A commodities update
Welcome to the June 2011 edition of our Trade Advantage bulletin.
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Negligence / Contractual Liability / Damages / Compensation – (1) CONARKEN GROUP LTD (2) FARRELL TRANSPORT LTD v NETWORK RAIL INFRASTRUCTURE LTD (2011)
This case concerned two appeals arising out of two separate incidents, each resulting in part of the rail network being unavailable for use due to physical damage to the rail infrastructure. The physical damage had been caused by the negligent driving on the highway of drivers employed by the appellant transport companies, Conarken and Farrell (“C&F”).
In each case, as a result of the temporary closure of the line, Network Rail (“N”) became liable to compensate certain train operating companies (“TOCs”) for the financial loss they had suffered by reason of the ensuing disruption to their schedules, under Track Access Agreements between them. Such amount of compensation was calculated by way of an agreed formula. Liability for the cost of repairs to the railway property was admitted, leaving the issue as to the extent of C&F’s liability for the other losses claimed to be determined.
The judge at first instance found in N’s favour, holding that it could recover from C&F the losses representing the sums it had paid to the TOCs, because the type of loss was within the scope of the duty which C&F owed to N and were the reasonably foreseeable consequence of their negligence.
C&F appealed, the issues for the Court of Appeal being whether a liability to make compensation payments to the TOCs under the Track Access Agreements was within the scope of C&F’s duty and not too remote; in other words whether C&F had to pay the contractually agreed sums to N, or whether the sums payable to N also had to be tested according to tortious principles.
The principal authorities as to the recoverability of damages in tort in respect of economic loss were cited and debated during the hearing, upon which the Court of Appeal held, dismissing the appeals, that:
- Two types of loss flowed naturally from the damage to the rail infrastructure which rendered the track unavailable for use, namely the cost of repair and the loss of revenue attributable to the loss of availability of the track itself. Both these types were within the scope of the duty of the tortfeasor.
- The liability of N to compensate the TOCs was a direct consequence of the tort causing the damage to the tracks and such loss was recoverable subject to remoteness principles.
- The agreement between N and the TOCs as regards the amount of compensation payable did not necessarily bind C&F to pay such agreed sum to N. “It is not open to a party to dictate to the whole world the extent of tortious liability and what is reasonably foreseeable and not too remote in order to achieve what it regards as a satisfactory contract with a third party.”
- Making a contract did not grant N a licence to charge the tortfeasor whatever type and quantity of financial loss was included in the agreement, particularly when the terms of the contract were influenced by government policy aims.
- When deciding the extent of a tortfeasor’s liability, the Courts have been prepared to analyse contractual arrangements between the victim and a third party. “The Courts will intervene to assess the reasonableness, as between the claimant and the tortfeasor, of the losses specified in the contract between the claimant and a third party”.
- The scope of C&F’s liability should be determined on ordinary tortious principles.
- In the instant case it was too simplistic to say that because financial loss as a kind of loss is reasonably foreseeable, all financial loss agreed between the victim and a third party is reasonably foreseeable. Had there been no such contract, it would be necessary to analyse the heads of damage and the calculation of the alleged loss claimed. The existence of the contract did not remove the need for analysis of this kind.
- In deciding what was reasonably foreseeable an objective test is to be applied.
- The sums claimed by N were accepted as being reasonable, as between N and the TOCs, and it was further accepted that such payments represented a reasonable and genuine attempt at calculating the financial losses suffered by the TOCs. However, this did not mean that that figure had to be accepted because N were monopoly suppliers of the use of rail tracks and there was no market against which to judge the reasonableness of the figures.
- The agreements had been drafted responsibly and with a view to achieving a fair result, in the public interest (a reliable and punctual train service).
- Applying the relevant principles N could recover from C&F the compensation it had paid to the TOCs.
Laetitia Malan
Arbitration Agreement / Anti-suit Injunctions / Jurisdiction – AES UST-KAMENOGORSK HYDROPOWER PLANT LLP v UST KAMENOGORSK HYDROPOWER PLANT JSC (2011)
The case at first instance was covered in our October 2010 edition of Trade Advantage.
The two companies were incorporated and carrying on business in Kazakhstan. UST had granted AES a 20 year concession to operate a hydroelectric plant in Kazakhstan. The agreement contained an arbitration agreement whereby any disputes were to be governed by and construed in accordance with English law.
Disputes arose and UST issued proceedings in Kazakhstan. AES contested jurisdiction in Kazakhstan and in England on the grounds of the arbitration clause. The Kazakhstan Economic Court found that the arbitration clause was void, whereas at first instance the English court found that there was a good arguable case that AES had an arbitration claim and were entitled to rely on the arbitration clause and entitled to claim relief to restrain a breach of it.
UST appealed to the Court of Appeal. In essence their lengthy judgment dealt with the jurisdiction of the English court and concluded that:
- where there were no arbitration proceedings under the arbitration clause currently in prospect (as neither party currently had a claim they wished to pursue) s.37 of the Senior Courts Act 1981 (formerly known as the Supreme Court Act 1981), but not s.44 of the Arbitration Act 1996, provided a basis as a matter of jurisdiction or principle for the court to grant a declaration or final anti-suit injunction to protect a party’s rights under an arbitration agreement;
- AES had shown a good arguable case for reliance on the jurisdictional gateways it had invoked for service out of the proceedings and was entitled to service out of its English court claim form;
- AES could raise retrospectively an additional jurisdictional gateway to validate service out which it had not relied on when originally seeking permission to serve out of the jurisdiction. There was nothing to say that the court could not apply its discretion in allowing a new gateway, for the same cause of action, to be relied on retrospectively;
- the English court was right to exercise its discretion in not recognising the decision of the Kazakhstan Economic Court that the arbitration clause was void as being against Kazakhstan public policy;
- AES had a good arguable case that it had not submitted to the jurisdiction of the Kazakhstan Court. If it had, it had done so to maintain its objections to that court’s jurisdiction and this was not conclusive for the English court in determining whether it should recognise the Kazakh judgments;
- even if AES had submitted, the court held that there was a statutory insistence (for example in s.32 of the Civil Jurisdiction and Judgments Act 1982) that “issues as to the effectiveness of arbitration and other jurisdiction clauses, and as to the virtues of recognition or enforcement of foreign judgments as the effectiveness of such clauses, are to be settled here … in which case … foreign judgements given in proceedings brought in breach of such clauses ‘shall not be recognised or enforced’”.
Edward Hicks
Arbitration / Enforcement of Awards / Conflict of Laws – YUKOS CAPITAL SARL V OJSC ROSNEFT OIL CO (2011)
Under the rules of the International Commercial Arbitration Court at the Chamber of Trade and Industry of the Russian Federation, a Russian tribunal made awards in favour of the claimant (“Yukos”). These awards concerned intra-group loans which had been made by Yukos amongst a group of oil companies in Russia (“the Yukos Group”), which was subsequently broken up and acquired by Rosneft (owned and controlled by the Russian government).
Yukos had sought to enforce the awards in the Netherlands and applied through the Dutch courts for their enforcement. Before the awards could be enforced by Yukos, Rosneft succeeded in an application before the Russian Arbitrazh Courts to annul the awards. The Dutch courts found that the annulments were the result of a “partial and dependent judicial process” in Russia and that they ought not to be recognised. The awards were therefore allowed to stand and be enforced through the Dutch courts in respect of the loan repayments.
Yukos then sought to enforce the awards in respect of the interest on the intra-group loans in London. Prior to their enforcement the English Commercial Court had to decide on two preliminary issues:
1) Did the decision of the Dutch appeal court give rise to an issue estoppel, which prevented Rosneft from denying the Russian decisions to annul the arbitration awards were the result of a dependent and partial judicial process?
and
2) If there was no such issue estoppel, were Yukos prevented from showing that the annulments were as a result of a dependent and partial judicial process, by virtue of the principles of the “act of state” and non-justiciability?
Issue Estoppel
Following the guidance set down in the The Sennar (No2) (1985) by the House of Lords, the Commercial Court noted that most of the core requirements for issue estoppel were either satisfied or admitted. The Dutch Court had competent jurisdiction of the issue and Rosneft had submitted to that jurisdiction by participating in the Dutch proceedings. The decision of the Dutch court was final and conclusive and the parties in the Commercial Court proceedings were identical to those in the Dutch proceedings. However two further core requirements remained in issue between the parties:
a) Whether the Dutch judgment was made “on the merits”; and
b) Whether the issue in this action is the same issue as that decided by the Dutch court.
Rosneft further suggested that the Commercial Court’s approach should be one of caution; that it should only consider estoppel where the relevant issue had been fully contested (akin to the principle of res judicata); where there was no further scope for re-litigation on the issue in the Netherlands; and where the issue determined by the Dutch court was a fundamental requirement of their ultimate decision in the claim before them. In addition Rosneft contended that the Commercial Court’s decision on estoppel was subject to the overriding consideration of justice, and estoppel should only be granted under “special circumstances”.
The Commercial Court found that it did not especially need to caution itself in approaching the estoppel point, as the issue to be determined (as decided before the Dutch and English courts) was clearly identified. The issue had been fully contested before the Dutch court and it was not open for re-litigation in the Netherlands (having gone to the highest court). In any event the Commercial Court found that there were no special circumstances which prevented their finding of estoppel as prescribed by the core requirements, as laid down in The Sennar (No2). The correct approach was to apply the principles and satisfy the core requirements as above:
“Either those requirements are satisfied or they are not; there is no element of discretion.”
Despite various criticism raised by Rosneft in relation to the Dutch judgments and procedure, especially a refusal to hear evidence or permit Rosneft an appeal to the Supreme Court, the Commercial Court confirmed that:
“Issue estoppel operates regardless of whether or not an English court would regard the reasoning of the foreign judgment as open to criticism [and] a foreign judgment which is final and conclusive on the merits… cannot be impeached for any error either (1) of fact; or (2) of law.”
It was not relevant to recognition of a foreign judgment should a foreign court apply different rules of evidence, contrary to English law, or that the foreign court may have “committed an error of its own procedural rules.” However a defence to recognition of a foreign judgment (and so an issue estoppel) does exist where such procedure “offends against English principles of substantial justice.”
Following expert evidence on Dutch law, the Commercial Court found that the Dutch judgment had been made “on the merits” and that the issue in this action was the same as decided upon in the Dutch courts. The proceedings and procedure of the Dutch courts did not offend English principles of substantial justice to the detriment of Rosneft; Rosneft simply chose not to adduce evidence to persuade the Dutch courts despite it being able to do so. Therefore the Commercial Court declared that Rosneft was issue estopped from denying that the Russian annulment decisions were the result of a partial and dependent judicial process.
Act of State/Non-justiciability
Yukos submitted that there was no rule that prevented the English court from finding a foreign court to be corrupt or lacking in independence. However Rosneft contended that the allegations by Yukos engaged the Act of State principle, whereby the English Court could not be expected to adjudicate on the acts of a recognised sovereign state within its own territories, the judicial abstention principle and the political embarrassment principle.
The Commercial Court confirmed that “the act of state doctrine only applies to challenges to the validity of the act of state relied upon” and so should be construed narrowly. The Commercial Court was not barred from analysing the acts of a foreign state when those acts were incidental to the issue in question. Nor is it restrained by considerations of “political embarrassment”, unless the court is requested not to adjudicate on the matter by the Foreign & Commonwealth Office. The principle of “judicial abstention” turns not on what the court should do, but what it actually can do; as such judicial abstention would likely cover “disputes involving sovereign authority which can only be resolved on a state to state level” e.g. sensitive issues of diplomacy and controversial issues of international law. Therefore:
“the English court can examine whether a foreign court system is lacking in independence notwithstanding that that may involve an examination of the acts of the state which result in that lack of independence.”
Both preliminary issues were therefore decided in favour of Yukos.
Jonathan Woods
Vessel Collision / Apportionment of Blame – THE OWNERS AND/OR BAREBOAT CHARTERERS AND/OR SUB BAREBOAT CHARTERERS OF THE SHIP SAMCO EUROPE v THE OWNERS OF THE SHIP MSC PRESTIGE (2011)
This Admiralty Court case concerned a collision in the Gulf of Aden between the VLCC SAMCO EUROPE and the containership MSC PRESTIGE which caused considerable damage to each of the vessels. A significant claim and counterclaim was made by the parties. In order to ascertain who was to blame for the collision the Admiralty Court considered in detail the navigation of the two vessels and the actions/inactions of the Second Officers who were in charge of the respective vessels. The Court relied in part upon advice from the Elder Brethren of Trinity House, London.
After considering the evidence in the form of ARPA and VDR records from the vessels and various witness statements the Court found that there had been faults in navigation and poor seamanship by both parties. The issue upon which the Court had to decide was how to apportion the blame for the collision and laid out the required approach:
“Liability is to be apportioned in proportion to the degree in which each was at fault; see section 187(1) of the Merchant Shipping Act 1995. It is well established that such apportionment requires the weighing of the culpability and causative potency of the respective faults. Apportionment is not a matter of adding up the faults on each side. Apportionment is a qualitative not a quantitative exercise.”
The Court denied, in principle, that the give way vessel in such a collision had a higher duty than the stand on vessel and so should attract the greater measure of blame. In fact sometimes it was the reverse. However the Court did state that;
“it is right in principle to consider which vessel has created the situation of danger for that will assist in determining the relative causative potency of the each [sic] vessel’s fault.”
The Court reiterated that although the latter principle is correct, the just apportionment in a case will ultimately depend upon an assessment of that potency when “taking into account all the circumstances in the case.” In this instance the Court found that the causative potency of MSC PRESTIGE’s fault was greater than that of SAMCO EUROPE’s and apportioned the blame 60% to 40% respectively.
Jonathan Woods
Part 36 and Part 61 Offers / Costs – THE OWNERS AND/OR BAREBOAT CHARTERERS AND/OR SUB BAREBOAT CHARTERERS OF THE SHIP SAMCO EUROPE v THE OWNERS OF THE SHIP MSC PRESTIGE (2011)
Following the Court’s earlier decision on liability, in which liability was apportioned 60:40 in favour of the owners of SAMCO EUROPE (“SAMCO”), the Court was asked to decide the effect of various settlement offers that had been made between the parties prior to the trial for the purposes of deciding costs. Particularly, the Court had to decide whether a withdrawn offer could still be relied upon for the purposes of deciding apportionment of costs.
In June 2009 the owners of MSC PRESTIGE (“PRESTIGE”) made an offer to settle liability 60:40 in favour of PRESTIGE. The offer was described as a “Part 61 and/or Part 36 offer”.
In September 2009 SAMCO made an offer settling liability 60:40 in favour of SAMCO “in accordance with CPR Part 61.4(10-12) and/or Part 36”. Importantly this was the same apportionment of liability decided by the Court.
Following an unsuccessful mediation SAMCO withdrew their settlement offer in February 2011 and instead offered to settle liability two-thirds:one-third in favour of SAMCO, but on the same terms as the September 2009 offer. The trial at which liability was decided took place in April 2011.
PRESTIGE argued that SAMCO had failed to better their February 2011 offer in Court and that the consequences of the September 2009 offer should not be considered as that offer had been withdrawn. The Court found that although Part 36 offers could not be relied upon for cost consequences when they had been withdrawn by a party, Civil Procedure Rule 44.3 provides that the Court has to consider any admissible offer to which the cost consequences of Part 36 does not apply. In this case the offers had been made additionally in accordance with Part 61 of the Civil Procedure Rules.
A Part 61 offer, which relates specifically to admiralty claims, is not subject to the Part 36 cost consequences and makes no mention of the consequences in relation to a withdrawn offer. Where a party who makes a Part 61 offer subsequently obtains at trial an apportionment equal to or more favourable than his offer, Part 61 entitles that party to all their costs from 21 days after their offer was made. Any costs incurred prior to the expiry of the 21 day period would be apportioned in line with the Court’s decision on liability. As Part 61 is silent as to the effect of withdrawal of an offer, the Court found that the costs consequences of SAMCO’s September 2009 offer were still effective and SAMCO had obtained an apportionment which was equal to their offer. Hence SAMCO, unless the Court considered it unjust, were entitled to all their costs from 21 days after their September offer.
Considering all the circumstances in the case, the Court found that it was not unjust to award SAMCO all its costs from that date. PRESTIGE themselves had made an offer on apportionment and so they were in a real position to assess SAMCO’s offer and accept it. PRESTIGE failed to do so and SAMCO incurred all its subsequent costs as a result of that non-acceptance. Although PRESTIGE argued that the offer had been withdrawn, the Court confirmed that, in accordance with Bristol and West Building Society v Evans Bullock (1996): “an offer, although no longer available for acceptance, retains its costs potency”.
It was ordered that costs incurred before the September offer should be paid in accordance with the finding of liability. PRESTIGE were to pay 60% of SAMCO’s costs and SAMCO were to pay 40% of PRESTIGE’s costs. PRESTIGE also had to pay all of SAMCO’s costs for the period after the September offer.
Jonathan Woods
Bills of Lading / Letters of Indemnity / Enforcement by Shipowners / Claim under Contracts (Rights of Third Parties) Act – GREAT EASTERN SHIPPING COMPANY V (1) FAR EAST CHARTERING (2) BINANI CEMENT LTD (2011)
This case concerns a claim by shipowners under a letter of indemnity (“LOI”) provided by the defendant receivers (“Binani”) of a cargo of coal. As that LOI was supplied to the defendant charterers, Far East Chartering (“FEC”), Great Eastern Shipping Company (“Shipowners”) brought their claim under the Contracts (Rights of Third Parties) Act and alternatively on the basis of a unilateral contract. By the time of the hearing FEC had entered into liquidation.
Facts
Indonesian Shippers entered into a sale contract to supply shipments of coal FOB to a Swiss company, Visa Comtrade AG (“VICAG”). Under this contract quality of the coal was to be determined at loadport. One of these shipments was sold on to the second defendant Binani on a CIF basis by way of an on-sale contract which provided for the cargo to be discharged against a LOI from the receivers if the bills of lading were unavailable. Under the on-sale contract quality was to be determined at disport. During this time disputes arose between VICAG and the Indonesian Shippers to the extent that VICAG refused to pay to take up the bills of lading.
FEC (VICAG’s chartering arm) chartered Shipowners’ vessel (“the Vessel”) to carry coal from Indonesia to India for the on-sale contract. Bills of Lading were issued by Shipowners but they were not picked up by FEC. Both Shipowners and Binani were unaware of this. Instead Binani provided an LOI to FEC. The vessel arrived in India and Shipowners (on instructions from FEC) issued a delivery order to the port authorities in favour of Binani. Following discharge of the coal and departure of the Vessel from disport, Binani wrote to VICAG rejecting the coal. An agreement was eventually reached between VICAG and Binani, whereby Binani agreed to take the cargo at a reduced price, but Binani then retained a large amount of monies owed to VICAG under the agreement on the basis that VICAG had failed to supply the bills of lading.
In the meantime the Indonesian Shippers gave notice of a claim for damages against Shipowners for delivering the coal to Binani without presentation of the original bills of lading. The Indonesian Shippers subsequently arrested a sister ship of the Vessel and Shipowners were forced to put up considerable security. Shipowners then commenced English Court proceedings to enforce the LOI against Binani.
The Letter of Indemnity
The coal sale contract and the voyage charter both provided for the cargo to be discharged against a letter of indemnity if the bills of lading were unavailable. Binani had given such a letter to FEC. Shipowners contended that they were able to enforce that LOI in their own names under the Contracts (Rights of Third Parties) Act 1999 (“the Act”) since FEC had instructed Shipowners to deliver the cargo to Binani. Shipowners were essentially acting in the capacity of agents for FEC as under the terms of the LOI the indemnity extended to “you, your servants and agents”.
Shipowners relied on The Laemthong Glory (2005), where the Court had held that the provisions of a LOI confer a benefit on shipowners in their capacity as agents for the charterers for the purposes of delivering the cargo. Shipowners had also pointed out that the LOI was addressed, amongst others, to “Owners”. As a result, Shipowners claimed they were entitled to enforce the LOI in their own name following section 1 of the Act, which allows a third party to enforce a term of a contract in his own right if it “purports to confer a benefit on him”.
The Shipowners in the present case argued that the situation was indistinguishable from The Laemthong Glory in all but a few minor respects. In addition, there was nothing in the LOI to suggest that the parties did not intend the relevant provisions to be enforceable by Shipowners.
By way of defence Binani firstly argued that Shipowners were acting in ignorance of the LOI, hence they could not accept the terms of the LOI through performance under its terms or otherwise and therefore they could not rely on it as a unilateral contract. Secondly they argued that there was no contract which permitted the Act to be invoked. The LOI in The Laemthong Glory was addressed by intended receivers to voyage charterers whereas in the present case the LOI was provided to FEC for “owners’ confirmation” and so there was no underlying contract between FEC and Binani.
It was further argued that a condition precedent for formation of a contract between Binani and FEC is delivery by FEC of the full cargo. The cargo was not delivered in accordance with the LOI, or as requested. Delivery meant transfer of physical possession of the full cargo and Shipowners did not provide this: instead possession of the goods was transferred by Shipowners to the port authorities who were then issued with a delivery order. Binani submitted that an authority to deliver is not the same as delivery.
Binani further argued that Shipowners were on notice of the claims by the Indonesian Shippers with regard to ownership when only a portion of the coal had been received by Binani. From that time FEC would not have been able to enforce the LOI because the coal actually still belonged to the Indonesian Shippers, who would not give up the bills of lading without payment, which FEC were refusing to do. In addition the liability of Binani was limited to the portion of the coal they received prior to the Indonesian Shippers’ claims and Shipowners’ subsequent revocation of the delivery order.
Finally, Binani argued that as a matter of interpretation and as a matter of public policy, Shipowners were not entitled to be indemnified under the LOI as a result of their deliberate wrongdoing. Again it was contended that Owners knew delivery was wrongful, and this wrong was relied on to obtain and enforce rights under the LOI.
Judgment
It was “clear from the terms of the LOI that it was issued to charterers”.
The definition of delivery was a “question of construction of the LOI”. The discharge of the cargo was sufficient to amount to delivery. The fact that the port authority transferred the cargo to Binani (not directly by Shipowners as contemplated by the LOI) did not matter: to argue that this did not constitute delivery was a “too close and literal an approach to the wording of the LOI”. In this respect the Judge said “a cargo which has reached a port, been discharged and collected by the receiver has been delivered”.
The Judge held that this was not a case with elements of public-policy. Instead it was “a not uncommon saga of a straightforward commercial transaction with some complex aspects going wrong”.
Shipowners claim therefore succeeded. The goods were delivered and the Shipowners were entitled to enforce the LOI, which should be “interpreted in a straightforward and robust way”. Considering that LOI are often issued and relied on by parties whose first language is not English they should not be subject to an overly close textual analysis.
Jonathan Woods / Russell Badrick
