Below is a selection of articles posted to our "litigation notes" blog since our last e-bulletin, on 27 March 2015.

In this edition, we report on our recent client conference which looked from a disputes perspective at the Board’s responsibility to manage risk, exploring some key legal and compliance issues and how to mitigate them. We outline some potential further changes to the costs budgeting rules, which are being reviewed by the civil procedure rule committee. We also look at various recent cases of interest on issues such as the assignment of claims, claim notice requirements, settlement and contract formation.

You can visit the blog any time for the latest updates on commercial litigation topics at:

http://hsfnotes.com/litigation/

  1. The Board’s responsibility to manage risk: Key legal and compliance issues – A disputes perspective
  2. Possible further changes to costs budgeting rules
  3. Claim assigned to SPV not struck out as champertous
  4. High Court strikes out warranty claim due to shortcomings in claim notice
  5. Court of Appeal refuses to set aside settlement agreement despite new evidence of fraud
  6. An unsigned agreement can still bind the parties
  7. Good faith principles applied to question of whether innocent party could keep contract alive following repudiatory breach
  8. Court of Appeal considers conflicting jurisdiction clauses in insurance service agreements
  9. Dangers of filing further acknowledgement of service when appealing jurisdiction judgment
  10. French Supreme Court refuses to apply a unilateral jurisdiction clause
  11. CJEU confirms validity of jurisdiction clauses agreed electronically by "click-wrapping"
  12. Supreme Court confirms company in liquidation not prevented from claiming against directors on the basis of fraud attributable to the company
  13. Supreme Court takes restrictive approach to the opening of secondary proceedings in England under EC Insolvency Regulation
  14. Risks of US claims arising from acts of third parties in supply chain
  15. Article published on directors and corporate information
  16. Article published on risk of parallel prospectus liability claims in different EU jurisdictions
  17. Article published on enforcing foreign judgments
  18. Other contentious publications

1. The Board’s responsibility to manage risk: Key legal and compliance issues – A disputes perspective

At this recent conference, held by Herbert Smith Freehills and attended by close to a hundred clients, we explored some key legal and compliance risks facing major corporates and how those risks can be mitigated.

After opening remarks by dispute resolution partner and conference chair David Reston, presentations took place on corporate governance, financial crime, cyber security and risk transfer through insurance, as well as a panel session on business and human rights, class actions and investment protection. The morning concluded with Andrew Procter looking at the practicalities and challenges of designing and operating a risk control programme, from his perspective as a former regulator and compliance head at a global financial institution.

Click here to read a summary of the conference.

2. Possible further changes to costs budgeting rules

At the Third Annual Harbour Lecture on 13 May, Lord Dyson MR and Lord Justice Jackson spoke on the topic of “Confronting Costs Management”. Lord Justice Jackson explained that the Civil Procedure Rule Committee has set up a sub-committee to review the operation of the costs management rules. He presented a paper which sets out his views on how the rules are working and makes a number of suggestions as to how the rules might be developed. It will be for the sub-committee, chaired by Mr Justice Coulson, to consider what changes, if any, should be made to the rules.

Lord Justice Jackson’s view is that, when done properly, costs management works well and brings substantial benefits to courts users. These include enabling both sides to know where they stand financially, focusing attention on costs from the outset, and encouraging early settlement.

He recognises, however, that a number of problems have emerged with the operation of costs budgeting, and makes suggestions to put these right. Click here to read more.

3. Claim assigned to SPV not struck out as champertous

The High Court has refused to strike out a claim as champertous where it had been assigned to an LLP in which the assignor had a one-third interest and which had been formed to pursue the assigned claim (and other similar claims): JEB Recoveries LLP v Binstock[2015] EWHC 1063 (Ch).

In recent years the courts have taken an increasingly liberal approach to the principles of champerty and maintenance (the ancient rules against “trafficking” in litigation) in the context of third party litigation funding. It had appeared that the principles would be applied more strictly where claims are assigned to, rather than merely funded by, a third party (as for example in the case of Simpson v Norfolk & Norwich University Hospital NHS Trust [2011] EWCA Civ 1149, outlined here). The present decision may indicate a softening of the court’s approach in that context also.

However, the assignment of claims remains a high risk strategy, as each case will turn on its facts and the effect of a finding of champerty is that the assignment will be void and the assignee will be unable to pursue the claim. Click here to read more.

4. High Court strikes out warranty claim due to shortcomings in claim notice

The High Court has held that a notice delivered by a purchaser under a sale and purchase agreement did not meet the contractual requirements of a claim notice, even though it alleged a breach of warranty, described the circumstances giving rise to the alleged breach, and provided information about the likely quantum of the claim: IPSOS S.A. v Dentsu Aegis Network Limited (formerly Aegis Group plc) [2015] EWHC 1171 (Comm).

The court found that the letter did not make clear that a claim was being asserted against the seller, and thus did not amount to a claim notice under the relevant provision of the SPA. Because the two-year limitation period provided in the SPA for service of a claim notice had since expired, the claim was barred.

This decision highlights an important practical lesson: those who wish to bring claims for breach of warranty should ensure that they comply carefully with both the form and the substance of any contractual notice requirements. Click here to read more.

5. Court of Appeal refuses to set aside settlement agreement despite new evidence of fraud

The Court of Appeal has refused to set aside a settlement agreement on the basis of new evidence indicating that the claimant’s case had been fraudulently exaggerated: Hayward v Zurich Insurance Co plc[2015] EWCA Civ 327.

Settlement agreements may be set aside on the same grounds as any other contract, including on the basis that one of the parties was induced to enter into it by a counterparty’s misrepresentation concerning a material fact. However, where the representations relied on comprise the very allegations advanced by the claimant as part of the claim being settled, the courts have generally taken the view that the defendant has, in deciding to settle, taken into account the risk that the statement was false and has foregone the opportunity to challenge it. The issue in the present case was the extent to which the position is different where, as here, the representation was not merely false but could later be shown to have been fraudulently made.

In holding that the innocent party was nevertheless bound by the agreement, the Court of Appeal’s decision shows the limits, in this context, of the principle that “fraud unravels all”. It confirms that a fraudulently advanced case will not necessarily entitle a defendant to rescind a settlement agreement – particularly in cases where the evidence suggests that, at the time of settlement, the defendant had at least some indication of the possibility of fraud and therefore settled “with its eyes wide open”.

The decision illustrates the courts’ “robust disinclination” to interfere with settlement agreements unless there are exceptional circumstances, given the important public interest in the finality of settlements. Click here to read more.

6. An unsigned agreement can still bind the parties

The Commercial Court has ruled that a party had accepted the terms of an agreement by its conduct, even though it had not signed the agreement and the agreement purported to require the signatures of both parties to take effect: Reveille Independent LLC v Anotech International (UK) Ltd [2015] EWHC 726 (Comm).

The case is a reminder of the importance of ensuring, where possible, that all parties have signed on the dotted line before any substantive work is commenced. Anything else is a recipe for uncertainty. Even where a contract sets out particular formal requirements that must be complied with, it may still bind the parties if their conduct demonstrates that they have waived those requirements.

It is clear that some work may be undertaken in anticipation of an agreement being reached without that conduct amounting to acceptance of the terms of an agreement. However, this case suggests that the more significant and long-running the work is, the harder it becomes to resist the conclusion that the parties intended to be bound. Click here to read more.

7. Good faith principles applied to question of whether innocent party could keep contract alive following repudiatory breach

The High Court has held that a party was not entitled to keep a contract alive indefinitely for the purpose of claiming ongoing liquidated damages for delayed performance following its counterparty’s repudiatory breach: MSC Mediterranean Shipping Company S.A. v Cottonex Anstalt [2015] EWHC 283 (Comm).

The court held that an innocent party’s decision whether to terminate or affirm a contract following a counterparty’s repudiatory breach must be exercised in good faith. This is essentially the same test as where a party exercises a contractual discretion.

Previous cases had established that an innocent party could not affirm a contract unless it had a “legitimate interest” in performing and claiming the contract price rather than claiming damages, but that was generally interpreted as setting a fairly low threshold. The present decision arguably goes further in applying good faith principles. If this approach is followed in other cases, it may mean that an innocent party’s options following an opponent’s repudiatory breach are subject to greater constraints than previously thought.

It is worth noting that the judge, Mr Justice Leggatt, also decided Yam Seng Pte Limited v International Trade Corporation Limited [2013] EWHC 111 (QB) (see post) which is generally seen as setting the high water mark for implied duties of good faith in commercial contracts. The decision is subject to an outstanding appeal.

The decision is also of interest for the court’s comments regarding penalty clauses. If the court had concluded that the innocent party had an unfettered right to keep the contract alive and claim liquidated damages, it would have held that the liquidated damages clause was unenforceable as a penalty. Click here to read more.

8. Court of Appeal considers conflicting jurisdiction clauses in insurance service agreements

In the recent case of Trust Risk Group SPA v AmTrust Europe Ltd[2015] EWCA Civ 437 the Court of Appeal held that there was a good arguable case that the jurisdiction clause in an earlier contract gave the English courts jurisdiction, despite an inconsistent clause in a subsequent agreement between the same parties. It found that where, as in this case, the overall contractual arrangements contain two or more differently expressed choices of jurisdiction and/or law in respect of different agreements, the correct approach was not to start with theFiona Trust “one stop shop” presumption, but instead to apply a careful and commercially-minded construction of the contracts.

From a practical perspective, parties who enter into more than one contract with the same counterparty, either simultaneously or consecutively, should carefully consider the jurisdiction clauses in those agreements and, ideally, make sure they are consistent. If there is a good reason to have different choices or law or jurisdiction in the different contracts, parties should ensure it is clear in what circumstances each is intended to apply. It is important not to dismiss such clauses as boilerplate but to consider in each case whether individual negotiation might be required.

Drawing this case together with the previous authorities, it appears that where there are competing jurisdiction clauses, it will be easiest to determine which clause applies where the dispute clearly falls within the scope of only one of those agreements. Where the dispute transcends two or more agreements which have been entered into separately, over a period of time, the court might attribute a claim to a particular agreement even if that results in different jurisdictions dealing with different aspects of the relationship. However, where the contracts are “part of one package” the court might consider the “commercial centre of the transaction” in order to determine a single applicable jurisdiction. Click here to read more.

9. Dangers of filing further acknowledgement of service when appealing jurisdiction judgment

The Court of Appeal has held that filing a further acknowledgement of service following an unsuccessful jurisdiction challenge amounts to submission to the English jurisdiction. This is so even if the defendant is appealing against the jurisdiction judgment: Deutsche Bank AG London Branch v Petromena ASA [2015] EWCA Civ 226.

To avoid judgment in default being entered in these circumstances, a defendant should agree or apply for an extension of time for filing the acknowledgement until after the appeal has been determined.

If a further acknowledgement of service is inadvertently filed, an immediate application should be made, supported by evidence, for permission to withdraw it.

If the defendant has submitted to the jurisdiction, the present decision suggests that this may not prevent him from applying for a stay of the English proceedings on the basis that there are parallel proceedings pending in another EU or Lugano Convention country. There are however contradictory authorities on this point, so the safer course would be to apply for a stay without taking any step that amounts to submission to the jurisdiction and within the relevant procedural time limit for challenging jurisdiction. Click here to read more.

10. French Supreme Court refuses to apply a unilateral jurisdiction clause

In a recent decision, the French Supreme Court (Cour de cassation) has again refused to apply a unilateral jurisdiction clause. A unilateral jurisdiction clause requires one party to bring proceedings in one jurisdiction only, while the other may choose to bring proceedings in other jurisdictions.

The decision, which comes after the much-discussed 2012 French Supreme Court judgment in the Rothschild case (Cass. 1. Civ, 26 September 2012), is a further reminder of the need to give careful consideration to the validity of dispute resolution provisions in the possible jurisdiction of any future proceedings when drafting contracts. Click here to read more about the case on our Arbitration Notes blog.

11. CJEU confirms validity of jurisdiction clauses agreed electronically by "click-wrapping"

In a very recent decision, the Court of Justice of the EU has clarified the requirement under the Brussels Regulation for a jurisdiction agreement to be “in writing” or “evidenced in writing” in the context of a contract concluded online: El Majdoub v CarsOnTheWeb.Deutschland GmbH (Case C‑322/14).

The seller’s general terms and conditions containing the relevant jurisdiction clause had been incorporated into the contract by way of “click-wrapping”. This means that the webpage containing the terms and conditions does not open automatically upon registration or in the process leading to the individual transaction. Instead, to view the terms and conditions, the contracting party has to click on an additional link. The CJEU held that this was a valid jurisdiction clause, as the click-wrapping method of accepting the terms and conditions was equivalent to writing for the purposes of the Brussels Regulation.

Given that a few national courts had taken a different position, businesses will certainly welcome this decision as many use the click-wrapping method to incorporate terms and conditions in contracts concluded online. Click here to read more.

12. Supreme Court confirms company in liquidation not prevented from claiming against directors on the basis of fraud attributable to the company

The Supreme Court has unanimously upheld a Court of Appeal decision refusing to strike out a claim by a “one-man” company in liquidation, which had been the vehicle for a VAT fraud, against its former directors and overseas suppliers alleged to have been involved in the fraud: Jetivia SA v Bilta (UK) Limited [2015] UKSC 23 (see our post on the Court of Appeal decision here). The Supreme Court’s decision confirms that a company in liquidation is not prevented from claiming against its directors on the basis that the fraud of the directors is also attributable to the company.

The decision is welcome in underlining the limited application of the House of Lords ruling in Stone Rolls Ltd v Moore Stephens [2009] 1 AC 1391, in which liquidators were prevented from claiming against a company’s auditors for failing to spot its sole director’s fraud (see post), and empowering office-holders to pursue claims against fraudulent directors (and their associates) even where all directors and shareholders were involved in the fraud. Click here to read more.

13. Supreme Court takes restrictive approach to the opening of secondary proceedings in England under EC Insolvency Regulation

The Supreme Court has held that, in order to open secondary proceedings in England under EC Regulation 1346/2000 on Insolvency Proceedings, the company’s “establishment” within the jurisdiction must be a fixed place of business that is involved in a business activity that consists of dealings with third parties: The Trustees of the Olympic Airlines SA Pension and Life Assurance Scheme v Olympic Airlines SA [2015] UKSC 27. The Court refused permission to make a reference to the Court of Justice of the European Union under Article 267 of the Treaty on the Functioning of the European Union.

There have been very few reported cases in relation to the definition of “establishment” for the purposes of the Regulation and this is the first time the question has come before the Supreme Court. By stressing that an establishment requires more than just assets – it requires “economic activities” that are “exercised on the market” – the Supreme Court has made it clear that a creditor’s ability (under the Regulation) to have an EU company wound up in England is more restricted than its ability (under the Insolvency Act 1986) to have a non-EU company wound up in England.

Accordingly, protections such as the Pension Protection Fund or the National Insurance Fund that are dependent on there being English insolvency proceedings might be less readily available where the debtor is an EU company compared to a non-EU company.

The decision could also lead to an increase in creditors applying for secondary proceedings to be opened soon after main proceedings are initiated and before the economic activities necessary for an English “establishment” have ceased, a development which could undermine one of the main purposes of the Regulation. Click here to read more.

14. Risks of US claims arising from acts of third parties in supply chain

In recent years, we have seen increasing efforts to hold multinational companies legally responsible for acts conducted abroad, particularly in emerging market jurisdictions, either by their own group companies, or by third parties in their supply chains. This is an increasing trend both in the English courts and in the US courts.

Our New York office has published a bulletin which outlines two recent cases that illustrate this trend in the US courts, and considers the implications for multinational businesses. Click here to download a copy.

This trend was also discussed from a UK perspective at our recent conference “The Board’s responsibility to manage risk: Key legal and compliance issues – A disputes perspective” under the heading “The changing face of disputes risk in emerging markets” – click here for a summary.

15. Article published on directors and corporate information

Within the boardroom, the management of information is of crucial importance, particularly where directors are appointed by a single shareholder under the company’s articles of association or a relevant shareholders’ agreement. Recent English cases demonstrate that shareholders and companies are increasingly likely to bring cases arising out of the misuse of corporate information and the obligation of directors to disclose information to their companies, particularly in closely-held companies.

James Norris-Jones and Mark Bardell, partners in our dispute resolution and corporate teams respectively, and Andrew Cooke, an associate in our dispute resolution team, have published an article in the April – June 2015 edition of Corporate Disputes magazine which considers these issues. Click here to download a PDF of the article: “Directors and Corporate Information“.

16. Article published on risk of parallel prospectus liability claims in different EU jurisdictions

Issuers of listed securities will be conscious of their exposure to prospectus liability claims in the UK and elsewhere in the EU. The prospect of facing parallel claims from investors in multiple jurisdictions has arguably been increased by the recent decision of the Court of Justice of the European Union in Kolassa v Barclays Bank(C-375/13).

Donny Surtani, a senior associate in our dispute resolution team, considers the reasoning of that judgment and its implications for issuers, in an article for the May 2015 edition of the Butterworths Journal of Banking and Financial Law. Click here to download a copy of the article.

17. Article published on enforcing foreign judgments

Enforcing a foreign judgment is not always a straightforward process. There are defences available to judgment debtors and procedural requirements to comply with.

Anna Pertoldi has published a blog post on Practical Law’s Dispute Resolution blog looking at some of the traps for the unwary illustrated by recent case law. Click here to download a copy (or here for the Practical Law Dispute Resolution blog homepage).

18. Other contentious publications