Tradigrain SA & Ors v Intertek Testing Services (ITS) Canada Ltd & Anor

In construing a contract governed by foreign law, an English court must itself construe the contract by applying the foreign law’s principles of construction. Expert evidence may establish those principles and relevant background law, but should not opine on the meaning of the clause. A contractual definition of insured representatives by reference to directors and equivalent categories ordinarily concerns formal constitutional office-holders, not senior employees exercising practical control under a power of attorney. German-law gross negligence requires both an objectively obvious risk and a subjectively inexcusable failure to take ordinary care. Broad commercial limitation wording may limit liability for gross negligence where the agreement, read as a whole, supports that construction. Permission to appeal, once granted, may be set aside only sparingly and in exceptional cases.

Tradigrain and its insurers appealed from Langley J’s dismissal of a claim against Intertek and its Indian subsidiary, CBI. The claim concerned the unauthorised release of vegetable oil held under a collateral management agreement. The insurers alleged that CBI was liable for conversion, that Mr Rackham was a representative whose gross negligence was excluded from the policy waiver, and that CBI could not rely on the contractual limitation clause. The respondents also sought to set aside or restrict permission to appeal. The central issues were the meaning of representative, the application of German-law gross negligence, and the scope of the contractual liability cap.

The Court of Appeal unanimously dismissed the appeal. Moore-Bick LJ gave the leading judgment; Carnwath LJ agreed, and Laws LJ agreed for those reasons while emphasising the narrow limits of the jurisdiction to set aside permission to appeal.

1. Permission to appeal. Under CPR Part 52.3(6), the permission test is flexible. Once permission has been granted, the jurisdiction under rule 52.9(1)(b) to set it aside in whole or in part is to be exercised very sparingly and only in exceptional cases. An apparently generous grant is not enough. Any correction to the drawn order should be sought promptly. The respondents’ application was therefore rejected.
2. Foreign-law construction. An English court must construe a contract governed by foreign law itself, applying the relevant foreign principles of construction. Expert evidence may establish those principles and relevant background law, but experts should not express opinions on the meaning of the clause or how a foreign court would construe it. See Svenska Petroleum Exploration AB v Government of the Republic of Lithuania [2006] EWCA Civ 1529.
3. Representative. The policy’s reference to directors and equivalent categories identified persons holding formal positions by which they could be regarded as embodying the organisation. It did not extend to every senior manager exercising practical control. Mr Rackham’s wide power of attorney and role as chief executive did not make him a representative of CBI for this purpose.
4. Gross negligence. The German-law concept had an objective element and a subjective element. Objectively, the risk and the need for precautions had to be sufficiently obvious at the relevant time. Subjectively, the omission had to be inexcusable from the person’s perspective. The failure to establish independent stock checks and the failure immediately to remove Mr Nair from all similar operations did not meet that standard. The judge was entitled to regard workload and serious intermittent illness as relevant excusing circumstances.
5. Limitation. Alternatively, the broad wording of clause (i) of Schedule III applied to liability arising from improper or negligent performance, purported performance or non-performance, and was capable of limiting liability for conduct characterised as gross negligence under German law. The agreement as a whole supported that construction. The approach to commercial limitation clauses was consistent with Photo Production Ltd v Securicor Transport Ltd [1980] A.C. 827.

• Court of Appeal (Civil Division) — In [2007] EWCA Civ 154, the court dismissed the appeal and declined to set aside or restrict permission to appeal.
• High Court of Justice, Queen’s Bench Division, Commercial Court — Langley J dismissed Tradigrain’s claim against Intertek and CBI.