Daughter cut out of will loses to animal Charities

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Supreme Court landmark decision:

The long awaited judgment in the saga of Ilott v Mitson & Ors[i] is a landmark decision by the Supreme Court. The result overturns the previous Court of Appeal judgment, which itself had caused shockwaves. It appeared to give almost no weight to the clearly expressed views of the late Mrs Jackson who did not want her only child, Mrs Illott to benefit from her £500,000 estate. Instead, she left everything to the animal charities. In a decision that will attract considerable attention, the Supreme Court has largely upheld the wishes of Mrs Jackson, and made serious criticisms as to the confused state of the present law, which led to such prolonged proceedings.

Background

In 2004, Mrs Melita Jackson died leaving a Will giving most of her £500,000 estate to Animal Charities. She had one daughter, Heather Illott. They had been estranged for 26 years. Heather had left home aged 17 to live with her boyfriend. Mrs Jackson disapproved. Mrs Jackson had left a detailed letter for her executors, explaining her decision to exclude Heather from her Will and that she had made it clear to Heather that she would receive anything under the will.

By the time of the latest hearing, Heather was in her 50’s and her husband had been made redundant. They were in receipt of benefits of around £13,000 a year, and their annual income totalled £4,665. The Court of Appeal said Mrs Jackson had been “…unreasonable, capricious and harsh.”

The Court of Appeal Decision

Mrs Illott was awarded £143,000 to buy the rented home she lived in. A further £20,000 was granted as ‘additional income’. This was a substantial increase beyond the £50,000 granted on an earlier hearing by a District Judge. She succeeded on her application for an award for maintenance under the Inheritance (Provision for Family and Dependants) Act 1975 (“IPFD”). The Court of Appeal stated that it was applying the law as set out in the statute, including considering all relevant factors under s.3, such as:

  • Financial resources and needs of claimant;
  • Financial resources and needs of any other claimant;
  • Financial resources and needs of beneficiaries;
  • Obligations and responsibilities of deceased towards claimants and beneficiaries;
  • Size and nature of estate;
  • Disabilities of claimants and beneficiaries;
  • Any other matter

Supreme Court Judgment

The Supreme Court highlighted errors in the approach by the Court of Appeal. Their order was set aside and the District Judge’s order restored.

Lady Hale in her judgment reviews the history of the Act and preceding legislation. She comments on the unsatisfactory state of the law, giving as it does no guidance as to the weight of the factors to be taken into account in deciding whether an adult child is deserving or undeserving of reasonable maintenance. The approach under the Act invariably involves a value judgment, which may be problematic as there is a wide range of opinion among the public and the judiciary about the circumstances in which adult descendants ought or ought not to be able to make a claim on an estate which would otherwise go elsewhere.

For an applicant other than a spouse or partner, reasonable financial provision is limited to what it would be reasonable for her to receive for maintenance only. This is an objective standard, to be determined by the court. The limitation to maintenance provision represents a deliberate legislative choice and demonstrates the significance attached by English law to testamentary freedom. Maintenance cannot extend to any or everything which it would be desirable for the claimant to have, but is not limited to subsistence level. The level at which maintenance may be provided is clearly flexible and falls to be assessed on the facts of each case, as at the date of hearing.

Although maintenance is by definition the provision of income rather than capital, it may be provided by way of a lump sum. As to the first suggested error, the process suggested by the Court of Appeal is not warranted by the Act. The Act does not require the judge to fix some hypothetical standard of reasonable provision and then increase or discount it with reference to variable factors. All of the s.3 factors, so far as they are relevant, must be considered, and in light of them a single assessment of reasonable financial provision should be made.

The District Judge worked through each of the s.3 factors, and was entitled to take into account the nature of the relationship between Mrs Jackson and Mrs Ilott in reaching his conclusion. As to the second suggested error, the District Judge specifically addressed the impact on benefits twice. The Court of Appeal’s criticism that his award was of little or no value to Mrs Ilott was unjustified.

Reasonable financial provision can in principle include the provision of housing, but ordinarily by creating a life interest rather than a capital and inheritable sum, which possibility appeared not to have been considered by the Court of Appeal.

To the extent that the benefits means test was relevant, it was likely to apply also to the additional sum of £20,000 apparently awarded with a view to avoiding that test. The statement in the Court of Appeal that a claimant in receipt of benefits should be treated in the same way as a disabled claimant was problematic; what must have been meant was that receipt of means tested benefits is likely to be a relevant indication of a claimant’s financial position. Finally, the Court of Appeal’s order gave little weight to Mrs Jackson’s very clear wishes and the long period of estrangement. The Court of Appeal’s justification for this approach was that the charities had little expectation of benefit either.

Lady Hale said this approach should be treated with caution, given the importance of testamentary bequests for charities, and because the testator’s chosen beneficiaries, whether relatives, charities or otherwise, do not need to justify their claim either by need or by expectation.

COMMENT

Media comment had seized on the Court of Appeal decision, fearing that people’s wishes in their Will are not being followed. The Supreme Court judgment should now reassure those concerned that the courts were unduly interfering in the wishes of testators about who should inherit. The judgment provides more clarity for those involved who may object to a decision made by a relative to exclude them from the Will and also for those, executors and beneficiaries alike, involved in issues concerning “reasonable financial provision” when a challenge to a Will is being considered.

The Court has to decide whether the Will makes

“reasonable financial provision”

according to IPFD, for the adult child of the deceased. The trial judge is not exercising a discretion in reaching a decision, but making a value judgment based on an assessment of the statutory provisions which have to be taken in to account. It is solely the Act which sets out the factors for the exercise of the court’s decision.

  • Based on this judgment, people are still entitled to cut their children out of their Will if they wish. However, there will have to be good reason shown. How and why they are making other provision needs to be explained, and what their connection is to any particular charity to which they wish to leave their estate.

In view of the Supreme Court’s guidance on IPFD:

  • The upshot is likely to be that adult children who have been excluded may now be less encouraged than suggested by the Court of Appeal decision to dispute a Will by arguing that they have not been left reasonable financial provision.
  • The Court will still take in to account any accompanying letter of wishes. If anything, these may now be more important than before, and this case can be seen in the context of its own particular and quite unusual circumstances.

 


[i] https://www.supremecourt.uk/cases/docs/uksc-2015-0203-judgment.pdf

This piece has previously appeared at http://social.luptonfawcett.com/blog/daughter-cut-out-will-loses-animal-charities

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Supreme Court: Malicious Claims Actionable – What do you think?

Does this Landmark Decision “open the floodgates” to claims from aggrieved parties?

5:4 Decision – What would you decide? (Vote at the end)

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A 9 Member panel of the Supreme Court decided 5:4 that the tort of malicious prosecution extends to civil proceedings. The Supreme Court usually sits with a panel of 5, and more rarely, 7.  The “Brexit” decision of 24 January 2017 involving a full 11 member panel is thought to have been unique. That 9 members heard this case demonstrates its high importance.

It is also an extreme illustration of assets and liabilities, specifically legal proceedings, surviving the death of a principal party.

Willers v Joyce and another (in substitution for and in their capacity as executors of Albert Gubay (deceased)) [2016] UKSC 43 and [2016] UKSC 44.

Background

Mr Willers and Mr Gubay were business associates for over 20 years. Mr Willers was a director of Langstone Leisure Ltd, a company controlled by Mr Gubay. They fell out in 2009.

Mr Willers was sued by Langstone Leisure Ltd for alleged breaches of contractual and fiduciary duties when he was a director of the company. He defended the action and issued a third-party claim for an indemnity from Mr Gubay, on the basis that he had acted under Mr Gubay’s direction. Langstone discontinued its claim against Mr Willers shortly before trial.

Mr Willers brought proceedings against Mr Gubay for the malicious prosecution of the Langstone claim against him, contending that it had been part of a campaign to damage to his reputation, health and earnings. Mr Gubay’s defence was that there was no cause of action recognised in England &Wales for malicious prosecution of a civil suit (in contrast to criminal proceedings, where it is well established).

Precedent

Mr Willers’ claim was struck out. The Judge held that she was bound by the doctrine of precedent to follow a decision of the House of Lords in Gregory v Portsmouth City Council [2000] which reiterated that the tort of malicious prosecution did not extend to civil proceedings.

However, due to a recent conflicting decision of the justices sitting in their different capacity as members of the Judicial Committee of the Privy Council (JCPC) in an appeal from the Cayman Islands (Crawford Adjusters (Cayman) Ltd v Sagicor General Insurance (Cayman) Ltd [2014]), Mr Willers was granted leave to appeal to the Supreme Court.

The High Court granted a leapfrog certificate so the scope of the tort of malicious prosecution could be resolved definitively, bypassing the Court of Appeal. As well as dealing with that issue, the court also addressed the status of Privy Council decisions in the doctrine of precedent.

The Supreme Court decision

The Supreme Court allowed Mr Willers’ appeal which can now go to trial, and held that the tort does apply to civil proceedings.

The dissenting minority of justices did not find sufficient support in historical case law, arguing that recognising the tort would be inconsistent with longstanding rules of law, and expressing concerns that the decision could spawn undesirable satellite litigation.

However, the majority held that it seemed instinctively unjust for a person who has suffered injury as a result of the malicious prosecution of civil proceedings against him to be left with no redress. Addressing the concerns about ‘satellite litigation’, the majority emphasised that to establish a claim for malicious prosecution of civil proceedings it must be proved that the original proceedings were not a bona fide use of the court’s process, e.g. where proceedings were wholly without foundation or where the party sought some extraneous benefit to which he had no right. This means that the claimant has a heavy burden to discharge, and as such successful claims are likely to be rare.

“Simple justice” dictated that Mr W’s claim for malicious prosecution should be sustainable in English law.

Lord Toulson gave the lead judgment, Lady Hale, Lord Kerr and Lord Wilson agreed. Lord Clarke delivered a concurring judgment. Lords Neuberger, Mance, Sumption and Reed dissented.

Broadly, the court approached the appeal by looking both at whether the historic cases supported the existence of a general tort of malicious prosecution and also at the policy considerations for and against permitting claims of this type. The majority recognized that the authorities stretching back to the 17th century were not conclusive, but they did show that the courts were willing to develop the tort to achieve justice in situations where a person has suffered injury as a result of the malicious use of legal process without any reasonable basis.

The minority’s conclusion however was that the tort had never applied in civil proceedings as such and the House of Lords had taken a firm stand against an extension to civil proceedings in Gregory. They were also unpersuaded that there was any general need to extend the tort as it would, in their view, create uncertainty, further anomalies and the potential undesirable practical consequences.

The policy arguments

  • Lord Toulson found the statement in Savile v Roberts (1698 12 Mod Rep 208) that

…if this injury be occasioned by a malicious prosecution, it is reason and justice that he should have an action to repair him the injury…”

to be obvious and compelling. He found that it would be instinctively unjust for there to be no recourse for a person who suffers injury as a result of malicious prosecution of civil proceedings.

  • The tort would not discourage those with valid claims
  • There is no evidence that the existing risk of indemnity costs faced by claimants pursuing improper claims has deterred the pursuit of legitimate claims
  • There is a public interest in avoiding unnecessary satellite litigation, but malicious prosecution isn’t a collateral attack on the outcome of the first proceedings
  • There might be an attack where, for example, the judge in the original proceedings refused to award indemnity costs, the malicious prosecution claim being an indirect means of challenging the judge’s refusal to penalise the claimant’s conduct
  • There is no duty of care between litigants, but a liability for maliciously instituting proceedings without reasonable or probable cause is “simple justice”
  • Anyone seeking to establish such a claim would have a heavy burden to discharge

The test to be applied

The court held that, to establish a claim for malicious prosecution, the claimant would have to prove: Proceedings had been brought against it without reasonable and probable cause. The party that brought those proceedings did so maliciously.

Guidance.

The first limb will be satisfied where the claimant does not have a proper case to put before the court; if the claimant did not believe its claim would succeed. On the second limb, a claim will be malicious if the claimant had deliberately misused the process of the court. This includes cases where it can be shown that the underlying claim was brought in the knowledge that it had no foundation: the proceedings were not a bona fide use of the court’s process.

Privy Council

The case is also of constitutional importance in deciding the extent to which Privy Council decisions made by a board formed solely of serving Supreme Court Justices and based on English law interpretation was legal precedence in England and Wales.

It was confirmed unanimously that a court should not normally follow a decision of the Privy Council if it is inconsistent with the decision of another court which would otherwise be binding on it. However, this should be subject to an exception. In an appeal to the Privy Council involving an issue of English law on which a previous decision of the House of Lords, Supreme Court or Court of Appeal is challenged, the members of the Privy Council can, if they think it appropriate, not only decide that the previous decision is wrong, but can also expressly direct that domestic courts should treat their decision as representing the law of England and Wales. This was considered expedient bearing in mind that the Privy Council panel normally consists of the same judges as the Supreme Court. This should increase the value of Privy Council judgments on English law.

Landmark Decision

The decision means that any claimant bringing unfounded proceedings for malicious reasons now faces additional potential sanctions (being sued for damages for Malicious Prosecution) on top of the usual costs and other risks. While this is a landmark decision, the issue before the court was whether this type of claim was sustainable in principle, do there has been no specific award as yet.

  • It is suggested that the decision is an overdue recognition that where there is a wrong, as a matter of principle and policy, it would be unjust to leave the claimant without a remedy for the damage caused.
  • An anomalous contradiction between civil and criminal and law has been resolved and a gap in the law filled.
  • The specifics of Malicious Prosecution, its precise boundaries, causation and the types of loss that can be recovered will be the subject of developing case law.
  • It remains to be seen how far the tort will evolve, although it is likely that successful claims will be rare, and there will be no “opening of the floodgates”.
  • There is already a tort of “abuse of process” (the abuse of civil proceedings for a predominant purpose other than that for which they were designed). The tort is rarely invoked.
  • Distinct from the tort, “abuse of process” is also a ground for striking out a claim under CPR 3.4(2)(b).
  • There already exist related torts offering protection from malicious prosecution, including defamation, malicious falsehood, conspiracy and misfeasance in public office.
  • Reflecting Lord Neuberger’s concern that it could have a chilling effect on the bringing, prosecuting or defending of civil proceedings, judges will take in to account the risk of defendants threatening malicious prosecution claims in order to deter genuine claimants.
  • The heavy burden of satisfying the test to establish a successful claim is referred to above, and emphasized in the judgment.

link to the judgment: http://bit.ly/2eFrgAl

A version of this piece was previously published September 2016 http://social.luptonfawcett.com/blog/supreme-court-malicious-claims-actionable

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BREXIT “To Do” List: Contracts & Disputes

Contract and Commercial Litigation Priorities

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Following the UK Supreme Court’s historic 8:3 ruling on 24 January  that an Act of Parliament is needed before Article 50 can be triggered –  what due diligence and risk analysis should businesses be undertaking now?


Practical steps to consider

1. Introduction

Triggering Article 50 needs Parliamentary approval rules the Supreme Court, but what does Brexit mean for you and your business?

How will your contracts and their enforceability be affected here and abroad?

The Supreme Court has upheld the High Court’s  decision that Parliamentary Sovereignty trumps the Government’s reliance on the Royal Prerogative, and Parliament should debate and decide before Article 50 is triggered. The Government says this won’t delay its timetable of serving the Article 50 notice under the Lisbon Treaty by March 2017.

Whatever the precise timetable, the withdrawal of the UK from the EU is likely to take some years, but businesses need to be fine tuning their plans now. Until the shape of a post-Brexit agreement is fixed, the precise legal implications are yet to crystallize. But, the UK’s departure will impact on fundamentals for your business like contracts, terms & conditions and potential disputes. Areas to explore from a dispute management perspective include

  • Corporate and commercial contracts
  • Competition law
  • Governing law and jurisdiction
  • Issue and service of English proceedings in the EU
  • Enforcement of English and EU judgments

2. Risk Analysis

How can you ensure your business stays ahead? Whilst some detailed plans can be left until there is greater certainty about post Brexit arrangements, considering the legal implications should be at the forefront of your strategy. A risk analysis should be implemented to ensure businesses get their ducks in a row and identify the effect Brexit will have on their rights and obligations under existing and proposed new contracts and regarding potential litigation.

As each business is different, the process should be targeted to your needs.

Below we highlight typical practical points which businesses should be addressing now, especially if you trade in the EU or have foreign customers, interests or suppliers.

3. Corporate and Commercial Contracts

Businesses should already be reviewing their existing contracts, particularly those likely to be in force at the point of Brexit. Where necessary, contractual terms and conditions intended for use from now on should be amended for when the UK ceases to be a EU Member State.

Many existing contracts and trading arrangements will be affected, referring to a range of EU laws, regulators and territories. A due diligence exercise should be carried out to identify the key contracts and consider their terms. The need for possible amendments and contingent steps should be considered.

  • Can the contract be varied to mitigate the impact of Brexit?
  • Where the contract price or payments under a contract are made or received in Sterling, Euros, Dollars or fixed to a particular exchange rate, consideration should be given as to whether the currency used is amended to reflect the recent drop in Sterling.
  • Does the governing law clause need amending?
  • Will Brexit result in a breach of contract?
  • Whilst unlikely, can force majeure or material adverse effect clauses be relied upon?
  • How can the contract be future-proofed?

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4. Existing Contracts

The impact of the UK leaving the EU may affect the operation of existing contracts, potentially beyond how the parties might expect. It is unlikely that they will have foreseen or planned for the implications when entering in to the contract.

Territorial scope. Does the contract include the EU as its territorial scope? On leaving the EU, the UK won’t be covered by that territorial description. Should the contract be amended, or can the contract be terminated by any party invoking a force majeure or material adverse change clause?

Reference to EU legislation. Analyze clauses referring to EU legislation, compliance and any changes. Contracts that refer to EU legislation may need to be amended to deal with the different circumstance.

Force majeure provisions. A force majeure clause may be drafted wide enough for a contract to be terminated. For example, if the contract depended on certain EU legislation (e.g. “passporting” under EU financial services legislation), the contract may be frustrated or force majeure might be triggered by Brexit.

Material adverse change provisions. Similarly, if a contract includes a “material adverse change” provision (MAC), this may permit termination of the contract, although this will depend on a number of factors.

These issues may well result in a dispute, and businesses should consider their existing agreements as to how they maybe impacted.

Shorter term contracts. These are less likely to be affected by the UK leaving the EU, due to the two-year negotiating window after Article 50 is triggered. This should give parties some time to consider how the terms of Brexit might affect their longer term contractual arrangements and to renegotiate where necessary.

5. New Contracts

Notwithstanding “Brexit means Brexit”, new contracts should address the impact of the UK’s departure from the EU, and provide accordingly in the contract so far as possible:

  • Do your contracts contain provisions which assume that the UK is an EU Member State? This may include references to the EU that are formulated on the assumption that this includes UK, or may be less obvious – e.g. references to rights or obligations arising from specific EU laws which currently apply to the UK.
  • Do your contracts rely on or assume the availability of free movement within the EU, or of any EU level consolidation (such as engaging an EU wide regulatory body)?
    • Prolonged Negotiations. Specific provisions could be considered on prolonged negotiations to implement the exit or the impact of new trade agreements once negotiated.
    • Termination rights. Consider whether to include termination rights in case the new trade agreements will result in an increased burden or negative effects on the intended business transaction.

Force majeure provisions

  • Expressly include or exclude the UK leaving the EU in or from any force majeure provision;
  • Consider termination rights when the UK leaves the EU (depending potentially on the terms Brexit ultimately takes); and/or
  • An alternative mechanism once the UK leaves the EU
  • Include notice terms and detailed explanation of the consequences of the right to terminate, and include justifiable Brexit definition and when it can be triggered.

Material adverse change provisions

Similarly to force majeure provisions, consider whether to include or exclude Brexit from the MAC definition. This depends on the outcome sought. Similar considerations will need to be given to how the Brexit definition is drafted and when it can be triggered. A business may wish to consider the inclusion of its own MAC clause, or even a bespoke Brexit clause. This could provide businesses with flexibility to respond to altered circumstances rather than being tied to expensive or inflexible terms. This would require heightened awareness on the part of businesses to work out the ramifications of such clauses, and to be prepared for counterparties seeking to include them also.

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6. Competition/Antitrust

  • EU law continues to apply in the UK. Substantive UK competition law mirrors EU competition law. As such, competition law continues to apply in the UK as it did before the referendum.
  • EU and UK antitrust/competition law has a significant impact on contracts and trading arrangements. Competition law compliance continues to be of prime importance. This will still apply post Brexit, but there will be changes.
  • Transitional provisions are likely for Brexit and the UK’s new trading arrangements with the EU. Businesses should be taking steps now to evaluate the impact of Brexit on competition law as it relates to them.
  • Private competition law litigation (including claims for injunctions and damages) has been increasing in the UK and Europe. It now represents a significant commercial weapon for businesses of whatever size.
  • Brexit raises significant commercial, legal and other issues for businesses. Whilst there may be understandable motives for wanting to discuss this with competitors in various forums, informally or formally, extreme caution should be employed. Confidential commercial information must remain confidential and businesses must avoid offending against anti competition laws. Discussions with competitors should be avoided until advice on competition law is first obtained.
  • As with other types of litigation, the impact of Brexit on competition litigation should be considered when planning strategy.

7. Litigation

Brexit may impact on litigation affecting your business, including current or prospective cases, such as where jurisdictional issues arise, or when it comes to enforcing a judgment post Brexit.

EU legislation governs parties’ choice of which EU member state’s courts has jurisdiction over disputes between them, and the cross-border recognition of judgments of EU member states’ courts.

The Court of Justice of the European Union (CJEU) is responsible for the rule of law within the EU. The UK’s right to appear in all cases and to appoint judges to the CJEU will no longer exist when Brexit is implemented. This should not be confused with the European Convention on Human Rights, its council and its court (the ECtHR), which are not affected by Brexit. The European Convention on Human Rights has been incorporated into UK law through the Human Rights Act, and the referendum of 23 June did not involve the UK leaving the Council of Europe either.

From the date Brexit takes effect, litigants will no longer be able to appeal cases to the CJEU and UK judges will no longer be required to follow CJEU decisions (although they may decide to do so), but they will continue to follow ECtHR decisions. Litigants are likely no longer to be able to challenge UK legislation on the basis of incompatibility with EU law alone. They would however retain the ability to mount such challenges to the ECtHR based on human rights issues.

In other respects, the court system in the UK is likely to remain unchanged, with the UK Supreme Court (formerly the House of Lords) as the final Court of Appeal.

Brexit is unlikely to affect the recognition and enforcement of judgments between the UK and EU member states, as the relevant countries are signatories to the Lugano and Brussels Conventions. However, these conventions are more limited than the Brussels Regulation, which currently governs jurisdictional issues between courts of EU member states.

Brexit may mean that the UK falls outside the scope of the Brussels Regulation which created a requirement of “judicial comity”. This means that courts relinquish cases if they are already being heard in another EU member state. Without this restriction, the English courts would be able to accept jurisdiction over more cases and, in appropriate cases, could provide anti-suit relief to restrain parties from pursuing proceedings in the courts of other EU member states. The reverse may unfortunately be propounded by the courts of different EU member states depending on how they view jurisdiction clauses. This would potentially result in considerable uncertainty.

8. Choice of Court

It is fundamental for businesses to be able to agree between themselves where and how any disputes between them should be resolved. This general freedom is subject to some obvious exceptions. The Recast Brussels Regulation sets out which courts of EU member states should have jurisdiction in disputes in civil and commercial matters, and provides for the mutual recognition and enforcement of civil and commercial judgments within the EU. The general rule is that the courts where the defendant is domiciled have jurisdiction. This is subject to a number of exceptions, including:

  • Where the parties have agreed that the courts of another member state should have jurisdiction
  • Agreements regarding the sale of land in a particular country where the domestic courts of a member state have exclusive jurisdiction
  • Contract protection for public policy reasons protecting “weaker” parties
  • Cases involving employment, consumer or insurance contracts

It is anticipated that whether the “Norwegian Model” or the World Trade Organization “WTO Model” is adopted, courts of EU member states will generally be obliged to recognise a choice of jurisdiction in favour of the English courts. However this remains uncertain.

In the absence of any international agreement with the EU, the English courts are still likely to respect provisions in contracts which confer jurisdiction by agreement on the English courts. How such clauses will be treated by EU member states will be a matter for the laws of those member states.

That would result in considerable uncertainty, depending on how jurisdiction clauses are viewed by the courts of different EU member states.

In some cases, the courts of a counterparty domiciled in another EU member state may be reluctant to cede jurisdiction to the English courts, even if that is what the parties agreed.

9. Parallel Proceedings

Parallel proceedings (i.e. where proceedings concerning the same subject matter are commenced in more than one country’s courts) are a risk in commercial disputes, particularly where the parties to a contract are based in different countries. Having to defend a dispute on multiple fronts can be time-consuming and costly.

Under current arrangements, if parallel proceedings are brought in the courts of more than one EU member state involving the same or related issues, in general, the courts of the member state first seized of the dispute decide the question of jurisdiction. One exception is that the courts of a member state that have jurisdiction under the terms of an exclusive jurisdiction clause can proceed to determine the question of their jurisdiction over the dispute in question, even if parallel proceedings are already under way in the courts of another EU member state. This greatly reduces the risk of parallel proceedings within the EU.

If the UK accedes to the 2007 Lugano Convention, this prohibition will remain, but the precedence given to the courts of the country that the parties have agreed should have jurisdiction will not apply.

That rule was introduced to the Brussels Regulation from the beginning of 2015 to resolve the so-called “Italian torpedo” problem.

This is whereby a party first issues proceedings in a country where the judicial process is relatively slow and complicated so as to delay proceedings, and tie disputes up in jurisdictional battles for years.

If the UK does not accede to the 2007 Lugano Convention, there will be no bar on parallel proceedings, provided that the courts in the countries in question are prepared to take jurisdiction over the dispute under their own rules of private international law. For example, at common law, the English courts can take jurisdiction over a dispute where the parties have agreed that the English courts should have non-exclusive jurisdiction and proceedings are pending in a different jurisdiction, on the basis that the parties must have contemplated the possibility of parallel proceedings by agreeing to a non-exclusive jurisdiction clause in the first place.

The English courts would also once again be able to issue anti-suit injunctions to prevent proceedings from being brought in other EU member states, something that they are not able to do at the moment because of the effect of the Recast Brussels Regulation (and its predecessors).

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10. Service

If the counterparty to a contract is in the jurisdiction (or has appointed an agent for service of process in the jurisdiction), it is quite straightforward to serve English court proceedings on them where a dispute arises. The position is more complex, time-consuming and expensive if proceedings have to be served abroad.

Normally under English law, the claimant commencing proceedings must apply to the court for “permission” to serve out of the jurisdiction. The claimant must persuade the English court at the start that it has jurisdiction over the matter. However, there is currently no need to apply for permission to serve out of the jurisdiction if service is to be effected in the EU, and the English courts have jurisdiction under the Recast Brussels Regulation. This provides a clear and relatively predictable basis on which proceedings can be served in the EU without permission. Similarly, EU Service Regulations also set out the procedure and mechanics of effecting service within the EU.

A similar exemption for the need to obtain permission to effect service also applies to service within the countries that are party to the 2007 Lugano Convention. However, if the UK were not to accede to the 2007 Lugano Convention when it leaves the EU, it is likely that it would become necessary again to apply for permission to serve English court proceedings within the EU. This would increase the importance in any contract of having an EU based counterparty expressly appoint an agent for service of process in England if the parties have agreed to submit to the jurisdiction of the English courts.

If parties have chosen the English courts to hear their disputes and one or more of the parties is based abroad, it is always worthwhile including an agent for service clause in a contract.

11. Recognition and Enforcement of Judgments

The Brussels Regulation provides for a streamlined method of recognising and enforcing judgments in civil and commercial matters within the EU, and the 2007 Lugano Convention contains a similar regime for the states included. The bar for refusal of recognition is very high: including judgments contrary to public policy and judgments given in default in certain circumstances. As such, a business contracting with another party elsewhere in the EU can be reasonably confident of being able to

  • issue proceedings
  • serve the proceedings
  • enforce a judgment of the English courts against the counterparty in its home member state

In the absence of any international agreement on jurisdiction and enforcement, the enforceability of judgments of the English courts within the EU would depend on the laws of each member state. This would result in uncertainty. For example, an English company dealing with a French company would need to take French law advice as to the enforceability of English court judgments in France. Potential enforcement issues may hinder jurisdiction being conferred on the English courts by agreement. There is further uncertainty on judgments of English courts being recognised by courts of member states. Money judgments may be straightforward, but the same may not apply to claims for declarations, accounts and inquiries, specific performance, injunctions and interim relief.

The corollary is that the English courts would also no longer automatically recognise and enforce the judgments of the courts of EU member states.

This would be a concern for EU based businesses dealing with counterparties based in the UK. Potential difficulties with recognition and enforcement of judgments could affect decisions by businesses as to which courts they elect to have jurisdiction over their disputes. It could also influence how parties decide to pursue dispute resolution, whether via the courts or arbitration, considering the enforcement mechanisms for arbitral awards.

12. Planning Ahead

Whilst parties negotiating contracts now can plan ahead for in case a dispute arises (e..g. by appointing an agent for service of process, and thinking carefully about potential enforcement issues), the position is different for litigation that is currently either imminent or under way. It is difficult to see how possible changes to the rules on jurisdiction would affect proceedings being issued today, because such proceedings will need to be issued in accordance with the rules currently in place.

As explained above, developments during the negotiation period under the Article 50 process may have an impact on decisions on disputes that arise during the process, for example there may be a particular date by which it will be advantageous to commence proceedings. Alternatively it may become clear e.g. that the UK will accede to the 2007 Lugano Convention.

Regarding existing litigation, depending on the circumstances, the fact that the UK will be leaving the EU may buttress reasons to seek judgment as soon as possible, taking advantage of the present recognition and enforcement mechanism in the Recast Brussels Regulation.

The impact of Brexit may also be felt indirectly in future, such as on funding for current civil litigation projects in the UK. Funding for the proposed online court may be at risk, depending on economic factors.

13. Summary

As an EU member state, the UK is a party to a framework of EU legislation which sets out the rules that courts in EU member states will apply to decide the governing law of a contract and of tort (civil wrong) claims and their jurisdiction over disputes. This framework also provides the procedure for serving legal proceedings as between member states and the mechanism for enforcing a judgment from a court in one member state in other member states. This area is therefore likely to be directly affected by Brexit, although it remains to be seen to what extent. In the meantime,

businesses should strategically review their contracts and Terms and Conditions to see how and to what extent they can be Brexit proofed, and to analyse the threats and opportunities that arise.

Issues such as Intellectual Property, Employment Law and Data Protection are amongst further areas for consideration, outside the scope of this piece.

Updated from a previously published version 4. 11.16 http://bit.ly/2fpcBcb

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M&S’s Break Clause Dispute: wider contract implications

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See my blog on the Supreme Court’s recent decision:

http://www.luptonfawcett.com/blog/mandss-break-clause-dispute-broader-contract-implications/

  • Contract interpretation
  • Implied terms
  • Necessity
  • Break clauses

This updates last year’s wordpress piece:

https://jpaulsykes.com/2015/01/06/supreme-court-gives-ms-permission-to-appeal/

 

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Supreme Court gives M&S permission to appeal

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Break clause lease dispute: wider implications

In a long running saga, the Supreme Court has recently given Marks and Spencer permission to appeal a decision of the Court of Appeal[i]. The dispute relates to a lease between the parties which was terminated early under a break provision. There were earlier conflicting decisions of the High Court and the Court of Appeal as to whether M&S were entitled to a refund from their Landlord. The case is likely to have wider importance in view of differing legal interpretations on the importance of “necessity” in relation to terms that should be implied into a contract.

This extends beyond Landlord and Tenant law, and may touch any commercial or other contract. The Supreme Court (formerly the House of Lords) deals only with cases which:

“raise an arguable point of law of general public importance which ought to be considered by the Supreme Court at that time, bearing in mind that the matter will already have been the subject of judicial decision and may have already been reviewed on appeal”

 Background

In May 2014 the Court of Appeal held that M&S had no express right to a refund on the exercise of the break clause: any intention should have been set out in express terms if there was to be a refund. No such right could be implied into the contract without express provisions. M&S lost out on their claim for a refund of rent, insurance and car parking charges for the period after the break date. Before M&S could activate the break clause, they were obliged to pay the full quarter’s rent in advance.

The High Court had previously decided that because the break conditions required payment of a penalty by M&S, the parties could not have intended that the Landlord would be entitled to retain the excess rent in addition. Accordingly, the High Court found that there should be an implied term that the excess rent was in fact repayable. This was rejected by the Court of Appeal.

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Issue

The Court of Appeal followed the previous leading case, Attorney General of Belize v. Belize Telecom [2009] UKPC 10. The Privy Council found the test to decide whether a term should be implied as a fact (as opposed to law) into a contract was broadly:

 “Is that what the instrument, read as a whole against the relevant background, reasonably be understood to mean?”

So, in order to be implied, a term must be necessary to achieve the express intention of the parties in the context of the admissible background. The importance of the decision in early 2009 is clear from the fact that it was cited in eight other cases that year.

Next step

The Supreme Court is likely to be considering the extent of inconsistency as to interpretation of the word “necessary” across the board, and the meaning of the word itself in the context of the case. That the Supreme Court has granted permission to appeal suggests that it may be reviewing break conditions in particular, or undertaking a wider analysis of how terms are implied into leases and commercial contracts more generally in order to achieve a just outcome.

No date has yet been fixed for the appeal before the Supreme Court.

Implications

Although the decision will be awaited with interest, this is a timely reminder that, so as to avoid uncertainty and ambiguity, parties should

  • expressly set out their commercial intentions in the written contract
  • consider the likely outcome of events that are described in the contract or are otherwise predictable, and whether these are sufficiently provided for in the contract
  • obviously, leaving matters to chance and calling on the Court to intervene and imply terms much later leads to uncertainty and avoidable expense.

[i] Citation:

Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Limited and another [2014] EWCA Civ 603
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More Noise: Loser pays on CFA’s?

  Coventry v Lawrence (Part 2)

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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.

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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.

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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

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