CONTENTIOUS COMMENTARY - A REVIEW FOR LITIGATORS MARCH 2020
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CONTENTIOUS COMMENTARY. CONTENTIOUS COMMENTARY A REVIEW FOR LITIGATORS MARCH 2020 November 2019 Clifford Chance | 0
CONTENTIOUS COMMENTARY
CONTENTIOUS COMMENTARY – MARCH 2020
CONTENTS
Contract 2
Checking authority – Authority msut be checked upfront 2
A fund of knowledge – An agreement ot provide funds is not a guarantee 2
Unsettled law - Judicial change in law does not allow a contract to be set aside 2
The end of term – Termination of a contract does not require good faith 3
Computer mistakes – Algorithmic contracts hard to escape 3
Private international law 5
A symmetry respected – Asymmetric jurisdiction is exclusive 5
Companies 7
Standing in the shadows – Shadow directors owe limited responsibilities 7
Good try, but… - Directors not negligent in financial crisis takeover 7
Courts 9
Pilot docked – Disclosure Pilot explained 9
Laying down the law – Disclosure Pilot explained some more 9
The rich pay late – Freezing injunction living expenses not to be trimmed 10
Very interesting – Part 36 offers can't exclude interest 10
Funders fund losers too – Arkin cap doffed 10
Privilege 12
From a land down under – Dominant purpose applies to legal advice privilege 12
Regulators regulated – No special privilege rules for regulators 12
Scheduled prejudice – Exhibiting without prejudice note to agreement is a waiver 13
Property 15
A bit of common sense – Cryptocurrencies are property 15
Contacts 16
Contentious Commentary is a review of recent developments in the English courts
March 2020 Clifford Chance | 1CONTENTIOUS COMMENTARY.
CONTRACT
CHECKING AUTHORITY or evidenced in writing – no writing, UNSETTLED LAW
no claim.
Apparent authority is only Overturning a settlement
available if reasonable checks One form of guarantee is an agreement for common mistake of
have been made. obligation to "see to it" that the law is hard.
One point to emerge (really to be principal debtor performs his A common mistake of fact or law can
confirmed) from East Asia Company obligations. If the principal debtor lead to a contract being set aside; a
Ltd v PT Satria Tirtatama Energindo doesn't perform, the guarantor is common misprediction as to the
[2019] UKPC 30 is that a party liable for damages. But how does future does not have that result. But
cannot rely in advance of entering that differ from an obligation to put English common law operates under
into a contract on the representative another in funds so that the other can a declaratory theory, ie the courts
of the other having apparent authority pay his debts? declare the law as it has always been
to do so. At the time of entering into This was the question in Abbhi v (even if no one knew). So is a failure
the contract, a party must believe that Slade [2019] EWCA Civ 2175. A to appreciate that the courts might in
the representative of the other has son-in-law asked a solicitor to act for future change the law a mistake or a
actual authority. If that turns out to his father-in-law in litigation against misprediction? It is a mistake as to
be wrong, the party can fall back on the f-i-l's son. The s-i-l knew, and the current state of the law because
apparent authority, which is a species told the solicitor, that his f-i-l couldn't of a failure to predict the future
of estoppel by representation, but an pay the solicitor's fees. The s-i-l said reversal.
absence of that initial belief will cause that he didn't want to pay the solicitor Since Great Peace Shipping Ltd v
the contract to fail. directly because he thought that Tsavliris Salvage (Internatiional) Ltd
Further, a party can't rely on apparent doing so would increase his risk of [2002] EWCA Civ 1407, a case of
authority if it failed to make the third party costs liability under s51 of common mistake of fact which laid
enquiries that a reasonable person the Senior Courts Act 1981, so the s- down the law on setting aside an
would have made in the i-l agreed with the solicitor that s-i-l agreement for common mistake, it
circumstances, and doubts about the would provide money to his f-i-l so has been recognised that there are
authority of the other's representative the f-i-l could then pay the solicitor problems in applying that law to
do require enquiries. Authority is not, directly. Is that a "see to it" obligation cases of mistake of law, particularly
therefore, something that can be or an independent primary judicial changes in the law (eg
glossed over or ignored in the hope obligation? Brennan v Bolt Burden [2004] EWCA
that all will be well. It matters, and The Court of Appeal considered that Civ 1017).
without proper diligence, the contract it was an independent primary Marcus Smith J grappled with these
may fail. obligation outside the scope of the problems in Elston v King [2020]
Statute of Frauds. The s-i-l was
A FUND OF KNOWLEDGE agreeing to pay for the litigation by
EWHC 55 (Ch). A bankrupt entered
into an income payments agreement
A funding agreement is not a putting his f-i-l in funds before the under threat of his trustee seeking an
guarantee. due date on the solicitor's bills. The income payments order to the same
The difference between a guarantee, obligation to do so was not effect. A first instance decision
to which the Statute of Frauds 1677 dependent on any prior default by the indicated that pension payments that
applies, and another obligation, to f-i-l but was an absolute primary a bankrupt could elect to take but had
which it doesn't, can be slight, not to obligation to put his f-i-l in funds in not yet taken could be included in an
say obscure. The consequences are, time. So the s-i-l, who 7stopped agreement/order. So the bankrupt
however, far from slight and anything paying the solicitor's bills after the agreed to pay over certain pension
but obscure. The Statute of Frauds case was lost and whose f-i-l had assets on that basis. A month later,
applies to a "speciall promise to died insolvent, was obliged to meet another first instance decision
answere for the debt default or the solicitor's fees. Relief, doubtless, doubted the initial one, and a little
miscarriages of another person", and for the solicitor, who had £¼m in later the Court of Appeal confirmed
requires the promise to be in writing counsel's fees to pay. the latter decision. The bankrupt had
November 2019 Clifford Chance | 2CONTENTIOUS COMMENTARY
therefore agreed to hand over to his THE END OF TERM that the positions of two traders need
trustee more than he was obliged to to be closed out, so it went into its
have done. A termination right is not a digital market place to find what bids
discretion.
there were from market participants.
Could the income payments
The ability to end a contract in The computer went down the list of
agreement (categorised by the judge
accordance with its terms is a right, bids on the system, matching enough
as a settlement agreement since it
not a discretion to be exercised by to effect the close out. All very
compromised the trustee's right to
balancing different interests. So normal.
apply for an income payments order)
decided the judge in Taqa Bratani Ltd
be set aside for common mistake? Unfortunately, D had introduced a
v Rockrose UKCS8 LLC [2020]
glitch into its algorithm a couple of
Marcus Smith J decided that the EWHC 58 (Comm), a case about an
days earlier which no one had
correct approach was first to construe operator of a North Sea oil field under
spotted. This meant that there was
the settlement agreement to see, a joint venture agreement.
very little liquidity in the market. This
whether, as a matter of construction,
The operator could be removed by a resulted in some of the close-out
anyone was taking the risk of a
unanimous vote of the other joint contracts being made on bids from C
change in the law. If one party had
venturers (the contract wasn't strictly that were 250 above times the
accepted the risk, end of story.
terminated, but the judge thought that market rate (10 BTC to 1 ETH rather
If neither party was taking the risk, the same applied). The other joint an 0.04 BTC to 1 ETH). Like D, C's
the judge thought that there would venturers so voted, and the judge trading operation operated entirely by
not be a common mistake if the law decided that they were entitled to do algorithm.
assumed by the parties was only as so whatever their reasons. As a
The reason C's off-market bids were
laid down at first instance, a fortiori a matter of interpretation, there was no
in the D's system was that C's trading
controversial first instance decision. fetter on the right, and no term was to
algorithm needed always to have
In those circumstances, the parties be implied that the operator could
some bids there to avoid the
would be predicting whether the only be removed in good faith and
algorithm falling over, and so the
higher courts would follow or overturn not in a capricious, perverse or
programmer included prices that
the first instance decision. But if the arbitrary manner.
were way off the market but at which
law was well-established and
Commercial players can't expect the C would be happy to trade because it
unquestioned, before being
court to rescue them with a could not fail to make money.
"dramatically" overturned, then there
benevolent interpretation or an Equally, the programmer knew that it
would be common mistake.
implied term that they didn't think to was thoroughly unlikely that anyone
Needless to say, the real world
write down. would in fact wish to trade at that
seldom fits into such tidy categories –
those prices.
what about a controversial, but COMPUTER MISTAKES
binding, CA decision (Three Rivers After the trades were executed and
(No 5) springs to mind)? A computerised contract is not the cryptocurrencies transferred
vitiated by a mistake.
between the relevant accounts,
On the facts, Elston fell into the
Computers, at least without real AI, people at D found out about the
former rather than the latter category.
do what they are programmed to do, trades and purported to undo the
The parties appreciated, or should
no more and no less. If two contracts, including reversing the
have appreciated, that the decision
computers are told to enter into a transfers between the accounts. The
they relied was only first instance and
contract on certain terms, they do so. Singapore Court of Appeal agreed
was controversial. Their mistake was
But can that contract be set aside if, with the first instance judge that D
to think that the decision would stand
when humans look at the contract had no contractual right, express or
the test of time; that was, legally, a
after the event, they consider it implied, to reverse transactions in
misprediction rather than a mistake
absurd? No according to the this way.
and, as such, was incapable of
Singapore Court of Appeal in Quoine
vitiating a contract. D's main argument to justify its
Ltd v B2C2 Ltd [2020] SGCA(I) 02.
conduct was that the contracts were
D was a trading platform for void or voidable for mutual or
cryptocurrencies operated entirely be unilateral mistake. D argued that C
algorithm. The algorithm decided knew or must have known that no
March 2020 Clifford Chance | 3CONTENTIOUS COMMENTARY.
one would enter into contracts at the conditions governing transactions on
prices posted, and so there had been the exchange. The terms could have
insufficient meeting of (digital) minds allowed the reversal of trades when
to form a contract. problems occurred. But they didn't.
The (Singapore) courts declined to
The majority of the Court disagreed.
step in to rescue a party that failed to
There was no relevant mistake since,
help itself.
at common law, the mistake must be
as to a term or the subject matter of (The Singapore Court did not need to
the contract. There was no mistake decide whether cryptocurrencies are
as to either; any mistake was as to property: cf AA v Persons Unknown
underlying assumptions as to the [2019] EWHC 3556 (Comm) below.)
prices at which deals would be done.
Insofar as there is a doctrine of
equitable mistake (not clear, in
English law at least) and there was a
relevant mistake, there must be
constructive knowledge of the
mistake by the counterparty and
unconscionability on its part. That
had to be judged by reference to the
knowledge of the person who
programmed the computer, plus
anything else he might know up to
the time of the contract. Here again
the court saw no mistake, nor any
unacceptable conduct. The contract
therefore stood.
Lord Mance, recently retired from the
UK's Supreme Court, was freelancing
in Singapore (along with a retired
Chief Justice from the High Court of
Australia) and dissented in Quoine.
He took the view that, for equitable
purposes, the issue was not what the
programmers knew, nor was the
investigation limited by the date of
the contract. He considered that the
test was the objective (and
retrospective) one of what would
reasonable humans have known or
believed had they known of the
circumstances that actually occurred.
He considered that a reasonable
person would, on this basis, have
known of the computer error by D
and, as a result, should not be able to
enforce the contract (ie equity can
step in after the event and do the
right thing).
The case might be thought to arise
from the inadequacy of the terms and
March 2020 Clifford Chance | 4CONTENTIOUS COMMENTARY.
PRIVATE INTERNATIONAL LAW
A SYMMETRY RESPECTED was not legally binding, for culpa in governed by English law. There
contrahendo (ie pre-contractual were no conflicting jurisdiction
An asymmetric jurisdiction clause liability) on the basis that E had used clauses.
is exclusive under Brussels I.
its negotiating power to avoid
It was reasonably foreseeable that
In a world of competition between providing a binding obligation while at
disputes about the comfort letter
different courts, it is not surprising the same time inspiring in AB trust
would involve the loan agreement.
that judges should defend the that E would adhere to its
Even without assuming that sane
jurisdiction of (and therefore work commitment in the comfort letter (ie
businessmen wouldn't want disputes
coming to) their forum. Jacobs J the act of refusing to enter into a
arising from the same relationship to
certainly did so in Etihad Airways binding contractual obligation created
be decided by different courts,
PJSC v Flöther [2019] EWHC 3107 a binding non-contractual obligation).
Jacobs J was satisfied as a matter of
(Comm) in taking a wide view of a
The loan agreement was governed interpretation that the tentacles of the
jurisdiction clause and a purposive
by English law and included an loan agreement's jurisdiction clause
view of the Brussels I Regulation.
asymmetric exclusive English adhered to the comfort letter.
Air Berlin is, despite its name and jurisdiction clause applying, in the
But to work, a jurisdiction clause
home, an English company that did usual way, to all claims brought by
must apply to "disputes… which may
its transactions under English law, AB arising out of or in connection
arise in connection with a particular
including those entered into when it with the loan agreement. The
legal relationship" (article 25(1) of the
was flying nervously towards the comfort letter was silent as to law and
Brussels I Regulation) – you can't slip
runway of insolvency. Its main hope jurisdiction (doubtless for the usual
into a contract a jurisdiction clause
of avoiding the deadly descent was a reason that including either could
that applies to unknown disputes
shareholder, E, which entered into a make a comfort letter look more
about extraneous matters. AB
package of agreements in attempted legally binding). In Etihad Airways, E
argued, essentially, that the "legal
salvation, including a loan agreement sought various declarations from the
relationship" in question was that of
for €350m. E would not, however, English court designed to stymie the
lender and borrower under the loan
agree to lend the higher sums German proceedings. AB (through
agreement, and the comfort letter
accountants considered were its insolvency administrator) applied
claims arose from a different
required to save AB. That led AB's to stay the English proceedings.
relationship. Jacobs J was satisfied
auditors to question whether they
AB's stay application turned on three that the relationship referred to in the
could sign off AB's accounts on a
issues: the width of the jurisdiction jurisdiction clause was wider than just
going concern basis. So the package
clause in the loan agreement; the the loan, and that the requirements of
eventually signed between AB and E
scope of article 25 of the Brussels I article 25 were met.
also included a comfort letter in which
Regulation; and whether an
E expressed an intention to provide Despite all this, the English court, as
asymmetric jurisdiction clause is an
the necessary support to AB. This the court second seised, would still
exclusive jurisdiction clause for the
satisfied AB's directors and auditors, have been obliged to stay its
purposes of article 31(2) of Brussels
and the accounts were signed off. proceedings unless the asymmetric
I6.
clause in the loan agreement was an
AB still went bust, not least because
Jacobs J decided that, as a matter of "exclusive" jurisdiction clause within
E refused a drawdown under the loan
English law, E had a sufficiently the meaning of article 31(2) of the
agreement because, it said, the
arguable case that the jurisdiction Brussels I Regulation. Jacob J
conditions precedent to the
clause in the loan agreement agreed with Cranston J in
drawdown were not then met.
extended to AB's claims on the Commerzbank AG v Liquimar
AB's German insolvency comfort letter. The jurisdiction clause Tankers Management Inc [2017]
administrator started proceedings in was very wide, and the comfort letter EWHC 161 (Comm) that asymmetry
Berlin against E for breach of the and the loan agreement were closely isn't inconsistent with exclusivity.
comfort letter or, if the comfort letter related as part of a single package The purpose of article 31(2) was to
November 2019 Clifford Chance | 5CONTENTIOUS COMMENTARY. prevent a party from ignoring its obligations under a jurisdiction clause. The clause gave the English courts exclusive proceedings over any claims started by AB; by starting proceedings in Germany, AB was in breach of its obligations under the clause. That was what article 31(2) intended to prevent. E's triumph in London therefore moves the focus back to Berlin, where the court has been deliberating on a stay application by E for eleven months. Prima facie, the Berlin court must recognise the Jacob J's judgment and decline jurisdiction (article 31(3)). But that may not necessarily be the end of the story. March 2020 Clifford Chance | 6
CONTENTIOUS COMMENTARY
COMPANIES
STANDING IN THE GOOD TRY, BUT… global financial crisis. The state of
SHADOWS HBOS was such that the combined
Directors' duties to shareholders entity required governmental
Shadow directors owe limited are limited.
recapitalisation, which seriously
duties. Parts of Sharp v Blank [2019] EWHC diluted existing Lloyds' shareholders.
A shadow director is someone in 3078 (Ch) have an avuncular, even A group of shareholders made the
accordance with whose directions or condescending, air to them. It was basic complaint that, if the takeover
instructions the directors of a all very difficult way back then in had not happened, they would have
company are accustomed to act 2008 - who really knows what was been a lot better off. The directors
(section 251 of the Companies Act happening anyway? - but people who breached their duties, the Bank was
2006). A person can become a were doing their best shouldn't be vicariously liable for the directors'
shadow director even if his or her condemned just because things conduct, so the Bank should pay – ie
instructions do not extend over all, or arguably didn't turn out as well as part of the value in the Bank now
even most, of the company's hoped. That's just the way it goes should be transferred from all
activities or affairs. But in those sometimes. That's not quite how the shareholders to a few of them.
circumstances, the fiduciary duties recently retired Norris J put it – his
Directors owe their duties to the
owed by the shadow director reflect judgment would have been far
company, not directly to
the nature and extent of the shorter had he done so – but that's
shareholders. But Lloyds' takeover of
instructions given, not necessarily one distinct flavour.
HBOS required shareholder
extending to the full gamut of Another flavour that emerges from approval, and the circular soliciting
obligations owed by real directors – the judgment is that Lloyds Bank had that approval included a statement
the duties of a shadow director only been looking acquisitively at the that the directors accepted individual
apply to the instructions he or she declining HBOS for some time, but responsibility for its contents. The
gives. knew that competition issues would directors therefore owed a standard
This gave the Cs a problem in likely prevent any takeover. Come duty of care to shareholders for the
Standish v The Royal Bank of the financial crisis, with HBOS in real contents of the circular. The judge
Scotland plc [2019] EWHC 3116 danger of joining its compatriot RBS decided, however, that this duty did
(Ch). They complained that a in the government's hands, the not extend to stock exchange
representative of the Bank's global authorities were keen to usher HBOS announcements or analysts' calls
restructuring group (for whom the into apparently safer hands, even to about the takeover (the judge was,
Bank was vicariously liable) had the extent to brushing aside those indeed, puzzled as to why the
become a shadow director, pleading competition concerns. The shareholders bothered to argue
his insistence on the company opportunity for a takeover was there, about these other items given the
appointing a "turnaround consultant" and those then in charge of Lloyds position on the circular).
of his choosing as chairman, and were keen to seize what was likely to
But, the judge thought, the test for
then instructing the consultant to be their only chance to upsize
liability on the circular was whether
sack the managing director. But the considerably rather than be boring,
no reasonable director could have
Cs' claim to financial loss arose from cautious old Lloyds Bank as usual.
come to the conclusion that the
the company's entering into two But, as it transpired, opportunities
directors came to. The judge was
restructurings, which gave the Bank a can be poisoned chalices, and a
satisfied that, in the strained
substantial shareholding in the (relatively) sound bank plus a failing
circumstances of the time and on the
business. There was no causal link bank does not necessarily equal a
basis of the information available to
between the matters giving rise to the sound bank.
them (they aren't obliged to second-
shadow directorship and the alleged Sharp v Blank concerned Lloyds guess everything their advisers say),
wrongs or losses. The claim was Bank's takeover of HBOS in the directors' recommendation of the
therefore bound to fail, and was September to November 2008, at the takeover to the shareholders (96% of
struck out. very height (or in the depths) of the whom voted in favour) was within the
March 2020 Clifford Chance | 7CONTENTIOUS COMMENTARY.
bounds of the reasonable. The basic resort facility from the Bank of failures in the circular did not cause
claim therefore failed. England, which had been structured the shareholders any loss.
to ensure that it did not need to be
It was also accepted that the There were doubtless other issues
disclosed to the market (its sensitivity
directors owed an equitable duty to (reflexive loss?) but the judge
was such that the lawyers advising
include sufficient information in the considered his judgment already
Lloyds on the deal weren't told about
circular to enable shareholders to "overlong" at 280 pages, and did not
it).
make an informed decision about the extend it further by trespassing on
takeover. Directors must be "fair, But, critically, the judge decided that areas not necessary for his decision.
candid and reasonable", but don't these matters would not have been
The judgment can be seen as a
have to include absolutely everything. plastered in large red print across the
sensible recognition that the
Norris (ex-)J decided that the front of the circular, in effect
director's lot is tough, especially
directors had omitted from the announcing to the world that HBOS
when the financial world is in chaos,
circular two things that they should was on the verge of failure. Rather,
and judges (who lack commercial
have mentioned. The first was that these matters would have been set
experience) shouldn't second-guess
Lloyds had extended an out in a nuanced way to avoid
retrospectively business decisions.
"extraordinary" repo facility to HBOS scaring the markets too much. This
Some shareholders may, however,
in order to help keep HBOS alive (the might still have led to HBOS's share
see it differently.
directors convinced themselves that price going down 10-15%, but it
this was in the ordinary course of wouldn't have changed the
business); the second was that shareholders' vote. The takeover
HBOS was using a lender of last would still have been approved; the
March 2020 Clifford Chance | 8CONTENTIOUS COMMENTARY
COURTS
PILOT DOCKED LAYING DOWN THE LAW was irrelevant. The question was
whether a reasonable and
Vos C lays down the law on the Missing documents are not proportionate search had been made,
Disclosure Pilot. necessarily an objection to
not whether some stones remained
disclosure.
It widely accepted that the explosion undisturbed: "keywords are intended
in the number of documents caused On 19 February 2019, Marcus Smith as a first trawl, to produce a
by digitalisation requires something J joined a new party to an action, manageable corpus of potentially
to be done about disclosure. The allowed amendment to the pleadings, relevant documents: they are not
Disclosure Pilot now taking place in and ordered disclosure. He ordered intended to capture every relevant or
the Business & Property Courts is disclosure by reference to the old potentially relevant document".
something, but it is not universally rules, neither he nor the parties Likewise, the fact that different
popular (is there any evidence or appreciating that this should have search terms may have produced a
reasonable expectation that initial been done by reference to rules of different outcome was irrelevant, at
disclosure with pleadings and an the Disclosure Pilot, in PD51U. least unless it could be shown that it
additional list of issues will really Later, C whinged about D's was a better outcome.
save money later in the litigation?). disclosure and demanded more,
again by reference to the old rules. The judge pointed out the differences
In McParlane & Partners Ltd v between applications under PD51U,
Whitehead [2020] EWHC 298 (Ch), By the time the matter got to court, §17, and PD51U, §18. The former
Sir Geoffrey Vos sought, perhaps, to everyone realised that the application applies where an extended
rescue the Disclosure Pilot. He said had to be reframed under the new disclosure order has not, or not
that Extended Disclosure (ie court rules, but the judge obviously couldn't adequately, been complied with.
ordered disclosure after initial get too cross since everyone was at There, the court can make another
disclosure and lists of issues) must fault. But do bear in mind that almost order if it is "appropriate" and making
be fair, disproportionate and everything about disclosure in the the order would be "reasonable and
reasonable, and that it should not B&PCs now falls under the new rules proportionate". The latter deals with
become a disproportionately costly no matter when the action started. an application in effect to vary a prior
exercise. Lofty sentiments but, in order, for which it is necessary to
In Agents' Mutual Ltd v Gascoigne
practical application, not easy. Views show that the order is "necessary for
Halman Ltd [2019] EWHC 3104 (Ch),
can diverge as to what proportionality the just disposal of the proceedings"
the disclosure whinge concerned a
and reasonableness require. as well as "reasonable and
universe of over 2 million documents
reduced by word searches to 30,000, proportionate". In order words,
Vos C emphasised that the list of
which were manually inspected, you've generally got to get the
issues for disclosure should be big
leading to the disclosure of 95 disclosure order right first time
picture, not unduly granular or
documents. C complained that this because any subsequent adjustment
complex, and limited to those issues
was too few. Marcus Smith J will be difficult (a point also made by
upon which one or more of the
rejected that argument. Unless it Hildyard J in SL Claimants v Tesco
parties is likely to have undisclosed
was obvious that documents must plc [2019] EWHC 3315 (Ch), below).
documentation (ie documentation not
already included in initial disclosure). exist that had not been disclosed, a Marcus Smith J stressed that word
What documents the parties might small number was not on its own a searches on the universe of
have is therefore the starting point in ground for objection. documents collected from relevant
drafting the list of issues for custodians should not be conducted
C also complained that the search
disclosure, and should trim its scope. unilaterally (though, again, he
terms used were too narrow. An
example of a hypothetical relevant couldn't complain too much since his
document that the search terms order said nothing about
would have missed was given. cooperation). Parties must try to
Marcus Smith J said that the fact that agree search terms.
documents may have been missed
March 2020 Clifford Chance | 9CONTENTIOUS COMMENTARY.
The Judge accepted that defining therefore, D could prove that he pay money will be treated as
search terms was not necessarily spent vast sums on living prior to the including interest.
easy, and it was only possible to tell if injunction, he must be allowed to do
Faced with this, it is somewhat
the terms produced a manageable so afterwards. The court will not
curious that C in King v City of
universe of documents after a search reduce the amounts to what it
London Corporation [2019] EWCA
was done (he didn't say what a considers reasonable or take a view
Civ 2266 should make an offer to
"manageable universe" was – not as to what D can afford going
settle (which C then beat) expressed
necessarily an easy concept). This forward, even if this might mean that
to be under Part 36 but which stated
meant that the use of search terms there will be nothing left to meet an
that it did not include interest. Either
was an iterative process and, he eventual judgment.
the offer was outside the rigid
thought, an iterative process that
But the Court also recognised that confines of Part 36 or it included
should also be a co-operative
defendants may exaggerate their interest (and was therefore more
process. Agreement must be
expenditure, thereby dissipating generous than C intended).
reached before a manual review of
assets (to grant a freezing injunction
the product of the search is In King, the Court of Appeal decided
in the first place it must be shown
undertaken since that is where, he that a Part 36 offer cannot exclude
that the defendant will dissipate
thought, the expense comes. interest, that it was inconceivable that
assets). As a result, courts are
an offer that excluded interest could
THE RICH PAY LATE entitled to exercise a "healthy
be converted by the rules into one
scepticism" regarding defendants'
Living expenses under a freezing that included interest, and so the
assertions as to their pre-injunction
injunction must reflect prior offer fell outside Part 36. The Court
expenditure.
expenditure, however high. also rejected C's ingenious argument
£80,000 per month in living expenses But if a defendant can prove that he that an offer that excluded interest
would be enough for most people. spent outlandish sums, then he must was an offer to settle part of the
But not if you have to keep up be allowed to continue to do so even claim, which is permitted.
(rented) homes in Monaco and on if it looks as if the defendant will run
So despite having beaten his
Park Lane, not to mention employ out of money in the near future. It's
purported Part 36 offer, C could not
private security, pay school fees etc not for courts to take decisions of this
then lay claim as of right to the usury
etc. All while subject to a freezing sort for defendants, or even to police
and other goodies that Part 36
injunction. And you are running out that defendants are actually
allows. The City won on a
of money. continuing to spend the amounts they
technicality.
previously spent. A freezing
The question for the Court of Appeal injunction is there to retain the status FUNDERS FUND LOSERS
in Vneshprombank v Bedzhamov quo and to prevent dissipations TOO
[2019] EWCA Civ 1992 was whether outside the ordinary course.
in considering the living expenses The Arkin cap no longer fits.
that should be allowed under a (If there is a proprietary claim, it
might be different.) In 2005, the judiciary was deeply
freezing injunction, the court should concerned about access to justice.
look only to what D had actually been VERY INTERESTING Legal aid had disappeared in civil
spending by way of living expenses cases, conditional fee agreements
before the freezing injunction or A Part 36 offer cannot exclude
interest. were still novel, and litigation funders
whether it should also take a view as were a rare and exotic breed.
to what D could afford as the case Part 36 is a "self-contained
went along. procedural code about offers to As a result, in Arkin v Borchard Lines
settle" (CPR §36.1(1)), it is "carefully Ltd [2005] EWCA Civ 655, the Court
The Court of Appeal was firmly of the of Appeal succumbed to the
structured and highly prescriptive"
former view, ie the only question is argument put forward by this exotic
(Gibson v Manchester City Council
what was D spending before the breed that if courts imposed
[2010] EWCA Civ 726, [4]), and an
freezing injunction. The purpose of a potentially limitless costs on funders,
offer not made in accordance with
freezing injunction is not to provide the funders would all close down their
CPR 36.5 will not have the near
security to C, nor to prevent D from businesses, leaving to the rich alone
automatic consequences of Part 36.
spending available funds on living the ability to enter the halls of justice.
CPR §36.5(4) says that an offer to
expenses in the way he did before,
nor to allow C to oppress D. If,
March 2020 Clifford Chance | 10CONTENTIOUS COMMENTARY
To avoid this threat, the Court of oblige courts (below the Supreme virtually all funding agreements put
Appeal invented the Arkin cap, ie a Court) to don the eponymous funders at the head of the queue for
funder funding a losing case should headgear? No, again. Courts have a any recoveries from the litigation
only be ordered to pay in costs an wide discretion on costs under (even though funders assiduously
amount equal to its funding (ie if a section 51 of the Senior Courts Act deny controlling the litigation they
funder put up £2.5m, its maximum 1981, and Arkin merely offers a fund).
exposure would be £5m). This, the pointer, not a rule. Indeed, the Court
The Arkin cap hasn't gone entirely.
Court of Appeal considered at the in ChapelGate thought it was a
But it will no longer fit many, possibly
time, would allow litigation funders to pointer confined to cases on facts
most, cases. Funders have often
sleep more comfortably in their beds similar to those in Arkin, ie where a
used the argument that their
and thus preserve access to justice. funder had only funded a particular
presence strengthens a case
aspect of the costs (experts' fees and
But times are now more cynical. because it shows that the claimant
bundles in Arkin).
Funders have pots of cash chasing can fund the litigation through to the
money-making litigation. Will they A funder's potential return is, the end, so defendants should settle.
really shut up shop just because their Court thought in ChapelGate, a Now, perhaps, the response will be
costs' risk is somewhat elevated? significant factor in the exercise of that funding provides someone who
No, according to the Court of Appeal discretion under section 51 – the is good for the costs of the successful
in ChapelGate Credit Opportunity more the funder stands to gain, the defendant, who therefore doesn't
Master Fund Ltd v Money [2020] more it should be treated as the real need to settle.
EWCA Civ 246. But does Arkin defendant for costs purposes. And
March 2020 Clifford Chance| 11CONTENTIOUS COMMENTARY.
PRIVILEGE
FROM A LAND DOWN The Court of Appeal started by response reveals any legal advice, it
UNDER agreeing with comments in ENRC might be privileged, but if not, the
that the decision in Three Rivers (No lawyer's part of the chain can be
All categories of privilege require a 5) [2003] EWCA 474, regarding the redacted. As ever with privilege, this
dominant purpose. identity for privilege purposes of the may involve some fine judgements.
In Waugh v British Railways Board lawyer's client within a corporate
Jet2.com also raised a question of
[1980] AC 521, the House of Lords entity, was wrong. Unfortunately,
waiver, ie whether revealing one
decided that litigation privilege only they also agreed that it is binding in
email the recipients of which included
applies to documents created for the its errant ways, and so must await
lawyers waived all parts in the chain,
dominant purpose of the conduct of the Supreme Court for correction.
including from lawyers, and other
litigation. But there has been doubt Then the Court of Appeal went on to communications on the same subject
ever since as to whether a dominant dominant purpose. They noted that matter. The Court of Appeal decided
purpose test also applies to legal the dominant purpose test had been that it did not.
advice privilege, ie the dominant imported from Australia, where it
purpose, not merely a purpose, of the The test is what is the "transaction"
applies both to litigation privilege and
creation of a communication must be for which the document has been
legal advice privilege, that other
to seek or give legal advice. disclosed, ie what is the party that
common law jurisdictions take the
has disclosed it trying to prove and,
In SFO v Eurasian Natural same approach, and that the (obiter)
in the light of that, does fairness
Resources Corporation Ltd [2018] direction of English law was to apply
require that all other related
EWCA Civ 2006, the Court of Appeal it to both limbs (the noble exception
documents be revealed? The Court
said, obiter, that it did not think that a being ENRC). So the Court decided
took a narrow approach to the
dominant purpose test added that dominant purpose is a
"transaction", holding that all the
anything of value to legal advice requirement of both limbs of legal
CAA's disclosure had been intended
privilege, but in R (Jet2.com) v The professional privilege as a matter of
to show was that there were different
Civil Aviation Authority [2020] EWCA English law.
views within the CAA, and that the
Civ 35, the Court of Appeal decided, What does this mean in practice? content of any legal advice was not
ratio, that there is very definitely a Perhaps not that much. If relevant to this.
dominant purpose test for legal correspondence is to or from a
advice privilege. The bottom line is that privilege
lawyer only, it is likely to be privileged
needs a case to go to the Supreme
Jet2.com involved a spat between (as long as the lawyer is acting in a
Court to sort out some serious
the CAA and the airline over the legal capacity) – why, other than for
issues. But only a case where
latter's failure to join a "voluntary" the dominant purpose of seeking
privilege really, really matters will go
mediation scheme dealing with legal advice, does anyone incur the
that far up the judicial hierarchy.
passenger complaints. The CAA expense of communicating with
tried to shame the airline into joining lawyers, at least external lawyers? REGULATORS
by critical press releases and a leak If the correspondence is to lawyers REGULATED
of correspondence to the Daily Mail, and non-lawyers, the dominant
which duly published a story adverse There is no privilege exception for
purpose test comes more to the fore. regulators.
to the airline. If the dominant purpose of the
communication overall is legal Regulators have wide-ranging
The overall issue was whether the
advice, it is privileged in its entirety; if powers to extract documents from
CAA had acted within its powers,
third (ie non-regulated) parties. In
while the immediate question was not, it is not privileged. But if the
Sports Direct International plc v The
whether internal CAA emails sent to lawyer then replies, that reply is likely
Financial Reporting Council [2020]
various people, including inhouse to be privileged even though the
EWCA Civ 177, the FRC argued that
lawyers, were privileged. The replies of others are not. It gets more
these documents included privileged
answer was no. difficult if a non-lawyer then responds
documents as long as the FRC was
to the lawyer's privileged reply or
uses the same email chain. If the bound by an obligation of
March 2020 Clifford Chance | 12CONTENTIOUS COMMENTARY
confidentiality and the documents unlike the Law Society's, did not privilege in a document, don't
could not be used against the party come close. mention its contents.
that provided them (always the case
for documents held by a non- CRIMINAL RELEASES (Cf BGC Brokers LP v Tradition
regulated party). This amounted to Reading a document in a criminal (UK) Ltd [2019] EWCA Civ 1937
an argument that third parties could trial does not destroy the below.)
not raise privilege as a reason for document's confidentiality.
failing to supply documents to SCHEDULED PREJUDICE
You might think that reading out parts
regulators. of a document during a criminal trial, Including confessions of
and inviting the judge then to read wrongdoing in a settlement
This argument succeeded at first
agreement removes without
instance. This success derived from the first three (out of nine) of its
prejudice protection.
Lord Hoffmann's interpretation in R pages, would put paid to any
(Morgan Grenfell & Co Ltd) v Special confidentiality in that document. But BGC Brokers LP v Tradition (UK) Ltd
Commissioner [2003] 1 AC 563 of not according to Hildyard J in SL [2019] EWCA Civ 1937 is a
Parry-Jones v The Law Society Claimants v Tesco plc [2019] EWHC somewhat eccentric case, but it
[1969] Ch 1. 3315 (Ch). nevertheless contains a warning for
those drafting settlement
In Parry-Jones, the House of Lords The document concerned was the agreements.
decided that the Law Society could note of an interview between an
obtain privileged documents from a inhouse lawyer at Tesco and Tesco's The case concerned employees of C
solicitor it regulated where the external lawyers setting out what the who were found to have been leaking
privilege belonged to the solicitor's inhouse lawyer knew about Tesco's confidential information to employees
client. If that were not so, how was overstatement of its commercial of D. C settled with one of its
the Law Society supposed to regulate income prior to the overstatement employees (S), the settlement
solicitors since most documents held becoming public, Tesco's shares agreement including in a schedule
by solicitors are subject to privilege? crashing and Tesco being sued by its notes of a without prejudice meeting
In Morgan Grenfell, Lord Hoffmann shareholders (Tesco itself agreed a between C, S and their respective
suggested that the reason behind this fine of £129m under a deferred lawyers in which S confessed to his
decision was either that disclosure to prosecution agreement, but the three crimes and misdemeanours.
the Law Society, which was bound by executives charged with personal The purpose of including the note in
an obligation of confidentiality, was offences were all acquitted). The the schedule was so that S could
not an infringement of the solicitor's note was originally privileged, but the warrant that what he said at the
client's privilege or that, if it was, it Cs contended that the use of the note meeting was the whole truth and
was a technical breach that was at the criminal trial resulted in its nothing but the truth. The agreement
impliedly authorised by the Law losing its confidentiality and, asserted that the notes were without
Society's statutory rules. In Sports therefore, ceasing to be privileged. prejudice and that neither party was
Direct at first instance, the judge felt Hildyard J considered that there is a waiving that "privilege". C then sued
obliged to echo this approach. difference between the information in D. In disclosure, C supplied D with a
In Sports Direct in the Court of a document and the document itself. copy of the settlement agreement,
Appeal, Rose LJ felt no such Whether references to the but redacted the schedule. D
compunction. SDI withheld information in a document are demanded an unredacted copy of the
documents on the grounds of sufficient to cause a loss of settlement agreement.
privilege and was, she said, entitled confidentiality in the document as a In BGC Brokers, the parties agreed
to do so absent statutory rules to the whole is a matter of degree. In this that the meeting between C and S
contrary. It was obvious nonsense to case, he decided that the references was without prejudice. The notes
say that disclosure to a third party's were insufficient to destroy were not therefore disclosable. But
regulator did not infringe privilege. confidentiality, nor was the criminal they also agreed that the settlement
For a statute to override privilege, it judge's reading of the document agreement was disclosable. The
had to be express or a necessary sufficient to require the document's issue was whether the inclusion of
implication; there was no lesser test disclosure to the public following the the notes in the settlement
for regulators. The FRC's rules, criminal case. Nevertheless, agreement was enough to render
generally, if you don't want to lose
March 2020 Clifford Chance| 13CONTENTIOUS COMMENTARY.
them part of the agreement, and C also asserted litigation privilege on could not therefore attach to that use
therefore disclosable, or whether they the basis that the notes reflected of the notes.
retained their underlying protected evidence gathered for the purposes
BGC Brokers is eccentric on its facts,
status despite being included in the of its claim against D. The Court
and somewhat unsatisfactory on
settlement agreement. accepted, for the purposes of
multiple levels (is a settlement
argument, that the notes were made
The Court of Appeal was clear, agreement always outwith without
for the dominant purpose of collecting
though without much, if any, prejudice? Gnitrow Ltd v Cape plc
evidence, but decided that their
reasoning, that D was entitled to see [2000] 1 WLR 2327, 2332C? Limited
subsequent inclusion in the
the full, unredacted, settlement waiver?). But it is nevertheless a
settlement agreement was not for
agreement. By exhibiting the notes cautionary tale about what you can
that purpose. It was for the purpose
to the agreement, without prejudice safely include in a settlement
of extracting representations and
protection was lost. agreement.
warranties from S. Litigation privilege
March 2020 Clifford Chance | 14CONTENTIOUS COMMENTARY
PROPERTY
A BIT OF COMMON SENSE not historically frozen in choses in elsewhere). Teare J allowed service
possession or in action (bitcoin being on all parties by email.
Cryptocurrencies are property. neither) but extends to the inventions
Teare J ordered that the application
AA v Persons Unknown [2019] of modern computer science that look
be in private. That is obviously right
EWHC 3556 (Comm) is an everyday property-like. And since bitcoin is
as far as the immediate
story of contemporary property, an injunction could be
consequences are concerned – if the
fraud/blackmail. A Canadian granted on the (easier) proprietary
fraudsters were alerted, the bitcoins
insurance company was hacked, its basis to prevent its dissipation rather
would presumably migrate elsewhere
data encrypted, and it was told that it on the (harder) freezing injunction
in a crypto-instant. But the judge
could have the key to unencrypt the basis.
also thought that identifying the
data on payment of (after negotiation)
But there was a jurisdictional parties might lead to revenge attacks,
US$950k in bitcoin. The Canadian
problem, though it wasn't ventilated in though the persons likely to do that
insurer's UK insurer paid, the key
any detail, doubtless because of the are the fraudsters, and they will have
was given and the data unlocked,
absence from the hearing of the to be told about the injunction at
and the Canadian insurer proceeded
exchanges or the fraudsters. The some point. The judge also pointed
with its business (in, presumably, a
insurer aside, there was no to the risk of potential copycat attacks
state of some embarrassment).
connection to the jurisdiction (the on the Canadian insurer or its
But the insurer's insurer wanted its location of the fraudsters was insurer.
money back. It traced most of the unknown). The case being one of
The fraudsters are unlikely to turn up
bitcoin to an exchange operated by obvious fraud, the judge was in a
in court, whether in England, the BVI
BVI companies which, it said, should benevolent mood. He decided that
or anywhere else, to fight the case.
be able to identify the account this was a case of tortious damage
So the real question will be whether
holders/fraudsters from the being suffered within the jurisdiction
the BVI exchange complies with the
exchange's KYC procedures. Step since the insurer is here and paid
English injunction or whether it feels
one to retrieving the bitcoin was money from an account here. This
it is able, or obliged, to ignore it,
some sort of interim relief to stop the met the jurisdictional "gateway" in
either as to retaining the bitcoin or
bitcoin moving on. PD6B, §3.1(9).
disclosing the names on the account
Teare J accepted that bitcoin is He also thought that section 25 of the holding the bitcoin.
property, reciting with little comment Civil Jurisdiction and Judgments Act
the recently published semi-official 1982 was available (interim injunction
legal statement to that effect – in support of substantive foreign
basically, the concept of "property" is proceedings, even though there was
no suggestion of any proceedings
March 2020 Clifford Chance| 15CONTENTIOUS COMMENTARY.
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