As we approach the end of 2013, it's a chance to look back at the year that was and assess the changes it has brought. Below is our summary of key developments from a commercial litigator's perspective. We hope you will find it useful, whether you've been following developments faithfully and just want a refresher, or you've been otherwise engaged and need a crash course.
No prizes for guessing the biggest news of 2013: the Jackson reforms, which were implemented on 1 April. What may be more surprising is that the reform that has arguably had the most immediate impact in practice is more about case management than (directly) about costs and funding. It is also a reform that received little attention before April: the new emphasis on enforcing compliance with court rules, practice directions and orders.
Although a number of first instance decisions after 1 April showed a tension between this increased focus on compliance and the desire to do justice in the individual case, the Court of Appeal's November decision in the Mitchell "plebgate" case came down firmly on the side of compliance (see "Court of Appeal sends clear message on need for strict compliance in Mitchell decision").
It is difficult to overstate the importance of the Mitchell decision, and the change in approach it signals. The bottom line is that parties need to comply with deadlines. Where that is not possible, parties will need to apply for more time before the deadline arrives, and be prepared to demonstrate why it's appropriate to extend time. In future the courts can be expected to be very hesitant to excuse failures in compliance unless they are trivial or there was good reason for the failure. That is unlikely to include overlooking a deadline.
Costs and funding
The Jackson reforms have of course also brought about a major shake-up to litigation costs and funding. A key aspect has been the introduction of costs budgeting requirements for cases commenced on or after 1 April (see "Costs management"). At present these requirements do not apply to the Commercial Court, or to cases in the other main business courts where the sums in dispute exceed £2 million (unless the court orders that they should apply in a particular case). But that may be about to change, depending on the conclusions reached by a sub-committee of the Civil Procedure Rule Committee that is currently reviewing the issue. The results of that review had been expected before now, but are still awaited.
The case law to date suggests that the courts are taking a strict approach to applications to revise or depart from budgets. In particular, it will not be sufficient to show that there was an error or inadequacy in the original budget and that the opponent has not been prejudiced (see “High Court decision indicates strict line on revision of costs budgets” and “Another High Court decision indicating strict approach to departures from costs budgets”). The court may however be prepared to allow a departure from the approved budget where there have been significant changes to the course of the litigation since the budget was prepared (see “High Court comments on “obvious case” for departing from costs budget“).
Another high profile aspect of the reforms means that, for conditional fee agreements (CFAs) entered into and after the event (ATE) insurance taken out since 1 April, the success fee / ATE premium is no longer recoverable from the losing opponent, subject to an important exception for claims by insolvent companies (see "Conditional fee agreements (CFAs) / after-the-event (ATE) insurance"). This is generally good news for defendants, who are no longer liable for additional liabilities arising from CFA / ATE arrangements. There was however quite a flood of new business for claimant firms and ATE insurers in the run-up to 1 April, so we are likely to continue seeing cases proceeding under the pre-Jackson regime for some time yet.
A further headline reform was to introduce damages-based agreements (or DBAs) to allow lawyers to conduct litigation in return for a share of the winnings, known as a contingency fee (see "Contingency fees or damages-based agreements (DBAs)"). To date most lawyers have steered clear of DBAs, at least in part because of the apparent ban on “hybrid” DBAs (with for example a reduced hourly rate as the case proceeds plus a contingency fee in the event of success). That may change, as we understand the Ministry of Justice is reviewing the DBA Regulations to consider whether any +44 20 7466 2608 amendments are needed, but we will have to wait and see.
Finally in relation to third party litigation funding, the High Court in May showed itself willing to keep funded parties to the bargain struck, upholding a funder's decision to terminate where it reasonably believed the claimant’s prospects of success were below the threshold stated in the contract. The decision underlines the need for parties and their advisers to consider carefully the terms of any funding agreement (see "High Court finds litigation funder was entitled to terminate funding agreement").
In January the Supreme Court delivered judgment in the high profile Prudential case, confirming that privilege cannot be claimed for tax law advice from accountants. As a result, legal advice privilege continues to be restricted at common law to confidential legal advice provided by lawyers; any extension will be a matter for Parliament (see "UK Supreme Court refuses to extend privilege to accounts").
In relation to litigation privilege, a High Court decision in July serves as a reminder of the court’s strict approach in analysing whether litigation can properly be characterised as the "dominant purpose" such that a claim for privilege will be available. The decision suggests that liquidators may face particular difficulties in asserting privilege where reports are obtained in part to allow them to perform their statutory duties and in part for use in legal proceedings (see "High Court decision underlines strict dominant purpose test for litigation privilege").
The Jackson reforms have also brought in a new approach to disclosure, replacing the presumption in favour of standard disclosure with a “menu” of disclosure options and introducing a new form of disclosure report (see "Disclosure"). The aim is to rein in disclosure and encourage more creative (and cost-effective) solutions that are appropriate for the case in hand. To date however we have not seen any big shift away from standard disclosure.
In September the High Court considered when a party will be in breach of a requirement to conduct a reasonable search for disclosable documents. As the decision illustrates, establishing that there were omissions from a disclosure list will not normally be sufficient to show that a reasonable search was not carried out (see "High Court finds party not in breach of “unless order” for e-disclosure as result of errors in list").
A Court of Appeal decision in October confirmed that the English court is unlikely to refrain from making procedural orders against French parties to litigation on the basis that compliance may involve a breach of the so-called French blocking statute (see "Court of Appeal upholds procedural orders despite risk of compliance breaching French blocking statute"). This approach gives rise to difficulties for French parties, who may be at risk of criminal prosecution in France as a result of compliance with an English court order.
In February the Commercial Court considered the principle that “there is no property in a witness”, finding that it may be a contempt of court to seek to prevent a potential witness from attending an interview with the opposing solicitor. The decision is a reminder that the principle applies to experts as well as witnesses of fact (see "Commercial Court considers principle that 'there is no property in a witness'").
In two decisions in the spring, the High Court confirmed that the court’s permission is not required to adduce pre-existing evidence containing expert opinion, such as a third party report or article; permission is only required where the expert has been instructed for the purposes of the proceedings. Further (subject to an appeal to be heard in January) although judicial findings are not generally admissible in subsequent civil proceedings, this rule does not apply to the findings of an expert who is entitled to draw on his or her own knowledge and experience in reaching conclusions (see "High Court decisions on admissibility of opinion evidence").
A High Court decision in October considered the court's ability to grant permission for a change of expert on condition that a party waive privilege over the first expert's reports. The decision suggests that it might in some cases be appropriate to require disclosure of a solicitor’s notes of discussions with the previous expert, as opposed to the expert’s reports or draft reports. That appears to go further than previous case law (see "Court may order disclosure of solicitor’s attendance notes recording retiring expert’s opinions where very strong appearance of 'expert shopping'").
Offers to settle / Part 36 offers
The Jackson reforms introduced a new costs sanction for claimants’ Part 36 offers made on or after 1 April 2013, in addition to the pre- existing sanctions of an order for indemnity costs and enhanced interest on both damages and costs (at up to 10% above base rate) from the expiry of the relevant offer period. The new sanction takes the form of an uplift on damages, calculated as 10% of the first £500,000 awarded and 5% of the next £500,000. The maximum uplift is therefore £75,000 (see "Part 36 offers").
The first decision we have seen addressing the new sanction suggests that the court may be less likely to order the new sanction where a claimant’s Part 36 offer is made very late in the day, although there may be other relevant factors (see "New Part 36 costs sanction refused where claimant beat own offer made shortly before trial"). The decision is subject to appeal, which is due to be heard in March.
A Court of Appeal decision in October also has interesting implications for offers to settle, including Part 36 offers (see "Court of Appeal decision on Part 36 offers to settle"). First, it suggests that it may be advisable to set out reasons for rejecting an offer of settlement, rather than ignoring the offer or giving a bare rejection. Secondly, it suggests that where the court concludes that it would be unjust to award the relevant Part 36 costs sanctions in their entirety, it can make a partial order reflecting what it considers would be a just result.
A High Court decision in February served as a reminder of just how technical the rules relating to Part 36 offers can be. In that case a claimant's attempt to accept a defendant's Part 36 offer during trial by handing over a handwritten note was not valid, as written notice was not served on the defendant's address for service (i.e. its solicitors' office) before the offer was formally withdrawn by fax to the claimant's solicitors (see "Service formalities must be complied with in accepting Part 36 offer").
A High Court decision in July showed how important it is to state that a settlement offer is subject to contract, where that is intended. In that case the court found that the defendant’s letter setting out terms of settlement, “such settlement to be recorded in a suitably worded agreement”, constituted an offer that was capable of acceptance and had been accepted by the claimant (see "High Court decision shows need to be clear whether settlement offer subject to contract").
A Court of Appeal decision in October found that the terms of a settlement agreement precluded the claimant's application to use in separate Swiss proceedings certain documents that had been disclosed by the defendants in the present action. The decision suggests that where a party wishes to be able to use disclosed documents in separate proceedings following a settlement, and those documents have not been read or referred to at a public hearing, it may be sensible to seek agreement to do so as part of the settlement discussions (see "Court of Appeal found settlement precluded application to use disclosed documents in separate action").
A further Court of Appeal decision in November highlights the dangers of concluding a settlement with only some of a number of potential defendants, and the need to structure the settlement carefully to ensure that claims are not unintentionally released. The decision also acts as a reminder that where a claimant does not bring all related claims in one action, but wants to be able to pursue separate proceedings, the issue should be referred to the court in the first action; otherwise there is the risk that the second action may be held to be an abuse of process (see "Court of Appeal decision underlines need for caution in settling with one or more (but not all) potential defendants").
In April the “Jackson ADR Handbook” was published pursuant to Lord Justice Jackson’s recommendation for publication of an authoritative mediation handbook for England and Wales (see "Jackson ADR handbook published today"). The Handbook is intended to inform litigants, lawyers and judges about the benefits of ADR in the hope that it will become more readily deployed in the context of civil litigation.
In October the Court of Appeal delivered a judgment strongly reiterating its support for the role of ADR in civil litigation and extending the well-known Halsey principles governing the question of when a litigant’s failure to engage in ADR will justify costs sanctions. In particular, it has confirmed that a party’s silence in the face of a serious
invitation to mediate will, as a general rule, be considered unreasonable and will warrant a costs sanction – even if there may have been reasonable grounds to expressly refuse the proposal (see "Failure to engage with ADR proposals: Court of Appeal extends the Halsey principles").
We are still waiting for the impact to be felt of the new Regulation to replace Council Regulation (EC) No 44/2001 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (the Brussels Regulation), which was finalised at the end of 2012 (see "Reforms to Brussels Regulation now finalised"). The reforms will make significant changes but will not apply until early 2015.
A decision of the French Cour de Cassation in 2012 cast doubt on the effectiveness of one-way or unilateral jurisdiction clauses (in which one party can bring proceedings in one jurisdiction only, whilst the other has the option to bring proceedings in other jurisdictions) in France, adding to the list of jurisdictions in which such clauses are known to be potentially problematic (including Russia, Poland and China). That case caused concern amongst many commercial parties, in particular financial institutions which favour such clauses. It was therefore comforting to have the Commercial Court confirm in May this year that one-way clauses remain valid under English law (see "High Court confirms unilateral jurisdiction clause is valid under English Law").
The Supreme Court has also dealt with a number of cases involving jurisdiction issues this year.
- In June the court considered when an order can be made retrospectively declaring that steps taken to bring a claim form to the attention of a defendant outside of the jurisdiction amount to good service. It held that in cases not involving the Hague Service Convention or a bilateral service treaty, the claimant merely needs to show “good reason” for the order to be made; contrary to the Court of Appeal's decision, there is no requirement for “exceptional circumstances”. Further, there is no requirement that the method of service be valid under local law, only that it is not contrary to that law (see "UK Supreme Court clarifies when retrospective alternative service out of the jurisdiction is permitted").
- Also in June the court confirmed that the English court has jurisdiction to injunct the continuation or commencement of foreign proceedings brought in breach of an arbitration agreement, even in the absence of an actual, proposed or intended arbitration, though following the well-known decision in West Tankers this power only applies against (broadly) non-EU countries (see "UK Supreme Court confirms power to issue anti-suit injunction even when no arbitration underway or proposed").
- In November the court considered a number of areas of uncertainty concerning the interpretation of Articles 27 and 28 of the Brussels Regulation (see "Supreme Court interprets Articles 27 and 28 of Brussels Regulation, but many issues still require clarification from CJEU").
In January the government published its plans for reforming the UK regime for competition law private actions, including the creation of a new “opt-out” collective action for competition law claims on behalf of both consumers and businesses in the Competition Appeal Tribunal (CAT). This is a significant departure from existing procedures for multi-party litigation in England and Wales, which generally require potential claimants to make a positive decision to opt in to the proceedings, and there are concerns that it may lead to some of the “excesses” of US-style antitrust litigation. The proposals were included in the government's draft Consumer Rights Bill, which was published in June for pre-legislative scrutiny (see "Draft Consumer Rights Bill includes proposed new “opt-out” class action for competition claims").
There have also been developments at EU level. In June the European Commission published its long-awaited proposals for the future of collective actions in the EU, in the form of a non-binding Commission Recommendation (see "European Commission Recommendation on common principles for collective actions in EU"). The Recommendation invites Member States to adopt collective redress mechanisms at national level for both injunctive and compensatory relief for breaches of EU law rights which follow a set of basic principles set out in the Recommendation. Importantly, it recommends an “opt-in” system, with group members having to be identified before a claim is brought. Any exceptions to this principle should be “duly justified by reasons of sound administration of justice”.
In February the High Court attracted controversy by implying a duty of "good faith" into a distribution agreement in the widely discussed Yam Seng decision. The court commented that the relevant background for construction of the contract included “shared values and norms of behaviour”, such as an expectation of honesty and fidelity to the parties’ bargain (see "High Court implies duty of good faith into distributorship agreement").
Decisions since Yam Seng however suggest that the courts will continue to give a narrow interpretation to express contractual obligations of good faith and will hesitate before implying such obligations. In May for example the High Court held that a contractual right of termination did not have to be exercised in good faith (see "High Court finds no duty of good faith in exercising contractual right of termination").
With regard to contractual interpretation, in April the Court of Appeal re-emphasised the importance of the contractual wording when construing commercial contracts. Where there are two possible constructions, the court can prefer the construction which is more consistent with “business common sense", but that concept is not to be elevated to an overriding criterion of construction (see "Court of Appeal reins in role of “commercial common sense” in contractual interpretation").
There have also been a couple of Court of Appeal decisions illustrating that, in some circumstances, the court will find that a binding contract exists even though some terms are still to be agreed (see "Court of Appeal finds contract which left matters to be agreed not unenforceable for uncertainty" and "Commercial Court finds binding contract formed even though not all terms agreed").
In relation to EU developments, it appears there remains strong support in the European Parliament for the Commission’s controversial proposal for a Common European Sales Law (see "European Parliament committee backs proposed Common European Sales Law").
Questions of whether and when the corporate veil can be pierced, and the implications of doing so, received attention at the highest level this year.
In February, in the VTB Capital case, the Supreme Court refused to pierce the corporate veil in order to treat an alleged fraudster as a party to a contract entered into by his puppet company, which meant that the claimant could not rely on a contractual jurisdiction clause giving non-exclusive jurisdiction to the English courts. The court considered that piercing the corporate veil so as to treat a third party as if he were a co-contracting party would be contrary to authority and contrary to principle (see "Supreme Court refuses to pierce corporate veil in VTB Capital Plc’s jurisdiction appeal").
In VTB the court declined to give more general consideration to whether, and if so when, it is possible to pierce the corporate veil, but the issue came before the Supreme Court again soon afterward in the high profile Prest case. Its judgment given in June confirmed that a court can in very limited circumstances pierce the corporate veil, though there were differences of opinion amongst the seven Justices as to the existence and scope of the principle (see "UK Supreme Court confirms corporate veil can be pierced in some circumstances").