UK publishes framework for UK-EU partnership on civil judicial cooperation

On 13 June, the UK government published a presentation setting out its proposals for continued judicial cooperation once the UK leaves the EU. The presentation is part of a series produced by the UK negotiating team for discussion with the EU.

Overall the paper is long on aspirational statements and short on specifics, but it does indicate that the UK government is keen to reach a new, bespoke agreement with the EU across the full range of civil judicial cooperation, including business and consumer as well as insolvency and family. It notes that the EU has already signalled its willingness to consider a new form of relationship in respect of family law, and the UK wants to see this extended across the sphere of civil judicial cooperation.

The presentation refers to the Lugano Convention, which currently governs issues of jurisdiction and the enforcement of judgments between the EU, Iceland, Norway and Sweden, but says that the UK wants “a broader agreement that reflects our unique starting point”. None of this is surprising. The UK government stated, as long ago as last August, that it would seek to continue to participate in the Lugano Convention as well as seeking an agreement with the EU which closely reflected the principles of judicial cooperation under the current EU framework (see our blog post on the UK’s August 2017 position paper “Providing a cross-border civil judicial cooperation framework”).

The presentation notes that it is in the UK and the EU’s mutual interest to reach such an agreement, in order to provide certainty as to which country’s court will hear a case, which law will be used and that judgments can be enforced in the UK and the EU. We wholeheartedly agree, but would welcome significantly more detail as to the basis on which the UK will seek to reach such an agreement.

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Filed under Choice of law, Enforcement, Jurisdiction

Denmark joins Hague Convention on Choice of Court Agreements

On 30 May 2018, Denmark deposited its instrument of accession to the Hague Convention on Choice of Court Agreements, which means that the Convention will apply to all EU member states from 1 September 2018, as well as to Mexico and Singapore.

The Convention provides that courts of member states must respect exclusive jurisdiction clauses in favour of the courts of other member states, and must recognise and enforce judgments of the courts of other member states given pursuant to such clauses (subject to certain limited exceptions).

While currently the Convention only applies as between Mexico and Singapore and the EU member states (apart from Denmark), it will become more significant if ratified by the other countries that have signed the Convention but have yet to ratify it, namely the US, the People’s Republic of China, Ukraine and Montenegro.

From a UK perspective, the Convention may also become more significant after we leave the EU, and any agreed transition period comes to an end, so that the current rules on jurisdiction and enforcement of judgments under the Recast Brussels Regulation no longer apply to the UK. The UK government has indicated its intention that the UK will sign up to the Convention in its own right post-Brexit. Assuming that happens, it means that English court judgments should continue to be enforceable throughout the EU, where the English court had jurisdiction under an exclusive jurisdiction clause – even if no other arrangements on jurisdiction and enforcement are agreed between the UK and the EU (contrary to the UK’s intention to seek a bespoke agreement on these matters and/or an agreement to join the Lugano Convention).

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High Court applies SAAMCO principle to find no assumption of responsibility for losses flowing from market forces

In a recent decision, the High Court found that an auditor was not liable for break costs of some £32.7 million incurred as a result of its negligent advice in relation to the accounting treatment of interest rate swaps, as those costs fell outside the scope of the auditor’s duty of care: Manchester Building Society v Grant Thornton UK LLP [2018] EWHC 963 (Comm).

The court reached this conclusion by applying the SAAMCO principle, derived from the decision of Lord Hoffmann in South Australia Asset Management Corpn v York Montague Ltd [1997] AC 191 and expanded upon more recently by Lord Sumption in Hughes-Holland v BPE Solicitors [2017] 2 WLR 1029. In broad summary, the SAAMCO principle provides that, where an adviser has contributed a limited part of the material on which the claimant relied in deciding whether to enter into a transaction, the adviser will not be liable for all losses incurred as a result of the transaction, but only the foreseeable consequences of their information/advice being wrong.

In the present case, the court considered that the defendant had not assumed responsibility for the claimant being “out of the money” on the swaps because the break costs flowed from market forces – even though the claimant’s decision to close out the swaps was taken because the defendant’s advice had been wrong. The court’s conclusion was driven by its view that it would be a “striking conclusion” for an accountant who advised a client as to how certain transactions could be treated in its accounts to have assumed responsibility for the financial consequences of those transactions.

However, this was a finely balanced decision, and the uncertainty in this area of law highlights the importance of clearly defining the scope of an adviser’s duty when agreeing engagement terms. For more information, see our Banking litigation e-bulletin on the decision.

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Filed under Contract, Remedies, Tort

Court of Appeal considers date of knowledge to set time running for limitation in negligence actions

The Court of Appeal has held that a negligence claim against a broker of forward freight agreements was time-barred. The limitation period could not be extended on the basis that the claimant lacked the knowledge required to bring the claim until less than three years before commencing the action (under section 14A of the Limitation Act 1980): Nobu Su v Clarksons Platou Futures Ltd [2018] EWCA Civ 1115.

The judgment emphasises that, to start time running, a claimant need not know for certain that it has a claim for damages, or even that it might have a claim for damages. Applying the decision of the House of Lords in Haward v Fawcetts [2006] UKHL 9 (see our blog post here), it is sufficient that the claimant knew enough to make it reasonable to investigate further.

While this decision does not establish new principles, it will be welcome to defendants as a helpful reminder of the limits of section 14A. From a claimant’s perspective, it illustrates the need to get on and investigate potential claims, when it has information that makes it reasonable to do so, rather than waiting for certainty.

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Filed under Limitation, Tort

Cross-border litigation: international perspectives

We are pleased to release the third issue of our periodic publication “Cross-Border Litigation”, designed to highlight legal and practical issues specific to litigation with an international aspect.

Tapping into the expertise of the firm’s leading commercial litigators across the globe, the publication gives readers the benefit of their hands-on experience and flags key developments that should be on commercial parties’ radars.

Topics covered in this issue include:

  • A selection of recent developments from across the globe
  • Litigation funding on the rise internationally
  • Judicial turf wars in Dubai
    Is this the end of the “conduit” jurisdiction?
  • Multi-jurisdictional litigation: Lessons from cross-border intellectual property enforcement
  • Introducing…
    Our new Milan office and Laura Orlando
  • The growing “internationalisation” of China’s courts
  • Indonesia-related commercial contracts
    Guide to dispute resolution clauses

To download the publication, click here.

To read the previous issues, click here.

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Filed under Contract, Funding, Jurisdiction

Agreement expressed to be subject to board approval not binding until approval given

In a recent decision, the Commercial Court has considered whether an arbitration claim was settled in without prejudice correspondence between the parties’ solicitors. It concluded that no binding settlement was reached, as the relevant offer was made subject to the conclusion of a formal settlement agreement and subject to board approval: Goodwood Investments Holdings Inc v ThyssenKrupp Industrial Solutions AG [2018] EWHC 1056 (Comm).

The judge (Males J) noted that it is well established that words such as “subject to contract” indicate that parties do not intend to be bound until a formal contract is executed, and said that the same applies to an agreement which is stated to be subject to the board approval of one or both parties. The latter wording indicates that the person concluding the agreement does not have authority, or at any rate is not prepared, to commit the company unless and until approval is given. Further, the judge commented, since the directors are required to exercise independent judgment as to whether the transaction is in the best interests of the company, it is very hard to see how there could in such circumstances be an express or implied promise that approval would be forthcoming or was a mere formality.

The obvious implication is that parties who receive offers made subject to board approval cannot rely on a binding agreement having been reached unless and until approval is given.

It is possible for “subject to contract” type conditions to be dispensed with by necessary implication, but there was no indication of that in the present case. The judge rejected an argument that the parties’ agreement to adjourn the arbitration confirmed that a binding settlement had been reached. The parties had recognised that the arbitration might need to resume, and had asked the arbitrators to maintain their availability for the remainder of the period set aside for the hearing. That was inconsistent with a binding agreement having been reached.

The judge also rejected an argument that the offeror was under an “interim obligation” to seek board approval and not do anything to prevent approval being granted. It may have been reasonable to expect that approval would be given, but that was a risk that the offeree took.

The decision is also of interest as a relatively rare example of an application to the court under section 45 of the Arbitration Act 1996 for a ruling on a preliminary point of law. The arbitrators had given permission for the application to be made, due to the difficulties that would arise if the arbitrators were to consider the without prejudice correspondence only to find that no settlement had been reached. For more information on that aspect, see this post on our Arbitration Notes blog.

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Article published – If the cap fits

In a decision late last year, the Court of Appeal considered the interpretation of a provision which purported to cap the liability of a provider of IT systems for defaults occurring at different stages of the contract. In contrast to the High Court, which had held the clause imposed a single overall cap which varied depending on the point at which the first default occurred, the Court of Appeal held that there were two separate caps for defaults occurring within the two stages: Royal Devon and Exeter NHS Foundation Trust v Atos IT Services UK Ltd [2017] EWCA Civ 2196.

James Farrell and Sophie Jones have published an article in the March/April 2018 edition of the Procurement & Outsourcing Journal in which they explore the lessons to be learned, particularly as to the importance of using clear and precise drafting for provisions limiting liability under a contract. Click here to download a copy.

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Filed under Announcements, Contract

Global Pound Conference report published

The Global Pound Conference series – a unique and ambitious initiative to inform how civil and commercial disputes are resolved in the 21st century – brought together over 4000 dispute resolution stakeholders, at 28 conferences spanning 24 countries worldwide.

Herbert Smith Freehills, global founding sponsor of the series, has teamed up with PwC and IMI (International Mediation Institute) to identify key insights that emerge from the extensive voting data collected during the series. With a focus on the needs of corporate users of dispute resolution, this ground-breaking report challenges the traditional and fundamental notions of what clients want and how lawyers should represent them in a dispute. We identify four key global themes along with four notable regional differences. Continue reading

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Supreme Court breathes new life into “no oral modification” clauses

The Supreme Court has overturned a decision that contractual clauses requiring amendments to be in writing would not preclude amendments subsequently being effected orally: Rock Advertising Ltd v MBB Business Exchange Centre Ltd [2018] UKSC 24.

This is an important judgment which means that “no oral modification” (or NOM) clauses will generally be given effect so as to prevent contracting parties being bound by a subsequent variation unless the specified formalities are complied with. The decision will be welcomed by commercial parties who agree NOM clauses in their contracts in the interests of commercial certainty.

The Supreme Court recognised that there is the risk of injustice where a party acts on the contract as varied and then finds that it is not binding, but said the law of estoppel would provide a safeguard, where the circumstances are such that the counterparty should be prevented from enforcing its strict contractual rights. The Supreme Court did not seek to define the circumstances in which such an estoppel would arise. However, it would require at the very least some words or conduct which unequivocally represented that the variation would be valid despite being agreed informally; the informal promise itself would not be sufficient for that purpose.

In light of its decision, the Supreme Court did not need to consider the Court of Appeal’s conclusion that an agreement to accept payment of an existing debt by instalments was supported by consideration in the form of a practical benefit received by the creditor. Interestingly, however, it noted that the long-standing rule in Foakes v Beer (that part payment of a debt is not good consideration for the release of the whole) “is probably ripe for re-examination”, but said that any departure from that rule should be a matter for an enlarged panel of the court where its decision would be more than obiter dictum.

Rachel Lidgate and Maura McIntosh consider the decision further below. Continue reading

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Managing risk: A disputes perspective (2018)

Herbert Smith Freehills recently held its annual disputes client conference exploring some key legal and compliance risks facing major corporates. The event was attended by close to 100 clients. After opening remarks by Damien Byrne Hill, head of dispute resolution for the UK and US, there were presentations on GDPR, emerging technologies, cyber insurance, reputation management, arbitration, sanctions for third party enablers of tax evasion and avoidance, dealing with document requests, and historic investigations.

A summary of the conference is below – if reading the full version of this post, you can jump down to read more detail on any of the sessions by clicking on the relevant heading.

GDPR – is your organisation ready? Miriam Everett outlined the enhanced requirements under the EU General Data Protection Regulation (GDPR) and looked at what businesses should be doing to make sure they are compliant, as well as how the new rules could affect disputes.

Emerging technology risks – what may go wrong in the future? Andrew Moir considered the risks facing organisations from new technologies, focusing in particular on the examples of artificial intelligence, data analytics and block chain, and considered how businesses should respond to these risks.

Cyber insurance – how to protect your organisation: Greig Anderson considered practical steps organisations can take to understand what cover they need for cyber incidents, identify any cover they already have in their existing insurance programme, and address any gaps.

Reputation management in the online world: Joel Smith and Neil Blake looked at how to approach reputational issues in the online world, including practical tips for mitigating risk.

Options to arbitrate – addressing enforcement risk: Nick Peacock looked at the extent to which Brexit might affect the enforceability of English judgments around the EU, and looked at some issues relating to arbitration for businesses considering that option.

Tax evasion and avoidance – sanctions for third parties: Heather Gething outlined the new regimes imposing sanctions for third parties who assist others to evade or avoid tax, and considered how businesses can protect themselves.

Dealing with document requests – addressing the challenges: Julian Copeman looked at the challenges of dealing with the huge numbers of documents generated by any modern business, and considered the extent to which recent proposals to reform the court rules on disclosure are likely to reduce the burden.

Investigations into historic allegations: Brian Spiro looked at some of the challenges that arise in investigating historic allegations, including when and how to report to authorities, and how to protect whistle-blowers. Continue reading

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