A competitive world: Modernisation and innovation in the courts

With ongoing advances in technology and communications, the number of contracting parties looking beyond their local jurisdiction when choosing a dispute resolution forum continues to grow

It is easier than ever for contracting parties to look beyond their home jurisdiction when choosing a dispute resolution forum. The growth in the international disputes market has forced countries’ courts into competition with one another, and contracting parties who have had a negative experience in one jurisdiction can simply select an alternative.

Against this backdrop, we examine the differences in approach of eleven jurisdictions, providing an at-a-glance overview of the key features of each jurisdiction, as well as more detailed examination of key elements of the court system, including judicial process, costs and disclosure obligations.

Our comparative table includes jurisdictions with established popularity such as England and Wales, and the US, those whose popularity has increased rapidly over the last decade or so, such as Singapore and Hong Kong, and those currently making concerted efforts to increase their share of the international disputes market, such as the Dubai International Financial Centre.

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Contacts

Charles Balmain Partner, London T +44 20 7532 1807 Ecbalmain@whitecase.com	Carine Piadé Counsel, Paris T +33 1 55 04 15 98 Ecpiade@whitecase.com
Ken Caruso Partner, New York T +1 212 819 8853 Ekcaruso@whitecase.com	Alexa Romanelli Associate, London T +44 20 7532 2461 Ealexa.romanelli@whitecase.com
Melody Chan Partner, Hong Kong T +852 2822 8750 Emchan@whitecase.com	Jenna Rennie Associate, London T +44 20 7532 2710 Ejenna.rennie@whitecase.com
Nathalie Colin Partner, Brussels T +32 2 239 25 32 Encolin@whitecase.com	Anne Véronique Schlaepfer Partner, Geneva T +41 22 906 9898 Eanneveronique.schlaepfer@whitecase.com
Amanda Cowell Partner, London T +44 20 7532 1818 Eacowell@whitecase.com	Matthew Secomb Partner, Singapore T +65 6347 1325 Emsecomb@whitecase.com
Niklas Forsmark Helmer Counsel, Stockholm T +46 8 506 32 324 Eniklas.forsmark-helmer@whitecase.com	Stephanie Stocker Associate, London T +44 20 7532 1852 Estephanie.stocker@whitecase.com
Luka Kristovic Blazevic Partner, Dubai T +971 4 381 6251 Elkristovicblazevic@whitecase.com	Michael Turrini Partner, Dubai T +971 2 611 3440 E mturrini@whitecase.com
Markus Langen Partner, Frankfurt T +49 69 29994 1221 Emlangen@whitecase.com	Julia Zagonek Partner, Moscow T +7 495 645 4931 Ejzagonek@whitecase.com
Philippe Métais Partner, Paris T +33 1 55 04 15 82 Epmetais@whitecase.com

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© 2019 White & Case LLP

Nicole Katja Krug is a member of the Frankfurt Dispute Resolution Group. She mainly assists clients in in national and international litigation and arbitration proceedings with particular focus on commercial disputes.

Before joining White & Case in 2018, she gained international commercial litigation experience with an international law firm in Frankfurt and a German automotive manufacturer.

She has studied law at the University of Passau.

In the latest round of legal issues relating to West Ham United FC's move to the London Stadium, the Court of Appeal found that confidential internal emails between board members and other stakeholders, for the purposes of discussing a settlement proposal, were not covered by litigation privilege.¹

Summary

• Since West Ham United FC ("West Ham") were awarded the right to use the London Stadium (formerly known as the Olympic Stadium) in 2013, the move has been fraught with legal difficulties. This decision was (unsuccessfully) challenged by way of judicial review by both Tottenham Hotspur FC and Leyton Orient FC. Now, after kicking off their 99 year lease at the London Stadium, West Ham have been involved in a variety of disputes with the owners of the stadium, E20 Stadium LLP (the "Owner") over, among other things, the number of seats that it is entitled to use in the stadium on match days.
• During the course of legal proceedings between West Ham and the Owner, West Ham sought inspection of six internal emails sent between the Owner's Board members and other stakeholders. These emails contained confidential commercial discussions on a potential settlement proposal to West Ham (the "Documents"). The Owner refused to allow inspection on the basis that litigation privilege applied to the Documents, by virtue of being created "with the dominant purpose of discussing a commercial settlement of the dispute when litigation with [West Ham] was in contemplation". The High Court had agreed with the Owner's position, and West Ham appealed that decision.
• The Court of Appeal found that notwithstanding the Documents discussing the potential settlement, they were not protected by litigation privilege and should therefore be provided for inspection to West Ham (and could be referred to at trial).
• This case clarifies the position in relation to commercial documents prepared in contemplation of settlement, confirms there is no blanket of litigation privilege for internal communications, and is a timely reminder for parties involved in any anticipated or ongoing litigation to be cautious about the contents of any internal correspondence

The Court of Appeal's Reasoning

The English Courts recognise that communications between parties or their solicitors and third parties for the purpose of obtaining information or advice in connection with litigation will be privileged, if all the following conditions are met:

(a) Litigation was in progress or reasonably in contemplation;

(b) The communications must have been made for the sole or dominant purpose of conducting that litigation; and

(c) The proceedings in question must be adversarial, and not investigative or inquisitorial.²

In the recent ENRC case, the Court of Appeal confirmed that documents prepared for the dominant purpose of obtaining information or advice in connection with avoiding litigation before it starts or settling it once it has started are as much protected by litigation privilege as documents prepared to obtain information or advice in connection with the actual conduct of litigation.³

However, there was some uncertainty over whether the communications must be for the dominant purpose of obtaining information or advice in connection with litigation, or whether the communications were privileged as long as they were created for the dominant purpose of conducting the litigation more generally.

In the West Ham case, the Court of Appeal found that internal company communications were not privileged per se.⁴ The Court of Appeal further held that the narrower approach to privilege should prevail – specifically, documents which relate solely to commercial discussions regarding a potential settlement are not subject to litigation privilege unless they are created for the dominant purpose of obtaining information or advice in relation to that potential settlement or if they reveal the nature of any such information or advice.

Therefore, the fact that the Documents were created to discuss a potential settlement of the litigation did not make them privileged in and of themselves. The Documents were not created for the dominant purpose of obtaining information or advice in connection with the litigation and nor did they reveal the nature of any such advice or information. As a result, they were not protected by litigation privilege and could be inspected by West Ham.⁵

The Court of Appeal did emphasise that if a document could not be disentangled from privileged documents and/or would otherwise reveal the nature of any information or advice sought in connection with the litigation, it would be covered by litigation privilege. However, this did not apply to the Documents.

Significance of the Decision

The Court of Appeal concluded with a clear and concise statement on the law on litigation privilege as it stands:

• Litigation privilege is engaged when litigation is in reasonable contemplation;
• Once litigation privilege is engaged it covers communication between parties or their solicitors and third parties for the purposes of obtaining information or advice in connection with the conduct of the litigation, provided it is for the sole or dominant purpose of the conduct of the litigation;
• Conducting the litigation includes deciding whether to litigate and also includes whether to settle the dispute giving rise to the litigation;
• Documents in which such information or advice cannot be disentangled or which would otherwise reveal such information or advice are covered by the privilege; and
• There is no separate head of privilege which covers internal communications falling outside the ambit of litigation privilege as described above.

Parties to litigation or potential litigation would be well advised to hold these conclusions in mind when preparing documentation which relates to litigation but which is not also protected by legal advice privilege.

This decision serves as a timely reminder that internal communications relating to anticipated or ongoing litigation will not necessarily be privileged and therefore great care should be taken in producing such internal documents, particularly when documents reveal what a party would be prepared to receive or pay to settle a claim.⁶

There is a real risk that confidential internal discussions relating to the strategy of the litigation, settlement proposals and other commercial decisions related to or contingent on the litigation may be subject to inspection, and relied upon at trial, by the other party. Companies should therefore take appropriate steps to ensure that its employees are aware of these risks and that internal communications do not contain information which may be prejudicial to the litigation. As a matter of practice, this may mean limiting written internal communications relating to the matters in dispute so far as possible.

As West Ham and the Owner have reached a settlement in the underlying proceedings, there will be no replay and the Supreme Court will not have the opportunity to examine this Court of Appeal decision. There remains a question as to how this decision will be applied in the future, and in particular whether the Supreme Court may take a different approach in another case. In principle, any good faith attempts to settle proceedings will be privileged.⁷ It is therefore perhaps surprising that internal commercial discussions which take place prior to, but might feed into the making of, a settlement offer are not. In fact, in line with a party’s ongoing duty of disclosure while proceedings are underway, the logical conclusion of this decision seems to be that a party may be required to disclose and provide for inspection internal documents reflecting commercial discussions relating to any potential settlement proposals to the other party (to the extent that those documents are otherwise disclosable).

Unless and until the Supreme Court is given the opportunity to reopen the position, for now, parties to litigation should be aware that not all of their tactical plans may be protected by privilege from being open to inspection by the opposing team.

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¹WH Holding Limited and West Ham United Football Club Limited v. E20 Stadium LLP [2018] EWCA Civ 2652.
²Three Rivers District Council and others v. Governor and Company of the Bank of England (No 6) [2004] UKHL 48.
³SFO v. Eurasian Natural Resources Corporation Ltd [2018] EWCA Civ 2006.
⁴ In this respect, the Court of Appeal overruled Mayor and Corporation of Bristol v. Cox (1884) 26 Ch D 678 (Ch).
⁵ The documents were not communications with legal advisers, so issues of legal advice privilege were not engaged.
⁶ Note however, that this decision does not affect the general rule that communications between clients and solicitors for the purposes of obtaining legal advice are privileged. This is a distinct aspect of legal professional privilege known as legal advice privilege.
⁷ Known as without prejudice privilege.

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© 2019 White & Case LLP

One of the multitude of uncertainties currently facing commercial parties potentially affected by Brexit is the effect on their existing commercial contracts, specifically whether the new circumstances of Brexit provide a "get out" from their bargain. Some welcome clarity has now been provided by the English High Court's recent judgment in Canary Wharf (BP4) T1 Limited and others v European Medicines Agency¹, although how that decision will be applied in future cases remains to be seen.

Summary

In CW v EMA, the High Court was faced with the question of whether Brexit would constitute a frustrating event under a 25-year English law-governed lease between the European Medicines Agency (the "EMA") and its Canary Wharf landlords in respect of the premises of the EMA's London headquarters (the "Lease").

As of 30 March 2019, the EMA will be required by the 2018 Regulation² to relocate its London headquarters to Amsterdam in order to remain in a Member State after Brexit. In a letter to its landlords (collectively "CW") in August 2017, the EMA contended that Brexit (if and when it occurred) would 'frustrate' the Lease, thereby releasing the EMA from its obligations under the Lease. CW disagreed and sought a declaration from the High Court that the parties' agreement would not be frustrated by the United Kingdom's withdrawal from the European Union and therefore the EMA would continue to be bound by its obligations under the Lease.

The High Court determined that in the particular circumstances of the parties, the Lease will not be frustrated by Brexit. While the decision could be seen as providing clarity that Brexit does not frustrate a contract, the true positon is more nuanced. The Court's decision does not, and cannot, settle the question as to whether Brexit will or will not in all circumstances constitute a frustrating event. As ever, 'frustration' will require a case-by-case analysis.

The Decision

'Frustration' in the legal context arises where a supervening event occurs, without the fault of either party, that transforms the outstanding contractual obligations the parties have undertaken into something radically different from what the parties could have reasonably contemplated at the time of execution of their agreement, such that it would be unjust to hold the parties to their remaining obligations in the new circumstances. The effect of 'frustration' is therefore to release the parties from the further performance of their contractual obligations. Unsurprisingly, therefore, the law has kept the doctrine within very narrow limits and accordingly, the English courts have historically been slow to find that a contract has been frustrated.

When considering the application of the doctrine of frustration, the Court adopted the multi-factorial approach as set out by Rix LJ in The Sea Angel ³, which involves a consideration of:

"the terms of the contract itself, its matrix or context, the parties' knowledge, expectations, assumptions and contemplations, in particular as to risk, as at the time of the contract, at any rate so far as these can be ascribed mutually and objectively, and then the nature of the supervening event, and the parties' reasonable and objectively ascertainable calculations as to the possibilities of future performance in the new circumstances."

The EMA's submissions centred on two types of frustrating event: (i) supervening illegality; and (ii) frustration of a common purpose.

Frustration by supervening illegality

The EMA's primary argument was that after the withdrawal of the United Kingdom from the European Union, it would no longer be lawful for the EMA to pay rent to CW pursuant to the Lease because, in doing so, the EMA would be acting ultra vires, or without capacity. The basis for this argument was because of the following changes in law:

i. The 2018 Regulation, which relocates the EMA's headquarters from London to Amsterdam with effect from 30 March 2019;

ii. The EMA's loss of the immunities and protections it enjoyed under Protocol 7⁴ (which conferred protections on the EMA akin to the sort of protections conferred on international organisations and the embassies of foreign states); and

iii. The EMA's loss of the benefit, conferred by Article 72(2) of the 2004 Regulation,⁵ of tortious claims being heard by the Court of Justice of the European Union.

The EMA therefore submitted that it was not within the EMA's legal capacity to make rental payments for a property that it could not use.

Considering the EMA's case in the context of a "no-deal Brexit"⁶, the High Court found that:

i. Brexit did not have the effect that, under EU law, the EMA would not have capacity to perform its obligations under the Lease. Even in the event of a "no-deal Brexit", the EMA would still have capacity to deal with immovable property it held in a third country (and, as a matter of capacity, maintain its headquarters in London). This was the case even though the Court recognized that the EMA's protections under EU law would be substantially degraded by virtue of Brexit; and

ii. Even if the EMA did lack the capacity to continue performance by reason of supervening illegality, this illegality was a matter of EU law and (with limited exceptions) the English doctrine of frustration discounts supervening illegality arising as a matter of foreign law. The High Court found that the doctrine of frustration cannot be extended to have regard to the law of incorporation where that affected the capacity of a party to continue to perform its obligations (under a transaction lawfully entered into by it).

Nonetheless, the Court stated obiter that had it decided differently on points (i) and (ii) immediately above, it would have found that by reason of supervening illegality the EMA would have been deprived of substantially all of the benefit from the Lease whilst remaining obliged to pay its rent, and therefore the Lease would have been frustrated. However, even if that were the case, such frustration would have been "self-induced" as the legal effects on the EMA of the UK's withdrawal from the EU could have been, but were not, ameliorated by the EU. For example, the 2018 Regulation could have gone further in making arrangements for EMA's departure from London but did not do so.

Frustration of a common purpose

In the alternative, the EMA argued that there had been frustration of a common purpose, i.e. that the parties had a shared intention at the time of contracting that the leased premises would be the EMA's headquarters for the next 25 years, and that shared intention would be frustrated by Brexit.

On the EMA's alternative argument, the Court found no common purpose between the parties beyond the purpose of the agreement derived from the terms of the Lease: the parties held competing interests as landlord and tenant. Although Brexit itself was not "relevantly foreseeable" in 2011 (the year that the "Agreement for Lease" was concluded between the parties), the parties had expressly catered for the possibility that there might be some event requiring the EMA's involuntary departure from the premises owing to circumstances beyond the EMA's control (e.g. by agreeing subletting and assignment provisions). The EMA, having "quite consciously entered into the Lease without a break clause" had accordingly assumed the risk of change over the 25-year life of the Lease, having recourse only to the (admittedly onerous) alienation provisions expressly provided for in the Lease in the event of its involuntary departure.

Comment

In delivering its 95-page judgment, the High Court provided notable guidance on the application of the relevant principles to determining whether Brexit is likely, in a particular case, to constitute a frustrating event in contracts governed by English law.

The Court's judgment is a timely reminder of the high hurdles a party claiming frustration of their contract must overcome, and provides some welcome clarity on the effect of Brexit on pre-existing contractual relationships. Certainly, the High Court has made it clear that where a party has simply made a bad bargain (as it seemed the EMA ultimately had with little protection in such a long lease), Brexit will not provide a convenient "get out" clause. The high bar that the doctrine of frustration requires be met will continue to apply to commercial contracts, whatever the trigger for a claim for frustration.

It is important, however, to note that the judgment does not lay down a general principle that Brexit will not constitute a frustrating event under English law. It did not on this particular occasion; it may do on different facts (although any party claiming frustration is likely to face an uphill struggle). What is clear is that each case will require a careful analysis of its particular facts in line with the multi-factorial approach set out by Rix LJ.

A consequentials hearing is listed on Friday 1, March, during which the EMA is said to be seeking permission to appeal the judgment.

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¹ [2019] EWHC 335 (Ch).
² Regulation (EU) 2018/1718 of the European Parliament and of the Council of 14 November 2018.
³ [2007] EWCA Civ 547.
⁴ Protocol 7 to the Treaty of the European Union and the Treaty on the Functioning of the European Union.
⁵ Regulation (EC) No 726/2004 of the European Parliament and of the Council of 31 March 2004.
⁶ Namely where no withdrawal agreement is reached and the scenario in which, according to Mr Justice Smith, the
consequences of the United Kingdom’s withdrawal from the European Union would be "most stark".

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© 2019 White & Case LLP

Tai Park is a trial lawyer whose practice focuses on white collar criminal and regulatory defense related securities class action litigation and other complex litigation. His experience includes the representation of individual executives and companies, including commercial and investment banks, accounting firms, and investment funds and their advisers, in a wide variety of criminal, regulatory and civil matters. Tai has extensive experience leading internal investigations and has served as a Monitor for major organizations.

In addition, Tai has extensive experience advising clients on complex civil litigation. He represents clients across a variety of industries, including technology, financial services, and manufacturing. Tai combines his trial skills with his deep experience as a litigator to obtain early, efficient and successful outcomes for his clients. He was one of 40 lawyers invited by the judges of the U.S. District Court in the Southern District of New York to assist the Court in devising a pilot project for the most efficient management of complex civil litigation in the courthouse.

Tai served for ten years as a federal prosecutor in the United States Attorney's Office for the Southern District of New York, where he held various positions, including Senior Trial Counsel in the Securities & Commodities Fraud Task Force, as well as Chief of the Narcotics Unit. As a prosecutor, Tai obtained convictions in each of the many jury trials he handled and was awarded the Attorney General's Award for Distinguished Service.

Before joining White & Case, Tai was a managing partner at a boutique white collar criminal defense firm. Prior to that, he spent ten years as a litigation partner at another international law firm.

Tai is a Fellow of the American College of Trial Lawyers. He is consistently listed as an accomplished white collar defense lawyer in leading publications, including Chambers.

Douglas Jensen has more than 30 years' experience as a white-collar defense attorney, commercial litigator, criminal prosecutor and trial lawyer. He has successfully represented executives and corporations caught up in the major criminal and regulatory investigations pursued over the last decade by the U.S. Department of Justice, the Securities and Exchange Commission and other government agencies. In all but a small number of cases, Douglas’ clients have avoided the filing of any criminal charges, and in many instances have avoided regulatory charges. Douglas has also obtained favorable results for his clients in high-stakes civil litigations and arbitrations, conducted multiple internal investigations, and served as an independent monitor for corporations subject to government investigations.

Before joining White & Case, Douglas was a co-founder and managing partner of a boutique white collar criminal defense firm. Prior to that, he was a partner in the New York office of a national law firm and served for 11 years as Assistant U.S. Attorney in the Southern District of New York. He held multiple supervisory positions in the US Attorneys’ office, including that of Deputy Chief of the Criminal Division, and Chief of the Narcotics Unit. Douglas tried or supervised dozens of jury trials, including securities fraud, money laundering, narcotics and mail and wire fraud cases. 

Global law firm White & Case LLP has secured a substantial victory for PT Ventures SGPS, S.A., a Portuguese telecommunications company ultimately majority owned by Oi SA, the Brazilian telecommunications company, in an ICC arbitration related to PT Ventures' shareholding in Unitel S.A., Angola's largest telecommunications company.

The dispute concerned alleged breaches of a Shareholders' Agreement governed by Angolan law and is at the forefront of a battle for control of one of Africa's leading GSM network operators.

In October 2015, PT Ventures brought the arbitration against the three other shareholders in Unitel: Vidatel Ltd., a BVI company owned by Isabel dos Santos, the daughter of the former president of Angola and widely considered to be one of the richest women in Africa; Geni SA., majority owned by General Leopoldino do Nascimento, a prominent business and military figure in Angola; and Mercury Serviços de Telecomunicações SA., owned by Sonangol, the Angolan state oil company.

In February 2019, the tribunal handed down its Final Award in the arbitration, holding that:

• the other shareholders had repeatedly breached their obligations to PT Ventures as set forth in the Shareholders' Agreement
• these breaches had significantly decreased the value of PT Ventures' stake in Unitel
• the other Unitel shareholders were liable for certain dividends that were not paid to PT Ventures.

The tribunal ordered the other Unitel shareholders to pay PT Ventures an amount totaling more than US$650 million plus interest, along with arbitration fees and costs of over US$12 million. The tribunal also dismissed the counterclaim against PT Ventures.

The matter was notable for being the first-ever ICC arbitration to be heard before a tribunal of five arbitrators. The President of the tribunal was Klaus Sachs, and the other members were Bernard Hanotiau, David Arias, Marcelo Roberto Ferro and Luca Radicati di Brozolo.

The White & Case team which represented PT Ventures in the arbitration was led by partners John Willems, Christophe von Krause (both Paris) and John Rogerson (London), with support from associates Lucas de Ferrari, Sven-Michael Volkmer, Samy Markbaoui, Hadia Hakim, Hazel Levent, Faustine Chapelin, Fadi Hajjar, Mounia Larbaoui (all Paris) and Gwen Wackwitz (London).

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In a decision handed down last week, Michael Wilson & Partners Ltd v John Forster Emmott [2019] EWCA Civ 219, the Court of Appeal has reviewed the authorities relating to removing, following judgment, the so-called Angel Bell exception in a freezing order; that is, the carve-out that allows a respondent to deal with assets in the ordinary course of its business. The Court confirmed earlier guidance that "it will sometimes and perhaps usually be inappropriate"¹ to exclude the Angel Bell exception in a post-judgment freezing order, but that each case should turn on its own facts.

"Only the briefest of reference needs to be made to the seemingly interminable, unhappy, background saga"

The present appeal originated from the recognition of two London-seated arbitral awards, resulting in a judgment debt to be paid by the Appellant (MWP) to the Respondent (Emmott).

Emmott sought, and at first instance obtained, a post-judgment freezing order to replace an earlier Mareva injunction obtained several years earlier. The terms of the original injunction contained an exception allowing MWP to deal with its assets in the ordinary course of business (the Angel Bell exception, from Iraqi Ministry of Defence v Arcepey Shipping Co SA (The Angel Bell) [1981] Q.B. 65). The exception was then removed by Sir Jeremy Cooke at first instance, and MWP appealed its removal.

The Court of Appeal was asked to determine whether the first instance judge erred in law, most significantly by: (i) holding that "the starting point" in the case of a post-judgment freezing order is that there should be no ordinary course of business exception; and (ii) concluding that the ordinary course of business exception should be removed from the freezing order in circumstances where it did not serve the order's legitimate purpose of being in aid of execution (but was rather in terrorem).

The Angel Bell

The Courts have long acknowledged that freezing orders are not intended to prevent a defendant from carrying out its ordinary business dealings, according to the principles laid down by Goff J in the Angel Bell. This exception now forms part of the Commercial Court standard form freezing order (at paragraph 11(2)). In a pre-judgment environment, where a respondent's liability has not been established, that must normally be the appropriate approach: the claimant's claim may ultimately fail, and interim relief should not render the defendant unable to meet its ongoing business obligations.

The approach to freezing orders post-judgment is less clear. Certainly, the law weighs heavily in favour of the enforcement of judgments, and preventing the judgment debtor carrying on its business while deliberately refusing to pay the outstanding judgment debt (so, a "won't pay" rather than "can't pay" scenario). There has nevertheless been some conflicting judicial comment as to how restricted the Courts should be in their approach to removing the exception.²

The decision

Giving the leading judgment, Gross LJ considered the case law regarding post-judgment freezing orders:

1. Whether awarded pre-or post-judgment, a freezing order is not intended to confer a preference in insolvency and does not form a part of execution itself. The Court grants post-judgment freezing orders to facilitate execution of a judgment by guarding against a risk of dissipation in the period between judgment and execution, where the judgment would remain unsatisfied if injunctive relief was refused (§53). They are not rare.
2. By their very nature, post-judgment freezing orders will increase the pressure on a defendant to honour the judgment debt (§54). However, the mere increase in pressure does not in itself make the order illegitimate or in terrorem.
3. In view of the Court of Appeal's reasoning in Mobile Telesystems Finance SA v Nomihold Securities Inc [2011] EWCA Civ 1040, it cannot be said that the Angel Bell exception would always (i.e., "without more") be inappropriate in a post-judgment freezing order. However, in line with what the Court nevertheless concluded in Nomihold, "it will sometimes and perhaps usually be inappropriate" to include the exception in a post-judgment freezing order (§56). Gross LJ endorsed that test (of Tomlinson LJ) as representing "helpful and appropriately nuanced general guidance" (§57).
4. Thus, the starting point or presumption should not be to remove the Angel Bell exception, but nor should it be a remedy of last resort. Rather, each case should turn on its facts.

In this case, the Court of Appeal held that the judge at first instance had not made an error of law in ordering the exception to be removed; indeed, this was a paradigm case for doing so.

"Pathological litigation"

Somewhat unusually, the Court of Appeal also made several comments as to the questionable conduct of the litigating parties. Emmott and MWP had been engaged in litigation in several jurisdictions relating to a dispute over a quasi-partnership agreement, in which neither party covered themselves in glory. Jackson LJ went as far as to highlight the "shameful waste of time and money" caused by the "pathological litigation" between the parties, who were both solicitors: "[i]t appears that Mr Wilson will stop at nothing to prevent Mr. Emmott from receiving the award, to which, for all his deceit, he is entitled" (§70).

Conclusion

The Court of Appeal's guidance is indeed "nuanced" and deliberately avoids creating any default rules for the removal (or not) of the Angel Bell exception. The lack of specific guidance reflects the varying nature of these types of cases, and the burden that the Mareva injunction places on a respondent, even in a post-judgment context. Nevertheless, the Court's clarification does – without saying so in terms – continue to suggest that freezing orders in a post-judgment context that allow a judgment debtor to deal freely with assets in the course of business will remain exceptional.

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¹ Mobile Telesystems Finance SA v Nomihold Securities Inc [2011] EWCA Civ 1040, §33.
² Masri v Consolidated Contractors [2008] EWHC 2492 (Comm); Mobile Telesystems Finance SA v Nomihold Securities Inc [2011] EWCA Civ 1040.

This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
© 2019 White & Case LLP

Unreliable, expensive power supplies have been key obstacles to commerce and industry in the region—and as a result, to economic growth.

According to the OECD, "Investment treaties were developed to protect investors of one country when investing in another country, to lower non-commercial risk for such investors, and overall to promote a sound investment climate."¹ Although some commentators have opined that the network of bilateral investment treaties among African countries and between African countries and third countries is rather "underdeveloped, irregular and fragmentary,"² African regional organizations have, in fact, entered into a variety of multilateral agreements to promote and protect intra-African foreign investment. These agreements, which include the Investment Agreement for the Common Market for Eastern and Southern Africa (COMESA) Common Investment Area and the Supplementary Act adopting Community Rules on Investment and the Modalities for their Implementation with the Economic Community of West African States (ECOWAS³, see Figure 1) give investors the opportunity to bring international claims against countries for wrongful measures impacting their investments.

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Energy sector investors will be pleased to know that, parallel to these multilateral "generalist" agreements, some African regional organizations have concluded sector-specific regional agreements for the energy sector. These include the ECOWAS Energy Protocol A/P4/1/03 signed by members of ECOWAS in 2003 (the "Energy Protocol"). This is an important development, given increasing demand for electricity in the ECOWAS countries and consequent emerging opportunities for investment (Figure 2). The Energy Protocol was inspired by the Energy Charter Treaty (ECT), a multilateral sector-specific international agreement allowing for investor-state claims that took effect in 1998. The ECT had some success with 51 countries worldwide becoming contracting parties. Its influence is apparent in the Energy Protocol, which likewise provides for investor-state dispute resolution.

250,000 ^GWh
Projected annual electricty demand for ECOWAS countries in 2030
_IRENA

West Africa has long suffered from large energy deficits (both in supply and distribution). Unreliable and expensive power supplies have been significant obstacles to commerce and industry in the region and, as a result, to economic growth generally. The Energy Protocol forms part of a suite of measures adopted in the region to attract power sector investment. The challenges in the sector remain significant. The poor state of energy markets and national grids makes regional network integration difficult, and generation is highly dependent on expensive thermal power based on fossil fuels. The ECOWAS Centre for Renewable Energy and Energy Efficiency, established in 2010, seeks to encourage investment in more sustainable energy infrastructure through "the sustainable economic, social and environmental development of West Africa by improving access to modern, reliable and affordable energy services, energy security and reduction of negative environmental externalities of the energy system.⁴

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Given a recent trend toward reduced investment protection in some African countries such as Tanzania and South Africa,⁵ the Energy Protocol offers potentially valuable and often overlooked protection to energy sector investors in West Africa.

Based on information provided by ECOWAS, 13 out of 15 ECOWAS member states have ratified the Energy Protocol. At the time of publication, Côte d'Ivoire and Sierra Leone had yet to ratify. Pursuant to Article 39 of the Energy Protocol, since more than nine instruments of ratification have been deposited, the Energy Protocol has entered into force. Thus, investors from contracting parties to the Energy Protocol can now invoke the investment protections set out in Chapter III in relation to their investments in other contracting parties, which are summarized below.

"INVESTMENT" IS BROADLY DEFINED

Under the Energy Protocol, "investment" is broadly defined to include "every kind of asset, owned and controlled directly or indirectly by an Investor." It covers, among other things, tangible and intangible property, a company or business enterprise, shares, stock, or other forms of equity participation in a company or business enterprise, claims to money and claims to performance pursuant to a contract having an economic value and associated with an investment as well as any right conferred by law or contract or by virtue of any licenses and permits granted pursuant to law to undertake any economic activity in the energy sector.

In addition, the Energy Protocol extends "to any investment associated with an Economic Activity in the Energy Sector and to investments or classes of investments designated by a Contracting Party in its Area as "efficiency projects" and so notified to the Executive Secretariat of ECOWAS."⁶ This further provision means that an oil concession granted by virtue of a contract or law or a shareholding in an oil extraction joint venture company are investments under the Energy Protocol.⁷

"INVESTOR" IS DEFINED TO PROTECT THE TREATY'S INTENDED BENEFICIARIES

An investor is defined as a natural person having the citizenship or nationality of, or who resides or establishes an office in the area of, a contracting party or a company or other organization organized, or registered, in accordance with the law applicable in that contracting party. This definition is similar to the definition of investor under Article 1(7) of the ECT. However, under Article 17 of the Energy Protocol, each contracting party has, among other things, reserved the right to deny the investment protections of the Energy Protocol to a legal entity "if citizens or nationals of a third state own or control such entity and if that entity has no substantial business activities in the Area of the Contracting Party in which it is organized." This provision, which is generally referred to as a denial of benefits clause, is designed to exclude from treaty protections nationals of other countries that, through mailbox or shell companies, seek to benefit from provisions that the contracting parties to the Energy Protocol did not intend to afford them. The drafters presumably sought to ensure that the treaty's protections reached only the intended beneficiaries: West African companies. At the same time, local subsidiaries of multinationals will also benefit from the treaty's protections unless Article 17 of the Energy Protocol is triggered.

INVESTORS ARE ENTITLED TO FAIR AND EQUITABLE TREATMENT

Each contracting party undertakes to accord fair and equitable treatment at all times to investments of investors. While there is no universally accepted definition of the exact meaning and/ or scope of treatment that is "fair and equitable," investment treaty tribunals have typically condemned measures that frustrate an investor's legitimate expectations (e.g., decisions taken in violation of guarantees provided to investors in an attempt to induce their investment, such as in the context of privatizations) or measures that are arbitrary, lacking in due process, or taken in bad faith (e.g., prejudicial interference in the activity of an operator on spurious or pretextual grounds). For example, tariff-setting decisions issued by an independent regulator that cannot be traced back to an operator cost analysis or that are issued to implement political directives in violation of the regulator's duty of independence may constitute a breach of the fair and equitable standard.

INVESTORS ARE PROTECTED FROM ILLEGAL EXPROPRIATION

Article 13 of the Energy Protocol prohibits nationalization and expropriation, or measures having equivalent effects, except where they are justified by a purpose that is in the public interest, are not discriminatory, are carried out under due process of law, and are accompanied by the payment of prompt, adequate and effective compensation. A measure of expropriation that does not respect these conditions is considered an "illegal" expropriation in breach of the Energy Protocol. Investors should also note that Article 13's broad wording does not restrict their claims to direct takings of their investment by the state. Rather, Article 13 allows for claims of indirect expropriation (an expropriation that does not affect the legal title of the owner) or creeping expropriation (an expropriation that is achieved through a series of measures). Examples of indirect expropriation include the revocation of a permit resulting in the total loss of value of the investment. A creeping expropriation can occur, for instance, after a series of adverse regulatory decisions lead to the bankruptcy of the regulated operator. For example, a series of decisions to end or reduce subsidies to operators in renewable energies, which amount to a loss of the investments, may constitute a creeping expropriation.

INVESTORS BENEFIT FROM A MULTI-TIERED DISPUTE RESOLUTION MECHANISM

The Energy Protocol provides for essentially the same multi-tiered dispute resolution mechanism as the ECT. Article 26 of the Energy Protocol provides that disputes between a contracting party and an investor regarding an investment of the latter should be settled amicably if possible. If the dispute cannot be settled amicably within three months from the date either party requests amicable settlement, the investor benefits from an option to submit the dispute for resolution:

• To the courts or administrative tribunals of the contracting party to the dispute
• According to a previously agreed dispute settlement procedure or
• In arbitration before the International Centre for Settlement of Investment Disputes, a sole arbitrator or ad hoc arbitration tribunal established under the Arbitration Rules of the United Nations Commission on International Trade Law, an arbitral proceeding under the Arbitration Institute of the Stockholm Chamber of Commerce or an arbitral proceeding under the organization for the Harmonization of Trade Laws in Africa

To the extent there is no prior agreement on a dispute settlement procedure, arbitration before an international arbitral tribunal should be an investor's preferred choice of forum to prosecute claims against states for breaches of the Energy Protocol. The Energy Protocol provides an important new avenue for redress for energy sector investors in West Africa.⁸ In this connection, it is worth noting that there have been 114 investor-state arbitrations registered under the ECT.⁹

Although the Energy Protocol has not yet served as a basis for an international arbitration claim, its contracting parties should be aware of the international obligations they enter into under the Energy Protocol, and of their potential international liability if they violate these obligations. Similarly, energy sector investors should keep this potential avenue for redress in mind when investment planning as well as during the life of their investment. If their investment is adversely impacted by state measures taken in violation of the Energy Protocol, investors may be able to claim damages for any resulting loss.

¹ OECD Business and Finance Outlook 2016, Chapter 8: The impact of investment treaties on companies, shareholders and creditors, p. 224 (https://www.oecd.org/daf/inv/investment-policy/BFO-2016-Ch8-Investment-Treaties.pdf).
² E. Denters, T. Gazzini, "The Role of African Regional Organizations in the Promotion and Protection of Foreign Investment," Journal of World Investment and Trade, 2017, Vol. 18, pp. 449-492, spec. p. 451.
³ ECOWAS is composed of: Benin, Burkina Faso, Cape Verde, Côte d'Ivoire, Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone and Togo.
⁴ ECOWAS website: http://www.ecowas.int/specialized-agencies/ecowas-centre-for-renewable-energy-and-energy-efficiencyecreee/
⁵ South Africa terminated its bilateral investment treaties. Tanzania recently adopted legislation in the natural resources sector that, among other things, prohibits international dispute resolution in relation to the exploitation or extraction of natural resources.
⁶"Economic Activity in the Energy Sector" means an economic activity concerning the exploration, extraction, refining, production, storage, land transport, transmission, distribution, trade, marketing or sale of energy materials and products (e.g., nuclear energy, coal, natural gas, petroleum and petroleum products and electrical energy) or concerning the distribution of heat to multiple  premises.
⁷ Article 1(13) of the Energy Protocol.
⁸ The Energy Protocol would be an additional remedy where there is already an intra-ECOWAS bilateral investment treaty or an alternative multilateral investment treaty.
⁹https://energycharter.org/what-we-do/dispute-settlement/cases-up-to-18-may-2018/

FULL MAGAZINE
Africa Focus: Spring 2019

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© 2019 White & Case LLP

Christina ("Kiki") Dolen is an associate in the Los Angeles office of White & Case and a member of the firm's commercial litigation group.  Her practice focuses on complex and high-stakes business disputes in the areas of competition, white collar defense, trade secrets, and class actions litigation.

Since joining White & Case, Kiki regularly advises technology and social media companies on compliance with U.S. and international laws and regulations concerning data privacy and data protection, intermediary liability, consumer class actions, and other commercial disputes.  She has substantial experience counseling individuals and multinational corporations through civil and criminal enforcement actions, novel regulatory matters, and internal investigations.

Kiki is also actively involved in pro bono matters.  She received the ACLU of Southern California's Immigration Justice Award and was honored by the California State Controller in 2018 for securing a full gubernatorial pardon for a deported veteran honorably discharged from the U.S. Marine Corps.

Prior to joining White & Case, Kiki served as a member of the Executive Committee of the Barristers Litigation Section of the Bar Association of San Francisco.  She previously obtained a certificate in Multilateral Governance and International Affairs from the Graduate Institute for International and Development Studies in Geneva, Switzerland.

Global law firm White & Case LLP achieved victory at the Supreme Court of the United States for the Republic of the Sudan in a resounding 8 to 1 vote. 

The ruling states that foreign countries sued in US courts must be served directly in their home jurisdictions and not through their US-based embassies. The opinion upends a US$315 million default judgment against Sudan for the USS Cole attack by Al Qaeda in 2000.

"We are proud that the rule of law was upheld in this Supreme Court decision," said White & Case partner Christopher Curran, who led the defense case for Sudan with partners Nicole Erb and Claire DeLelle. "Sudan is pleased with the decision. No one disputes that the sailors on the Cole were the victims of a brutal terrorist attack. But Sudan vehemently disputes any culpability in that attack, and is determined to clear its name."

Nicole Erb added, "The Foreign Sovereign Immunities Act (FSIA) is clear that, without a specific prior arrangement, foreign ministers of countries targeted with a lawsuit under an exception to immunity—including the terrorism exception—need to be served either directly, or through diplomatic channels via the US Department of State, if other means fail."

Reversing the Second Circuit, Justice Alito wrote: "There are circumstances in which the rule of law demands adherence to strict requirements even when the equities of a particular case may seem to point in the opposite direction. The service rules set out in §1608(a)(3), which apply to a category of cases with sensitive diplomatic implications, clearly fall into this category. Under those rules, all cases must be treated the same."

The White & Case legal team who represented the Republic of the Sudan was led by partners Christopher Curran, Nicole Erb and Claire DeLelle, and included associates Nicolle Kownacki and Celia McLaughlin, with support from many others.

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Frederic Akiki is an associate in White & Case's Dispute Resolution and Construction and Engineering groups based in London. He advises owners and contractors on the resolution of disputes arising out of complex international construction and engineering projects.

Frederic joined White & Case as a Trainee Solicitor in 2016, gaining experience in the Firm's Construction and Engineering, Intellectual Property, and Private Equity practice areas. Frederic also spent six months working in the Firm's Tokyo office with the Energy, Infrastructure, Project and Asset Finance Group.

On March 27, 2019, the Supreme Court issued its opinion in Lorenzo v. SEC, affirming the decision of the United States Court of Appeals for the District of Columbia. The Court held that "dissemination of false or misleading statements with intent to defraud can fall within the scope" of SEC Rule 10b-5(a) and (c) even if the disseminator did not "make" the statements. Justice Breyer delivered the 6-2 opinion of the Court (Justices Thomas and Gorsuch dissented). The decision limits the reach of Janus Capital Group, Inc. v. First Derivative Traders (2011), in which the Supreme Court held that only those who "make" a false statement are primarily liable under 10b-5(b).

The key question presented was what constitutes "dissemination" and why that amounts to a "device, scheme, and artifice to defraud" under Rule 10b-5(a) and an "act, practice, or course of business which operates or would operate as fraud or deceit" under 10b-5(c). Here, the "dissemination" consisted of someone (Lorenzo) sending two emails to investors containing false information, but which were composed by someone else. The Court emphasized that Lorenzo disseminated the emails knowing the information was false and with an intent to defraud. In holding Lorenzo primarily liable, the Court highlighted that (1) he communicated directly with investors; (2) he invited investors to ask him follow-up questions; and (3) he sent the emails "in his capacity as vice-president of an investment banking company". In so holding, the Court stressed that the fundamental policy of the securities law is to protect the market from the spread of misinformation: "Congress intended to root out all manner of fraud in the securities industry. And it gave to the Commission the tools to accomplish that job." The Court also made clear, however, that not everyone – they used the example of a mailroom clerk – would be liable for dissemination.

The decision is notable because in Janus, a divided Court held that an individual who helped to draft a misleading statement that was then issued by a different entity was not primarily liable as the "maker" of that statement for purposes of SEC Rule 10b-5(b). Under Janus, the "maker" of a statement is "the person or entity with ultimate authority over the statement, including its content and whether and how to communicate it."Lorenzo makes clear that Janus only addressed the "making" of a statement and "said nothing about Rule 10b-5's application to persons disseminating false or misleading information." Thus, the Court in Lorenzo noted that Janus would still apply (and preclude primary liability) "where an individual neither makes nor disseminates false information."

Lorenzo is a case brought by the SEC, not a private action. But by opening the defendant up to primary liability under Rule 10b-5(a) and (c), the Court paved the way for private rights of actions against persons communicating statements to investors, even where that person is not the "maker" of a false or misleading statement.

Background

Lorenzo was director of investment banking at a registered broker-dealer. His main client was a start-up preparing an offering in convertible debentures based on a forthcoming technology. When the start-up ultimately failed to deliver that technology, the company became worthless. Lorenzo knew this, but—at the request of his boss—emailed two potential investors information prepared by his boss which contained false assurances about the start-up's financial standing.

The Securities and Exchange Commission found that Lorenzo had violated the Securities Act of 1933 § 17(a), the Securities Exchange Act of 1934 § 10(b), and SEC Rule 10b-5, which render it unlawful to wilfully defraud (or engage in a scheme to defraud) purchasers through the intentional or negligent misstatement or omission of a material fact relevant to the sale of securities. (Both Lorenzo's boss and the registered broker-dealer were charged, but they settled with the SEC.)

Lorenzo appealed to the United States Court of Appeals for the District of Columbia, which upheld the SEC's findings. The D.C. Circuit, relying on Janus, reversed the holding that Lorenzo violated Rule 10b-5(b), which specifically renders "mak[ing] any untrue statement of a material fact" unlawful, because it was Lorenzo's boss who "made" the statement. But the DC Circuit nonetheless held that Lorenzo could be primarily liable under two other sub-sections of Rule 10b-5 for engaging in a "fraudulent scheme." Then Circuit Judge (now Justice) Kavanaugh dissented from the "fraudulent scheme" holding. Specifically, he disagreed with the premise that one could "willfully engage[] in a scheme to defraud" without "making" fraudulent statements, where the "scheme" was based entirely on a statement or omission. (Justice Kavanaugh recused himself from the Supreme Court’s consideration of the case.)

Implications

The Court's opinion clarifies Janus by holding that, under certain circumstances, a person "can" be primarily liable under Rule 10b-5(a) and (c) even if not the "maker" of a statement under 10b-5(b). The Circuit courts had been divided on this issue, so it will be important to watch how the lower federal courts now implement Lorenzo and the concept of "dissemination." The decision also will focus attention on the knowledge of the person disseminating information, because in Lorenzo it was accepted that the defendant knew that the emails he was sending contained false and misleading information.

Lorenzo is significant because the Supreme Court confirmed the idea that anyone responsible for communicating to investors, even if not individually responsible for the content of those communications, may incur primary liability for disseminating information they know to be false or misleading.

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1. Introduction

The term "force majeure" (or "superior force") comes from French law¹ but is of much wider application in English law, where it has no settled or inherent meaning. While it can be said generally that force majeure clauses govern circumstances that are not within a contracting party's reasonable control, their actual effect will depend upon the proper construction of the precise wording used.²   

In view of the fast-approaching prospect of Brexit³, this article considers how force majeure clauses operate under English law, including:

• The standard form of force majeure clause, common pitfalls and practical points to consider when negotiating and drafting force majeure clauses;
• An analysis of what "circumstances" and "reasonable control" mean for force majeure clauses; and
• How, if at all, force majeure clauses may: (i) be triggered by Brexit, and (ii) change in a post-Brexit landscape.

  What happens in the event that a contract has no force majeure clause – where the more restricted common law doctrine of frustration may be applicable – is outside the scope of this article.  However, the judiciary's attitude to the interaction between Brexit impact and the common law doctrine of frustration is addressed in detail in the recent decision of Canary Wharf (BP4) T1 Ltd & Ors v. European Medicines Agency⁴, discussed briefly below.  

2. Drafting an effective force majeure clause

A contractual term which states only that the "usual force majeure clauses" apply has been held void for uncertainty⁵ and so parties need to consider carefully how force majeure is intended to apply to their contract. This is especially important with force majeure clauses where they will be interpreted by reference to the express words used and not by the parties' general intention⁶.

Per the example below, an English law force majeure clause will typically seek to exclude liability or excuse non-performance in certain circumstances (with a reasonable degree of specificity), followed by a catch-all phrase⁷:

"Neither party hereto shall be liable except under the indemnities provided herein and for the payment of monies due hereunder for failure to perform the terms of the Agreement when performance is hindered or prevented by strikes (except contractor induced strikes by contractor's personnel) or lockout, riot, war (declared or undeclared), act of God, insurrection, civil disturbances, fire, interference by any Government Authority or other cause beyond the reasonable control of such party^₈."

The essence of a ‘Force Majeure Event' is trying to predict the unpredictable. That is a highly personal objective – a product of the parties' negotiations and the lawyers' success in understanding their clients' business and associated risks. Noting the latter, there are some important drafting principles that should be borne in mind:

1. First, timing. It is obviously unsatisfactory (and uncommercial) for contractual obligations to remain suspended indefinitely. As a matter of common law, a valid force majeure event may discharge the contract.^[9] More commonly, however, force majeure clauses are drafted in such a way that they will have a time-limited effect falling short of total discharge.  To ensure appropriate protection for each party's specific requirements, those drafting force majeure clauses may wish to: (i) include a specified time period, after which the contract terminates automatically and/or the parties may have an option to terminate¹⁰; and (ii) if terminated, provide for the terminating party to have some form of redress (for example, if pre-payment for non-delivered services or goods had been rendered).
2. Secondly – in order to render a force majeure clause more useful than the otherwise intervening doctrines of frustration and impracticability – force majeure events should be defined precisely so as to capture industry-specific risks. As we go on to explain, economic hardship may be one such event, if negotiated as such, but is otherwise very unlikely to be deemed part of any general "catch-all" provision.
3. Thirdly, a force majeure clause operates as an exclusion clause, excusing a party from performing its contractual obligations.  It may therefore be subject to the reasonableness test under section 3 of the Unfair Contract Terms Act 1977 or the fairness and transparency requirements of the Consumer Rights Act 2015. A force majeure clause that is too widely drafted may be considered to be unreasonable and declared void, providing no effective protection to a party in practice and leaving it exposed to a claim for damages.
4. Fourthly (particularly in view of (2) above)), parties should carefully consider how ordinary principles of contractual construction will apply. Namely, "the expression of one thing excludes other things" and listed words are "of the same kind."

Of these four principles, (2) clearly has the most substantive implications. Leaving Brexit aside for now, the sheer range of possible force majeure events explained below poses particular drafting difficulties.

3.Force majeure in practice

3.1 What "circumstances" might trigger a force majeure clause?

Force majeure events are popularly referred to in shorthand as "Acts of God". But the term encompasses much more than natural disasters.

In Lebeaupin v. Richard Crispin,^[11] McCardie J undertook a useful  review of previous authorities and, by way of example (and among others), contrasted war, strikes, actions of State (such as embargoes and licence refusal), all of which may amount to force majeure, with bad weather, funerals and the rising cost of fulfilling a contract.

The fact that certain events are not properly characterised as force majeure events is important. Whilst parties may make express provision for what happens if and when contractual performance becomes economically unfeasible¹², in the absence of such provision, and while the ECJ has occasionally taken a different view,¹³ only events which prevent (rather than hinder or render more onerous) a contracting party's performance, are true force majeure events as a matter of English law. Under English law, an event which renders the contract more expensive to perform will not usually constitute "hindrance", much less lead to a conclusion of "prevention".¹⁴

It is also key that the force majeure event pleaded should be the sole cause of a party's alleged inability to perform its contractual obligations. In Seadrill Ghana Operations Ltd v. Tullow Ghana Ltd¹⁵the Defendant, Tullow, sought to invoke a force majeure clause due to a "drilling moratorium" imposed by the Ghanaian government. Seadrill claimed that Tullow was terminating for convenience as a collapse in oil prices had made Seadrill's business in hiring drilling rigs less commercially attractive. The Court ultimately held that – while the drilling moratorium was an established force majeure event on the facts – that was not the sole cause of Tullow's failure to fulfil its contractual obligations.

Alleged termination for convenience is also well illustrated by Thames Valley Power Ltd v. Total Gas & Power Ltd,¹⁶ where a force majeure clause in a gas supply contract – providing for release of contractual obligations in the event of inability to perform – was held not to bite where performance had merely become "economically more burdensome."¹⁷ Accordingly, parties generally cannot hope to invoke force majeure to escape the burden of a contract that remains physically and legally possible to perform, albeit unprofitable or less profitable.

In light of these decisions, it seems that the Court will be slow to assume force majeure relating to (and caused by) a Brexit scenario. Both Thames Valley and Seadrill suggest that without a very carefully drafted clause expressly covering Brexit and the future economic burden of contractual performance in a post-Brexit world, an English Court is highly unlikely to grant force majeure remedies in the event that Brexit renders contracts more expensive to perform¹⁸. Therefore, parties entering into contracts now should – absent an express Brexit trigger clause – try to mitigate its effects commercially within a contract.

Such steps are not unique to Brexit, however. Parties who invoke force majeure clauses are in any event under a duty to show: (i) that the relevant circumstances lay outside of their reasonable control; and (ii) that appropriate steps were taken in mitigation, both of which are described below.      

3.2 Who may rely on a force majeure clause?

Only a contracting party may invoke a force majeure clause¹⁹. The standard language of a force majeure clause will typically refer to events beyond the reasonable control of either party. In bilateral contracts containing force majeure clauses, it is in principle open to either party to invoke that clause.

The position is more complex when there are multiple contracts between various parties, and a party is seeking to pass on liability "up / down the chain". Great Elephant Corporation v. Trafigura Beheer BV (The Crudesky)²⁰ concerned a free on board contract for the sale of oil between a seller and a buyer. The seller had delegated to the terminal operator its contractual obligation to load the goods onto the ship; the terminal operator was later delayed in loading the goods due to events within its control. The Court of Appeal held that the seller could not successfully rely on the force majeure clause in circumstances where the relevant event was within its own contractual control. That applied even though that control flowed from the seller through to its sub-sub-sub agent: the terminal operator.

Although the force majeure clause as drafted applied to "either party" to the principal contract (i.e. the seller and the buyer), the Court found this effectively meant "or any party to whom the contractual performance of that party's obligation has been delegated by that party."²¹ Lord Justice Longmore found that an interpretation to the contrary would be "strict construction with a vengeance."²²

The Crudesky case may take on particular significance for principal contracts governed by English law in a post-Brexit landscape. Should such contracts become legally impossible to perform because of legislative changes brought about by Brexit (e.g., the loss of passporting rights) the parties to the principal contract should not assume that they may successfully rely on the force majeure clause or that they may escape liability simply due to their delegation of contractual responsibilities.

The example given in The Crudesky, however, has limits. In particular, The Crudesky was distinguished from the earlier case of Coastal (Bermuda) Petroleum Ltd v. VTT Vulcan Petroleum SA (The Marine Star (No 2).²³ In The Marine Star No 2, a seller successfully relied upon a force majeure clause to excuse itself from the fault of its supplier (its agent). Here, the Court of Appeal noted that The Marine Star No 2 concerned a straightforward sale of goods contract, therefore issues regarding contractual control / responsibility did not arise.²⁴

Parties should therefore not assume that contracts of agency will relieve them of their own obligations, nor that an agency relationship will have any bearing on their own responsibilities under contract. For example, in The Marine Star No 2,²⁵ the judge limited the scope of the force majeure clause as covering liability of the sellers alone (i.e. not the suppliers to the sellers). Lord Justice Saville referred to the specific language contained in the clause as indicative of the parties' intentions. He found that seller could not mean any seller in the chain, nor was it plausible that the words used would change simply because of the creation of further contracts.

Much will therefore turn on the contractual terms of the contract of agency itself. Parties may instead seek to limit their liability for the acts or omissions of their agents by including restrictive language in any agency agreement concluded between themselves and the relevant agent. Again, careful drafting to try and predict future events will be key.

3.3 "Reasonable control", causation and mitigation

There is no requirement under English law that the relevant circumstances invoking the force majeure were unforeseeable; rather the onus is on the invoking party to demonstrate circumstances beyond its reasonable control (or that of its agent)²⁶. The Crudesky found that "reasonable control" ultimately meant exercising "one choice rather than another."²⁷  In this respect, the question of "culpability" is neither determinative, nor relevant.

A crucial question in assessing a party's "reasonable control" is how closely the force majeure event relied upon is causally connected to the invoking party's non-performance.²⁸ This is fact-specific and depends on the language of the clause.

What is clear, as a matter of English law, is that the force majeure event relied upon must be the sole cause for a party's non-performance.^₂₉ The Court will generally determine whether this is the case on the facts, by applying the usual "but for" test.  It is in this context that a party's duty of mitigation becomes relevant: a party cannot simply rely on the fulfilment of relevant "circumstances" and the matter being beyond its "reasonable control". That is clear from Channel Island Ferries Ltd v. Sealink UK Ltd³⁰ in which the Court of Appeal held that an invoking party could only rely on a clause referring to events beyond a party's reasonable control where the invoking party establishes that it took reasonable steps to avoid or mitigate the event and its consequences.   Specifically, in Channel Island, consulting the unions before the agreement precipitating the strikes came into effect would have mitigated the effects of a nationwide strike affecting Sealink's ferry services.

Where relevant, a Court will also often look – as it recently did in Classic Maritime v. Limbungan Makmur³¹– to alternative modes of performance. There, the possibility of shipment from an alternative port was an important factor in considering whether a burst dam constituted a force majeure event. So, if alternative modes of performance are available and not adequately explored, it becomes less likely that the Court will consider a party's non-performance attributable solely to the alleged force majeure event.

From the case law, it seems that in the event Brexit affects a party's ability to deal with, for example, British suppliers due to changes regarding product standards, the English courts will not look favourably on the non-performing party not seeking alternate supply options.

In practice, therefore, the Court will often need to consider the issues of reasonable control, causation and mitigation in tandem for force majeure events.

4. Force majeure post-Brexit

Should the UK leave the European Union on 29 March 2019 as currently scheduled, numerous cross-border commercial contracts may be affected by fluctuations in exchange rates, tariffs and impending constraints on the free movement of goods, people and services. The uncertainty around Brexit and what will be in place (if anything) come exit day, has raised the question of whether Brexit will trigger a force majeure event that parties can rely on to excuse their non-performance of contractual obligations, or whether it will stretch and/or expand the existing limits of such clauses and the way parties approach them.

That question remains unanswered for now, and given the uncertainty as to the impact of Brexit, parties would be wise to negotiate the inclusion of express Brexit-related trigger events in contracts rather than hoping to rely on existing force majeure clauses.  In the absence of a specific Brexit trigger clause, it seems parties will face an uphill struggle in seeking to persuade an English Court that Brexit operates as a trigger a standard force majeure clause.

One can hypothesise why that might be. It is particularly difficult, for example, to use Brexit to satisfy the "but for" test. A contracting party facing economic hardship in the wake of Brexit would need to show that: (a) Brexit was the sole cause of preventing performance; (b) as a result, the contract had become impossible (and not just more expensive and/or difficult) to perform; and (c) reasonable steps had been taken to mitigate its effects (such as entering into interest rate swaps or taking steps to protect against changes in the exchange rate).

Brexit also raises timing issues.  In light of the EU Referendum having been foreshadowed in the Conservative party's 2010 manifesto – there is a question as to how the English Courts would treat the requirement that the force majeure event be "beyond the reasonable control" of either party. Is there, for example, authority for treating contracts entered into pre and post the 2010 manifesto differently? A "pre-manifesto" contractual party may seek to emphasise unforeseeability as a relevant factor to a force majeure event. Indeed, in the context of frustration, in Canary Wharf³² (supra.), Smith J commented that "foreseeability is no more than a factor to be taken into account." Yet, as The Crudesky highlights, foreseeability is largely redundant for the purposes of determining "reasonable control".³³

From a commercial point of view – and noting that much of the judicial commentary on force majeure stresses a "common sense" approach – where would that leave a "post-manifesto" contractual party which, knowing of the British government's intention vis-à-vis the 2016 vote, and by default the possibility of Brexit, nevertheless failed to include contingencies in the contract? What will be the position for parties who are negotiating contracts now, even if they are seeking to define Brexit related events, when the positon is still uncertain as to what form Brexit will take come 29 March 2019? 

Further hypotheses lead us to consider what other contractual clauses a party may invoke were it to argue Brexit as a general force majeure event. It seems to us unlikely that Brexit could fall within a catch-all provision such as "any act by any government" given: (i) principles of state sovereignty; (ii) the types of events likely to proceed such a sweep-up provision – i.e. civil war; rebellion; insurgency; and (iii) the further requirements for a bona fideforce majeure event discussed above.

5. Conclusion

While force majeure clauses can be of welcome use to parties if drafted correctly, whether their scope will expand post-Brexit remains as uncertain as the form Brexit may take on 29 March.  Certainly parties may face difficulties in persuading the English Courts that Brexit is a frustrating event^₃₄, and the approach in Canary Wharf³⁵(supra.) may prove useful guidance as to how the English courts may treat similar arguments for standard force majeure clauses.  For those parties currently negotiating contracts in such an uncertain political landscape, the safest course would seem to be to include express Brexit termination provisions now, so that the precarious route of relying on force majeure (or indeed the common law doctrine of frustration) to escape contractual liability can be avoided.

Reproduced with permission from PLC Magazine. This article first appeared in the April 2019 issue of PLC Magazine (http://uk.practicallaw.com/resources/uk-publications/plc-magazine)

Daisy is an associate in White & Case's Dispute Resolution group based in London. She focuses on commercial litigation and international arbitration. She has experience in the Commercial Court and the Upper Tribunal (Tax Chamber), as well as in regulatory investigations. She has worked on arbitrations under the ICC, LCIA and ICSID rules.

Daisy joined White & Case in 2016 as a trainee, gaining experience in the Firm's Capital Markets, Litigation and Arbitration and Construction Arbitration Groups in London, and the International Arbitration Group in the Firm's New York office.

On March 26th 2019, the European Parliament approved in a plenary vote rules allowing groups of consumers harmed by illegal practices to launch collective actions and seek compensation¹.

Background

As part of the "New Deal for Consumers", launched on April 11th 2018 ² by the European Commission to ensure stronger consumer protection in the EU, the European Commission proposed to repeal the existing Directive 2009/22/EC (the "2009 Injunctions Directive") and replace it with a new directive on the protection of the collective interests of consumers (the "Draft Directive").

Eligible representation and safeguards

If adopted, the Draft Directive would considerably extend the 2009 Injunctions Directive. In addition to the main areas of consumer protection, a number of areas of law and regulation that relate to the normal functioning of businesses would also be subject to the new European mechanism, such as data protection, financial services, travel and tourism, energy, telecommunications, environment and health.

Under the new draft rules, representative action can only be brought by "qualified representative entities" such as consumer organisations and certain independent bodies designated by member states. These should be non-profit and have no financial agreements with law firms.

In addition, the draft rules adopted by the European Parliament clarifies that the Directive does not allow Member States to establish collective redress actions for punitive damages or other types of overcompensation (article 6 – paragraph 4b).

The amended version also introduces an obligation for Member States to ensure that no other ongoing collective redress action has been initiated regarding the same facts and parties (article 5 – paragraph 1).

Under this amended version Member States should require an explicit opt-in from consumers who are not habitually resident in the Member State where the collective redress action is initiated (article 6 – paragraph 1 – subparagraph 1 a).

Finally, the text requires the Commission, within three years, to assess if a European Ombudsman for collective redress should be established.

Next steps

The Draft Directive will then be subject to consultation in the European Parliament and the European Council - being specified that talks cannot start before the latter adopts its position - before being published in the Official Journal. Publication in the Official Journal will be followed by a transposition period for Member States.

The Council has not yet been able to adopt a position on the Directive, meaning that the Directive will most likely be considered again after the European elections in May 2019 by a different European Parliament.

Should the Council and the European Parliament find an agreement on the European Commission's proposal, the Directive will then require Member States to implement collective redress mechanisms for violations of specifically designated parts of EU consumer protection law.

At this stage, the next meetings in Council Working Group are scheduled to take place on 12 and 24 April.

Perspectives

The European Union is closer than ever to having a bloc-wide regime on collective redress.

Under the Draft Directive the "Directive is without prejudice to other forms of redress mechanisms provided for in national law" (article 2 – paragraph 3 a). Within its preamble, it states that the Directive "does not prevent Member States from maintaining their existing framework, neither does it oblige Member States to amend it" (recital 24 of the Directive's preamble). The Draft Directive only define the essential aspects necessary to establish a framework for collective action by consumers, so that Member States will have to make a significant effort to reform their procedural rules at national level in order to implement the provisions of the directive.

Currently, only 19 member states provide some form of legal remedy to victims of mass harm and proceedings can often be lengthy and costly, especially if victims go to court individually.

One question remains as to how the Draft Directive will interrelate with the existing collective redress mechanisms within the Members States.

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¹http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P8-TA-2019-0222+0+DOC+XML+V0//EN
² The New Deal comprises two proposals for Directives: a new Directive governing "representative actions for the protection of the collective interests of consumers" to replace the existing Injunctions Directive 2009/22/EC; and a broader Directive amending and 'modernizing' four existing consumer protection directives (the Unfair Commercial Practices Directive 2005/29/EC, the Consumer Rights Directive 2011/83/EU, the Unfair Contract Terms Directive 93/13/EEC, and the Price Indication Directive 98/6/EC).

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© 2019 White & Case LLP

On March 19, 2019 a law initiative of Senator Ricardo Monreal Ávila was published in the Parliamentary Gazette of the Senate with a decree project, by means of which certain provisions of the Federal Civil Proceedings Code (Código Federal de Procedimientos Civiles) and the Securities Market Law (Ley del Mercado de Valores) would be amended or added (the "Initiative").

Objective

The Initiative aims to guarantee the protection of minority shareholders' rights if there is an omission to carry out a mandatory tender offer ("Tender Offer"), or when the control shares of a corporation (sociedad anónima) recorded in the National Securities Record are acquired, in contravention of the guidelines established in article 98 of the Securities Market Law (the "SML").

In order to achieve the previous mentioned objective, the Initiative includes the concept of stock market class action. Such legal form consists in a procedural institution for a collective defense of minority shareholders against the acts carried out by a person or group of people who carry out a takeover of an issuer affecting such minorities' rights and investments.

Stock Market Class Action Benefits

Through stock market class action, it is intended to put together into a single judicial proceeding of a multiplicity of individual actions promoted by the minority shareholders regarding the same dispute, in this case, the illegal acquisition of 30% or more of ordinary shares of an issuer, when the acquiring party omitted to carry out the acquisition through a mandatory tender offer which is required in terms of article 98 of the SML, or when such share acquisition was carried out in contravention of aforementioned article of such law.

Since the collective nature of such class actions, the person or group of people who are claimed for the acquisition of control interest carried out in contravention of the SML, could handle such claims directly with all relevant parties in a single court trial, with the possibility to achieve agreements to end the dispute and wind down the contingency and potential nullity of the transaction.

Stock market class action does not only represent a useful procedural institution to expedite, facilitate and be effective on claims against takeovers that omit being carried out through a mandatory Tender Offer and in contravention of the SML, it also simplifies to the parties of the dispute (minority shareholders and offeror) to achieve an agreement which ends the controversy and the claimants shareholders to receive the same compensation and, as the case may be, the acquisition premium that has been offered to controlling stockholders, in order to recognize the validity of shares' transmission, fulfilling the objective of defending their interest by receiving the same deal that controlling stockholders.

What does the Initiative entail?

The Initiative aims to add an additional paragraph to article 103 of the SML, in order to include the concept of class action as a mean by which minority shareholders of an issuer oppose to any shares’ acquisition carried out in breach of article 98 of the SML, remitting to the process regulated in the Federal Civil Proceedings Code ("FCPC"), for this kind of class actions. Additionally, the Initiative specifies that the claim to the acquisitions could be pursued also individually by each of the affected shareholders, without need to be part of the class action.

It is important to note that the Initiative does not specify a minimum percentage of the issuer’s capital stock for such minority to submit a class action, which ensures that any shareholder of an issuer could initiate or adhere to a class action, regardless of the number of shares owned or held.

For the legal implementation of stock market class actions, the Initiative amends several articles of the Fifth Section of the FCPC named "Class Actions".

What would be claimed by means of a Stock Market Class Action?

Through the class action that will be adopted with the Initiative, minority shareholders of an issuer company would claim the potential acquirer and, as the case may be, controlling stockholders, both, the nullityof the share purchase and the resolutions adopted by the exercise of corporate rights of the shares' acquisition carried out against the SML, as well as the payment of damages and loss of profits that the claimant shareholders could evidence through the federal court trial.

Procedural amendments to set up Stock Market Class Actions

The Initiative amends and adds various articles of the FCPC to adapt class actions’ system in consumer products and services, public or private and environmental litigation, with the implementation of stock market class actions, with the following highlights:

Classification of Stock Market Class Action

The Initiative classifies stock market class action, as a homogenous individual action. This kind of class actions are those that enforce individual rights and interests of collective impact, which their holders are individuals joined together by common circumstances; as in this specific case, they are the minority shareholders of an issuer company, claiming the acquisition of shares by the offeror, in such ratio that grants the control of the issuer.

Identify the issuer in the claim

In order to facilitate the identification the class members that could be interested in adhering to the stock market class action, the Initiative considers the alternative in favor of the minority shareholders claimants, to indicate the issuer's corporate name whose shares were acquired, as well as the stock exchange in which their shares are listed, in order to instruct the publication of the material event notifying the investors the beginning of the class action. In accordance with the abovementioned, it is intended to achieve the objective of this kind of proceedings to identify all the class members and to inform the existence of the class action.

Legal requirements of the Stock Market Class Action

As an essential condition to promote a stock market class action, the Initiative requires that they be based exclusively in disputes relating to the shares' acquisition in contravention of article 98 of the SML, both during the Tender Offer or after the acquisition, or without carrying out the acquisition by means of mandatory takeover, in terms of the aforesaid provision.

Remove a minimum number of class members to promote a Stock Market Class Action

As a condition for homogenous individual stock market class actions, the Initiative intends to remove a minimum number of class members (30 members), that was a requisite to file a class action, being sufficient that only one of the minority shareholders files the claim, regardless of their interest participation in the issuer.

Stock Market Class Action's Publicity

In accordance with the FCPC’s provisions, when a class action is filed, the court must certify the legal requirements set forth in such code and, once such certification is done, the court must resolve the admission or dismissal of the complaint. In case of stock market class actions, if the complaint is admitted, the Initiative provides that the admission notice should be carried out by disclosing a material event by the issuer which its shares’ acquisition are being disputed, through the stock exchange in which its shares are listed. The purpose of the relevant event is to inform the other affected shareholders about the existence of the class action, in order to let them adhere to such class action.

Legislative process of the Initiative to come into force

The Initiative is subject to the legislative process, therefore, prior to entry into force, the Senate and the House of Representatives must approve it, in which it could suffer adjustments in its original content, in order to subsequently be enacted by the Mexican President and published in the Official Gazette of the Federation.

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© 2019 White & Case LLP

B2C2 Ltd v Quoine Pte Ltd [2019] SGHC(I) 03, a decision of Simon Thorley IJ sitting in the Singapore International Commercial Court, is one of the first instances to apply contractual principles and trust law to a cryptocurrency trading case. Notably, the judge ruled that virtual currencies can be considered as property which are capable of being held on trust. The judgment is also of interest as it analyses the doctrine of mistake in the context of contracts that are automatically entered into through computer programming.

Summary

B2C2 Ltd v Quoine concerned seven trades relating to the sale by electronic market maker B2C2 of the cryptocurrency Ethereum in exchange for Bitcoin in April 2017. These trades were automatically performed by Singapore-registered Quoine's currency exchange platform ("the Platform") in response to orders from B2C2's custom algorithmic trading software. The software installed on the Platform by Quoine receives external market prices from other trading platforms, and uses those prices to ensure trades take place at the relevant market rate.

Due to a defect in Quoine's software, the trades in question were executed at a rate approximately 250 times the Ethereum and Bitcoin market exchange rate, in favour of B2C2's trades. The counterparties to the trades were other users of Quoine's trading platform.

The trades were implemented with no human intervention, and B2C2's account was automatically credited with the proceeds of the sale. The next day Quoine's Chief Technology Officer reviewed the trades, realised a serious error had occurred, and cancelled the trades (the transactions being reversed).

B2C2 brought proceedings against Quoine, claiming that Quoine's decision to reverse the trades was a breach of the contractual terms between the two parties. B2C2 further argued that due to the way Quoine's platform operated, Quoine held the virtual currencies in B2C2's user account on trust, and its unilateral reversal of the trades (and consequent disposal of B2C2's assets) was a breach of that trust. In response, Quoine argued that it was entitled to reverse the trades as they had been entered into by mistake, and were therefore void.

In one of the first judgments to apply the law of contract to virtual currencies, Simon Thorley IJ found in favour of BC2B, holding that the trades were not void for mistake and, consequently, Quoine's intervention was a breach of contract.

The parties' positions

Breach of Contract

As regards B2C2's claim that Quoine's decision to reverse the trades was a breach of contract, Simon Thorley IJ viewed the case as straightforward.

The seven trades were generated and placed on the Platform due to Quoine's algorithmic software, and the accounts were debited and credited accordingly. The parties to the trades were then notified in the usual way through the Platform. It was noted by Simon Thorley IJ that the terms and conditions of the Platform expressly stated that "once an order is filled, you are notified via the platform and such action is irreversible" (emphasis added).

The Court therefore found that, unless the trades were void for mistake, Quoine's intervention was a breach of the express term under its own terms and conditions.

Virtual Currencies as Property and Breach of Trust

In order to determine whether Quoine was in breach of trust by unilaterally reversing the trades, it first had to be established that a trust had been created. Both parties accepted that there were three certainties that had to be present for the creation of a trust, namely:

i. certainty of intention;

ii. certainty of subject matter; and

iii. certainty of object.

A key issue in B2C2 Ltd v Quoine was whether the cryptocurrencies were capable of being considered as property in order to meet the second essential criteria for establishing a trust.

Whether virtual currencies can be considered as property has been the subject of some debate. There is a view under English law that Bitcoin and Ethereum may not be considered as property as, in essence, they are no more than digital tokens stored on an electronic ledger. Case law has established that something which exists only in electronic form cannot be the subject of possession.¹ Consequently, it has been argued that cryptocurrencies would not technically be recognised as property by the English Courts, or any other common law jurisdiction, as the law does not recognise possession of intangible items.²

In B2C2 Ltd v Quoine, however, both parties were prepared to assume that the virtual currencies could be treated as property and Simon Thorley IJ agreed, taking the view that cryptocurrencies meet all the requirements of the classic definition of property, i.e., "it must be definable, identifiable by third parties, capable in its nature of assumption by third parties, and have some degree of permanence or stability."³ He concluded that while cryptocurrencies are not considered legal tender in the sense of being a regulated currency issued by a government, they do have the fundamental characteristic of intangible property as being an identifiable thing of value.⁴

Despite accepting that cryptocurrencies could be property, Quoine disputed that there was sufficient certainty of intention to create a trust. Simon Thorley IJ disagreed. As the traded assets were held separately in a single offline wallet as "member assets" rather than as part of Quoine's trading assets, he determined that there was sufficiently clear evidence that Quoine intended to hold assets on trust for individual users of the Platform.

Finally, the third certainty, which requires that the intended beneficiaries have to be identifiable (i.e., certainty of object), was also met as the beneficiaries were discernible from their individual member accounts.⁵

Accordingly, as a trust was clearly established, unless it was right to reverse the trades due to mistake, the Court held that the unilateral removal of Bitcoin from B2C2's account was in breach of trust.

Doctrine of Mistake

Quoine argued that it was right to reverse as the trades in accordance with the doctrine of mistake. Under English law there are three categories of mistake which are capable of voiding a contract:

i. common mistake, where both parties make the same mistake;

ii. mutual mistake, where both parties misunderstand each other and are at cross-purposes; and

iii. unilateral mistake, where only one of the parties makes a mistake and the other party knows of his mistake.

As is the case in English law, in Singapore a contract is only voidable if the mistake relates to a sufficiently important or fundamental contract term and any analysis must consider the knowledge of the parties at the time of entering into the contract.⁶

In this instance, the mistake was the applicable Bitcoin-Ethereum exchange rate and Simon Thorley IJ had to consider whether a contract made by and between two computer systems acting as programmed, but otherwise without human intervention, could be void for unilateral mistake. If this was established, Quoine would not be in breach of contract or trust for reversing the trades.

However, as the parties only became aware of the transaction after it had taken place, the Court could not properly assess the knowledge of the parties of the mistake at the time of entering into the contract. Applying the law to a case where algorithmic trading decided the terms of the contract therefore raised novel questions for determination by the Court, including whose knowledge is relevant, and at what time that knowledge should be assessed.⁷

Quoine argued that the algorithms and computers used to execute the trades should be treated as legal agents of their human principles. Simon Thorley IJ disagreed. He held that as the parties had chosen to use computers as the means of entering the trading contracts, he could not consider what would have happened if the computer element was missing.⁸

Ultimately, when determining whether a mistake had been made, the Court considered it necessary to have regard to the intention of the programmer at the time of writing the program, as computers acting in accordance with the algorithmic program are themselves (in this case) "no different to a robot assembling a car rather than a worker" or a "kitchen blender relieving a cook of the manual act of mixing ingredients".⁹

In this instance, it was determined that the programmer's intention was to protect B2C2 from certain risks, with no underlying intention to manipulate the market. Having considered the relevant facts, the Court concluded that the counterparties to B2C2's trades had held the mistaken belief that they could never take place at the rates that were in fact applied. As B2C2 itself did not have knowledge of this mistaken belief, however, the trades were not void for mistake.¹⁰

Comment

B2C2 Ltd v Quoine is one of the first cases to consider issues of contract and trust law in the context of the trading of virtual currencies and contains interesting observations as to how the doctrine of mistake in common law or at equity may apply to such contracts. The relief sought is also of interest; the primary relief sought by B2C2 was specific performance coupled with damages, with B2C2 seeking to establish that damages alone would not be an adequate remedy because of the volatility of cryptocurrencies (and Bitcoin in particular), making the inherent value difficult to ascertain.

The Court disagreed, commenting that the Courts are accustomed to assessing damages in relation to volatile assets and cryptocurrencies were no different in this regard. Accordingly, B2C2's request for specific performance was denied as it would cause undue hardship to Quoine.¹¹

B2C2 was therefore entitled to a claim in damages for both breach of contract and breach of trust, with damages to be assessed at a later hearing, if not agreed. Given the volatility of the cryptocurrency market, with Bitcoin's price alone fluctuating by 75% between November 2017 to November 201812, the outcome of any damages assessment will be of interest.

Finally, the classification of cryptocurrencies such as Bitcoin and Ethereum as property in the legal sense may have broader implications. This point remains open for formal resolution in the English Courts, but if Thorley IJ's approach (and that of the parties in B2C2) is followed, then that may well have consequences for the remedies available (as can be seen from B2C2) and other areas of law, such as insolvency in the event of a virtual currency business becoming insolvent.

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¹ Armstrong DLW GMBH v Winnington Networks Ltd [2012] EWHC 10 (Ch)
² See, e.g., Jean Bacon, Johan David Michels, Christopher Millard & Jatinder Singh, Blockchain Demystified: A Technical and Legal Introduction to Distributed and Centralised Ledgers, 25 Rich. J.L. & Tech., no. 1, 2018 at https://jolt.richmond.edu/blockchain-demystified-a-technical-and-legal-introduction-to-distributed-and-centralised-ledgers/
³ As established by the House of Lords in National Provincial Bank v Ainsworth [1965] 1 AC 1175 at para 1248
⁴ B2C2 Ltd v Quoine Pte Ltd [2019] SGHC(I) 03, para 142
⁵ B2C2 Ltd v Quoine Pte Ltd [2019] SGHC(I) 03, para 143
⁶ It should be noted that while the doctrine of mistake in England and Singapore is similar, it is not the same in all respects.
⁷ B2C2 Ltd v Quoine Pte Ltd [2019] SGHC(I) 03, para 198
⁸ B2C2 Ltd v Quoine Pte Ltd [2019] SGHC(I) 03, para 204
⁹ B2C2 Ltd v Quoine Pte Ltd [2019] SGHC(I) 03, paras 209 -210
¹⁰ B2C2 Ltd v Quoine Pte Ltd [2019] SGHC(I) 03, paras 231
¹¹ B2C2 Ltd v Quoine Pte Ltd [2019] SGHC(I) 03, paras 256
¹²https://www.bbc.co.uk/news/technology-46263998

Emma Shields (White & Case, Professional Support Lawyer, London) contributed to the development of this publication.

This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
© 2019 White & Case LLP

Ryan works with clients during project conceptualization, implementation, execution, dispute resolution, and operation. He assists in determining the best project delivery system, drafts and negotiates the project agreements, including licensing, basic engineering, EPC, EPCM, construction, procurement, and services, provides guidance during execution, and manages disputes through resolution. Ryan represents clients in a variety of industries on projects ranging from US$10 million to more than US$ 4.5 billion. Some recent examples include air separation units, hydrogen, polypropylene, and methanol plants, power plants, carbon sequestration, liquefied natural gas liquefaction facilities, power plants, manufacturing and storage facilities, and commercial building developments.

Lijun Zhang is an associate with the Litigation Group. His previous legal experiences include working as an intern and extern at the U.S. District Court for the District of Columbia, U.S. Court of Federal Claims, U.S. Federal Trade Commission, and U.S. Commodity Futures Trading Commission. Prior to law school, he worked as a management consultant with a global consulting firm, as well as one of the largest financial institutions in China.