Litigation and Arbitration: the top things you need to know January/February 2015

This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.

Substantive law

1. Importance of making a settlement offer "subject to contract"

Bieber and others v Teathers Limited (in liquidation) [2014] EWHC 4205 (Ch) suggests there is no reliable substitute for making a settlement offer "subject to contract" if you intend to elaborate on the terms of the settlement before reaching a binding agreement.

Here, the court held that a binding settlement was achieved by an exchange of emails between the parties' solicitors, without the need for a written settlement agreement. The fact that the parties anticipated negotiating further terms (for example, as to confidentiality) and documenting the terms of the settlement in a written agreement did not mean they had not already achieved a binding settlement. The judge referred in particular to the fact that the relevant settlement offer was not expressly made "subject to contract", and that it was "entirely unqualified" and stated to be in full and final settlement. He described this as being "inconsistent with the offer being made subject to the agreement of other terms and conditions".

2. Settlement of future claims

Brazier v News Group Newspapers Ltd [2015] EWHC 125 (Ch) raises a couple of interesting points about the settlement of future claims:

• Parties should not assume that defining the claims being compromised by reference to a specific court claim number will automatically exclude future claims from the settlement.
• In deciding whether a party intends to compromise future claims, a distinction needs to be made between the situation where the party is truly ignorant of future claims (they are "unknown unknowns") and where he is aware of the possibility of future claims, even if he does not know the full extent of them (they are "known unknowns"). The distinction is important because if the aim of the settlement is to prevent a party bringing any claim, even one of which he was unaware and could not have been aware at the time of entering into the settlement (an "unknown unknown"), the release clause needs to spell this out explicitly (see BCCI v Ali [2002] 1 AC 251).

The claimants in the case brought phone hacking claims against the defendant, which were settled. After further evidence of hacking came to light, the claimants issued fresh proceedings. The defendant applied for summary judgment on the new claims on the basis they had been compromised by the earlier settlement. The settlement agreement referred only to the specific claim numbers of the original hacking claims, with no mention of future claims. In order to determine whether the settlement agreement encompassed the new claims,Mann J carefully reviewed the pleadings in the original hacking claims. These were so broadly drafted as to amount to "all phone-hacking activities directed against [the claimants]". Mann J therefore concluded the original claims would have included the new ones, had the claimants known about them at the time.

The pleadings also indicated that the claimants expected further instances of phone hacking were likely to be revealed. This meant they were aware of their ignorance as to the possibility of future claims: they believed such claims existed, but were unaware of their scope - they were "known unknowns". BCCI v Ali could therefore be distinguished and the settlement agreement construed as compromising the claims made in the new proceedings, even though they were not identified explicitly. The court granted summary judgment for the defendant. The judgment is here.

3. Rule against penalties only applies to provisions triggered on breach of a duty owed to the other party

Edgeworth Capital (Luxembourg) S.A.R.L and another v Ramblas Investments B.V. [2015] EWHC 150 (Comm) was an application of the rule against penalties. The rule only applies to contractual provisions which are triggered on the breach of a duty owed to the other party (i.e. a duty owed by the party seeking relief from the rule against penalties to the party who is seeking to enforce the clause). Where a clause requiring payment may be triggered in a number of different circumstances, some of which may amount to a breach, while others do not, the court will consider as a question of fact what triggered the payment. If it is a breach of a duty owed to the other party, the rule against penalties will apply.

The more significant point lies in theobitercomments which the judge went on to make. Despite finding that the rule against penalties did not apply to a fee payable by a corporate borrower under an upside fee agreement, Hamblen J consideredobiterwhat the position would have been if the rule had applied. His comments highlight the importance, when determining whether a provision amounts to a penalty, of the commercial circumstances at the time the contract was entered into. Following the recent decision in El Makdessi v Cavendish Square Holdings BV and another [2013] EWCA Civ 1539, the question can no longer be regarded as simply that of whether an amount payable represents a "genuine pre-estimate of loss". Instead the court will look at the wider question of whether the predominant purpose of the relevant provision is to deter a party from breaching.

Here, even though Hamblen J considered the fee was not a genuine pre-estimate of loss for breach, he found it was not a penalty. The fee was commercially justifiable and its predominant purpose was not to deter breach. The judge referred in particular to the "challenging commercial circumstances" in which the financing agreements were concluded (during the credit crunch) and the fact that the financing was in effect a bridging loan, which amounted to a "clear commercial justification for a large fee being charged". The judgment is here.

4. Consequences of termination of contract for surreptitious dealing with an agent during performance

The Court of Appeal held,obiter, in Tigris International NC v China Southern Airlines Company Ltd and another [2014] EWCA Civ 1649 that where a party terminates a contract due to the other party's surreptitious dealings with his agent during performance, the contract is not void ab initio, and the innocent party (the agent's principal) cannot avoid it from inception. This contrasts with the situation where the surreptitious dealings occur at the time the contract is made: there, the contract is void ab initio (Panama and South Pacific Telegraph Co v India Gutta Percha Telephone Works Co [1875] 10 Ch App 515).

Where the surreptitious dealing occurs during performance, the innocent party is only able to accept the repudiatory breach for the future, and will remain liable for obligations which have accrued up to that point, including giving the other party credit for any right to damages which might have accrued. The judgment is here.

5. Conflicting dispute resolution clauses: which forum?

Problems can arise where parties enter into multiple agreements with conflicting dispute resolution clauses. In Fiona Trust & Holding Corp v Privalov [2007] UKHL 40, the court held that, when construing an arbitration clause, it can be assumed that the parties are likely to have intended any dispute arising out of their relationship to be decided by the same tribunal. This "one-stop" presumption applies unless the language of the provisions makes it clear that certain disputes are to be resolved in one forum, and other disputes to be resolved in another. The courts have applied this presumption of construction in a number of subsequent cases, most recently in Amtrust Europe Limited v Trust Risk Group S.p.A. [2014] EWHC 4169 and Monde Petroleum SA v Westernzagros Limited [2015] EWHC 67 (Comm).

In Amtrust, although the court acknowledged that the "one-stop" presumption carried considerable weight, it found that disputes between the parties should be dealt with in different fora. It was rational to apply different jurisdiction clauses in circumstances where the agreements containing them had been entered into by the parties at different times and dealt with separate subject matters.

By contrast, in Monde, the court found no reason to depart from the presumption. It held that the presumption is particularly strong where an agreement is entered into for the purpose of terminating an earlier contract or settling disputes which have arisen under such earlier contract. Where a settlement agreement contains a dispute resolution clause which is different from, and incompatible with, a dispute resolution clause in the earlier contract, the parties are likely to have intended the clause in the settlement agreement to supersede that in the earlier contract.

It is clear from these decisions that the "one-stop" presumption continues to be adopted by the courts, but that its application will yield differing results depending on the particular circumstances of the case. Following Monde, those drafting settlement agreements should in particular bear in mind the potential effect of an exclusive jurisdiction clause in the settlement agreement on exclusive jurisdiction clauses in prior contracts.

For more details, see Hannah Brown's article here. The judgment in Amtrust is here and the judgment in Monde is here.

Civil procedure

6. The Injunctions Blog

Olswang have launched a blog to report on the important and developing area of injunctions: http://theinjunctionsblog.com. We will post on the blog a report of every significant case concerning injunctions in England and Wales as well as reports of other legal developments in this area and similar news and developments from other jurisdictions around the world. Recent posts include:

• Whether deficiencies in evidence and material non-disclosure will lead to discharge of a freezing order: see here.
• Are privacy superinjunctions now obsolete? See here.
• The Competition Appeal Tribunal's power to grant injunctions: see here.
• The Court of Appeal expresses serious doubt as to whether injunctions granted in support of foreign proceedings should be "left in the air" once the highest court has made a determination in those proceedings: see here.

To accompany the launch of the blog, we have prepared a note identifying what we consider to be the top ten cases of 2014 concerning injunctions as they affect England and Wales. This note also considers - among other things - the application of injunctions in various practice areas where Olswang has particular expertise and the role injunctions play in France, Germany and Singapore, all jurisdictions where Olswang undertakes dispute resolution work. The note can be found here.

Readers who are interested can sign up for email alerts at http://theinjunctionsblog.com.

Current awareness

7. Significant increase to court fees expected on 9 March 2015

On 16 January, the Government announced it was going to proceed with plans to introduce increased issue fees for money claims over £10,000. This has been widely reported in the national media and has been met with widespread concern in the legal profession. The new fee will be calculated as 5% of the value of the claim, up to a maximum of £10,000 - which in claims valued at around the £200,000 mark will amount to a six-fold increase on the current fee. Issue fees for claims up to £10,000 will remain unchanged.

A draft statutory instrument setting out the new fees was approved by Parliament on 4 March, and it is now expected that the planned increase will take effect on 9 March.

See the articles on the proposals here and here.

8. Recoverability of success fees and after the event insurance premiums in insolvency proceedings

The Government has announced that the ability of a successful party to insolvency proceedings to recover a success fee and/or an after the event ("ATE") insurance premium from the losing party will be extended "for the time being" and not be abolished in April 2015 as previously indicated. The Government says it will "consider the appropriate way forward for insolvency proceedings" and set out further details later in 2015 (see the Ministerial statement here).

The information contained in this update is intended as a general review of the subjects featured and detailed specialist advice should always be taken before taking or refraining from taking any action.