Welcome to our latest quarterly bulletin (our first as Herbert Smith Freehills Kramer) which contains updates on commercial litigation developments over the past three months, largely by reference to articles posted to our Litigation Notes blog in that period. Other posts are available on the blog, which you can visit any time, or subscribe to be notified of the latest updates: https://www.hsfkramer.com/notes/litigation/
See also the latest episode of our Commercial Litigation Update podcast, which discusses some of the developments covered in this e-bulletin.
FUNDING
The Civil Justice Council (CJC) has published its final report in its review of litigation funding. The review was set up in April 2024 in the light of the Supreme Court's high-profile decision in Paccar which held that litigation funding agreements based on a share of damages were Damages-Based Agreements (or DBAs) and were therefore unenforceable unless they complied with the regulatory regime for such agreements. The CJC's report recommends reversing the effect of Paccar with retrospective effect, as well as introducing a new system of "light touch" statutory regulation for funders, with additional requirements applying to funding for consumers and class actions: Civil Justice Council's final report on litigation funding recommends "light touch" statutory regulation.
Meanwhile, the Court of Appeal has heard an appeal from various decisions of the Competition Appeal Tribunal on the question of whether the funding model widely adopted by litigation funders to try to get round the Paccar decision – which is based on a multiple of funding rather than a percentage share of damages – is effective: see eg Revised litigation funding agreement approved for opt-out competition claim: fee based on multiple of funding was not a DBA. The Court of Appeal's decision will be rendered academic if the government brings in legislation to reverse the effect of Paccar, as recommended by the CJC.
There has also been a very public falling out between the class representative and the funder (Innsworth Capital) in the Merricks v Mastercard litigation. The Competition Appeal Tribunal approved a £200 million settlement of the claims, despite the funder's intervention to object that the settlement was too low and should not be approved. The funder has also commenced arbitration proceedings against the class representative and applied for a judicial review challenging the Tribunal's allocation of the settlement funds.
JURISDICTION
The Court of Appeal has set aside an order staying certain claims brought in the English court on the basis that an asymmetric English jurisdiction clause did not give the party with the benefit of the clause a right to revoke their submission to the English court's jurisdiction. The decision acknowledges that the possibility of parallel proceedings is inherent in an asymmetric jurisdiction clause. If the party with the benefit of the clause wants to be able to require any English proceedings issued by a counterparty to be discontinued if it exercises its option to commence proceedings elsewhere, this will need to be clearly stated in the clause: Court of Appeal decision shows possibility of parallel proceedings inherent in asymmetric jurisdiction clauses.
Also in relation to asymmetric jurisdiction clauses, we have published an article in Butterworths Journal of International Banking and Financial Law on the impact of the CJEU's recent decision on the validity of such clauses, which was covered in our last quarterly update. The decision confirms that asymmetric jurisdiction clauses may be valid under article 25 of the recast Brussels Regulation despite giving one party a greater choice as to where to bring proceedings. However, it suggests that validity will be called into doubt unless the choice of courts is limited to EU member states and contracting states to the Lugano Convention (ie Iceland, Norway and Switzerland): Asymmetric jurisdiction clauses: when will they be effective?
The High Court has refused an application brought by two UK-domiciled companies for an order that it should not exercise its jurisdiction to try the claims against them. The court held that, while Brazil had a closer connection to the case, there was a real risk that the claimants would not obtain substantial justice there due to difficulties in obtaining legal representation for their claims. This joins a small number of cases in which the English courts have accepted jurisdiction based on a risk that the claimants could not obtain funding in what would otherwise be the appropriate forum. The defendants have applied for permission to appeal: High Court allows case to proceed against defendant companies domiciled in England despite claims having more real and substantial connection with Brazil.
The High Court has revoked anti-suit injunctions (ASIs) made in favour of the claimants where the defendant obtained its own ASIs from the Russian court, which required the claimants to take all measures within their control to cancel the English ASIs or face a significant penalty. In revoking the injunctions, the court followed recent guidance from the Court of Appeal in another case which we reported on last time. However, it refused to revoke declarations on the court's jurisdiction, since these merely recorded the position as determined by the court under English law: High Court grants banks' request to revoke final anti-suit injunctions in their favour but refuses to revoke declarations on jurisdiction.
ENFORCEMENT OF JUDGMENTS
The Hague Judgments Convention 2019 is set to come into force for the UK on 1 July 2025 and will provide a uniform framework for the recognition and enforcement of judgments between the UK and the other contracting states. These are, currently, Ukraine, Uruguay and the EU member states (except Denmark) but the Convention is due to come into force for other states next year and can be expected, in time, to gain increased acceptance internationally. For more information see: The Hague 2019 Judgments Convention: Bolstering the UK's position as a jurisdiction of choice for international dispute resolution.
The High Court has set aside an order registering a Canadian court judgment for enforcement under the Foreign Judgments (Reciprocal Enforcement) Act 1933 on various grounds, including that the necessary jurisdictional criteria were not met and the defendant did not have notice of the Canadian proceedings. This case highlights the importance of thoroughly researching the process that is likely to apply to the enforcement of a foreign judgment at an early stage: High Court decision underlines that the English court may refuse to enforce a foreign judgment even if the relevant foreign rules on jurisdiction and service were complied with.
CLASS ACTIONS
We have published an article in PLC Magazine looking at how class actions have become an established part of the litigation landscape in the 25 years since the group litigation order (GLO) was introduced. Since the GLO was introduced in May 2000, a total of around 125 GLOs have been made. That is an average of five per year, which represents only a small part of the picture of class action litigation in England and Wales. Over that same time period, class actions have become far more prominent in the English courts, with an increase both in the number of cases being brought, and in their size and value: Group Litigation Orders: Only part of the picture 25 years on.
There have also been a number of developments relating to the appeal status of decisions in the class actions context:
- The Supreme Court has granted permission to appeal in the Axa case, in which the Court of Appeal considered the binding effect of decisions in test cases and clarified when it might be appropriate to order that a finding on a GLO issue does not bind other parties: Group litigation orders: Court of Appeal considers binding effect of decisions in test cases.
- The Court of Appeal has granted permission to appeal in the Angel v Black Horse case, in which the High Court held that 5,800 claimants in motor finance claims did not have to issue separate claim forms: High Court confirms 5,800 motor finance claimants can use omnibus claim forms and do not need to issue separate claim forms.
- The Supreme Court has refused permission to appeal in the Indivior case, in which the Court of Appeal refused to allow a novel bid to bring a securities class action as an "opt-in" representative action under CPR 19.8: Court of Appeal rejects attempt to bring securities class action using CPR 19.8 representative action as an "opt-in" procedure.
- There is also an outstanding application for permission to appeal to the Court of Appeal in the Le Patourel v BT case, which was the first opt-out collective competition claim to proceed to trial in the Competition Appeal Tribunal. The claim was dismissed on the basis that there was no abuse of dominance: Competition class actions: First case to go to trial ends in failure.
PRIVILEGE AND WITHOUT PREJUDICE
The High Court has granted claimants permission to rely on certain privileged documents that the defendant said had been disclosed in error, where it found that the error would not have been obvious to a reasonable solicitor carrying out a proper disclosure review. The decision confirms that whether there is an obvious mistake is an objective test. The subjective views of those reviewing the documents will be a relevant, and potentially important, factor in the court's assessment, but the weight given will depend on the status and experience of those conducting any particular level of review: High Court grants permission to rely on inadvertently disclosed privileged documents where the mistake was not obvious.
The High Court has made a relatively rare finding that the iniquity exception to privilege applied in respect of certain aspects of a transaction, with the result that no privilege attached to various categories of documents over which the defendants had asserted privilege. It did not, however, follow that none of the defendants' documents relating to the transaction were privileged. Instead, the documents over which privilege had been asserted had to be reviewed on an individual basis in order to determine whether the iniquity exception applied: High Court finds iniquity exception to privilege applied, but not on a blanket basis.
The High Court has held that survey reports commissioned by a party to a dispute for use in potential future without prejudice (WP) negotiations were not covered by the WP rule, because they were commissioned unilaterally outside of the negotiation process. The decision contrasts with another recent judgment on the application of the WP rule to third party communications. Together the cases highlight the risks in commissioning reports from third parties in order to assist with WP negotiations, unless there is a clear agreement to extend the WP protection or the report will be covered by litigation privilege: Without prejudice privilege rejected for survey reports commissioned unilaterally to assist with prospective negotiations.
FAKE AUTHORITIES
The potential for misuse of AI has recently come under scrutiny in the courts, with solicitors and barristers found to have cited fake cases in pleadings, witness statements and applications as a result of the use of AI. This has resulted in public criticism, wasted costs orders and referral to the professional regulators for those involved. Such conduct may also lead to proceedings being initiated for contempt of court. A recent judgment from the Divisional Court gives important guidance to lawyers on their obligations when using AI and also calls on the legal regulators to consider urgently what further steps they should be taking regarding the use of AI: AI and fake citations: A challenge for lawyers, regulators and the courts.
PROCEDURAL COMPLIANCE
A High Court Master's decision suggests that where a claim form is served using an appropriate service method, but after the deadline for service, the claim remains in existence unless and until the court makes an order refusing to exercise jurisdiction. Defendants faced with late service of a claim form should therefore file an acknowledgment of service and apply to challenge jurisdiction within the relevant time periods in order to prevent the claim from proceeding. The decision is, however, subject to an appeal: High Court declines to extend time for defendant to challenge court's jurisdiction, despite claim form having been served out of time.
The Court of Appeal has held that default judgment should not have been set aside where a defendant delayed 16 months before applying to set aside. However, it upheld a decision granting relief from sanctions against another defendant who was one day late complying with an unless order, where the mistake was caused in part by the order failing to specify the precise date for compliance. The decision shows the importance of specifying a precise date for compliance with an unless order, and (where a date is not specified) taking care in calculating the relevant time period for compliance: Court of Appeal decision shows importance of applying promptly to set aside a default judgment.
FIDUCIARY DUTIES
The Supreme Court has confirmed that a fiduciary, including a company director, is liable to account for all profits made out of their position as such. They cannot circumvent liability by arguing that "but for" the breach they would have made the profits in any event – for example because, if asked, the principal would have consented. The court may, however, award an equitable allowance to reduce the amount of accountable profits where the fiduciary has devoted hard work and skill, and potentially put their own capital at risk, in obtaining such profits: Supreme Court confirms fiduciary must account even for profits that would have been made without the breach of duty.
A recent Court of Appeal decision considers a director's duty under section 172 of the Companies Act 2006 to act in the way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole. The decision emphasises that this requirement cannot be met where a director has acted dishonestly, and the court must consider whether the director's conduct was objectively honest, by the standards of ordinary decent people: Section 172 "good faith" duty: Court of Appeal clarifies honesty requirement, which must be assessed objectively.
In the latest decision considering secret and half-secret commissions, the Court of Appeal has dismissed an energy customer's claim against its energy supplier for paying commissions to a third-party broker, which were only partially disclosed to the customer. In the present case, no allegation of dishonesty was made against the energy supplier, and the Court of Appeal refused to amend the grounds of appeal to advance a case in dishonesty. Accordingly, the Court of Appeal upheld the High Court's decision to dismiss the claim (albeit on a different basis): Court of Appeal confirms that dishonesty is essential ingredient in half-secret commission claims.
INSOLVENCY LITIGATION
The Supreme Court has confirmed that liability for fraudulent trading under section 213 of the Insolvency Act 1986 is not limited solely to persons responsible for company management and control. Any persons knowingly involved in the company's fraudulent business activities can be liable. The judgment means that third parties who know that a company's business is being run in a manner intended to defraud creditors and then participate in, facilitate, or assist with fraudulent transactions may be liable under the Insolvency Act 1986: Supreme Court confirms the types of defendant who can be liable for fraudulent trading.
The High Court has ordered the winding up of a company in the context of a shareholder dispute. It found that the "just and equitable" ground was made out in circumstances where there had been a complete breakdown in the parties' relationship of trust and confidence and a functional deadlock between them. The decision demonstrates that, despite authority that winding up should only be used as a last resort in shareholder disputes, the court will grant such relief in an appropriate case, particularly where there has been a total breakdown in the parties' relationship and other relief is not realistic: High Court grants rare remedy of winding up of company in shareholder dispute.
The High Court has held that a defendant, who was resident in England and subject to Russian bankruptcy proceedings, was not entitled to a stay against a claimant seeking to enforce a Russian judgment debt against his immovable property in England. The judgment follows Supreme Court authority from 2024 which upheld the primacy of the "immovables rule", which provides as a matter of common law that where immovable property (most commonly land) is situated in England, neither English law nor the English courts will recognise or give effect to any laws or judicial decisions of other countries in relation to rights to and interests in that immovable property: High Court applies "immovables rule" in rejecting stay on creditor enforcement against immovable property in England.
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