News

By Area of Practice
By Barrister
By Date -
News
St Philips Commercial

St Philips Commercial

SBT Star Bulk & Tankers (Germany) GMBH & Co KG v Cosmotrade SA sub nom WEHR TRAVE, [2016] EWHC 583 (Comm), QBD (Comm) (Sir Bernard Eder) 22/03/2016

The Wehr Trave concerned the question of whether a trip time charter on an amended NYPE form with typed additional clauses (“the charter”) allowed the charterers to order the vessel m/v WEHR TRAVE (“the vessel”) on a further voyage after she had discharged her cargo. 

Facts

The charter was for “one time charter trip via good and safe ports and/or berths via East Mediterranean / Black Sea to Red Sea / Persian Gulf / India / Far East always via Gulf of Aden”. The vessel was to be redelivered at one safe port in charterers’ option Colombo/Busan range including China not north Qingdao. The vessel after delivery into the charter on dropping outward pilot at Algeciras on 16th October 2013 was given voyage orders by charterers and proceeded to the Black Sea, where she loaded cargoes at Sevastopol/Avitla, Novorossiysk and Constantza/Agigea. She then proceeded on her route, discharging at one port in the Red Sea (Jeddah), one port in the Gulf of Oman (Sohar), and three ports in the Persian Gulf (Hamriyah, Jebel Ali and Dammam). The vessel berthed at Dammam on 7 December 2013. 

On 8 December 2013, the charterers ordered the vessel to proceed to Sohar (Oman) after sailing from Dammam when the vessel was empty of cargo to load a project cargo for delivery at New Mangalore or Cochin (West Coast of India). It was common ground that such order was given before the vessel had completed discharge at Dammam. This led to a dispute between owners and charterers as to whether charterers were contractually entitled to give the vessel the order to load at Sohar for discharge in India under the charter i.e. whether this was a legitimate or illegitimate order. The owners alleged that after discharge at Dammam the vessel should have been ordered to proceed to the charter redelivery place as “one time charter trip” had been completed. 

Decision

The judge observed that it was important to bear in the mind that the present charter was a time charter and that in such cases the defining characteristic of the charter is that the vessel is under the directions and orders of the charterers as regards her employment for the charter period. What this means is that shipowners place the vessel at the disposal of the charterers for a period of time in return for the payment of hire and subject to the charter terms such as geographical, period, trading limits and other constraints. 

In addition, the judge stated that the trip time charter may be drafted so as to define the “trip” using a number of different permutations ranging from one loading and discharging port to a number of combinations and sequences of these. As a result, the fact that the charter here was for “one” time charter trip was not of much, if any, assistance. Instead, ultimately, the scope of any “trip time charter” would depend upon the particular terms agreed between the parties and the charterers’ entitlement to give directions and orders may be restricted by whatever may be agreed between the parties with regard, for example, to period, trading limits, geographical route and even (perhaps) number and designation of loading and discharging ports or ranges. However, any such restriction would have to be specifically agreed and would require clear words.

Here, construing the specific charter, the charterers were not (as a matter of language) restricted to loading the vessel at a single port. The charter in the present case specified a delivery port/range and a redelivery port/range. By and within that range, it specified a route. On that route the vessel was to trade “between good safe port and/or good safe ports and good safe berth and/or good safe berths and good safe anchorage and/or good safe anchorages, always afloat, always within Institute Warranty Limits”. Thus, the charterers were, in principle, entitled to call at such ports as they wished provided that the calls were within the trading limits and the route was not inconsistent with the contractual route, which was a voyage from Algeciras to the Colombo/Busan range via the East Mediterranean and/or the Black Sea and/or the Red Sea and/or the Persian Gulf and/or India and/or the Far East (always via the Gulf of Aden and always ending in the Colombo/Busan range). 

Sohar was not inconsistent with the contractual route and was a safe port within IWL and not an excluded loading place under the charter. As a result, the charterers were entitled to order the vessel to proceed to Sohar and load a cargo there. The words “via” and “to” did not restrict the charterers’ general entitlement to give orders and directions with regard to loading and discharging provided, of course, that the calls were within the trading limits and the route was not inconsistent with the contractual route. The charterers were, upon paying hire, entitled to call upon the vessel to load and discharge at any port or ports within trading limits and on the contractual route subject to any express agreement to the contrary. 

Comment

Those who are familiar with time charters will be aware that they can be divided into two main categories as discussed in the judgment. Term time charters agree the charter period in advance which would usually allow more than one voyage to be completed in the agreed time (this may be the subject of variation under the terms of the charter such as the final voyage clause). Trip time charters on the other hand define the charter period by a trip within either a geographical range or via specified ports, although they may also be constrained further by a maximum stated duration. Thus, though for a voyage or voyages trip time charters are in a time charter form. Trip time charters have become more popular since they can avoid the “hideous complexities of demurrage” (Lloyd J, Care Shipping Corp v Latin American Shipping Corp (The Cebu) [1983] QB 1005) but also give the charterers the ability, subject to contract terms, to give orders as to the employment of the vessel. However, as the judge in The Wehr Trave emphasised, the word “trip” can be unclear and therefore the Courts will pay close attention to the words used to see what was meant by the parties. Unlike bills of lading, charterparties are not subject to any statutory regulation and hence the scope and meaning of what is included is up to the parties to decide. As a result, much will depend on the terms of the contract. Here the Court construed the charter to mean that so long as the trip was along the defined contractual route and in accordance with the other contractual terms, the charterers were entitled to order the empty vessel which had already discharged cargo from one voyage under the charter to call at another loading port and perform another trip before being redelivered to the shipowners at the agreed redelivery range. 

The effect of choosing the correct words is therefore crucial. In many cases the disagreement will stem from changes in market freight rates and whether one party or the other perceives it to be in its advantage to have the charter at an end.

Ishfaq Ahmed

Introduction

In a recent obiter discussion, the Court of Appeal has addressed the law regarding clauses which purport to preclude contractual variation other than in writing. The enforceability of such clauses is an important point of principle, and there were two substantially inconsistent Court of Appeal decisions on the subject, which their Lordships felt the need to address. Given the historic inconsistency, the subject may well fall for Supreme Court consideration in due course. For now, however, Lord Justice Beatson’s analysis (with which Moore-Bick and Underhill LJJ agreed, with both also providing additional commentary) provides a useful analysis of the debate in this area and advocates a principled position. Their Lordships held that, based on the fundamental principle of freedom of contract, an “anti-oral variation” clause in one contract would not in principle prevent the parties from making a new contract varying the first contract by an oral agreement or by conduct. Indeed, the parties can choose to vary the anti-oral variation clause just as much as they can choose to vary another clause in the contract. Put another way, the Court decided that such a clause would not ordinarily be enforceable.

Factual Background 

The dispute concerned a long term exclusive supply agreement whereby the Appellant (“TRW Lucas”) agreed to purchase from the First Respondent (“Globe”) components for steering systems. There were six grounds of appeal and the appeal was allowed on the first ground. That was a fact specific question of construction with which we are not concerned. The Court dealt briefly with the second to fifth grounds.

The sixth ground is of general interest and our point of focus. There were two respondents in the appeal. The Second Respondent (“Porto”) was a subsidiary of Globe incorporated for the supply of electric motors to TRW Lucas under the agreement between TRW Lucas and Globe. The judge found that Porto became a party to the agreement by way of a variation thereto. The sixth ground of appeal was that there had been no variation by conduct (or implied novation) to this effect because (a) the conduct relied on was not unequivocal, and (b) (and most significantly for present purposes), an Article 6.3 of the Agreement precluded variation by parol. It provided:

“Entire Agreement; Amendment: This Agreement, which includes the Appendices hereto, is the only agreement between the Parties relating to the subject matter hereof. It can only be amended by a written document which (i) specifically refers to the provision of this Agreement to be amended and (ii) is signed by both Parties.”

Had it been necessary to decide the point, the Court of Appeal would have found that the argument failed. We now consider why.

The Decision  

The Appellant argued that the requirement that any amendment must be in writing and signed by both parties meant that it was not open to the parties to amend the agreement orally. The Appellant relied on the unreported decision of the Court of Appeal in United Bank Ltd v Asif (11 February 2000), that a contract containing an anti-oral variation clause can only be amended by a written document complying with that clause. It further argued that there were reasons as a matter of principle and policy that such a clause should be upheld. It was also contended that it was easier to manufacture an allegation of an oral agreement than a written one.

The Court took the view that, as the later Court of Appeal decision in World Online Telecom Ltd v I-Way Ltd [2002] EWCA Civ. 413 is substantially inconsistent with the United Bank case, it was necessary to address the topic and decide between the two approaches.

In assessing the Appellant’s arguments, Beatson LJ broke his analysis into five components: (i) principle and policy; (ii) authority; (iii) questions of proof; (iv) precedent; and (v) whether the judge’s conclusion was on the facts justified.

We are primarily concerned with the first two components. On the third, the Court of Appeal simply took the view that in order for an oral variation to be valid when preceded by an anti-oral variation clause, the court would have to find that the evidence established that such a variation was actually concluded: see at [109]. As to the fourth point, the Court of Appeal recognised that it was not bound to follow United Bankdue to its inconsistency with World Online Telecom (see at [111]). It also appeared that the Court in World Online Telecom acted in ignorance of United Bank. The fifth component was fact specific, and again we are not concerned with it.

Principle and policy 

The Appellant argued that anti-oral variation clauses promote certainty and avoid false or frivolous claims of an oral agreement. It was further argued, by analogy with the position in Parliament, that as the law of contract is based on consent, if Parliament can stipulate for formality despite the potential injustices and hard cases that can result, the parties too should be able to adopt such a regime.  Hard cases could then be dealt with the by the doctrine of estoppel.

The problem with this approach – recognised by Beatson LJ at [100] – was that in the absence of common law or statutory restrictions, it follows that if the basis of contract is consent, then the parties will always have the freedom to agree whatever they want. So just as they can agree to an anti-oral variation clause, they can agree not to be bound by it.

Authority

Both United Bank and World Online Telecom were appeals from decisions about summary judgment. In neither case are the facts especially relevant. In the former, Thorpe LJ, with whom Mantell LJ agreed, upheld Wright J’s affirmation of a Master’s summary judgment decision. The question of enforceability of an anti-oral variation clause arose and Thorpe and Mantell LJJ simply agreed with the view of Sedley LJ (who had initially refused permission to appeal on the papers) that Wright J was ‘incontestably right in concluding (a) that no oral variation of the written terms could have any legal effect…’. No further detail was given.

In World Online Telecom, Sedley LJ took a different approach. He was then of the view that the question of whether parties could override a clause in an agreement in writing excluding any unwritten variations of the contract was unsettled in English law. He explained (at [10]) in that case that ‘… the parties have made their own law by contracting, and can in principle unmake or remake it’. As a result of the Court of Appeal’s decision determining that the case required full trial, the Commercial Court (Steel J) held that, notwithstanding the anti-oral variation clause, the conditions in the contract in World Online Telecom had been varied by oral agreement: [2004] EWHC 244 (Comm).

The view expressed in World Online Telecom that the parties could waive compliance with an anti-oral variation clause finds support in Chitty on Contracts, 32nd Ed., §22-045, fn. 196, and Beatson LJ cited a number of other cases (at [106]-[107], including that of Gloster LJ in Energy Venture Partners Ltd v Malabou Oil & Gas Ltd [2013] EWHC 2118 (Comm)) where, although not determining the issue, the courts had recognised that in principle an oral variation can be effective notwithstanding such a clause. 

Beatson LJ thus concluded (at [107]) that ‘an oral agreement or the conduct of the parties to a contract containing [an anti-oral variation clause] … may give rise to a separate and independent contract which, in substance, has the effect of varying the written contract’. Whether the parties should be able to avoid the effect of their previous decision in this way is a slightly different matter, but Beatson LJ’s conclusion is derived from the weightier of the authority.

Aligning the position in the authorities with his views on principle and policy, Beatson LJ concluded that ‘in principle a contract containing a clause that any variation of it be in writing can be varied by an oral agreement or conduct.’

Underhill and Moore-Bick LJJ

Their Lordships agreed with Beatson LJ, although Underhill LJ had some reservations. His Lordship took the view ([at 116]) that it was entirely legitimate that the parties to a formal written agreement should wish to insist that any subsequent variation should be agreed in writing as protection against subsequent ill-founded allegations of variation. However, he struggled to see a ‘doctrinally satisfying way’ of achieving that result, and so accepted the reasons of Beatson LJ. Underhill LJ did, however, draw attention to the important point that an anti-oral variation clause may still serve as evidence to the effect that a subsequent informal variation lacks contractual intent.

Moore-Bick LJ agreed with Beatson LJ and focused on the importance of party autonomy (at [119]). He also accepted Underhill LJ’s reservations but likewise found it difficult to find a principled basis upon which to support a view that parties can tie their hands with an anti-oral variation clause.

Comments and Conclusions 

As noted by Moore-Bick LJ (at [118]), it was a shame that the one point of general public importance in the case was the one which it was unnecessary for the Court to decide. It may be that, had the issue actually fallen to be determined, the Court of Appeal would have provided more detailed guidance. Nonetheless, the decision is welcome in providing clarity in this area and is conceptually sound. If parties are at liberty to agree whatever they like (subject to entrenched common law or statutory restrictions) then that liberty is not eradicated at the point of agreement. It is a continuing liberty. Should the same parties wish to vary the initial agreement and enter into a new contract, then their liberty to do so is retained. Thus, where there is a term in the agreement which purports to preclude the parties form varying that agreement other than in writing, the parties are still at liberty to vary that particular term (and the agreement itself) whether by conduct or otherwise. If one takes the Parliament analogy, Parliament can do whatever it wants, save bind its successors. That is the basis of continuing parliamentary supremacy. Likewise, the parties to a contract retain autonomy to agree whatever they want notwithstanding a previous agreement to the contrary.

Given the comments on this subject in the Court of Appeal are obiter, it may be some time before the issue arises again at appellate level, although it would benefit from detailed consideration by the Supreme Court. For the moment however, one can conclude that in accordance with the doctrine of freedom of contract, a clause in an agreement which provides that any variation must be in writing will not be treated with rigidity. Just as the parties consent to bind, so they consent to unbind. 

William Hooper

1. Costs management, and in particular costs budgeting has for several years been part of the civil litigation landscape.  Following Lord Justice Jackson’s Review of Civil Litigation Costs: Final Report(December 2009) (“the Jackson Report”), CPR 3 was amended as of April 2013 to include a new Section II on costs management.  The amendments were based largely on the recommendations made by Lord Justice Jackson.  The CPR have subsequently been through a number of further minor amendments on costs budgeting.

2. The Jackson report addressed costs budgeting in Chapter 40.  At Paragraph 1.4, p400, it stated as follows:

“1.4 The essence of costs management. The essential elements of costs management are the following:

(i) The parties prepare and exchange litigation budgets or (as the case proceeds) amended budgets.

(ii) The court states the extent to which those budgets are approved.

(iii) So far as possible, the court manages the case so that it proceeds within the approved budgets.

(iv) At the end of the litigation, the recoverable costs of the winning party are assessed in accordance with the approved budget.”

3. In Paragraph 1.5, p401, two  of the issues for consideration recorded were as follows:

“(iii) To what extent should the last approved budget be binding, alternatively influential, upon the final assessment of costs?

(iv) In so far as the last approved budget is binding, should it operate as an upper limit upon recoverable costs or should it operate as a form of assessment in advance?”

4. It is noteworthy that these issues were not resolved within the Jackson Report itself.  Presumably, this was something which Lord Justice Jackson considered it more appropriate to leave to those drafting the amendments to the CPR.  Interestingly, his recommendation at Paragraph 8.1, p419, in that regard was less strict than the rules in the CPR as they now stand: “Rules should set out a standard costs management procedure, which judges would have a discretion to adopt if and when they see fit, either of their own motion or upon application by one of the parties.”

5. CPR 3.18 now provides as follows:

“Assessing costs on the standard basis where a costs management order has been made

3.18  In any case where a costs management order has been made, when assessing costs on the standard basis, the court will—

(a) have regard to the receiving party’s last approved or agreed budget for each phase of the proceedings; and

(b) not depart from such approved or agreed budget unless satisfied that there is good reason to do so. (Attention is drawn to rules 44.3(2)(a) and 44.3(5), which concern proportionality of costs.)”

6. Two points are immediately apparent from CPR 3.18.  First, it does not expressly address what if any different approach is to be taken between summary assessment and detailed assessment.  Second, it does not expressly state what the effect of the budget actually is:

a. Does it merely act as a ceiling on recoverable costs, with a full blown assessment (summary or detailed) to follow in exactly the same way as would have happened prior to these amendments to the CPR?  If this is correct, the reference to departure from the budget in CPR 3.18(b) could be a reference to seeking costs in excess of the budget, either generally or for a particular stage.  This analysis will be referred to as “the Ceiling Analysis” in this article.

b. Alternatively, does the cost budget fix recoverable costs, thereby removing the need for any assessment, or at least relegating the importance of the assessment?  If this is correct, the reference to departure from the budget in CPR 3.18(b) could be a reference to seeking costs less than or greater than the budget, either generally or for a particular stage.  A receiving party would be obliged by the indemnity principle to seek costs less than budgeted if he had in the event over-budgeted, and thus this could constitute a good reason to depart from the budget. This analysis will be referred to as “the Fix Analysis” in this article.

7. The preponderance of opinion amongst practitioners in the early days of costs budgeting appears to have been that the Ceiling Analysis was the correct explanation of CPR 3.18.  There is some anecdotal evidence that judges sometimes responded to detailed submissions about costs at a costs and case management conference ("CCMC") along the lines “I am only budgeting the costs today, not assessing them; assessment is for another day”.  In those early days, the submissions that were made at a CCMC in relation to budgets were often not of the same level of forensic detail that would accompany an assessment (especially a detailed assessment) of costs.

8. The Court of Appeal gave some early guidance in Henry v News Group Newspapers Ltd [2013] EWCA Civ 19, [2013] 2 Costs LR 334.  This was a decision on the earlier Defamation Proceedings Costs Management Scheme which was in slightly different terms, but nevertheless the following statements of principle from the judgment of Moore-Bick LJ are instructive:

“…the approved costs budget is intended to provide the framework for a detailed assessment and that the court should not normally allow costs in an amount which exceeds what has been budgeted for in each section… there may be good reasons for departing from the budget and allowing a greater sum… On the other hand, costs budgeting is not intended to derogate from the principle that the court will allow only such costs as have been reasonably incurred and are proportionate to what is at stake; it is intended to identify the amount within which the proceedings should be capable of being conducted and within which the parties must strive to remain. Thus, if the costs incurred in respect of any stage fall short of the budget, to award no more than has been incurred does not involve a departure from the budget; it simply means that the budget was more generous than was necessary. Budgets are intended to provide a form of control rather than a licence to conduct litigation in an unnecessarily expensive way. Equally, however, it may turn out for one reason or another that the proper conduct of the proceedings is more expensive than originally expected.” (§16)

“The primary function of the budget is to ensure that the costs incurred are not only reasonable but proportionate to what is at stake in the proceedings. If, as is the intention of the rule, budgets are approved by the court and revised at regular intervals, the receiving party is unlikely to persuade the court that costs incurred in excess of the budget are reasonable and proportionate to what is at stake.” (§19, in the context of the then impending coming into force of Section II of CPR 3).

9. Moore-Bick LJ gave further observations on costs budgeting on 18 April 2013 shortly after Henry inTroy Foods v Manton [2013] EWCA Civ 615, [2013] 4 Costs LR 546  at §8 (emphasis supplied):

“The defendant’s concern is that, on a detailed assessment, costs judges are likely to treat the approval of a budget, or any relevant part of it, as ipso facto establishing that the costs incurred in respect of the matter generally, or that particular element of it, are reasonable if they fall within the approved budget. In Henry v News Group Newspapers [2013] EWCA Civ 19 at paragraph 16 I expressed the view that an approved budget was not to be taken as a licence to conduct litigation in an unnecessarily expensive way. It follows that I do not accept that costs judges should or will treat the court’s approval of a budget as demonstrating, without further consideration, that the costs incurred by the receiving party are reasonable or proportionate simply because they fall within the scope of the approved budget.Nonetheless, one of the principal aims of costs budgeting is to control the parties’ expenditure, and that will not be effective if judges do not apply the correct principles.”

10. It may be worth noting that only one party attended before Moore-Bick LJ in Troy Foods, and the hearing was simply one for permission to appeal.  Strictly speaking this limits the precedent value of the decision, though it is nevertheless the considered judgment of a senior Lord Justice of Appeal.  It appears that the appeal itself was never heard.  

11. These early statements of principle support the Ceiling Analysis.  Interestingly, a month after Troy Foods  on 13 May 2013 in Slick Seating Systems v Adams [2013] 4 Costs LR 576 HHJ Simon Brown QC sitting in the Birmingham Mercantile Court considered that the Fix Analysis was the correct approach. He did not quote Troy Foods and it may not have been cited to him or even available in the public domain at that stage.  At §9 HHJ Simon Brown QC appeared to suggest that detailed assessment had become otiose in circumstances where the sum claimed in the final costs schedule was below what had previously been budgeted, and that on a summary assessment he would simply award the sum claimed which was within budget.

12. A number of more recent decisions have cast doubt on Moore-Bick LJ’s support of the Ceiling Analysis and arguably support the Fix Analysis.

13. In Simpson v MGN Ltd [2015] EWHC 126 (QB), [2015] 1 Costs LR 139  Warby J had to consider some different and discrete issues relating to amending costs budgets, and gave the following guidance at §8 (without, it seems, having any case law cited to him):

“It is clear that if costs management is to work conclusions reached upon reviewing costs budgets must be adhered to, and not second-guessed at a later stage. The wording of CPR 3.18(a) focuses attention on budgets for phases of the litigation. It is clear from CPR 3.18(b) that if a figure has been agreed or approved for a particular phase of proceedings the amount recoverable by the receiving party in respect of that phase will be capped at that figure, unless there is good reason to depart upwards. (If the receiving party has incurred costs less than budgeted there will be good reason to depart downwards.)”

14. With respect, the word “fixed” in this context might have more appropriately reflected Warby J’s approach compared to “capped”.  His subsequent observation suggests that he was of the view that the Fix Analysis is correct, because “good reason” would be required to depart from a budgeted sum either upwards or downwards.

15. The decision of the Court of Appeal in Sarpd Oil International Ltd v Addax Energy SA [2016] EWCA Civ 120, [2016] 2 Costs LO 227 is on the face of it a decision about security for costs.  However, in setting out views about the relevance of an approved budget in relation to an application for security for costs, the Court of Appeal stated as follows in its judgment at paragraphs 50 to 52:

“50. … There are two reasons for this. First, all the parties appreciated, or should have appreciated, that the first CMC was the appropriate occasion on which issues between them regarding the quantum of costs shown in their respective costs budgets should be debated. That was so both in relation to the estimated costs elements in the budgets, in respect of which a costs management order might be made under CPR 3.15(2)(b) and pursuant to para 7.4 of PD3E to record the court’s approval of those elements, and in relation to the incurred costs elements in the budgets, in respect of which it would be open to the court to make comments under para 7.4 of PD3E. Moreover, CPR 3.17 makes it clear that costs budgets are to be important instruments for all case management decisions, so parties must appreciate that if they wish to take issue with another’s costs budget they should do so at the first CMC, when there is to be debate about the costs budgets. In this case the first CMC, and the process leading up to it, afforded each party a fair opportunity to make any submissions they might wish on each other’s costs budgets.

51. Sarpd chose not to dispute the reasonableness and proportionality of the sums set out in Addax’s and Glencore’s costs budgets when it had the opportunity to do so. There has been no relevant change of circumstances between the date of the CMC when Blair J made his order and the time for consideration of Addax’s application for security for costs. On this application it would be contrary to the overriding objective to allow Sarpd to try to re-open costs issues which it had already had a fair opportunity to address. It would not be just to permit it to do that and it would add disproportionate cost in dealing with the case if a court had to go behind the settled costs budgets in a case like this. To allow such course would add unnecessarily to expense, rather than save it (see CPR 1.1(2)(b)); would be likely to add to the time and effort required to argue and determine a security for costs application and so would contravene the requirement to ensure that cases are dealt with expeditiously and fairly (see CPR 1.1(2)(d)); and would also involve allocating an inappropriate share of the court’s resources in having to re-visit an issue already dealt with by the court (see CPR 1.1(2)(e)). When we pressed Mr Nolan as to how the course he proposed could be regarded as compatible with the overriding objective he had no good answer.

52. Secondly, for reasons explained above, Addax’s costs budget and Glencore’s costs budget, as “approved” in and appended to Blair J’s order, will be a strong guide as to the likely costs order to be made after trial, if Addax is successful, both in relation to the incurred costs elements and in relation to the estimated costs elements. It is therefore appropriate that the costs budgets as so “approved” should be used as the relevant reference points for considering the amount which should be ordered for security for costs.”

16. These paragraphs repay careful reading.  They suggest that the time to take issue with the other party’s costs is at the budgeting stage, not the assessing stage, and that a failure to take a point at a CCMC combined with no material change of circumstance come the assessment may mean that the paying party is precluded from taking that point on assessment.  It should be remembered that the issue in Sarpd was a security for costs application, made at a relatively early stage in proceedings (though after costs budgets had been approved).  To the extent that any principle might be extracted from Sarpd about the approach to assessment at the end of proceedings, the decision is arguably obiter because that was not the issue before the Court of Appeal:

17. Nevertheless, the broad statements of principle set out by the Court of Appeal clearly support the Fix Analysis.  They are difficult to reconcile with Moore-Bick LJ’s approach in Troy Foods, which appears not to have been cited.  Moreover, some of the provisions in 3E PD (emphasis supplied) are difficult to reconcile with the assessment in advance approach which appears to be mandated by Sarpd:

“7.3…The court’s approval will relate only to the total figures for each phase of the proceedings, although in the course of its review the court may have regard to the constitute elements of each total figure.  When reviewing budgets, the court will not undertake a detailed assessment in advance, but rather will consider whether the budgeted costs fall within the range of reasonable and proportionate costs.”

“7.10 The making of a costs management order under rule 3.15 concerns the totals allowed for each phase of the budget.  It is not the role of the court in the cost management hearing to fix or approve the hourly rates claimed in the budget.  The underlying detail in the budget for each phase used by the party to calculate the totals claimed is provided for reference purposes only to assist the court in fixing a budget.”

18. That said, there are examples in the cases of judges reviewing and adjusting hourly rates at the CCMC – see for example Group Seven Ltd v Notable Services LLP [2016] EWHC 620 (Ch).

19. More significantly for practitioners, if the Fix Analysis is correct then neither practitioners nor the Court will be able to avoid difficult costs questions having to be resolved at CCMCs by putting off until assessment on the basis that the Court is only budgeting not assessing.  On the contrary, the Court is under this approach conducting a form of assessment in advance, without knowing how the litigation will unfold.  A 1 hour CCMC is likely to be woefully inadequate in terms of listing time to conduct a full review of the costs budget as seems to be contemplated, if parties are obliged to make all the points they would want to make on an assessment, and will be precluded from raising on assessment if not raised at the stage of approving costs budgets. CCMCs are not heard by specialist costs judges, and if they involve a form of assessment of costs in advance, this puts the judges hearing CCMCs in a difficult position.

20. There is some anecdotal evidence that some judges may be uncomfortable with the practical implications and effects of the Fix Analysis, and are including a so called “Sarpd carve out” provision in orders made at CCMCs.  This is along lines such as “The approval of the parties’ costs budgets is without prejudice to any points that may be made on assessment of costs”.  It may be questioned whether such a direction is truly compatible with Section II of CPR 3, and in particular CPR 3.18.

21. Some of the difficulties which arise in practice were alluded to by Flaux J in Wright v Rowland(unreported, 17 June 2016), where he recognised the following points:

a.On “one view” of the CPR, if the Court approved the costs budgets there would be no detailed assessment after trial provided the costs sought by the receiving party were within budget.

b.Where there was a substantial dispute between the parties at the CCMC over a particular item (in that case whether the use of two junior counsel was reasonable and proportionate), it was difficult for the Court to decide that issue in advance at an early CCMC.

c.The Court could approve a compromise figure somewhere between the parties’ rival figures, but this would not be sensible.

d.The Court could simply not approve the budget, which Flaux J considered would keep everything open for detailed assessment unencumbered by any costs budgeting, but that would not help the other side make decisions about the litigation.

e.In the circumstances, the approach would be to approve some elements of the budget but decline to approve the figures relating to trial preparation, trial, ADR and contingency.  This would allow the seeking of a detailed assessment  in relation to the unapproved costs if that party was successful at trial.

22. Flaux J’s approach is, it is respectfully submitted, more consistent with the wording of Section II of CPR 3 and CPR 3.18 than the Sarpd carve out technique.  To the extent that costs are not the subject of any sanctioned budget, it appears that this leaves everything open for argument at a detailed assessment in due course, consistently with CPR 3.  On the other hand, the Sarpd carve out technique is not only difficult to reconcile with CPR 3.18, but raises more fundamental questions about the purpose of the costs budgeting exercise (which itself is a costly and time consuming exercise).  If the intention is that costs will fall to be assessed in the old pre-costs budgeting way , it might be asked in practice whether there is any difference in not approving budgets and approving budgets subject to a Sarpd carve out.  The Sarpdcarve out only partially helps the other side make decisions about the litigation (one of Flaux J’s concerns in Wright), given that everything would seemingly still be open for argument on assessment. However, the approach of partial approval itself might be thought to be inconsistent with the spirit of costs budgeting, even if permissible within the letter of the rules.

23. It is likely that further intervention by the Court of Appeal or, ideally, by way of amendment to Section II of CPR 3 will be necessary in order fully to resolve the difficulties that practitioners are now left facing in relation to costs budgeting.  The importance of resolving these difficulties cannot be underestimated given the need to provide clients and the Court with as much certainty and protection regarding costs as is reasonably possible throughout the course of litigation.

Ravi Aswani

This blog post first appeared on Practical Law Arbitration Blog on 8 July 2016. 

http://arbitrationblog.practicallaw.com/bremaining-optimistic-impact-on-london-arbitration-following-brexit/

This blog considers the impact of Brexit on London arbitration and, in particular, the effect of losing many EU Regulations that currently form the core of England’s conflicts, and choice, of law positions in three key areas:

Choice of law

Section 46 of the English Arbitration Act 1996 (AA 1996) governs the applicable substantive law. The tribunal is required to decide the dispute in accordance with the parties’ chosen law or, if the parties so agree, in accordance with such other considerations as are agreed by them or determined by the tribunal. If, or to the extent that, there is no such choice or agreement, the tribunal applies the law determined by the conflict of laws rules which it considers applicable.

As a matter of practice, parties will often expressly choose English law when agreeing to London arbitration. Where the parties are silent, the tribunal will often deem the choice of the English seat as an implicit choice of English law. As such, it is unlikely that the tribunal will, in the usual course of events, actually come to consider the choice of law provisions applicable under English law, which are currently governed by the Rome I Regulation on the Law Applicable to Contractual Obligations (Rome I) and the Rome II Regulation on the Law Applicable to Non-Contractual Obligations (Rome II).

However, if Rome I no longer applies post-Brexit, then it is possible that, unless any further regime is put in place, the tribunal will be more than likely to apply the English law as it stood prior to Rome I and Rome II. This will result in the following regimes:

  • In relation to contractual claims, the tribunal will apply the Contracts (Applicable Law) Act 1990 (which had incorporated the Rome Convention, subject to two reservations, prior to it becoming a Regulation). Thus, the position in contract law will remain similar to the current position.
  • In relation to tort claims, the tribunal will apply the Private International Law (Miscellaneous Provisions Act) 1995, where the analysis will focus on the country in which the events constituting the tort occurred (under section 11 of the 1995 Act), rather than on the location of the damage under Article 4 of Rome II. Whilst the tortious position could therefore be different, this is potentially a more sensible approach, as it ensures that the law of the state which has the closest factual connection with the tort governs the matter.

In our view, the difference to the choice of law position will therefore be minimal; where there is change it is to be welcomed.

Anti-suit injunctions

Currently anti-suit injunctions cannot be granted against litigants who bring a claim before the courts of another EU member state in breach of an exclusive English jurisdiction clause (Turner v Grovit) or an arbitration clause (West Tankers). Upon Brexit, the main options for resolving jurisdictional questions between the UK and EU countries are as follows:

  • The UK signs up to the Brussels (Recast) Regulation in similar terms to Denmark in 2005 (when they signed up to the Brussels Regulation). In this case, the new provisions, including the expansive recital 12, would apply. The broad approach taken by the Advocate General in Gazprom OAO V Lithuania may be adopted by the Court of Justice of the European Union (CJEU) in the future, such that anti-suit injunctions in support of arbitration are held to be outside the Brussels (Recast) Regulation.
  • The Lugano Convention governs as it does for a European Free Trade Association (EFTA) state (for example, Iceland, Norway, Switzerland). This is unaffected by the Brussels (Recast) Regulation due to Article 73(1) and thus does not have the expanded recital 12 noted above. An interesting issue in this eventuality is whether or not the CJEU’s decisions would be followed. If not, the English courts may be able to take a purposive approach of the Convention’s terms in light of the Brussels (Recast) Regulation and Recital 12, and uphold anti-suit injunctions in support of arbitration.
  • Technically, the UK remains a party to the Brussels Convention, so in theory we could revert to that residual framework. However, if we do not agree to the Brussels (Recast) Regulation, it is unlikely we will agree to this convention; the Lugano Convention is a more obvious option.
  • A new treaty is signed by the UK with the EU, which leaves open anti-suit injunctions in support of arbitration; whether there is the political will for this is unclear. There is also the possibility of unilateral agreements on recognition and enforcement with individual EU states.
  •  The UK does not enter any new agreement allocating jurisdiction with the EU or its members. This would result in the English court simply applying English law as they currently do to non-EU states (where that relationship is not currently governed by the Brussels (Recast) Regulation under, for example, Article 33) with the main result being that anti-suit injunctions in support of arbitration would most definitely be an option.

If the English court were, once again, able to issue anti-suit injunctions in support of arbitration (and scupper, for example, the Italian torpedo), it is likely to increase the popularity of England as the seat and venue for arbitration in contrast to its European neighbours.

Enforcement of awards

Enforcement should be unaffected because the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention), which is a unique international instrument, has been ratified by all of the EU states.

However, the interesting point is to contrast this with English judicial judgments. These will either require a treaty (similar to the possibilities discussed above) to ensure reciprocal enforcement or they will depend on foreign domestic rules. Given the current political climate, it is unclear whether other European nations will agree to any such treaty; therefore, arbitration may be viewed as a safer option than court proceedings.

Conclusion

In our view, the impact of Brexit on arbitration practice is likely to minimal. To the extent that it is felt, it is likely to be positive because:

  • Section 46 of the AA 1996 will be unaffected and to the extent that tribunals have to revert to English national law (i) there will be little change to the choice of law rules in contract, and (ii) reverting to the 1995 Act and the location of the damage for tortious claims is, potentially, to be welcomed.
  • There is a possibility that the English court will be able to issue anti-suit injunctions in support of arbitration in circumstances where their European neighbours cannot. This would give England a competitive advantage over its main local rivals, such as Paris and Geneva.
  • There should be no issues of enforcement. This is governed by the New York Convention and is unaffected by EU rules, unlike court judgments, which will need to be dealt with in due course.

Whether the wider economic circumstances have any significant long term impact on the choice of London as a seat remains to be seen, but, with London’s historical positives, there are good reasons to remain optimistic.

1.       In Versloot Dredging BV and Another v HDI Gerling Industrie Versicherung AG and others [2016] UKSC 45 the Supreme Court recently held that a ‘collateral lie’ told during an insurance claim (also known as a ‘fraudulent device’) will not be sufficient to invalidate the whole insurance claim.

2.       Whilst the ratio addressed the position at common law, the Court indicated, obiter, that the position would be the same under s. 12 of the Insurance Act 2015 (the ‘2015 Act’), which is due to come into force on 12 August 2016.

The Facts

3.       A vessel suffered irreparable engine damage by the ingress of water to its engine room which was caused by a combination of crew negligence, third party negligence and equipment defects.

4.       One of the key witnesses in support of the claim provided a statement in which he stated that the bilge alarm had sounded but the crew had been unable to investigate or deal with the leak because of the rolling of the vessel in heavy weather.

5.       The collateral lie came in that he explicitly stated that members of the crew had informed him that this was the position and Popplewell J found this to be a “reckless untruth” at first instance. His Lordship held that the motivation for such a lie was frustration with the delay in payment by the insurers and concern because the individual had been advised that the insurers might have had a valid defence under the Inchmaree clause if he admitted that the vessel’s condition could have been a factor.

6.       However, his Lordship continued to hold that the lie was irrelevant to the merits of the claim because the proximate cause was a peril of the sea, namely the fortuitous ingress of seawater through the sea inlet valve during the voyage such that the Inchmaree clause had no application to this peril. His Lordship thus held that the owners had a valid claim regardless of whether or not the crew had failed to act on the bilge alarm but felt constrained by precedent to hold that because there had been fraud in the presentation of the claim the entire claim failed. The Court of Appeal upheld this judgment.

The Decision

7.       Lord Sumption opened his judgment by distinguishing three situations of dishonesty that may arise in the course of an insurance claim:

7.1.    The whole claim has been fabricated.

7.2.    A genuine claim where the amount has been exaggerated.

7.3.    The entire claim may be justified, but the information given in support of it may have been dishonestly embellished.

8.       This case was concerned solely with the third situation; that of the ‘collateral lie’ which his Lordship defined at §1 as:

“a lie which turns out when the facts are found to have no relevance to the insured’s right to recover. The question is whether the insurer is entitled to repudiate a claim supported by a false statement, if the statement was irrelevant, in the sense that the claim would have been equally recoverable whether it was true or false.”

9.       Further, Lord Hughes noted the concept of a ‘fraudulent device’ at §51:

“The issue in this case has been whether that rule extends also to bar the claim where the insured has not invented or exaggerated the claim but has employed what has been termed a “fraudulent device”. By that, in this special context, is meant a lie or other fraud in the presentation of the claim to the insurers, in a case where the underlying claim is in fact good in the amount claimed. Typically the fraudulent device is bogus evidence of some kind advanced in support of the claim in order to bolster it... I gratefully adopt Lord Sumption’s expression, “collateral lie” to describe this situation. In the vernacular, the situation contemplated might be described as the policyholder “gilding the lily”.”

10.     The prior common law position was that the entire claim failed it contained any element of fraud, including fraudulent devices, and was a product of the duty of good faith which applied to all insurance contracts under s. 17 of the Marine Insurance Act 1906.

11.     However, Lord Sumption, at §23 – 26, held that the fraudulent claims rule did not apply to situations of a collateral lie because:

11.1.  It is not a precondition of the insurer’s liability that a claim should be made upon them; rather the right to indemnity arises as soon as the loss is suffered.

11.2.  In this context, there is an obvious and important difference between a fraudulently exaggerated claim and a justified claim supported by collateral lies.

11.3.  Where a claim has been fraudulently exaggerated, the insured’s dishonesty is calculated to get him something to which he is not entitled. The reason why the insured cannot recover even the honest part of the claim is that the law declines to sever it from the invented part.

11.4.  The policy of deterring fraudulent claims goes to the honesty of the claim, and both are parts of a single claim. The principle is the same as that which applies in the law of illegality. The courts will not sever an agreement affected by illegality into its legal and illegal parts unless it accords with public policy to do so, even if each part is capable of standing on its own.

11.5.  However, the position is different where the insured is trying to obtain no more than the law regards as his entitlement and the lie is irrelevant to the existence or amount of that entitlement.

11.6.  In this case the lie is dishonest, but the claim is not. The immateriality of the lie to the claim makes it not just possible but appropriate to distinguish between them.

12.     As to the necessary connection between the lie and the claim to bring it within the fraudulent device exception, Lord Sumption held that the test was that of materiality in the sense a lie was collateral when it was it did not affect the insured’s right to recover. This was to be distinguished from materiality in the pre-contractual, disclosure context where materiality is defined as that which would affect the decision making of the prudent insurer in concluding the insurance policy.

13.     Lord Hughes summarised the distinction between these two senses of materiality at §91:

“The important difference between the pre- and post-contract (claim) stages lies in the power of decision in the hands of the insurer. Pre-contract, he is free to take or to refuse the risk. A failure of disclosure or false statement deprives him of the opportunity to consider something. If it might have affected his decision, it is “material”. And if he had known the truth, he would have had a perfect right to refuse to issue the policy. Post-contract, the insurer has no such freedom of choice. If the claim is good, he is legally obliged to pay it. A lie told in the making of the claim may well affect his handling of the claim, or the speed at which he pays it, or the inquiries which he calls for, but it can make no difference to his liability to pay. It may well be material (relevant) to his behaviour, but it is immaterial (irrelevant) to his liability. So “materiality” means something different at the two stages. The question is: material to what? For this reason, I respectfully agree with Rix J’s conclusion that the concept cannot simply be transposed to the post-contract situation. It does not migrate unchanged between the two stages, any more than the duty of good faith does”

14.     At §92, Lord Hughes agreed with Lord Sumption’s test of materiality:

“It is therefore possible to say, as Lord Sumption explains, that materiality — used in the different sense of relevance to liability — provides the answer to the issue in the present case. The collateral lie is immaterial to the liability of the insurer. In analysing the issue in that way one is, in a sense, re-stating the question: does a collateral lie defeat the claim? But one is also focussing on the critical difference between the collateral lie and the false or exaggerated claim. The collateral lie is certainly told with the aim of improving the position of the liar, but in fact and in law it makes no difference to the validity of his claim whether it is accepted or found out. The false or exaggerated claim is also made with the aim of improving the position of the liar, but if accepted it provides him with something to which he is not entitled in law.”

15.     Finally, their Lordships noted the submissions on Article 1 Protocol 1 of the European Convention on Human Rights but given their conclusion on the facts, such issues did not arise and thus they declined to comment. Lord Clarke and Lord Toulson agreed with the majority.

16.     Lord Mance, however, dissented primarily on the basis of policy; namely, that the relationship between insurer and insured is a special one of good faith.

17.     Further, there exists a long, if limited, line of authority in support of the proposition that fraudulent devices are to be included in the stringent legal response to fraudulent claims, which serve as a necessary and justified deterrence to insurance fraud.

18.     In this regard, his Lordship emphasised that the rule encourages integrity and deters fraud in the claims process, which would otherwise be distorted through the time and cost involved in unveiling the fraud and attempting to ascertain its true implications

19.     Finally, his Lordship also disagreed with the majority on the point in time at which materiality should be considered stating that it should be considered at the point when the fraud is made, not what a court would consider material many years later, on the basis that lies only make sense in their context; to hold otherwise overlooks (a) the obvious imperative of integrity on both sides in the claims process and (b) the obvious reality that lies are told for a purpose, almost invariably as here to obtain the uncovenanted advantage of having the claim considered and hopefully met on a false premise.

Commentary

20.     The majority’s test of materiality may prove problematic in practice:

20.1.  Given that the relevant point in time to apply the test is at trial, it will be uncertain whether or not a lie is material until the fullness of the evidence has been considered and even at that point it may not be possible to predict what view the court will take of that evidence. This will render settlement unlikely, especially given that the penalty for the insured is forfeiture of the whole claim.

20.2.  It is difficult to predict how this will apply to situations where there are numerous heads of loss only one of which has been pursued fraudulently and the fraudulent claim is immaterial to the other heads of loss:

20.2.1. On the one hand, the insured could be viewed as seeking to obtain something to which it was not entitled, namely another head of loss.

20.2.2. On the other hand, the lie is entirely immaterial to the liability under the other, genuine, heads of loss such that, as to those heads of loss, the insured was not trying to claim more than he was entitled to.

20.2.3. In my view, it is likely that the court would hold that the entire claim was fraudulent on the basis that it falls within the line of authority on the exaggeration of loss but it is certainly arguable that the rule on exaggeration should be confined to those circumstances where the quantum of a particular head of loss is exaggerated and that the rule should not apply in light of this new test of materiality.

20.3.  It is unclear whether or not, as a matter of practice, there will be a de minimis rule applicable to material lies to ensure consistency with the rule on fraudulent exaggeration. It may be that future courts hold that the lie was material, in the sense that it sought to effect liability, but was so small as to be regarded de minimis and will not invalidate the claim.

21.     As a result of the difficultly in applying the test of materiality, it is likely to take longer to conclude insurance claims which raises difficult questions regarding the implied term that all insurance claims will be paid within a reasonable period of time (as to be implied into all insurance contracts next year under the Enterprise Act 2016):

21.1.  It is unclear whether an insurance company would be justified in taking a long period of time attempting to prove that a lie is material to the claim.

21.2.  This is especially difficult because the majority held that the lie is only to be assessed at trial with the fullness of evidence such that, presumably, an insurance company could be regarded as justified to hold out to trial without settlement to see whether the lie was truly collateral or not.

21.3.  The irony for the insured therefore could be that in telling a collateral lie in an attempt to speed up the process, as was the motivation in this case, their conduct leads to further delay in circumstances where the insurer may be less accountable for that delay under the implied term.

22.     The judgment forms part of the general shift towards a more insured-friendly regime, as seen in the Insurance Act 2015 and the Enterprise Act 2016, and may lead to higher premiums.

23.     As to the court’s ability to police fraud following this judgment:

23.1.  The key sanction is likely to be costs but this will be interesting to apply because it will be the successful party, the insured, that will be punished in costs. The sanction is likely to be that they obtain no costs or, whilst they may be entitled to their costs in relation to the genuine claim, they will have to pay those costs relating to the insurer’s enquiries into their collateral lie. This is a slightly odd situation because ordinarily costs are used to punish the unsuccessful party where they have behaved poorly in the conduct of the dispute such that the successful party obtains indemnity costs or a wasted costs order. This shift in dynamic is likely to make negotiating settlement more difficult.

23.2.  The court noted that there is limited prospect of being prosecuted and thus the criminal law is unlikely to play a significant role.

23.3.  As noted above, the court may take a more sympathetic view of the insurer’s conduct in handling the claim such that they will be less inclined to find a breach of the implied term to pay within a reasonable period of time, as introduced by the Enterprise Act 2016.

24.     In conclusion, it is easy to sympathise with an insured that tells a collateral lie with a view to expediting payment; however, once we move away from having a clear rule that fraud avoids a claim, practical difficulties arise and it is perhaps fortunate that, in the words of Lord Mance, this is a “relatively rare case”.

Andrew Dinsmore

Andrew Dinsmore has been selected as one of only three junior barristers under 10 years call to sit on the ComBar Brexit Working Group 1 to consider the impact of Brexit on the conflict of laws; in particular Andrew has been appointed to a sub-group which will focus on the UK’s options for the allocation of jurisdiction. 

This blog post first appeared on Practical Law Arbitration Blog on 6 October 2016. 

http://arbitrationblog.practicallaw.com/the-mumbai-centre-for-international-arbitration-will-it-really-change-international-arbitration-in-india/

The arbitration environment in India has historically suffered from a number of issues, two of which have been particularly serious. The first has been the attitude of the courts towards arbitration. Over the years, there have been many complaints about delay in the courts doing anything at all about arbitration once seised, and about perceived interference to an unjustified extent in arbitration. These problems may be alleviated to some extent with the passage of the Commercial Courts, Commercial Division and Commercial Appellate Division of the High Courts Act, 2015 and the Arbitration and Conciliation (Amendment) Act, 2015 (the 2015 Acts).

The second serious problem has been the preference in India towards ad hoc arbitration. This has led to the domination of arbitration by retired judges, and no institutional assistance or oversight in the arbitral process generally. The seat of international arbitration involving an Indian party has not always been India. London was historically the main seat chosen, but in recent years there has been a marked shift eastwards towardsSingapore. A number of reasons for this are usually cited, some of which are more convincing than others: perceptions of cheaper costs, quicker resolution, and the impression of still being “in Asia”, such that business culture may be better appreciated by the tribunal.

There are first class arbitration lawyers and arbitrators in India, and this has been the case for many years. What traditionally has been lacking is a home grown arbitration institution. The London Court of International Arbitration (LCIA) India was active for a number of years but has been disbanded. The Singapore International Arbitration Centre (SIAC) maintains a liaison office in India, but this appears to be largely to assist SIAC arbitrations and to market SIAC.

However, that is all set to change. The Mumbai Centre for International Arbitration (MCIA) officially opened this month, although it actually started its first arbitration in advance of the official opening. On 8 October 2016, there is to be a launch conference at which many international arbitration practitioners from around the world will be in attendance. Indeed, theMCIA’s Council comprises some very well-known names in international arbitration from all over the world. It is clear, from a review of its MCIA Rules 2016 (2016 Rules), that considerable care and thought has gone into adopting the current best practices in international arbitration (such as expedition, emergency arbitration and scrutiny of awards), as well as containing some features designed to deal with the problems which have traditionally bedevilled arbitration in India, such as appointing and challenging arbitrators, and consolidation of arbitrations. The lack of scrutiny of awards has also been a serious issue in relation to ad hoc arbitration, as it has in the past led to a variable standard in award writing, with some awards being very well written and others badly written to the extent that enforcement became very problematic. The 2016 Rules will be recognisable to anyone involved in international arbitration as reflecting international best practice. State of the art premises have been created in Nariman Point, in the heart of the city, and it seems that all the facilities that parties would expect have been thought of.

To have an infrastructure and modern rules is, of course, the first step. The next will be to attract parties, and in particular foreign parties, to arbitrate in Indian seated arbitration. This will also necessarily have to include attracting Indian parties back to India from Singapore. Effecting a culture change of this type does not happen overnight, but as centres such as Singapore have shown, with focussed application it can be done. The fee structure for the MCIA certainly looks sufficiently attractive to make users of arbitration look at the MCIA seriously. Cost (and equally the perception of cost) is a particularly significant factor in a choice of arbitral seat (respondents to the Queen Mary University of London (QMUL)/White and Case 2015 International Arbitration Survey identified cost by a considerable margin as the worst characteristic of international arbitration). What will also help is the fact that the 2015 Acts were passed recently as an attempt to redress many of the historical concerns parties have had with India as a seat for international arbitration. The present Indian government is pushing hard to improve India’s rankings for ease of doing business; a 2015 World Bank report ranked India 130 out of 189 countries reviewed. The recent legislative changes, together with the launch of the MCIA, are two concrete steps which many people are hoping will finally lead to India emerging as a serious international arbitration seat.

It will not happen overnight, of course, but there does appear to be genuine excitement and energy surrounding the launch of the MCIA. Domestic arbitration may be easier to attract, but that is not the only type of dispute the MCIA has ambitions of attracting. Large Indian companies with strong bargaining power may now more credibly be able to insist on Indian arbitration with a non-Indian counterparty being written into their contracts. In due course, the ultimate test will be whether two non-Indian companies will be prepared to sign up for Indian seated arbitration at the MCIA.

Respondents to the QMUL/White and Case 2015 International Arbitration Survey also identified “reputation and recognition of the seat” as the most important factor in choice of a seat, and when broken down, the most important reason for preference of a seat was “neutrality and impartiality of the local legal system”. The MCIA has worked hard to address many of the concerns which users of international arbitration all over the world have expressed. It deserves to succeed. Its fortunes will no doubt be closely followed by all in the international arbitration community, including the more established arbitral institutions to which it is now a rival.

Ravi Aswani

 

1. In Grand China Logistics Holding (Group) v Spar Shipping AS[2016] EWCA Civ 982 a unanimous Court of Appeal ("CA") was firmly of the view that Popplewell J at first instance came to the correct conclusion that the obligation to make punctual payment of hire under clause 11 of the charterparties was not a condition. 

2. The background can be shortly stated.  The shipowners let three vessels on long-term NYPE 1993 charterparties to the charterers, a subsidiary of the guarantor being sued in this case.  When the charterers fell into arrears in paying hire, the shipowners withdrew the vessels, terminated the charterparty by issuing termination notices and began arbitration against the charterers.  However, the charterers went into liquidation and as a result the arbitration was stayed.  Instead, the shipowners brought these proceedings against the guarantor. 

3. In addition to his decision on the condition question above, Popplewell J held that the charterers had renounced the charterparties at the date of the termination notices.  The shipowners therefore succeeded at first instance in their claims for the balance due under the charterparties, loss of bargain damages in respect of the unexpired terms, and the arbitration proceedings' costs.   The guarantors appealed on the renunciation issue and the shipowners cross-appealed the condition issue.   

Court of Appeal analysis

4.The essence of the CA's conclusions on the condition issue were summarised in paragraph 65 of the judgment as follows:

i. For both historical and analytical reasons, the CA was not persuaded that the inclusion of the express withdrawal clause provided a strong or any indication that clause 11 of the charterparties was a condition.

ii. As a matter of contractual construction, the charterparties did not make it clear that clause 11 was to be categorised as a condition.

iii. Considerations of certainty, most important though they are, did not sway the CA from this conclusion, in particular given the significant certainty achieved by clause 11 as a contractual termination option, simpliciter and the fact that breaches of clause 11 could range from the trivial to the grave.  Greater certainty would be achieved by categorising clause 11 as a condition but at a cost of disproportionate consequences flowing from trivial breaches – an unsatisfactory balance.

iv. It was sensed that market reaction is generally supportive of the decision of Popplewell J and views it as reassuring.

v. The CA did not regard as significant the arguments advanced on the basis of a general presumption as to time being of the essence in mercantile contracts or those which relied on the anti-technicality clause.

5. As a result, the CA held that The Astra (Kuwait Rocks Co v AMN Bulkcarriers Inc [2013] EWHC 865 (Comm), [2013] 2 All E.R. (Comm) 689)  was wrongly decided on this issue.   In so holding, the CA has seemingly ended a controversy as to the proper categorisation of a payment of hire clause in similar charterparties.  The punctual payment of hire is an innominate term. 

6. Charterers will welcome the decision as it means that trivial delays such as the cited example of a 5 minute delay in the payment of hire will not now lead to the draconian consequence that the whole charterparty can be terminated with charterers becoming liable to pay substantial damages to the shipowners, for e.g. loss of future earnings. However, it should be noted that the vessel could still be withdrawn by shipowners under a withdrawal clause, subject to whether there is an anti-technicality clause and whether it applies.

7. The remedy for shipowners who may wish to escape from a charterparty (perhaps on a rising market or because of charterers' persistent non payment or some other reason) is to:

i. Argue that there has been a breach of this innominate term such that the consequences entitle them, as the innocent party, to treat the contract as at an end.

ii. Argue there has been renunciatory breach, i.e. an anticipatory breach of contract (in advance of the due date for performance).  This can happen where, for example, charterers make clear to the shipowners that they are not going to perform the contract at all or are going to commit a breach of some condition or are going to commit a breach of an innominate term and the consequences will be such as to entitle the innocent party to treat the contract as at an end.  The shipowners can then elect to accept the renunciatory breach at once and to terminate the contract, without waiting for the due date of performance. 

iii. Rely on an express withdrawal clause (subject to any anti-technicality clause) or have inserted in the contract in advance a clear indication that the obligation to pay hire is a condition of the contract. The latter should be carefully done, since it will be assessed on context and the intention of the parties and sometimes even the use of the word "condition" may fail to have the desired effect.

8. In this case the shipowners still won by using the renunciatory breach argument.  The CA was quite clear that the charterers' "...prospective non-performance would unilaterally convert a contract for payment in advance into a transaction for unsecured credit and without any provision for the payment of interest" (paragraph 87(i)).   Given the history of the charterers' late payments, the amounts and delays involved, together with the absence of any concrete or reliable reassurance from either the charterers or the guarantor as to the future, the judge was amply entitled to conclude that the charterers had renounced the charterparties at the date of the termination notices. 

9. Thus, even though shipowners may feel that the CA decision has disposed of one of their potential weapons against charterers, where the issue concerns charterers who repeatedly fail to make payments then shipowners should find some solace in this alternative argument, depending on the precise facts.  Even though punctual payment in the usual course of things will not be a condition,  the Courts will continue to give considerable weight to the fact that shipowners have bargained for hire to be paid punctually in advance and not for some "limping performance and attendant uncertainty" (paragraph 87(i)).

The full article can be found here.

We are delighted to announce that St Philips Chambers has been shortlisted for ‘Regional set of Year’ at the 2016 Chambers Bar Awards.

Chief Clerk Joe Wilson said: “We are honoured to be shortlisted for this award again which comes as a direct result of market feedback compiled for the next edition of Chambers UK.  We always strive to provide clients with the best levels of service and this comes at a time when chambers has also been recognised  with nominations in two categories at the Family Law Awards for ‘Clerking Team of the Year’ and Louise McCabe shortlisted for ‘Junior of the year’.

The 2016 Chambers Bar Awards are being held at the London Hilton Park Lane on Thursday, 27th October 2016.

We are pleased to announce that Head of St Philips Commercial, Ed Pepperall QC, has been appointed a Deputy High Court Judge, authorised to sit in both the Chancery and Queen’s Bench Divisions.

This appointment follows Ed’s election last Christmas as a Bencher of Lincoln’s Inn. In addition, Ed, who recently came to the end of his 6-year term on the Civil Procedure Rule Committee, joined the White Book team earlier this year as a contributing editor.

Ed's full CV can be accessed here.