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In a case involving the sinking of a vessel, the Court of Appeal upheld the enforcement of two arbitration awards and denied France and Spain’s applications resisting enforcement on grounds of jurisdiction and state immunity.

Following the sinking of the vessel “Prestige”, France and Spain made claims for pollution damages against the vessel owners’ protection and indemnity insurers, The London Steamship Owners’ Mutual Insurance Association Limited. The association started arbitration proceedings in London seeking declarations that Spain and France were bound by the arbitration clause in its rules. The association applied under section 66 of the Arbitration Act 1996 for permission to enforce the subsequently obtained awards as judgments of the High Court. France and Spain opposed those applications on the grounds that as states they were immune from proceedings under the State Immunity Act 1978. However, in the course of those proceedings they issued application notices seeking declarations under sections 67 and 72 of the Arbitration Act that the awards had been made without jurisdiction.

The Court of Appeal held as follows:

• “[T]he court must ultimately determine whether the right conferred on the claimant is in substance one to enforce the obligation created by the contract of insurance or one to enforce a liability which is independent of the contract”. In the present case, the the right to recover against the insurer was largely defined by the terms of the contract. Moreover, Spanish law conferred on the third party a right to recover damages from the insurer, but only to the extent permitted by the contract of insurance.
• Consequently, the appellants’ right to seek compensation from the association related to an obligation in contract, and so it was to be determined in accordance with English law as the proper law of the obligation. Claims against the association would thus have to be pursued in arbitration in accordance with the terms of the contract of insurance.
• “A state is not entitled to claim immunity in relation to proceedings which it has itself commenced: section 2(3)(a) of the State Immunity Act; by doing so it has clearly consented to the court’s determining the claim and so has elected to waive any right to immunity”. France and Spain sought a declaration that the arbitrator did not have substantive jurisdiction; this was a step in the proceedings otherwise than for the sole purpose of claiming immunity.
• This made it unnecessary to decide whether the appellants had also submitted to the jurisdiction under either or both of sections 9(1) or 3(1)(b) of the State Immunity Act 1978, but the court would nonetheless state its views thereon. The court did not reach a conclusion on section 3(1)(b) (no state immunity for proceedings relating to an obligation of the state which by virtue of a contract (whether a commercial transaction or not) fell to be performed wholly or partly in the UK). Notably, the court held that under section 9(1) a state party to an arbitration agreement had agreed in writing to submit a dispute to arbitration. When a third party claimed under an insurance policy with an arbitration clause, it claimed under or through a party to the arbitration agreement and thus became a party to the arbitration agreement for the purposes of the Arbitration Act 1996.

The London Steamship Owners’ Mutual Insurance Association Ltd v The Kingdom of Spain & Anor [2015] EWCA Civ 333, 01 April 2015

The Council has re-listed a number of Iranian entities (namely Bank Tejarat and 32 shipping companies) and has extended sanctions against certain Iranian persons until 13 April 2016.

Council Implementing Regulation 2015/548 renews the restrictive measures in view of the situation in Iran until 13 April 2016. The Regulation also makes some amendments to the listings (namely the deletion of some persons).

Council Implementing Regulation 2015/549 relists Bank Tejarat and 32 shipping companies alleged to be owned by Islamic Republic of Iran Shipping Lines (IRISL). The relisting follows the judgments of the General Court in Joined Cases T-420/11 and T-56/12 and Case T-176/12 (all of 22 January 2015). The relisting is based on new statements of reasons, being the alleged ownership of the shipping companies and, for Bank Tejarat, as follows:

Bank Tejarat provides significant support to the Government of Iran by offering financial resources and financing services for oil and gas development projects. The oil and gas sector constitutes a significant source of funding for the Government of Iran and several projects financed by Bank Tejarat are carried out by subsidiaries of entities owned and controlled by the Government of Iran. In addition, Bank Tejarat remains partly owned by and closely linked to the Government of Iran which is therefore in a position to influence Bank Tejarat’s decisions, including its involvement in the financing of projects regarded by the Iranian Government as a high priority. Furthermore, as Bank Tejarat provides financing to various crude oil productions and refining projects which necessarily require the acquisition of key equipment and technology for those sectors whose supply for use in Iran is prohibited, Bank Tejarat can be identified as being involved in the procurement of prohibited goods and technology.

The Court of Appeal has referred to the CJEU the question of whether a derogation from the EU Emissions Trading System (EU ETS) for certain non-EEA flights infringes the equal treatment principle.

Swiss International Airlines (“Swiss”) challenged Decision 377/2013/EU (the “Decision”), which temporarily exempted flights to non-EEA countries from the application of the EU ETS. Rather than directly challenging the Decision, Swiss argued for the invalidity of the regulations implementing the Decision in the UK. Since the regulations simply implemented the Decision, Swiss sought a reference to the CJEU (the only court that can declare an EU measure invalid).

Under the EU ETS, aircraft operators in EEA states had to apply for a permit and allowances permitting them to emit certain amounts of carbon dioxide during a specified period. Such allowances had to be surrendered annually according to how much carbon dioxide had been emitted. The EU ETS applied originally to all operators flying within the EEA or between EEA countries and third countries. Several third countries objected to this as an infringement of their sovereignty. For political reasons, the EU decided retrospectively to suspend the operation of the ETS for 2012 in relation to certain third countries. Some countries were excluded from this suspension, including Switzerland. The partial suspension of the EU ETS meant that it applied to flights within the EEA and to flights from the EEA to certain third countries including Switzerland, but not to most other third countries.

Swiss argued that the Decision was a breach of the EU law principle of equal treatment. Swiss brought proceedings in the UK because the UK was Swiss’s “administering Member State” under the EU ETS Directive, as Swiss’s greatest estimated attributed aviation emissions in the relevant period were in relation to UK flights.

The Court of Appeal held as follows:

• “Was the judge right to say that the principle of equal treatment was inapplicable?” In view of the relevant EU case law (some of which had been decided in the 1970s and 1980s, in a very different EU landscape), the extent of the exception to the equal treatment principle remained unclear. This exception was that there existed “no general principle obliging the [EU], in its external relations, to accord to third countries equal treatment in all respects”. “It would be logical to suppose that the qualification relating to the EU’s external relations should apply as much to internal EU legislation affecting external relations as to agreements or treaties made directly with third countries. But there is no decision of the CJEU which directly decides that question”.
• “Was the judge right to hold that the principle of equal treatment would not anyway have been breached in this case?” To show a breach of the equal treatment principle, Swiss would have to show that the EU legislature manifestly exceeded the bounds of its discretion. The Commission and the EU legislature had not yet properly justified Switzerland’s exclusion from the EU ETS suspension. In the absence of a reasoned explanation, it was at least arguable that, if the principle of equal treatment applied here, the EU exceeded the bounds of its discretion by singling out Switzerland for special treatment.
• As regards remedies, in addition to the substantive question of the validity of the Decision being referred to the CJEU, additional questions would be referred. These were: whether the register of emission allowances should be rectified; whether Swiss would have a right to claim damages under article 340 of the TFEU against the European Parliament and the Council for its loss; what (if any) other relief should be granted; and what (if any) action the Environment Agency should take to procure that additional allowances surrendered be restored to Swiss.

Swiss International Airlines AG v Secretary of State for Energy and Climate Change and the Environment Agency [2015] EWCA Civ 331

The Commercial Court (Burton J) has dismissed a claim that Baker & McKenzie acted negligently in providing advice to Symrise, a German food flavourings maker, in relation to tax affairs in Mexico.

The law firm had been retained to advise on various acquisitions and post-acquisition restructuring plans (notably debt pushdown) involving Symrise’s predecessor in title in a number of countries, including Mexico. Symrise was formed by way of a merger between two companies coordinated by a private equity firm. C. €125m of debt were then pushed down to the Mexican arm of the Symrise business. Following a challenge to the pushdown scheme by the Mexican tax authorities, Symrise paid £11.2m in tax by way of settlement. Symrise argued, inter alia, that Baker & McKenzie had been negligent with regard to its tax advice.

Burton J held as follows:

• Whether Baker & McKenzie was negligent in its tax advice had two elements: whether the advice that the pushdown did not contravene Mexican tax law was incorrect, or alternatively whether a warning that it might so contravene should have been given. Symrise ran the first case. The evidence before the court showed that the pushdown did not contravene the relevant tax statute provision. In any case, the particular provision of the Mexican tax statute was not applicable here.
• On whether the tax settlement entered into by Symrise had been reasonable, the steps taken by the company had not been in reasonable mitigation. “Symrise acted unreasonably in abandoning the proceedings [in the Mexican tax courts] which they had a very good chance of winning (and in the event would have won), and giving up the very good prospect of a recovery which would have avoided the tax losses. The Claimant’s tax recovery claim therefore fails”. Symrise was ordered to pay Baker & McKenzie’s costs.

Symrise A.G. and another v. Baker & McKenzie and another [2015] EWHC 912 (Comm), 31 March 2015

In Google Inc v Vidal-Hall, the Court of Appeal considered whether a cause of action in “misuse of private information” was a tort, providing the claimants with a necessary gateway to permit service of their claim outside the jurisdiction under CPR PD 6B. The Court also considered the compatibility of the right to damages in the Data Protection Act 1998 (“DPA”) with EU law.

In this case, Apple computer owners brought claims against Google for harvesting their internet browsing data (stored in cookies on their computers) which Google then sold to third party advertisers. Google had publicly stated, erroneously, that it did not collect such data without the user’s consent. The claimants claimed damages for distress (i) for misuse of private information; and (ii) under s. 13 DPA for breach of that Act.

The claimants had successfully obtained permission to serve their claims for misuse of private information and under the DPA outside England pursuant to CPR 3.6 and CPR PD 6B. Google appealed, arguing that: (i) misuse of private information is not a tort for the purposes of CPR PD 6B, para 3.1(9); and (ii) a claim for damages for distress under s. 13 DPA could not be brought in absence of any pecuniary loss.

The Court of Appeal held that:

• Misuse of private information is a tort for the purposes of the jurisdictional gateway in CPR PD 6B. The Court adopted Lord Nicholls’ comments in OBG Ltd v Allan [2008] 1 AC 1 and Campbell v Mirror Group Newspapers Ltd [2004] 2 AC 457, that “breach of confidence” and “misuse of private information” are now recognised as two separate causes of action. This is despite “misuse of private information” having arisen within the scope of “breach of confidence” as a domestic implementation of privacy rights contained in the European Convention on Human Rights. The Court considered that, once “misuse of private information” is viewed as its own cause of action it is clearly “a civil wrong without any equitable characteristics … [and] there is nothing in the nature of the claim itself to suggest that the more natural classification of it as a tort is wrong”. The Court also noted that classifying “misuse of private information” as a tort did not create a new cause of action, but rather gave the correct label to an existing cause of action.
• S. 13 DPA did not, on its face, permit the recovery of damages for distress in absence of any pecuniary loss (the claimants admitted that they had not suffered pecuniary loss). However, Article 23 of EU Directive 95/46/EC on protecting the processing of personal data did permit individuals to obtain compensation for breaches of privacy causing them “non-pecuniary loss”, in light of Leitner v. TUI Deutschland GmbH & Co KG [2002] ECR I-2631. On its literal meaning, s. 13(2) had not effectively transposed Article 23 into English law. The Court therefore had to consider whether it was possible to read s. 13(2) compatibly with Article 23. The Court found that, under the Marleasing principle, it could not, because: (i) s. 13 was a “central feature” of the DPA; (ii) Parliament had clearly intended to enact a narrower right to damages for non-pecuniary loss than Article 23; and (iii) to read s. 13 compatibly with Article 23 would subvert Parliament’s intention.
• S. 13(2) could, however, be disapplied on the grounds that it conflicts with rights guaranteed by the EU Charter of Fundamental Rights to private and family life and protection of personal data. The Court adopted the test in Benkharbouche v Embassy of Sudan [2015] EWCA Civ 33, which requires domestic courts to disapply domestic provisions which conflict with the Article 47 requirement to provide an effective domestic law remedy for breach of EU law rights, unless that would require the court to redesign the fabric of the legislative scheme. In this case, the Court held that it was possible to disapply s. 13(2) without devising a new legislative scheme.

Google Inc. v Vidal-Hall [2015] EWCA Civ 311, 27 March 2015

The Modern Slavery Act 2015, the first statute of its kind in Europe, received Royal Assent on 26 March 2015. It creates an obligation on commercial entities to disclose their supply chains so as ensure the absence of slavery and trafficking.

In particular, section 54 of the Act requires a commercial organisation that supplies goods or services to prepare a slavery and human trafficking statement for each financial year. This obligation applies if the organisation has a total turnover of not less than an amount prescribed by regulations to be made by the Secretary of State.

The declaration entails a statement of the steps that the organisation has taken during the financial year to ensure that slavery and human trafficking are not taking place in any of its supply chains and in any part of its own business, or alternatively a statement that the organisation has taken no such steps.

This disclosure duty is enforceable by the Secretary of State by way of civil proceedings in the High Court for an injunction or, in Scotland, for specific performance of a statutory duty under section 45 of the Court of Session Act 1988.

Modern Slavery Act 2015

The Privy Council has unusually overturned the findings of fact of a lower court in a case involving a decision regarding the honesty or otherwise of certain corporate transactions.

The case involved transfers of loans and interests in companies in return for shares and Global Deposit Receipts. The transferor was an asset management fund, and the transferee was a company. The fund argued that the defendants (including the company) had dishonestly assisted breaches of trust by one of the fund’s investment advisers. The trial judge and the Court of Appeal rejected these arguments, but the Privy Council held that there had in fact been such dishonesty.

The Privy Council found as follows:

• It would generally decline to interfere with a lower court’s findings of pure fact, except in very limited circumstances (for instance miscarriage of justice or violation of a principle of law or procedure – Devi v Roy [1946] AC 508). However, this general principle did not always preclude an appellate court from intervening.
• The present was an an exceptional case, falling outside the scope of the general principles. The circumstances here were similar to those in Armagas Ltd v Mundogas SA (The “Ocean Frost”) [1985] 1 Lloyd’s Rep 1. There, Goff LJ had “found it essential in cases of fraud, when considering the credibility of witnesses, always to test their veracity by reference to the objective facts proved independently of their testimony, in particular by reference to the documents in the case, and also to pay particular regard to their motives and to the overall probabilities”.
• Whether the respondents dishonestly procured or assisted in a breach of trust should be assessed in the light of their conduct and actual state of knowledge at the relevant times. Moreover, if objectively no honest person would in that light have acted as they did, it was unnecessary to show that the respondents actually recognised that what they were doing was dishonest (Barlow Clowes International Ltd v Eurotrust International Ltd [2005] UKPC 37).
• Consequently, the question here was whether the respondents could honestly have believed that their actions were in the interests of the company; in other words, whether they could have believed that the Global Deposit Receipts and shares were worth what the company had paid for them. Both lower courts had failed to address this key question, and had not probed the witnesses’ evidence on why the transactions could or could not have been in the company’s interests.
• Having found that the defendants had behaved dishonestly, the Privy Council held that the fund was entitled to recover the value of the amount paid for the Global Deposit Receipts and shares ($191m).

Central Bank of Ecuador and others v Conticorp SA and others (Bahamas) [2015] UKPC 11, 23 March 2015

The Privy Council has confirmed the test for determining whether a recipient bank had constructive notice of a proprietary right, where the bank should have inquired about the likely existence of the right.

The case concerned the proceeds of a sale of antiques paid into the bank. The antiques belonged to the respondent, and had been sold fraudulently by a third party using a network of corporate entities. The respondent had a proprietary claim to the proceeds of sale.

The Privy Council held as follows:

• The test had been set out in Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd [2011] EWCA Civ 347: on the facts known to the bank at the time it received the payment, did it have notice of the proprietary right? To determine this, the court had to consider whether a reasonable person with the bank’s attributes should either have appreciated that a proprietary claim probably existed or should have made inquiries which would have revealed the probable existence of such a claim.
• The bank should make inquiries if there was a serious possibility of a third party having such a right (i.e. if the facts known to the bank would give a reasonable banker in the position of the particular banker serious cause to question the propriety of the transaction).
• If there were features of the transaction such that, if left unexplained, they were indicative of wrongdoing, then an explanation should be sought before it could be assumed that there was no such wrongdoing. In the present case, on the facts actually known to the bank, there was no apparent explanation of the structure of the transactions (unless it was to conceal the origin of the funds).

Credit Agricole Corporation and Investment Bank v Papadimitriou (Gibraltar) [2015] UKPC 13, 24 March 2015

On 23 March 2015, in an application to set aside a freezing injunction the Commercial Court (Flaux J) held that a solicitor for the Republic of Djibouti had deliberately misled the court.

The case concerned Mr Boreh, who had been convicted on terrorism charges by the Djibouti Court of Appeals. The conviction was based (inter alia) on the content of certain telephone calls said to have taken place the day after the terrorist attack. Djibouti’s solicitor, Mr Gray, learned that the transcripts of the calls had in fact taken place the day before the terrorist attack. Mr Boreh’s conviction was consequently unsafe. Djibouti sought the extradition of Mr Boreh from UAE and also applied for a freezing injunction against Mr Boreh, which was granted by the Commercial Court.

The facts of the case are complex. In summary, Flaux J held as follows:

• The standard of proof was the civil standard of the balance of probabilities, but where an allegation was made of deliberate misconduct or dishonesty, the court would only conclude that the allegation was made out if there was cogent evidence to that effect (Lord Nicholls of Birkenhead in In re H (Minors)[1996] AC 563).
• The facts of the case showed that Mr Gray had failed to bring the issue of the wrong dates to the court’s attention at the injunction application hearing, in circumstances where he knew of this issue and appreciated its importance for the case, meaning that it would render the conviction unsafe.
• In the context of an application for an injunction such as the present, where the failure to make full disclosure was deliberate and conscious the freezing order could not stand. The misconduct had not been exclusively and solely that of the solicitor; Djibouti had been aware of and agreed with the strategy to conceal the real date of the telephone transcripts from the court.

Boreh v Republic of Djibouti and others [2015] EWHC 769 (Comm), 23 March 2015

On 18 March 2015 the European Commission presented a package of tax transparency measures as part of its agenda to tackle corporate tax avoidance and harmful tax competition in the EU.

According to the official press release, the Tax Transparency Package aims to ensure that Member States are equipped with the information they need to protect their tax bases and effectively target companies that try to escape paying their fair share of taxes.

The package includes a legislative proposal introducing the automatic exchange of information between Member States on their tax rulings and a communication outlining a number of other initiatives to advance the tax transparency agenda in the EU.

The legislative proposal is a Council Directive amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation.

Directive 2011/16/EU provides for mandatory spontaneous exchange of information between Member States in five specific cases and within certain deadlines. However, the efficient spontaneous exchange of information in respect of advance cross-border rulings and advance pricing arrangements is hindered by several important practical difficulties (for instance the discretion permitted to the issuing Member State to elect which other Member States should be informed).

The proposal provides for mandatory automatic exchange of advance cross-border rulings and advance pricing arrangements. This would include communication of a defined set of basic information to all Member States, with the Commission adopting measures necessary to standardise the communication. Member States should also exchange the basic information to be communicated with the Commission.