A Euro-spanner in the P&I works: direct actions allowed against insurers in EU courts, and no argument allowed.

UK-based P&I clubs will be hopping mad at the decision of the ECJ today in Assens Havn (Judicial cooperation in civil matters) [2017] EUECJ C-368/16, and will doubtless be joining a number of others in saying that Brexit can’t come soon enough. The problem can be summed up thus: as regards events in the EU the Assens Havn decision has blown out of the water their carefully-crafted provisions aimed at ensuring that all proceedings against them in respect of their members’ liabilities are sorted out in England.

The background (see here in this blog) arose out of events ten years ago in the Danish port of Assens. A Danish tug, entered by bareboat charterers with Navigators Management (UK) Ltd, negligently damaged shore installations. The charterers being insolvent, the port sued Navigators in Denmark under a Danish direct action statute. Navigators relied on the English law and jurisdiction clause in their agreement and insisted on being sued in England. The port relied on Arts 10 and 11 of Brussels I (now Recast 12 and 13, there being no relevant difference), saying that in matters of insurance the club could be sued in Denmark as the place where the damage occurred. Navigators said that Art.13.5 (recast Art.15.5) allowed the relevant jurisdiction to be ousted by agreement, including agreement between the insurer and the insured. It was only fair, they argued, that if the port wanted to use a direct action provision to sue them, the port had to take the insurance contract warts and all. The Danish courts sided with Navigators, but referred the matter to the ECJ.

The ECJ was having none of it. True, the plain words of Art.13.5 said that the provisions of Part 3 of the Regulation could be contracted out of in the case of (inter alia)  marine third-party insurance contracts. True also that the Brussels provisions dealing with direct actions against insurers — Arts.8-10 and 11.2 — indubitably formed part of Part 3. Nevertheless, the Court managed to interpret the Regulation as forbidding any contractual ouster of the direct action provisions. This it did on two grounds. One, flimsy enough, was that the direct action provisions contained no specific saving for Art.13.5. The other was that the victim of an accident always had to be protected in its claims on the basis that it was likely to be the weaker party (!). This can best be described as bizarre: not only is the right of contracting-out under Art.13.5 carefully limited to insurance against solidly commercial risks, but the victims are likely to be substantial businesses or authorities and / or their property insurers, none of which one would have thought deserving of any particular solicitude.

Discounting any entirely unworthy thoughts connected with ideas such as sour grapes and Brexit, one can only speculate that the Court regarded the regime that previously protected P&I clubs as a tiresome anomaly, to be removed almost at any cost. In any case, the position now appears clear. In EU jurisdictions that allow direct actions against insurers, P&I clubs will have to resign themselves to being sued wherever bad things happen. Only in the case of other EU jurisdictions, and outside the EU, where they have in addition the useful weapon of the anti-suit injunction available to them (see here) — can they continue as before and benefit from the savings in costs and trouble of one unique English forum.

Sale of goods — no need to prepare to collect something you know you won’t get

A textbook sale of goods decision today from Carr J in Vitol S.A. v Beta Renowable Group S.A. [2017] EWHC 1734 (Comm), which nevertheless has a few lessons for the rest of us. Beta, a Spanish real estate company that had branched out into the biofuels business, agreed to sell commodity traders Vitol 4,500 tonnes of cooking-oil-derived biodiesel fob Bilbao. Vitol had to have a vessel ready to lift it by midnight Friday 1 July and to nominate the relevant vessel by midnight Monday that week.

Things then went wrong. Communications from Beta culminating on Monday afternoon made it clear there wouldn’t be any biodiesel to lift. Vitol let the nomination time pass without doing anything, said on 7 July that they accepted Beta’s repudiation, and sued for loss of profit (including would-be hedging gains — more anon). Beta declined liability. They argued, with more hope than merit, that Vitol had not accepted their repudiation until much later, and had therefore remained bound to nominate a ship on Monday and take steps for delivery; not having done so, they were (said Beta) disabled from complaining of non-delivery.

Carr J held for Vitol, reasoning thus. First, while one could accept repudiation by mere omission, Vitol had not done so by failure to nominate, since this (non) act had not been unequivocal enough. They had therefore on principle remained bound to take steps to lift the oil. Nevertheless, given that it remained abundantly clear that there was nothing to collect, it would be ridiculous to require them to go to the trouble and expense of making idle preparations to collect it.

It followed that Beta were liable for substantial damages for non-delivery, whereupon a further nice point arose. Spurning traditional value less price as old hat, Vitol sought to claim their lost resale margin, plus in addition an alleged profit they would have made on buying in gasoil futures they had sold in order to hedge the transaction. Carr J was having none of it: there was no reason to allow actual resale profits in an ordinary commodity contract, and the futures were essentially a speculation on Vitol’s own account. So Vitol had to be content with market value damages.

Three points for commodity lawyers and others.

(1) It’s good to have confirmation that to enforce a contract you have generally to show merely that you would have been ready willing and able to satisfy any conditions on your right to performance, but for the other side’s repudiation: you don’t have actually to do an entirely futile act where that would serve no purpose.

(2) Damages: courts remain wary in straightforward commodity cases of departing from the time-honoured  value test in ss.50-51 of the Sale of Goods Act.

(3) Vitol will have been kicking themselves for not making it clear, when not nominating a ship, that they were specifically accepting Beta’s repudiation. One email, of negligible cost, would very likely have saved the cost of having the whole matter taken to the High Court. Solicitors for buyers and sellers, verb. sap.

Lending $150 million to an oil company? Don’t worry too much about UCTA.

The decision in African Export-Import Bank & Ors v Shebah Exploration & Production Co Ltd & Ors [2017] EWCA Civ 845 , dismissing an appeal from Phillips J (noted here in this blog), contains few surprises and much relief. A syndicate of three banks, one Egyptian and two Nigerian, lent $150 million or so to a speculative Nigerian oil exploration company which — surprise, surprise — failed to pay most of it back. The lenders did the obvious thing, accelerated the loan and filled in the form asking for summary judgment. Hoping to stave off the evil day, the company and its two guarantors raised what looked like a fairly speculative set-off of a cool $1 billion, essentially suggesting that one bank had wrongfully dragged its feet over making the loan, and that another had broken the terms of a different, earlier, facility. The lenders sought to shut out this effort to muddy the waters by invoking an explicit anti-set-off clause. The borrower for its part argued that it had dealt on the lenders’ written standard terms of business and that the clause was clearly unreasonable under s.3 of the Unfair Contract Terms Act 1977(!). Phillips J disagreed and gave judgment in short order, pointing out that the terms, standard ones drafted by the Loan Market Association, had been extensively negotiated, and that it would be rare indeed for a party to be able to argue that a standard set of conditions like this was used so inflexibly as to attract the operation of s.3.

The Court of Appeal agreed wholeheartedly. They pointed out that the borrowers, who had to prove the use of written standard terms of business, had not even called any evidence to that effect. This would not do: as Longmore LJ drily put it at [33],

“A party who wishes to contend that it is arguable that a deal is on standard business terms must, in my view, produce some evidence that it is likely to have been so done. … It cannot be right that any defaulting borrower can just assert that business is being done on standard terms and that the lender then has to disclose the terms of other (how many other?) transactions he has entered into before he is entitled to summary judgment.”

Although he accepted that inflexible use of a third party’s standard terms might theoretically trigger s.33, he also pointed out that any substantial degree of negotiation would negative this, and also that the negotiation need not necessarily relate to the terms potentially caught by the 1977 Act.

As I said, a result which will be welcomed in the Square Mile. It will rightly reassure lenders that they can make their loans subject to English law safe in the knowledge that the courts here will give short shrift to snivelling arguments based on an Act which was never intended, one suspects, to protect highly commercial borrowers like this.

Of course, to make assurance doubly certain, there might be something to be said for strengthening the blanket exception to the 1977 Act in s.26 so as to encompass not only international supply contracts but contracts for loans or financial services between corporations with places in different jurisdictions. With the Queen’s Speech reduced this Parliament to about the length of a fireside chat, an under-occupied Government might even find Parliamentary time for the necessary change.

Product liability EU-style: bad news for liability insurers

The ECJ today made life more difficult for insurers covering risks arising under the Product Liability Directive. This Directive, you will remember, says that the victim of a defective product need not prove negligence, but must prove defectiveness and causation. W v Sanofi Pasteur [2017] EUECJ C-621/15 was a vaccine damage case. A couple of years after beginning a course of anti-hepatitis vaccination, W had multiple sclerosis. There being no clear medical evidence as to how the disease came about, a French court was prepared to infer from the proximity between vaccination and disease and the lack of any other explanation that the vaccine had been defective and had caused the injury. It therefore gave judgment for W, a view held justified by the Cour de Cassation. After a few further procedural skirmishes, Sanofi — or, one suspects, its insurers — went to the ECJ, alleging that inferences of this sort were contrary to the explicit requirement in Art.4 that the claimant actually prove these matters, and that strict proof in every particular ought to be required.

The ECJ, as expected, was having none of it. The Directive existed to make life easier for  injured consumers; furthermore, the real complaint related not so much to the burden of proof as to the means of proof, which was a matter of procedure left up to national courts.

Stand by underwriters, as we said, for increased payouts under our home-grown version of the Directive, Part I of the Consumer Protection Act 1987.

Arbitration post-Brexit

The Lord Chief Justice a couple of days ago gave a bullish speech in Beijing about London as an arbitration centre post-Brexit. Despite the self-serving nature of the speech, one suspects he may well be right. At least post-Brexit we should with a bit of luck get shot of the ECJ control over jurisdiction; be able to abandon The Front Comor [2009] EUECJ C-185/07, [2009] 1 AC 1138 and go back to issuing anti-suit injunctions against Euro-proceedings that infringe London arbitration agreements; and possibly get rid of tiresome Brussels I provisions that make life difficult for P&I clubs which want to insist on arbitrating here (see, for details, this post). But as usual, to know the details we have to wait and see.

Want to stymie a judgment creditor? It’s not as easy as you think.

English courts aren’t best pleased when they give judgment, only to find someone busily trying to frustrate the claimant’s efforts to collect on it. Last year, in JSC BTA Bank v Ablyazov [2016] EWHC 230 (Comm) (noted here on this blog), Teare J very rightly decided that an elusive judgment debtor’s pal was liable in tort to the judgment creditor when he helped the debtor shuffle his assets around in an elaborate “now you see them, now you don’t” exercise. Yesterday, in Marex Financial Ltd v Garcia [2017] EWHC 918 (Comm), Knowles J carried on the good work. Marex had got judgment in England for some $5 million, plus the usual freezing orders, against a couple of BVI companies controlled by SG, a globetrotting businessman. SG thereafter took care to avoid the UK, instead taking steps to spirit away the English assets of his companies to a web of entities in far-flung jurisdictions where it was difficult, if not impossible, for Marex to track them down. Marex thereupon sought permission to sue SG out of the jurisdiction, alleging a tort committed in England. What tort? In so far as SG might be deemed to have acted with the companies’ consent, inducement of breach of contract (i.e. the implicit contract by the companies to pay the judgment debt); and in so far as the companies hadn’t consented and hence he was in breach of duty to them, causing loss to Marex by unlawful means. Knowles J agreed with both limbs of the argument, swiftly disposed of a forum non conveniens point, and allowed service out, thus giving Marex at least a decent chance of getting paid.

Good news, therefore, to judgment creditors. Moreover, while this was a non-EU service out case, note that so long as any relevant monkey-business took place in England, its reasoning will apply equally to EU and EEA-based defendants under Brussels I and Lugano, because the tort “gateway” has been interpreted similarly in both cases since Brownlie v Four Seasons Holdings Inc [2015] EWCA Civ 665; [2016] 1 W.L.R. 1814.

So good luck and good hunting.

Investors — beware how you handle corporate structures

Most serious investors in everything from ships to real estate to businesses act through the medium of ‘tame’ companies. They do this for very good reasons. However, the Supreme Court gave a salutary warning this morning that even the simplest structures of this kind can provide pitfalls for the unwary.

Slightly simplified, in Lowick Rose LLP (in liquidation) v Swynson Ltd [2017] UKSC 32 what happened was this. A wealthy investor H used a wholly-owned special purpose vehicle S Ltd to make a loan of £15 million to EMS Ltd to enable EMS to buy MIA Inc. Due diligence, or rather a lack of it, was provided by accountants HMT, who failed to notice glaring problems with MIA. The trouble quickly surfaced. As a damage limitation exercise H caused S to lend a further £1.75m to EMSL in 2007 and £3m in 2008, H at the same time obtaining a large holding in EMS. Things went from bad to worse, and in 2008 more refinancing was necessary. H personally lent EMS some £19 million, most of which went to pay off EMS’s borrowings from S, with the rest being new money. To no avail: MIA collapsed, and with it the whole house of cards.

H and S sued HMT for losses of some £16 million. At this point an awkwardness arose. HMT was held on the facts to have owed no duty to H. As regards S it admitted negligence, but argued that in so far as S’s loans to EMS had been paid off (by H) the loss was H’s and not S’s. Reversing the Court of Appeal, the Supreme Court decided for HMT. S had indeed suffered no loss. The loan by H to EMS to pay off S was not an unconnected benefit, so as to be regarded as res inter alios acta. Nor could S invoke transferred loss and the rule in Dunlop v Lambert (1839) 2 Cl & F 626; nor yet could H use the doctrine of subrogation to keep the loan from S to EMS alive and claim in the name of S.

A nice windfall for HMT’s professional indemnity insurers, and an unnecessary one. Had H lent the money to S for S to use to refinance EMS, there would have been no problem; H, through S, would have been £16 million to the good. But he hadn’t done that, and that was an end of the matter. As we said above, when using corporate structures any failure to take care to guard your back can be very costly.

Solicitors also note: you are now on notice. Since this decision, unless you take great care in advising on refinancing deals, the SIF is likely to have some less-than-kind words for you too.

Message from the Supreme Court: do your due diligence

Yesterday’s Supreme Court decision in BPE Solicitors v Hughes-Holland [2017] UKSC 21 looks like a dry-as-dust decision on the measure of damages in professional negligence cases. It is more important than that, however.

A financier, G, was negligently misinformed by his solicitor about a project he was thinking of financing. To cut a long story short, G was led to believe he was bankrolling the carrying out of a property development, while in fact he was merely refinancing the property owner’s own crippling indebtedness, leaving no assets left over to actually do the work. Having taken the loan the borrower went bust; the property was sold for a song, and G lost his hard-earned cash.

Pretty obviously, had G not been misled he would have run a mile and invested his funds elsewhere, where they would still have been available to him. There was however a complication: quite apart from any misinformation by his lawyers, the project he invested in was a complete dud from beginning to end. In other words, even if what his solicitors told him had been entirely true and he had been financing the actual works, he would still have been pouring his money down the drain, and he would still have lost out.

Upholding the Court of Appeal, Lord Sumption (speaking for the court) decided that G recovered nothing. Even though he would not have made the disastrous investment he did but for his solicitors’ blunder, his solicitors’ duty did not extend to protecting him from garden variety commercial misfortune. It followed that (contrary to a number of earlier authorities) the so-called SAAMCO cap (see South Australia Asset Management Corpn v York Montague Ltd [1997] AC 191) applied to reduce recovery to nil.

The significance of this decision to businesses generally, from lenders of money to buyers of ships or businesses, is that it removes what was once quite a comforting safety-net. Prior to BPE, if professional advisers negligently failed to tell a client facts indicating that some investment he was seeking to make was entirely unacceptable or unviable, the client could recover his entire (foreseeable) loss, even if other commercial conditions indicated that the deal was a disaster and he would have lost out anyway regardless of the facts he was not told about. Quite rightly, the Supreme Court has now closed off this means of palming off one’s own financial misjudgment on somebody else’s professional indemnity insurers. As the title says: do your due diligence. If you don’t, from now on you’re on your own.

New York judgment against you? England expects you to pay up, in pretty short order.

A refreshing no-nonsense approach from Teare J today in Midtown Acquisitions LP v Essar Global Fund Ltd [2017] EWHC 519 (Comm) to a guarantor desperately trying to avoid enforcement in London of a judgment given against it in Manhattan. EGF had guaranteed a facility given to Essar Steel Minnesota LLC, a now-very-bankrupt former subsidiary of monster Indian conglomerate Essar Global. When Essar Minnesota defaulted, EGF  confessed liability ; a New York judge duly signed judgment against it in the modest sum of about $172 million. EGF applied to vacate the judgment: meanwhile the creditor, Midtown, wasted no time and applied to enforce it in England.

Teare J in quick succession demolished four arguments hopefully raised against enforcement.

(a) The New York order was based on a confession of liability, with no action technically brought. Irrelevant, he said: it was still a judgment.

(b) The outstanding application to vacate meant that the judgment wasn’t final. Nonsense: it was immediately binding as res judicata in New York unless and until set aside, and that sufficed to make it enforceable in England.

(c) The judgment was on admissions, with neither party arguing on the law or the facts. So what? It was still a judgment on the merits — i.e. whether EGF had to pay $172 million.

(d) To a half-hearted pleading of fraud, Teare J answered shortly that only a showing of conscious and deliberate dishonesty would do to establish this, and none had been pleaded or shown.

In addition he was prepared to enforce the judgment on the basis of a clause under which “The Guarantor agrees that a judgment in any such action, suit or proceeding may be enforced in any other jurisdiction by suit upon such judgment … The Guarantor hereby waives any objection it may now or hereafter have to the laying of the venue of any such action, suit or proceeding, and … further waives any claim that any such action, suit or proceeding brought in any of the aforesaid courts has been brought in any inconvenient forum.”

The only indulgence he allowed was a short stay of execution until one week after the result of the application to vacate: unless the application was successful, execution would then follow automatically.

In our view this judgment is to be welcomed and should be widely publicised. If a creditor has a clear claim, the fact that it got judgment on it quickly, with no argument, ought to be a factor in favour of, rather than against, its being immediately able to enforce that judgment here. Furthermore, delaying tactics such as applications to vacate should generally not be allowed to derail the process. The message is simple: even outside the EU context, bring your judgments to London, and we’ll enforce them unless the other side produces a pretty convincing reason why we shouldn’t.

 

Narrow channels and crossings

A rare pure collision case in the Admiralty Court today in Nautical Challenge Ltd v Evergreen Marine (UK) Ltd [2017] EWHC 453 (Admty). Suppose Vessel A is coming out of a narrow channel and Vessel B is entering it: suppose further that Vessel A is approaching Vessel B on the latter’s starboard bow. The Colregs crossing rule says Vessel A has priority: the narrow channel rule says Vessel A must manoeuvre to pass Vessel B port to port. Which applies? Teare J has little doubt: it’s the narrow channel rule, following the Hong Kong decision in Kulemesin v HKSAR [2013] 16 HKCFA 195. Useful to know, and to clear up a long-standing controversy.