Privilege no defence to notice requiring production of client’s privileged documents to regulator

The High Court has held that an audit client could not withhold documents on grounds of privilege when responding to a notice requiring the production of documents in connection with an investigation into the auditor’s conduct: The Financial Reporting Council Ltd v Sports Direct International Plc [2018] EWHC 2284 (Ch).

The decision suggests that, where privileged documents are provided to a regulator for the purposes of an investigation into the conduct of a regulated person, and the privilege belongs to a client of the regulated person, there is no infringement of the client’s privilege. Accordingly, the fact that documents are subject to a client’s privilege will not justify a refusal to provide the documents to a regulator in response to a demand under its statutory powers, whether or not the statute can be taken to override legal professional privilege.

The decision also confirms (though it was not actually in doubt) that non-privileged documents do not become privileged merely by being attached to privileged lawyer/client communications for the purpose of giving or obtaining legal advice.

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Brexit “no deal” note on jurisdiction and enforcement of judgments

As part of its second batch of “no deal” technical notices, the government has today published a guidance note entitled: Handling civil legal cases that involve EU countries if there’s no Brexit deal.

The note contains little that was not already obvious. If no deal is agreed, there would be no agreed EU framework for ongoing civil judicial cooperation between the UK and EU countries. The UK would retain the Rome I and Rome II rules on applicable law, which generally do not require reciprocity to operate, but the rules governing jurisdiction and enforcement of judgments between EU member states (under the Recast Brussels Regulation 1215/2012) would no longer apply to the UK. Nor would the Lugano Convention, which currently governs jurisdiction and enforcement between the UK and Iceland, Norway and Switzerland – though, as the note says, this would not prevent the UK applying to re-join the Lugano Convention in its own right at a later date (and the government has previously indicated that it would seek to do just that).

For rules in these areas, the UK would revert to the existing domestic common law and statutory rules, which currently apply in cross border cases concerning the rest of the world. The guidance adds, not very helpfully:

“Businesses, individuals and legal practitioners would need to consider how these rules interact with the domestic rules of relevant EU countries to determine how jurisdiction in cross-border disputes should be established and whether any judgments should be recognised and enforced. In certain cases, the interaction between these rules may not be clear and certain countries may not recognise judgments from UK courts. Businesses and individuals may wish to take legal advice about how these changes may affect your individual circumstances.”

The paper confirms, as previously announced, that in the event of no deal the UK would take the necessary steps to re-join the 2005 Hague Convention on Choice of Court Agreements in its own right. This Convention currently governs jurisdiction and enforcement of judgments as between the EU, Mexico, Singapore and (as of 1 August 2018) Montenegro, where there is an exclusive jurisdiction clause in favour of one of the contracting states which was concluded after the Convention entered into force for that state. In the event of a no-deal Brexit, it would apply as between the UK and the other contracting states, including all EU member states.

There has however been some uncertainty as to (i) when the Convention would enter into force for the UK, since under its terms it enters into force on the first day of the month following three months after ratification; and (ii) whether the Convention will apply to jurisdiction agreements concluded before it enters into force for the UK in its own right, as opposed to by virtue of EU membership – though the better view would seem to be that it should.

With that in mind, the one piece of helpful information in the guidance note is that, in the event of no deal, it is anticipated that the Convention would come in to force across the UK by 1 April 2019, though it does not explain how that will be achieved. We presume it would depend on obtaining the EU’s agreement to deposit the UK’s instrument of ratification before it exits the EU, since (as noted above) there is ordinarily a three month period between ratification and entry into force. Nor does the note venture any guesses as to the implications of the 1 April implementation. It says, simply: “Where appropriate, individuals and businesses would need to consider what this would mean for any existing choice of court agreements made under either the Brussels regime or the 2005 Hague Convention, including the implications of any gap in coverage by the 2005 Hague Convention between 29 March and 1 April 2019.”

One obvious tip – try to avoid agreeing exclusive English jurisdiction clauses on 30 or 31 March.

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Supreme Court finds there is no claim in unjust enrichment for compound interest on mistaken payments

In a recent decision, the Supreme Court held that claimants could not bring claims in unjust enrichment to recover compound interest on taxes paid under a mistake of law: Prudential Assurance Company Ltd v Commissioners for Her Majesty’s Revenue and Customs [2018] UKSC 39.

In doing so, the Supreme Court departed from the House of Lords decision in Sempra Metals Ltd v Inland Revenue Commissioners [2007] UKHL 34, considered here, which held that such a claim was available. In the present case, the court disagreed with the view taken in Sempra Metals that the time value of money could be considered a separate benefit for the purposes of the law of restitution, in addition to the payment of the unlawfully levied tax. Accordingly, the Supreme Court held, there was no additional benefit to be reversed by the award of compound interest once the tax itself had been repaid. Instead, the court could award simple interest under section 35A of the Senior Courts Act 1981.

The Supreme Court noted that, in Sempra Metals, the House of Lords had also held that compound interest was available as damages, where it was the measure of the loss foreseeably suffered by a claimant from the loss of use of his funds. That point was not in issue in the present case and, the court said, nothing in its judgment was intended to question that aspect of the decision.

The decision is significant in clarifying the law on unjust enrichment, and in particular reversing the previous case law under which a claim for compound interest was available. However, it does not affect the question of whether and in what circumstances compound interest may be awarded as damages to compensate a claimant who is out of pocket as a result of a defendant’s wrongdoing (such as a breach of contract, or the non-payment of a debt).

Julian Copeman and Ajay Malhotra, a partner and senior associate in our disputes team, consider the decision further below. Continue reading

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Article published – Pilot of new disclosure rules: a change for the better?

Julian Copeman and Maura McIntosh have published an article in PLC Magazine looking at the new disclosure rules that are due to be piloted in the Business and Property Courts for two years starting in January 2019. The article outlines the key provisions and considers how much impact they are likely to have, as well as considering the improvements made from the draft initially published by the working group in November 2017.

Click here for a copy of the article, which first appeared in the September 2018 issue of PLC Magazine: http://uk.practicallaw.com/resources/uk-publications/plc-magazine.

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Article published – Class actions in England and Wales: key practical challenges

Damian Grave, Gregg Rowan and Maura McIntosh have published an article in PLC Magazine looking at how claims by large groups of claimants are litigated in England and Wales and considering some key practical challenges that can arise for both claimants and defendants. Click here for a copy of the article, which first appeared in the September 2018 issue of PLC Magazine: http://uk.practicallaw.com/resources/uk-publications/plc-magazine.

These issues are also considered in our textbook Class Actions in England and Wales, recently published with Sweet & Maxwell.

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High Court refuses extension where claimants deliberately failed to serve claim form

In a recent judgment, the Senior Master of the High Court rejected an application for an extension of time to serve a claim form on one of the defendants to an action in circumstances where the claimants had taken a deliberate decision not to serve on that defendant: Viner v Volkswagen Group United Kingdom Limited [2018] EWHC 2006 (QB).

The decision underlines the difficulty of obtaining an extension of time for service where there was no good reason for the failure to serve within the claim form’s period of validity or where, as here, a party has taken a deliberate decision not to do so. The proper course is to serve the claim form in time and then, if appropriate, apply for a stay of the proceedings.

This echoes comments made in Phoenix Healthcare Distribution Ltd v Woodward [2018] EWHC 2152 (Ch), considered here, in which the High Court was critical of the claimants’ solicitors’ decision to delay service of the claim form until particulars of claim were ready for service. Rather, the court in Woodward considered that the claimants should have served the claim form on time and then, if necessary, sought an extension for service of the particulars.

Francesca Ruddy, an associate in our dispute resolution team, considers the decision further below. Continue reading

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Article published – Choosing a jurisdiction clause with Brexit on the horizon

With the uncertainties surrounding Brexit, it can be difficult to know what dispute resolution clause to choose to govern commercial contracts that will continue in force once the UK leaves the EU next March, particularly where it may be necessary to enforce any judgment in an EU member state should a dispute arise.

Anna Pertoldi has published a post on Practical Law’s Dispute Resolution blog which considers the main options and their pros and cons. Click here to read the post (or here for the Practical Law Dispute Resolution blog homepage).

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High Court orders indemnity costs following discontinuance of proceedings alleging serious fraud

The High Court has ordered indemnity costs against a claimant who made repeated and serious allegations of fraud against the defendants and then discontinued the proceedings without explanation: PJSC Aeroflot – Russian Airlines v Leeds & Anor (Trustees of the estate of Boris Berezovsky) & Ors [2018] EWHC 1735 (Ch). The court endorsed earlier authority to the effect that, in the ordinary course, discontinuance of proceedings in which fraud or serious misconduct has been alleged should result in an indemnity costs order.

The court also held that indemnity costs were justified in the present case applying the more general test that the claimant’s conduct of the proceedings fell “out of the norm”. That conduct included the relentless manner in which the fraud allegations had been pursued “up to the bitter end”, engaging in aggressive correspondence, and making several inaccurate statements to the court.

The decision highlights the special treatment that allegations of fraud and serious misconduct are given in civil proceedings, including the strict ethical obligations on legal representatives not to pursue such allegations without having satisfied themselves that there is reasonably credible material establishing an arguable case. The court recognises the serious implications to defendants of having fraud alleged against them and, where such allegations are then abandoned, being deprived of the opportunity to defend the allegations and vindicate their position.

While an award of indemnity costs in such circumstances is not automatic and a court retains a discretion based on all the circumstances of the case, claimants who pursue allegations of fraud or serious misconduct should be aware of the seriousness of doing so and the likelihood of incurring the court’s disapproval if they abandon such allegations, particularly without putting forward any good explanation. Continue reading

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Court of Appeal decision in ENRC: orthodoxy restored on litigation privilege, but narrow interpretation of “client” remains for now

The Court of Appeal has today handed down its eagerly awaited decision in the ENRC appeal: The Director of the Serious Fraud Office v Eurasian Natural Resources Corporation Ltd [2018] EWCA Civ 2006. At first instance, the High Court took a restrictive approach to both litigation privilege and legal advice privilege (see our summary of the decision here). The Court of Appeal has allowed the appeal on the question of litigation privilege but has, with apparent reluctance, dismissed the appeal on legal advice privilege, concluding it is a matter for the Supreme Court.

In relation to litigation privilege, the Court of Appeal has, helpfully, disagreed with the High Court’s overly strict approach to whether documents have been prepared for the dominant purpose of litigation. The High Court found that, where ENRC’s purpose was to investigate allegations made by a whistleblower, this was not sufficient to meet the dominant purpose test. The Court of Appeal disagreed, finding that this was all part and parcel of preventing or defending litigation. It also disagreed with the High Court’s problematic view that documents prepared in order to avoid contemplated litigation were not covered by litigation privilege. In the Court of Appeal’s judgment, the purpose of avoiding or settling proceedings is covered by litigation privilege, just as the purpose of resisting or defending them.

In relation to legal advice privilege, the Court of Appeal considered itself bound by Three Rivers No 5 to find that the privilege is limited to communications between a lawyer and those tasked with seeking and receiving advice on behalf of the client company. In other words, it agreed with the judge’s interpretation of the effect of Three Rivers No 5 [2003] QB 1556, as also arrived at by Hildyard J in the The RBS Rights Issue Litigation [2016] EWHC 3161 (Ch) (considered here).

However, the court said that, if it had been open to it to depart from Three Rivers No 5, it would have been in favour of doing so. This was in part because, in the Court of Appeal’s view, the decision puts large corporations at a disadvantage, when it comes to legal advice privilege, compared to individuals and small corporations. Those tasked with seeking legal advice on behalf of a large corporation are less likely to have the relevant factual information, and will therefore have to rely on employees whose communications with the lawyers will not, on the reasoning in Three Rivers No 5, be covered by privilege (unless litigation privilege applies). The Court of Appeal also accepted that English law is out of step with international common law on this issue, which it considered undesirable. However, it said the matter would have to be considered again by the Supreme Court in this or an appropriate future case.

Julian Copeman, Anna Pertoldi and Maura McIntosh consider the decision further below. Continue reading

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Court of Appeal rejects “sliding scale” approach to level of security for costs when real risk of non-enforcement established

The Court of Appeal has allowed an appeal against the High Court’s decision to reduce the amount of security for costs a Russian-resident claimant was ordered to pay by applying a “sliding scale” of risk where the defendants had shown a real risk of non-enforcement of a costs order in Russia: Chernukhin v Danilina [2018] EWCA Civ 1802.

The court confirmed that, once it has been established that there are substantial obstacles sufficient to create a real risk of non-enforcement, the starting point should be that the defendant should have security for the entirety of the costs. There is no room for discounting the security figure by grading the risk using a sliding scale approach. However, the quantum of security is a matter for the judge’s discretion and discretionary factors (such as delay and the risk of stifling a genuine claim) may affect the amount of security ordered.

Maria Clarke, a senior associate in our disputes team, outlines the decision below. Continue reading

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