Forsters boosts Dispute Resolution with appointment of Steven Richards
11 June 2024
News
Disputes Partner Steven Richards joins Forsters from Foot Anstey to add specialist fraud and contentious insolvency expertise to the firm’s full-service Dispute Resolution practice.
Forsters, the leading London law firm, announces today that Steven Richards is to join the firm on 11 June 2024. Steven has over two decades of experience advising on a wide range of commercial litigation and contentious insolvency matters. He joins Forsters from Foot Anstey where he led the dispute resolution practice for several years before heading up the firm’s fraud team. Prior to that Steven trained and practised at Jones Day (formerly Gouldens).
Steven’s appointment marks a period of continued growth for Forsters following the recent arrival of highly ranked and market recognised Employment Partner Jo Keddie and her team from Winckworth Sherwood. The firm, which celebrated its 25th anniversary in 2024, moved to new premises in Baker Street in January this year.
Steven has extensive commercial litigation experience and has a strong track record of acting on big ticket, complex disputes and achieving successful outcomes for a range of both domestic and international clients. He advises high net worth individuals, private companies, insolvency practitioners and financial services organisations on a wide range of disputes and has a particular expertise in civil claims involving allegations of dishonesty and fraudulent conduct. He also has significant experience in dealing with corporate disputes, banking and finance litigation, professional negligence, contentious insolvency, insurance claims, business critical issues and injunctive relief.
The addition of Steven Richards to Forsters’ Disputes Resolution practice will boost its already thriving general commercial litigation capability, while adding specialist contentious and insolvency expertise.
Benedict Walton, Head of Commercial Dispute Resolution at Forsters, said: “Clients turn to our disputes practice for the most complex commercial claims. Steven’s addition to the team adds significant bench strength in the important areas of fraud and contentious insolvency. I’ve known Steve for many years and he brings a fantastic track record of high profile litigation experience, successful practice building and a progressive and collaborative working approach, all of which will be highly beneficial as the team continues to strengthen and grow.”
Steven Richards said: “I am really excited to join Forsters at a time when the firm is growing and going from strength to strength. Forsters’ diverse client base and culture feels like a natural fit for me and my practice. The firm is the right place from which to serve my clients who will have access to market leading contentious expertise from the wider practice which, in turn, will help them navigate their most complex business challenges.”
Natasha Rees, Senior Partner of Forsters, commented: “Forsters is enjoying a period of strong momentum as a business and so we are really pleased to welcome Steven Richards to the partnership. He will be an excellent addition to the Disputes practice and of instant benefit and value to clients across the firm.”
Clarity and simplicity for the law on limitation in “concealment” cases
30 November 2023
News
Limitation periods reflect the uncontroversial principle that a defendant should not be exposed to a claim which the claimant has unreasonably delayed in pursuing.
However, what should happen to the limitation period where the defendant is responsible for the claimant’s delay, having concealed the facts underlying the cause of action? This is the issue which is addressed by ss. 32(1)(b) and (2) of the Limitation Act 1980, and which was considered by the Supreme Court in its recent judgment in Canada Square Operations Limited v Potter.
The decision emphasises the need to give the words of s. 32 their ordinary meaning, resulting in an expansion of the scope of s. 32(1)(b) and a narrowing of the scope of s. 32(2). Despite the changes in the interpretation of the provisions, it appears likely that the effects of the decision in practice will likely be relatively limited, with most cases still being likely to be decided as they would have been under the previous caselaw. The Supreme Court’s judgment nevertheless provides welcome clarification on the tests to be applied, and will simplify an area of law which has historically been subject to an array of inconsistent and complex decisions.
Factual and legal background
In 2006, Mrs Potter took out a loan with Canada Square. This was accompanied by a PPI insurance policy. Canada Square did not inform Mrs Potter that over 95% of the cost of the policy was commission payable to them.
In 2014, the Supreme Court handed down judgment in Plevin v Paragon Finance, holding that a party’s failure to disclose commission in this way rendered the parties’ relationship “unfair” under the Consumer Credit Act 1974, such that the other party was entitled to recover the amounts paid.
In 2018, Mrs Potter issued a claim against Canada Square in reliance on the Supreme Court’s decision in Plevin. Canada Square defended the claim on the basis that it was time barred, the relevant relationship having ended over six years before the claim was issued. In reply, Mrs Potter sought to rely on s. 32(1)(b) and 32(2) of the Limitation Act. As to these:
S. 32(1)(b) postpones the commencement of the limitation period where “any fact relevant to the plaintiff’s right of action has been deliberately concealed from him by the defendant” until “the plaintiff has discovered the […] concealment […] or could with reasonable diligence have discovered it”.
S. 32(2) provides that for these purposes “deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty”.
The Supreme Court’s judgment
The Supreme Court was required to consider the meaning of the phrases “deliberately concealed” in s. 32(1)(b) and “deliberate commission of a breach of duty” in s. 32(2).
“Concealed”
The Court began by considering the meaning of the word “concealed” in s. 32(1)(b). In a series of previous decisions, the Court of Appeal had held that insofar as the concealment relied on was a withholding of information (as opposed to taking active steps to conceal), the claimant would need to show that the defendant was subject to a duty to disclose the relevant information. This duty did not need to be a legal duty, but rather could be one “arising from a combination of utility and morality”.
The Supreme Court held that this was the wrong approach, noting that it had no basis in the statutory language; a party could perfectly well be said to conceal something which it had no duty to disclose (the Court used the example of an elderly lady hiding her pearls from a burglar). Further, applying this gloss to the statutory language would lead to unwelcome uncertainty and complexity insofar as it would require the Courts to decide in what circumstances a duty in “utility and morality” arose.
The Court also rejected previous Court of Appeal dicta suggesting that concealment required the defendant to know that the facts withheld were relevant to the claimant’s right of action; instead it was sufficient simply that they had withheld the information.
“Deliberately” concealed
The Supreme Court next considered the meaning of “deliberately” concealed in s. 32(1)(b). In this context, having decided (as noted above) that withholding of information would only amount to concealment where there was a duty to disclose, the Court of Appeal had held (on the basis of pre and post-Limitation Act case law, and statutory materials preceding the Limitation Act) that deliberate concealment could exist not only where the defendant had not disclosed a fact which they knew they had a duty to disclose, but also where they had been reckless as to whether they had such a duty.
Given that the Supreme Court had decided that concealment did not require any duty to disclose, it likewise rejected the Court of Appeal’s conclusions regarding recklessness, which were premised on such a duty being required. Looking at the matter afresh, and having also considered the meaning of the word in the context of s. 32(2) (to which most of the previous caselaw was directed – see below), the Court concluded that “deliberately” should bear its ordinary meaning; deliberate concealment therefore required a defendant to intend to withhold the relevant facts from the claimant.
“Deliberate” commission of a breach of duty
Following the Court of Appeal’s decision, it was undisputed that the existence of an unfair relationship under the Consumer Credit Act would give rise to a breach of duty for the purposes of s. 32(2), notwithstanding that the Act was couched in terms of an unfair relationship rather than any breach of duty.
The issue was therefore what mental state the word “deliberate” required on the part of the defendant when committing the relevant breach of duty (on the facts, when performing the act which rendered the relationship unfair i.e., failing to disclose the commission). In this regard, the Court of Appeal had relied on a combination of pre and post-Limitation Act caselaw as well as the parliamentary materials which preceded the Act (as noted above) to decide that the test was met if a defendant was reckless as to whether his actions were in breach of duty; actual knowledge of the breach was not required. For these purposes, the Court of Appeal gave recklessness the meaning given to it in the seminal criminal case of R v G; in order to be reckless, a defendant would need to be subjectively aware they were at risk of breaching the duty, in circumstances where it was objectively unreasonable to take that risk.
The Supreme Court was not persuaded by this analysis, noting that in its view the previous case law did not establish that recklessness was sufficient. The Court also indicated that, in circumstances where the relevant words of the Limitation Act were ordinary words of English with a clear meaning, it was impermissible to rely on the statutory materials which had preceded the act as an aid to interpretation. In what it stated was a return to the ordinary meaning of the statutory words, the Court concluded that deliberate commission of a breach of duty required the defendant to know they were committing a breach of duty.
Decision on the facts
In light of its conclusions, the Cout concluded that Canada Square had deliberately concealed facts underlying Mrs Potter’s right of action from her for the purposes of s. 32(1)(b), having intentionally withheld the amount of the commission. However, Canada Square had not deliberately committed a breach of duty for the purposes of s. 32(2), having been unaware that its failure to disclose the commission would render its relationship with Mrs Potter unfair.
Conclusion
The Supreme Court’s decision brings greater clarity and simplicity to the law, by holding that:
“Concealment” for the purposes of s. 32(1)(b) does not require a defendant who withholds facts relevant to a right of action to be under any duty to disclose them or to be aware that they are relevant to the right of action – it is enough simply that they are withheld; and
“Deliberate” in the context of s. 32(1)(b) and s. 32(2) requires actual intention to withhold the relevant facts or knowledge of the relevant breach of duty (as applicable), recklessness in either case being insufficient.
Following the Supreme Court’s judgment, s. 31(1)(b) is broader in scope, while s. 32(2) is narrower. Whether the new law is favourable to claimants or defendants will vary on a case by case basis, although as a general rule it seems likely that in most cases the result will be the same as previously. Specifically, it appears likely a defendant who withholds information relevant to a right of action for the purposes of s. 32(1)(b) (such that they satisfy the new test) will usually also be acting immorally and with an awareness that the facts are relevant to the right of action (as required under the old test); similarly, for the purposes of s. 32(2), a defendant who is aware that they are at risk of breaching a duty of care in circumstances where it is objectively unreasonable to take that risk (as required by the old test) appears likely to know that they are acting in breach of duty (such that they satisfy the new test).
In any event, limitation issues appear likely to be simpler for parties to plead and for the Courts to determine in light of the Supreme Court’s judgment. As was the position under previous caselaw, claimants will frequently be well advised to rely on both limbs of s. 32 in the alternative, with success under either limb being enough to deprive the defendant of its limitation defence.
No “real risk of prosecution” under Article 271 of the Swiss Criminal Code: Application to be excused from disclosure obligations fails
20 July 2023
News
It is well established that the English Court has discretion to excuse a party from performance of its procedural obligations in litigation where it considers that performing those obligations would give rise to an actual risk of prosecution in a foreign state: Bank Mellat v HM Treasury [2019] EWCA Civ 449.
In Public Institution for Social Security v Al Wazzan & Ors [2023] EWHC 1065, the defendants sought to be excused from their obligation to give disclosure on the basis that doing so would lead to a real risk of prosecution in Switzerland under Article 271 of the Swiss Criminal Code1. The Court was not persuaded by the defendants’ arguments and refused to grant the order sought.
The decision provides welcome guidance in a previously uncertain area, as well as a salutary warning to parties seeking to rely on Article 271 to excuse themselves from their disclosure obligations in English Court proceedings.
Article 271
Article 271 prohibits the performance on Swiss soil of “official” acts i.e. those which are properly the preserve of the state. The article was originally introduced during WWII in response to a German gestapo officer’s kidnapping of a Swiss Jewish citizen.
It is well established under Swiss law that Article 271 is engaged by examination of witnesses or the service of proceedings for the purposes of foreign litigation. It is less certain, however, whether Article 271 applies to the collection and/or review of documents for the purpose of satisfying a foreign Court’s disclosure order. This was the issue considered by the Court in Al Wazzan.
The decision in Al Wazzan
The applicants were the defendants to a claim brought by the Kuwaiti government regarding an alleged fraud committed against Kuwait’s social security system and state pension scheme. They sought to avoid giving disclosure of documents obtained from the Swiss criminal authorities and other documents originally obtained from Switzerland on the basis that doing so would give rise to a real risk of prosecution in Switzerland.
However, the Court was not persuaded that Article 271 was engaged by the giving of disclosure, having essentially accepted the respondents’/claimants’ Swiss law expert’s evidence on the point:
First, the Court was not persuaded that Article 271 was capable in principle of applying to compliance with a disclosure order; in Swiss litigation the submission of documents (unlike, for example, the examination of witnesses) is not restricted to the Court and it is not therefore clear that it is an “official” act.
Secondly, even if Article 271 could in theory apply to a disclosure order, it was accepted by the parties’ respective experts that (subject to the third party information point discussed below) it would not apply if the sanction for non-compliance with the order was procedural rather than criminal. In English litigation, the sanction for non-compliance with a disclosure order is generally procedural (eg, striking out relevant sections of the party’s pleading). Although contempt of court would in theory be available, crucially it would not be applied absent a penal notice on the face of the relevant order. There was no such notice on the face of the order at issue.
Thirdly, while the applicants had sought to rely on a recent Swiss case which had indicated that the disclosure of documents containing information belonging to third parties protected by Swiss public policy would fall within Article 271 (even where the sanction for breaching the order was only procedural), the third party information in that case had been subject to Swiss banking and fiduciary secrecy laws. There was no suggestion that any third party information in the present case raised any such issues.
Fourthly, Article 271 was not engaged by virtue of the fact that Kuwait had sought copies of the documents in the context of the Swiss criminal proceedings and this had been refused. Kuwait was not seeking to subvert this result and thereby perform an “official” function simply by exercising its rights as a party to civil litigation.
Fifthly, and in any event, the relevant documents were already in the possession of the defendants’ English lawyers. Giving disclosure would not therefore require any act to take place on Swiss soil and Article 271, which was clearly restricted to such acts, was not therefore engaged.
Accordingly, the Court was not persuaded that the applicants would be at a real risk of prosecution if they were to give disclosure. It therefore declined to excuse them from complying with their disclosure obligations.
Comment
The Court’s findings on the application of Article 271 (and the attendant risk of prosecution) were findings of fact based on its assessment of the expert evidence on Swiss law. They would not therefore technically bind another Court. That said, it seems likely that any party seeking to rely on Article 271 to justify failing to comply with its disclosure obligations will (absent materially different facts eg, as to the relevant third party information) face an uphill struggle.
The Court’s decision creates potential difficulties for parties insofar as it is not certain that the Swiss Courts would reach the same view of the application of Article 271. It therefore remains possible that giving disclosure might give rise to criminal liability in Switzerland. It is worth bearing in mind in this regard that the defendants’ expert was of the view that Article 271 was probably engaged (and this firm has also previously received Swiss law advice to similar effect).
In all cases where Article 271 is potentially engaged, Swiss law advice should be sought at an early stage. In addition, any party which ultimately concludes that there is a risk that Article 271 is engaged might consider applying to the Swiss Federal Office of Justice (“FOJ”) for a clarificatory opinion. Although this would not permit the party to give disclosure in contravention of Article 271 (as would the lengthier judicial assistance procedure under the Hague Convention), it would provide an authoritative opinion from the Swiss authorities relatively swiftly as to whether Article 271 was engaged. This should give the applicant either comfort that they are able to perform their disclosure obligations without fear of prosecution or (alternatively) persuasive material with which to justify to the English Court a request to be excused from those obligations.
1The defendants also sought the same order on various other bases which are beyond the scope of this article.
BT collective action ruling “could open the floodgates”: Ben Walton and Caroline Harbord write for The Times and Legal Futures
7 October 2021
Views
The Competition Appeal Tribunal’s (CAT) approval of a second opt-out collective action is likely to open the floodgates to more applications, claim Head of Commercial Litigation, Benedict Walton and Senior Associate, Caroline Harbord.
In approving a £600m claim against BT, the CAT showed that a collective proceedings order (CPO) can be obtained in claims where primary liability has yet to be established and not just follow-on damages claims.
Commenting on the decision, Caroline Harbord, Senior Associate in our Dispute Resolution team, said the decision was “significant” because it made clear that opt-out CPOs were not limited to “classic follow-on damages claims”, and could also be obtained in claims where primary liability has yet to be established.
The first CPO came in August in the Merricks v Mastercard case, brought after the European Commission made a finding of anti-competitive behaviour.
Caroline continues: “This order – being only the second of its kind issued by the CAT – may well serve to spark an increase in the number of CPO applications going forward…”
“If a class representative can gather together sufficiently compelling evidence of anti-competitive behaviour – so as to render the claim more than ‘fanciful’ – it may be able to successfully obtain an opt-out CPO, even if there hasn’t been a formal finding of anti-competitive behaviour by the European Commission or the Competition and Markets Authority.”
“The case, therefore, arguably opens the floodgates in this area.”
Merricks v Mastercard: Benedict Walton and Caroline Harbord write for FT Adviser on funded group litigation
27 September 2021
Views
Head of Commercial Dispute Resolution, Benedict Walton, and Dispute Resolution Senior Associate, Caroline Harbord, have written for FT Adviser on funded group litigation.
Case Update: Directors’ liability for unlawful distributions
4 January 2021
News
The recent High Court Judgment in SSF Realisations Limited -v- Loch Fyne Oysters Ltd and Others (21 December 2020) is an example of how essential it is for Directors to only sanction distributions out of available profits as supported by the company’s last annual accounts (or interim accounts where the last accounts don’t evidence sufficient reserves).
Where companies become insolvent, recent cases have shown that the Liquidators have been able to make recovery from Directors who have made payments, or obtained security, that simply could not be justified once closely examined.
Alongside cases such as BTI 2014 LLP v Sequana SA (6 February 2019) (where the court found that a lawful distribution was a transaction defrauding creditors), it is important that Directors consciously turn their minds to the solvency of a company (current and future) when recommending or declaring dividends or other distributions, even if there are sufficient reserves. Where there are sufficient reserves, but the future solvency is or reasonably should be in doubt, the Directors are required to consider the interests of creditors in recommending or declaring any distribution. If not properly considered, the distribution itself, the actions of the company and the Directors are liable to be scrutinised should a creditor feel that it has been prejudiced by those actions.
As more and more insolvencies occur due to Covid-19 and market conditions, Directors are going to be under even more detailed scrutiny as to their actions, particularly where any distribution has been made in recent times.
The Facts
SSF Realisations Ltd (“the Company”) was incorporated in 1974 and supplied fish to shops and restaurants. It was acquired in 2008 by Loch Fyne Oysters Ltd (“LFO”) for £1.9 million but both the Company and LFO were in financial difficulty by 2011 and it was decided to sell LFO free from any liability to the Company. At the time, LFO owed the Company a sum of about £900,000 according to the Comp[any’s accounts.
In order to reduce this debt, the Directors of the Company resolved at a Board Meeting in November 2011 to declare a dividend of £500,000, and a management charge of £330,000, in favour of LFO. The management charge was stated to relate to various services that had been supplied to the Company but never charged for. It was subsequently reduced to £244,916.
The effect of the dividend and management charge was to put the Company into a position where it had net liabilities of £142,710 based on its management accounts as at November 2011.
The Company continued to trade but never returned to solvency and, after it went into creditors’ voluntary liquidation in 2016, the Liquidators pursued a claim against LFO and the Company’s Directors based on the whole amount of £744,916 being an unlawful distribution out of capital in breach of Part 23 of the Companies Act 2006.
The Judgement
After a 3 day hearing, the Judge concluded as follows:-
The management charge was not a genuine liability. It was a disguised distribution. Although LFO had supplied various services, it was as a shareholder and not a creditor (as it had never previously charged for these or factored these into any accounts and there had never been any contractual liability on the part of the Company to pay for any of these services). Accordingly, the sum of £244,916 was to be treated as a distribution within S.829 of the 2006 Act.
To decide whether a distribution is lawful, it is necessary to consider the relevant accounts, either being the last annual accounts or later interim accounts. In this case, the relevant accounts were the October 2011 management accounts which, when corrected for an understatement of liabilities, showed distributable profits of only £428,057.
The distribution of £744,916 exceeded the distributable profits of £428,057 by £316,859 and this excess was therefore unlawful.
LFO was liable to repay the excess under S.847 of the 2006 Act as, at the time, it knew, or had reasonable grounds to believe that, based on the relevant accounts as properly stated, this sum was beyond the amount lawfully distributable and was therefore in contravention of Part 23 of the 2006 Act.
The relevant Directors of the Company were potentially personally liable as well as, although they had not acted dishonestly, they were to be treated as trustees of the Company’s funds and they were aware of the relevant facts that made the distribution of the sum of £316,859 unlawful. They were directly involved in relation to the making of the management charge and securing the sale of LFO free from any liability to the Company. Although there were certain accounting issues at the time that confused the true financial position of the Company, this did not absolve the Directors as it was their responsibility to ensure proper books and records were maintained.
It was open to any Director to seek to be excused from personal liability for breach of duty under S.1157 of the 2006 Act if they acted honestly and reasonably and, in all the circumstances, if they ought fairly to be excused. Of the three Directors in question, two were highly experienced businessmen who fully understood their actions and took no steps to reverse the transactions when it was apparent they rendered the Company insolvent. So they were not to be excused but the third Director had no financial or accounting expertise and had relied on the others, and he was excused from liability.
The Conclusion
The Company, through the Liquidators, succeeded in the sum of £316,859 and can no doubt also recover interest and costs. This liability was largely due to the failure of the Directors to properly prepare the accounts they used to justify the distribution. Additionally, the creation of a management charge that had no historic or legal basis was clearly unjustified and this case serves to remind us that the Court will look at substance in deciding where a management charge is genuine or a sham.
The case also reminds us that Directors can be held to a subjective standard in relation to their own skills and experience, and in this case it is telling that the Director who did not have expertise in, or responsibility for, financial or accounting matters was not found personally liable for the failure relating to the preparation of the accounts. It may be the case that the Directors who were found liable are insured against their liability under D&O cover but, if not, they are likely to have a heavy liability to bear as they were presumably only pursued as it was believed LFO was not able to make repayment itself.
