Litigation Trending: 2023 and predictions for 2024

Once again the commercial litigation team at Ashurst welcomed the New Year with a discussion on the main issues of 2023 and our predictions for 2024. Our top ten are as follows.

1.  Alternative Dispute Resolution, or ADR, is no longer an alternative

This year we moved several steps closer to Sir Geoffrey Vos’ vision of ADR forming part of an integrated dispute process, rather than being seen as alternative. 

In August, mandatory ADR at the pre-action stage in all claims was proposed as part of the Civil Justice Council’s recommendations in Part 1 of their final report on the pre-action protocols. Their draft general pre-action protocol requires parties to engage in a dispute resolution process (mediation or other forms) before issuing proceedings (although note that a more bespoke protocol will be considered for complex litigation in the Business & Property Courts in Part 2).

The icing on the cake came at the end of the year with the Court of Appeal decision in Churchill v Merthyr Tydfil County Borough Council [2023] EWCA Civ 1416. It seems fitting that the leading judgment (with which the other two judges agreed) was given by Sir Geoffrey Vos. The decision confirmed that the courts can compel parties to engage in a non-court-based dispute resolution process, provided that any order did not impair the essence of the claimant's right to a fair trial. The Court declined, however, to lay down fixed principles as to how the power should be exercised. That would be decided on a case by case basis, having considered various factors, such as the nature of the process, the parties' willingness and reasons, the costs and delay involved, and the prospects of success. 

The Churchill decision has finally laid to rest the argument that the Courts cannot compel mediation, per the oft-quoted Court of Appeal decision in Halsey v Milton Keynes General NHS Trust [2004] EWCA Civ 576. 

2.  Large scale data breach claims remain a distinct possibility

The use of the representative action procedure for large scale data-related claims seemed doomed to fail following the Supreme Court decision in Lloyd v Google [2021] UKSC 50 (read our briefing).This was borne out when a further attempt at a data-based representative claim also failed in Prismall v Google UK and Deepmind [2023] EWHC 1169 (KB) (read our briefing). 

However, we think it would be unwise to conclude that this signals the end for large-scale data breach claims, including the use of the representative action procedure. In particular: 

• In the past 6 to 12 months, we have noticed an increase in claimant law firms advertising that they are investigating potential claims following cyber-attacks and data breach incidents.
• Group Litigation Orders and bespoke directions by the courts remain a viable mechanism for potential claims, albeit on an opt-in basis.
• There has been some suggestion that privacy activists may be cooperating with claimant law firms and litigation funders to explore and develop data-based claims.
• Claimants are using inventive competition law arguments to pursue data related claims in the CAT where there is a procedure for opt-out class action style claims.
• We are aware that claimant law firms are actively looking at ways to get round the Prismall and Lloyd decisions and pursue opt-out claims – one suggestion we have heard has been the use of a methodological survey to help identify those who might all have the same claim that has a reasonable prospect of success (i.e., the “lowest common denominator") and to define the class accordingly. Read our briefing for more details.

In short, 2024 may well bring an increase in data related litigation.

3.  Challenges to litigation funding arrangements 

In July, the Supreme Court held in R (PACCAR) v Competition Appeal Tribunal [2023] UKSC 28 that, contrary to accepted market practice, litigation funding agreements (LFAs) providing for a funder to be paid by reference to a proportion of an amount ultimately recovered were damages-based agreements (DBAs). This put at risk many existing LFAs which might be unenforceable because they did not comply with the DBA regulations. Read our briefing here and listen to our podcast discussing the fallout from the decision here.

The decision’s impact on the litigation funding market has not, so far, been as significant as first anticipated. For example, we have not seen certified cases being called back to the Competition Appeal Tribunal (CAT) to have certification reconsidered on the basis of unenforceable funding arrangements. However, we have seen proposed defendants in CPO hearings beginning to test proposed class representatives’ LFAs. In cases such as Alex Neill Class Representative Limited v Sony Interactive Entertainment Europe Limited & anor [2023] CAT 73, the Sony respondents largely failed in their challenges to the applicant's LFA, which had been revised to account for the decision in PACCAR. Sony have been granted permission to appeal, and we expect that to be heard later this year. 

In November 2023, the UK Government proposed an amendment to the Digital Markets, Competition and Consumers Bill (DMCC Bill) to allow the use of LFAs providing for a funder to be paid by reference to a proportion of an amount ultimately recovered outside of the DBA regime. This extension was only to apply in respect of opt-out class actions before the CAT.  In its current form, the amendment represents a relatively limited response to the PACCAR decision and its medium to long-term impact.  

We expect further challenges to LFAs which have been revised in response to PACCAR. How these challenges go and how the potential legislative response to PACCAR develops will be an important area to watch in 2024.

4.  The Quincecare duty and APP fraud 

In July 2023, the Supreme Court handed down its judgment in Philipp v Barclays Bank UK Plc [2023] UKSC 25, the latest instalment in a line of cases seeking to test the scope of the so-called Quincecare duty (read our briefing here). This duty is owed by a bank to refuse to execute a customer’s payment instructions where the bank is put on inquiry that the instruction may be an attempt to misappropriate funds. 

In Philipp, the Supreme Court had to decide whether that duty extended to payment instructions given directly by an individual customer (Mrs Philipp) to her bank in circumstances where she was the victim of authorised push payment (APP) fraud. In what was a welcome decision for the retail banking sector, the Supreme Court held that the Quincecare duty does not apply in this scenario. This means that the ambit of the duty is limited to circumstances where the fraudulent payment instruction is given by an agent of the bank's customer.  

Although the Supreme Court was sympathetic towards victims of APP fraud, it said that responsibility for the losses suffered by victims "is a question of social policy for regulators, government and ultimately for Parliament to consider". 

Consumers can look forward to greater protection from 7 October 2024 as a result of the promulgation of the Payment Services Regulator's new mandatory reimbursement requirement to compensate consumers which fall victim to APP fraud. In short, payment services providers will be required to compensate victims for losses on domestic transactions of up to £415,000. There are, however, a number of exceptions so although regulation is likely to obviate a majority of civil claims which might otherwise rely on an alleged breach of the Quincecare duty, further claims may yet emerge which fall outside of the scope of the PSR's regime. 

5.  Russian sanctions – more litigation?

Russian sanctions continue to top the compliance agenda for many clients. 2023 saw some interesting judicial consideration of various aspects of the UK’s sanctions regime. Further decisions can be expected in 2024.

2023 saw the first two court challenges to designations under the UK's autonomous (post-Brexit) regime: the first by a Belarusian technology company under the Belarus regime (LLC Synesis v Secretary of State for Foreign, Commonwealth and Development Affairs [2023] EWHC 541 (Admin)), and the second by Eugene Shvidler, a Russian businessman with links to Roman Abramovich, under the Russia regime (Eugene Shvidler v Secretary of State for Foreign, Commonwealth and Development Affairs [2023] EWHC 2121 (Admin)). Both were unsuccessful, and demonstrated the broad discretion afforded to the UK Government in making sanctions designations (and the consequent difficulty in challenging them).

Central to the UK's financial sanctions regime is the "ownership and control" test (if a person is "owned or controlled directly or indirectly" by a designated person, that person is also subject to financial sanctions). This test was considered in 2023, causing much controversy. In the Court of Appeal judgment in Mints v PJSC National Bank Trust and PJSC Bank Otkritie [2023] EWCA Civ 1132 Sir Julian Flaux C suggested (obiter) that every company in Russia could be regarded as "controlled" by Russian President Vladimir Putin (who is a designated person) and therefore targeted by financial sanctions. Read our briefing here. A subsequent High Court decision (Litasco SA v Der Mond Oil and Gas Africa SA & Locafrique Holdings SA [2023] EWHC 2866 (Comm)) will provide some comfort. There the Court concluded that the "control" test involved considering the existing – rather than theoretical - influence of a designated person over a relevant affair of the company. This is undoubtedly a more pragmatic interpretation but does not necessarily reflect the wording of the legislation. There is now legal uncertainty on this point, which may require legislative change. One to keep an eye on in 2024.

6.  Increase in procurement litigation?

Over £300 billion is spent annually in procurements in the UK alone. Over the past few years, we have seen an increase in procurement related litigation and been involved in some significant cases.

We expect that trend to continue with the passing of The Procurement Act 2023 which is expected to come into force in October 2024. The Act overhauls the current UK regime for procurement by establishing a single legal framework. 

We expect to see litigation in 2024 and beyond related to the changes introduced by the new Act. For example:

• The Act brings about a significant increase in the number of notices and information to be published at all stages of the procurement process – this creates both risks and opportunities for contracting authorities and bidders.
• There are new requirements for setting and publishing KPIs, assessing contract performance against the KPIs on an annual basis, on termination of the contract and publishing the results. Disputes related to the measurement, performance, and publication of the KPIs seem likely to follow.
• There is a new regime for the publication of information by the contracting authority about (i) breach of contract by a supplier resulting in termination, damages or a settlement agreement; and (ii) poor performance of the contract by a supplier and subsequent failure to improve. Given the potential reputational harm arising from the publication of such information, we expect disputes to arise.
• The Act introduces new discretionary grounds for exclusion from procurements, including in respect of the conduct of associated suppliers and subcontractors, and a new central debarment list. Given the significance of exclusion, the exercise of this discretion by a contracting authority may lead to legal challenges.
• There will be a renewed need for guidance on the Court's role in reviewing decisions taken (or not taken) by the contracting authority. Some concepts in the Act look familiar and appear to be intended to replicate existing concepts.
• There are other areas where close attention to the wording of the new Act is required. For example, there are a number of important new obligations which require the contracting authority to "have regard" to certain matters. What precisely will that entail?

7.  ESG litigation – building momentum

In 2023, we saw a myriad of ESG-related litigation. Three key themes emerged: 1) directors' duties and discharge of those duties, 2) responsibility for supply chains and 3) judicial review as a tool to focus on standards. We predict these themes will continue in 2024. 

Directors' duties and derivative actions are not a new topic for climate litigation specialists, but until 2023 they were largely untested in the English courts. ClientEarth's derivative claim against the directors of Shell plc under the UK Companies Act changed that. ClientEarth, having acquired a small number of shares in Shell (similar to the case it brought against ENEA in Poland), alleged breach of directors' duties relating to Shell's climate change risk management strategy. Although the High Court dismissed ClientEarth's attempt to launch the derivative action against the directors (ClientEarth v Shell Plc & Ors [2023] EWHC 1897 (Ch)), there are some takeaways. The bar for permission to bring a derivative action under the Companies Act is high. The case reflects the difficulties of bringing derivative claims when challenging the good faith decision-making of boards of directors. Nonetheless, the intersection of climate change risk and fiduciary duties remains a hot topic.

For a number of years, large multinationals have grappled with claims alleging environmental and/or human rights-based failings of their subsidiary companies abroad. Such claims proceeded on the basis that the parent company owed a direct duty of care because of the way the parent company operated and/or interacted with its subsidiaries (see for example, Vedanta Resources PLC v Lungowe and Okpabi v Royal Dutch Shell [2019] UKSC 20). In October 2023, in Limbu & ors v Dyson Technology Limited & ors [2023] EWHC 2592 (KB), the claimants tried to further expand the boundaries of corporate liability. The claimant migrant workers brought a claim against the Dyson group alleging abusive employment practices by English and Malaysian companies in the supply chain. Read our briefing here. The High Court declined to exercise jurisdiction over these claims. Nonetheless, it is illustrative of a trend which is set to continue where claimants seek redress from multinational companies for alleged ESG-related harm outside the corporate group but within their supply chain.

Judicial reviews of regulatory decision-making will remain a focus of activist attention. We highlight one case. ClientEarth applied to judicially review the FCA's decision to approve Ithaca Energy plc listing on the London Stock Exchange. ClientEarth argued that the FCA acted unlawfully by approving the prospectus despite it breaching certain Prospectus Regulations by failing adequately to describe climate risks associated with the company's activities. The application was refused mid-December on all grounds: (R (on the application of ClientEarth) v Financial Conduct Authority [2023] EWHC 3301 (Admin)). It is notable that ClientEarth corresponded with the FCA before challenging in the courts. This did lead to some changes in the prospectus, albeit ClientEarth considered the final document was still inadequate. We expect this proactive approach by NGOs will continue and have anecdotally heard of other similar examples. "If at first you don't succeed…"

8.  Use of tech and AI in dispute resolution 

If London is to remain a litigation and arbitration destination of choice, commercial litigators will have to continue to embrace digital innovation, including generative AI. This was one of the warnings issued to the legal profession by Master of the Rolls (Sir Geoffrey Vos) in a speech which we reported on in May. Sir Geoffrey suggested various ways in which digitalisation and AI could be used in the dispute resolution process, including using AI to sift through complex facts and identify key issues. An English High Court judge revealed in October that he had used Chat GPT to produce a summary of a particular area of law for a judgment (see our briefing).

While it is hard to deny the transformative potential of technology for the legal profession, it is important to remember that the technology is still in its relative infancy. In particular, AI is unlikely to replace disputes lawyers any time soon – as a number of cases in 2023 have demonstrated: in May, a lawyer in a case before a New York Court was found to have cited fake cases generated by ChatGPT in written submissions and was fined by the Court (Mata v Avianca 22-cv-1461(PKC)). On this side of the Atlantic, a litigant in person (unwittingly) relied on case law which had been completely made up by AI in a claim before the UK’s First Tier Tax Tribunal (Harber v Commissioners for HMRC [2023] UKFTT 1007 (TC)). Guidance on the use of AI has since been issued to the English judiciary, warning that “Any use of AI by or on behalf of the judiciary must be consistent with the judiciary’s overarching obligation to protect the integrity of the administration of justice”.

This firm is trialling and testing AI tools with enthusiasm and interest. Our work so far leads us to conclude that we are some way from being confident that AI generated material can be deployed unsupervised. In other words, all outputs purporting to represent legal opinion need to be reviewed and verified carefully by qualified and experienced practitioners.

9.  Online Safety Act – expected litigation

The Online Safety Act 2023 (which has received royal assent but is yet to come into force) imposes novel duties of care on online platforms that host user-generated content or facilitate user interactions, such as social media, messaging, and video-sharing services. These platforms will have to take reasonable steps to identify, remove, or limit the spread of harmful content, and to safeguard the rights and interests of their users, especially children and vulnerable groups. Ofcom will have the power to enforce the duties of care, issue codes of practice, impose fines, and block access to non-compliant platforms. 

This will lead to an increase in regulatory investigations into social media firms and, in due course, civil claims against platforms. 

10.  Opt-out consumer law class actions in 2024?

Could 2024 see the introduction of an opt-out collective actions regime for breaches of consumer law?

Currently, there is only an opt-out class action regime for infringements of competition law. This regime was introduced by the Consumer Rights Act 2015 as part of the government’s plan to adopt a "sector-based approach" to opt out claims, rather than bringing in opt-out class actions across the board, with the competition regime effectively acting as a trial run.

After a slow start, that regime is now developing at some pace. At the time of drafting, there are 43 class actions in the Competition Appeal Tribunal covering an aggregate amount of more than £100 billion. There are two particularly striking features of this regime:

• Only 9 of these proceedings are follow-on actions, whereas 30 are standalone actions and 4 are mixed actions.
• The boundaries of competition law are being explored by claimants, with some novel and wide-reaching claims brought under the existing competition framework, and where the conduct at issue is not conduct where competition law was the obvious first remedy.

In the House of Commons, Sir Robert Buckland proposed at the Report Stage of the Digital Markets, Competition and Consumers Bill (DMCC Bill) a clause that would have extended the coverage of the current regime to claims for infringements of the consumer law provisions (consumer protections from unfair commercial practices). The amendment was rejected. However, in the House of Lords debate on its Second Reading, Lord Etherton KC, the former Master of the Rolls, supported the idea of extending opt-out collective proceedings to consumer law claims - and it is likely that amendments will be put down to that effect.

The DMCC Bill is yet to finish its passage in the House of Lords. The exact form of any potential amendment does not appear to have been publicly debated by peers. Even if an amendment regarding collective actions is incorporated, it will then go back to the House of Commons for further consideration. In an election year, we are not confident the legislation will pass. The agendas of the main parties on this topic, and any manifesto commitments, will be worth looking out for.

Authors: Jon Gale, James Levy, Tim West, Sophie Law, Angus Rance, Max Strasberg, Justin Browne, Anna Varga, Aaron Marchant, Catrin Southgate, Melvin Cheung