We are pleased to present our third case review of 2010 which contains summaries of selected cases which will impact on the way in which parties conduct litigation and their business dealings.
In this review we consider recently decided cases on whether an arbitration agreement can stipulate that arbitrators must come from a particular religious group, varying a freezing order and the meaning of "ordinary course of business" and waiver of privilege in relation to an application to sanction of a scheme of arrangement.
We also consider cases giving guidance on the need to withdraw a Part 36 Offer, cases on pre-action admissions and disclosure and the scope of the Rome II Regulation
Arbitration
Jivraj v Hashwani [2010] EWCA Civ 712
Whether arbitration agreement can stipulate arbitrators must come from a particular religious group
The appellant and respondent entered into an arbitration agreement which stipulated that all the arbitrators had to be high office holders within the Ismaili community. The appellant applied to the English courts seeking an order that a particular arbitrator, who was not a member of the Ismaili community, be appointed. It was argued that the requirement that the arbitrators came from the Ismaili community, although lawful when the agreement was made, had been rendered unlawful and was void because it contravened the Employment Equality (Religion and Belief) Regulations 2003 ("the Regulations"). At first instance, the judge held that the Regulations did not apply because the arbitrators were not employees and permission to appeal was granted by the Court of Appeal.
Regulation 6 of the Regulations (broadly) makes it unlawful for an employer to discriminate against a person applying for employment. Regulation 7 provides an exception where belonging to a particular religion is a genuine occupational requirement of the job. The Court of Appeal (Moore-Bick LJ giving the leading judgment) held as follows:
- Arbitrators are "employees" for the purposes of the Regulations. The Regulations are intended to apply to all forms of employment in the broadest sense, including the provision of services under any form of contract. In most cases, the arbitrator will enter into a contract (even where, as here, the arbitrators do not accept any remuneration for acting);
- Discrimination is not permitted in respect of private hirings and "the choice of a solicitor, plumber or arbitrator, whether on religious, racial or any other grounds" can fall foul of Regulation 6. Nor are arbitrators "self-employed" for the purpose of Regulation 6, since their working arrangements are controlled, to a greater or lesser extent, by others;
- A term requiring arbitrators to come from a particular religious background is void. Since the arbitrator was not required to apply any particular ethos of the Ismaili community (the dispute had to be resolved in accordance with English law), there was no genuine occupational requirement that the arbitrator come from the Ismaili community. Accordingly, the term requiring the arbitrator to come from the Ismaili community was void; and
- Although it was possible to strike out the offending sentence from the arbitration clause and the remaining clause would still be workable, the Court of Appeal agreed with the trial judge that that would render the agreement substantially different from that which had originally been intended. Accordingly, the entire arbitration agreement was void.
Injunctions
Abbey Forwarding Ltd v Hone & Ors [2010] EWHC 1532 (Ch)
Varying a freezing order and the meaning of "ordinary course of business"
A freezing order obtained by the provisional liquidator of a company against three former directors contained the standard form provision that the respondent could still use any of his assets "in the ordinary and proper course of business". The directors wanted to make a loan to another company (Wingpitch) of which they were also directors and shareholders. Morgan J held that the loan was proper (i.e. it was not a device to release money from the freezing order), but it was not "in the ordinary course of business". The way in which Wingpitch had been carried on in the past had not involved the directors lending money to it (in fact, money always passed from Wingpitch to the directors). The directors' intention to make the loan to Wingpitch "involves them stepping outside anything that has happened before and anything that is in the nature of an established practice".
The judge went on to consider whether he ought to exercise his general discretion to vary the freezing order. He referred to the principles which he ought to have regard to (as summarised in Noga v Australia and New Zealand Banking Group [2006]), in particular: 1) the interests of justice; 2) the purpose of the freezing order; 3) the consequences of allowing or refusing the variation; and 4) the alternatives available to the directors.
The judge concluded ("by a very short head") that the order should be varied. Although it was suggested that the directors could obtain money from other sources, there were difficulties for them in doing so and the evidence was not definitive.
Settlement offers
Gibbon v Manchester City Council [2010] EWCA Civ 726
Need to withdraw offer and determining whether an offer is "more advantageous"
In this case, the Court of Appeal heard two appeals together. They both concerned the scope of CPR r36 (settlement offers to settle). Moore-Bick LJ prefaced his judgment with the comment that Part 36 embodies a self-contained code and it does not incorporate all the rules of law governing the formation of contracts.
In the first appeal, the claimant had offered to accept £2,500. This offer was never withdrawn and a few months later the claimant rejected an offer from the defendant which was for a similar amount. The defendant then formally accepted the claimant's offer. The Court of Appeal held that the defendant was entitled to accept the offer which had never been withdrawn. There is no concept of implied withdrawal of a Part 36 offer. Rejection of a Part 36 offer does not render it incapable of later acceptance and, unlike in common law, an offer cannot lapse.
Moore-Bick added that "although the rule does not prescribe any particular form of notice [of withdrawal], in order to avoid uncertainty it should include an express reference to the date of the offer and its terms, together with some words making it clear that it is withdrawn". The rejection by the claimant of the defendant's counter-offer did not amount to a withdrawal of her offer which had been on similar terms. This part of the Court of Appeal's decision reflects the views of Coulson J in Sampla v Rushmoor Borough Council. In the second appeal, Moore-Bick LJ also commented (obiter) that a party can make a number of different Part 36 offers, all of which are concurrently open for acceptance: "Part 36....does not provide that only one offer may be available for acceptance at any one time". In this case, the claimant had recovered £661 more than the defendants' offer. That raised the question whether the claimant had failed to obtain a judgment which was "more advantageous" than the defendants' offer (within the meaning of CPR r36.14(1)(a)).
In the Court of Appeal decision of Carver v BAA [2008], it was concluded that account should be taken of all aspects of a case, including emotional stress and financial factors. Both Moore-Bick LJ and Carnwath LJ expressed criticism of that decision (which has also recently been criticised by Jackson LJ in his Review of Civil Litigation Costs). Although they recognised that they are bound by the decision, they said that it "should not be interpreted as opening the way to a wide-ranging investigation of emotional and other factors in every case, even where the financial advantage is significant". In most cases, obtaining judgment for an amount greater than the offer will outweigh all other factors. Only in rare cases (for example, where the offer is beaten by only a very small amount and the winning party has suffered serious adverse consequences as a result of pursuing the case to judgment) will other factors outweigh success in pure financial terms.
Pre-action
Gunn & Anor v Taygroup Ltd [2010] EWHC 1665 (TCC) Withdrawal of pre-action admission
A defendant does not need the permission of the court to withdraw a pre-action admission (see Stoke on Trent v Walley [2006]). In this case, the claimant sought to strike out those parts of a Defence which resiled from earlier admissions of liability. Akenhead J held as follows:
- The first letter sent by the claims handling agents appointed by the defendant's insurers in June 2005 did not amount to an admission. It had been stated that the defendant was "responsible" but this was ambiguous - it might mean liable in law or it might just mean that the defendant had caused the accident. In this case, it was clear from the facts that within weeks, and over the next two years, liability was not admitted. However, a second letter sent in September 2007 was clearly an admission;
- It was not asserted by the claimants that there was any bad faith on the part of the defendant and so the court could not strike out all or parts of the Defence on the grounds of "abuse of process" within the meaning of CPR r3.4; and
- The Claimants therefore had to show that they would suffer some prejudice which will affect the fairness of the trial if the requisite parts of the Defence are not struck out. Akenhead J held that it was not proper to infer that prejudice had occurred. For example, the claimant could have taken witness statements and secured other documentary evidence in the 28 month period between the accident and the admission. Furthermore, evidence should be produced to show that there was a real possibility that documents which went to liability had been lost post-September 2007.
The judge also commented that it seemed "somewhat unfair" to hold a defendant to an admission of liability on a claim then specifically quantified at around £600,000, when the claim over two years later had increased to over £3.4 million: "It is not at all unlikely that, if in September 2007, the Defendant, its then solicitors and its insurers had known that it faced a claim of over £3.4 million, it would not have admitted liability so readily if there was an arguable defence on the facts."
Kneale v Barclays Bank PLC [2010] EWHC 1900 (Comm)
Application for pre-action disclosure and test for arguable case
An order for pre-action disclosure pursuant to CPR r31.16 can only be made where the court has jurisdiction to make the order and where it chooses to exercise its discretion to make the order. For the jurisdictional issue, some of the conditions which must be satisfied are that both the respondent and the applicant are likely to be a party to subsequent proceedings. In Black v Sumitomo [2002], the Court of Appeal held that it is not a requirement that proceedings are likely to be issued, but only that if subsequent proceedings are issued, it is likely that the respondent (or applicant) will be a party to those proceedings. It went on to hold that "likely" means "more probably than not" or "may well".
However, in a later Court of Appeal case - Rose v Lynx Express [2004], the Court of Appeal held that the test was whether a substantive claim was properly arguable and had a real prospect of success. This higher threshold was recently followed in Pineway v London Mining, where Steel J said that it was still a necessary requirement that there is a prima facie claim upon which proceedings could be instituted.
In this case, Flaux J said that, if he had to decide the point, he would have held that the correct test was the lower one set out in Black v Sumitomo. At the pre-action stage, where the whole purpose of the application is to ascertain whether or not to bring a claim, the judge believed that it cannot be right that an applicant has to establish a case which is sufficiently arguable to have a "real prospect of success". However, he also believed that (as CPR r31.16 does not require an applicant to show that proceedings may well ensue), the applicant does have to show some sort of prima facie case which "is more that a merely speculative "punt". He went on to find that even with the lower jurisdictional threshold, the applicant could not satisfy the test. The application was said to smack of "Micawberism" - the hope that something will turn up.
Privilege
Petition of the Scottish Lion Insurance Co Ltd [2010] CSOH 87
Waiver of privilege in relation to application to sanction of a scheme of arrangement
The petitioners sought sanction of a scheme of arrangement under section 899 of the Companies Act 2006. The court can only sanction such a scheme if the majority of creditors (in number and value) vote for it. The respondents (certain creditors) allege that the scheme did not achieve the required majorities. To make their challenge, they sought disclosure of documents provided to the petitioners by the noters (who were other creditors). The noters argued that this documentation was privileged. It has not yet been determined if those documents are privileged, but in this case, the Outer House of the Court of Session had to decide whether there had been an implied waiver of the documentation.
Generally, implied waiver occurs to prevent a party "cherry picking" i.e. waiving privilege in such a partial and selective manner that unfairness or misunderstanding may result. However, in this case, there was no "cherry picking" - the noters did not want to disclose any of the documentation at all.
Lord Glennie held that there had been an implied waiver of the documentation. Creditors who lodge documentation with the petitioners for voting purposes do so as part of a court process which is always potentially adversarial and may well become highly contentious.
The noters wanted the documents to be relied upon so that the scheme succeeds. They must therefore be taken to have waived, vis-à-vis other creditors and those involved in the court process, any privilege in the documents. Nor can the noters rely on any confidentiality agreements entered into between themselves and the petitioners. A party who has lodged evidence with the petitioners cannot "seek by private agreement to prevent its circulation to other parties to the litigation".
Bacon v Nacional Suiza Cia Seguros Y Reseguros [2010] EWHC 2017 (QB)
The English claimant was injured by a Spanish driver (insured by the Spanish defendant) on 7 September 2007. An issue arose as to whether Spanish or English law applied to the assessment of damages and this in turn depended on whether Rome II applied. As reported above, Slade J was of the opinion in the case of Homawoo v GMF Assurance that Rome II applied to events giving rise to damage which occur only on or after 11 January 2009.
In this case, Tomlinson J (who had been shown a copy of Slade J's judgment) concluded that Rome II applies to events giving rise to damage which occur on or after 20 August 2007. In so doing, the judge commented that it is well-established in EU legislation that there can be a difference between the date when an instrument comes into force and the date when it "applies". However, it should be noted that Tomlinson J's comments were made obiter, since he had also concluded that the defendant was not liable to the claimant.
COMMENT: This issue is commonly of importance to foreign insurers in particular when faced with an English third party claimant. If Rome II applies, as it was held to here, then the law of the insurer's home state will govern the assessment of the quantum of damages. Otherwise, English law will apply (see Harding v Wealands [2007]). That is important because the assessment of quantum under English law is significantly more beneficial to claimants than in several other European jurisdictions. There are now, therefore, two conflicting views from two High Court judges as to the temporal scope of Rome II and it remains to be seen whether a reference will in fact be made to the ECJ to finally determine the point
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