No strikeout for Bangladeshi ship scrapping claim: but don’t hold your breath

As we mentioned on this blog last August, these days you have to be careful who you sell an old ship to. In Begum v Maran [2021] EWCA Civ 326 MUK, the English managers of a Liberian ship fit only for scrap, helped arrange her sale to a buyer who paid fairly handsomely. That buyer proceeded (entirely foreseeably) to have her scrapped by a thoroughly dodgy outfit called Zuma in a dangerous and environmentally irresponsible way on a Bangladeshi beach. A worker engaged in stripping the hulk fell to his death. Prospects of recovery from Zuma being low, if for no other reason because of a local one-year statute of limitations during the running of which nothing had been done, his widow sued MUK as of right in England because of its domicile here, alleging negligence. Jay J decided that it was arguable that MUK had owed the man a duty of care, and that the local limitations law might be circumvented, and refused a strikeout. MUK appealed.

The Court of Appeal yesterday allowed the case to go ahead, though only very grudgingly and on a more limited basis than Jay J. The Court was particularly sceptical on the limitation point. Under Rome II, applicable to the claim as it predated Brexit (and still applicable to post-Brexit claims in its domesticated form), the law governing the claim – including on the subject of limitation – was Bangladeshi. This immediately defeated the claimant unless she could escape it. The judge had regarded as possibly plausible a contention that Art.7 of Rome II allowed her to invoke English law because her husband’s death had resulted from environmental damage caused by an event here – namely, MTM’s arrangements for sale of the ship. But this was dismissed on appeal as unarguable: rightly so, since this simply wasn’t an environmental case in the first place. But the court did see it as arguable – just – that the limitation period was so short that an English court might disapply it on public policy grounds under Art.26 of Rome II, and ordered a preliminary issue on the point.

On the substantive points, the widow argued either that MUK had owed her husband a duty of care on the principle of Donoghue v Stevenson [1932] AC 562, or that MUK’s sale of the vessel when it should have known that it was likely to be dangerously demolished had created an immediate danger to her husband’s life and thus engendered a duty in respect of the bad practices of his employers Zuma.

Giving the lead judgment, Coulson J was very sceptical on the first point. This wasn’t, he said, a case of a disposal of a dangerous thing, but rather the furnishing of an opportunity for a third party to be negligent in respect of a thing not inherently perilous. Whether this could give rise to a duty his Lordship thought very doubtful indeed – but still not quite implausible enough to justify an immediate strikeout. Our view is that the doubts were fully justified. We normally expect employers to look after their employees; to put a duty on third parties to police the behaviour of contractors they engaged in that respect is to say the least drastic. Should I really have to scrutinise or supervise the employment practices of the builder I employ to extend my house in case one of his workers is hurt? It seems doubtful.

On the second point, the difficulty (a considerable one) was the general rule that people were not generally made responsible for the wrongs of others, however foreseeable. But, said Coulson J, there were possible exceptions where the danger in question had been created by a defendant. And while it seemed unlikely that this would apply here, the law was not absolutely clear and the prospect of persuading a sceptical judge to recognise a duty of care wasn’t dismal enough to deny the widow the chance to argue the toss. Her prospects might be slim, but she was entitled to chance her arm.

This case will possibly be hailed in the liberal media as an advance in the campaign to make big business in Britain take responsibility for the activities of its dodgier partners abroad. But commercial lawyers know better than to engage in chicken-counting. Remember, the claimant here only avoided a strikeout by the skin of her teeth. Her chances of recovering much over and above a nuisance value or reputation-saving settlement remain, it seems fair to say, pretty slim.

Oh, and one more thing. The ability to sue a UK-domiciled company here as of right disappeared with Brussels I Recast in a puff of celebratory Brexit firework smoke at 2300 hours on 31 December last. It follows that, barring swift adherence by the UK to the Lugano convention (increasingly unlikely by all the indications), any future claimant basing their complaint on events in a far-off land with no ostensible connection to England will now also face the prospect of a forum non conveniens application. This may well have an appreciable chance of success. There is, after all, no immediately apparent reason why the English courts should act as the policemen of work practices worldwide, hoewever much sympathy we may feel for a claimant personally.

In short, the boardrooms of corporate Britain, and even more those of their liability insurers, may well see some sighs of relief, if not discreet socially-distant celebrations, in the next few days.

Apparent good order and condition: apparent to whom?

Shippers are in the nature of things in a position to know rather more about a cargo they are shipping than the carrier who transports them. This can cause problems, as appears from the Court of Appeal’s decision a couple of days ago in Noble Chartering v Priminds Shipping [2021] EWCA Civ 87. The Tai Prize, a 73,000 dwt bulker owned by Tai Shing Maritime, was voyage-chartered by Priminds from time-charterers Noble to carry a cargo of Brazilian soya beans from Santos to Guangzhou in southern China. They presented clean bills of lading to agents who signed it on behalf of the head owners Tai Shing. On arrival the beans were mouldy and damp; this was due to the fact they had been shipped too wet, something which the master had had no reason to suspect, but which Priminds ought to have realised.

The consignees sued Tai Shing in China and got $1 million (in round figures). Tai Shing claimed in turn from Noble, who settled the claim for $500,000. Noble then claimed this sum from Priminds. They relied on their right of indemnity under the charter and an allegation that a dangerous cargo had been shipped, and also argued that the bill of lading that Priminds had sent for signature had been inaccurate, since a cargo which Priminds had had reason to know was over-wet could not be said to have been shipped in apparent good order and condition. The first two claims were rejected by the arbitrator, and nothing more was heard of them; but the arbitrator allowed the third claim. HHJ Pelling on a s.69 appeal held that she had been wrong to do so (see [2020] EWHC 127 (Comm)). Noble appealed.

The issue was simple. “Apparent good order and condition” means good order and condition “as far as meets the eye” (e.g. Slesser LJ in Silver v Ocean SS Co [1930] 1 K.B. 416, 442). But whose hypothetical eye matters here? The master’s, or that of the shipper presenting the bill? The Court of appeal had no doubt: upholding HHJ Pelling, it decided that it was the former. The master here had had no reason to suspect anything wrong with the soya beans in Santos; Tai Shing had there therefore been entitled (and indeed bound) to sign a clean bill. It followed that the clean bill presented had been correct and not misleading, and equally that Priminds had not been in breach.

The arbitrator’s decision on this had, we suspect, been seen by most as heterodox. We agree, and join what we suspect will be the majority of shipping lawyers in welcoming the Court of Appeal’s decision. It is worth making three points, however.

First, this is actually a hard case, even though it does not make bad law. It is difficult not to have some sympathy for the head owners (and through them Noble). On any normal understanding of the law the head owners, having issued entirely legitimate clean bills, were not liable to the receivers at all. It is perhaps tactful not to inquire too closely into how judgment was given against them for $1 million. Priminds, by contrast, were pretty clearly liable for a breach of contract in shipping wet beans. One can see why the head owners’ P&I Club might have felt sore at becoming piggy-in-the-middle and bearing a loss that by rights ought to have fallen on the shippers who escaped scot-free.

Incidentally, it is worth noting one possibility in this respect. A consignee not infrequently has the option, in a case where it is alleged that a clean bill was improperly issued, to sue either the carrier for failing to deliver a cargo in good condition, or his seller for breach of contract in not shipping it in like good condition. It is in most cases more convenient to sue the carrier, if necessary by threatening to arrest the ship at the discharge port. Nevertheless all may not be lost for P&I interests. It seems at least arguable that they may be able to lay off at least some of the risk by bringing contribution proceedings against the seller as a person who, if sued by the consignee, might also have been liable for the same loss. They do not even have to show that they were in fact liable to the consignee: merely that the claim alleged against them was good in law (see s.1(4) of the Civil Liability (Contribution) Act 1978).

Thirdly, Males J in the Court of Appeal at [57] left open the possibility of the liability of a shipper who presented clean bills when he actually knew of hidden defects in the cargo. This will have to remain for decision on another day. But it is certainly hard to have much sympathy for such a shipper: particularly since there are suggestions that a carrier who knows that a cargo is defective cannot legitimately issue a clean bill merely by looking complacently at impeccable outside packaging and then sanctimoniously turning a Nelsonian blind eye to the horrors he knows lurk beneath it (see e.g. Atkinson J in Dent v Glen Line (1940) 67 Ll.L.L.R. 72, 85).

Got a claim against a subsidiary but would like to go against the parent? We have some bad news.

You have an important ongoing contract with X, a subsidiary of a major foreign conglomerate Y. Then Y re-organises its business in a way that doesn’t involve you. X tells you it is regretfully going to break its contract. Obviously you can sue X; but can you sue Y as well? The result of this morning’s deision of the Court of Appeal in Kawasaki Kisen Kaisha Ltd v James Kemball Ltd [2021] EWCA Civ 33 is that in practice, in the vast majority of cases the answer is No.

Shipping lawyers will know the background. KKK a couple of years ago completed a reorganisation of its business; the container side was merged down into ONE, a joint venture with a couple of ex-competitors. Before the reorganisation, ancillary trucking etc in Europe had been organised by a sub-subsidiary of KKK called K-Euro, which had signed up the claimant JKL to do the haulage. This arrangement was now redundant, and K-Euro told JKL it would not be performing further.

JKL seems to have had a clear breach claim against K-Euro, but was not satisfied with it. History and legal confidentiality do not relate why, but there may have been doubts about K-Euro’s long-term solvency and/or a troublesome limitation of liability clause in the JKL – K-Euro contract. Be that as it may, JKL sued KKK for inducing a breach of contract, and sought to serve out in Japan. Teare J allowed this (see [2019] EWHC 3422 (Comm)); but the Court of Appeal disagreed, on the basis that on the evidence the claim had no realistic prospect of success..

The difficulty was twofold. First, despite the existence of a relationship of corporate control, and indeed substantial overlapping directorships, as between KKK and K-Euro, there was no element of persuasion or inducement by the former of the latter. KKK had not induced or persuaded K-Euro to break any contract. Instead, it had been a matter not so much of persuasion as practical compulsion: KKK had reorganised its business wholesale, with the inevitable (and admittedly entirely foreseen) result that K-Euro was forced to break the old arrangement. That, said the Court of Appeal, was something different. Furthermore, inducement of breach of contract required the defendant in some sense to have aimed his actions against the claimant. But here KKK had in no sense aimed its act at JKL, as might have been the case had it told K-Euro directly to appoint another haulier in its stead: instead, the loss to JKL had been, as it were, mere collateral damage.

This seems right. True, the suggested distinction between persuasion and compulsion needs to be taken with some care: if I threaten never to deal with X again unless X breaks his contract with you, I remain liable under Lumley v Gye (1853) 2 E & B 216, and pointing out that I bullied X rather than gently cajoling him will do me no good at all. Perhaps it is better expressed as the difference between the defendant who at least in some way desires the breach of contract, if only as a means to an end, and is liable, and the defendant who knows the result will be a breach but is otherwise indifferent, who is not. But the precise drawing of the line can be left to another day.

What we are left with is what we said at the beginning. If you contract with a subsidiary company, your chances of visiting the consequences of a breach of contract by the latter on its parent concern are low. As, at least in the view of this blog, they should be. If you contract with one entity, then generally it is to that entity that you should look if something goes wrong: to give you a cause of action against some other part of the corporate pyramid, you should need to show something fairly egregious – like a deliberate subornation of breach. Nothing short of that will, or should, do.

Upstream gas sales: of capacities and counterfactuals

Lack of unambiguous drafting in a gas sales contract landed three hydrocarbon giants in the Court of Appeal today; it also raised a nice point about damages and counterfactuals.

In British Gas v Shell UK [2020] EWCA Civ 2349, Shell and Esso agreed to supply, and BG to buy on a take-or-pay basis, a minimum daily quantity of gas (appearing in the forest of acronyms typical of hydrocarbon contracts as a TRDQ, or Total Reservoir Daily Quantity). The sellers controlled a couple of reservoirs which, together with others, were connected to the well-known Bacton terminal in Norfolk. As might be expected, gas from all the connected reservoirs was commingled before it came on shore, and the owners of the various reservoirs, including the sellers, had a practice of “borrowing” gas from one another to meet variations in demand. In order to protect BG’s interests, the sellers in addition undertook under Clause 6.4 of the contract to “provide and maintain a capacity (herein referred to as the ‘Delivery Capacity’) to deliver Natural Gas from the Reservoirs” amounting to 130% of the relevant daily quantity. If the capacity was reduced, then the sellers had a right to reduce the TRDQ proportionately.

As capacity in the North Sea ran down, the sellers’ capacity to supply from their own reservoirs dipped below the magic figure of 130%, though if you took into account their capacity to borrow gas the capacity remained adequate. BG saw an opportunity to sue the sellers. It argued that (1) “capacity” meant capacity from the sellers’ own reservoirs, excluding borrowed gas; and (2) had the sellers reduced the TRDQ to 100/130 of the reduced capacity, it would have bought in all excess requirements more cheaply elsewhere.

The Court of Appeal held for BG on (1): capacity on an ordinary interpretation meant capacity from the sellers’ own resources, not third parties’, so that the sellers were in breach. On damages, however, it held that BG had suffered no loss. The sellers had had a right, but no duty, to reduce the TRDQ in line with the total capacity; they had not done so; and the fact that they might have avoided being in breach of the 130% stipulation had they done so was beside the point.

The decision in (1) seems right as a matter of interpretation, and also sensible: apart from anything else, capacity clauses exist to assure certainty of supply, and would be somewhat devalued if they took into account possible arrangements that the seller might enter into with third parties.

The damages point is an awkward one, as is always the case with the fiendish counterfactual question “what would have happened if the defendant hadn’t been in breach?” It turns, it is suggested, on a proper interpretation of the sellers’ contractual obligation. Was it (i) to maintain a capacity to supply amounting to at least 130/100 of the TRDQ, or (ii) to set a TRDQ amounting at most to 100/130 of its capacity to supply (not quite the same thing)? Given the provision that there was a right but no duty to reduce the TRDQ in line with capacity, the latter answer seems correct. If so it follows, at least in the view of this blog, that BG’s claim against the sellers for substantial damages was rightly rejected as a claim for failing to do what they had not been bound to do in the first place.

Just one more thing. Before you file this case away as a useful piece of ammunition on the damages point, remember that in every case of this sort, the answer – and often many millions of dollars – is likely to turn on a careful reading of the underlying contract. A decision on one particular piece of wording may well not be a reliable guide to another.

When will a court say “Don’t draw down that bond …” ?

How easy should it be to stop a beneficiary claiming on a performance bond or standby letter of credit? Two cases reported this week (though one was actually decided about ten weeks ago) lead to slightly divergent results.

The first case, decided on Thursday under the name ETC Export Trading v AplasImporter [2020] EWHC 3229 (QB), revolved around what one might diplomatically call a somewhat rum demand under a performance bond. Under a contract containing an English law and London arbitration clause, Swiss sellers agreed to sell $21 million-odd worth of wheat to Aplas, an Ethiopian importer, to be paid for by letter of credit, with (as usual) no duty in the seller to perform unless and until the credit had been opened. In addition the seller was required to open a 10% performance bond in favour of Aplas, Aplas expressly agreeing not to invoke or claim under the bond unless the seller was in breach.

The seller duly instructed its bank, BNP, to open the performance bond. For reasons unexplained, this was done rather indirectly: an outfit called Berhan opened the actual bond, receiving a counterguarantee from Commerzbank, which in turn received another counterguarantee from BNP.

As it happened the deal went off because Aplas never opened the necessary credit. Shortly later, however, Berhan made a demand on Commerzbank, alleging a demand against it by Aplas, though Aplas was to say the least evasive when asked whether it had actually made any such request. ETC was obviously concerned that it would lose something over $2 million, with little hope of recovery, if the demand was paid by Commerzbank and passed back to BNP. It sought an injunction against Aplas on the basis that Aplas would be in breach of contract were the bond to be called. The relevant order sought was an order to Aplas not itself to call in the bond, and to prevail upon Berhan not to take any steps to claim in its name against Commerzbank. ETC also sought an order against Berhan preventing it from making a claim.

ETC succeeded. Having rightly bulldozered away a rather tentative argument that the arbitration clause prevented the court intervening, Pepperall J decided that even if there was not a clear demonstration of fraud, there was a good arguable claim that Aplas would be in breach its obligation were a call to be made. In addition he injuncted Berhan from calling on Commerzbank, since in his view there was a good arguable case that there was no entitlement to payment under the original bond.

His Lordship was clearly right to accept that intervention was possible even where there was no clear case of fraud. Although generally speaking it is not a breach of contract to call on a bond where nothing is in fact owing, provided you do so in good faith (see eg Costain International v Davy McKee (London) Ltd, unrep., CA, 26.11.1990), an express obligation only to call it in when entitled to payment is on a different footing: see Sirius International Insurance v FAI General Insurance [2003] 1 WLR 2214 and more recently Simon Carves v Ensus UK [2011] EWHC 657 (TCC); [2011] B.L.R. 340. Slightly more interesting is the basis of the claim against Berhan, which was not in contractual privity with ETC. Although it is clearly a good idea for the court to be able to injunct unjustified calls on bonds right down the line of promises and counterguarantees, it is not entirely clear what the foundation of this right could be. Perhaps one should draw a discreet veil over that aspect of the case, but remind lawyers that there remains room for serious argument here.

More problematic, however, and certainly more significant, was Pepperall J’s use of words like “good arguable claim” as the standard for court intervention. This is problematical, in that the traditional standard for injuncting the beneficiary, as much as the provider, of a bond is the test sometimes called the “enhanced merits” test. Under that test, the claimant must proffer clear evidence plus strong corroboration. Otherwise, the reasoning goes, we lose the benefit of regarding the bond as effectively a cash substitute in the hands of the beneficiary.

Admittedly on the facts of ETC itself the distinction between the two tests probably didn’t matter, since it is difficuIt to avoid concluding that the drawdown was indeed clearly prohibited under the contract. But the point is an important one, and a different answer is suggested by Foxton J in the second case, decided last September, Salam Air v Latam Airlines [2020] EWHC 2414 (Comm).

Salam involved a claim on a standby letter of credit, similar in many ways to a performance bond, given to back rental payments under a dry aircraft lease. The lessee was an Omani airline in dire straits following COVID, that was desperate to escape the contract. (It even went so far as a quixotic, if hopeless, plea that the whole arrangement was frustrated by the effective closure of Omani skies to virtually all but cargo planes). The claim by the lessee was made against the lessor to prevent it operating the standby credit.

Foxton J was having none of it, and dismissed the application. This was unsurprising. On the facts the rentals remained owing, and even if they did not there was no express promise not to invoke the credit. It followed that the doctrine of autonomy applied as of course.

His Lordship did go on to say, however, that in his view all claims to prevent payment under letter- of-credit-type instruments, be they letters of credit proper, bonds or standby credits, were on principle subject to the “enhanced merits” test. Furthermore, this applied whether they were brought against the credit institution giving the bond or the beneficiary wishing to claim on it, and whether the basis of the claim was fraud or breach of an express undertaking not to claim under the instrument. (Although unable entirely to escape the Court of Appeal outlier in Themehelp v West [1996] QB 84 which might suggest the contrary, he essentially said it ought to be limited to almost identical facts). In other words, the beneficiary’s right to have the instrument treated as cash in his hands trumped any arguments based on breach of contract.

Which leaves us with the question: where there is an alleged express undertaking not to draw on an instrument, should we be talking “good arguable claim” or “enhanced merits”? The view of this blog is the latter. Absent a clear demonstration of a reason for unenforceability, such bonds should remain as good as cash in the bank, and subject to the doctrine of “pay now, argue later”. If businessmen don’t like that, then they shouldn’t agree to give bonds, or if they do they should provide for them to be operable only against some document that independently verifies the counterparty’s claim.

Intransigent defendants: Prestige 4.0

Most parties who lose English court cases or arbitrations give in (relatively) gracefully. In the long and ongoing Prestige saga, however (already well documented in this blog: see here, here, here, and here), the French and Spanish governments have chosen to fight tooth and nail, something that is always apt to give rise to interesting legal points. Last Friday’s episode before Butcher J (SS Mutual v Spain [2020] EWHC 1920 (Comm)) was no exception, though in the event nothing particularly novel in the way of law emerged.

To recap, nearly twenty years ago the laden tanker Prestige sank off northern Spain, grievously polluting the French and Spanish coasts. Steamship Mutual, the vessel’s P&I Club, accepted that it might be potentially liable to direct suit up to the CLC limit, but pointed out that its cover was governed by English law, contained a “pay to be paid” clause and required arbitration in London. Nothing daunted, the French and Spanish governments came in as parties civiles when the owners and master were prosecuted in Spain, and claimed their full losses. The Club meanwhile protected its position by obtaining declaratory arbitration awards in England against both governments that all claims against it had to be arbitrated here; for good measure it then successfully transmuted these awards into High Court judgments under s.66 of the 1996 Arbitration Act (see The Prestige (No 2) [2013] EWHC 3188 (Comm). These decisions the French and Spanish governments blithely ignored, however; instead they took proceedings in Spain to execute the judgments they had obtained there.

In the present litigation, the Club’s claim (slightly simplified) was against both governments for damages for continuing the Spanish proceedings, based either on breach of the arbitration agreement, or in the alternative on failure to act in accordance with the s.66 judgments. The object, unsurprisingly, was to establish an equal and opposite liability to meet any claim asserted by the governments under their judgments in the Spanish proceedings.

The Club sought service out on the French and Spanish governments: the latter resisted, arguing that they were entitled to state immunity, and that in any case the court had no jurisdiction.

On the state immunity point, the Club succeeded in defeating the governments’ arguments. The proceedings for breach of the arbitration agreement were covered by the exception in s.9 of the State Immunity Act 1978 as actions “related to” an arbitration agreement binding on the governments. Importantly, Butcher J regarded it as unimportant that the proceedings did not relate to the substantive matter agreed to be arbitrated, and that the governments might be bound not by direct agreement but only in equity on the basis that they were third parties asserting rights arising from a contract containing an arbitration clause.

The proceedings on the judgments, by contrast, were not “related to” the arbitration agreement under s.9: understandably so, since they were based on failure to give effect to a judgment, the connection to arbitration being merely a background issue. But no matter: they were covered by another exception, that in s.3(1)(a), on the basis that the breach alleged – suing in the teeth of an English judgment that they had no right to do so – was undoubtedly a “commercial transaction” as defined by that section.

The judge declined to decide on a further argument now moot: namely, whether suing abroad in breach of an English arbitration agreement was a breach of a contractual obligation to be performed in England within the exception contained in s.3(1)(b) of the 1978 Act. But the betting, in the view of this blog, must be that that exception would have been inapplicable: there is a big and entirely logical difference between a duty not to do something other than in England, and an obligation actually to do (or omit to do) something in England, which is what s.3(1)(b) requires.

State immunity disposed of, did the court have jurisdiction over these two governments? Here the holding was yes, but only partly. The claim based on the s.66 judgments was, it was held, subject not only to the Brussels I Recast Regulation but to its very restrictive insurance provisions dealing with claims against injured parties (even, note, where the claims were being brought, as some were in the case of Spain, under rights of subrogation). Since the governments of France and Spain were ex hypothesi not domiciled in England, but in their respective realms, there could be no jurisdiction against them.

On the other hand, the claims based on the obligations stemming from the arbitration award were, it was held, within the arbitration exception to Brussels I, and thus outside it and subject to the national rules in CPR, PD6B. The only serious question, given that the arbitration gateway under PD6B 3.1(10) or the “contract governed by English law” gateway under PD6B 3.1(6)(c) pretty clearly applied, was whether there was a serious issue to be tried as to liability in damages. Here Butcher J had no doubt that there was, even if the governments were not directly party to the agreements and the awards had been technically merely declaratory of the Club’s rights. It followed that service out should be allowed in respect of the award claims.

Further than this his Lordship did not go, for the very good reason that he had no need to. But in our view the better position is that indeed there would in principle be liability under the award claims. If, as is now clear, an injunction is available on equitable grounds to prevent suit in the teeth of an arbitration clause by a third party despite the lack of any direct agreement by the latter, there seems no reason why there should not also be an ability to an award of damages, if only under Lord Cairns’s Act (now the Senior Courts Act 1981, s.50). Further, there seems no reason why there should not be a an implied obligation not to ignore even a declaratory award by suing in circumstances where it has declared suit barred.

For final answers to these questions we shall have to await another decision. Such a decision might even indeed come in the present proceedings, if the intransigence of the French and Spanish governments continues.

One other point to note. The UK may be finally extricating itself from the toils of the EU at the end of this year. But that won’t mark the end of this saga. Nor indeed will it mark the end of the Brussels regime on jurisdiction, since the smart money is on Brussels I being replaced with the Lugano Convention, which is in fairly similar terms. You can’t throw away your EU law notes quite yet.

An odd decision over contribution, but no need to worry.

As they used to say as often as they could in the Hitch-Hiker’s Guide to the Galaxy, “Don’t panic!”

What rules govern contribution proceedings between tortfeasors? In Roberts v SSAFA [2020] EWCA Civ 926 a little boy, presumably a service child, was injured in hospital in Germany owing to SSAFA’s negligence. SSAFA claimed contribution from the MoD, alleging they were concurrently liable. The MoD said, correctly, that German law applied to the contribution proceedings and under German law they were out of time. SSAFA said yes, but then struck a remarkably nationalistic note. The English Civil Liability (Contribution) Act 1978, it argued, ought to apply to all proceedings in the English court even if the liability would otherwise be governed by foreign law: and since that said the claim against the MoD wasn’t statute-barred that was an end of it.

One decision directly in point, Arab Monetary Fund v Hashim [1994] CLY 3555, supported SSAFA; the law professors, by contrast, broadly supported the MoD. The Court of Appeal, after a lengthy analysis of the 1978 Act, came down on the side of SSAFA: on a proper interpretation the Act it, and its scheme of liability, were meant to apply to any proceedings brought here, full stop.

To put things neutrally, this blog would have been with the law professors. The decision will hardly do much for comity; nor does the result make much sense as part of a sensible scheme of private international law, since where it applies it is an open invitation to come and do some socially-distanced forum-shopping in England.

But, as we said at the beginning, don’t panic. The parties’ names in this case might well have been not Roberts and SSAFA but Jarndyce and Jarndyce: the events took place as long ago as 2000 (!). Since 2009 we have had a more sensible rule about contribution in Art.10 of Rome II, which essentially subjects contribution claims to the law governing the main tort. In just about every case you come across these days, barring outliers like this one, it will apply. Whatever else you may think of the EU, Rome I and Rome II are much better provisions than the common law rules they replaced; and even better than that, it seems a racing certainty they will they will continue serenely on post-Brexit. So litigation lawyers can pour that large gin and tonic with a clear conscience this evening.

Careful who you sell that ship to!

Safety in ship recycling has been a priority of the EU for more than seven years. Under EU Regulation 1257/2013, in force since 2018, there is a complex system of EU approval of ship recycling facilities, it being illegal to send an EU-registered ship for recycling to an unapproved facility (meaning as often as not a not-very-deserted beach in India or Bangladesh, where she is broken up essentially by hand). This Regulation is to be retained EU law post-Brexit, though from the end of this year it will be significantly narrowed, in that it will only apply to UK-registered vessels (i.e. pretty few).

But quite a lot of ship recycling is outside the regulation. A case in point was the Maran Centaurus, a vessel previously in the news as the victim of a high-profile Somali hijacking in 2009 that led to payment of a then-record ransom of about $7 million. Owned by Greek interests, at the end of her life she was reflagged to Palau and sold to a buyer for demolition, who in turn resold her to a beachside Bangladeshi concern. During demolition a worker operating in very dangerous conditions was killed. His widow rightly concluded that the demolishers were not worth powder and shot. She instead sued the owner’s managing agents, a UK company who acting under the owners’ instructions had arranged the sale, alleging that it should have been foreseeable that unless they took steps to ensure that the vessel ended up in the hands of responsible breakers she would be broken up — as she was — without any serious regard for worker safety. The agents denied fault and applied for a strikeout, on the basis that a seller of a ship owed no duty in respect of dangerous practices that might later occur in relation to her. This was not, they said, a case of damage caused by hazardous materials aboard the vessel injuring a worker: there was nothing more here than a sale indirectly to a person likely to have a less than satisfactory attitude to industrial safety.

This writer has quite a lot of sympathy for this view. But in Begum v Maran (UK) Ltd [2020] EWHC 1846 (QB) Jay J declined a strikeout, regarding it as highly arguable that, despite the vessel herself not being unusually hazardous, this was a case where the defendants had created a foreseeable risk of harm and as such potentially owed a duty of care to the worker concerned.

Note that this is not a holding that there was a duty of care: merely that the argument that there was one wasn’t a non-starter. Nevertheless, it should worry shipowners everywhere (and cause them to check on their insurance coverage). It might even extend further: for example, what of a shipowner who sells (or bareboat charters) a vessel to an operator known to have a dodgy safety record: the logic of the Maran case seems to apply here too, and if it is followed we cannot rule out liability in the seller or owner.

Admittedly the if might be a biggish one. We said that we had sympathy for the defendant’s argument. The chances are that this case will now settle so we won’t ever get a final answer here. But the defendants’ case is strong. The case for making owners responsible for policing the safety records of disponees is by no means obvious, any mote than it is obvious that in selling my car I should have to take care lest the buyer is a known drink driver. It may well be worth fighting this issue again if, as seems highly likely, it comes back to the English courts in another case.

Of weekend sailors, docks and marinas.

Decisions that amuse law professors often end up as footnotes in law books because they’re not very significant in the great run of things. One suspects this is true of Teare J’s erudite judgment about marinas today in Holyhead Marina Ltd v Farrer [2020] EWHC 1750 (Admlty), but it’s still worth a short note.

Holyhead marina, like most marinas, is a floating labyrinth of wooden pontoons and walkways designed to cram in as many weekend sailors’ prides and joys as it can. A couple of years ago it was hit by Storm Emma and boats moored there suffered over £5 m worth of damage. The hull insurers sued, whereupon the marina raised the issue of limitation, claiming that under s.191 of the MSA 1995 it could limit liability to a fairly piddling sum based on the limitation figure applicable to the largest vessel (yacht) that had visited it in the previous five years.

This gave rise to the first issue: the right to limit was limited to “docks”. Was a marina, an erection that floated on water rather than solid land that abutted it, a “dock” — a term that included “wet docks and basins, tidal docks and basins, locks, cuts, entrances, dry docks, graving docks, gridirons, slips, quays, wharves, piers, stages, landing places and jetties”? Teare J had no doubt that it was, despite its relative insubstantiality and lack of any connection with commercial shipping. We suggest that this must be right. True, a mere buoy or dolphin shouldn’t be a dock, but beyond that essentially anywhere where vessels can tie up and people can board and disembark should be included. It is useful to have confirmation that s.191 will be generously construed, and technical pettifogging about the definition of a dock discouraged. Insurers now know where they stand.

A few minor points. First, the hull insurers argued that Holyhead was guilty of conduct breaking limitation. Although Teare J refused to strike out this plea as hopeless, he was clearly very sceptical of it, again one suspects with reason. Secondly, the hull insurers advanced a hopeful argument that because the marina was in vhf contact with users all over Holyhead Port, its limit fell to be reckoned by that applicable to the large Irish Sea ferry that visited the port. This received short shrift: what mattered was the area of which the marina was in effective physical or legal control.

Thirdly, an interesting question: why didn’t the marina have a clause limiting its liability to the yacht owners who used it under contract? Or did it, but was it sceptical of the ability of such a clause to withstand scrutiny under the Consumer Rights Act 2015 (yachtsmen being consumers)? It’s likely we’ll never know. But marinas up and down the kingdom, together with their liability insurers, might do well to look through their standard contract terms, if they wish to avoid having to argue the toss in future about an obscure provision in the Merchant Shipping Act.

Prestige 3.0 — the saga continues

The Spanish government and SS Mutual are clearly digging in for the long haul over the Prestige pollution debacle eighteen years ago. To recap, the vessel at the time of the casualty was entered with the club under a contract containing a pay to be paid provision and a London arbitration clause. Spain prosecuted the master and owners and, ignoring the arbitration provision, came in as partie civile and recovered a cool $1 bn directly from the club in the Spanish courts. The club meanwhile obtained an arbitration award in London saying that the claim against it had to be arbitrated not litigated, which it enforced under s.66 of the AA 1996 and then used in an attempt to stymie Spain’s bid to register and enforce its court judgment here under Brussels I (a bid now the subject of proceedings timed for this coming December).

In the present proceedings, London Steam-Ship Owners’ Mutual Insurance Association Ltd v Spain (M/T PRESTIGE) [2020] EWHC 1582 (Comm) the club sought essentially to reconvene the arbitration to obtain from the tribunal an ASI against Spain and/or damages for breach of the duty to arbitrate and/or abide by the previous award, covering such things as its costs in the previous s.66 proceedings. By way of machinery it sought to serve out under s 18 of the 1996 Act. Spain claimed sovereign immunity and said these further claims were not arbitrable.

The immunity claim nearly succeeded, but fell at the last fence. There was, Henshaw J said, no agreement to arbitrate under s.9 of the State Immunity Act 1978, which would have sidelined immunity: Spain might be bound not to raise the claim except in arbitration under the principle in The Yusuf Cepnioglu [2016] EWCA Civ 386, but this did not amount to an agreement to arbitrate. Nor was there, on the facts, any submission within s.2. However, he then decided that s.3, the provision about taking part in commercial activities, was applicable and allowed Spain to be proceeded against.

Having disposed of the sovereign immunity point, it remained to see whether the orders sought against Spain — an ASI or damages — were available in the arbitration. Henshaw J thought it well arguable that they were. Although Spain could not be sued for breach of contract, since it had never in so many words promised not to sue the club, it was arguable that neither Brussels I nor s.13 of the 1978 Act barred the ASI claim in the arbitration, and that if an ASI might be able to be had, then there must be at least a possibility of damages in equity under Lord Cairns’s Act.

No doubt there will be an appeal. But this decision gives new hope to P&I and other interests faced with opponents who choose, even within the EU, to treat London arbitration agreements as inconsequential pieces of paper to be ignored with comparative immunity.