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.

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.

Parents and subsidiaries. No liability in tort for Nigerian pipeline pollution.

When will a parent company be liable in tort in respect of acts of one of its subsidiary companies? Fraser J has provided some answers to this question in Okpabi v Royal Dutch Shell and Shell Petroleum Development Company of Nigeria Ltd,  [2017] EWHC 89 (TCC). The case involved pollution claims arising from oil leaks from Nigerian land pipelines due to the illegal process of bunkering by which oil is stolen by tapping into the pipelines. The principal target was Shells’ Nigerian subsidiary SPDC who operated the pipelines but the claimants wanted the case to be heard in the English courts rather than in Nigeria. To do this they brought proceedings against the English holding company, Royal Dutch Shell, which would serve as an “anchor defendant” to allow claims against SPDC to be joined to those proceedings. In a jurisdictional challenge by the two defendants the issue arose as to whether there was an arguable duty of care on the part of RDS to the claimants under Nigerian law which for these purposes was the same as English common. If not, there would be no ‘anchor defendant’ and SPDC’s applications challenging jurisdiction would succeed, due to the lack of connection of the claims against SPDC with this jurisdiction.

The claimants argued that Royal Dutch Shell owed a direct duty of care to them, relying heavily on the Court of Appeal’s decision in Chandler v Cape [2012] 1 WLR 3111, in which a parent company was found to owe such a duty to employees of its subsidiary company. They alleged that RDS had failed to ensure that repeated oil leaks from SPDC’s infrastructure were expeditiously and effectively cleaned up so as to minimise the risk to the claimants’ health, land and livelihoods and, further, had failed to take appropriate measures to address the well-known systemic problems of its operations in Nigeria which led to repeated oil spills.

Fraser J applied the threefold Caparo test to finding the existence of a duty of care.

1. The damage should be foreseeable; 2. There should exist between the party owing the duty and the party to whom it is owed a relationship of proximity or neighbourhood; 3. The situation should be one in which it is “fair, just and reasonable” to impose a duty of a given scope upon the one party for the benefit of the other.

The second and third of these limbs were problematic for the claimants. The evidence from those at SPDC’s evidence was to the effect that it, rather than RDS, took all operational decisions in Nigeria, and RDS performed nothing by way of supervisory direction, specialist activities or knowledge, that would put RDS in any different position than would be expected of an ultimate parent company. It was SPDC that had the specialist knowledge and experience – as well as the necessary licence from the Nigerian authorities – to perform the relevant activities in Nigeria that formed the subject matter of the claim.

Nor could a duty of care be said to arise from public statements by made both by the Shell Group and by RDS about the Group’s commitment to environmental issues, and the organisation of the Shell Group, such statements being a function of the listing regulations of the London Stock Exchange.  First these statements were qualified by the following wording “Royal Dutch Shell plc and the companies in which it directly and indirectly owns investments are separate and distinct entities. But in this publication, the collective expressions “Shell” and “Shell Group” may be used for convenience where reference is made in general to those companies. Likewise, the words ‘we’, ‘us’, ‘our’ and ‘ourselves’ are used in some places to refer to the companies of the Shell Group in general. These expressions are also used where no useful purpose is served by identifying any particular company or companies.” Second, it was highly unlikely that compliance with such disclosure standards mandated for listing on the London Stock Exchange could of itself be characterised as an assumption of a duty of care by a parent company over the subsidiary companies referred to in those statements.

As regards Chandler v Cape, the claimant there was a former employee, which, by definition, involved a closer relationship than parties affected by operational activities. A duty of care was more likely to be found in respect of employees, a defined class of persons, rather than others not employed who are affected by the acts or omissions of the subsidiary.  None of the four factors identified by Arden LJ in Chandler as leading to a duty of care on the parent company was present here. 1. RDS was not operating the same business as SPDC. 2. RDS did not have superior or specialist knowledge compared to the subsidiary SPDC. 3. RDS could have only a superficial knowledge or overview of the systems of work of SPDC.  4. RDS could not be said to know that SPDC was relying upon it to protect the claimants.

Accordingly, there was no arguable duty of care on the part of RDS and with the disappearance of the anchor defendant the claims against SPDC could not proceed in England. The claimants’ solicitors, Leigh Day, have stated that they will appeal.


Act of State and the man of Straw.



Good things come to those who wait. Today, some fourteen months after hearing the case, the Supreme Court has decided in Belhaj v Straw and Rahmatullah (No 1) (Respondent) v Ministry of Defence [2017] UKSC 3 that the Act of State doctrine does not bar a tort claim brought against the former Home Secretary, Jack Straw, for alleged complicity in unlawful detention of the claimants and mistreatment overseas at the hands of foreign state officials from the US and Libya. The appeal did not concern the separate claim in Rahmatullah relating to his detention by British forces and their handing him over to US forces, which had previously been dismissed under the Crown Act of State doctrine, assuming that arrest and detention were lawful under authorised UK policy.

State immunity was no bar to the two claims. Although the acts alleged against the relevant foreign governments were sovereign acts, and the governments would have been immune if sued, they had not been sued. Only the government and agents of the United Kingdom were sued and they accepted that state immunity was not available to them.However, the appellants argued that the claims were barred by the foreign act of state doctrine, a position rejected by the Court of Appeal [2014] EWCA Civ 1394. The Supreme Court unanimously upheld that decision and the first instance decision in Rahmatullah [2014] EWHC 3846 (QB).

Lord Mance identified three types of foreign act of state rule in English law.


– a rule of private international law, whereby a foreign state’s legislation will normally be recognised and treated as valid, so far as it affects movable or immovable property within that state’s jurisdiction – a rule precluding a domestic court from questioning the validity of a foreign state’s sovereign act in respect of property within its jurisdiction, at least in times of civil disorder. Even if this rule extended more generally to acts directed against the person, it would be subject to a public policy exception which would permit the allegations of complicity in torture, unlawful detention and enforced rendition in this case to be pursued in the English courts.

– a rule that a domestic court will treat as non-justiciable – or will refrain from adjudicating on or questioning – certain categories of sovereign act by a foreign state abroad, even if outside the jurisdiction of that state. Non-justiciability falls to be considered on a case-by-case basis, having regard to the separation of powers and the sovereign nature of activities and will take into account whether issues of fundamental rights are engaged, including liberty, access to justice and freedom from torture as well as the international relations consequences of a court adjudicating on an issue. The circumstances here did not lead to a conclusion that the issues are non-justiciable.

Lord Sumption reached the same result by a different analysis of the foreign act of state doctrine. In his view there were two such doctrines: the municipal act of state doctrine which corresponded with Lord Mance’s first two categories; the international act of state doctrine which requires requires the English courts not to adjudicate on the lawfulness of the extraterritorial acts of foreign states in their dealings with other states or the subjects of other states. This is, however, subject to an exception where those acts involve violations of jus cogens norms of international law, such as the prohibitions on torture, arbitrary detention, and inhuman treatment falling short of torture which formed the basis of the allegations in the present cases.


Suspect a company has financial difficulties? Careful what you say.

A libel case on Maricom is a first, but Flymenow v Quick Air Jet [2016] EWHC 3197 (QB), decided today by Warby J, is a salutary warning. Efficient German operation Quick Air Jet regularly chartered aircraft to English air ambulance operators Flymenow. Flymenow were slow in paying, spinning out the process for a long time and doing their best not to pay their suppliers before they themselves got paid. Exasperated, Quick Air Jet emailed others in their branch of the industry, saying:

“To Whom It May Concern. WARNING: Company you should not deal with! Pecuniary difficulties! … We consider that it is our duty to warn you against doing business with the following company as they are not able to pay outstanding amounts dated from July 2013. … FlyMeNow Limited is obviously incapable to pay their outstanding amounts in total. In this particular case for two ambulance flights they booked with our airline company in July and August 2013.”

The result was a writ for libel. The action succeeded on the basis that there was an unsubstantiated allegation of insolvency, and that there was no sufficient interest to raise any defence of qualified privilege. The only crumb of comfort for Quick Air Jet was Warby J’s holding that Flymenow, by paying slowly, had brought all this on themselves, and the consequent decision to award an effectively nominal £10 damages. Nevertheless, the moral is obvious for (for example) disponent owners with suspicions about time charterers: be very very careful what you say, and limit it to allegations of won’t pay rather than can’t pay.

Freezing orders and contribution

If you are sued jointly with another defendant X, and are seeking contribution against X, can you get a freezing injunction against X before you are held liable to the claimant or settle with him? Leggatt J said Yes in Kazakhstan Kagazy Plc v Zhunus & Ors [2016] EWHC 1048 (Comm) (noted in this blog here). The Court of Appeal has, entirely correctly in our view, upheld this view. See Kazakhstan Kagazy Plc v Zhunus & Ors [2016] EWCA Civ 1036, refusing to accept the pettifogging argument that any claim before that time fell foul of the principle in The Vera Cruz [1992] 1 Lloyds Rep 353 and Zucker v Tyndall Holdings [1992] 1 WLR 1127. Much relief for litigants all round.

Taking some of the shine off commercial product liability?

When a ship, a rig, a factory or an office-block is damaged owing to some malfunctioning device or other, a claim in tort against the manufacturer of the device has distinct attractions for the owner and/or its subrogated insurer. Contractual restrictions on liability can be bypassed. So (in the case of ships) can limitation of liability, since component or machinery makers are outside the charmed circle of those who can limit under the 1976 Convention.

A case today in the English Court of Appeal may, however, cause some such claimants to have second thoughts. In Howmet Ltd v Economy Devices Ltd & Ors [2016] EWCA Civ 847 an English factory owned by Howmet, an ALCOA subsidiary and manufacturer of turbine blades, burnt down after a badly-designed thermosensor on sensitive equipment failed. The factory owner (H) sued the manufacturer (EDL). The awkwardness was that there had been problems with the thermosensor before, as H’s employees well knew, but H had continued to use the device. Did this matter? Most lawyers until today would have said that for an owner suing in tort, the worst that could happen was that he might have damages docked for contributory negligence. But a majority in the Court of Appeal (Jackson LJ and Sir Richard Akenhead) held that in a case such as this the claimant failed entirely on causation grounds, as he would in contract under Lexmead v Lewis [1982] AC 225. Arden LJ dissented, essentially arguing that if this was right, it deprived the Law Reform (Contributory Negligence) Act 1945 of a great deal of its point.

This is highly significant in practice. It’s very often possible for a well-advised defendant to a commercial product liability  suit to provide evidence that someone knew of problems earlier: in so far as this is now capable of leading to a dismissal of the whole action rather than a docking of damages, the effect of this on settlement prospects will be clear.

What can claimants do? Grin and bear it, perhaps. Or possibly, look for somewhere else to sue. Most European jurisdictions, one imagine, would not only welcome the legal business but say that this was a simple case of apportionment for faute de la victime, Mitschulden, or whatever. Time will tell.

The freezing order — a useful weapon, but there is a price tag attached

The ability to get a worldwide freezing order with comparative ease is one of the reasons why claimants like to bring their heavy international litigation to England. Quite right too: but there is a price attached, which can be high. It is known as the undertaking in damages. Today Fiona Trust found this out to their cost in the latest episode of the Privalov saga, Fiona Trust v Privalov [2016] EWHC 2163 (Comm). Essentially Fiona, a Russian state-owned shipping conglomerate, alleged that another Russian shipping magnate, Yuri Nikitin (whom Russia had previously tried without success to extradite from the UK and has it seems recently taken steps to prosecute in his absence), had suborned an officer of theirs to enter into charters that were disadvantageous to them and hugely profitable to him, in exchange for a cut of the profits. They claimed a cool half-billion dollars or rather more in damages, and in 2005 and 2007 got orders freezing assets of Nikitin worth, in round figures, $600 million. After bitter litigation (see  Fiona Trust v Skarga & Nikitin [2013] EWCA Civ 275, and also Novoship (UK) Ltd v Mikhaylyuk & Ors [2014] EWCA Civ 908;[2015] Q.B. 499, the latter of which is now a leading case on account of profits), Fiona recovered about $16 million.

The day of reckoning then arrived for the undertaking in damages. Andrew Smith J had earlier decided, rightly, that findings of dishonesty on Nikitin’s part did not bar such claims, on the basis that even crooks had rights not to have their financial lives upended without recourse (see Fiona Trust v Privalov [2014] EWHC 3102 (Comm)). Males J in the present follow-on case decided that Nikitin was entitled to damages in a sum which remained to be calculated, but cannot have been too far from $50 million. Most of this arose from the loss of the opportunity to make profits in the volatile shipping market. In particular Males J made some points that could usefully be borne in mind:

(1) A ‘liberal approach’ was appropriate, in that the court should not be over eager in its scrutiny of the evidence or too ready to subject its methodology to minute criticism, in part because the very nature of the exercise rendered precision impossible;

(2) The fact that all claims to would-be profits were speculative and that it was always possible that the person seeking recompense would in fact have made a loss was no bar;

(3) Although loss of profits had to be proved and a “loss of chance” award was not appropriate, there was no need for rigorous proof and the court could look at the figure in the round with reference to the vagaries of business;

(4) Males J was unimpressed with an argument that Nikita had failed to mitigate his loss by failing to apply for permission to use the blocked funds for business activities. Not only was there no such exception in the terms of the freezing orders; in any case to demand that a defendant to litigation indulge in further satellite litigation in such a situation was hardly reasonable;

(5) He was also unconvinced by an argument that in a volatile shipping market it should be possible for the person seeking compensation to rely on the rate at which he could have borrowed money (LIBOR + 2.5), either as surrogate proof for the profits he would have made, or as a ‘conventional’ measure.

All in all, one suspects, a chain of litigation that seems a fairly Pyrrhic victory for Russian state shipping. $16 million against an incidental ‘undertaking in damages’ bill of three times that amount is not that pretty a balance sheet, and might well serve as a warning.

Andrew Tettenborn