Uitspraken

Subsea submitted a writ of summons (dagvaarding), dated 10 April 2019, setting out its claims against South Stream to the Civil Section of the Amsterdam District Court. Its exhibits were submitted by separate brief (akte overlegging producties).

By letter dated 20 May 2019, Subsea, acting on behalf of the Parties, requested the Amsterdam District Court to refer the case to the Netherlands Commercial Court (NCC District Court).

The Amsterdam District Court did so by letter dated 24 May 2019.

Subsequently, Subsea submitted its documents and exhibits to the NCC District Court. As the Parties agreed to use NCC’s electronic filing and communication system (eNCC) on a voluntary basis, these documents and exhibits and all further documents and exhibits were submitted both in hardcopy as well as electronically in eNCC.

On 27 August 2019, South Stream filed its statement of defence and counterclaim, with exhibits.

Subsea submitted its statement of defence against the counterclaim on 30 October 2019.

Lastly, South Stream submitted a Brief submitting an exhibit (an overview of costs incurred by South Stream) on 7 January 2020.

On 11 December 2019, the court proposed, and the Parties did not object, to limit the debate at the first hearing to the counterclaim and the preliminary defence raised by South Stream, which is that all of Subsea’s claims are barred by Clause 7 of the Settlement Agreement.

The court held a hearing on 21 January 2020. The lawyers of the Parties pleaded their cases and submitted pleading notes, and made use of their right to a reply and rejoinder. The court made a record (proces-verbaal) of this hearing.

Subsequently, judgment date was set for today.

South Stream is involved in the construction of an offshore pipeline across the Black Sea which directly connects the gas reserves in Russia to the Turkish gas transportation network. This project is known as ‘Turkstream’.

On 18 February 2014, South Stream entered into a contract with Subsea engaging it to perform a series of underwater surveys to collect key data of the seabed corridor in which the pipeline was planned to be laid (referred to by the Parties as the Geotechnical Contract).

A second contract was concluded between the Parties on 28 July 2014 (referred to by the Parties as the UXO Contract). Under this contract Subsea would collect data required to detect munition and ordnance items on the seabed and to conduct an archaeological and ecological survey within the seabed corridor of the pipeline.

During the period from 2014 through 2018, the contracts were amended several times. The Geotechnical Contract was terminated in October 2014 but reinstated again in 2016.

On 16 April 2018, the Parties signed an agreement to terminate all contracts and settle all their disputes (the ‘Settlement Agreement’). The relevant Recitals and Articles of the Settlement Agreement are cited below.

Subsea claims payment of an amount of EUR 22,470,765.08. The legal basis for this claim is the recovery under Russian law of non-contractual damages allegedly caused by South Stream by the involuntary standby of Subsea’s vessel with geotechnical equipment in the years 2014 to 2018. Subsea claims a further EUR 11,485.00 in extrajudicial costs and in costs of the proceedings. The court is requested to declare its judgment on the claims enforceable notwithstanding appeal.

South Stream requests the court:

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  to declare that under Clause 11 of the Settlement Agreement, Subsea must indemnify, and keep indemnified, South Stream against all costs and damages (including the entire legal expenses of South Stream) incurred in connection with the claims brought in these proceedings; and

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  to order Subsea to compensate South Stream, in full, for any such costs and damages together with statutory (commercial) interest on the basis of Article 6:119 Dutch Civil Code (DCC) or Article 6:119a DCC,

o or, in the alternative, to order Subsea to compensate South Stream for the actual costs, including actual attorneys’ fees, in relation to the present proceedings together with statutory interest; and

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  to order Subsea to pay the costs of these proceedings (including follow-up costs), to the extent these are not already included in a judgment granting South Stream’s counterclaim; and

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  to declare its judgment enforceable notwithstanding appeal.

South Stream explicitly waived its right under the Settlement Agreement to have the case dealt with by arbitration under the Rules of Arbitration of the International Chamber of Commerce (Clause 18 of the Settlement Agreement). As South Stream as the defendant in this case is domiciled in Amsterdam, this court has jurisdiction under Article 4 of Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast).

The requirements for the NCC District Court to deal with the case – see Article 30r Dutch Code of Civil Procedure (DCCP) and Article 1.3.1 NCCR – are met:

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  the Parties have expressly agreed that proceedings will be in English before the Netherlands Commercial Court;

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  the action is a civil or commercial matter within the Parties’ autonomy; and

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  the matter concerns an international dispute.

In the current stage of the proceedings the debate is limited to the preliminary defence raised by South Stream, which is that all of Subsea’s claims are barred by Clause 7 of the Settlement Agreement. Therefore, for now only the applicable law needs to be established governing this preliminary defence. The Parties agreed that the Settlement Agreement, including its construction, would be governed by English law (Clause 17 of the Settlement Agreement). The subject-matter of the agreement does not raise any question regarding the application of (overriding provisions of) any other law than English law. As a consequence, the court will apply English law to the preliminary defence.

The answer to the question whether any claims by Subsea (as far as is relevant in these proceedings: also non-contractual claims under Russian law) against South Stream are barred under the Settlement Agreement depends on the wording, content and scope of the Settlement Agreement as to be determined by interpretation of that agreement. As English law applies to that issue, the court will first set out the principles guiding the construction of settlement agreements under English law, and then apply those principles to the case at hand.

The interpretation of a settlement agreement is governed by the same principles of construction as any other contract (see Bingham LJ in BCCI v Ali [2002] 1 AC 251 at para. 8). The Parties and their expert witnesses on English law share that view.

In the UK Supreme Court case Arnold v. Britton [2015] UKSC 36, Lord Neuberger (at para. 15) summarised the interpretation of contracts under English law as follows in his principal speech:

The circumstances mentioned under (i)-(v) are referred to in English contract law as the ‘factual matrix’.

Where a contract is sophisticated, or complex, or has been negotiated and prepared with the assistance of skilled (legal) professionals, a textual analysis may be given predominance or heavy weight within the factual matrix referred to above. As Lord Hodge expressed in Wood v. Capita Insurance Services Ltd [2017] UKSC 24 (at para.13):

In the case at hand the issue arose what the relevance is of considerations for the interpretation of a contract. The court rules that the content of a recital is relevant for the interpretation of a contract because it is part of the relevant factual matrix. Asplin LJ states in Blackpool Football Club (Properties) Ltd v. JSC Baltic International Bank & Anor [2018] EWCA Civ 372 (para. 26) that:

In addition, in this case the Parties explicitly agreed that the Recitals form part of the operative part of the contract (clause 15 of the Settlement Agreement).

With regard to the interpretation of a settlement agreement, a relevant case is the House of Lords case BCCI v. Ali [2001] UKHL 8. Lord Bingham pointed out (at para. 8) in this matter that it is possible for a party to release a claim or a right of which it is unaware and of which it could not be aware if sufficiently clear wording has been used to make clear that this was its intention. In Lord Bingham’s words:

Lord Bingham continued (at para. 10) that where such clear language is absent, a court must be very slow to infer that a party intended to surrender rights and claims of which it was unaware and could not have been aware (commonly known as the ‘cautionary principle’). In the wording of Lord Bingham:

In essence, this means that if sufficiently clear language is used, a waiver of claims or rights of which a party is unaware and of which it could not be aware is acceptable under English law.

The Parties and their expert witnesses on English law agreed in essence about the content of English law on construction of (settlement) agreements as expressed above but differ as to how these principles should be applied to the facts of the case at hand.

The court will now turn to the interpretation of Clause 7 of the Settlement Agreement.

To recall, Clause 7 reads as follows:

At the hearing Subsea admitted that the claims it pursues in these proceedings are based on the same facts that were known to it at the time when the Settlement Agreement was entered into. At the hearing Subsea also conceded that non-contractual claims also fall within the scope of Clause 7. Therefore, the question which remains to be answered is whether Clause 7 applies only to (non-)contractual claims under English law (Subsea’s position), or under any law, including Russian law (South Stream’s position).

At the hearing, Subsea raised the argument that the phrase in Clause 7 “at law or in equity” limits the release to claims under English law only, as only English law makes a distinction between common law and equity. Subsea argues that the claims made in this case are based on Russian statutory (civil) law, and therefore do not fall within the scope of Clause 7.

South Stream objected to Subsea raising this point at the hearing and not at an earlier stage. The hearing was a hearing pursuant to Article 87 DCCP. At such hearing it is in principle allowed to raise new arguments, provided this is not contrary to due process. The court agrees that the argument could and should have been raised at an earlier stage. It should have been included in the writ of summons, as – apparently – it is Subsea’s main argument why its claims are not barred by Clause 7. It is not a response to South Stream’s explanation of the construction of Clause 7. However, the phrase “at law or in equity” forms a part of this clause, and therefore South Stream could expect this point to be raised. South Stream even did touch upon this issue in its speaking notes where it explicitly argued, with reference to this phrase, that the clause covers claims under any law. In addition, South Stream’s English law expert, Ms Boase, was well able to respond to this point at the hearing. In summary: South Stream was not prejudiced in its defence.

In reply to Subsea’s argument, South Stream argued that the wording of Clause 7 gives no reason to limit the clause to claims under English law only. “At law” can refer to any law. By adding the phrase “at law or in equity”, the Parties expressed their intention to cover any claims, irrespective of the relevant law system, and as far as English law is concerned, also claims in equity.

The court now turns to the natural and ordinary meaning of the text of Clause 7 (see para. 4.6 above). The Parties used broad language to define the type of claims that would be covered by Clause 7 of the Settlement Agreement:

To these phrases the Parties added the words “at law or in equity”. There is no doubt that – absent these words – all current and future claims on whatever grounds under any law (of any jurisdiction) would fall within the scope of the release and discharge, given the clear and broad wording of this clause. A mere textual analysis provides no insight into what the Parties intended with the addition “at law or in equity”: whether to limit or to expand the release and discharge.

As a result, the court needs to look at the factual matrix.

For the reasons stated above, the court finds that a reasonable person having all the background knowledge which would have been available to the Parties, would have clearly understood that the Parties’ intention was to release South Stream from any and all claims under any law.

In conclusion, the court holds that Subsea is barred from bringing the claims submitted in this case, and therefore will dismiss these claims.

The principal legal basis for South Stream’s counterclaim to have, in brief, its full legal defence costs awarded is Clause 11 of the Settlement Agreement which, to recall, reads as follows:

As this counterclaim is intended to seek payment on the basis of Clause 11 of the Settlement Agreement, English law applies as the law governing the Settlement Agreement (see para. 4.3 above).

Subsea’s primary defence is that the Settlement Agreement does not apply to the claims in these proceedings.

As follows from the court’s rulings on the claims of Subsea, this defence does not hold.

Subsea’s alternative position is that the type of claims brought in these proceedings are not, as a matter of English law, “claims and proceedings in respect of any of the Geotechnical Contract and UXO Contract”.

In light of:

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  the broad language used in Clause 11 (“in respect of”), and

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  the broad scope of the Settlement Agreement as a whole, as explained the previous chapter of this judgment,

the court finds that a reasonable person would have clearly understood that the Parties’ intention was that the claims initiated in these proceedings by Subsea against South Stream were “claims and proceedings in respect of any of the Geotechnical Contract and UXO Contract” (underlining by the court) in the sense of Clause 11 Settlement Agreement. The court therefore also rejects Subsea’s alternative position.

Subsea’s third defence is that the costs claimed by South Stream (EUR 446,464.19 up until 30 December 2019) are not reasonable in amount and not necessary for the proper handling of the case.

The reasonableness test of the cost compensation requested by South Stream is not a matter of English law, but is governed by Dutch procedural law. Reasonableness of cost allocation in civil cases is crucial for safeguarding access to justice. For this reason, Dutch courts generally only compensate the successful party for a relatively limited part of their actual litigation costs (using specific rates (liquidatietarief)). If Dutch courts in international cases were obligated to apply foreign law when allocating costs, access to court could be in serious jeopardy. Therefore, the reasonableness test under Dutch procedural law, which is incorporated in Article 242 DCCP, is to be regarded as an overriding mandatory provision pursuant to Article 9 of the Rome I Regulation.

Article 242 DCCP reads, to the extent relevant, as follows (in English translation):

At the hearing the court on its own initiative referred to this provision and asked counsel to comment on the issues of the applicability of this statutory provision and, if applicable, the application of this provision. And so they did.

Before addressing the reasonableness of the costs claimed under paragraph 1 of Article 242 DCCP, the court needs to determine whether the dispute raised by Subsea qualifies as “a dispute that has arisen” and was “settled”, as meant in Article 242 (2) DCCP. If so, the reasonableness test in Article 242 (1) DCCP does not apply to the agreed costs.

The court will therefore award the claims by South Stream on the basis of Article 11 Settlement Agreement in full, and will give an order on the counterclaim to this effect. As a consequence, there is no need to discuss the alternative ground presented by South Stream for its counterclaim, nor to award costs of process (pursuant to Article 239 DCCP) regarding Subsea’s claims in addition to what has been awarded on the counterclaim.

South Stream requested the court to increase the costs awarded in the judgment with the statutory (commercial) interest on the basis of Article 6:119 or Article 6:119a DCC.

As English law applies to the counterclaim to the extent where it is based on Article 11 of the Settlement Agreement, the question whether any interest is due over the costs awarded under this Article is also governed by English law. Therefore, the interest cannot be awarded pursuant to the relevant provisions of Dutch law, as claimed by South Stream. Instead, the court will award the interest due under English law.

South Stream further requested the court to declare its judgment enforceable notwithstanding appeal.

dismisses Subsea’s claims,

declares that a cost order (pursuant to Article 239 DCCP) is not needed in light of the cost order given on the counterclaim,

orders Subsea to compensate South Stream, in full, for any such costs and damages together with statutory interest pursuant to English law,

declares the order under 6.4 enforceable notwithstanding appeal,

dismisses any other claim.