As we begin 2025 and set our goals for the new year (realistic or unrealistic), we outline some of the significant English court rulings from 2024 and the key lessons they offer for the year ahead. In 2024, the courts provided clarity on a wide range of issues including contractual interpretation, force majeure provisions, the application of material adverse effect clauses, shareholder privilege, crypto assets, termination rights and fraudulent trading. The rulings underpin the significance of clear contractual drafting and effective risk mitigation. It is important for parties to understand these developments to avoid potential disputes and ensure the enforceability of English law-governed agreements in the year (and years) ahead. We also gaze into the future to consider potentially significant legal trends and issues for companies in 2025.
In Tesco Stores Ltd v USDAW [2024] UKSC 28, the Supreme Court unanimously ruled against Tesco’s attempt to dismiss and re-engage employees in order to remove their contractual right to retained pay—a practice known as “fire and rehire”. The Supreme Court restored an injunction previously granted by the High Court (and overturned by the Court of Appeal), emphasising that such actions breached an implied term in the employment contract that Tesco would not terminate the contracts for the purposes of removing the retained pay. The Supreme Court ruled that Tesco could not use a fire-and-rehire strategy to terminate the contractual benefits of employees because Tesco’s right to terminate the employment contract by giving notice is qualified by a term implied by fact that Tesco’s right to dismiss cannot be exercised for the purpose of depriving employees of the right to retained pay. This highlights that the courts are likely to consider actions which undermine agreed rights as unlawful.
The decision in Tesco Stores Ltd v USDAW provides important guidance on contractual interpretation and employment practices. The case demonstrates that contracts should be interpreted in accordance with their intended purpose to ensure fairness and consistency. As a result, employers should carefully draft communications to avoid vague assurances which may create unintentional obligations, such as Tesco’s promise of “permanent” retained pay and the statement that it would only be changeable by mutual consent. The ruling has broad implications for contractual interpretation generally and for employment practices, in particular. For commercial disputes, the case signifies that courts may intervene to enforce the spirit of contracts and prevent arbitrary conduct. With increased judicial scrutiny of “fire-and-rehire” tactics, employers should carefully consider alternative strategies to renegotiate terms with their employees.
In RTI Ltd v MUR Shipping BV [2024] UKSC/2022/0172, the Supreme Court clarified the application of force majeure clauses, particularly regarding the obligation to use reasonable endeavours to overcome the effects of force majeure events. Force majeure clauses typically include a reasonable endeavours provision, providing that a party cannot rely on what would otherwise be a force majeure event if that party could, using reasonable endeavours, avoid its effects. In this case, RTI was unable to pay the freight charges in U.S. dollars due to sanction restrictions and offered to pay the charges in euros instead. MUR did not accept the offer and sought to invoke the force majeure clause. The Supreme Court unanimously held that MUR’s rejection of RTI’s offer of non-contractual performance of the contract did not constitute a failure to exercise reasonable endeavours and that, therefore, MUR could rely on the force majeure clause. The decision highlights the importance of contractual certainty regarding force majeure events and emphasises that reasonable endeavours may at times appear unreasonable (particularly where RTI had offered to indemnify MUR for any losses as a result of paying in euros rather than U.S. dollars). The Supreme Court confirmed that, absent express wording in the force majeure clause, a reasonable endeavours provision does not require the party to accept an offer of non-contractual performance.
This ruling reinforces the need for clear and precise force majeure clauses in contracts. The Supreme Court focused specifically on the use of the word “overcome” in this specific force majeure clause and noted that force majeure clauses deal with the effect of acts of God (or similar) on contractual performance, such performance being of the terms of the contract and not performance other than by the contractual terms. Companies should ensure that these clauses specify what happens when a force majeure event occurs, including whether any changes to the contract (such as accepting non-contractual performance) are permitted. The Supreme Court’s decision makes it clear that a party relying on force majeure does not have to take a counterparty’s offer to modify the terms of the original agreement. For companies, this means being precise about obligations and expectations in the event of unexpected circumstances to avoid unnecessary disputes.
For further details, please see our alert on the Supreme Court’s ruling.
In Drax Smart Generation HoldCo Ltd v Scottish Power Retail Holdings Ltd [2024] EWCA Civ 477, the Court of Appeal ruled in favour of Drax, overturning the High Court’s dismissal of its breach of warranty and indemnity claims. Drax had invoked a claim under its long-term power purchase agreement with Scottish Power, arguing that its rights were impacted due to certain alleged breaches. Scottish Power asserted that Drax did not provide sufficient notification of the claims and included inadequate detail. However, the Court of Appeal held that it was not necessary for Drax to produce exact figures or legal arguments in its claim notice. Drax only needed to provide a genuine estimate of losses. The Court of Appeal took a pragmatic approach and did not want claims to be dismissed on the grounds of a technicality.
Those drafting notification clauses must ensure that the language they use is clear and unambiguous. Whilst an obvious point, it is also important that all requirements in the clauses are capable of being complied with. If a notice is provided, it is important to make sure that sufficient detail is included which adheres to the language in the relevant notification clause. Parties would be well advised to treat notice clauses with the care they deserve given the number of cases that arise from ambiguity in these clauses.
For further details, please see our alert on the Court of Appeal’s ruling.
In Aabar Holdings SARL v Glencore PLC & Ors. [2024] EWHC 3046 (Comm), the English Commercial Court rejected the longstanding “Shareholder Rule” (established in the 19th century case of Gouraud v Edison Gower Bell Telephone Co of Europe Ltd (1888), where it was held that the position of shareholders was analogous to that of partners and trust beneficiaries), which historically prevented companies from asserting legal privilege against their shareholders.
The decision in Aabar Holdings eliminates the “Shareholder Rule” and allows companies to assert legal privilege against their shareholders. Picken J held that the old reasoning for the rule was no longer valid as the similarities between investors in a company and that of partners or trust beneficiaries no longer exist. As a result, companies should look to reevaluate their confidentiality provisions to ensure that they benefit from this legal protection. In a positive move for companies, it is now possible for companies to safeguard certain legal communications from being disclosed to shareholders, unless privilege is waived, affording them greater protection over their confidential information. This judgment provides much needed clarity after the issue arose in a number of recent cases, including shareholder group actions and shareholder disputes.
In BM Brazil I Fundo De Investimento Em Participações Multistrategia & Ors v Sibanye BM Brazil (Pty) Ltd & Anor [2024] EWHC 2566 (Comm), the High Court ruled that a geotechnical issue in a Brazilian nickel mine could not trigger a material adverse effect (“MAE”) clause in the share purchase agreement (the “SPA”). The High Court held that the mining wall’s condition could have been discovered in due diligence as the issue was apparent before the parties signed the SPA. Therefore, it did not count as a change after signing. Only the geotechnical event that occurred after signing could trigger the MAE clause. The High Court also clarified that to be considered “material”, an event must have a long-term impact on the business.
The ruling clarifies that an MAE must be an unexpected change that occurs after the agreement is signed. If an issue existed before signing, or could have been discovered by the party in due diligence, it cannot trigger the MAE clause. The High Court also emphasised that “materiality” should be determined based on long-term effects, meaning that companies must carefully evaluate risks before using an MAE clause in M&A deals.
In URE Energy Ltd v Notting Hill Genesis [2024] EWHC 2537 (Comm), the High Court ruled that an energy supplier did not waive its right to terminate a contract despite continuing performance for six months after the event that triggered the termination. The High Court clarified that waiver only occurs if the party is aware of both (1) the facts and (2) the right to terminate. The supplier successfully disproved the waiver by waiving legal privilege, showing that it was unaware of its right to terminate until shortly before sending the notice of termination. The complexity of the provision fell in favour of the energy supplier.
This case highlights the importance of parties understanding their contractual rights. A party will not automatically waive its right to terminate unless it is aware of both the terminating event and the right to terminate itself. However, the courts will typically assume that parties with legal counsel understand their rights, particularly if the contract terms are clear, and parties should therefore be careful not to continue performance (where they wish to terminate) after a terminating event where they both have the knowledge of the event and are aware of their legal right to terminate. The case also stresses the importance of precise contractual drafting, as complex provisions can lead to confusion, which may be interpreted in favour of the party seeking to terminate.
Two recent cases have helped to develop the law relating to cryptocurrency.
In Crypto Open Patent Alliance v Craig Steven Wright [2024] EWHC 1809 (Ch), the High Court ruled that Dr. Craig Wright is not the individual behind the pseudonym Satoshi Nakamoto, the creator of Bitcoin and author of its White Paper. Wright had claimed to be Nakamoto, asserting ownership of Bitcoin’s intellectual property, but the High Court found that his evidence did not meet the burden of proof required to convince the High Court. The judgment focused on discrepancies in his evidence and a lack of corroborating material that could reliably demonstrate his authorship of Bitcoin.
Separately, in the case of Fabrizio D’Aloia v Persons Unknown Category A & Ors [2024] EWHC 2342 (Ch), the High Court held that USD Tether (USDT) was considered property under English law. As such, the High Court held that the stablecoin could be afforded rights and protections under existing property laws.
The Wright ruling underscores the importance of presenting clear, verifiable evidence when claiming ownership over intellectual property, especially in the digital space. Dr. Wright’s failure to prove that he was Nakamoto highlights the challenge of substantiating such claims, particularly when the evidence lacks consistency or independent verification. Meanwhile, D’Aloia solidifies the legal recognition of cryptocurrencies as property, allowing for greater clarity and protection of digital assets in fraud cases. These cases signal the growing need for robust legal protections and transparent documentation in cryptocurrency-related disputes. As the crypto space evolves, companies and individuals must ensure that they have reliable legal frameworks to safeguard their assets.
Following a 20-week trial, in London Capital & Finance Plc and Ors v Michael Andrew Thomson and Ors [2024] EWHC 2894 (Ch), the High Court ruled in favour of the administrators of London Capital & Finance (“LCF”) and held that LCF employees had operated a £237 million mini-bond investment fraud by making false representations to prospective bondholders. The High Court ruled that the defendants had knowingly participated in fraudulent conduct, misappropriated significant sums from LCF and operated a Ponzi scheme. The claimants further succeeded on claims for fraudulent trading, breach of fiduciary duty, dishonest assistance, knowing receipt and proprietary tracing claims.
The case provides a leading authority on fraudulent trading, knowing receipt and the bona fide purchaser defence. It reiterates that company directors will be liable for breaches of their director’s duties to the company, in this case for breaches of sections 171, 172 and 174 of the Companies Act 2006. It also provides a reminder that those who knowingly participate and dishonestly assist in these breaches will also be personally liable for said breach. Furthermore, the liability attached to two defendant companies who marketed the scheme on a commission basis should act as a reminder to third parties of the need to conduct proper inquiries into the business of a company should suspicions of fraudulent activity arise and to not merely turn a blind eye. For example, the frequent use of backdated documents being known to the owner of the marketing company undermined his and the company’s ability to rely on its audited accounts. The judgment also confirmed that a company will be entitled to an equitable proprietary claim of proceeds flowing from the wrongdoing of its officers; this is especially important for administrators of insolvent companies to remember where it is believed that the company may have been involved in fraudulent schemes.
Looking forward to 2025, we expect to see substantial development in a number of areas, including:
Angus Irving, London Trainee solicitor, contributed to the drafting of this alert.