Farstad Supply AS v Enviroco Ltd

Summary

Hilary Term
[2011] UKSC 16
On appeal from: [2009] EWCA Civ 1399

JUDGMENT

Farstad Supply A/S (Respondent) v Enviroco Limited (Appellant)

before

Lord Hope, Deputy President
Lord Rodger
Lord Mance
Lord Collins
Lord Clarke

JUDGMENT GIVEN ON

6 April 2011

Heard on 19 and 20 January 2011

Appellant
George Bompas QC
Poonam Melwani
Saira Paruk
(Instructed by Clyde & Co LLP)

Respondent
Ceri Bryant
Ben Griffiths
(Instructed by HBJ Gateley Wareing)

LORD COLLINS

Introduction

It is not often that, as in this case, the question of the construction of a charterparty arises in the Chancery Division. The issue between the parties is whether one of them is an "Affiliate" of the charterer for the purposes of provisions in a charterparty by which both the owner and the charterer agreed to indemnify and hold each other harmless (including in the case of the charterer its "Affiliates") in relation to certain liabilities.

The charterparty provides (in clause 1):

"In this Charter Agreement the following words and expressions shall have the meanings hereby assigned to them except where the context otherwise requires:-

a) 'Affiliate' means any subsidiary of the Charterer … or a company of which the Charterer … [is] a Subsidiary or a company which is another Subsidiary of a company of which the Charterer … is a Subsidiary. For the purposes of this definition 'Subsidiary' shall have the meaning assigned to it in Section 736 of the Companies Act 1985."

By clause 1.2 a reference to any statute or statutory provision is to include a reference to any amendment, extension, consolidation or replacement thereof.

Although for the purposes of this dispute the relevant provisions are to be found in the Companies Act 1985 (as amended by the Companies Act 1989) identical provisions are re-enacted by the Companies Act 2006, and the issue on this appeal is of some general importance. The statutory definition of "subsidiary" is incorporated by reference in other legislation (e.g. Transport Act 2000, section 65; Enterprise Act 2002, section 223; Energy Act 2004, section 196). Incorporation of the statutory definition in commercial contracts (of which this case is an example) is very common. In this case it has had an unexpected result which has arisen through a combination of two factors. The first factor is that, as will be seen, the statutory definition of subsidiary in important respects uses the term "member" which normally connotes the person on the share register. The second factor flows from a difference between English and Scots law and practice relating to the holding of shares by way of security: under Scots law and practice the mortgagee is registered as the holder of the shares, by contrast with the position in England, where commonly an equitable charge by way of deposit of the share certificate will constitute the security. As Lord Hope and Lord Rodger explain fully in their judgments, under Scots law the only way in which a fixed security over shares can be taken is by fiduciary transfer of the…

JUDGMENT

6 April 2011

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Background to the litigation

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Legal Principle Established