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The Court of Justice of the European Union (“CJEU”) delivered its judgment today in Case C-172/13 Commission v UK. You will recall that the Commission referred the UK to the CJEU, claiming that the 2006 amendments to the UK’s group relief legislation had failed to implement properly the judgment in Case C-446/03 Marks and Spencer. The Commission argued that the amended legislation, in fact, precluded UK resident companies from obtaining relief for the losses of an overseas subsidiary. Further, the Commission argued that because the amended legislation required the “no possibilities test” (created by the CJEU’s judgment in Marks and Spencer) to be determined at the end of the accounting period in which the losses arose, it was virtually impossible for the test to be satisfied.

In her Opinion in October last year, Advocate General Kokott recommended that the “no possibilities test” be abandoned on the basis that ascertaining whether losses might be available for surrender in future periods created too many procedural difficulties. Accordingly, AG Kokott’s view was that the UK’s amendments to its rules on group relief went beyond that required by EU law, as they allowed for the possibility of cross-border relief in certain cases.

Today the CJEU, whilst not following AG Kokott’s suggestion that the “no possibilities test” is overruled, dismissed the action as the Commission was unable to prove its case. This means that the UK’s group relief legislation at issue has been found to be compliant with EU law.

The Commission’s argument that the UK legislation required the loss making subsidiary to be liquidated before the end of the accounting period in which the losses arose was rejected. The Court considered that the legislation did not impose such a requirement, accepting the UK’s example that relief may be obtained where, immediately after the end of the relevant accounting period, the subsidiary ceases trading and sells or disposes of all its income producing assets. Further commentary was provided on the “no possibilities test” by the CJEU. They indicated that for losses of a non-resident subsidiary to be classed as definitive (and to meet the “no possibilities test”) the subsidiary must not have any income. This was clarified as meaning that if the subsidiary is in receipt of even minimal income, it is possible that losses may be utilised in the future in the overseas Member State.

The second complaint of the Commission was that the UK legislation at issue precluded cross-border group relief for the period before 1 April 2006. This argument failed on the grounds that the Commission did not establish the necessary evidence to prove their case, and was not discussed in detail.

Case C-172/13 Commission v UK, 3 February 2015

On 22 January 2015 the Commercial Court (Popplewell J) rejected a request to overturn an arbitral tribunal’s decision that it did not have jurisdiction to hear the defendant’s claims.

The case concerned an agreement for consultancy services which provided for ICC arbitration. Following a contractual dispute the parties entered into a further, settlement agreement conferring exclusive jurisdiction on the courts of England and Wales. A dispute also arose over the settlement agreement. The claimant brought proceedings both in the English courts and in arbitration. The defendant made counterclaims in arbitration, which were dismissed by the tribunal for lack of jurisdiction.

Popplewell J held that:

• The appeal under s. 67 of the Arbitration Act 1996 was rejected. The section provided that upon a party’s challenge of an arbitral award as to the tribunal’s substantive jurisdiction the court could confirm, vary or set aside the award.
• In Fiona Trust & Holdings v Privalov & others [2008] 1 Lloyd’s Rep 254, the House of Lords (Lord Hoffmann) held that it was to be presumed that rational businessmen parties to a contract intended all questions arising out of their legal relationship to be determined in the same forum. The presumption was a strong one, and required clear words to the contrary to be displaced. This was what Hoffmann LJ had called the “presumption in favour of one-stop adjudication” in Harbour Assurance Co (U.K.) Ltd v Kansa General International Assurance Co [1993] QB 701. The presumption applied to both jurisdiction clauses and arbitration clauses (Continental Bank N.A. v Aeakos Compania Naviera S.A. [1994] 1 WLR 588).
• Where there was more than one agreement between the same parties, and they contained conflicting dispute resolution provisions, the presumption of one stop adjudication dictated that the parties would not be taken to have intended that a particular kind of dispute would fall within the scope of each of two inconsistent jurisdiction agreements. They would fall to be construed on the basis that they were mutually exclusive in the scope of their application, rather than overlapping, if the language and surrounding circumstances so allowed (Deutsche Bank AG v Sebastian Holdings Inc (No 2) [2011] 2 All ER (Comm) 245 and UBS AG v HSH Nordbank [2009] 1 CLC 934).
• The presumption in favour of one-stop adjudication may have particular potency where there was an agreement entered into for the purpose of terminating an earlier agreement between the same parties or settling disputes which had arisen under such an agreement. Rational businessmen would intend that disputes under the underlying and the settlement agreements be resolved in a single forum. If the settlement agreement contained a dispute resolution provision incompatible with that in the earlier agreement, the parties were likely to have intended that the settlement agreement clause should govern all aspects of outstanding disputes and supersede the clause in the earlier agreement. This was because:
  • The settlement agreement clause came second in time and had been agreed by the parties in the light of the specific circumstances giving rise to the disputes being settled and the circumstances leading to the termination of the earlier agreement.
  • The settlement agreement clause was the operative clause governing issues concerning the validity or effect of the settlement agreement and therefore the only clause capable of applying to disputes which arose out of or related to the settlement agreement.
  • In considering any dispute about the scope or efficacy of a settlement agreement, the tribunal was likely to have to consider the background, of which an important element would often be the circumstances in which the dispute arose and the rights of the parties under the earlier contract. There would often be a risk of inconsistent findings if the tribunal addressing the validity or efficacy of the settlement jurisdiction was not seised of disputes arising out of the earlier contract, and the latter fell to be determined by a different tribunal.
• The case should be distinguished from DDT Trucks of North America Ltd v DDT Holdings Ltd [2007] 2 Lloyd’s Rep 213, which was not a case where there was a new dispute resolution clause in the terminating agreement, or any risk of fragmentation of issues. “Where the terminating agreement contains a new dispute resolution provision which differs from that in the agreement which it terminates, different considerations arise. It is then necessary to determine which dispute resolution clause applies and it is likely that the parties should wish the earlier dispute resolution provision, in the form of an arbitration agreement, to be superseded for the reasons I have endeavoured to identify. Whether that is so will depend upon the proper construction of the clause in the terminating agreement in all the surrounding circumstances, but I would not accept that it could only have that effect by making express reference to termination of the arbitration agreement and DDT Trucks is not authority for any such proposition”.
• In conclusion, the tribunal had correctly decided that it had no jurisdiction in relation to the defendant’s claims.

Monde Petroleum SA v Westernzagros Ltd [2015] EWHC 67 (Comm), 22 January 2015

On 27 January 2015 the EU published updates to its sanctions regimes for Syria and the Ivory Coast.

In respect of Syria, the Council of the EU has re-listed Aiman Jaber, Khaled Kaddour, Mohammed Hamcho and the company Hamcho International under new statements of reasons, following annulment of the sanctions against them by the General Court in November 2014 (Cases T-653/11, T-654/11 and T-43/12). The Council has published the updated Council Implementing Decision (CFSP) 2015/117 and Council Implementing Regulation (EU) 2015/108, as well as a notice pursuant to Regulation (EC) No 45/2001 informing the listed entities that the controller for data protection purposes is the Council of the EU.

In respect of the Ivory Coast, the EU has published the Council Implementing Regulation (EU) 2015/109 and Council Implementing Decision (CFSP) 2015/118. This implements the decision of the UN Sanctions Committee of 20 November 2014 to delete Alcide Djédjé from the Ivory Coast sanctions list.

On 27 January 2015 the Queen’s Bench Division of the High Court (Warby J) rejected the defendant’s submission that the successful claimant in a preliminary issue trial should not be awarded its costs (just over £24,000) because its approved costs budget did not include the preliminary issue and because it had failed to serve a statement of costs on the defendant.

Warby J held that:

• CPR r 3.18 was not aimed at the situation here, “but rather at ensuring that once the court has reached a decision on what it is reasonable for a party to spend on a given phase that conclusion should be final in the absence of some good reason”. The claimant had included provision for a preliminary issue trial in its original costs budget, but this had been neither agreed by the defendant, nor approved or disapproved by the master at the case management conference.
• Even if CPR r 3.18 applied, there was good reason here to depart from the approved budget and allow recovery of some costs by the claimant. The claimant did budget for this phase before the CMC, and the master did not disapprove of that figure. The defendant’s budget had been agreed by the claimant and noted by the master (so there was an imbalance between the parties). Finally, the claimant did submit a revised budget, but the defendant’s solicitors failed to respond until shortly before the hearing.
• The claimant’s failure to serve the defendant with a copy of the statement of costs filed at court, in accordance with PD 44.9(5), did not justify withholding costs.
• In conclusion, the claimant could recover 90% of reasonable standard basis costs. There was a deduction for the additional costs incurred by the defendant as a result of the claimant’s failures, including its failure to serve a costs statement on the defendant.

Simpson v MGN Ltd and another [2015] EWHC 126 (QB), 27 January 2015

On 16 January 2015 the Chancery Division of the High Court (Henderson J) held that the claimant, Pakistan, had waived state immunity by virtue of bringing the claim and had submitted to the court’s jurisdiction. The court also exercised its power under CPR r 38.4 to set aside a notice of discontinuance issued by Pakistan in relation to the claim.

The proceedings related to a fund worth approximately £35m and held in a National Westminster Bank account since 1948, having been frozen following the House of Lords judgment in Rahimtoola v Nizam of Hyderabad [1958] AC 379. The claimants to the fund included the states of India and Pakistan as well as certain relatives of the Nizam of Hyderabad (the princes). No agreement on the fund distribution had been reached. Pakistan subsequently served notice of discontinuance of the claim. The princes and the state of India applied to be joined as parties to the claim. The princes, India and the bank also applied to set aside the notice of discontinuance.

Henderson J held that:

• The princes and India should be joined as parties to bank’s application to set aside the notice of discontinuance.
  • Service of the notice of discontinuance without the permission of the court pursuant to CPR r 38.2 had not automatically terminated the proceedings in such a way as to deprive the court of its jurisdiction under CPR 19.2(2) to add new parties. The proceedings remained alive at least for the purposes of the bank’s application to set aside the notice of discontinuance and for the issue of costs arising from the discontinuance.
  • The court had to consider whether it was desirable to add new parties so it could resolve all the matters in dispute. It also had to consider whether there was an issue involving the new party and an existing party which was connected to the matters in dispute in the original proceedings, and whether it was again desirable to add the new party so that the court could resolve that issue.
  • The interested parties here had a clear interest in resolution of the underlying dispute. Once Pakistan had started the proceedings against the bank, and the bank had indicated its intention to interplead, each of them incurred significant time, trouble and legal costs in considering what position to adopt, preparing and filing evidence, and generally preparing for the hearing of the bank’s interpleader application.
• The notice of discontinuance should be set aside.
  • “The main objective which Pakistan hoped to achieve by service of the Notice of Discontinuance was to preserve the sovereign immunity which it had waived as against the Bank by initiating the present action in June 2013, and which Pakistan perceived it was likely to lose as against the Interested Parties if the Bank’s interpleader application proceeded to a hearing and they were joined as parties to the proceedings”.
  • Pakistan argued that the express power conferred on the court to set aside a notice of discontinuance under CPR r 38.4(1) should be construed as extending no further than the inherent power to set aside such notices for abuse of process which the House of Lords had recognised in Castanho v Brown & Root (UK) Ltd[1981] AC 557. This was rejected.
  • “The CPR formed an entirely new procedural code, the provisions of which should as a matter of principle be construed in their new context, and not by reference to previous case law on provisions in the superseded RSC. In some areas, of course, cases on the old rules may continue to have strong persuasive authority, but the primary obligation of the court is to construe any rule in the CPR, and exercise any power given to it by the Rules, so as to further the overriding objective. Thus I consider that the court should approach an application to set aside a notice of discontinuance under rule 38.4(1) on the basis that the court has a discretion which it should exercise with the aim of giving effect to the overriding objective of dealing with the case justly and at proportionate cost”.
• Obiter (as this question did not have to be answered in the present case), in accordance with ss. 1 and 2 of the State Immunity Act 1978 Pakistan was deemed to have submitted to the jurisdiction of the English court by instituting the present action, and the submission would extend to any appeal from a decision of the English court in that action.
  • “… a waiver of sovereign immunity by submission to the jurisdiction of the court must be irrevocable, and must extend to procedural steps properly taken, and orders of an interim nature made by the court, in the conduct of the relevant proceedings, as well as to the final determination of the proceedings by the court and any appeal therefrom. A submission to the jurisdiction of the court cannot be partial in relation to proceedings which a foreign state has instituted or to which it has submitted, nor can it be of a temporary nature. Once made, it must continue until the proceedings have run their course. There appears to be surprisingly little authority on this point, but it is in my judgment implicit in section 2 of the 1978 Act, and gains some support from the decision of the Employment Appeal Tribunal in Yendall v Commonwealth of Australia (1984) 107 ILR 590 where Popplewell J said at 599 that a waiver of immunity, once given, could not be withdrawn. The waiver therefore extended to any new claim which might be made by amendment in the proceedings”.
  • Therefore, “Pakistan’s waiver of sovereign immunity in submitting to the jurisdiction of the English court by starting its action against the Bank would clearly have extended to any interpleader proceedings set in motion by the Bank and to the subsequent determination by the court of beneficial title to the disputed funds. It was entirely predictable that Pakistan’s claim would lead the Bank to interplead, and by pleading its beneficial title to the money Pakistan must in my judgment be taken to have intended that the English court would adjudicate on that question. Accordingly, procedural steps taken to that end, within the same action, would clearly have fallen within the scope of Pakistan’s irrevocable waiver of immunity”.

The High Commissioner for Pakistan in the United Kingdom v National Westminster Bank plc and others [2015] EWHC 55 (Ch), 16 January 2015

A new Practice Direction has been issued on the production of orders for Masters and Judges in the Chancery Division which applies from 2 January 2015. The Practice Direction provides guidance on the form of orders to be produced to Masters and Judges for approval and sealing and it also provides a change of practice concerning the service of orders.

Draft orders must now be provided to the court in the form set out in the Appendix 1 to the Practice Direction. Further detailed guidance is provided on the production of orders, including consent orders, orders considered without a hearing and orders made at hearings. Sealed orders are now to be served by one of the parties, rather than by the court, in accordance with the nomination of the court.

Chancery Bar Association, Chancery Division – production of orders for Master and Judges

On 23 January 2015 the EU Council published a document entitled “Rules of Procedure of the General Court of the European Union – Approval by the Council”.

The Council is now “invited to approve the Rules of Procedure of the General Court as set out, after legal-linguistic revision, in document 16894/14 JUR 955 COUR 58 INST 627, as an A-item in one of its next sessions”. The Council’s rules of procedure lay down that “the provisional agenda shall be divided into Part A and Part B. Items for which approval by the Council is possible without discussion shall be included in Part A, but this does not exclude the possibility of any member of the Council or of the Commission expressing an opinion at the time of the approval of these items and having statements included in the minutes”.

By way of background, the new Rules can only be adopted with the support of a Qualified Majority in the Council, save for the language provisions, which require unanimous Council support. Despite the UK’s objections in December 2014, the Presidency concluded that a qualified majority existed and that the revised Rules of Procedure would be adopted by the Council in early 2015. The UK asked the Latvian Presidency to postpone this until the UK completed Parliamentary scrutiny. The European Scrutiny Committee met on 14 January 2015 and cleared the document from scrutiny, “given that the draft Rules are now likely to command a qualified majority and the Government propose to abstain”.

Council of the European Union, Rules of Procedure of the General Court of the European Union – Approval by the Council, 23 January 2015

On 22 January 2015 the General Court handed down its judgment in Bank Tejarat, a sanctions case.

Bank Tejarat concerned an application to annul or declare inapplicable certain provisions of Council Decision 2012/35/CFSP, Council Implementing Regulation 54/2012, Council Regulation 267/2012, Council Implementing Regulation 709/2012 and Council Decision 2010/413/CFSP concerning restrictive measures against Iran, in so far as they applied to the said bank. The bank had been listed since 2012 on alleged grounds that it was owned by Iran, had facilitated the country’s nuclear efforts, had assisted designated Iranian banks in circumventing international sanctions and had supported the activities of subsidiaries and subordinates of certain designated Iranian organisations.

The General Court held that:

• The plea (lack of legal basis and error of assessment committed by the Council in adopting restrictive measures against the applicant) was upheld. The proposal for the adoption of restrictive measures contained only those allegations relied on in the statement of reasons for the contested measures, and did not substantiate their merits. The Council had not adequately justified its delay in submitting certain relevant evidence to the court. The Council had not submitted information to adequately prove the claimant’s support for nuclear proliferation or help given to other entities to breach restrictive measures against them. Moreover, since 2009 the Iranian state was no longer the majority shareholder of the applicant.
• In conclusion, the contested provisions of Council Decision 2012/35/CFSP, Council Implementing Regulation 54/2012, Council Regulation 267/2012 and Council Implementing Regulation 709/2012 were annulled in so far as they concerned the bank.
• The effects of Council Decision 2010/413/CFSP (i.e. asset freezing) were maintained as regards the bank until the annulment of Regulation 267/2012 and Implementing Regulation 709/2012 would take effect. If the dates when the annulment of Regulation 267/2012 and Implementing Regulation 709/2012 and that of Decision 2010/413 took effect were to differ, that would jeopardise legal certainty since those two acts imposed identical measures on the applicant.

Case T‑176/12 Bank Tejarat v Council, 22 January 2015

On 15 January 2015 the Technology and Construction Court (Akenhead J) clarified some significant issues surrounding the application of the new proportionality rule as regards costs assessment.

In Savoye and Savoye the court had to make a summary assessment of the costs. The claimant had secured its judgment for the full sum claimed (c. £900,000). The only outstanding issue was the meaning of a term in the Housing Grants, Construction and Regeneration Act 1996. The claimant’s costs bills totalled c. £200,000 for four hearings. Three of the hearings were for the application for summary judgment issued by the claimant. The time billed by the claimant’s solicitors included 111 hours of partner time (c. £58,000), 223 hours of associate time (c. £83,000) and counsel’s fees of £27,800.

Akenhead J held that:
This is an important judgment for paying parties in relation to commercial cases where the number of hours spent by partners, costs against hearing length ratios, levels of counsel fees and the “team approach” to case handling are the main points of contention.

• In light of CPR r 44 and for the purposes of costs assessment, the court should have regard to the following when assessing proportionality and the reasonableness of costs:
  • The relationship between the amount of costs claimed and the amount in issue: “…for example, if the amount in issue in the claim was £100,000 but the costs claimed for are £1 million, absent other explanations the costs may be said to be disproportionate”.
  • The amount of time spent by solicitors and barristers in relation to the total length of the hearing. “For example, if 3,000 hours of lawyers’ time is incurred on a case which involves only a one day hearing, that might well point to a disproportionate incurrence of time spent”.
  • “In the context of time spent, the Court can have regard to the extent to which the lawyers for the party claiming costs and the party itself has incurred cost and spent time before the Court proceedings in connection with any other contractual dispute resolution machinery agreed upon between the parties. Here, for instance, there was provision for adjudication, in which the parties were required to pay their own costs of that process. If and to the extent that the work in connection with the adjudication duplicates the work done in the Court proceedings, or, put another way, if the same issue arises and was addressed in the Court proceedings as in the adjudication, it may be disproportionate to expend anew what is repetitious effort and time in the later proceedings”. The case revolved around a relatively narrow issue (the interpretation of a term in a particular statutory provision). The issue and arguments in the court proceedings were substantially the same which had previously been raised in the arbitration between the parties: “…the costs of the Court proceedings could have been relatively modest, taking into account that the legal team knew exactly what the issue was about”.
  • The extent to which the case was a test case. The present was not, though it elicited some helpful points.
  • “The importance of the case to either party. If for instance an individual or a company is being sued for everything which he, she or it is worth, it may not be disproportionate for that individual to engage a QC even if the amount in issue is objectively not very large”. Here, the commercial existence of the parties did not depend on the outcome of the case.
• In light of the above, a costs bill of over £200,000, albeit in relation to a claim worth just under £900,000, was disproportionate. Excessive partner, associate and counsel time had been spent on a narrow and already known issue.
• The costs were reduced as follows: partner time to 20 hours, associate time to 160 hours and counsel’s fees to £18,800. Overall, the costs were effectively halved (c. £96,000).

Savoye and Savoye Ltd v Spicers Ltd [2015] EWHC 33 (TCC), 15 January 2015

On 21 January 2015 the General Court handed down its judgment in Makhlouf, a sanctions case.

Makhlouf concerned an application for annulment of Council Implementing Decision 2011/488/CFSP, Council Decision 2011/782/CFSP and Council Decision 2012/739/CFSP concerning restrictive measures against Syria, in so far as it applied to Mr Makhlouf. He had been on the Syrian sanctions list since 2011 due to his alleged association and his relationship with the Al-Assad and Makhlouf families.

The General Court held that:

• The Council had not infringed the applicant’s rights of defence or his right to a fair hearing. Notably, the EU authorities could not be required to communicate the grounds for listing before the name of a person or entity had been entered on the sanctions list. Such prior communication would be liable to jeopardise the effectiveness of the measures. Failure to notify to the applicant Council Decision 2011/782/CFSP and Council Decision 2012/739/CFSP did not breach his rights of defence as the reasons for listing the applicant in those two instruments were the same as for the previous Council Implementing Decision 2011/488/CFSP.
• The grounds relied upon by the Council had provided the applicant with sufficient information to enable him to contest their validity, and the Council had not made an error of assessment. On the basis of the evidence it had brought, the Council was entitled to take the view that Mr Makhlouf was connected with and gave economic support to the Syrian ruling family.
• The Council had not infringed the applicant’s fundamental rights (including the principle of proportionality, the right to property and the right to privacy). In particular, the right to privacy did not protect against a loss of purchasing power, and thus the asset-freezing measures did not infringe this right by lowering the living standards of the applicant’s family.
• In conclusion, the application for annulment of Council Implementing Decision 2011/488/CFSP, Council Decision 2011/782/CFSP and Council Decision 2012/739/CFSP was rejected.

Case T-509/11 Mohammad Makhlouf v Council, 21 January 2015, currently only available in French