Dispute update - October 2011

This month’s Legal Update reflects the fact that summer is a distant memory and the courts’ hibernation is pretty much at an end.  For all those in-house lawyers struggling to keep up with the bombardment of updates, this is our summary of recent cases.

Boardroom briefing

This month, we're going to look at one way you can protect your business if you're involved in litigation, especially if you're on the wrong end of a claim.

Litigation is expensive (although you can of course save money by choosing T&E Resolve). Sensible business people don't litigate unless they can afford it, but no one wants to throw money away.

Sometimes, your opponent won't care about the cost as much as you do. This might be because they are based in another country, or it might be because they don't have any money so there is little down-side for them if they lose. Even if you win your case, you may never recover your costs from them.

In these cases, you can often ask the court to order your opponent to pay money into court by way of security for your costs if you win. In general, an application for security can be made where your opponent: 

• Is based abroad, unless it is in the EU or certain other countries;
• Is a limited company, if there is reason to believe that it will be unable to pay your costs if ordered to do so;
• Takes steps which are designed to make it difficult for you to enforce your costs order.

There are certain other grounds for granting security, but they are less common than those above.

The right to apply for security used to be wider but it has been limited because of the impact of EU human rights laws. It is also important to remember that it will not usually be possible to obtain an order for security against an individual who will be unable to pay costs; only companies are affected.

Of course, the fact that an order for security can be made does not mean that it will be. In deciding whether to order your opponent to pay money into court by way of security, the court will consider whether it would be fair, just and proportionate to do so.

In considering that question, any admissions made by your opponent will be relevant, as will any open offers. On the other hand, the merits of the case will not be looked at too closely as long as the claim is genuine. The merits may become relevant if either side can demonstrate that it has a strong probability of succeeding in the claim.

If your opponent’s claim is genuine and has a good chance of succeeding, the court will be concerned not to stifle the claim by making an order that your opponent should pay money into court before he can continue the claim.

If the court is satisfied, the court will decide what security should be given, which is usually done by assessing the defendant’s likely costs of the litigation bearing in mind the possibility of settlement. A proportionate figure is then fixed and the claimant is usually ordered to pay that sum into court within a specified period. Other types of security might include a parent company guarantee or bond.

Until the payment is made, the claim is stayed. If the payment does not materialise, the court can strike out the claim.

Tactically, security for costs is a useful weapon but it must be used sparingly.

Legal update

Rossetti Marketing Limited –v- Diamond Sofa Company Limited [2011] EWHC 2482

In the month that Noel Gallagher released his new solo album, the High Court has taken us back to the era of Britpop. 

In the mid-1990s, cases about agents were de rigeur.  A generation of lawyers who had grown up with common law agency principles were reeling at the intrusion of Brussels and the introduction of the Commercial Agents (Council Directive) Regulations 1993, which granted rights to agents that did not previously exist. 

As time has passed, so too has the shock, and there are far fewer agency cases today.  Still, they happen and this is one.  The case concerns furniture.  Mr W and Mr T (not THE Mr T) set up a company, SM Ltd, to represent Asian manufacturers in the UK.  Diamond Sofas, a Thai company, appointed SM Ltd as its exclusive agent in the UK in 2004, but despite this SM Ltd continued to represent the interests of other Asian manufacturers.

In 2007, Mr W and Mr T set up Rossetti Marketing Limited because of fears about toxic leather sofas supplied by one of the other manufacturers and potential claims against SM Ltd.  Mr W agreed with Diamond Sofas that they would cease to use SM Ltd as their agent, and Mr W told Diamond Sofas that Rossetti Marketing would instead be their agent from 1 January 2008.
 
In June 2008, Diamond Sofas terminated the agency citing the number of other manufacturers Rossetti represented.  Rossetti Marketing claimed compensation under the 1993 Regulations, and Diamond Sofas countered that Rossetti Marketing was in breach of its duty to act dutifully and in good faith towards its principal because it had conflicting interests.

On a trial of a preliminary issue, the court decided that the 1993 Regulations did not apply solely to agents with only one principal, but to all commercial agents, no matter how many principals they had.  Equally, the definition of “commercial agent” did not depend on the number of principals an agent had, nor whether the agent had breached its duties.

The court also decided that the duty to act “dutifully” demanded loyalty.  Where an agent had more than one principal, this meant that he should treat each as though he only represented that one principal and should avoid conflicts between principals. The agent must also act in good faith, requiring fair and open dealings.  The court made it clear that in cases of multiple principals, the agency agreement should set out explicitly what was expected of the agent towards each of them.

Roder UK Limited –v- West and Phillips [2011] EWCA Civ 1126

This case is a useful one to have in your back pocket when chasing recalcitrant debtors.  As every good law student knows, the Statute of Frauds 1677 requires guarantees to be in writing, failing which they are unenforceable.  In this case, Longmore LJ reminded us (for we surely all knew it once) that oral representations about someone’s creditworthiness had once been enforceable.  In the 19th century, the Statute of Frauds was amended to introduce a new section (section 6):

No action shall be brought to charge any person upon or by reason of any representation or assurance made or given concerning or relating to the character, conduct, credit, ability, trade or dealings of any other person, to the intent or purpose that such other person may obtain credit, money or goods upon [sic], unless such representation or assurance be made in writing signed by the person to be charged therewith.

You probably remember it now. 

Mr W (not the same one as in Rossetti, that would be unfortunate) and Mr P had a company hiring marquees for middle class weddings. Their company, Titan Marquees Limited, bought marquees and accessories (such as guy ropes and weeping drunken bridesmaids) from Roder UK Limited.  Titan’s account was never in credit.  A dispute arose as to payment of Roder’s invoices.
After Titan defaulted on an agreed payment plan, Roder’s office manager called Mr P who said that Titan was expecting an insurance payout and the debt would then be repaid.  A couple of months later, Mr W told Roder’s managing director that the company was “selling up” and that all creditors would be paid from the proceeds of sale.  Neither promise was true.

Roder sued Mr W and Mr P for deceit.  The court decided that Mr W and Mr P were liable.  They could not rely on section 6 of the Statute of Frauds because their comments were not made with a view to Titan receiving credit; Titan already had credit.
Mr W and MR P appealed, arguing that section 6 referred not just to credit but to money or goods, and that did not mean that the money or goods should be provided on credit.  They also said that notwithstanding the original period of credit, this was a fresh offer of credit.  The Court of Appeal disagreed. 

After the payment plan failed, Roder did not assent to any further period of delay so there was no additional credit.  There was no intention that Titan should receive money or goods so section 6 did not apply, which meant that the promises made by Mr W and Mr T did not have to be in writing and signed by them in order to be enforceable.

Thameside Construction Company Limited –v- Arthenella Limited [2011] EWHC 2695

To round off this month’s update, we have a case which serves a useful reminder to businesspeople that they do need us after all. 

Arthenella appointed Thameside to carry out construction works to a manor house.  At the end of the job, there was disagreement as to the amount payable and each made a claim against the other.  Each appointed solicitors, and those solicitors (wise fellows, all) tried to settle the dispute in correspondence.  They didn’t succeed.

Enter the managing directors of the two companies, who, knowing better than the lawyers, embarked upon a series of telephone conversations intended to reach agreement on settlement.  They discussed the advice they had each received. 

Arthenella had offered to pay £275,000 in writing. Arthenella’s MD gave evidence that the two MDs agreed that if Thameside could provide a barrister’s opinion on one aspect of the dispute which persuaded his own lawyers that they were wrong, then Arthenella would pay £300,000.

Thameside’s MD went further.  His evidence was that he had agreed to provide the opinion, but failing that the agreement would be £275,000.  Thameside’s MD confirmed this in an email immediately after the conversation.

The court found in favour of Thameside, preferring the evidence of its MD.  This case does not offer any new legal insights but it should be used to remind lay clients that if they do want to discuss settlement with their lawyers before completing the deal, they should make sure that discussions are expressly stated to be subject to contract.