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England and Wales High Court (Commercial Court) Decisions
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Cite as:  2 CLC 908,  EWHC 2132 (Comm)
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QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| DEUTSCHE BANK AG
|- and -
|SEBASTIAN HOLDINGS INC
Mr Tim Lord QC and Mr Jasbir Dhillon (instructed by Travers Smith LLP) for the defendant
Hearing dates: 15, 16 June 2009
Crown Copyright ©
Mr Justice Walker :
Overview of dealings between the parties
History of events
With respect to any suit, action or proceedings relating to this Agreement ("Proceedings") each party irrevocably:
(i) submits to the jurisdiction of the English courts ; and
(ii) waives any objection which it may have at any time to the laying of venue of any Proceedings brought in any such court, waives any claim that such Proceedings have been brought in an inconvenient forum and further waives the right to object, with respect to such Proceedings, that such court does not have any jurisdiction over such party.
Nothing in this agreement precludes either party from bringing Proceedings in any other jurisdiction (outside, if this Agreement is expressed to be governed by English law, the Contracting States, as defined in Section 1(3) of the Civil Jurisdiction and Judgments Act 1982 or any modification, extension or re-enactment thereof for the time being in force) nor will the bringing of Proceedings in any one or more jurisdictions preclude the bringing of Proceedings in any other jurisdiction.
Place of performance, place of collection for Pledgors residing abroad and sole place of jurisdiction for all proceedings shall in each case be the place where the respective DBS office is located. For this purpose the Pledgor elects the respective office of DBS as the legal and special domicile. However, the Pledgee shall also have the right to bring an action against the Pledgor before the competent court at its place of residence or before any other competent court.
Any action or proceeding relating in any way to this agreement may be brought and enforced in the courts of the State of New York and the United States District Court, in each case located in the Borough of Manhattan, New York.
30. AGENT FOR SERVICE OF PROCESS
[SHI] appoints the following as its agent for service of process in England and Wales:
Clifford Chance LLP London
31. GOVERNING LAW
This Agreement and each Transaction effected pursuant to this Agreement are governed by and shall be construed in accordance with English law and each party hereby irrevocably submits to the exclusive jurisdiction of the English courts.
18. GOVERNING LAW AND JURISDICTION
18.1 Governing law: This Agreement (including its various schedules) and any Transactions entered into hereunder shall be governed by and construed in accordance with English Law except that a Transaction which is subject to the Rules of an Exchange shall be governed by the law applicable to it under those rules.
18.2 Jurisdiction: Each of the parties irrevocably
(a) agrees for our benefit that the courts of England shall have jurisdiction to settle any suit, action or other Proceedings relating to this Agreement and irrevocably submits to the jurisdiction of such courts (provided that this shall not prevent us from bringing an action in the courts of any other jurisdiction); and
(b) waives any objection which it may have at any time to the laying of venue of any Proceedings brought in any such court and agrees not to claim that such Proceedings have been brought in an inconvenient forum or that such court does not have jurisdiction over it.
18.3 Waiver of immunity and consent to enforcement: ...
18.4 Service of process: If you are situated outside England and Wales, you appoint the following as your agent for service of process in England and Wales:
Clifford Chance LLP London
This does not affect our right to serve process in another manner permitted by law.
23. ARBITRATION AND JURISDICTION
(A) All claims, disputes and matters of conflict between the Parties arising hereunder shall be referred to or submitted for arbitration in London in accordance with English Law before a sole arbitrator to be agreed between the Parties or in default of agreement by an arbitrator to be nominated by the Chairman of the Stock Exchange on the application of either Party, and this Agreement shall be deemed for this purpose to be a submission to arbitration within the Arbitration Acts 1950 and 1979, or any statutory modification or re-enactment thereof for the time being in force.
(B) This Clause shall take effect notwithstanding the frustration or other termination of this Agreement.
(C) No action shall be brought upon any issue between the Parties under or in connection with this Agreement until the same has been submitted to arbitration pursuant hereto and an award made.
26. GOVERNING LAW
This Agreement is governed by, and shall be construed in accordance with English Law.
11. GOVERNING LAW
This Agreement and all matters arising from or connected with it are governed by English Law.
12.1 The courts of England have exclusive jurisdiction to settle any dispute arising from or connected with this Agreement (a "Dispute").
12.2 The parties agree that the courts of England are the most appropriate and convenient courts to settle any Dispute and, accordingly, that they will not argue to the contrary.
13. PROCESS AGENT
The Counterparty [i.e. SHI] agrees that the documents which start any proceedings relating to a Dispute ("Proceedings") and any other documents required to be served in relation to those Proceedings may be served on Clifford Chance, whose registered office is currently at 10 Upper Bank Street, London, E14 5JJ, on his behalf. These documents may, however, be served in any other manner allowed by law. This clause applies to Proceedings in England and to Proceedings elsewhere.
English jurisdiction: the Issues
Summary of jurisdiction and service clauses
(a) Each of the Equities Agreements contains a submission by the parties to the jurisdiction of the English Courts.
(b) MNA and EPBA each provide for the exclusive jurisdiction of the English Courts.
(c) EIMA and LFOA each provide for the non-exclusive jurisdiction of the English Courts.
(d) MNA, EIMA and LFOA each contain an express statement to the effect that the parties will not object to proceedings in the English courts on the basis that such court is an inconvenient forum.
(e) Each of the Equities Agreements is governed by English law.
(f) By clause 13(b) of EIMA, SHI agreed to appoint a process agent, to be notified by SHI, to accept service of "Proceedings" which is defined as "any suit, action or proceedings relating to this Agreement".
(g) AMA is governed by English law and contains a submission by the parties to the non-exclusive jurisdiction of the English courts. It also contains an express statement to the effect that the parties will not object to proceedings in the English courts on the basis that such court is an inconvenient forum.
(h) FXPBA is governed by New York law and contains a submission by the parties to the non-exclusive jurisdiction of the courts of New York.
(i) By clause 13(b) of AMA, SHI appointed Clifford Chance in London as its agent for service of Proceedings which is again defined as "any suit, action or proceedings relating to this Agreement".
(j) The FX Pledge is governed by Swiss law, and states that DB would have the right to bring an action against SHI in "the competent court at its place of residence or before any other competent court".
The New York complaint
(1) In November 2006, SHI entered into FXPBA in New York with DB for the sole purpose of facilitating FX trading conducted by Mr. Said from Connecticut with the support of no more than US$35 million from SHI's pledged account with DB's Geneva branch.
(2) SHI relied on DB's provision of prime brokerage services, including the daily or twice daily calculation and reporting of positions, exposure, valuations and collateral, in relation to the FX trading so that SHI could be kept informed of the FX trading performance and to monitor the risk to SHI.
(3) DB and SHI agreed that SHI's maximum exposure in connection with the FX trading to be conducted by Mr. Said was limited to US$35 million which SHI agreed to pledge as collateral for the FX trading in favour of DB from SHI's account with DB's Geneva branch ("Collateral Limitation Agreement"). The US$35 million collateral limit was supported by calculations carried out by DB based on a hypothetical portfolio of FX trades provided to DB by Mr Said and an agreement with SHI that the collateral required to support Mr. Said's trading would be calculated at 200% of "VaR" (value at risk).
(4) Throughout 2007 and 2008, Mr. Said carried out trades each of which was approved by DB without any request for further collateral until October 2008.
(5) On 6 October 2008, DB informed Mr. Said that it required SHI to provide collateral for the New York FX trading account to be calculated using "2.5X 10-day VaR + Liquidity add-on" (instead of the agreed 200% of VaR and in breach of the Collateral Limitation Agreement) and this would increase the collateral required by DB for then existing FX trades from US$21 million to US$40 million.
(6) As at 6 October 2008, DB's website stated that SHI's net position in the New York FX PB account was approximately US$27 million in credit. In fact, DB had failed accurately to report to SHI its net exposure and a daily value at risk amount and mark to market calculations for the FX trading carried out by Mr. Said. As at 6 October 2008, the true position, unknown to SHI at that time, was that the New York FX PB account had accumulated hundreds of millions of dollars of losses.
(7) Between 14 and 21 October 2008, DB made four wrongful calls for margin to be paid by SHI in respect of the New York FX PB Account amounting to approximately US$436 million. Relying on erroneous information provided by DB and under duress, SHI paid those margin calls.
(8) Subsequently, DB liquidated certain positions of SHI in other accounts and transferred assets (the amount of which is yet undetermined) from SHI's accounts with DB in London and Geneva to DB without authorisation or justification.
(9) By a letter dated 23 October 2008, DB demanded the sum of approximately NOK 2 billion from SHI pursuant to the Equities Agreements. By a letter dated 24 October 2008, DB purported to terminate FXPBA with immediate effect. By a letter dated 4 December 2008, DB demanded the sum of approximately US$120 million from SHI in respect of the New York FX PB Account.
(1) Breach of FXPBA by DB failing to comply with its reporting requirements.
(2) Breach of the Collateral Limitation Agreement by DB failing to meet its reporting requirements and by taking for itself amounts in excess of US$35 million pursuant to wrongful margin calls and wrongful transfers.
(3) Breach of fiduciary duty by DB failing to provide SHI with the required information in relation to the FX trading, misrepresenting and concealing information from SHI and taking assets belonging to SHI.
(4) Conversion by DB's unauthorised transfers of SHI's assets to itself.
(5) Unjust enrichment by reason of DB'S receipt of payment pursuant to the wrongful margin calls and wrongful transfers.
(6) Fraudulent concealment by reason of DB's intentional failure to report the required information as to SHI's net exposure and value at risk in respect of the FX trading and intentional withholding of the truth about the exposure and losses in the New York FX PB Account.
(7) Fraud by reason of material misrepresentations made intentionally by DB.
(8) Negligent misrepresentations made by DB.
(9) A declaration that SHI has no liability to pay any amount to DB in connection with the purported deficiencies or margin calls alleged in the New York complaint.
The London particulars
(1) DB refers to certain provisions of the agreements between the parties with respect to SHI's FX trading, Equities trading and certain pledge agreements.
(2) DB avers that the accounts maintained by DB in respect of the FX Agreements and Equities Agreements were kept separate.
(3) Between 2006 and 2008, DB carried out various transactions under the Equities Agreements on behalf of SHI. DB does not provide any particulars as to those transactions.
(4) Between 2006 and 2008, DB carried out numerous transactions under the FX Agreements on behalf of SHI. It is alleged by DB that it provided information to SHI that was adequate for it to understand its position in respect of the FX Agreements.
(5) DB alleges that the parties did not agree to limit the exposure of SHI under the FX Agreements or otherwise to vary the FX Agreements and that it was entitled to increase its collateral requirements on 6 October 2008.
(6) In early October 2008, on SHI's instructions, DB sold various assets, and between 10 to 14 October 2008, DB transferred the equivalent of nearly US$300 million to external accounts of SHI and Mr. Vik.
(7) Between 13 October and 17 October 2008, DB made five margin calls on SHI in respect of the FX Agent Transactions (defined in the FX Agreement) pursuant to the AMA Credit Support Annex amounting to in excess of US$650 million.
(8) Four of the margin calls, amounting to nearly US$525 million, were met by DB transferring assets held in SHI's Equities account to SHI's FX account. A margin call made on 15 October 2008 in the sum of US$124,513,350 was not met by SHI.
(9) During October 2008, DB, acting lawfully, closed out and terminated SHI's existing FX positions, terminated FXPBA and transferred the sum of US$43,244,069 from SHI's Swiss account subject to the Pledge Agreement, and the sum of US$28,179,333 from another SHI account to the FX account.
(10) The amount of the deficit on the FX account remaining after the transactions referred to above was US$120,650,166.
(11) On 20 January 2009 DB sent a letter to SHI demanding the sum of US$125,523,086 under MNA in respect of the Equities Account of SHI.
(12) DB alleges that SHI is not entitled to resist performance of the obligations under the Equities Agreements and the FX ISDA Agreement by reason of the matters alleged in the New York proceedings.
Based on the allegations described above, DB claims: (1) the sum of US$125,523,086 pursuant to the Equities Agreements and MNA; and (2) the sum of US$120,650,166 pursuant to AMA, together with interest.
The hearing and written submissions
Issue 1: the jurisdiction clauses
23 (1) If the parties, one or more of whom is domiciled in a Member State, have agreed that a court or the courts of a Member State are to have jurisdiction to settle any disputes which have arisen or may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction. Such jurisdiction shall be exclusive unless the parties have agreed otherwise. Such an agreement conferring jurisdiction shall be either:
a. In writing or evidenced in writing; or ..
"It seems to me that by entering into an agreement containing a jurisdiction clause with provisions similar to the final paragraph of the jurisdiction clause in issue in this case, the parties must have had in contemplation the possibility of virtually simultaneous trials with all the additional burdens which the judge described since such is an obvious possible consequence of permitting parallel proceedings in the absence of provision in the jurisdiction clause, or elsewhere in the agreement, for the means of avoiding those consequences".
51. The judge said that the fundamental question was the meaning of the English jurisdiction clause in the Dealer's Confirmation jurisdiction clause rather than the Kiel MTN Notes jurisdiction clause, because UBS held the Kiel MTN Notes for no more than an instant. The judge accepted that had the contracts in which those clauses were found stood on their own, they should be given a wide construction. But this was a case where the parties had entered into different agreements for different aspects of an overall relationship, with different terms as to jurisdiction.
52. As a matter of general principle the court must seek to identify the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract: Investors Compensation Scheme Ltd v West Bromwich Building Society  1 WLR 896, 912-913. The relevant background knowledge in the present case would include knowledge of other contracts forming part of the transaction.
53. When considering the jurisdiction clauses found in the RPSA, the Kiel MTN Notes, and the Dealer's Confirmation, a person having that background knowledge would at once see that there was scope for the clauses to clash. In order to limit that scope, and to ensure that the clauses had meaning, such a person would be driven to the conclusion that each such clause focused upon matters directly relating to the contract in which it was found. It was manifestly incompatible with a non-exclusive New York jurisdiction clause for a matter falling within it also to be the subject of an exclusive English jurisdiction clause.
54. The question in each case was to which contract the dispute in question was properly to be allocated; and the court then applied whatever jurisdiction provisions, if any, that contract might contain: Credit Suisse First Boston (Europe) Ltd v MLC (Bermuda) Ltd  1 Lloyd's Rep 767. The English jurisdiction clauses were insufficiently wide to cover the dispute set out in the New York complaint. All matters relating to the NS4 Notes, including the Indenture, the Letter Agreement and the RPSA, were subject to the laws of New York. All those agreements contained submissions to the jurisdiction of the New York courts, except for the Letter Agreement which was silent as to jurisdiction and hence effectively agreed that action could be brought in any court of competent jurisdiction. The Letter Agreement would not entitle UBS to sue HSH, a German domiciled company, in England.
55. The focus must be on the cause of action rather than the remedy flowing from that cause of action. Thus a claim to rescission, or for damages based upon the risk of exercise of the put option, was not to be regarded as so directly linked to the Kiel MTN Notes or the Dealer's Confirmation as to fall within the English jurisdiction clauses. The result was that the English court did not have jurisdiction under Article 23 of the Brussels I Regulation.
82. Are these claims within the Dealer's Confirmation jurisdiction clause? I accept UBS's submission that the proper approach to the construction of clauses agreeing jurisdiction is to construe them widely and generously: Donohue v Armco Inc  UKHL 64,  1 Lloyd's Rep 425 at . I also accept that in the usual case the words "arising out of" or "in connection with" apply to claims arising from pre-inception matters such as misrepresentation: Fiona Trust & Holding Corp v Privalov  EWCA Civ 20,  2 Lloyd's Rep 267 (affd sub nom Premium Nafta Products Ltd v Fili Shipping Co Ltd  UKHL 40,  4 All ER 951); Deutsche Bank AG v Asia Pacific Broadband Wireless Communications Inc  EWCA Civ 1091,  2 Lloyd's Rep 619; Ashville Investments Ltd v Elmer Contractors Ltd  QB 488.
83. But the essential task is to construe the jurisdiction agreement in the light of the transaction as a whole. As I suggested in Satyam Computer Services Ltd v Upaid Systems Ltd  EWCA Civ 487,  2 All ER (Comm) 465, at , whether a dispute falls within one or more related agreements depends on the intention of the parties as revealed by the agreements.
84. Plainly the parties did not actually contemplate at the time of the conclusion of the contracts that there would be litigation in two countries involving allegations of misrepresentation in the inception and performance of the agreements. But in my judgment sensible business people would not have intended that a dispute of this kind would have been within the scope of two inconsistent jurisdiction agreements. The agreements were all connected and part of one package, and it seems to me plain that the result for which UBS contends would be a wholly uncommercial result and one that sensible business people cannot have intended.
85. It is fanciful to suppose (as UBS contends) that the Dealer's Confirmation jurisdiction clause had been specially renegotiated to provide expressly for the exclusive jurisdiction of the English court to deal with disputes of this kind, or that the parties must have envisaged the risk of a clash.
86. The Dealer's Confirmation is expressed to be issued pursuant to LB Kiel's US$20 billion Global Medium Term Note Programme and simply confirms the issue of the US$500 Kiel MTN Notes to UBS as one of the dealers on HSH's bond programme. UBS immediately transferred them to NS4. NS4 kept the Kiel MTN Notes as an investment or "collateral" to create income in order to fund payments under the NS4 Notes.
87. I accept HSH's argument that the Kiel MTN Notes are simple AAA-rated bonds that HSH issued pursuant to a pre-existing bond programme. HSH used these Notes (rather than cash) to pay for the NS4 Notes. This dispute has nothing to do with the Kiel MTN Notes, which were no more than the consideration for the NS4 Notes. The parties cannot be taken objectively to have intended that the jurisdiction clause contained in the Dealer's Confirmation (i.e. the method of payment for the investment) would govern every dispute relating to inducement of making such investment.
88. There is no dispute about the issue, sale or performance of the Kiel MTN Notes. Their holder, NS4, is not a party to any of the proceedings. None of the parties to the proceedings advances any claim under the Kiel MTN Notes against any other party. None of the parties suggests there has been any breach of the Kiel MTN Notes, or any misrepresentation in relation to them. The Kiel MTN Notes are supported by a German state guarantee and are virtually equivalent to cash. The misrepresentation claims were made about the Reference Pool, not about the Kiel MTN Notes. The same allegations would be made if Kiel LB had paid for its investment in cash instead of Notes.
89. The New York complaint alleges (inter alia) that (a) UBS induced HSH to purchase the NS4 Notes by misrepresentations concerning, among other things, the credit quality of the Reference Pool to which payments under the NS4 Notes were linked; (b) UBS failed to operate a Commitments Committee, as required by the RPSA, so as to select Reference Pool assets with stable or improving credit profiles, carefully monitor the credit status and quality of each asset, and avoid downgrades. As Justice Lowe stated in his decision of October 21, 2008 (at p 5) (in relation to HSH's first cause of action): "HSH's overarching claim is that UBS failed to maintain the promised high quality of the notes in the Reference Pool, by failing to ensure that the Commitments Committee keep an eye on the condition of the investments."
90. In Credit Suisse First Boston (Europe) Ltd v MLC (Bermuda) Ltd  1 Lloyd's Rep 767, MLC, a hedge fund, bought Russian bonds from the claimant, an English company, pursuant to two Purchase Agreements containing exclusive English jurisdiction clauses. MLC financed the purchase of the bonds by repurchase transactions with the claimant pursuant to a Global Master Repurchase Agreement ("GMRA"), containing a non-exclusive English jurisdiction clause. When the claimant made a margin call under the GMRA which MLC failed to pay, and the claimant sued MLC in England for the amounts due under the GMRA.
91. MLC then sued the claimant and two of its group companies in New York for securities violations. The claimant sought an anti-suit injunction relying on the exclusive English jurisdiction clauses in the Purchase Agreements. One issue was how much of the subject matter of the New York proceedings arose out of the Purchase Agreements, and was therefore in breach of the exclusive jurisdiction clauses in those agreements.
92. Rix J concluded (at 777):
"then, where the jurisdiction clauses are in conflict, I do not see why the GMRA clause should not prevail: either on the basis that, in a case of conflict on standard forms plainly drafted by CS Europe, MLC should be entitled to exercise the broader rights; or on the basis that the clause in the contract which is closer to the claim and which is more specifically invoked in the claim should prevail over the clause which is only more distantly or collaterally involved."
93. He therefore refused to grant an injunction restraining MLC's claims in New York under the GMRA, because (at 781) the claims were preferably to be viewed as arising out of or in connection with the GMRA rather than the Purchase Agreement and thus were not within the jurisdiction clause in the Purchase Agreement; but if he were wrong about that, the New York court would be in a much better position to analyse the complaint for the purpose of identifying the relevant or more relevant jurisdiction clause.
94. The essence of Rix J's first reason is that under the contra proferentem principle, the intention must be taken to have been that, where a dispute fell within the wording of both jurisdiction agreements, it was the GMRA which was to be taken as the agreed position. The second reason, which he must have meant as a matter of construction, was that the parties must be taken to have intended that, where a dispute fell within both sets of agreements, it should be governed by jurisdiction clause in the contract which was closer to the claim.
95. In this case it is not necessary to go so far. Whether a jurisdiction clause applies to a dispute is a question of construction. Where there are numerous jurisdiction agreements which may overlap, the parties must be presumed to be acting commercially, and not to intend that similar claims should be the subject of inconsistent jurisdiction clauses. The jurisdiction clause in the Dealer's Confirmation is a "boiler plate" bond issue jurisdiction clause, and is primarily intended to deal with technical banking disputes. Where the parties have entered into a complex transaction it is the jurisdiction clauses in the agreements which are at the commercial centre of the transaction which the parties must have intended to apply to such claims as are made in the New York complaint and reflected in the draft particulars of claim in England.
96. I return to the draft particulars of claim to emphasise that the claims raising the misrepresentation issue refer to "the Principal Agreements," the "Related Documents," and to "the Transaction." As I have said, "the Principal Agreements" means all of the documents involved in the Transaction (including the Dealer's Confirmation), and "Related Documents" are "all other written agreements and/or written notifications and/or documents entered into and/or executed by the parties pursuant to or related to or in connection with the Transaction". "Transaction" was defined as HSH's "investment in a multiple tranche synthetic Collateralised Debt Obligation".
97. The action in England is intended to mirror the New York proceedings. I have already emphasised that the essence of the claims for misrepresentation in New York is that HSH was induced to purchase the NS4 Notes in reliance on the fraudulent and negligent misrepresentations, and would not have purchased them in the absence of those representations. No sensible commercial interpretation of the jurisdiction clause in the Dealer's Confirmation could have the result that identical misrepresentation claims would fall both within that clause and within the non-exclusive New York jurisdiction clauses, simply because the consideration for the transaction was the issue of the Kiel MTN Notes. In my judgment the standard form bond issue jurisdiction clause in the Dealer's Confirmation does not apply to claims that the transaction as a whole, and in particular the purchase of the NS4 Notes, was induced by misrepresentation. I am satisfied that the judge's decision was right.
14 There is no dispute that the principles on which a contract (or any other instrument or utterance) should be interpreted are those summarised by the House of Lords in Investors Compensation Scheme Ltd v West Bromwich Building Society  1 WLR 896 , 912913. They are well known and need not be repeated. It is agreed that the question is what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean. The House emphasised that "we do not easily accept that people have made linguistic mistakes, particularly in formal documents" (similar statements will be found in Bank of Credit and Commerce International SA v Ali  1 AC 251 , 269; Kirin-Amgen Inc v Hoechst Marion Roussel Ltd  1 All ER 667 , 681682 and Jumbo King Ltd v Faithful Properties Ltd (1999) 2 HKCFAR 279 , 296) but said that in some cases the context and background drove a court to the conclusion that "something must have gone wrong with the language". In such a case, the law did not require a court to attribute to the parties an intention which a reasonable person would not have understood them to have had.
21 I therefore think that Lawrence Collins LJ was right in saying that ARP must mean the amount by which 23.4% of the achieved price exceeds the MGRUV. I do not think that it is necessary to undertake the exercise of comparing this language with that of the definition in order to see how much use of red ink is involved. When the language used in an instrument gives rise to difficulties of construction, the process of interpretation does not require one to formulate some alternative form of words which approximates as closely as possible to that of the parties. It is to decide what a reasonable person would have understood the parties to have meant by using the language which they did. The fact that the court might have to express that meaning in language quite different from that used by the parties ("12 January" instead of "13 January" in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd  AC 749 ; "any claim sounding in rescission (whether for undue influence or otherwise)" instead of "any claim (whether sounding in rescission for undue influence or otherwise)" in Investors Compensation Scheme Ltd v West Bromwich Building Society  1 WLR 896 ) is no reason for not giving effect to what they appear to have meant.
24 The second qualification concerns the words "on the face of the instrument". I agree with Carnwath LJ, paras 4450, that in deciding whether there is a clear mistake, the court is not confined to reading the document without regard to its background or context. As the exercise is part of the single task of interpretation, the background and context must always be taken into consideration.
25 What is clear from these cases is that there is not, so to speak, a limit to the amount of red ink or verbal rearrangement or correction which the court is allowed. All that is required is that it should be clear that something has gone wrong with the language and that it should be clear what a reasonable person would have understood the parties to have meant. In my opinion, both of these requirements are satisfied.
26 That leaves the question of the deduction of C & I, which the judge and the majority of the Court of Appeal regarded as an insuperable obstacle to Persimmon's construction. I cannot see why this should be so. Everyone agrees that the only sum from which C & I can rationally be deducted is the headline price achieved on the sale, so as to arrive at the net amount received by Persimmon. That is accordingly what the parties must have meant. You deduct the C & I from the nominal price achieved and the ARP is the excess, if any, of 23.4% of that net sum over the MGRUV. Giving this meaning to the provision about C & I does not in any way weaken or affect the argument for interpreting the rest of the definition in a way which gives ARP a rational meaning. To say, as Rimer LJ said  2 All ER (Comm) 387 , para 185, that it requires "rewriting", or that it "distorts the meaning and arithmetic of the definition" is only to say that it requires one to conclude that something has gone wrong with the languagenot, in this case, with the meanings of words, but with the syntactical arrangement of those words. If however the context drives one to the conclusion that this must have happened, it is no answer that the interpretation does not reflect what the words would conventionally have been understood to mean.
8. The correct approach to the question when to imply a term into a contract or other instrument, including therefore a charterparty, has recently been considered by Lord Hoffmann, giving the judgment of the Judicial Committee of the Privy Council, which also comprised Lord Rodger, Baroness Hale, Lord Carswell and Lord Brown, in Attorney General of Belize v Belize Telecom Limited  UKPC 11. I predict that his analysis will soon be as much referred to as his approach to the construction of contracts in Investors Compensation Scheme v West Bromwich Building Society  1 WLR 896 at 912-3. His analysis in the Belize case is extensive: see  to .
9. It repays detailed study but for present purposes it is I think sufficient to say that the implication of a term is an exercise in the construction of the contract as a whole: see Trollope & Colls Limited v North West Metropolitan Hospital Board  1 WLR 601, 609 per Lord Pearson, with whom Lord Guest and Lord Diplock agreed and Equitable Life Assurance Society v Hyman  1 AC 405, 459, where Lord Steyn said:
"If a term is to be implied, it could only be a term implied from the language of [the instrument] read in its commercial setting."
See Belize at  and .
12. The central part of Lord Hoffmann's reasoning is from  to the first part of , where he focused on some of the tests which have historically been used to identify when a term is to be implied into a contract. He said this:
" It follows that in every case in which it is said that some provision ought to be implied in an instrument, the question for the court is whether such a provision would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean. It will be noticed from Lord Pearson's speech that this question can be reformulated in various ways which a court may find helpful in providing an answer the implied term must "go without saying", it must be "necessary to give business efficacy to the contract" and so on but these are not in the Board's opinion to be treated as different or additional tests. There is only one question: is that what the instrument, read as a whole against the relevant background, would reasonably be understood to mean?
 There are dangers in treating these alternative formulations of the question as if they had a life of their own. Take, for example, the question of whether the implied term is "necessary to give business efficacy" to the contract. That formulation serves to underline two important points. The first, conveyed by the use of the word "business", is that in considering what the instrument would have meant to a reasonable person who had knowledge of the relevant background, one assumes the notional reader will take into account the practical consequences of deciding that it means one thing or the other. In the case of an instrument such as a commercial contract, he will consider whether a different construction would frustrate the apparent business purpose of the parties. That was the basis upon which Equitable Life Assurance Society v Hyman was decided. The second, conveyed by the use of the word "necessary", is that it is not enough for a court to consider that the implied term expresses what it would have been reasonable for the parties to agree to. It must be satisfied that it is what the contract actually means.
 The danger lies, however, in detaching the phrase "necessary to give business efficacy" from the basic process of construction of the instrument. It is frequently the case that a contract may work perfectly well in the sense that both parties can perform their express obligations, but the consequences would contradict what a reasonable person would understand the contract to mean. Lord Steyn made this point in the Equitable Life case (at p 459) when he said that in that case an implication was necessary "to give effect to the reasonable expectations of the parties."
 The same point had been made many years earlier by Bowen LJ in his well known formulation in The Moorcock (1889) 14 PD 64, 68:
"In business transactions such as this, what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are business men"
 Likewise, the requirement that the implied term must "go without saying" is no more than another way of saying that, although the instrument does not expressly say so, that is what a reasonable person would understand it to mean. "
13. Lord Hoffmann then warned against considering the subjective state of mind of the parties or their representatives and stressed the need for the court to be satisfied that the proposed implication spells out what the contract would reasonably be understood to mean. He then stated the Judicial Committee's view that the question how the actual parties would have reacted to the proposed amendment was irrelevant and added that it was not necessary for the implied term to be obvious in the sense of being immediately apparent.
14. Importantly, he concluded his analysis in  and  by reference to BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, 282-283, where Lord Simon of Glaisdale, giving the advice of the majority of the Judicial Committee, said that it was "not necessary to review exhaustively the authorities on the implication of a term in a contract" but that the following conditions ("which may overlap") must be satisfied:
"(1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that 'it goes without saying' (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract".
Lord Hoffmann expressed the Judicial Committee's opinion thus:
" The Board considers that this list is best regarded, not as series of independent tests which must each be surmounted, but rather as a collection of different ways in which judges have tried to express the central idea that the proposed implied term must spell out what the contract actually means, or in which they have explained why they did not think that it did so. The Board has already discussed the significance of "necessary to give business efficacy" and "goes without saying". As for the other formulations, the fact that the proposed implied term would be inequitable or unreasonable, or contradict what the parties have expressly said, or is incapable of clear expression, are all good reasons for saying that a reasonable man would not have understood that to be what the instrument meant."
15. It is thus clear that the various formulations of the test identified by Lord Simon are to be treated as different ways of saying much the same thing. Moreover, as I read Lord Hoffmann's analysis, although he is emphasising that the process of implication is part of the process of construction of the contract, he is not in any way resiling from the often stated proposition that it must be necessary to imply the proposed term. It is never sufficient that it should be reasonable. This point is clear, for example, from the well-known speech of Lord Wilberforce in Liverpool City Council v Irwin  AC 239, where he rejected at page 253H to 254A the approach of Lord Denning, which was to permit the implication of reasonable terms. He identified two classes of implied term in the case (as here) of a complete, bilateral contract. He said that in a case of established usage the courts are spelling out what both parties know and would, if asked, unhesitatingly agree to be part of the bargain. That is not, in my opinion, this case. Lord Wilberforce added at page 253G:
"In other cases, where there is an apparently complete bargain, the courts are willing to add a term on the ground that without it, the contract will not work this is the case, if not of The Moorcock itself on its facts, at least of the doctrine of The Moorcock as usually applied."
Lord Wilberforce stressed that the test is one of necessity. Is it necessary to make the contract work?
16. I should also note that, since the end of the argument, Rix LJ has drawn my attention to what he described in Socimer Bank Limited v Standard Bank Limited  EWCA Civ 116,  Bus LR 1304 at  as a useful and authoritative modern restatement of the relevant principles by Sir Thomas Bingham MR, giving the judgment of this court, which also comprised Stuart-Smith and Leggatt LJJ, in Phelps Electronique Grand Public SA v British Sky Broadcasting Limited  EMLR 472.
17. Rix LJ quoted an extensive passage at pages 480 to 482 in Phelps. So I will not do the same but will content myself with these few points, which seem to me to underline the principles stated by Lord Hoffmann but also to stress the importance of the test of necessity. Thus, after saying that both parties accepted the propositions stated by Lord Simon in the BP Refinery case (and quoted by Lord Hoffmann), Sir Thomas Bingham said that they distilled the essence of much learning on implied terms but that their simplicity could be almost misleading. He then said this:
"The courts' usual role in contractual interpretation is, by resolving ambiguities or reconciling apparent inconsistencies, to attribute the true meaning to the language in which the parties themselves have expressed their contract. The implication of contract terms involves a different and altogether more ambitious undertaking: the interpolation of terms to deal with matters for which, ex hypothesi, the parties themselves have made no provision. It is because the implication of terms is potentially so intrusive that the law imposes strict constraints on the exercise of this extraordinary power."
18. Reference was then made to cases in which terms are routinely and unquestionably implied, as in the case of a term that a surgeon will exercise all reasonable care and skill. He added:
"But the difficulties increase the further one moves away from these paradigm examples. It is much more difficult to infer with confidence what the parties must have intended when they have entered into a lengthy and carefully-drafted contract but have omitted to make provision for the matter in issue. Given the rules which restrict evidence of the parties' intention when negotiating a contract, it may well be doubtful whether the omission was the result of the parties' oversight or of their deliberate decision; if the parties appreciate that they are unlikely to agree on what is to happen in a certain not impossible eventuality, they may well choose to leave the matter uncovered in their contract in the hope that the eventuality will not occur.
The question of whether a term is to be implied, and if so what, almost inevitably arises after a crisis has been reached in the performance of the contract. So the court comes to the task with the benefit of hindsight, and it is tempting for the court then to fashion a term which will reflect the merits of the situation as they then appear. Tempting, but wrong. For, as Scrutton LJ said in Reigate v Union Manufacturing Co (Ramsbottom) Limited  1 KB 592 at 605:
"A term can only be implied if it is necessary in the business sense to give efficacy to the contract; that is, if it is such a term that it can confidently be said that if at the time the contract was being negotiated some one had said to the parties, 'What will happen in such a case', they would both have replied, 'Of course, so and so will happen; we did not trouble to say that; it is too clear'. Unless the court comes to some such conclusion as that, it ought not to imply a term which the parties have not themselves expressed "
And it is not enough to show that had the parties foreseen the eventuality which in fact occurred they would have wished to make provision for it, unless it can also be shown that one of several possible solutions would without doubt have been preferred: Trollope & Colls at 609-10, 613-14."
The significance of both Liverpool City Council v Irwin and the Phillips Electronique case is that they both stress the importance of the test of necessity. Is the proposed implied term necessary to make the contract work? That seems to me to be an entirely appropriate question to ask in considering whether a term should be implied on the assumed facts in this case.
Issue 1: SHI's arguments
Issue 1: DB's arguments
Issue 1: Analysis
what the court is endeavouring to do is to find a concept not capable of very precise definition which reflects that the plaintiff must properly satisfy the court that it is right for the court to take jurisdiction. "Good arguable case" reflects in that context that one side has a much better argument on the material available. It is the concept which the phrase reflects on which it is important to concentrate, ie of the court being satisfied or as satisfied as it can be having regard to the limitations which an interlocutory process imposes that factors exist which allow the court to take jurisdiction.
Issue 2: service of process clauses