Harbour Second Lecture

COMMERCIAL LITIGATION – THE FAR HORIZONS 14 May 2014

HARBOUR LITIGATION FUNDING SECOND ANNUAL LECTURE Lady Justice Gloster 14 May 2014

YOU ALWAYS KNOW HOW POPULAR YOU ARE AS A CELEBRITY SPEAKER

BY THE LENGTH OF NOTICE YOU ARE GIVEN TO SPEAK. 1. For Lord Neuberger, the speaker at the first Harbour Litigation Funding Annual lecture, for example, it was I am told at least 18 months; if, and it might be a big if, Harbour Litigation had wanted Victoria Beckham to deliver the follow up 2nd annual lecture I am sure it would have been at least 12 months.

So when Susan rang me a couple of weeks ago I knew exactly where I stood in the academic celebrity stakes…

Lady Justice Gloster

Nicola Mumford

2. Nonetheless it is a privilege – if a somewhat daunting one – to be asked to give the second Harbour Litigation Funding Lecture in the wake of Lord Neuberger.

3. But the invitation to speak tonight is not perhaps quite such a poisoned chalice as the flattering invitation which I recently received to write a foreword to an annual legal journal reviewing decisions of the Supreme Court.

In his letter of invitation to my clerk the editor persuasively wrote:“I am of course aware that Lady Justice Gloster is very busy and has many demands on her time. As we have a number of eminent authors publishing pieces in the Review this year… [members of the Supreme Court amongst others] [we feel however that as a former Cambridge student, the first female Judge in charge of the Commercial Court and now an [complimentary, but inaccurate, adjective redacted on grounds of modesty] member of the Court of Appeal, it would be a great privilege for our readers to gain an understanding of her views on the Supreme Court.”

What a temptation indeed that was! But not one which, if succumbed to, would necessarily have been career–enhancing or have promoted the cause of diversity in the judiciary…

4. On reflection I thought that the title for this lecture which appears on the flyer – “Litigation in the post–Jackson world” – was rather too extensive in scope. So, exercising my woman’s prerogative (or should I say “my person’s prerogative”), I have changed my approach. My talk is now titled “Commercial Litigation – the Far Horizons”.

‘But the invitation to speak tonight is not perhaps quite such a poisoned chalice as the flattering invitation which I recently received to write a foreword to an annual legal journal...’

It has a better blue–sky feel about it, and, hopefully, will enable me to speak about something I know about, rather than something I do not. I hope that those of you who have come here tonight thinking that you will earn useful CPD points being updated on the implementation of the Jackson recommendations do not feel short changed.

5. I take as my starting point a recurring theme of Lord Neuberger’s last year’s lecture1. His thesis was that the culture of political, legal, economic, and social infrastructures and institutions are inseparably entwined with each other2, and (drawing heavily on Adam Smith3) that social and economic improvements will only be seen when corresponding private rights can be enforced. He said:4 “However, social and economic infrastructures are not sufficient. Economic activity, productivity and innovation will only thrive… in an environment which affords secure property rights and effective freedom of contract. “Investors need to know that the political elite will not expropriate their profits or their business at will. Individuals and businesses have to be able to enforce contracts, to protect their intellectual property and to obtain effective redress not merely against other individuals and businesses, but also against the State. To that end, the State has to provide fair and clear laws equally applicable to all, a legal system readily available to all, and an effective and efficient court structure readily accessible to all. It must, in other words, secure the rule of law.”

6. And, I would add, in our globalised world, any country that regards itself (as the UK does) as a leading world financial centre, will also wish to offer a justice system in which not only its own commercial businessmen have confidence, but in which international businessmen who, for whatever reason, choose to resolve their disputes in this jurisdiction, also have confidence. It is not just that commercial dispute resolution is a profitable industry in its own right – British lawyers report roughly £3.5 billion in annual income from clients abroad5 – but rather because the strength of London as a financial centre, and its strength as a international dispute resolution centre, work in tandem.

As long ago as 2003, the Lord Mayor of London stated in his Mansion House speech, that the Bank of England held the view that “the single most important factor contributing to London’s position as a financial centre was the high standing of the country’s judicial and legal system6. And as recently as December 2013, Guy Beringer, the Chairman of the Legal Education Foundation, in a thoughtful article7 addressing what goals the UK legal economy needed to achieve before the Global Legal Summit in London 2015, said: “Our national economic health is heavily influenced by the state of the legal economy. The law is a financial and business issue as well as a social and political one.”

David Neuberger, ‘From Barretry, Maintenance and Champerty to Litigation Funding’, Gray’s Inn (8th May 2013), at §52.

1

Lord Neuberger referred to D. Acemoglu & J. Robinson, Why Nations Fail – The Origins of Power, Prosperity and Poverty (Profile Books) (2012). This was also a topic discussed at great length by the historian Niall Ferguson in the 2012 Reith Lecture series.

2

Adam Smith, Inquiry into the Nature and Causes of the Wealth of Nations (1776)

3

7. And the same view is taken by the Government, albeit with perhaps a somewhat different perspective as to the legal economy, ultimately operating as a profit centre! In a written ministerial statement given by the Lord Chancellor, Chris Grayling on 26 March 2013, he said:8 “Our courts and judiciary command great respect around the world and we should be proud of their international reputation and the contribution they already make to our economy. This country is a major centre for legal services and dispute resolution. I want to explore how we can further enhance the position of the UK at the centre of the international legal market and the revenue it can generate.”

‘It is not just that commercial dispute resolution is a profitable industry in its own right – British lawyers report roughly £3.5 billion in annual income from clients abroad – but rather because the strength of London as a financial centre…’

So far so good… But then comes the sting in the tail: “I also want to ensure that those who litigate in our courts pay their fair share, and that it is possible to raise the revenue and investment necessary to modernise the infrastructure and deliver a better and more flexible service to court users.

I have therefore asked my Department to consider appropriate vehicles to achieve these aims, and the organisational structures that might best support this. I am clear that any new model must support the administration of justice as a core pillar of our constitution and its effective delivery will remain an important responsibility of the state.”

In other words, users – or at least some users – are going to have to pay for the privilege! A topic to which I shall return later in this lecture.

At § 59.

4

This was reported in The Guardian, Owen Bowcott, ‘Justice secretary calls on world to bring legal disputes to UK’ (14 March 2013) and by communications group Portland, ‘The World’s Legal Capital’ www.portland-communications.com/publications/ the-worlds-legal-capital-who-uses-the-commercialcourt/. It might be noted that Portland also questioned whether the tenacity of the UK media in its search for sensational legal stories might put off some high-profile international clients.

5

See Richard Aitkens “…With a view to despatch and the saving of expense. How the Commercial Court has attempted to meet the demands of the business communities for efficient and cost-effective litigation procedures”, “Tom Bingham and the transformation of the law 2009, page 564, at 576. Oxford University Press.

6

The Legal Economy, A thoughtpiece, 18 December 2013.

7

Hansard, HC Deb, 26 March 2013, c94WS

8

8. But, for whatever reason, the Government rightly does recognise the importance of the legal economy to the UK. In 2013 the Chancellor announced that in 2015 there will be a Global Legal Summit in London to mark the 800th Anniversary of Magna Carta, the underlying purpose of which is to: “Champion the UK as a global leader in legal services and as a destination of choice for global business in the 21st Century.”

9. What I want to do this evening, as we enter the run–up to the Global Legal Summit in London 2015, is to look to the far horizons, (not today, nor tomorrow but a time frame of five years and beyond). I want to explore the question whether the English Commercial Courts (and I include in that plural all the Rolls Building jurisdictions engaged in commercial and financial business, the Chancery Division and the Technology and Construction Court, as well as the Commercial and Admiralty Courts) will be meeting the demands of the international business community for the delivery of efficient and cost–effective dispute resolution procedures; and whether, perhaps more importantly, those courts will be providing the necessary legal environment to support the UK’s role as a leading world financial centre – if it still is one, of course.

10. And that means not merely looking at the gathering or dispersing clouds or rays of sunlight on the near horizons – but, to abuse this somewhat kitsch metaphor even further, to have the vision to catch a glimpse of the vast blue skies beyond those further horizons.

11. So what are the critical issues that need to be addressed to preserve England’s pre–eminent position as a leading global centre of excellence for the resolution of disputes, at a time when it is facing ever–increasing competition from heavily government subsidised dispute resolution centres such as Singapore, the Dubai International Financial Centre, Holland and elsewhere? That doesn’t include competition from foreign arbitration centres or the recent proposal that Germany is to launch an English–language commercial court that will operate with fixed cost scales9. We can’t afford to be complacent. We need to radically address our working practices as litigators and ask ourselves whether they are fit for purpose.

12. Let me touch on my favourite issues where litigators will have to embrace change and adapt.

Or perhaps I should call them my “bugbear topics”.

First, Information Technology. Here it must be said the skies are brightening.

Jonathan Ames, ‘Are rocketing costs killing the Commercial Court? “(The Lawyer, 19 March 2014).

9

“Tomorrows’ Lawyers,” Oxford University Press, at page 11.

10

13. Information technology has radically changed all aspects of our lives and economic activity. It has changed the way in which we keep in touch with our family and friends, the way we shop for frocks, shoes and food (and whatever men buy or do on– line). It has changed the way in which we do business or put a bet on the Grand National or a poker game. (for example, I even take my blood pressure on my Ipad!) As that legal and IT Guru, Professor Richard Susskind said10, it is simply inconceivable that somehow legal work and the way in which we lawyers and judges conduct litigation will be exempt from any change.

14. But has the way in which we conduct litigation and commercial litigation actually changed to date? It has – but in my view not enough. We need to do an awful lot more. Let me explain.

15. In his December 2009 “Review of Civil Litigation Costs: Final Report”, Jackson LJ made a series of obvious and sensible recommendations for the need for effective IT in the Civil Courts. For example at paragraph 3 of Chapter 43 the Final Report he recommended that the Civil Courts should introduce e–working. By that he meant digital systems for the electronic filing of claims and applications on line; the ability of the parties to file all case documents and all other materials electronically and to have them accessible to the parties and the judge electronically, both before and during trial, and for both administrative court staff and the judges to progress work flow and case manage electronically.

16. But two years on, in 2011/2012 the picture did not look good. In Tomorrow Lawyers11 Professor Susskind painted a somewhat gloomy picture of the disappointment expressed to him of the lack of any adequate e–working in the judicial world: “In England and Wales, it is undeniable that little technological progress has been made over the last 20 years either towards e–working or in the administration and management of the courts.

The organisation of much of the work of the courts remains labour–intensive, cumbersome, and paper–based. A visit to most courts in England and Wales reveals a working environment that is less efficient and automated than most ordinary offices in the country, whether in the public or private sector. Across the country,

judges complain of antiquated systems, outdated working practices, excessive running costs, inefficiencies, errors, and delays. In turn, court users suffer and the reputation of the justice system is adversely affected. In his Access to Justice reports, Lord Woolf made a series of recommendations in the mid–1990s for the computerisation of much of the civil justice system. Very few have been implemented.

The lack of progress can be attributed to two main factors: insufficient investment by the Government and the Treasury, which have not considered civil justice to be a priority; and the Ministry of Justice’s poor track record of successfully procuring and delivering large–scale technology projects.

Incidentally, there has been no shortage of vision from within the justice system. Over the years, a number of enlightened judges, politicians, and civil servants have expressed bold views of a court and justice system transformed through technology. There has been sufficient vision but insufficient cash and IT capability.”

‘A visit to most courts in England and Wales reveals a working environment that is less efficient and automated than most ordinary offices in the country…’

17. There was also considerate frustration in the wider legal profession that, although there was a project for the introduction of e–working in the Rolls Building, which had run into the sand for a number of technical reasons, nothing whatsoever was being done to introduce e–working across the wider civil jurisdictions and tribunals.

18. But the picture in the last few months has changed dramatically. On 28 March 2014 the MOJ announced12 that:

Susan Dunn

Pp 94-95

11

I Ministry of Justice Press Release published 28 March 2014 - “Reform of the courts and tribunals.”

12

“The Treasury has agreed a one–off package of investment averaging up to £75m per annum over the five years from 2015/16 which will be used to deliver more efficient and effective courts and tribunals administration for all users and deliver significant savings.

Technology will be updated and replaced in courts and tribunals across the country, working practices will be speeded up and modernised, and the court and tribunal estate will be significantly refurbished, making better use of buildings, reducing the ongoing cost of maintenance and providing improved services for court and tribunal users, particularly vulnerable victims and witnesses. Justice will continue to be delivered locally, and access to justice maintained.”

The Justice Secretary, Chris Grayling, said: “Our justice system rightly receives national and international acclaim. However, for the courts and tribunals service to continue to deliver that high quality of justice for the public they require world class infrastructure.

This new investment will help cement our system as one of the best in the world, ensure the sustainability of the system and deliver value for money for hardworking taxpayers. More importantly, it will ensure that the experience of victims and witnesses is as comfortable and pain free as possible, with an efficient service for those who need access to our courts and tribunals.

This programme of reform, led and implemented

by HM Courts & Tribunals Service will deliver: • Modern and integrated technology to introduce greater digital working and to speed up processes. The current range of outdated computer systems will be replaced with a single integrated system which would allow electronic case management. This will enable Judiciary, staff and justice agencies to work on one IT system rather than using antiquated, paper based processes.

• An online self–service system, which will allow legal professionals and other users to complete court and tribunal forms and make payments digitally for court fees or to initiate claims for debt repayment, personal injury or housing disputes, reducing the reliance on manual entry, speeding up processes and reducing delays.

There will also be an increased use of videolinks, digital presentation of documentation in court and Wi–Fi for legal practitioners.”

T he purpose of the package is effectively to ensure that both the criminal and civil courts and tribunals have up to date technology. I am optimistic that there is a genuine desire on the part of the MoJ to implement these proposals.

www.justice.gov.uk/news/press-releases/hmcts/ contract-awarded-for-rolls-building-it-system

13

[2012] EWHC 2463; see paragraphs 34-36, and 1250.

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19. And on 6 May 2014 HMCTS also announced13 that after an extensive procurement exercise it had appointed Thomson Reuters to deliver a new IT system for the Rolls Building, based on the Thomson Reuters C–Track application.

The new system is expected to be delivered in a phased approach by late 2015 for a total project cost of approximately £5 million. As somebody who has been closely involved as a member of the Project Board in the long drawn–out process which has finally led to the signing of the contract, I can tell you we all breathed a sigh of relief. The judicial press statement also joined in the jubilation, expressing the view that: “The judges of the three jurisdictions in the Rolls Building of the Royal Courts of Justice dealing with international and national business ans property cases – the Chancery Division, the Commercial Court and the Technology and Construction Court – welcome the announcement of HMCTS that it has entered into a contract with Thomson Reuters for the provision of modern and integrated IT for all three jurisdictions.”

20. That is all good news. But – on its own – it is not enough simply to have the new technologies in place. As blue sky thinkers, we the litigators, the solicitors, barristers – and particularly the judges – not only have to adapt our working practices to the new technologies but we also have to look to the future to anticipate how commercial disputes are going to be resolved in 5–10 years time. And we have to do so quickly to remain competitive.

21. In the Berezovsky v Abramovich case14, I conducted – at least so far as I was concerned – a virtually paperless trial. The only documents which I also had in hard copy were the (approximately) 3000 pages of written submissions – no doubt so that I could scribble my acerbic comments on them…

The remainder of the galaxy of documents, case materials and pleadings were stored in easily accessible and well–organised electronic files on an internet cloud, to which the daily electronic transcripts were effortlessly hyperlinked. But, and this is the point I am making, counsel – at least the more senior ones – appeared unable to relinquish the comfort blanket of hard copy files and the ubiquitous yellow sticker. Vast quantities of ring binders were stacked up like the giants’ gold outside Valhalla in Wagner’s Das Rheingold in seried ranks in the court room, and trundled back and forth from chambers everyday.

22. And in the Court of Appeal we would hardly know that the digital revolution had begun. Whilst routinely we receive skeleton arguments electronically (at least, if we ask for them) and many judges make their notes on computers, I have never been offered before a case starts access to a digital version of the files. The same old hard copy files, in rainbow hued ring binders, arrive in their battalions before the case starts and pile up in our room; puffing junior clerks continue to wheel overloaded trolleys into court. And do you know what the astonishing thing is? When, as I often do, in a commercial or tax case, ask whether it would be possible to be provided with the case documents in electronic format (but without parties going to any additional cost) I am almost always provided with the facility within a day or two – by which time of course the appeal is over and I have marked up my hard copy documents. The solicitors in a commercial case almost invariably already have the documents scanned and stored in electronic form – and usually have them in an easily accessible, well–organised set of electronic files that reflects the hard copy bundles. I have little doubt that in many commercial trials at first instance the position is the same. It is not – or should not be – a cost consideration. There are many packages available on the market at different prices to suit every budget and every size of case. Given that disclosure frequently has taken place electronically, the additional costs of electronic presentation of documents for the trial or other hearing, should not be more expensive than hard copy presentation or so I am told. The cost savings in not having to handle and update hard copy files would of course be immense – not just in administrative time, but also in judicial and lawyer time.

23. So where lies the problem? It lies, I fear, with the judges and the advocates. It is not that judges and advocates are luddites – they are just more comfortable with what they know. But we are all going to have to learn new tricks. Parties should in my view be much more aggressive in seeking case management directions that require parties to operate in an electronic court environment, and judges should be much more pro–active in making such orders. Practice directions or new rules may have to be introduced to achieve this end.

24. Of course I am not suggesting that it should be made unlawful to bring paper into a courtroom.

Nor am I suggesting that proposals for virtual courts, or on–line dispute resolution, will rule out, in the commercial case, the need for live presentation of evidence by witnesses or, most importantly, the need for oral argument, which is often outcome determinative (even in these days of written arguments). But we, by which I mean you, the litigators, and we the judges, are going to have to change.

(1596) TotWill 102; (1595) EWHC Ch.1. I am grateful to Aikens LJ for introducing me to this gem.

15

25. But, I hear you asking, how are we to change, apart from learning better computer skills, or by allowing the advocate to sit down when cross–examining and making submissions so that he can access his computer – a practical suggestion which would get rid at one blow of the centuries–old image of the advocate as Ciceronianorator. And that leads me on to my next bugbear issue – Excessive Length. It has to go!

26. By “Excessive Length” I mean the length of pleadings, the length of witness statements, the length of arguments the length of trials – and (mea culpa) the length of judgments. We do not need witness statements that recite absurdly long extracts from documents. This is an old chestnut – indeed a very old chestnut. Let me commend you to the instructive case of Mylward v Weldon15, a case reported in February 1596. This was a decision of the then Master of the Rolls in relation to a pleading of the plaintiff’s, which, I quote, “doth amount to six score sheets of paper, and yet all the matter thereof which is pertinent might have been well contained in sixteen sheets of paper.”

This and its abusive, irrelevant content so enraged the Master of the Rolls that he set in train an inquiry to discover who was responsible for drafting the “replication” as the pleading was called. When he discovered that it was the plaintiff’s son, Richard (aka Alexander) Mylward, he made an order which has to be the envy of all judges irritated by the length and irrelevance of long pleadings and witness statements:– “It is therefore ordered, that the Warden of the Fleet shall take the said Richard Mylward, alias Alexander, into his custody, and shall bring him into Westminster Hall, on Saturday next, about ten of the clock in the forenoon, and then and there shall cut a hole in the myddest of the same engrossed replication (which is delivered unto him for that purpose), and put the said Richard’s head through the same hole, and so let the same replication hang about his shoulders, with the written side outward; and then, the same so hanging, shall lead the same Richard, bare headed and bare faced, round about Westminster Hall, whilst the Courts are sitting, and shall shew him at the bar of every of the three Courts within the Hall, and shall then take him back again to the Fleet, and keep him prisoner, until he shall have paid 10 pounds to Her Majesty for a fine, and 20 nobles to the defendant, for his costs in respect of the aforesaid abuse,” I must say that that is precisely the sort of power which I should like to have up my sleeve…! I fear I would exercise it frequently.

28. The Working Party made a number of recommendations as to changes of procedure in long trials which would be adopted without the need for primary legislation or changes to the CPR. These were largely adopted in the Commercial Court Guide and included what might be regarded as fairly obvious principles such as: “(i) the existing rule that a commercial court Judge is in charge of all preparatory procedures must remain; furthermore the judge must be able to keep firm control overall the procedure before trial and during the trial itself; (ii) the procedure must be kept as simple as a heavy and complex case will allow; (iv) costs have to be kept under control; (v) as far as possible, bad claims or defences must be recognized as such as early as possible and rejected; (v) technology should be used as much as possible to facilitate procedures before and at the trial, whilst keeping costs of using it as low as practicable; (vi) where possible and appropriate, the appellate stages in the litigation (especially those concerned with preliminary issues or procedural points), must be kept consistent with the aim of the efficient conduct of the litigation as a whole.”

Lord Justice Jackson

27. Let me return to my bugbear – excessive length.

It is almost 7 years since the Aikens Commercial Court Long Trials Working Party chaired by Sir Richard Aikens, and of which I was a member, reported in December 2007. That working party was set up in the dismal wake of the notorious case bought by the BCCI Liquidators against the Bank of England16, where after 13 years of litigation and after 256 days of trial, the liquidators suddenly dropped their claim entirely. You will remember that, although struck out by the Commercial Court, the House of Lords subsequently held that the claim was arguable by a 3–2 majority. In his Mansion House speech on 21 June 2006, the Governor of the Bank of England, Professor Mervyn King, made highly critical remarks about a legal system which he described as ‘…powerless to prevent a case so hopelessly misconceived [from] continuing for thirteen years’ and leading to costs of over £100 million. He urged an examination of the whole system, including the adversarial nature of litigation.

Three Rivers District Council v Governor and Company of the Bank of England.

16

[2013] EWHC 2767 (Comm)

17

The Working Party also recommended that statements of case should be as brief and concise as possible, should not (without permission) exceed 25 pages in length and should not plead evidence. These are all matters reflected in the current Commercial Court Guide. Indeed the spirit is reflected in the welcome changes to the overriding objective as set out in CPR rule 1.1. in the light of the Jackson recommendations: “(1) These Rules are a new procedural code with the overriding objective of enabling the court to deal with cases justly and at proportionate cost.”

29. But despite all that, where have we got to in the 8 years since BCCI? And more importantly, how do we see this type of case being litigated in the future?

30. Let me take as a classic case study the recent case of Excalibur Ventures LLC v Texas Keystone Inc and others17, a decision of Christopher Clarke J (as he then was) in 2013. This was a case where I had originally refused an injunction on an ex parte basis to the claimant, not least because of what I regarded as the serious question marks over the merits of its case. Of interest in the present context is the fact that the claim was funded by litigation funders – of which more anon.

31. As Christopher Clarke J said in awarding the successful defendants their costs on an indemnity basis18.

“8. The claim was essentially speculative and opportunistic. It has been advanced at great length and by the assertion of a plethora of causes of action, all of which have been maintained to the last possible moment, no doubt upon instructions.

Gulf, and to a lesser degree Texas [the defendants], have been put to enormous expense in terms of legal costs and Mr Kozel has borne a heavy personal burden in dealing with it.

‘…landed with a bill for the defendants’ costs exceeding approx £24 million of which only 17.5 had been subject to an order for security in a context where the funders were non–UK funders…’

9. The litigation has been gargantuan in scope, involving a five month trial and 373 trial bundles.

But it was based on no sound foundation in fact or law and it has met with a resounding, indeed catastrophic, defeat. The fact that it has done so arises in large measure as a result of facts and matters which were known [to the claimants] before the case started.”

[2013] EWHC 4278

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He went on to point out the: “the enormous drain which a case of this kind imposes on the resources of the court and the court system to the prejudice of other litigants with deserving claims. Its effect has been to tie up one member of the court for the best part of a year.”

And in his main judgment (extending to some 1476 paragraphs) he had pointed out that “the closing submissions in the case “exceed by about 30,000 words the length of the Old Testament (in the King James Version).” The claimants were landed with a bill for the defendants’ costs exceeding approx £24 million of which only 17.5 had been subject to an order for security in a context where the funders were non–UK funders and there were doubts over at least some of the funders’ solvency.

It will be interesting to see what happens when the defendants seek third party costs orders for the balance of circa £4.8 against the funders. The hearing is in early June.

32. But the fact that, as the judge described, these were “spurious claims pursued relentlessly to the bitter end” does not, it seems to me, and contrary to criticisms in certain areas of the legal press, give rise to the assumption that there is something wrong in the concept of third party litigation funding. After all, the aim of professional litigation funders is to make a profit out of the litigation not a loss; they don’t want to lose their money, let alone be saddled with a 3rd party costs order against them.

33. Sidetracking from my main theme for a moment it is still arguably open to interesting debate as whether funders (and I am not talking about the Excalibur case) should be able to fund the potential upside without also providing for the potential downside – whether to the extent of their own funding or to the full extent of the claimant’s liability for the defendant’s costs.

‘…what he regarded as hopeless or “red face” issues, and mark them as points which be likely to attract the sanction of indemnity costs if pursued…’

34. Thus I was interested to see that Harbour Litigation Funding’s website provides the following overview: ‘Although non–party costs orders are only granted in exceptional cases, litigation funders are all aware of the 2005 English Court of Appeal decision in Arkin v Borchard Lines Limited19, where a litigation funder was held liable for opponent’s costs up to the extent of its funding.

As part of their standard funding package, most litigation funders today will agree to fund the cost of insurance for adverse costs cover (ATE) or, in the unusual situation where the claimant agrees to be wholly responsible for adverse costs, will look for security from the claimant to ensure the claimant pays the adverse costs.’

35. However, this passage arguably does not reflect Jackson LJ’s endorsement of some of the criticisms of the Arkin decision in his Review. Giving a number of reasons for doing so, Jackson LJ recommended that ‘third party funders should potentially be liable for the full amount of adverse costs, subject to the discretion of the judge’20.

And I mention that it is worth bearing in mind the comment of Lord Brown in Dymocks v Franchise Systems (NSN) pty v Todd21 ‘Where…the non–party not merely funds the proceedings but substantially also controls or at any rate is to benefit from them, justice will ordinarily require that, if the proceedings fail, he will pay the successful party’s costs. The non– party in these cases is not so much facilitating access to justice by the party funded as himself gaining access to justice for his own purposes.22’

[2005] EWCA Civ 655.

19

Jackson Review, at p.124.

20

[2003] 1QB 1175, at 1194

21

[2004] UKPC 39, per Lord Brown at §25.

22

[2013] EWHC 3463 9Comm)

23

[2013] EWCA Civ 1537

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36. But to return to my theme, who or what is to blame for the fact that cases like Excalibur can take so long despite the fact that they are opportunistic and ultimately hopeless? More importantly do we really think (looking at the far horizons) that in the digital world, where speedy solutions are the required norm, commercial men are going to be willing in the future, as they apparently have been in the past, to continue to pay their lawyers to leave no stone unturned.

Alternatively could it be said that the impact of third party litigation funders has been to create a US–style plaintiff’s Bar type of environment, where lawyers and their clients are happy to drag out complex cases in order to achieve an adventitious settlement?

37. My view is that looking forward to what will be the very different litigation landscape in a few years time, the courts will have to be prepared to exercise a much more proactive role in disposing at an early stage of proceedings of what Cooke J referred to in another hugely long and expensive case, Deutsche Bank v Sebastian Holdings23. As issues that did not pass the “red face test”. In that case the final costs order in favour of Deutsche Bank was £60 million.

Such an approach may require amendments to the rules to make the test for summary judgment under CPR 24 or strike out under CPR rule 3.4 less stringent, but that is of course controversial. Indeed Art 6 considerations may be involved.

38. An alternative would be for the judge at a case management hearing to be invited, able or indeed required to give a non–binding indication of what he regarded as hopeless or “red face” issues, and mark them as points which be likely to attract the sanction of indemnity costs if pursued; although, as Cooke J pointed out in Deutsche Bank, that is not necessarily a realistic disincentive to their hopeless pursuit at trial.

39. That leads me to my next pointer for the future: the tougher Court Environment. Post–Jackson and in the years to come you should expect a court that is far more pro–active in ensuring that it orders are enforced. A tougher court environment which leads to speedier resolution of disputes in a more cost proportionate way. That is the clear message not merely from the amendment to the overriding objective at CPR. 1.1. to include the words at(2)(f) “enforcing compliance with rules, practice directions and orders”, and the similar amendment to CPR 3.9.1., but also from the recent case of Andrew Mitchell MP v. News Group Newspapers Limited24 [2013] EWCA Civ 1537.

40. In that case the Court of Appeal dismissed Mr Mitchell’s appeal against a ruling that his failure to meet the budgeting rules in his so–called “Plebgate” libel action meant his budget was limited to court fees and no more. In June 2013 Master McCloud issued the sanction for two breaches of Practice Direction 51D under the pre–1 April defamation costs management pilot: a failure to engage in discussion with the defendant as to budgets and budgetary assumptions; and a failure to file a budget seven days before the case management conference.

Subsequently she refused relief from sanctions but gave leave to appeal.

41. A number of interesting comments were made by the Court of Appeal (comprising Lord Dyson MR, Richards and Elias LJJ): i. ‘Although [the dismissal of the appeal] seems harsh in the individual case of Mr. Mitchell’s claim, if we were to overturn the decision to refuse relief, it is inevitable that the attempt to achieve a change in culture would receive a major setback.25’ ii. ‘We hope that our decision will send out a clear message. If it does, we are confident that, in time, legal representatives will become more efficient and will routinely comply with rules, practice directions and orders…[such that] satellite litigation of this kind…will become a thing of the past.26’ iii. ‘Guidance as to how the new approach should be applied in practice…start by considering the nature of the non–compliance with the relevant rule, practice direction or court order. If this can properly be regarded as trivial, the court will usually grant relief provided that an application is made promptly…If the non–compliance cannot be characterised as trivial, then the burden is on the defaulting party to persuade the court to grant relief.27’ There has been some hostile reaction to Mitchell and murmurings about the consequences where a litigant’s right to trial could be deemed in breach of his article 6 rights. Complaint has been made that that trivial failures to comply with timing rules will lead to disproportionate consequences, increased costs and increased professional negligence insurance for solicitors.

Ibid. at §59.

25

Ibid. at §60.

26

Ibid. at §40-41.

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42. In my view these concerns are misplaced. First of all, Lord Dyson himself in his 18 implementation lecture on the Jackson reforms made a number of points:– “The new rule explicitly refers back to the overriding objective, stressing the need in dealing with a case justly, to take account of proportionate cost and the need to enforce rule compliance. As such it expressly refers back to the need to ensure that questions concerning relief from sanctions are not simply considered by reference to the immediate litigation, but to the wider public interest” (paragraph 19).

“Tough rules but lax application; tough rules but a culture of toleration; and lax application and toleration are all fatal to the new philosophy. By emphasising the need to take account of the new explicit elements of the overriding objective, rule 3.9 is intended to eliminate lax application and any culture of toleration” (paragraph 23). “…the relationship between justice and procedure has changed. It has changed not by transforming rules and rule compliance into trip wires. Nor has it changed it by turning the rules and rule compliance into the mistress rather than the handmaid of justice. If that were the case then we would have, quite impermissibly, rendered compliance an end in itself and one superior to doing justice in any case. It has changed because doing justice in each set of proceedings is to ensure that proceedings are dealt with justly and at proportionate cost. Justice in the individual case is now only achievable through the proper application of the CPR consistently with the overriding objective” (paragraph 26).

“The tougher, more robust approach to rule compliance and relief from sanctions is intended to ensure that justice can be done in the majority of cases. This requires an acknowledgment that the achievement of justice means something different now. Parties can no longer expect indulgence if they fail to comply with their procedural obligations. Those obligations not only serve the purpose of ensuring that they conduct the litigation proportionately in order to ensure their own costs are kept within proportionate bounds. But more importantly they serve the wider public interest of ensuring that other litigants can obtain justice efficiently and proportionately, and that the court enables them to do so” (paragraph 27).

43. Second, as subsequent cases at least at first instance make clear, despite the change in the rules, in time applications for an extension of time to take procedural steps are not regarded as applications for relief from sanctions; This is the case even if the court deals with that application after the expiry of the relevant period. The Court of Appeal established this principle in Robert v Momentum Services Limited [2003] EWCA Civ 299: [2003] 1 WLR 1577: see in particular [33], before the amendment to the CPR. In my view that still remains the case following the recent civil justice reforms; see the decision of Nugee J in Kaneria v Kaneira [2014] EWHC 1165 (Ch) at [31] to [34], with which I agree.

44. Third, for the reasons set out on pages 396–399 of his report, Jackson LJ recommended: “The court should be less tolerant than hitherto of unjustified delays and breaches of orders.

This change of emphasis should be signalled by amendment of CPR rule 3.9.”

‘…parties should refrain from

Michael Napier QC

agreeing reasonable extensions of time, which neither imperil hearing dates not otherwise disrupt the proceedings.’

45. But it was not any part of Jackson LJ’s recommendations that parties should refrain from agreeing reasonable extensions of time, which neither imperil hearing dates not otherwise disrupt the proceedings. Nor did he recommend that the court should refuse to grant reasonable extensions of time in those circumstances.

46. But I cannot see that the insertion of a new sub– paragraph 1.1(2)(f) into the overriding objective, requires courts to refuse reasonable extensions of time, which neither imperil hearing dates nor otherwise disrupt the proceedings. Indeed, since Mitchell, sanctions have been lifted in a number of cases, where appropriate. So I think commercial litigants should welcome – not disparage – the tougher environment. It should lend to a more vigorous approach to trials and a welcome shortening of the trial process.

47. The last critical issue on my list is costs. There are two features relating to costs which are likely, in my view, to shape the way commercial litigation is conducted in the near and far future.

48. First, costs management. You may not know that as judge in charge of the Commercial Court I was instrumental in persuading Jackson LJ, with the massive support of the Commercial Court Users Committee, to exclude the Commercial Court from compulsory costs management and budgets as provided for in CPR 3.12(1). The rationale was that sophisticated parties and litigants in Commercial Court cases were well able to – and were already controlling costs by means of budgets for their clients and themselves. They were well able to monitor excessive spend by opposing parties both during the case and at the end and the judge was unlikely to be sufficiently informed about the complexities of the litigation to be able to bring added value to the budgeting exercise. But that position has now changed and as from 22 April 2014 cases, that are issued after that date for a claim far less than £10 million will be subject to mandatory costs budgeting unless the Court otherwise orders. A similar position prevails in the Chancery Division and the TCC.

49. Is that a good thing? You tell me? Will it lead in the long run to greater transparency and therefore to more proportionate spends? There has been some criticism of the amount of costs in the Commercial Court and it is clearly critical for the Court’s reputation that costs can be justified as proportionate in both large cases and small cases. Whether mandatory costs budgeting in the smaller cases will achieve that result, I personally consider doubtful.

‘…it is clearly critical for the Court’s reputation that costs can be justified as proportionate in both large cases and small cases.’

50. Finally, Enhanced Court Fees. This brings me almost back to where I started. The Government MOJ consultation paper – “Court Fees: Proposals for Reform” envisages enhanced fees being levied in a significant number of cases in commercial proceedings brought in the Rolls Building Jurisdictions estimated to rise to £190 million per annum. Paragraph 153 states that the parties to commercial proceedings are persons “who have chosen to have their commercial affairs governed

by English Law, and to have their disputes decided through the English courts.” The same theme is picked up in paragraph 158 where, referring to commercial proceedings (as broadly defined above) it is said “the Government believes that, for this specific group of cases, litigants obtain a much greater benefit from being able to litigate their disputes through the UK courts.”

51. The Senior Judiciary presented a strong riposte in their response to the consultation paper to the MoJ proposal – and particularly the enhanced fee proposal. It is worth quoting at some length from the response as it demonstrates that, while the Judiciary rightly recognises that it cannot descend into what are areas of political policy, it nonetheless is prepared to express its views on such issues in fairly trenchant terms.

“1. Access to justice is a fundamental feature of any society committed to the rule of law. It is not a service which the State provides at cost, but an element of the State and its governance essential to the rule of law and the operation of a free market economy. The State is therefore under a duty to provide effective access to justice irrespective of the State’s ability to secure full– cost recovery. This, as we explain at paragraph 55, has always been the position of the Judiciary.

2. The Judiciary’s response to this Ministry of Justice (MoJ) Consultation is predicated on the fact the Government does not accept this position and intends to ask Parliament to render the justice system self–financing. As has long been made clear there is a fundamental question as to whether the court system which benefits the economy and society as a whole should be financed by those whose use of it benefits not simply themselves but society as a whole.

Ultimately it must be for Parliament to decide whether access to justice and hence the maintenance of the rule of law are to be self– financing. Under our constitution issues of taxation and expenditure are the province of Parliament.”

52. So far as the enhanced fees proposal was concerned, the Judiciary’s response stated: “(ii) The second proposal, headed Enhanced Court Fees, envisages fees in a significant number of cases at a level above the cost of the proceedings in question. The Consultation Paper makes clear that this represents a departure from the Government’s policy of not charging more than a service costs. It is a novel concept. It will require primary legislation. The purposes of the these Enhanced Fees include funding the balance of the deficit remaining after implementation of the Recovery Costs proposals and contributing to the costs of fee remissions.”

53. Whilst the Senior Judiciary agreed that: “We agree that those who bring very large claims in relation to commercial, financial, property and other business matters in an y part of the High Court, whether in London or out of London, should pay the full cost of the proceedings.” they were concerned about the impact of the proposals on seeking profits costs in excess of the actual costs. They pointed out: “49. The Commercial Court itself, like the Chancery Division and the TCC, has an excellent international reputation as a forum to resolve disputes. Its continued success brings significant economic and wider benefits for the UK economy.

There is a concern that the introduction of Enhanced Fees may affect the amount of international work which these courts currently attracts; and will be counterproductive in the long term. The loss of only a small number of such cases could cost the economy more than the savings which the proposals in the Consultation Paper, including the introduction of Enhanced Fees are designed to achieve.

50. Commercial litigants not infrequently start proceedings in order to bring a recalcitrant defendant to the negotiating table in the expectation that following the issue of proceedings the dispute will be swiftly resolved.

If faced with a very significant issue fees for “commercial claims”, such litigants may respond by incorporating arbitration clauses into their contracts so that the courts do not resolve their disputes in future. Alternatively, those who have a choice of forum may go elsewhere; there is already strong competition from New York.

I am grateful for the help which I received from Edward Granger, barrister, in the research for this article.

28

Singapore will establish an International Commercial Court with considerable Government investment to provide state of the art facilities. There is also a PRIME Finance Disputes Centre in the Hague supported by the Government of the Netherlands; proposals to establish an English language commercial court in Germany are ongoing.”

And the response ended: “54. As this proposal stands, it is unworkable. Great care and precision would be needed if such a proposal is to be taken forward to avoid not only injustice but also damage to the international position of London and hence the UK economy.

CONCLUSION ??. 55. The Judiciary has for many years consistently made clear that it does not support the policy of successive Governments that the justice system should be self financing. As Sir Richard Scott VC (now Lord Scott of Foscote) said, this “profoundly and dangerously mistakes the nature of the system and its constitutional function.” That is an issue of principle which must be the subject of debate and ultimate decision by Parliament.”

54. It is interesting to note that, in the light of the senior judiciary’s response and that of other consultees, such as the City law firms, for the time being the Government has paused for thought.

Their official statements is “A response to the enhanced charging proposals set out in part 2 of the consultation will be published in due course.”

55. So not just a controversial issue as between the Judiciary and Parliament but one which ultimately is bound to affect the shape of commercial litigation in the years to come. So watch this space.

Elizabeth Gloster28 The Right Honourable Lady Justice Gloster DBE

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