Margin by which party beat own Part 36 offer not relevant in determining costs consequences

The High Court has found that, where a claimant beat its own Part 36 offer by only a very small margin relative to the size of the claim, that was not a relevant factor in determining whether it would be unjust to award the claimant the Part 36 costs consequences in full: JLE v Warrington & Halton Hospitals NHS Trust [2019] EWHC 1582 (QB).

The judge referred to the widely criticised decision in Carver v BAA plc [2008] EWCA Civ 412, which meant that a party who beat an opponent’s offer by only a small margin could be penalised in costs as if it had failed to beat the offer. That decision was effectively reversed by the Civil Procedure Rules Committee following a recommendation by Lord Justice Jackson, so that the rules now expressly provide that an offer will be beaten if the court’s award is better in money terms by any amount, however small. In the present case, the court was keen not to re-introduce Carver – or in effect the flip-side of Carver – by depriving the offeror of the Part 36 costs consequences (or some of them) simply because it beat its own offer by only a small margin.

The decision re-emphasises the high hurdle required before the court will find that a party who makes a well-judged Part 36 offer will be deprived of the costs consequences that would otherwise follow: the test is whether it would be unjust to award the usual costs consequences (or any of them), and that is a stringent test. Continue reading

What does your contract mean? How the courts interpret contracts

All too often, a term might seem perfectly clear to the parties when the contract is agreed, but a dispute later arises as to how it is meant to apply in the circumstances that have come about.

If the parties cannot resolve the issue, the court may be called on to interpret the contract. Where the parties have not made themselves clear, the result may then be difficult to predict.

In this second of our updated and relaunched series of contract disputes practical guides, Gary Milner-Moore, Sarah McNally and Steven Dalton consider the court’s approach to interpreting contracts and some practical steps that can be taken to minimise the risks.

You can click here to download the PDF guide or contact webinars to access the archived version of our webinar exploring these issues.

We will be publishing further editions of the updated series of contract disputes practical guides in the coming months. In the meantime, the first edition in our relaunched series (When do you have a binding contract? It may be more (or less) often than you think), and the remaining editions from the original series, can be accessed from the home page for our contract disputes series (which is also linked under “our guides” in the top menu).

High Court finds there is no power to stay English proceedings to give effect to exclusive jurisdiction clause in favour of non-EU court unless proceedings were commenced first in the foreign court

The High Court has held that there is no power under the recast Brussels Regulation to stay English proceedings against an English domiciled defendant in favour of proceedings in a non-EU court commenced pursuant to an exclusive jurisdiction agreement in favour of that court, unless the foreign proceedings were commenced before the English proceedings: Gulf International Bank BSC v Aldwood [2019] EWHC 1666 (QB).

In a number of High Court cases decided under the Brussels I Regulation, which preceded the recast Brussels Regulation, the court held that the English court had a power to stay in favour of a non-EU court in some circumstances, including where there was an exclusive foreign jurisdiction clause in favour of the foreign court (see our posts here and here). This was on the basis that the provisions in the Brussel I Regulation could be applied by analogy, or reflexively. In other words, as an EU court had to stay its proceedings in favour of another EU court where there was an exclusive jurisdiction court in the other court’s favour, the same should apply where the chosen court was in a non-EU country.

The recast Brussels Regulation introduced new express powers in articles 33 and 34 giving an EU court the discretion to stay its proceedings in favour of identical or related proceedings in a non-EU country where the foreign proceedings were first in time. That left open the question what powers, if any, the court had where the foreign proceedings were second in time but there was an exclusive jurisdiction clause in favour of the foreign court.

The High Court has now held that there is no power to stay outside of the express provisions of articles 33 and 34 of the recast Brussels Regulation. The court commented that some aspects of reflexive effect have been incorporated into the recast Regulation; finding that there is a discretionary power outside of these provisions would conflict with the principles underpinning the interpretation of the Regulation, such as legal certainty and predictability.

This is a first instance decision, and it would not have been necessary for the judge to decide the point as he found the jurisdiction clause to be non-exclusive rather than exclusive. However, the decision potentially casts doubt on the effectiveness of English exclusive jurisdiction clauses in the event of a no deal Brexit where proceedings are commenced first in an EU member state court and where the Hague Convention on Choice of Court Agreements 2005 is found not to apply – either because the clause was agreed before the Convention came into force for the UK (whether that is taken to be 1 October 2015, or 1 November 2019 when the UK is due to rejoin the Convention in its own right – see this post) or because of the domicile of the parties (if for example all parties are EU-domiciled, the rules in the recast Brussels Regulation will take precedence over the Convention for jurisdiction purposes). In those circumstances, if the approach taken in the present case is correct, an EU27 court  will only be able to stay proceedings commenced in breach of an English exclusive jurisdiction clause where the English proceedings were commenced first in time.

It is also worth noting that the decision is consistent with the High Court judgment in UCP Plc v Nectrus Ltd [2018] EWHC 380 (Comm) (considered in this post), which similarly found – though in a very different context and without such a detailed analysis of the arguments relating to reflexive effect – that the court’s powers to stay proceedings in favour of a non-EU court under articles 33 and 34 are exhaustive. Continue reading

Upcoming webinar – The Hague Choice of Court Convention 2005 and the Hague Judgments Convention 2019: When and how will they apply?

On Tuesday 23 July 2019 (1-2pm BST), Anna Pertoldi and Jan O’Neill will deliver the latest in our series of webinars for Herbert Smith Freehills clients and contacts spotlighting legal and practical issues relevant to litigating cross-border disputes.

This webinar  will focus mainly on the Hague Convention on Choice of Court Agreements 2005 which applies where there is an exclusive jurisdiction clause. The scope of the 2005 Convention is currently limited, but in the case of a no deal Brexit it will assume increased importance as a potential means of protecting English jurisdiction clauses and enforcing English judgments in the EU. The webinar will examine:

  • The Convention’s scope – what it will and will not cover
  • Its relevance in a Brexit context, including the UK’s accession plans and risks arising over timing
  • How the Convention works in practice – similar to the Brussels regime but with some important differences

It will then consider the new 2019 Hague Judgments Convention (finalised on 2 July 2019) which, when in force, will apply to a wider range of judgments.

This webinar looks in some depth at these important Conventions and the issues they give rise to. It is relevant to you if you are negotiating jurisdiction clauses or may need to enforce a judgment after Brexit in an EU member state.

The webinar is part of our series of HSF webinars, which are designed to update clients and contacts on the latest developments without having to leave their desks. The webinars can be accessed “live”, with a facility to send in questions by e-mail, or the archived version can be accessed after the event. Please contact webinars if you would like to register for a webinar or obtain a link to the archived version.

Court of Appeal decision illustrates proper application of compensatory principle of damages, as well as modern approach to contractual interpretation

The Court of Appeal has held that a charterer was liable for substantial damages for its failure to make shipments of iron ore pellets under a shipping contract, where the charterer was unable to perform the contract due to a dam burst: Classic Maritime Inc v Limbungan Makmur SDN BHD [2019] EWCA Civ 1102.

The court held that the charterer could not rely on an “exceptions” clause in the contract to avoid liability. On the proper interpretation of the clause, the charterer was required to show that it could and would have performed the contract but for the dam burst, and it could not meet this requirement. The court rejected arguments based on authorities which, the charterer argued, showed there was no need to prove “but for” causation where a party relied on a contractual frustration or force majeure clause.

The Court of Appeal emphasised that the question was not how the clause should be labelled (whether as an exceptions clause or a force majeure clause) but rather how it should be interpreted, based on its language and having regard to its context and purpose. The decision does suggest that, in cases of uncertainty, the court’s approach may be influenced by whether the effect of a clause is to relieve a party of liability for past performance (in which case it may be more likely to find that the party must prove it would have been willing and able to perform) or to relieve a party of obligations to perform in future (where the focus may be simply on whether the relevant event makes performance impossible). But the practical message for those drafting or entering into contracts is to ensure the parties’ intentions are made clear in the language of the clause.

The decision is also of interest in illustrating the proper approach to applying the compensatory principle of damages. The High Court had held that the charterer was liable for only nominal damages since, even if it had been willing and able to perform, it would have been prevented from doing so due to the dam burst. The Court of Appeal said this was a misapplication of the compensatory principle, under which the innocent party must be put in the position it would have been in if the contract had been performed. The charterer’s obligation to make shipments was absolute, subject only to the exceptions clause which the court had found it could not rely on. Accordingly, the shipowner was entitled to be put in the position it would have been in if the charterer had in fact made the shipments as contracted – not simply the position it would have been in if the charterer had been willing and able to do so absent the dam burst. Continue reading

Article published – Anomalies in the English law of privilege: a triumph of form over substance

Legal professional privilege is recognised as a fundamental human right, which serves an important public interest in allowing parties to take legal advice, and prepare for litigation, without fear that what they say may later be disclosed and used against them. But the English law of privilege has developed in ways that many clients and practitioners find both surprising and unsatisfactory.

Maura McIntosh has published a post on Practical Law’s Dispute Resolution blog which considers some of the anomalies that arise under the current law and gives her views on how the law could be developed to address the difficulties. Click here to read the post (or here for the Practical Law Dispute Resolution blog homepage).

New Hague Judgments Convention: finally adopted but may be some years before impact is felt

On Tuesday, 2 July 2019, the Hague Conference on Private International Law finalised a new treaty on enforcement of judgments: the Convention on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters, or the 2019 Hague Judgments Convention.

The new Convention has been a long time in the making. Its origins go back to 1992, when work began on a general convention dealing with jurisdiction and enforcement of judgments. Political consensus could not be reached, initially, and so the Hague Conference decided to focus on the area where consensus was possible – jurisdiction and enforcement of judgments where the relevant court was chosen under an exclusive jurisdiction clause. That resulted in the 2005 Hague Choice of Court Convention.

The new Convention goes much further than the 2005 Convention, in that it is not limited to judgments based on exclusive jurisdiction clauses. And, in contrast to the 2005 Convention, employment and consumer contracts are within scope.

The Hague Conference press release describes the 2019 Convention as “a gamechanger in international dispute resolution”, saying it will be a single global framework, enabling the free circulation of judgments in civil or commercial matters, which will provide “better, more effective, and cheaper justice for individuals and businesses alike”.

The 2019 Convention is welcome, but it will of course only apply between those countries that ratify it and bring it into force. The European Commission announced on Wednesday that it will now start the process of preparing EU accession to the Convention, although the timescale for accession is uncertain. The UK will also be looking closely at accession in its own right in a post-Brexit scenario, subject to any transitional arrangements that may be agreed with the EU. But it is worth noting that the Convention won’t come into force for any state until (approximately) 12 months after ratification, and even then it won’t apply unless the proceedings that led to a judgment were instituted at a time when the Convention was in force for both the state of origin and the state where the judgment is to be enforced. This means that there will be some considerable time before the Convention applies to any judgment, even if the EU and the UK (and other countries) take early steps to accede to it.

Some may hope that the 2019 Convention will provide an alternative route to the easy enforcement of English judgments post-Brexit, when the dynamics for enforcement will become significantly more complex as the recast Brussels Regulation and the Lugano Convention will no longer apply to the UK (as discussed here and here for example). But the 2019 Convention should not be seen as a complete answer, in part because of the likely delay before its impact is felt, and in part because its effect is more limited than the Brussels/Lugano regime (recognition and enforcement can be refused on broader grounds, for example, and it deals only with enforcement rather than jurisdiction – apparently work is underway on a further instrument addressing jurisdiction). So while it is certainly a positive step, it is still hoped that the UK and EU will be able to agree other arrangements more closely replicating the current regime, including an agreement for the UK to join the Lugano Convention.

Anna Pertoldi
Anna Pertoldi
+44 20 7466 2399
Maura McIntosh
Maura McIntosh
Professional support consultant
+44 20 7466 2608
Jan O'Neill
Jan O'Neill
Professional support lawyer
+44 20 7466 2202

Court of Appeal finds defendant gave good consideration for varied settlement in agreeing to give up defence that was later found to be without merit

The Court of Appeal has recently upheld a first instance decision that there was a binding agreement to vary a settlement agreement: Simantob v Shavleyan [2019] EWCA Civ 1105.

The claimant argued that there was a lack of consideration for the variation, as the defence which the defendant had agreed not to pursue was without merit and therefore the defendant had not given up anything of value. The court rejected that argument. It drew a distinction between, on the one hand, a claim or defence which a party knows to be invalid or does not believe to be valid and, on the other, one which may be doubtful but the party believes in and intends to pursue. In the latter case, an agreement not to pursue the claim or defence will be good consideration, even if the court later finds the point to be without merit. This serves the public policy aim of encouraging settlement.

As a practical matter, however, where the only consideration for an agreement (or the variation of an agreement) is a party’s agreement not to pursue a particular claim or defence, and there is any scope for doubt as to whether the claim or defence is believed to be valid, it would be advisable to document the agreement (or variation) by deed or provide some additional consideration (eg a token payment of £1).

The decision is also of interest in that the defence in question in this case, which the defendant had agreed to give up, was an argument that the $1,000 per day interest provision in the original settlement agreement was void as a penalty. The Master found that the provision was not penal, even though it was referred to as a penalty and even though (as the Court of Appeal noted) it could have resulted in the defendant paying $1,000 per day in interest even if only $1 remained outstanding by way of principal. The Court of Appeal did not comment on the correctness of the Master’s decision, saying that whether she was right or wrong was immaterial. What mattered was that there was clearly genuine doubt on the point at the time the variation was agreed. Continue reading

High Court orders Russian claimant to provide security for costs despite evidence of assets in Switzerland and Cyprus

The High Court has granted an order for security for costs against a Russian claimant, on the basis that there was a real risk that any costs order against it would have to be enforced in Russia, where the court said there was a real risk of substantial obstacles to enforcement – even though there was evidence that the claimant also had assets in Switzerland and Cyprus, where there was no such risk: PJSC Tatneft v Bogolyubov [2019] EWHC 1400 (Comm).

The decision is of interest in illustrating the court’s approach to an application for security for costs against a claimant resident in a non-convention country (ie one that is not bound by the various regimes for mutual enforcement of English judgments, namely the recast Brussels Regulation or the Brussels, Lugano or Hague Conventions), but where there is evidence that the claimant has assets in a convention country. The decision suggests that the court will look at whether, despite that evidence, there is a real risk of having to attempt enforcement in a jurisdiction where there is a real risk of non-enforcement. The court may conclude that there is such a risk despite there being no evidence of a lack of probity on the part of the claimant.

Where a claimant is considering an offer of undertakings to prevent an order for security for costs, the decision suggests that this will only be effective if the undertakings “clearly and satisfactorily eliminate the risk” of non-enforcement. Continue reading

Court of Appeal confirms no duty on solicitor to warn opponent of error in serving claim form

The Court of Appeal has upheld a decision that there was no good reason to validate service retrospectively where the claimant’s solicitors had purported to serve proceedings on the defendant’s solicitors shortly before the claim form expired without first confirming that the solicitors were instructed to accept service: Woodward v Phoenix Healthcare Distribution Ltd [2019] EWCA Civ 985.

Like the High Court, the Court of Appeal considered that the Master was wrong to conclude that the defendant’s solicitors were in breach of a duty to the court to help further the overriding objective, and had engaged in “technical game playing”, by not drawing the error to the claimant’s attention.

The decision is not surprising, as it is in line with comments of Lord Sumption in Barton v Wright Hassall LLP [2018] UKSC 12 (considered here). It is however helpful confirmation of the point, in light of the Master’s view that Barton was not binding authority on the point.

As with the High Court’s decision, however, the judgment does not necessarily mean that solicitors can safely stay silent in all circumstances where an opponent has made an error in service. The court does not comment on the High Court’s suggestion that there would or may be a duty to speak out where a defendant’s own conduct has contributed to the claimant’s misunderstanding, or what the position would be where the situation calls for a response from the defendant. There is also a rather puzzling comment by the Court of Appeal that, “depending on the facts, the position may well be different if there is a substantial period before the expiry of the limitation period.” It is not clear how substantial the period would have to be or why the length of time should make a difference, unless perhaps it creates a situation in which the defendant will be called on to respond in some way. Continue reading