As the end of another eventful year approaches, we look back at what 2022 has had in store from the perspective of the commercial litigator, and outline key developments relating to the topics listed below:
- Class actions
- Cryptoassets
- Contract
- Jurisdiction and enforcement
- Court practice
- Witness evidence
- Disclosure
- Privilege
- Judgments and orders
- Alternative Dispute Resolution (ADR)
- Costs and funding
- Other
If reading the full version of this post, you can click on the links above to jump straight to the topics of interest.
Class actions have continued to be a hot topic over the past year, with continued steady growth in many areas. There has been a particular explosion in growth in competition class actions under the Collective Proceedings Order (CPO) regime in the Competition Appeal Tribunal, which was introduced in 2015. As an illustration, there have been 11 applications for a CPO this year alone, compared to 27 in total since the regime was introduced in 2015.
The evolving landscape for class actions is considered in the first episode of our new podcast series (see Class Actions in England and Wales podcast series: Episode 1 – The evolving landscape) to mark the launch of the second edition of Class actions in England and Wales, written by Herbert Smith Freehills lawyers and published by Sweet and Maxwell this autumn (see Herbert Smith Freehills launches new edition of Class Actions in England and Wales).
In what is believed to be the largest action ever brought in an English court, in terms of the number of claimants, the Court of Appeal in July held that claims brought by over 200,000 claimants arising out of the 2015 collapse of the Fundão Dam in Brazil could proceed, overturning the High Court’s decision which had struck out the claims as an abuse of process in light of concurrent proceedings and compensation schemes in Brazil. The decision suggests that the English courts remain willing to take jurisdiction over claims relating to actions of a subsidiary company in a foreign state, if there is a serious issue to be tried as to whether an English parent company owes a direct duty of care (see Court of Appeal overturns decision striking out class action arising from 2015 collapse of Fundão Dam in Brazil).
Cryptoassets have also been a hot topic this past year, not least due to the significant recent turmoil in the market, including a number of high-profile insolvencies in the sector. They have also been the subject of numerous decisions of the English courts.
A key question for participants in the sector is whether the assets of a crypto business are capable of being treated as property. In a number of previous cases the courts have held that cryptocurrencies are a form of property capable of being the subject of a proprietary injunction, and another such decision came out in September this year (see High Court orders delivery up of stolen Bitcoin against crypto exchange) - a decision which is also noteworthy for the defendant crypto exchange having been treated as constructive trustee in relation to a wallet containing stolen Bitcoin, albeit on an uncontested summary judgment application). In addition, in January, the High Court granted a third-party debt order in relation to cryptocurrency (see First third-party debt order granted by the English High Court in relation to cryptocurrency). And in March the court granted an order restraining “persons unknown” from dissipating NFTs allegedly stolen from the claimant’s cryptoasset wallet (see High Court grants freezing injunction in relation to stolen non-fungible tokens (NFTs)). The courts have also allowed service of proceedings via NFTs in a number of cases.
In February, however - and perhaps unsurprisingly - the High Court refused to allow payment of security for costs to be made in Bitcoin, as that would not result in protection equal to a payment into court or first class guarantee (see Cryptocurrency insufficient to satisfy test for security for costs).
In a decision in March, the High Court held that cryptoasset systems and software developers did not owe a duty to cryptoasset owners to permit or enable access to the assets where the owners had lost control over the assets following a hack (see High Court finds developers did not owe duty to cryptoasset owners to enable access to lost cryptoassets). An appeal against this decision was heard by the Court of Appeal earlier in December.
In July, the Law Commission published a consultation paper on the recognition and protection of digital assets, recommending that the law should recognise a third category of personal property – referred to as ‘data objects’ – in addition to things in possession (such as physical objects) and things in action (such as contractual rights) (see Data Objects: Law Commission of England & Wales proposes new category of personal property). A separate consultation paper is expected from the Law Commission in the second half of 2023 on the subject of how private international law applies to digital assets and other emerging technology.
The focus on when commercial parties are able to avoid or delay performance due to unexpected events has continued over the past year - both because of cases continuing to come through relating to the Covid 19 pandemic and because of new challenges for commercial parties resulting from Russia's invasion of Ukraine and the resulting sanctions imposed by the UK and many other countries. Decisions considering these issues over the past year include:
- In January, the High Court gave contrasting decisions in cases where international sporting competitions had been disrupted by the Covid 19 pandemic. In the first, it held that the pandemic did not trigger a material adverse change clause in a contract for Premier League broadcasting rights as there had not been a “fundamental change” to the “format” of the competition (see High Court finds Covid-19 pandemic did not trigger a material adverse change clause in a contract for Premier League broadcasting rights). In the second, it held that the pandemic did trigger a force majeure clause in a media rights agreement relating to premier club rugby union competitions in Europe, where the final stages of the 2019-20 season had to be postponed to the following season (see High Court finds Covid-19 pandemic amounted to force majeure event enabling party to terminate contract for rugby broadcasting rights).
- In June, the High Court held that a notice of termination served, following the outset of the Covid-19 pandemic, under a force majeure clause in a contract for sale of a vessel was not valid. This decision turned on the specific construction of the FM clause, which applied if the seller was unable to “transfer title” in the vessel due to a force majeure event. On the facts, that condition had not been met (see Force majeure and Covid-19: High Court decision turns on specific wording of FM clause).
- In July, the Court of Appeal upheld the grant of summary judgment to commercial landlords for payment of accrued rent in two cases where the relevant premises (in each case operated as cinemas) had to be closed for extended periods due to Covid 19 restrictions. The decision is a reminder of the high threshold for implying contractual terms, and illustrates that a claim based on unjust enrichment (such as here for total failure of consideration, or “failure of basis”) will not be available where this is inconsistent with the express terms of the contract (see Court of Appeal upholds summary judgment for rent accrued during Covid closures of commercial premises, rejecting arguments based on implied terms and “failure of basis”).
- In October, the Court of Appeal held, by a majority, that a shipowner was not entitled to rely on a force majeure clause in a shipping contract where its charterer’s parent company became subject to US sanctions, as it had failed to exercise "reasonable endeavours" to overcome the force majeure event as required by the clause (see Force majeure: Court of Appeal finds party was required to accept non-contractual performance in exercising reasonable endeavours to “overcome” force majeure event).
Turning to other contractual issues, in April, the Court of Appeal held that a clause excluding consequential losses, or loss of profits, revenue or savings, did not preclude a claimant recovering damages for costs wasted in anticipation of receiving a new IT system which was not ultimately delivered. The decision shows that, where a party wishes to exclude claims for wasted expenditure, it would be prudent to include express words to that effect: if it doesn’t, an exclusion of loss or profits will not necessarily exclude wasted costs (see Court of Appeal finds claim for wasted expenditure not excluded by clause excluding consequential losses).
A Court of Appeal decision in June shows that the court will not generally reduce damages for a breach of warranty under a share purchase agreement (“SPA”) on the basis that a contingency that reduced the value of the shares as at the transaction date (here the fact that a purchaser would have paid less for the company if it had been aware of the risks of reputational damage posed by the defendants’ misconduct) did not in fact occur. The court recognised that the position may be different for anticipatory breaches of contract, where subsequent events can be taken into account in considering what would have happened had the contract been performed, but said that had no application to a case of actual breach (see Court of Appeal considers approach to damages for breach of warranty and deceit in context of share sale).
In October, the Court of Appeal gave an important decision on the scope and construction of contractual provisions obliging the parties to act in good faith, emphasising that such clauses must be interpreted by close reference to the particular context in which they appear. It is not possible or appropriate to divine from the case law a set of minimum standards that apply in every case (see Contractual duties of good faith: Court of Appeal confirms context is king).
Now almost three years on from the UK's departure from the EU in January 2020, and two years from the end of the transition period established by the Withdrawal Agreement, it seems unlikely that the EU will consent to the UK rejoining the Lugano Convention any time soon. The UK's accession to Lugano would largely have restored the pre-Brexit regime for jurisdiction and enforcement of judgments between the UK and the EU/EFTA states. In its absence, questions of jurisdiction and enforcement between the UK and the EU/EFTA states, in circumstances where the 2005 Hague Choice of Court Convention does not apply, are a matter for domestic law - which means, in England and Wales, the common law rules and in some cases statute.
The Brussels/Lugano regime does however apply in transitional cases, where proceedings were started before the end of the transition period on 31 December 2020. As confirmed by a High Court decision in July, this means that the English court may be obliged to stay its proceedings under the “lis pendens” provisions of that regime where proceedings were started in an EU member state before the end of 2020 and parallel English proceedings were started only after that date. The decision also confirmed that where proceedings were commenced before the end of 2020, and further claims or defendants are sought to be added after, the regime continues to apply to determine whether the court has jurisdiction over the new claims and defendants (see High Court considers when recast Brussels Regulation continues to apply in transitional cases).
One important implication of the end of the Brussels/Lugano regime, so far as the UK is concerned, is that the English court can once again grant an anti-suit injunction in respect of proceedings in the EU/EFTA. This was previously prohibited as contrary to the Brussels/Lugano regime. The English court has exercised this renewed power in a couple of decisions this year (see Anti-suit injunction granted restraining proceedings in an EU member state).
Given that the Brussels/Lugano regime no longer applies as between the UK and the EU, and (as noted above) is unlikely to do so at least in the short term, the question of whether the UK will join the 2019 Hague Judgments Convention is a matter of some significance. Both the EU and Ukraine joined the Convention on 29 August this year, which means the Convention will come into force as between them on 1 September next year and will apply to the enforcement of judgments in proceedings commenced after that date (see 2019 Hague Judgments Convention comes into force in September 2023 but (for now) only between EU and Ukraine. If the UK were to join, the Convention would then apply to enforcement as between the UK and the EU/Ukraine (save where the relevant court took jurisdiction under an exclusive jurisdiction clause, in which case the 2005 Hague Choice of Court Convention would generally take precedence). The UK government is considering its position on the 2019 Convention, and it seems likely that it will consult soon on possible accession.
As for jurisdiction, which is not covered by the 2019 Hague Judgments Convention, as noted above the common law rules on jurisdiction now apply in cases involving EU and EFTA defendants, as well as defendants domiciled elsewhere. The main focus of those rules is on whether a claimant can obtain the court's permission to serve proceedings on the defendant outside the jurisdiction, which depends (in part) on whether the case falls within an applicable head of jurisdiction or "gateway" set out in Practice Direction 6B to the Civil Procedures Rules. The gateways have been expanded considerably with effect from 1 October this year (see Article published – Expansion of jurisdiction gateways coming soon) and we are starting to see cases coming through in which the court's jurisdiction has been established under the new gateways, including relating to proceedings for contempt of court and for information orders under the Bankers Trust or Norwich Pharmacal jurisdictions.
There have been a number of significant changes to court practice prompted by the Covid-19 pandemic. Although the courts have returned to in-person hearings, remote hearings continue to be used for shorter hearings, and there is also greater encouragement to the practice of witness evidence being given remotely. Parties and their legal representatives are also encouraged to minimise the use of paper. Bundles for hearings and trials are to be filed only electronically, unless a hard copy bundle is specifically requested.
This year has seen the publication of substantially amended new editions of both the Commercial Court Guide (see New edition of Commercial Court Guide includes important updates) and the Chancery Guide (see New edition of Chancery Guide in force), both of which are updated to reflect the new ways of working.
In June, the courts were given new powers to allow reporters and other members of the public to observe hearings remotely. These replaced the temporary provisions under the Coronavirus Act 2020, which enabled courts and tribunals to direct the broadcasting of proceedings that were conducted as “wholly video” or “wholly audio” proceedings, but gave no similar powers in respect of in-person or hybrid hearings. That gave rise to some uncertainty as to the extent to which individuals who were interested in proceedings (such as client representatives) could be given remote access where the proceedings were not being conducted wholly remotely. The new regulations put an end to that uncertainty (see Courts have new powers to allow remote observation of hearings).
This year we've seen a number of cases in which the courts have been called on to apply Practice Direction (PD) 57AC governing the preparation of trial witness statements in the Business and Property Courts signed on or after 6 April 2021. The general theme is that the courts have been very willing to make parties go back and redraft witness statements to remove offending passages where they contain speculation, or mere commentary on the documents, or argument (see for example High Court orders witness statements to be redrafted due to serious non-compliance with PD 57AC).
A number of decisions illustrate that, where a party wants to raise issues regarding an opponent's non-compliance with the PD, it should raise its concerns with the opponent promptly and in detail before raising the matter with the court (see Another decision regarding a failure to comply with the new requirements for trial witness statements under PD 57AC and High Court decision suggests party alleging witness statement fails to comply with PD 57AC must identify specific failures).
The cases also show the need for parties to take a common sense approach in considering how to respond to an opponent's non-compliance. A decision in June emphasised that the PD “should not be used as a weapon for the purpose of battering the opposition”. In that case, the defendant’s conduct in pursuing numerous complaints, many of which the judge considered to be “petty or pointless”, resulted in an order to pay 75% of the claimants’ costs on the indemnity basis – despite the application having succeeded in a number of respects (see Party penalised in costs for disproportionate application to strike out witness evidence for non-compliance with PD 57AC).
On the other hand, as a decision in September illustrates, any legitimate concerns raised by an opponent should be taken seriously (see Indemnity costs awarded against party who dismissed complaints about witness statement non-compliance as “nit-picking”).
The big news this year relating to disclosure is that the Disclosure Pilot under PD 51U, which began in January 2019, has finally been incorporated into the CPR as a permanent new Practice Direction, PD 57AD, with only minor amendments (see Disclosure Pilot Scheme to take effect as permanent new Practice Direction from 1 October 2022, with no substantial changes). This was despite concerns expressed by many practitioners as to whether the Disclosure Pilot in fact led to any costs savings, particularly in complex disputes. In announcing the permanent adoption of the pilot rules, the Chancellor recognised that the pilot had resulted in a front-loading of costs, but stated that it has also led to a dramatic decline in specific disclosure applications and a “far more focused and efficient approach to the disclosure process generally”.
This year has not seen any dramatic change in the law of privilege, but there have been a number of decisions worth noting including the following:
- A decision in February shows that where a party anticipates a claim in relation to one matter, it should not assume that litigation privilege will necessarily be available for an exercise to investigate other potential claims or counterclaims. The court is likely to look carefully at whether litigation was in reasonable prospect in respect of those matters at the relevant time: if it finds that the party had mere suspicions, a claim for litigation privilege is unlikely to succeed (see High Court finds no litigation privilege where expert instructed to try to find backing for potential counterclaim).
- A decision in March shows that, where a party has lawfully obtained documents in a foreign state which (as a matter of English law) are obviously privileged, that does not necessarily mean they will be available for use in litigation in England – particularly where the documents in question were obtained from a third party rather than the party entitled to assert the privilege and without notice to that party (see Privilege not lost despite opponent obtaining copies of documents in foreign proceedings).
- A Court of Appeal decision in August is a reminder that the "iniquity principle" will not necessarily apply to prevent a party from maintaining privilege in all cases where it is found that they have made false statements to their solicitors and the court. The question is there has been an abuse of the solicitor client relationship, such that privilege over those communications is negated (see Court of Appeal considers iniquity exception to privilege).
- A decision in August shows that the court may refuse to grant an injunction to protect privileged material where the material reveals some sort of wrong on the part of the disclosing party - in this case a potential serious breach of court guidance relating to the preparation of experts’ joint statements - whether or not there is sufficiently serious misconduct to mean that the material was not privileged in the first place under the “iniquity principle” (see High Court refuses injunction to prevent use of privileged material disclosed in error, where it revealed potential serious breach of court guidance).
- An Employment Appeal Tribunal decision in September shows that there are limits to the well-established principle that a document will be privileged to the extent that it betrays the content or the trend of legal advice. In particular, the Tribunal rejected the submission that a non-privileged document could later acquire privileged status simply because it had become the subject of legal advice and a comparison with the final version would allow the content of the advice to be inferred (see No privilege for original version of document simply because comparison to final version would reveal legal advice).
- In November the Court of Appeal held that the identity of those instructing lawyers on behalf of a corporate client are not generally protected by litigation privilege - unless disclosure might tend to reveal something about the content of the communication with the lawyer or the litigation strategy being discussed, and therefore inhibit candid discussion with the lawyer and the client’s ability to prepare its case. The decision is of interest in particular in rejecting the notion that litigation privilege protects all information falling within a “zone of privacy” around a party’s preparation for litigation (see Court of Appeal confirms identity of those instructing lawyers not generally protected by litigation privilege).
In the past year there have been a number of decisions emphasising the strict nature of the "embargo" that applies when a judgment is released to the parties in draft before it's formally handed down. The key point is that the purpose of handing down judgment in draft is for the parties to be able to suggest small corrections, to prepare submissions or reach agreement on consequential matters, and to prepare themselves for publication. Use for any other purpose is forbidden unless specifically authorised by the court (see Article published – Draft judgments: navigating the embargo) and Another decision showing what parties can – and cannot – do when they receive a draft judgment under embargo).
There has also been a Supreme Court decision clarifying the approach a judge should adopt if asked to re-open their judgment or order before the order has been sealed. The court's essential task is to do justice in accordance with the overriding objective of the CPR. There is no need to show “exceptional circumstances” before a judgment can be revisited - though sufficient weight must be given to the principle of finality in litigation, which is inherent in the overriding objective, and is particularly important where the order in question is a final order (see Supreme Court clarifies test for re-opening judgment before order is sealed).
Alternative Dispute Resolution (ADR)
The English courts have long supported ADR and encouraged parties to engage in it. That encouragement has become all the more pronounced over the past year, with debate as to whether and to what extent there should be compulsion rather than mere encouragement, either at the discretion of judges on a case-by-case basis or as a standard procedural step.
In July this year, the Ministry of Justice launched a public consultation on increasing the use of mediation in the civil justice system, seeking views on a government proposal to introduce mandatory mediation for all defended Small Claims in the County Court, and whether there is a need for increased regulation and oversight of the mediation industry, such as through accreditation of mediators, formalising standards of conduct and/or establishment of an industry regulator (see UK government proposes mandatory mediation in small claims and consults on increased regulation of the mediation industry).
This sits alongside a parallel workstream launched in April by the Department of Business, Energy and Industrial Strategy regarding ADR of consumer disputes outside the court system (such as through Ombudsmen and other ADR schemes), which is examining the role of compulsion in such schemes as well as introducing measures to strengthen the accreditation framework for consumer ADR providers (see UK government announces reforms to consumer ADR services).
The government has also consulted on whether the UK should sign the Singapore Convention on mediated settlements, which came into force in September 2020 and provides a framework for a global enforcement regime for settlement agreements resulting from mediation of international commercial disputes. The consultation closed in April and the government's response is awaited, although the government is thought to be in favour of signing the Convention (see UK government consults on whether to sign the Singapore Convention on mediated settlements).
An extension to the Fixed Recoverable Costs regime, which applies in certain lower value claims, had been anticipated this year, but it will not now be implemented until October next year. It is understood that the regime will be extended to most cases worth up to £100,000.
The Civil Justice Council has conducted a consultation this year on a number of areas relating to the costs of civil proceedings, in particular: costs budgeting; guideline hourly rates; costs under pre-action protocols/portals and the digital justice system; and the wider impact of the extension of Fixed Recoverable Costs. It seems likely that recommendations for possible reforms will be made next year.
There have been no major developments to the regulation of Damages-Based Agreements (DBAs) this year, following proposals for reform put forward in recent years. A Court of Appeal decision in July, however, confirmed that DBAs cannot be used by defendants (see Court of Appeal confirms Damages-Based Agreements (DBAs) are not for defendants).
The past year has seen proposals for the regulation of litigation funders in the EU, however. Although the proposals will not directly affect proceedings in England and Wales, they will apply to litigation funders based here where they are funding proceedings in the EU (see Proposed regulation of litigation funding for proceedings in the EU).
This year has also seen a number of significant decisions by the higher courts in other areas, including:
- In February, the Supreme Court confirmed that an individual who is the subject of a criminal investigation will, in general, have a reasonable expectation of privacy in respect of the investigation until he or she is charged (see Supreme Court finds in favour of right to privacy for those subject to criminal investigation).
- In August, the Court of Appeal held that a director was not personally liable as an accessory to a tort committed by a company. It found that, for a director or senior manager to be held personally liable as an accessory to a tort committed by a company requires that person to have assisted the company in the commission of a tortious act pursuant to a common design (see Court of Appeal considers when director liable as accessory to a tort committed by a company).
- In October, the Supreme Court clarified the position as to when directors owe obligations to consider the interests of creditors. The duty is engaged where the directors know, or ought to know, that the company is insolvent or bordering on insolvency or that an insolvent liquidation or administration is probable (see Key Supreme Court insolvency ruling clarifies stance on creditor duties).
- In November, the Supreme Court held that the Civil Liability (Contribution) Act 1978 does not have overriding effect and therefore applies only where domestic conflict of laws rules indicate that the contribution claim in question is governed by English law (see Supreme Court finds Civil Liability (Contribution) Act 1978 applies only where contribution claim governed by English law).
- Also in November, the Court of Appeal gave an important decision on reflective loss, confirming that the application of the rule falls to be assessed at the time the claimant suffered the alleged loss and not at the time proceedings were brought (see Court of Appeal confirms reflective loss rule will bar claims of former shareholders of a dissolved company because the principle must be determined at time of alleged loss).
Disclaimer
The articles published on this website, current at the dates of publication set out above, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action.