Category: Credit and Security

Caught up in the sanctions web? Not quite: a lucky escape.

The trouble with sanctions, especially with shipping, is that they can hit innocent third parties almost as hard as sanctionees themselves. Full marks, therefore, to Foxton J in Gravelor Shipping Ltd v GTLK Asia M5 [2023] EWHC 131 (Comm) for finding a way to rescue a shipowner caught in the cross-fire when its Russian financiers were fingered by the UK, the EU and the US.

Cypriot owners Gravelor had financed a couple of their small to medium bulkers by a bareboat arrangement with Russian lenders GTLK. These finance charters required hire payments into a Hong Kong account or any subsequently nominated account; they bound Gravelor to purchase the ships at expiry, but also by Clause 19 gave it an option to buy during the charter on three months’ notice on payment of all sums owing plus a “termination amount”. In the event of default, the lenders themselves had a right under Clause 18 to cancel the charter and insist on a sale to Gravelor against payment of all sums due, with a right to sell elsewhere if Gravelor would or could not come up with the money.

Following the 2022 Ukraine debacle, GTLK was sanctioned by the US, the UK and the EU. (It made a half-hearted and decidedly fishy bid to avoid the sanctions by a supposed sale of the business, but we can ignore this here.) At that point the vessels’ insurers and P&I club backed out, and it became illegal for Gravelor to credit the Hong Kong account stipulated in the charter or in any other way to make cash available to GTLK.

To protect its rights, Gravelor immediately gave notice exercising its option to purchase; it paid no more sums in Hong Kong but offered to pay to a blocked account elsewhere. GTLK declared Gravelor in default, gave notice cancelling the charter and rejected Gravelor’s notice exercising the option. It also put in a formal demand for payment under Clause 18; it did disingenuously offer to transfer the vessels against payment to a Russian Gazprom account nominated by it, no doubt hoping that if Gravelor could not do so, this might enable it to get the vessels into its own hands.

Gravelor now sought specific performance of the purchase agreement, arguing either that GTLK had exercised its option to sell under Clause 18 and thereby given them the right to buy, or (which was more advantageous to them) that they themselves had validly exercised their option under Clause 19. Accepting that the latter claim raised triable issues, in the present proceedings they concentrated on the former and sought an immediate interim order for transfer of the vessel.

Despite what might look like serious obstacles, they were largely successful. Foxton J accepted that there was no objection to such an interim order (rightly so: see The Messiniaki Tolmi (No 2) [1982] Q.B. 1248, esp at 1265-1269), if necessary on the basis of paying the higher of the sums due under Clause 18 or 19. By cancelling the charter under Clause 18 the owners had implicitly given notice to Gravelor requiring it to buy the vessels, thus creating a contractual obligation to transfer them, and their demanding payment of sums due had had the same effect.

GTLK then fell back on payment arguments. First, they said that once they had demanded payment into the Gazprom account, this was what was required under the charter, and if for what ever reason Gravelor could not make it (which they clearly could not), then any right of theirs to a transfer of the ship disappeared. Foxton J neatly disposed of this by pointing to clause 8.10, saying that if the owner was sanctioned and payment as stipulated could not be processed as a result, the parties would negotiate another means of payment. This, he said, applied to (in effect) any impossibility of payment, whether by Gravelor or to GTLK. Furthermore, the fact that payment might have to be in Euros rather than dollars did not affect the matter (a point previously decided in the slightly similar case of MUR Shipping BV v RTI Ltd [2022] EWHC 467 (Comm).

Secondly, GTLK then argued that if the only payment open to Gravelor was to a blocked account (which in EU law was the case), this could not amount to payment triggering a right to the vessel. Despite cases like The Brimnes [1973] 1 WLR 386 holding that payment was not payment unless immediately cashable by the payee, his Lordship rejected this too: payment meant payment that would be available to a payee in normal circumstances, even if this particular one had been sanctioned.

GTLK’s last line of defence was that specific performance was inappropriate and damages more appropriate, but this too was quickly disposed of. A distinct line of authority held that if damages might be difficult to extract from a defendant, that itself might make them an inadequate remedy: the judge applied that here, pointing out that quite apart from any credit risk encashing a money judgment against a sanctioned entity would be fraught with difficulty under the sanctions legislation.

Subject to a minor matter of no real importance here, he therefore said in effect that the order should go.

The news is therefore good for Gravelor. But there is an element of luck here. Had the provisions as to payment, or possibly the options to sell or purchase, been different, there might not have been the same result in the Commercial Court. There is something to be said for some general rules about the effects of sanctions on contracts, for example dealing with the effect of payment to a blocked account on contractual rights. But that is a medium to long-term idea.

Meanwhile, both vessels, presumably still manned by Gravelor crews, seem at the time of writing to have been on the high seas in the Baltic, a comfortable distance from the nearest Russian territory (at Kaliningrad). So not only does Gravelor now have an English judgment: it might even have its ships back.

One more move: Decentralised Autonomous Organisations (DAOs)

Over the last couple of years, the Law Commission for England and Wales has successfully launched several law reform projects related to digital assets, smart contracts, and electronic trade documents. With the UK’s target of becoming a tech leader, yesterday, on 16 November 2022, the Commission published a public call for evidence to be delivered by stakeholders on the characterisation and legal regulation of decentralised autonomous organisations (DAOs) – emerging organisational entities.

A DAO, a concept first developed in 2016, is a legal structure without any central governing body that enables the members with a common target to manage the entire entity on the basis of blockchain technology, smart contracts, software systems, and the Ethereum network. As automated and decentralised bodies functioning without human intervention, DAOs serve for transparency and efficiency. Indeed, the use of DAOs is dramatically expanding in today’s financial markets, banking, and corporate governance. With this increasing significance and progressive application amidst to inevitable practical uncertainties and ambiguities, it is getting a more crucial task than ever to seriously ponder upon their operation under the existing legal systems. That is the precise target of the Government asking the Commission to investigate what exactly constitutes a DAO and what are encompassed by their structure.

The Commission has drafted the following questions encouraging everybody with relevant expertise to respond, but not necessarily to all of them:

  • “When would a DAO choose to include an incorporated entity into its structure?
  • What is the status of a DAO’s investors / token-holders?
  • What kind of liability do or should developers of open-source code have (if any)?
  • How does / should the distinction between an incorporated company (or other legal form or incorporated entity) involved in software development and an open-source smart contract-based software protocol operate as a matter of law?
  • How do DAOs structure their governance and decision-making processes?
  • How do money laundering, corporate reporting and other regulatory concepts apply to DAOs, and who is liable for taxes if the DAO makes a profit?
  • Which jurisdictions are currently attractive for DAOs and why?”

The Law Commission aims at reaching a final report which will define the relevant issues under the existing laws of England and Wales as well as determine the potential for further legal reforms.

The call for evidence will last for 10 weeks from 16 November 2022 with the closing date of 25 January 2023. Further details of the project are available at Decentralised Autonomous Organisations (DAOs) | Law Commission.

PAPERLESS TRADE: ANOTHER STEP FURTHER

Charles Darwin had a point. It was not, he said, the strongest of the species that survived, nor the most intelligent, but that most adaptable to change.  So too with law and digital transformation. The government recognises this well. As G7 President, the UK has been actively leading the process to achieve the legal environment for the full digitisation of trade documents. It has now put its money where its mouth is, with its swift introduction in the Lords (on 12 October, only five months after it appeared) of the Law Commission’s draft Electronic Trade Documents Bill.  

The Bill is the outcome of consultations and a later report on how to achieve the digitisation of trade documents and thereby enhance paperless commerce. It aims to cement the legal recognition of electronic trade documents, including most importantly bills of lading, mate’s receipts, ship’s delivery orders, warehouse receipts, marine insurance policies and cargo insurance certificates. (It also includes provisions dealing with commercial paper such as bills of exchange and promissory notes, though these today are a good deal less important.)

Quite right too. Digitisation is an inevitable part of today’s global economy, with big data and cloud-based computing the driving force of industry and its supply chains and the smooth running of trade dependent not only on commercial operations but also to a great extent on the instantaneous turnaround and exchange of the relevant documents. Yet a huge number of the underlying processes and operations still rely “on practices developed by merchants hundreds of years ago.” This matters for us: under the latest statistics from the Department of Trade, international trade is worth around £1.266 trillion annually to the UK.

The problem arises in particular with the paper documentation traditionally used for proving shipment of the goods and their quality, and for their handover while in transit. Pre-eminent among these are bills of lading which not only act as receipts and furnish parties with  significant data about the goods, but also serve as documents of title. The problem is a big one: the Digital Container Shipping Association has estimated that ocean carriers issued 16 million original bills of lading in 2020, more than 99% in paper form, quite apart from the myriad other documents that accompany goods in transit. The exercise in paper-shuffling that this involves is mind-blowing; its threat to the smooth operation of commerce was thrown into stark relief by COVID-19 lockdowns that forced the paper-shufflers to be sent home.  No wonder this accelerated digitisation across the world. As the Law Commission observed, it was partly in response to the complexities brought by the pandemic that the International Chamber of Commerce asked governments to take immediate steps remove legal requirements for hard-copy trade documentation, and to consider longer-term plans for establishing legal frameworks applicable to electronic documents.

The Bill is commendably brief, consisting of only seven clauses. It starts (cl.1) with definitions of “paper trade document” and “qualifying electronic document” before presenting a non-exhaustive list of trade documents affected by it (excluding some more exotic instruments subject to the Uncertificated Securities Regulations 2001, and curiosities such as bearer bonds). Further provisions relate to what is to be regarded as possession, transfer and indorsement of electronic documents (cl.3), and deal with the change of a paper form to an electronic one or vice versa (cl.4).

The nub of the problem is, of course, possession: in English law you cannot in any real sense “possess” a mere stream of electrons. Therefore, in order for an electronic trade document to have similar effects and functionality as its paper equivalent, the Bill in cl.2 lays down gateway criteria. These consist of content requirements, and stipulations about the reliability of the underlying digital system, the “integrity” of an electronic trade document as regards originality and authenticity, the possibility of exclusive control, divestibility of that control, and the reliable identification of the persons in control of a document at any time.

The Commission were rightly aware of the possible impact of the latest innovations and emergent technologies brought by the fourth industrial revolution. In Appendix 6 to its report, it assessed the use of distributed ledger technology (“DLT”) to support trade documents in electronic form. Indeed, it points out that DLT, involving distribution of data among nodes accessible only by secured keys in order to render it effectively tamper-proof, offers very significant possibilities for the acceptance, validity, and functionality of electronic documents in international trade equivalent to that accorded to their paper counterparts. 

These reforms can only be welcomed. If passed, the Bill will undoubtedly facilitate cross-border commerce by cutting unnecessary costs and reducing processing times and delays. Digitising documentation also contributes to sustainability, eco-efficiency, and environmental values by mitigating harmful carbon emissions, quite apart from boost the UK’s reputation as a global centre for international commerce and trade.

If there is a criticism of the Bill, it is its lack of detail. It does not contain any provisions on the procedural aspects of digitisation of documents, the use and exploitation of digitised documentation, or the mechanics of changing its form. In addition, the effectiveness of the gateway criteria might be achieved only upon the adoption of the specific protocols regarding the digital systems, their control mechanisms, and accreditation standards. One suspects in practice that if the bill becomes law, a detailed commentary will become essential for its practical application. This matters: unless such matters are satisfactorily sorted out, an electronic trade document that is effective in one jurisdiction might not be treated in the same way in another. 

Moreover, while trade documents are being transferred across borders, cross-border disputes are at least to some extent inevitable. This means that we will need to give attention to the private international law rules specific to such documents: even if they contain an English choice-of-law clause, this will not necessarily ensure the application of English law to all their aspects. The Law Commission, to its credit, has recognised this. It has already launched a follow-up project on the Conflict of laws and emerging technology to ensure the rules of applicable law and jurisdiction in an increasingly digitised world. This issue is still at the pre-consultation stage – this might mean that unless private international law rules applicable to the related matters are achieved, the current Bill might not be operable or practically effective.

Some other tidying up may also be necessary. There may be a need, for example, to clarify matters by a few further amendments to the Carriage of Goods by Sea Act 1992 and the Bills of Exchange Act 1882 over and above those in cl.6 of the Bill. which are not in line with the latest technological and legal developments and in particular, the new Bill. But even if there is some way to go the Bill is a very important development. We, for one, welcome it.

Professor Andrew Tettenborn

Dr Aygun Mammadzada

VAT, missing traders, and illegality

Any trader’s recurring nightmare is to find that somebody it has bought goods or services from in the UK or the EU has been guilty of VAT hanky-panky. The classic instance is missing trader fraud; the fraudster charges VAT, does not account for it, and vanishes. The difficulty facing the person who paid the VAT is that HMRC, suspicious gentlemen that they are, are apt to disallow the payment unless the trader making it really had no reason to smell a rat. But a little relief came today from Joanne Wicks QC, sitting in the Chancery Division, in the decision in Colt Technology Services v SG Global Group SRL [2020] EWHC 1417 (Ch). The case also gave some useful confirmation on where a debt is payable, which makes it worth a brief note.

Colt Technology, acting through its Italian arm, bought voice trading services (i.e. super-reliable and super-secure real-time voice communication facilities) from Italian company SGG, based in Rome. All went well until Colt’s auditors warned them that there seemed something fishy about SGG, which looked increasingly like a participant in a missing trader ring. Colt, no doubt concerned at its ability to sustain the relevant VAT deductions when faced with a mercenary and sceptical Revenue, suspended payments to SGG totalling, in round figures, $5 million. SGG brought proceedings in Milan for payment, which were still ongoing. But in January 2018 it took the gloves off and served a statutory demand on Colt in England.

Colt defended, and sought to enjoin presentation of a winding-up petition, on the basis that liability was disputed on substantial grounds. These grounds were based on the rules in Ralli Bros v Cia Naviera Sota y Aznar [1920] 2 KB 287 (no enforcement in England of an obligation required to be performed in a jurisdiction where performance was illegal) and Foster v Driscoll [1929] 1 KB 470 (the colourful Prohibition case making it clear that there could be no enforcement here of a contract contemplating acts in a jurisdiction where they were illegal).

They succeeded on the first ground. Arguably payment was illegal under Italian law; furthermore, since SGG were Rome-based, the presumptive rule applied that Colt as debtor had to seek out its creditor and pay it where it was. Importantly, and correctly, the judge also discounted the fact that post-contract SGG had sent invoices asking for payment in California. What mattered was the contract. True, had Colt acted on these the debts would have been discharged; but this did not affect Colt’s underlying duty to pay in Italy and there alone.

Having held for Colt on the Ralli ground, the judge expressed no view on the Foster argument, namely that the contract involved a crime in Italy (duping the Italian fisc). She did, however, observe – again correctly — that on the authorities it did not seem to be engaged, since at the time of the contract Colt had had no idea of any possible plans by anyone to commit illegality.

Colt no doubt heaved a large corporate sigh of relief. But the case shows that traders remain exposed. There is something to be said for some drafting thought here. At least in the case of debtors with decent bargaining power, there comes to mind some kind of protective clause temporarily protecting a party from liability to pay when advised (say) by a lawyer or accountant that there is a possibility of missing trader fraud, unless and until the matter is settled by a suitable court or other tribunal. Over to you, City firms.

International insolvency — English law rights confirmed protected

Shortly after New Year 2018, Hildyard J decided that when an Azeri bank went bust and was put into reconstruction in Baku, the Azeri administrator could not use the Cross-Border Insolvency Regulation to freeze out a couple of creditors in England and Russia whose bond debts were governed by English law. They had refused to have anything to do with the reconstruction, smugly sat back and waited for the reconstruction to finish, knowing that the bank still had English assets that could potentially be seized. (See our blogpost here).

The Court of Appeal has now agreed, in Bakhshiyeva (Foreign Representative of the Ojsc International Bank of Azerbaijan) v Sberbank of Russia & Ors [2018] EWCA Civ 2802 (18 December 2018) . It might or might not be a good idea for England to adopt modified universalism in insolvency and accept, in essence, that the law of a corporation’s home jurisdiction should be controlling in all questions of the enforceability of obligations against it, wherever situated and whatever the law governing them. Indeed, it does just this in EU insolvencies, courtesy of the EUInsolvency Regulation 2015. But established common law authority said that an English court would ignore laws cancelling debts that did not emanate from the state whose law governed them. Further, the CBIR was best read as legislation with procedural, not substantive, aims. It would suspend enforcement of obligations while the reconstruction was going ahead, but would not actually destroy them. Any attempt to use a foreign reconstruction for anything more than that would not be countenanced.

Whether this is the last word we will see. There may be an appeal to the Supremes: the two creditors clearly have the money, and quite a lot rides on the result. However, the view of this blog, for what it is worth, is that this is a delicate matter best left to careful legislative reform, if indeed reform is needed at all. And that’s a bigger if than it looks. Money-men aren’t popular these days, but there is something to be said for the position of the two creditors. No-one has to issue English-law bonds, nor to leave assets in England that can be seized to support the obligations contained in them. And, one strongly suspects, the interest rate on the English-law debt was lower than on Azeri-law debt precisely because of the perceived lower solvency risk. The ability to take the benefit of this and then tell foreign creditors to go fish isn’t, perhaps, something we should be promoting.

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.

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.

Of sales, bills of exchange and arbitration

Picken J today revisited an old chestnut in arbitration law. Suppose you sell goods or services and draw on the buyer for the price (yes, some people still do this), and have a standard arbitration clause referring to “all disputes arising out of or in connection with this Contract”. Does the arbitration clause cover a claim on the bill of exchange, as against one on the underlying contract of sale? Just this happened in Uttam Galva Steels Ltd v Gunvor Singapore Pte Ltd [2018] EWHC 1098 (Comm), where the buyer made a s.67 application challenging an LME arbitration tribunal that had said yes and had then given judgment against it on the bill. In fact the buyer had introduced the point out of time, so the point was a non-starter.  But even without that it would, said Picken J, have failed. On the basis of modern arbitration practice as evidenced in Fiona Trust v Privalov [2007] UKHL 40; [2007] 4 All E.R. 951 parties should not lightly be taken to have agreed to bifurcated dispute resolution according to whether the action was being brought on the bill or on the contract. Dicta in Nova (Jersey) Knit Ltd v Kammgarn Spinnerei GmbH [1977] 1 WLR 713, 731 and the Singapore decision in Rals International Pte Ltd v Cassa di Risparmio di Parma e Piacenza SpA [2016] SGCA 53 failed to convince him otherwise.

On balance it is suggested that his Lordship was right. It is true (as he admitted) that the result is that those who sell under bills of exchange may inadvertently give up the right they would otherwise have to summary judgment on the bill with few if any questions asked under the ‘pay now, sue later’ principle. But summary judgment is equally available under the underlying contract, and the fact that this may be precluded by an arbitration clause never seems to have unduly worried anyone.

If the claim is brought on the bill by an indorsee who is a holder in due course, then presumably the result will be different: the holder here can hardly be bound by any arbitration clause — as indeed was held in Rals International Pte Ltd v Cassa di Risparmio di Parma e Piacenza SpA [2016] SGCA 53, where the claimant was the indorsee of a promissory note. But this need not detain us.

Meanwhile, the sensible reaction for a commercial lawyer is a simple one: say what you want. Where payment is or may be made by a bill of exchange, it is hardly rocket science to draft the arbitration clause to as to embrace “all disputes arising out of or in connection with this Contract, including cases where the claim is brought under a bill of exchange or promissory note”, or (if you prefer) “all disputes arising out of or in connection with this Contract, save for cases where the claim is brought under a bill of exchange, promissory note or similar instrument”. You may do students of commercial law out of a bit of technical learning, but you sure will save your clients a good deal of heartache and very possibly money.

Valuers’ negligence: no claim for more than lender loses

Not often do you find a Supreme Court decision in only 15 paragraphs that is clear, sensible and palpably right. Today we got just that in the valuers’ negligence decision of Tiuta International Ltd (in liquidation) v De Villiers Surveyors Ltd [2017] UKSC 77. Although a land case, this is of equal, and large, significance to ship and other finance.

In 2011 Tiuta lent £2.475 million for a bijou Home Counties development against a valuation by De Villiers of £2.3 million undeveloped / £4.5 million complete, of which no complaint was made. After some months the developers ran into difficulties. In 2012 Tiuta made a new loan of £3.088 million against the same development, of which £2.799 million went to discharge the old loan plus accrued interest, and the balance of £289,000 was new money. This latter advance was made against a new valuation by De Villiers in the sum of £3.5 million undeveloped / £4.9 million complete. Shortly after all this, the developers went bust and Tiuta lost big money.

Tiuta sued De Villiers for their loss, alleging negligence in the second valuation. De Villiers riposted that they could not possibly be answerable for more than £289,000, since even if they had not been negligent Tiuta would still have been exposed to the original, largely irrecoverable, balance of £2.799 million. To everyone’s surprise, a majority in the Court of Appeal disagreed. The 2011 loan had been paid off and was now out of the reckoning: the 2012 loan in the figure of £3.088 million counted as an entirely new advance made against the suspect valuation, and on principle any loss on it was recoverable. McCombe LJ, the dissentient, was left gasping and stretching his eyes (remember Hilaire Belloc’s Matilda?) at the idea that new money injection of a mere £289,000 could give Tiuta, free gratis and for nothing, a claim of up to £3 million that had not been there before.

The Supreme Court swiftly restored orthodoxy. Whether the lenders provided new money of £289,000 and left the existing loan of £2.799 million untouched, or provided a new loan of £3 million-plus which was partly used to pay off the original loan, the result was the same: the only net increase in exposure was £289,000 and that was all that was recoverable. Nor could Tiuta get home by saying that the repayment of the original loan was somehow a collateral benefit to Tiuta: as Lord Sumption observed with merciless logic, it was in fact neither collateral nor a benefit.

Advantage PI insurers, to be sure. On the other hand, this still leaves some questions unanswered. If the first lender had been someone other than Tiuta, the result would presumably have been different. Does this mean that if a lender wants to avoid the result in Tiuta, all it has to do is to make sure that when it lends several times to the same project, each loan is made by a separate subsidiary special purpose vehicle (quite easy to arrange)? One suspects lawyers are already busy dealing with questions like this and advising accordingly.