2020 will be, for many of us, a year we are keen to forget, as we look forward to 2021 with hope that the Covid-19 vaccines will bring life back to something approaching normality – though perhaps with some trepidation at the uncertainties for business following on from the end of the Brexit implementation period, even if a deal is reached. While we await the end of the year, this post looks back at what it has brought from the perspective of the commercial litigator, including key developments relating to Covid-19 and the courts, contract law, the impact of Brexit on jurisdiction and enforcement of judgments, witness evidence, disclosure and many other areas.
- Covid-19 and the courts
- Jurisdiction and enforcement
- Witness evidence
- Without prejudice
- Class actions
- Costs and funding
- Part 36, settlement and ADR
When the Covid-19 pandemic struck and the UK went into lockdown back in March, the courts had a stark choice. They could essentially close up shop and wait for the pandemic to pass, or they could move as much court business as possible online. They chose the latter, as was made clear in the Lord Chief Justice’s message to judges in the Civil and Family Courts on 19 March (see COVID-19: Impact on civil litigation in England and Wales). That message emphasised the need to continue with the work of the courts as a vital public service, and to avoid the backlogs and delays which would build up to an intolerable level if too much court business was simply adjourned.
Since then, the Business and Property Courts have been remarkably successful with the move to remote hearings. The Lord Chief Justice’s Report for 2020, published in November, recognises that audio and video hearings may not be suitable in all areas, but says that for many hearings “remote technology has been very effective, demonstrating the widespread benefits to be gained from modernisation”, for example by removing the need to attend court for short hearings. It notes that the success of remote hearings has been particularly apparent in the Business and Property Courts, where 85% of the court’s work was heard remotely and to the original timetable during lockdown, and consideration is being given to the longer-term potential for increased efficiencies through the use of remote hearings in some aspects of the court’s work (see Lord Chief Justice’s Report 2020: courts in strong position despite pandemic).
So while we all hope to see the back of the pandemic in 2021, it seems remote hearings are likely to remain a feature of the English litigation landscape in at least some areas of work.
The onset of the Covid-19 pandemic, and related restrictions, meant that many commercial parties found themselves suddenly unable to perform their contractual obligations, or their counterparties were struggling to perform. This led to a focus on the question of whether they (or their counterparties) were able to avoid or delay performance, particularly under a contractual force majeure clause, but also in some cases under a “material adverse change” clause or the common law doctrine of frustration (see for example our Covid-19 Contract Disputes Guide published in June). This focus has continued throughout the year, with the UK having experienced a further wave of infections and restrictions this autumn, which are set to continue into the New Year (see Force majeure considerations in the “second wave” of Covid-19).
Apart from the impact of Covid-19, there have been a number of contract-related decisions of interest throughout the year:
- A High Court decision in January illustrates that a finding that a contract falls into the category of “relational” contracts (here a Joint Operating Agreement relating to North Sea oil fields) does not necessarily justify the implication of a duty of good faith (see Joint Operating Agreement arguably a “relational contract” but Commercial Court declines to imply duty of good faith or Braganza duty).
- A Court of Appeal decision in April shows that a mere statement of intention to perform will not ordinarily be enough to remedy a prior refusal to perform: actual performance is required (see Court of Appeal finds material breach of contract not remedied by indication of intention to perform services).
- Two High Court decisions, in April and July respectively, have continued the trend of cases requiring strict compliance with notice provisions for parties wishing to pursue a warranty or indemnity claim under a SPA (see High Court rejects indemnity claim under SPA due to a failure to notify the claim “as soon as possible” and High Court rules claims notice invalid for failure to specify with sufficient detail the matter giving rise to the claim).
- And a Court of Appeal decision in November acts as a reminder that, once parties have started to negotiate “subject to contract”, the court will not conclude that they have dispensed with that proviso unless they have agreed to do so expressly or that is the necessary implication of their words or conduct (see Court of Appeal finds no binding settlement reached, emphasising importance of “subject to contract” label).
Also this year we have continued to publish updated versions of our popular series of contract disputes practical guides, each with an associated webinar, which are designed to provide clients with practical guidance on some key issues that feature in disputes relating to commercial contracts under English law. Click here to access editions five to eight of the updated series (on endeavours obligations; liquidated damages and exclusion clauses; force majeure, frustration and material adverse change; and termination), as well as subsequent editions from the original series.
Although the UK left the EU at the end of January, there continues to be significant uncertainty over how Brexit will affect jurisdiction and enforcement of judgments as between the UK and the EU in proceedings commenced after the end of the year. (It is clear that Brexit will have little impact as regards choice of law.)
The answer depends to a large extent on the question of whether the EU will give its consent to the UK’s accession to the Lugano Convention. If so, there will be little change from the current regime in relation to jurisdiction and enforcement, so that English court judgments would continue to be readily enforceable throughout the EU (and in Iceland, Norway and Switzerland), and English jurisdiction clauses would largely continue to be respected by those countries, and vice versa. (The Lugano Convention does have some disadvantages compared to the current regime, as it does not include the improvements made when the Brussels Regulation was “recast” for proceedings commenced on or after 10 January 2015, but the differences are outweighed by the similarities.)
If the EU does not consent to the UK’s accession to Lugano, the 2005 Hague Convention on Choice of Courts Agreements will take on greater prominence, as it will apply between the UK and the EU (and the other contracting states, Mexico, Montenegro and Singapore). In that case, if an exclusive English jurisdiction clause is agreed after 1 January 2021 (when the UK will re-accede to Hague in its own right), it should generally be given effect by EU courts and judgments given pursuant to it should be enforceable throughout the EU. There is, however, some uncertainty as to the position where an exclusive English jurisdiction clause was entered into before that date (and after 1 October 2015 when the Hague Convention took effect for the UK as an EU Member State).
If the Hague Convention does not apply (for example because there is no jurisdiction clause, or it is not exclusive, or it was entered into before 1 October 2015 – or possibly 1 January 2021 as explained above) then each EU country will apply its own domestic rules to questions of jurisdiction and enforcement. For more detail see Disputes after the end of the Brexit transition period: where are we now? and our updated decision tree on the enforcement of English judgments in the EU post-transition, which you can access here.
Apart from Brexit-related developments, in July the Court of Appeal confirmed, by a majority, that direct damage in the jurisdiction is not required in order for a claim to come within the common law jurisdictional gateway for tort claims, following obiter comments made by the majority in the Supreme Court in an earlier judgment (see Court of Appeal gives wide interpretation to “damage” for the purposes of the common law jurisdictional gateway for tort claims). The test therefore differs from that which applies to tort claims under the recast Brussels Regulation (and the Lugano Convention), where direct damage in the jurisdiction is a requirement.
The big news this year in relation to witness evidence is the proposal for a new Practice Direction and Appendix governing the preparation of witness statements for trials in the Business and Property Courts. The proposals have recently been approved by the Business and Property Courts Board and, in principle, by the Civil Procedure Rule Committee and are likely to come into force on 6 April 2021 (see Witness evidence reforms approved in principle and likely to come into force April 2021). Assuming that happens, the new rules will apply to all trial witness statements signed on or after that date. It is therefore important for parties, and their advisers, to familiarise themselves with the new requirements now. For a discussion of some of the implications, see this post on Practical Law’s Dispute Resolution blog.
Amendments to the CPR in April introduced a new requirement for witness statements in all courts to be drafted in the witness’s own language and to state the process by which they have been prepared (for example, face-to-face, over the telephone, and/or through an interpreter). They also introduced an expanded form of statement of truth, confirming that the person making the statement understands that proceedings for contempt of court may be brought against anyone who makes, or causes to be made, a false statement in a document verified by a statement of truth without an honest belief in its truth. (This expanded form applies to statements of case and other documents verified by a statement of truth, as well as witness statements.)
There has also been an interesting Supreme Court decision on the weight to be given to evidence that may have been obtained by torture. In a decision in August, the court held that it was permissible for a trial judge, in determining whether a bribe had been paid, to have regard to the possibility of the confessions of bribery having been obtained by torture, even though torture had not been proved on the balance of probabilities (see Supreme Court clarifies proper approach to assessing weight of evidence where court finds serious possibility (but not probability) it was obtained by torture).
This has been the second year of operation of the disclosure pilot in the Business and Property Courts, which has now been extended for a further year and is due to run to the end of 2021. In September the judiciary published an update on the pilot which included publication of the Third Interim Report on the pilot by Professor Rachael Mulheron of QMUL, who has been monitoring the pilot since the outset (see Update on the operation of the Disclosure Pilot Scheme). The report presents a mix of positive and negative feedback regarding the detailed operation of the pilot, but respondents’ views on outcomes are overwhelmingly negative, including that 85% said the pilot had not saved costs overall – which is of course a key aim of the pilot.
The judiciary’s update includes a proposed revised version of the pilot rules in PD 51U, together with a revised version of the Disclosure Review Document. The amendments have now been approved in principle at the meeting of the Civil Procedure Rules Committee and are expected to take effect from April 2021. They give helpful clarification of a number of points that are less than clear on the current wording, but they do not represent any very fundamental change to the pilot rules. It may be, therefore, that they do not go far enough to address court users’ concerns as expressed in the Third Interim Report. For a discussion of a potential compromise solution, which would seek to achieve the aims of the pilot scheme while avoiding much of its complexity, see this post on Practical Law’s Dispute Resolution blog.
There have also been a number of High Court decisions this year clarifying particular aspects of the pilot, including a decision in February urging parties against overcomplicating their approach to identifying the Issues for Disclosure and choosing between the disclosure models (see Chancellor of the High Court clarifies aspects of disclosure pilot at disclosure guidance hearing) and one in May clarifying the steps parties should take regarding the disclosure of known adverse documents (see High Court clarifies requirement to disclose “known adverse documents” under Disclosure Pilot Scheme).
As ever, the courts this year have been busy churning out judgments on legal professional privilege – some more helpful than others.
In January the Court of Appeal found that legal advice privilege is subject to a “dominant purpose” test, ie that for the privilege to apply, the dominant purpose of a communication must be to give or obtain legal advice. Such a test has long been a feature of litigation privilege, but its application to legal advice privilege was a surprise to many (see Court of Appeal finds legal advice privilege is subject to a “dominant purpose” test).
In February the Court of Appeal overturned a decision that we reported on in our 2018 yearbook, which had suggested that a regulated entity could not refuse to provide its client’s privileged documents to its regulator in response to a demand under the regulator’s statutory powers. The Court of Appeal disagreed, helpfully reinforcing the protection of privilege in the regulatory context (see Court of Appeal finds regulator cannot demand production of client’s privileged documents unless statute overrides privilege).
In June the High Court held that a bank had waived privilege in all contemporaneous communications with its lawyers relating to particular transactions that were alleged to be a sham, as the bank had deployed the lawyers’ advice that the transactions were lawful in order to support its case on the merits. The decision casts doubt on the view taken in previous cases that privilege will not be waived if a party relies on the “effect” of privileged material rather than its “content” (see High Court takes expansive view of when reference to legal advice may result in broader waiver).
Another High Court decision in June indicates that a regulated entity cannot refuse to produce documents on the grounds that a claim to privilege has been asserted or could be asserted by a client (or other third party to whom duties of confidentiality are owed); the regulated entity must take its own view on the privilege claim (see High Court holds auditor must form its own view on client’s claim to privilege when responding to its regulator’s notice to produce documents).
And finally, a High Court decision in September has helpfully confirmed that advice from foreign lawyers, including foreign in-house lawyers, will be privileged as matter of English law, so long as the lawyer is acting in a legal capacity, regardless of whether they are admitted to a local Bar or otherwise licenced (see High Court finds no need to enquire into qualifications of foreign lawyer in applying English law privilege).
There have been two High Court decisions of particular interest this year on the “without prejudice” (or WP) rule, though (rather coincidentally) appeals in both cases have been heard by the Court of Appeal this week.
In the first decision, in April, the court held that threats to put assets out of reach by improper means fell within the “unambiguous impropriety” exception to the WP rule, which meant that evidence of the WP discussions was admissible in support of an application for a freezing order (see High Court finds evidence of without prejudice discussions should be admitted to establish real risk of dissipation of assets in support of freezing injunction).
In the second, in May, the court held that parties could rely on the “fraud” exception to the WP rule not only to prove misrepresentation, fraud or undue influence, but also to rebut allegations of fraud (see High Court finds “without prejudice” statements contained in mediation paper were admissible to defend against allegation of fraud).
It has been another busy year for class actions in the English courts, with significant developments in many areas.
Competition class actions
Just last week, the Supreme Court handed down its hotly-anticipated judgment regarding the certification of an opt-out competition collective action seeking £14 billion in damages against Mastercard. The decision confirmed the less restrictive approach set out by the Court of Appeal when it overturned the Competition Appeal Tribunal’s original refusal to grant certification (see Supreme Court ruling in Merricks: some important clarifications but a number of unresolved issues).
There are currently seven CPO applications which have been adjourned or stayed pending the Supreme Court’s judgment, and these will now begin to proceed to certification hearings. Whether the decision will necessarily lead to more class actions being brought remains to be seen, but the decision will unlock a number of potential claims that have been on hold, because it brings some clarity in how claimants need to formulate their claims and what supporting evidence they will need on day one of their claims.
Data breach class actions
In April, the Supreme Court handed down its decision in the high-profile Morrisons case, overturning the decisions at first instance and in the Court of Appeal which had found the company to be vicariously liable for the actions of a rogue employee who had unlawfully disclosed the personal information of the 5,500 employees who are the claimants in the case (see Morrisons wins Supreme Court appeal against finding of vicarious liability in data breach class action).
The Morrisons decision turned specifically on the principles of vicarious liability, however, and does not close the door on data breach class action compensation as a whole. These claims are still expected to be on the rise. An important case to watch is Lloyd v Google in which the Court of Appeal held that damages could be awarded to compensate for an individual’s loss of control of personal data, without the need to establish financial loss or distress, and that the claim could proceed on what is effectively an “opt-out” basis under the representative action procedure at CPR 19.6 – which makes it very much easier for claimants to get a financially viable claim off the ground (see Court of Appeal finds claim for damages for loss of control of data can proceed as representative action under CPR 19.6). The Supreme Court is expected to hear the appeal against the decision next year.
Class action tourism
The term “class action tourism” refers to the practice of foreign claimants bringing class actions in the English courts against an English domiciled entity in a multinational group in respect of alleged wrongdoing by its foreign subsidiary. The claimants typically seek to establish the jurisdiction of the English courts by alleging a breach of a direct duty of care on the part of the UK-based company, who is sued as anchor defendant, and bringing in the foreign subsidiary as a necessary or proper party to that claim.
There have been a string of high profile appeals in such cases in recent years. The Supreme Court is expected to give judgment in the case of Okpabi v Royal Dutch Shell (see Court of Appeal confirms English Court lacks jurisdiction over claims against UK domiciled parent company in relation to acts of subsidiary abroad), in which it heard an appeal in June. It is hoped that the court’s judgment will provide further clarification and guidance on the circumstances in which a direct duty of care will be found.
In the meantime, two High Court decisions this year have served to set some boundaries on the ability of claimants to pursue such claims in the English courts. The first, in August, suggests that class action tourism cases will not generally be allowed to proceed using the “opt-out” representative action procedure under CPR 19.6 (see High Court finds claims arising out of oil spill cannot proceed as representative action under CPR 19.6). The second, in November, shows that such claims will not lightly be allowed to proceed where there is a concurrent claim in the foreign jurisdiction which relates to the same issues and involves many of the same claimants who are seeking the same compensation for the same alleged damages (see High Court strikes out claims against BHP as an abuse of process in light of parallel claims in Brazil).
Shareholder class actions
In a decision in July, the High Court refused permission to appeal against its judgment in the Lloyds/HBOS litigation in 2019 – the first ever judgment in a shareholder class action in England & Wales, in which Herbert Smith Freehills acted for the successful defendants (see The Lloyds/HBOS Litigation: the first shareholder class action judgment in England & Wales). As well as refusing permission to appeal, the court rejected an argument that the claimants should be required to pay only 60% of the defendants’ costs, and held that the claimants’ litigation funder should be jointly and severally liable for those costs (see Lloyds/HBOS Litigation: Consequentials Judgment).
In October 2019, proposals for reform of the much-criticised regulations governing Damages-Based Agreements (or DBAs), prepared by Rachael Mulheron of QMUL and Nick Bacon QC, were published to the broad welcome of the profession (see Redrafted DBA Regulations: a promising basis for reform published on Practical Law’s dispute resolution blog). A supplementary report was expected earlier this year but has been delayed, most likely to early 2021. It will then be for the Ministry of Justice to consider the proposals and consult on any changes.
In the meantime, a High Court decision in July gave some cause for optimism on an area that has caused some confusion under the DBA Regulations. The decision upheld a DBA despite the presence of a clause providing for payment on an hourly rates basis if the DBA was terminated, rejecting a argument that such term rendered the DBA invalid (see Damages-based agreements and termination: a small chink of light published in July on Practical Law’s dispute resolution blog). However, the Court of Appeal heard an appeal against the decision earlier this month and its decision is awaited.
In a decision in February, the Court of Appeal considered the application of the so-called Arkin cap, which (when applied) limits the funder’s liability for adverse costs to the amount of the funding provided to the claimant. The court upheld the High Court’s decision that the principle is not a binding rule; instead, the court retains a broad discretion to decide the extent to which the funder should be liable for adverse costs (see Court of Appeal confirms funders’ adverse costs liability not limited to amount of funding provided: Arkin “cap” not a binding rule).
The courts have also continued to make security for costs orders against litigation funders in appropriate circumstances, including in a decision in February in the Ingenious Media film partnerships litigation (see High Court orders security for costs against member of Association of Litigation Funders).
The courts have been relatively generous in construing claimants’ offers as complying with Part 36, and in awarding the full range of enhanced awards where a claimant has beaten it own offer. So:
- In June, the High Court found that a claimant’s offer constituted “a genuine attempt to settle the proceedings”under Part 36, where there was no substantive defence to the claim, even though it offered a mere 0.3% discount on the total claim amount (see Part 36 offer to accept 0.3% less than total amount claimed constituted genuine offer to settle).
- In September, the High Court construed a claimant’s offer as compliant with Part 36 where it (arguably) stated that the “relevant period” ran for 21 days from the date of the offer letter, rather than 21 days from the date the offer was made as required by the rules (see Claimant’s offer construed to comply with CPR Part 36 despite error in specifying minimum 21-day “relevant period” for the offer).
- And in October, the Court of Appeal gave a decision which confirms that, in cases where a claimant has beaten its own Part 36 offer, it will be unusual for the court to conclude that it is just to award the claimant some but not all of the enhancements under that rule – though enhanced interest may be awarded at less than the full 10% above base rate (see Court of Appeal gives guidance on proper approach to enhanced awards where claimant beats its own Part 36 offer to settle).
Defendants have also had the benefit of the courts’ magnanimity, with a High Court decision in August granting the defendant a favourable costs order, very similar to the costs consequences that would have applied under Part 36, despite the defendant having withdrawn the offer before trial (see Defendant awarded its costs where claimant failed to beat withdrawn Part 36 offer, as the offer should have been accepted when it was on the table).
But despite these decisions, Part 36 remains a highly technical set of rules. For both claimants and defendants who want the benefits of the Part 36 regime, the safest approach is to comply strictly with the Part 36 requirements in putting forward an offer, and not withdraw the offer prematurely.
On the ADR front, the courts have continued to show themselves willing to penalise parties who unreasonably refuse to engage in ADR. See for example Two recent cases illustrate that belief in a strong case does not justify refusing to engage with ADR and The High Court disallows a substantial proportion of a successful defendant’s costs on the basis of an unreasonable refusal to mediate.
Also newsworthy this year is the coming into force of the Singapore Mediation Convention in September. More formally known as the United Nations Convention on International Settlement Agreements Resulting from Mediation, the Convention aims to establish a global enforcement regime for settlement agreements resulting from mediation of international commercial disputes, broadly akin to the 1958 New York Convention for the enforcement of arbitral awards (see Singapore Convention on Mediated Settlement Agreements comes into force tomorrow, 12 September 2020).
In April, the High Court awarded damages to a whistle-blower who publicly disclosed suspected irregularities arising out of an audit for a client for whom he was the audit engagement partner, finding that the audit firm owed him a duty to protect against economic loss (in the form of loss of future employment opportunity) by providing an “ethically safe” work environment, free from professional misconduct (see High Court finds in favour of novel duty of care on employers (or quasi-employers) to protect against economic loss by providing an “ethically safe” work environment). According to press reports, however, the Court of Appeal is set to hear an appeal against the decision next year.
In June, the new Corporate Insolvency and Governance Act 2020 came into force, with significant implications for companies in distress and their creditors, particularly landlords, suppliers, financial services providers and pension schemes. Our Restructuring, Turnaround and Insolvency team produced a series of short webcasts focusing on a number of the key aspects – click here to access these.
In a decision in July, the Supreme Court gave judgment clarifying various aspects of the so-called “reflective loss” principle, which prevents shareholders from bringing a claim based on any fall in the value of their shares or distributions, which is the consequence of loss sustained by the company, where the company has a cause of action against the same wrongdoer. The Supreme Court unanimously held that the principle should be applied no wider than to shareholders bringing such claims, and specifically does not extend to prevent claims brought by creditors (see Untangling, but not killing off, the Japanese knotweed: Supreme Court confirms existence and scope of “reflective loss” rule).
In September the High Court handed down judgment in the COVID-19 Business Interruption insurance test case. Herbert Smith Freehills represented the FCA (who was advancing the claim for policyholders) in the case, which considered 21 lead sample wordings from eight insurers. Following expedited proceedings, the judgment brings highly-anticipated guidance on the proper operation of cover under certain non-damage business interruption insurance extensions (see Judgment handed down in FCA’s COVID-19 business interruption insurance test case). A leapfrog appeal has been heard by the Supreme Court, and judgment is awaited.