By Dorothy Murray, Natalie Quinlivan,, James McKenzie, Valentine Kerboull

Q2 2019: missed the key litigation news of the last quarter? Fear not as all you need to know is here, from jurisdiction to service, as massive class actions and parental liability suits stand pending in the English Courts, UWOs turn out to have multiple use cases and arbitration awards continue to be hard to challenge.

Speed Read

1. Brexit is (still) coming and its impact is an unclear as ever … The utility of the UK’s preferred fall-back option to uphold exclusive jurisdiction agreements, the Hague Convention on Choice of Court Agreements 2005 (the “Hague Convention”), has been questioned by the European Commission, which published guidance in April suggesting that exclusive English jurisdiction agreements entered into between October 2015 and exit day may not, in the case of a no-deal Brexit, fall within its scope.

Our view: although the Commission’s guidance is not entirely clear nor determinative, it adds a very unhelpful question mark. Perhaps another reason to choose arbitration?

2. English Courts try to bring clarity by upholding jurisdiction clauses in ISDA master agreements. has challenged the application of the 2005 Hague Convention. The top issue in the English courts in Q2 has been jurisdiction. Providing welcome clarity on competing jurisdiction clauses, in BNP Paribas SA v Trattamento Rifiuti Metropolitani SPA [2019] EWCA Civ 768 the Court of Appeal confirmed its position[1] that jurisdiction clauses within standard form ISDA documentation will not readily be displaced by contrary jurisdiction clauses in related contracts.

Our view: English courts will seek to provide certainty and stability in the case of a potential conflict. This is some welcome certainty in the context of multi-jurisdictional deals and Brexit.

Class action “tourism” is here … In Vedanta Resources PLC and another v Lungowe and others [2019] UKSC 20, the Supreme Court confirmed that it has jurisdiction to hear claims against Vedanta for damage caused by its subsidiary in Zambia. There was a real risk that substantial justice will not be obtainable in Zambia where litigation funding and “no win no fee” arrangements are prohibited. See:

https://www.kwm.com/en/cn/knowledge/insights/parent-company-liability-class-actions-20190419

https://www.linkedin.com/pulse/parental-responsibility-class-actions-mine-yours-supreme-murray/

Our view: Expect more environmental and human rights class-action style claims to be brought in the UK, specifically targeting UK PLCs with global operations for the alleged liability of local subsidiaries. The kids may live in foreign lands, but they’re never off your hands.

3. As are “home grown” class actions… In the “biggest class action in British legal history”, Merricks v Mastercard Inc. [2019] EWCA Civ 674, the Court of Appeal overturned the Competition Appeal Tribunal’s (CAT) decision refusing certification in MasterCard’s GBP14 billion collective action claim and remitting the case back to the CAT for a re-hearing. Permission has been granted to appeal to the Supreme Court so watch this space.

Our view: This decision lowered the threshold for class actions under the UK’s Competition Act 1998 and clarified the test for assessing suitability of a claim for aggregate damages. With funders looking to fund these highly lucrative claims, expect to see more competition class actions.

4. It is not all plain sailing for litigation funders … In Davey v Money [2019] EWHC 997 (Ch), the High Court declined to apply the so-called Arkin cap to limit a funder’s liability for adverse costs to the amount of the funding provided to the claimant, finding that the a funder was liable for all of the successful defendants’ costs from the date of the funding agreement.

Our view: Wise funders will already have appropriate adverse costs insurance in place. All other funders will now be looking to do so. Claimants in search of funding can expect an additional cost to address this risk.

5. Service is still a trap for the unwary… In Woodward v Phoenix Healthcare Distribution Ltd [2019] EWCA Civ 985, the Court of Appeal confirmed that a defendant is under no obligation to warn a claimant that its service of the claim form was defective before the limitation period expired, meaning that the defendant could rely on a limitation defence.

Our view: Effecting service correctly and within the limitation period is fundamental. Absent contribution by the defendant to the claimant’s error, defective service is the claimant’s problem.

6. Arbitration awards remain hard to challenge … In Gracie and another v Rose [2019] EWHC 1176 (Ch), the Court of Appeal dismissed a challenge to an arbitration award under s.68 (challenges to an award) of the Arbitration Act 1996 (the “Act”). S.68 is only available when all other “available recourse” under s.57 of the Act has been exhausted (i.e. the party should first seek from the arbitral tribunal a clarification or amendment to the award); it does not allow a merits review by the court and an arbitrator’s decision not to deal with quantum in a separate award, contrary to the parties’ initial agreement, did not cause “substantial injustice” to the parties.

Our view: the English courts continue to be careful in considering challenges under s68.

7. …but not impossible. In a rare example of a successful s.68 challenge, the High Court in K v A [2019] EWHC 1118 (Comm) confirmed that there had been a serious procedural irregularity in a GAFTA arbitration because the GAFTA Board of Appeal (“the Board”) had adopted a point of its own motion that was central to its award, and reached its decision on this point without hearing argument from the parties. This was a “substantial injustice” because it was possible that the Board would have reached a different conclusion on this point had they heard argument from the parties.

Our view: If a tribunal wishes to consider a central point that has not been raised by the parties, it must give the parties the opportunity to make submissions on this point.

8. Even s69 challenges may sometimes proceed… In Eleni Shipping Ltd v Transgrain Shipping B.V. [2019] EWHC 910, the issue was one of contractual interpretation of a charter party provision widely used in the shipping industry, which the High Court agreed was of “general public importance” for the purposes of s.69(3) of the Act. On the facts though, the Court agreed with the tribunal on its alternative ground for finding in favour of the respondent.

Our view: Section 69 appeals are extremely rare. However, contractual interpretation issues of general public importance are likely to be your best bet (where an appeal of the law is not excluded entirely).

9. UWOs are being used … proving they are more than just a talking piece, in May of this year, the National Crime Agency (“NCA”) secured three Unexplained Wealth Orders (“UWOs”) against a politically exposed person (“PEP”) who, through offshore companies, owns three prime London properties valued at GBP80m+. Interim Freezing Orders have also been granted. In July 2019, a further UWO has been obtained in respect of a “businessman” whose property empire is suspected of being funded from drug and firearms trafficking.

Our view: After successfully testing the legislation in the Hajiyeva case [see: https://www.kwm.com/en/cn/knowledge/insights/new-year-new-litigation-risk-what-to-expect-this-year-20190228] the NCA is showing greater willingness to utilise this new, powerful investigation tool in the fight against money laundering. PEPs holding property in the UK valued in excess of GBP50,000 should note the risk and ensure they are not a potential target of the NCA.

 

Long Read

1. Brexit and UK exclusive jurisdiction clauses

The EU has a uniform set of rules on jurisdiction and the enforcement of judgments (primarily set out in the Recast Regulation) which are applicable as between Member States (the “EU Regime”). These rules make it reasonably straightforward to enforce a judgement of a Member State’s court in a different Member State. They also, with certain limited exceptions, require the courts of Member States to uphold jurisdiction agreements that provide for the jurisdiction of the courts of another Member State.

If the UK leaves the EU without a withdrawal agreement in place, the EU Regime will no longer apply to the enforcement of UK judgments and UK jurisdiction agreements. Instead, this will be a matter for the national law of each Member State. This does not mean that UK judgments and UK jurisdiction agreements will cease to be enforceable in the EU, but it is likely that enforcement will become more time consuming and expensive.

To mitigate this problem, the UK government have taken steps to ensure that the UK will immediately cede to the 2005 Hague Convention on Choice of Court Agreements (the “Convention”) following Brexit. The Convention is more limited in scope that the EU Regime, but it does achieve some of the same objectives. It requires contracting states to: (i) uphold exclusive jurisdiction agreements that provide for the exclusive jurisdiction of other contracting states; and (ii) recognise and enforce a judgment given by the court of another contracting state designated in an exclusive jurisdiction agreement.

However, article 16(1) of the Convention provides that it shall apply only to exclusive jurisdiction agreements concluded after its “entry into force for the State of the chosen court.” This raises the question of whether the date of the Convention’s entry into force in the UK will be reset from October 2015 (the date the Convention came into force in the EU) to the date of Brexit, in the event there is no-deal.

The European Convention published guidance in April addressing this point and have suggested that it will be reset. This means that, in a no-deal scenario, there is a risk that English exclusive jurisdiction agreements may not fall within the scope of the Hague Convention.

KWM London is continuing to monitor developments regarding the potential impact of Brexit on contractual relationships and disputes.

2. BNP Paribas SA v Trattamento Rifiuti Metropolitani SPA [2019] EWCA Civ 768

Trattamento Rifuiti Metropoliani SpA (“Trattamento”) is a project company which agreed financing with a syndicate of banks led by BNP Paribas SA (“BNP”) in order to design, build and operate a waste-management facility in Turin. Pursuant to this financing arrangement, BNP and Trattamento entered into a financing agreement and later into an International Swaps and Derivatives Association (“ISDA”) Master Agreement.

Both documents had different jurisdiction clauses, the financing agreement being Italian law governed and containing an exclusive jurisdiction clause in favour of the Court of Turin, whilst the ISDA agreement was governed by English law and contained a jurisdiction clause in favour of the English courts. When BNP issued proceedings to obtain declarations that the swaps were valid in the English Court, Trattamento challenged jurisdiction in favour of the Court of Turin.

The Court disagreed with Trattamento and held that there was no conflict between the ISDA Master agreement and the financing agreement. The court held that the two agreements had jurisdiction clauses which dealt with different matters and, applying a broad and purposive construction, found that the clauses therefore not competing but complementary.

This decision demonstrates the Court’s position that jurisdiction clauses within standard form ISDA documentation will not readily be displaced by contrary jurisdiction clauses in related contracts.

3. Vedanta Resources PLC and another v Lungowe and others [2019] UKSC 20

The case concerned claims brought by almost 2000 Zambian citizens against Vedanta, a UK-incorporated parent company, and its Zambian subsidiary, Konkola Copper Mines Plc (“KCM”), claiming that waste discharged from a copper mine – owned and operated by KCM – had polluted the local waterways, causing personal injury to the local residents, as well as damage to property and loss of income.

The Supreme Court found the English courts had jurisdiction to hear claims against Vedanta, even though the alleged tort and harm occurred in Zambia.  The three principle points relied on by the Supreme Court were as follows:

  • Non-Abuse of EU law: where there is a triable issue against an English company, it is not an abuse of EU law to sue a defendant in its country of domicile, even if the main reason that the defendant was added to proceeding was so another could be brought into jurisdiction.
  • Real issue to be tried as against Vedanta: the court held that the group policies published by Vedanta which applied to its subsidiaries and in particular to KCM were “sufficient on their own to show that it is well arguable that a sufficient level of intervention by Vedanta in the conduct of operations at the Mine may be demonstrable at trial”.
  • A real risk that substantial justice will not be obtainable in Zambia: The Supreme Court held that, although England was not usually the proper place to bring the claim, because substantial justice will not be obtainable in Zambia, it would nevertheless find jurisdiction.

As class action activity in the UK increases, UK companies should factor in class action risk in their future business planning and, following the Vedanta decision, conduct a risk assessment on their level of intervention in operations of foreign subsidiaries.

4. Merricks v Mastercard Inc. [2019] EWCA Civ 674

The genesis of this case stems from a decision by the European Commission in 2007, which found that certain fees charged by Mastercard to banks between 1992 and 2007 (the “Relevant Period”) infringed European competition law (“Overcharges”). These Overcharges were passed on to merchants by their banks in the form of higher service fees. The Commission found that it was likely that merchants passed on at least part of the Overcharges to consumers in the form of higher prices.

When Mastercard didn’t respond to the European Commission’s ruling that it was profiting unfairly on transaction fees, Walter Merricks, the former UK financial ombudsman, decided to bring a collective proceedings claim in the UK against Mastercard. The claim would be brought on behalf of all individuals aged over 16 and resident in the UK for a continuous period of at least 3 months who had purchased goods or services from businesses in the UK that accepted Mastercard during the Relevant Period. It is estimated that this class includes approximately 46.2 million people meaning the total estimated damages would exceed £14 billion.

After initially failing in the Competition Appeal Tribunal (“CAT”) to obtain a collective proceedings order (“CPO”) under s.47B of the Competition Act 1998 (the “Act”), Merrick successfully appealed the decision to the Court of Appeal who held:

  • At the certification stage, the claimant need only demonstrate that it has a “real prospect of success” at trial. The Court held that CAT had applied too high a standard to the claimant’s case in considering whether it was suitable for a CPO;
  • In considering whether a claim is suitable for an award of aggregate damages, CAT should consider whether there will be sufficient data available at the time of trial to operate the claimant’s methodology for calculating damages; and
  • There is no requirement for an award of aggregate damages to be distributed on a compensatory basis.
  • Given the infancy of the collective actions regime, this case is of significant importance. Mastercard are aggressively defending their position and have recently been granted permission to appeal to the Supreme Court – watch this space.

5. Davey v Money [2019] EWHC 997 (Ch)

In an action to recover costs from a third-party funder, the funder in question sought to invoke the Arkin Cap in respect of its liability to pay a defendant’s costs, payable on the indemnity basis. The Arkin Cap is the established, but often criticised principle that commercial litigation funders should have their adverse costs exposure limited to the amount of their financial contribution.

The defendant challenged the applicability of the cap in this case and the High Court agreed that it should not apply. In its decision, the High Court dealt with two issues:

  • Firstly, whether the funder should be liable for all the costs of the defendants or only those incurred after the signature of the funding agreement (between the funder and the claimant) and
  • Secondly, whether the funder was liable for total costs of the defendants’ or whether the Arkin Cap should be applied.

On the first matter, the judge stated that, in the principle of fairness, the liability of the funder would start from the date of the funding agreement with the claimant.

On the second matter, the Court denied the applicability of the Arkin Cap for a number of reasons, including: (i) the funder was acting in a commercial purpose; (ii) there is no principle which allows the funder to dissociate itself from the conduct of the claimant; (iii) the claimant would not have had the means anyway to pay the costs; (iv) the funder had reduced its commitment to funding to the claimant by half though kept the same share of recovery and (v) it also had priority in the recovery which made it a “real party” to the claim.

Going forward, we can expect funders to include as standard a requirement for appropriate adverse costs insurance. Funders may also attempt to limit their exposure by taking a more prominent role in how cases are run which will likely drive up the costs of litigation.

6. Woodward v Phoenix Healthcare Distribution Ltd [2019] EWCA Civ 985

Woodward, the appellant, issued his claim form shortly before the date of the statutory time bar and attempted to effect service by sending the claim form to Phoenix’s solicitors by email and by first class post. However, Woodward’s solicitors failed to confirm that Phoenix’s solicitors were instructed to accept service. In fact, they were not, meaning that Woodward’s purported service was defective. Phoenix’s solicitors concluded that Phoenix was not obliged to warn Woodward and therefore waited the claim form had expired before doing so.

Woodward applied to court for an order retrospectively validating his attempted service pursuant to CPR r.6.15. Although initially successful, this was overturned on appeal, with the Court of Appeal finding that:

  • In circumstances where a claim form is issued or served shortly before the expiry of a limitation period, there is no duty on a defendant to warn the claimant if service is defective. The position may be different if the there is a substantial period before the expiry of the limitation period.
  • The case law relating to exercise of the court’s discretion to grant relief from sanction for breach of a rule under CPR r.3.9 is not relevant to the exercise of the court’s CPR r.6.15 discretion to retroactively validate service.
  • The conduct of Phoenix and its solicitors did not constitute “technical game playing”. Phoenix’s solicitors had acted properly in checking their client’s position and advising Phoenix accordingly.

This decision emphasizes the need for claimants to effect service correctly and within the limitation period. Absent contribution by the defendant to the claimant’s error, defective service is the claimant’s problem.

7. Gracie and another v Rose [2019] EWHC 1176 (Ch)

The dispute related to the terms of a Shareholders Agreement between a continuing shareholder and retiring shareholder. Following the death of the retiring shareholder, a dispute arose between the retiring shareholder’s executrix (his wife) and the continuing shareholder as to the terms upon which the wife was required to purchase the retiring shareholder’s shares and the right to dividend payments.

The continuing shareholder challenged the award on three grounds:

  • First, that the Shareholders Agreement had been amended to “rectify” the calculation method and the arbitrator did not deal with this point in the award;
  • Second, that the continuing shareholder did not receive dividends but rather “drawings” and he considered the arbitrator had failed to review the key piece of evidence he submitted; and
  • Third, that the arbitrator exceeded his powers in relation to his determination and/or failed to conduct the proceedings in accordance with the procedure agreed with the parties. This argument was based on a letter the arbitrator sent to the parties two months before the arbitral hearing in which he suggested dealing with quantum at a separate hearing.

The Court dismissed the appeal on all the points. In relation to the first ground, even if the arbitrator’s finding and wording was ambiguous it did not establish a failure by the arbitrator to address the issue. The Court also noted that the continuing shareholder was barred from challenging the award while other available recourses could be enforced under section 57 of the Arbitration Act 1996 (“the Act”).

In relation to the second ground, the judge considered that the Respondent’s argument was not, in fact, that the arbitrator had not taken the piece of evidence into account but rather that “he reached the wrong result”. The Court confirmed the well-established position that, pursuant to section 68 of the Act, the court is not allowed to review the merits of the arbitrator’s decision.

Finally, in relation to the third ground, the Court applied the test of “substantial injustice” to determine if the arbitrator’s decision to deal with quantum in the award rather than in a separate basis had caused such an injustice to the Respondent and concluded that it had not.

8. K v A [2019] EWHC 1118 (Comm) 

This case concerned the commercial consequences from the ever-increasing problem of “man in the middle” type of cyber fraud.

In this case, a fraudster intercepted email communication between a seller and buyer and diverted sales funds to their own account. Fortunately, the parties discovered the fraud quickly and the buyer was able to recover the funds and transfer them to the seller’s account. However, due to the funds being transferred between a GBP and USD account, a shortfall on the contract price now existed.

After the buyer refused to make up for the shortfall, the seller sought to resolve the matter through a GAFTA arbitration where the Board of Appeal (“the Board”) ultimately decided that the buyers’ payment of the contract price to the fraudster’s account did not satisfy their payment obligations under the sales contract.

The buyer challenged the Board’s award under ss 68 and 69 Arbitration Act 1996. At the hearing, the Court found as follows:

  • Although the Court disagreed in certain minor respects with the Board’s interpretation of the contractual payment clause, the substance of the Board’s conclusion was correct. Consequently, the buyer’s application for leave to appeal on this point under s. 69 was dismissed.
  • The buyer successfully argued that there was a serious irregularity within the meaning of s68 because, relying on Clause 18 of the contract, the Board had treated notification of the destination account details to the broker as sufficient to constitute notification to the buyer, whereas it was common ground that the seller had not relied on Clause 18 and the buyer had no opportunity therefore to address the point. In relation to this, the Court clarified the test for determining whether a party has suffered substantial injustice for the purposes of s.68(2) is as follows:

“For s.68 purposes it is not necessary for K [the buyer] to show that the result would necessarily or even probably have been different if it had had the opportunity to address its arguments on the point to the Board; it is enough if the Board might well have reached a different view.”

  • The Court dismissed the buyer’s s.69 application for leave to appeal the Board’s decision on the Clause 18 Point. The Court accepted that it was possible to bring a s.69 appeal on a point that a tribunal has adopted on its own initiative. However, where the tribunal’s decision on the point is the basis of a successful s.68 challenge, the appropriate course for the Court is to remit the matter back to the tribunal so that it can reconsider its decision after hearing arguments from the parties on the relevant point.

9. Eleni Shipping Ltd v Transgrain Shipping B.V. [2019] EWHC 910

The dispute arose following the hijacking by pirates of the dry bulk carrier the “Eleni P” (the “Vessel”).   At the time of the hijacking, the Vessel was in the Arabian Sea having just transited through the Gulf of Aden. The Vessel was eventually released by the pirates after which she resumed her voyage in accordance with charterers’ orders.

The charterers argued that their obligation to pay hire charges was suspended during the time lost as a result of the hijacking under either one of two clauses in the parties’ charterparty agreement:

  • Clause 49, which provided for hire to suspended for the time lost as a result of the Vessel being “captures [sic] or seized or detained or arrested by any authority or by any legal process”.
  • Clause 101, which provided as follows: “Charterers are allowed to transit Gulf of Aden any time… In case vessel should be threatened/ kidnapped by reason of piracy, payment of hire shall be suspended…”

The Vessel’s owners commenced arbitration claiming hire charges for the full period. The tribunal agreed with the charterers in relation to both Clause 49 and Clause 101. The owners appealed to the High Court under s.69 of the Act on the grounds that the tribunal’s interpretation of these clauses was wrong in law.

The High Court upheld the owners’ appeal in relation to Clause 49, finding that the words “captures [sic]” “seized”, “detained” and “arrested” were qualified by the words that followed, “by any authority or by any legal process”. Therefore, Clause 49 only placed the Vessel off-hire if the Vessel was captured, seized, detained or arrested “by any authority or by any legal process”. Clearly pirates were neither an “authority” nor a “legal process”.

However, the Court rejected owners’ argument that Clause 101 only placed the Vessel off-hire if a piracy incident took place within the Gulf of Aden. The Court agreed with charterers and the tribunal that the clause was broader than this and placed the Vessel off-hire if she was “threatened” or “kidnapped” by piracy as an immediate consequence of being required to transit the Gulf of Aden

10. Unexplained Wealth Orders (“UWOs”)

In 2018, the UK introduced UWOs, which require individuals to explain their interest in specified property and the source of wealth used to acquire it. UWOs can act as a gateway to forfeit the property under the Proceeds of Crime Act 2002 or to acquire information which can be used to further other investigations.

UWOs can be made in respect of any property valued over £50,000, wherever in the world that property is situated, if the following three limb test is satisfied:

  • The subject of the order is either –
    1. a politically exposed person from a state outside the European Economic Area (“PEP”),
    2. a person about whom there are reasonable grounds to suspect involvement in serious crime, or
    3. is closely connected to a person in either one of those categories.
  • There is reasonable cause to believe a person has an interest in it; and
  • There are reasonable grounds to suspect that they would not have been able to obtain that property using their lawfully obtained income from known sources.

The first person to be served with a UWO was Zamira Hajiyeva, an Azerbaijani woman who became notorious in the UK press following reports of her £16.4m spending spree in Harrods. [See further: https://www.kwm.com/en/cn/knowledge/insights/new-year-new-litigation-risk-what-to-expect-this-year-20190228 ]

In May of this year, the National Crime Agency (“NCA”) secured three UWOs against PEP who, through various offshore companies, owns three prime London properties valued in excess of £80m. Interim Freezing Orders were also granted preventing the properties from being sold, transferred or dissipated.

In July 2019, a further UWO was obtained in respect of a “businessman” whose property empire is suspected of being funded by criminal associates in drug and firearms trafficking.

Gaining confidence from the success of the first UWOs, the NCA is showing greater willingness to utilise this new, powerful investigation tool in the fight against money laundering.

[1] In line with the decision in: Deutsche Bank AG v Comune di Savona [2018] EWCA 1740