Claimant ordered to reveal funder’s identity so defendant could apply for security for costs against funder

The High Court has ordered a claimant to reveal the identity of his litigation funder so that the defendant could apply for security for costs against the funder: Wall v The Royal Bank of Scotland [2016] EWHC 2460 (Comm).

The decision illustrates that 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, the court has power to order disclosure so that an application for security for costs can be pursued. It also highlights that the court may grant an application for security for costs against a funder in circumstances where the funded party could not be ordered to provide security. This may be helpful for defendants who are facing funded claims and who would not otherwise be able to obtain security.

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Two High Court decisions illustrate broad application of without prejudice protection

In two recent cases, the courts have rejected attempts to introduce evidence of without prejudice (WP) communications. The decisions emphasise the important public policy role of the WP rule in encouraging settlement by ensuring parties can negotiate freely, without fear of concessions made during settlement negotiations being used against them in the course of litigation.

In R (on the application of Wildbur) v Ministry of Defence [2016] EWHC 821 (Admin), the court found that even the fact of a failure to reply to an offer of mediation (if there was such a failure) was protected by the WP rule.

In Ravenscroft v Canal & River Trust [2016] EWHC 2282 (Ch), the court confirmed that there was no general exception to the protection of the WP rule where WP communications were referred to only for the purposes of an interlocutory hearing.

It is well-established that the protection of the WP rule is not absolute. It cannot for example be used as a cloak for impropriety (see this recent post) and there are various other circumstances where evidence of WP communications can be admitted, such as where the issue is whether a concluded settlement has been reached, or where the fact of negotiations taking place is needed to explain a party's delay (see this post for a list of recognised exceptions). However, these two decisions illustrate a general tendency on the part of the courts to give the WP rule broad application and resist making further in-roads into the protection it offers. The decisions are considered in more detail below.

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Upcoming webinar – International Litigation Update

On Tuesday 18 October (12noon – 1.00pm UK time) we will present the first in a new series of webinars for Herbert Smith Freehills clients and contacts, focussing on the issues that arise in litigating cross border disputes. In this webinar:

  • Larry Shore, a disputes partner in our New York office, will consider ways of obtaining evidence in the US for proceedings in England. Very broad disclosure is potentially available under 28 USC s1782 and Larry will discuss the opportunities and challenges this brings.
  • Gitta Satryani, a disputes senior associate in our Singapore office, will consider the impact made by the Singapore International Commercial Court, launched in January 2015. She will also discuss changes in the rules for enforcement of Singapore judgments since the Hague Convention on Choice of Court Agreements 2005 came into effect on 1 October 2016.
  • Anna Pertoldi, a disputes partner in our London office, will look at  choice of law and jurisdiction post Brexit and the different options available to the UK government in its negotiations with the EU.

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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Court of Appeal finds settlement offer not subject to “without prejudice” protection as it amounted to an unambiguously improper threat

The Court of Appeal has recently considered the rarely invoked "unambiguous impropriety" exception to without prejudice ("WP") privilege: Ferster v Ferster [2016] EWCA Civ 717.

Upholding the decision of Rose J at first instance, the Court of Appeal found that a settlement offer made on behalf of the claimants following an unsuccessful mediation constituted an unambiguously improper threat in the nature of blackmail and, as such, was not protected by WP privilege.

The decision serves as a reminder that WP privilege cannot be used as a cloak for impropriety.  It also underlines the fact that there is a distinction to be drawn between the use of proper leverage in the context of settlement discussions and the making of improper threats.  The courts will take a dim view of the latter. Alan Watts, Catherine Emanuel and Victoria O'Dea consider the decision further below.

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High Court finds LLP member’s profit share can be forfeited for breach of fiduciary duty

On an appeal from an arbitration award, the High Court found that a profit share payable to a member of an LLP was capable of being subject to forfeiture where the member was found to have breached his fiduciary duties to the LLP: Jeremy Hosking v Marathon Asset Management LLP [2016] EWHC 2418 (Ch).

It is an established principle that if a fiduciary breaches his duty he may forfeit his right to fees payable by the principal (provided that forfeiture is proportionate and equitable). This principle was reaffirmed by the Court of Appeal in Imageview Management Ltd v Jack [2009] EWCA Civ 63. In that case, a footballer's agent was held to have forfeited his commission because he made a secret side deal with a football club when negotiating for his client. However, there are no reported English cases where this principle has been applied to an LLP member's profit share, rather than fees or commission.

The present decision means that if an LLP member's profit share can be characterised as a reward for undertaking fiduciary duties (as opposed to reflecting the member's ownership interest in the firm) then it can potentially be subject to forfeiture. Although the forfeiture principle can be excluded in the LLP agreement, the parties do not need to include it expressly in order for it to apply.  

The takeaway message is that when drafting an LLP agreement the parties should make it clear whether any profit share payable to the members is intended to be remuneration for performance of their fiduciary duties and, if so, whether that profit share should be subject to forfeiture if the members breach those duties. Gary Horlock, an associate in the disputes division, considers the decision further below.

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Herbert Smith Freehills sponsors and contributes chapters to the recently published First Edition of Getting the Deal Through – Financial Services Litigation 2016

In the light of the global growth of litigation in the financial sector following the financial crisis, Herbert Smith Freehills has sponsored 'Getting The Deal Through' for the launch of the first edition of the guide to Financial Services Litigation 2016. 

The guide charts the growth of litigation in the financial sector worldwide and answers key questions in major jurisdictions. Topics covered include: (i) common causes of action; (ii) powers of regulatory authorities; (iii) alternative dispute resolution; (iv) specialist courts and procedures; (v) disclosure requirements; (vi) data governance issues; (vii) remedies and enforcement; and (viii) changes in the regulatory landscape since the financial crisis.

Herbert Smith Freehills has contributed the following country chapters: Australia, France, Germany, Hong Kong, Indonesia, South Africa, United Arab Emirates, United Kingdom, and United States of America. Additional country chapters such as Belgium, Italy, Portugal, Sweden and Switzerland have been contributed by firms recommended by Herbert Smith Freehills. 

While the existence of financial services litigation is truly a global phenomenon, it has become apparent through the process of compiling this edition that the law and procedures in relation to such disputes have evolved in different ways across the jurisdictions.

See here to view this publication.

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Guide to Dispute Resolution in Africa: 2nd edition

Herbert Smith Freehills has published an updated second edition of our Guide to Dispute Resolution in Africa, a publication summarising the key dispute resolution procedures and trends in each of Africa's 54 diverse jurisdictions.

Since its publication in 2013, the first edition of the Guide has proved to be an invaluable resource not just for those facing disputes in Africa but for anyone who is considering investing in unfamiliar territory and would like to understand better the legal landscape of that country.  Whether you want to know the basics of a country's legal system, details on litigation and arbitration procedures, whether ADR is embraced, or what the applicable limitation periods or privilege rules are, this publication should be a first port of call.

Please click here to download the full Guide or here to access the chapter for a specific jurisdiction. 

To request a hard copy of the Guide, please email Africa Disputes.

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High Court upholds arbitrator’s decision to award claimant the costs of third party funding

The 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, and therefore refused a challenge to the arbitrator's award under s68(2)(b) of the Arbitration Act 1996: Essar Oilfields Services Limited v Norscot Rig Management PVT Limited [2016] EWHC 2361 (Comm).

The decision turns on the powers given to the arbitrator under the Arbitration Act 1996 and the ICC rules, in particular the power to determine the recoverable costs of the arbitration including the arbitrators' fees and expenses, the fees and expenses of any relevant arbitral institution, and the legal or other costs of the parties. The court rejected any suggestion that the expression "other costs" should be construed by reference to what a court would or could allow by way of costs in litigation under the CPR. There was no parallel provision in the CPR and the court's approach under the CPR was of little relevance.

The decision may however be of interest to those who litigate, as it highlights a further distinction between English court proceedings and English-seated arbitration; it is highly unlikely that expenses associated with litigation funding could be awarded as costs under the relevant CPR provisions. The decision does not of course mean that expenses will always be awarded as costs in the arbitration context, but in light of this decision the possibility clearly exists. This may be seen as an advantage or disadvantage of arbitration depending on a party's perspective. For more information on the Essar decision, please see this post on our Arbitration Notes blog.

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English law contracts post-Brexit: What changes should commercial parties expect?

The core principles of English contract law, such as interpretation of contracts and remedies for breach, will not be affected by Brexit and the key attractions of English law will remain.

Brexit may, however, have implications for particular aspects of parties’ contractual relationships, including how certain terms may be interpreted and whether any termination rights may be triggered, and on questions relating to jurisdiction and enforcement of judgments.

In this seventh of our series of contract disputes practical guides, Anna Pertoldi, Neil Blake and Alex Kay consider what might change post-Brexit, and provide some practical steps that contracting parties can take to protect their position. You can click here to download the PDF guide.

Clients and contacts of the firm can also register to access the archived version of our hour-long webinar exploring these issues by contacting Jane Webber. Or if you would prefer a shorter version focusing on key practical tips, Anna has also presented this 10 minute podcast.

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Hague Convention on Choice of Court Agreements will apply to Singapore from 1 October 2016

The Convention aims to increase the effectiveness of jurisdiction clauses and make judgments obtained under those clauses easier to enforce. Currently the Convention applies only as between Mexico and the EU member states (other than Denmark), so the addition of Singapore from 1 October is significant. The US and Ukraine have also signed the Convention but have yet to ratify it.

The Convention may become even 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. It is therefore widely seen as a fallback option to avoid any doubts regarding the continued effectiveness of exclusive English jurisdiction clauses and enforcement of English judgments within the EU, in the event that no other agreement or convention is put in place between the UK and the remaining EU member states once the UK leaves the EU.

In broad summary, the Convention provides that where parties have agreed on the exclusive jurisdiction of the courts of a contracting state, this must be respected by the courts of each other contracting state who must (subject to limited exceptions) suspend or dismiss the case if proceedings are brought before them. Contracting states must also recognise and enforce judgments given by another contracting state pursuant to such a jurisdiction clause (again subject to limited exceptions). 

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