Commercial Court “driven” to strike out claim despite view that such a sanction was unjust and disproportionate

The Commercial Court has, with obvious reluctance, struck out a claim on the basis that the claimant was 20 days late in serving particulars of claim:  Associated Electrical Industries Limited v Alstom UK [2014] EWHC 430 (Comm).

The judge commented that, if his decision had depended only on what was just and fair between the parties, he would have considered it unjust and disproportionate to refuse an extension and strike out the claim. However, he had to balance this view against the Court of Appeal’s emphasis in Mitchell on enforcement of the Civil Procedure Rules (CPR) in order to encourage procedural discipline and, ultimately, reduce satellite litigation. That consideration drove the judge to conclude that he should strike out the claim in this case.

It is worth noting the judge’s view that the Mitchell guidance does not strictly apply to a retrospective application to extend time where, as here, there is no automatic sanction imposed by a rule or court order in the event of a breach. Given the judge’s conclusion, however, this distinction might not make a lot of difference in practice.

The judgment also contains an interesting discussion of whether a fresh action, if brought by the claimant, would be liable to strike-out as an abuse of process, though it does not reach a conclusion on the issue.

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Filed under Interim applications, Statements of case

Commercial Court seeks to discourage tactical use of Mitchell

In a recent decision the Commercial Court penalised the defendants in costs for seeking to rely on Mitchell to turn to their tactical advantage the claimants’ short delay in providing security for costs which in itself had no material impact on the efficient conduct of the litigation: Summit Navigation Ltd v Generali Romania Asigurare Reasigurare SA [2014] EWHC 298 (Comm).

Since the Court of Appeal’s “game changing” decision in the Mitchell case last November (outlined here) the lower courts have been applying the tough new approach to compliance set down in that case, though with varying degrees of enthusiasm. The more extreme examples that we have seen or heard of include striking out a claim for late filing of trial bundles, and effectively disallowing a party’s costs budget where a party misinterpreted the rules and sought to file a day late. As many commentators have noted, this has led to a situation where parties may be less inclined to cooperate in agreeing reasonable extensions of time, in the hope that the opponent will miss a deadline and suffer some severe sanction as a result - potentially even having its claim or defence struck out, in the “jackpot” scenario.

There are however recent indications that the courts are seeking to mitigate some of the difficulties caused by Mitchell by discouraging its tactical use. The result is that parties may be penalised not only where they breach the rules, but also in some circumstances where they seek to take advantage of an opponent’s breach. Continue reading

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Costs budgeting to be extended to cases below £10 million in all courts

The current exceptions to the mandatory costs budgeting regime are set to be replaced by an exception for claims of over £10 million across all courts, following a recommendation by Lord Justice Richards, the Chair of the Civil Procedure Rule Committee (CPRC), and Lord Dyson, the Master of the Rolls. There will still be a discretion to apply the rules to cases over that threshold.  For cases below the threshold, costs budgeting will apply unless the court orders otherwise in an individual case.

This proposal was approved by the CPRC at its December meeting, but the papers have only been released this week. The rules and practice direction are to be formulated addressing how the limit should be applied and giving guidance on the exercise of discretion. It is not clear whether the change will be implemented along with the next round of CPR updates due to come into force on 1 April.

The new exception will replace the current exceptions which apply to all cases in the Commercial Court and claims of over £2 million in the Technology and Construction Court, Chancery Division and Mercantile Courts. A sub-committee of the CPRC was set up to advise on the issue last June and was due to report to the CPRC in October following a consultation over the summer, but it failed to reach agreement on the way forward.

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Court of Appeal decision underlines need for clear evidence of dominant purpose in maintaining claim to litigation privilege

The Court of Appeal has upheld a decision rejecting a claim to litigation privilege for reports obtained by liquidators, as the liquidators had failed to establish that the dominant purpose of the reports was for use in litigation: Rawlinson and Hunter Trustees SA & ors v Akers & anr [2014] EWCA Civ 136 (and see here for our post on the first instance decision).

The decision confirms the court’s strict approach in analysing the purpose for which a report was prepared in determining a claim to litigation privilege, and consequently the need for those asserting the privilege to put forward clear and precise evidence of the dominant purpose. Where the evidence is vague or equivocal, the court is likely to find that the hurdle has not been met.

The Court of Appeal’s decision may however give some comfort to liquidators. The first instance decision had appeared to suggest that where documents were produced to determine the extent to which “problem loans” were recoverable in order to establish the financial position of a company, that exercise would be quite independent of the possible need to take recovery proceedings and so would not attract litigation privilege. The Court of Appeal has recognised that an exercise to establish the financial position of a company need not be independent of the possible need to take recovery proceedings. Each case will turn on its facts. What is clear is that the onus is on the party asserting the privilege to show that the test is satisfied. Continue reading

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Supreme Court finds trustee fraud exception under Limitation Act does not apply to claims for dishonest assistance / knowing receipt

Often, a substantial time may have passed before a beneficiary becomes aware of a fraudulent breach of trust. Even when the fraud has been discovered, there may be a number of reasons why the beneficiary decides to delay in commencing proceedings. When considering claims against third parties to a fraudulent breach of trust, however, beneficiaries will have to pay close attention to the limitation period in light of the Supreme Court’s decision in Williams v Central Bank of Nigeria [2014] UKSC 10.  

The Supreme Court held that the exception under section 21(1)(a) of the Limitation Act 1980 for “any fraud or fraudulent breach of trust to which the trustee was party or privy” does not apply to actions against third parties based on dishonest assistance or knowing receipt. Such claims are therefore subject to the statutory six-year limitation period. The decision reverses the Court of Appeal on the point, and marks a significant limitation on claims based on ancillary liability for fraudulent breach of trust. Beneficiaries may however still benefit from section 32 of the Act, which suspends the limitation period in cases of fraud or deliberate concealment until the claimant has (or could with reasonable diligence have) discovered the fraud or concealment.  Continue reading

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Court of Appeal confirms party that has renounced contract cannot rely on own unwillingness to perform to reduce damages payable

The Court of Appeal has confirmed that where a party to a contract has renounced its obligations, damages are to be assessed on the assumption that it would have performed its obligations pursuant to the contract if called upon to do so, notwithstanding its declared unwillingness to perform: SC Compania Nationala De Transporturi Aerience Romane Tarom SA v Ltd [2014] EWCA Civ 87.

The decision is perhaps unsurprising, and provides further support to the established position as to the basis upon which the courts will assess the value of the contractual benefit lost to the innocent party when accepting the renunciation of a contract. As the Court of Appeal pointed out, in the absence of such an assumption, the contract breaker could benefit from its own breach in a case where the innocent party was not obliged to use the contract breaker’s services. Sarah Boland considers the decision below. Continue reading

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Court can order pre-action disclosure in judicial review proceedings

The High Court has found that the court technically has power to order pre-action disclosure in judicial review proceedings, despite this power not being expressly included in the Civil Procedure Rules (“CPR”) and the fact that there has been no known case where pre-action disclosure has been ordered in judicial review: British Union for the Abolition of Vivisection v Secretary of State for the Home Department [2014] EWHC 43. Click here to read about the decision in our administrative and public law e-bulletin.

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High Court finds proceedings can be served at English address registered by overseas director under Companies Act 2006

In what appears to be the first case interpreting section 1140 of the Companies Act 2006, a High Court Master has found that service on a director’s English registered address was good service of proceedings, regardless of whether the director was resident in England: Key Homes Bradford Ltd & Others v Rafik Patel [2014] EWHC B1 (Ch).

Obtaining permission to serve outside of the jurisdiction (where required) and then effecting service overseas can be costly and time consuming. The Key Homes decision is not binding, but if followed will mean section 1140 provides a quick and inexpensive method of service where a foreign defendant is a director of a UK company and has registered a UK address under the Companies Act 2006.

The Master interpreted the registration provisions as permitting a director to specify an address outside of the jurisdiction, provided the relevant Regulations under the Act were complied with. If correct, directors resident abroad can avoid being served within the jurisdiction under section 1140 by providing a service address outside the UK. Continue reading

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Another High Court decision that party not in breach of “unless order” for disclosure due to defects in list

For the second time in recent months, the High Court has held that parties to litigation were not in breach of an “unless order” to give disclosure as a result of defects in the lists of documents provided. Since the order was to give “standard disclosure by list” and the defendants had provided lists by the due date, there was prima facie compliance with the order unless the claimant could show that the lists were not made in good faith or could not fairly be described as “a list”: Dinsdale Moorland Services Limited v Evans and others [2014] EWHC 2 (Ch).

Similarly, in the Re Atrium decision last September, the court found that omissions from the claimant’s list of documents did not mean it was in breach of an unless order to conduct a reasonable search (see post).

As these decisions show, in determining whether a disclosure order has been breached, the court will look carefully at what the order required the party to do. Where there is prima facie compliance, the fact that the exercise has been conducted imperfectly will not necessarily lead to a finding of breach. Where however there is a lack of good faith, or where it is obvious from patent deficiencies that there was “apparent but not real compliance”, the court is likely to take a dim view. James Farrell and Maura McIntosh comment further below.  Continue reading

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Court of Appeal decision recognises practical limitations on use of Part 36 offers where claim is exaggerated

The Court of Appeal has overturned an order that a party which exaggerated its claim should recover its costs on an indemnity basis because it had recovered more than its (very low) Part 36 offer. Instead the court gave effect to the opponent’s prior “without prejudice save as to costs” or Calderbank offer which put forward a reasonable costs-inclusive figure: Walker Construction (UK) Ltd v Quayside Homes Ltd [2014] EWCA Civ 93.

The decision helpfully recognises the practical limitations of Part 36 where a party is facing an exaggerated claim, as the Part 36 regime does not permit a “costs inclusive” offer. Here, the court said, the relevant party could not realistically have made a Part 36 offer once the action was well underway, as the effect of CPR 36.10 would have been to make it liable for all the costs of the proceedings if the offer was accepted. That would have been wholly disproportionate in circumstances where the claim was inflated and only a small proportion of the claim was recovered.

The decision will therefore give some comfort to defendants who are facing an exaggerated claim and wish to put forward a “costs inclusive” offer (outside Part 36). Each case will however turn on its facts. There are clear advantages in making an offer under Part 36 where that is feasible, and where an offer is “costs inclusive” it may be more difficult for the court to assess whether or not the offer was a reasonable one.

It is also noteworthy that in this case it was assumed (though the point was not addressed expressly) that the formal roles of claimant and defendant were reversed for the purposes of assessing the effect of the Part 36 offers, since the counterclaim was for a much greater sum than the claim. There has previously been some confusion in the case law on the treatment of Part 36 offers in the context of counterclaims. Continue reading

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Filed under Costs, Part 36 offers