June 2012: London Litigation Update

by Quinn Emanuel Urquhart & Sullivan, LLP

The Enforceability of “Best Endeavours” Clauses: Clauses requiring parties to use ‘best’ or ‘reasonable’ endeavours are common place in commercial contracts. They make sense to parties at the time of contracting, where typically there is goodwill and a belief that the parties will operate under such clauses in the spirit of good faith. Frequently, however, that goodwill does not last and a dispute emerges. In this context, courts have had to wrestle with the meaning of these somewhat uncertain obligations.

In Jet2.com v. Blackpool Airport Limited [2012] EWCA Civ 417, the Court of Appeal considered a contract between Jet2.com (“Jet2”), a low cost airline that operates between various United Kingdom and European destinations, and Blackpool Airport Limited (“BAL”), which owns and operates a commercial airport on the outskirts of Blackpool, England. In 2005, Jet2 and BAL executed a letter agreement setting out the terms on which Jet2 would operate from Blackpool Airport over the course of the following 15 years. Clause 1 of the letter agreement provided that “Jet2 and BAL will cooperate together and use their best endeavours to promote Jet2’s low cost services from Blackpool Airport and BAL will use all reasonable endeavours to provide a cost base that will facilitate Jet2’s low cost pricing.”

The dispute concerned Blackpool Airport’s operating hours.  Although the airport’s normal operating hours were 7:00 am to 9:00 pm, Jet2 regularly operated flights outside of those hours for the first four years of the contract. However, in October 2010, in order to reduce its costs, BAL notified Jet2 that Blackpool Airport would not accept departures or arrivals scheduled outside normal operating hours. In response, Jet2 brought proceedings against BAL on the grounds that clause 1 of the letter agreement obliged BAL to accept aircraft movements outside of normal hours. The High Court ruled in Jet2’s favour, and BAL appealed.

All three judges on the Court of Appeals agreed that being able to ascertain the object of a best endeavours clause is critical in deciding whether the contractual commitment is sufficiently definite to be legally enforceable.  The majority ruled that, in the circumstances, BAL’s actions amounted to a breach of contract, because the wording “best endeavours to promote Jet2’s low-cost services” was sufficiently certain so as to include keeping the airport open to accommodate flights outside normal hours ([31 and 71]). However, given the uncertainty about future events, the majority was not prepared to issue a broad declaration that BAL could never refuse aircraft movements ([33]).

Relevant to Their Lordships’ decisions were the following propositions: (a) An obligation to use best endeavours is not unenforceable merely because it requires a party to act contrary to its commercial interests. Rather, the extent to which parties can have regard to their own financial interests will very much depend on the nature and terms of the contract in question, which in BAL’s case included incurring costs to facilitate Jet2’s use of the airport ([32]). (b) The claimant had produced considerable evidence as to the object of the clause, namely promoting low-cost airline services, which included that low-cost airlines relied on obtaining maximum use of their aircraft by operating schedules under which plane movements occur early in the morning and late at night ([17]). (c) There was criteria by which it was possible to assess whether best endeavours could be, and had been, used, specifically, that BAL had allowed Jet2 to use the airport outside of normal hours since the beginning of the contract, and had changed that stance suddenly and without a justifiable explanation ([72]).

For completeness, Lewison LJ dissented because His Lordship considered that, on the facts of the case, there was insufficient clarity as to the object of clause 1 and because such clarity as there was in the case could only be gained by ignoring the usual rules of contract interpretation as to the relevance of background facts and the admissibility of parties’ subsequent conduct ([57 – 62]).

UK Supreme Court Rules on Lehman Client Money Case: In In the matter of Lehman Brothers International (Europe) (In Administration) and In the matter of the Insolvency Act 1986 [2012] UKSC 6, the Supreme Court considered another case in the long running fallout from the collapse of Lehman Brothers. The case concerned “client money” received and held by Lehman Brothers International (Europe) (“LBIE”) on behalf of its clients in relation to particular investments, which was then pooled together with other funds in mixed accounts.

The Supreme Court held unanimously that the relevant rules in chapter 7 of the Clients’ Assets Sourcebook (“CASS”) issued by the Financial Services Authority (“FSA”) under the Financial Services and Markets Act 2000, create statutory trusts for clients’ money held by firms. Those statutory trusts arise at the time financial institutions receive client money, rather than when client money is segregated from the other monies that firms might hold ([62-63 and 182-183].

A majority of the Supreme Court (Lords Clarke, Dyson and Collins) also ruled that:   (1) The rate at which each client participates in a notional client money pool is determined by the amount of client money that should have been segregated at the date of a pooling event ([159]):  it is not necessary for client money to have already been segregated prior to a pooling event in order for it to be considered part of a notional client pool ([160]). (2) The primary pooling arrangements prescribed in the CASS apply to in house accounts, such that, if a firm becomes insolvent, client money in those accounts should be distributed in accordance with the FSA rules ([167]). Again, it is not necessary for client money to be held in segregated accounts in order for the distribution rules to apply ([166]).

An important consideration for the Lords in the majority was that the client money rules are intended to protect all the clients’ money received prior to a pooling event, and the distribution rules are intended to protect all clients’ money following a pooling event. Accordingly, where there is a choice of interpretations for those FSA rules, the courts should adopt the one that affords a high degree of protection for all clients ([147]). Ruling that clients’ monies must be segregated before clients can participate in a notional client money pools would be contrary to that policy, as would excluding identifiable client money in house accounts from the regime.

Disclosure of Spouses’ Emails: In McKillen v Misland (Cyprus) Investments Ltd & Otrs [2012] EWHC 866 (Ch), the High Court dealt with the novel question of whether a party can be compelled to disclose emails sent or received by that party’s spouse at his or her request.

The claimant in the case applied for order that the wife of one of the defendants disclose emails that she had sent or received for the defendant, who did not use email himself. The claimant argued that the emails were within the defendant’s control because:   (a) the email accounts were jointly held by the defendant and his wife; and (b) in sending and receiving the emails, the defendant’s wife was acting as an agent for the defendant, such that he could now request that she provide him with copies of them for the purposes of disclosure.

The High Court rejected the first ground on the facts ([9]). As to the second ground, David Richards J was not convinced that, when a person sends or receives emails for his or her spouse, it gives rise to an agency relationship with a continuing obligation to provide copies, at a later date, of the emails sent or received from that account ([18]).   His Lordship considered that requests to send emails are fairly commonplace between husbands, wives, partners, friends and work colleagues, and that, in the absence of any express agreement, those people would be surprised if they were under a continuing obligation ([19]). Given that the defendant’s wife had only sent approximately 40 emails at the request of her husband over an 18 month period, an agency relationship should not be implied ([20]). Accordingly, the application for further disclosure was dismissed.  The Judge left open the possibility that a spouse could be an agent in these circumstances, but indicated that the facts would need to disclose a clear course of dealing to this effect ([20]).

Libellous Tweets on Twitter: In Cairns v Modi [2012] EWHC 756 (QB), the High Court considered a libel action by Chris Cairns, a former captain of the New Zealand cricket team, against Lalit Modi, the former Chairman and Commissioner of the Indian Premier Cricket League.   It was the first case before English Courts that concerned alleged libellous “Tweets.”

On 5 January 2010, Modi “Tweeted” that Cairns had been removed from the Indian Premier League auction list (from which teams purchase players) because of his (alleged) past record of match fixing. On the same day, Modi suggested to an online cricket magazine, Cricinfo, that there were strong grounds to suspect that Cairns was guilty of (alleged) match fixing. Cricinfo published briefly an article on its website in which Modi’s suggestion was repeated.

Cairns brought proceedings, and the High Court ruled in his favour, noting that Modi “singularly failed to provide any reliable evidence that Cairns was involved in match fixing, or even that there were strong grounds for suspicion that he was” ([118]).

Two rulings in the case will be relevant to future libel claims involving social media:

(1) Although Modi did not publish the “Tweet” from England, Bean J ruled that the case was properly before the English courts.  Bean J’s reasoning was that Cairns had previously lived in England; by the time of the proceeding, Modi was living in England; and a trial in India would have involved very long delays ([3]). (2) Damages should not be reduced to trivial amounts simply because publication was limited. The Court found that only about 65 followers of Modi’s Twitter account would have viewed the “Tweet,” and only about 1000 people would have viewed Cricinfo’s online article. However, Bean J referred to longstanding authority to the effect that the “real” damage of libellous statements cannot be ascertained because it is impossible to track the scandal and to know what quarters the “poison” may reach.  Bean J was of the view that “this remains true in the 21st century, except that nowadays the poison tends to spread far more rapidly” ([123]).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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