The commercial liTigaTion journal · The commercial liTigaTion journal March/April 2020 • Number 90 This is your captain speaking No privilege for aviation authority communications

The commercial liTigaTion journal

www.lawjournals.co.uk March/April 2020 • Number 90

This is your captain speakingNo privilege for aviation authority communications

Flown the nestTravelling salesman fails to claim English jurisdiction

WordsearchParty rebuked for data search using unagreed keywords

Service not includedJudgments against hard-to-find defendants

Hushed moneyAnonymity issues in dealing with crypto-frauds

To cap it all?No limit on litigation funder’s liability

Check the train timesLimitation deadlines in rail franchise procurement

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Contents The Commercial Litigation Journal

Insights by Penningtons Manches Cooper: cabin pressure Page 2Clare Arthurs and Nicole Finlayson chart the course of legal advice privilege

Jurisdiction: a poultry dispute Page 6David Sawtell discusses a free range in the choice of jurisdiction

Search orders: seek and ye shall find Page 10Stewart Hey, Rhys Novak and Simon Heatley discover new depths in search orders

Practice: your serve Page 13Robert Danvers reports on dispensing with service

Regulation: funny money Page 16Keith Oliver, Amy Harvey and Amalia Neenan assess the impact of regulation and civil remedies on crypto-criminality

Funding: hats off Page 20Michael Taylor, Gawain Moore, Duncan Lole and Gwendoline Davies weigh up a Court of Appeal decision on the adverse costs liability of litigation funders

Limitation: the need for speed Page 22Andrew Ward, Pierre Welch and Leah Alpren-Waterman track time limits in rail franchise public procurement claims

2 The Commercial Litigation Journal March/April 2020

Cabin pressure

Clare Arthurs (pictured top) is an associate director and Nicole Finlayson a knowledge lawyer with Penningtons Manches LLP

T he airline Jet2 has been flying high while the Civil Aviation Authority (CAA) had a bumpy landing in

the Court of Appeal in a key judgment on legal advice privilege (LAP).

In The Civil Aviation Authority v The Queen on the Application of Jet2.com Ltd [2020], the Court of Appeal gave important guidance on the application of LAP, confirming that for LAP to apply, the dominant purpose of a communication must be to give or seek legal advice.

Fasten your seatbelts The underlying dispute arose out of Jet2’s decision not to participate in the CAA’s new alternative dispute resolution scheme for consumer complaints (the scheme). In December 2017 the CAA published a press release criticising airlines who chose not to participate, including Jet2 (the press release).

Jet2 wrote to the CAA complaining about the tone and content of the press release and explaining its reasons for not joining the scheme (the 16 January letter). The CAA replied to Jet2 (the 1 February letter) and then provided a copy of the exchange to the Daily Mail, which subsequently published articles which were critical of Jet2 and largely adopted the CAA’s stance.

Chocks awayTaxiing to the Administrative Court, Jet2 issued judicial review proceedings challenging the CAA’s decisions to issue the press release, publish the resulting correspondence and provide that correspondence to the Daily Mail. Jet2 argued that the CAA had no power to make the publications or that alternatively, if it did have such power, it had exercised the power for unauthorised and improper purposes

ie to damage Jet2’s trading interests, punish Jet2 for not joining the scheme and pressure Jet2 into joining it.

Jet2 applied for disclosure of various categories of document, including all drafts of the 1 February letter and all records of discussions of those drafts. These, it said, were necessary to understand the CAA’s reasons and purpose behind the publication of the letter, and were therefore relevant to the ‘improper purposes’ grounds of challenge. One draft and its covering email had already been disclosed voluntarily (the 24 January email), but the CAA claimed LAP over other emails and drafts in the discussion.

Deciding the application at first instance, Morris J held that these documents should be disclosed. After a careful review of the authorities and the leading text Documentary Evidence by Charles Hollander QC, and despite acknowledging commentary to the contrary, he concluded that claims to LAP are subject to a dominant purpose test.

He also observed that the issue of dominant purpose is unlikely to arise in emails to external lawyers, but may well be more acute where material is sent to in-house lawyers, who may have a dual role in the company (ie both legal and commercial).

Turning specifically to emails sent to multiple addressees, including both lawyers and non-lawyers, the judge held that although the position is not established by authority, if the dominant purpose is to seek advice from the lawyer and others are copied in for information only, then the email will be privileged. However, if the dominant purpose of the email is to seek commercial views, then regardless of whether the lawyer was

InsIghts by PennIngtons Manches cooPer

‘If the dominant purpose of the email is to seek commercial views, then regardless of whether the lawyer was copied in for information or for the purpose of legal advice, the email, in so far as it is sent to a non-lawyer, is not privileged.’

Clare Arthurs and Nicole Finlayson chart the course of legal advice privilege

The Commercial Litigation Journal 3


March/April 2020

copied in for information or for the purpose of legal advice, the email, in so far as it is sent to a non-lawyer, is not privileged. Further, if the email is sent to the non-lawyer for commercial comment, but sent to the lawyer for legal advice, then it will not be privileged unless it or the non-lawyer’s response discloses or might disclose the nature of the legal advice.

Take-offSparks flew in particular regarding an internal email sent on 24 January by a non-lawyer to an in-house lawyer and other non-lawyers at the CAA. Applying the above test, Morris J found that the 24 January email and its attachment were not privileged because they were not prepared for the dominant purpose of obtaining legal advice and did not disclose the nature of legal advice sought.

He accepted Jet2’s contention that by disclosing the 24 January email, the CAA had waived privilege in all communications concerning the draft 1 February letter (ie a collateral waiver), and he described the communications as ‘a single process of internal discussion, which does not have discrete parts’ (para 22). He thus concluded that the transaction in question comprised all drafts of the 1 February letter, and emails and internal discussions about those drafts. Fairness required disclosure of the entire chain regardless of whether or not individual documents contained legal advice.

The CAA appealed to the Court of Appeal.

Cruising at altitudeHickinbottom LJ gave a soaring leading judgment. While the focus of the appeal was largely on whether a dominant purpose test applied, he identified five relevant propositions from the authorities regarding LAP. The first three, he said, are uncontroversial, while the other two require greater consideration (readers may wish to swap their hot towel for a cold one at this point):

Proposition 1LAP applies not only to communications with external lawyers, but also with in-house lawyers.

Proposition 2LAP attaches not only to a document from the lawyer containing advice and the client’s own written record of a lawyer’s advice, but also to any communication passing on, considering

or applying that advice internally. LAP will, in certain circumstances, attach to the dissemination of advice to third parties, and (when authorised) communications from a lawyer to a third party (Raiffeisen Bank International AG v Asia Coal Energy Ventures Ltd [2020]).

Proposition 3LAP applies to communications only for the purpose of obtaining or giving legal advice, and not other professional or commercial advice.

Proposition 4Material collected by a client (or a lawyer on their behalf) from third parties or independent agents for the purposes of instructing lawyers to advise is not covered by LAP. Where the client is a corporation, documents between an employee and a co-employee or the corporation’s lawyers do not attract LAP, even if required or designed to equip those lawyers to give legal advice to the corporation, unless the employee was tasked with seeking and receiving such advice on behalf of the company.

This proposition derives from Three Rivers District Council v The Governor and Company of the Bank of England (No 5) [2003] as followed (with express reluctance) by the Court of Appeal in Director of the Serious Fraud Office v Eurasian Natural Resources Corporation Ltd [2018]. Hickinbottom LJ would also have been ‘disinclined to follow’ Three Rivers (No 5) had he been able to do so (para 57). He agreed with Sir Geoffrey Vos C in Eurasian that Three Rivers (No 5) is out of step with overseas common law. It is also ‘unsafe’ because it was founded on analysis of authorities

decided when the distinction between litigation privilege and LAP was ‘very much in its infancy’. It is also, in the modern world, likely to place larger corporations at a disadvantage compared to smaller entities.

He also added that (para 56):

i) … where lawyers are instructed, the individual within a corporation instructing them must be able to ensure that the instructions are in accordance with the wishes of the senior executives in the company, which may involve input from more junior employees who are knowledgeable about the relevant issues. Internal communications settling instructions must be covered by LAP. It is unclear to me how the proposition in Three Rivers (No 5) quite allows for that.

ii) For no obvious reason, the law in relation to LAP as set out in Three Rivers (No 5) in respect of collection of information for the instruction of lawyers appears to be out of line with the law in respect of the dissemination of advice from lawyers, once received.

Hickinbottom LJ held that, on the evidence, all the relevant lawyers were in-house lawyers acting in a legal rather than commercial capacity. All the non-lawyers involved were senior executives and fell within the scope of the ‘client’. Accordingly, LAP would attach to any confidential communication between lawyer and non-lawyer that was made for the purpose of giving or obtaining legal advice (Three Rivers (No 5) distinguished).

Proposition 5For LAP to apply, the relevant communication must be made ‘in

Material collected by a client (or a lawyer on their behalf) from third parties or independent agents for the purposes of instructing lawyers to advise is not

covered by LAP.

4 The Commercial Litigation Journal


March/April 2020

a legal context’ (the first limb), but otherwise ‘legal advice’ is widely defined (the second limb).

In respect of the legal context, Morris J had found that the CAA’s lawyers were engaged in the internal correspondence as lawyers, such

that communications to them were generally made in an appropriate ‘legal context’. As to ‘legal advice’, Hickinbottom LJ emphasised that (para 68):

… it is now well-established and uncontroversial that LAP covers more than just communications between lawyers and clients with regard to what the law is.

Leaving aside the issue of whether the relevant purpose must be dominant, the authorities indicate that (para 69):

i) Consideration of LAP has to be undertaken on the basis of particular documents, and not simply the brief or role of the relevant lawyer.

ii) However, where that brief or role is qua lawyer, because ‘legal advice’ includes advice on the application of the law and the consideration of particular circumstances from a legal point of view, and a broad approach is also taken to ‘continuum of communications’, most communications to and from the client are likely to be sent in a legal context and are likely to be privileged. Nevertheless, a particular communication may not be so – it may step outside the usual brief or role.

ii) Similarly, where the usual brief or role is not qua lawyer but (e.g.) as a commercial person, a particular document may still fall within the scope of LAP if

it is specifically in a legal context and therefore, again, falls outside the usual brief or role.

iv) In considering whether a document is covered by LAP, the breadth of the concepts of legal advice and

continuum of communications must be taken into account.

v) Although of course the context will be important, the court is unlikely to be persuaded by fine arguments as to whether a particular document or communication does fall outside legal advice, particularly as the legal and non-legal might be so intermingled that distinguishing the two and severance are for practical purposes impossible and it can be properly said that the dominant purpose of the document as a whole is giving or seeking legal advice.

vi) Where there is no such

intermingling, and the legal and non-legal can be identified, then the document or communication can be severed: the parts covered by LAP will be non-disclosable (and redactable), and the rest will be disclosable…

vii) A communication to a lawyer may be covered by the privilege even if express legal advice is not sought: it is open to a client to keep his lawyer acquainted with the circumstances of a matter on the basis that the lawyerwill provide legal advice as and when he considers it appropriate.

GroundedThe Court of Appeal unanimously dismissed the appeal.

Ground 1: the dominant purpose testIt was common ground that there was no direct authority on this

point. The Court of Appeal, however, agreed with Jet2, confirming that the balance of authority was in favour of the dominant purpose test applying to LAP. Eurasian was the only authority to suggest that the dominant purpose test does not apply; but that was obiter and the court had not reviewed the authorities.

Hickinbottom LJ further criticised Three Rivers (No 5) for a lack of clarity on this point, but observed that their Lordships appeared to have assumed that the dominant purpose test applied without adverse comment.

Moreover, there is no compelling rationale for differentiating between the two limbs of legal professional privilege as regards a dominant purpose test. The fact that common law jurisdictions such as Australia, Singapore and Hong Kong have all adopted a dominant purpose test for both litigation privilege and LAP not only suggests that such a test can work in practice, but also that it is advantageous for the common law to adopt similar principles.

Accordingly, while accepting that the jurisprudence and authorities ‘do not speak with a single, clear voice’, the Court of Appeal therefore accepted that a claim for LAP requires the party claiming the privilege to show that the relevant document or communication was created or sent for the dominant purpose of obtaining legal advice (para 94).

Ground 2: multi-addressee communicationsThe CAA had accepted that the dominant purpose of the relevant documents could not be said to seek legal advice. Neither could it be said that they might realistically disclose the nature of the legal advice sought from or given by the in-house lawyer. Hickinbottom LJ generally agreed with the approach that Morris J had applied to these documents.

The appropriate approach to multi-addressee emails is the following:

• Although the general role of the lawyer may be a useful starting point, the dominant purpose test must be applied to each document and communication.

The CAA had accepted that the dominant purpose of the relevant documents could not be said to seek legal advice.



March/April 2020

• In respect of single emails sent simultaneously to multiple addressees for advice/comment, including a lawyer, the purpose(s) of the communication must be identified, with the wide scope of ‘legal advice’ and the concept of ‘continuum of communications’ being taken fully into account. Is the dominant purpose to settle instructions to the lawyer, or to obtain the commercial views of the non-lawyer addressees?

• If the response from the lawyer contains legal advice then it will almost certainly be privileged, even if copied to more than one addressee.

• Multi-addressee communications should be considered as separate bilateral communications between the sender and each recipient.

• There is ‘some benefit’ in considering whether the email would have been privileged if it was sent to the lawyer alone (as if not, the issue of whether any of the other emails are privileged ‘hardly arises’).

• Whether considered as a single communication or separate ones, in many cases there would not be any difference in consequence.

• Where a communication might realistically disclose legal advice, that communication will in any event be privileged.

• In terms of meetings attended by lawyers and non-lawyers, the same principles apply as to documents and communications. Hickenbottom LJ also clarified

that when considering whether a document discloses or might disclose the nature of legal advice sought or given, then:

• it is not necessary for legal advice to have been specifically requested; and

• the document must be considered in the context of the communications preceding and following it.

In the present case, the 24 January email was not privileged; although sent to three recipients, of whom one was a lawyer, its dominant purpose was not to obtain legal advice.

Ground 3: separate consideration of emails and attachmentsThe Court of Appeal confirmed that Morris J had not erred in requiring emails and attachments to be separately considered for the purposes of judging to which LAP attached (para 107):

It is well-established that a document which is not privileged does not become so simply because it is sent to lawyers, even as part of a request for legal advice… In giving disclosure, some separate consideration of substantive documents and attachments therefore has to be undertaken.

Ground 4: waiverMorris J had held that if he was wrong in concluding that the relevant documents were not privileged, privilege had been waived in any case (collaterally) by the CAA disclosing the 24 January email. Although this ground was now academic, Hickinbottom LJ nonetheless addressed it shortly, finding (albeit obiter) that Morris J was wrong to conclude that there would have been a collateral waiver.

The starting point is to ascertain ‘the issue in relation to which the [voluntarily disclosed material] has been deployed’ ie the ‘transaction test’ as defined in General Accident Fire and Life Assurance Corporation Ltd v Tanter [1984]. The waiver will be limited to documents relating to that ‘transaction’, subject to the overriding requirement for fairness. The transaction is not the same as the subject matter of the disclosed document or communication, and waiver will not automatically apply to all documents which could be described as relevant to the issue, as is the case in disclosure. The purpose and nature of the voluntary disclosure are crucial in assessing what constitutes the relevant transaction.

Morris J had wrongly identified the transaction. The CAA’s purpose in disclosing the 24 January email and attached draft was to show that the language used in the previous 18 January email (which was not

privileged) was not reflective of the CAA’s approach. Consequently, the relevant transaction so far as that voluntary disclosure was concerned was restricted to the 24 January email. Fairness did not require more.

The long haul?In-house lawyers should adopt the brace position and consider the Court of Appeal’s pragmatic points regarding how organisations with an in-house legal function communicate internally. Can communications between lawyers and non-lawyers be kept separate, and meetings for more than one purpose be held separately, as far as possible?

The Court of Appeal recognised the importance of privilege to the rule of law, but noted that it was not an absolute principle. Hickinbottom LJ was ‘unimpressed’ by the submission that the application of the dominant purpose test to LAP would make it difficult for those who wish to obtain legal and non-legal advice simultaneously. Other commonwealth countries have adopted the test without apparent difficulty; and perhaps more tellingly (para 93):

… LAP is a privilege, and those who wish to take advantage of it should be expected to take proper care when they do so.

The Court of Appeal’s renewed criticism of Three Rivers (No 5) and the plethora of cases relating to privilege in the last 12 months suggest that privilege (whether litigation or LAP) will continue clocking up judicial air miles for the foreseeable future. n

Director of the Serious Fraud Office v Eurasian Natural Resources Corporation Ltd [2018] EWCA Civ 2006General Accident Fire and Life Assurance Corporation Ltd v Tanter [1984] 1 WLR 100 Raiffeisen Bank International AG v Asia Coal Energy Ventures Ltd & anor [2020] EWCA Civ 11The Civil Aviation Authority v The Queen on the Application of Jet2.com Ltd [2020] EWCA Civ 35Three Rivers District Council & ors v The Governor and Company of the Bank of England (No 5) [2003] EWCA Civ 474


A poultry dispute

David Sawtell is a member of 39 Essex Chambers

N ot all commercial agreements between international parties will expressly state the law

applicable to the substance of the agreement. If a dispute arises, the court will have to identify the appropriate applicable law. In GDE LLC v Anglia Autoflow Ltd [2020], the Commercial Court in London had to apply the Rome Convention to an unusual factual matrix, where a travelling salesman splitting his time between the US and Canada, who intended to set up an unincorporated company, entered into an agreement containing a jurisdiction clause that disputes would be resolved in England. The case gives an opportunity to explore how the Rome Convention operates to determine the applicable law to a contract in a complicated factual matrix.

The applicable law and the Rome ConventionA number of different laws could govern different aspects of a commercial agreement and disputes arising out of it. The parties to the agreement might well have different rules (such as company law) affecting their capacity to contract. The law or relevant rules governing the substantive issues of the contract (such as performance and termination) may be agreed in the contract by the parties. This is often called the ‘applicable law’ or the ‘substantive law’. This may well be different to the law of where any disputes are heard in litigation, the lex fori. Often the lex fori will determine the procedure as to the conduct of the dispute. ‘Procedure’ in English common law is given a very wide meaning: for example, as well as the law of evidence, the question of remedies (including the quantification of damages) is typically

determined under the lex fori. If there is an arbitration agreement, a different set of considerations will need to be taken into account, such as the law governing the arbitration agreement and its validity, the law governing the existence and proceedings of the arbitral tribunal (the lex arbitri) and, if an award is to be enforced, the law governing the recognition and enforcement of the award.

When drafting ‘choice of law’ clauses, therefore, professional advisers should consider all the possible permutations that might govern the parties’ relationship over the lifetime (and beyond) of the agreement, as well as any disputes (including different forms of alternative dispute resolution) arising from them.

There are obvious attractions to different countries adopting a harmonised regime, so as to give freedom of choice to contracting parties as well as to prevent ‘forum-shopping’ in the event of a dispute. Work carried out in the 1960s and 1970s led to the Rome Convention on the law applicable to contractual obligations, which was opened for signature in 1980. Alongside the Convention was published a report by Professors Mario Giuliano and Paul Lagarde (see box on p8), which is afforded a special status in the interpretation of the Rome Convention.

The Rome Convention is given effect in English law by the Contracts (Applicable Law) Act 1990. The 1990 Act applies to all contracts made between 1 April 1991 and 16 December 2009. After this date, Reg 593/2008 on the law applicable to contractual obligations (Rome I) applies to all contracts which are not

Jurisdiction

‘When conducting the enquiry under Art 4(1), the court should carry out an objective assessment of all the factors characterising the contractual relationship and determine which of those factors are the most significant.’

David Sawtell discusses a free range in the choice of jurisdiction


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March/April 2020

expressly excluded from its operation. Rome I’s regime is structurally similar, although its provisions are more prescriptive where there has been no choice of law and there are a number of small detailed differences.

At the time of writing, both the Rome Convention and Rome I are planned to continue in force in English law after the end of the Brexit transition period on 31 December 2020. The Law Applicable to Contractual Obligations and Non-Contractual Obligations (Amendment etc) (EU Exit) Regulations 2019 makes a number of amendments to the 1990 Act, but its substantive rules will continue to apply.

The Rome Convention applies to contractual obligations. It does not apply to questions of procedure and evidence (Art 1(2)(h)), arbitration agreements, agreements as to the choice of court (Art 1(2)(d)), or a number of other carve-outs going to the constitution and capacity of contracting parties.

The primary rule under the Rome Convention is that a contract is governed by the law chosen by the parties save for very limited circumstances (Art 3(1)). If the choice is not express, it must be ‘demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case’. This was one of the issues in play in the GDE case.

Where the parties have not chosen the law applicable to the contract, Art 4 provides a set of rules to determine the applicable law. The general principle underlying Art 4 is that the contract should be governed by the law of the country with which it is most closely connected. This is

set out in Art 4(1) which states that, to the extent that the parties have not chosen the applicable law, ‘the contract shall be governed by the law of the country with which it is most closely connected’. This provision also opens up the possibility that the contract

may be severed, with a severable part determined by the law of another country which has a closer connection to that part.

Articles 4(2)-(5) then provide for and regulate a number of presumptions. Article 4(2) has two parts:

• Subject to Art 4(5) (see below):

… it shall be presumed that the contract is most closely connected with the country where the party who is to effect the performance which is characteristic of the contract has, at the time of conclusion of the contract, his habitual residence, or, in the case of a body corporate or unincorporate, its central administration.

This sentence applies to contracts which are not concluded in the course of the characteristic performer’s trade or profession. In such circumstances, the

presumption points towards the performer’s habitual residence (for a natural person) or its place of central administration otherwise.

• The second part qualifies this presumption towards the country

of the performing party, where the contract is concluded in the course of the characteristic performer’s trade or profession:

… if the contract is entered into in the course of that party’s trade or profession, that country shall be the country in which the principal place of business is situated or, where under the terms of the contract the performance is to be effected through a place of business other than the principal place of business, the country in which that other place of business is situated.

This points towards the place where the performer’s principal place of business is situated. This is unless the contract stipulates that performance is to be effected through another place of business, in which case it is the country where that stipulated place of business is situated which

Where the parties have not chosen the law applicable to the contract, Art 4 provides a set

of rules to determine the applicable law.

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Jurisdiction

March/April 2020

is deemed to be most closely connected.

Article 4(3) provides for a presumption that where the subject matter of the contract is immoveable property, the country where the

immoveable property is situated is where the contract is most closely connected with.

Article 4(4) displaces the presumption in Art 4(2) for carriage of goods, instead stating that if where the carrier has its principal place of business is also the country in which the place of loading, the place of discharge or the principal place of business of the consignor is situated, it shall be presumed that the contract is most closely connected with that country.

Article 4(5) provides for a flexible safety valve if the above presumptions lead to inapt results:

Paragraph 2 shall not apply if the characteristic performance cannot be determined, and the presumptions in paragraphs 2, 3 and 4 shall be disregarded if it appears from the circumstances as a whole that the contract is more closely connected with another country.

The difficulty with this regime of presumptions, together with the regulating provisions in Arts 4(1) and 4(5), is that it can lead to difficult and uncertain decision-making if the factors referred to are finely poised or not obviously applicable. This is in contrast to Rome I, which provides for ‘bright line’ rules. The GDE case amply illustrates this point.

The facts of GDEGDE, the first claimant, is incorporated in Georgia, US; Mr Goffe, the second claimant and a British national, is its only shareholder. The defendant, Anglia Autoflow, is an English company manufacturing machinery

for processing poultry. Anglia Autoflow hoped to expand its sales into Ontario, Canada. Mr Goffe had spent almost his entire working life in the poultry processing industry. At the time of the agreement, he lived in Georgia, but was looking for a job that would allow him to move to Ontario temporarily before returning to live in Georgia permanently. In the run-up to entering into the agreement, Mr Goffe had split his time between Georgia and Ontario.

On 9 April 2009, Anglia Autoflow entered into an agreement for a company to be incorporated by Mr Goffe which would then act as its commercial agent in various territories in North America. The agreement was signed in Ontario. On 21 April 2009, GDE was incorporated in Georgia. The agency agreement came to an end by 6 April 2013. Mr Goffe and GDE claimed against Anglia Autoflow for unpaid commission and damages for alleged repudiatory breach of the agreement.

By clause 11 of the agency agreement, the parties agreed to subject themselves to the jurisdiction of the English courts. There was no clause providing for the applicable law. Julia Dias QC, sitting as a deputy judge of the High Court, had to determine this as a preliminary issue. Given the unusual facts, the judge had to go into the moving

parts of the Rome Convention in some detail.

Pleading the Rome ConventionThe claimants pleaded that there was an implied choice of English law under Art 3(1), mostly as a consequence of the English jurisdiction clause, but also from the other circumstances of the case. The defendant pleaded that there was no implied choice, and that Art 4(2) pointed to Ontario law. At the hearing, the claimants then went on to argue the unpleaded point that if Art 3(1) was not engaged, Art 4(2) pointed to Georgian law. The defendant objected, contending that a party wishing to rely on the provisions of a foreign system must plead and prove that law: the only choice open to the judge was therefore either English or Ontario law. The judge rejected this pleading point, noting at para 22 that:

… once the wheels of the Convention had been put in motion, they could not be stopped short of their destination.

It was not open to the court to apply the Convention of its own motion. Once, however, the Convention was invoked in the pleadings, it was held that this was a sufficient plea of foreign law to enable the court to follow the Convention process to its logical conclusion without it being necessary to plead expressly each and every possible system of law that might apply thereunder (para 32).

Interpreting the Rome ConventionThe judge made it clear that the Rome Convention has to be interpreted with an international, purposive approach, rather than a narrow, literal approach. Furthermore, by s3(3)(a) of the 1990 Act, the report by Professors Giuliano and Lagarde is an authoritative aid to interpretation.

The judge made some important general points about Arts 3 and 4:

• Article 3 looks for a mutual choice of law by the parties, whether or not expressly stated. Article 4, on the other hand, looks for a connection between the contract

The judge made it clear that the Rome Convention has to be interpreted with an international, purposive approach, rather than a narrow, literal approach.

Report on the Convention on the law applicable to contractual obligations, Mario Giuliano, (Professor, University of Milan) and Paul Lagarde (Professor, University of Paris I), OJ C 282, 31.10.1980

References


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March/April 2020

and a particular country: specific factors may carry more or less weight depending upon the context in which they are being considered (para 103).

• The overriding objective of Art 4 is to identify the country with which the contract is most closely connected. Article 4(5) requires the presumption in Art 4(2) to be disregarded if it leads to a result that is not consistent with the general principles of closest connection set out in Art 4(1) (para 104).

• Article 3(1) looks to the date of the contract. It is, however, permissible to take account of subsequent events to the point that they demonstrate what, if anything, the parties impliedly agreed at that date. By parity of reasoning, the same approach applies to Art 4(2) (paras 107-108).

Applying the Rome ConventionThe first question was whether the parties had made an implied choice of law. Article 3(1) stipulates that such a choice must be demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case. The judge took the view that this was the same test as in Rome I that any choice of law has to be ‘clearly demonstrated’, bringing the English and German texts of the Rome Convention in line with the equally authoritative French text, which requires ‘de façon certaine’. The Court of Appeal in Lawlor v Sandvik Mining and Construction Mobile Crushers and Screens Ltd [2013] confirmed that the test is objective (with the unspoken thoughts of the parties being inadmissible): at para 33 in that case, it was stated that a party:

… does have to satisfy the court that the only reasonable conclusion to be drawn from the circumstances is that the parties should be taken to have intended the putative law to apply.

The claimants relied on clause 11, submitting the parties to the jurisdiction of the English court. Whether or not it was an exclusive or non-exclusive jurisdiction clause was

only one part of assessing the impact of this clause for the purpose of Art 3(1). Ultimately, clause 11 was not sufficient to show that there was a positive choice of English law as the applicable law, even if this may well have been the (private, and hence inadmissible) assumption on both sides. The other

factors relied on by the claimants were not sufficient, either individually or cumulatively, to demonstrate a positive choice of law.

It was therefore necessary for the judge to consider how to apply Art 4. The problem for the judge was that the characteristic performer, GDE, did not exist at the date of the contract. The parties advanced competing and not entirely convincing analyses of Art 4(2). The judge refused to strain its language, and instead chose to fall back on the default principle of Art 4(1). As was noted at para 175, this was:

… the correct approach to adopt in the circumstances of the case where the characteristic performer had no principal place of business at the date of the contract.

When conducting the enquiry under Art 4(1), the court should carry out an objective assessment of all the factors characterising the contractual relationship and determine which of those factors are the most significant. Article 4(1) seeks to find the country, not the system of law, with which the contract is most closely connected. Further, it is the contract, and not the parties, which must be most closely connected with the country.

In the instant case, the judge concluded that the centre of gravity of the agreement was Ontario. The two factors that carried the most weight were that:

• both parties contemplated that the agency would focus primarily on Canada and eastern Canada in particular; and

• Mr Goffe’s domestic base was in Ontario, from which he worked when he was not on the road both at the date of the contract and thereafter.

Clause 11 was an ancillary dispute resolution provision which had

nothing to do with the substance of the contract.

Conclusion: spitting feathersThe GDE case was hotly disputed, with limited common ground between the parties. It is a good case study of how the Rome Convention works. Litigators should be aware of the following:

• The Rome Convention is not applied in the same way as English legislation. Instead the courts adopt an international, purposive approach.

• Once the Rome Convention is pleaded, the court should apply it to its conclusion. The court might well be sceptical of narrow pleading points.

• If the parties do not expressly state the applicable law, it can be a high hurdle to establish that, nevertheless, Art 3(1) applies in that the parties made an implied choice of law. The test is whether such an intent is ‘clearly demonstrated’.

• The court is likely to be reluctant to strain to apply the presumptions in Art 4(2), instead falling back on the general principle in Art 4(1). n

Article 4(1) seeks to find the country, not the system of law, with which the contract is most

closely connected.

GDE LLC (formerly Anglia Autoflow North America LLC) & anor v Anglia Autoflow Ltd [2020] EWHC 105 (Comm)Lawlor v Sandvik Mining and Construction Mobile Crushers and Screens Ltd [2013] EWCA Civ 365


Seek and ye shall find

Stewart Hey (pictured top) and Rhys Novak (pictured bottom) are partners and Simon Heatley a knowledge development lawyer with Charles Russell Speechlys LLP

A search order is perceived to be one of the most, if not the most, draconian orders the court can

make. It authorises a claimant to enter a defendant’s premises to search for, copy and remove documents or other material. The purpose of the order is, as the statutory basis for it makes plain, to preserve evidence. The recent case of TBD (Owen Holland) Ltd v Simons [2020] highlights the risk that a party may face a strike out of its claim if it takes steps beyond this. The case also adds much-needed guidance on the practical issues presented by imaged data and how the current standard form search order, and the safeguards built into its terms, are both currently out of step when it comes to electronic rather than physical documents.

Background factsIn a claim relating to the alleged infringement of intellectual property rights, the claimant obtained a search order for the copying of documents from computers at the first and second defendants’ premises. The search order set out the categories of documents subject to the order, covering both physical and electronic documents. It reflected the standard form terms appended to Practice Direction (PD) 25A, in particular the safeguards noted further below. It also included non-standard terms that:

• the defendants provide access to enable forensic images of the data on their computers to be taken; and

• the claimant’s computer experts could take a copy of the files on any computers found on the premises for analysis by them following completion of the search. Following this analysis, they could deliver into

the safekeeping of the claimant’s solicitors any further relevant items which they recovered.

The claimant conducted a file-by-file review of some items, which appeared to have been physical materials. Digital data comprising some 400,000 files was imaged pursuant to the order. It was agreed, as recorded in the supervising solicitor’s report, that there would follow discussion between the solicitors acting for the parties as to how computer experts engaged for the exercise would extract the relevant items from the data.

The claimant’s solicitors subsequently wrote to the solicitors for the first, second and third defendants seeking to agree parameters for a search of the copied data and providing proposed keywords. Chasers were sent to the solicitors and also to the first defendant who was no longer represented, concluding that it would be presumed that the keywords were agreed and the search would proceed on this basis. The solicitors for the second and third defendants did not respond, but the first defendant did, objecting to the suggested keywords.

The claimant proceeded to search the copied data using the keywords. It used the search results to join additional defendants, pursue committal proceedings and seek to obtain evidence from third parties.

The third, fourth and fifth defendants, who had been joined to the proceedings, contended that this was in breach of the search order and sought relief, including the strike out of the claims against them.

Search ordersThe statutory basis for search orders is set out in s7 of the Civil Procedure Act

search orders

‘Search orders by their nature are preservatory and the question of the use of preserved material must be raised specifically with the court.’

Stewart Hey, Rhys Novak and Simon Heatley discover new depths in search orders


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March/April 2020

1997, which is echoed in the relevant part of the Civil Procedure Rules (CPR), CPR 25.1(1)(h). Section 7 provides that the court may make an order for the purpose of securing the preservation of evidence or property which is or may be relevant to existing or proposed proceedings.

Section 7 states that an order may permit a person to enter premises in the jurisdiction, carry out a search for or inspection of anything described in the order and make or obtain a copy, photograph, sample or other record of anything so described.

Certain safeguards are built into the process:

• In common with any interim injunction made without notice, the applicant must:

• provide an undertaking to pay any damages which the respondent sustains and which the court considers the applicant should pay; and

• make full and frank disclosure, which is all matters of fact and law material to the court’s decision, including any adverse to the applicant.

• An independent solicitor, experienced in the operation of search orders, will be appointed to supervise and report on the execution of the search. This supervising solicitor performs a number of functions. These include personally serving the order on the respondent, explaining its terms in everyday language, advising the respondent of their right to take legal advice and potentially to claim privilege, and making a list of all material removed from the premises. These functions are reflected in the terms of the standard form order annexed to PD 25A.

• Before permitting entry to any person other than the supervising solicitor, the respondent may gather together any documents they believe to be incriminating or privileged and hand them to the supervising solicitor for assessment. If the supervising solicitor decides that the respondent is entitled to

withhold production of any of the documents, these will be excluded from the search and noted in the supervising solicitor’s report. Again, this procedure is reflected in the terms of the standard form order.

Electronic dataElectronic data can provide its own particular challenges. It is well

established that the term ‘document’ is construed widely, to include anything on which data may be stored. This could include the data held on a digital voice assistant, for example, or on other smart domestic appliances. Subject of course to its precise terms, the extent of what may be captured by the search order could be very broad.

PD 25A provides that the claimant may not search the defendant’s computers unless it has sufficient expertise to do so without damaging the claimant’s system. In light of this and the broader range of devices holding data than perhaps envisaged by PD 25A, good practice will be to use a specialist and independent IT expert to carry out the task, which will also help protect against the claimant seeing information they may otherwise not be permitted to see.

The standard form search order annexed to PD 25A envisages that documents on a computer will be searched by looking at documents on screen and relevant documents copied out one by one. The respondent is entitled to insist that privileged computer files are separated out and not copied during a search, but sorted through later. In practical terms, given the exponential growth in digital data this may be difficult to achieve and what may often happen in practice, as was the case in TBD, is that a computer image is taken of the data. This will have the advantage to the claimant of not only speed but also, for both parties, of both preserving the data and being less intrusive.

The question of imaged data was considered in another recent case, A v B [2019]. There, an issue arose as to whether the claimant or defendant should go first in inspecting imaged digital data taken during the search. The defendant argued that it should review the documents first, as it would if the exercise were a disclosure exercise. The court, however, permitted

the claimant the first look, noting that a search order would have been obtained on the basis of a strong prima facie case of the defendant’s dishonesty and propensity to cover its tracks by destroying evidence. This could mean that the defendant should not necessarily be trusted to carry out the inspection itself, though the court acknowledged that the involvement of solicitors for the defendant could change the position.

The court in A v B was keen to stress, however, that it was not advocating such an approach as a general practice. It noted that the exercise was highly intrusive and that digital images were likely to contain irrelevant material which was private and confidential (if not privileged) and which the claimant should not see, if possible. It added that there was no justification for a search of the digitally imaged documents being, as a general rule, carried out by the claimant and/or at the preservation stage.

DecisionAs with the decision in A v B, the court was at pains to draw a distinction between the process under a search order and a disclosure exercise. It observed that the essential purpose of a search order was not to provide early disclosure, but rather to preserve documents necessary for the proper conduct of litigation before the courts (the court’s emphasis). In several places in its judgment, the court underlined (in the actual words of the judgment

The court was at pains to draw a distinction between the process under a search order and a

disclosure exercise.


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March/April 2020

itself) the preservatory nature of the order and that there was no permission to use the documents.

It observed that the restrictions placed on the search, including isolating incriminating or privileged documents, only work where it is possible to consider material on an item-by-item basis. Imaged data, by its nature, cannot accommodate such an approach and the data will likely contain not listed items, which may be confidential, privileged or incriminatory.

It followed, in the court’s view, that if there was to be an inspection of documents on the imaged data, this needed to be justified as a separate exercise and analysed in terms of the disclosure jurisdiction. Using this as its base point, the court then grappled with the non-standard term in the order that the claimant’s computer experts were permitted to analyse the imaged data and deliver into the safekeeping of the claimant’s solicitors any further relevant items which they recovered.

The court observed that it was very difficult to know what to make of this provision. It found it impossible to say how the computer experts were supposed to analyse the imaged data in any meaningful way and how the provision could be workable. Even if it was, the search order sanctioned no use of the material beyond preservation.

It followed that there had been a significant and unjustifiable breach of the search order by the claimant. This was particularly serious in the case of the imaged data given the absence of the safeguards as to irrelevant, confidential, privileged and incriminating documents.

This was compounded by the fact that the claimant’s solicitors were aware that the consent of the defendants was required, a return date had been fixed where the question of inspection could have been raised with the court, one of the defendants had objected to the inspection and the claimant had gone so far as to deploy the searched data.

Attempts by the claimant’s counsel to justify the claimant’s actions did not gain traction with the court:

• Counsel highlighted the lack of cooperation by the defendants. This did not, however, justify a

wholesale breach of the order. The appropriate course was to return to the court for direction.

• The liquidator of one of the defendants had confirmed it had no objection to the use of the documents. However, this was after the event and the court had no hesitation in holding that such sanctioning did not justify the breach of the order: the search order material should have been safeguarded and left unused until the court made an order regarding disclosure.

In terms of remedy, the court stopped short of striking out the claim. While it had no doubt that it had the jurisdiction to do so, and the breach had been flagrant and very serious, the court did not consider that it was appropriate at that point in time to strike out the case. Material to the court’s view was that:

• it was highly likely that had the claimant, at the return date, sought some form of disclosure of the search order material, this would have been granted by the court;

• the court strongly suspected that the material which was used to join the applicants would have been disclosed;

• the applicants could not say what (if any) privileged, incriminatory or confidential material the claimant actually held as a result of its conduct; and

• it was rare for the court to strike out a statement of case because it was based upon evidence improperly obtained.

However, while the court did not rule out the possibility of a strike out further down the line, it ordered that the claimant hand over all of the imaged files to a third-party firm of solicitors to review them for privilege, self-incrimination and relevance. If it transpired that the material held by the claimant was privileged and confidential and a fair trial was not possible, then the court would contemplate strike out of all or some of the claim. The court stated that the costs of these steps would be borne

by the claimant in any event and irrespective of the outcome of the proceedings.

CommentClearly, the key message to take away from the judgment is that search orders by their nature are preservatory and the question of the use of preserved material must be raised specifically with the court, either to be addressed in the terms of the search order or, more probably, at the return date. Along with the court’s judgment in A v B, it serves as a warning not to confuse the procedure under a search order with that for disclosure. In addition to the considerable risk this presents to a party’s case, practitioners risk facing a professional negligence claim or disciplinary action.

On a practical level, the judgment highlights a couple of issues with the standard form order when it comes to electronic data and which are inconsistent with the approach advocated by the court:

• The standard form order treats digital documents as if they are physical documents and, as such, susceptible to an item-by-item search whereby the respondent facilitates the display of a listed item, so that this item can be read and copied. The court in TBD noted that this is unlikely to be a practical way forward in any normal IT environment and the fact is that imaging is both less disruptive for the respondent and a more efficient way to proceed with a search.

• The order contains an undertaking by the applicant only to use any information or documents for the purposes of the proceedings. As the court noted, this implies disclosure is ordered by the court. The court’s approach in TBD to dealing with this apparent inconsistency was to treat the undertaking as redundant, unless disclosure had been specifically ordered in the body of the order. n

A v B [2019] EWHC 2089 (Ch)TBD (Owen Holland) Ltd v Simons & ors [2020] EWHC 30 (Ch)

The Commercial Litigation Journal 13March/April 2020

Your serve

Robert Danvers is an associate with Hill Dickinson LLP

S ervice of the claim form triggers the court’s jurisdiction and from this date, the clock begins for some

important procedural deadlines. It is therefore particularly important that service be carried out correctly. However, it is not uncommon for problems to be encountered when attempting to effect proper service. There are a number of factors that may make a litigator’s life more challenging when it comes to ensuring the claim form is brought to the attention of the purported defendant, not least of all when said defendant is actively seeking to avoid being served. Thankfully, the CPR provides some (limited) means of address for the claimant in need, with one such option being the power of the court to dispense with service of the claim form or of any other documents in the claim under CPR 6.16 and CPR 6.28 respectively.

CPR 6.16 provides that the court may dispense with the requirement of service of the claim form in ‘exceptional circumstances’. Below is a short summary of some of the recent decisions that shed some light on how the court will treat applications to dispense with service and the meaning of ‘exceptional circumstances’, including the recent case of Lonestar.

Lonestar Communications Corp LLC v Marziano [2019] The decision in Lonestar provides useful guidance as to what circumstances will be considered ‘exceptional’ after the claimant successfully obtained an order to dispense with service on the second defendant, Mr Avishai Marziano, by producing evidence of its previous attempts to effect service through conventional and unconventional routes.

Facts Lonestar’s claim against Mr Marziano and four other defendants was for

damages resulting from unlawful interference with its business interests and unlawful conspiracy. Lonestar is a telecommunications company with business operations in Liberia. It was alleged that the defendants had engaged a hacker to conduct cyber-attacks against Lonestar’s online e-commerce business resulting in telecommunication services across Liberia to be briefly unavailable.

While service was successfully completed in the usual manner for four of the defendants, six separate unsuccessful attempts were made to serve Mr Marziano. Service of the claim form on Mr Marziano was attempted by the following means:

• By contacting the solicitors for the first and third defendant companies. Evidence was adduced that Mr Marziano had been a director of both. The solicitors for the defendants were disinstructed shortly after and no contact details for Mr Marziano were obtained from this source.

• By way of Facebook Messenger. A message was sent by the claimant’s solicitors to Mr Marziano’s Facebook Messenger account in July 2019. A second message was sent in October 2019. The evidence suggested that the first message was received by Mr Marziano, while the second was not, with the court drawing the inference that Mr Marziano terminated his Facebook Messenger account shortly after receipt of the first message.

• By private message to the defendant’s Flickr account. The solicitors for the claimant sent two messages on 14 and 24 October 2019, which would

Practice

‘The court’s acknowledgement of the unconventional methods of service in Lonestar, which included Flickr, LinkedIn, and Facebook Messenger, will evince arguments for the adoption of more technologically sophisticated methods of communication in court proceedings.’

Robert Danvers reports on dispensing with service


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be forwarded by email to Mr Marziano. No response was received.

• By letter to a company connected to Mr Marziano. It was revealed by the leak of the Panama Papers that Mr Marziano had some connection

with the Anguilla arm of Mercedes AMG. The proceedings were therefore sent by letter to AMG’s offices in Anguilla in August 2019. No response was received.

• By letter to the company Sofixtech which Mr Marziano’s personal website alleged a connection to. The claimant’s solicitors wrote to the address of Sofixtech in October 2019. A response was received from Sofixtech asserting that they do not act for Mr Marziano. Shortly thereafter, the reference to Sofixtech was removed from Mr Marziano’s website.

• An attempt was made via LinkedIn. The solicitors for the claimant attempted to connect with Mr Marziano on the platform. No response was received and the court inferred in the circumstances that the request was declined by Mr Marziano.

The claimants had also attempted to serve Mr Marziano via the Hague Service Convention channels in Israel, but such attempts had failed.

DecisionThe court held that in the circumstances the relevant requirements under CPR 6.16 had been met to allow the dispensation of the requirement for service of the claim form.

It was inferred by the court, given the evidence before them,

that Mr Marziano was aware of the proceedings; given the numerous attempts to contact Mr Marziano by myriad methods, Teare J determined that there was sufficient evidence to suggest that Mr Marziano was not only aware of the proceedings but took steps to evade them. In making

this inference, Teare J relied on the deletion of Mr Marziano’s Facebook Messenger account; the neglect to respond to the emails received from the Flickr messages; the removal of the reference to Sofixtech from Mr Marziano’s personal website in October 2019; and the unsuccessful connection request via LinkedIn. All of these actions suggested knowledge of the proceedings and an attempt to evade receipt of service of them.

Havlish v Islamic Republic of Iran [2018]What constitutes exceptional circumstances had also been considered in Havlish. The facts of the case are unusual and unlikely to repeat but the court’s treatment of CPR 6.16 is helpful nonetheless.

FactsIn this case the claimants acted on behalf of victims of the 9/11 terrorist attack in New York. After obtaining judgment in the US for $7bn, the claimants were attempting to register the claim in the UK to allow them to enforce against assets held by the defendants there. The Foreign and Commonwealth Office found service on the Ministry of Foreign Affairs in Tehran to be particularly difficult. The deputy head of mission at the British embassy in Tehran had written a letter advising that first, it was the policy of the Iranian government to resist service of legal documents in cases where it considers they may be ‘against the interests of the Islamic Republic

of Iran’, and secondly, to continue to attempt to serve the documents may cause harm to the bilateral relationship between the two countries.

DecisionSuch reasons were considered sufficient for the court to exercise its power under CPR 6.16. In this case, one of the persuasive reasons behind the court’s decision to grant the application under CPR 6.16 was that if it had refused to exercise its discretion this would have resulted in the claimants being unable to bring their claim. The court was also conscious of the fact that the defendants would already be aware of the claim as a result of the US proceedings.

Societe Generale v Goldas Kuyumculuk Sanayi Ithalat Ihracat AS [2017]Further consideration of the threshold for ‘exceptional circumstances’ can be found in the earlier decision of Societe Generale, which considered applications under both CPR 6.15 and CPR 6.16, for alternative service and dispensing with service respectively.

FactsIn this case, the claimant issued insolvency proceedings in relation to the supply of gold bullion worth approximately $483m and then attempted to serve out of jurisdiction in both Turkey and Dubai. Both attempts were considered invalid, despite the claim form coming to the attention of the defendant. Service in Turkey failed due to a failure to comply with the Hague Service Convention. The English proceedings were put on hold for eight years (the judge referred to ‘warehousing’ the claim without the court’s consent), while the Turkish insolvency proceedings were pursued. It eventually became clear that proceedings in Turkey could not be resolved until the English proceedings were finalised.

The defendants applied to have the English proceedings struck out on the basis that the time for service of the claim form had not been complied with as per CPR 7.5 and the claimants applied for an order for deemed service under an alternative method (CPR 6.15) or an order dispensing with service (CPR 6.16).

In Havlish, one of the persuasive reasons behind the court’s decision to grant the application under CPR 6.16 was that if it had refused to exercise its discretion this would have resulted in the claimants being unable to bring their claim.


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March/April 2020

DecisionThe court conducted a considerable review of the case law concerning applications for alternative service and dispensing with service. In considering if the thresholds for exceptional circumstances under CPR 6.16 have been met, the court will look at whether ‘one party or the other is playing technical games’ and this will count against them. This is because the most important function of service is to ensure the defendant has learned of the existence and content of the claim form. The strength of this consideration is increased if the defendant learns of the claim by an attempt at formal service and it is conversely diminished if service is attempted by other means. However, simply knowing of the existence and content of the claim form is not enough; something more is required.

Delay of service by the claimant, as had occurred in this case, will also be an influential factor in the court’s decision to grant relief, as delay may amount to an abuse of process or have a prejudicial effect on the defendant’s ability to rely on a limitation defence. Here the delay in service was inexcusable and considered to amount to an abuse of process. It was found that waiting for/pursuing proceedings in another jurisdiction would not be a good reason/exceptional circumstances under CPR 6.15 and CPR 6.16 respectively. Where there is an abuse of process, there will rarely be reason to dispense with service.

Dispensing with service out of jurisdictionThe threshold for alternative forms of service is higher when considering service out of jurisdiction. The Hague Service Convention requires exceptional or special circumstances to be present in order for a claimant to use a method of service that is not allowed under local law.

However, in Absolute Living Developments Ltd (In Liquidation) v DS7 Ltd [2019] the court retrospectively dispensed with service under CPR 6.16. Here the defendant’s solicitors argued that they would not accept service in Switzerland on the basis that the documents to be served had not been translated into French, as required under local Swiss procedural law and as suggested by the Hague Service Convention.

The claimants were granted permission retrospectively to dispense with service under CPR 6.16 on the basis that there would be no prejudice to the defendant who was aware of the claim as the claim documents were with his solicitors, and that reliance on the translation point could be considered to

be somewhat opportunistically relying on a technicality to avoid service.

ConclusionLonestar provides a further helpful update to potential claimants seeking to obtain judgment against hard-to-reach defendants and brings to the fore discussions over the use and importance of various platforms, including social media, to affect service on a potential defendant.

The decision is a welcome addition to the case law on the rules on service, in particular when claimants are attempting to serve against extra-jurisdictional defendants. The requirement of ‘exceptional circumstances’ was clearly met in respect of the six attempts made by the claimant’s solicitors to effect service, indeed, it is difficult to imagine what further steps could have been taken. The court’s acknowledgement of the unconventional methods of service in Lonestar, which included Flickr, LinkedIn, and Facebook Messenger, will evince arguments for the adoption of more technologically sophisticated methods of communication in court proceedings. It would appear the courts are increasingly open to the benefits of alternative forms of service where the usual method proves problematic. A further example of this willingness can be seen in CMOC Sales & Marketing Ltd v Persons Unknown [2018], where the court allowed alternative service by WhatsApp, Facebook Messenger and via the use of a virtual data room. In CMOC HHJ Waksman said the court would proactively consider different forms of alternative service ‘where they can be justified in the particular case.’

It is open to debate what level of defendant ‘awareness’ is required to meet the threshold of ‘exceptional circumstances’. While in Lonestar, the court inferred that positive steps were taken by Mr Marziano to evade service (eg deleting his Facebook Messenger account, removing content

from his personal website), it remains unclear whether positive evasion of service is a prerequisite for any such finding. It is also worth noting that in that case the claimant’s solicitors gave an undertaking to continue to take steps to inform Mr Marziano of the proceedings. Whether this will also be a prerequisite to any further similar decisions remains to be seen.

Despite further clarification as to what will be considered ‘exceptional circumstances’, orders to dispense with service under CPR 6.16 will still be rare. Common elements for exceptionality would appear to be timely compliance with the usual rules for permitted service, exhaustion of all possible alternative methods of service and potentially some form of action to evade/prevent service from the defendant. A simple failure of the usual routes for service will of course not suffice and evidence of going the extra mile will be necessary. n

Delay of service by the claimant, as had occurred in this case, will be an influential factor in the court’s

decision to grant relief.

Absolute Living Developments Ltd (In Liquidation) v DS7 Ltd & ors [2019] EWHC 550 (Ch) CMOC Sales & Marketing Ltd v Persons Unknown & ors [2018] EWHC 2230 (Comm)Havlish & ors v Islamic Republic of Iran & ors [2018] EWHC 1478 (Comm)Lonestar Communications Corp LLC v Marziano & ors [2019] EWHC 2008 (Comm)Societe Generale v Goldas Kuyumculuk Sanayi Ithalat Ihracat AS & ors [2017] EWHC 667 (Comm)


Funny money

Keith Oliver (pictured top) is head of international, Amy Harvey is of counsel and Amalia Neenan (pictured bottom) a legal researcher at Peters & Peters LLP

2 019 was a big year for cryptocurrencies and their ilk. Cryptocurrency security firm

CipherTrace recently reported that crypto-criminals stole over $4.26bn in the first half of 2019 alone. This is unsurprising given some of the high-profile scandals that have come to light during the year. One of the highest profile scams of 2019 that has garnered worldwide media attention was the OneCoin Ponzi scheme. Touted as the ‘cryptocurrency’ to rival Bitcoin, and known as the ‘Bitcoin Killer’, OneCoin has thus far duped investors worldwide out of $4.4bn after it was unearthed that the OneCoin blockchain did not exist. Not only this, but there is no mechanism to exchange OneCoin for any other currency, prohibiting users from cashing out, leaving many stuck with worthless ‘currency’.

OneCoin’s Bulgarian founder, Dr Ruja Ignatova, disappeared in 2017 when the company started taking heat. Undeterred, the US authorities have shifted focus to Dr Ignatova’s brother, who has now pleaded guilty to several charges including money laundering and is facing up to 90 years in prison. The brother was called as a prosecution witness for the linked trial of lawyer Mark Scott, who was then found guilty of laundering $400m worth of OneCoin-linked proceeds out of the US.

In response to the increasing rate and size of these frauds, efforts to curtail crypto-criminality have significantly ramped up. The introduction of the Money Laundering and Terrorist Financing (Amendment) Regulations 2019 (the 2019 Regulations), which is the UK’s

domestic implementation of Directive (EU) 2018/843 (5AMLD), has flagged the start of the new decade as one for effecting change in the crypto-sphere, so that cryptoassets may be viewed primarily as innovative financial products, and not as the currency of the criminal, outside the reach of the law.

These regulatory instruments are not the first attempt to fight fraud in this relatively new world – the civil law already has a veritable arsenal of legal tools that can be used to surmount the difficulties posed by the abuse of this technology. It is interesting to consider what impact 5AMLD and the 2019 Regulations may have on this existing system.

Without a traceCryptocurrencies present the perfect environment for abuse due to a number of intrinsic characteristics that can hamper the effective tracing and recovery of stolen assets. The most prevalent problems are ‘anonymity’ and ‘decentralisation’. All crypto-transactions are anonymised, allowing nefarious actors to use these anonymity provisions to evade legal ramifications. For instance, anonymity can be manipulated via the use of public keys, which are the

Regulation

‘It remains to be seen how these new regulatory efforts will play out in the future, and whether they will have any meaningful impact on curtailing the rapidly increasing level of cryptofraud in the UK.’

Keith Oliver, Amy Harvey and Amalia Neenan assess the impact of regulation and civil remedies on crypto-criminality

CMOC Sales and Marketing Ltd v Persons Unknown & ors [2018] EWHC 2230 (Comm)Paige v Bitconnect International plc, et al (2018) Kentucky Western Court 3:18-cv-00058Robertson v Persons Unknown (2019) unreported, High Court, Moulder J, CL-2019-000444


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March/April 2020

cryptographic public addresses that blockchain participants use to send virtual currencies to one another. As the public key address is the only information available on the blockchain, this presents a significant hurdle for enforcement agencies when tracing illegal activity. Following where the cryptocurrency has been transferred to will only ever lead to an account holder’s public key. With no identifying information, and the fact that this could merely be one of many accounts held by the individual using false identities, prosecution and asset recovery becomes next to impossible.

This is only compounded by decentralisation. Blockchain vitiates the need for third-party financial intermediaries to authenticate transactions. This function is dispersed among all of the network participants in the blockchain. This creates a distinct setback. In terms of traditional fraud, in which a traditional fiat bank account has been hacked, one can go to one’s bank, alert them of the fraud and begin taking reparative action; for example, through the service of disclosure orders on various financial providers, third-party intermediaries can be compelled to divulge account information or customer details in an effort to trace and freeze illicit gains. With blockchain, this is not possible. While one may be able to trace the location of misappropriated funds to an encrypted public key address, the question remains as to who can be served with court orders to oblige them to divulge identification information. Firstly, no specific identification information is known, and secondly, there is no central authority figure who can be targeted with such orders. Rather, there are the network participants, who are likely to know only as much information as is publicly available on the blockchain.

Hot propertyAlthough these characteristics have created hurdles when tracing cryptoassets, they are not insurmountable. It may still be possible to approach crypto-frauds as we would fiat frauds, at least in some respects. The civil law provides

a wealth of ancillary orders that go a long way in the search and seizure of misappropriated funds, which can be cross-applied to the crypto-sphere. For example, it is possible to apply for freezing orders and disclosure orders against participants connected to the assets in question, and as such, orders

can be put upon exchange platforms and wallet holders. This has been successfully employed in the US, notably in the case of Paige v Bitconnect International plc [2018] which saw the grant of a freezing injunction against a crypto-exchange on the grounds that it was a Ponzi scheme and that the assets connected to it had to be secured. While the case law is comparatively underdeveloped in England and Wales, practitioners should not shy away from the potential offered in the existing powers of English law.

In fact, the English courts have been eager to adapt to the evolving threat that technology brings when dealing with fraud and have wilfully attempted to face the challenge head on. For example, the case of CMOC Sales & Marketing Ltd v Persons Unknown [2018], while not a crypto-case per se, contains dicta that can be seamlessly transferred to tackle crypto-fraud. This case centred on an alleged fraud, committed by persons unknown who infiltrated the email account of a senior official at a company and stole £6.3m from the company’s accounts. The claimant did not know who was responsible, or where the money was. This is identical to the crypto-arena, where little to no personal information is held on record. CMOC provides us with a template on how to act, after the claimant was awarded a worldwide freezing order and disclosure orders against the ‘persons unknown’ and third-party banks. In a similar vein, it would therefore be relatively simple to impose a freezing order against a wallet holder identified by their activity in the blockchain.

The LawTech Delivery Panel’s Legal statement on cryptoassets and smart contracts, published by the UK Jurisdiction Taskforce last year, indicated the desire to add some real teeth to the battle against crypto-corruption by ‘providing a clear view of the legal status of

cryptoassets under English law’, as explained by the chair of the UK Jurisdiction Taskforce, Sir Geoffrey Vos. To be clear, this is not a change in the law, but instead the culmination of an in-depth consultation on what the law already is and how cryptoassets fall under existing provisions. Vos stressed that ‘the outcome is not about what they would like English law to be; it is about what they believe English law actually to be.’ Additionally, Vos explained that cryptoassets ‘have all the legal indicia of property and are, as a matter of English legal principle, to be treated as property’. If we are to treat cryptoassets as such, and they are then misappropriated, we can use the standing tools we have for the recovery of ‘traditional’ properties in the crypto-sphere. Vos boldly stated that this move was ‘a watershed for English law… Our statement… is something that no other jurisdiction has attempted.’ This nuanced approach is the first of its kind. In essence, this is an intended ‘English Law Land-Grab’ used to solidify the English law’s position in a key growth area on an international scale. As the only jurisdiction to have attempted a project of this magnitude at present, the UK has sent a clear message that it intends to be a world leader in this arena and that the courts of England and Wales are even more open for legal business.

Additionally, prior to the release of the statement, but in line with its ethos, Robertson v Persons Unknown [2019] illustrates how the English courts can cross-apply the powers we already have against novel

It may still be possible to approach crypto-frauds as we would fiat frauds, at least in some respects.


Regulation

March/April 2020

offences. Here, the claimant was the victim of a ‘spear-fishing’ attack, where the email account of a firm in which he was investing Bitcoin was hacked. This caused the claimant to send 100 Bitcoin to the account of the fraudster. Picking up from the themes we have already seen

in the CMOC judgment, ‘persons unknown’ were the first defendant. Moreover, 80 of those coins had been transferred to a wallet held on the exchange, Coinbase UK Ltd. An account preservation order was successfully obtained against the 80 Bitcoin and a Bankers Trust order was sought to force Coinbase to reveal the wallet holder’s identity. Although Coinbase was relatively

hampered in the information they could provide in terms of the data available and their pre-existing contractual obligations, new regulation introduced in the UK this year may be able to bridge the gaps in a now developing mechanism for cryptoasset recovery.

Regulation station10 January 2020 saw the implementation of the 2019 Regulations that transposed 5AMLD into domestic law. Though vastly similar in their intended purpose, the execution of both instruments varies subtly. 5AMLD is the EU’s attempt to crack down on money laundering, terrorist financing and other abuses. Virtual currencies

have come under the regulatory purview of this instrument by means of the ‘Obliged Entities’ provision. Paragraph 8 of the Directive stipulates that it is:

… essential to extend the scope of Directive (EU) 2015/849 so as to include providers engaged in exchange services between virtual currencies and fiat currencies as well as custodian wallet providers. For the purposes of anti-money laundering and countering the financing of terrorism (AML/CFT), competent authorities should be able, through obliged entities, to monitor the use of virtual currencies.

In accordance with this, exchanges and custodian wallet providers who deal with fiat-to-crypto (or vice versa) transactions must supply enforcement authorities with key information as and when requested. The obliged entities must also be registered with national anti-money laundering regulators

Until now, there appears to have been an information deficit for crypto-transactions and an inability to attach court orders to certain players.

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Regulation

March/April 2020

and ‘apply enhanced customer due diligence measures’ (para 12 of the Directive) such as filing suspicious activity reports and complying with know your customer rules to identify parties involved in transactions, as well as any beneficial ownership if their stake is a 25% interest or higher.

However, by limiting the Directive to merely fiat-to-crypto/crypto-to-fiat transactions, this is not the panacea that was originally hoped for under this legislation. The restriction to these specified transactions keeps a whole host of potentially exploitable transaction types in the shadows. The chief example of this is exchanges that facilitate crypto-to-crypto transfers. Subsequently, 5AMLD arguably only operates within strict parameters. While this is a positive step in the right direction to bring cryptoassets within the umbrella of the EU’s anti-money laundering regime, it only goes so far.

Conversely, the 2019 Regulations take this one step further. Not only are the requirements of 5AMLD complied with, but additional provisions are cemented into domestic law. Paragraph 12 of 5AMLD explains that:

Member States should require obliged entities to apply additional mitigating measures…taking into account calls for countermeasures and recommendations, such as those expressed by the FATF.

The Financial Action Task Force (FATF), which is one of the key inter-governmental oversight bodies that attempts to stem the illicit flow of money, recently stated that crypto-exchanges must be targeted in order to make a meaningful dent in the occurrence of money laundering. It is interesting to note that FATF does not discriminate between the type of services they provide, whether they be fiat-to-crypto transfers or otherwise. President of FATF, Marshall Billingslea, advised that ‘the risk we all face is worldwide… nations need to move forward rapidly. This is an urgent issue.’ As a result, the 2019 Regulations now apply to cryptoasset businesses that carry out a broader spectrum of activities that have been

recommended by the FATF. Therefore, as per s14A(1)(b):

… in these Regulations, ‘cryptoasset exchange provider’ means a firm or sole practitioner who by way of business provides one or more of the

following services, including where the firm or sole practitioner does so as creator or issuer of any of the cryptoassets involved, when providingsuchservices–exchanging, or arranging or making arrangements with a view to the exchange of, one cryptoasset for another.

This broader and more all-encompassing approach to regulation is followed through in the execution of the Regulations via the guiding role of the Financial Conduct Authority (FCA). The FCA, as UK supervisor of cryptoasset businesses in compliance with the 2019 Regulations, commands that:

… a business may not carry on cryptoasset activities in the UK within the scope of the MLRs [the 2019 Money Laundering Regulations] unless they are registered…

as per the instructions from the FCA’s January 2020 briefing. This two-pronged approach, made up of a broader regulatory underpinning and a key oversight body to ensure compliance with the domestic regime, certainly goes further than the European Directive in isolation.

So near, and yet so far?It remains to be seen how these new regulatory efforts will play out in the

future, and whether they will have any meaningful impact on curtailing the rapidly increasing level of cryptofraud in the UK. It will also be interesting to observe how they will intersect with the existing tools that the civil law has to offer. Anonymity

and decentralisation provisions inherent in cryptoasset technology make tracing activities exponentially more arduous. Although there have been recent cases where freezing orders and asset preservation orders have been successfully applied in the crypto-sphere, there are still challenges to overcome.

Until now, there appears to have been an information deficit for crypto-transactions and an inability to attach court orders to certain players. These new regulations attempt to address this problem. By forcing crypto-exchanges to provide vital information on their customers, this is a vital first step in identifying players who can be targeted by civil orders to aid asset recovery. But efforts should not stop here. 5AMLD and the 2019 Regulations are only EU and UK centric instruments respectively. They will only apply to exchanges or wallet providers that have these geographical connections. Crypto-frauds are a global problem, with a single fraudulent act involving multiple jurisdictions in a matter of seconds. These new legal advancements need to be part of a worldwide effort to curtail crypto-corruption. Mercifully, civil orders, such as worldwide freezing orders, can have wide jurisdictional reach, and so coupled with these new regulations, it is possible that the UK will become the litigation centre of choice for victims of crypto-fraud. n

By forcing crypto-exchanges to provide vital information on their customers, this is a vital first step in identifying players who can be targeted by

civil orders to aid asset recovery.

Legal statement on cryptoassets and smart contracts, LawTech Delivery Panel: www.legalease.co.uk/lawtech

References


Hats off

Michael Taylor (pictured top), Gawain Moore, Duncan Lole and Gwendoline Davies (pictured bottom) are partners at Walker Morris LLP

I n a significant judgment, the Court of Appeal has ruled that a litigation funder’s liability for

payment of the successful parties’ legal costs was not capped at the funding amount it had provided to the unsuccessful claimant.

ChapelGate Credit Opportunity Master Fund Ltd v Money [2020] will be relevant for all those concerned with the financing of civil litigation. In an insolvency context, the case will be of interest to commercial funders looking to fund insolvent estate claims, and to insolvency practitioners generally.

Non-party costs ordersSection 51(3) of the Senior Courts Act 1981 provides that ‘the courts have full power to determine by whom and to what extent the costs are to be paid’. Third parties may therefore find themselves liable under non-party costs orders (NPCOs). This includes litigation funders.

Why is this case of interest?Importantly, this case clarifies that the approach taken in a 2005 Court of Appeal case is not a binding rule. Arkin v Borchard Lines Ltd established the so-called ‘Arkin cap’, where the commercial funder of an unsuccessful claim was ordered to pay the winners’ costs only to the extent of the funding provided. The court was seeking a ‘just solution’ – so that a successful opponent is not denied all of its costs, but commercial funders who typically provide help to those seeking access to justice are not deterred by the fear of disproportionate costs consequences if the litigation they are supporting does not succeed.

Arkin attracted criticism, including from the key civil litigation reform figure Sir Rupert Jackson in the Review of Civil Litigation Costs: Final Report (December 2009) (a copy can be found at: www.legalease.co.uk/jackson). In his view, it was wrong in principle that a litigation funder, which stands to recover a share of damages in the event of success, should be able to escape part of the costs liability in the event of defeat.

What were the facts in this case?The first and second respondents in the appeal were the administrators of a company owned and controlled by Ms Davey. They were appointed by a secured creditor, Dunbar Assets plc (Dunbar). Dunbar obtained summary judgment against Ms Davey for the amount due under a personal guarantee and issued further proceedings to recover costs of enforcing the guarantee and judgment. Ms Davey issued proceedings against the administrators under para 75 of Sch B1 to the Insolvency Act 1986. She also counterclaimed against Dunbar, alleging that it had so interfered with the conduct of the administration as to be vicariously liable for the administrators’ breaches of duty and had conspired with agents (whose advice the administrators had allegedly relied on) to cause her harm.

Ms Davey and ChapelGate entered into a funding agreement for both sets of proceedings. The original funding amount was £2.5m, with a condition that Ms Davey obtain after-the-event (ATE) insurance to cover herself for any adverse costs order. She failed to do so for whatever reason and the funding amount was reduced to £1.25m, with ChapelGate anticipating Arkin cap

FUNDING

‘It is possible to imagine circumstances in which application of the Arkin cap might not be considered “just”, even where a funder has funded only a distinct part of a claimant’s costs.’

Michael Taylor, Gawain Moore, Duncan Lole and Gwendoline Davies weigh up a Court of Appeal decision on the adverse costs liability of litigation funders


FUNDING

March/April 2020

protection and waiving the requirement for Ms Davey to obtain ATE insurance. Any case proceeds were to be applied first to repay the funding amount and second to pay ChapelGate a ‘funder’s profit share’. Once the trial had begun, the size of that share would be the greater of 500% of the funding amount or 25% of the net winnings (the case proceeds minus the funding amount). Ms Davey would receive what was left after payment of legal and expert fees and disbursements and any uplifts or other amounts due under conditional fee agreements (CFAs) which she had entered into.

A legal opinion delivered a month before trial gave the conspiracy to injure claim against Dunbar a less then evens chance of success (from 55-60% a few months prior to the signing of the funding agreement). The prospects of success on the main claims against the administrators and Dunbar had, if anything, strengthened.

The claims were dismissed after a High Court trial. Ms Davey was ordered to pay the administrators’ and Dunbar’s costs on the indemnity basis because of how she had conducted the litigation and the serious nature of the allegations made. The administrators and Dunbar applied for costs orders to be made against ChapelGate, which was ordered to pay costs on the indemnity basis from the date of the funding agreement without any cap. In declining to apply the Arkin cap, the judge referred to the following factors:

• ChapelGate approached its involvement throughout as a commercial investment.

• Conduct of the litigation by and on behalf of Ms Davey was significantly out of the norm, warranting an indemnity costs order. While ChapelGate did not itself direct the way in which the case was conducted, it nevertheless had every opportunity to investigate and form a view as to the nature of the claim and the support for the allegations which were being made before choosing to fund it.

• It must have been apparent to ChapelGate that Ms Davey was most unlikely to be able to pay any substantial costs awarded

against her, and that the opponents’ costs were likely to be very substantial and well in excess of the amount which ChapelGate itself proposed to invest in the litigation.

• The decision to halve the funding amount while retaining the same potential share of the recoveries and removing the requirement for Ms Davey to purchase ATE protection highlighted the fact that ChapelGate was closely focused on its own self-interest in funding the litigation as a commercial venture, and that there was no correlation between the amount that it chose to invest and the costs to which the opponents were exposed.

• There was force in the point that ChapelGate negotiated to receive a substantial commercial profit which would have taken priority over any compensation payable to Ms Davey.

• The judge was not persuaded by ChapelGate’s policy argument that commercial litigation funders would be discouraged from providing funding because his decision would signal that they might have an ‘open-ended’ exposure to adverse costs.

What did the Court of Appeal say?Judges do not necessarily have to adopt the Arkin approach when determining the extent of a commercial funder’s adverse costs liability. They retain a discretion and, depending on the facts, may consider it appropriate to take into account matters other than the extent of the funder’s funding and not to limit the funder’s liability to the amount of that funding. They might want to consider the funder’s potential return, not just its outlay. The more the funder stands to gain, the closer it might be thought to be the ‘real party’ ordinarily ordered to pay the successful party’s costs.

In this case, the claimant had to recover from her opponents more than five times ChapelGate’s expenditure to have any prospect of keeping anything for herself. The High Court judge was also entitled to take into account the extent to which the Arkin cap would leave her opponents out of pocket. ChapelGate chose to facilitate

litigation which involved very serious allegations against more than one party and the parties could not be expected to share legal representation. It was therefore inevitable that they would incur costs greatly in excess of the funding provided, and yet they did not have the protection of any ATE cover. ChapelGate’s waiver of the requirement for ATE insurance very much increased the opponents’ exposure.

Arkin was decided at a time when third-party funding of litigation was still developing and CFAs and ATE insurance were relatively new. Commercial funders, CFAs and ATE insurance are all much more established now. A funder should be able to protect its position by ensuring that either it or the claimant has ATE cover.

The Arkin approach is not redundant and is particularly likely to be relevant on facts closely comparable to those in the Arkin case itself, where the funding only covered the claimant’s costs of instructing expert witnesses. However, it is possible to imagine circumstances in which application of the Arkin cap might not be considered ‘just’, even where a funder has funded only a distinct part of a claimant’s costs.

Practical advice This decision serves as a warning to commercial litigation funders that Arkin cap protection cannot be relied on as a matter of course to limit adverse costs liability. In seeking to reach a ‘just’ outcome, judges may well scrutinise the funder’s prospective gains and the particular circumstances impacting on the opponent’s costs exposure on a case-by-case basis. Funders should ensure that funding proposals are evaluated robustly, that the merits of the claim are thoroughly tested and kept under review, and that effective ATE insurance cover is in place. Insolvency practitioners may find that funders adopt a more cautious approach when deciding what they are prepared to finance and on what terms. n

Arkin v Borchard Lines Ltd & ors (Nos 2 and 3) [2005] EWCA Civ 655ChapelGate Credit Opportunity Master Fund Ltd v Money & ors [2020] EWCA Civ 246


The need for speed

Andrew Ward (pictured top) is a partner, Pierre Welch an associate and Leah Alpren-Waterman (pictured bottom) a professional support lawyer with Watson Farley & Williams LLP

P ublic procurement processes engage both public and private law rights and obligations. In

relation to claims in the rail sector, a claimant who is left aggrieved by the decision of a public authority may seek to undo that decision or challenge the process in which it was made through the use of judicial review proceedings. However, in appropriate cases they may also seek to argue that the decision involved a breach of duty for which a claim for Francovich damages (ie, damages arising out of a breach of duties derived from EU law (Francovich v Italian Republic [1991]) and other remedies can be brought. One of the key differences between the processes applicable in judicial review and in private civil law claims concerns the time by which a claim must be brought, with the judicial review process imposing much stricter time limits than its private civil law counterpart.

In Secretary of State for Transport v Arriva Rail East Midlands Ltd (Arriva) [2019] the Court of Appeal considered this tension, and provided welcome confirmation on the applicable time limit when bringing a private law claim for damages arising out of a rail franchise procurement process. The decision highlights the need for careful consideration of the appropriate remedies to seek when bringing a claim which engages public and private law rights.

FactsThe claim concerned the procurement process for the operation of the East Midlands, South Eastern and West Coast rail franchises. Invitations to tender were issued between November 2017 and June 2018 against a backdrop of discussions regarding various pensions issues which were being

investigated by the Pensions Regulator. In September and November 2018 the Secretary of State issued re-bid instructions which were primarily concerned with changed pension requirements, notwithstanding the ongoing investigation by the Pensions Regulator. The respondent train operators updated their tender responses accordingly but, on 9 April 2019, apparently due to those responses, they were each disqualified from the relevant competitions.

The respondents contended that neither the invitations to tender, nor the re-bid instructions, provided sufficient clarity or certainty as to the full scope of the likely pensions liabilities of the successful bidder, and that the Secretary of State had breached his obligations in respect of the procurement process. In May and June 2019 they therefore issued both judicial review proceedings and claims in tort for breach of statutory duty under CPR 7.

However, the Secretary of State applied to strike out the CPR 7 claims arising out of the pension issue on the basis that they were out of time.

Time limitsIf an unsuccessful bidder in a public procurement process is to be free to challenge the lawfulness of the process while it is ongoing, and to undo the result where appropriate, then it is vital that such challenges are made swiftly and resolved promptly. If not, the entire public procurement process risks grinding to a halt. Accordingly, time limits under various public procurement regulations, including the Public Contracts Regulations 2015, Utilities Contract Regulations 2016 and the Concession Contracts Regulations 2016, are among the

Limitation

‘If an unsuccessful bidder in a public procurement process is to be free to challenge the lawfulness of the process while it is ongoing, and to undo the result where appropriate, then it is vital that such challenges are made swiftly and resolved promptly.’

Andrew Ward, Pierre Welch and Leah Alpren-Waterman track time limits in rail franchise public procurement claims


Limitation

March/April 2020

shortest currently applied by the UK courts, at just 30 days from the date the economic operator knew or ought to have known that grounds for starting proceedings had arisen. These time limits apply to all claims brought under the regulations, regardless of whether they are categorised as public or private claims, or what remedy is sought.

Such regulations do not, however, cover rail franchise competitions. The UK government has declined to implement Reg 1370/2007 (‘the Railway Regulation’), and instead rail franchise competitions fall under s26 of the Railways Act 1993, to which the general rules on judicial review apply. That means they are subject to the procedure set out in CPR 54.5(1), which provides that a claim form must be filed promptly, and in any event not later than three months after the grounds to make the claim first arose (although this time limit can be extended pursuant to CPR 3.1(2)(a)).

By contrast, the time limits for bringing private law claims set out in the Limitation Act 1980 seem almost extravagant. Section 2 provides that actions founded on tort must be brought no later than six years from the date damage is suffered, while s5 provides that the time limit for breach of contract claims is six years from the date of the breach. Again, the reason for the difference is clear – a claim for damages assumes that a wrong has occurred and rather than trying to undo it, the claimant seeks compensation. While it remains important that justice is done promptly, there is less need for rapidity.

In Arriva the Secretary of State contended that the CPR 7 claims arising out of the pension issue, for which the respondents sought damages together with injunctions and declarations, were subject to the three-month time limit applicable to judicial review proceedings. By not challenging the invitations to tender or the re-bid instructions within that time limit, it was said that the respondents had to accept the lawfulness and binding nature of those decisions. At first instance the High Court rejected that argument, holding that the applicable time limit was the six-year limit under the Limitation Act 1980 and therefore

the claims should not be struck out. The Secretary of State appealed.

Procedural exclusivityAs Coulson LJ noted, on the face of it the respondent’s claims for breach of statutory duty were subject to a limitation period of six years. However,

the Secretary of State contended that any claim based on a challenge to a public law decision requires a judicial review claim, and is therefore the exclusive province of CPR 54 and subject to the three-month time limit. In doing so, he relied on the principle of ‘procedural exclusivity’, which seeks to prevent parties evading the procedural safeguards and discretionary nature of the remedies available by way of judicial review.

Perhaps the high-water mark of this approach was the decision in O’Reilly v Mackman [1983], a claim brought by four prisoners against the board of visitors of Hull Prison, in which Lord Diplock held that as a general rule, seeking to establish that a decision of a public authority infringed rights to which a person was entitled protection under public law by way of a private civil action would be contrary to public policy and an abuse of the process of the court. However, Lord Diplock accepted that while such claims will ordinarily be struck out, there may be exceptions to the rule, particularly where the invalidity of a decision arises as a collateral issue in a claim for infringement of a claimant’s rights arising under private law.

Subsequent decisions have demonstrated a movement away from the ‘rigid’ exclusivity rule in O’Reilly, embracing Lord Diplock’s ‘exceptions’ and acknowledging the difficulty in maintaining a clear division between public and private law. The introduction of the Civil Procedure Rules and judicial case management powers have also meant that the English courts have adopted a more flexible approach.

RemediesThe Secretary of State argued that the relief sought by the respondent was irrelevant to considerations of the relevant time limit, contending that the underlying claim was a challenge to the decision of a public body and so it was a public law challenge.

Coulson LJ considered that this submission was misconceived. He noted that a claim for Francovich damages arising out of a public law decision is not, in fact, a claim based directly on a challenge to the underlying decision – it is not an attempt to undo the event giving rise to the damages. Instead, the claimant seeks damages as a consequence of a decision they accept that they cannot change. Thus, a court will often decide that, rather than continuing the suspension which otherwise prevents a contracting authority from entering into a contract with a successful bidder in a public procurement process, the balance of convenience favours the completion of the contract, with damages an adequate remedy for the unsuccessful bidder.

In contrast, as the first instance judge had identified, different considerations might apply in relation to claims for ‘cross-over relief’ (ie, the respondents’ claims for declaratory relief and/or injunctions). In particular, a claim for an injunction aimed at seeking to undo a public law decision might amount to an abuse of process if commenced outside the three-month time limit, particularly if made to circumvent that timetable.

DamagesCoulson LJ therefore analysed the different remedies sought by the respondents separately. In relation to the claim for damages, he was satisfied that there was:

… ample authority for the proposition that a private law claim for damages arising out of the decision of a public

The UK government has declined to implement Reg 1370/2007 and instead rail franchise competitions

fall under s26 of the Railways Act 1993.


Limitation

March/April 2020

body or authority will not automatically be categorised as a “purely public law act”… in order to activate the vastly truncated limitation period applicable to judicial review.

He rejected the Secretary of State’s argument that pursuant to

the principle of equivalence (which requires that domestic procedural law operates in the same way for rights derived from domestic law and their EU law equivalents), the time limits under the Limitation Act 1980 either had to be modified to provide an equivalent time limit to the three-month judicial review time limit, or should incorporate that time limit by way of analogy. The equivalence principle could be relied on by an EU citizen, but it did not entitle the state to shorten a statutory time limit in the way contended for by the Secretary of State. Further, the Secretary of State could not use the principle to argue that the six-year time period was too long, particularly in circumstances where the UK government has deliberately chosen not to introduce the short statutory timetable set out in other public procurement regulations for claims in relation to railway franchising competitions.

For the same reasons Coulson LJ rejected the argument that a finding that the six-year limitation period applies to claims for Francovich damages fails to ensure the effectiveness of the EU public procurement regime. He observed again that the regime is aimed at challenging the validity of the decision rather than claims for damages and also noted that even under EU law, statutory time limits can only conceivably be reduced if there is a ‘judicially determined practice’ that was sufficiently foreseeable to the economic operator, and in this case, there was no such clear judicial practice.

Finally, in relation to the arguments on procedural exclusivity,

the judge noted that in Arriva what was in issue were not ‘purely’ public law rights and it was both common sense, and supported by authority, that in such cases the judicial review time limit would not apply. Noting that the respondents’ claims were based on the single overall tender

process, Coulson LJ added that it would be ‘nonsensical’ and unjust to rule that they could dispute some aspects of that process, but were bound to accept the lawfulness of the invitation to tender and re-bid instructions.

Cross-over reliefAs to the cross-over relief, Coulson LJ considered that, following Clark v University of Lincolnshire and Humberside [2000] the issue was ultimately one of case management. In determining whether a claim is an abuse of process by reason of a claimant’s delay in bringing proceedings that would normally be brought by judicial review, it was necessary to consider ‘all the circumstances’ of the case and the judge commented that while it may be possible to achieve such an assessment at an interlocutory hearing, to achieve justice in complex cases it may be necessary to consider the issue by reference to the evidence at trial. Since, in this case, the court would be considering that evidence anyway at a trial concerning the damages claims, there could be no difficulty in it doing so in relation to any cross-over relief.

Notwithstanding that decision the judge emphasised the difference between claims for injunctions, declarations and Francovich damages, noting that a claim for an injunction which seeks to set aside the underlying public law decision is very different to a claim for damages and may well be subject to the three-month time limit. By contrast, Coulson LJ noted that declarations are generally dissimilar

in nature and effect to injunctions and are often, in effect, no more than staging posts on the way to a successful claim for damages. In his view such claims would not generally give rise to any public law constraints, although a declaration that might affect the rights of third parties could perhaps fall on the other side of the line.

The Court of Appeal therefore held that the first instance judge had been correct to reject the Secretary of State’s strike-out application, and the appeal was dismissed.

ConclusionThe Court of Appeal’s decision in Arriva is a helpful confirmation that where a private law claim for damages is brought in respect of a railway franchise procurement process, it is likely to be subject to the limitation period set out in the Limitation Act 1980 rather than the judicial review time limit. It should provide some measure of relief to those involved in such processes, providing space to consider options in the event that they consider that the Secretary of State has breached his obligations as to transparency, fairness and equality.

However, unsuccessful bidders should remain astute to the need to commence proceedings as quickly as possible, particularly in circumstances where they may wish to seek an injunction as well as damages. Equally, it should be noted that any attempt to circumvent the three-month time limit by means of a private claim is unlikely to succeed.

Outside the context of rail franchise procurement processes, Arriva also provides a timely reminder of the complexities that can result from the confluence of public and private law claims. n

Coulson LJ rejected the argument that a finding that the six-year limitation period applies to claims for Francovich damages fails to ensure the effectiveness of the EU public procurement regime.

Clark v University of Lincolnshire and Humberside [2000] EWCA Civ 129Francovich v Italian Republic; Bonifaci v Italian Republic [1991] EUECJ C-6/90Secretary of State for Transport v Arriva Rail East Midlands Ltd [2019] EWCA Civ 2259O’Reilly v Mackman [1983] UKHL 1

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