litigation & dispute resolution - winston & strawn · 2014-08-28 · india siddharth...

Contributing Editor: Michael MaddenPublished by Global Legal Group

Third Edition

Litigation & Dispute Resolution

CONTENTS

Preface Michael Madden, Winston & Strawn London LLP Australia Colin Loveday, Richard Abraham & David Birch, Clayton Utz 1 Belgium Koen Van den Broeck & Thales Mertens, Allen & Overy LLP 11 British Virgin Islands Scott Cruickshank & David Harby, Lennox Paton 17 Bulgaria Assen Georgiev & Deyan Draguiev, CMS Cameron McKenna LLP – Bulgaria Branch 29 Canada Caroline Abela, Krista Chaytor & Marie-Andrée Vermette, WeirFoulds LLP 40Cayman Islands Ian Huskisson, Anna Peccarino & Charmaine Richter, Travers Thorp Alberga 50Cyprus Anastasios A. Antoniou & Aquilina Demetriadi, Anastasios Antoniou LLC 57 England & Wales Michael Madden & Justin McClelland, Winston & Strawn London LLP 67 Estonia Pirkka-Marja Põldvere & Marko Pikani, Aivar Pilv Law Offi ce 86 Finland Markus Kokko & Niki J. Welling, Attorneys at Law Borenius Ltd 98 France Erwan Poisson & Camille Fléchet, Allen & Overy LLP 105 Germany Dr. Stefan Rützel & Dr. Andrea Leufgen, Gleiss Lutz 116 Guernsey Christian Hay & Michael Adkins, Collas Crill 125 India Siddharth Thacker, Mulla & Mulla & Craigie Blunt & Caroe 132Indonesia Alexandra Gerungan, Lia Alizia & Christian F. Sinatra, Makarim & Taira S. 143Ireland David Kavanagh & John O’Riordan, Dillon Eustace 153Korea Kap-you (Kevin) Kim, John P. Bang & David MacArthur, Bae, Kim & Lee LLC 163Lithuania Agnė Bilotaitė & Marius Tamošiūnas, Judickienė and Partners JUREX 172 Luxembourg Jackye Elombo & Florence Piret, Wildgen, Partners in Law 181 Mexico Miguel Angel Hernandez-Romo Valencia & Miguel Angel Hernandez-Romo, Bufete Hernández Romo 190Nigeria Matthias Dawodu, Benedict Oregbemhe & Onyinye Ukegbu, S. P. A. Ajibade & Co 196 Pakistan Ashtar Ausaf Ali, Nida Aftab & Asad Rahim Khan, Ashtar Ali & Co. 209Poland Dr. Barbara Jelonek-Jarco & Agnieszka Trzaska, KKG Kubas Kos Gaertner 220Portugal Nuno Lousa & Manuel Castelo Branco, Linklaters LLP 229Spain Álvaro López de Argumedo & Juliana de Ureña, Uría Menéndez 238Switzerland Balz Gross, Claudio Bazzani & Julian Schwaller, Homburger 248 Tunisia Yosra Abid & Salah Dakhlaoui, Dakhlaoui Avocats 260Turkey Gökmen Başpınar & Kaan Gök, Baspinar & Partners Law Firm 274USA Stephen R. Smerek, Bruce R. Braun & Andrew S. Jick, Winston & Strawn LLP 282Uruguay Carlos Brandes & Federico Florin, Guyer & Regules 292Venezuela Jesus Escudero E. & Raúl J. Reyes Revilla, Torres, Plaz & Araujo 301

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Michael Madden & Justin McClellandWinston & Strawn London LLP

Effi ciency and integrity

Last year we identifi ed a noticeable increase in emphasis by the courts on ensuring parties in litigation comply with court orders and assist the court in dealing with cases effi ciently. This trend was instigated by Lord Justice Jackson in his Final Report which was published in January 2010. The report made it clear that a tougher approach should be taken to non-compliance with the Civil Procedure Rules (“CPR”), practice directions and court orders. The proposals contained in the report were put into legislation in the Legal Aid, Sentencing and Punishment of Offenders Act 2012 (“LASPO”) and have come to be known as the “Jackson Reforms”.The fi nal implementation of the Jackson Reforms took effect on 1 April 2013. The reforms include changes to the CPR’s Overriding Objective which governs the court’s approach to case management. In particular, CPR 1.1 has been amended to include a requirement that the courts and parties to litigation should ensure that justice is achieved “at proportionate cost”. It also makes explicit that dealing with a case justly and at a proportionate cost includes, so far as practicable, enforcing compliance with rules, practice directions and orders. Consistent with this approach CPR 3.9, which deals with the court’s power to relieve a party from any sanction imposed for a failure to comply with the CPR or a court order, was also changed to emphasise the need for the court, when considering the justice of the case, to have regard to the need to conduct litigation at a proportionate cost and to “enforcing compliance with rules, practice directions and orders”.Since April 2013 there have been a number of cases where the court has sought to interpret this change in emphasis. Initially, whilst giving grave warnings of the consequences of non-compliance, the courts appeared reluctant to adopt the strict approach recommended by Lord Justice Jackson. In one case, the court appeared to suggest that the tougher approach would be justifi ed if there were a “wholesale and fl agrant disregard of directions” by the defaulting party: Biffa Waste Services Ltd v Dinler and others [2013] EWHC 3582 QB. However, in Mitchell v News Group Newspapers Limited [2013] EWCA Civ 1537 the Court of Appeal handed down practical guidance for the future application of CPR 3.9. The court held that the two specifi cally named objectives in the new CPR 3.9 (i.e. proportionate cost and ensuring compliance with rules, practice directions and orders) must be given clear precedence by the courts in their approach to case management. The Mitchell case involved defamation proceedings brought by the former Government Chief Whip, Andrew Mitchell MP, against the Sun Newspaper on their reporting of the “Plebgate” affair. In breach of a new practice direction regarding costs management, Mitchell fi led his costs budget six days late, the result of which was that he would be denied the right to require Newsgroup to pay his costs in the event that Mitchell won. This failure was exacerbated by his solicitors’ delay in applying for permission to serve the costs budget late and their provision of inconsistent explanations for the causes for the delay. The Court of Appeal, adopting the new guidance, held that relief should not be given. It said that, on an application for relief

England & Wales



Winston & Strawn London LLP England & Wales

from sanctions, the starting point should be an assumption that the sanction had been properly imposed and that it complied with the Overriding Objective. The Court of Appeal made clear that, in future, relief will only be granted if either the breach is trivial and the application for relief is made promptly or if there is some other good reason (which would ordinarily be expected to come from matters outside the control of the party or its solicitors). The Court of Appeal said:

“The new more robust approach that we have outlined will mean that from now on relief from sanctions should be granted more sparingly than previously. There will be some lawyers who have conducted litigation in the belief that what Sir Rupert Jackson described as ‘the culture of delay and non-compliance’ will continue despite the introduction of the Jackson reforms. But the Implementation Lectures given well before 1st April 2013 were widely publicised. No lawyer should have been in any doubt as to what was coming. We accept that changes in litigation culture will not occur overnight. But we believe that the wide publicity that is likely to be given to this judgment should ensure that the necessary changes will take place before long.” (Para 46)

As noted in Mitchell, the effect of the judgment was to prevent the Claimant from recovering costs from the Defendant (save for basic court fees) even if the litigation is successful.Since the Court of Appeal’s decision there have been a signifi cant number of cases in which the guidelines set out by the Court of Appeal have been considered as parties seek to secure a strategic and often collateral advantage from non-compliance by opponents in litigation. This satellite litigation is perhaps an unfortunate consequence of the change in attitude. It is hoped that the courts will be equally intolerant of “strategic” applications relying on Mitchell in inappropriate circumstances. There is already some evidence of this, particularly in the Commercial Court. However, some commentators are seeking further clarifi cation from the courts on this issue to avoid disputes concerning costs detracting from the overall justice of the case and the Overriding Objective of enabling the court to deal with cases justly and at proportionate cost.Other changes introduced by the Jackson Reforms include:(i) provisions requiring parties to fi le disclosure reports listing potentially relevant documents

prior to the fi rst case management conference at which the extent of disclosure is fi rst considered by the court. The aim is to ensure that disclosure is limited to what is necessary to deal with the case justly and at a proportionate cost. Parties in future will also be required to discuss their respective reports and, if possible, to agree on the scope of disclosure prior to the case management conference;

(ii) the introduction of court-controlled costs budgeting for cases where the claim is less than £2m;

(iii) enabling a claimant to obtain enhanced damages if the defendant unreasonably refuses to accept a reasonable settlement offer; and

(iv) the introduction of damages-based agreements (contingency fees) and revision of the arrangements for the third party funding of litigation and conditional fee agreements.

Although the Jackson Reforms were aimed primarily at personal injury cases and more general litigation, they will have an impact on signifi cant commercial cases. It is fair to say that implementation has given rise to a number of practical issues. However, the courts have fi rmly embraced the principles and see the reforms as essential to ensure the courts in England & Wales maintain their reputation for the just, effi cient and proportionate resolution of disputes.

Cross-border issues

Enforcement of foreign judgmentsThe enforcement of judgments in civil and commercial matters as between members of the European Union is governed by the Brussels Regulation (EC No 44/2001). Proposals to reform the Brussels Regulation have been approved and will come into force on 10th January 2015.




Key changes to the revised Regulation include provisions addressing jurisdiction as well as enforcement issues, including those:(i) allowing a court specifi ed in the jurisdiction clause of an agreement to determine whether it

has jurisdiction to hear the claim and progress the litigation, regardless of whether it is the court fi rst seized;

(ii) making jurisdiction clauses separable from other terms of a contract;(iii) provisions allowing a court in an EU member state to stay proceedings to take into account

proceedings pending in a non-European member state;(iv) abolishing the need to obtain a court order before enforcing certain foreign judgments; and(v) expanding matters under the Brussels Regulation applying to non-EU defendants to include

certain employee, insurance and consumer claims.The United Kingdom is a party to very few treaties providing for the reciprocal enforcement of judgments between countries other than those in the European Union or the Commonwealth. In the absence of such treaties the enforcement of foreign judgments in England is governed by common law principles. On any application for the enforcement of a foreign judgment, these principles require the English court to ensure that:(i) the foreign court had international jurisdiction according to rules of English Confl ict of

Laws to give the judgment;(ii) the judgment was for a defi nitive sum;(iii) it was fi nal and conclusive;(iv) it was not obtained by fraud or contrary to UK public policy; and (v) the proceedings out of which the judgment was issued must not have been conducted in

a manner contrary to natural or substantial justice or be considered to be in breach of the European Convention on Human Rights.

In Gelley v Shepherd [2013] EWCR Civ1172 the Court of Appeal considered the circumstances in which the court would decline to give effect to a foreign judgment tainted by fraud. In this case, the Court of Appeal emphasised the general principle that a foreign judgment should be recognised unless it can be established that the fraud alleged to have tainted the decision was, in fact, operative in obtaining the foreign judgment. That is, without such a fraud having been practised, the judgment would not have been obtained.Previous references to a judgment having been “tainted by fraud” had to be construed narrowly to refl ect the underlying policy considerations that favour fi nality in litigation and conclusiveness of foreign judgments, save where to do so would permit an individual to take advantage of his own wrong-doing. In this case, the court said that as the fraud in question had not been necessary to the granting of the foreign judgment, there was insuffi cient basis for overriding the general policy of fi nality and conclusiveness.The person seeking to rely on the foreign order was not, in reality, seeking to take advantage of his own wrongdoing; he was merely relying on an order which would have been made by the foreign court in any event.In JSC VTB Bank v Skurikhin [2014] EWHC 271 the court considered an application to enforce elements of a Russian judgment that related to penalties. The sums did not represent the claimant’s actual loss, or a genuine pre-estimate of that loss, and were over and above the agreed contractual interest. The court refused to enforce this part of the Russian judgment as English courts will not enforce claims for contractual penalties. The court did highlight uncertainties about the approach to enforcing foreign judgments involving fi nes or penalties. As the matter was considered at a summary judgment hearing it remains to be seen, if the issue is pursued, whether further clarifi cation may be obtained as to the precise ambit of the public policy exception, and the overlapping exclusion of penalties or fi nes.The case of Jointstock Company (Aerofl ot Russian Airlines) v Berezovsky continues to feature in




the English courts. The Court of Appeal has unanimously allowed an appeal against the High Court’s refusal to enforce a foreign judgment which it said had the effect of reopening an earlier judgment from the same jurisdiction. The case arose from an alleged fraud on the claimant resulting in criminal proceedings being brought in Russia against the defendants. The defendants were convicted of fraud in the criminal proceedings in 2006 and 2007. The defendants were also ordered to pay the claimant compensation by way of civil damages. In 2010, the Russian authorities recovered damages in excess of the sums ordered by the Russian court in 2006 and 2007. In 2011, the claimant brought proceedings in Russia seeking a tenfold uplift in the damages awarded against both defendants to refl ect the high level of infl ation in Russia. The Russian court granted the uplift in full. The claimant sought to enforce the Russian judgment by fresh proceedings in the English courts. The High Court refused to allow enforcement on the grounds that the decision to reopen the judgment as to the amount of damages payable was in breach of the fi nality principle. However, the Court of Appeal disagreed. It said that the High Court had been premature to dismiss the claim and that the court needed to make fi ndings of fact as to whether the fi rst Russian judgment was fi nal and binding under Russian law, thereby precluding any further order. The court could only do this at a trial because it had to make fi ndings on questions of Russian law about which there would be confl icting expert evidence. Equally questions about whether the second Russian judgment varied the fi rst Russian judgment or replaced it had to be determined under Russian law.In addition, the court observed that it was “surprisingly hard to fi nd a comprehensive judicial defi nition” of the fi nality principle. The matter will now proceed to a full trial at which further guidance is likely to be given on the application of the fi nality principle.Choice of law and jurisdictionGuidance has been provided on the relationship of governing law and jurisdiction.In the case of VTB v Nutritek [2013] UKSC5 the Supreme Court confi rmed that even if the parties had chosen English as the law for resolving disputes, this did not mean that the English court should be seized with jurisdiction to decide the dispute. In this case, VTB was seeking to recover loans from Russagroprom LLC which it had made to enable it to buy Russian dairy companies from Nutritek. VTB said that the loans were granted following fraudulent misrepresentations made by Nutritek to the bank and that these misrepresentations were governed by English law. The Supreme Court noted that the factual centre of gravity of the case was in Russia: the misrepresentations related to matters in Russia; the facts which were relied upon to support the misrepresentation claim were Russian, such that the case should more conveniently be heard in Russia. The Court ordered that absent a clear submission by the parties to the jurisdiction of the English courts, the courts will expect strong evidence that England is the more appropriate forum for the case to be pursued before accepting jurisdiction.In Ust Kamenogorsk Hydro Power Plant JSC v AES Ust-Kamengorsk Hydro Power Plant LLP [2013] UKSC 35 the Supreme Court considered whether the court had jurisdiction to grant declaratory relief that an arbitration clause was valid and enforceable and an anti-suit injunction to restrain proceedings in Kazakhstan in breach of an arbitration clause. This is considered in the section dealing with injunctions later.Proceeding against foreign defendantsA claimant wishing to sue a defendant domiciled out of the jurisdiction is required to obtain the court’s permission to serve the proceedings out of the jurisdiction. The Civil Jurisdiction and Judgements Order 2001 states that an individual is domiciled in the United Kingdom if (and only if):(i) he is resident in the UK; or(ii) the nature and circumstances of his residence indicate a “substantial connection” with the UK.In Cherney v Deripaska [2007] EWHC 967 the court determined that the test for whether a person who owns property in the UK has a substantial connection to the UK relates to the




quality of usage of the property. In this case, Deripaska was found not to be domiciled in the UK, despite benefi cially owning property in London, paying bills on the property and using the property with his family when visiting. The court found that the quality of the use of the property was the key determinant. Deripaska was held to use the property more as a private hotel than a personal residence. His stays were “infrequent, intermittent and generally fl eeting”.If a defendant is resident in a country which has acceded to the Hague Convention (the Convention of 15 November 1965 on the Service Abroad of Judicial and Extra Judicial Documents in Civil or Commercial Matters), service can ordinarily be carried out either directly via postal channels (Article 10(A)) or via judicial authorities (Article 10(B)). The main difference between these methods of service is that the process for service by judicial authorities can be very long, often in excess of three months, depending on the jurisdiction. However, the prescribed processes are clear and relatively simple to adopt or apply. In Adela and Others v Baadarani [2013] UK SC 44 the Supreme Court considered service of documents on a defendant resident in Lebanon, which is not a signatory to the Hague Convention. The Supreme Court reversed the decision of the Court of Appeal and granted an order retrospectively validating the service of proceedings in Lebanon on the Defendant’s Lebanese lawyer in Beirut. In an interesting decision, which may set the tone for future judgments concerning the court’s international jurisdiction, the Supreme Court said that the traditional characterisation of service out of the jurisdiction as being an exercise of an “exorbitant jurisdiction” was now unrealistic. The court recognised that, in the majority of cases where service out of the jurisdiction is authorised, there will have been either a contractual submission to the jurisdiction of the English court or a substantial connection between the dispute and this country. It recognised that litigation between residents of different states is a routine incident of modern commercial life. The decision whether to permit service out of the jurisdiction should therefore be a pragmatic one in the interest of the effi cient conduct of litigation. As a result, it was wrong for the court to restrict permission to serve out of the jurisdiction to “exceptional circumstances”. As Lebanon is not a party to the Hague Convention, it remains to be seen how this decision will be applied to Convention countries where the court may feel constrained to comply strictly with the Convention. The current authority on obtaining an order for substituted service where the Convention applies is Cecil v Bayat [2011] EWCA 135 where it was held that, where the Hague Convention applies, there will need to be special circumstances justifying an order for service by an alternative method. Such special circumstances include:

“Where there are grounds for believing that (the defendant) has or will seek to avoid personal service (where that is the only method permitted in the foreign law), or by facts relating to the proceedings such as where an injunction has been obtained without notice, or where an urgent application on notice for injunctive relief is required to be made after the issue of proceedings……”

Choice of law and courtRome 1 Regulation (Regulation EC593/2008) on the law applicable to contractual obligations governs the choice of law in the European Union. Article 3(2) of the Regulation permits the parties to change the governing law of their contract. The Rome I regime can be distinguished from the Brussels regime which determines which court can hear a given dispute as opposed to which law it should apply. The Brussels Regulation (44/2001) contains a jurisdictional regime to determine which courts of member states have jurisdiction in cases with connections to more than one EU country. The governing principle gives the court of the defendant jurisdiction. Article 23 of the Brussels Regulation contains the requirements for jurisdiction agreements. The French Cour de Cassation in 2012 held that a unilateral non-exclusive jurisdiction clause did not fulfi l the requirements of Article 23 (Msx v Banque Privée Edmond de Rothschild). These clauses are very common in loan agreements. They often provide primary jurisdiction




for the resolution of disputes but ensure that the bank can litigate, if necessary, in the debtor’s home court, or where its assets are located. These clauses have raised issues of enforceability in some jurisdictions on the ground that they lack mutuality or are unconscionably one-sided. However, they have been considered effective under English law. This position came to be revisited by the High Court in Mauritius Commercial Bank Limited v Hestia Holdings Limited [2013] EWHC 1328. In this case the claimant bank had granted a loan facility to the fi rst defendant whose obligations were guaranteed by the second defendant. Both the loan agreement and the guarantee provided for Mauritian law and jurisdiction. The loans were rescheduled and the original agreements replaced by amended ones which were subject to English law and jurisdiction. When the defendants defaulted, proceedings were brought in accordance with the new agreement. The defendants argued that the jurisdiction clause was subject to Mauritian law and, applying the French decision in Banque Privée Edmond de Rothschild, that the clause was invalid because it was one-sided. The judge rejected the defendants’ assertions, concluding that the parties were entitled to amend their agreement in accordance with principles of party autonomy. Furthermore, the choice of court agreement including the unilateral non-exclusive jurisdiction clause was valid under English law and not incompatible with fundamental principles regarding equal access to justice, including Article 6 of the European Convention of Human Rights.Sovereign immunityIn AlSaud and Another v Apex Global Management Limited [2013] EWCA 642, the Court of Appeal dismissed a claim of sovereign immunity made by two Saudi Arabian princes who relied on Section 20(1) of the State Immunity Act 1978 which provides that:

“Subject to the provisions of this section and to any necessary modifi cations, the Diplomatic Privileges Act 1964 shall apply to (a) a Sovereign or other head of State; (b) members of his family forming part of his household; and (c) his private servants, as applies to head of a diplomatic mission, to members of his family forming part of his household and to his private servants.”

The two princes were defendants to unfair prejudice proceedings under Section 994 of the Companies Act 2006. Both were members of the family of the Saudi Arabian Head of State, King Abdullah, and as such claimed sovereign immunity to the proceedings.The claim was rejected. In doing so the court had regard to the UK government’s practice of limiting members of the household to the spouse and minor children and, in exceptional circumstances, fi nancially dependent children/parents normally resident with the diplomat. As a result, the central issue was whether the princes were dependent on the sovereign. It was held that whether the person performs duties or functions on behalf of the sovereign or the Head of State is irrelevant to the question of membership of the household; the key test is dependence.

Disclosure and privilege

DisclosureThere have been several cases which touch upon the extent of the obligations to third parties, on the parties based overseas who have domestic obligations regarding the documents to which the English disclosure rules apply.Standard disclosure in English litigation requires parties to disclose documents that help or hinder their or their opponents’ case. The Jackson Reforms have introduced three changes to the English disclosure rules. First, parties are encouraged to use the electronic documents disclosure questionnaire. Second, at the fi rst case management conference, parties may agree or the court may order them to dispense with or limit standard disclosure. In some circumstances there may be no disclosure at all, or disclosure could be determined by individual issues, or, at the other end of the spectrum, the court could make a very wide disclosure order. Parties are now encouraged to consider the appropriate ambit of disclosure as early as possible and to




seek to agree the approach where they can. Thirdly, parties will have to fi le a report with the court which estimates the broad range of costs they anticipate in giving disclosure, including the costs of searching for and disclosing any electronically stored documents.In the case of Constantin Medien AG v Ecclestone [2013] EWHC 2674 the court considered the application of rules governing specifi c disclosure and non-party disclosure. The proceedings concerned the sale of the Formula One Group to CVC Capital Partners. The claimant alleged that Ecclestone (the Group CEO) had bribed a director of Bayerische Landesbank to sell the bank’s stake at an undervalue. In the course of the proceedings the claimant brought an application for specifi c disclosure (under CPR 31.12) against Ecclestone for documents belonging to Formula One Group, arguing that as Ecclestone was CEO of the group and had an offi ce in the same building he should be treated as having possession or custody of the documents. The judge disagreed. He said that it would be wrong to assume that, just because Ecclestone was based in the building, he should properly be regarded as having physical possession of the entire offi ces from which the group operated a serious and substantial business.A further application for non-party disclosure (this time, under CPR 31.17) was made against Formula One Group and CVC. The relevant rules permit a court to make an order for non-party disclosure only where:(i) the documents are likely to support the case of the applicant or adversely affect the case

of one of the other parties to the proceedings; and(ii) disclosure is necessary in order to dispose fairly of the claim or to save costs.The court’s power to make an order is discretionary and it will not make an order for non-party disclosure unless both criteria are satisfi ed. In considering the application, the judge asked four questions:(i) Has it been shown that the documents may well help the claimant’s case or damage the

defendant’s case?(ii) Is disclosure of the documents necessary to dispose fairly of the claim or to save costs?(iii) Was the description of the documents suffi ciently clear and specifi c?(iv) Should disclosure be ordered as a matter of overall discretion?The judge referred to a number of earlier authorities which had expressed concern about overly burdening third parties by requiring them to exercise judgment when selecting documents in circumstances where their description may not be suffi ciently defi ned in the order. However, the judge concluded that “exercise of judgment” should not be the central issue. A party receiving an order will always have to exercise some judgment in carrying it out and if in doubt as to what the order was intended to cover, could apply to the court for further directions. The key issue was to ensure that it should be clear to the third party which documents it is being asked to disclose. In this case the scope of the documents sought was clear and the other tests satisfi ed, so the order was made.Failure to comply with court orders regarding disclosure can result in a claimant’s claim being struck out. In Re Atrium Trading Services Limited (2013) the High Court was asked to strike out a claim on the grounds that the claimant had failed to comply with an unless order which stipulated that the claim would be struck out if the claimants failed to comply with the fi nal deadline given in the order for disclosure. The claimants had already obtained four extensions of time prior to the unless order such that little sympathy was expected from the court if the claimants failed to comply with the unless order. In response to the unless order the claimants had served a substantial list of documents within the time limit. However, the list still omitted two classes of document and limited descriptions were given of some of the documents.The court refused to grant the order striking out the claim, and held that the claimants were not in breach of the unless order. It held that the claimants’ primary obligation was to conduct a reasonable search and to list the relevant documents found in that search. The judge said:




“A search not carried out in good faith would not be a reasonable search. However, a search which was conducted in good faith and was fair and proportionate to the case in hand, given the number of documents involved, the nature and complexity of the case, the ease and expense of retrieval and the signifi cance of any document likely to be located, would be a reasonable search and would be one which complied with the order.”

In this case the court said that there was no justifi cation for saying that the claimants had not conducted a reasonable search. On the contrary, the claimants had acted in good faith and taken reasonable and proper steps to identify the relevant documents in their list.It is said that more French people live in London than in Bordeaux, Nantes or Strasbourg, and some now regard London as France’s sixth-biggest city in terms of population. Members of that community who face litigation in England & Wales may have read with interest the judgments of the Court of Appeal in Secretary of State for Health v Servier Laboratories and National Grid Electricity Transmissions plc v ABB Limited [2013] EWCA 1234 in which the court ruled for the fi rst time on the effect of French legislation designed to block orders for disclosure made in proceedings in other jurisdictions. In both cases the defendants argued that compliance with orders for disclosure (National Grid) or for further information (Servier) could result in prosecution in France for “communicating documents or information of an economic, commercial, industrial, fi nancial or technical nature for use in foreign litigation”.The Court of Appeal held that the English court was not required to use the judicial request procedure provided for by the EU Regulation on the Taking of Evidence (Regulation 1206/2001) to procure the production of documents. Instead, it upheld the High Court’s reasoning in both cases that the English court has jurisdiction to make procedural orders in cases before it, regardless of whether compliance might expose a party to a risk of prosecution under foreign law. In both cases the fi rst instance judges had held that it was very improbable that the French defendants would be prosecuted in France for compliance with the English disclosure orders and the Court of Appeal considered such decisions to be unimpeachable.In the case of Alpha Steel Limited v Shahran Shirkhani [2013] EWCA 1272 the court was asked to consider whether it should give permission for the use of documents disclosed in the course of litigation in subsequent third party proceedings. CPR 31.22(1) provides that a party to whom a document has been disclosed may use the document only for the purposes of the proceedings in which it is disclosed. However, the general rule may be set aside where:(i) the document has been referred to in court proceedings;(ii) the court gives permission; or(iii) the parties agree.In this case the parties had compromised their dispute by entering into a settlement agreement which encompassed all and any claims, rights or complaints whether known or unknown and provided that the parties would not pursue any future claims, rights or complaints against each other. Subsequently, the liquidators of Alpha Steel wanted to use certain documents disclosed in the proceedings to support proposed proceedings in Switzerland. The Court of Appeal recognised that the obligation contained in CPR 31.22 was owed to the court rather than the party who had given disclosure. Nonetheless, the regime recognised that the disclosing party still had an interest in protecting the confi dentiality of its documents, even after a limited inroad into that confi dentiality had been made by compulsory disclosure. The court found that the settlement agreement precluded the liquidator from using the disclosed documents in a separate action. Although the case turned on the interpretation of the particular settlement agreement, the decision suggests that in cases where the parties agree to be bound by a wide-ranging covenant not to sue, this may preclude an application to use disclosed documents for any collateral purpose. Parties to settlement agreements should specifi cally provide for freedom to use disclosed documents in the future, if that is considered necessary.




PrivilegeThe scope of privilege under English law has long been confi ned to exchanges involving lawyers and their clients, despite efforts by the accounting profession to extend its protection of certain aspects of their work. In January 2013 the Supreme Court handed down its judgment in The Queen (on the application of Prudential plc and Another), the Special Commissioner of Income Tax and Another [2013] UK SC1. In this case, which was heard by seven Supreme Court Judges, the court considered whether legal privilege should continue to be restricted to lawyers, or whether it should be extended to tax law advice provided by accountants. By a majority of 5 to 2, it was held that legal advice privilege should continue to apply only to legal advice communications given by members of the legal profession. The decision was given on the grounds that extending legal advice privilege beyond the legal profession would bring uncertainty to a clear and well established area of law. If such a departure from the established position were to be necessary or appropriate, it was not for the Supreme Court to make such a ruling but for Parliament to legislate on this issue.Of signifi cance to the majority was the fact that Parliament in the UK had considered in 1983 whether to create an extension of legal advice privilege to include advice given by tax accountants. Notwithstanding that the committee established by Parliament recommended that a limited tax adviser privilege should be created by statute, Parliament did not act on that recommendation. The majority therefore concluded that as Parliament had specifi cally decided to maintain a distinction between lawyers and tax advisers, it would not be appropriate for the courts to extend the boundaries of legal advice privilege.However, a compelling case for extending the scope of legal advice privilege was made by Lord Sumption for the minority. In his judgment, he underscored the functional approach historically taken to legal advice privilege, the availability of which should depend on the character of the advice sought and the circumstances in which it was given rather than the status of the adviser, provided that the advice was given in a professional context. Lord Sumption insisted that the key issue was not whether legal advice privilege should be extended but to identify the categories of adviser to which the existing principles should apply. The concerns expressed by the majority over certainty in the application of the rule were insuffi cient, according to the minority, to “justify an arbitrary distinction between different professions performing exactly the same function”. It is likely that professional bodies representing accountants and surveyors, in particular, will seek to bring about a change in the law via the legislative process. They have been given the motivation to do so by the minority views which expressed the hope that the whole issue would be considered by Parliament as soon as reasonably practicable. A more immediate issue for some quarters concerns the position of multi-disciplinary partnerships which could result in non-lawyer professionals providing legal advice supervised by lawyers. The Supreme Court did not give guidance as to how that advice should be treated for the purposes of privilege.

Costs and funding

Contingency feesAs mentioned in the section on Effi ciency and Integrity, LASPO came into force on 1 April 2013 implementing the Jackson Reforms. The major impact of the reforms is felt in the area of the costs of litigation and the options available to parties to fund proceedings. The reforms introduced for the fi rst time an ability for English lawyers to operate on a contingency fee basis with the introduction of Damages Based Agreements (“DBA”). The enabling legislation entitles a solicitor to agree with his client that he should be paid by way of a percentage of the damages ultimately recovered by the client net of any inter-partes costs. The regulations, however, include a requirement for any DBA to contain a cap on the solicitors’ fees. Generally, the maximum sum charged by solicitors will be 50% (although in personal injury claims the sum is restricted to 25%) of general damages and damages for loss other than future pecuniary loss. A DBA must be in writing and not be related to prohibited classes of proceedings.




So far there has been a marked lack of take-up for the new DBAs. This has been attributed to:(i) the wording of the regulations, which appears only to permit a DBA based on a percentage

share of the damages if the case is won, or nothing if the case is lost. It appears to prevent any other fl exibility such as the use of a discount to allow a solicitor to charge a low hourly rate, win or lose, with a percentage share of damages on success; and

(ii) the regulations require the solicitor’s fee to be calculated only by reference to the damages ‘ultimately recovered’. This throws onto the solicitor the risk of the opponent becoming insolvent.

As long as such issues remain, it is unlikely that DBAs will get signifi cant use.After The Event insurance and conditional feesOther changes in the permissible funding regimes introduced by LASPO include preventing the inter-partes recovery of After The Event (“ATE”) insurance premiums and the success fee payable under a Conditional Fee Agreement (“CFA”), both of which have proved controversial. Although there had been some take-up of the use of conditional fee arrangements in commercial litigation, they are mainly used in personal injury claims. The changes introduced by LASPO make CFAs much less attractive both for lawyers and clients and are expected to bring about their demise.ProportionalityThe Jackson Reforms have also introduced a new test for the proportionality of costs, proportionality being a key measure in the recovery of costs as between the parties. In future an assessment of costs will involve a two-stage process. The fi rst is for the court to review the individual sums incurred and ask whether they were reasonably incurred and reasonable in amount. Having done so, if the court considers that the total sum claim appears disproportionate having particular regard to facts such as the value and importance of the claim and its complexity, the court may reduce the fi gures still further to a proportionate sum. It has yet to be seen how the courts will apply these new tests, as decisions on proportionality will only come at the end of a case on costs assessment. However, the tests may become apparent in the context of costs budgeting.The relevant CPR and associated practice directions have been amended as part of the Jackson Reforms to require the parties to litigation to submit cost budgets for the proceedings which will be considered at the fi rst Case Management Conference (see reference to the Mitchell v News Group Newspapers Limited case, under Effi ciency and Integrity). For the time being this is limited to cases with a value of under £2m unless the court orders otherwise. If a party fails to fi le a cost budget by the due date, it could fi nd itself unable to recover its costs of the proceedings irrespective of the outcome. Once a budget has been fi led it is up to the court to decide whether or not to fi x the budgets, which would limit the amount of costs recoverable in the proceedings. Settlement offersCPR 36, more commonly known as “Part 36”, contains a regime for parties to litigation to make offers to settle claims during the litigation process and provides for the consequences where the recipient of the offer who does not accept it fails to “beat” the level of the offer at trial. However, the rules applicable to Part 36 are intricate and include rigid requirements for the form, content, operation and withdrawal of such offers. Paying parties beating their Part 36 offers are entitled, unless the court considers it unjust, to their costs from the date on which the offer expired with interest of up to 10% on those costs. Following the introduction of the Jackson Reforms, claimants are given enhanced rights should they be awarded damages in excess of a claimant’s Part 36 offer. Prior to 1 April 2013 the relevant costs sanctions against a defendant who did not accept a claimant’s Part 36 offer which the claimant subsequently “beat” at trial, were an order for indemnity costs plus enhanced interest on both damages and costs from the expiry of the relevant period. In future, defendants can be liable to an additional sanction of an uplift of damages calculated as 10% of the fi rst £500,000 awarded and 5% of the next £500,000, giving a maximum uplift of £75,000.




The High Court was asked to consider this new sanction in the case of Feltham v Bouskell (2013). In that case the claimant made a Part 36 offer very close to (i.e. 25 days before) the trial date, so the relevant period for accepting the offer expired immediately before the trial. The defendant argued that it would be unjust for the court to order the new sanction on the basis that: (i) the offer was made at the last minute; (ii) a key allegation was raised very late in the case; and (iii) certain documents were disclosed just before the trial. The judge agreed that it would be unjust to apply the new additional costs sanction, although he did award the claimant indemnity costs and enhanced interest on damages and costs from the end of the relevant period. In an interesting comment on the current economic climate and its effect on court interest rates, the judge commented that given current interest rates, “it would be quite wrong to order a sum for interest anywhere near 10% as that would be effectively penal”. Allowing for a “generous uplift in usual rates to refl ect the purpose of the rule”, he awarded 3.5% above base.

Injunctions

Private competition injunctionsPrivate competition litigation is continuing to develop in England & Wales. One aspect of this is an increasing number of competition disputes being brought in the courts in which the claimant alleges that the defendant is infringing or has infringed competition law. Often these claims will include an interim injunction restraining the alleged infringement until trial.In 2013, the courts handed down three judgments which clarifi ed when such injunctions may be appropriate. In Chemistree Homecare v Abbvie [2013] EWHC 264 the court refused to grant an injunction requiring the continued supply of patented drugs by the manufacturer. The defendant had refused to maintain its supplies at previous levels because it had ascertained that the claimant was supplying the drug for wholesale purposes, which had not been agreed with Abbvie.The court held that the claimant had not established and had no real prospect of doing so, and that this defendant had abused its dominant position by refusing to supply the products concerned. Further, the claimant had failed to identify any relevant product market in which the defendant could be dominant, as there were alternative treatments available. Finally, the court found that the defendant had a clear policy not to supply wholesalers and the claimant had been disingenuous about its reselling activities.In Dahabshiil v Barclays Bank PLC [2013] EWHC 337, the court granted an injunction restraining Barclays from withdrawing certain banking facilities to the claimant, a Somali money transfer service. For strategic reasons, Barclays had decided to reduce its exposure to the money services sector, including businesses such as the claimant that operated Bureaux de Change and international money transfer services. The claimant alleged that this amounted to an abuse of a dominant position because, in the likely absence of alternative banks willing to offer them services, they would be forced to close. The judge held that there was a triable issue as to whether Barclays was dominant and that the claimant had an arguable case of abuse that could only be determined following a full trial. As no other bank was willing to provide services to the claimant, the court found that the balance of convenience favoured an injunction requiring Barclays to continue to provide the services pending trial.Arriva The Shires Limited v London Luton Airport Operations Limited [2014] EWHC 64 − this case concerned the decision by London Luton Airport to re-tender the contract for coach services between London Luton Airport and Central London. Arriva had originally lost out to its competitor, National Express. In the re-tendering process Arriva argued that the award of an exclusive contract to National Express constituted an abuse of a dominant position. It sought an interim injunction preventing the change, pending the trial of the issue as to whether the airport had a dominant position. The court refused to grant the injunction as it considered that any losses suffered by Arriva could be compensated in damages. The court also had regard (amongst other reasons) to the impact of the injunction on National Express and the failure by




Arriva (which had participated in the tender competition) to challenge the concept of awarding a long-term exclusive contract.Norwich PharmacalThe English courts have developed a jurisdiction to grant orders requiring third parties in certain circumstances to disclose documents relevant to prospective litigation. Such orders take their name from the principal case in this area, Norwich Pharmacal Co. v Customs and Excise Commissioners [1972] 3 All ER 813. In Norwich Pharmacal it was established that if a person gets mixed up in the tortious acts of others and by doing so innocently facilitates their wrongdoing, it comes under a duty to assist the person who has been wronged by giving him full information and disclosing the identity of the wrongdoers. In Various Claimants v News Group Newspapers Limited (“NGN”) [2013] EWHC 2119 the High Court was asked to grant a Norwich Pharmacal Order against the Metropolitan Police (“MP”) seeking information relating to phone hacking, said to have been conducted by journalists at NGN.The Norwich Pharmacal case itself concerned the alleged violation of a patent. Such orders have more recently been granted against online service providers to disclose the identity of individuals using the platform for defamatory or other unlawful purposes. For such relief to be granted the applicant must demonstrate to the court:• a reasonable basis to allege that a wrong has actually been committed; • that the disclosure sought is needed to enable action against the wrongdoer; • that the respondent is not a ‘mere witness’ but has been involved to a suffi cient extent to

have facilitated the wrong, even if innocently; and• that the order is necessary in the interests of justice on the facts of the case.In the NGN case the claimants, who had been victims of phone-hacking said to have been conducted by journalists engaged by NGN, sought evidence from the Metropolitan Police. The issue for the court was whether the Metropolitan Police had been suffi ciently involved in the wrongdoing to come within the requirements of Norwich Pharmacal. The court held that on the evidence available, the material was of the kind that could be sought under Norwich Pharmacal. It went to the existence and extent of a wrong and was not available to the claimants elsewhere. The court was also prepared to make the order even though the Metropolitan Police had not assisted in the wrong, holding that the Metropolitan Police were not mere witnesses to the wrong; they had been acting under a duty to acquire the relevant information. The decision extends the traditional ambit of Norwich Pharmacal Orders given that the Metropolitan Police’s involvement occurred long after the wrongdoing and they could not be said to have been involved in it or facilitated it. The judge emphasised the need for fl exibility in these cases, especially where the facts identify acts falling short of facilitation but extending beyond mere witnessing.International litigation injunctionsIn Ust Kamenogorsk Hydro Power Plant JSC v AES Ust-Kamengorsk Hydro Power Plant LLP (2013 UKSC 35) the Supreme Court considered whether the court had jurisdiction to grant: (i) declaratory relief that an arbitration clause was valid and enforceable; and (ii) an anti-suit injunction to restrain proceedings in Kazakhstan in breach of an arbitration clause. The dispute in question arose out of a concession agreement granting rights to operate a hydroelectric power plant in Kazakhstan. The agreement was expressed to be governed by Kazakh law but contained an arbitration clause requiring disputes to be arbitrated in accordance with the ICC rules. In the course of proceedings in the courts of Kazakhstan, the Kazakhstan Supreme Court held that the arbitration clause in the agreement was void.AES subsequently brought proceedings before the English Commercial Court seeking:(i) a declaration that the arbitration clause was valid; and(ii) an injunction restraining future proceedings in Kazakhstan.




The defence to this claim was that as no arbitration proceedings had been commenced and AES had no intention of commencing arbitration proceedings, the English court did not have jurisdiction to grant the injunction and that Section 44 of the Arbitration Act 1996 (which gives the court powers exercisable in support of arbitration proceedings) only applied where there was an actual or intended arbitration. In granting the anti-suit injunction, the Supreme Court held that an arbitration agreement not only gives rise to a positive right to arbitrate disputes in a particular forum but also contains an equally important negative right not to be sued in any forum (domestic or foreign) other than that specifi ed in the agreement. It was established in the case of TSB Private Bank International SA v Chabra (1992) 2 ALLER 245 that a freezing injunction may be granted against a third party (even in the absence of a claim against that third party) if it appears to hold assets belonging to the defendant. In PJSC Pseukrainskyi Aktsionernyi Bank v Maksimov (and others) [2013] EWHC 3203 the claimant bank obtained a worldwide freezing injunction against Maksimov and the other defendants who were English registered companies. The injunction was obtained in support of arbitration proceedings between the bank and Maksimov under Section 44(3) of the Arbitration Act 1996 which gives the power to the court in an urgent case to grant orders, without notice, that are “necessary for the purpose of preserving evidence or assets”. The injunction was granted relying on the Chabra jurisdiction. A further injunction was subsequently granted ex parte against other defendants including a Cypriot company. An application to discharge the injunction was rejected on the grounds that there was a good arguable case that English companies were owned by a Cypriot company which in turn was benefi cially owned by Maksimov. The Cypriot company applied to discharge the injunction on the basis that the court had no jurisdiction to make or serve the injunction out of the jurisdiction and that its assets were not owned by Makismov. Although the application to discharge the injunction was refused by the judge on a preliminary point (being that the Cypriot company was barred under the doctrine of privity of interest and/or the abuse of process principles from raising a point which should have been raised earlier in the proceedings), the judge considered the broader issues as to jurisdiction and Chabra on their merits. The judge emphasised that the relevant issue was whether PJSC had made out a good arguable case that the Cypriot company was owned and controlled by Maksimov within the meaning of the test set out in Chabra. The judge referred in particular to annual reports of PJSC which stated that Maksimov’s holding in the bank was held through various companies, one of which was the Cypriot company.The Cypriot company sought to explain away these statements, suggesting that they were wrong. However, the judge concluded that, having regard to the importance of maintaining absolute clarity over the ownership and control of banking institutions, statements made by responsible persons in public documents were important and should not be ignored lightly.As a result the judge refused to discharge the injunction pending trial of the case. The court concluded that it had the power to order service out of the jurisdiction on a defendant even if the defendant was not a party to the original arbitration agreement. It said that this power should not be used lightly but, where it could be demonstrated to the requisite standard (i.e. on a balance of probabilities) that a company is owned and controlled by a party to an arbitration agreement, there may be grounds for the court of the seat of arbitration to stop that company from dissipating its assets by issuing such an injunction against a non-party holding those assets.ArbitrationThere have been a number of cases which have clarifi ed the courts’ role in arbitration matters, including in respect of jurisdiction, the granting of ancillary relief and the determination of the governing law absent a contractually-agreed choice. Section 67 of the Arbitration Act 1996 enables a party to arbitration proceedings to apply to the court to challenge an award of the tribunal for lack of jurisdiction. In Habas Sinai ve Tibbi Gazlar Istihsal Endustrisi AS v VSC Steel Company Limited (2013) EWHC 4071, the High




Court considered the correct approach to determining the law of an arbitration agreement where it was alleged that the law of the seat had been agreed in breach of authority.In this case a contract had been concluded which provided that any claims would be settled by ICC arbitration in London. It did not provide an express choice of law and the claimants said that its agents, who had negotiated the contract, knew that the claimants would only accept Turkish law and Turkish arbitration.The court concluded (relying on Sulamerica CIA Nacional de Seguros SA v Enesa Engenharia SA [2012] EWCA 638) that where there was no express law governing the underlying contract, the applicable law of the arbitration agreement should be that of the seat of the arbitration. As there was no good reason for departing from that principle, English law should apply.In response to the argument that the agent negotiating the contract on behalf of the claimant had exceeded its authority, the court distinguished between the ability of an agent to bind a principal to a choice of law clause (when acting outside actual authority) and the ability to bind the principal to a clause which might affect the implied choice of a system of law such as an arbitration choice of seat clause.In this case the agent had only agreed the choice of seat and there was no authority to support the claimant’s arguments that a different approach should be adopted in considering the authority of the agent to bind the principal in such circumstances.Section 44(3) of the Arbitration Act 1996 gives the court the power to make such orders as it thinks necessary for the purpose of preserving evidence or assets. In Zim Integrated Shipping Services Limited v European Container KS (2013) EWHC 3581 the court refused an application under Section 44(3) restraining the defendant from exercising certain contractual rights under a charter-party. The existence of these rights was the subject of the arbitral proceedings.The court noted that Section 44(3) was a limited provision which could only be used for the purposes of preserving assets or evidence and could not be used to make any kind of interim injunction. While the court concluded “with some hesitation” that the case did fall within Section 44(3), in the exercise of its discretion, it refused to grant the injunction highlighting that the closer any injunction came to determining a matter which the parties have agreed should be decided by an arbitral tribunal, the more wary the court should be as a matter of discretion. In this case, the question of whether the claimants had the contractual rights which they sought to preserve was the question which the arbitral tribunal had to decide.Section 37(1) of the Senior Courts Act 1981 empowers the court to grant freezing injunctions including ancillary orders requiring the defendant to disclose its assets worldwide. In Cruz City 1 Mauritius Holdings v Unitec Limited and Others [2013] EWHC 1323, an application was made to enforce a London-seated arbitration award against the defendant. Permission to enforce the award was granted pursuant to Section 66 of the Arbitration Act 1996 together with permission to serve the claim form on the defendants’ solicitors in London, who had acted for them in the arbitration. The claimant subsequently applied for a further order compelling the defendants to disclose their assets worldwide, pursuant to Section 37. This further application was also served on the solicitors in London. The defendants argued that there were no suffi ciently exceptional circumstances to justify service on the defendants’ London solicitors and service should be set aside. They further argued that the English court was precluded (relying on Masri v Consolidated Contractors International (UK) Limited and Other (No 4) [2008] UKHL 43) from ordering a foreign defendant to disclose its assets.The court granted the application. On the issue of service the court noted that it was the court’s invariable practice to permit service of an arbitration claim form within the jurisdiction on the solicitors representing the defendant in the underlying arbitration. Accordingly, provided that it did not appear that the solicitors had been dis-instructed and there were good reasons (such as speed) which justifi ed serving on the solicitors direct, the practice established by the court should be followed.




On the issue of disclosure, the court distinguished Masri on the basis that the order requested was not an order addressed to a non-party outside the jurisdiction, but against defendants who were subject to the court’s jurisdiction. In all the circumstances and in light of the policy in favour of enforcement of arbitral awards, the court considered it just and convenient to grant the order.In Interprods v de la Rue International Limited [2013] EWHC 3971 the Commercial Court considered an application to set aside an order extending time for challenging an arbitral award under Section 67 and 68 of the Arbitration Act 1986. Section 70(5) of the Arbitration Act 1996 sets out strict time limits for applying to the court to challenge an arbitration award.The relevant factors to which a court will have regard in deciding whether to extend time include:(i) the length of the delay;(ii) whether the party responsible for the delay had acted reasonably in the circumstances;(iii) whether the respondent to the application had caused or contributed to the delay;(iv) whether, by reason of the delay, the respondent would suffer irremediable prejudice should

the application be granted;(v) if the arbitration is ongoing, what impact the decision would have on the progress of the

arbitration or the costs incurred;(vi) the merits of the application; and(vii) whether, in the all the circumstances, it would be unfair to deny the application.In Interpods the claimant made the application for an extension of time within the requisite 28-day period. The judge considering the application decided that whilst the claimant could have avoided some delay, there was no irremediable prejudice to the defendant in permitting the additional time. Therefore, notwithstanding that the merits of the application seemed weak, taking all facts into account it would be unfair on the claimant to deny it the opportunity of having its application determined. The judge did, however, order the claimant to provide security for the costs of its challenge.

Alternative dispute resolution

Institutionalised court support for alternative dispute resolution was established in the Court of Appeal case of Dunnett v Railtrack (2002). In Dunnett, although Railtrack won the case, it was denied its costs because it had refused to mediate the dispute notwithstanding that the High Court had suggested that mediation should be attempted.In that case the judge stated:

“Skilled mediators are now able to achieve results satisfactory to both parties in many cases which are quite beyond the power of lawyers and courts to achieve…. But when the parties are brought together on neutral soil with a skilled mediator to help them resolve their differences it may well be the mediator is able to achieve a result by which the parties shake hands at the end and feel that they have gone away having settled the dispute on terms with which they are happy to live. A mediator may be able to provide solutions which are beyond the powers of the court to provide.”

This case was followed by the Court of Appeal in Halsey v Milton Keynes General NHS Trust [2004] EWCA 3006. Halsey established the principles that the courts apply to encourage parties to civil litigation to resolve their disputes by means of alternative dispute resolution.The case established that:(i) the court should not compel parties to engage in alternative dispute resolution but may

encourage them to do so in suitable cases and “robustly” where appropriate;(ii) the court’s power to have regard to the parties’ conduct when exercising its discretion as




to costs includes the power to deprive the successful party of some or all of its costs on the grounds of its unreasonable refusal to participate in alternative dispute resolution; and

(iii) the burden was on the unsuccessful party to show that its opponent’s refusal to engage in alternative dispute resolution was unreasonable.

Although the court in Halsey reaffi rmed the general rule that the losing party should pay the costs of the successful party and that departures from that rule should be the exception, it stated that a party who refuses alternative dispute resolution may be said to have acted unreasonably and thereby deny itself a favourable costs order if any of the following factors applied:(i) the nature of the dispute: some cases are not suitable for alternative dispute resolution, for

example where it is important to establish a principle that can be applied in similar cases;(ii) the merits of the case: a party who reasonably believes he has a very strong case may be

justifi ed in refusing alternative dispute resolution, whereas a party who unreasonably holds that view may not;

(iii) alternative avenues: the extent to which alternatives to a trial have already been tried although the court did observe that mediation often succeeds where other methods might not;

(iv) the cost of alternative dispute resolution: in many cases the cost is modest, especially compared to the cost of a lengthy trial, although in a low value case the cost of alternative dispute resolution may be disproportionate;

(v) the delay: the damaging effect of delay caused by a stay for alternative dispute resolution, especially where a trial date is imminent; and

(vi) whether alternative dispute resolution has a reasonable chance of succeeding and whether the court has expressed a view on the merits of mediation.

These principles have been applied in numerous subsequent decisions, although most involved situations where a party had expressly rejected a proposal to mediate and provided some reasoning for that rejection.In PGF II 2 SA v OMFS Company Limited [2013] EWCA 1288 the Court of Appeal has given its strongest support for alternative dispute resolution since Halsey. Signifi cantly, the case considered, for the fi rst time as a matter of principle, how the court should deal with a party which, when invited by its opponent to take part in alternative dispute resolution, simply declined to respond to the invitation. In PGF, a “serious and carefully formulated written invitation” by the claimant’s solicitors to participate in mediation was met with complete silence by the defendant. The offer was repeated three months later and despite the defendant promising a full response to the letter, no such response or comment was given. The case was subsequently settled on all issues save as to costs when the claimant accepted the defendant’s Part 36 Offer (see above, under ʻCosts and funding’, for reference to the Part 36 regime). On considering the appropriate costs award, the High Court acceded to the claimant’s application for a costs sanction on the ground that the defendant had unreasonably refused to mediate and deprived the defendant of the costs to which it would otherwise have been entitled under Part 36. However, the High Court declined to take the further step of making the defendant pay the claimant’s costs incurred during the same period. The judge decided that the fi rst defendant’s silence amounted to a refusal and secondly, applying the Halsey principles, that the refusal had been unreasonable.The Court of Appeal upheld the High Court’s decision granting:

“The time has now come for this court fi rmly to endorse……that silence in the face of an invitation to participate in alternative dispute resolution is, as a general rule, of itself unreasonable regardless whether an outright refusal, or refusal to engage in the type of alternative dispute resolution requested, or to do so at the time requested, might have been justifi ed by the identifi cation of reasonable grounds. I put this forward as a general rather than invariable rule because it is possible that there may be rare cases where alternative dispute resolution is so




obviously inappropriate that to characterise silence as unreasonable would be pure formulism.”

The Court of Appeal also took the opportunity to undertake a review of the progress of mediation in civil disputes during the period since Halsey, including reviewing statistics demonstrating its effectiveness. The court noted the intense focus in the Jackson Report upon achieving proportionality between the costs of litigation and the value of that which is at stake, which led to Lord Justice Jackson’s clear endorsement of alternative dispute resolution as a process which he considered insuffi ciently understood and underused. So far as the type of costs sanction that was appropriate, the court accepted that a fi nding of unreasonable conduct regarding alternative dispute resolution in whatever form produced no automatic results in terms of penalty. The proper response may range between disallowing the whole, or only a modest part of, the otherwise successful party’s costs.In the case of Wright v Wright [2013] EWCA 234, a differently constituted Court of Appeal suggested the time had come to review the principle established in Halsey that the court should not force parties to mediation. The reason given by the court in Halsey was that to oblige truly unwilling parties to refer their disputes to mediation would be to impose an unacceptable obstruction on their right of access to the courts.In Wright the Court of Appeal suggested that CPR 26.4(2)(b) could allow the court, on its own initiative, at any time, to direct a stay for mediation to be attempted. The court suggested that this could be combined with the warning of the costs consequences, which Halsey spells out, for unreasonably refusing to agree to engage in alternative dispute resolution. The court questioned whether such a stay was really an “unacceptable obstruction” to the parties’ rights of access to the court if they had to wait a while before being allowed to cross the court’s threshold. Although refusing to do so itself, the court suggested that “some bold judge” might want to accede to an invitation to rule on this issue and have another look at this aspect of Halsey.In Frost v Wake Smith and Tofi elds Solicitors [2013] EWCA 772, the court had to consider a claim against a solicitor concerning advice given in the course of a mediation. The primary dispute was between two brothers who had been involved in a long-running and acrimonious dispute to extricate themselves from their shared property and business interests. A mediation took place and, due in a large part to the “extremely skilled” mediator present, an agreement was reached in principle, following which the brothers left separately for dinner. One of the brother’s solicitors was left to document the terms of the agreement which was then signed by the brothers on their return from dinner. The agreement, however, was not legally binding as it lacked detail, leading to uncertainty as to a number of provisions. In response to a claim against the solicitor that he had been under an obligation to achieve fi nality at the mediation, the court held that such an obligation would have been impossible to perform as matters had not developed to a point at which the parties had reached, or could reach, a fi nal agreement and it was not in the solicitor’s power to fi ll the gap. This case is the latest in what is becoming a line of cases against solicitors concerning their obligations to advise clients in mediation. Swain Mason v Mills & Reed [2012] EWCA 498 is an example of a case where, unusually, the defendant was entitled to refuse to mediate because of the strength of its defence; in Hickman v Blake Lapthorn [2006] EWHC 12 both counsel and solicitor were successfully sued for failure to advise about the merits of a claim, both in the lead-up to a mediation and at the mediation itself, resulting in the client under-settling the claim.In contrast to some jurisdictions, in-house lawyers’ costs are recoverable in principle in litigation in England & Wales. In deciding how to quantify those costs the courts have taken a pragmatic approach to treat in-house lawyers in essentially the same way as independent solicitors. The relevant principles were established by the Court of Appeal in Re Eastwood [1975] Ch112, being as follows:(i) the proper method of assessment is to assess the time as if it were the time of an independent

solicitor;




(ii) the hourly rate should be assessed in the same manner as it would have been if it were claimed by an independent solicitor;

(iii) the court may presume that a fi gure arrived at on this basis will not infringe the ‘indemnity principle’ (being that the receiving party should never recover more from the other side than it is actually liable to pay); and

(iv) although there may be special cases in which it may appear that the indemnity principle will be infringed, it would nevertheless be impracticable and wrong to require a full breakdown of the activities and fi nancing of the in-house lawyer/legal department to avoid this.

The decision in Re Eastwood has been the subject of some challenge over the years where paying parties have sought to argue that the in-house lawyer’s costs should be lower to refl ect:(i) the lower running costs of an in-house legal department;(ii) the fact that as in-house lawyers were rarely specialists, hourly rates should be adjusted

downwards to refl ect the lower overheads than those incurred in private practice; and(iii) to refl ect that employees’ salaries would be the same regardless of the complexity of the

case with which they were involved.The court has generally refused to stray from the Eastwood principles although has repeatedly indicated that they could in the appropriate case.In Re Arora [2013] UKUT 362 the Upper Tribunal refused to depart from the adopted guideline rates for the summary assessment of costs simply because the solicitor in question was an in-house solicitor and, in accordance with the authorities, awarded an hourly rate comparable to that recoverable by an independent solicitor.



Michael MaddenTel: +44 20 7011 8763 / Email: [email protected] Madden is a partner who leads the fi rm’s commercial litigation presence in London. Mr. Madden advises clients on commercial real estate disputes involving joint ventures, fi nance, and landlord and tenant disputes. His wide-ranging disputes practice includes international and domestic contracts, fi nance transactions, real estate, tax, defamation, professional negligence, and insolvency issues. He has extensive experience as the lead partner in disputes involving corporate acquisitions, divestitures, and joint ventures in various industries. Mr. Madden is a member of the Law Society, a fellow of the Royal Institute of Arbitration, and an accredited Mediator. He holds an LL.B. Hons from the University of London (London School of Economics).

Justin McClelland Tel: +44 20 7011 8736 / Email: [email protected] Justin McClelland is a solicitor advocate in the fi rm’s London offi ce who focuses his practice on cross-jurisdictional disputes and contentious regulatory matters. He has advised and represented clients across a number of sectors, including fi nancial services, transport, construction, pharmaceuticals and energy. His broad experience includes: contentious regulatory investigations; high-value litigation; high-value tax litigation; sensitive corporate investigations; fraud and related advisory matters; and the creation and implementation of compliance procedures.

Winston & Strawn London LLPCityPoint, 1 Ropemaker Street, London EC2Y 9AW, UK

Tel: +44 207 011 8700 / Fax: +44 207 011 8800 / URL: http://www.winston.com


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