orders made by the tribunal. However, it was not for the court in every case to review the decision made by the tribunal and consider whether it ought to have been made. The Act conferred on the court limited powers to rehear or review decisions of the tribunal and it would be surprising if such a power was hidden within s.42. The fact that an order under s.42 exposed the party concerned to being in contempt of court did not require the court to rehear or review the tribunal's decision. A court might decide not to make an order that a party comply with a peremptory order where it was not required in the interests of justice to assist with the proper functioning of the arbitral process. The shares in the company were properly within the meaning of s.38(4) and the order by the tribunal was for the preservation or custody of those shares as provided by s.38(4). The tribunal had formed a clear view that there was a need for a peremptory order. It was appropriate that the court should support the tribunal's peremptory order by making an order that the Respondent comply with it. There was a clear risk of dissipation of the shares in the company and a freezing order was appropriate. The counterclaim arose out of the relationship between the parties, into which they had entered by reason of the original agreement, and there was nothing in the language of the arbitration clause in that agreement that made it clear that the counterclaim was intended to be excluded from the arbitrator's jurisdiction. - 2 -
2 CONTRACT 2.1 AFFIRMATION In (1) Tele2 International Card Co SA (2) Kub 2 Technology Ltd (Formerly C3 Calling Card Co (Ireland) Ltd) (3) Kub 7 Technology Ltd (Formerly Calling Card Co (UK) Ltd) v Post Office Ltd Lawtel 21.1.09 the Appellant companies appealed against a decision dismissing their claim against the Respondent Post Office for breach of contract. The Respondent gave a written notice to terminate the agreement between the parties on the ground that the Appellant had failed in due time to provide parent company guarantee letters as required by the agreement and that entitled the Respondent to terminate. The Appellant said that the Respondent had affirmed the agreement by election since it had delayed giving notice by nearly a year after it could have done so. The judge at first instance held that the Respondent was entitled to give the notice and that it had not elected to affirm the contract, since by virtue of clause 16 which provided that "In no event shall any delay, neglect or forbearance on the part of any party in enforcing... any provision of this Agreement be or be deemed to be a waiver thereof or... in any way prejudice any right of that party under this Agreement", the delay in giving notice could not be held against it. The Court of Appeal held that the continued performance by the Respondent of the agreement for nearly a year without any protest or reserve of any kind in relation to the failure to provide the parent company letters was only consistent with an election to abandon the right to terminate for that breach. It was a clear and unequivocal communication, by conduct, of the Respondent's election to affirm the agreement and to abandon its right to terminate it for breach. Whether a party had elected to terminate or to affirm a contract was a question of fact: either a party had affirmed the contract or it had not. Clause 16 of the agreement could not prevent the fact of an election to abandon the right to terminate from existing: either it did or it did not. Clause 16 did not deal at all with the issue of election of whether or not to exercise a contractual right. The general law demanded that a party which had a contractual right to terminate a contract had to elect whether or not to do so. The Respondent was not entitled to terminate and its action was an anticipatory repudiation of the agreement giving rise to a claim for damages. 2.2 BINDING CONTRACT EXCHANGE OF EMAILS In Grant v Bragg Butterworths Law Direct 28.1.09 the issue, inter alia, was whether a concluded contract was entered into between the Claimant and the Defendant for the purchase by the Defendant of the whole of the Claimant's shareholding in the company. The Defendant submitted that as the agreement was not signed by the parties a contract could not arise. The Chancery court held that where parties were proceeding in anticipation of execution of a formal document, the normal inference that parties would not be contractually bound unless and until they signed that document, would change if the facts changed so that it could be objectively ascertained on a balance of probabilities that the continuing intention of the - 3 -
parties was to be contractually bound immediately and not following formal execution of the document. In this case, until 30 January the parties had been contemplating execution of a formal document and the normal inference would apply. However, by the Claimant's acceptance of the wording of an e-mail of 30 January, which did not require the Claimant to execute the agreement formally, but merely required him to accept the wording of the agreement, which he did in his e-mail of 2 February, the parties had entered into a binding contract. - 4 -
3 COSTS 3.1 SECURITY FOR COSTS OF COUNTERCLAIM In Jones v Environcom Ltd and another Lawtel 27.1.09 the Commercial Court determined as a preliminary issue that (i) the Defendant's counterclaim had an 'independent vitality of its own', accordingly it was just that security for costs should be provided by the defendants and (ii) the costs of the counterclaim should not be confined to the costs which were exclusively referable to the counterclaim. It held that there was nothing in the CPR or from the guidance in The Silver Fir [1980] 1 Lloyd s Rep 371 that prevented the court in an appropriate case from awarding security in respect of the entire costs of a counterclaim, notwithstanding that there were common, or related, issues that arose on both the claim and counterclaim. Where it was a matter of chance which party started the proceedings, and both claim and counterclaim arose out of the same facts, there was no justification for confining the claimant's costs to the "additional" costs of the counterclaim, Petromin SA v Secnav Marine Ltd (1995) 1 Lloyd's Rep 603 applied. The claimant in such a case was entitled to be secured in respect of costs no less fully than if he were merely the defendant to the claim advanced in the counterclaim and not also claimant in the action. - 5 -
4 JURISDICTION 4.1 CONCLUSIVENESS OF ENGLISH PROCEEDINGS In Greenland Bank Ltd (in liquidation) v American Express Bank Ltd - Butterworths Law Direct 27.1.09 the Court of Appeal decided to stay an action, commenced by the Claimant bank against the Defendant bank, in the High Court of England and Wales, pending the outcome of a decision by the Bangladesh appellate court on the issue of whether a guarantee, to which both parties had agreed terms, had lapsed as a result of the failure by a third party to request its renewal. The principal issue at the trial of the action was whether there was a reasonable prospect that a Bangladeshi court might come to an unchallengeable conclusion that the guarantee had not lapsed. At first instance, the judge ruled that there was a sufficient likelihood that the Defendant might be unable to adduce further evidence on the principal issue, and be confined to the district judge's finding that there had been an agreement to extend the guarantee, and that that likelihood lent to the conclusion that there was a real prospect of a finding that the guarantee did not lapse in June 2000. The Claimant appealed. The Court of Appeal concluded that there were strong grounds to suspect that the trial judge's construction of the renewal clause was correct. The ultimate decision, however, on that matter was not for the instant court to make, but rested with the Bangladesh appellate court. Given, inter alia, the original purpose to be served by the guarantee, it could not be said that there was only a fanciful prospect that the decision of the district judge would be upheld. The action in England would therefore be stayed pending the outcome of the appeal in Bangladesh. - 6 -
5 PRACTICE 5.1 AMENDMENTS TO PARTICULARS OF CLAIM (1) Roy William Parker (2) Gilbert Kenneth Kinch v (1) SJ Berwin & Co (2) Jonathan Alexander Metliss Lawtel 23.12.08 the Queen s Bench court held that when an amendment involved the addition of a new cause of action after the expiry of the limitation period, the requirements of s 35 of the Limitation Act 1980 and CPR r.17.4 had to be satisfied. The Applicant's application to amend the particulars of claim so that he could rely on an amended assignment was allowed because, among other things, the amended claim arose out the same or substantially the same facts and the effect of disallowing the amendment to plead the assignment would be to preclude the Applicant from bringing most of his claims and would be disproportionate. It also held that the Applicants' amendment to advance a claim in restitution as an alternative to the existing head of claim in damages also arose from the same facts as a claim already made. However various other aspects of the proposed amendment were refused on the grounds that they did not arise out of the same or substantially the same facts or on the grounds that they had no real prospect of success. 5.2 SERVICE DISPENSING WITH In Thorne v Lass Salt Garvin (a firm) Butterworths Law Direct 28.1.09 the Claimant instructed the Defendant solicitors' firm to represent him in a dispute. The litigation concluded in early 2002. The Claimant wished to bring proceedings against the Defendant for negligence in the way it had represented him during the proceedings. A claim form was issued on 31 January 2008. By virtue of CPR 7.5 the final date for service of the claim form was 13 May 2008. On 29 May, the Claimant sought an order extending time for the service of the claim form. The Claimant was granted an extension to 6 June 2008. Service was purported to be effected on 6 June 2008 by fax. Prior to the fax there had been no communication of any kind between the solicitor for the Claimant on the one hand and the Defendant on the other. The Defendant declined to acknowledge purported service by fax on the basis that: (i) it did not comply with the requirement of CPR 6.2 and CPR PD6; and (ii) the subsequent purported postal service was out time. The issues arose as to whether: (i) there had been valid service of the claim form pursuant to CPR 6.2(1)(e); and (ii) if there had not been valid service, the court should dispense with service of the claim form under CPR 6.9(1). The master held that there had not been valid service. In doing so the master rejected an argument by the Claimant that the Defendant had been acting in a dual capacity as both a legal representative and a party to the proceedings and had therefore given the requisite written indication that it was willing to be serve by electronic means by setting out its fax number on its headed note paper. As to the second issue the Claimant submitted that case was exceptional because the Defendant was also a firm of solicitors and would have inevitably consented to service by fax had their consent been - 7 -
sought. The master rejected that argument and refused to make an order dispensing with the need for service. The Claimant appealed against that decision. The Queen's Bench Division dismissed the Claimant's appeal against a decision that his claim form had not been validly served and a refusal to dispense with the need for service under CPR 6.9(1). Rather than being an exceptional case which permitted the dispensing with service the instant case was a case where it would be unjust to dispense with service. That was because the attempt at service had been made on the last possible day permitted and had not been in accordance with the CPR. No prior notification of a claim had been made albeit that the events giving rise to the claim had taken place more than six years previously. The claimant had been advised to serve the claim form on 30 May 2008 and he had not done so. He had to have known or was to be taken as knowing that he could have served the claim form upon the Defendant by taking it to the Defendant's office. Accordingly, it would be unjust to dispense with service in the instant case. 5.3 UNLESS ORDERS In Tarn Insurance Services Ltd (In Administration) v Kirby & Ors Lawtel 27.1.09 the Court of Appeal held that when exercising the power under CPR r.3.9 to grant relief from sanctions for failure to comply with an unless order, the correct test was whether the unless order remained a proper order in the circumstances at the time of the application for relief. The Respondent had given an undertaking to provide information and documents. He did not comply with the undertaking and the Appellant obtained a freezing injunction against him and an order that he give disclosure of his assets, details of the whereabouts of the monies paid to him by the Appellant and delivery of certain documents, in default of which he would be debarred from defending. The Respondent failed to comply but sought relief from sanctions. The judge found that the Respondent was in breach of the order but gave him additional time to comply on the basis that the Respondent's failure to comply was the fault of his legal advisors, the effect on the Appellant was "relatively slight", that he had a real prospect of successfully defending the proceedings and the seriousness of the allegations was a decisive factor in favour of granting relief. He refused the application for summary judgment. The Court of Appeal held that the judge's exercise of the power under CPR r.3.9 to relieve the Respondent from sanctions was flawed. He had been wrong to attribute the Respondent's failure to comply with the order to misleading advice when the Respondent had stated that he had been fully advised of his disclosure obligations by his legal advisors and admitted that the disclosure he had given was insufficient. The judge should have given proper weight to the serious nature of what was, as he should have appreciated, a deliberate breach of an unless order made to enforce compliance with a freezing injunction. The judge had been wrong in his analysis of the effect on the Appellant of the Respondent's failure to comply. The fact that the Respondent was subject to the freezing injunction was immaterial in that context. The judge should have asked himself whether there was any real prospect of the Respondent complying with the order by the extended date given the history of persistent noncompliance The true test was whether, notwithstanding that the unless order was a proper - 8 -
order to make for the purposes of furthering the overriding objective in the circumstances known at that time, it remained appropriate at the time of the application for relief to allow the sanction to take effect. Applying that test, relief from sanctions should have been refused. It had been a proper order to make and there had been no material change in circumstances. The judge should have granted summary judgment against the Respondent. - 9 -
6 SHIPPING 6.1 CREW MANAGEMENT AGREEMENT In Bernard Schulte Shipmanagement (Bermuda) Ltd Partnership v BP Shipping Ltd Butterworths Law Direct 29.1.09 the Commercial Court ruled on the construction of a contractual term in a crew management agreement. In 1994, the Claimant ship management company and the Defendant company entered a crew management agreement (the 1994 contract). Over the next year, they entered into five further agreements. The contracts provided for monthly lump sum payments, in US dollars and pounds sterling. The lump sums were inclusive of providing the crew and all ancillary services. The parties referred to this as a 'closed lump sum' basis of remuneration. The contracts were open ended, subject to the Defendant giving six months' notice. In the event of that happening, cl 5.9(c) of the 1994 contract provided that compensation equal to one half of the monthly lump sum payment prevailing at the date of termination was payable in relation to the vessel concerned. A side letter amended the contractual regime in 2000, so that the closed lump sum system became an open lump sum system. Apart from three fixed price elements, the monthly lump became an estimate which was subject to adjustment depending on the results of an audit of the Claimant's expenses and costs by the Defendant. A further side letter in 2003 amended the fee structure, so that fees were not to be broken down into the three elements and were instead due at the annual rate of US$1,500,000 and 1,000,000, to be paid monthly in advance in twelve equal instalments. A further side letter in 2006 amended the basis of termination compensation. Para 5 of the 2006 side letter stated that the reference to the monthly lump sum payment in sub-cl 5.9(c) of the 1994 contract was to be deemed to be a reference to the fees in para 4.1 of the 2006 side letter. Para 4.1 referred to fees of US$1,500,000 and 1,067,000 which were to be paid by the Defendant to the Claimant in twelve monthly instalments. In early 2007, the Defendant terminated the relationship with the Claimant. The parties disagreed as to the level of compensation due under the agreements following termination of the contract. The issue was whether the 2006 side letter amended the termination compensation provision so that half the annual fee was payable, as contended for by the Claimant, or half a monthly instalment of the annual fee was payable, as contended for by the Defendant. The court held that the construction contended for by the Claimant was a commercial construction and was the preferable one. By para 5 of the 2006 side letter, the parties substituted for the reference to monthly lump sum payment in cl 5.9(c) of the 1994 contract, a reference to the fees in para 4.1. The fees in para 4.1 were US$1,500,000 per year and 1,067,000 per year. Although these were to be paid monthly in advance in twelve equal instalments, that was simply a matter of mechanics. Accordingly, the obligation in cl 5.9(c) to pay compensation equal to one half of the applicable monthly lump sum payment should be deemed to be an obligation to pay one half of the applicable fees in para 4.1, namely US$1,500,000 per year and 1,067,000. - 10 -
6.2 WITHHOLDING PAYMENTS In Port of Tilbury (London) Ltd v (1) Stora Enso Transport & Distribution Ltd (2) Stora Enso Transport Distribution AB (known as Stora Enso Logistics AB) Lawtel 23.1.09 the Appellant port operator appealed against a decision that it was not entitled to summary judgment on its claim for a payment said to be due under a contract with the Respondent companies. The Respondent was part of a group which made paper products. It had entered into a longterm agreement with the Appellant whereby the Appellant agreed to provide facilities for the handling of the Respondent's paper at the port and the Respondent agreed to provide a minimum annual throughput of paper and to pay for any shortfall between the contractual minimum tonnage and the amount of paper actually imported. In the relevant year, the Respondent imported less than the minimum amount and the Appellant invoiced for the minimum tonnage payment. The Respondent refused to pay alleging that it had been willing and able to import the minimum tonnage and that the shortfall was entirely the fault of the Appellant. The Respondent claimed damages of over 6 million. The Appellant said that the Respondent's breach of their own obligations under the contract led to the failures concerned. The Appellant sued for the minimum tonnage payment and obtained summary judgment from the master. The judge allowed the Respondent's appeal. The contract contained in clause 15 a general prohibition on set-off, deduction or counterclaim save as otherwise expressly permitted in the contract. By clause 8.11, a party was entitled to give notice to withhold a sum otherwise due under the contract in a case of bona fide dispute. The Respondent submitted that clause 8.11 was an express exception to the no set-off regime of clause 15, allowing it to rely on its unliquidated cross-claim arising out of its complaint that the Appellant had failed to provide the services it was bound to provide. The Respondent also submitted that a term should be implied that the Appellant would not be entitled to claim the minimum tonnage payment in respect of periods in which it was not ready, willing or able to carry out the services in respect of products in quantities equal to or above the minimum tonnages provided for in the agreement, consistently, reliably or at all. The Court of Appeal held that the implied term put forward by the Respondent was expressed in such a way that any breach, however small, of the Appellant's service obligations, as long as it affected the respondent's minimum tonnage obligation, had the effect of destroying the minimum tonnage payment obligation. That contrasted with the pro rata reduction of the minimum tonnage requirements provided for in the case of major damage to the facilities. There was nothing absurd about a take or pay minimum obligation. Such provisions were common. No term was to be implied. On its true construction, clause 8.11 was limited to sums which were disputed as to their quantum, so that the claim itself was disputed, without reference to any cross-claim. There was a general exclusion of set-off, deduction or counterclaim in clause 15, subject to express contrary provision in the contract. Clause 8.11 referred to the right to "withhold" a "disputed sum". That was not on the face of it speaking of set-off and counterclaim, but rather of the - 11 -
non-payment of a sum otherwise allegedly due. It was not said that the reason why the sum might be disputed was that it was subject to a set-off of a cross-claim. The clause should not be given that wider meaning. A clause in the contract permitting a party to withhold payment of a sum otherwise due in a case of genuine dispute was limited to disputes as to quantum and did not extend to a dispute where a party sought to set off a cross-claim. 6.3 STATUTORY INSTRUMENTS (1) The Merchant Shipping (Prevention of Pollution by Sewage and Garbage from Ships) Regulations 2008-3257 These come into force on 1.2.09, and prohibit the dumping of plastics in the sea. - 12 -
This Briefing is a summary of developments in the last month and is produced for the benefit of clients. It does not purport to be comprehensive or to give specific legal advice. Before action is taken on matters covered by this Briefing, reference should be made to the appropriate adviser. Should you have any queries on anything mentioned in this Briefing, please get in touch with Sally-Ann Underhill or your usual contact at Reed Smith. Reed Smith Richards Butler LLP Beaufort House 15 St Botolph Street London EC3A 7EE tel 020 7247 6555 fax 020 7247 5091 email sunderhill@reedsmith.com Reed Smith Richards Butler LLP 2009 Reed Smith is a trade name of Reed Smith Richards Butler LLP Reed Smith Richards Butler LLP is a limited liability partnership registered in England and Wales with registered number OC303620 and its registered office at Beaufort House, Tenth Floor, 15 St Botolph Street, London EC3A 7EE. Reed Smith Richards Butler LLP is regulated by the Solicitors Regulation Authority. A list of the members of Reed Smith Richards Butler LLP, and their professional qualifications, is available at the registered office. The term partner is used to refer to a member of Reed Smith Richards Butler LLP or an employee of equivalent standing. Reed Smith Richards Butler LLP is associated with Reed Smith LLP of Delaware, USA [and the offices referred to below are offices of either Reed Smith Richards Butler LLP or Reed Smith LLP]. - 13 -