Posted: 28/03/2024
While everyone begins a new year seeking to predict the future, the reality is that the only thing that can be reliably predicted (apart from death and taxes) is continued uncertainty. This article considers the key litigation trends for 2024, and how these have developed over the first quarter of the year.
The ‘perfect storm’ caused by higher interest rates, rising costs, and a general decrease in consumer demand, has led to a surge in contentious insolvency cases which are expected to continue, with the construction, leisure, and hospitality industries most heavily impacted.
On 23 January 2024, the Court of Appeal handed down its long-awaited judgment in Strategic Value Capital Solutions Master Fund LLP & Ors v AGPS BondCo PLC (Adler). In overturning the High Court’s decision to sanction a restructuring plan under part 26A of the Companies Act, the Court of Appeal illustrated its commitment to fairness in asset distribution during restructurings.
The High Court, in sanctioning the last-minute scheme, had permitted Adler to extend maturities of bonds due in 2024 and borrow in the region of €938 million, despite not having obtained the approval of all creditors to the plan. However, the Court of Appeal held that this was an unjustified deviation away from the established pari passu treatment of creditors (in other words, that all unsecured creditors should share equally any available assets).
Whilst other schemes of arrangement have been refused by the UK courts in the last few years (the first being Hurricane Energy in 2021), this is the first appeal of a restructuring plan under part 26A. The judgment is of importance for future restructuring plans and schemes of arrangement, as it illustrates the fact that the courts are not willing to simply rubber stamp such issues going forwards.
The litigation funding industry has exploded in recent years, with many potential claimants turning to funders for help in bringing claims that would not otherwise have been possible. However, the recent decision of PACCAR Inc and others v Competition Appeal Tribunal (PACCAR) threw a slight spanner in the works. The court held that litigation funding agreements (LFAs) were damages-based agreements (DBAs). Consequently, such funding agreements were unenforceable unless they comply with the relevant regulatory regime for DBAs. This has sparked concern throughout the industry that potential deals agreed prior to the ruling may now be considered unenforceable, or that the level of risk that funders are prepared to take may be impacted going forwards.
However, in practical terms, litigation funders have bounced back from this decision. Funders are using this opportunity to amend LFAs in order to make funding a multiple of the investment, rather than a percentage of the damages, and therefore not intended to be caught by the court’s recent ruling.
Indeed, in the recent case of Therium Litigation Funding A IC v Bugsby Property LLC, a litigation funder succeeded in defending a summary judgment application, on the basis that the LFA provided for both a percentage of damages and multiple of funding.
Following the widespread political impact of the Post Office scandal, the justice secretary Alex Chalk has announced that the government will introduce legislation in this parliamentary session in response to this issue, and has vowed ‘to protect litigation funding that helped sub-postmasters’.
Therefore, despite an element of nervousness surrounding PACCAR, 2024 will likely be another significant year for litigation funders, who provide a critical, albeit behind the scenes role in facilitating litigation.
2024 is set to be another exciting year in the world of copyright litigation and the challenges posed by AI. The recent case that the New York Times filed against OpenAI and Microsoft in December 2023 (albeit in the US) highlights this global issue. The New York Times has alleged that the unauthorised use of its articles in training ChatGPT constitutes ‘taking’ its intellectual property without suitable compensation or attribution.
Across the pond, things in the UK remain uncertain. Under the Copyright, Designs and Patents Act 1998, the use of copyrighted work without the owner’s permission constitutes infringement, albeit there are some exceptions, most notably the text and data mining (TDM) of copyrighted works when used for non-commercial purposes, on the condition that the AI creator has lawful access to this material. Access is generally given through licensing agreements which outline permitted uses and associated fees.
A recent example of the difficulties faced in policing IP rights in the AI world is highlighted in the claim by Getty Images against Stability AI, an open-source generative AI company. While Getty’s claim progresses through the courts, it is clear that the legal boundaries associated with generative AI remain uncertain, as novel issues including the location of any AI training and development continue to occupy the courts. For more information and analysis on this claim, see this article here.
In its response to the House of Lords Culture, Media and Sport Committee’s report on AI and the creative industries, the UK government appeared to recognise the need for a balance to be struck between the encouragement of AI innovation, and the protection of copyright works. A voluntary code of practice was due to be published this year. However, it is now reported that as a result of a breakdown in communication, this is off the table and the responsibility is back with government ministers to continue their engagement with AI developers. It is significant to note that the government has never ruled out legislation in this area, if push came to shove. Given recent developments, this perhaps looks increasingly more likely.
The EU Digital Markets Act is now in force, specifically targeting major tech players rather than smaller sized enterprises/individuals in the EU and elsewhere. The legislation aims to level the playing field by tackling unfair competition, and the market dominance of the well-known larger companies. In particular, Article 6(2) prohibits gatekeepers (major tech companies) from using non-public business user data for, among other things, AI development.
Whilst it is all change in the regulation and legislative sphere, only time will tell as to whether this will be sufficient to strike the necessary balance.
Greenwashing will remain a key disputes risk in 2024. The FCA’s proposed anti-greenwashing rules come into force on 31 May 2024. As a result, a steady rise in environment-based litigation against corporates and/or their directors or senior management is widely anticipated.
In particular, an increase in potential shareholder activism and shareholder disputes is expected as we move through 2024. There is already evidence emerging of shareholders waging public campaigns against companies and their directors for failures in relation to climate change and diversity related matters. The first ESG court cases are being brought on these issues, but are yet to be determined by the courts.
Companies that may be affected by these potential issues should proactively assess and audit their ESG credentials to avoid exposure to potential litigation and the inevitable harm to reputation this brings, whether successful or not.
The courts have seen a flurry of shareholder dispute cases in 2023, with a particular focus on claims regarding unfair prejudice, duty of good faith, limitation periods and derivative actions.
This upwards trend is expected to continue, as disgruntled investors seek to extricate their investments through litigation. In particular, there is likely to be an increase in warranty claims as we approach the expiry of 12 and 24 month warranty clauses of agreements entered into in the wake of the Covid-19 pandemic.
Continued growth in class actions is expected generally this year, following a 2023 report which confirmed that the value of UK class actions was up by a third to £106 billion. This is further illustrated by the news in November 2023 that the UK Competition Appeal Tribunal has provisionally given the go-ahead to a £853 million opt-out class action against Apple on behalf of UK iPhone users.
Further, the EU Collective Redress Directive is finally in force. While few member states have fully implemented its provisions, it is likely to have a major effect on future class actions. The central requirement of the directive is that member states must make at least one representative action process available to consumers. Amongst other things, the directive also enables consumers from one member state to join proceedings in other member states (on an opt-in basis). Where injunctive relief is sought, on the other hand, an opt-in mechanism is not required.
Towards the end of last year, HM Treasury confirmed its final proposals for the UK’s future regulatory regime for crypto assets. In essence, the proposal confirms that crypto assets will be regulated in an expansive way, although the draft secondary legislation is not expected until sometime this year.
How the regulation of the crypto industry will unfold is not yet clear, but in the meantime there have been a number of recent injunction applications involving crypto assets, for example, the 2023 case of Piroozzadeh v Persons Unknown and Others. In this case, the court rejected a proprietary injunction against crypto asset exchange Binance Holdings Limited, which was not a named party, but was considered to be connected to these proceedings, on the basis that Binance would need to be named as a third party first. For more information on this case, see this recent article here.
The Payment Systems Regulator (PSR) has announced a mandatory reimbursement scheme for authorised push payment (APP) fraud, coming into force in October 2024. Whilst this is obviously a move in the right direction to protect consumers, from a legal perspective, there are concerns that it will cause friction with other legal requirements, notably the existing FCA consumer duties in this area. For example, the PSR expects payment system providers to expand bespoke warnings for different types of customers and improve fraud recovery measures, despite the fact that such steps could create difficulties for customers.
The Supreme Court has recently overturned the Court of Appeal in Philipp v Barclays Bank to determine that the Quincecare duty does not apply to APP fraud in circumstances where customers expressly authorise banks to make the payment. Looking ahead to this year, it is likely that the significance of this decision will fall away, in part owing to the implementation of the PSR scheme. However, it will continue to have an impact in more substantial APP fraud cases, where the money is transferred internationally and the PSR scheme will not apply.
The recent high profile controversy surrounding business tycoon Baroness Michelle Mone has further fuelled the SLAPPs debate. Baroness Mone’s admission that she was in fact involved in a medical equipment company (despite previous public and media denials) triggered renewed calls for the need to curb abusive pre-action correspondence made against public and media bodies by lawyers instructed on behalf of high profile and wealthy clients.
In recent news, the newly introduced Economic Crime and Corporate Transparency Act includes the first anti-SLAPP provision in UK legislation, enabling judges to strike out SLAPP claims involving economic crime. As the new reforms against SLAPPs move one step closer, the impact this will have on pre-action litigation, and whether the right balance will be achieved, waits to be seen.
Strategically, more claims are expected to move toward arbitration or other forms of dispute resolution in the search for a speedier resolution than litigation. The reformed UK Arbitration Act 1996 will therefore be key moving forwards. For example, the introduction of express provision for summary disposal of claims or issues where a party is considered to have no real prospects of success is a significant change.
Further, the reforms to the legislation provide the necessary clarification as to the court’s powers against third parties. In short, the legislation now confirms that court orders can be made against third parties and that third parties shall have the usual rights of appeal to the court.
Alternatively, it is anticipated that court delays may be used as a bargaining tool to exert pressure on other parties. The fact that it is not unusual for litigation to take in the region of two years to conclude may assist some parties in overall strategy.
It is worth flagging here that the courts are, of course, alive to unavoidable delays and are considering further measures. One example is the fact that mediation is now in force and compulsory for claims valued at £10,000 or less, and it is expected that this will be implemented for higher value claims in the future. The Court of Appeal has recently handed down its judgment in Churchill v Merthyr Tydfil. In summary, the appeal was allowed in part, to determine that the courts can effectively stay proceedings to order parties to engage in non-court dispute resolution.
The only safe conclusion is that 2024 will contain uncertain swells for businesses to navigate, but this also represents opportunities for the forewarned and fleet footed.
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