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The Edinburgh Centre for Commercial Law were delighted to host an EU Procurement Law Conference in conjunction with Burness LLP on the 8th of October 2010. The conference was extremely well attended with well in excess of 100 delegates, ranging from local authorities, the NHS, Universities, construction and development companies, law firms and many other organisations. 

Although EU Procurement law has been with us in some form since the 1970s, it is only in more recent years that it has received the priority it demands. The last two years or so have seen a cascade of judgments that have answered old questions and raised new ones. The conference took a look at where we are and how apparently conflicting practical and legal requirements might be resolved.

Sandra Cassells, partner at Burness LLP hosted the conference throughout the entire day. The keynote address was delivered by Professor Sir David Edward (formerly Salvesen Professor of European Institutions, University of Edinburgh; Judge of the Court of Justice of the European Communities, 1992-2004) who reminded delegates of the importance of reflecting upon the principles underpinning the procurement Directives, e.g. the provisions of the European Treaty on which the Directives are based ought to be borne in mind and applied as an aid to their interpretation.

Mr. Akos Nagy summarised the position relating to the applicability of the law on procurement in relation to shared services in the public sector and gave some insights into the thinking of the Directorate-General for Internal Market and Services of the European Commission on public sector co-operation. This covers the situation where public authorities co-operate with each other in the provision of services, e.g. through pooling their resources or establishing central purchasing arrangements.

Mr. Nagy's presentation was followed by Iain Mitchell QC who was lead counsel in the case of Sidey Ltd. v Clackmannanshire Council and Pyramid Joinery & Construction Ltd. [2010] CSIH 37; 2010 S.L.T. 607. Mr. Mitchell discussed the case in detail and the threshold criteria in procurement law. In particular, he reflected upon his experience in acting for Pyramid and the lessons which could be learnt.

Dr. Aris Georgopoulos, lecturer in EU and public law and Head of the Research Unit on Defence and Strategic Procurement at the University of Nottingham discussed the important distinction between selection and award criteria in public procurement. In particular, Dr Georgopoulos dissected the decision of the European Court of Justice in Lianikis and its impact on local authorities taking into account a tenderers' experience, manpower and equipment or their ability to perform the contract by the anticipated deadline as award criteria. The fundamental premise of Dr Georgopoulos's presentation was that it was not necessarily the case that Lianikis could be interpreted as having firmly closed the door shut on deploying the above as award criteria. Dr Georgopoulos based this contention on (1) common sense, (2) Recital 46 of Directive 2004/18 on public procurement and (3) the factual and regulatory background to the Lianikis decision. As a Greek national, Dr Georgopoulos was particularly well-placed to offer some unique insights into this Greek case!

In the early afternoon, Mr. Declan Magee, partner in the law firm Carson McDowell gave a fascinating presentation on the procurement experience in Northern Ireland. Mr. Magee explored the recent cases from the Belfast High Court and discussed the fall-out from recent disputes between the public and private sector.

Finally, Graeme Palmer, associate at Burness LLP gave an account of the law which applies where the terms of existing contracts betwen local authorities and successful private contractors are amended. In particular, the central question was whether such alterations will inevitably necessitate a new award. Mr. Palmer's presentation concentrated on the principles in the Public Contracts (Scotland) Regulations 2006 and the case law of the European Court of Justice.

The Edinburgh Centre for Commercial Law was particularly delighted to have hosted an event at the University of Edinburgh which brought academics, legal practitioners and the commercial community from all walks of life together to discuss the practical legal issues which arise from the law of public procurement. Such an event falls squarely within the objectives of the Centre. The topics discussed by the presenters were very interesting and stimulated questions, discussion and debate amongst the delegates. The Centre would particularly like to thank Burness LLP for acting as co-sponsors of the event and Blackwells the book shop.

David Cabrelli

Copland v Brogan 1916 SC 27 was the subject of a (not entirely serious) blog entry in this blog recently, see

http://www.law.ed.ac.uk/ecclblog/blogentry.aspx?blogentryref=8358.  The case concerned the standard of care to be expected of a mandatory or agent holding goods under the gratuitous contract of mandate.  This case has not been completely forgotten, it seems, having been cited in Kilmarnock Sheriff Court on 20 July this year, in Trigon Tools Ltd v Andrew Wright (PVC) Ltd A 268/09, available here:

 http://www.scotcourts.gov.uk/opinions/A26809.html

The pursuers had, at the request of the defenders, hired to the defenders a small excavator for use at a house in Irvine where the defenders were involved in the erection of a small conservatory.  The contract was oral, having been made in the course of telephone conversations between the parties.  The defenders, as well as using their own labour force, used sub-contractors to carry out certain elements of the construction work.  The pursuers delivered the excavator to the site, along with a copy of an "advice hire note."  On arrival at the site, the advice hire note was signed by an unknown workman and a copy was given to him. Crucially, the pursuers' standard trading terms and conditions, which had not been mentioned in the telephone conversation between the parties, were printed on the back of this advice hire note. 

Two weeks later, the defenders telephoned the pursuers to tell them that the work involving the excavator had been completed and that it could now be uplifted.  Before it could be uplifted, it was stolen by an unknown party. 

The case is useful for a number of reasons.  What were the terms of the contract?  Were the terms those which had been discussed during the telephone conversations?  Or, by signing the advice hire note, had the unknown workman acted as an agent in order to bind the defenders to a contract incorporating the pursuers' standard trading terms and conditions, printed on the back of the advice hire note?  A key issue is, of course, the point at which the contract was concluded.  Was the moment of conclusion of the contract the date of the final telephone conversation between the parties?  If so, the standard trading terms and conditions on the back of the advice hire note came too late to be incorporated into the contract. 

Significantly, a course of dealing existed between the parties.  In previous transactions, the advice hire notes had also been signed by unknown persons present at the defenders' constructions site.  It was possible, therefore, that the pursuers' terms and conditions had been incorporated through their use during this course of dealing.   

Sheriff Murphy made no decision on the issue of whether the terms were incorporated into the contract.  This question could, he indicated, only be resolved following further inquiry into the facts. 

Did the unknown workman have either actual or ostensible/apparent authority to sign the advice hire note, thus concluding a contract on behalf of the defenders, incorporating the pursuers' standard terms?  The Sheriff indicated that there was certainly no actual authority, but ostensible authority was a possibility.  This issue would be analysed by reference to what the reasonable third party would consider the position to be.  Was the workman held out as a representative of the defenders, and therefore able to "bind" the defenders in the exercise of ostensible authority?  Although this point was not explored by Sheriff Murphy, it should be remembered that ostensible authority does not "create" or "cure" contracts where there is a lack of authority.  It operates as a type of personal bar, preventing the principal from denying that the agent was authorised in the context of a case raised by the third party against the principal.  A decision on the issue of ostensible authority depended upon the way in which the site operated, the Sheriff reasoned, and again could only be decided following proof.  This decision on this point seems slightly questionnable – the important issue is the impression a reasonable third party would have of the way the site was run.  Internal arrangements on the site are irrelevant for the purposes of establishing apparent authority.  The external impression is key.  In their averments on ostensible authority, the pursuers cited Armagas v Mundogas (1986) AC 717; First Energy (UK) Ltd v Hungarian International Bank (1993) 2 Lloyds Reps 194; Dornier v Cannon 1991 SC 310 in addition to the most recent edition of Gloag and Henderson's Law of Scotland (the agency section of which was written by Lord Coulsfield).

Coming back to Copland v Brogan, who (on this set of facts) was to be liable for the loss of the excavator?  What are the duties of a person hiring goods or equipment under a hire contract? The Sheriff noted that this person was subject to a common law duty of care which could not be terminated simply by telephoning the pursuers to say that the goods were no longer required.  The defenders referred to Gloag & Henderson Law of Scotland, para 13-07, which suggested that the hirer's duty of care was culpa levis, which counsel  for the defenders' indicated was not a high standard.  The Sheriff relied on Copland v Brogan, Bell's Principles, Wilson v Orr (1879) 7 R 266 and McLean v Warnock (1883) 10 R 1052, concluding that these cases confirmed that such a duty of care existed, and that the burden of proof lay on the hirer (i.e. the defenders in this case) to show the cause of loss and prove a prima facie case that he was not responsible for the same.  In Wilson v Orr the Lord Justice Clerk Moncrieff stated (at 268):

"The hirer of an article under the contract of location is under an obligation to restore the commodity in like good condition as that in which he received it.  If the subject of the contract perished without fault on the part of the hirer, it perishes to the owner and the hirer is sufficiently discharged of his obligation if he had taken reasonable care of it.  But if the subjects of the contract be not restored in the like condition as that in which it was received, there is a certain burden of proof laid on the hirer.  He must show the cause of injury or death, and at least produce prima facie proof that the cause was one for which he was not repsonsible."  

Like Copland v Brogan, again, the person having limited custody of goods which are then lost or stolen bears the burden of providing a reasonable explanation as to what happened to the goods.  This may be no easy task.  

The Sheriff allowed the parties a proof before answer. 

So if you saw someone surreptitiously transporting an excavator through the streets of Kilmarnock in early 2008, you'll know who it really belongs to….     

        

   

The members of the Edinburgh Centre for Commercial Law were sad to learn of the very recent passing of Lord Bingham of Cornhill, KG, the former Senior Law Lord, who was also a member of the Centre. 

Lord Bingham, it will be remembered, got the Centre’s annual guest lecture programme, post formation, off to such a great start with his excellent address on contractual interpretation, in March, 2008.  (Lord Bingham referred to this as “help[ing] to baptise” the Centre.)

That address, entitled, “A New Thing Under the Sun?  The Interpretation of Contract and the ICS Decision”, was later published in the Edinburgh Law Review (2008 12 ELR 374-390).  The published address, of course, has proved to be of great value, and was referred to by the Centre’s speaker for the following year, Lord Hoffmann, in his opinion, in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101, paras 37, 38 and 40.  It has also been referred to in academic literature: both in this country and abroad.

The visit, to the Centre, by Lord Bingham, in March, 2008, was a tremendous and most memorable occasion.  What stands out is not just that Lord Bingham illustrated what a brilliant and incisive lawyer he was, but his impeccable manners and kindness, his interest in everything and everyone, and the spirit of bonhomie at the reception and dinner after his address.  This great atmosphere was one which Lord Bingham contributed so much to.

Lord Bingham’s immense contributions to the Law, and details of his life have been referred to in various fine obituaries and tributes in newspapers and news websites.  It is not the purpose of this blog to comment on, or add to, those obituaries and tributes, apart from the above.  However, the present writer would draw readers’ attention to the succinct, but eloquent and poignant, tribute, to Lord Bingham, on the Supreme Court website (www.supremecourt.gov.uk/news/355.htm), by the Deputy President of the Supreme Court, Lord Hope of Craighead (who continued in the tradition Lord Bingham started, by being the Centre’s guest speaker, in March, this year). 

It goes without saying, that Lord Bingham, who was such an outstanding jurist and a thorough gentleman, will be sorely missed.

 

Jaap Baaij from the University of Amsterdam visited the ECCL this week.  Jaap is, together with David Cabrelli and Laura Macgregor, an editor of an interpretation project for the Common Core of European Private Law.  More information on the Common Core project can be found here:  http://www.common-core.org/.  The results of the project have been published by Cambridge University Press in their series Cambridge Studies in International and Comparative Law: http://www.cambridge.org/uk/browse/browse_all.asp?subjectid=302.

Essentially, the Common Core project involves the creation of factual scenarios which are analysed by reporters from different European countries.  The material contained in the national reports acts as source material for the production by the editors of both a comparative analysis of each individual factual situation, and an overall comparative analysis.   In this way, we can identify trends, similarities and differences in the national legal systems within Europe.  It may become clearer whether it is true to say that there is, in fact, a "common core" of law on any specific topic within Europe.   

The Common Core project has no specific aim beyond the production of comparative conclusions on the law within Europe.  It does not specifically aim to create a European civil code for private law, nor the rationalisation of European Directives in the area. 

Very little has been published on the law of interpretation of contract from a comparative perspective.  It is often stated that civilian systems tend towards a subjective approach, whereas common law systems tend towards an objective approach.  This is, however, an over-simplification of the situation, and it is likely that most systems apply a combination of both approaches.  This would apply to Scots law: whilst it would be correct to say that the approach is largely objective, there are exceptions.  One such exception is the "private dictionary" rule, in terms of which the court will give effect to a special or technical meaning of an expression shared by the contracting parties which differs from the objective meaning of the phrase.  Where that occurs, the courts uphold the subjective agreement of the parties, in other words their true intentions.  

Following the meeting in Edinburgh, the editors have made good progress, including drafting 11 scenarios and creating a time-line for the project.  National reporters have been found for some countries but not others, and a goal for the near future will be to put together a full team of people. 

One way in which this contract project may differ from some of the others in the Common Core project is that it will invite reports from certain countries located outside Europe.  Those countries will be involved because they are considered to be "mixed" legal systems.  There is a school of thought that considers Scots law as a mixture of a strong civil law basis overlaid with later English influence.  Legal sytems such as South Africa and Louisiana may contain a similar mixture of civil law and common law elements.  The editors intend to invite national reporters from South Africa and Louisiana to participate.  In this way, in addition to identifying a common core within Europe, once the project is complete, the editors will be able to draw conclusions on whether the mixed legal systems show any similarity of approach to these questions.        

We have very much enjoyed our productive first meeting with Jaap, and we look forward to working with him in the months to come to progress the project.          

This month sees the publication of the 4th edition of Woolman on Contract by the Edinburgh Centre for Commercial Law's Dr Gillian Black.  The author has carried on the tradition of this work, explaining in the preface, "I have sought to maintain its character as a concise introductory work, by focussing on material developments and avoiding change for change's sake."  Dr Black has taken the opportunity to tackle some of the issues in contract law which remain problematic, such as the ongoing saga of interpretation (including discussion of Luminar Lava Ignite Ltd v Mama Group plc [2010] CSIH 1) and the remedy of retention (Inveresk v Tullis Russell Papermakers Ltd [2010] UKSC 19).  It's great to see the return of this useful book.   

"Agent" is a slippery word.  Sometimes it means that a representative has been appointed to perform a legal act, and that legal consequences are intended.  At other times a less formal, more limited relationship may have been intended by the parties.  Whether an agency relationship exists is an issue of interpretation.  One must look to the intentions of the parties. Recent cases have highlighted the doubt that surrounds the rules of constitution of agency (see Lord Drummond Young's judgments in Whitbread Group plc v Goldapple Ltd 2005 SLT 281; Laurence McIntosh Ltd v Balfour Beatty Group Ltd and the Trustees of the National Library of Scotland, [2006] CSOH 1907; John Stirling t/a M & S Contracts v Westminster Properties Scotland Limited [2007] CSOH 117; [2007] BLR 537)).

It is, of course, beneficial that a commercial concept be flexible and not overly constrained by formalities.  It seems that it has always been so.  Stair emphasised the informality required in the creation of the gratuitous contract of mandate (later developed into the non-gratuitous idea of agency.) Referring to the need for the mandatar (i.e. the gratuitous agent) to consent to the creation of the contract of mandate, Stair explained (Institutions, I,12,3): "…acceptance of the mandatar may be inferred, or [be] by any other sign, as by pointing with the hand, or beckoning with the head…"

Bearing in mind the ease with which mandate can be created, is there a risk that we are entering into mandate contracts without realising it?  The court will, of course, assess consent objectively, looking at what our actions indicate our intentions to be.  Inferences can be made about intention to be legally bound.  Mandate, as a gratuitous contract, did not, in principle require to be constituted in writing, and was not limited to proof by writ or oath (Gloag, Contract, 184).  In a modern context it is not one of the contracts detailed in s1(2) of the Requirements of Writing (Scotland) Act 1995 which require to be in writing.

A case which helps us to understand the contract of mandate is Copland v Brogan 1913 S.C. 277.  Brogan was the driver of a "conveyance" (the nature of which is not specified).  Primrose Caldwell Copland was described as a school master (and does indeed appear to be male despite having the first name "Primrose").  Brogan had formed the habit of fetching and carrying sums of money, cheques, etc for Copland to and from Copland's home (Dalton) and the bank in nearby Lockerbie.  Brogan was not paid for his services.  On the day in question, between 2 and 3pm, Brogan collected a package from the bank to be delivered to Copland containing bank pass books, and around £34 14s in cash.  Brogan returned home from Lockerbie at 4.30pm.  On his return home, Brogan was no longer in possession of the package, nor could he explain what had happened to it in the intervening period of, at most, 2 and a half hours.  In the words of Lord Justice Clerk Scott Dickson (at 281-2) "He saw several friends, and was in a public house once or twice, where he had some liquid refreshment; but the pursuer does not allege that he was the worse for drink."

How does this case help us to understand the law of mandate?  Firstly, it identifies the standard of care that a gratuitous agent or mandatar must reach.  The Lord Justice Clerk approved Bell's Principles, where Bell identified the duty of a depositary as to "keep the thing with reasonable care."  The meaning to be given to "reasonable care" was expanded upon in the 10th edn of Principles, and this was relied on in the case: "…such care as a man of common prudence generally exercises about his own property of like description."   

Brogan's lawyers (unsuccessfully) argued that Brogan as a mandatar could be liable only for gross negligence.  Sheriff Anderson, at first instance, noted that Scots law departed from Roman law (an issue well documented in the works of Stair and Erskine (Institute III,3,36)).  Sheriff Anderson explained (at 279) "The Roman law imposed upon a gratuitous mandatary summa diligentia, the highest form of diligence.  But it is doubtful if Scots law followed this rule."

The second important point to note about this case is the identification of the onus of proof.  The onus lay on Brogan "…to explain how this thing happened or at least to show that he exercised the necessary reasonable care.  Here the explanation given did not, in my opinion, sufficiently discharge the defender of responsibility for the loss of the packet." (Lord Justice Clerk Scott Dickson at 282).

Finally, the Lord Justice Clerk highlighted (at 282) the danger of the use of English precedents here.  The doctrine of consideration in English law causes problems for the recognition of gratuitous contracts.  Because the agent does not receive any payment for his services, there is no consideration, and the arrangement cannot therefore be a contract.  This may be why English law tends to define agency not as a contract but rather as a consensual relationship.  Scots law, by contrast, recognises gratuitous contracts such as mandate, and indeed has well-developed rules to govern them.  So whilst, in general, English agency precedents are cited in Scottish cases, there are areas of agency law where the differences are such that English precedents are not useful.

The next time someone asks you to do something for nothing, perhaps you should pause to think of where it might lead, especially if you are on your way to the nearest public house…

The Edinburgh Centre for Commercial Law was delighted to welcome Professor Irene-Marie Esser to Edinburgh Law School on the 2nd of August 2010. Irene-Marie Esser is a Professor at the University of South Africa (UNISA) and lectures in Entrepreneurial Law, Company law and Corporate Governance to undergraduate and postgraduate students. Professor Esser is an active researcher in the areas of company law, mostly on corporate governance issues like directors’ duties and stakeholder protection and has published widely in these fields at a national and international level.

The title of Professor Esser’s presentation was 'Directors' Duties: The new Companies Act and King III – A South African Perspective’. The talk involved an exposition of recent Company Law and Corporate Governance reforms and initiatives in South Africa. In particular, Professor Esser offered some fascinating comparative perspectives on the approaches to the reform of the law of directors’ duties in both the UK and South Africa. The ‘Enlightened Shareholder Value’ approach which was adopted in the UK was contrasted with the position in South Africa and the wider stakeholder perspective.

Professor Esser’s presentation was well-received by the delegates in attendance and sparked a number of interesting questions and observations. A short wine reception followed in convivial surroundings in Old College. Bearing in mind that Edinburgh is currently awash with Festival attractions, the Edinburgh Centre for Commercial Law was particularly delighted with the turnout of fellow academics from Universities throughout the UK, as well as with the practitioner and student representation. A big thank you to all of our supporters.

The service by a tenant of a break notice in the context of a commercial lease is a tricky business.  Notice clauses are complex, and it is often not clear which of the requirements are mandatory and which are not.  A recent decision of Lord Hodge in the Outer House, Batt Cables plc v Spencer Business Parks Ltd [2010] CSOH 81, considers this issue, and contains interesting arguments relating to agency law.     

As is often the case, the landlords' interest in the property had been transferred between different companies within a company group.  In effect, the tenant served the break notice on a related company of the landlord (SH plc), rather than the landlord (SBP Ltd).  SBP Ltd and SH plc shared registered offices, and so the notice was served to the correct address, but was addressed to the wrong company within the group.  The confusion was perhaps not surprising.  The new landlords, SBP Ltd, had written to the tenants to welcome them as tenants of SBP Ltd, but had managed to do so on headed notepaper of SH plc.  The landlords argued that the break notice had been incorrectly served.  The tenants countered by arguing that the only mandatory requirement in the notice clause was that the notice be in writing and be served on the landlords.  The notice clause did not, the tenants argued, require the notice to be addressed to the landlords. 

Lord Hodge indicated that he was bound by the Inner House case of Ben Cleuch Estates Ltd v Scottish Enterprise [2006] CSOH 35; 2008 SC 252 (Inner House), leading him to conclude that, aside from any question of agency, the notice had not been properly served on the landlords.  This illustrates the strict test which notices of this type must comply with.  To quote Lord Hodge in para [24]:

   "First, when a contract confers on a party a right, such as an option, by notice unilaterally to alter the rights of the parties and imposes conditions or requirements as to its exercise, the party seeking to exercise that right must comply strictly with those agreed conditions or requirements. See Scrabster Harbour Trustees, Sir David Edward QC at para 43, Ben Cleuch (Outer House) Lord Reed at para 122. The reason for the rule is to enable the parties to be certain whether the event which alters the parties' rights or legal relationship has or has not occurred. See United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904, Lord Diplock at p.929 and Lord Simon of Glaisdale at p.945; Muir Construction Ltd v Hambly Ltd 1990 SLT 830, Lord Prosser at pp.833-834."

To have any validity, the notice had to be served on SH plc acting as agent of the real landlord, SBP Ltd.  On the agency point Lord Hodge stated:

"To demonstrate that the agent was so authorised often means that the person seeking to uphold the notice has to show that the agent was a general agent in the sense that the agent has authority to do anything in relation to the subject-matter of the agency. See Townsends Carriers Ltd v Pfizer Ltd, Peel Developments (South) Ltd v Siemens plc and Lemmerbell Ltd v Britannia LAS Direct Ltd. I accept that in the absence of express authority creating a general agency, there must be clear evidence to support the inference of such agency."

This provides us with a helpful reminder of the concept of a general agent, i.e. an agent engaged to carry out all the business of a particular principal, or all the business of a particular type (Stair Memorial Encyclopaedia Reissue, Agency and Mandate, 2002, para 55). 

Lord Hodge's latter statement in the quote above is of especial interest.  He indicates that where one is seeking to make an inference of agency, this will require clear evidence.  This is in stark contrast to Lord Drummond Young's decisions a group of cases decided over recent years.  Lord Drummond Young had, in effect, created a concept which he called ad hoc agency.  This concept he applied in the following cases:  Whitbread Group plc v Goldapple Ltd 2005 SLT 281; Laurence McIntosh Ltd v Balfour Beatty Group Ltd and the Trustees of the National Library of Scotland, [2006] CSOH 1907; and John Stirling t/a M & S Contracts v Westminster Properties Scotland Limited [2007] CSOH 117; [2007] BLR 537.  Inferences of agency were made in those cases on very little evidence of intention to create an agency relationship.  Broadly, the problem in these cases resembled the problem in the case at issue: either the wrong company within a group had taken a particular legal step, or a newly incorporated company had taken a step which ought to have been taken by the previous incarnation of the company (a partnership).  Lord Hodge does not appear to have been addressed on ad hoc agency.  It may be that it will not flourish as a concept.  If that is the case, that is a welcome development.  Agency is sometimes referred to as a contract, or as a consensual relationship arising from contract.  Whichever method is used, its cornerstone is consent.  Real evidence of consent must be available in order to establish implied agency. 

Lord Hodge decided that the notice had been successfully served on a Mr Dempsey, acting as an agent of the true landlord, SBP Ltd.  He was the person charged with receiving letters on behalf of SBP and acting on them, either by himself or by referring them to others (para [39]).  He was an agent acting with express authority.  The fact that the notice was addressed to him at SH plc did not invalidate his power to receive the notice as an agent for SBP Ltd (para [39]).  

The value of this decision for agency lawyers does not end there.  Lord Hodge was addressed on the issue of apparent or ostensible authority.  Had SBP, by sending various letters and communications, held out Mr Dempsey or SH plc as their agents either generally or for the specific purpose of receiving break notices (para [41])?  This question was answered in the negative.  What is significant is Lord Hodge's search for either a manifestation or a representation by SBP Ltd that SH was so authorised.  As all students of the ordinary course in business entities at Edinburgh Law School will be aware, apparent authority requires a representation of the extent of the agent's authority from the principal (see Stair Memorial Encyclopaedia Reissue, Agency and Mandate, 2002, paras 75-81 or D Busch and L Macgregor, 'Apparent authority in Scots law: some international perspectives' (2007) Edin LR 349).  A representation from the agent as to the extent of his own authority is not sufficient.  Use of the word "manifestation" is also interesting, given that this is the language of the equivalent US concept in the Restatement (Third) Agency.  Apparent authority was not established.  No matter – the tenants were able to prove that the notice had been sufficiently served on an agent, acting with the express authority of the actual landlord.   

A classic case for agency teachers!    

       
   
   

Today sees the publication by the Law Commissions of England and Wales and Scotland of another joint Issues Paper (No. 8) on insurance contract law (available here: http://www.lawcom.gov.uk/docs/issues8_brokers-liability.pdf).  Under scrutiny this time is the rule contained in s53 of the Marine Insurance Act 1906, subsection 1 of which, in effect, makes a broker directly liable to the insurer for payment of the premium, whilst subsection 2 provides the broker with a lien over the insurance policy, allowing it to recover any money it is owed by the policy holder.  Although this point is not entirely free from doubt, the section seems only to apply to cases of marine insurance.  As with many aspects of the law of insurance, this area of law is ripe for reform, and it is difficult to disagree with any of the recommendations contained in the Issues Paper. 

Readers of the blog will already be aware of the workshop held on 2nd June this year at Edinburgh Law School for discussion of a previous Issues Paper on Damages for late payment of insurance proceeds and the insurer's duty of good faith (commented on here:  http://www.law.ed.ac.uk/ecclblog/blogentry.aspx?blogentryref=8261). Reading the Issues Paper on broker's liability, similar themes emerge.  One is the fact that this area seems dogged with legal fictions.  On the issue of damages for late payment of insurance proceeds, s11 of the Issues Paper explained:     "The English courts have held that insurance is an exception to the rule that the party breaking a contract should pay damages for foreseeable losses. This is based on the fiction that an insurer’s primary obligation is to “hold the insured harmless”. In other words, the insurer is said to promise that the loss will not occur. If it does, the insurer is then liable to pay the amount of the claim as damages. Thus an insurance payment is not a primary obligation to pay money, but a secondary obligation to pay damages. It is said that English law does not recognise an obligation to pay damages for a failure to pay damages."

So equally in the context of the broker's liability in marine insurance cases, we find the area governed by a legal fiction.  This time the fiction is to the effect that: "…the broker had paid the premium to the insurer, thus discharging the policyholder’s liability to pay, and that the insurer had lent the money back to the broker. This created a personal debt obligation between the broker and the insurer" (s8 of the Issues Paper).  The extent to which this legal fiction was amended with the attempt to codify the law in the Marine Insurance Act 1906 seems also subject to doubt.  The end result is anomalous considering the issue from an agency law perspective: a disclosed agent is not normally treated as primarily liable on a contract which he has concluded on behalf of his principal.

The reasons for the legal fiction, and the customs which have led to its development, are considered in the Issues Paper.  Also, the comments of respondents to a Joint Scoping Paper on this issue published in 2006 are telling, see, in particular those contained in the Issues Paper at 6.23.  In the past there may have been logic in holding the broker liable where communication was more difficult and the broker was more likely than the insurer to have knowledge of the creditworthiness of the insured.  This justification is similar to that which applied in Scots law to situations where the agent acted on behalf of a disclosed principal resident abroad. The agent became personally liable.  this was thought to be necessary because of the difficulties experienced in communicating or indeed suing that principal.  That attitude applied even though the agent had disclosed the existence and identity of his principal.  In effect, the law treated principals resident abroad in the same was as it treated undisclosed principals, i.e. the agent was primarily liable.  Although the rules on undisclosed agents remain in place, they are strictly interpreted by the courts (particularly in South Africa, see Cullinan v Noorkaaplandse Aartappelkernmoerkwerkers Kooperasie Beperk 1972 (1) SA 761 (A)).  Francis Reynolds has been bold enough to suggest that the concept of the undisclosed principal ought to be abolished ((2005) ICC International Court of Arbitration Bulletin, Special Supplement, UNIDROIT Principles: New Developments and Applications, 9-16).  If s53 is indeed repealed, one further exception to the general rule that the agent acting for a disclosed principal is not personally liable will disappear.  It may be that the concept of the undisclosed principal too has had its day.      

For students of agency law, the Issues Paper contains a very useful discussion of the different types of authority an agent can possess, illustrating each type by reference to cases from insurance law.  At 5.5 there is a useful analysis of express, implied and apparent authority.  At 5.22 in a quote from LJ Moore-Bick in Pacific and General Insurance Co v Hazell ([1997] BCC 400 at 413 and 415) we find implied authority in agency law being analysed in much the same way as an implied term in contract law:  "The evidence in this case does not support the conclusion that these market rules were intended to create legal relations between brokers and underwriters where none previously existed so as to render the broker personally liable for premium, either in conjunction with, or in place of, the insured… .A party seeking to establish a binding custom is really seeking to demonstrate the existence of an implied term which is known to and accepted as part of the bargain by all those who regularly involve themselves in the trade or market in question. It is for that reason that the custom must be shown to be certain, uniform, notorious and reasonable, since if it fails any of these tests it cannot be a term which all those in the market would accept as invariably forming part of the legally binding terms on which they do business… The evidence in this case falls far short of what is required to prove a binding custom."

Reference should also be made to the Outer House case of Halifax v DLA Piper [2009] CSOH 74, in which Lord Hodge refused to find an agent personally liable where he acted on behalf of a non-existent principal.  Again, the general principle that an agent is not liable where he acts within the confines of his authority for a disclosed and named principal was upheld.  As an exception to this general rule, and lacking any obvious practical justification, s53(1) of the Marine Insurance Act ought to be repealed. 

Responses to the Issues Paper are invited prior to 19 October 2010. 

 

  

A new era for arbitration in Scotland was celebrated on 23 June 2010 in the Playfair Library of the University of Edinbugh.  The event was an international arbitration conference entitled: the Arbitration (Scotland) Act 2010: A New Beginning.     

 

The event was jointly organised and sponsored by the University of Edinburgh, the Edinburgh Centre for Commercial Law, The Scottish Branch of the Chartered Institute of Arbitrators, the Faculty of Advocates, the Law Society of Scotland and the Royal Institution of Chartered Surveyors. The speakers included draftsmen of the Act, Scottish and international arbitration practitioners and academics.  Approximately 130 delegates attended, comprising not only qualified lawyers from all branches of the Scottish legal profession, but also chartered surveyors and other professionals involved in aribitration proceedings. 

 

The conference centred around the Arbitration (Scotland) Act 2010, which had come into force just a few days before, on 7^th June 2010. The development of the Act, its essential features and the challenges ahead to make best use of the Act and its opportunities were presented. In time the new Act is to fully supersede the former Arbitration regime of Scotland with its rather difficult and complicated set up. In contrast, the new Act and the default Rules provide a system for arbitration that is clear and user-friendly, even where the parties have not chosen any procedural steps in detail. The Act, reflecting the best of arbitration practice around the world, has been commended for good draftsmanship.  It also includes new features which make it an outstanding instrument which is hoped to attract not only local but also international business. 

 

Some of the conference discussions focused on steps necessary to put Scotland on the international map of arbitration. The Minister for Community Safety, Mr Fergus Ewing MSP, in his keynote address had pledged the support of the Scottish Government to secure the success of the new Act. It was highlighted that another milestone in measuring the success of an Arbitration centre was the manner in which the courts supported arbitration by minimal interference, whilst upholding the foundations of justice.

 

Many papers were presented at the conference, and it would not be possible to provide a summary of them all here.  The conference programme can be found here: http://system.newzapp.co.uk/EditSite/Customers/6210/nz-docs/Arbitration_Programme.pdf

 

Almost all of the speakers emphasised the role of the Act as the first step in progress towards the creation of a centre for arbitration in Scotland.  It was conceded that Scotland is not necessarily ahead of the game in this respect: Singapore, Paris, and Stockholm are locations which have all built a reputation as world-beating centres for arbitral business.   James Hope, Solicitor Advocate, Vinge, Sweden encouraged us to think of what Scotland could offer which differed from its competitors.  The mixed nature of Scots law could potentially be an asset.  We should compare ourselves not simply with our nearest neighbour, but internationally.  An aspect of Scots law which could work to our benefit is the lack of discovery.  This procedure is not part of Scots law, whereas it forms part of both English and US law.  Scots rules have developed in order to prevent “fishing diligence.”  This practice is unpopular and can add immeasurably to the time and cost of arbitral proceedings.  It is an aspect of Scots law which might be attractive to those seeking to arbitrate. 

 

Mr Hope also commended Edinburgh University Law School for its highly successful and popular LLM commercial law programme.  International Commercial Arbitration is studied at Edinburgh in a highly international context, with classes containing students from all round the globe.  Many of the speakers at the conference are teachers on this course.  This blogger can confirm that the LLM class in international commercial arbitration is one of the most popular LLM courses at Edinburgh Law School and this trend is set to continue in September 2010, with the beginning of the new academic term. 

 

Mr Hope also conceded that Scotland could attract business by offering low cost arbitration, but cautioned  against selling ourselves too cheaply.  We can offer high quality people and procedures.  We now have a world-beating Arbitration Act, which has been carefully drafted.  The drafters have left no stone unturned, a fact which was illustrated by another speaker, one of the drafters of the Act, Hew Dundas, Independent International Arbitrator and Mediator, Edinburgh, who explained that the comparative analysis of the drafters had extended as far as the Bolivian Arbitration Act. 

 

In the first panel discussion which ended the morning’s proceedings, attention was focussed inter alia on the short form arbitration rules which form part of the Act.  These are intended to operate in relatively low value proceedings (under £25,000).  They are intended to provide a cheaper and quicker alternative to full arbitral proceedings.  The short form rules have already attracted a good deal of attention. 

 

In the afternoon, Kaj Hober, Professor of International Law, CEPMLP, University of Dundee, and Mannheimer Swartling, Stockholm, provided further food for thought by suggesting that Scotland required to find a niche within the arbitration world.  He suggested that such a niche area could be energy.  Scotland has the opportunity to offer renewable energy on a world-leading scale.  It is perhaps only by developing a speciality such as this that Scotland could compete with the already-established arbitral centres.            

 

Finally, Michael Davison, Head of International Arbitration, Hogan Lovells, London, provided a thought-provoking and highly entertaining presentation.  He provided the perspective from England, emphasising the fact that he is, in fact, Scottish, and had been forced to listen to an entire day’s proceedings which focussed in large part on how Scotland could compete with England.  He suggested five reasons for choosing a seat of arbitration:

(1)   Neutrality, i.e. a system which is not the system of either of the parties to the dispute;

(2)   The perceived efficiency of arbitration in that legal system;

(3)   The perceived extent to which the judiciary interfere with the arbitral process;

(4)   The facilities of that arbitral centre;

(5)   The track record of that centre. 

 

By focussing on these reasons, Scotland might more meaningfully market itself as an arbitral centre to the rest of the world.

 

Mr Davison commended the drafters of the Act.  In particular he welcomed the express confidentiality clause and he thought that the aims and objectives were clearer than the 1996 Act.  Additionally, the issue of whether specific provisions are mandatory or non-mandatory is more clearly spelled out in the Scottish Act.  The issue of discovery also formed a focus for Mr Davison.  The increase of time and cost makes England less attractive in this respect than, for example, Paris.

 

He suggested that the existence of a split profession (between solicitors and barristers) might also increase costs, and this is an issue which the Scots should consider.  Finally, there is a perception outside the UK that the relatively complex English procedure means that arbitration in England is really nothing other than another form of litigation. 

 

Singapore was used as a model of a successful arbitral centre.  Mr Davison compared the state of the art premises in Singapore, Maxwell Chambers, with what is available in London.  This may have led delegates to consider whether the Scottish Government could be persuaded to invest in purpose-built premises in order to launch the Act.  In the current economic climate this seems unlikely, but it is hoped that the message might be conveyed to the keynote speaker, Fergus Ewing MSP, who had unfortunately left the conference by this stage. 

 

In common with several of the other speakers, Mr Davison identified the energy sector as an area where Scotland could most usefully find a niche in which to develop specialisation.  In a climate of reducing energy reserves, squabbles between commercial parties are likely to develop.  Carbon trading is also an area where a niche might be developed. 

 

The final panel of the afternoon was extremely interesting, focussing on arbitral and Scottish commercial court proceedings.  The panel involved both Lord Drummond Young as chair, and Lord Glennie, principal judge of the commercial court.  It seemed clear that many of the delegates were not entirely familiar with the procedures of the Scottish commercial court.  The old ways have changed, and the rules are less technical and more efficient than is generally perceived.  Examples include the use of witness statements and allowing experts to get together by themselves to resolve outstanding issues (a practice known as “hot-tubbing” in the US, according to Iain Clark, Solicitor Advocate, Young and Partners, Glasgow.  This expression did not seem to be within judicial knowledge in Scotland). 

 

A lively and interesting day was had by all.  Many of the significant actors in the arbitration scene in Scotland were present, and the insights provided by the speakers from other jurisdictions were extremely valuable.  With this excellent beginning for the new Act, one hopes that it will now go from strength to strength.