Another sensible OW Bunker decision

The US Ninth Circuit rightly confirms that the only person who can sue in rem for the price of bunkers supplied is the person who contracted with the operator of the vessel. It’s not enough that you physically pumped the bunkers aboard on the orders of another supplier who contracted to supply them to the ship and then agreed to buy them from you and pay you for them. Quite right too. Those who give credit to the uncreditworthy (in this case — you guessed — OW Bunkers) must be allowed to lose out: that’s business, sonny.

See Bunker Holdings v Yang Ming Liberia, No. 16-35539 (9th Cir., October 11, 2018). And thanks to the Maritime Advocate for the heads-up.

Force majeure and counterfactuals

A nice force majeure issue — and one of considerable importance — came up before Teare J yesterday in Classic Maritime v Limbungan [2018] EWHC 2389 (Comm), argued by IISTL stalwart Simon Rainey QC. Imagine you conclude a contract (in this case a CoA under which you have to provide a number of iron ore cargoes) which in the event you can’t and don’t perform, and never could have performed. An exemption clause in the contract says that if you could have performed it but a force majeure event X (inundations in Brazilian iron ore mines) then occurs that stops you performing it, you are not liable for breach. Event X occurs. Are you (a) in breach of contract, (b) on the hook for substantial damages?

On (a) the answer is Yes. You promised to perform, you haven’t performed, and because you never could have performed in any case you can’t shelter behind the exemption clause.

But what about (b)? There are two ways to look at this. One is to say: this is a simple case of unexcused non-performance, and hence you must be liable to the shipowner for his lost profits on the carriage, a figure amounting to many millions. The other point of view runs thus. If, counterfactually, you could have performed but for X, the shipowner would in the event have had no claim to performance because of the exemption clause. Hence hence it’s no skin off his nose that you didn’t perform, and damages are nominal only. Teare J plumped for the second: nominals only.

This view is highly plausible and for the moment clearly represents the law. It also dovetails quite nicely with the general rule in cases such as The Golden Victory [2007] UKHL 12, [2007] 2 A.C. 353 and Bunge v Nidera [2015] UKSC 43, [2015] 2 CLC 120, that in assessing damages we take into account later events that would have taken away the right to demand performance.

But this case, or the issue in it, may go further. There is a respectable argument, that certainly can’t be dismissed summarily, which suggests a different answer. In so far as the inability to rely on a force majeure clause is due to a party’s own default, which was the case in Classic Maritime, should it be open to that party to argue that if he had acted differently he would have been able to invoke that very same clause? Suppose a force majeure clause requires notice to be given within 7 days after the force majeure event; a party prevented by force majeure nevertheless fails to give notice for 10 days, and thus loses the protection of the clause. Is it really open to the party then to say that if he had given the proper contractual 7 days notice he would have been protected by the clause, the counterparty would have had no right to demand performance, and hence damages are nominal only? I’m doubtful. And I’m equally not sure that this scenario is that different from what happened in Classic Maritime.  It’s just a thought. Whether it’s a good one, only time will tell.

All change for financier assignees — second time lucky with anti-anti-assignment provisions?

The good times seem likely to end finally on 31 December this year for anti-assignment clauses. The Government has published the draft Business Contract Terms (Assignment of Receivables) Regulations 2018, which for SMEs essentially invalidate anti-assignment clauses affecting receivables — i.e. sums payable for goods or services supplied. A few pointers:

1. The prohibition is not limited to assignment to financiers: assignment to debt-collectors, etc, also seems to be protected.

2.  There are anti-avoidance provisions. Any attempt to put conditions on the assignability of receivables is outlawed. The blurb states that a set-off clause is not such a condition: this may be important where, for example, a contract allows set-offs that would not otherwise be pleadable against an assignee. On the other hand, there is some doubt about this: the Regulations do not contain any such provision, and the blurb, of course, is not part of them.

3. There are exceptions. These include financial services, swaps, energy futures, petroleum licences, public-private partnership projects and contracts with national security implications. Importantly there are also two other carve-outs. One is contracts where one or more parties is not acting in the course of a business. This means consumers can, if there is a suitable term, continue to refuse to deal with an assignee. Another is contracts which neither party entered into in the course of a business here: so genuine international contracts remain subject to the old freedom of contract rules. Perhaps suprisingly, rental contracts are also excluded, except when connected with certain forms of financial services.

All in all, these seem an improvement on last year’s regulations (not difficult). As to their effect we’ll have to wait and see.

Ship arrest: no provision for compensation for losses if claim turns out unjustified

You can always expect a scholarly judgment from Teare J. Today he dealt with a long-standing issue in the English law of arrest of ships: the lack of any jurisdiction to demand from the arrester security  for, or payment of compensation for, the losses suffered by the owner if the arrest turns out unjustified. His Lordship confirmed the traditional position, holding that it was for Parliament, or possibly the Rules Committee, to deal with this. If we limited damages for wrongful arrest to cases of malice or gross negligence, he said, it would be inconsistent to give a remedy for arrest not fulfilling these criteria.

In Natwest Markets Plc v Stallion Eight Shipping Co. SA, (the ship MV ALKYON) [2018] EWHC 2033 (Admlty) a bank mortgagee arrested alleging a LTV default; the owner denied default. Unable to secure release by putting up further security, it sought release unless the bank put up security for any losses it suffered in case the bank was wrong. The arrest was, consistently with the above, maintained.

Carriers and bills of lading: an unexpected duty to arbitrate.

An important point for bill of lading holders arose a couple of days ago in the Commercial Court. Everyone knows that you have to watch your back when becoming the holder of a bill of lading, in case you end up with not only the right to sue the carrier but also the duty to foot the bill for an insolvent shipper’s liabilities.

Traditionally the teaching has been: you are safe unless you take or demand delivery of the goods or make a claim against the carrier. It follows that if you are pretty sure you never did any of those things but nevertheless receive a demand from the carrier, you can smugly respond “Nothing doing. Sue me if you dare.” So far so good. But what if you receive a demand for arbitration pursuant to an arbitration clause contained in the bill? Can you still say “See you in court”, or are you now bound to arbitrate the claim, with the risk of losing by default if you do nothing? This was the point that arose in Sea Master Shipping Inc v Arab Bank (Switzerland) Ltd [2018] EWHC 1902 (Comm), where Popplewell J preferred the latter answer.

A bank financed A, a seller of Argentine extracted toasted soya meal, who voyage-chartered a vessel to deliver it to Moroccan buyers. The transaction was a disaster for A, with the deal and a series of replacements falling through and the vessel sailing round North Africa and the Mediterranean, rather like Captain Hendrick’s Flying Dutchman, in search of someone somewhere to love the cargo. Big demurrage liabilities built up. The bank meanwhile acquiesced in the issue of a switch bill with a LMAA arbitration clause incorporated, naming it as consignee. A being (one assumes) insolvent, the owners claimed against the bank and claimed arbitration, alleging the bank was liable either as an original party to the switch bill, or as a transferee of it.

The arbitrators declined jurisdiction, on the basis that there was no evidence the bank had become liable on the bill under s.3 of COGSA 1992 and thus that the bank was not bound by the arbitration clause. However, on a s.67 application Popplewell J disagreed. The arbitration agreement was, he said, separate from the rights and liabilities under the bill itself: as soon as the bank fell to be treated as a party to the bill under s.2 of the Act, it was bound fully by any arbitration provision in it. It followed that the case had to be remitted to the arbitrators with a direction to continue with their hearing of the claim.

A result which, one suspects, will please neither banks nor traders, since it deprives both of the advantage of inertia: but there you are. At least carriers will be happy.

Bank references — undisclosed principals needn’t apply

Banks will, if you will forgive the pun, be laughing all the way to themselves today courtesy of the UK Supreme Court. In Banca Nazionale del Lavoro SpA v Playboy Club London Ltd [2018] UKSC 43  the question was whether a Hedley Byrne duty of care could be invoked by an undisclosed principal. The Playboy Club in London was approached by a Lebanese gentleman, a Mr Barakat, who wanted a cheque-cashing facility of £800,000 to gamble with. The Club, with its usual caution, required a banker’s reference for twice that amount. With Mr Barakat’s permission, and quite properly not wishing to divulge to the bank the reason for Mr Barakat’s desire, it got an associated company, Burlington Street Services, to make the necessary inquiries as its undisclosed agent. The bank gave a positive answer despite the fact that Mr Barakat had no substantial funds deposited with it. Over four days Mr Barakat  gratefully bought £1.25 million of chips with two cheques, won and drew a cool half-million, and then departed. He never came back. His cheques did. Playboy, relying on its position as Burlington’s undisclosed principal, sued the bank for its losses.

Upholding the Court of Appeal, the Supreme Court in short order held that an undisclosed principal, being someone whom ex hypothesi the person giving the advice knew nothing of, could not take advantage of a Hedley Byrne duty of care. Even though we might talk about a relationship akin to contract in connection with Hedley Byrne, said the majority, thise was no reason to extend the anomalous doctrine of the undisclosed principal beyond contract so as to allow the creation of a duty of care in favour of a given claimant when none would otherwise exist.

The Playboy Club will now no doubt either bite the bullet and write its own reference requests, or possibly investigate some more sophisticated device (an assignment by Burlington of its rights in favour of the Club might come to mind). But the decision may have further implications. Many professional negligence claims — for example, against insurance sub-brokers, specialists employed by professional advisers, consulting engineers employed by construction companies, or sub-agents generally — lie exclusively in tort under Hedley Byrne. It now seems that, while a direct client of a professional person may contract as undisclosed agent and give his principal the right to sue the professional in contract in the event of any blunder, the principal will have to be content with this. He will not be able to sue anyone further down the chain. Whether this can be got round by allowing the ostensible client to sue for some notional loss suffered by it is a question that will have to be left to another day: but that day, as a result of Playboy, may well come round sooner than you think.

Where is a debt?

In a case decided today, Hardy Exploration & Production (India) Inc v Government of India [2018] EWHC 1916 (Comm), IISTL member Peter Macdonald-Eggers QC in his judicial capacity faced a nice problem concerning the situs of a debt (vital for issues of third party debt orders, and also issues such as confiscation). We were always told that this was where the debtor was resident, that is, where the debt was recoverable (most recently in Taurus Petroleum Ltd v State Oil Marketing Co [2017] UKSC 64, noted here in this blog). But this can be ambiguous: what if the debtor resides in Ruritania and yet the debt, for example because of an exclusive jurisdiction clause, is recoverable only in Utopia? In this case the answer now seems to be Utopia.

In the Hardy case a claimant had the benefit of an arbitration award for $70 million or so against the Indian government. The government was for its part owed a tidy sum by an indirectly state-owned corporation incorporated in London and doing business there: but the contract creating the debt had what was effectively an Indian exclusive jurisdiction clause. Could a third party debt order be made against the corporation on the basis that the debt was situated in England? No: the debt fell to be regarded as situated in India and beyond the English court’s reach.

On the basis that this blog is for busy practitioners, we will leave it at that. For those interested, there is a great deal more in the judgment: a lot of scholarship, and also more about the third party debt order jurisdiction generally. Happy reading.

Multimodal transport and jurisdiction for cargo claims

It’s hardly news when the ECJ follows its advocate-general. But it has just done so in Zurich Insurance and Metso Minerals [2018] EUECJ C-88/17. If goods are carried multimodally from Finland to England by an English carrier, and stolen in England (as they always seem to be), Art.7(1) of Brussels I Recast says the contract fell to be performed in either England (destination) or Finland (origin) and the owner can sue in either at his option. Just as with air transport: flightright GmbH v Air Nostrum (C-274/16) [2018] EUECJ 274/16. And … that’s it. For comment on the Advocate-General’s opinion, see our blog here.

 

Midsummer blues (if you’re a judgment creditor)

Imagine your clients have just got judgment for zillions against a company. You then find that the man behind it, or one of his pals, has quietly siphoned off the company’s assets to some entity in the back of beyond to make sure your clients never see their money. What can you do? Unfortunately one remedy, a suit against the person responsible for diverting the assets, now seems largely closed off. At least that seems to be the result of an important Court of Appeal decision today, Garcia v Marex Financial Ltd [2018] EWCA Civ 1468.

Foreign exchange brokers Marex had a judgment for a cool $5 million, give or take a few thousand, against a couple of BVI companies owned by one S. Hey presto, when it came to enforcement the cupboard was bare, save for a measly $4,392.48, having (on Marex’s case) been deep-cleaned by S. Marex sued S for dishonestly asset-stripping the BVI companies of something over $9 million, alleging correctly that this amounted to the tort of causing loss by unlawful means.

At this point they were met with a plea that their action was barred by the principle of reflective loss stated in Johnson v Gore Wood [2002] 2 AC 1. Marex’s claim was based on the companies’ loss through the defendants’ wrong of the assets that would have been used to pay  their debt: it was thus the companies’ claim and no-one else could be allowed to piggy-back on it. The defence did not convince Knowles J (see [2017] EWHC 918 (Comm) , noted here in this blog); but it did impress the Court of Appeal. The bar on reflective loss extended to any claim based on a wrong causing loss to the company that had a knock-on effect of causing loss to a third party: it did not matter whether the claimant was a shareholder, a stockholder, a  creditor or anyone else. Nor could the rule be sidelined where (as here) it was practically impossible for the company to sue the wrongdoer: the exception in Giles v Rhind [2003] Ch 618 applied only in rare cases where it was not only factually but legally impossible for the company to sue.

How far this decision generally eviscerates the tort of causing loss by unlawful means where the immediate victim is a company remains to be explored. The fact remains, however, that since today an English judgment against a corporate, as against an individual, defendant has become that less valuable as the ability of third parties to frustrate it with relative impunity has grown. Moral: get that freezing relief as soon as possible. It may be all you have to rely on at the end of the day.

Insurance fraudsters, look out! There are punitives about.

Can an insurer get punitive damages against fraudsters and fraudulent claimants? Until today the matter was doubtful. Although such damages had since Kuddus v Leicestershire Chief Constable [2002] 2 AC 122 been available on principle for all causes of action, they were still subject to Lord Devlin’s other limits in Rookes v Barnard [1964] AC 1129: statute aside, there had to be either public authority wrongdoing or an intent to make gains exceeding any compensation payable. The former was not relevant: as for the latter, even if the fraudster made a gain his liability was not less than but equal to, or — once other heads of damage such as investigation were thrown in — greater than, that gain.

Logical, but from today not correct, courtesy of some slightly tortuous reasoning from the Court of Appeal.

 Axa Insurance UK Plc v Financial Claims Solutions Ltd & Ors [2018] EWCA Civ 1330 (15 June 2018) involved a couple of fraudulent fender-bender-cum-whiplash claims against Axa. Axa, to their credit, smelt a rat. They paid nothing and instead sued the lawyers responsible for making the claims in deceit. In this action they claimed their costs in investigating, and superadded a claim for punitive damages. Reversing the trial judge, the Court of Appeal said they could have the latter, and mulcted each defendant in the sum of £20,000. The requirement for calculation of gains exceeding liabilities was satisfied, it was said, because even if the fraudsters knew they were liable for the full amount of their ill-gotten gains they hoped never in fact to pay; this hope was sufficient to generate the element of hoped-for profit.

The result is welcome, even if the reasoning is a bit surprising. It is also highly significant, since it seems to mean that almost any fraudulent claim against an insurer is now capable of generating a punitive damages liability in the person bringing it if the court thinks fit to exercise its discretion in favour of an award. This presumably includes cases where the fraudster is the claimant himself; although fraudulent claims by policyholders are now dealt with by Part 4 of the Insurance Act 2015, it seems unlikely that this provision was intended to pre-empt the right of the underwriter to sue in tort for deceit if he so wished.

As to when such awards will be made, this is not yet clear. At a guess they are most likely where the whole, or a large proportion, of the claim is bogus: it seems doubtful whether simple exaggeration cases will attract them. But all we can do now is wait and see.