BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| Goodwood Investments Holdings Inc.
|- and -
|Thyssenkrupp Industrial Solutions AG
David Bailey QC and Jessica Sutherland (instructed by Reed Smith, LLP) for the Defendant
Hearing date: 3 May 2018
Crown Copyright ©
Mr Justice Males :
"(1) Unless otherwise agreed by the parties, the court may on the application of a party to arbitral proceedings (upon notice to the other parties) determine any question of law arising in the course of the proceedings which the court is satisfied substantially affects the rights of one or more of the parties. …
(2) An application under this section shall not be considered unless –
(a) it is made with the agreement of all the other parties to the proceedings, or
(b) it is made with the permission of the tribunal and the court is satisfied –
(i) that the determination of the question is likely to produce substantial saving in costs, and
(ii) that the application was made without delay."
"Whether or not the Purchaser's response contained in either: (a) Bargate Murray's letter dated 11 October 2017, or (b) alternatively, Bargate Murray's letter dated 24 October 2017, to the Builder's settlement offer contained in Reed Smith's letter dated 9 October 2017, in light of the legally relevant exchanges between 9 October and 30 November 2017, created a binding and enforceable Settlement Agreement between the Purchaser and the Builder."
(1) whether a binding settlement agreement arose on the terms of the Builder's offer of 9 October 2017 as clarified by the Purchaser's letter of 11 October 2017 as a result of the parties agreeing to the adjournment of the arbitration hearing; and
(2) whether its acceptance of the Builder's offer gave rise to a legally binding obligation on the Builder to seek formal approval of its board for the terms agreed and not to do anything in the meantime which would prevent approval of those terms from being granted.
(1) Shortly after the yacht was delivered to the Purchaser on 16 September 2010, cracks started to appear in the yacht's paint system.
(2) The Purchaser required the Builder to repair the cracking pursuant to the "Builder's Warranty" contained in the shipbuilding contract.
(3) Several attempts were made by the Builder to repair the paint system but the repairs failed to prevent further cracking from appearing over time.
The Builder's Offer
"This sets out the Builder's offer to settle all and any claims of whatever nature, whether known or unknown arising out of the aforementioned SBC [shipbuilding contract] (including those pending in the present arbitration) by way of the payment of a liquidated sum. …
The Builder remains of the view that no further works are required to implement a full and complete repair to the Vessel's paint system, than the works offered in the Builder's part 36 offer of 9 July 2014.
However, in the interests of arriving at a commercial settlement of this claim (which is, in any case, a claim for specific performance of the warranty works), the Builder is prepared to perform the repair works which the Purchaser has stated in its [sc. letter] of 8 September 2017 are necessary, and according to which the Purchaser's offer of 8 September 2017 was calculated. That is to say, the Builder is prepared to remove the paint system, and replace it with the same or an equivalent paint system, including any with widely-available commercial superyacht fairing compound, and the same topcoat colour scheme as presently applied, in the following areas of the Vessel ('the Replacement Works'): …
In all other respects, the Builder is prepared to conduct the Replacement Works in the same manner, and on the same terms, as set out in the Builder's part 36 offer of 9 July 2014, Schedule 1 to that letter, and the Builder's clarification letter of 29 July 2014.
… in order to reach a commercial settlement of this dispute, the Builder is prepared to offer the Purchaser the sum of €… in respect of the Purchaser's costs. …
Offer in Full and Final Settlement
In view of the foregoing, the Builder's offer is as follows:
1. The Replacement Works; and
2. Costs – €…
Accordingly, the total net payment to be made by the Builder, in addition to performing the Replacement Works at its own cost will be €…
Additional Settlement Terms
The conclusion of a final settlement will remain subject to the following terms:
1. A full release of any existing or future (known or unknown) claims arising out of or in connection with the SBC, whether against the Builder, B+V, or any other sub-contractor, and to include the Straub-coupling warranty claim.
2. The Purchaser formally to withdraw its deceit allegation(s) against the Builder and/or B+V and/or against any individual employed during the material time by the Builder and/or B+V (as a term of settlement).
3. Return and cancellation of all outstanding guarantees.
4. Conclusion of a formal settlement agreement to include, prior to signature, formal approval of the settlement by the competent corporate body of the Builder.
Duration and implications of this Further Offer
If this offer is accepted by the Purchaser, payment will be made by the Builder to a bank account nominated by the Purchaser within 14 days from the conclusion of the formal settlement agreement referred to above. Details of the Purchaser's nominated bank account are to be provided to the Builder within 7 days from the conclusion of the formal settlement agreement.
Given the proximity of the hearing date, this offer will remain open for acceptance until 17:00 on Wednesday 11 October 2017 and, if not accepted, will expire and be withdrawn and will no longer be open for acceptance.
In the event this offer is not accepted, the Builder reserves the right to bring this letter to the attention of the Tribunal in the context of any submissions as to how the Tribunal should exercise its broad discretion on the question of costs. In particular, in the event (as the Builder anticipates) the Tribunal orders the Builder to carry [sc. out] repair works which are equal to or less than the works specified in the Purchaser's Offer of 8 September 2017, the Builder will invite the Tribunal to order that the Purchaser pays all of the Builder's costs from 11 October 2017 in any event on an indemnity basis. …"
The Purchaser's Response
"… the Further Offer is accepted by the Purchaser, subject only to the following points of clarification that are needed for logistical reasons:
1. The Further Offer does not say at which yard the work will be carried out. Can you please state which yard the Builder proposes to use? For the avoidance of doubt, the Purchaser would be prepared for that to be Blohm + Voss, or its new owner, Lurssen, or another European yard of comparable standing and quality.
2. The Further Offer is unclear about a start date for the work. For your information, the Purchaser's preferred start date is about October 2018, after the next summer cruising season. We suggest, therefore, that the parties liaise about an exact date convenient to both parties.
3. Whilst the Purchaser is content for the work to be overseen by Wrede, the Purchaser must have the right to send its own consultants to assist Wrede, and receive reports and updates from Wrede, as it is in the interests of both the Purchaser and the Builder that any further dispute be avoided.
4. We understand that the settlement requires approval from the Builder's board. Whilst that is understood by the Purchaser, your and Mr Bracker's recommendation ought, we assume, [sc. to] ensure it is forthcoming. Regarding the arbitration hearing, our view is that it should be adjourned sine die pending formal board approval.
5. The Further Offer, taking account of the foregoing points, should be set out in a formal short settlement agreement to be executed by both the Purchaser and the Builder (once board consent is obtained) and that settlement agreement must expressly provide it is in full and final settlement of all disputes and differences arising out of or in connection with the subject matter of the Arbitration, and all the further matters that you mention in your Further Offer. It must be common ground that neither party is 'buying litigation' in order to end this long running paint dispute."
Adjournment of the arbitration
"This Deed is subject to the approval of the Board of the Builder, and it will only become valid and binding on the Builder when executed on its behalf by an authorised signatory(ies)."
"… The meaning of that phrase is well-known. What it means is that (a) neither party intends to be bound either in law or in equity unless and until a formal contract is made; and (b) each party reserves the right to withdraw until such time as a binding contract is made. It follows, therefore, that in negotiating on that basis [both parties] took the commercial risk that one or other of them might back out of the proposed transaction … In short a 'subject to contract' agreement is no agreement at all. …"
The parties' submissions
(1) The Builder's Offer was an offer capable of being accepted so as to create an immediately binding contract. That must follow from the fact that it was headed "without prejudice save as to costs" and was intended to provide costs protection for the Builder if not accepted by 17:00 on 11 October 2017.
(2) Accordingly, the reference to the need for a formal settlement agreement was not equivalent to a phrase such as "subject to contract" and did not prevent the immediate conclusion of a binding settlement agreement by acceptance of the offer.
(3) The Builder's Offer was accepted by the Purchaser's Response. The "points of clarification" did not qualify that clean acceptance.
(4) Alternatively, by agreeing to the adjournment of the arbitration, the Builder either confirmed that the Purchaser's Response constituted acceptance of the Builder's Offer or treated the Purchaser's Response as a counter offer which it accepted.
(5) In the further alternative, even if the Builder was not obliged to perform settlement terms before board approval was given and a settlement agreement was executed, on the Purchaser's acceptance of the Builder's Offer the Builder was bound to seek formal approval from its board and not to do anything in the meantime which would prevent approval of the terms from being granted. Mr Haydon described this as "the Interim Obligation", a halfway house between no binding agreement at all and an immediately binding settlement agreement. He described the board approval as a "rubber stamping" exercise so that the obligation not to prevent such approval amounted in effect to an obligation to approve the terms.
(6) The question whether there was a breach of the Interim Obligation is not before the court on this application.
(1) The Builder's Offer and the Purchaser's Response expressly acknowledged that the parties were negotiating subject to board approval by the Builder and subject to a formal settlement agreement. Until board approval was given and a settlement agreement was executed, there was no binding or enforceable agreement between them.
(2) Even if the Builder's Offer was an offer capable of being accepted so as to give rise to an immediately binding contract, the Purchaser's Response was not a clean acceptance of that offer but rather a counter-offer and in any event demonstrates that the parties were not agreed on all essential terms of any settlement.
(3) The adjournment of the arbitration was consistent with the fact that no agreement had yet been concluded. It was not an acceptance of the Purchaser's Response.
(4) There was no obligation on the Builder to seek or obtain board approval, any such obligation being conceptually impossible.
(5) The parties' conduct considered as a whole demonstrates that no settlement of the arbitration dispute had been concluded.
(1) Was the Builder's Offer an offer capable of being accepted so as to give rise to an immediately binding contract?
(2) Was the Builder's Offer accepted by the Purchaser's Response?
(3) Was a binding settlement concluded by the adjournment of the arbitration?
(4) Was the Builder subject to the Interim Obligation?
Was the Builder's Offer an offer capable of being accepted so as to give rise to an immediately binding contract?
(1) First, the terms of the offer made this absolutely clear:
"The conclusion of a final settlement will remain subject to the following terms: … (4) Conclusion of a formal settlement agreement to include, prior to signature, formal approval of the settlement by the competent corporate body of the Builder".
There is no reason to depart from the well-established meaning of such expressions.
(2) Second, payment by the Builder of its contribution to the Purchaser's legal costs was dependent on "the conclusion of the formal settlement agreement". Just as in IMS S.A. v Capital Oil & Gas Industries Ltd  EWHC 894 (Comm), to hold that execution of a formal agreement was not required would require manipulation of the terms of the offer to deal with a situation (non-execution of a formal agreement) which the offer did not contemplate.
(3) In the absence of express reference to board approval and the conclusion of a formal settlement agreement there would have been no reason to hold that the Builder's Offer was too uncertain to be capable of acceptance. For example, the scope of the work to be done was sufficiently defined by reference to the Purchaser's offer of 21 September 2017 as subsequently clarified. However, in a case where settlement was to be on the basis of further work to be done by the Builder rather than a money payment, and in circumstances where the parties were in dispute about the quality of the work previously done by the Builder in the construction of the vessel, it made good commercial sense to clarify such matters as where and when the work was to be done, by whom it was to be overseen and what involvement the Purchaser's consultants were to have. Indeed, these were precisely the matters raised by the Purchaser's Response. There may well have been other matters for which it would be useful to provide in order to avoid so far as possible any future dispute. It is therefore not surprising that both parties should have wished to spell out the terms of any settlement agreement before being committed.
Was the Builder's Offer accepted by the Purchaser's Response?
Was a binding settlement concluded by the adjournment of the arbitration?
Was the Builder subject to the Interim Obligation?
"on the true construction of the settlement agreement, while the Builder was not obliged to perform the terms of the settlement before the formality of approval and execution of the contract had been dealt with, the Builder was bound in the meantime, to seek formal approval for those terms and not to do anything which would prevent approval of them from being granted."
"The very suggestion that by the actions of its directors a company could have imposed on it an obligation to use its best endeavours to obtain its own approval in general meeting presents formidable logical and practical difficulties. The class of conditional contracts suggested for the appellants as an analogy, where through the actions of the directors the company comes under an obligation to use reasonable endeavours to obtain the consent of a third party, are readily distinguishable. In such cases there is truly a contract containing a condition. Here on the straightforward view … the document … is in the category of being dependent on what is called sometimes, if a little inaccurately, a condition precedent to contract."
The whole course of the parties' negotiations
(1) The terms of the Builder's Offer and the Purchaser's Response are clear, as I have already explained.
(2) The adjournment of the arbitration was inconsistent with a binding settlement agreement having been reached.
(3) The Purchaser's email of 11 October 2017 referred to an agreement in principle which was subject to the Builder's board approval, while the attached draft settlement agreement was said to be subject to contract and contained a clause making clear that it would only become valid and binding on execution. There was no suggestion that there was nevertheless already a legally binding agreement in being.
(4) The parties jointly told the arbitrators on 13 October 2017 that they were "currently engaged in settlement negotiations to determine the dispute".
(5) There were several references to the resumption of the arbitration hearing which were inconsistent with a binding settlement having been concluded.
(6) The Purchaser stated on 23 October 2017 that "settlement was agreed in principle and subject only to finalising a settlement agreement to be signed off by the Builder's Board".
(7) It was only on 24 October 2017 that the Purchaser first suggested that a binding agreement had already been concluded.
(1) Did the Purchaser's letter dated 11 October 2017 in response to the Builder's settlement offer of 9 October 2017 create a binding and enforceable Settlement Agreement between the Purchaser and the Builder?
(2) Did the Purchaser's letter dated 24 October 2017 in response to the Builder's settlement offer of 9 October 2017 create a binding and enforceable Settlement Agreement between the Purchaser and the Builder?
(3) Did a binding Settlement Agreement arise on the terms of the Builder's letter of 9 October 2017 as clarified by the Purchaser's response of 11 October 2017 as a result of the parties agreeing to the adjournment of the arbitration hearing?
(4) Was the Builder under a legally binding obligation to seek formal approval of its board for the terms agreed and not to do anything in the meantime which would prevent approval of those terms from being granted?