Another bad week for Shell. Supreme Court allows Okpabi appeal

Yesterday, the Supreme Court, for whom Lord Hamblen gave judgment, allowed the appeal in the Okpabi Nigerian oil spill case against Shell’s UK parent, Royal Dutch Shell, Okpabi & Ors v Royal Dutch Shell Plc & Anor [2021] UKSC 3 (12 February 2021). This comes shortly after the decision of the Dutch Court of Appeal in parallel proceedings involving oil spills in other parts of Nigeria with claims against Shell’s Dutch parent and its Nigerian subsidiary.

The Supreme Court criticised the approach of both the court at first instance and of the Court of Appeal in allowing what was in effect a mini-trial based on the voluminous evidence before the Court. This was incorrect for interlocutory proceedings. Legally, in the light of the Supreme Court’s decision in Vedanta  which was given after the Court of Appeal’s judgment in Okpabi, various errors of law were apparent in the approach of the majority of the Court of Appeal.

The case made against RDS was that it owed the claimant a common law duty of care because, as pleaded, it exercised significant control over material aspects of SPDC’s operations and/or assumed responsibility for SPDC’s operations, including by the promulgation and imposition of mandatory health, safety and environmental policies, standards and manuals which allegedly failed to protect the appellants against the risk of foreseeable harm arising from SPDC’s operations. The issue of governing law pointed to the application of Nigerian law under the Rome II Regulation and it was agreed that the laws of England and Wales and the law of Nigeria wee materially the same.  The majority of the Court of Appeal (Simon LJ and the Chancellor) held that there was no arguable case that RDS owed the appellants a common law duty of care to protect them against foreseeable harm caused by the operations of SPDC. Sales LJ delivered a dissenting judgment in which he explained why he considered there was a good arguable case that RDS did owe the appellants a duty of care.

The pleaded case and the legal argument in the courts below focused on the then understood threefold test for a duty of care set out in Caparo Industries plc v Dickman [1990] 2 AC 605 and, in particular, whether there was sufficient proximity and whether it would be fair, just and reasonable to impose a duty of care. This was incorrect in the light of this court’s decision in Vedanta, where Lord Briggs had stated [49] “the liability of parent companies in relation to the activities of their subsidiaries is not, of itself, a distinct category of liability in common law negligence”.

The appellants recast their case based on Vedanta with the following four routes:

(1)              RDS taking over the management or joint management of the relevant activity of SPDC;

(2)              RDS providing defective advice and/or promulgating defective group-wide safety/environmental policies which were implemented as of course by SPDC;

(3)              RDS promulgating group-wide safety/environmental policies and taking active steps to ensure their implementation by SPDC, and

(4)              RDS holding out that it exercises a particular degree of supervision and control of SPDC.

Apart from corporate material from the Shell group there was also the evidence of Professor Jordan Siegel who produced an expert report in 2008 in litigation in the United States involving RDS’s immediate predecessors as SPDC’s parent companies. He considered that these documents showed that “The Royal Dutch/Shell Group of Companies tightly controls its Nigerian subsidiary, SPDC. This control comes in the form of monitoring and approving business plans, allocating investment resources, choosing the management, and overseeing how the subsidiary responds to major public affairs issues.” He summarised various corporate documents that post-dated his 2008 report and explains that, “there has been no material change in the senior management of the Shell Group’s ability to tightly control SPDC” since that report. Hes tated that the role of the RDS ExCo is “fundamentally the same” as the predecessor Committee of Managing Directors.

Apart from the error of conducting a mini-trial, there were two other errors of law alleged by the appellants.

The first alleged error is in the Court of Appeal’s analysis of the principles of a parent company’s liability in its consideration of the factors and circumstances which may give rise to a duty of care. The second alleged error is in the court’s overall analytical framework for determining whether a duty of care exists in cases of this type and its reliance on the Caparo threefold test.

The approach of the Court of Appeal had to be considered in the light of the guidance subsequently provided by this court in Vedanta. To the extent that the Court of Appeal indicated that the promulgation by a parent company of group wide policies or standards can never in itself give rise to a duty of care, that was inconsistent with Vedanta.  At para 52 of Vedanta Lord Briggs said that he did not consider that “there is any such reliable limiting principle”. He pointed out that: “Group guidelines … may be shown to contain systemic errors which, when implemented as of course by a particular subsidiary, then cause harm to third parties.” This is what the appellants have described as Vedanta route (2).

Secondly, the majority of the Court of Appeal may be said to have focused inappropriately on the issue of control. Simon LJ appears to have regarded proof of the exercise of control by the parent company as being As Lord Briggs pointed out in Vedanta, it all depends on: “the extent to which, and the way in which, the parent availed itself of the opportunity to take over, intervene in, control, supervise or advise the management of the relevant operations … of the subsidiary.[49]” Control was just a starting point for that question. Lord Hamblen stated:

“The issue is the extent to which the parent did take over or share with the subsidiary the management of the relevant activity (here the pipeline operation). That may or may not be demonstrated by the parent controlling the subsidiary. In a sense, all parents control their subsidiaries. That control gives the parent the opportunity to get involved in management. But control of a company and de facto management of part of its activities are two different things. A subsidiary may maintain de jure control of its activities, but nonetheless delegate de facto management of part of them to emissaries of its parent.” [147]

A specific example of a case in which a duty of care may arise regardless of the exercise of control was provided by what the appellants have described as Vedanta route (4), based on what Lord Briggs stated at para 53:

“… the parent may incur the relevant responsibility to third parties if, in published materials, it holds itself out as exercising that degree of supervision and control of its subsidiaries, even if it does not in fact do so. In such circumstances its very omission may constitute the abdication of a responsibility which it has publicly undertaken.”

The Supreme Court then went on to consider whether these errors were material to the decision of the Court of Appeal.

It held that the case set out in the pleadings, fortified by the points made in reliance upon the RDS Control Framework and the RDS HSSE Control Framework, established that there was a real issue to be tried under Vedanta routes (1) and (3).  It was not necessary to make any ruling in relation to Vedanta routes (2) and (4), and the Court preferred not to do so given that the pleading has not been structured around such a case, although it observed that there was currently no pleaded identification of systemic errors in the RDS policies and standards.

Lord Hamblen concluded [154]:

“Whilst I consider that the appellants’ pleaded case and reliance on the RDS Control Framework and the RDS HSSE Control Framework is sufficient to raise a real issue to be tried, that conclusion is further supported by their witness evidence, as summarised when setting out the appellants’ case above, and, for reasons already given, the very real prospect of relevant disclosure being provided. That prospect is specifically borne out by the evidence of Professor Siegel and the identification of some of the most likely documents of relevance in the Dutch proceedings.”

Prefering, generally, the analysis of Sales LJ  to that of the majority of the Court of Appeal he noted observations of Sales LJ at para 155 that it was significant that the Shell group is organised along Business and Functional lines rather than simply according to corporate status. This vertical structure involves significant delegation

The appellants argued that the Shell group’s vertical organisational structure means that it is comparable to Lord Briggs’ example of group businesses which “are, in management terms, carried on as if they were a single commercial undertaking, with boundaries of legal personality and ownership within the group becoming irrelevant” (para 51).  How this organisational structure worked in practice and the extent to which the delegated authority of RDS, the CEO and the RDS ExCo was involved and exercised in relation to decisions made by SPDC were very much in dispute, as apparent from the witness statements. It wa also an issue in relation to which proper disclosure was of obvious importance. It clearly raised triable issues.

Demurrage time bar. Equivalence of requisite documents.

In London Arbitration 1/21 a vessel was chartered on amended Asbatankvoy for a voyage between two Italian port. An addition clause required the claim and supporting documents to be received by Charterers in writing within ninety days of completion of discharge, failing which any claims by owners would be waived and absolutely barred. The clause went on to specify the supporting documents for a demurrage claim. “Insofar as demurrage claims are concerned the supporting documents to be received by Charterers must include a Laytime and Demurrage calculation issued in accordance with the allowances and exceptions provided in this Charter Party. Owners’ invoice, Notices of Readiness and Statements of Facts issued at loading and discharging ports, duly signed in accordance with Clause 17 above. If other Time Sheets or Statements of Facts are separately issued for other cargoes handled at the same port or berth, these documents should also be attached to Owners Laytime and Demurrage calculation.”

Owners sent documents and the claim to charterers within the ninety days, but charterers claimed three documents were invalid.

1. Owners’ demurrage invoice. Owners had submitted their invoice at the bottom of the document headed ‘Time Sheet’ but had not stated on the face of the document that it was an invoice. The Tribunal followed Lia Oil SA v ERG Petroli SpA [2007] 2 Lloyd’s Rep 509 and found that a single document could be both a laytime and demurrage calculation and an invoice.

2. Statement of facts at discharge port. Owners submitted an unsigned Statement of Facts, and a Time Sheet which had all the information expected of a statement of facts which was signed by receivers. The Tribunal accepted the second document as the Statement of Facts for the purposes of the time bar.

3. Port log, discharging log, and pumping log for discharge port. Owners had provided a detailed signed time sheet which was functionally equivalent to a port log and the unsigned statement of fact. They also provided a manifolds pressure log, which provided inter alia, the average discharge rate, the manifold pressure and number of pumps used for each hour of the discharge operation. That document was functionally equivalent to a discharging log and a pumping log.

Owners were obliged to present all supporting documents but Charterers had failed to identify any specific document owners had failed to produce or to produce an equivalent. That part of the challenge failed. Owners’ demurrage claim was not time barred.

The affair of the century? France’s Urgenda Moment.

In March 2019, various NGOs lodged four charges before the administrative court of Paris against the French State in respect of its deficiencies in the fight against climate change, and sought reparation for their moral damage, for ecological damage. Last Wednesday the court ruled that the action for compensation for ecological damage, provided for by the civil code, was admissible and open against the State. The court held that the State should be held responsible for part of this damage if it had not respected its commitments in terms of reducing greenhouse gas emissions. It rejected the claim for compensation for ecological damage and stressed that such compensation is primarily in kind, the damages being pronounced only in the event of impossibility or insufficient repair measures. 

However, the applicants were justified in requesting compensation in kind for the ecological damage caused by non-compliance with the objectives set by France in terms of reducing greenhouse gas emissions. A two month period for additional investigation was ordered to determine the measures to be ordered to the State to repair the damage caused or prevent its aggravation.

Finally, the court considered that the shortcomings of the State in respecting its commitments in the fight against global warming undermined the collective interests defended by each of the applicant associations, and awarded each of the NGOs the sum of one euro which each had requested by way of compensation. 

The judgment, in French, is to be found here: 1904967-1904968-1904972-1904976

“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

Apparent good order and condition: apparent to whom?

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

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

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

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

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

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

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

Things don’t go well for Shell. Dutch Court of Appeal finds it liable for pipeline spills in Nigeria

The Dutch Court of Appeal has held that Shell Nigeria is liable for two pipeline spills in Oruma and Goi that took place between 2004-05. Shell had argued that the spills were caused by sabotage, so-called ‘bunkering’. Under Nigerian law, which was applied pursuant to the Rome I Regulation, the company would not be liable if the leaks were the result of sabotage. However, the court said that Shell had not been able fully to prove the causes of the spill. Although the parent company Royal Dutch Shell was not found directly responsible, the court ordered it to install a leak detection system on the Oruma pipeline, the source of several spills in the case – a finding of great interest in the ongoing debate about tort and multi-national companies..

Another case involving pipeline spills in Nigeria, Okpabi v Royal Dutch Shell, came before the UK Supreme Court last June. A previous UK case involving spills in the Bodo area was settled in 2015.

P&I Fixed Premium Renewals. Coronavirus exclusion clause to apply.

So far, P&I Insurance has operated continued to afford liability cover without any specific exclusions for incidents arising out of COVID-19. However, fixed premium and Charterers’ P&I covers are reinsured outside the International Group’s Pooling Agreement and with effect from 20.2.2021 and will be subject to the Coronavirus Exclusion Clause (LMA 5395) and The Cyber Endorsement (LMA 5403) in the Rules for Mobile Offshore Units (MOUs).

The coronavirus exclusion for marine and energy provides:

“This clause shall be paramount and shall override anything contained in this insurance inconsistent therewith.

This insurance excludes coverage for:

1) any loss, damage, liability, cost, or expense directly arising from the transmission or alleged transmission of:

a) Coronavirus disease (COVID-19);

b) Severe Acute Respiratory Syndrome Coronavirus 2 (SARS-CoV-2); or

c) any mutation or variation of SARS-CoV-2;

or from any fear or threat of a), b) or c) above;

2) any liability, cost or expense to identify, clean up, detoxify, remove, monitor, or test for

a), b) or c) above;

3) any liability for or loss, cost or expense arising out of any loss of revenue, loss of hire,

business interruption, loss of market, delay or any indirect financial loss, howsoever

described, as a result of any of a), b) or c) above or the fear or the threat thereof.

All other terms, conditions and limitations of the insurance remain the same.”

Gard have recently announced that they will offer Members and clients in respect of the categories of covers listed below a special extension of cover. The extension of cover (hereinafter referred to as the ‘Special Covid-19 Extension’) shall comprise liabilities, losses, costs and expenses falling within the scope of terms of entry agreed but for the Coronavirus Exclusion Clause (LMA 5395) and subject to a sub-limit of USD 10 million per ship or vessel per event. This extension does not apply to the Cyber Endorsement.

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

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

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

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

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

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

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

No Joy for Insurers- Test Case Goes Against Business Interruption Insurers

Financial Conduct Authority v. Arch Insurance (UK) and Others [2021] UKSC 1 

This was a test case brought by the Financial Conduct Authority (FCA) on behalf of holders of business interruption policies. During the spring national lock-down (in 2020), businesses which held such policies made claims from their insurers but most of these claims were denied on the premise that the wording used in such policies was not broad enough to provide indemnity to the policy holders. In particular, the focus turned on business interruption policies that provided cover for infectious and notifiable diseases (disease clauses) and prevention of access and public authority clauses and restrictions (prevention of access clauses). The FCA selected a representative sample of 21 types of policies issued by eight insurers for the test case. It is believed that the outcome of the case could be relevant for 370,000 businesses holding similar policies issued by 60 different insurers. The High Court delivered its judgment on 15 September [2020] EWHC 2448 (Comm) mainly in favour of the assureds. Using leapfrog appeal procedure, the FCA and six insurers appealed to the Supreme Court composed of Lords Reed, Hodge, Briggs, Hamblen and Leggatt. 

The judgment of the Supreme Court is very technical and lengthy (112 pages) but is no doubt a great victory for holders of such policies. The analysis below will focus on the key points made by the Supreme Court. 

Disease Clauses 

When a business interruption policy provides cover for losses emerging from “any occurrence of a Notifiable Disease within a radius of 25 miles of the premises” what does that exactly mean? Does it mean that cover is available for business interruption losses as long as it could be shown that they resulted from the occurrence of the disease within the radius? Or does the clause provide cover as long as there is one case of illness caused by the disease within that radius? Naturally, the former construction would restrict the limit of cover as in most cases it would be impossible to show that the losses resulted from the localised occurrence of the disease as opposed to the wider pandemic and government restrictions generally. The High Court went along with the latter construction which the Supreme Court was prepared to accept with a slightly different reasoning. The Supreme Court by making reference to the wording of the clause, especially the emphasis in the clause on “any occurrence of a Notifiable disease”, indicated that the wording of the clause is adequate to provide cover for the business interruption caused by any cases of illness resulting from Covid-19 that occur within 25 miles of the business premises. 

Prevention of Access 

It has been stressed that such clauses generally provide cover for business interruption losses resulting from public policy intervention preventing access to or use of the insured premises. A legal deliberation was necessary to determine the nature of public policy intervention required to trigger such clauses. The Supreme Court agreed with the High Court’s analysis on this point to the effect that “restrictions imposed” by a public authority should be understood as ordinarily meaning mandatory measures “imposed” by the authority pursuant to its statutory or other legal powers and the word “imposed” connotes compulsion and a public authority generally exercises compulsion through the use of such powers. On that premise, Prime Minister’s instructions in a public statement of 20 March 2020 to named businesses to close was capable of being a “restriction imposed” regardless of whether it was legally capable of being enforced as it was a clear, mandatory instruction given on behalf of the UK government.  

In some hybrid policies a different wording is used such as “inability to use” or “prevention of access” or “interruption”. The Supreme Court was inclined to construe such wordings broadly. For example, in policies where the insurance provides cover when there is “inability to use” the premises, the Supreme Court was adamant that the requirement is satisfied either if the policyholder is unable to use the premises for a discrete part of its business activities or it is unable to use a discrete part of its premises for its business activities as in both of these situations there is a complete inability to use. This construction opens the door for businesses in hospitality sector which can do only take-away meals for the loss of their in-person business. Similarly, the Supreme Court rejected insurers’ argument that the hybrid policy that refer to “interruption” implies a “stop” or “break” to the business as distinct from an interference, holding that the ordinary meaning of “interruption” is capable of encompassing interference or disruption which does not bring about a complete cessation of business activities, and which may even be slight.  

Causation Issue  

Insurers argued that traditional causation test applied in insurance law should not be adopted as the appropriate test in the context of construing relevant provisions of business interruption policies. Instead, it was argued, that is should be necessary to show, at a minimum, that the loss would not have been sustained “but for” the occurrence of the insured peril. In their view, it was necessary for the business to show that the insured peril had operated to cause the loss; otherwise due to the widespread nature of the pandemic it would be very easy for holders of such policies to show business interruption losses even if the insured risk had not occurred. The obvious objective for developing this contention was to limit the scope of cover provided by such policies as otherwise (if the traditional causation rules were to apply in this context) businesses operating in locations which have no or few cases of the illness could still recover under the policy even though the loss in those instances is caused by disruption occurring outside the radius (or nationally).

In developing their argument, insurers relied heavily on the decision in Orient-Express Hotels Ltd v Assicurazioni General SpA [2010] EWHC 1186 (Comm); [2010] Lloyd’s Rep IR 531. In that case, the claim was for business interruption losses caused by Hurricanes Katrina and Rita. The insured premises in question were a hotel in New Orleans. There was no dispute that the insured property suffered physical damage as a result of the hurricanes. When it came to the business interruption losses, however, insurers in Orient-Express case successfully argued that there was no cover because, even if the hotel had not been damaged, the devastation to the area around the hotel caused by the hurricanes was such that the business interruption losses would have been suffered in any event. Accordingly, the necessary causal test for the business interruption losses could not be met because the insured peril was the damage alone, and the event which caused the insured physical damage (the hurricanes) could be set up as a competing cause of the business interruption. The High Court chose to distinguish Orient Express from the current litigation on matters of construction.  The Supreme Court went further and decided that Orient-Express was wrongly decided and should be overruled. Analysing the facts of Orient-Express case the Supreme Court reached the conclusion that business interruption loss arose there because both as a result of damage to the hotel and also damage to the surrounding area as a result of hurricanes. Therefore, there two concurrent causes were in operation, each of which was by itself sufficient to cause the relevant business interruption but neither of which satisfied the “but for” test because of the existence of the other. In such a case when both the insured peril and the uninsured peril which operates concurrently with it arise from the same underlying fortuity (i.e. the hurricanes), then provided that damage proximately caused by the uninsured peril (i.e. damage to the rest of the city) is not excluded, loss resulting from both causes operating concurrently is covered.

Accordingly, the Supreme Court rejected insurers’ argument, holding that the “but for” test was not determinative in ascertaining whether the test for causation has been satisfied under the insuring clauses analysed as part of the test case. The traditional principles of causation should, therefore, be applied. The Supreme Court on this point concluded at [191]  

there is nothing in principle or in the concept of causation which precludes an insured peril that in combination with many other similar uninsured events brings about a loss with a sufficient degree of inevitability from being regarded as a cause – indeed as a proximate cause – of the loss, even if the occurrence of the insured peril is neither necessary nor sufficient to bring about the loss by itself.” 

Applying the traditional proximity test, essentially enables business to recover under such policies simply by proving a link between the local occurrences and the national reaction even if the “but for test” is not satisfied.

Some Further Remarks 

The judgment is legally binding on the eight insurers that agree to be parties to the test case but it provides guidance for the interpretation of similar policy wordings and claims. However, it should not be ignored that there are still many policy wordings not tested or considered by this decision. There is no doubt that the decision is welcomed by businesses that have been adversely affected from the global pandemic and have failed to rely on their business interruption policies. Was this a case simply concerning construction of certain insurance contracts or other considerations (i.e. impact of the pandemic on social and economic life) played a significant role? The answer is probably the latter even though insurers throughout the litigation maintained that “one simply should not be allowed to rewrite an insurance contact to expand the scope of the indemnity”. But isn’t this the nature of test cases, i.e. judges are usually required to pass moral, ethical judgments on an issue that has significant implications on a part of the society? The global pandemic had significant implications on our lives and economy and at times like this it is inevitable that a judgment needs to be made as to where the economic loss resulting from the pandemic should fall. This is what the UK Supreme Court did here!     

Environmental divergence starts now. EU gold plates the Basel Convention 2019 amendments.

The fourteenth meeting of the Conference of the Parties to the Basel Convention (COP-14, 29 April–10 May 2019) adopted amendments to Annexes II, VIII and IX to the Convention with the objectives of enhancing the control of the transboundary movements of plastic waste and clarifying the scope of the Convention as it applies to such waste. New entries relating to plastic waste were included.

The amendment to Annex VIII, with the insertion of a new entry A3210, clarifies the scope of plastic wastes presumed to be hazardous and therefore subject to the Prior informed consent procedure. The amendments came into force on 1 January 2021.

On 22 December the EU Commission decided to ban the export of plastic waste from the EU to non-OECD countries, except for clean plastic waste sent for recycling. By contrast UK exports of plastic waste will now be made under a new system of PIC, under which the importer has to agree to accept the waste, and has the opportunity to refuse it.