Contract Law Case Law Update

COMPANY AND COMMERCIAL NEWS October - December 2016

Welcome to the third update in a new series of law case law updates produced by St John’s Chambers’ Company and Commercial team.

In this issue… An autumnal roundup of contract litigation… Binding commitment letters and 3 contractual discretion: Novus Aviation Ltd v Alubaf Arab Welcome to the autumn edition of our contract law case International Bank BSC(c) [2016] EWHC 1575 (Comm) updater, now in its third publication. We hope you will continue to find these handy case summaries to be a useful tool in Time to go home? “Close of keeping you up to speed with the most significant contract law 5 business” in commercial developments of the last quarter. : Lehman Brothers International (Europe) v ExxonMobil Financial Services BV In this issue Nick Pointon considers when commitment letters [2016] EWHC 2699 (Comm) become binding following the Commercial Court’s decision in Novus Aviation v Alubaf, and when “close of business” takes Bankers’ bonuses: a question of place in the London commercial banking sector following the 6 entitlement: Brogden v Investec Bank Plc [2016] EWCA Civ 1031 latest decision in the Lehman Brothers litigation.

Emma Price looks at the recent decision on the Brogden The need for clear and 8 unequivocal acceptance: bankers’ claim for bonuses and considers the approach taken by Arcadis Consulting (UK) Ltd v the Court of Appeal to the construction of contracts. AMEC (BSC) [2016] EWHC 2509 (TCC) Natasha Dzameh reviews several recent decisions, ranging from issues of considered in Arcardis Ship withdrawal and the status of 10 punctual payment stipulations for Consulting v AMEC to the recovery of for a loss of hire: Spar Shipping AS v Grand China chance in McGill v Sports and Entertainment Media Group. Logistics Holding (Group) Co Ltd [2016] EWCA Civ 982 Since our next instalment will be due in March 2017, we take this opportunity to wish all readers a merry Christmas and a Recovering damages for loss of a 12 chance and the effect of happy New Year! settlement agreements: McGill v Sports and Entertainment Media Nicholas Pointon Group and others [2016] EWCA [email protected] Civ 1063

Incomplete agreements and 14 implied terms: Wells v Devani [2016] EWCA Civ 1106

Contributors to this edition…

Nick Pointon, Barrister, St John’s Chambers (Call 2010)

Ranked as a leading junior in commercial dispute resolution by Chambers UK 2015, 2016 and 2017, Nick acts in a wide range of commercial and chancery matters. Nick has also taught the subject of contract law at both undergraduate and postgraduate level at the University of Bristol and regularly delivers seminars to regional and national law firms.

“He’s a class act who is really good at the detail – he just oozes ability.” Chambers UK, 2017

“An impressive advocate and one to watch; an extremely capable and bright young barrister.” Chambers UK, 2016

Natasha Dzameh, Barrister, St John’s Chambers (Call 2010)

Natasha joined Chambers as a commercial and chancery tenant in October 2016 following the successful completion of her . She already enjoys a busy court and paper practice, regularly appearing in trials and interim applications on the Western Circuit and beyond. Natasha accepts instructions in a broad range of commercial fields including specialist areas such as insolvency, insurance and intellectual property.

Natasha previously spent two years working as a County Court Advocate. This involved representing clients in more than 600 commercial, chancery and general civil hearings at courts across the North, the South West and Wales. She attained an LLM (Distinction) in International Commercial Law from the University of Nottingham and has marshalled at the Court of Appeal Civil Division.

Emma Price, Pupil, St John’s Chambers (Call 2014)

Emma is Chambers’ current chancery and commercial pupil and joined us on 1 October 2016. She is presently assisting senior members of chambers in a variety of chancery and commercial litigation, and looking forward to getting on her feet in April 2017.

Prior to joining Chambers Emma studied law at the University of Bristol, followed by an LLM at UCL. She has also spent two years working as a law reporter for the All England Reporter, writing and editing digests of cases across all areas of law.

To find out more about the authors of this newsletter, visit www.stjohnschambers.co.uk where you can find their full profiles.

2

Binding commitment letters and contractual discretion.

Novus Aviation Limited v Alubaf Arab International Bank BSC(c) [2016] EWHC 1575 (Comm) Nick Pointon

In Novus Aviation Limited v Alubaf Arab statements. Following confirmation from construction they did not oblige Alubaf to International Bank BSC(c) [2016] EWHC Alubaf’s accountants, Ernst & Young, that proceed with the transaction. 1575 (Comm) the Commercial Court such consolidation could be avoided if Alubaf Finding for Novus, Leggatt J held that the considered whether Novus and Alubaf had brought its in the transaction down to commitment letter created a binding made a contract under which Alubaf 49%. Alubaf hoped to achieve this by down contractual relationship despite not having agreed to provide equity funding for the selling its equity while a related entity, LFB, been countersigned by Novus. Central to purchase of an aircraft to be leased to agreed to increase its equity to over 50%. that finding was the work undertaken by Malaysian Airlines. Unfortunately on 6 June 2013 LFB informed Alubaf that it was unwilling to do so. Later both parties after the commitment letter Facts that day Alubaf communicated the problem had been signed by Alubaf and returned to to Novus, who had since removed the Novus. The parties were in discussions for such an investment from the given that Alubaf arrangement between April and June 2013, In respect of intention to create legal had signed the commitment letter. Various including the creation of a commitment relations, Leggatt J simply applied RTS steps were taken to assuage Alubaf’s letter dated 6 May 2013 and a Flexible Systems v Molkerei [2010] UKSC concerns, but on 17 June 2013 its board management agreement dated 15 May 14; [2010] 1 WLR 753, holding that the resolved to reject the deal. Over the following 2013. Alubaf eventually pulled out before obligatory language used for the most part weeks solicitors stepped in and the parties’ the aircraft had been purchased. Novus suggested that the parties intended the positions crystalised, leaving Novus unable to argued that a binding agreement had document to bind them. Counsel for Alubaf fund the purchase of the aircraft or to already been reached and that Alubaf’s sought to make use of an argument participate in the lucrative management withdrawal constituted repudiatory developed by Andrew Smith J at first agreement thereafter. Novus put its loss at breach. The key issue was whether the over US$8m. commitment letter of 6 May 2013 was In brief… binding on Alubaf, despite the fact that Decision Novus had never signed it. - The question of intention to create legal relations is an objective one, save Alubaf ran a myriad of defensive arguments. in truly exceptional and developing

The commitment agreement contained Firstly, it argued that the commitment letter circumstances. spaces for both parties to sign. Alubaf had and management agreement entailed no - It is generally easier to infer from signed it but Novus had not. Nevertheless, conduct the acceptance of a intention to create legal relations. Secondly, work continued to progress the contractual offer than it is to infer the it argued that Mr Abdullah (its “Head of waiver of an express contractual transaction, including the incorporation of Treasury and Investment”) lacked authority stipulation. special purpose companies, appointment to bind Alubaf. Thirdly, it argued that nothing - If a document is intended to bind only of directors and opening of bank accounts. became binding because neither the upon signature then very careful Alubaf then became concerned that, given language should be used to make this commitment letter nor management clear. The presence of a signature strip the size of its equity in the proposed agreement were countersigned and returned alone affords a poor level of transaction, both the aircraft and the protection. to Alubaf. Finally, it argued that even if the associated would have to be documents were binding, upon their proper consolidated within Alubaf’s financial

3 instance in Maple Leaf Macro Volatility conduct which, in his view, demonstrated “Whether it is theoretically Master Fund v Rouvroy [2009] EWHC 257 that the commitment letter had been justifiable to apply a (Comm), to the effect that, exceptionally, accepted notwithstanding the absence of a difference test in deciding one party’s subjective intention not to be signature. However, perhaps surprisingly, whether parties intended to legally bound by a document is relevant if Leggatt J reached precisely the opposite undertake contractual that intention is or ought reasonably to be conclusion in respect of the management obligations from the test known to the other party. Leggatt J agreement. For that latter agreement he applied in determining the observed that this argument found short held that signature was the prescribed scope of those obligations is shrift on appeal (at [2009] EWCA Civ 1334), mode of acceptance. At [107], applying open to doubt.” but went on to recognize that it was Reveille v Anotech he acknowledged that Novus Aviation Limited v Alubaf certainly not dead in the water and that, in even this requirement could be waived, but Arab International Bank [2016] an appropriate case, the scope of any such went on to find that on this occasion it had EWHC 1575 (Comm) rule would need to be tested. This was not not been waived. He distinguished that case. between inferring acceptance of a contract commitment and management agreement by conduct and inferring the waiver of a demonstrates, a great deal can turn upon As for Mr Abdullah’s authority to bind contractual requirement by conduct. the precise drafting of such instruments Alubaf, Leggatt J thought that he had both Although both are possible, the latter is and, in particular, whether it is expressly actual and, in any event, apparent much more difficult to demonstrate (as the stipulated that a signature is required authority to do so. Given his grand title as outcome of this case demonstrates). before the instrument will become binding. Head of Treasury and Investment, that is In the absence of such an express not altogether surprising. Novus nevertheless succeeded in their stipulation, the presence of a signature claim to damages, on the basis that if strip alone is unlikely to impede the court Finally, on the subject of signature to the Alubaf had complied with its obligations in finding that the instrument became commitment letter, Leggatt J rejected under the commitment letter then the binding as a result of the parties’ Novus’ submission that the letter became management agreement would in due subsequent conduct. binding immediately. Instead he said “[t]he course likely have been signed also. Leggatt intention manifested was therefore that, J acknowledged that there was always a Further, when considering the options after the commitment letter had been possibility that something might have open to Alubaf in the face of their signed on behalf of Alubaf, Novus should intervened to lawfully prevent the deal accounting woes Leggatt J took it as a given signal its acceptance before the letter from completing, and so treated Novus’ that any contractual discretion which became contractually binding” (at [102]). claim as a loss of a chance of completing. Alubaf had to withdraw from the deal could However, he continued: “There was no “Based on what can only be a matter of only have been exercised in (see term of the commitment letter, however, impression rather than any mathematical para [114]). In previous editions of this which stipulated that the only way in which calculation, [Leggatt J] assess[ed] the updater we have charted the oscillating Novus could signal its acceptance was by chance of such an occurrence at 15%.” approaches taken to the emerging role of counter-signing the letter. It is well good faith in English contract law. Evidently established that, in the absence of such a Comment Leggatt J (who famously authored the Yam stipulation (and, even then, if the Seng judgment which advocated the The case is interesting because its facts requirement for a signature is waived) development of good faith principles) was illustrate perfectly the distinction between acceptance of an offer can be not deterred by the remarks of Moore-Bick inferring acceptance of a contractual offer communicated by conduct which as a LJ in MSC v Cottonex Anstalt [2016] EWCA by conduct and inferring from conduct an matter of objective analysis shows an Civ 789, or of Richard Salter QC in Monde intention to waive an express contractual intention to accept the offer: … Reveille Petroleum v Westernzagros [2016] EWHC stipulation. Evidently the former is easier Independent LLC v Anotech International 1472 (Comm)1, curtailing the role to be to achieve than the latter. As the (UK) Ltd [2016] EWCA Civ 443[1]”. Leggatt J played by good faith. went on to set out the many instances of distinction between the letter of

4 Time to go home? “Close of business” in commercial contracts.

Lehman Brothers International (In administration) v ExxonMobil Financial Services BV [2016] EWHC 2699 (Comm)

Nick Pointon

In Lehman Brothers International (Europe) (In In the event ExxonMobil won the point In brief… administration) v Exxonmobil Financial because Lehman Brothers’ adduced no Services BV [2016] EWHC 2699 (Comm) the admissible evidence to the contrary. The - “Close of business” takes its High Court considered when home time only potentially relevant evidence came meaning from the context in which it is used. might be in the London investment banking from ExxonMobil’s expert, who said that in world. More accurately, the High Court had to his view commercial banks closed at 7.00 - On the facts of this case, construe what was meant by the phrase pm. In the absence of anything to the “close of business” in the London commercial banking “close of business” when used to identify the contrary, the Court accepted that evidence sector was held to be 7.00 deadline for receipt of a default valuation but was keen to emphasise that this was pm. notice under a repo agreement between simply a finding of fact in respect of this

Lehman Brothers and ExxonMobil. particular case. particular case demonstrates, where one party enters insolvency and any The notice clause in the agreement stipulated One would think the lesson to be learned relationship of good commercial sense that a default valuation notice must be was that phrases such as “close of falls away, a phrase such as “close of received before “close of business”, failing business” should be jettisoned in favour of business” simply invites costly and time which it would be deemed to have been specified time limits. Yet Blair J opined that consuming litigation. received the next day. ExxonMobil’s notice such terminology is a useful concept, was received at Lehman Brothers’ London allowing an amount of flexibility where That said, in agreements designed to office at 6.02 pm on 22 September 2008. desirable. While the presence of some overarch a variety of transactions or Lehman Brothers (or rather their flexibility might be desirable during the dealings, the flexibility alluded to by Blair administrators) argued that the “close of performance of a contract between two J can perhaps assume greater utility. In business” was 5.00 pm, whereas ExxonMobil commercially pragmatic entities, such circumstances it may not be said that it was actually 7.00 pm. Perhaps commercial pragmatism tends to disappear possible or practicable to specify time unsurprisingly, the wrought out and altogether in the event of a dispute. limits applicable to each type of exhausted junior desk monkeys of neither Laudable flexibility then transforms into a transaction captured by the agreement. entity were called upon to attest to the licence to argue every point possible, Ultimately the cost or inconvenience of ringing of the home time bell. In fact, the apparently including when home time is. such specificity is the price to be paid for Court held that Lehman Brothers had failed to avoiding the potential uncertainty and adduce any admissible evidence whatsoever In this author’s view, flexibility is only a consequent litigation that such flexibility as to when close of business occurred. The useful feature in contractual terms for so allows. At a broader level of generality, Court suggested that, in the particular long as the parties’ relationship is a good this latest episode in the Lehman context of repo financing in the international one. Yet when the parties’ relationship is a Brothers litigation emphasizes the investment world, a reasonable man would good one, one would hope that they would importance of detailed and precise be surprised to hear that business closes at have the commercial good sense to prospective drafting of commercial 5.00 pm. No doubt Lehman Brothers’ former overlook a small delay or slight agreements. As Blair J observed, the employees would have agreed with that from the certain provisions of a contract, court cannot tailor its construction of the sentiment. without the need to build in the use of terms of a standard agreement to meet vague terminology. Indeed as this unusual or exceptional circumstances.

5

Bankers’ bonuses: a question of entitlement

Brogden v Investec Bank Plc [2016] EWCA Civ 1031

Emma Price

would be based on an economic value In Brogden v Investec Bank Plc [2016] “It is unnecessary… to added (“EVA”) formula. The Bank EWCA Civ 1031 the Court of Appeal upheld considered that, under the appellants' consider the the dismissal of the appellants’ claim for contracts, their bonuses were to be authorities relating to on the part of the calculated by reference to the revenue the limits that may be respondent ("the Bank") in failing to pay generated within the activity centre placed on the exercise bonuses to which they claimed to be represented by the desk. However, in the of a contractual entitled. second and third financial years, that discretion, although Background produced bonuses far lower than the the principles for appellants thought properly reflected the which they stand were In 2007, the Bank recruited the appellants value to the Bank of their operations. They not controversial.” to set up a "desk" trading in equity-based considered that their bonuses ought to be derivatives. In addition to their salary, the calculated taking into account the full value Brogden v Investec Bank Plc appellants were promised very substantial to the Bank of having at its disposal the [2016] EWCA Civ 1031, per guaranteed bonuses in the first year of funds they had raised from investors. On Moore-Bick LJ at [20] their employment, followed in subsequent each occasion, the difference of opinion years by bonuses related to the was resolved by the Bank agreeing to make its decision could not be challenged profitability of the desk. In particular, the a greater sum available for bonuses than unless it could be shown that it had appellants’ employment contracts that to which it considered the appellants acted irrationally or in bad faith. There provided that, in the second and were entitled. However, in the following were no grounds, in his view, for subsequent years, the bonus calculation year, the and loss account for the suggesting that the Bank had acted in desk showed a loss. The Bank, therefore, bad faith and he was not persuaded that decided that no bonuses were payable. On In brief… it had acted irrationally. that occasion, the dispute could not be - The judge had not been right resolved by agreement and the appellants Court of Appeal to hold that the contracts had decided to leave the Bank's employment. given the Bank a discretion in relation to the manner in They brought proceedings to recover what In dismissing the appeal, the Court of which EVA was calculated. they alleged were the sums due to them by Appeal held that the judge was right to

way of bonuses for the year in question. hold that the expression "EVA generated - Whilst the Bank had been entitled to make an ex gratia by the Equity business" meant payment to increase the size High Court the amount calculated as the EVA of the of the bonus pool, those desk using the method normally used by payments were not capable of The judge, in dismissing the claim, held that giving rise to any reasonable the Bank to calculate the measure of the Bank had a discretion in relation to the expectation that it would act performance known as EVA for each in the same way in future. manner in which it assessed EVA and that business unit. That was all the more so,

6 Further, although the manner of the given that the desk had been intended to calculation of EVA for the desk was “St John’s Chambers is be a trading desk whose profit and loss one of Bristol’s leading apparent from the outset, no formal would reflect essentially the same sets of chambers for attempt was made following the factors as other trading desks. company advisory and development of its retail products to advocacy work, with its However, the judge had not been right renegotiate the basis on which bonuses barristers obtaining were to be paid. to hold that the contracts had given the regular instruction in Bank a discretion in the established Therefore, the appellants' rights to shareholder disputes, sense in relation to the manner in which bonuses remained as they had been from directors’ duties and EVA was calculated. Having been told directors’ disqualification the inception of their contracts, although that, in the operation of its existing cases. The set is praised the Bank was entitled to make an ex gratia systems, the Bank used the term "EVA" by sources for its payment to increase the size of the bonus to mean revenue, minus costs, minus provision of commercially pool. However, those payments were not cost of capital, all calculated before tax, minded advice and the capable of giving rise to any reasonable and that EVA for the new desk would be professional and expectation that the Bank would act in the calculated in the same way as that for incredibly flexible attitude same way in succeeding years and did not other business units, the appellants had of its barristers.” create any obligation on it to do so. a right to have the EVA for the desk calculated in that way and the Bank's Chambers UK, Company Analysis obligation was correspondingly limited. (2017)

It had to be borne in mind that the desk It can be seen, therefore, that the Court of had not been established to sell financial Appeal concluded that the order made products of that kind to the retail market below had been correct, but for different and that the contractual formula for reasons. The Court of Appeal’s judgment calculating bonuses was appropriate for was centred on the proper construction of “Respected chambers a trading desk of the kind intended. the appellants’ employment contracts, as with a growing opposed to the exercise of a contractual commercial practice, “As the late discretion on the part of the Bank. praised for its Professor Ronald Accordingly, it did not need to consider the consideration of Dworkin observed, exercise of contractual discretions in good practicalities such as costs discretion, like the faith, in respect of which there was an and funding. They have hole in a doughnut, interesting discussion in the High Court the feel of a heavyweight does not exist except judgment (see [2014] EWHC 2785 (Comm), set and they are at [91]-[103]). However, the case does imaginative in offering as an area left open perhaps serve to highlight the need for a solutions to help you by a surrounding belt contract to be explicitly clear as to the settle a case.” of restriction. It is precise method by which bonuses will be Chambers UK, Commercial therefore a relative calculated. Further, whilst the contention Dispute Resolution (2017) concept. Like all that a reasonable expectation had been

terms, its meaning is created did not succeed in this case, it sensitive to context.” might give employers pause for thought, particularly in respect of whether their Brogden v Investec Bank Plc conduct might engender a reasonable [2014] EWHC 2785 (Comm), expectation that they would continue to per Leggatt at [95] act in the same way in succeeding years.

7 The need for clear and unequivocal acceptance…

Arcadis Consulting (UK) Ltd (formerly called Hyder Consulting (UK) Ltd) v AMEC (BSC) (formerly CV Buchan Ltd) [2016] EWHC 2509 (TCC) Natasha Dzameh

In Arcadis Consulting (UK) Ltd v AMEC (BSC) correspondence included reference to need to consider the communication Ltd [2016] EWHC 2509 (TCC) the court Schedules 1-4 with liability caps contained between the parties and whether this applied the principles surrounding contract in Schedule 1. The contents of these results in an objective conclusion that they formation and incorporation of terms. The Schedules did not remain the same intended to create legal relations and had decision reinforces the importance of throughout albeit there were liability caps agreed upon the essential terms. agreeing contractual terms even where present. Additionally, Coulson J stated it is usually correspondence repeatedly refers to a implausible to argue a contract does not Within the Particulars of Claim Hyder specific type of term or condition. exist where works have been executed. sought a declaration such that there was Facts no connection between the £610,515 and Buchan contended no contract existed as a specific clause (Clause 2A). Buchan the correspondence between the parties Buchan acted as a specialist concrete sub- sought a declaration that there was no limit envisaged a formal Protocol agreement contractor on two large projects. It on Hyder’s liability to Buchan for its with detailed terms and conditions. There engaged Hyder to execute design works defective design. connected to the projects in anticipation of a wider agreement between the parties. High Court “Whilst the court should No such agreement materialised. It was always strive to find a The issues to be determined by Mr Justice alleged that one of the projects concluded contract in Coulson were: (Castlepoint Car Park) was defective and circumstances where may need to be demolished and rebuilt. 1. Was a contract formed between work has been The rebuilding costs were expected to be the parties? performed (and in the many tens of millions but Buchan’s claim present case I do so was pleaded as £40 million. Hyder denied 2. If such a contract was formed, find), the court is not liability for the defects but, if found liable, what were the terms? asserted there was a simple contract in entitled to rewrite relation to the design works. Under said 3. Was the limit on liability history so as to contract they considered any liability to be incorporated within any such incorporate into that capped at £610,515. contract between the parties? contract express terms which were not the Contract Formation A variety of correspondence had passed subject of a clear and between Hyder and Buchan including 3 In assessing whether a contract existed binding agreement.” separate sets of terms and conditions. between the parties, Coulson J referred to These were sent to Hyder on 8 November Arcadis Consulting (UK) Ltd v AMEC the summary of Lord Clarke in RTS Limited 2001 (“the November letter”), 29 January (BSC) Ltd [2016] EWHC 2509 (TCC) v Molkerei Alois Müller GmbH [2010] 1 WLR per Coulson J [48] 2002 (“the January letter”) and 6 March 753. This makes specific reference to the 2002 (“the March letter”). The

8 being no such agreement there could be no failed to do so both times. There was doubt term or condition, in this case a clause contract. about the terms and conditions referred to by limiting liability, yet the court will not Buchan in that letter and there was evidence necessarily consider this to have been Coulson J rejected this argument. None of Hyder did not accept any version of the terms incorporated into the contract. This the relevant correspondence was marked proposed. Consequently, Coulson J operates as a stark warning to parties as “subject to contract”. The works were considered to accept one set of terms and to the potential difficulties they may performed on the express understanding conditions or the other, it needed to be stated face in the future should they fail to that if the detailed contract did not come by Hyder clearly and unequivocally. As there agree terms and conditions. into fruition the correspondence would were no agreed terms and conditions, establish the legal relationship between Schedule 1 was not agreed either. the parties and Hyder would be paid for its work. There was a binding, simple contract Limitation on Liability In brief… between Buchan and Hyder. - Where letters of intent are Formal instruction to carry out the work not marked “subject to Contractual Terms occurred in the letter of 6 March 2002 which contract” they may establish made no reference to Schedules 1-4. The the existence of a contract. Coulson J ruled that no set of terms and reference to terms was simply a general - Relaying gratitude for conditions had been incorporated into the reference to the terms being negotiated. instructions does not simple contract, let alone the terms and Hyder made no reference to terms and necessarily amount to acceptance of terms and conditions which had originally been conditions or Schedules 1-4 when thanking conditions. proposed in November. Buchan for the instruction. Schedules 1-4 were incomplete and parasitic on the - The court will not It was clear from the correspondence that incorporate express terms agreements of the terms and conditions Hyder had never accepted the terms into a contract where they hence no versions of Schedules 1-4 were are not the subject of a clear proposed in the November letter. Instead expressly or impliedly accepted by Hyder. and binding agreement. Hyder had expressly objected to them and two further sets of terms and conditions - If no terms and conditions Coulson J found that Schedules 1-4 were not are agreed, even if many of were sent. The first set had clearly been sent as part of the March letter. He noted the proposed sets of terms superseded. No copies of the second set that, if he was incorrect, the terms referred to and conditions include a could be found by the parties and in any specific type of provision e.g. in the November letter were the subject of a provision limiting liability, event, they did not relate to the binding agreements and Hyder’s two letters the court may still arrive at Castlepoint Car Park contract. of March 2002 must be read together, the the conclusion that the contract does not include limit referred only to a specific clause. This In relation to the third set, it could not be that provision. clause did not cover the situation with which said that on an objective analysis Hyder the parties were concerned. had provided a final and unqualified expression of assent (Day Morris Coulson J refused Hyder declaratory relief Associates v Voyce [2003] EWCA Civ 189). and granted a declaration to Buchan in the Hyder specifically thanked Buchan for the terms requested. instruction but did not state that it accepted every element of the offer in the Analysis March letter. Coulson J asserted this analysis was neither unrealistic nor This decision confirms the importance of artificial because Hyder, having sent 2 agreeing contractual terms and conditions. letters in March 2002, had two Most concerning of all is the idea that parties opportunities to use the word “accept” and may repeatedly refer to a specific type of

9 Ship withdrawal and the status of punctual payment stipulations for hire

Spar Shipping AS v Grand China Logistics Holding (Group) Co Ltd [2016] EWCA Civ 982 Natasha Dzameh

In Spar Shipping AS v Grand China Logistics “(1) Conduct is repudiatory if it deprives the Marine Transportation Co Ltd (The Holding (Group) Co Ltd [2016] EWCA Civ innocent party of substantially the whole of Hermosa) [1982] 1 Lloyd's Rep 570, 572- 982 the Court of Appeal overturned the the benefit he is intended to receive as 3). decision in The Astra [2013] EWHC 865 consideration for performance of his future (Comm) and reinstated the decision in The obligations under the contract. Although (4) An intention to perform connotes a Brimnes [1973] 1 WLR 386. different formulations or metaphors have willingness to perform, but willingness in been used, notably whether the breach goes this context does not mean a desire to Facts and First Instance Decision (High to the root of the contract, these are merely perform despite an inability to do so. As Court – QBD, Commercial Court) different ways of expressing the 'substantially Devlin J put it in Universal Carriers v the whole benefit' test: Hongkong Fir at Citati at p 437, to say: 'I would like to but Spar was the registered owner of three pages 66, 72; The Nanfri at pages 778G-779D. I cannot' negatives intent just as much as vessels which were let on a long-term 'I will not'.” charter to GCS under three individual (2) Conduct is renunciatory if it evinces an charters which were guaranteed by GCL intention to commit a repudiatory breach, Spar Shipping AS v Grand China Logistics (GCS’s parent company). The that is to say if it would lead a reasonable Holding (Group) Co Ltd [2015] EWHC 718 charterparties included a withdrawal person to the conclusion that the party does (Comm) per Popplewell J [208] clause which contained an anti-technicality not intend to perform his future obligations clause. This permitted Spar to withdraw where the failure to perform such obligations the vessels if GCS failed to pay overdue hire when they fell due would be within 3 days of receipt of an arrears repudiatory: Universal Carriers v Citati at p In brief… notice. GCS fell into arrears relating to the 436, The Afovosat p 341 col 2. - Although certainty is hire and Spar recouped some of the arrears important to commercial by exercising a lien on sub-freights. A (3) Evincing an intention to perform but in a contracts it should not be significant amount of arrears remained and manner which is substantially inconsistent given undue weight when determining whether a term with the contractual terms is evincing an Spar sought payment from GCL under the is a condition or an guarantees. Spar withdrew the three intention not to perform: Ross T Smyth & Co innominate term. vessels, terminated the charters and Ltd v TD Bailey, Son & Co [1940] 3 All ER 60, - Stipulating a time for commenced arbitration proceedings 72. Whether such conduct is renunciatory payment within a mercantile against GCS. GCS went into liquidation and depends upon whether the threatened contact does not result in the the proceedings were stayed. Spar then difference in performance is repudiatory. It is presumption that it constitutes a condition for brought proceedings against GCL under the not here necessary to explore the position which the slightest breach is guarantees. where the innocent party misappreciates the repudiatory. nature or scope of his obligations Popplewell J expressed the principles - Within time charterparties (see Woodar Investment Ltd v Wimpey an obligation to pay hire relating to repudiation and renunciation Construction UK Ltd [1980] 1 WLR 277 punctually is generally not a as: and Chilean Nitrate Sales v condition.

10 He assessed 7 different issues, deciding the payment clause was a condition. The perform. To say: 'I would like to but I guarantees had been properly executed inclusion of an express withdrawal clause did cannot' negatives intent just as much as 'I and GCL must stand by them. The key not provide such an indication.The court was will not'.” determinations which were subsequently not inclined to interpret the clause as such appealed were: given the lack of a clear indication and the fact Finally, in relation to prospective non- performance, GCL argued that this should that breach of this clause could result in

1. The term within the time consequences of varying severity, from trivial be assessed by way of an arithmetical charterparty requiring punctual to severe. Gross LJ was particularly concerned comparison of the arrears and the total payment of hire was an with the attraction of certainty and the sum payable over the life of the innominate term; and undesirability of trivial breaches resulting in charterparties. On this analysis Spar would not be deprived of substantially the whole the consequences of a breach of condition.

2. There had been a renunciation of benefit of the charterparties. Gross LJ the charterparties by GCS. Renunciation stated that such a submission failed to “grapple with the nature and importance Court of Appeal The court acknowledged that the test for of the bargain for the payment of hire in renunciation has various formulations GCL appealed in relation to the 2 key issues advance.” He also noted that failure to pay throughout the authorities and that noted above. a single instalment of hire punctually is not Popplewell J had adopted the correct test. a breach of condition but a demonstrated Punctual Payment – Condition or The only argument in relation to the test intention not to pay hire punctually in the Innominate Term concerned the edges of the test and whether future is different and goes to the root of it was applied correctly. The court accepted the contract. In The Astra [2013] EWHC 865 (Comm) the three questions posed by Spar’s counsel Flaux J held that a clause requiring for analysing the facts: The appeal was dismissed. punctual payment of hire was a condition and its breach entitled the relevant party 1. What contractual benefit was Spar Analysis to terminate the charter and claim intended to obtain from the Ship withdrawal cases tend to be fact damages. The Lord Justices considered The charterparties? specific, nonetheless this decision is Astra [2013] EWHC 865 (Comm) to have 2. What was the prospective non- especially welcome. It overturns The Astra been wrongly decided on this point. performance foreshadowed by [2013] EWHC 865 (Comm) and returns the

The Court of Appeal held that it was not GCS’s words and conduct? position to that established in clear within the charterparties that the hire [1973] 1 WLR 386, i.e. that an obligation to

3. Was the prospective non- pay hire punctually is not a breach of performance such as to go to the condition of time charterparties generally. “…the modern root of the contract? approach is that a Although hire payments are particularly The court determined the benefit to Spar to important to vessel owners, the court has term is innominate be the regular, periodical payment of hire in unless a contrary made it clear that this does not result in advance of performance. At best GCS was such terms acquiring the status of a intention is made willing to pay hire but was unable to do so. condition. Further, the court’s focus is clear.” This situation was commented on by Devlin J whether the non-performance constitutes in Universal Cargo Carriers v Citati [1957] 2 repudiatory or renunciatory breach

QB 401, 437: thereby allowing for termination and Spar Shipping AS v Grand China Logistics Holding (Group) Co Ltd damages. It is not simply a question of “Willingness in this context does not mean [2016] EWCA Civ 982 per whether there has been a failure to pay Hamblen LJ [93] cheerfulness; it means simply an intent to promptly or evidence of an intention not to

pay.

11 Recovering damages for loss of a chance and the effect of settlement agreements

McGill v Sports and Entertainment Media Group and others [2016] EWCA Civ 1063 Natasha Dzameh

In McGill v Sports and Entertainment McGill’s claim was dismissed. The trial judge The court held Mr McGill was entitled to Media Group and others [2016] EWCA Civ also determined that Mr McGill had not damages based on loss of a chance. 1063 the court considered whether an advanced a case on the basis of loss of a argument as to loss of a chance remained chance. The case was one in which the principles open and the impact of a prior settlement stated in Allied Maples Group Limited v agreement involving an individual who was Mr McGill appealed in relation to dismissal Simmons & Simmons [1995] 1 WLR 1602 not a party to the current proceedings. against the SEM defendants on the basis that and Wellesley Partners LLP v Withers LLP the trial judge’s decision as to loss and [2015] EWCA Civ 1146 applied: Facts and First Instance Decision causation was incorrect in law and on the facts. Mr McGill contended that his claim “The key principle, for present purposes, is Mr McGill was a licensed football agent that where the claimant's loss depends, not should have been analysed as loss of a chance on what he would have done, but on the who allegedly acted for a professional i.e. the loss of a chance of earning hypothetical acts of a third party, the football player, Gavin McCann, under an commission under a written agency claimant first needs to prove (to the usual oral contract. He was to arrange Mr civil standard) that there was a real or agreement. substantial, rather than a speculative, McCann’s transfer from Aston Villa to chance that the third party would have Bolton Wanderers (“Bolton”). Before the The SEM defendants raised an argument they acted so as to confer the benefit in deal occurred SEM (the First Defendant) had run at the initial trial. Namely that Mr question, thereby establishing causation; but that the evaluation of the lost chance, discovered its existence and induced the McGill, having sued Mr McCann and if causation is proved, is a matter of player to breach his contract with Mr recouped some of its losses, was debarred quantification of damages in percentage McGill allowing SEM to take over the deal. from bringing a claim against them. This is terms.” Bolton paid commission of £300,000 to known as a Jameson argument, after Jameson per Henderson J [60] SEM. Mr McGill argued that he should have v Central Electricity Generating Board [2000] earned that fee on completion of the deal 1 AC 455. and brought an action against Mr McCann. Court of Appeal Decision In brief… This settled but Mr McGill brought a further action against nine defendants. The - Damages may be recovered The Court considered that Mr McGill and Mr first four defendants were referred to as for loss of a chance where McCann had entered into an oral agency the probability of the event “the SEM defendants” and the remaining contract, the terms of which were sufficiently occurring is no more than five were known as “the Bolton 50%. certain, albeit the contract did not comply defendants”. with the FA 2006 Regulations. The trial judge - Settlement does not preclude advancing a claim was not wrong in his finding as to whether HHJ Waksman QC held that, insofar as loss against other defendants and causation were concerned, the claim any of the SEM defendants acted as agent for where the claimant has not Mr McCann nor was he wrong in determining been fully compensated, the could only succeed if it were proved that is distinctly whether any of said defendants induced Mr the player would have signed a written different and the scenario agency agreement with Mr McGill by the McCann to breach his contract or that they does not involve joint tortfeasors. close of the transfer deal. The civil standard had knowledge of the existing agency

of proof had not been satisfied thus Mr contract.

12 In respect of causation there was a real or a chance. Nonetheless this line of argument written agreement with Mr McGill. This substantial chance that, but for the remained open to him and it did not cause could not exceed 50% given his previous interference by SEM and another injustice to the SEM defendants to allow that finding that on the balance of probabilities defendant, a written agreement between argument in the appeal. Mr McCann would not have entered into Mr McGill and Mr McCann would have such an agreement. The court held that the trial judge was not been entered into. It was an error in wrong to find that Mr McCann would not Analysis principle by the trial judge to require Mr have entered into a contract with Mr McGill. McGill to prove that Mr McCann would Mr McGill was running a significant risk that This case deals with two very important have signed the agreement by the end of Mr McCann would continue to refuse to sign points which are especially relevant in the the transfer process. a written agreement. commercial sphere, namely recovery of damages for loss of a chance and the effect Nonetheless the court still had to As to the Jameson argument, the earlier of settlement agreements. determine whether it was open to Mr settlement with Mr McCann did not operate McGill to advance his case on the basis of as a bar to the present claim. The present The Court of Appeal has reiterated that loss of a chance. Henderson J noted that case was not similar to the concurrent damages may be recovered for loss of a loss of a chance was pleaded within the re- tortfeasors in Jameson or successive chance even where the probability of the amended Particulars of Claim albeit there contract-breakers in Heaton v AXA Equity and event occurring is no more than 50%. The was some blurring of the issue by another Law Assurance Society Plc [2002] UKHL 15. court is instead concerned with whether sentence within the same paragraph. The The claims were distinctly different i.e. the chance lost was real or substantial argument as to loss of a chance remained breach of contract against Mr McCann and rather than speculative. It is after in contention. inducing a breach of contract and conspiracy determining this question that it will proceed to quantify damages in percentage Henderson J attempted to discern how the against the SEM defendants. It was entirely terms, assuming there are no causation trial judge arrived at the view that Mr natural for Mr McGill to recover what he issues. McGill’s case was not advanced on the could from Mr McCann and seek to recover basis of loss of a chance. He noted the the remainder from the other parties. More importantly the court has given clear argument did not appear to have been Whether he has pursued the matters guidance on when a settlement involving formally abandoned although it was not simultaneously or sequentially should not one defendant may discharge claims presented that way in the skeleton make a difference to his ability to recover. against the others. It indicates that where argument prepared by Mr McGill’s counsel The appeal was allowed. The court directed the causes of action are distinctly different, or in his written closing submissions. The that the case be remitted to the trial judge for settlement of one will not impact upon the judge was not referred to any cases on loss him to assess the percentage likelihood that other claims unless it is clear from the of a chance. Counsel for the SEM Mr McCann would have entered into a settlement that the claimant has been fully defendants had asserted that the loss and compensated for his or her losses. This damage claimed was the same as the loss assumes that the settlement agreement Mr McGill had sued Mr McCann for. “In cases of the present type, it would be most unattractive contains no explicit provisions which are to Further there were discussions between to have to conclude that a be considered. Further, it should be noted counsel for the SEM defendants and the settlement reached between that this was not a case where Mr McCann trial judge regarding proposed further the innocent claimant and the and the SEM defendants were joint amendments to the Particulars of Claim in contract breaker precludes a tortfeasors as those situations are which counsel for the SEM defendants subsequent action in significantly different. indicated that loss of a chance was a new against the primary case. wrongdoers who induced the Finally, as a general note for practitioners, breach of contract in the first this case drives home the importance of Ultimately it was considered easily place.” ensuring a case is pleaded accurately in the understandable that the trial judge had per Henderson J [101] Particulars of Claim and presented as such arrived at the conclusion that Mr McGill to the court. had not put his case on the basis of loss of 13

Incomplete agreements and implied terms

Wells v Devani [2016] EWCA Civ 1106

Natasha Dzameh

In Wells v Devani [2016] EWCA Civ 1106 the had seen Mr Devani’s email before sending may imply terms into a concluded contract, Court of Appeal considered when it is his own. it cannot imply terms so as to create a appropriate to interpret or imply contract between the parties in the first The parties were in dispute as to the content contractual terms, in particular whether it place. This was clearly stated by Lord of their telephone conversation. The trial can imply a contractual term the effect of Roskill in Scancarriers A/S v Aotearoa judge determined that Mr Devani considered which is to create a contract. International Ltd [1985] 2 Lloyd’s Rep 419. he was proposing himself as an agent not a Facts and First Instance Decision buyer, he was seeking a commission from Mr In determining the appeal the court Wells as profit and he neither described referred to the relatively recent case of Mr Wells developed fourteen flats in himself as a buyer nor said anything intended Marks and Spencer plc v BNP Paribas Hackney as part of a joint venture with a to give the impression that he was. Securities Services Trust Co (Jersey) Ltd builder. The flats were marketed by an [2016] UKSC 76 in which Lord Neuberger The question then followed as to whether the estate agency with a commission of 3% was quite clear that implying additional parties reached an agreement which reduced to 2% on prompt payment. By the words is different to construing the existing constituted a legally binding contract given beginning of 2008 six flats were sold, one words. The processes involved in doing so that the written terms were sent after the was under offer and the remaining seven are different as are the rules applicable to introduction of Newlon. It was accepted that were on the market. them. Implied terms are to be considered Mr Devani did not expressly inform Mr Wells after the court has construed the existing Mr Wells’ neighbour (“the Neighbour”) as to the circumstances under which he terms. The court did not accept Mr informed him of a property investment would be entitled to remuneration however Devani’s submission that the trial judge company in London that may buy the the trial judge found he had mentioned his was interpreting what the parties had said. remaining flats. The Neighbour made fee was 2% plus VAT. The trial judge implied a It was clear from the judgment that he was inquiries at Mr Well’s request. He emailed term to the effect that payment would be due not doing so. an investment company and Mr Devani, an “on the introduction of a person who actually estate agent. A telephone conversation completed the purchase”. He considered that The court also considered it would not be occurred between Mr Devani and Mr Mr Devani had failed to comply with his justified in filling in gaps in the trial judge’s Wells. Mr Devani contacted Newlon obligations under section 18 of the Estate Housing Association (“Newlon”) who Agents Act 1979 and reduced the amount “…it is wrong in ultimately agreed, subject to contract, to recoverable by one third. Mr Devani’s costs principle to turn an purchase the remaining flats. Mr Wells were also reduced by 30%. Mr Wells appealed incomplete bargain into contacted his solicitors and Mr Devani. against the liability finding. Mr Devani cross- a legally binding After the acceptance of Newlon’s offer Mr appealed regarding the fee reduction and the contract by adding Devani sent an email to Mr Wells seeking reduction of his costs by 30%. expressly agreed terms payment of his fees in the sum of 2% + VAT, attaching his terms of business and Court of Appeal Decision and implied terms requesting the details of Mr Wells’ together.” The trial judge had based his decision on an solicitor. Mr Wells provided these details implied term instead of interpreting what the albeit not as a reply to the email. In any per Lewison LJ [24] parties said to one another. Whilst the court event the trial judge considered Mr Wells

14 findings of fact and adopting Mr Devani’s judge should have interpreted the agreement term the effect of which will be to impose interpretation of the words. Lewison LJ rather than implying a term. Nonetheless in a contract upon them. explained that there were a number of her view the outcome of the judgment would reasons for this: the case was not pleaded have been the same. Arden LJ raises a curious point in relation to in this way; Mr Devani’s oral responses in Scancarriers, namely that as it concerned a The agreement between the parties ceased cross-examination did not repeat the unilateral contract it would not apply to the phrase within the witness statement; the to be unilateral when Mr Devani introduced a present case. In the author’s view the trial judge’s preference for Mr Devani’s purchaser. Mr Wells was unable to withdraw distinction as to whether a contract is evidence did not mean he believed every from his deal with Mr Devani after this time unilateral or bilateral should not impact word; Mr Devani’s interpretation should and as such the contract changed from a upon the court’s inability to imply a term unilateral contract to a bilateral contract. The not be treated as if it were a written such that it gives effect to a contract which contract; and the Court of Appeal’s contract became a binding contract at the would otherwise not exist. It is accepted function is to review the judge’s decision latest when the contract for sale with Newlon that there are instances where the court not to make findings of fact. completed. Scancarriers applies to unilateral has determined a contract to be complete contracts thereby making it distinguishable despite a lack of detail (Chitty on Contracts, The appeal was permitted and the cross- and inapplicable to the present case. It is not vol 1, 32nd edn, (2015) para 2-120). appeal dismissed. uncommon for the court to imply terms Nonetheless there are numerous cases in where appropriate if the parties have made which essential terms have not been “The acceptance of an offer must be in an agreement and a matter has not been agreed such that there is only an accordance with its terms. But if the offer does not specify what would amount to expressed. agreement in principle rather than a acceptance, I do not consider that it is binding contract (Chitty on Contracts, vol 1, In interpreting the contract, it appeared the capable of acceptance so as to result in a 32nd edn, (2015) para 2-119). The key binding bilateral contract. It makes no trial judge was correct to arrive at the feature of this case is the fact that the difference whether this is considered in the conclusion that the commission became context of acceptance of an offer, or terms were such that Mr Wells was payable when the purchaser completed the performance of a unilateral contract.” unaware what would trigger the purchase: requirement to make a payment. It is one per Lewison LJ [37] thing to conclude there is a binding “The judge did not have to find that the Dissenting judgment parties expressly said that Mr Devani was to contract when only some terms have been find a purchaser if in the context of their agreed but the parties are roughly aware of Arden LJ gave the dissenting judgment. In communications that is what they actually their requirements as to performance. It is meant.” her view the agreement was enforceable quite another to say that there is a binding but she did not reach this decision in the per Arden LJ [111] contract when one party is unaware as to same way as the trial judge. She considered what may trigger performance and, as the trial judge had made a finding that Mr Analysis such, is in the dark as to his or her liability Devani and Mr Wells agreed Mr Devani at any one time. The effect of Marks and Spencer plc v BNP should be entitled to commission of 2% Paribas Securities Services Trust Co (Jersey) plus VAT if he found a purchaser. She Ltd [2016] UKSC 76 is evident in this decision disagreed with Lewison LJ in that she In brief… which further demonstrates the courts’ considered the terms agreed by the parties increasing reluctance to imply contractual - Terms will not be implied to in their telephone conversation to be a impose a contract which terms. This case highlights the importance of question of law and inference from or would otherwise not exist. ensuring that, even where parties have failed evaluation of primary facts, rather than a to agree the entirety of the contractual terms, - Parties should ensure that question of primary fact itself. the pivotal terms have been the key terms are agreed upon. The court can agreed even if the entirety As a matter of interpretation, the agent and will interpret the discussions between of the contract has not. had agreed to find a purchaser and the trial the parties but it is not prepared to imply a

15 Company and Commercial Team

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