Our quick updates in this issue include recent cases on: Precision in settlement agreements – a clause for concern?; Access to court documents by non-parties under CPR 5.4C: the impact of the open justice principle.


Read the full articles by clicking on the drop downs below.

Precision in settlement agreements – a clause for concern?

The Court of Appeal in Khanty-Mansiysk Recoveries Limited v Forsters LLP interpreted the terms of a settlement agreement to have wide-reaching scope: a settlement for £90,000 plus costs, agreed between three parties in 2012, prohibited the claimant from making an unforeseeable £70 million claim in negligence six years later.

The purpose of a settlement agreement for all parties involved in a dispute is to achieve finality by "wiping the slate clean" and extinguishing the possibility of any directly connected future claims. Although a settlement agreement is likely to result in a sigh of relief for everyone concerned, it is a balancing act. Parties will want to achieve finality, but a claimant won’t want to be out of pocket if an unforeseeable claim arises in future.

Following a dispute over professional advice given by the defendant solicitors, the parties entered into a tripartite settlement agreement. The agreement was in full and final settlement: the payment was made "in full and final settlement of all or any Claims which the Parties have, or could have had, against each other (whether in existence now or coming into existence at some time in the future, and whether or not in the contemplation of the Parties on the date hereof)". An unforeseeable claim in negligence arose a number of years later which neither of the parties envisaged at the time the settlement agreement was drafted; the court held that the settlement agreement covered that claim.

It is almost impossible to envisage future claims which may arise following the execution of a settlement agreement, yet settlement terms like those in Khanty are not uncommon. They have been upheld in other cases so claimants, in particular, need to be alert to their use.

The negotiation and drafting of settlement terms is one of the most important aspects of dealing with disputes. The payment of a settlement sum may be seen as key but the mechanics of settlement need attention too. If the terms are crafted with an adequate level of precision regarding future claims, the courts will uphold them. In this case, a potential £70 million claim was given up by the claimant.

Please contact Lauren Wills -Dixon for more information.

Access to court documents by non-parties under CPR 5.4C: the impact of the open justice principle

Pursuant to CPR 5.4C and retained common law powers, the court may permit non-parties to obtain access to statements of case and certain other documents provided to the court. Whilst the courts have generally favoured allowing the disclosure of such documents to applicants who demonstrate a legitimate interest, case law emphasises that judges must always undertake a balancing exercise, weighing the interests of upholding the principle of open justice against the parties' interests in preserving the confidentiality of their documents.

Dring v Cape Distribution Ltd & Others (2017)

Mr Dring applied under CPR 5.4C to access documents concerning Cape's knowledge of asbestos-related risks. The case had settled prior to trial and the settlement terms provided for the destruction of documents filed at court. Cape opposed Mr Dring's application claiming, inter alia, that he lacked a legitimate interest, that the principles of open justice were not engaged as the case had settled, and that the detrimental effects of the order sought would outweigh the benefits to Mr Dring.

Master McCloud noted that the principle of open justice was an inherent aspect of the rule of law, allowing for public scrutiny of the courts and the development of the legal system. However, public scrutiny of the legal system was not the only justification for disclosure of the documents in this case. Instead, the Master held that the documents had been provided within a public dispute resolution forum which played a public role in informing other parties and the courts, and were capable of wider societal benefits. Litigating parties do not possess a sovereign right unilaterally to restrict access to documents provided to the court. It followed that the terms of the settlement agreement were not to be elevated above the principles of open justice and Cape should provide specific reasons why the documents in question should not be disclosed to third parties. Cape had failed to do so, so the Master held that Mr Dring's legitimate interest in using the documents to promote consideration of asbestos safety outweighed any concerns about effects of an order for disclosure on individual privacy rights, or the potential for such an order to dissuade parties from entering into settlement agreements.

Conclusion

The principles of open justice can be invoked, not only to justify the release of documents to non-parties to facilitate public scrutiny of the judicial process, but also to allow for wider social or legal purposes. This decision arguably expands the boundaries of 'legitimate interests' which may be invoked to support an application under CPR 5.4C and shifts the balance in favour of applicants, requiring respondents to demonstrate that they face significant harm as a result of wider publication in order to restrict access to documents they have lodged at court.

Dring v Cape Distribution Ltd and Others [2017] EWHC 3154 (QB)

Please contact Daniel Hovington for more information.

Foreign freezing orders can be notified to asset holders in this jurisdiction pending appeal

The Court of Appeal has held that a freezing order made in Cyprus was fully effective in this jurisdiction as soon as a registration order was made under article 38 of Council Regulation (EC) 44/2001 ("Judgments Regulation"). Notification of such an order to third parties holding assets need not await an appeal against registration: notification following registration is not a "method of enforcement", prohibited by the Judgments Regulation.

Freezing order made in Cyprus

Following the banking crisis in Cyprus, Cyprus Popular Bank ("the Bank") found itself in an insolvency process. It brought proceedings against former officers ("Defendants") in Cyprus for breach of fiduciary duty, abuse of position, conspiracy and negligence. The Cyprus court made an interim worldwide freezing order against the Defendants.

Freezing order registered in England and Wales

The Bank applied to register the freezing order as a judgment of the English Court. The High Court registered it pursuant to article 38 of the Judgments Regulation. The order gave the Respondents a right to appeal within 2 months after the date of service. No "measures of enforcement" were to be taken by the Appellant before the end of that period, other than measures ordered by the court to preserve the property of the judgment debtors.

The Bank gave notice of the Cypriot freezing order and its registration to Union Bancaire Privée ("UBP"). It asked UBP not to remove any of the Respondents' assets in England and Wales. UBP responded that the order was unenforceable in the UK, pending the Defendants' appeal against registration.

Enforceability of the freezing order in England and Wales

The High Court held that the Bank should wait to notify asset holders until the outcome of the appeal. But the Court of Appeal disagreed:

  • Enforceability of the freezing order - Picken J. had failed to consider paragraph 2 of Schedule 1 of the Civil Jurisdiction and Judgments Order 2001, which provides that a judgment that is registered in the High Court "shall, for the purposes of its enforcement be of the same force and effect…as if the judgment had originally been given by [the High Court]". This meant that the order was fully effective and enforceable pending appeal, although no enforcement proper could take place.
  • What constitutes a "measure of enforcement" under the Judgments Regulation is a matter of the domestic law of the state where enforcement is sought – here English law. Notification of the terms of a judgment or order didn't involve any formal court process. Notification may be a pre-condition for enforcement, but it is not enforcement per se.

Cyprus Popular Bank v Vgenopoulos [2018] EWCA Civ 1

Please contact Max Judge for more information.

Guidance on GLOs and transfer of proceedings away from regional Business and Property Courts

In Arif and others v Berkeley Burke SIPP Administration Ltd [2017] EWHC 3108 (Comm) the Circuit Commercial Court in Bristol (part of the Business and Property Courts (B&PCs)) considered an application by claimants seeking the making of a Group Litigation Order (GLO) and an application by the defendant seeking transfer of certain claims to the Royal Courts of Justice. The case concerned alleged miss-selling of pension plans.

GLO

The Court has the power to make a GLO, in order to enable it to manage claims that give rise to "common or related issues" of fact or law in a co-ordinated way.

The judgment provides a useful insight into the Court's approach to GLOs. HHJ Jonathan Russen QC considered the balance between the number of common issues, as against the claimant-specific issues of each case. He concluded that the individual claimants' cases would be advanced by a determination of the common issues, even if those claimants still had to face individual issues as their cases progressed. A GLO was therefore made.

Transfer of proceedings to and from Bristol B&PCs

When considering the defendant's application to transfer proceedings away from the Business and Property Court in Bristol, the Judge took into account not only the matters set out in CPR 30.3 ("Criteria for Discretionary Transfer Order") but also, and importantly, other factors provided for in the new B&PCs Practice Direction. These include: (i) the link between the claim and the region; (ii) court resources; (iii) the parties' wishes; and (iv) the availability of judges.

The Judge rejected the application, commenting that "the core tenet" of the Business and Property Court structure is one of due recognition of specialism and expertise in the regions, and that if the Court was to exercise its discretion by transferring the case away from Bristol, it needed to be comfortable that it was not offending "the new ethos" by doing so.

This case is consistent with the comments of Lord Briggs in his Final Report on the Civil Courts Structure Review, namely that no case should be too big to be resolved in the regions. It is indicative of a reluctance by the Courts to transfer proceedings to London away from the regions.

Please contact Aidan Barry for more information.

Warranty claim notices – are they valid?

The Court of Appeal has recently confirmed a strict interpretation of notice provisions in relation to warranty claims under a Share Purchase Agreement. As the notification provisions were conditions precedent to a claim being brought, the claims were struck out.

Background

Teoco UK Ltd (Teoco), the Claimant, acquired two companies from Aircom Jersey 4 Limited and Aircom International (Austria) Holdings GmbH (the Sellers and the Defendants in the claim).

The SPA contained a number of general warranties, tax warranties and tax covenants, which were governed by a set of notice provisions contained in a Schedule to the SPA. Where there was a Claim (which was defined as including any Title Claim, General Warranty Claim or Tax Claim), the key notice provisions were as follows:

  • Teoco must give notice to the Sellers of such Claim in reasonable detail;
  • Such notice must include the grounds on which the Claim was based;
  • Such notice must include a good faith estimate as to the amount of the Claim (detailing Teoco's calculation of the loss, liability or damage alleged to have been suffered or incurred);
  • Such notice must be given as soon as reasonably practicable after Teoco's group becomes aware of such Claim and in any event on or before 31 July 2015; and
  • Legal proceedings for such Claim must have been issued and validly served within 6 months of the date on which the Sellers were notified of the Claim.

The Court of Appeal (CoA) needed to consider whether or not notices sent by Teoco's lawyers to the Sellers notifying them of various Claims (Notices) were valid notices of Claims under the SPA.

The CoA found that because the Notices failed to identify any of the warranties, or even identify the material warranties which had allegedly been breached, they were not valid notices under the SPA. The Notices did not contain sufficient detail to identify the grounds for claim.

Comment

The decision highlights the importance of properly identifying any claim under the SPA, including (wherever possible) setting out expressly the particular warranties or indemnities which have been breached, and the loss alleged, where that is required by the notice provisions.

For those drafting SPAs the decision is a reminder that the mechanism for bringing claims will often become very important in the period after completion: sellers may want to consider including express wording in the SPA requiring that notices of claims provide the level of detail stipulated in this case, but buyers will be wary of committing themselves to doing so.

Teoco Uk Limited v (1) Aircom Jersey 4 Limited and Ors, [2018] EWCA Civ 23

Please contact Caera Loughran for more information.

How to ensure your Part 36 offer is the real deal

The High Court has provided further clarity on what is a "genuine attempt to settle" under CPR 36.17(5)(e). In JMX (a child by his mother and litigation friend, FMX) v Norfolk and Norwich Hospitals NHS Foundation Trust [2018] EWHC 185 (QB), it accepted as genuine an offer of 90% of damages with a "relevant period" ending just before the trial date[1].

Background

Following a clinical negligence claim, the court found in favour of the claimant ("C") at the trial on liability.

On 6 October 2017, three weeks before the trial, in a Part 36 offer C had offered to accept 90% of damages from the defendant ("D"). The "relevant period" during which D could accept C's offer ended on 27 October 2017, one working day before the trial began. D did not accept the offer. The court held that in this case a 10% discount made shortly before trial was a genuine offer and awarded C its costs for the period after the Part 36 offer had expired, in addition to interest on those costs at 5% above base rate.

How this affects you

Part 36 offers can play an important role in litigation strategy, as a means of avoiding expensive litigation, and even if they don't lead to a settlement, transferring the costs risks to the other party. JMX shows that in some circumstances a small discount will qualify as a Part 36 offer. The White Book guidance notes that courts will apply a "broad brush" view, so what works in one scenario will not necessarily apply in another.

In assessing the offer the court considered the following:

  • Strength of the case: The court's view of a Part 36 offer will be informed by its assessment of the strength of the case. Courts are likely to resist attempts to call evidence or obtain disclosure to inform their decision, to avoid a "mini trial" after the trial. The parties' estimation of their own chances of success before the trial is irrelevant. As Foskett J explains, each party is likely to perceive the risks of litigation differently.
  • Discount: Though 10% seems a low discount, as damages would be substantial, the discount represented a large sum. The costs of a five-day trial would also be saved. Courts will not accept 100% offers.
  • Explanation: The White Book suggests prudent claimants should explain in Part 36 offer letters why such a small discount is being offered for settlement i.e. because they think their case is very strong. JMX deviates from this, stating that it may be in C's interest to leave it to the recipient to assess the offer as it stands without explaining the reasoning behind it.
  • Privileged: Reference to pre-trial settlement negotiations are privileged and should remain confidential. In JMX the parties disclosed details of the negotiations in their written submissions. The court found this information of no value.

JMX shows that a very high Part 36 offer made shortly before trial can be a genuine attempt to settle proceedings. The judgment in JMX can be found in full here

Please contact Helen Musi for more information.


[1] CPR 36.17.5.1 discusses genuine attempts to settle under Rule 36.17(5)(e).

Kate Menin

Kate Menin

Professional Support Lawyer, Dispute Resolution
London

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