Court of Appeal holds direct damage in England required for permission to serve tort claim outside the jurisdiction

The Court of Appeal has held that direct damage in the jurisdiction is required to come within the tort jurisdictional gateway in the CPR, effectively overruling earlier first instance decisions that indirect or consequential damage was sufficient: Lady Christine Brownlie v Four Seasons Holdings Incorporated [2015] EWCA Civ 665.

The decision brings the position under the common law in line with the position in EU cases, where it has long been the case under the Brussels regime that direct damage within the jurisdiction is required.

The earlier decisions under the common law were controversial, both in taking a different approach to that under the EU regime and in giving jurisdiction in many cases to the claimant’s domicile.  An earlier Court of Appeal decision, Erste Group  Bank AG, London Branch v JSC “VMZ Red October” [2015] EWCA Civ 379, had cast doubt on whether the tort jurisdictional gateway extended to consequential loss, but reached no final conclusion. Continue reading

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High Court refuses to imply duty of good faith in relation to exercise of contractual right

In a decision earlier this year, the High Court refused to imply a duty of good faith in relation to a contractual right to amend a loan note instrument: Myers and another v Kestrel Acquisitions Ltd (Kestrel) and others [2015] EWCH 916 (Ch).

The judge cited the fact that the contractual documentation was “extensive and detailed” and the parties were professionally advised and at arm’s length with one another. If they had intended that there should be a duty of good faith, they would have said so expressly but, instead, they agreed other provisions that protected the claimants’ interests. This suggested that no such duty was intended.

The judge also drew a distinction between (a) a discretion that involves an assessment being made or a choice from a range of options and (b) a binary choice as to whether or not to exercise an absolute contractual right. The decision suggests that a duty of good faith is unlikely to arise in the latter situation.

This is one of a number of recent cases in which the courts have been invited to imply a duty of good faith into a contract.  On some occasions, the courts have been willing to do so – see for example our posts on the decisions in Yam Seng Pte Ltd v International Trade Corporation, Bristol Groundschool Limited v Intelligent Data Capture Limited and MSC Mediterranean Shipping Company S.A. v Cottonex Anstalt.

This latest decision goes in the opposite direction and fuels the debate as to the circumstances in which a duty of good faith will be implied.  While this debate continues, litigants can be expected to test the parameters of the duty and, in light of this decision, possibly also the distinction between decisions that are binary and those involving a range of options, which in practice may not always be easy to draw.

In view of the continuing uncertainty as to the scope of implied duties of good faith, it is advisable for contracting parties wishing to include such a duty to define the nature and extent of the duty in express terms.  Conversely, if contracting parties do not wish to be subject to a duty of good faith, it may be advisable to exclude it expressly.

Gregg Rowan, a partner in our disputes team, and Corina Demeter, a trainee solicitor, consider the decision further below. Continue reading

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Party in breach of unless order for disclosure due to failures in OCR process

The High Court has held that claimant liquidators were in breach of an “unless order” for disclosure where the low quality of OCR copies of scanned hard copy documents, to which key word searches had been applied to narrow down the pool of documents for review, meant the court could not be satisfied that a reasonable search had been conducted. This was a serious and significant failure, for which there was no satisfactory explanation, and in all the circumstances of the case it was not appropriate to grant relief from sanction: Smailes v McNally [2015] EWHC 1755 (Ch).

The decision highlights the potential pitfalls that can arise where hard copy documents are scanned into an electronic database and OCR (optical character recognition) software is applied to them, so that key word searches can be used to identify potentially relevant documents for manual review. Where the OCR copies are of low quality, there may be doubt as to whether the searches have identified all (or even most) key word responsive documents. Depending on the extent of the problem, the court may find that a reasonable search has not been carried out and therefore there has been a breach of the party’s disclosure obligations.

The practical message is that where hard copy documents are to be scanned and searched by reference to OCR copies, it is important to ensure appropriate quality control procedures are in place so that the process is not vulnerable to criticism. James Farrell and Maura McIntosh comment further on the decision below. Continue reading

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Court of Appeal finds lender’s avoided loss did not have to be taken into account in assessing damages due from negligent accountants

A majority of the Court of Appeal has held that damages payable to a lender by a firm of accountants should not be reduced to reflect a repayment by the borrower as the repayment did not arise in the ordinary course of business: Swynson Limited v Lowick Rose LLP [2015] EWCA Civ 629.

The majority agreed with the decision at first instance that the repayment was collateral to the loss caused by the accountants’ breach of duty and it did not extinguish the loss suffered by the lender in respect of certain loans extended to the borrower, despite the fact that the loans had been repaid by the borrower.

The repayment was made as part of a restructuring of the debt, largely for tax purposes, and was funded by the lender’s indirect owner, who had acquired an interest in the borrower. The court held that because the repayment did not arise in the ordinary course of business, it fell into a category of avoided loss, such as benevolent payments or insurance payments, which should not be brought into account when assessing damages. Had the lender’s indirect owner supplied the funds directly to the lender, it would be clear that such payment was collateral; the majority said to hold that a different result should occur merely because the payment was made through the borrower would be a triumph of form over substance. However, in a strong dissenting judgment, Lord Justice Davis refused to ignore the corporate structures involved. In his view, the form of the transaction was the substance.

The decision highlights the need for caution in taking steps which might reduce a claimant’s loss (whether such steps are taken in mitigation or not) and gives rise to an interesting debate as to the extent to which the court should be prepared to “disregard technicalities” in order to achieve a “just” result. Tamsin Baird and Adam Vallance, a senior associate and trainee in our dispute resolution team, consider the decision further below. Continue reading

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High Court orders personal injury defendant to disclose insurance details

In a recent decision, the High Court ordered disclosure of the defendant’s insurance arrangements in the context of a personal injury claim where the claimant sought an order for periodical payments: Senior v Rock UK Adventure Centres [2015] EWHC 1447 (QB).

Historically, the courts have tended not to require parties to disclose insurance arrangements unless such arrangements are relevant to the issues in dispute. The judgment in the present case refers to the decision in Harcourt v FEF Griffin [2007] EWHC 1500 (QB), in which the court ordered disclosure of insurance arrangements in a very similar context, but does not discuss other case law which has challenged the rationale applied in Harcourt – for example West London Pipeline & Storage Ltd v Total UK Ltd [2008] EWHC 1296 (Comm), considered here.

It may be that applications for disclosure for the purposes of determining whether periodical payments of damages for personal injury can be made will be treated as limited exceptions to the otherwise general rule that a court will not order disclosure of a party’s insurance arrangements unless they are relevant to the issues in dispute. However, it will be interesting to see whether a future judgment provides clarity on this issue. For more information, click here to view our insurance team’s e-bulletin on the decision.

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ADR for consumer disputes: New obligations on UK traders from 1 October 2015

The UK government has now published the principal legislation that will implement the European ADR Directive and the European Online Dispute Resolution (ODR) Regulation, both of which seek to encourage the use of ADR to resolve consumer disputes across the EU. (See our previous posts for details of the EU legislation and the UK’s implementation plans).

Alongside provisions aimed at improving the UK infrastructure for ADR in consumer disputes, the legislative package also extends the obligations on businesses to provide consumers with information about ADR options.

Almost all UK businesses selling goods, services or digital content to consumers in the EU will need to ensure that they comply with the new requirements, which may involve reviewing websites, contractual terms and complaints handling procedures before the first operative date, 1 October 2015. Read our briefing on the new rules here.

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Our latest UK Banking Litigation Update published

We have published our latest Banking Litigation Update, summarising some of the more important cases and developments affecting UK financial institutions over the past year. The update includes developments relating to mis-selling claims, jurisdiction and other significant decisions. Click here to read the update.

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Commercial Court finds forum non conveniens waiver clause does not necessarily preclude stay on grounds of forum non conveniens

The Commercial Court has held that a non-exclusive jurisdiction clause combined with a forum non conveniens (FNC) waiver clause does not preclude the court from granting a stay of English proceedings in favour of another jurisdiction. The court will however only grant a stay if there are very strong or exceptional grounds which were unforeseen and unforeseeable at the time the agreement was made: Standard Chartered Bank (Hong Kong) Limited and another v Independent Power Tanzania Limited and others [2015] EWHC 1640 (Comm).

An FNC waiver clause is essentially an agreement that a defendant will not argue that proceedings commenced in the chosen court or courts are inconvenient and that there is some other more suitable court (the forum conveniens) in which the case should be heard. The question in the present case was what the court’s approach should be if, despite such a clause, the defendant seeks a stay of the English proceedings arguing another court is the appropriate forum to hear the claim.

The Court of Appeal in National Westminster Bank Plc v Utrecht-America Finance Co [2001] CLC 1372 took the view that the court was precluded from granting a stay in these circumstances, but that aspect of the decision was not binding and a number of subsequent first instance decisions have held there remains a discretion to stay. Flaux J in the present case followed those later authorities.

Although it appears the possibility of a stay is not precluded, the circumstances in which a stay will be ordered will be very rare. On the facts of this case, the stay was refused.
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Hong Kong Court of Appeal rejects narrow interpretation of “client” and adopts broader test for legal advice privilege

In a decision handed down yesterday, the Hong Kong Court of Appeal (HKCA) has rejected the narrow view adopted by the first instance court as to who from within a client organisation constitutes the “client” for the purposes of considering whether legal advice privilege applies: Citic Pacific Limited v Secretary for Justice and Commissioner of Police (unrep, 29/06/2015, CACV 7/2012).

The first instance judgment (considered here) had restricted the “client” to the group legal department and Board of Directors of the relevant organisation, applying the English Court of Appeal’s much discussed (and much criticised) decision in Three Rivers District Council v Bank of England [2003] EWCA Civ 474. The Three Rivers decision has caused difficulties for corporates, as it leads to a risk that some employees may not be considered part of the “client” for the purposes of legal advice privilege. This means that communications or documents prepared by those employees will not be privileged, even if intended for submission to the legal advisers (unless for the purposes of contemplated litigation). The HKCA rejected that approach, saying the client is simply the corporation and the question is which employees should be regarded as being authorised to act for it in the process of obtaining legal advice.

As well as rejecting the narrow view of “client”, the HKCA has adopted a “dominant purpose” test for legal advice privilege. This means that (under Hong Kong law) legal advice privilege is no longer restricted to communications between a lawyer and a client, but will protect internal confidential documents of the client organisation which are produced for the dominant purpose that they or their contents be used to obtain legal advice. This brings Hong Kong’s position in line with other major jurisdictions such as Australia, Singapore and the US – though notably not England and Wales.

Although not directly relevant here, the HKCA’s decision seems likely to add to the view that the Court of Appeal’s decision in Three Rivers is ripe for review, as the courts of so many common law jurisdictions have failed to see the benefit of the Court of Appeal’s approach. For the moment, however, corporates should exercise caution: the Three Rivers decision remains binding under English law and could be applied in any given case to limit who within an organisation qualifies as the “client” for the purpose of legal advice privilege. Further, English law does not, at present, apply the dominant purpose test to legal advice privilege: the privilege can apply only to confidential communications between lawyer and client (directly or through an agent). For more information on the HKCA’s decision, see this post on our Asia Disputes Notes blog. For more information on the position under English law, see our Handy client guide to privilege, including this section on lawyer/client communications.

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Article published on practical lessons for cross-border insolvency

Upon the insolvency of a foreign counterparty, recent judgments of the Supreme Court and Privy Council require an English party to navigate a complex domestic legal landscape to determine whether or not it should make a claim against the insolvent counterparty’s estate where there are mutual debts or claims between the party and the counterparty.

Natasha Johnson, partner, and Andrew Cooke, associate, each in our dispute resolution team, have published an article in the July – September 2015 edition of Corporate Disputes magazine which considers the effect of these recent judgments and the potential dangers revealed by them. Click here to download a PDF of the article: “Practical Lessons for Cross-Border Insolvency”.

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