Last week in commercial law: the wrong way to think about breach of fiduciary duties, the right way to plead and prove dishonesty, and something about swaps (whatever those are)

Hellmann Worldwide Logistics and two of its subsidiaries sue two of former directors, Mr Nunco and Mr Stassen, for breaches of fiduciary duties. Three claims go to trial. The first claim, called claim A, involves an allegedly fraudulent trade finance agreement that saw one of the subsidiaries (presumably at the instance of Mr Nunco and Mr Stassen) loan money to a third party that the third party never repaid. Hellmann Worldwide Logistics concede that the subsidiary suffered no loss (because someone else later repaid the loan). The second claim, called claim D, alleges that Mr Nunco and Mr Stassen made a secret profit from selling face masks during Covid times, through the interposition of several companies that Hellmann Worldwide Logistics alleges were their alter egos. The third claim, called claim E, alleges that Mr Nunco and Mr Stassen caused one of the subsidiaries to pay demurrage on behalf of a third party. Gauteng Division, Johannesburg: Mr Nunco and Mr Stassen are entitled to absolution from the instance (despite Hellmann Worldwide Logistics calling six witnesses): there’s no loss for claim A; there’s no evidence that the face masks deal was a corporate opportunity for Hellmann Worldwide Logistics or that the several companies involved in the deal were Mr Nunco’s and Mr Stassen’s alter egos, and, on Hellmann Worldwide Logistics’ own evidence, the demurrage payment was made without any involvement of Mr Nunco and Mr Stassen [your summarist notes with some alarm that the court holds that it’s “trite” that liability for breach of fiduciary duty requires “conduct which constitutes gross negligence or wilful misconduct”—pause here: there’s no word that does both far too much and far too little quite like “trite”: it often does far too much because something that’s said to be “trite” is, well, not at all trite, and it often does far too little because if something is really trite then you don’t need to say it’s trite—but that statement of the law, at least as it applies to fiduciary duties, is clearly wrong and the cases that the court cites are about delinquency and reckless trading, which are distinguishable because both have a special (higher) statutory fault standard].

All litigants (and regrettably many of their lawyers) see the world in just two ways: their white as snow version, and anything else is lies, damned lies [your summarist once come across “intentional dishonesty”, which is presumably way worse than negligent dishonesty]. None of this usually matters much—and seldom impresses judges—but if you must allege dishonesty, at least do it properly, so here’s a useful summary from the Court of Appeal about what English law says about it: the first question is (subjectively) the actual state of the individual’s knowledge or belief as to the facts; the second question is whether his conduct was honest or dishonest, which is determined by applying an objective standard of ordinary decent people (and there is no requirement that he must appreciate that what he has done is, by those standards, dishonest).

Also from England, a strong contender for your summarist’s favourite judgment of the year. Aviator, a Georgian company, launches an online gambling game with a snazzy logo. Spride, an Estonian company, created the software for the game. A few months later, Spride launches the same game with a logo that looks a lot like Aviator’s logo. Aviator sues for copyright infringement in Georgia and wins. Aviator also sues in England, where it claims for copyright infringement in England and copyright infringement in several other countries (there’s no dispute that the English court has jurisdiction over the claims for copyright infringement in other countries because, well, why not). Here comes the exciting part: Aviator argues that the Georgian judgment gives rise to issue estoppel and precludes re-litigation of the copyright infringement issue (or, said simply, Aviator argues that because it won in Georgia, it must win in England too). But which law governs issue estoppel? Applying English private international law, does English law govern issue estoppel as the law of the forum, or does the law that applies to each copyright infringement claim govern issue estoppel? (German law, for example, would govern the merits of Aviator’s copyright infringement claim for Spride’s activity in Germany.) At common law, the law that governs the preclusive effect of a foreign judgment is the law of the forum. But the Rome II Regulation (or just “Rome II”, if you want to impress the cool kids at the private international law cocktail parties) now governs non-contractual obligations. So which determines the preclusive effect of the Georgian judgment: English law as the law of the forum, or whichever country’s law Rome II points to? Court of Appeal: the preclusive effect of a foreign judgment is not a substantive issue, so Rome II doesn’t apply, so the law of the forum (here, English law) applies. 

While we’re on copyright infringement, one of the several thousand new legal AI startups, ROSS, lets its AI loose on Westlaw to do whatever AI does, including on Westlaw’s headnotes. Westlaw rather prefers its competitors to not use its copyrighted stuff. ROSS argues that headnotes are not original, that Westlaw doesn’t have a monopoly on the law, and that it’s fair use for ROSS to plunder Westlaw. U.S. Court of Appeals for Third Circuit [incidentally, the home of your summarist’s pick for best living legal writer, Judge Bibas, who was the first instance judge but sadly not the author of this judgment]: headnotes are original and copyrightable and it’s not fair use.

And more from the U.S.: what’s a swap and why’s it different from gambling? Kalshi is one of the main players in a new (but really very old) way of persuading people to part with their money: prediction markets (and its making boatloads of money doing it). It offers thousands of markets, which are framed as questions or statements with only two answers (typically yes/no questions, or questions with binary outcomes). You can then ‘bet’ on yes or no, or one option or the other, with the price of each bet depending on the odds of each outcome. A lot of this type of betting happens for sports. Go to Kalshi’s website, and you’ll find endless possibilities, from the very popular (Patriots v Bills this weekend: choosing the Patriots costs 27 cents, choosing the Bills costs 74 cents) to the more niche (darts and chess). Prediction markets have since expanded to politics (2028 Democratic nominee, next French president), culture (will The Odyssey win the Oscar for best picture, will Drake or Taylor be the most streamed artist on Spotify this year), and the more absurd (will the U.S. confirm that aliens exist before 2028). This all looks a lot like gambling. But Kalshi has an army of expensive lobbyists and even more expensive lawyers, and they argue that this is perfectly legal swap trading (so when you pick the Patriots to win, you’re actually concluding a swap contract with someone else who chooses the Patriots to lose). Ohio and Tennessee, losing lots of money that would otherwise be spent on sports betting as responsible state regulators who care deeply about protecting consumers, argue that Kalshi’s prediction markets are contrary to against state gambling laws. Kalshi and its expensive lawyers argue that these are just plain ol’ swaps that are regulated by the federal Commodity Exchange Act (which pre-empts state law), no different from futures and derivatives trading on commodities like gold, wheat, or oil. U.S. Court of Appeals for the Sixth Circuit: nice try, but this is betting.

And a very special treat, a speech by Lord Burrows (of the UK Supreme Court) on the relationship between contract and unjust enrichment under English law and, in particular, the rule (recently named the obligation rule) that enrichment is not unjust if the benefit was owed to the defendant under a valid (and extant) contractual or other obligation [to South African eyes, there is, your summarist thinks, something jarring about contract and unjust(ified) enrichment in the same sentence—either because we treat restitution after cancellation as a contractual remedy, and so almost all cases that involve ‘enrichment’ in a contractual context are probably just dealt with as contractual cases, or because our law cares about whether there was a basis for enrichment (the clue: unjustified enrichment), not whether there is a reason to reverse enrichment (unjust enrichment), which again might mean that cases that involve ‘enrichment’ in a contractual context are funnelled into the law of contract].

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