UK Supreme Court to consider whether recoverable success fees / ATE premiums breach Article 6 rights

In a judgment handed down last Wednesday, 23 July, the Supreme Court said it was open to the Court to reconsider whether a claimant’s right to recover a conditional fee agreement (CFA) success fee and after-the-event (ATE) insurance premium from an unsuccessful defendant breached 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) (No 2) [2014] UKSC 46. However, it would be wrong to decide the point without the government having had the opportunity to make submissions.

A Supreme Court finding of infringement could have very serious consequences. Although recoverability was abolished from 1 April 2013 as a result of the Jackson reforms, it still applies to CFAs and ATE policies entered into before that date, as well as certain other excepted cases such as claims brought by insolvent companies. In any event, such a decision could give rise to claims for compensation against the government by litigants who had been “victims” of recoverable success fees and ATE premiums in historic cases.

The Court noted that the case for an infringement gained some support from Strasbourg jurisprudence including MGN v UK (2011) 53 EHRR 5 (see post) in which the European Court of Human Rights held that the requirement for MGN to pay CFA success fees due to Naomi Campbell’s lawyers was incompatible with MGN’s right to freedom of expression under Article 10. It noted however that the present case differed in that Article 10 did not apply (the underlying claim was for nuisance arising from use of a racetrack near the appellants’ property) and, unlike Naomi Campbell, the appellants needed the protection of a CFA and ATE premium in order to be able to bring their claim.

The appeal is to be re-listed for a further hearing after notice has been given to the Attorney-General and the Secretary of State for Justice. It is not clear whether the point will be decided at that hearing or whether the issue will be remitted to the Court of Appeal or a first instance judge. Once all the interveners are identified, they will be expected to try to agree an appropriate procedure and then contact the Court for directions.

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Article published considering rights and remedies for breach of pre-emption clause

Pre-emption clauses, as commonly found in shareholder, investment and joint venture agreements, are designed to prevent a shareholder selling his shares to a third party without first offering them to the other shareholders. A number of recent judgments highlight the importance of ensuring that such clauses are clearly drafted to reflect the parties’ intentions as to the rights and remedies available on breach.

Andrew Cooke, an associate in our dispute resolution division, has published a briefing in the August edition of PLC Magazine which considers the issues: “Pre-emption on transfer of shares: rights and remedies”. Click here to download a PDF.

 

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Court of Appeal upholds award of damages for breach of English jurisdiction agreement

The Court of Appeal has held that it did not infringe EU law to bring a claim for damages for breach of a settlement agreement, and the jurisdiction provisions in that agreement, against a party who had wrongfully commenced proceedings in Greece. The court also gave immediate effect to a contractual indemnity by upholding the setting up of a fund to reimburse costs on an ongoing basis: In the matter of the Alexandros T [2014] EWCA Civ 1010.

The potential abuses of the lis pendens provisions in the Brussels I Regulation are well documented. Where proceedings are commenced in an EU Member State which is not the chosen country under a jurisdiction agreement, no anti-suit injunction restraining those proceedings can be granted (as established by the European Court of Justice decision in Turner v Grovit [2004] 2 Lloyds Rep 169). This is because an injunction is considered an unwarranted interference in the proceedings of the foreign court and contrary to the scheme of the Regulation. Moreover, if the non-chosen court’s proceedings were commenced first, the chosen court must stay its own proceedings until the jurisdiction of the first court is established; this is the so-called “Italian torpedo”.

The present case confirms that those on the receiving end of a torpedo action can at least claim damages for breach of contract and, if the contract so provides, an indemnity. This may deter to some extent the launching of torpedoes. Proceedings brought in breach of a jurisdiction agreement should in any event become less common when the recast Brussels Regulation comes into effect on 10 January 2015 (see post). Under new article 31(2) the chosen court can take jurisdiction even if proceedings are commenced first in another EU Member State: it is for the other court to stay its proceedings and await the decision of the chosen court as to whether it has jurisdiction.

In the meantime, however, this decision is a welcome confirmation that damages for a breach are available and an indemnity is effective, at least before the English courts. Continue reading

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High Court restrains use of privileged documents disclosed by solicitor in breach of confidence

The High Court has held that a party retained the benefit of legal advice privilege in information provided to her solicitor which the solicitor had disclosed to her opponent in breach of confidence after the retainer had come to an end: Kousouros v O’Halloran & anor [2014] EWHC 2294 (Ch).

The decision acts as a reminder that privilege will not always be lost where privileged documents have found their way into an opponent’s hands. In some circumstances the court will intervene to prevent further use or disclosure of the documents. All will depend on the facts, but such circumstances may include where the recipient has acted unconscionably or where the material has been disclosed in breach of an obligation of confidence (as in the present case) or inadvertently (as in London Borough of Redbridge v Johnson, here). Parties seeking to prevent use of the documents must act promptly, as otherwise relief may be refused on that basis.

This case does not deal with the (perhaps more common) situation where privileged material is inadvertently disclosed on a party’s behalf as part of the disclosure/inspection process in litigation. In those circumstances, questions of waiver of privilege can come into play, and the crucial issue is whether there has been an obvious mistake (see Tchenguiz v SFO [2014] EWHC 1102 (Comm)). Continue reading

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Article published on recent clarification of Mitchell guidance on relief from sanctions

The Court of Appeal’s decision in the high-profile Mitchell “plebgate” case last November introduced tough new guidance on the approach the court should follow in granting relief from sanctions for breach of a rule or court order. The case generated a storm of controversy as well as huge amounts of satellite litigation, with litigants seeking to hold their opponents to account for minor failures in the hopes of gaining tactical advantage in the litigation.

In an effort to ease these difficulties, the Court of Appeal replaced the Mitchell guidance with a new, more flexible three-stage test in a decision handed down on 4 July in three appeals (Denton v TH White Ltd, Decadent Vapours Ltd v Bevan, Utilise TDS Ltd v Davies [2014] EWCA Civ 906). James Farrell and Maura McIntosh have published an article in PLC Magazine which considers the new test and its practical implications: “Mitchell guidance clarified: an end to the roller coaster ride?” Click here to download a PDF.

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Filed under Announcements, Interim applications

Supreme Court corrects “wrong turn” in English law, holding that bribes received by an agent are held on trust for the principal

Who is the rightful owner of a bribe? Is a bribe or secret commission received by an agent “held on trust” for his principal? Or is the principal’s claim against the agent a personal one for equitable compensation equal to the value of the bribe or commission?

The issue is of critical importance. It affects everything in litigation against dishonest agents, from the nature of the injunctive relief available at the outset to the rights in his insolvency. Perhaps most importantly of all, it affects whether the bribe can be “traced” into the hands of third parties and recovered as “trust” property.

After over 100 years of judicial wrangling and academic debate, the Supreme Court decided last week that bribes and secret commissions are held on trust by an agent for his principal: FHR European Ventures LLP and others (Respondents) v Cedar Capital Partners LLC (Appellant) [2014] UKSC 45. In doing so, the Supreme Court overturned various well-known authorities (including Lister v Stubbs and Sinclair v Versailles – see post) and aligned English law with several jurisdictions which long ago broadened the availability of proprietary remedies.

The implications are significant. Most importantly, the principal can claim a proprietary remedy against the bribe/secret commission itself, rather than a personal one against the defaulting agent. Robert Hunter and Tom Wood consider the decision below. Continue reading

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High Court considers relevance of Mitchell to late application to challenge jurisdiction

A deputy judge has held that deemed submission to the jurisdiction by failing to challenge jurisdiction on time is not a sanction, so no question of relief from sanction arises on a late application. The Mitchell case is relevant, however, as compliance with time limits is considered more important than before: Zumax Nigeria Limited v First City Monument Bank Plc [2014] EWHC 2075 (Ch). Although judgment was given before the Court of Appeal reinterpreted Mitchell in its decision in Denton (see post), the decision remains of interest as, even post-Denton, compliance with rules and court orders is of particular importance.

The case is also of interest in expressing the view, obiter, that:

  • The defendant’s application for access to a third party’s documents under the Bankers Books Evidence Act was a submission to the English jurisdiction, even though made after a challenge to the jurisdiction had been issued.
  • Submission did not prevent the defendant from seeking a stay on forum conveniens grounds, ie arguing the courts of another country were more appropriate to hear the case.

The key message is that parties wishing to challenge the jurisdiction of the English courts should apply promptly and, whenever possible, within the time limits in CPR 11. Until the challenge is determined, they should not take any steps in the proceedings which could be interpreted as a submission to the jurisdiction. Continue reading

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Filed under Interim applications, Jurisdiction

Court of Appeal confirms account of profits available as remedy for dishonest assistance

Some, if not quite born trustees, are appointed as such at the outset of a trust. Some achieve trusteeship at some later stage. And some have some aspects of trusteeship thrust upon them.

Within this third category are strangers to a trust who “dishonestly assist” an express trustee in a breach of the trustee’s fiduciary duty. Through this dishonest assistance, the stranger will be liable to the injured beneficiary, even though no fiduciary relationship exists between them. Although not sued as fiduciaries, such strangers can be held liable to account in equity as if they were a trustee of the beneficiary. Commonly, for convenience (which more often leads to confusion), the stranger is called a “constructive trustee”.

Previously, there was some uncertainty as to the scope of the remedies available for dishonest assistance: specifically, whether the claimant-beneficiary could obtain an account of profits against the dishonest assister, even though no loss was suffered. The unanimous decision of the Court of Appeal in Novoship (UK) Limited & ors v Nikitin & ors [2014] EWCA Civ 908 confirms the availability of the remedy in claims against third parties for dishonest assistance and also the circumstances in which the remedy will be available, namely where there is a sufficient causal connection between the dishonest assistance and the profit and where it would be not be disproportionate to grant the remedy. Robert Hunter and Tom Wood consider the decision below. Continue reading

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“Opening shot” protected by without prejudice privilege

The High Court has held that a draft Complaint in New York proceedings sent to the other party marked as a “preliminary draft” and “for settlement purposes only” was protected by without prejudice privilege in proceedings before the English court seeking an anti-suit injunction: Rochester Resources Limited v Lebedev [2014] EWHC 2185 (Comm).

Difficulties arise in practice in deciding whether an opening shot in proposed negotiations will be protected by without prejudice privilege. While it will always depend on the substance of the communication and the facts of the case, a letter before action with a general expression of willingness to negotiate is unlikely to be protected; more is required. Here the court held that sending the draft Complaint fell within the scope of the privilege as it was part of negotiations genuinely aimed at settlement.

Given the uncertainties, parties should seek to agree that communications will be on a without prejudice basis before sharing any substantive materials such as a draft claim. While this does not prevent a court from considering the status of the documents, it is unlikely to look behind the parties’ agreement. If this is not possible, then clear labelling of material, whilst still not determinative, may assist. Continue reading

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Filed under Privilege, Settlement