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Archives for : June2013

Open Justice – Bank Mellat

The issue of whether or not the courts have a power to consider evidence without it being shown to one of the parties (“closed material”) where there are security reasons for this has been considered recently by the Supreme Court.

The Supreme Court had to consider whether or not it could review closed material in an appeal by Bank Mellat, an Iranian bank, concerning the measures taken by the Treasury which restricted the bank’s access to UK financial markets under the Counter-Terrorism Act 2008.[1]

The application to set aside the order included a closed material procedure, so that material which the Treasury wished to rely on could be seen by the Court without being seen by the bank, for security reasons. The bank’s appeal to the Court of Appeal was dismissed also relying in part on closed material.

The Supreme Court considered first whether it could adopt  a closed material procedure. The Court expressed distaste and concern about the possibility of such a hearing, however understandable the reasons for suggesting it were. But by a majority (6-3), the Court held that it could conduct a closed material procedure where it was necessary to dispose of an appeal fairly and there would be a risk of injustice if the Court did not consider the closed material. Thus the Court did view the closed material, although the Court have guidance for the use of closed material. In general this should be restricted as far as possible; and the Judge deciding a case should make clear the basis of the decision in the open judgment as much as can properly be said about the closed material which has been relied on. And on an appeal, the Court should only be asked to look at closed material if absolutely necessary, and if possible, it should be the subject of submissions in open court albeit without reference to the confidential sections.

This was not an easy decision: a minority dissented, considering that the principle of open justice[2] was fundamental and, without express legislative authority, the court could not limit this basic general right.

The Supreme Court went on to consider the substantive appeal,[3] and held that the Treasury’s measures were arbitrary and disproportionate as well as being unlawful because of a failure to  give the bank prior notice and the opportunity to make representations before the direction was made.

The possibility of a closed material procedure has now been implemented by the Justice and Security Act 2013 which provides for the possibility of a closed material procedure in civil cases. This will allow security-sensitive material to be put before the Court without it being disclosed in the public forum of open court. This therefore avoids the problem perceived by the security services; but does not tackle the problem that justice cannot be seen to be done and that a case can be decided without one of the parties knowing the evidence relied on by the other.


[1] Bank Mellat v HM Treasury  [2013] UKSC 38

[2] Al-Rawi v Security Service [2011] UKSC 34, [2012] 1 A.C. 531

[3] Bank Mellat v HM Treasury  [2013] UKSC 39

Excluding contractual liability – Unfair Contract Terms Act 1977

This Act has for some years regulated clauses excluding certain contractual and tortious liability – some terms are simply ineffective, others are subject to the test of reasonableness. This is primarily a question of fact for the judge at first instance, which means that it is crucial in defending an exclusion clause to succeed at trial on the facts, and this may mean putting the right facts into evidence.

In addition, if a party relies on standard terms with an exclusion / limitation clause but makes no express allegation of reasonableness, they are held to be impliedly making the case that terms are reasonable: “The assertion as to the term satisfying the requirement of reasonableness may properly be regarded as a necessary particular of the Defence which is based on the exemption clause.”[1]

This might mean ensuring that the issue is addressed in evidence even if no point is taken on the pleadings. For example – why is it necessary? What does it protect the business from? Why can’t the business take this risk? Is it standard in the industry, and if so why?

Even widely used terms can be unreasonable. An example is Schyde Investments Ltd v Cleaver.[2] The clause there which was held to be unreasonable was a term from the Standard Conditions of Sale of Land (4th edition) 7.1.3 and held that it did not exclude misrepresentation on the facts of the case. The Court of Appeal held that although the term had a long history, was a well-established feature of property transactions and had been endorsed by the Law Society, and although both sides were represented by solicitors and the parties had negotiated variations of other standard provisions, they would not interfere with the Judge’s decision on the facts of the case.

So be sure to be able to justify your exclusion clause on the facts of your case!


[1] Sheffield v Pickfords Ltd (1997) LTL 11.2.97 per Sir Ralph Gibson

[2] Schyde Investments Ltd v Cleaver [2011] EWCA Civ 929

Excluding contractual liability – step one is construction

Step one of determining whether the terms of a contract are effective to exclude liability has always been considering the proper meaning of the terms to see whether they apply to the specific situation.

This was the analysis in the recent case of Kudos Catering,[1] where the Court of Appeal had to consider wording which was said to exclude all contractual liability. The claimant was the supplier of catering services at a set of conference venue for five years. After three years, the customer purported to terminate the agreement, and the claimant treated that as a repudiatory breach. The preliminary issue was whether the customer’s liability was excluded by a provision that the customer should “have no liability whatsoever in contract, tort (including negligence) or otherwise for any loss of goodwill, business, revenue or profits … suffered by the Contractor or any third party in relation to this Agreement.

The Court held that this did not exclude liability for repudiatory breach, which amounted to entire further non-performance of the contract, otherwise the agreement would be devoid of contractual content since there would be no sanction for the customer not performing at all. This was part of an indemnity provision and related only to negligent performance as it was only this that could generate an obligation to indemnify. The courts will not lightly presume that the parties intend to abandon a general remedy for breach of contract. Thus, the clause did not exclude liability for repudiatory non-performance.

The courts in recent years have taken a more purposive and commercial, rather than literal, approach to the construction of contracts. This case shows that this applies to exclusion clauses, but so does the courts long-standing approach of construing exclusion clauses restrictively and against the party putting them forward.

[1] Kudos Catering (UK) Ltd v Manchester Central Convention Complex Ltd  [2013] EWCA Civ 38