A Lawyer’s Christmas Carol?

On the twelfth day of Christmas, my true love sent to me:
drums-58550__180

  • Twelve drummers drumming:  but I turned them away at the door – hasn’t she heard of offences under s4 Noise Act 1996 after a warning from the local authority?

arabic-pipers-530481-m

  • Eleven pipers piping: didn’t she learn anything from the 12 drummers incident? The bagpipers soon made themselves scarce when I cited the Big Book of British Laws to the effect that it is still legal to shoot Scotsmen with a bow and arrow in York (except on Sundays).
    king-35039_640 Lord
  • Ten lords a-leaping: possibly in anger as a result of the House of Lords having been replaced by the Supreme Court as the ultimate appellate court of the UK but more likely they are trying to avoid their expenses being investigated and I am not risking guilt by association.
  • ballet-545323_640
  • Nine ladies dancing: no thanks – it sounds suspiciously like a licensable activity under section 1(1)(1)(c) Licensing Act 2003 to me.
  • milk-maid-artwork-1380931-m
  • Eight maids a-milking: why on earth would she think that my house was geared up to comply with the EC 852/2004 Hygiene of Foodstuffs Production Regulations?     swans-429191_640
  • Seven swans a-swimming: did she really expect me to accept them when it was illegal for her to take the swans in the first place under the Wildlife and Countryside Act 1981?6 geese-47317_640
  • Six geese a-laying: – birds are clearly not her strong point. It is of course an offence to disturb any wild birds whilst near their nests containing eggs under s1 of the 1981 Act.gold-522369_640
  • Five gold rings: I know I’ve already been a little ungrateful but a gift of five rings is a little suspicious. One is customary. I can’t help thinking that they may belong to the Crown under the Treasure Act 1996 or, given her track record for illegality, I could be handling stolen goods under s22 Theft Act 1968.parrots-277093__180
  • Four calling birds: I hardly need mention that door to door saleswomen need a Pedlar’s Certificate under the Pedlars Act 1871.
  • Three French hens: surely she must know that I’m not a member of the Poultry Health Scheme and that my house has not been inspected by DEFRA under Directive 90/539/EEC (as amended).
  • cock-93278__180 french hens
  • Two turtle doves: I really do appreciate the sentiment but, in case the billing and cooing stops, I’ll just ask her to sign this little 83 page Pre-nup under Radmacher v Granatino  (2010)

pigeons-413073_640

  • And a partridge in a pear tree: See 3 and 6 above, but at least she has delivered it in time for me to enjoy a little Christmas sport, given that partridge shooting is allowed between 1 September and 1 February in every year under section 3 Game Act 1831.partridge pear tree-33089_640

However, given her propensity for breaking the law, I tend to think that the latter was by good luck rather than good management and so, as a lawyer, I will have to give some serious consideration as to where this relationship is going in the New Year.

David Grice (Lupton Fawcett Denison Till, York)

Rider: No warranty as to current law or otherwise is intended or implied, readers to rely on own searches and enquiries. Any similarity to any person living or dead is not intended and is purely coincidental. No animals were hurt in this production.

scales-145464_150pixaby

 

Advertisement

8 Ways to avoid a Business Dispute

?????????????????????????????????????????????????????????????????????????????????????

Despite the best of intentions on all sides, disputes can arise when entering in to a new commercial contract or business relationship. According to Government figures, between April and June 2014 a total of 370,744 claims were issued in the Civil Courts (excluding Family Cases). This was a decrease on the previous quarter, but that saw the highest number of claims since 2009. A significant number  relate to business disputes.

From long experience, the following ground rules should help to reduce the risk of things going wrong in a business contract, or if they do, ensure you are in the best position to protect your interests:

1 Contractual Terms

These are key to many disputes, and the outcome of claims often turns on what the contract says. The terms and conditions should be read carefully. Ensure that your terms and conditions are drafted or approved by a specialist contract lawyer with experience of your sector. It is essential that these are regularly reviewed and kept up to date, and of course, that the terms represent your understanding of what has been agreed.

Be careful about negotiations and representations made during pre contractual discussions. Although many statements will be just sales talk, others might be construed as a term of the contract.

2 Entire Agreement

This should ensure that the contract between the parties is contained in a single document. The aim is to prevent extraneous documents or communications being relied on e.g. statements or representations made during pre contract discussions.

3 Exclusion clauses

Exclusion clauses may seek to exclude liability for consequential loss, or limit liability to a specified figure. Consideration should be given to whether these are enforceable:

  • do they apply to the areas of dispute most likely to arise?
  • are they as wide as might be assumed?
  • exclusions of “consequential” or “indirect” losses might not apply to claims for loss of profits or other loss amounting to reasonably foreseeable direct losses, within the reasonable contemplation of the parties when entering in to the contract

NB: Under the “contra preferentum” rule, any contractual term which is unclear is interpreted against the party that wants to rely on it.fun-and-games-until-204943-sfreeimages

4 Deadlines

Be realistic about fixing deadlines and be circumspect about specific dates if possible. If it seems as though a date under a contract might be missed, a revised timetable should be negotiated and recorded in writing, before time runs out. Any such variation of the contract terms should be signed by both sides.

5 Dispute Resolution Clauses

You can specifically set out means of settling disputes before they arise, e.g., good faith negotiations, Alternative Dispute Resolution, or mediation stand every chance of resolving a dispute, whilst preserving relations with the other side. This could be crucial where a valuable supplier or customer is involved. Serious consideration should be given as to whether Arbitration, as opposed to court proceedings should be specified. This may often be inserted, without considering the pros and cons, because Arbitration is not necessarily simpler or cheaper than the courts.

6 Internal Communications

Take care over written internal communications, including by email and on any company and employee’s devices. This applies pre contract, and after the contract has been agreed. If a dispute arises, under the Civil Procedure Pre Action Protocols and court rules, all relevant internal communications have to be disclosed (unless subject to legal advice privilege – where lawyers are already advising as to a dispute).

7 Negotiations

Clear communications with your supplier or customer is essential too. Being assertive but not confrontational and having clear lines of communication can help avoid misunderstandings in the first place that can otherwise lead to disputes. If it transpires that some contractual terms can’t be met, inform those affected as soon as possible.

 

?????????????????????????????????????????????????????????????????????

8 Identify Potential Issues Early

Early dialogue can often resolve problems, and prevent them turning in to a dispute. The party claiming breach of contract will have to prove that they acted reasonably to mitigate their loss. As such, the earlier a potential difficulty is addressed, the better chance of a satisfactory resolution being reached, or losses minimised.

Often a case that ends up in court is due to the potential problem not being identified early on, or not dealt with appropriately. In this way, seemingly innocuous molehills can turn in to mountains.

Whist not advocating full scale crisis management procedures for every teething problem, there should be a routine reporting system enabling potential litigious issues to be reviewed. Although businesses may be reluctant to involve solicitors at the start, in fact reporting at an early stage to in-house or external lawyers would be likely to make the communications privileged from production.
This article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

scales-145464_150pixaby

 

 

Directors Hoodwinked out of €100 million broke duties to their Company

100_1149

The High Court has decided that two directors tricked by fraudsters failed in their duties to exercise reasonable skill and care. They paid €100 million of Company money in to a sham investment scheme induced by fraudulent misrepresentations.

Mr Justice Peter Smith said that, like many such fraud cases superficially the document looks technical and highly detailed. On closer reading it is full of incoherent phrases and expressions and is completely meaningless.

It is impossible to overstate the level of incompetence demonstrated by [the Group Legal Counsel’s] evidence at this trial. He did no checks on the background of these people trying to sell this transaction to him…He discovered nothing about the details of the transactions…He accepted without challenge anything they said. Finally in October 2011 he signed away control of €100 million, despite being required never to agree anything like that…He took comfort from documents that were meaningless…If he were uncertain as to the law, he should have obtained advice from somebody else. That is what one would expect of a senior in-house legal counsel who might have knowledge of generalities, but would not necessarily have knowledge of specifics. It is plain that he had no idea what the investments were, but was content to accept the vague descriptions provided by the defendants and fell into the trap of believing in the secrecy of everything.

The Directors committed the Company’s funds in a “ridiculous and reckless” way. It was difficult to understand how the directors had failed to spot the scam: an extremely modest level of probing the deal would have shown that it would fall apart. Their conduct was seriously inadequate regarding the discharge of the duties that they owed to Company as officers and senior employees / directors to perform their duties with reasonable skill and care.

Although this case was decided under Maltese law, the High Court’s conclusion that two directors were in breach of duty is noteworthy. The general application of English law was made clear. Directors in this situation could face personal liability to the Company for losses caused by third party fraudsters.

small-print-concept-26790611

However, there was no basis for findings of breach of their fiduciary duty or contributory negligence against them in favour of the Defendant (those involved in the scam). The Judge refused to reduce the damages payable to the Company by the fraudsters. The directors were duped and incompetent; fools not knaves in failing to spot that the scheme was fraudulent and bound to fail.

Director’s Duties

The Companies Act 2006 contains a general statement of directors’ fiduciary and common law duties.

  • S 171 to act within their powers
  • S 172 to promote the success of the company
  • S 173 to exercise independent judgement
  • S 174 to exercise reasonable care, skill and diligence
  • S 175 to avoid conflict of interests
  • S 176 not to accept benefits from third parties
  • S 177 to declare an interest in a proposed transaction with the company

The codified duties apply to all directors of a Company (including shadow directors and, in certain circumstances, former directors).

Director’s Potential Liability

This case decided the liabilities between the defrauded Company and the fraudsters. The award against the fraudsters was not reduced due to negligence by the gullible directors. However, it did not decide whether, or how much the directors should reimburse the Company for its losses.  

As here, where a director has broken his duty to exercise reasonable care and skill, but not his fiduciary duties, the court will consider what might have happened had it not been for the director’s breach. The court has to decide whether the Company would have suffered the losses any way. If not, the director may have to compensate the Company for all of its losses caused by his breach of duty to exercise reasonable care and skill

As a matter of public policy, the courts accept Company directors have to make judgments and take risks. Too harsh an approach to directors’ conduct would have a “chilling” effect; it would discourage people either from becoming directors, or make them too risk averse for the good of the business.

Conclusion

Directors who are in breach of duty can ask the court for relief from sanctions on the grounds that they acted honestly, reasonably and that it is fair in all circumstances of the case to relieve him of liability. A director may also be protected from liability by the company ratifiying his conduct. Alternatively, a Directors & Officers’ Insurance Policy may cover the relevant liability. Obviously, all of these are a very poor second best to remaining vigilant and following the old maxim: if it looks too good to be true, it probably is!

Although the case is being appealed, it is a timely reminder of the risks of fraud to which Companies are exposed, the duties on Directors, the consequences of breach and the need for vigilance.

Case:

Group Seven Limited v Allied Investment Corporation Limited and others [2014] EWHC 2046 (Ch).

Link:

http://www.bailii.org/ew/cases/EWHC/Ch/2013/1509.html

scales-145464_150pixaby

Companies have Human Rights too!

The High Court has upheld the right of corporations to bring claims under the Human Rights Act.

 

Breyer Group Plc and others v Department of Energy and Climate Change [2014] EWHC 2257

Compensation of £140 million is claimed by the companies against the Department of Energy and Climate Change (DECC) under the review of its solar PV (photovoltaic) feed-in tariff (FITs) scheme.

what-is-justice-1

The Court of Appeal and Supreme Court had previously decided in Judicial Review proceedings that DECC’s actions were unlawful. The DECC had failed to follow the FITs statutory review procedure for changing tariffs by issuing a consultation on short notice and retrospectively.

     Background

Friends of the Earth and two solar PV companies brought a successful judicial review (JR) challenge to the consultation. The Administrative Court decided that DECC’s proposal to cut FITs on 12 December 2011, 11 days before its consultation on that proposal closed (on 23 December 2011) was unlawful because it breached the statutory scheme for modifying FITs

In the meantime, many proposed smaller solar PV schemes under way were dropped or failed due to the uncertainty created by DECC’s October 2011 consultation announcement and the JR proceedings.

Civil claim for damages

In January 2013, 17 solar PV FITs installation, supplier and developer companies commenced civil proceedings against DECC claiming £140 million of losses resulting from DECC’s FITs 2011-12 solar PV tariff review. The claimants argued that they had been hit by cancelled orders and had to abandon solar PV projects due to DECC’s October 2011 consultation proposals announcement and its breach of the tariff modification procedure under the FITs statutory scheme.

Human Rights Claims

Article 1 of the first Protocol (A1P1) to the European Convention on Human Rights (ECHR) is a qualified right that provides that every natural or legal person is entitled to the peaceful enjoyment of their possessions. Therefore, the right extends to companies, because a company is treated at law as having a legal personality.

Because DECC had unlawfully interfered with the claimants’ possessions in breach of A1P1, the claimants are entitled to damages arising from concluded contracts

Contracts and losses protected by A1P1

  • Signed and concluded contracts were assets, and therefore “possessions” under A1P1. They were tangible, assignable and had a present economic value.
  • Unsigned contracts could not be possessions protected by A1P1. There is no authority for the proposition that an unsigned or incomplete contract is an asset. An unsigned or incomplete contract is no contract at all, intangible, non-assignable and absent present economic value.
  • Loss of future income is not a possession protected by A1P1, unless it has already been earned, or is definitively payable.
  • Goodwill may be an asset, and therefore a possession under A1P1, because it has been built up in the past and has a present-day value, as distinct from only being referable to events that may, or may not, happen in the future.
  • Loss of marketable goodwill caused by interference that at the time of the interference can be capitalised is, in principle, protected by A1P1. On the other hand, interference causing only a potential loss of goodwill for the future is a claim for loss of future profit and so not recoverable.

76gratisography

Decision

Contracts that the claimants had entered into by 31 October 2011 and that were frustrated because of DECC’s October 2011 consultation proposal were an element of the marketable goodwill in the claimants’ businesses. Therefore, these contracts represented a possession protected by A1P1. The claimants could, in principle, recover for the loss of that element of the marketable goodwill in their businesses.

Even if the loss of unsigned or unconcluded contracts damaged the claimants’ goodwill, such losses are losses of future income and therefore not recoverable under A1P1.

As a matter of law and common sense, DECC’s publication of its October 2011 consultation proposal amounted to an interference with “possessions” under A1P1. DECC acted carefully, deliberately and unlawfully. It could not be characterised, as DECC argued, as “merely a proposal”.

Comment

This High Court decision on the preliminary issue is important:

DECC is potentially liable for claims of approximately £140 million due to its failure to comply with the FITs statutory scheme.

It provides a useful analysis of the extent to which commercial contracts and goodwill can be protected by bringing a claim under A1P1.

To establish an A1P1 claim for interference with possessions, it was necessary to show material economic consequences, due to state action.

The UK Government was liable for a Consultation Document, rather than a final decision.

The DECC indicated an intention to appeal.

scales-145464_150pixaby

Brand owners win test case blocking injunction against ISP’s

In a landmark judgement on 17 October the High Court made orders blocking websites structured to infringe trade mark rights by selling counterfeit goods online.

Cartier International AG & Anr v. British Sky Broadcasting Limited & Ors, High Court of Justice, Chancery Division, HC [2014] C01382.

In a 266-page decision Mr Justice Arnold decided that five major internet service providers – the ISPs, (British Sky Broadcasting Group Plc, BT Group Plc, EE, TalkTalk and Virgin Media) should

“block or at least impede access”

by subscribers to six “Target Websites”. The websites were selling cheap replicas or counterfeit goods including jewellery and watches.

V2.90

The court held that there is a clear public interest in preventing the sale of counterfeit goods online and the Claimant had a

‘legitimate interest in curtailing such acivity [which] would not interfere with the provision by the ISPs of their services to their customers’.

Blocking injunctions are not new in cases of online copyright infringement. Orders have been made against ISPs by the English Courts in various cases in favour of film studios, record companies and the Premier League and regarding website indexing. However, until now, they have been made pursuant to s.97A of the Copyright, Designs and Patents Act 1988 (“CDPA 1988”) providing the High Court the power to grant injunctions against service providers, (taken as including ISPs) where that service provider has actual knowledge of another person using their service to infringe copyright.

There is no provision equivalent to s.97A CDPA 1988 in the Trade Marks Act. Richemont, the luxury brands company behind Cartier and Montblanc here relied instead on Article 11 of the Enforcement Directive (2004/48/EC which provides

“Member States shall also ensure that rightholders are in a position to apply for an injunction against intermediaries whose services are used by a third party to infringe an intellectual property right …”

The Court considered the UK’s implementation of the third sentence of Article 11 of the EU Enforcement Directive.

This was supposed to extend Article 8(3) of the Information Society Directive from just copyright to all forms of intellectual property, but the UK did not enact this into national law.

In defence, the ISPs argued that the UK’s failure to implement the third sentence of Article 11 of the EU Enforcement Directive meant that injunctions could not be granted based on trademark infringement. However Richemont claimed that Section 37(1) of the Senior Courts Act 1981, regarding injunctive relief was sufficient.

 

concept-copyright-computer-keyboard-symbol-closeup-39070437

Arnold J held that under the “Marleasing principle”(where courts must interpret national law in light of any relevant directive as far as it is possible), trademarks should be covered.

“I conclude that, even if the court would not have power to grant a website blocking injunction in a trademark case upon a purely domestic interpretation of section 37(1), section 37(1) can and should be interpreted in compliance with the third sentence of Article 11 by virtue of the Marleasing principle. If it were otherwise, the UK would be in breach of its obligations under the directive.”

In a 2011 report by Frontier Economics Ltd. quoted in the judgement, the sale of counterfeit and pirated products is put at approximately $960 billion a year by 2015.

COMMENT

Blocking injunctions are only one of various remedies available for brand owners to fight infringing websites e.g.

  • filing a domain name complaint if the website operates under a misleading name
  • disabling the website’s third party merchant services or online payment mechanisms
  • serving a takedown notice on the host of the offending content

The Judge said this was the first website blocking injunction against internet service providers awarded to a brand owner in the EU for a trademark infringement. This test is likely to be followed by other applications by Richemont and other trade mark owners, here and abroad regarding websites selling counterfeit goods.

If the ISPs are unsuccessful in any appeal, they would be unlikely to defend future cases, which could be brought using the simplified CPR Part 8 procedure.

scales-145464_150pixaby

Professional Negligence: Court of Appeal underscores “reliance” essential for Negligent Misstatement

??????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????

Hunt & Ors v Optima (Cambridge) Ltd & Ors [2014] EWCA Civ 714

Overturning a judgment of the Technology & Construction Court, the Court of Appeal has decided that architects’ certificates  provided after the purchase of property could not be the foundation for negligent misstatement claims. The case restores the legal position limiting the duties of professional advisors. It also provides a helpful summary of the key components of claims against professionals, especially where consultants such as architects or surveyors are providing reports that are likely to be relied on by third parties, like purchasers, lenders and developers.

Background

The Claimants had bought flats on long leases. Later, serious defects were identified, and the Claimants sued the developer and a firm of architects for negligent misstatement. The developer had instructed the architects to inspect and certify the flats had been built to meet building regulations and that there were no defects. The reports were for consideration by the purchasers and their lenders within the conveyancing process. However, most of the certificates were not actually signed off until after exchange of contracts and for most of the purchasers, after completion.

 

64gratisography

Original Decision

The judge at first instance held that the architects owed two freestanding duties of care in

  • carrying out the inspection of the flats with an architect’s skill and care
  • preparing accurate certificates.

This put a duty of care on the architects during the assessment stage, but before any report or representations. The judge found it no obstacle that the signed certificates were received by the purchasers only after exchange of contracts. The case appeared to widen professional duties more generally than previously understood.

Court Of Appeal’s Decision

Clarke LJ in giving the leading judgment said the earlier decision

‘…takes inadequate account of certain key principles….. reliance must follow representation…’.

Negligent misstatement

The CoA found that both reliance on the statement must be proved and further, that loss was suffered in consequence of the reliance. Here however, the purchasers could not have relied on the certificates when they exchanged contracts, because the certificates had not been completed by then.

Clarke LJ said that this

would involve imposing …. a duty to inspect arising out of statements which, at the time when the duty arose, they had not made“.

There was no separate duty owed to the purchasers for “negligent inspection”.

Warranty

Although the architects plainly owed contractual duties to its client, the developer, there was no implied contractual or tortious duty between the architects and third parties. The certificate itself stated that it was not a promise or guarantee. However, it is salutary to note that the architects did not apply for permission to appeal the awards made against them in favour of those purchasers who did receive certificates prior to proceeding with their purchase.

Conclusion

  • The previous understanding of the law has been reinstated. For liability to be established, a claimant has to prove that it suffered losses directly as a result of relying on a professional’s negligent misstatement.
  • The court was reluctant to imply collateral warranties between professionals and third parties.
  • Professional firms’ Terms & Conditions should specify that any duty is limited to providing the final report and does not extend to preparatory work.
  • Solicitors acting for purchasers (and lenders) must ensure such certificates or reports are finalised and signed before any contracts are exchanged or loan completedn completed.

 

  • scales-145464_150pixaby

PROFESSIONAL NEGLIGENCE £66,000+ award against Mishcon de Reya Solicitors

????????????????????????????????????????????????????????????????????????????????

LOSS OF CHANCE

In the recent case of Chweidan v Mishcon de Reya [i]  the High Court summarised the test for quantifying damages and calculating loss of chance in professional negligence claims.

BACKGROUND

Mishcon de Reya were ordered to pay over £66,000 in damages and interest to their former client Russell Chweidan. Mischcon partially lost a professional negligence claim Mr Chweidan brought against them in the High Court.

Mrs Justice Simler granted Mr Chweidan a portion of his damages claim in contract and tort for professional negligence. This was because Mishcon missed a deadline to lodge a cross-appeal at the Employment Tribunal relating to former trader Mr Chweidan’s dismissal by JP Morgan.

The dispute dated back to 2008 when Mishcon agreed to pursue Mr Chweidan’s unfair dismissal case. He had been made redundant after a serious skiing accident causing permanent injury. He won in the Employment Tribunal, which found he had been unfairly dismissed by JP Morgan. They had awarded him a smaller than expected bonus which the Tribunal found was unlawful and JP Morgan had discriminated against him on the basis of his disability.

JP Morgan successfully appealed to the Court of Appeal. The judgment against them was overturned in 2011. However Mishcon had failed to lodge Chweidan’s cross-appeal in time. Mishcon admitted responsibility for their failure but Mr Chweidan sued Mischcon for damages for loss of chance to win the Appeal against JP Morgan. He argued that the firm had failed to advise or assist him in bringing his allegations against JP Morgan within the statutory grievance procedure and that he suffered damages as a result of not lodging a counter claim in time.

chess-knights-1360662-sfreeimages

JUDGMENT

Mrs Justice Simler did not accept that Mishcon had failed to adhere to the statutory grievance procedure but awarded damages in relation to the counter claim breach.

On a detailed analysis of his case against JP Morgan, the Judge put Mr Chweidan’s overall prospects at 18%. Simler J calculated that he had a 50% chance of winning the age discrimination cross-appeal, and a 33% chance on the underlying claim following the appeal. That gave a 16% chance. The Judge added a small increase to cater for the possibility that, if Mr Chweidan won his cross-appeal, JP Morgan may have been persuaded to reach a settlement.

Mr Chweidan was awarded 18% of his £357,574.86 claim against his solicitors, amounting to

£64,363.47 damages plus 18% of £10,000 likely interest accrued after the Tribunal judgment (Total £66,163). Simler J rejected Mr Chweidan’s other claims and this represented substantially less damages than he had claimed.

Simler J said:

Although I have found that the chances of success were limited, there was more than a negligible prospect of the claimant succeeding on appeal and having done so, proving his unlawful age discrimination claims. In those circumstances, the breach of duty was the effective cause of these lost opportunities.

“The claimant is accordingly entitled to recover damages for the loss of opportunity suffered as a consequence of the defendant’s breach.”

6-STEP MATHEMATICAL APPROACH

The Judge summarised her approach to quantifying damages for loss of chance:

  1. The Claimant must prove that the claim had a real and substantial, rather than merely a negligible prospect of success.
  2. If the Court decides that the Claimant’s chances were more than merely negligible then it will have to evaluate them. That requires the Court to make a realistic assessment of what would have been the Claimant’s prospects of success, had the original litigation gone to trial.
  3. The Court should therefore assess the likely level of damages which the Claimant would probably have recovered if the underlying action had proceeded to judgment and then apply an appropriate fraction to that sum to reflect the uncertainties of recovering the damages awarded.
  4. In some loss of a chance cases it may be appropriate to view the prospects on a fairly broad brush basis. In other cases however it may be appropriate to look at the prospects in greater detail.
  5. The oral and documentary evidence available (and the extent to which it is more limited than what would have been available in the action) and the possibility that the claim might have settled are aspects that must be factored into any assessment. It would be wrong in any event, to conduct a “trial within a trial” or to make any firm findings as to what would have been decided.
  6. If there are “separate hurdles”, the percentage prospects on each should be multiplied together to give an overall lower percentage prospect.

character-265633_150PIXABY

COMMENT

The Judge in Chweidan followed the approach in earlier loss of chance litigation cases, Mount v Barker Austin [ii] and Dixon v Clement Jones [iii]. Although the burden of proof is on the claimant to show that his lawyers were negligent in the advice given, a solicitor or barrister using the defence of no loss of value to the claimant must be able to show that, despite acting for him and charging for their services, the claimant’s prospects were “no better than negligible” (so that the client lost nothing by their negligence).

Simon Brown LJ in the Court of Appeal in Mount commented that clearly the burden is heavier on the Defendant solicitors if they did not advise their client of the hopelessness of the position. If the solicitors had advised in detail on the prospects, that advice would be highly relevant. As is often the case, the question of what advice was recorded in attendance notes or letters to the client was important.

In professional negligence cases, if a claimant has numerous hurdles to overcome, this judgment could substantially reduce the amount of damages awarded for loss of chance claims; each hurdle exponentially decrease the claimant’s overall prospects. However, Simler J emphasised that the assessment of damages in these types of cases

is not necessarily a purely mathematical or mechanical exercise. Although the issues may be discrete, success on one may improve the chances of success on another.’

Nevertheless, the test outlined above provides a clearer and more predictable background to how the courts calculate damages in loss of litigation chance claims. 

[i] Chweidan v Mishcon de Reya [2014] EWHC 2685 (QB),

[ii] Mount v Barker Austin [1998] EWCA Civ 277

[iii] Dixon v Clement Jones [2004] EWCA Civ 1005

scales-145464_150pixaby

Are you a Shadow or de facto director?

Latest Court of Appeal Guidance

architecture-20540_150pixaby RCJ

The Court of Appeal has provided guidance for deciding whether someone is a Shadow or de facto director: Smithton Ltd (formerly Hobart Capital Markets Ltd) v Naggar[i]

Under the Companies Act 2006, all duties owed by a director can apply to former directors, de facto directors and “shadow directors”. It is axiomatic that creditors or liquidators will look for someone to sue when a company collapses. Given the various extensions in directors’ duties and liabilities, and widening of the class of persons covered, questions arise e.g. regarding the majority shareholder’s vulnerability, and that of other parties including directors of companies that are directors of a subsidiary.

TERMS

  • De jure Director: A director at Law, registered at Companies House
  • De facto Director: A director in Fact, although not formally appointed, but who behaves as and is taken by the company and other directors to behave as a director
  • Shadow Director: “in accordance with whose directions or instructions the Board is accustomed to act”, not being a professional adviser retained to advise “real influence over the majority of board members”; [ii]

urban-crime-1156394-sfree images

Group Directors, Private funders and possibly venture capitalists could fall in to the trap of becoming “shadow directors”. What would happen to them on insolvency? This is tempered by such funders commonly requiring a directorship. Following Deverell,[iii] per Morritt J., a “nod and a wink” can amount to an “instruction”. A management consultant,[iv] a parent company,[v] and a “stakeholder”[vi] have all been held to be shadow directors. A bank could be a shadow director for example.

BACKGROUND

The Court of Appeal has upheld the decision of trial judge Rose J that the Defendant Guy Naggar, was not a de facto director or shadow director of Smithton Ltd, (formerly Hobart Capital Markets Ltd). Mr Naggar was a director of Hobart’s former holding company Dawnay Day, which operated under a joint venture agreement. Hobart entered into numerous transactions with clients introduced by Mr Naggar. Following the collapse of Dawnay Day, Hobart suffered losses around £4 million. Hobart sued Mr Naggar, seeking to recoup its losses claimingng an indemnity from him, contending that while he was not a duly appointed director of Hobart, he was a de facto or shadow director of Hobart and had acted in breach of his duties owed to Hobart.

very-old-books-849478-sfree images

DECISION

  • The evidence suggested that Mr Nagar was acting as chairman of Dawnay Day, Hobart’s parent company.
  • There was nothing that went beyond the involvement normally expected of someone combining the roles of major client and chairman of the majority shareholder.
  • There was no evidence that Hobart’s board were accustomed to complying with Mr Naggar’s instructions.
  • There was no basis for setting aside the judge’s conclusion that Mr Naggar had been involved with Hobart’s affairs other than in his capacity as a director of Dawnay Day or some other capacity than that of director of Hobart.
  • The judgment of Arden LJ (Elias, Tomlinson LJJ concurring) included points of general principle, applying and reaffirming the leading case of Revenue and Customs Commissioners v Holland[vii]

GENERAL PRINCIPLES

  1. There is no one definitive test whether a person was a de facto director, the question is whether he was part of the corporate governance system of the company and whether he assumed the status and function of a director so as to make himself responsible as if he were a director.
  2. Someone could be a de facto director even where there was no invalid appointment. The question was whether he had assumed responsibility to act as a director, and in what capacity he was acting.
  3. The court had to examine what the director actually did and not any job title.
  4. The court would need to consider the corporate governance structure of the company so as to decide in relation to the company’s business whether the individual’s acts were directorial in nature.
  5. The court should look at the cumulative effect of the activities relied on and should look at all the circumstances in the round.
  6. Whether an individual acted as a director is decided objectively and irrespective of their motivation or belief. A defendant did not avoid liability if he showed that he in good faith thought he was not acting as a director.
  7. Even a single directorial act could lead to liability in an exceptional case
  8. It was also important to look at the acts in their context. Relevant factors included whether
  • the company considered him to be a director and held him out as such
  • third parties considered that he was a director
  • a person was consulted about directorial decisions or his approval did not in general make him a director because he was not making the decision
    1. Acts outside the period when he was said to have been a de facto director might throw light on whether he was a de facto director in the relevant period.
    2. An individual can be both a shadow director and a de facto director at the same time, and there can be overlap.
    3. A de facto or shadow director’s role doesn’t have to cover all the company’s activities.
    4. Whether a person was a de facto or shadow director is a question of fact and degree.

network-plan-human-resources-diagram-legal-pad-pen-17977535

CONCLUSION

  • Where someone is a director of a holding company which is its subsidiary’s corporate director, provided that what that individual does is wholly within the ambit of his duties and responsibilities as a director of the corporate director/holding company, his acts would not make him a de facto director of that subsidiary (as in the instant case).
  • Groups of companies, directors (and those who may fall within the definition of de facto or shadow director of a holding company) should consider whether the directors of the parent company are an integral part of the subsidiary’s corporate governance and would be exposed to being deemed either de facto or shadow directors, or both.
  • This case helpfully applies the general principles and puts them in context.

 

[i] [2014] EWCA Civ 939

[ii] 251(1) of the Companies Act 2006

[iii] Deverell [2001] Ch. 340 CA (Civ Div

[iv] Tasiban Ltd (No.3), Re [1991] B.C.C. 435; [1991] B.C.L.C. 792 Ch D.

[v] Hydrodam (Corby) Ltd, Re [1994] B.C.C. 161; [1994] 2 B.C.L.C. 180 Ch D

[vi] Deverell [2001] Ch. 340 CA (Civ Div).

[vii] [2010] 1 WLR 2793

scales-145464_150pixaby

More Noise: Loser pays on CFA’s?

  Coventry v Lawrence (Part 2)

speedway-419237-sfreeimages

A Supreme Court case I commented on recently, elsewhere described as “…an important judgment on the principles of private nuisance for the 21st century…”[i] now has wider ramifications for legal costs in CFA cases. In the supplemental judgment of 23 July, Coventry v Lawrence [2014] UKSC 46[ii] a five member Supreme Court panel decided on the grant of an injunction and damages in a private nuisance case brought by a house owner against operators of a speedway stadium.

One of the remaining issues was whether the injunction for nuisance should be suspended until the house was again habitable, following fire damage. Damages were thought likely to be even more of an adequate remedy in the meantime.

However, the pronouncements on CFA costs have assumed far greater importance than on this case alone. The house owner had been awarded 60% of his costs to be paid by the operators, including base costs, success fee and after the event costs insurance (AEI). On a detailed analysis of the figures, Lord Neuberger said

 the figures are very disturbing

The base costs were £398,000, success fee £319,000 and AEI £350,000 (total £1,067,000). This was “regrettable” in the context of the house being worth a maximum of £300,000, and the nuisance reducing this by £74,000 at most. The operator’s liability to pay the householder’s costs would leap from £238,000 (60% of basic costs only) to £640,200, being 60% of all three elements, based solely on how the householder had chosen to fund their case.

speedway-2891-sfreeimages

It had been thought that satellite litigation on costs or CFAs and AEIs at least had subsided, following Callery v Gray [2002] 1 WLR 2000, where the House of Lords decided that, subject to reasonableness, success fees and ATE premiums were recoverable. In Campbell v MGN Ltd (No 2) [2005] 1 WLR 3394, the House of Lords held that the 1999 Act[iii] costs recovery regime did not infringe Article 10 of the European Convention on Human Rights (“ECHR”) (freedom of expression).

However, the operators argued that following the Strasbourg Court in MGN Limited v United Kingdom (2011) 53 EHRR 5 and Dombo Beheer BV v Netherlands (1994) 18 EHRR 213, Article 6 (right to a fair trial) would be infringed if the court required them to pay 60% of the success fee and the ATE premium.

In MGN v UK at para 217, the Strasbourg Court said that “…the depth and nature of the flaws in the system…” introduced by the 1999 Act and the provisions of the CPR were “…such that the Court can conclude that [it] exceeded even the broad margin of appreciation to be accorded to the State in respect of general measures pursuing social and economic interests…”.

As to Article 1 of the First Protocol to the Convention (“A1P1”), the operators rely on the reasoning of the Strasbourg court in James v United Kingdom (1986) 8 EHRR 123.

Faced with these contentions and giving the lead judgment, Lord Neuberger held that it is

open for argument

whether the home owner’s costs claims (success fee and AEI) are a breach of the operator’s entitlement to a fair trial under Article 6 ECHR and/or A1P1. The Supreme Court ruled that if the operator wishes to pursue that argument, it would be wrong for it to decide the point without representations from the Government and other interested parties as interveners. These would include the Attorney-General and the Secretary of State for Justice, and any other intervener sanctioned by the Court.

gas-horn-1064039-sfreeimages

Comment

Following the Jackson Reforms, the success fee and AEI would no longer be recoverable in cases where such arrangements were entered in to after April 2013. However, in the instant case (and a vast number of cases continuing through the Courts under the “old” fee regime), until now such success fee and AEI have been regarded as entirely valid and enforceable against the losing side.

A number of questions arise, including whether, if the court considered that there was an infringement of the operator’s rights this ought to be recognised by a declaration of incompatibility. However, the forum for this decision has yet to be resolved, whether this should be again at the Supreme Court, or as stated in Callery v Gray at the Court of Appeal, being “…the primary supervisory and judicial policy-making functions in connection with case-management, procedural and costs issues…” with greater experience on matters concerning costs.

Further affected by this renewed doubt however, are litigants in ongoing cases subject to the old costs regime, where the funding, CFAs, retainers and AEI premiums will now be questioned, to say nothing of all previous cases decided (or settled) on the assumption by the courts that the old regime did not offend against ECHR. If there is a declaration of incompatibility, this could lead to a deluge of compensation claims against the UK Government.

 

[i] (Planning permission no defence to private nuisance claim) http://wp.me/p4DFLr-c

[ii] http://supremecourt.uk/decided-cases/docs/UKSC_2012_0076_Judgment.pdf

[iii] Legal Services Act 1990 Part II, Access to Justice Act 1999

information-boards-105139_150pixaby

Back to “punishment to fit the crime”? Court of Appeal construes Mitchell

architecture-20540_150pixaby RCJ

The Court of Appeal has tried to clarify what happens when a party to Civil Litigation is late in complying with a court order. The decision in Denton on 4 July was eagerly awaited because lawyers, litigants (and the courts) have been in a quandary since last November’s landmark decision by the Court of Appeal in the case of Mitchell. That upheld deliberately sweeping sanctions, enforcing the “Jackson Reforms” of April 2013. 

In Mitchell, the former Chief Whip was suing a media group for defamation, arising out of the “Plebgate” saga. However, his lawyers were 5 days late in lodging at court a new detailed costs budget in “Form H” predicting costs for the entire case. Under “Jackson”, great importance is attached to this form, to be finalised by all sides, as soon as a Defence is filed.

 ???????????????????????????????????????????????????????????????????????

Because Form H was late, the court treated Mr Mitchell as having failed to serve any estimate. Consequently, his budget was restricted to court fees alone rather than the approximate £400,000 his solicitors estimated in the form. The other side estimated their costs in a similar range. As a result, even if Mr Mitchell won his claim he would have been unlikely to recover more than a fraction of his expected costs approaching £1/2M. Since that decision, courts and lawyers have been dealing with a perceived “zero tolerance” of failures to meet court deadlines. That is even though often the courts may be late in sending out forms and orders.

The upshot has been that the courts have been inundated with applications for “relief from sanctions”, usually well in advance of a deadline, because the message has been that delays, however short, may result in the case (or defence) being struck out. There have been contradictory decisions, some of which have been criticised as unduly harsh, and disregarding the justice of the individual case.

In an effort to stem the resulting tide of “satellite litigation” the Court of Appeal has argued in Denton that whilst Mitchell was correctly decided, it has been misunderstood and misapplied. There were 3 conjoined cases in Denton;

disc-smashed-by-hammer-2-1418172-sfree images

Facts

Denton v TH White Ltd

This claim was against the installers of a milking parlour. Statements and expert reports were exchanged on time, but additional evidence was served in December 2013, just five weeks before the trial. At the pre-trial review the claimants obtained permission to rely on the statements and the court vacated the trial date. The defendant appealed to the Court of Appeal on the ground that the judge failed to apply, or misapplied, Mitchell and erred in the exercise of his case management discretion.

Decadent Vapours Ltd v Bevan

The claimant failed to comply with an order that “unless” they file a pre-trial checklist and pay the court fee by 4pm on 19 December 2013, the claim would be struck out. The checklist was filed by email on the afternoon of 19 December. Unfortunately the cheque for the fee was only sent that day and it was not cashed. It is not known when the cheque went missing, but it may have been lost at court. The failure to pay the fee wasn’t discovered until a hearing on 7 January, where the claimant’s failure to comply with the “unless” order meant that the claim was struck out. The fee was paid on 9 January 2014, shortly after it was learned that the cheque had been lost. The court rejected the claimant’s application for “relief from sanctions” to reinstate the claim.

Utilise TDS Ltd v Davies

The claimant failed to comply with an order that “unless” they file costs budgets by 4pm on 11 October 2013, they could only claim court fees by way of costs if they were successful. The claimant missed the deadline by 45 minutes. The order also granted a stay until 8 November and required the claimant to inform the court of the outcome of negotiations by 4pm on 15 November. However the claimant was 13 days late in reporting. The District Judge refused the claimant’s application for “relief from sanction”, and their appeal to the High Court was also dismissed.

???????????????????????????????????????????????????????????????????????

The issues before the Court of Appeal

The new Civil Procedure Rule 3.9, for applications made after 1 April 2013, dispensed with the previous nine factors for consideration (see below) and replaces them with two:

(1) the need for litigation to be conducted efficiently and at proportionate cost and (2) the need to enforce compliance with rules, practice directions and orders. As with the old rule 3.9, the court must also consider “all the circumstances”.

The three conjoined appeals were heard as a test case by the Master of the Rolls Lord Dyson, Jackson LJ, and Vos LJ. The Law Society and the Bar Council were allowed to make submissions as Intervenors regarding wide ranging issues in practice.

thumb-print-1-1231735-sfreeimages

The Court of Appeal decision in Denton

The Court of Appeal has and directed that this decision takes primacy and should be the only case to be considered from now regarding relief from sanctions. Mitchell, and the subsequent decisions, need not be referred to. The appeals were allowed in each of the three cases.

“…we think that the judgment in Mitchell has been misunderstood and is being misapplied by some courts. It is clear that it needs to be clarified and amplified in certain respects”.

The court differed as to the correct approach however. Lord Dyson MR and Vos LJ set out a three stage approach. Jackson LJ, agreed with the outcome in each appeal, but favoured a more direct approach at stage 3, and for the court to simply “deal justly with the application” and considering all of the relevant factors, but without regressing to excessive lenience with any breach being overcome by a costs penalty. That was the approach of the judge in Denton. Jackson LJ insisted that the judge was mistaken in not taking in to account the wider impact on litigants and the court when considering the justice of the case. Lord Dyson MR and Vos LJ criticised the treatment of Mitchell rather than Mitchell itself. On deciding an application for relief from sanctions Under CPR 3.9 ther three stage approach is:

Stage 1

Identify and assess the seriousness and significance of the failure. When considering stage 1, the court should not initially consider other unrelated failures that may have occurred in the past. In other words, no cumulative totting up of non-trivial, or insignificant breaches. If the breach is not serious or significant, the court is unlikely to need to spend much time on stages 2 and 3 and the prospects of relief being granted should be greater.

It is notable that the Court of Appeal has distanced itself from the terms “trivial” and “non-trivial”, preferring the words “serious” and “significant”.

Stage 2

Consider why the failure or default occurred? Unfortunately, the Court of Appeal gave no further guidance on this point, merely saying the guidance in Mitchell is not exhaustive. This spelt out that “pressure of work”, or being unable to get to the office due to inclement weather were not good reasons.

Stage 3

A re-emphasis of the provisions of CPR 3.9: when considering the application the Court should consider

“all the circumstances of the case, so as to enable it to deal justly with the application”,

including:

  1. Whether the breach has prevented the court or the parties from conducting the litigation (or other litigation) efficiently and at proportionate cost; and
  2. The importance of complying with rules, practice directions and orders.

Dyson MR, and Vos LJ said the third stage required the Court to give particular consideration to all the circumstances of the case but with greater weight to be given to factors (a) and (b). Jackson LJ, whose report is the foundation of the reforms (and who was part of the Court of Appeal hearing the Mitchell case, dissented slightly, stating that, “the rule does not require that factor (a) or factor (b) be given greater weight than other considerations. What the rule requires is that the two factors be specifically considered in every case”. I.e., irrespective of any other factors, the court must consider (a) and (b). As the majority, Vos LJ and Dyson LJ disagreed, the guidance now is to simply attach greater weight to those factors.

social-justice_312132658_std

Comment

In any event, “all the circumstances” must be considered, rather than merely concentrating on the specific factors in the new CPR 3.9. This suggests that following Denton, relief from sanctions in similar circumstances is now more likely to be granted than applied post Mitchell, where there would be short shrift.

Comparison

Relief from sanctions applications were previously governed by CPR 3.9 with consideration of nine factors as follows:

“(1) On an application for relief from any sanction imposed for a failure to comply with any rule, practice direction or court order the court will consider all the circumstances including –

  • (a) the interests of the administration of justice;
  • (b) whether the application for relief has been made promptly;
  • (c) whether the failure to comply was intentional;
  • (d) whether there is a good explanation for the failure;
  • (e) the extent to which the party in default has complied with other rules, practice directions, court orders and any relevant preaction protocol;
  • (f) whether the failure to comply was caused by the party or his legal representative;
  • (g) whether the trial date or the likely trial date can still be met if relief is granted;
  • (h) the effect which the failure to comply had on each party; and
  • (i) the effect which the granting of relief would have on each party.”

From 1 April 2013 this changed to a newly worded CPR 3.9:

“On an application for relief from any sanction imposed for a failure to comply with any rule, practice direction or court order, the court will consider all the circumstances of the case, so as to enable it to deal justly with the application, including the need—

  • (a) for litigation to be conducted efficiently and at proportionate cost; and
  • (b) to enforce compliance with rules, practice directions and orders.”

police-patrol-1047710-sfree images

Punishment to fit the crime?

The shift of emphasis in Denton is to be welcomed, perhaps heralding a return to “proportionality” and the principle previously endorsed as “the punishment should fit the crime” (Beeforth). It is likely that this re-balancing in Denton following recent confusion will not see a reversion to courts failing to uphold sanctions without good reason.   

The Court of Appeal wanted more co-operation between parties (which had prevailed pre-Mitchell). Opportunistic attempts to take advantage of technical or trivial breaches will be met with heavy costs sanctions.

However, there is no guidance on what remedies if any there may be for litigants, their solicitors and insurers where a claim or defence has been struck out due to a misinterpretation of Mitchell.

Cases referred to

Mitchell v News Group Newspapers Ltd [2013] EWCA Civ 1537

 Denton v TH White Ltd and another, Decadent Vapours Ltd v Bevan and others and Utilise TDS Ltd v Davies and others [2014] EWCA Civ 906

http://www.bailii.org/ew/cases/EWCA/Civ/2014/906.html

Beeforth v- Beeforth. Court of Appeal [1998] EWCA Civ 1151; The Times [17.9.1998]