Court of Appeal confirms Morrisons vicariously liable for employee’s deliberate actions in first successful UK class action for data breach

The Court of Appeal has today dismissed an appeal against the High Court’s decision that Morrisons was vicariously liable for its employee’s misuse of data, despite: (i) Morrisons having done as much as it reasonably could to prevent the misuse; and (ii) the employee’s intention being to cause reputational or financial damage to Morrisons itself: Wm Morrisons Supermarkets Plc v Various Claimants [2018] EWCA Civ 2339.

This case highlights the wide reach of data protection. An organisation can be liable for data breaches even if it has taken appropriate measures to comply with the data protection legislation itself, and even if it is the intended victim of the breach. In this respect, the decision will also concern employers who can now be vicariously liable for the actions taken by a rogue employee even with appropriate safeguards in place to protect employee personal data. In addition to civil liability, organisations may suffer further damage as a result of negative publicity and impact on share price.

The fear for organisations will now be that this decision, combined with the legislative changes made by the GDPR, increased public awareness of data protection issues, and the publicity that the case has attracted, could spark a new wave of court cases from workers and customers in the event of a data breach. Whilst individuals may not themselves be entitled to significant sums, if the data breach affects large numbers of individuals, the total potential liability for organisations could become commensurately large. In this regard, it will be interesting to see how the court approaches the issue of quantum in the case against Morrisons.

The Court of Appeal suggested that insurance could be the answer to “Doomsday or Armageddon arguments” about the effect of its decision. However, it remains to be seen whether this will be an effective tool that can be used to offset the increased risks that organisations now face.

Importantly, the case also related to data breaches which occurred prior to 25 May 2018 (ie prior to the implementation of the GDPR). In the post-GDPR world where there is an express right for individuals to be compensated for non-material damage (ie distress), it could become even easier to bring such actions. With multiple data breaches having hit the headlines since 25 May 2018 (including the Conservative Party Conference, Butlin’s, British Airways, Dixons Carphone, Facebook and Google+), it will be interesting to see the impact of this decision on future individual compensation claims and whether or not this case opens the floodgates for data breach class action claims in the UK.

For more information see our data protection update on the decision.

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The dangers of filing an incomplete costs budget

The High Court has imposed severe sanctions on a claimant who “genuinely but mistakenly” thought it was acceptable to file a costs budget excluding the phases of trial preparation and trial: Page v RGC Restaurants Ltd [2018] EWHC 2688 (QB).

The decision illustrates the risks of filing a “materially incomplete” costs budget, even where a party considers it premature to budget for the later stages of the action. In these circumstances it seems the only safe course is to budget for the entire action, unless the court has made an order directing that budgets be limited to only part of the proceedings.  Continue reading

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Directors held liable for inducing breach of contract and unlawful means conspiracy where they placed company into liquidation to avoid outstanding debt

The Technology and Construction Court has upheld economic tort claims against two directors of a limited liability company who placed the company into liquidation in order to avoid the company having to pay its outstanding debts to a building contractor. The building contractor succeeded in establishing that one of the directors had induced the company to repudiate the building contract, and also that they had conspired to injure the building contractor using unlawful means: Palmer Birch (a partnership) v Lloyd [2018] EWHC 2316 (TCC).

The case highlights the risks for individuals who operate through the medium of an undercapitalised limited liability company, in particular that they may not be able to rely on the protection of the company’s distinct legal personality in circumstances where their conduct gives rise to claims under one of the economic torts.

Economic tort claims are not straightforward to establish, in light of the high evidential hurdles that must be met. However, this decision illustrates the potential for bringing an economic tort claim in a relatively novel context, in particular where there is an attempt to abuse the doctrine of separate corporate personality. It seems significant in this case that funds which could have been made available to the company to meet its obligations to the claimant were, instead, diverted to a separate company which was used to complete the works through a different contractor.

Gary Milner-Moore and Catherine Emanuel consider the decision further below. Continue reading

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Court of Appeal overturns non-party costs order due to a “failure to warn”

The Court of Appeal has overturned a High Court decision granting a non-party costs order against an insolvent company’s director and majority shareholder. The court cited the claimant’s failure to warn the non-party of its intention to seek such an order as fatal to the application: Sony/ATV Music Publishing LLC v WPMC Ltd (in liquidation) [2018] EWCA Civ 2005.

This decision illustrates that a failure to warn will be a material factor in some cases when considering whether a non-party costs order is appropriate. The practical message is obvious: where a litigant may wish to pursue a non-party for costs, in the event that the losing opponent does not pay them, it would be well-advised to warn the non-party of that possibility as early as possible in the proceedings.

Each case will turn on its facts, however, and a failure to warn will not always be fatal. It is likely to be less significant, for example, where the court considers that a warning would have made no difference to the conduct of the proceedings (see this post) or where the non-party is a professional litigation funder (see this post).

The decision is also of interest in suggesting that the Arkin principle, which has been held to restrict a third party funder’s adverse costs liability to the amount of funding provided, has no application outside the realm of professional litigation funding.

Hannah Bain, from our dispute resolution team, considers the decision further below. Continue reading

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Court of Appeal holds no permission required to serve committal application on director out of the jurisdiction, where the court had jurisdiction to make the original order against him

The Court of Appeal has held that, where a court had jurisdiction to make an order for examination of a company director based on his presence in the jurisdiction, permission to serve out of the jurisdiction was not required for a committal application alleging the director had not complied with the order in full. This was on the basis that the committal application was incidental to the original order: Vik v Deutsche Bank AG [2018] EWCA Civ 2011.

Although it did not need to decide the point, given its conclusions outlined above, the court’s provisional view was that a committal application may come within article 24(5) of the recast Brussels Regulation, which provides for exclusive jurisdiction where a claim concerns enforcement of a judgment.

Failing that, if permission to serve outside of the jurisdiction is required, the court’s provisional view was that no relevant gateway applied, and this was an issue which should be considered by the Civil Procedure Rules Committee. Continue reading

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Article published – ENRC privilege decision: welcome news but difficulties remain

The Court of Appeal’s recent decision in The Director of the Serious Fraud Office v Eurasian Natural Resources Corporation Ltd [2018] EWCA Civ 2006 (ENRC) has, helpfully, departed from the High Court’s overly strict approach to questions of litigation privilege. However, it has left intact the problematic approach to the question of who is the “client” for the purposes of legal advice privilege, derived from the Court of Appeal’s notorious 2003 decision in Three Rivers No 5, as interpreted in more recent case law. It is now clear, therefore, that any change to the law in this area will be a matter for the Supreme Court.

Julian Copeman, Anna Pertoldi and Maura McIntosh have published an article in PLC Magazine which considers the ENRC decision and its implications. Click here for a copy of the article, which first appeared in the October 2018 issue of PLC Magazine: http://uk.practicallaw.com/resources/uk-publications/plc-magazine.

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Privilege no defence to notice requiring production of client’s privileged documents to regulator

The High Court has held that an audit client could not withhold documents on grounds of privilege when responding to a notice requiring the production of documents in connection with an investigation into the auditor’s conduct: The Financial Reporting Council Ltd v Sports Direct International Plc [2018] EWHC 2284 (Ch).

The decision suggests that, where privileged documents are provided to a regulator for the purposes of an investigation into the conduct of a regulated person, and the privilege belongs to a client of the regulated person, there is no infringement of the client’s privilege. Accordingly, the fact that documents are subject to a client’s privilege will not justify a refusal to provide the documents to a regulator in response to a demand under its statutory powers, whether or not the statute can be taken to override legal professional privilege.

The decision also confirms (though it was not actually in doubt) that non-privileged documents do not become privileged merely by being attached to privileged lawyer/client communications for the purpose of giving or obtaining legal advice.

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Brexit “no deal” notice on jurisdiction and enforcement of judgments

As part of its second batch of “no deal” technical notices, the government has today published a guidance notice entitled: Handling civil legal cases that involve EU countries if there’s no Brexit deal.

The notice contains little that was not already obvious. If no deal is agreed, there would be no agreed EU framework for ongoing civil judicial cooperation between the UK and EU countries. The UK would retain the Rome I and Rome II rules on applicable law, which generally do not require reciprocity to operate, but the rules governing jurisdiction and enforcement of judgments between EU member states (under the Recast Brussels Regulation 1215/2012) would no longer apply to the UK. Nor would the Lugano Convention, which currently governs jurisdiction and enforcement between the UK and Iceland, Norway and Switzerland – though, as the notice says, this would not prevent the UK applying to re-join the Lugano Convention in its own right at a later date (and the government has previously indicated that it would seek to do just that).

For rules in these areas, the UK would revert to the existing domestic common law and statutory rules, which currently apply in cross border cases concerning the rest of the world. The guidance adds, not very helpfully:

“Businesses, individuals and legal practitioners would need to consider how these rules interact with the domestic rules of relevant EU countries to determine how jurisdiction in cross-border disputes should be established and whether any judgments should be recognised and enforced. In certain cases, the interaction between these rules may not be clear and certain countries may not recognise judgments from UK courts. Businesses and individuals may wish to take legal advice about how these changes may affect your individual circumstances.”

The paper confirms, as previously announced, that in the event of no deal the UK would take the necessary steps to re-join the 2005 Hague Convention on Choice of Court Agreements in its own right. This Convention currently governs jurisdiction and enforcement of judgments as between the EU, Mexico, Singapore and (as of 1 August 2018) Montenegro, where there is an exclusive jurisdiction clause in favour of one of the contracting states which was concluded after the Convention entered into force for that state. In the event of a no-deal Brexit, it would apply as between the UK and the other contracting states, including all EU member states.

There has however been some uncertainty as to (i) when the Convention would enter into force for the UK, since under its terms it enters into force on the first day of the month following three months after ratification; and (ii) whether the Convention will apply to jurisdiction agreements concluded before it enters into force for the UK in its own right, as opposed to by virtue of EU membership – though the better view would seem to be that it should.

With that in mind, the one piece of helpful information in the guidance notice is that, in the event of no deal, it is anticipated that the Convention would come in to force across the UK by 1 April 2019, though it does not explain how that will be achieved. We presume it would depend on obtaining the EU’s agreement to deposit the UK’s instrument of ratification before it exits the EU, since (as noted above) there is ordinarily a three month period between ratification and entry into force. Nor does the notice venture any guesses as to the implications of the 1 April implementation. It says, simply: “Where appropriate, individuals and businesses would need to consider what this would mean for any existing choice of court agreements made under either the Brussels regime or the 2005 Hague Convention, including the implications of any gap in coverage by the 2005 Hague Convention between 29 March and 1 April 2019.”

One obvious tip – try to avoid agreeing exclusive English jurisdiction clauses on 30 or 31 March.

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Supreme Court finds there is no claim in unjust enrichment for compound interest on mistaken payments

In a recent decision, the Supreme Court held that claimants could not bring claims in unjust enrichment to recover compound interest on taxes paid under a mistake of law: Prudential Assurance Company Ltd v Commissioners for Her Majesty’s Revenue and Customs [2018] UKSC 39.

In doing so, the Supreme Court departed from the House of Lords decision in Sempra Metals Ltd v Inland Revenue Commissioners [2007] UKHL 34, considered here, which held that such a claim was available. In the present case, the court disagreed with the view taken in Sempra Metals that the time value of money could be considered a separate benefit for the purposes of the law of restitution, in addition to the payment of the unlawfully levied tax. Accordingly, the Supreme Court held, there was no additional benefit to be reversed by the award of compound interest once the tax itself had been repaid. Instead, the court could award simple interest under section 35A of the Senior Courts Act 1981.

The Supreme Court noted that, in Sempra Metals, the House of Lords had also held that compound interest was available as damages, where it was the measure of the loss foreseeably suffered by a claimant from the loss of use of his funds. That point was not in issue in the present case and, the court said, nothing in its judgment was intended to question that aspect of the decision.

The decision is significant in clarifying the law on unjust enrichment, and in particular reversing the previous case law under which a claim for compound interest was available. However, it does not affect the question of whether and in what circumstances compound interest may be awarded as damages to compensate a claimant who is out of pocket as a result of a defendant’s wrongdoing (such as a breach of contract, or the non-payment of a debt).

Julian Copeman and Ajay Malhotra, a partner and senior associate in our disputes team, consider the decision further below. Continue reading

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Article published – Pilot of new disclosure rules: a change for the better?

Julian Copeman and Maura McIntosh have published an article in PLC Magazine looking at the new disclosure rules that are due to be piloted in the Business and Property Courts for two years starting in January 2019. The article outlines the key provisions and considers how much impact they are likely to have, as well as considering the improvements made from the draft initially published by the working group in November 2017.

Click here for a copy of the article, which first appeared in the September 2018 issue of PLC Magazine: http://uk.practicallaw.com/resources/uk-publications/plc-magazine.

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Filed under Disclosure, Privilege