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  UKSC 47.
The court departed from the House of Lords decision in Deutsche Morgan Grenfell Group plc v Inland Revenue Commissioners  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  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
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  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  UKSC 42 (considered here). This replaced the test adopted by the House of Lords in Tinsley v Milligan  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.”
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  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
The Supreme Court’s judgment in Sevilleja v Marex Financial Ltd  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)  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.
Today the Supreme Court handed down its decision in Wm Morrisons Supermarkets Plc v Various Claimants  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.
The Supreme Court has overturned the Court of Appeal’s decision to award non-party costs against an insurer under section 51 of the Senior Courts Act 1981, which gives the court full power to determine by whom and to what extent costs are to be paid: Travelers Insurance Company Ltd v XYZ  UKSC 48.
The decision brings some much-needed clarity to the question of when an unsuccessful party’s insurer can be held liable for a non-party costs order, in circumstances where either those costs exceed the policy limits or (as in the present case) where the claims are uninsured .
The court emphasised that the purpose of its judgment was not to reassess the generally applicable principles relating to non-party costs orders outside the insurance context. Lord Briggs, who gave the main judgment, commented that he was “reluctantly prepared to assume but without deciding” that those generally applicable principles are limited to: (i) whether the case is exceptional; and (ii) whether the making of an order accords with fairness and justice. However, both he and Lord Reed, who gave a concurring judgment, expressed concern as to the lack of content, principle or precision in the concept of exceptionality as a useful test. It may be, therefore, that those principles are ripe for review in an appropriate case.
For more information on the decision, see this post on our Insurance Notes blog.
The Supreme Court has upheld the first successful claim for breach of the so-called Quincecare duty of care, which requires a financial institution to refrain from executing a customer’s payment mandate if (and so long as) it is “put on inquiry” that the order is an attempt to misappropriate its customer’s funds: Singularis Holdings Ltd (In Official Liquidation) (A Company Incorporated in the Cayman Islands) v Daiwa Capital Markets Europe Ltd  UKSC 50. The Supreme Court’s judgment in this case follows hot on the heels of the Court of Appeal’s refusal to strike out a separate claim for breach of a Quincecare duty (see our banking litigation blog post on that decision here).
In the present case, breach of the Quincecare duty was established at first instance and not appealed. The issue for the Supreme Court was whether the fraudulent state of mind of the authorised signatory could be attributed to the company which had been defrauded and, if so, whether the claim for breach of the Quincecare duty could be defeated by the defence of illegality (and certain other grounds of defence). The Supreme Court found against the bank in respect of both points.
The decision has important implications for financial institutions, as it demonstrates the challenges they are likely to face in seeking to establish an illegality defence in circumstances where the existence and breach of a Quincecare duty has been established. It therefore highlights the importance of having in place appropriate safeguards and procedures governing payment processing.
It is also of significance to corporate claimants – and insolvency office holders – in particular in clarifying the test for corporate attribution. The court declared that the often criticised decision in Stone & Rolls Ltd v Moore Stephens  UKHL 39 (considered here and here) can “finally be laid to rest”. In particular, it confirmed that whether the knowledge of a fraudulent director can be attributed to the company is always to be found in consideration of the context and the purpose for which the attribution is relevant – even in the case of a “one-man company”.
For more detail on the decision, please see this post on our Banking Litigation Notes blog.
In a sign of the extent to which class actions have become part of the mainstream of English litigation, the Supreme Court has recently given permission to appeal in three cases brought by or on behalf of large groups of claimants in three completely different contexts.
Most recent is the MasterCard litigation, in which the Supreme Court will hear an appeal against the Court of Appeal’s April 2019 decision considered in this post on our Competition Notes blog (Merricks v MasterCard Inc  EWCA Civ 674). That decision overturned the Competition Appeal Tribunal’s (CAT) refusal to certify the £14 billion collective action claim against MasterCard and remitted the case back to the CAT for a re-hearing, potentially granting the claim a new lease on life. The appeal is expected to clarify important issues relating to the “opt-out” regime for competition law cases in the CAT, which was introduced from October 2015 but has seen relatively few claims issued.
Also pending is the appeal in the Morrisons case, in which damages claims were brought against Morrisons by around 5,500 employees following the unlawful disclosure of their personal information by a rogue employee of the company. In October 2018, the Court of Appeal upheld the High Court’s decision that Morrisons was vicariously liable for the employee’s actions, with the implication that an organisation can be liable for data breaches even if it has taken appropriate measures to comply with data protection legislation, and even if it is the intended victim of the breach – see Wm Morrisons Supermarkets Plc v Various Claimants  EWCA Civ 2339, considered in our data protection update. The Supreme Court is expected to consider important issues relating to the application of the common law doctrine of vicarious liability in the data protection context.
The third appeal is in litigation brought by large groups of individuals against UK-based Royal Dutch Shell and its Nigerian subsidiary relating to alleged pollution from pipelines and associated infrastructure in Nigeria. In February 2018, the Court of Appeal held, by a majority, that the English court did not have jurisdiction to hear the claims, as the claimants could not demonstrate a properly arguable case that Royal Dutch Shell owed a duty of care to those affected – see Okpabi and others v Royal Dutch Shell Plc and Shell Petroleum Development Company of Nigeria Ltd  EWCA Civ 191, considered in this post on our Litigation Notes blog. The Supreme Court’s decision could have important implications for cases of so-called “class action tourism” in which claims are brought, typically, against a UK-based parent company and a local operating subsidiary in relation to alleged breaches in the local jurisdiction.
For a more in-depth discussion of class action litigation in the English courts, see our textbook Class Actions in England and Wales, written by leading lawyers from Herbert Smith Freehills and published by Sweet & Maxwell in June 2018. Click here to read more about the publication.
The Supreme Court has held that the English courts did not have exclusive jurisdiction to hear certain claims brought by an English subsidiary company against Turkish domiciled defendants, including its parent company: Akcil v Koza Ltd  UKSC 40.
The judgment overturns the decision of the Court of Appeal and narrowly interprets article 24(2) of the recast Brussels Regulation. This provides that, where proceedings have as their object the validity of a company’s constitution or the decisions of its organs, the EU member state of that company’s seat will have exclusive jurisdiction over the proceedings, regardless of domicile.
The Supreme Court held that a mere link between a claim which engages article 24(2) and one which does not is not sufficient to bring both claims within the scope of the provision.
It has been established for a number of years that article 24(2) only applies where the principal subject matter of the proceedings is a company law matter, so it is not sufficient that some aspect of the case might concern the validity of a decision taken by a company if that is not the principal subject matter overall.
This decision makes clear that it is not legitimate to reverse that approach and find that, by virtue of an overall evaluative judgment in relation to two separate claims – one falling with the article when taken alone and the other not – both come within article 24(2) because the principal subject matter taken together is a company law matter. That would be an illegitimate expansion of the application of article 24(2). Continue reading
The Supreme Court has held that there is no limit to the court’s discretion to grant non-party access to court documents. The guiding principle is the need for justice to be done in the open. Courts at all levels throughout the UK have an inherent jurisdiction to allow access in accordance with that principle: Cape Intermediate Holdings Ltd v Dring (for and on behalf of Asbestos Victims Support Groups Forum UK)  UKSC 38.
The court disagreed with the Court of Appeal’s decision (considered here) to the effect that there was no inherent jurisdiction to permit non-parties to obtain trial bundles generally, or documents merely referred to in skeleton arguments/written submissions, or in witness statements/experts’ reports, or in open court.
The decision establishes that the default position is that the public should be allowed access to documents which have been placed before the court and referred to during the hearing. This may make it easier for non-parties to access a wider range of documents. However, it is for the person seeking access to explain why it is sought and, in determining the application, the court must balance the potential value of the information in advancing the purpose of the open justice principle against any risk of harm in providing the information. The practicalities and considerations of proportionality may also be relevant, for example the extent to which the information remains accessible, in particular if the application is made after the proceedings have concluded.
The court also distinguished between clean copies of trial bundles, which it said may be the most practicable way of providing access to non-parties (though that is a matter for the court in any case), and copies that contain markings or annotations made by those involved in the case. Disclosure of the latter will not be ordered, the court said, without the consent of the person holding the bundle.
Rachel Lidgate and Maura McIntosh, a partner and a professional support consultant in the disputes team, consider the decision further below. Continue reading