Commercial Litigation Round-Up – Dec 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. You can access more detailed briefings using the links; and if you would like further information on a topic then please contact us.
Part 1 – Contract law and other claims
Part 2 – Procedural updates (privilege and disclosure; security for costs; ADR; injunctions)
Part 3 – Hot topics for businesses (litigation funding)
1. Contract law and other claims
Our pick of the recent cases for commercial lawyers:
URE Energy Ltd v Notting Hill Genesis [2024] EWHC 2537 (Comm)
The High Court held that an energy supplier had not waived its contractual right to terminate a supply contract even though it continued to perform the contract for six months after the event giving rise to the termination right occurred. The case is a reminder that a party will not be taken to have waived a right to terminate a contract unless it is aware of both the facts giving rise to the right to terminate and the right itself. However, commercial parties should note that where they have taken legal advice, the courts will usually presume that they were aware of their legal rights. In this case, the energy supplier took the step of waiving privilege over the legal advice it received to rebut the presumption – the advice showed that it had not been aware of its right to avoid the contract until shortly before it sent the termination notice. The relevant provision was also complex, and the court was persuaded that a non-legal commercial person may not have understood its application. However, commercial parties should not assume that a court will easily be persuaded that they were unaware of the rights set out in their contracts.
Standard Chartered PLC v Guaranty Nominees Ltd & Ors [2024] EWHC 2605 (Comm)
This is the first English court judgment on the effect of the cessation of LIBOR on contracts which reference LIBOR. The High Court concluded that the contract, which referenced a three-month USD LIBOR dividend, contained an implied term that a reasonable alternative to three-month USD LIBOR (namely CME TERM SOFR in this instance) was to be used following cessation of the publication of LIBOR.
While the language used in each contract must be considered, this decision is helpful in demonstrating the approach of the court where parties are dealing with financial agreements, leases and other commercial contracts which still rely on LIBOR, where viable express contractual fallbacks are not set out in the contract, and the parties have not been able to reach agreement on an alternative. Ultimately a court may seek to uphold the contract and imply a term for a reasonable alternative rate. See further details here.
Allianz Funds Multi-Strategy Trust v Barclays Plc [2024] EWHC 2710 (Ch)
In a decision that will be of interest to listed companies, the High Court clarified the requirement for ‘reliance’ by shareholder claimants in securities litigation under s90A Financial Services and Markets Act 2000. S90A provides that issuers of securities may be liable to pay compensation to persons who have suffered a loss as a result of misleading statements or dishonest omissions in certain published information relating to the securities. The Court held that claimants must show that they heard or read an alleged misrepresentation (for example in an annual statement or prospectus) to have relied on it. The Court rejected a wider US-style ‘fraud on the market’ approach. This is a significant limitation on the scope of securities litigation, especially for passive investors such as index tracker funds where investors will not have read or considered the relevant information. See here for further details.
2. Procedural updates
Case law - privilege
The so-called Shareholder Rule is the principle that a company cannot assert legal privilege against its shareholders save in relation to documents created for litigation against that shareholder. The Shareholder Rule has become an important issue for example in securities litigation against listed companies where shareholder claimants have relied on the Rule to seek disclosure from the company of privileged legal advice the company has previously received.
The Rule is being considered in several cases before the English courts and the Privy Council. For example, in a recent decision, a High Court judge conducted a detailed review of the previous authorities and held that the Shareholder Rule does not exist in English law and companies can assert privilege against their shareholders. This followed a 2023 decision in which a different High Court judge cast doubt on the foundations of the Rule but ultimately did not have to decide whether it should be applied as on the facts further disclosure was refused for case management reasons. We understand that the Rule has also been argued recently in separate High Court proceedings where judgment is awaited and is due to be considered by the Privy Council next year in an appeal from the Bermudan Court of Appeal.
The status of the Shareholder Rule is therefore uncertain, as are potentially important ancillary issues such as whether it will be held to apply to indirect shareholders, former shareholders, successors in title and subsidiary companies within a corporate group. For now, parties will need to tread carefully if they are facing such issues in litigation or there is a prospect of potentially sensitive privileged advice being sought as part of disclosure in litigation.
Pentagon Food Group Ltd and others v B Cadman Ltd [2024] EWHC 2513 (Comm)
Following a successful mediation which resulted in a settlement agreement it emerged that one party was not in fact the legal owner of a property that the party was required to transfer under the settlement agreement. The Court found that the party was liable for misrepresentation and breach of contract. While the Judge reached his conclusions based on non-privileged material, including the terms of the settlement agreement and the pleadings, the Court had to consider the extent to which what had occurred at the mediation could be relied on to establish the claim.
The Court considered whether the enhanced importance of mediation and alternative dispute resolution (ADR) generally justified a more enhanced form of “mediation privilege” beyond traditional without prejudice privilege (i.e. with narrower exceptions to the privilege). The Judge concluded that this was not required. The Judge suggested an extension to the existing exceptions to the without prejudice rule where evidence from without prejudice negotiations shows that an agreement should be set aside for negligent misrepresentation.
Case law - disclosure
JSC Commercial Bank Privatbank v Kolomoisky & Ors [2024] EWHC 1837 (Ch)
A claimant bank was granted permission to provide documents disclosed to it in English proceedings to the Ukrainian Bureau of Economic Security for use in separate Ukrainian criminal proceedings against the first defendant. The documents were protected by a collateral use undertaking from the bank, which meant that without an order from the court they could only be used in the English proceedings.
This case is a useful reminder that when a foreign authority or court seeks to compel a party to English litigation to provide documents disclosed to it in that litigation, the party must consider the English Civil Procedure Rules, the terms of any undertakings and the position of the English court before complying. The judgment also provides insight into factors that may persuade an English court to grant a party permission to provide documents subject to collateral use restrictions. These include enabling a party to comply with foreign legal obligations, to support foreign criminal investigations and where the documents have already lost their confidentiality. See further details here.
Case law - security for costs and litigation funding
Asertis Ltd v Bloch [2024] EWHC 2393 (Ch)
The High Court ordered the claimant (a litigation funder) to pay funds into court by way of security for the defendant's costs on the ground that there was a reason to believe the claimant company would be unable to pay the defendant's costs if ordered to do so. This was despite the claimant having taken out an after the event (ATE) insurance policy for £250,000 with an anti-avoidance endorsement for the first £160,000 of cover. The Court noted that an ATE policy can provide sufficient protection to a defendant, but the claimant must demonstrate that it does provide security, i.e. that there are no terms or circumstances in which the insurers can readily and legitimately avoid liability to pay out for the defendant's costs. An ATE policy will not prevent the court ordering security where the defendant can show there is a real, as opposed to fanciful, risk that the policy will not respond in full.
Security for costs will often be relevant in cases where the claimant is a litigation funder. A funder’s main assets will typically be the value of the claims they are pursuing which may not be realisable and their ability to pay costs may depend on what other financial backing they have in place.
Case law - costs and compulsory ADR
Elphicke v Times Media Ltd [2024] EWHC 2595 (KB)
The High Court ordered that, prior to any detailed assessment proceedings to determine the costs due to the defendant, the parties must engage in ADR in the form of mediation to try to agree the costs. In making the order, the judge drew on the Court of Appeal’s decision in Churchill and the recent changes to the Civil Procedure Rules (explained further in the Procedural Updates section below) which confirm the power of the courts to order ADR. This decision is a further example of the courts promoting the use of ADR during litigation to ensure that court and parties resources are used appropriately. The judge commented that she expects such an order to become the norm when a judge directs detailed assessment unless costs are agreed. See further details of the decision here.
Case law - injunctions
UniCredit Bank GmbH v RusChemAlliance LLC [2024] UKSC 30
The Supreme Court gave reasons for its April 2024 decision to uphold a final anti-suit injunction (ASI) to restrain Russian court proceedings brought in breach of arbitration agreements providing for ICC arbitration in Paris. The sole issue before the Supreme Court was whether the English court had jurisdiction to grant the ASI in support of a foreign-seated arbitration. The decision confirmed that the English courts may grant an ASI where an arbitration agreement which provides for a foreign seat is governed by English law. In upholding the ASI, the Supreme Court emphasised the importance of holding parties to their contractual bargain to arbitrate a dispute. The Supreme Court’s judgment is robust and authoritative, clarifying and resolving some of the issues which have arisen from previous (now somewhat recast) judgments, and has been welcomed as both a pro-contract and pro-arbitration decision. See further here.
Google LLC & Anor v Nao Tsargrad Media [2024] EWHC 2212 (Comm)
The Commercial Court granted anti-enforcement injunctions (AEIs) to restrain enforcement of Russian court orders made in proceedings that had been brought in breach of English arbitration and exclusive jurisdiction clauses. Unusually, the orders were made even though the applicant had not previously sought anti-suit injunctions from the English courts (instead they had unsuccessfully challenged jurisdiction in the Russian courts) and were being sought post-judgment in the Russian courts. The judge considered that the usual concerns of comity and a potentially significant waste of resources in a foreign court did not apply because the applicant would not be seeking to enforce the orders in Russia, rather they were to prevent enforcement in foreign jurisdictions against group entities not party to the disputed contracts or the litigation. Further, there was no prospect of an ASI being enforced by the Russian courts if it had been applied for earlier. Although AEIs are quite rare, we are seeing more examples of them in the English courts, particularly in connection with disputes involving Russian sanctioned entities.
Procedural rules
Amendments to CPR to reflect courts’ power to compel ADR
On 1 October 2024, amendments to the Civil Procedure Rules (CPR) came into force which confirm the power of the English courts to compel parties to engage in out-of-court ADR. The amendments were made to give effect to last year’s landmark Court of Appeal decision in Churchill which held that a court has both the power to order the parties to engage in ADR such as mediation, and the ability to stay proceedings while they do so. The changes to the CPR can be seen in the overriding objective (CPR 1), the courts’ case management powers (CPR 3 and 28/29) and costs sanctions where a party may face sanctions if they fail to comply with an order for ADR or unreasonably fail to engage in ADR (CPR 44.2). The amendments are not prescriptive on when and how the courts’ power to order ADR should be exercised, which is a matter for the court’s discretion. See further discussion of the changes here.
Civil Justice Council recommends new pre-action protocol for Business and Property Courts
The Civil Justice Council (CJC) has published the second part of its report following a review of the current pre-action protocol (PAP) regime. The PAPs require parties to take certain steps before starting a civil claim in the English courts. The report makes several recommendations, but of particular interest is the proposal for a new bespoke PAP for multi-track proceedings in the Business and Property Courts (B&PCs). This proposal seeks to address the concern that other proposed changes to the PAP regime may not be appropriate for complex high-value commercial litigation where flexibility is key. The report recommends that the new B&PCs multi-track PAP should be mandatory except in certain limited circumstances (for example, in urgent cases such as where it is necessary to protect the court’s jurisdiction, where the parties have agreed in writing to opt out, or where the parties have already undertaken an agreed pre-action dispute resolution process). Where it applies, the new PAP should require parties to engage in a non-prescriptive dispute resolution procedure with each other before commencing proceedings. The dispute resolution procedure could take a number of forms including mediation, early neutral evaluation or a meeting between the parties. It remains to be seen whether the proposals are adopted.
3. Hot topics for businesses
Litigation funding
As we explained in our previous edition, the government does not plan on introducing legislation to address litigation funding until the CJC concludes its review and report on third-party civil litigation funding. The final report is due in Summer 2025. On 1 October, the CJC published its interim report and consultation. The report does not make any recommendations at this stage but includes consultation questions regarding the regulation and operation of third-party funding. Responses are due by 31 January 2025.
Pending the outcome of the CJC’s review and consultation and any legislation that may follow, the Supreme Court’s judgment in PACCAR stands. A majority of the Court ruled 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), with the effect that many LFAs were likely to be unenforceable as they would not satisfy additional stringent conditions required for DBAs. The decision has created uncertainty around how LFAs can be structured without constituting DBAs. For example, the Competition Appeal Tribunal has held that funding agreements in which the funder’s fee was based on a multiple of the funding provided, rather than a proportion of damages recovered were not DBAs. The Court of Appeal is due to hear an appeal against these decisions in early 2025.