COMMERCIAL AND CORPORATE LITIGATION: An Introduction to London (Firms)

Following another busy year for the Commercial Court, we set out an overview of the key trends in this space, as well as our predictions for 2023. Overall, the theme is the diversification of commercial disputes, as the application of established legal principles is tested by climate change activism, cryptocurrency fraud, financial sanctions and more.

Shareholder Activism and Environmental Litigation 

Large corporates face a risk of activist shareholders obtaining sufficient funding to use litigation to apply pressure on the corporate to improve its energy transition strategy, by launching derivative proceedings and similar. Most notably, ClientEarth, a shareholder of Shell, has recently commenced landmark derivative proceedings against the members of Shell’s Board. We understand the allegation is that the Board is failing to promote the success of Shell by failing to implement a sufficient plan to transition the company’s business model away from the fossil fuels in line with the Paris Agreement, jeopardising Shell in the long-term. This action follows successful proceedings against Shell in the Netherlands in 2021, in which the Dutch Court ordered Shell to cut its overall emissions by 45% by 2030. Permission will be required for the claim to continue, and whilst we expect it to face significant evidential challenges, even the prospect of this type of litigation may further incentivise the strengthening of corporate governance in relation to energy transition strategy.

Another potential avenue for claims is created by the increasing climate-related disclosure obligations, which create the prospect of investors claiming they were induced into investing in a company in reliance on misstatements as to its green credentials, causing them losses. Various types of large company are now required to include climate-related financial disclosures in their strategic reports. On the other hand, the Hewlett-Packard/Autonomy decision last year may have cooled the prospect of large group claimant action in this area, as it confirmed that claimants must have been at least consciously aware of the specific misleading statement complained of when they invested.

In the different context of companies causing environmental damage, the willingness of the English Courts to accept jurisdiction in complex overseas damage cases is continuing and leading to further litigation on a massive scale. Most notably in 2022, the Court of Appeal rejected the application by BHP UK and Australian entities to strike out claims against them (brought under Brazilian law) by 200,000 individuals and over 500 businesses claiming compensation for losses arising out the collapse of the Fundão Dam (Brazil’s worst environmental disaster). The court rejected arguments that Brazil’s court system would be a more appropriate forum to hear the claims, notwithstanding that there were various forms of Brazilian proceedings in which some of the same claimants had already sought redress.

Cryptocurrency Litigation 

Courts continue to grant relief, including urgent interim relief, to victims of misappropriation of cryptocurrency, which continues to test established legal principles. Following previous confirmation that bitcoin can constitute ‘property’, such that it can be the subject of a proprietary injunction, 2022 saw the courts impose a constructive trust on a cryptocurrency exchange into which the claimant was able to trace their stolen cryptocurrency, as well as an order for delivery-up of the stolen bitcoin.

Serving proceedings out of the jurisdiction in respect of cryptocurrency frauds committed against victims in England and Wales has become more straightforward in some cases, in light of the approach taken by courts that the location of cryptocurrency is the place of domicile or residence of the owner of the cryptocurrency. In a further helpful development for claimants, an additional jurisdictional gateway was added to the Civil Procedure Rules in 2022 permitting service of proceedings out of the jurisdiction where a claim is made for disclosure of information about the true identity of a potential defendant (or what has become of the applicant’s property) to support substantive proceedings. This is likely to facilitate applications for pre-action disclosure against foreign exchanges.

Given the difficulties in tracing stolen cryptocurrency, we expect to see further creative efforts to hold less proximate parties responsible for misappropriation. For example, in early 2023 the Court of Appeal held there was a serious issue to be tried that cryptocurrency developers who control and run certain bitcoin networks owe fiduciary duties to owners of bitcoins to implement a software patch to help recover their stolen cryptocurrency. This would be a significant extension in the categories of fiduciary duties, and may have broader implications for developers outside the cryptocurrency space.

Disclosure 

The Disclosure Pilot Scheme, now made permanent as the new PD57AD, will continue to challenge parties due to the highly cooperative approach expected in formulating the appropriate issues for disclosure, and then transparently devising proportionate search proposals over the right repositories. There is often a risk of very substantial costs being incurred in seeking to agree the approach. Certainly, more costs are being front-loaded, and especially in cases where the costs budgeting rules apply, parties are incentivised to identify their review pool as early as possible, to avoid potentially needing to make challenging applications down the line to vary a costs budget.

Meanwhile, a line of authority addressing when a party can be required to seek access to its employees’ and former employees’ personal electronic devices has continued, with the courts confirming that where employees routinely use their personal devices for work purposes, the documents will readily be regarded as within scope for disclosure purposes. We also expect to see continued disputes over the application of legal professional privilege, including arguments as to whether or not privilege has been waived due to references to legal advice in pleadings or witness statements.

Authorised Push Payment Frauds 

The growth of ‘authorised push payment’ frauds, involving customers who are deceived by fraudsters into transferring money out of their bank accounts, is testing the scope of the Quincecare duty imposed on banks (which requires them to refrain from processing payment instructions if they are put on notice that the instruction may be an attempt to misappropriate funds). Judgment is currently awaited from the Supreme Court on the issue of whether the Quincecare duty extends to authorised push payment frauds (as opposed to being limited to cases where the misappropriation arises from the fraud of an agent purporting to act on behalf of the customer).

Financial Sanctions and Litigation 

With around 1,500 individuals and entities subject to sanctions under UK’s Russia regime, the likelihood of claims before the English courts involving designated persons continues to increase. The High Court already had to grapple with some of the issues in 2023, deciding that entering judgment in favour of a designated person does not breach sanctions, although other key components of litigation, such as making payment for legal fees and satisfying adverse costs orders, will require a licence from the Office of Financial Sanctions Implementation (‘OFSI’). OFSI has helpfully recently issued a general licence in respect of the payment of legal fees from designated persons to their legal representatives, although it is subject to some important constraints, outside of which a licence application will be required, which may cause delays.