We are pleased to present our second case review of 2011 which contains summaries of selected cases which will impact on the way in which parties conduct litigation and their business dealings.
In this review we consider recently decided cases on arbitration; whether a declaratory arbitral award can be enforced as a judgment and the status of interim appeal awards. We also comment on recent cases on disclosure, considering disclosure of transcripts from private hearings as well as Norwich Pharmacal orders.
We also review cases on expert independence, injunctions concerning arbitration proceedings and important cases on both what constitutes a Part 36 Offer as well as key decision on expert immunity.
Arbitration
West Tankers v Allianz [2011] EWHC 829 (Comm)
Whether a declaratory arbitral award can be enforced as a judgment (in order to gain primacy over an irreconcilable foreign judgment)
Section 66 of the Arbitration Act 1966 provides that "(1) An Award made by the tribunal pursuant to an arbitration agreement may, by leave of the court, be enforced in the same manner as a judgment or order of the court to the same effect". In this case, the parties had entered into a charterparty which provided for arbitration in London in the event of a dispute. Notwithstanding the arbitration clause, the defendants commenced proceedings in Italy. The ECJ ruled that the English courts had no power to grant an anti-suit injunction. The claimant began arbitration. The defendants took no part in the arbitration and the tribunal eventually made an award in the claimant's favour. Since the proceedings in Italy were still on-going, the claimant applied under section 66 and obtained leave from the English court to enforce the award as a judgment. In this way, the claimant hoped to obtain primacy over any eventual judgment in the defendant's favour in Italy, due to the application of Article 34(3) of Regulation 44/2001. This provides that a judgment will not be recognised if it is irreconcilable with an earlier judgment given in a dispute between the same parties in the Member State in which recognition is sought (here, England).
The award in favour of the claimant declared that it was under no liability to the defendant. The defendant sought to argue, on appeal, that section 66 does not apply to declaratory judgments. That argument was rejected by Field J. The purpose of section 66 "is to provide a means by which the victorious party in an arbitration can obtain the material benefit of the award in his favour other than by suing on it". Where there is no appreciable risk of the losing party obtaining an inconsistent judgment in a member state which he might try to enforce here, leave will not be granted. However, where, as here, the applicant is trying to establish the primacy of a declaratory award over an inconsistent judgment, the court will have jurisdiction to make a section 66 order because to do would be to make a positive contribution to the securing of the material benefit of the award.
The defendants had also sought to argue that any attempt to rely on Article 34 of the Regulation was doomed to fail because of the Court of Appeal decision in National Navigation v Endesa [2010] (where it was held that it would not be contrary to public policy to recognise a judgment even where an English court would have decided that the parties had agreed to refer the dispute to arbitration - see Weekly Update 48/09). Field J held that the claimant had satisfied the threshold requirement that it had a "real prospect" of establishing the primacy of the award over an inconsistent judgment. However, at this stage, the issue did not need to be finally determined because it was hypothetical: "hypothetical because the unsuccessful party to the arbitration will not have obtained an inconsistent judgment in a member state at the time the court is dealing with the s. 66 application".
COMMENT: This case suggests a possible practical solution may exist where a party, in breach of an arbitration agreement, commences proceedings in another Member State. If the other party commences arbitration and pushes for a declaratory award in its favour as quickly as possible, this case raises the possibility that the English courts might refuse to recognise any later irreconcilable judgment from the courts of the other Member State. It was unclear whether such a step was possible in light of the Court of Appeal's judgment in National Navigation v Endesa, so this case will give renewed encouragement to parties who feel they have been wronged because the other side has sought to "grab" jurisdiction in breach of an arbitration agreement. However, the issue was not finally decided in this case and it remains to be seen whether the English courts will refuse to recognise any eventual judgment in the defendant's favour from the Italian courts.
Rotenberg v Sucafina [2011] EWHC 901 (Comm)
Status of interim appeal awards and application under section 79 of the Arbitration Act 1996
Two issues arose in this case:
(1) The status of "interim" appeal awards. Under the arbitration rules of the Coffee Trade Federation Ltd ("CTF"), a board of appeal had the power to make an interim award following an appeal (Rule 48). Eder J said that it was ambiguous whether "interim award" was meant to cover both partial and provisional awards. Section 47 of the Arbitration Act 1996 allows the tribunal to make an award which relates to part only of the claim (ie a partial award) and section 39 allows the tribunal to order on a provisional basis any relief which it would have power to grant in a final award (ie it is not final).
The issue in this case was whether the "interim" appeal award was binding or not. Eder J held that it was: "it seems to me that the much better construction of Rule 48 is one which gives effect to (or at least is consistent with) the general desirability of an arbitral tribunal having a power to make a partial award which is final and binding; and that, on this basis, Rule 48 should be read as including a power to make such a partial award".
(2) An application under section 79 of the 1996 Act (which gives the court a power to extend any time limit relating to arbitral proceedings). The claimant applied for an extension of time to take up the appeal award. Section 79 provides (inter alia) that the court should not exercise its power if a "substantial injustice" would be done. Eder J confirmed that this is a stringent hurdle to overcome.
On the evidence, the claimant (who had been advised by London solicitors), was aware of the serious consequences of not taking up the award on time. Furthermore: (1) the deadline was clear; (2) the arbitral process had been in existence for many years; (3) the defendant had not contributed to the claimant's failure to comply with the deadline; (4) the claimant had had sufficient funds to pay the CTF; and (5) the claimant's explanation for his delay was vague. The application under section 79 was therefore refused.
Disclosure
North Shore Ventures v Anstead [2011] EWHC 910 (Ch)
Whether hearing was in private and whether a non-party had a right to a Transcript
The defendants applied for a declaration that certain cross-examination hearings were in private (and hence a non-party had no right to a transcript) and an order that the claimant should not disclose the transcripts of those hearings to any third party.
Floyd J found as follows:
(1) PD 39 para 1.5(5) provides that a hearing pursuant to an order to attend court for questioning "shall in the first instance be listed by the court as hearings in private under rule 39.2(3) (c)". CPR r39.2 (3) (c) provides that a hearing may be in private if it involves confidential information (including information relating to personal financial matters). The difficulty in this case was that the hearings in question were not in fact listed in private, even though they did fall within para 1.5(5).
The judge rejected an argument by the defendants that the hearings had a "private character" which remained even if the hearings were not actually listed as hearings in private: "In my judgment, paragraph 1.5 of the Practice Direction does not deem a hearing to be in private even when it is not so listed. The correct view is that where proceedings are not listed as being in private, contrary to the terms of the Practice Direction, the general rule applies and the proceedings are in public. The public are entitled to assume, when proceedings are not listed as private, and when no sign appears on the court door to the effect that they are not to be admitted, that the proceedings are open to the public.
It is the duty of parties and their advisors, if there are no such indications and they wish proceedings to be private, to make an application for the proceedings to be conducted in private". Thus, due to the error in listing, the hearings in question were not private.
(2) CPR r34.12 provides that the product of an examination as to assets cannot be used for any purpose other than the purpose of the proceedings in which the order was made. However, there is no such corresponding provision in CPR r31.22, where a document is disclosed because it has been read to, or by, the court or referred to at a hearing in public. Floyd J held that the net effect, though, is that "although a non-party may obtain a copy of the transcript of an examination as to assets conducted in public, it may only be used by the third party for the purposes of proceedings to which, by definition, he is not a party". He agreed to mark the file with an indication that copies of the transcript could only be used for the purposes of the present proceedings.
JSC BTA Bank v Solodchenko & Ors [2011] EWHC 843 (Ch)
Norwich Pharmacal orders and the court's power to order crossexamination
A Norwich Pharmacal Order ("NPO") is a common law right which requires a respondent who is "mixed-up" in wrong doing (whether innocently or not), so as to facilitate that wrongdoing, to provide "full information" on the alleged wrongful act. In this case, the defendant (before he became a party to the proceedings) was ordered to make disclosure pursuant to an NPO and the issue arose as to whether he should be ordered to attend for cross-examination.
It is well-established by case law that the court has jurisdiction to order cross-examination on an affidavit of assets ancillary to a freezing injunction, if it is just and convenient to do so. This is in order to ascertain whether the defendant has fully and properly complied with the disclosure obligations imposed on them by the freezing order. Similar considerations apply in relation to disclosure ordered against a non-party. On the facts of this case, Henderson J was "amply satisfied" that the defendant's existing disclosure was "seriously incomplete". However, the defendant had sought to argue that cross-examination should not be ordered because the claimant had not yet reviewed all the material in its possession.
Although the judge expressed surprise at the amount of time it was taking the claimant to review documentation, he said that "there are no positive grounds for supposing that the material taken from the storage unit will provide comprehensive answers to the questions in the disclosure order; it is a matter of urgency for the Bank to seek to recover its allegedly misappropriated assets; and in a major international fraud case of the present type it is in my judgment entirely reasonable for the Bank to seek to press ahead on several fronts simultaneously". However, the cross-examination must be confined to ensuring compliance with the disclosure order, and that it should not be permitted to become a "roving inquiry" into the general merits of the underlying action.
Experts
Meat Corporation of Namibia v Dawn Meats [2011] EWHC 474 (Ch)
Whether expert was independent/disclosure of privileged information
The claimant sought a direction that permission to call an expert (sought by the defendant) be refused because she had seen confidential and privileged information and because she lacked the necessary independence of an expert. Both sides had tried to instruct her, and in the course of negotiations, the claimant had supplied certain materials to the expert, who had then chosen to act for the defendant. Mann J held as follows:
(1) It was undisputed that the expert had received privileged and confidential information from the claimant. In the House of Lords case of Prince Jefri Bolkiah v KPMG [1999], it was held that accountants who provide litigation support services must generally be treated in the same way as solicitors and hence have a duty to preserve confidentiality (including not acting for the other side). Mann J held that the strict test in Prince Jefri does not apply just because an expert has received privileged and confidential information though.
The expert in this case could not be equated with a solicitor. She had not been engaged to do anything by the claimant - she had received the information in the course of enquiries as to whether she would act as the claimant's expert: "to some extent, the information was pushed on her". The judge also said it was an "unrealistic parallel" to compare her to professionals undergoing a "beauty parade" for legal work who commonly refuse to receive privileged information.
(2) Furthermore, two factors in this case meant that confidentiality and privilege was likely to be maintained: (a) The expert had provided an undertaking not to disclose confidential or privileged material to the defendant; and (b) most of the disclosure would be irrelevant or "fundamentally uninteresting" to the defendant. For example, the defendant already knew about the claimant's offers to it. Although the claimant's view of the merits of the litigation would be of interest, that information would be covered by the undertaking.
(3) Was the expert barred from acting for the defendant? Mann J held that she was not. The court should not bar an expert just because he or she has acted for both sides. In this case, the expert had not even acted for the claimant, but had only discussed the case with it.
(4) Did the expert lack the necessary independence because she also acted as a consultant for the defendant? Mann J said this would depend on all the circumstances of the case and "If the status of an employee does not automatically disqualify a person as an expert, then it is even clearer that, by itself, the status of consultant, providing limited functions for a limited part of the year, cannot automatically disqualify either. A lot more than that would have to be established." In this case, the consultancy was an entirely severable activity. Although she might discuss the case with the defendant in the course of her consultancy, that was entirely acceptable. Experts "do not have to live in some hermetically sealed environment with resort only to witness statements".
Nor was there any requirement to seek to "ring fence" the expert. Although there had been an allegation that the expert had been involved in some of the transactions which were part of the underlying dispute, that had not yet been proven and the mere allegation was not enough to disqualify her. Mann J therefore gave the defendant permission to call the expert. He did, however, point out that it remained open to the claimant to challenge the expert's degree of independence in cross-examination at the trial.
INJUNCTIONS
Claxton Engineering v TXM Olaj-Es [2011] EWHC 345 (Comm)
Whether English court can grant injunction restraining an arbitration in an EU state
In the West Tankers v Allianz ("The Front Comor") decision, the ECJ held that an English court did not have jurisdiction to grant an anti-suit injunction restraining proceedings started in another EU member state (if that other EU member state was first seised), even if those proceedings were brought in breach of an arbitration clause.
In this case, Hamblen J held that the parties were bound by an English exclusive jurisdiction clause. However, the defendant had commenced arbitration in Hungary. It was argued by the defendant that the West Tankers decision meant that the English court had no jurisdiction to injunct arbitral proceedings taking place in another Member State, on the basis that the English court would be interfering with or usurping the supervisory functions of the Hungarian courts. Hamblen J held that that was a misinterpretation of West Tankers. That case was based on EC Regulation 44/2001 and arbitration does not
fall within the scope of that Regulation: "There is no objection to an order restraining proceedings which do not fall within the scope of the Regulation, of which arbitration is a paradigm example. Anti-suit injunctions are objectionable if they interfere with an EU court deciding on its own jurisdiction under the Regulation, but not if they do not". Hamblen J recognised that the grant of an anti-arbitration injunction is a matter of debate and controversy in the international arbitration community. Nonetheless, he held that it was clear that he had jurisdiction to grant such an injunction. He did note that "the need for caution in the grant of such injunctions is all the greater in relation to arbitrations outside the jurisdiction because such matters are generally best left to the relevant supervisory courts being the courts of the country of the seat of the arbitration". However, in this case the claimant had established the requisite "exceptional circumstances". It had established that the continuation of the arbitration would be a breach of its legal rights and that it would be vexatious and oppressive to allow the arbitration to continue. Furthermore, there was no issue here as to whether there was any (or any valid) arbitration agreement.
Accordingly, Hamblen J granted the anti-arbitration injunction. However, he noted that the claimant here was in a stronger position than most applicants as it had the benefit of a binding decision that there was an exclusive jurisdiction clause and there was no arbitration agreement.
PART 36 OFFERS
C v D [2011] EWCA Civ 646
Part 36 and time-limited offers
The claimant made an offer to the defendants in which it was stated that "the offer will be open for 21 days from the date of this letter" (emphasis added). The letter was headed "Offer to Settle under CPR Part 36" and made various other references to Part 36. After the expiry of 21 days, the claimant agreed a short extension of time for acceptance of the offer but the defendants failed to respond. Almost a year later the defendants purported to accept the offer, which had never formally been withdrawn. The claimant argued that the offer was not capable of acceptance at that time and so had not been accepted.
At first instance, Warren J held that this was a time-limited offer which was not permissible under Part 36. Accordingly, this was an ordinary (time-limited) offer, which had ceased to be open for acceptance. The defendants appealed that decision. The Court of Appeal has found as follows:
(1) Although there is no express exclusion in Part 36, it is not possible to make a timelimited offer: "unless the offer has been withdrawn before the expiry of the relevant period with the permission of the court, or the offer has been withdrawn after the expiry of that period by the service of a written notice of withdrawal, there is no room for an offer which is neither withdrawn before or after the expiry of the relevant period, but lapses as a matter of its own terms".
(2) However, the offer in question was not a time-limited offer. Reading the offer as a whole, Rix LJ said: "In the context of Part 36, it seems to me to be entirely feasible and reasonable to read the words "open for 21 days" as meaning that it will not be withdrawn within those 21 days." It also served as a warning that a withdrawal of the offer after 21 days was "on the cards". Of particular significance here was the fact that the offer was clearly intended to be a Part 36 offer.
(3) Given that the offer was a Part 36 offer, had it been withdrawn? The Court of Appeal decided that it had not. The terms of the offer itself did not amount to a withdrawal of the offer at the end of the 21 days. The correspondence between the parties had only amounted to an extension of the time for acceptance but there had been no formal withdrawal of the offer. Accordingly, it was still open for acceptance.
Finally, it is worth noting Burnton LJ's comment that: "any ambiguity in an offer purporting to be a Part 36 offer should be construed so far as reasonably possible as complying with Part 36". This approach reflects a growing judicial trend to not allow "technical challenges" to Part 36 offers, where possible. Such an approach will normally favour the offeror (although that wasn't the case for the offeror here - the offer he had made and which remained open had become unfavourable by the time the other side accepted it).
PRIVILEGE
Jones v Kaney [2011] UKSC 13
Supreme Court abolishes expert witnesses' immunity from negligence claims by their clients
The appellant was injured in a road traffic accident. His solicitors instructed the respondent, a consultant clinical psychologist. In due course a district court ordered that the respondent meet with the expert retained by the other side and prepare a joint statement. That joint statement was damaging to the appellant's claim. It transpired that the respondent had signed the joint statement because she had felt under pressure and she had not agreed with the statement's conclusions. The district judge would not permit the appellant to change his expert and the appellant felt obliged to settle the case for less than would have been achieved had the respondent not signed the statement. The appellant's claim against the respondent for negligence was dismissed at first instance because of the long-standing principle that expert witnesses are immune from liability in negligence in relation to the performance of their duties in that capacity. However, since the issue raised a point of law of general public importance, the judge allowed the case to "leapfrog" to the Supreme Court.
By a majority of 5:2, the Supreme Court has allowed the appeal. The main reasons given by the majority for abolishing the immunity were as follows:
(1) Analogy with position for advocates. In Hall v Simons [2002], the House of Lords swept away the advocate's immunity from liability in negligence (both in court and out - but not their immunity from claims for defamation). However, in that case a distinction was drawn between advocates and expert witnesses. The Supreme Court has now held that that distinction is no longer tenable since both undertake a duty to provide services to the client.
(2) There was no basis for assuming that expert witnesses would be discouraged from providing their services or would not give full and frank evidence to the court if the immunity was removed (the so-called "chilling" factor). It was also not realistic to anticipate that they would become subject to vexatious claims. Lord Brown opined that the courts should be alert to protect expert witnesses against specious claims by disappointed litigants, "not to mention to stamp vigorously upon any sort of attempt to pressurise experts to adopt or alter opinions other than those genuinely held".
(3) Wasted costs orders and disciplinary proceedings can already be made against witnesses. There were therefore no longer any policy reasons for retaining the immunity.
Accordingly, expert witnesses are no longer immune from suit in relation to the evidence which they give in court or for the views which they express in anticipation of court proceedings. Witnesses of fact, however, remain immune from suit.
COMMENT: Despite the Supreme Court's assurances, this decision may well deter expert witnesses (such as underwriting experts) from acting, especially when the provision of expert evidence does not form the bulk of a practitioner's work. The position will be particularly difficult for jointly instructed experts, who owe duties to each of the parties who instruct them. As such, they might (as Lady Hale suggested in her dissenting opinion) be more vulnerable to claims because they are likely to disappoint at least one of those instructing them. PI underwriters may also now require additional information from professionals as to the amount of expert witness work they generally undertake and may consider an increase in premiums for those for whom this type of work forms a significant proportion of their activities.
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