Corporate and Commercial Disputes Update - May 2022

In this issue: Welcome to our corporate and commercial disputes update, the bi-annual publication in which we summarise some of the most significant decisions from corporate and commercial cases in the English courts. This edition includes: Executive Summary 2 Representing claimants: the rise of the class action 3 Wasted expenditure is not the same as loss of profit: Soteria (formerly CIS) v IBM 9 Warranty claims and the duty to mitigate: Equitix v Fox 12 Reliance on force majeure in the face of sanctions: MUR Shipping v RTI 14 Lord v Maven Wealth: the perils of untidy drafting 16 Directors' duties to avoid conflicts of interest – how long do they last? Burnell v Trans-Tag Ltd 18 Declarations do not bar claims for subsequent relief: Zavarco plc v Nasir 22 The boundaries of causing loss by unlawful means: Secretary of State for Health v Servier 24 No privilege for fishing expeditions: Kyla Shipping v Freight Trading Ltd 27 Clarification that litigation privilege and legal advice privilege are not mutually exclusive: Loreley Financing v Credit Suisse 30 Revoking permission for expert evidence: Andrews v Kronospan 32 Why choose Stephenson Harwood? 34 Contacts 35 Corporate and Commercial Disputes Update – May 2022

CORPORATE AND COMMERCIAL DISPUTES UPDATE – MAY 2022 Executive Summary This update starts with our analysis of the Supreme Court's judgment in Lloyd v Google. While the decision relates to data protection litigation, its impact on the availability of representative actions more widely is significant. Amongst other things, we consider the extent to which the Supreme Court has lowered the bar for establishing that claimants have the 'same interest' in the claim and what this means for the future of representative actions. Next, we consider two cases highlighting the approach taken by the English courts to questions of contractual interpretation. In Soteria (formerly CIS) v IBM, the Court of Appeal clarified the approach to exclusion clauses. Overturning the first instance decision, the Court of Appeal held that for a clause to exclude liability for catastrophic non-performance, clear and obvious words to that effect would be required. In Equitix v Fox the court considered the interpretation of clauses requiring parties to take 'reasonable action', concluding that it does not mean 'best endeavours' and does not require commencing uncertain litigation. Both cases emphasize the importance of ensuring that limitations on the scope of liabilities reflect the parties' agreed positions. Reasonable endeavours also feature in a decision relating to force majeure and sanctions. In MUR Shipping BV v RTI, the Commercial Court highlighted that a requirement to use reasonable endeavours to overcome a force majeure event will not extend to obliging a party to accept anything other than contractual performance. This decision is likely to have relevance for many parties currently considering the scope of their contractual obligations as a result of the recent imposition of sanctions. Company disputes continue to dominate much of the litigation before the English courts and we highlight two interesting examples. In Lord v Maven, the court ruled on a dispute about the process for determining the fair value of shares where an alleged conflict existed between the shareholders' agreement and the articles of association. In Burnell v Trans – Tag, the court provided some welcome clarity on the duty to avoid conflicts of interest post-termination of a directorship under the Companies Act 2006. Next, we consider two important judgments in which the scope of legal doctrines has been clarified. In Zavarco v Nasir, the Court of Appeal unanimously decided that the doctrine of merger, which prevents a party from seeking further relief on the same cause of action following judgment, does not apply to a judgment for declaratory relief only. This is a reassuring decision for parties seeking a quick and cost-effective way of resolving disputes about contractual interpretation without prejudicing their ability to bring a claim to enforce those rights. In Secretary of State for Health v Servier, we consider the Supreme Court’s decision on the tort of causing loss by unlawful means. In an important judgment, the court confirmed that the tort requires the unlawful means to have interfered with a third party's freedom to deal with the claimant specifically. Absent a good reason (such as an injustice which could not otherwise be remedied), it seems unlikely that the boundaries of this tort will be further expanded in the near future. Finally, we consider a trio of decisions on expert evidence and privilege. In Kyla Shipping v Freight Trading Limited, the court confirmed that litigation privilege will not attach to an expert instruction unless specific adversarial litigation is reasonably contemplated. Where an expert was instructed in the hope of finding something to litigate about, those communications were not protected by litigation privilege. This decision is a clear reminder of the need to think carefully about privilege before creating communications with third parties, such as experts, which may ultimately be disclosable. In Loreley Financing v Credit Suisse, in determining whether the identity of individuals authorised to communicate with lawyers could be privileged, the court confirmed that litigation privilege and legal advice privilege can apply to the same communication. In Andrews v Kronospan, we examine a judgment in which the ultimate sanction – revocation of permission to rely on the expert – was imposed as a result of breaches of duty on the part of the claimants' expert and their solicitors. The court highlighted the importance of preserving the integrity of the expert discussion process and parties should remain in no doubt of the serious danger to their position when experts cross the line from impartiality into advocacy. We hope you enjoy this update on some of the recent cases we consider to be of particular interest. If you would like any further information on any of the issues raised or, indeed, how we might help you, please get in touch using the contact details set out below. Sue Millar Partner T: +44 20 7809 2329 E: Kate Cordery Partner T: +44 20 7809 2397 E:

CORPORATE AND COMMERCIAL DISPUTES UPDATE – MAY 2022 Representing claimants: the rise of the class action In Lloyd v Google LLC [2021] UKSC 50, the Supreme Court1 unanimously agreed that Mr Lloyd's claim against Google for breach of his (and those of 4 million other Apple iphone users) data protection rights under s13 of the Data Protection Act 1998 (the "DPA") should not proceed. In a judgment which will have a profound effect on collective redress, both in the context of data protection litigation and more generally, and which will be welcomed by data controllers and by the cyberinsurance industry, the Supreme Court overturned the decision of the Court of Appeal (summarised here). Restoring Warby J's finding at first instance, it held that damages for breach of the DPA are not actionable without proof of financial loss or distress. While the Supreme Court disagreed with Warby J's characterisation of the claim as "officious litigation", accepting that representative actions under CPR 19.6 are available in damages claims, it held that such actions cannot proceed where there is no evidence of damage to any claimant, still less the entire class. 1 Lord Leggatt providing the leading judgment with which with whom Lord Reed, Lady Arden, Lord Sales and Lord Burrows agreed. Summary of key points • Damages for non-trivial breaches of s13(1) of the DPA require proof of financial loss or distress, "loss of control" of personal data is not enough. • Damages for the tort of misuse of private information and damages for a claim for breach of data protection legislation are not subject to the same test. The former is a strict liability tort where damages are available per se, the latter require proof of damage. • The "same interest" test for representative actions does not mean that each claimant needs to have identical claims or interests. The requirement is that the representative's interests do not conflict with those of others. Providing there is no conflict, there is no reason in principle why all should not be represented by the same person. • Representative actions may be brought for damages claims but, save in exceptional circumstances, where the claimants have suffered the same loss, it may be preferable for these to be brought in two stages; a claim for a declaration on liability brought by a representative followed by claims for damages by individuals or groups of individuals. • The judgment relates only to damages claims for data protection rights under the DPA, not claims brought under the UK GDPR and the Data Protection Act 2018 or to claims for misuse of private information, and there may still be scope for representative actions to be pursued in relation to such claims.

CORPORATE AND COMMERCIAL DISPUTES UPDATE – MAY 2022 Background The background to the claim and the decisions of Warby J and Court of Appeal are summarised in our earlier article. In brief summary, Mr Lloyd was refused permission to serve Google outside of the jurisdiction at first instance, with Warby J characterising the attempt to use a representative action as "officious litigation, embarked upon on behalf of individuals who have not authorised it." This decision was reversed by the Court of Appeal, who concluded that the authorisation of the members of the class or otherwise was irrelevant, and that the litigation was the only way of obtaining a civil compensatory remedy for what, if proved, was a "wholesale and deliberate misuse of personal data without consent, undertaken with a view to commercial profit". The main focus of the Supreme Court's decision was the circumstances in which damages can be awarded under s13(1) of the DPA, but the judgment also contains significant analysis on the representative action procedure generally, and its applicability to claims for damages. Can damages be awarded simply for "loss of control" of personal data under s13(1) of the DPA or must there be evidence of financial loss or mental distress? The Supreme Court concluded that s13(1) of the DPA cannot reasonably be interpreted as conferring a right to compensation for a breach without evidence of financial loss or mental distress. A distinction is drawn in the wording of the statutory provision between a "contravention" by a data controller and "damage" being suffered by an individual. Compensation is only available where the contravention leads to damage occurring, not more generally as Mr Lloyd had contended. In Google v Vidal-Hall1, the Court of Appeal established that damages for distress could be awarded under s13(1) of the DPA but only by disapplying section 13(2) of the DPA (which provided that damages under the DPA were only available for material damage, not distress) as incompatible with EU law. The Supreme Court found no basis for Mr Lloyd's contention that EU law provided a wider meaning to the term "damage" than that given by the Court of Appeal in Vidal Hall. 1 Vidal-Hall v Google [2015] EWCA Civ 311. Analogy with the tort of misuse of private information? The Supreme Court also dismissed the suggestion that the principles identified in the High Court's decision in Gulati v MGN2(a claim in which damages were awarded for the "loss of control" of personal data under the tort of misuse of private information) should apply to a claim under s13(1) of the DPA. Mr Lloyd argued that because they both derive from the same "common source", namely the right to privacy under Article 8 of the European Convention for the Protection of Human Rights and Fundamental Freedoms (the "Convention"), it would be wrong to adopt different approaches to the question of damage in these claims. However, the Supreme Court disagreed. Simply because two different legal regimes aim, in general terms, to provide protection for the same fundamental values does not mean they must do so in exactly the same way or by providing identical remedies. The protection afforded by the DPA and the Data Protection Directive extends far beyond the scope of Article 8 of the Convention. Crucially, it applies to all "personal data", not just confidential or private information in respect of which there is a "reasonable expectation of privacy". The reasonable expectation of privacy, a critical component of the claim in Gulati, was wholly lacking in the way in which Mr Lloyd had presented this case. This point, the Supreme Court held, went to the heart of the issue: "[s]tripped to its essentials, what the claimant is seeking to do is to claim for each member of the represented class a form of damages the rationale for which depends on there being a violation of privacy, while avoiding the need to show a violation of privacy in the case of any individual member of the class. This is a flawed endeavour." The Supreme Court also identified that the tort of misuse of private information is a strict liability tort, not a tort based on a "want of care". Data protection legislation, on the other hand, is "similar to an allegation of negligence in that it is predicated on failure to meet an objective standard of care rather than on any intentional conduct." To permit compensation for a failure to take reasonable care to protect personal data without requiring proof of material damage or distress would be "anomalous" when failure to take care to prevent personal injury or damage to tangible moveable property does require such proof. In conclusion, the analogy between the privacy tort and data protection legislation was "positively inappropriate". 2 Gulati v MGN Limited [2015] EWHC 1482 (Ch).

CORPORATE AND COMMERCIAL DISPUTES UPDATE – MAY 2022 User damages and alternative ways on which the claim was advanced A claim for user damages means a claim for the wrongful use of an individual's property, where the economic value of that use can be quantified by the hypothetical fee that would have been agreed to permit use. Because of the Supreme Court's interpretation of the requirement to prove financial loss or distress in a claim under s13(1) of the DPA, the alternative basis upon which the claim was put, that is for "user damages", was not available. However, the Supreme Court considered the issue carefully, recognising "information about a person’s internet browsing history is a commercially valuable asset" and that "the law should not be prissy about awarding compensation based on the commercial value of the exercise of the right". It also saw no tension in asserting that information can at once be private, as well as a commercially valuable asset: "some people are happy to exploit for commercial gain facets of their private lives which others would feel mortified at having exposed to public view. Save in the most extreme cases, this should be seen as a matter of personal choice on which it is not for the courts to pass judgments". The question as to why no claim was made by Mr Lloyd for misuse of private information (or for damages for distress under the DPA) was also considered. In VidalHall, the Supreme Court noted that the claimants produced confidential schedules showing the internet use and the information tracked, which was of an extremely private nature. It observed (no doubt accurately) the difficulty in obtaining that evidence on behalf of the 4 million members of the potential opt-out claimant class might be the reason why Mr Lloyd instead sought to "break new legal ground" by applying the principles of the tort of misuse of private information to a claim under the DPA. Should the claim be permitted to proceed as a representative action pursuant to CPR 19.6? The decision on the availability of a claim under s13(1) of the DPA without evidence of damage or distress effectively precluded the claim from proceeding at all. However, the Supreme Court analysed the law on representative actions in detail. Although there is undeniably criticism of the approach adopted by Mr Lloyd in this case, the Supreme Court recognised the need for the "flexible tool" of representative actions, particularly in an age where digital technologies have significantly increased the potential for mass harm and, accordingly, the need for collective redress. The following points are likely to be of significance for future representative actions: The "same interest" test The Supreme Court emphasised that the "same interest" test must be interpreted purposively and pragmatically in order to comply with the overriding objective of the CPR and the rationale for the representative procedure. In a shift of emphasis from previous interpretations, it held that its purpose is to ensure that the representative can be relied on to conduct the litigation "in a way which will effectively promote and protect the interests of all the members of the represented class. That plainly is not possible where there is a conflict of interest between class members, in that an argument which would advance the cause of some would prejudice the position of others." The focus on the avoidance of conflict and the motivation for all represented parties to be bound by the same judgment signals a move away from the more rigid interpretation of the "same interest" test. Instead of meaning that each claimant needs to have identical claims, the Supreme Court indicated that as long as advancing the representative's claim would not prejudice the position of others (even with divergent interests), there is no reason in principle why all should not be represented by the same person. The Supreme Court also recognised that the modern realities of collective redress claims are very different from those prevalent at the outset of the representative action procedure. Instead of the claimant class being reliant upon one individual to "pursue vigorously lines of argument not directly applicable to their individual case", the current context is that "proceedings brought to seek collective redress are … typically driven and funded by lawyers or commercial litigation funders with the representative party merely acting as a figurehead."

CORPORATE AND COMMERCIAL DISPUTES UPDATE – MAY 2022 The ability to "opt out" The Supreme Court clarified that a representative action does not provide an inherent right for a member of the represented class to opt-out. There is, in principle, no need for a member of the class to even be aware of the claim in order to be bound by the result. However, it highlighted that the judge managing proceedings can impose a requirement to notify members of the class of the proceedings and provide a mechanism for opting out of the representative action or to limit the class to those who have expressly opted in, noting "the procedure is entirely flexible in these respects". The Supreme Court also noted that, in principle, and without making a formal finding on this issue, a representative action may be brought on the basis that members of the class may be restricted in recovering the full loss they had suffered by virtue of the claim being pursued on a lowest common denominator basis3. Damages It is not a bar to a representative claim that the relief claimed is for damages, but the nature of damages claims (which normally require an individualised assessment) can mean a representative action is "not a suitable vehicle". Where individualised assessment is unavoidable, the Supreme Court advocated the possibility of first deciding common issues of law or fact through a representative claim, leaving issues of quantum to be dealt with on an individual basis if necessary. Where damages claimed in a representative action can be calculated on a basis common to all members of the 3 Lord Leggatt noted: "I am prepared to assume, without deciding, that as a matter of discretion the court could - if satisfied that the persons represented would not be prejudiced and with suitable arrangements in place enabling them to opt out of the proceedings if they chose - allow a representative claim to be pursued for only a part of the compensation that could potentially be claimed by any given individual." 4 Lord Leggatt noted: "[t]he recovery of money in a representative action on either basis may give rise to problems of distribution to the members of the class, about which the representative rule is silent. Although in Independiente Morritt V-C was untroubled by such problems, questions of considerable difficulty would arise if in the present case Page 31 the claimant was awarded damages in a representative capacity with regard to how such damages should be distributed, including whether there would be any legal basis for paying part of the damages to the litigation funders without the consent of each individual entitled to them: see Mulheron R, “Creating and Distributing Common Funds under the English Representative Rule” (2021) King’s Law Journal 1-33. Google has not relied on such difficulties as a reason for disallowing a representative action, however, and as these matters were only touched on in argument, I will say no more about them." 5 Lord Leggatt noted: "[o]n the claimant’s own case there is a threshold of seriousness which must be crossed before a breach of the DPA 1998 will give rise to an entitlement to compensation under section 13. I cannot see that the facts which the claimant aims to prove in each individual case are sufficient to surmount this threshold. If (contrary to Page 56 the conclusion I have reached) those facts disclose “damage” within the meaning of section 13 at all, I think it impossible to characterise such damage as more than trivial. What gives the class, there is no reason why the remedy cannot be pursued on that basis. Although the Supreme Court noted in relation to competition claims pursued under 47C(2) of the Competition Act 1998 that damages can be awarded on an aggregate basis and allocated under the Court's direction, save for noting that difficulties may be encountered in relation to distribution of damages in the context of representative actions, and that the rule on representative actions was silent on that point, the Supreme Court expressly declined to address it4. Suitability of a representative action in this case Even if its conclusion on the requirement to prove financial loss or distress were wrong, the Supreme Court held that the claim would not have succeeded as a representative action because of Mr Lloyd's failure to identify unlawful processing of data which had affected the claimant class. In the absence of evidence other than the fact that the claimant class had iphones running the relevant model at the relevant time, the Supreme Court held that the damage could not be characterised as more than "trivial"5. Assuming still further the conclusion that the unavailability of user damages were wrong, the Supreme Court also held that in the absence of any evidence as to unlawful processing of data, the user damages would have been valued at nil in any event by virtue of the way that the claimant class had been constructed6. appearance of substance to the claim is the allegation that Google secretly tracked the internet activity of millions of Apple iPhone users for several months and used the data obtained for commercial purposes. But on analysis the claimant is seeking to recover damages without attempting to prove that this allegation is true in the case of any individual for whom damages are claimed. Without proof of some unlawful processing of an individual’s personal data beyond the bare minimum required to bring them within the definition of the represented class, a claim on behalf of that individual has no prospect of meeting the threshold for an award of damages." 6 Lord Leggatt noted: "the starting point would therefore need to be to establish what unlawful processing by Google of the claimant’s personal data actually occurred. Only when the wrongful use actually made by Google of such data is known is it possible to estimate its commercial value. As discussed, in order to avoid individual assessment, the only wrongful act which the claimant proposes to prove in the case of each represented person is that the DoubleClick Ad cookie was unlawfully placed on their device: no evidence is - or could without individual assessment - be adduced to show that, by means of this third party cookie, Google collected or used any personal data relating to that individual. The relevant valuation construct is therefore to ask what fee would hypothetically have been negotiated for a licence to place the DoubleClick Ad cookie on an individual user’s phone as a third party cookie, but without releasing Google from its obligations not to collect or use any information about that person’s internet browsing history. It is plain that such a licence would be valueless and that the fee which could reasonably be charged or negotiated for it would accordingly be nil."

CORPORATE AND COMMERCIAL DISPUTES UPDATE – MAY 2022 What the Supreme Court would have been prepared to entertain was a bifurcated approach, whereby a representative action was pursued for a declaration on liability that damage had been suffered, with separate actions by individual claimants pursuing damages where financial loss or distress had been suffered parasitic on such a finding. As above, it noted that such an approach may not have been attractive, or indeed viable, for those funding the litigation. It is also worth noting that the Supreme Court's judgment envisages an involved process in this regard7. Conclusions The impact on collective redress The Supreme Court has made it clear that representative actions are permissible – even in damages claims – provided they can be properly articulated and managed. It has also potentially lowered the bar for establishing the "same interest" test, placing the emphasis on the avoidance of conflicting interests rather than establishing identical claims. Therefore, we can expect more activity in this regard, particularly in cases where losses are consistent amongst members of the affected class. With regard to the future of representative actions in the context of data breaches, the Supreme Court's decision has undoubtedly significantly restricted the scope for pursuing such claims, which will be welcomed by data controllers and by the cyber-insurance industry. However, amongst other things it is worth noting: • a clear precedent has now been established in relation to the availability of damages under s13(1) of the DPA. Compensation is not available without proof of financial loss or distress. However, the Supreme Court restricted itself to consideration of the application of the DPA (which has now been repealed), not the present UK GDPR regime. Under the UK GDPR (as implemented in the UK by the Data Protection Act 2018), the compensation provision is wider, providing for redress in respect of both material and non-material damages and specifically referring to loss of control of data8 as an example of the type of damage which may flow from a personal 7 Lord Leggatt noted: "[i]n deciding what amount of damages, if any, should be awarded, relevant factors would include: over what period of time did Google track the individual’s internet browsing history? What quantity of data was unlawfully processed? Was any of the information unlawfully processed of a sensitive or private nature? What use did Google make of the information and what commercial benefit, if any, did Google obtain from such use?". 8 Recital 85 of UK GDPR notes: "A personal data breach may, if not addressed in an appropriate and timely manner, result in physical, material or non-material damage to natural persons such as loss of control over their personal data or limitation of their rights, discrimination, identity theft or fraud, financial loss, unauthorised reversal of pseudonymisation, damage to reputation, loss of data breach. This opens the possibility that the result may therefore have been different under the UK GDPR, albeit a linguistic distinction between contravention and damage remains in the legislation9; and • it has been made clear that claims for misuse of private information are actionable per se, and user damages are recoverable in such claims, meaning that in appropriate circumstances, claims which might otherwise have been pursued for breaches of relevant data protection legislation may instead be pursued for misuse of private information. However, it is worth noting in this regard that claims pursuant to Article 32 of UK GDPR arising from non-deliberate data breaches (i.e. hacks) cannot be recharacterised in this way following the decision in Warren v DSG Retail Ltd [2021] EWHC 2168 (QB) (as to which see here). As the Supreme Court noted: "[t]he privacy tort, like other torts for which damages may be awarded without proof of material damage or distress, is a tort involving strict liability for deliberate acts, not a tort based on a want of care." It therefore remains to be seen whether this really is the end of the road for representative actions in the context of breaches of data protection legislation in the English Court on the current state of the law. The position is likely to become more apparent as the various other claims which are afoot before the English Court which are being advanced on a similar basis, some of which had been stayed pending the Supreme Court's decision10, proceed. Of course, putting to one side the viability of representative actions in the context of breaches of data protection legislation, it remains open to pursue such claims pursuant to group litigation orders ("GLOs") in any event. However, as explained in more detail in our article here, many claims which might otherwise have been pursued as representative actions are unlikely to be pursued as GLOs, as claimants (and, more importantly, their funders) may be unable to find an appropriate balance between the amount it will cost to build and manage a viable class and the amount likely to be recovered. It may be that the bifurcated confidentiality of personal data protected by professional secrecy or any other significant economic or social disadvantage to the natural person concerned." 9 Article 82(1) of UK GDPR provides: "[a]ny person who has suffered material or non-material damage as a result of an infringement of this Regulation shall have the right to receive compensation from the controller or processor for the damage suffered." 10 For example, the claims against SalesForce and Oracle (Rumbul v Oracle Corporation and others), Marriott (Rumbul v Oracle Corporation and others), Facebook (Carpio v Facebook, Inc and another), TikTok (SMO A child by Anne Longfield her Litigation Friend v TikTok Inc. and others), YouTube (McCann and others v. Google Ireland Ltd.) and Experian (Williams v Experian Limited).

CORPORATE AND COMMERCIAL DISPUTES UPDATE – MAY 2022 approach proposed by the Supreme Court could, on further analysis, provide a potentially viable solution in this regard. However, there are obvious stumbling blocks that would need to be surmounted for this to be the case. Statutory change? As we reported here, in a report published by DCMS in February 2021, it was confirmed that there would be no change to the current regime to allow non-profit groups ("NPGs") to pursue opt-out data protection claims on behalf of individuals without their permission. DCMS' approach was summarised as follows: "The government has considered the arguments for and against implementing Article 80(2) of the UK GDPR which would permit non-profit organisations to represent individuals without their authority. The current regime already offers strong protections for individuals, including vulnerable groups and children, and routes for redress. In the government’s view, there is insufficient evidence of systemic failings in the current regime to warrant new opt-out proceedings in the courts for infringements of data protection legislation, or to conclude that any consequent benefits for data subjects would outweigh the potential impacts on businesses and other organisations, the ICO and the judicial system." In reaching this view specific mention was made of these proceedings as an example of the existing routes of redress available. It remains to be seen whether DCMS is now minded to reconsider whether, in fact, a new statutory regime is required to ensure that adequate access to justice is available to consumers in the context of breaches of data protection legislation. For the reasons set out above, following the Supreme Court's decision, it is highly doubtful that this is the case. Genevieve Quierin Partner T: +44 20 7809 2174 E: Ben Sigler Partner T: +44 20 7809 2919 E: Harriet Campbell Senior Knowledge Development Lawyer T: +44 20 7809 2517 E:

CORPORATE AND COMMERCIAL DISPUTES UPDATE – MAY 2022 Wasted expenditure is not the same as loss of profit: Soteria (formerly CIS) v IBM In Soteria Insurance Ltd v IBM United Kingdom Ltd1, the Court of Appeal has clarified the approach to interpreting exclusion clauses. Overturning the first instance decision of O'Farrell J, it found that Soteria's claim for wasted expenditure did not fall within an exclusion of liability clause which excluded claims for 'loss of profit, revenue savings… (in all cases whether direct or indirect)…' (the 'Exclusion Clause'). The Court of Appeal determined that the natural and ordinary meaning of the words used did not exclude wasted expenditure. When analysing an exclusion clause, the more valuable the right, the clearer the language of the clause must be. Had the parties intended the contract-breaker to avoid liability for a 'catastrophic non-performance', clear and obvious exclusionary words to that effect would have been required. Finally, the Court of Appeal concluded there were a number of good reasons for distinguishing wasted expenditure from loss of profits generally. As a result, Soteria's award of damages was increased by some £80 million. Background The background to the underlying dispute is summarised in our article on the first instance decision here. In brief, Soteria contracted with IBM to provide a new IT system (the 'System'). The implementation was not a success and following a disputed invoice and disputed attempt to terminate by IBM, Soteria accepted 1 [2022] EWCA Civ 440 (04 April 2022) IBM's repudiatory breach of contract and sued for it damages for the failure to implement the System. Soteria's primary claim was for wasted expenditure of £128 million. In the alternative, it claimed £27.2 million in additional resource and third-party costs which it would not have incurred but for IBM’s breaches of contract. The decision at first instance IBM argued the claim was excluded by the Exclusion Clause because the actual loss to Soteria was the profit, revenue or savings through which the 'wasted expenditure' would have been recouped, but for the breach. It therefore fell within the definition of a claim for 'loss of profit, revenue or savings'. Soteria argued that the claim was not one for loss of profits. Its claim for wasted expenditure was, it argued, a claim to put it into a 'break-even position' rather than to recompense it for lost profit. At first instance, O'Farrell J concluded that she had correctly summarised the position in her judgment in The Royal Devon and Exeter NHS Foundation Trust v ATOS IT Services UK Ltd [2017] EWHC 2197 (TCC) in which she held that (emphasis added): 'a claim for wasted costs can be explained as compensation for the loss of the bargain based on a rebuttable presumption that the value of the contractual benefit must be at least equal to the

CORPORATE AND COMMERCIAL DISPUTES UPDATE – MAY 2022 amount that the claimant is prepared to expend in order to obtain such benefit.' However, she held that the 'bargain' made by Soteria was to achieve profit, revenue and savings from the System. Although the claim was framed as one of 'wasted expenditure', fundamentally it remained a claim for loss of profit, revenue or savings and was therefore excluded by the contract. The Court of Appeal's analysis2 The Court of Appeal3 considered the nature of a claim for wasted expenditure. While the starting point remains the 'compensatory principle', it acknowledged there are difficulties in claims for wasted expenditure where, in reality, the expenditure would never have been recouped even if the contract had been performed (for example, because the contract was a bad bargain). However, the Court of Appeal concluded that the decision of Leggatt J (as he then was) in Yam Seng PTE Limited v International Trade Corporation Limited [2013] EWHC 111 (QB) was authority for there being a rebuttable presumption that expenditure incurred in reliance on the Defendant's performance of the contract will be recouped. While Yam Seng addressed the concept of wasted expenditure and the rebuttable presumption, it did not do so in the context of an exclusion clause. The Court of Appeal therefore turned to O'Farrell J's own analysis in Royal Devon and Exeter. In that case, an exclusion clause (similar to the clause in issue in the instant appeal) did not preclude an NHS trust from recovering its wasted expenditure because it was characterised as a claim for the primary benefit of the contract (in that case a functioning system) and not for a subsidiary benefit (such as profit or saving) excluded by the exclusion clause. 2 In addition to determining the extent to which the decision of O'Farrell J in relation to the impact of the exclusion clause should be upheld, the Court of Appeal dealt with various other issues which had been raised on appeal by both parties, including the extent to which IBM had, in However, where the Court of Appeal departed from O'Farrell J was her conclusion that the nature of the wasted expenditure in Royal Devon only fell outside of the exclusion for loss of profit because the contractual benefit was 'wholly non-pecuniary'. The five reasons why the first instance decision was wrong The Court of Appeal held there were five main reasons why the decision at first instance was unsound. • The natural and ordinary meaning of the words The parties did not include the term 'wasted expenditure' in the exclusion clause. A reasonable person in the position of the parties would not understand 'loss of profit, revenue, savings' as covering a claim for expenditure incurred, but wasted because of the other party's repudiatory breach. • The proper approach to exclusion clauses Clear language is needed to exclude obvious remedies. The more extreme the consequences, the more stringent the Court must be before construing a clause in a way which allows a contract-breaker to avoid liability. The clause in issue had not been drafted with sufficient clarity to exclude a claim for wasted expenditure in the event of a repudiatory breach of contract, nothing in its drafting suggested that this outcome ought to arise. • Distinguishing different types of loss The types of loss excluded (profit, revenue, savings) were all of a similar kind and could be considered to be types of consequential loss. They each depend on counterfactuals and involve at least an element of speculation. Claims for wasted expenditure are an 'entirely different animal' because they are wholly ascertainable. • Loss of the bargain The clause sought to exclude certain types of loss flowing from the underlying loss of bargain but not others. The Court of Appeal construed the bargain as primarily represented by the provision of a functioning IT system, not just (as IBM argued) by the profits, savings and revenue which would be generated by the System. fact, repudiated the contract (the Court of Appeal considered that O'Farrell J had correctly held this to be the case). 3 A panel of Coulson and Phillips LJ and Zacaroli J, with the leading judgment provided by Coulson LJ.

CORPORATE AND COMMERCIAL DISPUTES UPDATE – MAY 2022 • Recoupment and the result in Royal Devon The question of construction of the exclusion clause could not turn on whether any given contract was primarily pecuniary or non-pecuniary as that would create extreme uncertainty. There are many contracts where the anticipated benefits might be a mixture of pecuniary and non-pecuniary benefits, for example IT systems which were contracted for to provide greater profits but also greater efficiency and a happier workforce. The Court of Appeal found that although O'Farrell J's finding in Royal Devon that wasted expenditure was, in principle, recoverable was correct, her reasoning that this was only because such expenditure gave rise to a nonpecuniary benefit was unsound. Comment Limiting or excluding liability for loss of profits is standard in many contracts. Many were surprised, however, by the first instance decision that standard wording used in such clauses also operated to exclude wasted expenditure. Indeed, specific criticism of the first instance decision by Professor Edwin Peel was cited with approval in the judgment. While every case will turn on its own facts, the Court of Appeal's decision reinforces the English courts' approach to the interpretation of contracts. The Court of Appeal considered a range of issues including the difference between reliance and expectation loss, and the nature of a claim for wasted expenditure. Fundamentally, however, the primary focus was what the clause in dispute actually said. For a clause to exclude liability for a potentially 'catastrophic' failure of performance, the Court of Appeal confirmed that very clear words would be required. Accordingly, parties who wish to exclude claims for wasted expenditure need to do so expressly, rather than seeking to rely on a general exclusion for loss of profits. Ben Sigler Partner T: +44 20 7809 2919 E: Harriet Campbell Senior Knowledge Development Lawyer T: +44 20 7809 2517 E:

CORPORATE AND COMMERCIAL DISPUTES UPDATE – MAY 2022 Warranty claims and the duty to mitigate: Equitix v Fox The judgment in Equitix EEEF Biomass 2 Ltd v Fox1 highlights the need to take care when drafting requirements for parties to take "all reasonable action", "all reasonable endeavours" or "best endeavours". But what do these clauses actually mean and what are the key differences between them? In the view of Kerr J, "all reasonable action" means "action it would be unreasonable not to take". Arguably, that doesn't take the analysis much further forward. However, the judgment goes on to confirm that reasonable action does not include embarking on "expensive and uncertain litigation". It is not akin to an obligation to use "best endeavours" and, in effect, simply mirrors the common law duty to mitigate loss. The judgment also addresses the question of corporate knowledge in relation to warranty breaches. Background The Claimant buyer ("Equitix") purchased the entire issued share capital of a Biomass company ("Gaia") from the Defendants under a share purchase agreement (respectively, the "Sellers" and the "SPA"). Gaia supplied steam from biomass boilers to a sole customer, Greenergy Biofuels Limited. The SPA contained detailed warranties from the Sellers about the business and its assets. The warranties were expressed to be given as subject to "Disclosed Matters". 1 [2021] EWHC 2531 (TCC) The negotiation for Equitix was led by two directors, Mr Cashin and Mr Archer, and Equitix confirmed in the SPA that it was not aware of any fact constituting or giving rise to a claim for breach of warranty: "[Equitix] confirms to the Sellers that, apart from the Disclosed Matters neither it nor any other member of the Buyer Group…is actually aware of any fact, matter, event or circumstance which constitutes a breach of Warranty…For this purpose, the Buyer and the relevant members of the Buyer Group shall be deemed to have knowledge of anything of which any of Ben Cashin and Egan Archer are actually aware of [sic] at the date of this Agreement." In addition to the Disclosed Matters, the SPA contained a limitation on liability in relation to matters within the buyer's knowledge: "The Buyer shall not be entitled to bring a claim and the Sellers shall have no liability to the Buyer where the facts and circumstances giving rise to the claim are within the actual knowledge of the Buyer (which for this purpose means the actual knowledge of Ben Cashin and Egan Archer at the date of Completion)." The warranties were further limited by a liability cap and a provision obliging Equitix to take (and procure that Gaia took):

CORPORATE AND COMMERCIAL DISPUTES UPDATE – MAY 2022 "all reasonable action to mitigate any loss suffered by it or the Company which would, could or might result in a claim…against the Sellers." After the SPA was entered into, Greenergy terminated its contract with Gaia. Thereafter, Equitix commenced proceedings for breach of various warranties. The Court found that numerous warranties were untrue and rejected the Sellers' arguments that: 1. the warranty claims were excluded by disclosure and / or the actual knowledge of Equitix; and 2. Equitix had failed to mitigate its loss by commencing legal proceedings. The scope of Equitix's knowledge The Sellers argued that the confirmation given in the SPA (that neither Equitix nor members of its group were aware of any breach of warranty) extended to knowledge of Equitix's agents and was not limited solely to the knowledge of Mr Cashin and Dr Archer. This meant, the Sellers argued, that Equitix was precluded from bringing a breach of warranty claim in circumstances where its agents were aware of circumstances giving rise to a claim. The Sellers differentiated between the limitation of liability for matters within Equitix's knowledge, for which the SPA specified that the actual knowledge of Mr Cashin and Dr Archer was required, and the confirmation, where it argued the clause was wider. However, the Court disagreed. It held that the reference to being "actually aware" in the confirmation meant the same as "actual knowledge" in the limitation on liability. Its interpretation was also influenced by the fact that the knowledge of Mr Cashin and Dr Archer as directors of Equitix would be imputed to the company in any event, meaning that unless the clause specifically referred only to matters of which Mr Cashin or Dr Archer were actually aware, the provision would be wholly unnecessary. Mitigation The Sellers contended that Equitix had failed to meet both its common law duty to mitigate loss and its contractual obligation to take "all reasonable action" to mitigate its loss, including by, amongst other things, failing to pursue and/or procure that Gaia pursued proceedings against Greenenergy arising out of the termination of its contract with Gaia. Again, the Court disagreed. The common law rule on mitigation of loss is not, in fact, a "duty" to mitigate loss at all. Rather, it is a rule which means that avoidable losses will not be recoverable if a Claimant acts unreasonably in not avoiding them. Further, where, as here, the measure of damages relates to the valuation of shares, the Court held that "steps taken or not taken by the buyer to mitigate its loss after the purchase are simply irrelevant. The loss has already crystallised at the point of purchase." In relation to the contractual duty to mitigate, the Court rejected the Sellers' argument that the clause imposed a "best endeavours" obligation. Instead, it held that the effect of the clause was to reintroduce the common law rule on mitigation of loss to the assessment of damages by reference to the diminution in share value (where, normally, it would be irrelevant). The contractual duty did no more than "mirror the common law standard, not… elevate it". Amongst other things, it was not unreasonable not to embark on expensive and uncertain litigation against Greenenergy and therefore this contractual obligation had not been breached. Comment This case emphasises the importance of ensuring that limitations on the scope of contractual warranties reflect the parties' agreed positions. Interpretation of clauses requiring parties to take "reasonable action" or "best endeavours" is notoriously difficult. In this case, the Court concluded that it was perfectly logical for the parties to have agreed to reintroduce the rule on mitigation of loss where it would not normally apply but without express wording, it found that taking reasonable action to mitigate loss meant no more than that. Ben Sigler Partner T: +44 20 7809 2919 E: Harriet Campbell Senior Knowledge Development Lawyer T: +44 20 7809 2517 E: harriet.campbell

CORPORATE AND COMMERCIAL DISPUTES UPDATE – MAY 2022 Reliance on force majeure in the face of sanctions: MUR shipping v RTI In MUR Shipping BV v RTI Ltd1, the Commercial Court affirmed a contracting party's right to invoke force majeure where the parent company of its counterparty is subject to sanctions. While this decision related to the US sanctions on Russian entities imposed in 2018, it is likely to have relevance for many parties currently considering the scope of their contractual obligations following the recent sanctions imposed as a result of the war in Ukraine. In this update, we examine the decision in MUR and the law on force majeure and reasonable endeavours generally. Force majeure The term force majeure has no universally recognised meaning in English law. As such, the concept of force majeure operates only to the extent contractually agreed. In light of this, contracts will often include sweep-up language to ensure that any force majeure events expressly included in a contract are not treated as exhaustive. In addition, drafters will look to include language to ensure that any party wishing to rely on a force majeure event makes efforts to avoid or mitigate the impact of the event. The recent case of MUR Shipping BV v RTI Ltd highlights that one of the most common of these provisions (that requiring the use of 'reasonable endeavours' to overcome the force majeure event) will not extend to obliging a party to accept anything other than contractual performance. MUR Shipping BV v RTI Ltd In MUR, the Commercial Court provided some helpful clarity on the scope of the ubiquitous 'reasonable endeavours' requirement in force majeure clauses. 1 [2022] EWHC 467 (Comm) Background In June 2016, MUR Shipping BV (the "Owners") entered into a contract of affreightment ("COA") with RTI Ltd (the "Charterers") for the shipment of approximately 280,000 metric tons per month of bauxite from Guinea to Ukraine. In April 2018, the US Department of the Treasury's Office of Foreign Assets Control ("OFAC") applied sanctions to the Charterers' parent company, adding them to the Specially Designated Nationals and Blocked Persons List. Payment of freight under the COA was specified to be in US dollars and it was agreed amongst the parties that, as any transfers in US dollars would be cleared by a US intermediary bank, US dollar payments would be delayed (or possibly rejected) as a result of the sanctions. This led to the Owners invoking a force majeure clause in the COA by sending a force majeure notice (the "FM Notice") on 10 April 2018. The term 'Force Majeure Event' was defined in the COA as an event which, among other conditions, "[could] not be overcome by reasonable endeavours from the Party affected". In sending the FM Notice, the Owners contended that: (i) the ongoing performance of the contract would constitute a breach of the sanctions placed upon RTI's parent company by OFAC; and (ii) that the sanctions would prevent the US dollar payments required by the COA. By response, the Charterers stated that sanctions would not interfere with cargo operations and noted that contractual payment under the COA could be made in Euros, with any resulting costs to be met by the Charterer. In reply, the Owners submitted that, pursuant to the COA, freight was to be paid in US dollars and that the likely delay in such payments would obstruct the load and discharge of cargo. Due to the occurrence of the purported force majeure event, the Owners refused to nominate vessels under the COA and the Charterers were required to obtain alternative tonnage at additional cost. On this basis, the Charterers brought arbitral proceedings against the Owners for the additional costs incurred in this process. Arbitration The arbitral tribunal held that the Owners' case on force majeure would have been successful, but for the fact that the force majeure could have been "overcome by reasonable endeavours" as per the terms of the COA. The tribunal considered that the Charterers' proposal to