Month: February 2024

Overview

On 17 January 2024, the Supreme Court handed down  judgment in Herculito Maritime Ltd & Ors v Gunvor International BV & Ors unanimously dismissing the appeal. In this post David McKie, Partner at CMS, comments on that judgment.

The case concerned whether cargo owners who were receivers under bills of lading had to make to the shipowner carrier a contribution in General Average to a ransom payment paid to Somali pirates for the release of the ship.  Cargo owners had resisted contribution on the basis that  the terms of war risks clauses in a voyage charterparty, by which the charterer was responsible for paying additional war risks premium for a Gulf of Aden transit, were incorporated into the contracts of carriage for the cargo evidenced by bills of lading and constituted an “insurance code”, by which the parties had agreed that the shipowner would look only to insurers in the event of a loss.  

The cargo owners’ argument had succeeded before an arbitration tribunal, but was subsequently rejected by the Commercial Court, and by the Court of Appeal. The Supreme Court held that the war risks clauses did not meet the stringent requirements necessary to create an insurance code, so that the appeal fell at the first hurdle.

The case has significant implications for shipowners, charterers and bill of lading holders, and for insurers, as to the effect of insurance and premium payment clauses in contracts of carriage on subsequent rights of recourse in the event of an insured peril arising.  It reminds parties of the stringent requirements which will need to be satisfied before an insurance code arises by way of implication from contract terms, so if that is what parties to contracts wish to agree they should do so expressly.

Background

MT POLAR (“the Vessel”) was voyage chartered for the carriage of a cargo of 69,493.28 mts of fuel oil from St Petersburg to Singapore, a voyage which envisaged transit through the Gulf of Aden. The voyage charter was on an amended BPVOY 4 form. It included terms that any additional insurance premium payable in respect of war risks, including piracy, incurred by reason of the vessel trading to excluded areas not covered by the shipowner’s basic war risk insurance (such as the Gulf of Aden) were to be for charterer’s account subject to a US$40,000 limit.  The shipowners issued bills of lading which were stated to incorporate the terms of the voyage charterparty.  The shippers of the cargo, who were also the voyage charterers, paid the shipowners the additional premium for Kidnap & Ransom and War Risks insurance effected by the shipowners for the Gulf of Aden transit. 

The Vessel was seized by pirates in the Gulf of Aden on 30 October 2010 and released on 26 August 2011 after payment of a ransom of USD 7.7 million on behalf of the Vessel’s owners and/or their Kidnap & Ransom/War Risks insurers. The Vessel’s owners declared General Average (thereby allowing under maritime law and by contract the parties to apportion extraordinary expenses incurred for the preservation of ship and cargo).  Prior to discharge of the cargo a General Average Guarantee and Bond (both of which contained a London arbitration clause) were provided by cargo insurers and by the cargo receivers who were the lawful holders of the bills of lading (“cargo interests”).  A General Average adjustment was drawn up which determined that US$4,829,393.22 was due from the cargo interests to the Vessel’s owners.  

The cargo interests rejected the claim for a contribution on the ground that the Vessel’s owners’ only remedy was to recover under the terms of the insurance policies, the premium for which had been paid by the voyage charterer.  

The cargo interests argued that those provisions formed a complete insurance code or “insurance-based solution” which precluded the shipowners from recovering from cargo interests in General Average in the event of loss caused by a covered risk, based on the principles in  Gard Marine and Energy Ltd v China National Chartering Co Ltd (The Ocean Victory) [2017] UKSC 35  and Kodros Shipping Corp of Monrovia v Empresa Cubana de Fletes (The Evia (No 2)) [1983] 1 AC 736 [HL].

An arbitration tribunal determined two preliminary issues in favour of the cargo interests: (1) that the terms of the voyage charterparty were incorporated into the contracts of carriage evidenced by the bills of lading and (2) that further to The Evia (No 2) and The Ocean Victory the effect of the term as to payment of war risks insurance premium by the charterers was that the shipowners had implicitly agreed to look solely to their insurance cover and not to cargo interests in the event that they suffered a loss covered by that insurance. 

On an appeal to the Commercial Court under the Arbitration Act 1996, s 69, Sir Nigel Teare agreed with the arbitration tribunal on the first issue but disagreed on the second.  In light of the decisions of the House of Lords in The Evia (No 2) as explained by Longmore LJ in the Court of Appeal decision in The Ocean Victory, the charterparty provisions operated as a complete code by which the shipowners and the voyage charterers had agreed that the shipowners would look only to the insurance cover; this principle applied not just to cases of breach of charterparty but also to contributions in General Average.  However, the charterparty clause requiring the additional war risks premiums to be paid by the charterers could not be manipulated so as to place the obligation of payment on the holders of the bill of lading and so they could not take advantage of the insurance code incorporated into the bills of lading. The cargo interests’ defence therefore failed and they were liable to make the contribution which had been assessed.

The Court of Appeal unanimously dismissed the cargo interests’ appeal, upholding the reasoning of the Judge (although they questioned whether the position in The Evia (No 2) and The Ocean Victory was as wide or clear-cut as the Judge had accepted).

Lord Justice Males pertinently and pithily observed as follows: “In reality this is a case where both parties were insured against the risk of piracy and where allowing the shipowner to claim will mean that each set of insurers will bear its proper share of the risk which it has agreed to cover. In contrast, the effect of construing the bills of lading to exclude a claim by the shipowner will mean that the loss is borne entirely by the shipowner’s insurers and that the cargo owners’ insurers escape liability for a risk which they agreed to cover. Standing back, therefore, in my judgment the judge’s conclusion accords with both legal principle and commercial sense”.

Permission to appeal to the Supreme Court was granted in the autumn of 2022, and the case was heard over 2 days in October 2023.

Decision

Lord Hamblen delivered the only judgment, with which all the other Lord Justices agreed.   Four issues arose for decision, of which the finding on the first was determinative of the appeal. 

Issue 1

The first issue was whether on the proper interpretation of the voyage charter and/or by implication the shipowner was precluded from claiming against the charterer in respect of losses arising out of risks for which additional insurance had been obtained.

The Court reviewed the relevant authorities on the implication of an insurance code. The issue was one of construction. The following general considerations were of relevance. 

(1)       For the shipowner to have given up a valuable right of a contribution in General Average in relation to well-known kidnap and ransom risks requires a clear agreement to that effect – Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689, 717.

(2)       In order to establish that the parties have agreed an insurance code or fund it has to be shown that this is a necessary consequence of what has been agreed.  This is a high threshold.

(3)       Where parties have contracted that there should be insurance in joint names, this normally implies a waiver of subrogation (although it was not a decisive factor in The Ocean Victory). This was not a case of joint names insurance.

(4)       There is no principle exempting charterers from liability for their breaches of contract or having to contribute in general average merely on the ground that they have directly or indirectly provided the funds whereby the owners insured themselves against the relevant loss or damage.

The Evia (No 2) was a decision on its own facts, could be distinguished, and did not establish any general principle (albeit the considerations applied in that case remained relevant to an assessment of whether or not there was an insurance code). 

The Supreme Court held that in view of the carefully agreed contractual regime in the voyage charter for the known piracy risks of transiting the Gulf of Aden it would not have been open to the shipowner to contend that such risks were “war risks” for the purposes of clause 39 of BPVOY4 (as amended).  Consequently, this was not a case in which the charterer would otherwise obtain no benefit from the payment of the additional premium, or was undertaking a significant additional burden.  There was therefore no insurance code or fund agreed in the voyage charter, so the appeal failed. 

The further three issues which arose were therefore addressed obiter on the assumption that there was such a code in the voyage charter.  They concern whether such a code was incorporated into contracts of carriage evidenced by the bills of lading, by virtue of incorporation clauses on the reverse of the bills. 

Issue 2

The second issue was whether all material parts of the war risks clauses in the voyage charter were incorporated into the contracts of carriage evidenced by the bills of lading. 

The Vessel owners argued that they were not incorporated because the obligation to pay insurance premium was not directly relevant to the loading, carriage, and discharge of the cargo, or the payment of freight. The Court disagreed.  The clauses related to the voyage route.  They were therefore directly relevant to carriage. The liberties given to the shipowner were also relevant to carriage.  Consequently, all material parts of the war risks clauses in the charter were incorporated into the bills of lading.

Issue 3

The third issue was whether on the proper interpretation of those war risks clauses in the bill of lading and/or by implication the shipowner was precluded from claiming for its losses against the cargo interests as bill of lading holders. 

Cargo interests argued that the voyage charterer should be regarded as paying the additional insurance premium on behalf of cargo interests, because it was the cargo interests rather than the charterer who would be most directly concerned in the event of a piratical seizure and would bear the principal liability to contribute in general average.

The Court disagreed. The obligation to pay was that of the voyage charterer.  It had its own interest in ensuring proper performance of the charter.  The bargain made is that the parties will not look to each other to make good an insured loss. That is a bilateral agreement.  No insurance code case extended any understanding to that effect beyond the parties to the relevant contract.

Issue 4

The final issue was whether the wording of the war risks clauses in the voyage charter allocating responsibility for the payment of the additional insurance premium could or should be manipulated so as to substitute the words “the Charterers” with “the holders of the bill of lading”. 

Manipulation of charterparty clauses incorporated by general words of incorporation may be permissible if it is necessary to do so to make the wording fit the bill of lading. There was no such need in this case. Allocation of responsibility for paying additional premium made sense in the context of the bills of lading as a record of the terms upon which the shipowner has agreed to transit the Gulf of Aden. As held at first instance and by the Court of Appeal, there were positive reasons why there should be no manipulation in this case. These included the uncertainty of how any premium should be apportioned between bill of lading holders and the implausibility of bill of lading holders accepting potential liability to pay unknown and unpredictable amounts.

Comment

There has been a growing trend of parties to contracts seeking to escape liability for breach of contract (or in this case a contribution) who have increasingly resorted to arguing for an implied waiver of subrogation – often with some success (as the finding of the arbitral tribunal in this case shows).  This decision is therefore a welcome one which accords both with legal principle and commercial sense and is likely to restrict the situations in which an insurance code is found to exist as a matter of implication. 

Contractual parties may agree that specified loss or damage is to be covered by insurance and that in the event of such loss or damage occurring the parties will seek recourse only against insurers rather than their contractual counterparty creating an ‘insurance fund’ or ‘insurance code’ as the sole mechanism for recoupment of loss. 

They can do so expressly.  Such an intention can also be implied.  Previously, such a code has been held to exist (by way of implication) under a demise charter (as in The Ocean Victory) and under a time charter (as in The Evia (No 2)), both of which involved alleged breach of contract causing a loss which was covered by insurance in the name of the shipowner but paid for by the charterer.   

This was said to be the first case to consider judicially whether there is an insurance code or fund in a voyage charter and, if so, whether that code is applicable to contracts of carriage evidenced by bills of lading which incorporate the terms of the voyage charter. Unsurprisingly, it is now clear that in principle it is possible  for parties to  create (by implication) a code within a voyage charter.  It is however unlikely that such a code will be incorporated by reference into contracts of carriage evidenced by bills of lading. As always whether either of these things happens is dependent on the proper interpretation of the contracts on the facts of the case.

The judgment of Longmore LJ in the Court of Appeal in The Ocean Victory offers some general statements as to when there may be held to be an insurance code or fund even in the absence of joint names insurance, including “…the prima facie position where a contract requires a party to that contract to insure should be that the parties have agreed to look to the insurers for indemnification rather than to each other”.

Contrary to the cargo interests’ submissions, this was not endorsed by the Supreme Court in The Ocean Victory.  Even in a joint names insurance case the court both looked for and relied upon other contractual indicia to support the conclusion that there was an insurance fund arrangement. There is no prima facie position. It always depends upon the construction of the contract terms as a whole and the necessary consequences of what has been agreed in relation to insurance.

The Supreme Court emphasised that tribunals should be cautious before following the reasoning of The Evia (No 2) because the search for an insurance code introduces uncertainty.  If parties wish subrogation rights to be waived they should clearly state this in their contract. The mere existence of a requirement to insure or a contractual obligation to pay for the other party’s insurance cover should now be insufficient without more to imply an intention to create an insurance code or a waiver of subrogation.

Although the context was claims under a contract of carriage, it is pleasing to see that the Supreme Court actually considered this issue from insurers’ perspective, even if only in passing.  Lord Hamblen said this:

“The practical difficulties which may arise are illustrated by a consideration of the position of insurers. Whether or not they are to have rights of subrogation is likely to be material to their rating of the risk as it increases the risk of loss borne by them. Disclosure may, however, give rise to difficult issues. For example, it may be very unclear whether the subrogation position is known to the insured in circumstances where it all depends upon implications to be drawn from the terms of the charter. Similarly, if disclosure is sought to be met by providing a copy of the charter, whether that is full and fair disclosure must be questionable in circumstances where it says nothing expressly about subrogation rights. If no effective insurance cover were provided then issues would arise as to whether in such a case there is any code, and difficult questions might also arise if the insurance did not fully cover the losses suffered by the shipowner”.

The existence of loss of subrogation rights is usually fundamental to a calculation of premium (it is unlikely to increase the risk of a loss, but it will increase the amount of the loss the insurer has to bear) and the loss of subrogation rights may make the risk uneconomic to insure. 

Ordinarily all parties to a marine adventure would expect to contribute their proper share in general average, and they insure against that risk.  Commercially, it is perfectly reasonable for shipowners to require charterers to reimburse additional war risks premium for transiting high risk areas, the benefit for charterers being that the cargo can be carried on a more direct route for less freight.  In the context of a charterparty this is probably primarily intended to be an accounting exercise, and allocates a specific part of the additional cost of performing the voyage to the charterers, not included within freight, for obvious reasons. Voyage charterers, if they are sellers or buyers of cargo, will in that capacity insure the cargo against war risks (including piracy) both for physical loss of or damage to cargo and cargo’s proportion of General Average. The argument run by cargo interests, if correct, would have provided a windfall and forced parts of the hull and P&I insurance market to bear an expense which has not been priced in to their cover, but which cargo insurers have already priced into theirs.  

The subsidiary issues involved the application of established principles to the incorporation of terms from charterparties into bills of lading of interest in the shipping law context. The Supreme Court took the opportunity to reiterate several of the relevant principles, and to reject cargo interests’ argument that these approaches (and the language used) were outdated.   It is now clear that war risks clauses which relate to a voyage route or provide liberties to the shipowner as to how carriage is to be performed will in principle be capable of incorporation into contracts of carriage evidenced by the bills of lading on the basis that these can be considered as germane (or, in more modern language, directly relevant).

In this case, Madison Ingram, a Trainee Solicitor in the technology & media team at CMS, comments on the Supreme Court decision in Potanina v Potanin [2024] UKSC 3, which was handed down on 31 January 2024.

The Supreme Court decided, by a 3-2 majority, to overturn the decision of the Court of Appeal, and allow the appeal sought. In doing so, the court made rather impactful comments of which essentially alter the practice which has been followed in the process of setting aside leave under section 13 of Part III of the Matrimonial and Family Proceedings Act 1984 (“the 1984 Act”).

Background

Natalia Potanina (“Wife”) and Vladimir Potanin (“Husband”) are two Russian nationals who were married from 1983 to 2014. They spent their entire marriage living in Russia.

Husband claims that the couple began to live separate lives from 2007, whereas Wife claims they did not separate until 2013 when Husband told her that he wanted a divorce.

Throughout their marriage, Husband accrued substantial wealth, becoming a multi billionaire. In 2007, Husband transferred assets to Wife of approximately USD$76 million. This is acknowledged as being a small portion of Husband’s wealth – of which is mostly located in shares in companies or other business entities which were not registered in his name, but instead were held in trusts or corporate vehicles.

Upon the granting of their divorce in early 2014, Wife commenced a wave of litigation in Russia, the USA and Cyprus to obtain further financial relief from Husband’s assets. She was unsuccessful in all claims. She then decided to bring a claim for financial relief under English law on the basis that she had purchased a property in England in 2014 and, since 2017, had been living in England permanently. This was done by way of a without notice application for leave under rule 8.25 of the Family Procedure Rules 2010 (“the 2010 Rules”).

Lower Courts

On 25 January 2019, Wife was granted leave to apply for financial relief pursuant to Part III of the 1984 Act at an ex parte hearing.

Husband then applied under rule 18.11 of the 2010 Rules to set aside Wife’s application for financial relief on the basis that the judge had been misled as to the facts of the case, the issues of Russian law and the applicable principles of English law. His application was heard in the High Court in October 2019.

The High Court granted Husband’s application to set aside Wife’s application for financial relief on the basis that she did not meet the requirements under the 1984 Act. Cohen J (who was also the judge at the first hearing) made an order on 8 November 2019 to set aside the leave on the grounds that he had been misled at the ex parte hearing, on the basis that he had not been presented with such extensive material at the original hearing.

Court of Appeal

Wife then appealed to the Court of Appeal which set aside the High Court’s decision and allowed Wife’s appeal in January 2021.

The Court of Appeal referred to Traversa v Freddi [2011] EWCA Civ 81, the case in which it was established that a court ought to defer an application to set aside to be heard alongside the substantive application, unless the respondent can produce a “knock-out blow” (as originally commented obiter in Agbaje v Agbaje [2010] UKSC 13). The Court of Appeal explained that where a court has been misled and the leave should be set aside, that is often a sign that the issue should be considered at trial as there is not an obvious “knock-out blow”. The Court of Appeal criticised the High Court’s diversion from this approach.

The Court of Appeal was therefore of the opinion that a hearing with oral evidence should have instead been conducted, and that the judge had indeed not been misled and that the issues which he identified were in fact not material enough to justify setting aside the application for leave.

Husband appealed the decision to the Supreme Court.

Decision of the Supreme Court

The Supreme Court allowed Husband’s appeal by a 3-2 majority. Lord Leggatt, Lord Lloyd-Jones and Lady Rose made the majority decision.

The Supreme Court stated that, where a respondent is served with an order of which leave has been granted on an application made without notice under rule 8.25 of the 2010 Rules; rule 18.11 of the 2010 Rules provides the respondent with a complete unrestricted right to apply to have the order set aside purely on the ground that the test for leave is not met. There is no mention of the requirement for a ‘compelling reason’ or a ‘knock-out blow’ to be demonstrated.

The Supreme Court noted that, in the High Court Agbaje proceedings, Justice Munby made reference to Jordan v Jordan [1999] EWHC Admin 666 in which Lord Justice Thorpe criticised rule 3.17 of the Family Proceedings Rules 1991 (the relevant legislation prior to the 2010 Rules) which provided for an exparte application where leave is sought under Part III of the 1984 Act. Lord Justice Thorpe believed that conducting an inter partes rather than an ex partes hearing would be a more productive approach.

Justice Munby, in agreement with Lord Justice Thorpe’s comments, stated that the rule has a “baleful effect” and that “something should be done to amend rule 3.17 with a view to implementing Lord Justice Thorpe’s wise proposals”.

The Supreme Court noted that it was evident, from both Lord Justice Thorpe and Justice Munby’s comments, that they were referring to the replacement of an ex parte hearing with an inter partes hearing and were clearly not challenging or conveying any worries about the right to apply to set aside leave granted ex parte. In their view, by conducting an inter partes hearing initially instead (where both parties are represented), this would reduce costs, rather than carrying out an ex partes hearing (where only the claimant is represented), followed then by an application by the respondent to have the leave set aside. In any event, however, they were not criticising the right to apply to set aside leave granted ex parte.

Despite the High Court’s comments, both the Court of Appeal and the Supreme Court in Agbaje interpreted these in a different light.

Lord Justice Ward (in the Court of Appeal) believed that Justice Munby was suggesting proceeding directly to a substantive hearing of the application for financial relief after granting leave ex parte.

Following suit, the Supreme Court then also misunderstood the High Court’s reasoning, and in doing so, quoted the following proposition:

“…the approach for setting aside leave should be the same as the approach to setting aside permission to appeal in the Civil Procedure Rules, where (by contrast with the Family Proceedings Rules) there is an express power to set aside, but which may only be exercised where there is a compelling reason to do so: CPR r 52.9(2). In practice in the Court of Appeal the power is only exercised where some decisive authority has been overlooked so that the appeal is bound to fail, or where the court has been misled…in an application under section 13, unless it is clear that the respondent can deliver a knockout blow, the court should use its case management powers to adjourn an application to set aside to be heard with the substantive application”.

This rule was then adopted in Traversa v Freddi, of which provides some key context to Agbaje and how the test ought to be applied. It has been cited consistently ever since.

The Supreme Court did recognise the arguments presented by those in favour of retaining the position in Agbaje.

The first of these is that the ‘knock-out blow’ test saves time and costs in that it only allows those who can meet the test to apply to set aside leave, therefore greatly reducing the number of applicants. The Supreme Court did not doubt that this was the case but were keen to acknowledge that “the fundamental point is that fairness is not a value which can properly be sacrificed in the interests of efficiency”. In their view, the Agbaje approach does not uphold such principles of fairness and equality in placing such restrictions on applications to set aside leave.

Second, it was claimed that since an application to grant leave does not actually deal with any substantive issues to a claim, if a respondent is not allowed the chance to object, this is not actually unfair, and the respondent is put in the same position as the majority of respondents to other claims (since leave is not often required in alternate proceedings). However, the court contested this, stating that, just because this is an uncustomary rule, this does not signify that it is extraneous. It is a central aspect of the Part III regime under the 1984 Act and is of particular relevance to foreign respondents, as they may then be subject to high legal costs to defend such proceedings, whereby the only element linking the applicant to the jurisdiction is that they have been habitually resident in England and Wales for a year prior to making the application. Moreover, the fact that this does not deal with any substantive issues is immaterial – it is a fundamental part of the justice system and is crucial to the principle of fairness.

Third, it was highlighted that the Supreme Court is not best placed to deal with procedural matters. Although recognising that this is the established position, the Supreme Court did not consider it to be relevant in this case. The Court of Appeal made comments on this area of the law which were regarded as binding following the decision of Traversa v Freddi. Therefore, it would be inappropriate for the Supreme Court to be unable to address the issue where the Court of Appeal believes that only the Supreme Court can indeed do so. Further, the 2010 Rules are coherent and do not require amendment by the Rules Committee. Rather, they must indeed be applied and not discounted. Moreover, there has been an error of law in this case since the practice to set aside leave that has been adopted is unlawful. Therefore, this is in conflict with the applicable rules of court and to a foundational principle of procedural justice, and so the Supreme Court ought to step in to resolve this issue where it is not being followed in other courts.

As a further argument, the Supreme Court also noted that the wording of section 13 of the 1984 Act clarifies that leave under Part III of the 1984 Act can only be permitted where there is substantial ground for introducing a claim for financial relief. Accordingly, this is at odds with the fact that a substantive hearing can only be allowed where the respondent can produce a ‘knock-out blow’ to show that there is no substantial ground to introduce such a claim.

In addition, rule 8.25 of the 2010 Rules was amended in 2017 to change the default position from an application for leave usually being made on notice (and the court can permit it to be made without notice) to such application being made without notice (and the court can permit it to be heard on notice). This amendment concorded with the interpretation of the position as stated in Traversa v Freddi.

The effect of the amendment now means that the decision of whether to hear an application for leave without notice, or proceed directly to an inter partes hearing, is for the court rather than the applicant (as was formerly the case). The Supreme Court did see the reasoning behind this, such as where providing notice would be an adverse cost to the respondent in a baseless claim, or where it is troublesome or inappropriate to give notice to the respondent. However, in the circumstances of the case in question, they found that it would be “quite wrong and unfair” to take away the basic right of the respondent to oppose reasons to the court why such leave should not be granted. There is no mention of the ability to do so in the 2010 Rules, and the court noted that express and unambiguous statutory wording would be required in order to do so.

The Wife also challenged the Court of Appeal’s second order, which refused leave,  on two further and alternative grounds (known as grounds 12 and 13):

Notwithstanding if permitted to do so, Cohen J should not have set aside the leave granted without notice, because the test for section 13 of the 1984 Act was met after hearing reasoning from each side; and

Wife’s application should not have been discharged in any event to the extent that the court has jurisdiction in respect of it by way of the Maintenance Regulation (Council Regulation (EC) No 4/2009 of 18 December 2008).

The Supreme Court stated that a supplementary hearing will need to be conducted before these questions can be determined.

In light of the reasoning summarised above, the Supreme Court allowed the appeal, but remitted grounds 12 and 13 to the Court of Appeal.

Dissenting Opinion

Lord Briggs and Lord Stephens, in dissent, disagreed with the majority approach of the Supreme Court, for several reasons.

First, the unanimous obiter comments by the Supreme Court in Agbaje (implementing the ‘knock-out blow’ test) have been “treated as the last word” in Traversa v Freddi in what was a unanimous decision.

Second, the Agbaje test has been routinely implemented since its initiation, without challenge or condemnation until the case at hand.

Third, the 2010 Rules have been amended on the basis that Agbaje was the correct legal approach.

Fourth, the Supreme Court’s proposition would presumably result in the ‘ex parte on notice’ custom coming back into play, of which has been openly criticised by eminent family judges and was the basis on which the 2010 Rules were amended.

Fifth, the discretion of the court in deciding whether the proposed respondent’s facilitation should be required in determining whether to grant permission to the applicant would be diminished to “near meaninglessness”.

Sixth, the function of the Supreme Court, in their view, is not to make decisions on matters of procedure – this is best achieved by the Court of Appeal, the specialist courts and the Rules Committee of which have the correct resources to make such decisions.

Seventh, the case is so extraordinary that it is an “unreliable platform” to enable such drastic amendments to the legal process to applications for leave under Part III of the 1984 Act.

Lord Briggs and Lord Stephens therefore would have dismissed the appeal and, should the Family Procedure Rule Committee have been requested to do so, direct the issue to them of whether Part III of the 1984 Act requires reform.

Comment

This is an extremely interesting case, and one which has also garnered attention in the media. The decision of the Supreme Court has been particularly remarkable, considering that it has been decided on a 3-2 majority, highlighting the complicated nature of this area of the law.

Some may say that the law has simply now been clarified and restored back to what it should always have been – that being that the 2010 Rules contain no mention of the requirement for a ‘compelling reason’ or ‘knock-out blow’ to be shown. However, as advocated by those in dissent, this latter practice has been consistently applied for more than a decade and endorsed in the decisions of several high-profile judges, including in its initial roots of obiter dicta comments made in a decision of the Supreme Court itself.

It seems, however, that the majority of the Supreme Court are strong in their views, in finding that the fundamental principles of justice and fairness had been disregarded in the operation of granting applications for leave by restricting the right of the respondent to oppose said application. They believed that such a practice had to be brought to an end, and that it was their duty to do so.

In this post, Emma Pinkerton, a Partner in the Real Estate Disputes team at CMS, comments on the Supreme Court’s decision in Wolverhampton City Council and others v London Gypsies and Travellers and others [2023] UKSC 47, which was handed down on 29 November 2023.

In our Case Preview we discussed the background to this case in more detail but in summary the primary focus of the Supreme Court was in relation to the apparent distinction between interim and final injunctions and the impact of the grant of either on “newcomers”. 

“Newcomers” are considered to be people who haven’t yet done, or threatened to do anything in breach of the terms of the injunction and so cannot be identified, or participate in the proceedings, at the time when the injunction is made.

Whilst this case related specifically to injunctions obtained by various Councils in relation to traveller encampments the decision is more far reaching.  This is as a result of the rise of the use of similar injunctions against so called “newcomers” in relation to areas as diverse as environmental protests, breaches of intellectual property rights and unlawful activities on social media.

Court of Appeal Decision

The Court of Appeal decided that any newcomer aware of the injunction could become a defendant by breaching its terms. 

This decision was appealed by London Gypsies and Travellers and two other organisations who were granted standing and who had the benefit of a protective costs order granted by the Supreme Court itself.

Appeal dismissed

The Supreme Court has upheld the decision of the Court of Appeal although for different reasons. 

In a very detailed review of the basis upon which newcomer injunctions can be granted, the Supreme Court has decided that this is a newly evolved form of injunction which is essentially one against the whole world. 

The decision was made on the basis that:

Injunctions continue to be an equitable remedy – equity looks at substance instead of form rather than being constrained by any rule or principle.

The relevant right should be remedial.

The Supreme Court explained that they looked at the way equity has propelled development of injunctions and has broken through every limiting rule.  However, they equally made clear that these newcomer injunctions will only be granted if there is:

A compelling need to do so in order to ensure compliance with planning and public law and then only when there is no other available remedy possible to ensure such compliance; and

a real and imminent threat of tortious action and high probability that such action will cause harm.

The Supreme Court considered that these newcomer injunctions are essentially always without notice and acting in breach of their terms can result in contempt of court even where proceedings haven’t been served on that person.

The judgment also makes it clear that newcomers are not party to the proceedings and do not become a party simply by breaching the terms of the order.  The preferred analysis is that a newcomer can still be in contempt of court by acting in breach of the order with knowledge of that order on the basis that is an interference with the administration of justice. 

The restrictions placed on persons unknown, including newcomers, should be balanced by ensuring that the order provides for liberty to apply and set aside the injunction in the widest terms.

In addition, there must be protections afforded by the actions of the claimants throughout the proceedings. Whilst this is not a change per se it is now beyond any doubt that anyone applying for an injunction against persons unknown and potential newcomers should make full disclosure to the court (after due research of facts and matters) that may go against the injunction they are seeking and that this is a continuing duty.

Finally, a number of principles were affirmed by the Supreme Court including:

That there needs to be a very precise definition of newcomers – particularly by reference to conduct expressed in clear, understandable terms.

The terms of the order need to be clear and precise – these should, so far as possible, relate to the threatened or actual unlawful activity.

The order must provide specific geographical restrictions – clear maps should be used where possible.

The order should be limited temporally – in a departure from previous decisions, the Supreme Court indicated that, at least in relation to traveller cases, this should be limited to a year.

Conclusion

This decision provides guidance to those making applications for injunctions which may include newcomers and clarified that this equitable jurisdiction should be prepared to flex to keep pace with the changing legal landscape.  What hasn’t changed is the need for careful consideration of the facts and evidence in support of any application and the need to be very precise in the way in which they are then formulated.