Quick updates on procedural issues for those dealing with disputes - Summer 2020
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- Costs Penalty - failure to mediate
The High Court has disallowed a proportion of a successful Defendant's costs as a result of its failure to engage in mediation.
Prior to issuing proceedings against the Defendants (D1 and D2), the Claimant (C) had twice indicated a willingness to refer the dispute to mediation. Despite D2's willingness to participate, D1 failed to respond in the first instance, and refused in the second.
At the first Case Management Conference, the Court instructed the parties to consider settlement by Alternative Dispute Resolution (ADR) at all stages.
On 28 November 2018, D1 filed a witness statement declaring that a mediation would be premature pending the conclusion of pleadings. On 14 February 2019, following the conclusion of pleadings, D1 sent a letter to C offering to settle - but C did not respond.
On 29 May 2019, C proposed a mediation for 17 June 2019. D2 again showed a willingness to attend but reiterated that it was unlikely to be productive without D1. D1 eventually attempted to justify its refusal to mediate by asserting that it had insufficient time to prepare for and attend the mediation. D1 also stated that there were factual issues still in dispute between the parties (as witness evidence had not been exchanged prior to mediation).
The case proceeded to trial and C's claim against both parties was ultimately dismissed by the Court.
KEY LEGAL POINTS
- Whether the court will strictly impose cost penalties on parties that have unreasonably refused to consider some form of ADR.
- Whether Halsey could be circumvented by a party's reasonable refusal to participate in ADR.
Halsey v Milton Keynes General NHS Trust stipulates that cost penalties will be imposed on parties that unreasonably refuse to consider some form of ADR. Halliwell J, in exercising his discretion under CPR 44.2, disallowed a proportion of D1's costs under the rule in Halsey. D1's refusal to participate in ADR precluded the parties from engaging with the underlying issues of the case. The Judge also noted that in other cases mediations had been successful before the service of witness statements.
The Judge deprived D1 of 50% of its costs from pre-issue up to D1's settlement offer on 14 February 2019. He also deprived D1 of 20% of its costs from 17 June 2019 (the date on which it refused to participate in mediation a second time)
Despite finding that D2's reluctance to enter into a mediation without D1 was reasonable, the Judge also disallowed 20% of D2's costs on the basis that D2 had made a late amendment to its defence.
This decision highlights the consequences that may result from a refusal to participate in ADR - even for parties who win at trial. In line with the overriding objective of dealing with cases justly and at a proportionate cost (CPR 1.1(1)), the court will examine the behaviour of each party to deem whether their actions were reasonable.
- Disclosure - documents of subsidiaries
Documents held by a subsidiary may be within the "control" of the parent where there is an arrangement granting access to the documents at issue. The court will carefully consider whether there is a pattern of access.
In a claim challenging the enforcement of security over assets under a credit facility, Pipia (P) initially claimed against BGEO Group Ltd (B) and both of its subsidiaries. Before the claim against the subsidiaries was dropped B had requested that each provide "all the documents pertaining to [the claim] as requested" and the subsidiaries had countersigned and complied. B later requested "open access to [the subsidiaries'] documents and data" for search and disclosure. This time the subsidiaries refused.
During a dispute over the applicable Extended Disclosure Model (under the Disclosure Pilot, PD 51 U, operating in the Business and Property Courts), B sought a declaration that the documents held by the subsidiaries were not within its "control" for the purposes of CPR 31.8 and PD 51U.
KEY LEGAL POINTS
In declining to grant the declaration the Court held that the first set of requests had created a standing consent to provide access upon request. This arrangement was not conditional on the subsidiaries continuing to be parties to the claim and was not terminated by the rejection of the different arrangement proposed in the second request.
The decision confirms that
- "Control" cannot be inferred simply from the fact of shareholding; there must either be an existing arrangement which provides a right of access or an enforceable right to obtain the documents.
- The reference in CPR 31.8 and the Disclosure Certificate to documents "which are or have been" under control requires disclosure, even where a right to access has been lost.
- Standing consent need not grant unrestricted access to the third party's documents; "control" may extend to a single document only.
- There are three distinct elements to the question of whether a document or class of documents are within the control of the party:
i) the scope (subject matter) of the consent – the documents or types of document covered by the consent;
ii) the type of consent – how the disclosing party will get hold of those documents; and
iii) the quality of the consent - whether it involves free and unfettered access.
This judgment is significant in its detailed guidance on the extent of the obligations of a parent company to disclose documents held by subsidiaries. It shows that the court will undertake a careful analysis of arrangements between parent companies and subsidiaries where necessary to assess whether documents are within the parent's control. The analysis of the three elements of consent is particularly useful.
- Without prejudice statements admissible
The High Court has held that passages from a Defendant's mediation position paper were admissible, under exception to the without prejudice rule, to rebut allegations of fraud.
In proceedings brought by the Claimant (C) against the Defendant (D) for fraud, D asserted that C had known about, and approved, the transactions said to constitute the fraud as they had been mentioned in D's position paper for an earlier mediation.
D argued that the position paper should be admitted under any one of three established exceptions to the without prejudice rule, including setting aside a contract for misrepresentation, fraud or undue influence (set out in Unilever plc v Proctor & Gamble Co  1 WLR 2436). Roth J stated that, although it appeared that that exception had never been applied in any reported case, its formulation in Unilever had repeatedly been approved by the appellate courts. He held that the relevant statements were admissible under that exception or "by reason of a small and principled extension of it to serve the interests of justice."
KEY LEGAL POINTS
It was well established that the without prejudice rule was not absolute and was subject to exceptions which were not closed (Unilever plc v Proctor & Gamble Co  1 WLR 2436, Oceanbulk Shipping SA v TMT Ltd  UKSC 44).
Had party A misled party B, by misrepresentation in the mediation, party B could have relied on that in challenging any ensuing settlement agreement. And it would be contrary to principle to hold that where party A had been honest in the mediation, that statement could not be admitted to rebut later accusations of fraud by party B against party A.
This approach was consistent with two exceptions to the without prejudice rule:
- The rectification exception – permits admissibility of statements to determine the true agreement reached and whether the resulting contract properly reflected that; and
- The first Oceanbulk exception – negotiations are admissible to determine known facts constituting the surrounding circumstances of the relevant, concluded agreement.
However, Roth J noted that D could not rely on a third, estoppel, exception to the rule. In putting forward the estoppel exception, D had sought to rely on C's silence in response to D's own statements in the privileged position paper and argued that in the absence of any refuting statement by C, C had accepted D's statement. But, as D was not seeking to rely on any statement made by C during the mediation, Roth J concluded the estoppel exception did not apply.
It has long been held that, where accusations of misrepresentation, fraud or undue influence are made, a claimant may rely on an exception to the usual without prejudice rule to admit without prejudice evidence. The decision in Berkeley held that it would be contrary to principle if the same exception could not be applied where a defendant sought to rebut the same allegations in order to uphold an agreement concluded between the parties. Roth J's decision, therefore, extends the current fraud exception to allow defending parties to admit without prejudice evidence to rebut allegations of fraud, misrepresentation or undue influence.
The decision shows that the fraud exception is wider than previously considered and reminds us that protection under the without prejudice rule is not definitive.
- Application for identity of market participants refused
The Court dismissed a Norwich Pharmacal application by Burford Capital Ltd (the "Applicant") against the London Stock Exchange ("LSE") on the basis that the Applicant did not have a good arguable case and that, even if it did, justice would not require that disclosure be made.
The Applicant is a litigation funder whose shares are traded on AIM, a market operated by LSE. Over the course of 6 and 7 August 2019, and following the publication of a report by a US investment advisory firm, the Applicant's share price fell by over 50% (almost £1.7 billion). The Applicant believed the fall was caused by unlawful market manipulation.
LSE and the Financial Conduct Authority (the "FCA") conducted separate investigations into the matter, and both concluded that there had been no unlawful market manipulation.
The Applicant had access to anonymised data relating to the period and had received an expert report which concluded that there was evidence of unlawful market manipulation. It sought the identities of all persons/entities involved in trading in its shares over the period in question. It argued that their disclosure was necessary to enable it to bring a claim in tort or a private prosecution against those responsible, or to persuade the FCA to bring a prosecution.
The Court dismissed the application on the grounds that the Applicant did not have a good arguable case and that, even if it did, justice did not require that the identities sought be disclosed.
KEY LEGAL POINTS
- There was no good, arguable case that market manipulation had occurred. The Applicant's expert report did not provide a substantial basis for supposing that the LSE conclusions were incorrect. The Applicant's refusal to accept the arguments of LSE and the FCA was not sufficient to establish a good, arguable case.
- Even if there were a good, arguable case, on the balance of relevant factors, justice would not require that LSE disclose the information sought. It was relevant that: i) the Applicant did not have a clear cause of action against any wrongdoer, and could not bring a private prosecution; ii) there was no evidence that granting the order would deter unlawful market conduct; iii) granting the order would cause significant collateral damage to innocent market participants by revealing confidential trading strategies and would risk undermining the functioning of UK markets and the regulatory regime.
The decision is decisive in terms of protecting public confidence in trading in the UK. It would have been of major concern to UK market participants had the application been granted in circumstances where LSE and the FCA had found no evidence of wrongdoing. It is clear that the Court will only consider granting an application for the identities of wrongdoers where there is a strong arguable case and a good reason why justice requires it.
The case also highlights difficulties in assessing and analysing anonymised public trading data.