Our quick summaries in this issue include recent cases on: guidance on potential pitfalls in standstill agreements; validity of service of claim form is determined by reference to CPR 7.5, not CPR 6.14; claim form sent "for information" will not be treated as served, even exceptionally; Part 36: normal costs rule not displaced. 


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A question of timing: guidance on potential pitfalls in standstill agreements

There is helpful guidance on standstill agreements in two recent decisions: Russell and another v Stone (t/a PSP Consultants) and others [2017] EWHC 1555 (TCC) and Muduroglu and another v Stephenson Harwood (a firm) and another [2017] EWHC 29 (Ch) (unrep). This article will explore the practical ramifications of these cases on standstill agreements and the use of standstill agreements in lieu of seeking a stay of proceedings.

In Russell and another v Stone (t/a PSP Consultants) and others [2017] EWHC 1555 (TCC) the parties entered into a standstill agreement on 5 November 2015 to avoid numerous claims becoming statute barred. The standstill period was extended in three subsequent agreements. The claimants issued proceedings on the day following the expiry of the final standstill agreement. The defendants sought to strike out several claims contending that they had become statute barred as the extended limitation period had expired with the standstill agreement.

Coulson J ruled in favour of the claimants, concluding:

  • The effect of the standstill agreements were not to extend limitation periods. Instead, their practical impact on proceedings was to suspend them. For example, if the claimant had 5 months until a claim became statute barred upon commencement of a standstill agreement then they would have 5 months left on its expiry.Although the agreement’s recitals framed the purpose of the agreement as being an agreement to extend, the operative clauses of the agreements exclusively referred to suspension. In accordance with the principles set out in Re Moon (1886), the operative clauses prevailed.
  • “[S]loppy drafting” had contributed to extending all the rights of the original standstill agreement, not just the standstill period. This prevented the defendants from bringing a limitation defence. Coulson J considered the original agreement and the subsequent extensions within the context of the solicitors' discussions and the intentions of the parties. Parties should carefully consider the intended outcome of any agreement (or later amendment) and ensure any draft clearly reflects those intentions. Disagreement arising out of the construction of a standstill agreement will be resolved in accordance with the traditional approach for interpreting contracts.
  • Claimants may find it more convenient to initiate proceedings and then seek a formal stay of proceedings from the court, rather than negotiating a standstill agreement.

In Muduroglu and another v Stephenson Harwood (a firm) and another [2017] EWHC 29 (Ch) the parties entered into a standstill agreement to avoid the claim becoming statute barred as it approached the end of the limitation period. A clause of the agreement required 14 days’ notice if the claimant wished to issue proceedings and was subject to a longstop date. The claimants issued proceedings in breach of this term.

The defendant ran a limitation defence, arguing that the claimant’s breach repudiated the agreement and any suspension of time gained from the standstill agreement should therefore be cancelled.

The Deputy High Court Judge held that the breach was not repudiatory:

  • Avoiding proceedings did not benefit the claimant alone; both parties had gained from agreeing to suspend the limitation period.
  • The term requiring notice was not significant enough to be deemed as the ‘heart of the contract’. Therefore, any breach of this term could not be repudiatory.
  • Even if the breach had been deemed repudiatory, the judge was sceptical that the defendant would not still have to honour the suspension of time in any event.

Conclusion

Parties should approach the drafting of a standstill agreement with great care. Imprecise use of language may lead to unintended consequences, limiting your actions or potentially empowering your opponent. This is especially important when considering the practical use that standstill agreements can have in the face of looming limitation periods.

It is also clear that standstill agreements do not act as a complete safety net from proceedings being commenced. Murduroglu shows that, at least in certain circumstances, it is possible for a party to breach a standstill agreement and still benefit from a suspension of the limitation period. As such, parties should ensure that they are prepared for litigation despite having an agreement in place.

Another option is to use the court's power to stay proceedings in order to overcome the uncertainty caused by ambiguous language. However, parties should consider other factors before opting for the courts: making a dispute “public” by issuing proceedings; costs associated with making an application for a stay; whether an extension of the stay will be granted, if needed (the court may not be so easily negotiated with); and the possibility of the court imposing conditions on granting the stay.

Please contact Jack Cooper for more information.

Validity of service of claim form is determined by reference to CPR 7.5, not CPR 6.14

In Jones v Chichester Harbour Conservancy and others [2017] EWHC 2270 (QB), the High Court considered whether a claim form had been validly served where it had been posted during the period of its validity but the deemed date of service was out of time. Master McCloud analysed rules 6.14 and 7.5 of the Civil Procedure Rules which, respectively, detail the regime for calculating the deemed date of service and set out the appropriate steps that need to be taken for each method of service to be successfully executed.

Facts

The claimant applied for an extension of time for service of her personal injury claim, which was granted to 17 January 2017. The claim form was subsequently emailed and posted by first class post to the defendant on 17 January 2017 however as the defendant had not indicated a willingness to accept service by email, the date of deemed service of the claim form (by post) was 19 January 2017 (in line with the rule in CPR 6.14). The defendant argued that the claim form was invalid as it had been served after the expiry of the (extended) period of its validity. It relied on Brightside Group Ltd v RSM UK Audit LLP, Comm. 2017 and argued that because the order referred to an extension of time for 'service' of the claim form and not the date by which the steps set out in CPR 7.5 had to be effected, it was CPR 6.14 (the deemed service date) that needed to be taken into account by the judge.

Judgment

Master McCloud considered the decisions in Brightside, T&L Sugars Ltd v Tate & Lyle Industries Ltd Comm. [2014] and Ageas (UK) Ltd v Kwik-Fi (GB) Ltd. QB [2013]. She concluded that the deemed service provisions in CPR 6.14 should not render the service of a claim form in accordance with CPR 7.5 invalid, provided that the step in CPR 7.5 was taken during the period of validity. This departs from the decision in Brightside. Master McCloud's rationale for this was that the purpose of CPR 6.14 is to fix a date from which subsequent procedural deadlines should be calculated, for example service of particulars of claim. The Master stated that a purposive interpretation of the two rules was required in order to achieve the most sensible outcome in these instances – if the defendant's interpretation of the rules was applied, this would create a few 'dead' days at the end of a claim form's period of validity during which it would be impossible to validly serve a claim form by many of the methods in CPR 6.14 because the deemed date of service would fall after the expiry of the period of validity. The CPR aims to create certainty and such an interpretation conflicts with that aim.

Conclusion

There is now inconsistent first instance case law on the question of whether the date on which service of a claim form takes place, for the purposes of its period of validity, will be determined by reference to when the necessary step from CPR 7.5 took place, rather than the deemed date of service as worked out using CPR 6.14. In Jones Master McCloud made clear that her approach should apply not only where an extension of time has been sought, as in Jones, but also to the basic four or six month period of validity. Claimants should ensure nevertheless to take the provisions in CPR 6.14 into account to avoid any risk of having a claim struck out.

Please contact Nayomi Skinnner for more information.

A claim form sent "for information" will not be treated as served, even exceptionally

Two recent cases show that delivery of a claim form for information only is not good service and the court will not treat delivery in this way as a good enough reason to make an order for CPR r.6.15 (alternative method/place of service) or CPR r.6.16 (dispensing with service). This highlights how important it is to correctly serve the claim form and particulars of claim within the correct time period, especially where limitation issues apply.

In Higgins and others v ERC Accountants & Business Advisers Ltd and another the High Court decided that a claim form was not validly served within the extended time for service. A draft claim form had been sent to the defendants' solicitors for information only. The claim form sent was a draft rather than a sealed copy and did not enclose a response pack. Further, CPR 6.7 (service on a solicitor in the UK) had not been complied with as the claimants had not asked any of the defendants whether they could serve proceedings on their solicitors. The claimants' request for an order that the claim form be deemed served by an alternative method or at an alternative place under CPR 6.15 or 6.16 was refused. The mere fact that the defendant had learned of the existence and content of the claim form could not by itself constitute a good enough reason to make the order. The failure to serve was merely the result of negligent or incompetent error.

In Caretech v Oakden the outcome was the same. There was no valid service of the claim form because the claimant had served a copy with a covering letter which clearly said 'for your information'. Again, it had been delivered to the defendant's solicitors who were not authorised to accept service.

Please contact Anna Davies for more information.

Part 36: normal costs rule not displaced

Jordan v MGN Ltd concerned the question of whether the court should deviate from the normal costs rule with regards to the late acceptance of a part 36 offer. The normal rule requires the offeree to pay the offeror's costs from the expiry of the relevant period (i.e. since the last date on which they could have accepted the offer (CPR 39.10(5)(b)))

Late acceptance

This was a phone hacking case, involving Mr Jordan of Formula 1 fame (the claimant) who sued MGN (the defendant). Mr Jordan sought £150,000 damages. Over a period of two and a half years a number of settlement offers were made which were either refused or ignored by the claimant. In the final months before trial the parties discussed an offer of £90,000 however, no offer was accepted. Following a last minute application by the claimant it was agreed that the defendant's first offer of £15,000, made on 24 September 2014, should be accepted, two and a half years late.

Claimant's request

The claimant asked that the court depart from the normal costs rule and grant them their costs since the expiry of the relevant period. This was on the basis that he claimed that the parties had reached an agreement regarding damages of £90,000 and so any trial would have been an abuse of process given that the dispute only involved costs. The court rejected this argument noting that no agreement as to damages had actually been reached.

Decision

Instead, the Court refused to deviate from the ordinary costs rule and ordered that the claimant pay the defendant's costs, on an indemnity basis, for the period after expiry of the relevant period. The court said that the claimant was to blame for both parties incurring further costs after the defendant made the offer of £15,000 in September 2014. He had responded poorly to settlement negotiations throughout 2016 where proper engagement would likely have resulted in a more successful outcome for the claimant. He had the benefit of a conditional fee agreement with his lawyers, and after the event insurance. The judge believed that this had contributed to his lack of interest during negotiations, a stance of which it disapproved, saying that a claimant without insurance and who bore a personal risk in relation to lawyers' fees would not have acted in the same way.

Exceptional grounds are required to persuade the Court to make an alternative costs order in the event of late acceptance of a Part 36 offer. Claimants should ensure they participate as fully as possible in settlement negotiations, even where conditional fee agreements and after the event insurance reduce their personal costs risk.

Please contact Anna Davies for more information.

Key contact

Kate Menin

Kate Menin

Principal Knowledge Lawyer, Dispute Resolution
London

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