UK: ReInsurance and Reinsurance - Weekly Update - 24 July 2012

Last Updated: 31 July 2012
Article by Nigel Brook


Privy Council decision on enforcing an award against a state-owned company

Clyde & Co (Simon Kemp, Julie Tripp, Henrietta Wells, Jerome Stedman and Amy Stafford) for the appellant

The respondent was assigned an arbitration award against the Democratic Republic of the Congo. It sought to enforce that award against the assets of the appellant, a state-owned corporation (those assets being located in Jersey). The appellant appealed against a finding that its assets could be equated with the assets of the state (relying on the English Court of Appeal's decision in Trendtex Trading v Central Bank of Nigeria [1977]). The Privy Council has now allowed that appeal, holding as follows:

  1. International law has developed since Trendtex. In particular, the United Kingdom has enacted the State Immunity Act 1978 (the provisions of which were extended to Jersey in 1985). This act gave effect to the European Convention on State Immunity which excluded from the scope of the State any distinct legal entity capable of suing or being sued. There should be full and appropriate recognition of the existence of separate juridical entities established by a state, particularly for trading purposes (and this principle applies as much to questions of liability and enforcement as it does to questions of immunity).
  2. Although an entity's constitution, control and functions remain relevant, there is a strong presumption that its separate corporate status should be respected "and that it and the State forming it should not have to bear each other's liabilities. It will in the Board's view take quite extreme circumstances to displace this presumption". The presumption will be displaced if the entity has, despite its juridical personality, "no effective separate existence".

There may, for example, be circumstances in which the State has so interfered with a state-owned entity that it would be appropriate to lift the corporate veil. However, "Merely because a State's conduct makes it appropriate to lift the corporate veil to enable a third party or creditor of a state-owned corporation to look to the State does not automatically entitle a creditor of the State to look to the state-owned corporation. Lifting the veil may mean that a corporation is treated as part of the State for some purposes, but not others".

On the facts of this case, there was no justification for "deriving from the instances of cases where [the appellant]'s assets were used for the State's benefit a conclusion that the two should for all purposes be assimilated".


Jurisdiction and good arguable case/lifting the corporate veil

Clyde & Co (Edward Mills-Webb and Chris Moxon) for claimants

The claimants alleged that two individuals (S and L) used certain companies (which were also defendants to the proceedings) as a device to divert profits. The English court held that the claimants were entitled to pierce the corporate veil and therefore S was bound by the jurisdiction clause in the agreement entered into by the companies. In related proceedings the court rejected S's jurisdictional challenge. L then challenged the jurisdiction of the court to hear the claim brought against him. Teare J has now held as follows:

  1. L argued that there was no "good arguable case" for establishing jurisdiction over him. The test of what constitutes a good arguable case was held in Canada Trust v Stolzenberg (No.2) [1998] to mean that one side has "a much better argument on the material available". The use of that test in all circumstances has been doubted in subsequent cases. In this case, Teare J held that it did not apply where, as here, "there is a stark dispute between opposing witnesses. To seek to judge who has the better of the argument on such evidence risks a pre-trial at the interlocutory stage. In order to avoid doing so it is preferable, in my judgment, to concentrate on whether factors exist which allow the court to take jurisdiction. That will oblige the court to consider whether the evidence relied upon by the claimant has sufficient strength to allow the court take jurisdiction". The evidence in this case allowed the court to take jurisdiction even though there was conflicting evidence.
  2. However, following the recent Court of Appeal decision in VTB Capital v Nutritek (see Weekly Update 22/12), Teare J said he was bound to find that L should not be treated as if he was a party to the jurisdiction clause in the agreement.


Whether South African company was "domiciled" in England/meaning of "central administration" and "principal place of business"

The claimants brought actions for damages for personal injuries against AASA, a company incorporated in South Africa. When AASA challenged the English court's jurisdiction, the claimants sought specific disclosure and/or further information from AASA to help them deal with the jurisdictional challenge. Accordingly, the claimants had to show that, at this stage, they had a good arguable case on jurisdiction.

It was common ground that the claimants can sue AASA in England only if it is domiciled here. Article 60 of Regulation 44/2001 provides that a company is domiciled at the place where it has either its (a) statutory seat (ie registered office or place of incorporation); or (b) central administration; or (c) principal place of business.

The claimants sought to rely on (b) and/or (c). There is no decided ECJ case on the meaning of "central administration". However, Silber J held that European academic opinion supported the view that it is where decisions are made and where "the entrepreneurial management takes place". The "principal place of business" can be somewhere different and it is at least strongly arguable that it is where "the most important centre of the economic, industrial or commercial activity of a company is situated and where most of its employees and business assets are deployed".

On the facts of the case, although AASA was a separate company from its UK parent company, the claimants had at least an arguable case that London, as the headquarters of the parent company, was the place where management entrepreneurial decisions relating to AASA's business were taken.

The judge went on to order specific disclosure of certain documents, rather than making an order under Part 18 for the provision of further information. He held that this was a better way of providing information because the disclosed documents would be contemporaneous and not "self-serving", and could be provided more speedily and economically than meeting a request for further information under Part 18.

COMMENT: This case demonstrates that, where a non-EU company is wholly owned by a EU parent company which "influences" (rather than determines) the subsidiary's decisions (in this case, AASA had "regard to the policy and strategy of [its UK parent company] in making its own decision"), that can be enough to satisfy the good arguable case test that the non-EU company is "domiciled" in the EU for the purposes of Regulation 44/2001.


Choice of law arguments

The English defendant company agreed to buy certain goods from the Japanese claimant company. The written agreements between the parties did not contain an express choice of law clause. The defendant sought to argue that there had been an implied choice of English law and based its argument on the following:

  1. The purchase orders had been written in English. Bean J held that this was not a significant factor. In this case, English had been used because the defendant's employees did not speak Japanese.
  2. Terms familiar in English law (such as "cif UK port") were used. Again, this was not significant - the terms in question were universal in international maritime trade.
  3. The parties had "ceremoniously" shaken hands in England. The judge rejected that as a factor too- "it takes more than a handshake to constitute a choice of English law by both parties".

On the facts, the judge concluded that the presumption under Article 4(2) of the Rome Convention applied: "It shall be presumed that the contract is most closely connected with the country where the party who is to effect the performance which is characteristic of the contract has...its central administration". Since the seller was based in Japan, Japanese law applied. Nor was the position any different in relation to the tortious counterclaims (for intimidation or economic duress) being made by the English defendant. Unlike a tortious claim for negligent or fraudulent misrepresentation (where the tort is committed where the misstatements are received or relied upon), it was where the most significant elements of the tort take place which was relevant here and, on the facts, that was Japan - hence Japanese law applied.


Claimant alleges Fatal Accidents Act breaches her ECHR rights

Section 1(3)(b) of the Fatal Accidents Act 1976 provides that a claim for loss of financial dependency may only be made by the survivor of a couple who had been living "as husband and wife" where there has been cohabitation for 2 years or more prior to the date of death. Spouses or civil partners may make a claim without any limitation of time.

The claimant, who had been living with the deceased for six months prior to his death, claimed that section 1(3)(b) breached her rights under the European Convention on Human Rights (in particular, article 8 which provides the right to respect for private and family life).

Eady J rejected her claim. It was not possible to conclude that the purpose of section 1(3)(b) was to improve, promote or benefit ongoing family or private life. It was simply intended to provide certain categories of persons with a right to claim for losses that can be measured in financial terms. Whilst the judge accepted that many will feel the law is currently in an unsatisfactory state, he said that he had "little doubt that the law will at some point be changed so as to help others in a similar plight, but that will depend upon the allocation of legislative time".

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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