Court sets new guidance on pre-action conduct in Part 8 claims

06/03/19

The High Court has today set new guidance on pre-action conduct in Part 8 claims in the case of Cathay Pacific Airlines Limited v Lufthansa Technik AG [2019] EWHC 484 (Ch) (Mr John Kimbell QC sitting as a Deputy Judge of the Chancery Division). The proceedings concern a dispute under a ten-year aircraft engine maintenance agreement between Cathay and Lufthansa and in particular Cathay’s purported exercise of a contractual option to remove all the engines from the programme in its final days.

The effect of the removal (if valid) is to cause a swing of almost US$43,000,000 in the remuneration due under the agreement, giving Cathay a claim in excess of US$7,000,000 whereas absent the option Lufthansa would be entitled to US$35,815,325.17.  Lufthansa contends that the purported exercise of the option was invalid on the option’s true construction, being for a reason outside its contractual purpose, or otherwise unreasonable or not in good faith.

Prior to the expiry of a contractual moratorium, Cathay commenced proceedings under Part 8, at a point in time when Lufthansa was preparing to serve its own Part 7 claim and would have done so but for the contractual waiting period.

Upon receipt of the Part 8 claim, Lufthansa applied for the proceedings to be transferred into Part 7 and counterclaimed for US$35,815,325.17. Cathay not only resisted the application, but invited the Court to decide the proceedings in its favour at the hearing: i.e. to enter judgment in Cathay’s favour for US$7,039,571.27 and dismiss Lufthansa’s counterclaim for US$35,815,325.17.

The Judge allowed Lufthansa’s application and refused Cathay’s request for judgment. The Judge ruled that the proceedings were clearly ones that should have been commenced in Part 7 and should proceed there. 

In allowing the application, the Judge also sought to lay down guidance on pre-action conduct in Part 8 claims to prevent such a situation arising in future. This guidance is not found in the current rules and practice directions but was derived from the broader duties imposed on parties in CPR 1.3 and Paragraph 3 (a), (b) and (e) of the Practice Direction on Pre-Action Conduct and Protocols.

The Judge held that whenever a party is contemplating commencing proceedings under CPR Part 8 in respect of a claim which could be started under CPR Part 7, the following steps ought generally to be taken:

(a)        The proposed Defendant ought to be notified that the use of CPR Part 8 is being contemplated.

(b)       A brief explanation ought to be provided as why CPR Part 8 is considered to more appropriate than under CPR Part 7 in the particular circumstances of the case.

(c)        A draft of the precise issue or question which the Claimant is proposing to ask the Court to decide under Part 8 ought to be supplied to the Defendant for comment.

(d)       Any agreed facts relevant to the issue or question ought to be identified.

  The judgment is here.