Category: Sale of Goods

Ship sales — serious stuff on conditional obligations and deposits

Shipping disputes tend to take contract lawyers back to the serious stuff they vaguely remember from university but couldn’t really grasp at the time. King Crude Carriers SA v Ridgbury November SA [2023] EWHC 3220 (Comm), decided with aplomb and complete correctitude by Dias J – appropriately herself the daughter of a very eminent Cambridge legal academic – is a case in point. If you’re interested in the vital topics of conditional obligations and the rule that you can’t take advantage of your own wrong, read on.

Ship buyers signed 2012 NSF sale agreements for four secondhand Suezmax tankers, under which they agreed to pay a 10% deposit to HFW Greece as stakeholders. It was agreed that both parties would provide “all necessary documentation to open and maintain the [escrow] account without delay;” and that the deposit would be paid three days after HFW had “confirmed in writing to the Parties that the account has been fully opened and ready to receive funds.” A further term, inserted against the background of the COVID debacle, provided that the buyers would take steps to transfer the management of the vessel; that the sellers would, in the event of difficulties, “cooperate and make best endeavours to find a solution;” and that (implicitly) if no solution could be found, the deal would go off.

Transferring management indeed proved difficult, and (on the arbitrators’ findings) the sellers failed to make the necessary reasonable endeavours to deal with the problem. The sellers did, however, do their part to enable the escrow account to be set up. The buyers, by contrast, did not; HFW therefore could not declare the account ready; and no deposits were paid. The sellers resiled, and instituted arbitration proceedings claiming the unpaid deposits.

Could they do so? The point mattered, because if the sellers sought merely damages for breach of contract the buyers had a good case for saying there was no serious skin off the sellers’ nose because as buyers they could quite lawfully have declined to perform their own obligations.

The difficulty with the sellers’ claim was that the duty to pay the deposits was conditional on HFW confirming that there was an account to receive them, which of course had never happened. Faced with this, the sellers argued that the non-fulfilment of this condition should be ignored and the buyers forced to pay anyway. The reason? The civil law doctrine that you can’t pray a condition in aid to escape an obligation if your own wrong prevented it being fulfilled.

This idea has had some traction hitherto, and convinced a majority of the arbitrators. But in an impressive judgment, Dias J fairly comprehensively demolished it. True, she said, a contractor under a conditional obligation normally had a duty not to prevent the condition being satisfied (Mackay v Dick (1881) 6 App Cas 251); true also that, absent some absolutely incontrovertible provision to that effect, you could not activate a contractual right by founding on your own breach of contract (Alghussein Establishment v Eton College [1988] 1 WLR 587). It was also the case that in the specialised instance of debts, once a debt had become payable it prima facie remained exigible even if the debtor’s wrongful act put a spoke in the wheels of the stipulated payment mechanics.

Beyond this, however, the principle that you can’t gain from your own wrong did not go. As Dias J pointed out, if a buyer refuses, however wrongfully, to accept goods he may be liable in damages but can’t be sued for the price. Mackay v Dick, in so far as it supported the civil law conditionality doctrine and held a buyer of machinery liable for the price after he had stymied the holding of a test to confirm whether it was satisfactory, depended on Scots law: she preferred the line taken by Lord Blackburn J (an English lawyer, though Scots by origin) that, in effect, that case involved a buyer who had obtained delivery and was later trying to invoke his own wrongful act to undo the contract.

Following a brief determination by Dias J (again, it is suggested, impeccable) that in this case the deposit became payable not on the signing of the contract but only when HFW declared the escrow account open, and that the latter event could not be dismissed as a mere machinery for payment, it followed that the sellers in this case were limited to a claim in damages. She therefore sent the case back to the arbitrators to quantify these in the light of her judgment.

Moreover, this seems right. The right to claim a deposit against a defaulting buyer is a pretty drastic one, particularly since the deposit may exceed any loss suffered by the seller: taking a strict attitude towards the seller’s right to do so and insisting on a making a seller prove strict compliance with the conditions attached to the deposit seems only fair. If the buyers might indeed have reneged quite lawfully on their obligations because of the sellers’ alleged failure to perform their own , there was not much reason to give them a windfall.

Situations raising tissues of this kind can arise quite often in the case of negotiations and contractual disputes. This decision needs careful reading. Shipping lawyers, you have been warned.

PAPERLESS TRADE: THE ELECTRONIC TRADE DOCUMENTS ACT IS OFFICIAL NOW 

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 the law and digital transformation. The UK government recognises this well.

As the G7 President, the UK has been actively leading the process to achieve the legal environment for the full digitisation of trade documents. The Electronic Trade Documents Bill was first introduced in the House of Lords on 12 October 2022 (See the previous blog post here:  PAPERLESS TRADE: ANOTHER STEP FURTHER – The Institute of International Shipping & Trade Law (IISTL) Blog). Following intense efforts and different stages, the Bill has now the status of law with Royal Assent swiftly received on 20 July 2023. Hence, the UK is the first G7 country to achieve an act to ensure transformation of trade and 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 same as their paper equivalents.

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. Now as we have a law to these ends that is awaiting enforceability in September 2023, the Act will undoubtedly facilitate cross-border commerce by cutting unnecessary costs and reducing processing times and delays adding over £1bn to the British economy over the next decade as estimated. This will also contribute 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.

The Act is commendably brief, consisting of only seven sections. It starts 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). Among others, the Act brings clarity to the concept of possession, transfer and indorsement of electronic documents, and deal withs the change of a paper form to an electronic one or vice versa. The provisions assure their functionality and reliability for the right to delivery of goods or payments of sums of money similar to paper counterparts.

It is worth noting that the Act 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. Indeed, a detailed commentary will become essential for the practical application of the Act. This matters: unless such concerns 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 (the latter is still at the pre-consultation stage).

Needless to say, the Act is a very important development not only for the UK but also globally; most likely, its adoption will become a significant example and the best practice for other jurisdictions. As put by Nigel Huddleston, UK’s Minister for International Trade, “It’s exciting to see the power of technology being harnessed to benefit all industries, reduce paper waste and modernise our trading laws.” It is for us to welcome it!

See: Electronic Trade Documents Act 2023 – Parliamentary Bills – UK Parliament

Insurable Interest in Marine Insurance- The Liberal Spirit Altering the Nature of the Doctrine?

Quadra Commodities SA v. XL Insurance and others [2023] EWCA Civ 432

The assured, a trader of agricultural commodities, entered into a series of contracts for the sale and purchase of grain with companies within the Agroinvest Group. On receipt of warehouse receipts confirming that the relevant quantities of grain were held in common bulk in stipulated warehouses or “Elevators”, the assured paid for the grain. However, it later transpired that a fraud was perpetuated by the Agrionvest Group whereby the commodities stored in warehouses in Ukraine were routinely sold and refinanced multiple times, and ultimately misappropriated via the issuance of fraudulent warehouse receipts. As a result, the goods purchased by the assured disappeared from the warehouses in which they were apparently stored. The assured sought to recover its losses under a marine cargo policy claiming that the insured goods were lost either because they had been misappropriated or because there was a loss by reason of the assured’s acceptance of fraudulent warehouse receipts.  There was no dispute that the loss was covered under the policy which provided cover for “loss of or damage to goods… through the acceptance by the Assured of… fraudulent shipping documents” and/or under a clause that provided cover for loss “directly caused by misappropriation”. The insurers sought to argue unsuccessfully before the High Court [2022] EWHC 431 (Comm) that the assured had no insurable interest in the goods (this was commented on by the author at this blog last year).

The insurers appealed against the decision essentially arguing:

(a) That the first instance judge’s finding that there were goods corresponding in quantity and quality to the purchased cargoes physically present in storage at the time when the warehouse receipts were issued could not be substantiated based on evidence.

(b) That there could be no insurable interest in the goods in circumstances where they did not form part of a bulk which was sufficiently identified (and this was the case here).

(c) That the first instance judge’s finding that the assured could also rely on insurable interest derived from its immediate right to possession of goods by way of warehouse receipts was wrong as this issue should be determined as a matter of English law not Ukrainian law.  

The Court of Appeal upheld the first instance judgment rejecting all the arguments put forward. On (a), the Court of Appeal found that there was “ample evidence” that goods corresponding to the sale contracts and warehouse receipts were physically present. It was appreciated that it was a part of the fraudulent scheme employed here that the same goods were sold to several buyers, but this did not change the fact that the goods corresponding to that amount specified in the sale contract was present as evidenced primarily by the assured’s contemporaneous inspection reports.  

On (b), stressing the fact that the law relating to property in goods is distinct from the question whether a person has an insurable interest in them, the assured relied on a US case from the Supreme Judicial Court of Maine, namely Cumberland Bone Co v. Andes Insurance Co (1874) 64 Me 466. The case was based on English authority and supported the proposition that an assured may have insurable interest in unascertained goods irrespective of whether they form part of an identified or unidentified bulk. The Court of Appeal endorsed the principle in Cumberland Bone stating that it should now be recognized as a principle of English law.   

On (c), the Court of Appeal held that the insurers had failed to call evidence of Ukrainian law on this issue, and it would be procedurally unfair to allow them to contend on appeal that the issue should be determined by reference to English law.

Comments

The outcome of the case did not come as a surprise to the author as it is in line with the recent trend in cases that courts will lean towards finding that an insurable interest exists. It is now clear that the insurable interest in goods will be found not only as a result of legal ownership/title to the goods, or as a result of possession of and a right to possession of the goods (at least when accompanied by an economic interest in the goods) but also when the assured makes payment or part-payment for the unascertained goods irrespective of whether they form part of an identified or unidentified bulk This is a new development and sets a new precedent in that regard in English law highlighting the fact that courts would be nowadays more liberal in finding insurable interest especially if they are convinced that the assured was pursuing a genuine economic interest in obtaining the insurance cover. A contrary outcome in this case would have entitled the insurers to exonerate themselves from liability for a risk they have assumed in the genuine belief that such goods existed even though they have charged the assured a premium for undertaking this potential liability. As Sir Julian Flaux C put it (at [108]) “it is unremarkable that the law should require [the insurers] to fulfil their contractual obligations”.

It is also worth pointing out that the assured’s success in the present case was based on its ability to convince the Court that the corresponding goods existed by providing contemporaneous reports. There is a lesson here for buyers that they should consider commissioning contemporaneous inspections of warehouses (especially when purchasing cargo in bulk from overseas) and also ensure that reports of such inspections are provided and recorded.     

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

Sale of goods and summary judgment for the price: common sense rules.

Sale of goods law can at times be a bit esoteric. When it is, the difficulty can lie in making sure it accords with common sense as practised by businesspeople. Martin Spencer J managed just that today in dismissing what is best described as a pettifogging defence which counsel (absolutely properly, given his duty to his client) had raised to what looked like a straightforward claim for payment for building materials.

In Readie Construction v Geo Quarries [2021] EWHC 3030 (QB) Geo agreed to supply something over £600,000-worth of aggregate to builders Readie for a warehouse project in Bedfordshire. After most of the deliveries had been made and paid for, it turned out that something seemed to have gone badly wrong. Following heavy rain, the aggregate that had been used to form the base of the warehouse had melted into some sort of unprepossessing slush. Readie told Geo to stop deliveries and refused to accept or pay for the final batch, saying that Geo must have supplied the wrong substance. Geo invoiced Readie for the balance of the price and sought summary judgment, invoking the following Clause 4.1 from the sale contract:

“The Customer shall make payment in full without any deduction or withholding whatsoever on any account by the end of the calendar month following the month in which the relevant invoice is dated. If payment is not received in full when due the Customer shall pay interest on the unpaid amount at a rate per annum which is 8% and above Bank of England base lending rate from time to time and the Customer shall pay to, or reimburse the Company on demand, on a full indemnity basis, all costs and liabilities incurred by the Company in relation to the suing for, or recovering, any sums due including, without limitation the costs of any proceedings in relation to a contract between the Company and a Customer incurred in or suffered by any default or delay by the Customer in performing any of its obligations. Payment shall only be made to the bank account nominated in writing by the Company on the invoice. Time of payment is of the essence.” (Our emphasis)

Straightforward, you might have thought? Not necessarily. Readie’s first argument was that the clause didn’t protect a seller who delivered the wrong goods, rather than goods that were correct but bad: after all, if it did, they said, it would mean that a seller who delivered nothing at all, or something obviously irrelevant such as sand, would still have the right to be paid after submitting its invoice. This point Martin Spencer J adroitly — and we on the blog think rightly — got rid of by saying that the right to be paid would be implicitly conditional on a bona fide purported delivery.

The next argument was that Clause 4.1 ousted counterclaims and set-offs but not Readie’s would-be right to abatement of the price. There was authority that some clauses would indeed be interpreted that way. But his Lordship remained unconvinced that this one was of that type: it was comprehensive in its terms, and there was no reason not to interpret it in an accordingly wide way, as requiring the buyer to pay in full, no questions asked, and argue the toss later. This again seems, if we may say so, highly sensible. Hardly any businesspeople know the difference between a set-off and a right to abatement; indeed, one suspects the proportion of practising lawyers is also embarrassingly low. However attractive it might seem to a law professor with time on their hands, one should not lightly assume a clause is meant to invoke a technical legal distinction which lawyers and laypeople alike are largely unfamiliar with.

Lastly, it being accepted that because of a retention of title clause s.49(1) of the Sale of Goods Act 1979 did not give Geo a right to the price on the basis that property had passed, Readie argued that s.49(2), allowing a claim for payment on a day certain irrespective of delivery, did not apply either. The right to payment, they said, was dependent on delivery, or at least purported delivery: how could payment then be due “irrespective of delivery”? The answer, again we suggest correct, was that “irrespective of delivery” means simply “not fixed at the time of delivery”, thus ousting the presumption of cash on delivery reflected in s.28.

To this latter question there might have been an easier answer, save for a curious concession on Geo’s part that they could not succeed in a claim for the price unless they were within either s.49(1) or s.49(2). Since The Res Cogitans [2016] AC 1034 it has been clear that freedom of contract exists as to the time and circumstances when payment becomes due, whether or not either limb of s.49 is satisfied. It must have been at least arguable that Clause 4.1 simply provided its own solution and needed to be applied in its own terms without any reference to s.49 at all. Another note, perhaps, for your for the file on the minutiae of bringing claims for summary judgment for goods supplied.

Recap term in sale contract prevails over printed incorporated terms.

Septo Trading Inc v Tintrade Ltd (The Nounou) [2021] EWCA Civ 718 (18 May 2021) involved a dispute under an international sale contract of fuel oil as to the effect of a quality certificate issued by an independent inspector at the load port  and whether it was intended to be conclusive evidence of the quality of the consignment.

The recap email of confirmation of the sale said that the certificate would be binding on the parties in the absence of fraud or manifest error, but it also provided for the BP 2007 General Terms and Conditions for FOB Sales (“the BP Terms”) to apply “where not in conflict with the above”. Those terms say that the quality certificate will be conclusive and binding “for invoicing purposes”, but without prejudice to the buyer’s right to bring a quality claim. The quality certificate issued by the independent inspector certified that the fuel oil was in accordance with the contractual specification at the load port.

Teare J, [2020] EWHC 1795 (Comm), found as a fact that it was not and held that the BP Terms qualified the Recap term. Had this stood alone, it would have excluded the buyer’s quality claim, but there was no conflict between Recap term and the BP terms which could be read together so as to give effect to both of them. The buyer’s claim succeeded and damages of US $3,058,801 were assessed.

The Court of Appeal, for whom Males LJ gave the leading judgment, have now overruled Teare J and found that there was inconsistency between the two sets of terms and that the Recap term prevailed. Applying the approach adopted by the Court of Appeal in Pagnan SpA v Tradax Ocean Transportation SA [1987] 3 All ER 565, the starting point was the meaning of the Recap term and a provisional view of its meaning needed to be formed, without taking account of the term which is alleged to be inconsistent. The Recap term provided that the quality certificate issued by the mutually acceptable independent inspector is binding on the parties, so that (assuming always that the certificate shows the product to be on-spec) the buyer cannot thereafter bring a claim on the ground that the quality of the product is not in accordance with the contract. Nobody would think, reading the Recap term, that the word “binding” meant “binding for invoicing purposes”.

Next the BP terms had to be considered and Section 1.2 provides that the quality certificate is to be “conclusive and binding on both parties for invoicing purposes” and that the buyer is obliged to make payment in full, but that this is “without prejudice to the rights of either party to make any claim pursuant to Section 26”, that is to say a claim that the product is not in accordance with the specification. This conflicted with the Recap term and the two provisions cannot fairly and sensibly be read together. The printed term did not merely qualify or supplement the Recap term, but rather deprived it of all practical effect.

Similarly, section 1.3 of the BP Terms which provided for a fundamentally different testing regime from that set out in the Recap term was held to have no application. The Recap provided for the independent inspector’s certificate of quality to be binding, with the parties free to agree (as they did) what instructions should be given to the inspector which will lead to the issue of that binding certificate. Section 1.3 undermined this regime by insisting that if the parties agree that the certificate of quality should be based on shore tank samples, it is nevertheless a condition of the contract that the seller must provide the same quality of product at the vessel’s permanent hose connection as set out in the certificate of quality.

“VACCESS”. That AstraZeneca contract – terms and conditions apply.

Following last week’s storm in a vaccine vial between the EU, the UK, and AstraZeneca, a redacted version of the contested contract was published last Friday. Here are the salient provisions, with cl. 18.7 being relevant in the event of the UK placing an embargo on export of vaccines produced at plants within the UK. Clause 5.1 imposes the obligation to use” best reasonable efforts” to manufacture the initial Europe doses. Cl 5.4 again refers to the use of best reasonable efforts to manufacture the vaccine at manufacturing sites within the UK, including those in the UK. This seems to be at odds with what the EU President stated on 29 January that the “best-effort” clause was only valid as long as it was not clear whether AstraZeneca could develop a vaccine.

In construing cl. 13(e) reference needs to be made back to cl.5.1 in determining what “conflicts with or is inconsistent in any material respect with the terms of this Agreement or that would impede the complete fulfilment of its obligations under this Agreement.”

Under clauses 18.4/5 the contract is subject to Belgian Law and Belgian jurisdiction.

“5.1 Initial Europe Dose. AstraZeneca shall use its Best Reasonable efforts to manufacture the Initial Europe Doses within the EU for distribution, and to deliver to the Distribution  Hubs, following Eu marketing authorization, as set forth more full in Section 7. Approximately…..2020 Q1 2021 and (iii) the remainder of the Initial Europe Doses by the end of …..

5.4 Manufacturing Sites. AstraZeneca shall use its Best Reasonable Efforts to manufacture the Vaccine at manufacturing sites located within the EU ( which for the purpose of this Section 5.4. only shall include the United Kingdom) and may manufacture the Vaccine in non-Eu facilities, if appropriate, to accelerate supply of the  Vaccine in Europe….

13 Representations and Warranties.

AstraZeneca represents, warrants and covenants to the Commission and the Participating Member States that:

(e) it is not under any obligation, contractual or otherwise, to any Person or third party in respect of the Initial Europe Doses or that conflicts with or is inconsistent in any material respect with the terms of this Agreement or that would impede the complete fulfilment of its obligations under this Agreement.

18.7. No liability of either party for failure or delay caused by or results from “events beyond the reasonable control of the non-performing party including…embargoes, shortages…(except to the extent such delay results from the breach by the non-performing Party or any of its Affiliates of any term or condition of this Agreement.

The situation or event must not be attributable to negligence on the part of the parties or on the part of the subcontractors.

The non-performing Party shall notify the other Party of such force majeure promptly following such occurrence takes place by giving written notice to the other Party stating the nature of the event, its anticipated  duration (to the extent known) and any action being taken to avoid or minimize its effect. The suspension of performance shall be of no greater scope and no longer durations than is necessary and the non-performing Party shall use Best Reasonable Efforts to remedy its inability to perform and limit any damage.”

Canada and the UK are the countries that have ordered the most vaccines per head of population at 9.6 and 5.5 per person respectively. The figure for the African Union is 0.2 per person.

https://www.theguardian.com/world/2021/jan/29/canada-and-uk-among-countries-with-most-vaccine-doses-ordered-per-person

Negotiating damages — maritime-style

Guest blogpost from James M Turner QC, Quadrant Chambers

In Priyanka Shipping Ltd v Glory Bulk Carriers Pte Limited (“The Lory”) [2019] EWHC 2804 (Comm), David Edwards QC (sitting as a Judge of the Commercial Court) dismissed a common law claim for negotiating damages for the breach of a memorandum of agreement (MOA) for the sale of a ship.

The decision is one of the first to grapple with the recent Supreme Court decision in One Step (Support) Ltd v Morris-Garner [2018] UKSC 20, [2019] AC 649. In that case Lord Reed’s majority judgment issued a corrective to jurisprudence which, since the House of Lords’ decision in AG v Blake [2001] 1 AC 268, had seen the award of negotiating damages at common law “on a wider and less certain basis” than had been the case before Blake.

What are “negotiating damages”? Negotiating damages “represent such a sum of money as might reasonably have been demanded by [the claimant] from [the defendant] as a quid pro quo for [permitting the continuation of the breach of covenant or other invasion of right]”: see One Step at [4]). They are “assessed by reference to a hypothetical negotiation between the parties, for such amount as might reasonably have been demanded by the claimant for releasing the defendants from their obligations” (One Step at [25]).

Negotiating damages are commonly encountered in two situations: so-called user damages in tort; and damages awarded under Lord Cairns’ Act.

A claim for user damages arises where the defendant has used or invaded the claimant’s property without causing direct financial loss: an example commonly given is riding a horse without permission. The defendant, having taken something for nothing, is required to pay a reasonable fee for the use made of the claimant’s property.

As for Lord Cairns’ Act: historically, the Common Law Courts could only award damages for past breaches, i.e., where the cause of action was complete at the date the writ was issued. For the future, litigants had to look to the Courts of Equity for orders for specific performance and injunction etc. However, the latter had no power to award damages. That inconvenience was remedied by Lord Cairns’ Act 1858, section 2 of which (now s. 50 of the Senior Courts Act 1981) allowed the Courts of Equity to award damages as well as or instead of an injunction.

Damages may be awarded under Lord Cairns’ Act for past breaches, but are assessed on the same basis as damages at common law.

Damages in lieu of an injunction for future breaches, on the other hand, cannot be assessed on the same basis as damages at common law, as by definition such damages cannot be awarded at common law. Instead, negotiating damages may be awarded.

The Issue. As will be seen, the issue in The Lory was whether negotiating damages were available at common law for past breaches of the relevant term of the MOA.

The Facts. The Defendant Seller sold the Claimant Buyer its vessel on terms that included clause 19, by which the Buyer undertook that it would not trade the vessel and would sell it only for demolition. However, the Buyer traded the vessel. By the time of the trial, the vessel was completing discharge under her second fixture and was fixed for a third. The Seller claimed damages for or an injunction to restrain breach of clause 19 of the MOA (or both).

The Outcome. The Judge awarded an injunction restraining future trading of the vessel (expressly including the third fixture). Damages could in principle be claimed for the first and second fixtures, but – because they were now in the past – only at common law.

The Judge noted that, once the vessel had been sold and delivered, the Seller no longer had any proprietary interest in it, “no right or ability to use the Vessel to trade, and no right or ability to profit from the Vessel’s use … ”. Although the Seller was entitled to be placed in the position it would have been if the contract had not been breached, “it is not obvious how any further trading of the Vessel by the Buyer … could cause the Seller any loss.” [163].

It was “no doubt” for this reason that no conventional damages claim had been made, but only a claim for a hypothetical release fee. The “critical question”, so far as that claim was concerned, was whether the Seller could bring itself within [95(10)] of Lord Reed’s judgment in One Step and show that “ … the loss suffered by the claimant is appropriately measured by reference to the economic value of the right which has been breached, considered as an asset.” [189]

Lord Reed had made clear that “that such an approach is not available in the case of a breach of any contractual right, but only where: “ … the breach of contract results in the loss of a valuable asset created or protected by the right which was infringed.” The paragraph implicitly regards the relevant asset not as the contractual right itself but as something else, a valuable asset “created or protected by the right”.” [190]

The “valuable assets” that Lord Reed had in mind were essentially proprietary rights and analogous rights such as intellectual property and rights of confidence [193]. The Judge rejected the Seller’s submission that its right under clause 19 was within the same class [196]. The Judge regarded the right under clause 19 as more closely analogous to the non-compete obligation at issue in One Step, which Lord Reed did not consider fell within “the category of cases where negotiating damages were available as a measure of the Seller’s loss” [199].

The claim therefore failed. The Judge did, however, grant permission to appeal. We may not, therefore, have heard the last word on this topic.

James M. Turner QC appeared for the Buyers in this case on the instruction of Alex Andrews and Claire Don of Reed Smith.

Something for the New Year. INCOTERMS 2020 are coming.

INCOTERMS 2010 will be updated to INCOTERMS 2020 which comes into effect on 1 January 2020. The main changes are as follows.

Under FCA if the parties agree, the buyer, at its cost and risk, must instruct the carrier to issue to the seller a transport document (e.g. a bill of lading with an on-board notation) stating that the goods have been loaded, which the seller must then provide to the buyer.

Under CIP sellers will need to obtain cargo insurance cover which complies with Clauses (A) of the Institute Cargo Clauses (LMA / IUA) which, subject to certain exclusions, cover “all risks”, subject to the parties’ right to agree to a higher or lower level of cover.

DAT (Delivered at Terminal) now becomes DPU (Delivered at Place Unloaded).

FCA, DAP, DPU now allow the Seller to use its own transport rather than using a third party carrier.

Security obligations are made more prominent.

No implied term qualifying free standing demurrage provision in sale contract

 In Gunvor SA v CruGas Yemen Ltd [2018] EWHC 2061 (Comm) a term contract of sale was made for the sale of  gasoline by 12 monthly consignments cif Hodeidah. The buyer was named as CruGas Ltd but the claimant argued that the contract was made with CruGas Yemen Ltd, and that it had been unaware that within the relevant group there was a Cayman Islands company named CruGas Ltd. The claimant obtained performing vessels from a separate entity within its group of companies, Clearlake Shipping Pte Ltd (Clearlake), under a long-term contract of affreightment on an amended Asbatankvoy form. It claimed demurrage totalling $18m under the sale contract and claimed against CruGas Yemen Ltd and CruGas Ltd in the alternative. The defendants denied liability for demurrage on three grounds. First, the demurrage claims were time-barred by reason of a demurrage time bar provision in the COA. Second, a term should be implied into the sale contract that the claimant was required to prove the demurrage rates claimed were “in line with the market rate”. Third, the claimant had to prove that it paid the demurrage sums it claimed under the sale contract.

Phillips J first found that the contract had been made with CruGas Yemen Ltd, and then proceeded to reject all three of the buyer’s arguments. First, it was established in OK Petroleum AB v Vitol Energy SA [1995] 2 Lloyd’s Rep 160 that words of general incorporation in a sales contract concerning demurrage provisions in a separate charter did not bring in terms ancillary to the accrual of demurrage, such as time bars relating to the presentation of demurrage claims. Second, there was no justification for the implication of the term contended for, which was neither necessary for the business efficacy of the sale contract, nor would give effect to the obvious but unexpressed intentions of the parties at the time they contracted. In any event, expert evidence from a chartering expert, was that the demurrage rates were all consistent with the market, insofar as such a thing could be said. Third, the demurrage provision under the sale contract was free-standing and not an indemnity.