UK Courts May Be Signaling A Preference For Mediation: Bryan Shacklady and Joe May write for Law360

• 23 March 2022
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Attention has recently focused on the Dec. 9, 2021, decision of Master Richard Davison in the Queen’s Bench Division to order compulsory alternative dispute resolution between the parties in a high-value contentious claim under the Civil Liability (Contribution) Act 1978, albeit by consent.

The case was not publicly handed down, and some commentary has focused on the belief that the order is the first of its kind.

History

In fact, orders of this sort are not entirely new. Our own team has been involved in litigation in the Commercial Court where, as long ago as the summer of 2016, the ruling, which was also not publicly reported:

• Ordered the parties to exchange lists of neutral individuals available to conduct alternative dispute resolution procedures by a certain date;
• Ordered the parties to in good faith endeavor to agree a neutral individual from the lists exchanged;
• Provided that in the event of failure to reach agreement on a neutral individual, the case management conference was to be restored;
• Ordered the parties to take such serious steps as they might be advised to resolve their disputes by alternative dispute resolution procedures before the neutral individual chosen;
• Ordered the parties to inform the court before a certain date what steps towards alternative dispute resolution had been taken and why such steps had failed; and
• Provided that in the event of a failure to initiate alternative dispute resolution procedures, the case management conference was to be restored for a further consideration of the case.

Notably, Master Davison’s order differs in mandating mediation as the ADR method and ordering specifically the mediation to be conducted on a without prejudice save as to costs basis. In any event, however storied their provenance, such orders move significantly beyond the language of encouragement that is used in the various court guides.

The Chancery Guide, for example, merely sets out:

Where appropriate the court will, as part of the overriding objective, encourage the parties to use ADR or otherwise help them settle the case or resolve particular issues.

The Commercial Court Guide contains similar provisions, and the Technology and Construction Court Guide has contained such provisions for years.

Implications

How seriously should practitioners and clients regard these developments? There is no doubt that they reflect a willingness on the part of the courts to save scarce court resources by compelling parties to engage in meaningful attempts at settlement. We should assume that such willingness will come with consequences for those who disregard the court’s wishes.

Although represented parties in commercial litigation are unlikely to engage in the kind of blatant disregard of the court’s wishes that could lead to them being found in contempt, the court has a range of other tools at its disposal to see that its wishes are carried into effect.

The court could potentially disallow interest on damages where parties have failed to mediate or engage in other forms of ADR according to a court order. Advisers should remember that courts have discretion as to whether to award interest at all, as to the period for which it should be awarded and as to the rate at which it can be awarded. A cavalier attitude to the court’s order in relation to ADR could well see the court’s discretion being used to reflect the court’s view of that attitude.

Parties should also bear in mind the general rule about the award of costs, set out in Civil Procedure Rule, or CPR, 44.2(1):

• The court has discretion as to:
• Whether costs are payable by one party to another;
• The amount of those costs; and
• When they are to be paid.

It is possible that a court could reflect recalcitrance to comply with an order for compulsory ADR by exercising its discretion as to costs other than in accordance with the general principle that the loser pays the winner’s costs. That will be particularly so where the court perceives that the failure to comply has caused court time to be expended unnecessarily.

Remember that the first of the circumstances to which the court may have regard in making an order as to costs is listed by CPR 44.2(4)(a) as the “conduct of the parties.” That must include the parties’ conduct in complying with the wishes of the court as to ADR.

Can the Parties Sit on Their Hands?

Many litigators will have encountered the client who does not wish to mediate and who turns up at the mediation determined not to engage. That has always been a case of shooting oneself in the foot by turning down an opportunity to settle and so prolonging exposure to the inherent — and sometimes unanticipated — risks of litigation.

It has, however, been traditional for such parties to assume that they will remain protected by the confidentiality of the mediation process — and, usually, the mediation agreement.

No longer. The Master Davison order specifically provided that the mediation be conducted without prejudice save as to costs. That leaves open the opportunity for the court to examine what occurred at a later date when considering the question of costs — and so specifically engages the possibility of the court registering displeasure in the form of an unwelcome costs order.

And the 2016 order above specifically provided for the parties to have to explain themselves as to the failure of any ADR process, leaving open the possibility of consequences if any such explanation was deemed unsatisfactory by the court.

Further Considerations

Both orders discussed above were made with the cooperation or consent of the parties. The real test of the court’s willingness to push the issue of compulsory ADR will come when such orders are made against the will of one or more of the parties.

It should also be remembered that although parties may focus on mediation as a form of ADR, there are other options. A recent development has been the introduction of the concept of early neutral evaluation, which the court is given power to order under CPR 3.1(m). This is usually carried out by a judge, retired judge or Queen’s Counsel.

There is conflicting authority on whether the courts have the power to order early neutral evaluation absent the consent of the parties, and it is notable that the Chancery Guide, the Commercial Court Guide and the Technology and Construction Court Guide all envisage the practice as involving the consent of the parties.

Perhaps the next development in the court-ordered ADR saga will be consideration of whether a refusal to consent to such an order is itself unreasonable?

The article was first published on Law360 UK on 22 March 2022, and is available to read in full here, behind the paywall.

Elizabeth Small writes for Taxation: VAT early termination fees and compensation payments

• 22 March 2022
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Corporate partner, Elizabeth Small, has written for Taxation, looking at the Revenue and Customs Brief 2/2022.

Small sums up the recent brief published by Revenue and Customs: “Fees charged when customers terminate a contract early will be regarded as further consideration for the contracted supply..”

The article was first published on Taxation on 16 March 2022, and is available to read in full here: VAT early termination fees and compensation payments.

Crypto: What trustees need to know about the proposed new civil seizure powers – Caroline Harbord and Joe May write for ePrivateClient

• 18 March 2022
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Dispute Resolution Senior Associate, Caroline Harbord, and Trainee Solicitor, Joe May, have written for ePrivateClient on the proposed Economic Crime Bill and new civil seizure powers relating to cryptoassets.

The article was first published on ePrivateClient on 17 March 2022, and is available to read in full behind the paywall.

The UK government has announced that it will introduce a further Economic Crime Bill, in addition to the one currently working its way through parliament, to bring in new powers to seize cryptoassets and to extend existing civil forfeiture powers to them.

UK enforcement authorities can currently seize cryptoassets using powers derived from criminal law. For example, HMRC did so when it recently seized three non-fungible tokens as part of a VAT fraud investigation. However, the ability to seize cryptoassets under the civil regime -via the High Court rather than criminal court – is potentially very attractive, at least from the perspective of enforcement authorities.

One of the key benefits of seizing assets through the civil regime is the lower burden of proof required by the civil court. When applying to make use of civil seizure and forfeiture powers, enforcement authorities need to persuade the judge that, “on the balance of probabilities”, the property in question is the proceeds of crime. When applying for equivalent relief from the criminal court, the judge needs to be satisfied of this “beyond all reasonable doubt”. The latter is a much higher evidential threshold for the relevant authority to clear.

In addition, civil recovery proceedings focus on whether the asset in question represents the proceeds of crime, rather than establishing criminality on that part of a specific individual (which is the focus of criminal proceedings). Provided the civil court is satisfied on the balance of probabilities that the asset is the proceeds of crime, it is not necessary for the authority to establish who committed the relevant crime or for there to be simultaneous criminal proceeds on foot.

This is a particularly useful feature of the civil regime when it comes to seizing cryptoassets, given that it is harder to establish who might own a cryptoasset or who might have committed a ransomware attack. The public traceability of blockchain transactions makes this potentially a very powerful tool; in many cases it will be easier to identify proceeds of crime than with non-cryptographic assets. That said, there are techniques which can be used to evade the public traceability of blockchains.

The existing civil seizure and forfeiture tools are widely regarded as having been underutilised. This is largely a product of how expensive the relevant orders are to obtain, and the additional costs incurred if an application fails. The government has, however, taken concurrent steps to mitigate these costs in the extant Economic Crime Bill currently passing through Parliament. This may mean that these powers are used more frequently in the future.

It will be interesting to see how the second Economic Crime Bill (in which the civil seizure powers will be set out) grapples with crypto-specific issues and how enforcement authorities intend to hold (and potentially liquidate) seized cryptoassets. This question is far less straightforward than for tangible assets such as cash and gold, and begs the question as to whether authorities will have their own cryptowallets.

So what are the implication of the new powers for those operating in the private client world? Pending the publication of the draft bill, the fundamental takeaway is how important it is for trustees to be alive to the anti-money laundering risks associated with holding cryptoassets, and to seek advice before dealing with such assets or agreeing to hold them on trust.

The government has expressly stated that there is an increased risk that these assets could constitute the proceeds of crime, such that little sympathy is likely to be afforded if robust source of wealth checks are not undertaken, particularly for clients or assets with links to Russia.

In addition, once the bill is published, trustees would do well to start considering how they would respond to a civil seizure order. This includes details of how they might isolate, secure, and potentially liquidate cryptoassets in compliance with such an order.

Finally, only when the Bill is published will we know if it is to impact trustees further afield than just England. The current civil seizure powers include criminal conduct that occurred outside of England, so it is foreseeable that the new powers will have some extra-territorial effect as well.

Bryan Shacklady spoke to City AM about flight refund claims

• 17 March 2022
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Senior Solicitor in our Dispute Resolution team, Bryan Shacklady, has spoken to City AM about the recent Supreme Court ruling allowing solicitors to claim any legal costs from clients when claiming refunds for delayed and cancelled flights.

Shacklady explains that solicitors will be emboldened by the ruling: “Firstly, it gives lawyers more certainty they’ll be paid for this kind of work, and secondly it means claims are more likely to be brought”.

The article was first published on City AM on 16 March 2022, and is available to read in full here: Supreme Court ruling could lead to boom in flight refund solicitors, legal expert says

TikTok privacy suit: Caroline Harbord is quoted in Law360

• 9 March 2022
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Dispute Resolution Senior Associate, Caroline Harbord, has been quoted in the Law360 article entitled ‘TikTok privacy suit skirts Lloyd knockout for now’.

The article discusses the recent decisions made by Judge Matthew Nicklin regarding the case against TikTok for allegedly breaching privacy rights of children.

The article was first published on Law360 UK on 8 March 2022, and is available to read in full here, behind the paywall.

Caroline’s full comments regarding this case can be found below.

A glimmer of hope for opt-out representative date protection group claims

The representative claimant in the opt-out data protection group claim against TikTok lives to fight another day, as the High Court (arguably unexpectedly) grants permission for the claim form to be served out of the jurisdiction on the foreign defendants.

The judgment is significant because it represents a departure, albeit a very cautious one, from the Supreme Court’s controversial decision in Lloyd v Google. In Lloyd v Google, the Supreme Court held that a similar (but not identical) opt-out representative group claim for breach of data protection legislation did not constitute a serious issue to be tried, such that the claim fell at the first hurdle.

While the judge in the TikTok claim was non-specific about the factors that empowered him to distinguish the TikTok claim from Lloyd v Google, it is clear that he gave weight to the fact that the claim against TikTok relates to breaches of GDPR, whereas in Lloyd v Google the claim related to the older and now defunct DPA 1998 which made no express provision for recourse arising from non-material damage.

The judge is also likely to have given weight to the claimant’s submission that there is a higher degree of uniformity between the TikTok class members and their associated damages, given that all class members actively signed up to TikTok. By contrast, the claimant class in Lloyd v Google all had their data surreptitiously stolen and commercialised by Google without their knowledge.

While the judgment undoubtedly provides a glimmer of hope for those who feared that all opt-out representative data protection group claims were dead in the water following Lloyd v Google, it is very clear that the representative claimant in the TikTok claim will have a tough battle ahead. As the judge acknowledged, the service out application (which was heard ex-parte such that the Defendants were not afforded the opportunity to state their position) was in many ways a pre-cursor to the forthcoming summary judgment application already issued by the English Defendant. All eyes will now no doubt be on this summary judgment hearing, where the High Court will give much more detailed scrutiny to the submissions highlighted above, including the extent to which it is bound by the Supreme Court’s decision in Lloyd v Google. This will no doubt have implications for all live and future opt-out representative data protection group claims, including their ability to obtain litigation funding.

The Inheritance Act 1975: Hannah Mantle and Maryam Oghanna write for ThoughtLeaders4 Private Client

• 1 March 2022
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Contentious Trusts and Estates Senior Associates, Hannah Mantle and Maryam Oghanna, write for ThoughtLeaders4 Private Client on the key Inheritance Act 1975 cases from the last year.

The article, entitled ‘Inheritance (Provision for Family and Dependents) Act 1975: Round Up’ was first published in the Thought Leaders 4 Private Client magazine and can be read in full below.

As we are all too aware, claims under the Inheritance (Provision for Family and Dependants) Act 1975 (the “Act”) are notoriously discretionary and fact specific. For that reason, many of the claims that reach the Courts (rather than settling) include a novel point, or clarify points which are too often disproportionate to argue; so it can be useful to have a look at the year’s cases in summary.

Unusual claims

Some of the sections of the Act which are less commonly used are sections 9, 10 and 11, namely to enable joint property to be treated as forming part of the estate, to defeat dispositions which were intended to defeat applications under the Act, and to defeat a contract made by the deceased to leave certain property under his will.

Section 9 was considered by the High Court in Beg v Beg [2021] EWHC 2598 Ch. Under the terms of her late husband’s will, Mrs Beg was the principal beneficiary of his estate. However, the matrimonial home had been owned in the joint names of the deceased and his brother. Firstly, the Court had to determine whether the property was owned by the brothers as joint tenants or tenants in common – the surviving brother successfully argued that the property was owned as joint tenants and passed to him by survivorship. However, Mrs Beg had also claimed under the Act (including s9) and was partially successful in arguing that the deceased’s half share of the property should be treated as part of the estate for the purposes of her claim for financial provision. The sum of £80,000 was treated as part of the estate, which was not the full value of the deceased’s half share, but was sufficient to allow Mrs Beg to repay the mortgage on another property in the estate, thereby giving her a different home to live in which provided reasonable financial provision.

Section 11 was also considered last year, for the first time, in the case of Sismey v Salandron [2021] 10 WLUK 372. The claim was brought by the son of the deceased from his third marriage. During the deceased’s divorce from the claimant’s mother, he had agreed by a deed (the terms of which were enshrined in a consent order) to leave his English home to their son. He later married his fourth wife, with whom he also had a child. She was widowed shortly after their marriage, and the estate passed under the intestacy rules. The Court found that the agreement was valid and enforceable (as it complied with the Law of Property (Miscellaneous Provisions) Act 1989 s2), and so went on to consider whether it could effectively be set aside by s11 of the Act. It found that, whilst the agreement was a contract entered into with the intention of defeating a claim (amongst other factors), the condition in s.11(2)(c) was not met as full consideration had been given by his ex-wife, by giving up claims to alternative assets including her share of the property and the deceased’s pension (from which the widow was now due to benefit). The son from the earlier marriage therefore inherited the property, as provided for by the deceased prior to his remarriage.

Minor and vulnerable children

Various reported cases last year considered the position of minor or vulnerable children of the deceased. For example, Re R (Deceased) [2021] EWHC 936 (Ch), where a father had died, leaving his estate to his parents and his new partner, to the exclusion of his two sons. The deceased and the sons’ mother had divorced six years previously, and the deceased had only maintained a very limited relationship with his sons for a short time. The mother and her subsequent husband had borne the costs of raising and educating the claimants privately, as the deceased had paid no maintenance or child support. The Court found that it would be highly unusual for a parent/ minor child relationship to breakdown so significantly that it would be reasonable to make no financial provision, even if someone else had taken on financial responsibility for them. Conversely, it found that the sons (or their mother) could not expect all of their costs to be met from the estate following their father’s death, as a sort of balancing exercise. The Court made an award based on the estate meeting between 50% and 100% of various itemised expenses for each of the sons from the date of death, until a year after they finished university, including accommodation, private school fees, cars, and counselling.

A slightly earlier case where the claimant reached majority after issuing his original claim was Wickham v Riley [2020] EWHC 3711 (Fam). The claimant had originally made a claim under the Act in 2017, after his father died in 2014. He had acted by his litigation friend until he reached adulthood in 2018 and subsequently discontinued the proceedings in 2019. The matter returned to Court in 2020, to address whether the discontinuance had been valid (including whether the claimant had litigation capacity at the time) and request permission under CPR r38.7 to make a new claim. The Court considered the evidence of the claimant’s diagnosis of autism spectrum disorder and expert evidence on his capacity. The Court concluded that, whilst vulnerable, the claimant was and remained capacitous, and (having opened the judgment with a quote from Bleak House) granted permission for him to issue a new claim under the Act.

Adult children and step-children

There were, of course, cases this year which confirmed the view that adult child (or step-child) cases often require an additional element in order to succeed (e.g. Re Mohammed (Deceased) [2021] EWHC 2532 (Ch) where the claimant could not show a maintenance need, or Miles v Shearer [2021] EWHC 1000 (Ch) where the claimants could not show needs for maintenance and had also been told by the deceased not to expect any further provision from him). Nevertheless, there were others where adult children or step-children were noticeably successful.

The Court of Appeal case of Hirachand v Hirachand [2021] EWCA Civ 1498 has been much commented in relation to the decision regarding the cost uplift under a conditional fee agreement, so I do not propose to do so again here. A point which has perhaps been discussed less is the other ground for appeal, namely that the video-link trial did not provide sufficient access to the defendant widow, who was elderly, deaf and living in a care home. The defendant had been debarred from participating in the proceedings, after twice failing to file an acknowledgement of service or evidence, despite having obtained legal advice. She attended the remote hearing following assistance from the claimant’s solicitors and had been provided with all relevant material. The Court of Appeal dismissed the appeal and found that there is no obligation on a court to proactively manage the attendance of a debarred party.

Another case dealing with CFAs and adult claimants was Higgins v Morgan [2021] EWHC 2846 (Ch). In this case, the claimant step-son of the deceased who had died intestate was awarded £55,000, including a contribution of £15,000 towards his CFA success fee (or a total of about 25% of the estate) after successfully making out a need for maintenance. The Court also found it relevant that the deceased had had a close relationship with the claimant and had made various assurances to the claimant about provisions that would be made for him in future. A contribution towards the uplift for the success fee was granted on the basis that it is a factor when considering the claimant’s needs for the purpose of the Act.

Watch this space

When the Law Commission considered the future of the Act in order to develop the Inheritance and Trustee Powers Act 2014 (the “2014 Act”), it considered whether the Act should be broadened to include deceaseds who were not domiciled in England and Wales (whether generally, or, for example, those who had real property here). As the 2014 Act did not, in the end, include any provision for claims on the estates of people not domiciled in this jurisdiction, a gap potentially arises in the law in providing for people who live or have assets here, but do not intend to remain here permanently. This may have contributed to the interesting outcome in the divorce of Hasan v Ul-Hasan [2021] EWHC 1791 (Fam), where the claimant’s matrimonial financial remedy proceedings were (understandably) found to be incapable of continuing following the death of her late husband. If the proposals prior to the 2014 Act had been incorporated into the Act, it is quite possible the Mrs Hasan would have been able to bring a claim under the Act. Instead, the case is being leapfrogged to the Supreme Court to decide whether she can continue her financial remedy proceedings on divorce. It will be interesting to watch the outcome and whether it affects any potential claimants under the Act.