Commercial Litigation Round-Up – April 2024
We have collated a brief round-up of important recent cases, procedural developments and hot topics for businesses to help in-house counsel stay up to date, particularly those who are involved in managing disputes. If you would like further information on a topic then please contact us; and you can access more detailed briefings using the links.
Part 1 – Contract/tort law (limitation clauses, pure economic loss and remoteness)
Part 3 – Hot topics for businesses (AI in litigation; litigation funding)
1. Contract and tort law
Our pick of the recent contract and tort law cases for commercial lawyers:
Innovate Pharmaceuticals Ltd v University of Portsmouth Higher Education Corporation [2024] EWHC 35 (TCC)
While the scope of every limitation clause is a matter of contractual interpretation, the decision in this case is a striking demonstration of the importance of scrutinising limitation clauses carefully to ensure they provide the level of coverage each party is expecting. In this decision the High Court construed a limitation clause as effective to limit liability for dishonest breaches of contract. The clause excluded the defendant's liability for loss of profits, goodwill and other specified losses including where arising "because of any representation (unless fraudulent)". The clause also included a more general limitation of liability: “the liability of a Party to another howsoever arising (including negligence) in respect of or attributable to any breach, non-observance or non-performance of this Agreement or any error or omission (except in the case of death or personal injury or fraudulent misrepresentation) shall be limited to £1 million.” In construing the clause, the judge considered the express carve-outs for fraudulent misrepresentation and held that the clause excluded loss of profits caused by fraudulent (dishonest) breach of contract. As regards the limitation clause, this applied to any claim (including dishonest breach) unless the relevant cause of action was in respect of death, personal injury or fraudulent misrepresentation. The judge further concluded that both the exclusion and limitation of liability were reasonable for the purposes of section 11 of the Unfair Contract Terms Act 1977; the fact that the clause purported to limit liability for dishonest breaches of contract did not render the clause unreasonable.
Costcutter Supermarkets Group Ltd v Vaish & Anor [2024] EWHC 152 (KB)
In a second case concerning limitation clauses, the High Court considered whether a limitation of liability clause applied to a buyer's primary obligation to pay the price for goods purchased in addition to its secondary obligation to pay damages following a breach of contract. The relevant clause limited "the total liability of either party … in respect of all acts, omissions, events and occurrences whether arising out of any tortious act, breach of contract or statutory duty or otherwise". The Court held that the clause only limited the secondary obligation to pay damages following breach. Since an action for the price of the goods was a claim in debt to enforce a primary obligation, any limitation on damages for breach of contract did not apply. The Court reiterated the principle that clear words are required before a party will be taken to have given up a valuable right it would otherwise have had; a broad exclusion clause intended to apply to any cause of action is not the same as an agreement to excuse a primary obligation. The judge also queried if, “the purported exclusion of the liability to perform the primary obligation could ever exist meaningfully in an effective contract.” The decision is a helpful reminder of the distinction between primary and secondary contractual obligations. Further details of the case can be found here.
Armstead v Royal & Sun Alliance Insurance Company Ltd [2024] UKSC 6
The Supreme Court gave guidance on the difficult areas of pure economic loss, the test for remoteness and the application of the law on penalties. Overturning the Court of Appeal, it held that the claimant was entitled to damages from a wrongdoer in respect of the claimant’s contractual liability to a third party. The case concerned damage to a hire car following a road traffic collision. Under the terms of the hire agreement, the claimant was required to pay both the costs of repair and the daily hire rate for the hire company’s loss of use of the car while it was in repair. The claimant sought to recover both amounts from the defendant’s insurers who argued that the amount for loss of use of the car was not recoverable, including on the ground that it amounted to irrecoverable pure economic loss. The Supreme Court clarified that this amount did not constitute pure economic loss (i.e. economic loss that is not consequent on damage to, or loss of, the claimant's property or on personal injury to the claimant) which is typically irrecoverable in negligence. The Court stated that “…[t]here is no reason in principle why recoverable loss should not include a contractual liability to a third party provided that the liability is consequential on physical damage to the claimant’s property.” The real question to be determined in this case was whether the loss was too remote. The Court held that financial loss resulting from inability to use a hire car was a foreseeable type of loss and so was a contractual liability to compensate the owner for loss of use (or alternatively, the contractual liability was simply a different manner by which the loss of use caused damage). The loss was recoverable if it was a reasonable pre-estimate of the loss, which was an issue for the defendant to plead and prove to the contrary. (See further details of the case here.)
2. Procedural updates
Case law - disclosure
A party to litigation is required to disclose relevant documents within the party’s control. The Public Institution for Social Security v Al-Wazzan & Ors [2024] EWHC 480 (Comm) is a useful reminder that, in certain circumstances, a litigant can be considered to have control over documents held by a third party even where the litigant has no legal right to those documents; such documents as are within the litigant’s “practical control” may, in principle, fall to be disclosed. This issue of practical control can arise in various contexts, for example, where there is a corporate group structure and only one, or a limited number, of the companies in the group are involved in the litigation, or where an employee of a party to litigation has documents which are not in the legal control of the party. However, as illustrated by this case, in practice it may not be easy to establish the required “practical control”. See further details of the case here.
Case law - privilege
In Al Sadeq v Dechert LLP & Ors [2024] EWCA Civ 28 the Court of Appeal considered a number of applications relating to the scope of legal professional privilege. Its judgment (i) clarifies the scope of the iniquity exception to the protection of legal professional privilege (i.e. privilege does not apply to a communication which has come into existence in furtherance of a fraud, crime or other ‘iniquity’); (ii) confirms that non-parties to legal proceedings may claim litigation privilege over documents created for the dominant purpose of such litigation; and (iii) in the context of investigatory work, reiterates the broad scope of legal work capable of privilege protection. See our blog post here for further details.
Case law - experts/witnesses
Two cases provided helpful guidance on procedural issues relating to evidence in civil proceedings. In TUI UK Ltd (Respondent) v Griffiths (Appellant) [2023] UKSC 48 the Supreme Court reaffirmed the general rule of evidence that a party who submits to the court that the opposing party’s witness evidence should not be accepted on a material point must firstly challenge that evidence by cross-examination during the trial, and cannot only raise the point during closing submissions. The purpose of this rule is to ensure a fair trial by giving the witness an opportunity to respond to the challenge that their evidence is not accepted. The rule applies to both expert evidence and witnesses of fact. See further detail in our blog post here.
In the second case, Yesss (A) Electrical Ltd v Warren [2024] EWCA Civ 14, the Court of Appeal held that a party’s late application for permission to rely on expert evidence in a new discipline did not require an application for relief from sanctions under CPR 3.9; the application should be decided according to the overriding objective. More broadly, the judgment also provides useful guidance on the approach to assessing whether an application falls under CPR 3.9 and the scope of the relief from sanctions regime. See further detail here.
Case law - arbitration and anti-suit injunctions in support of foreign seat
There have been further developments following the spate of recent applications to the English courts to restrain Russian court proceedings in breach of arbitration agreements providing for ICC arbitration in Paris. This issue has now been considered by both the Court of Appeal and Supreme Court. As discussed in our December 2023 Round-Up, three applications for anti-suit injunctions (ASI) were recently made to the English courts to uphold arbitration agreements contained in similar English law governed on demand bonds and guarantees (although there was no express governing law of the arbitration agreement). In two of the applications, the court granted the application, demonstrating that an English court may grant an ASI even where there is a foreign seated arbitration provided that the jurisdiction of the English courts can be established. However, in the third application, the court refused the application. In contrast to the other two applications, the judge held that the arbitration agreement was governed by French law, not English law and England was not the appropriate forum, therefore the jurisdiction of the English courts was not established. This decision was appealed to the Court of Appeal.
In Unicredit Bank GmbH v Ruschemalliance LLC [2024] EWCA Civ 64 the Court of Appeal granted a final anti-suit injunction in support of the Paris seated arbitration and the decision is the first authoritative appellate on notice judgment on the point. The Court of Appeal held that the principle of French law relied upon by the judge at first instance does not go so far as to mean that choosing Paris as the seat of the arbitration automatically leads to French law applying to the arbitration agreement (if silent). Accordingly, applying the principles in Enka v Chubb, the governing law of the arbitration agreement was English law because it followed the choice of English law for the main contract. The Court of Appeal also found that the English courts were the appropriate forum for a number of reasons including that (i) it is English law policy that the implicit promise in an arbitration agreement not to litigate elsewhere should be upheld, usually by injunction; (ii) an anti-suit injunction is not part of the French procedural ‘toolkit’ and (iii) an arbitration award of damages would not be enforceable in Russia. Further details are contained in our article here.
The Respondent appealed this decision to the Supreme Court. On 23 April, the Supreme Court provided its decision; it rejected the appeal and upheld the anti-suit injunction. The full judgment with the Court’s reasoning is to follow.
This case further reinforces that an express governing law clause should be included in an arbitration agreement. When deciding which governing law to choose, the parties should consider the willingness of the English courts (where jurisdiction is established) to grant relief to hold parties to their agreement to arbitrate.
Procedural rules
The Civil Procedure Rule Committee (CPRC) is conducting a consultation on a proposed new Civil Procedure Rule 5.4C which provides for wider public access to court documents. The proposed drafting appears to enable non-parties to obtain from court records a copy of witness statements, expert reports and skeleton arguments as soon as filed, even where no hearing ultimately takes place (subject to contrary order). From the minutes of the CPRC meeting discussing the change (see Item 7), it is not clear that such a dramatic change was intended, for example the minutes refer to the statements and experts reports being available when the witness is called or the statement/report is deployed in written form in court. It is also not clear how the new provision would operate in practice. We are monitoring the development of this consultation.
3. Hot topics for businesses
Use of generative AI
We are seeing rapid expansion in the use of generative AI in a wide range of sectors, including the legal sector. This includes the use of AI in the dispute resolution process, which in turn gives rise to questions over what constitutes appropriate use by participants in the process and to new potential risks. In December 2024, the UK judiciary published guidance for judges on the use of AI in litigation. The guidance does not apply directly to parties and their legal representatives, but it does set clear expectations of general application, including that legal representatives have a professional obligation to ensure the material they put before the court is accurate and appropriate. The guidance can be accessed here and our blog post discussing the guidance can be accessed here. Such guidance is timely as we are seeing examples of the risks identified arising in cases, for example where AI has generated fictitious case law to support a litigant’s position as seen in Harber v Commissioners for His Majesty's Revenue and Customs [2023] UKFTT 1007 (TC) which is discussed in an earlier post here.
Litigation Funding - reversing the PACCAR decision
In March 2024, the government introduced legislation (the Litigation Funding Agreements (Enforceability) Bill) to reverse the effect of the Supreme Court’s decision in R (PACCAR) v Competition Appeal Tribunal [2023] UKSC 28. In PACCAR, the Supreme Court ruled by a majority that litigation funding agreements (LFAs) that remunerate the litigation funder by reference to a proportion of the damages ultimately recovered constitute damages-based agreements (DBAs). The effect of this decision was that many LFAs currently in existence were likely to be unenforceable unless they satisfied additional stringent conditions in subsidiary legislation. The government considered that uncertainty around litigation funding risked having a detrimental impact on the attractiveness of England and Wales as a global hub for settling disputes. The legislation would reverse the decision by amending the relevant definitions in the Courts and Legal Services Act 1990 to make clear that LFAs are not DBAs and therefore do not have to satisfy the conditions in the subsidiary legislation. The amendments will have retrospective effect. The Bill had its second reading in the House of Lords on 15 April 2024 and will proceed to Committee Stage. For further information see the explanatory notes to the Bill and our blog article here.
Separately, the Government has also asked the Civil Justice Council (CJC) to conduct a wider review of the litigation funding sector. Its terms of reference include (i) setting out the current position of third-party funding (including development of the current self-regulatory approach); (ii) considering whether the current arrangements provide effective access to justice; and (iii) making recommendations for reform. In terms of potential reform, the CJC will consider issues such as whether third-party funding should be regulated and whether a funder’s return should be subject to a cap. The CJC will look to provide an interim report by summer 2024, and a full report by summer 2025. See further details here.