Associated British Ports v Tata Steel UK Ltd
| Jurisdiction | England & Wales |
| Judge | Mrs Justice Rose |
| Judgment Date | 03 April 2017 |
| Neutral Citation | [2017] EWHC 694 (Ch) |
| Docket Number | Case No: HC-2016-002965 |
| Court | Chancery Division |
| Date | 03 April 2017 |
[2017] EWHC 694 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mrs Justice Rose
Case No: HC-2016-002965
Zia Bhaloo QC and Anna Lintner (instructed by Eversheds Sutherland) for the Claimant
Helen Davies QC and Joanne Box (instructed by Cooley LLP) for the Defendant
Hearing dates: 15th and 16th March 2017
Judgment Approved
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.
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.
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.
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.
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
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.
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.
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.
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).
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.
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.
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
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."
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.
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.
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...
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