Welcome
Welcome to the second issue of Inform: Litigation, where we aim to keep our international colleagues informed about recent developments and cases in English Law. Each edition will feature a different partner and in this issue we introduce Jim Sharkey.
Jim joined Speechly Bircham as a partner in 2006 from DLA Piper. He has considerable experience in commercial litigation, focusing on international litigation, particularly offshore banking and trust litigation. Jim’s clients range from trust and large multi-national companies to foreign governments.
In this issue we clarify a couple of points of law including, the differences between ‘reasonable’ or ‘best’ endeavours obligations, accepting/withdrawing the service of English Court proceedings and the new statutory derivative claim which comes into force with The Companies Act 2006.
Taped up
You have a client who has contracted with an English company and things are going badly. In order to protect its position, your client decides to start covertly recording telephone conversations or meetings with its English counterpart. What are the ramifications of tape recordings if English Court proceedings subsequently take place?
- all tape recordings are discloseable whether they contain good or bad evidence from your client’s perspective. Tape recordings are classed as a 'document' in UK proceedings and must be preserved
- Articles 6 and 8 of the Human Rights Directive entitle an individual to the right to have a fair trial and the right to a private life. The Court may exclude such tape recordings as evidence on those grounds
- a trial judge is likely to listen to any tape recordings if their admissibility in evidence is questioned, even if they are subsequently excluded from evidence. This should be borne in mind dealing with the fact that English judges are still somewhat disdainful about parties obtaining evidence covertly.
Of course, the above points need to be weighed against the commercial reality of being able to resolve a dispute when the opposing party is faced with a tape recording of exactly what it has said, together with the exact manner and inference of what was said. Such recorded conversations may be enough to prevent proceedings even taking place.
If you or your clients would like further information in this respect, please contact Ian Timlin.
English law contracts: ‘reasonable’ or ‘best’ endeavours?
Your clients may routinely enter into contracts governed by English law which contain 'reasonable' or 'best' endeavours obligations. However, do they really understand the obligations they are taking on?
It has recently been argued in the English Commercial Court that a contractual undertaking to use ‘reasonable’ endeavours amounts to the same as an undertaking to use ‘best’ endeavours (Rhodia International Holdings Limited & Another v Huntsman International LLC [2007] EWHC 292 (Comm). The judgment offers useful guidance on the differing meaning of these two phrases, and should be taken into account when considering any commercial contract in which a similar undertaking is being contemplated.
In Rhodia, under a sale agreement both the claimant (seller) and the defendant (purchaser) were obliged to use ‘reasonable’ endeavours to obtain a third party’s consent to novate a contract. The purchaser refused to obtain a necessary parent company undertaking, and the contract was not novated, resulting in a loss for the seller. The purchaser then insisted that it had taken ‘reasonable’ steps.
The court rejected the argument by the seller that ‘reasonable’ endeavours means the same as ‘best’ endeavours - the latter, somewhat confusingly, having been held in a previous case to mean, “…to do all [the obligated party] reasonably can”.
Mr Justice Flaux set out the parameters of what he believed the phrases should mean:
- ‘reasonable’ endeavours ‘probably’ require a party to take only one reasonable course of action in a given situation, to achieve a particular aim, but not to exhaust all of them
- a ‘best’ endeavours clause was likely to require a party to exhaust all of a number of reasonable courses which could be taken in a given situation to achieve a particular aim, save where that would cause serious detriment to that party.
Rhodia clarifies the ‘reasonable’ versus ‘best’ endeavours position under English law; however, parties should be wary that a particular course of conduct might prove the exception to the rule.
Parties contemplating including a similar undertaking in an English law contract should consider specifying precisely the conduct a party must carry out to meet its obligation, being aware that this may lead to a narrowing of the scope of the clause.
For more information contact Michael Hannon.
Service on foreign lawyers
If you have previously agreed to accept service of English Court proceedings, and then for some reason, you or your client decide to withdraw your agreement, you may still find yourselves the recipient of those proceedings.
This recently happened in Nigel Albon v Naza Motor Trading SDN BHD & Others in the High Court in London.
The corporate Defendant took obstructive measures in relation to the service of English proceedings upon it in Malaysia. This included instructing its Malaysian lawyers to withdraw acceptance of service of those proceedings when they had previously agreed to do so.
Notwithstanding the withdrawal of acceptance, the High Court in London ordered that where there is good reason to authorise service by a method not permitted by the CPR, the Court may make an Order permitting service by an alternative method. It allowed service to be effected on the Defendant’s Malaysian lawyers despite the withdrawal of their acceptance of service.
In summary, if you agree to accept the service of English proceedings and then decide to withdraw, you may still find effective service of those proceedings taking place on your clients through you.
For more information about the service of UK proceedings, contact Ian Timlin.
Arbitration agreements – exclusion clauses
We recently acted for the Commonwealth Secretariat in Sumukan Limited v Commonwealth Secretariat [2007] in the Court of Appeal.
Sumukan appealed against a decision that a term had been incorporated into a contract between Sumukan Limited and the Commonwealth Secretariat, excluding the right to appeal to the Court against an arbitration award.
Sumukan argued that the incorporation of such an exclusion clause was contrary to the European Convention on Human Rights (ECHR) 1950 Article 6 - the right to a fair hearing.
The Court of Appeal held:
- that the exclusion agreement was incorporated and that Sumukan Limited was bound by it and it would not involve an infringement of Article 6 rights
- the impact of Article 6 did not render the clause excluding a right of appeal onerous or unusual
- the Article 6 rights waived were of a limited nature
- it was common in a commercial context, when arbitration was agreed, to agree to limit the right of appeal.
Therefore, if your clients may be looking to challenge exclusion clauses in arbitration agreements pursuant to the ECHR, such a course of action is unlikely to succeed.
For further information contact Stephen Dobson or Mark Kendal.
The new statutory derivative claim
It is a long standing principle of company law in England and Wales that:
- only a company may commence proceedings to pursue a wrong done against it
- a board decision ratified by the company’s shareholders cannot be challenged by those who disagree with it.
This is known as the rule in Foss v Harbottle.
However, there are exceptions to this rule. These currently allow a minority shareholder to force a company to commence proceedings against the will of the majority. The most notable and common of those exceptions is where the wrong against the company amounts to a fraud on the minority because the wrongdoer is in control of the company and has benefited from the misconduct against the company. For example; a board of directors who own the majority of the shares in the company, divert a business opportunity away from that company, in breach of their fiduciary duty, to another one that is solely owned by them.
If such a claim arises it is known as a derivative claim. The scope of these claims is narrow, so making them rare. This may be about to change.
The Companies Act 2006 abolishes the old derivative claim and introduces a new statutory claim. This comes into force on 1 October 2007. It will allow a shareholder to bring a claim for a cause of action:
- that arises from an actual or proposed act or omission
- involves negligence, default, breach of duty or a breach of trust by a director
- without having to show that the director is in control of the company and has benefited personally from the act or omission.
A director’s duty to promote the success of the company is a new statutory duty introduced by the Act. It requires that the director acts in ways he considers, in good faith, would be most likely to promote the success of the company for the benefit of its shareholders as a whole, and in doing so he must have regard, amongst other matters, to:
- the likely consequences of any decision in the long term
- the interest of the company’s employees
- the need to foster the company’s business relationships with suppliers, customers and others
- the impact on the company’s operations on the community and the environment
- the desirability of the company maintaining a reputation for high standards of business conduct
- the need to act fairly as between members of the company.
It is unclear how this new claim will impact on companies and directors in England and Wales. However, it may prove to become a useful tool for minority shareholders to influence and control the decisions of the directors and management of a company, particularly in large companies. Your clients with interests in English companies may want to consider it, and if they are directors of English companies, their increased obligations.
For further information contact Nick Ractliff.