Commercial Litigation Round-Up – December 2023
We have collated a brief round-up of important recent cases, procedural developments and hot topics for businesses to help busy in-house counsel keep up to date, particularly those who are involved in managing disputes. If you would like further information on a topic, you can access more detailed briefings using the links.
Part 1 – Contract law (good faith, exclusion clauses and UCTA in commercial contracts)
1. Contract law
Our pick of the recent contract law cases for commercial lawyers:
Phones 4U Ltd v EE Ltd & Ors [2023] EWHC 2826 (Ch)
The High Court considered various arguments for the implication of a general obligation of good faith into an agreement for the supply of mobile connections to retail customers. This issue arose in the context of a competition law infringement claim brought by Phones 4U against EE Limited and a number of other mobile network operators. The decision illustrates how the courts will not be quick to imply general obligations of good faith.
The claimant argued that the agreement was a ‘relational contract’ and therefore there was an implied general duty on EE Limited to act in good faith towards it. (While there is no general duty of good faith in English contract law, case law has established that a duty may be implied where the contract reflects a longer-term relationship which requires a high degree of communication, cooperation and predictable performance based on mutual trust and confidence.) The judge accepted that the agreement had some features of a relational contract, for example, it was for a moderately long term (3 years) and extensive collaboration was needed to perform its terms. However, the judge noted that not all long-term contracts that involve a cooperative relationship will be relational contracts. He gave three reasons why the Phones 4U/EE Limited contract was not one: (i) the agreement's detailed description of the parties' collaboration was inconsistent with the kind of contract and relationship seen in previous cases on relational contracts; (ii) a section of the contract included an express duty of good faith in relation to revenue payments and expressly defined its scope - that precluded the implication of a more general duty of good faith; and (iii) while EE Limited enabled the claimant to supply customer connections to its mobile network, EE also competed with the claimant to source those customer connections directly. The judge stated that if exclusivity is a supporting indication for a relational contract, being in competition is a "strong factor" pointing the other way.
The express duty of good faith in the section of the contract relating to revenue payments was also construed narrowly. The claimant argued that this term meant EE Limited must act in good faith generally as well as in relation to revenue payments. The judge disagreed. The requirement to act in good faith only applied to activity designed to reduce the claimant’s revenue. The contract was professionally drafted and between sophisticated parties – if they had intended to impose a general duty of good faith, they would have done so. Further, if there was to be an express, general good faith obligation on EE Limited, it was inconceivable that the contract would not have imposed the same obligation on the claimant, which it did not. (See paras 647 to 663 of the judgment.) Norton Rose Fulbright acted for one of the successful defendants and would be happy to discuss the decision and its implications.
EE v Virgin [2023] EWHC 1989 (TCC)
The High Court examined the scope of exclusion clauses and determined that a claim for "loss of revenue” or “charges unlawfully avoided” was effectively a claim for loss of profits and so fell within an exclusion clause precluding claims for ‘anticipated profits’. This decision is a reminder that the courts will, in principle, seek to uphold wide-ranging exclusions of liability if that is what parties to a contract have clearly agreed. (See further here.)
Pinewood Technologies Asia Pacific Ltd v Pinewood Technologies Plc [2023] EWHC 2506 (TCC) and Last Bus v Dawsongroup Bus [2023] EWCA Civ 1297
Two recent cases considered the application of the Unfair Contract Terms Act 1977 (UCTA) to commercial situations. As a reminder, UCTA applies to consumer contracts and also to commercial agreements such as hire-purchase agreements and contracts concluded on standard terms. Pinewood is a reminder that a contract will not be considered to be on standard terms where negotiations have resulted in substantial amendments to the terms, whether or not the exclusion clause itself has been amended – the key question for the application of UCTA is whether the standard terms remained ‘effectively untouched’.
In Last Bus, the Court of Appeal held that an exclusion of liability for goods not being of satisfactory quality in a hire-purchase agreement did not necessarily pass the UCTA reasonableness test and this issue should proceed to trial. The Court held that even where parties are of equal bargaining strength, there is still scope to apply the statutory test. The Court of Appeal also gave guidance on applying the reasonableness test to standard terms of business: “Even where the parties are large commercial concerns and of equal bargaining strength as regards the price to be paid under the contract, that does not mean that they are of equal bargaining strength in respect of the terms. A supplier may be willing to negotiate the unit price, but will only supply on its standard terms, a position taken by all other suppliers in the market. That crucial distinction must, in my judgment, be borne in mind when considering the reasonableness of standard terms and, to a large extent, epitomises the rationale for controlling standard terms of business by statute.”
2. Procedural updates
Case law – privilege and disclosure
Without prejudice privilege
Two recent cases provide a helpful reminder of the scope of without prejudice (WP) privilege. WP privilege applies to communications which are genuinely aimed at settling a dispute and has the effect of preventing a judge or arbitrator from seeing the communication. Jones v Tracey & Ors (Re Costs) [2023] EWHC 2256 (Ch) considered when WP privilege will apply, including how labels are not determinative (for example, privileged subject headings), and the relevance of a chain of correspondence. The Master commented that correspondence about the possibility of engaging in ADR does not need to be WP (see here for details). The second case, St James's Place Wealth Management Plc & Ors v Dixon-Nutt [2023] EWHC 1431 (Comm), is a reminder that WP privilege does not extend to a dispute about how to pay an admitted liability. For the privilege to apply, the communications must negotiate and seek to compromise a disputed liability. On the facts, there was no dispute other than how certain debts were going to be paid, therefore the WP rule did not attach to the communications.
Disclosure
The Pinewood judgment discussed in Part 1 above also considered an application for “specific disclosure” of certain documents by the defendant after statements of case had been filed, relying on the courts’ inherent jurisdiction in CPR 3.1(2)(m) to “take any other step or make any other order for the purpose of managing the case”. The decision illustrates that it will not be easy to convince the court that an early request for specific disclosure is necessary. There is no express provision for specific disclosure at this stage of proceedings, and the parties disagreed as to whether the court had jurisdiction to determine the application in circumstances where PD 57AD applies (the disclosure regime applicable to the Business and Property Courts). The judge was sceptical whether the courts did have a residual discretion, however she considered that, as a matter of judicial comity, she should follow recent cases and accept the existence of a residual jurisdiction but, as in those cases, take a restrictive view of its reach. The judge found that specific disclosure under CPR 3.1(2)(m) will only be granted where it is reasonable and necessary and does not undermine the integrity of PD 57AD - requirements which had not been satisfied in this case because the application was no more than a fishing expedition.
Case law - arbitration and anti-suit injunctions in support of foreign seat
The English courts have recently considered three applications for anti-suit injunctions (ASI) by three banks against a Russian counterparty. ASIs have become particularly important in relation to transactions with Russian parties following the introduction of a Russian law which enables the Russian courts to take exclusive jurisdiction over cases which involve sanctions. In these cases, the banks sought to restrain proceedings brought in Russia in breach of arbitration agreements providing for ICC arbitration seated in Paris. The arbitration agreements were contained in English law governed on demand bonds and guarantees. Whereas most previous examples of an ASI from the English courts to uphold an arbitration agreement have concerned an English seated arbitration, these cases show that an English court may grant an ASI even where there is a foreign seated arbitration. The court must be satisfied that England is the proper forum for granting relief.
In the first two cases, the English court decided that it was the proper forum and there was no good reason not to grant an ASI; ASI relief could not be obtained from the French courts (i.e., the courts in the seat of the arbitration). In the third case, Unicredit, and in contrast to the other two decisions, the Commercial Court held that the arbitration agreement was governed by French law not English law (so there was a weaker connection to England). The Court declined to grant the ASI on the basis that substantial justice could still be obtained in France. The judge noted that ASIs were not available in France, however it did not follow that England was the only forum where substantial justice could be done. If an arbitration took place in France, the claimant could still seek damages for breach of the arbitration agreement. Unicredit has appealed this decision to the Court of Appeal. See Deutsche Bank AG v RusChemAlliance LLC [2023] EWCA Civ 1144 , Commerzbank AG v RusChemAlliance LLC [2023] EWHC 2510 (Comm) and G v R (In an Arbitration Claim) [2023] EWHC 2365 (Comm) (Unicredit Bank AG v RusChemAlliance LLC).
Procedural rules
Extension of fixed recoverable costs regime in effect from 1 October 2023
On 1 October 2023, amendments to the Civil Procedure Rules came into effect to implement the extension of the fixed recoverable costs (FRC) regime in civil cases and establish an intermediate track for claims above £25,000 but not more than £100,000. The extended FRC regime applies to claims where proceedings are issued on or after 1 October 2023 (save for personal injury and excepted cases). The regime applies to all fast track and intermediate track cases with limited exceptions, and it limits the amount of costs recoverable from the unsuccessful party (see in particular Tables 12 and 14 in the new PD 45 for the amount of fixed costs recoverable). The new rules can be found in the following parts of the Civil Procedure Rules and accompanying practice directions – CPR 45 and PD45 (costs), CPR 26 and PD 26 (allocation to a track) and PD 28 (case management). The government published a note with the new rules to assist court users to become more familiar with them.
Enforcement of English judgments - UK will join Hague Judgments Convention
The UK Government recently confirmed that the UK will join the Hague Convention of 2 July 2019 on the Recognition and Enforcement of Foreign Judgments in Civil or Commercial Matters (2019 Convention). The 2019 Convention provides a framework for the enforcement of judgments between contracting states and will further facilitate the enforcement of English judgments abroad following Brexit (when other enforcement regimes ceased to apply). The UK is already a party to the 2005 Hague Convention on Choice of Court Agreements which also provides for the enforcement of judgments. However, the 2019 Convention will apply in a wider range of circumstances. For example, an exclusive jurisdiction clause is not necessary for the 2019 Convention to apply, and it applies to a broader range of claims such as employment and consumer contracts. The other contracting states to the 2019 Convention will include the EU states (excluding Denmark), Uruguay and the Ukraine, and the list continues to expand. The 2019 Convention will enter into force in the UK 12 months after it is ratified, so most likely at some point in 2025.
3. Hot topics for businesses
Climate risk and duties of directors
An attempt to bring a shareholder action on behalf of Shell plc against its directors regarding their approach to climate change risk has failed after the Court of Appeal refused ClientEarth permission to appeal from the decisions of the High Court. The background to the case and the decisions of the High Court are explained here). The court’s reasoning in these decisions suggests such claims are unlikely to be successful as the court emphasised that it is for the management of large complex organisations to weigh up competing considerations.
Climate risk remains an important consideration for company boards. The Law Society has recently published guidance in relation to solicitors providing advice to companies on climate risk governance and greenwashing risks. The guidance is relevant to in-house solicitors advising their boards as well as those in private practice.
Transnational torts/ supply chain risk
We have seen several cases in the English courts where a UK parent company is alleged to be liable to foreign claimants for the action of its foreign subsidiary. Limbu & Ors v Dyson Technology Ltd & Ors [2023] EWHC 2592 (KB) illustrates the potential expansion of transnational tort claims. In this case, the UK parent company and other group companies were alleged to owe a duty of care and be liable to migrant workers for the actions of a third-party Malaysian entity in their supply chain.This was a jurisdictional challenge, so there was no consideration of the merits and the question of whether companies in one group can be liable for the actions of a third-party supplier. However, it illustrates the potential for such novel claims. The jurisdictional challenge was successful, and the court held the claim should be heard in the Malaysian courts, not in England. Undertakings from the defendants to the court in relation to how the claim would proceed in Malaysia and the payment of various of the claimants’ legal expenses helped to persuade the court that substantial justice could be done in Malaysia. See here for further information on this decision.
Litigation Funding – fallout from PACCAR decision
In the summer, 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) (R (PACCAR) v Competition Appeal Tribunal [2023] UKSC 28). The effect of this decision is that many LFAs currently in existence are likely to be unenforceable unless they satisfy additional stringent conditions in subsidiary legislation.
We are now starting to see cases which seek to address some of the unanswered questions following the PACCAR decision. In the first case, Therium Litigation Funding A IC v Bugsby Property LLC [2023] EWHC 2627 (Comm), the Commercial Court considered an injunction application in support of arbitration proceedings. The Court held that there was a “serious issue to be tried” that the part of a LFA which provided for the litigation funder to receive a multiple of the funding it had provided remained enforceable, even if the part providing for the funder to receive a percentage of damages awarded was unenforceable following PACCAR.
In the second case, 1527/7/7/22 Alex Neill Class Representative Limited v Sony Interactive Entertainment Europe Limited; Sony Interactive Entertainment Network Europe Limited; and Sony Interactive Entertainment UK Limited 21 Nov 2023, the Competition Appeal Tribunal approved a LFA that had been revised to reflect the decision in PACCAR, and which included a provision allowing the funder to recover a percentage of the damages “only to the extent enforceable and permitted by applicable law”. The Tribunal found that it was open to the proposed class representative and the funder to agree such a clause and that this agreement was not a DBA and was enforceable in the context of an application for an opt-out collective proceedings order. See further details of both cases here.
Increasing importance of ADR in resolving disputes
In Churchill v Merthyr Tydfil County Borough Council [2023] EWCA Civ 1416 the Court of Appeal held that the English courts can order the parties to litigation to engage in alternative dispute resolution (ADR). At first instance, the High Court had dismissed the defendant’s application for a stay of proceedings as it considered itself bound to follow the Court of Appeal's earlier decision in Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576 which had been interpreted by some as deciding that courts could only encourage ADR.
The Court of Appeal held that the Deputy District Judge was not bound by Halsey as the passage on which he relied was not a ‘necessary part of the reasoning’ that led to the decision in that case, and therefore was not binding. The Court does have the power to stay proceedings for, or order, the parties to engage in ADR, provided that the order made: (a) does not impair the very essence of the claimant’s right to a fair trial under article 6 of the European Convention on Human Rights; (b) is made in pursuit of a legitimate aim; and (c) is proportionate to achieving that legitimate aim. The Court of Appeal identified a number of factors that would be relevant to the court exercising its discretion but would not set down fixed principles as to when such an order should be made. For further information and commentary about this decision see here.
Support for the increased use of ADR can also be seen in other areas in addition to judicial support in case law. The government has recently announced plans to introduce compulsory mediation as a mandatory procedural step in all small claims in the County Court (as set out here). Similarly, the Civil Justice Council, in its work reviewing the pre-action protocols, has recommended that the general pre-action protocol should include an obligation on the parties to engage in a pre-action dispute resolution process (see here).