UK: A Litigator's Yearbook: 2018 (England And Wales)

Last Updated: 21 December 2018
Article by Herbert Smith Freehills

As the end of another year approaches, we look back at some key developments from 2018 from the perspective of the commercial litigator. This post covers a range of topics such as privilege, disclosure, contract law, jurisdiction and various aspects of court procedure. We hope you will find it a helpful reference.

Privilege

This has certainly been a big news year for privilege, and not much of it has been good. The high point was the Court of Appeal's decision in ENRC, handed down in September (see  Court of Appeal decision in ENRC: Orthodoxy restored on litigation privilege but narrow interpretation of "client" remains for now):

  • On litigation privilege, the decision overturned the restrictive approach adopted at first instance. In particular, the Court of Appeal took a more realistic and commercial view of the dominant purpose test, finding that the purpose of investigating whistleblower allegations and dealing with compliance and governance was all part and parcel of the litigation purpose, and so the test for litigation privilege was met. It also helpfully confirmed that avoiding or settling a dispute, even pre-action, is as much a litigation purpose as defending proceedings.
  • On legal advice privilege, however, the decision was more mixed. The court considered itself bound by the notorious Three Rivers No 5 decision to adopt a narrow definition of "client" so that the privilege is limited to communications between a lawyer and those tasked with seeking and receiving advice on behalf of the client company. The court indicated, however, that it would have departed from the decision if it could have done so.

Since that high point, the news has been pretty much all bad, at least from the perspective of those seeking to protect communications and documents created as part of the process of taking legal advice or dealing with litigation.

In relation to legal advice privilege, in a decision in October, the High Court held that an in-house lawyer's communications with an employee of the business, who was accepted to be her in-house "client" for some purposes, were not privileged where those communications were to seek and obtain information to provide to external solicitors in order to obtain their legal advice (see Information gathering by in-house lawyer to obtain external advice may not be covered by legal advice privilege). The court said there was nothing to indicate that the employee was the external solicitors' "client" (in the now-established narrow sense of that word). The decision illustrates that it is essential to consider, in any given context, which lawyer is advising and who is tasked with seeking and obtaining that lawyer's advice.

In relation to litigation privilege, November gave us two unhelpful decisions, in contrast to the more favourable approach taken by the Court of Appeal in ENRC:

  • The High Court rejected a claim to privilege over correspondence with experts on the basis that it was prepared for two purposes, ie to take a commercial decision as to whether to rescind the sale of a painting, as well as for the purposes of the litigation that may follow that decision, and the claimant had not established that the litigation purpose was dominant (Litigation privilege: High Court decision shows continued need to beware of dual purpose). Although a decision to rescind would likely, perhaps inevitably, lead to litigation, the court found that the two purposes could not be regarded as one and the same, rejecting an attempt to draw an analogy with previous cases including ENRC  .
  • The Court of Appeal held that, to fall within litigation privilege, a communication must be prepared for the dominant purpose of obtaining advice or evidence in relation to the conduct of litigation. It is not sufficient that it is for the dominant purpose of conducting litigation, in a broader sense (see Court of Appeal finds litigation privilege is restricted to the purpose of obtaining advice or information, not the conduct of litigation more broadly). The decision is likely to lead to difficulties in the application of litigation privilege in practice, as there may be many communications or documents which are for the purpose of conducting litigation (including avoiding or settling litigation) but which do not fall within the category of obtaining advice or evidence. In the case itself, privilege was denied for emails between Board members discussing a commercial proposal for the settlement of a dispute.

Continuing the theme of unhelpful decisions, a High Court decision in September suggests that the fact that documents are subject to a client's privilege will not justify a refusal to provide the documents to a regulator in response to a demand under its statutory powers, whether or not the statute can be taken to override legal professional privilege (see Privilege no defence to notice requiring production of client's privileged documents to regulator).

Disclosure

The main development relating to disclosure this year is something that will take effect immediately after it ends: new rules to govern disclosure which are to be piloted in the Business and Property Courts for two years from 1 January 2019. It is expected that, if the pilot is a success, it will lead to wider reforms to disclosure (see Article published – Pilot of new disclosure rules: A change for the better?) The new rules follow on from proposals published in November 2017 by a working group chaired by Lady Justice Gloster. In broad summary, the current disclosure menu will be replaced by a new list of "models". Although the list of models is not dramatically different from the current menu, the proposed rules contain clear signs steering the parties, and the court, toward a more restrained approach to disclosure.

The new rules contain an express duty to disclose documents a party is aware of which are adverse to its case (unless they are privileged), regardless of any order for disclosure. For a company or organisation, the relevant awareness is that of "any person with accountability or responsibility ... for the events or the circumstances which are the subject of the case, or for the conduct of the proceedings", and reasonable steps must be taken to check the position with anyone who had such accountability or responsibility but has since left the organisation. This leaves obvious scope for debate on various issues, such as the breadth of the group that will be considered to have "accountability or responsibility" for the relevant matters. It seems likely that these points will need to be clarified in case law in due course.

Apart from the disclosure pilot, interesting developments this year include:

Contract

In May, the Supreme Court overturned a decision that contractual clauses requiring amendments to be in writing would not preclude amendments subsequently being effected orally. This is an important judgment which means that "no oral modification" clauses will generally be given effect so as to prevent contracting parties being bound by a subsequent variation unless the specified formalities are complied with (see Supreme Court breathes new life into "no oral modification" clauses).

In June, the Court of Appeal delivered an important judgment relating to non-reliance clauses, which seek to prevent liability arising in misrepresentation by stating that no representations have been made or (if made) have not been relied on, and therefore setting up a contractual estoppel. The Court of Appeal held that such clauses amount to an attempt to exclude liability for misrepresentation and are therefore within the scope of s.3 of the Misrepresentation Act 1967 and subject to the reasonableness test under s.11(1) of the Unfair Contracts Terms Act 1977 (see Court of Appeal finds non-reliance clause sought to exclude liability for misrepresentation and was therefore subject to UCTA reasonableness test).

Other decisions of interest include a Court of Appeal decision in April which shows that the court will strive to give meaning to a contract term if at all possible, rather than finding it void for uncertainty (see Court of Appeal decision suggests courts will be slow to find contract terms void for uncertainty) and one in July which acts as a reminder of the strict approach adopted by the English courts in implying contractual terms (see Court of Appeal decision underlines high threshold for implying terms into a contract).

This year we completed our series of contract disputes practical guides with a new edition on "Dispute resolution clauses: Putting yourself in the best position". The complete set of guides can be found on the home page for the series together with information on how to access the accompanying webinar for each edition. We are planning to update and re-launch the series early in 2019.

We have also published two podcasts discussing the impact of Brexit on contracts governed by English law: (i) "The Impact on Existing and Future Contracts" which considers matters such as the continued use of references to the EU and to EU legislation, continued compliance with EU and UK legislation, and tips for drafting a "Brexit clause"; and (ii) "Will Brexit allow parties to bring their contracts to an end?" which includes consideration of force majeure clauses, material adverse change clauses and frustration at common law.

Jurisdiction, choice of law and enforcement

The biggest issue in relation to jurisdiction, choice of law and enforcement of judgments over the past year has been the question of how things will change post-Brexit, particularly as regards enforceability of English jurisdiction clauses and judgments in the EU27. (It is, at least, tolerably clear that little will change as regards choice of law.)

In very brief summary (for a slightly longer one see Brexit, deal or no deal: A litigator's perspective):

  • If the draft withdrawal agreement that has been agreed between the UK and the EU is ultimately entered into, then the current rules on both jurisdiction and enforcement will apply where proceedings are commenced before the end of the agreed transition period (end December 2020). What comes after that will depend on what, if anything, is agreed during that period.
  • In case there is no withdrawal agreement, the UK intends to sign up to the 2005 Hague Convention on Choice of Courts Agreements, with effect from 1 April 2019. In that case, if an exclusive English jurisdiction clause is agreed after that date, it will generally be given effect by EU27 courts and judgments given pursuant to it will be enforceable throughout the EU27. The same is likely to be true where an exclusive English jurisdiction clause was entered into pre-Brexit (and after 1 October 2015 when the Hague Convention took effect for the UK as an EU Member State) but this is less certain. If the Hague Convention does not apply, and no other agreement is reached, then each country in the EU27 will apply its own domestic rules to questions of jurisdiction and enforcement.

For a discussion of the options open to commercial parties in terms of dispute resolution clauses, and their pros and cons, see  Choosing a jurisdiction clause with Brexit on the horizon published in September on Practical Law's dispute resolution blog. Or see our podcast published in September which discusses the impact of Brexit on English governing law jurisdiction clauses.

Brexit aside, in a decision in January, the Supreme Court found (by a majority and in obiter comments, and contrary to the Court of Appeal's view) that direct damage within the jurisdiction is not required to come within the tort jurisdictional gateway in the CPR (see Supreme Court considers that there is no requirement of direct damage in England for permission to serve tort claim outside the jurisdiction at common law). That would mean the test under the common law is different from the test under the recast Brussels Regulation, where direct damage in the jurisdiction is a requirement. Given the strong dissenting opinions, and the tentative nature of the majority view, this is unlikely to be the last word on the point.

Class actions

This year has seen two Court of Appeal decisions in cases of so-called "class action tourism". In both, the court held that the English court did not have jurisdiction to hear the claims against a UK incorporated company and its overseas subsidiary arising out of the operations of the subsidiary company abroad (see Court of Appeal confirms English court lacks jurisdiction over claims against UK domiciled parent company in relation to acts of subsidiary abroad and Holding company liability for acts of a subsidiary: Court of Appeal finds English court lacks jurisdiction on basis no duty of care owed). The decisions go some way to providing clarity on when a parent company may be liable for the acts or omissions of its subsidiaries, but they are not the last word as similar issues arise in a case that will be heard by the Supreme Court in January.

In October, the Court of Appeal gave judgment against Morrisons in group litigation brought by 5,500 employees relating to the intentional misuse of their data by a rogue employee (see Court of Appeal confirms Morrisons vicariously liable for employee's deliberate actions in first successful UK class action for data breach). The decision highlights the wide reach of data protection. An organisation can be liable for data breaches even if it has taken appropriate measures to comply with the data protection legislation itself, and even if it is the intended victim of the breach. Morrisons has filed an application for permission to appeal the decision to the Supreme Court.

In November, the Court of Appeal held that it had jurisdiction to hear an appeal against the Competition Appeal Tribunal's (CAT's) refusal to certify a claim against MasterCard as suitable for "opt-out" collective proceedings under regime for competition law cases introduced from October 2015. The claim is brought on behalf of some 46.2 million UK consumers seeking around £14 billion in damages, but it was refused certification in July 2017. The CAT refused permission to appeal, finding that it had no jurisdiction to grant permission, but the Court of Appeal disagreed. There will be a rolled-up hearing of the application for permission and the substantive appeal (if permission is granted) in February 2019.

In June, we published our new textbook, Class Actions in England and Wales, written by lawyers from the firm and published by Sweet & Maxwell (see Our new book launched today: Class Actions in England and Wales). The text focuses mainly on the group litigation order procedure, but also discusses the relatively new opt-out procedure for collective proceedings in the Competition Appeal Tribunal. As well as explaining the stages of a group action, the book contains chapters on jurisdiction, choice of law and enforcement issues, as well as costs and funding. It also devotes specific chapters to three areas we see as becoming increasingly important: shareholder claims; environmental or human rights based claims against businesses; and competition claims.

We have also published a podcast and a series of webinars and short guides to class actions in England and Wales, including an edition on data breach class actions.

Costs and funding

In June 2018, the government launched its post-implementation review of the key legislation that implemented the Jackson reforms back in April 2013, ie Part 2 of the Legal Aid, Sentencing and Punishment of Offenders Act 2013 (LASPO). The government's initial assessment of the reforms as part of the review recognised that there had been some criticism of the current regulatory regime for damages-based agreements (or DBAs), and said the review would include consideration of the recommendations for reform made by the Civil Justice Council back in 2015 (see Damages-based agreements: A chance to make them work? published in July on Practical Law's dispute resolution blog). The government's initial assessment paper said that its report would be prepared by Ministry of Justice officials later in 2018, and it would then be for ministers to decide what further actions to take. To date nothing has been published, so the timing remains uncertain.

In relation to costs more generally, a High Court decision in October sent a stark message by imposing severe sanctions on a party who filed a "materially incomplete" costs budget, having taken the view that it was premature to budget for the later stages of the action (see The dangers of filing an incomplete costs budget). The decision suggests that the only safe course is to budget for the entire action, unless the court has made an order directing that budgets be limited to only part of the proceedings. There is however an exception where the new disclosure pilot applies: the pilot scheme provides that the parties may postpone completion of the disclosure section of the costs budgets, by agreement, if it is not practical to complete that section before the court makes an order in relation to disclosure at the case management conference.

Part 36 offers, settlement and ADR

A Court of Appeal decision in July suggests that a Part 36 offer in existing proceedings cannot relate only to unpleaded claims – even though a Part 36 offer can be made pre-action, when (by definition) no claims have been formally pleaded (see Court of Appeal confirms offer relating to proposed claim by amendment was not valid Part 36 offer). The decision leaves open the question of whether a Part 36 offer can be made which offers to settle both pleaded and unpleaded claims.

A High Court decision in November illustrates why it will rarely be wise to withdraw a Part 36 offer (see The perils of withdrawing Part 36 offers after trial (or any time)).

Also in November, the Civil Justice Council's ADR working group released its final report on ADR and Civil Justice. This includes recommendations aimed at further encouraging ADR but does not recommend mandatory mediation (see Civil Justice Council report on ADR calls for review of Halsey guidelines but stops short of recommending mandatory mediation).

Witness evidence

A working group was set up in March to review current rules and procedures for factual witness evidence in the Business and Property Courts and make recommendations for potential reform. The group conducted an online survey seeking views from court users.

The alternatives set out in the survey include some radical alternatives such as: doing away with witness statements and returning to oral examination-in-chief; moving to pre-trial depositions; and (perhaps most controversially) lifting privilege in the production of witness statements or permitting the opposing party to conduct or be present at the interviewing of witnesses. Ultimately, we expect that less radical options are more likely to be adopted, although nothing can be ruled out at this stage.

Other

In February, the Supreme Court held that, as directors are fiduciary stewards of the company's property, they are treated as being in possession of that property from the outset. Accordingly, where directors have benefited from the misappropriation of company property, they will not be entitled to a limitation defence in claims by the company – regardless of whether the directors ever had legal or beneficial ownership of the property (see Supreme Court decision makes it harder for directors to establish limitation defence where they have benefited from breach of fiduciary duty).

In April, the Supreme Court overturned a Court of Appeal judgment which potentially expanded the availability of "Wrotham Park" or negotiating damages, and signalled a return to more orthodox reasoning in relation to the award of damages for breach of contract and the quantification of economic loss (see Supreme Court decision clarifies basis for the award of Wrotham Park damages).

In July, the Supreme Court confirmed that, where an employer is sued on the basis that it is vicariously liable for the acts of its employees, it does not owe those employees a duty to defend the proceedings in such a way as to protect their economic or reputational interests (see Supreme Court confirms employers' duty of care to employees does not extend to the conduct of litigation).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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