How Interlegal helped the largest trader from Kazakhstan
2 December, 2024
23
Interlegal has repeatedly noted that careful development of contract terms and conditions is an integral part of a successful transaction.
Detailed agreement on essential terms of the contract is not enough; other terms and conditions may seem less important. No doubt, in practice it may be successful, provided that the contract is performed successfully and both parties are satisfied with the result.
However, far from always it is successful. In such case, it is inevitable to return to the terms agreed upon in the contract. By using several, and in some cases, one clause of the contract, one can achieve a better result in negotiations, win arbitration proceedings or legally reject fulfillment of the obligation.
In practice, Interlegal has faced groundless and hasty development of contract terms more than once, but we are always ready to consult and mitigate risks for the future.
We provided legal support in a difficult situation related to international logistics and rail transportation.
A client, large logistics company, applied to Interlegal, when it had faced operational and legal issues during cargo transportation by rail for its foreign counterparties.
Since all agreements in the chain of participants were governed by English law, the client needed our expertise in English law. Interlegal gained experience in applying English law regulations for over 20 years.
What is interesting about case plot?
The Client undertook to organize cargo transportation by rail from the dry loading terminal to the marine terminal for discharge, while the Client itself provided delivery of railway wagons, while the service customer provided cargo loading and discharging operations.
In the process of discharging cargo, foreign matters were suddenly detected, which caused damage to the cargo itself, marine terminal equipment and resulted in significant idle stay of railway wagons. As a result, a traffic jam was formed, while the railway administration introduced a convention on transportation of such type of cargo.
Summing up, the issues that needed to be addressed included the following:
• Cargo contamination with foreign metal objects, which caused delays in discharging operations and safety risks at terminals.
• Cargo freezing, which significantly increased unloading time and caused additional costs for cleaning railway wagons.
• Introduction of restrictions on loading such type of cargo by national railway operators, which caused suspension of wagon traffic and disruption of delivery schedules agreed between all participants.
Such circumstances facilitated risks for the Client, threatening its reputation and financial stability.
Further, let us focus on the key issues that may be relevant in situations similar to the present case and assess prospects from the aspect of English law.
What are the issues and conclusions upon English law?
Question 1: Can the Client expect reimbursement of losses?
If the contract is governed by English law, one should take into account that loss recovery is possible only if the following conditions are met:
1. Direct causal link between actions of the person who is to be liable for loss recovery and the losses themselves.
2. Available evidence of damages.
3. Contractual provision on such liability.
In our case, all three components were missing, which significantly complicates the prospect of loss recovery under English law.
In addition, English law requires for applying the Doctrine of remoteness of damage. According to this principle, the claimant may recover only such losses that were incurred either as direct consequence of violating the contract or could have been reasonably foreseen by the parties at the moment of entry into the contract.
Question 2: What are the tools for protecting interests of the client from the aspect of English law?
At the Client’s request, we have considered several tools, namely:
• Penalties.
English law does not prescribe the category of penalties; instead, it provides for the category of liquidated damages. Since the category of liquidated damages was not set out in the contract, the Client was unable to apply such tool.
• Frustration.
This is a special tool that facilitates cancellation of the contract when its performance becomes meaningless for the parties due to changing circumstances. The doctrine of frustration is an important tool for legal defense of the parties in case of circumstances that fundamentally prevent performance of the contract. Based on principles of the English law, frustration is treated as a basis for terminating contractual obligations if circumstances have changed so much that performance of the contract has become impossible or meaningless. In the present case, although it is theoretically possible to apply this doctrine, it is extremely difficult to prove that the changed circumstances made it impossible to perform the contract. English courts impose strict requirements for applying the doctrine of frustration in order to prevent parties from abusing their power to cancel the contract in case of arising such obstacles that can be resolved.
Case law such as Davis Contractors Ltd. v. Fareham U.D.C. and Taylor v. Caldwell show that courts are ready to recognize frustration only in exceptional cases where performance of the contract is impossible due to unforeseen circumstances.
Question 3: Declaration of force majeure?
The concept of force majeure in English law is just a contractual category and does not apply by default. It may apply only in order to limit or to exclude liability, provided that the parties to the contract have expressly agreed thereon.
Furthermore, force majeure may include only those events that are expressly agreed in the Force Majeure Clause, while the phrase “and other circumstances falling within the concept of force majeure” requires for further determination of the parties’ true intention.
Case law such as Jackson v. Union Marine Insurance Co. Ltd. shows that English courts pay particular attention to the details of contractual obligations and their fulfillment in cases when the dispute arises.
In this context, defense of the Client’s interests will depend on careful preparation of the evidence base and demonstration that the obstacles that have arisen in fact are covered by the definition of force majeure, as agreed by the parties to the contract.
What are our proposals?
1. Developing recommendations for including into in further contracts such terms and conditions as liquidated damages, survey conditions and other provisions that created a legal vacuum.
2. Applying the Doctrine of force majeure and hardship in the context of English law, which grants an opportunity for the client to apply effectively such rules in negotiations.
3. Identifying legal grounds that exclude the possibility of abuse of Force Majeure Clauses by counterparties if the problems that have arisen are related to their own actions.
Why and for what purpose?
Due to legal support by Interlegal, the Client was able to create a road chart for actions and to lay the foundation for secured and equal contractual relations in future.
Interlegal is still a reliable partner for the companies that value stability and confidence in international transactions governed by English law. We are proud of our ability to find effective solutions even in the most complex and non-standard situations that require for deep knowledge of both international, English and local law.
