ARBITRATION
Premium Nafta Products Ltd (20th defendant) & Ors v Fili Shipping Co Ltd (14th claimant) & Ors*
The House of Lords has reaffirmed the view that arbitration agreements made in a commercial context should be liberally construed. The claimants had launched court proceedings alleging inducement by bribery to enter into charterparty agreements, whilst the defendants sought to rely on the arbitration agreement in each charterparty which provided that any dispute "arising under" the charter should be referred to arbitration. The House of Lords agreed with the findings of the Court of Appeal (under case title Fiona Trust & Ors v Privalov & Ors (January 2007)), upholding the presumption that by including such a clause the parties intended to refer all disputes arising out of the relationship to arbitration, unless expressly stated otherwise. Their Lordships also agreed that an arbitration clause was separable from the contract as a whole in the absence of a special reason for contending that the clause in particular is invalid, concluding that an arbitration agreement must be treated as a "distinct agreement" which can only be void or voidable on grounds which relate directly to the arbitration agreement. It is only in very limited circumstances therefore that an arbitration agreement will be impeached, for example where a signature to the main agreement was forged or where the person signing has no authority to conclude the agreement.
BLG's Richard Black and Jane Ballantyne covered the above case in a piece for Insurance Day, available here:
http://www.blg.co.uk//pdf/Arbitration%20clauses.pdf
BANKING AND FINANCE
Court reaffirms reluctance to interfere in complex financing agreements.
IFE Fund SA v Goldman Sachs*
In this case, IFE Fund SA ("IFE") had made losses on a mezzanine investment arranged and underwritten by Goldman Sachs ("GS") to finance IFE's takeover of a competitor. IFE's claim focussed on information provided by GS to IFE in a syndication information memorandum ("SIM") which included a summary of financial information drawn from the target company's audited accounts, senior management and reports prepared by an audit firm. GS argued that IFE had not relied on any representations GS had made. In any event, GS relied on disclaimers set out in the SIM, which stated that GS had not independently verified the information therein and that it made "no representation, warranty or undertaking, express or implied" as to its accuracy or completeness. The Court of Appeal held that GS had not made the implied representations as to the accuracy or completeness of information. Furthermore, GS did not owe a duty of care to verify the information provided - the Court held that nothing could be clearer than that Goldman Sachs was not assuming any responsibility to the participants in the syndicate.
CIVIL PROCEDURE
Court refuses to allow re-litigation of claim against solicitors...
Taylor Walton (a firm) v Laing*
Here, the defendant firm ("TW") had been retained to draft a loan agreement between Mr Laing and a third party to fund a development venture, having previously acted for both parties. In a dispute over that agreement, the High Court found in favour of the third party and concluded that TW had not acted for Mr Laing in relation to the agreement. Foregoing an appeal, Mr Laing brought these negligence proceedings against TW in relation to the drafting of the agreement, claiming that the High Court had been wrong in the previous proceedings and that he had been exposed to the risk of losing that claim due to the negligent breach of duty by TW. The Court of Appeal, overturning the High Court's decision to dismiss TW's strike out application, held that the High Court had wrongly given insufficient weight to the fact that these proceedings would be re-litigating the same issue, and that Mr Laing could have made all such arguments during the trial or on appeal. The Court held that: (i) in order to succeed, Mr Laing had to demonstrate that the decision of the judge was wrong, and that it was wrong because it wrongly assessed the very matters that were being relied upon against TW; and (ii) Mr Laing had had every opportunity during the loan dispute to raise the negligence allegations.
...but does not find abuse of process in multi-party dispute
Aldi Stores Ltd v WSP Groups*
However, in this multi-party construction dispute, the Court of Appeal reached a different conclusion. In 2001, the claimant had obtained judgment against the contractor (who joined the consultants as Part 20 defendants, a claim which was treated separately from the main claim). The contractors were found liable for the whole of the claimant's claim, part of which was satisfied by an interim payment. However, following the contractor's insolvency, the claimant then pursued its excess layer insurers for the remainder (being awarded returned premium) and then sought the difference from the consultants. The consultants sought to strike out the claim as: (i) the allegations in the current proceedings were essentially the same as in the original proceedings; (ii) the claimant could have pursued the consultants in the original proceedings; and (iii) the claimant should have realised that the claim against excess layer insurers would fail and should have rejoined the other action. The Court of Appeal held that the current action did not amount to an abuse of process - the claimant was entitled to take the decision to pursue the excess layer insurers rather than to rejoin the original action. The Court recommended that parties in such complex litigation give careful consideration as to whether other actions might arise out of the same facts and obtain court directions if they wished to pursue other proceedings whilst reserving a right in the existing proceedings.
Court makes indemnity costs award for breach of duty of full and frank disclosure
Ian Franses (liquidator of Arab News Network Limited) v Somar al Assad and Ors*
Failing to make full and frank disclosure in a without notice application may prove expensive. In this case, the applicant liquidator had obtained a judgment of £5.1m against the respondent in relation to his alleged wrongful trading at insolvent broadcaster Arab News Network. Following an emergency without notice application, the liquidator then obtained a freezing order to prevent the dissipation of the £6.5m proceeds of the sale of a London mansion owned by trusts connected to the respondent. At the return hearing, whilst granting the liquidator the more limited freezing order sought, the High Court awarded the costs of the original application to the respondents on an indemnity basis. The liquidator breached the duty of full and frank disclosure on the following grounds: (i) failure to mention to the Court the fact that certain tax and bank account information may not have been obtained legitimately; and (ii) failure properly to inform the judge of the existence of the terms of the relationship between the liquidator and a third party litigation funding company. Furthermore, the Court considered that in the circumstances the decision to make a without notice application had been an error. Although the Court considered that the failures fell "towards the lower end of the scale, both in extent and in culpability" an indemnity costs order was deemed to be an appropriate penalty.
CONTRACT
Court gives support to parties' agreed dispute resolution mechanism
Douglas Harper v Interchange Group Ltd*
Parties must adhere to the agreed contractual dispute resolution methods or face a claim being barred. Pursuant to an Asset Sale Agreement, the claimant had agreed to sell his computer software business to the defendant. Under the terms, the claimant was entitled to certain licence fee revenues arising out of specified transactions. In the event of dispute over such revenues, the parties were to raise an objection within 28 days in the form of a separate objection for each statement. Each such objection was to be made with sufficient particularity to enable the other party to respond sensibly. If agreement could still not be reached within a further 28 days, the parties agreed to submit to expert determination. However, the claimant's general queries and comments were not made with sufficient particularity. Nor did he refer the matter to the agreed expert. The claimant contended that expert determination was limited to disputes relating to calculations and not to the interpretation of the contract - the court disagreed, holding that the claimant had failed to invoke the dispute resolution mechanism. The High Court barred the claimant from pursuing his claim.
BLG's Tim Strong covered this case in an article for PLC Magazine: http://www.blg.co.uk//pdf/Contractual%20dispute%20resolution%20clauses.pdf
Court considers application of "private dictionary" exception to exclusion of evidence of pre-contractual negotiations in construction of contract
euNetworks Fiber UK Ltd v Abovenet Communications UK Ltd*
Whilst extrinsic evidence of the parties' conduct and negotiations is admissible to identify the subject matter of a contract, the general rule in relation to the construction of contractual terms is that evidence of parties' negotiations is inadmissible, subject to certain exceptions. In this case, the High Court considered the application of the "private dictionary principle" (i.e. the meaning attributed by the parties in their negotiations to a specific word or phrase) as an exception to the general rule. The Court applied the judgment in Chartbrook Ltd v Persimmon Homes Ltd (Chartbrook Ltd, Pt 20 defendants) (2007) and ruled that the private dictionary principle should not extend to any case, as here, in which the word, phrase, clause, or term was itself the subject of an express definition in the contract itself. The Court noted that the rule on admissibility of background circumstances is based both on policy grounds and in order that third parties can understand the true construction of a contract without having to investigate the parties' negotiations. The Court held that, by documenting an express definition, the parties can reasonably be taken to have agreed that the definition should prevail over any other definitions discussed in negotiations.
COSTS
Defendant's unreasonable conduct leads to award of indemnity costs
National Westminster Bank Plc v Rabobank Nederland*
In a stark warning to parties conducting litigation, here the High Court granted an application for an order for costs on an indemnity basis in a case in which costs totalled around £30 million. The Court held that even in such a large and complex case the defendant's conduct crossed "the frontier" between acting professionally in the face of complex and contradictory evidence whilst making understandable errors of judgement and changes of position, and a party conducting the litigation in a manner so unreasonable or so unsatisfactory as to justify an indemnity costs order. The core allegation of dishonesty, the Court found, was "deeply flawed" and "involved an assumption so improbable as to be far-fetched". A claim in deceit displayed a "high degree of artificiality". Furthermore, the late claim that the applicant induced auditors to breach their professional duty was "intrinsically flawed and deemed to be of little or no advantage". Overall, the Court considered that the defendant's claim contained deeply unsatisfactory features which meant that an indemnity costs award was appropriate.
DAMAGES
Claimant can recover compound interest in restitution claim
Sempra Metals Ltd (formerly Metallgesellschaft Ltd) v (1) Inland Revenue Commissioners (2) HM Attorney-General*
This test case arose out of the 2001 decision of the European Court of Justice in Metallgesellschaft Ltd v Inland Revenue Commissioners. In that decision, the ECJ held that the UK tax regime, which prevented group income election in respect of Advance Corporation Tax ("ACT") where a parent company was resident in a member state other than the UK, was unlawful under European law. Sempra considered whether the claimant was entitled to compound interest on sums paid in respect of ACT to the Inland Revenue (now "HMRC"). The House of Lords upheld the decisions of the High Court and Court of Appeal to permit the recovery of compound interest from HMRC in order to "reflect any actual benefit which the Court may find to have been made by the Revenue ... through its receipt and retention of the ACT payments up to the time of their set off against mainstream corporation tax". In a landmark judgment, their Lordships held that a claimant can recover compound interest in respect of the funds which it seeks to recover on a restitutionary basis, in this case in relation to the ACT paid prematurely to HMRC. In addition, their Lordships held that the courts also have a common law jurisdiction to award compound interest as damages on claims for the non-payment of debts (as well as on other claims for breach of contract and in tort).
DIRECTORS
Director found personally liable for pursuing company's hopeless claim
Chantrey Vellacott v (1) Convergence Group plc (2) Convergence Group International SA (3) Alan Stuart Macdonald Robinson (4) Gail Farrin Robinson*
The High Court considered this case to be sufficiently exceptional to warrant making a director personally liable for costs to be paid by the first respondent company. The third respondent, Mr McDonald, and his wife, former directors of the Convergence Group plc, had instructed the applicant accountancy firm in relation to a telecommunications project in Greece. Following the collapse of the deal due to lack of finance, the accountancy firm sought to recover its fees. Convergence brought a counterclaim for professional negligence alleging that the structure put in place by the accountancy firm to facilitate the deal caused the lack of finance and the collapse of the deal. This counterclaim was struck out when Convergence went into administration. The accountancy firm then sought to recover costs from Mr and Mrs McDonald under section 51 of the Supreme Court Act 1981. The Court held that Convergence had pursued a "hopeless counterclaim" on the instructions of and for the benefit of their controlling director, Mr McDonald, who was made personally liable, jointly and severally with Convergence, to pay the costs of the proceedings on an indemnity basis. The Court held that he had dishonestly put forward a case which had no chance of success. In addition, the negligence claim was a disproportionately large counterclaim in response to a modest claim by the accountancy firm to recover its fees.
FRAUD
"Ex turpi causa non oritur actio" rule in context of claim against auditors
Stone & Rolls Ltd (in liquidation) v (1) Moore Stephens (a firm) (2) Moore Stephens*
The defendant auditors sought to strike out a professional negligence claim on the basis that the claimant company was seeking to recover a loss caused by its own fraud, thereby infringing the maxim "ex turpi causa non oritur actio" (an action may not be founded on illegality). In 2002, Mr Stojevic, who owned, controlled and managed the claimant company, was found with the company to be liable in respect of a letter of credit fraud committed against a Czech bank. In this action, the claimant sought damages alleging that the defendant auditor conducted certain audits negligently and should have spotted the fraud. The court held that there was no doubt that if the claim were to be pursued by Mr Stojevic himself it would be defeated by the ex turpi maxim. However, this claim was within the exceptions to the "illegality" doctrine and could proceed. The "conscience of the ordinary citizen" would not consider it repugnant to allow the claim to continue as long as Mr Stojevic did not personally benefit. The court could not see any principled basis on which defrauded creditors of a company should be in a worse position than those whose debts arose in the ordinary course of business. However, the court did not find the lines of authority easy to reconcile and granted permission to appeal. BLG acts for the defendant auditors in this case.
LIMITATION
Limitation in negligence claim relating to transfer of pensions benefits and purchase of annuities
Clifford Shore v (1) Sedgwick Financial Services Ltd (2) Barclays Financial Planning Ltd (T/A Sedgwick Independent Financial Consultants Ltd)*
Here, although the defendant had been negligent and in breach of statutory duty under the Financial Services Act 1986 for failing properly to advise the claimant in respect of the transfer of his pension benefits and the purchase of an annuity, the High Court held that the claim was statute barred. The claimant had not suffered any loss when he transferred out of the occupational pension scheme or on the last day that he should have been advised to buy an annuity. Exposing himself to the risk of a future loss was not immediate damage. Under section 2 of the Limitation Act 1980, the six-year time limit began to run when the claimant was demonstrably worse off - on the evidence of the markets, the proceedings in this case had been started seven months too late. The claimant was also out of time under section 14A(4)(b) (by which a claimant has three years from the date he obtains the knowledge required for bringing an action for damages and a right to bring the action). Applying Haward v Fawcetts (a firm) (2006) the Court confirmed that the test for "knowledge required for bringing an action for damages" was satisfied if the claimant obtained "broad knowledge" of matters pointing to a defendant's acts or omissions, an appreciation "in general terms", and knowledge of the "essence" of the act or omission to which the injury was attributable. Here, the claimant had obtained knowledge of his actual loss of entitlement to income, its causes and the relevant conduct of the defendants more than three years before he commenced proceedings.
NEGLIGENT MISREPRESENTATION
Failure to speak did not amount to voluntary assumption of responsibility
Hamilton and Ors v Allied Domecq plc*
In this case, Mr Hamilton, the founder of the Highland Spring water brand, acquired the rights to develop and supply water from the Gleneagles estate through a joint venture company which then entered into an agreement with Allied Domecq to develop a distribution network. However, the venture failed and went into administration. Mr Hamilton claimed he had been induced to enter into the agreement as a result of the alleged misrepresentation by an Allied Domecq employee (Mr Beatty) that Allied Domecq would develop the 'on-trade' market to hotels, restaurants and the catering trade from the outset of the relationship. Mr Hamilton claimed that not only was Mr Beatty under a duty to take reasonable care not to misrepresent the strategy that would be followed, but he was also under a duty to make clear that the 'on-trade' strategy would await the success of the 'off-trade' (supermarkets etc.) strategy. The House of Lords held that the appellants were unable to point to anything in the facts or evidence to show that, in this particular commercial negotiation, there had been any voluntary assumption of responsibility by Allied Domecq. In essence, Mr Hamilton was claiming that although nothing was said about the matter in the subscription agreement, Allied Domecq was under an obligation to follow that distribution strategy - their Lordships held that they would have expected such experienced businessmen to have negotiated such an agreement if this is what had been intended.
Court finds "non-reliance" clause to be ineffective
Quest 4 Finance Ltd v John Maxfield, John Carter, Michael John Chesney*
This case arose out of an agreement pursuant to which Quest would provide short term finance to a company of which the defendants were directors. On the same date, the defendants signed a document described as a "Warranty" agreeing to indemnify Quest for any loss suffered as a result of the company breaching any of the representations and warranties in the agreement. The Warranty was not limited to acts of fraud knowingly committed and it also contained a non-reliance clause which stated that the defendants had not relied on advice from anyone representing Quest. The directors' company went into administration, causing it to breach the representations and warranties in the agreement. No fraudulent act had been committed by the defendants. Quest claimed the outstanding debt from the defendants under the Warranty. The defendants sought to rescind the Warranty on the grounds that they were induced to sign it by a misrepresentation in the wording of a brochure (provided to the defendants by Quest prior to entering into the agreement) that the Warranty would apply only to fraudulent acts knowingly committed. Quest argued that the non-reliance clause prevented the defendants from relying on any prior representations made by Quest. The court held that Quest could not rely on the non-reliance clause as they knew that their sales brochure directly contradicted the Warranty and made no attempt to to resolve or explain the conflict. Importantly, Quest was also unable to show that it believed that the defendants were not relying on the representation in the brochure.
PRIVILEGE
No legal professional privilege protection for in-house counsel in EC investigations
Akzo Nobel Chemicals Ltd and Akcros Chemicals Ltd v Commission*
This decision confirms that, in so far as European Commission ("EC") investigations are concerned, in-house counsel should not derive the same legal professional privilege protection as is afforded to their external counterparts. The Court of First Instance ("CFI") upheld AM&S v Commission (1982) which provided that privilege should only apply where the legal adviser is independent of his client and not where, as is the case for in-house counsel, they are employees and/or consultants. The judgment confirms that privilege in EC investigations will extend to the following categories of documents: (i) written communications between a client and the external and independent lawyer that concern either the subject matter of an EU anti-trust investigation (whether conducted by the OFT or the EC) or come into being and relate to relevant issues after the commencement of the investigation; (ii) internal notes circulated internally and which are restricted to reporting on the content of the external and independent lawyer's advice; and (iii) documents that come into being in order to seek advice from an external and independent lawyer. In addition, the ECJ clarified the practicalities for parties seeking to assert privilege in such circumstances. Parties are to keep documents over which a dispute on privilege exists unseen, separate and sealed until the EC has given a decision on privilege. A party may appeal the EC's decision (to the CFI) and the EC is not entitled to open the (usually) sealed envelope until the CFI's decision is given or the time for appeal has expired.
TORT
Intention required for tort of inducing breach of contract
Meretz Investments NV and anor v ACP Ltd and anor*
In this case, the Court of Appeal considered the landmark House of Lords' judgment in OBG Ltd v Allan; Douglas v Hello; Mainstream Properties v Young (2007). This dispute arose out of an agreement to build penthouses on the roof of flats overlooking the Royal Albert Hall. Under its terms, if ACP failed to develop the property, it would grant to the second claimant a sub-lease of the property for a nominal sum. However, prior to this, and with the development running into financial difficulties, the parent company of ACP took possession of the lease and sold it to a wealthy individual (a prospective purchaser of one of the penthouses), so preventing ACP from granting the sub-lease. The claimants claimed that ACP, its parent and the individual were liable in damages for inducing breach of contract and conspiracy by unlawful means. The Court held that, following the recent House of Lords authority, the tort of inducing breach of contract required an intention to induce a breach of contract, and the tort of conspiracy by unlawful means required an intention to cause loss by unlawful means. In the instant case, no such intentions existed. The breach of contract in relation to the sub-lease was the consequence of the parent company's exercise of the power of sale. The individual's intention was merely to ensure that the development was completed in order that he could complete his purchase. Nor were there any unlawful means; the parent company was entitled to exercise its power of sale and ACP's breach was an unavoidable consequence.
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.