Practical Law Dispute Resolution: Top Ten Tips from 2014

In Denton v White and other appeals [2014] EWCA Civ 906, the Court of Appeal stated that the guidelines in Mitchell v News Group Newspapers [2013] EWCA Civ 1537 on CPR 3.9, had been misunderstood and misapplied. It introduced a new three stage test which replaces the Mitchell guidelines and requires the court to:

Stage 1: Identify and assess the seriousness of the non-compliance. Is the breach "serious or significant"?

Stage 2: If it is, look at why the default occurred.

Stage 3: Consider all the circumstances of the case in order to deal with the application "justly", including:

(a) the need for litigation to be conducted efficiently and at proportionate cost; and

(b) the need to enforce compliance with rules, directions and court orders.

The Court of Appeal warned parties to co-operate and comply in relation to requests for relief from sanctions where the failure is not serious or significant, there is good reason for it, or it is otherwise obvious that relief is appropriate. It also urged parties to agree reasonable requests for time extensions of up to 28 days using the provision for buffer orders in CPR 3.8(4).

A lawyer advising a party on whether to oppose a relief from sanctions application might well consider the following questions:

For more detail, see Legal update, Relief from sanctions: the new test.

In FHR European Ventures LLP and others v Cedar Capital Partners LLC [2014] UKSC 45, the Supreme Court considered whether a bribe or secret commission received by an agent pursuant to an undisclosed agreement was held by the agent on trust for its principal, or whether the principal merely had a claim for equitable compensation in a sum equal to the value of the bribe or commission. The Court held, unanimously, that the bribe or secret commission was held on trust for the principal. In doing so, the court overruled a confusing and criticised line of authority on the issue. It held that there were practical and policy considerations for finding that a principal had a proprietary right over all benefits acquired by an agent in breach of fiduciary duty.

The decision clarifies this complex area of the law and has several practical implications. If an agent is considered a constructive trustee for its principal of any unauthorised benefits it receives, it will be personally liable to account for such benefit, but also the proprietary remedy will allow the principal to trace and follow trust property into the hands of knowing recipients. As principals will now be able to assert title to bribes and secret commissions, they may have priority over any unsecured creditors of the agent. Agents should also ensure that any conflicts of interest and, where possible, any commissions and other payments which may compromise their duties, are disclosed and approved by their principal.

For more detail, see Legal update, Supreme Court rules that bribes and secret commissions are property of principal.

In Lakatamia Shipping Company Ltd v Su and others [2014] EWCA Civ 636, the Court of Appeal confirmed that the standard form of freezing order does not extend to assets of a company owned by the defendant. However, where such a freezing order extends to the defendant's shareholding in a company, the order prevents the defendant from taking steps to diminish the value of his shareholding. This is likely to mean that the defendant must not procure the company to make a disposition other than in the ordinary course of business. Except to this limited extent, a freezing order will have no effect over companies that are not party to the order, nor those companies' assets.

Accordingly, a claimant who wishes to obtain an injunction that extends to assets held by the defendant's companies may seek an order that expressly extends to assets in which the defendant is interested "legally, beneficially or otherwise" (adopting the wider wording suggested in the standard form at Appendix 5 of the Commercial Court Guide). This wording may be effective if there is sufficient evidence to satisfy the court that the company holds assets to which the defendant is beneficially entitled. In many cases, however, the true beneficial ownership of the assets may be unclear at the stage of obtaining interim relief.

Alternatively, the claimant may apply for relief on the basis of the court's Chabra jurisdiction. The court may make an order against a third party (against whom the claimant has no claim) who appears to hold assets on behalf of the defendant, that is, if there is reason to suppose that the assets which are ostensibly those of the third party are, in truth, those of the defendant against whom the freezing order has been made (see Practice note, Freezing orders: a practical guide: Chabra jurisdiction: orders against non-parties).

For more detail, see Legal update, Whether freezing order wording had effect of freezing assets of non-defendants (Court of Appeal) and Article, Scope of standard form freezing order clarified by Court of Appeal.

In Burrett v Mencap Ltd [2014] EW Misc B50 (CC), DJ Ackroyd considered whether the claimant was entitled to any additional time to consider the defendant's varied Part 36 offer, or whether the relevant period of the original offer still applied.

He stated that, where an offer had been varied to make it less advantageous to the claimant, it would seem to make good sense to allow the claimant a period of time to reflect on that change and the potential consequences, for him, of accepting or refusing the offer. However, noting that he was constrained by the wording of CPR 36.7 (which is silent on whether there should be any further time for contemplation allowed by the recipient of a varied offer), the judge concluded that the relevant period for acceptance of a Part 36 offer is not renewed when a Part 36 offer is varied outside the original period for acceptance.

This means that the receiving party will not have additional time to consider any revised offer. Therefore, presumably, if the claimant accepts the defendant's revised offer, he will be liable for the defendant's costs from the expiry of the relevant period that applied to the original Part 36 offer up to the date of acceptance.

The decision highlights the potential benefits of varying a Part 36 offer, rather than withdrawing it and making a new offer if the assessment of the merits changes for any reason (for example, if, after seeing the expert evidence, you decide that your existing Part 36 offer is too generous and you want to make the terms less advantageous to the other party).

The appropriate approach will depend on the circumstances of each case, but, it does seem that, if you are confident that your existing Part 36 offer is pitched too high, you might want to consider varying it to make it less advantageous, rather than withdrawing it and making a new Part 36 offer.

CPR 36 is currently under review by a sub-committee of the Civil Procedure Rule Committee (CPRC), and it is expected that a revised form of CPR 36 will take effect in 2015. We have asked the secretary of the CPRC to draw this decision to the sub-committee's attention.

For more detail, see Legal update, Relevant period for acceptance of a varied Part 36 offer (County Court).

In Starlight Shipping Company v Allianz Marine & Aviation Versicherungs AG and others (The Alexandros T) [2014] EWCA Civ 1010, the Court of Appeal considered, among other things, whether insurers were entitled to damages against shipowners for commencing proceedings in Greece in breach of English exclusive jurisdiction clauses contained in certain settlement agreements. The court held that the Greek proceedings fell within the exclusive jurisdiction clauses in the relevant settlement agreements and, therefore, the Greek claims should have been brought in England. It also held that EU law did not prohibit an award of damages for breach of an exclusive jurisdiction clause in circumstances where the offending proceedings were brought in another EU member state. As such, the insurers were entitled to damages for the losses incurred as a result of the Greek proceedings.

Parties whose jurisdiction clauses do not expressly state that they are exclusive, may find solace in the first instance decision in these proceedings (Starlight Shipping Company v Allianz Marine and Aviation Versicherungs AG and others [2011] EWHC 3381), that although the jurisdiction clause in the settlement agreement did not include the word "exclusive", it was to be construed as an exclusive jurisdiction agreement. This finding was not disturbed by the decisions of the Court of Appeal or the Supreme Court in these proceedings.

Parties may be less inclined to issue "torpedo" actions in another EU member state in breach of an exclusive jurisdiction agreement after the 10 January 2015. Article 31(2) of the Recast Brussels Regulation provides that the chosen court will have priority over the court first seised so that a party no longer needs to wait for the latter court to determine its jurisdiction before commencing proceedings in England. However, the decision of the Court of Appeal in The Alexandros remains of significance in cases where parties may nevertheless commence proceedings in breach of an exclusive jurisdiction clause, for example, because it is unclear whether the dispute falls within the scope of the clause, or there may be conflicting jurisdiction clauses so that Article 31(2) may not apply.

For more detail, see Legal update, Damages for Greek proceedings in breach of English jurisdiction and settlement agreements (Court of Appeal), Legal update, Greek proceedings breached Tomlin order (Commercial court) and Article, Brussels Regulation (recast): Are you ready?

In T & L Sugars Ltd v Tate & Lyle Industries Ltd [2014] EWHC 1066, the Commercial Court considered whether a claim form alleging breach of warranty had been issued and served in time within the meaning of a clause in a sale and purchase agreement. It was held that the word "served" in the relevant clause meant service in accordance with the CPR and that the claim had been "issued and served" within the meaning of that clause and in time.

In reaching this decision, Flaux J disagreed with Green J's reasoning in Ageas (UK) Ltd v Kwik-Fit (GB) Ltd [2013] EWHC 3261, (see Legal update, Warranty claims: construction of time-bar clause and meaning of service of legal proceedings) that the word service in a contractual provision did not mean service in accordance with the CPR. However, he did agree with Green J's obiter comment that, if service did mean service in accordance with the CPR, it was CPR 7.5 (despatch of the claim form within the jurisdiction within the four month validity period) and not CPR 6.14 (the date of deemed service provision) which prevailed for the purpose of determining when service was effected.

By holding that the phrase "issued and served" meant service in accordance with the CPR and not simply delivery to the defendant, in an almost identical contractual clause as the one considered by Green J in Ageas, Flaux J has left us with two conflicting first instance decisions as to the meaning of "serve" the claim form in contractual provisions. Accordingly, parties should expressly provide, one way or the other, in their contracts to reduce the risk of arguments regarding their intentions on the method and timing of service. Where parties wish the CPR to apply, they could consider replicating sections within the agreement, to avoid any uncertainty. As a general point which bears re-stating in this context, parties should aim to ensure that they serve proceedings well in advance of any time-bar.

For more detail, see Legal update, Commercial Court considers meaning of "issued and served" in contract.

In Garritt-Critchley and others v Ronnan and another [2014] EWHC 1774, the defendants accepted the claimant’s Part 36 offer just before judgment was about to be given following a four day trial. The judge did not criticise the late acceptance of the Part 36 offer but penalised the defendants in costs because he considered that they had been wrong in consistently refusing to mediate. (The defendants had refused to mediate because they were confident of their position and believed that the parties were too far apart.) The judge stated that the claim involved a question of fact which was a classic case for mediation and parties did not know whether they were too far apart until they sat down and explored settlement. Mediation also costs less than trial. If the defendants had accepted the claimant's last offer of mediation, the difference in costs might have been almost £100,000.

The judge applied Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576, which held that in deciding whether a party had acted unreasonably in refusing ADR, the court should bear in mind the advantages of ADR over the court process and have regard to all the circumstances of the particular case.

While mediation is not compulsory, it is now well established that the courts may robustly encourage parties to embark on it and an unreasonable failure to do so places a party at risk of being penalised in costs. This decision is a reminder that refusing mediation is a high risk strategy, and lawyers and their clients should consider their position carefully.

For more detail, see Legal update, Refusal to mediate leads to order for costs of action to be on indemnity basis (High Court). See also, Legal update, Refusal to mediate was unreasonable but no costs sanction due to other factors under CPR 44.2(4) (TCC).

In Cramaso LLP v Viscount Reidhaven's Trustees [2014] UKSC 9, the respondents had entered into negotiations with an individual who decided to take a lease of the respondents' land. The individual set up a limited liability partnership as a vehicle for the lease, and then acted as agent for the partnership in continuing and completing the negotiations.

The Supreme Court held that the respondents had negligently made an implicit misrepresentation to the individual before the incorporation of the partnership. This misrepresentation was implicitly repeated to him in his subsequent capacity as agent, and continued until the lease was signed. In the circumstances, the respondents had assumed a duty of care to the partnership, which it failed to fulfil. Therefore, the respondents were liable in damages for any loss suffered as a result.

This appears to be the first authority on the question of the liability of a contracting party for a representation inducing the conclusion of the contract by someone other than the original representee. As such, it extended the principle that a principal can be responsible for fraudulent misrepresentations made by his agent which induce the other party to enter into a contract which the agent makes on behalf of his principal, even where the misrepresentation was made before the agency began, if it continues to influence the representee after the agent's appointment (Briess v Woolley [1954] AC 333).

For more detail, see Legal update, Supreme Court decision on negligent misrepresentation in pre-contractual negotiations.

The Court of Appeal has confirmed that the principle against the extra-territorial application of legislation does not prevent a committal order under CPR 81.4(3) being made against a foreign director who is not within the jurisdiction and cannot be served here.

In Dar Al Arkan Real Estate Development Co and another v Al Refai and others [2014] EWCA Civ 715, the Court of Appeal considered the extra-territorial reach of contempt proceedings. It held that an intention to give extra-territorial effect to CPR 81.4(3) could be inferred because of the need to control proceedings properly brought in this jurisdiction.

The Court also considered, obiter, that the decision in Choudhary and others v Bhattar and others [2009] EWCA Civ 1176 was not correctly decided. (Choudhary decided that Article 22 of the Brussels Regulation, dealing with exclusive jurisdiction, had no application to defendants not domiciled in a member state.)

The decision is important because it confirms the extra-territorial reach of CPR 81.4(3), which is the most useful weapon for enforcing an undertaking or an order against a company, by applying to commit its director. Its doubting of the much criticised Choudhary is also significant.

For more detail, see Legal update, Court of Appeal confirms extra-territorial reach of contempt proceedings.

In Rawlinson and another v Akers and another [2014] EWCA Civ 136, the Court of Appeal considered an appeal against a decision that there was no litigation privilege in five reports obtained by liquidators. The liquidators had failed to show that the documents had been produced for the dominant purpose of litigation. The reports were produced to establish the financial position of certain companies and for the purpose of bringing recovery proceedings. The court accepted that the liquidators would not necessarily have seen an exercise to establish the financial position of the company as independent of the possible need to take recovery proceedings. However, it made no difference whether the two purposes for which the reports were produced were independent of each other or not. The liquidators' real difficulty was that they had failed to grapple with the need to establish which of the purposes was dominant.

The decision is a reminder that where a document is produced for several reasons, you will need clear evidence of which was the dominant purpose. With that in mind, whenever litigation is contemplated and documents are being commissioned or created, it may be helpful to record the fact that litigation is contemplated.

For more detail, see Legal update, Court of Appeal confirms dominant purpose test for litigation privilege where document produced for dual purpose.