Court of Appeal finds clause limiting liability for negligence was reasonable

The Court of Appeal has recently upheld a High Court decision that a term limiting a defendant’s liability for negligence in the supply of a fire suppression system had been properly incorporated into the contract and that it met the test of reasonableness under the Unfair Contract Terms Act 1977 (“UCTA”): Goodlife Foods Ltd v Hall Fire Protection Ltd [2018] EWCA Civ 1371.

The clause in question was contained in Terms and Conditions that were referred to in and attached to the defendant’s quotation. The clause was held to be incorporated into the contract on the basis that it was not particularly unusual or onerous and, in any event, had been fairly and reasonably brought to the attention of the claimant.

The court held that there was no basis to find that the clause was unreasonable as, amongst other factors, the parties were of equal bargaining power, the claimant had its own insurance, and the claimant had been given an option of contracting without the clause but at a higher price.

The judgment emphasises the increasingly hands off approach taken by the courts to contracts agreed between commercial entities of equal bargaining power. As the Court of Appeal commented, “the trend in the UCTA cases decided in recent years has been towards upholding terms freely agreed, particularly if the other party could have contracted elsewhere and has, or was warned to obtain, effective insurance cover”.

Whilst the decision does not establish new principles, it is a useful review of the law on exclusion and limitation clauses and indicates the current trend of judicial analysis in such cases. For more information on such clauses see our contract disputes practical guide on liquidated damages, limitation and exclusion clauses. Continue reading

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Court of Appeal finds non-shareholder creditor’s claim barred by rule against reflective loss

In a recent decision, the Court of Appeal has clarified the ambit of the so-called rule against reflective loss, which has traditionally operated to prevent shareholders from bringing claims where their loss merely reflects the loss suffered by the company: Carlos Sevilleja Garcia v Marex Financial Limited [2018] EWCA Civ 1468.

The question for the Court of Appeal was whether the rule applies to claims by unsecured creditors who are not shareholders of the relevant company. In a unanimous decision, it held that the distinction between shareholder creditors and non-shareholder creditors was artificial and therefore the rule should apply equally to all creditors.

The Court of Appeal also considered the scope of the exception which applies where the company is unable to pursue a cause of action against the wrongdoer. It confirmed that this exception can only be invoked in limited circumstances, where the defendant’s wrongdoing has been directly causative of the impossibility the company faces in bringing the claim.

Catherine Emanuel and Eliot Leggo consider the decision further below. Continue reading

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Misrepresentation claim struck out on basis that entire agreement statement excluded liability

The High Court has held that an entire agreement clause in a commercial contract had the effect of excluding liability for misrepresentation under section 2(1) of the Misrepresentation Act 1967: NF Football Investments Limited v NFFC Group Holdings Limited [2018] EWHC 1346 (Ch).

This contrasts with the orthodox view that the effect of an entire agreement statement is merely to avoid pre-contractual representations becoming terms of the contract, and that such a statement will not, in itself, exclude liability for misrepresentation (as noted for example in our contract disputes practical guide on pre-contractual statements).

The decision notes that clauses which effectively exclude liability for misrepresentation will ordinarily be expressed using well-established formulations, such as non-reliance wording (see our post earlier on a recent Court of Appeal decision which considered a non-reliance clause) or an express statement that liability is excluded. However, it emphasises that an entire agreement clause (like any other) must be construed in its contractual context. To put it another way, there are no magic words that must be used.

As a practical matter, to avoid any dispute, parties seeking to exclude liability for misrepresentation would be well advised to stick to the well-established formulations – not least as this is a decision of a Master, and there is no guarantee that the same approach will be taken in other cases. It shows, however, that a departure from those formulations need not always be fatal. Continue reading

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Court of Appeal finds non-reliance clause sought to exclude liability for misrepresentation and was therefore subject to UCTA reasonableness test

The Court of Appeal has found that a “non-reliance” clause in a lease was a term that excluded or restricted liability for misrepresentation. The clause was therefore within the scope of s.3 of the Misrepresentation Act 1967 (“MA”) and subject to the reasonableness test under s.11(1) of the Unfair Contracts Terms Act 1977 (“UCTA”): First Tower Trustees Ltd v CDS (Superstores International) Limited [2018] EWCA Civ 1396.

Some key points from the Court of Appeal’s analysis include:

  • Where a clause simply delimits the parties’ primary obligations, it is not an exclusion clause and therefore the reasonableness test in UCTA will not apply. Such clauses define the basis on which the parties are contracting. Lewison LJ, who gave the leading judgment, suggested that this is how the label “basis clause” in some of the cases should be understood, though Leggatt LJ, who delivered a concurring judgment, suggested that the term is best avoided in the interests of clarity.
  • A non-reliance clause, in contrast, seeks to prevent liability arising in misrepresentation by stating that no representations have been made or, if made, have not been relied on, and therefore setting up a contractual estoppel. The Court of Appeal held that such a clause amounts to an attempt to exclude liability for misrepresentation. Accordingly, it is subject to s.3 MA and therefore the reasonableness test under s.11 UCTA.
  • Leggatt LJ commented (obiter) that it does not matter whether the non-reliance clause is contained in a contract entered into after the representation was made (as in this case) or before it (eg in a confidentiality agreement entered into before the main transaction). Where it is in a contract agreed before the representation, however, it might affect whether the elements of the misrepresentation claim are in fact established, eg whether a particular communication would reasonably be understood as making a representation or whether it was in fact relied on.

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Article published on how in-house lawyers can tackle the increasing threat of class actions in the English courts

Class actions represent an increasing area of risk for UK corporates, with increasing numbers of high-profile and high-value group claims being brought, or threatened to be brought, in the English courts. The principal mechanism used to litigate these claims differs from the ‘opt-out’ class action familiar from the US, where claimants who fall within a defined class are automatically included unless they take steps to opt out. In contrast, claims in the English courts normally proceed on an ‘opt-in’ basis, with claimants issuing claims which are then managed together by the court under a Group Litigation Order (or GLO).

Damian Grave, Gregg Rowan and Maura McIntosh have published an article in the Summer Edition of the In-House Lawyer magazine which explores the reasons for the rise in group litigation in England and Wales and considers what strategies defendants can bring to bear to improve their position in such cases. Click here to view a PDF.

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Brexit White Paper reiterates aims for civil judicial cooperation

The UK government has today published its White Paper detailing its proposal for the future relationship between the UK and the EU. The short section on civil judicial cooperation echoes the aims set out in the government’s Framework for the UK-EU Partnership published on 13 June (as outlined here).

The White Paper recognises the benefits of civil judicial cooperation for both the UK and the EU, including that it gives businesses legal certainty in the event of disputes and makes them more confident trading across borders. It says, uncontroversially, that the future relationship between the UK and the EU should protect these advantages.

The paper reiterates the government’s intention to seek to participate in the Lugano Convention post-Brexit, noting however that “while the UK values the Lugano Convention”, some of its provisions have been overtaken (a reference, no doubt, mainly to the stronger protections for exclusive jurisdiction clauses under the recast Brussels Regulation) and it is limited in scope. It adds that the UK is keen to explore a new bilateral agreement with the EU, which would cover a coherent package of rules in civil, commercial, insolvency and family matters.

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Filed under Choice of law, Enforcement, Jurisdiction

Holding company liability for acts of a subsidiary: Court of Appeal finds English court lacks jurisdiction on basis no duty of care owed

In the latest in a line of jurisdiction rulings in cases of so-called “class action tourism”, the Court of Appeal has held that the English court does not have jurisdiction to hear tortious claims against two companies in the Unilever group, domiciled in the UK and Kenya respectively, arising out of alleged injuries suffered by individuals on the subsidiary’s Kenyan tea plantation at the hands of third parties during post-election violence in 2007: AAA and others v Unilever PLC and Unilever Tea Kenya Limited [2018] EWCA Civ 1532. In doing so, the Court of Appeal has upheld the first instance decision, albeit on different grounds.

This is the second Court of Appeal decision this year in which a UK incorporated company and its overseas subsidiary have successfully challenged the jurisdiction of the English court to hear claims arising out of the operations of the subsidiary company abroad. Our discussion of the first decision, Okpabi and others v Royal Dutch Shell plc and another [2018] EWCA Civ 191, can be found here.  However, this remains a developing area of the law and it will be interesting to see whether the claimants will seek permission to appeal to the UK Supreme Court.

John Ogilvie, Damian Grave and Neil Blake, partners, Joanne Keillor, a senior associate, and Jake Savile-Tucker, an associate, in our disputes team consider the decision further below. Continue reading

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Filed under Collective actions, Jurisdiction, Tort

Article published – Damages-Based Agreements: A chance to make them work?

The government has recently launched its post-implementation review of the key legislation that implemented the Jackson reforms, including the introduction of damages-based agreements (or DBAs), back in April 2013: Part 2 of the Legal Aid, Sentencing and Punishment of Offenders Act 2013 (LASPO). The review includes a stakeholder conference held by the Civil Justice Council on 30 June and an online survey to give those affected by the reforms an opportunity to make their views known.

The MOJ’s initial assessment of the reforms, published in advance of the CJC conference, recognises that there has been some criticism of the current DBA regulatory regime, which is widely blamed for the perceived low take-up of this method of funding.

Maura McIntosh has published a post on Practical Law’s Dispute Resolution blog which considers the post-implementation review and the views expressed at the CJC conference, specifically focussing on the issues relating DBAs and how they can be addressed. Click here to read the post (or here for the Practical Law Dispute Resolution blog homepage).

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Awarding costs in group litigation: Court of Appeal says “who receives the cheque” does not determine success

A recent Court of Appeal decision illustrates the court’s approach to awarding costs in the context of complex group litigation, and how it differs from the approach taken in ordinary commercial litigation: Sirketi v Kupeli [2018] EWCA Civ 1264.

Under CPR 44.2, in exercising its discretion as to costs, the court’s starting point is that the successful party is entitled to recover its costs from the unsuccessful party, though the court can make a different order. In general, in a commercial claim, the most important factor in determining which party is successful or unsuccessful is to look at who writes the cheque.

In this case, which involved some 838 claimants, the High Court applied that approach in finding that the claimants were the successful party following a trial of preliminary issues and lead claims. As that trial had resulted in a damages award to 14 of the lead claimants (for a total of just under £9,000), the judge concluded that the claimants were prima facie entitled to their costs – though she reduced the costs to 33% in light of various other considerations.

The Court of Appeal overturned the judge’s decision, finding that “who pays whom” was not a reliable indication of success in a complex group claim. There are other material factors, including the respective success or failure in the individual claims within the group, and success or failure in the common issues that are intended to assist in determining individual claims. Continue reading

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Our new book launched today: Class Actions in England and Wales

Herbert Smith Freehills is today launching a new textbook, Class Actions in England and Wales. Written by lawyers from the firm and published by Sweet & Maxwell, it aims to become an essential resource for those bringing or defending class actions in the English courts. Class actions have become increasingly prevalent in this jurisdiction, with growth fuelled in part by the activity of claimant firms and litigation funders. It is an increasingly important area for the firm and its clients.

In the book’s foreword, the Chancellor of the High Court, The Right Honourable Sir Geoffrey Vos, describes the book as “an approachable and insightful text, offering useful summaries of the main authorities and a practical guide to the conduct of a collective action”, which he predicts will “rapidly become invaluable” to lawyers engaged in class action litigation.

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Filed under Announcements, Collective actions