Commercial Brief: latest decisions April 2020

This update includes a roundup of recent court decisions raising issues relating to how allegations of fraud can interact with adjudication enforcement, the definition of philosophical belief under the Equity Act 2010, the resolution of conflicting clauses of an arbitration agreement and the assessment of interest in an equitable compensation claim arising out of a breach of fiduciary duty.

Can fraud prevent enforcement of an adjudicator’s decision?

PBS Energo A.S v Bester Geracion UK Limited [19.03.20]

Bester Geracion (Bester) engaged PBS Energo A.S (PBS) as sub-contractor in relation to a power plant in Wrexham. Following a dispute, PBS terminated the sub-contract. Various proceedings followed, including an adjudication by PBS to recover termination losses. PBS also launched a parallel claim in the Technology and Construction Court (TCC).

PBS succeeded in the adjudication and commenced enforcement proceedings against Bester. At the enforcement hearing, Pepperall J refused enforcement on the ground that Bester had an arguable case of fraud. In reaching this decision, Pepperall J found it was arguable that PBS had made false representations to the adjudicator about the plant, knowingly or recklessly and was satisfied that this had a material effect on the adjudicator’s decision.

PBS appealed the decision on four grounds but the Court of Appeal refused permission to appeal on the first two grounds and dismissed the remaining two grounds. Given that Pepperall J was satisfied that fraudulent representations had a material effect on the outcome of the adjudication, the Court of Appeal found he was entitled to refuse the application for summary judgment.

The Court of Appeal’s decision serves as a useful reminder of how allegations of fraud can interact with adjudication enforcement and provides a helpful summary of the current laws. Procedurally, the case is also helpful confirmation that while it is advisable for defendants to serve a formal defence if they want to allege fraud in resisting an adjudication enforcement, they are not obliged to do so.

Contacts: Helen Johnson, Helen Birchall and Katie Rider

Related item: Can fraud prevent enforcement of an adjudicator’s decision?

Has the ethical veganism case changed the law on discrimination?

Casamitjana v The League Against Cruel Sports [21.01.20]

Mr Casamitjanta brought a discrimination claim against his employers in an Employment Tribunal (ET). Mr Casamitjana is an ethical vegan and opposes the use of animals for any purpose. As such, his beliefs affect much of his everyday life.

The ET concluded that ethical veganism satisfied the tests required for it to be a philosophical belief protected under the Equality Act 2010 (the Act). The ET found that ethical veganism obtained a high level of cogency, cohesion and importance. There was no conflict between veganism and human dignity and ethical veganism did not in any way offend society or conflict with the fundamental rights of others.

It is likely that we can expect to see an increase in cases where ETs are required to determine if beliefs, which have not previously been considered by ETs, amount to a ‘philosophical belief’ and therefore qualify for protection under the Act.

Contact: Sarah FitzGerald

Related item: Has the ethical veganism case changed the law on discrimination?

Whose law is it anyway?

Kabab-ji S.A.L v Kout Food Group [20.01.20]

Kabib-ji (KJ) entered into a Franchise Development Agreement (FDA) with Al Homaizi Foodstuff (AHF). Article 1 of the FDA provided that the FDA was to be read considering all terms of the agreement. The FDA also included an arbitration clause stipulating French seated arbitration. However, Article 15 provided that the agreement was to be governed by English Law. Crucially, Article 14 stipulated that an arbitrator shall not apply any rules that contradict the strict wording of the Agreement. AHF subsequently became a subsidiary of Kout Food (KF) and a dispute arose under the FDA.

KJ commenced an action against KF only. The matter was referred to the International Chamber of Commerce in Paris and the arbitrators concluded that French law be applied to whether KF was bound by the terms of the arbitration. However, English law governed the issue of whether a transfer of substantive rights and obligations had taken place.

KJ appealed to the UK Court of Appeal and argued there was no express choice of English law as the FDA was supplemented by principles of law recognised in international transaction. Further, there was no implied choice of English law as the seat of arbitration was in France.

The Court of Appeal disagreed and determined that reading Articles 1 and 15 together, there was an express choice for English Law to govern the arbitration agreement despite an arbitration clause stipulating Paris as the seat of arbitration.

The judgment confirms and clarifies the myriad nuances of arbitration. In particular, it establishes that a governing law clause in a main agreement can constitute an express choice of governing law in a linked arbitration agreement.

On a practical note, the ambiguity of the FDA could have been resolved simply by referring to the governing law clause within the arbitration agreement or by dispute resolution.

Contact: Alexandra Miller

Related item: Whose law is it anyway?

Equitable interest in trust and fraud cases: How is it assessed?

Watson v Kea Investments Ltd [2019]

In 2012 Kea Investments Limited (Kea) and Eric Watson (Watson) agreed to participate in an investment joint venture, via Watson’s company, Spartan. The relationship deteriorated in 2015 and Kea presented a petition for the winding up of Spartan on the “just and equitable” ground. Kea also issued a claim alleging deceit and breach of fiduciary duty against Watson and the co-defendants and sought to set aside the various joint venture agreements. In addition, Kea claimed restitution of the invested funds plus interest pursuant to the equitable jurisdiction of the court in compensation.

The trial judge held that Watson was personally liable to pay equitable compensation to Kea and agreed that Kea was entitled to treat Spartan as a constructive trustee of the monies received. The trial judge also decided that interest should continue to accrue at 6.5% per annum on the basis that this figure represented the investment return Kea could have expected to receive if trustees had invested the misapplied funds in proper trustee investments.

Watson appealed, contending that the judge was wrong to have fixed the interest rate at 6.5% per annum on the basis of a defaulting trustee.

The appeal was dismissed. The Court of Appeal confirmed that although a constructive trustee was not formally appointed as a trustee, it would still be liable to account for wrongful receipt of funds. The Court of Appeal also held that Spartan was a vehicle for trust investment and therefore Kea was entitled to protection for its investment monies and therefore entitled to an interest rate of 6.5% per annum.

Parties will want to ensure that they have obtained and compiled clear and convincing evidence of the rate of interest to be applied when alleging breach of fiduciary duty as this will be relied upon by the court in determining an appropriate rate.

Contact: Dino Paganuzzi

Related item: Equitable interest in trust and fraud cases: how is it assessed?

Read others items in Commercial Brief - April 2020