Civil Courts Structure Review: Final Report

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My critique of Lord Justice Briggs  long-awaited 299 page final report http://bit.ly/2ayk0qL. on the Civil Courts Structure Review:

The final report follows an extensive series of meetings with judges, practitioners, stakeholders and users of the civil courts, and a series of detailed written and oral submissions after the publication of the review’s interim report in January 2016. The review makes a series of recommendations intended to inform the current programme of wider court modernisation being undertaken by HM Courts and Tribunals Service.

It also makes a number of recommendations on different aspects of the civil justice system, such as enforcement of court rulings, the structure of the courts and deployment of judges. A summary of the main point follows.

Briggs LJ identified five main weaknesses of the civil courts structure:

Weaknesses

a. Lack of adequate access to justice due to excessive costs expenditure / risk and the “lawyerish culture and procedure of the civil courts”

b. Inefficiencies from the “continuing tyranny of paper” and inadequate IT facilities

c. Court of Appeal delays

d. Under investment in civil justice in the regions

e. Weaknesses in the processes of enforcement

Final Recommendations

1. The “Online Solutions Court”

To resolve a perceived access to justice defecit, Briggs LJ recommends introducing an Online Court and the extension of fixed costs. The new court is to have its own set of “user-friendly rules” created by a new cross-jurisdictional rules committee in place of the current Civil Procedure Rules, which will still apply to other cases.

Briggs LJ also sets out the appropriate appeals procedure, where permission would apply. Stage 3, the final adjudication, will be made by judges on paper, via a video/telephone hearing or by way of a traditional trial.

When implemented it should be dealing with “straightforward” money claims valued at up to £25,000. Despite this initial ceiling of £25,000, he suggests it may “pave the way” for change over “much wider ground” and will eventually become compulsory. It is not envisaged that the Online Court will apply to fast and multi-track personal injury cases, but, as Briggs LJ has previously indicated, it may apply to small claims track cases.

Recommendations are made on helping people who need assistance with online systems. Complex and important cases are to be transferred upwards to higher courts. Open justice and transparency issues are to be addressed.

Legal advice and expertise would be by way of unbundled solicitors’ services and direct access to barristers.

A target date of 2020 has been suggested.

2. Digitisation

The Online Court proposed is to be accessible via smart phones and tablets.To avoid duplication and “a parallel paper path”, Briggs LJ has endorsed the development of Assisted Digital resources and proposes the “digitisation of all the processes” of the civil courts, which will eventually be paperless.

Reforms have already been implemented to overcome the chronic workload and backlog of the Court of Appeal.

3. Case Officers

A senior body of court lawyers and other officials who can assist with certain functions currently carried out by judges, such as paperwork and uncontentious matters. To be trained and supervised by judges, and decisions subject to reconsideration by judges on request by a party. To operate independently of government when exercising their functions, transferring some of judges’ more routine and non-contentious work to case officers, under judicial training and supervision.

4. Increase in High Court threshold

A substantial increase in the minimum claim value threshold for commencing claims in the High Court – initially to £250,000 and subsequently to £500,000.

5. Enforcement of Judgments and Orders

There should be a single court as the default court for the enforcement of the judgments and orders of all the civil courts (including the new Online Court). This should be the County Court, but there would need to be a “permeable membrane” allowing appropriate enforcement issues to be transferred to the High Court, and special provision for the enforcement of arbitration awards, in accordance with current practice and procedure. All enforcement procedures to be digitised, centralised and rationalised.

6. Mediation/ADR

Re-establish a court-based out of hours private mediation service in County Court hearing centres prepared to participate, along the lines of the service which existed prior to the establishment and then termination of the National Mediation Helpline.

7. Deployment of Judges

The principle should be that no case is too big to be resolved in the regions. The current acute shortage of Circuit judges specialising in civil work in the County Court needs an urgent remedy.

8. Number of Courts and Future of the Divisions

There should be no general unification of the civil courts (ie combining the High Court and County Court). The time has come for a decision about the future of the High Court’s Divisions, but that is beyond the scope of the current review.

9. District Registries and Regional High Court Trial Centres

The concept of the District Registry as a place for the issue of High Court proceedings will eventually be replaced by a single Portal for the issue of all civil proceedings, and should then be abolished.

10. Routes of Appeal

There should in due course be a review of the question whether the recent reforms to the procedure of the Court of Appeal should be extended to cover appeals to the High Court and to Circuit Judges in the County Court, based upon better time and motion evidence than is currently available, and in the light of experience of the reforms in the Court of Appeal.

11. Boundaries between jurisdictions – the Family Court should be given a shared jurisdiction (with the Chancery Division and the County Court) for dealing with Inheritance Act and disputes about co-ownership of homes. There continues to be a case for convergence between the Employment Tribunal (and Employment Appeal Tribunal) and the civil courts, but the detail is a matter beyond the scope of this review.

Lord Justice Briggs said:

“It is for others to decide which of the above recommendations should be implemented, and by what means. In my view, if they are all substantially implemented, then the essentially high quality of the civil justice service provided by the courts of England and Wales will be greatly extended to a silent community to whom it is currently largely inaccessible, and both restored and protected against the weaknesses and threats which currently affect it.”

Comment

The stated aim of the reforms is laudable; to ensure our civil justice system is fit for purpose and open to all. However, this needs to be viewed in the context of enormous court fee increases e.g. last year’s issue fee increases of up to 600% in some cases, and last month’s application fee increases as follows:

  • contested applications made on notice — £255 (from £155)
  • applications without notice or by consent — £100 (from £50)

In Briggs LJ’s view, the new court, if successful, “may pave the way for fundamental changes in the conduct of civil litigation over much wider ground than is currently contemplated by its first stage ambition”.

The proposed timing for the launch of the system is April 2020, although Briggs LJ acknowledges that this will represent “a real challenge”.

The civil courts have come under increasing strain due to budget cuts and the phenomena of a large rise of litigants in person, the latter unpredicted and itself due to previous reforms and cost cutting exercises. This, combined with the lack of any significant positive track record in computerisation of government services represent significant further challenges, as do the requirement for such changes to be adequately funded and given sufficient Parliamentary and Ministry of Justice attention.

The ongoing hikes in court fees and previous termination of funding for Mediation initiatives contrast with the aspiration of increased access to justice and suggested allocation of funds from the Treasury for such a wide-ranging programme of reform.The challenge now lies in effective implementation of Lord Justice Briggs’ recommendations, and avoiding further reductions in access to justice.

First Published: 5.8.16 http://social.luptonfawcett.com/blog/civil-courts-structure-review-final-report

 

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Negligent Financial Advice Claim: “Bolam Test” Abandoned

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Professional Negligence

In O’Hare and another v Coutts & Co [2016] EWHC 2224 (QB) (9 September 2016) the High Court held that the defendant bank had not breached its duty (in contract and in tort) to exercise reasonable skill and care when advising the claimants on making certain investments. Kerr J dismissed the claim in its entirety, although not without considerable sympathy for the claimants, considering that he preferred their evidence where it conflicted with Coutts’.

The judge decided that Coutts had not breached its duty (in contract and in tort) to ascertain the claimants’ requirements and objectives and to advise, explain and inform the claimants about investments that were suitable.

The decision is of particular interest regarding the judge’s approach to

  • Professional negligence / breach of duty
  • Damages in contract and tort
  • Evidence of the professionals involved – including attendance notes

Duty of Care

The judge held that the Bolam test did not apply to the issue of whether the defendant had breached its duty of care when advising the claimants about the investments. Instead, he preferred the approach of the Supreme Court in the Scottish medical negligence case of Montgomery v Lanarkshire Health Board [2015] UKSC 11. The judge focused on what the claimant, as an informed investor would expect to be told.

The judge did not adopt the common Bolam Test (see below) i.e. whether the defendant had advised in accordance with a practice accepted as proper by a responsible body of persons skilled in the giving of financial advice. The judge was influenced in his decision by the fact that the expert evidence indicated that there was little consensus in the industry about how to manage the risk appetite of clients. The decision suggests that the giving of investment advice is not simply an exercise of professional skill; an informed investor, like a medical patient, is entitled to decide the risks that he is willing to take and has to take responsibility for his own mistakes.

The Bolam test

The Bolam test derives from the decision in Bolam v Friern Hospital Management Committee [1957] 2 All ER 118 ( www.practicallaw.com/D-016-0979) . In that case it was held that a doctor was not necessarily negligent if he conformed to a practice accepted as proper by some responsible members of his profession, even if other members would have taken a different view. Evidence of an accepted practice must be responsible and reasonable. In other words, provided the doctor explained the risks of a given treatment, to the extent that it accorded with a responsible body of medical opinion, liability would not attach. The Bolam test applies to all professional liability cases.

The Bolam test was approved by the House of Lords in Sidaway v Board of Governors of the Bethlem Royal Hospital and the Maudsley Hospital [1985] AC 871.

The Montgomery Test

In Montogmery v Lanarkshire Health Board [2015] UKSC 11, the Supreme Court held that Sidaway (and, therefore, the Bolam test) did not reflect the reality and complexity of the way in which healthcare services were provided. It held that an adult person of sound mind was entitled to decide which, if any, of the available forms of treatment to undergo, and her consent had to be obtained before treatment interfering with her bodily integrity was undertaken. Doctors were under a duty to take reasonable care to ensure that patients were aware of any material risks involved in any recommended treatment, and of any reasonable alternative or variant treatments. The court defined materiality as:

“…whether, in the circumstances of the particular case, a reasonable person in the patient’s position would be likely to attach significance to the risk, or the doctor is or should be aware that the particular patient would be likely to attach significance to it…”

This is only when the medical professional has taken reasonable care to ensure that the patient was aware of the material risks involved in any recommended treatment, and of any reasonable alternative or variant treatments.

Decision in O’Hare

In the O’Hare’s negligent financial advice claim against Coutts, Kerr J preferred and applied the approach taken in the case of Montgomery, namely the onus is on the patient or client, as an adult with sound mind, to make their own decision about the risks involved. The O’Hares, as informed investors, were entitled to decide the risks that they were prepared to take and accept responsibility if those risks did not pay off. This standard is now likely apply more generally in financial advice claims.

The judge referred to the FCA’s Conduct of Business Sourcebook (COBS rules) which do not rule out the use of persuasion. The need for full information to be given is emphasised, and conflicts of interest to be properly managed:

“…As I read the authorities and the COBS regulatory scheme, there is nothing intrinsically wrong with a private banker using persuasive techniques to induce a client to take risks the client would not take but for the banker’s powers of persuasion, provided the client can afford to take the risks and shows himself willing to take them, and provided the risks are not – avoiding the temptation to use hindsight – so high as to be foolhardy. The authorities include mention of the adviser sometimes having to save the client from himself, but also of the principle that investors take responsibility for their investment decisions including mistaken ones. The duty of care must reflect a balance between those two propositions, which pull in opposite directions…”

Damages in contract and tort

A duty can be owed both in contract and in tort and concurrent duties of care are routinely owed by professionals (Henderson v Merrett Syndicates Ltd [1994] UKHL 5 ( www.practicallaw.com/D-000-1263) ). Accordingly, a financial advisor, who fails to exercise reasonable care in providing services to the client who retains him, can render himself liable in contract and in tort, unless tort liability is specifically excluded.

The general aim of an award of damages in tort is to put the injured party in the same position as he would have been in if the tort had not occurred. Damages in tort aim to restore the claimant to his pre-incident position. Generally, the purpose of an award of damages for breach of contract is to compensate the injured party. The general rule is that damages are meant to place the claimant in the same position as if the contract had been performed. Damages are usually awarded for expectation loss (loss of a bargain) or reliance loss (wasted expenditure).

Not all losses caused (in the factual/ “but for” sense) by a breach of contract or breach of duty are recoverable by the innocent party from the party in breach. Remoteness of damage refers to the principle by which the law determines which consequences caused by the defendant’s breach are within the scope of the defendant’s responsibility and should be brought into account.

There is a difference between the principle of remoteness in contract and in tort. In contract, generally, all foreseeable but not unlikely losses are recoverable. In tort, all losses that are reasonably foreseeable as liable to happen, even in the most unusual case, are recoverable. In Wellesley Partners LLP v Withers LLP [2015] EWCA Civ 1146 ( www.practicallaw.com/D-035-2377) , the Court of Appeal held that in cases of concurrent liability in contract and in tort, the narrower principle of remoteness of damage in contract applies.

Witness evidence

The Civil Evidence Act 1995 (CEA 1995) effectively abolished the rule against hearsay evidence in civil proceedings. In assessing the weight to be given to any hearsay evidence, the court is to have regard to any circumstances from which any inference can reasonably be drawn as to the reliability or otherwise of the evidence. The general rule is that any fact which needs to be proved by the evidence of a witness is proved by either:

  1. Written evidence at an interim application.
  2. Oral evidence at trial.

In Gestmin SGPS SA v Credit Suisse (UK) Ltd [2013] EWHC 3560 (Comm), Leggatt J analysed the approach that a judge should take when faced with evidential discrepancies between recent and sworn witness statements prepared with the help of lawyers and evidence in the form of contemporaneous electronic stored information. After emphasising the unreliability of human memory, he said that the best approach for a judge to adopt was:

“…to place little if any reliance at all on witnesses’ recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts. This does not mean that oral testimony serves no useful purpose – though its utility is often disproportionate to its length. But its value lies largely, as I see it, in the opportunity which cross-examination affords to subject the documentary record to critical scrutiny and to gauge the personality, motivations and working practices of a witness, rather than in testimony of what the witness recalls of particular conversations and events…”

Absence of key defence witness

Mr Shone, the O’Hares’ main contact and relationship manager did not provide evidence in court. Instead, Coutts relied upon the contemporaneous (attendance) notes written by Mr Shone. Given that Mr Shone was alleged to have persuaded the O’Hares to take a higher risk than they would otherwise have done, the judge had expected to hear direct evidence from the advisor.

Although Coutts provided hearsay evidence from other witnesses, which was accepted, the judge concluded that Mr Shone’s testimony was necessary for Coutts to prove its defence. Coutts explained that the reason for Mr Shone’s absence was that he was no longer employed by them and had told the defendant that he was too preoccupied with other business responsibilities to devote time to the current proceedings. Why the witness summons procedure to secure his attendance at trial was not adopted is not examined.

The judge devoted a significant part of his judgment to address the difference between the parties about whether the claimants had been led and persuaded by Mr Shone to take a higher risk than they would otherwise have done. It was significant that Coutts did not adduce any direct evidence from Shone. If he was not called at trial, “…he would plainly be the Banquo’s ghost at the feast…”

Mr Shone’s hearsay evidence was derived from his contemporary notes of various meetings and conversations with the claimants. This evidence was recited in the statements of witnesses called to give oral testimony at trial. The judge held that the hearsay evidence was admissible and that by setting it out in the statements of its witnesses, the defendant had complied with the requirement in CPR 33.2, that hearsay evidence is to be served in a written statement. It was for the claimants to apply under CPR 33.4 to call Mr Shone for the purpose of cross-examining him on his notes of the various meetings and telephone calls, but they did not do so. Instead, the claimants relied on the fact that Mr O’Hare gave oral evidence at trial and his evidence was in many cases uncontradicted by any other witness at trial.

The judge assessed the weight to be given to the evidence by reference to the factors in section 4(1) of the CEA 1995. He concluded that the defendant needed Mr Shone’s testimony to assist its defence and without him, significant parts of the claimants’ account remained uncontradicted, except by notes that were disputed and not defended by their maker. In the circumstances, the judge was not prepared to accept that the notes were to be preferred, or that Mr O’Hare’s evidence contradicting them was to be rejected.

In this case Mr O’Hare’s oral evidence at trial, that Mr Shone had used persuasion on the claimants to induce them to take higher risks /that than they otherwise would have done, was accepted by the judge over and above the documentary evidence. He asserted that the judge in Gestmin had not suggested that oral testimony served no purpose. He remained of the view that the general rule (that any fact which needs to be proved by the evidence of witnesses is to be proved at trial, by their oral evidence) still applies.

Comment

  • The decision emphasises that undocumented witness evidence can be important. The reliability of contemporaneous documents is generally preferred to uncorroborated recollections, but there are occasions where oral testimony is required to support such documents.
  • The decision is of particular interest because of the approach of the judge to breach of duty. He held that the Bolam test did not apply to the issue of whether the defendant had breached its duty of care when advising the claimants about the investments. Instead, the judge preferred the approach of the Supreme Court in the Scottish medical negligence case of Montgomery v Lanarkshire Health Board [2015] UKSC 11. The judge focused on what the claimant, as an “informed investor”, would expect to be told and not on whether the defendant had advised in accordance with a practice accepted as proper by a responsible body of persons skilled in the giving of financial advice.
  • The judge was clearly influenced in his decision by the fact that the expert evidence in the case indicated that there was little consensus in the industry about how to manage the risk appetite of clients.
  • The decision suggests that the giving of investment advice is not simply an exercise of professional skill; an informed investor, like a medical patient, is entitled to decide the risks that he is willing to take and has to take responsibility for his own mistakes.
  • Finally, the judge’s obiter (non binding) comments are also of interest: that, if the negligence claim had succeeded, he would not have allowed the claimants to benefit from the more generous measure of damages in tort, in circumstances where their concurrent claim in contract was statute-barred.

First Published 20 September 2016 – http://social.luptonfawcett.com/blog/negligent-financial-advice-claim-bolam-test-abandoned

 

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Directors & Shareholder Claims: 2

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Resolving Boardroom Conflict  – 5 More Tips

Disputes between shareholders of private companies are often emotional and can be as complicated as a personal divorce. The disruption to any business can be extremely damaging. Knowing what remedies are available to resolve matters quickly could be the key to survival.

  • What if the majority is taking unfair advantage of you?
  • What if you suspect co-shareholders are stealing from the company?
  • In the second of a series, here are five further important pointers to be aware of:

1/ Protecting the Minority

There is a common misconception that the complex laws and regulations relating to companies should achieve a just and fair relationship between a minority shareholder and the majority. However, there is very little law which protects the minority, unless the parties have agreed beforehand.

Differences between shareholders don’t always arise because of power struggles or personal animosity. Frequently, disputes are down to differences in approach where one party wants to retire or withdraw their investment. Disagreements may centre on

  • timing
  • valuation issues
  • the direction of the company

The public courts are unlikely to be the ideal venue for resolving shareholder disputes. Proceedings are in the public domain and the procedure can be expensive and slow.

Particularly where private companies are concerned, there are effective alternatives, including: negotiation, mediation and arbitration.

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2/ Shareholder Agreement

An effective way to address potential problems before they arise is a Shareholder Agreement. This sets out ground rules for the shareholders in given circumstances. Many potential and predictable problems can be addressed in advance in a Shareholder Agreement. This leaves the shareholders to concentrate on managing the business, rather than a future internal dispute.

Amongst other things, the agreement can cover:

  • management responsibilities
  • non-competition restrictions
  • bonus and remuneration formulae
  • approval/decision process for major corporate decisions
  • buy/sell provision – e.g. a “shotgun clause” to force a transaction
  • how a shareholder can realise his or her investment in the company
  • whether to impose any restrictions on selling shares
  • criteria on valuing the shareholding
  • exit provisions – timetable for sale
  • appointment of an independent third party to value the shares
  • a detailed dispute resolution framework

 

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3/ What is an “Unfair Prejudice” claim?

The majority shareholders are in a powerful position, even where there is a Shareholder Agreement. However, the court will protect the position of minority shareholders from being abused in certain circumstances.

Section 994 of the Companies Act 2006 allows a shareholder to apply to the Court for an order declaring that the affairs of the company are being conducted in a manner unfairly prejudicial to the minority shareholder’s interests. If the court agrees, it will usually order that the shares of the minority shareholder are bought for fair value. However, the Court has a very wide discretion as to what it can order, including:

  • purchase of the shares of any members of the company by other members or by the company itself and, in the case of the purchase by the company itself, the reduction of the company’s capital accordingly
  • conduct of the company’s affairs in the future
  • company to refrain from doing or continuing an act complained about, or to do an act about which the petitioner has complained that it has omitted to do
  • civil proceedings to be brought in the name and on behalf of the company by such persons and on such terms as the court may direct
  • company not to make any, or any specified, alterations in its articles without the court’s permission

4/ When might a court find “unfair prejudice”?

Where a minority shareholder believes that the company is being run in a way which is unfairly prejudicial to some of the shareholders, the aggrieved shareholder can make an application to the Companies Court for a remedy. Unfairly prejudicial conduct may include for example:

  • majority shareholders paying themselves excess remuneration
  • majority shareholders failing to pay dividends
  • breach of duty by diverting business to majority shareholders or their connected companies
  • directors selling or buying assets at an unfair price
  • failing to pay declared dividends
  • undertaking activities which are not permitted under the company’s Articles
  • doing something which might result in the company’s insolvency
  • failure to follow company law or proper procedure on meetings.
  • failure to issue annual accounts

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5/ “Quasi-Partnership”

In small to medium sized private companies, the court might be persuaded that a “quasi-partnership” exists. The aggrieved party may complain that there is a breach of their ‘legitimate expectations’ about what the company was set up to do, and how it would be run. E.g.

it was agreed, or a common intention is proved:

  • the company would carry on a particular business
  • all would be entitled to an equal say in how the company is managed
  • a mutual expectation of continued employment
  • the directors would be fair when deciding on the salaries to be paid, the amounts to be kept in the company to fund growth, and the dividends to be paid out

If the court decides that a quasi-partnership exists, termination of that arrangement or unfair prejudice to the minority may result in the majority being obliged to buy out the shares of the aggrieved minority shareholder. If the majority acts in breach of such

“legitimate expectations”

the court may intervene.

Where an aggrieved shareholder has cause for complaint, urgent action is required. The court may refuse to interfere if a minority shareholder let the matter slide. The court will treat this as acceptance of the action taken by the majority:

“delay defeats equity”.

The court will consider all of the background circumstances on an application, including the minority shareholder’s own conduct.

These applications are rarely straightforward and are often settled by negotiation before the court is asked to make a final decision.  Quite often, one or more of the shareholders leave with a package.

For further information regarding minority shareholder / business disputes and unfair prejudice petitions contact Paul.Sykes@lf-dt.com

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Directors & Shareholder Claims: 1

Unfair Prejudice & Drag Along

Minority Shareholder wins Quasi Partnership claim

8 Ways to avoid a Business Dispute

Are you a Shadow or de facto director?

WHEN DIRECTORS FALL OUT

Disclaimer

 

 

 

 

The Battle of the Forms: Part 2

  • Tips
  • 15 Practical Steps

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In Part 1 “Terms Agreed – but whose terms?” http://wp.me/p4DFLr-8x we examined the perennial problem of the steps necessary to include your companies’ standard contractual terms and conditions (T&Cs) in to a contract.

This was the issue recently covered by the Technology and Construction Court in the case of Transformers & Rectifiers Ltd v Needs Ltd. In that case, neither party to the contract had done sufficient to ensure that their T&Cs were drawn to the attention of the counter party. The court applied the law deciding that in a sale of goods contract where neither the seller’s nor the buyer’s terms and conditions have been incorporated, the relationship is governed by the implied terms of the Sale of Goods Act 1979. Accordingly, the seller of the goods will not be able to exclude or limit its liability for defective goods, which a seller can normally restrict by contract subject to the reasonableness test in the Unfair Contract Terms Act 1977.

In the preliminary discussions between parties, a “battle of the forms” can arise when two businesses are negotiating the terms of a contract and each party wants to contract on the basis of its own terms. A typical example is where, e.g., a Buyer offers to buy goods from the Supplier on its (the Buyer’s) standard terms and the Supplier purports to accept the offer on the basis of its own standard terms. In this scenario, the battle is often won by the party who fired the “last shot”, i.e., the last party to put forward T&Cs that were not explicitly rejected by the recipient.

A business should ensure that its terms are incorporated into its contracts. To achieve this, terms and conditions should be provided with and/or referred to in pre contractual documentation, such as quotations and orders. A business that relies upon printing their terms on delivery notes or invoices (post contractual documentation) runs the risk that it will not be able to rely upon those terms if there’s a dispute.

Below are a series of practical steps that could be considered to gain the advantage, the key theme being that parties must be clear about the terms on which they are doing business. Although these steps won’t guarantee your company’s standard T&Cs prevail, they may give you an advantage. There is no single overriding rule that trumps all in battle of the forms cases, but the following should help:

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Negotiating Tips:

“Prevail clauses”

Consider including a “prevail clause” in your T&Cs, stating e.g. that your standard T&Cs are incorporated in to the contract to the exclusion of any other parties’ T&Cs, and that your standard terms prevail. This won’t necessarily succeed alone, e.g. where the other side makes a counter-offer, your standard T&Cs including the prevail clause will be by-passed and won’t form part of the contract. This is because your T&Cs will have effectively been rejected by your counterparty and replaced by their counter-offer.

“Prevail clauses” are still used, including as a means to pressurize the other side in to taking the line of least resistance, and accepting the standard terms as a fait accompli. However, a belt and braces approach is safer. Where the other side aims to rely on such a clause it is perfectly reasonable to reply by reiterating that your T&Cs apply.

  • Written records should be kept of all contract negotiations. Ideally, minutes of meetings should be signed by all present.
  • Emphasize that no contract can be agreed until any disputed terms are ratified. Stipulate which terms are outstanding.
  • A contract can be concluded verbally. Ensure that any meetings or telephone calls are confirmed as being conducted on the basis of your company’s T&Cs, or “subject to contract”; to prevent any agreement before a written contract is signed.

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Practical Steps

  1. Always send the other side a clear and legible copy of your T&Cs together with your order/acknowledgment / supply forms and state clearly on the face of your order/acknowledgment that you rely on those T&Cs.
  2. When writing to the other side to agree an order, include a copy of your T&Cs with the letter or email. Stipulate that you are offering to contract on those terms.
  3. Don’t take for granted that your T&Cs apply. Although you may have been doing business with the other side for several years, don’t assume that a court will accept it’s on notice of your standard T&Cs. Whenever you enter into a contract, ensure that your T&Cs are included.
  4. If you send a purchase order/invoice electronically, make sure you don’t omit the back page setting out your standard T&Cs. Ideally, attach a copy of your T&Cs as a separate document.
  5. Actively bring the counterparty’s attention to your standard T&Cs.
  6. Alert the other party on the front page of your pro forma documents such as purchase order/invoices, email or letter footers, to your standard T&Cs and where they are found, e.g. on your website, and / or as attached.
  7. Clarify in writing that your T&Cs are the only terms upon which you are prepared to do business.
  8. Avoid a battle of the forms. If the other side responds with their T&Cs, clarify by return firstly that you don’t accept their terms and secondly, your T&Cs represent the only contractual provisions on which you will proceed.Respond to / reject counter-offers.
  9. If the counterparty replies to your offer ambiguously or doesn’t accept your offer, the court may later treat their communication as a counter-offer, which if it is treated as the last shot, could prevail.
  10. Contracts can be concluded by performance. Avoid premature acceptance of the other side’s T&Cs by conduct. E.g., terms of a contract can be finalized by one side unintentionally accepting the terms of a draft agreement before formal approval or signature. This could be by supplying or paying for the goods or services, accepting delivery of goods, or acting otherwise in line with the terms of the counterparty’s draft contract.
  11. Be aware that if one side proceeds without a clear written agreement and performs the contract, they risk a deemed acceptance of the other party’s terms.
  12. Fire the last shot in the “battle”! The other side’s T&Cs could prevail if they were the last shot, or where they were sent to you and, they weren’t rejected, answered with a counter offer, or where the contract was performed without more.
  13. A tactic that worked in B.R.S v Arthur V. Crutchley Ltd was where the supplier delivered whisky to the buyer’s warehouse. The delivery note set out the supplier’s T&Cs. However, the buyer’s warehouseman stamped it  “Received under [the buyer’s] conditions”.      The Court’s decision was that the warehouseman’s rubber stamp constituted the last shot of the battle. The buyer’s T&Cs prevailed. The stamp represented a counter-offer which the supplier was taken to have accepted by its performance in handing over the goods.
  14. The safest policy is to identify and resolve any dispute about T&Cs directly in negotiations with the other side. However, there may be the temptation not to jeopardies a prospective deal or future custom by risking controverersy. This involves what may be a greater risk down the line of the T&Cs being unclear, with an argument as to whose apply, or whether neither applies.
  15. Specifically negotiating the terms avoids the uncertainty of putting this off. If the seller’s T&Cs are accepted, then agreed variations can be set out in a side letter. On the up-side, when agreement is reached in this way, everyone knows where they stand legally. The down-side is that negotiating the contractual terms may be costly and time consuming. 

A well drafted set of terms and conditions will take into account the manner in which a business operates, and what it hopes to achieve. Your legal adviser should take the time to understand your business to ensure that your contracts achieve what you want them to.  

Advice at the beginning can avoid pitfalls down the line, which could be expensive and involve court proceedings.

 Cases:

Transformers and Rectifiers Ltd v Needs Ltd [2015] EWHC 269 (TCC).

British Road Services Limited v Arthur Crutchley & Co Limited ([1968] 1 All ER 811).

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New Professional Negligence Pilot: Adjudication

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Scheme launched 1 February 2015

Adjudication is a form of ADR (Alternative Dispute Resolution). A new voluntary scheme is being piloted aimed at professional negligence claims of less than £100,000 (excluding costs). This is of particular interest in solicitors’ negligence claims.

The objective is to see if claims can be resolved without the issue of Civil Court proceedings. There would be a substantial likely saving in terms of costs to all parties, time, and court resources. This is particularly apt in view of the forthcoming hike in Civil Court Issue fees.

The Adjudication process is aimed at any professional negligence claim, whether wholly or in part.

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Key advantages of Adjudication

  1. It is possible to obtain a reasoned judgment enforceable in Court for much lower cost than using Court proceedings.
  2. The scheme can work with the pre action protocol claim and response letters as submissions from the parties.
  3. The PNBA  (Professional Negligence Bar Association) have appointed a panel of 5 adjudicators for the pilot, all with many years of experience in this type of claim on standard terms of business and cost.
  4. The scheme itself is designed as a precedent which can be adapted by agreement for individual cases – adaptations agreed will be useful in assessing the feedback.
  5. Interlocutory points/preliminary issues could be adjudicated if a barrier to other forms of ADR like mediation and/or as a cheaper and quicker alternative to Court hearings.
  6. The meeting and process could be agreed as similar to mediations at similar cost.

The adjudication pilot is appropriate where the claimant seeks damages or compensation in a professional negligence claim with a financial value. The scheme and terms of business can be used or adapted for any case even if the parties do not wish to provide feedback or take part in the pilot. The pilot scheme details are being circulated to PNLA (Professional Negligence Lawyers Association), ABI (Association of British Insurers) and PNBA members.

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The introduction from Mr Justice Ramsey as approved by the Ministry of Justice provides the background. The Judge is looking for 3 pilot cases with feedback by June:

‘I am pleased to say that the Ministry of Justice have agreed to be involved in these discussions and to consider whether, as a result further steps might be taken to include adjudication of professional negligence claims as part of civil procedure or take other steps to introduce ways to minimise the costs and costs exposure of those who wish to bring professional negligence claims.’

Feedback is being administered on a neutral basis by Masood Ahmed of Leicester University in consultation with the Ministry of Justice

http://www2.le.ac.uk/departments/law/people/masood-ahmed

Limits to Adjudication

Adjudication is one of the many forms of alternative dispute resolution, such as mediation, arbitration, conciliation, negotiation, mini trial, expert determination etc.

Adjudication could have an important role to play.  It is derived from the statutory provisions which apply to construction contracts.  Adjudication allows a person with specialist knowledge in a particular field to provide a temporarily binding decision on the merits of a dispute within a short time and at minimum expense.

Experience has shown that, whilst parties can then seek to have a final determination of the dispute in the Courts, they often do not do so.  In the vast majority of  cases they accept the adjudication or use it as a means of settling the dispute.

In his introduction to the pilot scheme (which is also monitored by the Ministry of Justice) Mr Justice Ramsay explains that some practitioners consider that adjudication is particularly appropriate in resolving disputes in professional negligence cases where, without some independent decision on the merits, the parties may not be able to resolve their dispute.  The fact that the decision is temporarily binding means that the parties are not finally bound by the decision, but clearly a decision by a specialist adjudicator has to be given great importance in deciding whether to seek a finally binding decision in litigation through the Civil Courts.

The aim of the pilot scheme is that it shall run until 3 cases have been adjudicated, and the relevant feedback has been analysed.  The Ministry of Justice is to be involved in the subsequent review and to consider whether, as a result further steps might be taken to include adjudication of professional negligence claims as part of civil procedure accross the board, or to consider other ways to minimise the costs and costs exposure of potential claimants in professional negligence disputes.

If the scheme proves to be popular, and as a potential route to reduce costs and delay, other claimants and parties are likely to be interested in participating in adjudication of professional negligence claims, outside of the pilot scheme.

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Arbitration: Pros & Cons

 

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Why Arbitrate?

1              The aim of this briefing is to identify the relative advantages and disadvantages of Arbitration as a means of dispute resolution. Arbitration is, justifiably, an increasingly popular method of dealing with disputes, but arbitration is not ideally suited to every situation. This note compares the main features of arbitration with litigation and ADR,  and pinpoints key issues in deciding the most appropriate dispute resolution forum.

2              Typically, the question of whether or not to arbitrate arises at two key stages:

  • When negotiating a contract. The parties may decide to include in their agreement an arbitration clause to cover disputes that arise in the future. Inevitably, the arbitration clause is one of the last terms to be agreed, and there may be a temptation to rush matters to get the deal finalised. Given the far-reaching consequences of agreeing, or failing to agree, an arbitration clause, this temptation is best resisted. It is vital that the pros and cons of arbitration are given proper consideration at the time of contracting.
  • When a dispute has arisen. The decision at this stage is, in one sense, easier because the features of the particular dispute, and its suitability for arbitration, will be clearer. However, it may be more difficult to conclude an agreement to arbitrate if one party has an interest in delaying matters, or perceives a tactical disadvantage in arbitrating.

3              If the parties do decide to enter an arbitration agreement, it is important that it is carefully drafted; further advise as necessary should be taken on individual circumstances.

Arbitration compared with litigation

4              Arbitration can have several advantages over litigation. However, it is important that each perceived advantage is examined carefully in each particular case to assess its weight.

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Enforcement

5              Ease of enforcement is probably the most important factor in favour of arbitration. The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) provides an extensive enforcement regime for international arbitration awards. There is no real equivalent for enforcement of court judgments.

6              If you opt for arbitration principally because of the advantageous enforcement regime, it is important to ensure that you draft the agreement with this in mind. This will usually involve ensuring that the arbitration agreement is in a form that will be recognised as valid in both the seat of the arbitration and the country of enforcement.

Certainty

7              Like a choice of court clause, a well-drafted arbitration agreement introduces a welcome degree of certainty with regard to the forum for resolving disputes. This is particularly attractive where there is a cross-border element to the dispute: the need to consider, or take advice on, the complex rules of private international law governing jurisdiction can be entirely sidestepped.

8              In litigation, disputes over jurisdiction can be expensive and (once appeals are factored in) extremely time-consuming. By contrast, a carefully drafted arbitration agreement should minimise the chances of jurisdictional disputes. Furthermore, if the parties agree to institutional arbitration, or agree that a certain set of rules will apply to their arbitration, this will also ensure a degree of procedural certainty and predictability (By simply referring to the applicable arbitration rules, the parties can inform themselves of what steps they need to take, and when.

9              Of course, disputes relating to jurisdiction and procedure can and do arise in arbitration just as in litigation. But the chances of such disputes can be eliminated or minimised by carefully drafting the arbitration agreement.

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Flexibility

10           A significant advantage of arbitration is the ability to tailor procedures to the needs of a particular dispute. There is great scope for the adoption of innovative, effective and efficient procedures. For example:

  • The parties are generally free to agree a suitable procedure, and are able to influence the procedure much more than is possible in court proceedings.
  • Similarly, the tribunal will give directions that are fine-tuned to the particular dispute so as to ensure its speedy and efficient determination.

Expertise

11           The parties in an arbitration can choose their tribunal. For example, where a dispute raises technical or scientific issues of fact, the parties can choose a tribunal with the relevant technical expertise. Similarly, where a dispute turns on a point of law, they can appoint a lawyer or lawyers. Choosing wisely can save time and money.

Privacy

12           Litigation is rarely private. For example, in England, court trials are usually open to members of the public. The mere fact that a party is involved in English court litigation can be ascertained by a search of publicly available information, and most judgments are publicly available. More importantly, non-parties are permitted to obtain copies of any statements of case, judgments or orders in English litigation (unless the court makes a special order to the contrary – see CPR 5.4C).

13           The relative privacy of arbitration is an attractive feature to many commercial parties. Arbitration hearings are usually held in private, and the fact that a party is involved in arbitral proceedings is not usually in the public domain. Furthermore, English law has also recognised an implied duty of confidentiality which prevents the disclosure to third parties of most documents produced or disclosed in an arbitration, including the statements of case and award. This is in stark contrast to court proceedings.

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14           Note, however, that the precise scope of the duty of confidentiality, and the exceptions to it, may be a matter of argument. If privacy and confidentiality is a particularly important factor consider including an express confidentiality clause in your arbitration agreement.

Neutrality

15           Another important feature of arbitration is the ability of the parties to refer their disputes to a neutral forum. This factor is likely to be particularly important to commercial parties, wary of referring disputes to the “home” courts of their contracting partner. The consensual nature of arbitration means that the parties can ensure that the composition of the tribunal, as well as the seat of the arbitration and the location of any hearing, are neutral. By their choice of the arbitral seat, the parties can also ensure that their arbitration is subject to modern, effective and supportive arbitration law.

Cost

16           Although arbitration is often perceived as being cheaper than litigation, this is not always the case. The parties must pay the tribunal plus any administrative costs (for example, room hire), which may represent a relatively substantial outlay when compared with the cost of court proceedings. The parties must also undertake the practical arrangements and organisation for any hearing.

17           To a large extent, the relative cost of arbitral proceedings depends upon the attitudes of the parties and the tribunal. An experienced tribunal and co-operative parties will often be able to devise procedures that minimise costs. By contrast, where arbitration is conducted as if it were court litigation, or where the tribunal unthinkingly applies the procedure set out in institutional rules without any attempt to modify them, costs can escalate. Do not assume that arbitration necessarily equals cheaper.

 

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Delays

18           Again, this perceived advantage of arbitration is one that needs to be assessed carefully. It is true that, compared with lead times to trial in court, arbitration often represents a speedy method of dispute resolution. However, if the parties opt for a three-man tribunal consisting of three busy and popular arbitrators, there may be a substantial delay before any hearing can be accommodated. Also, because arbitrators’ powers of coercion are much more limited than the courts’, there is greater opportunity for deliberate delays and breaches of procedural deadlines.

19           This works the other way, too: if your chosen strategy is to delay the “day of judgment” for as long as possible, then arbitration may be your best option. It is probably fair to say that institutional arbitration offers the greatest safeguards against delays.

Finality

20           A court judgment will very frequently be subject to appeal(s). By contrast, the opportunities for appealing or otherwise challenging an arbitration award are very much more limited. This is frequently perceived as an advantage to the parties – though, of course, this is questionable if the arbitrator determines a dispute wrongly.

Predictability

21           Although national arbitration laws vary to some extent, there is a significant degree of harmonisation. Many countries have adopted the UNCITRAL Model Law; others (like England, Wales and Northern Ireland) have arbitration laws based upon its provisions. There is, therefore, a degree of certainty and predictability with regard to arbitration law that may not apply to the procedural law of national courts.

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When is litigation preferable to arbitration?

22           Notwithstanding the factors identified above, there are certain situations in which litigation will usually be preferable to arbitration. The following analysis focuses primarily on litigation in the English courts: the position may be different if you are seeking to compare arbitration with litigation in a foreign court, in which case advice from a competent foreign lawyer is advisable).

Multiparty disputes

23           The right to arbitrate derives from the arbitration agreement. There is, therefore, no power to join third parties unless all the parties, and the third party, agree. Although joinder may well result in overall savings in costs, parties will often refuse to agree to it for obvious tactical reasons. This means that in multiparty situations, arbitration can be a cumbersome and inconvenient procedure, which carries a risk of inconsistent findings and which may prejudice the chances of settlement.

24           For similar reasons, arbitration cannot easily accommodate class action litigation. ( Note, however, that class arbitration is recognised in the US (though subject to certain restrictions).

Recalcitrant parties

25           Arbitral tribunals’ coercive powers are much more limited than that of a court. Although national courts can sometimes intervene to enforce arbitrators’ procedural orders, delays are still a more distinct possibility in arbitration than in litigation. Some institutions have taken steps to deal with this, but deliberate delaying tactics may be more difficult to combat in arbitration than in litigation.

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Summary determination

26           In principle an arbitral tribunal can determine claims and defences summarily. However, in practice they may be less willing than a court to do so. For example, English courts tend to be robust in disposing of meritless claims or defences on a summary basis. An arbitral tribunal is less likely to adopt such an approach. Therefore, if your claims are simple, involving only one defendant, and are indisputably due, you may prefer to issue court proceedings and apply for summary judgment.

No precedent

27           An arbitration award is for most purposes confidential to the parties. Furthermore, although persuasive, it does not give rise to any binding precedent or res judicata vis a vis other parties. Where, therefore, a final and generally binding ruling on the meaning of a standard form contract is required, litigation in court will be preferable.

Irrelevant evidence

28           The tribunal or parties may decide whether or not to apply the strict rules of evidence. If they decide not to, there is a greater chance of the introduction of prejudicial or irrelevant material. However, this is not usually a problem in practice.

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Arbitration compared with ADR

29           The term “ADR” encompasses so many and varied procedures that it is difficult to generalise about its relative advantages and disadvantages. For present purposes, the following general points may be stated.

 

30           ADR (in particular mediation) enables the parties to reach solutions that are not based on a “win/lose” paradigm, and that promote continuing relationships. As such, ADR may save time and costs by cutting through the legal or technical rights and wrongs, and focusing upon the solution. The flexibility and goal-oriented nature of ADR will be attractive to many parties.

31           However, unless the parties reach a settlement, ADR will not give rise to any binding judgment or award. Parties may withdraw from ADR before reaching any settlement, or the ADR may conclude without any settlement being reached, giving rise in such cases to wasted costs. Furthermore, and by contrast with arbitration, there is at present no statutory regime in support of ADR. Parties who are not comfortable with this relative lack of structure may prefer to arbitrate or litigate, or possibly to adopt two-tiered or hybrid procedures.