Court of Appeal refuses to imply term where contract incomplete

The Court of Appeal has held, by a majority, that no binding agreement was reached between the seller of several flats and an estate agent, as the parties had failed to agree the circumstances in which the agreed rate of commission would fall due. This was a critical term which, the court said, could not be decided by reference to the standard of reasonableness. That meant the agent was not entitled to commission when the flats were sold to a purchaser he had introduced: Wells v Devani [2016] EWCA Civ 1106.

The Court of Appeal in this case expressed the view that the courts cannot imply terms into an agreement where to do so would transform an incomplete bargain into a legally binding contract. There are however many cases in which the courts have held that a failure to agree essential terms was not fatal to the formation of a binding contract, where it was clear that the parties intended to form a binding contract and the court could fill in the missing term for example by reference to a reasonable price or reasonable time of performance (see for example this blog post).

There may be room for some debate as to precisely how these authorities should be reconciled. As a practical matter, however, what is clear is that parties should expressly agree all essential terms if they want to be certain they will be able to enforce the contract against the counterparty.

Chris Bushell and Tom Brown, a partner and associate in our disputes team, consider the decision further below. For more on when the courts will find that there is a binding contract, and the problems that can arise, see our contract disputes practical guide: When do you have a binding contract?

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Court refuses permission for derivative action to proceed following risk/benefit analysis

The High Court has refused permission for two members of a company to continue a derivative action despite there being (at least) a prima facie case against one of the company's directors. The court conducted a risk/benefit analysis and concluded that it was not sensible or proportionate to proceed with the derivative action:  Zavahir & anor v Shankleman & ors [2016] EWHC 2772 (Ch).

While the statutory derivative claim is, in theory, a powerful tool at the disposal of a shareholder, this judgment is a useful reminder that the court will exercise caution when considering whether to grant a shareholder permission to advance such a claim. A good case is not enough. The decision to bring a claim in the name of a company is much more complex and requires consideration of a number of different factors, including the costs that will be incurred and the likely reward if a company is successful. 

Judgments of this type will be welcomed by companies which do not wish to see uncommercial claims brought in their name. The court has shown willingness to place limits on such claims. 

Gary Milner-Moore and Tom Henderson, a partner and senior associate in our dispute resolution team, consider the decision further below.

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Court of Appeal finds settlement with contract breaker did not release claims against others who induced the breach

The Court of Appeal has held that a claimant's previous settlement with a contract breaker did not discharge his claims against the present defendants for inducing the breach of contract: Anthony McGill v Sports & Entertainment Media Group & 8 Ors [2016] EWCA Civ 1063.

This case provides helpful guidance on when a settlement with one defendant will also discharge claims against other defendants. 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 (see for example this blog post) – a distinction which may not be clear in all cases. Any such settlement should be carefully structured to ensure other potential claims are not unintentionally released, for example by including an express reservation of the right to pursue other defendants.

A clear statement as to why the claimant is prepared to accept the settlement amount may also be of assistance, given the Court of Appeal's suggestion that the claimant's motivation in settling may be relevant in determining whether it should be taken to represent the full measure of the claimant's loss.

James Leadill, an associate in our dispute resolution team, considers the decision further below.

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Court of Appeal upholds order for litigation funders to pay costs on the indemnity basis in high profile Excalibur litigation

Last Friday (18 November) the Court of Appeal dismissed an appeal brought by various third parties who funded the claims in the high profile Excalibur case. The decision gives important guidance on the extent to which commercial litigation funders will be liable for the costs of defendants who successfully defend funded claims: Excalibur Ventures LLC v Texas Keystone Inc and others [2016] EWCA Civ 1144.

In particular, the decision confirms that a commercial funder will ordinarily be required to contribute to the defendant's costs on the same basis as the funded party – so that where, as here, the claimant has been ordered to pay costs on the (more onerous) indemnity basis, the funder will normally also be liable on that basis. That is the case regardless of whether there is any reason to criticise the funder's own conduct.

The decision also confirms that a costs order may be made not only against the funder named in the funding agreement but a third party that provided the funds and stood to benefit (here, the funder's parent company). The Court of Appeal dismissed an argument that by exercising its discretion in this way the court was impermissibly disregarding separate corporate personality or in some way "piercing the corporate veil".

The court noted that it was not, on this appeal, asked to revisit the appropriateness of the so-called "Arkin cap", ie the principle which limits a funder's costs liability to the amount it has contributed in funding the claimant's claim, and which (the court recognised) some consider to be over-generous to commercial funders. However, it upheld the lower court's decision that, in applying the Arkin cap, funds provided for security for costs should be taken into account in the same way as funds provided to pay the claimant's own legal costs. 

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Court of Appeal allows claim for “loss of a chance” damages where claimant failed to establish causation on a balance of probabilities

In a claim for inducing a breach of contract, the Court of Appeal held that a football agent could claim damages for the lost chance of earning commission on a player's transfer, even though he could not establish that he was more likely than not to have been paid the commission if it hadn't been for the breach. The case was remitted to the High Court to determine the value of the lost opportunity: Anthony McGill v Sports & Entertainment Media Group & 8 Ors [2016] EWCA Civ 1063.

Although this case does not establish new law, it is a useful example of the courts' willingness, in certain circumstances, to award damages for the "loss of a chance" where the claimant's loss depends, not on what it would have done, but on the hypothetical acts of a third party. Where the court is satisfied that a real and substantial chance was lost, even if it is less than 50%, damages will be quantified in percentage terms depending on the courts' assessment of the relevant chance.

The decision provides an interesting contrast with the Court of Appeal's decision in Law Debenture Trust Corporation PLC v Elektrim SA [2010] EWCA Civ 1142 (see our blog post) in which it appeared to advocate a more restrictive approach to assessing damages on a "loss of a chance" basis in commercial claims.

James Leadill, an associate in our dispute resolution team, considers the decision further below.  Another aspect of the decision, giving guidance on the circumstances in which a settlement agreement with one defendant may also discharge claims against other defendants, will be considered in a separate blog post.

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Court of Appeal decision illustrates high hurdle for establishing contract has been frustrated

A recent Court of Appeal decision acts as a reminder that the court will not lightly conclude that a contract has been frustrated, particularly where (as here) the court takes the view that the alleged frustrating event was foreseen by the parties and was caused, in part, by the actions of the party seeking to rely on the doctrine. It also shows that a delay in invoking the doctrine of frustration, while not determinative, will not be helpful: Armchair Answercall Limited v People in Mind Limited [2016] EWCA Civ 1039.

Under the common law doctrine of frustration, a contract is brought to an end automatically where something happens which makes performance impossible or which changes the nature of the outstanding contractual rights and obligations so significantly that it would be unjust to hold the parties to the contract. Cases considering the doctrine arise relatively infrequently, which makes the present decision all the more interesting.

There has been much discussion of the doctrine of frustration in recent months, in the context of whether a party might successfully argue that its contract has been frustrated by Brexit-related events. That question is considered in our recent publication English law contracts post-Brexit: What changes should commercial parties expect?, which is part of our series of contract disputes practical guides.  

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Government loses round one of Brexit legal challenge as High Court rules that the approval of Parliament is required to trigger Article 50

In a landmark constitutional law ruling, the High Court yesterday ruled that the UK Government cannot trigger Article 50 without the approval of Parliament: R (Miller) v Secretary of State for Exiting the EU [2016] EWHC 2768 (Admin).

The ruling is a victory for the claimants who brought the case against the Government's position that it would trigger Article 50 through the use of the Royal Prerogative. A leapfrog appeal is expected to be heard by the Supreme Court on 7 and 8 December 2016, before a full court in view of the constitutional importance of the issue. For more information on the decision, see our Brexit e-bulletin published yesterday. 

For a short practical guide on how Brexit may affect your commercial contracts, see English law contracts post-Brexit: What changes should commercial parties expect? Or for more of the firm's latest thinking in relation to Brexit, see our Brexit hub page.

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Court of Appeal finds party confined to contractual remedy for breach of contract

The Court of Appeal has upheld a decision that a buyer under a long term gas sale agreement was confined to the contractual remedy of "Default Gas" and could not also pursue a claim in damages for the sellers' failure to deliver: Scottish Power UK PLC v BP Exploration Operating Company Limited and Others [2016] EWCA Civ 1043.

Herbert Smith Freehills acted for the successful respondent to the appeal. Click here to view our Energy disputes e-bulletin on the decision.

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Upcoming webinar – Litigation update

On Tuesday 8 November (12.45 – 1.45pm GMT), Anna Pertoldi, Maura McIntosh and Jan O’Neill will deliver a webinar for Herbert Smith Freehills clients and contacts looking at developments in commercial litigation since our update webinar in March this year. Topics covered will include lessons learned from recent decisions on factual and expert evidence, disclosure, settlement, relief from sanctions and costs.

The webinar is part of our series of “Soundbite” webinars, which are designed to update clients and contacts on the latest developments without having to leave their desks. The webinars can be accessed “live”, with a facility to send in questions by e-mail, or can be downloaded as podcasts after the event. If you would like to register for a webinar, or to obtain a link to the archived version, please contact Jane Webber.

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Springboard injunction granted for misuse of confidential information relating to production process

The High Court has recently considered when, and for how long, injunctive relief should be granted as a remedy for breach of confidence: Kerry Ingredients (UK) Limited v Bakkavor Group Limited and others [2016] EWHC 2448 (Ch).

Here the confidential information related to the method of production of the claimant's edible infused oils. The decision acts as a reminder that a claim for breach of confidence may succeed even if the relevant information could be gleaned from reverse engineering or from a process of trial and error – the question is whether the information is freely available to the public or whether it would require a significant amount of work to obtain it.

Where the misuse of such information has served as a "springboard" for the defendant, allowing it to get a head start in developing some competing business, an injunction is likely to be granted for a limited period calculated to deprive the defendant of the head start gained.

Neil Blake and Dan Kenny, a partner and associate in our dispute resolution team, consider the decision further below.

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