CONTENTIOUS COMMENTARY - A REVIEW FOR LITIGATORS APRIL 2019
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CONTENTIOUS COMMENTARY. CONTENTIOUS COMMENTARY A REVIEW FOR LITIGATORS APRIL 2019 April 2019 Clifford Chance | 0
CONTENTIOUS COMMENTARY
CONTENTIOUS COMMENTARY – APRIL 2019
CONTENTS
Contract 2
Relationship counselling – A contract classified as "relational" brings an obligation of good faith 2
Implications trashed – Implied representations must be known to be relied on 2
Futile submissions – A Senior Debt Facility requires external funding 3
Foreign legions – Foreign law cannot change an English law debt 4
Frustrated by Brexit? – Brexit will not frustrate a lease to an EU institution 4
Payment abuse – Clarity required to exclude valuable rights 5
Tort 6
Vicarious frauds – Vicarious liability for reliance-based torts requires authority 6
Informed advice – Damages restricted to the consequences of information being wrong 6
Chancey litigation – Loss of chance damages only relevant to third party counter-factuals 6
Private international law 7
Trump-bashing – English law reverses the effect of a US judgment 7
Relativity – Test for service out depends on who has the better of the argument 7
Sovereign games – Courts cannot dispense with service on a sovereign 8
Regulation 9
Protected species – Courts will rarely order costs against a regulator 9
Courts 10
Freezing over – Ambiguities in the standard form of freezing injunction 10
Witnessing the decline – Judge criticises witnesses for preparing too much 10
Dishonest evidence – Market practice is not relevant to dishonesty 10
Unopposed failure – Declaration refused even in the absence of any counter-argument 11
Collateral disadvantages – The rule against collateral use of disclosed documents is strict 11
Use and abuse – Courts will seldom grant permission for collateral use 11
Admit one – A defendant must ask employees, but not ex-employees, about pleaded allegations 12
Privilege 13
Vexatious litigants – Internal discussions about the conduct of litigation are not privileged 13
Who's laughing now? – Dual purpose bars litigation privilege 14
Dominant dealings – Legal advice privilege requires a dominant purpose 14
Lawyers alone – Instructions to lawyers about an escrow account are privileged 14
Contacts 16
Contentious Commentary is a review of recent developments in the English courts
April 2019 Clifford Chance | 1CONTENTIOUS COMMENTARY.
CONTRACT
RELATIONSHIP Post Office and its sub-postmasters exhaustive and that no single point
COUNSELLING were relational contracts and, as was determinative.
such, were subject to an obligation of
Relational contracts have an What Bates reflects is a desire by
good faith. Fraser J accepted that
implied duty of good faith. some members of the judiciary
there is no general duty of good faith
(notably Leggatt LJ and, now, Fraser
"I find that these were relational in commercial contracts, but that the
J) to develop a new category of
contracts. I find that this means that contracts in question were relational
contracts that don't involve fiduciary
the contracts included an implied and, as such, had an implied duty of
relationships in the usual way but on
duty of good faith." So said Fraser J good faith (or vice versa). This
to which similar, but lesser,
in his monumental judgment in Bates meant that both parties were obliged
obligations should be imposed.
v Post Office Ltd [2019] EWHC 606 to refrain from acting in a manner that
Whether the higher courts will be
(QB). But perhaps Fraser J has got it would be regarded as commercially
convinced by the need for this or by
the wrong way round: a contract may unreasonable by reasonable and
the analysis is a different matter.
be called relational because there is honest people. Good faith also, he
an implied (even express) duty of thought, brings with it requirements of One result of the implied term (and
good faith according to normal transparency, co-operation, and trust Fraser J thought the same would be
principles; but categorising it as and confidence. implied even if the contracts were not
relational surely cannot determine relational) was the termination
So what is a relational contract?
what duties are to be implied. provision. This allowed termination
Fraser J considered that the starting
on not less than three months' notice.
Bates concerned the accounting point is that there is no term that
Fraser J considered that this required
system that the Post Office required prevents the implication of a duty of
the Post Office to give proper
its sub-postmasters to use. When good faith. Assuming no contrary
consideration to the appropriate
this showed a shortfall, the Post indications: the contract would be
notice period, and that the decision to
Office failed to provide information long-term; the parties must intend
terminate had to be taken in good
that explained the shortfall, required their roles to be performed with
faith, not perversely, taking into
sub-postmasters to pay the shortfall, integrity and fidelity to the bargain;
account relevant factors and ignoring
sometimes terminated the sub- collaboration is required; the spirit
irrelevant ones. As a general rule,
postmastership, and even prosecuted and objective of the venture may not
exercising a right to terminate is not
some for fraud (the Criminal Cases be capable of being expressed
constrained in this way, but the
Review Commission is looking into exhaustively in a written contract;
strange circumstances of being a
convictions). The sub-postmasters each must repose trust and
sub-postmaster (which usually
contend that the system was flawed, confidence in the other (but of a
involves buying an existing sub-
and generated incorrect shortfalls for different kind to that involved in
postmastership) might justify it on the
no reason. Whether the system in fiduciary relationships); the contract
facts.
fact did so will be determined at a requires a high degree of a
later trial, but Fraser J, while not communication, co-operation and IMPLICATIONS TRASHED
overjoyed with the conduct of the predictable performance based on
mutual trust and confidence, and Whether a representation is to be
litigation by either side, reserved his
implied is a matter of fact in each
most excoriating criticism for the Post expectations of loyalty; there may be
case.
Office and its witnesses. He significant investment by one party;
regarded the Post Office as fighting and it may be an exclusive In PAG v RBS [2018] EWCA Civ 355,
the case tooth and nail in an relationship. the Court of Appeal concluded that
inappropriate way - even threatening "we are satisfied that RBS did make
Some of these elements assume the some representations to the effect
the court - for fear of damage to its answer (eg integrity, fidelity, trust etc)
reputation if it were to be concluded that RBS itself was not manipulating
and some are a bit weak (eg and did not intend to manipulate
that the system was not flawless. objectives not capable of being LIBOR. Such a comparatively
A core issue at this stage was written down) but Fraser J said, elementary representation would
whether the contracts between the inevitably, said that the list was not probably be inferred from a mere
April 2019 Clifford Chance | 2CONTENTIOUS COMMENTARY
proposal of the swap transaction" representations. An unconscious consideration because the two
based on LIBOR, ie any IBOR rate- assumption is not enough. conditions were not met. Up to a
setter proposing a contract based on point, said the Court of Appeal.
Picken J went on to conclude that
the IBOR may make that implied
even if he was wrong about C argued that there was a "principle
representation. Potentially that
everything else, rescission of the of futility", namely that if a pre-
makes any IBOR-based contract with
swap was not possible. Partial condition to accrual of a contractual
a rate-setter vulnerable to rescission
rescission of a transaction is not right became futile or unnecessary, it
if the IBOR rate-setter has been
allowed because it would create a did not have to be performed. D did
found to have manipulated the IBOR.
different bargain for the parties. not need a senior debt facility to start
In Marme Inversiones 2007 SL v Although the swaps were standalone mining, so that condition to payment
Natwest Markets plc [2019] EWHC transactions, they were entered into no longer had to be met.
366 (Comm), Picken J was quietly as a result of a requirement in a loan
The Court of Appeal did not agree
sceptical about the Court of Appeal's agreement to hedge the interest rate
that there is such a principle. There
approach. He was bound by the risk. The swap and the loan were all
is a principle of construction that
decision but, since the implied part of the same overall transaction.
recognises that a pre-condition may,
representations claimed in Marme Rescinding the swap therefore
in the light of subsequent events,
were not exactly in the PAG form, he required rescission of the loan.
cease to apply. So, for example, if
was able to emphasise that every Paying off the loan in accordance
Spanish law no longer required a
case depended on its own facts and with its terms was not enough since
permit from the local authority to
to conclude that the representations that was not the same as rescission.
mine the copper, that condition would
alleged before him were not made.
And just to rub it in, the judge no longer be relevant. But there is no
He focused far more than the Court
decided that the borrower had general principle that allows the court
of Appeal on the principle that a
affirmed the swaps after having to disregard a contractual pre-
representation cannot be implied
knowledge of its supposed right to condition because the court
from silence and on caveat emptor.
rescind. considers that the condition no longer
Indeed, the Court of Appeal's
serves a useful purpose.
approach to the implication of a PAG may therefore have offered
representation (based on what a succour to those pursuing IBOR- In order to disregard a condition as a
reasonable person would assume to based claims (even though the bank matter of interpretation, the court
be the case) perhaps confuses the in fact won that case), but Marme has must be satisfied that an event that
question of the proper interpretation snatched it away. the parties had not contemplated has
of a representation that has been occurred and also as to what the
made with that of whether a FUTILE SUBMISSIONS parties would have intended; if so,
representation has been made at all There is no principle of futility in the court could, as a matter of
– the rejected conflation of the tests contractual interpretation. interpretation, give effect to that
for the interpretation of contractual intention. But here neither
In Astor Management AG v Atalaya
terms and the implication of terms. requirement was met. There were
Management plc [2018] EWCA Civ
sufficient indications in the SPA that
Picken J also reached conclusions 2407, C became entitled to increased
the parties knew that other forms of
that will make it hard for others to consideration under a sale and
financing might be used, and the
succeed on IBOR-based implied purchase agreement if two conditions
court was not clear what the parties
representations. He held that for a were met: first, a local authority gave
would have intended.
representation, actual or implied, to permission for mining to restart at a
induce entry into a contract, the copper mine in Spain; and, secondly, Having failed on that aspect of
representation must act on the mind the mining company (D) obtained a interpretation, C argued that the inter-
of the representee. Since the "Senior Debt Facility" sufficient to group loans were Senior Debt
representee gave no thought to the enable it to restart mining. The first Facilities. The Court of Appeal did
manner in which EURIBOR (in that condition was unquestionably met, not agree. A Senior Debt Facility
case) was set – few did until the but D obtained funds by means of referred to external lenders – not the
scandals emerged – it cannot have loans from group companies, not case here – and had to rank ahead of
relied on the supposed from external lenders. So, said D, it other obligations in the event of
didn't have to pay the increased insolvency – not the case here either.
April 2019 Clifford Chance | 3CONTENTIOUS COMMENTARY.
At this point, it didn't look good for C. allowing it to come out the other end In Canary Wharf (BP4) T1 Ltd v
But the SPA also said that until the and continue in business. The European Medicines Agency [2019]
increased consideration was paid in company tried to get round the basic EWHC 335 (Ch), Marcus Smith J had
full, D could not pay anything to other principles of English law (ie that Azeri minimal difficulty in dismissing all the
group companies and, further, that if law has no effect on English law EMA's arguments as to why the lease
D had surplus cash available, it was debt) by seeking a permanent stay would be frustrated by Brexit. The
obliged to pay the additional under the Cross-Border Insolvency case was largely specific to the
consideration early. D argued that Regulations 2006 of English position of the EMA, but it is
the increased consideration only proceedings against it. The CBIR interesting not least as an illustration
became due and payable to C if the allow (and sometimes require) of how hard it is to invoke frustration
two conditions were met. Since they English courts to confer the benefits in English law.
were not met, there was nothing to of UK insolvency law on foreign
The EMA's principal argument was
be paid to C at all, whether early or insolvencies.
based on supervening illegality. It
not, and the cash sweep provision
The Court of Appeal was satisfied argued that Brexit would render
did not apply.
that, for all the virtues of "modified performance of its obligations under
The Court of Appeal rejected D's universalism" in insolvency law, this the lease ultra vires because the
arguments. It decided that the was a step too far. The CBIR, which EMA's HQ must be in an EU member
increased consideration became due gives effect to the UNCITRAL model state and, on Brexit, the UK will
and owing when the SPA was law, was procedural only. It did not cease to be a member state. Paying
entered into, but was only payable purport to change substantive rights, rent for an HQ outside the EU would
when the two conditions were met. and a procedural device should not be beyond its powers.
Since the cash sweep provision be allowed to have that effect.
The judge rejected the EMA's
referred to the consideration being
As a result, despite the restructuring argument. It was politically and
paid early if funds were available,
having been approved by almost all legally expedient for the EMA to be
that contemplated payment even if
the company's creditors, those headquartered in an EU member
the two conditions were not met. The
creditors whose rights were governed state, but there was no legal
effect of the pre-conditions to
by English law and who had not requirement for this. But even if that
payment was therefore circumvented
participated in the restructuring had been the case, he decided that it
by the cash sweep.
process (a Russian bank and some would not frustrate the lease as a
FOREIGN LEGIONS funds) were able to obtain judgment matter of English law. The capacity
and enforce their rights against any of an entity incorporated under a
A foreign scheme of arrangement assets they could find in England foreign law is relevant when entering
does not affect English law rights.
despite the restructuring process into a contract but not when its
English law determines what being complete in Azerbaijan. capacity is reduced by a later change
discharges or varies obligations of that foreign law. But even if that
under an English law contract. A FRUSTRATED BY BREXIT? was wrong, any frustration argument
foreign insolvency, foreign legislation Brexit will not frustrate the lease of failed because it was self-induced –
or a foreign restructuring will not be an EU body. the EU could have avoided the
effective to vary rights and consequences it relied on rather than
The European Medicines Agency
obligations under an English law simply passing a regulation in 2018
took a 25 year lease of its London
contract (at least as long as the that required the EMA to move.
HQ in 2014, but in 2018 an EU
creditor does not submit to the
regulation required the EMA to move The EMA's back-up argument relied
foreign process and there is no
to Amsterdam in the light of Brexit. on frustration of the parties' supposed
legislation to the contrary).
So what about the lease? The common purpose. The judge
In Bakhshiyeva v Sberbank [2018] obvious step would be to sell it, but accepted that Brexit was not
EWCA Civ 2802, a company with as an alternative the EMA has been relevantly foreseeable when the
English law indebtedness was trying to escape its long-term agreement for lease was signed in
subject to an Azeri restructuring obligations by contending that when 2011, but rejected the argument that
process (looking something like an the UK leaves the EU, the lease will the EMA's obligations under the
administration and a scheme of be frustrated. lease were rendered radically
arrangement), which successfully different by Brexit. Further, the
restructured the company's debts provisions regarding assignment in
April 2019 Clifford Chance | 4CONTENTIOUS COMMENTARY
the lease meant that the underlying words excluding it need to be. He
problem – the EMA no longer thought the Quincecare duty was of
wanting headquarters in London – great value to C and, therefore, that
was specifically addressed by the very clear words were needed to
lease. If a contract covers a point, exclude it. The words in question
there can be no frustration. were, he thought, not sufficiently
clear because he characterised the
The EMA lost hands down. Perhaps
Quincecare duty as primarily a
its hope may have been for a
negative duty not to pay rather than a
reference to the CJEU regarding its
positive duty to investigate (even
power to have headquarters outside
though he recognised that if a bank
the EU, but Marcus Smith J did not
was on notice such that it did not pay,
consider that to be necessary for his
it couldn't just sit on its hands (and
decision.
the money) but would then have to
Clifford Chance acted for Canary investigate). Perhaps a rather
Wharf. formalistically academic approach.
PAYMENT ABUSE The judge also decided, on similar
grounds, that a term that said that the
Exclusion of a bank's duty of care bank's obligations would be
requires express words.
"determined solely by the express
Barclays Bank plc v Quincecare Ltd terms of this Agreement" was not
[1994] 4 All ER 363 established that enough, in the round, to exclude the
banks owe their customers, whether implied term.
as an implied contractual term or in
This was only an application for
tort, a duty not to pay sums from a
reverse summary judgment, so the
bank account if the bank has
bank will continue to a substantial
information that puts it on enquiry, in
claim arising from allegedly
the sense of having reasonable
fraudulent payments from the
grounds for believing, that the
account involving members of the
payment is an attempt to
Nigerian Government, right up to its
misappropriate funds from the
then President. The judge also
customer.
decided that he could not give
The Federal Republic of Nigeria v JP summary judgment to the bank on
Morgan Chase NA [2019] EWHC 347 the basis that, whatever enquiries the
(Comm) concerned not a general bank had made, the outcome would
bank account but something akin to have been the same - the bank had
an escrow account, the terms of obtained a certificate from the
which stated expressly that the bank Nigerian Attorney General, and even
was under no duty to investigate the if it had asked the President, what
validity of its instructions. This, would he have said? But, the judge
argued the bank, excluded the concluded, this was too factual for
Quincecare duty. summary judgment.
The judge (Andrew Burrows QC,
Professor of the Law of England at
Oxford University) rejected the bank's
claim. He considered that the
modern approach to interpretation,
effectively replacing the contra
proferentem rule, is that if the general
law conferred a right, the more
valuable that right is, the clearer any
April 2019 Clifford Chance | 5CONTENTIOUS COMMENTARY.
TORT
VICARIOUS FRAUDS INFORMED ADVICE not claim for special damages arising
from an inability to carry out certain
Vicarious liability for reliance- Cases are either information cases domestic tasks for which he had to
based torts depends upon or advice cases.
employ others. He later claimed from
authority.
Building society enters into long-term his solicitors for their failure to advise
Vicarious liability has been in the swaps following negligent advice him to make a claim for special
courts a lot recently. Winter v from its auditors that it need not damages. The solicitors admitted
Hockley Mint Ltd [2018] EWCA Civ include the mark to market value in negligence but denied that this had
2480 didn't involve Morrisons for a its accounts. On finding this to be caused the ex-miner any loss. Loss
change, and, indeed, raised a new wrong, restating its accounts, and depended upon his showing that, if
point on vicarious liability for reliance- closing out the swaps, it sues its properly advised, he would have
based torts – deceit in Winter – even auditors for the close-out costs. In made a claim for special damages
if only to conclude that such liability Manchester Building Society v Grant and that he would then have
didn't really exist. Thornton LLP [2019] EWCA Civ 40, it recovered something.
lost. Negligent misrepresentation
The Court of Appeal decided that the The Supreme Court decided that the
claims are either advice cases, where
test for vicarious liability in deceit is question of whether the miner would
someone is responsible for the
not the rather woolly test applied to have claimed special damages had
decision, or information cases, where
other torts (consider the nature of the to be proved on a balance of
someone is responsible for one piece
tortfeasor's job and whether there is probabilities, not as a loss of chance.
of information relevant to the
sufficient connection between that job Further, it was not merely whether he
decision. This was an information
and his wrongful conduct to make it would have claimed but whether he
case, with the result that D was only
right for the employer to be liable: could honestly have claimed. The
responsible for the consequences of
Mohamud v WM Morrison trial judge decided that he could not
the information being wrong, not all
Supermarkets plc [2016] AC 667). honestly have done so because the
the consequences of entering into the
Instead, it depends upon the evidence showed that he was not
swaps.
authority, actual or apparent, of the suffering from any real loss of
tortfeasor (Armagas Ltd v Mundogas CHANCEY LITIGATION relevant amenity. Even if he might
SA [1986] 1 AC 717). Indeed, it's have claimed in the hope of slipping
probably fair to say that there is no Loss of chance analysis only through unnoticed or for nuisance
vicarious liability for this kind of tort; applies to third party conduct.
value, the courts would not help such
the issue is whether the principal is In Perry v Raleys Solicitors [2019] improper conduct.
liable for the wrongs of its agent, UKSC 5, the Supreme Court looked
which depends on the authority of the The Supreme Court concluded that it
at when damages will be assessed
agent. was proper to hold a full trial on the
on a loss of chance basis in counter-
question of whether the miner would
factual situations. The Court's clear
The reason for this difference in have claimed and, if so, honestly, but
conclusion was if the question is what
approach is that where liability if the issue is third party conduct and
the party to the litigation (invariably
depends upon reliance, if the loss of chance, a full trial is not
the claimant) would have done, it
wronged party has relied solely on appropriate.
depends upon the party proving this
the agent, there is no basis for
on a balance of probabilities; but if
making the principal liable. It is only
the question is what a third party
if the wronged party has relied on the
would have done, it depends upon a
principal that the principal can be
loss of chance evaluation.
liable, and that depends upon the
agent having authority to make the Perry itself concerned an ex-miner
representation on behalf of the who put in a claim under the
principal. Vicarious liability and Government's compensation scheme
agency principles merge into one. for white finger vibration. He
recovered general damages but did
April 2019 Clifford Chance | 6CONTENTIOUS COMMENTARY.
PRIVATE INTERNATIONAL LAW
TRUMP-BASHING rated between the compensation and refusal to follow the approach of
the multiple. Accordingly, she some other courts by deciding
The PTIA prevents enforcement of entered judgment for D for ⅔ of the jurisdiction at the same time as the
a judgment.
sum recovered, ie for $2.88m. C's substantive dispute.
The Protection of Trading Interests attempt to enforce its North Carolina
The test used to be that the claimant
Act 1980 is an interesting, if little judgment therefore resulted only in
had to show a good arguable case on
used, piece of legislation. One an English judgment being entered
the facts that one of the gateways for
aspect of it, sections 5 and 6, was against it.
jurisdiction was met (a threshold
passed to protect UK entities from
(C's claim failed for a number of other higher than that required to resist
multiple damages awarded in, then,
reasons too, including public policy in summary judgment but lower than a
largely anti-trust actions in the US. In
that the US judgment enforced parts balance of probabilities). Waller LJ
SAS Institute Inc v World
of the contract between C and D that then set the hares running in Canada
Programming Ltd [2018] EWHC 3452
were void under the EU's Software Trust v Stolzenberg [1998] 1 WLR
(Comm), the Act caused serious
Directive (given effect in the 547 with the throw-away remark that
injury to a US party, C, which was
Copyright, Designs and Patents Act this involved deciding which of the
seeking to enforce the non-multiple
1988), as well as issue estoppel and parties had "much the better of the
part of a US judgment.
abuse of process.) argument" (referred to as the Canada
C obtained a judgment for breach of Trust gloss). This moved from a
contract and fraud from a US District RELATIVITY relatively absolute test (has the
Court in North Carolina. Under the Deciding whether the courts have claimant passed the threshold) to an
North Carolina Unfair and Deceptive jurisdiction depends upon absolutely relative test (whose
Trade Practices Act, C was entitled to weighing the arguments. argument is better). It certainly
triple damages, though (at its raised the bar.
The courts have not shown a sure
request) judgment was entered for
hand in deciding on the correct In Goldman Sachs International v
two sums – the compensatory
approach to an application Novo Banco SA [2018] UKSC 34,
amount ($26m) and the multiple
challenging the jurisdiction of the Lord Sumption re-wrote the test as
($52m). C managed to recover only
court - in particular, the threshold for being
$4.3m in the US, so came to D's
showing that one of the "gateways",
home, England, to enforce the "(i) that the claimant must supply a
giving the court jurisdiction, is passed
balance of the compensatory plausible evidential basis for the
(eg that a contract governed by
judgment. application of a relevant
English law has been entered into).
The problem is that jurisdiction is jurisdictional gateway; (ii) that if
C failed. Section 5 says that a
decided at an interim stage on there is an issue of fact about it, or
judgment for multiple damages is not
witness statements alone, but it might some other reason for doubting
enforceable in the UK. Cockerill J
involve significant questions of fact whether it applies, the court must
decided that splitting the US
(eg is there a contract between C and take a view on the material
judgment made no difference. The
D?) and, what is more, facts that available if it can reliably do so; but
the whole judgment, including the
could affect the outcome of the case (iii) the nature of the issue and the
compensatory element, is
at trial. The courts can't reach a final limitations of the material available
unenforceable.
decision on these points - they will at the interlocutory state may be
And it got worse. Section 6 allows such that no reliable assessment
seldom have the material to do so
someone who has paid multiple can be made, in which case there is
and, in any event, they shouldn't
damages to recover the amount that a good arguable case for the
prejudice the trial - but they can't
exceeds compensation. D had not application of the gateway if there is
avoid making a decision on the
paid the compensatory judgment in a plausible (albeit contested)
jurisdiction issue at an early stage
full, but Cockerill J decided that the evidential basis for it."
given the English courts' justified
sum recovered by C should be pro-
April 2019 Clifford Chance | 7CONTENTIOUS COMMENTARY.
The question in Kaefer Aislamientos "Any writ or other document out. Neither court nor CPR can
SA de CV v AMS Drilling Mexico SA required to be served for instituting circumvent this legislative
de CV [2019] EWCA Civ 10 was proceedings against a State shall requirement.
whether the Sumptionised test be served by being transmitted
What this means for service on states
removed the relativism introduced by through the Foreign &
that decline to accept service of
Canada Trust, reverting to Commonwealth Office to the
proceedings they dislike (eg, Iran) will
absolutism, or whether it had Ministry of Foreign Affairs of the
doubtless be litigated later. In
cemented relativity in place. State and service shall be deemed
Havlish, evidence from the Foreign &
to have been effected when the writ
The Court of Appeal decided that Commonwealth Office said:
or other document is received by
relativity continues to hold sway. If
the Ministry." "several previous attempts at
the Supreme Court had intended to
service of legal claims on the
abolish the Canada Trust gloss, the The first point taken in General
Government of Iran under the State
Court of Appeal thought that it should Dynamics was the ambitious one that
Immunity Act, via the Ministry of
have said so more clearly (it did say no document instituting proceedings
Foreign Affairs (MFA) in Iran have
that "much" should be removed from is required to be served on the state
been unsuccessful, despite the best
the gloss). The court rejected the when the proceedings are for the
efforts of the British Embassy in
argument that Lord Sumption was enforcement of an arbitral award
Tehran… repeated attempts to
merely being polite in his rejection of under the New York Convention. An
effect service caused the Iranian
Waller LJ's approach. So the court application to enforce an arbitral
Ministry of Foreign Affairs to inform
must weigh the evidence and the award is started by the issue of an
the British Embassy that further
argument, applying common sense, arbitration claim form, but the claim
attempts, or attempts by other
and decide who has the better of the form is, oddly, not required to be
means, to serve the documents
argument. served on the defendant (absent
would not only be refused, but
contrary order); it is the order
This will not achieve the courts' oft- would also be detrimental to
permitting enforcement that must be
stated aim that jurisdictional bilateral relations. That position has
served, but that is not the document
challenges should be short and not changed, and senior colleagues
instituting proceedings.
sweet. If the claimant has only to at the British Embassy continue to
clear an absolute hurdle, then Males LJ was not impressed by this hold the view that any further
evidence might be more limited. But subtlety. He considered that section attempts at Service on the
if the issue is who has the better of 12 requires there always to be a Government of Iran under the State
the argument and evidence, both document initiating proceedings that Immunity Act would be
parties are bound to throw everything is served on the State – the unsuccessful and
at the interim hearing in order to convoluted timescale in the Act for counterproductive."
persuade the court that they are on acknowledging service etc doesn't
It may be questionable whether the
the right side of the relative work otherwise. Whatever the first
FCO is in a position to judge whether
boundary. Courts won't like that. Is document that the claimant must
or not service has been successful
that really what Lord Sumption serve on the State is the document
but if, as in that case, the FCO won't
meant? initiating proceedings for the
even try to serve the papers, there is
purposes of section 12.
SOVEREIGN GAMES not much that can be done – if Males
The second question was whether LJ is right. This emphasises the
A claim form must be served on a the court could dispense with service need for contracts with states to
sovereign.
on a state. Despite recent cases include a means of serving process
General Dynamics United Kingdom holding that service on a state could on them to avoid a state being able to
Ltd v State of Libya [2019] EWHC 64 be dispensed with - if this is done, frustrate the legal process.
(Comm) explored two issues on the there was nothing to which section 12
requirements for service of a claim applies (Havlish v Islamic Republic of
form (or equivalent) on a state and, in Iran [2018] 1478 (Comm)) - Males LJ
particular, the effect of section 12(1) considered that section 12 prohibited
of the State Immunity Act 1978. the court from dispensing with
Section 12 provides that, absent an service. Section 12 provides that the
agreement as to service, document initiating proceedings
"shall be served" in the manner set
April 2019 Clifford Chance | 8CONTENTIOUS COMMENTARY
REGULATION
PROTECTED SPECIES awarded BT its costs (though only has taken a decision honestly,
50%), having started from the reasonably and properly, the key
Regulators should rarely be liable proposition that, in the CAT, costs driver is the need not to discourage
in costs when they lose.
should follow the event. The Court of the public body from standing by its
In British Telecommunications Ltd v Appeal considered this to be the decision for fear of the financial
The Office of Communications [2018] wrong starting point. Even though consequences (the "chilling effect" of
EWCA Civ 2542, BT succeeded in the rules give the CAT a wide a potential costs order). Essentially,
overturning before the Competition discretion on costs, the Court of something bordering on the improper
Appeal Tribunal a regulatory decision Appeal concluded, after leafing is required before costs should be
by Ofcom because Ofcom got the law through a series of inconsistent ordered against a public authority
and the facts wrong. The CAT duly authorities, that where a public body such as Ofcom.
April 2019 Clifford Chance | 9CONTENTIOUS COMMENTARY.
COURTS
FREEZING OVER In FM Capital Partners Ltd v Marino complaining that the witnesses
[2018] EWHC 2889 (Comm), the before her were intelligent, and had
The scope of a freezing injunction judge decided that Ablyazov had worked extensively with their legal
is ambiguous.
impliedly overruled Lakatamia teams on the preparation of their
The standard form of freezing Shipping on the proper interpretation witness statements and then on the
injunction states that it applies to "any of the standard freezing injunction but documents in preparation for cross-
asset which [the defendant] has not on the underlying law that the examination. This, she said, was not
power, directly or indirectly, to assets of a wholly-owned company a virtue but a vice because she could
dispose of, or deal with as if it were are not within the control of the have little confidence that the
his own". It goes on that the frozen one because, in exercising evidence was the witnesses'
defendant is to be regarded as power over the company's assets, "unclouded recollection rather than
having such power "if a third party the frozen party is acting as a director an overwritten version based on their
(which shall include a body of the company or organ, not in his reconstruction of events in the light of
corporate) holds or controls the asset own right. their microscopic review of the
in accordance with his direct or documents – and their own view of
What this really means is that the
indirect instructions." That's pretty their own case."
wording of the standard form
wide.
injunction is confusing. It applies to What would the judge have said if the
The Court of Appeal's decision in assets controlled by the frozen party witnesses had not done their
Lakatamia Shipping Co Ltd v Su even if he has no sufficient interest in homework?
[2014] EWCA Civ 636 established those assets such that enforcement
that this standard wording does not measures could be taken against DISHONEST EVIDENCE
extend to assets of a company them; it shouldn't do. But not if those Evidence of market practice is not
wholly-owned by the frozen person assets are held by a wholly-owned admissible on questions of
but only to assets legally or company, at least unless the object is dishonesty.
beneficially owned by the frozen one. to reduce the value of his shares in Dishonesty is an objective, not a
That is orthodox company law. The the company. subjective, matter: Ivey v Genting
company's assets are the company's
WITNESSING THE Casinos (UK) Ltd [2018] AC 389.
assets, not those of its shareholders.
This means that the relevant person's
But if the frozen one exercises his DECLINE
knowledge at the material time must
power as a director etc of the More judicial complaints about be established; but whether, in the
company to reduce the value of his witnesses. light of what he knew, he was
shareholding in the company (his
It's almost a truism, trotted out time dishonest is a matter for the court to
shareholding is caught by the
after time, that "the best approach for decide by reference to the standards
freezing injunction), then that could
a judge in the trial of a commercial of ordinary decent people. In Carr v
offend the freezing injunction.
case is… to place little if any reliance Formation Group plc [2018] EWHC
In JSC BTA Bank v Ablyazov [2015] at all on witnesses' recollections of 3116 (Ch) (a case about football
UKSC 64, the Supreme Court what was said in meetings and agents and commission), Morgan J
decided that the standard form of conversations, and to base factual therefore rejected an application for
freezing injunction does, as a matter findings on inferences drawn from the permission to adduce expert
of interpretation, apply to assets over documentary evidence and known or evidence on market practice on
which the frozen party has control, probable facts" (eg Gestmin SGPS commission amongst football agents.
even if not legally or beneficially S.A. v Credit Suisse (UK) Limited, The evidence was inadmissible in
owned by him and even though no Credit Suisse Securities (Europe) relation to the standards of ordinary
enforcement measures could be Limited [2013] EWHC 3560 (Comm), decent people, not least because
taken against those assets (the right Leggatt J). markets can adopt practices that are
to draw down a corporate loan in that dishonest by those standards. The
case). In Recovery Partners GP Ltd v court had to decide for itself.
Rukhadze [2018] EWHC 2918
(Comm), Cockerill J went further,
April 2019 Clifford Chance | 10CONTENTIOUS COMMENTARY
But the case also involved unlawful was that it couldn’t pay. So the judge judge thought that this tipping off
means conspiracy. The judge refused as a matter of discretion to might itself have been a breach of the
decided that this could be defended grant the declarations sought. implied undertaking. Initially, the
on the basis that the conspirators journalist was told to get a copy of
acted in their own interests and in the COLLATERAL the supporting witness statement
belief that their conduct was lawful. DISADVANTAGES from the court but, eventually, the
Evidence of market practice is The implied undertaking on the solicitors gave her a copy, which
admissible on whether they believed use of disclosed documents must included detailed descriptions of
that their conduct was lawful. So the be strictly observed. some of the disclosed documents.
evidence that was ejected by the This was a serious breach of the
In ECU Group plc v HSBC Bank plc
front door sneaked back in through implied undertaking ("I do not think
[2018] EWHC 3045 (Comm), Andrew
the rear entrance. that a solicitor with a competent,
Baker J got seriously irritated with a
basic knowledge of the rule against
UNOPPOSED FAILURE firm of solicitors for failing to
collateral use, or who took a cursory
understand the nature of, and for
Declarations are always a matter glance at the White Book
breaching, the (so-called) implied
for the court's discretion. commentary on CPR 31.22, could
undertaking (now in CPR 31.22(1))
reasonably have advised otherwise").
If you turn up to a trial, your silken applicable to the use of documents
advocate to the fore, and the provided on disclosure (in ECU There was no chance that the court
opposition does not show, you might Group, pre-action disclosure). would ever have granted permission
reasonably expect to win. But in The for this journalistic adventure in
CPR 31.22 states that documents
Bank of New York Mellon v Essar advance, and it certainly would not
provided on disclosure must only be
Steel India Ltd [2018] EWHC 3177 do so retrospectively. Indeed, the
used for the purposes of the
(Ch), C still contrived to lose despite judge thought that the standard
proceedings in which they were
both these favourable features. practice in such an application should
disclosed – in ECU Group,
be for the court expressly to order
The case concerned sums due on a prospective proceedings in England.
that no collateral use be made of the
bond. The judge accepted that the The solicitors used the content of the
documents even though they were
trustee of the bond had standing to documents to seek advice from US
referred to in open court. The judge
sue and that D had been validly lawyers as to potential proceedings
did not think that an application in
served despite having terminated the against the Ds and others in the US.
open court should circumvent the
authority of its London process agent, The judge considered that using the
undertaking, notwithstanding CPR
on whom service had been effected. content of the documents for this
31.22(b).
improper purpose was as much a
C's problem was that it did not seek
breach of the implied undertaking as USE AND ABUSE
judgment for the sums due but only a
if the documents themselves had
declaration that they were due. The Documents and witness
been sent to the US lawyers. To
reason for this limited relief was, it statements in English proceedings
deprive C of any advantage, the
might be inferred, connected with the should not be given to US
judge required that the US lawyers' authorities.
fact that D was in an insolvency
retainer be terminated, that the US
process in India and there were some ECU Group (above) emphasised the
lawyers not be instructed again on
(unexplained) issues in that process breadth and seriousness of the
this matter without the court's
regarding C's claim. But this "implied undertaking", now in CPR
permission, and that their advice not
background made Marcus Smith J 31.22 and 32.12 with regard to
be shared with anyone else.
nervous. Either his declarations documents and witness statements
would be irrelevant to events in India, Andrew Baker J was even more respectively, disclosed in English
in which case why bother? Or they annoyed that an industry journalist court proceedings. ACL Netherlands
would have an effect on those had been tipped off that she would be BV v Lynch [2019] EWHC 249 (Ch)
events, but he didn’t know what interested in a forthcoming court went on to stress that the court will
effect, and the insolvency practitioner application alleging that D had not not lightly give permission for
wasn't before him to argue the complied fully with the order for pre- collateral use, even if the proposed
issues. The judge also wasn't clear action disclosure because the disclosure is to foreign law
that there was really any dispute over application would reveal the contents enforcement bodies.
D's obligation to pay – the problem of many disclosed documents. The
April 2019 Clifford Chance| 11CONTENTIOUS COMMENTARY.
In ACL Netherlands, Hildyard J already been one criminal trial and allegation. So much for the burden of
recognised the strong public interest conviction in the US, and others had proof.
in the rule against collateral use. been separately charged, so the
In SPI North Ltd v Swiss Post
Disclosure infringes litigants' rights to documents could not be said to be
International (UK) Ltd [2019] EWCA
confidentiality by compelling them to necessary for the US process. There
Civ 7, the Court of Appeal accepted
reveal documents; the concomitant were no cogent or persuasive
that CPR 16.5 obliges a corporate
protection is that the documents must reasons for departing from the
defendant to make enquiries of
not be used for purposes other than normal rule.
employees who should know whether
the litigation, at least until a public
The judge also considered that there a pleaded allegation is true or false
trial takes place. The test for the
would be prejudice to the parties that before the defendant pleads to that
court to allow collateral use is,
had given the disclosure in the allegation (at least, if the employee's
accordingly, strict: the applicant must
English proceedings if the documents knowledge would be attributed to the
show (a) that there are special
were passed to the US authorities. In company). The question in SPI North
circumstances constituting "cogent
particular, it would give the US was whether a corporate defendant is
and persuasive reasons" for
authorities information about the obliged to go one step further and, if
permitting collateral use and (b) there
defence to the charges that the reasonable to do so, ask ex-
will be no injustice to the person who
authorities would not otherwise have employees about allegations in order
has given disclosure. Hildyard J
been able to obtain. to plead to them.
considered that the test was, if
anything, stricter with regard to Ultimately, Hildyard J was robust in The Court of Appeal's response was
witness statements than to his defence of the English public no. The timetable for the defence
documents. interest in the face of foreign laws. was, it thought, too tight for a
English interests are not necessarily defendant to be obliged to investigate
ACL Netherlands itself concerned an
to be overridden by foreign laws the truth of an allegation with ex-
application in the English litigation
enforcement, even criminal laws. employees or other third parties.
brought by Hewlett Packard arising
Also, a defence requires a statement
from HP's purchase of Autonomy. A Clifford Chance acted for the First
of truth, and a defendant might need
US Grand Jury (in reality, the US law Defendant in ACL Netherlands.
to undertake considerable analysis in
enforcement agency) had issued a
ADMIT ONE order to decide whether it actually
subpoena against a parent company
believes what it has been told by its
in the HP group demanding the A defendant is not obliged to former troops (the same might be
delivery up of all documents and investigate with third parties the
said of its current troops). The Court
witness statement disclosed in the truth of an allegation.
of Appeal also considered that what
English proceedings. HP contended CPR 16.5 requires a defendant to might constitute reasonable enquiries
that it would be in contempt of the state in his defence which allegations was too fraught for it to be a useful
Grand Jury and would face grievous he admits, which he denies and test. The Court of Appeal didn't want
penalties if it failed to comply. which he is unable to admit or deny. endless applications about what a
Hildyard J was sceptical as to The last option – colloquially called defendant should or shouldn't have
whether such dire, or any, non-admission – is not a free choice. done.
consequences would in fact flow, but The rules say that a defendant can
only not admit an allegation if he is But just because a defendant would
in any event he considered that he
"unable" to admit or deny it. If the rather not plead to an allegation does
was entitled to look at how important
allegation is something that is within not allow it sit on the fence.
the documents were for US law
enforcement. He concluded that they the defendant's knowledge, the
were not at all important. It was a defendant is able to nail its colours to
wide-ranging trawl, and there had the mast rather than merely sit back
and require the claimant to prove the
April 2019 Clifford Chance | 12CONTENTIOUS COMMENTARY
PRIVILEGE
VEXATIOUS LITIGANTS satisfied: (a) litigation must be in A glimmer of light in this gloom is that
progress or in contemplation; (b) the Court of Appeal accepted that a
Purely commercial discussions the communications must have document in which information or
about litigation are not privileged.
been made for the sole of dominant advice obtained for the litigation can't
WH Holding Ltd v E20 Stadium LLP purpose of conducting the litigation; be disentangled from the commercial
[2018] EWCA Civ 2652 is another of (c) the litigation must be discussion, or which revealed such
those decisions about privilege that adversarial, not investigative or information or advice or matters
the judiciary lob over the barricades inquisitorial." subject to legal advice privilege, will
from time to time to vex us. The remain privileged. The chances of an
Based on this, the Court of Appeal
hope is that the distinctions it seeks internal debate about settlement not
decided that the overriding
to draw are so fine as to fade from revealing this kind of information and
requirement for litigation privilege is
view on closer inspection, leaving us advice may be slight. There is,
that the communication must be for
where we were. perhaps, a hint that D's claim to
the purpose of obtaining information
privilege in WH Holding was put on
WH Holding concerned six emails or advice regarding the litigation.
too narrow a basis.
passing between board members of The reference to the dominant
D (which owns the London, ex- purpose of conducting litigation was a But if there are any such documents,
Olympic, Stadium) and between limitation on the overriding it results in absurdity, as Norris J at
board members and "stakeholders" requirement, not an extension (even first instance had pointed out. For
concerning the "commercial though conducting litigation is clearly example, the courts encourage
settlement" of a dispute with C (West wider than obtaining information or settlement – indeed, courts are
Ham United) over seating at the advice about the litigation). A purely desperate for parties to settle. WH
Stadium. The question was whether commercial discussion about Holding will not make settlement
the emails attracted litigation settlement between board members easier given the risk that a frank
privilege. would not, the Court of Appeal discussion about settlement might
considered, involve obtaining have to be revealed, potentially
The Court of Appeal started by
information or advice about the undermining a party's position in the
rejecting the argument that the
litigation. The claim to litigation litigation. Then, a settlement offer
conduct of litigation does not include
privilege therefore failed at the first will, itself, be without prejudice, and
avoiding or settling litigation. The
hurdle. so will not be shown to the court. But
Court of Appeal acknowledged that
a party's internal discussions about
this heresy had been resoundingly Prima facie, therefore, a discussion
settlement must, apparently, be
squashed in SFO v ENRC [2018] between businessmen about
disclosed and, presumably, can be
EWCA Civ 2006. So far so good. settlement using neither information
put in evidence (at least, there was
obtained from third parties for the
But then the Court of Appeal took an no suggestion otherwise).
purpose of the litigation nor legal
unfortunate path by treating a run of
advice is not privileged. Likewise, a The Court of Appeal also touched
the mill statement of litigation
discussion that explores the upon the circumstances in which a
privilege given by Lord Carswell in
reputational damage litigation might court could inspect documents in
Three Rivers (No 6) [2005] 1 AC 610,
cause. And what about a tactical order to check a party's claim to
[102], as if it were a statute. Lord
debate or any discussion that doesn't privilege. The customary position
Carswell said that litigation privilege
actually involve legal advice or has been that a judge should only
applies to
looking for evidence? inspect documents if it really does
"communications between parties Communications involving lawyers look as if there is something wrong
or their solicitors and third parties will still be safe in the main, but with the claim ("reasonably certain").
for the purpose of obtaining parties can expect a quizzing on The Court of Appeal rejected this.
information and advice in whether internal communications They considered that the courts have
connection with existing or were really for the purpose of a free discretion (though to be
contemplated litigation… but only obtaining information or advice about exercised "cautiously"), taking into
when the following conditions are the litigation. account the overriding objective. The
April 2019 Clifford Chance| 13CONTENTIOUS COMMENTARY.
Court of Appeal's first instance DOMINANT DEALINGS concluded, waived privilege in all
brethren will doubtless be thrilled with other emails discussing that same
this approach given that they now Legal advice privilege also has a communication.
dominant purpose test.
risk facing endless requests that they
inspect documents. Still, it might In R (oao Jet2.com Ltd) v Civil LAWYERS ALONE
make them feel the pain that is Aviation Authority [2018] EWHC 3364 Instructions in relation to an
disclosure and begin to understand (Admin), Morris J considered whether escrow account are privileged.
how hard privilege decisions can be. emails copied to lawyers were
The overall moral of Raiffeisen Bank
subject to legal advice privilege. He
WHO'S LAUGHING NOW? International AG v Asia Coal Energy
took a relatively orthodox approach
Ventures Ltd [2019] EWHC 3
A second, equal, purpose bars except that he decided that, as with
(Comm) is that acting as an escrow
litigation privilege. litigation privilege, legal advice
agent is not a free lunch. What can
privilege only applies if the dominant
A contract requires a party to take a go wrong often will go wrong (see, for
purpose of the communication is to
decision (whether a painting example, Nigeria v JP Morgan Chase
seek or to give legal advice. His
attributed to Frans Hals was in fact above).
narrative suggested that, if a
by Hals) for which the party needs
communication was with an outside Asia Coal Energy Ventures involved
expert advice. But the party knows
lawyer, it would be hard to see the a share sale, along with the sale of
that if its conclusion is that the
communication as having any other associated loans. The shares were
painting is a fake, it is very likely to
purpose, but he displayed the sold, but solicitors were paid the
face litigation from a third party. Is
customary judicial reservations as to purchase price of the loans by their
the party's correspondence with the
whether inhouse lawyers were client (the person financing the deal)
expert privileged?
always consulted for the purposes of to hold pending the appointment of
No, according to Teare J in Sotheby's legal advice. an escrow agent or, failing that, to
v Mark Weiss Ltd [2018] EWHC 3179 hold until an alternative arrangement
Where an email or other
(Comm). For litigation privilege to was agreed. Needless to say,
communication is sent to lawyers and
apply, the dominant purpose of the problems arose in the sale of the
to others, the judge considered that
communications with the expert must loans, the escrow agent wasn't
the whole email, to everyone, would
be the conduct of the litigation. The appointed, no other arrangement was
be privileged if its dominant purpose
judge decided that the two purposes - agreed, and there is litigation in
was to obtain legal advice, but if the
contractual decision and subsequent various fora across the world.
dominant purpose was commercial,
litigation - for commissioning the
the copies sent to the lawyers might The solicitors have been sued along
expert's work were at least equal.
be privileged, but the copies sent to with the buyer (but not the solicitors'
Litigation could not, therefore, be the
others would not. client). The specific application
dominant purpose.
related to attempts to extract
In another decision in the same case
The judge rejected a somewhat half- documents. In the escrow
([2019] EWHC 336 (Admin)), Morris J
hearted argument that SFO v ENRC agreement, the solicitors confirmed
had to decide whether disclosure of
[2018] EWCA Civ 2006 had loosened that they had received $85m and that
one privileged document waived
this requirement by allowing what they had irrevocable instructions from
privilege in others. He took the
might otherwise be two purposes (in their client to transfer or hold the
approach that it was necessary to
ENRC, preserving reputation and funds as above. C sought disclosure
identify the "transaction" or issue in
dealing with a criminal investigation) of any documents providing those
respect disclosure had been made,
to be merged as if they were the instructions.
and then to decide whether fairness
same. Teare J considered that it was
required disclosure of the other Moulder J agreed with the solicitors
all very fact specific and that the
documents. that the documents were privileged.
older authorities (notably Waugh v
C argued that the instructions could
BRB [1980] AC 520) remained firmly In this case, he decided that the
not be confidential because the client
in place. transaction/issue was the context in
had authorised the solicitors to say
which another email had been sent
that they had these instructions.
(referred to as the "attack dogs"
Moulder J rejected this. The
email). The email disclosed was part
solicitors had not been instructed by
of the discussion about that other
their client to tell C what their
communication, and, the judge
April 2019 Clifford Chance | 14You can also read
