UK: Dispute Resolution Group - Second Case Review 2010

Last Updated: 23 July 2010
Article by Paul Friedman


Habas Sinai ve Tibbi Gazzlar Isthisal Endustri A.S. v Sometal S.A.L. [2010] EWHC 29 (Comm)

Incorporation of arbitration clause from earlier contracts between the same Parties

Clyde & Co successfully represented the Defendant. It is well established by caselaw that in a two-contract situation, where A and B make a contract incorporating terms agreed between A (or B) and C, or between C and D, general words of incorporation will not be construed as incorporating an arbitration clause (instead, there must be a specific reference to the arbitration clause in the incorporating clause). In this case, although there were multiple contracts involved, they were all entered into between the claimant and the respondent and Clarke J concluded that this was therefore not a "two contract" case. He also held that a less restrictive approach to incorporation should be adopted by the court where A and B enter into a contract in which they incorporate standard terms or (as here) they make a contract incorporating terms previously agreed between them in another contract (or contracts) to which they were also both parties. Although lawyers would understand that an arbitration clause is a separate contract collateral to the main contract, "a businessman would have no difficulty in regarding the arbitration part of a contract and as capable of incorporation, by appropriate wording, as any other term of such a contract, and it a businessman's understanding that the court should be disposed to give effect". Accordingly, general words of incorporation are capable of incorporating terms which include an arbitration clause, without specifically referring to it.

The judge then considered whether, on the particular facts of the case, there had been incorporation. The contract in question had used the phrase "all the rest will be the same as our previous contracts". Clarke J agreed that the term was, in context, ambiguous, but the parties must have intended it to have some effect. It should not be assumed that the parties intended to refer to all their previous contracts. In this case, the last of the contracts between the parties which had not included the arbitration clause was concluded almost 3 years ago. If regard was had (as it must be) to the sequence of contracts, it was clear that the words of incorporation in a later contract were apt to incorporate the arbitration clause.


Sylvia Shipping Co Ltd v Progress Bulk Carriers Limited [2010]

Test for remoteness of damages

The generally accepted test for remoteness of damages is whether the loss claimed is of the kind or type which it would have been within the reasonable contemplation of the parties, at the time that the contract was made, as being not unlikely to result (the "orthodox" approach). However, after the recent House or Lords case of The Achilleas [2009], doubts have arisen as to whether that test is sufficient. In The Achilleas, two of their lordships decided the case on the orthodox approach. However, two of them decided it on the "broader" approach, namely, not only must the parties be taken to have had the type of loss within their contemplation, they must also be taken to have assumed legal responsibility for that type of loss. The remaining judge gave a judgment which contained elements of the reasoning of both approaches

In this case, Hamblen J concluded that the rationale of assumption of responsibility had the support of the majority in The Achilleas. He said: "The orthodox approach remains the general test of remoteness applicable in the great majority of cases. However, there may be "unusual" which the context, surrounding circumstances or general understanding in the relevant market make it necessary specifically to consider whether there has been an assumption of responsibility. This is most likely to be in those relatively rare cases where the application of the general test leads or may lead to an unquantifiable, unpredictable, uncontrollable or disproportionate liability or where there is clear evidence that such a liability would be contrary to market understanding and expectations".

In The Achilleas, the House of Lords had held that where there was a breach of a contract (which caused the shipowners to fail to deliver a vessel in time), the owners were not entitled to the difference between the original and the renegotiated rates of hire. In this case, shipowners had breached their contractual maintenance obligations and so a sub-charter made by the charterers was cancelled. The arbitrators held that the charterers were entitled to the loss of profit on the cancelled sub-charter. Hamblen J held that the arbitrators had not made any error of law. This was not one of those "unusual" cases in which it might be said that assumption of responsibility had to be addressed.

On a separate note, the judge also reiterated that on an appeal from an arbitration award, the only documents which should be put before the court should be the award itself and the relevant contract. Unless clearly incorporated by reference, other arbitration documents (eg submissions from the arbitration) will usually be irrelevant and inadmissible (and the same applies to applications for permission to appeal, unless there is a disputed issue as to whether the question of law was one which the tribunal was asked to determine).


Gavin Goodale & Others v The Ministry of Justice & Others [2009] EWHC B41 (QB)

Guidance on approach to e-disclosure

In this case, Senior Master Whittaker acknowledged the difficulty in dealing with the disclosure of electronically stored information ("ESI"). Not only is the volume of ESI, even in small organisations, immense, but also the parties often do not know how much ESI they have or where it is. Furthermore, not all forms of ESI are searchable. When considering the proportionality of the disclosure to be given, the judge said that the level of damages likely to be awarded and the size of the group involved in the group litigation were not factors of great weight.

In this case, there had been no agreement between the parties for the production of ESI - the defendant simply did not want to carry out any search for ESI at all. The judge rejected that suggestion: "It would have to be totally disproportionate to make any search of [ESI] be able to avoid doing so altogether". Instead, what was called for was a "considered and staged approach". The first step would be to estimate what the cost of collecting documents for human review would be, what the best ways of searching for them would be (ie key words, concept searches or some other method of search). Four key witnesses were identified (the judge advised always starting with the most important people "at the top of the pyramid", thus adopting a staged, incremental approach).

However, at this stage it would not be appropriate to reconstruct their email accounts entirely (through the use of back-up tapes). Instead, it had to be first ascertained whether the back-up tapes existed and what the cost would be of restoring them if they did exist.

The judge suggested using the ESI disclosure questionnaire which is currently being considered by the Civil Procedure Rules Committee for national use, together with a dedicated Practice Direction, both of which might become available by October 2010 (the questionnaire was attached as a schedule to the judgment).


Anton Teasdale v HSBC Bank Plc [2010] EWHC 612 (QB)

Whether claimant entitled to its costs on discontinuance of action

CPR r38.6 provides that, unless the court orders otherwise, a claimant who discontinues his action is liable for the defendant's costs incurred on or before the service of the notice of discontinuance. In this case, the claimants sought an order that the defendants should pay all or part of their costs. They argued that the court ought to look at the whole case and ask who had succeeded in the action and what order for costs was required by justice. The judge rejected that argument and summarised the position as follows:

  • The claimant must show that there is a good reason for departing from the presumption that the defendant will get his costs;
  • The fact that the claimant would have (or might well have) succeeded at trial is not itself a good reason. However, if it is plain that the claimant would have failed, that will be a relevant factor against disapplying the presumption;
  • The mere fact that a claimant discontinues for practical or financial reasons (and not for a lack of confidence in the merits of his case), is not enough;
  • The claimant will need to show a change of circumstances since the claim was made. However, the claimant cannot rely on a change if it resulted from the very fact of the claim (eg the defendant has run out of money because he has spent it all on defending the claim). It may be different though if the defendant has, on his own initiative, rendered the claim worthless by eg embarking on some other unsuccessful proceedings which led to his bankruptcy. Nor can the claimant rely on a change resulting from the ordinary course of litigation (eg he believes he has less chance of winning after the defendant's disclosure); and
  • "In truth, it is difficult to see how any change of circumstances could amount to good reason unless it is connected with some conduct on the part of the defendant which deserves to sound in costs against him". An example might be where the defendant has adopted an unnecessarily aggressive and unreasonable stance in negotiations before discontinuance. Even with such conduct though, it must still be shown that, taking into account all the circumstances, there is good reason to disapply the presumption.

In this case, the judge found that there was no basis for disapplying the presumption and the claimants were ordered to pay the defendants' costs.

Part 36 Offers

Onay v Brown [2009] EWCA Civ 775

Accepting a Part 36 offer and no mention of costs

Both the defendant and claimant had made various Part 36 offers and counter-offers during the course of litigation between them. One offer made by the defendant was headed "Part 36 offer" and offered to settle an issue of contributory negligence on the basis of a 25% reduction. It was expressly stated that the offer was made pursuant to Part 36 and was intended to have the costs consequences of that rule. The relevant acceptance period was to be 21 days from receipt of the letter and the letter concluded that indemnity costs and interest would be sought if the defendant were to eventually establish liability at or in excess of 25% at trial. Shortly before the hearing the claimant accepted the defendant's offer and an issue arose as to the costs on that issue.

CPR r36.2(c) provides that a Part 36 offer must "specify a period of not less than 21 days within which the defendant will be liable for the claimant's costs in accordance with rule 36.10 if the offer is accepted". The defendant argued that the offer had not been a CPR r36.2 offer, no offer in respect of costs having been made, and so the defendant was not liable for the claimant's costs in accordance with CPR r36.10. Instead, the claimant should pay the costs after accepting the offer within 21 days. That argument was rejected by the Court of Appeal: "Any reasonable solicitor reading the letter would in my judgment conclude that the writer's intention was that CPR r36.2(c) was to apply, in other words that if within 21 days the offer was accepted, the defendant will be liable for the claimant's costs". As Carnwath LJ put it "when the part 36 jurisdiction is expressly invoked, the court should generally take that at face value and as far as possible give effect to the consequences as envisaged by the rules".

It is for the party writing the Part 36 offer to set out the consequences which he wishes to apply if he does not want the normal Part 36 consequences to apply.

The defendant had also sought to argue that CPR r36.11(3) applied (this provides that "if a Part 36 offer which relates to part only of the claim is accepted.... unless the parties have agreed costs, the liability for costs shall be decided by the court"). The defendant argued that the offer was "part of the claim", namely liability in respect of contributory negligence and so the court had an unlimited discretion as to costs under CPR r36.11(3). That was rejected by the Court of Appeal. CPR r36.2(5) provides that an offer or may make a Part 36 offer solely in relation to liability: "it would be inconsistent therefore to regard an offer solely in relation to liability as an offer in respect of part of a claim". Accordingly, the entitlement to costs arose under CPR r36.10.


Oceanbulk Shipping & Trading SA v TMT Asia Limited [2010] EWCA Civ 79

Admissibility of without prejudice negotiations to interpret terms of settlement Agreement

The defendants claimed to be entitled to adduce evidence of exchanges between the parties, made during without prejudice negotiations and before a settlement agreement was concluded, because those exchanges were said to be relevant to the proper interpretation of the agreement.

The courts have previously allowed the admission of without prejudice exchanges where (inter alia): 1) there is an issue as to whether a settlement agreement was concluded or 2) there is an estoppel argument (because one party to the negotiations made a clear statement on which the other party is intended to (and does) act). The judge concluded that, in relation to the first exception, it makes little sense to allow evidence on whether a settlement has been concluded without also admitting evidence about what the terms of the settlement were.

By a majority of 2:1 (Ward LJ dissenting), the Court of Appeal has now overturned that decision. Longmore LJ recognised the conflicting policy considerations involved in this issue and concluded that "It seems to me to be more important to preserve the "without prejudice" principle than to allow it to be breached so as to permit the admission of evidence of background facts arguably relevant to construction". Nor did any estoppel argument succeed. Estoppel could only arise where no concluded agreement was achieved ("the final position is thus outside the area in which the without prejudice umbrella is intended to operate"). Nor was there any issue of "impropriety" or "unconscionability" in this case.

(It is worth noting however that Ward LJ, although agreeing that outside parties to the negotiations should not see what was discussed, believed that "if one is to lift [the cloak of secrecy] at all, it should be lifted high enough to see in all its raw detail the truth" and so agreed with the judge).

Linsen International Ltd v Humpuss Sea Transport PTE Ltd [2010] EWHC 303 (Comm)

Clyde & Co case on disclosure of without prejudice negotiations in application for freezing injunction

The defendants applied to set aside a worldwide freezing injunction on the basis that, amongst other things, the claimants had failed to make full and frank disclosure. In particular, it was claimed that the claimants ought to have disclosed the fact and content of certain without prejudice discussions which had taken place shortly before the freezing injunction was granted. It was recognised in Pearson Education v Prentice Hall [2005] that the duty of full and fair disclosure might require a without prejudice document (or some indication of its existence) to be disclosed. However, on the facts of this case, Clarke J concluded that there had been no requirement to draw the fact and content of the without prejudice meeting to the judge's attention. The defendants had made a deliberate choice for the meeting not to be open "no doubt with the intention that its content should not be put before the court". In reaching this conclusion, the judge found that "considerable care" needed to be taken in holding that a claimant is bound to disclose without prejudice material and that a "relatively robust" approach should be adopted in order to avert disputes about whether the without prejudice material was advanced not to fulfil a duty of disclosure but to advance the claimant's case (and so the defendant is entitled to have other without prejudice communications put in evidence).

Clarke J noted that Pearson Education had rejected a test of "manifest impropriety" and he rejected a test which came close to that. He said: "It is sufficient to say that some disclosure of without prejudice communication will be necessary if it is clear that without it the court may be misled.


Lord Michael Cecil & Others v Ensandlah Bayat & Others [2010] EWHC 641 (Comm)

Test for service out

The defendants applied to set aside service of proceedings. Three questions of law were disputed between the parties:

  • Whether the "Canada Trust gloss" should be applied. The claimant must show (1) that each cause of action in respect of which he claims stands a reasonable prospect of success and that (2) he has a "good arguable case" that the claim falls within the jurisdictional gateways now set out in Practice Direction 6B.
  • In Canada Trust [1998], Waller LJ said that the test for "good arguable case" meant that one side had a "much better argument on the material available" (the so-called "Canada Trust gloss"). The use of the test in all circumstances has been doubted in subsequent cases.
  • However, in this case, Hamblen J, whilst recognising the difficulties that the test posed, said he was nevertheless obliged to follow the Court of Appeal case of Sharab v Al Saud [2009] and apply the Canada Trust gloss. He said he considered that the test was who has the better argument (although in this case he applied the test of who has "much" the better of the argument). He did not rule on a further (novel) argument that the Canada Trust gloss should not be applied where there is no available alternative appropriate forum;
  • Can grounds of jurisdiction other than those clearly identified at the permission stage be relied upon? Hamblen J said they could not, but he was prepared to exercise his discretion to cure this defect because the gateway relied on was at least referred to in the claimants' evidence and the claimants' reliance upon different gateways turned on matters of argument rather than of evidence; and
  • The scope of claims "in respect of" a contract under PD 6B. The claimants tried to argue that all they needed to show was "a connection with" a contract falling within the criteria of PD 6B para 3.1(6) a) to d) (eg a contract governed by English law or which is made within the jurisdiction). This argument was rejected by the judge: "In my judgment, at least on respect of contractual claims, some relevant legal connection between the claim and the other contract is required. If that contract needs to be referred to and relied upon in order to assert the relevant cause of action then that requirement is likely to be satisfied since it will be a necessary part of the cause of action. However, a mere factual connection between the two contracts is not enough."


Porton Capital Technology Funds & Other v 3M UK Holdings Limited & Other [2010] EWHC 114 (Comm)

Questioning witnesses on confidential documents

It is well established that there is no property in a witness and an employee (or ex-employee) of a party has a free choice whether to assist the opposing party. However, that (ex) employee may not lawfully give to the opposing side information which he/she is under a duty to his/her (ex) employer to keep confidential. Of issue in this case was what use a party can make of documents disclosed in the ordinary course of proceedings. In particular, can an (ex) employee be asked to comment on a disclosed document even if, in other circumstances, his/her answers would be a breach of confidence?

Clarke J held that disclosure did not alter any duty of confidence owed by, say, an (ex) employee. Although a receiving party may show the disclosure documents to a potential witness, that did not mean that the witness was absolved from any duty of confidence: "Fulfilment of that duty may preclude him from answering some of the questions that may be asked of him". The defendants (the disclosing party) also applied for a "confidentiality club" order, whereby all disclosure documents are to be treated as confidential and the receiving parties may only pass on those documents to a limited range of persons and then only if that person has first signed a confidentiality undertaking. The judge said that there was no reason why the documents should not be shown to a possible witness and so they should be included in the "club". He was prepared to make the order sought. However, the defendants were only entitled to have a signed confidentiality agreement in advance from experts (not anyone else in the club). (The defendants had been concerned that confidential information would be made available to experts who may be employed or engaged by a competitor).

The Bribery Act 2010

The Bribery Act 2010 has recently been published. A commencement order is now required to bring the Act into force.

The Bribery Act is intended to modernise and simplify the law in this area in order to combat the increasingly sophisticated cross-border use of bribery which is in evidence today.

The Bribery Act creates the following offences:

Two general offences

  • Promising, offering or giving a bribe.
  • Requesting, agreeing to receive or accepting a bribe either in the UK or abroad, in the public or private sectors.

A separate offence

  • Bribery of a foreign public official in order to obtain or retain business

New corporate offence

  • Failure by a commercial organisation to prevent a bribe being paid for or on its behalf. It will be a defence if the organisation can demonstrate that it had adequate procedures in place to prevent bribery.


  • Prosecutions can be brought not only against commercial organisations that are registered in the UK but also against those that are not registered in the UK but have some business presence here if they are involved in bribery anywhere in the world.


  • Offences committed by an individual will carry a maximum penalty of ten years' imprisonment and/or an unlimited fine. The corporate offence is punishable by an unlimited fine.

Practical guidance

The Secretary of State will publish guidance about the procedures commercial organisations can put in place to prevent bribery and therefore avoid prosecution.

In the meantime, here is some practical guidance which you may wish to consider when reviewing your anti-bribery procedures. Adequate procedures may include:

  • Having a clear ethical policy statement which is disseminated throughout the organisation and to any intermediaries;
  • Ensuring payments made to third parties are fully accounted for;
  • Ensuring any introduction fees that are paid are proportionate and justifiable;
  • Regularly auditing accountancy processes;
  • Recording the decision making processes which lead to each payment and the justification for the amount paid; and
  • Clear corporate hospitality policies and a review of whether the commercial entity is spending appropriate amounts hosting clients and/or influential public figures

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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