Dispute Resolution round-up - February 2021

By this decision, the Supreme Court handed down its judgment in the high-profile test case brought by the FCA last year against various insurers, in relation to coverage under Business Interruption (BI) Disease and Prevention of Access policy extensions for COVID-19 related losses. The judgment brings to an end a six month legal process started by the FCA to facilitate the prompt payment of valid claims by insurers. 

The Supreme Court substantially granted the FCA's appeals on behalf of policyholders, holding that, in addition to the coverage found by the court at first instance, coverage may also be available for partial closure of a business or its premises. The court also held that valid claims should not be reduced either by pre-trigger COVID-19 losses or because the insured would have suffered loss in any event as a result of the pandemic. The judgment is expected to greatly increase the number of claims paid.

To read the judgment, please click here.

This judgment concerning the interpretation of a Material Adverse Effect ("MAE") clause under a Share Purchase Agreement ("SPA") represents an as-yet rare example of consideration by the English courts of the appropriate construction of such clauses, and of litigation specifically arising as a result of the COVID-19 pandemic.

The claimant sellers' business involved issuing virtual credit card account numbers which functioned like physical credit cards for business-to-business payments, primarily to customers in the travel industry.  The proceedings concerned a transaction in which the defendant agreed to acquire shares in the claimants' parent company by way of a SPA in January 2020. The SPA's complex MAE clause stated that a pandemic would not be treated as an MAE unless it could be shown to have caused a "disproportionate effect" on either of the sellers, as compared to other participants in the industries in which they operated. In April 2020, the defendant advised one of the claimants that the Covid-19 pandemic constituted a MAE and that accordingly it was not obliged to complete the transaction under the SPA. The claimants issued proceedings seeking: (1) a declaration that there had been no MAE; and (2) an order for specific performance.

The primary issue was whether the Covid-19 pandemic had had a "disproportionate effect" on the claimants' business as compared to other participants in the industry in which the claimants operated.  The claimants argued that they operated in the "travel payments industry", and that the Covid-19 pandemic restrictions had not had a "disproportionate effect" on their business when compared to others in that industry.  By contrast, the defendant argued that the relevant industry was the (much broader) "payments industry", and that the Covid-19 restrictions did have such a disproportionate effect when compared to that industry.

After close analysis of the SPA and relevant background, the court found that there was insufficient evidence of the existence of a specific "travel payments industry", that the effect of the Covid-19 pandemic on the claimants' business must instead be determined by reference to the broader payments industry, and that when compared to that industry the Covid-19 pandemic did indeed have a "disproportionate effect" on the claimants' business.  Accordingly, a MAE had occurred and the defendant was entitled to avoid its further obligations under the SPA.

The decision confirms that English courts will pay close attention to the strict wording of MAE clauses in order to determine the proper allocation of risk between the parties, and will not assume that the parties' intention was to insulate purchasers only from firm-specific risk if the language of the MAE clause indicates otherwise.  Each agreement must be construed on its own terms.

To read the judgment please click here, and for a more detailed briefing produced by James Hulmes and Lucy Clifford, Senior Associate and Associate respectively in our Dispute Resolution department, please click here.

This decision considered the application of a force majeure clause in a wet lease agreement for the charter of an aircraft, in the context of the COVID-19 pandemic.  

The charterer sought to terminate the agreement pursuant to the force majeure clause, citing problems associated with the pandemic, and thereby sought to avoid payment obligations under the lease. It argued that, as a result, it was entitled to the repayment of a deposit paid to the lessor.  The lessor argued that it was entitled to retain the deposit on the basis that the charterer's case on its reliance on the force majeure clause was unsustainable. The judgment relates to an application made by the charterer to, in effect, freeze the deposit held by the lessor, on the basis that there was a real risk of the deposit being dissipated by the lessor (owing to the alleged improper conduct on the part of the lessor in refusing to return it).

The court refused the application, on the basis that the lessor had "perfectly reasonable arguments" to retain the deposit. Although the court did not conduct a full analysis at this stage of the proceedings of the extent to which the charterer could rely on the force majeure clause, it did give some consideration to the merits of the parties' respective cases on this point. In doing so, the court looked at the impact of the pandemic on the parties' contractual obligations and concluded that, on the facts of the case, the agreement could not be terminated for force majeure until the charterer had paid two initial instalments (at the earliest, if at all).

The judgment usefully illustrates that the English courts will closely scrutinise both the specific events that a party relies on when claiming that a force majeure event has arisen and how those events affect the parties' contractual obligations, together with the precise wording of the force majeure clause and the broader agreement.

For a more detailed briefing produced by Richard Roil and Adam Bradley, Senior Associate and Associate respectively in our Dispute Resolution department, please click here.

In this decision, the Court of Appeal considered the effect of the DBA Regulations 2013 (the "Regulations") on the enforceability of Damages Based Agreements ("DBAs").

In doing so, the court unanimously upheld the validity of a DBA under which a client was liable to pay its solicitors' costs in the event that the client terminated the agreement prematurely, allaying a widespread concern that such a provision was precluded under the Regulations.

The decision has therefore done much to resolve the considerable uncertainty created by the unclear drafting of the Regulations, which has historically contributed to the slow uptake of DBAs in practice. It may well give legal representatives greater confidence to take on more claims under DBAs in the future, thus giving effect to Parliament's intention behind the Regulations of promoting access to justice.

To read the judgment, please click here.

This Court of Appeal decision has significant ramifications for litigation funders, as well as for parties to funded litigation. 

The court held that a cross-undertaking in damages should only be required as a condition of security for costs in "rare and exceptional circumstances", and in "even rarer and more exceptional cases" where a claimant benefits from litigation funding. In doing so, it explicitly overruled a number of first instance judgments, including Hotel Portfolio II v Ruhan [2020] EWHC 233, in which a security applicant was required to provide a fortified cross-undertaking in damages.

The court also expressed doubts about the current regime of self-regulation in the litigation funding industry. Lord Justices Popplewell, Henderson and Floyd explicitly called for a review of the effect of funding on civil litigation, and for any subsequent new practice in the industry to be governed by legislation. Funders would be wise to note the court's guidance that "a properly run commercial funder should rarely if ever need to be ordered to put up security".

To read the judgment, please click here.

In this decision, the Supreme Court clarified the principles to be applied to determine the proper law of an arbitration agreement, in particular where the governing law of the contract differs from the law of the seat of the arbitration.

The court unanimously rejected the Court of Appeal’s reasoning that, other than in rare cases, an arbitration agreement will be governed by the law of the seat. However, the majority concluded that, as the relevant contract contained no express or implied choice of Russian law, the arbitration agreement was governed by the law of the seat of the arbitration, being the law with which it was most closely connected. As that seat was London, the majority dismissed the appeal brought by Chubb Russia and upheld the Court of Appeal’s decision (but for different reasons) that English law governed the validity and scope of the arbitration agreement. 

To read the judgment, please click here, and for a more detailed briefing produced by Anne Foster and Hannah Drury, Consultant and Associate respectively in our Dispute Resolution department, please click here.

In another significant judgment for English-seated arbitrations, arising out of the Deepwater Horizon oil spill in 2010, the Supreme Court clarified here an arbitrator's duty to disclose their involvement in multiple arbitrations arising out of the same subject matter, where only one of the parties is involved in all of those arbitrations. The case is noteworthy for the intervention of the ICC, LCIA, CIArb, LMAA and GAFTA on this important issue. The judgment also clarifies various other issues relating to the determination of arbitrator impartiality.

To read the judgment, please click here, and for a more detailed briefing produced by Anne Foster and Adam Bradley, Consultant and Associate respectively in our Dispute Resolution department, please click here.

In this judgment, the Court of Appeal confirmed that, unless there are clear words to the contrary in a contract, the ordinary legal meaning of a particular term (in this case, "goodwill") will be preferred to an unusual or non-legal meaning.

The Court of Appeal found that: (i) contrary to the appellant's submissions, the ordinary legal meaning of goodwill is not the same as the accounting definition, and that the ordinary legal meaning is not synonymous with "value"; (ii) language should be assumed to have consistent meaning throughout an agreement; and (iii) "goodwill" in contracts for sale of a business refers to "a type of proprietary right representing the reputation, good name and connections of a business".

To read the judgment, please click here, and for a more detailed briefing produced by Lucy Alexander, Associate in our Dispute Resolution department, please click here.

This decision of the Court of Appeal provides practitioners with a helpful reminder of the law relating to the use of the "subject to contract" label in settlement negotiations.

The parties had previously agreed a settlement and the issue for the court was whether they had concluded a further binding agreement as to how a ring-fenced sum of money was to be shared between them. The deputy judge found that a binding agreement had been reached, despite the use of the "subject to contract" label in the inter-solicitor correspondence on behalf of the parties. The Court of Appeal, overturning this decision, confirmed that if there is no express agreement between the parties that the "subject to contract" label has been removed, or such an agreement cannot be necessarily implied, the court will not imply an agreement that the label should be removed. The court will examine all the circumstances of the case and in this instance it was plainly contemplated by the parties that a consent order would be needed to embody the settlement. The court clarified that in "subject to contract" negotiations aimed at settling litigation, the consent order is the equivalent of the formal contract.

Counsel for Moneything also submitted that its purported Part 36 offer had "recalibrated" the settlement negotiations, so that they subsequently proceeded on the basis of offers and counter-offers capable of acceptance. The court rejected this, confirming that a Part 36 offer is not the same as an offer in the ordinary law of contract and is capable of being accepted even after the offeree has made a different offer.

To read the judgment, please click here.

In this judgment the Court of Appeal considered the law relating to contractual implied terms. The dispute between the parties centred on the meaning of certain clauses in a partnership agreement. Mr Joseph had proposed that a term be implied into a clause which would have extended the time available for him to have challenged a notice of retirement issued to him by the partnership board. The court found that the implied term argued for on behalf of Mr Joseph conflicted with the express wording of the clause. Although the three justices had sympathy with Mr Joseph's position, the judgment makes it clear that the court will not imply a term into a commercial contract merely because it appears fair. "The role of the Court, whether in interpreting the terms the parties have expressly agreed, or considering what they have impliedly agreed, is not to make a better contract for the parties but to ascertain what their contract is."

To read the judgment, please click here.

In this decision, the Supreme Court affirmed and applied the "trio of conditions" test for the defence of illegality, established by the Supreme Court in Patel v Mirza [2016] UKSC 42. The issue on appeal was whether the respondent should be refused relief for the appellant's negligence on the basis that the transaction in question relied upon illegal mortgage fraud. The decision confirms that courts will take a flexible approach to the defence that pays close attention to both policy considerations and the need to ensure proportionate outcomes for the parties.

To read the judgment, please click here.

This decision provides a useful reminder of the strict requirements for asserting litigation privilege. Nugee LJ reinforced the principle that, even where litigation is reasonably within contemplation at the time, a communication or document will only be protected by litigation privilege where it has been prepared for the sole or dominant purpose of the relevant litigation. 

To read the judgment, please click here, and to read a more detailed briefing produced by Michele Cheng and Ibrahim Chaudhary, Senior Associate and Trainee respectively in our Dispute Resolution department, please click here.

In this decision, the Court of Appeal allowed the claimant's appeal against an order awarding it only two of the four specified forms of enhanced relief available under CPR 36.17(4) after having beaten its own Part 36 settlement offer at trial.

The Court confirmed that, provided a claimant is found to have made a genuine attempt at settlement and it would not otherwise be unjust to do so, if a claimant obtains judgment at trial that is at least as advantageous as its Part 36 offer, it will be entitled to the full range of enhanced relief set out at CPR 36.17(4).

To read the judgment, please click here, and to read a more detailed briefing produced by Alyssa Brathwaite, a Senior Associate in our Dispute Resolution department, please click here.

In these proceedings, arising from a 2011 oil spill in Nigeria, a cause of action against a UK domiciled "anchor" defendant was deemed to have expired before it was added to the claim. 

In 2017, claims were issued against two UK companies and a Nigerian domiciled company within the Shell group, relating to the spill.  In 2018, the claimants added another UK domiciled anchor defendant, with the claims against the other UK defendants falling away.  The claims against the new defendant were therefore "new claims". To avoid the limitation cut-off, the claimants argued that they suffered a "continuing" nuisance until the oil was cleaned up: they continued to suffer harm after the initial spill. This argument was rejected as the court considered that the relief sought by the claimants was inconsistent with the nature of continuing nuisance: the harm flowed from a single event.

The decision does not end the claims, and there will be a preliminary hearing later in the year to clarify the limitation (and therefore jurisdiction) position for all claimants, but this decision will certainly represent a significant barrier to them.

To read the judgment, please click here.