As another year comes to an end, it is a good time to look back on 2014 and consider the changes it has brought. Below is our summary of some of the year’s key developments in the world of commercial litigation. We hope you will find it a useful reminder, and perhaps even pick up one or two points you might have missed, on the following topics:

  • Case management
  • Costs and funding
  • Privilege
  • Disclosure
  • Expert witnesses
  • Settlement / ADR
  • Jurisdiction
  • Class action reform
  • Contract

Case management

The biggest news this year in terms of litigation procedure was the flood of satellite litigation following the Court of Appeal’s November 2013 Mitchell decision, in which the Court of Appeal introduced tough new guidance on the court’s approach to granting relief from sanctions for breach of a court rule or order following the Jackson reforms. For the first half of 2014, the courts were inundated with contested applications for relief from sanction, with parties looking to take advantage of their opponents’ procedural failings. In many cases, harsh sanctions were imposed for relatively minor breaches.

In an effort to stem the flood, the Court of Appeal “clarified” the Mitchell guidance in its Denton decision in July this year, replacing it with a new, more flexible three-stage test and warning of heavy costs sanctions for those who try to take unreasonable tactical advantage of an opponent’s breach (see Court of Appeal softens Mitchell guidance but insists no return to old culture of non-compliance).

Since Denton, the number of reported decisions dealing with contested applications for relief from sanctions has reduced significantly and, in general, the judgments have taken a more measured approach (see Compliance with court rules and orders post-Denton: where are we now?). It seems likely that this trend will continue.

However, parties to litigation should not relax too much. Denton continued to emphasise the need for strict compliance, pointing out that there was to be no return to the “traditional approach of giving pre-eminence to the need to decide the claim on the merits”. The Supreme Court has recently reinforced that approach, expressing the view that the strength of a party’s case on the merits is generally irrelevant to enforcement of the court’s case management directions (see UK Supreme Court: merits generally irrelevant to enforcement of case management directions). Overall it seems likely that the courts will penalise rule breaches more readily than before the reforms.

Costs and funding

This year has also seen a major change to the rules on costs budgeting introduced as part of the Jackson reforms in April 2013. Initially the costs budgeting regime had little relevance to those dealing with medium to substantial claims, as it did not apply to the Commercial Court or to claims for more than £2 million in the other main business courts (unless the court ordered that it should apply in a particular case). However, that all changed for cases commenced from 22 April this year. Costs budgets are now required for any claim for less than £10 million in any court, including the Commercial Court. And even where a claim exceeds £10 million, the court has a discretion to apply the costs budgeting requirements where appropriate (see Court has broad discretion to order costs budgeting in cases falling outside mandatory regime).

Another headline element of the Jackson reforms was to introduce damages-based agreements (or DBAs) to allow lawyers to conduct English litigation in return for a share of the winnings. To date there has been no great take-up of DBAs, at least in part because of the ban on “hybrids” (combining, for example a reduced hourly rate with a share of the proceeds). That restriction was widely criticised and it was generally expected to change. However, the government announced in November that it had ruled out such arrangements on the basis that they “could encourage litigation behaviour based on a low risk/high returns approach” (see Government rules out “hybrid” Damages-Based Agreements (DBAs)).

In July this year, the Supreme Court said it was open to the Court to reconsider whether a claimant’s right to recover a conditional fee agreement (CFA) success fee and after-the-event (ATE) insurance premium from an unsuccessful defendant breached the defendant’s right to a fair trial under Article 6 of the European Convention on Human Rights (see UK Supreme Court to consider whether recoverable success fees / ATE premiums breach Article 6 rights). A hearing is expected in February. Although recoverability was abolished from 1 April 2013 as a result of the Jackson reforms, it still applies to CFAs and ATE policies entered into before that date, as well as certain other excepted cases (though a key exception for insolvency claims is set to end next year – see Jackson reforms to apply to insolvency proceedings from April 2015). In any event, a finding of infringement could give rise to claims for compensation against the government by litigants who had been “victims” of recoverable success fees and ATE premiums in historic cases.

Interest in third party litigation funding has continued to grow in the past year. The announcement in November that Bentham Europe (a new UK venture launched by IMF Bentham, the largest funder in Australia) is funding a shareholder action against Tesco seems likely to fuel that interest. A High Court decision in October also brought litigation funding into the headlines, with funders held liable to pay indemnity costs in the high profile Excalibur case (see Litigation funders ordered to pay indemnity costs). The decision suggests that where a claimant has been ordered to pay indemnity costs, the funder will normally be liable on the same basis – regardless of whether the funder bears any personal responsibility for the behaviour which led to the order for indemnity costs.

Privilege

In February the Court of Appeal confirmed the court’s strict approach to assessing a claim to litigation privilege, underlining the need for those asserting the privilege to put forward clear and precise evidence of the dominant purpose (see Court of Appeal decision underlines need for clear evidence of dominant purpose in maintaining claim to litigation privilege).

July brought two cases which illustrate when privilege will (or will not) be lost as a result of privileged documents being inadvertently provided to an opponent. In particular, the cases highlight the difference in approach depending on whether the inadvertent disclosure takes place as part of the disclosure/inspection in litigation, or alternatively outside that process. If the latter, the court will ordinarily intervene to protect the privilege unless the material has entered the public domain (see High Court restrains use of privileged documents disclosed by solicitor in breach of confidence). If the former, privilege will ordinarily be waived unless there has been an obvious mistake, which will not necessarily be straightforward to establish (see Court of Appeal finds waiver where privileged document provided for inspection and mistake not obvious).

In October we had a reminder from the Court of Appeal that marking a communication “without prejudice” is not conclusive as to whether the rule will apply (see Court of Appeal explores ambit of the without prejudice rule). The decision is also of interest in suggesting that parties can expand the ambit of the without prejudice rule by agreement, so that communications which would not normally be covered by the rule are rendered inadmissible as evidence in future proceedings.

Disclosure

A High Court decision from 2013, but which only became available in March, shows how the test for standard disclosure is more limited than the old pre-CPR approach and can lead to very different results. In particular, references to a document in another disclosed document will not be sufficient to meet the test, nor is it enough that it might prove helpful for the purposes of cross examination (see High Court refuses to order bank to disclose its Credit Process Guide).

In late 2013 and early 2014 we had a number of first instance decisions which seemed to indicate that the court would be slow to find that a party was in breach of an unless order for disclosure. The High Court decision in Re Atrium, for example, suggested that so long as a search was carried out in good faith and was fair and proportionate, the court was unlikely to find there was a breach just because some documents were omitted from the list (see High Court finds party not in breach of “unless order” for e-disclosure as result of errors in list). However, in a decision at the end of July (for which the transcript has only just become available) the Court of Appeal overturned the High Court’s decision in that case. The Court of Appeal said the fact that a party had acted in good faith did not warrant the inference that a reasonable search had been made. This suggests the court may be readier than it had seemed to find that a party is in breach.

Expert witnesses

In February the High Court held that there had been a serious abuse of process where a party failed to disclose its expert’s withdrawal from the case for some six months. This highlights the risks where a party seeks to withhold such information for fear of undermining its negotiating position (see High Court refuses permission for new expert where party delayed in disclosing previous expert’s withdrawal).

Another decision from 2013, but which only became available in June, takes (arguably) a more flexible approach to a change of expert than some previous cases. Although a party needs to show good reason to change its expert, this decision recognised that the strength of reason required may vary to some extent depending on the consequences of refusing permission. Here the court granted permission where the claimants’ original expert was unwilling to continue and a refusal was likely to leave the claimants with no effective evidence on a crucial issue (see High Court decision shows some flexibility in test of “good reason” for change of expert). Still, it should never be assumed that permission for a change of expert will be granted lightly.

Settlement / ADR

In July the Commercial Court held that a dispute resolution clause requiring the parties to seek to resolve a dispute by friendly discussions constituted an enforceable condition precedent to bringing proceedings (see High Court finds agreement to engage in time limited “friendly discussions” is enforceable). If this approach is followed in other cases, it will represent a stark change in the English courts’ position on the enforceability of agreements to negotiate in dispute resolution clauses. Parties entering into such agreements should be aware that they may be held to them if a dispute arises.

In October a judge in the Technology and Construction Court refused to fix a “window” in the pre-trial timetable to allow for mediation, expressing the somewhat controversial view that the fixing of any lengthy window to allow for ADR is bad case management because of the resultant delays to the trial date and increased costs (see UK: Court decision discouraging stays or ‘windows’ in trial preparation to allow for ADR on our ADR Notes blog). It is not clear how widely that view is held among the judiciary, but it should not be taken to signal a lack of support for mediation. The court stressed that it was not intending to undermine the crucial role ADR plays in the judicial system.

In November a Court of Appeal decision gave an important reminder to claimants who are considering a settlement against a defendant in circumstances where their co-claimants will be continuing the action (see Claimants who settled on “no costs” basis held liable for costs through back door). Even if the settlement is on a “no costs” basis, the settling claimants may still end up being ordered to contribute to any costs order made against the continuing claimants. So unless the defendant will agree to an indemnity against such liability, this is a factor that should be taken into account in weighing up the benefits of the settlement.

The Civil Procedure Rule Committee is considering amendments to CPR Part 36 on offers to settle, aimed at dealing with excessive technicality and various other issues. Draft amendments have not yet been published but it is expected that amendments will be introduced in April 2015.

This year we have launched a series of Herbert Smith Freehills ADR Practical Guides, designed to provide practical insights into various processes falling under the banner of ADR, with a particular focus on mediation. You can access the guides from this page on our website.

Jurisdiction

New EU rules on jurisdiction and the enforcement of judgments will apply to proceedings commenced from 10 January 2015, in the form of the recast Brussels Regulation (Regulation (EU) 1215/2012). Though similar in most respects to the original version of the Regulation it replaces, the recast Regulation includes some significant changes. In broad outline, the main areas of reform are:

extending the rules relating to jurisdiction agreements and defusing “torpedo” actions clarifying the extent and effect of the exclusion of arbitration from the ambit of the Regulation new rules on stays in favour of proceedings in a non-member state extending the rules relating to consumers and employees to apply to non-EU domiciled traders and employers making Member State judgments immediately enforceable across the EU

The key practical implications for parties based both within and outside the EU are outlined here: New EU jurisdiction rules apply from 10 January: Do you know where you can sue and be sued?

We have also published a Handy client guide to jurisdiction under recast Brussels Regulation: England and Wales. This includes a decision tree intended as a quick reference guide to help determine whether the English court will have jurisdiction over a dispute under the new rules.

Class action reform

In January the government introduced to Parliament the Consumer Rights Bill, which includes proposals for a new “opt-out” collective action for competition law claims on behalf of both consumers and businesses in the Competition Appeal Tribunal  (see “Opt-out” class action for UK competition claims a step closer to reality). This followed initial publication of the government’s proposals in January 2013 and the draft Bill in June 2013. Subject to the parliamentary process, the Bill is expected to become law in the early part of next year.

This is an important development. Although currently limited to competition law claims, if the new regime is a success it may make it more likely that similar initiatives will be brought forward for other sectors.

Contract

A Court of Appeal decision in March suggests that the court may be more inclined to grant an injunction preventing a breach of contract where the contract contains a provision excluding or limiting the liability of the contract breaker in the event of a breach, though it does not mean an injunction will be granted in all such cases (see Court of Appeal decision means injunction to prevent breach may be more readily obtained where damages limited by contract).

In April, the Court of Appeal held that the deliberate withholding of payments due under a contract did not amount to a repudiatory breach in circumstances where the counterparty could expect to receive payment eventually. The counterparty was therefore not entitled to terminate the contract (see Court of Appeal finds deliberate non-payment did not justify termination). The case illustrates the difficulty of establishing that a delay in payment is repudiatory where the parties have not agreed an express right to terminate in those circumstances.

A High Court decision in July continued the string of cases in recent years considering the extent to which parties owe duties of good faith (see High Court implies duty of good faith into “relational” contract). In this case, the court implied a duty of good faith into a long-term agreement between two commercial parties, endorsing the analysis in the 2o13 Yam Seng decision which found that a duty of good faith could be implied into ordinary commercial contracts based on the presumed intentions of the parties.