2016 has been an eventful year on any measure. While it may not be remembered principally for developments relating to commercial litigation, there has been a lot of activity on this front as well. In this post we look back at some of the key cases and other developments from the perspective of the commercial litigator, covering a range of topics including privilege, contract law, settlement, jurisdiction and various aspects of court procedure. We hope it will be a useful summary, including for those who have been too distracted by world events to follow developments as closely as they would like.
In a development reminiscent of London buses, the final months of this year have seen the first two reported English decisions applying the narrow interpretation of "client" from the rather notorious 2003 Court of Appeal decision in Three Rivers No 5 (see High Court applies narrow interpretation of 'client' for purposes of legal advice privilege). In both cases the court found that the "client" for privilege purposes was restricted to a limited group of employees within the client organisation, so that communications or documents prepared by anyone else were not privileged. In the second decision, in the RBS case, the judge concluded that the effect of Three Rivers No 5 is to limit the "client" to those who are authorised to seek and receive legal advice on behalf of a client corporation, and that authority to provide information to the lawyers is not sufficient for these purposes. The judge has now granted RBS permission to appeal against the decision and has granted a "leapfrog" certificate enabling the appeal to proceed directly to the Supreme Court (rather than the Court of Appeal), subject to permission being given by the Supreme Court. It is anticipated that the appeal will be heard early in the new year.
In contrast to this narrow interpretation of legal advice privilege, there have been a number of decisions endorsing a broad application of without prejudice (WP) privilege. A Court of Appeal decision in January found that discussions between a defendant's solicitor and a claimant litigant in person were protected by the rule on the basis that it must have been obvious that their purpose was to try to resolve the dispute, though that was not expressly stated (see Court of Appeal decision endorses broad view of without prejudice protection). And in other decisions this year, the High Court found that even the fact of a failure to reply to an offer of mediation would be protected by the WP rule, and that there was no general exception to the protection of the rule where WP communications were referred to only for the purposes of an interlocutory hearing (see Two High Court decisions illustrate broad application of without prejudice protection).
It is clear, however, that the WP rule is not absolute. It cannot for example be used as a cloak for "unambiguous impropriety" – an exception that is relatively rarely invoked but was applied in a Court of Appeal decision in July on the basis that a settlement offer constituted an improper threat in the nature of blackmail (see Court of Appeal finds settlement offer not subject to “without prejudice” protection as it amounted to an unambiguously improper threat).
In last year's yearbook we reported that the use of predictive coding for disclosure document review had received a boost with a decision of the Irish High Court endorsing its use, but there had not yet been a reported English decision to similar effect. That has now changed, with two English High Court decisions endorsing the use of the technology in the past year – first in a case where the use of the technology had been agreed between the parties (see Use of predictive coding for e-disclosure endorsed by English High Court) and second where its use was contested (see Predictive coding ordered despite party’s objections). Predictive coding uses software to help prioritise documents for review, thereby potentially saving time and costs. Herbert Smith Freehills has used the technology in a number of matters on behalf of our clients.
A Court of Appeal decision in July clarified the approach to be taken in determining whether the court should allow inspection of a document "mentioned" in a witness statement or statement of case (see Court of Appeal clarifies when court will allow inspection of documents mentioned in witness statement or statement of case). The decision confirms that there is no unqualified right to inspect such a document, though the burden is on the party resisting inspection to displace the general rule that a "mentioned" document may be inspected. Where inspection is resisted on grounds of confidentiality, the court will need to find a just balance between the competing interests of those seeking to inspect / maintain confidentiality; there is no separate test of whether inspection is "necessary" for the fair disposal of the action.
A High Court decision in July confirmed that the court can order a re-review of disclosure by an independent lawyer, although "strong grounds" are required to justify such an "unusual order". The grounds were not made out on the facts of that case, as one erroneous (albeit significant) decision to withhold disclosure of a document, which was corrected quickly, did not justify making such an order (see Strong grounds required to justify independent re-review of disclosure).
A number of Court of Appeal decisions this year have confirmed that clauses requiring particular formalities to be observed before a contract will be formed, or amended, will not necessarily be effective. Depending on the facts, a court may find that a binding agreement was formed, or that a contract was validly amended, without the relevant formalities having been observed (see for example Court of Appeal expresses view that contract requiring amendments to be in writing may nevertheless be amended informally, Court of Appeal confirms that contracts which expressly prohibit oral amendments may nevertheless be amended orally and Court of Appeal finds parties bound by unsigned agreement despite express term requiring execution by both parties).
In March, the Court of Appeal confirmed that exclusion clauses should be narrowly construed if that is necessary to resolve ambiguity (see Court of Appeal confirms exclusion clauses should be construed narrowly if necessary to resolve ambiguity). However, it rejected the traditional "contra proferentem" rule as the underlying rationale, saying the principle has nothing to do with the identification of the party putting forward the clause or seeking to rely upon it. Instead, it is based on the notion that parties are not lightly to be taken to have intended to cut down the remedies the law provides for breach of contract, unless the contract contains clear words to that effect.
A Court of Appeal decision in July found that a party was not entitled to keep a contract alive for the purpose of claiming ongoing liquidated damages for delayed performance following its counterparty’s repudiatory breach (see Court of Appeal finds innocent party could not affirm contract following repudiatory breach where defaulting party unable (not just unwilling) to perform). The decision suggests that an innocent party's ability to affirm a contract following a repudiatory breach may be fettered if the defaulting party is unable to perform its obligations, rather than simply refusing to do so.
In the same decision, the Court of Appeal expressly disagreed with the High Court's suggestion that "good faith" principles are relevant in considering whether an innocent party has a legitimate interest in affirming a contract. A similar reluctance to broaden the application of "good faith" principles was seen in a High Court decision in June, where the court rejected an argument that a party's contractual right to terminate had to be exercised in good faith (see No implied obligation of good faith in exercising contractual right of termination.)
This year we have continued our series of contract disputes practical guides, designed to provide clients with practical guidance on some key issues that feature in disputes relating to commercial contracts under English law. We have published four new editions, as listed below. These can be found on the home page for the series together with information on how to access the accompanying webinar and podcast for each edition. The next edition, to be published in January 2017, will look at termination.
- How far can you act in your own self-interest? The role of good faith in commercial contracts
- Endeavours obligations: How hard do you have to try?
- Defining your liability in advance: Liquidated damages, limitation and exclusion clauses
- English law contracts post-Brexit: What changes should commercial parties expect?
Courts and appeals
July saw the publication of Lord Justice Briggs's final report in his review of the future of the civil courts structure (see Final report in Lord Justice Briggs’s Civil Courts Structure Review). The headline recommendation is to establish an Online Court, initially for money claims up to £25,000 – a recommendation the government has since confirmed its intention to implement. Other recommendations include: a substantial increase in the minimum claim value threshold for commencing claims in the High Court (initially to £250,000 and subsequently to £500,000); transferring some of judges' more routine and non-contentious work to case officers, under judicial training and supervision; and unifying and digitising procedures for the enforcement of judgments.
Another major change in the pipeline is the introduction of fixed recoverable costs for non-personal injury claims (there is already a system in place for personal injury claims). In September the government announced its intention to extend fixed costs to "as many civil cases as possible", and in November Lord Justice Jackson was commissioned to lead a new review of fixed recoverable costs to report by the end of July 2017. The threshold at which any regime of fixed recoverable costs might be set is a matter to be considered in the review, but it is understood that Lord Justice Jackson is particularly interested in cases valued at up to £250,000.
Major changes were made in October in an effort to clear the backlog of cases in the Court of Appeal. The most significant change is to remove the automatic right, where permission to appeal is refused on the papers, to renew the application at an oral hearing (see New rules for appeals to the Court of Appeal to apply from 3 October). For applications made since 3 October, the default position is that permission applications are determined on the papers unless the judge exercises a discretion to “call in” the application for an oral hearing. Judges have a duty to do so if they are of the opinion that they cannot fairly determine the application on the papers. The amendments do not include raising the general threshold test for appeals from a "real" to a "substantial" prospect of success, as had been proposed, but it seems this proposal is still being considered.
This year has seen a number of cases commenced in the Shorter Trials Scheme, one of two new pilots that were introduced in October last year to streamline court procedures in response to demands of court users (as outlined in New pilots of streamlined procedures for claims in the main business courts). Initially intended to run for two years, the schemes have recently been extended to the end of September 2018. Since its inception, there have been around 15 cases commenced in, or transferred into, the Shorter Trials Scheme and two judgments have been issued. So far as we are aware, there have not been any cases commenced in the Flexible Trials Scheme.
The Financial List, which was also introduced in October last year (as outlined in New specialist Financial List and pilot of Financial Markets Test Case Scheme) has proved to be popular, with around 20 claims having been commenced in, or transferred into, the List in 2016. To date, however, we are not aware of any claims having been brought under the financial markets test case scheme, which was introduced at the same time.
Relief from sanctions / costs budgeting
The past year has continued the trend of far fewer cases in which parties attempt to take their opponents to task for minor breaches, which we have seen since the Court of Appeal's "clarification" of the Mitchell guidance in its Denton decision in July 2014. No doubt that is, at least in part, because the decision made it clear that heavy costs sanctions may be imposed on those who seek to take unreasonable advantage of an opponent’s breach.
However, there is continued scope for tough decisions against those who fail to comply with rules and court orders, as vividly illustrated by a Court of Appeal decision in July which upheld an order limiting a party's costs budget to the applicable court fees where it had failed to file a costs budget (see Court of Appeal upholds order limiting recoverable costs to court fees where party failed to file costs budget). Two other Court of Appeal decisions earlier in the year illustrate a similar point, particularly highlighting the need to make a prompt application for relief from sanction (see Two Court of Appeal decisions show continuing tough approach to procedural failings).
The July decision referred to above also acts as a reminder that costs budgets must be filed in time or a party risks facing serious restrictions on its recoverable costs. On that point, it is well worth noting that the deadline for filing a costs budget was brought forward for proceedings commenced since 6 April (see New procedures to encourage parties to agree costs budgets). The new deadline is 21 days before the first case management conference (CMC), rather than seven as previously. There is also a new requirement for "budget discussion reports", aimed at encouraging parties to agree budgets and thereby reduce the burden that costs budgeting places on the courts. Costs budgeting may, however, soon be a thing of the past for the lower end of the spectrum of commercial claims, if a regime of fixed recoverable costs is brought in, as referred to above.
Funding and fee agreements
It has been another busy year in the world of third party litigation funding, with reportedly high continued levels of activity on the part of the funders in the UK market. Developments include Burford Capital's announcement of an innovative deal to provide US$45 million to finance BT Group's portfolio of pending litigation, Calunius Capital's launch of a new £100 million fund and, on the other hand, Australian funder IMF's decision to pull out of the UK market, selling its stake in the joint venture that created Bentham Europe.
There has also been increased judicial recognition for the role of litigation funding, with the Court of Appeal describing it in the high profile Excalibur decision (referred to below) as a "an accepted and judicially sanctioned activity perceived to be in the public interest". Recent developments suggest increasing acceptance of litigation funding elsewhere, as well, with indications that it is likely to be permitted in the relatively near future for arbitrations in Singapore (see Singapore update: litigation funding moves a step closer) and Hong Kong (see Hong Kong Law Reform Commission recommends that third party funding be allowed for arbitration).
In another positive development for litigation funders, the English High Court has held that a sole arbitrator did not exceed his powers in including the costs of third party funding within a costs award (see High Court upholds arbitrator’s decision to award claimant the costs of third party funding). It is, however, highly unlikely that expenses associated with litigation funding could be awarded as costs in English litigation under the Civil Procedure Rules.
But it has not all been good news for litigation funders. For example:
- The Court of Appeal's decision in Excalibur handed down in November potentially increases funders' costs liability in respect of failed claims (see Court of Appeal upholds order for litigation funders to pay costs on the indemnity basis in high profile Excalibur litigation). It confirms that a commercial funder will ordinarily be required to contribute to the defendant's costs on the same basis as the funded party. It also confirms that when calculating the maximum amount of the funder's liability (which is typically capped at the amount provided toward funding the claimant's claim), funds provided for security for costs should be included.
- A High Court decision in October shows that the court may order a party to disclose the identity of its litigation funder so that an application for security for costs can be pursued against the funder, where there is good reason to believe that a third party is funding litigation in return for a share of the proceeds but the defendant does not know the identity of the funder (see Claimant ordered to reveal funder’s identity so defendant could apply for security for costs against funder).
Finally, the exception to the Jackson reforms for insolvency claims, which was initially intended to continue until April 2015, came to an end from April 2016 (see Jackson reforms will apply to insolvency litigation from April 2016). This means that CFA success fees and ATE insurance premiums are no longer recoverable in proceedings brought by liquidators, administrators, trustees in bankruptcy, and companies in liquidation or administration. Recoverability was of course abolished for most other claims from April 2013.
Settlement / ADR
In July the Supreme Court handed down a significant decision on the circumstances in which a settlement agreement may be set aside on grounds of fraudulent misrepresentation, finding unanimously that it will not necessarily be a bar to the claim that the claimant did not fully believe the representations (see Supreme Court holds that a settlement may be set aside for fraud even if fraud was suspected). The appropriate question is whether the claimant was "influenced by" its opponent's representations in entering the agreement. In the context of an agreement to settle court proceedings, a party may have been influenced in the sense that it took into account the risk that the court hearing the claim would believe the representations, even if the party itself did not.
A Court of Appeal decision in November provided helpful guidance on when a settlement with one defendant will also discharge claims against other defendants (see Court of Appeal finds settlement with contract breaker did not release claims against others who induced the breach). It suggests that, where the causes of action against the different defendants are separate (ie there is no joint liability), a court will not lightly conclude that settlement with one will discharge the others – unless it is clear that the effect of the first settlement was to extinguish the claimant's loss. However, claimants who wish to settle with only one (or some) of a number of potential defendants should tread carefully, including because the position will differ where the defendants are jointly liable – a distinction which may not be clear in all cases.
Part 36 offers to settle
In February the Court of Appeal confirmed that a claimant should not be penalised in costs where it beat a defendant's Part 36 offer by only a small margin (see Part 36 offers: Court of Appeal re-buries “near miss” rule). The decision suggests that a claimant will not be penalised simply for failing to improve upon the value attributed to particular elements of its claim by a defendant's Part 36 offer, unless the defendant has made free-standing offers in respect of the relevant elements and the claimant has failed to beat (one or more of) those offers, or there are other factors that make its conduct unreasonable.
A High Court decision in February suggests that changes made to the rules in April 2015, to address the perceived difficulty of claimants obtaining the benefits of Part 36 where they made very high offers, may not have had the desired effect (see High Court gives effect to claimant’s Part 36 offer for 95% of claim value). The new rules added a further factor the court must take into account in deciding whether it would be unjust to order the Part 36 costs consequences, namely "whether the offer was a genuine attempt to settle the proceedings”. The idea was that a very high claimant offer was unlikely to be a genuine attempt to settle the claim, and so the new factor should mean the court would decline to give effect to a claimant’s offer which contained little in the way of concession. Here, however, the court awarded a claimant the benefits of Part 36 where the defendant conceded liability, having previously refused the claimant's 95% offer.
In two decisions in March, the courts refused to treat offers which fell outside the Part 36 regime as favourably as a Part 36 offer (see Recent decisions highlight potential disadvantages of making offers outside Part 36). There may in some cases be good reasons for a defendant to make a settlement offer outside Part 36 – perhaps to make a costs-inclusive offer or set a limit on the amount offered in respect of costs, neither of which is possible under Part 36 – and in some cases the courts may be prepared to give effect to such offers. However, as these decisions demonstrate, they may not have the costs advantages of Part 36 where the offer is not accepted.
A Court of Appeal decision in April establishes, contrary to previous authority, that where a claimant obtains a judgment that is more advantageous than its own Part 36 offer, the court must (unless it considers it unjust to do so) award the claimant all of its costs on an indemnity basis from the date on which the relevant offer period expired, together with certain other favourable consequences (see Court of Appeal finds Part 36 precludes split costs order unless full costs recovery would be unjust). In other words, an effective Part 36 offer curtails the court's discretion to deprive the successful claimant of part of its costs to reflect a lack of success on one or more issues.
This year we have seen a significant degree of interest in the procedures by which expert evidence is given, including concurrent expert evidence or "hot-tubbing" introduced into CPR Practice Direction 35 as part of the Jackson reforms. On 1 August the Civil Justice Council published a report on concurrent expert evidence, which puts forward various recommendations aimed at enhancing familiarity with techniques for concurrent expert evidence and encouraging its use in appropriate cases (see Concurrent Expert Evidence & ‘Hot-Tubbing’ in English Litigation since the ‘Jackson Reforms’). It has recently been announced that the Civil Procedure Rule Committee has set up a sub-committee to consider the report and its recommendations.
There has also been continued interest in the circumstances in which a party who changes experts is required to disclose documents recording the previous expert's views. Numerous decisions over the past 10-15 years establish that, where a party needs permission to instruct a new expert, the court can require disclosure of the previous expert's report as the "price" of obtaining permission, even though an undisclosed expert report would of course be privileged. Two High Court decisions handed down this year are further examples of that trend, and show how broadly it can extend (see Party permitted to change experts on condition it disclosed previous expert’s notes setting out substance of views and The price of changing experts: disclosure of privileged report).
The Hague Convention on Choice of Court Agreements came into force in 2015 as between Mexico and the EU member states (other than Denmark), and this year has seen its reach expanded to Singapore (see Hague Convention on Choice of Court Agreements will apply to Singapore from 1 October 2016). The Convention aims to increase the effectiveness of exclusive jurisdiction clauses and make judgments obtained under those clauses easier to enforce. It may become more significant to the UK post-Brexit, as the UK can sign up to it without any requirement for agreement from the other contracting states.
A Commercial Court decision in May contains helpful, though obiter, comments regarding the application of the recast Brussels Regulation, which applies to proceedings commenced since 10 January 2015 (see Commercial Court decision suggests “torpedo” actions may not be effective where parties have agreed unilateral jurisdiction clause). The recast Regulation includes provisions aimed at defusing so-called "torpedo" actions by which a party could seek to delay proceedings in the court chosen in the contract by commencing proceedings in breach of the clause elsewhere in the EU. There has been some doubt as to whether these "anti-torpedo" provisions are effective where the parties have agreed a one-way jurisdiction clause, rather than an exclusive jurisdiction clause binding on both parties, but in the case in question, the judge expressed the view that the provisions should apply equally to a unilateral clause.
A CJEU decision in June clarified the rule allowing a tort claim to be brought in the courts of the member state where the harmful event occurred, as an alternative to suing in the courts of the defendant's domicile (see Article published on recent CJEU decision which increases predictability of jurisdiction in tort cases). The CJEU held that "where the harmful event occurred" could not be read so broadly as to encompass any place where the adverse consequences of an event can be felt. This limits the scope of previous CJEU authority which took a broad view.
Also in June, a High Court decision highlighted a trap for the unwary when serving proceedings in another EU member state: it is not sufficient to serve proceedings in a way that would be valid for service of proceedings begun in that state; service must instead comply with the provisions in the EU Service Regulation (Regulation (EC) No 1393/2007) – at least while we remain a member of the EU and subject to the terms of the Regulation (see High Court decision highlights that service of proceedings in another EU member state must be carried out under the EU Service Regulation).
And in August the Court of Appeal gave an important judgment on when a tort claim relates to an individual contract of employment within the meaning of the Brussels regime (ie the Lugano Convention, Brussels I Regulation and recast Brussels Regulation) so that the employer must sue the employee in his or her place of domicile (see Court of Appeal considers jurisdiction test in tort claims against employees under Brussels regime). The court rejected the argument that previous Court of Appeal and CJEU authorities meant that conspiracy claims which could be pleaded as a breach of an employment contract necessarily came within the employee protection provisions. The correct approach was to consider whether the reality and substance of the conduct related to an individual's contract of employment.
In October 2015 a new collective action was introduced for competition claims in the Competition Appeal Tribunal (CAT), allowing proceedings to be brought on behalf of a class (whether consumer or business) on either an opt-in or an opt-out basis, subject to certification. This year saw the first two applications to bring opt-out claims under the scheme.
- In the first, the General Secretary of the National Pensioners Convention seeks damages of around £3-4 million from Pride Mobility Products on behalf of purchasers of mobility scooters (see First competition law class action issued in the CAT). The certification hearing to determine whether the case can proceed – and whether it can do so on an opt-out basis – is taking place this week.
- The second, and much larger, action seeks around £14 billion of damages from MasterCard on behalf of UK consumers. This is reportedly the largest ever damages claim brought in the UK. The certification hearing is set for January 2017.
The outcome of these applications is being watched carefully, as the CAT's approach to certification is likely to have a significant impact on the appetite of claimants – and litigation funders – to bring claims under the new procedure.
The trend towards "class-action tourism" has also continued, with claims being pursued in the English courts against companies domiciled in England and Wales in respect of the actions taken by the company or its subsidiaries overseas. In July, the High Court handed down judgment rejecting claims by a group of Colombian Farmers in relation to the construction of the Ocensa pipeline in Colombia during the mid-1990s (see Judgment handed down in long-running class action regarding the Ocensa pipeline in Colombia). Although the claim failed, it highlights the risks posed by this sort of claim, particularly against large mining and energy companies.
More information on developments in class actions across the globe can be found on our Globalisation of Class Actions hub which was launched in April. The hub contains a facility to subscribe to receive further updates in relation to class actions.
In July, the Supreme Court established a new approach to the defence of illegality (see Supreme Court reformulates test for when a claim will fail due to illegality). Under this new approach, the defence will apply if enforcing the claim would be harmful to the integrity of the legal system. This replaces the test adopted by the House of Lords in Tinsley v Milligan  1 AC 340, under which a claim would be barred if the claimant had to rely on the illegality to bring the claim.
Also in July, the Supreme Court held, by a majority of 5 to 4, that the tort of malicious prosecution is available for civil as well as criminal claims (see Supreme Court finds tort of malicious prosecution extends to civil claims). This settles an important point that was previously uncertain, as there were conflicting views expressed by the House of Lords and Privy Council.
In a separate decision in the same case, the Supreme Court addressed the question of whether and in what circumstances a lower court may follow a Privy Council decision which conflicts with previous Supreme Court, House of Lords or Court of Appeal authority (see Supreme Court clarifies status of Privy Council decisions). It has confirmed that the English courts should never follow a decision of the Privy Council if it is inconsistent with a decision that would otherwise be binding on the lower court, unless the Privy Council has expressly directed that domestic courts should treat its decision as representing the law of England and Wales.