Our quick summaries in this issue include recent cases on:  Court of Appeal reminder of potential cost of providing a cross-undertaking; Guidance on the collateral use of disclosed documents; Recent Part 36 costs decisions.


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

Court of Appeal reminder of potential cost of providing a cross-undertaking

The Court of Appeal has unanimously dismissed an appeal against an award of damages (in excess of $70 million) as compensation for the loss caused by a worldwide freezing order and later security undertakings given to the court.

Background

In 2005, the appellants had obtained a worldwide freezing injunction against the respondents, in which the appellants had given cross-undertakings to compensate the respondents for any loss caused as a result of the freezing injunction. The order allowed the respondents to enter into transactions in the ordinary course of business, but specifically excluded investment by the respondent in shipbuilding contracts.

The respondent provided over $208 million as security in order to discharge the injunction, and whilst the clause in the freezing order excluding investment in shipbuilding contracts continued to apply, the respondents were given liberty to apply to the court for the use of funds for that purpose. No such application was made.

Following trial, in which most of the appellants' claims were dismissed, the respondents sought and were granted compensation (amounting to over $70 million), for losses caused by the freezing injunction. Mr Justice Males found that the injunction and security undertakings had prevented them from investing in shipbuilding contracts. Even though the respondents had had liberty to apply to the court to use secured funds to invest in ships, such an application would have been vigorously opposed by the appellants.

Contractual principles for assessing compensation

In assessing compensation under a cross undertaking in damages, the court, as per the decision in Hone and others v Abbey Forwarding Ltd and another [2014] EWCA Civ 711, used the contractual basis for assessing damages, applying the principles of causation, remoteness and mitigation.

Mr Justice Males found that, were it not for the injunction, the respondents would have entered into shipbuilding contracts. The Court of Appeal was specifically asked to consider whether the respondents' failure to apply for funds to be released from security meant that causation was not established.

The Court of Appeal found that once a party had established a prima facie case that the damage caused to it was due to the relevant injunction, without other material evidence to displace it, the court could draw an inference that the damage would not have been sustained but for the injunction.

Even though the respondents had the liberty to apply for the release of the secured funds in order to invest in shipbuilding contracts, that did not affect the nature of the restriction imposed by the order. The respondents only needed to show that the injunction prevented them from investing in ships, and that any application to the court for the release of funds would cause them difficulties. They did not need to show that any application to the court for release of funds would fail. The appellants in this case had made it clear that they would oppose any application for release of the restriction preventing the respondents from investing in shipbuilding contracts. Mr Justice Males was therefore correct in finding that causation was established.

The Court of Appeal also held that mitigation arguments put forward by the appellants were correctly rejected at first instance, noting that the respondents would have faced difficulties in entering into shipbuilding contracts contingent upon court approval, or in applying to the court to enter into shipbuilding contracts without firm proposals of such contracts in hand for the court to assess.

Comment

Due to the draconian nature of interim injunctions applicants are invariably required to give cross undertakings to pay damages should the applicant go on to lose at trial, and the party subject to the injunction incur losses. Such damages could be substantial. Therefore parties seeking interim injunctions need to be aware of, and properly advised on, the potential repercussions of this type of interim relief.

SFC Tankers Ltd (formerly known as Fiona Trust & Holding Corp) and others v Privalov and others [2017] EWCA civ 1877 (21 November 2017)

Please contact Umesh Bhudia for more information.

Guidance on the collateral use of disclosed documents

Two recent judgments provide guidance on the application of the important rule in Part 31.22 of the Civil Procedure Rules (CPR 31.22) that disclosed documents must not be used in proceedings other than those in which they are disclosed.

Grosvenor Chemicals Ltd and others v UPL Europe Ltd and others [2017] EWHC 1893 (Ch)

In the main proceedings, the claimant (C) alleged that the defendant (D) was selling counterfeit versions of their products. D disclosed email correspondence between their employees and a former employee of C, Dr Affi, which suggested that the product complained of was formulated to match C's product.

In correspondence with D, C alleged breach of confidence. C amended the Particulars of Claim accordingly, and sought permission to add Dr Affi to the existing proceedings.

C's solicitors also wrote to Dr Affi, outlining the allegations and threatening to bring separate proceedings against him.

D claimed that C had breached CPR 31.22 by making collateral use of the disclosed emails.

Birss J held that the correspondence with D did not breach CPR 31.22, as the documents were used for the purpose of the proceedings in which they were disclosed. It is consistent with CPR 31.22 to join a third party as a co-defendant in proceedings if a party identifies from documents disclosed in those proceedings that there is a proper arguable case for doing so. Nor would it breach CPR 31.22 to amend the Particulars of Claim in those proceedings.

However, the correspondence with Dr Affi breached CPR 31.22. The threat of issuing new proceedings against Dr Affi was clearly a use of the disclosed documents that went beyond the existing proceedings. This was distinct from seeking permission to join Dr Affi as a co-defendant.

Overall, however, Birss J considered that as there had been no deliberate attempt by C and its solicitors to flout the rules, it would not be in the public interest to bring contempt proceedings, so he refused D's application for permission to do so.

The Libyan Investment Authority v Societe Generale SA and others [2017] EWHC 2631 (Comm)

C applied for permission under CPR 31.22 to review documents that had been disclosed in separate proceedings. C wanted to consider whether to use the documents in possible new proceedings involving two of the original defendants and third parties.

Whilst it was held the court-appointed receiver bringing the application on behalf of C did not have the requisite power to do so, Teare J considered (obiter) the 'special circumstances' which would justify an exception to the general prohibition in CPR 31.22.

An example is where the public interest in facilitating an investigation or prosecution of criminal offences overrides the public interest in enforcing the collateral use restriction. The facts of each case should be carefully examined. Considerations include: if there is a prima facie case for the prospective new proceedings, the outcome of the case in which the documents were originally disclosed, whether disclosure would risk causing serious irremediable harm to others, and whether the relief sought was proportionate or if an alternative (such as pre-action or third party disclosure) would be available.

Please contact Annabel Cawood for more information.

Recent Part 36 costs decisions

The end of 2017 saw a number of important decisions, which have important practical ramifications for the use of Part 36 offers in many commercial litigation cases.

Optical Express Ltd & Ors v Associated Newspapers Ltd [2017] EWHC 2707 (QB)

This was a claim for libel. The particulars of claim were served on 24 February 2015 with details of the Claimants' (Cs') losses at that date with a statement that further loss was expected. Details of further loss were not provided until 8 May 2016 – they were in excess of £20m. Following this, the Defendants (Ds) made a Part 36 offer of £125,000, with a deadline for acceptance of three weeks. This offer was never withdrawn and was eventually accepted on 21 February 2017. By this point significant costs had been incurred due to disclosure and exchange of expert evidence.

The normal rule (CPR 36.13(5)) is that C will be awarded costs on the standard basis up to the end of the "Relevant Period" for acceptance of offer (the 21 day period within which the offer can be accepted with automatic costs consequences). D will usually be awarded costs on the standard basis from this date up to the date of acceptance.

In this case the court decided it would be "unjust" to apply the normal rule. Firstly, Cs were only awarded costs up to 11 January 2016, on the basis that they should have provided the further information no later than November 2015: the 8 May 2016 response was held to be a direct cause of the Part 36 offer, so the court held that Ds would have made a Part 36 offer sooner, had the additional details of loss been made available to them earlier. Ds could have made an offer with a Relevant Period which would have expired no later than 11 January 2016. Ds were therefore awarded their costs from 11 January 2016 on the indemnity basis. This was on the basis that Cs' conduct in relation to the offer, first rejecting it and then accepting it much later without explanation, was "highly unreasonable".

Comment

Claimants should avoid delay in providing details of loss, to enable defendants to make an appropriate offer.

Mohammed v Home Office [2017] EWHC 2809 (QB)

This was a claim for unlawful detention. The Claimant (C) made a Part 36 offer that he would accept £70,000, which was rejected by the Defendant (D). D accepted liability the day before the trial, 8 months after rejecting the Part 36 offer. The judge awarded £78,500, a more advantageous result for C than its own Part 36 offer.

The normal rule (CPR 36.17(4)(a)) is that C will be awarded, in addition to its costs, "interest on the whole of the damages award at a rate not exceeding 10% above base rate". On this point, the judge considered the following factors; the time that had lapsed between the offer deadline and the trial; that C had conducted the litigation reasonably and that D should have conceded liability earlier, amongst others. The judge awarded enhanced interest at a figure of 6% above the base rate from the date of the deadline of accepting the offer to the trial judgment date.

Under CPR 36.17(4) (d) C was also entitled to an "additional amount, which should not exceed £75,000 calculated by applying the prescribed percentage" which here was 10% of the sum awarded to C as the claim was for less than £.5m. The judge queried the interpretation of "sum awarded". Was it:

  • the damages award net of any interest
  • the damages award plus any basic interest or
  • the damages award plus all interest, including any enhanced interest awarded under CPR 36.17(4)(a)

The judge held that it should be "the damages award plus any basic interest" - the sum awarded to C, without the enhancement awarded under Part 36.

Comment

The Rules provide for very significant enhanced costs and damages awards for claimants who beat their own Part 36 offers. This is a rare example of a reported decision construing and applying the relevant Rule.

Please contact Nayomi Skinner for more information.

Defendant ordered to pay costs of amendment where they contributed to mistake as to party's name

A judge has departed from the normal rule that the applicant pays for amendments to a claim by ordering that the Defendant, Boots Opticians Professional Services Ltd (BOPSL), pay the Claimant's, Manorshow Ltd's costs: BOPSL were to blame for Manorshow bringing a dilapidations claim against the wrong defendant.

The 'Assignment'

The need to amend was due to an apparent assignment of a tenancy by EVL, the correct defendant, to BOPSL in September 2009. After informing Manorshow that EVL would be assigning the lease to BOPSL, BOPSL took over occupation of the property and began paying rent to Manorshow. When Manorshow served a Section 25 notice terminating the tenancy in 2014, they served it on both EVL and BOPSL. Only BOPSL responded, with BOPSL's solicitors dealing with the continuation of the lease and the negotiation of a new lease. The new lease expressly recorded that BOPSL were surrendering their existing lease.

The claim

The dilapidations claim concerned the old lease. In May 2016, before proceedings were commenced, Manorshow requested evidence of the assignment from BOPSL. They were told by BOPSL's solicitors that the documentation related to a historic assignment and that they were having trouble locating the documents. In June 2016 BOPSL wrote to say that they were unable to find an assignment and therefore Manorshow had served the wrong party. Following this, Manorshow obtained judgement in default. This was later set aside, and the claim stayed. Following the failure of negotiations an application to substitute EVL was made in July 2017.

Defendant to pay

The judge granted the substitution under CPR 19.2(4)(b) on the basis that BOPSL's conduct had led Manorshow to believe there had been an assignment of the lease and that BOPSL was therefore the correct party. The judge pointed out that BOPSL's solicitors had never, either before or after proceedings were commenced, suggested that the assignment had not taken place. On the contrary, they said there had been one. For the same reasons, the judge ordered that BOPSL pay Manorshow's costs of the application.

Manorshow v Boots Optician Professional Services Ltd [2017] EWHC 2751 (TCC)

Please contact Anna Davies for more information.

Key contact

Kate Menin

Kate Menin

Principal Knowledge Lawyer, Dispute Resolution
London

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