1230455 Ontario Ltd. v. 150 Katimavik Inc., 2019 ONSC 2481

CITATION: 1230455 Ontario Ltd. v. 150 Katimavik Inc., 2019 ONSC 2481

                                                                                                   COURT FILE NO.: CV-19-79133

DATE: 2019/04/29

ONTARIO

SUPERIOR COURT OF JUSTICE

1230455 ONTARIO LTD.

V

150 KATIMAVIK INC.

 

REASONS FOR DECISION

O’BONSAWIN J.

Background

[1]   On October 2, 2012, 1230455 Ontario Ltd. (“123”) entered into a commercial lease agreement with 1310053 Ontario Inc. for the premises (“Suite 1000”) comprising approximately 9,200 square feet for a term of five years commencing on January 15, 2013 and ending on January 14, 2018 (“initial lease”).  As per this lease, 123 was to pay annual rent in the amount of $3.00 per square foot in addition to other costs.

[2]   On November 16, 2016, 150 Katimavik Inc. (“Katimavik”) purchased the property from 1310053 Ontario Inc.  Prior to the completion of the purchase, Katimavik entered into negotiations with 123 regarding its continued occupation of Suite 1000.  At that time, Katimavik was planning to redevelop the property and convert portions into a commercial condominium.  123 wanted to remain as a tenant provided that its monthly rent was reduced since Suite 1000 was too large for its needs and too expensive.

[3]   Katimavik agreed that 123 could move into smaller and less expensive premises (“Suites 201 and 302”) with a total of 3,664 square feet on the terms of the Offer to Lease dated November 11, 2016.

[4]   Suites 201 and 302 required construction work to make them appropriate for 123’s business, and Katimavik agreed to undertake some of the required fit-up work and provide 123 with two years of reduced rent as an accommodation for 123 agreeing to relocate to Suites 201 and 302.

[5]   This reduced rent was applicable for the combination of time spent in Suite 1000 and Suites 201 and 302.

[6]   On November 17, 2016, Katimavik delivered notice to 123 that the Landlord’s Condition was satisfied and determined that the termination date of the lease was November 16, 2018.

[7]   On November 26, 2016, Katimavik delivered to 123 execution copies of the lease for Suites 201 and 302.

[8]   On August 22, 2017, Katimavik delivered notice to 123 that the Landlord’s Work regarding Suites 201 and 302 would be substantially performed by September 1, 2017 and the suites would be ready for possession on that date.

[9]   A dispute arose between the parties regarding the Commencement Date of the lease resulting in 123 bringing an ex parte Motion for injunction to this court on September 26, 2017.  On that same date, Hackland J. provided an Order to allow 123 re-entry to the premises and the continued right to possess and use the premises.  In addition, Katimavik was prohibited from re-entry or re-possession of the premises until further court Order.

[10]           On October 2, 2017, the parties entered into a Settlement Agreement whereby they agreed to proceed to arbitration on certain issues. Hackland J.’s order was vacated by Phillips J.’s Order dated October 13, 2017.  Phillips J. ordered that 123 “deliver vacant possession of the premises known municipally as 150 Katimavik Road, suite 1000, Ottawa, Ontario, to the defendant, 150 Katimavik Inc., on or before 11:59pm on Monday, October 16, 2017”.

[11]           On October 16, 2017, 123 moved into Suites 201 and 302. It has occupied the suites since that date and paid its rent.

[12]           On November 2, 2018, Katimavik provided notice to 123 that the tenancy would expire on November 16, 2018 and should 123 continue to occupy the suites after that day, it would do so as an overholding tenant on a month-to-month basis with rent payable in advance of the first day of the month at twice the amount payable during the last month of the Term.  123 did not vacate the suites.

[13]           There were discussions between the parties regarding 123’s possible purchase of a condominium unit, however, they were not fruitful.

[14]           On December 10, 2018, Katimavik provided notice to 123 that it had failed to pay the rent in full owing for December 2018 and it was thereby in default.

[15]           On January 10, 2019, Katimavik provided a Notice to Quit to 123 which required the latter to vacate the premises on or before February 16, 2019.

[16]           123 has filed an Application and seeks the following:

  •     relief from forfeiture of the Offer to Lease dated November 11, 2016 for Suites 201 and 302;
  •     leave to abridge the time period for service in accordance with subrule 3.02(1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, given the urgency of this Application;
  •     an interim and final Order restoring possession of Suites 201 and 302 to 123 forthwith;
  •     enjoining Katimavik from changing the locks again or preventing 123 from re-entering Suites 201 and 302;
  •     an interim and final Order barring Katimavik from taking possession of 123’s property;
  •     an interim and permanent injunction preventing Katimavik from re-letting, re-leasing or dispossessing 123 from Suites 201 and 302;
  •     an interlocutory injunction preventing Katimavik from terminating the lease/Offer to Lease dated November 11, 2016 without further court order;
  •     an Order allowing 123 re-entry of Suites 201 and 302, the continued right to possess and use them and have quiet enjoyment of those premises;
  •     an Order for abatement of rent/return or refund of rent/adjustment of rent for the period paid by 123 when it was either not in full use of the space, unable to use the space according to the lease to conduct business or a determination of what rent is owing or to be set off in these circumstances;
  •     an Order that the arbitration agreed upon by the parties proceed; and
  •     the costs of this Application on a substantial indemnity basis.

Issues

[17]           The issues in this matter are as follows:

1)      Is 123 entitled to relief from forfeiture in relation to Katimavik’s Notice to Quit and an Order barring Katimavik from taking possession of Suites 201 and 302 or is Katimavik entitled to require 123 to completely vacate the suites?

2)      Is 123 entitled to an Order mandating the parties to attend arbitration?

3)      Is 123 entitled to an abatement of rent, return of rent or adjustment of rent?

Position of the Parties

[18]           123 takes the position that the Commencement Date within the Offer to Lease remains a live dispute between the parties in addition to the appropriate amount of rent, the terms and conditions for a proposed lease agreement between the parties and damages incurred by the parties.

[19]           Furthermore, 123 argues that the parties agreed to have the issue referred to an arbitration which has yet to occur.  Arbitration must move forward.  Lastly, it is 123’s position that a forfeiture of the Tenancy would be disproportionate in the present circumstances to the harm allegedly caused to Katimavik by 123’s continued occupation of Suites 201 and 302.

[20]           On the other hand, Katimavik argues that 123 is not entitled to relief from forfeiture since there is no legal basis supporting such relief.  As for the arbitration, Katimavik takes the position that the proceedings in this regard are related to the Commencement Date under the Offer to Lease and not the Termination Date.  Consequently, the arbitration is irrelevant to the issue in this Application.

[21]           Lastly, Katimavik submits 123 is not entitled to any reduction in rent, return of rent or rent abatement in this proceeding.

Analysis and Findings

 

[22]           In order to analyse this matter, it is important to begin by providing the important sections of the different documents in question.  The Offer to Lease contains the following relevant terms and conditions:

Section 1:  Term

The term of the Lease (the “Term”) shall be for that period of time commencing on the date (the “Commencement Date”) on which the Landlord’s Work is substantially complete and the Tenant has received written notice stating that the Premises are ready for possession, and ending on the date (the “Termination Date”) which is two (2) years less one (1) day following the date of satisfaction or waiver of the Landlord’s Condition.

Section 2:  Gross Rent – the gross rent shall be $6.00 per square foot per annum.

Section 5: Lease

The lease shall be prepared using the Landlord’s standard form lease for the Building (the “Standard Lease”), as amended to incorporate the terms and conditions of this Offer and such additional non-financial amendments as may be requested by the parties, each acting reasonably (the “Lease”).  Both parties shall use commercially reasonable efforts and good faith to negotiate and execute the Lease within twenty (20) days of receipt by the Tenant of a first draft thereof from the Landlord.  If the lease has not been signed prior to the Commencement Date, all of the terms of the Standard Lease shall nevertheless apply.  Words defined in the Standard Lease and used herein shall have the same meaning ascribed to them by the Standard Lease.

Section 20:  Existing Lease

The parties are entering into this Offer and the Lease in conjunction with the termination of the Existing Lease (as hereinafter defined) for premises located on the ground floor of the Building (the “Existing Premises”).  Effective on the day immediately preceding the Commencement Date (the “Existing Lease Expiry Date”), the lease for the Existing Premises dated October 2, 2012 (as amended, the “Existing Lease”) shall be deemed amended so that:  (i) the last day of the Existing Lease will be the Existing Lease Expiry Date; and (ii) during that portion of the term of the Existing Lease commencing on the date of the satisfaction or waiver of the Landlord’s Condition and ending on the day prior to the Commencement Date, the aggregate of the Annual Ren and Occupancy Costs payable by the Tenant thereunder shall be Six Dollars ($6.00) per square foot of the Rentable Area of the Existing Premises…

Section 22:  Landlord’s Condition

This Offer is conditioned on the Landlord obtaining title to the Building and the Lands by no later than November 30, 2016.  This condition is for the benefit of the Landlord and may be waived by it, in its sole option, at any time.  If this condition is not satisfied or waived by the Landlord by the date set out above, then this Offer shall be null and void and the parties will be relieved of all obligations under it and the Existing Lease shall remain in full force and effect, on the terms, covenants and conditions therein contained.

[23]           The Standard Lease contains the following relevant section:

Section 11.03 Overholding

If the Tenant remains in possession of the Premises after the end of the Term with the consent of the Landlord but without having executed and delivered a new lease or an agreement extending the Term, there shall be no tacit renewal of this Lease and the Tenant shall be deemed to be occupying the Premises as a Tenant from month to month at a monthly Net Rent payable in advance on the first day of each month equal to twice the monthly amount of Net Rent payable during the last month of the Term, and otherwise upon the same terms as are set forth in this Lease, so far as these are applicable to a monthly tenancy.

[24]           Sub-section 20(1) of the Commercial Tenancies Act, R.S.O. 1990, c. L.7, states:

Relief against re-entry or forfeiture

  1. (1) Where a lessor is proceeding by action or otherwise to enforce a right of re-entry or forfeiture, whether for non-payment of rent or for other cause, the lessee may, in the lessor’s action, if any, or if there is no such action pending, then in an action or application in the Superior Court of Justice brought by the lessee, apply to the court for relief, and the court may grant such relief as, having regard to the proceeding and conduct of the parties under section 19 and to all the other circumstances, the court thinks fit, and on such terms as to payment of rent, costs, expenses, damages, compensation, penalty, or otherwise, including the granting of an injunction to restrain any like breach in the future as the court considers just.

[25]           Subsection 7(1) of the Arbitration Act, S.O. 1991, c. 17, states:

If a party to an arbitration agreement commences a proceeding in respect of a matter to be submitted to arbitration under the agreement, the court in which the proceeding is commenced shall, on the motion of another party to the arbitration agreement, stay the proceeding.

[26]           The relevant paragraph of the settlement between the parties dated October 2, 2017 is as follows:

  1. Before 11:59pm on Monday October 16, 2017, the parties shall jointly appoint anarbitrator pursuant to the Arbitration Act, 1991 S.O. 1991, c.17 to determine:

–         …

–         The date by which the Landlord’s Work as contemplated by Schedule B of the Replacement Offer to Lease was substantially complete;

–         Whether either of the parties have suffered any damages as a result of the other party’s breach of the Replacement Offer to Lease, and if so, the quantum of those damages;

–         Whether either of the parties is entitled to any amounts for legal fees (including those associated with Court File No. 17-74036) and expenses as a result of a breach or breaches of the Replacement Offer to Lease, and if so, the quantum of those legal fees;

–         The costs of the arbitrator shall be borne equally by the parties, unless ordered otherwise by the arbitrator;

–         The decision of the arbitrator shall be final and binding, and not subject to appeal by either party; and

–         The parties shall instruct the arbitrator to issue a decision within 30 days of the hearing of the arbitration.

[27]           I must turn to a review of the case law.  Maverick Professional Services Inc. v. 592423 Ontario Inc. (2001), 2001 CanLII 8540 (ON CA), 147 O.A.C. 209 (C.A.), at paras. 4-9, and Purenergy Wellness Lofts Corporation v. Home Trust Company, 2018 ONSC 4723 (CanLII), at paras. 53-54, have determined that relief from forfeiture is not available if a lease expires or is terminated as a result of a right of the landlord to do so.

[28]           In addition, Maverick dealt with the issue of exercising the option to terminate a lease:

Unless the lease contains conditions restricting the circumstances in which the option may be exercised, the motive of the party exercising it is irrelevant.  The fact that exercise of the option causes hardship is no reason for restraining its exercise…Because the act of the tenant was not a breach of, or a default under, the lease, there is no basis for the court to be able to grant relief to the subtenant under s. 21, which requires a re-entry or a forfeiture (para. 9) .

[29]           In Goodlife Fitness Centres Inc. v. Rock Developments Inc., 2019 ONCA 58 (CanLII), the Court of Appeal for Ontario stated:

This court has repeatedly cautioned against looking to negotiations to interpret a contract.  The basic principles of commercial contract interpretation were summarized in Salah v. Timothy’s Coffees of the World Inc., 2010 ONCA 673 (CanLII), 268 O.A.C. 279. At para. 16, Winkler C.J.O. stated:

      When interpreting a contract, the court aims to determine the intentions of the parties in accordance with the language used in the written document and presumes that the parties have intended what they have said. The court construes the contract as a whole, in a manner that gives meaning to all of its terms, and avoids an interpretation that would render one or more of its terms ineffective. In interpreting the contract, the court must have regard to the objective evidence of the “factual matrix” or context underlying the negotiation of the contract, but not the subjective evidence of the intention of the parties (para. 15) [Emphasis in original].

Likewise, in The Canada Trust Company v. Browne, 2012 ONCA 862 (CanLII), 115 O.R. (3d) 287, Feldman J.A. said at para. 71:

      While the scope of the factual matrix is broad, it excludes evidence of negotiations, except perhaps in the most general terms … Ultimately, the words of the agreement are paramount [Emphasis added].

Brown J.A. cited this in his decision in Weyerhaeuser Company Limited v. Ontario (Attorney General), 2017 ONCA 1007 (CanLII), 77 B.L.R. (5th) 175, at para. 112:

      Canadian common law generally treats evidence of the parties’ specific negotiations as inadmissible for purposes of interpreting a contract … evidence of the factual matrix cannot operate as a kind of alternate means by which an adjudicator constructs a narrative about what the parties must have discussed or intended in their negotiations. In other words, evidence of the factual matrix cannot be used to do indirectly that which the principles of contract interpretation do not permit doing directly. [Emphasis in original omitted; citations omitted.]

 

 

1) Is 123 entitled to relief from forfeiture in relation to Katimavik’s Notice to Quit and an Order barring Katimavik from taking possession of Suites 201 and 302 or is Katimavik entitled to require 123 to completely vacate the suites?

[30]           The evidence supports that Katimavik and 123 agreed that the latter would pay two years of rent at a rate of $6.00 per square foot per year as set out in Sections 1 and 20 of the Offer to Lease for 123’s occupation of Suite 1000 and Suites 201 and 302.

[31]           As in Maverick and Purenergy, 123’s conduct did not involve any breach of or default under the lease that would make some form of relief relevant.  Both parties acted in accordance with the provisions of the lease.  The lease provided Katimavik the right to take the action that it did.  In this case, Katimavik delivered a Notice to Quit based on its right to do so contained in Section 11.03 of the Lease and required 123 to deliver vacant possession of the Suites 201 and 302.

[32]           Based on the evidence, I find that Section 1 of the Offer to Lease provides that the initial term of the Offer was for the period of time commencing on the date on which Katimavik’s work was substantially completed and the termination date was the date of two years less one day following the satisfaction or waiver of the Landlord’s Condition.  123 submits that the premises was not suitable for occupancy prior to March 15, 2018.  However, counsel for 123 sent a letter to counsel for Katimavik on October 31, 2017, in which 123 agreed that the commencement date was September 1, 2017.

[33]           Pursuant to Section 22 of the Offer to Lease, Katimavik gave 123 notice of the satisfaction of the Landlord’s Condition on November 17, 2016.  Consequently, the termination date was November 16, 2018 and the tenancy expired on that date.

[34]           I also find that pursuant to Section 5 of the Offer to Lease, the provisions of the Standard Lease apply regarding 123’s occupancy of the suites irrespective of whether or not the Standard Lease was signed.  Section 5 states:  “If the lease has not been signed prior to the Commencement Date, all of the terms of the Standard Lease shall nevertheless apply”.  Pursuant to Section 11.03 of the Standard Lease, if 123 remains in occupancy, which it did, it is a tenant paying month-to-month at a monthly net rent payable in advance on the first day of each month equal to twice the monthly amount of net rent payable during the last month of the term.

[35]           Lastly, I find that Katimavik provided a proper Notice to Quit to 123 on January 10, 2019 providing it with notice to “deliver up vacant possession of the Premises at 11:59 p.m. on the 16th day of February, 2019”.

[36]           In conclusion, I find that 123 is not entitled to relief from forfeiture in relation to Katimavik’s Notice to Quit.  123 must completely vacate Suites 201 and 302.

2) Is 123 entitled to an Order mandating the parties to attend arbitration?

[37]           The wording of the settlement between the parties does not refer to the termination date as forming part of the arbitration.  In fact, the settlement relates to the matter that was before Hackland J.  Phillips J’s Order clearly stated that the issues related only to Suite 1000.  The matter before me relates to the termination date.  It is clear from the language of the settlement that the purpose of the arbitration was to determine the commencement date as per the Offer to Lease and if either party had suffered damages as a result of any related breaches.

[38]           123 argues that Katimavik is now attempting to avoid its obligations as per the negotiated settlement by ignoring its agreement to proceed to arbitration.  This settlement involved two parties.  It is easy to blame one party after the fact.  However, it remains that 123 did not try to exercise its right to proceed to arbitration until a significant amount of time had passed since the expiration date of the timeline provision.  Instead, the evidence supports that the parties did not jointly appoint an arbitrator before 11:59pm on Monday October 16, 2017 as was contemplated by the settlement.   By their actions, the parties abandoned the possibility of arbitration.

[39]           Consequently, an Order is not required mandating the parties to attend arbitration.

3) Is 123 entitled to an abatement of rent, return of rent or adjustment of rent?

[40]           The settlement provided that the arbitration would deal with “Whether either of the parties have suffered any damages as a result of the other party’s breach of the Replacement Offer to Lease, and if so, the quantum of those damages”.

[41]           Since I have found that the parties abandoned the possibility of proceeding to arbitration on this issue which was specifically provided for in the settlement, I decline to provide an Order that 123 is entitled to either an abatement of rent, return of rent or adjustment of rent.

Conclusion

[42]           Based on the reasons above, I dismiss 123’s Application.

Costs

[43]           Katimavik is the successful party in this matter.  If the parties cannot agree on the issue of costs, they may provide my office with brief written submissions on costs not exceeding three pages, exclusive of the Bill of Costs.  Katimavik will have ten days from the date of these Reasons for Decision to provide its submissions and 123 will have ten days thereafter to do the same. Katimavik will be allowed a brief reply if deemed necessary, of no more than one page, which shall be provided within the next five days.

                                               

Justice M. O’Bonsawin

108 Media Corporation v. BGOI Films Inc., 2019 ONSC 2211

CITATION: 108 Media Corporation v. BGOI Films Inc., 2019 ONSC 2211

                                                                                                  COURT FILE NO.: CV-18-589787

DATE: 20190416

ONTARIO

SUPERIOR COURT OF JUSTICE

108 MEDIA CORPORATION 
(Applicant)

V

BGOI FILMS INC.
(Respondent)

 

M. D. FAIETA J.

REASONS FOR DECISION ON COSTS

 

INTRODUCTION

[1]               For reasons dated March 4, 2019, I dismissed the Applicant’s application for leave to appeal from an arbitrator’s award that requires the Applicant to pay $130,319.41 to the Respondent and granted the Respondent’s application to recognize and enforce an arbitrator’s award.  See 108 Media Corporation v. BGOI Films Inc., 2019 ONSC 880 (CanLII).

[2]               The Respondent, having been successful in both proceedings, seeks costs of $43,588.92 from the Applicant on a full indemnity basis, or alternatively, costs of $35,564.14 on a substantial indemnity basis.

[3]               The Applicant submits that the Respondent is entitled to partial indemnity costs of $9,229.42.

[4]                For reasons described below, I order that 108 Media Corporation pay costs of $30,000.00, inclusive of disbursements and HST, to BGOI Films Inc.

ANALYSIS

[5]               The fixing of costs is governed by s. 131 of the Courts of Justice Act, R.S.O. 1990, c. C.43 and the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.  Rule 57.01 is the primary rule governing costs.  It enumerates various factors to consider when exercising discretion to award costs.  Also relevant is Rule 1.04(1.1), which provides that “[i]n applying these rules, the court shall make orders and give directions that are proportionate to the importance and complexity of the issues, and to the amount involved, in the proceeding.”

[6]               The ultimate question is whether an award of costs reflects “an amount that is fair and reasonable for the unsuccessful party to pay in the particular proceeding, rather than an amount fixed by the actual costs incurred by the successful litigant”: Boucher v. Public Accountants Council (Ontario) (2004), 2004 CanLII 14579 (ON CA), 71 O.R. (3d) 291 (C.A.), para. 26.

Should Elevated Costs be Awarded?

[7]               The most significant issue raised on this costs application is whether BGOI is entitled to elevated costs.  Typically, costs are awarded on a partial indemnity scale.  Elevated costs are warranted only when the losing party has engaged in behavior worthy of sanction or when Rule 49.10 is engaged as a result of an offer to settle that was not accepted by the losing party: Sarnia (City) v. River City Vineyard Christian Fellowship of Sarnia (Trustees of), 2015 ONCA 732(CanLII), paras. 12-13.  Elevated costs are awarded on a substantial indemnity basis, rather than on a full indemnity basis, unless the conduct of the losing party is especially egregious: Net Connect Installation Inc. v. Mobile Zone Inc., 2017 ONCA 766 (CanLII), para. 8.

[8]               The Respondent submitted an offer to settle dated February 16, 2018 that made two alternate offers to the Applicant.  Offer #2 provided that:

BGOI offers to settle 108 Media’s Leave Application and BGOI’s Enforcement Application only on the following terms:

  1.   108 Media shall discontinue its Leave Application;
  2.   108 Media shall consent to an order recognizing and enforcing the Award;
  3.   108 Media shall pay BGOI’s costs of the Leave Application and the Enforcement Application on a partial indemnity basis, up to the date of the acceptance of this offer; and
  4.   This offer remains open until 5 minutes following the commencement of the hearing of the Leave Application or the hearing of the Enforcement Cross-Application, whichever is earlier, unless earlier withdrawn in writing.

[9]               The Applicant submits that “Rule 49.10 entitles BGOI to costs on a partial indemnity scale to the date of its offer and a substantial indemnity scale thereafter”.  Despite this admission, it is clear that, on its face, Rule 49.10 applies to actions rather than applications given its reference to plaintiffs and defendants rather than applicants and respondents.  Nevertheless, the failure to accept a reasonable offer to settle is a relevant consideration in fixing costs and, where warranted, may be the basis for finding that an elevated costs award is justified.

[10]           Counsel for the Applicant, Mr. Diskin, delivered the following proposal by letter dated December 14, 2018:

We write offering to settle the dispute between the parties in the above-captioned matters, subject to the conclusion of a formal settlement agreement.

Our client is pprepared to acquire BGOI Films Inc.’s rights in and to Pinup Dolls on Ice (the “Film”) for $50,000 CAD, payable in the installments, in consideration for a full and final release.  Please let us know if you or your client would like to discuss these terms in more detail.  To clarify, this is not an offer capable of acceptance.

If the parties are unable to reach a resolution, we are instructed to proceed as follows:

  1.   Continue with the applications;
  2.   If unsuccessful in the applications, appeal the decision(s) of the Court;
  3.   If unsuccessful on an appeal, proceed with the arbitration commenced in May 2018; and
  4.   If unsuccessful in the second arbitration, proceed with Steps 1 and 2 above in connection with that proceeding.

With the potential for protracted litigation and the associated risk and cost of same, we believe it is in the best interests of the parties to settle their dispute on the terms as set out above. …

[11]           The Applicant explains the above letter as follows:

If BGOI refused to engage in meaningful settlement discussions, 108 Media preserved its legal rights, which is no way improper, vexatious or unnecessary.

[12]           The Applicant’s letter goes far beyond preserving its legal rights.  I agree with the Respondent’s view that the letter reveals the Applicant’s dubious litigation strategy, namely, to prolong litigation as long as possible, regardless of its merits.

[13]           Considering all of the circumstances described above, I find that the Applicant’s conduct is worthy of sanction and that an award of substantial indemnity costs is warranted.

What Amount of Costs could the Applicant Reasonably Expect to Pay ?

[14]           The Respondent delivered a Bill of Costs for each of the two applications claiming, on a full indemnity basis, costs of $43,588.92 comprised of:

  •     $21,513.04 in respect of its application to enforce the arbitrator’s award;
  •     $22,075.88 in respect of responding to the application for leave to appeal the arbitrator’s award.

[15]           The Applicant makes the specious argument that it expected to pay costs in the same proportion as awarded in another case where the court refused to grant leave to appeal from  arbitral awards that totaled more than $100 million and granted costs of $94,212.61 in respect of the leave applications.

[16]           A much better measure of what the Applicant could have expected to pay for costs in this case would have been the bill that its lawyers delivered to them in respect of these two applications.   There is no requirement for a losing party to file a bill of cost however it may be considered by the court in assessing the reasonable expectations of the losing party: Smith Estate v. Rotstein, 2011 ONCA 491 (CanLII), para. 50.  Given its failure to deliver its own bill of costs, the Applicant’s challenge regarding the amount of costs claimed by the Respondent is, as former Chief Justice Winkler stated, “no more than an attack in the air”: Risorto v. State Farm Mutual Automobile Insurance Co., (2003), 2003 CanLII 43566 (ON SC), 64 O.R. (3d) 135, para. 10.

The Amount Claimed and the Amount Recovered

[17]           The Respondent was entirely successful.  Its’ application to enforce the arbitral award, which amongst other things, requires the Applicant to pay the sum of $130,319.41 to the Respodnent was granted.

The Complexity of the Proceeding

[18]           I reject the Applicant’s submission that these were relatively simple applications.  I find that the leave application was of moderate complexity.

The Conduct of any Party that Tended to Shorten or Lengthen Unnecessarily the Duration of the Proceeding

[19]            I reject the Applicant’s submission that the Respondent’s enforcement application was unnecessary.  However, I agree that the Respondent unnecessarily sought to have the enforcement application heard by a Judge on the Commercial List (which was refused) when the leave application was to be heard by a Judge on the Civil List.

CONCLUSIONS

[20]           I find that it is fair and reasonable for 108 Media Corporation to pay costs of $30,000.00, inclusive of disbursements and HST, to BGOI Films Inc, in respect of both applications, within 30 days.

Mr. Justice M. D. Faieta

108 Media Corporation v. BGOI Films Inc., 2019 ONSC 880

CITATION: 108 Media Corporation v. BGOI Films Inc., 2019 ONSC 880

                                                                                                  COURT FILE NO.: CV-18-589787

DATE: 20190205

ONTARIO

SUPERIOR COURT OF JUSTICE

108 MEDIA CORPORATION
(Applicant)

V

BGOI FILMS INC.
(Respondent)

 

M. D. FAIETA J.

REASONS FOR DECISION

 

INTRODUCTION

[1]               The Applicant, 108 Media Corporation, is a film and television distributor.  The Respondent, BGOI Films Inc., produces low-budget horror films.  BGOI produced a horror film “Pinup Dolls on Ice” (the “Picture”).  On July 15, 2015, the parties entered a Sales Agency Agreement (“SAA”) which provided that 108 would act as BGOI’s sales agent for the Picture outside of North America (the “Territory”) for five years.  Under the SAA, 108 promised BGOI a minimum guarantee of USD $55,000 upon the initial release of the Picture in the Territory payable within six months of the Movie’s initial release.  The SAA provides for arbitration of any dispute.

[2]               On September 8, 2015 the Movie was released in the Territory by Donau Films.   108 failed to pay BGOI the minimum guarantee by March 16, 2016.  BGOI terminated the SAA on June 1, 2016.

[3]               BGOI delivered a Notice of Request to Arbitrate under the Arbitration Act, 1991, S.O. 1991, c. 17, to enforce payment of the minimum guarantee.  An arbitration was held in November, 2017 and the Award was released on December 11, 2017.   The Arbitrator ruled that BGOI was entitled to the payment of the minimum guarantee.

[4]               The Arbitrator’s Award, at paras. 11-12, described the dispute as follows:

BGOI claims 108 Media breached its obligations relating to the marketing and distribution of the Picture and failed to pay money owing under the SAA, including a minimum guarantee of $55,000 USD.  BGOI also claims that it suffered damages because 108 Media’s actions made it impossible to distribute the Picture or derive any further revenue from it.

108 Media claims BGOI failed to deliver the Picture as required by the SAA and says it is not liable to BGOI for any losses it may have suffered as a result.  108 Media also seeks to set off its distribution expenses against any amounts otherwise payable to BGOI.

[5]               The Arbitrator found that BGOI failed to deliver the full English soundtrack of the Picture to 108 within 30 days of the date of execution of the SAA as required by Section 2 of the SAA (which would have been approximately August 15, 2015).  On the other hand, the Arbitrator found that 108 failed had to perform a number of “fundamental obligations” in connection with the marketing and distribution of the Picture.  Amongst other things, 108 failed to inform BGOI that it had signed a deal memo with Donau in February 2015 (even though 108 did not have a firm sales agency agreement with BGOI at that time), failed to pay BGOI its share of the initial license fee paid by Donau and failed to provide financial reports relating to its agreement with Donau.

[6]               The Arbitrator found, at para. 64, that 108 Media failed to perform its obligations under the SAA and that those breaches were not excused or justified by the failure of BGOI to deliver the Picture.  At para. 62, the Arbitrator stated:

108 Media argued that any failure to perform its obligations were caused by BGOI’s failure to deliver the Picture. I do not accept this argument.  Many of 108 Media’s breaches occurrred before BGOI was required to deliver the Picture.  BGOI’s ultimate reluctance to deliver the full English soundtrack was directly caused by 108 Media’s initial failure to disclose the Donau deal.

[7]               The Arbitrator also rejected the submission that BGOI was not entitled to payment of the minimum guarantee because BGOI had failed to deliver the Picture.  At paras. 71-73, he stated:

108 Media also argued that BGOI acted in bad faith in delivering the picture to Donau, with the intent that the release by Donau would trigger the guarantee, and at the same time refusing to deliver the full soundtracks and other materials to 108 Media, thereby frustrating any further exploitation of the Picture by 108 Media.

Ms. Mira’s evidence in this regard was that BGOI would have delivered the Digital Master to 108 Media at the beginning of August, if 108 Media had not requested that they send it directly to Donau instead.  She also said that BGOI was willing to deliver all necessary materials to any international distributors who entered into agreements for the Picture and would have delivered them to 108 Media, if it had been properly peforming its obligations under the SAA.

I have found that both parties failed to perform their obligations under the SAA. Nevertheless, the Picture was released by Donau, triggering the minimum guarantee of $55,000 USD under the SAA.  …

[8]               On January 10, 2018, 108 commenced this application for leave to appeal the Award.  In its Amended Notice of Application, 108 sought leave to appeal on three grounds which it characterizes as questions of law:

(1)   The arbitrator erred in law by finding that BGOI was entitled to fundamentally breach the SAA while simultaneously finding that BGOI was entitled to the benefits of the SAA months after 108 Media accepted the repudiation.

(2)   The arbitrator also erred in law by enforcing a clause, namely the payment of the Minimum Guarantee, in an agreement that fails for lack of consideration – the sole consideration provided by BGOI for entering into the SAA is the delivery of the Picture, which delivery never occurred.

(3)   The arbitrator also erred in law by allowing BGOI to benefit from a contract that it fundamentally breached, contrary to the principle that a party should not benefit from its own wrongdoing, which the arbitrator did not consider.

[9]               At the hearing of this application, 108 abandoned the second ground for leave to appeal.

[10]           On March 15, 2018, BGOI issued a notice of application that asks the court for a Judgment that recognizes and enforces the Award.

ANALYSIS

ISSUE #1: SHOULD LEAVE TO APPEAL BE GRANTED?

[11]           In support of 108’s request for leave to appeal the Award, the following matters were addressed:

  •     Does the SAA deal with “appeals on questions of law”?
  •     Does either of the two grounds of appeal advanced by 108 amount to a “question of law”?
  •     Does the importance to the parties of the matters at stake justify an appeal?
  •     Will the decision of the question of law at issue significantly affect the rights of the parties?

Does the arbitration agreement “deal with appeals on questions of law”?

[12]           An appeal from an arbitration award is governed by section 45 of the Act:

Appeal on question of law

45 (1)  If the arbitration agreement does not deal with appeals on questions of law, a party may appeal an award to the court on a question of law with leave, which the court shall grant only if it is satisfied that,

(a)        the importance to the parties of the matters at stake in the arbitration justifies an appeal; and

(b)        determination of the question of law at issue will significantly affect the rights of the parties.  1991, c. 17, s. 45 (1).

Idem

(2)  If the arbitration agreement so provides, a party may appeal an award to the court on a question of law.  1991, c. 17, s. 45 (2).

Appeal on question of fact or mixed fact and law

(3)  If the arbitration agreement so provides, a party may appeal an award to the court on a question of fact or on a question of mixed fact and law.  1991, c. 17, s. 45 (3).

Powers of court

(4)  The court may require the arbitral tribunal to explain any matter.  1991, c. 17, s. 45 (4).

Idem

(5)  The court may confirm, vary or set aside the award or may remit the award to the arbitral tribunal with the court’s opinion on the question of law, in the case of an appeal on a question of law, and give directions about the conduct of the arbitration.  1991, c. 17, s. 45 (5).

[13]           There is no dispute that the SAA does not provide for an appeal on a question of fact or on a question of mixed fact and law pursuant to s. 45(3) of the Act.

[14]           At issue in this case, is whether leave to appeal should be granted to 108 pursuant to s. 45(1) of the Act.

[15]           In addition, section 3 of the Act provides that the parties to an arbitration agreement may agree, expressly or by implication, to vary or exclude certain provisions of the Act, including s. 45 of the Act which provides that an application may be brought to set aside an award on certain limited grounds.

[16]           Reading s. 3 and s. 45(1) of the Act together, a statutory right of appeal on a question of law exists, subject to certain conditions, unless the parties by agreement, whether expressly or by implication, eliminate the right of appeal: Labourers’ International Union of North America, Local 183 v. Carpenters and Allied Workers Local 27 et al., 1997 CanLII 1429 (ON CA), [1997] O.J. No. 2649, paras. 13, 14 (C.A.); Denison Mines Ltd. v. Ontario Hydro, 2002 CanLII 20161 (ON CA), [2002] O.J. No. 91, para. 4 (C.A.).

[17]           Section 18.2 of the SAA states:

Should there be a disagreement or a dispute between the parties hereto with respect to this Agreement or the interpretation thereof, the same shall be referred to a single arbitrator, selected jointly by the parties, and the determination of such arbitrator shall be final and binding upon the parties hereto. [Emphasis added]

[18]           108 submits that leave to appeal on a question of law is permitted under s. 45(1) of the Act as the SAA “does not deal with appeals on questions of law” for the following reasons:

  •     First, the phrase “final and binding” does not preclude an appeal on a question of law;
  •     Second, 108’s principal, believed that an appeal on a question of law was available;
  •     Third, Procedural Order Number 1 reflects the parties’ intention to permit an appeal on a question of law.

[19]           In Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53 (CanLII), [2014] 2 S.C.R. 633, the Supreme Court of Canada stated a contract should be interpreted in a practical, common-sense manner applying the following principles:

  •     “The overriding concern is to determine “the intent of the parties and the scope of their understanding” [citations omitted]. To do so, a decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract. Consideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning. …” [para. 47]
  •     “Contractual interpretation involves issues of mixed fact and law as it is an exercise in which the principles of contractual interpretation are applied to the words of the written contract, considered in light of the factual matrix.” [para. 50]
  •     “While the surrounding circumstances will be considered in interpreting the terms of a contract, they must never be allowed to overwhelm the words of that agreement [citations omitted]. The goal of examining such evidence is to deepen a decision-maker’s understanding of the mutual and objective intentions of the parties as expressed in the words of the contract. The interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract [citations omitted]. While the surrounding circumstances are relied upon in the interpretive process, courts cannot use them to deviate from the text such that the court effectively creates a new agreement [citations omitted]. [para. 57]
  •     Surrounding circumstances “… should consist only of objective evidence of the background facts at the time of the execution of the contract [citations omitted], that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting.” [para. 58]  The surrounding circumstances may include the sophistication of the parties and the commercial context in which the contract was made. [para. 66]
  •     Surrounding circumstances does not include evidence of the subjective intentions of the parties. [para. 59]

“Final and binding”?

[20]           Unless the context indicates otherwise, it is generally accepted that where a legislative provision provides that an order is “final” there is no appeal from that order.  The phrase “final and binding” would have no meaning whatsoever if it did not exclude a right of appeal that had been given by statute: Yorkville North Development Ltd. v. North York, 1988 CanLII 4701 (ON CA), [1988] O.J. No. 410, paras. 7 & 8 (C.A.).

[21]           It is now well-established that an arbitration agreement which states that the parties agree to “final and binding” arbitration does not necessarily preclude judicial review, but it does reflect an intention to exclude a right of appeal: Labourers’ International Union of North America, Local 183 v. Carpenters and Allied Workers Local 27 et al., para. 22;  Kucyi v. Kucyi, 2005 CanLII 48539 (ON SCDC), [2005] O.J. No. 5626 (Div. Ct.) para.14; Weisz v. Four Seasons Holdings Inc.,2010 ONSC 4456 (CanLII), paras. 22-25, 37-39; Nasjjec Investments Ltd. v. Nuyork Investments Ltd., 2015 ONSC 4978 (CanLII), paras. 30-35;

108 Did Not Intend to Contract Out of a Right of Appeal

[22]           Abhi Rastogi is the Chief Executive Officer of 108.

[23]           Mr. Rastogi states that the SAA was extensively negotiated.

[24]           He states that 108 and BGOI negotiated the SAA, and exchanged redline drafts, for more than six months.  In February, 2015 108 proposed that the parties use a form of agreement that 108 had obtained from the Independent Film and Television Alliance.  It contained the following arbitration provision:

16.12 Arbitration: Any dispute arising under this Agreement, including with respect to the right or obligation that survives termination or cancellation of this Agreement will be administered and resolved by Final and binding arbitration under the IFTA Rules for International Arbitration in effect as of the Effective Date of this Agreement (“IFTA Rules”).  Each Party waives any right to adjudicate any dispute in any other court or forum, except that a Party may seek interim relief before the start of arbitration as allowed by the IFTA Rules … [Emphasis added]

[25]           Mr. Rastogi states that the BGOI had broad concerns regarding the use of the standard IFTA sales agreement. As a result, Mr. Rastogi delivered a new draft contract that is very similar to the form of the SAA.  The draft sent by Mr. Rastogi contained Section 18.2 of the SAA including the “final and binding” clause.   He states that neither party commented on the “final and binding”  clauses found in either draft agreement.

[26]           Mr. Rastogi states that based on the wording of Section 18.2 of the SAA “108 understood that it retained a limited right of appeal following the arbitration.”  On cross-examination, Mr. Rastogi acknowledged that Section 18.2 did not expressly preserve a right of appeal, “… it did not say I didn’t have the right of appeal”.

[27]           Regardless of the sincerity of his views of the meaning of the phrase “final and binding”, Mr. Rastogi’s subjective view regarding the meaning of that phrase is irrelevant for purposes of interpreting its meaning.  There is no evidence that BGOI and 108 shared the view that Section 18.2 of the SAA preserved a right of appeal.   Accordingly, the surrounding circumstances advanced by 108 do not alter the ordinary and grammatical meaning of the phrase “final and binding” as found in Section 18.2.

Procedural Order No. 1

[28]           Prior to the hearing of the arbitration the parties consented to Procedural Order No. 1, dated May 2, 2017.  Section 6 of Procedural Order No. 1 states:

SECTION 6 – APPEALS

6.1 The Award of the Arbitrator shall be final and binding on the Parties.

6.2 The Award may only be set aside in accordance with the provisions of the Arbitrations Act. [Emphasis added]

[29]           108 submits that Section 6.2 of the Procedural Order No. 1 allows the parties to set aside the Award in accordance with Act which it submits refers to the appeal provisions of s. 45(1) of the Act.  There are two problems with this submission.  First, an arbitral award may be “set aside” under sections 45 and 46.   The parties cannot contract out of the right to apply to set aside an award under section 46.  Given that Section 6.2 may solely refer to applications under section 46 of the Act, there is no compelling reason to interpret Section 6.2 in the manner suggested by 108.   In my view, Section 6.2 need not be taken as referring to anything more that an application under section 46 of the Act.  Second, evidence of the subsequent conduct of a parties is admissible in limited circumstances where: (1) the contract remains ambiguous after considering its text and its factual matrix; (2) will be accorded greater weight if the subsequent conduct are the acts of both parties, are consistent over time and are acts of individuals rather than agents of corporations; (3) the subsequent conduct is consistent with only one of the two alternative interpretations that genereated the ambiguity triggering its admissibility: Shewchuk v. Blackmont Capital Inc., 2016 ONCA 912 (CanLII), 35 C.C.E.L. (4th) 1, at para. 46, 53, 54, 56.

[30]           In this case the subsequent conduct of the parties is of no assistance in interpreting section 18.2 of the SAA as I have found that there is no ambiguity in respect of the phrase “final and binding”.  Further, section 6.2 of Procedural Order No. 1 contains its own ambiguity (as just described) and as a result provides no insight into the meaning of Section 18.2 of the SAA.

[31]           Although, I have concluded that there is no right to seek leave to appeal on a question of law under the SAA, I will briefly turn to one further matter raised by108.

ISSUE #2: DO EITHER OF THE TWO GROUNDS OF APPEAL ADVANCED BY 108 AMOUNT TO A QUESTION OF LAW?

[32]           The distinction between a question of law, a question of fact and a question of mixed fact and law was summarized by Justice Perell in DesRochers v. Fis, 2013 ONSC 6467 (CanLII), at para. 43, as follows:

Questions of law concern questions about what is the correct legal test; questions of fact involve questions about what actually took place between the parties; and, questions of mixed fact and law are questions about whether the facts satisfy the legal tests. Canada (Director of Investigation and Research, Competition Act) v. Southam Inc., 1997 CanLII 385 (SCC), [1997] 1 S.C.R. 748, para. 35; Dr. K. Ansarian Dentistry Professional Corp. v. Dr. A. Mohajeri Dentistry Professional Corp., 2013 ONSC 2662 (CanLII) at para. 21.

[33]           In Dr. K. Ansarian Dentistry Professional Corp. v. Dr. A. Mohajeri Dentistry Professional Corp., Justice D.M. Brown, as he then was, found at para. 35, that “… any question of repudiation reflected a disagreement by Ansarian about how the Arbitrator had applied the legal test to the facts. That is a question of mixed fact and law.”

[34]           It is my view that the two questions advanced by 108 are not questions of law.  The two questions reflect a dispute over a very particular set of circumstances rather than a dispute over a general proposition that can be expected to have an impact beyond the parties and thus  qualify as a question of law. In other words, the questions for which leave is sought provide a new forum for parties to continue their private litigation rather than ensuring consistency in the law: Sattva, para. 51 .

ISSUE #3: SHOULD THE COURT EXERCISE ITS DISCRETION UNDER SUBSECTION 50(3) OF THE ACT TO RECOGNIZE AND ENFORCE THE AWARD?

[35]           Under s. 50(3) of the Act, this court is required to give judgment enforcing an award made in Ontario unless one or more of the conditions described in that subection are satisfied. Given that 108’s application for leave to appeal has been dismissed, and given that none of the other conditions ins. 50(3) of the Act are engaged, I grant judgment enforcing the Award.

CONCLUSIONS

[36]           108’s application is dismissed.  BGOI’s application is granted.

[37]           I encourage the parties to make best efforts to resolve the issue of costs failing which BGOI may deliver its costs submissions by February 14, 2019 and 108 shall deliver its costs submissions by February 21, 2019.  Maximum length of these submissions is six pages excluding any settlement offers and a costs outline.  BGOI may deliver responding submissions by February 28, 2019.  Maximum length of these submission is three pages.

Mr. Justice M. Faieta

Equitas Insurance Ltd v Municipal Mutual Insurance Ltd [2019] EWCA Civ 718 (17 April 2019)

Neutral Citation Number: [2019] EWCA Civ 718
Case No: A4/2017/1278

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM AN ARBITRATION AWARD MADE BY
LORD JUSTICE FLAUX
SITTING AS A JUDGE-ARBITRATOR
PURSUANT TO SECTION 93 OF THE ARBITRATION ACT 1996

Royal Courts of Justice
Strand, London, WC2A 2LL
17/04/2019

B e f o r e :

LORD JUSTICE PATTEN
LORD JUSTICE LEGGATT
and
LORD JUSTICE MALES 

____________________

Between:

EQUITAS INSURANCE LIMITED
Appellant
– and –
 
MUNICIPAL MUTUAL INSURANCE LIMITED
Respondent

____________________

Colin Edelman QC and Keir Howie (instructed by Norton Rose Fulbright LLP) for the Appellant
Alistair Schaff QC and Tim Kenefick (instructed by Cooley (UK) LLP) for the Respondent

Hearing dates : 18th to 20th March 2019 
____________________

HTML VERSION OF JUDGMENT APPROVED
____________________

Crown Copyright ©

 

Lord Justice Males :

Introduction

    1. In 2002 the House of Lords created a special rule of causation in the law of tort to enable claimants suffering from mesothelioma as a result of exposure to asbestos to recover damages even though it was not possible to prove on the balance of probabilities which of two or more employers was responsible for the exposure which caused the claimant’s disease: Fairchild v Glenhaven Funeral Services Ltd [2002] UKHL 22, [2003] 1 AC 32. This decision together with the subsequent intervention of Parliament in the Compensation Act 2006 gave rise to what has become known as “the Fairchild enclave”, an area of law within which conventional principles have had to be adjusted to take account of the implications of this decision and to ensure that the anomalies which it has thrown up do not result in injustice – or, as Lord Sumption, taking a less sanguine view, was to describe the process, in which the law has moved from “each one-off expedient to the next”, generating “knock-on consequences which we are not in a position to predict or take into account”: see his dissenting judgment in International Energy Group Ltd v Zurich Insurance Plc UK Branch [2015] UKSC 33, [2016] AC 509 (“IEG“) at [114].
    2. The initial challenge posed by Fairchild was to determine whether and how liability should be apportioned between employers when there could be many employers over a period of years, any one of whom might have been responsible for the critical exposure. The solution eventually adopted, that each of the employers was liable in full, no matter how short the period of exposure for which it was responsible, created a different problem. If an employer had a series of annual Employers’ Liability (“EL”) policies, perhaps with different insurers, and perhaps some years when there was no insurance in place, which policy responded to the loss and how should the loss be apportioned between the various insurers on risk or (in cases where there was a period during which an employer had no insurance) between the insurers and the employer?
    3. The present appeal raises similar questions, but in the context of reinsurance. They fall to be decided within the Fairchild enclave and potentially require the adaptation of conventional principles of causation, double insurance, self-insurance and (perhaps) subrogation in order to achieve a just solution to the problems raised as between the EL insurer which has paid a claim without allocating it to any particular policy year and its reinsurers.
    4. These novel and difficult questions arise on an appeal pursuant to section 69 of the Arbitration Act 1996 from an award made by Flaux LJ sitting as a judge-arbitrator in accordance with section 93 of the Act. Leave to appeal was given by a previous decision of this court on the basis that they are questions of general public importance ([2018] EWCA Civ 991). I will come in due course to their precise formulation, but in broad terms the question is whether an insurer which settles a claim for liability for mesothelioma arising under EL insurance policies which span several years of exposure to asbestos can claim an indemnity for its full loss under whichever annual reinsurance within this period it chooses in order to maximise its reinsurance recovery, or whether it is limited to claiming under each annual reinsurance policy a pro rata share of the settlement sum; and, if the former, what rights of contribution and recoupment are available to the reinsurer(s) against which the claim is made.
    5. It is apparent that the decision in Fairchild itself and the subsequent developments within the Fairchild enclave have been heavily driven by the policy that victims of mesothelioma should be fully compensated, without having to make multiple claims and without bearing the risk that one or more of the potential defendants is insolvent. The position which the law has reached so far is that any employer who has exposed a victim to asbestos in breach of duty, for however short a period, is liable in full to a victim of mesothelioma, while any EL insurer of such an employer is liable in full to indemnify the employer, again regardless of the period for which it has provided insurance and received premium. Provided, therefore, that there is at least one solvent employer or solvent EL insurer who can be identified as having provided cover at some time during the period of wrongful exposure, the victim will have a remedy against a defendant who is good for the money.
    6. This policy driven outcome has resulted in some significant anomalies when judged by reference to fundamental principles of tort and liability insurance law. This has been regarded as necessary and acceptable in order to ensure that victims of mesothelioma are fully compensated. So far, the law has devised novel principles and solutions within the Fairchild enclave to accommodate these anomalies. Viewed broadly, the issue in the present case is whether it can now be said, at the reinsurance level, that the policy of ensuring compensation to victims has successfully worked itself out so that, as between reinsured and reinsurer, the law can return in a principled way to a more orthodox approach.

The facts

    1. I begin by summarising the facts found by the judge-arbitrator.
    2. The respondent, Municipal Mutual Insurance Ltd (“MMI”), was established in 1903 as a mutual insurance company providing insurance, including EL insurance, to local authorities and other public bodies. During the period between 1 January 1950 and 31 December 1981 MMI provided EL policies to numerous insured entities. Although the wording varied in immaterial respects over the years, its policies provided cover in the event of the insured employer’s liability for an employee sustaining bodily injury or disease arising out of or in the course of his employment. Each policy was an annual policy. It appears that the cover provided by MMI was without limit and without any deductible.
    3. MMI reinsured its liability under these policies with Lloyd’s syndicates whose liabilities have since been transferred to the appellant (“Equitas”). These were annual excess of loss policies, although the retention varied. In the early years the retention was only £1,000 each and every accident, but it increased over the years and eventually by 1981 the retention was £150,000. There were various layers of reinsurance with Lloyd’s syndicates and in some cases with other reinsurers. One higher level reinsurer, for example, was Mercantile & General Reinsurance Company Ltd (“M & G”), but that company ceased to provide cover in 1969 and, in 2005, entered into a Solvent Scheme of Arrangement.
    4. The layers also changed over time. In 1950 the first layer was £50,000 excess of £1000, while by 1981 it was £100,000 excess of £150,000. After 1974 Lloyd’s did not participate in the first layer of the programme, but only in higher layers. Other reinsurers also participated on some layers in later years.
    5. The wording of the reinsurance provided by the Lloyd’s syndicates varied from time to time, but not in material respects for present purposes. Taking the figures from the earlier policies, the reinsurers agreed to pay MMI:

“the excess of loss of £1,000 … up to but not exceeding £51,000 … ultimate net loss on account of each and every accident but unlimited as to the number of accidents during the period of this Agreement which the Company may be called to pay under any one or more of their policies which may be involved in any one accident. Underwriters’ liability hereon being limited to £50,000 … ultimate net loss on account of each and every accident”.

    1. The term “ultimate net loss” (or “UNL”) was defined to mean “the sum actually paid by the Company in settlement of their liability …”. It is common ground that this does not refer to actual payment by MMI but to the sum which was payable by it when its liability was finally ascertained either by judgment or agreement: Charter Reinsurance Co Ltd v Fagan [1997] AC 313.
    2. The reinsurance policies provided also (in a clause not set out in the award but which we were shown without objection) that:

“The Liability of the Reinsurers hereon shall follow the liability of the Company to their respective Policyholders and the Reinsurers shall not be entitled to object to any of the terms and conditions either general or special of any of the original Policies.”

    1. MMI’s employer insureds have faced a large number of claims from employees who were exposed to asbestos during their periods of employment and who have contracted mesothelioma. As a result of the Compensation Act 2006, an insured employer who has tortiously exposed an employee to asbestos is liable in respect of the whole of the damage caused to the victim by the disease irrespective of whether the victim was also exposed to asbestos by another employer. So far as the employee claimant is concerned, there is no need to prove which employer caused the critical exposure. Moreover, it is unnecessary and irrelevant for the employee, in a case where the employment extended over more than one year, to identify the year in which the critical exposure occurred.
    2. In handling and paying claims by its insureds, MMI did not need to wrestle with these questions either and did not do so, despite the fact that its policies were written on an annual basis. Provided that MMI provided cover for some of the period of the alleged exposure and the underlying claim could be proved, each MMI policy providing such cover was 100% liable for the claim. MMI made no attempt to apportion claims to individual policies or periods. In cases where it was on risk for more than one policy year, the claim was not settled with reference to any particular policy year and there was no apportionment between particular policies or years. As the judge-arbitrator put it at [33] of his award:

“… the amount being claimed against MMI by the insured and for which MMI was liable, was always treated by MMI for all purposes as a claim for one amount under all the responding MMI policies without any apportionment to individual policies or periods. There was no reason for such apportionment, on the basis that each policy was liable in full.”

    1. Thus, where the insured was the only employer to have exposed the underlying claimant to asbestos and was insured by MMI for the whole period of such exposure (so that there was only one employer and one insurer involved), MMI simply paid the whole claim. The judge-arbitrator found that it did so without regard to the precise start or finish date of the exposure in question, although it does not appear that there was anything to prevent it from ascertaining these dates if it had wished to do so. This was the position in 66 of the 178 claims with which the arbitration was concerned.
    2. If other employers had exposed the underlying claimant to asbestos or if there were other insurers who had issued relevant policies, MMI would seek to obtain a contribution from them or (if there were periods when the employer had not taken out insurance) from its insured, generally by reference to time on risk, that is to say the proportion which the self-insured employer’s or other insurer’s time on risk bore to the whole period of culpable exposure. This was in accordance with Guidelines issued by the Association of British Insurers in 2003 following the decision in Fairchild. Such a contribution was sometimes but not always achieved.
    3. Initially MMI presented claims to Equitas under its reinsurances on the basis of a time on risk allocation, so that each loss was divided pro rata between the years of reinsurance in which each employee claimant was exposed to asbestos. That is the method for which Equitas contends.
    4. Mr Alistair Schaff QC for MMI pointed out that in the cases where the inwards insurance claims had been settled without regard to the precise start or finish date of the exposure period, a precise time on risk allocation could not have been achieved. For example, if the exposure period began and ended part way through the policy year in question as would generally be the case, but the precise dates were not known, it would be impossible to say what the period of exposure was. Unless it happened to have begun at the beginning of January and ended at the end of December, it would be inaccurate to count the full year and impossible to say how much of the year should be counted. No doubt that is true, but in practice it does not seem to have troubled the parties and the judge-arbitrator found as a fact that claims had been presented on the basis of a time on risk allocation.
    5. However, a time came when MMI changed its method of presentation so that it presented the whole claim to one year of reinsurance. It did so on the basis that its inwards claims had been settled without apportionment to particular years or policies and that, because each insurance policy was liable in full, so too each reinsurance policy was liable in full and it was entitled to present its reinsurance claim to any policy year of its choice in which the underlying claimant had been exposed by its insured to asbestos. This has been described as “spiking”.
    6. In practice MMI would claim either against the reinsurance in force in the first year in which it was exposed to an inwards claim (which happened in all but 33 of the 178 claims with which the arbitration was concerned) or (if that would not provide a full recovery) against the reinsurance in force in the year which would give MMI the fullest recovery. That year was often 1969, the year after M & G ceased to participate in its reinsurance programme. Thus MMI avoided any need to present a claim to a year in which one of its reinsurers was insolvent.

The questions of law

    1. It was that revised method of presenting claims which gave rise to the parties’ dispute. MMI contends that it is entitled to present claims by spiking in this way. Equitas disputes this, contending that MMI is only entitled to claim against each applicable reinsurance contract a pro rataproportion of the loss attributable to the underlying claim, calculated on a time on risk basis. If MMI is correct, further issues arise as to the calculation of the rights of contribution and recoupment acquired by the reinsurer of the “spiked” year.
    2. The judge-arbitrator decided these issues in favour of MMI (together with a further issue relating to defence costs which no longer arises) and Equitas now appeals. The questions arising on this appeal for which leave has been given are as follows:

(1) In the event of an insured employee being tortiously exposed to asbestos in multiple years of EL insurance, and the EL insurer settling the employer’s claim without allocating the loss to any particular year of exposure, is the EL insurer obliged (in the absence of specific provision for this situation in the corresponding reinsurances) to present any outwards claim in respect of that loss on a pro rata, time on risk basis for the purpose of calculating reinsurance recoveries, either because:

a. the contribution to the settlement of each engaged policy must by necessary implication be treated as having been on that basis (“question 1”); or

b. the doctrine of good faith requires the claim to be presented on that basis (“question 2”)?

(2) If the EL insurer is not so obliged, and may present a claim to a single year of his choice, how are the rights of recoupment and contribution acquired by the reinsurers of that year to be calculated (“question 3”)?

The Fairchild jurisprudence

    1. In order to explain how these issues arise it is necessary to summarise the effect of what is now a substantial body of case law which applies within the Fairchild enclave. As this is well trodden ground, I shall do so as briefly as possible.

Fairchild

    1. In Fairchild itself the House of Lords held that where a mesothelioma victim was tortiously exposed to asbestos by two or more employers but due to the limitations of medical science could not prove on the balance of probabilities which of them had caused his mesothelioma, both (or all) employers were jointly and severally liable for the loss. It is important in the light of subsequent debate to emphasise two points as to precisely what Fairchild must be taken to have decided. The first is that the employers’ liability was for causing the disease (which might not be suffered for many years or even decades after the critical exposure) and not merely for exposing the employee to the risk of doing so. Thus an employee who was exposed to risk but had not (or had not yet) developed the disease had no claim. The second was that, because it was impossible to prove which exposure or exposures had actually caused the disease to develop, a modified rule of causation would be applied, whereby any employer who made a material contribution to the risk of mesothelioma being contracted was treated as having caused the disease. In later cases this was referred to as a “weak” or “broad” test of causation.

Barker

    1. Although Fairchild decided that each of two or more employers would be liable, it did not decide for what damages they would be liable. That was decided by Barker v Corus UK Ltd [2006] UKHL 20, [2006] 2 AC 572, in which the House of Lords held that the liability of each employer was several and should be calculated according to each defendant’s relative degree of contribution to the risk, usually measured by the duration and intensity of the exposure involved. To take a simple example, therefore, if an employee who contracted mesothelioma had been exposed to asbestos for 10 years, but had worked for one employer for only four of those years, that employer would (in the absence of some good reason for a different allocation) be liable for 40% of the employee’s damages. That would be so regardless of whether, during the other six years, the employee was working for other employers who were similarly liable for their proportionate share or (as might be the case) was exposed to asbestos in ways which did not give rise to liability on the part of anyone.
    2. Good reason for a different allocation might exist if it was possible to say, for example, that the exposure to asbestos by one employer was more intense or that the asbestos encountered in one employment was more aggressive than in other cases. Absent some such feature, however, the duration of the exposure was the fairest measure of an employer’s share of liability.
    3. It is apparent from the speeches that the House of Lords recognised explicitly that Fairchild had created an exception to the normal rules of liability in negligence and was seeking to find the fairest way of applying this exception in the special circumstances where conventional proof of causation was not possible. Lord Hoffmann put it this way, in a section of his speech under the heading of “Fairness”:

“40. So far I have been concerned to demonstrate that characterising the damage as the risk of contracting mesothelioma would be in accordance with the basis upon which liability is imposed and would not be inconsistent with the concept of damage in the law of torts. In the end, however, the important question is whether such a characterisation would be fair. The Fairchild exception was created because the alternative of leaving the claimant with no remedy was thought to be unfair. But does fairness require that he should recover in full from any defendant liable under the exception?

43. In my opinion, the attribution of liability according to the relative degree of contribution to the chance of the disease being contracted would smooth the roughness of the justice which a rule of joint and several liability creates. The defendant was a wrongdoer, it is true, and should not be allowed to escape liability altogether, but he should not be liable for more than the damage which he caused and, since this is a case in which science can deal only in probabilities, the law should accept that position and attribute liability according to probabilities. The justification for the joint and several liability rule is that if you caused harm, there is no reason why your liability should be reduced because someone else also caused the same harm. But when liability is exceptionally imposed because you may have caused harm, the same considerations do not apply and fairness suggests that if more than one person may have been responsible, liability should be divided according to the probability that one or other caused the harm.”

    1. Lord Scott and Lord Walker expressed their full agreement with Lord Hoffmann. Lady Hale also emphasised the need to find the right balance of fairness between claimant and defendant in determining the boundaries within which the Fairchild principle should be applied.
    2. Thus Barker decided that, within what later came to be called the Fairchild enclave, the common law rule was that liability between defendants should be apportioned according to relative contribution to risk and that this was what fairness demanded.

The Compensation Act 2006

    1. If Barker had stood, the problems relating to insurance and reinsurance with which we are now concerned would not have arisen, but it was promptly reversed by the Compensation Act 2006. Section 3 provided, in short, that where a person was liable to a victim of mesothelioma as a result of tortiously causing or permitting him to be exposed to asbestos, he would be liable in respect of the whole of the damage caused to the victim irrespective of whether there were in addition other exposures to asbestos and irrespective of whether those other exposures gave rise to any other liability.
    2. The section therefore assumed, but did not create, liability in tort in accordance with Fairchild but, as between the employer (“the responsible person”) and employee (“the victim”) it reversed Barker by allowing the employee to recover damages for the whole of the damage caused by the mesothelioma from any one of the employers which Fairchild had made liable. Parliament thereby made clear that, as between employer and employee, it took a different view of what fairness required from the view taken by the House of Lords in Barker, its priority being to ensure full compensation to victims of mesothelioma as a result of exposure to asbestos dust.
    3. Section 3 went on to say that it did not prevent one employer from claiming a contribution from another. Typically such a claim for contribution would be made under the Civil Liability (Contribution) Act 1978 as the effect of Fairchild was that, even though the employers had exposed the victim to asbestos in different periods of time, they were each liable for “the same damage”. Section 3(4) provided that:

“In determining the extent of contributions of different responsible persons … a court shall have regard to the relative lengths of the periods of exposure for which each was responsible; but this subsection shall not apply –

a) if or to the extent responsible persons agree to apportion responsibility amongst themselves on some other basis, or

b) if or to the extent that the court thinks that another basis for determining contribution is more appropriate in the circumstances of the particular case.”

    1. Once the victim had received full compensation, therefore, Parliament recognised that as between employers or other responsible persons it would be fair, in accordance with Barker, for liability to be apportioned according to each employer’s contribution to the risk and that this contribution was to be determined on a time basis unless there was some good reason for adopting another method of apportionment.

Trigger

    1. The impact of the Fairchild rule of causation on EL insurance was considered in Durham v BAI (Run off) Ltd [2012] UKSC, [2012] 1 WLR 867, generally referred to as the “Trigger” litigation. The Supreme Court held that conventional policy wordings (including MMI’s) which referred to injury or disease “contracted” or “sustained” during the policy period responded in the event that an employee was exposed to asbestos during the policy period even though the mesothelioma did not develop or was not manifest until many years later and as a matter of ordinary language the disease would not generally be regarded as having been contracted or sustained until the mesothelioma had developed. On the basis that terms such as “contracted” or “sustained” were construed as referring to causation, the concept of a disease being “caused” during the policy period had to be interpreted flexibly in the light of the special rule of causation established by Fairchild. This was an application of the “weak” or “broad” causal link which exists within the Fairchild enclave. Lord Mance summarised this reasoning in IEG at [22] as being that:

“If causation is given a weak or broad meaning as against the person tortiously responsible, the same weak or broad meaning should be treated as carrying through into a liability insurance covering an insured on a causation basis.”

    1. The alternative would have been to say that the insurer was liable merely for making a material contribution to the risk (which was not what Fairchild had decided) or that the EL insurance did not respond at all in mesothelioma cases, which as a matter of policy was clearly unacceptable. It was essential that EL policies should respond in order to ensure compensation to victims in the event that employers were insolvent.

IEG

    1. However, the “Trigger” litigation was not concerned with and did not need to examine the extent of the liability which arose under each EL policy. That question arose in IEG. It is necessary to look closely at what that case decided.
    2. In IEG the question was whether an EL insurer who had provided cover for only part of the period during which the victim was exposed to asbestos was required to bear the whole of the employer’s liability in the same way that each employer was liable in full. If it was, the further question arose whether it was entitled to a proportionate contribution from other insurers who had provided cover in other years of exposure or to recoup a proportionate share of its loss from the employer in respect of years when there was no insurance in place or no identifiable insurer who had provided cover.
    3. A complication of the case was that it was decided in accordance with Guernsey law and that the Compensation Act 2006 did not apply in Guernsey. Rather, Guernsey law was in all relevant respects the same as English common law. Accordingly the first question was whether the proportionate recovery rule in Barker remained part of the English common law or whether (as the insured employer contended) it had been fatally undermined and in effect overruled by the 2006 Act and the decision in the “Trigger” litigation. The Supreme Court held unanimously that Barker remained a correct statement of the common law: see Lord Mance at [31], Lord Hodge at [100] and Lord Sumption at [179] and [180].
    4. Applying the common law set out in Barker, the Court held that the insurer’s liability to the employer was limited to a proportionate part of the damage suffered by the employee victim, the proportion being measured by reference to the time which the insurer had been on risk. On the facts, the insurer had provided cover for six out of the 27 years during which the employee had been employed by the employer and exposed to asbestos. Accordingly the insurer was obliged to indemnify the employer for only 6/27 of the damages which the employer had paid to the employee.
    5. However, the Court was divided as to the route by which this result was achieved. In the majority Lord Mance and Lord Hodge (with whom Lord Clarke and Lord Carnwath agreed) held that this was an application of the indemnity principle. As the Compensation Act 2006 did not apply in Guernsey and the common law position established by Barker remained, the employer’s liability to its employee during the six years in which it had insurance cover was limited to a proportionate part of the full compensation to which the employee was entitled and the fundamental principle of indemnity which governs liability insurance meant that it could not recover more than this from its insurer: see Lord Mance at [25] and [26]. Leaving aside the distinct issue of the employer’s defence costs, this was sufficient for the majority to decide the appeal, as Lord Mance recognised at [35].
    6. In the minority, however, Lord Sumption (with whom Lord Neuberger and Lord Reed agreed) held that the same result would be reached regardless of whether Barker remained good law: see [178]. This was because, as a matter of construction of the insurance policy, the insurer’s liability must be prorated between every policy year during which the insured employer exposed the victim to asbestos:

“160. The theory that an insurer is liable in respect of any year of insurance when the employee was exposed to the risk of contracting mesothelioma is a perfectly satisfactory answer to the question whether the insurer is liable at all, which was the only relevant question at issue in the ‘Trigger‘ litigation. But it cannot be applied without modification when the question is how much of the loss is attributable to particular years. If, as ‘Trigger‘ teaches, the insurer’s liability is triggered in each policy year, the rational response of the law is not to assign the whole of that loss to a policy year of the insured’s choice. That would be to assume that the whole loss was caused in that year, whereas the law proceeds from the premise that we cannot know that. The rational response is that the loss must be prorated between every policy year during which the insured employer exposed the victim to asbestos. In my opinion, once one rejects the conclusion that the insurer is not liable at all, proration on that basis is the only way of giving effect to the overriding requirement of each annual policy that the liability should be assigned to policy years. If exposure to the risk of contracting mesothelioma is equated with causation, the natural consequence is that the resultant liability falls to be apportioned to policy years according to the duration and intensity of the exposure. What is being prorated as between the insurer and the employer is the employer’s liability, not the indivisible harm of the mesothelioma itself. The chances of contracting mesothelioma, as Lord Hoffmann observed in Barker [2006] 2 AC 572, para 35, are infinitely divisible, even if mesothelioma itself is not.”

    1. The majority firmly rejected this analysis and considered at some length what the position would be in the event that the Compensation Act 2006 applied. Although strictly speaking this part of Lord Mance’s judgment was obiter, it was clearly intended as a definitive statement of English law which would guide the insurance market in dealing with mesothelioma claims on EL policies. Mr Colin Edelman QC for Equitas did not suggest, either before the judge-arbitrator or on appeal before us, that Lord Mance’s judgment should not be followed. On the contrary his submission was that it was an accurate statement of the law as it applies at the insurance level, but that a different solution to the problems thrown up by the Fairchild jurisprudence is needed at the reinsurance level.
    2. Lord Mance began by emphasising at [40] the novelty of the situation created by Fairchild and “Trigger” in an insurance context where the period of insurance is fundamental to the insurer’s liability and insurance is placed on the basis that liability or loss will fall into a particular period. He continued, describing features of conventional liability insurance as follows:

“In short, insurance would have been and was placed on the basis that a particular liability for loss would fall into one, not a series of separate periods. If an insured wanted complete cover, it would have to maintain it for all such periods. The relevant period would also be ascertained by objective criteria, which meant that insureds could not select it at will or to obtain the advantage of the cover most favourable from their viewpoint. Thus: (i) Under a liability insurance where the trigger is causation in its traditional sense based on probability, no problem exists about allocating tortious liability to one and only one policy period. (ii) Under a claims made policy, claims must be notified and will attach at latest when they arise, while specific clauses dealing with the notification of circumstances likely to give rise to a claim may attach a claim to an earlier policy than that during which it actually arises. (iii) An insured may, for one reason or another, have double insurance. In that context, it may elect which to invoke, but well established principles exist for the two insurers to share liability equally up to the common limit. (iv) An insured may also agree to carry an excess or franchise, in which case it will have to bear that amount before looking to its insurer, and will as a self-insurer rank last in any recoveries made by way of subrogation from any third party: Lord Napier & Ettrick v Hunter [1993] AC 713.”

    1. In contrast, the special features existing within the Fairchild enclave had thrown up a series of anomalies. To permit an insured employer to spike an insurance claim to the policy year of its choice, leaving that insurer to bear the whole liability, would run counter to fundamental principles of insurance law:

“43. If matters stop there, and the insurer ends up carrying the whole liability, the anomalies are self-evident. (a) It is contrary to principle for insurance to operate on a basis which allows an insured to select the period and policy to which the loss attaches. This is elementary. If insureds could select against insurers in this way, the risks undertaken by insurers would be entirely unpredictable. (b) It is anomalous for a liability insurance underwritten for a premium covering losses arising from risks created during its particular period to cover losses about which all that can be said is that they arise from risks extending over a much longer period, in respect of which no premium has, or could have, been assessed or received by the insurer. (c) An insured is able to ignore long periods in respect of which he himself has chosen not to insure, or has not kept any record of any insurance which he may have taken out, or has chosen to entrust his insurance to an insurer who has become insolvent. (d) An insured has no incentive to take out or maintain continuous insurance cover. On the contrary, it is sufficient to take out one year’s cover, or even to arrange to be held covered for only one day, during whatever happens subsequently to prove to have been the overall exposure period – whether this is done at the very start of the overall exposure period, or later after many decades of exposure, perhaps due to a sudden appreciation of the virtues of insurance under the special rule.”

    1. Despite these anomalies, Lord Mance concluded at [45] to [51], rejecting Lord Sumption’s analysis, that the reasoning in “Trigger” bound the court to hold that mesothelioma was caused in each and every period of any overall period of exposure, with the consequence that any insurer on risk during that overall period was liable for the full extent of the damage:

“51. An insurer, whether for the whole or part of the period for which the insured employer has negligently exposed the victim to asbestos, is on the face of it liable for the victim’s full loss.”

    1. Nevertheless, said Lord Mance, the analysis could not stop there:

“51. … The court is faced with an unprecedented situation, arising from its own decisions affecting both tort and insurance law. A principled solution must be found, even if it involves striking new ground. The courts cannot simply step back from an issue which is of their own making, by which I do not mean to suggest that it was in any way wrong for the courts, from Fairchild onwards, to have been solicitous of the needs of both victims and insureds. But by introducing into tort and liability insurance law an entirely new form of causation in ‘Trigger‘, the courts have made it incumbent upon themselves to reach a solution representing a fair balance of the interests of victims, insureds and insurers.”

    1. The solution adopted was to accept the insurer’s liability in full, even if it had provided cover for only a part of the period of exposure, but to temper the consequences of this by invoking by analogy the concepts of co-insurance (or double insurance) and self-insurance. Although not precisely applicable, these concepts could be adapted and developed to meet the special requirements of the Fairchild enclave and to eliminate or reduce the anomalies to which it gave rise:

“52. In my view the law has existing rules which can be adapted to meet this unique situation. The concepts of co-insurance and self-insurance are both at hand. Co-insurance is relevant in so far as the insured has other insurance to which it could also have resorted on the basis that it had also exposed the victim during the period of that insurance. Self-insurance is relevant, because an insured who has not (i) taken out or (ii) kept records of or (iii) been able to recover under such other insurance must be regarded as being its own insurer in respect of the period in question for which it has no cover. A sensible overall result is only achieved if an insurer held liable under a policy like the Midland policy is able to have recourse for an appropriate proportion of its liability to any co-insurers and to the insured as a self insurer in respect of periods of exposure of the victim by the insured for which the insurer has not covered the insured.”

    1. Lord Mance recognised that this was not strictly a case of co-insurance because that exists when there are two policies covering the same period. That was not the position in IEG, where in the usual way each policy was written for a separate year and covered only risks occurring during that year. Nor was it really a case of self-insurance as that concept had previously been deployed. Nevertheless, the court had to do something:

“53. … the court would be abrogating its role to achieve a just solution consistently with what any sensible commercial party would have contemplated if it does not adapt and develop conventional principles to meet an unconventional, indeed unique, challenge. … To say (as Lord Sumption JSC does: para 185) that there has here been a ‘contractual allocation of risks’ which precludes the court taking steps to avoid evident absurdity which no contracting party can sensibly have contemplated or intended appears to me unrealistic. …”

    1. Ultimately Lord Mance held that the principles which underlay rights of contribution were flexible principles of equity and justice which could be invoked when there was more than one insurer, each covering a separate period of exposure to asbestos:

“63. In my view, the principles recognised and applied in Fairchild [2003] 1 AC 32 and ‘Trigger’ [2012] 1 WLR 867 do require a broad equitable approach to be taken to contribution, to meet the unique anomalies to which they give rise. … If a broad equitable approach is taken in the present unique circumstances, then it should no doubt also be possible in the present context to overcome the presumption with double insurance that loss should be shared equally. Contribution between insurers covering liability on the basis of exposure should take account of differing lengths of insured exposure. Conventional rules need to be adapted to meet unconventional problems arising from the principles recognised and applied in Fairchild and ‘Trigger‘.”

    1. As to self-insurance, resort to this concept was necessary because there would be some periods of exposure to asbestos when there was no insurance in place or none which was available to provide contribution. (Indeed, in IEG itself there were two insurers, who between them had provided cover for eight years, and 19 years when the employer was uninsured). The insured should therefore be treated as its own insurer in respect of such periods. There was no inconsistency between recognising that the terms of the policy meant that the insurer was liable in full for the damage suffered by the victim and requiring the insured to contribute towards the insurer’s cost of meeting that liability:

“77. In the present case, an insured who insures for a limited period necessarily accepts that it is only liability incurred during that period for which he has cover. The unique feature of the present situation is that the whole substratum of the relevant insurance policies has changed fundamentally since they were underwritten, and the law has, for the first time ever, imposed liability on the basis of risk, rather than the probability, that negligence during the insurance period led or contributed to the illness complained of. The concomitant of insurance liability in this situation must be a recognition that the law can and should address the unjust and wholly anomalous burden which would otherwise fall on any particular insurer with whom insurance was only taken out for part of the total period of exposure by the insured, by recognising an obligation on the part of the insured to contribute pro tanto to such liability as a self-insurer.”

    1. In a concurring judgment with which the other judges in the majority also agreed, Lord Hodge at [104] and [105] expressed his agreement that the effect of the “Trigger” litigation was that an insurer which had provided cover for only part of the period of the employee’s exposure must meet the entirety of the employer’s liability, recognising that this would enable the insured employer to select the insurer against which to claim. He recognised also that this created anomalies which had to be addressed, and agreed with Lord Mance’s proposed solution. One reason for doing so was his understanding that it would not create major practical difficulties:

“110. Finally, the practical solution which Lord Mance JSC offers appears to be consistent with the way in which the London insurance market has operated in handling mesothelioma claims. That may suggest that the solution will not give rise to major practical difficulties.”

    1. Although the solution adopted by the majority was to say that each insurer was liable in full and (in effect) that spiking was permitted, but that the spiked insurer would then have rights of contribution from other insurers and recoupment from the insured, Lord Mance’s understanding was that (save in cases of insolvency) this would lead to the same ultimate financial outcome as the construction adopted by the minority:

“78. … I believe that this leads in practice, at least in the case of a solvent insured, to substantially the same result as that at which Lord Sumption JSC arrives, but by a different route, which in my opinion reflects the reasoning and result in ‘Trigger‘ [2012] 1 WLR 867. The difference between the two routes may however be important in the context of an insured who is not solvent.”

    1. If the practical difference between the two rival approaches in IEG is limited to cases of insolvency, the view of the majority can be seen to be consistent with the policy of ensuring that victims of mesothelioma receive full compensation. This was explicit in Lord Hodge’s judgment, where one of his reasons for agreeing with Lord Mance was that:

“106. … it is consistent with the policy of the United Kingdom Parliament that the employee-victim should be able to obtain damages for his loss in a straightforward way.”

    1. In contrast the approach of the minority would mean that in the case of an insolvent employer, a victim would be left with no recourse against an EL insurer which had provided cover for only part of the period during which he was exposed to asbestos. Lord Neuberger recognised this at [203] (“unlike Lord Sumption JSC’s solution, [Lord Mance’s] ensures that every employee whose employer was insured for any period of his employment, can look to any such insurer who is still solvent for full compensation”).
    2. As commentators on IEG have recognised, it was only a matter of time before the issues raised by reference to EL insurance contracts recurred at the reinsurance level. That time has now arrived.

The award

    1. The judge-arbitrator stated the issues for decision in the present case in the following terms:

(1) Is MMI to be treated as having settled the inwards claims on the basis that each EL policy on risk was contributing a pro rata share of the loss being paid by MMI?

(2) If not, is the basis on which MMI is presenting its reinsurance claims contrary to the duty of utmost good faith or an implied contractual duty requiring MMI to present its reinsurance claims in good faith?

(3) If issues (1) and (2) are determined in favour of MMI, on the proper construction of the reinsurance contracts, is MMI contractually entitled to recover the full amount it has paid in respect of each inwards claim from any reinsurance contracts of its choice which provided cover for any part of the exposure period for which it was on risk, subject to the limits and retentions for those reinsurance contracts and subject to the paying reinsurers’ rights of contribution and recoupment?

(4) If so, what rights of contribution and recoupment do the reinsurers which are called upon to pay the claim acquire against any other reinsurers who were also on risk for the claim, and against MMI in respect of any deemed “self-reinsurance”, and how do those rights fall to be calculated? In particular, should they be calculated using:

a. the “from the ground up” pro rata method of apportionment, taking into account the first layer retention in every year of reinsurance exposure, as Equitas contends; or

b. the “independent liability” method as MMI contends?

    1. The judge-arbitrator decided all of these issues in favour of MMI. What follows can be no more than a summary of a detailed and carefully reasoned award.
    2. In relation to the first issue he held, in accordance with “Trigger” and IEG, that each year’s insurance policy was 100% liable for the insured employer’s loss and that the settlement of each claim without allocating the loss to any particular year settled in full MMI’s 100% liability under each and every EL policy on risk. That settlement ascertained MMI’s liability under each policy, from which it followed that MMI was contractually entitled to present its reinsurance claim to any given year of reinsurance on the basis that that year was 100% liable in the same way as the insurance on that year which it was reinsuring. This was a matter of absolute contractual entitlement. As a matter of fact it was impossible to say that any of the settlements had been concluded on a pro rata basis and there was nothing in law to require them to be treated as if they had been.
    3. Thus there was no justification for any implied term requiring the loss to be divided up and allocated to different years of reinsurance on a time basis. There was no justification for saying that the “real basis” on which MMI had settled its liability was that each year had made a contribution to the risk and bore a proportionate responsibility for the loss. The argument that Barker continued to apply as between reinsured and reinsurer provided no greater support for allocating loss to each policy on a time on risk basis than had been the case as between insured and insurer, but that argument was ruled out by the decision of the majority in IEG.
    4. As to the second issue, the judge-arbitrator concluded that it was no part of the function of an arbitral tribunal to extend the scope of the post contractual duty of good faith in insurance contracts, particularly as that duty had been held by the House of Lords in The Star Sea [2001] UKHL 1, [2003] 1 AC 469 to be limited, in a claims context, to a duty not to act dishonestly in connection with the making of a claim, a decision which had recently been confirmed by the majority of the Supreme Court in Versloot Dredging BV v HDI Gerling Industrie Versicherung AG [2016] UKSC 45, [2017] AC 1. He derived no real assistance from the New York cases on which Equitas relied where a wider concept of good faith had been adopted than applies in English law and regarded the English cases involving the exercise of a discretion or power (e.g. Socimer International Bank v Standard Bank London Ltd [2008] EWCA Civ 116, [2008] 1 Lloyd’s Rep 558) as irrelevant in circumstances where MMI had an absolute contractual right to present the whole of its loss to any reinsurance policy of its choice, a distinction recognised by Mid Essex Hospital Services NHS Trust v Compass Group UK & Ireland Ltd [2013] EWCA Civ 200, [2013] BLR 265.
    5. Moreover, the judge-arbitrator found that even if there were a duty of good faith in relation to the allocation of the settlements to particular reinsurances or an implied term that a decision to allocate should be Wednesbury reasonable, there was no want of good faith or irrationality in circumstances where MMI expressly acknowledged that there was a need for equitable recoupment and contribution to redress any anomalies.
    6. Having reached these conclusions on the first two issues, the judge-arbitrator said that the third issue answered itself. MMI was contractually entitled to recover the full amount of its inwards settlement from any reinsurance contract or contracts of its choice which provided cover for any part of the period at risk. In other words it was entitled to spike. This was subject to the retention under the contract for the spiked year and to the reinsurers’ rights of contribution and recoupment, but how these were to be dealt with arose for decision under the fourth issue. The judge-arbitrator noted that his conclusion was “entirely in accordance with the well-established principle in the law of reinsurance that the reinsurance is on the original subject-matter so that insurance and reinsurance are to be treated in the same way and each year of reinsurance is 100% liable in the same way as each year of insurance is 100% liable”.
    7. Finally, the judge-arbitrator dealt with the issues concerning contribution and recoupment. As already noted, it was common ground that those concepts had a role to play if (as the arbitrator had held) MMI had been successful so far. The issue was how they should be applied. Equitas contended for a pro rata method of apportionment with two related aspects: (1) that MMI had to give credit in full for its retentions in each year of reinsurance even though the claim was “spiked” into one year and (2) that, by analogy with principles of subrogation, the higher layers of reinsurance in subsequent years should be made good first in any contribution and recoupment process (the so-called “top-down” approach).
    8. The judge-arbitrator rejected both submissions. He said that there was nothing in the existing authorities which assisted on the issue of retentions. He concluded that MMI need only give credit for a single retention, namely that applicable in the year into which the claim was spiked. He held that MMI was to be regarded as a self-insurer as regards the retention in each policy year, and therefore that Equitas should have no right of recoupment as regards the retentions in years before or after the year to which the 100% claim was presented as it had never provided an indemnity for that part of the loss. It would be unfair if MMI had to give credit for retentions in each and every year. Rather, he said, the approach should be that which applied in cases of double insurance where only one retention would be borne by the insured.
    9. As to the “top-down” approach to contribution, the judge-arbitrator concluded that the proposed justification for the proposition that the higher layers of reinsurance were more remote from the loss and should therefore get the first benefit of contribution and recoupment was a proposition derived from principles of subrogation and that the doctrine of subrogation had no place in the apportionment exercise.

The scope of review

    1. For MMI as the respondent, Mr Schaff emphasised that this is an appeal under section 69 of the Arbitration Act 1996 in which the court’s task is confined to deciding the questions of law for which permission to appeal has been given. He submitted that on some issues, particularly those concerned with good faith and with equitable contribution and recoupment, the judge-arbitrator’s conclusions depended on his view of what was fair and equitable and that these were an exercise of arbitral judgment which we could not go behind.
    2. I accept entirely that the role of the court is limited to determining the questions of law and that we are bound by the facts found in the award and only those facts. This is basic. However, the questions of how principles of good faith (if applicable) and of contribution and recoupment should be applied at the reinsurance level within the Fairchild enclave are questions of law on which ultimately we must reach our own decision, albeit giving proper weight to the view of the judge-arbitrator. That is what I shall seek to do.

Equitas’s submissions in outline

    1. Mr Colin Edelman QC for Equitas began by emphasising the novelty of the Fairchild jurisprudence and the anomalies which it has created as a result of the courts having cast off into uncharted waters. In consequence it had already been necessary to devise novel solutions, for example the new rights of contribution and recoupment created by the majority in IEG, and the courts remained under a responsibility to face up to the consequences of Fairchild which they themselves had created, if necessary by further innovation. While IEG had provided a solution at the insurance level, in a way which was necessary to ensure full compensation to victims of mesothelioma, that objective had now been achieved for all practical purposes and the same policy considerations did not apply at the reinsurance level. At that level, the victim having received his compensation from his employer or its insurer, it was possible and desirable to revert to the principles of the common law whereby liability should be apportioned in accordance with Barker by reference to time on risk. Thus each reinsurance policy should bear its proportionate share of liability calculated from the ground up.
    2. Mr Edelman recognised that this would need to be achieved in a principled way and submitted that there were three routes by which this might be done.

Deemed allocation/implied term

    1. The first was to say that MMI must be deemed to have settled its inwards insurance claims on a time on risk basis, such that the value represented by the settlement consideration should be regarded as implicitly allocated in pro rata shares across all triggered policies in proportion to the contribution to the overall risk made during the period of each policy. This could be regarded as the “real basis” of the settlement of the inwards claims, by analogy with cases where courts had been prepared to investigate the true or real basis of the settlement of insurance claims (Assicurazioni Generali SpA v CGU International Insurance Plc [2003] EWHC 1073 (Comm), [2003] 2 All ER (Comm) 425 at [40]; and Enterprise Oil Ltd v Strand Insurance Co Ltd [2006] EWHC 58 (Comm), [2007] Lloyd’s Rep IR 186 at [170] and [171]). Mr Edelman did not suggest that these cases were directly applicable, recognising as the judge-arbitrator had held that they were concerned only with a factual investigation which does not arise here. He submitted, however, that they illustrate a willingness to look beyond the terms of any settlement to the underlying reality and can usefully be adopted within the Fairchild enclave where for policy reasons liability has been imposed on an insurer on an artificial and unconventional basis and the reality is that the settlement discharges the insurer’s liability under each and every triggered EL policy.
    2. Adopting this approach, Mr Edelman submitted that pro rata allocation is necessarily implicit in an unallocated settlement of a mesothelioma EL claim by virtue of the special legal features of the liabilities being settled, so that spiking to a single year of reinsurance would be inconsistent with the basis on which the claims had been (or must be deemed to have been) settled. Alternatively, he submitted that the same result may be achieved by implying a term to the effect that the reinsured’s UNL must be formulated by reference to the contribution to risk made in the period of each reinsurance in accordance with the Barker principles. Whichever of these two possible courses was adopted would restore the “elementary” principle that insurance cannot “operate on a basis which allows an insured to select the period and policy to which a loss attaches” (IEG at [43]).

Duty of good faith

    1. Alternatively Mr Edelman invoked what he described as a duty of good faith requiring the presentation of reinsurance claims to be made on a pro rata basis in accordance with the Barker principles unless there was some rational basis (which would not include a desire to maximise reinsurance recoveries) for presenting them in some other way. He recognised that the concept of good faith has not previously been applied in this manner and that to do so would involve a development of existing legal doctrine in order to address the special problems raised within the Fairchild enclave, in particular the ability of the insurer to select the policy to which a loss should be attached which is contrary to elementary principles of liability insurance.
    2. For this purpose Mr Edelman drew upon three sources, namely (1) the nature of an insurance or reinsurance contract as a contract of the utmost good faith, (2) cases which have held that contractual discretions must be exercised in good faith (or, more fully, in a manner which is not irrational, arbitrary or capricious: see e.g. Socimer International Bank Ltd v Standard Bank London Ltd [2008] EWCA Civ 116, [2008] Bus LR 1304; and Braganza v BP Shipping Ltd [2015] UKSC 17, [2015] 1 WLR 1661); and (3) New York authority where a wider concept of good faith in insurance contracts applies (e.g. United States Fidelity & Guaranty Co v American Re-Insurance Company 20 N.Y. 3d 407 (2013)). Mr Edelman did not suggest that any of these sources mandated the development for which he contended. He relied upon them as illustrations of principles which might be invoked by analogy in much the same way as the majority of the Supreme Court had drawn upon a number of principles, none of which applied directly, in order to develop the rights of contribution and recoupment established in IEG as a response to the anomalies thrown up by Fairchild.

Contribution and recoupment

    1. The third and final route relied on to achieve a result whereby each reinsurance policy would bear its proportionate share of liability by reference to time on risk was by means of contribution and recoupment just as in IEG at the insurance level. As it was common ground that the spiked reinsurer would have rights of contribution and recoupment, the issue here was how those rights should be calculated. Equitas’s case is that they should be calculated in each year from the ground up, applying the Barker approach just as if a proportionate part of the claim had been presented under each reinsurance policy, in a manner explicitly intended to achieve the same ultimate outcome as would be achieved by the first or second route – or as would have been achieved if the minority view in IEG had prevailed. In this regard Mr Edelman relied on Lord Mance’s comment at [78] in IEG that the rights of contribution and recoupment favoured by the majority would lead “in practice, at least in the case of a solvent insured, to substantially the same result as that at which Lord Sumption JSC arrives, but by a different route”.
    2. For practical purposes the disagreement between the parties as to the method of calculating rights of contribution and recoupment was significant in three respects. First, under the Equitas method, MMI would have to bear a retention in each policy year whereas, under the MMI method, there would only be a single retention. Second, under the Equitas method higher layers of reinsurance would not contribute until the lower layers had been exhausted whereas, under the MMI method, each layer would be liable to contribute to the equivalent layer in the spiked year. Third, under the MMI method, MMI would be treated as a self-insurer of the retentions and of any gaps in the cover and would have the same rights of contribution as a reinsurer of an equivalent layer would have had. That would not be so under the Equitas method. We were told that the treatment of retentions is likely to be the most significant issue in financial terms.
    3. Although this third route was intended, if Equitas’s approach to contribution and recoupment was adopted, to achieve in principle the same financial outcome as either of the first two routes, Mr Edelman submitted that it would in practice lead to severe difficulties due to the complexities of the reinsurance programmes existing from year to year and the fact that the reinsurers in the spiked year who were left to claim contribution would have no knowledge of MMI’s reinsurance arrangements in other years. For this reason, he submitted that, if legally possible, either of the first two routes was to be preferred as a solution to the anomalies thrown up by Fairchild at the reinsurance level. Indeed he used words like “chaos” and “mayhem” to describe the situation with which the market would be faced in circumstances where each year’s reinsurance might have multiple excess layers, some of which would have multiple participants, in ways which would not correspond to the arrangements in other years.

MMI’s submissions in outline

    1. Mr Schaff for MMI supported the reasoning and conclusions of the judge-arbitrator.
    2. He pointed out that it is authoritatively established by the Supreme Court in IEG that spiking to a single year of cover is permitted at the insurance level despite the anomalies which it creates. That is so despite Barker, which in reality has little or nothing to do with the current issue. Those anomalies were expressly recognised by the Supreme Court, but were to be dealt with by resort to principles of contribution and recoupment.
    3. Mr Schaff submitted next that there is no principled basis on which to distinguish insurance and reinsurance in this respect. The market operates on the basis that reinsurance is simply a form of insurance on the original subject matter insured (e.g. Wasa International Insurance Co Ltd v Lexington Insurance Co [2009] UKHL 40, [2010] 1 AC 180 at [33] where Lord Mance described this as “an accepted analysis with business significance” which should not be unnecessarily thrown into doubt). As a matter of construction, the reinsurance contracts are triggered in the same way as the insurance contracts, so that exposure to asbestos is an “accident or occurrence” occurring during the policy period to which (within the Fairchild enclave) a weak test of causation must be applied. It was not suggested by Equitas that a process of construction could lead to a conclusion whereby the insurance and reinsurance contracts respond differently. For example, Equitas did not suggest that Lord Sumption’s construction of the insurance contracts in IEG can be applied to the reinsurance contracts here. That being so, consistency and principle require that the same approach be adopted at the insurance and the reinsurance level, and any distinction would be artificial, unprincipled and liable to make the situation worse rather than better. That would be so in any event, but was reinforced by the follow settlements clause in the reinsurance policies which demonstrates that the insurance and reinsurance were intended to operate in the same way.
    4. Accordingly, just as at the insurance level, at the reinsurance level also the anomalies should be dealt with by means of contribution and recoupment principles. This was a principled solution to the anomalies created by Fairchild which can equally operate at the reinsurance level.

Deemed allocation/implied term

    1. Against this background Mr Schaff submitted that when the employer settled with the victim there would be no attempt to allocate any part of the employer’s liability to different periods of time as it would be irrelevant to do so. That would be so regardless of whether the victim should be regarded as having multiple causes of action against the employer or a single cause of action. In this respect the position as between victim and employer was exactly the same as between employer and insurer. So far as the settlement by MMI of the insured claims was concerned, the judge-arbitrator’s findings were unreviewable. Each triggered policy was liable in full and that was the basis on which claims were settled.
    2. Mr Schaff submitted that in these circumstances there was no scope for any argument that the “real basis” of the inwards settlements was something different. Having settled each inwards claim on the correct basis that each triggered policy was liable in full, MMI was entitled to present its reinsurance claim to any one of its reinsurance policies (e.g. for 1969) on the basis that its UNL on the underlying contract of insurance for 1969 was 100% liability. This was not a case like Assicurazioni Generali SpA v CGU International Insurance Plc or Enterprise Oil Ltd v Strand Insurance Co Ltd where the argument was that the terms of a settlement had artificially concealed what was actually happening. The principle applied in those cases had no application here. The fact that the settlement had also discharged MMI’s liability under each and every policy on risk in other years did not mean that any part of the settlement consideration had to be allocated to the settlement of liability in those other years. Nor was there any basis for implying an obligation to allocate in this way. Such an implication was unnecessary, not least in circumstances where principles of contribution and recoupment (however they fall to be applied) were available.

Duty of good faith

    1. Mr Schaff submitted that the judge-arbitrator could not be criticised for having declined an invitation to develop the law in a novel way and that his decision was therefore unassailable. He submitted further that none of the sources prayed in aid by Mr Edelman provided a sound basis for any such development; that if any analogy is appropriate, the closest analogy is double insurance where the insured is entitled to choose under which policy to present its claim; that it would be wrong to introduce a fetter on what was, ex hypothesi, the exercise of an absolute contractual right; that if spiking is permitted (as it is) at the insurance level, it cannot be contrary to a duty of good faith at the reinsurance level; and that such a duty should not be introduced when principles of contribution and recoupment are available. Those principles would either yield the result for which Equitas contended, in which case the duty of good faith was not needed, or they would not, in which case its application was an unprincipled way of arriving at the minority approach in IEG which the majority had rejected. Contribution and recoupment were the principles which the majority in IEG had invoked, not a duty of good faith, and there was no basis for any different approach at the reinsurance level.
    2. Finally on this point, Mr Schaff relied on the judge-arbitrator’s statement that even if there were some duty of good faith or some implied term that a decision to allocate should be Wednesbury reasonable, he was “quite satisfied that there was no breach of duty or of any such implied term in this case … presentation of the claim to one reinsurance year in circumstances where it is expressly acknowledged by MMI that there is a need for equitable recoupment and contribution to redress any anomalies cannot conceivably be said to be in bad faith or Wednesburyunreasonable”.

Contribution and recoupment

    1. As already noted, Mr Schaff accepted and indeed asserts that the reinsurers in the spiked year will have rights of contribution and recoupment, although it appears that this was not MMI’s position when it first began to present claims on a spiked basis. The issue is how those rights should be calculated, as already explained.
    2. Mr Schaff submitted that by this stage of the argument it has been established as between insurer and reinsurer that the insurer is entitled to present its reinsurance claim to the policy year of its choice, bearing whatever is the retention applicable to that year but otherwise recovering in full. That, he submitted, was the contractual analysis under the reinsurance policy. In contrast, as explained by Lord Mance in IEG, rights of contribution and recoupment were not dependent on contract but on broad equitable principles drawing on an analogy with principles of double insurance in order to enable a sharing of the burden between reinsurers of the same loss in different years. Following this logic through, the way that contribution should work was to enable the reinsurer who was liable for one layer in the spiked year to obtain contribution from reinsurers who would have been liable for the equivalent layer in other years. Thus, to take a simple example, if there were three years of exposure to asbestos and three years of reinsurance, each with a retention of £10,000, a primary layer of £40,000 XS £10,000, and a higher layer of £50,000 XS £50,000, the reinsurers’ total outlay would be £90,000. It is therefore that £90,000 which needs to be distributed across other years. The primary layer reinsurer in the spiked year who had paid out £40,000 would recover one third of that amount (£13,333.33) from each of the primary layer reinsurers in the other two years, while the higher layer reinsurer who had paid out £50,000 would recover one third of that amount (£16,666) from each of the higher layer reinsurers in the other two years. That example is concerned only with contribution, but recoupment would arise if (for example) in one year MMI had chosen not to obtain reinsurance for one of the layers. In such a case MMI would be liable to contribute in the same way that a reinsurer of that layer would have done.
    3. As already indicated, the MMI method of contribution produces the practical effect that MMI bears only a single retention, that higher layer reinsurers in non-spiked years must contribute even though the lower layers in that year are not exhausted, and that in some circumstances MMI may itself have rights of contribution to exercise even where it has accepted a higher retention or chosen to be uninsured for some layers.
    4. In response to Mr Edelman’s apocalyptic warnings of chaos and mayhem, Mr Schaff pointed out that there are no findings in the award that the working out of the principles of contribution and recoupment, however that needs to be done, would give rise to any practical difficulty.

Overview

    1. There is no doubt that the Fairchild decision together with the Compensation Act 2006 and the cases which have applied these principles have created significant anomalies in the law. That jurisprudence, intended as it was to ensure a remedy for victims of negligent exposure to asbestos, has extended into liability insurance and (now) reinsurance in ways which seem unlikely to have been intended or predicted.
    2. I would accept that, once the courts can be confident that the objective of ensuring victim protection has been achieved, it is desirable that the anomalies should be corrected and that the law should return to the fundamental principles of the common law. Put shortly, once unorthodoxy has served its purpose, we should revert to orthodoxy. That does not preclude development of the law to meet new challenges, but does serve the interests of business where certainty and predictability are paramount if commercial entities including the reinsurance market are to conduct business and settle claims when they arise as efficiently as possible. It serves also the interests of those who ultimately have to pay the premiums if unpredictable liabilities to which in reality insurers and reinsurers never agreed are confined as closely as is possible consistent with the policy that victims should be compensated.
    3. The result of the jurisprudence so far, culminating in IEG, is that a victim of mesothelioma as a result of negligent exposure to asbestos is assured of a remedy. That will be either a solvent employer or a solvent insurer or, in cases where the insurer is insolvent, a statutory or industry compensation scheme. While the anomalies described by Lord Mance in IEG served a purpose at the insurance level, it is unnecessary to perpetuate them at the reinsurance level.
    4. I would therefore accept Mr Edelman’s submission that it is desirable, if possible, to revert to the principles of the common law whereby liability should be apportioned in accordance with Barker by reference to contribution to the risk. That is the closest approximation to what the parties actually agreed at a time when the weak causal link introduced by Fairchild, section 3 of the Compensation Act 2006 and the application of these rules to insurance contracts in “Trigger” could not have been anticipated. It reflects also the common law’s view of fairness which, as between insurer and reinsurer, is unaffected by section 3 of the Compensation Act. However, reversion to the approach of the common law must be principled. We cannot just do whatever we like. Nor should we introduce new distortions which may themselves have unpredictable consequences in order to patch over the existing ones. That said, however, there is in my judgment some scope to respond to Lord Mance’s call at [51] in IEG that “a principled solution must be found, even if it involves striking new ground” and that “the courts have made it incumbent on themselves to reach a solution representing a fair balance of the interests of victims, insureds and insurers”, to which I would add “reinsurers”.
    5. I would accept also that it would be preferable, again if possible, to achieve a solution by one or other of Mr Edelman’s first two routes (deemed allocation/good faith) rather than the third (contribution and recoupment). In the absence of findings in the award I would not go so far as to accept that confining the spiked reinsurers’ rights to equitable contribution and recoupment would lead inevitably to chaos in the market, but it would undoubtedly mean significantly greater complexity and expense. The judge-arbitrator referred to helpful examples produced by the parties to show how their respective methods of contribution would work in what he described as “factual situations of increasing complexity”. These examples, which were also before us, were greatly simplified for illustrative purposes, but even so gave a flavour of some of the complexities which would arise. In addition there is the practical problem for any reinsurer seeking to exercise a right of contribution that only MMI has knowledge of the detail of its reinsurance arrangements in each of the relevant years.
    6. I acknowledge that it is unusual explicitly to begin at the end by stating the objective which the law ought to achieve as distinct from applying the law to the facts found to see where that takes us. However, in the unprecedented and unique situation which the courts have now created within the Fairchild enclave, I consider that this is a legitimate approach.

Analysis

    1. I come now to examine the three routes for which Mr Edelman contended.

Deemed allocation/implied term

    1. In circumstances where the employee was exposed to asbestos over a period of several years, where the critical exposure(s) may have occurred in any one or more of those years, where it is impossible to say in which year(s) that did occur, and where the law has determined that each EL policy year is liable in full, it seems to me that the fairest way for an EL insurer’s inwards claims to be settled would be by allocating a share of liability to each policy year, the allocation to be determined by reference to time on risk unless there is some rational basis (such as intensity of exposure in any particular year(s)) for a different allocation. That would apply with even greater force if an employer faced claims from a number of employees, where it would appear to be statistically improbable, all other things being equal, that the critical exposures for each employee all occurred in the same year. Such a proportionate allocation would accord with that underlying reality, with the annual nature of EL insurance and reinsurance, and with the common law view of fairness as reflected in Barker. It would also avoid running foul of the elementary principle referred to by Lord Mance at [43] in IEG that insurance does not operate on a basis which allows the insured to select the period and policy to which a loss attaches, a basis which would render (and has rendered) entirely unpredictable the risks undertaken by insurers and reinsurers and has thereby falsified many years after the event the basis on which the premium to be charged was calculated.
    2. However, while it would have been fair for MMI to allocate its inward risks in this way, that is not what happened. Mr Edelman proposes that it should be deemed to have happened in order to produce a fair result. Tempting as it is to impose a deemed allocation on the parties by reference to time on risk, I do not think that this is permissible. It would involve a significant extension of the “real basis of settlement” cases which it would be difficult to confine within the Fairchild enclave. So far those cases have been concerned with investigating as a matter of fact what it is that the parties actually did. To apply them here would be a different exercise, when there was no doubt about what the parties actually did but the law was imposing on them its view of what they ought to have done. That is a very different thing. It seems to me that there would be a danger in seeking to counteract what is effectively one deeming provision (the weak causal link in Fairchild) with another (a principle of deemed inwards allocation).
    3. More fundamentally, while the imposition of a deemed allocation would remove one anomaly (the elementary principle referred to by Lord Mance that the insured cannot select the period and policy to which a loss attaches), it would collide headlong with other fundamental principles as there is no valid basis on which to distinguish insurance and reinsurance contracts in this respect. If, as the majority of the Supreme Court has held in IEG, spiking is permissible at the insurance level, there is simply no room for a principle of deemed allocation to avoid spiking at the reinsurance level. That follows from the nature of reinsurance as a form of insurance on the original subject matter insured (cf. Wasa International Insurance Co Ltd v Lexington Insurance Co at [33]) and from the absence of any valid basis on which to distinguish the insurance and reinsurance contracts as a matter of construction. If we were to avoid one set of problems by imposing a principle of deemed allocation, there is a real risk that we would be introducing other distortions into insurance and reinsurance law. Again it might be difficult to ensure on any principled basis that any distortions were confined within the Fairchild enclave.
    4. For the same reasons is not possible to achieve the desired result by way of an implied term. The implied term would be contrary to the proper construction of the reinsurance contracts.
    5. In these circumstances the analysis must be, consistently with the decision in IEG and in the absence of any valid basis on which to distinguish insurance and reinsurance, that MMI’s inwards claims were settled on an unallocated basis by which each and every relevant policy year was 100% liable and those liabilities were discharged; that there was a 100% liability ascertained under each and every policy year; that there was an undivided UNL for each year; and that as a matter of construction of the reinsurance contracts MMI was prima facie entitled to present the whole of its UNL to any reinsurance year of its choice.
    6. Accordingly I agree with the judge-arbitrator that MMI had a contractual right to present its reinsurance claims to the policy year of its choice, but I would not describe this as an “absolute” contractual right. Whether that is a valid description depends on whether there exists any constraint on the exercise of that right. That is the issue to which I now turn.

Duty of good faith

    1. As already noted, Mr Edelman did not suggest that any of the sources on which he drew in support of finding a duty of good faith operating within the Fairchild enclave was directly applicable. He relied on them rather as analogies which might usefully be invoked. That being so, it is unlikely to be fruitful to consider at any length why (for example) the insurance duty of utmost good faith or the concept of good faith in New York law does not apply here.
    2. As to the former, it is sufficient to say that I agree with the judge-arbitrator that the post-contractual duty of good faith in insurance contracts, which in any event gives rise to a remedy of avoidance of the contract rather than a constraint on the exercise of prima facie contractual rights, has been confined by cases such as The Star Sea and Versloot Dredging BV and that it has no part to play in the current context. It is true that Rix LJ may have left the door open, or at least ajar, to further development of the doctrine of good faith so as to equate it to “a concept of proportionality implicit in fair dealing” (see Drake Insurance Plc v Provident Insurance Plc [2003] EWCA Civ 1834, [2004] QB 601 [89]). However although this latter case was referred to in the parties’ written submissions, it was not the subject of oral argument, nor were there any submissions addressed to us as to how the doctrine should be developed. It seems to me that it would be difficult to confine any such development within the Fairchild enclave and that if such a development is to be made, it should be in another case.
    3. As to New York law, it is unnecessary to explore the detail of what was decided by the New York Court of Appeals in the United States Fidelity & Guaranty Co case. The case illustrates that in New York there is a wider concept of good faith in insurance contracts, which extends, at least in some contexts, to a requirement of reasonableness in the making of contractual choices, although that concept does not go so far as to require an insured to disregard its own interests or to put the reinsurer’s interests ahead of its own. However, I agree with the judge-arbitrator that this wider concept does not represent English law. Moreover, there is a risk that any borrowing of this wider concept of good faith in the present case would be difficult to confine within the Fairchild enclave.
    4. However, the line of cases which have imposed a constraint upon the exercise of contractual choices merits further consideration. The leading case is now Braganza in the Supreme Court, where Lady Hale said at [18]:

“Contractual terms in which one party to the contract is given the power to exercise a discretion, or to form an opinion as to relevant facts, are extremely common. It is not for the courts to rewrite the parties’ bargain for them, still less to substitute themselves for the contractually agreed decision-maker. Nevertheless, the party who is charged with making decisions which affect the rights of both parties to the contract has a clear conflict of interest. That conflict is heightened when there is a significant imbalance of power between the contracting parties as there often will be in an employment contract. The courts have therefore sought to ensure that such contractual powers are not abused. They have done so by implying a term as to the manner in which such powers may be exercised, a term which may vary according to the terms of the contract and the context in which the decision-making power is given.”

    1. Lady Hale went on to approve Rix LJ’s summary in Socimer at [66] of the position which the authorities had reached:

“It is plain from these authorities that a decision-maker’s discretion will be limited, as a matter of necessary implication, by concepts of honesty, good faith, and genuineness, and the need for the absence of arbitrariness, capriciousness, perversity and irrationality. The concern is that the discretion should not be abused. Reasonableness and unreasonableness are also concepts deployed in this context, but only in a sense analogous to Wednesbury unreasonableness, not in the sense in which that expression is used when speaking of the duty to take reasonable care, or when otherwise deploying entirely objective criteria: as for instance when there might be an implication of a term requiring the fixing of a reasonable price, or a reasonable time. In the latter class of case, the concept of reasonableness is intended to be entirely mutual and thus guided by objective criteria … Laws LJ in the course of argument put the matter accurately, if I may respectfully agree, when he said that pursuant to the Wednesbury irrationality test, the decision remains that of the decision-maker, whereas on entirely objective criteria of reasonableness the decision-maker becomes the court itself.”

    1. The same passage was also approved in the minority opinion of Lord Neuberger at [102].
    2. One of the earlier decisions was Gan Insurance Company Ltd v Tai Ping Insurance Company Ltd (Nos 2 & 3) [2001] Lloyd’s IR 667, a reinsurance case where a Claims Co-operation Clause prohibited the reinsured from concluding a settlement or making an admission without the prior approval of the reinsurer. The Court of Appeal held that there were constraints, necessarily implicit from the circumstances, on the reinsurer’s right to withhold such approval. Approval could only be withheld “in good faith after consideration of and on the basis of the facts giving rise to the particular claim and not with reference to considerations wholly extraneous to the subject matter of the particular reinsurance” and not “arbitrarily, or … in circumstances so extreme that no reasonable company in its position could possibly withhold approval” (see in particular [67] and [70]). Mance LJ emphasised that this constraint was not derived from the insurance duty of utmost good faith but from the nature and purpose of the particular contractual provisions, and was therefore not inconsistent with cases such as The Star Sea:

“68. Contrary to Mr Edelman’s submission, this conclusion does not involve an inadmissible extension of the duty of good faith in insurance law or of the consequences of breach of any such duty. The qualification that I have identified does not arise from any principles or considerations special to the law of insurance. It arises from the nature and purpose of the relevant contractual provisions.”

    1. The case illustrates also that although this line of authority often refers to contractual discretions, its application is not limited to cases where the contract in question speaks in terms of one party having a discretion to exercise.
    2. On the other hand, not all contractual choices are constrained in this way. In Mid Essex Hospital Services NHS Trust v Compass Group UK & Ireland Ltd the contractual term in question was a right to award service failure points in a contract to provide catering and cleaning services in the event of a failure to meet performance standards. These points formed part of contractual machinery to determine the payments to which the contractor was entitled and the circumstances in which the contract might be terminated. The Court of Appeal distinguished the Socimer line of cases, but nevertheless acknowledged that when a party has a right to choose from a range of options, a term will often be implied to preclude an arbitrary, capricious or irrational choice. Jackson LJ said at [83]:

“An important feature of the above line of authorities is that in each case the discretion did not involve a simple decision whether or not to exercise an absolute contractual right. The discretion involved making an assessment or choosing from a range of options, taking into account the interests of both parties. In any contract under which one party is committed to exercise such a discretion, there is an implied term. The precise formulation of that term has been variously expressed in the authorities. In essence, however, it is that the relevant party will not exercise its discretion in an arbitrary, capricious or irrational manner. Such a term is extremely difficult to exclude, although I would not say it is utterly impossible to do so. …”

    1. In Mid Essex the term was excluded, in part because of the nature of the contract as a contract with a public authority which was entitled to exercise its rights to ensure the highest standards in a vital service and in part because the contract contained its own remedy in the event that the NHS trust awarded more than the correct number of points. As Jackson LJ explained:

“91. The discretion which is entrusted to the Trust in relation to service failure points and deductions in the present case is very different from the discretion which existed in the authorities discussed above. The Trust is a public authority delivering a vital service to vulnerable members of the public. It rightly demands high standards from all those with whom it contracts. There may, of course, be circumstances in which the Trust decides to award less than the full amount of service failure points or to deduct less than it is entitled to deduct from a monthly payment. Nevertheless the Trust could not be criticised if it awards the full number of service failure points or if it makes the full amount of any deduction which it is entitled to make. The discretion conferred by clause 5.8 simply permits the Trust to decide whether or not to exercise an absolute contractual right.

92. There is no justification for implying into clause 5.8 a term that the Trust will not act in an arbitrary, irrational or capricious manner. If the Trust awards more than the correct number of service failure points or deducts more than the correct amount from any monthly payment, then there is a breach of the express provisions of clause 5.8. There is no need for any implied term to regulate the operation of clause 5.8.”

    1. The judge-arbitrator appears to have regarded the Mid Essex case as drawing a sharp distinction between cases of absolute contractual rights and cases where the duty not to act in an arbitrary, irrational or capricious manner could be implied. In my judgment, however, the position is more nuanced. Although the Mid Essex case uses the expression “absolute contractual right” that is the result of a process of construction which takes account of the characteristics of the parties, the terms of the contract as a whole and the contractual context, not a starting point intrinsic to the term itself. It is only possible to say whether a term conferring a contractual choice on one party represents an absolute contractual right after that process of construction has been undertaken. To say that a term provides for an absolute contractual right and therefore no term can be implied puts the matter the wrong way round.
    2. In my judgment there are powerful reasons to support the implication of a term in the very specific reinsurance context existing within the Fairchild enclave that the insurer’s right to present its reinsurance claims must be exercised in a manner which is not arbitrary, irrational or capricious, and that in that context rationality requires that they be presented by reference to each year’s contribution to the risk, which will normally be measured by reference to time on risk unless in the particular circumstances there is a good reason (such as differing intensity of exposure) for some other basis of presentation. That is because spiking is inconsistent with the presumed intentions and reasonable expectations of the parties at the time when the contracts were concluded. On that basis the insurer remains the decision maker, so that a rational view that (for example) the intensity of exposure had been greater in one year than another could not be challenged, but the decision must be made by reference to each year’s contribution to the risk.
    3. In summary, the Fairchild jurisprudence has presented the insurer with the opportunity to make a choice of the year to which a claim should be presented, but that choice is entirely fortuitous so far as the parties are concerned, was not something which they could have contemplated at the time of contracting or taken into account in setting the premium to be paid, and is moreover inconsistent with fundamental (or “elementary”) principles of liability insurance law, as already explained. It results in a situation, spiking, which does not accord with common law notions of fairness as explained in Barker and is contrary to the underlying statistical reality that in fact the critical exposure(s) of employees to asbestos will not all have occurred in the same year. It is a situation in which there is a clear conflict of interest between the parties and a significant imbalance of power between them. That imbalance is not the result of a relationship such as employer and employee which existed in Braganza, but arises out of the control which the insurer can exercise in allocating its inwards claims and its exclusive knowledge of its reinsurance arrangements over an extensive period.
    4. In an area of the law in which considerations of fairness and policy have explicitly loomed larger than usual, and bearing in mind the willingness of the Supreme Court to “strike new ground” if necessary to achieve a fair balance of all the interests concerned, I would hold that such a term should be implied. The term can conveniently be described as requiring “good faith”, but this is merely a label. Its content and rationale are as I have described. Such a term achieves an outcome which is as close as possible to what the parties can be taken to have intended if they had foreseen the development of the Fairchild jurisprudence. (Although in general parties must take the risk of future developments in the law, to invoke that principle here would be extreme: Fairchild and its progeny represented a unique and unprecedented development which could not have been foreseen, and it would be harsh to impose on a reinsurer who wrote an annual policy for (say) 1969 the risk of developments in the law affecting his liability which did not take place for another third of a century). It is a solution which is specific within the Fairchild enclave and will not have wider ramifications. Although it may be objected that it is contrary to principle to imply such a term at the reinsurance level but not at the insurance level, there is a material distinction. At the insurance level, as already explained, such a term would risk subverting the policy of ensuring full compensation to victims, but that risk no longer exists or at any rate is minimal at the reinsurance level.
    5. If a term is to be implied as I have formulated it, the judge-arbitrator’s statement that there was no breach of duty or of any implied term does not stand in the way of allowing the appeal. Plainly that statement was not directed to a situation where the insurer is under an obligation to make its allocation decision by reference to each year’s contribution to the risk. It is in effect no more than a statement that an insurer seeking to maximise its reinsurance recovery by exercising a contractual right cannot be said to be acting with a want of good faith, but that as I have sought to explain begs the question.
    6. On this ground, therefore, I would provisionally allow the appeal. At this stage I say “provisionally” because it remains to evaluate Mr Schaff’s submission that there is no scope for any duty of good faith when principles of contribution and recoupment are available. That submission is best considered after I have dealt with the contribution and recoupment issues.

Contribution and recoupment

    1. The question how principles of contribution and recoupment should operate must be addressed on the basis that MMI is entitled to present its reinsurance claim to the policy year of its choice and that the reinsurers of this spiked year, having paid MMI, seek to recover from other policy years a proportion of what they have paid.
    2. The starting point in considering how these principles should operate in the reinsurance context must be Lord Mance’s exposition of their sources and nature in IEG. In summary, he drew upon doctrines of double insurance and suretyship, including “a more relaxed view of double insurance” taken in Australian cases, in order to fashion a novel remedy. He concluded that “the root principles” were “principles of equity and justice which lie behind the law’s recognition of rights of contribution”, that these must be applied with “breadth and flexibility”, requiring “a broad equitable approach to be taken to contribution, to meet the unique anomalies to which [Fairchild and ‘Trigger‘] give rise” (see in particular at [59] to [63]).
    3. So far as the sources are concerned, Lord Mance expressly recognised that concepts of double insurance and suretyship could not be directly applied. In the present case the reinsurance policies on different years were not an instance of double insurance which exists only when there are two or more different policies in respect of the same interest and covering the same risk in the same period (see [56] to [58], citing National Farmers Union Mutual Insurance Society v HSBC Insurance (UK) Ltd [2010] EWHC 773 (Comm), [2010] 1 CLC 557 at [15]). However, it was a doctrine whose broad principles could be adapted to meet the unconventional problems arising from Fairchild. Similarly with suretyship, the conventional rule was equality between sureties so that “it should not rest with the creditor by his selection of remedies open to him to determine where ultimately the burden was to fall”, but this too could be adapted to give effect to an allocation of liability by reference to the insurer’s contribution to the risk.
    4. I would accept there is no specific guidance in IEG to enable us to choose between the rival methods advanced by the parties in the present case. The Supreme Court was not focusing on this issue. Nevertheless, the guiding principle is clear, which is that the objective must be to achieve a just solution. That solution will eliminate so far as possible the anomalies resulting from the Fairchild jurisprudence and will take account of the reality of the underlying claims, that is to say that nobody can know in which year the critical exposure occurred in the case of any given victim and that considering the position of victims as a group, such exposures will have occurred in a variety of years. The best available measure of such exposures is by reference to each policy year’s contribution to the risk. That is not to revert to the now discredited theory of liability for making a material contribution to risk but recognises the artificiality of saying that an exposure which in fact occurred only once, even if we do not know when, is regarded in law as having occurred in each and every year.
    5. Viewed in this light, in my judgment the Equitas method of contribution is to be preferred. It reflects three fundamental considerations which the MMI method avoids. First, the reality is that critical exposures to a group of victims will have occurred in a number of years, in each of which MMI agreed to bear a retention, so that it is unjust that under the MMI method only a single retention applies. Second, the basis on which higher layer reinsurers agreed to participate was that they would not be liable until the retention and any lower layers had been exhausted. No doubt their premium was calculated accordingly. The MMI method subverts that principle. Third, I see no reason why MMI should have rights of contribution in respect of years or layers where it chose not to insure. That was its choice.
    6. In my judgment the broad equitable principles which we must apply are sufficiently flexible in these circumstances to enable effect to be given to the Equitas method of calculation. I would hold accordingly.
    7. The judge-arbitrator recognised that “the process of contribution and recoupment is to be carried out in practice in order to iron out any anomalies or unfairness which arise from the presentation of the entire claim to one reinsurance year”, but in my judgment the MMI method which he adopted does not achieve this. I would respectfully suggest that there are two errors in his reasoning.
    8. The first was to exclude as totally irrelevant the doctrine of subrogation which, as expounded in Lord Napier & Ettrick v Hunter [1993] AC 713, a case to which Lord Mance referred in IEG, illustrates how an insurer of a higher layer is entitled to be fully indemnified out of any recoveries before those recoveries are available to the insured or to insurers of lower layers. Although it is not suggested that subrogation operates in this case when equitable rights of contribution are applied between reinsurers of different years, the principle is nevertheless one which needs to be borne in mind in determining how those rights should be applied in order to achieve a just outcome.
    9. The second was to apply too closely the concept of double insurance in which only one retention would be applied. The judge-arbitrator recognised that the present case is “not strictly speaking” a case of double insurance, but his view was that “the only difference is that, whereas double insurance is two insurances covering the same loss in the same period, the present case and IEG involved (re)insurances in successive years covering the same loss, because of the special rules derived from Fairchild and developed in the insurance context in ‘Trigger‘ and IEG“. It was largely for this reason that the judge-arbitrator thought that it would be unprincipled and anomalous if MMI had to bear multiple retentions. However, while double insurance is a helpful broad analogy, when focusing on the issue of retentions this difference is critical.
    10. The judge-arbitrator also thought that the Equitas method was anomalous and unfair because, as Equitas accepted, if there had been one continuous reinsurance contract covering a number of years, MMI would only have to give credit for one retention. However, with respect that is only part of the picture. If there had been one continuous reinsurance contract, it is highly probable that the reinsurers would have insisted either on a higher retention than applicable to a single policy year or a higher premium. No conclusion about any unfairness of the Equitas approach can be reached without taking this into account.

The duty of good faith revisited

    1. In the light of my conclusion that the Equitas method of calculating the rights of contribution and recoupment is correct, there is no conflict between the application of those principles and the existence of a duty of good faith. There is therefore no obstacle, such as any such conflict might have created, to what I regard as the preferred solution which is that such a duty should be implied. There remains the alternative argument that the implication of such a duty is unnecessary if principles of contribution and recoupment are available to the reinsurers, but for the reasons already given I do not regard that objection as well founded.

Conclusion

    1. I would therefore allow the appeal, answering the questions of law for which leave has been given as follows:

Questions

(1) In the event of an insured employee being tortiously exposed to asbestos in multiple years of EL insurance, and the EL insurer settling the employer’s claim without allocating the loss to any particular year of exposure, is the EL insurer obliged (in the absence of specific provision for this situation in the corresponding reinsurances) to present any outwards claim in respect of that loss on a pro rata, time on risk basis for the purpose of calculating reinsurance recoveries, either because:

a) the contribution to the settlement of each engaged policy must by necessary implication be treated as having been on that basis (“question 1”); or

b) the doctrine of good faith requires the claim to be presented on that basis (“question 2”)?

(2) If the EL insurer is not so obliged, and may present a claim to a single year of his choice, how are the rights of recoupment and contribution acquired by the reinsurers of that year to be calculated (“question 3”)?

Answers: (1) No; (2) Yes, unless there is some other rational basis for ascertaining the contribution to the risk in each triggered policy year; (3) Does not arise unless the answer to question 2 is held to be wrong, in which case the Equitas method should be applied.

Lord Justice Leggatt :

    1. I agree entirely with the judgment of Males LJ but wish to add further reasons of my own to explain why I consider that the doctrine of good faith requires the reinsurance claims at issue in this case to be presented on a basis which apportions the insurer’s ultimate net loss between each policy year in respect of which the insurer was liable to indemnify the insured employer for the damage caused to a victim by mesothelioma.

IEG and the nature of insurance

    1. The basic nature of an insurance contract is that the insurer, in return for a sum of money (the insurance premium), takes the risk of an event occurring during the period covered by the policy and promises to provide a benefit to the insured (often an indemnity against loss) if the event occurs. The event insured against may be a loss occurring or a liability incurred or a claim made against the insured. But in each case it is fundamental that the event is one which happens during the period of risk and not during any earlier or later period. As Lord Mance said in the IEGcase, at para 40, referring to the EL policies in issue in that case:

“In short, insurance would have been and was placed on the basis that a particular liability or loss would fall into one, not a series of separate periods. If an insured wanted complete cover, it would have to maintain it for all such periods. The relevant period would also be ascertained by objective criteria, which meant that insureds could not select it at will or to obtain the advantage of the cover most favourable from their viewpoint.”

    1. In IEG it was recognised by all the members of the Supreme Court that the extension to insurance law of the special rule of causation (or, more accurately, proof of causation) developed in Fairchild to govern liability in tort within what has become known as the ‘Fairchild enclave’ threatens to confound this fundamental principle of insurance. The difficulties derive from dispensing with the requirement that the victim – or, in the context of liability insurance, an insured employer who is liable to the victim in tort – must prove that the employer’s wrongful act or omission caused the victim to contract mesothelioma. Under the special Fairchild rule it is sufficient to show that the employer negligently or in breach of statutory duty exposed the victim to asbestos and that the victim later developed mesothelioma which may have been (but cannot be shown on the balance of probabilities to have been) caused by this exposure. In Barker the House of Lords mitigated this departure from principle by holding that the liability founded on the Fairchild rule is proportionate to the defendant’s contribution to the risk of developing mesothelioma measured by the duration and intensity of the exposure to asbestos for which the defendant was responsible. Parliament immediately legislated, however, to displace this holding in relation to employers (and any other persons) liable in tort to mesothelioma victims. Pursuant to section 3 of the Compensation Act 2006, every person who is liable in tort as a result of exposing to asbestos a victim who later contracts mesothelioma is liable to the victim for the whole of the damage caused by the disease.
    2. All the Supreme Court Justices in the IEG case were agreed that applying the special rules applicable as between employee-victims and their employers to the relationships between the employers and their insurers produces results which are unacceptable. In particular, as Lord Mance observed at para 43:

“(a) It is contrary to principle for insurance to operate on a basis which allows an insured to select the period and policy to which a loss attaches. This is elementary. If insureds could select against insurers in this way, the risks undertaken by insurers would be entirely unpredictable. (b) It is anomalous for a liability insurance underwritten for a premium covering losses arising from risks created during its particular period to cover losses about which all that can be said is that they arise from risks extending over a much longer period, in respect of which no premium has, or could have, been assessed or received by the insurer.”

Lord Sumption, who gave the main minority judgment, agreed at para 156 that these consequences “are not just remarkable in themselves, but are directly inconsistent with the language of the … policies and the fundamental characteristics of insurance.”

    1. Lord Sumption considered that the rational response of the law to the situation in which the insurer’s liability is triggered in more than one policy year is not to assign the whole of the loss to a policy year of the insured’s choice. Rather, it is to prorate the loss between every policy year during which the insured employer exposed the victim to asbestos: para 160. Lord Sumption reached that result through a contextual interpretation of the words “caused during any period of insurance” used in the EL policies when applied to an insured liability with the unusual legal incidents of an employer’s liability for mesothelioma: para 161.
    2. The majority of the Supreme Court did not accept this approach. Lord Mance, who gave the lead judgment, observed, at para 46, that it involved interpreting the insurance policy wording in a way which none of the parties or interveners before the court had suggested. He also regarded the interpretation proposed by Lord Sumption as inconsistent with the earlier decision of the Supreme Court in the “Trigger” litigation, which treated proof of exposure to asbestos during any period of insurance as sufficient to prove that the victim’s mesothelioma had been “caused” during the relevant period: ibid. Lord Mance nevertheless shared the view that, at least ultimately and in so far as employers and their insurers are good for the money, fairness requires the loss to be apportioned across years in a way which reflects the contribution to risk of each year of exposure to asbestos which is treated as having caused the employee’s disease. Thus, he said at para 52:

“A sensible overall result is only achieved if an insurer held liable under [an EL] policy is able to have recourse for an appropriate proportion of its liability to any co-insurers and to the insured as a self-insurer in respect of periods of exposure of the victim by the insured for which the insurer has not covered the insured.”

    1. To achieve this overall result, Lord Mance considered that a “broad equitable approach” should be taken to contribution between insurers so as to allow an insurer who is liable as a result of exposure to asbestos during one period of insurance to recover contribution from insurers who are liable in respect of other periods during which exposure occurred which under the Fairchild rule is treated as having caused the same loss: para 63. He further held, at para 77, that:

“The concomitant of insurance liability in this situation must be a recognition that the law can and should redress the unjust and wholly anomalous burden which would otherwise fall on any particular insurer with whom insurance was only taken out for part of the total period of exposure by the insured, by recognising an obligation on the part of the insured to contribute pro tanto to such liability as a self-insurer.”

Lord Mance believed that this approach would lead in practice, albeit by a different route, to substantially the same result as that at which Lord Sumption arrived, except where an insured is insolvent: para 78.

    1. Lord Hodge (with whose judgment the other Justices in the majority, including Lord Mance, also agreed) gave several reasons for concluding that Lord Sumption’s approach was “not an option” and that “the anomalies must be addressed in some other way”: para 108. First, like Lord Mance, he thought that the interpretation of the insurance policy wording proposed by Lord Sumption was inconsistent with the decision of the Supreme Court in Trigger. Second, Lord Hodge was influenced by the fact that allowing an insured employer to recover its whole loss from any insurer who was on risk for any part of the period of exposure to asbestos, despite the “heavy burden” imposed on the insurer selected, was a result for which all the parties to the proceedings, including the defendant insurers and the interveners, had contended. One of the interveners was the Association of British Insurers, which represents the interests of the insurance industry. Lord Hodge found it “striking that the insurance industry in this appeal has shown no enthusiasm for the elegant and less complex idea of construing the insurance contract to restrict the insurer’s liability to a proportionate part of the loss”: para 105.
    2. Thirdly, Lord Hodge said, at para 106, that allowing the employer to select the insurer from which to claim its full indemnity is “consistent with the policy of the United Kingdom Parliament that the employee-victim should be able to obtain damages for his loss in a straightforward way”. By contrast:

“Confining the insurer’s liability to a time-related proportion of the employer’s liability would not be in line with this policy of the legislature and would probably engender further legislation.”

    1. A further reason given by Lord Hodge, at para 110, was that:

“the practical solution which Lord Mance proffers appears to be consistent with the way in which the London insurance market has operated in handling mesothelioma claims. That may suggest that the solution will not give rise to major practical difficulties.”

    1. Lord Neuberger and Lord Reed, while agreeing with Lord Sumption, nevertheless expressed the view, at para 203, that Lord Mance’s solution had “a number of attractions”:

“First, it is more in line with the parliamentary approach as demonstrated by section 3 of the 2006 Act, because, unlike Lord Sumption’s solution, it ensures that every employee whose employer was insured for any period of his employment, can look to any such insurer who is still solvent for full compensation. Secondly, unlike Lord Sumption’s solution, it has been supported by one of the parties to this appeal: despite being raised by the court at a reconvened hearing, Lord Sumption’s solution has not been adopted by either party.”

Lord Neuberger and Lord Reed suspected that these two points were connected, in that the insurance market might fear that, if Lord Sumption’s solution were adopted, Parliament would intervene to reverse the court’s decision, as had happened following Barker.

    1. For Lord Neuberger and Lord Reed, further attractions of Lord Mance’s approach were that it was far closer to the approach which the London insurance market had worked out in practice and did not clash with the court’s reasoning in the Trigger litigation, as Lord Sumption’s solution arguably did. However, they regarded these considerations as outweighed by the fact that the construction of the insurance contract on which Lord Mance’s conclusion was based “is inconsistent with the link between risk and premium which lies at the heart of a contract of insurance”: para 205. They were also concerned that the legal innovations introduced by Lord Mance to mitigate this result might have “unfortunate wider ramifications”: para 207. In particular, it might well be argued that:

“this court is invoking a new and wide general equitable power, which is, to put it at its lowest, close to inconsistent with an express contractual term, in order to reconstitute a contractual relationship so as to achieve what it regards as a fair result in a purely commercial context.”

    1. Without seeking to question the necessity of adopting Lord Mance’s approach in the IEG case, I respectfully share this last concern. While recognising a “broad equitable right” of contribution between insurers may be regarded as an extension of existing principle, giving an insurer an equitable right to recoup part of the insured loss from its insured is not just close to inconsistent, but is clearly inconsistent, with the contract between the parties as it was interpreted by the majority in IEG. As Lord Sumption observed, at para 183:

“If the insured is contractually entitled to the whole amount, there cannot be a parallel right of recoupment in equity on the footing that it is inequitable for the insured to have more than part of it.”

    1. Although Lord Mance sought to rely on a thesis of Professor Andrew Burrows to suggest that there are exceptions to the general rule that a claimant will not be entitled to restitution where the defendant is legally entitled to the enrichment, commentators have convincingly argued that the authorities relied on do not support this thesis and that there is no legal principle which allows a claim to recoup money based on equity or unjust enrichment to override an unconditional contractual right to be paid the sum in question: see R Merkin “Insurance and reinsurance in the Fairchild enclave” (2016) 36 Legal Studies 302; KV Krishnaprasad, “Unjust enrichment in the ‘Fairchild enclave’: International Energy Group Ltd v Zurich Insurance Plc” (2017) 80 MLR 1150; R Stevens, “The Unjust Enrichment Disaster” (2018) 134 LQR 574, 597-8. As Lord Sumption put it at para 183:

“The basis of the suggested right of recoupment is that it is unjust for the insurer to have to bear the whole loss. But I do not understand by what standard it is said to be unjust when the parties have agreed that it should be so.”

    1. The response of allowing an equitable principle or restitutionary claim to override a valid and binding contract should in my view be regarded as an absolutely last resort, if not a counsel of despair.

The reinsurance level

    1. The thrust of MMI’s arguments in the present case, which the judge-arbitrator accepted, is that, within the Fairchild enclave, the analysis of the relationship between an insured employer and its liability insurers adopted by the majority of the Supreme Court in IEG must apply equally to the relationship between a liability insurer and its reinsurers. As Mr Alistair Schaff QC for MMI emphasised, a contract of reinsurance is simply an insurance of the same subject-matter as the underlying insurance contract where the interest insured is the original insurer’s liability under the underlying contract. There is in these circumstances, Mr Schaff submitted, no principled distinction between insurance and reinsurance of the risk of an employer being held liable in tort for causing an employee to contract mesothelioma through exposure to asbestos, and the legal approach which applies to the settlement of mesothelioma claims at the insurance level must also operate at the reinsurance level.
    2. Compelling as the logic of this argument at first sight seems, it in my view overlooks the reasons which drove the majority of the Supreme Court in IEG to adopt a solution to the problem confronting the court which created a result that Lord Mance himself described as “contrary to principle” and then to seek to mitigate that result by devising yet further new special rules of law. I am satisfied that those reasons do not compel the courts to resort to a similar expedient at the reinsurance level. To the contrary, a principled solution has been proposed by Equitas which does not allow the reinsured to select the period and policy to which the whole of its loss attaches – contrary to the basis on which the reinsurance was placed. The proffered solution also does not allow the reinsured to obtain under a contract to provide cover for one year an indemnity for the whole of a loss which arises from risks extending over a number of years – a result which, as Lord Sumption put it, “entirely severs the functional connection between premium and risk”: see IEG at para 155. The solution which avoids subverting the basis of the reinsurance contracts in these ways rests on the now well established and orthodox principles developed by the common law to control the exercise of contractual powers.

Implied constraints on the exercise of contractual powers

    1. An important development in the English law of contract which has gathered momentum in recent years is the readiness of courts to imply a term as to the manner in which a contractual power may be exercised so as to ensure that the power is not abused and is exercised in good faith. The doctrine of good faith in this context requires a contractual power to be exercised in a way which is consistent with the justified expectations of the parties arising from their agreement, construed in its relevant context.
    2. The conceptual basis for this approach appears most clearly from the decision of the House of Lords in Equitable Life Assurance Society v Hyman [2000] UKHL 39; [2002] 1 AC 408. In that case with profits policies of life insurance issued by a mutual society provided for the payment when the policies matured on the policyholder’s retirement of a guaranteed rate annuity. The contractual relationship between the policyholder and the Society was also governed by the Society’s articles of association under which the directors had the power to award a financial bonus when the policy matured. The relevant article of association (article 65) stated that the amount of this bonus was in the “absolute discretion” of the directors. The House of Lords held that it was necessary to imply a term into article 65 which precluded the directors from exercising their discretion in a way which depended on whether the policyholder would be receiving an annuity at a guaranteed rate. In approaching the question whether a term was to be implied, Lord Steyn (with whom the rest of the appellate committee agreed) identified the inquiry as:

“entirely constructional in nature: proceeding from the express terms of article 65, viewed against its objective setting, the question is whether the implication is strictly necessary.”

Lord Steyn concluded that the implication of a term which precluded the directors from exercising their discretion so as to pay different (and lower) bonuses to policyholders entitled to guaranteed rate annuities was strictly necessary, as it was “essential to give effect to the reasonable expectations of the parties”: [2002] 1 AC 408 at 459.

    1. I agree with the analysis of Sir Kim Lewison in his book on The Interpretation of Contracts (6th Edn, 2015) at para 6.08 that Lord Steyn was here applying the test of whether the implication was necessary to give business efficacy to the contract by asking whether, without the implied term, the contract would work in the way the parties would reasonably have expected it to work. This accords with the original statement of the business efficacy test in The Moorcock (1889) 14 PD 64 at 68 as seeking to give to the transaction “such efficacy as both parties must have intended that at all events it should have.” That included, in Bowen LJ’s classic statement, making each party promise in law to bear such perils or chances as it must have been in the contemplation of both parties that he should be responsible for: ibid.
    2. In identifying the scope of any term which it is necessary to imply for the contract to work in the way that the parties must have intended or reasonably expected it to work, the courts recognise that, where the contract permits a party to make a choice or requires it to make an evaluative judgment, it is for that party and not the court to make the relevant choice or evaluation. Consequently, the term implied often imports a standard of review similar to that applied in judicial review of administrative action whereby the decision-maker is required only to act honestly and reasonably in the Wednesbury sense: see Socimer International Bank Ltd v Standard Bank London Ltd [2008] EWCA Civ 116; [2008] 1 Lloyd’s Rep 558, para 66; Braganza v BP Shipping Ltd [2015] UKSC 17; [2015] 1 WLR 1661, paras 19-30. What is honest and reasonable is judged by reference to the purpose(s) which the contract requires or permits the party exercising the relevant power to pursue.
    3. There is now a large body of case law in which this approach has been applied. An early but pertinent example is Gan Insurance Co Ltd v Tai Ping Insurance Co Ltd (Nos 2 & 3) [2001] EWCA Civ 1047; [2001] Lloyd’s Rep IR 612. In that case a contract of reinsurance contained a claims cooperation clause which provided that, in relation to any claim made under the underlying insurance policy, “no settlement and/or compromise shall be made [by the insurer] and liability admitted without the prior approval of reinsurers.” The Court of Appeal held that the power of the reinsurers to withhold approval to a proposed settlement was not an absolute right but was subject to an implied limitation that it must “be exercised in good faith after consideration of and on the basis of the facts giving rise to the particular claim, and not with reference to considerations wholly extraneous to the subject-matter of the particular reinsurance or arbitrarily”: para 76. By “arbitrarily” was meant not “in circumstances so extreme that no reasonable company in its position could possibly withhold approval”: para 73.
    4. Mance LJ (who gave the lead judgment) derived this implication from the context in which and purpose for which the claims cooperation clause gave reinsurers the right to withhold approval. The context included the fact that the reinsured was the company through which the financial burden of liability passed to the reinsurers, while the purpose was to protect the reinsurers’ interests in relation to the claim: para 67. He gave as one possible example of an unreasonable exercise of the contractual power a refusal to approve the settlement of a claim because the reinsurer had decided, for reasons unrelated to the particular claim, that it wished to prolong payment of any claims for as long as possible, however obvious it might be that they would have to be met in full and should as claims be settled on the best terms possible: para 68.
    5. The context in which the contract conferring the relevant power has to be construed may include a relevant legal regime. For example, in British Telecommunications plc v Telefónica O2 UK Ltd [2014] UKSC 42; [2014] Bus LR 765 an “interconnection” agreement under which BT gave various mobile network operators access to certain landlines with associated numbers conferred on BT a power unilaterally to fix or vary its charges. The Supreme Court held that the exercise of this power was impliedly limited by reference to objectives set out in an EU Directive (referred to as “the Framework Directive”) which regulated the arrangements made between telephone network operators. Lord Sumption (with whose judgment the other Justices agreed) said, at para 37:

“As a general rule, the scope of a contractual discretion will depend on the nature of the discretion and the construction of the language conferring it. But it is well established that in the absence of very clear language to the contrary, a contractual discretion must be exercised in good faith and not arbitrarily or capriciously. This will normally mean that it must be exercised consistently with its contractual purpose.” (citations omitted)

Construing the interconnection agreement in the context of the legal environment in which the parties were operating, Lord Sumption considered that “the intention of the parties must be to comply with the [regulatory] scheme as it stands from time to time so far as the contract permits” and that this intention necessarily informed the scope and operation of BT’s power under the contract to set its own charges. It followed that BT was only entitled to vary its charges if the variation was consistent with the purposes set out in the Framework Directive.

    1. There are occasions when no term will be implied to fetter the exercise of a contractual power. But that conclusion, when reached, is also the result of a process of construction. The language in which the power is expressed is not decisive. For example, in the Equitable Life case the discretion of the directors to decide what final bonus should be paid was held to be limited, even though the discretion was expressed to be “absolute”. An example of a case in which a contractual power was found, on analysis, to be unfettered is Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd (t/a Medirest) [2013] EWCA Civ 200; [2013] BLR 265. In that case a contract for the provision by a private contractor of catering and cleaning services to a hospital trust contained very detailed rules for measuring the contractor’s performance through a system of awarding “service failure points” for specified “performance failures” and deducting sums from the price paid to the contractor each month according to the number of service failure points incurred.
    2. The Court of Appeal found that the award of service failure points and calculation of deductions did not involve the exercise of any discretion. In relation to any question whether points had been correctly awarded, there was only one right answer determined by the rules set out in the contract. In the event of disagreement about the answer, the contract provided for a dispute resolution procedure. The hospital trust was not contractually obliged to award the number of service failure points stipulated by the contract or to make the deduction from a monthly payment stipulated by the contract, and in that sense had a discretion whether or not to do so. But the trust could not be criticised if it chose to award the full number of points and levy the full deduction provided for in the contract. Thus, the only discretion which the trust had was to decide whether or not to exercise an absolute contractual right.

The term implied in this case

    1. Applying the principles illustrated by these authorities, the relevant contractual power in the present case is the power of MMI under each of its policies of reinsurance with Equitas to claim an indemnity for its “ultimate net loss” (so far as it falls within the policy limits) resulting from an accident that occurred during the policy year. Without doubt, the ordinary expectation is that the exercise of this power is completely unfettered such that MMI has an absolute right to claim and be indemnified for the whole of this sum. That expectation, however, rests on the assumption – which, as discussed earlier, is a fundamental feature of an insurance contract – that MMI has no choice about the policy period to which a loss attaches and that, if a loss falls within one period, it cannot also fall within another. The ordinary expectation also assumes that the amount of the loss falling within a particular policy year does not depend on what risks the reinsured has underwritten in any other policy year. Again, this simply reflects the basic nature of insurance and reinsurance.
    2. As discussed, within the Fairchild enclave, these assumptions no longer hold good. The same indivisible loss is treated as having been caused in multiple policy years, thus giving an insurer which provided EL cover to the employer for two or more of those years the ability to choose the policy year (or years) to which it will attribute the loss for the purpose of making a reinsurance claim. The amount of the insurer’s ultimate net loss also depends, entirely anomalously, on whether or to what extent the insurer provided EL cover for other years in which the insured employer wrongfully exposed its employee to asbestos. In this topsy-turvy world it is impossible for the applicable contracts of reinsurance to work exactly as the parties intended and reasonably expected them to work. To make the contracts work as consistently as is possible with the parties’ presumed intention and reasonable expectations, it is necessary to imply a term which restricts the exercise of the reinsured’s power to select how it will present its claim as between policy years.
    3. True it is that the question whether a term must be implied is to be judged at the date when the contract was made (see Marks & Spencer plc v BNP Paribas Securities Services [2015] UKSC 72; [2016] AC 742, para 23) and that when the relevant reinsurance contracts were made the parties could not have foreseen the situation that has arisen as a result of the law’s response to mesothelioma claims. The court’s task is nevertheless to consider how reasonable parties should be taken to have intended the contract to work in the circumstances which have in fact arisen. As Chadwick LJ explained in Bromarin AB v IMD Investments Ltd [1999] STC 301 at 310, in this type of case:

“The task of the court is to decide, in the light of the agreement that the parties made, what they must have been taken to have intended in relation to the event … which they did not contemplate. That is, of course, an artificial exercise, because it requires there to be attributed to the parties an intention which they did not have (as a matter of fact) because they did not appreciate the problem which needed to be addressed. But it is an exercise which the courts have been willing to undertake for as long as commercial contracts have come before them for construction.”

See also Lloyds TSB Foundation for Scotland v Lloyds Banking Group plc [2013] UKSC 3; [2013] 1 WLR 366, para 1, where the legal and accounting context in which a contract had to be construed by the Supreme Court was “unthinkable” when the contract was entered into.

    1. I think it clear that the way in which reasonable parties would have intended the reinsurance contracts at issue in this case to work if they had contemplated the legal regime which now applies within the Fairchild enclave, is by requiring the insurer / reinsured to present its claims in a way which spreads its ultimate net loss across the period covered by the EL policies under which it is liable to indemnify its insured. Such an apportionment matches the claim as closely as possible to the underlying risk (of wrongful exposure to asbestos) which is treated as having caused the loss and provides the closest achievable approximation to how the reinsurance contracts were justifiably expected to operate. It also reflects the common law principle of apportionment established by Barker, which has been displaced by legislation only in relation to the liability of employers (and other wrongdoers) to mesothelioma victims in UK law and not in relation to insurers and reinsurers.
    2. The way in which I would formulate the term implied is to say that MMI may claim under reinsurance policies covering a particular year only such share of its ultimate net loss as reflects the extent to which exposure to asbestos in that year contributed to the risk which arose during periods covered by MMI’s policies of the victim contracting mesothelioma as a result of the insured employer’s wrongdoing. In accordance with the common law, the default method of assessing this contribution is simply by reference to time on risk; but there could be facts (for example, more intense or frequent exposure to asbestos or exposure to a particularly dangerous type of asbestos) which would justify treating one year’s contribution to the risk as greater than that of another. Where the insurer’s apportionment of the loss is based on such an evaluative judgment, the insurer’s judgment will only be open to challenge if it has not been honestly and reasonably made.
    3. At a higher level of abstraction, the justification for implying this term is that the implication is necessary to prevent the insurer’s power to allocate its loss among policy years from being abused. The power to ‘spike’ a loss to a particular year is not one for which the reinsured can reasonably be said to have bargained since it was not within the reasonable contemplation of the parties when the reinsurance contracts were made that the reinsured might be able to choose the year to which a loss will attach. Nor was it within the reasonable contemplation of the parties that the reinsured might be able to claim under a policy providing one year of cover loss that results from risks that arose in other policy years. Both these possibilities are inconsistent with the essential nature and purpose of the parties’ agreement. In these circumstances good faith requires that the reinsured should not exploit this power which it was not intended to have for its own commercial advantage but should exercise it in a way which is as consistent as possible with the assumption of risk for which the reinsurance premium was paid.

The grounds for distinguishing IEG

    1. MMI contends that this analysis proves too much because, if correct, it would similarly require an insured employer to limit its claim under an EL policy, by reason of an implied term in the insurance contract, in a similar way. It is argued that such a conclusion would be inconsistent with the approach taken by the majority of the Supreme Court in IEG.
    2. In my view, there are at least five answers to this argument which provide solid grounds for distinguishing the reasoning of the majority in IEG.
    3. First (although I would be reluctant to rely on this ground alone), the solution proposed by Equitas based on the doctrine of good faith, which in my opinion is well founded, was not proposed or considered in IEG. It therefore cannot be said that it is a solution which did not commend itself to the Supreme Court or which the Supreme Court has rejected.
    4. Second, the fact that no such solution was proposed in IEG is a reflection of the position taken by insurers and the Association of British Insurers in that case who, as mentioned earlier, supported an approach that allows the insured employer to select the insurer from which to claim a full indemnity. The insurance industry took this position even though Lord Sumption had proposed an alternative solution and even though the position taken was on its face contrary to insurers’ own interests. The majority of the Supreme Court was clearly influenced by this “striking” feature of the case. By contrast, in the present case reinsurers are not arguing for such an approach and are pressing for a different solution (which is not the solution suggested by Lord Sumption).
    5. Third, I have little doubt that the stance taken by the insurance industry in IEG was, as Lord Neuberger and Lord Reed deduced, driven by a fear that, if the courts did not allow an insured employer to recover its full loss from any insurer which had provided cover for any part of the period of exposure to asbestos, Parliament would intervene to procure that result. Such a fear was plainly rational given the policy of the legislature, demonstrated by its enactment of section 3 of the Compensation Act 2006, that an employee-victim should be able to recover full compensation for asbestos-related mesothelioma. The practical difference between the approach of the majority and that of the minority in IEG, as Lord Mance identified, arises where the insured employer is insolvent. In such a situation, which seems likely to be common given that decades may pass between exposure to asbestos and the development of the disease and given the potential number and size of claims, Lord Mance’s approach enables the victim to recover full compensation even if his former employer is insolvent, provided the employer had insurance for any part of the relevant period with a solvent insurer. It is the insurer which, in such circumstances, will suffer the consequences of the insured’s insolvency, as its right of recoupment will be worthless.
    6. This policy reason for allowing the insured to recover its full loss from any solvent insurer does not exist at the reinsurance level. It has not been – and could not realistically be – suggested that, unless the insurer is allowed to recover its entire loss from those reinsurers who provided cover for any one year during the relevant period, there is a significant risk that the employee-victim will not be fully compensated. Accordingly, and in my view most importantly, the policy reason which justified the approach taken by the majority in IEG does not apply at the reinsurance level.
    7. Fourth, the implication of a term which requires the reinsured to confine its claim under its reinsurance for each year to an appropriate proportion of its loss is not inconsistent with the decision of the Supreme Court in the Trigger litigation. This solution therefore does not suffer from the defect which the majority in IEG considered fatal to Lord Sumption’s approach.
    8. Fifth, the solution proffered in the present case has the same merit at the reinsurance level as the solution adopted by the majority in IEG has at the insurance level of being consistent with the way in which the market has operated in handling mesothelioma claims. As Males LJ has noted at para 18 above, MMI initially presented claims under its reinsurance policies on the basis of a time on risk allocation. This changed, we were told, after the decision of the Supreme Court of Appeal in the Trigger litigation.
    9. Furthermore, even the simplified examples used in these proceedings to illustrate the parties’ rival cases as to how contribution and recoupment should operate at the reinsurance level show the very real practical difficulties that would be likely to arise whatever precise method of contribution and recoupment is adopted. At the insurance level, an insurer who pays the insured employer’s full loss and wishes to exercise rights of contribution and recoupment only needs to find out what insurance, if any, the employer had in other years in which the employee was exposed to asbestos and then to calculate each insurer’s proportion of the risk along with any proportion to be borne by the employer if it was uninsured for part of the exposure period. That is likely to be a relatively straightforward task. At the reinsurance level the position is far more complex. Where, as may well be the case, an insurer has multiple layers of excess of loss reinsurance in each relevant year, many different reinsurers may potentially be involved. Moreover, there may be no direct correspondence between the limits of layers of reinsurance placed in different years. A solution which avoids the need to calculate and settle what may be a large number of contribution and recoupment claims (for what may be quite small amounts of money) arising from any one loss has obvious practical advantages.
    10. The short of the matter is that the courts need not and should not impose a complicated, burdensome and, to put it charitably, unconventional solution on the reinsurance market when a simple, principled and orthodox solution is at hand.

Conclusion

    1. For these reasons, as well as those given by Males LJ, I would allow the appeal and answer the questions of law raised on the appeal in the terms that he has indicated.

Lord Justice Patten :

  1. I agree with both judgments.

Health Sciences North v Cupe, Local 1623, 2019

IN THE MATTER OF AN ARBITRATION

BETWEEN

HEALTH SCIENCES NORTH
(“the Employer”)

and

CUPE Local 1623
(“the Union”)

Employer Grievance
and
Grievance of RR
(“the Grievor”)

 

Preliminary Ruling on Request of MC for Standing

 

 

 

For the Employer      David Chondon, Counsel

For the Union Wassim Garzouzi, Counsel

For MC                      John Yach, Counsel

This matter proceeded by Written Submissions received on various dates and completed on April 12, 2019.

 

Overview

[1]           Two grievances have been referred to me for hearing.

 

[2]           The employer has filed a grievance against the union alleging that the union failed to take all reasonable and necessary precautions to promote and ensure a healthy and safe environment free from intimidation, harassment, discrimination, interference and coercion for its members and executive contrary to a number of statutes and employer and union policies. The employer seeks a number of remedies aimed at preventing the alleged behaviour and ensuring that it does not occur going forward and including “any other remedy appropriate in the circumstances”.

 

[3]           The union has filed a grievance alleging that the termination of the grievor was without just or reasonable cause. The grievor was terminated, after an investigation which was conducted in response to a complaint by MC and others regarding the grievor’s behaviour and conduct, both in and out of the workplace. The remedies sought in the grievance are, for the most part, typical of those found in termination cases, including of course reinstatement and compensation.

 

[4]           MC seeks a preliminary ruling that “she is entitled to full party standing… [w]ith full rights to call evidence, cross-examine witnesses and make submissions”. The request relates to both grievances.

 

[5]           The hearing is scheduled to commence on April 29, 2019 and the issue of the status of MC must be resolved prior to that time. Accordingly, this award is prepared under very tight time constraints.

 

[6]           Having carefully considered the submissions of the parties, the request for full party standing is denied.

 

Facts

 

[7]           The facts can be summarized as follows. These facts are based on assertions made in the submissions on this preliminary issue that have yet to be proven.

 

[8]           Both the grievor and MC were on the local union Executive Board. The grievor was in a more senior position and it is alleged that MC was required to report either to him or to the local union president in fulfilling her union duties.

 

[9]           It is alleged by MC that in May 2018 she raised the grievor’s behaviour toward her with a National Representative of the union. The allegations are in the nature of sexual assault and sexual harassment both in the workplace and at union functions/events.

 

[10]        MC alleges that the National Representative provided little or no support to her once her allegations were raised with her and failed to follow up on undertakings to raise MC’s issues as she promised to do.

 

[11]        Ultimately, in July 2018, a fellow employee and Co-Chair of the Joint Health and Safety Committee initiated a complaint with the employer of a potential occupational health and safely violation consisting of the grievor’s inappropriate conduct toward MC which the complainant alleged he had personally witnessed.

 

[12]        In response, the employer initiated a formal in investigation into the complaint.

 

[13]        Following the filing of the complaint, MC alleges that both the National Representative and the local union president pressured her to confine her complaints to the allegations relating to behaviour outside of the workplace. As a result, she states that it was obvious to her that the union’s concern was to silence her and prevent the grievor from losing his job.

 

[14]        The applicant participated in the investigation process and was interviewed by the investigator. Since September 3, 2018 “due to the stressors associated with the harassment and the ongoing investigation”, MC has been absent from work on sick leave. She alleges that she has been diagnosed with severe depression, anxiety and insomnia.

 

[15]        On September 14, 2018 MC was advised by the employer that the investigation was complete and that “allegations of misconduct by the [grievor] against you, are substantiated”.

 

[16]        MC asserts that she has been advised that there is a split among the members of the Local Union Executive Board divided between those who support her and those who support the grievor. She also asserts that the Local was placed under administration which she believes was due to this split and the resulting dysfunction it has caused.

 

[17]        MC asserts that she has experienced a significant loss of self-esteem, confidence and trust in others, including coworkers. She states that the thought of seeing the grievor causes her to become extremely anxious and upset and the uncertainty surrounding whether the grievor will return to the workplace is constantly on her mind.

 

[18]        MC asserts that she has lost income as a result of having to take STD benefits, and EI sickness benefits.  She has now been required to apply for LTD benefits.

 

[19]        It is asserted that the actions of the grievor with respect to MC are the basis for the employer’s grievance and the termination of the grievor.

 

Positions of the Parties

 

MC

 

[20]        MC asserts that her future health, reputation and ability to remain employed with the employer are at stake and the union is taking a position contrary to her.

 

[21]        MC asserts that in view of the remedies sought by the grievor and the fact that her allegations of sexual assault and sexual harassment formed the basis for his termination, it is obvious that her credibility and her reputation will be tested. Accordingly, she asserts that “natural justice dictates that she be afforded the opportunity to present her own evidence and, importantly, to challenge the evidence of other witnesses, particularly [the grievor]”.

 

[22]        Furthermore, MC asserts that “it must be assumed that the Union will argue that any acts of harassment that occurred at Union functions, and not on HSN premises, cannot be considered by the arbitrator”. She argues that it is her right to ensure that her individual rights under the collective agreement are as vigorously advocated for as those of the grievor. She asserts that it is important that the union has refused to provide her with her own legal counsel, “similar to that enjoyed by [the grievor]” despite the fact that the union is conflicted by advocating the grievor’s interests over those of MC.

 

[23]        Finally, MC asserts that her loss of income and stability of employment, which occurred as a direct result of the harassment she endured, supports her request for full rights of participation in both grievances to ensure that those interests are protected.

 

[24]        MC relies on the decision in CUPE Local 101 and London (City)2014 CarswellOnt 5699 (Lynk) (“City of London”) at para. 10.

 

Employer

 

[25]        The employer “generally agrees with and adopts the submissions” of MC.

 

[26]        In addition to City of London, the employer relies on Saskatoon Regional Health Authority v. Service Employee International Union West (Erosa-Lopez Grievance) (“Saskatoon Regional Health Authority”) and Render v. ThyssenKrupp Elevator (Canada) Limited (“Render”).

 

[27]        The employer asserts that MC’s interests may be directly, personally, and adversely affected by the outcome of this proceeding because a finding that she is not credible in respect of her allegations against the grievor would result in significant reputational harm and would pose a potential risk to her (undefined) employment entitlements with the employer. Furthermore, the employer argues that the grievor’s request for reinstatement “presents a clear risk to [MC’s] ability to return to and participate fully in the workplace”.

 

[28]        The employer also asserts that the remedies sought in its grievance “may support remedial relief to [MC]” as further supporting her request for full party status.

 

[29]        The employer argues that a review of MC’s submissions indicates “that there is a risk of [MC] initiating further proceedings” regarding the issues in the grievances and that affording her full party status avoids the risk of multiple proceedings.

 

[30]        Finally, the employer asserts that its interests and those of MC diverge in two respects. First, the employer asserts that there is some uncertainty regarding the circumstances or reasons for MC’s continued absence from work which, in her submissions, she attributes to stressors associated with the harassment and the ongoing investigation. Second, the employer disputes MC’s assertion that until January 8, 2019 she was not informed by, among others, the employer regarding the actions, if any, taken against the grievor including whether he had been suspended from the workplace pending the outcome of the investigation.

 

[31]        The employer argues that these disagreements raise a reasonable risk that the employer may take a position that does not enhance MC’s interests.

 

Union

 

[32]        The union argues that the request for standing should be denied.

 

[33]        The union argues the grievance arbitration process is an inherently private process between the union and the employer and that third parties are granted standing only in narrow, exceptional circumstances, none of which apply in this case.

 

[34]        The union argues that an individual seeking to intervene must have a direct legal interest or stake in the outcome of the proceeding and show that the principles of natural justice would be violated if they did not receive standing. The union observes that the type of categories to which the exception applies are generally job competition grievances or jurisdictional disputes between two unions.

 

[35]        The union argues that MC does not meet the test for third-party standing because she has no direct legal interest or stake in the outcome of the proceeding. More specifically, the union asserts that because her employment status or legal rights are not engaged in the present case, denial of standing will not result in a breach of natural justice.

 

[36]        The union observes that the basis for MC’s application is that her employment status or rights would be affected if the grievor was reinstated and that her reputation could be affected if she was not found to be credible in her complaint.

 

[37]        The union argues that neither of these grounds support MC’s application. She has no legal rights or interest in whether the grievor is reinstated. The union notes that if the grievor is reinstated and MC requires medical accommodation, there are established avenues for her to pursue that. In addition, the union notes that there is no precedent for a harassment complainant to be granted status on the basis that her credibility will be tested. The union argues that there can be no adverse legal consequences with respect to her employment or otherwise if MC is found not to be credible. She has no legal rights at risk in this proceeding.

 

[38]        The union argues that the decision cited by the employer, Render, should not be followed and does not apply in this proceeding. The union notes that the decision was made pursuant to rule of the Ontario Rules of Civil Procedure which specifically provide for intervenor status. The union argues that the decision cannot be relied on in a labour arbitration context since it arises in a completely different jurisdictional context and it runs contrary to well-established arbitral jurisprudence.

 

[39]        The union also argues that it is clear from the submissions made by MC that she seeks to dramatically expand the scope of the present proceeding. The union notes that the thrust of her submissions indicates she has complaints about the representation she received from the union which the union observes is within the exclusive jurisdiction of the Ontario Labour Relations Board (“OLRB”).

 

[40]        The union argues that the decision in City of London on which both MC and the employer rely should not be followed for two reasons. First, it expanded the ground supporting a request to intervene beyond direct legal interest in the proceeding to a significant personal interest. The union asserts that this is contrary to the prevailing jurisprudence. Second, the union notes that the request to intervene in that case (and the cases that have adopted it) came from an individual who was accused of serious misconduct, such as discrimination or harassment, and whose employment status or reputation could be adversely affected by the outcome of the proceeding.

 

[41]        The union points out that neither MC nor the employer have cited a single labour arbitration case in which that analysis has been applied to permit a harassment complainant to participate in the arbitration proceeding and cites the decision in Bruce Power LP, [2008] OLRD No 170 (OLRB) (“Bruce Power”) in which the OLRB refused to grant standing to a union which relied on City of London to seek standing in the grievance of an employee who was disciplined as the result of complaints made by the members of the union.

 

[42]        Finally, the union asserts that there is no divergence of interests between the employer and MC relating to the present case. It argues that the interests of MC and the employer with respect to the termination of the grievor’s employment are fully aligned and that in those instances asserted by the employer where their interests are not aligned, these are irrelevant to the present case.

 

[43]        The union refers to and relies on Laurentian University and Laurentian University Faculty Association, 2017 CanLII 73319 (Burkett)(“Laurentian University”) and the following cases cited in that award, Bloorview School Authority and CUPE, Local 4400 (C-10050), 2015 CarswellOnt 77, 252 L.A.C. (4th) 87 (Knopf) (“Bloorview”); Metropolitan Toronto Apartment Builders’ Assn. of Metropolitan Toronto and Toronto Inc. and LIUNA Local 183 (Residential Framing Agreement), Re 2016 CarswellOnt 1049, 125 CLAS 320 (Surdykowski); Re Toronto Hospital and O.N.A., November 29, 1996, 45 CLAS 467 (P. Picher) as well as Kawartha Pine Ridge District School Board and OSSTF, District 14, 2010 CanLII 47732 (Knopf) (“Kawartha Pine Ridge DSB”) ; Essar Steel Algoma Inc. v. United Steelworkers, Local 22512018 CanLII 126-3580 (Pallard) (“Essar Steel”) and Ontario Public Service Employees Union (Hunt at al) and The Crown in Right of Ontario (Ministry of Attorney General) 2009 CanLII 66598 (ON GSB).

 

Reply

 

MC

 

[44]        MC asserts that she has significant legal rights at stake in this proceeding which are to be found in the antidiscrimination provision of the collective agreement (Article 3.01) which incorporates the provisions of the Human Rights Code into the collective agreement. She argues that “[T]he Employer grievance is the precise mechanism through which [her] direct legal interests can and will be addressed, and which avoids the necessity for duplicity of proceedings by the Applicant filing an ‘individual grievance’ as against the Union itself”.

 

[45]        She also argues that where, as here, “… [i]t is patently clear to the victim that the Union will prefer the interests of the accused, above all else, due to the Union’s admitted desire to protect its own political self interests, it is imperative that the victim be granted the unfettered right to defend her own best interest, which includes the right to hear and test the evidence of all witnesses, including the harasser”.

 

[46]        MC also argues that if she requires accommodation in the future in returning to work, she would be required to prove discrimination, based on the grievor’s conduct toward her. As I understand her argument, a finding in favour of the grievor in this case may result in finding that the issue is res judicata for all purposes and for that reason alone MC is entitled to standing to advance and protect her legal rights.

 

Employer

[47]        The employer once again asserts that its grievance against the union is sufficiently broad to encompass relief for the applicant including damages for loss of compensation and damages for the alleged discriminatory, careless, or negligent conduct of the union.

 

[48]        The employer notes that it accepts the general principle that a third party should only be granted standing in narrow, exceptional circumstances and concedes that there is no arbitral precedent where a harassment complainant has been granted such standing. However, the employer submits that the facts in this case are unprecedented and meet the requisite threshold for party standing.

 

[49]        The employer submits that in the context of a sexual harassment allegation, the complainant has a unique interest in protecting her credibility because the nature of the reputational harm facing her differs from that faced by an individual alleging intimidation by a competing union steward as in the Bruce Power LP.

 

[50]        The employer argues that the interests of the union and MC are not aligned in this case and that the union cannot represent her interests fully and properly in this proceeding.

 

Decision

 

[51]        MC seeks “full party standing” at the hearing of these grievances. As I understand her request, she seeks to have the identical standing as the parties to the collective agreement with the right to challenge the evidence of the union, the right to present her own evidence and the right to make final argument on all issues without any limitation, including on matters which do not touch on any of the personal matters she has identified.

 

[52]        This request, if granted, would be without precedent. There are no cases that were referred to where a harassment complainant has been granted third party standing in a grievance arbitration. Moreover, it goes far beyond the limited right of participation granted in the cases relied on by MC and the employer where a right to intervene was granted to an alleged harasser only in respect of personal matters (reputation, privacy, integrity).

 

[53]        The case law is settled that grievance arbitration is a private process between the union and the employer. The participation of third parties in that process is exceptional (Laurentian University (and the cases cited therein) and Kawartha Pine Ridge DSB).

 

[54]        The exceptional circumstances which will support the participation of a third party in that private process have been articulated by ArbitratorBurkett in Laurentian University at p. 5 in the following terms “…a third party may be given intervenor status in circumstances where the third party is effectively unrepresented and it’s legal rights stand to be adversely affected by the arbitral decision or where a failure to grant intervenor status would lead to parallel hearing with a potentially contradictory result (i.e. jurisdictional disputes)”. [emphasis added] It is based on concepts of fairness and natural justice.

 

[55]        In Bloorview, which was cited by Arbitrator Burkett in Laurentian University Arbitrator Knopf reviewed a non-exhaustive list of factors that should be considered by arbitrators in exercising their discretion in these cases. These include:

 

  •      Does the third party have a direct and significant interest at stake?
  •     Would the third party suffer a definite and/or significant adverse effect if the grievance succeeds?
  •   What is the nature of the third party’s “interest”? Is it a legal, contractual, commercial or ‘other’ interest?
  •     Is the third party’s interest grounded in any labour law principles?
  •     Can the third party defend or protect that interest in any other forum?
  •     Would the denial of status result in the possibility of a different ruling in another forum?
  •     Does the third party have something significant to add to the proceeding?

 

 

[56]        In this case, MC can arguably claim that the first two factors support her request to intervene. However, in my view, she cannot do so in respect of the other factors.

 

[57]        She does not have a legal interest or right that would be adversely affected by the outcome of this proceeding. Although she can claim a broad legal interest in a harassment-free workplace, this is a right that all members of the bargaining unit share and is not a right personal to her that would support a request for third party status.

 

[58]        With respect to the grievor’s grievance, she has no legal rights that will be impacted by the outcome of that grievance. No doubt she strongly prefers that he not be reinstated. But that is a preference and not a legal right that she has. She also makes the point that his reinstatement will have adverse consequences on her and her health. If he is reinstated and if she suffers such adverse consequences, she may very well have legal rights at that will arise at that time that she can assert.

 

[59]        As noted by the union, most of her submissions in support of her request to intervene are focused on the lack of representation afforded to her by the union. This is a matter that must be pursued at the OLRB and not by way of intervention in a grievance arbitration proceeding. It is not obvious to me that there is any possibility of inconsistent results in view of the legal issues to be determined. The issue before me in the employer grievance is about whether the union violated the collective agreement and employer policies relating to harassment. The issue at the OLRB would be whether the union violated its duty of fair representation not to act in a manner that was arbitrary, discriminatory and in bad faith in the representation of the grievor.

 

[60]        The determinative factor in this case is whether the interests of MC and the employer align or are divergent. As Arbitrator Ish noted in Saskatoon Regional Health Authority:

 

29     The case law generally considers whether the interests of the employer are completely co- extensive with that of the third party. If the interests are divergent, or potentially divergent, this will be an important factor in determining that standing should be granted to the third party. It is important to note that it is not necessary for the third party to show that the interests are actually divergent or in conflict; rather, it is sufficient to show that there is a reasonable potential for that to occur.

 

[61]        In my view, the interests of MC and the employer are perfectly aligned with respect to the relevant issues before me. Both rely on the right to a harassment free work environment broadly defined to include union activities off the work-site. Both identify the union and the grievor as having violated this right. Both assert that, as a result, the termination of the grievor was for just cause. Both assert that the employer’s grievance should be allowed and that of the grievor dismissed. Both are vehemently opposed to the return of the grievor to the workplace

 

[62]        There is no doubt that MC will be a witness, perhaps the main witness, for the employer. The employer is represented by skilled counsel who will, no doubt, continue to bring forward the evidence and raise every available argument to achieve the results that both the employer and MC wish to achieve. In my view, MCs cannot claim to be “effectively unrepresented” in this proceeding. (see quote from Arbitrator Burkett in Laurentian University at para.54 above).

 

[63]        In her submissions, MC submitted that her “future health, reputation and ability to remain employed at HSN are at stake. This is a case in which the Union takes a position that [sic] contrary to that of the Applicant and it is not simply a case of general interpretation of the words of the collective agreement”.

 

[64]        The fact that the interests of the union are not aligned with her interests is obvious. But she does not identify any interests of the employer that are not aligned with her interests in this proceeding.

 

[65]        In each of the cases relied on by the employer and the union, a finding was made that the interests of the applicant for standing were not aligned with the party to the proceeding that was in the position of the employer in this case.

 

[66]        For example, in City of London, it was found that that a “…reasonable potential for conflict or divergence between the City and the Supervisor is very much present, particularly in the areas of evidentiary narrative and remedy”. (at para. 13)

 

[67]        In Saskatoon Regional Health Authority, Arbitrator Ish accepted “[t]hat the employer’s interests and those of Dr. Tellez Zenteno do not completely align…[t]here is more than a reasonable risk that the employer may take a position that does not enhance the interests of Dr. Tellez Zenteno” (at para.30).

 

[68]        In Render, (which I do not find persuasive essentially for the reasons articulated by the union) Master Graham stated (at para. 50) “Ms. Vieira’s interest in her moral and physical integrity goes beyond the interest in her credibility that would be advanced by the defendant employer, and warrants an order granting her intervener status so that she will also have the benefit of her own counsel’s limited participation in the trial”.

 

[69]        The two issues relied on by the employer as indicating a possible conflict between its interests and those of MC (see para. 29) are not persuasive since neither issue is relevant to the issues before me.

 

[70]        I can see no possible conflict of interest between MC and the employer in the litigation of the grievances before me.

 

[71]        It follows that MC has nothing significant to add to the proceeding as a party that will not and cannot be advanced by the employer. It seems to me that the interests of MC will effectively be represented by the employer.

 

[72]        In the submissions, both the employer and MC asserted that her right to claim compensation for both monetary and non-monetary damages was a right which supported her claim to full party status in this proceeding. The union opposed that position and cited arbitral authority that indicated that an intervenor in an arbitration proceeding between an employer and a union cannot assert an independent right to such damages (see Essar Steel). No contrary authority was cited by MC or the employer however because intervenor status is not granted in this case, it is not necessary to resolve this issue.

 

[73]        The employer then argued that its grievance was framed in such a way that that damages could be claimed in respect of the losses suffered by MC. The union once again disputed that position based on the language of the grievance and the provisions of the collective agreement.

 

[74]        I need not resolve that issue as part of this preliminary award. It seems to me that the position taken by the employer is not a reason to grant MC intervenor status but supports the view that her interests are completely aligned with those of the employer and will be vigorously pursued by the employer. Based on the submissions that have been made, the employer can, and I expect that it will, pursue its right to claim damages on behalf of MC as a remedy in its grievance should the grievance succeed. Whether it is entitled to do so can be fully argued at that time.

 

[75]        The request of MC for full party status is denied.

Windsor-Clive & Ors v Rees & Anor [2019] EWHC 1008 (Ch)

Neutral Citation Number: [2019] EWHC 1008 (Ch)
Case No: C30CF095

IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS IN WALES
PROPERTY, TRUSTS AND PROBATE LIST (ChD)

Cardiff Civil Justice Centre
2 Park Street, Cardiff, CF10 1ET
18 April 2019

B e f o r e :
HIS HONOUR JUDGE KEYSER Q.C.
sitting as a Judge of the High Court

____________________

Between:

(1) THE HONOURABLE IVOR EDWARD OTHER WINDSOR-CLIVE, EARL OF PLYMOUTH
(2) LADY EMMA WINDSOR-CLIVE
(3) THE HONOURABLE DAVID JUSTIN WINDSOR-CLIVE
(as Trustees of The St Fagans No. 1 and No. 2 Trusts)
 

Claimants

– and –
 
(1) JENKIN THOMAS REES
(2) PHILLIP REES

Defendants

____________________

Christopher McNall (instructed by Burges Salmon LLP) for the Claimants
Stephen Jourdan Q.C. (instructed by Michelmores LLP) for the Defendants

Hearing date: 3 April 2019
____________________

HTML VERSION OF JUDGMENT APPROVED
____________________

Crown Copyright ©

 

JUDGE KEYSER QC:

Introduction

    1. The claimants, as trustees of The St Fagans No. 1 and No. 2 Trusts, are the registered proprietors of land comprising Maesllech Farm, Radyr, Cardiff (“the Farm”). The first defendant is the tenant of the Farm, which he farms in partnership with his son, the second defendant. By this Part 8 claim, commenced on 22 September 2016, the claimants seek a permanent injunction restraining the defendants from interfering with their exercise of certain rights of access to the Farm.
    2. On 29 September 2016 His Honour Judge Jarman QC, sitting as a Judge of the High Court, granted an interim injunction restraining the defendants from interfering with the exercise of the claimed rights of access until trial or further order. For reasons that need not be stated here, the proceedings went into abeyance thereafter; the interim injunction remained in place but no steps were taken to progress the matter to trial. Eventually, on 3 January 2019 the case came before me on an application by the defendants. I continued the interim injunction until trial and gave directions for this hearing.
    3. The evidence adduced in support of the claim comprised an affidavit dated 26 September 2016 from Roderick Carew Perons, a director of Cooke & Arkwright and land agent for the claimants, and two statements from him dated respectively 21 September 2016 and 22 February 2019. The evidence in response consisted of one statement by each defendant, both dated 25 January 2019. There was no direction for oral evidence from the witnesses and none was received. I have regard to all of the written evidence, but I do not consider it necessary to recite in this judgment all the matters it covers.
    4. For convenient ease of reference, and without meaning to indicate any disrespect, I shall from now on refer to the first defendant as Jenkin and to the second defendant as Phillip.
    5. I am grateful to Mr McNall, counsel for the claimants, and Mr Jourdan QC, counsel for the defendants, for their helpful submissions.

The Farm and the Lettings

    1. The Farm comprises a total of about 240 acres of mainly arable land. The buildings on the Farm include a farmhouse and two cottages. Jenkin lives in the farmhouse with his wife. Phillip’s home has been in one of the cottages, although he is currently living in the farmhouse with his parents because, he says, the cottage is uninhabitable owing to the claimants’ failure to repair it. The other cottage is currently vacant.
    2. The Farm is on the western outskirts of Cardiff. It lies close to, and to the south of, the suburb of Radyr, adjacent to Llantrisant Road, which is the main local route into and out of Cardiff. Radyr was a developed settlement long before the 1960s, although of course it has undergone expansion in more recent years. A little way to the east of the Farm lies the settlement of Llandaff North, and to the south-east lies Llandaff; these also pre-date the 1960s. Fairwater lies to the south/south-east; although much expanded latterly, it was an established settlement in the 1960s. The land to the west of the Farm has remained largely undeveloped green field land.
    3. In the Cardiff local development plan 2006-2026, the Farm was identified as a strategic site for development. It is now intended to be part of the site of the new Plasdwr “garden city”. On 24 September 2014 two applications for outline planning permission were made to the local planning authority in respect of a larger area of land that included the Farm. One application (“the First Application”) was for 630 dwellings, a primary school, a community centre, public open spaces, vehicular and pedestrian access, drainage and associated infrastructure and engineering works. The other application (“the Second Application”) was for residential-led mixed-use phased development involving several thousand dwellings. The dispute between the parties arises out of the plans for development of the Farm pursuant to these planning applications.
    4. Although the land at the Farm is farmed as a single agricultural unit, different parts of it were let separately by agreements made between Earl of Plymouth Estates, the claimants’ predecessor, and Jenkin.
    5. First, by a written agreement dated 8 January 1965 (“the 1965 Tenancy Agreement”), 187.568 acres or thereabouts (“the 1965 Land”) were demised to Jenkin on a yearly tenancy commencing on 2 February 1964 at an initial rent of £1,496 p.a.
    6. Second, according to Jenkin’s evidence, shortly after the making of the 1965 Tenancy Agreement, sometime in 1966 or 1967, he made an oral agreement (“the Oral Tenancy Agreement”) with the agent of Earl of Plymouth Estates, for a tenancy of an additional 3.5 acres of land (“the Additional Land”) comprising two small areas adjacent to but slightly separated from each other; the larger area was to the north and was not contiguous to the 1965 Land; the smaller area was directly opposite the larger area and was contiguous to the 1965 Land. Jenkin says that it was never suggested that the letting of the Additional Land was to be treated as an addition to the 1965 Tenancy Agreement or the 1965 Land; it remained subject of a separate agreement that was never reduced to writing. On 7 February 2017, after the commencement of the present dispute, Jenkin executed an assignment of the Additional Land to JBG Rees Ltd, a non-trading company of which he, his wife and Phillip are the directors. He and Phillip continue to farm the Additional Land as part of the Farm. The claimants do not accept that the Additional Land constitutes a separate demise; they say that it has always been treated and invoiced as part of the demise under the 1965 Tenancy Agreement.
    7. Third, by a written agreement dated 20 March 1968 (“the 1968 Tenancy Agreement”), a further 51.439 acres or thereabouts (“the 1968 Land”) were demised to Jenkin on a yearly tenancy from 1 October 1967 at an initial rent of £350 p.a.

The 1965 Tenancy Agreement

    1. The 1965 Tenancy Agreement contained the following five clauses under the heading “RESERVATIONS BY THE LANDLORD”; clause 7 is particularly relevant to this claim:

“3. All mines minerals substances of every description stones flints chalk gravel sand peat earth and clay whatsoever in upon or under the premises with full and free liberty and power (including power and right to let down the surface without compensation) to enter upon the farm or authorise others to enter upon the farm in order to search for win dress make merchantable and carry away the same and to execute all work incidental thereto doing as little damage as the nature of the case may admit making the Tenant reasonable compensation for loss of crops (if any) for the current year and allowing the Tenant a proportionate reduction in rent for all land so permanently taken or damaged.

4. All timber and other trees pollards heirs saplings underwoods and woodlands with right of entry for himself and others authorised by him to plant mark fell cut and carry away the same over any part of the holding or lands hereby demised making the Tenant reasonable compensation for any loss or damage sustained thereby any claim for loss or damage to be rendered within two calendar months of the date of the occurrence of such damage.

5. Subject to the provisions of the Ground Game Acts of 1880 and 1906 all game ground or otherwise (including nests and eggs) fish wild fowl snipe landrail and plover together with a right for the Landlord and all persons authorised by him to preserve hunt shoot fish course and sport and the Tenant undertakes to assist in the preservation of game and the prosecution of poachers on the premises.

6. Power to take possession at any time of any portion of the holding (except house buildings or gardens) for building development or any purpose mentioned in Section 31 of the Agricultural Holdings Act 1948 on giving the Tenant three months’ notice in writing paying the Tenant compensation for his interest therein and allowing a proportionate reduction in the rent of the Farm.

7. Right for the Landlord and his Consultant and all others authorised by him with or without horses carriages and other vehicles to enter on any part of the Farm lands and premises at all reasonable times for all reasonable purposes.”

    1. Clauses 8 and 9 contained covenants by the landlord to repair the structure and exterior of the farmhouse and farm buildings. Clause 15 contained a covenant by the tenant against assignment or subletting of the premises or any part thereof without the landlord’s written consent. Clause 17 contained a covenant by the tenant to maintain and repair fences, gates, roads, walls, hedges and so forth. I do not need to refer to the other extensive provisions.

The 1968 Tenancy Agreement

    1. The 1968 Tenancy Agreement was a much shorter document. It contained a landlord’s covenant for quiet enjoyment and tenant’s covenants to keep the land in proper order and condition and all fences, hedges, roads, gates and so forth in good order and repair and not to assign, sublet or part with possession of any of the land without the landlord’s written consent. The following provisions in particular are relevant; for ease of reference I shall designate them as clause X and clause Y:

“PROVIDED ALWAYS AND IT IS HEREBY AGREED [X] that the Landlord shall have the right and power to resume possession of the land hereby let or any part thereof on the expiration of three calendar months’ notice in writing … if the said land is required for any of the following purposes namely Building, the addition ot [sic] [?] the said land to any Building leasehold plot, Mining, Quarrying, Sewering, Draining, Road Making, Planting or other Estate Development, the laying of Gas, Water or Electric Mains or for any other easement approved by the Landlord or required by a Local Authority.

AND FURTHER [Y] that the Landlord may at any time and at all times during the said tenancy enter upon the said premises with Agents Servants Workmen and others for the purpose of inspecting the same or for making roads sewers or drains or for any other purpose connected with his estate”.

    1. It is common ground that the demises under the 1965 Tenancy Agreement and the 1968 Tenancy Agreement both created agricultural tenancies governed at the time by the Agricultural Holdings Act 1948 and latterly by the Agricultural Holdings Act 1986.

The Facts

    1. Discord first arose at the end of April 2014, when Jenkin encountered two ecologists who were carrying out a habitat survey at the Farm on the instructions of the claimants and asked them to leave. On 1 May 2014 Burges Salmon wrote to Jenkin on behalf of the claimants, stating that the ecologists were entitled to access pursuant to the terms of the 1965 and 1968 Tenancy Agreements and demanding written confirmation that further access would not be obstructed; the letter said that, if written confirmation were not received by 6 May 2014, the claimants would apply for an injunction. On 6 May Mr Barry Meade of Davis Meade Agricultural, the agricultural consultant retained by the defendants, gave the confirmation sought. During the following years a significant number of persons visited the Farm on the instructions or with the permission of the claimants, for purposes that included the digging of boreholes. Access was largely without incident. But by the summer of 2016 Jenkin was aggrieved with the claimants over, in particular, an issue concerning payment for fencing and the claimants’ failure to pay compensation that he believed had been promised in respect of the boreholes. These matters form the backdrop of the events that led to these proceedings.
    2. By notice dated 9 August 2016, the local planning authority granted outline planning permission (“the First Planning Permission”) for development in accordance with the First Application.
    3. On 16 August 2016 the claimants served on Jenkin a notice to quit in respect of 21 acres comprising part of the Farm pursuant to Case B in Schedule 3 to the Agricultural Holdings Act 1986, on the ground that the land which was the subject of the notice was required for a use other than agriculture, namely development in accordance with the First Planning Permission. On 5 September 2016, Barry Meade served a counter-notice disputing the notice to quit and requiring that the dispute be referred to arbitration under the Agricultural Holdings Act 1986.
    4. On Tuesday 13 September 2016, Mr Chris Hyde of Cooke & Arkwright spoke to Phillip by telephone on two occasions, once at around 1 p.m. and once at around 6 p.m. The written evidence regarding the conversations is not entirely clear and not wholly consistent. Mr Hyde told Phillip that ecological surveyors would need to visit parts of the Farm on 14 and 15 September 2016; at some point in the conversations he mentioned that these were to be carried out by personnel of The Environmental Dimension Partnership (EDP). There were two different kinds of survey, a landscape survey and a habitat survey, though it is unclear to what extent they were distinguished in the conversations. The defendants’ evidence is that in the first telephone conversation Mr Hyde assured Phillip in this conversation that the surveyors would stay on public footpaths and not otherwise enter the Farm; that Phillip reported the conversation to Jenkin, who told him to tell Mr Hyde that the surveyors were to stay on the footpaths as promised and not stray onto the Farm; and that in the second conversation Mr Hyde assured Phillip that the surveyors would not leave the public footpaths. That appears to be at odds with an email that Mr Hyde sent to Jenkin at 3.22 p.m. that day:

“I spoke briefly with Phillip earlier today to let him know that surveyors will be conducting a walk over survey of parts of Maesllech tomorrow and on Thursday (14th and 15th September). The survey will be conducted on foot only, and will primarily use public rights of way. However, they also wish to skirt along the margins of some fields so as to gain a better view of the farm. I attach a plan showing the routes marked in yellow, not all of them affecting Maesllech.”

This made it clear that the surveyors, though largely staying on public footpaths, would also enter the margins of some fields. It is possible that Jenkin did not see that email; it was sent to a different email address from that generally used by Jenkin at the time. But the fact that it was sent at all makes it likely that Mr Hyde told the defendants that the surveyors would want to leave the footpaths. The defendants correctly acknowledge that they made clear to Mr Hyde that the surveyors were to remain on the public footpaths and not enter onto any other part of the Farm. Mr Perons made a file note of the report he received from Mr Hyde:

“Chris Hyde has reported to me that he has sought to arrange access for a walkover inspection by EDP tomorrow (14th September). In response to the latest request, Phillip Rees has told Chris Hyde today that he will deny access, unless conducted from the public footpath.”

    1. Mr Perons sent an email to Barry Meade, asking him to speak to the defendants and confirm that the surveys would not be opposed “so that we don’t have to involve lawyers again.” Mr Meade replied simply that he was abroad on holiday until 23 September. For some reason, Mr Perons nevertheless sent a further email later that day: “Please can you come back to me as soon as possible on access for the survey works? My clients have instructed Burges Salmon to apply for an injunction on Monday [19 September] otherwise.” Mr Meade did not reply further. In the event, on 14 and 15 September the landscape survey was completed from the public footpaths without incident.
    2. There remained the habitat survey, which could not be carried out from public footpaths. The habitat survey was arranged for Thursday 22 and Friday 23 September. On 16 September Mr Perons spoke to Phillip by telephone and told him when the habitat survey would take place. It was clear that the habitat survey would involve inspecting buildings, because it was concerned with the bat population at the Farm. Mr Perons states, “I … was left with the impression that they [the family] would not obstruct access for the ecological/habitat survey by EDP”. At Phillip’s request, Mr Perons wrote to Jenkin, formally notifying him of the habitat survey. The letter said, “I would be grateful if you could allow EDP access for this purpose or contact me if you wish to discuss the matter further.”
    3. In his statement, Jenkin states that he was concerned that the habitat survey was likely to prove very intrusive. He says that an earlier such survey in 2014 had been very intrusive and that the refusal of the ecologist to move when Phillip was working, in the dark, had been dangerous. He also refers to a previous incident where the claimants’ representatives had been given access to the Farm and had left a mess, potentially dangerous for humans and animals; he does not, though, suggest that those representatives had anything to do with a habitat survey or that an ecologist was likely to create such a mess.
    4. On the evening of 20 September, Mr Perons attended at the Farm by prior arrangement and met there with Jenkin and Phillip. The conversation included, though was not limited to, discussion about access for the habitat survey. Mr Perons’ file note records the meeting in the following terms:

“I went to Maesllech today to seek confirmation that Jenkin Rees would allow EDP access for the walkover surveys.

Philip Rees, speaking for his father, tried to claim that he understood that as his father had applied for arbitration, they didn’t have to allow access for surveys.

I told him that wasn’t the case at all. Philip Rees said that they wanted to [seek] advice from Barry Meade. I said that Barry Meade was away until 23rd September. I said that they needed to take advice because, should they not permit access, I was required to refer the matter to Burges Salmon.

Philip Rees said that they might speak to Barry Meade’s son, Philip Meade. I said that I thought that would be a good idea.”

There is some dispute as to who raised the possibility of speaking to Philip Meade, but in all other respects the note seems to be a reasonably accurate summary of the essential parts of the conversation.

    1. However, there is something of a conflict as to where matters were left at the end of the meeting. Jenkin’s evidence is as follows:

“My recollection of the outcome of that meeting was that it was left that we would think about it. Phillip or I might speak to Philip Meade and then contact Mr Perons. Although Mr Perons had suggested that the survey should take place on 22 and 23 September, that was plainly not going to be the case because of the need for advice. More importantly in the context of what then happened, Mr Perons did not give any indication that there was any urgency about proceeding with this.”

(That evidence largely reflects the contents of a letter that Phillip wrote to Mr Perons on 23 September.) Mr Perons’ evidence was that his understanding remained that the defendants were denying access (see paragraphs 61 and 62 of his second statement) but that they would seek advice and revert to him. He states that he told the defendants the date for the habitat survey; he does not state that he told them the date was critical, but he does not describe any discussion concerning changing the date.

    1. That there was a degree of urgency concerning the habitat survey is shown by the email that James Bird of EDP sent to Mr Perons on the evening of 20 September, after Mr Perons had met with the defendants:

“Let’s touch base in the morning and discuss further. We certainly need to resolve this as a matter of urgency.

It is of paramount importance to the Plasdwr application that we update the ecology surveys. To put it bluntly (and I hope not to appear rude, but just so we are aware of the ramifications of not doing the survey), the Plasdwr application will be refused on ecology grounds if we do not update the ecological surveys. …

We have 8 working days left to revise the Environmental Statement of which 2 of those days will be spent in the field doing the survey work. We simply must try to avoid changing the survey date, particularly as our ecology team is now fully booked for September.

If access cannot be granted I will need to update Redrow on this and explain the repercussions, but will of course liaise with you further before doing so.”

Jenkin states that Mr Perons did not tell him the contents or tenor of Mr Bird’s email and that at no point did he tell him that the matter was urgent or that legal action would be commenced if access were not given for the bat survey.

    1. At around midday on 21 September 2016 Jenkin sent an email to Mr Perons: “As you are aware our agent Barry Meade is out of the country on holiday from 14th to 28th September. We are concerned not to prejudice ourselves, so we request that the survey be postponed to enable us to seek advice from Barry to clarify the situation.” Having tried and failed to speak by telephone to Philip Meade and to Jenkin and Phillip, Mr Perons left telephone messages for the defendants and sent an email to Jenkin on the evening of 21 September: “In the light of our meeting and your email, it is my understanding that you will obstruct access for the walkover surveys programmed by EDP for Thursday 22nd and Friday 23rd September. My clients have instructed their solicitors, Burges Salmon, to apply for an injunction without delay.” The defendants did not reply to that email.
    2. On 22 September, the claimants issued the Part 8 claim and an application for an interim injunction. The claim form as originally issued sought an injunction “prohibiting the Defendants from obstructing the landlords’ or his authorised agents’ access to Maesllech Farm”. The application came before Judge Jarman QC on 23 September.
    3. Shortly before the hearing on 23 September, Phillip sent to Mr Perons a long letter by email (as mentioned above). He questioned why he had been included as a defendant in the proceedings, as he was not a tenant of the Farm. He complained that Mr Perons had not expressed any urgency regarding the habitat survey or said that the preferred dates of 22 and 23 September were critical or warned that court proceedings would be commenced if access were not granted immediately. He raised concerns about the disruption, mess and danger that would be occasioned by a habitat survey. He wrote: “We will obviously now think about the position. As we have not chosen to have a row and certainly not chosen to have Court proceedings we want to give the overall position careful thought. We want to speak to Barry Meade about that. Obviously it is not going to be possible for us to meet with you and Barry Meade for several days.”
    4. Also on the morning of 23 September, Philip Meade sent a letter by email to Mr Perons. He referred to two authorities, to which I also have been referred by Mr Jourdan, which he suggested raised a question whether the claimants’ rights under the tenancy agreements were as broad as they claimed. However, he said that he would not become involved in the matter.
    5. At the hearing on 23 September, Judge Jarman Q.C. adjourned the application for an injunction until 29 September and directed the claimants to file and serve a further affidavit in support.
    6. On 26 September Mr Perons sent an email to Barry Meade, who had returned from holiday. He wrote: “If your clients will now consent to access, please let me know but this will have to be endorsed by the Court.” Mr Meade replied that he would take instructions.
    7. That same evening, Phillip sent a letter by email to Mr Perons, setting out a proposal on behalf of himself and Jenkin: that they would permit access for an ecological survey only, while reserving their position regarding the claimants’ entitlement to access; that the proceedings would be stayed, with liberty to either side to restore them on notice; and that costs be reserved. Burges Salmon replied to the proposal on the following day, requiring general agreement not to obstruct access in accordance with the tenancy agreements and payment of half of the claimants’ costs. I was referred to all of this correspondence in the course of the hearing.
    8. On 28 September 2016 Phillip sent a letter to the court for the attention of the judge, explaining that he and his father would not be present at the hearing on the following day. He attached copies of recent correspondence, including the letters of 26 September, and wrote:

“We hope it is clear that we accept that the Landlords must have access for the ecological survey. If there are to be arguments about the rights and wrongs of that it should be in the future. …

I do not think that I should be involved in this at all because I am not a tenant of the farm. However, we agree that we will accept whatever the Judge thinks is the proper way to deal with this. …”

Phillip also sent a further letter by email to Mr Perons, to broadly similar effect. He wrote: “The sad thing is that these Court proceedings started without proper communication from you and without my Father even opposing access.”

    1. On 29 September 2016 Judge Jarman Q.C. granted an interim injunction restraining the defendants from “(a) interfering with or otherwise restricting the Right of Access and the use thereof by the Claimants their employees, agents and licensees; (b) interfering with or otherwise restricting the access to and egress from Maesllech Farm by the Claimants their employees, agents and licensees”. The second limb of the injunction must be construed by reference to the Right of Access mentioned in the first limb; and that in turn refers back to the third recital to the order, which recited that the trusts of which the claimants are trustees enjoyed “a right of entry (the ‘Right of Entry’) into Maesllech Farm under the 1965 Tenancy and the 1968 Tenancy”. Accordingly, the interim injunction was simply an injunction restraining interference with the exercise of the rights in clause 7 of the 1965 Tenancy Agreement and clause Y of the 1968 Tenancy Agreement. That, indeed, is precisely the relief now claimed in the amended claim form.
    2. Since the injunction was granted, access to the Farm has been exercised on numerous occasions by persons acting on the instructions or with the permission of the claimants. The defendants have not obstructed access.
    3. Events since September 2016 are of limited if any relevance to the issues before me. I refer to only a few of them.
    4. By notice dated 27 March 2017, the local planning authority granted outline planning permission (“the Second Planning Permission”) for development in accordance with the Second Application.
    5. As already mentioned, on 7 February 2017 Jenkin purported to assign the Additional Land to JBG Rees Ltd.
    6. On 1 June 2017 an arbitration award upheld the validity and effectiveness of the notice to quit dated 16 August 2016. As a result of that award, on 29 June 2017 Jenkin delivered up vacant possession of the 21 acres to which the notice to quit related.
    7. The claimants served on Jenkin five Case B notices to quit in January 2018 and a further three Case B notices to quit in August 2018. All of these have been referred to arbitration. The arbitration in respect of the January notices has been heard and an award is awaited. There has not yet been a hearing of the arbitration in respect of the August notices.

Summary of the parties’ cases

    1. I shall summarise very briefly how the respective cases were put by counsel. For the claimants, Mr McNall submitted that there was no proper reason to cut down the breadth of the wording of the rights of entry in clause 7 and clause Y. In the 1965 Tenancy Agreement, the only limitation in clause 7 was that the entry must be for the “reasonable” purposes of the landlord. The clause was to be read in the context of the very wide reservations in clauses 3, 4 and 5 and the power of resumption, reflecting section 31 of the 1948 Act, in clause 6; it was, however, an independent right, not to be read as merely ancillary to those in the preceding clauses. In the 1968 Tenancy Agreement, similarly, clause Y was to be read in the context of the reservation of a right of resumption in clause X. The words “his estate” at the end of clause Y were to be taken as a reference to the landlord’s reversionary estate, not to the landlord’s nearby land, and the words “or for making roads sewers or drains or for any other purpose connected with his estate” picked up the reference to easements in clause X. If the meaning of clause 7 or clause Y was ambiguous, it was to be construed against the tenant and in favour of the landlord because, for the purpose of the rule of construction contra proferentem, a reservation to the landlord was considered to be a re-grant by the tenant and, accordingly, the tenant was the proferens in respect of such a right. An injunction was required because the defendants had shown that they would obstruct the access to which the claimants were entitled.
    2. For the defendants, Mr Jourdan submitted that a right of access limited only by a requirement of reasonableness would be inconsistent with a grant of exclusive possession, the very essence of a tenancy, and with the implied covenant for quiet enjoyment and the implied obligation not to derogate from the grant; thus it would be repugnant to the relationship of landlord and tenant. A clause giving a landlord a right of entry was to be construed narrowly. In clause 7, the permitted activity was simply “to enter on” the Farm; it did not extend to digging holes or trenches, constructing anything, or leaving things on the land. The purpose for which entry could be effected must be limited to purposes pertaining to the relationship of landlord and tenant; an unrelated purpose would not be included within the clause simply because it was reasonable for the landlord’s extraneous interests. In clause Y, similarly, the right was to “enter upon” the Farm. The words “for the purpose of inspecting … with his estate” stated the permitted purposes of entry but did not give a right to do more than enter. The words “or for making roads sewers or drains” were to be understood from the concluding reference to “his estate”; that must refer to land retained by the landlord adjacent to the Farm, because the power to make roads, sewers or drains on the demised land was contained in the power of resumption in clause X and there was no reservation of any relevant easement over the demised land. In any event, no injunction ought to be granted, because there was no good reason to suppose that the defendants would deny access for proper purposes, especially once those were determined by the court, or that any infringement of the claimants’ rights would cause them any loss that could not be averted or remedied by the prompt grant of an interim injunction and, if necessary, an award of damages.

Discussion

The approach to construction

    1. The principal issue concerns the proper construction of clause 7 of the 1965 Tenancy Agreement and clause Y of the 1968 Tenancy Agreement. The general principles of construction of written agreements are not in doubt. They were summarised pithily by Lord Bingham of Cornhill in Dairy Containers Ltd v Tasman Orient CV [2005] 1 WLR 215 at [12]:

“The contract should be given the meaning it would convey to a reasonable person having all the background knowledge which is reasonably available to the person or class of persons to whom the document is addressed.”

The ramifications of that approach have been discussed in detail in many cases. I refer in particular to Rainy Sky S.A. v Kookmin Bank [2011] UKSC 50, [2011] 1 WLR 2900; Arnold v Britton [2015] UKSC 36, [2015] AC 1619, esp. per Lord Neuberger PSC at [15]-[22]; and Wood v Capita Insurance Services Limited [2017] UKSC 24, [2017] AC 1173, esp. per Lord Hodge at [10]-[13].

    1. There was one point of disagreement between the parties as to the application of these general principles to the present case. Mr McNall submitted that, as the written tenancy agreements created tenancies from year to year, the relevant background knowledge would change on a yearly basis. He cited no authority in support of that submission and I reject it. The relevant date is clearly when the respective agreements were made. Accordingly, neither the First Planning Permission nor the Second Planning Permission is relevant to the construction of the written tenancy agreements. The background knowledge of the parties in 1965 and 1968 would have included the fact that there had been some westward expansion of Cardiff, particularly in the Fairwater area, and that there was a possibility that the Farm would become earmarked for development in the future. It would also, I think, have included the fact that Earl of Plymouth Estates were significant landowners in and around the west of Cardiff. There is no evidence before me as to precisely what other land they owned in the vicinity of the Farm, save that Jenkin must be supposed to have known in 1965 that they owned the further land subsequently demised to him and to have known in 1965 and in 1968 that they owned the two areas of woodland that are now surrounded by the land demised by the 1965 Tenancy Agreement and the 1968 Tenancy Agreement. (The terms of Mr Hyde’s email to Jenkin at 3.22 p.m. on 13 September 2016, which refer to the surveyors’ intended walking routes, “not all of them affecting Maesllech”, seems quite likely to indicate that the claimants had other landholdings near the Farm; however, the inference is uncertain.) Finally, the legislative scheme under the Agricultural Holdings Act 1948 forms part of the potentially relevant background material.
    2. There was a dispute between the parties as to the particular approach to the construction of a reservation in favour of a landlord: Mr Jourdan submitted that such a reservation ought to be construed restrictively, while Mr McNall submitted that the only particular rule was that, in the case of genuine ambiguity, the reservation ought to be construed in favour of the landlord in accordance with the maxim contra praesumuntur contra proferentem. I shall consider this dispute by reference to some of the authorities cited to me.
    3. In Street v Mountford [1985] AC 809, the House of Lords reaffirmed the traditional doctrine that, in the case of a grant for a fixed or periodic term at a rent, “If the effect of the instrument is to give the holder an exclusive right of occupation of the land, though subject to certain reservations or to a restriction of the purposes for which it may be used, it is in law a demise of the land itself” (per Lord Davey, sitting in the Judicial Committee of the Privy Council, in Glenwood Lumber Co Ltd v Phillips [1904] AC 405 at 408). As Lord Templeman observed at 816, it might not always be clear whether exclusive possession was in fact granted. However, in the present case it is not in issue that the tenancy agreements granted Jenkin exclusive possession of the Farm, subject only to the reservations in the tenancy agreements, and that he is tenant to the claimants. It follows, further, that Jenkin is entitled to quiet enjoyment of the Farm, subject only to reservations made by the tenancy agreements.
    4. Not every reservation of rights is consistent with exclusive possession or quiet enjoyment of the demised premises. A reservation of rights to the landlord will, if possible, be construed so as to be consistent with the irreducible minimum consistent with the grant itself; but, if it cannot be so construed, it will be rejected as being repugnant to the demise. Some relevant principles were set out by Neuberger J in Platt v London Underground Ltd [2001] 2 EGLR 121:

“1.  It is well established that a landlord, like any grantor, cannot derogate from his grant. To put it in more normal language, as has been said in a number of cases, a landlord cannot take away with one hand that which he has given with the other …

2.  In order to determine whether a specific act or omission on the part of the landlord constitutes derogation from grant, it is self-evidently necessary to establish the nature and extent of the grant …

3.  ‘The exercise of determining the extent of the implied obligation not to derogate from grant involves identifying what obligations, if any, on the part of the grantor can fairly be regarded as necessarily implicit, having regard to the particular purpose of the transaction when considered in the light of the circumstances subsisting at the time the transaction was entered into’: per Sir Donald Nicholls VC in Johnson & Son Ltd v. Holland [1988] 1 EGLR 264 at 268A.

4.  There is a close connection, indeed a very substantial degree of overlap, between the obligation not to derogate from grant, the covenant for quiet enjoyment, and a normal implied term in a contract. Thus, in words which apply equally to an implied term in a contract, Bowen LJ said in Myers v. Catteson (1889) 42 ChD 470 at 481, in relation to the derogation from grant principle, that one should give effect to what he called ‘the obvious intention of the parties, so as to give the transaction between them a minimum of efficacy and value which upon any view of the case it must have been their common intention that it should have.’ In Southwark Borough Council v. Mills (1999) 4 AER 449 at 467F Lord Millett explained that, to a large extent, the covenant for quiet enjoyment, and the obligation of a landlord not to derogate from his grant amounted to much the same thing.

5.  The terms of the lease will inevitably impinge on the extent of the obligation not to derogate. Express terms will obviously play a part, possibly a decisive part, in determining whether a particular act or omission constitutes a derogation. An express term should, if possible, be construed so as to be consistent with what Hart J called ‘the irreducible minimum’ implicit in the grant itself. However, as he went on to say, a covenant relied on by the landlord ‘if construed as ousting the doctrine in its entirety is repugnant … and should itself be rejected in its entirety’ — see Petra Investments Ltd. v. Jeffrey Rogers plc (2000) Landlord and Tenant Reports 451 at 471.”

I need not refer to the other principles mentioned in that case; the facts did not concern derogation from grant by way of derogation from exclusive possession.

    1. What happens if more than one construction of the reservation is consistent with the irreducible minimum implicit in the grant? There are dicta that suggest that the reservation is to be construed restrictively against the landlord. However, if there were a principle of construction to that effect, the law would be incoherent, because the principle would conflict with the contra proferentem rule that, in cases of ambiguity, a reservation is to be construed in favour of the landlord. I think that, although there is some tension in the cases, they permit of a consistent explanation.
    2. In Timothy Taylor Ltd v Mayfair House Corpn [2016] 4 WLR 100, in a passage on which Mr Jourdan especially relies, the deputy judge, Mr Alan Steinfeld QC, said at [114]:

“Rights reserved to a landlord under the terms of a lease are to be construed narrowly against the landlord – see William Hill (Southern) Limited v Cabras (1986) 54 P & CR 42.”

The claimant was tenant of the ground floor and basement of a building owned by the defendant landlord. The lease reserved a number of rights to the landlord. One such right was to carry out construction works to the building itself and to erect new buildings on adjoining property of the landlord. Another such right was a right of entry, as follows: “The right to enter … the Premises at any time during the term at reasonable times and on reasonable notice … to inspect them, to take schedules or inventories of fixtures and other items to be yielded up at the end of the term, and to exercise any of the rights granted to the Landlord elsewhere in this Lease …” The deputy judge rejected the submission that the right of entry included the right to build. After the remark quoted above, he continued:

“In my judgment, what is described by clause 1-1 as the ‘Right of entry to Inspect’ does not extend to coming on to the Premises and, indeed, occupying them for a significant period of time, for the purpose of carrying out building works on adjoining property belonging to the Landlord. That, it seems to me, would be to give to the clause an extravagant rather than a narrow meaning. The rights that it seems to me clause 1-1 is referring to are rights that entitle the Landlord to come on to the Premises for the sort of matters which are already referred to in that clause.”

    1. This narrow construction of general and seemingly broad words in a reservation by reference to the context in which they are found is similar to the approach of Lord Templeman in Street v Mountford. Clause 3 of the agreement in that case provided: “The owner (or his agent) has the right at all times to enter the room to inspect its condition, read and collect money from meters, carry out maintenance works, install or replace furniture or for any other reasonable purpose.” As in the present case with clause 7 and clause Y, so in Street v Mountford the landlord did not seek to argue that clause 3 was inconsistent with exclusive possession; indeed, the landlord in that case did not point to clause 3 as a particular indication that the rights granted to the occupier were purely personal: see 816F. Lord Templeman observed that the landlord had “only reserved the limited rights of inspection and maintenance and the like set forth in clause 3 of the agreement”: see 818D. Thus, despite their apparent breadth, the final words of clause 3 (“or for any other reasonable purpose”) did not indicate that the rights were more than merely “limited”. Lord Templeman’s use of the words “and the like” indicates that he read the concluding words of the clause in the context of the preceding words. That is the same approach as was taken by the deputy judge in the Timothy Taylor case.
    2. Mr Steinfeld QC in the Timothy Taylor case relied on the decision of the Court of Appeal in William Hill (Southern) Limited v Cabras (1986) 54 P & CR 42 as establishing that a reservation was to be construed restrictively against a landlord. In the William Hill case, the tenant had during the term of the lease maintained illuminated advertising signs that had been in place since before the lease had been granted. The lease made no mention of a right to maintain the signs, and the landlord, the assignee of the original lessor, contended that the tenant had no more than a revocable licence to maintain them. The landlord relied on clause 3 of the lease, which provided that the demise should not be deemed to include or confer “any right of light or air liberties privileges easements or advantages (except such as are specifically granted by this Lease) in through over and upon any land or premises adjoining or near to the demised premises.” Having referred to the two general rules mentioned by Thesiger LJ in Wheeldon v Burrows (1879) 12 ChD 31, 49, Nourse LJ, with whose reasoning on this point Stocker LJ agreed, accepted at 48 the submission “that the court will not construe a general provision in a lease, particularly an exception and most of all an exception couched in very general terms such as those in clause 3, so as to take away with the other hand that which has already been granted by the one hand in the dispositive provisions of the lease.”
    3. Mr McNall submitted that Nourse LJ overlooked contrary binding authority in Johnstone v Holdway [1963] 1 QB 601, as mentioned and explained by the Court of Appeal in St Edmundsbury and Ipswich Diocesan Board of Finance v Clark (No. 2) [1975] 1 WLR 468, that “an exception and reservation of a right of way in fact operates by way of regrant by the purchaser to his vendor …” (per Upjohn LJ in Johnstone v Holdway at 612) and that accordingly section 65(1) of the Law of Property Act 1925 had not altered the existing law, which treated the language of reservation as having the same effect as would the language of regrant, and in those circumstances regarded the purchaser as the proferens for the purpose of the maxim contra praesumuntur contra proferentem.
    4. I accept that the contra proferentem rule, which operates only where the normal canons of construction cannot resolve an ambiguity in the document, operates in the manner contended for by Mr McNall. A reservation in a lease operates as a re-grant by the tenant: Johnstone v Holdway at 612-613; this is part of the ratio of the case. Therefore the reservation falls to be construed against the tenant, who is considered to be the proferens: the St Edmundsbury case at 477-480; the remarks are obiter but are a straightforward application of the ratio of Johnstone v Holdway and represent the current state of the law.
    5. I also accept that, if there were a principle of construction that a reservation was to be construed restrictively against a landlord, the law would be incoherent. Even though such a principle would operate at a stage of interpretation before the court had recourse to the contra proferentem rule, it cannot be right to say that the court must construe a reservation restrictively against the landlord unless it cannot decide between alternative constructions, in which case it must choose on the basis of an expansive interpretation in favour of the landlord.
    6. However, I think that conflict and incoherence can be avoided, though some tension does remain. In my judgment, the correct position is not that there is a rule of interpretation, as such, that a reservation is construed restrictively against the landlord. Rather, as part of the normal method of construing written instruments, the court will have regard to the entirety of the text and to the main subject matter of the agreement and, in the normal course of things, is likely to suppose that the intention of the parties is to advance the main purpose of the agreement as shown by its subject matter. Thus in the case of a lease, which necessarily grants exclusive possession and the right to quiet enjoyment, the court will naturally be inclined to suppose that qualifications on these rights will emerge clearly from the lease. This is not a matter of applying a special rule that a certain kind of provision must be construed against a particular party. It is simply a matter of applying the normal approach to construction. Accordingly, if, having regard to all relevant matters, the court finds that the normal approach to construction results in ambiguity, there is nothing irrational in resorting to the contra proferentem rule.
    7. This understanding gains support from the authorities. The decision in the William Hill case rested not on some principle of restrictive construction in the abstract but on the conclusion that the landlord’s proposed construction would “take away with the other hand that which has already been granted by the one hand in the dispositive provisions of the lease”; that is, it would be inconsistent with the grant. I think that the understanding set out above also gains support from the two authorities relied on by Mr Jourdan (and mentioned by Philip Meade in his email of 23 September 2016; see paragraph 30 above), namely Heronslea (Mill Hill) Ltd v Kwik-Fit Properties Ltd [2009] EWHC 295 (QB), [2009] Env LR 28, and the Scottish case of Possfund Custodial Trustee Ltd v Kwik-Fit Properties Ltd [2008] CSOH 65.
    8. In the Heronslea case, the landlord wanted to enter the demised land and undertake an environmental investigation survey, including the drilling of a number of boreholes, in order to assess possible land and groundwater contamination from the current and historic uses of the site. It was said that the survey would take two days to complete and that the boreholes could be located in an area convenient to the tenant. The tenant objected to entry for the intended purpose and refused access. The landlord relied in particular on paragraph 13 of the lease, which was in the following terms:

“Upon reasonable prior written notice … the tenant shall permit the Landlord and those authorized by it at all times to enter (and remain unobstructed on) the Premises for the purpose of:

13.1.1 inspecting the Premises for any purpose, or

13.1.2 making surveys or drawings of the Premises, or

13.1.3 complying with the Landlord’s obligations under this Lease or with any other Legal Obligations of the Landlord

Provided that the Landlord shall cause as little interference and disturbance as is practicable and shall make good any damage caused forthwith and to the reasonable satisfaction of the Tenant.”

Sharp J held that paragraph 13 of the lease did not permit the activity intended by the landlord. She considered that the usual meaning of the word “survey” was not such as to include the drilling of boreholes. She also, at paragraph 39, considered the immediate context in which the word “survey” occurred in the lease:

“As to immediate context, the use of the preposition ‘on’ together with the words which follow the word survey itself (and drawings) suggest that the word survey, in the context, means a survey of (rather than under) the land and of the buildings on the land (in contrast with the clause dealing with Hazardous Waste, where the parties provide specifically for what is or is not to be placed ‘under’ the Premises). Interpreting the words in paragraph 13.1.2 in the way in which a reasonable commercial person would construe them, I do not think one can detach the word survey from its immediate context which in my view, the argument advanced by [counsel for the landlord] seeks to do.”

Sharp J also considered the question whether the degree of interference with the tenant’s quiet enjoyment that would be permitted on the landlord’s construction of paragraph 13 was consistent with the language used:

“41. When endeavouring to ascertain the presumed intention of the parties and whether the parties would have intended the word survey to encompass every activity which could possibly be so described, it is also material in my view to consider the interaction between paragraph 13.1.2 and the Tenant’s right to quiet enjoyment. The covenant to quiet enjoyment would be significantly undermined in my view if the Landlord has the right (as it is contended it does) to enter the Premises, and conduct whatever could be described as a survey, including a geological survey for example, no matter how intrusive, no matter what disruption was caused to the Tenant’s business and however long such activities might take; even allowing it – on [the landlord’s] interpretation so it seems to me – to demolish part of any building with the only proviso that it should cause as little damage and disturbance as is practicable and make good any damage forthwith to the reasonable satisfaction of the Tenant.

42. Such significant inroads into the Tenant’s right to enjoy the Premises free from interference is not a result it seems to me that the parties would have contemplated when executing the Lease. If such had been the intention of the parties to a commercial lease, one would expect to find much clearer words or indication to that effect within it.”

    1. A very similar approach was taken by an Extra Division of the Inner House of the Court of Session in the Possfund case. The dispute was substantially the same as in the Heronslea case. The landlord relied in particular on clause 3.11 of the lease, which required the tenant:

“To permit the Landlord and its agents at all reasonable times with or without workmen on giving forty eight hours written notice (except in emergency) to the Tenant to enter upon the Premises generally to inspect and examine the same to view the state of repair and condition thereof and to take a schedule of the Landlord’s fixtures and of any wants of compliance by the Tenant with its obligations hereunder.”

The parties did not put forward any background matter as bearing on construction; they relied simply on the provisions of the lease. Delivering the opinion of the Court, Lord Reed said:

“12. A lease, like any other contract, must be construed as a whole, and so as to give proper effect if possible to all of its provisions. In the present case, it is necessary in particular to achieve a fit, if possible, between the landlord’s right to inspect and examine, by virtue of clause 3.11, and the tenant’s right to be maintained in possession, reflected in clause 4.1.

13. Since a lease is essentially a grant of possession of the subjects of the lease for the period of the lease, it is implicit, if not expressed, that the landlord is precluded from any action which encroaches materially upon the tenant’s possession of those subjects during that period. The landlord’s obligation to maintain the tenant in exclusive possession may however be qualified by the terms of the lease. [Lord Reed then referred to provisions in the lease that did qualify the tenant’s possession, which however imposed requirements for minimising disturbance and making good any damage caused; and he continued:]

14. There is a striking difference between the wording of the provisions which we have just discussed and that of clause 3.11. Although clause 3.11 entitles the landlord to enter the premises ‘to inspect and examine the same to view the state of repair and condition thereof…’, there is no express obligation to do so in such a way as to cause the least practicable disturbance to the tenant; nor is there any obligation to make good any damage caused. In a professionally drafted lease, the omission of such obligations, when they are specified in several other provisions, is unlikely to have been unintended. While not necessarily conclusive in itself, it strongly suggests that it was not envisaged or intended that the exercise of the landlord’s right of inspection under clause 3.11 would cause any material disturbance to the tenant, or would result in any material damage to the premises.

16. More generally, it appears to us that if it had been the intention of the parties to the lease that the landlord should be entitled under clause 3.11 to interfere with the tenant’s possession of the premises to the extent contended for by the pursuers (which, as we have explained, would involve intrusive investigations lasting several days and the cordoning off of parts of the forecourt of the premises), one would expect to find a much clearer indication to that effect in the lease.”

    1. In summary, therefore, the position is as follows.

1) An exception or reservation will, if possible, be construed in such a manner as to preserve its validity.

2) Therefore the court will, where it is possible to do so, construe an exception or reservation as restrictively as is required to avoid a derogation from grant or a conflict with the covenant for quiet enjoyment. In the words of Neuberger J in Platt v London Underground Ltd (supra): “An express term should, if possible, be construed so as to be consistent with what Hart J called ‘the irreducible minimum’ implicit in the grant itself.”

3) There is no further rule that a reservation is to be construed restrictively against a landlord.

4) However, the application of the standard principles of construction, including the requirement to have regard to all of the provisions of the instrument and to the principal purpose and subject matter of the instrument, will tend to lead the court to expect that substantial qualifications of the rights to exclusive possession and quiet enjoyment of the demised premises will appear clearly from the lease. Further, apparently broad and unqualified words in reservations may, on closer examination, be found to have a more restricted meaning when read in their immediate or wider textual context.

5) If it is not possible to construe an exception or reservation in a manner consistent with the ‘the irreducible minimum’ implicit in the grant itself, it will be struck down as being repugnant to the lease.

6) The contra proferentem rule operates only if the exception or reservation is ambiguous, in the sense that the court is unable to decide on its meaning by the use of the materials usually available for interpretation.

7) By reason of the principles of construction set out above, the contra proferentem rule can only apply if the court cannot otherwise decide among two or more constructions, all of which are consistent with the irreducible minimum consistent with the grant itself. This is because: (a) if any possible construction of the reservation would be inconsistent with the irreducible minimum implicit in the grant itself, the reservation will have been struck down as repugnant to the grant; and (b) if, of two possible constructions of the reservation, one would be consistent with the irreducible minimum implicit in the grant itself and one would not, the court will have chosen the former in accordance with the principles set out above.

8) Once the court is forced to have recourse to the rule, the correct position is that the reservation operates as a re-grant by the tenant and therefore the reservation falls to be construed against the tenant, who is considered to be the proferens.

The 1965 Tenancy Agreement

    1. The right in clause 7 relates to “any part of” the land and premises demised. This must include buildings on the land demised by the 1965 Tenancy Agreement, although in such cases entry could of course not reasonably be exercised with vehicles. The right is to be exercised “at all reasonable times”, which shows an intention that the entry should not derogate from the irreducible minimum consistent with the grant itself and accordingly provides encouragement to find a construction in accordance with that intention. The critical and related questions are, first, what “for all reasonable purposes” means and, second, what things are permitted in pursuance of those purposes.
    2. The purposes in question are necessarily those of the persons exercising the right, namely the claimants. Obviously, however, “reasonable purposes” cannot extend to all purposes that are reasonable merely in the landlord’s interests. The two possibilities are, therefore, (a) that any purposes are permissible if they are reasonable in the landlord’s interests and do not derogate from the irreducible minimum consistent with the grant itself and (b) that the “reasonable purposes” are reasonable purposes concerned with the parties’ rights and obligations under the 1965 Tenancy Agreement, including purposes concerned with the landlord’s reversionary interest in the demised land. The latter interpretation is suggested by the wording of the clause. The reference is simply to “all reasonable purposes”, not to all purposes that are reasonable in the interests of the landlord. In the context of a lease, the obvious canon of reasonableness is the relationship of landlord and tenant. Whereas in the abstract reasonableness may have no connection with the tenant at all, in a reservation of rights in a lease the obvious way to assess reasonableness is by reference to that relationship. In my view, this interpretation of the purposes is supported by consideration of the scope of the acts permitted by the right reserved in clause 7.
    3. The right is expressly a right of entry. The fact that entry is to be for a (reasonable) purpose shows that entry is not an end in itself but is to be in order to achieve something beyond the simple fact of entry. However, clause 7 does not mention any particular acts that may be performed once entry has been gained and to which the right of entry is ancillary. In this respect it differs from other express or implied rights of entry, provided for by the tenancy agreement, that are ancillary to substantive rights to do things: clause 3 (entry to get minerals), clause 4 (entry to take wood) and clause 5 (entry to hunt). This suggests that under clause 7 the reasonable purposes are to be achieved by either the mere fact of entry and presence on the land (notably, inspection and observation) or the performance of specific obligations under the tenancy agreement (such as repair of buildings). As the right of entry in clause 7 is not tied to a specific right or obligation (such as, the obligation to repair and the right to enter for the purpose of effecting repairs), it is reasonably construed as being wide enough to cover both instances. Thus, for example, entry for the purpose of inspection or observation to assist in deciding whether to exercise, or for facilitating the future exercise of, the power of resumption in clause 6 would be within the scope of clause 7.
    4. The present case is concerned with the exercise of the right of entry for purposes other than the discharge of duties or exercise of rights specifically mentioned in the 1965 Tenancy Agreement. It follows from what I have said already that such purposes ought to be construed as relating to inspection and observation. The extent of the activities thus permitted cannot be properly considered in the abstract and without regard to particular cases. However, in my judgment, the permissible activities do not extend to those which cause damage to the land or involve cordoning off parts of the land or significant interference with the operation of the working farm. First, the right is stated to be a right to enter; no other right is mentioned. Second, if the intention were to permit specific activities, not otherwise mentioned in the tenancy agreement, such as would tend to interfere with possession or quiet enjoyment, one would have expected that to have been stated rather than left for inference. Third, if intrusive activities were envisaged, the tenancy agreement would probably have mentioned the need to minimise disruption (see for example clause 3). Fourth, if the permitted activities were liable to cause damage, the tenancy agreement would probably have provided for the possibility of compensation (see for example clauses 3 and 4) or for the exclusion of compensation (see clause 3). I consider, accordingly, that the digging of excavations, the sinking of boreholes and the erection of structures all fall outside the limited rights in clause 7. The installation of monitoring devices, being a form of extended inspection, would I think be capable of falling within the scope of the rights in clause 7; much would depend on the position, nature and effect of the devices. I should consider that, absent special circumstances that I cannot now envisage, the installation of remote bat detectors would be permitted. I do not know enough about other kinds of device to speculate. Similarly, I consider that it would be permissible under the terms of clause 7 for a surveyor to place discreet reference points on the land in order to assist in conducting a visual survey and inspection; on the other hand, anything that involved significant interference with use of areas of the land or intrusion below its surface, or activities such as trial pegging out of intended development sites, would not be within the scope of the reserved rights.

The 1968 Tenancy Agreement

    1. Counsel’s submissions were directed primarily to clause 7 in the 1965 Tenancy Agreement. Yet it is perhaps clause Y of the 1968 Tenancy Agreement that gives rise to the greater difficulty. Clause Y reserves a right that may be exercised at any time, although it would have to be exercised reasonably. The right is again one of entry. However, three specific purposes for which it may be exercised are set out: “inspecting” the demised premises; “making roads sewers or drains”; and “any other purpose connected with [the landlord’s] estate.” The clause gives rise to two particular questions. First, where are the “roads sewers or drains” to be made: on the demised land (as Mr McNall contends) or on the landlord’s adjacent land (as Mr Jourdan contends)? Second, what is meant by the landlord’s “estate”: its reversionary interest in the demised land (so Mr McNall) or its other landholdings in the vicinity (so Mr Jourdan)? The connection between these two questions is obvious. The answer to them is less obvious.
    2. In my judgment, the wording of clause Y, both by itself and when read in its textual and factual context, shows that the “roads sewers or drains” were not on land forming part of the demised premises at the time of entry and that the landlord’s “estate” refers to all the landlord’s land in the vicinity. I shall explain my reasons for this conclusion, what precisely it means and what its implications are.
    3. First, the context in which the 1968 Tenancy Agreement was made is relevant. The parties knew that the landlord owned both the reversion of the 1965 Land and of the Additional Land and also the two pieces of woodland that were now to be landlocked by the Farm. They also knew the provisions of the 1965 Tenancy Agreement. Accordingly, the parties were aware of the possibility of future development not only on the 1968 Land but also on the 1965 Land, the Additional Land and any other land held by the landlord in the vicinity.
    4. Second, the wording of clause Y contains certain indications, albeit in themselves inconclusive, as to how the two questions mentioned above are to be answered. The first permitted purpose of entry is to inspect “the same”; those words refer to “the said [demised] premises”, namely the 1968 Land. However, the second permitted purpose, “making roads sewers or drains”, does not specify “on the same”, as it could easily have done. The wording of the third permitted purpose (“any other purpose connected with his estate”: my emphasis) tends to suggest that “making roads sewers or drains” is itself a purpose “connected with [the landlord’s] estate”. Further, the use of the words “his estate” rather than “the said premises” suggests that there is a distinction between the two. The distinction could conceivably be no more than the distinction between physical land and legal interest, but this seems improbable and it is far from clear what useful reason could have existed for introducing such a distinction into the clause. Accordingly, these considerations tend to indicate that the final words of the clause (“or for any other purpose connected with his estate”) mean simply that the landlord may enter the demised land for the purpose of doing anything he may otherwise be entitled to do on the demised land or on any other land of the landlord adjacent to it. The same considerations would also tend to indicate that the “roads sewers or drains” were not necessarily on the demised premises, but it would not indicate whether they could be on it.
    5. Third, one must consider the wider textual context of the clause. The “roads sewers or drains” mentioned in clause Y could not themselves be for the use of land tenanted by the tenant; they could only be for the use of a development on land that was not part of the Farm, whether because it was not demised by the tenancy agreements or because, although it had been demised by one or other of the tenancy agreements, the landlord had resumed possession (that is, under clause X of the 1968 Tenancy Agreement or under clause 6 of the 1965 Tenancy Agreement or, perhaps, in the case of the Additional Land under section 31 of the Agricultural Holdings Act 1948). Mr McNall submitted that the “roads sewers or drains” could nevertheless be built on the retained 1968 Land (that is, such parts of the 1968 Land as had not been subject of a resumption of possession under clause X), because the landlord need not rely on clause X but could instead rely on an easement. However, the 1968 Tenancy Agreement contains no easement that would permit use of such roads, sewers and drains. Neither clause X nor clause Y nor any other provision of the 1968 Tenancy Agreement provides for an easement of drainage or a right of way to be taken over land still forming part of the demise. The reference in clause X to mains supplies and other easements is to rights over land of which the landlord is resuming possession: possession is taken in order that the necessary rights can be granted. If the making of roads, sewers and drains mentioned in clause Y is on retained 1968 Land, this can only be in anticipation of the resumption of possession under clause X. Yet the right is exercisable “at any and at all times”, not merely pursuant to a notice under clause X. Further, it is improbable that the “roads sewers or drains” mentioned in clause Y were to be on retained 1968 Land, because clause X made provision for resumption of possession for that purpose and because the making of roads, sewers and drains on the demised land would involve not merely entry but the taking of possession. Therefore it is probable that the entry envisaged was for the purpose of making roads, sewers and drains on other land of the landlord; that is, the right was a right to enter the demised land for that purpose, not a right to make sewers and drains on the demised land.
    6. For these reasons, I conclude that clause Y gave to the landlord a right to enter the 1968 Land for three purposes: first, to inspect the 1968 Land; second, to make “roads sewers or drains” on land other than the retained 1968 Land; third, to do anything that he is lawfully obliged or permitted to do on the 1968 Land or the 1965 Land or the Additional Land or any other adjacent land he may own. However, the third purpose is simply that, namely a purpose for which entry may be effected; it does not give further rights to do things on the land that are not otherwise permitted. The result is that clause Y permits to be done on the 1968 Land no more and no less than clause 7 permits to be done on the 1965 Land, save that the second purpose may permit some additional activity near the boundary, ancillary to the making of roads, sewers and drains on adjacent land.

Remedy

    1. I propose to make declarations reflecting the foregoing conclusions, with a view to assisting the parties and avoiding future strife. If counsel can agree suitable terms of declaration, I shall consider it. If not, I shall hear them further on the matter.
    2. However, I have come to the conclusion that no injunction ought to be granted as final relief, for reasons appearing below.
    3. The injunction sought is for the purpose of restraining the defendants from future infringement of the claimants’ rights. It is thus a quia timet injunction. In Lloyd v Symonds [1998] EWCA Civ 511, Chadwick LJ, with whom Millett and Waller LJJ agreed, said:

“Such an injunction [that is, a quia timet injunction] should not, ordinarily, be granted unless the plaintiff can show a strong probability that, unless restrained, the defendant will do something which will cause the plaintiff irreparable harm—that is to say, harm which, if it occurs, cannot be reversed or restrained by an immediate interlocutory injunction and cannot be adequately compensated by an award for damages. There will be cases in which the court can be satisfied that, if the defendant does what he is threatening to do, there is so strong a probability of an actionable nuisance that it is proper to restrain the act in advance rather than leave the plaintiff to seek an immediate injunction once the nuisance has commenced. ‘Preventing justice excelleth punishing justice’—see Graigola Merthyr Co Ltd v Swansea Corporation [1928] Ch 235 at page 242. But, short of that, the court ought not to interfere to restrain a threatened action in circumstances in which it is satisfied that it can do complete justice by appropriate orders made if and when the threat of nuisance materialises into actual nuisance (see Attorney-General v Nottingham Corporation [1904] 1 Ch 673 at page 677).”

In Vastint Leeds BV v Persons Unknown [2018] EWHC 2456 (Ch), [2019] 4 WLR 2, Marcus Smith J considered the authorities relating to the grant of quia timet injunctions and at [31] set out the principles that he derived from them; the following principles are relevant:

“(3) When considering whether to grant a quia timet injunction, the court follows a two-stage test: (a) First, is there a strong probability that, unless restrained by injunction, the defendant will act in breach of the claimant’s rights? (b) Secondly, if the defendant did an act in contravention of the claimant’s rights, would the harm resulting be so grave and irreparable that, notwithstanding the grant of an immediate interlocutory injunction (at the time of actual infringement of the claimant’s rights) to restrain further occurrence of the acts complained of, a remedy of damages would be inadequate?

(4) There will be multiple factors relevant to an assessment of each of these two stages, and there is some overlap between what is material to each. Beginning with the first stage—the strong possibility that there will be an infringement of the claimant’s rights—and without seeking to be comprehensive, the following factors are relevant: (a) If the anticipated infringement of the claimant’s rights is entirely anticipatory—as here—it will be relevant to ask what other steps the claimant might take to ensure that the infringement does not occur. … (b) The attitude of the defendant or anticipated defendant in the case of an anticipated infringement is significant. As Spry, Equitable Remedies, 9th ed (2013) notes at p. 393, ‘[o]ne of the most important indications of the defendant’s intentions is ordinarily found in his own statements and actions’. (c) Of course, where acts that may lead to an infringement have already been committed, it may be that the defendant’s intentions are less significant than the natural and probable consequences of his or her act. (d) The time-frame between the application for relief and the threatened infringement may be relevant. The courts often use the language of imminence, meaning that the remedy sought must not be premature (Hooper v Rogers [1975] Ch 43, 50).

(5) Turning to the second stage, it is necessary to ask the counterfactual question: assuming no quia timet injunction, but an infringement of the claimant’s rights, how effective will a more-or-less immediate interim injunction plus damages in due course be as a remedy for that infringement? Essentially, the question is how easily the harm of the infringement can be undone by an ex post rather than an ex ante intervention, but the following other factors are material: (a) The gravity of the anticipated harm. It seems to me that if the some of the consequences of an infringement are potentially very serious and incapable of ex post remedy, albeit only one of many types of harm capable of occurring, the seriousness of these irremediable harms is a factor that must be borne in mind; (b) The distinction between mandatory and prohibitory injunctions.”

  1. It is clear enough that the defendants have not sought to make life easy for the claimants. I do not think it unfair to say that they were, at times, positively difficult in August and September 2016; see, for example, the rather obstructive suggestion that the reference to arbitration meant that access did not have to be given (paragraph 24 above). On the other hand, matters have to be viewed in context. In furtherance of their perfectly proper intentions to benefit from development of the Farm, the claimants have asserted a claim to the widest rights of entry onto the Farm. The defendants have, quite reasonably, sought to ensure that they are not taken advantage of. They were, indeed, slow to acknowledge in September 2016 that an ecological survey should take place. But the evidence does not demonstrate that the urgency of the ecological survey was made clear to them before proceedings were commenced. What is plain is that the defendants were unwilling to permit, without receiving, compensation what they did not have to permit at all, and that they were concerned not to prejudice their own rights by conceding what they did not need to concede. The nub of the dispute, indeed, concerned the extent of the claimants’ rights. I am not persuaded that the defendants are likely to deny access to the claimants for purposes that are established as being lawful. If this judgment and the accompanying declaratory relief leave any measure of uncertainty as to precisely what activities are or are not within the scope of the claimants’ rights of entry, that uncertainty will not constitute a reason to grant an injunction in more general terms (see further below).
  2. Accordingly, I do not consider that the first condition of the grant of a final quia timet injunction (a strong probability that, unless restrained by injunction, the defendants will infringe the claimants’ rights) is satisfied. I also see no evidence that the second condition (the risk of irremediable damage) is satisfied, though I need say nothing further in that regard.
  3. For completeness, I add the following. First, if I had granted an injunction it would not have been in the terms of the interim injunction granted in September 2016 by Judge Jarman Q.C. and continued in January 2019 by me. The terms of the interim injunction amounted to an order not to infringe the claimants’ rights. That left it uncertain what acts would infringe those rights. An injunction must make it clear to the respondent what he must or must not do. To identify the prohibited or mandated acts merely by reference to legal conclusions is insufficient. Second, if I had granted an injunction, I would have excluded from its scope the Additional Land but given to the claimants permission to apply later for a variation so as to include it. The oral tenancy in respect of the Additional Land was apparently subject of evidence and cross-examination in recent arbitration proceedings between the parties arising out of the most recent Case B notices. The arbitrator’s decision is awaited. I am unclear precisely what the issue concerning the Additional Land was in the arbitration and would have thought it best to await the arbitrator’s decision before extending the injunction to the Additional Land.
  4. In the course of the hearing, submissions were made concerning the proper incidence of the costs of the application for the interim injunction. It seems to me preferable to defer consideration of that issue until the costs of the claim as a whole are dealt with. The parties have been unable to agree very much in this litigation, but I am not entirely without hope that they might be able to reach some agreement as to costs.
  5. This judgment is being handed down in the absence of the parties. I shall adjourn consideration of the appropriate terms of order and of any consequential matters, including costs and any application for permission to appeal, to a further hearing and shall extend the time for filing an appellant’s notice until 14 days after that further hearing.

Legacy Masonry Inc. and 1498593 Ontario Inc. v Bricklayers, 2019

OLRB Case No:  3749-18-G

Legacy Masonry Inc. and 1498593 Ontario Inc., Applicant v Bricklayers, Masons Independent Union of Canada, Local 1, Labourers’ International Union of North America, Local 183, and Masonry Council of Unions Toronto and Vicinity, Responding Parties v Masonry Contractors’ Association of Toronto, Inc., Intervenor

BEFORE:  Lee Shouldice, Vice-Chair

APPEARANCES:  Walter Thornton, Shawn Adkins and Filipe Morgado for the applicant; Stephen Krashinsky and Cesar Rodrigues for the responding parties; Jeffrey Murray and Joe DeCaria for the intervenor

DECISION OF THE BOARD:  April 8, 2019

  1.       Introduction

  1. 1.              This is a referral of a construction industry grievance to the Board pursuant to section 133 of the Labour Relations Act, 1995, S.O. 1995, c. 1, as amended (“the Act”).  This matter came on for hearing before me on March 27, 2019.

  1. 2.              At the outset of the hearing the parties argued a preliminary issue raised by the responding parties, namely the question of whether the Board should refuse to accept this referral pursuant to subsection 133(4) of the Act.  By decision dated April 2, 2019, I provided the parties with the following “bottom line” decision:

For reasons to follow shortly, the Board declines to refuse to accept this referral pursuant to subsection 133(4) of the Act.  This matter is referred to the Registrar, who is directed to consult with counsel for the purpose of scheduling one or more further hearing dates.

My reasons for reaching that decision are set out below.

  1.   Background

  1. 3.              The relevant facts for the purpose of arguing the preliminary issue are not in dispute.

  1. 4.              Legacy Masonry Inc. and 1498593 Ontario Inc. (collectively “Legacy”) are bound to the collective agreement between the responding parties (collectively “the union”) and the Masonry Contractors’ Association of Toronto, Inc. (“MCAT”) in effect from May 1, 2016 to April 30, 2019 (“the collective agreement”).

  1. 5.              On February 27, 2019, the union delivered a grievance to Legacy in which it alleges, amongst other things, that Legacy violated Articles 15.04 and 15.05 of the collective agreement because it failed to employ 30 or more hourly employees before it subcontracted bargaining unit work to third parties.  The grievance states that the violations of the collective agreement commenced in November, 2018.  Subsequently, the union formed the opinion that the violations of the collective agreement may have commenced in September, 2018.  On March 27, 2019, the union amended its grievance accordingly.

  1. 6.              On March 13, 2019, Legacy referred the grievance to the Board pursuant to section 133 of the Act.  On March 21, 2019, the union delivered a Request for Hearing and Notice of Intent to Defend/Participate to the other parties and filed it with the Board.  On that same date, the union referred the grievance, as amended, to arbitration in accordance with the Bricklaying Enforcement System (“the BES”) contained in the collective agreement.  There is a roster of six permanent arbitrators established by the BES.  The arbitrator to whom the grievance was referred was Jack Slaughter.  The grievance referral delivered by the union indicated that a hearing had been scheduled for April 4, 2019, at the union’s offices on Wilson Avenue in Toronto, Ontario, commencing at 10:00 am.

  1. 7.              Four days later, on March 25, 2019, the union filed a response to the grievance referral filed by Legacy with the Board.  That pleading (as well as its previously filed Request for Hearing and Notice of Intent to Defend/Participate) indicated that the union planned to raise as a preliminary matter the question of whether the Board ought to decline to hear the grievance pursuant to subsection 133(4) of the Act and defer to the board of arbitration established by the BES.  When the hearing in this proceeding commenced on March 27, 2019, I heard submissions from counsel on that question.

III.   Relevant Provisions of the Act

  1. 8.              The relevant provisions of the Act are subsections 133(1) and (4), which provide as follows:

(1)  Despite the grievance and arbitration provisions in a collective agreement or deemed to be included in a collective agreement under section 48, a party to a collective agreement between an employer or employers’ organization and a trade union or council of trade unions may refer a grievance concerning the interpretation, application, administration or alleged violation of the agreement, including any question as to whether a matter is arbitrable, to the Board for final and binding determination.

(4) The Board may refuse to accept a referral.

  1. Relevant Provisions of the Collective Agreement

  1. 9.              The relevant provisions of the collective agreement provide as follows:

Article 4 – Grievance Procedure

4.01         The parties to this Agreement are agreed that it is of the utmost importance to adjust complaints and grievances as quickly as possible.

4.08         The parties have provided for an Expedited Procedure to deal with issues which may arise under the terms of this Collective Agreement set out in Schedule “C” as the Bricklaying Enforcement System.  It is agreed that where any matter is properly dealt with under the Bricklaying Enforcement System and there is a conflict between the terms of this Article and/or Article 5 and the procedures set out in the Bricklaying Enforcement System, the terms and procedures established by the Bricklaying Enforcement System shall prevail.

Article 5 – Arbitration

5.01         The parties to this Agreement agree that any grievance concerning the interpretation or alleged violation of this Agreement which has been properly carried through all the steps of the grievance procedure outlined in Article 4 above and which has not been settled, may be referred to Arbitration.

5.02         A grievance may be referred to arbitration pursuant to any of sections 48, 49 or 133 of the Labour Relations Act by the grieving party.  The parties may also agree to refer the grievance to a mutually selected single arbitrator, or pursuant to the Bricklaying Enforcement System.

5.04         The Arbitrator shall not have any power to alter or change any of the provisions of this Agreement or to substitute any new provisions for any existing provisions nor to give any decision inconsistent with the terms and provisions of this Agreement.

5.06         In addition to the above procedures, a grievance arising under any provisions of this agreement may be referred to expedited arbitration procedures established by Bricklaying Enforcement System attached hereto as Schedule “C”.  It is further agreed that the terms and provisions of the Bricklaying Enforcement System form part of this Agreement and the terms and conditions of the Bricklaying Enforcement System may be interpreted and applied by any Arbitrator or Board of Arbitration with jurisdiction arising out of this agreement, the Bricklaying Enforcement System or the Ontario Labour Relations Act.

Schedule “C”

 

Bricklaying Enforcement System

2.02         Expedited Arbitration Procedure

         (a)           The term “Monetary Grievance” wherever used in this Enforcement Agreement shall mean a grievance concerning the interpretation, application, administration or alleged violation of a provision of the Collective Agreement relating to payment for hours of work, rates of pay, overtime, premiums (shift and compressed air), traveling expenses, room and board allowances, reporting allowances, pension, welfare and industry fund contributions and dues or any other form of compensation to or on behalf of an employee and monetary grievances in accordance with existing jurisprudence under the Enforcement System.  The term “Non-Monetary Grievance” wherever used in this Enforcement Agreement shall mean a grievance other than a “Monetary Grievance”, and shall include but not be limited to a grievance relating to discharge or discipline.  The term “Grievance” whenever used alone in this Agreement shall mean a Monetary Grievance or a Non-Monetary Grievance.

         (b)           Any party bound by this procedure may initiate the Expedited Arbitration process by service of a Grievance, in writing, by facsimile transmission, regular mail, or courier (including Canada Post Courier) on the affected Masonry Contractor.

         (c)           After fifteen (15) calendar days from service of the Grievance, the Union may refer the Grievance to Expedited Arbitration hereunder.  Notice of such Referral to Expedited Arbitration shall be served by facsimile transmission, regular mail, or courier (including Canada Post Courier) upon the Masonry Contractor, the Builder and the Arbitrator.

         (e)           The Arbitrator shall commence the Expedited Arbitration Hearings within ten (10) days from service of the Referral to Expedited Arbitration. …

         (m)          This arbitration process shall be in addition to and without prejudice to any other procedures and remedies that the parties may enjoy including applications to a Court; or to the Ontario Labour Relations Board pursuant to section 96 of the Labour Relations Act, as amended; or under the Construction Lien Act; or any other operative legislation; or provided under any collective agreement.  Any Grievance concerning the interpretation, application, administration or alleged violation of the Collective Agreement may be processed through the grievance/arbitration procedure outlined in Articles 4 and 5 of the Collective Agreement or under this Expedited Arbitration Procedure or referred to arbitration pursuant to section 133 of the Labour Relations Act, provided however that any Grievance may not be processed under more than one of these arbitration mechanisms.  Where a Grievance has been properly referred to the procedure provided for in this Bricklayers’ Bricklaying Enforcement System, it is understood and agreed that all of the parties shall be deemed to have waived any right to refer the Grievance to arbitration under section 133 of the Labour Relations Act, or pursuant to Articles 4 and 5 of the Collective Agreement and any such referral shall be null and void. …

  1.    The Positions of the Parties

  1. 10.           I set out below, in a very abbreviated form, the pertinent submissions made by counsel.

  1. 11.           The union relies upon the decision of the Board in Kennedy Masonry Company Limited, [1998] OLRB Rep. July/August 622 (“Kennedy Masonry”). Counsel for the union points to Kennedy Masonry to support his assertion that the Board has long recognized that the BES is the very best forum for the arbitration of grievances filed under the collective agreement.  Counsel submits that the BES establishes a “level playing field” for all contractors bound to the collective agreement, provides for a roster of permanent arbitrators with broad remedial powers, and facilitates hearings that are both expedited and effective.

  1. 12.           Counsel for the union reviewed Kennedy Masonry in some detail, and adopted all of the observations made by the Board in that decision in support of his client’s position.  Amongst other passages from the Board’s decision, counsel relied upon the following six paragraphs to highlight why the Board ought to exercise its authority under subsection 133(4) of the Act to refuse to accept this grievance referral:

  1. 41.   It is also important to emphasize that, from a labour relations perspective, there is nothing unconscionable about the enforcement mechanism, or the objective that it is designed to achieve; moreover, it emerges from an institutional setting in which individual employers are not obliged to participate. Individual employers do not have to belong to MCAT. Individual employers can decide to negotiate on their own. However, once they decide to band together to negotiate a master agreement, it is hardly surprising – indeed it is commercially sensible – that the union and the employer association would fashion a framework from which participants could not deviate. Otherwise there would be little value in multi-employer bargaining.

  1. 42.   From this perspective, therefore, the expedited arbitration component of the system is more than just a simplified procedure for collecting monies owing. It is one element in a broader framework designed to achieve a level playing field for the employer-competitors bound by the master agreement. It bolsters the collective-bargaining regime. And it does that (in part) by imposing an expedited arbitration process, as well as a schedule of financial penalties on parties who deviate from the negotiated norm. To be colloquial once again: it is a system of “carrots” and “sticks” which the institutional parties (and the builders) hope will bolster both the bargaining process and the bargaining outcome.

  1. 43.   In our view, it is inappropriate to separate the arbitration component from the overall regulatory scheme, or to disregard the industry problems to which the parties have turned their attention. Nor, in our view, should the Board lightly embrace an interpretation which would fragment or frustrate that scheme. For not only is the enforcement process a sensible one, given the parties’ history and problems, but in our opinion, there is no reason for the Board to insert itself into that process. To put the matter another way: there is no reason for the Board to usurp the role that sophisticated institutional parties have so clearly consigned to the expedited arbitrator.

  1. 44.   The expedited arbitration mechanism devised by the parties is faster, more flexible, and just as “final” as the process available under section 133 of the Act; and the permanent arbitrator’s decisions are just as “enforceable” as those of the Board (pursuant to sections 48(1 8)-(20) of the Act). It is a process which is neither substantively nor remedially deficient. Moreover, the permanent arbitrator will have an expertise and sensitivity to the parties’ needs. That is what flows from a system in which the “permanent umpire” will see the whole range of issues which surface in this corner of the industry. That, no doubt, was one of the reasons why the institutional parties opted for a “permanent umpire” system.

  1. 45.   It is evident that the institutional parties have carefully selected the adjudicator and tailored his/her jurisdiction to their own needs. They have created their own model of self-regulation. They have “customized” their own arbitration And, in our view, there is no reason to prefer the Board’s processes over those created by the parties themselves – particularly since the parties have equipped the arbitrator with an arsenal of specific remedial tools to deal with the problems that s/he may face. Indeed, as the Board observed in Kennedy #1, this “private system” probably accomplishes the statutory objective much better than the statutory model does.

  1. 46.   In summary, the “private process” is completely congruent with statutory objectives, is no less effective, and, of course, makes no demands at all on the public purse. (emphasis in original)

During the course of argument, counsel for the union also made reference to Toronto Community Housing Corporation, 2006 CanLII 26468; Hydro One Inc., 2017 CanLII 37446; and Prescott Masonry & Restoration Inc., 2018 CanLII 117059.

  1. 13.           Counsel for the union argued that the BES is the grievance arbitration process agreed upon by MCAT and the union, is a process that creates a level playing field amongst contractors bound to the collective agreement, and results in decisions that are issued in a more timely fashion than those issued by the Board.  Counsel asserted that the Board ought not to “send a signal” to contractors bound to the collective agreement that they can avoid the BES by referring grievances to the Board pursuant to section 133 of the Act.

  1. 14.           Counsel for MCAT argued that the roster of permanent arbitrators that is established by the collective agreement are true specialists, and that that is in and of itself a good reason to refuse to accept this grievance referral pursuant to subsection 133(4) of the Act.  Counsel also argued that the Board should resist the urge to conclude that this application ought to proceed simply because it was filed first in time.  As did counsel for the union, counsel for MCAT argued that to reach that conclusion would effectively delete the BES from the collective agreement.

  1. 15.           Counsel for Legacy argued that, having regard to the clear wording contained in subsection 133(1) of the Act, any entity bound to a collective agreement has the right to refer a grievance to the Board despite any arbitration provision contained within that collective agreement.  Here, Legacy delivered and filed its grievance referral to the Board on March 13, 2019, eight days before the grievance was referred to arbitration by the union under the BES.  Counsel for Legacy argues that, by virtue of the timing of its referral to the Board, the Board ought to adjudicate this grievance.  Counsel acknowledges that timing is not a determinative factor, but asserts that it is a factor that should be of great significance to the Board.

  1. 16.           Legacy asserts that the language of the collective agreement supports its position.  Counsel notes that Article 2.02(m) of the BES provides that any grievance may be referred to arbitration pursuant to section 133 of the Act, and states that his client simply did so.  As the language contained in that same Article precludes a grievance from being processed under more than one of the arbitration mechanisms, Legacy argues that the grievance referral to the BES was not “properly referred” to the BES by the union.  In these circumstances, Legacy argues that the Board ought not to decline to accept its grievance referral.

  1. 17.           Finally, Legacy argues that the Board ought to declare the BES to be unenforceable because it suffers from institutional bias.  Legacy does not take issue with the neutrality of any of the adjudicators identified as permanent arbitrators under the collective agreement.  However, counsel for Legacy notes that it is the union that unilaterally selects an arbitrator from the panel of permanent arbitrators, which provides it with the ability to choose an individual who will likely make decisions aligned with its interests.  Legacy argues that this amounts to a clear institutional and/or systemic bias, and is contrary to the rules of natural justice.  In the circumstances, Legacy states that the Board should not defer to an adjudicative system and procedure which is institutionally biased.

  1. Reasons for Decision

  1. 18.           Subsection 114(1) of the Act provides the Board with the exclusive jurisdiction to exercise the powers conferred upon it by or under the Act.  Included amongst those powers is the authority of the Board to exercise its discretion under subsection 133(4) of the Act to not accept this grievance referral.  The issue to be decided in this case is whether I ought to exercise that discretion in the circumstances.

  1. 19.           First, I consider it appropriate to note that I do not disagree with the vast majority of the observations made by the Board in Kennedy Masonry.  It is important to appreciate, however, that Kennedy Masonry was a case in which the union referred grievances to arbitration pursuant to the BES before the employer made application to the Board under section 133 of the Act.  Here, the timing of the referrals is different.  As will become evident, the difference in timing meaningfully distinguishes this proceeding from Kennedy Masonry.

  1. 20.           I consider first the key elements of the BES.  It is a unilateral process, in which filing a grievance and referring that grievance to arbitration is available only to the union.  Article 2.02(b) of the BES permits “any party bound by this procedure” to initiate the BES process.  However, to do so, a grievance must be served “on the affected Masonry Contractor”.  Accordingly, should an employer bound to the collective agreement file a grievance against the union and desire to utilize the BES, it cannot do so.  Only the union has that right.  Here, the union exercised that right on February 27, 2019.

  1. 21.           Consistent with the above, it is evident from a plain reading of Article 2.02(c) of the BES that only the union has the authority to refer a grievance to expedited arbitration under the BES.  An employer bound to the collective agreement has no power to do so.  An employer may desire to use the BES to have a grievance that it has delivered (or that it has received) adjudicated, but it is precluded from utilizing the BES.

  1. 22.           Here, Legacy decided to refer to arbitration the grievance that was served upon it by the union on February 27, 2019.  Legacy is precluded from using the BES to do so.  However, Article 5.02 of the collective agreement provides that Legacy can refer the grievance to arbitration pursuant to section 48, 49, or 133 of the Act.  It chose to refer the grievance to the Board on March 13, 2019 pursuant to section 133 of the Act.  This was an option that the parties to the collective agreement agreed it could exercise.  In fact, given the opening words of subsection 133(1) of the Act, there can be no dispute that Legacy had the right to do so.  The decision made by Legacy to refer the grievance to arbitration pursuant to section 133 of the Act was an option that was authorized by the Act and the collective agreement, and was clearly within the mutual expectation of the parties.

  1. 23.           The union argues that I ought to refuse to accept this grievance referral for a number of reasons.  Counsel for the union pointed to the unique remedies established by Articles 2.02(g) through 2.02(l) of the BES, and asserted that it was not clear that a panel of the Board sitting as a grievance arbitrator under section 133 of the Act would have the authority to exercise those remedies.  Consistent with the need to ensure a “level playing field” for masonry contractors bound to the collective agreement, counsel for the union argued that Legacy ought to be subject to those same obligations.

  1. 24.           I agree with the latter proposition.  However, it is not an issue here.  Assuming that the remedies set out in Article 2.02 of the BES would apply to the instant grievance (i.e. that a subcontracting grievance is a “Monetary Grievance” as defined in the BES), it is clear that a panel of the Board would have the authority to order those remedies where appropriate.  Article 5.06 of the collective agreement states that the terms and conditions of the BES form part of the collective agreement and “may be interpreted and applied by any Arbitrator or Board of Arbitration with jurisdiction arising out of this agreement, the Bricklaying Enforcement System or the Ontario Labour Relations Act”.  There can be no doubt that the Board, sitting as a board of arbitration pursuant to section 133 of the Act, can interpret and apply all of the terms and conditions established by the BES, including its remedial provisions.

  1. 25.           During argument counsel for the union also referred to Article 2.02(c) of the BES, which requires the union to wait until the passage of 15 calendar days from service of the grievance before it can refer the grievance to arbitration under the BES.  Counsel observed that an employer that chooses to refer a grievance to arbitration pursuant to section 133 of the Act does not have that same obligation, and therefore can refer the grievance to arbitration more quickly than can the union.  To the extent that the Board were to consider as significant the forum first chosen, counsel for the union argued that the BES could effectively be written out of the collective agreement by employers referring grievances to arbitration under section 133 of the Act.

  1. 26.           On one level the concerns articulated by counsel for the union are not fairly held.  As noted above, the Board sitting as an arbitrator under section 133 of the Act has the full authority under the collective agreement to apply all of the remedial terms and conditions contained in the BES.  Accordingly, none of the substantive provisions contained in the BES will be negated should this grievance be adjudicated by a panel of the Board under section 133 of the Act.  That said, the forum first chosen does have some significance here, given the wording of Article 2.02(m) of the BES.  The key passage contained in that provision of the BES states:

… Any Grievance concerning the interpretation, application, administration or alleged violation of the Collective Agreement may be processed through the grievance/arbitration procedure outlined in Articles 4 and 5 of the Collective Agreement or under this Expedited Arbitration Procedure or referred to arbitration pursuant to section 133 of theLabour Relations Act, provided however that any Grievance may not be processed under more than one of these arbitration mechanisms.  Where a Grievance has been properly referred to the procedure provided for in this Bricklayers’ Bricklaying Enforcement System, it is understood and agreed that all of the parties shall be deemed to have waived any right to refer the Grievance to arbitration under section 133 of the Labour Relations Act, or pursuant to Articles 4 and 5 of the Collective Agreement and any such referral shall be null and void.

  1. 27.           Counsel for the union argued that a plain reading of this provision should lead me to conclude that I ought to exercise my discretion under subsection 133(4) of the Act to refuse to accept this grievance referral.  Counsel argued that Article 2.02(m) clearly states that all parties shall be deemed to have waived any right to refer a grievance to arbitration under section 133 of the Act, or pursuant to Articles 4 and 5 of the collective agreement, where a grievance has been properly referred to the BES.  Here, counsel for the union states that the grievance was properly referred to the BES by the union on March 21, 2019, and that in the circumstances the instant referral to the Board is “null and void”.

  1. 28.           With respect, I do not agree with the position argued by the union.

  1. 29.           It is critical to consider the language contained in Article 2.02(m) of the BES immediately before that relied upon by the union.  That portion of Article 2.02(m) states that any grievance concerning an alleged violation of the collective agreement may be processed through the grievance and arbitration procedures outlined in Articles 4 and 5 of the collective agreement, under the BES, or under section 133 of the Act.  Again, the collective agreement makes it clear that a grievance referral made by a party to the Board under section 133 of the Act falls squarely within the expectations of the parties.  Of critical significance, Article 2.02(m) goes on to state that a grievance “may not be processed under more than one of these arbitration mechanisms”.  This, of course, makes sense.  For obvious reasons, the merits of any given grievance should only be adjudicated once.

  1. 30.           Counsel for MCAT argued that the grievance referral made by Legacy has not yet been “processed” by the Board, because the Board must accept the grievance referral before doing so, and the Board has not yet accepted the grievance referral, having regard to the request made by the union to refuse to accept it pursuant to section 133(4) of the Act.  With respect, I disagree.  Counsel for the union asserted during argument that the grievance referral made by the union to Mr. Slaughter as a board of arbitration commenced being processed under the BES on March 21, 2019, when counsel for the union wrote to Mr. Slaughter to confirm his appointment. I agree with the latter approach.

  1. 31.           The processing of a grievance referral by the Board is an administrative act which commences when the referral is received by the Board.  Here, the Board commenced processing the grievance referral made by Legacy on March 13, 2019 when it was filed with the Board and the Registrar assigned it Board File No. 3749-18-G.  The Board continued to process the grievance referral on March 14, 2019 by delivering to the parties a Confirmation of Filing of Application, and a Notice of Hearing, which set a hearing date of March 27, 2019.  A decision that may be made by the Board at a later date to refuse to accept the grievance referral is a quasi-judicial determination which would have the effect of ending the processing of the grievance.  However, the fact that a party has raised for consideration the application of subsection 133(4) of the Act does not mean that the Board has not previously accepted the grievance referral and has not been processing this application to that time.  If I were to determine that I ought to exercise my authority under subsection 133(4) of the Act to refuse to accept this grievance referral, it would be difficult to assert credibly that the grievance referral had not been accepted and processed by the Board prior to that determination.

  1. 32.           Article 2.02(m) of the BES states that where a grievance has been properly referred to the BES, all parties are deemed to have waived any right to refer the grievance to the Board pursuant to section 133 of the Act.  Given that the instant grievance had been processed by the Board pursuant to section 133 of the Act before it was processed under the BES, and the collective agreement expressly states that a grievance may not be processed under more than one of the arbitration mechanisms identified in Article 2.02(m) of the BES, it is not possible to conclude that the grievance was “properly referred” to the BES when it was sent to Mr. Slaughter on March 21, 2019.  Simply put, a grievance referral cannot be said to have been “properly referred” to the BES when the collective agreement expressly provides that a grievance can only be processed under one of the resolution mechanisms provided for in the collective agreement, and this grievance had already been processed under section 133 of the Act.

  1. 33.           I also reject the position asserted by the union because it could lead to absurd results.  During the course of argument, I asked counsel for the union how far his client might pursue its position.  If the grievance that is the subject of this referral were before a panel of the Board pursuant to a referral made under to section 133 of the Act, and one day of hearing had been completed, could the union refer the same grievance to arbitration under the BES, and assert that Article 2.02(m) deemed the hearing then in progress before the Board to be null and void?

  1. 34.           Counsel for the union, after taking instructions, confirmed that his client disagreed with that proposition. Counsel asserted that his client was of the view that it would not be appropriate to assert that an arbitration hearing under section 133 of the Act was null and void once it had “commenced”.  Counsel asserted that the hearing in this proceeding had not yet commenced, so his client could assert that the language nonetheless applied.

  1. 35.           I have concerns with this position.  At the very least, the position asserted by the union is not what is provided for by the language contained in Article 2.02(m) of the BES.  That language does not state that the deemed waiver contained therein has no application once a hearing under section 133 of the Act has “commenced”, even if one could identify exactly when that particular point in time occurs.  Article 5.04 of the collective agreement precludes an arbitrator from altering the language contained in the collective agreement.  I am bound to apply the language contained in Article 2.02(m) as it reads, and in my view that language is clear.

  1. 36.           As noted earlier in this decision, the union is concerned that any employer could preclude it access to the BES by filing a grievance referral pursuant to section 133 of the Act before the union has had an opportunity to file the grievance under the BES.  However, this same concern applies to employers under the collective agreement.  An employer that files a grievance against the union or has a grievance filed against it can only refer that grievance to arbitration under sections 48, 49 or 133 of the Act.  The collective agreement makes it very clear that section 133 is an option available to the parties.  If the position asserted by the union is correct, then it can effectively write out section 133 of the Act, notwithstanding the opening words of subsection 133(1).  That is, the position asserted by the union would provide it with the unilateral option of nullifying any grievance referral made to the Board under section 133 of the Act by invoking the BES, contrary to subsection 133(1) of the Act.

  1. 37.           Having regard to all of the above, I reject the position asserted by the union that the language contained in Article 2.02(m) of the collective agreement deems Legacy to have waived the right to refer the instant grievance to arbitration under section 133 of the Act.  For the reasons set out above I am of the view that it cannot be said in the circumstances that the referral made by the union to Mr. Slaughter on March 21, 2019 was “proper” as defined by Article 2.02(m).  That being the case, it cannot be concluded on the language of the collective agreement that the referral made by Legacy to the Board on March 13, 2019 is “null and void”.

  1. 38.           Counsel for the union and counsel for MCAT each argued that the panel of permanent arbitrators is a group of specialized, expert adjudicators who know the parties and the collective agreement, and that this was another reason to exercise my discretion under subsection 133(4) of the Act.  I place little weight on that argument.  I do not know the extent to which any of the permanent arbitrators have unique knowledge of the collective agreement – I heard no evidence in that respect.  The Board is composed of Vice-Chairs, many of whom have considerable experience in arbitrating construction industry grievances under section 133 of the Act.  The panel of permanent arbitrators under the collective agreement consists of six senior arbitrators.  Five of those six individuals are former Vice-Chairs of the Board.  One of those five individuals – Mr. Slaughter, the arbitrator chosen by the union in its referral under the BES – is currently a Vice-Chair of the Board.  I certainly was not provided with any examples of decisions issued by members of the panel of permanent arbitrators which demonstrate an enhanced level of expertise.  In the circumstances I am not satisfied that the expertise enjoyed by the panel of permanent arbitrators meaningfully outweighs the expertise enjoyed by the construction industry Vice-Chairs of the Board.

  1. 39.           Finally, counsel for the union made reference to the expedited nature of the BES process during argument.  He noted that Article 2.02(e) of the BES requires the permanent arbitrator to commence an expedited arbitration within ten days from service of the grievance referral, that counsel must be able to accommodate the hearing schedule set by the arbitrator, and that adjournments may not be granted due to unavailability of counsel, or for business demands, or because additional time is required to prepare.  Counsel also observed that permanent arbitrators may schedule evening hearings.  All of these provisions, it was argued, recommend the use of the BES over section 133 of the Act, and support the proposition that I ought to exercise my authority under subsection 133(4) of the Act to refuse to accept this grievance referral.

  1. 40.           The position asserted by counsel for the union has some merit, to the extent that he observes that evening hearings held under the BES may facilitate a more timely resolution of grievances.  In the normal course the Board does not hold evening hearings to adjudicate construction industry grievances.  That said, I observe that this grievance referral was scheduled for hearing before Mr. Slaughter for 10:00 am on April 4, 2019.  According to counsel for the union, the date and time chosen for the hearing was based upon the availability of Mr. Slaughter.

  1. 41.           None of the other concerns raised by counsel for the union has persuaded me to refuse to accept this grievance referral.  As noted earlier, Article 5.06 of the collective agreement provides that the Board, sitting as a board of arbitration under section 133 of the Act, may interpret and apply the terms and conditions of the BES.  The desire of the parties to this proceeding for the adjudicator to not grant adjournments due to the unavailability of counsel, or for business reasons, or because a party needs additional time to prepare, can be enforced by the panel of the Board assigned to hear the merits.

  1. 42.           In my view, this decision simply applies the language contained in the BES in a practical, common sense manner.  It is evident that it was within the expectations of the parties that this grievance could be referred to the Board under section 133 of the Act – the Act confers that right to Legacy independently of the collective agreement.  Legacy chose to do so, and it was processed by the Board in the normal course.  At the time that Legacy referred the grievance to the Board for arbitration, the union had not referred the grievance to the BES.  When it was subsequently referred to the BES for arbitration eight days later, that referral was not “proper”, in the sense that it rendered the referral under section 133 of the Act null and void, given that Article 2.02(m) of the collective agreement states that a grievance may not be processed under more than one of the arbitration

  1. 43.           Having regard to all of the above, I concluded that the circumstances before the Board did not lend themselves to the conclusion that I ought to exercise my discretion under subsection 133(4) of the Act to refuse to accept this referral.  The parties were advised of my decision on April 2, 2019.

  1. 44.           I am not seized of this proceeding.

Pan Ocean Co. Ltd v China-Base Group Co. Ltd & Anor [2019] EWHC 982 (Comm)


Neutral Citation Number: [2019] EWHC 982 (Comm)
Case No: CL-2018-000788

IN THE HIGH COURT OF JUSTICE
QUEEN’S BENCH DIVISION
COMMERCIAL COURT

Royal Courts of Justice
Rolls Building, Fetter Lane
London, EC4A 1NL
16/04/2019

B e f o r e :

CHRISTOPHER HANCOCK QC
(Sitting as a Judge of the High Court)

____________________

Between:

PAN OCEAN CO. LTD
Claimant
– and –
 
(1) CHINA-BASE GROUP CO., LTD (FORMERLY CHINA-BASE NINGBO FOREIGN TRADE CO. LTD)
(2) BEIHAI XINAN PETROCHEMICAL CO., LTD
Defendants

____________________

Richard Lord QC & Ben Woolgar (instructed by Reed Smith LLP) for the Claimant
Michael Collett QC & Charlotte Tan (instructed by Shoreside Law) for the Defendants

Hearing dates: 25-26 March 
____________________

HTML VERSION OF JUDGMENT APPROVED
____________________

Crown Copyright ©

Christopher Hancock QC :

Introduction.

    1. There are before me two applications. The first is for a declaration that the English Court has no jurisdiction, and an order setting aside the claim form. The second is for an anti-suit injunction preventing the continuance of proceedings in Singapore commenced by the Defendants against the Claimant.
    2. The two applications raise similar considerations. Indeed, one has been described as the obverse of the other by the Claimant.

The facts.

    1. The facts can be briefly summarised as follows:

(1) On about 25 April 2016, a sale contract was entered into between Gunvor Singapore Pte Ltd (“Gunvor”) and the First Defendant (“China-Base”), for the sale and purchase of 38,000mt, plus or minus 5% at seller’s option, of light cycle oil. The contract was on cif terms, with delivery at one safe port Nansha, China. Payment was to be by way of irrevocable letter of credit. The loadport was to be any port in Indonesia, Malaysia, or the Philippines. On the Defendants’ case, China-Base entered into that contract as agent of Beihai Xinan Petrochemical Co Ltd (“Beihai”).

(2) Prior to this, on about 13 April 2016, a charter contract had been entered into between Clearlake Shipping Pte Ltd, a company said to be associated with Gunvor, as charterer, and the Claimant, which was the demise charterer of the GRAND ACE 12 (“the Vessel”). That charter was evidenced by a recap telex of that date, and was on the BP Voy form with amendments, which were set out in the recap. Under the charter:

(a) The load range was to be 1-3 safe ports Ningbo – Yizheng range including Zhoushan and/or in charterer’s option 1-3 safe ports STS Taiwan, intention Taichung.

(b) The discharging range was to be 1-3 safe ports STS Taiwan, intention Taichung and/or in charterers’ option 1-3 safe ports Philippines, Bataan-Batangas range, including Subic Bay and/or in charterers’ option mainland China Ningbo-Yizhang range including Zhoushan and/or in charterers’ option 1-3 safe ports STS Kerteh/Singapore/Tanjung Pelepas/tanjung Langsat/ Pasir Gudang/Tangjun Bin/ Pengerang-Karimun-Nipah range including Batam.

(c) The charterers’ intentions were then recorded as being to load in Singapore area/Korea/Taiwan/Subic via terminal or STS; to proceed to the Philippines and receive approximately 50mt of MGO into one empty slop tank, without a bill of lading being issued, to then commingle the MGO with the previous cargo, and then to proceed to China, with redocumentation for the entire cargo prior to the arrival at the discharge port, showing the Philippines as the loadport for the entirety of the cargo, and the date of loading to be that when the final 50mt was loaded in the Philippines. The charterers would then require only non-negotiable bills to be issued, and would use their best endeavours to return the original bills issued in relation to the Singapore etc cargo to the Owners. In the absence of the originals, the Owners were to furnish the charterers with a non negotiable copy for customs clearance at the discharge port.

(d) The recap stated: “GARB ENG LAW”

(e) The recap then went on to set out amendments to the standard BP Voy form. In relation to clause 49 of the BP Voy form, the recap stated that various words were to be added, as follows:

“… DISPUTE WHICH MAY ARISE OUT OF THIS CHARTER, SAVE AS HEREINAFTER PROVIDED. ANY DISPUTE ARISING OUT OF THIS CHARTER OF LESS THAN USD 50,000 SHALL BE REFERRED TO A SINGLE ARBITRATOR IN LONDON, SUBJECT TO THE LMAA SMALL CLAIMS PROCEDURE.”

(f) Clause 49 of the BP Voy charter standard terms provides, under the heading “LAW” that:

“The construction, validity and performance of this Charter shall be governed by English law. The High Court in London shall have exclusive jurisdiction over any dispute which may arise out of this Charter.”

(3) The Vessel loaded about 36,360 mt of light cycle oil and gas oil at Zhoushan, China and Taichung, Taiwan. Pan Ocean issued bills of lading which accurately reflected the loadports and nature of the cargo.

(4) The Vessel then proceeded to Subic Bay in the Philippines, where she loaded a further 50 mt of gasoil, for which no separate bill of lading was issued.

(5) In accordance with Clearlake’s instructions, it is said that an agent of Pan Ocean issued switch bills of lading dated 7 May 2016 falsely naming the loadport for the entire cargo as Subic Bay, Philippines and mis-describing the entire cargo as light cycle oil.

(6) The Vessel proceeded to Nansha, China, where she discharged the cargo into bonded shore tanks. China-Base/Beihai neither presented any bills of lading nor gave any letter of indemnity (“LOI”) to Pan Ocean or their agents.

(7) China-Base/Beihai sought to obtain customs clearance for the cargo using documents which misdescribed the loadport and nature of the cargo in the same manner as the Switch Bills.

    1. It is China-Base/Beihai’s case that the cargo was impounded by the China anti-smuggling bureau (in May 2016), on the grounds that the origin of the cargo was China and Taiwan rather than the Philippines as shown in the documentation presented for customs clearance. Cargo from the Philippines was subject to a lower rate of import duty than cargo from China and Taiwan. China-Base/Beihai say that they were only able to obtain the release of the cargo after paying taxes, fines and other expenses.
    2. China-Base/Beihai accordingly claim damages against Pan Ocean for loss and damage suffered by reason of false statements in the Switch Bills and cargo manifests as to the loadport and nature of the cargo.
    3. China-Base/Beihai assert that they have never received the Switch Bills and have no reason to believe they were ever indorsed by Societe Generale (to whose order the cargo was consigned).
    4. A writ in rem was issued in Singapore on 13 April 2017, and a Statement of Claim produced dated 14 July 2017. That writ was amended (to take out a claim for breach of contract which had originally formed part of the claim) on 7 February 2018. On 28 February 2018 the Vessel was arrested in Singapore, and on 3 March 2018 was released from arrest against a club letter of undertaking. Thereafter:

(1) Pan Ocean entered an appearance on 7 March 2018.

(2) China-Base/Beihai served their Statement of Claim on 21 March 2018.

(3) Pan Ocean then made an application to set aside the arrest, by summons dated 4 April 2018. That summons sought various relief, as follows:

Let all parties concerned attend before the Court on the date and time to be assigned for a hearing of an application by the Defendant for the following order(s):

1. That the Writ of Summons, Warrant to Arrest and Statement of Claim filed or issued in this action herein and the service thereof, be set aside pursuant to Order 12 Rule 7 of the Rules of Court and/or the inherent jurisdiction of the Court on the grounds that the Plaintiffs’ claims do not fall within the admiralty jurisdiction of the Singapore High Court and/or the Plaintiffs have failed to make full and frank disclosure of all material facts;

2. That the Plaintiffs return forthwith to the Defendant or their solicitors the Letter of Undertaking dated 6 March 2018 issued by the Britannia Steam Ship Insurance Association Limited provided as security to the Plaintiffs for the release of the Vessel;

3. That the Plaintiffs pay the Defendant damages for wrongful arrest of the Vessel in this action;

4. That the time for filing and serving the Defence be extended pending the outcome of this application;

5. The costs of and incidental to the action and of this application be paid by the Plaintiffs to the Defendant; and

6. Such further and other relief as this Honourable Court deems fit.

The grounds of the application are:

1. The grounds of the application are that the High Court’s admiralty jurisdiction should not have been invoked in the present circumstances and/or there was wrongful arrest of the Vessel due to bad faith or gross negligence and/or there was a failure to disclose all material facts on the Plaintiffs’ part. These grounds are elaborated on in the 1st Affidavit of Mr Sungkn, Park to be filed in support of this application, which draft is presently exhibited to the 1st Affidavit of Keng Xin Wee, Shereen, which has been filed herein.”

(4) The summons was supported by an affidavit of Mr Park. In that affidavit, the allegation of wrongful arrest was set out under the general heading of wrongful arrest – bad faith or gross negligence. That affidavit contained allegations of bad faith against China-Base/Beihai, on the footing that at the time of the ex parte application for the warrant of arrest, no reference had been made to the existence of an arbitration clause in the contract which was said to exist between the parties; and no reference had been made to a potential time bar argument arising out of the fact that no arbitration claim had been made within the one year time limit. There was then a separate section dealing with want of full and frank disclosure. The Affidavit made no mention of a claim for damages.

(5) In May 2018, Gunvor obtained an ASI against the Claimant, based on the EJC said to form part of the bill of lading contract or charter between Gunvor and the Claimant. The bill of lading was the original switch bill; the charter was the Clearlake charter. The latter might have been relevant if Clearlake were Gunvor’s agent in making the charter. That ASI has been continued up until the date of this judgment, as I understand the position.

(6) Accordingly, in May 2018, the Claimant knew that an EJC might be relied on.

(7) On 1 August 2018, there was a hearing to determine whether expert evidence was relevant and admissible in relation to customs clearance issues.

(8) Also in August 2018, a further ground was put forward in an affidavit of for the allegation of bad faith, namely that China-Base/Beihai were party to the customs fraud which was allegedly being perpetrated by Gunvor.

(9) Written submissions were put in on 10 August 2018 by the solicitors for the Claimant. Again, it was asserted that the arrest was wrongful, and involved malice or gross negligence, and cases relating to damages claims were cited. However, there was again no reference to a damages claim.

(10) The hearing of the application to set aside took place before the Assistant Registrar on 14 August 2018. I have seen a note of the hearing itself, in which the legal representatives of China-Base/Beihai make reference to a damages claim. However, the judgment, which was given on 26 October 2018, contains no reference to such a claim.

(11) The Claimant appealed against the decision of the Assistant Registrar. Shortly before the hearing of that appeal, which was due to take place on 14 December 2018, the current application for an ASI was issued (on 12 December 2018).

(12) On 17 December 2018, the Claimant’s appeal against the order of the Assistant Registrar was determined, and was dismissed.

(13) On 20 December 2018, there was a pre-trial conference at which the Claimant indicated that it would seek a stay of the Singaporean proceedings on the basis of the EJC, and was ordered to make any application by early January 2019. That application was duly issued on 11 January 2019, within time.

(14) On 1 February 2019, Phillips J ordered an expedited hearing of these applications and gave consequential directions.

(15) The Claimant has been ordered by the Singaporean Court to file its evidence in support of its application to stay the Singapore proceedings in reliance on the EJC by 22 March 2019. I do not know what evidence was served.

(16) The hearing in Singapore is fixed to take place on 17 April 2019.

The issues on jurisdiction.

    1. I can therefore summarise the issues on jurisdiction as follows:

(1) Was there a contract between the Claimant and the Defendants?

(2) If there was such a contract, what were its terms? In particular, did it include an exclusive jurisdiction clause (“EJC”) in favour of the English Courts?

(3) Did that ECJ satisfy the requirements of Article 25 of the Recast Regulation?

    1. If the answer to the above issues is that there was no valid and binding EJC, then it is common ground between the parties that the English Court has no jurisdiction, and thus it would be, strictly, unnecessary to move on to the second issue of whether an anti suit injunction should be issued. However, I consider in this judgment both the question of whether there is jurisdiction on the basis of an EJC, and the further question of whether, if there is, an anti-suit injunction should be issued.
    2. However, Mr Collett QC, for China-Base/Beihai, submitted that I should not examine the question of whether there was in fact an implied contract unless I was satisfied that I had jurisdiction, since this would involve me in making observations which might be relied on in Singapore in circumstances in which I might in fact decide I had no jurisdiction. I agree with this concern. Accordingly, I propose to examine the question of whether the EJC here is binding, on the hypothesis that there was an implied contract of the sort alleged by the Claimant, without deciding that point at this stage.

The applicable approach.

    1. The first question is as to the test that I am to apply in determining the application. Both parties agree that the guidance in Kaefer Aislamentos SA de CV v AMS Drilling Mexico SA de CV [2019] EWCA Civ 10 is the most helpful guidance in this regard. In that case, the Court of Appeal considered recent Supreme Court authority on this question and concluded that:

“70 An opportunity to clarify the test arose in Goldman Sachs . Lord Sumption (giving a judgment with which Lord Hodge, Lady Black, Lord Lloyd-Jones and Lord Mance agreed), essentially repeated his formulation in Brownlie . To the extent that there was disagreement in Brownlie about the reformulation of the Canada Trust test the Supreme Court has now spoken with a single voice and the route forward lies with that reformulation. In paragraph [9] Lord Sumption stated:

“9. This is, accordingly, a case in which the fact on which jurisdiction depends is also likely to be decisive of the action itself if it proceeds. For the purpose of determining an issue about jurisdiction, the traditional test has been whether the claimant had “the better of the argument” on the facts going to jurisdiction. In Brownlie v Four Seasons Holdings Inc [2018] 1 WLR 192 , para 7, this court reformulated the effect of that test as follows:

“… (i) that the claimant must supply a plausible evidential basis for the application of a relevant jurisdictional gateway; (ii) that if there is an issue of fact about it, or some other reason for doubting whether it applies, the court must take a view on the material available if it can reliably do so; but (iii) the nature of the issue and the limitations of the material available at the interlocutory stage may be such that no reliable assessment can be made, in which case there is a good arguable case for the application of the gateway if there is a plausible (albeit contested) evidential basis for it.”

It is common ground that the test must be satisfied on the evidence relating to the position as at the date when the proceedings were commenced.”

71 Any dispute about whether the three-limbed test is obiter has accordingly now vanished. The test has been endorsed by a unanimous Supreme Court. But the Court has not gone further than in Brownlie and has not expressly explained how the test works in practice nor as to what is meant by ” plausible ” nor how it relates to ” good arguable case ” nor how the various limbs interact with the relative test in Canada Trust .”

    1. The Court of Appeal then went on to consider the application of this test in cases which involved Article 25 of the Recast Regulation, stating as follows:

“81 This case concerns whether AT1 and Ezion were party to an exclusive jurisdiction clause set out in terms and conditions attached to the Purchase Order. It is common ground that Article 25 of the Recast Brussels Regulation , on prorogation of jurisdiction, applies. 1 This provision, in its earlier incarnations, 2 did not apply unless at least one of the parties was domiciled in the EU. But it now applies regardless of the domicile of the parties. In Bols (ibid) the Privy Council cited earlier case law of the Court of Justice 3 which held that the relevant provisions (now Article 25 ) imposed on the court the duty of examining ” whether the clause conferring jurisdiction upon it was in fact the subject of a consensus between the parties ” and this had to be ” clearly and precisely demonstrated “. The purpose of the provisions was to ensure that the ” consensus ” between the parties was ” in fact ” established. The Court of Justice has however recognised that the manner of this proof is essentially an issue for the national laws of the Member States, subject to an overriding duty to ensure that those laws are consistent with the aims and objectives of the Regulation.82 The Privy Council in Bols held that the domestic good arguable case test had to be read in the light of the ” clear and precise ” evidence requirement and in this manner it was consistent with the purpose behind the EU Regulation. Mr Cooper QC relied upon this to support his argument that, howsoever one cast the test, it nonetheless was not the minimal test advanced by the appellant. He pointed out that in Brownlie the judgment in Bols had been cited with apparent approval (see paragraph [62] above). An obligation to adduce clear and precise evidence to show jurisdiction was a test importing weight and substance. It was not for instance a test to be equated with that for summary judgment (as the Judge seemed to conclude in paragraph [83] of his Judgment). Mr Nolan QC for the appellant in an attempt to side-line the clear and precise standard argued that it did not apply because the rationale behind it (as explained in the case law of the Court of Justice) was that exclusive jurisdiction agreements amounted to a derogation from the normal rules determining jurisdiction, such as a defendant’s domicile, and as a derogation from a basic norm it had to be strictly construed. This was why the arguably high hurdle of clear and precise had been introduced. But that logic was, he said, no longer apposite since the Recast Brussels Regulation now applied irrespective of a defendant’s domicile. Now that the rules had changed the logic behind the ” clear and precise ” rule no longer arose. Mr Cooper QC retorted that this was a distinction without a difference. Article 25 did not (could not) apply two rules: one where the defendant was an EU company and one where it was not. There had to be a single test.

83 The Supreme Court in Brownlie and in Goldman Sachs seemingly approved Bols but did not address how the new three-limbed formulation took into account the provisions of the Recast Brussels Regulation, no doubt because it did not specifically arise on the facts of those cases. I agree with the analysis of Mr Cooper QC on this. I consider that in a case such as the present where the background legal context is Article 25 some regard must be paid to the fact that, as was held in Bols , the ” clear and precise ” test must be taken into account as a component of the domestic test and the melding of the two is necessary to ensure that domestic law remains consistent with the Regulation. As with so much of the language used in this context, that which is ” clear and precise ” is not easy to define with precision. But I would rely upon it as providing at least an indication of the quality of the evidence required. It supports the conclusion that the prima facie test (in limbs (i) and (ii)) is a relative one; and in so far as the court cannot resolve outstanding material disputes (limb (iii)) it affords an indication as to the sort of evidence that a Court will seek. I would not go much beyond this though.”

    1. Applying that approach, I turn to the central issue between the parties, namely whether there was an exclusive jurisdiction clause in favour of the Courts of England and Wales which satisfies the requirements of Article 25 of the Recast Regulation?

Did any exclusive jurisdiction agreement that there was satisfy the requirements of Article 25 of the Recast Regulation?

Article 25.

    1. I begin with the provisions of Article 25 itself, which provides as follows.

“Prorogation of jurisdictionArticle 25

1. If the parties, regardless of their domicile, have agreed that a court or the courts of a Member State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction, unless the agreement is null and void as to its substantive validity under the law of that Member State. Such jurisdiction shall be exclusive unless the parties have agreed otherwise. The agreement conferring jurisdiction shall be either:

(a) in writing or evidenced in writing;(b) in a form which accords with practices which the parties have established between themselves; or

(c) in international trade or commerce, in a form which accords with a usage of which the parties are or ought to have been aware and which in such trade or commerce is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade or commerce concerned.”

The authorities.

    1. I was referred to a number of authorities on this question, and I deal with what I regard as the most relevant passages of each in turn (although not always the entirety of the text to which I was referred, which I have, however, read and taken into account), before turning to a consideration of the parties’ respective submissions based on the cases. I deal with the authorities in chronological order.
    2. My starting point is the decision of the ECJ in Estasis Salotti di Colzani Aimo e Gianmario Colzani v RUWA Polstereimaschinen GmbH (Case 24/76) [1976] ECR 1831. In that case, the ECJ said this:

“On the interpretation of Article 17 of the Convention in general[6] The first paragraph of Article 17 of the Convention provides: “If the parties, one or more of whom is domiciled in a Contracting State, have, by agreement in writing or by an oral agreement confirmed in writing, agreed that a court or the courts of a Contracting State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have exclusive jurisdiction” .

[7] The way in which that provision is to be applied must be interpreted in the light of the effect of the conferment of jurisdiction by consent, which is to exclude both the jurisdiction determined by the general principle laid down in Article 2 and the special jurisdictions provided for in Articles 5 and 6 of the Convention. In view of the consequences that such an option may have on the position of the parties to the action, the requirements set out in Article 17 governing the validity of clauses conferring jurisdiction must be strictly construed. By making such validity subject to the existence of an “agreement” between the parties, Article 17 imposes on the court before which the matter is brought the duty of examining, first, whether the clause conferring jurisdiction upon it was in fact the subject of a consensus between the parties, which must be clearly and precisely demonstrated. The purpose of the formal requirements imposed by Article 17 is to ensure that the consensus between the parties is in fact established. The questions referred to the Court by the Bundesgerichtshof must be examined in the light of these considerations.” (my emphasis)

    1. Next, I was referred to the decision of the ECJ in Galeries Segoura v Rahim Bonakdarian (Case 25/76) [1976] ECR 1851, and in particular the following passage.

“The interpretation of Article 17 of the Convention in general[5] The first paragraph of Article 17 of the Convention provides: “If the parties, one or more of whom is domiciled in a Contracting State, have, by agreement in writing or by an oral agreement confirmed in writing, agreed that a court or the courts of a Contracting State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have exclusive jurisdiction” .

[6] The way in which that provision is to be applied must be interpreted in the light of the effect of the conferment of jurisdiction by consent, which is to exclude both the jurisdiction determined by the general principle laid down in Article 2 and the special jurisdictions provided for in Articles 5 and 6 of the Convention. In view of the consequences that such an option may have on the position of the parties to the action, the requirements set out in Article 17 governing the validity of clauses conferring jurisdiction must be strictly construed.By making such validity subject to the existence of an “agreement” between the parties, Article 17 imposes upon the court before which the matter is brought the duty of examining, first, whether the clause conferring jurisdiction upon it was in fact the subject of a consensus between the parties, which must be clearly and precisely demonstrated. The purpose of the formal requirements imposed by Article 17 is to ensure that the consensus between the parties is in fact established. The questions referred to the Court by the Bundesgerichtshof must be examined in the light of these considerations.

The questions referred by the Bundesgerichtshof

[7] The first question is whether the requirements of Article 17 of the Convention are satisfied if, at the oral conclusion of a contract of sale, a vendor has stated that he wishes to rely on his general conditions of sale and if he subsequently confirms the contract in writing to the purchaser and annexes to this confirmation his general conditions of sale which contain a clause conferring jurisdiction.

[8] In accordance with the foregoing general considerations, it cannot be presumed that one of the parties waives the advantage of the provisions of the Convention conferring jurisdiction. Even if, in an orally concluded contract, the purchaser agrees to abide by the vendor’s general conditions, he is not for that reason to be deemed to have agreed to any clause conferring jurisdiction which might appear in those general conditions. It follows that a confirmation in writing of the contract by the vendor, accompanied by the text of his general conditions, is without effect, as regards any clause conferring jurisdiction which it might contain, unless the purchaser agrees to it in writing.

[9] The second question then asks whether Article 17 of the Convention applies if, in dealings between merchants, a vendor, after the oral conclusion of a contract of sale, confirms in writing to the purchaser the conclusion of the contract subject to his general conditions of sale and annexes to this document his conditions of sale which include a clause conferring jurisdiction and if the purchaser does not challenge this written confirmation.

[10] It emerges from a comparison of the wording of the two questions and from the explanations given during the proceedings before the Court that the second of the two questions concerns the hypothetical situation of a sale being concluded without any reference being made at all to the existence of general conditions of sale. In such a case, it is patent that a clause conferring jurisdiction which might be included in those general conditions did not form part of the subject-matter of the contract concluded orally between the parties. Therefore subsequent notification of general conditions containing such a clause is not capable of altering the terms agreed between the parties, except if those conditions are expressly accepted in writing by the purchaser.

[11] It follows from the foregoing, in both of the alternative cases suggested by the Bundesgerichtshof, that a unilateral declaration in writing such as the one in the present case is not sufficient to constitute an agreement on jurisdiction by consent. However, it would be otherwise where an oral agreement forms part of a continuing trading relationship between the parties, provided also that it is established that the dealings taken as a whole are governed by the general conditions of the party giving the confirmation, and these conditions contain a clause conferring jurisdiction. Indeed, in such a context, it would be contrary to good faith for the recipient of the confirmation to deny the existence of a jurisdiction conferred by consent, even if he had given no acceptance in writing.

[12] It is therefore possible to give a single answer to the two questions referred to the Court as follows: in the case of an orally concluded contract, the requirements of the first paragraph of Article 17 as to form are satisfied only if the vendor’s confirmation in writing accompanied by notification of the general conditions of sale has been accepted in writing by the purchaser. The fact that the purchaser does not raise any objections against a confirmation issued unilaterally by the other party does not amount to acceptance on his part of the clause conferring jurisdiction, unless the oral agreement comes within the framework of a continuing trading relationship between the parties which is based on the general conditions of one of them, and those conditions contain a clause conferring jurisdiction.” (emphasis mine)

    1. The European Court of Justice had to consider the question of whether an oral agreement, confirmed in writing, satisfied the requirements of the then equivalent of Article 25, in the case of Berghoefer GmbH v ASA [1986] 1 CMLR 13. The headnote in that case reads as follows.

“Reference from Germany by the Bundesgerichtshof (Supreme Court) under the Protocol to the EEC Judgments Convention .Full faith and credit. Jurisdiction. Forum clause. Evidence in writing.Article 17(1) of the EEC Judgments Convention allows jurisdiction under a forum clause if jurisdiction was conferred by an oral agreement relating expressly to that point, written confirmation of the agreement was given by one party and received by the other, and the recipient raised no objection. [16]

The Court interpreted Article 17(1) of the EEC Judgments Convention in the context of a commercial agency agreement between a German agent and a French principal operative for some 20 years in the middle of which the parties had agreed orally that German courts should have exclusive jurisdiction over their disputes, the German company then sending the other a letter confirming the new arrangement but getting no acknowledgement of receipt, to the effect that the forum agreement is valid so long as it is proved that there was an oral agreement, that the written confirmation was sent and received and that the recipient raised no objection.”

    1. In the text of the judgment, the Court analysed the position as follows:

“[12] The Court observes that, for applying these provisions, reference should be made primarily to the whole of the Convention and its objectives in order to give them full effect.[13] According to established case law ( Salotti, Case 24/76 ;  Segoura, Case 25/76  ; Porta-Leasing, Case 784/79  ; Tilly-Russ, Case 71/83  ; the conditions to which Article 17 subjects the validity of jurisdiction clauses must be strictly interpreted in the sense that it is the function of these conditions to ensure that the parties’ consent to such a clause is actually proved and that it is manifested clearly and exactly.

[14] In this connection it should be observed that Article 17 of the Convention, unlike Article 1(1) of the Protocol annexed to it concerning persons domiciled in Luxemburg, does not require the written confirmation of an oral agreement to be given by the party against whom the agreement is to take effect. However it should be recognised, as the different observations submitted to the Court correctly point out, that it is sometimes difficult to determine in advance the party in whose favour a jurisdiction agreement is concluded, before proceedings are actually instituted.

[15] If it is actually proved that jurisdiction was conferred by an oral agreement relating expressly to this point and if the confirmation of the oral agreement given by one of the parties was received by the other, who raised no objection in reasonable time, this literal interpretation of Article 17 is, as the Court has already held in another context ( cf. judgment in tilly russ ), also in conformity with the function of this Article, which consists precisely in ensuring that consent between the parties is established. It would then be contrary to good faith for the party which raised no objection to dispute application of the oral agreement. In the present case it is unnecessary to decide whether and, if so, to what extent objections said to have been raised by the other party against the written confirmation of an oral agreement could be taken into consideration should the need arise.

[16] Therefore the reply should be that Article 17(1) of the Convention of 27 September 1968 on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters must be interpreted as meaning that the formal requirements therein laid down are satisfied if it is established the jurisdiction was attributed by an oral agreement dealing expressly with that point, that written confirmation of that agreement by one of the parties was received by the other and that the latter raised no objection.” (my emphasis)

    1. The next decision in time to which I was referred was the ECJ decision in Benincasa v Dentalkit Srl [1997] IL Pr 559, and in particular paragraphs 29-32. Those paragraphs provide as follows:

“[29]Article 17 of the Convention sets out to designate, clearly and precisely, a court in a Contracting State which is to have exclusive jurisdiction in accordance with the consensus formed between the parties, which is to be expressed in accordance with the strict requirements as to form laid down therein. The legal certainty which that provision seeks to secure could easily be jeopardised if one party to the contract could frustrate that rule of the Convention simply by claiming that the whole of the contract was void on grounds derived from the applicable substantive law. (my emphasis)[30] That solution is consistent not only with the approach taken by the Court in Effer v. Kanter ,  in which it ruled that the plaintiff may invoke the jurisdiction of the courts of the place of performance in accordance with Article 5(1) of the Convention even when the existence of the contract on which the claim is based is in dispute between the parties, but also with the judgment in Case 73/77, Sanders v. Van der Putte ,  in which the Court held, in connection with Article 16(1) of the Convention, that, in the matter of tenancies of immovable property, the courts of the State in which the immovable property is situated continue to have jurisdiction even where the dispute is concerned with the existence of the lease.

[31] It must be added that, as the Court has held, it is for the national court to interpret the clause conferring jurisdiction invoked before it in order to determine which disputes fall within its scope (Case C-214/89, Powell Duffryn ). Consequently, in the instant case it is for the national court to determine whether the clause invoked before it, which refers to “any dispute” relating to the interpretation, performance or “other aspects” of the contract, also covered any dispute relating to the validity of the contract.

[32] The answer to the national court’s third question must therefore be that the courts of a Contracting State which have been designated in a jurisdiction clause validly concluded under the first paragraph of Article 17 of the Convention also have exclusive jurisdiction where the action seeks in particular a declaration that the contract containing that clause is void.”

    1. I turn then to Coreck Maritime GmbH v Handelsveem BV (Case C-387/98) [2000] ECR I-9337, para 13, which was a case concerned with the requirements for proof of assent to a jurisdiction clause in a bill of lading. In that case the ECJ said:

“13 The court has held that, by making the validity of a jurisdiction clause subject to the existence of an ‘agreement between the parties’, art. 17 of the Convention imposes on the court before which the matter is brought the duty of examining first whether the clause conferring jurisdiction upon it was in fact the subject of consensus between the parties, which must be clearly and precisely demonstrated, and that the purpose of the requirements as to form imposed by art. 17 is to ensure that consensus between the parties is in fact established ( Estasis Salotti v RUWA (Case 24/76) [1976] ECR 1831 , para. 7, Segoura v Bonakdarian (Case 25/76) [1976] ECR 1851 , para. 6, and Mainschiffahrts-Genossenschaft eG v Gravieres Rhenanes (Case C-106/95) [1997] ECR I-911; [1997] CEC 859 , para. 15).14 However, if the purpose of art. 17 of the Convention is to protect the wishes of the parties concerned, it must be construed in a manner consistent with those wishes where they are established. Article 17 is based on a recognition of the independent will of the parties to a contract in deciding which courts are to have jurisdiction to settle disputes falling within the scope of the Convention, other than those which are expressly excluded pursuant to the fourth paragraph of art. 17 ( Meeth v Glacetal (Case 23/78) [1978] ECR 2133 , para. 5).

15 It follows that the words ‘have agreed’ in the first sentence of the first paragraph of art. 17 of the Convention cannot be interpreted as meaning that it is necessary for a jurisdiction clause to be formulated in such a way that the competent court can be determined on its wording alone. It is sufficient that the clause states the objective factors on the basis of which the parties have agreed to choose a court or the courts to which they wish to submit disputes which have arisen or which may arise between them. Those factors, which must be sufficiently precise to enable the court seised to ascertain whether it has jurisdiction, may, where appropriate, be determined by the particular circumstances of the case….

22.By its third question, the national court essentially asks whether a jurisdiction clause which has been agreed between a carrier and a shipper and appears in a bill of lading is valid as against any third party bearer of the bill of lading or whether it is only valid as against a third party bearer of the bill of lading who succeeded by virtue of the applicable national law to the shipper’s rights and obligations when he acquired the bill of lading.

23 It is sufficient to note that the court has held that, in so far as the jurisdiction clause incorporated in a bill of lading is valid under art. 17 of the Convention as between the shipper and the carrier, it can be pleaded against the third party holding the bill of lading so long as, under the relevant national law, the holder of the bill of lading succeeds to the shipper’s rights and obligations ( Tilly Russ , para. 24, and Castelletti , para. 41).

24 It follows that the question whether a party not privy to the original contract against whom a jurisdiction clause is relied on has succeeded to the rights and obligations of one of the original parties must be determined according to the applicable national law.

25 If he did, there is no need to ascertain whether he accepted the jurisdiction clause in the original contract. In such circumstances, acquisition of the bill of lading could not confer upon the third party more rights than those attaching to the shipper under it. The third party holding the bill of lading thus becomes vested with all the rights, and at the same time becomes subject to all the obligations, mentioned in the bill of lading, including those relating to the agreement on jurisdiction ( Tilly Russ , para. 25).

26 On the other hand, if, under the applicable national law, the party not privy to the original contract did not succeed to the rights and obligations of one of the original parties, the court seised must ascertain, having regard to the requirements laid down in the first paragraph of art. 17 of the Convention, whether he actually accepted the jurisdiction clause relied on against him.

27 Accordingly, the reply to the third question must be that a jurisdiction clause agreed between a carrier and a shipper which appears in a bill of lading is enforceable against a third party bearer of the bill of lading if he succeeded to the rights and obligations of the shipper under the applicable national law when he acquired the bill of lading. If he did not, it must be ascertained whether he accepted that clause having regard to the requirements laid down in the first paragraph of art. 17 of the Convention.” (my emphasis)

    1. In 2009, Hamblen J decided the case of Polskie Ratownictwo Okretowe v Rallo Vito [2009] IL Pr 55. That case concerned the question of whether a jurisdiction agreement had been incorporated into a towage contract between the parties, which was made orally and then confirmed in writing. Hamblen J found that the clause did satisfy the formal requirements, stating as follows:

“Formal requirements55 Even if the parties did agree to confer jurisdiction on the English Court, the defendants say that the requirements as to formality in art.23 are not satisfied in this case. They contend that there is no agreement in writing or even evidenced in writing within art.23(a). They point out that the defendants did not produce any document indicating that they had agreed to confer jurisdiction on the English Courts and did not sign any such document produced by someone else. Moreover, they say that such documents which were produced by Marint, namely the recap and the pro forma TOWHIRE, were quickly challenged by the defendants on the basis that the documents sought to include terms which had not been agreed.

56 Under art.23(a) all that is required is that an oral the agreement be ” evidenced in writing “. There is no need for the agreement to be signed: Powell Duffryn Plc v Petereit ( C-214/89) [1992] ECR I-1745; [1992] I.L.Pr. 300 . The writing relied on need not emanate from the party against whom the jurisdiction clause is being enforced: Berghoefer GmbH & Co KG v ASA SA ( 221/84) [1985] ECR 2699; [1986] 1 C.M.L.R. 13 at [20], para [14] . Further, a failure to raise an objection within a reasonable time to the terms of a written confirmation following an oral agreement may establish the formalities required by Article 23: Berghoefer [1985] ECR 2699; [1986] 1 C.M.L.R. at [21] , para.[15]; Iveco Fiat SpA v. Van Hool S.A. ( 313/85) [1986] E.C.R. 3337; [1986] 1 C.M.L.R. 57, 70–71, para [9] .

57 Here, the towage contract was finally agreed and concluded orally over the telephone at 19:30 GMT, when Mr. Palumbo confirmed the fixture to Mr. Heath. That agreement was then confirmed by Mr. Heath by the revised recap sent 20.42 GMT on February 4.

58 I am satisfied to the requisite standard of proof that the defendants failed to raise any objection within a reasonable time to the terms of the recap and the TOWHIRE form incorporated thereby.

59 This was a situation of urgency. Instructions to mobilize the tug had to be given almost immediately whereupon the tug would be delivered under the tow contract. The tow itself was to be attempted on 5 February.

60 It was the evidence of Mr Halfweeg that, as in this case, towage contracts are commonly negotiated and agreed over the telephone under considerable time pressure. In such circumstances, if a recap does not correctly reflect the deal, the practice is for the broker receiving the recap (here, CRS) to respond ” immediately with a refusal, knowing that at that time the tug was mobilising “. The burden is on the receiving broker (CRS) and the party (the defendants) ” to immediately point out any error or omissions in the terms set out in the recap, absent which the recap is accepted as correctly setting out the terms of the contract .

61 The first defendant contends that it was engaged in dealing with the situation on the ground and could not be expected to respond immediately. However, their brokers, CRS, could be so expected and in any event there were likely to be responsible people in the first defendant’s offices, such as their accountant Mr Margiottta.

62 I am accordingly satisfied to the requisite standard of proof that the recap, expressly incorporating Bimco TOWHIRE, provides the evidence in writing required by art.23(a).”

    1. Next I turn to the decision of Males J (as he then was) in BNP Paribas v Anchorage Capital [2013] EWHC 3073 (Comm), where the learned judge said:

“44 Under Article 23(1), a jurisdiction agreement is effective if it is: (a) in writing or evidenced in writing; (b) in a form which accords with practices which the parties have established between themselves; or (c) in international trade or commerce, in a form which accords with a usage of which the parties are or ought to have been aware and which in such trade or commerce is widely known to, and regularly observed by, parties to contracts of the type involved in the particular trade or commerce concerned. The purpose of these requirements is to ensure that there is consensus between the parties to the jurisdiction clause, and to this end for the purposes of Article 23(1)(a) it is the agreement to the jurisdiction clause (and not merely the clause itself) which must be in writing: Estasis Salotti di Colzani Aimo e Gianmario Colzani v RUWA Polstereimaschinen GmbH (Case 24/76) [1976] ECR 1831 ; and Galeries Segoura v Rahim Bonakdarian (Case 25/76) [1976] ECR 1851 .” (my emphasis)

    1. Next in time is the decision of the Court of Appeal in Antonio Gramsci Shipping Corp & Ors v Lembergs [2013] 2 Lloyd’s Rep 295. In that case, the question arose of whether it was sufficient to satisfy the requirements of Article 25 that there had been an oral agreement which was thereafter confirmed in writing. The Court of Appeal confirmed that this sufficed to satisfy the requirements of the Article. They set out their reasons for so holding in the following paragraphs.

“35 I turn to the Brussels Regulation . The general rule under the Regulation is that jurisdiction is generally to be based on the defendant’s domicile. The underlying principle is that it must always be so based, save in well defined situations in which the subject matter of the litigation or the autonomy of the parties requires a different linking fact: see Recital (11) to the Regulation. A further principle (see Recital (15)) is that it is necessary to minimise the possibility of concurrent proceedings.36 Article 23 , which requires a consensus between the parties that a particular court is to have jurisdiction, like its predecessor Article 17 of the Brussels Convention , is based on the autonomy of the parties. Its material part provides:

“1. If the parties, one or more of whom is domiciled in a Member State, have agreed that a court or the courts of a Member State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction. Such jurisdiction shall be exclusive unless the parties have agreed otherwise. Such an agreement conferring jurisdiction shall be either:

(a) in writing or evidenced in writing; or[(b) and (c) are omitted]”

37 The purpose of Article 23 is to ensure that the parties have actually consented to the choice of jurisdiction. The decisions of the ECJ (now the CJEU) make it clear that, to be effective for the purpose of Article 23 , an agreement to confer jurisdiction must establish consensus between the parties “clearly and precisely”: Case C-24/76 Estasis Salotti v RÜWA Polstereimaschinen GmbH [1977] 1 CMLR 345 and case C-25/76 Galleries Segoura SPRL v Rahim Bonakdarain [1976] ECR 1851 .

38 There is, however, a measure of flexibility. Although (see Case C-313/85 Iveco Fiat SpA v Van Hool NV [1986] ECR 3337) the ECJ stated that “the purpose of the formality requirement [in Article 23 ] is to ensure that the consensus between the parties is in fact established”, an oral agreement conferring jurisdiction can suffice. This will be so where the oral agreement is later confirmed in writing by one party and the other party has raised no objection in sufficient time:Case C-221/84 Berghoefer GmbH v ASA SA [1986] 1 CMLR 13 . Briggs on Civil Jurisdiction and Judgment (5th ed 2009, ed Rees) 178 states that the formal requirements “are a means to an end, and are not an end in themselves”, and “the only question, sight of which must not be lost, is that the formal requirements are there to ensure that there was consensus. If the consensus can be clearly and precisely established by other means, they serve no additional function, and there is no further need to consider them”.

39 Secondly, written consensus may exist in the absence of a binding contract: see Fentiman, International Commercial Litigation (2010) at 2.40, giving a non-binding memorandum and an unsigned version of a contract which requires a signature as examples.

40 Despite this measured flexibility, the jurisprudence of the ECJ regards the departures from the general rule of domicile-based jurisdiction, including Article 23 , as derogations. In that sense they are regarded as exceptions to the general rule, although to regard jurisdiction based on Article 23 as exceptional may (see Fentiman, International Commercial Litigation (2010) 2.42) risk placing an obstacle to giving effect to party autonomy.

41 There are also statements that departures from the general rule of domicile-based jurisdiction should be strictly construed (see Case C-24/76 Estasis Salotti v RÜWA [1977] 1 CMLR 345 at [7] and Bank of Tokyo-Mitsubishi v Baskan Gida Sanayi Pazarlama [2004] EWHC 945 (Ch) at [191] per Lawrence Collins J, as he then was) and interpreted in “keeping with the spirit of certainty”. This means they should be interpreted so as to ensure that they are only applicable in clear cases and without having to delve into the merits of the underlying dispute: see Case C-159/97 Castelletti v Trumpy [1999] ILPr 492 at [48]-[49]. This last point has particular relevance when what is under consideration is an enquiry at the interlocutory stage in a case such as this one where there is a sharp conflict of evidence….

…62 I return to the question whether there is an underlying principle as to when “deemed consent” will or may suffice and the reference in Refcomp SpA v AXA Corporate Solutions Assurance SA [2013] ILPr 17 to the nature of the contract as relevant to this. My consideration of the cases has identified only one principle deployed for doing so. That is where the situation is one in which there has been a transfer of the contract or of all the rights and obligations for which it provides. That is not the position here.”(emphasis again mine)

    1. Mr Collett referred me, next, to the decision of the ECJ in Profit Investment Sim SpA v. Ossi (Case C-366/13) [2016] 1 WLR 3832.
    2. I start with the Opinion of the Advocate General, which included the following passages.

“36 By its second question, which, although split into two parts, must be divided into three limbs, the referring court asks, in essence, first, whether the requirement of writing laid down in article 23(1)(a) of Regulation No 44/2001 is satisfied where a clause conferring jurisdiction is contained in a prospectus for the issue of securities, such as the CLNs at issue in the main proceedings, created unilaterally by the issuer of those securities, next, whether that clause may be enforced against any subscriber to those securities and, finally, in the event that the previous two question are answered in the negative, whether the insertion of a prorogation of jurisdiction clause in such a document is consistent with a usage common in international trade or commerce within the meaning of article 23(1)(c) of Regulation No 44/2001 .37 That tripartite division of the question is necessary in so far as the first limb seems to me to be exclusively concerned with the validity of the prorogation of jurisdiction clause in the relationship between the parties to the contract containing that clause, whereas the second limb relates to whether that clause is transferable to successive purchasers of the securities. The third limb of the question includes both those issues and is concerned more generally with the effectiveness of that clause as against any purchaser or sub-purchaser of the securities.

1. The first limb of the second question

38 Case law has proved to be unstintingly rigorous in its interpretation of the requirements of form laid down in sub-paragraph (a) of the first paragraph of article 17 of the Brussels Convention, and then in article 23(1)(a) of Regulation No 44/2001 , the latter provision making the validity of the choice of forum clause subject to the existence of an agreement concluded “in writing or evidenced in writing”.

39 The court has held that the insertion of a clause conferring jurisdiction contained in the general conditions of sale of one of the parties, printed on the back of a written agreement, satisfies the requirement of writing only if the contract signed by both parties contains an express reference to those general conditions: Estasis Salotti di Colzani Aimo e Gianmario Colzani snc v Rüwa Polstereimaschinen GmbH (Case 24/76) [1976] ECR 183 , para 10.

40 In the case of a contract concluded verbally, it has taken the view, leaving aside the case of an ongoing trading relationship between the parties, that a prorogation of jurisdiction clause could be effective only if the vendor’s confirmation in writing accompanied by notification of the general conditions of sale had been accepted in writing by the purchaser: Galeries Segoura SPRL v Société Rahim Bonakdarian (Case 25/76) [1976] ECR 1851 , para 12.

41 Focusing exclusively on the existence of consent to the prorogation of jurisdiction, the court has held, with respect to the first paragraph of article 17 of the Brussels Convention , that, by making the validity of a jurisdiction clause subject to the existence of an “agreement” between the parties, that provision imposes on the court before which the matter is brought the duty of examining first whether the clause was in fact the subject of consensus between the parties, which must be clearly and precisely demonstrated: Coreck Maritime GmbH v Handelsveem BV (Case C-387/98) [2000] ECR I-9337 , para 13 and the case law cited and the Refcomp case [2013] 1 All ER (Comm) 1201 , para 27. In accordance with its teleological method of interpretation, it has held that ” article 23(1) of [Regulation No 44/2001] must be interpreted as meaning that, like the aim pursued by the first paragraph of article 17 of the Brussels Convention , ensuring the real consent of the parties is one of the aims of that provision”: the Refcomp case, para 28 and the case law cited.

42 It therefore follows clearly from that case law that consent to a prorogation of jurisdiction clause cannot simply be tacit or inferred from the circumstances. Other than in the cases provided for in article 23(1)(b) and (c) of Regulation No 44/2001 , the effectiveness of such a clause is, on the contrary, subject to express consent given by using one of the formal modes of expression provided for in article 23(1)(a) and (2) of that Regulation.

43 However rigorous they may appear to be, those requirements of form are justified in my opinion, in so far as they provide a means of protecting the weaker party against the risk of insertion of a jurisdiction clause to which that party’s attention has not been drawn in a sufficiently clear manner: the MSG case [1997] QB 731 , para 17.

44 In the light of those requirements, as interpreted by settled case law, the question raised by the referring court can only be answered in the negative, since the requirement of writing cannot be said to be satisfied solely by the insertion of the clause conferring jurisdiction in the memorandum created unilaterally by the issuer of the CLNs.”

    1. Turning to the judgment of the Court:

“The second question22 By its second question, the referring court asks, in essence, whether article 23(1)(a) and (c) of Regulation No 44/2001 must be interpreted as meaning that a jurisdiction clause, such as that at issue in the main proceedings, satisfies the formal requirements laid down in article 23(1)(a) where (i) it is contained in a prospectus produced by the bond issuer concerning the issue of bonds, (ii) it is enforceable against third parties who acquire those bonds through a financial intermediary and (iii), in the event that the first two parts of the second question are answered in the negative, it corresponds to a usage in the field of international trade or commerce for the purpose of article 23(1)(c) .

23 As a preliminary point, it must be stated that, as regards the conditions for the validity of a jurisdiction clause, article 23(1) of Regulation No 44/2001 sets out in substance the formal requirements and mentions only one substantive condition relating to the subject matter of the clause, which must concern a particular legal relationship. Therefore, the wording of that provision does not indicate whether a jurisdiction clause may be transmitted, beyond the circle of the parties to a contract, to a third party, who is a party to a subsequent contract and successor, in whole or in part, to the rights and obligations of one of the parties to the initial contract: see, inter alia, Refcomp SpA v Axa Corporate Solutions Assurance SA (Case C-543/10) [2013] 1 All ER (Comm) 1201 , para 25.

24 However, article 23(1) of Regulation No 44/2001 clearly indicates that its scope is limited to cases in which the parties have “agreed” on a court. As appears from recital (11) of that Regulation, it is that consensus between the parties which justifies the primacy granted, in the name of the principle of the freedom of choice, to the choice of a court other than that which may have had jurisdiction under that Regulation: the Refcomp case, para 26.

25 In order to respond to the first part of the second question, it must be determined whether a jurisdiction clause contained in a prospectus unilaterally produced by the bond issuer concerning the issue of bonds meets the “in writing” requirement laid down in article 23(1)(a) of Regulation No 44/2001 .

26 The court has already held that that requirement is not fulfilled where a jurisdiction clause is included among the general conditions of sale of one of the parties, printed on the back of a contract, unless the contract contains an express reference to those general conditions: Estasis Salotti di Colzani Aimo e Gianmario Colzani snc v Rüwa Polstereimaschinen GmbH (Case 24/76) [1976] ECR 1831 , para 10.

27 In addition, according to settled case law, article 23(1) of Regulation No 44/2001 must be interpreted as meaning that, like the aim pursued by the first paragraph of article 17 of the Convention of 27 September 1968 on jurisdiction and the enforcement of judgments in civil and commercial matters, ensuring the real consent of the parties is one of the aims of that provision (see, inter alia, the Refcomp case, para 28 and case law cited) and that, consequently, that provision imposes on the court before which the matter is brought the duty of examining whether the clause conferring jurisdiction upon it was in fact the subject of consensus between the parties, which must be clearly and precisely demonstrated: see, inter alia,Coreck Maritime GmbH v Handelsveem BV (Case C-387/98) [2000] ECR I-9337 , para 13 and the case law cited, and the Refcomp case, para 27.

28 In the main proceedings, the clause conferring jurisdiction on the English courts is contained in the prospectus, a document produced by the bond issuer. It is not entirely clear from the order for reference whether that clause was included, or expressly referred to, in the contractual documents signed upon the issue of the bonds on the primary market.

29 The answer to the first part of the second question is therefore that, where a jurisdiction clause is included in a prospectus concerning the issue of bonds, the formal requirement laid down in article 23(1)(a) of Regulation No 44/2001 is met only if the contract signed by the parties upon the issue of the bonds on the primary market expressly mentions the acceptance of that clause or contains an express reference to that prospectus, which it is for the referring court to verify.

37 Consequently, the answer to the second part of the second question is that article 23 of Regulation No 44/2001 must be interpreted as meaning that a jurisdiction clause contained in a prospectus produced by the bond issuer concerning the issue of bonds may be relied on against a third party who acquired those bonds from a financial intermediary if it is established, which it is for the referring to verify, that (i) that clause is valid in the relationship between the issuer and the financial intermediary, (ii) the third party, by acquiring those bonds on the secondary market, succeeded to the financial intermediary’s rights and obligations attached to those bonds under the applicable national law, and (iii) the third party had the opportunity to acquaint himself with the prospectus containing that clause. …

… 51 In the light of all the foregoing considerations, the answer to the second question referred is that article 23 of Regulation No 44/2001 must be interpreted as meaning that:

—where a jurisdiction clause is included in a prospectus concerning the issue of bonds, the “in writing” requirement laid down in article 23(1)(a) of Regulation No 44/2001 is met only if the contract signed by the parties upon the issue of the bonds on the primary market expressly mentions the acceptance of that clause or contains an express reference to that prospectus;

—a jurisdiction clause contained in a prospectus produced by the bond issuer concerning the issue of bonds may be relied on against a third party who acquired those bonds from a financial intermediary if it is established, which it is for the referring to verify, that (i) that clause is valid in the relationship between the issuer and the financial intermediary, (ii) the third party, by acquiring those bonds on the secondary market, succeeded to the financial intermediary’s rights and obligations attached to those bonds under the applicable national law, and (iii) the third party had the opportunity to acquaint himself with the prospectus containing that clause; and

—the insertion of a jurisdiction clause into a prospectus concerning the issue of bonds may be regarded as a form which accords with a usage in international trade or commerce, for the purpose of article 23(1)(c) of Regulation No 44/2001 , allowing the consent of the person against whom it is relied upon to be presumed, provided inter alia that it is established, which it is for the referring court to verify, (i) that such conduct is generally and regularly followed by the operators in the particular trade or commerce concerned when contracts of that type are concluded and (ii) either that the parties had previously had commercial or trade relations between themselves or with other parties operating in the sector in question, or that the conduct in question is sufficiently well known to be considered an established practice.”

    1. Finally, in this review of the case law, I refer to the decision of Leggatt J (as he then was) in The Magellan Spirit [2016] 1 CLC 480. At paragraph 7 of that decision, the learned judge said:

“7 There is no disagreement about the legal principles which govern the Owner’s application for an anti-suit injunction and VSA’s challenge to the court’s jurisdiction. Taking the latter first, under the Lugano Convention VSA must be sued in Switzerland, where it is domiciled, unless the parties have made an agreement conferring jurisdiction on the English Court which satisfies the requirements of Article 23 of the Convention. Article 23(1) provides:

“If the parties, one or more of whom is domiciled in a member state, have agreed that a court or the courts of a member state are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction. Such jurisdiction shall be exclusive unless the parties have agreed otherwise. Such an agreement conferring jurisdiction shall be either:(a) in writing or evidenced in writing; …”

The meaning of Article 23 is determined by European law, and not by domestic English law: Powell Duffryn plc v Wolfgang Petereit (Case C-214/89) [1992] ECR I-1745 . In interpreting Article 23 (and the equivalent provisions of the Brussels Convention and Regulation) the Court of Justice has emphasised that the policy of the legislation requires the existence of the requisite agreement between the parties to be “clearly and precisely demonstrated”: see e.g. Coreck Maritime GmbH v Handelsveem BV (Case C-387/98) [2000] ECR I-9337 , 9371, para 13.” (my emphasis)

    1. In addition to the above cases, I was referred to certain textbooks, as follows:

(1) First, the editors of Dicey, Morris and Collins make the following observations, at paragraph 12-135 (footnotes omitted).

“The formal requirement in the original version of the Brussels Convention was that the jurisdiction agreement be “in writing or evidenced in writing”. But this requirement, especially as it was very strictly interpreted by the European Court, did not fit at all easily with the needs of international commerce, where the use of printed standard conditions, and communication by instantaneous means are common. As a result, the 1978 Accession Convention added that the agreement could be in a form which accorded with practices in international trade or commerce of which the parties were or ought to have been aware. This amendment was elaborated into its present form in the course of the negotiations for the original Lugano Convention, and in turn the equivalent provision in the Brussels Convention was brought into line with it in the 1989 Accession Convention. The Brussels I Regulation adopts the same form of words, but adds an elaboration of “writing” to deal with the increasingly common use of electronic means of communication. Thus there are now three (plus one more, under the Regulation) ways in which a jurisdiction clause may be effective. First, it may be in writing or evidenced in writing. The effect of the decisions on the unamended Brussels Convention was that this requirement would not normally be fulfilled by the sending of standard printed conditions unless the recipient signed a document which expressly referred to the conditions: in other words, the agreement to jurisdiction, rather than the identity of the court, was required to be in written form. In Iveco Fiat SpA v Van Hool NV the European Court considered the effect of a jurisdiction clause in a written agreement, which expressly provided that it could be renewed only in writing. The agreement expired, but continued in effect for another 20 years without any written extension. The European Court held that if the applicable law (i.e. the law governing the original contract) allowed the contract to be renewed without complying with the express provision that the renewal had to be in writing, then the conditions of Art.17 of the Brussels Convention would be fulfilled: there would be an agreement on jurisdiction in writing or evidenced in writing. But if the applicable law did require the express provision to be complied with, the formal requirements of Art.17 would be complied with if one of the parties had confirmed in writing either the jurisdiction clause or the contractual terms which had been tacitly renewed (of which the jurisdiction clause formed a part) without any objection from the other party: in those circumstances the written confirmation would evidence the jurisdiction agreement.”

(2) Secondly, I was referred to the most recent edition of Briggs on Civil Jurisdiction and Judgments (the 6th edition), at paragraph 2.131. That rather lengthy paragraph provides (with footnotes omitted) as follows (and I have added numbering, as did Mr Collett QC, for ease of reference).

“[1]It has been stated by the European Court that the purpose of the formality rules now in Article 25(1), is to establish ‘clearly and precisely’ the existence of consensus between the parties as to the jurisdiction of the particular court. In early case law, this led the Court to insist upon a strict application of the requirements, but it may be that the rules may, in certain circumstances, be interpreted more as signposts towards the existence of a consensus, which must be established, rather than as being mandatory in every case. For this reason, the older case law upon this point needs to be relied on with a little care. There is also a risk, not always appreciated, that the formal requirements are a means to an end; and that it is the end, not the means, which is the important thing.

[2]According to the earliest decisions of the Court, it was not enough that the reference to the jurisdiction of a court was written on paper. Rather, it was the agreement to it, or acceptance of it by the party to be bound, which was required to be in writing or evidenced in writing: to put the point simply, a jurisdiction clause may be in A’s standard written terms, and B may have been furnished with a copy of these, but that does not establish B’s (as distinct from A’s) agreement to the designated court. The cases illustrate the development of the law. In Estasis Salotti v. RÜWA, it was held that a statement as to the jurisdiction of a court, clearly printed upon the reverse side of a written contractual document, did not satisfy the requirement of what at that time was Article 17 of the Brussels Convention that it be agreed in writing, so as to be binding on the other party. The gist of the reasoning was that, although the printed clause identified the court which was to have jurisdiction, the fact that it was so printed furnished no guarantee that it had come to the other party’s attention, and offered no guarantee that he had agreed to it.

[3]Accordingly, and in the language of what is now Article 25 of the Regulation, it could not be said that the agreement on jurisdiction was in writing or evidenced in writing. To the same effect was Galeries Segoura v. Bonakdarian, where a ‘confirmation in writing had been sent by one party to the other, stating that a sale was made upon general trading conditions, which themselves contained a provision on choice of court. It was held that this would not satisfy the requirement that the agreement of the parties to the choice of jurisdiction be evidenced in writing unless accepted in turn in writing by the other party. In other words, the acceptance by the other party of the proposed jurisdiction had to be in writing, or had to be evidenced in writing. As it was put in The Tilly Russ: ‘where a jurisdiction clause appears in the conditions printed on a bill of lading signed by the carrier, the requirement of an “agreement in writing” within the meaning of Article 17 of the Convention is satisfied only if the shipper has expressed in writing his consent to the conditions containing that clause, either in the document in question itself or in a separate document. It must be added that the mere printing of a jurisdiction clause on the reverse of the bill of lading does not satisfy the requirements of Article 17 of the Convention, since such a procedure gives no guarantee that the other party has actually consented to the clause derogating from the ordinary rules of the Convention.’

[4]In other words, the acceptance of the other party’s written jurisdiction provision had to be in writing or evidenced in writing. If, therefore, a party signs a document which refers plainly enough to trading conditions which themselves contain an agreement on jurisdiction, this should satisfy the requirements of the Article. This is entirely consistent with the contention above, that it is the consent to or acceptance of it by the party to be to bound it, rather than the statement (by the other party) that a court is to have jurisdiction, which is required to be in writing. Though a party may propose written terms to another, these including among them an agreement on jurisdiction, the crucial question is whether the party against whom that jurisdiction is to be asserted signified his acceptance in a form which complies with what is now Article 25(1).

[5]However, for every case in which formality is insisted on, there will be another in which it is inappropriate to do so. In Berghöfer GmbH & Co KG v. ASA SA  the Court accepted that an oral agreement, later confirmed in writing by one party and not apparently objected to by the other, could in principle be taken to satisfy what is now Article 25(1), even though there was no written consent from one of the parties. The basis for this result was thought to lie in the general principle of good faith: that it would in those circumstances be bad faith or bad form for the party seeking to take a point about the lack of formality to do so. In Iveco Fiat SpA v. Van Hool NV  it was held that, where parties to a written contract which had contained an agreement on jurisdiction and by which is was clear that each was bound, continued to deal with each other without the written renewal which the contract provided for, the agreement on jurisdiction in the original contract continued to bind. The Court observed, in as clear a statement of principle as one may hope to find, that the ‘sole purpose of the formal requirement… is to ensure that the consensus between the parties is in fact established and it imposes on the national court the duty of examining whether the clause conferring jurisdiction upon it was in fact the subject of such a consensus, which must be clearly and precisely demonstrated’. If the party responsible for drawing the contractual documents does not alert the customer to the fact that there has been a material change to the governing law and jurisdiction clause, with the consequence that the customer signs a contract in ignorance of this alteration from previous drafts, it may be bad faith to seek to hold the customer to his signature.797

[6]In Powell Duffryn plc v. Petereit, it was held that a jurisdiction provision contained in a company’s articles of association bound shareholders in the company according to its terms, and that this proposition was unaffected by how or when the shares were acquired. The reasoning was that company’s constitutional documents are in the public domain, and that the shareholders agree to be bound by their contents. If it were to be asserted that the shareholder did not actually know what these documents contained, the retort is that he had the means of knowledge, and that is enough. If it follows from this that a party is bound by a written provision stipulating a court for the resolution of disputes, simply because it may be truthfully said that he had the means of knowledge of it, the law would have moved a very long way from its original position. The Court observed that the issue in Powell Duffryn plc was quite different from that which arises in connection with a printed and standard-form clause contained in another’s standard conditions of trade; the proposition that a member of a company accepts and is bound by all the terms of his membership is quite distinct from the proposition that a person who makes a single contract on another’s terms is, in the same way, bound by them. This seems correct.

[7]The requirement that the party to be bound have sufficiently agreed, in writing or in a way which is evidenced in writing, is principled, even where the facts make its application less so. A question may arise as to what is meant by ‘writing’. Some legal systems have rules which withhold effect from a jurisdiction agreement if the print in which it is written is too faint or is too small for it to be reasonably legible. At first sight, there is no room for such reasoning within the framework of Article 25 for, as we shall see, national legal rules prescribing the formalities required for the validity of an agreement may not be added to those set out in Article 25. But if the writing is too small or otherwise illegible, or is written in an exotic language which means that it is completely camouflaged from the other party, even if there is writing by the party to be bound, it could be argued that it would be bad faith for the proferens to rely on it. If this is accepted, it may also offer a way forward to the problem which arises when the agreement on jurisdiction is printed in a language which, to the knowledge of the proferens, the other party cannot read or understand. The overriding need is to demonstrate that the agreement on jurisdiction was the subject of consensus; and the requirement of writing is, as was said above, a means to an end, rather than an end in itself. If the party proposing the term knows that the other cannot have known what he was being invited to consent to, it would arguably be wrong to hold the other to the jurisdiction which, as the proposer knows, the other did not agree to.

[8]Article 25(2) extends the scope of ‘writing’ to include communication by electronic means which provide a durable record of the agreement. This doubtless includes fax and (if anyone still uses it) telex transmission. It must include email, on the footing that the message is stored, or is capable of being stored, and can also be printed to make a hard and durable copy of what has been agreed. It is less likely that it extends to a voicemail or text message, neither of which provides a durable, as opposed to an ephemeral, record, even if voice recognition software may produce a written version of the spoken word. It may also explain why a jurisdiction agreement, appearing or made accessible by clicking on a service provider’s website, will bind a person who makes a contract on, or otherwise uses, that website.803 If the general question is whether the customer appears to have agreed to the jurisdiction, and the answer is affirmative, that should be sufficient to meet the requirements of Article 25.”

The parties’ respective submissions.

    1. Based on the above cases, Mr Lord QC, for the Claimant, put forward five propositions in oral argument, as follows:

(1) The EU jurisprudence on Article 25 and its predecessors showed that the Court was not concerned with particular formalities, but must establish consensus clearly and precisely. In support of this proposition, he relied on Antonio Gramsci and Coreck.

(2) The question of whether the requirement is satisfied is one for the national Court applying national law, although subject to its overriding duty to ensure that those laws were consistent with the aims of the Regulation. In this regard, he referred to paragraphs 81-83 of Kaefer, which I have set out above, and also Bols, along with the decision in the Benincasa case, and in particular paragraphs 29-32 of that case, as also set out above.

(3) In the context of the present case, the rules of English law on the implication of contracts, which would only allow such implication where it was necessary to do so, did not derogate from the Regulation. He did not cite authority in this regard; but submitted that it flowed as a matter of principle.

(4) There is no rule that consensus can only be established by consent in writing. In this regard, he relied on paragraph 12-135 of Dicey, and the decisions in IvecoBerghoefer and Polskie.

(5) Most of the EU and English cases were concerned, not with the current situation, but with cases where the only issue was assent in writing. Accordingly, the language of the cases was framed with that in mind. He relied on Estasis and Galeries Segura in this regard, and sought to distinguish Profit and BNP, essentially on the basis that each of these latter cases turned on its own particular facts.

    1. Mr Collett QC, for his part, addressed each of these propositions, and sought to negative them:

(1) In relation to the first proposition, then he submitted that, whilst it was clear that the EU jurisprudence required consent to be clearly and precisely demonstrated, the formal requirements in Article 25 were the means to achieve this. In this regard, he relied on a number of passages from the authorities:

(a) First, he took me to paragraphs 19 to 27 of the Profit case, and paragraph 24 of the Attorney-General’s opinion in that case, arguing that those paragraphs showed that the purposes of the formal requirements in Article 25 was to establish the fact of consent.

(b) Next, he referred to paragraph 38 of the Attorney-General’s opinion in Berghoefer, contending that this also supported the conclusion that the requirements of writing were in fact necessary to establish consent, so that the Regulation was indeed concerned with formalities. In fact, in his submission, Berghoefer was simply an orthodox application of Article 25, as could be seen from a consideration of other, equally authoritative versions of the Regulation in other languages which referred to the agreement as needing to be “in writing or confirmed in writing”.

(c) Both Estasis and Galeries Segoura, he contended, supported his submission, as could be seen from the reliance on those authorities by Males J (as he then was) in BNP.

(d) Paragraph 35 of the Polskie decision was, he said, supportive of his position. That paragraph simply states that “In this regard, art.23 has two elements. First, there must be an agreement between the parties to confer jurisdiction on the court. Secondly, that agreement must also satisfy the requirements as to formality set out in sub-paragraphs (a), (b) or (c).”

(e) He also relied on paragraph 12-135 of Dicey, contending that it did not establish the proposition for which Mr Lord QC contended.

(f) He focused on the first, fourth and seventh paragraphs of the extract from Briggs that I have set out above, all of which, he said, were consistent with the proposition that the cases did indeed show the importance of the formalities in establishing consent to the jurisdiction agreement. He also pointed out that the paragraph in Briggs which had been relied on in Antonio Gramsci had been amended, to make it rather less black and white.

(g) Finally, as regards Coreck, he argued that this was, in the main, to do with succession to the rights of a prior holder of a bill. Where, as here, the question was as to whether an original party to a contract said to be implied from conduct on the terms of the bill of lading was bound by an EJC in the bill, then that case made it clear the provisions of what is now Article 25 had to be satisfied.

(2) Turning to Mr Lord QC’s second submission, he submitted that the authorities, and in particular Dicey 12-130 and paragraph 36 of Polskie (which states that: “As to the need for agreement – the claimant must show that both the parties ” clearly and precisely ” consented to the alleged jurisdictional agreement. In a case, such as this, where a party alleges that it never accepted the clause, the task of the Court is to determine if there was sufficient consensus between the parties as a question of fact, without recourse to any rules of national law: see Dicey, Morris & Collins The Conflict of Laws 14th edn, para.12-108″, showed that Article 25 was to be given an autonomous meaning. Kaefer, in his submission, dealt with the mode of proof, not the test itself.

(3) As to the third proposition put forward by Mr Lord QC, Mr Collett QC submitted that it was striking that no authority was put forward for this proposition and indeed that no case had been identified in which a contract which was said to have been made entirely by conduct was sufficient to satisfy the requirements of Article 25. In fact, he submitted, the opinion of the Advocate General in Profit, at paragraph 42, (which is set out above) ran clearly counter to this third proposition.

(4) Mr Collett QC then submitted that there was indeed a requirement that the agreement to the clause was in writing or evidenced (or confirmed) in writing. The EU case law which I have set out above was consistent on that point, and the fact that English law recognised that contracts could be implied from conduct did not derogate from this.

(5) Finally, Mr Collett QC agreed that the cases have focussed on the need for writing, but argued that that was simply because that was what Article 25 required the Court to do.

Discussion and conclusions.

    1. I turn to set out my conclusions on this issue. In my judgment, the cases show the following.

(1) The fundamental issue is clearly whether consent to the EJC has been clearly and precisely demonstrated: see Estasis, at paragraph 7, Galeries Segoura, at paragraph 6, Berghoefer, paragraph 13, Benincasa, paragraph 29, Coreck, paragraph 13, BNP Paribas, paragraph 44, Antonio Gramsci, paragraph 37, Profit, paragraph 41 of the Attorney General’s Opinion and paragraph 27 of the judgment of the Court, and The Magellan Spirit, paragraph 7.

(2) The purpose of the formal requirements in Article 25 is to establish such consent, clearly and precisely. The requirement of writing is not satisfied by the fact that the clause itself is in writing; the consent must be in writing or evidenced (or confirmed) in writing: see in particular BNP Paribas, a case by which I am bound, but with which I respectfully agree. It is clear from the European authorities that the purpose of the formal requirements in the Article is to establish consent to the necessary degree of certainty.

(3) Whilst it is clear that there is a “degree of flexibility”, to adopt the phraseology of Professor Briggs in his helpful exposition of the authorities, then this cannot be taken too far. In my judgment, the authorities show that if there is no written agreement, then there must at least be written confirmation which evidences consent. Those authorities of which Antonio Gramsci is perhaps the most recent example, can be explained on one of two bases. The first is, quite simply, on a literal reading of the Regulation, which provides for the case where an agreement which is not itself in writing is then either confirmed or evidenced in writing. The second is on the basis of the doctrine of good faith, whereby the denial of the agreement, when it would otherwise be clearly established, by reliance on the want of compliance with the formal requirements of the Article, would amount to bad faith: see The Antonio Gramsci itself and Berghoefer, at paragraph 15.

(4) There is, as Mr Lord QC very fairly accepted, no authority which would go so far as to say that agreement to an EJC which was implied solely from the conduct of the parties suffices for the purposes of compliance with Article 25. In my judgment, this is a telling consideration. On the face of it, then where there is no agreement (in the sense of consent) in writing or evidenced (or confirmed) in writing, then there is no sufficient compliance with Article 25(1)(a) (the only provision relied on by the Claimant here). That analysis is also in line with what was said by the Attorney General at paragraph 42 of his opinion in Profit.

(5) In addition, I would agree with Mr Collett QC that the Article is indeed concerned with formalities, since otherwise there would be no purpose in including the various limbs in Article 25(1). The fact that the Article is concerned with formalities for a particular purpose – namely to establish consent clearly and precisely – does not detract from the proposition that the Article is indeed concerned that such formalities should be complied with.

    1. Accordingly, I conclude that, on the assumption that there was a contract between the parties implied from the conduct of those parties at the discharge port, that was not sufficient to satisfy the requirements of Article 25 of the Regulation. Accordingly, I hold that there was no binding EJC on the facts of this case.
    2. As I noted earlier in this judgment, I have considered the above on the basis of an assumption made in favour of the Claimant, namely that there was an implied contract. I do not intend to consider whether that assumption is in fact well-founded. That is because I agree with Mr Collett QC that, having determined that I do not have jurisdiction, it would be undesirable for me to express views on the very issue that the Singapore Court will be considering.

Issue 2: If there was a binding EJC, should an anti suit injunction (“ASI”) be granted.

    1. It follows from what I have held thus far that there is no basis for the grant of an ASI. However, if, contrary to the views that I have expressed to date, there was in fact an EJC, the further issue arises of whether an anti-suit injunction (“ASI”) should be issued to give effect to the agreement between the parties established by reference to that EJC.
    2. For the reasons I set out in the following paragraphs, I have come to the conclusion that, even if any EJC was concluded between the parties, then I would not be prepared to grant an ASI to give effect to that agreement.
    3. In this regard, there were two issues between the parties:

(1) Was there a submission by Pan Ocean to the jurisdiction of the Singapore Courts?

(2) Was there a delay of such magnitude to mean that I should not exercise my discretion to grant an ASI?

    1. Although these were treated as independent questions, in my judgment then they are in fact interrelated, for the reasons I set out below.

Submission to the jurisdiction of the Singaporean Courts.

    1. Both parties were in agreement that the question under this head was whether, applying English principles of law, there had been a submission to the jurisdiction. In that regard, I was referred to the decision of the Court of Appeal in Henry v Geoprosco [1976] QB 726, where the Court of Appeal said:

“Mr. Ross-Munro put in the forefront of his submission that the question to be determined had to be decided not by reference to the law of Alberta but by reference to the English rules of conflict of laws. This submission, in our judgment, is plainly correct. Mr. Pain did not seek to contend otherwise. Accordingly, as Cairns L.J. pointed out at an early stage of the argument, the question which of the conflicting views as to the law of Alberta is correct is irrelevant. In any event, any conflict could not be satisfactorily resolved on the hearing of this appeal, even if we were minded to grant the plaintiff the extreme indulgence of adducing this further evidence at this late stage. It is not necessary, therefore, to say anything further on this issue.”

    1. Despite this agreement, I was provided with a number of reports from Singaporean lawyers. Those reports did not really assist me, save in one respect, for two reasons:

(1) The first is that the parties were agreed that the relevant question was whether, applying English principles, there had been a submission. The rules of Singapore law were therefore in fact irrelevant.

(2) The second is that the Singapore rules appeared to be the same as the English rules, in any event. The difference between the experts was not as to the relevant principles, but as to the application of those principles to the facts of this case. This latter is, in my judgment, a matter for me.

    1. The one respect in which the reports were of assistance was that both experts were in agreement that, as a matter of Singapore law, once the jurisdiction dispute had been determined on appeal then, unless the earlier acknowledgement of service was withdrawn, the Claimant was to be deemed to have submitted to the jurisdiction in Singapore. Thus, it would appear to be common ground that, in Singapore, there has now been a submission to the jurisdiction under Singaporean procedural rules.
    2. The English rules of conflict of laws were, as both parties accepted, those set out in Willams & Glyns Bank v Astro-Dynamico [1984] 1 WLR 438. There, the House of Lords drew a distinction between invoking the jurisdiction to determine jurisdiction, and invoking the jurisdiction to determine the merits. In particular, Lord Fraser said:

“The argument to the contrary which was accepted by Bingham J. was that, if the court were to entertain the application for a stay, it would be assuming that it had jurisdiction to entertain the action. With the greatest respect to the learned judge, I agree with Robert Goff L.J. in the Court of Appeal that that view is mistaken. The fallacy is in confusing two different kinds of jurisdiction; the first is jurisdiction to decide the action on its merits, and the second is jurisdiction to decide whether the court has jurisdiction of the former kind. The distinction was explained in Wilkinson v. Barking Corporation [1948] 1 K.B. 721 , 725 by Asquith L.J. who said:

“The argument we are here rejecting seems to be based on a confusion between two distinct kinds of jurisdiction: the Supreme Court may, by statute, lack jurisdiction to deal with a particular matter — in this case matters including superannuation claims under section 8 — but it has jurisdiction to decide whether or not it has jurisdiction to deal with such matters. By entering an unconditional appearance, a litigant submits to the second of these jurisdictions (which exists), but not to the first (which does not).”

By entertaining the application for a stay in this case, the court would be assuming (rightly) that it has jurisdiction to decide whether or not it has jurisdiction to deal with the merits, but would not be making any assumption about its jurisdiction to deal with the merits.”

    1. Mr Collett QC then referred me to the decision in Golden Endurance Shipping v RMA Watanya [2017] 1 All ER (Comm) 438, a decision of Phillips J. In paragraph 29 of that case, the judge said:

“In Henry v Geoprosco International [1976] QB 726 the Court of Appeal decided that, as a matter of authority (in particular Harris v Taylor [1915] 2 KB 580 CA), a defendant was to be taken to have submitted to the jurisdiction of a foreign court if he voluntarily appeared to invite that court in its discretion not to exercise jurisdiction it had under its own local law (p.747A). The Court of Appeal further determined that there was a voluntary appearance if the defendant protested against the jurisdiction of the foreign court, but that protest took the form of a conditional appearance which was converted automatically by operation of law into an unconditional appearance if the decision on jurisdiction went against the defendant (p.748G). The court left open the question whether an appearance solely to protest against the jurisdiction of the foreign court would be a voluntary submission to that court (p.747E).”

    1. Henry v Geoprosco has been statutorily reversed, in this jurisdiction, by s.33 of the Civil Jurisdiction and Judgments Act 1982, which states that a party shall not be taken to have submitted to the jurisdiction simply because that party applies for a stay of the proceedings in favour of arbitration. However, there is no evidence before me that there is any similar provision in Singapore.
    2. Based on the above principles, Mr Collett QC submitted (in very brief summary) that:

(1) There had been a submission to the jurisdiction, in accordance with the principles in Astro Dinamico, because the Claimant, during the course of its challenge to the jurisdiction of the Singapore Court, went beyond the taking of purely defensive steps and positively invoked the jurisdiction of that Court, in particular by making a positive claim for wrongful arrest. He submitted, in reliance on Joseph on Jurisdiction and Arbitration Agreements, para 12.130, that a party who has submitted to the jurisdiction will generally be unable to obtain an ASI. That paragraph provides (footnotes omitted) that:

“An application to restrain a party from taking steps in proceedings brought in breach of contract ought to be brought promptly and before those proceedings are too far advanced. The longer a party delays in bringing the application the more likely it is that a court will refuse to grant an injunction. Further, voluntary submission to jurisdiction of the foreign court is likely to weigh heavily against the grant of a restraining injunction. Indeed it ought generally to be fatal to an injunction application brought on the grounds of the invasion of a legal right, if the party has assented to the breach and has submitted to the foreign court’s jurisdiction.”

(2) My attention was also drawn to Briggs, Civil Jurisdiction and Judgments, at p. 550, where the author states that:

“No reported case holds, clearly and precisely, that an applicant will forfeit the right to ask for an injunction if he has already submitted to the jurisdiction of the foreign court. But if the applicant has taken a step in the foreign proceedings which goes beyond a challenge to that court’s jurisdiction, it will be more difficult to persuade an English court that the respondent should now be restrained from continuing with those proceedings. Whether this is put on the basis of the applicant’s having waived his legal (or equitable) right not to be sued before the foreign court, or by contending that by appearing to answer the merits of the claim against him the respondent is estopped from complaining to the English court about the proceedings in which he has appeared, or on some other basis, it still reflects broad common sense. It also reflects the fundamental rule of English law that, once a defendant has submitted to the jurisdiction of the English courts, he cannot then dispute its jurisdiction over him. Of course, there will be room for debate where the applicant has appeared before the foreign court in such a way as makes it unclear whether he should be taken to have submitted to its jurisdiction, and there may still be exceptional cases in which a submission by appearance should not forfeit the right to apply for an anti-suit injunction. But the principle of the matter seems reasonably clear: an applicant who has already submitted to the jurisdiction of a foreign court should find that this is a substantial obstacle to his obtaining an anti-suit injunction from an English court.”

(3) There had been a submission to the jurisdiction by virtue of the fact that the Claimant had now made an application in Singapore to stay the proceedings there on the basis of the alleged EJC, this being a situation that is on all fours with that in Henry v Geoprosco, (as explained again in The Golden Endurance) where the application to stay in favour of arbitration was a submission on the merits.

    1. Conversely, Mr Lord QC submitted (again, in outline) that there was here no submission.

(1) In relation to the steps taken prior to the determination of the appeal in relation to the arrest proceedings, he submitted that these were purely defensive. The reference to wrongful arrest was not to a positive claim for damages for such wrongful arrest, but simply a reference to wrongful arrest as a ground for discharging the arrest and security.

(2) In relation to the application in Singapore to stay in reliance on the EJC, he submitted that this was necessary by reason of the fact that, if no such application were made, the Claimant ran the risk of having a default judgment entered against it.

    1. Mr Lord QC also took issue with the absolute nature of the statement in Joseph, above. In his submission, the question of submission was simply part of the overall discretionary exercise. In my judgment, he is right that the question of submission is simply part of the overall discretionary enquiry. In this regard, I prefer the statement of Professor Briggs to that of Mr Joseph QC.
    2. I have set out the relevant factual chronology earlier in this judgment.
    3. On the basis of the overall chronology, Mr Collett QC submitted that there had clearly been a submission to the jurisdiction in Singapore in accordance with the English law principles set out above. In this regard, he argued that the claim for damages for wrongful arrest was a counterclaim; that it was a positive invocation of the Singaporean jurisdiction; and that, because such a claim would fall within the EJC it was a clear election not to rely on the EJC in this regard.

(1) As to the proposition that the making of a counterclaim was a submission to the jurisdiction, he relied on CNA International Ltd v Office Depot International [2005] EWHC 456, and Cheshire and North on the Conflict of Laws, 15th ed, p.333, fn 113. I accept this proposition, and indeed I did not understand it to be disputed by Mr Lord QC.

(2) I would also accept the second proposition. If there was a clear submission of a positive claim to the jurisdiction of the Singapore Court, then in my judgment this would either amount to an election not to rely on the provisions of the EJC, or would at the very least amount to a very strong reason for refusing an application for anti-suit relief in reliance on the EJC. This, in my judgment, follows from the passages in Joseph and Briggs to which I have already made reference; though, as I have said, I regard Professor Briggs’ statement of the principle as preferable.

    1. The real dispute between the parties (and indeed between the Singapore law experts) was whether, on the facts, the Claimant had made a counterclaim for damages and thus gone beyond what was necessary for the purposes of the challenge to jurisdiction.
    2. It was the submission of Mr Collett QC that there was, quite clearly, a claim for damages for wrongful arrest. In particular:

(1) The application to release the arrest included, in addition to the paragraph seeking a release from arrest, a paragraph asking for an order that the arrest was wrongful. That, it was submitted, could only be interpreted as a claim for wrongful arrest, which in turn would require a showing of either gross negligence or mala fides.

(2) The fact that the affidavit in support of the application did not make a specific claim for damages for wrongful arrest did not detract from the fact that the claim had been made in the application notice. That affidavit, and the further affidavit sworn in June 2018, included allegations that the arrest had been made grossly negligently and in bad faith, and no sensible party, who only wished to set aside the arrest and did not wish to claim damages, would make such allegations, since it would only be necessary to show non-disclosure of a knock out point to justify setting aside.

(3) It was also clear from the record of the hearing before the Assistant Registrar that China-Base’s Singaporean lawyers understood there to be a claim for damages for wrongful arrest.

    1. Mr Lord QC, conversely, submitted that there was no positive claim for damages for wrongful arrest.

(1) He accepted that the application notice included a claim for an order that the arrest was wrongful. However, in reliance on the report of Mr Seah, he submitted that this reference was simply to relief “consequential” on the release of the arrest, and was not intended to be, and should not be understood as, a claim for damages for wrongful arrest.

(2) He relied on the fact that the affidavits sworn by the Claimant made no claim for damages. Instead, the wrongful conduct alleged by the Claimant was, in each affidavit, he argued, said to be a ground for the discharge of the arrest.

(3) He relied on the fact that neither of the judgments of the Court (at first instance and on appeal) made any reference to any claim for damages for wrongful arrest.

    1. I have concluded that on this point, on balance (although not without some degree of hesitation) the submissions of Mr Lord QC are to be preferred:

(1) On its own, I would have concluded that the application notice was reasonably to be interpreted as making a claim for damages for wrongful arrest. I do not accept Mr Seah’s evidence to the effect that a claim for wrongful arrest can be made as “consequential relief” upon the discharge of the warrant of arrest. That would not normally be the case, and I have been shown no Singaporean authority which would support this proposition.

(2) However, the application notice cannot be read on its own and in the abstract. In the context of the supporting affidavits, I take the view that the reference to wrongful arrest is indeed to be regarded as referable to the relief that is sought, which is solely the setting aside of the warrant of arrest. The fact that China-Base/Beihai’s lawyers seem to have understood the reference differently does not alter my view.

    1. Accordingly, I hold that there was here no submission during the course of the proceedings challenging jurisdiction.
    2. That leaves the question of whether the application to stay the Singaporean proceedings on the basis of the EJC is, as a matter of English law, sufficient to amount to a submission to the jurisdiction so as to preclude the grant of an ASI. It clearly is a submission as a matter of Singaporean law. However, the question remains of whether, applying English law, there has been a sufficient submission by reason of the failure to apply to withdraw the earlier acknowledgement of service coupled with the application to stay to justify the refusal of an ASI.
    3. In this regard, I do not regard the decision in The Golden Endurance as determinative. That was a case concerned with enforcement, not with whether an ASI should be issued. It seems to me that, as a matter of English law, and in the light of the reversal of Henry v Geprosco, a party who applied to Court simply to seek to enforce an agreement to sue or arbitrate elsewhere, ought not to be held thereby to have submitted to the jurisdiction. However, I do not need to decide this, and I do not, since it is in my view simply one further consideration to be weighed in the balance in relation to the grant of an ASI as a matter of discretion.
    4. I have concluded that, in relation to both of the matters relied on by Mr Collett QC, the taking of these steps was not sufficient to constitute an absolute bar to the grant of an ASI. Instead, in my judgment, the taking of these steps forms part of the overall discretionary enquiry that I am engaged in as to whether or not an ASI should be granted.
    5. I turn to the second discretionary factor relied on by China-Base/Beihai, which is excessive delay in the bringing of the application for anti-suit relief, coupled with the steps taken in Singapore.
    6. My starting point is the decision in The Angelic Grace [1995] 1 Lloyd’s Rep. 87, and in particular the statement of Lord Justice Millett, as he then was, which is the locus classicus of the law in this area. That passage reads as follows:

“In my judgment, where an injunction is sought to restrain a party from proceeding in a foreign Court in breach of an arbitration agreement governed by English law, the English Court need feel no diffidence in granting the injunction, provided that it is sought promptly and before the foreign proceedings are too far advanced. I see no difference in principle between an injunction to restrain proceedings in breach of an arbitration clause and one to restrain proceedings in breach of an exclusive jurisdiction clause as in Continental Bank N.A. v. AeakosCompania Naviera S.A., [1994] 1 W.L.R. 588. The justification for the grant of the injunction in either case is that without it the plaintiff will be deprived of its contractual rights in a situation in which damages are manifestly an inadequate remedy. The jurisdiction is, of course, discretionary and is not exercised as a matter of course, but good reason needs to be shown why it should not be exercised in any given case.”

    1. Accordingly, an injunction should be granted, provided that the application is sought promptly and before the foreign proceedings are too far advanced. This approach has been adopted and applied in numerous cases, which were put before me as decisions on their particular facts. I do not think that it is profitable to go through numerous decisions in which the same principles are applied to the facts. For present purposes, in my judgment, the most helpful recent and authoritative decision is that of the Court of Appeal in Ecobank v Tanoh [2016] 1 WLR 2231. As recorded in the headnote, in that case the Court of Appeal held that:

“both general discretionary considerations and the need for comity required that an application for an anti-suit injunction had to be made at an early stage; that the longer an action continued without any attempt to restrain it the less likely a court was to grant an injunction; that an applicant who did not apply for an injunction until after judgment was given in the foreign proceedings was unlikely to succeed unless he could not have sought relief before the judgment was given, either because the relevant agreement was reached post-judgment or because he had no means of knowing that the judgment was being sought until it was served on him; that when considering whether to grant an anti-enforcement injunction the court would have regard to all relevant considerations, including the extent to which the respondent had incurred expense prior to any application being made, the interests of third parties, including in particular the foreign court, and the effect of granting an anti-enforcement order; that time during which the foreign jurisdiction was challenged fell to be taken into accont when considering delay; that it was not a precondition to the refusal of an injunction that the respondent should establish detrimental reliance; and that, in the circumstances, it had been open to the judge to hold that in the light of the claimant’s delay injunctive relief should be refused”

    1. That was of course an application to enjoin enforcement proceedings, and was thus an a fortiori case to the present. However, the Court of Appeal’s approach was, in my judgment, equally apposite to an anti-suit injunction application seeking to prevent the continuance of foreign proceedings prior to judgment. The Court of Appeal summarised the position as follows:

“122 I do not accept that delay was wholly irrelevant because (i) Mr Tanoh was aware from an early stage that Ecobank claimed that the disputes should be submitted to arbitration and (ii) Ecobank objected to the jurisdiction of the Togolese and Ivorian courts on that ground. An injunction is an equitable remedy. Before granting it the court must consider whether it is appropriate to do so having regard to all relevant considerations, which will include the extent to which the respondent has incurred expense prior to any application being made, the interests of third parties, including, in particular, the foreign court, and the effect of making such an order in relation to what has happened before it was made.123 A relevant consideration, particularly in relation to interlocutory relief, as was sought in the present case, is whether the party seeking an injunction has acted with appropriate speed. The longer a respondent continues doing that which the applicant seeks to prevent him from doing, the greater the amount of labour and cost that he will have expended which could have been avoided. There is, I accept, some force in Mr Coleman’s submission that Mr Tanoh ought not to be able to pray in aid the expenditure he was incurring in advancing both sets of proceedings, when he was no doubt calculating that he would do better in the local courts than before the international arbitral tribunal to which he had agreed. It could also be said that, in the light of the objections made to the jurisdiction of the Togolese and Ivorian courts, Mr Tanoh was running the risk that his expenditure on the proceedings would turn out to be in vain (if the objections were upheld) anyway. At the same time, if Ecobank was going to bring a claim for an anti-enforcement injunction if it failed in Togo and Côte d’Ivoire, there was no good reason for it to delay seeking anti-suit relief in England, whose law governed the EEA and to whose jurisdiction the parties had submitted.

124 Nor do I think it right to say that the prejudice to Mr Tanoh arising from Ecobank’s failure to seek relief before judgment is to be disregarded in the light of the fact that Ecobank was challenging jurisdiction. Whilst Mr Tanoh knew of Ecobank’s objection, it was not apparent that Ecobank was ever going to seek injunctive relief until it did so (nor, as these proceedings indicate, was its entitlement to such relief self-evident) and the expenditure and effort which would have been wasted if an injunction was granted (and obeyed) increased as time went by. That is a relevant form of prejudice which continued even after the judgments were entered until 10 April 2015. During that time Ecobank commenced appeal proceedings and applied for provisional stays of execution

125 The judge was, therefore, right (para 22), in my view, not to accept that any time during which the foreign jurisdiction is challenged is to be left out of account when considering whether to grant an anti-enforcement order or that the Advent Capital plc case [2004] IL Pr 23 is to be taken as a decision to that effect. That case involved a claim to an anti-suit injunction. The Cypriot court had never given any judgment on the merits and does not appear to have been anywhere close to doing so. Morison J held, at para 44, in terms that there had been “no advancement of the substantive case” and therefore no prejudice to the insureds by granting the injunction. He was plainly concerned to consider whether the application for an injunction “had been sought promptly overall and before the foreign proceedings were too far advanced”.

126Moreover the prejudice or detriment which would be involved in Ecobank allowing the proceedings to continue without seeking injunctive relief and then securing an injunction would not have been limited to Mr Tanoh. It extends to third parties involved in the litigation and, most importantly, the foreign courts which, in the present case, have held hearings and produced judgments of considerable length which are obviously the product of much labour.

127 I agree with the judge (para 24) that it is not a precondition to the refusal of an injunction that the respondent should establish detrimental reliance, if by that is meant that he must show (a) that he believed that no application for an injunction would be made or (b) that he believed that and, if he had realised that an application would or might be made, he would have abandoned the foreign proceedings. The existence or otherwise of such reliance is relevant but not determinative. The relevance of delay is wider than that. The need to avoid it arises for a variety of reasons including the avoidance of prejudice, detriment, and waste of resources; the need for finality; and considerations of comity.

128 It is, thus, not, in my view, a complete answer for Ecobank to say that someone in the position of Mr Tanoh has only himself to blame because it his breach which will have caused the waste. The court is, in an appropriate case, entitled to be reluctant to use its coercive powers to restrain that which the applicant has in fact allowed to continue without any application for relief for some time. This is especially so if, as appears to me to be the case here, little useful purpose is likely to be served by the party who claims to be entitled to an injunction holding back from claiming it. In some cases, an objection to the jurisdiction can be dealt with first before the substantive merits, so that there may be something to be said for pursuing that objection in the foreign court. But that was not the case here.

129 Further the tenor of modern authorities is that an applicant should act promptly and claim injunctive relief at an early stage; and should not adopt an attitude of waiting to see what the foreign court decides. In The Angelic Grace [1995] 1 Lloyd’s Rep 87 Leggatt LJ said that it would be patronising and the reverse of comity for the English court to decline to grant injunctive relief until it was apparent whether the foreign court was going to uphold the objection to its exercising jurisdiction and only do so if and when it failed to do so. Whilst those observations related to the approach of the court it seems to me that they are a guide to what should be the approach of a would-be applicant for anti-suit or anti-enforcement relief….

…132 Comity has a warm ring. It is important to analyse what it means. We are not here concerned with judicial amour propre but with the operation of systems of law. Courts around the free world endeavour to do justice between citizens in accordance with applicable laws as expeditiously as they can with the resources available to them. This is an exercise in the fulfilment of which judges ought to be comrades in arms. The burdens imposed on courts are well known: long lists, size of cases, shortages of judges, expanding waiting times, and competing demands on resources. The administration of justice and the interests of litigants and of courts is usually prejudiced by late attempts to change course or to terminate the voyage. If successful they often mean that time, effort, and expense, often considerable, will have been wasted both by the parties and the courts and others. Comity between courts, and indeed considerations of public policy, require, where possible, the avoidance of such waste.

133 Injunctive relief may be sought (a) before any foreign proceedings have begun; (b) once they have begun; (c) within a relatively short time afterwards; (d) when the pleadings are complete; (e) thereafter but before the trial starts; (f) in the course of the trial; (g) after judgment. The fact that at some stage the foreign court has ruled in favour of its own jurisdiction is not per se a bar to an anti-suit injunction: see the AES case. But, as each stage is reached more will have been wasted by the abandonment of proceedings which compliance with an anti-suit injunction would bring about. That being so, the longer an action continues without any attempt to restrain it the less likely a court is to grant an injunction and considerations of comity have greater force.” (my emphasis)

    1. I have looked at the various cases to which I have been referred which consider the application of the above principles to the facts of particular cases, and I have also looked at the textbooks on the point, and in particular Raphael on Anti-Suit Injunctions, which sets out a helpful summary of those cases. However, in the final analysis, then each case turns on its own facts and the application of the above principles to those facts.
    2. I have come to the conclusion that, even if, contrary to my earlier conclusion, there was here a binding EJC, then the Claimant’s application for an ASI should be refused, as a matter of the exercise of my discretion. I bear in mind the following considerations in this regard:

(1) The warrant of arrest was served on 28 February 2018. At this point, therefore, the clock started ticking for the purposes of applying for an ASI.

(2) No application was however made at this point. Instead, the Claimant took the deliberate step of applying to set aside the warrant of arrest in Singapore, an application based in part on the existence of an arbitration clause, and invoked the jurisdiction of the Singapore Court to determine this question. It did not seek in the alternative to rely on the existence of the EJC.

(3) In May 2018, the Claimant was itself the subject of proceedings based on the EJC brought by Gunvor. This reemphasised the potential argument based on the existence of the EJC. No application was made at this stage.

(4) Instead, the Claimant chose to continue its challenge to jurisdiction, again based (in part) on the existence of an arbitration clause, and not an EJC.

(5) That challenge led to two hearings, both at first instance and on appeal.

(6) It was only shortly before the decision on appeal that this application for an ASI was brought.

  1. In these circumstances, in my judgment, it cannot be said that the application has been brought promptly; nor can it be said that it has been brought before the foreign proceedings are too far advanced. Substantial time and costs have been expended in the Singapore proceedings. The Singapore courts have also given up substantial time and resources to this matter. Applying the approach laid down in the Ecobank case, as set out above, then in my judgment the Claimant has simply left it far too late to make its application here. Accordingly, if I had found that there was an EJC, I would still have refused to grant the ASI sought.
  2. It only remains for me to thank both Counsel and their respective teams for their very helpful and illuminating arguments. I would ask that an appropriate order be drawn up in order to give effect to this judgment.

Kawakawa Station Limited v New Zealand Walking Access Commission [2019] NZHC 791

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-A-TARA ROHE
CIV-2019-485-22
[2019] NZHC 791
UNDER
The Judicial Review Procedure Act 2016 and Part 30 of the High Court Rules 2016
IN THE MATTER OF
The Walking Access Act 2008
BETWEEN
KAWAKAWA STATION LIMITED
First Applicant
AND
ROBERT KINSELA WORKMAN NGAERE WEBB
JANIE APANUI STAPLES WENDY MAY SARGENT DIANNE ROSE PHELPS KAREN ANN MIKAERA
TE ARIKI DOUGLAS HEMI AS
TRUSTEES OF THE KAWAKAWA 1D2 AHU WHENUA TRUST
Second Applicants
AND
THE NEW ZEALAND WALKING ACCESS COMMISSION
Respondent
CIV-2018-485-17
BETWEEN
THE NEW ZEALAND WALKING ACCESS COMMISSION
Applicant
AND
KAWAKAWA STATION LIMITED
Respondent
Hearing:
18 March 2019
Appearances:
K Anderson and A J McClure for Applicants in -22 proceeding (and Respondent in -17 proceeding)
H S Hancock and C F J Reid for Respondent in -22 proceeding (and Applicant in -17 proceeding)

KAWAKAWA STATION LIMITED v NEW ZEALAND WALKING ACCESS COMMISSION [2019] NZHC 791 [11 April 2019]

Judgment:
11 April 2019

JUDGMENT OF CULL J

 

[1] This case concerns a protest to jurisdiction for this Court to hear and determine judicial review proceedings arising from an arbitration agreement. A dispute has arisen between Kawakawa Station Limited (Kawakawa Station) and the New Zealand Walking Access Commission (the Commission) over a walkway recommendation made by the Commission over Kawakawa Station’s land.

[2] By virtue of a consent granted to Kawakawa Station by the Overseas Investment Office (OIO), Kawakawa Station acquired the freehold interest in sensitive land at Kawakawa Station at Cape Palliser, Wairarapa, together with a leasehold interest in the adjoining land, owned by the second applicants. The consent was subject to conditions. The two conditions relevant to this proceeding require Kawakawa Station to implement any recommendations of the Commission (condition 6), and endeavour to have any disputes between the parties resolved by arbitration (condition 8).

[3] Following an unsuccessful mediation between the applicants and the Commission on 10 December 2018, the Walking Access Commission placed a caveat over Kawakawa Station, to protect its interest before Kawakawa Station settles the sale of the land to a New Zealand purchaser. The Commission filed an originating application for an order that the caveat not lapse.

[4] Both applicants filed a notice of opposition to the Commission’s application and filed judicial review proceedings challenging the lawfulness and reasonableness of the Commission’s walkway recommendation. The Commission filed an appearance under protest to jurisdiction, on the grounds that any dispute between Kawakawa Station and the Commission was to be resolved by mediation and, failing that, by arbitration. The Commission seeks a stay of the judicial review proceedings under article 8(1) schedule 1 of the Arbitration Act 1996 and an order referring Kawakawa Station to arbitration.

[5] This proceeding concerns the two preliminary issues:

(a) the stay application; and

(b) the caveat application.

[6] Just prior to the hearing commencing, the parties had reached agreement that the caveat placed by the Commission over Kawakawa Station’s land shall lapse on 15 April 2019. This will enable Kawakawa Station to proceed with an agreement for sale and purchase of the land in June 2019. I made formal consent orders in relation to the caveat during the hearing. These are addressed and set out at the end of this judgment.

[7] The focus of this decision is on the Commission’s protest to jurisdiction and application for stay of the applicants’ judicial review proceedings.

Background

[8] Kawakawa Station is a New Zealand registered company, owned and controlled by investors from overseas. For the purposes of the OI Act, Kawakawa Station is an overseas person.

[9] On 4 November 2014, Kawakawa Station entered into a sale and purchase agreement to purchase the land, known as Kawakawa Station at Cape Palliser,
Wairarapa. Because it is an overseas person, Kawakawa Station applied to the OIO for consent to acquire the freehold interest in Kawakawa Station and the leasehold interest in the adjoining land, Ngawi Station, which is Māori freehold land, owned by the second applicants, the trustees of Kawakawa 1D2 Ahu Whenua Trust (the Trust),

[10] In 2 June 2015, the relevant Ministers granted consent under the OI Act permitting Kawakawa Station to invest in “sensitive land” (the OI consent), namely to acquire a freehold interest in 1379 ha of land at Kawakawa Station and a leasehold interest in approximately 785 ha of land at Ngawi Station, subject to specified conditions of consent. It is the conditions of consent, particularly conditions 6 and 8, which lie at the heart of this stay proceeding. They stipulate as follows:

WAC Consultation

  1. The Applicant must consult with the New Zealand Walking Access Commission (“WAC”) to determine what the Applicant can reasonably do (having regard to the proposed use of the relevant land) to provide, protect or improve public walking access over the relevant land or part of that land (such as the registration of new instruments) (“Walking Access”). The Applicant must:

(a) Write to the Operations Manager at WAC… copying in the Overseas Investment Office, within 15 working days from the date of settlement advising that the Applicant wishes to consult about Walking Access …

(b) Implement any Walking Access recommended by WAC (“WAC Recommendation”) within two years from WAC making the WAC Recommendation, or such other timeframe as mutually agreed between the Applicant and WAC. The cost of any Walking Access shall be borne by the Applicant up to a maximum of $10,000, excluding GST.

Dispute Resolution

  1. Should a dispute or difference arise between the Applicant and DOC [the Department of Conservation], the Applicant and WAC or the Applicant and NZAA [New Zealand Archaeological Association] in relation to conditions 5, 6 or 7 (“Dispute”), then the Applicant must:

(a) Endeavour to resolve the Dispute by mediation;

(b) If the Dispute is not resolved through mediation within 60 working days from the Dispute arising, endeavour to have:

    (i) the Dispute referred to and finally resolved in arbitration in Wellington, New Zealand;

(ii) the tribunal consist of a sole arbitrator appointed by agreement between the parties or, if the parties cannot agree, by the President of the New Zealand Law Society; and

(iii) the arbitral proceedings conducted in accordance with the Arbitration Act 1996 or any other statutory provision then relating to arbitration;

(c) Share the cost of any arbitration and/or mediation equally with WAC or DOC as the case may be; and

(d) Provide a copy of any award made by the arbitrator to the Overseas Investment Office within 15 working days of the award being made.

[11] Under condition 6, the Commission made walking access recommendations to Kawakawa Station in May 2016. After a meeting on 4 July 2016 among the Commission, Kawakawa Station and neighbours to discuss these recommendations, the Commission revised its recommendations in September 2016 (the September 2016 recommendation). Further lengthy discussions and negotiations, including correspondence, has ensued between Kawakawa Station and the Commission over the lack of response by the Commission to the issues raised by Kawakawa Station and its neighbours at the 4 July 2016 meeting. On 16 November 2016, the Commission invited Kawakawa Station to identify an appropriate date which would record the date that a dispute has arisen, in order to invoke the dispute resolution processes under condition 8 of the OI consent.

[12] Despite further negotiations through to 2018, the Commission and Kawakawa Station could not reach agreement. In June 2018, the Trust sent a submission to the Commission regarding the impacts of the proposed walking access in the September 2016 recommendation. Negotiations continued throughout 2018, with the trustees of the Trust meeting with a representative of the Commission to discuss the Trust’s concerns in November 2018.

[13] On 10 December 2018, the Commission and Kawakawa Station attended a mediation, which did not result in an agreement between the parties. During the mediation, the Commission learned that Kawakawa Station intended to sell its land,
and on the day following mediation, the Commission lodged a caveat against the title to the Kawakawa Station land. Unbeknown to the Commission, the agreement for sale and purchase of the Kawakawa Station land was offered for tender by Kawakawa Station on 26 November 2018 and the vendor accepted the offer on 11 December 2018.

[14] Kawakawa Station took steps to require the caveat lapse and in response, the Commission filed an originating application for the caveat not to lapse. Kawakawa Station has a legal obligation under the agreement for sale and purchase to transfer its title to the purchaser on 19 June 2019.

[15] On 25 January 2019, Kawakawa Station and the Trust issued judicial review proceedings, challenging the lawfulness of the Commission’s September 2016 recommendation and the Commission’s decision to lodge a caveat. The applicants challenge the Commission’s recommendations, on grounds of breach of the Commission’s natural justice obligation to consult the Trust, predetermination, unreasonableness, taking into account irrelevant considerations, and failing to take into account relevant considerations. As the parties reached agreement about the caveat, it is unnecessary to set out the further grounds raised in respect of the caveat issue here. The parties agreed that the Commission’s caveat lapses on Monday 15 April 2019, which will enable the sale of Kawakawa Station to proceed.

The parties’ positions on jurisdiction

[16] The Commission makes an appearance under protest to object to the jurisdiction of this Court to hear and determine the judicial review proceeding. It says that a dispute has arisen between Kawakawa Station and the Commission over their consultation under condition 6. Both parties attended a mediation, which did not resolve the dispute. The Commission says Kawakawa Station is now required under condition 8 to endeavour to resolve the dispute by mediation and, failing that, by arbitration.

[17] Thus, the Commission seeks a stay of these proceedings under article 8(1) schedule 1 of the Arbitration Act 1996 and an order referring Kawakawa Station to arbitration, either pursuant to the Arbitration Act 1996 or under the High Court Rules 2016.
[18] In response, both Kawakawa Station and the Trust (the applicants) oppose the Commission’s application for a stay of the proceedings and referral to arbitration. They say that condition 8 is neither a privative clause ousting the Court’s “supervisory function” or an arbitration agreement but is a regulatory condition. In any event, they say the Commission is not a party to the “agreement”.

[19] Further, they submit their judicial review proceeding challenges the lawfulness of certain decisions made by the Commission, in accordance with the right to judicial review guaranteed under s 27(2) of the New Zealand Bill of Rights Act 1990 (NZBORA) and is not a proceeding brought in a matter which is the subject of an arbitration agreement.

The issues

[20] The key issues in this proceeding are therefore:

(a) is condition 8 an arbitration agreement under the Arbitration Act 1996?

(b) if condition 8 is an arbitration agreement:

(i) which parties does it bind?

(ii) are the judicial review proceedings matters to which the arbitration agreement applies?

(c) should the Court grant a stay of proceeding and refer the matter to arbitration, either pursuant to the Arbitration Act 1996 or the High Court Rules 2016?

[21] I will now deal with each of these issues in turn.

Is condition 8 an arbitration agreement under the Arbitration Act 1996?

[22] The contest between the parties is whether condition 8 entitled “Dispute Resolution” constitutes an arbitration agreement under the Arbitration Act 1996 (the
Act), or whether it is merely a regulatory obligation imposed by the OIO on Kawakawa Station to endeavour to enter into an arbitration agreement with the Commission.

[23] The starting point is s 2(1) of the Act, which defines an arbitration agreement:

2 Interpretation

(1) In this Act, unless the context otherwise requires, –

arbitration agreement means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not

[24] I turn then to consider the form of arbitration agreements. There are no fixed rules or forms concerning arbitration agreements. Article 7 of schedule 1 of the Act describes what may constitute an arbitration agreement. Under article 7(1), an arbitration agreement may be made orally or in writing and may be in the form of an arbitration clause in a contract, or in the form of a separate agreement. Importantly in this context, article 7(2) provides:

A reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement, provided that the reference is such as to make that clause part of the contract.

[25] Arbitration is founded on the consent of the parties to the arbitration agreement and the contractual nature of arbitration underpins the Act. Lord Mustill in Pupuke Service Station Ltd v Caltex Oil (NZ) Ltd said:

Arbitration is a contractual method of resolving disputes. By their contract the parties agree to entrust the differences between them to the decision of an arbitrator or panel of arbitrators, to the exclusion of the courts, and they bind themselves to accept that decision, once made, whether or not they think it right.

[26] The authorities reinforce the principle that the courts should uphold arbitration clauses, thus giving effect to the intention of parties to resolve their disputes by arbitration. In Marnell Corrao Associates Inc v Sensation Yachts Ltd, Wild J referred to the general principle that:

… Courts should uphold arbitration, by striving to give effect to the intention of parties to submit disputes to arbitration, and not allow any inconsistencies or uncertainties in the wording or operation of the arbitration clause to thwart that intention. That is stated in Redfern & Hunters Law and Practice of International Commercial Arbitration (3rd ed), 1999, pp 172-173. To similar effect is Russell on Arbitration (21st ed) 1997, para 2-006, citing the Privy Council’s decision in Queensland Electricity Generating Board v New Hope Colleries Pty Ltd [1989] 1 Lloyds Reports 205. Their Lordships’ opinion was delivered by Sir Robin Cooke, who said (at p 210):

At the present day, in cases where the parties have agreed on an arbitration or valuation clause in wide enough terms, the Courts accord full weight to their manifest intention to create continuing legal relations.

[27] More recently in Carr v Galloway Cook Allan, the Supreme Court held that the context in which the phrase “arbitration agreement” is used throughout the Act indicates that it has a broad meaning, and confirms that courts should strive to give effect to the objective intentions of the parties.

[28] Here, condition 8 is labelled “a dispute resolution” clause and forms part of the consent which was granted by the OIO to Kawakawa Station, to enable it to invest and acquire freehold and leasehold interests in sensitive land. By virtue of condition 6, Kawakawa Station must consult with the Commission to improve public walking access over the land and it must implement any walking access recommendations by the Commission within two years from the Commission making its recommendation, or such other timeframe as was mutually agreed.

[29] In the event that Kawakawa Station and the Commission cannot agree, and a dispute arises, the OIO imposed condition 8, a dispute resolution requirement on Kawakawa Station. That condition required Kawakawa Station to endeavour to resolve the dispute by mediation and failing that, to endeavour to have the dispute referred to and finally resolved in arbitration. Kawakawa Station acquired the sensitive land and made its investment, accepting those conditions.

[30] The applicants submit that condition 8 is not an arbitration agreement for the purposes of the Act, but is an obligation imposed by Ministers on Kawakawa Station only, to endeavour to enter into an arbitration agreement with the Commission in certain circumstances. The applicants focus on the words in condition 8: “the Applicant must endeavo[u]r to”. Their submission is premised on the basis that there has been no agreement between Kawakawa Station and the Commission to go to arbitration. There has simply been an agreement by the OIO to impose a condition on Kawakawa Station to endeavour to enter into arbitration, if a dispute between Kawakawa Station and the Commission arises. This, they say, does not make the condition an arbitration agreement.

[31] Further, the applicants place reliance on an email dated 20 December 2018, from the Commission to Kawakawa Station, in which the Commission said:

… There is a requirement under condition 8 of the OIO consent that if the dispute is not resolved by mediation, Kawakawa Station Limited must endeavour to have the dispute resolved by arbitration, costs to be shared.

Please advise what Kawakawa is proposing in relation to arbitration.

[32] The applicants submit that any obligation to arbitrate under condition 8 relates solely to Kawakawa Station and the clause is drafted on the basis that arbitration under condition 8 requires a further submission agreement between Kawakawa Station and the relevant agency.

[33] Although condition 8 appears as a condition of ministerial consent through the OIO, I consider it operates as a condition of land acquisition, much in the same way as conditions are inserted into an agreement for sale and purchase. Kawakawa Station has accepted those conditions imposed on it by the OIO and in so doing has agreed to them. It therefore has an obligation to comply with those conditions, which became binding when it made its investment and acquired the land.
[34] Although condition 8 is not in the form of a signed agreement between Kawakawa Station and the OIO, it is in the form of an arbitration agreement under article 7(2), schedule 1 of the Act. It appears in an OIO land consent, which on a contractual analysis, takes the form of an offer of sale and purchase. In the same way that parties entrust differences between them to the decision of an arbitrator and bind themselves to accept that decision, as Lord Mustill described, I find that by its acceptance of the OIO’s conditions, Kawakawa Station agreed to be bound to endeavour to mediate and arbitrate in the event of a dispute with any one of the named parties it had to consult. Here it is the Commission.

[35] I turn then to consider whether a clause, which grants only one party a right to refer a dispute to arbitration, amounts to a binding arbitration agreement. As Williams & Kawharu on Arbitration observes, “there can be a unilateral arbitration agreement where only one of the parties is obliged, or entitled, to submit disputes to arbitration.” This has been confirmed by the court in Pittalis v Sherefettin, where Fox LJ held that an arbitration agreement may validly give only one party the right to refer disputes to arbitration:

There is a fully bilateral agreement which constitutes a contract to refer. The fact that the option is exercisable by one of the parties only seems to me to be irrelevant. The arrangement suits both parties … Both sides have, therefore, accepted the arrangement and there is no lack of mutuality.

Similarly, in NB Three Shipping v Harebell Shipping Ltd, Morrison J held that a clause conferring an option on the owners only, to refer a dispute to arbitration, was a binding arbitration clause.

[36] Plainly here, the obligation to arbitrate under condition 8 is on Kawakawa Station. As part of its obligation, it must endeavour to arbitrate with the Commission. The OIO has nominated the Commission as one of the parties with whom Kawakawa Station must consult on walking access over its land. Because the Commission is not a party to the agreement, Kawakawa Station cannot require or bind the Commission to arbitrate. The most that Kawakawa Station can do, in my view, is endeavour to arbitrate with the Commission. If, therefore, Kawakawa Station had tried to have its dispute with the Commission referred to arbitration and the Commission refused, Kawakawa Station’s obligation under its deemed contract with the OIO would have been satisfied.

[37] In the present circumstances, however, it is the Commission who has asked Kawakawa Station to attend mediation and now is requesting Kawakawa Station to satisfy its obligation to endeavour to have the dispute resolved by arbitration. There is no impediment to Kawakawa Station having the dispute referred to and resolved by arbitration because the nominated party by the OIO, namely the Commission, is a willing and ready participant. The obligation rests on Kawakawa Station to follow through with the arbitration, as it has a willing Commission, ready to submit to arbitration.

[38] The reference in the Commission’s email to Kawakawa Station’s proposal in relation to arbitration does not import into the condition that there must be a submission agreement between Kawakawa Station and the Commission. The Commission, in my view, is simply asking what steps Kawakawa Station is taking in relation to the arbitration, such as the proposed name of the arbitrator and the venue. Kawakawa Station must endeavour to refer the dispute to arbitration in Wellington.

[39] The only further matter, which requires agreement between “the parties”, and by that phrase in condition 8(b)(ii) means Kawakawa Station and the Commission, is the appointment of an arbitrator. In the event that there is no agreement, the arbitration clause provides that the President of the New Zealand Law Society can nominate an arbitrator.

[40] I find that condition 8 is a valid arbitration clause, binding on Kawakawa Station which accepted, and agreed to, that condition on its acquisition of the land. This places an obligation on Kawakawa Station to refer the matter to arbitration, given that the Commission has invited it to do so and is a willing participant in the process. While it is correct that the Commission is not a party to the consent, in the sense that the enforcement of the consent is in the hands of the OIO if Kawakawa Station does
not take any step to undertake arbitration, there is an arbitration agreement requiring Kawakawa Station to arbitrate with the Commission.

If condition 8 is an arbitration agreement, which parties does it bind?

[41] I have found that condition 8 is an arbitration agreement binding Kawakawa Station, and that although the Commission is not a party to the consent decision of the OIO, it is a party nominated by the OIO to mediate and arbitrate with Kawakawa Station. As I have found above, the Commission has indicated its willingness to have the dispute with Kawakawa Station referred to arbitration and the obligation now rests on Kawakawa Station to refer the matter to an arbitral process.

[42] The remaining question, however, is the Trust’s status in relation to the arbitration clause. Plainly, the Trust is not a party to the consent and nor is it a nominated party by the OIO in the conditions attaching to its consent.

[43] The Trust is the second applicant to the judicial review proceedings and challenges both the Commission’s recommendations for a walkway, which the Trust says will affect its land, and the lack of consultation with the Trust on the part of the Commission.

[44] On 1 November 2018, the Trust advised the Commission in writing of its interest in the recommended walking access proposed by the Commission. The Chief Executive of the Commission, Mr Cullinane, met with representatives of the Trust on 26 November 2018 for approximately two and a half hours. In addition, the Trust attended the mediation between the Commission and Kawakawa Station on 10 December 2018, and a further meeting was convened between the Trust and the Commission’s Board on 21 February 2019. The Trust’s attendance at the mediation was not opposed by the Commission and was supported by Kawakawa Station. Despite not being a nominated party under the dispute resolution clause, the Trust participated in the mediation, nevertheless.

[45] At the hearing, in response to the evidence filed by the Trust and to my questions, Mr Reid for the Commission submitted that the Commission consents to the Trust being involved in the arbitration and, indeed, if the Trust wishes to raise its
claims as to reasonableness or lawfulness of the Commission’s actions, the Commission would have no objection to that being raised within the context of the arbitration. In other words, the Commission is taking the view that all relevant issues should be before the arbitrator, including those matters raised by way of judicial review challenge about the Commission’s processes and recommendations, and including its consultation with affected parties.

[46] In Danone Asia Pacific Holdings Pte Ltd v Fonterra Co-Operative Group Ltd, Venning J, in dealing with the issue of stay, canvassed the authorities where parties had simultaneous proceedings, raising the same factors and/or overlapping legal issues. His Honour noted the case of Carter Holt Harvey Ltd v Genesis Power Ltd, in which Randerson J accepted, in an obiter statement, that in a case “where there was a substantial degree of overlap of factors or legal issues between the arbitration and Court proceedings it could be “inappropriate” for both to proceed simultaneously even if the matters in the Court proceedings were not the subject of the arbitration.”

[47] I consider the Commission’s position here in relation to the Trust accords with Randerson J’s approach in Carter Holt Harvey Ltd. The Trust’s inclusion within the arbitration is not opposed by the Commission, and Kawakawa Station’s interests and the Trust’s interests are aligned. For these reasons, although it is clear the arbitration agreement does not bind the Trust, it is in the interests of the parties that the Trust proceedings are heard simultaneously with Kawakawa Station’s proceedings.

Are the judicial review proceedings matters to which the arbitration agreement applies?

[48] The applicants have issued judicial review proceedings, challenging the lawfulness of the Commission’s recommendations in May 2016 and the revised recommendations in September 2016, claiming that the Commission was exercising a statutory power under s 5 of the Judicial Review Procedure Act 2016. The applicants claim that the Commission, in formulating its recommendations, took into account irrelevant considerations, failed to consider relevant considerations, and ultimately reached a decision no reasonable decision-maker would have made in the circumstances, the latter ground being a claim of irrationality and/or unreasonableness. They also claim that the Commission predetermined the issue for consultation, because it considered that the sole walking access option for Kawakawa Station was access to Kawakawa Hut via the Otikaha Stream.

[49] The second applicant, the Trust, alleges the Commission breached natural justice in failing to consult the Trust over tikanga Māori applicable to the land affected by the proposed walking access on Kawakawa Station, when formulating its recommendations, and failed to take into account any and all cultural sensitivity issues arising from those recommendations.

[50] The second part of the judicial review claim challenges the lawfulness of the Commission’s decision to register a caveat against Kawakawa Station’s land. Because the parties have agreed that the caveat will lapse on 15 April 2019, these grounds of judicial review fall away for present purposes.

[51] The applicants say that the matters arising in the judicial review proceeding are matters going to the lawfulness of the Commission’s decision-making, which are not arbitrable and the determination of such matters by arbitration would be contrary to public policy. The applicants say that their judicial review proceedings are issued in accordance with the right to judicial review guaranteed under s 27(2) of the NZBORA. Further, they say the Trust is not a party to the agreement and the Trust’s rights have been affected in a manner not properly determinable by an arbitral tribunal.

[52] The basis of the applicants’ challenge is that the Commission has exercised a statutory power of decision in making its recommendations. The Commission submits that its recommendations are not reviewable for two reasons. First, it says they are not decisions but are recommendations, and secondly, its recommendations are currently subject to Kawakawa Station and the Commission submitting to arbitration to resolve the dispute between them. The Commission resists the judicial review from both applicants. In relation to the Trust, it points to its belated involvement in November 2018, the Commission’s subsequent meetings with members of the Trust, and the inclusion of the Trust in the mediation with all parties on 10 December 2018. These actions, it says, shows it has consulted with the Trust, and invites the Trust to be part of the arbitration.

[53] The Commission maintains its position that Kawakawa Station must now submit to arbitration to resolve the dispute that has arisen. The Commission, during the hearing before me, specifically invited Kawakawa Station and the Trust to place before the arbitrator any issue about the lawfulness of the Commission’s approach or any aspect of its recommendations as part of the issues to be resolved by the arbitrator.

[54] In their judicial review claim, the applicants have listed matters that they say the Commission has taken into account irrelevantly, including:

(a) the “substantial and identifiable” benefits test under the OI Act relating to sensitive land that is non-urban land exceeding five ha;

(b) the factors under s 17(2) of the OI Act and reg 28 of the Overseas Investment Regulations 2005 regarding a “substantial and identifiable” benefit;

(c) matters of national importance specified in s 6(d) of the Resource Management Act 1991 (the RMA); and

(d) matters specified in s 7(c) of the RMA which are specific to exercising powers or duties under the RMA only.

The applicants have also listed matters they say the Commission has overlooked, including:

(e) requirements under s 6(e) of the RMA to recognise and provide for the relationship of Māori and their culture and traditions with their ancestral lands, water, sites, wahi tapu, and other taonga as a matter of national importance;

(f) the Trust’s relationship with the land and waterways within the scope of the Commission’s recommendations;
(g) the provisions of the Commission’s own Code of Responsible Conduct relating to private land and landowners’ rights, tikanga Māori, and Māori relationships with land and waterways;

(h) the terms of condition 6 of the OI consent, namely, that Kawakawa Station was to consult the Commission about what Kawakawa Station can reasonably do to provide public walking access over the relevant land;

(i) Kawakawa Station’s intended use of the land;

(j) adverse impacts on the economic viability of Kawakawa Station and the Trust land if the Commission’s recommendations were implemented;

(k) other potential walking access routes from Kawakawa Station that would meet the requirements of s 11 of the Walking Access Act 2008;

(l) the likely requirement of consent from another landowner if access to Kawakawa Hut through Kawakawa Station land via the Otikaha Stream is maintained; and

(m) the prospect of unauthorised hunting on the Kawakawa Station land.

[55] I accept the Commission’s submissions that the applicants face two difficulties in relation to their judicial review challenge. The first is the claim that the Commission’s recommendations are “decisions” in the nature of the exercise of a statutory power under s 5 of the Judicial Review Procedure Act. I consider it is strongly arguable, as the Commission contends, that the Commission has not exercised a statutory power of decision-making. Instead, it has made recommendations, which are subject to further refinement, alteration, or determination in the event of arbitration.
[56] As the authorities reinforce, the availability of judicial review before a final decision has been made is wholly exceptional. It can occur, however, where the relevant process or preliminary recommendations are viewed as part of the decision itself. In this instance, I am not satisfied that the revised recommendations are in the nature of a substantive or final decision in these circumstances. This is the first impediment that the applicants face.

[57] The second difficulty facing the applicants is that the matters in the judicial review claim not only overlap with the matters that would be the subject of arbitration in resolving the dispute, but are more properly the province of the arbitrator and an arbitral proceeding. The applicants acknowledged during the hearing that if the judicial review proceedings are heard before the arbitration, the detail of what is at issue between the applicants and the Commission are not matters that can be resolved by a Court in judicial review. The result they seek to achieve on judicial review, if successful, is that the Commission is directed to reconsider its recommendations. If that occurs, the applicants submit, the Commission has to properly consult with both applicants and restart the process.

[58] The opportunity for addressing the Commission’s failings is now available to both applicants. If the Trust wishes, it can advance its challenge to the Commission’s process and to the reasonableness of the Commission’s recommendations. The detail of the challenge, it seems to me, is more appropriate for arbitration. As Lord Woolf MR has said:

The courts should not permit, except for good reason, proceedings for judicial review to proceed if a significant part of the issues between the parties could be resolved outside the litigation process.

[59] I accept, of course, that the applicants have a right to judicial review guaranteed under s 27(2) of NZBORA, and in certain circumstances significant questions of law have not been appropriate matters to be the subject of arbitration. That said, as Williams & Kawharu on Arbitration observes:

… given the legislative confidence in the arbitral process which is reflected in s 5 of the New Zealand Act, it is suggested that few types of arbitration agreement or subject matters will be deemed non-arbitrable for s 10 [that is, public policy] purposes. Instead, the Act creates a general preference in favour of the arbitrability of disputes …

This is consistent with the general trend of expanding the scope of arbitrable subject matters.

[60] In this case, Kawakawa Station has an obligation to have its dispute with the Commission referred to arbitration. The matters the applicants have raised challenge the way in which the Commission has formulated the proposed walkway. The detail of the accessway and what considerations were taken into account in proposing it is entirely suitable to arbitration.

[61] I find that the judicial review proceedings are not an impediment to the dispute being referred to arbitration, because the Commission’s recommendations do not have the status of a final decision and the factors raised by the applicants are suited to arbitration in these circumstances.

Should the Court grant a stay of proceeding and refer the matter to arbitration, either pursuant to the Arbitration Act 1996 or the High Court Rules 2016?

[62] Under article 8(1) schedule 1 of the Arbitration Act, the Court has the power to order a stay of proceedings and refer the parties to arbitration:

8 Arbitration agreement and substantive claim before court

(1) A court before which proceedings are brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting that party’s first statement on the substance of the dispute, stay those proceedings and refer the parties to arbitration unless it finds that the agreement is null and void, inoperative, or incapable of being performed, or that there is not in fact any dispute between the parties with regard to the matters agreed to be referred.

[63] The applicability of article 8(1) depends on whether the proceedings, in this case the judicial review proceedings, are brought in a matter which is the subject of an arbitration agreement. As I have found that condition 8 is an arbitration agreement and the subject matter of the dispute is pleaded in factual detail in the applicants’ judicial review proceedings, this Court should grant a stay and refer the parties to arbitration, unless the arbitration agreement is null and void, inoperative, or incapable of being performed.

[64] In doing so, I am cognisant that the Commission is requesting the referral to arbitration. Although no argument was raised in respect of whether the Commission is a party under article 8(1), I am satisfied that the Commission is a party to the arbitration. “Party” is defined under the Act as meaning:

A party to an arbitration agreement, or, in any case where an arbitration does not involve all of the parties to an arbitration agreement, means a party to the arbitration.

[65] As outlined, the OIO has nominated the Commission as a party to an arbitration where a dispute arises between the Commission and Kawakawa Station. There is standing, therefore, for the Commission to make its request for a stay. Given my findings in respect of the arbitration clause and the dispute which has arisen between Kawakawa Station and the Commission, I find that there is a “prima facie” case for the existence of a valid arbitration agreement and the judicial review proceedings should be stayed, with the parties being referred to arbitration.

[66] An additional factor supporting this conclusion is the fact that the parties have already submitted to the dispute resolution clause, by attending mediation. Condition 8, therefore, has already been engaged as a dispute resolution clause and by the conduct of both Kawakawa Station and the Commission, the parties have submitted to the dispute resolution clause and should now proceed to the next step in that process, namely, arbitration.

[67] If I am wrong that condition 8 is an arbitration agreement and my finding the Court should apply article (1) of schedule 1 of the Arbitration Act in staying the judicial review proceedings is inapplicable, I turn then to consider the Court’s power to grant a stay under r 15.1 of the High Court Rules 2016 and its inherent jurisdiction. Rule 15.1 provides:

15.1 Dismissing or staying all or part of proceeding

(3) Instead of striking out all or part of a pleading under subclause (1), the court may stay all or part of the proceeding on such conditions as are considered just.

(4) This rule does not affect the court’s inherent jurisdiction.

[68] The applicants submit the discretion under r 15.1 should be exercised only in “rare and compelling circumstances”. The High Court has recently held in Danone that “[t]here must be a real risk of unfairness or oppression to the defendant if the proceeding were allowed to continue.” The applicants submit this is not the case.

[69] In response, the Commission submits that the judicial review proceedings are a collateral attack on the arbitration agreement and are likely to cause prejudice and delay to the Commission. The Commission says further than an arbitration must be completed on an urgent basis, if an award is to be made prior to settlement of the sale of the land on 19 June 2019. If an award is not made before settlement, the right to walking access will be lost.

[70] The application of r 15.1(3) of the High Court Rules and the Court’s inherent jurisdiction to grant a stay in the absence of an arbitration agreement between the parties must be informed by the considerations in r 15.1(1). These include where there is no reasonably arguable cause of action (r 15.1(1)(a)), and where the pleading is likely to cause prejudice or delay, is frivolous or vexatious, or is otherwise an abuse of the Court’s processes (r 15.1(1)(b)-(d)).

[71] In exercising the Court’s jurisdiction to stay proceedings either under r 15.1(3) or its inherent jurisdiction, Venning J in Danone observed that the Court is entitled to impose procedures that are appropriate in the circumstances having regard to the nature and content of the litigation as a whole. He accepted, however, that the jurisdiction to grant a stay should be exercised only in rare and compelling circumstances, where there is a real risk of unfairness or oppression to the defendant if the proceedings were allowed to continue. As well as this, considerations of cost and convenience must weigh in favour of a stay. In that case, the application for stay was granted.

[72] I consider that a stay should be granted in these circumstances, because there is a real risk of injustice here if the arbitration does not proceed prior to the sale of the Kawakawa Station land. Kawakawa Station acquired the sensitive land on condition that a walkway may be secured over the land. Kawakawa Station has now entered into an agreement for sale and purchase, selling the land to a New Zealand citizen. If an award is not made before settlement, the Commission’s right to walking access may be lost.

[73] As I have concluded above, the subject matter of the judicial review proceedings will significantly overlap with the subject matter of the dispute at arbitration. It is not in the interests of justice for both proceedings to be heard at the same time, in separate jurisdictions. Not only will the costs be duplicated, there is a risk of inconsistent findings and delay.

[74] I am therefore satisfied that the Court, in its inherent jurisdiction and under r 15.1, should grant a stay of proceeding in these circumstances, in the interests of justice and considering the cost and convenience to all parties. I have issued this decision as quickly as possible, to enable the parties to begin the arbitration process without delay.

Conclusion

[75] To conclude on the issues overall:

(i) I find that condition 8 is an arbitration clause that is binding on Kawakawa Station. It places an obligation on Kawakawa Station to refer the matter to arbitration, given that the OIO has nominated the Commission as one of the parties with whom Kawakawa Station must consult and arbitrate if there is any dispute, and the Commission is a willing participant in the process.

(ii) Although the arbitration agreement does not bind the Trust, as the subject-matter of both applicants’ judicial review proceedings and the dispute that would be before arbitration are largely overlapping, the Trust proceedings should be heard simultaneously with the Kawakawa Station proceedings.

(iii) The judicial review proceedings should be stayed in accordance with article 8(1) of schedule 1 of the Arbitration Act 1996.

Result

[76] The application for stay is granted. The parties are directed to begin the arbitration process without delay.

Caveat proceedings

[77] By consent, the following orders are made in relation to the caveat application before the Court:

(a) a final order is made by the Court that the caveat against dealings with land under section 138 of the Land Transfer Act 2017 instrument 11315298.1 affecting record of title 470174 Wellington Land District owned by Kawakawa Station Limited lapses on and from 8.30 am on Monday 15 April 2019; and
(b) the final order is served by the Commission on the Registrar-General of Land by Monday 1 April 2019.

Costs

[78] If the parties are unable to agree on costs, counsel are to file memoranda within 15 working days of this decision.

Humber River Hospital v Ontario Nurses’ Association, 2019

In the Matter of an Arbitration

Under s.48 of the Labour Relations Act, 1995

BETWEEN:

HUMBER RIVER HOSPITAL

(The “Hospital”)

AND

ONTARIO NURSES’ ASSOCIATION

(The “Association”)

(Gr. WS17-95 Re: Reimbursement for BUP Sick Pay)

Before: Eli A. Gedalof, Sole Arbitrator

AWARD

 

INTRODUCTION

  1. 1.        This grievance concerns the extent of the Association’s obligation to reimburse the Hospital for 50% of the Bargaining Unit President’s (“BUP”) salary when the BUP is on a short-term sick leave. The Local Appendix to the Collective Agreement between the parties contains a paid leave provision for the BUP which, when invoked by the parties, provides that the BUP shall “remain on the Hospital payroll in order to maintain continuity of coverage with benefits and pension entitlements as are presently applicable….” The provision also provides that the Hospital will bill the Local “on a quarterly basis for the portion (50% of the annual salary) to be paid by the Association for the period of her or his term.”
  2. 2.        In 2017, the BUP took a sick leave, and the Hospital invoiced the Association for 50% of his salary drawn during the quarter that included the sick leave. The Association grieved that it should not be required to reimburse the Hospital for any portion of the paid sick leave. In broadest terms, the Association maintains that paid sick leave is an accrued benefit that the BUP is entitled to draw upon. Paid sick leave is not, argues the Association, “salary” within the meaning of the BUP leave provision. The Hospital rejects this interpretation of the BUP leave provision. It argues that the BUP is on a full time leave from her or his employment responsibilities and that during the period of that leave the Hospital’s obligation is to pay 50% of the salary. In this context, the salary paid to the BUP while off sick continues to be a portion of her or his “annual salary”, and the Association continues to be responsible for payment of 50% of that salary.
  3. 3.        This is primarily a case of contract interpretation. Each party called a witness to discuss how the provision has been applied and to provide some background to the grievance before me. However, as will be clear, the grievance ultimately turns on the terms of the parties’ agreement.

THE EVIDENCE

  1. 4.        In 2016/17 the BUP took two periods of sick leave. There is no dispute that the Hospital did not seek reimbursement for 50% of the wages paid to the BUP during the period of the first leave, but did seek reimbursement for the period of the second.
  2. 5.        The Association called as a witness its local treasurer, Nancy Popp. Ms. Popp has overall responsibility for the local’s finances, including dealing with the invoices for reimbursement of 50% of the BUP salary. Ms. Popp explained the process she goes through when she receives an invoice from the Hospital, verifying the time period and the amounts and obtaining the necessary sign-offs.
  3. 6.         Popp introduced the invoices and documents reflecting the fact that the BUP had been off on sick leave in 2016 for a period of time, and that the Hospital had not billed the Association for its share of his salary during that period.  In October 2017, however, following a subsequent sick leave, Ms. Popp received an invoice from the Hospital seeking recovery of 50% of the salary paid to the BUP for the period July 1, 2017 to September 30, 2017.  Ms. Popp consulted with the Association and ultimately paid the bill, but did so without prejudice to the Association’s position that it should not have to reimburse the Hospital for the period of the sick leave. The hospital responded that Article E2 of the Local Appendix did not speak to any difference in billing when sick leave is taken, and therefore declined to revise the invoice.
  4. 7.        In cross-examination, it was put to Ms. Popp that in 2014 the BUP had also taken sick leave, and that the Association had been billed for and had paid its 50% contribution for that period. Ms. Popp had no reason to dispute this proposition, and confirmed that it was possible she would not be aware of short-term sick leaves since there is no obligation that she be informed of them. It was also put to Ms. Popp that the reason that the Association was not billed for the period of the 2016 sick leave was that the Hospital had made a “special agreement” to pay 100% of the salary for that period, and not to bill the Association. Ms. Popp had no knowledge of the existence of such an agreement.
  5. 8.        The Hospital called Diane Pestrin, who is currently employed as a Senior Human Resources Business Partner. In her prior roles as an Employee Labour Relations Specialist, Ms. Pestrin was responsible for calculating and processing the invoices for reimbursement of the BUP salary. According to Ms. Pestrin, the Association was routinely billed to reimburse 50% of the salary paid out during periods the BUP was on sick leave, and routinely paid those bills. The only exception was for the quarter of October 1 to December 31, 2016, when she was specifically instructed by the Manager of Human Resources not to send a bill. Ms. Pestrin was not aware of why she was so instructed, but followed the direction and did not invoice for that quarter.

THE COLLECTIVE AGREEMENT

  1. 9.        The parties referred to the following provisions in the Local Appendix to the Collective Agreement:

ARTICLE E – LEAVES OF ABSENCE

  1. 1 The cumulative total leave of absence for Association business shall be one hundred and fifty (150) days (including both full-time and part-time nurses) during the calendar year subject to the following conditions

(a) The Association will notify the Hospital in writing, at least two (2) weeks in advance, where possible, of the requested leave. However, the Association will endeavour to give more than 2 weeks’ notice where possible. The Hospital will provide an answer to the request within two (2) weeks of the request unless the request was made with less than two (2) weeks’ notice.

(b) No more than two (2) nurses shall be absent from one area per site at the same time.

(c)  The granting of leave shall be subject to the staffing requirements of the Hospital. The Hospital shall not be unreasonable in denying a request on this basis.

In addition to the leave provided in E.1 above and where the parties agree in writing to an arrangement for a Local Coordinator/President, the following terms shall apply:

E.2  (a)  The Bargaining Unit President is to be on full leave of absence with the annual salary for such leave being maintained by the Hospital. The Bargaining Unit President will be scheduled to work Monday through Friday for the period of her/his term, except as provided under E.2 (d). On completion of her/his term of office, the Bargaining Unit President shall return to her/his previous position, which includes rotation on the nursing unit.

  (b)  The Bargaining Unit President is, however, to remain on the Hospital payroll, in order to maintain continuity of coverage with benefits and pension entitlements as are presently applicable. The Bargaining Unit President remains a member of ONA bargaining unit with all of the rights and responsibilities that are provided under the Collective Agreement. For clarity, seniority and service shall continue to accrue.

(c)   The Hospital will bill ONA Local 068 on a quarterly basis for the portion (50% of the annual salary) to be paid by the Local Association for the period of her or his term.

(d)   The Bargaining Unit President is to retain her/his nursing unit as a home base. The Bargaining Unit President may work on the Home unit for up to four (4) weeks per year as mutually agreed by the Bargaining Unit President and her/his manager. The reporting relationship shall be through the Employee and Labour Relations Department except when the Bargaining Unit President works on her/his home unit at which time the reporting relationship shall be through the home unit manager.

(e)   The above provisions are to exist for the period of her/his term of office. Notwithstanding the above, either party may terminate the agreement within sixty (60) calendar days’ written notice at which time the Local/President shall return to her/his home unit.

(f)  The Employer will provide up to six (6) days per month total, with pay for the local Association Executive or their designate(s).

However, pursuant to Article E.2, in the event that there is a full-time Coordinator/President arrangement in place, the number of paid executive leave days will be reduced from six (6) to four (4).

[emphasis added]

  1. 10.     The general sick leave provision is found at Article 12 of the Hospital Central Agreement, the relevant portion of which reads:

12.01   The Hospital will assume total responsibility for providing and funding a short-term sick leave plan at least equivalent to that described in the 1980 Hospitals of Ontario Disability Income Plan brochure. Effective January 1, 2006, new hires will be covered under the 1992 Hospitals of Ontario Disability Income Plan.

  1. 11.     The relevant portion of the applicable OHA Benefit Plan (a.k.a. HOODIP) brochure for Full-Time Employees provides:

If you become Totally Disabled as a result of illness or injury…you will receive Sick Pay benefits that are paid by your employer.

The Sick Pay benefit is paid by your employer as salary continuance after you meet the qualifying period….

  1. 12.     The parties also referred to Article 11 of the Hospital Central Agreement, which addresses payment of benefits during several different kinds of leave in a variety of different ways depending on the type of leave, but which does not specifically address the BUP leave provided for under the Local Appendix in issue here.

ARGUMENT

The Association’s Argument

  1. 13.     The Association argues that short-term sick leave is a “benefit”, and that in accordance with Article E.2(b), the BUP is entitled to receive that benefit while on a full leave of absence, as that benefit is “provided under the Collective Agreement.” Under the Collective Agreement, the Hospital assumes “total responsibility for providing and funding a short-term sick leave plan…”. Read together, the Association argues that as a matter of straightforward contract interpretation it is clear that the Hospital is responsible for paying all of the BUP’s salary while on short-term sick leave, and is not entitled to recover half the payment from ONA.
  2. 14.     Further, the Association argues there is a distinction between “salary”, which it defines as “payment for services rendered”, and sick pay, which is a distinct benefit intended to “replace” salary. The Association relies on excerpts from Brown and Beattyand the decision of Arbitrator Burkett in Participating Hospitals v. O.N.A., 2002 CarswellOnt 5079 in support of this distinction. The Association argues that if the parties had intended to treat the sick leave benefit differently than the other benefits for which the BUP is eligible, they would have been required to do so explicitly. Neither, argues the Association, does Article 17 of the Hospital Central Agreement, which addresses many other aspects of employee entitled to Health and Welfare Benefits, restrict the availability of the short-term sick leave benefit while on BUP leave.
  3. 15.     In the alternative, the Association argues that if I find that the language is ambiguous, I ought to look to past practice and find that it supports full payment by the Hospital. While the Association acknowledges that the practice has not been consistent, it relies on the full payment of the BUP’s prior sick leave in 2016, and the absence of any specific evidence that this payment was made in accordance with any special arrangement.

The Hospital’s Argument

  1. 16.     The Hospital argues that in accordance with the established rules of contract interpretation, the provisions of the Local Appendix, the Hospital Central Agreement and the sick leave plan, must all be read together. These terms should be given their plain and ordinary meaning unless doing so would be absurd or inconsistent with the overall scheme and structure of the agreement. The hospital argues that a proper interpretation supports the conclusion that payments to the BUP while off sick leave are no different than payments made while on vacation or holiday, of which the obligation to reimburse is not in dispute.
  2. 17.     In particular, the Hospital emphasizes that the BUP is on a full-time leave of absence, during which the Association is responsible for paying “50% of the annual salary”.  Under the terms of the sick pay plan, sick pay is “salary continuance”, not a premium based benefit for which the employer would be solely responsible under the terms of Article E2 of the Local Appendix. Article 11 of the Central Agreement shows that the parties may adopt any number of approaches to distributing the costs of various benefits during the course of different types of leave. The requirement that the Association pay 50% of the BUP’s annual salary, including while on short-term sick leave, is just one more such arrangement, entirely consistent with the inconsistent approach taken by the parties.
  3. 18.     In support of its approach to interpreting the contract the Hospital relies on Maple Leaf Consumer Foods v. U.F.C.W., Local 1752011 CarswellOnt 7142 (Surdykowski) (“Maple Leaf”) and York County Hospital v. O.N.A.1988 CarswellOnt 3804 (Burkett)(“York County Hospital”). The BUP, argues the Hospital, is on a full time leave in order to carry out the functions of the bargaining unit present: that is his primary affiliation and Article E2 requires that the Association pay half his salary during such a leave. He is not, argues the Hospital, an active employee on sick leave from performing work for the Hospital.
  4. 19.     The Hospital argues that the most analogous authority is found in Mount Sinai Hospital and ONA, Re, 2017 CarswellOnt 20318 (Steinberg) (“Mount Sinai”). This case concerned a claim by the Association that it was not required to reimburse the hospital for sick days, holidays and vacation days where a member was on a leave of absence under the Board of Directors Leave provision at Article 11 of the Hospital Central Agreement. The arbitrator found that the purpose of that provision was to render the leave cost neutral for the hospital, and that where an employee has not performed any work for the hospital for an extended period of time it cannot be that the hospital is required to pay the costs of “vacation, holidays and sick time without reimbursement from the Association.” (at para 77). The Hospital argues that the purpose of the BUP leave provision is to share the cost 50/50 between the parties, while maintaining the BUPs access to all of his benefits through maintenance of premiums by the Employer.
  5. 20.     With respect to the Association’s past practice argument, the Hospital maintains that with a single exception the evidence demonstrates that it has billed the Association for 50% of sick days. In this light, the Hospital argues that the past practice supports its own position, but in any event does not constituted the kind of clear and consistent evidence that would be required to support the Associations interpretation.

ANALYSIS

  1. 21.     There is no dispute that the appropriate approach to interpreting the collective agreement is as articulated at paragraph 18 of Maple Leaf:

The fundamental rule of interpretation for collective agreements is the same as for commercial contracts and statutes: the words used must be given their plain and ordinary meaning unless it is apparent from the structure of the provision or the collective agreement read as a whole that a different or special meaning is intended. All words must be given meaning, and different words are presumed to have different meanings, unless this would lead to a result that is absurd or inconsistent with the overall scheme and structure of the agreement.

In all cases the goal is to give effect to the intended agreement of the parties, as that intention is reflected in the words of the agreement they reached.

  1. 22.     Applying these principles of interpretation, I find that the Hospital’s interpretation must prevail. I reach this conclusion for several reasons.
  2. 23.     Article E2 is the BUP leave provision, and therefore the starting place for my analysis. In accordance with Article E2(a), the BUP leave is a “full leave of absence”, during which the Hospital must maintain her or his “annual salary”. In accordance with Article E2(b), the BUP is to remain on payroll specifically for the purpose of maintaining “continuity of coverage with benefits”. In accordance with Article E2(c), the Local is required to pay 50% of the BUP’s “annual salary”, “for the period of her or his term.” The parties join issue over whether pay to the BUP while of sick is “salary” within the meaning of Article E2(c), or whether those payments are excluded from “salary” and instead constitute a draw upon an accrued benefit.
  3. 24.     There are several indicators in the provisions of E2 that support the Hospital’s interpretation.
  4. 25.     It is clear that BUP leave is a “full” leave of absence that extends for the duration of the BUP’s term in office. This provision is distinct from other leave provisions, where the individual is released from their regular duties to perform discrete tasks, while continuing to carry out their employment responsibilities generally. During the period of the BUP leave, the BUP is clearly working full time on behalf of the Association, not the Hospital. This is not to say that the Hospital does not benefit from having a full time representative of the bargaining unit available to deal with issues arising under the Collective Agreement, but the BUP is nonetheless on a full leave from their employment responsibilities with the Hospital for their term of office. They do not, therefore, cease to be on such a leave when they take one or more days off work due to illness during the course of that term. In this narrow regard, the circumstances of the BUP leave are analogous to the circumstances of a vacation leave as addressed by arbitrator Burkett in York County Hospital.
  5. 26.     York County Hospital also dealt with the circumstance of an employee falling sick while on an approved union leave, whose salary and benefits the hospital was required to continue. However, the provision in issue in that case required the Association to reimburse the hospital for the “for the full cost of such salary and applicable benefits”. I do not therefore suggest that the interpretive issue in the instant case is identical. Nonetheless, arbitrator Burkett’s analysis is illuminating. The Union argued that as the grievor was unable to work due to illness, she met the criteria for sick leave under the HOODIP plan, and should therefore have been placed on a sick leave for the duration of her illness (at the employer’s expense) rather than a union leave (for which the Association was required to reimburse the employer). Arbitrator Burkett identified a number of scenarios in which an employee who fell ill could cancel a union leave, maintain their status as an active employee, and take advantage of the employer funded sick leave provision. For example, if the employee fell ill before the commencement of the leave such that they would not be able to serve the function of taking the leave in the first place, the arbitrator found no reason they could not cancel the union leave and receive sick benefits in the usual course. However, where an employee falls ill for a period of time during the course of a leave and then continues with that leave, arbitrator Burkett found that as a matter of common sense, the parties could not have intended that that employee receive sick pay “as an active employee”. In this latter example, the employee’s “primary affiliation” during the period of illness is with the union leave, and not the sick leave (at para 11).
  6. 27.     Applying this analysis to the leave provision at issue in the instant case, the conclusion that the BUP’s primary affiliation with the union leave is even more clear. Under the terms of the Local Appendix, a BUP leave is defined as a “full leave”, and the BUP returns to her or his previous position, subject to Article E.2(e),  only “on completion of her/his term”.  The parties have therefore defined more precisely the term of the leave than in the particular union leave provision at issue in York County Hospital. Thus, the language agreed to by the parties supports the conclusion that in the instant case the BUP was at all material times on an approved BUP leave from the employer.
  7. 28.     The Association relies on the distinction between the language at issue and the provision in York County Hospital, in that under Article E2(c), the Association liability is limited to 50% of the BUP’s annual salary, and does not include the cost of benefits. Paid short-term sick leave is a benefit, it argues, the Association is not required to pay the cost of benefits under this leave provision, and the Hospital should therefore be required to pay 100% of the short-term sick leave benefit, just as it is undeniably required to maintain the employee’s premium-based benefits. While attractive for its straightforward clarity, I must reject this argument for two reasons.
  8. 29.     First, the analysis in York County Hospital does not turn on the meaning of “benefits” or who is responsible for paying for that benefit, but rather on the basis upon which the employee is absent from work, i.e. whether because of a union leave or because of a sick leave. Because the arbitrator concludes that the primary affiliation is with the union leave and not the sick leave, he concludes that the employee must be paid as she or he would be on union leave, not sick leave. This approach is adopted by arbitrator Steinberg in Mount Sinai, where he found that an employee on an extended union leave did not revert to active status while on vacation, holiday or sick leave.
  9. 30.       Second, read in the context of the broader terms of E2 and the collective agreement as a whole, I find that the payments made to the BUP while off sick are more properly understood as part of her or his “annual salary”. Unlike premium-based long-term disability benefits, short-term sick leave under the collective agreement and the terms of the plan is paid as “salary continuation”. The strict distinction between “salary” and “benefit” that the Association seeks to draw is not therefore so clearly delineated under the terms of this collective agreement as it might be in other contexts. Under Article E.2(a) the hospital is required to maintain the “annual” salary of the BUP, for the term of office, suggesting a global calculation spanning the term of the leave. In conjunction with the finding that on the facts before me the BUP remained at all time on BUP leave, it follows that the Association’s obligation under Article E.2 is to continue paying 50% of the BUP’s annual salary “for the period of her or his term”. These terms point to an obligation on the parties to split the salary costs of the BUP during the term of office and so long as the leave continues. Read together, they do not support parsing out periods of absence from performing the duties of the BUP, whether for vacation or holiday leave (which are not in dispute) or short-term sick leave.
  10. 31.     In appropriate circumstances, parties may rely on past practice in support of an interpretive argument. The evidence of past practice before me, however, is both limited and somewhat ambiguous. The only two specific examples presented of how the provision has been applied are contradictory. To the limited extent that the practice favours either party’s position, it would appear to support the Hospital’s. With one significant exception it appears that the Hospital has routinely billed the Association for 50% of the salary paid to the BUP when she or he took a sick day. Ms. Pestrin’s evidence was not detailed in this regard, but neither was the Association in a position to challenge it. It is not necessary to address the appropriateness of considering this extrinsic evidence in any detail, however, because I find that it does not in any event point toward a different conclusion than I have reached above.

Conclusion

  1. 32.     For all of these reasons, I find that the Hospital did not breach the collective agreement when it required the Association to reimburse 50% of the salary paid to the BUP, including for the days that the BUP was off sick. The grievance is therefore dismissed.

Dated at Toronto, Ontario, this 8th day of April 2019.