Mir Steel UK Ltd v Morris & Ors

Contractual risk-allocation clauses are construed objectively in their commercial setting. The Canada Steamship guidelines assist that exercise but are not a rigid code, and do not require express words before a clause can cover claims founded on intentional wrongdoing.

Where a purchaser knew of a third party’s asserted title and the factual basis for possible claims, an undertaking to settle any claim in respect of the asset can allocate to the purchaser the whole burden of all claims arising from its acquisition. It may therefore bar a contribution claim against the vendor and its administrators for conversion, inducing breach of contract, or conspiracy claims relating to that asset.

Alphasteel’s administrators transferred its business and assets, including a disputed hot strip mill, to Mir Steel under a hive-down agreement. Mir Steel knew that Lictor asserted ownership of the mill and agreed in clause 9.5 to be responsible for settling any claim by Lictor in respect of it.

Lictor sued Mir Steel for conversion and also for inducing breach of contract and unlawful means conspiracy. Mir Steel sought to join Alphasteel and its administrators to a proposed Part 20 contribution claim. David Richards J dismissed that application in the Chancery Division: [2011] EWHC 3310 (Ch). Mir Steel appealed, contending that clause 9.5 did not allocate the latter tort claims exclusively to it.

Decision

1. The Court of Appeal dismissed the appeal. Clause 9.5 gave Alphasteel and the administrators a complete answer to Mir Steel’s proposed contribution claim.

2. The construction question was what clause 9.5 would convey to a reasonable person with the background knowledge available when the hive-down agreement was made. The court applied that objective approach from Investors Compensation Scheme [1998] 1 WLR 896.

3. The principles in Canada Steamship [1952] AC 192, as explained in HIH Casualty [2003] Vol 2 Lloyd’s Law Reports 61, were interpretative guidelines rather than a mechanical test. The controlling task was construction of this agreement in its commercial context. There was no rule that intentional wrongdoing could be brought within a risk-allocation clause only by express wording.

4. All parties knew before contracting that Lictor claimed ownership of the mill and knew the factual basis on which it could assert that claim. The administrators’ commercial object was a prompt realisation and distribution, consistently with their duties under Schedule B1 to the Insolvency Act 1986. Mir Steel knowingly acquired the mill with the risk of defective title. In that setting, “any claim” in respect of the mill included the conversion, inducing breach of contract and conspiracy claims. The clause allocated their entire risk and burden to Mir Steel and prevented it from clawing back part of the price through contribution proceedings.

5. That conclusion made it unnecessary to determine whether the rule in Said v. Butt [1920] 3 KB 497 independently protected the administrators.

• Court of Appeal (Civil Division) — dismissed Mir Steel’s appeal and upheld the refusal of permission to join Alphasteel and its administrators to the proposed Part 20 contribution claim: [2012] EWCA Civ 1397.
• High Court of Justice, Chancery Division — David Richards J held that the proposed claims had no real prospect of success and dismissed the joinder application: [2011] EWHC 3310 (Ch).