David Lowe: Welcome everybody to our live webinar ThinkHouse. I am David Lowe, I am one of the leaders of ThinkHouse here at Gowling WLG with Michael Luckman. I am a specialist in commercial contracts and I work heavily with in-house lawyers. Cat, would you like to introduce yourself?
Catherine Naylor: Thanks David and good morning everybody and thanks for joining us via Zoom. As David said I am Cat Naylor and I am a partner in the commercial litigation team, and I help clients to navigate their way through corporate commercial disputes both domestic and cross borders.
David: And that's exactly what today's live webinar is going to be about. It is a litigation survival guide. Now of course, disputes are part of any major corporate doing business. Unfortunately disputes come up and have to be dealt, with but we thought it was probably a good time to have a little bit of a refresher now here in September 2020, given the disruption caused and continuing to be caused by COVID-19 and the recession that we are in. It is a classic melting pot moment for litigation as this is when people will feel desperate enough to feel that they have no choice but to litigate and may well make claims and you may well receive those claims. So today is about a return to basics, but to think a bit about what are the key things to do relating to disputes in their early stages, before it is turned into full on litigation. Cat, do you want to give us a quick summary of what we are going to cover.
Cat: Yes absolutely and I should probably start David, by just saying it is pretty rare that I have a client that actually wants to get into a dispute but as you say, in the current climate, we are expecting more disputes to happen. So to keep the session really practical, I am going to cover: do's and don'ts for responding to a claim if you are unlucky enough to receive one; the other side of the coin, whether to litigate or whether they might be an alternative route, in particular a winding up route; a word on terminating contracts in the hope of avoiding litigation; then on to privilege, what you can do to keep difficult documents out of courts; without prejudice, what does it mean and when should you use it; and then finally a word on funding and costs.
David: So we are going to cover quite a few different topics but the thing that brings them all together is we think they are the kind of issues that in-house lawyers will be facing as you deal with the run up to disputes, well hopefully avoiding them becoming formal litigation, and therefore the things that are going to be on your desk. A quick bit of housekeeping before we start. Timing wise we are aiming to come in at about forty-five minutes and end this about quarter past eleven. There is a Q&A function on your browser bar there, if you have any questions do pop them in if they are relevant to the bit we are talking about we will pick them up as we go along or we will pick them up at the end. If we do not get to your question then we will try to answer it offline so if you find that we do not get to your question do not worry, we will follow up on that. It is CPD accredited for those of you who are solicitors and equally for barristers, but of course you need to keep your own records for that to sort with the SRA, and finally there is a feedback form and we do appreciate your feedback particularly as we are all continuing to learn how to do these seminars online and we obviously are keen to hear your feedback and learn from that.
So Cat, let us turn to the first topic, you receive a claim, what do you do?
Cat: OK David, the first point is that it is crucial to have in place the right protocol and training so that if a claim is received into the business people know what to do with it and bring it to the attention of legal as soon as possible. It might sound obvious but it is all too easy for somebody to sit on a claim for a few days - to put it on the desk to deal with later - and that is a dangerous thing because the time to respond it quite short. I have even had clients who in a panic have thrown the claim away because they did not want their boss to know about it. That is a disastrous thing to do, so it is absolutely vital that you have a protocol in place so people know if a claim comes in you have to flag it up immediately. And that should extend to reception staff for instance or loading bay, whoever might physically take receipt of a courier coming in and serving a claim personally, so they do not just chuck the envelope away or put it in a pigeon hole, they need to flag it straightaway. If you are expecting a claim because you have had rounds of correspondence, and it is usual to have pre-action correspondence, so it ought not to come out of the blue but it can do, but even if you are expecting a claim it can be easy to overlook it if you are on holiday for example. If it comes in, and again I have had a situation happen where a claim has come in, someone is away, it has gone into their in-tray and it has sat there and they were not aware of it when they got back and so they did not get to it straight away. And when you have fourteen days to respond, it eats into your time.
So that is my first top tip, have a protocol and training, it sounds obvious but it is so easy to get it wrong.
David: You talked about it coming in the post or at front desk, is it possible to receive it on your email?
Cat: Well it is, and people do email but funnily enough, at the moment under the Civil Procedure rules which govern how to litigate, service by email is not a permitted method unless the parties consent to receiving documents that way. Now you can expressly consent - so you could do that for instance in a contract you might agree to accept service by email - or consent can be implied - so a way of having an implied consent by email is if you file a court document with an email address on it you impliedly agree to accept service by email - but just out of the blue a claim form by email, that is not proper service unless you have consented to it. The courts have not got up to speed. Fax, first class post, personal service those are the permitted methods.
David: So the claim has arrived and it has found its way on to your desk, now what?
Cat: Well there are a whole host of substantive points to consider, you are going to want to get to the bottom of the merits of the claim straight away and that is obviously vitally important, but in terms of practicalities and procedural elements to focus on, there are a few points that you should think about early on because actually if a claimant has got certain procedural points wrong, and service is a good example, then it could be a bar to what is otherwise a good claim. So when you get a claim, do a checklist.
On my checklist first of all - am I insured for the claim? So think about whether there might be some insurance that would meet the costs of dealing with it and the reason that you think about that very early on is that most insurance policies require you to notify straight away. So, check whether you are insured and if you are notify your insurers.
Next point on the checklist - it is really important to keep a note of how the claim has been served for the reasons we have just talked about. Service is prescribed and you have got to get it right. When was it served, how was it served, what else was served with it? So to give an example of how it can go wrong, I have had a situation quite recently where the claimant served by post, first class post, absolutely fine, but unfortunately did not put the right postage on the envelope. The claim came to our client's attention (they had to pay the £0.40 short postage) but that was not good service and so that claim form lapsed. The claimant had to reissue the claim form four months later and pay another £10,000 to do so. In that case it was just an expensive mistake, but if you have a limitation issue, then if the other side has not served properly you might find yourself with a complete defence. So service: keep a record, keep a note of the envelope it came in and as I say that is really important.
Have a think about jurisdiction - is the English Court, and we are assuming we are talking about English Court for this talk today, is the English Court the right place or is there an arbitration agreement and actually they should be arbitrating not litigating? Have you agreed that some other forum abroad would be the right place?
Similarly law - check that it is English Law. It may be that you have agreed a different law should apply.
Lastly, I have already made this point but it is absolutely vital on your checklist - act quickly. You have fourteen days to respond. Do not hang about.
David: So Cat if you have that person who threw it in the bin because they wanted to hide it and are in denial, if that happens and you do not respond to it what happens then?
Cat: Well if you do not respond within the requisite time period, and as I say in most claims it is fourteen days after service unless you agree an extension, then the other side can automatically get a default judgment and that is as simple as filling in a form and sending it to the Court and the Court will enter judgment on the claim in the full amount of the claim. It is possible to have that default judgment overturned because it is entered in your absence and there is a whole procedure that you can follow to do that, but you have to have good reason and it effectively means you are starting from the back foot and you are having to make this defensive application, the costs will be for your account. So you will have to pay all of your costs for making the application and you will have to pay the other side's costs for dealing with it, so default judgment is a bad thing. Also once you have it overturned it, fine, but a default judgment is still a judgment so it will be entered on the judgments register and that can affect credit rating and all sorts of things so you really do not want a default judgment and certainly not as a starter for ten in litigation.
David: Cat there is a question that has just popped up here and I am going to pick it up now because it is relevant. Somebody has asked, would any allowance be made for working from home? Because the post goes into the office and then it might take a little while to actually get to you at home. Is that relevant?
Cat: Well it is a good point, it might be a good reason if proceedings had been properly served but they were not brought to the attention of the right person and a default judgment was entered, that might be one of the good reasons that you would be able to pray in aid in your overturning application. As I say, you would normally expect that there would be some pre-action correspondence and so if you are anticipating a claim, one of the things that in the current climate it would be sensible to do is to agree with the other side how you are going to accept service and where they should serve the documents. I know that may sound like you are giving them an easy ride, you are not allowing them the opportunity to get it wrong for example, but the consequences of them getting it right and you not noticing it I think are probably greater so I think some element of cooperation is probably needed at the moment.
David: I guess the other thought is actually sensible office management. You should not be letting the post pile up in the office, somebody needs to open it and deal with it and scan it and circulate it reasonably prompt so you do not get in this situation.
Cat: Well that goes to my first point, which is to make sure that those people in the front line know what they are supposed to do if a claim comes in so it does not languish in a pigeon hole or in an in-tray somewhere and get overlooked.
David: Yes. Gosh, we are getting more questions here. Another one which I think is really interesting is that somebody has asked "we get a number of claims served on our stores and not the registered office, which then results in delays in claims not being forwarded on to the right department". If somebody sends a claim to a store and not the registered office is that good service?
Cat: So potentially it is, it does not have to be the registered office, it is the place of business. So I think it really does depend on which store and how many stores you have but I think there is an argument that that would be good service. What I would not want to do in those circumstances is just ignore it and assume that it was not, and I think when you have a lot of stores and regional offices for instance, again it is the training point just to make sure that everybody who is on the front line knows, if they get served with something that they bring it to the attention of whoever it is as soon as possible.
David: Yes it is, the standing order to the store manager is if you get a claim send it to head office immediately.
Cat: Yes straight away and let people know, do not put it to one side and deal with it later, deal with it straight away.
David: Great. I have distracted us with those questions, where were we? So we talked about your check list of things to do when you receive a claim, the need to act quickly, default judgment, anything else that is happening in that golden moment on receipt of the claim?
Cat: I think there are probably two other key points, in no particular order. Have a think about whether there is scope for avoiding litigating. I appreciate once you have had a claim, you are already off to the races, but think about whether there is scope for mediation or negotiation. Can you pick up the phone to the other side and say: "look this has gone too far, is there a way to resolve this without spending the time and cost of litigating?", as most people actually want to avoid litigating because it is a distraction from running your business. So it is galling at the get go to think about paying anything for a claim that you do not think is meritorious, it is galling if you are on the other side of the fence accepting a discount and claim that you think is a good claim. But actually, if you do the cost benefit analysis and you put your commercial head on, is it worth spending the time and cost of fighting or could you possibly pay something or take a discount now to draw a line under things very early on and if that is possible then that is certainly something to think about.
I think the final point is evidence, so if you cannot settle the claim and there is nothing fundamental in the procedure that would invalidate it or would appear to invalidate it, you need to think about securing evidence, and I do not mean running around at the very beginning taking witness statements and all the rest of it, but you need to for instance, preserve documents. So if you have an automatic email deletion policy for instance, you need to get on to IT and say "stop we do not want to destroy anything", because if you get to the point of disclosure down the tracks and you have destroyed documents, completely inadvertently and as a matter of course, even in those circumstances the court could draw adverse inferences.
David: Great. OK. So that all about receiving claim. Flicking around to, you've got a dispute, somebody owes you some money or whatever, and you're trying to recover it and they're not responding. One way you can go is to set off formal litigation, but are there any other alternatives you should be thinking about?
Cat: Yes, for sure. There's a whole array of alternative dispute resolution mechanisms available to you, so we've talked briefly about mediation, and there is negotiation. But if you've tried, and let's just assume in this hypothetical world you've tried to negotiate and you've got nowhere. Litigation is obviously one route – so court proceedings. An alternative if you have a debt claim, and in the current climate we expect that those will increase because people are just trying to avoid paying the bills, there is an alternative which is the winding-up route, which could be much quicker and cheaper than litigating over a debt.
Now the courts actually don't like commercial parties threatening to wind each other up for unpaid debts, but actually it can be a very effective way of getting paid. It has to be a debt, so it has to be a definite sum and it has to be a debt that is undisputed. So it has to be, let's say an invoice which for whatever reason just isn't getting paid and if you have a debt and it is an undisputed debt, then you can serve what's called a statutory demand, and the statute is the Insolvency Act. What that is, it is a one or two page document. You set out very brief details of the nature of the debt and serve it on the other side. If within 21 days of service of the statutory demand they haven't paid the debt, you are entitled to seek to wind the company up for its failure to pay. The threat of doing that, funnily enough, can immediately unlock payment and it is, as I say, for a solvent company a very effective tool because it is very cheap to do. The threat is severe and the reason the threat is severe is because nobody wants to be wound up. But even just presenting a petition, that has to be advertised and so it will come to the attention of the public, it will affect your credit rating, it will potentially affect your banking facilities because a winding up petition has been presented. So, as I say, solvent corporates tend to pay quickly on receipt of a statutory demand which is properly made. Obviously if the statutory demand doesn't have the desired effect you have to decide whether you are going to go through with presenting a winding up petition. If you do that, again, it is quicker and cheaper for an undisputed debt than litigation would be, but, if the company is insolvent, in fact, you take your chances with the other creditors getting paid. I think just a note of caution on the winding up route, as I said it has to be a debt, it has to be undisputed. If you threaten to wind up a company in respect of a disputed debt, you might find yourself on the receiving end of an injunction preventing you from presenting a winding-up petition and if the court considers that it was an improper thing for you to have done, and an abuse of the court's process because the debt is disputed, then you might find yourself on the receiving end of a costs order. So it is not something to do lightly. But, as I say, for an undisputed debt it is a really effective tool.
David: It sounds like if you've got a large invoice and you've been given the run-around and the other side is just refusing to talk to you and 'oh, it's not my department', that kind of stuff, then that might be a good situation. There is nobody disputing the debt, so it's a good way of getting somebody's attention.
Cat: Yes, absolutely and it does.
David: Somebody has just asked, are there any implications on the party serving the statutory demand for winding up, e.g. unjustified threat? I think that you were saying is that there might be a risk of a costs order if it actually were disputed.
Cat: Yes, so if you serve a statutory demand when you don't have a proper basis to do so, you could still get paid. But if the other side is properly advised they would write to you and say this is improper, will you please give us an undertaking that you won't present a winding-up petition. And if you refuse to give that undertaking then they are likely to go to court and get an injunction to stop you from doing it and if they can persuade the court that it was wrong, the costs of that will be for your account. So, it might be worth having a try, but under the risk that you may end up on the wrong side of costs. But you know, if the debt's big enough it could be worth a go.
David: Yes.
Cat: I should probably make a point, that question reminded me about service, if I could make a very quick point about service. You will, if you do end up having to present a winding-up petition, you'll need to explain how you served the statutory demand and that it came to the attention of the right party. You can just post it to the registered office or leave it at the registered office. What I would normally suggest doing is using a process server. They will go and physically hand it over to somebody and then they will do a really short witness statement of service saying that I handed it to Joe Bloggs at 10 o'clock at this address and that will then be evidence of service having been properly effected. You're talking about a couple of hundred pounds. It is not an expensive thing to do.
David: Great. So, we talked about receiving claims, we've talked about making claims and in particular using a statutory demand as an alternative way. I guess, though, for many in-house lawyers watching this, they'll probably say well at the beginning of the dispute usually I get asked: "how can I get out of this contract? How can I terminate it?" My experience is that I've spent a lot of time helping clients enter into long-term agreements and then six months later they want to get out of it and I sigh and then start turning pages to the termination clause. I mean obviously it's a big topic, but have you got any thoughts on that?
Cat: Absolutely and it is a big topic, you're absolutely right. But keeping things really practical as we're trying to do today, as you say get the contract out. What does it say about termination? I know that sounds obvious, but that is the starting point. So, is there a termination for convenience clause? If there is, what do you have to do? Do you have to serve notice, how long is the notice period, what are the transitional arrangements?
If there is no termination for convenience clause, and often there isn't for obvious reasons as people want certainty of the contract, then is there a breach that might entitle you to terminate? Again, that very much depends on what has happened in fact, but has there been a breach, are you entitled to terminate for the breach?
Has there been any, in the current climate as relevant here, is there a force majeure event that would allow you to a right to terminate? Not all force majeure clauses give rise to the right to terminate, but many do. If you do have a right to terminate, it is important that you comply with what the contract says about it. So if you are required to give notice in a certain way, you have to give notice in a certain way. Failure to do that may well affect your ability to terminate; you won't have properly terminated if you haven't given notice properly.
Now, if you don't have a termination clause in your contract, then you might be able to imply a provision for termination. When you've got two commercial parties who've negotiated a complicated contract, the courts are pretty reluctant to start implying terms because the assumption is that you should have asked for what you want. It is possible to do if you have a contract without end, but then you get into what's a reasonable notice period and all the circumstances and that's really a question of fact, and again, where there is scope for a lot of disagreement, I can imagine.
Alternatively if you don't imply a term and there has been a breach then you may be able to rely on common-law repudiatory breach to bring the contact to an end. Everybody hopefully on the call will appreciate repudiatory breach has to be very serious, has to go to the heart of the contract. So it is quite a finely balanced question weighing up what has happened and all of the circumstances, but if there has been such a serious breach to justify termination then you can rely on that breach and terminate. I should probably also add, it is not automatic. Repudiatory breach doesn't automatically bring the contract to an end. You have to decide whether you're going to accept repudiatory breach. But if you feel there's been one and you do want to accept it, you just have to give notice to the other side saying: "you're in repudiatory breach and we are happy to accept it and the contracts ended". I made it sound very simple, it's an area where, as you say, we are asked for advice all the time because it is really very difficult.
David: In a contract where there is no termination for convenience and you're alleging breach because there is a clause that says you can terminate under material breach. I can imagine though that the other side is going to debate whether there is a material breach. I mean if you get it wrong, what's the consequence?
Cat: Well, if you get it wrong and with material breach or repudiation, I think you're in the same boat. If you purport to terminate a contract for the other side's material breach or repudiatory breach and you've made the wrong call, that would be a matter for the court to decide down the tracks. But the consequences are potentially quite severe because you would then be in material breach of the contract yourself because you have purported to terminate when you have no right to do so. So you would then be the contract breaker and you would be the one who would be required to compensate the other side for the loss of the contract. So suddenly you would be paying damages to them when, in fact, you thought they ought to be paying damages to you. So it is quite a high stakes call.
David: Yeah and so, if it's obvious that it is a massive breach then easy enough, but my experience is that most breaches aren't as obvious as that and you are in that grey area of worry.
Cat: Yes.
David: As a person who drafts and negotiates contracts rather than somebody like you who destroys them Cat.
Cat: Defends them David.
David: Of course defends works better, but my experience is a termination for convenience right is just so valuable and it is worth having even if it comes at a cost. A break clause that says you can terminate after three years on six months' notice but you have to pay half-a-million pounds for the right to do so. When somebody says can you terminate it if you can point to that clause it makes it much clearer and easier and helps concentrate minds.
Cat: Yes and another potential tip, is in respect of time being of the essence. So if there are certain obligations that you think ahead of the time you might be able to rely on the other side's failure to do something in a timely manner, if you make that obligation of the essence, then that would give you a right to terminate for repudiatory breach if they don't comply.
David: Yes that's a good thought. Can I remind everyone who is drafting contracts if you're the person under the obligation, why you want to avoid it being time is of the essence because it can then be used against you some other time and giving you that right to terminate. The other one, Cat, I see is that there is a right to terminate for convenience but it can only be exercised in a sort of five day period once in a blue moon and only if it's on a millennium and all kinds of things. In my experience most people miss those and they'll then try and a day after the period expires to terminate and, of course, they can't.
Cat: They're strictly construed, absolutely. If you've missed the window, you lose the right.
David: So, the ideal thing in a contract at the time you want to get out is a nice rolling right to termination on convenience on short notice, that's the ideal when you're at that point isn't it?
Cat: Yes I suppose so, yes. Although I'd be interested to know if anybody would actually agree to that. Anyway that's your job not mine.
David: I've got a client who has it, who does enter into long-term contracts, but in their standard terms, and okay they don't always get their standard terms, but in their standard terms they have got a rolling right to terminate at any time on three months' notice. So where the other party has, either because they are in a poor negotiating position, or because they haven't read the terms, they've just signed up to them they're obviously locked in a good position, if the contract is struggling for some reason there's an easy exit for them.
Cat: Yeah. Well done!
David: So, we've talked about making claims, receiving claims, terminating contracts, now stuff that comes up in this world that if you're not a litigator you sometimes wonder what it means. So the first one that occurs and you've mentioned at the beginning was privilege. I find it really confusing. What is privilege and what is the point of it? How does it help?
Cat: Well, it is another topic in its own right and I will try and avoid getting bogged down in the legalese because we are trying to keep things practical. But in essence what it is, it is a shield to protect you from having to hand over difficult documents if you get into a litigation. So taking a step back, the English courts require a cards-on-the-table approach in litigation, and what that means in practice is you'll get to a point in litigation where you have to give disclosure of documents. That is a very onerous obligation, you have to give disclosure of all relevant documents to the issues in dispute, even if they are difficult documents for you and they support the other side's case, and even if they are commercially sensitive. So all of those have to go over to the other side, unless you can rely on privilege to protect them from being sent across to your opponent.
It's another area, I think, where training is key and, it sounds obvious again, but it is all too often in practice that people create really difficult documents. So the first thing I think to think about privilege is just don't write anything down that you wouldn't want to be read out in open court. Because people do I had an example in a piece of litigation where somebody in the business periodically wrote stroppy memos about all of these terrible things that were happening and sent the memos off to somebody else in the business. I don't know how they were received, presumably it was an eye-rolling and they went into a drawer, but unfortunately some years later the, some of those issues in the memo were the subject of litigation and so all of those memos were disclosable and all of them going across to the other side. So ideally don't write that sort of stuff down.
Now privilege would not shield that sort of document. It has to be some kind of legal advice legal advice or litigation privilege. Just really, really quickly to recap on both of those. Legal advice privilege is there to protect legal advice so you don't have to hand over your warts and all counsel discussions. It has to be a confidential communication, between a lawyer and a client, for the dominant purpose of giving or receiving legal advice. So very, very easy if you've got external legal advisors. Much more of a grey area where you are in-house counsel giving advice to your internal clients because where it is legal advice yes that would easily be covered, but more and more in-house lawyers are being asked to give commercial advice alongside legal advice, business advice or there might be an administrative function as part of legal, and then you have grey areas.
So practical tip there, if you are giving legal advice and commercial advice in respect of an issue, separate the documents out so your legal advice will obviously be privileged, commercial advice won't be.
Labels - they're not determinative, you can't just slap the word "privilege" at the top of a document and then you'll never have to give it to the other side, but if you are creating a document which you know is going to be privileged, put privilege on the top. It is a red flag if you get into a disclosure exercise. It will at least give the people who read the document pause for thought.
Just again very quickly on legal advice privilege, one of the pre-requisites as I've said is it has to be confidential communication. So if you lose the confidence in the document, then even if it's legal advice and even if it's between a lawyer and a client you've potentially lost the privilege in it. So what that means in practice is just don't, if you have privileged documents, don't disseminate them far and wide. It is possible to share them within the business on terms of confidentiality, for people who need to know, so board members for instance, key members of the commercial team, but just keep that circle as small as it needs to be and no wider, because the greater the circulation the bigger the risk that you've lost the confidence in the documents and then they won't be privilege and then you'll have to hand them over whatever they say.
Litigation privilege is perhaps the easier. It's confidential communications again, so confidence is still important. It's between a lawyer and a client or either of them and a third party, so it's wider, so that would extend, for example to communications with accountants, which wouldn't be covered by legal advice privilege. But those documents, those communications must be created for the dominant purpose of litigation which is contemplated or pending. So if you are into a litigation, all of your communications about it ought to be protected by privilege, so again if you're talking about a claim internally, provided that that isn't with the entire business such that you lose the confidence, those communications should all be protected. So litigation is a bit easier once you're in to it.
David: Right, so pre-litigation - start with the assumption that you're going to have to hand the document over and therefore try to avoid creating things that are going to be embarrassing, but there is potential privilege for the legal advice. As in-house lawyer, bear in mind that you might have to keep your legal advice and commercial advice separate, but then once you've got litigation, well it all gets a little bit easier. But it might well be sensible to, at that time, take some time to understand what the scope of that privilege is to make sure you're not inadvertently causing a problem. Does that clear that up, OK?
Cat: A word of caution, in litigation. As I said, most things are covered if they are communications made for the dominant purpose of the litigation. But settlement discussions are a trickier area because they can stray into commercial purposes - the purpose is commercial rather than legal. So there is some, and I think it is pretty unfair actually, but there is some case law which suggests in some circumstances discussions around settlement and numbers and how much we should offer, they're not going to be protected by litigation privilege because they are not for the dominant purpose of the litigation, they're for a commercial purpose. I know. But it's out there. Don't say anything on a WhatsApp group about just horse trading. Try to couch those discussions as part of the bigger picture, the strategy of litigation and then you'll be covered.
David: That's probably quite timely to move on from privilege to, as you mentioned, settlement. Without prejudice. I've seen people, as soon as they start getting into any kind of difficult conversation, start slapping "without prejudice" on all their emails. What does that mean?
Cat: So without prejudice. It's another rule which operates to keep difficult documents out of court. So what it does, it prevents genuine attempts to settle a dispute from being put before the court as evidence of an admission. So, to use an example, you're in a dispute, you think that you are on the right side of the dispute and that if you went all the way with litigation you would win. But, you don't want to incur the time and costs of doing that, so you want to make a commercial offer to settle. You're very happy to take 80% of the claim for instance. You make that offer, you make it without prejudice. That means that if the other side reject it, the fact that you were prepared to make that concession doesn't go in front of the judge when he or she is considering who is liable in that case. So you can freely make attempts to settle without fear that that will come back to bite you down the tracks. So we often see without prejudice stuck at the top of a letter. That will not make something which isn't without prejudice without prejudice in the same way that writing privilege won't make a non-privileged document privileged. But it is useful to use labels, so if you are making an offer, put without prejudice at the top of it because that will then flag to the other side that you are making a settlement offer, a genuine attempt to settle and they won't be able to deploy it in court. I think the other thing, I'm referring to documents, but it may be that you have a without prejudice discussion. You might pick up the phone, or you might have a meeting or a mediation, for instance. Again, you want to have a free and frank exchange of settlement offers, then couch those communications in without prejudice and you'll be able to have that free dialogue.
David: You see a lot of letters and emails with without prejudice save as to costs. What does that mean?
Cat: It's quite a mouthful, but what it means is you can't refer to those communications on the question of liability, so you can't show them to the court at that stage, but you can show them to the court at the point where liability is determined and you are arguing about the costs. So the reason you might want to do that is if you've made a really generous offer to the other side and the other side have rejected it, and then you've gone on to trial notwithstanding your offer and they have failed to better it, you might want to, well the usual costs rule in litigation is that the loser pays the winner's costs. Well if the winner hasn't done as well as they would have done some months ago and you've caused them lots of costs getting to that point, then you might want to say to the court, well hang on a minute, we tried to settle this months ago, we've also lost loads more money since, please can you make a costs order to reflect that. So without prejudice save as to costs means that you can, on the question of costs, you can then show it to the court.
David: Costs – that's probably quite a good final topic because obviously when you think litigation, you think of costs and it can be expensive can't it, litigation. But I am conscious that, you know, I'm showing my age now, but when I was a trainee litigation just cost a lot of money and that was the end of the story. But now I hear there's all kinds of conditional fee agreements, litigation funding, insurance, all that, now I'm totally confused! Quick summary of what the litigation funding options are?
Cat: Sure, and as you said, these days there are lots of products out there to help fund litigation and/or to share or manage the risk of litigation. The most innovative is litigation funding, I think, and it's the newest, but there are some big players on the market. So, in essence, a third party, it's their business, a third party will agree to fund a case in exchange for a share of the upside. So it is useful for claimants or defendants who have a counter-claim (because you have to be entitled to some damages down the tracks) and what they will do is they will fund the proceedings and they will then take from the winnings their cut, if you like. Now the ratio in the market at the moment is about three or four times' investment. So if they have funded a case, say a million pounds of fees right through to trial, they fund the million pounds, they would like £3 or £4 million at the end of it. So obviously it is really, I mean there are some funders out there who will fund the smaller claims, but it is only really a goer if you have a big claim. But if you do have a big claim but you don't want to pay to litigate it it is a very useful thing to have. It really protects your cash flow. The other thing it does, it's a bit of a check and balance, because a funder before they invest that sort of money or agree to invest that sort of money, they are going to want to know the ins and outs of the claim in more detail and they will scrutinise and they will want QC's opinion for example. So it is actually quite a helpful second view on the merits of your claim. You know if you think you've got a good claim, your legal team thinks you've got a good claim, somebody completely fresh to it coming in scrutinises it and says you've got a good claim, you'll feel a lot more comfortable when pushing the button.
Now third party funding, as I say, it's not suitable for all cases. There are cheaper ways of funding your own costs rather than giving up three or four times' investment and that's conditional fee agreements and damages based agreements, which are both agreements that you might agree with your external legal advisors. It is a form of risk-sharing approach. So a CFA, conditional fee agreement, traditionally it is what you would call a no-win-no-fee arrangement. Actually in practice, those are more usually a lower fee and then if you succeed the remainder of the fee will be paid plus a success fee - an uplift. So, you pay as you go, but you pay less as you go, and then a little bit more if you win.
Those are more common than damages based agreements. With a DBA it's a contingency fee, it's like the US model. So there is an agreement which means that the lawyers don't take any money until the end and then they take a chunk of the winnings. The cap on that in England is 50% of the recovery, so you can see, again, take a £10 million claim, the lawyers will work for free but then they'll potentially take £5 million at the end. Unlike with the CFA there is no hybrid option, so you can't agree to fund half of it and then only take a smaller chunk so, in practice they are pretty rare actually.
The other side of the coin, the other side's costs, insurance. So you can purchase after the event insurance and that will insure you against the risk that you might have to pay the other side's costs at the end of the day. It used to be that all you could get was an upfront premium and that would cover you, really expensive, prohibitively so. Particularly now you can't recover from the other side the cost of the premium except for really, really limited circumstances. You used to be able to do that but now you can't. So the market has evolved and now you can get staged premiums, for example, so you're paying a little bit in case the case settles, you're not paying it all upfront, you're paying a little bit as you go, or you can even get fully contingent premiums that are only payable right at the very end. Of course there is a cost to that, so the more flexibility the greater the cost, but again it is just one of the products that's out there to help manage the risks and fund claims which otherwise you might not have been minded to bring.
David: And for those listening to us, I guess if they've got a potential piece of litigation where it is a good claim but the business is put off making the claim because of the costs, the cash flow, the costs risks, paying the other side's costs. Actually it will be worth the conversation with someone like you Cat to see if there are any creative options as, if it is good enough a claim, you might be able to go down one of those other funding routes and achieve it bearing in mind cost is not the only risk of litigation, it also drains energies, I wouldn't encourage people to litigate unnecessarily, but there are options, I think, is what you're saying.
Cat: Absolutely and it is one of the things to think about early on, actually. Is this a claim that might be suitable for some kind of external funding and its generally if it's a big claim and you wouldn't otherwise be wanting to take the risk of it. So funding is a really helpful tool out there to bring good claims which perhaps have too much risk attached to them.
David: I see there is question there, I don't know if this is one you'll be able to answer Cat or whether we might need to do it offline. But the question is, are third party funders able themselves to buy insurance to protect their position in the event the defendant wins at trial?
Cat: So you would often find after the event insurance being combined with any one of those other products I spoke about because that protects the risk of the other side's, having to pay the other side's costs. I mean the difficulty with an after the event insurance policy is the premium and they can be very expensive. But the premium will also depend on the merits, so like a funder, an insurer will want to do their own due diligence and they will want to know what the prospects are, so if you have an ATE policy and a funder, so you've got both the insurer and the funder both looking at the claim then you have three sets of eyes of it so you ought, I mean there's no such thing as a slam-dunk, but you would hope that you are on the right side if you've managed to get it through the risk committee of all of those people.
David: That's great Cat. I'm conscious that we're getting close to the end, well we're past the end of our time, but there's a few questions here that I didn't manage to pick up as went through, so if I just pick some up. One of them is on without prejudice. Someone has said am I better just to put without prejudice save as to costs on everything rather than without prejudice because, so that you can then use it later. Any view on that?
Cat: I would, if you think it is likely to litigate or if you are in litigation already, then I would usually use without prejudice save as to costs actually. Because you don't lose anything down the tracks and it's quite a helpful threat, I think, because it's both a shield to protect those communications being placed before the court but it is also then a bit of a sword to say if you don't want to play ball and you don't want to be sensible here, we could potentially come after you for some costs.
David: Yes.
Cat: It's used a bit less now because we have, and I don't want to get into a whole different topic, but we have under the procedure rules we've got Part 36 which prescribes the costs consequences of making formal Part 36 offers. So you don't see without prejudice save as to costs as often as you used to do. But if you are having a commercial negotiation or discussion then yes, without prejudice save as to costs is still very useful.
David: There's a couple, two more questions and I think we're done. One's about the privilege point. Somebody said legal advice and commercial advice is very often closely linked. Cat you talked about how you might take your legal advice and your commercial advice separately. The question is, do you need to send it as two separate emails, or could it be a single email with the legal advice in an attached document or very clearly headed commercial advice or legal advice. Can I just, because I guess the person asking the question is thinking about how to make it digestible to the commercial people reading it.
Cat: I think the absolute gold standard is to keep them completely separate, but - reality check - that might be quite difficult in lots of instances. In which case, next best thing is to keep them separate in separate sub-headings, separate sections, attach the privilege document behind, again, use labels to make it very clear that bit is privileged. What you would end up with then, if you were having to disclose those documents down the tracks, is you would have to disclose, because the commercial bit is relevant, but you would end up with a redaction potentially, or you would end up being able to withhold the attachment but you would disclose the covering email. It is permissible to redact for privilege if you get into a disclosure exercise that is absolutely fine. What it does though, is it draws massive attention to the document and everybody is suddenly fascinated by it and so you can then get into specific disclosure applications and in an extreme situation somebody will look at the document, a bit of the redacted document, to decide whether you were right to redact it or not. So it is a bit of a red rag to a bull a redaction, but it is absolutely permissible and it happens all the time. So just, again, just be realistic and practical, if you have to mix the two, try and segregate them within the document, within the email with headings and sub-headings or, as said in the question, as an appendix or an attachment.
David: Right. Last question. On notice to terminate somebody has asked is there a format serving notice to terminate or will a simple letter do?
Cat: Simple letter ought to be fine unless there is some particular prescribed form in the contract. So, if you're exercising a contractual right to terminate, do what it says in the contract. If you are exercising a common-law right to terminate i.e. repudiatory breach then a letter is absolutely fine, you just have to be really clear about in the letter or in the email even, on what basis are your purporting to terminate and the fact that you are doing so then they can be left in no doubt of your intentions. But yes a letter is absolutely fine.
David: In my experience with most contracts is they don't typically prescribe a format it is just notice in writing is usually, it's what, you just have to watch out there's the odd contract out there that does have something a bit more specific.
Cat: Yes well notice in writing well that's again, there's a heap of case law on whether writing would include an email. I think if the contract provides for a notice in writing we should probably do it in a letter.
David: Yes.
Cat: So you're absolutely safe, let's avoid the debate and just cut through it and send a letter.
David: Yes you don't want to be a test case.
Cat: Just try and leave those satellite litigation issues off the table and notice in writing, don't dispute it, do a letter and send it by first class post, put the right postage on it and you've done everything that you need to do.
David: Yes there is now a trickle of cases about in writing, is an email in writing, what is a signature in an email and the courts from what I'm seeing are being pretty pragmatic and sensible but as you say, why be one of those disputes, just because you insist on sending an email, why not just stick it in a letter and send it.
Cat: Yes.
David: Send a copy by email if you want just to make sure you're not going to be a test case.
Cat: Yes.
David: Cat, thank you very much that's been really useful, we've covered a lot of ground there from litigation funding to statutory demands, from privilege to making a claim so thank you for managing to get that down into 45 minutes plus ten minutes of questions. So really good. Thank you to our audience and particularly for your questions. We've had lots of questions there which has really made this an interactive session even though I can't see you all, unlike usual ThinkHouse. I am certainly missing seeing you all and I'm hoping that our next ThinkHouse in spring will at least have some physical elements to it.
Cat: That's a good point there David, it wasn't just us two talking, so it's good to know that actually somebody was listening, so thank you very much.
David: If you've got any further questions do let us know, we can deal with those offline and of course do fill in the feedback that would be really appreciated. This live webinar is live but it is also being recorded, so if you've got colleagues who want to watch it they will also be able to see it. If I remember rightly we'll be sending you a link to this after this so you'll be able to forward it to various people for whom it's useful. Thank you very much.