Legal briefing | 15 Sep 2021 |

Dispute Resolution round-up - September 2021

Welcome to the fifth edition of our quarterly disputes newsletter, which covers key developments in the dispute resolution world over the last three months or so.

This has been an interesting period for black letter law enthusiasts, with some meaty Supreme Court decisions published on matters as diverse as piercing the corporate veil, lawful act economic duress, professional negligence and the interpretation of liquidated damages clauses. The English courts have also shown that they remain at the cutting edge of legal and technological developments, with interesting decisions at the High Court level in relation to both data breaches and cryptoassets, areas which we expect to grow significantly in future. We are also closely watching the progress of the first ever collective proceedings to be certified in this jurisdiction by the Competition Appeal Tribunal. All of these developments and more are covered below.

We hope that you continue to enjoy reading this round-up, whether a litigator by trade or a generalist, and whether in-house or in private practice, and that you will share it with any of your colleagues who may also find it useful. We also hope that you are keeping well as a new school year begins, and we enter what feels like a new beginning in the workplace, too.

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Changes to Disclosure Pilot Scheme

The Disclosure Working Group ("DWG"), a group of practitioners from across the profession tasked with improving the process of disclosure in this jurisdiction, has recently published a number of amendments to the relatively new Disclosure Pilot Scheme which has been in operation in the Business and Property Courts since the start of 2019. The amendments have not yet received formal Civil Procedure Rule Committee or ministerial approval (save for an extension of the Scheme's end date to 31 December 2022). However, they are expected to come into effect on 1 October 2021 in substantially the same form that they are in now. In advance of that date, the DWG has advised parties to take them into account in the conduct of their cases and to consider whether they should propose to their judge (by agreement) that they should nonetheless be applied.

The changes are largely intended to address criticisms of the Scheme put forward by practitioners since it came into force in 2019 to the effect that it has not always generated the costs and efficiency savings that were one of its primary aims, and has in fact in some cases even increased costs. They include: (i) a new, more streamlined disclosure process for most claims worth less than £500,000; (ii) recognition that multi-party claims require a more bespoke approach to disclosure than was previously provided for under the Scheme; (iii) more party autonomy to agree changes to procedure and deadlines without the involvement of the court; and (iv) various other small adjustments intended to make the Scheme more efficient and effective.

The aim of the Scheme was very much to make disclosure in this jurisdiction a less expensive and more efficient process in an era where vast quantities of electronic documents regularly need to be sifted for relevance in large commercial cases, and even parties in smaller cases face a considerable disclosure burden. It has been clear from the outset that adjustments will be needed as the Scheme progresses and it becomes clearer how it is working in practice. The hope is that these amendments will bring the Scheme closer to meeting its aims.

EU formally withholds consent for the UK to accede to the Lugano Convention

Since the UK left the European Union on 31 January 2020, and the subsequent transition period came to an end on 31 December 2020, there has been no comprehensive reciprocal regime in place to determine how the English courts and EU member state courts should allocate jurisdiction between themselves over civil and commercial cases with a cross-border element. Equally, there has been no comprehensive regime in place to determine when English courts should recognise and enforce civil and commercial judgments of EU member state courts, and vice versa. Many practitioners had hoped that this situation would be resolved by the UK re-joining the 2007 Lugano Convention (the "Lugano Convention"), an international agreement which currently applies between EU member states and certain ETFA member states, and which governs these areas. However, in a move which some will see as political, on the 4 May 2021 the European Commission recommended that the UK's application to join the Lugano Convention should be rejected, on the basis that the Lugano Convention is intended to support the Single Market of which the UK is no longer a part. The Commission has subsequently deposited a Note Verbale dated 22 June 2021 with the Swiss Federal Council in its capacity as Depositary of the Lugano Convention, confirming that the EU "is not in a position to give its consent to invite the United Kingdom to accede to the Lugano Convention". Although the European Council (i.e. the EU member states themselves) could theoretically decide to ignore the Commission's recommendation and nonetheless approve the UK's application, the Note Verbale would suggest that it has no intention of doing so. For now at least, the UK's application to join the Lugano Convention would therefore appear to be dead in the water.

A step towards EU accession to the Hague Judgments Convention

An international treaty known as the 2019 Hague Judgments Convention (the "2019 Convention") may in the longer term provide at least a partial solution to the current lack of a comprehensive reciprocal regime between the UK and EU member states in relation to the recognition and enforcement of each other's civil and commercial judgments, described above. If both the UK and the EU accede to the 2019 Convention, the process for recognition and enforcement of civil and commercial judgments of EU member state courts in the UK, and the process for recognition and enforcement of civil and commercial judgments of the English courts in EU member states, will be significantly streamlined and improved. Although neither are yet signatories, encouragingly, on 16 July 2021, the European Commission adopted a proposal for the EU to accede to the 2019 Convention, which the European Council and European Parliament will then have to approve before EU accession can take place.

Civil Justice Council report on mandatory ADR

In June 2021 the Civil Justice Council's Alternative Dispute Resolution ("ADR") Working Group published an interesting report which considers two key questions: (i) whether parties can lawfully be compelled to participate in ADR in this jurisdiction; and (ii) if so, whether and in what circumstances such compulsion might be desirable. For these purposes, ADR meant any dispute resolution technique in which the parties are assisted in exploring settlement by a third party, whether an agent external to the court process (e.g. a mediator) or a judge playing a non-adjudicative role. Types of ADR considered included typical face-to-face mediations, short-form telephone mediations, techniques where a third party gives a non-binding appraisal of what the outcome of the dispute is likely to be (such as Early Neutral Evaluation) and a range of possible novel online processes.

The report concludes that ADR can lawfully be made compulsory in this jurisdiction. On the question of whether and when compulsion might be desirable, the report recognises that further detailed work is needed. However, it does envisage a greater role in future for compulsory judge-led ADR processes, which are already in use in some contexts e.g. the Family Division, and which appear to be relatively effective. It also considers that compulsory mediation should be considered in some contexts – where appropriate in short, affordable formats. Whether the undoubted benefits of ADR can be preserved when it is made compulsory remains to be seen.

Cases

In Hurstwood, the Supreme Court has taken the opportunity to consider the law relating to piercing the corporate veil (i.e. to the circumstances in which the separate legal personality of a company can effectively be disregarded for the purposes either of attributing a liability of its owner to the company, or vice-versa). In doing so, the court has cast doubt on whether it is ever possible to pierce the corporate veil under English law and suggests that the historic cases which propose that such a doctrine exists can be explained on alternate legal bases, making it significantly harder to run arguments based on veil piercing in the future.

To read the judgment, please click here.

For further analysis, please see our recent briefing on the case, here.
In this decision, the Commercial Court held that litigation privilege did not protect a report prepared by the defendant bank's forensic accountants, PricewaterhouseCoopers ("PwC"), at the outset of an internal investigation into potential wrongdoing by the bank/one of its employees. PwC had been mandated to investigate the genesis of a presentation prepared by the bank employee in question which appeared to suggest that the bank should participate in a scheme to manipulate the market in Qatari financial instruments. The presentation was subsequently leaked to the media.

In very broad summary, litigation privilege only applies to documents created for the dominant purpose of adversarial litigation which is either already underway or in reasonable contemplation. On the facts here, the court found that no such litigation was in contemplation at the point that PwC were instructed to prepare their report. The primary purpose of the report was to ascertain the facts and to put the bank in a position to answer questions from its main regulator about the leaked presentation. The decision therefore emphasises once again the limitations of litigation privilege as an instrument to protect documents generated in the early stages of an investigation into potential wrongdoing by or within a corporate client, at a point where no formal regulatory action has yet been taken and no letters of claim or other indications of forthcoming civil claims have yet been received.

To read the judgment, please click here.
This Court of Appeal decision provides a good example of the unwillingness of the courts to create or extend exceptions to the doctrine of privilege (and here, specifically, litigation privilege).

One of the parties, Ahuja, had sent a letter of claim to their former solicitors, Stradbrooks, the dominant purpose of which appeared, as with any letter of claim, to be to threaten proceedings against Stradbrooks. However, in the course of related proceedings brought by Ahuja against Victorygame, Ahuja subsequently claimed litigation privilege over both the letter of claim and a letter of response received from Stradbrooks' insurers. The factual basis of Ahuja's claim to litigation privilege, supported by its witness evidence, was that the dominant purpose of the letter of claim was not to tee up proceedings against Stradbrooks, even though that was how things appeared on their face, but instead to pressure Stradbrooks into providing information for the purposes of the claim against Victorygame. Ahuja's case was that it had never in fact had any intention of bringing a claim against Stradbrooks.

The Court of Appeal upheld the findings of the first instance judge to the effect that: (i) the dominant purpose of the letter of claim to Stradbrooks was indeed to gather information for the purpose of the related claim against Victorygame, as Ahuja had stated in its witness evidence; (ii) the letter of claim and subsequent response were therefore both protected by litigation privilege, in the same way that any other factual enquiry made for the dominant purpose of litigation would have been; and (iii) most importantly, there was no exception to the application of litigation privilege simply because the third party from whom information was being sought was being pressured into providing it under threat of litigation. That was the case even in circumstances where, as here, the threat of litigation was not real and so arguably a deceptive tactic was being employed against the third party.

To read the judgment, please click here.

For further analysis, please see our recent briefing on the case, here.
In this decision, the Supreme Court has confirmed that the doctrine of "lawful act" economic duress exists in English law, and clarified the legal test for when it will apply.

The doctrine of duress essentially enables a party to rescind a contract that they have been induced to enter into as a result of an illegitimate threat. Over time, the courts have expanded the concept of an illegitimate threat from its starting point of physical threats to a person's body, to encompass threats to a person's economic interests (known as "economic duress"). It has long been established that economic duress can be founded on an unlawful threat to damage a person's economic interests (e.g. a threat to commit a crime, or a tort, or to commit a breach of contract). This is known as "unlawful act economic duress". It has been less clear whether economic duress can also be founded on a threat to do something which is lawful (known as "lawful act economic duress").

The Supreme Court here confirmed that lawful act economic duress exists and that it has three essential elements: (i) there must be a threat or pressure exerted by the defendant which is illegitimate; (ii) that threat or pressure causes the claimant to enter into a contract; and (iii) the claimant must have no reasonable alternative to giving into the threat or pressure. In a leading judgment delivered by Lord Hodge, the court explored the meaning of "illegitimate" threats or pressure in this context and equated the concept of "illegitimacy" with the concept of "unconscionability" which arises in the context of the equitable doctrine of undue influence. Commercial parties will be relieved to hear that the judge made it very clear that lawful act economic duress will arise only very rarely in the course of ordinary commercial negotiations, and that it will generally remain open to commercial counterparties to exploit inequalities in bargaining power to extract concessions from one another when negotiating a contract.

To read the judgment, please click here.
In this case, an individual customer had brought a claim against Currys PC World ("Currys") on the basis that Currys had failed to take adequate steps to protect personal data concerning him that was held on its systems, including his name, address, telephone number and email. The personal data in question (and that of many other individuals as well) had been stolen from Currys as part of a large and sophisticated cyber-attack. The claimant individual alleged that the attack, and theft of his personal data, had only succeeded because of a failure by Currys to take adequate steps to prevent it, and that he has suffered distress compensable in damages as a result.

The claimant sought to characterise his claim against Currys in four different ways: a claim for breach of confidence; a claim for misuse of private information, a tortious claim in negligence and a tortious claim for breach of statutory duty (the statute in question being the Data Protection Act 1998).

Interestingly, the court dismissed/struck out each of these causes of action bar the claim for breach of statutory duty. This will be of interest to other claimants/potential claimants with data breach-related claims. In particular, if data breach claimants are unable to make good claims founded in breach of confidence/misuse of private information, then they will not be able to recover their ATE insurance premiums from defendants in the event that their claim succeeds (there being a provision in the Legal Aid, Sentencing and Punishment of Offenders Act 2012 which enables the recovery of such premiums in relation to "publication and privacy proceedings"; they would otherwise not be recoverable).

To read the judgment, please click here.
In this decision, the High Court granted a proprietary injunction and worldwide freezing order to the claimants against persons unknown, following an alleged fraud perpetrated against the claimants' cryptocurrency assets. It also ordered disclosure from certain named defendants located both within and outside the jurisdiction. It is of note not only because it demonstrates the willingness of the English courts to step in to assist the victims of such frauds, which are only likely to become more common as cryptocurrencies become more established, but also because it confirms both that cryptoassets should be considered under English law to be a form of intangible property, and that such property should be considered to be located in the country where its owners are located (here, England).

To read the judgment, please click here.
This decision is of interest because the High Court considered, in the context of the COVID-19 pandemic, the interpretation of a force majeure clause in a franchise agreement between a franchisor and a franchisee.

The clause in question gave the franchisor a discretion to designate a force majeure event in circumstances where either party was prevented or hindered from complying with their contractual obligations. Any such designation would have the effect of temporarily suspending the agreement.

During the pandemic, the individual behind the franchisee company informed the franchisor that he had been advised by the NHS to shield for twelve weeks due to the potential vulnerability of his young son to COVID-19, meaning that he was unable to run the franchisee's plumbing business during that period. The franchisor then chose not to designate a force majeure event. The court held that the franchisor's discretion as to whether to designate such an event was subject to the usual Braganza implied duty to exercise a contractual discretion honestly, in good faith and genuinely, and not arbitrarily, perversely or irrationally. In failing to designate a force majeure event in the circumstances, the franchisor had breached that implied duty, and the breach went to the root of the agreement's purpose and therefore constituted a repudiatory breach of the franchise agreement.

To read the judgment, please click here.
In this decision, the Supreme Court considered the interpretation of a liquidated damages clause. Such clauses are frequently used to provide that a contractor must pay liquidated damages for each day of delay in completing works beyond the specified delivery date, up until the date on which their employer accepts the works in question. The Supreme Court confirmed that, in a scenario where works are delayed but never ultimately accepted, and the contract is subsequently terminated, a liquidated damages clause will generally be taken to mean that: (i) liquidated damages will accrue up until the point at which the contract is terminated, and that (ii) the remedy for any losses by the employer after the date of termination will then be general (i.e. unliquidated) damages.

To read the judgment, please click here.
In this decision, the Competition Appeal Tribunal has certified the first ever Collective Proceedings Order ("CPO") to be made in the UK, paving the way for the £14 billion claim at issue here to proceed to a full trial. When the application to certify the claim was initially made in 2017, the Tribunal declined to certify the action, but subsequent appeals to the Court of Appeal and then the Supreme Court were made. The Supreme Court handed down judgment in December 2020, holding that the Tribunal had incorrectly applied the eligibility test for certification, and remitting the application back to the Tribunal for reconsideration (see our briefing on the decision here).

Following the Supreme Court's decision, the defendant, MasterCard, decided not substantially to contest certification of the CPO, but there were still several issues to resolve at the certification hearing, including the definition of the "class" for whose benefit the claim is being brought and the adequacy of the third party funding secured by Mr. Merricks, the class representative. Whilst the certification does not come as a surprise in light of the Supreme Court's December 2020 judgment, it is still a landmark in the class actions sphere, setting the stage for many more sets of collective proceedings to be issued and certified.

To read the judgment, please click here.
This recent Supreme Court decision is now the leading authority on the application of the "SAAMCO" principle (after South Australia Asset Management Corp v York Montague [1996] UKHL 10), which determines the scope of duty within which a party can be held liable for economic loss caused by negligent advice. This appeal was heard by the same expanded panel of the Supreme Court, and handed down at the same time as, Khan v Meadows [2021] UKSC 21, which concerns the scope of duty issue in the context of negligent medical advice. Lord Hodge advised that the two judgments should be read in conjunction with each other as reflecting a coherent underlying approach.

Manchester Building Society ("MBS") had brought a claim against their auditor, Grant Thornton ("GT"), arising out of negligent advice given by GT regarding the accounting treatment of certain interest rate swaps. The High Court and Court of Appeal had both held GT liable for the losses, applying SAAMCO, but upon different grounds. The Court of Appeal had held that in cases involving the SAAMCO principle, the court must consider at the outset whether the case is an "advice" or "information" case, as the distinction between the two informs the scope of liability.

The Supreme Court (by majority) overturned the Court of Appeal's decision, holding that the distinction between "advice" and "information" should be dispensed with, and that instead, the court should focus on the purpose of the duty, judged objectively as at the time the advice is being given. In judging the scope of duty in respect of negligent professional advice, the court should look at what risk the advice is supposed to guard against and then look to see whether the loss suffered represented the fruition of that risk. On the facts of this case, the losses suffered by MBS were within the scope of the duty of care assumed by GT, when taking into account the purpose for which advice was sought, albeit that the damages should be reduced on account of MBS's contributory negligence.

The judgment contains some interesting commentary on the purpose of allocating risk in these types of cases and how to apply this when considering the scope of duty owed by parties in this context.

To read the judgment, please click here .
In this decision, the High Court dismissed applications to strike out the particulars of claim in group litigation between various companies in the British American Tobacco and Imperial Tobacco groups and a large number of Malawian farmers who claim to be part of the defendants' supply chains. It is the latest of several recent decisions in which the Supreme Court and Court of Appeal have refused to dismiss similar claims alleging responsibility of UK-domiciled companies for harms connected with their overseas business operations, including in respect of the operations of third parties in defendants' broader global supply chains.

So far, these decisions have all concerned preliminary challenges to the novel claims (being jurisdiction challenges and/or strike out applications). None of the cases have gone to trial, and the ultimate prospects of success of the novel claims alleged is far from certain. However, a common feature of the judgment here and in other recent decisions is that the courts have repeatedly emphasised that on such preliminary challenges, they should only look behind a claimant's pleadings in limited circumstances. It is not permissible for a court to conduct a "mini trial" assessing the strength of the evidence in support of the claims. This approach means that it is becoming increasingly difficult for these types of novel claim to be disposed of at an early stage without progressing to a full trial, with significant implications for the scope of litigation risk faced by UK-domiciled companies with overseas business operations.

To read the judgment, please click here.

For further analysis, please see our recent briefing on the case, here.
These well-known proceedings arise out of the collapse of the Fundão dam in south-eastern Brazil, brought by over 200,000 claimants. The claim was struck out as an abuse of process in the High Court, and permission to appeal this decision denied on the papers earlier this year. However, in this noteworthy judgment, the claimants have both (i) successfully applied under CPR 52.30 for permission to re-open the refusal; and (ii) been granted permission to appeal on all grounds. The Court of Appeal found that the stringent test in CPR 52.30 was met in this case because the appellate judge failed to address essential points which went "to the heart of the claimants' challenge to the judge's decision on abuse of process". The failures were deemed to have critically undermined the integrity of the process for granting permission to appeal. However, it was made clear that the circumstances of the case were exceptional and that this judgment does not mean the Court of Appeal will be any more ready to re-open decisions to refuse permission to appeal in the future.

To read the judgment, please click here.
In this decision, the Court of Appeal has distinguished a Part 36 offer of settlement from a 'contractual' offer, noting that while contractual principles can be relevant to interpretation of the former, Part 36 is a self-contained code. That self-contained code does not specify that an offer must reach the certainty required of contractual offers. While accepting that an offer could be so lacking in clarity as to fail to qualify as a Part 36 offer, a valid Part 36 offer can "potentially leave more to be resolved than a contractual offer would". That said, practitioners would do well to ensure that Part 36 offers both satisfy the requirements of Part 36 and, to avoid uncertainty, are clear as to the mechanics of the offer.

To read the judgment, please click here.