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Dispute Resolution

Warranty/Misrepresentation Claims and Company Sales
Tuesday 6th September 2016

The High Court has recently dealt with the difference between warranties and representations in disputes arising from the sale of company shares.

On 12th November 2009 Idemitsu Kosan Co Limited (Idemitsu) entered into a share purchase agreement with Sumitomo Corporation to acquire the shares in an energy sector company then called Petro Summit Investment UK Limited.  The purchase price was around US$575 million.  As is usual, the share purchase agreement (SPA) contained various warranties given by the sellers to the purchaser.

Following completion the purchaser Idemitsu later discovered that the acquired company had substantial liabilities arising from a dispute between the owners of offshore oil and gas fields in which it had an interest.  Idemitsu alleged that certain warranties given by the sellers were not true.  However, Idemitsu could not pursue a warranty claim against the sellers because under the terms of the SPA such a claim had to be notified to the sellers within 18 months of completion, and that date had passed.

Idemitsu instead brought a claim against the sellers for misrepresentation.  Misrepresentation is where one party makes an untrue statement of fact or law to another party who relies on the statement in entering into a contract and suffers loss as a result.  Where the breach of warranty claim could not be pursued because of the contractual limitation on timing, a misrepresentation claim has a limitation period of 6 years and therefore Idemitsu were in time.

The SPA had an English governing law and jurisdiction clause so Idemitsu commenced proceedings in the Commercial Court seeking damages.

However the issue faced by the Claimant was that for its claim to succeed it had to prove that the statements made in the warranties in the SPA also amounted to representations.  Sumitomo denied the claim and made an Application against Idemitsu seeking summary judgment dismissing the claim under Part 24 of the Civil Procedure Rules.

On hearing the Application, the Court decided that the warranties in the SPA were clearly identified as warranties.  They were described as “Warranties” and not, as is sometimes the case in SPAs, as “warranties and representations”.  The Court looked at whether they are statements in themselves (i.e. representations) or whether they are promises that the statements are true (i.e. warranties).  To fall into the former category it is not enough that the subject of the promise is capable of being a representation.  The Court found that there was no evidence that the parties intended the content of the warranties to also be representations.  In addition, the SPA contained an ‘entire agreement’ clause as well as a clause excluding reliance on any pre-contract communications or representations.

For all of these reasons the Court decided that the claim had no real prospect of success.  As there was no other reason why it should be disposed of at trial, the Court granted summary judgment for the Defendant Sumitomo and dismissed the claim.

The claim highlights the need for careful drafting of share purchase agreements, and the need for Claimants to be aware of applicable time limits to pursue a claim.  Most SPAs contain dispute resolution clauses and these often include tight time-scales to give notice of an intended claim.  Purchasers need to keep these limitations in mind and ensure that they comply with them in order to protect their position.

The dispute resolution team at Brabners has extensive experience of dealing with warranty and misrepresentation claims, whether in relation to company purchases or in contracts for the sale of goods and services.

Idemitsu Kosan Co, Ltd v Sumitomo Corporation [2016] EWHC 1909 (Comm)


What if you only beat an offer on Appeal? Pawar v JSD Haulage [2016] EWCA Civ 551
Wednesday 31st August 2016

Mr Pawar was successful at the trial of his personal injury claim against JSD Haulage but he failed to beat 2 offers to pay damages that JSD Haulage had made during the proceedings.  As a result Mr Pawar was responsible to pay JSD Haulage’s legal costs from expiry of the relevant period on the first offer made.

Mr Pawar appealed the level of damages awarded to him and succeeded in his appeal.  This revised award of damages was higher than JSD Haulage’s first and lowest offer during the proceedings but still did not reach the level of their second higher offer.

Mr Pawar remained liable to pay JSD Haulage’s costs of the initial proceedings from the time of expiry of the relevant period on the second higher offer.  The interesting question is who was then responsible for the costs of the appeal proceedings.

JSD Haulage sought to argue that they should not pay Mr Pawar’s costs of appealing the level of damages awarded to him because he had still not bettered their second offer.  The Court of Appeal rejected this argument on the basis that Mr Pawar had to bring his appeal to improve his damages award and to reduce his liability for JSD Haulage’s costs of the initial proceedings.

It should always be borne in mind that offers made in proceedings cease to be relevant to any appeal proceedings.  To obtain protection against liability for the costs of appeal proceedings the appeal should be considered on its own merits and offers made accordingly.

Read our first update in this 3 part series of blogs where we discuss - "High Court clarifies Costs protection from offers – Quit while you are ahead"

Read our second update in this 3 part series of blogs where we discuss - "Court warning on proportionate legal costs"


Malicious Prosecution Extended to Civil Claims
Tuesday 30th August 2016

The Supreme Court has determined that a claim for malicious prosecution can be brought in relation to civil proceedings.

Malicious prosecution is where an unsuccessful claim is brought with malice and without reasonable or probable cause, causing damage to the person claimed against.  Where the claim is in criminal proceedings that person can pursue the tort of malicious prosecution, and it had been thought from a previous House of Lords decision that the cause of action was limited to those proceedings.  However the recent decision of the Supreme Court in Willers v Joyce [2016] UKSC 43 extends the tort to civil claims.

In this case Mr. Willers had been sued for alleged breach of contractual and fiduciary duties but the case was discontinued shortly before trial.  Mr. Willers argued that the claim was part of a campaign against him and had been brought without reasonable cause.  He brought his own claim for various heads of damage including reputational damage, damage to health, loss of earnings and also for additional costs incurred in defending the previous claim (the difference between the costs received on discontinuance on the standard basis of assessment, and the total costs said to have been incurred in defending the claim, was said to be £2.2 million).

The claim was struck out at first instance, the judge finding that the previous House of Lords decision was binding.  The Judge exercised her powers to allow an application to be made for permission to appeal directly to the Supreme Court.

The Supreme Court gave permission to appeal and considered whether or not the tort of malicious prosecution could be brought in relation to civil proceedings, finding by a majority that it could.  Lord Toulson, who gave the lead judgment, said that:-

It seems instinctively unjust for a person to suffer injury as a result of the malicious prosecution of legal proceedings for which there is no reasonable ground, and yet not be entitled to compensation for the injury intentionally caused by the person responsible for instigating it”.

As well as proving malice a successful Claimant must prove that there was no reasonable or probable cause for the previous claim.  This is a high hurdle to overcome but nevertheless the Judgment provides another potential option for a Defendant faced by such a claim in civil proceedings.


Claiming for Online Defamation against Unknown Defendants
Friday 19th August 2016

In a recent Judgment the High Court has ordered an injunction and damages against a Defendant who had posted defamatory statements anonymously online.

The case of Smith v unknown defendants [2016] EWHC 1775 (QB) concerned a controversial website which enables users to make posts using pseudonyms.  Between 10th and 12th May 2016 two users of the website amended articles to make statements referring to the Claimant which the Claimant alleged were defamatory.

The Claimant made a complaint through the website, and sent a letter of claim.  The anonymous posters responded on the website rejecting the complaint and banned the Claimant from posting on the website.

The Claimant commenced Court proceedings against the two posters and against the website operator.  The offending material was removed and the claim was stayed against the First Defendant poster and the Third Defendant website operator.

The position with the anonymous Second Defendant poster was different and the Claimant applied for default judgment against that party.  The Claimant also sought summary disposal of the case under section 8 of the Defamation Act 1996.  Section 8 of the 1996 Act enables a Claimant to seek judgment and summary relief if it appears to the Court that there is no defence to a defamation Claim which has a realistic prospect of success, and that there is no other reason why the claim should be tried.

The Court hearing took place without the Defendants in attendance and the Judge determined that it was a long-established principle that injunctive relief could be granted against persons unknown provided that the person is capable of identification by description in such a way as to identify with sufficient certainty those who are included within the injunction order and those who are not.  The description of a Defendant as “Persons Unknown Responsible for the Operation and Publication of the website […]” was sufficient.

The Judge also considered whether the Defendant had been properly served, determining that “there can be no possible query or doubt as to the fact that service was effected since the administrators of the site not only responded to the pre-action documents but also published the same on the internet site itself”.

The Judge accepted that the statements made were defamatory and that the ‘serious harm’ requirement of section 1 of the Defamation Act 2003 was satisfied.  The Second Defendant was ordered to pay damages to the Claimant of the maximum award of £10,000.  The Judge also decided that there was reason to believe that the Second Defendant would persist in the campaign against the Claimant and therefore ordered an injunction to restrain the Second Defendant from repeating the statements.

The Judgment is a useful reminder for Claimants that they can use section 8 of the 1996 Act to seek the removal of defamatory online statements even when faced with anonymous Defendants who cannot be identified.


Does a party to a Civil Claim have a right to attend Court?
Thursday 18th August 2016

It is a general rule that a party to civil court proceedings is entitled to be present in Court for the trial of their claim.  In the case of Da Costa & another v Sargaco & another [2016] EWCA Civ 764 the Court of Appeal considered whether the opportunity to attend Court is an absolute requirement for a fair trial, and the exceptions where a party can be excluded from Court.

In this case the two Claimants alleged that they each owned a motorcycle, and that when the motorcycles were parked together outside their house, a car ran into them and damaged them.  The Claimants each claimed the pre-accident value of the motorcycle and the cost of hiring alternative transport.

The First Defendant (who was the alleged car driver) was not traced and the Second Defendant insurer argued that the claims were fraudulent.

At trial at the Central London County Court, the Judge ordered that each Claimant be excluded from Court whilst the other was giving evidence because their credibility was in issue.  The Judge went on to decide that the claims were “manufactured or fraudulent” and “so inconsistent as to be implausible”.  The claim was dismissed and the Claimants were ordered to pay the insurer’s costs.

The Claimants obtained permission to appeal to the Court of Appeal.

One of their grounds of appeal was that the decision to exclude them from Court was wrong and that they had a right to be present for the whole of the trial as parties to the claim.  The Claimant appellants relied on the general rule at common law and the right to a fair trial in Article 6 of the European Convention on Human Rights.

Hearing the appeal, the Court of Appeal decided that in order for a party to have a fair trial there is no absolute requirement that he or she must have the opportunity to be present throughout trial.  The Judgment lists examples of situations in which it may be necessary and permissible to proceed without a party being present, including where a litigant is disruptive and where a party has to leave Court for personal reasons.

The Court of Appeal decided that the County Court Judge was wrong to exclude the Claimants in this case but that the fairness of the hearing depends on the proceedings as a whole and that here the trial had not been unfair.  Therefore this part of the appeal was dismissed.


Court warning on proportionate legal costs
Wednesday 17th August 2016

Brabners litigation cost update 2  

A teacher who brought a claim in privacy against the Mirror Group Newspapers has had her legal costs claims slashed on a second assessment.

The costs of claim were initially assessed by the Court at £241,817 and this was challenged by Mirror Group Newspapers as the claim had been settled for only £20,000.  The costs ordered to be paid were over 12 times the damages recovered.

On further assessment the costs payable were reduced to £167,389 and, on a yet further assessment, the ‘reasonable and proportionate costs’ were reduced to £83,964.80, a figure which was still more than 4 times the damages recovered.

The test of proportionality for assessment of legal costs is a relatively recent introduction within the last few years and this decision serves to show that there remains considerable uncertainty how the test is being applied.

For the moment litigants are best advised to proceed on the basis that incurring legal costs greater than the amounts in question is a speculative approach and may render costs irrecoverable from a defeated opponent. 

Caution must be exercised and claims run on controlled budgets to avoid any risk of a Pyrrhic victory.

Read our first update in this 3 part series of blogs where we discuss - "High Court clarifies Costs protection from offers – Quit while you are ahead"

Read our final update in this 3 part series of blogs where we discuss - "What if you only beat an offer on Appeal? Pawar v JSD Haulage [2016] EWCA Civ 551"


Third Party Disclosure
Wednesday 17th August 2016

The Courts have a discretion to order a non-party to provide documents in a claim and in a recent case the High Court exercised that discretion in ordering auditors to disclose documents in an unfair prejudice dispute between company shareholders.

Parties to disputes should always consider whether there are relevant documents in the possession or control of parties outside of the claim.  If so, they may seek an order requiring disclosure of those documents pursuant to the following sections of the Civil Procedure Rules (CPR):-

  • Part 31.17 deals with applications for non-party disclosure; and
  • Part 34.2 deals with applications for a witness summons requiring the witness to produce documents to the Court.

Outside of these rules a party may also seek a disclosure order pursuant to the case of Norwich Pharmacal v Commissioners of Customs & Excise or as an ancillary order to a freezing injunction.

The case of Destiny Investments (1993) Ltd v TH Holdings Ltd [2016] EWHC 507 (Ch) was a shareholder dispute.  The 40% minority shareholder brought an ‘unfair prejudice’ petition under section 994 of the Companies Act 2006, arguing that the conduct of the 60% majority shareholder was prejudicial to the interests of the members generally.  The petition included allegations regarding the control of a subsidiary, renegotiation of borrowings and various costs that had been incurred.

The petitioner sought disclosure of the working files and other documents from the company’s auditors, KPMG.  The petitioner sought this disclosure on the basis that it would help them to understand certain disputed transactions and also for the purpose of valuing the company.

The respondent refused to consent to the auditors providing the disclosure, arguing that the documents were confidential and not relevant.

The petitioner made a third party disclosure application under Part 31.17 of the CPR.  The Court decided that the documents sought were relevant and material to the dispute, and that disclosure of them was necessary in the interests of a fair trial.  Confidentiality in itself is not a bar to disclosure and the documents requested were narrowly defined.  On that basis the Court granted the third party disclosure order.

Disclosure orders can be a useful tool for any party to a dispute and can be sought during proceedings or at the pre-action stage before proceedings have been issued.


Brexit and Part 36 Offers of Settlement
Tuesday 16th August 2016

A recent decision of the Commercial Court deals with the treatment of offers of settlement where judgment is awarded in a foreign currency, and shows the potential impact of the Brexit referendum on such cases.

The claim of Novus Aviation Ltd v Alubaf Arab International Bank BSC(c) [2016] EWHC 1937 (Comm) was a contractual dispute regarding whether the Defendant had agreed to provide equity funding for the purchase of an aircraft to be leased to Malaysian Airlines.  The damages claimed in the Particulars of Claim were claimed in US Dollars and amounted to over US$8 million.

In April 2014 the Claimant made an offer of settlement pursuant to Part 36 of the Civil Procedure Rules (CPR).  Part 36 is a provision in the CPR which aims to encourage the parties to litigation to try to settle their disputes.  There are costs consequences of accepting or rejecting a Part 36 offer of settlement.  The offer made by the Claimant was in pounds, it offered to accept approximately £3.7 million plus costs.

The Defendant did not accept this offer of settlement and the claim went to trial over six days in April and May this year.

Judgment was handed down on 30th June 2016 in favour of the Claimant.  The judgment sum was approximately US$5.4 million.

There then followed an argument over whether or not the Claimant had ‘beaten’ the terms of its Part 36 offer of settlement of £3.7 million.  Under Part 36 of the CPR the losing party is penalised in costs and in interest if it fails to achieve an outcome at trial that is more advantageous than a Part 36 offer of settlement made by the successful party.

The Defendant argued that the Claimant had not beaten its Part 36 offer because at the time that the offer was made the equivalent amount in US Dollars was 6.3 million, and therefore more than the judgment sum of US$5.4 million.

The Judge held that the relevant time for comparing a Part 36 offer and the judgment sum is the date on which judgment is made.  The Judge relied on the fact that the Part 36 offer was never withdrawn and therefore was capable of acceptance at any stage.

The Judge noted that sterling had fallen sharply following the referendum on 23rd June 2016.  At the time that judgment was handed down the equivalent dollar value amount of the Part 36 offer was lower than the judgment sum.  However, the Claimant would not have beaten its offer if judgment had been handed down a week earlier, before the outcome of the referendum.  Therefore the Judge decided that it would be unjust to award the Claimant the usual costs benefits of Part 36 in these circumstances.


Site manager convicted of gross negligence manslaughter following death of site worker
Wednesday 10th August 2016

A building site manager has been convicted of gross negligence manslaughter following the death of an on-site worker who fell through a first floor skylight.

The defendant was the manager of a building site in St Saviours Hill, Leicester who had asked a site worker to fit windows and doors on the first floor of the building. During the work, the deceased fell three metres through an open sky light on a first floor flat roof.

The day after the accident, HSE (Health & Safety Executive) inspectors issued a prohibition notice preventing any further work at height on the site. However, on subsequent visits, the HSE found evidence that work at height had continued on the site. The defendant was then arrested and charged with manslaughter by gross negligence. On the 15th July 2016, he stood trial for the offence at Birmingham Crown Court and after less than three hours of deliberation, the jury returned a guilty verdict.

The offence of manslaughter by gross negligence is not governed by statute; it is as a ‘common law offence’ having been developed by the courts by reference to previous case law.

The leading authority in respect of gross negligence manslaughter is the case of R v Adomako (1994) 3 All ER 79 in which a four stage test was developed by the House of Lords. In order to be convicted of gross negligence manslaughter, the following must be proved, beyond reasonable doubt:-

a)     there was an existence of a duty of care owed to the deceased from the accused;

b)    a breach of that duty of care has occurred,

c)     the breach causes (or significantly contributed) to the death of the victim and;

d)    the breach should be characterised as grossly negligent.

The necessary requirements to establish the existence of a duty of care, are foreseeability, proximity, fairness, justice and reasonableness. In this case, it was clear that as the site manager there existed a clear duty of care towards the deceased and responsibilities for maintaining the safety of the site.  

When considering if there has been a breach of duty owed, the ordinary law of negligence applies and those with an established duty must act ‘as a reasonable person would do in the same position’. In this case, the site manager’s actions would have been compared to the standard practice of another site manager in the same position. His behaviour was considered to have fallen far below the standard of a reasonable person in his position. Investigations into the work at the site found that the site manager’s actions had been grossly negligent in following respects:

-       No scaffolding had been provided in the area in which the windows were being fitted;

-       Ladders were not secured properly and one was found to propped up in a pile of sand;

-       There was no qualified first aider of site;

-       Openings in the ceilings on the first and second floors of the site were not guarded.

It is important to note in cases of gross negligence manslaughter, if the accused has any particular skills and/or knowledge of a danger, that the reasonable and ordinary member of the public would not have, then the accused’s actions will be judged in light if those skills and/or knowledge that they have, not just on what the reasonable person would have done or thought should have been done.


Independent Press Standards Organisation sets up pilot Media Claim Arbitration Scheme
Friday 5th August 2016

The Independent Press Standards Organisation (IPSO), the replacement body to the Press Complaints Commission (PCC), is to launch a pilot arbitration scheme.

The pilot scheme will be run on IPSO’s behalf by the Centre for Effective Dispute Resolution (CEDR), a conflict management mediator who also provides dispute resolution services for the Court of Appeal for England and Wales, the Football League and the NHS Litigation Authority.

Several national titles have agreed to take part, including The Times, Daily Telegraph, Daily Mail and The Sun together with one regional title, the Liverpool Echo.

The scheme will encompass a variety of potential claims including defamation, intrusion into privacy, misuse of private information, breach of confidence, harassment and data protection.

It is intended that the arbitration scheme will not replace the current free-to-use regulatory complaints handling service and that the two services shall run separately. It will not be possible to process an arbitration claim at the same time as a complaint on the same issue.

In order to utilise the scheme both parties must voluntarily agree to arbitrate. In order for an arbitrator to be appointed and provide a preliminary ruling there will be an administrative fee of £300 plus VAT. Should the matter continue to a final ruling there will be a further fee of £2,500 plus VAT. There is no requirement to use a lawyer but the arbitration scheme does require a complainant to advance a legal argument and pursue a claim within a legal framework. It is therefore recommended that legal advice or legal representation is sought.

In the event that a claim is successful, the administrative fee and final ruling fee will ordinarily be recoverable from the publisher but the majority of any legal costs incurred will not. If a claim is dismissed, then there will ordinarily be no order as to costs. If, however, the arbitrator strikes out a claim on the basis that it is without merit there will be a requirement to pay the publisher’s fees and also some of the publisher’s legal costs, if any have been incurred.

The arbitrator will generally be able to grant the same relief as a court. In particular, the arbitrator can require, amongst other things, the publisher to pay damages, the publisher to ‘cease and desist’ from the conduct complained of and, in defamation claims, the publisher to publish a summary of the arbitrator’s final ruling.

The arbitrator will aim to complete claims within 90 days of their appointment, although the scheme is not just about reducing costs and delays associated with litigation, it is about widening access to justice for members of the public. The scheme shall be reviewed in 12 months to examine its effectiveness before a decision is made on whether it shall become a permanent feature of IPSO.

It remains to be seen how effective the scheme will be in practice but it is another option of alternative dispute resolution for eligible parties involved in media, defamation and harassment claims.