Grizzy Business Ltd v Stena Drilling

LORD JUSTICE CHRISTOPHER CLARKE: This is a renewed application to appeal from the order of Teare J, permission having been refused by Lewison LJ on paper. By his order Teare J gave judgment against the second defendant for over $2.2 million and interest.

The central issue which the judge had to decide was whether in a telephone conversation beginning at 5.25 am Australian time on 30th November 2011, Mr Jim Devine, a consultant to various companies, including Stena, by whom he was engaged as negotiator, and himself a solicitor agreed with Mr Tom Welo that in the event that Stena chartered their drilling vessel, an Icemax, to Shell, as was eventually agreed on 23rd December, his company, Grizzy Business Ltd, would be entitled to a success fee equal to 0.25% of the gross revenue to be earned under the charter. The exchange of words said to have taken place on this occasion was extremely brief.

The judge found both principal witnesses, Mr Welo and Mr Devine, to be unimpressive in some respects albeit for different reasons, but not in such a way as to persuade him that their evidence on the crucial question was not to be accepted on that account. Neither witness was found to have given evidence that was untruthful.

In a long and careful judgment the judge considered the relevant factors. He recorded that two matters could be said to support Mr Devine's case. The first was that it was to be expected that he would raise the subject of his success fee on his return to Australia. The judge held that was indeed the position - see paragraph 111. The second was that within a short time of being told that his services were no longer required he referred to the telephone call of 30th November Australian time and said that he would invoice the 0.25%.

On the other hand, two matters were said to support Mr Welo. The first was that it was said that the immediate context of the telephone call in question was such that it was most unlikely that Mr Devine would raise the subject of his success fee let alone that Mr Welo would agree to it. The second was that there was no confirmation in writing by Mr Devine immediately after the telephone call.

As to first of those, the judge found that although Shell had walked away from that which Stena had proposed they had not walked away completely from the negotiating table. The emails of Shell relied on of 15.21 and 15.31 GMT of the 29th November were, the judge held, in combination an ultimately successful negotiating tactic and did not suggest that the telephone call was an unlikely time to raise the question of Mr Devine's success fee. On the contrary the circumstances were such that it could be said that Mr Welo clearly needed Mr Devine's assistance. The judge also concluded Mr Welo was not angry with Mr Devine during the telephone call on account of Mr Devine not having recorded an agreement in principle by Shell to a gap or weather window when the drilling vessel was taken to the Arctic. Nor, the judge found, was he angry with Mr Devine on account of the subject of tax.

Accordingly the judge said that he was unable to accept the submission that the particular telephone call in question was one in which it was unlikely that the subject of the success fee would have been brought up or that Mr Welo would have agreed to a fee of the size in question.

As to the inference to be drawn from Mr Devine's failure to send an e-mail confirming the supposed agreement immediately after it had allegedly been made the judge considered evidence in relation to some 10 previous deals in which Mr Devine had earned a success fee. The documentation in relation to those deals was not a complete hand of all the documentation in relation to all the deals. He found that there did not appear to have been a practice of confirming an agreement for a success fee based upon a percentage of revenues in circumstances where the fee had not yet been translated or reduced into a fixed figure payable on specified dates. The judge said that, after having had some doubt, he decided that Mr Devine's explanation for not sending an immediate response could be accepted. Mr Devine's explanation had been that his past practice had been as stated that that in view of his change of residency from non-UK resident to UK resident it was no longer necessary to confirm when the deal was done and the money had been earned, although at another stage of his evidence he said that he simply continued the practice after it became unnecessary to do so when he changed residency in 2009. An addition reason why Mr Devine said that he did not send an immediate response was that he trusted Mr Welo. The judge did not think it could fairly be inferred from the lack of an immediate e-mail that there had been no oral agreement.

The judge recorded that Mr Devine's recollection of the 29th November telephone call was defective in some respects but he described his evidence about agreeing a success fee of 0.25% as clear and consistent and supported by a number of matters, ie (i) that Mr Devine could be expected to raise the subject of his fee, (ii) that the telephone call took place when Shell had called Stena's bluff in relation to the issue of payment for tax and in circumstances where Mr Welo needed Mr Devine's services, (iii) that Mr Welo expected to have to pay a success fee, (ive) that that 0.25% had been agreed on other occasions and (v) that Mr Devine had made reference to the agreed fee shortly after Mr Welo had made it clear that he had dispensed with Mr Devine's services.

By contrast, so the judge held, the matters relied on as support for Mr Welo's evidence were not established. As a result he concluded that it was more likely than not that Mr Devine's evidence was true. He held that the likelihood was that Mr Welo had confused the telephone call on the 29th November with a later call on 1st December, in which telephone call Mr Welo was indeed angry.

A case in which everything turns on what was said in a brief exchange on the telephone in the early hours of an Australian morning might be thought to be a paradigm case where a judge's finding was impregnable to appellate attack. Mr Andrew Hochhauser QC however submits that this is on analysis not a case where the judge has reached a conclusion based on the credibility of either witness since he found both of them to be unsatisfactory. He seeks to argue on appeal that the evidence on which the judge has based his conclusion was not such as to afford a proper basis for the critical primary findings of fact which led to his conclusion, which are not credibility based, and that an appellate court is in good a position as the trial judge to perform the exercise which the judge performed of resolving the question by reference to the context in which the call took place, the surrounding circumstances and the contemporaneous documents.

Mr Hochhauser takes exception to a number of the judge's findings. The first finding in question is the finding that Shell had not walked away from the negotiating table. In relation to that Mr Hochhauser submits that it is highly significant that Mr Devine said at the time that what had happened from Shell was a shot across the bows. It is said that the judge did not take account of the fact that whatever might have been the position subsequently, as at 29th November Mr Welo in fact believed that Shell had walked away, as did others in the Stena team, and that at the very lowest there had been a major blow to the progress of the negotiations.

The second finding which Mr Hochhauser submits is erroneous is the finding that Mr Welo was not angry during the 29th November telephone call and was therefore in a frame of mind where he might agree a success fee. He also disputes the finding that Mr Welo did not complain to Mr Devine in this telephone call about the omission of a record in a particular document (called a status document) of an agreement in principle relating to the calender window. He says that the judge was also in error in holding that Stena and Shell did not agree in principle to a calendar window at the meeting on 25th November as appears, so the judge held, from the fact that the document prepared by Mr Devine contemporaneously did not record such an agreement.

So far as those findings are concerned, the submission is that, firstly, the judge failed to take account of the fact that the conversation began (depending on whose account you take) with Mr Welo saying: "Either you fucked this up" or "What the fuck have you done?". It is said that the judge failed to give any weight to the unanimous evidence of witnesses from Stena whom he found to be reliable, that there had been an agreement in principle about the calendar window. It is also said that undue weight was given to the fact that the status document following the 25th November did not record any agreement in principle, in circumstances where it was Stena's contention that Mr Devine had erred in failing to record that the agreement in principle had been made. It is also submitted that it was wrong to find that that Mr Welo did not complain to Mr Devine on 1st December call about the omission to record an agreement in principle relating to the calendar window when Mr Devine's own evidence, which the judge appears to have ignored, was to the effect that there had indeed been such a complaint. If there was such a complaint in an angry telephone conversation on 1st December it is said that it is highly probable that there had been in the telephone conversation of 29th November an equally angry complaint. Various other criticisms which I will not set out are sought to be put forward.

Objection is also taken to the way in which the judge dealt with Mr Devine's practice in relation to the confirmation of agreements to pay a success fee. That evidence, which the judge described as "convoluted", on a matter which was of some criticality, appears to go through three formulations. The first proposition was that Mr Devine sent confirmatory e-mails when he needed to record the time at which he had earned the commission, for tax reasons because at the time he was not resident in the United Kingdom. Quite exactly how that worked is not clear to me. But in any event he became resident again in the United Kingdom in 2009. Version No 2 was that Mr Devine continued the practice that he had followed even though it was no longer necessary to do so. The third version was that he never sent a confirmation until there had been agreement on actual figures on payment dates. That, Mr Hochhauser submits, was entirely novel, unpresaged in the witness statements or elsewhere and not the subject of documentary disclosure.

Not without some hesitation I am persuaded that in this unusual case there is a realistic prospect of persuading the Full Court that the critical facts upon which the judge based his conclusion lacked sufficient evidential support and that his findings were reached without taking account of relevant considerations and were flawed. The picture presented by the evidence in this case has something of the character of a mosaic. I have not examined all the stones that contribute to that mosaic but such of them as Mr Hochhauser has taken me through indicate to me that there is a prospect of persuading the Full Court that the judge was in error.

Accordingly, I propose to grant permission to appeal on the principal question. I propose also to stay the judgment against the second defendant pending the hearing of the appeal or further order on condition that the appellant provides within 14 days security for costs, as it is prepared to do, in the sum of £75,000.

There is a further matter that is in issue. The judge held that that the contract which was made was a contract which the second defendant, a corporation incorporated in Bermuda. The first defendant contended that being successful in the case it should have it costs. It was the successful party. It had always said that it was not the contracting party and had nonetheless been dragged into litigation against its will until the second defendant was added something like a year later. The claimant claimed, as its primary case, that the first defendant was the right party. The judge nevertheless ordered the first defendant to pay 90% of the claimant's costs on the ground that it advanced a substantive defence other than the mere fact that if there was a contract it was not the contracting party, its case being there was no contract with anyone and that there had been a repudiation.

The first defendant funded its own defence. The judge also held, as I understand it, that even if it had not been made a party, it would have been liable to the claimant as the funder of the second defendant. The discount of 10% would allow sufficiently for its victory on the question of as to who, if there was a contract, was the contracting party. The first defendant seeks to say that it should not have to pay any of the costs. It is not the parent of the second defendant. It funded the defence by necessity because it had for a full year been the sole defendant. If it had not been a party to the proceedings, it would not, it is submitted, have been an appropriate non party against whom to make an order.

It seems me on, again, the rather unusual facts of this case that there is a realistic prospect of persuading the Full Court that the judge was in error in ordering the first defendant to pay most of the costs when it had succeeded in resisting the claim that it had owed over $2.5 million, had shown that it should never have been party, and was not, as I understand in control of D2 or the "real party" to the litigation.

In those circumstances I shall grant permission to appeal on that issue as well.