Supreme Court clarifies principles for determining when benefits enjoyed by a claimant following a breach of contract will be treated as collateral

The Supreme Court has ruled that the owners of a ship that was redelivered early in breach of a charterparty did not have to give credit for the benefit they obtained by selling the vessel for a higher price upon its early redelivery, rather than at the end of the contractual term of the charterparty when the vessel was worth significantly less: Globalia Business Travel SAU (formerly TravelPlan S.A.U) of Spain v Fulton Shipping Inc of Panama [2017] UKSC 43. In doing so, the Supreme Court overturned the unanimous decision of the Court of Appeal and re-instated the order of the High Court, which had itself disagreed with the tribunal's ruling on this issue in the underlying arbitration.

The Supreme Court's decision lays down an important precedent and establishes that there is no straightforward litmus test to determine whether a benefit enjoyed by an innocent party will be taken into account to reduce the damages payable following a breach of contract, or alternatively treated as a collateral benefit which is ignored for these purposes. The key question will be whether the benefit was caused either by the breach or by the innocent party's act of mitigation, taking into account all the circumstances.

If no such causation is found, recoverable loss will not be reduced by the benefit. Importantly, it will not satisfy the causation test if the breach merely provided the occasion or context for the innocent party to obtain the benefit, nor is it sufficient that the benefit would not have been obtained but for the breach. Determining causation in this sense is not a straightforward question, and reasonable views may differ – as illustrated by the opposite conclusions reached in unanimous decisions of the Court of Appeal and Supreme Court in this case.

Donny Surtani and Charlotte Benton, a partner and associate in our dispute resolution team, consider the decision further below.

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High Court refuses non-party access to witness statements prepared for trial and referred to at pre-trial hearing

The High Court has refused an order allowing The Sunday Times to obtain access, in advance of a trial, to witness statements prepared for that trial, even though the statements had been placed before the judge and referred to at a pre-trial hearing: Blue v Ashley & The Times Newspapers Limited [2017] EWHC 1553 (Comm).

The decision suggests that the court will not generally make witness statements prepared for use at a trial publicly available before the witness gives evidence. Although the position is different where the statements have been placed before the judge and referred to at a pre-trial hearing (disclosure will usually be ordered in those circumstances), there is still a need for the court to consider the particular circumstances, including (importantly) the non-party's purpose for seeking access. Where that purpose is simply a wish to report on the evidence witnesses will give at trial before the trial starts, that is unlikely to be sufficient.

Maria Clarke, a senior associate in our dispute resolute team, considers the decision further below.

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Filed under Confidentiality, Evidence

EU clarifies negotiating position on choice of law, jurisdiction and enforcement of judgments post-Brexit

Yesterday (29 June) the European Commission published its Position Paper on Judicial Cooperation in Civil and Commercial Matters which outlines its position on the extent to which current EU rules on choice of law, jurisdiction and enforcement of judgments should continue to apply as between the UK and the EU27 post-Brexit. In broad summary, the key points are that:

  • Choices of law and jurisdiction in contracts entered into before the withdrawal date should continue to be given effect in accordance with current rules.
  • Current provisions on jurisdiction (ie those which apply in the absence, or regardless, of contractual choice) should continue to apply to all proceedings instituted before the withdrawal date.
  • Current provisions on the law applicable to contractual and non-contractual obligations (ie those which apply in the absence, or regardless, of contractual choice) should continue to apply to contracts concluded before the withdrawal date, and (regarding non-contractual liability) to events which occurred before the withdrawal date.
  • Current provisions on recognition and enforcement of judgments should continue to govern all judicial decisions given before the withdrawal date.

For more information see this post on our Brexit Notes blog.

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Filed under Choice of law, Enforcement, Jurisdiction

Court of Appeal confirms good reason required to depart (up or down) from costs budget

The Court of Appeal has recently delivered an important judgment on the relationship between the costs budgeting regime and the costs that are ultimately awarded to a successful party in litigation: Harrison v University Hospitals Coventry & Warwickshire NHS Trust [2017] EWCA Civ 792.

A number of costs assessments had been put on hold pending the outcome of this appeal, which was referred directly to the Court of Appeal from the Senior Courts Costs Office on a "leapfrog" basis.

The Court of Appeal considered the meaning of CPR 3.18 which provides that, in assessing costs on the standard basis, the court will not depart from the receiving party's last approved or agreed budget for each phase of the proceedings unless satisfied that there is good reason to do so. The main issue in this appeal was whether good reason was required before a court could award a lower amount than budgeted. It concluded that good reason had to be shown for any departure, upwards or downwards, from an approved costs budget. However, the court held that this requirement did not extend to the court's assessment of costs incurred before the date of the budget, as these did not form part of the approved budget.

Two key impacts for litigants are: (i) it should be easier than it would otherwise have been for a successful party to obtain full recovery of legal costs falling within an approved or agreed budget; but (ii) the same does not apply to recovery of costs incurred pre-budget, where there is no requirement for good reason to depart from the figure put forward at the budget stage.

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

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Upcoming webinar – Cross-Border Litigation Update

On Thursday 29 June (1.00 – 2.00pm UK time) we will present the second in our series of webinars for Herbert Smith Freehills clients and contacts spotlighting legal and practical issues relevant to litigating cross-border disputes. In this webinar:

  • Thomas Riley, a disputes partner in our New York office, will summarise the US courts' current stance on when US legislation (including the 'RICO' statute) may be applied extraterritorially to foreign-domiciled parties or foreign conduct.
  • Stuart Paterson, a disputes partner in our Dubai office, will look at the common law courts established in the Gulf in recent years, with a particular focus on the Dubai International Financial Centre (DIFC) courts. He will highlight factors parties should be aware of when choosing and litigating in these and other courts of the region.
  • Gary Milner-Moore, a disputes partner in our London office, will look at forum disputes and when the English courts will take into account potential obstacles to justice in the competing jurisdiction, including political factors.  Continue reading

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Filed under Announcements, Jurisdiction

High Court decision underlines importance of knowing who you are contracting with

The High Court has recently found that a group of waste removal companies which provided services to a company that went into liquidation shortly afterwards was not entitled to recover outstanding sums from the company's founder. The agreement for works had been entered into with the company itself, and the founder had given no guarantee or indemnity in his personal capacity. Even if a guarantee had been given, it was merely oral and therefore unenforceable: Erith Holdings Ltd and Others v Ronald William Murphy [2017] EWHC 1364 (TCC).

This decision serves as a cautionary tale which underlines the importance of knowing who you are contracting with and of recording the terms of your agreement formally in writing rather than relying on oral discussions. Where you have concerns regarding the financial standing of a company you are dealing with, and want to ensure that an individual who stands behind a company takes on personal liability, it will be particularly important to ensure that the individual is a party to the agreement or that any guarantee is properly documented.   

Kerrie Barrett, an associate in our disputes team, considers the decision further below.

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Brexit Blog launches with Brexit Q&A

As formal Brexit negotiations have now started, Herbert Smith Freehills is pleased to announce the launch of its new Brexit Notes blog, where you will find articles and updates on the latest Brexit developments. 

As well as reporting on new developments going forward, Brexit Notes has been pre-populated with a selection of articles and posts. You can subscribe to the blog to receive notifications by e-mail as soon as items are posted, or you can visit the site whenever you choose. Continue reading

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Voluntary pilot of capped costs scheme for claims up to £250,000

A two-year pilot is to be introduced to test the use of a capped costs scheme in High Court claims valued at up to £250,000 which are proceeding in the London Mercantile Court or the Mercantile, Chancery or Technology and Construction (TCC) courts in Manchester and Leeds (excluding personal injury cases). The pilot was approved in principle at the May meeting of the Civil Procedure Rule Committee (CPRC), subject to a number of drafting points to be addressed in relation to the pilot rules. No start date has been announced.

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Financial Markets Test Case pilot scheme to be extended for three years and expanded

The Financial Markets Test Case pilot scheme, which was due to end in September this year, is to be extended for a further three years. The scheme will also be expanded so that it applies to any Financial List claims which raise issues of general importance in relation to which immediately relevant authoritative English law guidance is needed. It will no longer be necessary for claims to raise issues of general importance to the financial markets specifically.

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High Court orders security for costs against third party funder supporting group litigation

The High Court has granted an application for security for costs against a commercial litigation funder supporting the then remaining claimants in the RBS Rights Issue Litigation. It declined to order security against another third party which was not in litigation funding as a business and was not primarily motivated by a wish to profit from the provision of funding: The RBS Rights Issue Litigation [2017] EWHC 1217 (Ch).

Although each case will turn on its facts, the decision suggests that the court may be well disposed to ordering security for costs against third parties who fund litigation on a commercial basis, particularly in the context of a group litigation order (GLO) where the claimants have the benefit of an order providing that (if the claim fails) they will be liable only for a proportion of the defendant's costs on a several, rather than joint, basis. It may be more difficult to obtain an order where a third party has funded litigation primarily for some other motive, even if the third party is charging a commercial return on the funding provided. 

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Filed under Costs, Funding