Bringing a claim - initial considerations

Key issues to consider

What key issues should a party consider before bringing a claim?

First, can the claim be brought in time? As a general rule, the claimant has six years from the date of breach (in contract cases) or the date the loss was suffered (in tort cases) to commence proceedings. However, this assumes that English law is the applicable substantive law of the issues in dispute. If another substantive law applies, then the limitation period of that law will apply instead.

Second, what are the merits of the claim? For example, does the case turn on disputed or poor-quality evidence? Is it based on an area of law that is unclear?

Third, how should the claim be formulated to maximise the recoverable damages? Is there tactical advantage, for example, in relying on one cause of action or factual scenario over another because it opens up additional or more attractive, heads of loss?

Fourth, if a judgment is obtained, what are the prospects of it being paid, and will enforcement proceedings be necessary? What are the prospects of enforcement proceedings being successful, and how long could they take? Could interim steps be taken at the outset to maximise the prospects of recovery?

Fifth, will any publicity of, or disclosure in, the proceedings harm the claimant’s wider commercial interests? (If so, would a private process such as arbitration be more suitable?)

Sixth, how is the prosecution of the claim going to be funded?

Establishing jurisdiction

How is jurisdiction established?

The essence of jurisdiction is the valid service of a claim that has been issued by the English courts. Claim forms are issued either for service inside the jurisdiction or outside the jurisdiction. The first step is to identify whether there is any binding choice of jurisdiction in favour of the English courts, which will invariably be upheld even if the parties or the subject matter of the dispute have no connection at all with England.

If there is no binding choice of jurisdiction in favour of the English courts, the domicile of the defendant must be considered. Under the Recast Brussels Regulation (EU) No. 1215/2012, domicile means being resident in the jurisdiction, provided that the nature and circumstances of the defendant’s residence indicate a substantial connection with England.

If the defendant is domiciled in the EU, the general rule is that it must be sued in the court of the EU member state in which it is domiciled. However, there are various exceptions to this rule. For example, in contract cases where the contractual obligation was to be performed in England, and in tort cases where the harmful act occurred in England, a defendant domiciled in another EU member state may be sued in England. If there are multiple defendants domiciled in different EU member states, the English court will usually have jurisdiction in relation to all of the claims should one defendant be domiciled in England and the other cases be so closely connected that it would be expedient to hear them together. This is to avoid the risk of irreconcilable judgments.

If the defendant is domiciled outside the EU, in the absence of personal service (eg, where the defendant or its agent is temporarily present on a visit), the claimant will need to obtain permission from an English court to serve the proceedings outside the jurisdiction. The claimant will, at this point, need to demonstrate:

  • that there is a serious issue to be tried;
  • that there is a good arguable case so that one of the jurisdictional gateways applies;
  • that England is the most appropriate forum for the case; and
  • that the court should exercise its discretion to permit service outside of the jurisdiction.

If a party starts proceedings in an EU member state in breach of an exclusive jurisdiction clause in favour of another EU member state, that court must stay the proceedings until the court in the member state in which the proceedings ought to have been launched has ruled that it has jurisdiction in favour of the other member state. This is to guard against the colloquially known ‘Italian torpedo’, where under the old rules, even if the proceedings ought to have been brought in a certain member state pursuant to an exclusive jurisdiction clause, a defendant who wished to create delay and disruption would launch proceedings in a member state whose courts may be more favourable to its strategic aims. All other courts would then stay any parallel proceedings that might have been launched until the court of the member state first seized ruled on its own jurisdiction.

If a party starts proceedings outside the EU in breach of an exclusive jurisdiction clause in favour of England, the other party should consider applying to the English court for an anti-suit injunction. A breach of such an injunction is a contempt of court that is potentially punishable by imprisonment, and is a ground to resist the enforcement of a foreign judgment in England. To obtain an anti-suit injunction, the applicant must demonstrate that the foreign proceedings are or would amount to a breach of an exclusive jurisdiction clause, or that the foreign proceedings are vexatious and oppressive and England is the natural forum for the dispute.

Preclusion

Res judicata: is preclusion applicable, and if so how?

Res judicata will usually prevent a party from relitigating a case where a prior judgment has determined a particular issue or issues. The principle applies to English judgments as well as foreign judgments, provided the judgment has been given by a court of competent jurisdiction and is final and conclusive on the merits.

Where res judicata applies, a party can apply to the English court to strike out the new proceedings for abuse of process. This will usually happen at a very early stage in the proceedings.

Applicability of foreign laws

In what circumstances will the courts apply foreign laws to determine issues being litigated before them?

English courts regularly determine disputes that are governed by foreign law. In these circumstances, the issues of foreign law are usually presented as expert evidence. If there is any difference of opinion between the experts as to the foreign law in question, the court will then make a determination on which expert’s interpretation is preferred.

There are situations where the application of foreign law can be of tactical advantage to one of the parties. For example, the foreign law in question may entitle the claimant to a cause of action that is not available under English law; or the foreign law in question may entitle the claimant to a higher award of damages than would have been available under English law. Conversely, foreign law can also provide a definitive answer to a claim (eg, a shorter limitation period, thereby time-barring the claim, or a substantive law that does not recognise an oral contract).

Initial steps

What initial steps should a claimant consider to ensure that any eventual judgment is satisfied? Can a defendant take steps to make themselves ‘judgment proof’?

A claimant should seek to establish whether the defendant’s assets are sufficient to meet any eventual judgment, and where those assets are located. If they are located in the EU, then an English judgment will automatically be recognised and enforced there and the process should be relatively straightforward. If they are located outside the EU, then the question of recognition and enforcement will be determined by whether there is a bilateral treaty in place between England and the country in question, and the local laws of the jurisdiction in question. In practice, this tends to make recognition and enforcement a more burdensome and time-consuming exercise, and potentially less predictable.

Although there is nothing in principle that prevents a defendant from taking steps to restructure before a judgment is issued (eg, by dissipating or transferring assets), in practice, defendants who reorganise their affairs in anticipation of a judgment are liable to have such transactions scrutinised by the other parties, judgment creditors or the court. Furthermore, if a corporate defendant takes deliberate steps to dissipate assets to avoid a judgment debt, one or more of the company’s directors may face personal civil liability.

If a party apprehends that its opponent is taking these steps to proactively reorganise their affairs with the intention of avoiding a future judgment, it should consider obtaining a freezing injunction (see question 9).

Freezing assets

When is it appropriate for a claimant to consider obtaining an order freezing a defendant’s assets? What are the preconditions and other considerations?

A freezing injunction is an interim order that prevents a defendant from hiding, moving or otherwise unjustifiably dissipating its assets so as to render itself judgment proof. It is typically sought by a claimant to preserve the defendant’s assets until any judgment can be obtained or satisfied. While usually sought at the outset of proceedings, a freezing injunction can be sought at any stage, including after the judgment has been given. The English court has the power to grant a freezing injunction both in respect of assets in England and Wales (domestic freezing injunctions) and worldwide (worldwide freezing injunctions).

The ambit of the order can include various types of assets, including intangible assets, as long as they are capable of being enforced against. Examples include bank accounts, shares, goodwill, physical property and land. If the applicant is successful, the court’s order may require the respondent to provide an affidavit setting out the details of his or her assets. Where the claimant has a proprietary interest in respect of an asset or its proceeds (ie, he or she asserts that they are, or represent, his or her own property that has been wrongfully taken), he or she may seek a proprietary injunction over the specific assets.

The applicant must demonstrate that he or she has an underlying cause of action, the existence of assets within the jurisdiction (or outside the jurisdiction if those are insufficient to meet the claim) and a real risk that the assets could be dissipated. Freezing injunctions are an equitable remedy, so the court will have regard to equitable principles in coming to its decision. Typically, a successful applicant will need to provide a cross-undertaking in damages. Once it becomes apparent that a freezing injunction may need to be sought, it is important to not delay in applying for the same, as this will weaken the argument that there is a real risk of dissipation of assets.

In addition to supporting English proceedings, the English courts also have the power to grant freezing injunctions in support of arbitral proceedings as well as in support of substantive proceedings brought in a foreign jurisdiction pursuant to section 25 of the Civil Jurisdiction and Judgments Act 1982 (as extended by the Civil Jurisdiction and Judgments Act 1982 (Interim Relief) Order 1997 (SI 1997/302)). This can provide the applicant with a remedy against a respondent resident or a resident with assets in England, even when that remedy may not be available in the jurisdiction in which the main proceedings are being heard (so long as it does not result in an inconsistency with the local law or the judgments of the two courts).

Pre-action conduct requirements

Are there requirements for pre-action conduct and what are the consequences of non-compliance?

The CPR contain several pre-action protocols that set out what is expected of parties before commencing litigation. The CPR encourage, in strong terms, parties to comply with the pre-action protocol relevant to their type of claim. They provide a general pre-action protocol for situations where the specific protocols do not apply. The protocols require the parties to set out the factual and legal basis for their claim, and the loss suffered, in a letter of claim. The prospective defendant then has a period of time to set out its case in response. This exchange of letters is private between the parties at this stage. The purpose of the exchange is to allow parties to exchange information before litigation commences, in the hope that litigation can be avoided. It is not unusual for cases to be settled at this stage.

The main consequences for non-compliance are potential adverse costs awards and the proceedings being stayed (postponed) until the parties follow the pre-action protocol. Compliance with a pre-action protocol is not required where pre-action correspondence would defeat the purpose of the proceedings (eg, obtaining a search order).

Other interim relief

What other forms of interim relief can be sought?

English courts can grant a wide range of interim relief, including security for costs, pre-action disclosure, specific disclosure, third-party disclosure and payments into court. Interim injunctions include asset-freezing injunctions (see question 9), search orders (to obtain and preserve evidence), prohibitory injunctions (preventing a party from taking certain action) and mandatory injunctions (forcing a party to take action).

In urgent cases, interim relief can be obtained quickly and, when appropriate, without initial notice to the other party.

Alternative dispute resolution

Does the court require or expect parties to engage in ADR at the pre-action stage or later in the case? What are the consequences of failing to engage in ADR at these stages?

The court expects parties to have considered ADR both ahead of litigation and at all key stages during it. If the parties cannot demonstrate consideration of ADR before litigation is commenced, the court can order a stay for an attempt at ADR to be made. If an invitation to ADR is ignored or unreasonably refused by one party, case law has confirmed that that party can be subject to potentially severe costs sanctions. Equally, the court does recognise that in certain claims, the number or nature of issues, or both, between the parties prevents meaningful ADR.

Claims against natural persons versus corporations

Are there different considerations for claims against natural persons as opposed to corporations?

Under English law, a corporate is a separate legal person. Litigation is conducted on behalf of the corporate by its directors, who must respect their fiduciary duties towards the corporate.

When a corporate defendant falls insolvent, many claimants look to pierce or look behind the corporate veil to pursue the company’s directors personally for a judgment debt. However, this is very difficult unless there is obvious fraud or transactions that were clearly carried out at an undervalue. It may be that the directors benefit from directors and officers insurance, which would usually cover civil liability (assuming no fraudulent conduct took place).

Another consideration is that it is generally easier to obtain information about corporates in the public domain than it is to find information about natural persons.

Class actions

Are any of the considerations different for class actions, multi-party or group litigations?

In practice, the same considerations apply. However, in group litigation and class actions, there are a number of additional practical considerations. It usually takes longer to prepare and bring the claim, and it is therefore even more important that limitation periods are considered at the outset. For example, it can be time consuming to identify (and bring into the proceedings) all relevant claimants. A defendant may challenge whether there is sufficient common interest between all the claimants.

In relation to an action that is subject to a group litigation order, that order will usually contain directions about the establishment of the group register (the list of relevant claimants), as well as directions as to a ‘lead solicitor’ role, whose obligations will be to manage and keep up to date the group register as well as other common aspects of the litigation, including filing documents at court on behalf of all claimants with respect to the common issues. The order will identify and define the common issues between the various claimants that are to be tried in the group litigation. The order may also contain directions with respect to the publishing of the group litigation, deadlines for claimants to join the group, whether there should be any test claimants, the shared liability of claimants with respect to adverse costs (and any other arrangements between them) and directions as to the appointment of a managing judge. Group litigation orders are often perceived to be somewhat inflexible and expensive to comply with. There are viable and increasingly popular alternatives to the formal group litigation order regime: for example, having a same interest representative claimant or having similar cases tried together under a single case management regime.

Given that there can be different categories of claimants with varying interests, identifying and defining the common issues that are to be the subject of the group action can take time and have a significant impact on the structure of the litigation and costs. Claimants may wish to consider whether there are any preliminary issues that could be addressed by the court, which would provide a (relatively less costly) basis on which the group action can proceed. The funding structure can also take time to develop in circumstances where it often takes time to build a group of claimants, from whose proceeds the funders’ return will be paid, as well as obtaining a rounded view of the merits (on which the funders will generally rely). Focusing on a preliminary issue, or something similar, may assist in this respect.

The increasingly more common use of group actions is likely to result in the basic structure provided for in the CPR being reformed in the near future. There may, therefore, be further considerations for group litigation after these reforms.

Third-party funding

What restrictions are there on third parties funding the costs of the litigation or agreeing to pay adverse costs?

Historically, the principles of champerty and maintenance have restricted the involvement of third-party funding in litigation for fear of creating a market in litigation. While there has been some relaxation of those principles, there are a number of important considerations to keep in mind to avoid potential pitfalls.

Probably the most important consideration is to ensure that the funder does not control the litigation. While the funder can be kept up to date and even involved in certain decision-making, care must be taken to ensure that this does not amount to the taking of or influencing such decisions. Solicitors who conduct litigation must take steps to ensure that no conflict of interest arises. In complex commercial cases funders often instruct their own solicitors, in part to guard against this risk. Care must also be taken to ensure that the funder’s return is not disproportionate to the risk that it is taking.

Litigation funding is a rapidly growing market in English litigation - it is generally accepted that litigation funding is here to stay. Since the funder shares in the proceeds of any winnings or recoveries, it tends only to be available for claimants.

The most common type of adverse costs insurance is an after the event (ATE) policy. The ATE industry in England is also expanding. This usually covers a party’s own disbursements and the risk of having to pay the opponent’s legal fees in the event of defeat. With some limited exceptions, the party taking out the insurance cannot recover the cost of doing so from the opponent.

Contingency fee arrangements

Can lawyers act on a contingency fee basis? What options are available? What issues should be considered before entering into an arrangement of this nature?

There are two forms of contingency fee arrangements that English lawyers can agree for commercial disputes.

First is a conditional fee agreement (CFA). Under a CFA, some or all of the lawyer’s fees and expenses are paid only in the event that the case wins. The definition of win is agreed between the parties in advance. Lawyers in complex commercial cases rarely agree to act on a fully contingent no win no fee basis (ie, where all of their fees are contingent on the outcome). The more usual arrangement is a no win low fee arrangement, whereby lawyers are paid a discounted proportion of their hourly rates (eg, 60 per cent) as the case progresses and irrespective of outcome, with the possibility of recovering the discounted amount plus a success fee depending on the outcome of the case. That success fee is calculated as a percentage of the standard hourly rates (up to a maximum of 100 per cent). Lawyers and clients often agree varying levels of win, and structure the fee entitlements under the CFA accordingly.

Secondly there is a damages based agreement (DBA). Under a DBA, a lawyer is paid a fixed percentage of the damages that are actually recovered in the case (whether through a settlement or following judgment). In commercial cases, the maximum percentage of damages that can be paid to a lawyer under a DBA is 50 per cent. It is a form of no win, no fee agreement, because the lawyer is only paid if a financial recovery is achieved. The lawyer’s percentage entitlement to damages can be staged according to when in the case a recovery is achieved, to reflect his or her investment in the case through time spent. DBA agreements must comply with the various requirements of the DBA regulations.

Contingency fee arrangements of this nature are increasingly common, and are often combined with a third-party litigation funding package. It is not unusual for funders to request claimant lawyers to act on a CFA or a DBA to promote alignment of interests and to demonstrate the lawyer’s confidence in the case. In the case of a DBA, a lawyer can agree in his or her own financing arrangement with a third-party funder to mitigate his or her own financial exposure to the case.

When negotiating agreements of this nature it is important to strike an appropriate balance of risk and reward between lawyer and client, and to ensure that the parties’ interests are properly aligned. CFAs and DBAs tend, for these reasons, to be heavily negotiated.