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Litigation & Dispute Resolution Review - June 2015

15 July 2015

The Litigation and Dispute Resolution Review is a monthly commentary on important legal developments in the banking and commercial litigation and arbitration sphere, mainly from a UK perspective. 

In the June 2015 issue we report on two important contract cases: one on penalties (ParkingEye v Beavis) and the other on contractual interpretation (Arnold v Britton).

In ParkingEye, the Court of Appeal concluded that a parking fine was not a penalty and therefore enforceable. Lord Justice Moore-Bick acknowledged that whilst the predominant purpose of the fine was to deter breach it was not extravagant or unconscionable and could (at least in part) be justified by social factors (it benefitted the community to have parking close to shops for limited periods and parking fines discouraged overstaying). The decision has already been appealed and will be heard by the Supreme Court, together with Makdessi, on 21 July 2015. Unusually, the Supreme Court will sit with a seven judge panel to hear the appeal. As part of this appeal the Supreme Court will consider whether or not the law on penalties has any place in contracts between commercial parties. The resulting judgment is keenly anticipated and is likely to be the leading authority on the law of penalties for many years to come.

The test for contractual interpretation was recast by the Supreme Court in Arnold v Britton. Lord Neuberger, giving the lead judgment, set clear limits on the "commercial common sense" approach to contractual interpretation, signalling a return to a more literal approach. In this edition Jason Rix and Rainer Evers discuss the seven factors Lord Neuberger identified as important when interpreting contractual provision..

Below is the table of contents for the June 2015 issue. Please click on the titles to view each article separately or click here to enable to download the whole edition.

Arbitration agreements and foreign laws that do not give effect to mandatory principles of EU law

Accentuate Ltd v ASIGRA Inc [2009] EWHC 2655, 30 October 2009; Fern Computer Consultancy Ltd v Intergraph Cadworx & Analysis Solutions Inc [2014] EWHC 2908 (Ch), 29 August 2014.

In 2009, a senior libel judge held that an arbitration agreement was null, void or inoperative because it purported to apply a foreign law which did not give effect to mandatory principles of EU law. More recently, a judge sitting in the Chancery Division appears to have endorsed that approach (albeit obiter). These decisions, neither of which was reviewed by the Court of Appeal, appear to be at odds with a seemingly long and settled line of authority on the arbitrability of mandatory principles of EU law. They also give rise to certain drafting considerations when entering into an arbitration agreement.

Third party bound by arbitration agreement which it never signed

The London Steamship Owners' Mutual Insurance Association Ltd v The Kingdom of Spain & anr [2015] EWCA Civ 333, 1 April 2015.

In the context of a right of direct action by an injured party (Spain and France) against a D&I insurer, Spain and France were held bound by an arbitration agreement contained in an insurance policy which they never signed. The case is an illustration of the circumstances in which state immunity will be waived and defines who is a "party" to an arbitration agreement contained in an insurance policy. It is also a reminder of the very limited category of disputes that will be inarbitrable under English law.

Can the illegality defence bar a claim against a dishonest director?

Jetivia SA & anr v Bilta (UK) Ltd (in liquidation) & ors [2015] UKSC 23, 22 April 2015

The Supreme Court has ruled on the law of corporate attribution and the "illegality defence" which holds that a party cannot pursue a legal remedy that arises in connection with his own illegal act. The Supreme Court unanimously found that the illegality defence could not bar Bilta's claim against the directors and the appellants because the directors' acts, being committed in breach of their duties to Bilta, could not be attributed to Bilta in the context of a claim by Bilta for a breach of their duties. The court resisted making findings on the wider principle of illegality other than to the extent necessary for this decision, leaving the law in this area in an uncertain state.

Antitrust liability and subsidiary companies

Tesco Stores Ltd & ors v Mastercard Inc & ors [2015] EWHC 1145, 24 April 2015

Mastercard was unsuccessful in attempting to strike out the claimants' (Tesco Stores and others) antitrust claim in relation to the setting of multilateral interchange fees. Summary judgment was also refused. Mastercard had argued that Tesco Bank was part of the same economic entity as the Tesco claimants, and had been engaging in similar allegedly anticompetitive conduct as Mastercard. The claim against Mastercard for breach of competition law rules will now proceed to trial. Although this is an interlocutory judgment, the judge's remarks shed new light on the application of the Akzo Nobel precedent to the question of when "horizontal" liability can be imputed from one to another subsidiary of the same group.

Jurisdiction clause is exclusive despite it contemplating proceedings in other jurisdictions

Compania Sud Americana de Vapores SA v Hin-Pro International Logistics Ltd [2015] EWCA Civ 401, 23 April 2015

A jurisdiction clause was found to be exclusive despite expressly providing for proceedings in other courts in certain circumstances. The finding of exclusivity was based on several factors including the choice of an English governing law and the mandatory language used ("shall be subject to"). The doctrine of contra preferentum has limited value in determining whether a jurisdiction clause is exclusive or not.

Resolving inconsistent jurisdiction clauses and limits to Fiona Trust presumption

Trust Risk Group SpA v AmTrust Europe Ltd [2015] EWCA Civ 437, 30 April 2015

The Court of Appeal held that when resolving competing jurisdiction clauses in two different agreements where one is entered into at a later date, the correct approach was to apply a careful and commercially-minded construction of the contracts and not the Fiona Trust "one-stop shop" presumption. This was despite the risk of disputes becoming fragmented. This case further limits the circumstances in which the Fiona Trust presumption applies.

Schemes of arrangement and why loan note investors should be wary of governing law amendment mechanisms

In the matter of DTEK Finance B.V. [2015] EWHC 1164 (Ch), 28 April 2015

A change in the governing law of loan notes from New York law to English law was sufficient to found jurisdiction for the English court to sanction a scheme of arrangement between a Dutch company and holders of loan notes issued by that company.

Submission of claim in foreign insolvency proceedings torpedos exclusive English jurisdiction agreement

Erste Group Bank AG London Branch v J "VMZ Red October" & ors [2015] EWCA Civ 379, 17 April 2015

The filing of claims by a creditor in foreign insolvency proceedings, and the full participation of the creditor in those proceedings, results in the submission to and acceptance of the jurisdiction of the foreign courts in relation to all issues arising in the insolvency proceedings. Creditors should therefore consider very carefully the consequences of filing claims in foreign insolvency proceedings (and/or participating in the foreign insolvency proceedings) as doing so may have unintended consequences.

This article was published in the May/June 2015 Legal and Regulatory Risk Note. Please click here for a copy of the Risk Note.

Penalty clauses: a question of context?

ParkingEye Ltd v Beavis [2015] EWCA Civ 402, 23 April 2015

In a dispute about the non-payment of a GBP 85 parking fine the Court of Appeal has explored the fundamental principles of the rule against penalties and given an indication of the courts' understanding of the jurisprudence in this area.

Contractual interpretation: when can you stray from the strict wording?

Arnold v Britton & ors [2015] UKSC 36, 10 June 2015

For businesses and lawyers, a new test set out by the Supreme Court will help inform when one can stray from the literal words of a contract and adopt an interpretation that accords with commercial common sense. The Supreme Court has supported a literal interpretation of a 1974 service charge clause in a lease even though it means that it is harsh for the individual tenants. In doing so it has set clear limits on the "commercial common sense" approach to the interpretation of English law contracts. This interpretation meant that the tenants will be paying over GBP 1 million per annum each at the end of their 99-year leases.

Supreme Court considers money laundering offence under section 328 Proceeds of Crime Act 2002

R v GH [2015] UKSC 24, 22 April 2015

The Supreme Court has ruled on the constituent elements of an offence under s328 Proceeds of Crime Act 2002 (POCA). The case is unusual in that the arrangements in question began before any "criminal property" for the purposes of s328 of POCA existed.

 Employer investigations

James Bowen & ors v The Commissioner of Police for the Metropolis [2015] EWHC 1249 (QB) 1 May 2015

The High Court has ruled on the conflicting interests that arise during an employer's investigations into claims against it, where those allegations concern its employees. Although no duty of care towards the employees was made out on the facts in this case, the case highlights that employers need to be mindful of their employees' interests when conducting investigations into claims and/or deciding how to defend or settle litigation or regulatory matters. This is because the employer could be held to have breached its duty of care to its employees if it does not defend the claim in a manner consistent with the employees' interests.

Lehman Brothers "waterfall application" in the Court of Appeal

Lehman Brothers International Europe (in administration) [2015] EWCA Civ 485,14 May 2015

Litigation from the collapse of Lehman Brothers continues to break new ground in English insolvency law. This latest decision of the Court of Appeal both clarifies several aspects of the "insolvency waterfall" (ie the order in which creditors are paid from the assets of an insolvent company) and deals with some unusual issues arising from the insolvency of an unlimited company in the Lehman Brothers group.

Extension of time refused for challenge of settled FSA enforcement matter 

Mohammed Suba Miah v Financial Conduct Authority [2015] UKUT 0181 (TCC) (FS/2014/0011), 2 May 2015

Mohammed Miah applied to the tribunal for an extension of time in order to allow him to challenge enforcement action that had been taken against him by the FSA (as it then was) more than six years ago. The tribunal refused to grant this extension of time and emphasised the finality of FSA (now FCA) settlement agreements.

SFO section 2 interviews: when can lawyers be excluded?

R (on the application of Lords Reynolds and Taylor) v Director of the Serious Fraud Office [2015] EWHC 865 (Admin), 18 February 2015.

The High Court has upheld a decision taken by the SFO to prevent lawyers, acting for a company under investigation, from also representing certain employees of that company who were not suspects at their section 2 witness interviews. The SFO's rationale for this decision was that, in the particular circumstances of that investigation, allowing the company's lawyers to attend these witness interviews would prejudice its investigation. Although this case has attracted relatively little publicity, it is likely to have a significant impact for the future conduct of SFO section 2 interviews. This is especially so as we understand that the SFO is intending to amend its policy regarding the attendance of lawyers at section 2 interviews in light of the High Court's judgment.

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