The implications of the Court of Appeal’s decision in Classic Maritime Inc v Limbungan Makmur SDN BHD
The Court of Appeal recently gave its decision in Classic Maritime Inc v Limbungan Makmur SDN BHD  EWCA Civ 1002. The case concerned the interpretation of an exceptions or force majeure clause and provides guidance on how correctly to apply the compensatory principle of damages.
The ship-owner, Classic Maritime, was engaged in a long contract of affreightment (“COA”) for the carriage of iron ore pellets from Brazil to Malaysia with Limbungan, the charterer. An addendum to the COA in 2014 stated that Limbungan agreed to ship iron ore pellets from either the ports of Tubarao or Ponta Ubu in Brazil to either Kelang or Labuan in Malaysia. Iron ore, supplied by Samarco, was shipped through Ponta Ubu and iron ore supplied by Vale through Tubarao.
On 5 November 2015, Samarco suspended its mining operations and ceased to supply iron ore given the bursting of a dam. Alternative and/or additional supplies from Vale were unavailable. As a result, Limbungan was unable to fulfil its shipment obligations. Limbungan claimed to be excused from these obligations citing that the dam burst fell under the exceptions clause of the contract. Classic Maritime sued for damages for breach of the COA.
FIRST INSTANCE DECISION
The trial judge found that while the dam burst made it impossible for Limbungan to perform the contract, even if it had not burst, the charterer would have defaulted anyway as there had been a collapse in the Malaysian iron ore market. Limbungan was unable to prove that ‘but for’ the dam bursting, it could and would have fulfilled the COA, and as such the judge held that it could not therefore rely on the exceptions clause.
The judge accepted that the applicable principle for assessing damages was the compensatory principle. In doing so, he took into account the reasons why the charterer was in breach of its obligations based on his previous finding. He assessed damages by comparing Classic Maritime’s position as a result of the breach, with the position it would have been in had Limbungan been able and willing, but for the dam burst, to fulfil its shipment obligations. As Limbungan would not have been able and willing to supply the cargoes regardless of the dam burst, the judge found that Classic Maritime was only entitled to nominal damages of $1 per shipment.
Following this judgement, Limbungan appealed on liability and Classic Maritime appealed the damages awarded.
COURT OF APPEAL DECISION
Regarding liability, the Court of Appeal decision upheld the interpretation of the exceptions clause and the first trial judge's finding on liability. It said there was no basis for approaching the clause as though it were a force majeure clause, and that Limbungan’s failure to perform did not ‘result from’ the dam burst: the dam burst could not fairly be said to have ‘directly affected’ the performance of Limbungan’s obligations.
The Court of Appeal also noted that the parties could have included a clause in the COA that excluded the ‘but for’ test, but that they had chosen not to. The original decision at first instance was therefore upheld.
Regarding the damages awarded, the Court of Appeal held that the correct approach required a comparison in financial terms between Classic Maritime’s actual position as a result of the breach and the position it would have been in had the contract been fulfilled. In assessing the value to Classic Maritime of the performance of the COA (regardless of why it was not carried out), the Court of Appeal held that Classic Maritime was in fact entitled to almost US$20 million in damages.
IMPACT OF THIS DECISION
This decision demonstrates that although the doctrine of frustration, force majeure and exceptions clauses share many similarities, where a provision is clearly intended as an exceptions clause, it must be interpreted on its own terms in accordance with the usual rules of contractual construction.
It also shows that although in cases of anticipatory breach it may be appropriate to take into account a party’s willingness to perform and whether, even if willing, it would have been excused from performance by particular events, in cases of an actual breach of an absolute obligation, the reason for failure to perform or subsequent impossibility are irrelevant when calculating damages.
Overall, this case is a clear warning of the need for clarity when drafting contractual clauses; parties need to ensure that the clauses that they agree and include in their contracts make their intentions explicit and cover the eventualities they require.
Limbungan is making an application for permission to appeal to the Supreme Court.
Increased Investment in Personal Tax Compliance in the UK (Published in Thought Leaders 4 Private Client)
Advances in technology and increased international fiscal co-operation have made global personal tax compliance initiatives pop up in abundance in recent years. To compound the issue, the Russian invasion of Ukraine and the corresponding economic fallout prompted domestic governments to increase transparency in relation to investments held by wealthy foreign individuals (with a focus on oligarchs).
In the UK, in the context of the cost-of-living crisis, public opinion certainly seems to be in favour of increased accountability for high-net-worth individuals (eg, on 9 October 2022, 63% of Britons surveyed thought that “the rich are not paying enough and their taxes should be increased”).1
HMRC is one of the most sophisticated tax collection authorities in the world and the department is making significant investments in technology in the field of compliance work; they are well placed to take advantage of new international efforts to increase tax compliance, particularly considering the already extensive network of 130 bilateral tax treaties in the UK (the largest in the world).2 The UK was also a founding member of the OECD’s Joint International Taskforce on Shared Intelligence and Collaboration (JITSIC) forum.
This article discusses the main developments in support of the increased focus on international transparency and personal tax compliance in the UK. There are other international fiscal initiatives, particularly in the field of corporate taxation, but such initiatives are beyond the scope of this article.
It should be noted that a somewhat piecemeal approach, with constant tinkering makes compliance difficult for the taxpayer and is often criticised for lacking the certainty that a stable tax system needs to thrive.
This article was first published with ThoughtLeaders4 Private Client Magazine
Tax-Related Measures in the Autumn Statement 2022
On 17 November 2022, the Rt Hon Jeremy Hunt MP, the Chancellor of the Exchequer, unveiled the contents of the Autumn Budget 2022. This comes after the International Monetary Fund (IMF) published its world economic forecast on 11 October 2022. The IMF expects the British economy to grow 3.6% in 2022 and 0.3% in 2023. Other major developed economies are also expected to stagnate next year, namely Spain (1.2%), the US (1.0%), France (0.7%), Italy (-0.2%) and Germany (-0.3%).
This note focuses on tax measures included as part of that statement.
Offshore Structures and Onward Gifts
The so-called “onward gift” tax anti-avoidance rules were introduced by the Finance Act 2018 to complement the changes brought in the previous year aimed at restricting the UK tax privileges afforded to non-UK domiciled individuals. The rules were designed to close some perceived loopholes in relation to the taxation of non-UK resident structures (including but not limited to non-UK trusts). With effect from 6 April 2018, it would no longer be possible for an individual to receive a gift without questioning its providence, particularly where family trusts are involved.
The rules were designed to prevent non-UK structures from using non-chargeable beneficiaries as conduits through which to pass payments in order to avoid tax charges. Gone are the days of “washing out” any trust gains that could be matched to offshore income or gains by prefacing a payment to a UK-resident taxable beneficiary with a non-taxable primary payment to a non-UK resident beneficiary.
“It is notoriously challenging to prove a negative (especially to HMRC) and even more tricky where the taxpayer must speak to someone’s intention other than their own.”
Note that the new rules will apply where funds are received from non-UK resident structures before 6 April 2018 to the extent that they are subsequently gifted after that date.
Increased Investment in Personal Tax Compliance in the UK
Changes in public opinion, advances in technology and increased international fiscal co-operation have made global personal tax compliance initiatives pop up in abundance in recent years. In addition, the Russian invasion of Ukraine and the corresponding economic fallout have prompted governments to increase transparency in relation to investments by wealthy foreign individuals in their countries.
The UK’s HMRC is one of the most sophisticated tax collection authorities in the world and the department is making significant investments in technology in the field of compliance work.
It should therefore be well placed to take advantage of new international efforts to increase tax compliance, particularly against the backdrop of the already extensive network of bilateral tax treaties in the UK, and not forgetting that the UK was a founding member of the OECD’s Joint International Taskforce on Shared Intelligence and Collaboration (JITSIC) forum.
This article discusses the main developments in support of the increased focus on international transparency and tax compliance in the UK. There are other international fiscal initiatives, particularly in the field of corporate taxation, but such initiatives are beyond the scope of this article.
Case note: Lynton Exports (Alsager) Ltd v Revenue and Customs Commissioners  UKFTT 00224 (TC)
As HMRC continue to apply the Kittel principle to increasing numbers of industries and businesses, taxpayers need to be vigilant about evidential requirements that HMRC must fulfil in order to discharge their burden of proof. Read JHA’s latest insight into the First-tier Tribunal’s decision in Lynton Exports (Alsager) Ltd v Revenue and Customs Commissioners  UKFTT 00224 (TC).
If you require any further information about the Kittel, Mecsek, and Ablessio principles, or any other allegations by HMRC of fraud or fraudulent abuse, please contact Iain MacWhannell (email@example.com).