UK: Weekly Update - A Summary Of Recent Developments In Insurance, Reinsurance And Litigation Law 36/10

Last Updated: 7 October 2010
Article by Nigel Brook


Fearns v Anglo-Dutch & Ors

A case on the appropriate date of conversion into a common currency of cross-claims in different currencies

Giedo Van Der Garde v Force India Formula One Team

A case on whether a prior gentleman's agreement is admissible as evidence to construe a later written agreement

This Week's Caselaw

Fearns v Anglo-Dutch & Ors Appropriate date of conversion of cross-claims in different currencies

Equitable set-off arises where a cross-claim is so closely connected with the claim that it would be manifestly unjust to allow the claimant to enforce payment without taking into account the cross-claim. At trial, the judge ordered equitable set-off in this case. However, the damages payable to the claimant were in sterling and the debt payable by the defendant to the claimant was in euros. Accordingly, an issue arose as to when the amounts should be converted into a common currency. Was it (1) when the claim first arose or (2) the date of the judgment? The issue was of importance in this case because the rate of exchange between sterling and the euro had altered significantly between these two dates in this case.

The judge (Mr G Leggatt QC) found as follows:

  • Equitable set-off is not simply a procedural defence, it also affects substantive rights. However, neither the existence nor the exercise of a right of equitable set-off has the effect of extinguishing or reducing the liability of either party to the other;
  • The earliest date at which a set-off is possible is when the existence and the amount of the two liabilities is finally determined by judgment or agreement;
  • The correct approach of the court when ordering a set-off between amounts payable in different currencies is as follows: (a) assess and add to each principal amount any interest accruing up to the date of the set-off; (b) convert the smaller amount into the currency of the larger amount at the exchange rate prevailing at that date; and (c) order payment of the balance;
  • In this case, the claimant would only have made an additional loss from currency fluctuations if he would have used the profits of which he was deprived to pay off his debt at an earlier date. However, on the facts, it was shown that he would not have done this; and
  • An issue arose as to whether the costs which the claimant had been ordered to pay to the defendant could be set-off against the damages awarded to the claimant (this was important because the claimant was insolvent and so would have been unable to meet his liability for costs, whilst the defendant's payment of damages would have gone mainly to the claimant's creditors). The judge found that whether or not there should be a set-off in such circumstances was a matter of discretion (and not of law). In the circumstances, justice plainly required a set-off.

Giedo Van Der Garde v Force India Formula One Team Whether prior contract admissible as evidence to construe later agreement/gentleman's agreement

One of the issues in this case was whether a written agreement should be read in light of an earlier (alleged) oral agreement. In HIH v New Hampshire [2001] Rix LJ expressed the view that (although the parol evidence rule excludes mere negotiations) it is permissible to look at prior contracts as part of the matrix or surrounding circumstances of a later contract. In this case, Stadlen J said that in his judgment, those comments were obiter dicta (i.e. did not form a necessary part of the court's decision). Accordingly, there was no authority binding on him either for or against the proposition that a prior written agreement is admissible for the purpose of construing a later one (and, in any event, its usefulness as an aid to construction is likely to be limited in most cases). Nevertheless, the judge held that the views expressed by the Court of Appeal in HIH v New Hampshire did represent the current state of the law. Nor did anything turn on the fact that the prior agreement here was oral rather than written. However, on the facts, it was found that no legally binding agreement had been reached between the parties prior to the written agreement. Instead, there had been a gentleman's agreement.

Did HIH v New Hampshire therefore apply to a gentleman's agreement? The judge said that it did not: "In my view a non-binding gentleman's agreement or agreement in principle falls on the other side of the line and is akin to or indeed to be treated as part of the pre-contractual negotiations leading up to a written agreement which are inadmissible for the purpose of construing the later written agreement. If I were wrong in that conclusion and a prior gentleman's agreement is admissible for the purpose of construing a later written agreement, in my judgment the need for caution emphasised by Lord Justice Rix would be all the greater since the inference that the parties intended or may have intended to depart in their written agreement from their earlier gentleman's agreement would be all the greater".

Even if there had have been an earlier binding oral contract, it was superseded by the later written agreement which contained a clause specifying that it was the "entire agreement" between the parties.

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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Nigel Brook
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