Posts tagged: notice

Expert Determination and Limitation

The decision in Braceforce Warehousing Ltd v Mediterranean Shipping Company[2009]raised interesting questions about the extent to which the Limitation Act 1980 applies to expert determinations.

In Braceforce Mediterranean had agreed to build and grant a lease of a warehouse.  Disputes were to be determined by an expert surveyor in default of agreement to be appointed by the President of the RICS.  The parties proceeded on the assumption that the Limitation Act applied to expert determination and Mediterranean asked Braceforce to agree to the appointment of an expert.  Braceforce failed to respond and Mediterranean both issued court proceedings and applied to the RICS for the appointment of an expert.  Braceforce argued that (a) the appointment of the expert was out of time; (b) there was an agreement to litigate the dispute rather than refer it to expert determination and (c) Mediterranean had elected to have the dispute determined by the court and not the expert.

The judgment raised two interesting points.  Firstly, the court doubted that the parties’ agreement that the Limitation Act 1980 applied to expert determination was, in fact, correct.  The court was plainly correct to have those doubts.  The framework of the Limitation Act is to prevent “actions” being brought.  For example, section 5 provides that: “An action founded on simple contract shall not be brought after the expiration of six years from the date on which the cause of action accrued.”  Action is defined in section 38 as “includes any proceeding in a court of law”.  Although the use of the word “includes” may contemplate something other than a proceeding in a court it is difficult to imagine what that might be.  Another statutory definition of “action” in the Supreme Court Act 1981 defines action more tightly as meaning “any civil proceedings commenced by writ or any other manner prescribed by rules of court.”  Furthermore, in Johnson v Refuge Association [1913] Buckley LJ said: “In my opinion it was intended to include in the term “action” any civil proceeding in which there is a plaintiff, who sues, and a defendant, who is sued, in respect of some cause of action, as contrasted with proceedings, such as statutory proceedings, which are embraced in the word “matter.””   Where the legislature wishes to apply the Limitation Act to something other than court proceedings it has to do so expressly – as it has done by section 13 Arbitration Act 1996 which provides: “The Limitation Acts apply to arbitral proceedings as they apply to legal proceedings.” An expert determination is thus plainly not an action (or a legal proceeding) and the Limitation Act does not apply to it.

Secondly, the court held that even if the Limitation Act did apply, the expert determination was commenced by the letter to Braceforce asking it to agree to the appointment of an expert (rather than on the actual appointment of the expert) and hence would have been in time in any event. This too, is eminently sensible and borrows from the Arbitration Act.  Section 14(4) of that Act provides that: “Where the arbitrator or arbitrators are to be appointed by the parties, arbitral proceedings are commenced in respect of a matter when one party serves on the other party or parties notice in writing requiring him or them to appoint an arbitrator or to agree to the appointment of an arbitrator in respect of that matter.”  The contract between Braceforce and Mediterranean required them first to try and agree upon an expert and the letter was sufficient to commence the expert determination.

The practical point from the case is that expert determinations, not being subject to the Limitation Act, can be commenced at any time after the act complained of subject only to equitable and common law arguments such as laches, waiver or estoppel.  Such uncertainty is unlikely to be wanted by either party and, in consequence, expert determination clauses should have a contractual limitation to the effect that they can only be commenced within a specified period.

Accepting Repudiation or Terminating for Breach? An expensive choice?

Shell Egypt v Dana Gas [2010] (the case is separately reported on whether “final, conclusive and binding” excludes a right of appeal – it does not) is a useful illustration of the need for precision in drafting notices to end contracts.  

Dana was in repudiatory breach and had also breached a specific term of the contract entitling Shell to terminate and providing specific remedies.  The repudiation entitled Shell to damages at common law, the breach to the contractual remedies that were, importantly, different from common law damages for repudiation.

 Shell accepted the breach and terminated the contract.  Later it appreciated that common law damages would have been considerably more valuable than the contractual remedy.  It sought to argue that its notice to accept the breach and the termination should also be capable of being construed as also accepting the repudiation.

 The Court upheld the award of the arbitrators and summarised the law as follows:

  • Acceptance of repudiation requires only that there is a clear and unequivocal intention to treat the contract as discharged communicated to the party in breach (Vitol v Norelf [1996])
  • If the contract and common law provide alternative rights which have different consequences, the innocent party will have to elect between them (Dalkia Utilities v Celtech International [2006])
  • Where the contractual right to terminate corresponds to the common law rights, no election is necessary (Stocznia Gdynia v Gearbulk Holdings [2010])

To rub salt in the wound the Judge commented that Shell could have served a notice which accepted the repudiatory breach as discharging the contract but, in the alternative, in case they were wrong in asserting that Dana were in repudiatory breach, exercised the contractual right to terminate.  That is the lesson for the future – the choice can be made later.

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