Associated British Ports v Tata Steel UK Ltd [2017] EWHC 694 (Ch)

[2017] EWHC 694 (Ch)Case No HC-2016-002965
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 03/04/2017
Before
MRS JUSTICE ROSE
Between
ASSOCIATED BRITISH PORTSClaimantTATA STEEL UK LIMITEDDefendant
ZIA BHALOO QC and ANNA LINTNER (instructed by Eversheds Sutherland) for ClaimantHELEN DAVIES QC and JOANNE BOX (instructed by Cooley LLP) for DefendantHearing Hearing dates: 15th and 16th March 2017
Judgment ApprovedMrs Justice Rose :
[1]This judgment determines two applications which arise out of a claim brought by Associated British Ports (‘ABP’) for declaratory relief as to the proper construction of an arbitration clause in their licence agreement with Tata Steel UK Limited (‘Tata’). ABP owns and operates 21 ports in the United Kingdom including the deep water Tidal Harbour at Port Talbot in Wales. Tata is the owner of the steel making business that was previously known as British Steel and then as Corus UK. I shall refer to that business as ‘Tata’ even in respect of periods when it was operated by those earlier undertakings.[2]Near to the Tidal Harbour are Tata’s steel works known as the Port Talbot and Llanwern steel works. The iron ore and other commodities that Tata uses in its steel works are imported through the Tidal Harbour. In fact, almost all of the ships that use the Tidal Harbour are bringing goods to the Tata steel works. The current licence agreement dated 1 March 1995 (‘the Licence’) sets out the rights and obligations of Tata and ABP as regards Tata’s use of the Tidal Harbour facilities. At present, it is only the activity at the Port Talbot steel works that generates business for the Tidal Harbour; the Llanwern works have been mothballed over various periods during the currency of the Licence and although they are currently operating, that business does not require the import of goods through the port.[3]Clause 22 of the Licence provides that at any time after 15 September 2007, it is agreed that in the event of ‘any major physical or financial change in circumstances affecting the operation’ of Tata’s works or the operation of the Tidal Harbour, either party can serve notice on the other requiring the terms of the Licence to be renegotiated. The parties are then required to try to agree amended terms ‘reflecting such change in circumstances’. If they fail to agree within six months ‘the matter shall be referred to an Arbitrator’ whose decision is binding.[4]By letter dated 11 February 2016, Tata purported to give notice under clause 22 of a major financial change in circumstances and asked ABP to negotiate some amendments to the Licence, primarily a halving of the current fee that Tata pays under the Licence.[5]ABP contends that there has been no major financial change in circumstances within the meaning of clause 22 and that the 11 February 2016 letter is not sufficient to trigger the operation of the clause. Those issues are not before the court because the parties agree that they would be issues to be determined by the arbitrator if the matter is to go to arbitration. The two issues that the parties have agreed should be determined by the court are the prior issues of whether the arbitration clause is valid and if so whether the scope of the matters that can be referred to arbitration includes the Licence fee. The hearing that took place before me was therefore the hearing of part of the claim for declaratory relief that ABP issued on 17 October 2016 and in part the application brought by Tata on 11 November 2016 for a stay of those proceedings pursuant to section 9 of the Arbitration Act 1996.

The Licence

[6]The relationship between Tata and ABP governing the use of the Tidal Harbour goes back to 1970. What follows is a simplified description of the terms of the Licence sufficient for present purposes. The Licence grants Tata a licence to use ABP’s jetty at the Tidal Harbour for the purpose of receiving Tata vessels, goods and materials intended for use at the Port Talbot and Llanwern works. The fee payable by Tata comprises a number of elements set out in clause 4; a fixed annual sum of £750,000 and a variable sum paid in monthly instalments. The variable sum is in two parts. The first part amounts to £1,982,910 in the first year and that amount is adjusted for inflation by reference to an index of wholesale prices of construction materials in subsequent years. The second part is the sum of £2,034,827 in the first year also adjusted for inflation by reference to an index for wages and prices for later years.[7]There are other obligations in the Licence for Tata to pay additional sums to ABP including:a. ‘Offset receipts’ which are sums payable in respect of ancillary services provided at the Harbour, subject to a minimum of £61,000 per year;b. Reimbursement by Tata of various rates and charges incurred by ABP in respect of the Tidal Harbour such as sewer and drainage rates;c. a stepped tonnage rate payable for each tonne Tata brings in through the Harbour, subject to a guaranteed minimum of 4,572,200 tonnes per year;d. a proportionate part of the cost of repairing, cleaning and renewing the party walls, drains and other works in the Harbour used by Tata.[8]ABP for its part agrees to maintain the facilities at the Tidal Harbour other than the jetty and to dredge the berth next to the jetty to a depth adequate to ensure that a bulk carrier vessel of a specified kind lying in the berth will be afloat at a water level of two feet below the level of the Mean Low Water of Spring Tides. They also undertake to dredge an approach channel to the Tidal Harbour to a specified depth.[9]The Licence envisages circumstances when the parties will cooperate for their mutual benefit in the development of the Tidal Harbour. Thus, clauses 9 and 10 provide that if the parties decide that it is necessary or desirable to carry out additional works for the purpose of making the Tidal Harbour more safe or more convenient for Tata’s vessels and ABP incur a capital sum in carrying out those works, then Tata will make an annual payment to ABP in respect of that. They also share between them any revenue generated by third parties using the Harbour (clause 11).[10]There is a force majeure clause, clause 18, which provides that if there is a strike at the Port Talbot or Llanwern works or any force majeure event that prevents the import of Tata’s goods through the Tidal Harbour, Tata can notify ABP of this. The guaranteed throughput figure will be reduced pro-rata to reflect days lost, provided that the Licence term is then extended by that same number of days.[11]Clause 21 provides that after 15 September 2007, the Licence shall be determined 12 months from the date on which Tata serves written notice on ABP confirming the closure of both its Port Talbot and Llanwern works.[12]Clause 22 is the key provision in this application:
“It is hereby agreed between the parties that in the event of any major physical or financial change in circumstances affecting the operation of [Tata’s] Works at Llanwern or Port Talbot or ABP’s operation of the Tidal Harbour on or at any time after the 15th day of September 2007 either party may serve notice on the other requiring the terms of this Licence to be re-negotiated with effect from the date on which such notice shall be served. The parties shall immediately seek to agree amended terms reflecting such change in circumstances and if agreement is not reached within a period of six months from the date of the notice the matter shall be referred to an Arbitrator (whose decision shall be binding on both parties and who shall so far as possible be an expert in the area of dispute between the parties) to be agreed by the parties or (if the parties shall fail to agree) to be appointed on the joint application of the parties or (if either shall neglect forthwith to join in such application then on the sole application of the other of them) by the President for the time being of the Law Society.”

The correspondence leading up to the applications

[13]On 11 February 2016, Tata wrote to ABP as follows (TSUK being Tata):
“1. TSUK gives notice under clause 22 of the Licence that a major financial change in circumstances has affected the operation of TSUK’s Works at Llanwern and Port Talbot and that the terms of the Licence must be renegotiated with effect from the date of this letter of notice. … 4. TSUK seeks the following amended terms: (a) a 50% reduction in the fixed fees amounting to £3.5 million per annum; and (b) if any such sum is contractually due, a waiver of any additional Jetty dredging fee due until the end of the Licence (i.e. 15 March 2020). If an agreement is not reached within six months the parties must refer this matter to an Arbitrator whose decision will be binding.”
[14]ABP contend that that letter is not effective to trigger clause 22. That is a matter for the arbitrator if the matter goes to arbitration and nothing I say in this judgment should be read as expressing any view as to whether it is or not.[15]ABP wrote back on 22 February 2016. They described how ABP has committed considerable resources in the recent past in an effort to deliver long term, sustainable cost savings for Tata. They have identified some significant initiatives that have the potential to reduce Tata’s cost base and deliver mutual benefits to both parties. In that letter, ABP asked Tata to clarify the nature of the major financial change in circumstances that is affecting the operation of Tata’s works at Llanwern and Port Talbot and to explain why Tata believes that the change provides a basis for seeking to renegotiate the terms of the Licence.[16]Tata responded on 8 March 2016 setting out the major financial change on which they rely:
“As you will be aware, there are currently significant market challenges facing the steel industry in the UK. The challenging market conditions include (but are not limited to) the fact imports of steel into Europe have doubled and imports from China have quadrupled causing a sharp reduction in steel prices. This has been combined with a strong pound which has undermined the competitiveness of the UK business’s Europe-bound exports and encouraged more imports into the UK. In addition, the US has increased import tariffs on steel supplied from the UK. At our initial meeting on 21 January 2016, we set out the business position relative to these critical circumstances. As we outlined, Tata Steel’s Strip Products hub has been tasked with making its operations sustainable, as the business will not have a future if it continues making significant losses. In response to this, we have removed 1mt of annualised steelmake with the mothballing of part of our Llanwern facility in August 2015. This is part of a rightsizing of the business for what we believe to be at least a 5 year horizon. In addition, over the last ten months, TSUK has announced a significant reduction in its UK workforce; of the 3,000 job losses announced, over a third of these have been in the Strip Products UK hub. We therefore need to urgently reduce our fixed costs, not only to reflect the significant reduction in the volume of steel we are manufacturing, but also to ensure that the business is sustainable and can continue to operate. The fixed costs payable by TSUK under the Licence currently put Tata Steel’s UK Strip Products business at a significant disadvantage because they are much higher than those paid by its European sister plant in Ijmuiden and its competitors. In light of these significant changes in our circumstances and the excessive fees which are currently being charged by ABP in respect of our use of the jetty and premises at Port Talbot, we have requested a renegotiation of the terms of the Licence in accordance with clause 22.”
[17]The letter went on to express Tata’s appreciation of its long standing commercial relationship with ABP and its gratitude for the improvement projects that ABP has invested in though pointing out that Tata expected no less from its long term partners. In direct response to the request for clarification in ABP’s letter Tata said:
“1. Clause 22 – Renegotiations of Terms The major financial change in circumstances that is affecting the operation of TSUK’s works at Llanwern and Port Talbot are public knowledge. However, for the sake of clarity we have summarised the changes in the opening paragraphs of this letter. TSUK has given notice of the above financial change to ABP as envisaged by clause 22. We note your reservation regarding the extent to which TSUK has satisfied the requirements of the clause. Please clarify which element or elements of the clause you believe TSUK has not met?”
[18]In reply to that letter, ABP wrote raising the issue of the unenforceability of the arbitration clause, putting forward broadly the arguments that were made at the hearing of the applications before me.

The Arbitration Act 1996

[19]Section 9 of the Arbitration Act 1996 provides so far as relevant:
“9 (1) A party to an arbitration agreement against whom legal proceedings are brought (whether by way of claim or counterclaim) in respect of a matter which under the agreement is to be referred to arbitration may (upon notice to the other parties to the proceedings) apply to the court in which the proceedings have been brought to stay the proceedings so far as they concern that matter. […] (4) On an application under this section the court shall grant a stay unless satisfied that the arbitration agreement is null and void, inoperative, or incapable of being performed.”
[20]The test that the court applies when considering an application to stay proceedings which the defendant claims, but the claimant disputes, are governed by an arbitration clause was summarised by Popplewell J in Golden Ocean Group Ltd v Humpuss Intermoda Transportasi Tbk Ltd & another (“The Barito”) [2013] EWHC 1240 (Comm) [2013] 2 Lloyd’s Rep 421 at para 59. The court’s jurisdiction to grant a stay may arise under section 9 of the Arbitration Act 1996 or under its inherent jurisdiction. Section 9(1) permits the grant of a stay only if the defendant is party to a written arbitration agreement by which the parties have agreed to refer to arbitration the matters in respect of which claimant has brought the proceedings. Section 9(1) is concerned with whether an agreement to arbitrate was concluded and with whether the scope of the agreement to arbitrate extends to the matters in issue between the parties in their substantive dispute. If section 9(1) is fulfilled, section 9(4) requires the court to grant a stay unless satisfied that the arbitration agreement is null and void, inoperative or incapable of having effect. It is for the defendant to satisfy the court that he comes within section 9(1) before the court can grant relief under that section. It is not enough for him to show merely an arguable case that he is party to a concluded arbitration agreement. Unless the court is satisfied that that is so, there is no jurisdiction under the section to stay proceedings. The court must therefore determine the dispute if it affects the question whether the defendant comes within section 9(1). If the defendant has brought himself within section 9(1), it is for the claimant to satisfy the court that the arbitration agreement is null and void, inoperative or incapable of having effect under section 9(4). If the claimant cannot do so, the court must grant a stay, there is no discretion not to do so.[21]The issues to be decided in these applications are therefore:a. If Clause 22 is a binding arbitration clause, do the terms which the arbitrator can amend once a matter is referred to him include the Licence fee?b. Is Clause 22 void for uncertainty because: i. The triggering event “any major physical or financial change in circumstances” is too uncertain to create a binding obligation to refer a dispute to arbitration; and/or ii. There are no or insufficient objective criteria to guide an arbitrator in deciding how to amend the Licence terms if a matter is referred to him so that the term is too uncertain because it is akin to an agreement to agree.[22]The first issue is, broadly speaking, an issue falling within section 9(1) of the Arbitration Act and the second is a scope issue falling within section 9(4).

Does the scope of the arbitration include the licence fee?

[23]I can deal with this issue briefly since ABP rightly did not press their contention that the fee was excluded from the terms which the arbitrator can consider. In my judgment, it would need very clear words indeed before one would construe a clause which envisages a potentially extensive revision of the Licence terms as excluding such a key element of the bargain as the fee. Any major physical or financial change in circumstances which affects the operation of the parties’ facilities is likely to affect the fee that Tata is prepared to pay under the Licence or which ABP considers fair recompense for the services it provides.[24]ABP argues that the Licence fee is not to be the subject of the renegotiation under clause 22 because there are other clauses in the Licence which deal with the adjustment of the fee to take account of various changes in circumstance. Thus, clause 5 provides for the annual amendment of the variable sum by adjusting it for inflation. It also provides for what is to happen if either party considers that the indices used for the annual inflation adjustment are causing an “inequitable variation” of the variable sum in real terms. In that event the parties must discuss and agree the substitution of a more appropriate index or indices. In default of such agreement within three months, either party can require the question to be settled by an arbitrator. Clause 14 which deals with the annual tonnage throughput rates payable by Tata also provides for the rates to be varied annually and for what is to happen if the relevant index ceases to be published. Again, the Licence provides that in the absence of agreement between the parties either side can require the question to be referred to an expert with special knowledge of financial and economic matters who is competent to give a reliable opinion on the question referred.[25]On this point I accept the submissions of Ms Davies QC on behalf of Tata that there is no inconsistency between the presence of these clauses in the Licence and a construction of clause 22 as covering the fee. The other Licence provisions that may result in a variation of the fee contemplate relatively minor annual adjustments to take account of readily foreseeable changes in a long-term agreement. They do not provide a mechanism for altering the fee to take account of a major change in circumstances. The mechanism for that is, in my judgement, clause 22.

Clauses which are void for uncertainty: general principles

[26]The authorities to which I was referred by the parties all stress that each case in which a clause is challenged as being void for uncertainty is to be decided on its own facts. The court must not transpose a decision in a case in respect of one set of words in one contract to another. Nonetheless I found the authorities illuminating both as to the general principles to be applied and on the more specific submissions by counsel.[27]Many of the cases also stress that the courts should strive to give some meaning to contractual clauses agreed by the parties if it is at all possible to do so. Of the many authorities making this point, I can refer to three in particular. Hillas & Co Ltd v Arcos Ltd (1932) 32 Lloyd’s Rep 359 (‘Hillas v Arcos’) concerned a term agreed between the parties in 1930 for the purchase by the claimant from the defendant during the 1930 Russian timber season of not less than 10,000 standards of softwood timber on terms. The claimants in fact bought substantially more than that. The parties then entered into an option for the 1931 Russian timber season that if the claimant bought 22,000 more standards during 1930, they would have an option to buy “100,000 standards for delivery during 1931”. The claimant bought the extra 22,000 standards and purported to exercise the option. The defendant argued that the option was too uncertain because no price had been agreed for the 100,000 standards and there was no specification as to what kinds of timber would be bought or of what quality. Lord Wright gave the following description of the task facing the court in a passage that has been cited in many later cases:
“The document of the 21st May 1930 cannot be regarded as other than inartistic, and may appear repellent to the trained sense of an equity draftsman. But it is clear that the parties both intended to make a contract and thought they had done so. Business men often record the most important agreements in crude and summary fashion; modes of expression sufficient and clear to them in the course of their business may appear to those unfamiliar with the business far from complete or precise. It is accordingly the duty of the court to construe such documents fairly and broadly, without being too astute or subtle in finding defects; but, on the contrary, the court should seek to apply the old maxim of English law, verba ita sunt intelligenda ut res magis valeat quam pereat. That maxim, however, does not mean that the court is to make a contract for the parties, or to go outside the words they have used, except in so far as there are appropriate implications of law, as for instance, the implication of what is just and reasonable to be ascertained by the court as a matter of machinery where the contractual intention is clear but the contract is silent on some detail. Thus in contracts for future performance over a period, the parties may neither be able nor desire to specify many matters of detail, but leave them to be adjusted in the working out of the contract. Save for the legal implication I have mentioned, such contracts might well be incomplete or uncertain; with that implication in reserve they are neither incomplete nor uncertain. As obvious illustrations I may refer to such matters as prices or times of delivery in contracts for the sale of goods, or times for loading or discharging in a contract of sea carriage. Furthermore, even if the construction of the words used may be difficult, that is not a reason for holding them too ambiguous or uncertain to be enforced if the fair meaning of the parties can be extracted…”
[28]Lord Wright recognised that the contract left many aspects of the transaction to be sorted out at a later stage:
“Such matters may require, as the performance of the contract proceeds, some consultation and even concessions between the sellers and the buyers, but there is no uncertainty involved because, if there eventually emerge differences between the parties, the standard of what is reasonable can, in the last resort, be applied by the law, which thus by ascertaining exact dates makes precise what the parties in the contract have deliberately left undefined. Hence in view of this legal machinery id certum est quod certum reddi potest…”
[29]From that early case one can come bang up to date with the judgment of Leggatt J in Astor Management AG & ors v Atalaya Mining plc & others [2017] EWHC 425 (Comm) handed down a few days before the hearing of these applications. That case concerned the interpretation of a clause imposing an obligation on one party to use all reasonable endeavours to obtain a senior debt facility. It was argued by the defendants that the clause was too uncertain to be valid both because the object which the party was to achieve by its endeavours was too uncertain and also because there were no sufficient criteria against which to evaluate whether the party’s endeavours had been reasonable or not. Leggatt J rejected a contention that the requirements of certainty of object and sufficient objective criteria are difficult to satisfy. He said:
“64. … The role of the court in a commercial dispute is to give legal effect to what the parties have agreed, not to throw its hands in the air and refuse to do so because the parties have not made its task easy. To hold that a clause is too uncertain to be enforceable is a last resort or, as Lord Denning MR once put it, “a counsel of despair”: see Nea Agrex SA v Baltic Shipping Co Ltd [1976] 1 QB 933, 943.”
[30]Leggatt J quoted four authoritative statements for the propositions that the courts are reluctant to come to a conclusion that parties have failed in their obvious intention to create a binding obligation; that mere difficulties of interpretation are not the same as ambiguity of meaning so long as any definite meaning can be extracted; and that a court will only hold a contract or some part of it void for uncertainty ‘if it is legally or practically impossible to give the agreement (or that part of it) any practical content’. He went on to hold that:
“67. … Whether the party who gave the undertaking has endeavoured to make such an agreement (or used its best endeavours to do so) is a question of fact which a court can perfectly well decide. It may sometimes be hard to prove an absence of endeavours, or of best endeavours, but difficulty of proving a breach of a contractual obligation is an everyday occurrence and not a reason to hold that there is no obligation. Any complaint about lack of objective criteria could only be directed to the task of judging whether the endeavours used were “reasonable”, or whether there were other steps which it was reasonable to take so that it cannot be said that “all reasonable endeavours” have been used. Where the parties have adopted a test of “reasonableness”, however, it seems to me that they are deliberately inviting the court to make a value judgment which sets a limit to their freedom of action.”
[31]Ms Davies stressed that the courts are particularly reluctant to find a clause too uncertain to create an obligation in cases where the contract of which the clause forms part has already been performed by one or both parties over a period of time. She relied on the principles set out by Rix LJ in Mamidoil-Jetoil Greek Petroleum Co SA v OKTA Crude Oil Refinery AD [2001] EWCA Civ 406 (‘Mamidoil’). That case concerned a 10 year contract for handling crude oil at the claimant’s refinery. A dispute arose as to whether the initial 10 year period was a binding obligation for that length of time or was a maximum period, because the price for the services provided under the contract by the refinery was only agreed in respect of the first two years of supply. The contract contained an arbitration clause covering any dispute arising under the agreement. Rix LJ noted that in long term contracts it may be necessary for the parties to leave some matters to be agreed later. An arbitration clause “assists the court to find sufficient certainty by means of the implication of what is reasonable. Which is not to say, that the court will not itself provide the dispute resolution machinery, even in the absence of an arbitration clause.” (paragraph 67). He drew a distinction between those cases where the court is considering whether a contract has been agreed at all between the parties and those where the court is considering whether a particular clause in an otherwise binding agreement is valid. In the former, a phrase such as ‘to be agreed’ may be fatal because the parties cannot agree to agree. But in the later situation, where a contract has come into existence, even the expression ‘to be agreed’ in relation to future executory obligations is not necessarily fatal. The courts will assist the parties to work out their contract “so as to preserve rather than destroy bargains, on the basis that what can be made certain is itself certain”.[32]Other cases have also emphasised the significance of the fact of part performance in prompting the court to find a way to uphold the validity of the clause in question. For example in MRI Trading AG v Erdenet Mining Corporation LLC [2013] EWCA Civ 156 (‘MRI Trading’) at para 18, Tomlinson LJ, giving the judgment of the court, referred to the challenged provision as being ‘an integral part of an overall deal pursuant to which both parties had derived benefits, a deal which they had worked through together for over a year without any suggestion that the final part thereof fell into a different and unenforceable category of obligation’. In F & G Sykes (Wessex) Ltd v Fine Fare Ltd [1967] Lloyd’s Rep 57 (‘Sykes v Fine Fare’) Lord Denning MR said that in a commercial agreement, ‘the further the parties have gone on with their contract, the more ready are the courts to imply any reasonable term so as to give effect to their intentions’. He went on (pp. 57 – 58):
“… when an agreement has been acted upon and the parties as here have been put to great expense in implementing it, we ought to imply all reasonable terms to as to avoid any uncertainties. In this case there is less difficulty than in others because there is an arbitration clause which, liberally construed, is sufficient to resolve any uncertainties that the parties have left.”
[33]Ms Bhaloo QC appearing for ABP submitted that this is not a “category 2 case” where the parties have part performed a binding agreement which contains a potentially uncertain clause, because those cases are influenced by the court’s understandable hostility to one party, which having had the benefit of the performance of the obligations owed to it, then seeks to avoid fulfilling its own obligations by arguing that its own obligations are too uncertain to be binding. For example, in Foley v Classique Coaches Ltd [1934] 2 KB 1, Scrutton LJ said at the outset of his judgment that he was glad to conclude that the contract could be upheld because he did not regard the appellants’ contention otherwise as an honest one. In the present case, by contrast, Ms Bhaloo says that both ABP and Tata have fulfilled their obligations under the Licence over the years and Clause 22 is there for the benefit of both parties not just Tata. If it is void for uncertainty that would prevent ABP from taking advantage of it as well as Tata.[34]In my judgment, this case clearly falls in the second category of cases, where the court is particularly reluctant to find that a clause is void for uncertainty. It is not difficult to see the commercial sense behind including a clause of this kind. ABP and Tata are in a relationship of mutual interdependence. Tata’s ability to operate its steel works is dependent on acquiring the jetty services from ABP and the viability of the Tidal Harbour is currently dependent on the imports of a large tonnage of material by Tata through its facilities. The contract lasts for 25 years. Both clause 21 and clause 22 indicate that the half way point in that period, namely 15 September 2007, was intended by the parties to enable the first major reassessment of the relationship. Before that date, Tata could not escape its liability to pay ABP several million pounds annually for the use of the Tidal Harbour even if both the Port Talbot and the Llanwern steel works closed during that time. In that event, the first opportunity that Tata had to terminate the contract was by giving 12 months’ notice of determination after 15 September 2007. In the event of a change short of the closure of both steel works, Tata is tied in to the whole 25 year period paying the substantial fixed and variable sums and a tonnage rates for a minimum of 4,572,200 tonnes even if the tonnage it requires has dwindled to something much less than that, unless it can trigger clause 22. I accept Ms Davies’ submission that it is plain from clause 22 that when the parties entered into the Licence in 1995 they did not intend that either party would bear the risk of the Licence terms being immutable for 25 years unless both steel works closed.[35]However, Ms Davies’ accepted that the authorities do not go so far as to say that in a ‘category 2’ case the court can never find that the challenged provision is invalid. I therefore turn to consider whether clause 22 is nonetheless too uncertain to create a binding obligation. “Any major physical or financial change in circumstances”[36]The first question is whether it is possible to identify when there has been a major physical or financial change in circumstances or whether that phrase is too uncertain for an arbitrator to be able to come to a sensible decision as to whether the arbitration clause has been validly triggered.[37]Ms Bhaloo submits that it is not possible for an arbitrator to decide whether a trigger event has occurred as Tata contend. She draws attention to the fact that the market conditions under which both Tata and ABP operate their businesses fluctuate enormously over relatively short periods. The global price of steel, changes in currency rates, the costs of shipping all rise and fall making the parties’ respective businesses more or less profitable on a yearly if not monthly basis. Ms Bhaloo illustrates this in two ways. First she has analysed the description of Tata’s business in the company’s annual reports and accounts filed over the years. There are frequent references to changes in demand brought about by changes in global car production, recession in Europe, recession in China or overproduction of steel in China. Similarly, there are frequent references to the fluctuations in Tata’s cost base – raw material costs, energy costs, the cost of complying with environmental regulation, improvements in productivity brought about by changes in technology or employment levels. In some years the accounts record the acquisition of some other undertaking’s activities or the mothballing, selling or restructuring of parts of Tata’s business elsewhere in the UK or Europe. How can anyone assess at what point one or more of these is sufficiently serious to constitute a major physical or financial change in circumstances? Secondly, she points to the fact that the changes described in Tata’s 8 March letter have in fact changed considerably since that time. Since that letter was written, the pound has greatly weakened, and better than expected demand in China has brought about a sustained rally in steel prices and a reduction in exports from China into Europe.[38]ABP rely on the decision of the House of Lords in G. Scammell and Nephew Ltd v H C and J G Ouston [1941] AC 251 (‘Scammell v Ouston’). In that well-known case, the appellants Scammell negotiated to sell a new van to the respondents, Ouston, to be paid for in part by cash and in part by Ouston trading in their old van. Ouston wrote to Scammell acknowledging Scammell’s receipt of Ouston’s order given on the understanding that the cash part of the price ‘can be had on hire-purchase terms over a period of two years’. Scammell identified a hire purchase company with which they were happy to deal but then decided not to proceed with the sale. When sued by Ouston, Scammell argued that until the hire purchase agreement was concluded neither party was bound and that the alleged agreement was void for uncertainty. The House of Lords held that there was no binding agreement. Viscount Maugham said that in considering the effect of the supposed contract being on hire purchase terms, their Lordships were confronted with a strange and confusing circumstance. A hire purchase agreement can assume many forms and some of the variations possible are highly significant. There was no evidence to suggest that there are some ‘usual terms’ in such a contract and it was impossible to conclude that a binding agreement had been established. Lord Russell of Killowen also noted that a purchase on hire purchase terms could be brought about in various ways and by documents containing a multiplicity of different terms. In view of that, Ouston was faced with a fatal alternative; either the term of the alleged contract was quite uncertain as to its meaning and prevented the existence of an enforceable contract or the term left essential contractual provisions for further negotiation between the parties with the same result.[39]In addition to Scammell v Ouston Ms Bhaloo referred me to two other cases which are, in my view, clearly cases where no contract has been entered into at all between the parties. Courtney & Fairbairn Ltd v Tolaini Brothers (Hotels) Ltd and another [1975] 1 WLR 297 concerned an agreement between a site developer and building contractors who introduced a financier to provide money for the development project. The question arose whether the developer had entered into a binding and enforceable contract to employ the contractors to carry out the development work at a price to be agreed. The Court of Appeal held that since there had been no agreement upon such a fundamental matter as the price in a building contract or the method by which it was to be calculated there was no contract. In Walford & ors v Miles & ors [1992] 2 AC 128, the House of Lords held that the parties in that case had not progressed beyond the negotiation stage in their discussions about the sale of a company and some of its assets. I do not consider that either of these cases is of any great help in determining the present dispute.[40]In my judgment, the issue in the present case is very different from the issue that arose in Scammell v Ouston. In Scammell v Ouston the problem did not lie in defining the class of hire purchase agreements or being able to decide whether a contract was or was not properly described as a hire purchase agreement. Rather the problem lay in determining which of the many documents undoubtedly falling within that class was the one that the parties intended to adopt. The distinction was brought out most clearly in the speech of Lord Wright when he said (at page 268) that there were two grounds on which the court should hold that there was no contract in that case: “The first is that the language used was so obscure and so incapable of any definite or precise meaning that the court is unable to attribute to the parties any particular contractual intention. The object of the court is to do justice between the parties, and the court will do its best, if satisfied that there was an ascertainable and determinate intention to contract, to give effect to that intention, looking at substance and not mere form. It will not be deterred by mere difficulties of interpretation. Difficulty is not synonymous with ambiguity so long as any definite meaning can be extracted. But the test of intention is to be found in the words used. If these words, considered however broadly and untechnically and with due regard to all the just implications, fail to evince any definite meaning on which the court can safely act, the court has no choice but to say that there is no contract. Such a position is not often found. But I think it is found in this case. My reason for so thinking is not only based on the actual vagueness and unintelligibility of the words used, but is confirmed by the startling diversity of explanations, tendered by those who think there was a bargain, of what the bargain was. I do not think it would be right to hold the appellants to any particular version. It was all left too vague”.[41]He went on to hold that the ‘still sounder reason’ against enforcing the claim was that the agreement was inchoate and never got beyond negotiations.[42]In the present case, there is no need to choose between different major physical or financial changes in circumstances – the problem is rather whether it is possible to define the boundaries of the class so as to be able to determine whether something is or is not a major physical or financial change in circumstances. In considering this issue I bear in mind that as Lord Wright said in Hillas v Arcos (page 369), the phrase must not be divorced from the rest of the agreement but construed in the context of the other terms of the Licence. The decision of the Court of Appeal in Jet2.com Ltd v Blackpool Airport Ltd [2012] EWCA Civ 417 is also relevant here. That case concerned a long term contract between the low cost airline and the airport. The contract placed an obligation on the parties to cooperate together and use their best endeavours to promote Jet2.com’s low cost services from the airport. The question arose whether the airport was obliged to allow Jet2.com to operate flights outside the airport’s normal opening hours. The airport argued that the clause was unenforceable, because the object of promoting Jet2.com’s services was too uncertain. Counsel for the airport submitted that although it was possible to say that certain conduct did or did not fall within the scope of the obligation that did not mean that the phrase was sufficiently certain to be enforceable. The majority in the Court of Appeal disagreed. Moore-Bick LJ referred to earlier cases where obligations to use reasonable or best endeavours to achieve goals such as to develop one party’s railway traffic or to promote the sales of fountain pens and ink bottles designed by the claimant or to agree a contract with a third party had been upheld as valid. He said at paragraph 29 that:
“… there is an important difference between a clause whose content is so uncertain that it is incapable of creating a binding obligation and a clause which gives rise to a binding obligation, the precise limits of which are difficult to define in advance, but which can nonetheless be given practical content”
[43]I take this, and Lord Wright’s speech in Scammell v Ouston, to mean that provided one can posit some changes which would definitely fall within the scope of the phrase “major physical or financial change in circumstances” and some changes which clearly falls outside it, then the phrase is sufficiently certain to be enforceable even though it may be difficult in the abstract to draw the precise divide between changes falling on either side of the line.[44]I consider that the trigger phrase used in clause 22 is sufficiently certain to create a binding obligation on ABP and Tata to refer a dispute to arbitration. The wording and context of the clause point to the kinds of changes that can trigger the right to seek a revision of the Licence. I do not wish to trespass onto the territory of the arbitrator, particularly since he or she will be chosen for possessing an expertise appropriate to construing this clause. However, I would say that the wording does not leave the scope of the trigger entirely open-ended. There must not only be a major physical or financial change in circumstances but also one that affects the operation of the Tidal Harbour or of Tata’s nearby steel works. This it seems to me excludes several of the changes recorded in Tata’s annual reports and accounts over the years to which Ms Bhaloo referred. Those changes may have had an impact on Tata’s overall health, but they do not appear capable of affecting the operation of the two steel works.[45]As regards the context of Clause 22, the arbitrator may take the view that the following points are relevant:a. Tata is obliged to pay substantial sums to ABP during the first half of the Licence period without any opportunity to ask for a reduction in those sums even if both the steel works that import goods through the Tidal Harbour have closed.b. Some changes in circumstances are dealt with by other specific clauses of the Licence; that may point away from them being potential triggers for clause 22.c. The fees payable by Tata are calculated according to various parameters, such as annual tonnage. Any major change in that parameter is likely to be the kind of change that the parties intended could prompt a revision of the terms of the Licence. Conversely the obligations placed on ABP include the obligations to dredge, to maintain the jetty or to give priority to Tata for use of the berth. Any major change that had a significant impact on ABP’s ability to perform those obligations is, again, likely to be the kind of change that triggers the operation of the clause.d. There are rapid and wide fluctuations in factors affecting the profitability of both parties such as currency exchange rates and steel prices so that the parties may not have intended that temporary changes in those factors within the range of historical fluctuation would be included in the scope of the term.[46]ABP point to other uncertainties in the construction of the clause such as whether the comparison to be made by the arbitrator in considering whether there has been a major change is with the situation at the commencement of the Licence period or the moment just before the alleged change occurred. I recognise that there may be many difficult issues for the arbitrator to decide. Depending on the context, the answer to some problems that ABP posit may arise may be obvious; or they may need detailed submissions from the parties and perhaps evidence from witnesses or experts. But these issues are justiciable issues on which the arbitrator will hear submissions and come to a reasoned conclusion. They are not questions which it is impossible to answer.[47]I therefore reject the contention that clause 22 is too uncertain because the trigger for an arbitration request is too vague.

Amending the Licence to reflect the change in circumstances

[48]ABP’s second argument was that there are no criteria either within or outside the Licence by which the arbitrator can decide how to amend the terms of the Licence in the light of the major physical or financial change in circumstances that has occurred.[49]Tata’s answer to this is to point to many cases in which the courts have inserted the word ‘reasonable’ at an appropriate point in a challenged clause and proceeded to uphold the clause as sufficiently certain on the basis that what is reasonable can be ascertained by a court or an arbitrator in the event of disagreement between the parties. Thus, in Foley v Classique Coaches the defendant agreed to buy a plot of land with the condition that he enter into an obligation to buy all his petrol requirements for his business from the claimant who operated a nearby filling station. The agreement provided that the defendants would pay the petrol price to be agreed by the parties in writing and from time to time. The agreement also contained an arbitration clause for any dispute or difference that arose on the subject matter or construction of the agreement. For three years, the defendants duly obtained their petrol from the plaintiff. However, the defendants then purported to repudiate the agreement alleging that it had no binding force, amongst other reasons because it was too uncertain. Scrutton LJ had no difficulty in implying into the contract a term that the petrol be supplied at a reasonable price and be of reasonable quality. There was therefore an effective and enforceable contract even though no definite price had been agreed for the petrol. Maugham LJ said at the outset of his judgment that it is indisputable that unless all the material terms of the contract are agreed there is no binding obligation. An agreement to agree in the future is not a contract; nor is there a contract if a material term is neither settled or implied by law and the document contains no machinery for ascertaining it. But he also implied into the contract a proviso that the price for the petrol was a price to be agreed or a fair and reasonable price if the price could not be agreed.[50]In Sykes v Fine Fare the Court of Appeal had to assess the quantum of loss arising from the repudiation of the contract by Fine Fare. Fine Fare had agreed to build a factory to process a large number of broiler fowl raised from chicks produced by the claimant. The number of chicks that Fine Fare was obliged to process was left by the parties to be agreed in the later period covered by the agreement. To calculate how much business the claimant had lost by Fine Fare’s early repudiation of the contract, the Court implied into the agreement a term that the number of chicks to be supplied would be a reasonable number. As to how one would ascertain what a reasonable number of chicks would be, Lord Denning MR said “This question will have to be answered having regard to the probabilities. The number is to be a reasonable number, having regard to the capacity of the factory and the quantities which it is estimated Sykes would produce.” Danckwerts LJ also addressed the question how a reasonable number could be ascertained:
“there were certain methods by which those numbers would be produced. There would be the capacity of the factory erected by the defendants. … On the other side there was the capacity of the plaintiffs through their various operations, as to the number of chicks which the plaintiffs, through the nominated growers, were able to offer to the defendants for processing in their factory.”
[51]Winn LJ in Sykes v Fine Fare referred to the parties having regard on the one hand to the need of the factory to be efficiently used to its capacity for processing broiler fowl and on the other hand the demand of the existing hatcheries and the facilities available to Sykes for producing the chicks. That, he said was “the yardstick of the obligation of Fine Fare, the defendants, under this contract.”.[52]Finally, MRI Trading concerned a contract for the purchase of copper concentrate. Earlier disputes were compromised in a settlement agreement which provided for sales of specified tonnage of copper concentrate for the two following years. The seller repudiated the contract after the first year claiming that it was not binding because no agreement had been reached on either the treatment charge/refining charge or the shipping schedule for the concentrate. Tomlinson LJ had no doubt that a term should be implied that the TC/RC and shipping schedule should be reasonable, and in the event of any dispute as to the appropriate charges and schedule the dispute was to be determined by arbitration.[53]However, Ms Bhaloo argues that in a case such as this, there are numerous, possible infinite variables which the arbitrator could choose when determining the dispute. It does not help anyone to say that the revised terms must be ‘reasonable’ because that is not of itself an objective standard and there is no objective method by which the arbitrator can choose between the competing submissions of the parties as to what changes should be made to the Licence. Where there are no standards or tests that can be applied to arrive at the terms of a new contract, the clause is too uncertain because it is not open to an arbitrator just to choose which one he or she wants to apply.[54]In support of the existence of a requirement for an objective criterion for the arbitrator’s determination of what is reasonable, Ms Bhaloo relies on Dŵr Cymru Cyfyngedig v Corus UK Ltd [2007] EWCA Civ 285. That case concerned an agreement for the supply of water to the Llanwern steel works. The agreement contained a renewal clause that at the end of the term, Corus had the right to be supplied with water on terms to be agreed or in the event of a failure to agree, on terms to be determined by the Director General of Water Supply under section 56 of the Water Industry Act 1991. There was a dispute as to whether the statutory powers conferred on the Director General to settle disputes about water supply terms were exercisable in relation to this agreement and the Court held that they were. Moore-Bick LJ (with whom Kay and Ward LJJ agreed) considered briefly whether if the mechanism agreed between the parties to resolve their disputes had failed, the agreement would then have been void for uncertainty. He commented that (emphasis added):
“22. … Where many important terms have been left undecided and the contractual machinery for resolving disagreements is incapable of being operated, it may be impossible to avoid the conclusion that the agreement as a whole is unenforceable because the parties have failed to establish objective criteria capable of being applied by the court itself. In my view that is a very real difficulty in the present case, but I would not rule out altogether the possibility that with the assistance of expert evidence the court could determine sufficient terms by reference to what is reasonable in the circumstances. However, in the light of the conclusion to which I have come on the other issues raised in this case it is unnecessary to reach a final decision on that point.”
[55]Ms Bhaloo also points to the reference in the judgment of Winn LJ in Sykes v Fine Fare to the ‘yardstick’ of Fine Fare’s obligation. Before the court can imply a reasonableness or fairness criterion into an otherwise uncertain contract, the court must be satisfied that there is some “yardstick” or objective criterion according to which the court or arbitrator called upon to identify the price, rent or other terms and conditions can arrive at a decision. In the present case, she submits, none of the yardsticks relied on in the earlier cases is of any assistance. A yardstick may be found within the terms of the contract itself as happened in Hillas v Arcos where the other contractual terms supplemented the content of the challenged clause. However, clause 22 is only triggered when there has been a major change of circumstances, implying that no guidance can be derived from the existing terms of the contract when deciding how the contract should be revised. Similarly, it is difficult to derive any guidance from how the parties here have operated the agreement over the past 12.5 years, in the way that the court was able to find guidance from the past practice of the parties in MRI Trading. There is no standard port access contract and the case is distinguishable, therefore, from Foley where there would be no difficulty in establishing a market price for petrol.[56]I accept that the case law does indicate that before implying a reasonableness term, the court must be satisfied that in due course the court or an arbitrator will have some means of deciding what is reasonable and what is not reasonable. But it is also clear from the cases that this requirement should not easily defeat the implication of a reasonableness criterion to supplement an otherwise rather vague obligation. In Mamidoil, the first instance judge had rejected the possibility of employing a reasonableness criterion on the basis that there was nothing in the agreement to provide guidance as to how a reasonable fee should be found and there was no market price. The Court of Appeal however did not regard this as precluding the implication of a reasonableness criterion since as Rix LJ put it, “there was no evidence to the effect that the finding of a reasonable fee would present any difficulty at all”. Rix LJ went on to say that implication of a reasonable fee was assisted, even if not by very much, by the presence of an arbitration clause: see paragraph 72. He was prepared to infer that it was perfectly possible to derive from the agreements as to price and price increases over the years, objective criteria for working out a reasonable fee: (paragraph 73(vi)) “… Thus, although it is true to say that the contract itself contained no mechanism or guidance (other than the arbitration clause) as to how a reasonable fee would be derived, I do not consider that the contract should fail on that ground. Contractually derived criteria or guidance may be of assistance in finding an implied term for a reasonable price: but the authorities indicate that the Courts are well prepared to make the implication even in their absence.”[57]I do not accept that the clause is as open ended as ABP assert. The arbitrator is not faced with setting new terms in a vacuum. First, he or she will have before them the existing terms of the Licence. Although the arbitration takes place against the background of the major change, still the existing terms show what the parties considered to be a fair and reasonable bargain in the circumstances that prevailed at the time the Licence was entered into. That provides a useful starting point.[58]There was some uncertainty on the part of ABP as to whether Tata was suggesting that the arbitrator could consider revising the terms of agreements between these parties outside the Licence. This uncertainty arose from the reference in Tata’s 8 March letter to a supplementary dredging obligation which ABP has undertaken over recent years in return for additional payments from Tata. However, Tata made clear at the hearing that they accept that the arbitrator’s role is limited to revising the terms of the Licence. The dispute between the parties therefore seems to be whether the ancillary dredging agreement is part of or separate from the Licence itself.[59]The second limit on the arbitrator’s task will be set by the nature and effect of the major physical or financial change in circumstances that has triggered the arbitration. The revision of the Licence that the arbitrator must fashion has to reflect the effect of the change of the operation of the parties’ facilities. Depending on the nature of the major physical or financial change in circumstances, it may be relatively straightforward for the arbitrator to arrive at a reasonable variation of the Licence terms. In other circumstances it may be more difficult. But that does not make the arbitrator’s task impossible.[60]Thirdly, the arbitrator will be working within the parameters set by the submissions of the parties. These should be subject to an element of self restraint in order to make them attractive to the arbitrator. In support of the submission about the breadth and unmanageability of the arbitrator’s task, ABP relied on the witness statement of Mr Ralph Windeatt. He is Head of Commercial for South Wales for ABP. His role is to develop the business of ABP’s South Wales ports by seeking out new customers. He describes the many and varied considerations that ABP brings in to the negotiation of a new agreement with a potential port user. Some deals are dependent on the type of cargo involved; higher risk cargoes affect the price ABP will want to charge, for example if the cargo is potentially environmentally hazardous. He says further that ABP does not necessarily charge less per tonne for higher volumes of throughput than for smaller volumes. Other factors taken into account are counterparty credit risk, the operational expenditure required for dredging to meet specific customer draft requirements, the need for capital expenditure and the length of term which the counterparty is prepared to agree. He concludes that there is no standard port deal against which to assess whether a different deal is reasonable: each one is bespoke and the subject of detailed negotiations. There are a vast number of factors which form part of any port negotiation.[61]I do not accept that the task of the arbitrator will be similarly wide-ranging. The parties may choose to engage in a wide discussion covering the totality of their commercial relationship during the six months negotiation envisaged by clause 22. But if they fail to reach an agreement, the arbitrator’s task will be the narrower one of considering the impact of the change in circumstances on the operation of the port facilities and hence on the reasonableness of the terms of the Licence as they stand. I do not regard this clause as requiring the arbitrator to “make it up as he goes along” or to produce a contract for the parties that they have been unable to agree themselves.[62]On a related point, both parties drew my attention to the judgment of Chadwick LJ in BJ Aviation Ltd v Pool Aviation Ltd [2002] EWCA Civ 163. There the lease of airport premises lasted for an initial period of seven years but provided for the operator of the airport to serve notice requesting a renewal of the agreement subject to the renegotiation of the rent payable in no less a sum than that payable at the date when the request was made. The airport operator gave notice but negotiations over the new rent broke down. The Court of Appeal held that the renegotiation of the rent was a condition precedent to the grant of a fresh agreement. Neither party contemplated that the rent would be determined by reference to objective criteria such as fairness and reasonableness so the option in the agreement was unenforceable. Chadwick LJ referred to cases where the court has felt able to imply a term in the original bargain that the price or rental or other matter to be agreed should be a ‘fair’ price or a ‘market’ price or a ‘reasonable’ price. But, he said, the court cannot imply a term which is inconsistent with what the parties have actually agreed. If on the true construction of the words they have used, the court is driven to the conclusion that they must be taken to have intended that the matter should be left to their future agreement on the basis that either is to remain free to agree or disagree about that matter as his own perceived interest dictates, there is no place for an implied term that in the absence of agreement the matter shall be determined by some objective criteria of fairness or reasonableness.[63]The distinction drawn there by Chadwick LJ is the same distinction that Lord Thankerton drew in Hillas v Arcos (page 366) between whether the words used by the parties provide a standard by which the court is able to ascertain the subject matter of the contract or whether they involve “an adjustment between the conflicting interests of the parties, which the parties have left unsettled and on which the court is not entitled to adjudicate”. Similarly, in MRI Trading Tomlinson LJ considered whether the parties had intended to be bound for the year in question or whether they intended that “they should remain free to agree or to disagree about the TC/RC and shipping schedule as their own perceived interest should dictate with the result that, should they not reach an agreement, there should be no obligation in respect of 2010 at all.”[64]This is a case, Ms Bhaloo argued, in which the parties have not given up their freedom to agree or disagree about the future terms of the Licence as their own perceived interests dictate.[65]I do not accept that submission because the existence of the arbitration obligation specifically incorporated into clause 22 itself indicates strongly that the parties were not intending to retain their freedom to agree or disagree according to their perceived interests. Clause 22 shows that the parties had a shared desire in 1995 to enter into a very long-term contract on terms which remained immutable for 12.5 years regardless of what changes might occur over that period to render the terms very disadvantageous for one party or the other. But they recognised that that desire had to be tempered by an ability to rebalance the terms of the Licence after that halfway point had been reached. Although clause 22 refers to the parties being required to renegotiate the terms of the licence and for them to “seek to agree” amended terms, the clause is something more than an agreement to negotiate. The parties intended that if they fail to agree, an independent third party would be appointed to impose a fair solution on them.[66]I find therefore, that clause 22 is a binding obligation to refer a dispute to arbitration. The trigger is not too uncertain though it will be for the arbitrator to decide whether the matters set out in Tata’s letters of 11 February and 8 March 2016 amount to a “major physical or financial change in circumstances” entitling Tata to a revision of the Licence terms. The scope of the arbitration will cover the Licence fee.[67]I will make declarations to that effect and will grant a stay of further proceedings.

Cited in 1 later judgment