Below is a selection of articles posted to our "litigation notes" blog since our last e-bulletin, on 30 June 2015.
The headlines this time include government proposals for yet another round of court fee hikes, a Supreme Court decision confirming that the pre-Jackson CFA/ATE regime did not breach opponents' Article 6 rights, and various other cases relating to settlement, disclosure, damages and other issues.
You can visit the blog any time for the latest updates on commercial litigation topics at:
- Another round of massive court fee hikes proposed
- Supreme Court rules recoverable success fees / ATE premiums do not breach Article 6 rights
- The dangers of time-limited Part 36 offers
- Party in breach of unless order for disclosure due to failures in OCR process
- Court of Appeal clarifies approach to ordering rescission for misrepresentation
- Court of Appeal finds lender’s avoided loss did not have to be taken into account in assessing damages due from negligent accountants
- Privy Council decision on limitation in professional negligence cases
- Court of Appeal holds direct damage in England required for permission to serve tort claim outside the jurisdiction
- A company can be sued in the claimant’s domicile where there is a direct claim also against the liability insurer
- High Court refuses to imply duty of good faith in relation to exercise of contractual right
- Court of Appeal restricts scope for a defendant to reduce its liability for unjust enrichment based on the subjective value of its enrichment
- High Court orders personal injury defendant to disclose insurance details
- ADR for consumer disputes: New obligations on UK traders from 1 October 2015
- Article published on legal advice privilege
- Our latest UK Banking Litigation Update published
- Other contentious publications
1. Another round of massive court fee hikes proposed
Less than four months after the last round of fee increases for civil claims (see post), the government has opened a consultation on further significant increases which, if implemented, would (at least) double the cost of issuing money claims above £400,000, ie from £10,000 to at least £20,000.
In March this year, in the face of strong objections from court users, the government introduced new percentage-based fees to issue money claims over £10,000. These new fees are calculated as 5% of the claim value, subject to a cap of £10,000. The fees are referred to by the government as “enhanced fees”, since they are not just aimed at recovering the costs of the services to which they relate, but in fact aim to recover more than the cost of those services, thereby subsidising other aspects of the civil court system.
The consultation issued now outlines a planned increase in the £10,000 cap to “at least £20,000″. The government defends the increase by pointing out that of 1.2 million money claims issued each year, only 5,000 (or 0.4%) will be affected. The consultation adds: “Many of the claims brought for higher values will involve large multi-national organisations or wealthy individuals, and we believe it is right to ask them to contribute more.”
The previous increases had been widely criticised, on the basis of their potential impact on access to justice as well as potential damage to London’s international standing as a centre for dispute resolution. At the time, we expressed concerns that the increases could be the thin end of the wedge. This new consultation proves those concerns well-founded.
The timing of the consultation also gives rise to questions, given that it will take place over the summer holiday period, closing on 15 September. Further, it comes just one day after the House of Commons Justice Committee announced an inquiry into the effects of court and tribunal fees, including the regime of enhanced fees for civil proceedings. The inquiry asks for views on various issues including how the increased court fees have affected access to justice, and how they have affected the competitiveness of the legal services market in England and Wales in an international context. The deadline for written submissions to the inquiry is 30 September.
2. Supreme Court rules recoverable success fees / ATE premiums do not breach Article 6 rights
In a judgment handed down on 22 July, the Supreme Court held (by a majority of five to two) that a claimant’s right to recover a conditional fee agreement (CFA) success fee and after-the-event (ATE) insurance premium from an unsuccessful defendant, under the pre-Jackson regime governing CFAs and ATE insurance, did not breach the defendant’s right to a fair trial under Article 6 of the European Convention on Human Rights: Coventry and others (Respondents) v Lawrence and another (Appellants)  UKSC 50.
The ruling follows on from a judgment last July (see post) in which the Supreme Court had said the point should be reconsidered, in the context of a case where home owners brought a claim in private nuisance against a nearby motor sport stadium and track, with the benefit of a pre-Jackson CFA and ATE insurance policy. The claimants were ultimately awarded an injunction limiting the level of noise from the track, and damages of approximately £20,000. The defendants were ordered to pay 60% of the claimants’ costs at first instance, and would also be liable for the appeal costs. The “base costs” at first instance were approximately £185,000, but the effect of the CFA success fee and ATE premium was that the defendant could be liable for a further £312,000 (ignoring the costs of the appeals). The defendants argued that if they were liable for these additional sums, it would infringe their Article 6 rights.
The majority of the Supreme Court rejected that argument. It considered the decision of the European Court of Human Rights in MGN v UK (2011) 53 EHRR 5 (see post) which held that the requirement for MGN to pay CFA success fees due to Naomi Campbell’s lawyers was incompatible with MGN’s rights under Article 10 of the Convention (freedom of expression). However, the Supreme Court said, the right to freedom of expression is always given particular weight by the ECtHR, and there was no basis for concluding that the court would have held that the scheme violated MGN’s article 6 rights in that case. Accordingly, the ECtHR’s decision did not require the Supreme Court to hold that the pre-Jackson regime was incompatible with article 6 rights.
The Supreme Court accepted that the regime had flaws, as recognised in the MGN case, including a potential “blackmail” or “chilling” effect in that it imposed a costs burden on opposing parties which was excessive and in some cases may have interfered with a defendant’s right of access to justice. However, it concluded that the scheme, overall, was a proportionate way of achieving the legitimate aim of providing access to justice following the withdrawal of legal aid for most civil cases.
This judgment had been awaited with keen interest. A contrary decision could have had a dramatic impact, despite the abolition of recoverability from 1 April 2013 as a result of the Jackson reforms. The pre-Jackson regime still applies to CFAs and ATE policies entered into before that date, as well as certain types of claim which are excluded from the reforms, such as claims brought by insolvent companies. The decision will therefore come as a relief to many who have brought claims under the old regime.
3. The dangers of time-limited Part 36 offers
A recent High Court decision suggests that a claimant’s Part 36 offer to settle may have little benefit unless it is kept on the table until the conclusion of the case: Gulati & ors v MGN Ltd  EWHC 1805 (Ch).
In this case, the claimant made a Part 36 offer which was expressed to be automatically withdrawn after 21 days. Although the claimant beat the offer at trial, she was not awarded indemnity costs – as she almost certainly would have been (together with other costs benefits) if the offer had remained on the table.
We have previously highlighted the drawbacks for parties withdrawing Part 36 offers (both claimants’ offers and defendants’ offers). The present decision shows that those drawbacks apply equally regardless of whether an offer is withdrawn during the course of the action or (as is permitted under recent reforms to Part 36) made subject to a time limit from the outset. The drawbacks for a claimant are particularly stark, given that Part 36 introduced the concept of costs sanctions to incentivise claimants’ offers, and cases such as the present suggest that the court has no jurisdiction to award those sanctions simply by analogy to Part 36. Click here to read more.
4. Party in breach of unless order for disclosure due to failures in OCR process
The High Court has held that claimant liquidators were in breach of an “unless order” for disclosure where the low quality of OCR copies of scanned hard copy documents, to which key word searches had been applied to narrow down the pool of documents for review, meant the court could not be satisfied that a reasonable search had been conducted. This was a serious and significant failure, for which there was no satisfactory explanation, and in all the circumstances of the case it was not appropriate to grant relief from sanction: Smailes v McNally  EWHC 1755 (Ch).
The decision highlights the potential pitfalls that can arise where hard copy documents are scanned into an electronic database and OCR (optical character recognition) software is applied to them, so that key word searches can be used to identify potentially relevant documents for manual review. Where the OCR copies are of low quality, there may be doubt as to whether the searches have identified all (or even most) key word responsive documents. Depending on the extent of the problem, the court may find that a reasonable search has not been carried out and therefore there has been a breach of the party’s disclosure obligations.
The practical message is that where hard copy documents are to be scanned and searched by reference to OCR copies, it is important to ensure appropriate quality control procedures are in place so that the process is not vulnerable to criticism. Click here to read more.
5. Court of Appeal clarifies approach to ordering rescission for misrepresentation
Where a party has entered into a contract as a result of a misrepresentation, the question often arises as to whether it can unwind, or “rescind”, the contract (eg in a sale of goods contract by returning the goods and getting back the money paid) or whether it is limited to claiming damages, which may not always be as advantageous (and may not be available at all if the misrepresentation was innocent). A recent Court of Appeal decision clarifies the court’s approach: Salt v Stratstone Specialist Limited T/A Stratstone Cadillac Newcastle  EWCA Civ 745.
The court considered two traditional bars to rescission: (i) where the parties cannot be restored to their pre-contract positions; and (ii) delay. On each the court took a flexible approach, emphasising that the question is whether “practical justice” can be done, including by ordering rescission on terms which allow the defendant to be compensated for any unfairness that would otherwise result. The decision may signal a greater willingness to allow claimants to unwind contracts entered into in reliance on a misrepresentation, in order to achieve a just result. Click here to read more.
6. Court of Appeal finds lender’s avoided loss did not have to be taken into account in assessing damages due from negligent accountants
A majority of the Court of Appeal has held that damages payable to a lender by a firm of accountants should not be reduced to reflect a repayment by the borrower as the repayment did not arise in the ordinary course of business: Swynson Limited v Lowick Rose LLP  EWCA Civ 629.
The majority agreed with the decision at first instance that the repayment was collateral to the loss caused by the accountants’ breach of duty and it did not extinguish the loss suffered by the lender in respect of certain loans extended to the borrower, despite the fact that the loans had been repaid by the borrower.
The repayment was made as part of a restructuring of the debt, largely for tax purposes, and was funded by the lender’s indirect owner, who had acquired an interest in the borrower. The court held that because the repayment did not arise in the ordinary course of business, it fell into a category of avoided loss, such as benevolent payments or insurance payments, which should not be brought into account when assessing damages. Had the lender’s indirect owner supplied the funds directly to the lender, it would be clear that such payment was collateral; the majority said to hold that a different result should occur merely because the payment was made through the borrower would be a triumph of form over substance. However, in a strong dissenting judgment, Lord Justice Davis refused to ignore the corporate structures involved. In his view, the form of the transaction was the substance.
The decision highlights the need for caution in taking steps which might reduce a claimant’s loss (whether such steps are taken in mitigation or not) and gives rise to an interesting debate as to the extent to which the court should be prepared to “disregard technicalities” in order to achieve a “just” result. Click here to read more.
7. Privy Council decision on limitation in professional negligence cases
A recent Privy Council decision has considered the point at which damage is suffered where a claimant has entered into a flawed transaction as a result of a defendant’s professional negligence. This is a controversial issue of particular relevance where claims are brought long after the negligent acts were committed. The court’s conclusion will often be, as it was in this case, that measurable damage was suffered as soon as the flawed transaction was entered into, and therefore time begins to run at that point for limitation purposes. However, the Privy Council disagreed with observations of the Court of Appeal in previous cases which suggested that damage would always be suffered at that point. Each case will depend on its facts – in particular whether at that point the claimant was measurably worse off than if the transaction had not been flawed: Maharaj & Anor v Johnson & Ors (Trinidad and Tobago)  UKPC 28.
Where a claimant can establish that, had it not been for the defendant’s negligence, it would not have entered into the transaction at all (a so-called “no transaction” case, as distinguished from a “flawed transaction” case), the starting point is different. In those circumstances, the question is when the transaction caused the claimant’s financial position to be measurably worse than if he had not entered into it – which may often be a later date, though again it will all depend on the facts.
Under English law there is an extension to the basic six-year limitation period for negligence claims where a claimant lacks relevant knowledge about the claim at the time the cause of action accrues. However, that is subject to an overall longstop of 15 years. It therefore does not assist where the cause of action accrued more than 15 years before proceedings were issued. Click here to read more.
8. Court of Appeal holds direct damage in England required for permission to serve tort claim outside the jurisdiction
The Court of Appeal has held that direct damage in the jurisdiction is required to come within the tort jurisdictional gateway in the CPR, effectively overruling earlier first instance decisions that indirect or consequential damage was sufficient: Lady Christine Brownlie v Four Seasons Holdings Incorporated  EWCA Civ 665.
The decision brings the position under the common law in line with the position in EU cases, where it has long been the case under the Brussels regime that direct damage within the jurisdiction is required.
The earlier decisions under the common law were controversial, both in taking a different approach to that under the EU regime and in giving jurisdiction in many cases to the claimant’s domicile. An earlier Court of Appeal decision, Erste Group Bank AG, London Branch v JSC “VMZ Red October”  EWCA Civ 379, had cast doubt on whether the tort jurisdictional gateway extended to consequential loss, but reached no final conclusion. Click here to read more.
9. A company can be sued in the claimant’s domicile where there is a direct claim also against the liability insurer
The Court of Appeal has held that a claimant could bring a claim in tort against a Spanish hotel company in England, the claimant’s domicile, where the claimant also had a direct claim here against the company’s insurer. There was no requirement that the claim against the company concern the underlying insurance policy: Mapfre Mutualidad Compania de Seguros Y Reaseguros SA v Hoteles Pinero Canarias SL and Godfrey Keefe  EWCA Civ 598.
This decision demonstrates that an insured, and its insurer, may face claims in a number of different EU jurisdictions arising out of the same matter, even where the event and damage all occur in the insured’s home country. The same law should apply to most of the claims wherever they are heard, but where you have a multiplicity of proceedings, there is clearly scope for inconsistent judgments, as well as increased costs and management time in defending claims. Click here to read more.
10. High Court refuses to imply duty of good faith in relation to exercise of contractual right
In a decision earlier this year, the High Court refused to imply a duty of good faith in relation to a contractual right to amend a loan note instrument: Myers and another v Kestrel Acquisitions Ltd (Kestrel) and others  EWCH 916 (Ch).
The judge cited the fact that the contractual documentation was “extensive and detailed” and the parties were professionally advised and at arm’s length with one another. If they had intended that there should be a duty of good faith, they would have said so expressly but, instead, they agreed other provisions that protected the claimants’ interests. This suggested that no such duty was intended.
The judge also drew a distinction between (a) a discretion that involves an assessment being made or a choice from a range of options and (b) a binary choice as to whether or not to exercise an absolute contractual right. The decision suggests that a duty of good faith is unlikely to arise in the latter situation.
This is one of a number of recent cases in which the courts have been invited to imply a duty of good faith into a contract. On some occasions, the courts have been willing to do so – see for example our posts on the decisions in Yam Seng Pte Ltd v International Trade Corporation, Bristol Groundschool Limited v Intelligent Data Capture Limited and MSC Mediterranean Shipping Company S.A. v Cottonex Anstalt.
This latest decision goes in the opposite direction and fuels the debate as to the circumstances in which a duty of good faith will be implied. While this debate continues, litigants can be expected to test the parameters of the duty and, in light of this decision, possibly also the distinction between decisions that are binary and those involving a range of options, which in practice may not always be easy to draw.
In view of the continuing uncertainty as to the scope of implied duties of good faith, it is advisable for contracting parties wishing to include such a duty to define the nature and extent of the duty in express terms. Conversely, if contracting parties do not wish to be subject to a duty of good faith, it may be advisable to exclude it expressly. Click here to read more.
11. Court of Appeal restricts scope for a defendant to reduce its liability for unjust enrichment based on the subjective value of its enrichment
The Court of Appeal has provided guidance on how to value a defendant’s benefit in a claim for unjust enrichment: Littlewoods Limited and others v The Commissioners for Her Majesty’s Revenue and Customs  EWCA Civ 515.
A claimant in unjust enrichment does not claim damages for the loss it has suffered, but restitution of the benefit that a defendant has gained at the claimant’s expense. The starting point in calculating the defendant’s benefit is an objective market value. Yet if the defendant can show that the actual value it received was less than the objective value, its liability will normally be reduced.
In the present case, however, the Court of Appeal said it was irrelevant that the actual value received by the defendant was less than the objective value: the defendant had had an opportunity to return or reject the benefit and had not done so. As it had “freely accepted” the benefit, it could not argue that the benefit was worth less to it than the objective market value. Although these principles have been discussed in judgments and academic writing, this is the first time they have been applied to form the basis of a judgment.
As a practical matter, and subject to any appeal to the Supreme Court (for which HMRC has said it will seek permission) this decision illustrates that if a defendant to an unjust enrichment claim wants to avoid the usual objective basis of assessment:
- it needs to be able to demonstrate that the actual benefit it received was less than the market value; and
- it will not be successful if the court concludes that it freely accepted the benefit.
Click here to read more.
12. High Court orders personal injury defendant to disclose insurance details
In a recent decision, the High Court ordered disclosure of the defendant’s insurance arrangements in the context of a personal injury claim where the claimant sought an order for periodical payments: Senior v Rock UK Adventure Centres  EWHC 1447 (QB).
Historically, the courts have tended not to require parties to disclose insurance arrangements unless such arrangements are relevant to the issues in dispute. The judgment in the present case refers to the decision in Harcourt v FEF Griffin  EWHC 1500 (QB), in which the court ordered disclosure of insurance arrangements in a very similar context, but does not discuss other case law which has challenged the rationale applied in Harcourt – for example West London Pipeline & Storage Ltd v Total UK Ltd  EWHC 1296 (Comm), considered here.
It may be that applications for disclosure for the purposes of determining whether periodical payments of damages for personal injury can be made will be treated as limited exceptions to the otherwise general rule that a court will not order disclosure of a party’s insurance arrangements unless they are relevant to the issues in dispute. However, it will be interesting to see whether a future judgment provides clarity on this issue. For more information, click here to view our insurance team’s e-bulletin on the decision.
13. ADR for consumer disputes: New obligations on UK traders from 1 October 2015
The UK government has published the principal legislation that will implement the European ADR Directive and the European Online Dispute Resolution (ODR) Regulation, both of which seek to encourage the use of ADR to resolve consumer disputes across the EU. (See our previous posts for details of the EU legislation and the UK’s implementation plans).
Alongside provisions aimed at improving the UK infrastructure for ADR in consumer disputes, the legislative package also extends the obligations on businesses to provide consumers with information about ADR options.
Almost all UK businesses selling goods, services or digital content to consumers in the EU will need to ensure that they comply with the new requirements, which may involve reviewing websites, contractual terms and complaints handling procedures before the first operative date, 1 October 2015. Read our briefing on the new rules here.
14. Article published on legal advice privilege
A recent Hong Kong Court of Appeal judgment has rejected the narrow approach to legal advice privilege established by the English Court of Appeal in Three Rivers No 5 and adopted a broader “dominant purpose” test more akin to the test that applies to litigation privilege.
Maura McIntosh has published a post on Practical Law’s Dispute Resolution blog which considers the decision and its potential implications in England and Wales. Click here to download a copy of the post “Legal advice privilege: is there light after Three Rivers?” (or here for the Practical Law Dispute Resolution blog homepage).