In this case the court had to consider how an expert determination clause in a settlement agreement affected an application for summary judgment in relation to unpaid demurrage. The Defendant did not appear at the trial.
The claimant was a Maltese trader of cement clinker in bulk. The defendant was a Kenyan cement clinker importer which processed it into cement products for sale and distribution within Kenya.
The parties entered a contract dated 10 October 2018 (the contract) where the claimant agreed to sell and deliver to the defendant and the latter agreed to accept and pay for four shipments of cement clinker to be shipped during November 2018 - February 2019.
Prior to the contract, the parties had entered into several contracts for the sale of cement clinker, which were performed satisfactorily save that amounts of demurrage, totalling (on the claimant's case) about US$336,466 remained due from the defendant in respect of various shipments made by the claimant during 2017 and 2018.
The claimant performed the four shipments under the contract, though the defendant failed to make payment for the shipments fully or at all. Further, unpaid demurrage had accrued and remained unpaid in relation to all four shipments.
In the circumstances, the parties concluded a settlement agreement dated 27 August 2019 according to which the defendant admitted and agreed that certain sums were due and owing in relation to the shipments. The defendant also agreed to procure the issuance of irrevocable letters of credit in favour of the claimant for the full amounts due within specific time frames.
The defendant also admitted liability for the 'historic demurrage' but did not admit the claimant's calculation; under the settlement agreement the parties were to discuss the calculation in order to settle the figure. If no settlement was reached within 45 days from the date of the settlement agreement, the calculation was to be referred to final and binding determination by an independent expert to be agreed by the parties within seven days from the date of the settlement agreement or in case of disagreement to be appointed by the LMAA. The parties irrevocably waived the benefit of any pre-existing arbitration/exclusive jurisdiction agreement between them with respect to the historic demurrage calculation.
Even though there were some initial exchanges following the settlement agreement, the historic demurrage dispute was not resolved, nor was any expert appointed. The defendant also failed to procure the issuance of letters of credit.
The claimant commenced proceedings seeking summary judgment for US$4,696,712.04 with regard to the unpaid shipments and for US$674,679.93 with regard to the demurrage claims. The defendant did not appear at the hearing.
Under CPR 24 the court may give summary judgment against a claimant or defendant on the whole of a claim or on a particular issue if it considers that claimant/defendant has no real prospect of succeeding on/defending the claim or issue and there is no other compelling reason why the case or issue should be disposed of at a trial.
The judge referred to previous case law including key considerations applicable to summary judgment applications that:
i) the court must consider whether the claimant has a 'realistic' as opposed to a 'fanciful' prospect of success;
ii) a 'realistic' claim is one that carries some degree of conviction;
iii) in reaching its conclusion the court must not conduct a 'mini-trial';
iv) this does not mean that the court must take at face value and without analysis everything that a claimant says in his statements before the court;
v) however, in reaching its conclusion the court must take into account not only the evidence actually placed before it, but also the evidence that can reasonably be expected to be available at trial;
vi) although a case may turn out at trial not to be really complicated, it does not follow that it should be decided without the fuller investigation into the facts at trial than is possible or permissible on summary judgment;
vii) on the other hand, it is not uncommon for a summary judgment application to give rise to a short point of law or construction and, if the court is satisfied that it has before it all the evidence necessary for the proper determination of the question and that the parties have had an adequate opportunity to address it in argument, it should grasp the nettle and decide it; and
viii) a judge in appropriate cases should make use of the powers under the summary judgment regime, since in doing so it saves expense; it achieves expedition; it avoids the court's resources being used up on cases where this serves no purpose; and it is in the interests of justice.
The claim for the contract shipments
In its defence, the defendant did not admit that it had refused to pay the claimant the sum required under the settlement agreement and submitted that the defendant had acted reasonably throughout the period and continued to do so despite the down turn of the macro situation in Kenya.
The judge found that the defence which denied refusal to pay, did not deny failure to pay, implicitly admitting a failure to pay the sums due. In any event the defence did not put forward any arguable defence to the allegations that the defendant failed to open the letters of credit required by the settlement agreement. The averments that the defendant acted 'reasonably' despite the downturn could not give rise to an arguable defence, particularly given the absence of any force majeure or hardship provision in the settlement agreement, or any tenable argument that the agreement had been frustrated or become impossible to perform.
The court accepted the claimant's submission that it had a cause of action in damages for breach of contract, arising from the defendant's failure to procure the establishment of the letters of credit, and that the measure of damages was the sums for which the letters of credit were required to be established (less any payments made subsequently). It was clear that, had letters of credit complying with the settlement agreement been established, the claimant would have been able to call upon them and to receive payment of the sums in question.
In these circumstances, the defendant had no real prospect of defending the claimant's claim for US$4,696,712.04 nor was there any reason why this claim should be disposed of at a trial. The claimant was therefore entitled to summary judgment on this claim.
Two issues arose in relation to these claims:
i) whether the historic demurrage to which the settlement agreement applied included the demurrage under the contract or only the demurrage relating to the pre contract shipments; and
ii) whether the claimant was entitled to summary judgment or it had instead to proceed via the expert determination procedure provided under the settlement agreement.
As to the historic demurrage, the relevant wording provided:
'In addition demurrage is due and owing from [the Defendant] to [the Claimant] in respect of various shipments made ... in 2017 and 2018 (the "Historic Demurrage"). [The Claimant] claims Historic Demurrage in the amount of US$684,000. [The Defendant] disputes this calculation.'
On a literal interpretation of the first sentence, the historic demurrage was confined to either the demurrage relating to the pre contract shipments or these together with the demurrage in respect of the first contract shipment (which, unlike the other three shipments, was made in 2018 as opposed to 2019).
However, reading the above wording and the settlement agreement, as a whole, the judge did not consider that to be the correct interpretation. The wording and the settlement agreement referred to the claimant's quantification of the historic demurrage as US$684,000, which figure was clear to the parties was not confined to the demurrage relating to the pre contract shipments. More importantly, there was no rational basis on which the parties could be expected to have intended either (a) to draw an arbitrary distinction between the demurrage on the first contract shipment (in 2018) and other demurrage claims from 2017/2018 shipments, on the one hand, and the demurrage on the 2019 shipments on the other hand, or (b) to cover only the pre contract shipments demurrage in the settlement agreement – including its dispute resolution mechanism – leaving the contract shipments demurrage to be dealt with by arbitration under the dispute resolution provisions of the contract. As rational businessmen, one would naturally have expected all the demurrage claims to be addressed in the same way, namely under the settlement agreement.
The judge concluded that the historic demurrage included demurrage in respect to both pre contract and contract shipments.
As to the expert determination point, the judge was not persuaded that an implied term existed in the settlement agreement according to which the defendant would co-operate with the process of seeking to arrive at a calculation (as the claimant argued) or that the claimant was entitled to pursue a claim for substantive damages reflecting the historic demurrage amount, on the basis that the defendant had breached that implied term. An implied term of co-operation would be too vague to be enforceable. It was also unnecessary, because the settlement agreement provided a mechanism by which any failure to settle could be resolved, even if one party was failing to co-operate.
However, the words 'shall be referred' in the settlement agreement made the use of the expert determination procedure, as distinct from any other dispute resolution process, mandatory. Neither party was entitled to proceed straight to litigation in order to resolve the historic demurrage dispute. It was only if a party needed to enforce an expert determination made pursuant to the settlement agreement, that the claim might be pursued via litigation. In the present case, there was no indication that either party had attempted to invoke that process.
The judge held that even though the expert determination procedure did not oust the jurisdiction of the court, the court should normally stay a claim which the parties had agreed should be resolved by expert determination. In the circumstances, the application for summary judgment on the demurrage claim was stayed.
This case is a useful reminder of the factors the court will consider in summary judgment applications and also the court's reluctance to imply terms in contracts, especially if the contract contains provisions that can deal with the issue without the need for any terms to be implied. It also references Counsel's duty to ensure that the court was made aware, so far as possible, of any points which the defendant might reasonably have been expected to take had it been present or represented at the hearing.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.