Article published – Choosing a jurisdiction clause with Brexit on the horizon

With the uncertainties surrounding Brexit, it can be difficult to know what dispute resolution clause to choose to govern commercial contracts that will continue in force once the UK leaves the EU next March, particularly where it may be necessary to enforce any judgment in an EU member state should a dispute arise.

Anna Pertoldi has published a post on Practical Law’s Dispute Resolution blog which considers the main options and their pros and cons. Click here to read the post (or here for the Practical Law Dispute Resolution blog homepage).

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High Court orders indemnity costs following discontinuance of proceedings alleging serious fraud

The High Court has ordered indemnity costs against a claimant who made repeated and serious allegations of fraud against the defendants and then discontinued the proceedings without explanation: PJSC Aeroflot – Russian Airlines v Leeds & Anor (Trustees of the estate of Boris Berezovsky) & Ors [2018] EWHC 1735 (Ch). The court endorsed earlier authority to the effect that, in the ordinary course, discontinuance of proceedings in which fraud or serious misconduct has been alleged should result in an indemnity costs order.

The court also held that indemnity costs were justified in the present case applying the more general test that the claimant’s conduct of the proceedings fell “out of the norm”. That conduct included the relentless manner in which the fraud allegations had been pursued “up to the bitter end”, engaging in aggressive correspondence, and making several inaccurate statements to the court.

The decision highlights the special treatment that allegations of fraud and serious misconduct are given in civil proceedings, including the strict ethical obligations on legal representatives not to pursue such allegations without having satisfied themselves that there is reasonably credible material establishing an arguable case. The court recognises the serious implications to defendants of having fraud alleged against them and, where such allegations are then abandoned, being deprived of the opportunity to defend the allegations and vindicate their position.

While an award of indemnity costs in such circumstances is not automatic and a court retains a discretion based on all the circumstances of the case, claimants who pursue allegations of fraud or serious misconduct should be aware of the seriousness of doing so and the likelihood of incurring the court’s disapproval if they abandon such allegations, particularly without putting forward any good explanation. Continue reading

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Court of Appeal decision in ENRC: orthodoxy restored on litigation privilege, but narrow interpretation of “client” remains for now

The Court of Appeal has today handed down its eagerly awaited decision in the ENRC appeal: The Director of the Serious Fraud Office v Eurasian Natural Resources Corporation Ltd [2018] EWCA Civ 2006. At first instance, the High Court took a restrictive approach to both litigation privilege and legal advice privilege (see our summary of the decision here). The Court of Appeal has allowed the appeal on the question of litigation privilege but has, with apparent reluctance, dismissed the appeal on legal advice privilege, concluding it is a matter for the Supreme Court.

In relation to litigation privilege, the Court of Appeal has, helpfully, disagreed with the High Court’s overly strict approach to whether documents have been prepared for the dominant purpose of litigation. The High Court found that, where ENRC’s purpose was to investigate allegations made by a whistleblower, this was not sufficient to meet the dominant purpose test. The Court of Appeal disagreed, finding that this was all part and parcel of preventing or defending litigation. It also disagreed with the High Court’s problematic view that documents prepared in order to avoid contemplated litigation were not covered by litigation privilege. In the Court of Appeal’s judgment, the purpose of avoiding or settling proceedings is covered by litigation privilege, just as the purpose of resisting or defending them.

In relation to legal advice privilege, the Court of Appeal considered itself bound by Three Rivers No 5 to find that the privilege is limited to communications between a lawyer and those tasked with seeking and receiving advice on behalf of the client company. In other words, it agreed with the judge’s interpretation of the effect of Three Rivers No 5 [2003] QB 1556, as also arrived at by Hildyard J in the The RBS Rights Issue Litigation [2016] EWHC 3161 (Ch) (considered here).

However, the court said that, if it had been open to it to depart from Three Rivers No 5, it would have been in favour of doing so. This was in part because, in the Court of Appeal’s view, the decision puts large corporations at a disadvantage, when it comes to legal advice privilege, compared to individuals and small corporations. Those tasked with seeking legal advice on behalf of a large corporation are less likely to have the relevant factual information, and will therefore have to rely on employees whose communications with the lawyers will not, on the reasoning in Three Rivers No 5, be covered by privilege (unless litigation privilege applies). The Court of Appeal also accepted that English law is out of step with international common law on this issue, which it considered undesirable. However, it said the matter would have to be considered again by the Supreme Court in this or an appropriate future case.

Julian Copeman, Anna Pertoldi and Maura McIntosh consider the decision further below. Continue reading

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Court of Appeal rejects “sliding scale” approach to level of security for costs when real risk of non-enforcement established

The Court of Appeal has allowed an appeal against the High Court’s decision to reduce the amount of security for costs a Russian-resident claimant was ordered to pay by applying a “sliding scale” of risk where the defendants had shown a real risk of non-enforcement of a costs order in Russia: Chernukhin v Danilina [2018] EWCA Civ 1802.

The court confirmed that, once it has been established that there are substantial obstacles sufficient to create a real risk of non-enforcement, the starting point should be that the defendant should have security for the entirety of the costs. There is no room for discounting the security figure by grading the risk using a sliding scale approach. However, the quantum of security is a matter for the judge’s discretion and discretionary factors (such as delay and the risk of stifling a genuine claim) may affect the amount of security ordered.

Maria Clarke, a senior associate in our disputes team, outlines the decision below. Continue reading

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New podcast – English governing law and jurisdiction clauses after Brexit

On the new Herbert Smith Freehills Podcast channel, Anna Pertoldi, Maura McIntosh and Tom Henderson discuss what businesses need to know about the impact of Brexit on their continued use of English governing law clauses and English jurisdiction clauses in their contracts after Brexit.  As businesses will be entering into new contracts which remain in force after Brexit, looking at the effectiveness of these clauses in the future will be an important part of any new contract negotiation.

Our podcast is available on iTunes and SoundCloud and can be accessed on all devices. You can subscribe and be notified of all future episodes.

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Filed under Choice of law, Jurisdiction

No duty on solicitor to inform opponent of error in service

The High Court has held that there was no good reason to validate service retrospectively where the claimant’s solicitors had served proceedings on the defendant’s solicitors shortly before expiry of the claim form without having obtained confirmation that the solicitors were instructed to accept service: Phoenix Healthcare Distribution Ltd v Woodward [2018] EWHC 2152 (Ch).

The Master had found that there was good reason to validate service on the basis that the defendant’s solicitors had engaged in “technical game playing” by deciding not to draw the claimant’s attention to the error in service while there was still time to correct it. Although the Master accepted that there was no breach of any duty to the claimants, or any professional duty, he considered that this was a breach of the defendant’s duty to the court to help further the overriding objective.

The High Court disagreed, emphasising that the culture introduced by the CPR does not require a solicitor who has not contributed to an opponent’s mistake to draw attention to that mistake. This is in line with comments of Lord Sumption in Barton v Wright Hassall LLP [2018] UKSC 12 (considered here), where he said the defendant’s solicitors were under no duty to notify the claimant’s solicitors that service was invalid (in that case because the claimant served by email without the defendant’s consent), even if they realised that was the case in time for the error to be corrected. The Master had considered those comments but, rather surprisingly, reached a different conclusion, saying he did not regard Barton as having given a definitive answer on the point.

This decision gives welcome clarification, in circumstances where the Master’s decision had muddied the waters. It should not, however, be regarded as giving carte blanche to solicitors to stay silent in all circumstances where an opponent has made an error. The decision suggests that there would or may be a duty to speak out where a party’s own conduct has contributed to an opponent’s misunderstanding on a significant matter. It also leaves open the position where the situation calls for a response from the party who is aware of the error, as for example if the claimant’s solicitors in this case had sought specific confirmation that service was to be treated as effective. The judge said he did not need to consider that situation.

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No privilege for advice on how to “cloak” dismissal on basis of discrimination as dismissal for redundancy

In a recent decision, the Employment Appeal Tribunal (EAT) found that an email containing advice from an in-house lawyer was not protected by privilege due to the “iniquity principle”, as there was a strong prima facie case that it advised on how to “cloak” as dismissal for redundancy the claimant’s dismissal resulting from allegations of disability discrimination and victimisation: X v Y Ltd [2018] UKEAT 0261_17_0908.

It is well established that the iniquity principle prevents the application of legal professional privilege where advice is given for the purpose of facilitating crime or fraud. Fraud for these purposes has been interpreted to include “sharp practice”, or conduct which commercial people would say was a fraud, or which the law treats as entirely contrary to public policy (see for example this post). It would not normally include conduct which merely amounts to a civil wrong, ie a tort, nor does it cover conduct which amounts to a breach of fundamental human rights (see this post).

In the present case, it appears to have been key to the EAT’s decision that (on a strong prima facie case) the advice was an attempt to deceive both the claimant and, ultimately, an employment tribunal. The EAT left open whether advice to commit the tort of discrimination would, in itself, engage the principle, saying that such advice “may be different in degree” from advice on how to commit fraud or breach of fiduciary duty but, depending on the facts, “may be so unconscionable as to bring it into the category of conduct which is entirely contrary to public policy”. Continue reading

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Court of Appeal overturns decision granting very broad non-party access to court documents

The Court of Appeal has overturned a High Court Master’s order granting non-party access to the entirety of the hard copy trial bundles in a case that settled before judgment. The decision helpfully clarifies the extent of the court’s discretion to grant non-party access to court documents, both under the CPR and under its inherent jurisdiction: Cape Intermediate Holdings Limited v Dring [2018] EWCA 1795.

The upshot of the decision is that the court has no discretion to permit non-parties to inspect the trial bundles generally, or documents merely referred to in skeleton arguments, witness statements/expert reports, or in open court. In addition to formal documents kept on the court file, which may be provided to non-parties under CPR 5.4C, the court has an inherent jurisdiction to permit inspection of:

  • witness statements and expert reports that stand as evidence in chief during trial (but not documents exhibited to them);
  • documents which are read or treated as read by the court, ie because they have been read out in open court, the judge has been specifically invited to read them (whether in open court or outside court), or it is clear or stated that the judge has read them;
  • skeleton arguments/written submissions and similar advocates’ documents deployed at a public hearing; and
  • any other specific documents necessary for a non-party to inspect in order to meet the principle of open justice.

In terms of the exercise of its discretion, the court has to balance the non-party’s reasons for seeking inspection against the parties’ interests in preserving confidentiality. The court is likely to lean in favour of granting permission where the principle of open justice is engaged and the applicant has a legitimate interest in inspection – and this decision confirms that the principle of open justice will be engaged as soon as there is a hearing of the matter, whether or not it settles before judgment. Conversely, where the open justice principle is not engaged, the court is unlikely to grant permission unless there are strong grounds in the interests of justice.

This decision will be welcomed by litigants as restoring more limited boundaries to the court’s discretion to grant non-party access to court documents, in contrast to the very broad approach taken by the Master in this case. However, even following the Court of Appeal’s decision, it is clear that litigating parties cannot prevent documents becoming publicly available by settling the case before judgment. The principle of open justice will be engaged once there is a hearing; a judicial decision is not required.

Rachel Lidgate, a partner in our disputes decision, considers the decision further below. Continue reading

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Filed under Confidentiality, Disclosure

Court of Appeal confirms offer relating to proposed claim by amendment was not valid Part 36 offer

The Court of Appeal has upheld a High Court decision that an offer to settle was not valid under CPR Part 36 as it related only to a claim put forward in draft amended particulars of claim: Hertel v Saunders [2018] EWCA Civ 1831.

The decision suggests that an offer made in existing proceedings will not be a valid Part 36 offer where it relates only to a claim that has not been formally pleaded in those proceedings. This contrasts with the position pre-action, where a Part 36 offer can be made despite the fact that (by definition) no claims have been formally pleaded.

The decision does not address the question of whether, once proceedings have been commenced, a Part 36 offer can be made which offers to settle both pleaded claims and other claims (or potential claims) that have not been pleaded in the action.

Neither the first instance nor the appeal judgment refers to the Court of Appeal decision in AF v BG [2009] EWCA Civ 757, where it was held that the defendant could be treated as having made a “claimant’s Part 36 offer” in respect of its counterclaim even though the counterclaim had not yet been pleaded (see post). Continue reading

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Court of Appeal finds ISDA jurisdiction clause trumps ‘theoretically competing’ clause in separate agreement governing wider relationship

Consistent with recent authority, the Court of Appeal has given primacy to an English jurisdiction clause in an ISDA Master Agreement (overturning the first instance decision that had declined to do so), in circumstances where there was a “theoretically competing” jurisdiction clause in a separate agreement governing the wider relationship: Deutsche Bank AG v Comune di Savona [2018] EWCA Civ 1740.

The appellate decision contributes to market certainty in respect of contracting parties’ choice of jurisdiction and therefore represents good news for derivative market participants. The Court of Appeal commented that it would have been “startling” if the bank’s claims for declaratory relief falling squarely under the relevant swap contracts could not be brought in the forum selected by the parties in the ISDA Master Agreement.

The approach taken by the Court of Appeal focused on determining the “particular legal relationship” to which the dispute related for the purpose of Article 25 of the Recast Brussels Regulation, which deals with jurisdiction agreements. In circumstances where there were two contracts (with theoretically competing jurisdiction clauses), it held that there was a distinction to be drawn between a generic wider relationship on the one hand, and a specific interest rate swap relationship governed by the ISDA Master Agreement on the other. It concluded in general terms that disputes relating to the swap transactions were therefore governed by the jurisdiction clause in the ISDA Master Agreement.

While it may be expected that disputes relating to a specific transaction should be governed by the contract for that transaction, the position had been undermined by the High Court decision in the instant case (which considered a number of points of Italian law and the effect of the declarations sought by the bank on any potential claims in Italy). The Court of Appeal noted that while each case should be considered on its own terms, it agreed in principle with the approach in the recent case of BNP Paribas SA v Trattamento Rifiuti Metropolitani SPA [2018] EWHC 1670 (Comm) which focused on the question of whether the English court had jurisdiction under the relevant agreements, rather than to trying to predict whether the declarations sought, if made, would act as defences in another jurisdiction (read our e-bulletin on that decision). Given that there had been conflicting first instance decisions on this issue, it is helpful to have this clarification from the Court of Appeal.

For more information, see our Banking litigation e-bulletin.

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Filed under Jurisdiction