BLG Monthly Update - February 2012

The BLG Monthly Update is a digest of recent developments in the law which Neil Guthrie, our National Director of Research, thinks you will find interesting or relevant – or both.

IN THIS MONTH'S EDITION:

Civil procedure: proceedings with a legitimate purpose and an illegitimate collateral purpose – what is a court to do? Conflict of laws: if you're afraid of wolves, don't go into the forest Conflict of laws: kidnapping isn't 'commercial activity' and the State Immunity Act is a complete code (mostly) Contracts: applying commercial good sense, implying a term or just rewriting the contract? Contracts: brief e-mail sufficient to create binding guarantee Contracts: Delaware court awards damages for breach of obligation to negotiate in good faith Contracts: e-mail boilerplate and hyperlinked terms not enforced as between sophisticated commercial parties Contracts: interpreting 'subject to consent, such consent not to be unreasonably withheld' Contracts: read the fine print, especially when you consign your valuable wine collection for auction Contracts: the ever-quotable Posner J on letters of intent Courts: every day can be (relatively) casual day in the UK Supreme Court and the Privy Council Courts: OK for journalists and 'legal commentators' to tweet from English courts; members of the unwashed public must seek permission Evidence: documents prepared for 'simultaneous review' by lawyers and non-lawyers not protected by privilege Evidence: this one just didn't pass the smell test Health/family/equity: wife's failure to disclose she had AIDS does not render marriage a nullity Intellectual property: coolest band of all time sues over IP rights in album cover Intellectual property: huge but probably unenforceable damages award for trade-mark infringement Lawyers: law firm not liable for carefully worded third-party opinion Privacy/police: reasonable expectation of privacy in personal IP address Privacy/torts: Ontario Court of Appeal recognises tort of invasion of privacy Real property: murder/suicide of previous owners of property could be a material defect that needs to be disclosed, says Pennsylvania court Torts: defence of contributory negligence not applicable to intentional tort claim, says English Court of Appeal Torts: High Court of Australia accepts 'cumulative effect' theory of causation Torts: natty dread Torts: train hits man, man's body hits woman, woman sues man's estate Torts/insurance: unclean hands don't preclude recovery where the injury isn't a necessary consequence of the illegal act CIVIL PROCEDURE

Proceedings with a legitimate purpose and an illegitimate collateral purpose: what is a court to do?

JSC BTA Bank (controlled, since entering receivership, by the government of Kazakhstan) sought to recover $1.8 billion in assets allegedly misappropriated by Mukhtar Ablyazov during his tenure as chairman of the bank. Ablyazov argued that this was an abuse of the English Commercial Court's process, on the grounds that the ulterior motive behind the bank's claim was an illegitimate attempt by the president of Kazakhstan, Nursultan Nazarbayev, to neutralise Ablyazov as a political opponent. Ablyazov tendered voluminous and chilling evidence of the rotten state of Kazakhstan, including accounts of his imprisonment, torture and near escapes from assassination.

Teare J reviewed the modern law on abuse of process, noting that a collateral or ulterior purpose underlying otherwise proper proceedings may – albeit rarely – be such an abuse. Abuse lies in seeking a remedy that 'lies outside the range of remedies that the law grants' – but not where a collateral advantage is reasonably related to the redress sought. If the defendant's financial ruin is a natural consequence of a legitimate claim, that is not abusive per se. The judge rejected a line of authority which requires the court to determine whether the illegitimate purpose is the predominant one, in favour of the view that a claimant is entitled to proceed if one of two purposes is legitimate, subject to the court's discretion to decide that the proceedings are abusive (for example if there is no good arguable case for the recovery of assets).

Ablyazov's evidence, while voluminous, offered no direct proof that the bank was acting as an instrumentality of the president of Kazakhstan in an attempt to strip Ablyazov of wealth and influence. The bank had a legitimate interest in recovering the $1.8 billion allegedly misappropriated, even if there was another, illegitimate purpose. The judge also thought, in any event, that Ablyazov's financial ruin would be a necessary consequence of a legitimate action for recovery – and thus could not be an illegitimate collateral purpose.

JSC BTA Bank v Ablyazov (No 6), [2011] EWHC 1136 (Comm), leave to appeal refused [2011] EWCA Civ 1588. [Links available here and here].

CONFLICT OF LAWS

If you're afraid of wolves, don't go into the forest

So says the Russian proverb. Or, as Batchelder J of the 6th Circuit explained it in Conn v Zakharov, 2012 US App LEXIS 607, 'if you're afraid of the Russian legal system, don't do business in Russia'.

Advice not heeded by Richard Conn, who moved to Russia in order to undertake a joint venture with Vladimir Zakharov that was governed by Russian or District of Columbia law. Zakharov repudiated the deal and Conn, who 'believed he would not prevail in a Russian court' (presumably for reasons not associated with the merits of his claim), sued his former business partner in Ohio. The defendant had some contacts with the state: he had attended university at Case Western Reserve, owned and maintained real property, had motor vehicle registrations and spent at least a couple of weeks a year in the jurisdiction under a tourist visa. For the US district court and, on appeal, the 6th Circuit, this was not enough either under Ohio's 'long arm' legislation or for the purposes of federal due process: Zakharov's contacts with the Buckeye State were not sufficiently 'continuous and systematic' for the Ohio courts to have jurisdiction over the dispute, and Conn's claim was unrelated to activities carried on there. Conn served the claim by delivering it to the housekeeper at Zakharov's Ohio property while he wasn't there, but this didn't constitute personal service sufficient to establish jurisdiction.

Not a surprising result, but we like the proverb.

Kidnapping isn't 'commercial activity' and the State Immunity Act is a complete code (mostly)

Steen and Jacobsen were among 18 US citizens in Beirut who were kidnapped and held for ransom by Hezbollah in the 1980s. They were treated brutally during their captivity. In 2003, the men and their families obtained judgment in Washington DC against the Islamic Republic of Iran (IRI) and two of its agencies (the Ministry of Information and the Revolutionary Guard), which had sponsored Hezbollah. Steen v Islamic Republic of Iran, 2011 ONSC 6464, was an attempt to enforce in Ontario the US$350 million in damages they were awarded by the DC court.

In the Ontario proceedings, IRI and its agencies pleaded state immunity as a complete defence. The plaintiffs made a creative argument: since Steen and Jacobsen had been kidnapped so that IRI could extort money and weapons in exchange for their release, the underlying motive of IRI and its agencies was profit and thus subject to the exception for commercial activity under the State Immunity Act (SIA). Sadly, there is authority in both Canada and the US establishing that kidnapping is not commercial activity for these purposes, so the argument had to be rejected. The plaintiffs also argued that it was open to the court to create a common-law exception to the SIA for acts of a foreign state not undertaken in a sovereign capacity (e.g., more or less covert support of third-party terrorism). No success on that one either: the SIA is, as IRI argued, a complete code. The plaintiffs were, however, awarded $70,000 in costs based on the pre-litigation conduct of the defendants, which triggered the Ontario proceedings. A higher (substantial indemnity) award was not warranted because IRI and its agencies had done nothing, in these proceedings at least, to warrant that.

Not sure how the court could make that costs award when the SIA meant it didn't even have jurisdiction over the defendants... [Link available here].

CONTRACTS

Applying commercial good sense, implying a term or just rewriting the contract?

The application of commercial good sense to the interpretation of contracts seemed like a good idea in Rainy Sky SA v Kookmin Bank, [2011] UKSC 50 (see BLG Monthly Update, January 2012). The UKSC's approach to contract interpretation in a subsequent case – Aberdeen City Council v Stewart Milne Group Ltd, [2011] UKSC 56 – is perhaps open to question.

[Link available here].

Stewart Milne Group (SMG) purchased land for development from Aberdeen City Council (ACC), subject to a requirement to make a further 'uplift' payment (less allowable costs) on certain events, including a sale or lease of the land. SMG transferred title to an affiliate, and ACC took the position that this was a sale that triggered the uplift. SMG disputed that, and also the formula for calculating the uplift if it was.

Lord Hope (with whom three other justices concurred) noted that the drafting of the purchase agreement was 'not without its defects', crucially with respect to the uplift formula. As drafted, the formula required...