In a recent decision, the Court of Justice of the EU held that directors who are also employees (within the meaning of EU case law) must be sued in the courts of the member state in which they are domiciled: Holterman Ferho Exploitatie BV and others v Spies von Büllesheim Case C-47/14.
The CJEU considered the applicability of the special jurisdictional rules for employment contracts under the Brussels Regulation to a case where the defendant is being sued by a company for improper performance of his duties both: (i) as an employee under a contract of employment; and (ii) as a director from a company law perspective. It held that the special rules applicable to employment contracts take precedence over any other applicable provisions. So where a company has a claim against a present or former director who is or was an employee of the company, this decision suggests that the director will have to be sued in the place of his or her domicile. The claims may fall under a number of heads – company law claims, breach of fiduciary duties, breach of express or implied terms of a contract, or claims in tort.
The position may be different however where a director is able to influence the decisions of the company in its supervision of him (eg by reason of his shareholding in the company). Where such influence is not negligible, the relationship of subordination, necessary for an employment relationship to exist under EU case law, may not be present. Anna Pertoldi and Donny Surtani, a partner and senior associate in the disputes team, consider the decision further below.
In a decision handed down earlier today, the High Court has upheld RBS's claim to privilege over certain documents which the bank had been ordered to produce to the court for inspection: Property Alliance Group Limited v The Royal Bank of Scotland Plc  EWHC 3187 (Ch).
The decision confirms that the protection of legal advice privilege is not restricted to actual legal advice. The privilege will protect other information communicated from the lawyer to the client (or vice versa) to enable the lawyer to advise and the client to make informed decisions in a relevant legal context. This may include references to matters in the public domain or to meetings and correspondence that would not, in themselves, be privileged.
The decision is particularly helpful in recognising that the policy justification for privilege applies equally in the context of regulatory investigations, where the public interest will be advanced if regulators can deal with experienced lawyers who can accurately advise their clients how to respond and co-operate. The judgment notes: "Such lawyers must be able to give their client candid factual briefings as well as legal advice, secure in the knowledge that any such communications and any record of their discussions and the decisions taken will not subsequently be disclosed without the client's consent."
James Norris-Jones and Maura McIntosh, a partner and professional support consultant in our disputes team, consider the decision further below.
In a judgment handed down this morning, the Supreme Court has in effect re-written the rule on penalties, saying that the underlying rationale of the rule in English law has been misunderstood and that as a result the rule has been applied in many situations where it is both unnecessary and unjust: Cavendish Square Holding BV v Talal El Makdessi; ParkingEye Limited v Beavis  UKSC 67.
The Supreme Court has rejected the traditional test of whether a clause that takes effect on breach is a “genuine pre-estimate of loss” and therefore compensatory, or whether it is aimed at deterring a breach and therefore penal. The true principle, as established in the judgment, is whether the clause is out of all proportion to the innocent party's legitimate interest in enforcing the counterparty's obligations under the contract. If so it will be penal and therefore unenforceable.
The decision helpfully recognises that a party can, in some circumstances, have a legitimate interest in enforcing performance which goes beyond simply being compensated for losses. On this basis, the Supreme Court has overturned the Court of Appeal's judgment in Makdessi (outlined here) which found that provisions in a share purchase agreement which took effect if the seller breached certain restrictive covenants were unenforceable penalties. The Supreme Court concluded that the buyer had a legitimate interest in enforcing the covenants, in order to protect the goodwill of the business, and the parties themselves were the best judges of how that interest should be reflected in the agreement.
The Supreme Court's decision therefore introduces a more flexible test as to whether or not a clause will be found to be penal, and therefore unenforceable, than the traditional question of whether a clause was aimed at deterrence rather than compensation. Of course, the question of precisely what will amount to a legitimate interest, and whether a clause is out of proportion to that interest, may be open to debate in many cases. But the decision provides a much more helpful starting point, and is likely to mean less interference in contracts freely negotiated between commercial parties of similar bargaining power.
The decision is also helpful in confirming that a clause may fall outside the rule against penalties altogether if takes effect in circumstances other than a breach of contract, for example a payment which is conditional on performance rather than an entitlement to liquidated damages in the event of breach. It may therefore be possible to avoid the application of the rule with careful drafting, though the judgment does make it clear that classification of the term will depend on substance rather than mere form. David Nitek and Maura McIntosh, a partner and professional support consultant in the disputes team, consider the decision further below.
The High Court has held that a contractor could be joined to proceedings as a third party (or Part 20 defendant) so that the main defendants could pursue a contribution claim against the contractor, even though the claimant's direct claims against the contractor were subject to a contractual time bar: Bloomberg LP v Sandberg (a firm) and others  EWHC 2858 (TCC).
The decision suggests that a contractual time bar will normally be interpreted as a procedural, rather than a substantive, bar to proceedings. Accordingly, it will not prevent the beneficiary of the provision becoming liable "through the back door", if other defendants who are liable to the claimant for the same damage seek a contribution under the Civil Liability (Contribution) Act 1978.
The court left open (though with some doubt) the possibility that a contractual time bar might operate to extinguish the relevant rights, so that a contribution claim could not be brought, but commented that if this were possible it would require very clear words. Parties negotiating a contractual time bar may wish to consider appropriate wording aimed at preventing third party contribution claims, though there is no guarantee that such an attempt would be successful. Sarah Boland, a senior associate in the disputes team, outlines the decision below.
The Court of Appeal has upheld an order declining English jurisdiction over a claim against a Monaco-domiciled defendant where there was an exclusive jurisdiction clause in favour of the Monaco courts: Jong v HSBC Private Bank (Monaco) SA  EWCA Civ 1057. The result is that there may be parallel proceedings in England and Monaco, as the claimant is entitled to pursue its claims against two related English companies in the English courts.
Although each case will turn on its facts, the decision illustrates that claimants who wish to persuade the English court to accept jurisdiction despite an exclusive jurisdiction clause in favour of a non-EU member state court are likely to face an uphill struggle. (Of course, where the chosen jurisdiction is another EU member state, and proceedings have been commenced in that state's courts, the English court will be bound to decline jurisdiction – click here for a copy of our “handy client guide" to jurisdiction under the recast Brussels Regulation.)
In a unanimous decision, the Supreme Court has confirmed that the right to draw down under loan agreements is caught by the expanded definition of "asset" contained in the current standard Commercial Court form of freezing order which includes "any asset which it (the respondent) has the power, directly or indirectly, to dispose of or deal with as if it were its own": JSC BTA Bank v Ablyazov  UKSC 64. The decision helpfully clarifies that:
freezing orders will be construed strictly in accordance with what the words in fact mean;
in the absence of the expanded wording now contained in the standard form of order, the right to draw down loans will not be frozen; and
the expanded wording does widen the scope of the order meaningfully and can include assets not "owned" by the respondent.
From a practical perspective, great care needs to be taken when drafting freezing orders to ensure that assets which the respondent is suspected of having are clearly within the scope of the order. It will be dangerous to assume that the word "assets" will necessarily have its everyday meaning in the context of a freezing order. Gareth Keillor, a senior associate in the dispute resolution team, outlines the decision below.
The High Court has held that an offer to settle was not a valid Part 36 offer since it related only to a claim put forward in draft amended particulars of claim: Hertel v Saunders  EWHC 2848 (Ch).
Since the proposed claim was not yet a part of the claim at the time the offer was made, the offer failed to comply with the mandatory requirement under Part 36 for the offer to "state whether it relates to the whole of the claim or to part of it or to an issue that arises in it and if so which part or issue".
The decision appears to contrast with the approach taken by the Court of Appeal in AF v BG  EWCA Civ 757, where it was held that the defendant could be treated as having made a "claimant's Part 36 offer" in respect of its counterclaim even though the counterclaim had not yet been pleaded (see post).
In the latest step in the long-running Air Cargo cartel damages saga, the Court of Appeal has struck out a large portion of the claimants' case brought on the basis of economic torts, amounting to around 60% of the claims. The court found that it was not possible to demonstrate any intent on the part of the cartelists to injure the claimants: Emerald Supplies Ltd and others v British Airways plc  EWCA Civ 1024.
The claimants brought claims on the basis of the tort of breach of statutory duty based on breach of EU competition law rules (the usual route for claiming damages in such cartel cases) but also, in relation to claims that fell outside the scope of EU competition law rules, on the basis of two common law economic torts: (i) interference with the claimants' businesses by unlawful means; and (ii) conspiracy to injure the claimants by unlawful means. An essential element of both of these economic torts is that the defendant intended to cause loss to the claimants.
The Court of Appeal held that it could not be demonstrated that BA had intended to injure the claimants; this prospect was "entirely fanciful" and there was no need even to await disclosure to assess BA's subjective intention. A key part of the court's reasoning was that BA could have had no idea where any loss would ultimately fall – the claimants might have been able to pass the higher prices on further down the chain. It was not sufficient to say merely that the cartelists must have intended to injure anyone who might suffer loss as a result of their agreement (whether direct or indirect purchasers, or ultimately consumers, who could not pass-on any higher prices). This would open up "an unknown and unknowable" range of potential claimants and there could not be an intent to injure the particular claimant.
The Court of Appeal's judgment cuts down the scope for claimants to bring damages actions in the UK based on cartel behaviour not covered by EU competition law rules. In the same judgment, the court overturned an order requiring BA to disclose the confidential version of the EU Commission's air cargo cartel infringement decision into a confidentiality ring, on the basis that this did not comply with EU law rights. For more information, see our Competition, regulation and trade e-bulletin on the decision.
A recent decision of the High Court provides comfort to financial institutions and other professionals facing claims based on an alleged continuing contractual duty to correct earlier advice: Worthing and Another v Lloyds Bank plc  EWHC 2836 (QB).
Where a claim is brought more than six years after an alleged breach of contract, and therefore (on the face of it) after expiry of the basic limitation period for contract claims, claimants may seek to bring themselves within the limitation period in a number of ways. One way is to plead a parallel claim in the tort of negligence, but that will only assist if the claimant did not suffer measurable damage until sometime later, or if time can be extended because the claimant lacked relevant knowledge about the claim at the relevant date.
Another common route is, as the claimants did in the present case, to argue that the defendant was under a continuing contractual duty to advise, and remained in breach of that duty, until a later date. Here the court found that the defendant was not negligent in giving the original investment advice, so there was no breach. However, even if the advice had been wrong, there was no continuing contractual duty for the defendant to correct it.
The decision helpfully confirms that, in a case where a defendant gives negligent advice, the cause of action accrues when the advice is given. The position may be different where there is a continuing failure to perform a contractual obligation, but that was not the case here. To read more about the decision, click here for our banking litigation e-bulletin on the case.
The Commercial Court has refused to set aside an order under CPR 71 requiring a foreign non-resident director to attend court to provide information about the company's assets for the purpose of aiding enforcement of a judgment against the company: Deutsche Bank AG v (1) Sebastian Holdings Inc (2) Alexander Vik  EWHC 2773 (QB).
The House of Lords has previously held that the court’s power under CPR 71 did not have extra-territorial effect and so did not apply to an officer of a corporate judgment debtor who habitually resided in Greece (Masri v Consolidated Contractors International (UK) Ltd and others (No 4)  UKHL 43). However, the court in the present case pointed out that here, unlike in Masri, the relevant officer was physically present within the jurisdiction at the time of both the application for the order and the order itself. Masri did not prevent the court taking jurisdiction in those circumstances, as it said nothing about the situation where a non-resident was served within the jurisdiction. In the present case, the court held that even a fleeting presence within the jurisdiction at the time of the application and the making of the order meant that the court had jurisdiction over the relevant officer.
The court accepted that care must be taken in making an order of this kind, particularly if there are alternative means available to a judgment creditor to obtain the relief sought, but it did not accept that there was a threshold requirement of “exceptional circumstances”. In any event, the circumstances here were exceptional due to the officer's very close connection to the judgment debtor and his procurement of various substantial payments by the judgment debtor.
The decision removes one potential hurdle for claimants seeking to enforce judgments against corporate judgment debtors who are determined to resist enforcement – though it may simply mean that foreign non-resident officers of corporates in that position will think twice before they enter the jurisdiction of the English court.