Date 30 September 2008
Welcome to the September issue of Stay Alert.
In this edition, we bring you up to date on recent developments in Commercial Litigation and cover:
- Reminder of the 47th update to the CPR
- Inclusion of arbitration clause unfair in consumer contract
- A procedural foul-up and a moral to be drawn'
- Pre-judgment interest on debts and damages
- Court orders the inspection of Tomlin order schedules by a third party
- Radio advertisement banned after legal terms were read out too quickly.
- Appeal against judge's unreasonable refusal to vacate trial date allowed
- Ministry of Justice consults on introducing rules on costs capping orders into the CPR
We hope that you find this edition of Stay Alert useful and interesting. We value your opinions and always welcome any comments you may have. If you have any feedback on this edition or any suggestions on what you would like us to cover in future, please email Clare Mackay – clare.mackay@salaw.com. We look forward to hearing from you.
Reminder of the 47th update to the CPR
Most of the changes under the 47th update to the Civil Procedure Rules, as set out in SI 2008/2178 will come into force on Wednesday 1 October 2008.
The most significant change is the substitution of a completely revised Part 6 on the service of documents, with two accompanying practice directions on service within the UK and on service out of the jurisdiction respectively. A summary of these changes was included in the August edition of the Stay Alert.
Inclusion of arbitration clause unfair in consumer contract
In Mylcrist Builders Limited v Mrs G Buck [2008] EWCH 2172 TCC the claimant builders (C) applied for an order to enforce an arbitration award against the defendant (D), a consumer, who had engaged C on C's standard terms and conditions. Those terms and conditions included an arbitration clause.
Ramsey J refused the application on the basis that the arbitrator had not been properly appointed and also on the grounds that the arbitration clause was not binding on D. Under the Unfair Terms in Consumer Contracts Regulations 1999, the inclusion of the arbitration clause was unfair on D. In this case Ramsey J held that, contrary to the requirement of good faith, the arbitration clause did cause a significant imbalance in the parties' rights and obligations under the contract, to the detriment of D. Paragraph 1(q) of Schedule 2 shows that the arbitration clause must be regarded as potentially vulnerable to being unfair. The existence of the arbitration clause coupled with the requirement for a mandatory stay of court proceedings under section 9 of the Arbitration Act meant that an arbitration does "exclude or hinder a consumer's right to take legal action".
The case should serve as a warning to businesses contracting with consumers on standard terms and conditions not to include an arbitration clause, unless the clause and its effect is fully explained to the consumer in advance. A consumer will not generally be familiar with the process of arbitration, for example, the very limited rights of appeal, the potential for less extensive disclosure and the possibility of relatively large fees to be paid to the arbitrator(s). By its very nature, arbitration is a consensual process and therefore, not one that should be entered into by a lay person without having fully understood its implications and, in particular, that any court proceedings will be automatically stayed under section 9 of the Arbitration Act.
The case also emphasises the importance of careful drafting. In this case C was not able to unilaterally appoint an arbitrator given the effect of sections 15 and 16 of the Arbitration Act .
'A procedural foul-up and a moral to be drawn'
In ED & F Man Commodity Advisers v Fluxo-Cane Overseas [2008] All ER (D) 99 (Sep) the Commercial Court has warned parties and their representatives against overloading hearings with too many issues, particularly where urgent applications are made during the vacation.
Walker J. observed that the interests of justice require that applications be properly prepared so that, within the time allowed for pre-reading, the judge can get a clear picture of what the real issue are, what factual and legal points arise, and what arguments the parties put forward on those points. Walker J emphasised that these observations apply with added force in relation to urgent applications made in the vacation, where parties need to recognise that the vacation Commercial Court judge also has to deal with other urgent oral hearings at short notice.
Walker J observed that commercial lawyers sometimes have a macho culture in which they think clients will be impressed by aggressive conduct but that the hours worked by the lawyers in the case must have involved serious risks to their health and safety. He considered that responsible clients would not be impressed by conduct which is likely to raise the temperature unnecessarily and to result in wasteful inefficiency.
Pre-judgment interest on debts and damages
On 16 September 2008, the government published its response to the Law Commission's 2004 report on pre-judgment interest on debts and damages. The government agreed that, where pre-judgment interest is awarded, the court may specify the rate of interest. It is likely that the rate of interest will be set by reference to the Bank of England base rate from time to time.
Currently, in the absence of any contractual entitlement to pre-judgment interest, the court has discretion as to the rate of interest to be applied. The starting point is the rate prescribed in section 17 of the Judgments Act 1838, which has remained at 8% since 1993. The proposed changes are welcomed as they are likely to provide greater certainty and rationality. Section 35A of the Supreme Court Act 1981 and section 69 of the County Court Act 1984 will be amended accordingly, although the timetable for implementation is as yet unclear.
The government rejected the Law Commission's recommendation that, where a judgment was £15,000 or more, there should be a presumption that interest will be awarded on a compound basis. Although the government did not rule out considering this issue again, it has no plans to do so for the foreseeable future. The response notes that compound interest is available in appropriate cases as a restitutionary remedy. However, simple interest will continue to be awarded in the majority of cases.
Court orders the inspection of Tomlin order schedules by a third party
The court may grant an order to a defendant allowing inspection of Tomlin order schedules reached between the claimant and other defendants. In doing so the court should respect the confidentiality of the parties to the Tomlin order. L'Oreal SA & ors v eBay International & ors [2008] EWHC B13 (Ch). Tomlin orders are routinely used to record terms of settlement reached between parties. The actual terms of settlement are set out in a confidential schedule to the order so are not publicly available.
In an application brought under CPR 5.4B(1), eBay, one of the defendants, requested inspection of settlement agreements between the claimant and individual defendants, which were set out in the schedules to Tomlin orders . It was argued, on behalf of the eBay, that it was necessary and proportionate that eBay should be able to see the basis on which the claims had been settled by the claimant with the other defendants. The reason for this was that all of the defendants were joint tortfeasors. Therefore, unless the claimants had reserved their right in the settlement agreements to continue to pursue eBay, the settlement reached by the claimants with the other defendants had the effect of releasing eBay from any claim against them as joint tortfeasors.
The claimants sought to resist the application on the basis that the court should respect the confidentiality of the parties to the Tomlin orders. Accordingly, the claimants, being bound by this confidentiality, should not be ordered by the court to allow eBay to inspect the schedules to the Tomlin orders. Further, arguments put forward were that eBay's application was a fishing expedition and that there was no substantive reason for overriding the claimants duty of confidence. Counsel for the claimants accepted that the release of one tortfeasor would release the other tortfeasors.
The court referred to two cases:
- The Court of Appeal in Apley Estates v De Bernales [1947] Ch. 217 - this showed the importance of analysing particular terms of any settlement agreement.
- The House of Lords decision in Heaton v AXA Equity and Law [2002] 2 AC 329. In particular, the court referred to the opinion of Lord Mackay of Clashfern and the fact that the terms of the agreement incorporated into the schedule of a consent order were crucial to determining the issue between the parties (para 27 of the judgment).
The court considered that, despite the confidentiality arguments put forward on behalf of the claimants, it was important for eBay to be able to inspect the settlement agreements between the claimants and the individual defendants, as these settlement agreements would show whether the claimants had reserved their positions to continue to pursue eBay in its capacity as a joint tortfeasor.
The court held that eBay should be entitled analyse the settlement agreements between the claimant and the individual defendants. To do so meant that they should be entitled to inspect the schedules to the Tomlin orders. To ensure that, as in the Apley case, the confidentiality of the parties was respected, the inspection should be done by eBays' legal advisers.
This decision highlights two important issues for practitioners:
- The courts may allow inspection of Tomlin order schedules. However, if inspection is order the courts will endeavour to respect the Tomlin order parties right to confidentiality
- When drafting settlement agreements for a claimant with some, but not all tortfeasors, consideration must be given to whether the claimant needs to reserve its right to pursue other joint tortfeasors. If this is the case, such a right should be expressly provided for in the settlement agreement
Radio advertisement banned after legal terms were read out too quickly
A Vodafone radio advertisement has been banned after a ruling which said its legal terms were read out too quickly. The advert's "small print" was too difficult for listeners to understand, the Advertising Standards Authority (ASA) said in its adjudication. The action was taken in response to one complaint, which said the information came too fast and was hard to hear.
Vodafone responded by saying the female actor's voice had not been speeded up and was no faster than similar ads. They added that certain terms and conditions needed to be broadcast in the advert, and it was acceptable to summarise them at the end.
The company also contended that the radio advertising standard codes made no mention at which speed the legal terminology should be delivered. They also said they did not believe their advertisement to be deceptive and in contravention of advertising legislation.
The ASA concluded the ad was not to be broadcast again in its current form because it could be misleading to listeners. The advert, widely heard by radio listeners across the UK, started with a male actor speaking in the style of a weather forecast, advertising one of the company's mobile telephone offers. The legal terms and conditions also contained information about a website listeners could visit.
Appeal against judge's unreasonable refusal to vacate trial date allowed
The Court of Appeal in Gilbart v Graham [2008] EWCA Civ 897 has allowed an appeal against a case management decision by a judge to refuse to vacate a trial date. The appeal was allowed on the basis that the judge's decision was, under Wednesbury principles, unreasonable. In other words, was a decision which no reasonable Judge could have come to).
The defendant appealed the decision of the judge not to vacate a trial date for a 5 day trial due to start in 5 weeks. The judge stated that it was only in exceptional circumstances that a trial date would be vacated after it had been fixed and directions had been agreed. The judge's decision not to vacate was based upon the fact that the trial date had been confirmed by the parties just 3 weeks before the application was made and that he was not satisfied that the application for specific disclosure would result in the need to vacate the trial date. The judge set out a stringent timetable to take the parties through to the trial date. The issue before the Court of Appeal was whether the judge had correctly exercised his discretion in refusing to vacate the trial date.
The Court of Appeal found that the judge should have asked himself two questions:
- Is it feasible to get the specific disclosure completed by trial?
- If it is feasible, can there be a fair trial?
In reaching his answers to those two questions the judge should have had regard to:
- The overriding objective in CPR 1.1 (i.e to deal with cases justly)
- The claim being for a 7 figure sum, when considering the issue of proportionality
The Court of Appeal found that had the judge asked himself whether there could be a fair trial he could not have concluded that this was possible, even if the specific disclosure was completed. The Court of Appeal considered that the only possible judgment for the judge to have reached, had he properly exercised his discretion, was that an adjournment was necessary. This was because:
If disclosure was completed it would be very late in the proceedings
The appellant had an order that it could adduce expert evidence and it was unrealistic to expect the expert to be instructed until after disclosure was completed
There was great difficulty in obtaining a relevant expert on short notice
The appeal was allowed as the judge's decision not to vacate the trial date was held by the Court of Appeal to have been unreasonable.
Ministry of Justice consults on introducing rules on costs capping orders into the CPR
The courts have been making costs capping orders for some time now, often in an attempt to redress the balance where there is a large disparity in financial resources between the parties. The Ministry of Justice is now seeking to codify the principles set down by the courts in the making of these orders by introducing formal rules into the CPR. The new rules will not apply to protective costs orders.
The proposed rules and amended costs practice direction provide that such orders are exceptional and will only be made if:
- It is in the interests of justice to do so;
- There is a substantial risk that without such an order costs will be disproportionately incurred; and
- It is not satisfied that the risk above can be controlled through case management and detailed costs assessment
The application must include an estimate of the applicant's costs to date and future costs.
The circumstances the court will consider when deciding whether or not to exercise its jurisdiction are also articulated. It will consider:
- Whether there is a substantial imbalance between the financial position of the parties;
- Whether the costs of determining the amount of the cap are likely to be proportionate to the overall costs of the litigation;
- The stage the proceedings have reached; and
- The costs incurred to date and future costs
The new rules also set out the directions the court may give on such an application. These include requiring the respondent to file a schedule of costs setting out figures the respondent believes should be allowed under each heading, by reference to the figures put forward in the applicant's estimate.
For further advice or guidance, please contact Clare Mackay on 01727 798034 or by email at clare.mackay@salaw.com.
© SA Law 2008
Every care is taken in the preparation of our articles. However, no responsibility is accepted as being owed to any person or organisation who acts on the basis of information contained in them. You should obtain specific advice in respect of individual cases.