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Practical Law Dispute Resolution: Top ten tips from 2016
Practical Law UK Articles w-004-0172 (Approx. 10 pages)
Practical Law Dispute Resolution: Top ten tips from 2016
Practical Law Dispute Resolution highlights practical tips for litigators from some of the significant 2016 cases.
Tip 1: Think carefully about who the "client" is and what to share with the client in the context of legal advice privilege
The High Court has confirmed that Three Rivers (No 5) confines legal advice privilege to communications between a client and its lawyers, and that the client is narrowly defined for these purposes. The fact that an employee may be authorised to communicate with the company's lawyers does not mean that the employee is part of the client.
In Re the RBS Rights Issue Litigation [2016] EWHC 3161 (Ch), RBS claimed privilege in relation to records of interviews conducted by or on behalf of RBS with employees and ex-employees as part of the bank's internal investigations. The court held that the records were not covered by legal advice privilege, applying the decision in Three Rivers District Council and others v Governor and Company of the Bank of England Rev 1 [2003] EWCA Civ 474 (Three Rivers No 5).
Legal advice privilege applies only to confidential communications that pass between a client and the client's lawyer, and which have come into existence for the purpose of giving or receiving legal advice. The court reaffirmed that "client" for these purposes is narrowly defined. It held that the client consists only of those employees authorised to seek and receive legal advice from the lawyer and that legal advice privilege does not extend to information provided by employees and ex-employees to, or for the purpose of being placed before, a lawyer.
The court also held that the notes of the interviews did not constitute privileged "lawyers' working papers". A verbatim note of communications will not be privileged if the communications themselves were not privileged. Documents may be withheld from disclosure on this ground only if it can be shown that they reveal or give a clue as to the trend of advice given.
Tip 2: Be careful not to inadvertently settle future unknown claims
The Commercial Court has held that a negligence claim worth more than £70 million against a firm of solicitors was caught by the terms of an existing settlement of a dispute between the solicitors and their former clients relating to unpaid fees.
In Khanty-Mansiysk Recoveries Ltd v Forsters LLP [2016] EWHC 522 (Comm), the claimant was the assignee of a claim for negligence and breach of duty against the defendant firm of solicitors. The solicitors argued that the claim was doomed because it was caught by an earlier settlement agreement between the solicitors and their former clients relating to, among other things, unpaid fees. The release clause in the settlement agreement stated that the agreement was:
"... in full and final settlement of all or any Claims which the parties have, or could have had against each other (whether in existence now or coming into existence at some time in the future, and whether or not in contemplation of the Parties...)".
Claim was defined as "... any claim, potential claim ... whether known or unknown, suspected or unsuspected ... however and whenever arising ... whether or not such claims are within the contemplation of the Parties at the time of this Agreement arising out of or in connection with the Action or the invoice ...".
The court held that, on the true construction of the settlement agreement in the context of the relevant background, the claim was caught by its terms. This was because the wording of the clause was very wide. In particular, the words "in connection with" were sufficient to encompass the claim against the solicitors. The court reached this conclusion notwithstanding the fact that, at the time the settlement agreement had been entered into, no allegation of negligence or breach of duty had been made against the solicitors.
The decision highlights the danger of drafting wide release clauses as they may have the effect of settling claims which, although unknown, are not objectively impossible at the time the settlement agreement is concluded. See Legal update, Commercial Court holds £70 million negligence claim caught by settlement agreement.
Tip 3: Be wary of inadvertently submitting to the court's jurisdiction where you have an exclusive jurisdiction agreement in favour of another court
The ECJ has confirmed that, where proceedings are brought against a defendant in an EU member state and the defendant enters an appearance without contesting the court's jurisdiction, that court will have jurisdiction over the dispute, even if the parties have agreed to submit their disputes to the exclusive jurisdiction of another court (whether within the EU or not).
Taser International Inc v SC Gate 4 Business SRL and another (Case C-175/15) concerned a claim under a distribution agreement between the claimant (a US company) and the defendant, who was domiciled in Romania. The agreement contained an exclusive jurisdiction clause in favour of the US courts. The claimant brought proceedings in Bucharest and the defendant entered an appearance without challenging the jurisdiction of the Romanian court.
The ECJ held that Article 24 of the 2001 Brussels Regulation (which is in materially the same terms as Article 26 of the Recast Brussels Regulation) implies that the entering of an appearance by a defendant may be considered as a tacit acceptance of the jurisdiction of the court seised and that a court in a member state was precluded from declining jurisdiction in these circumstances.
The decision highlights the importance of adopting a careful and considered approach before taking any steps in proceedings before an EU court. Parties should check the terms of any jurisdiction agreements in any contracts relating to the dispute, and avoid taking any steps in the proceedings that may amount to an appearance or submission to the jurisdiction for the purposes of Article 24. See Legal update, Submission to jurisdiction trumps third state jurisdiction clause (ECJ).
Tip 4: Consider local law remedies before seeking Norwich Pharmacal relief against parties outside the jurisdiction
The court has refused to extend its jurisdiction to grant Norwich Pharmacal relief against parties outside the jurisdiction. Even if the court has jurisdiction to permit service of an application for such relief, it will exercise restraint before exercising its jurisdiction over a foreign bank. Parties should seek to cooperate in relation to the provision of information or obtain relief in the respondent's local jurisdiction.
In AB Bank Ltd v Abu Dhabi Commercial Bank PJSC [2016] EWHC 2082 (Comm), the court set aside a Norwich Pharmacal order (NPO) made against a United Arab Emirates (UAE) bank on the basis that the court had no jurisdiction to permit service of the application. To establish the jurisdiction of the English court as a matter of common law, the claimant must show that there is a good arguable case that its claim falls within one of the jurisdictional gateways listed in CPR Practice Direction (PD) 6B.3.1 (see Practice note, Jurisdiction: common law rules). The court held that none of the jurisdictional gateways applied in this case. In particular, it held that an NPO constituted final relief against the respondent and was not an interim remedy within the meaning of PD 6B.3.1(5). The court also took into account that complying with the NPO might involve a breach of UAE law and that there was an alternative UAE procedure by which the information could be obtained.
It appears that the court's jurisdiction to grant Norwich Pharmacal relief against a respondent who is not in the jurisdiction may be exercised only where one or more of the following apply:
- The respondent has submitted to the jurisdiction or has a place of business in the jurisdiction at which service may take place under CPR 6.9.
- The NPO would require steps to be taken within England and Wales (satisfying PD 6B.3.1(2)).
- The respondent is a necessary and proper party to the underlying claim (pursuant to PD 6B3.1(3)(b)) although, given the nature of Norwich Pharmacal relief, this will rarely be the case.
- Exceptionally, where the application is urgent.
The decision demonstrates the limits of the Norwich Pharmacal relief in the context of cross-border disputes. If you are seeking information from a third party in another jurisdiction, it may be more appropriate to seek local relief. For more detail, see Legal update, Norwich Pharmacal: Commercial Court considers position where respondent is outside the jurisdiction.
Tip 5: Take care not to assume a duty of care to a third party
The High Court held that there was no implied retainer between a firm of solicitors and the shareholders of the company for which it acted. However, the solicitors had assumed a limited responsibility to the shareholders and therefore owed them a limited duty of care (although on the facts, there was no breach).
In Caliendo and another v Mishcon de Reya (A Firm) and another [2016] EWHC 150 (Ch), Arnold J considered a professional negligence claim against a firm of solicitors, arising from the sale of the claimants' shares in a company for which the solicitors acted.
Although Arnold J declined to imply a retainer between the claimants and the solicitors, he found that the solicitors owed the claimants a limited duty of care when negotiating and executing the transaction documents, but only where the claimants' interests were aligned with those of the company and they were not advised by other professional advisers.
This decision shows that a retainer will not be implied unless the parties' conduct is consistent only with the defendant having been retained as the claimant's solicitor. However, a third party may be able to establish on the facts that the solicitor assumed a responsibility to him and therefore owes him a tortious duty of care.
Solicitors should therefore ensure that they clearly document who they are acting for; proceed carefully when interacting with relevant third parties; consider expressly disclaiming any duty or liability to them and encourage them to obtain independent legal or other professional advice. See Legal update, No implied retainer, but solicitors owed limited duty of care to third parties (High Court).
Tip 6: Be prepared for costs management: its tentacles are reaching further and further
Several decisions this year illustrate the risks of assuming that a case will not be cost managed. Parties need to consider the rules closely. Where there is doubt, the prudent approach is to file a costs budget.
In Signia Wealth Ltd v Marlborough Trust Company Ltd and another [2016] EWHC 2141(Ch), the High Court held that a £13 million claim should be costs managed. The claim form had not specified that it had a monetary value in excess of £10 million so as to take the case out of the costs management regime under CPR 3.12(1). The judge therefore had to consider whether to dis-apply costs management, on the basis of the test in CPR 3.15(2). He took the view that the nature of the claim and the way it was being conducted (serious allegations and ill-feeling on both sides), and the amount of costs, meant it was eminently suitable for costs control by the court. See Legal update, Should £13 million claim be subject to costs management? (High Court).
In Campbell v Campbell [2016] EWHC 2237 (Ch), Chief Master Marsh said that the default provisions for the service of budgets in CPR 3.13 excluded litigants in person (LiPs) because the majority of cases in which they appear would not require their costs to be managed. However, that did not mean that there could never be costs management of LiPs' costs. A LiP may opt to file and serve a budget, or the court may order it to do so. Where a LiP was likely to be seeking a substantial costs order, due to counsel's fees under the direct access scheme or otherwise, costs management may well be desirable. See Legal update, Guidance on costs management and litigants in person (High Court).
In Jamadar v Bradford Teaching Hospitals NHS Foundation Trust [2016] EWCA Civ 1001, the Court of Appeal imposed the CPR 3.14 sanction on the claimant for failing to file a costs budget. The claimant had assumed that there was no need to file a budget for a CMC ordered in a quantum-only dispute where there was no notice of allocation to the multi-track. Jackson LJ said that the case was self-evidently a multi-track case and the claimant should have anticipated that both case and costs management would be dealt with at the CMC. See Legal update, Consequences of failure to file costs budget in quantum-only dispute (Court of Appeal).
In Agents Mutual v Gascoigne Halman [2016] CAT 20, the costs management regime was adopted for the first time in proceedings in the Competition Appeals Tribunal (where the case had been transferred). It was held that even if parties had agreed to dispense with budgeting, that did not preclude the CAT from making such costs management order as it deemed appropriate. See Legal update, CAT dismisses Gascoigne Halman application to vary costs management in Agents Mutual property portal litigation.
Tip 7: Warn clients of uncertainty about costs recovery in light of proportionality tests
Two Senior Courts Costs Office decisions provide guidance on how judges may apply the proportionality test in CPR 44.3(5), particularly in relation to lower value claims.
In BNM v MGN Ltd [2016] EWHC B13 (Costs), the claimant claimed costs of £241,817 in respect of a claim which settled for £20,000. The costs were reduced to £167,389 on detailed assessment. Applying the proportionality test on a global basis, Master Gordon Saker reduced these costs further to just under £85,000.
While the judgment makes it clear what factors the master took into account, there is no explanation of why he reduced the reasonable costs by half as opposed to any other amount. As a result, there is no certainty as to the level of costs that may be recoverable. See Legal update, Senior Costs Judge provides guidance on proportionality test (SCCO).
In May and another v Wavell Group plc and another [2016] EWHC B16 (Costs), the claimant's costs were also slashed on the basis of proportionality. The claim settled for £25,000 and the claimant claimed costs of £208,000. These were reduced on detailed assessment to £99,000 and then further to £35,000, applying the proportionality test.
Master Rowley considered that the approach to proportionality in Kazakhstan Kagazy plc v Zhunus [2015] EWHC 404 (Comm) (that the correct standard is the lowest amount of costs that a party could reasonably have been expected to spend to ensure its case was conducted and presented proficiently) was too generous in relation to lower value claims. In his view, in lower value claims, a proportionate sum would be only a contribution to the receiving party's costs. See Legal update, Clear guidance on proportionality in lower value claims (Senior Courts Costs Office).
We understand that both these cases are being appealed.
Tip 8: Think creatively about the disclosure process and consider if technological tools might help
In two decisions this year, the English courts have approved the use of predictive coding. This comes at a time when the disclosure process, particularly the need to make it more cost effective, is in the spotlight.
In Pyrrho Investments Ltd and another v MWB Property Ltd and others [2016] EWHC 256 (Ch), the parties agreed to the use of predictive coding, subject to the court's approval. Predictive coding is a form of search technology in which lawyers review a "seed bed" of documents and then, through an iterative process, "teach" the software to predict the degree of relevance of the remaining documents. When giving approval, Master Matthews noted that there was nothing to suggest that predictive coding was less reliable than manual and keyword review (and it may be more reliable). Using predictive coding can also help to ensure consistency. In this case, a multimillion pound claim with 3.1 million electronic documents to be reviewed, using the technology allowed the electronic documents to be reviewed at proportionate cost. Manual review would not have been appropriate. For details, see Legal update, Electronic disclosure: High Court approves use of predictive coding.
In Brown v BCA Trading Ltd [2016] EWHC 1464 (Ch), the parties did not disagree on the use of predictive coding. Although cost was not the only factor, the respondents' information suggested that predictive coding would cost £120,000, (as against nearer £250,000 if paralegals made the search using keywords) and be just as effective. The court ordered that the respondents could use predictive coding and directed the parties to discuss the process and criteria for its use so as to identify any problems. If necessary, they could seek further directions (see Legal update, High Court reaffirms approval of predictive coding).
The costs of the disclosure process are very much in the spotlight currently. Prompted by concerns voiced by members of the GC100 (General Counsel of FTSE 100 companies), a working party chaired by Gloster LJ is currently considering ways of reducing the costs and time involved in the disclosure process. Speaking on this topic recently, Jackson LJ expressed concern that, too often, the default still seems to be standard disclosure. He identified a need for a change of culture (see Legal update, Lord Justice Jackson calls for more effective use of the disclosure "menu" in CPR 31.5).
Practitioners should consider carefully what is proportionate in each case and think creatively about the menu of options. Where it is clear that wide-ranging electronic disclosure is necessary, technological tools may assist in keeping the costs proportionate.
Tip 9: Keep abreast of Part 36 developments by reading our updates!
As always, there have been several important decisions over the last year that help to throw light on how Part 36 works in practice.
In Broadhurst v Tan and Taylor v Smith [2016] EWCA Civ 94, the Court of Appeal held that claimants who bring a claim under the fixed costs regime in CPR Part 45 Section IIIA and who make a successful Part 36 offer, are entitled to receive both fixed costs and indemnity costs from the effective date of the offer. See Legal update, Claimants not confined to fixed costs where indemnity costs are awarded under CPR Part 36 (Court of Appeal).
In Webb (by her litigation friend) v Liverpool Women's NHS Foundation Trust [2016] EWCA Civ 365, the Court of Appeal held that, where a claimant had bettered her own Part 36 offer at trial but had failed on one of two allegations of negligence, she should not have been deprived of the costs of the second allegation. Although Part 36 does not preclude the making of an issue-based or proportionate costs order, a successful claimant should only be deprived of part of its costs if it would be unjust for it to receive those costs in "all the circumstances of the case". See Legal update, Claimant who bettered her Part 36 offer could only be deprived of all or part of her costs if unjust for her to receive them (Court of Appeal). In Sugar Hut Group Ltd and others v A J Insurance Service (A Partnership) [2016] EWCA Civ 46, the Court of Appeal ruled that the defendant's Part 36 offer was irrelevant as the damages awarded to the claimant exceeded the Part 36 offer by a comfortable margin and there is no longer any "near-miss" rule regarding Part 36 offers. See Legal update, Court of Appeal confirms no near miss rule for Part 36 offers and overturns costs order penalising for exaggeration.
In Pawar v JSD Haulage Ltd [2016] EWCA Civ 551, the claimant was awarded damages at trial, but failed to beat either of two Part 36 offers made by the defendant. Accordingly, the claimant was held liable for costs incurred from the date of expiry of the first Part 36 offer. However, on appeal, the claimant's total damages award was increased to an amount that was more than the defendant's first Part 36 offer, although less than the second offer. The Court of Appeal, consequently, revised the first instance costs decision, ordering that the claimant was liable for costs incurred only from the date of expiry of the second Part 36 offer. See Legal update, Costs consequences where Part 36 offer beaten on appeal (Court of Appeal).
In DB UK Bank Ltd (t/a DB Mortgages) v Jacobs Solicitors [2016] EWHC 1614 (Ch), the High Court confirmed that a Part 36 offer amounts to a rejection of an earlier non-Part 36 offer, a point on which there was no prior authority. See Legal update, Part 36 offer amounts to rejection of earlier, non-Part 36 offer (High Court).
In Purrunsing v A'Court & Co (A Firm) and another [2016] EWHC 1528 (Ch), the court held that, to work out whether a judgment is more advantageous than a Part 36 offer, it is necessary to eliminate the effect of interest after the end of the relevant period from both the offer and the judgment sum before comparing them. Otherwise, you are not comparing like with like and the outcome might depend on something as unpredictable as how long it takes to get to trial. See Legal update, Interest should be ignored when comparing judgment award with Part 36 offer (High Court).
Tip 10: Pay the correct court fee, when issuing a claim, based on the value in the claim form
Several cases over the last year have highlighted the evolving position taken by the High Court to payment of the correct court fee when issuing the claim form. Claimants should calculate the court fee based on the value specified in the claim form as issued, taking care not to deliberately understate the value of the claim. If the claim is subsequently amended, the court's current position appears to be that further fees may be payable, but the claim will not be treated as not having been issued (unless there has been an abuse of process). Further, failure to pay the correct fee when the claim form is issued will not have any effect on when the claim is deemed to have been brought for limitation purposes (at least in the absence of abuse of process).
In Bhatti and another v Asghar and another [2016] EWHC 1049 (QB), the court held that the claimants had underpaid the court fee on issue, because they had failed to take into account a claim for unliquidated damages and an additional claim for "further or other relief". The court noted that generally a claim is only "brought" for the purposes of stopping limitation from running when the relevant party has done all that was in their power to set the wheels of justice in motion. This will ordinarily include paying the correct court fee when issuing the claim. The claims had therefore not been brought, and the limitation period had expired. However, the court refused the defendants' application for summary judgment on the particular facts of this case. See Legal update, Underpayment of fees on issuing proceedings may mean proceedings not "brought" for limitation purposes (High Court)).
In Dixon and others v Radley House Partnership (a firm) and others [2016] EWHC 2511 (TCC), the court clarified that the "appropriate fee" should be determined by reference to the terms of the claim form that is issued (or, if particulars of claim are simultaneously issued, the claim and particulars combined). The fact that the quantum of a claim is subsequently increased is irrelevant to the calculation of the fee payable on issue, assuming always that the claimant's behaviour is not abusive. See Legal update, High Court reconsiders effect on limitation of underpayment of court fee when issuing a claim and Blog post, Dixon v Radley House: payment of appropriate court fees in civil litigation. The decision in Dixon applied similar reasoning to that in Glenluce Fishing Co Ltd v Watermota Ltd [2016] EWHC 1807 (TCC). See Legal update, Case law on effect of payment of incorrect court fee should not be applied to applications to amend (High Court).
The decision in Dixon was followed in Wells v Wood and another (unreported), 9 December 2016 (County Court at Lincoln), where the court held that the payment of the wrong fee when a claim was issued before the expiry of the limitation period did not affect the validity of the claim form, and that the claim had been "brought" for the purposes of the Limitation Act 1980. The underpaid court fee was an error that was subsequently corrected. It is clear from this decision and Dixon, that the courts have softened the "hard edges" resulting from the Bhatti decision. See Legal update, Effect of paying the wrong court fee when a claim is issued within the limitation period (County Court).
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