Multimodal transport and jurisdiction for cargo claims

It’s hardly news when the ECJ follows its advocate-general. But it has just done so in Zurich Insurance and Metso Minerals [2018] EUECJ C-88/17. If goods are carried multimodally from Finland to England by an English carrier, and stolen in England (as they always seem to be), Art.7(1) of Brussels I Recast says the contract fell to be performed in either England (destination) or Finland (origin) and the owner can sue in either at his option. Just as with air transport: flightright GmbH v Air Nostrum (C-274/16) [2018] EUECJ 274/16. And … that’s it. For comment on the Advocate-General’s opinion, see our blog here.

 

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.

Insurance fraudsters, look out! There are punitives about.

Can an insurer get punitive damages against fraudsters and fraudulent claimants? Until today the matter was doubtful. Although such damages had since Kuddus v Leicestershire Chief Constable [2002] 2 AC 122 been available on principle for all causes of action, they were still subject to Lord Devlin’s other limits in Rookes v Barnard [1964] AC 1129: statute aside, there had to be either public authority wrongdoing or an intent to make gains exceeding any compensation payable. The former was not relevant: as for the latter, even if the fraudster made a gain his liability was not less than but equal to, or — once other heads of damage such as investigation were thrown in — greater than, that gain.

Logical, but from today not correct, courtesy of some slightly tortuous reasoning from the Court of Appeal.

 Axa Insurance UK Plc v Financial Claims Solutions Ltd & Ors [2018] EWCA Civ 1330 (15 June 2018) involved a couple of fraudulent fender-bender-cum-whiplash claims against Axa. Axa, to their credit, smelt a rat. They paid nothing and instead sued the lawyers responsible for making the claims in deceit. In this action they claimed their costs in investigating, and superadded a claim for punitive damages. Reversing the trial judge, the Court of Appeal said they could have the latter, and mulcted each defendant in the sum of £20,000. The requirement for calculation of gains exceeding liabilities was satisfied, it was said, because even if the fraudsters knew they were liable for the full amount of their ill-gotten gains they hoped never in fact to pay; this hope was sufficient to generate the element of hoped-for profit.

The result is welcome, even if the reasoning is a bit surprising. It is also highly significant, since it seems to mean that almost any fraudulent claim against an insurer is now capable of generating a punitive damages liability in the person bringing it if the court thinks fit to exercise its discretion in favour of an award. This presumably includes cases where the fraudster is the claimant himself; although fraudulent claims by policyholders are now dealt with by Part 4 of the Insurance Act 2015, it seems unlikely that this provision was intended to pre-empt the right of the underwriter to sue in tort for deceit if he so wished.

As to when such awards will be made, this is not yet clear. At a guess they are most likely where the whole, or a large proportion, of the claim is bogus: it seems doubtful whether simple exaggeration cases will attract them. But all we can do now is wait and see.

 

US 2nd Circuit: bunker arrests clarified

Bunkers are supplied through a complex chain of suppliers. If you order a stem the outfit you order from will almost certainly not deliver them. Instead it will arrange directly or at one or more removes for a third party to do so, the bunkers being bought in down the line.

Arrest for bunkers is big business in the US, since there you can arrest the ship for the debts of the time-charterer who bunkers her (which you can’t in England unless the owner is also personally liable, which is unlikely). But who can arrest? The person the bunkers were ordered from or the person who pumped them on board? It turns on who “supplied” the bunkers under the relevant section of CIMLA, the maritime lien legislation. In a decision a couple of days ago arising from the OW debacle, ING Bank v The MV Temara 16-3923(L), the Second Circuit Court of Appeals has straightened out who this is: it’s the entity the charterer or shipowner contracted with, not the physical supplier.

And quite right too. The physical supplier here had voluntarily given credit to the uncreditworthy (OW) and supplied the bunkers to its order; it deserved no proprietary claim against the ship. Whereas the person who contracted with the ship had supplied the bunkers to the orders of the charterer. The fact that it had done so through a third party was beside the point.

Thanks to our friends at the Maritime Advocate for the heads-up.

EU anti-suit injunctions don’t rule — OK?

Confirmation from Males J today in Nori Holdings Ltd & Ors v PJSC Bank Otkritie [2018] EWHC 1343 (Comm)  of what we all suspected: you can’t injunct EU / Lugano proceedings in support of arbitration. The facts aren’t that interesting. Essentially an ailing Russian bank was seeking to undo the effects of a debt restructuring agreement entered into with a number of its borrowers and their sureties, members of the O1 group. To that end it sued in Russia and Cyprus. The present claimants, borrowers and sureties, sought anti-suit injunctions on the basis that the claims were the subject of valid arbitration agreements. It got injunctions in respect of the Russian proceedings; we say no more.

As for the Cypriot proceedings, the bank understandably invoked West Tankers Inc v Allianz SpA (Case C-185/07) [2009] ECR I-00663 and its holding that any intra-EU anti-suit proceedings unacceptably infringed EU full faith and credit under the then Brussels I, not to mention EU courts’ powers to decide on their own jurisdiction. The claimants countered, as might be expected, with the slightly curious remarks of the Advocate-General in the Gazprom OAO case (Case C-536/13) that suggested Recital (12) in Brussels I Recast had cast doubt on the West Tankers holding. Males J subjected the reasoning of the Advocate-General to searching scrutiny at [84]-[99]. His conclusion, though judicious, was pretty blunt: the Advocate-General was simply wrong. There was no room for any inference of an intent to depart from West Tankers.

So now we know. Professors may have lost a useful examination question: but for the rest of us, we know where we stand. And a good thing too.

We do need a marine insurance drugs clause

Another item for the agenda at the LMA (and elsewhere where they do insurance).  If someone tries to use your ship without your knowledge for drug-smuggling and the vessel gets seized, the Supreme Court has now confirmed in Navigators Insurance Co Ltd & Ors v Atlasnavios-Navegação Lda [2018] UKSC 26 that your insurance may well not respond, with your underwriters politely but regretfully telling you that you are on your own.

While an elderly  bulker, the B Atlantic, was loading a cargo of coal in Maracaibo, Venezuela, enterprising drug smugglers strapped nearly 300 lb of cocaine to her hull with a view to retrieving it later. The drugs were found, and the vessel seized and condemned by the Venezuelan authorities. Her owners’ H&M insurance included the Institute War & Strikes Clause, which gave cover for capture, seizure and arrest; against persons acting maliciously; and against confiscation and expropriation. But specifically excluded under Clause 4.1.5 was detainment, confiscation or expropriation by reason of infringement of customs or trading regulations. The underwriters declined to pay. Flaux J decided for the owners; the smugglers’ acts were those of “persons acting maliciously”, and Clause 4.1.5 did not apply because the substantial cause of their loss was the acts of the smugglers and not the resulting infringement of the Venezuelan customs code. The Court of Appeal disagreed: the exclusion of infringement of customs or trading regulations should not be limited in this way, and in the circumstances excluded liability.

The Supremes, led by Lord Mance, agreed with the Court of Appeal, but went further. Not only did the events fall fair and square within the exclusion of confiscation for breach of customs or trading regulations, but there had been no cover in the first place. “Persons acting maliciously” meant persons deliberately out to injure the interests of the owners. Unlike terrorists, bombers or garden-variety vandals, drug-smugglers did not fall in this category: they were criminals, true, and knew that what they did might have consequences for the owners, but this was not enough.

This is, if one may say so, a sensible and convincing decision on the facts and the wording. But it does leave owners high and dry when faced with a risk against which they can quite legitimately desire protection. A specific clause protecting against seizure for drug-smuggling committed without the knowledge or connivance of the owner or the crew now seems a high priority. As we said, it’s over to you at the LMA.

 

 

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.

Settlement: not as easily inferred as you might think.

It’s a fact of life that most cases settle. But establishing a settlement isn’t as straightforward as it looks, as Males J’s judgment in Goodwood Investments Holdings Inc v Thyssenkrupp Industrial Solutions AG (The M/Y Palladium) [2018] EWHC 1056 (Comm) shows. Goodwood appeared as purchaser of the Palladium, a futuristic 300-foot superyacht built by ThyssenKrupp for Russian billionaire Mikhail Prokhorov. The paint proved troublesome, and arbitration commenced.

Following settlement attempts, ThyssenKrupp wrote:

Offer in Full and Final Settlement

In view of the foregoing, the Builder’s offer is as follows: 1. The Replacement Works; and 2. Costs – €… Accordingly, the total net payment to be made by the Builder, in addition to performing the Replacement Works at its own cost will be €…

Additional Settlement Terms

The conclusion of a final settlement will remain subject to the following terms: 1. A full release of any existing or future (known or unknown) claims arising out of or in connection with the SBC, whether against the Builder, B+V, or any other sub-contractor ….  3. Return and cancellation of all outstanding guarantees. 4. Conclusion of a formal settlement agreement to include, prior to signature, formal approval of the settlement by the competent corporate body of the Builder.

A couple of days later Goodwood replied:

… the Further Offer is accepted by the Purchaser, subject only to the following points of clarification that are needed for logistical reasons:
1. The Further Offer does not say at which yard the work will be carried out. Can you please state which yard the Builder proposes to use? For the avoidance of doubt, the Purchaser would be prepared for that to be Blohm + Voss, or its new owner, Lurssen, or another European yard of comparable standing and quality.
2. The Further Offer is unclear about a start date for the work. For your information, the Purchaser’s preferred start date is about October 2018, after the next summer cruising season. We suggest, therefore, that the parties liaise about an exact date convenient to both parties.
3. Whilst the Purchaser is content for the work to be overseen by Wrede, the Purchaser must have the right to send its own consultants to assist Wrede, and receive reports and updates from Wrede, as it is in the interests of both the Purchaser and the Builder that any further dispute be avoided.
4. We understand that the settlement requires approval from the Builder’s board. Whilst that is understood by the Purchaser, your and Mr Bracker’s recommendation ought, we assume, [sc. to] ensure it is forthcoming. Regarding the arbitration hearing, our view is that it should be adjourned sine die pending formal board approval.
5. The Further Offer, taking account of the foregoing points, should be set out in a formal short settlement agreement to be executed by both the Purchaser and the Builder (once board consent is obtained) and that settlement agreement must expressly provide it is in full and final settlement of all disputes and differences arising out of or in connection with the subject matter of the Arbitration, and all the further matters that you mention in your Further Offer. It must be common ground that neither party is ‘buying litigation’ in order to end this long running paint dispute.”

ThyssenKrupp sought to continue the arbitration: Goodwood argued that the claim had been compromised. Males J had no doubt that ThyssenKrupp were right. Paragraph 4 of their Additional Settlement Terms put two obstacles in the way of there being an immediately binding offer to settle: a need for a formal agreement, and for the approval of ThyssenKrupp’s management. Furthermore, although expressed to be for ‘clarification’ the extra points in Goodwood’s response prevented this from being an unequivocal acceptance.

One further point. Goodwood argued, one suspects in some desperation, that an offer to settle subject to management approval, once accepted, gave rise to a concluded contract with a duty to use best endeavours to get that approval. Males J without hesitation rejected this argument: such an obligation, even if intended (a point that he did not have to decide), was an unenforceable agreement to agree.

In short, copy and paste the wording from this offer by ThyssenKrupp and you can be fairly safe in suggesting settlement with virtually no danger of inadvertently giving up your client’s case. Useful to know.

 

Jurisdiction in EU multimodal transport cases

Goods are carried multimodally from Finland to England by an English carrier, and stolen in England. If the owner wants to sue the carrier, where is the contract performed within Art.7(1) of Brussels I Recast: England, Finland or both? The Advocate-General has just given an opinion in Zurich Insurance v ALS Ltd (area of freedom, security and justice) [2018] EUECJ C-88/17: it is the place of loading or discharge, at the claimant’s election. Hence the claimant there had the right, whatever the English defendant said, to sue in Finland.

This must be right. It has always been accepted that the place of discharge is competent. In Rehder v Air Baltic Corp (C‑204/08) [2009] E.C.R. I-6073; [2009] I.L.Pr. 44 and flightright GmbH v Air Nostrum (C-274/16) [2018] EUECJ 274/16 this was held to be the position as regards transport of passengers; and understandably the view was expressed that there was no reason to regard the transport of things any differently.

Good, but not surprising, news for cargo owners and insurers. Still, it’s nice to know.

Judgment creditors can celebrate in England — UK Supreme Court.

English courts are not very keen on judgment debtors who spirit assets away out of sight of our enforcement officers. The Supreme Court today showed they meant business when faced with this scenario. They confirmed in JSC BTA Bank v Khrapunov [2018] UKSC 19 that anyone who in England does anything to help a debtor do this can find himself at the receiving end of a civil claim from the judgment creditor.

Mukhtar Ablyazov, a colourful Kazakh politician, dissident and businessman who used to run the biggest bank in Kazakhstan, was successfully sued here by the bank for the moderate sum of US$4.6 billion. The court issued the usual congeries of worldwide freezing orders in aid of enforcement, which were disobeyed. In 2012 Mr Ablyazov, facing the prospect of time inside for contempt, fled England and continued with a large degree of success to move his assets around to make them inaccessible.

The Ablyazov cupboard being bare, the bank then turned to an associate, one Ilyas Khrapunov, who had allegedly agreed in England to help Mr Ablyazov to cause his assets to vanish and later done just that. It sued Mr Khrapunov in tort, alleging that the above acts amounted to an unlawful means conspiracy. Mr Khrapunov applied to strike, arguing that if (as is clear) contempt of court cannot give rise to damages, the bank shouldn’t be allowed to plead conspiracy to get a similar remedy by the back door. He also argued that in any case he was safely tucked up in Switzerland; that the assets were outside England; and that the mere fact that he had conspired in England to make those assets disappear did not take away his right under the Lugano Convention to be sued in his country of domicile.

Mr Khrapunov lost all the way in the Supreme Court. There was no reason why the fact that he had acted in contempt of court should not count as unlawful means for the purposes of conspiracy. Furthermore, the jurisprudence under the Brussels I / Lugano system made it clear that for the purpose of non-contractual liability, where jurisdiction laywas “either in the courts for the place where the damage occurred or in the courts for the place of the event which gives rise to and is at the origin of that damage”, an agreement amounted to an ” event which gives rise to and is at the origin of that damage.”

Good news, in other words, for judgment creditors: bad news for friends of fugitive tycoons.