This week’s blog is yet another word of caution for those navigating their way through litigation, with an eye on the concept by which English common law is defined – legal precedent.

Last year we published a blog about a High Court decision on a security for costs application[1]. The Judge in that case decided that a claimant company registered in the BVI should not have a refusal to provide information about its assets held against it when fighting a defendant’s application for security for costs. The Court of Appeal recently overturned that decision, holding that it was perfectly sound practice for security for costs to be granted against a foreign company which declines to reveal anything about its financial position. A recent case concerned with similar facts and heard only a day after the Court of Appeal decision was made public has highlighted how care must be taken when using legal precedents as the basis for tactical decisions in litigation[2].

Details

A Hong Kong company claiming in a dispute over ownership of a London casino business refused to volunteer information about its assets in the face of the defendant’s request for security for costs, so the defendant applied to court. At that point, the claimant took comfort from the decision of the High Court Judge in the Sarpd Oil case and, when a High Court Master came to hear the defendant’s application, the claimant argued that its refusal to volunteer information should not be held against it: after all, its refusal was made at a time (before the Court of Appeal had intervened) when it could expect any master hearing an application by the defendant to be bound by precedent. The Master was faced with an interesting question: would he have been bound by legal precedent to follow the High Court Judge in the Sarpd Oil case if the application had come before him prior to the release of the subsequent Court of Appeal decision?

The common law system is based on judicial precedent. This ensures that lower courts must take account of and follow decisions made by the higher courts, and that cases are decided the same way when their material facts are the same. This gives litigants and their lawyers some certainty in knowing how a lower court, or “court of first instance”, should treat their case. In terms of decisions made at the same level, the notion of judicial comity means that a High Court judge will usually follow the decision of a fellow High Court judge unless he or she is convinced that the first decision is wrong. In the present case, an additional question arose: did a High Court master have the same ability to depart from a decision of a High Court judge (albeit at the same court level) if convinced that the decision was wrong. The Master decided that he did.

The decisive factor for the Master, in the absence of any precedent on the specific point, was that the status of the court, rather than the judge, was what was important. In contrast with a county court judge being absolutely bound by a High Court decision, or an appeal court considering the decision of a lower court, a master exercising jurisdiction at first instance at High Court level has co-ordinate jurisdiction with a High Court judge hearing a case at the same level. Each should follow the other’s previous decisions unless convinced that they are wrong.

Regrettably for the Hong Kong company in the present case, their advisors should have warned them that they could not safely rely on the Sarpd Oil decision because there was a chance that any master deciding the defendant’s application for security for costs would decide to depart from it. As it turned out, by the time of the hearing the Master could confidently say that he would have done just that, safe in the knowledge that the Court of Appeal would have supported him.

For litigants in this jurisdiction, the case serves as a reminder that legal precedents are a valuable guide, but subject to being overturned, and so not the final word.

For more information, email blogs@gateleyplc.com.

[1] Sarpd Oil International v Addax Energy SA [2015] EWHC 2426 (Comm)

[2] Coral Reef Limited v (1) Silverbond Enterprises Limited (2) Eiroholdings Invest [2016] EWHC 874 (Ch)


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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.