Employees & privilege: dominant purpose, waiver and iniquity

Two recent English decisions highlight the particular challenges when managing legal professional privilege in the context of resolving employee issues.

We consider these decisions and how the principles may apply in Hong Kong and other common law jurisdictions in relation to dominant purpose, waiver and iniquity and the lessons that they provide to employers in the context of employee investigations and disciplinary actions. Continue reading

UK Supreme Court provides clear guidance on bank’s liability to undisclosed third parties for credit references

The UK Supreme Court (“UKSC“) has handed down its much anticipated judgment in NB Banca Nazionale del Lavoro SPA v Playboy Club [2018] UKSC 43, ruling that a bank owed no duty of care to undisclosed third parties who ultimately relied on their references.

In this instance, a bank had provided a credit reference for its client for the purposes of applying a cheque cashing facility at the London Playboy Club. The Club did not request for the reference in its own name, but through an associated company, to avoid disclosing the purpose of the reference. Subsequently, the cheques that were drawn by the client in the Club’s favour were returned unpaid, and the Club suffered losses as a result. It was common ground that only the Club had an interest, given that other parties, including the associated company suffered no losses.

The issue was whether the bank owed any duty of care to the Club, which was an undisclosed third-party. The UKSC ruled in the negative, and it is likely that the Hong Kong Courts will adopt the same approach in similar cases. See our UK banking litigation e-bulletin for a more detailed discussion: https://sites-herbertsmithfreehills.vuturevx.com/34/17764/compose-email/supreme-court-provides-clear-guidance-on-liability-to-third-parties-for-bankers–references.asp

 

Gareth Thomas
Gareth Thomas
Partner, Head of commercial litigation, Hong Kong
+852 2101 4025
Dominic Geiser
Dominic Geiser
Partner, Hong Kong
+852 2101 4629

 

UK SUPREME COURT CLARIFIES LEGAL POSITION ON “NO ORAL MODIFICATION” CONTRACTUAL CLAUSES

Parties to commercial contracts often insert a “no oral modification” (or NOM) clause to prevent attempts to undermine written agreements by informal means. Such clauses are intended to prevent contracting parties being bound by subsequent variations unless the specified formalities (for example, it is fairly typical in commercial contracts that a variation must be recorded in writing and signed by the parties) are complied with.

In the recent decision of Rock Advertising Limited v MWB Business Exchange Centres Limited [2018] UKSC 24, the UK Supreme Court unanimously held that an agreed oral amendment to revise the terms of a payment schedule to a lease contract, which contained a NOM clause, was ineffective. The majority of the UK Supreme Court based its reasoning on the broad proposition that the law should give effect to contractual provisions which required specified formalities to be observed to recognise a variation. Lord Sumption (who gave the judgment for the majority) disagreed with the Court of Appeal’s view that recognising the oral variation, despite the NOM, promoted party autonomy. On the contrary, he found that the effect of the Court of Appeal’s ruling was to override the contracting parties’ intentions such that they would be unable validly to bind themselves as to the manner in which future changes in their legal relations were to be achieved, however clearly they originally expressed their intentions in that regard.

While the UK Supreme Court was aware that its decision may cause injustice to a party who had relied on the orally varied contract to its detriment, it pointed out that various doctrines of estoppel would provide a safeguard in appropriate cases.

The Court also commented, by way of obiter dictum, on the rule in Foakes v Beer (which provides that part payment of a debt is not good consideration for the release of the whole) to the effect that to depart from the rule would require a re-examination of the decision in Foakes v Beer and while “it is probably ripe for re-examination“, it should be a matter for an enlarged panel of the Court.

For more details, please see our blog post on the Supreme Court judgment here.

 

Gareth Thomas
Gareth Thomas
Partner, Head of commercial litigation, Hong Kong
+852 2101 4025
Dominic Geiser
Dominic Geiser
Partner, Hong Kong
+852 2101 4629
Jojo Fan
Jojo Fan
Senior Associate, Hong Kong
+852 2101 4254

Supreme Court decision clarifies basis for the award of Wrotham Park damages

We discussed aspects of “Wrotham Park damages” (also called “license fee damages” or “negotiating damages”) in Herbert Smith Freehills Hong Kong office’s recent Contract Disputes Seminar “Getting your just deserts: remedies for breach of contract”.

To recap, in some cases where there has been a breach of contract, instead of awarding damages calculated on the conventional causation basis, the court may instead award negotiating damages. Such damages are calculated on a hypothetical basis, as the sum which might reasonably have been negotiated between the plaintiff and the defendant had the defendant sought the plaintiff’s permission to do what it did (in breach of contract). The Wrotham Park principle has been applied by the Hong Kong courts.

In the recent decision of Morris-Garner and another v One Step (Support) Ltd [2018] UKSC 20, the UK Supreme Court considered the basis for awarding negotiating damages, and narrowed down the circumstances in which such damages may be claimed. In particular, the Supreme Court rejected the idea that negotiating damages would be available whenever the court considers them to be the “just” response to a contractual breach.

For more details, please see our blog post on the Supreme Court judgment here.

Gareth Thomas
Gareth Thomas
Partner, Hong Kong
+852 2101 4025
Dominic Geiser
Dominic Geiser
Partner, Hong Kong
+852 2101 4629
Rachel Yu
Rachel Yu
Senior Associate, Hong Kong
+852 2101 4220

 

“Dishonesty at its highest level and gravity” – when solicitors commit offences against client estates

This blog post will consider a number of recent cases in England where solicitors have been convicted of offences or struck off the register for misappropriating client funds from deceased estates. These shed light on the surprising levels of abuse uncovered by the Courts and the English Solicitors Regulation Authority (the “SRA”), and the zero tolerance approach taken to solicitors who seek to personally benefit from the trust placed in them by their clients.

A number of common themes run through the cases, namely that offenders have often sought to explain and justify their actions through desperation, ill health and financial hardship. Further, the solicitors in question generally practised in local firms or as sole practitioners, where clients place a high degree of trust in them due to their geographical proximity and personal familiarity. Finally, the offences appear to have taken place over a number of years, with initial abuse turning into a pattern of offending.

During its investigations the SRA asserted that it is only in exceptional circumstances that a solicitor found to have acted dishonestly will avoid being struck off the register. Explanations and mitigating circumstances advanced in the cases below were not sufficient to overcome the serious breaches committed and the need to uphold public confidence in the legal profession.

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English Court resolves dispute between parties as to who should hold the power to appoint trustees following settlor’s death

The English High Court has recently approved an application to change the provision of a trust deed relating to the appointment of new trustees.[1] The change was necessary because the original power was reserved exclusively for the settlor, who had died. All adult beneficiaries of the trust supported the change, as did three of the four trustees.

This case illustrates the importance of having succession plans for the power of appointment of new trustees. It also addresses disputes between parties about changes to trust terms.

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Wills interpreted according to their ordinary and natural meaning despite this not reflecting testators’ intention

The English High Court has recently held that, in a case concerning construction of Wills, the ordinary and natural meaning of survivorship clauses should be given effect to.[1] This operated to mean that certain beneficiaries under the Wills of a husband and wife benefitted twice, which the parties agreed was not the couple's intention. The claimants were the executrices of the couple's estates (and also beneficiaries of the estates). They wished to know how to distribute the estates. The claimants wanted the Court to interpret the Wills in accordance with the couple's intention. This would have meant that they received less under the Wills than they would have done if the Wills were interpreted in their ordinary and natural terms. The defendants were the solicitor who drafted the Wills and his firm.

The case is a reminder to executors of the importance of administering estates in accordance with the terms of the Wills. The case is also a reminder to draftsmen of the importance to accurately convey a testator's intention when drafting a Will.

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UK: Deceased’s “husband” and daughter both unable to obtain letters of administration

The English High Court has recently refused to grant letters of administration to a deceased's daughter (the "Claimant") despite her having the highest entitlement to the deceased's estate.[1] The dispute involved a challenge by the alleged widower of the deceased (the "Defendant"), who was found not to have been validly married to the deceased. Therefore the Court declined to grant the Defendant letters of administration. Nonetheless, the Court found that the Claimant had deliberately lied to Court and thus also declined to grant her letters of administration. Instead, the Court exercised its jurisdiction to appoint "some other person" as administrator. This case is a reminder that all parties need to act lawfully and properly when presenting evidence or face the consequences.

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Court finds father cannot alter his will to stop son inheriting the family farm

The English High Court has recently found that a father could not change his Will so as to prevent his son receiving sole ownership of a family farm. [1] The farm had been promised to the son over the course of many years. It was held that these promises created an equitable interest in the farm and the father was now estopped from denying the son's entitlement. The case serves as an example of when the Court will be willing to find an equitable interest in assets.

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Failure to comply with freezing orders leads to prison

In JSC Mezhdunarodniy Promyshlenniy Bank and Another v Pugachev, [2016] EWHC 248 & 258 Ch (sentence) and [2016] EWHC 192 (Ch) (liability), the English High Court sentenced Russian businessman Sergei Pugachev to two years in prison for contempt of court.  The Court found Mr Pugachev had breached several worldwide freezing orders made by the English High Court relating to money he allegedly stole from JSC Mezhdunarodniy Promyshlenniy Bank. He also refused to surrender all his passports, and in further defiance of court orders, left England for France in June of last year. This decision demonstrates the seriousness of the consequence for breaching an English worldwide freezing order.  For related earlier judgments, please see our earlier articles of 27 November 2014 and 22 September 2015.

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