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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> National Westminster Bank v Utrecht-America Finance Company [2001] EWCA Civ 658 (10 May 2001) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2001/658.html Cite as: [2001] EWCA Civ 658, [2001] CLC 1372, [2001] 3 All ER 733, [2001] Lloyd's Rep Bank 285, [2001] 2 All ER (Comm) 7, [2001] Lloyds Rep Bank 285 |
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COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE COMMERCIAL COURT
Peter Gross QC (Sitting as a Deputy Judge of the High Court)
Strand, London, WC2A 2LL Thursday 10th May 2001 |
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B e f o r e :
LORD JUSTICE CLARKE
and
LORD JUSTICE LAWS
____________________
| NATIONAL WESTMINSTER BANK |
Claimant/ Respondent |
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| - and - |
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| UTRECHT-AMERICA FINANCE COMPANY |
Defendant/ Appellant |
____________________
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
(instructed by Herbert Smith for the Appellant)
Lord Grabiner QC and Mr Robin Dicker QC
(instructed by Allen & Overy for the Respondent)
____________________
Crown Copyright ©
LORD JUSTICE CLARKE:
Introduction
Background
The Californian Proceedings
The TOA
"1. INTERPRETATION
1.1 Definitions
'Collateral'
means any property in which or over which an Encumbrance has been granted to or for the benefit of the Banks under any Security Document.
'Purchaser Warranties'
means the warranties, representations and indemnities made by, and the covenants and agreements of, the Purchaser in this Deed.
'Seller Warranties'
means the warranties, representations and indemnities made by, and the covenants and agreements of, the Seller in this Deed.
'Transfer Assets'
means all rights, title and interests of the Seller under the Credit Agreement, the UK Facility Agreement, the Security Documents and any Collateral:
(a) in, under and to:
(i) the Advances;
(ii) all interests, fees, costs, expenses and other amounts in relation to the Advances and the Commitments..
(iii) the Credit Agreement, the UK Facility Agreement, the Security Documents and any Collateral;
(b) to or in respect of any and all other claims, rights or causes of action against persons arising from or otherwise in relation to or in connection with the rights, title and interests described in paragraph (a)
2. AGREEMENT TO NOVATE
2.1 Agreement to novate
In consideration of the mutual covenants and agreements contained in this Deed and subject to the terms and conditions of this Deed the Parties agree as follows:
(a) that the Seller with full title guarantee, subject to payment of the Purchase Price to the Seller will novate in favour of the Purchaser the Transfer Assets and the Novated Obligations
7. REPRESENTATIONS AND WARRANTIES
7.1 Representations and warranties of the Seller
The Seller hereby represents and warrants to the Purchaser that, at the Completion Date:
(f) the Seller will be the sole beneficial owner of, with good title to, the Transfer Assets free and clear of any Encumbrance
7.2 Representations and warranties of the Purchaser
(e) the Purchaser is a sophisticated buyer with respect to the Transfer Assets (who has made its own enquiries into, and who has adequate information concerning, the business and financial condition (including without limitation, the creditworthiness) of the Obligors, the value of any Collateral, the perfection, validity and priority of any Security Interest forming part of the Transfer Assets, and the status of, and its rights with respect to the Transfer Assets in, any relevant Insolvency Proceedings or proposed Insolvency Proceedings), the Credit Agreement and the UK Facility to make an informed decision regarding the Novation of the Transfer Assets and the Novated Obligations and has independently and without reliance upon the Seller, and based on such information as the Purchaser has deemed appropriate, made its own analysis and decision to enter into each of the Transfer Documents, except that the Purchaser has relied upon the Seller Warranties:
8. ACKNOWLEDGMENTS
8.1 Acknowledgment by the Seller
(c) the Purchaser may be in possession of material non-public information relating to the Transfer Assets and which may affect the Purchase Price which the Purchaser shall be under no obligation to disclose to the Seller and the Seller hereby acknowledges and agrees that the Purchaser shall have no liability to the Seller, and the Seller shall bring no action against the Purchaser in relation to the non-disclosure of such information, provided that nothing in this sub-clause (c) shall affect the right of the Seller in relation to the Purchaser's Warranties;
8.2 Acknowledgements by the Purchaser
The purchaser acknowledges that:
(a) the Seller has not made and does not make any representation or warranty, whether express or implied, of any kind or character except as expressly set forth in the Transfer Documents:
(b) the novation of the Transfer Assets and Novated Obligations is irrevocable and without recourse to the Seller, except with respect to breaches of, or pursuant to, the Seller Warranties and is in any event subject to (e) below;
(c) save for the Seller's Warranties, the Seller makes no representation or warranty, nor assumes any liability for, the due execution, legality, validity, effectiveness, adequacy or enforceability of the Credit Agreement, the UK Facility Agreement, the Security Documents or the collectability or value of the Transfer Assets;
(d) the Seller may be in possession of material non-public information relating to the Transfer Assets and which may affect the Purchase Price which the Seller shall be under no obligation to disclose to the Purchaser and the Purchaser hereby acknowledges and agrees that the Seller shall have no liability to the Purchaser, and the Purchaser shall bring no action against the Seller in relation to the non-disclosure of such information, provided that nothing in this sub-clause (d) shall affect the rights of the Purchaser in relation to the Seller Warranties:
(e) the Seller shall be under no obligation to disclose any documents or correspondence between it and any member of the Group in relation to:
(i) the terms of the Credit Agreement ; or
(ii) the conduct of the parties in relation to the Credit Agreement (whether in relation to those terms or otherwise),
and that the Purchaser has received all the documents or correspondence (whether from the Seller, Rabobank .. or any other person) which it requires in respect of (i) and (ii) above for the purposes of the transactions envisaged by the Transfer Documents;
9. INDEMNITIES AND RELEASE
9.2 Indemnity by the Purchaser
The Purchaser shall indemnify and keep indemnified, and shall defend and hold the Seller harmless from and against any liability, claim, cost, loss, damage or expense (including, without limitation, reasonable legal fees and disbursements) or judgments which they (or any of them) incur or suffer as a result of:
(a) the breach of any of the Purchaser Warranties by the Purchaser;
18. ENTIRE AGREEMENT
The Transfer Documents constitute the entire agreement of the Parties about its subject matter and any previous agreements, understandings and negotiations on that subject cease to have any effect "
22. JURISDICTION AND SERVICE OF PROCESS
22.1 Submission
Each party agrees for the benefit of the other Party, that the courts of England shall have jurisdiction to settle any disputes in connection with this Deed and accordingly, submits to the jurisdiction of the English courts.
22.2 Service of process
The Purchaser irrevocably appoints Rabobank, London Branch as agent with full authority to receive, accept and acknowledge for the appointor and on the appointor's behalf, service of all process issued out of or relating to any proceedings in England, and the Purchaser agrees that service on the relevant agent shall be deemed due service for the purposes of proceedings in those courts without prejudice to any other mode of service.
22.3 Forum convenience and enforcement abroad
Each Party:
(a) waives objection to the English courts on grounds of inconvenient forum or otherwise as regards proceedings in connection with this Deed; and
(b) agrees that a judgment or order of an English court in connection with this deed is conclusive and binding on it and may be enforced against it in the courts of any other jurisdiction.
22.4 Non-exclusivity
Nothing in this clause 22 limits the right of any Party to bring proceedings in connection with this Deed:
(a) in any other court of competent jurisdiction; or
(b) concurrently in more than one jurisdiction.
23. Governing Law
This Deed is governed by English law.
Issues on the Appeal
The Law of California and England Compared
The Proceedings Compared
" the individual directors or officers of YFI and its subsidiaries who are sued are alleged to have acted in breach of fiduciary duties owed to the lending banks and negligently misrepresented the financial position of their companies to the banks over a period of time. Some of these individuals caused their companies to transfer property and funds for no consideration to three other companies, Almond Farms I, Almond Farms II and White Rose Farming. These transfers were made at a when YFI and Treehouse were insolvent and were not properly reflected in the accounting records of the companies. They also committed YFI to enter into long term leases with Almond Farm I and II. These liabilities (which exceeded US$20 million) were also not reflected in the companies' accounting records.
Rabobank and Utrecht's case is that NatWest was fully aware of these activities and that it provided additional funds for the Almond Bank ventures Rabobank and Utrecht claim that NatWest induced them to enter into the Take Out Agreement. Had NatWest disclosed its knowledge and its involvement in these transactions Utrecht and Rabobank would not have entered into the Take Out Agreement."
"without prejudice to Utrecht's and Rabobank's contentions set out in the Complaint that they were induced to enter into the TOA by fraud on the part of NWB which, if proved, would avoid the TOA in its entirety."
"The relevance of the allegation of fraudulent inducement having been made in the Californian action is apparent from the matters contained in paragraphs 6 and 10(iii)(3) and (4) of the Defence, in summary: since Utrecht has made such an allegation in the Californian action it is an issue in these proceedings whether or not NWB can, by the means it has adopted and relied upon in the Particulars of Claim, exclude its liability for its own fraud if proved and can, therefore, prevent the matter being tried out in the Californian action or elsewhere."
Should the Action in England be Stayed?
Should the Judge Have Entertained the Application for Summary Judgment?
"(a) It would have been consistent with comity to consider the validity of NWB's entitlement to an anti-suit injunction first, before entertaining argument on and deciding issues (raised in the summary judgment application) which the judge accepted were already before the Californian court. This was imperative given that the judge rightly held that California was a natural forum for the resolution of the dispute and that England was not the natural forum.
(b) Utrecht's application for a stay was made simply to ensure that the appropriate remedy was before the court if it declined to grant NWB the anti-suit injunction sought. In such circumstances the judge should have decided to stay the application after or at the same time as deciding NWB's application for an anti-suit injunction.
(c) The judge should not have entertained the summary judgment application by NWB, unless he had been prepared at the first stage of the analysis to grant an anti-suit injunction in favour of NWB. The judge recognised his decision on the application for summary judgment as being critical to the exercise of his discretion to grant an anti-suit injunction, holding that unless he had decided the summary judgment application in favour of NWB he would not have granted the anti-suit injunction. Deciding, in such circumstances, issues which were properly pending before the Californian court was fundamentally inconsistent with the principles of comity, particularly when accompanied by an order restraining those proceedings."
" the domestic court as a matter of comity must take cognisance of the fact that the foreign court has assumed jurisdiction. If, applying the principles relating to forum non conveniens the foreign court could reasonably have concluded that there was no alternative forum that was clearly more appropriate, the domestic court should respect that decision and the application should be dismissed."
"In our view the decisive matter is that the bank applied for the injunction to restrain the defendants' clear breach of contract. In the circumstances, a claim for damages for breach of contract would be a relatively ineffective remedy for the defendants' breach of contract. If the injunction is set aside, the defendants will persist in their breach of contract, and the bank's legal rights as enshrined in the jurisdiction agreements will prove to be valueless. Given the total absence of special countervailing factors, this is the paradigm case for the grant of an injunction restraining a party from acting in breach of an exclusive jurisdiction agreement. In our judgment the continuance of the Greek proceedings amounts to vexatious and oppressive conduct on the part of the defendants. The judge exercised his discretion properly."
"In my judgment, the time has come to lay aside the ritual incantation that this is a jurisdiction which should only be exercised sparingly and with great caution. There have been many statements of great authority warning of the danger of giving an appearance of undue interference with the proceedings of a foreign Court. Such sensitivity to the feelings of a foreign Court has much to commend it where the injunction is sought on the ground of forum non conveniens or on the general ground that the foreign proceedings are vexatious or oppressive but where no breach of contract is involved. In the former case, great care may be needed to avoid casting doubt on the fairness or adequacy of the procedures of the foreign Court. In the later case, the question whether proceedings are vexatious or oppressive is primarily a matter for the Court before which they are pending. But in my judgment there is no good reason for diffidence in granting an injunction to restrain foreign proceedings on the clear and simple ground that the defendant has promised not to being them.
I cannot accept the proposition that any Court would be offended by the grant of an injunction to restrain a party from invoking a jurisdiction which he had promised not to invoke and which it was its own duty to decline.
In my judgment, where an injunction is sought to restrain a party from proceeding in a foreign Court in breach of an arbitration agreement governed by English law, the English Court need feel no diffidence in granting the injunction, provided that it is sought promptly and before the foreign proceedings are too far advanced. I see no difference in principle between an injunction to restrain proceedings in breach of an arbitration clause and one to restrain proceedings in breach of an exclusive jurisdiction clause as in Continental Bank NA v Aeakos Compania Naviera SA, [1994] 1WLR 588. The justification for the grant of the injunction in either case is that without it the plaintiff will be deprived of its contractual rights in a situation in which damages are manifestly an inadequate remedy. The jurisdiction is, of course, discretionary and is not exercised as a matter of course, but good reason needs to be shown why it should not be exercised in any given case."
Summary Judgment the Merits.
Scope of Clause 8.2(d)
"(1) If the clause contains language which expressly exempts the person in whose favour it is made (hereafter called the 'the proferens') from the consequences of his own servants, effect must be given to that provision
(2) If there is no express reference to negligence, the court must consider whether the words used are wide enough, in their ordinary meaning, to cover negligence on the part of the servants of the proferens ...
(3) If the words used are wide enough for the above purpose, the court must then consider whether 'the head of damage may be based on some ground other than negligence' The 'other ground' must not be so fanciful or remote that the proferens cannot be supposed to have desired protection against it; but subject to this qualification, the existence of a possible head of damage other then that of negligence is fatal to the proferens even if the words used are prima facie wide enough to cover negligence on the part of his servants. "
"There is no mystique about 'exclusion' or 'restriction' clauses. To decide whether a person 'excludes' liability by reference to a contract term, you look at the effect of the term. You look at its substance."
Slade LJ was there considering the question whether the clause in question could properly be said to 'exclude or restrict' liability within the meaning of section 2(2) of the Unfair Contract Terms Act 1977 ("the 1977 Act").
"The words 'liability' for negligence in section 2(2) must be read together with section 13(1) which states that the former section prevents the exclusion of liability of 'notices which exclude or restrict the relevant obligation or duty'. These words are unambiguous and are entirely appropriate to cover a disclaimer which prevents a duty coming into existence. It follows that the disclaimers here given are subject to the provisions of the Act and will therefore only be effective if they satisfy the requirements of reasonableness."
Mr Brindle recognised that those statements were made in the context of the 1977 Act but submitted that they reflect the general law.
"The court's task is still to discern what the parties intended by the wording they have agreed in the context of the particular type of contract under consideration. But although 'rules' of construction area guide to the intention of the parties, they are not the masters of the parties' intention. "
I agree.
"Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract."
"To my mind, against the background of no pre-existing duty of disclosure under the general law, the scheme of clauses 7.1(e) and 8.2(a)-(e) serves to emphasise the importance placed by the contracting parties on (i) the principle of caveat emptor; (ii) a clear allocation of risk based on the principle of caveat emptor, no doubt reflected in or capable of being reflected in the pricing of the TOA; and (iii) with reference in particular to clause 8.2(d), certainty, finality and the avoidance of litigation."
I agree.
Reasonableness
"In relation to a contract term, the requirement of reasonableness is that the term shall have been a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably have been, known to or in the contemplation of the parties when the contract was made."
"There are at least two good reasons why the courts should not refuse to give effect to an acknowledgment of non-reliance in a commercial contract between experienced parties of equal bargaining power a fortiori, where those parties have the benefit of professional advice. First, it is reasonable to assume that the parties desire commercial certainty. They want to order their affairs on the basis that the bargain between them can be found within the document which they have signed. They want to avoid the uncertainty of litigation based on allegations as to the content of oral discussions at pre-contractual meetings. Second, it is reasonable to assume that the price to be paid reflects the commercial risk which each party or, more usually, the purchaser is willing to accept. The risk is determined, in part at least, by the warranties which the vendor is prepared to give. The tighter the warranties, the less the risk and (in principle at least) the greater the price the vendor will require and which the purchaser will be prepared to pay. It is legitimate and commercially desirable, that both parties should be able to measure the risk, and agree the price, on the basis of the warranties which have been given and accepted."
Transfer Assets
"(a) the interests of YFI and some of YFI's officers in California corporations described in the complaint as 'White Rose' and 'Almond Farms I and II';
(b) loans for US$1.2 million made by NWB indirectly through an Isle of Man trust of which the family of Michael Firth (YFG's chairman and a director of YFI and some of its subsidiaries) were beneficiaries. The purpose of these loans was to enable officers of YFI to buy property through the medium of White Rose Farming LLC (a Californian limited liability corporation) and Almond Farms I and II using inside information acquired as officers of YFI and Treehouse;
(c) irrecoverable sums amounting to US$600,000 expended by YFI in relation to the purchase of property ultimately acquired by Almond Farms I and II;
(d) leases by which YFI agreed to pay Almond Farms I and II approximately US$20 million over a number of years which were above the market rate and were made at a time when YFI was insolvent;
(e) [a YFI company] Treehouse's payment of US$233,000 from its NWB account in December 1996 to cover certain White Rose expenses relating to the Almond Farm property at a time when Treehouse was insolvent and for which Treehouse received no consideration;
(f) NWB's attempts in or about April 1997 to secure repayment of its advances to the Isle of Man trust and other loans to officers of YFI in preference to the sums due to YFI."
Conclusion on the Merits
Permanent Injunction
Conclusion.
LORD JUSTICE LAWS: I agree.
LORD JUSTICE ALDOUS: I also agree.