Supreme Court confirms wide interpretation of “damage” for the purposes of the common law jurisdictional gateway for tort claims and clarifies when English law may apply to foreign law claims

The Supreme Court has held in the context of a personal injury claim (Lord Leggatt dissenting) that direct damage in the jurisdiction is not required in order for a claim to come within the tort jurisdictional gateway in the CPR, so that permission can be granted to serve the proceedings on a defendant outside the jurisdiction (subject to also establishing that there is a real issue to be tried and the English court is the appropriate forum): FS Cairo (Nile Plaza) LLC v Brownlie [2021] UKSC 45.

It has been unclear for some time whether the common law test was the same as the test under the recast Brussels Regulation (and the Lugano Convention), where direct damage in the jurisdiction is a requirement, so this decision provides clarification.

Outside of the personal injury context, the mere fact there has been some financial loss incurred where the claimant is based may still be insufficient to come within the gateway, but it will be necessary to see how the principles laid down by this decision are applied in future cases.

In all cases a claimant will still have to prove that England is the appropriate forum for the claim, so even where the gateway is passed the court retains the power to prevent unsuitable cases proceeding before the English courts.

The Supreme Court also provided guidance on pleading and proving foreign law. There are two conceptually different rules: the “default rule”; and the “presumption of similarity” rule. The default rule treats English law as applicable when foreign law is not pleaded by any party. The presumption of similarity rule applies where a foreign law is pleaded as being applicable, but no detail is provided as to the content of that law. In those circumstances, the court may (in effect) apply English law if it is reasonable to expect that the foreign law is likely to be materially similar to English law on that issue.

Given the uncertainty over when a court will consider it reasonable to expect that a foreign law is materially similar to English law, the safer course is to obtain foreign law advice and expressly plead the content of that law. Continue reading

Supreme Court clarifies requirements for tort of lawful act economic duress

The Supreme Court has dismissed an appeal against a Court of Appeal decision which found that a contract should not be rescinded on the basis of lawful act economic duress, in circumstances where the defendant had threatened to end any contractual relationship with the claimant (as it was entitled to do) unless the claimant waived all claims it might have against the defendant for commission due under a previous contract: Pakistan International Airline Corporation v Times Travel (UK) Ltd [2021] UKSC 40.

The Supreme Court was unanimous in its decision and as to the basic elements for establishing liability for the tort of lawful act economic duress, namely that: (i) the defendant’s threat or pressure must have been illegitimate; (ii) it must have caused the claimant to enter the contract; and (iii) the claimant must have had no reasonable alternative to giving in to the threat or pressure. However, there was a significant disagreement between Lord Burrows and Lord Hodge (with whose judgment the rest of the justices agreed) as to what amounts to an illegitimate threat for these purposes. Interestingly, both Lord Hodge and Lord Burrows considered that the opposing view was undesirable on the basis that it would lead to increased uncertainty for commercial parties.

In Lord Burrows’s view, in agreement with the Court of Appeal’s decision in this case (considered here), the key question was whether the defendant was acting in good or bad faith, in the sense of whether it genuinely believed it was not liable for the claim it demanded the claimant waive. Lord Hodge (for the majority) disagreed that a “bad faith requirement” of this sort should be seen as sufficient to establish that a threat was illegitimate for the purposes of the tort. Instead, the question is whether the defendant’s conduct was “reprehensible” in a sense which rendered the enforcement of the contract “unconscionable”. Questions of good or bad faith may be relevant to that question, but a finding of bad faith in the sense propounded by Lord Burrows is not itself sufficient.

Importantly for commercial parties, and despite their disagreement as to the what makes a threat illegitimate, both Lord Hodge and Lord Burrows emphasised that the court will not lightly conclude that a commercial party has made an illegitimate threat in the context of negotiating a commercial contract, particularly in light of the absence in English law of any doctrine of inequality of bargaining power or any general principle of good faith in contracting. A finding that a commercial contract should be rescinded for lawful act economic duress is therefore likely to be rare. Continue reading

Supreme Court confirms proper boundaries to tort of causing loss by unlawful means

The Supreme Court has upheld a decision striking out a claim against a pharmaceutical company for causing loss to the NHS by unlawful means. The alleged unlawful means consisted in obtaining and enforcing a patent for a blood pressure drug through fraudulent misrepresentations to the European Patent Office (“EPO”) and the English court (allegations which were denied). This conduct, it was alleged, delayed the entry onto the market of generic versions of the drug, which meant that the NHS had to pay higher prices for the drug: Secretary of State for Health v Servier Laboratories Ltd [2021] UKSC 24.

The decision is of interest as a Supreme Court decision which considers the proper ambit of the tort of causing loss by unlawful means (the “unlawful means tort”). In particular, the decision confirms that it is an essential element of the tort that the unlawful means deployed by the defendant have interfered with a third party’s freedom to deal with the claimant. This, the court held, was part of the binding ratio of the House of Lords decision in OBG Ltd v Allan [2007] UKHL 21 (considered here), and no good or sufficient reason had been shown why the court should depart from that decision. So in this case, given that the relevant third parties – the EPO and English court – had no dealings with the NHS, there could be no liability.

In reaching this decision, the Supreme Court was clearly keen to ensure that the unlawful means tort is kept within reasonable bounds – a point which also concerned the House of Lords in OBG. This is understandable given the potential for the tort to give rise to indeterminate liability to a wide range of claimants, unless there is a requirement for a clear connection between the unlawful means deployed and the particular claimant’s loss.

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Supreme Court confirms that, where cause of action accrues at midnight, the following day is included for limitation purposes

The Supreme Court has unanimously held that where a cause of action accrues at midnight (a “midnight deadline case”) the following day will count towards the calculation of the limitation period for commencing proceedings: Matthew v Sedman [2021] UKSC 19.

The judgment provides an important clarification for parties calculating limitation periods in cases where accrual falls at the stroke of midnight, as opposed to where it falls part way through a day. While the court noted the general rule that the day on which a cause of action accrues is excluded for limitation purposes, as the law rejects fractions of a day, it held that midnight deadline cases form an exception to that rule. In a midnight deadline case, the day following the midnight deadline is a complete, undivided day on which the claimant may start proceedings. This undivided day must be included for limitation purposes to avoid interfering with the time periods stipulated in the Limitation Act 1980, and prejudicing the defendant by providing the claimant with an additional day in which to issue its claim.

As a practical matter, the decision illustrates the dangers of waiting until a limitation period is near expiry before issuing proceedings, given the highly technical nature of the law relating to limitation and the very real prospect of things going wrong. Continue reading

Okpabi v Shell: Supreme Court allows appeal in jurisdictional challenge relating to parent company duty of care

On 12 February, the Supreme Court handed down its judgment in a high profile jurisdictional challenge relating to group claims brought against Royal Dutch Shell Plc and its Nigerian subsidiary in connection with alleged pollution in the Niger Delta.  The decision will be of great interest – and potential concern – to all UK domiciled holding companies, particularly those in the extractive sector and others with businesses entailing environmental risks.

The Supreme Court unanimously allowed the claimants’ appeal, finding that the English court does have jurisdiction over the claims. It held that (1) the Court of Appeal materially erred in law by conducting a mini-trial in relation to the arguability of the claim at the jurisdiction stage, and (2) it was reasonably arguable that the UK domiciled Shell parent company owed a duty of care to the claimants: Okpabi and others v Royal Dutch Shell Plc and Shell Petroleum Development Company of Nigeria Ltd [2021] UKSC 3.

The decision provides further consideration of the circumstances in which a parent company may owe a duty of care to those affected by the acts or omissions of its foreign subsidiary, an issue that the Supreme Court considered in its recent judgment in Vedanta Resources PLC and another (Appellants) v Lungowe and others (Respondents) [2019] UKSC 20 (“Vedanta”) (which was heavily relied upon by the Supreme Court in this case).

The present decision emphasises that, in assessing at a jurisdictional stage whether there is an arguable duty of care owed by the parent company, the judge should not be drawn into a mini-trial to evaluate the factual evidence adduced, but should accept the factual assertions made in support of the claim by the claimants “unless, exceptionally, they are demonstrably untrue or unsupportable”. This will constrain defendants in seeking to challenge the factual basis on which claims are advanced, and many will be concerned that they are more vulnerable to weak and speculative claims being allowed to proceed in the English courts as a result of this judgment.

Further, UK domiciled holding companies will wish to scrutinise carefully the indicia by which it was established that a sufficiently arguable parent company duty of care existed in this case. The Supreme Court held that there was an arguable case that the parent company had: taken over the management or joint management of the relevant activity of the subsidiary; and/or promulgated group wide safety / environmental policies and took active steps to ensure their implementation such that a duty of care could arise.

The Supreme Court also adopted the analysis and conclusions of Sales LJ, who had dissented in the Court of Appeal, and who emphasised the significance of the fact that the Shell group is organised vertically on business and functional lines, rather than simply by corporate status. In the Supreme Court’s view, there was a triable issue as to whether this vertical organisational structure made it a group business that was in management terms a single commercial undertaking, with separate legal personality becoming largely irrelevant.

While UK parent companies will wish to give careful consideration to their own management structures, policies and practices in light of this judgment, significant uncertainty endures as to the precise circumstances in which a parent company duty of care will in fact arise. There is no special or separate legal test applicable to the tortious responsibility of a parent company for the acts of its subsidiary, and each case will need to examined on its own facts. Continue reading

Supreme Court changes law on when time starts to run for limitation purposes in a claim to recover money paid under a mistake of law

In the latest decision in the long-running Franked Investment Income (“FII”) Group Litigation, the Supreme Court has held that, for a claim to recover money paid under a mistake of law, the statutory limitation period begins to run when a claimant could with reasonable diligence have discovered the mistake, in the sense of recognising that it had a “worthwhile claim”: Test Claimants in the Franked Investment Income Group Litigation & Ors v Commissioners for Her Majesty’s Revenue and Customs [2020] UKSC 47.

The court departed from the House of Lords decision in Deutsche Morgan Grenfell Group plc v Inland Revenue Commissioners [2006] UKHL 49, which had established that (in cases where a payment was made in accordance with the law as it was then understood to be) time did not begin to run until a judicial decision had established that the law was otherwise and, accordingly, the claimant had a well-founded cause of action. The court’s decision brings the law on limitation for claims based on a mistake of law in line with the position for cases of fraud or deliberate concealment, where time starts to run when the claimant knows enough to pursue a claim in fraud or to allege deliberate concealment – not when the fraud or concealment is established by judicial decision.

The Supreme Court was also asked to reconsider the earlier decision of Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349, in which the House of Lords concluded that the statutory provision postponing commencement of the limitation period for claims based on a mistake included mistakes of law as well as mistakes of fact. The court affirmed that earlier decision, finding that the purpose of the provision was to relieve a claimant from the need to comply with a time limit at a time when it could not reasonably be expected to do so, and that purpose would be frustrated by excluding mistakes of law from the scope of that provision.

The decision provides a rare example of the Supreme Court overturning one of its own earlier decisions, or an earlier decision of the House of Lords, and in effect has re-written the law of limitation on the discoverability of a mistake of law. By focusing the enquiry on when the claimant recognised (or could with reasonable diligence have recognised) that it had a worthwhile claim, the court’s decision is likely to require evidence to be brought on developments in legal understanding within the relevant category of claimants and their advisers, which may include the need for expert evidence. The court recognised that this approach involves a more nuanced inquiry than a test based on when an authoritative appellate judgment determined the point in issue, but said there was no reason to think this would be unworkable in practice, or too uncertain in its operation to be acceptable. Continue reading

Supreme Court applies Patel v Mirza to reject illegality defence to solicitors’ negligence claim where claimant had engaged in mortgage fraud

The Supreme Court has held that a claimant who had engaged in mortgage fraud was not barred from bringing a claim against her solicitors for negligently failing to register the forms transferring the property to her and releasing a prior mortgage: Stoffel & Co v Grondona [2020] UKSC 42.

The decision is of interest in illustrating the application of the (relatively) new test for the illegality defence, as established in Patel v Mirza [2016] UKSC 42 (considered here). This replaced the test adopted by the House of Lords in Tinsley v Milligan [1994] 1 AC 340, which turned on the formalistic question of whether the claimant had to rely on the illegality to bring the claim. The current test is described by the Supreme Court in the present case as “a more flexible approach which openly addresses the underlying policy considerations involved and reaches a balanced judgment in each case, and which also permits account to be taken of the proportionality of the outcome”.

The decision suggests, however, that while the test is no longer one of reliance, this question may still have a bearing on whether the fraud is central to the claim, which may in turn be relevant in considering whether it is proportionate to deny the claimant relief. It also suggests that, in the ordinary course, a claimant is unlikely to succeed in a claim to recover the profits of the fraud – not because the claimant would have to rely on the fraud in order to establish the claim, but because this is likely to be the outcome when the court balances the competing policy considerations. As the court commented in this case: “Clearly, it would be objectionable for the court to lend its processes to recovery of an award calculated by reference to the profits which would have been obtained had the illegal scheme succeeded.”

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Supreme Court clarifies proper approach to assessing weight of evidence where court finds serious possibility (but not probability) it was obtained by torture

The Supreme Court has 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: Shagang Shipping Company Ltd v HNA Group Company Ltd [2020] UKSC 34. The court overturned the judgment of the Court of Appeal, which had held that the possibility of torture should have been disregarded.

The court noted that it is settled law, and was common ground in the case, that where it is proved on a balance of probabilities that a confession (or other statement) was made as a result of torture, evidence of the statement is not admissible in legal proceedings. However, the court said, it does not follow that where torture is not proved on a balance of probabilities, evidence of torture must be ignored. Such a rule would be irrational, as well as inconsistent with the moral principles which underpin the rule excluding evidence obtained by torture.

The decision is of interest as a relatively rare Supreme Court decision on the approach the court should take in assessing the weight of evidence. The decision underlines the distinction between the court’s approach to the facts in issue in the case – ie those which must be proved to establish a claim or defence – and its approach to the facts that would tend to support or undermine the facts in issue. The court must determine the former category on the balance of probabilities, but the same approach does not apply to the latter category, including matters which merely affect the admissibility or weight of evidence. As the Supreme Court put it:

“Judges need to take account, as best they can, of uncertainties and degrees of probability and improbability in estimating what weight to give to evidence in reaching their conclusions on whether facts in issue have been proved. It would be a mistake to treat assessments of relevance and weight as operating in a binary, all or nothing way.” Continue reading

Supreme Court confirms existence and scope of “reflective loss” rule

The Supreme Court’s judgment in Sevilleja v Marex Financial Ltd [2020] UKSC 31 has been eagerly anticipated by financial institutions and brings much needed clarity in respect of the so-called “reflective loss” principle, first established in Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204.

By a majority of 4-3, the Supreme Court confirmed that the “reflective loss” rule in Prudential is a bright line legal rule of company law, which applies to companies and their shareholders. The rule 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. However, 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. In doing so, the entire panel rejected the approach in cases since Prudential where the principle has been extended to situations outside shareholder claims, in a way that has been likened to a legal version of Japanese knotweed.

The majority of the Supreme Court (led by Lord Reed) emphasised that the rule is underpinned by the principle of company law in Foss v Harbottle (1843) 2 Hare 461: a rule which (put shortly) states that the only person who can seek relief for an injury done to a company, where the company has a cause of action, is the company itself. On this basis, a shareholder does not suffer a loss that is recognised in law as having an existence distinct from the company’s loss, and is accordingly barred.

The division of the Supreme Court focused on whether or not to reaffirm the “reflective loss” principle as a legal rule which prohibits a shareholder’s claim, which was the view of the majority, or whether it is simply a device to avoid double-recovery (and therefore a question that arises when it comes to the assessment of damages), which was the view of the minority.

Putting the decision in context, the reflective loss rule was one basis (amongst several others) on which the recent shareholder class action against Lloyds and five of its former directors (the Lloyds/HBOS Litigation) was dismissed by Mr Justice Norris (see our blog post on the decision here). The court held that – if the elements of the shareholders’ claim had been proven – any alleged loss suffered by shareholders as a result of a fall in the price of Lloyds shares was reflective of what the company’s loss would have been. Of course, in the securities litigation context, sections 90 and 90A of the Financial Services and Markets Act 2000 (the usual basis of a shareholder class action) provide a statutory exemption to the reflective loss rule.

For more information see this post on our Banking Litigation Notes blog.

Morrisons wins Supreme Court appeal against finding of vicarious liability in data breach class action

Today the Supreme Court handed down its decision in Wm Morrisons Supermarkets Plc v Various Claimants [2020] UKSC 12, bringing to its conclusion a case which had the potential to alter significantly the data protection and cyber security litigation and class action landscape.

The headline news is that Morrisons has been found not to be vicariously liable for the actions of a rogue employee in leaking employee data to a publicly available file-sharing website.

The judgment will likely result in a collective sigh of relief for organisations who have been watching closely to track their potential liability for data breach class actions. However, it is important to note that the Morrisons case and judgment is very fact specific; it does not close the door on data breach class action compensation as a whole. Boardrooms should still be examining the technical and organisational measures they have in place to prevent personal data breaches in order to reduce the risk of regulatory enforcement and class actions.

From a class actions perspective, it’s clear that data breach class actions are on the rise in the UK and today’s judgment should be seen as a setback not a roadblock. Funders and claimant firms are looking to build class actions in relation to data breaches even where there is no specific evidence of individual damage. They are seeking damages for the whole class for “distress” or a standardised claim of loss of access to data and even a nominal damages award per claimant could lead to a significant amount over a class of tens or hundreds of thousands.

Today’s judgment will not reverse that trend, but it will at least mean that companies who are themselves victims of data breaches by employees will not also face such claims on this basis alone.

For more information on the decision, see this post on our Data Notes blog.

Julian Copeman
Julian Copeman
Partner
+44 20 7466 2168
Maura McIntosh
Maura McIntosh
Professional support consultant
+44 20 7466 2608