The Lord Chief Justice a couple of days ago gave a bullish speech in Beijing about London as an arbitration centre post-Brexit. Despite the self-serving nature of the speech, one suspects he may well be right. At least post-Brexit we should with a bit of luck get shot of the ECJ control over jurisdiction; be able to abandon The Front Comor [2009] EUECJ C-185/07, [2009] 1 AC 1138 and go back to issuing anti-suit injunctions against Euro-proceedings that infringe London arbitration agreements; and possibly get rid of tiresome Brussels I provisions that make life difficult for P&I clubs which want to insist on arbitrating here (see, for details, this post). But as usual, to know the details we have to wait and see.
Month: April 2017
Want to stymie a judgment creditor? It’s not as easy as you think.
English courts aren’t best pleased when they give judgment, only to find someone busily trying to frustrate the claimant’s efforts to collect on it. Last year, in JSC BTA Bank v Ablyazov [2016] EWHC 230 (Comm) (noted here on this blog), Teare J very rightly decided that an elusive judgment debtor’s pal was liable in tort to the judgment creditor when he helped the debtor shuffle his assets around in an elaborate “now you see them, now you don’t” exercise. Yesterday, in Marex Financial Ltd v Garcia [2017] EWHC 918 (Comm), Knowles J carried on the good work. Marex had got judgment in England for some $5 million, plus the usual freezing orders, against a couple of BVI companies controlled by SG, a globetrotting businessman. SG thereafter took care to avoid the UK, instead taking steps to spirit away the English assets of his companies to a web of entities in far-flung jurisdictions where it was difficult, if not impossible, for Marex to track them down. Marex thereupon sought permission to sue SG out of the jurisdiction, alleging a tort committed in England. What tort? In so far as SG might be deemed to have acted with the companies’ consent, inducement of breach of contract (i.e. the implicit contract by the companies to pay the judgment debt); and in so far as the companies hadn’t consented and hence he was in breach of duty to them, causing loss to Marex by unlawful means. Knowles J agreed with both limbs of the argument, swiftly disposed of a forum non conveniens point, and allowed service out, thus giving Marex at least a decent chance of getting paid.
Good news, therefore, to judgment creditors. Moreover, while this was a non-EU service out case, note that so long as any relevant monkey-business took place in England, its reasoning will apply equally to EU and EEA-based defendants under Brussels I and Lugano, because the tort “gateway” has been interpreted similarly in both cases since Brownlie v Four Seasons Holdings Inc [2015] EWCA Civ 665; [2016] 1 W.L.R. 1814.
So good luck and good hunting.
A matter of construction. Conflicting arbitration and jurisdiction clauses in time charter.
In London Arbitration 12/17 the tribunal considered a conflict as to law and jurisdiction arose under two clauses in a time charter. Clause 31, headed ‘Law and Arbitration’ provided for mediation and, if the dispute could not be resolved within sixty days, by reference to a single arbitrator, with arbitration to be “[h]eld at London, UK and…conducted in accordance with relevant acts and rules there under excluding any laws, opinions, or regulations that would require application of the laws of any other jurisdiction.” The parties appointed their own arbitrators and a third was appointed by the President of the London Maritime Arbitrators Association (LMAA). Charterers then raised the point that the contract was not subject to arbitration but rather to Egyptian law and jurisdiction pursuant to cl. 21, headed, APPLICABLE LAW, which provided: “This Contract and the relationship of the parties hereunder shall be governed by and interpreted in accordance with the laws of Egypt and parties hereby agree to submit to the jurisdiction of the Egyptian Courts in Cairo.”
The tribunal had to decide, under its general power to make a finding on its own jurisdiction, which clause, as a matter of construction more closely expressed the intentions of the parties. The tribunal found in favour of cl.31 which appeared under the more all-embracing heading: “Law and Arbitration”, whereas Clause 21 appeared under the heading “Applicable Law”, no reference being made in the heading to jurisdiction. Further the reference in clause 31 to attempts at settlement as a prelude to arbitration did not sit with an intention for the Egyptian courts to have jurisdiction.
Undeclared deck cargo and carrier’s right to limit Hague-Visby Rules? Canadian court says ‘yes’.
In De Wolf Maritime Safety BV v Traffic-Tech International Inc (‘The Cap Jackson’) 2017 FC 23, the Federal Court in Canada has held that (1) undeclared on-deck carriage did not prevent the application of the Hague-Visby Rules to the bill of lading and (2) that the carrier was entitled to rely on the limitation provisions in art. IV(5) of the Hague-Visby Rules. The decision on both points is in accordance with English law on the Hague-Visby Rules and deck cargo.
Anticipatory breach and sale of blended cargo.
A victory for IISTL Member, Simon Rainey QC, leading counsel for the seller in Mena Energy DMCC v Hascol Petroleum Ltd. [2017] EWHC 262 (Comm). Disputes arose out of two sales, one of fuel oil, the other of gasoil, to an importer in Pakistan. The first shipment was of fuel oil with a maximum viscosity of 125 centistokes. The shipment required blending on the voyage to reduce its viscosity. On arrival at Karachi import was not permitted following sampling of the vessel’s tanks which showed that the cargo had a viscosity of 192.92 centistokes. The parties then agreed by telephone that the vessel would return to Fujairah where the cargo would be reloaded following further blending and would then return to Karachi. The buyer claimed that no final settlement had been reached but that the parties had merely agreed that if the vessel returned to Karachi by 26 November the existing bills of lading would continue to be used for calculating the price, but if it did not return by then the parties would revert to their rights under the original contract. The vessel returned to Karachi on 30 November and the buyer claimed damages for delay. The court held that the telephone agreement constituted a final settlement of all claims and counterclaims up to that point and that the seller merely undertook to use its best endeavours to ensure the vessel’s return to Karachi by 26 November. Even if the buyers were correct, the evidence showed that the cargo was in fact on spec at the time of the initial arrival at Karachi. The spot samples were drawn before any recirculation of the cargo had taken place. Running samples were more accurate than spot samples and hatch samples more accurate than samples drawn through the vessel’s closed sampling system.
With the second shipment, the buyers were obliged to open a letter of credit by 3 December and had failed to so. The previous day the sellers, seeing that it was clear that the buyers would fail to open the credit on time, cancelled the charterparty they had concluded for shipment. The court held that the obligation to open the credit did not depend on the existence of a charterparty, and that after 3 December, the buyer’s anticipatory breach became an actual breach for which the sellers were entitled to claim damages. In any event, the opening of a credit was a condition precedent to the seller’s obligation to supply the goods and there could be no question of the seller being in breach for failing to deliver cargo in circumstances where no letter of credit had been opened.
Investors — beware how you handle corporate structures
Most serious investors in everything from ships to real estate to businesses act through the medium of ‘tame’ companies. They do this for very good reasons. However, the Supreme Court gave a salutary warning this morning that even the simplest structures of this kind can provide pitfalls for the unwary.
Slightly simplified, in Lowick Rose LLP (in liquidation) v Swynson Ltd [2017] UKSC 32 what happened was this. A wealthy investor H used a wholly-owned special purpose vehicle S Ltd to make a loan of £15 million to EMS Ltd to enable EMS to buy MIA Inc. Due diligence, or rather a lack of it, was provided by accountants HMT, who failed to notice glaring problems with MIA. The trouble quickly surfaced. As a damage limitation exercise H caused S to lend a further £1.75m to EMSL in 2007 and £3m in 2008, H at the same time obtaining a large holding in EMS. Things went from bad to worse, and in 2008 more refinancing was necessary. H personally lent EMS some £19 million, most of which went to pay off EMS’s borrowings from S, with the rest being new money. To no avail: MIA collapsed, and with it the whole house of cards.
H and S sued HMT for losses of some £16 million. At this point an awkwardness arose. HMT was held on the facts to have owed no duty to H. As regards S it admitted negligence, but argued that in so far as S’s loans to EMS had been paid off (by H) the loss was H’s and not S’s. Reversing the Court of Appeal, the Supreme Court decided for HMT. S had indeed suffered no loss. The loan by H to EMS to pay off S was not an unconnected benefit, so as to be regarded as res inter alios acta. Nor could S invoke transferred loss and the rule in Dunlop v Lambert (1839) 2 Cl & F 626; nor yet could H use the doctrine of subrogation to keep the loan from S to EMS alive and claim in the name of S.
A nice windfall for HMT’s professional indemnity insurers, and an unnecessary one. Had H lent the money to S for S to use to refinance EMS, there would have been no problem; H, through S, would have been £16 million to the good. But he hadn’t done that, and that was an end of the matter. As we said above, when using corporate structures any failure to take care to guard your back can be very costly.
Solicitors also note: you are now on notice. Since this decision, unless you take great care in advising on refinancing deals, the SIF is likely to have some less-than-kind words for you too.