This Week's Caselaw
Safeway Stores & Ors v Twigger & Ors
Ex turpi causa defence and company claim against its directors/employees/ Discontinuance and costs
http://www.bailii.org/ew/cases/EWCA/Civ/2010/1472.html
The first instance decision in this case was reported in Weekly Update 03/10. The claimant companies sued some of their former directors and employees for taking part in initiatives which the OFT investigated for breaches of the Competition Act 1988. The defendants sought to argue that, in seeking to recover penalties imposed by the OFT, the companies breached the ex turpi causa maxim which prevents the recovery of compensation for loss suffered as a result of your own "personal" wrongful conduct. The defendants applied for summary judgment. This was refused by the judge at first instance and the defendants appealed.
The Court of Appeal has unanimously allowed the appeal.
The trial judge's finding that the contraventions of the 1988 Act were sufficiently illegal or unlawful to engage the ex turpi causa maxim (and that a penalty under the Act was akin to a fine) was not disputed by the parties. The Court of Appeal also found that it need not consider whether the maxim applies to strict liability offences, since in this case, the infringement had to be committed either intentionally or negligently.
The novel issue in this case, though, was whether the maxim applies to a company, where it is the acts of its employees or directors which have caused it to incur a penalty (so as to preclude recovery from those employees or directors). The trial judge held that in this case it did not because the relevant employees and directors were not "the directing mind or will" of the claimants and so the claimants were not "personally" at fault. However, the Court of Appeal found that the claimants' liability was not a vicarious one - the liability to pay the penalty was a liability of the undertaking itself, and so the liability was "personal" to the company. There was no need to show that the acts had been specifically authorised by the whole board of directors (or shareholders in general meeting): "That would not be a desirable legal development".
Nor could the companies invoke the Hampshire Land principle which provides that the acts of an agent cannot be regarded as attributable to his principal if those acts were intended to defraud the principal (or, possibly, if those acts were committed in breach of the agent's duty). In this case, though, as the claimants were personally and not vicariously liable, the principle did not apply.
One further point on discontinuance arose. The claimants discontinued against one defendant (the eighth defendant) after the trial judge's decision to grant summary judgment and to award the claimants their costs. As the appeal has been allowed, the Court of Appeal found that it would be unjust for the claimants to retain the benefit of that costs order against the eighth defendant. However, the Lords Justices differed on the procedural means to achieve this result. Longmore LJ held that the costs order remained in effect but the eighth defendant could apply to set aside the notice of discontinuance and (having been allowed to continue his appeal in order to deal with the question of costs) could benefit from any order which may in due course be made reversing the trial judge's costs order. However, Pill LJ considered that service of a notice of discontinuance has the legal consequences that costs orders already made in favour of the discontinuing party are automatically reversed without further order (unless that party is able to show that the defendant's conduct was abusive or vexatious).
Fiona Trust & Ors v Privalov & Ors
Allegations of dishonesty and bribery
http://www.bailii.org/ew/cases/EWHC/Comm/2010/3199.html
Russian state-owned shipping companies brought various claims against certain Russian individuals. These claims involved allegations of conspiracy, bribery, breach of fiduciary duty, dishonest assistance, knowing receipt and conspiracy. Much of the (very lengthy) case involves factual disputes (with some claims succeeding and others failing) but there are some noteworthy points arising out of Smith J's judgment:
1) The judge considered the current position under English law
regarding bribes. A bribe has been defined in English law as
"a commission or other inducement which is given by a third
party to an agent as such, and which is secret from his
principal" (see Anangel Atlas v Ishikawajima-Harima
[1990]). It is not necessary to show that the bribe was either paid
or received dishonestly. Nor does it matter that the agent acted in
the principal's best interests. It is also not necessary for
the bribe to be given in connection with a particular transaction.
Thus, in this case, it did not matter that the claimants could not
link payments to individuals with particular schemes.
English law also currently recognises that some gifts or benefits
are too small to be treated as a bribe. Smith J said that he
believed the correct test was whether the gift "is sufficient
to create a "real possibility" of a conflict between
interest and duty" (see Imageview Management v Jack
[2009]). On the facts of this case, free holidays and the use of a
credit card were held to be sufficient to amount to bribes under
English law (notwithstanding that one of the recipients of the
bribes was accustomed to receiving generous hospitality in the
course of his work).
2) A defendant is liable for knowing receipt if he beneficially receives assets which are to his knowledge beneficially owned by the claimant, and he is then liable to restore them and to account for any profit that he has made from them. The defendants sought to argue that although a trustee or other fiduciary is liable to disgorge any profit made a result of the breach of duty, a person who dishonestly induces or assists such a breach of duty is not. That argument was rejected by Smith J, who said that it is now established under English law that an account of profits is available against someone who dishonestly procures or assists a breach of fiduciary duty. Nor must he account only for the profits resulting directly from the act of dishonest assistance (and not eg market movements): "The law does not enter into investigations of what would have happened if the fiduciary had performed his duty when taking an account of profits" (see Murad v Al-Saraj [2005]).
COMMENT: As has been previously reported, the Bribery Act 2010 is due to come into force in the spring of this year. The government is also expected to publish guidance soon on procedures which commercial organisations can put in place to prevent falling foul of the new Act. It should be noted that this judgment does not take into account the new provisions of the Act - for example, there is no de minimis exception in the Act).
Griffin & Anor v Smith & Ors Costs consequences of discontinuing
http://www.bailii.org/ew/cases/EWHC/Ch/2010/3414.html
CPR r38.6 provides that, unless a court orders otherwise, a claimant who discontinues an action must pay the defendant's costs incurred on or before the notice of discontinuance is served. In this case, the claimant sought to argue that there should be no order as to costs. In Messih v McMillan Williams [2010], the Court of Appeal held that the avoidance of the costs and time of continued proceedings could not of itself justify a departure from the usual order. Something more was needed.
In this case, one of the defendants had committed a wrongful act which had frustrated the purpose of the litigation. However, it had taken the claimants a further two years to discontinue the action and Richards J held that a departure from the usual order was therefore not justified. Two of the defendants had since become bankrupt though. The rights to costs of one vested in the Official Receiver, who took no part in the proceedings and who informed the court that those two defendants did not wish to pursue their defence and counterclaim and wished the matter to be completely discontinued. The judge held that, in those circumstances, it was appropriate to order that the claimants do not pay the costs of those two defendants.
Hillside v Baasland & Ors
Non-contractual duties and Rome II Regulation
http://www.bailii.org/ew/cases/EWHC/Comm/2010/3336.html
The claimant English company, applied for summary judgment on its claim for a declaration that it was not liable in tort to the defendant (a Norwegian). Smith J was therefore required to decide if English law governed the issue of whether the claimant was liable to the defendant. At the time of the claimant's first dealings with the defendant, the question of which law governed any issue relating to tort was determined by the rules stated in the Private International Law (Miscellaneous Provisions) Act 1995 ("the 1995 Act"). The question is now determined by the Rome II Regulation. Smith J noted the recent debate about the temporal scope of the Rome II Regulation (see, for example, Homawoo v GMF Assurance [2010], Weekly Update 29/10). However, he declined to express a view on this issue since he concluded (see further below) that English law was the governing law whether the Rome II Regulation or the 1995 Act applied.
Under Rome II, the applicable law is the law of the country where the damage occurs (unless the tort is manifestly more closely connected to another country). Drawing an analogy with cases under Regulation 44/2001 (which deals with jurisdiction issues), this does not allow the claimant to bring proceedings in any country in which he simply suffers financial loss - proceedings may only be commenced in the country where the event entailing the tort "directly produced its harmful effects " on the immediate victim of the event. In this case, the defendant had suffered loss when he was allowed to use funds in his account. This created a debt in his favour and debts are generally situate where the debtor resides (or, as here, where the company is domiciled - ie England).
Smith J did not decide how Rome II applies where a claimant has suffered financial loss in more than one country (it is unclear whether different laws might apply or the applicable law will be that of the country where the damage predominantly occurred). In this case, though, it was clear that Norwegian law did not apply.
Under the 1995 Act, the applicable law is the law of the country in which the events constituting the tort occurred. Smith J concluded, on the facts, that this test too pointed to the English law as the applicable law. Under English law, the claimant was not liable and so was entitled to summary judgment.
Quinn v CC Automative Group
Vicarious liability and whether third party should have been put on inquiry
At first instance, the judge found that a dishonest employee had had apparent authority to sell a car. However, she also held that the third party (the defendant in this case) who had relied on the employee's representations ought to have been put on inquiry that the employee in fact lacked authority because the employee had demanded £700 in cash and had later agreed to accept £400 with the balance to follow later. The defendant appealed.
Gross LJ's judgment contains a useful summary of the law relating to vicarious liability and apparent authority. The Court of Appeal unanimously concluded that there is no scope for an argument that a representee has been put on inquiry just because "of mere unreasonableness in failing to see through the employee's deceit". At the most, the issue will be whether the representee "turned a blind eye" to his suspicions as to the employee's apparent authority (or was put on inquiry because the employee was acting outside of the usual authority of a person holding his position).
In this case, the defendant had acted honestly and it would have been "very odd" for him to have asked the employee for proof of his authority. Given the defendant's honest belief in, and reliance upon, that authority, there was no room nor need for any "inquiry" test. That the defendant was taken in by the deceit "whereas by the exercise of reasonable care [he] may not have been is neither here nor there". (Further, the defendant had not in any event been put on inquiry on the facts, which should have been looked at in context and without the benefit of hindsight). The appeal was therefore allowed.
Schwebel v Schwebel
Appeal under section 69 of the Arbitration Act
http://www.bailii.org/ew/cases/EWHC/TCC/2010/3280.html
The claimant sought permission to appeal against an arbitration award under section 69 of the Arbitration Act 1996 on a question of law. The arbitration agreement in question provided for Jewish Law. Akenhead J found (following earlier decisions) that the court cannot entertain an appeal under section 69 where the law being applied by the arbitrator is a law other than the law of England and Wales. The claimant sought to raise a further argument that he could appeal on a question of law if the law, albeit Jewish Law, was set out on the face of the award and the arbitrators then sought to apply the law obviously wrongly. Akenhead J said that "this approach is in principle misguided because it is still a question of Jewish Law which is being sought to be appealed, whether it is wrong on the face of the award or not".
Meritz Fire & Marine Insurance Co Ltd v Jan De Nul & Anor
Whether guarantees issued by insurance company were performance bonds or contracts of suretyship
http://www.bailii.org/ew/cases/EWHC/Comm/2010/3362.html
The issue in this case was whether certain guarantees issued by an insurance company (guaranteeing the repayment of payments made by the defendants under three shipbuilding contracts) were unconditional performance bonds or contracts of suretyship.
If they were bonds, the insurance company would (absent fraud) have to honour them, regardless of what happens between the defendants and the shipbuilders. Beatson J recognised that there is a conflict between two lines of authority regarding how guarantees are to be construed. On the one hand, there is authority that they should be construed strictly and contra proferentem (ie generally in favour of the surety). On the other hand, there is a line of authority that they should be construed in the same way as any other contract. The judge said that he was not required to resolve the difference in this case, but added that the guarantee should be construed "as a whole as a commercial document".
In Paget's Law of Banking [2007 edn], the editors identified four attributes which suggest that a guarantee is a performance bond. Three attributes were present in this case. The fourth is that the instrument is issued by a bank. In this case, the issuer is an insurance company and it therefore argued that different principles applied. This argument was rejected by the judge. In this case, the insurance company was providing financial instruments in return for a fee, rather than as part of its primary insurance business. Taking into account all the factors, the judge concluded that the guarantees here were performance bonds.
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