City Lawyer Issue 2/2016

Welcome to the City Lawyer – the business law update from 3 Hare Court

In this issue, Aidan Casey Q.C. and Richard Campbell discuss:

  • A 3 Hare Court case in the Court of Appeal on the difficulties for lawyers in conducting ‘without prejudice’ negotiations with litigants in person
  • Supreme Court guidance on the principles relating to implied terms in contracts
  • A decision holding a director personally liable for £36 million of costs incurred by his company

We also warmly congratulate Aidan Casey on his recent appointment as Queen’s Counsel.


Aidan Casey QC




Email  Aidan or Richard call 0207 415 7800

Richard Campbell


‘Without prejudice’ privilege and litigants in person

Suh and Suh v Mace (UK) Limited [2016] EWCA Civ 4

Richard Samuel of 3 Hare Court appeared in the Court of Appeal in this case on how ‘without prejudice’ privilege applied to discussions between solicitors and litigants in person, and the duties of solicitors when faced with such discussions.

Solicitors are regularly faced with this situation, given the increased prevalence of individuals representing themselves, but it had not until now been considered by the Court of Appeal. The judgment is a powerful reminder to solicitors of the caution which must be taken when discussing a case with litigants in person.

The proceedings concerned an alleged wrongful forfeiture of commercial property. The Claimant tenants, representing themselves, sought damages and the Defendant landlord, who instructed solicitors, counter-claimed for rent arrears. 

Before trial, one of the Claimants, Mrs Suh, met with the Defendant’s solicitor twice in order to obtain ‘information’ about and ‘help’ with the claim. However, during these meetings Mrs Suh made key admissions, including that there had been rent arrears at the time of the forfeiture of the lease. The Defendant sought to adduce the attendance notes of these meetings at trial, together with a witness statement from its solicitor. The Claimants denied that the admissions had been made and submitted that the discussions were covered by ‘without prejudice’ privilege, so that the notes were inadmissible.

The trial judge allowed the statement and attendance notes to be admitted, holding that the discussions were not ‘without prejudice’ in that it was ‘not a without prejudice meeting. It was not for the purpose of a genuine attempt to compromise a dispute between the parties’. The judge also found that, despite her denials, Mrs Suh had made the admissions and so dismissed the claim.

The Court of Appeal, when faced with the Claimants’ appeal, reminded itself of ‘the classic statement of the law’ in Rush & Tomkins v GLC [1989] 1 AC 1280: 

‘the “without prejudice” rule is a rule governing the admissibility of evidence and is founded upon the public policy of encouraging litigants to settle their differences rather than litigate them to a finish…the rule applies to exclude all negotiations genuinely aimed at settlement whether oral or in 

writing from being given in evidence.’

Giving the leading judgment, Vos LJ held that the court should take a broad view in deciding whether communications were ‘genuinely aimed at settlement’ (as held by the House of Lords in Ofulue v Bossert [2009] 1 AC 990). The trial judge’s view had been too narrow. Vos LJ acknowledged that it can be harder with litigants in person to determine whether the discussions were genuinely aimed at settlement. However, he held that they were in this case: the only sensible purpose for Mrs Suh to seek a meeting with the Defendant’s solicitor was to try to find a solution to the litigation, i.e., a settlement. This broad approach also meant that one could not divide the discussions into ‘open’ and ‘without prejudice’ parts, so that the entirety were protected by ‘without prejudice’ privilege.

The court also dismissed the argument that the evidence should be admitted on the basis that Mrs Suh had abused a privileged occasion. For that argument to succeed there would have to be evidence that she had calculated to use the privilege to tell lies or used the exclusion of evidence as a cloak for perjury, blackmail or other unambiguous impropriety: Unilever Plc v Proctor & Gamble [2000] 1 WLR 2436.

Finally, the court had to decide if Mrs Suh had waived privilege through her witness statement in response to the Defendant’s application to admit the notes. Waiver is judged objectively to determine whether, in light of the litigant’s conduct, it would be unjust to argue that admissions were privileged. Vos LJ held that that it would be unjust to hold that the tenants’ unguarded response to the landlord’s conduct amounted to waiver of privilege.

The judgment makes clear that, in order to allow parties to speak freely in settlement discussions, the court takes a broad view of negotiations when deciding on issues of privilege and will not  readily divide discussions into ‘open’ and ‘privileged’ parts. These can be particularly difficult waters to navigate with litigants in person and solicitors should be cautious before trying to rely on things said by litigants during discussions.  It will also be prudent to establish clearly and at the outset (and preferably recorded in writing) (a) the purpose of any discussions and (b) whether they are open or without prejudice.


Implicit is it? The Supreme Court gives guidance on implied terms

Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Limited [2015] UKSC 72, [2015] 3 WLR 1843

It might seem that the principles governing the implication of contractual terms have been long settled, and yet they still generate much argument in practice and litigants often seek to imply terms far beyond those that a contract will support. The Supreme Court has given important clarity on when a term can be implied into a contract.

The case itself concerned a fairly specialised subject:  the recovery of rent by a tenant from its commercial landlord for the period following the exercise of a break clause determining the lease. But the court took the opportunity to make some general observations about the implication of terms into a contract.

Giving the majority judgment, Lord Neuberger endorsed the Privy Council decision in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 as providing a clear, consistent and principled approach to implied terms. In that decision, the Board held that

‘[F]or a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that ‘it goes without saying’; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.’

Lord Neuberger did not wish to reformulate the principles, but he felt it appropriate to add six observations to this statement of the law:

(1)     The implication of a term was ‘not critically dependent on proof of an actual intention of the parties’ when negotiating the contract (Equitable Life Assurance Society v Hyman [2002] 1 AC 408 at 459 per Lord Steyn).

(2)     A term should not be implied into a detailed commercial contract merely because it appears fair or

merely because one considers that the parties would have agreed to it if it had been suggested to them.

(3)     It is questionable whether the requirements of ‘reasonableness’ and ‘equitableness’ add anything. If a term satisfies the other requirements, it is hard to think it would not be reasonable and equitable.

(4)     The test of business necessity and obviousness could theoretically be alternatives, but it was rare in practice that only one would be satisfied.

(5)     If one approaches the issue by reference to the officious bystander, ‘it is vital to formulate the question to be posed by [him] with the utmost care’.

(6)     Necessity for business efficacy involves a value judgment. The test could also be expressed as whether, without the implied term, the contract would lack commercial or practical coherence

Lord Neuberger also commented on Lord Hoffmann’s dicta in Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988 that, ‘there is only one question: is it what the instrument read, as a whole against the relevant background, would reasonably be understood to mean?’ This had sometimes been taken to have diluted the requirements for a term to be implied, but it should not be read as such. Lord Neuberger added two caveats: first, that the reasonable reader is treated as reading the contract at the time it was made, and secondly that reasonableness is not a sufficient ground to imply a term: it must be so obvious that it goes with without saying or must be necessary for business efficacy.

This authority can therefore be seen as restoring to primacy the ‘traditional’ questions to be posed when considering the implication of terms, and litigants should not  fall into the trap of assuming that the only, or prime, question is whether a proposed implied term is a reasonable one.


Director held liable for £36 million of costs incurred by his company 

Deutsche Bank AG v Sebastian Holdings Inc [2016] EWCA Civ 23, [2016] 4 WLR 17

This recent Court of Appeal decision has given a serious warning to directors who are thinking of litigating in the name of their companies. The Court upheld an order that the sole director and shareholder of the defendant company should be joined to proceedings and ordered to pay the Claimant’s costs of around £36million.

The court was concerned with section 51 of the Senior Courts Act 1981, which provides  the general discretion of the court to decide who should be liable for costs, including third parties. Moore-Bick LJ indicated that, when considering the possibility of a third-party costs order, ‘the only immutable principle is that the discretion must be exercised justly’. This discretion is broad, but the court needs to be satisfied that the third party can be regarded as a ‘real party to the proceedings’, i.e. ‘has a sufficiently close connection with the proceedings to justify the court’s treating him as if he were a party’. This is a question of nature and degree on the facts of each particular case.

An important warning was given by the Privy Council in Dymocks 

Franchise Systems (NSW) Pty Ltd v Todd [2004] UKPC 39: ‘generally

speaking, where a non-party promotes and funds proceedings by an insolvent company solely or substantially for his own financial benefit, he should be liable for the costs if his claim or defence or appeal fails’.

In the present case, the sole director and shareholder of the Defendant was a Mr Vik. The Court of Appeal dismissed his appeal against an order that he pay costs personally. The court held that it was appropriate to adopt a summary procedure when determining a third-party costs order application. The judge should decide the application based on the facts found at trial and an assessment of the behaviour of the people involved in the proceedings. Numerous facts pointed to Mr Vik being closely involved in the litigation to the extent that he was not only a witness for the Defendant but actually controlled the litigation. The Claimant had not warned him that it might seek a third-party costs order but this did not make any difference to the outcome and the court gave this relatively little weight. Finally, the court found that Mr Vik had funded the Defendant’s litigation costs and this was a powerful factor in favour of the order, although the court explained that it was not a pre-requisite to making the order.


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