31 October 2012

Litigation & Arbitration: top things you need to know - October 2012

1.   Jackson reforms will go ahead in April 2013

The new Master of the Rolls, Lord Dyson, has confirmed that the Jackson reforms will come into force in April 2013, scotching rumours that the legislative process would not be completed in time.  He emphasised the importance of the Court of Appeal's role in implementing the reforms, maintaining consistency and minimising satellite litigation, urging the court to "speak clearly through [its] judgments in explaining how the reforms are intended to operate".  He also described the issue of costs management as "key" to the success of the reforms and another area where consistency of approach was crucial.

Lord Dyson acknowledged that a certain amount of satellite litigation would be inevitable as litigants tested the boundaries of the new rules.  He also accepted that further changes to the civil justice system would be essential if the reforms produced "unexpected flaws and consequences" and that the courts would not insist on "a slavish adherence to the reforms".  Such changes would, however, only be made on the basis of proper evidence.

See the report from Litigation Futures here.  The Ministry of Justice has launched a new web page on the Jackson reforms: see here.  Its summary of the full package of reforms is here.  

 

2.  Ministry of Justice confirms caps on amount of damages to be taken as contingency fee under damages-based agreements

The Ministry of Justice has published details of the caps on the amount of damages it will be possible to take as a contingency fee in a case conducted under a damages-based agreement (DBA) as of April 2013 (see here):

  • in personal injury claims, the cap will be 25% of damages (excluding damages for future care and loss);
  • in employment claims, the cap will remain at the existing 35%;
  • in all other cases, the cap will be 50%.

This is different from the Civil Justice Council Working Group's proposal that there should be no cap in commercial cases (although they conceded that a cap of 50% could be considered in cases involving consumers and "micro-enterprises").  Statutory consultation on the draft DBA Regulations ended on 26 October.

 

3. Rules Committee drafting guidance on new proportionality test

On 29 May 2012, Lord Neuberger announced in his speech "Proportionate Costs" (see here) that from 1 April 2013 a new proportionality test would be set out in the CPR, replacing the existing test in Lownds v Home Office [2002] EWCA Civ 365.  He stated that no guidance would be provided on the application of the new test before it came into force, so that on the law on proportionate costs would have to be developed on a case by case basis.  Understandably this has caused much consternation amongst practitioners and commentators. 

In an article in the New Law Journal on 12 October ("Jackson: the true picture"; 162 NLJ 1271), Professor Dominic Regan revealed that the Civil Procedure Rules Committee are in the process of drafting guidance on the meaning and application of the new proportionality test.

 

4. Court of Appeal revised ruling on 10% increase in general damages from 1 April 2013

On 10 October, the Court of Appeal handed down its second ruling in Simmons v Castle on the 10% increase in general damages in certain types of civil cases from 1 April 2013 ([2012] EWCA Civ 1288).  It has made two important amendments to its earlier judgment:

  • the 10% increase in general damages will not apply to claimants who enter into a conditional fee agreement (CFA) before 1 April 2013, where the CFA is for the purposes of advocacy or litigation services in connection with the claim; and
  • the increase will apply to contract claims as well as tort claims.  The types of damage covered by the increase will be extended to include pain and suffering, loss of amenity, physical inconvenience and discomfort, social discredit, mental distress, and loss of society of relatives.

The reason for the first amendment was that the proposed 10% increase in general damages was intended by the Ministry of Justice to compensate successful CFA claimants for the fact that the success fee would no longer be recoverable from the defendant after April 2013.  Where, however, a claimant enters into a CFA before 1 April 2013, it will, if successful, still be entitled to recover the success fee from the defendant.  To award such a claimant an extra 10% of general damages on top of recovery of the success fee would amount to an unfair windfall.

The judgment is here.

 

5. Enforcing foreign insolvency judgments within England and Wales

In Rubin and another v Eurofinance SA and others; New Cap Reinsurance Corp and another v Grant and others [2012] UKSC 46, the Supreme Court considered whether, and if so, in what circumstances, an order or judgment of a foreign court in proceedings to set aside prior transactions, such as preferences or transactions at an undervalue, would be recognised and enforced in England and Wales.

The appeals also raised the question whether enforcement of an order or judgment of a foreign court could be effected through the international assistance provisions of the UNCITRAL Model Law on Cross-Border Insolvency, implemented in the UK by the Cross-Border Insolvency Regulations 2006. 

The issue in Rubin was whether a judgment of a US Bankruptcy Court in respect of fraudulent conveyances and transfers and in default of appearance was enforceable in England at common law.  In New Cap it was whether a default judgment of an Australian court for unfair preferences was enforceable under the Foreign Judgments (Reciprocal Enforcement) Act 1933.

The Supreme Court held:

  • As a matter of policy, there should not be a more liberal rule for foreign insolvency judgments for the avoidance of transactions than for judgments made outside insolvency proceedings.
  • The law relating to the enforcement of foreign judgments and the law relating to international insolvency were not areas of law which had in recent times been developed by "judicial-made" law.  It would be detrimental to UK businesses to expand the law on the enforcement of foreign judgments without any corresponding benefit. 
  • There was nothing expressly or by implication in the UNICTRAL Model Law that applied to the recognition or enforcement of foreign judgments against third parties.  Fundamentally, the Model Law was not designed to provide for reciprocal enforcement of judgments.  This had the effect that the Cross Border Insolvency Regulations 2006 could not be used to enforce a foreign judgment in personam (a judgment given directly against an individual rather than one affecting rights to property).

The Supreme Court ruled that the 1993 Act applied to the Australian judgment in New Cap and that the judgment should be enforced by way of registration under the Act.  The appellants in Rubin, however, had not submitted to the jurisdiction of the US court, so the judgment in that case was not enforceable.

For a more detailed summary, see Stephanie Woods' post on the UK Supreme Court blog here.  The judgment is here.

 

6. Court of Appeal overturns decision that customer's loss on investment was too remote

In Rubenstein v HSBC Bank plc [2012] EWCA Civ 1184, the Court of Appeal has overturned on the facts a controversial decision that a bank customer's loss on his investment was too remote to be recoverable.  The High Court had ruled that, although the defendant bank had been negligent in advising the claimant customer to invest in a particular AIG fund, it was not liable for the losses flowing from the investment.  This was because the loss had been unforeseeable and too remote, and had been caused not by the bank's negligent advice but by the "extraordinary and unprecedented financial turmoil which surrounded the collapse of Lehman Brothers" and an "unthinkable" run on AIG.  Such events would not have been reasonably foreseeable at the time when the bank gave its advice.

Allowing the claimant's appeal, the Court of Appeal held that the cause of his loss was not the run on AIG but the collapse in the value of the securities in which the AIG fund had been invested.  The court stepped back from the trial judge's reference to the turmoil surrounding the collapse of Lehman Brothers and other wider events; although the judge was correct that such events were unforeseeable (and therefore any losses that could be attributed to the collapse of Lehman Brothers would be too remote to be recoverable), they were irrelevant in this case as the claimant had not invested in Lehman Brothers.

The claimant had expressly instructed the bank that he required an investment which would insulate him from the fluctuations of market forces and was without risk.  Those instructions had imposed upon the bank a duty of care to protect the claimant from exposure to market forces.  The bank had breached that duty when it not only recommended a product which was subject to such forces but also advised the claimant that the investment was the same as a cash deposit.  As the cause of the claimant's loss was his exposure to the very market forces against which he had sought to be protected, it was not open to the bank to argue that the loss was unexpected and therefore too remote.  The downturn in the market did not amount to an unforeseen event intervening between the bank's negligent advice and the claimant's loss: the advice itself had caused the loss.  In addition, where a bank or other professional adviser was under a duty to protect its customer from a specific type of loss, it was not open to the bank to seek to avoid liability on the basis that the scale or amount of the loss was larger than either party might have anticipated.

The judgment is here.

 

7. Existence of Part 36 offer cannot be disclosed after trial of liability on split trial

Rule 36.13(2) provides that the fact that a Part 36 offer has been made must not be communicated to the trial judge until the case has been decided.  In Beasley v Alexander [2012] EWHC 2715 (QB), the High Court considered whether the words "until the case has been decided" could be construed to include after a trial on the issue of liability on a split trial. 

The judge held that the words had a clear meaning: "the case" meant "the action" or "the proceedings" and could not be construed as referring to part only of a case.  The former wording of the rule included an exception permitting the parties to communicate to the trial judge at the conclusion of a trial of liability the fact that a payment into court had been made under Part 36, but the Rules Committee had clearly decided to remove that exception from the current wording.  If the Committee had intended the present Rule 36.13(2) to extend to the conclusion of a trial of liability as well as applying when "the case" had been decided, they would have used different wording. 

The judge expressed his regret at reaching that conclusion because the fact that he could not be told about the existence of any Part 36 offers meant that he could not deal with the costs of liability and he considered himself to be in a good position to do so. 

In Ted Baker plc and others v AXA Insurance UK plc and others [2012] EWHC 1779 (Comm), another recent case concerning the disclosure of Part 36 offers on a split trial, Eder J commented that there was "an urgent need for [Rule] 36.13 to be reviewed and possibly reformulated in order to deal in particular with the question of 'split trials'…".  In light of this, it is fortunate that the Rules Committee has confirmed it will be looking at this issue as part of its forthcoming review of Part 36.

The judgment is here.

 

8. Continuing duty of disclosure following grant of interim injunction

The claimants in Speeder Logistics v Ardvark Digital [2012] EWHC 2776 (Comm) applied without notice and obtained a freezing order against the defendant.  On the inter partes hearing, the judge substituted for the freezing injunction an interim injunction to preserve until trial the assets which formed the subject matter of the claim.  The claimants failed to notify the defendants for nearly three years of the outcome of Chinese proceedings which were related to the claim.  On finally learning of the outcome of the Chinese proceedings, the defendant applied to discharge the injunction, arguing that the claimants' failure to appraise the court and the defendant of the position was a relevant matter which justified the court in discharging the injunction.

The claimants argued that they were not under a continuing duty to inform the court of the change of circumstances because the only authority setting out such a duty (Commercial Bank of the Near East plc v A [1989] 2 LI R 39) related to freezing orders and there was no equivalent requirement for other injunctions obtained on a without notice basis.  The court rejected the claimants' argument, holding that, as far as this duty was concerned, there was no distinction between freezing orders and other injunctions. 

Where the court was exercising its discretion on a without notice basis, the party seeking the order was obliged to give full and frank information.  That obligation continued even after the inter partes hearing had taken place.  It was not for a claimant to decide for himself what the court might or might not have done had it been properly informed of a change in circumstances.  Where the basis on which the court had exercised its discretion to grant a freezing order or other injunction no longer existed, it was imperative that the claimant obtained either the defendant's consent to the continuation of the injunction or reverted to the court so the court could decide whether to continue it.  The claimants' failure to notify the defendant or the court of the change of circumstances and the fact that they had "sat" on that knowledge for nearly three years were sufficient to justify discharging the injunction.

The judgment is here.

 

9.  Court of Appeal grants unusual remedy of publicity order

In the most recent battle of the Samsung v Apple patent war (Samsung Electronics (UK) Ltd v Apple Inc [2012] EWCA Civ 1339), the Court of Appeal upheld the decision of the Patents Court that Samsung was not infringing Apple's design rights in the iPad.  Just as interesting, however, was the publicity order granted by the court against Apple, which required the company to publicise in various newspapers and on its website the fact that it had lost the case and to include a link to the judgment. 

Although the Intellectual Property Enforcement Directive provides for the grant of a publicity order in favour of a successful claimant in infringement proceedings, there is no equivalent statutory provision under which the court can grant such an order in favour of a defendant who has successfully defended a claim for infringement.  Both the trial judge and the Court of Appeal relied instead on the general jurisdiction in s. 37(1) of the Senior Courts Act 1981 to "grant an injunction … in all cases in which it appears to the court to be just and convenient to do so".  Sir Robin Jacob, giving the leading judgment in the Court of Appeal noted, however, that he was "far from saying that publicity orders of this sort should be the norm.  On the contrary I rather think the court should be satisfied that such an order is desirable before an order is made…"  He also made it clear that any publicity order should be no "more than that which is proportionate".

This unprecedented remedy may be applicable in other forms of litigation, most obviously in defamation, where the obligation on a losing defendant to publish the outcome of the case could be seen as an important part of the vindication of the claimant.

See the post by Dan Tench and Jack Gilbert on the Inforrm blog here.  The judgment is here.

 

10. Court of Appeal refuses witness protection orders

The Court of Appeal has refused an appeal against a decision not to grant witness protection orders in respect of a number of witnesses in the litigation between Russian businessmen Oleg Deripaska and Michael Cherney (Deripaska v Cherney [2012] EWCA Civ 1235).  The witnesses considered that they or their relatives would be at risk of reprisals from organised crime groups in Russia if their identities or the nature of the evidence became known.

The claimant's original application for the witness protection orders was made on two bases: (1) a refusal to grant such measures would infringe the witnesses' right to life under article 2 of the European Convention on Human Rights; and (2) the measures were necessary in the interests of justice and justified an exception to the general principle in CPR Rule 39.2(1) that hearings should be in public. 

On the first ground, the judge had directed himself that the claimant needed to show a real and immediate risk to the witnesses' lives and that this was a high threshold which should not readily be satisfied.  The Court of Appeal agreed with the judge that this threshold had not been satisfied, noting that the witnesses' evidence on their fear of reprisals was "at a high level of generality", that none of them had given direct evidence in the case nor spoken of a fear of being killed.

The Court of Appeal also upheld the judge's reasoning and decision on the second ground, stating that a departure from the general principle that hearings should be in public should only be allowed if justice strictly required it.  This was not a question of the court exercising its discretion but depended on whether the need for a departure from the general principle had been established.  One factor to take into account was the extent of the interference with the general rule: a restriction in respect of the identity of a witness or party was less objectionable than one which required the whole or part of the proceedings to take place behind closed doors.

The judgment is here.

 

11. Applying for inspection of document mentioned in witness statement in separate proceedings

The question for the High Court in OJSC TNK-PB Holding v Beppler & Jacobson Ltd and others [2012] EWHC 2596 (Ch) was whether Rule 31.14 (which provides that a party may inspect a document mentioned in a statement of case, a witness statement, a witness summary, an affidavit or an expert's report) extended to a report mentioned in a witness statement in separate proceedings between the same parties.

The judge rejected the application to inspect the report.  It was clear that the right under Rule 31.14 to inspect a document "mentioned" applied to a document mentioned in a statement of case, witness statement etc. in the proceedings in question.  It did not provide any basis for seeking inspection of a document mentioned in other proceedings, even if those proceedings involved some of the same parties and overlapping allegations and were running concurrently with the present proceedings.

The judgment is here.

 

12. Court of Justice to consider whether it is discriminatory to require an arbitrator to be of a specific religion?

In Jivraj v Hashwani [2011] UKSC 40, the Supreme Court considered an arbitration clause in a joint venture agreement which stipulated that arbitrators should be members of the Ismaili community.  The defendant sought to validate the appointment of an arbitrator who was not from the Ismaili community.  The court refused to validate the appointment, ruling that arbitrators were not protected by equality legislation, and, even if they were, the requirement for an arbitrator from the Ismaili community fell within an exemption for "genuine occupational requirements" (see the judgment here).    

Following the Supreme Court's decision, a new arbitrator from the Ismaili community was appointed.  The arbitrator, however, subsequently resigned and the defendant has now asked the European Commission to refer the case to Court of Justice of the EU ("CJEU").  A decision by the CJEU could be far-reaching.  The "genuine occupational requirement" depends on whether it is genuinely necessary, in order to decide the dispute, for the arbitrator to be from the Ismaili community.  The Supreme Court thought it was, but the defendant maintains that the issues in dispute simply require a suitably qualified lawyer, of any religion.  The Supreme Court commented that a decision by a religious organisation only to employ a lawyer of its own religion was unlikely to be permitted under the Equality Act 2010, and it is only a short step further to say that discrimination by private parties appointing arbitrators should not be permitted either.  A decision by the CJEU to this effect would be the final nail in the coffin for religious arbitration.

For more details, see Ned Beale's article on The Guardian website here.

 

13. SFO issues revised Bribery Act policies

The Serious Fraud Office ("SFO") has issued revised Bribery Act policy statements in relation to facilitation payments, business expenditure and self-reporting.  The short statements highlight that:

  • facilitation payments (i.e. payments made to "grease the palm" of government officials) are bribes under English law, and are illegal regardless of their size and frequency;
  • genuine hospitality or promotional expenditure is an important part of doing business, but that bribes can be disguised as legitimate business expenditure;
  • self-reporting acts of bribery and corruption will not automatically avert prosecution, although if the report is made as part of a "genuinely proactive approach" it may be a public interest factor tending against prosecution.  The SFO also noted that, even where it does not prosecute a company which has self-reported offending, it reserves the right to prosecute that company for any unreported violations and to provide information to other bodies, such as foreign police forces.

The SFO also indicated it will consider pursuing civil recovery in appropriate cases using its powers under the proceeds of crime legislation, either in addition to, or instead of prosecution.  The revised policy statements take immediate effect and supersede all previous statements of policy or practice from the SFO.

See Olswang's Bribery Act alerter here

The SFO's revised policy statements are here, here and here and its questions and answers on the revised policies are here

 

14. County court counter times

Revised counter times are being piloted in some county courts until the end of March 2013.  Some county courts will open their counters from 10am until 12 noon and some will operate an appointment-only service.  The London county courts piloting the appointment-only service are Bow, Clerkenwell and Shoreditch, and Willesden. 

Information for individual courts can be found in the Court Finder on the HMCTS website: see here.

 

15. Forthcoming developments

  • On 6 - 9 November, the Supreme Court will hear Prudential's appeal in R (on the application of Prudential plc and another) v Special Commissioners of Income Tax and another, which concerns whether communications between a client and its non-legal advisors are protected from disclosure by legal professional privilege where those advisors are providing legal advice.  Olswang's summary of the Court of Appeal's ruling in the case is here.
  • On 12 - 14 November, the Supreme Court will hear an appeal against the Court of Appeal's ruling in VTB Capital plc v Nutritek International Corp [2012] EWCA Civ 808 that there was no basis on which the court could pierce the corporate veil in order to make the controller of a company a party to a contract entered into by the company.

 

Sarah Speller