I can’t see you, Clem Fandango

Video justice

In mid-March 2020, I was interviewed by Richard Crump of Law360 for an article about the potential impact of Covid-19 on court hearings. The courts were poised to move a significant proportion of hearings online, and I said: ‘It is very interesting, but also worrying, that we are suddenly going into a live experiment where there are concerns about the capacity of the courts and about fairness and open justice.

Since then, there has been an explosion in video hearings, and what has at times seemed a blizzard of practice notes and guidance – from the senior judiciary, from professional bodies[1]Including the Commercial Bar Association (COMBAR)’s excellent Guidance Note on Remote Hearings., and from others.[2]Such as the Inns of Court College of Advocacy’s Principles for Remote Advocacy.

Despite this abundance of advice, new issues continue to emerge.

In Navigator Equities Ltd v Deripaska [2020] EWHC 1798 (Comm), Andrew Baker J was hearing a contempt application remotely. The hearing took place over four days in June 2020, with live witness evidence. The judge said:[3]At paragraph 7.

I was slightly surprised to find when Mr Mill QC moved to call Ms Berard for her oral evidence that this was to be from the conference room at Blackstone Chambers from which Mr Mill was addressing me, his juniors also in attendance (or it may be they were elsewhere in Chambers). I had no reason to think that those in the room were not adopting proper social distancing precautions under current circumstances. My surprise lay not in that direction, but in the fact that the court had not been notified or asked to approve that arrangement, no attempt had been made to ensure there was a Bible available so that Ms Berard could be sworn as she would have preferred (but thankfully she was content to affirm instead), the words for her oath or affirmation were not to hand (although I did notice when drafting this judgment that they were tucked away at the end of the authorities volume of the electronic hearing bundle), the conference room setup meant that I could not have both Ms Berard and Mr Mill QC on screen, and no representative of Mr Deripaska was present.

After saying that he did not regard this as entirely satisfactory, the judge added:[4]At paragraph 9.

If a witness is to give evidence remotely, where he or she will be and who (if anyone) will be with them, and why, should be discussed between the parties in advance. That is always so, in my view, but especially it is so if the arrangement may be such that there could be interaction with the witness during their evidence that will not be visible to the court. Any arrangement other than that the witness will be on their own during their evidence should be approved by the court, in advance if possible, and parties should not assume that an arrangement will be approved just because (if it is) it is agreed between them. Sensible arrangements discussed and agreed in advance are likely to meet with approval if the court does not identify any difficulty of possible substance that the parties may have overlooked. But it must be for the court, not the parties, to control how it receives the evidence of witnesses called before it. I acknowledge that the parties were not asked by the court in advance to specify the witness arrangements here. They should have been, and that they were not is my responsibility, but equally parties should not wait to be asked.

Quasi-prosecutorial duties: contempt applications are not adversarial commercial litigation

The judgment also contains remarks of general importance about the quasi-prosecutorial duties of parties bringing contempt applications.[5]See paragraphs 141-145. This requires a different approach from the ‘modern style’ of dispute resolution which the judge said had developed ‘[i]n the working generation of 30 years or so’ during which he had been engaged in commercial dispute resolution in London and which he deprecated as overly hostile and aggressive. The judge said:[6]At paragraph 161.

In the working generation of 30 years or so during which I have been engaged in commercial dispute resolution in this jurisdiction, principally in this court and in London arbitrations, there has been a significant general increase in hostility and aggressiveness in the conduct of disputes. The taking of any and every point, good or bad, and other failures to display proper independence from the litigating client, is treated too often as if it were a normal or appropriate adjunct of well funded, hard fought, business disputes, particularly if there are issues of dishonesty involved. Where ultimately the court is asked only to decide the outcome of the business dispute, usually to be expressed in terms of a party or parties being told to pay money to another party or other parties, there may be nothing too unfair about that modern style, regrettable though I regard it nonetheless. But when the court is being asked by a private litigant to consider a charge of contempt of court against the other side, especially against an individual whose liberty the applicant therefore seeks to put at risk, a better standard of conduct is not merely desirable, it is essential to the fairness and the appearance of fairness of the process. Though I do not suppose that this is how the claimants’ legal team saw what they were doing, the appearance in this case was of claimants not seeking to put Mr Deripaska fairly on trial for contempt, but of claimants seeking to load the dice against him.

Alison Padfield QC

Notes

1 Including the Commercial Bar Association (COMBAR)’s excellent Guidance Note on Remote Hearings.
2 Such as the Inns of Court College of Advocacy’s Principles for Remote Advocacy.
3 At paragraph 7.
4 At paragraph 9.
5 See paragraphs 141-145.
6 At paragraph 161.

Commercial Court update – impact of COVID-19 on volume of business, remote & hybrid hearings, & more

The latest Commercial Court User Group meeting was held remotely via Microsoft Teams on 15 June 2020. The minutes of the User Group meeting have just been published. These show how the Commercial Court has adapted during the COVID-19 pandemic.

Here are the main points:

Impact of COVID-19 on volume of Commercial Court business

  • The transition from physical (in-person) to remote (video) hearings has been smooth, with almost all of the Court’s work being conducted notwithstanding COVID-19. There is as a result almost no backlog of work
  • There appears to have been no reduction in court business: there has been a slight upturn in actions commenced (269 in January to March 2019 and 288 this year); the statistics for hearings overall (this appears to exclude trials) are comparable to last year and the year before
  • There have been fewer trials in this period:
    • This appears to be due to settlement rather than adjournment
    • The normal settlement rate is 60 to 65%; in the year to mid-June 2020 it is closer to 75%
    • There have been three times the number of Tomlin orders between January and the end of May 2020 than over the comparable period last year
  • The increase in the rate of settlements began in January 2020 and does not therefore appear to have been triggered by ‘lockdown’ in the United Kingdom; it may be linked to COVID-19-related uncertainty globally, reflecting the international nature of the Court’s business

Remote hearings – present and future

  • Parties may request a socially-distanced physical hearing but there is no guarantee that they will get one. Some judges are unable to return to court due to COVID-19. Conversely, parties will not be expected to attend court if they do not want to
  • Hybrid (part physical, part remote) hearings have taken place with the support of external providers, and a protocol for hybrid hearings is being developed – covering issues such as staggered access times, access routes, witness bundles, managing oaths and affirmations, and the need for test runs
  • It would not generally be fair for one party to be in person and the other to appear remotely
  • The court is hearing witness actions remotely. The judges are alive to potential difficulties with longer trials, particularly where there is critical witness evidence or where there is complex expert evidence (eg where large complex documents have to be explained by experts)
  • Longer trials and hearings with key witness evidence are likely to be the first to return to physical hearings
  • Interim hearings are more likely to be carried out remotely for some time
  • Consideration is being given to whether to keep remote or even hybrid hearings as a default position or at least an often-used option for some types of hearing

Practical points arising from the conduct of remote hearings to date

  • There have been concerns that remote hearings are too informal
  • There seems to have been a loss of some of the non-verbal communication and information that is picked up in a court room
  • The style of advocacy is different as the judge and advocate seem to be in a ‘bubble’
  • Court etiquette should be observed:
    • It is permissible to use mobiles phones on silent in both physical and remote hearings
    • Most counsel are taking instructions via WhatsApp which on occasion can be distracting for those taking part in the hearing
    • Parties who do not have ‘speaking parts’ seem to be interacting more freely amongst themselves, which can be distracting for others
    • Advocates should not be conducting conversations with their teams while on mute
  • There have been one or two incidents where despite warnings participants have photographed proceedings
  • It appears that directions for bundles are being discussed and agreed between parties, causing costs to be raised. This should not be necessary in light of the available guidance. Court users should refer to:

Platforms for remote hearings – Skype for Business/CVP but no ban on Zoom

  • The only platform currently approved by the Ministry of Justice for use on judicial computers is Skype for Business
  • Cloud Video Platform (CVP) is being rolled out. Court users should presume that the default proceeding is that hearings will be conducted using Skype for Business until CVP is available
  • Parties can agree another platform if suitable arrangements can be made (eg for the judge to have access to a separate device running that platform)
  • If parties wish to use another platform, in depth preparations are required, and they should make the Listings office aware as soon as possible: there are always two judges on paper application duty who are able to deal with platform issues

Other aspects of Commercial Court business

Alison Padfield QC

The Commercial Court Report 2018-2019

As I wrote in a previous blog, the Commercial Court report for 2017-2018 was the first for some years. The 2018-2019 report has just been published and is described on the judiciary website as an ‘annual’ report, so it seems we can expect the trend of yearly reports to continue.

The report for 2018-2019 covers the period from October 2018 through to the end of September 2019.[1]The court year begins on 1 October or the first working day thereafter.

Judges[2]Pages 6 and 22 to 23.

There are currently 12 Queen’s Bench Division judges nominated to sit in the Commercial Court.

At the start of October 2019 the judges of the Commercial Court were Teare J (Judge in Charge of the Commercial Court), and Andrew Baker, Bryan, Butcher, Carr, Cockerill, Jacobs, Robin Knowles, Moulder, Phillips, Picken, Popplewell and Waksman JJ.

Since the last report, Males and Phillips LJJ have been promoted to the Court of Appeal and Popplewell and Carr JJ will soon follow, and Walker J has retired.[3]As an aside: the retirements of Lords Clarke, Mance and Sumption left the Supreme Court without any Commercial Court expertise (Lord Sumption sat as a deputy), but Lord Hamblen, a former Commercial Court judge, has since been promoted from the Court of Appeal, and Lord Burrows, who sat as a deputy, has also been appointed.

The Court aims to have about eight judges sitting at any one time but this has not always been possible in recent years because all Divisions of the High Court are currently operating below strength.[4]This is due to a recruitment crisis: https://www.lawgazette.co.uk/practice/hiring-crisis-high-court-judges-in-line-for-47k/5070502.article; https://www.theguardian.com/uk-news/2019/jun/05/uk-high-court-judges-to-be-given-25-pay-rise-to-tackle-hiring-crisis.

The report says that the Commercial Court will gain some new recruits during the course of the year 2019 to 2020. Two new judges have in fact already been nominated to sit in the Commercial Court: Henshaw and Foxton JJ.

Deputy judges are used for applications and trials to ensure that targets for lead times can be maintained. Deputies will only be used either when the parties agree that the matter may be dealt with by a deputy, or when the Judge in Charge of the Commercial Court considers it suitable for the matter to be dealt with by a deputy.

Arbitration[5]Page 7.

There were four hearings of jurisdictional challenges under s 67 of the Arbitration Act 1996. A significant drop in s 69 applications[6]Appeal on a point of law under s 69 of the Arbitration Act 1996. from 87 to 39 was overshadowed by a dramatic fall in s 68 applications[7]Challenges on grounds of serious irregularity under s 68 of the Arbitration Act 1996. from 71 to 19. The Court hopes that this statistic reflects the fact that parties are appreciating the point made repeatedly by the Court in its judgments that the hurdle for s 68 applications is very high.

Disclosure pilot[8]Pages 16 to 17.

The two-year disclosure pilot was launched on 1 January 2019. It is anticipated that it will continue formally thereafter if it is deemed a success. The Court anticipates that 2020 will be key for getting feedback and encourages users to keep submitting this.

In the first six months of the pilot across the Business and Property Courts, in cases where a single model order was made, 53% were for Model C. Where multiple orders were made, 42% were for Model C and the rest either Model B or Model D. In the Commercial Court, 80% of cases opted for Model C.

The report says that in larger cases the disclosure pilot has led to a greater focus on narrowing the scope of disclosure, but that there is a concern that in lower value claims the process is increasing costs. This issue is being actively considered. Overall, there appears to be a need to be vigilant about not over-complicating the process, respecting the express duty of co-operation, and making sure that judges and lawyers alike keep hearing lengths under control.

The report says that there have been concerns about ‘game-playing’ with parties taking tactical positions on the completion of the Disclosure Review Document, and that encouragement to adopt a co-operative approach remains important. [9]Practitioners should take the hint, as Vos LJ, the Chancellor of the High Court, made clear at para 54 of his recent judgment on the disclosure pilot in McParland & Partners Ltd v Whitehead [2020] EWHC 298 (Ch): ‘It is clear that some parties to litigation in all areas of the Business and Property Courts have sought to use the Disclosure Pilot as a stick with which to beat their opponents. Such conduct is entirely unacceptable, and parties can expect to be met with immediately payable adverse costs orders if that is what has happened. No advantage can be gained by being difficult about the agreement of Issues for Disclosure or of a DRD, and I would expect judges at all levels to be astute to call out any parties that fail properly to cooperate as the Disclosure Pilot requires. Very few parties have taken the opportunity for disclosure guidance hearings, and parties are encouraged to think about this option.

Witness statements[10]Pages 18 to 19.

The remit of the Working Group established by the Commercial Court Users’ Committee to consider witness statements, chaired by Popplewell LJ, evolved to cover all of the jurisdictions in the Rolls Building. The final report completed in July 2019 was considered by the Business and Property Courts Board at the end of November 2019. The Board welcomed the report and endorsed in principle its main recommendations, as follows:

  • An authoritative statement of best practice should be formulated for the preparation of witness statements, with a harmonisation of the Guidesfor the Commercial Court, Chancery Division and Technology and Construction Court.
  • There should be a more developed factual witness statement of truth confirming that the objective of a witness statement and proper drafting practices have been explained to and understood by the witness, and a solicitor’s certificate of compliance to be signed if there are solicitors on record for the party serving the statement.[11]Witness statements are also receiving attention in other quarters: From 6 April 2020, a witness statement must state ‘the process by which it has been prepared, for example, face-to-face, over the telephone, and/or through an interpreter’: PD32, para 18(5), as amended by the 113th update to the CPR. See Gordon Exall’s Civil Litigation Brief blog for information on other forthcoming changes to statements of truth.
  • Oral examination in chief on particular issues or topics should be given active consideration at Case Management Conferences.
  • In the Commercial Court, page limit extensions should generally only be considered retrospectively at Pre-Trial Reviews, at the costs risk of the party serving if a required extension is not granted so that a statement has to be re-drafted and re-served.
  • Judges should be more ready, at PTRs or after trials, to apply costs sanctions or express judicial criticism where there has been non-compliance or bad practice.
  • Consideration should be given within each Business and Property Courts jurisdiction to the possibility of introducing a pre-trial statement of facts prepared by the legal team and served at the same time as witness statements, to serve as the main vehicle for setting out parties’ detailed factual narrative case, derived primarily from the contemporaneous documents, removing the temptation to use witness statements as a vehicle for doing that[12]For the current arrangements for introducing documents into evidence at trial, see the Commercial Court Guide, paras J8.6 and J8.7. and enabling them to be properly limited to any particular points on which factual witness testimony at trial may really add something.

The report says that the Working Group will oversee the work that will now commence towards implementing those recommendations. Andrew Baker J is taking over as chair of the Working Group following Popplewell LJ’s elevation to the Court of Appeal and the detailed initial work may be undertaken by one or more smaller groups reporting to the full Working Group.

Alison Padfield QC

Notes

1 The court year begins on 1 October or the first working day thereafter.
2 Pages 6 and 22 to 23.
3 As an aside: the retirements of Lords Clarke, Mance and Sumption left the Supreme Court without any Commercial Court expertise (Lord Sumption sat as a deputy), but Lord Hamblen, a former Commercial Court judge, has since been promoted from the Court of Appeal, and Lord Burrows, who sat as a deputy, has also been appointed.
4 This is due to a recruitment crisis: https://www.lawgazette.co.uk/practice/hiring-crisis-high-court-judges-in-line-for-47k/5070502.article; https://www.theguardian.com/uk-news/2019/jun/05/uk-high-court-judges-to-be-given-25-pay-rise-to-tackle-hiring-crisis.
5 Page 7.
6 Appeal on a point of law under s 69 of the Arbitration Act 1996.
7 Challenges on grounds of serious irregularity under s 68 of the Arbitration Act 1996.
8 Pages 16 to 17.
9 Practitioners should take the hint, as Vos LJ, the Chancellor of the High Court, made clear at para 54 of his recent judgment on the disclosure pilot in McParland & Partners Ltd v Whitehead [2020] EWHC 298 (Ch): ‘It is clear that some parties to litigation in all areas of the Business and Property Courts have sought to use the Disclosure Pilot as a stick with which to beat their opponents. Such conduct is entirely unacceptable, and parties can expect to be met with immediately payable adverse costs orders if that is what has happened. No advantage can be gained by being difficult about the agreement of Issues for Disclosure or of a DRD, and I would expect judges at all levels to be astute to call out any parties that fail properly to cooperate as the Disclosure Pilot requires.
10 Pages 18 to 19.
11 Witness statements are also receiving attention in other quarters: From 6 April 2020, a witness statement must state ‘the process by which it has been prepared, for example, face-to-face, over the telephone, and/or through an interpreter’: PD32, para 18(5), as amended by the 113th update to the CPR. See Gordon Exall’s Civil Litigation Brief blog for information on other forthcoming changes to statements of truth.
12 For the current arrangements for introducing documents into evidence at trial, see the Commercial Court Guide, paras J8.6 and J8.7.

The changing face of the Commercial Court

Update

This post was published on 30 June 2019. On 16 July 2019, the appointment of five new judges to the Court of Appeal was announced. This includes three Commercial Court judges: Carr, Phillips and Popplewell JJ.

The Commercial Court recently published its first annual report for some years. Given the pressure on court staff due to the chronic underfunding of the English and Welsh court system – from which the Commercial Court is not immune[1] – it seems likely that the decision to recommence publication of annual reports now is part of the ongoing drive to attract business to the Commercial Court in an increasingly competitive international market.

The Commercial Court Report 2017-2018 reveals changes in the Court’s constitution and its business. Here are a few interesting snippets:

The constitution of the Commercial Court

At the time of publication,[2] the judges of the Commercial Court were Teare J (Judge in Charge of the Commercial Court), Andrew Baker, Bryan, Butcher, Carr, Cockerill, Jacobs, Robin Knowles, Males,[3] Moulder, Phillips, Picken,[4] Popplewell, Waksman and Walker JJ.[5] This means – although the Report does not comment on this – that there are now, for the first time ever, three female Commercial Court judges, and one Commercial Court judge who is a former solicitor.

Recently retired judges who are still authorised to sit in the Court include Sir William Blair, Sir Ross Cranston, Sir Michael Burton and Sir Andrew Smith. The London Circuit Commercial Court Judge (from 1 July 2019, this will be HHJ Pelling QC[6]) and a number of specialist commercial Queen’s Counsel are also authorised to sit as deputy judges in the Court. Deputies are used only when the parties agree, or when the Judge in Charge of the Commercial Court consider that this is appropriate.

Commercial Court judges, as judges of the Queen’s Bench Division, sit on circuit hearing criminal trials for part of the year.[7] They may also hear cases in the general Queen’s Bench list, the Administrative Court and the Court of Criminal Appeal.

Commercial Court business

The balance of work has changed since the last report was published: international insurance and reinsurance disputes, together with shipping disputes, previously dominated the Court’s time. These remain among the larger categories of business, but now alongside commercial fraud, actions arising out of commercial sale and purchase agreements, and claims relating to banking, financial services and securities transactions. ‘Now the Court sees many more banking and financial services disputes than it used to, and disputes (based either in contract or tort) between high net worth individuals from around the world now provide a considerable share of the Court’s business.[8]

Seventy per cent of cases were international.[9] About a quarter of the claim issued related to arbitration: challenges to awards, applications for injunctions or for enforcement of awards, and other applications including for the appointment of an arbitrator.

Eight hundred and sixty-four claim forms were issued in the Commercial Court[10] in 2017-2018 (slightly down on 2016-2017, when 888 claim forms were issued). There were 57 trials (up from 51 in 2016-2017). The settlement rate was 60%. About half of the trials were under a week in length, 30% were one to two weeks, 16% were three to four weeks, and 5% were over four weeks. The largest claim was for US$3bn and there were over a dozen claims worth over £100m. In addition, many arbitration claims concerned awards for extremely substantial sums, sometimes into the billions of pounds.

The workload of the Financial List, established in 2015, remains at about 15 cases a year – apparently in line with predictions.

Alison Padfield QC

  1. The impact of this on the Court features obliquely in the Report’s introduction. This thanks the Court staff for their ‘very hard work and unfailing help’, which ‘has always been given unstintingly and without complaint, despite the pressure and difficult circumstances under which the Court staff have had to work’ (Report, page 5).
  2. On 27 February 2019.
  3. Males J has since moved to the Court of Appeal.
  4. Since January 2018, Picken J has also been the Presiding Judge of the Wales Circuit.
  5. Report, page 6.
  6. See https://www.judiciary.uk/announcements/specialist-circuit-judge-judge-in-charge-of-the-london-commercial-court-pelling-qc/ (accessed 30 June 2019).
  7. An interesting point of distinction between the Commercial Court, as part of the Queen’s Bench Division (of the High Court) and the Chancery Division (of the High Court), whose 15 judges do not go out on circuit to sit in criminal trials.
  8. Report, page 7.
  9. Report, page 9: ‘A domestic case is one in which the subject matter of the disputes between the parties’ concern property or events situated in the United Kingdom and the parties are UK based relative to the dispute. For these purposes a party is “UK based relative to the dispute” if the part of its business which is relevant to the dispute is carried on in the UK, irrespective of whether it is incorporated, resident or registered overseas. All other cases are “international cases.”
  10. This excludes the Admiralty Court, for which separate figures are kept (see the Report at page 12 for details).

The Third Parties (Rights Against Insurers) Acts (again)

Regulations have just been passed to plug the latest legislative gap inadvertently opened up by the Third Parties (Rights Against Insurers) Act 2010. I have previously written about the need to plug earlier gaps, and the resulting delay in the 2010 Act coming into effect (here, and here).

The Regulations are the Third Parties (Rights Against Insurers) Act 2010 (Consequential Amendment of Companies Act 2006) Regulations 2018.

One of the problems with the Third Parties (Rights Against Insurers) Act 1930, and one of the reasons for reform, was that where the insured defendant is a company which has been struck off the register, a claimant has to restore it to the register for the purpose of obtaining judgment against it. This is because, without judgment against the insured company on liability and quantum, no claim can be made against the company’s liability insurers under the 1930 Act.[1] For cases to which the 1930 Act still applies[2], which include many long-tail disease cases, the company must still be restored to the register; but for cases to which the 2010 Act applies, it is no longer necessary to do this.

In removing a procedural hurdle for claimants, the 2010 Act created a problem for liability insurers. Now, under the 2010 Act, a liability insurer may have to pay an indemnity on behalf of an insured company without the claimant having restored that company to the register. And if a company has not been restored to the register, its insurers cannot exercise their right of subrogation – by bringing a claim in the name of the defunct company – to recover from a third party damages they have paid to the claimant.

It is open to the insurers themselves to apply to court[3] to restore the company to the register – but unlike an application by a claimant in a personal injury claim, to which no time limit applies[4], insurers may apply to restore a company to the register only if it has been dissolved in the previous six years[5].

The 2018 Regulations address this by amending s 1030(1) of the Companies Act 2006. The effect of the amendment is to allow 2010 Act insurers to apply ‘at any time’ to restore a company to the register in order to bring a subrogated claim in respect of the company’s liability for damages for personal injury.[6]

The regulations were made on 2 November 2018. They come into force later this month.[7]

Alison Padfield QC

  1. See Post Office v Norwich Union Fire Insurance Society Ltd [1967] 2 QB 363, CA; Bradley v Eagle Star Insurance Co Ltd [1989] AC 957, HL.
  2. See Redman v Zurich Insurance plc [2017] EWHC 1919 (QB), [2018] 1 WLR 280.
  3. See s 1029 of the Companies Act 2006.
  4. There was a time limit, but this was removed in 1989 following the decision in Bradley v Eagle Star Insurance Co Ltd in the House of Lords: see ss 651 and 653 of the Companies Act 1985, as originally enacted and as amended.
  5. See s 1030(4) of the Companies Act 2006.
  6. The 2018 Regulations are made under s 19(8)(a) and (9) of the 2010 Act.
  7. On the 21st day after the day on which they were made: see reg 1.

No limits? Non-party costs against insurers

The jurisdiction to make a costs order against a non-party was first recognised in 1986.[1] There is now a wealth of guidance on non-party costs, including well-developed principles in relation to insurers, although the appellate courts continue to emphasise that this is an exercise of discretion, and that these are guidelines, ‘not… a rule-book[2]. This means that, as new factual scenarios arise such as the PIP breast implant litigation[3], the boundaries of non-party costs orders against insurers continue to be tested.

Basic ingredients

The basic ingredients for a non-party costs application are that:

  • An insurer has funded litigation
  • The litigation has been lost and an adverse costs order has been made against the insured
  • The insured is unable to pay the costs

Jurisdiction

The jurisdiction to make an order for costs against a non-party costs arises under s 51of the Senior Courts Act 1981. This provides that costs in civil proceedings are ‘in the discretion of the court’, and that the court shall have full power to determine by whom and to what extent the costs are to be paid.[4]

‘Exceptional’

Balcombe LJ said in Symphony Group plc v Hodgson[5] that an order for payment of costs by a non-party will always be ‘exceptional’, but this is liable to mislead in the context of applications for non-party costs orders against insurers. As Phillips LJ said in T G A Chapman Ltd v Christopher[6] in relation to liability insurers, it must be rare for litigation to be funded, controlled and directed by a third party motivated entirely by its own interests, and although this is not extraordinary in the context of the insurance industry, that is not the test. The test is whether these features are extraordinary in the context of the entire range of litigation which come before the courts – and Phillips LJ said that he had no doubt that they were.

Solely or predominantly

Phillips LJ referred in Chapman v Christopher to a third party motivated ‘entirely’ by its own interests, reflecting the facts of that case. But in most cases, a liability insurer can credibly say that it is acting at least partly in the interests of its insured, and in Cormack v Excess Insurance Co Ltd[7], the Court of Appeal made clear that that is not sufficient to prevent a non-party costs order being made. In Cormack v Excess, Auld LJ referred[8] to what Sir Wilfrid Greene MR said in Groom v Crocker[9] about insurers being entitled to decide how to conduct the litigation provided that they did so in what they bona fide – in good faith – considered to be the common interest of themselves and their insured, and said that it might be sufficient for a finding of exceptionality that an insurer’s self-interest, though not its exclusive motivation (or effect) in its conduct of litigation, predominated over that of the insured to such an extent and in such circumstances that it strayed beyond this.

Auld LJ said that it was relevant to ask whether the insurer, when its insured was approaching or at risk of exceeding the limit of his indemnity cover, behaved solely in its own interest as if it were the defendant to the proceedings. It is important to recognise that, as Auld LJ said, this issue is distinct from the question of the reasonableness or justification of a tactical decision in litigation, such as whether to pursue or maintain a defence to an action. Once the defence has failed and an application for non-party costs is being considered, those are irrelevant considerations.

‘The’ real party or ‘a’ real party

The non-party need not be ‘the’ real party to the litigation; it is enough that they be ‘a’ real party. In Dymocks Franchise Systems (NSW) Pty Ltd v Todd[10], Lord Brown said[11]:

Where, however, the non-party not merely funds the proceedings but substantially also controls or at any rate is to benefit from them, justice will ordinarily require that, if the proceedings fail, he will pay the successful party’s costs. The non-party in these cases is not so much facilitating access to justice by the party funded as himself gaining access to justice for his own purposes. He himself is “the real party” to the litigation… Consistently with this approach, Phillips LJ described the non-party underwriters in T G A Chapman Ltd v Christopher… as “the defendants in all but name”. Nor, indeed, is it necessary that the non-party be “the only real party” to the litigation…, provided that he is “a real party in … very important and critical respects”’.

Liability insurance

Liability insurers invariably fund and take over the defence of the proceedings, and benefit from them, but something more than this is required for a finding on an application for non-party costs that the non-party liability insurer has not merely funded the proceedings, but substantially also controlled or at any rate was to benefit from them so that it is appropriate for an order to be made.

(1) Controlling the litigation

In Citibank NA v Excess Insurance Co Ltd[12], Thomas J said[13] that there were two aspects to the conduct of litigation:

  • First, obtaining information to draft the defence, instructing an expert, considering the statements of case, disclosure of documents, preparing witness statements, providing information to counsel, etc.
  • Secondly, the giving and receiving of advice and the taking of the decisions as to whether to defend the case through to trial or to attempt to settle the litigation.

Thomas J said that although the involvement of the actual defendant in the first of these activities was a factor, ‘the decisive factor as to who has the conduct of litigation must be the control and direction exercised through the giving and receiving of advice and the taking of the decisions’.

(2) Benefitting from the litigation

Where a defence is run sensibly and reasonably for the benefit of both the insured and insurers, and the court is unlikely to view the insurer as benefiting from the litigation to the extent required for a non-party costs order, and is unlikely to exercise its discretion to make an order in that situation. Simply benefiting from the litigation is not enough: this is why the issue of whether insurers have allowed their interests to predominate over that of the insured is so important in this context. Consider for example the facts of two of the cases referred to above:

  • Chapman v Christopher: The defendant, Mr Christopher, lived at home with his mother and had no assets. He did though have liability insurance with a limit of indemnity of £1m under his mother’s household insurance policy. The claimants’ warehouse and factory were extensively damaged in a fire which was caused by Mr Christopher’s negligence: he had thrown a lighted match which landed in an open tin of beeswax which immediately caught fire. The insurers were the defendants in all but name: by reason of the Third Parties Rights Against Insurers Act 1930, they were contingently liable to the claimants up to the policy limit of £1m. They took the decision to contest the litigation and subsequently conducted the defence, in an attempt to avoid or reduce their liability to the claimants. Phillips LJ described this as a ‘paradigm case for the exercise of the court’s discretion under s 51 to make a costs order against a non-party’.
  • Cormack v Excess: The insured were civil engineers with a reputation to protect, and the Court of Appeal accepted that the decision to defend was not taken entirely by the insurer, and that, until liability was determined, the proceedings were not defended solely for the benefit of the insurer. However, once liability was determined, and the judgment exceeded the limit of indemnity, the proceedings in relation to quantum were defended entirely for the benefit of the insurer. The insurer was ordered to pay the claimant’s costs of the quantum stage of the action.

(3) Conflict of interest

Where solicitors are on the record for the insured in proceedings, and are acting under a joint or dual retainer for the insured and for the liability insurer, it seems that a failure to recognise or deal appropriately with a conflict of interest, and as a result to allow the interests of the insurer to predominate over those of the insured, will strongly incline a court to exercise its discretion in favour of making a non-party costs order.

XYZ v Travelers

In XYZ v Travelers, the PIP breast implant litigation, the insured went into insolvent administration. A mixture of insured and uninsured claims were being pursued in group litigation, and the effect of the Group Litigation Order (‘GLO’) was that the more uninsured claims which were pursued, the lower the proportion which the insurer would have to contribute to the insured’s liability for common costs. The insured wanted to disclose to the claimants whose claims were uninsured that that was the case, but were advised by the legal team appointed by insurers not to do so. There was a conflict of interest, which no one recognised at the time. The Court of Appeal said that this was not decisive, but they did agree with the judge that a non-party costs order should be made.

(1) ‘Asymmetry’

One particular feature which made the case ‘exceptional’ was the ‘obvious asymmetry’ in insurers’ position: if the insured had succeeded on the preliminary issues then all claimants (whether insured or uninsured) would have been liable equally to contribute towards the insured’s costs which, ultimately, would have been to the insurer’s advantage; but failure on those very same issues meant that, unless a non-party costs order was made, insurers were ultimately liable for only approximately 32 per cent of the claimants’ costs. This asymmetry arose because of the terms of the GLO.

(2) Non-disclosure of the insurance position

In Cormack v Excess, Auld LJ said[14] that as there was no obligation in litigation to disclose the limit of indemnity, it was difficult to see why an insurer should be penalised in costs for not doing so, and that a court should be cautious before regarding a failure to disclose the extent of cover as sufficiently exceptional to justify the making of a non-party costs order. In Travelers v XYZ, while they based their decision on the asymmetry they identified between the position of the claimants and the insurers referred to above, the Court of Appeal identified a number of reasons why Auld LJ’s observation did not apply:[15]

  • It was not alleged in Cormack v Excess that the failure to disclose the cover limit had any causative effect on costs. In Travelers v XYZ, by contrast, the judge was satisfied that, if the lack of insurance had been disclosed, costs would not have been incurred.
  • The non-disclosure in Cormack v Excess was the cover limit. The non-disclosure in Travelers v XYZ was the non-existence of any insurance at all.
  • The policy itself and the pre-action protocols in Travelers v XYZ required any response to a letter of claim to include details of the insurance policy.

Underlying and linking all these points seems to be a single factor, which is that the claims, both insured and uninsured, were subject to a GLO:

  • The GLO gave rise to the asymmetry in relation to the recoverability of costs
  • The GLO gave rise to the conflict of interest between insurers and the insured about the desirability of disclosing the fact that some of the claims were uninsured, and in turn to the flawed advice given to the insured by the legal team not to disclose that fact
  • The GLO formed the basis for Thirlwall J’s case management decision[16] that the insured should provide her with information about its insurance position
  • The GLO resulted in the common issues of both insured and uninsured claims being tried together, so that the insurers were funding the costs of defending all the claims, including the uninsured claims

Against this background, although the information about the insurance position provided to the judge was not disclosed to the parties, the Court of Appeal said that it must have been obvious to the insured and to insurers that the perception of the uninsured claimants was that all of the underlying claims were insured.[17] In these circumstances, it is unsurprising that the Court of Appeal decided that ‘on balance’ the flawed advice given by the legal team appointed by insurers in relation to the disclosure of the insurance position was relevant to the insurers’ liability for costs, although not decisive, and that it was not unjust for the insurers to bear some responsibility for the advice given under the joint retainer[18].

BTE insurance

The same principles apply in relation to before the event (‘BTE’) legal expenses insurers as to liability insurers. Unlike liability insurers, BTE insurers will not usually control the proceedings, or have an interest in the result of the litigation save insofar as it affects their liability to pay costs. They are therefore not generally balancing their interests with those of the insured, and will not usually be exposed to a risk of a non-party costs order.[19]

ATE insurance

After the event (‘ATE’) legal expenses insurance has features which are distinct from BTE insurance: ATE insurers decide which cases to insure after the cause of action has arisen, and the recoverability of the policy premium may depend on the outcome of the litigation.

In Herridge v Parker[20], Mr Recorder James Thom QC, sitting as a judge of the County Court, held[21] that ATE insurance was in the public interest as it facilitated access to justice and that, by analogy with the case-law in relation to solicitors acting under conditional fee agreements, an ATE insurer would not be ordered to pay costs as a non-party simply by virtue of issuing a policy which was insufficient, either because the policy was avoided, or because the limit of indemnity was exceeded.

The judge also observed that an ATE insurer who chose to prolong the proceedings for the purposes of seeking to negotiate a favourable exit might well be acting in a sufficiently self-interested way to become a ‘real party’. In those circumstances, a non-party costs order might be made against the insurer in respect of the additional costs. The same logic would apply if a BTE insurer acted in this way.

Subrogated claims

Where insurers have funded a subrogated recovery, they will usually pay the costs if the action is unsuccessful. But if they do not, an application for a non-party costs order may be made against them, and the same principles applied as on an application against liability insurers. ‘What has been sauce for the goose would have been sauce for the gander’, as Phillips LJ said in Chapman v Christopher, in which although the focus was on the position of the liability insurers who had funded the unsuccessful defence, both parties were ‘litigants in name only’, as the claim itself was brought by underwriters exercising subrogated rights.

Alison Padfield QC

  1. In Aiden Shipping Co Ltd v Interbulk [1986] AC 965, HL.
  2. Petromec Inc v Petroleo Brasileiro SA Petrobras [2006] EWCA Civ 1038, para 10 (Laws LJ); Travelers Insurance Co Ltd v XYZ [2018] EWCA Civ 1099, para 30 (Lewison LJ; Patten LJ agreeing).
  3. Travelers Insurance Co Ltd v XYZ [2018] EWCA Civ 1099.
  4. Section 51(1) and (3).
  5. Symphony Group plc v Hodgson [1994] QB 179, CA.
  6. [1998] 1 WLR 12, CA.
  7. [2002] Lloyd’s Rep IR 398, CA.
  8. At 406, cols 1 to 2.
  9. [1939] 1 KB 194, CA.
  10. [2004] UKPC 39, [2004] 1 WLR 2807.
  11. At para 25.
  12. [1999] Lloyd’s Rep IR 122.
  13. At 133, col 1.
  14. At 406, col 2.
  15. At para 44 (Lewison LJ; Patten LJ agreeing).
  16. XYZ v Various [2013] EWHC 3643 (QB).
  17. At para 42 (Lewison LJ; Patten LJ agreeing).
  18. At para 45 (Lewison LJ; Patten LJ agreeing).
  19. See Murphy v Young & Co’s Brewery [1997] 1 WLR 1591, CA.
  20. [2014] Lloyd’s Rep IR 177.
  21. At paras 89-96.

BILA lecture – No limits? Non-party costs orders against insurers

On 20 July 2018, I will be giving a lecture to the British Insurance Law Association on non-party costs orders against insurers. These orders can be made under s 51(3) of the Senior Courts Act 1981.

In the lecture, I will be explaining and discussing:

  • The courts’ jurisdiction to make costs orders against non-parties under s 51(3)
  • Situations where liability or legal expenses insurers may be at risk of non-party costs
  • The impact of policy limits
  • Non-party costs and the Third Parties (Rights Against Insurers) Acts 1930 and 2010
  • The insurer’s conduct and the incurring of costs
  • Recent case-law including:
    • Travelers v XYZ [2018] EWCA Civ 1099 (liability insurers)
    • Herridge v Parker & Allianz [2014] Lloyd’s Rep IR 177 (legal expenses insurers)

Do come along if you can. After I’ve given the lecture, I’ll write a blog post on this topic.

[***Update: the blog is now here.***]

Alison Padfield QC

What’s the latest in the Commercial Court? Oral evidence in chief (possibly) and more

The report of the March 2018 meeting of the Commercial Court Users’ Group has just been published.[1]

In short:

Preparations for the disclosure pilot continue, with a likely start date of the end of 2018 or start of 2019. A new working party will consider the use of witness statements in the Commercial Court and whether, for example, there should be provision for some (limited) examination in chief on key issues. Practitioners should be aware of the Court’s Practice Direction on Electronic filing of applications to be dealt with without a hearing issued on 1 February 2018. Statistics suggest the number of cases issued is fairly stable. In arbitration claims, appeals on a point of law under s 69 of the Arbitration Act 1996 and challenges to the award on grounds of serious irregularity under s 68 rarely succeed.

In more detail:

(1) Practice and procedure

Key points of interest to Commercial Court practitioners:

Disclosure review:

The consultation has been completed and the Rules Committee will consider the results in April/May 2018.

The proposal is for a two-year pilot in the Business and Property Courts in London and on Circuit. There will be an opportunity for feedback and ongoing monitoring and development: the aim is that the proposals will be shaped and fine-tuned during a ‘living’ pilot.

The start date for the pilot is the end of 2018 or start of 2019.

Witness statements vs oral examination in chief:

A new working party is to be put together, with representatives from different interest groups, to consider the use of witness statements in the Commercial Court and possible improvements, such as whether there should be provision for some limited examination in chief, and whether this should be addressed at the Case Management Conference, or would require consideration at the Pre-Trial Review. The proposal is not for not blanket oral examination in chief.

Popplewell J told the meeting that this issue was being raised because there was a fairly widespread feeling that in this area witness statements were not saving costs, let alone representing ‘best evidence’, in contrast with good evidence in chief which is compelling and often best evidence. It was also felt to be unfair on good witnesses that they put in a statement and then faced cross-examination without any opportunity to tell their story live.

Knowles J reminded the meeting that the parties could put forward imaginative solutions at the CMC, such as live examination in chief about a key meeting, and that this would provide a way of seeing what the system was already capable of and evaluating possible routes to reform.[2]

Other points of interest:

  • Electronic filing of applications to be dealt with without a hearing: Applications on CE file which do not comply with the Practice Direction on Electronic filing of applications to be dealt with without a hearing issued on 1 February 2018 will be rejected. Both the content of the Practice Direction, and its tone, make clear that judicial patience has run out: it concludes (the last sentence is in bold in the original): ‘The Judges and staff will no longer root around in the event log trying to find the relevant material, as they do at present. Non-compliant applications will simply be rejected.
  • Commercial Court Guide: A new hard copy is likely to be available in early summer.
  • Shorter and Flexible Trials Schemes: These are currently being reviewed with a view to making them permanent once the current pilot scheme expires in October.

(2) Statistics

The latest statistics suggest that the level of claims issued is fairly stable, at least by reference to recent years.

In arbitration claims, the statistics suggest that permission to appeal on a point of law under s 69 of the Arbitration Act 1996 is granted in a reasonable proportion of cases, but that appeals rarely succeed. Similarly, successful challenges to the award on grounds of serious irregularity under s 68 are rare (statistics for successful applications for permission under s 68 do not appear in the report).

Claims issued:

  • Arbitration:
    • Claims under s 69 of the Arbitration Act 1996 (appeal on point of law):
      • 2017 (to date): applications for permission: 10 of 56 granted; appeals: one successful
      • 2016: applications for permission: nil[3] of 46 granted; appeals: nil successful
      • 2015: applications for permission: 20 of 60 granted; appeals: four successful
    • Claims under s 68 of the Arbitration Act 1996 (challenging the award: serious irregularity):
      • 2017 (to date): 47 challenges; nil successful
      • 2016: 31 challenges; nil successful
      • 2015: 34 challenges; one successful
  • Commercial and Admiralty Court:
    • 2017: 987 cases issued[4]
    • 2016: 1003 cases issued
    • 2015 1090 cases issued[5]
  • London Circuit Commercial/Mercantile Court:
    • 2017: 203 cases issued
    • 2016: 180 cases issued
    • 2015: 209 cases issued[6]

Trials: 168 Admiralty and Commercial trials were listed in 2017. Fifty-eight of those took place, which represents a settlement/adjournment rate of 65%.

Applications:

  • 509 applications were listed for hearing in the Admiralty and Commercial Court in 2017, and 420 of those stood up.
  • 4,878 applications were dealt with by a judge on documents:
    • 4,646 Commercial
    • 124 Financial List
    • 108 Admiralty

Lead times:

Updated lead times are published on the Commercial Court website.

As at 13 March 2018, the date of the meeting:

  • Applications: half a day: April 2018; a day: June 2018
  • Trials: 1-2 days: September 2018; 2-3 days to a week: October 2018; longer hearings from January 2019 onwards.

Alison Padfield QC

  1. The meeting was on 13 March 2018.
  2. The current practice is set out at paragraph H1.6(b) of the Commercial Court Guide (10th Edition, 2017): ‘In an appropriate case the trial Judge may direct that the whole or any part of a witness’s evidence in chief is to be given orally. This course may be taken on the Judge’s own initiative or on application by a party. Notice of an application for such an order should be given as early as is reasonably convenient. It is usually reasonable for any such application to be made at a pre-trial review if one is held.’
  3. This is the figure stated in the report, although it seems low compared to both 2015 and 2017 to date.
  4. By way of comparison, in 2010, 1,100 claims were issued in the Commercial Court and 190 in the Admiralty Court; these figures were a decrease of 16% on 2009: see Judicial and Court Statistics 2010, pp 129-130.
  5. The report says that this figure reflects the spike that occurred before the April 2015 filing fee increase: in March 2015, there were three times the usual number of cases filed.
  6. See the previous footnote.

Expedition in the Commercial Court

There are words which have a meaning in the law which is different, and usually more prosaic, than their ordinary meaning. Expedition is one such word. An order granting expedition of a trial is of course nothing more than an order that it should take place sooner than it would if it were listed to come on for trial in the ordinary way.

The Commercial Court Guide[1] provides that the Commercial Court is able to provide an expedited trial in cases of sufficient urgency and importance,[2] and that a party seeking an expedited trial should apply to the Judge in Charge of the Commercial Court on notice to all parties at the earliest possible opportunity.[3] The application should normally be made after issue and service of the claim form but before service of particulars of claim.[4]

No further guidance is given. A summary of the relevant principles in a judgment of the Commercial Court is therefore welcome. In Apache Beryl I Ltd v Marathon Oil UK LCC[5], Males J heard an application in mid-August 2017 for an expedited trial to take place at the beginning of the next term, which was then in two months’ time or less, with a view to judgment being given, or at least a decision being given if possible, before 21 October 2017. The claimant’s position was that without a decision by 21 October 2017 as to its rights and obligations under an agreement with the defendant, it was likely to lose the benefit of a put and call option in which that was the longstop date.

Males J said that it was agreed between the parties that the decision whether to order expedition was discretionary, and that there were four factors to be taken into account:[6]

  • A threshold question of whether objectively there was urgency
  • The state of the Commercial Court list
  • The procedural history including delay by the applicant
  • Whether there would be any irremediable prejudice to the respondent

Of these, he said, the fourth factor – which might also be referred to as the good administration of justice or whether a fair trial was possible – was the most important.[7] Males J referred to the decision of the Court of Appeal in W L Gore & Associates GmbH v Geox SpA[8] for the principle that the Commercial Court seeks to assist commercial people in resolving their disputes, but does so in a way which is consistent with the interests of others and with justice and fairness, so that a critical matter in deciding to order expedition is whether a fair trial is possible.[9] If a fair trial is not possible, it necessarily follows that an unfair trial should not be ordered. On the other hand, if a fair trial is possible and there is a prospect that the court can accommodate it, the approach set out in Gore v Geox would strongly encourage the court to do so.[10]

Males J decided that a fair trial was possible and ordered an expedited trial starting on 16 October 2017, ie two months later. His assessment of the four factors inevitably depended on the facts of the case, but certain of his observations have wider relevance:

(1) The judge was willing to approach the application on the basis that it might but would not necessarily be necessary to stand out from the list another case which had been fixed for a considerable time. He recognised that if one of those trials was to be vacated, this would be at considerable expense to the parties in whatever case was selected, and that would no doubt leave them with a real and justified sense of having been unfairly treated.[11]

(2) The claimant had known about the longstop date of 21 October 2017 since December 2016, but sought expedition only in August 2017. Proceedings were started in mid-May but expedition was not sought at that stage as it could have been and should have been in accordance with the Commercial Court Guide. To some extent, the judge found, this was a deliberate, tactical decision by the claimant not to apply for expedition, although he also accepted that there was a hope that matters could be resolved by agreement and that it was only after a lengthy meeting on 31 July 2017 that it became apparent that this hope was to be disappointed.[12] The procedural history was therefore a factor against expedition, but not a decisive factor; it would be ‘disproportionately penal’ to refuse the application on this ground if it was otherwise appropriate to order expedition.[13]

(3) Particulars of Claim, a Defence and a Reply had been served together with various requests for information, and the defendants proposed to serve a Rejoinder. The judge said that the pleadings tended to make the dispute appear more complex than it really was, and that what was needed was a succinct and clear statement of each party’s position on the key issues.[14]

(4) Disclosure had not taken place, and the judge observed that this was case in which disclosure was likely to be limited – possibly to documents which each party relied on with scope for specific requests where necessary and possibly some disclosure on one particular issue which he identified.[15] There would be some factual and expert witness evidence, but this was likely to be limited.[16

(5) Urgent directions needed to be given, and the judge said that he would hold a case management conference the following day.[17]

Alison Padfield

  1. Admiralty and Commercial Courts Guide (10th Edition, last updated September 2017).
  2. Para J1.1.
  3. Para J1.2.
  4. Para J1.2.
  5. [2017] EWHC 2258 (Comm).
  6. Para 11.
  7. See paras 11-12 and 23.
  8. [2008] EWCA Civ 622.
  9. See paras 12-13.
  10. Para 23.
  11. Paras 19-20.
  12. Para 21.
  13. Para 22.
  14. Paras 26-27.
  15. Para 28.
  16. Para 28.
  17. Para 31.

A tale of two solicitors – a new twist on inadvertent disclosure of privileged documents

A recent decision of the Court of Appeal makes a good subject for a short, end-of-term post about the equitable discretion – now codified in CPR 31.20 – to restrain the use of a privileged document which has been disclosed in error.

In Atlantisrealm Ltd v Intelligent Land Investments (Renewable Energy) Ltd,[1] the Court of Appeal added a ‘modest gloss[2] to the principles it had formulated in Al Fayed v The Commissioner of Police for the Metropolis[3] and applied in Rawlinson & Hunter Trustees SA v Director of the Serious Fraud Office (No 2)[4] in relation to CPR 31.20. The gloss extended the principle from the solicitor who first reviewed disclosure, and who did not appreciate that a document had been disclosed in error, to his ‘more percipient’ colleague, who did. The Court of Appeal also rejected the suggestion that where the mistake as to disclosure is made by a very junior lawyer, that lawyer has to give evidence in order for the principle to apply.

CPR 31.20 provides: ‘Where a party inadvertently allows a privileged document to be inspected, the party who has inspected the document may use it or its contents only with the permission of the court’. In Atlantisrealm, a junior lawyer made a mistake in categorising an email, labelling it disclosable rather than either privileged or requiring review by Mr Cook, a more senior lawyer. The email was disclosed and subsequently inspected. Mr Fallon, a solicitor for the opposing party, Intelligent Land, reviewed the disclosure but did not spot the mistake. He then had a meeting with another solicitor for Intelligent Land, a Mr Newton.

The email was then sent to witnesses for comment, before Mr Newton sent an email to Mr Cook about arrangements for a settlement meeting, which concluded: ‘I don’t know if you have started your consideration of disclosure yet? The email below will be of interest to you.’ The email, while not fatal to the disclosing party’s case, provided useful ammunition in relation to the issue of contractual construction, and in particular the parties’ shared subjective understanding.

Mr Cook responded immediately, saying that the email was privileged and had been disclosed inadvertently, and requesting its deletion. Mr Newton refused, and Atlantisrealm applied under CPR 31.20 for an injunction prohibiting Intelligent Land from making use of the email.

Mr Cook explained in a witness statement how the disclosure exercise had been carried out. Jackson LJ said that the account of how disclosure had been carried out was in line with what one would expect in any case where people, rather than machines, were carrying out the disclosure exercise: a small team of trainees and junior lawyers carried out a preliminary sift. They identified documents which were obviously disclosable or obviously privileged and referred up to the Mr Cook any documents about which they were unsure. One of the young lawyers made a mistake, putting the email into the ‘disclosable’ category, when he or she ought to have classified it as privileged or referred it to Mr Cook

In Jackson LJ’s view, and in disagreement with the judge below, the fact that the junior lawyer who made the mistake did not give evidence was irrelevant, because it was ‘perfectly clear’ what had happened: ‘Neither [the responsible solicitor], nor the relevant partner, nor the client ever took a considered decision to waive privilege’ in respect of the email, which appeared in the list of documents ‘purely as the consequence of a mistake made by a junior lawyer’.[5] This was therefore a case of inadvertent disclosure within the meaning of CPR 31.20.

The Court of Appeal accepted that the evidence showed that Mr Fallon, the first solicitor to review the documents, had thought that the email had been disclosed deliberately, because it was one of a number of emails between the opposing party and its solicitors which had been disclosed. Jackson LJ held however that the terms of the email from Mr Newton to Mr Cook showed that Mr Newton had appreciated that the email had been disclosed in error: ‘Mr Newton was drawing the email to Mr Cook’s attention in the belief that Mr Cook was unaware of it. If there had been a deliberate decision to disclose privilege in respect of such an important document, it is hardly likely that Mr Cook would have been unaware of it’.[6]

The ‘modest gloss’ which the Court of Appeal added to the principles established in Rawlinson was to allow Moore-Bick LJ’s reference to ‘the understanding of the person who inspected the document[7] to apply in a ‘two solicitor’ situation, so that ‘If the inspecting solicitor does not spot the mistake, but refers the document to a more percipient colleague who does spot the mistake before use is made of the document, then the court may grant relief. That becomes a case of obvious mistake.[8]

All that remained was for the Court of Appeal to consider how the discretion should be exercised: whether to permit the receiving party to make use of the document, or to prohibit its use. This is an equitable jurisdiction, long pre-dating CPR 31.20, and there are no rigid rules.

Atlantisrealm argued that they had made extensive use of the email and their witnesses were well aware of it, and that they would suffer and perceive an injustice if they were not permitted to use it at trial. Jackson LJ observed that the ‘use’ relied on had all taken place after a meeting between Mr Newton and Mr Fallon at which Mr Fallon had drawn Mr Newton’s attention to the email. He concluded that it was not therefore unjust to grant an injunction prohibiting its use; and the judge at first instance had indicated that this was how he would have exercised his discretion. The injunction was therefore granted.

In closing, Jackson LJ made three general observations. First, in the electronic age, even with the help of sophisticated software, disclosure of documents can be a massive and expensive operation. Mistakes will occur from time to time. Secondly, when privileged documents are inadvertently disclosed (as is bound to happen occasionally), if the mistake is obvious, the lawyers on both sides should co-operate to put matters right as soon as possible. And thirdly, the disclosure or discovery procedure in any common law jurisdiction depends upon the parties and their lawyers acting honestly, even when that is against a party’s interest. The duty of honesty rests upon the party inspecting documents as well as the party disclosing documents.[9]

Jackson LJ’s final comment? That it should not be necessary for either the parties or the courts to devote their resources to resolving disputes of this nature between solicitors.[10]

Alison Padfield

  1. [2017] EWCA Civ 1029.
  2. Para 48 (Jackson LJ).
  3. [2002] EWCA Civ 780.
  4. [2014] EWCA Civ 1129, [2015] 1 WLR 797.
  5. Para 37.
  6. Para 43.
  7. At para 15.
  8. Jackson LJ at para 48.
  9. Para 55.
  10. Para 56.