Disputes Yearbook 2024:
Commercial litigation

Litigation funding agreements continue to be DBAs pending review of sector

The Civil Justice Council (CJC) is conducting a review of the litigation funder sector, in the wake of the Supreme Court's decision in Paccar last July, which established that agreements which provide for a litigation funder to receive a share of damages are Damages-Based Agreements (DBAs) and are therefore unenforceable unless they comply with the restrictive regulatory regime for such agreements.

The previous government announced the CJC review at the same time as introducing legislation to Parliament that would have reversed the effect of Paccar, but the relevant Bill fell in the pre-election wash-up. The new Labour Government has made it clear it does not intend to re-introduce legislation on the question of litigation funding until after the CJC has completed its review.

The CJC's interim report was published on 31 October. Responses to the consultation are due on 31 January 2025 and the CJC has said that it intends to release its final report, with recommendations to the Lord Chancellor, by summer 2025.

Testing the boundaries of the CPR 19.8 representative actions

The representative action procedure under CPR 19.8 allows a claim to be brought on behalf of those who have the “same interest” in it. This is an opt-out procedure, as there is no need for those represented to be joined or even identified in the action, unless and until the claim succeeds at the initial stage – at which point the court can go on to address any issues that arise in the individual claims. The opt-out approach is attractive to claimants as it removes much upfront cost and leads to much larger claims, but the willingness of funders to support these claims is likely to depend on whether those who fund the initial stage (which does not itself result in a pot of damages) can be confident of obtaining a share of any class recoveries. 

The key questions of whether compensation can be awarded on a collective basis and whether amounts can be deducted to pay claimant law firms and funders were due to be considered at a hearing set for early 2025 in the Commission Recovery v Marks & Clerk case. However, that case has now settled, and so these questions will have to wait – though, given their importance, they are likely to be tested in another case before long.

UK ratifies Hague Judgments Convention 2019

On 27 June 2024, the UK Government ratified the Hague Judgments Convention 2019. It will come into force for the UK on 1 July 2025, and provide a uniform framework for the recognition and enforcement of judgments between the UK and the other contracting states where proceedings are commenced after that date. To date, the only contracting states are the UK, the EU member states (apart from Denmark), Ukraine and Uruguay. However, the Convention is expected to gain increased international acceptance and attract further state signatories over time.        

High Court finds there is no rule to prevent companies asserting privilege against shareholders

In late November, the High Court handed down a significant decision finding that the so-called Shareholder Rule – ie that a company cannot assert privilege against its shareholders save in relation to documents created for litigation against that shareholder – does not exist in English law. Accordingly, the claimant shareholders, who are bringing a securities class actions against the defendant company, have no right to disclosure of the defendant's privileged documents.

The court went on to express the view that, if the Shareholder Rule did exist, it would not be an absolute rule but would depend on whether there was a genuine joint interest in the circumstances of each individual case. It would, however, apply not only to current registered shareholders but also indirect shareholders, former shareholders and successors in title.

The decision will be welcomed by defendants to securities class actions. However, given the importance of the issues, it seems likely that the claimants will seek to appeal, and so this may not be the final word.

Supreme Court clarifies application of assimilated law (formerly retained EU law)

In a claim for compensation for a cancelled flight, Lipton v BA Cityflyer, the Supreme Court gave important guidance on the impact of Brexit on causes of action that accrued under EU law before the end of the Brexit transition period (ie, 31 December 2020). The effect of the decision is that, in considering such a cause of action, it is the version of the EU Regulation that was in force at the time of the relevant events that applies, and not (as the Court of Appeal had held) the version amended to take effect under UK domestic law post-Brexit.

A further implication of the majority's reasoning is that the original, as well as the amended, version of the EU Regulation forms part of assimilated law. Therefore, in interpreting any such Regulation, the Supreme Court and Court of Appeal have power to depart from European Court decisions pre-dating the end of the Brexit transition period (and in any event, are not bound by European Court decisions after that date).

Changes to interpretation of assimilated law may not be implemented

The previous government had intended to bring into force the remaining provisions of the Retained EU Law (Revocation and Reform) Act 2023 with effect from 1 October 2024. These would have introduced new tests for the higher courts to apply in determining whether to depart from decisions of the European Court (or domestic case law relating to questions of EU law) pre-dating the end of the Brexit transition period (ie, 31 December 2020), new procedures allowing points of law arising from such case law to be referred to the higher courts for a decision, and new powers for the Attorney General to intervene. However, the new Labour Government has revoked the regulations that would have implemented these provisions and has said it intends to look at the issue again in the wider context of its work to reset UK relations with the EU.

Proposals for radical expansion of public access to court documents

In spring 2024, the Civil Procedure Rule Committee consulted on controversial draft amendments to the procedural rule governing non-parties' access to documents held on the court's file in civil proceedings (CPR 5.4C). The proposals would mean more of the parties' filed documents (including skeleton arguments, witness statements and expert reports) becoming available without the court's permission and at a much earlier stage. The consultation closed on 8 April and a large number of responses were received expressing concerns about the proposals. The Committee's work on the proposed amendments was paused in light of the creation of a new Transparency and Open Justice Board, but it is expected to recommence its consideration of the issue. The timing of any reforms is currently unclear.

Supreme Court clarifies law on force majeure

In May, in RTI v MUR Shipping, the Supreme Court delivered an important judgment which is of general application to force majeure clauses, which alter parties' obligations or liabilities under a contract in the event of extraordinary circumstances beyond their control. The decision established that an obligation in a force majeure clause to use reasonable endeavours to overcome or avoid the effects of the force majeure event (or a similar provision which will generally be implied into force majeure clauses) will not require a party who wishes to rely on the clause to accept a counterparty's offer of non-contractual performance: that party can insist on strict contractual performance by the counterparty and, if that is prevented by the relevant event, the party can assert force majeure to suspend its own obligations under the contract.

The decision emphasises the importance English law places on certainty and predictability in commercial transactions. The Court of Appeal had found that a reasonable endeavours obligation would require acceptance of non-contractual performance, where that would achieve the same result as contractual performance and would not involve any detriment to the party seeking to invoke force majeure. In the Supreme Court's view, however, this would introduce an unacceptable degree of uncertainty in circumstances where parties may need to make immediate judgements, and therefore need to know with reasonable certainty whether they can rely on a force majeure clause.

Test for obtaining a freezing order clarified

In September, the Court of Appeal provided welcome clarification as to the test a court should apply when assessing whether an applicant for a freezing order meets the threshold requirement of having a "good arguable case" on their underlying substantive action. The decision confirms that the yardstick remains the long-established "Niedersachsen test" – ie, the underlying claim must be "more than barely capable of serious argument, but not necessarily one which the judge considers would have a better than 50 per cent chance of success". The court rejected recent case law suggesting that that test had been replaced by the different (and potentially stricter) test that applies when determining whether there is a good arguable case that a claim falls within one of the jurisdictional gateways for service out of the jurisdiction.

The Court of Appeal went further and held that the time had come to recognise that the Niedersachsen test is in substance no different from the merits threshold that applies in other interlocutory injunctions – ie, "a serious issue to be tried". Contrary to some suggestions in the authorities, the test is not more stringent in the context of freezing orders. Therefore, to avoid confusion, the merits test in freezing applications should now similarly be expressed as "a serious issue to be tried", rather than "good arguable case".