Atlantik (misplaced) Confidence — the saga continues.

Last year we dealt here with Teare J’s meticulous decision in Aspen Underwriting Ltd & Ors v Kairos Shipping Ltd [2017] EWHC 1904 (Comm), in which following the Atlantik Confidence debacle, hull underwriters, having previously paid out on the orders of her owners’ (Dutch) bank under an insurance assignment provision, now sued the bank to recover their money on the basis that the ship had been deliberately scuttled. The issue was whether the bank could insist on being sued in the Netherlands on the basis of Art.4 of Brussels I Recast. The decision was that most claims, including those based on unjust enrichment, had to be brought in the Netherlands. Howver, claims based on tortious misrepresentation and under the Misrepresentation Act 1967 could be brought here. The fact that such claims related to insurance under Art.14 was no bar, since there was no question of a large Dutch bank being a weaker party who, according to Recital 18 to the Regulation, needed to be protected from the machinations of big bad insurers.

The Court of Appeal has dismissed an appeal (seeAspen Underwriting Ltd & Ors v Credit Europe Bank NV [2018] EWCA Civ 2590). On most points it simply said that the Judge had got it absolutely right. The only exception was that it was not open to a judge, consitently with Euro-law, to take the sensible view and decline to apply Art.14 to anyone he thouht was not in fact a weaker party. But this did not matter, since in Kabeg v Mutuelles Du Mans Assurances (Case C-340/16) [2017] I.L. Pr. 31 the ECJ Advocate-General had since Teare J’s judgment accepted that Art.14 could be disapplied to a subrogee “regularly involved in the commercial or otherwise professional settlement of insurance-related claims who voluntarily assumed the realisation of the claim as party of its commercial or otherwise professional activity”. This was near enough to the position of the bank here to justify ignoring Art.14.

Some good news, in other words, for marine underwriters trying to get their money back from those acting for crooks.  On the other had, the moral we advanced in our previous article still stands: all policies in future ought to contain a term, rigorously enforced, stating that no monies will be paid out save against a signed receipt specifically submitting to the exclusive jurisdiction of the English courts in respect of any subsequent dispute respecting the payment or the policy generally.

 

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.

Foreign banks breathe easier in the US after Supreme Court’s decision on scope of the Alien Tort Statute.

 

 

The US Judiciary Act of 1789, 28 U. S. C. §1350. which is now known as the Alien Tort Statute, provides: “The district courts shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of of the law of nations or a treaty of the United States.” For nearly forty years it has been used as the gateway to bring suits in the US District Courts against individuals and corporations based on alleged violations of norms of international law. The Supreme Court has twice considered the scope of the ATS, in Sosa in 2004, and in Kiobel in 2013, each time limiting its scope. It has now spoken for a third time in Jesner v Arab Bank when it gave judgment last Tuesday, in a majority decision that foreign corporations could not be subject to liability under the ATS.

In Jesner v Arab Bank  foreign plaintiffs sued a Jordanian bank, Arab Bank, alleging that it had helped facilitate financial transactions to terrorist organisations which had then committed attacks in Israel, West Bank and Gaza Strip between 1995 and 2005 during which plaintiffs or their family members were injured. It was alleged that Arab Bank had used its New York branch to clear US dollar transactions which had led to money being sent to the terrorist organisations.

The question framed before the Supreme Court was whether corporations could be held liable under the Alien Tort Statute. The Second Circuit in 2010 in Kiobel had found that corporations could not be held liable under the ATS, and the question was referred to the Supreme Court. However, in 2013 the Supreme Court left the question unanswered and affirmed the Second Circuit’s dismissal by reference to a new question it had raised during argument before it in 2012 concerning the extra-territorial scope of the ATS. The Supreme Court concluded that the presumption that US statutes should not have extra-territorial effect applied to the ATS and would only be rebutted if the claim were to ‘touch and concern the territory of the United States…with sufficient force’.

In Jesner, the Supreme Court gave a partial answer to the question initially framed in Kiobel. The Supreme Court referred to its 2004 decision on the scope of the ATS in Sosa  which set out a two part test. First, was the alleged violation of the law of nations a violation of a norm that  is ‘specific, universal and obligatory’?  Second, would allowing the case to proceed be an appropriate exercise of judicial discretion?

On the first question of whether there is a specific, universal and obligatory norm that corporations are liable for violations of international law, Justice Kennedy expressed the view that there was not such norm, citing the fact that international criminal tribunals had never been given jurisdiction over corporations, but only over natural persons. Justice Roberts and Thomas concurred but this view did not obtain majority support.

The case was decided on the basis of the application of the second Sosa test. By a 5-4 majority the Supreme Court concluded that extending liability under the ATS to foreign corporations should be a matter for Congress to decide, rather than the judiciary. Congress’s intent could be deduced from the fact that a similar statute, the 1991 Torture Victims Protection Act, had been specifically limited to suits against ‘individuals’.  Accordingly, the Supreme Court affirmed the Second Circuit’s dismissal of the suit under the ATS against Arab Bank, a foreign corporation.

The upshot of the decision is that the scope of the Alien Tort Statute has been further restricted in that it no longer permits claims against foreign corporations. The decision may put the final nail in the ATS coffin. However, claims against US corporations, and foreign and US natural persons, could still be made, although the ‘touch and concern’ requirement set out in Kiobel means that there must be a strong link to the US for the claim to proceed. Some Circuits have interpreted the ‘touch and concern’ requirement to mean that the primary violation of international law must have taken place within the US, so excluding claims based on secondary violations for aiding and abetting by US corporations. The Supreme Court has twice denied certiorari to clarify this issue.

Good news for English judgment creditors — oh, and the beneficiary of a credit is who the credit says it is.

In Taurus Petroleum Ltd v State Oil Marketing Company of the Ministry of Oil, Republic of Iraq [2017] UKSC 64 Shell bought two parcels of Iraqi oil in 2013 from the state Iraqi oil company SOMO. Its bank, Credit Agricole in London, issued letters of credit governed by English law naming SOMO as beneficiary, but containing a clause as follows (essentially to comply with the Iraqi sanctions regime):

“[A] Provided all terms and conditions of this letter of credit are complied with, proceeds of this letter of credit will be irrevocably paid in to your account with Federal Reserve Bank New York, with reference to ‘Iraq Oil Proceeds Account’.These instructions will be followed irrespective of any conflicting instructions contained in the seller’s commercial invoice or any transmitted letter.
[B] We hereby engage with the beneficiary and Central Bank of Iraq that documents drawn under and in compliance with the terms of this credit will be duly honoured upon
presentation as specified to credit CBI A/c with Federal Reserve Bank New York.”
Taurus subsequently got an arbitration award against SOMO of something like $9 million, which it wanted to enforce against the benefit of the letter of credit under a TPDO (garnishee in old-fashioned English). Three questions: (1) who was the creditor under the LCs,  SOMO or the Central Bank? (2) where was the debt situated? (3) should a receiver be appointed?
On the situation of the debt, the whole court agreed, reversing the CA, that it was London, where the debtor, the London branch of Credit Agricole, was situated. It followed that the English court had jurisdiction to make a TPDO. There was no reason to treat a LC debt as any different from any other debt: Power Curber International Ltd v National Bank of Kuwait S.A.K. [1981] 1 W.L.R. 1233, regarding such debts as situated in the place of payment, was wrong.
All their Lordships felt that a receivership order was appropriate.
On the identity of the creditor, the decision was by a majority. The majority said, reversing the CA, that it was SOMO. They were named as beneficiaries. The agreement to pay the Oil Proceeds Account in New York made no difference in this respect: it was merely a collateral agreement. (Presumably Taurus had some arrangement with the Central Bank to collect from them: we are not told).
On balance, a good decision for creditors chasing funds through TPDOs. Its effect is essentially that any LC issued by a London bank, even a branch of a foreign institution, now seems fair game, even if payable in Mannhein, Manila or Madagascar. Forget Brexit: London is likely to remain the place to be.

Asymmetric jurisdiction clauses and the Brussels Recast Judgments Regulation 2012

 

 

Asymmetric jurisdiction agreements are a long established and practical feature of international financial documentation. Under a typical asymmetric jurisdiction clause X (say a bank) and Y (say a borrower) agree that Y may sue X in the courts of jurisdiction A only but that X may bring proceedings against Y elsewhere. In Commerzbank Akt v Pauline Shipping and Liquimar Tankers [2017] EWHC 161 (Comm) the bank made various loans for ship purchase which were subject to guarantees on similar terms, including the provision of a clause for the benefit of the bank, conferring jurisdiction on the English courts. The borrowers defaulted and the bank exercised its rights to sell one of the vessels, the Adriadni. The guarantors brought proceedings against the bank in Greece, the first seeking orders that the guarantee of the loan was discharged and it was not liable to the bank, the second seeking damages from the bank in tort and under the Greek Civil Code for loss of the use of the Adriadni consequent on the arrest. The bank then brought proceedings in the English Court which the guarantors sought to stay under either art 29 or art 30 of the Recast Judgments Regulation.

 

Cranston J s held that the asymettric jurisdiction clause in the sale and guarantee contracts did confer exclusive jurisdiction on the English courts pursuant to art 31(2) of the Regulation.  Article 25 did not invalidate such clauses. Article 25 required the parties to have designated the courts of a Member State to enable the law applicable to the substantive validity of a jurisdiction clause to be identified and to provide certainty as to the forum in which a putative defendant can expect to be sued.  Article 25 did not require that a valid jurisdiction agreement had to exclude any courts, in particular non EU Courts. Accordingly, the Court refused to stay proceedings under Art. 29.

 

The Court also rejected an application to stay the English proceedings under Art. 30 concerning related proceedings. The agreement to an exclusive jurisdiction clause in favour of the English court was a powerful factor against a stay. In addition, the degree of relatedness between the English and Greek actions was very small and the English court was placed to determine the issue of interpreting and applying the jurisdiction clause.

 

Arrest of ships and insolvency: the “affaire Hanjin”

The Hanjin debacle, like the previous Pan Ocean collapse, looks set fair to occupy marine lawyers for some time to come. Hanjin, one of the top ten container lines of the world, finally filed for bankruptcy protection in its home jurisdiction of Seoul 9 days ago, on 31 August. This has immediately led to a scramble to issue arrest proceedings against its ships (reportedly carrying over $14 bn worth of other people’s goods): in turn, the story is that a number of Hanjin vessels have been told to circle the seven seas, rather like the Flying Dutchman, rather than put into a port where they might be seized.

All this raises one of the currently sexy issues in ship arrest: how far can foreign bankruptcy proceedings stymie the right a creditor otherwise has to pay himself from the proceeds of the vessel arrested ahead of the owner’s other creditors? The point is particularly important in the Korean context, since Korean law is notoriously unwelcoming towards maritime claims in rem.

In many jurisdictions, including Australia, New Zealand, the US and the UK, this depends on the interpretation of the UNCITRAL Model Law on cross-border insolvency, and in particular how each jurisdiction has taken advantage of Art.20.2 of that provision. It has been decided in Australia (Yu v Pan Ocean (2013) 223 FCR 189, see too Kim v SW Shipping Co Ltd [2016] FCA 428) that maritime lien claimants continue to be able to thumb their noses at general creditors. In New Zealand the courts have gone further and said the same about in rem claimants generally (eg irate cargo claimants or bunker suppliers), provided they issue proceedings before the foreign bankruptcy is recognised (see Kim v STX Pan Ocean [2014] NZHC 845). One suspects the same would follow in England. But the US may well be different: Evridiki Navigation, Inc v Sanko SS Co, 880 F.Supp.2d 666 (2012).

An unanswered question in Australia and New Zealand is what happens to in rem claimants relying on claims — notably by repairers or bunker suppliers — which by local law do not create a maritime lien, but which give rise to such a lien under the law governing the original supply (see The Sam Hawk [2015] FCA 1005).

One place one suspects Hanjin masters may have been told to avoid like the plague is Hong Kong, which applies the old common law rules and which is not in the UNCITRAL system. There the authority seems to say that no account at all is taken of bankruptcy elsewhere as regards priorities: see The Convenience Container [2007] 3 HKLRD 575. Singapore, doubtless, which applies similar principles, will also be given a wide berth.

One is tempted to say that this is a ship’s dog’s dinner. Is it too much to hope that the IMO or some similar body could sponsor a convention to deal with the priorities arising from rights of arrest?

 

IX European Colloquium of Maritime Law Research 2016

This is a free conference taking place in Bilbao, Spain on 14-15 September, at the Bizkaia Aretoa. The theme is maritime liens, mortgages and forced sales. Details here. A large number of excellent speakers, including Profs Erik Røsæg and Paul Myburgh. Two IISTL stalwarts will be speaking, Prof Andrew Tettenborn and Prof Rhidian Thomas.  For information contact Olga Fotinopoulos, Olga.fotinopulos@ehu.eus, Tel + 00 34 945 01 3417.

Penalties, banks and such-like Down Under

Contract law enthusiasts might take heart from today’s long-awaited decision of the High Court of Australia on penalties, Paciocco v ANZ Group Ltd [2016] HCA 28. Essentially four of their Honours (French CJ, Kiefel, Keane and Nettle JJ) say things consistent with Cavendish Square Holding BV v Talal El Makdessi [2015] UKSC 67, decided last November in the UKSC and noted here on this blog: namely, that the test for a penalty is now whether the agreed sum fulfils some legitimate interest in the victim in obtaining performance.  There is agreement to differ on another point (ie whether the penalties doctrine goes beyond breach of contract — the Aussies say it does, we say it doesn’t): but that issue wasn’t raised in Paciocco, and in mentioning it French CJ was merely pointing out that the common law isn’t necessarily one-size-fits-all. This point aside, London and Canberra are singing from a broadly similar hymn-sheet.

The question at stake was late payment fees on credit card accounts — in this case a straight charge of $20. By a majority (Nettle J dissenting) it was held not penal. Advantage banks.

High finance and unfair terms?

There’s something odd when a case about three international banks syndicating a loan of a cool $150 million to a major Nigerian oil company comes hand-in-hand with a reference to s.3 of the Unfair Contract Terms Act 1977. Phillips J clearly thought so too, in African Export-Import Bank v Shebah Exploration & Production Co [2016] EWHC 311 (Comm). Three banks sought summary judgment for money lent. The borrowers, squirming in the way of all borrowers who can’t come up with the ready, raised (among others) arguments that one bank had dragged its feet over making the loan, and that another had broken the terms of a different, earlier, loan, and that as a result they had a sizeable set-off. Not surprisingly, the banks pointed to an anti-set-off clause of a kind that appears in any ordinary syndicated loan agreement. The point was essentially, of course, a delaying tactic: an argument that everything should stop to allow the borrowers to argue that this was part of the lenders’ written standard terms of business under s.3 and, in all the circumstances, unfair. Phillips J admitted that the borrowers might be right in strict law to argue the potential applicability of the section, but gave summary judgment nonetheless. Where, as here, standard terms drafted by an outside body (the LMA) were used, it would have to be shown that such use was almost universal, and that amendment was remarkably rare, before a court would infer that the UCTA was engaged. As he put it, placing his finger on reality:

“In circumstances where commercial parties, represented by solicitors, have utilised a ‘neutral’ industry model form as the basis for a complex and detailed financial contract, executed after the usual process of negotiation, including revising a travelling draft, it will require cogent evidence to raise even an arguable case that the resulting contract is made on the written standard terms of one of those parties. I recognise that it might, in theory, be possible to demonstrate that one party to such negotiations has used the industry standard form as the basis for a set of terms it treats as its own and that it will not in reality countenance substantive changes, but that would be an uncommercial and highly unlikely approach. Parties such as the defendants in this case cannot expect to avoid summary enforcement of the terms of the contracts they have entered by asserting, on the basis of little more than speculation, that their counterparty was engaged in such conduct.”

Quite right too. One can almost hear the sighs of relief in the Square Mile.

AT