Quiana Navigation SA v Pacific Gulf Shipping (Singapore) PTE Ltd “Caravos Liberty” [2019] EWHC 3171 (Comm) (21 November 2019)

Neutral Citation Number: [2019] EWHC 3171 (Comm)
Case No: CL-2019-000228

IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
COMMERCIAL COURT (QBD)

Royal Courts of Justice
Strand, London, WC2A 2LL
21 November 2019

B e f o r e :
MRS JUSTICE COCKERILL DBE
____________________

Between:

QUIANA NAVIGATION SA
Claimant
– and –
 
PACIFIC GULF SHIPPING (SINGAPORE) PTE LTD
“CARAVOS LIBERTY”
Defendant

____________________

Mr Robert Bright QC and Mr Henry Moore (instructed by Norton Rose Fulbright LLP) for the Claimant
Ms Karen Maxwell (instructed by MFB Solicitors) for the Defendant
Hearing dates: 18 November 2019

____________________

HTML VERSION OF JUDGMENT
____________________

Crown Copyright ©

Cockerill J :

    1. This appeal under s. 69 of the Arbitration Act 1996 arises out of a Partial Final Award dated 7 March 2019 of Mr Mark Hamsher, Mr Alistair Schaff QC and Mr David Owen QC (“the Award”).
    2. The issue concerns the BIMCO Non-Payment of Hire Clause for Time Charter Parties, and in particular the question of whether it is possible to withdraw a vessel under this clause when the breach in question relates to non-payment for an earlier period of hire. The appeal is brought by permission of Teare J on the basis that, this being a standard form clause, it is a question of law of general public importance and the decision of the Tribunal is open to serious doubt.

The Facts

    1. The time charter in question (“the Charterparty”) was concluded on 26 May 2017 between the Claimant/Appellant (“Owners”) and the Respondent (“Charterers”) in respect of MV “Caravos Liberty” (“the Vessel”). The Charterparty was drafted on an amended New York Produce Exchange form with rider clauses and a fixture recap.
    2. The Vessel was delivered into Charterers’ service on 27 May 2017.
    3. Relevant provisions of the Charterparty were:

i) Clause 4: “the Charterers shall pay for the use and hire of the said vessel at the rate of USD9,000 daily including overtime, payable every 15 days in advance.… BIMCO non-payment of hire clause for time charterparties to apply …“.ii) Clause 5: “Payment of said hire to be made in cash in United States Currency (as per clause 34) every 15 days in advance…“. The “said hire” in clause 5 was the US$9,000 daily hire set out in clause 4.

iii) Clause 34: “Hire and all monies due to the Owner under this Charter Party will be paid to Owner’s bank account…First hire 15 and value of bunkers on delivery to be paid within 3 banking days after vessels delivery and charterer’s receipt of scanned/signed/stamped relevant hire statement, thereafter every 15 days hire in advance Bimco Non Payment of hire clause for time Charter Parties to apply“.

    1. The key provision is the BIMCO Non-Payment of Hire Clause, incorporated as clause 37 of the Charterparty. It governs the right to suspend service, the right to withdraw the Vessel and the anti-technicality procedure to be followed prior to withdrawal. It should in the context of this appeal be reproduced in full:

“Clause 37

BIMCO Non-Payment of Hire Clause for Time Charter Parties

If the hire is not received by the Owners by midnight on the due date, the Owners may immediately following such non-payment suspend the performance of any or all of their obligations under this Charter Party (and if they so suspend, inform the Charterers accordingly) until such time as the payment due is received by the Owners. Throughout any period of suspended performance under this Clause, the Vessel is to be and shall remain on hire. The Owners’ right to suspend performance under this Clause shall be without prejudice to any other rights they may have under this Charter Party.

The Owners shall notify the Charterers in writing within 24 running hours that the payment is overdue and must be received within 72 running hours from the time hire was due. If the payment is not received by the Owners within the number of running hours stated, the Owners may by giving written notice within 12 running hours withdraw the Vessel. The right to withdraw the Vessel shall not be dependent upon the Owners first exercising the right to suspend performance of their obligations under this Charter Party pursuant to sub-clause (a). Further, such right of withdrawal shall be without prejudice to any other rights that the Owners may have under this Charter Party.

The Charterers shall indemnify the Owners in respect of any liabilities incurred by the Owners under the Bill of Lading or any other contract of carriage as a consequence of the Owners’ suspension of and/or withdrawal from any or all of their obligations under this Charter Party.

If, notwithstanding anything to the contrary in this Clause, the Owners choose not to exercise any of the rights afforded to them by this Clause in respect of any particular late payment of hire or a series of late payments of hire, this shall not be construed as a waiver of their right either to suspend performance under sub-clause (a) or to withdraw the Vessel under sub-clause (b) in respect of any subsequent late payment under this Charter Party”.

    1. The clause naturally falls into four sub-clauses, which have been referred to as sub-clauses (a) to (d). So:

i) Sub-clause (a) deals with the gateway to the clause and suspension of performance.ii) Sub-clause (b) provides for the service of an anti-technicality notice (ATN) and withdrawal.

iii) Sub-clause (c) deals with indemnities for liabilities as a result of suspension/withdrawal.

iv) Subclause (d) is an anti-waiver provision, which appears to be primarily directed to Scaptrade type arguments (that acceptance of late payments in the past precludes future prompt withdrawal).

    1. The dates for advance payment could be calculated from delivery and initial payment of 15 days’ advance hire on 27 May 2017. The next payment date was 15 days later on 11 June 2017, followed by 26 June 2017, followed by 11 July 2017, followed by 26 July 2017, followed by 10 August 2017. If the Charterparty had not been terminated, this 15-day pattern would have continued until the end of the charter period.
    2. The sum payable by Charterers to fund the 15 days of earning between due dates was US$130,652 (being 15 days of hire at US$9,000 per day, less commission). This would be subject to any deductions for off-hire.
    3. Each payment date was preceded by the parties producing Hire Statements. In this instance these hire statements were “rolled-up” documents, setting out previous hire instalments as well as the current one and setting out a running account of sums due. It was not contended before me that this fact was of any legal relevance, though an argument was made before the Tribunal that this practice informed the construction of the relevant clause. The highest it was put before me was that as a result both parties knew what the argument in this case was about, because they could see the difference between them on their rival statements.
    4. On 11 July 2017 (the 4th date), following an exchange of statements showing different amounts, Charterers underpaid by US$8,015.40. They tendered US$122,637 instead of the full US$130,652 payable because they claimed (wrongly) that there had been overconsumption of fuel. There were protests from Owners but no ATN was served.
    5. On 26 July 2017 (the 5th date) and on 10 August 2017 (the 6th date), Charterers paid 15 days’ worth of hire (US$130,652). The statements from Owners leading up to the 5th and 6th dates made clear that Charterers were asked to pay the shortfall from the fourth instalment, but Charterers never made up the shortfall of US$8,015.40. No ATN was served after the 5th date in July.
    6. However, after the 6th date, on 11 August 2017, Owners served anti-technicality notices calling for payment of the full balance of hire due. The second such notice complied with the requirements of the BIMCO Clause, and would have justified Owners’ withdrawal of the Vessel (which occurred on 14 August 2017, following Charterers’ failure to comply with the demand in the notice) had the BIMCO Clause been held by the Tribunal to apply.
    7. The Tribunal held, however, that the BIMCO Clause was not engaged.
    8. The Tribunal accepted that Charterers’ deduction on 11 July 2017 was wrongful and resulted in a short payment, and that the shortfall persisted and remained due thereafter, including on 10 August 2017. This means that the total sum due, owing and payable in respect of hire as at 10 August 2017 was US$130,652 + US$8,015.40 = US$138,667.40.
    9. However, in the Tribunal’s view, Owners were not entitled to invoke the withdrawal procedure in respect of the payment made on the 10 August 2017 due date, because that payment date equated to the 15 days’ worth of hire which fell due on that date.
    10. The Tribunal’s view was that the BIMCO Clause was not concerned with whether Charterers paid all the hire due on 10 August 2017; only whether they paid the hire that fell due for the first time on that day, i.e. 15 days’ worth (US$130,652).
    11. The Tribunal therefore ruled that Owners acted in “renunciatory/repudiatory breach” by withdrawing the Vessel without contractual justification.
    12. The essence of this appeal is therefore whether the BIMCO Clause is engaged in circumstances where:

i) There was a short payment on the 4th payment date;ii) Owners objected, but did not serve an anti-technicality notice within the 24-hour period allowed under the BIMCO Clause;

iii) The payments made on each of the 5th and 6th payment dates equated to 15 days’ worth of hire, but did not make up the shortfall; and

iv) Owners served an anti-technicality notice, and then withdrew, on the basis of that shortfall, in the context of the payment due on the 6th date, i.e. 10 August 2017.

    1. Owners say it was; Charters and the Tribunal said that it was not.
    2. The specific question raised is:

“In the first sentence of the BIMCO Non-Payment of Hire Clause, do the phrases “the hire” and “the payment due” refer to:

i. the full amount of hire that is due and payable and should be received on the relevant due date, or

ii. only to the amount of hire that falls due for the first time on such due date (i.e., excluding any amount of hire that first fell due on some earlier date, but has not been paid, and thus remains due and payable on the instant due date).”

    1. There is no cross-appeal by Charterers against the finding on points (i) and (ii). However, Charterers have served a Respondent’s Notice seeking if necessary to uphold the Award on other grounds, namely that “failure to notify Charterers within the time stipulated by the second paragraph constituted a waiver of any right to withdraw arising from failure to pay a particular hire statement.“.

The first question: Construction

    1. Owners’ case on this appeal is that the Tribunal’s conclusion is inconsistent with fundamental characteristics of the time charter bargain and cannot be reconciled with the natural meaning of the words of the BIMCO Clause (as interpreted in the light of longstanding authority).

The Legal Backdrop

    1. The exercise which the Tribunal had to undertake was of course an exercise of contractual interpretation. As such, the well-known principles of contractual construction apply.
    2. Both parties agree however that that exercise is informed by previous decisions of the Courts upon the same or similar wording as Toomey v Eagle Star Insurance Co Ltd [1994] 1 Lloyd’s Rep 516 (CA), 520, per Hobhouse LJ. That is the background against which the parties are to be taken to have contracted.
    3. So far as that legal background is concerned, the parties are almost entirely ad idem. It is agreed that:

i) Hire is earned continuously by the shipowners and therefore payable continuously by the charterers (unless the vessel is off hire): Mareva Navigation Co Ltd v Canaria Armadora S.A. (The “Mareva A.S.”) [1977] 1 Lloyd’s Rep 368, 381, per Kerr J.ii) The obligation to pay hire in advance requires the charterers to pay hire in advance of midnight on a certain date (called the due date): Astro Amo Compania Naviera SA v Elf Union SA (The Zographia M) [1976] 2 Lloyd’s Rep 382, 393, per Ackner J.

iii) The obligation to pay in advance has no regard to the number of days’ hire likely or estimated to be earned in fact. Rigby LJ and Lord Esher MR in: Tonnelier v Smith [1897] 2 Com. Cas. 258 (CA), 266.

iv) The charterers bear the burden of calculating the correct amount of hire to discharge their obligation to pay hire to the shipowners: The Lutetian [1982] 2 Lloyd’s Rep 140, 154.

v) “[H]ire is payable in advance in order to provide a fund from which the shipowner can meet those expenses of rendering the promised services to the charterer“: Scandinavian Trading Tanker Co AB v Flota Petrolera Ecuatoriana (The Scaptrade) [1983] 2 AC 694, 702D, per Lord Diplock.

vi) Any underpayment of hire of any size is the same as non-payment, i.e. it is a failure to make punctual and regular payment and thus a default which, subject to any contrary withdrawal or anti-technicality provision, entitles the shipowners to withdraw the vessel from the charter: The Lutetian, p. 154 lhc, per Bingham J.

    1. Where the parties part company is the proposition which the Owners seek to derive from the case of Oceanic Freighters Corp v M.V. Libyaville Reederei und Schiffahrts GmbH (The Libyaville) [1975] 1 Lloyd’s Rep 537.
    2. The proposition is this: there will be an underpayment of hire payable in advance if by midnight on a due date the charterers have not paid sufficient hire to fund the contractually anticipated earning activity of the vessel up to midnight on the following due date.
    3. Owners not unnaturally place heavy stress on the fact that that proposition was common ground between two eminent teams composed of Mr Robert Goff QC and Mr Bernard Rix, on the one hand, and Mr John Hobhouse QC, and Mr Ian Kinnell, on the other.

The arguments as to construction

    1. Owners’ argument rests not just on this, but on three other arguments, namely:

i) The natural and ordinary meaning of the words favours their construction; in particular that:

a) the words “if the hire is not received by the Owners by midnight on the due date” naturally invokes the full amount of hire outstanding, not the specific 15 days hire.

b) that approach best makes sense of the words “until such time as the payment due is received by the Owners” in the third and fourth lines of the BIMCO Clause (and, indeed, other references in the Clause to payment being due); “payment due” again invokes the full hire payable – as Bingham J indicated in The Lutetian.

c) similarly, this gives the most realistic approach to “the payment” in the second paragraph of the BIMCO Clause, where Owners’ anti-technicality notice is required “within 24 running hours that the payment is overdue…

d) the other approach wrongly suggests that the introduction of a grace period mechanism changes the meaning of the words “the hire”;

ii) The Tribunal’s approach undermines the essential nature of the bargain struck between the parties to a time charter (and, in particular, undermines the substance of the consideration to be received by the shipowner in return for the promise to provide a service to the charterers); in essence it deprives the owners of the opportunity of taking action on an underpayment which may not be apparent within 24 hours of the due date or of taking a commercial approach rather than invoking the nuclear option of withdrawal.

iii) Commercial common sense in a number of respects favours the Owners’ approach.

    1. Despite the thoroughness and intellectual rigour with which the case has been analysed and argued, I remain unpersuaded that the Tribunal erred in their approach to construction.

The Award

    1. I should mention first the Award which is the subject of this appeal. This is not a case of an Award which bears signs of being rushed or underthought. It is the Award of two eminent QCs and one of the foremost London maritime arbitrators following a two day hearing at which the parties were represented by the same experienced legal teams as appeared before me.
    2. The salient part of the Award runs to 17 pages and 38 paragraphs of reasoning. It commences with 9 paragraphs dealing with the wording of the clause. There are 6 lengthy paragraphs devoted to commercial context and business common sense. The Libyaville is analysed over twenty paragraphs.
    3. This court is always adjured to treat the Awards of arbitrators with respect; this is perhaps a paradigm case for so doing. However, at the same time I have borne well in mind that this is a question of contractual construction on which Teare J has concluded for the purposes of giving permission that the decision of the Tribunal is open to serious doubt.

The starting point: natural meaning

    1. When it comes to this issue the approach of the Tribunal is, despite the arguments aimed at it, clear and logical. It echoes almost word for word the points which presented themselves to me on reading the clause, before reading the Award itself. Where I differ from the Tribunal is perhaps in giving less weight to any individual indication; thus, while the various issues are considered separately below, it is in the bringing of them together, and then considering them against the relevant arguments on commercial context, that the answer emerges clearly.
    2. Starting at the beginning with sub-clause (a), which the Tribunal described as “the gateway” the wording is this: “If the hire is not received by owners by midnight on the due date“.
    3. To a reader the use of the phrase “the hire”, particularly taken with the identification of a single “due date” provides an initial indicator in favour of the right to withdraw being tied to a particular hire instalment. This is the more so where, as Charterers pointed out, each claim for an instalment of hire under a time charterparty is a separate cause of action: The “C” and “J” [1984] 2 Lloyd’s Rep. 601. It is therefore not a natural use of language to say that, in relation to the sum not paid in respect of the fourth hire payment, its “due date” was the date for payment of the sixth hire instalment.
    4. Of course, I entirely accept the point which Mr Bright QC made, that the clause does not use the word instalment, and perfectly well could have done. However, that does not stop the wording being an indicator; it just stops the indication being clear. And were the wording simply “the hire” in conjunction with “due”, his point would be more attractive. However where one has both “the hire” and “due date” those two would naturally be read together. In deprecating the Tribunal’s reliance on the wording “the hire”, Owners themselves shied away from this conjunction, preferring to focus on hire “owing and payable” or outstanding at that date – which of course is not the formulation used by the clause. And as Mr Bright QC accepted, the fourth instalment fell due on 11 July and remained due at all times thereafter.
    5. This point was put particularly well in the Award, at [54] thus:

“That [“any outstanding hire”] is simply not what the clause says. Moreover, it would involve decoupling the non-receipt of the relevant hire from its due date for payment, contrary to the linkage which the clause expressly provides for. Indeed, the Owners’ construction appeared to require “the due date” to be read as meaning that an instalment of hire which fell due on a specified date in the past, which must have been “the due date” for that instalment, is in fact subject to another due date described as “the” due date, on each successive date on which further, different instalments fell due. That is indeed a strained and unnatural construction.”

    1. This composite point in my judgment meets the first submission which Owners deployed – the supposed lack of textual basis for restricting the hire to be received. These points are obviously not determinative of the exercise of construction but they plainly do provide a real indication which asks “what is the hire?” and points to the due date for that specific hire; and that question can only sensibly be answered and one single date produced if the Charterers’ approach is preferred.
    2. In attempting to avoid this problem Owners argued (in a shadow of the accounting argument advanced before the Tribunal) that to some extent because of the accounting, whatever hire fell due or was owing and payable became so on that date, hence transforming the due date into a date applicable to the historic hire. However, this was an artificial approach, because as regards the historic hire no due date could be created by this – it would not, for example, have prevented Owners from commencing proceedings to recover the hire before the date for the sixth instalment. The only reason the date would become a due date, would be if (as Owners contended) a window for withdrawal were opened by this process; but this is to rely on one side’s answer to the very question which is to be determined and hence a “bootstraps” argument.
    3. The other obvious point which presents itself and was duly and clearly noted by the Tribunal is that if what was intended was to say that all arrears of hire were covered, there are other, and better, ways of saying this. This is a point which naturally occurs when one is looking at a contract which is not an “off the cuff” document but a standard form into whose drafting considerable expert legal thought will have gone.
    4. This argument shades into the argument adopted by Charterers at paragraph 3(b) of the Respondent’s Notice: that had BIMCO or the parties intended to provide a right of withdrawal on the basis of historic unpaid arrears they would have used the language adopted in other BIMCO clauses. In the event no argument was directed to this point orally by either party, each having appreciated that it was a double-edged sword. On the one hand if BIMCO intended this result one would expect wording more apt, and more like those other clauses. On the other there is, as Owners submitted, a tension in some clauses pointing one way, and some the other.
    5. As such this argument is in my judgment too insubstantial to shift the scales much in either direction. While my approach if I had to favour one view over another would, in the context of the kind of drafting processes likely in this context, be to see a deliberate distinction, I am perfectly well aware (for example by comparison with statutory infelicities) that even the most comprehensive drafting exercises can fall down and that the oddity of inconsistent drafting is not impossible.
    6. As Charterers submitted, Owners’ approach involves an element of what they characterised as “mental gymnastics” but might more moderately be termed impressionistic thinking, smoothing the period between the date when the fourth instalment (including the disputed sum) originally fell due (11 July) and the date in question here (10 August).
    7. Owners rested also on the words “the payment” in sub-clause (b), in particular given that this was not separately dealt with by the Tribunal, and drew to my attention the fact that the words used are “the payment” (again not “the instalment”) in conjunction with “due” (without the refinement of “due date”). As such, they said whatever might be said about sub clause (a), sub-clause (b) must be taken as looking to the payment including the historic arrears as set out in the statements.
    8. Owners’ suggestion here (and in their fourth argument) that their interpretation was supported by Bingham J’s analysis of a similar clause in The Lutetian [1982] 2 Lloyd’s Rep 140, did not seem to be borne out by the relevant passage at p. 158 and the facts of the case. That case was (i) dealing with a different clause (the NYPE clause, which the parties here deleted) and (ii) concerned a failure to pay a single hire instalment. In that context the dictum: “The three days’ grace provided by the cl. 31 notice was a period within which the charterers could cure, by payment their default in making payment on the due date. This cure could be affected only by paying “the hire”, which can only mean the hire payable on the due date” adds nothing to the debate which is happening in this case. In that context therefore, the idea of this dictum as part of the relevant factual matrix which ought to inform this case is not attractive.
    9. Turning back therefore to the argument on its pure merits as a construction argument based on the words: Owners’ approach would require dealing with the difficulty of the reading of sub-clause (a) in conjunction with this. It is plainly unlikely that (without making it very clear) the parties and BIMCO intended sub-clause (a) to shoot at one target and sub-clause (b) another. Therefore, in order for this argument to succeed, it would need to be sufficiently compelling to effectively “flip” the natural reading of the other words already considered. In my judgment there is nothing which comes close to compelling such a conclusion, particularly when it is perfectly possible (and natural) to read them in a way which is consistent with the indications given by the opening words. This is the more so when the word “due” (in the context of starting a clock running and therefore temporally linked) is in any event inapt for the historic outstandings.
    10. Attractively as the point was of course put by Mr Bright QC, it is artificial to ignore the temporal dimension inherent in the reference to a “due date” in (a); and equally artificial to say that the sum outstanding from the fourth instalment was due “on” 10 August. Or, as the Tribunal put it: “it would be a strained and unnatural construction of the words, not to say a rewriting of the clause, to treat the clause as applying to an outstanding payment which had been overdue for more than 24 hours and 72 hours respectively.”
    11. The wording here much more naturally reflects and reinforces the necessary connection between the relevant hire instalment and the (single) due date; and it also prescribes conditions for withdrawal that, as the Tribunal recognised, simply cannot be satisfied in respect of historic arrears. The reality is that the $8,000 had been due since 11 July, it remained outstanding on 10 August, but it was no more due on 10 August than it had been on 9 August. It would be illogical in those circumstances to say that a withdrawal notice in which time is key (with the time for compliance fixed not just in hours but “running hours” for clarity) should run from a date which meant nothing in the context of that particular sum.
    12. Owners characterised the Tribunal’s approach on this as betraying a significant misunderstanding because “The payment in question [the composite amount]…. had not been overdue for more than 24 hours or 72 hours, because it did not become due until the last moment for payment, i.e. midnight on 10 August 2017. While there was a historic shortfall, which had been overdue since 11 July 2017, the BIMCO Clause does not give Owners the right to serve an anti-technicality at any time, at will, on the basis of such a shortfall.
    13. This was a return to the point with which I have dealt at paragraph 41 above, and as I have indicated there seemed to me to be pure bootstraps analysis. I do not accept that the language would have been different if an instalment only had not been met or that the wording of the “running hours” provisions or the absence of a definite article on the word “hire” provide Owners with any assistance. One has to look at the overall scheme of the clause so that the initial wording of “the hire” feeds into the analysis of the later provisions. So, the time hire was due must refer back to hire not being received by midnight on “the due date”.
    14. Owners’ argument also, either (as Charterers would put it) impermissibly elides the very real distinction between the continuing entitlement to recover hire as a debt and on the other the independent contractual entitlement to withdraw or at least attempts to draw focus from the existence of other remedies. The distinction and the existence of the other rights is a significant factor; a right to the hire as a debt arises automatically and is not particularly easily lost. But the right to withdraw is a nuclear option, it is hedged about by careful contractual requirements – and as the cases make clear, it can be easily lost.
    15. I would also add that while not much assistance is to be gained from the latter parts of the clause, they do offer three indications, which at least tend to support the approach which the Tribunal took:

i) The four parts are plainly designed to operate as a coherent whole (for example indemnities cover both suspension and withdrawal) – which counteracts any suggestion that (b) could have a different focus to (a);ii) Sub-clause (c) which gives an indemnity presents unattractively as a right which could continue in existence on the rolling basis which would be necessary as an adjunct to Owners’ interpretation;

iii) Sub-clause (d) contains wording (“any particular late payment of hire“) which treats failures to pay as discrete. Although this arises in a different context (aimed at a “course of dealing” type waiver, prospectively) it does suggest that the remedies for failure to pay relate to individual payments, not to a rolling account.

    1. For the avoidance of doubt in relation to the fourth argument on the wording (though this was not urged in oral argument), there seemed no force at all in the submission that the deletion of the NYPE clause should somehow drive a conclusion that the BIMCO clause was intended to use the words “the hire” in the same way; even if (contrary to my conclusion above) the authorities indicated that the NYPE wording did have a different meaning to that which appears suggested by the wording of the BIMCO clause.

Commercial Context part 1: The clash with the nature of a Charterparty

    1. In the event, the commercial context arguments were sensibly taken relatively lightly on behalf of the Owners; as they rightly acknowledged, while there are cases where commercial context will require a reconsideration of the conclusion at which one provisionally arrives by consideration of the wording, the issues raised here were always unlikely to do so.
    2. However, I have given careful consideration to these points, both as argued orally and as more fully developed in writing, because of the possibility of such considerations casting a different light on the provisional conclusions.
    3. Owners’ second major point was, in essence, a variant of a commercial context argument, as the heart of it is that it would force the Owners to perform services on credit. Again however this comes back to Owners’ attempt, if not to elide two sets of remedies into one, to marginalise the options outside withdrawal; just because the right of withdrawal is not available does not mean that the Owners are obliged to perform on credit. In addition, it ignores the fact that there was an earlier right of withdrawal. As the Tribunal noted, it is not persuasive to say:

“that the same commercial or business-like imperatives justify conferring on the Owners a right to withdraw for the continuing non-payment of historic arrears of hire, in respect of which the right of withdrawal was not exercised at the time when the relevant hire first fell due…. They consciously chose not to exercise their contractual rights; Having taken that course, it is far from clear to us why they should be afforded successive rights to withdraw, at 15 day intervals, as and when future instalments of hire fell due, exercisable in the event that commercial or market considerations had changed and now rendered cancellation for the previous non-payment an attractive course”.

Commercial Context part 2: Commercial Common Sense

    1. This naturally leads into Owners’ arguments on commercial common sense, which were, in effect that:

i) This gives inadequate protection if Owners are unable within 24 hours to work out whether they have a right to serve such a notice (for example in a Nanfri like deduction based on acting reasonably and in good faith);ii) This gives inadequate leverage to Owners to obtain payment of everything payable without forcing them into the nuclear option of withdrawal and that approach should be considered unlikely in the context of a time charter with the need for ongoing co-operation;

    1. In some ways these points are effectively facets of the previous argument – as is often the case, arguments on commercial common sense are multifaceted but elide.
    2. At the end of the day I am not persuaded by these arguments. There is often a tension in the operation of commercial contracts, and construction of the contract cannot resolve that in every case.
    3. Here the situation is one where commercial parties have wittingly signed up to a particular regime which is predicated on a 24 hour period for the service of the notice. Owners presumably would not agree to this if they thought it was likely that this period would be inadequate. In this connection I was referred to the dictum of Goff LJ (as he then was) in The Scaptrade [1983] QB 529 at 540:

“….the English courts have time and again asserted the need for certainty in commercial transactions – for the simple reason that the parties to such transactions are entitled to know where they stand, and to act accordingly. In particular, when a shipowner becomes entitled, under the terms of his contract, to withdraw a ship from the service of a time charterer, he may well wish to act swiftly and irrevocably.”

    1. This also acts as a natural bridge for the commercial arguments which face the Owners. Although the ATN regime supersedes the normal “reasonable notice” rule for withdrawal, that regime does provide a backdrop for construing the contractual scheme. In reality, as the quotation above indicates, an ATN clause is likely to abridge the period which would be allowed by the common law because it is all about speedy certainty. While it is possible (as noted by Sir John Donaldson MR, in The Antaios [1983] 2 Lloyd’s Rep. 473 at 480l) that an ATN scheme could provide for a longer period than would usually be considered reasonable, the expectation would be that this would be an unusual course. Yet the effect of the Owners’ construction, if correct, would be that they would in effect retain the right to withdraw the vessel at any time up until the debt became time barred, six years after the failure to make payment. Of course, that right would only be “triggered” every fifteen days, and of course it would be activated only when a notice was served; but the net effect would be to keep the weapon hanging in a Damoclean manner. That is a solution which in commercial terms sits very ill with the authorities on withdrawal.
    2. Charterers also suggested that commercially speaking, an arrangement whereby a continuing right to sue for the debt was repeatedly periodically augmented by a right to withdraw the vessel was bizarre. Owners suggested that, far from being bizarre, this was a carefully limited right of withdrawal while giving limited and controlled certainty. While I accept that such a balance could be arrived at by rational parties, I do consider that there is a real commercial oddity about such a scheme, and that that oddity is one which would seem to require better explanation and clearer words than is forthcoming.
    3. As for the argument posed by Owners of the unattractiveness of the “withdraw or nothing” dichotomy, the first problem is that it is a false dichotomy, and again illustrates the Owners’ focus on the withdrawal right alone and not on the package of rights. Owners retain the right to sue for unpaid hire, and indeed have a sub-nuclear option of suspension under sub-clause (a), even if in some cases that latter option may not be feasible. The second problem is that this ignores the underlying ethos of certainty which an ATN is there to produce. I would also add that a suggestion which hinges on the nature of the charter produces the potentially unattractive result that such words could mean one thing in a time charter and another in a voyage charter.
    4. In my judgment therefore although there is obviously a range of commercial indications, the more commercially uncomfortable results come if one pursued Owners’ argument, and produce a result where, far from offering a scheme involving speedy certainty, late hire can be a basis for withdrawal possibly for a period of years – but only at the time of some later, completely distinct payment. That is a solution which is lacking in logic or commercial coherence.

The Libyaville

    1. This therefore leaves only the authority of The Libyaville. This is a case which has gained in significance in the Owners’ submissions over time. As the Charterers note The Libyaville was not cited by Owners in their skeleton argument at the hearing. In fact, as the Tribunal explains, it was cited by Charterers in support of another proposition and developed from there.
    2. Now it is, on the Owners’ case, authority for the proposition that there will be an underpayment of hire payable in advance if by midnight on a due date the charterers have not paid sufficient hire to fund the contractually anticipated earning activity of the vessel up to midnight on the following due date.
    3. Although the case is not cited in any textbook or subsequent case as authority for the proposition Owners now advance, they say it emerges thus:

i) This proposition was common ground between the distinguished counsel on both sides of the argument in The Libyaville (Mr Robert Goff QC and Mr Bernard Rix, on the one hand, and Mr John Hobhouse QC, and Mr Ian Kinnell, on the other). Mocatta J did not object to their approach when he undertook his task of construing and applying the charterparty in question.ii) Mocatta J reached a conclusion of law that, on the facts before him, there was a total underpayment of D.M. 11,413.71 on 6 July 1971 (p. 552r). This took into account both historic wrongful deductions for cash disbursements (D.M. 9,338.49 in respect of the historic period from 12 February 1971 to 28 June 1971) and a fresh underpayment on 6 July 1971 itself (D.M. 2,075.22).

iii) On this basis, Mocatta J concluded that (having dismissed charterers’ case that they had been entitled to deduct various items by way of set-off): “There was an underpayment of hire by the charterers on July 6 which, apart from the other questions of law arising, would have entitled the owners to withdraw the vessel” (p. 553 r).

    1. This, they say, is directly contrary to the Tribunal’s finding that “the hire” with which the BIMCO Clause is concerned is only an instalment of 15 days’ worth of hire in advance of midnight on the due date.
    2. The Owners say that the Tribunal made “heavy weather” of this authority. It would be more fair to say that the Tribunal was plainly keen to ensure that its reasoning was clear – and I am duly grateful for the fullness with which the reasoning is expressed.
    3. The Libyaville was concerned with the NYPE withdrawal provision (deleted from the current charter) coupled with a bespoke ATN clause (clause 44) which applied only where the failure to pay was due to oversight, negligence, error or omissions. The provisions governing hire were bespoke arising against a particular factual background: the vessel was a newbuilding and alterations during construction had potentially reduced the vessel’s trailer capacity. Accordingly, the parties agreed a provision for hire to be reduced by 1.25% if the trailer capacity was 16 rather than 17. The first three payments were made at the full rate. The fourth and fifth instalments following a survey by charterers, were paid at the 16 rate, and it became clear that the parties took different views about how many trailers could in fact be loaded which resulted in a reference to arbitration. They therefore (after a lot of dispute) agreed to perform a practical test and, if the test found the vessel could load at the 17 trailer rate, “Charterers would recognise the Owners’ right to the further 1.25% hire“. Following the results of this test – the outcome of which was contentious perhaps more so than the Award suggested- a further payment at the reduced rate was made, and owners withdrew the vessel.
    4. Three questions were raised on the case stated, set out at pp 547-8 of the report:

i) Whether there was an underpayment of hire,ii) Whether a valid ATN had been served, and

iii) Whether the Owners had waived any right to withdraw.

    1. In the end the withdrawal was found to have been invalid because the ATN was not compliant with the clause – at 555l, but in getting to that point the judge first decided the points as regards underpayment and waiver at pp 553 and 554 of the report.
    2. Owners rely on the way that the first answer was arrived at. However, I am certainly not persuaded that the judgment offers support for the argument that Mocatta J’s judgment gives rise to the proposition for which they contend.
    3. Critically the point was not in issue. While it is certainly true that a galaxy of legal luminaries agreed effectively to treat the earlier non-payments as sitting with the later:

i) There are in context reasons for this – to which I shall come.ii) The point was not actually decided – nor indeed was it argued, as the Tribunal says, it was dealt with on an “all or nothing” basis. While it was suggested that I should take it as having been decided, given that Mocatta J could have declined to accept the parties’ consensus, that was not a realistic submission – particularly given the counsel in question.

    1. The result is that there was no finding which could be of binding effect on the Tribunal. And there is no question from my perspective of “applying” The Libyaville on this point. I of course entirely accept that it is a moderately well-known authority on a different point – that of the interpretation of the iteration of ATN in issue in that case. It has not ever apparently been understood as an authority on the question of withdrawal for historic defaults.
    2. Secondly as the Tribunal (to my mind correctly) noted: “the proposition for which the decision is now relied on by the Owners only emerges on a microscopic review of the actual facts of the case, is not part of the ratio and may be thought unsupported by a later part of the judgment.
    3. As to the first point – the reasons for the concession – the issue which was being considered was not that which occupies me here – but (as the Tribunal correctly noted at [74]) an entirely distinct question about whether a claim for disbursements could prevent there being short payment – in other words it was agreed that but for the disbursements argument, there would be short payment. There was also a very live issue about waiver – on which charterers succeeded; and if they were right on waiver the issue as to construction did not matter. The concession can therefore be seen as a classic example of not running unnecessary points.
    4. There are also key differences between that case and this. One obvious point is that it concerned a different clause, (“failure to make punctual and regular payment“). Although in The Laconia [1977] AC 580 the court explained that the word “punctual” adds nothing to the requirement for payment in advance, the wording is different from the current clause and as regards the issue in focus here, I agree with Charterers that that wording more easily encompassed historic arrears.
    5. There was also a different ATN – unlike clause 37, the ATN clause in The Libyaville did not impose any time limit within which the ATN notice was to be served.
    6. But, and perhaps most significantly here, it was also a case where the withdrawal was based not solely on a past shortfall but on a shortfall for the relevant payment – the ATN therefore related (at least in part) to the most recent payment. In those circumstances the position as to the earlier payment was not relevant.
    7. Accordingly, I reach the conclusion that The Libyaville can make no difference to the conclusion indicated by the earlier considerations of the wording and the commercial context. The Tribunal’s conclusion at [75] is faultless:

“On this basis, the actual amount of unpaid hire in relation to which the ship owner had been entitled to withdraw the vessel on 6th July, and in particular whether it extended to outstanding arrears of hire was moot. On any view, there had been an underpayment of the sixth and final instalment of advance hire due on 11 June or 11 July. There was no (reported) argument on the issue which arises for our determination in the present case.”

    1. Having provisionally reached a conclusion in favour of Charterers based on the earlier issues, that is enough to determine the appeal.

Waiver

    1. Accordingly, the issue of waiver need not arise. This is common ground, Owners accepted that: “The Tribunal was correct to say at paragraph 88 that waiver does not add to the contractual analysis”.
    2. However, since this formed a considerable part of the submissions, I will just briefly record my reasons for forming the view that, had the point arisen, I would have found this point in favour of the Owners.
    3. On this Owners’ submission that The Libyaville was an unsafe guide was well founded. Despite Ms Maxwell’s heroic attempts to persuade me that only the latter part of the waiver analysis was infected with the (subsequently determined in The Mihalios Xilas [1979] 2 Lloyd’s Rep 303) error of reliance upon inapposite landlord and tenant authority, a pursuit of the judgment into the authorities cited seemed to justify the claim that both waiver arguments rested on the acceptance of payment, and were thus now bad law. I note that this is certainly how Kerr J read them in The Mihalios Xilas [1976] 2 Lloyd’s Rep 697.
    4. Further the submission that the right to be waived had not arisen, because it was dependent upon the serving of an ATN, appeared logically completely sound. In this respect even if it had been good law, The Libyaville would have been an unsafe guide, since in that case the right arose under the unamended NYPE form, and the ATN (in an embryonic form) did not stop the right arising, However, here the contractual regime makes clear that the right to withdraw will only accrue if and when Charterers still fail to pay within 72 hours after midnight on the due date, having received a notice of ultimatum. It is at this point, and at this point only, that Owners gain “the right to withdraw the vessel“.

Conclusion

  1. For the reasons given the appeal is dismissed.

Siemens v Bulgana [2019] VSC 771 (27 November 2019)

IN THE SUPREME COURT OF VICTORIA
AT MELBOURNE
COMMERCIAL COURT
Not Restricted

 

S ECI 2019 4613

 

BETWEEN:

 

SIEMENS GAMESA RENEWABLE ENERGY PTY LTD
(ACN 614 784 575)

Plaintiff

v
BULGANA WIND FARM PTY LTD (ACN 162 201 569) and
NEOEN AUSTRALIA PTY LTD (ACN 160 905 706)

Defendants

 

PRACTICE AND PROCEDURE – Injunctive relief – Building and Engineering Contract – Application to restrain beneficiary of performance guarantee from calling on two unconditional bank guarantees – Serious issue to be tried – Consideration of whether appropriate to decide contract interpretation question as if on a final basis – Proper approach – Balance of convenience – Application for injunction dismissed.

 

HIS HONOUR:

Outline of SGRE’s Application

  1. The plaintiff, Siemens Gamesa Renewable Energy Pty Ltd (SGRE) applies to restrain the first defendant, Bulgana Wind Farm Pty Ltd (BWF), from calling upon two unconditional bank guarantees (Performance Securities) issued in favour of BWF, in connection with an Engineering, Procurement and Construction Contract (EPC Contract) between the parties, pursuant to which SGRE is constructing a large wind farm for BWF in Victoria.
  1. By Amended Originating Motion and Amended Summons, both dated 18 October 2019, SGRE seeks:

(a)        an interlocutory injunction restraining BWF from making any demand under or pursuant to the Performance Securities pending any arbitral reference or until further order; and

(b)       an order pursuant to s 8 of the Commercial Arbitration Act 2011 (Vic) that so much of these proceedings as involves the determination of a claim for final relief be stayed pending any arbitral reference between the parties.

  1. Further, by its Amended Originating Motion, SGRE also claims alternative relief in the nature of a permanent injunction restraining BWF, via its employees, agents or otherwise, from making any demand, in relation to a disputed claim to Delay Liquidated Damages (DLDs) under the EPC Contract, under or pursuant to the Performance Securities.
  2. SGRE has not pressed its claim for an order pursuant to s 8 of the Commercial Arbitration Act 2011 (Vic) save to argue that such relief remains available, even if no arbitral tribunal is relevantly in place and has in relation to SGRE’s claim for an interlocutory injunction, taken the position that SGRE’s application should be tested on the basis of the identification of a serious question to be tried, and not finally determined as to the contract interpretation questions in issue on the basis that the court moves to make a determination, ‘as if’ on a final basis, in relation to the contract construction issues.
  3. However, SGRE’s submissions include its submission that, contrary to SGRE’s primary position, it is necessary or appropriate to construe the part of the 30  September 2019 Agreement which is in issue on an ‘as if’ basis and submits that its interpretation should be upheld for the reasons it has submitted on that issue, in the alternative.
  4. BWF opposes SGRE’s application to restrain access to the Performance Securities, in summary because:

(a)        there is no serious question to be tried in relation to BWF’s contractual entitlement to call on the Performance Securities in satisfaction of its claims for DLDs; and

(b)       the balance of convenience lies overwhelmingly against an injunction restraining BWF from calling upon the Performance Securities,

and as no relief is sought against the second defendant, Neoen Australia Pty Ltd (NEOEN), the entire proceeding against it should be dismissed.

  1. BWF also submit that here because of the contractual context and circumstances and on authority, the SGRE application should be determined ‘as if’ on a final basis, that is BWF’s contractual entitlement to have recourse to the Performance Securities provided under the EPC Contract should be decided now, pending resolution of the underlying dispute.

Background

  1. SGRE and BWF are parties to the EPC Contract for the engineering, procurement and construction of 56 wind turbine generators and a battery storage solution located in central Western Victoria, known as the Bulgana Green Power Hub (Works).  The Works comprise the BESS Works, namely the supply, installation and commissioning of the battery energy storage system and the Main Works, which are all of the Works other than the BESS Works.
  2. Together with the Security Trustee (National Australia Bank), SGRE and BWF are also parties to a separate Tripartite Deed (Consent Deed).  Relevantly for the purposes of this application, under the terms of the Consent Deed the parties are not permitted to amend the EPC Contract without the prior written consent of the Security Trustee.
  3. Under the terms of the EPC Contract, SGRE (as Contractor) was required to achieve Practical Completion of the Works by the Date for Practical Completion.
  1. The agreed Date for Practical Completion of the Works is 16 August 2019.  No extensions of time have been granted.
  2. BWF alleges that SGRE failed to achieve Practical Completion of the Works by 16 August 2019, and Practical Completion is yet to be achieved.
  3. The parties are in dispute as to responsibility for SGRE’s failure to achieve Practical Completion by the contractually agreed date.  Central to that dispute are issues between the parties as to SGRE’s alleged failure to ensure that the Works comply with relevant generator performance standards.
  4. Under cl 13.8 of the EPC Contract, if SGRE fails to reach Practical Completion of the Works by the Date for Practical Completion, it is liable to pay DLDs at the agreed daily rate up to and including the Practical Completion Date.  The contractually agreed rates are $218,400 per day in respect of the Main Works and $10,000 per day in respect of the BESS Works.
  5. Pursuant to cl 13.8(d) of the EPC Contract, DLDs become due immediately on the issue of a notice by BWF to SGRE setting out the amount payable.  Pursuant to cl 13.8(e) of the EPC Contract, BWF may, at its election, recover the amount due on demand from SGRE by deducting the amount of DLDs from any amount certified as due from BWF to SGRE or by deducting the amount from or calling on the Performance Securities.
  6. On 19 August 2019, BWF wrote to SGRE stating that the Date for Practical Completion of 16 August 2019 had passed.  BWF also noted in its letter of 19 August 2019 that DLDs were accruing at the rate of $218,400 per day, and reserved BWF’s right to recover DLDs by any manner permitted by the EPC Contract.
  7. On 2 September 2019, BWF wrote to SGRE stating that DLDs of $3,494,400 were due and payable on 31 August 2019 (August 2019 DLDs) and advised its intention under cl 13.8(e) to deduct those DLDs from the amount of $3,038,036 (plus GST) which had been certified for payment to SGRE on 6 August 2019 (August Payment Sum).
  8. By letter dated 5 September 2019 SGRE’s solicitors, Clayton Utz, asserted that any attempt by BWF to set-off the August 2019 DLDs against the August Payment Sum or to make a demand on the Performance Securities would be in breach of the EPC Contract and also asserted a statutory entitlement to payment under the Building and Construction Industry Security of Payment Act 2002 (Vic) (SoP Act). Further, SGRE’s letter of 5 September 2019 asserted that SGRE was under no present liability in relation to DLDs.
  9. On 9 September 2019, BWF wrote to SGRE stating that BWF would not forgo or fetter its rights to DLDs, and enquired whether SGRE had ‘… a preference as to whether the current amount is accepted to be set-off against payments otherwise due or recovered from security, or satisfied by some other means …’.
  1. On 19 September 2019, BWF wrote to SGRE noting that the August 2019 DLDs remained due and payable and were continuing to accrue and enclosed an invoice for payment of the August 2019 DLDs.  In the same communication BWF also reserved its rights to recover those DLDs by any manner permitted under the EPC Contract.

Outline of events of 30 September 2019

  1. On 30 September 2019, BWF communicated to SGRE that it was making arrangements to call on the Performance Securities in accordance with its asserted contractual entitlements.  On 30 September 2019 Mr Laurent Francisci (Francisci) telephoned Mr  Thomas Hertling (Hertling) and, after initial missed calls, at about noon that day Hertling called and spoke to Francisci and he and Francisci discussed matters relating to BWF’s recovery of DLDs under the EPC Contract and discussed modes of recovery and also notice from BWF to SGRE in relation to access to Performance Securities.  Francisci and Hertling also discussed SGRE’s claim related intentions under the SoP Act.  The duration of this conversation was about five minutes.
  2. In the telephone conversation which occurred on 30 September 2019 both Francisci and Hertling reached agreement in principle, however Francisci and Hertling agreed that this arrangement should be documented by their respective in-house lawyers, Mr  Richard Lim (SGRE) and Mr Vaughan Williams (BWF).
  1. Further telephone, text and email exchanges, took place after about noon and just before 6.30pm between Francisci and Hertling on 30 September 2019.
  2. SGRE and BWF’s agreed position on the above matters, discussed at about noon on 30 September 2019, was documented by the parties’ in-house lawyers in the letter dated 30 September 2019 signed by the parties between about 6.29pm (signed by SGRE) and 6.34pm (countersigned by BWF).
  3. SGRE submits that the 30 September 2019 conversation and agreement reflected in the signed 30 September 2019 Agreement were intended by the parties to agree to such a fetter in respect of any DLDs claims.
  1. In essence BWF’s position is that it was not agreed either in principle in the telephone conversations of 30 September 2019 or in terms of the final agreement between the parties in the signed 30 September 2019 letter, that BWF would forgo its contractual entitlement to levy and recover DLDs, or that it would abandon its contractual right to call on the Performance Securities provided for under the EPC Contract.  What was agreed on 30 September 2019 was that the sequence of contractual steps  BWF would take to recover DLDs in relation to August 2019 would be first to set-off SGRE against payments of amounts due to SGRE for the project rather than accessing the Performance Securities in relation to the certified August 2019 DLDs, and BWF would give 5 business days’ prior written notice to SGRE prior to making a claim in respect of the Performance Securities.

Call on Performance Securities

  1. By letter dated 1 October 2019, BWF confirmed that it had recovered the August  DLDs by set-off pursuant to cl 13.8(e)(2) of the EPC Contract.  The letter further noted that DLDs were continuing to accrue, because SGRE had not reached Practical Completion.
  1. By letter dated 2 October 2019,  BWF advised SGRE that DLDs of $6,852,000 were immediately due for the period 1 to 30 September 2019 (September 2019 DLDs) and attached a tax invoice for payment.  That letter advised SGRE that in accordance with the arrangements put in place on 30 September 2019, the September 2019 DLDs would be deducted from payments due to SGRE.
  1. By letter dated 2 October 2019 to SGRE, BWF:

(a)        asserted BWF’s entitlement to DLDs of $6,852,000 are due for the period 1 to 30 September 2019, and attached an invoice demanding payment of the same;

(b)       confirmed its intention to deduct, inter alia, the above amount from payments certified as due to SGRE in respect of its progress payment claims;

(c)        asserted that a balance of $3,342,363.40 is due to BWF after the set-off referred to in (b) above; and

(d)       gave 5 business days’ prior written notice that it intends to call on the Performance Securities to satisfy the outstanding amount referred to in (c) above.

  1. On 3 October 2019 Clayton Utz (solicitors for SGRE) sent White & Case (solicitors for BWF) a letter, responding to White & Case’s letter dated 19 September 2019.  The letter stated SGRE’s position that:

Your client’s assertions that our client is responsible for the delay to the achievement of Practical Completion, and that the Works are not fit for purpose, are rejected by our client.

The present delay to Practical Completion (which is continuing) is wholly to your client’s account.

Presently, our client is entitled to:

(a)          be paid $3,341,839.60 plus interest immediately;

(b)          significant extensions of time and Delay Costs;

(c)          damages arising from your client’s breach of contract (which includes the loss of Early Generation Revenue); and

(d)          costs incurred by our client in assisting your client to overcome deficiencies in the Related Works.  In this respect, we note that your client has expressly instructed these works, including in your letter of 19 September 2019.

Your client’s actions constitute a serious breach of the EPC Contract.

A failure to pay an amount of money due to our client could also constitute a Principal Event of Default.

A copy of this letter is exhibited at pages 240 to 241.

  1. On 3 October 2019, SGRE served the Dispute Notice under the EPC Contract on BWF.  The Dispute Notice concerned SGRE’s entitlements to extensions of time for delays to the Works for which it was not responsible and refuted BWF’s entitlement to DLDs.
  1. To date there has not yet been a meeting of ‘Senior Representatives’ pursuant to cl  41.2(c) of the EPC Contract in respect of the matters raised in the Dispute Notice.  No arbitral tribunal has to date been empanelled in respect of the 3 October 2019 Notice of Dispute.
  1. In the events which have occurred, the amount of the September 2019 DLDs significantly exceeded the $3,593,797 which had been certified for payment to SGRE on 24 September 2019.  Consequently, the total sum asserted by BWF to be due from SGRE to BWF was $3,342,363.40 (Current Balance Due).
  1. By letter dated 3 October 2019 , SGRE disputed that BWF was entitled to recover DLDs for SGRE’s delay and rejected the demand for payment in relation to the Current Balance Due.  That position remains unaltered.
  1. On 4 October 2019, Clayton Utz sent White & Case a letter, requesting that BWF undertake in writing by no later than noon on Monday 7 October 2019 that BWF not draw on the Performance Securities in relation to alleged DLDs.
  1. On 16 October 2019 SGRE also served a Dispute Notice referring the dispute between the parties in relation to the 30 September 2019 Agreement to arbitration pursuant to cl 41 of the EPC Contract.  No tribunal has to date been empanelled in respect of this Dispute.

Relevant terms and conditions of the EPC Contract

  1. The relevant terms and conditions of the EPC Contract include:

13.8     Delay Liquidated Damages

(a)          If the Contractor fails to reach Practical Completion by the Date for Practical Completion, the Contractor will be liable to pay to the Principal Delay Liquidated Damages at the Delay Liquidated Damages Rate for every day after the Date for Practical Completion up to and including the Practical Completion Date.

(b)          The total amount of any Delay Liquidated Damages payable by the Contractor to the Principal will be set-off by an amount equivalent to the Offset Revenue (if any) that the Principal has received.

(c)       The payment of Delay Liquidated Damages does not:

(1)          relieve the Contractor of its obligations to perform the Works or any of its other obligations under this Agreement;

(2)          prejudice the rights of the Principal to any relief or remedy to which it is or may become entitled under this Agreement in consequence of any other breach; or

(3)       prejudice the rights of the Principal under clause 13.10.

(d)          Delay Liquidated Damages become due immediately on the issue of a notice by the Principal on the Contractor setting out the amount of Delay Liquidated Damages payable by the Contractor to the Principal.

(e)       The Principal may recover the amount of Delay Liquidated Damages:

(1)       on demand from the Contractor;

(2)          by deducting the amount from any amount certified by the Principal’s Representative under clause 20.4; or

(3)          by deducting the amount from or calling on the Performance Securities,

even though Practical Completion has not occurred.

(f)       If after:

(1)       the Contractor has paid; or

(2)       the Principal has deducted,

Delay Liquidated Damages, the Date for Practical Completion is extended, the Principal must repay to the Contractor, within 10 Business Days after the date on which the Date for Practical Completion is extended, any Delay Liquidated Damages paid or deducted in respect of the period prior to and including the new Date for Practical Completion.

(g)          If it is determined by a court of competent jurisdiction or in accordance with clause 41 that the Contractor’s liability for Delay Liquidated Damages is deemed to be or becomes void, voidable or unenforceable in any way so as to disentitle the Principal from claiming Delay Liquidated Damages, then

(1)          the Principal is entitled to claim against the Contractor damages at Law as an alternative to Delay Liquidated Damages if the Practical Completion Date is later than the Date for Practical Completion; and (2) the limitation of Delay Liquidated Damages as specified in clause 42.1(a) will apply to any amount recovered by the Principal under clause 13.8(g)(1).

(h)      For the avoidance of doubt, clause 42.2 does not apply to this clause.

(i)           The Principal and the Contractor acknowledge and agree that Delay Liquidated Damages:

(1)          are a genuine pre-estimate of the Loss likely to be suffered by the Principal for failure of the Contractor to reach Practical Completion by the Date for Practical Completion;

(2)          will be paid as liquidated damages and not as a penalty by the Contractor to the Principal; and

(3)       are:

(A)          without limiting the Principal’s rights under clauses 23 and 39; and

(B)          except in the case of any right the Principal has to recover Excluded Loss where this Agreement has been terminated due to conduct of the Contractor or any of its Subcontractors referred to in clauses 42.1(c)(6) and 42.2(b)(4) (in which case, the limitation of Delay Liquidated Damages as specified in clause 42.1(a) will apply to any amount recovered by the Principal as referred to in this clause 13.8(i)(3)(B),

the Principal’s sole and exclusive remedy for the Contractor’s failure to reach Practical Completion by the Date for Practical Completion.

 

 

25.7     Conversion of Security

(a)          Without limiting the unconditional nature of the Performance Securities and the Principal’s right to demand, receive or use the proceeds of the Performance Securities, the Principal may demand, receive and use the proceeds of any Performance Securities whenever the Principal asserts a right to the payment of money by the Contractor under, arising out of or in connection with:

(1)       this Agreement (including liquidated damages); or

(2)       otherwise at law relating to the Works under this Agreement.

(b)          Without limiting the unconditional nature of the Advance Payment Security and the Principal’s right to claim, draw upon, demand, receive or use the proceeds  of the Advance Payment Security, the Principal may claim, draw upon, demand, receive and use the proceeds of any Advance Payment Security when:

(1)          the Contractor has failed to transfer title in the relevant Materials and Equipment relating to the Advance Payment by the Date for Practical Completion; or

(2)          on termination of this Agreement, the Contractor fails to either transfer title in the relevant Materials and Equipment relating to the Advance Payment or fails to repay the Advance Payment to the Principal.

(c)          Without limiting the unconditional nature of the Punch List Security and the Principal’s right to claim, draw upon, demand, receive or use the proceeds of the Punch List Security, the Principal may demand, receive and use the proceeds of any Punch List Security when the Contractor has failed to rectify or replace (as applicable) the relevant Punch List item in the time specified in the Punch List.

(d)          Without limiting the unconditional nature of each Shipping Security and the Principal’s right to claim, draw upon, demand, receive or use the proceeds of each Shipping Security, the Principal may demand, receive and use the proceeds of the applicable Shipping Security when the Contractor has failed to deliver any Shipped Equipment to the Site by the earlier of:

(1)       the Date for Practical Completion; and

(2)       the date of termination of this Agreement.

(e)          The Contractor covenants with the Principal that the Contractor will not institute any proceedings, or exercise any right or take any steps to injunct or otherwise restrain:

(1)          the financial institution that issued the Security from paying the Principal pursuant to the Security;

(2)          the Principal from taking any steps for the purpose of making a demand under any Security or receiving payment under any Security, or otherwise exercising its rights under any Security; or

(3)          the Principal using the money received under the Security, even where the Contractor disputes the Principal’s right to payment (including where dispute resolution proceedings have been commenced under clause 41).

(f)           Where the Principal has had recourse to any Security and it is subsequently found that the amounts drawn down were not payable by the Contractor:

(1)          subject to clause 25.7(f)(2), the Principal will repay the amount not payable by the Contractor within 30 Business Days with interest at the Interest Rate; and

(2)          the Principal may, prior to repayment, set-off any such amounts referred to in clause 25.7(f)(1) against any Loss the Principal has suffered.

(g)          Except as expressly provided for in clause 25.7(f)(1), the Principal is not liable for, or in connection with, any Claim by the Contractor (and the Contractor will not make any Claim) arising out of or in connection with any such wrongful recourse to the Security.

41.4     Commercial Disputes and Arbitration

(a)          If the Dispute:

(1)          relates to a commercial or legal issue in relation to this Agreement; and

(2)          is not resolved by the Senior Representatives within 20 Business Days after the relevant Dispute Notice was delivered,

then the Dispute must be referred to arbitration

(b)          Arbitration pursuant to this clause 41.4 will be conducted by Resolution Institute in accordance with the UNCITRAL Rules of Arbitration current at the time of the reference to arbitration and as otherwise set out in this clause.

 

41.6          Injunctive or urgent relief

Nothing in this clause 41 prejudices either party’s right to institute proceedings to seek injunctive or urgent declaratory relief in respect of a Dispute under this clause 41 or any other matter arising under this Agreement.

Relevant Terms of the Consent Deed

  1. By a Consent Deed dated 18 March 2018, SGRE (as Contractor) and BWF (as Borrower) covenanted that:

3.1          (e)       Subject to clause 3.2, the Contractor consents and acknowledges that the Borrower may not without the Security Trustee’s prior written consent:

(1)          amend, vary, supplement, terminate, rescind, repudiate (otherwise than by breach) or accept the termination, rescission or repudiation of the Contract;

 

3.2      Permitted amendments

The Borrower and the Contractor will not agree or consent to any amendment, waiver, release, variation or other change in the scope of the Contract or enter into any document or agreement in relation to the Contract which has the effect of amending, waiving, releasing, varying or supplementing the Contract with the Security Trustee’s prior written consent, except:

(b)          where the amendment or variation:

(1)          results in an additional cost of less than $500,000 and when aggregated with all other variations under the Contract, does not result in an aggregate additional cost exceeding $2,000,000; and

(2)          does not materially impact on or materially alter the performance of the Works; or

(c)          in respect of any amendment, variation or waiver of an immaterial, minor or inconsequential nature or to correct a manifest error,

provided that the Borrower must, promptly following the relevant amendment, variation or waiver (as applicable) under this cl 3.2, notify the Security Trustee of such amendment, variation or waiver and provide the Security Trustee with all relevant information as reasonably requested by it in connection with such amendment, variation or waiver.

 

The parties agree and acknowledge that if the Borrower does not obtain the Security Trustee’s prior written consent in accordance with this cl 3.2, the relevant amendment, waiver, release or variation will be invalid and the Contractor and the Borrower will not be bound by such amendment, waiver release or variation.

Summary Outline of SGRE’s submissions

  1. SGRE does not assert that the terms and conditions of the EPC Contract provide for any relevant fetter in relation to BWF’s entitlement to call upon the Performance Securities.
  1. SGRE however asserts that the subsequent 30 September 2019 Agreement agreed not to call upon the Performance Securities in satisfaction of BWF’s purported DLDs claim under the EPC Contract.
  1. SGRE argues that the 30 September 2019 Agreement amounts to an agreement on the part of BWF not to call upon the Performance Securities in satisfaction of BWF’s purported DLDs claim and that BWF’s threat to do so would be in breach of the 30 September 2019 Agreement.

Serious question to be tried

  1. SGRE submits that there is at least a serious question to be tried that, pursuant to the 30 September 2019 Agreement, BWF be not permitted to call upon the Performance Securities and should be restrained from doing so.
  2. SGRE also submits that the final determination of the dispute regarding the 30 September 2019 Agreement, together with the wider dispute between SGRE and BWF should be resolved by arbitration pursuant to cl 41.4, as agreed by the parties under the EPC Contract.
  3. Further, SGRE submits that it is not appropriate for the Court to go further on this application than to determine whether there is a serious question to be tried as to questions in relation to the proper interpretation and effect of the 30 September 2019 Agreement which SGRE has identified, and outlined.
  4. SGRE submit that there is no inflexible rule that an application of the type it makes should be determined ‘as if’ on a final basis, and that whether it is appropriate to proceed will depend on the circumstances of the case including whether there is any disputed evidence.  SGRE submit that on this application there is disputed evidence as disclosed by Hertling and Francisci in their account of the conversation of 30  September 2019.
  1. SGRE also submit that because the parties have agreed that the disputes should be referred to arbitral determination under the EPC Contract the matters presently in issue between the parties, including in relation to the 30 September 2019 Agreement, should, except for any necessary urgent interlocutory relief, be dealt with by arbitral tribunal.
  1. SGRE also contends that for various reasons the balance of convenience here favours an interlocutory injunction being granted to SGRE.
  1. The 30 September 2019 letter which gives rise to the issues of interpretation on this application states –

1.           BWF will continue to offset any DLDs against payments or any amounts due to SGRE for the above project.

2.           Except in any process provided for in clause 41 of the EPC Contract, SGRE undertakes not to object to or oppose any such offset (other than for mathematical mistakes apparent in the old DLDs calculations) and additionally will not exercise its rights under or in connection with the security of payment legislation in relation to this matter.

3.           BWF will accordingly exercise its rights to draw on the Performance Securities in its possession in relation to this matter.  For the avoidance of doubt, BWF will not make a demand or claim under the Performance Securities before giving at least 5 business days prior written notice.

BWF’s submissions

  1. BWF submits that it should not be restrained by interlocutory injunction from accessing the Performance Securities because there is in this case, notwithstanding the 30 September 2019 Agreement, no serious question to be tried in relation to BWF’s contractual entitlement to call upon the Performance Securities in satisfaction of its claims for DLDs and that the balance of convenience lies overwhelmingly against the issue of an injunction in the present circumstances.
  1. Further, for various reasons the balance of convenience in this matter favours rejecting the injunctive relief sought by SGRE.
  1. Further, BWF submits that there should be no interlocutory injunction issued because no relief is sought against NEOEN, and the entire proceeding should be dismissed against NEOEN.

BWF argues that there is no serious question to be tried in this instance

  1. BWF relies upon what it says are the clear terms of cls 13.8(e) and 25.7 of the EPC Contract that, in substance, notwithstanding the existence of any relevant dispute as to the cause of SGRE’s failure to achieve Practical Completion of the Works, BWF is entitled to demand and recover DLDs from SGRE and to make a call on the Performance Securities in the event that such a demand is not satisfied.
  1. BWF argues that the EPC Contract gives rise to no fetter upon BWF’s right to call upon the Performance Securities.  Furthermore, BWF submits that other than the 30  September 2019 Agreement requiring 5 business days’ prior written notice in that regard, there is no fetter in respect of BWF’s rights to call upon the Performance Securities, which is reflected on the proper interpretation of the 30 September 2019 Agreement.
  1. In that regard, BWF asserts that by its current application SGRE seeks to circumvent the parties’ agreed allocation of risk under the EPC Contract by either seeking to restrain permanently or alternatively until resolution of the disputes, BWF’s call upon the Performance Securities.
  1. BWF submit that the Court in this instance can appropriately resolve the contractual construction issue on a final basis without making any declaration or alternatively, were the Court to make a declaration in this instance as to the proper construction of the Contract, it can do so without infringing the parties’ underlying agreement to arbitrate their disputes, because cl 41.6 of the EPC Contract provides for an express ‘carve out’ from the arbitration agreement between the parties in respect of ‘injunctive or urgent declaratory relief in respect of a dispute’.
  1. BWF submits that –

Where, as here, the contractual provisions under consideration are intended to operate as a contractual risk allocation mechanism pending the final determination of the parties’ contractual entitlements, a failure to resolve the construction issue now would render that contractual mechanism effectively nugatory and deprive the parties of their commercial bargain.  The relevant status quo to which the Court must have regard is what the parties have agreed as to which of them should bear the financial risk pending final determination of the underlying dispute.  Here, the status quo will best be maintained by refusing the injunction, and thereby preserving the agreed risk allocation.

  1. BWF also relies heavily on the Victorian Court of Appeal decision in Sugar Australia Pty Ltd v Lend Lease Services Pty Ltd (Sugar Australia) stating:

As to the proper construction of contractual provisions in relation to the provision of security, in Sugar Australia, Osborn and Ferguson JJA noted, relevantly:

(a)          a critical question of construction – and the first question which the court must address – is whether the provision under consideration is intended to allocate risk prior to the final determination of the parties’ rights;

(b)          the fact that a performance bond is intended to operate as a risk allocation device is not necessarily determinative of the right of a party to have recourse to it. The bond may be subject to a contractual qualification or limitation upon the circumstances in which recourse may be had. However, the fundamental characteristic of a risk allocation device informs the task which the Court must undertake in resolving whether or not to grant an injunction;

(c)          if the contractual provision requiring security is intended to operate in part as a risk allocation provision, the failure to resolve its construction until trial renders it effectively nugatory in this respect and defeats its evident commercial purpose. An interlocutory injunction restraining recourse to a performance bond pending trial in the circumstances would, in effect, amount to final relief in respect of a principal benefit intended to be conveyed by the performance bond; and

(d)          if the grant of injunctive relief is effectively dispositive of a material part of the claim, the plaintiff carries a heavy onus.

  1. BWF’s submission is that pursuant to the express terms of the EPC Contract it is entitled to have recourse to the Performance Securities which was intended by the parties to be equivalent to accessible cash in accordance with the terms of the EPC Contract, pending the resolution of any underlying dispute in the nature of the disputes relating to the present contractual entitlement on the part of BWF to DLDs.

Legal principles applicable to the determination of the application before the Court

  1. Both SGRE and BWF submit in respect of the governing principles in relation to the grant of an interlocutory injunction, that ordinarily the applicant must demonstrate both that there is a serious question to be tried in relation to the final relief ultimately to be sought at trial in the proceeding, and that the applicant must establish that were the injunction not acceded to, the applicant will, or is likely to, suffer injury or prejudice for which an award of damages would not represent an adequate remedy.  Further, the applicant must establish that the balance of convenience favours it and the issue of the injunction sought.  BWF however submitted that in this instance the contract interpretation issues should be determined ‘as if’ on a final basis.

Performance Guarantees – Construction and Engineering Contracts

  1. In the setting of construction and engineering contracts, save for circumstances sufficiently raising the spectre of fraudulent or relevantly unconscionable conduct, courts will not ordinarily restrain the beneficiary of a performance guarantee from recourse thereto unless the contract expressly or impliedly constrains the entitlement of the beneficiary to access the performance guarantee.  Such a constrain, where it exists, is often referred to a fetter on access to the security concerned.
  1. Contract construction questions concerning the existence of an express or implied constraint usually subsume the further question(s) as to whether or not the contract in issue requires the beneficiary to establish the existence of some entitling event or circumstance before accessing the performance guarantee, for example whether it is adequate for the beneficiary to assert the existence of such events or circumstances proving that assertion to be bona fide, and also often the related question as to whether on the proper construction of the subject agreement between the parties, the performance guarantee related terms and conditions were intended by the parties to provide a security fund accessible to the beneficiary in the event of a relevant dispute as to rights and entitlements being declared, or provide for a security guarantee fund which was immediately accessible to the beneficiary of the performance guarantee pending resolution of any relevant dispute, as a risk allocation mechanism under the contract.
  1. In my view in relation to the subject EPC Contract it is clear that the terms of cl 25.7 of the EPC Contract reflect the parties’ intent that BWF as the beneficiary of the subject Performance Securities, is under no requirement to establish any fact and/or circumstance in the nature of preconditions before it is entitled to access the Performance Securities under the EPC Contract, and need only assert a right to the payment of money by the Contractor under, or arising out of, or in connection with:

(a)        this Agreement (including DLDs); or

(b)       otherwise at law relating to the Works under this Agreement.

  1. Further, the same terms of the EPC Contract, notwithstanding the effect of the 30 September 2019 Agreement in issue, also, in my view, reflects the clear intention on the part of BWF and SGRE that the Performance Securities referred to in cl 25.7(a) of the EPC Contract would provide a security fund accessible to BWF in accordance with the EPC Contract terms referred to above, in the event that any relevant dispute arose between it and SGRE in connection with BWF’s asserted right to payment under or in connection with the EPC Contract or the Works.  It is clear on the basis of the express terms of the EPC Contract referred to above that the Performance Securities regime established by the EPC Contract here was intended by BWF and SGRE to also establish a security fund which would be accessible to BWF pending the resolution of disputes between it and SGRE, including of the type which presently exists in relation to the dispute concerning DLDs.  That is, cl 25.7 of the EPC Contract is intended by the parties, on its clear and unqualified terms to operate as a risk allocation mechanism pending the resolution or determination of disputes between the parties.

Whether in this particular instance the Court should be constrained to proceed to finally determine the contract interpretation related issues concerning the alleged 30 September 2019 Agreement

The parties’ submissions as to the proper approach to this application for injunctive relief

  1. On this application BWF submits that the critical issue for resolution is whether the EPC Contract, in light of the 30 September 2019 Agreement, contains an express or implied fetter to BWF’s right to call upon the Performance Securities and whether, in the proper exercise of the Court’s discretion, that question should be determined on this application ‘as if’ on a final basis.
  1. SGRE’s position is that its application for injunctive relief should be approached on the basis that SGRE need only establish that there is a serious issue to be tried in relation to the asserted fetter or access to the Performance Securities which it was provided, and once such an issue is adequately identified, subject to balance of convenience considerations, an interlocutory injunction should be ordered, leaving the final resolution of the question of the meaning and effect of the 30 September 2019 Agreement to the determination of an arbitral tribunal pursuant to cl 41 of the EPC Contract.

It is however to be noted that SGRE also submits that if its argument in favour of only interlocutory resolution of its application at this stage is rejected, SGRE submit that it is open to the Court, at this juncture, to finally determine the meaning and effect of the 30 September 2019 Agreement.  SGRE submit that the Court has flexibility in this regard, and SGRE also identifies, in this application, the arguments it puts in relation to the proper construction of the 30 September 2019 Agreement in the event that the Court decides in its discretion to move to finally determine the proper construction and meaning of the 30 September 2019 Agreement on this application.

  1. There is high authority in support of the approach argued for by BWF on this application.  That is that a court called upon to determine an interlocutory application for an injunction restraining access to Performance Securities should, if not inconvenient or appropriate to do so, move to finally determine issues in connection with the parties’ dispute as to the correct interpretation of relevant contractual stipulations in relation to a Performance Securities provision and course regime.
  2. I recognise that there may be circumstances in which it is impractical or inappropriate to finally determine an interlocutory application.  I also recognise that one such circumstance may well be when the resolution of the matters in issue would necessarily involve deciding such an application where there is conflicting affidavit evidence of materiality relied on by the parties.
  3. In my view however, although in such interlocutory matters courts are often reticent to proceed to finally decide applications where there is a conflict of affidavit evidence, the existence of this circumstance does not foreclose the question of what approach, in the exercise of discretion is most convenient, just and appropriate.
  4. In Sugar Australia, the Victorian Court of Appeal (Osborn and Ferguson JA, as her Honour then was) stated (citations omitted):

The need to construe the clause in order to assess the evidence

39          The respondent identifies two construction questions arising in relation to GC 5.2. The first is that to which we have already referred, namely, the meaning of the phrase ‘acting reasonably’. The appellant contends that this involved a subjective concept, whereas the respondent contends that it establishes an objective requirement.

40          The second question is whether GC 5.2 only permits the appellant to have recourse to the performance bonds for reimbursement of moneys presently due or expended by the appellant or whether, on the other hand, recourse might be had in respect of moneys payable in the future.

41           The primary judge explicitly recognised the significance of the first of the construction issues to the exercise of the Court’s discretion:

Whether there is a serious issue to be tried as to whether Sugar Australia has an entitlement under clause 5.2 of the Construction Contract to seek recourse to the Bank Guarantees in the circumstances advanced by Lend Lease, will in significant part depend upon the proper construction of the words ‘acting reasonably’ found in the clause, and in particular, whether these words are confined to a subjective analysis, or import the concept of an objective assessment.

42          His Honour was correct to so conclude and this consideration also strongly supported the conclusion that the words ‘acting reasonably’ should be construed for the purpose of deciding whether injunctive relief was appropriate. Without so doing, the question of whether there was a serious question to be tried on the facts as to whether the appellant was entitled to seek recourse to the bank guarantees could not be determined.

The ordinary practice of the courts

43          The practice adopted in the reported cases relating to performance bonds to which the primary judge was referred in argument also supports the view that it is ordinarily appropriate to resolve construction issues which are capable of resolution at the interlocutory stage and which bear squarely on the justice of preventing reliance upon a performance bond pending trial.

44          It was submitted to the primary judge on behalf of the appellant that a central issue in the proceeding was the construction of the relevant contract and that because this did not depend upon the assessment of evidence but was confined to an examination of the four corners of the document, the Court was obliged to finally determine the construction question at this stage of the proceeding.

45          That submission placed reliance upon the dissenting decision of Young JA in Lucas Stuart Pty Ltd v Hemmes Hermitage Pty Ltd. In that case, the majority overturned the grant of an interlocutory injunction because the primary judge misconstrued a contractual condition governing recourse to a performance bond. Further, it was in this context that Young JA made the following statement:

The first is that when there is an application for an interlocutory injunction which depends on the construction of a contract, it is for the judge to determine whether he or she has sufficient material to be able to construe the contract on a final basis. The urgency with which the case has to be heard, or the lack of factual investigation to that point, may mean that the judge deals with the question of whether there is an arguable case on flimsy material. However, where the question of construction can be dealt with, then the decision on that matter is a final determination, and ordinarily, if no other remedy is given, a declaration should be made as to the construction of the contract.

46          Whilst the primary judge was correct to conclude first that this statement was obiter, and secondly, that it cannot be understood as stating an inflexible rule, the approach of all three judges in the case demonstrates the centrality of the construction of the contract in disputes over breach of negative conditions qualifying performance bonds and the necessity, in the ordinary course, to resolve construction issues of the type here in issue.

48          In the present case, the appellant placed specific reliance upon the following statement by Charles JA:

Mr Archibald’s submission [made on behalf of Fletcher] on this first issue was that the terms of the agreement, properly construed, show that resort to the security under cl. 3.13 is subject to the express qualification that Varnsdorf’s entitlement must be undisputed. This qualification was not said to be implied or inferred. I did not understand it to be suggested that the determination of this point of law required the examination of a factual matrix not presently available. Accordingly this court should, in my view, now decide the question of law involved in the interpretation of the contract.

49          Charles JA referred, in turn, to the decision of Young J in Hortico, a case concerning an application for an interlocutory injunction restraining enforcement of a performance bond given by an owner with respect to payment for the design, supply and installation of a boiler. A central issue in that case was whether the bank guarantee in issue was independent of the works contract. Young J said:

On an application for interlocutory injunction which raises questions of law, the approach of this Court has been, I believe, to decide questions of law which arise unless in the opinion of the judge, those questions should be better left until later. I think that the only exceptions to that general rule are where time does not permit proper consideration of the questions of law at the interlocutory stage, or where the determination of the points of law requires a factual matrix which is not available until the facts in the entire proceedings have been proved.

Accordingly, although some of the issues in this case such as whether time is of the essence of the contract and who breached the contract may involve facts which are not yet available and should not be decided at this stage, the basic legal issues in the case can and should be decided now. These issues are whether the ‘guarantee’ given by the bank should be read independently of the contract or as part of the contractual arrangements between the parties.

51           It is plainly true that the appropriateness of the ordinary approach identified by Young J in Hortico must ultimately be governed by the circumstances of the case. Nevertheless, the authorities referred to exemplify the application of that approach in cases such as the present.

52          The further decisions of Bachmann Pty Ltd v BHP Power New Zealand LtdCloughFMT Aircraft Gate Support Systems v Sydney Ports CorporationRedline Contracting Pty Ltd v MCC Mining (Western Australia) Pty Ltd and Otter Group Pty Ltd v Maria Margaretha Wylaars to which reference was made in submissions also reflect the centrality of construction issues to the resolution of applications for interlocutory relief with respect to performance bonds.

53          In our view, when all of these authorities are referred to it is plain that the ordinary practice in a case such as the present is to construe contractual terms which bear on basic issues in the case and which are capable of construction in the absence of further evidence. This practice also favours the conclusion that the contractual provisions here in issue should have been construed by the primary judge.

55          The ordinary course adopted in the authorities referred to also conforms with the overarching purpose stated in s 7 of the Civil Procedure Act 2010, namely, to facilitate the just, efficient, timely and cost effective resolution of the real issues in dispute between the parties.

56          Nevertheless, it must of course be accepted that the particular circumstances of a case may dictate a departure from the ordinary practice. We turn now to the circumstances which the judge found determinative of the issue.

65           It follows that his Honour was incorrect to put off the question of construction of the contract until the trial of the proceeding and to regard the issues which arose with respect to construction as giving rise to a serious issue which should be tried subsequently.

66          For completeness, we note that in expressing his conclusions his Honour said that it was appropriate to reserve the construction question to a final determination at the trial of the proceeding, or at least to the trial of a separate question, pursuant to r 47.04 of the Supreme Court (General Civil Procedure) Rules 2005 if such were ordered on an application made on proper notice. The postulation of an alternative procedure does not resolve the problems with his Honour’s conclusions. In terms, he put off the construction questions to the trial and for the reasons we have explained this was not appropriate. Further, the trial of a separate question would not provide an appropriate vehicle for the resolution of interrelated issues arising upon the injunction application.

Conclusion

67          The primary judge did not decide whether GC 5.2 was intended to allocate risk pending the resolution of a dispute. In our view it was so intended and this in turn constitutes a consideration of fundamental importance in assessing whether the grant of an injunction carries with it the lower risk of injustice.

68          The parties made a commercial agreement as to when and how the performance bonds might be called upon. In doing so, they effectively determined which of them would bear the financial risk (up to approximately $4.2 million) without the need for the appellant to prove an entitlement to be paid. The safeguard negotiated and agreed by the parties was that the appellant must act reasonably when claiming an entitlement to payment and calling on the bonds. One important commercial effect of this was that the appellant did not have to wait until trial for payment of some amount by the respondent. This evident commercial purpose of GC 5.2, when viewed in the context of the accepted principles governing the grant of interlocutory injunctions and the ordinary practice adopted in performance bond cases, required the primary judge to resolve the construction issues raised in order to properly determine whether an injunction should be granted. If this were not done, in effect, the parties would be deprived of the commercial bargain that they made.

  1. Further, Kaye JA, stated:

111          In my view, the authorities to which the primary judge was referred, and which I shall shortly discuss, support the proposition that, ordinarily, on an application for an interlocutory injunction to restrain recourse to a security provided under a building contract, a court should determine a controversial issue of law, if the determination of that issue is a necessary step to a conclusion whether an applicant is entitled to the injunction, unless, in the particular circumstances of the case, it is not practicable or appropriate to do so.

112          Those principles were stated by Young J in Hortico (Australia) Pty Ltd v Energy Equipment Co (Australia) Pty Ltd. In that case, the applicant sought an interlocutory injunction to restrain its bank from paying monies to the beneficiary of a bank performance bond. In refusing that application, Young J rejected the construction of the bank guarantee relied on by the applicant. In doing so, his Honour expressed the applicable principles as follows:

On an application for interlocutory injunction which raises questions of law, the approach of this Court has been, I believe, to decide questions of law which arise unless in the opinion of the judge, those questions should be better left until later … I think that the only exceptions to that general rule are where time does not permit proper consideration of the questions of law at the interlocutory stage … or where the determination of the points of law requires a factual matrix which is not available until the facts in the entire proceedings have been proved.

113          That passage, from the judgment of Young J in Hortico, was cited, with approval, by Charles JA in Fletcher Construction Australia Limited v Varnsdorf Pty Ltd.

116          In addition to the cases that I have just mentioned, there are a number of other instances in which the courts have undertaken a final construction of a security clause in a building contract, for the purposes of determining an application for an interlocutory injunction to restrain a building proprietor from having recourse to the security provided by that clause. Those cases include Clough Engineering Ltd v Oil & Natural Gas Corporation LtdFMT Aircraft Gate Support Systems v Sydney Ports Corporation, and Redline Contracting Pty Ltd v MCC Mining (Western Australia) Pty Ltd.

119          Based on those principles, in my view, the primary judge ought to have determined the correct construction of GC 5.2, in order to determine whether the respondent had demonstrated that there was a serious issue to be tried as to the application of that clause to the circumstances of the case revealed in the affidavits before him.

120         In the present case, it is not suggested that the construction of GC 5.2 would involve or require evidence as to the factual matrix in which the contract was concluded. The construction of clause 5.2 is a discrete question, which did not involve consideration of any detailed or complex material. The resolution of the application before the court was not urgent, as the respondent’s rights had been protected by an interim injunction. While it was important that the judge deliver his decision expeditiously, nevertheless the judge did have some time to consider the issues raised by the parties before him.

  1. In my view, the matters which I have outlined below and the obvious consequence of pursuing an approach whereby the present contractual dispute about the meaning and effect of the 30 September 2019 Agreement is not decided at this point, beyond characterising the controversy as to a serious issue to be decided in the future, would in effect contradict and negate the intent of the parties’ contractual regime for the provision of Performance Securities and their agreement in relation to the Principal’s entitlement to ready and unfettered access to that security fund.  Accordingly, to so proceed would also disrupt the parties agreed risk allocation regime in that regard.
  2. Further, it is to be noted that this application proceeded on the basis that BWF argued from the outset that in the proper exercise of the court’s discretion on this application should be determined ‘as if’ on a final basis.
  3. Although BWF’s contractual entitlement to have recourse to the Performance Securities in issue, pending resolution of the underlying dispute, and BWF’s opposition to the SGRE application for an injunction sought the determination of the underlying contract interpretation questions, ‘as if’ on a final basis, at no time did SGRE submit that it should be permitted to test BWF’s affidavit evidence or obtain further disclosure of documents save in relation to one document which SGRE sought via a Notice to Produce.  Nor did SGRE protest that if there was a prospect of the final determination of the proper interpretation and meaning of the 30 September 2019 Agreement, SGRE should have the opportunity to make further submissions.
  4. Further, in the present circumstances, as I have earlier noted, SGRE has acknowledged that, if its argument that its present application should at this stage be determined on an interlocutory basis is rejected, it would be a permissible approach to this application for the Court to move to determine the contractual issues in this matter ‘as if’ on a final basis.
  1. Further, SGRE has put the submissions it expressly states it desires to put as to the proper interpretation of the 30 September 2019 Agreement, in the event that the contract construction issues central to this application are, in the court’s discretion, decided on a final basis.
  1. SGRE also sought to rely upon Kawasaki Heavy Industries Ltd v Laing O’Rourke Australia Construction Pty Ltd  (Kawasaki) in relation to the question of how this application should proceed and be considered.  In my view however the decision of Kawasaki is of little assistance because the circumstances there were materially different.  In Kawasaki the Court was not prevailed upon to adopt the approach of finally determining the contract construction issues in question.  Furthermore, in Kawasaki it was acknowledged that the ruling agreement referred all disputes to arbitration.  Here the EPC Contract reference clause in cl 41, provides for a ‘carve out’ for applications of the type prosecuted by SGRE on this application, in cl 41.6.
  1. The EPC Contract here is for the above reason materially different to the situation referred to in Kawasaki.  Clause 41.6 of the EPC Contract provides for what is commonly referred to as ‘a carve out’ for injunctive or urgent declaratory relief in respect of a dispute to be the subject of a curial decision if the parties elect to pursue that relief.  This application is I consider one envisaged by cl 41.6, as SGRE presumably considered to be the case in bringing its application to this Court.

Correct approach to SGRE’s application for interlocutory injunctive relief

  1. Although as earlier raised I recognise and have given weight to the reticence of courts to finally decide an issue or issues in an interlocutory setting, as is the position on this application by SGRE, I consider that in this instance it is just, and more appropriate, to finally decide the effect of the 30 September 2019 Agreement, rather than dealing with this application for injunctive relief on the usual basis applicable to a decision made in relation to an interlocutory injunction.
  1. To take the approach of considering and determining this application on the usual basis, evaluating the first limb of the usual considerations, only as to whether SGRE as applicant has sufficiently demonstrated the existence of a serious question to be tried would, in this matter, give rise to probable injustice because that approach would likely result in significant, to an extent not defined by the applicant, delay until the hearing and disposal of the application at trial or in an arbitration in relation to which there has not yet been an arbitral panel established.  This scenario is likely to defeat the parties’ contractual intent in relation to a contractual regime which in substance provides for immediate access by the Principal under the EPC Contract, to the Performance Securities under cl 25.7.  Such a scenario would also trammel the parties’ agreed risk allocation regime under the EPC Contract.
  1. In this regard I again note that SGRE opposed its application being dealt with on an ‘as if’ on a final basis but also acknowledged the Court enjoyed the flexibility to move to finally determine the contract interpretation issues and it made submissions as to how I should decide the proper interpretation and effect of the 30 September 2019 Agreement if I was to hear and finally determine the question of the proper interpretation and effect of the 30 September 2019 Agreement.
  1. BWF argued that the appropriate course on this application was for the Court to:

Ordinarily, on an application for an interlocutory injunction to restrain recourse to a security provided under a building contract, the Court should determine a controversial issue of law (including the proper construction of the contract), if the determination of that issue is a necessary step to a conclusion whether an applicant is entitled to the injunction, unless, in the particular circumstances of the case, it is not practicable or appropriate to do so.

  1. In adopting the course I consider the more convenient, appropriate and just, I have also weighed in the balance that a factor which might militate against finally determining the proper construction of the parties’ 30 September 2019 Agreement in the present circumstances is the existence of certain conflicts of affidavit evidence asserted to be relevant to deciding the proper interpretation of the Agreement in issue.  I consider that in this case the existence of such conflicts of evidence to be of little consequence and to be an insufficient factor in the overall consideration of this procedural issue.  This is so in particular given the strong reasons identified above warranting a final decision on the relevant contract construction issues including that:

(a)   there has been no discovery or interrogation sought in relation to the affidavit evidence;

(b)  the parties to this application have not sought leave to cross-examine the deponents contested affidavit material nor, save in respect of one document the subject of SGRE‘s Notice to Produce, have the parties sought any disclosure in relation to this application;

(c)   in my view, there has been sufficient time available within which to do so, and it may be inferred from the extensive correspondence, emails, copies of text messages and the like that the parties have presented all the documents they consider germane to their cases as to the interpretation of the agreement in issue; and

(d)  this application has proceeded in a way which always forewarned SGRE that BWF was seeking to have the 30 September 2019 Agreement determined, ‘as if’ on a final basis in relation to BWF’s contractual entitlement to have recourse to the Performance Securities, pending the resolution of the underlying dispute.

  1. Although SGRE’s response to the BWF submission as to how this application should be addressed by the Court was to argue that the application should not be determined on an ‘as if’ final basis, primarily because here there is disputed evidence bearing on the proper construction of the 30 September 2019 Agreement, SGRE acknowledge that its application may, in the Court’s discretion be finally determined at this stage, and SGRE identified the arguments it wished to put on the critical contract interpretation issues in case the court decided to move to finally determine the matter in issue.
  1. On this aspect the SGRE submitted that:

Nonetheless, if (contrary to the foregoing) it is necessary or appropriate to construe clause 3 of the 30 September Agreement on an “as if” final basis, for the reasons given already, the preferable construction remains that for which SGRE contends.

But if Your Honour is persuaded that Your Honour does have to decide the question or should decide it as if on a final basis, it really makes no difference, so far as we’re concerned.  The same matters that we advance as supporting a serious question, in our submission, support the construction for which the plaintiff contends on an as if final basis, so that legal question as to the question of practice really is the approach that Your Honour should take, is not one, in our respectful submission, of any particular significance.

  1. Finally, in relation to the matter addressed above, although the affidavits relied upon in relation to the 30 September 2019 Agreement are in some respects in conflict, for the reasons I deal with below, I consider those parts of the affidavit material in conflict are of very little or no weight and are not probative in relation to the proper construction of the critical signed letter of 30 September 2019.
  1. Accordingly such conflict of affidavit evidence as exists in the affidavits relied on by the parties as directly relevant to the conversations between Hertling of SGRE and Francisci of BWF in connection with the matters agreed in the signed 30 September 2019 letter, are in my view not so material, significant or probative as to preclude me from finally deciding the contract interpretation issues in this application.
  1. For the above reasons I consider that it is appropriate, convenient and just on this application to finally determine the proper construction and meaning of the signed letter of 30 September 2019.

BWF’s submissions in relation to the 30 September 2019 Agreement

  1. BWF submits that the 30 September 2019 Agreement does not alter the party’s contractual entitlements in any material respect.  Further, BWF submits that a court decision to the contrary would require a decision to the effect that both parties had, in breach of the Consent Deed, materially varied the terms of the EPC Contract and done so without the consent of the Security Trustee.  Further, BWF submits that a court decision to the effect referred to would also necessarily require a finding that insofar as it affected the parties’ contractual rights it was invalid and not binding on the parties by force of cl 3.1(e)(1) of the Consent Deed.

  2. BWF also submits in essence that the 30 September 2019 Agreement, properly considered and construed, amounts to no more than:

(a)   a statement as to the sequence in which BWF will exercise its contractual rights to recover DLDs from SGRE, that is, by set-off, and

(b)  an undertaking to provide 5 business days’ prior written notice before calling on the Performance Securities.

SGRE’s submissions in reply dated 16 October 2019

  1. SGRE submits that a serious question to be tried arises from the first sentence of cl 3 of the 30 September 2019 Agreement which SGRE submits constitutes a promise by BWF not to call on the Performance Securities in relation to the DLDs, until the parties’ dispute as to the entitlement to those DLDs is resolved by agreement or arbitration pursuant to cl 41 of the EPC Contract.
  2. SGRE submits in reply that the Court should not go so far as to construe cl 3 of the 30 September 2019 Agreement ‘as if’ on a final basis and that the disputed affidavit evidence on this application arising from the Hertling and Francisci Affidavits is sufficient reason for the Court not to proceed to construe the 30 September 2019 Agreement ‘as if’ on a final basis.
  3. SGRE submits that ‘there is no inflexible rule’ on an application of the present kind that questions of construction should be determined ‘as if’ on a final basis.
  4. SGRE submits that whether the approach referred to in the last preceding paragraph is appropriate or not will depend on the circumstances of the case including whether there are any disputed evidentiary matters bearing on the construction of the component of the parties’ agreement in issue.
  5. SGRE submits that there is no support in the text of the letter of 30 September 2019 for the BWF assertion that cl 3 of that agreement relates only to a claim for the ‘August 2019 DLDs’.
  6. SGRE submits that in the present case, including because of the existence of the parties’ agreement to arbitration in cl 41 of the EPC Contract, the appropriate outcome on the present application is an interlocutory injunction pending further orders of the Court or an arbitral tribunal appointed under the EPC Contract.
  7. SGRE also submits that if the Court concludes that the 30 September 2019 Agreement should be determined ‘as if’ on a final basis, then SGRE argues that the preferable construction is as it has contended in relation to the fetter on recourse to the Performance Securities argued for by SGRE.

SGRE’s Supplementary Note dated 22 October 2019

  1. By its written submissions of 22 October 2019, SGRE  submits in substance that even if the 30 September 2019 Agreement is ultimately declared void, for example on some basis like the effect on it of cl 3.2 of the Consent Deed, that would give rise to the loss of irrecoverable rights including SGRE’s right under the SoP Act to seek an adjudication of its claims, because SGRE’s right to have its relevant claims addressed under the SoP Act have not been pursued as a result of the agreement made on 30 September 2019.  SGRE notes that it had agreed not to prosecute its SoP Act claim by paragraph 3 of the 30 September 2019 Agreement, and cannot now do so because of the requirement it to take action under the SoP Act within 10 business days to the date on which payment of each claim was due, a date now past.

BWF’s Supplementary Note dated 25 October 2019

  1. In response to SGRE’s supplementary note of 22 October 2019, BWF submit that SGRE suffered no irredeemable prejudice in respect of its SoP Act claim if the 30 September 2019 Agreement was void on some basis such as contravention of cl 3.2 of the Consent Deed.
  1. Amongst other reasons BWF point out that the SoP Act imposes no temporal limitation on a claimant commencing a summary debt proceeding.
  2. Further, BWF submit that SGRE impermissibly attempted to exclude as inadmissible a large portion of its own evidence upon which BWF has relied and BWF seek to rely on the Affidavit of Philippa Mitchell sworn 8 October 2019 (Mitchell Affidavit) in some form that affidavit may assist them.
  3. BWF submit that the evidence of Ms Philippa Mitchell is admissible as relied upon by BWF because it legitimately treats evidence of surrounding circumstances known to both parties and is relevant to assisting in the interpretation of the subject contract in circumstances where the language of the 30 September 2019 Agreement is ambiguous or susceptible of more than one meaning.
  4. BWF also submit that it is admissible to adduce extrinsic evidence to prove that the word ‘susceptible’ has more than one meaning and are applicable to only one of those meanings.  That is, not to alter the contract but to identify its subject.  The BWF submission is that where a contractual term is ambiguous, extrinsic evidence may be admitted as an exception to the parol evidence rule, to identify the subject matter of the contract.
  5. BWF also submits that there is no absolute rule that a draft agreement cannot be taken into account in construing the ultimately concluded agreement.
  1. BWF submits that the second sentence of paragraph [3] of the 30 September 2019 Agreement was concerned with any future call on the Performance Securities with respect to DLDs and submits that to the extent that the second sentence in paragraph [3] is ambiguous or susceptible of more than one meaning, evidence of the prior negotiation passing between Williams and Lim, including earlier drafts of the 30  September 2019 Agreement, are admissible at least for the purpose of identifying the subject matter of the term and, consequently, properly construing it.
  1. BWF submits that the communications in respect of the 30 September 2019 Agreement are relevant in two important ways:  first that the second sentence of paragraph [3] is concerned with BWF’s entitlement to call on a Performance Securities in respect of the DLDs and it is not concerned with ‘matters other than … delay liquidated damages’.
  1. BWF’s highlights in its submissions that it was not abandoning its right to call on the approximately $25 million Performance Securities in respect of DLDs which were continuing to accrue, rather it was merely agreeing not to call on the security in respect of the August 2019 DLDs and otherwise to provide 5 business days’ prior written notice of any future call.
  1. Secondly, BWF submits that the drafts of agreement and associated communications passing between the parties during the negotiations after about noon on 30 September 2019, demonstrate that the earlier ‘standstill agreement’ proposed by SGRE was unambiguously rejected by BWF and was not subsequently sought to be revived by SGRE.
  1. Further, BWF also points out that the abbreviated chronology provided during argument on 17 October 2019 (accompanied by the folder of chronological documents) was provided to the Court as a sub-set of the longer chronology handed up by BWF on 17 October 2019, which longer chronology BWF continues to rely upon as establishing a broader context of the irrelevant transactions.

SGRE’s Reply dated 28 October 2019 (to BWF’s Supplementary Note dated 25 October 2019)

  1. SGRE complains that BWF’s supplementary note [6]-[14] goes beyond leave granted to respond to SGRE’s earlier submission.
  2. In my view however, it is appropriate to grant leave to BWF to file and serve and rely upon its Supplementary Note dated 25 October 2019 and deal with BWF’s Supplementary Note given that no procedural unfairness or injustice arises, and that SGRE has had the opportunity to consider BWF’s additional submissions and respond by its Reply Submission of 28 October 2019.
  3. SGRE further submits that if the Court accepts that is so, SGRE’s submission is that it should be granted leave to rely upon its Reply Submission dated 28 October 2019 which makes the following points.
  4. The Mitchell Affidavit, although not read by SGRE was read by BWF and relied upon by it and it remains open to SGRE to contend that various of the exhibited documents are inadmissible and of some probative significance on the contract construction issues.
  5. SGRE objects to the draft agreements referred to at [8] and [13] as inadmissible as drafts.
  6. SGRE submits that this is not a case in which any of the draft agreements reflected an agreement or understanding between the parties.  That feature distinguishes the present case from, for example, Royal Botanic Gardens and Domain Trust v South Sydney City Council, (Royal Botanic Gardens) in which the prior dealings between the parties had resulted in an agreement of the type referred to in the second category of Masters v Cameron.  (In Masters v Cameron – category 2 the parties had completely agreed on all the terms of their bargain, but had made performance conditional upon the execution of a formal document).
  7. SGRE submits that the case of Lodge Partners Pty Ltd v Pegum, (Lodge Partners) is also distinguishable.  There the general rule excluding the admission of antecedent draft agreements was not applicable because evidence of a specific change made to a draft at the request of one of the parties, and agreed by the other party, was clear and undisputed and admitted without objection.
  8. SGRE submits that amongst other bases, drafts should not be admitted so as to construe the contents of a final agreement because the law accepts that it is open to a party to change his or her or, by its officers, its agreement during the course of negotiations.  This, SGRE submits, is the case in the present instance.
  9. In relation to paragraph [14] of BWF’s Supplementary Note, SGRE submits that the communications referred to are in the nature of Williams’ subjective intentions at a certain point during negotiations.  There being no claim in this matter, at present, for rectification of the 30 September 2019 Agreement, Williams’ subjective intentions are irrelevant and further SGRE submits that it can be seen that Williams was not the decision maker for BWF.
  10. In addition to the Objections to Affidavits Ruling referred to below, in my view nothing in this application turns on what is stated by Ms Mitchell in her Affidavit of 8  October 2019.  That Affidavit exhibits documents exchanged by the parties on 30  September 2019, however, insofar as they serve to reflect the subject intentions, opinions and conclusions of the parties, those communications are in the nature of negotiations in respect of which the parties agreed to the articulation of their final agreement in the 30 September 2019 letter signed by the in-house lawyer for the parties between about 6.29pm and 6.34pm on 30 September 2019 and all such communications were superseded by the post 6.00pm executed final version of the 30  September 2019 letter which was intended to reflect the parties’ final agreement.

The Meaning and Effect of the 30 September 2019 Agreement

  1. The proper approach to construction of both the EPC Contract and the 30 September 2019 Agreement and their intended interface and combined effect is to be determined objectively by reference to the text, context and purpose of those agreements.
  1. On 30 September 2019 senior representatives of BWF and SGRE signed the following letter to signify their agreement, on behalf of the parties on whose behalf they executed that document.
  1. The 30 September 2019 letter in issue stated –

SIEMENS Gamesa

R E N E W A B L E   N E R G Y

Neoen Australia Pty Ltd

Level 10/227 Elizabeth Street, Sydney

NSW 2000

Attention:  Vaughan Williams

Email:  vaughan.williams@neoen.com

Siemens Gamesa

Renewable Energy Pty Ltd

(A.B.N. 90 614 784 575)

Date

Melbourne, 30/9/19

Dear Vaughan

Bulgana Green Hub Facility EPC Contract dated 18 September 2017 between Bulgana Wind Farm Ltd (“BWF”) and Siemens Gamesa Renewable Energy Pty Ltd (“SGRE”) as amended by Deed of Amendment dated 16 March 2018 (“EPC Contract”)

Subject:  Delay Liquidated Damages (“DLDs”)

We refer to the above matter and our telephone conversation between our two (2) organisations today.

Without the admission of any liability and reserving any rights SGRE may have, we confirm as follows:

1.          BWF will continue to offset any DLDs against payments or any amounts due to SGRE for the above project.

2.          Except in any process provided for in clause 41 of the EPC Contract, SGRE undertakes not to object to or oppose any such offset (other than for mathematical mistakes apparent in the old DLDs calculations) and additionally will not exercise its rights under or in connection with the security of payment legislation in relation to this matter.

3.          BWF will accordingly not exercise its rights to draw on the Performance Securities in its possession in relation to this matter.  For the avoidance of doubt, BWF will not make a demand or claim under the Performance Securities before giving at least 5 business days prior written notice.

Please do not hesitate to contact me, if you have any queries or require further clarification.

Yours faithfully,

………………..

Richard Lim

Company Secretary/Legal Counsel

for and on behalf of Siemens Gamesa Renewable Energy Pty Ltd

Neoen Australia Pty Ltd and BWF confirm agreement to the terms of this letter set out above.

……………………..

Vaughan Williams, Legal Director (Australia)

for and on behalf of Neoen Australia Pty Ltd and Bulgana wind Farm Pty Ltd

30/9/19

Date

  1. It is not disputed that the signed 30 September 2019 letter recorded an agreement between BWF and SGRE in relation to the EPC Contract and the Works being performed thereunder.  What is in issue is the proper construction and effect of that letter.
  2. In the exercise of construing the 30 September 2019 Agreement, unless a contrary intention is somehow indicated, the approach to the interpretation of what is unarguably a commercial agreement, amongst other things, is to objectively consider what a reasonable business person would have understood the subject terms to mean.  In so doing I am entitled to approach the task of giving this commercial agreement a business-like interpretation on the basis that the parties intended to produce a commercial result, not one which produced a commercial nonsense or one which worked a commercial inconvenience.
  3. Such interpretative questions are to be determined in the usual way and by reference to the familiar principles, recently restated in Simic v New South Wales Land and Housing Corporation:

There was also no dispute about those principles of construction. The proper construction of each Undertaking is to be determined objectively by reference to its text, context and purpose. As was stated in Electricity Generation Corporation v Woodside Energy Ltd:

[T]he objective approach [is] to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean… [I]t will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding ‘of the genesis of the transaction, the background, the context [and] the market in which the parties are operating’. As Arden LJ observed in Re Golden Key Ltd [[2009] EWCA Civ 636 at [28]], unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption ‘that the parties…intended to produce a commercial result’. A commercial contract is to be construed so as to avoid it ‘making commercial nonsense or working commercial inconvenience’.

The Context in which the 30 September 2019 Agreement Arose

The EPC Contract Performance Securities Regime

  1. Commonly, engineering and construction contracts like the subject EPC Contract for engineering, procurement and construction of the Works, require the contractor undertaking the Works to specified standards and temporal constraints to provide a form of security for performance of its contractual obligations, often by way of unconditional bank guarantee.
  1. The contractual framework pursuant to such security for performance is provided by the contractor to the Principal for which the Works are to be delivered, defines the nature and timing of the security for performance required, the circumstances in which the security provided by the contractor will be returned to it, and the bases for access by the Principal to all or part of such security.
  1. The EPC Contract between BWF and SGRE stipulates in cl 25.1 for the provision and maintenance of the security for performance, and in cl 25.7 for the circumstances in which that security may be demanded, received and used by BWF as the Principal under the EPC Contract.
  2. The express terms in which BWF and SGRE have agreed in relation to BWF’s rights and entitlements in respect of conversion of the Performance Securities provided by SGRE under the EPC Contract, are clear, strong, unequivocal and unqualified in excluding any relevant constraint or fetter upon BWF’s right to demand, receive or use the proceeds of the Performance Securities.
  3. The EPC Contract provides, in cl 25.7, for unrestricted access to the Performance Securities provided by SGRE wherever BWF, as Principal, asserts a right to the payment of money by SGRE, as Contractor, under or arising out of or in connection with the EPC Contract, including with respect to liquidated damages, or otherwise at law relating to the work under the EPC Contract.
  4. Subclause (e) of cl 25.7 of the EPC Contract also provides that:

The Contractor covenants with the Principal that the Contractor will not institute any proceedings, or exercise any right or take any steps to injunct or otherwise restrain:

(1)          the financial institution that issued the Security from paying the Principal pursuant to the Security;

(2)          the Principal from taking any steps for the purpose of making a demand under any Security or receiving payment under any Security, or otherwise exercising its rights under any Security; or

(3)          the Principal using the money received under the Security, even where the Contractor disputes the Principal’s right to payment (including where dispute resolution proceedings have been commenced under clause 41).

  1. Here it is accepted by both BWF and SGRE that the effect of the terms of the EPC Contract do not give rise to any relevant fetter upon BWF’s entitlement in relation to recourse.  SGRE does not argue to the contrary.
  1. Courts have frequently upheld the agreement of parties to engineering and construction contracts, where clearly discernible as to the establishment of agreed circumstances enabling ready and unfettered access to performance security funds.  Courts have also commonly held that such security is intended to be readily accessible and as ‘good as cash’, even in the event of the Contractor’s strong dispute about the Principal’s right to access to such moneys, and pending resolution of such dispute.
  1. I consider it clear that the EPC Contract’s Performance Securities terms which constitute the underlying EPC Contract and which are a major component of the context in which the 30 September 2019 Agreement was made, is of the type described in the last preceding  paragraphs and also in the nature of a contractual risk allocation regime in that regard.  Clauses, including 13.8 and 25.7 of the EPC Contract, make that plain.
  1. In relation to the above characterisation, and justifying it, the EPC Contract provides:

(a)        by cl 41.1 (set out above herein) that if a dispute arises between the Contractor and the Principal, or the Contractor’s Representative and the Principal’s Representative, then such dispute will be dealt with in accordance with cl 41 of the EPC Contract, and in relation to a dispute in the nature of the dispute between SGRE and BWF relates to commercial or legal issues and must be referred to arbitration in accordance with the UNCITRAL Rules of Arbitration;

(b)       however it is to be noted that by cl 41.6 either party may institute proceedings to seek injunctive or urgent declaratory relief in respect of a dispute under cl 41 or any other matter arising under the EPC Contract;

(c)        by cl 44.8 the parties agreed to an Entire Agreement and no reliance clause; and

(d)       by cl 44.9 a Variation Agreement Clause which provides that a variation of any term of the EPC Contract must be in writing and signed by the parties.

  1. Further, the Consent Deed at cls 3.1(e) and 3.2 (which deal with certain exceptions) prohibits amendment, waiver, release or variation to, or in respect of the EPC Contract.  However the exceptions to this prohibition defined in cl 3.2 include amendment variations or waivers of an immaterial, minor, or inconsequential nature.
  1. SGRE’s arguments in relation to the above include in summary that:

(a)        the 30 September 2019 Agreement was an agreement entered into after the formation of the EPC Contract, and therefore the entire agreement and reliance provisions in cl 44.8 do not have any application;

(b)       the requirement of cl 44.9, as to variations to terms of the EPC Contract being in writing and signed by the parties is satisfied by the signed letter of 30 September 2019;

(c)        this application by SGRE is, as provided in cl 41.6, one that the parties have contemplated and agreed to permit under the ‘carve out’ exception to the reference of all commercial and legal disputes to arbitration under cl 41 of the EPC Contract; and

(d)       the 30 September 2019 Agreement is not rendered invalid or ineffective by cl 3.1(e) or cl 3.2 of the Consent Deed.

The parties relevant contract correspondence leading up to 30 September 2019

  1. The formal contractual correspondence passing between the parties in the lead up to 30 September 2019 is also a significant part of the context in which the 30 September 2019 Agreement is to be interpreted.  That particularly relevant contract correspondence between the parties leading up to the 30 September 2019 Agreement includes:

(a)   BWF to SGRE dated 19 August 2019 –

Subject:  Date for Practical Completion and Delay Liquidated Damages

We refer to previous correspondence and note that the Contractor has failed to reach Practical Completion by the Date for Practical Completion (i.e. 16 August 2019).  Accordingly, the Contractor is liable to pay to the Principal Delay Liquidated Damages at the rate of $218,400 per day (i.e. $3,900 x 56 turbines) for every day after the Date for Practical Completion up to and including the Practical Completion Date.

The Principal hereby formally reserves its right to recover from the Contractor the amount of Delay Liquidated Damages by any manner permitted under the EPC Contract or at law.

(b)  BWF to SGRE dated 2 September 2019 –

Subject:  Bulgana Wind Farm – Delay Liquidated Damages (Main Works) Set-off – Tax invoice 6520001094

We refer to:

1.           Principal’s letter dated 19th August 2019 and titled “Date for Practical Completion and Delay Liquidated Damages” [Ref:  BGPH-LET-20190819-097], communicating Principal’s reservation to recover from the Contractor the amount of Delay Liquidated Damages by any manner permitted under the EPC Contract or at law;

2.           Contractor’s tax invoice no. 6520001094 dated 14 August 2019 and received by the Principal’s Representative on 14 August 2019, and;

3.           Principal’s Representative’s Progress Claim Certificate (3318804_PC_15.0) dated 6 August 2019

Capitalised terms used in this notice but not otherwise defined have the meanings given to them in the EPC Contract, and references in this notice to clauses are references to clauses in the EPC Contract.

Delay Liquidated Damages

As you are aware, Delay Liquidated Damages of $3,426,000 are now due and payable by the Contractor to the Principal pursuant to the terms of the EPC Contract for the period 16 August – 31 August 2019 (“Delay Liquidated Damages Amount”).

Under the EPC Contract the Principal is entitled to recover the Delay Liquidated Damages Amount by any manner prescribed under clause 13.8(e) of the EPC Contract. …

Further, we note that as of the date of this letter Delay Liquidated Damages at the Delay Liquidated Damages Rate continue to accrue because the Contract has still failed to reach Practical Completion.

The Principal continues to reserve its right to recover from the Contractor the amount of Delay Liquidated Damages by any manner permitted under the EPC Contract or at law.

(h)  White & Case to Clayton Utz dated 19 September 2019 –

Bulgana Wind Farm – Bulgana Green Hub Facility EPC Contract (EPC Contract)

We act for Bulgana Wind Farm Pty Ltd and have been instructed with your letters to our client dated 5 and 13 September 2019.

In the meantime, absent responsible efforts and effective engagement by your client on the real issues, there is no basis for commercial concessions to be sought or considered, and your client is on notice that the Principal expressly reserves all rights under the EPC Contract and at law, without limitation.

The facts and circumstances

  1. Further, the facts and circumstances set out in the Background section above commencing at paragraph [8] also form part of the relevant context in which the 30  September 2019 Agreement is to be construed.

The Affidavit evidence relied upon by the parties

  1. SGRE relies upon the Affidavits of Thomas Hertling affirmed 8 October 2019 (First Hertling Affidavit) and affirmed 16 October 2019 (Second Hertling Affidavit).
  2. BWF relies upon the Affidavits of Laurent Francisci sworn 14 October 2019 (First Francisci Affidavit) and sworn 17 October 2019 (Second Francisci Affidavit) and the Affidavit of Philippa Mitchell sworn 8 October 2019.

SGRE’s submissions in relation to the admissibility of affidavit evidence

  1. SGRE submitted that the rights and liabilities of parties under a provision of a contract are to be determined objectively, by reference to its text, context and purpose.  Ordinarily, the process of construction is by reference to the contract alone.
  2. Accordingly, SGRE submits if an expression is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances cannot be adduced to contradict its plain meaning.  If an expression is ambiguous, it may be necessary to have recourse to objective events and circumstances external to the contract.
  3. SGRE adds that even where evidence of surrounding circumstances is permissible, evidence of the parties’ statements and actions reflecting their actual intentions and expectations will be inadmissible.  Accordingly, much of the Francisci Affidavit (including paragraphs 38, 41-44, 49, 53, 57-59) is inadmissible.  On this aspect SGRE filed a Schedule of Objections to certain affidavit evidence.

BWF’s submission as to the admissibility and relevance of affidavit material

  1. BWF submits that evidence of surrounding circumstances known to the parties is admissible to assist in the interpretation of the contract, if the language of that contract is ambiguous or susceptible of more than one meaning.  BWF also submits that it is permissible to adduce extrinsic evidence to prove that ambiguous words or passages which are susceptible of more than one meaning should have one of those meanings, that is, to employ such extrinsic evidence, not to alter the subject contract but to identify its subject.  Similarly where a contractual term is ambiguous, extrinsic evidence may be admitted, as an exception to the parol evidence rule, to identify the subject matter of the contract.  BWF also submits that drafts in the evolution of what is finally agreed cannot be taken into account in construing the concluded agreement but only on BWF’s submission in respect of the ambiguity it argues arises by reason of the second sentence in paragraph 3 of the 30 September 2019 Agreement and only then so as to identify the subject matter of that term, as an aid to its proper construction.

  2. BWF’s submission is that the crucial question of construction is the intention of the parties as embodied in the second sentence of paragraph 3 of the 30 September 2019 Agreement.  In relation to this element of the 30 September 2019 Agreement, BWF submits that ambiguity arises.  BWF poses the questions arising and thereby identifies ambiguity to be, in what circumstances, or in respect of which matters, may BWF make a demand or claim under the Performance Securities.
  1. In response to SGRE’s argument that the second sentence of paragraph 3 of the 30  September 2019 Agreement has its sense in providing for access to the Performance Securities in relation to BWF’s contractual entitlements other than DLDs, BWF also submits that there is no evidence that the question of access to the Performance Securities was in respect of any other matter apart from DLDs.
  1. BWF also submits that the second sentence of paragraph 3 is concerned with any future call on the Performance Securities in respect of DLDs and that to the extent that the second sentence in paragraph 3 may be considered to be ambiguous or susceptible of more than one meaning, evidence of prior negotiations passing between Williams and Lim including earlier drafts of the 30 September 2019 Agreement under discussion, are admissible at least for the purpose of identifying, on BWF’s submission, the subject matter of the term and, consequently, properly construing it.
  1. BWF also submit that communications between the respective in-house counsel for BWF and SGRE reveal two critical matters:

(a)        that the second sentence of paragraph 3 is concerned squarely with BWF’s entitlement to call on the Performance Securities in respect of DLDs;

BWF adds that the second sentence of paragraph 3 is not concerned with any matters other than DLDs;

BWF calls upon these matters in further support of its argument that BWF was not abandoning its right to call on approximately $25 million in Performance Securities in respect of DLDs, which were continuing to accrue, but was merely agreeing not to call on that security in respect of the August 2019 DLDs, and otherwise provide 5 business days’ prior written notice of any future call on the Performance Securities; and

(b)       that an earlier agreement proposed by SGRE was unambiguously rejected by BWF and was not subsequently sought to be revived by SGRE.

  1. BWF also filed a Schedule of Objections to various parts of the affidavit evidence sought to be relied on in the Francisci’s affidavits.  My approach to and decision on these objections is dealt with below.

Admission of drafts in the exercising of interpreting a finally agreed contract

  1. In addition to the above outlined submissions of both BWF and SGRE in relation to the other affidavit evidence, the parties take a different position as to the admissibility of the drafts of the letter of 30 September 2019 and associated communications passing between the parties on the afternoon of 30 September 2019.

Summary of SGRE’s submissions in relation to the admission of drafts of the 30 September 2019 Agreement

  1. SGRE submitted that the draft agreements passing between the parties on the afternoon of 30 September 2019 are not admissible, and the authorities relied upon by BWF on this issue are distinguishable from the present case.
  2. SGRE contended this is not a case in which any of the draft agreements reflect, ‘an agreed understanding’ between the parties.  SGRE further contended this distinguishes the present case from Royal Botanic Gardens relied upon by BWF.  Moreover, SGRE contends that prior dealings between the parties resulted in an agreement that falls within the second category of Masters v Cameron, being that the parties had completely agreed on all the terms of their bargain, but had made performance conditional upon the execution of a formal document.
  3. SGRE submitted that the present case is also distinguishable from Lodge Partners upon which BWF also relies.  In Lodge Partners the plaintiff submitted that the general rule excluding the admission of antecedent draft agreements did not apply because, ‘the evidence of the change made to the draft on 24 November 2006 at Mr Pegum’s request and agreed to by Mr Lodge was clear, undisputed, and admitted without objection’. 

  4. SGRE submitted that a reason for drafts not being admissible when construing the content of the final agreement is because, ‘a party may change his or her mind as to the provisions of a draft agreement for many reasons during the course of negotiations’.  SGRE further submits this was not the case in Royal Botanic Gardens or Lodge Partners and contended that it is a factor in the present case hence rendering the authorities relied upon by BWF of no relevance.

BWF’s submissions in relation to the admission of draft agreements

  1. BWF repeated its submission in relation to this issue that evidence of surrounding circumstances known to both parties is admissible to assist in the interpretation of the contract if the language relevantly employed is ambiguous or susceptible to more than one meaning.  BWF also submits it is equally legitimate to adduce extrinsic evidence to prove that words which are susceptible of more than one meaning are applicable to one only of those meanings, insofar as not to alter the contract but to identify its subject.  BWF submitted where a contractual term is ambiguous, extrinsic evidence may be admitted, as an exception to the parol evidence rule, in order to identify the subject matter of the contract.

  2. BWF submitted that it is not an absolute rule that a draft agreement cannot be taken into  account when construing the concluded agreement.  BWF relied on Royal Botanic Gardens and Lodge Partners.  BWF submits that in the circumstances the drafts passing between the parties on the afternoon of 30 September 2019 should be admitted here to assist in properly construing the purpose of the ambiguous second sentence of paragraph 3 of the 30 September 2019 Agreement.

Conclusion – admissibility of draft agreement

  1. I consider that the numerous drafts of proposed formulations of what was finally agreed between the parties as to the signed 30 September 2019 Agreement and associated communications, which were circulated for consideration on the afternoon of 30 September 2019, should not be taken into account by me in the process of construing the subject agreement.
  1. In my view the draft agreements concerned are in the nature of communications of preferred positions and language exchanged by SGRE and BWF in their effort to agreement on the terms ultimately formally executed between about 6.29pm and 6.34pm on 30 September 2019.  I consider the final executed expression of the parties’ agreement in that letter of 30 September 2019, precludes, and renders of no assistance in this interpretive exercise, reference to early drafts and associated communications.
  1. Furthermore, I do not consider that any draft of the ultimate executed letter reflects a relevant discrete agreement or agreed understanding between the parties.  Furthermore here there is the above summarised dispute as to the appropriateness of utilising such drafts in the process of construing the letter in issue.  That is SGRE objects to their admission in the determination of the contract interpretation task required.  On these bases I regard this case as distinguishable from the situation in Lodge Partners and Royal Botanic Gardens, cases relied upon by BWF.
  1. Finally, I also consider that here I should reject reliance on drafts of the agreement in question as in the nature of exchanges in a negotiation in respect of which parties may permissibly change their minds and should not be discouraged from proffering desired negotiating positions, terms or outcomes confident that later, somehow such communications will not be used against them.

The 30 September 2019 Agreement is in part ambiguous

  1. I consider that paragraph 3 of the letter of 30 September 2019, is patently ambiguous.
  1. This ambiguity arises from both the language in the first sentence of that paragraph read together with the second sentence of the same paragraph. The first sentence states that BWF will not exercise its right to draw on the Performance Securities in its possession in relation to this matter.
  1. This language SGRE submits reflects the parties’ agreement that BWF has agreed in an unqualified way, not to draw on the Performance Securities in respect of DLDs under the EPC Contract.
  1. However, the second sentence of paragraph 3 of the 30 September 2109 Agreement states that, for the avoidance of doubt, BWF will not make a demand or claim under the Performance Securities before giving at least 5 business days’ prior written notice.
  1. This second sentence in paragraph 3, in my view, gives rise to the patent ambiguity to which I have earlier referred.  This is because whereas standing alone the first sentence of paragraph 3 may reflect an unqualified abandonment or open-ended deferral of BWF’s rights of recourse to the contract Performance Securities in relation to DLDs owed by SGRE to BWF, the second sentence of paragraph 3 of the 30 September 2019 Agreement contemplates that BWF has an immediate and ongoing right to draw on the Performance Securities and that in respect of that right the parties have agreed that BWF must give at least 5 business days’ prior written notice before making any such demand or claim.  Patent ambiguity is thus established.  In my view the great significance of that right has been emphasised by the parties use of the phrase ‘for the avoidance of doubt’.
  1. Further, the second sentence of paragraph 3 of the letter of 30 September 2019 is also in its own terms ambiguous and susceptible of more than one interpretation because its language does not render it clear in what circumstances, or in respect of which matter, BWF  is entitled to make a demand or claim under the Performance Securities.
  1. Accordingly, I consider it permissible and desirable that, in addition to the evidence I refer to above which establishes relevant context, and a large part of the circumstances informing the genesis of the 30 September 2019 Agreement, in the task of interpreting the terms of the letter in issue, I also consider that it is, in the circumstances, permissible and of utility, while giving primacy to the text of the 30 September 2019 letter and ultimately taking the text of the subject agreement as the starting point, to consider all elements referred below as part of the context in which the subject letter was agreed, so as to best ascertain the commercial purpose or object intended to be secured by the parties through that Agreement, and to do so, in addition to the elements of context already addressed in these Reasons to draw on those parts of the affidavit evidence filed in this matter which I consider to be of some weight, materiality and probative value.

The parties objections to Affidavit evidence

  1. Both SGRE and BWF objected to parts of each other’s affidavit evidence.  In respect of the parties’ objections, which are summarised in Schedule format and which were exchanged during the hearing on 17 October 2019, and also at that time discussed as a mode of disposal at transcript 3.5 to 4.28, I have provided to the parties my Ruling on each of their notified objections to affidavits.
  1. The substance of my Rulings is that I have admitted all of the affidavits relied upon by SGRE and BWF but subject to the parties’ objections as they bear upon affidavit evidence put forward in relation to questions concerning the proper interpretation of the 30 September 2019 Agreement.  On this topic I have ascribed no weight to the evidence of Hertling and Francisci, which is in the nature of their subjective intentions, desires, opinions, conclusions and understandings.  In the end result I consider that the only probative evidence of material weight and which is probative as to the conversations between Hertling and Francisci is the specific evidence in the Second Hertling Affidavit at [27] and the First Francisci Affidavit at [37].
  1. I have given no weight to the evidence in the Second Hertling Affidavit at [29] on the contract interpretation issues because that evidence is in the nature of Hertling’s personal views, interpretations, opinions and conclusions and is in the nature of a submission in relation to matters said not to be discussed with Francisci.  Furthermore, and most significantly, Hertling’s evidence at [29] does not deal with what was actually said between him and Francisci, but is in the nature of conclusive assertions.
  1. I also ascribe no weight to [36] of the Second Hertling Affidavit because in that part Hertling does no more than refer to the earlier agreement with Francisci at about noon on 30 September 2019.  Furthermore, a conversation of this substance at 5.20pm on 30  September 2019 is denied by Francisci at [14] and [15] of the Second Francisci Affidavit.
  1. It is Hertling’s specific more detailed evidence of what was said at about noon that day at [27] of the Second Hertling Affidavit which I accept is of weight and probative.
  1. Nor have I given any weight to the Second Francisci Affidavit in relation to the contract interpretation issues because it is the only content which purports to specifically describe what was said in conversations he had with Hertling makes it plain that there was no meaningful dialogue in relation to the 30 September 2019 Agreement at about 5.20pm that day, and no meaningful dialogue about the earlier discussion they had at about noon earlier that day.
  1. For the reasons further outlined below, on the contract construction issues, and apart from their references to the contractual and factual background to the 30 September 2019 Agreement, I consider that it is only the specific detailed evidence of what was said between Hertling and Francisci at about noon on 30 September 2019, which is in an admissible and probative form, in the Second Hertling Affidavit at [27] and the First Francisci Affidavit at [37] which are, in my view, to be considered in relation to identifying the object or purpose of the 30 September 2019 Agreement.
  1. As to Hertling’s position in SGRE, Hertling affirms that he is the Acting Managing Director Technical and that this role is similar to a Chief Executive Officer of SGRE.  Hertling also affirmed that he holds qualifications in finance, economics and law.  Hertling deposes that as Managing Director his responsibility included overall financial and operational performance of SGRE, setting and executing company strategy, customer relations, company governance and suppliers and subcontractor performance.
  1. Between 2017 to September 2019, Hertling was the Managing Director Finance and Administration, which he deposes is a role similar to a Chief Financial Officer of SGRE, responsible for overall finance performance, reporting and compliance, customer relations and business development.
  1. As to Francisci’s position in BWF, Francisci deposes that he is a Director of BWF and holds degrees in Business and Administration, Civil Engineering and has 25 years of experience with Major Infrastructure Projects.

Lead up to 30 September 2019 Agreement (Hertling and Francisci Affidavits)

  1. Hertling also refers to communications with Francisci, Chief Operating Officer of BWF and NEOEN leading up to and in relation to the 30 September 2019 Agreement.
  1. In that regard, Hertling states that on 18 September 2019 Francisci and Hertling agreed that it would be desirable to keep operational and legal aspects of the project separate so that the operational aspects of the project could be resolved as soon as possible, leaving the legal aspects to be resolved by further agreement or the dispute resolution process under the EPC Contract.  Francisci does not in his affidavits refute this matter.

The object and purposes of the 30 September 2019 Agreement

  1. With minor and in my view inconsequential differences, both the Second Hertling Affidavit and the First Francisci Affidavit make statements in relation to a telephone conversation on 30 September 2019 around midday in which Francisci warned that BWF was intending to call on SGRE’s Performance Securities in relation to BWF’s claim in respect of DLDs.  Francisci states in relation to that conversation that he suggested that SGRE could agree to BWF continuing to deduct DLDs from SGRE’s payment claim and agree to giving up SGRE’s claims under the SoP Act and Hertling responded in substance that SGRE’s preference would be for BWF to continue to deduct DLDs from payment claims rather than call upon SGRE’s bank guarantee, and said in addition that SGRE would be willing to agree not to make claims under the SoP Act.
  2. The detail of the words actually spoken as referred to in the Second Hertling Affidavit at [27] and in the First Francisci Affidavit at [37] provide the best and most persuasive evidence of the key relevant conversations between those senior executives.
  1. It is noteworthy in my view that neither Hertling nor Francisci, in the said conversation, referred to in their more detailed and probative evidence to which I have referred, mention discussing a general or ongoing moratorium or prohibition on BWF being able to call on SGRE’s Performance Securities.  Rather, Hertling and Francisci in the conversation of midday 30 September 2019, on an objective and fair reading of what they stated to each other, focus on the deduction of DLDs from SGRE’s payment claim within the context of an existing invoice from BWF in relation to a DLDs claim by BWF which had at the time of the conversation not been paid by SGRE.  That Invoice it is accepted was the Invoice for August 2019 DLDs.  The conversation also addressed BWF continuing to deduct DLDs from payment claims rather than call up SGRE’s bank guarantee and SGRE not making a security of payment claim which at that point SGRE had raised in relation to BWF’s offer to set-off DLDs against SGRE’s payment entitlement.
  1. In the Second Hertling Affidavit at [29], Hertling disagrees with Francisci (at [38] of the First Francisci Affidavit) in which Francisci denies that he and Hertling discussed BWF giving away its right to call on security.  In the Second Hertling Affidavit at [29] Hertling states that his noon conversation with Francisci was about BWF not calling on the Performance Securities with BWF’s claims for DLDs and in return SGRE not  agreeing to make a claim under the SoP Act and allowing BWF to set-off DLDs against SGRE’s payment claims.
  1. In relation to both Hertling’s said evidence at [29] and Francisci’s said evidence at [38], as I have earlier noted, I consider these summary statements to be of no real assistance in construing the 30 September 2019 Agreement.  What is said in those paragraphs by each witness is in the nature of rolled upon general evidence replete with summary subjective conclusions, interpretations and opinions.
  1. Hertling’s specific evidence at [27] of his Second Affidavit is of assistance.  In that conversation Hertling conveyed in substance that SGRE was in a difficult position contractually (‘between a rock and a hard place’) and expressed a preference for SGRE to be subject to deduction (set-offs) of DLDs from SGRE’s right to payment claims, rather than have its bank guarantees accessed.  SGRE also made it clear in the circumstances, if BWF continued to deduct DLDs, SGRE was willing not to prosecute its security of payment claims.  I note again that this more detailed and persuasive evidence of Hertling does not refer to BWF discussing giving away its rights to calling on Performance Securities.
  1. I also note as important, and uncontradicted by Hertling, Francisci at [37] of the Second Francisci Affidavit, refers to the context of the noon 30 September 2019 discussion as one in which BWF has invoiced DLDs which have not been paid.  It is conceded by SGRE in argument that these DLDs, were those certified against BWF in August 2019.  Francisci also stated that setting of DLDs would allow the parties to stay within the contract.
  2. In my view, the admissible and persuasive parts of the above evidence of Hertling and Francisci in relation to the telephone discussion at about midday on 30 September 2019 persuade me that the call was one in which the discussions did not reflect that the parties intended to deal in their agreement with an unqualified or an ongoing fetter on BWF’s ability to access the Performance Securities, but rather the focus was on an agreement whereby BWF would deduct DLDs from SGRE’s payment claims in respect of then invoiced unpaid DLDs.  On this aspect, as I have earlier noted, the parties accept that at that time the only invoiced DLDs were the August 2019 DLDs.  This, in my view, also reconciles with Francisci’s statement that ‘if we don’t call the security you (SGRE) could send me a letter for set-off and we would stay within the contract and you would not make a security of payment claim’.  Hertling does not directly dispute that the above statement was made by Francisci.
  3. Further, it is I consider clear that on 30 September 2019 both Hertling and Francisci were proceeding on the basis that their discussion of about midday that day was to be the subject of a formally drafted letter to be executed in terms setting out the parties’ agreement.
  4. I am persuaded that the object and purpose of the 30 September 2019 Agreement are informed in relation to the ambiguous text of paragraph 3 of that agreement, by those aspects of the parties’ affidavit evidence referred to above, and although any final conclusion as to the proper interpretation of the 30 September 2019 Agreement is subject to the primacy of the text of that agreement, I am persuaded for the reasons I have outlined, that Hertling and Francisci’s discussions at about noon on 30  September 2019, support the conclusion that, as BWF submits, that the object or purpose of that agreement was to agree to the sequence  in which BWF would exercise its contractual right to recover DLDs from SGRE by way of contractual set-off and, if and when the Performance Securities were to be called up, for BWF to give 5 business days’ prior written notice in relation to its intend to do so.

Reasons for interpretation of 30 September 2019 Agreement

Does the 30 September 2019 Agreement give rise to a contractual qualification or limitation in relation to recourse to the Performance Securities

The 30 September 2019 Agreement on SGRE’s submission impair terms of the Performance Securities provision and recourse agreement at cl 25.7 of the EPC Contract.

  1. In my view, the language and intent of the 30 September 2019 Agreement is clear from the express terms of the parties’ signed letter of 30 September 2019 save in relation to the ambiguities I have earlier identified in relation to paragraph 3 of that Agreement.
  2. It is the text which is to be given primacy in the task of interpreting a contract, and only if that text is not clear may other than legitimate considerations such as context and purpose be brought to bear.
  3. I consider that a fair reading of the language used in the parties’ 30 September 2019 Agreement would communicate to a reasonable business person that:

(a)        The agreement was generally to do with the subject of DLDs in relation to the Project.  This is, in my view, clear from the heading of the letter ‘Subject:  Delay Liquidated Damages (‘DLDs’)’ and the reference to that same general subject matter in the first sentence, which reads ‘We refer to the above matter and our telephone conversations between our (2) organisations today’ informed by any admissible evidence of the telephone conversations.

(b)       I do not however accept that the references to ‘this matter’ in paragraph 2 of the letter and the reference to ‘this matter’ in paragraph 3 of that letter are references to the generality of DLDs.  Those references are informed by the conversations between the parties at noon on 30 September 2019, and the express terms agreed as part of the 30 September 2019 signed letter.

(c)        In my view, the reference to ‘this matter’ in paragraph 2 of the letter, read in the context of the whole of the letter of 30 September 2019, and in particular the context and specific terms agreed in paragraph 2 thereof, fairly read conveys that the parties intended ‘this matter’ to refer to the core of the agreement by BWF to continue to offset any DLDs against payments due to SGRE and SGRE’s concomitant agreement not to oppose such offset and not to exercise its rights in relation to the SoP Act.

  1. Accordingly, in my view, the thrust of SGRE’s submission that BWF agreed by the 30 September 2019 letter not to draw on the Performance Securities in its possession in relation to its entitlement to DLDs generally and without further qualification, save as to notice, is not supported by the text under consideration or by the parties’ likely intent in relation to the matter to which they agreed by the terms of paragraph 1 and 2 of the subject agreement.
  1. I consider SGRE’s submission in relation to the breadth of the ‘matter’, which it contends in substance to be that BWF agreed to forego the exercise of its rights to access the Performance Securities, fails to engage with the terms and intent of the ‘offset’ arrangement which the parties established by the letter of 30 September 2019, and is at odds with the above express terms and intent, and would produce a most uncommercial and illogical outcome, indeed in my view a commercial nonsense for reasons explained below.
  1. SGRE’s submission that the effect of the express terms in the first sentence of cl 3 of the 30 September 2019 Agreement is that BWF promised not to exercise its rights to call on the Performance Securities ‘in relation to this matter’, namely on SGRE’S submission the dispute between SGRE and BWF regarding BWF’s entitlement to DLDs under the EPC Contract, is for the same above reasons, not in my view supported by the text in particular and my conclusions above as to the likely intent of the parties in relation to their use of the words ‘this matter’ in paragraph 2 and 3 and my conclusion below in relation to the proper resolution of the ambiguity patent on the face of cl 3.
  1. By so submitting, SGRE contends that by the third paragraph of the 30 September 2019 Agreement, SGRE and BWF not only sought to agree on a ‘set-off’ regime and a new arrangement pursuant to which BWF would give 5 business days’ prior written notice before seeking to access the Performance Securities, also that BWF would for an unspecified period, agree not to exercise its rights to draw on the Performance Securities in relation to any DLDs which it asserted SGRE was obliged to pay under the EPC Contract.
  1. For the above reasons and those referred to below, the interpretation which SGRE seeks to place on the 30 September 2019 Agreement does not find support in the clear terms of paragraph 1 and paragraph 2 of that letter, and does not reflect the likely intent of the parties as recorded in the agreed terms in paragraph 3 thereof.  Further, SGRE’s interpretation is most unlikely to be in accord with the parties’ intent for the reasons referred to and is not supported by the context and purpose of the 30 September 2019 Agreement as outlined below.
  1. Paragraph 3 of the 30 September 2019 Agreement is, I consider, ambiguous in the way I identify in these reasons.
  1. Further the second sentence in paragraph 3 of the letter contradicts SGRE’s thesis that the first sentence of that paragraph amounted to BWF agreeing not to draw on the Performance Securities.  If that were so there would be no need to include a term such as exists in the sentence of paragraph 3 that expressly recognises BWF’s right to make a demand or claim under the Performance Securities and adds a term of agreed notice where otherwise cl 27 of the EPC Contract required none.
  1. SGRE argues that the purpose of the second sentence of paragraph 3 is ‘to make it clear that BWF’s promise does not prevent it from exercising its rights to call on the Performance Securities in relation to other BWF entitlements than its claimed entitlement to liquidated damages’.
  1. I also reject this interpretation proffered by SGRE, and note that this submission appears to be quite inconsistent with SGRE’s submissions that under the 30 September 2019 Agreement the term ‘matter’ is intended to refer to BWF’s entitlement to DLDs generally and it is not submitted by SGRE that the term is intended to refer to any other subject matter.
  1. If the last above contention on the part of SGRE as to what was meant by ‘this matter’ was correct, there would be no need to add a new 5 business days’ prior written notice term in respect of BWF’s entitlement to access the Performance Securities on bases other than an entitlement to DLDs.  Further, it would have been an easy matter for the parties to add words to make it clear that the additional 5 business days’ prior written notice agreement related not to a demand or claim under the Performance Securities in respect of BWF’s entitlement to DLDs, but BWF’s entitlement to some other payment or compensation under the EPC Contract.
  2. I also reject SGRE’s argument that the reference in paragraph 2 to ’any such offset’ and ‘continue to offset’ in paragraph 1 are inconsistent with the interpretation proffered by BWF, for the reasons I have addressed.
  3. I accept BWF’s argument that there is no textual support for the argument that the second sentence of paragraph 3 of the subject agreement was in relation to some obligation on the part of SGRE, other than for DLDs.  Further I repeat the earlier identified reason why it is more likely that the last sentence of paragraph 3 is intended to refer to a demand on Performance Securities, in respect of DLDs and also accept BWF’s submission that the parties intended that this would apply to future DLDs which could not be set-off against SGRE’s progress payment entitlements.  The work the parties intended to be done by the first sentence of paragraph 3 was, I consider, in relation to the non set-off August 2019 DLDs above.
  4. Ultimately, in my view, as I have sought to further explain below, taking into consideration the several elements of context identified, and taking also into consideration the object and purposes of the 30 September 2019 Agreement disclosed in the only weighty and probative evidence given by Hertling and Francisci, the Agreement in issue had as an important part of its genesis the by then most recently invoiced August 2019 DLDs claim, asserted by BWF and put in place by the parties, was in significant part to prevent BWF accessing the Performance Securities in relation to that asserted debt for DLDs certified for August 2019.

Context

  1. The context in which the parties agreed the terms of the 30 September 2019 letter includes the clear and strong terms of the EPC Contract defining BWF’s rights and entitlements in respect of the Performance Securities provided by SGRE.  As earlier noted above, the regime established by the contract included a clear option to BWF at its election to recover any amount of DLDs by demand from SGRE or by deducting the amount from the amount certified as payable to SGRE by the Principal’s Representative, or by deducting an amount which BWF asserted it was entitled to in respect of, amongst other asserted entitlements, DLDs pursuant to cl 25.1 of the EPC Contract.
  1. The relevant context also included the factual setting referred to in the Background section above and the matters communicated and raised in formal contractual correspondence between the parties, in particular in the parts of the letters also extracted above.
  1. The correspondence extracted clarify important aspects of the position of the parties, including that by 16 August 2019, SGRE had failed to achieve Practical Completion and was, according to BWF, liable to it for DLDs thereafter accruing on a daily basis.  By letter dated 19 August 2019 BWF advised that it reserved its rights to recover from SGRE and to do so in any manner permitted by the EPC Contract or at law.  By letter dated 2 September 2019 BWF advised SGRE that pursuant to cl 13.8(d) of the EPC Contract, DLDs were due and payable to BWF in the sum of $3,494,400 as of 31 August 2019 and that BWF intended to deduct that sum from the amount certified as being due to the Contractor, although it reserved its right to recover DLDs in any manner permitted under the EPC Contract.
  1. By email dated 5 September 2019 Clayton Utz, on behalf of SGRE, rejected BWF’s right to set-off or the demand on the Performance Securities, and on behalf of SGRE asserted that SGRE was not liable to pay BWF any DLDs because delays to the Works were to the Principal’s account.  In Clayton Utz’s email of 5 September 2019 it required written confirmation from BWF that SGRE would be paid its certified progress amount of $3,341,839.60 and confirmed that it would not make any demand on the contract security on the basis of alleged entitlements to DLDs without giving SGRE 5 business days’ prior written notice.
  1. BWF’s letter of 9 September 2019 refuted SGRE’s claim that it was not liable to BWF for DLDs and further stated that there was no basis for SGRE’s request that the Principal’s agreed rights under the EPC Contract in any relevant respect be qualified, deferred or otherwise amended or fettered by the provision of prior notice or any call on security being made, and otherwise reserved BWF’s rights under the contract.  However, BWF also stated:

If your client has a reasonable proposal or preference regarding the Principal’s rights to recover Delay Liquidated Damages, including a preference as to whether the current amount is accepted to be set-off against payments otherwise due or recoverable from secured, or satisfied by some other means, then please provide written confirmation of your client’s position by 11am on 10 September 2019.

Subject to express agreement in writing to the contrary, the Principal expressly reserves all of its rights to recover Delay Liquidated Damages from the Contractor by any means permitted under the EPC Contract or at law.

  1. By letter of 13 September 2019 to BWF, SGRE responded to BWF’s letter of 9 September 2019 referring to SGRE’s earlier request for confirmation about payment of its PCC progress claim and confirmation that BWF would not make any demand on the security on the basis of DLDs without giving SGRE 5 business days’ prior written notice, and again demanded payment of what it asserted was an amount of $3,341,839.60 of PCC progress claims.
  1. BWF’s letter of 19 September 2019 to SGRE, DLDs of $3,426,000 were due and payable by SGRE under the EPC Contract for the period 16 to 31 August 2019 and restated that BWF was entitled to recover DLDs in any manner prescribed by cl 13.8(e) of the EPC Contract.  BWF also noted that DLDs were continuing to accrue and that SGRE had not yet reached Practical Completion.  BWF again reserved its right to recover DLDs in any way permitted by the EPC Contract or at law.
  1. On 19 September 2019 White & Case on behalf of BWF wrote to Clayton Utz summarising the contractual position, on their client’s instructions, in relation to the Bulgana Wind Farm project, and closed their letter referring to there being no basis for commercial concessions to be sought or considered and placing SGRE on notice that the Principal expressly reserved all rights under the EPC Contract and at law without limitations.

Key aspects of the correspondence to September 2019

  1. The formal contract communications between the parties in my view create a context, up to and as proximate as late September 2019 in which both parties were formally addressing their contractual rights and entitlement, and BWF was again and again emphasising its entitlement to DLDs and the various ways, including set-off or access to the Performance Securities, available to it to satisfy what it claimed as due to it from SGRE in relation to DLDs.
  1. Further, as at late September 2019 it is clear that it was SGRE which sort to have BWF set-off DLDs against its certified progress payment entitlement and it was also SGRE which was seeking an agreement by BWF not to make a demand on the Performance Securities on the basis of DLDs without giving SGRE 5 business days’ prior written notice.  Further, both parties had by 19 September 2019 deployed their legal advisers to deal with communications about these issues.
  1. The context in which the parties agreed the 30 September 2019 letter also included the earlier highlighted terms of the Consent Deed, which prohibited the parties without the Security Trustee’s written permission, from in any way amending, waiving, releasing or varying the EPC Contract, save in respect of minor or inconsequential amendments or variations (to deal with a manifest error in a contract).
  1. Further, the context in which the 30 September 2019 Agreement was reached included the conversations referred to above between Hertling and Francisci on 30 September 2019.
  1. In my view for the reasons I have earlier outlined the object and purpose of the Agreement in issue was to afford accommodation to SGRE in relation to the August 2019 Invoice for DLDs.  In my view the affidavit evidence contradicts, and most certainly conspicuously fails to support, an agreement reached at about noon on 30  September 2019, by which BWF agreed in an open-ended manner to forgo its right to access to the Performance Securities.
  1. Nor do I consider that the awareness of the parties, which I accept, that the BWF claim for DLDs in the month of September 2019 would exceed the progress payment to which SGRE was entitled for that month by more than $3 million, rendered it unlikely that the parties would make such an agreement which, if confined to the August 2019 DLDs, would almost terminate in operation before they began.
  1. On this aspect, in my view, SGRE’s submissions ignores the evidence about SGRE’s objectives to have agreed a regime where set-off would be the primary means of recovery of DLDs by BWF, and its second objective to procure agreement to a 5 business days’ prior notice period before BWF accessed Performance Securities.  These matters were sought by SGRE in its correspondence to BWF in September 2019 were, prior to 30 September 2019, in essence what SGRE wanted to have implemented.  Further, in my view these contextual matters render it even more probable that the 30  September 2019 Agreement was focused on setting off August 2019 DLDs against the SGRE then progress claim entitlements of in excess of $3 million.  Considering the commercial realities it is not in my view remarkable that BWF would accept an arrangement under which it did not seek to recover the approximate $100,000 by which it would not be able to recover its invoiced August 2019 DLDs by set-off, by access to the Performance Securities in respect of those DLDs.  That sum remained payable to BWF, and otherwise recoverable by BWF.
  1. The same factors also I consider render it most commercially improbable that BWF would agree to only an ongoing right to set-off eschewing access to the Performance Securities, because the facts establishing the relevant context reveal that there would be a very large shortfall for BWF after set-off in September 2019 and that situation would greatly escalate thereafter if SGRE did not achieve Practical Completion.  At the same time the likely value of SGRE’s progress payment entitlements would diminish as work was more and more complete, and it is reasonable to infer that for the same reason SGRE’s value of theoretical SoP Act claims would diminish.
  2. SGRE also argues that it would be inherently unlikely for it to agree to not pursue its SoP Act claim for nothing more than BWF’s promise not to call on the Performance Securities in relation to its August 2019 DLDs claim.  SGRE submit this is particularly so because Francisci recognised at 30 September 2019 that the claimed DLDs entitlement in August 2019 could be almost fully offset against SGRE’s August payment entitlement.  I do not accept this SGRE submission for the reasons relating to its potential SoP Act claims referred to above, and for the further reason that in eschewing its SoP Act claim(s) SGRE did not abandon its contractual right to recover those same sums in the arbitration it appears to be seeking.

  3. Finally, nor am I of the view that SGRE’s submissions in relation to the terms and operation of the ‘Consent Deed’, relevant to present contract construction arguments render the Consent Deed irrelevant to present issues.  SGRE’s argument includes a submission the Consent Deed in any event breached, is of no significance because both parties would have perpetrated the same breaches and accordingly there would be no basis upon which to prefer either SGRE or BWF’s construction of the 30 September 2019 Agreement.
  1. I reject SGRE’s submission that the 30 September 2019 Agreement, if to the effect argued for by SGRE, would not relevantly amend or vary the EPC Contract.  On SGRE’s submission, the 30 September 2019 Agreement does amend or vary the EPC Contract.  But introducing a fetter on access to the Performance Securities which would in my view materially alter the operation of cl 13.8(e) and 27.5(1), and perhaps other terms of that EPC Contract.  Further, on SGRE’s contention, the 30 September 2019 Agreement would fall within the exceptions created by cl 3.2(b) and thereby obviate the need to obtain the Security Trustee’s consent.
  1. I consider for the above reasons I have outlined as to the likely effect of the 30 September 2019 Agreement were it interpreted as having the meaning and effect asserted by SGRE, cl 3.2(b) would not apply and the consent of the Security Trustee would likely be required.
  1. Further, in my view, it is not to the point that were the Consent Deed to be breached by both parties perpetrating the same breach, the effect would be neutral in relation to their competing preferred constructions of the 30 September 2019 Agreement.  Rather the point in my view is that part of the context in which the 30 September 2019 Agreement was made is one where both parties can be taken to be aware that they were prohibited, absent prior written agreement from the Security Trustee, to in any way amend, vary or supplement the EPC Contract and that any purported amendment, variation, waiver or release, without consent of the Security Trustee, was agreed by SGRE and BWF to be invalid and not binding.  This, in my view, is a further contextual fact militating against BWF and SGRE entering into an agreement on 30 September 2019 which had the effect of materially amending or waiving or releasing or varying the term relating to the Performance Securities under the EPC Contract.
  1. As a corollary, in my view it might be inferred that both BWF and SGRE, as BWF in fact argues, did not consider that the 30 September 2019 Agreement did anything other than agree immaterial, minor or inconsequential procedural matters in relation to the EPC Contract, namely a sequence as to set-offs prior to access to the Performance Securities in relation to SGRE’s payment entitlements under the contract, non-recourse in relation to the outstanding balance of August 2019 DLDs (which outstanding balance remained payable to BWF) and a requirement for 5 business days’ prior written notice by BWF before it accessed the Performance Securities, and therefore both SGRE and BWF considered the 30 September 2019 Agreement fell within the immaterial, minor or inconsequential meaning and exception in cl 3.2(c) of the Consent Deed.  Consistent with this agreement BWF made the demands it did on 3 October 2019, three days after the 30 September 2019 Agreement.

Purpose

  1. SGRE submits that the purpose of the 30 September 2019 Agreement was to address the manner in which BWF’s claimed entitlement to DLDs would be dealt with.  SGRE also submits that the purpose of the 30 September 2019 Agreement was to do so:

(a)        while the parties sought to resolve issues associated with achieving practical completion; and

(b)       pending resolution by them to arbitration of their broader contractual disputes including as to the extent of BWF’s entitlement to DLDs.

  1. BWF submits that the purpose of the 30 September 2019 Agreement was to agree the sequence in which BWF would exercise its contractual right to recover DLDs from SGRE, that is by way of set-off under cl 13.8(e)(ii) and also to provide BWF’s agreement to 5 business days’ prior written notice before calling upon the Performance Securities.  BWF also submitted that agreement was concerned to, and as an element agreed, not to call on the Performance Securities in respect of the August 2019 DLDs not set-off.
  2. I am satisfied for the reasons I have outlined above, including in relation to the material evidence of Hertling and Francisci, that the fundamental purpose of the 30  September 2019 Agreement was as argued for by BWF.
  1. I consider that the contextual matters identified above also all support BWF’s construction of the 30 September 2019 Agreement, namely to make an agreement by which the sequence in which BWF would exercise its contractual rights in relation to the recovery of DLDs and to agree to give SGRE 5 business days’ prior written notice of a demand under the Performance Securities, which in the result avoided BWF accessing the Performance Securities in relation to the August 2019 DLDs Invoice.
  1. In the circumstances, bearing in mind the position in which SGRE considered itself to be at 30 September 2019, and the numerous occasions in September 2019 on which BWF had formally communicated to SGRE that it was entitled to insist upon its rights under the EPC Contract and was not disposed to compromising those rights, it is most improbable that BWF would enter into an agreement which abandoned, or even materially impaired its very clear cut right to draw on the Performance Securities in the sum of $25 million provided under the EPC Contract, particularly when at 30  September 2019 the Contract Works had failed to reach Practical Completion on time, and were still not Practically Complete, and BWF had at that stage accrued entitlements to DLDs, which entitlements were continuing to accrue on a daily basis and were already accruing at a rate above the SGRE entitlement to payment as certified in August 2019 and that position would be more aggravated from BWF’s perspective in September 2019.
  1. In the circumstances referred to, as earlier observed, I consider that it would be most improbable and would have amounted to commercial nonsense for BWF to enter into an agreement on 30 September 2019 which fettered its right to access the Performance Securities under the EPC Contract, whereas I consider that it made commercial sense for SGRE to agree the terms of that agreement as I consider it was intended to operate.
  1. These matters render it far more likely that the 30 September 2019 Agreement was intended to have the effect argued for by BWF, namely an agreement which did not alter the EPC Contract in any material respect and effected an agreement whereby  BWF would not exercise its rights to draw on the Performance Securities in relation to that part of the August 2019 DLDs which could not be set-off against SGRE’s certified progress entitlement and BWF would in the future first set-off DLDs against SGRE’s certified progress entitlements before accessing the Performance Securities with any such access would be on 5 business days’ prior written notice, thus also not breaching the prohibitions on amendment or variation, or the like under the Consent Deed.
  1. It was however not improbable and not in my view commercially contradictory or nonsensical for SGRE to enter into the 30 September 2019 Agreement, if it had the effect argued for by BWF because leading up to 30 September 2019 SGRE appreciated the very difficult contractual position which had developed, in particular, post the Date for Practical Completion that it was ‘between a rock and a hard place’ in relation to such matters, and sufficiently pressed by the financial exigencies and the Principal’s clear rights under the EPC Contract and BWF’s stated intentions in that regard, that SGRE readily gave up its rights under the SoP Act in return for accommodation by BWF in relation to SGRE’s desire to do all it could to avoid access to any part of the Performance Securities in relation to the August 2019 DLDs claim.
  1. I consider for the above reasons that, save in respect of any outstanding August 2019 DLDs, properly construed the parties agreement of 30 September 2019 contains no express or implied fetter of BWF’s right to call upon the Performance Securities as established by the terms of the underlying EPC Contract.

Construction

  1. In my view the ambiguity referred to in paragraph 3 of the letter at issue is resolved by the contextual and purposive evidence referred to and relied upon in these Reasons, which I consider inform the parties’ intent in relation to paragraph 3 of the letter in contention, and sufficiently establish what the parties thereby intended as explained above.  Further, I consider this to be the intended extent of the meaning and effect of paragraph 3 of the 30 September 2019 signed letter as elsewhere mentioned, and to resolve the arguable tension in that paragraph and give meaningful but limited work for the first sentence to do.
  1. In my view as elsewhere mentioned, the terms of paragraph 1 and 2 of the subject agreement are clear on the usual meaning of the language used therein by the parties, including  BWF’s agreement to offset DLDs (where an offset could be effected), as the primary means of recovering certified DLDs and SGRE’s agreement to eschew its SoP Act claims.

Balance of Convenience no longer relevant

The 30 September 2019 Agreement was not intended to effect an unqualified fetter upon BWF’s contractual right to access the Performance Securities

  1. I have decided the proper interpretation and effect of the 30 September 2019 Agreement and decided to dismiss the SGRE applications.
  1. Accordingly in my view, this conclusion and finding renders it unnecessary and inappropriate to decide issues of balance of convenience which would only be relevant because relief in the nature of an interlocutory restraining order may be granted on the application.
  1. If it were otherwise and some form of interlocutory restraining order was made at this time on SGRE’s application, or at the time of this decision, it would be most relevant to ensure that balance of convenience issues were evaluated and taken into account, because there may be different ultimate outcomes on the relevant issue to be tried and the extent of prejudice to the parties bearing in mind alternative scenarios in relation to the relief granted or refused at trial.
  1. Here the position is different.  I have finally determined the SGRE application and will dismiss SGRE’s Summons and Originating Motion.  That is the outcome on the issue which SGRE framed and argued in support of injunctive relief.  The final determination of that issue, in the negative, in my view wholly disposes of SGRE’s Summons and Originating Motion.

Decision

  1. I have decided and hold that on the proper construction and meaning of the parties’ 30 September 2019 Agreement that Agreement does not give rise to any express or implied fetter upon the EPC Contract Performance Securities regime, but effects an agreement whereby BWF would not exercise its rights to draw on the Performance Securities in relation to that part of the August 2019 DLDs which could not be set-off against SGRE’s certified progress entitlement and reflects an agreement whereby BWF would in the future first set-off DLDs against SGRE’s certified progress entitlements before accessing the Performance Securities and that any such access would be on 5 business days’ prior written notice.
  1. For the above reasons SGRE’s application for an injunction, and underlying Motion to restrain BWF calling upon the Performance Securities is dismissed.

Orders

  1. Accordingly I shall order that the plaintiff’s application by Amended Summons dated 18 October 2019 is dismissed.
  1. I shall hear the parties as to the form of final Orders, and in relation to costs, when convenient.

Sabbagh v Khoury & Ors [2019] EWHC 3004 (Comm) (14 November 2019)

Neutral Citation Number: [2019] EWHC 3004 (Comm)
Case No: CL-2013-000666

IN THE HIGH COURT OF JUSTICE
BUSINESS & PROPERTY COURTS OF ENGLAND AND WALES
COMMERCIAL COURT (QBD)

Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
14/11/2019

B e f o r e :

HIS HONOUR JUDGE PELLING QC
SITTING AS A JUDGE OF THE HIGH COURT

____________________

Between:

SANA HASSIB SABBAGH
Claimant
– and –
 
(1) WAEL SAID KHOURY
(3) SAMER SAID KHOURY
(4) TOUFIC SAID KHOURY
(5) SAMIR HASSIB SABBAGH
(6) SUHEIL HASSIB SABBAGH
(7) WAHBE ABDULLAH TAMARI
(8) CONSOLIDATED CONTRACTORS GROUP SAL (HOLDING COMPANY)
(9) CONSOLIDATED CONTRACTORS INTERNATIONAL COMPANY SAL (OFFSHORE)
(10) HASSIB HOLDING SAL

Defendants

____________________

Ms Sonia Tolaney QC, Mr Simon Colton QC, Mr James Walmsley and Mr Andrew Lodder (instructed by Latham & Watkins) for the Claimant
Mr Philip Edey QC, Mr Andrew Fulton and Mr Andrew Scott (instructed by DLA Piper UK LLP) for the first, third, fourth, eighth and ninth defendants
Mr Alexander Layton QC, Ms Jessica Hughes and Mr Robert Avis (instructed by CMS Cameron McKenna Nabarro Olswang LLP) for the fifth, sixth, seventh and tenth defendants
Hearing dates: 10-11 October 2019

____________________

HTML VERSION OF APPROVED JUDGMENT
____________________

Crown Copyright ©

HH Judge Pelling QC:

Introduction

    1. This is the hearing of:

i) An application by the claimant by an Application Notice dated 19 December 2018 for:

a) Declarations that:

i) a “concession” made on her behalf that certain Share Sale Agreements relied on by the defendants, which I describe in more detail later in this judgment, were “existent, valid and effective” is not an admission for the purposes of CPR Part 14; and

ii) the claimant is not precluded from challenging the existence, validity and / or effectiveness of the Share Sale Agreements in these proceedings by reason of the concession; or

b) An order either under CPR Part 14 or the general law giving permission to withdraw the concession, if such permission is required;

ii) An application by the first, third, fourth, eighth and ninth defendants (“Khoury defendants”) by an Application Notice dated 31 January 2019 for an order pursuant to CPR r.3.4 striking out various paragraphs or parts of paragraphs within the claimant’s Reply to the Khoury defendants’ Defence on the grounds that either (a) the challenged parts of the Reply are inconsistent with the concession the subject of the claimant’s application referred to in paragraph 1(i)(a)(i) above and/or (b) that the parts of the pleading under challenge introduce new causes of action that should be permitted only if and to the extent that the claimant can obtain permission to amend her Claim Form and/or Particulars of Claim to raise them; and

iii) An application by the fifth, sixth, seventh and tenth defendants (“Sabbagh defendants”) by an Application Notice dated 31 January 2019 for similar orders in relation to the Reply to the Sabbagh defendants’ Defence to those sought by the Khoury defendants.

The high level of hostility between the parties to this litigation – first noted by Carr J at paragraph 11-13 of her judgment referred to below – and the lack of proportionality with which it has been approached has continued with these applications. In most other contexts, the length of applications of this sort could proportionately be measured in hours rather than the two days it took and the skeletons would have been a few pages in length. The claimant’s skeleton ran to 25 pages including 13 footnotes and was signed by three leading counsel and two junior counsel and the main skeleton filed on behalf of the defendants ran to 42 pages, contained no fewer than 108 footnotes and was signed by leading counsel and two juniors. The remaining defendants’ skeleton ran to two pages only because it adopted what was said in the other defendants’ skeleton but even that was signed by leading counsel and two juniors. Even allowing for the value at risk in this litigation all this is obviously disproportionate.

Relevant Background

    1. The claimant is the sister of the fifth and sixth defendants and the daughter of the late Mr Hassib Sabbagh (“HS”). In 1950, HS and the late Mr Said Toufic Khoury (“STK”) founded what became the Consolidated Contractors Company group of companies (“Group”). Since 1984, the eighth defendant has been the ultimate holding company for the Group. The eighth defendant is a Lebanese registered company, as are at least some of the other companies that form the Group. The Group is valued “… in the sum of at least US$5 billion …. The first, third and fourth defendants are STK’s sons and cousins of the claimant. The first defendant is the chairman of the eighth defendant and the third and fourth defendants are two of its directors. The first to seventh defendants control the eighth defendant. The tenth defendant is a Lebanese registered company controlled by the fifth and sixth defendants. Its directors are the third, fifth, sixth and seventh defendants. The seventh defendant is also a cousin of the claimant. None of the defendants has any connection with England and Wales other than the first defendant. The claimant has no connection with England and Wales either.
    2. On 29 June 2002 HS suffered a severe stroke. In these proceedings, the claimant alleges that HS’s stroke rendered him unable to manage his business or his own affairs. On 12 January 2010 HS died intestate. The claimant, fifth and sixth defendants are HS’s heirs under Lebanese law and each is entitled to one third of his estate. Relations between the claimant and the defendants broke down over disputes concerning the latter’s management of and dealings with their father’s assets both following his stroke down to his death and following his death. It was those alleged dealings that led the claimant to commence these proceedings.
    3. In these proceedings, the claimant alleges first that from a date shortly after HS suffered his stroke the defendants other than the seventh and tenth defendants conspired to misappropriate assets that belonged to HS. This claim is referred to in these proceedings as the “Asset Misappropriation Claim“. That element of the claimant’s claim is not directly relevant to the claimant’s application or to the part of the defendants’ applications that mirrors the claimant’s application. The claimant’s other allegation in these proceedings is referred to by the parties as the “Share Deprivation Claim“. This claim is concerned with shares in the eighth defendant that the claimant alleges HS owned at the date of his death. It is this part of the claimant’s case that is affected by the claimant’s application and that part of the defendants’ applications that mirrors the claimant’s application.
    4. In the Share Deprivation Claim, the claimant alleges that at the date of his death HS owned 399,915 shares in the eighth defendant and that following HS’s death the defendants conspired to deprive her unlawfully of her entitlement to one third of this shareholding by procuring the transfer of the shares to the tenth defendant. It is common ground that the tenth defendant is the registered holder of the shares.
    5. The defendants’ case in relation to the Share Deprivation Claim is:

“… there was no unlawful conspiracy and that the shares now held by [the tenth defendant] are derived from transfers of shares in [the eighth defendant] which Hassib made prior to his death (and prior to his stroke) in favour of Sana, Samir and Suheil. … it is now common ground that by three share transfer agreements made in 1993 (“the 1993 Agreements”) Hassib agreed to transfer to his children 199,960 of his then holding of 199,970 shares in [the eighth defendant] subject to the retention by him of a usufruct in the shares for his life. Sana became entitled to receive 20,000 shares (for a stated consideration of US$1,333,333) and Samir and Suheil each became entitled to receive 89,980 shares at a price of US$6m. In September 1993 Hassib agreed to transfer 2 more of his remaining shares in [the eighth defendant] to each of his sons leaving him with only 6 shares.

11. Further agreements were entered into in 1995 between Hassib and his children and between Sana and her two brothers, the cumulative result of which (after taking into account increases in the share capital of [the eighth defendant]) was that Sana became entitled to 100,000 shares and Samir and Suheil to 199,960 and 199,961 shares respectively. Then in 1998 Sana transferred her entire holding of 100,000 shares back to Hassib who in turn transferred them to [the ninth defendant]. His remaining 3 shares in [the eighth defendant] were transferred to Suheil. If this sequence of agreements was effective to pass ownership of the shares and any necessary corporate formalities were complied with, the net result of the agreements and transfers executed between 1993 and 1998 was that Hassib had ceased to own any shares in [the eighth defendant] but had retained his usufruct rights over 399,915 shares. By an agreement dated 16 July 2006 (but whose date is in issue) Samir and Suheil transferred 399,915 shares to [the tenth defendant] subject to Hassib’s usufruct. The [ninth defendant] retained the shares it had acquired in April 1998.”

Of the 1993 agreements, Sana was a party to and had initialled and signed one of them – see paragraphs 38-39 of Carr J’s judgment in Sabbagh v. Khoury and others [2014] EWHC 3233 (Comm) – but was not a party to the other Share Sale Agreements made in 1993 – see paragraphs 37 and 39 of Carr J’s judgment. The claimant was a party to and had initialled and signed each of the 1995 Agreements – see paragraph 45 of Carr J’s judgment – and the 1998 Agreements were signed by the claimant and her father – see paragraphs 49 and 50 of Carr J’s judgment. The focus during the jurisdictional hearings was on the two 1993 Agreements to which the claimant was not a party because it was common ground that “… the shares purportedly transferred under the two 1993 Agreements [to which the claimant was not a party] effectively comprise all the shares that [the claimant] contends were owned by [HS] on his death …” – see the claimant’s outline submissions for the jurisdiction hearing before Carr J at footnote 89 and paragraph 109 of the Court of Appeal’s judgment in Sabbagh v. Khoury and others [2017] EWCA Civ 1120.

    1. Although the claimant had issued and advanced her claim on the basis that she had been wrongfully deprived of and was entitled to 133,305 shares in the eighth defendant, on 25 April 2014, before the jurisdiction hearing before Carr J, the claimant stated that the Share Deprivation Claim was not for the delivery up of the shares the claimant claimed to have been deprived of but was a delict claim (according to either Lebanese or Greek law) for damages for loss of the shares to which she claims to have been entitled.
    2. Following the commencement of these proceedings, the defendants challenged jurisdiction. The initial hearing took place in 2014 before Carr J – see Sabbagh v. Khoury and others [2014] EWHC 3233 (Comm) (“Carr J’s judgment”) – and the appeal and cross appeal were heard in 2017 – see Sabbagh v. Khoury and others [2017] EWCA Civ 1120 (“the Court of Appeal’s Judgment”). Carr J identified the concession she understood to have been made in paragraph 34 of her judgment namely that by:

“… the time of the substantive hearing of the jurisdiction applications it was clear that Sana now expressly does not dispute the “existence, validity or effectiveness” of the 1993, 1995 or 1998 transactions”

Carr J described the claimant’s concession that the 1993, 1995 and 1998 Agreements were valid and legally effective as “… a central concession …” because she had advanced “… a positive case (that they were shams and ineffective) … in her submission of September 2012 [and] the subsequent Particulars of Claim do not address them at all.” – see paragraph 109 of Carr J’s judgment. The Court of Appeal’s understanding of the concession being made was similar to that of Carr J, for as it observed:

“Sana’s original position was that the family agreements made between 1993 and 1998 were artificial or sham transactions with no legal effect. But she no longer disputes the existence, validity or effectiveness of the agreements as such. Her case now is that, as a matter of Lebanese law, the agreements fall to be treated as gifts rather than agreements to sell which would continue to bind Hassib (and his heirs) even after his death. As gifts they would lapse on death unless completed as transfers before then. She says that the agreements were ineffective to divest Hassib of ownership of the shares which were later transferred to [the tenth defendant] because the formalities of board approval, registration and reissuing of the shares required under Lebanese law and the articles of association in relation to the earlier agreements were not complied with.”

    1. The jurisdiction issues were argued both at first instance and on appeal on the basis that the claim was that the defendants were guilty of conspiracy to do unlawful acts with the intention of harming the claimant because that was the sole basis on which the claim had been pleaded in the Claim Form and Particulars of Claim. These two elements of the claimant’s case – that she did not dispute the existence, validity or effectiveness of the agreements on which the defendants relied and that her claim depended exclusively on pleading and proving intentional wrongdoing by the defendants – are what give rise to the applications that I have to determine.
    2. The claimant provided some draft re-amended Particulars of Claim to the Court of Appeal in which she attempted to re-state the Share Deprivation Claim. The draft re-amended Particulars of Claim placed before the Court of Appeal included an allegation that the sales to which the Share Sale Agreements referred were not genuine sales and the agreements were shams and of no effect – see paragraphs 23-25 of the draft. There can be no doubt that the claimant was seeking to resile from the concession made before Carr J – see the exchange between Patten LJ and Mr Peto QC, then appearing on behalf of the claimant (together with various other leading counsel and counsel), on 6 February 2017 at transcript pages 9 line 15 to 10 line 4 and 65 line 18 to 66 line 14. The underlying basis of the Court of Appeal’s decision to refuse the claimant permission to rely on new evidence in support of her Share Deprivation Claim in the appeal was that it would be open to the claimant to apply to amend her Particulars of Claim in relation to the Share Deprivation Claim if her appeal in relation to the jurisdiction issue succeeded but that application would have to be made to the Commercial Court and disposed of on its merits as they were at the date when that application was determined – see the transcript of the hearing on 6 February 2017 at pages 14-15. It was not anywhere suggested by anyone that this alternative case could be raised by pleading it in the Replies.
    3. In the event, the claimant succeeded on her appeal and the defendants failed on their cross appeals with the result that the claimant established jurisdiction against all the defendants she wished to sue in relation to each element of her claim.
    4. Following judgment by the Court of Appeal and the refusal of permission to appeal further by the Supreme Court, the defendants had to decide whether to acknowledge service and accept the jurisdiction of the English Courts or to refuse to acknowledge service – see CPR r. 11(7)(b).
    5. Each defendant decided to acknowledge service and accept the jurisdiction of the English Courts but in each case they purported to qualify the terms on which they acknowledged service. Thus in its letter of 26 March 2018, CMS Cameron McKenna Nabarro Olswang LLP on behalf of the Sabbagh defendants qualified their Acknowledgement of Service as being “… confined to the existing claims set out in the Claim Form, to the limited extent that the Court of Appeal accepted the English court’s jurisdiction over such claims, but subject to the numerous concessions your client has made including but not limited to her explicit abandonment of any claim to be presently entitled to or for delivery up of shares …”. Jones Day, the solicitors then acting for the first defendant similarly qualified his Acknowledgement of Service – see their letter of 26 March 2018. Baker McKenzie qualified the other Khoury defendants’ Acknowledgement of Service as being “… only in respect of the two claims as set out in the Claimant’s Claim Form … and is subject to the numerous concessions the Claimant has made to date …” and added that:

“We understand that the Claimant intends to seek to amend her Particulars of Claim and our clients’ position as to whether any such amendment(s), if allowed, impact on the jurisdiction of the court over our clients as regards any claims other than those to which this Acknowledgement of Service is filed is fully reserved, including as to jurisdiction and/or the arbitrability of any such amended claims”

In the circumstances, it is probable that the amendment Baker McKenzie had in mind was one substantially in terms of the draft re-amended Particulars of Claim that had been placed before the Court of Appeal.

    1. Ms Tolaney QC submitted on behalf of the claimant that it was not open to the defendants to qualify their Acknowledgements of Service in this manner. Mr. Layton QC on behalf of all the defendants disputed that this was so. It is convenient to address that issue at this point in the judgment.
    2. I am satisfied that Ms Tolaney’s submission is mistaken for the following reasons. In principle, foreign based defendants can qualify their Acknowledgements of Service in the manner adopted by the defendants in these proceedings – see Glencore International AG v. Exter Shipping Limited and others [2002] EWCA Civ 524; [2002] 2 All ER (Comm) 1 per Rix LJ at paragraph 45, where he said that a “… foreign defendant … brought here against his will and (subject to the role of international treaty, such as the Brussels and Lugano Conventions, which raises different issues) can limit his submission to the jurisdiction and prima facie is regarded as doing so on a claim by claim basis.”. As Rix LJ added at paragraph 50 “… in the absence of a general submission to the jurisdiction … the general rule is that permission has to be obtained within the four corners of the English long arm statute for each separate claim made against him …“. The qualifications contained in the correspondence I have referred to eliminate any suggestion of a general submission to the court’s jurisdiction. Where there has not been a general submission and the claimant seeks to introduce a claim by applying for permission to amend the Claim Form and/or Particulars of Claim, it is open to the defendants to argue that the amendment should not be permitted on the basis that the court has no jurisdiction – see Maple Leaf Macro Volatility Master Fund and another v. Rouvroy and another [2009] EWHC 257 (Comm) per Andrew Smith J at paragraph 190. That is not something that is possible where an attempt is made to achieve the same result by the pleading of a Reply, for which permission is not required.
    3. The authority relied on by Ms Tolaney – Masri v Consolidated Contractors International (UK) Ltd and others (No 3) [2008] EWCA Civ 625; [2009] QB 503 – does not assist the claimants for, as Lawrence Collins LJ (as he then was) said in that case:

“I accept that both under CPR r 6.20 (and its predecessor RSC Ord 11, r 1) and under the Brussels I Regulation, it is not permissible to add by way of amendment additional claims unless the jurisdictional requirements are fulfilled for those claims (including, in the case of CPR r 6.20, the obtaining of permission to serve out of the jurisdiction)”

Short of this “A defendant who submits to the jurisdiction is subject to the incidents of litigation“. Although none of these cases say so in terms, I have no doubt that it is not open to a claimant to avoid these consequences by seeking to insert additional claims in a Reply. Such conduct is an abuse and is likely to result in the offending part of the Reply being struck out under CPR r. 3.4(2)(b).

    1. I now return to the procedural chronology. Following completion of the jurisdictional challenge appeal process, the claimant obtained permission to amend her Particulars of Claim from Males J on 20 August 2018. The amendments sought did not reflect the draft amendments that had been placed before the Court of Appeal. The amendments for which permission was given did not resile from the concession made by the claimant in the jurisdiction proceedings by putting in issue the existence, validity or effectiveness of the Share Sale Agreements, nor did they set up any alternative causes of action to those relied on at the jurisdiction stage as the defendants allege the claimant has done in her Replies. The defendants served their Defences and, on 3 December 2018, the claimant served her Replies.
    2. In her Replies, the claimant purportedly disavowed her concession concerning the existence, validity or effectiveness of the Share Sale Agreements – see paragraphs 32-34 of the Reply to the Khoury defendants’ Defence, where at paragraph 34 it is pleaded that:

“For the avoidance of doubt [the claimant] is not bound by the concession that she made during the course of the Defendants’ jurisdiction challenge that she did not deny the existence, validity or effectiveness of the 1993 Agreements or other agreements. If contrary to [the Claimant’s] case she is presently bound by such concession, she hereby withdraws such concession or (if required) will seek permission to withdraw such concession. …”

It is that part of the Reply pleading that gives rise to what I will call the Concession Issue.

    1. In addition, the defendants maintain that the claimant has set up what the defendants describe as a “… new and alternative case that the defendants are liable for non-intentional wrongdoing”. The basis for this assertion is what has been pleaded in paragraphs 89(8), 91(3)-(4), 92(3)(a) and 93 of the Reply to the Defence of the Khoury defendants. In essence the same point arises in relation to each paragraph – the claimant maintains her primary case concerning what she claims was the defendants’ intention to harm her but in the alternative pleads that “… the Khoury defendants are nonetheless liable under the relevant provisions of both Lebanese and Greek law by reason of … the … imprudence and/or carelessness in their conduct …” – see paragraph 89(8). In paragraph 93, the claimant asserts that the claims made by her against the defendants do “ … not require intentional wrongdoing …” and that they would be liable even if they did not know they were acting unlawfully “… by reason of the seriousness of the wrongs which the defendants committed” and were “… nonetheless liable by reason of the imprudence, carelessness … in participating in such acts”.
    2. In her written submissions, in relation to the assertion that the Replies set up a new and alternative case based on non-intentional wrong doing, Ms Tolaney stated that it had always been and remained the claimant’s only case that the defendants deliberately intended to cause her harm and that the sole purpose of the pleading in the Reply that the defendants challenge was to set up the point that it was not a defence for the defendants to establish that even if they did intend to harm her they did not intend to act unlawfully. Mr Edey submitted on behalf of the defendants (this being an argument that by agreement between the lawyers for the defendants he advanced on behalf of all of them) that this was not the effect of what had been pleaded. I agree with Mr Edey’s submission. He maintained that if an alternative case based on non-intentional wrong doing was to be advanced it should have been by way of an application to further amend the Particulars of Claim, not merely because it was an alternative cause of action that could or should not be pleaded in a Reply but must be pleaded in the Particulars of Claim but also because it was only in such a context that the issues concerning jurisdiction could properly be understood and analysed. I agree. As I have said already, attempting to plead an alternative cause of action in a Reply against a foreign-based defendant who has acknowledged service on a qualified basis is likely to result in the offending part of the Reply being struck out. In addition, the alternative formulation appeared to rely on the same primary facts that were relied on as demonstrating an intention on the part of the defendants to cause the claimant harm and the defendants did not understand and could not reasonably be expected to understand how a non-intentional claim – that is one that depended on imprudence or carelessness as pleaded in the Reply – could be advanced by reference to the primary allegations on which the intention to harm case was based. I agree with these submissions as well. As I explain below, Ms Tolaney did not in the end disagree with them either. Her point was that the position had been fully explained in her skeleton and that should be enough comfort for the defendants. For the reasons that I explain below, I do not accept Ms Tolaney’s submission.

The Jurisdiction Challenges

    1. Given the basis on which the defendants resist the claimant’s application and support their own applications, it is necessary that I set out in some detail the circumstances in which the concession concerning the validity of the Share Sale Agreements came to be made, the basis on which the defendants challenged jurisdiction and the basis on which those challenges were resolved principally by the Court of Appeal in Sabbagh v. Khoury and others (ibid).
    2. The claimant’s case at the commencement of proceedings for maintaining that the court had jurisdiction was that the first defendant was one of the defendants against whom conspiracy was alleged, he was resident in England and thus was the anchor defendant by reference to which the English court obtained jurisdiction against all the other defendants other than the tenth defendant by operation of Art. 6(1) of either the applicable Brussels Regulation (Regulation 44/2001) or the Lugano Convention. As against the tenth defendant, the claimant sought and obtained permission to serve the proceedings out of the jurisdiction under CPR r. 6.37 and Paragraph 3.1 of Practice Direction 6B (the necessary and proper party gateway).
    3. By the time of the hearing before Carr J, the defendants were all challenging jurisdiction and had issued an application seeking a mandatory stay of the proceedings under section 9 of the 1996 Act for a stay of that part of the claim that involved a challenge to the validity of the Share Sale Agreements and a case management stay of these proceedings pending the completion of the references to arbitration of the validity issues in the event that the challenge to jurisdiction failed.
    4. In summary, the defendants maintained that service of the proceedings outside England and Wales ought to be set aside or the proceedings stayed because:

i) The claim against the alleged anchor defendant (the first defendant) was hopeless on the merits and so he could not be used to secure jurisdiction against the other defendants under Art. 6(1) of either the Brussels Regulation or the Lugano Convention (“Merits Issue”);

ii) The Share Deprivation Claim involved matters that the claimant was bound to arbitrate and thus there should be a mandatory stay of those matters by operation of section 9 of the Arbitration Act 1996 and a discretionary case management stay of the remainder while the matters which the claimant was bound to refer to arbitration were resolved by an arbitrator or arbitrators (“Arbitration Issue”); and

iii) The main subject matter of the dispute was a succession claim within the meaning of Art. 1(2)(a) of the Brussels Regulation and the Lugano Convention and thus outside their scope with the result that the proceedings could only have been obtained by obtaining permission from the court under CPR Part 6 and any such application would have been bound to fail on forum conveniens grounds (“Succession Issue”).

The Shares Sale Agreements and the Arbitration Issue

    1. The ostensible substantive effect of the Share Sale Agreements is summarised in the quotation from the Court of Appeal’s judgment in Sabbagh v. Khoury and others (ibid) set out above. No more detail is necessary for present purposes. As I have said already, the claimant did not refer in either the Claim Form or the Particulars of Claim to the existence or effect of the Share Sale Agreements, nor did she do so in the amended Particulars of Claim finally served after completion of the jurisdictional challenges. There was no inherent difficulty in doing so because the claimant had referred to the existence or effect of the Share Sale Agreements in the draft re-amended Particulars of Claim that she had placed before the Court of Appeal. The first time they are mentioned in a served pleading by the claimant is in the Replies that are the subject of the defendants’ applications.
    2. Each of the Share Sale Agreements was subject to an arbitration agreement in identical terms being:

“Any dispute, controversy or question of interpretation arising under, out of, or in connection with this Agreement, or any breach or default hereunder shall be submitted to, and determined and settled by, arbitration in accordance with the following procedures.”

    1. The claimant was a party to or had signed one of the 1993 Agreements, the 1995 Agreements and the 1998 Agreements. She was not a party to any of the other Share Sale Agreements and thus by definition could not be bound by or a party to the arbitration agreement within those of the Share Sale Agreements to which she was not a party. Carr J concluded that there was no realistically arguable basis on which the Share Deprivation Claim could be maintained against the first defendant as the anchor defendant and so there was no jurisdiction in respect of the Share Deprivation Claim. The Court of Appeal overturned that conclusion, which meant that the Court of Appeal then had to consider the Succession and Arbitration Issues.
    2. The Court of Appeal identified the questions that had to be answered concerning the Arbitration Issue at paragraph 121 of its judgment as being first whether as a matter of Lebanese law the claimant was bound by the arbitration agreements relied on by the defendants and secondly whether the Share Deprivation Claim was within the scope of the arbitration agreements relied on. The Court of Appeal rejected the defendants’ contentions concerning the impact of arbitration in paragraphs 131-132 of the Court of Appeal judgment in these terms:

“1993 Agreements: share deprivation claim

131. Once again, in our view Sana is not bound by the arbitration clauses in question since she was not a party to the agreements, and nor does Sana seek to enforce or defend claims on the contracts as Hassib’s heir. We would also reject the argument that Sana must necessarily bring the claim as heir in order to be able to contend that the 1993 Agreements are properly characterised as gifts. On the very limited expert evidence bearing on this point, it appears that this is a procedural requirement of Lebanese law which does not affect the proper characterisation of the claim.

132. Further, and finally, the share deprivation claim would fall outside the scope of the arbitration clauses in the 1993 Agreements, since the claim does not relate to the interpretation, enforcement or performance of the contract in question, which are the only proper subjects of the clause under Article 762 of the Lebanese Code of Commerce.”

The defendants’ case concerning arbitration was rejected on three separate grounds being (1) the claimant was not bound by the 1993 Agreements that were material because she was not a party to them or the arbitration agreements within them; (2) the claimant was not seeking to enforce or defend claims on the contracts (because she was advancing a delictual claim against the defendants for damages) and (3) the Share Deprivation Claim did not fall within the scope of the arbitration agreements within the 1993 Agreements because the otherwise wide scope of the arbitration agreement within each of the Share Sale Agreements was limited by Art. 762 of the relevant Lebanese Code to disputes relating to the interpretation, enforcement or performance of the contract in question. As I read the judgment of the Court of Appeal any one of these reasons would have been enough to defeat the defendants’ case concerning arbitration.

The Concession

    1. Paragraph 12 of the Court of Appeal’s judgment, if read in isolation, suggests that it understood the concession to apply to all the Share Sale Agreements including those in 1995 and 1998, to which the claimant had been a party. All these agreements are relied on by the defendants in combination as together rendering unsustainable the claimant’s case that HS owned the shares at the date of his death – see Paragraph 6 and 75 of the Khoury defendants’ Defence and paragraphs 45-63 of the Sabbagh defendants’ Defence – and the Khoury defendants plead express reliance on the concession as extending to all the Share Sale Agreements including those dated in 1995 and 1998 – see paragraph 75(1) of their Defence. The claimant maintains however that when the jurisdiction hearing took place, the defendants had confined their reliance to the 1993 agreements and all parties understood and proceeded on that basis. On that basis she contends that the concession made no difference whatsoever to the outcome of the proceedings before either Carr J or the Court of Appeal because (i) the concession had no impact on the conclusions that the claimant was not bound by the 1993 Agreements in question and (ii) on proper analysis the defendants could have sought but chose not to seek a mandatory stay in relation to the issues that rose under the 1995 Agreements, and which arose irrespective of whether the concession had been made or not.

The Succession Issue

    1. The defendants submitted both before Carr J and the Court of Appeal that the principal subject matter of both the Share Deprivation Claim and the Asset Misappropriation Claim was succession and thus fell outside the scope of the Brussels Regulation and Lugano Convention by virtue of Article 1(2)(a) in each. I mention this part of the jurisdiction challenge only because it was submitted on behalf of the defendants that the withdrawal of the concession impacted not only the Arbitration Issue identified above but also the Succession Issue.
    2. The Court of Appeal did not approach this issue by reference to the concession. At paragraph 159 it identified the question that arose as being whether the subject matter of the dispute was to be regarded as a claim to recover the shares in the eighth defendant and the other assets that allegedly formed part of HS’s estate at his death or whether the claim was a delictual claim to recover the value of those assets from the defendants. The Court of Appeal decided that it was the latter. As it observed at paragraphs 160-162:

“… this is not a claim against the estate and if the claim is brought in tort or deceit to recover the value of assets to which Sana as heir has title then it becomes more difficult to see why that should be treated as a matter of succession simply because the claimant’s title derives from the Lebanese law on heirship as opposed to being based on a contractual purchase or inter-vivos gift. By the same token, it would be difficult to characterise a claim by an heir to recover property stolen from her by an unconnected third party as succession simply because she had inherited it. The same would apply to a claim by an estate to recover the property of the deceased which a third party had misappropriated. The nature of the rights being protected by the action is the ownership by the heir or administrator of the relevant asset: not their right to succeed to or administer the estate. Why, one asks, should the analysis be any different merely because the alleged misappropriation has been carried out by defendants who include the other heirs or beneficiaries?

161. If one applies the test of identifying the nature of the rights which the proceedings serve to protect, it seems to us that this is undeniably Sana’s ownership of any shares or other assets which Hassib held at his death. The fact that in order to determine the scope of the claim it is necessary first to decide whether specific assets such as the shares were still owned by Hassib when he died is not sufficient in itself to characterise the subject matter of the claim as succession. That much is clear from the judgment in Marc Rich. Nor do we accept Mr Layton’s submission that the fact that Sana’s rights derive from her position as one of her father’s heirs is sufficient in itself to designate the claim as a matter of succession. The source of the ownership is irrelevant to the nature of the claim. In terms of legal effect, it is no different from the title of the trustee-in-bankruptcy in Re Hayward. The subject matter of the dispute is not whether Sana is an heir, but whether the defendants have misappropriated her property.

162. If one looks to the Succession Regulation for assistance as to the scope of the succession exception this, in our view, merely serves to confirm the result of applying the jurisdictional test. We do not accept that Sana’s claim can be described as the determination of the disposable part of the estate or its sharing out. It seems to us that those sub-categories are descriptive, as we said earlier, of issues about entitlement and administration which are not in issue in these proceedings. For these reasons, we consider that the judge was right to reject the objections to jurisdiction based on the claim being a matter of “succession”.”

There is nothing within this analysis that suggests the concession could have had any impact on resolution of the Succession Issue and on that basis it is difficult to see how any credible prejudice could be suffered by the defendants in relation to the Succession Issue if the claimant were permitted to withdraw the concession.

Defendants’ Case concerning the Concession in Summary

    1. The defendants’ case is that the concession concerning the existence, validity or effectiveness of the Share Sale Agreements is an admission within the meaning of CPR r. 14.1(1)that the permission of the court is required before an admission can be withdrawn by operation of CPR r. 14.1(5) and that permission ought not be to given applying the principles set out in Paragraph 7.2 of Practice Direction 14 – Admissions since the defendants will be seriously and irremediably prejudiced if the claimant is permitted to withdraw her concession.
    2. In the alternative, the defendants allege that the purported disavowal of the concession contained in the Replies ought to be struck out under CPR r.3.4 as being an abuse of process. The basis of this submission is that permission was required and unless the court is now willing to give permission the part of the Replies in which the claimant withdraws the concession ought to be struck out as an abuse. I agree that if permission is required and is not given then the relevant part of the Replies would have to be struck out as an abuse. As to the need for permission I accept that the principles set out by Mann J in BT Pension Scheme Trustees Limited v. British Telecommunications Plc [2011] EWHC 2071 (Ch) apply by analogy in a case such as this and that the claimant, having succeeded on the jurisdiction issues in proceedings in which the concession was given, ought not now to be permitted to withdraw that concession without the court’s permission. I accept therefore that the burden rests on the claimant to show that she ought to be permitted to withdraw her concession and for permission to be granted the court must be satisfied that there will not be a real risk of prejudice to the defendants if the claimant is permitted to withdraw the concession – see BT Pension Scheme Trustees Limited v. British Telecommunications Plc (ibid.) at paragraphs 41-44. As Mann J put it at paragraph 44(iii), “… if taking the point would risk causing prejudice to the other party, in the sense that it might have been deprived of the opportunity of dealing with the case differently in the court below, then it is unlikely that resiling will be allowed. The greater the risk, the less likely it is that it will be allowed …” and at paragraph 44(iv) “… there is a low threshold of risk for these purposes …”.

Defendants’ Case concerning the Alleged New Claims in Summary

    1. In relation to the “… new and alternative case …” issue, the defendants allege that what is set out in the Replies is a new cause of action and as such it should have been pleaded by way of amendment of the Claim Form and/or Particulars of Claim for which permission would have been required and which the defendants would have been entitled to resist on jurisdictional grounds given the qualified nature of their submission to the jurisdiction of the court. They add that by pleading it in the short form way adopted in the Reply and seeking to incorporate by reference the particulars set out in the Particulars of Claim given in support of the intentional harm case, the claimant’s case has become incoherent to the point where the defendants do not and cannot reasonably be expected to understand the case against them. They submit that even if technically a new cause of action could be set up in a Reply, the way in which it has been done creates a manifestly unfair position for the defendants and largely defeats the purpose of pleadings to set the agenda for trial. They submit that if forced to plead the alternative case by way of amendment to the Particulars of Claim, the claimant would have to apply for permission to amend, which would enable the defendants to resist the amendment unless it was in terms that enabled the alternative cases to be understood. Finally and in any event the defendants maintain it is too late to permit further amendments to either the Claim Form or the Particulars of Claim and that any application to amend would be resisted on that basis.

The Concession Issue – Discussion

The Applicability of CPR Part 14

    1. Ms Tolaney submitted that CPR Part 14 was of no application to the concession or its purported withdrawal. I reject that submission for the following reasons.
    2. As is noted in the introductory section in Civil Procedure Vol. 1 (“WB1”), CPR Part 14 covers three separate situations – being, firstly, “formal admissions” made after the start of proceedings, which is the subject of CPR r.14.1, secondly, pre-action admissions made after 6 April 2007 and after receipt of a letter of claim under one of the three pre-action protocols listed in PD 14 para.1.1(2) or, if made before a letter of claim is received, stated to be made under CPR Part 14, which is the subject of CPR r.14.1A and B and, thirdly, a debtor’s admission of a debt (usually accompanied by an offer to pay by instalments) on a form provided by the court and served with the claim form, which is the subject of CPR r14.4-14.7. It is common ground that if the concession is an admission for the purposes of any part of CPR Part 14, it is one to which CPR r.14.1 applies.
    3. In so far as is material, it provides:

Admissions made after commencement of proceedings

14.1 (1) A party may admit the truth of the whole or any part of another party’s case.

(2) The party may do this by giving notice in writing (such as in a statement of case or by letter).

(5) The permission of the court is required to amend or withdraw an admission.”

By CPR r.14.3:

Admission by notice in writing—application for judgment

14.3 (1) Where a party makes an admission under rule 14.1(2) (admission by notice in writing), any other party may apply for judgment on the admission.

(2) Judgment shall be such judgment as it appears to the court that the applicant is entitled to on the admission.”

The principles applicable to an application under CPR r.14.5 to withdraw an admission are contained in Practice Direction 14 – Admissions, Paragraph 7 of which provides:

“7.1 An admission made under Part 14 may be withdrawn with the court’s permission.

7.2 In deciding whether to give permission for an admission to be withdrawn, the court will have regard to all the circumstances of the case, including—

(a) the grounds upon which the applicant seeks to withdraw the admission including whether or not new evidence has come to light which was not available at the time the admission was made;

(b) the conduct of the parties, including any conduct which led the party making the admission to do so;

(c) the prejudice that may be caused to any person if the admission is withdrawn;

(d) the prejudice that may be caused to any person if the application is refused;

(e) the stage in the proceedings at which the application to withdraw is made, in particular in relation to the date or period fixed for trial;

(f) the prospects of success (if the admission is withdrawn) of the claim or part of the claim in relation to which the admission was made; and

(g) the interests of the administration of justice.”

    1. Ms Tolaney submitted, correctly, that the purpose of CPR Part 14 was to reduce cost and delay and to narrow the issues in dispute between the parties. That notwithstanding, Ms Tolaney submits that (a) the scope of CPR r.14.1(2) is limited to “a distinct element or ingredient” of a party’s case and (b) must be of such an element as is set out in a pleading. I am not able to accept either of those submissions.
    2. In support of the first of these submissions, Ms Tolaney relied on a decision of Master Davison in Mack v. Clarke [2017] EWHC 113 (QB), where the Master held at paragraph 12 of his judgment that:

“The purpose of Part 14 is set out in the commentary to rule 14.1, namely “reducing costs and delay and of narrowing the issues in dispute”. To that end, the CPR “encourage parties, where appropriate, to make admissions of fact and to concede claims (or parts of a claim) and not to contest the incontestable throughout the pre-trial process”. What is encouraged is the proper concession of claims or parts of claims. The wording of the rule itself refers to “the whole or any part of another party’s case“. It seems to me that this wording is not apt to encompass everything that would be termed an admission in the ordinary sense of the word. A defendant may, for example, admit the time, date and place of an accident. But these would not be admissions in the sense intended by Rule 14.1(1). CPR 14 taken as a whole is primarily directed towards admissions which would entitle a claimant to enter judgment against the defendant. Rule 14.1(1) is drawn somewhat more widely. It refers to “any part” of another party’s case. But, in my view, that must still comprise a distinct element or ingredient of that case, for example breach of duty, causation or a head of loss. If “admission” were to bear its ordinary, English language definition, then Ms Elliott was correct to observe that a defendant could seldom amend without having to satisfy the detailed criteria in 14PD paragraph 7.2 – a consequence that could scarcely have been intended by the Rules Committee.”

    1. I do not accept that the scope of CPR r.14.1(1) is confined in the way that Ms Tolaney submits. The rule is concerned with a very practical and straightforward issue and is expressed in clear and everyday language. The phrase “… the whole or any part of another party’s case…” does not require detailed contextual or textual analysis. The words mean what they say. There is nothing within the rule, or any of the other provisions of Part 14, that suggests it is necessary to substitute for the words “… any part …” of another party’s case, the words “a distinct element or ingredient” of another party’s case. I am unconvinced that this formulation is in reality any narrower than the words used in the rule but if they have the effect of limiting the scope of the rule to admissions of breaches of duty, causation or a head of loss then there is no justification for adopting them. Such a re-formulation would undermine the purpose of the rule identified by Master Davison and Ms Tolaney.
    2. Although Master Davison said that “… A defendant may, for example, admit the time, date and place of an accident. But these would not be admissions in the sense intended by Rule 14.1(1) …” I do not agree. In the context of a claim for damages arising out of a road traffic accident for example, the claimant would have to prove each of those elements unless they were admitted. There is no justification within the text or purpose of the rule for excluding such admissions from its scope. I do not accept either that Part 14 is “… primarily directed towards admissions which would entitle a claimant to enter judgment against the defendant“. It encompasses admissions entitling the party in whose favour the admission is made to seek judgment on the admissions made – that after all is the purpose of CPR r.14.3 – but that point does not enable what is and is not within the scope of the rule to be identified other than limiting its scope to admissions that enable an application for judgment to be made. However, there is nothing within Part 14 that expressly limits the scope of the rule in this way and there is nothing in the purpose, wider context or the language used that suggests any such intention. With respect therefore, I am not able to agree with Master Davison’s conclusions as to the scope of CPR r.14.1(1).
    3. As to the suggestion that it is only something that appears in a pleading that can come within the scope of CPR r. 14.1(1), again I am unable to agree. It depends upon construing the words “… another party’s case” as meaning such a party’s “Statement of Case”. There is nothing concerning the purpose, wider context or the language used that justifies such a limited construction of the plain and everyday language used. Such a narrow construction is inconsistent with the language of the Part when taken as a whole for the following reasons. First, where the drafter of CPR Part 14 has intended to refer to a Statement of Case, the drafter has used that expression – see by way of example CPR r. 14.1(2). Secondly, construing the words “… another party’s case” as meaning such a party’s Statement of Case is entirely inconsistent with CPR r. 14.1A(1) where the phrase is used in the context of an admission made before the commencement of proceedings, where by definition there could be no Statement of Case. Thirdly, such a construction is inconsistent with CPR r. 14.1(2) since if what was capable of being admitted had to be set out in a pleading, it would be unnecessary to provide that the admission could be by giving “… notice in writing …”. Finally, CPR Part 14 should be construed purposively. Construing it as being limited to assertions within pleadings would unnecessarily confine the scope and utility of CPR Part 14 as a mechanism for reducing cost and delay. On what principled basis could an admission in writing contained in a pleading be treated as within the scheme but an admission contained in any other written documents not be so treated, particularly when admissions in writing not contained in statements of case are permitted for the purposes of CPR r. 14.1A(1)? Whilst both parties accept that what Falk J states on this issue at paragraph 8-9 of her judgment in Obaid v. Al-Hezaimi and others [2019] EWHC 1953 (Ch) is obiter, nonetheless respectfully I agree with what she says both for the reasons that she gives and those that I have summarised above.
    4. In summary therefore, I reject the claimant’s contentions that for CPR r. 14.1(1) to apply, that which is admitted must be such as to entitle the other party to judgment or must be a constituent element of a cause of action or must be in a pleading. All that is required by the rule is that a party has admitted “… the truth of … any part of another party’s case” by “… notice in writing (such as in a statement of case or by letter) …”.
    5. It is next submitted on behalf of the claimant that the rule is not engaged because the concession was not given by notice in writing within the meaning of CPR r. 14.1(2). I am not able to accept that submission either. As I have explained already, in a series of letters written prior to the hearing of the jurisdiction challenge by Carr J, the claimant had asserted in correspondence that the Share Sale Agreements had no legal validity or effect. However, this assertion was not mentioned in the Particulars of Claim even though it was an essential step in establishing the Share Deprivation Claim that the Share Sale Agreements did not achieve what they were ostensibly intended to achieve. Carr J described this omission as “striking” because it had been clear to the claimant from at least 2012 that the defendants relied on the 1993, 1995 and 1998 Share Sale Agreements and her case had always been that they were shams and of no validity or effect. It was in that context that the concession came to be made. The concession is set out in paras 58-60 of the claimant’s outline written submissions for the jurisdiction challenges heard by Carr J in these terms:

“58. In seeking to mount a defence to the share deprivation claim, the Defendants’ major contention appears to be that [HS] did not own shares in CC Holding on his death in 2010, and, accordingly, that there is therefore no question of any unlawful transfer of his shares taking place following that time.

59. More particularly, the Defendants argue, in summary that:

(1) [HS] entered into agreements with his sons on 18 August 1993 under which he transferred to them bare ownership rights of shares in CC Holding (“the 1993 Agreements”);

(2) The transfers under the 1993 Agreements were approved by a decision of the board of CC Holding that day with the transfer registered in the internal company register of CC Holding on that date; and

(3) On 16 July 2006, the Sabbagh brothers transferred the bare ownership of the shares to [the tenth defendant] under further agreements concluded and registered on that date (“the 2006 Agreements”)

60. [The claimant] does not deny the existence, validity or effectiveness of the 1993 Agreements. However, she disputes:

(1) First, that pursuant to the 1993 Agreements, transfers were effected in accordance with the requirements of Lebanese law and the Articles of CC Holding on 18 August 1993 – or, indeed, at any time before [HS’s] death; and

(2) Secondly, the authenticity of the 2006 Agreements”

Later in the same submission, the claimant summarised the issues that she maintained arose in these proceedings which included the contention by the defendants that “The 1993 Agreements – lying according to the Defendants at “the heart of the dispute” and providing a “complete answer” to the share deprivation claim, whose validity and effect (according to the Defendants)[FN 199] is “fundamental” to [the claimant’s] claim“. Footnote 199 reads:

“There is in fact no dispute that the 1993 Agreements were both valid and effective: see paragraph 60 above and paragraph 134(4) below.”

At paragraph 134 and specifically in support of the claimant’s contention that her claims were not the subject of any arbitration agreements and in relation to an assertion by the defendants that the Share Deprivation Claim depended on her attacking the validity or effect of the Share Sale Agreements, it was submitted on behalf of the claimant that “… the relevant question is the validity and effect of the putative transfer – not the validity and effectiveness of any of the …” Share Sale Agreements and that none of the issues that arose in relation to the Share Deprivation Claim “… involve challenging the validity and effectiveness of the 1993 Agreements”. I address the question whether a written submission is capable of being a “… notice in writing …” below.

CPR Part 14 and the 1993 Share Sale Agreements

    1. The issue that arises is whether this material constitutes an admission by the claimant of the “… the truth of … any part of another party’s case” .by ” … notice in writing (such as in a statement of case or by letter) …”. In my judgment it was in relation to the 1993 Share Sale Agreements between HS and each of the claimant’s brothers but not the 1995 and 1998 Agreements. My reasons for reaching that conclusion are as follows.
    2. The only written concession on which the defendants rely is that contained in the outline submissions I refer to earlier and that is confined expressly to the 1993 Agreements. The issue concerning validity and effect was hotly in dispute between the parties as I have explained until the claimant conceded that the 1993 Share Sale Agreements were not shams and of no validity or effect. The dispute between the parties concerned the effectiveness as a matter of Lebanese law of the transfers ostensibly made pursuant to the 1993 Share Sale Agreements. The claimant’s case was that they took effect as gifts, that the gifts had not been formally perfected prior to HS’s death and that they lapsed because they had not been formally perfected before HS died. Thus whilst it is submitted on behalf of the claimant that the concession did not involve any concession in respect of HS’s ownership of the shares at his death, that is not the point. Unless and until the concession set out above is withdrawn, it is not open to the claimant to argue as part of her case on this issue that the 1993 Share Sale Agreements were shams and of no validity and effect.
    3. The fact that the concession did not entitle the defendants to judgment on the Share Deprivation Claim is not the point either for the reasons explained above. There is no tenable basis for arguing that to be within the scope of CPR r.14.1(1) the admission must be such as to entitle the party to whom the admission is addressed to judgment.
    4. Finally, it is said that the concession is a “… non-denial not an admission …” This distinction is not one that is obvious. I accept that there is a difference between a non-admission as to a fact or matter and the admission of such a fact or matter, just as I accept that there is a difference between an admission and an averment. However, the distinction between a non-admission and an admission is not one that applies here. To assert that the claimant does not deny the existence, validity or effectiveness of the 1993 Agreements is to admit the existence, validity or effectiveness of those agreements. Had the claimant said that she did not admit the existence, validity or effect of the agreements, then the defendants would have been entitled to proceed on the basis that those issues remained live. That to treat the concession as an admission is the correct approach is put beyond real doubt by the footnoted statement that there is no dispute that the 1993 Agreements were both valid and effective and the statement in paragraph 134 that none of the issues that arose in relation to the Share Deprivation Claim involved challenging the validity and effectiveness of the 1993 Agreements. This is the effect of the statements when read separately and certainly when read together.
    5. It is not clear to me whether it is contended by the claimant that the written outline submissions were not a “… notice in writing …”. If that is argued it is mistaken. The words in parenthesis within CPR r.14.1(2) are non-exclusive examples. The outline submissions were plainly in writing and they were obviously intended to be relied on and were relied on by all parties to the jurisdiction hearing before Carr J and by Carr J at least in part in arriving at her conclusions concerning the concession.
    6. In reality, the only real issue that arises in relation to CPR Part 14 and the 1993 Share Sale Agreements is whether I ought to give permission to the claimant to withdraw her admission concerning the existence, validity or effectiveness of the 1993 Agreements. In my judgment the answer is both clear and obvious.
    7. Although the court is mandated to have regard to all the relevant circumstances including those identified specifically in Practice Direction 14 – Admissions, paragraph 7(2) – see Woodland v. Stopford [2011] EWCA Civ 266 at paragraph 26 – in reality in this case the two that are relevant to the exercise I have to carry out are those referred to in paragraph 7(2)(c) – the prejudice that may be caused to any person if the admission is withdrawn – and paragraph 7(2)(d) – the prejudice that may be caused to any person if the application is refused.
    8. For the reasons that follow, I have concluded that the defendants will suffer no relevant prejudice if the claimant is permitted to withdraw her concession in relation to the 1993 Agreements whereas the claimant will if she is not permitted to do so and that in consequence the claimant should be permitted to withdraw her concession in relation to the 1993 Agreements.
    9. As I have noted already, the main focus of the defendants in asserting that they would suffer prejudice if the claimant were permitted to withdraw the concession in relation to the 1993 Agreements was on what was called in the jurisdiction proceedings the Arbitration Issue. In a nutshell, they maintained that the issues concerning validity and effect came within the scope of the arbitration agreements within each of the 1993 Agreements and that had validity and effect been in issue at the jurisdiction hearing the court and the Court of Appeal would have imposed a stay under section 9 of the Arbitration Act 1996 in relation to those issues and a case management stay in relation to these proceedings until after publication of a final award or the compromise of the reference of those issues to arbitration.
    10. Although Ms Tolaney submitted orally that the defendants’ stance was taken opportunistically in the course of the hearing, I am unable to accept that. This issue had featured heavily in the Court of Appeal because the claimant was challenging Carr J’s conclusion on the Merits Issue which meant that the Arbitration Issue became important for the defendants as a ground for resisting the claimant’s claim of jurisdiction. The Court of Appeal had addressed the issue in its judgment, because it took a different view from Carr J on the Merits Issue. The issue was addressed in both parties’ written submissions for the applications before me – see Ms Tolaney’s submissions at paragraph 41(2) and Mr Edey’s submissions at paragraph 97(2), which Mr Layton QC adopted on behalf of his clients at paragraph 4 of his submissions and in the evidence filed in support of the defendants’ applications referred to below.
    11. The defendants’ case is summarised succinctly at paragraphs 30 – 35 of Mr Curle’s second witness statement filed in support of the Khoury defendants’ applications before me. The essence is captured by paragraphs 30 and 35, which are in these terms:

“30. Had [the claimant] disputed that the Share Sale Agreements were valid and effective as agreements, the Defendants would have argued that this raised an issue which was manifestly within the scope of the relevant arbitration clauses. The Defendants said so in terms in relation to the 1993 Agreements between [HS] and the Sabbagh brothers at paragraph 5.29(b) of the skeleton put before Carr J. That skeleton was served as part of the first round of sequential exchange and therefore before the concession by [the claimant] in her outline submissions that there was no such challenge to validity or effectiveness. With the scope of the argument having been clarified, the oral argument before Carr J proceeded on the basis of [the claimant’s] concession.

35. … any issue as to the correct characterisation of the 1993 Agreements was, on the Defendants’ case, a matter which needed to be referred to arbitration under their arbitration provisions contained in those agreements, just as any issue as to the validity or effect of the Share Sale Agreements would have been. …”

In my judgment this submission fails in relation to the 1993 Agreements. My reasons for reaching that conclusion are as follows.

    1. As I have noted earlier, the Court of Appeal held that two issues arose in relation to the Arbitration Issue – being first whether as a matter of Lebanese law the claimant was bound by the arbitration agreements relied on by the defendants and secondly whether the Share Deprivation Claim was within the scope of the arbitration agreements relied on. Those remain the questions that have to be answered when considering the prejudice to the defendants of permitting the withdrawal of the concession. The answer to the first of these questions, in so far as the 1993 Agreements are concerned, as set out in paragraphs 131 and 132 of the Court of Appeal judgment, is that the claimant was not a party to and thus was not bound by the 1993 Agreements between HS and each of the claimant’s brothers, which were the only agreements relevant as I have explained. As Ms Tolaney submitted, that conclusion is unaffected by the withdrawal of the concession. That is a complete answer to the defendants’ claim to have been prejudiced by the withdrawal of the concession to which CPR Part 14 could apply because the concessions in writing that were made on behalf of the claimant were confined to the 1993 Agreements as I have explained.
    2. There is no material prejudice caused to the defendants in relation to the Succession and Merits Issues. In relation to the Merits Issue, had the concession not been made at the hearing before Carr J and in the Court of Appeal, the only impact would have been potentially to strengthen the claimant’s merits case. It could have had no other impact and would almost certainly not have affected the Court of Appeal’s decision on the Merits Issue.
    3. In relation to the Succession Issue in my judgment the outcome would have been the same before Carr J and the Court of Appeal for the reasons identified by the Court of Appeal in the part of its judgment relevant to succession set out above. In essence, as the Court of Appeal put it, “The fact that in order to determine the scope of the claim it is necessary first to decide whether specific assets such as the shares were still owned by Hassib when he died is not sufficient in itself to characterise the subject matter of the claim as succession. … Nor do we accept Mr Layton’s submission that the fact that Sana’s rights derive from her position as one of her father’s heirs is sufficient in itself to designate the claim as a matter of succession. The source of the ownership is irrelevant to the nature of the claim …”.
    4. That the withdrawal of the concession in relation to the 1993 Agreements does not appear in the Particulars of Claim is nothing to the point. Although I accept that the defendants accepted the jurisdiction of the Court on the limited basis set out earlier, the outcome would have been the same so far as the jurisdictional challenge is concerned whether or not the claimant had made the concession in relation to the 1993 Agreements because she was not a party to them and thus not a party to the arbitration agreements within them. It could not credibly be argued that the concession relating to the 1993 Agreements had any impact on the defendants’ decision to accept the court’s jurisdiction given that the claimant could not have been required to refer her claim or any issue that arose in relation to it to arbitration.
    5. The claimant may suffer prejudice if she were not permitted to withdraw her concession in relation to the 1993 Agreements because she would not be able to deploy her whole case. None of the other factors identified above relating to an application under CPR r. 14.1 is material and so I conclude that in relation to the 1993 Agreements, the claimant is entitled to withdraw her concession made as I have described above. To the extent that the defendants’ strike out application relates to the concession concerning the 1993 Agreements it must fail and is dismissed.

The 1995 and 1998 Agreements

    1. The defendants maintain that a concession in similar terms to that made in relation in relation to the 1993 Agreements was made orally by leading counsel then appearing for the claimant (not Ms Tolaney) on day 3 of the hearing before Carr J and never resiled from until the Replies were served. They maintain that they acted to their detriment in reliance on the wider concession by reference to their rights under the 1995 and 1998 Agreements and would be irredeemably prejudiced if the claimant was now permitted to withdraw her concession in relation to the 1995 and 1998 Agreements. To the extent that the defendants cannot rely on CPR Part 14, because the concession as it relates to the 1995 and 1998 Agreements was not in writing, they are entitled as I have said to seek an order striking out the purported withdrawal of the concession contained in the Replies applying by analogy the principles set out by Mann J in BT Pension Scheme Trustees Limited v. British Telecommunications Plc (ibid.).
    2. The defendants submit and I accept that the point that the claimant was not a party to the relevant agreements is not available to the claimant in relation to the 1995 and 1998 Agreements to which she was a party. They submit that the remaining reasoning of the Court of Appeal as to why the arbitration agreements were considered to be inapplicable and of no application ceases to apply once the claimant is permitted to withdraw her concession in relation to the 1995 and 1998 Agreements. It therefore follows that the Replies should be struck out in so far as they purport to withdraw the concession in relation to the 1995 and 1998 Agreements.
    3. Ms Tolaney maintains however that all this is immaterial because on proper analysis the hearing before both Carr J and the Court of Appeal proceeded exclusively by reference to the 1993 Agreements at the choice of the defendants, that the concession concerning the 1995 and 1998 Agreements was made orally in the course of the hearing before Carr J by leading counsel then instructed on behalf of the claimant by which time the defendants had decided not to rely on the 1995 and 1998 Agreements or seek to arbitrate any of the issues that were live between the parties and were the subject of the arbitration agreements within in particular the 1995 Agreements. Ms Tolaney adds that on proper analysis that concession concerning the 1995 and 1998 Agreements played no part in the approach adopted by the defendants or either Carr J or the Court of Appeal and there is no evidence that it did. Ms Tolaney submits that in consequence the defendants have suffered no prejudice and their application to strike out the withdrawal of the concession in the Replies should be dismissed.
    4. Ms Tolaney submits that it was for the defendants to adduce evidence showing that a decision was taken not to pursue arbitration under the 1995 Agreements on the faith of a relevant concession. She submits that there is no evidence that is so. Whilst the legal burden rests on the claimant to establish that there is no real risk of prejudice to the defendants, I accept that if and to the extent that the defendants maintain that a decision was taken by them or on their behalf either before the hearing before Carr J or the Court of Appeal not to rely on the arbitration agreements within the 1995 and 1998 Agreements to which the claimant was a party, it was for the defendants to establish that fact by evidence. This is so notwithstanding that the legal onus of showing a lack of prejudice rests on the claimant because the only parties with the relevant evidence are the defendants on whom rests therefore the evidential burden of establishing any positive case that they relied on the concession.
    5. The defendants did not adduce any such evidence. This is all the more surprising because of the emphasis placed at the hearing before me and in the evidence in support on the 1995 and 1998 Agreements and because, self-evidently, the Court of Appeal’s conclusion concerning the claimant not being bound by the 1993 Agreements could not sensibly be said to be affected by the withdrawal of the concession relating to those agreements. Mr. Curle mentions the 1995 and 1998 Agreements in paragraph 3 of his second statement. He maintains that the Share Sale Agreements (including on his definition the 1995 and the 1998 Agreements) pose “… a fundamental difficulty for [the] share deprivation claim…”. Having spent some time dealing with the impact of the 1993 Agreements at the hearing before Carr J, the next mention of the 1995 and 1998 Agreements comes in paragraph 39, where there is a passing mention of them. Finally Mr. Curle returns to the Arbitration Issue at paragraph 80 where he points out that the Court of Appeal’s conclusion that the claimant was not bound by the arbitration provisions within the 1993 Agreements had no application to those of the Share Sale Agreements to which she was “… personally party …“. Nowhere does he suggest that any decisions were taken by or on behalf of the defendants by reference to the oral concession concerning either the 1995 or 1998 Agreements notwithstanding his reference to them in paragraph 80 or of the ostensible need for a further s.9 application, which he refers to in paragraph 82.
    6. If the defendants had considered that the 1995 and 1998 Agreements were material to the jurisdiction issues it is surprising that they did not submit so in clear terms either in writing or orally. Had that been their case the Court of Appeal would not have resolved the Arbitration Issue exclusively by reference to the 1993 Agreements to which the claimant was not a party – as it is apparent it did from its formulation of issue 7 between paragraph 116 and 117 of its judgment. It is equally odd that the Court of Appeal should consider the fact that the claimant was not a party to the relevant 1993 Agreements as a complete answer to the Arbitration Issue – as is implicit in what is said in paragraph 131 – if the defendants had been relying on the 1995 or 1998 Agreements at any material stage of the jurisdiction challenge or appeal. In fact it is clear that the Court of Appeal did not consider relevant any agreements other than the 1993 Agreements to which the claimant was not a party, as is apparent from paragraph 132 of its judgment, which refers exclusively to the 1993 Agreements. If this was inaccurate and the defendants were relying on the 1995 and 1998 Agreements, it is inconceivable that they would not have said so before hand down of the judgment and in my judgment it is implausible to say the least that the Court of Appeal would have expressed themselves in the terms set out in the sub-heading and paragraphs 131 and 132.
    7. Thus on the evidence that is available:

(a) the claimant’s initial position had been to challenge the existence and validity of the Share Sale Agreements;

(b) a concession was made in writing prior to the hearing before Carr J that the 1993 Agreements were valid;

(c) it is apparent from the transcript of the hearing before Carr J that the defendants were proceeding at that stage by reference only to the 1993 Agreements – see Transcript, Day 2, page 10, line 18 – page 11, line 9 – and later at page 19 where Carr J asked Mr. Edey whether he was relying on the 1995 Agreements, to which he responded “ … we don’t need to … no is the answer …”;

(d) leading counsel then appearing for the claimant (not Ms Tolaney) made a concession orally on day 3 of the hearing before Carr J concerning the Share Sale Agreements generally, but there is no evidence of any decision having been taken by the defendants in reliance on the wider concession and certainly no arguments were advanced (or withdrawn) by reference to it;

(e) there is no evidence that the defendants did anything or failed to do anything concerning jurisdiction other than by reference to the concession concerning the 1993 Agreements; and

(f) neither Carr J nor the Court of Appeal proceeded in relation to the jurisdiction issues by reference to any agreements other than the 1993 Agreements, nor were they invited to proceed other than by reference to the 1993 Agreements by the defendants. It is not difficult to see why that is so – it was the 1993 Share Sale Agreements that ostensibly transferred the shares by reference to which the claimant’s delict claim is advanced from HS whether by way of sale or gift, or as Mr. Edey put it in his oral submissions to Carr J ” … The real issue is what happened in 1993, that is the heart of it and that is why we rely on the 1993 agreements …” .

Ms Tolaney invited me to speculate on what motives the defendants might have had for making these choices. It may have been as she suggests that there was a forensic advantage in maintaining that the claimant was obliged to arbitrate as HS’s heir under the 1993 Agreements because it provided some support for their Succession Issue argument but it is not necessary for me to speculate about that. It is enough that the defendants clearly made the choices that she refers to in her submissions.

    1. Before leaving this timing point I should record that Mr. Edey interrupted Ms Tolaney in the course of her reply submissions to suggest that another leading counsel appearing before Carr J at the jurisdiction hearing (Mr Hunter QC) had formulated the concession on day one of the hearing before Carr J in terms that included the 1995 Agreements. However, that is immaterial because of what had happened before the start of the hearing before Carr J and what happened after Mr Hunter had spoken on day one of the hearing before Carr J, which I have summarised above.
    2. Whilst it is true to say that the validity or otherwise of the 1993 Agreements could not be determined by an arbitration under any of the 1995 or 1998 Agreements to which she was a party, because Art.762 of the Lebanese Code of Commerce limits the scope of any arbitration agreement to which it applies to resolving issues concerning the interpretation, enforcement or performance of the contract in which the arbitration agreement appears, there were issues that could have been made the subject of a reference to arbitration under the 1995 Agreement to which the claimant was a party whether or not the validity of the 1995 Agreements had been conceded. One concerned whether the effect in law of the 1995 and/or 1998 Agreements was to preclude the claimant from arguing that no valid transfer of the shares the subject of the 1993 Agreements had taken place. This was an issue that arose whether or not the claimant conceded the validity of the 1995 Agreements. The defendants relied on this point very strongly both before Carr J and the Court of Appeal. That issue was one that could have been arbitrated had the defendants wished it to be and could have been the subject of an application for a stay under s.9 applying Sodzawiczny v. Ruhan [2018] EWHC 1908 (Comm). It was not. That there was no such application provides some further support for the view that the defendants had decided that they did not want to arbitrate the issues that arose other than by reference to the arbitration agreements in the 1993 Share Sale Agreements. There is no evidence from the defendants dealing with this point. If it were to be argued that the defendants had been prejudiced by the loss of the right to apply for a s.9 stay by reference to the 1995 Agreements then this was something that required an evidential explanation.
    3. As I have explained already the claim of prejudice by reference to the 1993 Agreements fails. Thus the only issue that remains is whether the defendants have suffered such prejudice by reason of the withdrawal of the oral concession in so far as it extended to the 1995 and 1998 Agreements as to justify striking out the purported withdrawal of the concession in so far as it relates to those two agreements. In his written submissions for this hearing Mr Edey formulated the position as being that the Court of Appeal “… may have found …” that there were issues that the claimant was bound to arbitrate under the subsequent agreements. However, as I have explained, no attempt was made to argue any such thing before the Court of Appeal even in relation to issues that arose under the 1995 Agreement and which remained in dispute notwithstanding the concession. The reality was that the sole focus of the hearing before both Carr J and the Court of Appeal was on the 1993 Agreements. There is no evidence that demonstrates how the defendants have been prejudiced by the withdrawal of the concession. As things stand their case during the jurisdiction challenge was advanced exclusively by reference to the 1993 Agreements and they showed no inclination to arbitrate the one issue of substance that arose under the 1995 Agreements. This suggests very strongly to me that the claimed prejudice is illusory.
    4. In those circumstances, the strike out application in relation to the concession fails.

The New Case Issue

  1. I can deal with this issue much more quickly. Had it been the case that the claimant was seeking to advance a new claim or rather her existing claim on an alternative basis that did not involve proving intentional wrongdoing on the part of the defendants then clearly that should have been attempted only by an application to further amend the Claim Form and/or the Particulars of Claim. There are a number of reasons why this is obviously so each of which I summarised in paragraphs 20 and 34 above and each of which I accept. I agree that there is a mismatch between what appears in the Replies and what Ms Tolaney submits was the purpose of what was pleaded in the Replies. I agree that in consequence those parts of the Replies that go further than what Ms Tolaney submits was intended should be struck out. Any attempt to plead an alternative case based on something other than intentional wrongdoing must be pleaded in the Particulars of Claim.
  2. Although Ms Tolaney asserted orally what she had said in her written opening submissions – see by way of example Transcript, day 1, pages 32, 34 and 35 – I do not accept that she is right when she submits that Mr Edey should not have the concerns that have led to this part of the strike out application. As long as the pleading remains in the state it is, there is a real risk of confusion, the pleadings fail to set the correct agenda for trial and it is conceivable that the defendants will be put to the cost and inconvenience of meeting assertions that the claimant maintains are not relied on. Thus the Replies in their current form are likely to obstruct the just disposal of the proceedings. I think Ms Tolaney accepted that in the end – see Transcript, day 2, page 185 line 8 to 186 line 14.
  3. The only question that remains is how this should be addressed. Ideally, at the hand down of this judgment there should be an application by the claimant to amend the replies so as to reflect the claimant’s case as Ms Tolaney explained it. If for whatever reason that cannot be done then those parts of the paragraphs within the Replies that are under challenge and which go further than Ms Tolaney has said was intended must be struck out. I will hear the parties further at the hand down on how this issue is to be addressed. It would be helpful if the parties could agree what must be struck out in order to give effect to this judgment. However, it is necessary to end this round of applications with the pleadings complete so that the parties can prepare for trial next year without any further issues to be resolved concerning pleadings.

Mur Shipping BV v Louis Dreyfus Company Suisse SA [2019] EWHC 3240 (Comm) (13 November 2019)

Neutral Citation Number: [2019] EWHC 3240 (Comm)
Case No: CL-2019-000209

IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
QUEEN’S BENCH DIVISION
COMMERCIAL COURT
IN THE MATTER OF THE ARBITRATION ACT 1996

The Rolls Building
7 Rolls Buildings
Fetter Lane
London EC4A 1NL
13th November 2019

B e f o r e :

MRS. JUSTICE COCKERILL
____________________

Between:

MUR SHIPPING B.V.
Claimant
– and –
 
LOUIS DREYFUS COMPANY SUISSE S.A.
Defendant

 

___________________

MR. TIMOTHY YOUNG QC (instructed by Lax & Co) for the Claimant
MR. NICHOLAS VINEALL QC (instructed by Holman Fenwick Willan LLP) for the Defendant

____________________

HTML VERSION OF APPROVED JUDGMENT
____________________

Crown Copyright ©

MRS. JUSTICE COCKERILL:

    1. This is an appeal by the Claimant, MUR Shipping BV, “MUR”, against a Declaratory Arbitration Award dated 5th March 2019 of Ms. Elizabeth Birch and Mr. Robert Gaisford, with Mr. Mark Hamsher dissenting “the Award”. MUR are both Claimants and Respondents throughout the counterclaim in the arbitration. By a majority the Tribunal held and declared that “the claimants’ claim in this arbitration is time barred and totally extinguished“.
    2. The Award arises in the context of a clause in a NYPE time-charterparty for the TIGER SHANGHAI between MUR, as “Charterers”, and Louis Dreyfus Company Suisse (“Louis Dreyfus”), as “Owners”. The clause in question, Clause 119, is set out at paragraph 12 of the Award and reads, so far as relevant:

“[Owners] shall be discharged and released from all liability in respect of any claim or claims which [Charterers] may have under Charter Party and such claims shall be totally extinguished unless such claims have been notified in detail to [Owners] in writing accompanied by all available supporting documents (whether relating to liability or quantum or both) and arbitrator appointed within 12 months from completion of charter”.”

    1. This clause which is in the Additional Clauses and thus not part of the NYPE standard form, is on the evidence one which either in this exact form or in very similar form is not uncommon. This appeal, therefore, falls within the category of raising a point of law of general public importance.
    2. This is not the usual case, however, about the time of making of the claim in writing or the appointment of an arbitrator. It is common ground that both the claim letter and the appointment happened well within time. The case rather concerns the question of what is meant by the phrase “all available supporting documents“. It is not an issue that the claim letter sent was comprehensible and was adequately supported for the purposes of the Owners understanding the amount of the claim made against them. The point is that at the time the letter was sent, MUR had a document which it later relied on, but which it did not send with the claim letter. It was not until nearly a year after the commencement of the arbitration and the provision of the pleadings that Louis Dreyfus raised the issue of the time bar when a document was appended to claim submissions.
    3. The majority of the Tribunal found that this document was a “supporting document”, that it was not privileged; and that the claim was consequently time barred. The dissenting arbitrator took the view that the document plainly was privileged and thus reached the opposite conclusion.
    4. The legal issues for which permission was given are:

“[Does] … a time bar clause … barring claims if ‘… all available supporting documents…’ are not provided within a specified period, operates when the only document found to be not provided is arguably privileged and/or not of relevance to either the identification of, or support for, a relevant claim as referred to arbitration at least at the time of commencement of the arbitration.”

    1. This effectively subdivides into two questions, for the purposes of this clause;

i) Is a document which would otherwise be a supporting document one which should not be counted as such if it was arguably privileged?

ii) Is a document which is not at least at the time of commencement of the arbitration of relevance to either the identification of or support for a relevant claim as referred to arbitration, a “supporting document”.

Factual background

    1. The Charterparty for the TIGER SHANGHAI (“the Vessel”) dated 9th August 2016 was made between MUR as Charterers and Louis Dreyfus as disponent Owners. The Charter was for two laden legs, the first of which involved loading of a cement clinker cargo at the port of Carbenaros in Spain. The Vessel was delivered into the service of MUR on 14th August 2016 and advance hire and delivery bunkers were paid.
    2. Under clause 46 of the Charterparty:

“46. The Charterers, subject to the Owners’ and Master’s approval which is not to be unreasonably withheld, shall be at liberty to fit/weld any additional equipment and fittings for loading … cargo. Such work shall be done at the Charterer’s expense and time, and the Charterers shall remove such equipment and fittings at their expense and time prior to redelivery, if so required by the Owners …”

    1. The feeder holes in the hatch covers were positioned so that the loading crane at Carbenaros was not quite long enough to reach those on the starboard side of the Vessels. The Charterers, therefore, wanted to cut new cement feeder holes into the hatch covers. On 11th August the Master advised Charterers’ agents for permission to cut new holes that would have to be sought from Owners.
    2. On 12th August 2016, MUR made the request to cut holes in the hatch covers in addition to those which were already there and upon delivery the vessel was dispatched to the loading port, Carbenaros where the facilities required the cement feeder holes but on and after 13th August 2016 Louis Dreyfus refused to approve the required work. That refusal was maintained when the Vessel arrived on 15th August.
    3. Mr. Baeza (of CSS Control Systems Survey “CSS”), attended on board the Vessel on 18th August 2016 at MUR’s request and issued a report on 19th August 2016 on the cutting of new cement holes in the hatch covers (“the CSS Report)”. On 19th August 2016, after Louis Dreyfus had stated that their refusal was “final and non-negotiable” MUR terminated the Charter. Although I have not seen the correspondence, the Award records that the express basis for that termination was that the cutting of additional feeder holes fell within the ambit of Clause 46 and Owners’ refusal for permission to cut such holes had been unreasonably withheld, so that Owners were in repudiatory breach and Charterers were entitled to terminate.
    4. On 22nd August 2016, Louis Dreyfus themselves purported to accept that termination as a repudiation by MUR. On any view, therefore, the Charter was at an end by no later than 22nd August 2016.
    5. A claim letter was then sent by MUR to Louis Dreyfus. By it MUR claimed the return of hire paid in advance.
    6. On 8th August 2017, MUR appointed their arbitrator in respect of “all disputes connected with the Charterparty” which was stated to include claims for:

i) The return of hire and value of delivery bunkers paid in advance,

ii) costs incurred on the Owners’ behalf;

iii) damages in respect of claim from the sub Charters for the termination of the Charter; and

iv) the Owners’ failure to obey instructions/ breach of Clause 46 of the Charter.

    1. A Final Hire Statement (“FHS”) was attached, which was described later in the view of the Tribunal as being “quite sufficient”. Correspondence between MUR and the Vessel’s head Owners was not attached and at a later stage the Tribunal concluded that that correspondence was “not necessary for the purposes of claimant notification.
    2. In response, Louis Dreyfus appointed their chosen arbitrator. MUR served claim submissions nearly a year later, on 2nd July 2018. They attached the CSS Report dealing with the feasibility of drilling cement holes in the hatch covers. It was referred to in the following passage from the claimants’ submissions:

“14. Charterers contend that there were no justifiable reasons for Head Owners to refuse to allow Charterers to install temporary new cement holes in the hatchcovers and Charterers rely in this regard upon the survey report of Control System Survey of 19th August 2016. [The report was attached]. As the tribunal will note from this report, the attending surveyor advised “we did not find any technicality to prevent the cutting and creating of new cement tubes to the hatch covers” and advised that upon completion of the welding works the welds would be tested … and approved by Class… Head Owners simply did not want the works to go ahead so unreasonably refused to consent to same.

15. Disponent Owners refusal to abide by the terms of the Charter was a repudiatory breach which entitled Charterers to terminate. Upon Charterers termination of the Charter Disponent Owners were obliged to account to charterers for the value of the redelivery bunkers and all funds paid in advance for hire that would no longer be payable to Owners. Charterers seek an Award for USD100,931.41 plus interest and costs”

    1. The CSS Report had not been one of the documents previously provided by MUR and it was that report (amongst several others) which prompted Louis Dreyfus to raise the time bar point. In taking the time bar point Louis Dreyfus argued that the claim was not presented in detail in six respects, including the Charterparty, the correspondence, the termination, acceptance notices, quantum (bunker quantities and proof of payment and commission) and, finally, the CSS Report.
    2. As regards the CSS Report, they submitted that this document went to the heart of the issue of liability and that had it been presented it was likely that the parties could have resolved the dispute without the need for arbitration.
    3. MUR argued that the CSS Report was a document compiled for the purposes of the arbitration in the light of the dispute and that expert reports and other arbitration documents fell outside the category of “supporting documents” that are to be provided and Clause 119:

“is concerned only with the submission of primary claim supports and does not extend to secondary supports that are compiled once it is clear that there is a dispute between the parties which will need to be arbitrated.”

    1. The Tribunal unanimously rejected the arguments raised by Louis Dreyfus – save that in relation to the CSS Report. The basis of the points rejected was that the documents were mostly in the hands of the Owners and represented the context in which MUR’s notice was sent, and noted that the final hire statement was sufficient.
    2. As the dissenting arbitrator, Mr. Hamsher, put it: “We were all agreed that the nature and quantum of the claim were adequately particularised in the final hire statement.” However, the non-attachment of the CSS Report split the Tribunal and resulted in the majority holding that MUR’s claim was time barred. The majority regarded the main point as whether the report was privileged. They concluded it was not. Mr. Hamsher disagreed. The majority’s conclusion on privilege led them, therefore, to conclude that the time bar defeated the claim.
    3. In reaching the conclusion the majority of the Tribunal noted that:

i) The CSS Report was entitled “Survey Report”.

ii) It did not contain “the usual statement of truth of the opinions expressed“.

iii) The Survey took place at a time when MUR still had entertained some hope of persuading Louis Dreyfus.

iv) The Report was produced a year before the arbitration was commenced and it was attached to MUR’s pleaded Claim Submissions in July 2018.

    1. The majority of the Tribunal described the CSS Report as “pertinent to the charterer’s claim describing the difficulty and possible solutions in detail.

The CSS Report.

    1. Before considering the arguments in detail, it is appropriate to set out some details about the CSS Report. I accept the characterisation of it by the Tribunal, which was that it was “the report of a surveyor who had attended the Vessel in order to assess the problem which had arisen and find the best pragmatic solution rather than the report of an expert witness to be used in future proceedings.
    2. I accept, (and it was not suggested otherwise,) that it was not an expert report, as such, in that it provided some factual evidence, for example, as to:

i) the fact that the cement loading tubes on the starboard hatch covers were beyond the range of the terminal loading crane, the reach of the crane and the distance between the crane’s reach and the hatch covers,

ii) the fact that it was not possible to add an extension piece to the terminal crane because it did not permit angle fittings, and

iii) the fact that it was possible to cut new access holes and that that would involve cutting through one transverse stiffener.

    1. The Report also had elements of opinion evidence setting out the views that, although the vessel could in theory be loaded on the port side and re-berthed on the starboard side, that would dangerously affect the vessel’s stability for manoeuvring and that the only time and cost effective solution was cutting new access tubes.

The Legal Backdrop

    1. The clause is in a standard form contract. The clause itself is an addition but there are similar provisions in other standard form contracts. Thus, while this precise question is new, there is a hinterland of relevant legal thinking by distinguished commercial judges in the case law.
    2. The main authorities to which I was taken were as follows: first, The Captain Gregos [1991] Lloyds Rep 310 in which Bingham J (as he then was) stated that in the context of the Hague Rules time bar the purpose of a time bar provision was to draw a line and enable parties to close their books where appropriate.
    3. This harmonises with what Bingham J (as he then was) said in an earlier case, which is more directly on the point. In Babanaft v Avant (“The Oltenia”) [1982] 1 Lloyd’s Rep. 448 he was considering a time bar clause requiring all available supporting documents which was deployed in the context of an argument regarding port disbursements forming part of a loss of profit claim.
    4. He said:

“The commercial intention underlying this clause seems to me plainly to have been to ensure that claims were made by the owners within a short period of final discharge so that the claims could be investigated and if possible resolved while the facts were still fresh (cf. Metalimex Foreign Trade Corporation v. Eugenie Maritime Co. Ltd., [1962] 1 Lloyd’s Rep. 378 at p 386, per Mr. Justice McNair). This object could only be achieved if the Charterers were put in possession of the factual material which they required in order to satisfy themselves whether the claims were well-founded or not. I cannot regard the expression ‘all available supporting documents’ as in any way ambiguous: documents supporting the owners’ claim on liability would of course be included, but so would a document relating to quantum only, just as a doctor’s bill would be a document supporting a claim for damages for personal injury. The Owners would not, as a matter of common sense, be debarred from making factual corrections to claims presented in time (as they have done to the claim in a. 12 (A)), nor from putting a different legal label on a claim previously presented, but the owners are in my view shut out from enforcing a claim the substance of which and the supporting documents of which (subject always to de minimis exceptions) have not been presented in time. It is true that the drafting of the clause would give a legal draftsman little cause for pride, but it was obviously not the work of a legal draftsman and that is a good reason for not embarking on any sophisticated legal exegesis.”

    1. Louis Dreyfus says that this case gets the Court most of the way it needs to go. The object of such clauses is investigation and resolution while a claim is fresh and that is the same regardless of the time period.
    2. Mr. Young, QC, for MUR, referred me to Forrest v Glasser [2006] 2 Lloyd’s Rep 392, a case arising out of a share sale with a clause barring claims not presented within 12 months, noting that it was there said that every notification clause depends on its individual wording and the exercise to be conducted is to consider how a reasonable recipient would have understood it.
    3. The next case in time is The Sabrewing [2008] 1 Lloyd’s Rep 286, where Mrs. Justice Gloster (as she then was) considered in the context of a demurrage claim a formulation referring to “supporting documentation substantiating each and every constituent part of the claim“. During the course of judgment, she considered the balancing act as to construction in this type of case. She noted that such clauses have to be clear and that if there is any residual doubt about the matter the ambiguity is to be resolved in such a way as not to prevent an otherwise legitimate claim from being pursued. She also stated that at the same time clauses have to be given their natural meaning with contra proferentem being a resolution of last resort. Once the meaning of the clause is established, she considered that such similar clauses in relation to demurrage had to be complied with “carefully and strictly”.
    4. The Abqaiq [2012] 1 Lloyd’s Rep 18 was the next case, a slightly odd case where the Owners had been mistaken about which periods counted towards demurrage and which were detention (which allowed the recovery of bunkers). Tomlinson LJ said, at paragraphs 60-61:

“60. As noted above, we were referred to an observation of Gloster J in The Sabrewing to the effect that parties are obliged to comply carefully and strictly with demurrage time bar clauses of this sort. Gloster J was there concerned with the precursor provision in BPVoy3, and in particular with Clause 16 thereof, now Clause 19 of BPVoy4, which calls for the presentation of particular documentation supporting a claim for extra time incurred in consequence of the inability to receive cargo at a discharge pressure of 7 bar measured at the vessel’s manifold. For my part I am not sure that it is helpful to introduce into the approach to these provisions a notion of strict compliance. Where in a commercial contract one finds a provision to the effect that one party is only to be liable to the other in respect of claims of which he has been given notice within a certain period, it is fair to assume that the parties wish their relationship to be informed rather by certainty than by strictness. As Stuart-Smith LJ observed, giving the judgment of this Court in Senate Electrical Wholesalers Ltd v Alcatel Submarine Networks Ltd [1999] 2 Lloyd’s Rep 423, where such an agreement was under consideration:

‘Certainty is a crucial foundation for commercial activity. Certainty is only achieved when the vendor is left in no reasonable doubt not only that a claim may be brought but of the particulars of the ground upon which the claim is to be based. The clause contemplates that the notice will be couched in terms which are sufficiently clear and unambiguous as to leave no such doubt and to leave no room for argument about the particulars of the complaint. Notice in writing is required in order to constitute the record which dispels the need for further argument and creates the certainty.’ See at page 442, para 91.

61. Thus the touchstone of the approach ought in my view to be a requirement of clarity sufficient to achieve certainty rather than a requirement of strict compliance which, if applied inflexibly, can lead to uncommercial results.”

    1. Mr. Young placed particular weight on the latter words, which he said were significant here. He suggested, in particular, that I read this case as being a discouragement to unattractive time bar arguments.
    2. Hamblen J (as he then was) in The Adventure [2015] 1 Lloyd’s Rep 473, had to construe the following clause, worded similarly to the clause in this case, in the context of a voyage charter:

“20. Claims Time Bar

20.1 Charterers shall be discharged and released from all liability in respect of any claim for demurrage, deviation or detention which Owners may have under this Charter unless a claim in writing has been presented to Charterers, together with all supporting documentation substantiating each and every constituent part of the claim, within ninety (90) days of the completion of discharge of the cargo carried hereunder.”

    1. The provisions also arose in tandem with a Clause 19.7 which set out specific requirements for claims for additional time in cargo operations. There was an issue as to whether Clause 19.7 in that case covered all the material which the claiming party would be required to disclose. Hamblen J said in the context of that provision, at paragraph 27 of the judgment, that disclosure will result in documents which go wider than the requirements of this clause and that the requirements have to be limited by the requirement of certainty inherent in a time bar clause. In that context he said that the documents in question were those primary documents that related to the ordinary running of a ship.
    2. In relation to the Clause 20 issue, he held at paragraph 41:

“Under Clause 20.1 the owners are not merely to provide ‘supporting documentation’ but ‘all’ such documentation. Where the Owners have available documentation from the load and discharge ports such as port logs and time sheets those are, as the Tribunal found, ‘relevant’ to the claim made. In the present case that is specifically borne out by the fact that the letters of protest relied upon refer to delays and stoppages recorded in the port log/time sheets. As such they are clearly supporting documentation for the claim made. In any event I consider they are primary documents containing factual material which should be made available to the Charterers so that they may satisfy themselves that the claim is well founded, consistent with the purpose of the clause.”

    1. Mr. Young drew to my attention that the documents in that case were documents which plainly existed and were to be provided. Mr. Vineall QC in turn pointed out that the question of whether secondary documentation is required depends on the claim made, as can be seen from the fact that Hamblen J went on to find in that case a secondary document would fall within the ambit of the clause. He, therefore, submitted that this judgment does not support a suggestion that what is required for the purposes of an “all supporting documentation” clause is answered by a categorisation of the document in question as primary or secondary.
    2. The most recent case is the decision of Popplewell J (as he then was) in The Ocean Neptune [2018] 1 Lloyd’s Rep 654. However, that case turned on the characterisation of a particular claim, and whether LITASCO Clauses were applicable to a claim for detention. The question for the Court there was: was it a claim for demurrage (in which case they applied), rather than the specific interpretation of the clause in question. Although that judgment sets out the usual excellent summary of the principles, it provides no relevant guidance in this case other than the brief statement “the Court will give effect to the clarity and certainty which it is the purpose of such clauses to achieve.”

The Submissions: Supporting Documents

    1. The Appellant’s written submissions did not concentrate on the detailed analysis of the authorities, which were dealt with more fully in oral argument, but focused instead on the practicalities of the result. MUR noted in particular that the attachment of the documents to the Claimant’s submissions was serendipitous. It submitted that the document might as easily have been attached to the reply submissions or produced upon disclosure or upon the exchange of Experts’ Reports; or indeed MUR might just as easily have filed simpler less argumentative Claim Submissions.
    2. The submission was that the upshot of the majority’s approach was that if, during the progress of an arbitration under a Charterparty with a clause of this nature, a document which became available to the Claimant before the expiry of the time bar came to light in disclosure or otherwise, or its significance was later appreciated as relevant to a dispute which had devolved on the pleadings, then the failure to provide that supporting document at the commencement of the arbitration would nullify claims by retroactive operation of the time bar. That, it was said, was a most unattractive position which the court should be slow to reach.
    3. It was also submitted that in the context of certainty there was and is in this case no conceivable case that Louis Dreyfus did not know precisely what the claim involved; indeed, it was submitted that Louis Dreyfus necessarily had a better idea of why they had refused to agree to the cutting of cement holes than MUR had.
    4. On the question of support in particular, MUR noted that a report describing difficulties and technical problems should not properly be said to “support” the Claim; and a conclusion that the document was supportive was inconsistent with the conclusion that the correspondence which MUR had directly with the Vessel’s head Owners was not within the clause. The submission was that the claim for hire, which was the essence of the Claim and which would now be time barred, had been found to be adequately particularised via a Final Hire Statement, and the CSS Report in question had no relevance to that central claim.
    5. On that basis it was said that attachment to a pleading cannot be equated without more to a document being a necessary supporting document at an earlier stage. Again, reference was made to the Charterparty which was attached and which the Tribunal had held was not relevant.
    6. MUR then submitted that the correct approach to the interpretation and application of such clauses was that they should be construed to ensure clarity and certainty, so that by the time the time limit expires the Recipient of the claim had sufficient documentary material to enable him to see what the claim entails and whether it is well founded, at least prima facie, and to take his own protective steps. In particular, it was said that the Recipient should be aware whether he had received all the material he was entitled to.
    7. It was therefore submitted that “all available supporting documentation” means (and means no more than) all documents which are reasonably necessary to explain the proposed claim to a recipient with a degree of familiarity with the background of the matter and which documents are unquestionably disclosable at an (early) point.
    8. Ultimately, MUR submitted that this was about a document which was not, properly defined, supportive of the claim. The document went to no more than a potential dispute about whether that refusal was or was not reasonable; Louis Dreyfus had never purported to justify or explain the reasons for their refusal, so there was no material which until such a justification was advanced was likely to be relevant to (or “supporting of”) MUR’s argument.
    9. In essence, the CSS Report was no more than contingently relevant. It might or might not be relevant depending on how the Owners sought to justify their refusal, but it could be relevant only to the ultimate evidential argument and after Owners had advanced a case of “reasonable refusal”. It had no relevance to the Claim and only relevance once that stage had been reached.
    10. Louis Dreyfus’ submissions were that Clause 119 should be regarded as a classic commercially driven provision directed to achieving prompt notification of claims and maximising the chance of speedy resolution after that notification. The purpose of the requirement of early provision of all available documents is that the responding party can take an early view of the merits knowing that they are getting to see all available supporting documents and that there are no unpleasant surprises to be revealed later.
    11. The Clause requires, they said, a “cards on the table” approach – and that applies to all cards. As to the question of whether the report was a supportive document, the contemporaneous survey report was, as the Tribunal found, “pertinent to the Charterers’ claims describing the difficulty and possible solutions and charterers relied on it in support of their claim.” Charterers did not contend before the arbitrators that the CSS Report did not support that claim.
    12. It was also submitted that the claim here in substance depends on a lawful termination and the question against whether that background the CSS Report is a supporting document. To this, Louis Dreyfus said the answer is an obvious “yes”; as returned by the Tribunal.

Conclusions: Supporting Documents

    1. The question, of course, is whether the Tribunal erred in law in this question of construction. I approach that question with the usual cautions as to picking holes in the Award of experienced arbitrators and with the relevant authorities on contractual construction – this being, in essence, a question of construction – both well in mind. What is on its face a simple issue, has been transformed in argument to a question of some complexity, bristling with subsidiary issues. I shall start by outlining the arguments which seem to me to be misplaced.
    2. The first are MUR’s attempts to argue for a very circumscribed meaning by reference to its specific recastings of the clause, including by reference to disclosure at an early stage or manifestly making out an essential element of their claim. A disclosability test as set out in MUR’s skeleton is not easily explained by the wording and imports unnecessary complications, as indeed was noted by Hamblen J in The Adventure; and as the Appellants themselves rejected to the extent that a disclosability test was apparently a point relied on by the Respondent.
    3. Such a test also provides an unsatisfactory disjunction between the wordings because “explaining” – the word used in the reformulation – is not the same as “supporting”. It opens up, in fact, its own field of dispute. That this different word was used by MUR was to an extent ironic given that serious issue was taken with the tribunal for using the word “pertinence” as part of their own examination of the operation of the clause.
    4. The “manifestly makes out” test expressed later in MUR’s skeleton similarly on its face substitutes a completely different test from the one the parties contracted for. It is a test which adds layers of complication: the line between explanation and arguing out, the question of whether an element would fail without documentation, the question of “reasonably familiar with the background“. Together it produces the kind of legalistic approach which this commercial wording would appear to be designed to avoid.
    5. Generally, also, the restrictive approach evinced by these two different formulations, while paying obvious regard to the authorities as to construction of time bars, in particular as they relate to certainty at the closing of books, pays, in my judgment, insufficient regard to any normal approach to construction. The wording of this clause must be respected. It is cast in terms not simply of “supporting documents” but “all supporting documents”. As in the case of The Oltenia the wording is clear in this respect. It says “all” – a word which indicates a fairly expansive approach, though, of course, that is qualified by the requirement for documents to be supporting.
    6. That is reinforced by the next section of the wording of the clause, which refers to liability and to quantum, and indeed to both. That need to take a fairly expansive approach in the light of the words of the clause is given some support by the other authorities mentioned above. All in all, in my judgment, this clause is expressing a broad approach to the production of supporting documents, whatever supporting documents may be said to be.
    7. Nor am I attracted by the timeline analysis and the broader manifestation of the case against retrospectivity which MUR sought to make. A supporting document is a supporting document whether it is relied on with the Claimant’s Submissions in reply or at the final hearing. This was effectively conceded in argument.
    8. In truth, what MUR is aiming at here is two points. The first is the point to which I shall come about whether the document supports the claim or something else. The second is the point which Mr. Young described as serendipity. While I do have a real degree of sympathy with this argument, in the sense that in the general run of cases one might expect both parties to have a good idea by the time of the time bar date what documents should have been forthcoming, I cannot accept that that usual state of affairs drives the construction of the clause.
    9. In my judgment, it cannot be the case that simply because a document emerges later it cannot give rise to a time bar argument. If, for example, there was an “all supporting documents” clause in a demurrage claim and the Statement of Facts supporting the calculation was appended but, say, a hold cleaning survey also supporting a particularly contentious day’s start time was not, I see no reason why that could not give rise to a time bar argument against an appropriately drafted clause. There can, as the authorities make clear, be more than one sort of supporting documentation. An “all documents” clause is naturally geared to the provision of more than the bare essentials; and even in the simpler cases it may be the case that the party receiving the documents may not know the full extent of the documentation available.
    10. Another answer to the serendipity argument in some cases, though probably not in all, may be that one might equally say that without a particular document a claim is insufficiently evidenced.
    11. At the same time, it is probably not fair to say, as Louis Dreyfus did, that what the clause is expecting is a “cards on the table” approach such that anything which is supportive of the claim and which is available to the Claimant must be given. That is because aside from the question of futility, which may well arise in the case of duplicative documents, the authorities appear to support an approach which looks to the essence of the document in question. Thus, if a document which was of no real relevance was appended to submissions, that would not make it a “supporting document.” This reflects the Tribunal’s conclusion on the futility in this case.
    12. Similarly, that question of support has to look to the claim being advanced. So, I do accept the submission that if for some reason the claim somehow changed in essence at a later stage, for example, if a timing point not previously apprehended was made, or a correction needed to be made, this should not mean that documents later relied on became retrospectively relevant at the point of the time bar. This is a point alluded to by Bingham J (as he then was) in The Oltenia: “the Owners would not as a matter of commonsense be debarred from making factual corrections to claims presented in time.
    13. However, that distinction is not relevant in this case. There was no change in the case or correction. Nonetheless, it was essentially this line which the Appellants sought to hold in what was perhaps the central aspect of their submissions. It was contended that the Appellants relied on the CSS Report not supportively but responsively. This is, as noted above, one respect which underpins the “time of making of the claim” aspect of the question of law.
    14. The Tribunal found the CSS Report was “pertinent to the Charterer’s claim describing the difficulty and possible solutions in detail”. MUR criticised the Tribunal for this characterisation, given that the issue on the clause was not pertinence but supportiveness. On one level it seems unfair to criticise the Tribunal on this point in circumstances where it was put to the tribunal that the question of repudiation was “the only show in town” and so pertinence implied supportiveness; but in reality, the question of pertinence per se was irrelevant to the question for my consideration.
    15. When looking at that question it must be borne in mind that the bottom line is that the Appellants claim was predicated on the refusal by Louis Dreyfus having been wrongful, because unreasonable. Without that, the termination was not valid. By the time of the arbitration there was no question of the reasonableness of the refusal not being something which needed to be dealt with; unless it was, there was no valid termination – and if that was the case the claim would be not just for a shorter period but also subject to a cross-claim for damages for wrongful repudiation.
    16. The material in the CSS Report went to this question of reasonableness. It was, therefore, properly regarded as being, at least in broad terms, supportive of the claim of MUR as it appeared in the arbitration. However, the issue is where the clause is drawing the line between broad support/pertinence and necessity to support the case advanced by MUR.
    17. The “adequately particularised” Final Hire Statement, the claim for the refund of advanced hire and the value of delivery of bunkers and recovery of costs meant that in the Tribunal’s mind the claim which MUR advanced was in its sums adequately documented. If one, therefore, regarded the claim as a simple accounting claim, the material in the CSS Report was a long way from necessary. However, if one regarded the claim as being one essentially for a declaration as to the validity of the termination with the consequent accounting claim, the CSS Report has a more obvious relevance as a supporting document.
    18. Thus, if the reasonableness of the refusal was in play at the time when the claim was made, this document was relevant and supportive. At common law and in the absence of statutory intervention, the burden of proving that consent is unreasonably withheld is on the party contending that the other was unreasonable. See, for example, Balcombe LJ in International Drilling Fluids v Louisville Investments (Uxbridge) Limited [1986] Ch 513, at 519.
    19. Was this issue in play, however, at the time the claim was made? Louis Dreyfus aligned itself closely with the position at the time of the arbitration pointing out that it had paid all of the undisputed sum and what remained in issue was effectively the time period or counterclaim referable to the question of who was entitled to terminate, hence the “only show in town” analysis.
    20. MUR pointed to the timeline in more detail, reminding me that on any analysis the contract was at an end; when it made its claim there was no such payment made and no counterclaim. It submitted that it was perfectly possible that the Owners might simply argue that making cement holes was not within the scope of Clause 46 at all, perhaps on the basis that a cement hole was not a “fitting or equipment” and thus the CSS Report would have no relevance at all.
    21. Ultimately, however, the problem for MUR is twofold. The first is that the clause combines both specific reference to “all” and specific reference to “liability and quantum”, while not confining itself to any particular sort of claim. It is, thus, wider than the clauses in the authorities which tend either to omit the “all” or to arise in the context of a simple accounting claim such as demurrage, where issues such as termination do not come into the equation.
    22. The second is, while the case had not refined itself so far as it had done at the time of the hearing, the claim (at least as to quantum) in fact depended on the date of termination and the date of termination depended on being entitled to terminate, which itself depended on unreasonable refusal on the part of the Owners. As such, the report was on its face within the ambit of the claim that MUR advanced and supportive of it.
    23. Even had matters not proceeded as they did by the time of drafting the Claim Submissions, one can readily see that in advancing the building blocks of the case as to liability and quantum it would be natural to plead or otherwise set out the termination as a foundation for the calculation and, hence, as was actually done, to append a document supporting the position taken on termination.
    24. One point which I did raise during the course of argument was whether the true focus of the dispute should rather have been on the question of whether the CSS Report was a supportive underlying document i.e. whether the emphasis should be on the latter word rather than, as MUR had done in formulating the question for appeal, on the former.
    25. The issue here is whether such a clause is apt to cover secondary documents as opposed to primary documents. The argument, of course, references the line drawn by Hamblen J in The Adventure. This was a point which was at least floated in the arbitration. I have seen the submissions which reference the point and the Award picks it up in its recital of MUR’s argument, though it certainly appears from later passages that privilege was the primary issue debated. It appears not to have been an issue which was debated in any detail or, indeed, put to the Tribunal quite in those terms in the arbitration.
    26. This is an interesting point, though it is dubious whether I could properly decide the case on this basis, given the terms of the issue of law defined. For the reasons given below, I do not need to consider whether it would be possible to do; but it is probably useful, given the debate, if I record my thinking on this point.
    27. It certainly appears to be the case that on the whole these issues, as to documents to be provided to satisfy time bar provisions, have arisen in the context of cases where what was looked to was primary material. So, in The Adventure Hamblen J draws a distinction at paragraphs 27-28 between primary and secondary material, returning to a similar distinction at paragraphs 41-42. On the face of it, this perhaps suggests that clauses such as this are not usually designed to capture disclosure of early witness statements or experts reports (and if that were the case, of course, the issue as to privilege would not arise).
    28. That would also tie in with the “closing of the books” approach to certainty. The issue is to what extent one can safely read across from such cases. As Gloster J noted in RWE Nukem Ltd v AEA Technology plc [2005] EWHC 78 Ch, every notification clause turns on its particular wording. And it is not impertinent that those cases concerned situations where the claims were concerned with such matters as demurrage and detention, those being claims which themselves hinge on detailed primary documents. So, in a sense, in those cases one sees simply what one should expect to see: the clause makes sense as referring to primary documents and caution should therefore perhaps be exercised in reading across.
    29. I must however concentrate on this clause in its context here. In this context the parties have intended the clause to cover all disputes under the Charterparty, including inferentially claims arising out of wrongful termination; certainly no one has suggested that it would not cover such claims. The parties’ commercial intention must be inferred. Here we are not looking simply to closing the books, as was the case in The Captain Gregos because it is a clause which specifically requires details and documents to be provided. The purpose of such clauses is given in The Oltenia. It is to enable parties to assess the claim being advanced. Inferentially, therefore, the clauses are not just to enable an early closure of the books but also, given the provision of details, to enable the claim to be evaluated to facilitate early settlement. There seems no reason not to accept this as the commercial purpose in this context also.
    30. Where this is the case (intention to facilitate early settlement meets time bar provision covering the full gamut of disputes) it becomes perfectly feasible and, indeed, compelling for supporting documents to include, in appropriate cases, more complex material. This was in fact the case in The Adventure where there was an issue about a manuscript note on an email made by the Owners’ shore-based representative, that the Master had received free pratique by VHF at Port Sudan. As in this case, that document appears to have been presented during the course of the arbitration.
    31. Hamblen J concluded:

“Whether the email with the manuscript notes had to be presented is open to more doubt. In most cases secondary documentation of this kind would not be so required. However, in this case the time when free pratique was granted was important to the commencement and the proper calculation of laytime and there was no record in the documentation provided of when it was granted in Port Sudan …. In such circumstances, it probably is to be regarded as a supporting document….”

    1. Whether such a clause would extend to witness statements or experts’ reports which are truly secondary, in the sense of being created later and for the purposes of the dispute I do not need to decide. It seems to me at least dubious that it should do so. However, a document such as the CSS Report which might well, like the email in The Adventure, be categorised as being an extended primary document rather than a secondary document is different. As such, there is no real reason why, against the background of a wide clause covering the full range of claims to which more than the usual accounting documents may be key, such a document should not be a supportive document as the Tribunal found. It may also be that the reason why this point was not argued before the Tribunal or pursued in terms on appeal, is explained by the position to which I have come.
    2. In conclusion, this case may well be one towards the limits of what would be caught by a clause such as the present one. However, on analysis I have concluded that the CSS Report is both supportive in the sense required and a document in the sense required.
    3. I return to the point so strongly urged by Mr. Young as to certainty. He is quite right that the authorities indicate that the party who has to comply with it must be able to ascertain what is needed for compliance. I do not see this conclusion as conflicting with this requirement.
    4. What is supportive is dictated by the claim which is being advanced. What is required to support the claim is elucidated by the process of setting out the limbs of the claim, here covering both liability and quantum. If there is a document which supports any limb or claim it needs to be supplied; and it is telling that when following that process, albeit at a later stage of the dispute, MUR turned to this document and it did so to support its case as well as anticipating a defence.

Privilege

    1. This point is all about arguably privileged documents as opposed to actually privileged documents. This is because: (i) MUR accepts that the document was not privileged and (ii) Owners are prepared to proceed on the assumption that the cause does not require provision of a privileged document.
    2. It is common ground for these purposes that the document was reasonably arguably privileged. This is demonstrated by the dissent of Mr. Hamsher who concluded it was privileged. MUR also made criticisms of the majority reasoning in concluding the document was not privileged and that these need not in the circumstances consume time.
    3. MUR submitted that if a document is reasonably arguable to be privileged, then its disclosure is not required by an “all supporting documents” time bar clause and it does not matter even if, in the final analysis, it is held not to be privileged. If, it is said, there is scope for reasonable difference of opinion as to the privilege, MUR says that there is no authority for the proposition that a party who thinks a document is privileged should provide it or else risk, perhaps much later, a time bar being held to fall. It would also leave the proper analysis of the claim to privilege to its rightful place in a valid and timeous arbitration.
    4. Attractively as this point was put, I am persuaded that the submissions of Louis Dreyfus on this point are correct. MUR’s argument is “profoundly uncommercial”. Such an approach would sit very ill with the requirements of certainty which underpin clauses of this sort and which were, in the other context, so strongly urged by MUR.
    5. One can readily see that the distinction would provide highly fertile ground for protracted disputes, such as just how arguable a claim has to be in order to be arguable or reasonably arguable. There seems to be no good reason why the parties should be taken to have intended that a bad claim to privilege should make any difference.
    6. It does, however, seem to me that the argument on “what is a document?” may well in many cases provide an answer here. Rarely will such clauses be designed to require that the provision of the kinds of documents which are or may be privileged. This is, in a sense, an unusual case in that the width of the clause and the nature of the disputes capable of arising could give rise to at least an arguable point.
    7. However, this is not a reason to bend the construction of the clause or render the clause unworkable. The answer is that such clauses may not be the most comfortable fit covering wider disputes than those they usually embrace and in such broader contexts parties may need to consider the width of the clauses which they adopt.
    8. In the circumstances, it matters not in practical terms whether this argument was one which was properly open to MUR. Louis Dreyfus contended that the question of law did not arise out of the Award and that the argument had proceeded not on the basis that the privileged point was arguable, but on the binary basis that the document was privileged or not privileged. It was submitted that to permit it to be raised now undercut the Arbitration Act’s philosophy of speedy finality.
    9. Although I was initially unwilling to consider this issue, I conclude that it was a question which was open to Louis Dreyfus to run at this stage despite the grant of permission. However, in the circumstances where the question was, in essence, a different slant on the point which was actually run, I would, if the privilege point had been a good one, have been minded to follow the approach taken by Andrew Baker J in The Baltic Strait [2018] EWHC 629 Comm and [2018] 2 Lloyd’s Rep 33, where he upheld a claim on somewhat different grounds to those argued before the arbitrators, though arising out of the same point and hence out of the Award. In any event, for the reasons given the appeal is dismissed.

………………….
This transcript has been approved by Mrs Justice Cockerill

A v OOO ‘Insurance Company Chubb’ & Ors [2019] EWHC 2729 (Comm) (15 October 2019)

Neutral Citation Number: [2019] EWHC 2729 (Comm)
Case No: CL-2019-000572

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

Royal Courts of Justice
Strand, London, WC2A 2LL
15/10/2019

B e f o r e :

MRS JUSTICE CARR
____________________

Between:

A
Claimant

– and –

 
(1) OOO “Insurance Company Chubb”
(2) Chubb Russia Investments Limited
(3) Chubb European Group Se
(4) Chubb Limited

Defendants

____________________

Mr Steven Gee QC and Mr William Buck (instructed by Shearman & Sterling LLP) for A
Mr David Bailey QC and Mr Marcus Mander (instructed by Kennedys Law LLP) for the Defendants

Hearing date: 15 October 2019
____________________

HTML VERSION OF JUDGMENT APPROVED
____________________

Crown Copyright ©

 

Mrs Justice Carr:

Introduction

    1. These are proceedings for anti-suit relief by way of injunction, together with associated relief, against four defendants in respect of proceedings in Russia (“the Russian Proceedings”) commenced by the First Defendant (“Chubb Russia”), a Russian insurance company which is part of the Chubb Insurance Group. The proceedings are said to have been issued in breach of and disregarding a written arbitration agreement providing for arbitration in London.
    2. The Claimant (“A”) is an international construction and engineering joint stock company. It entered into a contract dated 27 June 2012 with Energoproekt Closed Joint Stock Company (“Energoproekt”) for boiler and auxiliary equipment installation works at the Berezovskaya Power Plant (“the Contract”) (“the Plant”). Clause 50 of the Contract (“Clause 50”) contained what is said to be the arbitration agreement between the parties. It provided for arbitration under the rules of the International Chamber of Commerce with a seat in London and using the English language. There were also terms in the Contract concerning insurance at Article 32, for example, providing for all risk coverage of A’s works on the project as well as a subrogation waiver and the provision for limited liability.
    3. The Contract was the subject of an assignment of rights and obligations dated 21 May 2014 between A, Energoproekt and EON Russia (“Unipro”) whereby Unipro replaced Energoproekt as the contracting party with A under the Contract.
    4. Chubb Russia issued an insurance policy to Unipro which it alleges covered losses arising out of a fire at the Plant on 1 February 2016. Chubb Russia alleges that it paid out some US$400 million to Unipro in respect of those losses. It claims to be subrogated to the claims of Unipro under Russian law and to be entitled to sue in Russia in its own name in respect of those claims.
    5. Chubb Russia notified a claim in respect of losses at the fire to A in April 2019. A rejected the claim (albeit not to Chubb Russia but Unipro), stating that its works were unrelated to the fire. It made reference to the provisions of the Contract, why there was no subrogation and invoked the arbitration clause in Clause 50.
    6. Chubb Russia has issued the Russian proceedings against ten other respondents alongside A including by reference to claims in tort/delict under Russian law. The respondents are collectively said to be liable “solidarily” for “jointly caused harm”.
    7. The present application has been listed before me as a matter of urgency following directions on paper by Mr Justice Teare on 30 September 2019, whereby he permitted service of the claim form and this application on Chubb Russia in Moscow, on the Third Defendant (“Chubb Europe”) in France, and the Fourth Defendant (“Chubb Holding”) in Switzerland. The validity of the claim form was also extended to a period of 18 months.
    8. My understanding is that service of the claim form and this application has been effected on the Second Defendant (“Chubb Investments”) and Chubb Europe, but not Chubb Russia or Chubb Holding, although Kennedys Law LLP have recently indicated that they are now authorised to accept service on behalf of Chubb Russia.
    9. The current application is made ex parte but on notice to the Defendants. A seeks, first, a mandatory order against Chubb Russia requiring it to cause the Russian courts to grant a stay and withdrawing/waiving its claims against A. Secondly, for interim purposes only against Chubb Europe, a mandatory injunction requiring it to procure and cause Chubb Russia to take the necessary steps to comply with the mandatory order against it, to instruct Chubb Russia to take those steps and restraining Chubb Europe from instructing, procuring or causing Chubb Russia to take any steps to continue with the claim in the Russian proceedings against A. The broad allegation against the Second to Fourth defendants is that they are “pulling the strings” behind the Russian proceedings. A also seeks an order dispensing with service of the application notice on all Defendants except Chubb Investments.
    10. The application, as I have indicated, has been listed as a matter of urgency on the basis that A has issued a motion for stay of the Russian proceedings which is due to be heard on Wednesday of next week, being 23 October 2019.

Procedural history

    1. A letter of claim was sent to A by lawyers for Chubb Russia on 24 April 2019. A did not respond directly to Chubb Russia or its lawyers, although it appears that it did write in response to Unipro.
    2. On 25 May 2019 Chubb Russia commenced the subrogation action in the Russian proceedings. It contends that it was fully entitled to do so and, in doing so, has in no way acted in contravention of any arbitration agreement, including Clause 50.
    3. On 29 May 2019 A discovered that Chubb had issued the Russian proceedings. A statement of claim was received by A on 6 June 2019. In the statement of claim Chubb Russia seeks compensation of losses by way of subrogation concerning the fire alleging defects of the supplied equipment, violations of the law requirements during engineering, construction and installation, as well as deviations during development phases. A is said in the statement of claim to be the general contractor, something which A says is a misrepresentation since it played only a limited role to perform its particular subcontract.
    4. On 3 June 2019 A received the first ruling of the Russian court which essentially raised queries about Chubb Russia’s claim.
    5. On 29 July 2019 A received a second ruling from the Russian court in which Chubb Russia was asked for further information and given time to cure outstanding deficiencies.
    6. On 4 September 2019 A received a third ruling from the Russian court dated 3 September 2019, accepting Chubb Russia’s claim and formally initiating proceedings.
    7. On 13 September 2019 A wrote to Mr Joseph Wayland, general counsel for the Chubb Insurance Group raising questions on the merits and, amongst other things, pointing to clause 50 asking for the Russian proceedings to be withdrawn on 16 September 2019. Mr Wayland’s response was to ask for reasonable time to provide a considered response. An email on 20 September 2019 indicated that that the position within the Chubb Insurance Group was still being investigated.
    8. The present claim was issued on 16 September 2019. Further, on 17 September 2019 A issued the motion for a stay in Russia to which I have already referred. A has objected to the Russian court’s jurisdiction on grounds, amongst others, that the dispute between the parties should be referred to ICC arbitration in London. As indicated, this motion is to be heard next Wednesday.
    9. Chubb Russia submits that the purpose of this present application appears to be an attempt by A to pre-empt the Russian court’s right to decide its own jurisdiction by obtaining a determination from the English court on the same question in advance of the hearing on 23 October 2019.
    10. On 23 September 2019 A issued its application for leave to serve out of jurisdiction and interim injunctive relief. On 30 September, as already indicated, Mr Justice Teare gave directions. He declined to make directions for an urgent hearing to take place, but commented that the matter appeared urgent to him and that A could apply on notice for a one-day hearing between the parties. The application before Mr Justice Teare was supported by a short skeleton argument on behalf of A and two short affidavits from A’s chief counsel of international affairs.
    11. On 2 October 2019 A obtained a hearing date for its application for interim injunctive relief of 15 October 2019. Kennedys Law LLP for the Defendants opposed such a hearing and suggested a hearing for mid to late November 2019.

Current position

    1. Bundles for today’s hearing were received by the court last Friday, 11 October 2019. Evidence from the Defendants, in the form of a witness statement from Mr Michael Wells of Kennedys Law LLP, was served on the same day. Over the weekend, following an indication that that would be when the court was in a position to pre-read, the court received a helpful “Executive Summary” of the Defendants’ case.
    2. On Monday, that is to say yesterday, at 10am, the court received a full skeleton from the Defendants. At 1.10pm the court received a skeleton argument from A, together with a supplemental document addressing some of the authorities relied upon by the Defendants. The skeleton was not cross-referenced; it contained no list of issues; it was not accompanied by a chronology, nor any reading list. It does not comply with Appendix 5 of the Commercial Court Guide.
    3. Each skeleton cited some 20 to 30 authorities, albeit with some overlap. I find it difficult to accept that paragraph F.13.3 of the Commercial Court Guide has been respected. No authorities bundle was received until 9.30 am today, and then only from the Defendants. Those bundles contained 45 authorities, four textbooks and two articles.
    4. Further, yesterday, a new bundle of evidence was received from A containing for the first time a Russian law expert report and an affidavit from the partner at Shearman & Sterling LLP, solicitors acting for A. The bundle contained over 300 pages. Amongst other things, reading the expert report, there appears to be a dispute between the parties as to whether there is a proper basis for joint liability as Chubb Russia asserts.
    5. Overall, as matters stood at the end of play yesterday, the court had been provided with some 1,400 pages of material, ignoring authorities bundles.
    6. Around 00.30 this morning A’s representatives emailed certain documents now cross-referenced to my clerk. At 9.30am today I received a note from A on “Options regarding the hearing on 23 October in Russia” together with a chronology.
    7. During the course of the hearing I queried the absence of what appeared to me to be a key contractual document. I was informed that that document was indeed missing from the material so far before me. There were in fact two further bundles available but which had not been provided to the court (volume H), which contained that document. Those materials had not been formally exhibited, but I was handed the first bundle H to consider. I was also provided with a copy of the (three) authorities bundles for A for the first time during the course of the hearing. Those bundles, as became apparent even during the course of the limited submissions that I have heard so far, proved themselves to be incomplete.
    8. It is apparent to me that, whichever way one considers the issues before the court, and despite the powerful submissions of Mr Gee QC for A, this is not a narrow, single-issue case. A very large number of issues are raised: even if only on an alternative basis, what is the proper governing law of Clause 50, the effect of Russian law, whether there are strong or good reasons not to grant an anti-suit injunction, whether there is any proper basis for relief against Chubb Europe. It is, on any view, a heavy application within the meaning of the Commercial Court Guide.
    9. In the normal course of events, paragraph F.6 of the Commercial Court Guide would have applied. In particular, the applicant’s skeleton, reading list, time estimate and chronology would have been needed to be provided by 4pm, at least two clear days before the hearing (ie 4pm on Thursday, 10 October).
    10. At the outset of today’s hearing, I raised my concerns as to the appropriateness of proceeding at all today in the light of the procedural position facing the court. I heard short but focused submissions on both sides on my central concerns.

Ruling

    1. Having considered carefully the submissions on both sides, and the overriding objective of dealing with cases justly and at proportionate cost, I have concluded that there is a number of reasons why I should not proceed to consider granting the relief sought by A today.
    2. First, it is not at all clear to me why A’s application was issued ex parte in the first place, as opposed to inter partes and then on short notice. The fact that a matter is urgent does not mean that it should proceed ex parte.
    3. Secondly, A has been on notice of the Russian proceedings since late May 2019, yet the current application was not made until mid to late September 2019. Any crisis on timing is, in my judgment, of A’s own making. The fact that the Russian proceedings were not accepted or formally commenced in the Russian courts until early September is not to the point: from May 2019 there was a clear threat, and on A’s case, breach, by Chubb Russia from May 2019 onwards. There was always a clear risk of a tight timetable in Russia upon formal acceptance of the proceedings. A appears at all times to have had ready access to Russian lawyers who would have been in a position to advise of possible procedural developments and timetables upon formal commencement of the proceedings. If the risk to A’s assets and business in Russia is as great as A says, one would have expected earlier action on its part.
    4. Thirdly, there is on the material identified before me to date no compelling reason why A’s claim for anti-suit relief has to be heard today or, indeed, before next Wednesday. This is not a question of saying that the application is premature, or that it would be premature to grant the application because the Russian courts have not yet ruled on the stay motion before them. It is simply identifying that no obvious real prejudice has been identified to A if its claim for relief is heard after the Russian courts have dismissed (or not) A’s motion for a stay. This is so even if the Russian courts on 23 October 2019 begin their consideration of the merits. One is not at the judgment stage where there is a risk of irreparable harm through damage to A’s operations in Russia, a risk which, of course, exists wherever the matter is to be litigated.
    5. Fourthly, the circumstances in which the order from Mr Justice Teare was sought are unfortunate. There was a failure of full and frank disclosure by A of the fact that the Contract containing Clause 50 is expressly governed (even if only in part, on A’s case), by Russian law. Attachment 17 to the Contract defines the applicable law as Russian law. Nor did A refer to its own motion for a stay to the Russian court in which A positively asserts and relies on the fact that the Contract is expressly governed by Russian law. Chubb Russia’s argument by reference to Russian law was, in my judgment, one which was always obviously going to raise its head. It has been, at least until this morning, been advanced (or at least understood by the Defendants) as the central issue in the application, namely what is the governing law of Clause 50.
    6. A accepts, fairly, that it should have included Attachment 17, Articles 4.1 and 4.2 of the Contract, and its motion for a stay in Russia in its evidence on the application to Mr Justice Teare. It makes due apologies. The errors are said to have been the product of the burden of work at the time. Mr Gee has emphasised before me the huge pressure under which his team have been operating in three different time zones and in circumstances of urgency.
    7. Fifthly, and perhaps more fundamentally for present purposes, it is clear that the relief sought by A is, at least arguably, not only interim relief. Its effect would be (at least possibly) final. I note that A’s Russian law expert contends that upon the Russian courts effectively dismissing without prejudice Chubb Russia’s claim, that there would be nothing to stop Chubb starting again if the anti-suit claim were to fail. To this Mr Bailey QC for Chubb Russia not unreasonably makes the point that he has not been able to counter this new point made by A’s Russian law expert for the first time yesterday in any evidence. However, on instruction he says that Chubb Russia’s position is very much to the opposite effect: there would be very grave obstacles in the path of Chubb Russia seeking to revive its claim against A in circumstances where there had been an earlier dismissal by consent. Thus, the court is being asked to make a mandatory order with potentially far-reaching, permanent consequences, something which it will not do lightly or without the merits being fully and properly ventilated.
    8. As to that, exploring the merits – even scratching their surface this morning – has only served to deepen my concerns as to the preparedness of this matter for fair determination today.
    9. In submission, Mr Gee made clear that, in fact, his primary case is that the proper governing law of Clause 50 is completely irrelevant. This is not something that I had understood from his skeleton, nor had Mr Bailey. Rather, Mr Gee bases his primary case on the proposition that the choice of London as a seat for arbitration means without more that the English courts have supervisory jurisdiction to grant anti-suit relief, irrespective of the governing law of the arbitration agreement. Mr Bailey describes this as an entirely novel point of law.
    10. Exploration of the merits has also served to reveal a complete lack of clarity (and certainly lack of confidence on both sides) as to precisely what test this court should be applying. Mr Gee submitted that I should determine, and could readily and without difficulty, determine the question of relief and construction without hesitation on an outright basis. But he went on to say, on an alternative basis, for the purpose of granting the injunctive relief, I need only be satisfied that there would be a good arguable case in A’s favour. Mr Bailey countered that by reference to the case of Transfield Shipping Inc v Chipin Xinfa Huayu Alumina Co Ltd [2009] EWHC 3629 (affirmed in Ecobank Transnational Inc v Tanoh [2016] 1 WLR 2231 at [74] to [77]). He submits that the appropriate test is that I would have to be satisfied that there was a high degree of probability that A was entitled to the relief which it sought.
    11. In light of all of the above, I have reached the conclusion that the case is not ready for a fair hearing. Beyond the very late service of evidence and the late service of A’s skeleton, as I have indicated during the course of submissions and in this judgment, A’s skeleton does not comply with Appendix 5 (or paragraph F.6.5) of the Commercial Court Guide.
    12. In circumstances such as these where the court is being required to digest a huge amount of material in a very short timeframe, I would wish to emphasise the importance of clear, succinct and tightly focussed skeleton arguments from both parties.
    13. The skeleton of A as applicant needed to identify crisply the issues in the case and the test(s) that needed to be applied. I accept Mr Gee’s submissions to the court that he laboured long and hard over the weekend to produce the skeleton that he has, and that he has done so to the best of his ability. It does, to my mind, nevertheless, beg the question as to why preparation of A’s skeleton did not commence much earlier, even if Chubb Russia’s skeleton was going to emerge later in the day and require modification/updating to A’s case. A was the applicant. It had sought and obtained today’s hearing date. As I indicated, the structure of A’s skeleton was difficult to follow; there was no reading list or time estimate; there was no cross-referencing until documents were sent to my clerk shortly after midnight this morning; there was no chronology provided until very shortly before the court sat. In particular and as a matter of substance, the skeleton failed to identify the relevant issues and test(s) succinctly for the court at the outset.
    14. This court strives at all times to assist court users, often in circumstances of urgency. However, in order to be able to provide that service, it needs proper assistance from the parties, including intelligible skeleton arguments which identify the issues and the relevant test(s) in a clear structure and all in accordance with Appendix 5 of the Commercial Court Guide (and, on heavy applications, paragraph F.6.5 of the Commercial Court Guide).
    15. There are further evidential difficulties, such as that the evidence on Russian law is incomplete, in particular, so far as Chubb Russia’s position is concerned.
    16. Given the range of issues arising, the number of authorities cited, the fresh evidence on Russian law and the state of preparedness overall, I have also concluded that one day today would simply be insufficient time for the matter properly to be disposed of. I consider that with due preparation and properly focussed and structured written submissions, one day should be sufficient, but the case is clearly not ready for that to be achieved today.
    17. I would also add that, so far as Chubb Europe is concerned, the application raises some particular complexities which would take some time to unravel if the application for interim relief against Chubb Europe were to be pursued.

Conclusion

  1. In short, I am not persuaded that I should proceed to consider further granting urgent interim injunctive relief today in the light of all these matters. It is impossible for the court to consider the relevant issues properly in the time available. The time crisis is, in my judgment, largely of A’s own making. There was a failure to put all relevant material before Mr Justice Teare, and ultimately and as matter of pragmatism, the case appears to me to be in chaos today. As Mr Gee himself was forced to agree, it is at least in disarray. It would not be fair to either party to proceed on such an important matter today in such circumstances. As I have indicated, with further directions for a further hearing, the position should be capable of effective disposal in a day, but for today’s purposes I am not prepared to let the matter proceed further substantively.

Georgiadis v Du [2019] VCC 1911 (22 November 2019)

IN THE COUNTY COURT OF VICTORIA

AT MELBOURNE

COMMERCIAL DIVISION

Revised

Not Restricted

Suitable for Publication

GENERAL LIST

CI-17-02188

Pavlos Georgiadis

Plaintiff

v
Hong Hong Du
Defendant

JUDGE:
Murphy
WHERE HELD:
Melbourne
DATE OF HEARING:
23, 24, 25, 26,30 September 2019, 7 October 2019
DATE OF JUDGMENT:
15 November 2019
CASE MAY BE CITED AS:
Georgiadis v Du
MEDIUM NEUTRAL CITATION:
[2019] VCC 1911

REASONS FOR JUDGMENT

Subject: TRUSTS – PARTNERSHIP – EQUITABLE COMPENSATION

Catchwords: limitations of actions – whether claim statute barred – limitation period relating to trust property – defences – laches and acquiescence – whether disadvantage or prejudice was caused by the plaintiffs’ delay – delay of 8 years in bringing claim – business partnership – warehouse – shop

Judgment: For the plaintiff.

HIS HONOUR:

1 The parties in this matter were equal partners in a successful business, however they were determined to dissolve the partnership or to provide for one partner to buy out the other. An arbitral Award provided that the outgoing partner’s share of the business would be held by the continuing partner on trust pending the completion of the sale of the share of a jointly owned factory, and the business assets. The continuing partner completed the purchase of the half share of the factory but failed to complete the accounting and payment for the balance of the outgoing partner’s interest in the business.

2 The continuing partner continued to trade the business and not account to the outgoing partner. After the expiry of the usual six-year limitation period the outgoing partner sought to recover from the continuing partner the value of his share of the assets of the business as at the date of dissolution. The continuing partner denied the existence of any trust relationship or obligation to account. The continuing partner also raised jurisdictional and limitation of actions defences, as well as the equitable defence of laches. The continuing partner also challenged the quantum of the claim by the outgoing partner.

3 For the following reasons I dismiss the defences raised by the defendant, and substantially uphold the quantum of damages claimed by the plaintiff.

Fact-finding and legal principles to be applied

4 In reaching the conclusions below, given the time that has elapsed since the relevant events, comments in a recent case before the Court of Appeal are apposite. In that case the Court reproduced without criticism, the approach to fact finding undertaken by the trial judge who at first instance approached the matter in the following general terms:

‘Having regard to the lengthy period which has elapsed since the occurrence of so many of the events in question. The only safe course is to place primary emphasis on the objective factual surrounding material and the inherent commercial probabilities, together with the documentation tendered in evidence. In this context, the subjective interpretation the parties placed on the meaning, significance and effect of the objective evidence must be approached with caution.’

5 The parties in this case were proceeding without lawyers and entered a number of informally drafted agreements that sought to wind up the affairs of their partnership. In interpreting these commercial contracts, the following approach to construction is relevant:

‘This Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of the parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding of the genesis of the transaction, the background, the context [and] the market in which the parties are operating. As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption that the parties … intended to procedure a commercial result. A commercial contract is to be construed so as to avoid it making commercial nonsense or working commercial inconvenience.’

Undisputed Background

6 Until May 2009, the plaintiff (“Paul”) and the defendant (“David”) conducted a successful partnership business trading under the name “The Diggers Rest Furniture Company”. The business involved the importing of timber components, as well as the manufacture and sale of household furniture. The partners jointly owned a factory in Vermont and leased retail premises in Nunawading. In 2008, they decided to place the business on the market and retained a business broker (Macquarie) to advertise the business.

7 In February 2009 the parties executed an agreement to dissolve the partnership. This agreement did not specify a particular date for the dissolution. There were provisions made for the valuation of the freehold of the factory, as well as of business goodwill and chattels to be undertaken by Macquarie. There were also provisions for the parties to reach a further signed agreement as to how to dissolve the partnership. In the event that agreement was not reached an independent mediator was to be appointed and the parties agreed to accept the ruling.

8 Matters proceeded unresolved, and on 5 May 2009, the parties reached a further written agreement that provided an agreed method as to the valuation of the assets of the partnership. On 14 May 2009, in the context of discussions between the parties that involved options as to whether one would buy out the other, or the business would be divided with one party taking the freehold and the other the retail, or surrendering the retail lease and liquidating the business, Paul produced a document reflecting that agreement which was handed to David, although not signed by him. The agreement however was referred to in the subsequent arbitration submission.

9 On 23rd May the parties executed an arbitration agreement which identified the matters in dispute as:

1 Dissolution of partnership;

2 Total cessation of trading altogether;

3 Division of all assets – agreed (or determined) basis;

4 Further decisions as required to support/complete the three earlier agreements.

On 23 May 2009 Mr Kenfield issued an Award (‘the Award’), signed by the parties that provided:

“After discussion, David Offered to buy Paul’s entire interest in the partnership on the following basis:

David’s Offer (Option 1)

Take over all of Paul’s interest in the partnership:

50% value of the factory 1 Azalea (agreed) $321,500

50% value of: stock, cash & debtors, other assets, liabilities (to be valued per agreement 5 May 2009) (approx.) $110,000

Paul to retain the Econovan registered in his name.

“Due to the parties’ fears that in the current economic circumstances it could be difficult to realise fair value for the business, or its assets, this was to be an absolute last resort.”

“I find [the parties] dysfunctional as a partnership and unable to continue working together constructively into the future.”

“I order David to buy Paul’s interest in the business pursuant to [David’s Offer], plus an uplift of $50,000 in respect of business goodwill.

I order:

a) Valuation of the assets, per [the 5 May 2009 Agreement] by 30 May 2009.

b) David is to pay a deposit of $5,000 to Paul on the day to confirm the deal.

c) David is to formalise this offer by arranging for payment in full within 30 days and actual payment by 30 June 2009.

d) In the event David cannot obtain finance within 30 days, unless Paul agrees to an extension of time, Paul is ordered to commence an orderly realisation of all business assets, with a full accounting to David. The net proceeds of realisation to be shared equally between David and Paul, after deduction of any reasonable and necessary expenses.

e) The partnership is terminated, by Order and agreement, as of 5.00pm on 23 May 2009. All liabilities incurred to date of separation are to be shared equally. From 5.01pm on 23 May 2009 all partnership interests and activities will be operated by David as trustee for Paul’s interest in 50% of the old partnership, until full payment has been made for said interest.

f) Upon payment being received, Paul will transfer his interest in [the Factory] to David, or his nominee. Until that time, the partners will continue as joint owners of the property.

g) The costs of doing whatever needs to be done to effect the foregoing measures will fall where they are incurred, and both parties are ordered to ensure that they do not unfairly prejudice, or threaten, or encumber the interest of the other through these or associated actions.

10 On the day of the arbitration David handed Paul $5000 in accordance with paragraph (b).

11 The meaning and effect of the emphasised paragraph (e), and the non-implementation of the whole of the Award, was at the heart of the proceeding.

Subsequent Events

12 On the 24 May 2009, Paul attended the factory and the retail premises and made a video recording of the stock and equipment at each of the premises. In the same week Paul also attended the retail premises and the factory and conducted his own stocktake at each site. He later handed the stocktake lists to David. There was some dispute as to whether it was David who asked an employee of the business, Mr Santamaria, to commence the stocktake, or whether it was in fact Paul who had done so. Paul denied that he had done so and when he arrived at the showroom, Mr Santamaria had already commenced the stock take. He then completed the stocktake. In relation to the factory, David gave evidence that he asked Marco to commence listing the assets and equipment. Paul gave evidence that when he arrived at the factory he had a discussion with Marco and was given some lists that included items in Chinese characters. He was unable to utilise those lists and went ahead and completed his own listing of all the materials and equipment.

13 Nothing turns on these differences but, overall, in relation to the undertaking of the stocktake, I prefer the evidence of Paul as it is supported by the extensive lists of the items in both of the premises that were entered into evidence.

14 Paul gave evidence that in the week after the Award, he was at the showroom and had a meeting with David at which they discussed, and amicably resolved between the two of them, the allocation of an amount of cash belonging to the business held by Paul.

15 Also relevant is that Paul also gave evidence that notwithstanding that he retained keys to the premises of the business, it was made clear to him that he was not welcome at the premises after the dissolution of the partnership.

The Award was only partly implemented, yet the business continued.

16 An essential feature of the proceeding is that notwithstanding the making of the Award on 23rd May, and the payment of $5000 cash by David to Paul on that date, only that part of the Award relating to the purchase of the half share of the factory was subsequently implemented. Thus, some months after the 23rd May, Paul was paid $321,500, that being the previously agreed value for his half share of the factory, with the certificate of title issuing on 26 March 2010.

17 Meanwhile, after 23rd May, the defendant continued to operate the business, having changed the business name registration into his own name, and lodged a partnership return for the 2009 financial year. There were subsequently personal tax returns from the 2010 financial year. Moreover, on the evidence the retail part of the business was wound up upon the expiration of the lease in 2013, and the manufacturing activities in 2017, although some equipment remains in the factory.

18 Paul’s solicitors made a demand upon David on the 4th of May 2010 for the $50,000 goodwill that was due on 30 June 2009:

“You cannot now resile from that Award. One element of the arbitration Award was that you were to buy our clients interest in the business AND pay him an amount of $50,000 in respect of business goodwill. There is no provision for any assessment or revaluation of the goodwill as the arbitrator has determined its value and ordered you to pay our client $50,000 on account of it…”

“…there has still not been a valuation of the remaining assets because you have failed to cooperate with our client in undertaking the valuation

19 David responded to the letter of 4 May 2010 on the 11th of May by stating that:

“Secondly… the sum of $50,000 for the goodwill of the business cannot be concluded. Until Mr Paul Georgiadis provides and supplies all evidence and documentation of cash flow, goodwill, the amount that Paul holds has to be worked out.

Thirdly, the Arbitration Award has to be executed in full. Goodwill is just part of the order.

20 At some undetermined date, the plaintiff’s solicitors referred the matter back to the arbitrator. In an undated and unsigned document entitled ‘Correction to the Arbitration Award’ (Correction), Mr Krenfield found that:

“David and Paul have complied with some of the orders made under the Award. Specifically, David has purchased Paul’s interest in the [Factory]. Further, David has paid Paul the amount of $5,000 as confirmation of the dissolution terms as I ordered in the Award.”

“I have been informed by Lord Commercial Lawyers, the solicitors for Paul, that save for the transfer of title on [the Factory], there has been no valuation of assets, realization of assets, payment on account of Paul’s share of the assets or payment of the goodwill as contemplated by my orders in the Award.”

“It seems that the language used in the Award lacked sufficient clarity and certainty to allow for the Award to be effectively enforced in Court. I have reviewed the Award and make the following orders to correct the Award and remove any ambiguity.

I order that:

1. The Partnership was dissolved on 23 May 2009.

2. David holds all assets of the Partnership as existed as at 23 May 2009 on trust for Paulo’s 50% interest in the Partnership assets as at 23 May 2009.

3. David is to pay Paul $50,000 no later than 31 August 2010 on account of Paul’s share of the goodwill of the Partnership.

4. An independent valuer be appointed jointly by Paul and David, no later than 31 August 2010, to value the remaining assets of the Partnership, including stock, cash and debtors and other assets.

5. David is to pay Paul 50% of the valuation within 14 days after receiving a copy of the valuation.

6. In the event that David and Paul cannot agree on an independent valuer then Paul appoint a Receiver to the Partnership, no later than 14 September 2010.

7. The Receiver, so appointed, is to realize all of the remaining assets of the Partnership and distribute the net proceeds, after payment of the Receiver’s expenses, equally to each of Paul and David.

Apart from the inclusion of new deadlines for the performance of the orders these orders reflect the spirit and intent of the Award and are made solely for the purpose of correcting errors in the Award and removing ambiguity to allow for enforcement of the Award.

21 Although the plaintiff pleaded reliance on the corrected Award, by final addresses, it was common ground that save that the defendant said it was relevant to his defence of laches, neither party relied on the corrected Award.

22 Notwithstanding the making of the corrected Award, no further action was taken by either party to comply with either the original Award all the corrected Award, and in particular no receiver was appointed, nor were the assets valued.

23 The plaintiff issued these proceedings on 16 May 2017, nearly 8 years after the dissolution of the partnership, and well outside the usual six-year limitation period for contractual claims and for enforcement of an Award.

The plaintiff’s case as pleaded and prosecuted

24 By final addresses the plaintiff had refined his case such that he pleaded that pursuant to the Award the defendant held from 23 May 2009 his 50% share of the business assets (as at that date) on trust for him. The defendant had failed to account to the plaintiff for the assets of the business as at 23 May 2009. The plaintiff sought equitable damages in the sum of $226,479.61 as his remedy. The plaintiff did not seek to rely on the correction to the Award, nor seek any contractual remedies, sum certain, an account, or an enforcement of the Award. The plaintiff in seeking an equitable remedy was prepared to deduct his share of partnership liabilities as at 23 May 2009.

Defences raised by the defendant

25 The defendant by his defence and in closing submissions raised a number of jurisdictional defences as well as challenging the quantum of the plaintiff’s claim. In closing submissions the defendant first submitted that the parties’ rights were governed by the Partnership Act 1958 (the Act). The next jurisdictional defence was that the plaintiff was seeking to enforce an Award under the Commercial Arbitration Act 1984 , and had failed to use the appropriate summary procedure under the Rules. The plaintiff was therefore precluded from bringing this proceeding in this Court, and was in any event statute barred.

26 Alternatively, the defendant’s position was that no formal trust was established by the Award, and that at its highest, the interest created by the Award was one of security or as a custodian and that the obligation has ended long ago due to the failure of the plaintiff to comply with the Award or the Correction.

27 The defendant also argues that in so far as the plaintiff is seeking to enforce the Award, or to seek an account of profits or damages for conversion of the assets of the business, then those claims were contractual in nature and were statute barred. Further, the claim for damages for breach of trust was also statute barred.

28 Finally, the defendant sought to invoke the equitable defence of laches, due to the unconscionable delay and prejudice by the plaintiff.

29 The defendant’s response to the quantum of the claims by the plaintiff was to assert that the amounts claimed had been wrongly itemised such that the claim sought involved a claim for assets that were excessive and/or non-existent.

30 It is convenient to first consider whether the plaintiff has succeeded in his liability case against the defendant.

Contested factual issues relating to liability

31 There were no real contested issues of fact to be determined in relation to the plaintiff’s case on liability. The plaintiff’s case had an elegant simplicity. It was that, under the express terms of paragraph (e) of the Award, the parties had agreed that David held the outgoing partner’s 50 per cent interest in the business on trust until settlement. The trust was admitted on the pleadings.

32 While the Award also provided for David to pay 50 per cent of the agreed value of the business under the formula set out in the 5 May agreement, the trust established and imposed on the defendant for the plaintiff’s 50 per cent interest of the business remained, notwithstanding the failure of the parties to cooperate with each other to complete the stocktake in accordance with the 5 May agreement.

33 In accordance with the pleadings, and in his closing address, counsel for the defendant made a number of submissions in response. First, he submitted that the plaintiff was seeking to enforce the Award. It was submitted that the Award did not, in truth, establish a trust, or impose trustee-like duties, at all. Rather, the Award established David as a custodian or fiduciary for the purpose of the Award. Further, on a construction of the Award as a whole, once the 50 per cent interest in the factory had been paid for and transmitted from Paul to David, the Award had ceased. The defendant had no further obligation to the plaintiff.

34 Next, it was submitted that the provisions of the Partnership Act should apply and the plaintiff’s claim under that Act was statute barred.

Consideration

35 In his closing submissions the defendant submitted that under Partnership Act the partnership was dissolved on 13 February 2009 and thereafter there were discussions entered into with respect to winding up of the affairs of the partnership. He then sought to invoke sections 43, 46, 47 and 48 of the Partnership Act which sets out what were to be the arrangements upon the winding up of a partnership. These include that the outgoing partner is entitled to apply to the court to wind up the business. Moreover, where there is no final settlement, the outgoing partner is entitled to a share of the profits at his option and to a division of the assets after payment of liabilities.

36 He submitted that the dissolution of the partnership was confirmed on 23 May 2009 by the Award and the parties agreed by the arbitration to wind up the partnership. Thus the causes of action under the Act accrued on either 13th February 2009 or 23 May 2009 and were statute barred by 23 May 2015, and in any event merged into the Award.

37 The Award, a submitted, wound up the affairs of the partnership in a manner consistent with the Partnership Act .

Partnership Act inapplicable

38 First, the Partnership Act in section 4 saves the rules of equity and common-law except insofar as they are inconsistent with the express provisions. On the express provisions of the February 2009 agreement there was no agreement at that point to dissolve the partnership. The Award made on 23 May 2009, expressly confirms the dissolution of the partnership as at that date. In section 36, which deals with dissolution of partnerships, it is expressed to be ‘subject to any agreement between the partners’. In section 46 which deals with the profits after dissolution this is expressed to be subject to ‘any agreement to the contrary.’

39 Similarly the rule for distribution of assets in section 48 is expressed to be “subject to any agreement”. I am satisfied that these provisions allow the parties to address issues arising out of the dissolution of a partnership, and thus the Court must look to the terms for the Award for each parties rights and obligations. On that basis I do not accept the defendant’s submission that the claim by the plaintiff is a claim under the Partnership Act and therefore constitutes a money claim that is statute barred.

Is this enforcement of the Award?

40 The defendant argued that the plaintiff’s claim was enforcement of the Award and thus barred by section 5 (1) (c) of the Limitations of Actions Act 1958 (LAA). In response the plaintiff referred to Tridon Australia v ACD Tridon  where the Court noted that enforcement was different from restatement of the effect of the Award in the form of a judgment. It is a summary procedure under section 33 of the Commercial Arbitration Act. It is also held to be discretionary. Further, here, the plaintiff is not seeking to directly in force the Award. He is not seeking the $50,000 of goodwill set out in the Award. Rather his argument is that by the admitted provision of para (e) of the Award, a trust is established for the plaintiff’s 50per cent of the business. The plaintiff’s argument is that the defendant has breached this trust by continuing to trade the business and not account to the plaintiff for the assets that constituted the trust when it was established.

41 I agree that the plaintiff is not seeking to enforce the Award as such. It would be very difficult to enforce all the elements of the Award in any event as they would not meet the requirements of certainty articulated in Gingis v Mount Scopus Memorial College.

42 The two aspects of the Award left to be enforced after the settlement of the property, were the claim for $50,000 goodwill uplift, and the trust established by para (e). I accept the plaintiff’s submission that the elements of the amended statement of claim he has pressed do not amount to a statute barred attempt to enforce the Award. The trust was, as argued by the plaintiff, established by the Award but I am satisfied this proceeding as such does not seek to enforce it. For these reasons I do not accept the defendant’s argument that the plaintiff’s claim is statute barred under section 5 (1)(c) of the LAA.

Was there a trust created and what was its nature?

43 The core of the plaintiff’s case was that his claim was not statute barred because it came within the terms of section 21(1)(b) of the LAA which provides:

21 Limitation of actions in respect of trust property

(1) No period of limitation prescribed by this Act shall apply to an action by a beneficiary under a trust, being an action—

(a) in respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or

(b) to recover from the trustee trust property or the proceeds thereof in the possession of the trustee, or previously received by the trustee and converted to his use.

(2) Subject as aforesaid, an action by a beneficiary to recover trust property or in respect of any breach of trust, not being an action for which a period of limitation is prescribed by any other provision of this Act, shall not be brought after the expiration of six years from the date on which the right of action accrued:

Provided that the right of action shall not be deemed to have accrued to any beneficiary entitled to a future interest in the trust property until the interest fell into possession.

44 The plaintiff’s case required him to establish that there was a trust created prior to alleged breach of trust, rather than a remedial trust imposed as a remedy.

45 In support of the plaintiff’s submissions that a trust relationship was established by para (e) of the Award, he relied on the authority in Hospital Products:

‘The accepted fiduciary relationships are sometimes referred to as relationships of trust and confidence or confidential relations viz., trustee and beneficiary, agent and principal, solicitor and client, employee and employer, director and company, and partners. The critical feature of these relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position. The expressions “for”, “on behalf of” and “in the interests of” signify that the fiduciary acts in a “representative” character in the exercise of his responsibility, to adopt an expression used by the Court of Appeal.

46 The plaintiff also relied on the following from Grizonic v Suttor

‘Upon dissolution, the partner’s right and duty is to wind up the partnership’s affairs, and the surviving (or continuing) partners are entitled and obliged not only to complete all unfinished operations to fulfil contracts still in force, but also to realise the partnership property, and for that purpose to carry on the partnership business in the meantime. Although Bourne concerned the powers and duties of a surviving partner after death of the other, there is no apparent distinction, for the purposes of s 38, between that situation and the position of a partner in whose hands the business is left following dissolution inter vivos. One reason for the continuing authority of a surviving or continuing partner is to avoid the necessity for an application in every case for the appointment of a receiver. The underlying rationale is that someone must carry on the business pending winding up to preserve its value for the benefit of both parties, that the partner who does so is acting in the interests of both in preserving the business and its value, so that the other partner is bound by the acts of the continuing partner for that purpose.’ (Emphasis supplied)

47 In Re Bourne Romer LJ said:

‘It is to be borne in mind that the real interest of the partnership in real estate is of a personal character, because wherever the legal estate may be, whether it is in the partners jointly or in one partner or in a stranger it does not matter, the beneficial interest in the real estate belong to the partnership, with an implied trust for sale for the purpose of realising the assets and for the purpose of giving to the two partners their interests when the partnership is wound up and an account taken. ‘ (Emphasis supplied)

48 The comments in both cases support the proposition that the continuing partner is holding the relevant share of partnership assets on trust for the exiting partner, which is exactly what para (e) of the Award specified.

49 In support of his specifically pleaded action seeking to recover trust assets the plaintiff also relied on Re Pleash as follows:

‘Under the general law, a breach of trust consists in nothing more nor less than an act by the trustee in contravention of the duties imposed upon him or her by the trust, or an act done in excess of his [or her] powers. It may be deliberate or inadvertent; it may consist of an actual misappropriation or misapplication of the trust property or merely of an investment or other dealing which is outside the trustees’ powers.

50 Both parties sought to have the reasoning in Nolan v Nolan applied on the applicability of limitation periods as follows:

In his judgment, which expounds the critical differences in lucid and forceful terms which it is impossible to emulate, Millett, L.J. sought to emphasise the following matters which are essential to an understanding of s.21 and the liability of trustees. In dealing with the history of limitation periods in equity, his Lordship noted that originally there were no such prescribed periods, in that a trustee from the outset always acquired property or title on behalf of another and so was thought always to remain accountable for any breach of duty affecting the property so held, at least until the trusteeship duties were discharged. When Chancery judges sought to enforce common law rights, however, they began to apply the statutory limitation periods by analogy, so that the plaintiff might gain no advantage by suing in equity and thus avoiding the statute. A considerable number of statutory amendments in the late nineteenth and early twentieth century saw specific limits being imposed on suits in equity, but those, such as s.21, directed to breaches of duty by trustees must be understood as intended to apply to trusts properly so described and, by extension, to constructive trusts properly so described.

Consequently, it may be added, the words of s.21(1)(b) look to a claim by a “beneficiary under a trust”, i.e. a pre-existing trust, and to the recovery of “trust property”, i.e. that which is already subjected to a trust, from a person who is already a trustee. In the case of conversion the trust property must have been “previously received by the trustee” and [scil. hereafter] converted to his use” – language clearly not apt to describe the recovery of property which a party may have later to disgorge or deal with as a “trustee” by virtue only of some fraud or other breach of duty.”

51 In Re Pollock (which is cited in Nolan) Gillard J stated:

‘On proof of facts to constitute the circumstances set out in s 21 (1) [of the LAA], no period of limitation is to apply to a claim by a beneficiary under a trust.’

52 The defendant, for his part, sought to argue that the trust created here was not an institutional, but a remedial, constructive trust. The difference has been discussed as follows:

‘A good part of the case concerns the distinction between an institutional constructive trustee or a remedial constructive trustee, which is conceptually part of the analysis. The first situation covers those cases where a defendant, though not expressly appointed as trustee, assumes the duties of a trustee by a lawful transaction which was independent of and preceded the breach of trust. The second situation covers those cases where the trust obligation arises as a direct consequence of the unlawful transaction and is equity’s technique to require someone to hold on trust property which in all conscience belongs to another. In that sense the person committing the wrong is accountable in equity, or liable to account as constructive trustee. The significance of that distinction is that a breach of constructive trust case may have no time limits. But a case of wrongdoing with a claim for the imposition of a remedial constructive trust is different and although it is equitable in context, courts of equity may be called upon to apply a statute of limitation directly or by analogy according to an analysis of the nature of the wrongdoing.

53 Here, applying the above authorities, I am satisfied that, as argued by the plaintiff, the defendant was a true trustee and thus the cause of action comes directly within s 21(1)(b) of the LAA. If I am wrong about that, the plaintiff was in the category of an institutional constructive trustee. The trustee assumed the duties by the lawful consensual and contractual transaction of his assent to the Award. The trust and its corresponding obligation or duty was created, as required by Feglin ‘independent[ly] of and preceded by the breach of trust.’ It was not a case where the plaintiff was seeking a remedy by the Court construing a trust relationship after a breach had occurred. The trust was established by the Award.

Consideration of the defendant’s characterisation arguments

54 Any consideration of the Award and, by giving it a businesslike interpretation, indicates that there are independent obligations created by that instrument. They include the transfer of a 50per cent share of the factory. The provision establishing that the defendant is to hold the business for the benefit of the plaintiff can be construed as independent of the obligations in relation to the factory.

55 It follows from this that is difficult to see why the failure of the parties to achieve the settlement by 30 June 2009 has any impact on the establishment of the trust. It was common ground that the defendant continued to trade the business. Notwithstanding the further corrected Award, which neither party sought to rely on, that position remained unchanged until 2013. The defendant argued that somehow or other any trust that was created was exhausted in September 2010.

56 The difficulty with the defendant’s submission is that the defendant has, by his pleading, admitted the Award and thus the establishment of the trust under paragraph [e] of the Award, as well as by paragraph 5 of the defence dated 29 May 2019. This was a classic trust where the legal ownership of the 50 per cent share was held by David for the benefit of Paul.

57 While the defendant could be described as a custodian, he was also a trustee. It is a mischaracterisation of his role to suggest that it is a relationship established for a purpose or to provide security, namely to effect the transfer of the half share of the factory. It is also an incorrect characterisation to assert, as submitted, that upon the payment of the factory, the Award was spent. On any view, the plaintiff’s half share of the business at that stage remained with the defendant who was in a classic fiduciary relationship with the plaintiff. The plaintiff was in a vulnerable position vis a vis the defendant who had by his assent to the Award agreed to hold his share of the business on trust for him until full payment.

58 Contrary to the argument by the defendant, the mere fact that the defendant complied with part of the Award by paying for the transfer, at the agreed price, of the half share of the factory, cannot be seen as somehow fully satisfying his obligations under the Award, or otherwise exhausting the Award. After all, even if it could be said that it was for the plaintiff, in the event of the failure of the defendant to pay for the plaintiff’s half share of the business, to seek the appointment of a receiver and to realise the assets of the business, those assets remained at all times in the hands of the defendant, in circumstances where the plaintiff gave unchallenged evidence that he was not welcome on the premises.

Conclusion: defendant was a true trustee

59 As articulated by the plaintiff in final address, the true nature of the plaintiff’s cause of action was a claim by a beneficiary against a trustee. While other contractual remedies were pleaded but abandoned, the remedy ultimately sought was a claim for equitable damages consequent upon the breach of trust by the defendant as a trustee.

60 This is important as it was made clear in the analysis in Nolan that such claims come within s 21(1)(b) of the LAA. This provision means that the plaintiff is not facing a limitation defence.

Is the claim barred by laches?

61 The defendant submitted that the claim of the plaintiff is time barred to the extent that the action is for equitable relief by the doctrine of laches. Counsel referred to the following explication of the doctrine:

The elements of the defence of laches are: (i) knowledge of the wrong; (ii) delay; and (iii) unconscionable prejudice caused to the opponent by the delay.

The key element is whether, in all the circumstances, “it would be practically unjust to give a remedy” (per Lord Selborne LC in The Lindsay Petroleum Company v Hurd (1874) LR 5 PC 221 at 239-240). Normally, that means that the defendant must show both delay and detriment suffered by the delay, Fisher v Brooker [2009] UKHL 41; [2009] 1 WLR 1764 at 1781 [64] per Lord Neuberger with whom Lord Hope, Lord Walker, Baroness Hale and Lord Mance agreed.

It is sometimes said that the essential nature of the defence is that the claim of the plaintiff is released in equity. This is often, but not always the case. Sometimes laches operates as an estoppel, see Fisher v Brooker and Ashburner’s Principles of Equity 2 ed (Butterworth & Co, London, 1933) at 520. The result of a successful plea of laches is that the plaintiff’s equitable claim is dismissed.

62 The defendant submitted that the plaintiff was aware of the claim in 2009 and failed to act on the claim until 2017 when he issued the proceedings. He submitted that there had been no explanation provided for this delay and that this delay was significantly prejudicial to the defendant. Counsel referred to the maxim that ‘equity assists the diligent and not the tardy’ in submitting that this forms the basis of the laches principle. Counsel further submitted that the actions by the plaintiff constituted ‘complete and utter gross laches as well as acquiescence in any conduct that’s complained of by the plaintiff against the defendant.’ The defendant remains running the business while it was submitted that the plaintiff acted in breach of the Award and did not act to sell up or appoint a receiver.

63 Counsel submitted that the plaintiff erroneously characterises the defendant simply conducting the business as conversion, while also submitting that this action by the plaintiff constitutes acquiescence. Counsel submitted that the Award at (e) states ‘upon payment being received’ that is where the plaintiff transfers his interest in the property to the defendant. Until that payment the parties continue to act as joint owners of the property. It was submitted that there was acquiescence in allowing the defendant to run the business for ten months as well as a discharge of the Award by the payment for half the factory. It was submitted that plaintiff never made a request for a return of the partnership assets or their value, rather the plaintiff acquiesced and allows the situation to continue unabated for seven years. This acquiescence it was put, creates at equity the defence of laches.

64 The letter of 4 May 2010 demonstrates that the plaintiff has full knowledge of the facts and full knowledge of the law. Counsel submitted that it was the plaintiff who controlled the process. The plaintiff knew that there was the Award and elected not to enforce it. The defendant put that the plaintiff has brought about the state of affairs where the defendant is left holding the assets and the associated costs. Moreover, the defendant submits that a letter sent to the solicitors for the plaintiff on 11 May 2010, was met with ‘complete and utter silence’ from the plaintiff.

Acquiescence

65 Counsel submitted that the correction of the Award clarified the enforceability of the Award and sought to ensure that it was fully enforceable. The defendant puts that the Correction sets out for the plaintiff a clear method for resolution of the issue first through attempting a joint valuation. If the parties are unable to agree, then the plaintiff is ordered and required to seek to resolve the matter by appointing a receiver.

66 The defendant asserts that there had been no communication, the assets were not valued and the plaintiff did not approach the defendant. The defendant after three years closed down the retail premises because it is not profitable, he had to realise the stock or repatriate the stock to the factory. There was no action taken by the plaintiff. The defendant submits this is evidence that the plaintiff continued to acquiesce in the situation. The defendant further submitted that this goes to laches as the plaintiff is seeking a remedy in equity however the plaintiff positively created a situation which the plaintiff has the immediate remedy to seek a receiver and has not done so.

67 Counsel submitted that detriment is not fundamental to laches and that it can be ‘established by the acquiescence itself.’ The defendant put that where there is a high and continuous level of acquiescence on the part of the plaintiff in complete disregard for the plaintiff’s obligations under the Award ‘then that acquiescence itself creates a laches that extinguishes the plaintiff’s claim”.

Detriment or prejudice to the defendant

68 The defendant, referring to Orr v Ford and Hourigan v Trustee Executors and Agency, submitted that even if it is accepted that there is an express trust, it is extinguished by laches: namely the plaintiff’s continual acquiescence in the state of affairs. It was put that the detriment suffered is fundamental even though it was submitted by the defendant that detriment need not be established. The position is that ten years after the arbitration, there is no ability to look at the assets in the arbitration. The plaintiff has not acted on his earlier threat to sue. The defendant continued to hold the assets at cost to him for a prolonged period of time which is not submitted to be taken into account. The retail premises has been closed and there has been an effective cessation of the wholesale business.

69 The defendant put to the Court that acquiescence in this context refers to the refraining from exercising or enforcing a right which the plaintiff is entitled and knows thereby accepting the contrary asserted right by the defendant. Counsel put that the defences of laches and acquiescence ‘occurs when a person who is entitled to some equitable relief under some existing state of affairs, and who is aware of his rights does nothing to enforce them.’ Thereby there is assent to the continuation of the state of affairs. It was the submission of the defendant that laches clearly applies to extinguish any equitable remedy that may be sought.

The plaintiff’s response

70 With regard to delay, the plaintiff submitted that ‘there needs to be knowledge of the wrong and then there needs to be delay from the knowledge.’ In this matter the defendant took on the partnership assets and held them on trust, the plaintiff was not aware that they were converted to own use straight away. The plaintiff put that the idea that acquiescence would by itself enliven a defence is in error and that the doctrine of laches requires prejudice as a result of the delay.

71 The plaintiff put that the LAA and laches are defences, they do not invalidate the Award or any contract, or any claim that someone has.

72 The plaintiff in responding to the defendant’s submission that the plaintiff could have gone to court to appoint a receiver on the correction, put that the defendant has submitted that the correction was a ‘second bite of the cherry’ and therefore is relevant for the purposes of laches. The plaintiff has put that the correction cannot be held to be void and unenforceable yet also relevant for the purpose of laches. The plaintiff put to the Court a further issue namely that ‘equitable remedies are determined at the time of breach, opposite to common law damages.’

73 The plaintiff in his oral submissions referred to Professor Dal Pont, in submitting that the common law largely does not permit the availability of the defence of laches where a trustee converts trust property to their own use, ‘although notes that the reticence is less compelling in cases within a purely commercial setting,’ with High Court authority noting that only ‘gross laches’ can defeat a claim from a party seeking to enforce an express trust. The Court was referred to the case of Sze Tu v Lowe concerning what constitutes a lack of laches as well as each of the respective elements, it is submitted that the onus is on the defendant in each of the elements. In Crawley v Short the court noted that the elements of the defence were knowledge, delay, and ‘unconscionable prejudice caused to the opponent by the delay.’ The question is whether ‘it would be practically unjust to give a remedy.’

The need for prejudice

74 The plaintiff seeks to rebut the proposition that there was prejudice to the defendant by reference to the video of the stocktake taken at the time. It was put that this rebuts that there was prejudice that goes to laches because it was not known what stock and equipment there was. It was put that there was not enough prejudice as the video footage taken the day after was unchallenged. Further, the plaintiff gave evidence as to how the lists were compiled and cross-referenced the video to items on the lists.

75 The plaintiff submitted that the Court should be reticent to apply laches where a trustee has taken the asset but recognised that in a commercial setting ‘reticence might not be applied.’ It was further put that there was no set definition of what constitutes gross laches, save to say that it is particularly egregious delay.

76 The plaintiff submitted that in the present case the fact that the stocktake is video recorded and that the prices are to be determined from a set position in time, which is agreed between the parties, means that the delay would need to be a very great delay, greater than what has occurred in order to be egregious, due to the lack of prejudice in knowing what was there at that period of time.

Consideration

77 It was common ground that there was some delay on behalf of the plaintiff. Whether the delay could be described as “gross” is a qualitative judgment upon which reasonable minds might differ. It could be described as a category of indeterminate reference.

78 The plaintiff’s explanation as to why he did not take action was rather thin although he did give evidence that he had been told he was not welcome, and indeed threatened, at the premises. He said he struggled and had difficulty dealing with the matter. In considering the response of the plaintiff, the fact that the delay followed the breakdown of a long business relationship where the plaintiff indicated also that he had been let down by his solicitors, provide some material for a lenient approach to the plaintiff’s conduct. Further, under cross-examination the plaintiff indicated that he had been reluctant to go down the route of a liquidation of the business as this would have devalued the assets and so he effectively wanted to pursue the steps in the Award. He also indicated that the defendant had had difficulty in raising the money to purchase the half share of the factory. As he saw the Award, he gave an explanation as to why there was no follow-up to the 2010 letter. The balance of the goodwill had not been paid, and moving to a liquidation would have created a loss and made things complicated.

79 From the authorities, however, it appears that for laches to be successfully raised as a defence to an equitable claim there must be some prejudice shown. Here, I am satisfied that the defendant has not suffered any real prejudice by the delay by the plaintiff in bringing this action. I have earlier referred to the stocktake. I am satisfied to accept the plaintiff’s evidence that he provided his lists to the defendant. Thus the defendant had a contemporaneous list of the business assets at the time he became a trustee of the plaintiff’s share. Further he remained in full control of the business, including its records, and continued to trade the business. He was in a position to verify the plaintiff’s lists of assets even though the parties took no action to advance the stocktake or the balance of the Award.

80 It cannot be said that the plaintiff has sat by to see how successful the business may have been before proceeding to take action, as is referred to in some of the old cases involving mining ventures. Rather the defendant has enjoyed the fruits of the entire business to the detriment of the plaintiff. The parties had previously been in partnership and the defendant continued the business, but in his own name.

81 Next the defendant has had the benefit of the use of the business assets over the period until the business was ultimately wound up. It was not suggested that any third party had suffered detriment by reason of the delay. Further, the plaintiff is seeking as his remedy, the value of the assets as at the time of the creation of the trust, by reference to the stocktake taken at the time and as to prices that were being used at the time. The defendant is not being prejudiced by this method of valuation. He is not being asked to disgorge his profits. He had previously agreed to this method of valuation. It is not “practically unjust” to give the plaintiff the remedy of compensation that he seeks based on the value of the assets as recorded at the time of the dissolution.

82 In those circumstances, unlike other cases where laches has been successfully invoked, here the lack of prejudice, and my conclusion that there is no injustice in providing a remedy to the plaintiff is such that I am not satisfied that this provides a successful defence to the plaintiff’s claim.

Conclusion: defendant’s defences not accepted

83 For the above reasons, I do not accept that the plaintiff’s claim for equitable damages fails, or is statute barred. Further, I do not accept that his equitable claim is defeated by the equitable doctrine of laches. I now turn to consider the issue of the quantum of the plaintiff’s claim.

The quantum of the plaintiff’s claim: disputed matters

84 The matters to be determined, in the event that the defendant’s jurisdictional and limitation offences failed, were narrowed in the course of final addresses, such that it is unnecessary to refer to much of the evidence on the quantum of the claim as issues fell away.

85 Under the plaintiff’s final claim in the proceeding, the original amount of goodwill of $100,000 fixed under the Award was not claimed. Further, the plaintiff in seeking equitable damages conceded that he was required to give equity, and thus to accept his share of the partnership liabilities as at the dissolution date.

86 This narrowing of the issues makes it unnecessary to consider the evidence as to how the amount specified in the Award for the: “50% value of: stock, cash & debtors, other assets, liabilities (to be valued per agreement 5 May 2009) (approx.) $110,000” was calculated.

87 The plaintiff gave evidence that the amounts being discussed during the arbitration stemmed from discussions with the business broker who has made suggestions as to how to present the business for sale, and in particular to have a high goodwill estimate. This resulted in the arbitrator reducing the estimate for the goodwill to $100,000. Similarly, in relation to the amount of stock being referred to, the defendant gave evidence that that was his offer for the business during the arbitration. The plaintiff also gave evidence that the amount for stock in the taxation returns was not truly a reflection of the amount of stock actually held by the business.

88 These matters were ultimately not now in issue: in essence the plaintiff sought equitable damages based on the value of the assets of the partnership as at 23 May 2009 in a document titled Schedule A calculated in accordance with the method for taking a stocktake agreed on 5 May 2009, and deducting agreed liabilities.

89 The stocktake was undertaken by reference to a number of different categories and the plaintiff’s claim, as opened, was narrowed by closing address as can be seen from the table below adapted from the plaintiff’s final submissions. Thus it can be seen that only items A, B, D, E and K remained in dispute in the event that the defendant was unsuccessful in his defences. In essence, to narrow the matters in dispute, the plaintiff in final address, in relation to a number of the items, accepted the defendant’s account or valuation from his evidence such that by closing address the disputed items were summarised as follows:

SUMMARY OF VALUE OF PARTNERSHIP ASSETS AS AT 23 MAY 2009

VALUED PURSUANT TO 5 MAY 2009 AGREEMENT

Category
Schedule A (CB12A)
Paul’s current claim
David’s claim

Finished Goods Nunawading(A)

$265,205.45
$264,114.55
$136,898.00

Raw Goods Nunawading(B)

$13,558.91
$13,033.64
$2855.00

Equipment Nunawading(C)

$62,453.23
$3025.24
$3025.24

Finished Goods Warehouse(D)

$19,418.18
$13,134.55
$1606.00

Raw Goods Warehouse(E)

$130,554.33
$122,721.87
$27,361.00

Semi-Finished Warehouse(F)

$1,896.87
$260.45
$260.45

Components Warehouse(G)

$74,404.36
$15,408.00
$15,408.00

MaterialWarehouse

(H)

$69,109.00
$6,909.17
$6909.17

Equipment Warehouse(I)

$35,545.00
$19,080.00
$19080.00

Unused Machinery(J)

$1,600.00
$Nil
N/A

Bank Accounts etc(K)

$36,267.44
$20,333.98
N/A
Sub-Total
$710,012.77
$477,851.21
less Liabilities
($24,892)
$452,959.21
50% Paul’s Share
$355,006.39
$226,479.61

Note: David’s assessment at CB195: $106,701 less $12,446 (being half of $24,892) = $94,255

Disputed issues regarding stocktake methodology

90 Before considering the individual categories of dispute is necessary to note the conflicting evidence regarding the stocktake undertaken pursuant to the 5 May 2009 agreement, bearing in mind the obligation of the Court to seek to give a businesslike and commercial result, particularly where the parties were effectively in an equal bargaining position and reached a signed agreement that they confirmed in the Award a couple of weeks later. In considering this the argument by the defendant that the plaintiff should have called expert evidence to value the business or the stock falls away. The parties had reached an agreement as to how to value the assets and it was the duty of the Court to seek to give effect to it, in circumstances where any expert seeking to proffer an opinion would be seeking to usurp what the parties had agreed.

91 The plaintiff’s case was that the stocktake was prepared in accordance with the agreement of 5 May 2009. That agreement addressed all the assets of the business including the factory, the vehicles and the equipment. The latter were to be valued at 50% of the value paid “if it still works”, otherwise if not agreed the average of the value given by both partners. The plaintiff gave evidence that he envisaged that the parties would tour the factory and reach an agreement on equipment that way.

92 In relation to the “stock valuation,” it set out the method of valuation. The valuation was be undertaken of the various assets of the business in both locations by reference to the categories of finished goods, raw goods, semi made, and seconds finished, dead stock, and materials. At that stage the business was manufacturing furniture to be sold in the showroom, and also bringing in other goods from suppliers that could be sold without further work. It also addressed other suppliers, being goods brought in, material, and dead ie non-moving, material. It also addressed the division of other assets including the business name, the vans, customer records, warranties, intellectual property, the bank account and deposits held, receivables as well as outstanding claims. It was signed by the defendant and is recorded in the arbitration agreement. I am satisfied that the defendant agreed to be bound by the methodology in this 5 May document, and the duty of the Court is to give it a businesslike operation.

93 In considering that methodology, the plaintiff gave evidence that when the method was agreed it was uncertain as to the future of the business, and in particular whether the business would be sold as a whole, or whether one party would buy out the other party, or whether one party would take the retail business and the other the factory.

94 In relation to stock, the methodology was to work back from the retail prices by deducting the GST, and then applying a percentage of that price (60%) as the wholesale price, 10% off for raw materials, and 20% for semi-made, and 20% for “seconds finished” stock. In relation to “dead stock” the parties were to take the average of each parties’ estimate.

95 For goods from other suppliers, the value was to be 60% of the retail price after deducting GST. For materials it was to be the purchase price, and for dead materials it was to be agreement or the average of each parties’ estimate.

96 Turning to the taking of the stocktake, as I have already noted above there was conflict as to who actually commenced the stocktake after the Award. As I have noted it makes little difference. In so far as there was any conflict between the evidence of the plaintiff and the defendant on the actual taking of the stocktake I prefer the evidence of the plaintiff. That the defendant would seek to organise the stocktake is consistent with the Award that he was to purchase the business within a limited time and thus it was in his interest to get the stocktake moving. On the other hand, it is consistent with the interest of the plaintiff to ensure that the actual stocktake was of integrity as he was to receive a half share, thus the video.

97 In relation to the actual compilation of the stocktake items, the plaintiff’s evidence was that after the making of the Award, on the following day, namely the Sunday, he attended at both the showroom and the factory and videoed the contents. During the trial, the plaintiff also marked on that part of the stocktake list that he had received from Mr Santamaria, those entries that he had made subsequently. On the Monday he attended and found that Mr Santamaria had commenced a stocktake at the showroom. He was handed pages 1 – 6 (CB 45 – 50). On some of the items Mr Santamaria had put prices in from the retail price list. Subsequently the plaintiff completed those prices from either the sticker price or from pricelists held by the business. The plaintiff marked on that document the entries that he had made.

98 The plaintiff subsequently completed a further list which listed other assets that had not been included by Mr Santamaria in his stocktake. The plaintiff gave evidence that he also prepared a further list of items which were items at the showroom. In addition he prepared a more extensive list of items which were items including the machinery at the factory. This was prepared in the balance of the week after the Award. In relation to CB 66 – 105 the plaintiff gave evidence that the dark entries were made during that period but the lighter entries were made in about 2015.

99 To assist in linking the stocktake records to the video of the plaintiff marked as an aide memoir CB 45 – 105 with the times from the video, as well as a separate document which was a list of assets, exhibit B, containing similar times linked to the video. Also relevant is the plaintiff’s evidence in relation to him completing the prices to be attached to the individual stock items by supplementing those prices that had been inserted by Mr Santamaria.

100 In evidence was a ledger of machinery and equipment that the plaintiff said was kept of equipment that had been purchased for the business. That ledger was accessed for the prices identified in that document. Further, the plaintiff gave evidence that upon completing the stocktake he photocopied the relevant book and highlighted those items in the handwritten lists that were still being used. In his evidence the defendant claimed that he had handed lists to the plaintiff but he had never received any feedback. This assertion had not been put to the plaintiff.

Assessment as to stocktake methodology

101 The plaintiff was strongly pressed in cross-examination as to his compilation of the stocktake in accordance with the 5 May method. His evidence carried a cogency given the position the parties were in during May 2009. When the agreement was made it was not clear what was going to happen to the business and so the 5 May agreement did not advantage either party. Following the Award it was in the interest of the plaintiff to have a stocktake that had integrity. Thus his action of videoing the showroom and the factory would support the veracity of the contemporaneous document. In relation to the categorisation of stock in the showroom, it is also relevant that the plaintiff was in charge, so was in a position to use his familiarity with the stock to properly categorise it into the three exhaustive categories in the document: finished goods, raw goods, and equipment. In those circumstances it is likely that the plaintiff would generate lists that he could defend as consistent with the agreement rather than seek to take advantage of the defendant. Also relevant in relation to the contest over the values attributed to items in the showroom is that the defendant admitted that he did not attend there to do a stocktake.

Disputed items in plaintiff’s claim

102 The plaintiff in his closing written submission, and briefly in his oral submissions, addressed each of the various items in dispute at CB 195. In closing address, counsel for the defendant did not specifically address the itemised differences in the claims. Rather he referred the Court to the matters raised in the defendant’s evidence and cross-examination and in the supporting documents tendered. The plaintiff was the cross-examined as to his categorisation of goods as either finished goods, or goods which were brought in from other suppliers effectively by similar treatment to goods manufactured in the factory, and goods purchased in to be retailed in that form. It was put that the stocktake method of a reduction from retail price was inappropriate as a method to value the goods because it would fail to capture the value added by the factory. The plaintiff disputed this and maintained that the agreement had been discussed between the parties. I accept the plaintiff’s evidence on this point. The evidence of the defendant had all the appearance of construction of a method of valuation that would have the effect of reducing the value that would have been arrived at under the 5 May agreement.

103 The defendant in his evidence after a weekend break tendered conflicting calculations of the various categories sought by the plaintiff (CB 195 – 213), and this led to a narrowing of the matters in dispute in Annexure A above that led to the plaintiff accepting in his final submissions some of the competing values namely items C, F, G, H, and I, claimed by the defendant, but maintaining his position on a number of disputed amounts that will now be discussed.

Item A- finished goods Nunawading

104 At CB 196 the defendant set out his dispute with the plaintiff as to the plaintiff’s claim that the value of the finished goods at the showroom was $486,210. The plaintiff conceded two items worth a total of $2000 but disputed the defendant’s deletion of all Oregon goods. The defendant also sought a reduction of the amount of finished goods of 25% for dead stock. He also sought a further reduction of 20% for second hand goods. My findings on these matters:

Metal legs/Oregon: $1000 disputed item

105 An element of this disputed item is a reference in the 5 May agreement that read “metal legs/Oregon $1000”. It was the plaintiff’s evidence that this referred to a price to be placed on some crates of metal legs located in the factory that were used in making Oregon furniture.

106 The defendant’s account was that this was a global sum for both the metal legs and any Oregon furniture and timber, given that this line was no longer popular, and that in effect the Oregon furniture was dead stock. In cross-examination, the plaintiff resisted any challenge to his account of the reference in the 5 May agreement.

107 The defendant, on the other hand in his evidence maintained that this indeed was the agreement, particularly as Oregon was at that stage no longer a popular line of furniture. He maintained that there was nothing inconsistent with Mr Santamaria listing Oregon items in the showroom stocktake as he was just told to list everything in the premises.

108 The video undertaken shows both Oregon furniture items and, according to the plaintiff, also the crates of metal legs. At CB50, which was part of the list of items prepared by Mr Santamaria, there are a large number of Oregon furniture items listed that are part of the plaintiff’s claim. Some of these items are listed as having significant values such as a set of chairs ($2800), buffet ($1899), TV unit ($1799), and mirrors ($250, $380). These values indicated that it is unlikely that the plaintiff, who was in charge of the showroom but who conceded that Oregon was less popular, would be prepared to value all the Oregon timber items and the metal legs for a lump sum of a mere $1000.

109 Given that the plaintiff subsequently allowed the inclusion a number of items of Oregon furniture in the lists that were prepared in the stocktake, and which he said he gave to the defendant, this supports his account that the $1000 figure was referable only to the crates of metal legs, which he listed at CB95, in an entry made at the time, as part of material in the factory, and not to all the Oregon timber or furniture and the crates of metal legs, that were recorded in the stocktake.

110 For these reasons, and having regard to my earlier reservations of the defendant’s memory of disputed events, and also taking into account the inconsistencies in the defendant’s evidence raised by the plaintiff set out in Annexure C of the closing submission, I prefer and accept the plaintiff’s account on this issue.

Dead stock

111 Before turning to the issue of “dead stock,” I must note that, under cross-examination, the plaintiff was challenged as to the way that he had categorised the various items. It was effectively put to him that in relation to goods purchased from China ready for sale, the business had no further work to be done on those items. It was put that it was inappropriate for one partner to sell to the other such goods at the wholesale price being 60% of the retail price, rather than at the actual cost that the goods had been purchased ready to sell. The plaintiff refuted this, asserting that that was the method agreed upon. His position was that the agreed method was effectively a “swings and roundabouts” such that particular values calculated under the formula might yield a higher amount in some cases than the retail margin, but a lower amount in others.

112 A further disputed element by the defendant in his calculations at CB196 was that of the finished goods in the showroom. He asserted that there should be a reduction of 25% to reflect the amount of dead, that ie non-moving, stock. His annotation stated “(should be more than 25% when shop closed).” He gave evidence that the figure was from “trading standards” and that it applied in 2009, and that it was higher in 2013 when the store was closed.

113 It was put to the plaintiff that there were goods in the showroom that had been there for some time and may have been damaged or would have to have been heavily discounted to sell. The plaintiff refuted this arguing that he was in charge of the showroom, and items were there to show to people so that they can order an actual item that would be manufactured. He disputed that it would have been necessary for both parties to have gone through the showroom looking at each item to place it into an appropriate category.

114 In his evidence in chief the plaintiff accepted that there may be stock that was not moving but did not quantify the amount that may have been in the showroom.

Assessment: “dead stock” – allowance made

115 The plaintiff did not include any items categorised as “dead stock” in his stocktake. The matter was not fully explored in cross-examination, although clearly the parties in their 5 May agreement provided for a category of “dead stock” and “dead material” that would be valued by “to take average of each partners estimate”.

116 Due to the fact that after the Award there was no action by both parties to advance the stocktake, which would have necessarily included a consideration of all the stock of the business, the issue of a value, if appropriate, of “dead stock” remains undetermined.

117 The defendant’s evidence as to the actions he took to liquidate the outstanding stock when the lease expired provides some evidence that at least at that stage in 2013, there was some ‘dead stock’ in the business. Some of the goods were placed with another retailer, some were lost, and some ultimately were returned to the defendant. This provides some support that there were, at least at that stage, some slow-moving goods. The plaintiff also accepted in his evidence that Oregon items were less popular than previously.

118 The plaintiff did not get an opportunity to refute the defendant’s estimates of “dead stock” that he produced after he decided to grapple with the items listed in the plaintiff’s stocktake. Also of note is that the stocktake had been commenced by Mr Santamaria. The plaintiff continued with the document that he had commenced to prepare. There was no evidence that the plaintiff had subsequently gone through the showroom and identified items that were properly to be categorised as “dead stock”.

119 There is an element of prejudice to the defendant in the implementation of the 5 May agreement given that “dead stock/dead material” were to be the dealt with by taking the average of each partner’s estimate. As no party took any action to progress the Award such a reckoning never occurred.

120 Due to the failure of the defendant’s counsel to put the defendant’s estimate of dead stock to the plaintiff in cross-examination the plaintiff has not had the opportunity to respond to the defendant’s estimate that 25% of the finished goods should be categorised as dead stock. The plaintiff’s concession in evidence in chief that there would be dead stock, combined with the defendant’s assertion as to his estimate of dead stock, leads the Court to the conclusion that, in providing an equitable remedy to the plaintiff some allowance for dead stock ought be made. Applying a fair and reasonble approach I propose to split the difference between the plaintiff who allowed for none, and the defendant’s 25% and assume that 12 ½% of the finished goods were dead stock and to reduce the plaintiff’s claim for that category by that amount.

Second hand goods

121 The defendant in his response to the plaintiff’s calculations at CB 196, applied a reduction of 20% to the amount of finished goods as “second hand good” on the basis that the stock could have been damaged. The plaintiff had been cross-examined about the possibility of damage to goods on the showroom floor, and noted that he was in charge of the showroom and that he resisted the proposition that such goods could not be sold as a finished product. He noted it still has value and “somebody can still purchase it.” He denied that it would need to be heavily discounted. The defendant reduced the amount of finished goods by 20% on the basis that it was second hand stock. The plaintiff’s evidence stated that all the goods were finished products. The defendant in his evidence conceded that he had not inspected the stock in order to determine if there was damage so as to warrant it being classified as “seconds finished” as a category provided in the 5 May agreement.

122 In contrast to the position in relation to dead stock just discussed, here, in the absence of either party actually determining whether any of the items listed as finished goods in the showroom were to be described as “seconds” there is no basis to apply a blanket reduction of 20% as sought by the defendant. For these reasons I do not accept the defendant’s claimed reduction of 20%.

Item B – Raw goods Nunawading: The red gum slabs – raw goods or materials?

123 Another matter in dispute was the plaintiff’s valuation of some large red gum slabs that were in the warehouse section of the Nunawading showroom. The plaintiff’s position was that they were properly valued as finished goods, sold in that state, and valued according to their retail price. The defendant’s position was that they were raw material and valued at cost. He annexed a supplier invoice for some slabs.I accept the plaintiff’s position on this dispute. They were in the retail section of the business and the plaintiff gave cogent evidence that these large slabs could be sold as is, and thus they were properly categorised by the plaintiff.

Item D – finished goods factory

124 The plaintiff accepted that the “Gretch order” should be deducted and that the items were components and thus should be reduced by 20%.

Item E raw goods factory

125 This was another example of a dispute between the parties as to the interpretation of the 5 May agreement. The plaintiff’s position was that this category involved goods that had either been imported from China already manufactured and waiting for further treatment such as sanding. The defendants account was that these were to be treated as materials. As the plaintiff submitted the items in this category are different from straight materials such as lengths of timber. As the plaintiff submitted the description given by him was not challenged in cross-examination. The defendant accepted in his own evidence that items of furniture were brought in and classified as raw goods. As submitted by the plaintiff the quantities were available to be checked in the video and the stocktake and I have already found that I accept the veracity of the plaintiff’s stocktake. Consistent with that conclusion, and with my acceptance of his evidence over conflicting evidence of the defendant in relation to the interpretation of the 5 May agreement, I accept the plaintiff’s claim in relation to this category being item E.

Item K Bank Accounts and showroom bond

Plaintiff’s evidence as to meeting to settle cash balance

126 The issue raised by the defendant, was that the plaintiff, in any claim for half of the business assets, had to account for any outstanding cash he held for the partnership as at 23 May 2009. In reaching a conclusion on the conflicting claims, similar principles to those discussed above in relation to the likely veracity of the stocktake apply.

127 At the beginning of the trial the defendant indicated that he did not press any set-off. Notwithstanding this, the defendant raised in cross-examination of the plaintiff that in his claimed division of the monies in the bank accounts, the plaintiff had failed to account for cash he held.

128 In the correspondence passing between the parties after the settlement of the half share of the factory, the defendant in his letter of 11 May 2010 (CB44) accused the plaintiff of failing to account for a large amount of cash that (“may exceed $50,000”) he held on account to the business. At one stage in the proceeding, the plaintiff had been accused of fraud, but that pleading had been abandoned. In the course of explaining his claim for half the monies in the bank accounts, the plaintiff gave evidence that in the second week after the Award the two met in the showroom and discussed the outstanding cash. They referred to the ledger. As the business did not have a safe, the plaintiff had been holding for safekeeping $3-4,000 in cash from payments made by customers. They went through the cash and divided it equally. It was put by the defendant’s counsel that the plaintiff had made up this evidence. He denied it.

129 On this issue I accept the evidence of the plaintiff. The plaintiff was in charge of the showroom operations and thus more likely to be in receipt of customer monies. Given that the business did not have any overdraft facilities, and had operated successfully as an equal partnership for some years with mutual trust, with the parties drawing equal shares, up until relations started to break down in 2009, it is inherently likely that the parties may have had cash holdings that needed to be settled. As the plaintiff was to be exiting the business and undertaking the stocktake for that very purpose in accordance with the 5 May agreement, then there is a ring of truth about evidence that, in the course of the days immediately after the Award, he would seek to settle the cash holdings so that the forthcoming settlement would go smoothly.

130 In reaching this conclusion on this point, I also take into account my assessment that the plaintiff has a much better memory of events some ten years ago, and his evidence generally is supported by the documents produced. While there is no document on this point, it appears that the issue of outstanding cash was first raised in the letters exchanged between the parties during 2010 when the defendant was in breach of the Award in that he was taking no action to account to the plaintiff for his share of the goodwill of the business, albeit that both parties had failed to undertake the stocktake to value the business assets.

Showroom bond

131 The other item in dispute in relation to cash at dissolution was an amount of $6800 bond on the leased showroom. When the lease was surrendered in 2013 the defendant, instead of making good the premises, chose to forfeit the bond.

132 The plaintiff argued that he was entitled to his half share in the bond as it was an asset of the business at the date of dissolution, and he could not be responsible for the later decision to forego it when there is no evidence of the profitability of the business under the sole management of the defendant.

133 I accept the plaintiff’s submissions. The bond was an asset of the business at dissolution and what happened to it after the defendant took total control of the operations of the business including the showroom until the retail section was closed is not a matter that the defendant should not account to the plaintiff for. The plaintiff is entitled to a 50% share of the lease bond.

Liabilities

134 The matter in dispute here related to whether the plaintiff had properly allowed for partnership liabilities at dissolution. The plaintiff accepts that the defendant had not sought to set off any debts of the partnership from which he could claim contribution from the plaintiff. The plaintiff recognised, however, that he was required to accept his share of the liabilities as at the dissolution. The evidence was that as at 30 June 2009 from the taxation return (CB 16), the partnership had liabilities of a $24,892. Under cross-examination the defendant conceded that the liabilities as at 23rd May would be “not much different”.

135 In his final accounting in Annexure A the plaintiff allowed for a deduction of $24,892.

Conclusion

136 Following the above findings the plaintiff’s Annexure A can be adapted as follows and I will enter judgement for the sum of $210,057.57:

Category
Schedule A (CB12A)
Paul’s current claim
David’s claim
Decision

Finished Goods Nunawading(A)

$265,205.45
$264,114.55
$136,898.00

$264,114.55$231,100.23

Raw Goods Nunawading(B)

$13,558.91
$13,033.64
$2855.00
$13,033.64

Equipment Nunawading(C)

$62,453.23
$3025.24
$3025.24
$3025.24

Finished Goods Warehouse(D)

$19,418.18
$13,134.55
$1606.00
$13,134.55

Raw Goods Warehouse(E)

$130,554.33
$122,721.87
$27,361.00
$122,721.87

Semi-Finished Warehouse(F)

$1,896.87
$260.45
$260.45
$260.45

Components Warehouse(G)

$74,404.36
$15,408.00
$15,408.00
$15,408.00

MaterialWarehouse

(H)

$69,109.00
$6,909.17
$6909.17
$6,909.17

Equipment Warehouse(I)

$35,545.00
$19,080.00
$19080.00
$19,080.00

Unused Machinery(J)

$1,600.00
$Nil
N/A
$Nil

Bank Accounts etc(K)

$36,267.44
$20,333.98
N/A
$20,333.98
Sub-Total
$710,012.77
$477,851.21

$477,851.21$445,007.13

less Liabilities
($24,892)
($24,892)
$452,959.21

$452,959.21$420,115.13

50% Paul’s Share
$355,006.39
$226,479.61

$226,479.61$210,057.57

Interest

137 The plaintiff in final address accepted that in circumstances where there had been delay in bringing the proceeding it was appropriate that interest under the Supreme Court Act 1986 run from the date of the issue of the proceedings. I invite the parties to make the appropriate calculation.

Judgment

138 I will hear the parties as to appropriate orders to give effect to this judgment.