Disputes Matter – Summer 2017


Committal for breach of freezing injunction
Palmer & Anor v Tsai [2017] EWHC 1860 (Ch) Walker Morris recently obtained a judgment […]
Palmer & Anor v Tsai [2017] EWHC 1860 (Ch)
Walker Morris recently obtained a judgment from the High Court on behalf of liquidators Nick Reed and Julie Palmer of Begbies Traynor (Central) LLP, sentencing the former director of an IT distribution business which was implicated in a large scale VAT fraud, to 18 months in prison for contempt of court.
Mr Tsai is the founder and former managing director of Changtel Solutions UK Limited (in liquidation) (the Company), which went into liquidation following its implication in a VAT fraud.
The liquidators have issued claims with an aggregate value of £38 million against Mr Tsai, including allegations that he knowingly used the Company as a vehicle for fraud and dissipated the Company’s assets for the benefit of himself and parties to whom he is connected, to the detriment of the Company’s creditors.
On 15 February 2017, the liquidators obtained a worldwide freezing order against Mr Tsai’s assets in the maximum sum of £24.7 million. The freezing order contained ancillary orders requiring Mr Tsai to deliver up his passports and, in the usual form, to disclose all of his assets worldwide in which he held a direct or indirect interest. Mr Tsai subsequently failed to surrender his Taiwanese passport; temporarily absconded to Taiwan to arrange for significant funds to be moved from bank accounts in which he held an interest (as found by the Court); and breached his asset disclosure obligations by submitting various affirmations which were contradictory and contributed to the Court’s finding that he was a dishonest witness.
In view of Mr Tsai’s ongoing breaches of the freezing order, on 23 February 2017, the liquidators issued a committal application against Mr Tsai on the basis that he had breached the terms of the freezing order and was in contempt of Court. As ancillary relief, the liquidators also sought an order debarring Mr Tsai from defending the substantive claims unless he made full disclosure of his assets. During the course of the hearing in June 2017 before Mrs Justice Rose, Mr Tsai was cross-examined in relation to his assets and his compliance or otherwise with the freezing order.
Following various adjournments of the hearing of the application requested by the respondent, on 21 July 2017, Mrs Justice Rose sentenced Mr Tsai to an immediate custodial sentence of 18 months’ imprisonment for contempt of court.
Delivery up of passports
Although Mr Tsai delivered up his British passport promptly, he retained his Taiwanese passport and travelled to Taiwan in breach of the freezing order, only returning once the Liquidators had commenced committal proceedings.
Although Mr Tsai claimed that his wife was desperately ill at the time of his absconsion, the Court found that Mr Tsai had in fact visited Taiwan in order to arrange for funds to be moved from bank accounts in which he held an interest.
Asset disclosure
Mr Tsai produced a number of affirmations which gave contradictory evidence as to the extent of his assets. In one instance, Mr Tsai denied holding an interest in assets in which he had previously admitted holding an interest and blamed his earlier admissions on the advice and conduct of his former solicitors.
Following lengthy examination in chief and cross examination, Mr Tsai apologised during re-examination for having made errors and mistakes during his cross-examination and stated that he wished to make full disclosure of his assets. Mr Tsai then made various admissions in re-examination of breaches of the freezing order.
In her judgment, Rose J found that Mr Tsai was “a dishonest and manipulative person who has no qualms about fabricating important documents, lying to the court and expecting his work colleagues and family members to act dishonestly to assist him.”
The Court made a number of findings as to the true extent of Mr Tsai’s assets and found that Mr Tsai had committed a number of serious breaches of the freezing order, including in relation to assets which were registered in the names of Mr Tsai’s family members in order to disguise Mr Tsai’s beneficial interest.
Sentencing
Mr Tsai was sentenced to 15 months’ imprisonment for his breach of the passport order. Although the breach was mitigated by the fact that Mr Tsai had returned to jurisdiction, it was aggravated by the fact that Mr Tsai had lied about the reason for the trip to conceal the fact that the purpose of the trip was to move money which was subject to the freezing order.
Mr Tsai was given a range of sentences for the various breaches of the asset disclosure order, with the most serious breaches resulting in a sentence of 18 months’ imprisonment, incorporating some credit for certain of Mr Tsai’s late admissions.
The various sentences were ordered to run concurrently, so that Mr Tsai was sentenced to a total of 18 months’ imprisonment. The Court stated that 12 months of this sentence was punitive and recommended that no more than 6 months should be deducted from the sentence if Mr Tsai chose to belatedly make full disclosure of his assets.
Debarment
The liquidators also applied for an order debarring Mr Tsai from defending the underlying substantive claims unless he complied fully with the asset disclosure order by a given date.
The Court refused to grant such an order and found that there would be practical difficulties in requiring a respondent to give full disclosure of his assets when he was remanded in custody. The Court also stated that the purpose of a debarring order is to encourage compliance and this purpose was already served by the prospect of Mr Tsai’s sentence being reduced if he did comply fully with the order.
Although a debarring order was not granted at this stage, the Court noted that its approach to granting such an order may change if it transpires that Mr Tsai has further undisclosed assets.
Comment
In reaching its decision, the Court emphasised its willingness to hear from alleged contemnors at any stage to correct untruthful evidence, make admissions or express remorse. However, the Court found in this case that the respondent’s various admissions, retractions and changes of position adversely affected his credibility.
Whereas there were various attempts by the respondent to justify his conduct, including by reference to negligent legal advice; medical ailments and misunderstandings, the liquidators were able to provide overwhelming evidence of Mr Tsai’s previous and continuing dishonest conduct.
The decision is a helpful reminder of the extent of the Court’s powers when policing orders generally and, in particular, when compelling compliance with freezing orders. The decision also explores the circumstances in which various potentially competing relief is available when a respondent is in contempt and provides a helpful overview of the considerations of the Court when deciding on the appropriate sanctions for non-compliance with its orders.

Exclusion clauses and UCTA: An unexpected decision?
The interpretation of exclusion clauses in commercial contracts continues to prompt disputes and debate. Walker […]
The interpretation of exclusion clauses in commercial contracts continues to prompt disputes and debate. Walker Morris’ Head of Commercial Dispute Resolution, Gwendoline Davies, explains the recent decision of the High Court in Goodlife Foods v Hall Fire Protection [1].
The Unfair Contract Terms Act 1977 (UCTA) applies to determine the enforceability of clauses which seek to restrict or exclude business liability in the majority of supply contracts. UCTA provides, in short, that any attempt to exclude or restrict liability for death or personal injury is void and that any attempt to exclude or restrict liability for other loss is subject to the ‘reasonableness test’ [2].
Case and clause
In Goodlife Foods v Hall Fire Protection, when Goodlife alleged that Hall Fire Protection was liable for a fire at its factory and claimed over £6 million in property and business interruption damages, Hall Fire Protection sought to rely on the contractual provision which excluded all liability for loss caused to “…property, goods, persons or the like, directly or indirectly resulting from our negligence or delay or failure or malfunction of the systems or components provided…”. Goodlife, however, argued that the reference to “persons” was an attempt to exclude liability for death/personal injury which rendered the exclusion clause void.
An unexpected, but not unreasonable, decision?
The High Court judge agreed with Goodlife that the clause included an attempt to exclude or limit liability for death or personal injury but, perhaps somewhat surprisingly, he decided that that did not render the whole clause invalid.
Instead, in reliance on an unreported Court of Appeal decision from 1991 [3], HHJ Davies found that the part of the clause seeking to exclude liability for death/personal injury could simply be severed, and the remainder could be upheld as enforceable if it passed the UCTA reasonableness test.
HHJ Davies went on to find that the remainder of the clause was reasonable and therefore enforceable. He placed particular emphasis on the facts that the parties were of roughly equal bargaining position and that the real risk behind this contractual arrangement was the risk of fire damage and that was something that Goodlife could (economically) – and should – have insured against.
The decision in this case may have been surprising firstly because it seemed to contradict received wisdom that an exclusion of liability for death/personal injury renders an entire clause void. That line of reasoning was embodied in the Court of Appeal case of Stewart Gill Ltd v Horatio Myer & Co Ltd [4], but HHJ Davies was able to distinguish that decision by reference to the facts and clause in question, which did not mirror exactly those in the Goodlife case.
Secondly, the decision may have been surprising because it also goes against what has been a relatively common reluctance on the part of the courts to leave a party without any remedy at all. However, as Walker Morris has reported previously, last year’s Transocean Drilling v Providence Resources [5] case also provided clear authority that, where sophisticated parties enter into contractual terms which very clearly define the exclusions and limitations of risks to which they have agreed, the courts will uphold such exclusions even if this will deprive an innocent party of sums due following a breach of contract.
WM Comment
Limitation and exclusion clauses restrict a party’s contractual rights and obligations or legal remedies and the law therefore provides that parties should not lightly be taken to have limited their rights or remedies without clear wording to that effect [6]. Equally, however, freedom of contract is a crucial concept within English commercial contract law which allows parties – in particular commercial parties of equal bargaining strength entering into sophisticated contractual arrangements – to apportion responsibility and risk howsoever they see fit.
There is a tension between these apparently competing legal principles. Combine that with the circumstantial pressure when a costly dispute has arisen and the parties have turned to their contract to ascertain where liability falls, and it is easy to see why exclusion clauses can be highly controversial. To make matters worse, the law in this area is constantly in flux, and can often seem contradictory, largely due to the fact that all such cases turn so closely on their own facts and contractual provisions. So what can parties do?
Practical advice
Parties would be well advised to remember that rarely can a limitation/exclusion of liability clause be absolutely watertight. In many cases, therefore, rather than seeking to exclude all liability in all or any circumstances (and potentially thereby rendering your clause unenforceable altogether), it may be better to accept limited liability in some circumstances to ensure that your clause will stand.
Key to that process will be for the parties to ‘get behind’ the contract to try to identify the likely possible risks from the outset, and to really think about how best those risks can be allocated between them or otherwise mitigated (for example, through insurance). Your legal advisor should be able to review and re-draft your contract terms in light of your particular business needs, so as to get the balance right.
In addition, limitation/exclusion clauses should, where possible, be drafted in a series of separate, self-contained provisions so that, if any part of the clause is found to be void or unreasonable, there is at least a chance that that part can be severed, thereby leaving the remainder of the clause enforceable.
If you would like any assistance in relation to your negotiation or review of any contractual exclusions or limitations, or if you would like any advice in connection with any commercial contract dispute more generally, please do not hesitate to contact Gwendoline Davies or any member of Walker Morris’ Commercial Dispute Resolution team.
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[1] [2017] EWHC 767 (TCC)
[2] See section 11 (1) and Schedule 2, UCTA
[3] Trolex Products Limited v Merrol Fire Protection Engineers Ltd (20 November 1991, unreported)
[4] [1992] QB 600
[5] [2016] EWCA Civ 372
[6] although that is not to say that there is any special rule that exclusion clauses should necessarily be interpreted narrowly

UCTA, exclusion clauses and standard terms
In another recent case concerning the enforceability of exclusion clauses and UCTA, the Court of […]
In another recent case concerning the enforceability of exclusion clauses and UCTA, the Court of Appeal has clarified what is required where a party seeks to avoid liability, having contracted on the other’s standard terms. Commercial Dispute Resolution Partner Nick Lees explains.
We have already seen that contractual exclusions can be controversial and that the law in this area is often complex. Commercial contracting parties are therefore likely to welcome the clarity that has recently been provided by the Court of Appeal in the case of African Export-Import Bank v Shebah Exploration [1] – at least in relation to those claims where a party specifically seeks to avoid liability by virtue of section 3 of the Unfair Contract Terms Act 1977 (UCTA).
UCTA and standard terms
Section 3 UCTA provides that where a party deals on another party’s written standard terms of business, any attempt by the former to exclude or restrict liability for breach of contract, or to allege that their contractual performance is either rendered substantially different to that which was expected or not required at all, will be subject to the reasonableness test [2].
In African Export-Import Bank v Shebah Exploration the borrower defaulted on a $150m loan agreement which had been entered into with three banks on terms based on the Loan Market Association model form facility agreement. When the claimant banks sued the borrower for the full amount owing as a result of its breach of contract, the borrower made counter-claims and argued that it should be entitled to set off the counterclaims against its liability. The borrower contended that a clause within the contract which excluded any right of set off was an exclusion clause, to which section 3 UCTA applied and was subject to the reasonableness test.
The Court of Appeal rejected the borrower’s arguments and the following key points arise:
- The onus of establishing that section 3 UCTA applies is on the person seeking to rely on it.
- It should not be difficult to adduce evidence of a party’s written standard terms, since anonymised requests for standard terms of business can be made.
- However, even if it can be shown that the terms in question are habitually, invariably or at least usually used, a party seeking to rely on section 3 UCTA must also be able to demonstrate that the standard form was intended to be adopted more or less automatically in transactions of the relevant type without any significant opportunity for negotiation.
- In this case, the borrower had not adduced any evidence of what the banks’ standard written terms of business actually were; the contract in question was a syndicated facility involving multiple lenders; and travelling draft documentation between the parties showed that substantial negotiations upon the contractual documentation had taken place overall, even if not in relation to the particular clause in question. The borrower’s attempt to rely on section 3 of UCTA to render the set-off exclusion unenforceable (and, in turn, to avoid its liability for defaulting on its loan repayments) was unsuccessful.
WM Comment
This case does not make new law, but it is a good illustration of the operation of section 3 UCTA and it has afforded the Court of Appeal the opportunity to clarify what will be required if and when a party seeks to rely on section 3 in practice.
Furthermore, because this case draws attention to the additional potential for parties getting around exclusion/limitation clauses where they contract on another’s standard terms, it also highlights how important it is for businesses who regularly contract on their own T&Cs to make sure that those terms are reasonable under UCTA, and therefore enforceable.
If you would like any advice or assistance in relation to your standard terms of business or any other exclusion or limitation provisions within your contractual arrangements, please do not hesitate to contact Nick Lees or any other member of the team.
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[1] African Export-Import Bank & Ors v Shebah Exploration and Production Co. Ltd & Ors [2017] EWCA Civ 845
[2] See section 11 (1) and Schedule 2, UCTA

Contractual interpretation and enforceability in commercial service level agreements
Minimum acceptable performance level examples and key performance indicators (KPIs) have been held, by the […]
Minimum acceptable performance level examples and key performance indicators (KPIs) have been held, by the Court of Appeal, to be contractually binding. Commercial Dispute Resolution specialist Nick Lees discusses a case which will be of interest to all those who negotiate or operate commercial services or service level agreements.
Interpretation authority
Since the 2015 case of Arnold v Britton [1], Supreme Court authority on contractual interpretation has been clear. In short:
- The starting point is the wording of the contract itself.
- Whilst consideration of commercial common sense can, in the right circumstances, be taken into account, it is not a criterion of contractual interpretation that should undermine the importance of the clear language of a clause.
- Similarly, whilst commercial common sense can be a consideration, it cannot be invoked ‘after the fact’ (it is only relevant to ascertaining how matters would or could have been perceived when the contract was made).
- Where necessary, an objective test – that of what the reasonable business person would understand the clause to mean – is applied to ascertain the parties’ intention at the time the contract was entered into.
- In a case where there are two or more tenable interpretations, the most commercially sensible option will be preferred.
- Crucially, it is not for the court to depart from clear contractual wording even where that represents a bad bargain for any party.
“Curious” case and Court of Appeal decision
In Sutton Housing Partnership Ltd v Rydon Maintenance Ltd [2] the parties entered into a 5 year contract pursuant to which Rydon would maintain and repair Sutton’s housing stock. It was common ground between the parties that they had agreed that Sutton would be able to terminate the contract on notice if minimum acceptable performance levels (MAPs) were not met and that if the MAPs were exceeded, Rydon would receive bonuses. When Sutton subsequently alleged that the MAPs had not been met and served notice to terminate the contract, it became clear that there were problems with the drafting of the relevant provisions. The contract defined the MAPs by reference to a KPI framework , but the KPI framework contained MAPs figures which were referred to as “examples” only. Rydon therefore argued that the contract did not specify MAPs – rather it only gave examples which were not contractually binding. It fell to the Court of Appeal to construe the contract.
The Court of Appeal found for Sutton Housing, deciding that MAP “examples” were binding. The court was careful to note that it reached its decision with the Arnold v Britton authority in mind and it focused on the fact that it was clear that the parties’ intention was, and the intention of “any reasonable or indeed unreasonable person standing in the shoes of either party” would be, for the contract to specify MAPs. In addition, whilst the contract was clear that the KPI framework included “examples”, Jackson LJ considered that wording within the KPI framework itself was clear that the figures were examples, but that the arithmetical consequences of the relevant provisions were specified. The court referred to the drafting as “curious” and took into account commercial common sense when noting that, if the MAPs were not binding then, as well as Sutton’s termination option being precluded, Rydon’s bonus option would also be precluded. It therefore stated that the conclusion that the MAPs were contractually binding was the only rational interpretation.
WM Comment
The use of KPIs, minimum performance standards and worked examples or illustrations is common in many commercial and service level agreements today. It is possible that drafting similarly loose or confusing to that in Sutton Housing v Rydon may have been applied in very many other cases, not least because it is common practice for minimum performance requirements, KPI schedules and the like to be put together by commercial or operations managers and then simply copied and pasted into contractual schedules, with little or no legal input, analysis or advice.
This case may be relied upon in future by those looking to the court to ‘fix’ confusing contractual provisions to ensure enforceability of performance standards. However, while the Court of Appeal reached what was clearly a common sense outcome on the particular facts of this case, it is easy to see that, as contractual wording is paramount to the contractual construction exercise, a different case could go a different way.
Practical advice
The best advice will therefore be for those businesses working with these types of contracts to ensure that all relevant provisions are drafted precisely and correctly in accordance with the parties’ intentions. Where contracts have already been completed, businesses should review very carefully the service level clauses, key performance calculations and any related definitions or other operative provisions to ensure that they actually bind both parties and work in the way that they were intended to do.
In the event of any dispute over the interpretation and operation of any such arrangements:
- Consider carefully the wording in the clause/contract itself. If there is real uncertainty, then commercial common sense can be taken into account and may assist.
- Also consider whether there is any scope for settlement? It is rare for any contractual interpretation dispute to be clear cut. In any such case there will be an element of ‘litigation risk’ for both parties, which can assist in negotiations to encourage a commercial compromise.
- In any event, it is good to talk. Interpretation disputes often arise by virtue of the fact that there is an ongoing contractual relationship between the parties. It can be in the interests of all concerned for the parties to behave in a reasonable and commercially sensible manner.
- Does the clause reflect the parties’ intentions at the time the contract was entered into? If it does not, is the contract capable of being rectified?
- Alternatively, was the clause entered into in reliance on any misrepresentations? If so, the contract could be set aside and financial compensation could be payable.
- Finally, consider whether you were properly advised when the contract was completed. It is possible that any losses could be recouped via a professional negligence claim.
Please do not hesitate to contact any member of Walker Morris’ Commercial Dispute Resolution team for further information or advice.
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[1] [2015] UKSC 36. See our earlier briefing for further information and commentary.
[2] [2017] EWCA Civ 359

Dancing around mitigation of damages: Supreme Court decision in The New Flamenco
Commercial Dispute Resolution Partner Malcolm Simpson explains the important and high profile case, The New […]
Commercial Dispute Resolution Partner Malcolm Simpson explains the important and high profile case, The New Flamenco, which provides Supreme Court clarity on the treatment of collateral benefits and mitigation in the calculation of damages.
It is rare for a dispute to go all the way from an arbitration through to the Supreme Court. That is what happened in The New Flamenco [1], so that we now have some clarity on the treatment of collateral benefits and mitigation when it comes to the calculation of damages. Commercial Dispute Resolution Partner Malcolm Simpson explains.
The New Flamenco
This high profile dispute concerned a charterer’s redelivery of a cruise ship to its owners early (in October 2007, instead of in November 2009), in repudiatory breach of charterparty. The owners accepted the charterer’s early delivery breach as terminating the contract, and claimed loss of earnings for what would otherwise have been the remainder of the term. The owners then sold the vessel towards the end of October 2007, obtaining a better price for it than they would have achieved had they sold it in November 2009 (the date that would otherwise have been the end of the charterparty term), post the global financial crisis.
The question in the case was whether damages payable by the charterers, the breaching party, should be reduced by (and therefore whether the owners should have to give credit for) the value of the benefit that the owners had received by selling in October 2007.
Dancing around mitigation of damages
At an initial arbitration, the case was decided in favour of the charterers.
That decision was appealed to the High Court, which found, instead, for the owners. Popplewell J attempted to distill, from relevant authorities, some general principles, which can be summarised as follows:
- In order for the receipt of a benefit by an innocent party to result in the reduction of damages payable by a breaching party, the benefit must be caused by the breach.
- Determining causation is a question of fact and degree, which must be answered taking all relevant circumstances into account, including the nature and effects of the breach and the nature of the benefit obtained and the loss claimed, and forming a common sense overall judgment.
- The causation test will not be satisfied if the breach merely causes the occasion, trigger or context for the innocent party to obtain the benefit; nor is it sufficient that the benefit would not have been obtained ‘but for’ the breach.
- A mitigating step may be a reasonable and sensible step taken to reduce the impact of a breach, but that does not mean that the breach is legally causative.
- Benefits flowing from a step taken in reasonable mitigation are only to be taken into account to reduce recoverable damages if and to the extent that they are caused by the breach.
- The causation test is unlikely to be met where and to the extent that the benefit arises from a transaction which the innocent party could have undertaken irrespective of the breach.
- It is not necessary that the benefit is of the same kind as the loss claimed or mitigated.
- Even where the causation test is met, considerations of fairness and public policy may nonetheless preclude the benefit from being taken into account to reduce recoverable damages. In particular, benefits which are the fruits of something that the innocent party has done or acquired should not be taken into account, and therefore be effectively appropriated for the benefit of the wrongdoer, where that would be unfair.
The High Court’s decision was then overturned at the Court of Appeal; and the Court of Appeal’s decision was, in turn, appealed to the Supreme Court…
Supreme Court clarity – Causation is key
In a rather brief conclusion which brings the long-running to-ing and fro-ing of this case to an end, the Supreme Court unanimously overturned the Court of Appeal’s decision and found for the owners. The Supreme Court’s judgment centres on the causation test – that is, for an innocent party’s benefit to be brought into account to reduce damages payable by a breaching party, the benefit must have been legally caused either by the breach or by a successful act of mitigation.
In the current case there was an insufficient link between the early re-delivery and the sale at a pre-financial crisis price for the causation test to be met. The vessel could have been sold at any time (regardless of whether the charterparty had been terminated or was continuing). At best the breach had prompted a sale – it had certainly not legally caused it; and the sum for which it was sold was dictated by the prevailing market and irrespective of the breach.
WM Comment
Although the earlier order of the High Court was ultimately effectively restored by the Supreme Court, this judgment does not go so far as to make clear whether (and if so the extent to which) the principles enunciated by the High Court judge are endorsed and authoritative. The Supreme Court decision does absolutely clarify, however, that causation is key when it comes to the consideration of collateral benefits and mitigation of loss. In light of the overall outcome of the case, it seems likely that practitioners and commercial contracting parties will not go too far wrong if they bear in mind Popplewell’s principles when calculating damages in future contract and tort post-breach/collateral benefit cases.
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[1] Globalia Business Travel SAU of Spain v Fulton Shipping Inc of Panama [2017] UKSC 43

Rules against re-litigation and abuse of process: ‘Aldi requirement’ is not optional
Lynsey Oakdene provides an update on the ‘Aldi requirement’/Otkritie Capital v Threadneedle litigation and highlights […]
Lynsey Oakdene provides an update on the ‘Aldi requirement’/Otkritie Capital v Threadneedle litigation and highlights the practical importance of the rules against re-litigation and abuse of process.
Res Judicata and Abuse of Process: The Aldi requirement
Res judicata is the fundamental legal and public interest principle which states that there should be finality to litigation and that defendants should not face repeated litigation in respect of the same set of circumstances. This can be particularly relevant in complex commercial litigation and in cases involving multiple and/or related parties or group companies. The courts also have the power, under rule 3.4 (2) (b) of the Civil Procedure Rules (CPR) to strike out claims which amount to an abuse of process. Although there is no specific definition of ‘abuse of process’ in this context, it is clear that this covers (non-exhaustively) re-litigation situations, advancing a case or issue that is inconsistent with an earlier judgment [1], and advancing claims or arguments that could and should have been made in earlier proceedings [2].
In the 2007 Aldi [3] case, the Court of Appeal ruled that, for reasons of public interest and the efficient use of court resources, parties should inform the court in ongoing proceedings of any possibility of bringing a related claim in subsequent proceedings. That has become known as the ‘Aldi requirement’. Whilst the court acknowledged that parties must be allowed some measure of freedom to choose whom they sue in a complex commercial dispute and must not be forced into bringing a single set of proceedings against a wide range of defendants or to complicate existing proceedings by bringing [multiple] cross-claims, nevertheless that freedom should be restricted by appropriate case management, which can include the striking out of a claim for abuse of process.
An exception to the Aldi requirement?
In the 2015 case of Otkritie v Threadneedle [4], however, the High Court refused to strike out a claim where the claimant, in clear breach of the Aldi requirement, failed to inform the court in earlier related proceedings of its potential claim against the defendant. In that judgment the court confirmed:
- Whilst there is no excuse for failing to comply with the Aldi requirement, such a breach is a case management issue which will not, of itself, suffice to strike out a claim.
- The crucial question is whether, in all the circumstances, a party is misusing or abusing the court process by using it to raise an issue which could have been raised before.
- To decide whether there has been an abuse of process, the court must adopt a broad, merits-based approach to the facts of the particular case.
- Where there has been a breach of the Aldi requirement, the court should attempt to decide what case management would have been undertaken had the requirement been complied with. If it is likely that, had the claimant informed the court of potential related litigation, that litigation would have been allowed to proceed, then it is unlikely that the Aldi breach and subsequent litigation will be an abuse of process.
- However, a breach of the Aldi requirement coupled with the possibility that the court would otherwise have taken a different approach might create a low threshold for the finding of abuse… and
- …even if an Aldi breach does not amount to abuse, an irresponsible approach to the issue and conduct of commercial litigation could put a claimant at real risk on costs.
- The Aldi requirement is not just a matter for claimants. Whilst a defendant is not expected to invite litigation against itself, nevertheless if it is concerned about the prospect of subsequent litigation and/or is concerned that, in breach of Aldi, a claimant is not informing the court about the possibility of bringing further, related proceedings, then a defendant can make an application to the court accordingly. In fact, as all parties are required to help the court to deal with cases justly and at proportionate cost [5], a court may actively expect the defendant to make such an application.
Earlier in 2017, this decision was appealed to the Court of Appeal [6]…
Court of Appeal confirmation
In a unanimous decision, the Court of Appeal upheld the High Court’s decision not to strike Otkritie’s claim, such that the principles set out above still stand.
However, the Court of Appeal took the opportunity to proffer a strongly worded warning to commercial parties and practitioners that this case is not to be seen as, or as permitting, an ‘exception’ to the Aldi requirement. In fact, the court stressed that:
- There are no exceptions to the requirements to inform the court of any possibility of bringing a related claim in subsequent proceedings and not to abuse the court process by using it to raise issues that could have been raised before.
- The Aldi requirement is not optional.
- The fact that the Aldi requirement has not been translated into a procedural rule or practice direction does not matter.
- While there can be no excuse for failing to comply with the Aldi requirement, failure of itself does not, however, mandate striking out. Rather, the Aldi requirement is one facet of the broad, merits-based assessment which a court should carry out to determine whether and when a strike out is appropriate.
WM Comment
The ‘Aldi requirement’ (Otkritie Capital v Threadneedle) litigation is a clear reminder of the need for commercial claimants to very carefully consider their approach when it comes to the bringing of claims involving multiple and/or related parties, group companies and/or complex issues, and the need for them not to skip the vital procedural step of seeking case management assistance from the court where there is any possibility of bringing a related claim in subsequent proceedings or raising issues that could have been raised before.
The case also reminds defendants, however, that whilst there can be significant time, cost and reputational savings for those who can successfully counter or strike out unmeritorious claims with res judicata and abuse of process arguments, a claimant’s failure to comply with the Aldi requirement will not, of itself, mandate strike out.
Whether you are a claimant facing strike-out or concerned not to prejudice your ability to bring future or additional claims, or whether you are a defendant seeking to avoid vexatious or repeated litigation, please contact Lynsey Oakdene or any member of the Commercial Dispute Resolution team for further advice and assistance.
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[1] This abuse of process is known as ‘collateral attack’
[2] This is known as the rule in Henderson v Henderson (1843) 3 Hare 100
[3] Aldi Stores Ltd v WSP Groups & Ors [2007] EWCA Civ 1260
[4] Otkritie Capital International Ltd & Anor v Threadneedle Asset Management Ltd & Anor [2015] EWHC 2329 (Comm)
[5] CPR 1.1 – the Overriding Objective
[6] [2017] EWCA Civ 27