Welcome to the forty-fifth edition of Clyde & Co's (Re)insurance and litigation caselaw weekly updates for 2012.

These updates are aimed at keeping you up to speed and informed of the latest developments in caselaw relevant to your practice.

Howden North America v Ace European

Court of Appeal overturns judge's ruling that English proceedings would serve a useful purpose

http://www.bailii.org/ew/cases/EWCA/Civ/2012/1624.html

Weekly Update 33/12 reported the first instance decision in this case. Numerous lawsuits have been brought against the insured, a US company, and it has commenced proceedings against its excess insurers in Pennsylvania. Two separate proceedings have been brought by the excess insurers in England, seeking declarations that the relevant policies are governed by English law and subject to English jurisdiction. In one set of proceedings (Faraday Reinsurance v Howden North America (see Weekly Updates 39/11 and 27/12)), the Court of Appeal agreed that the insurers had much the better of the argument that there had been an implied choice of English law/jurisdiction. In the other set of proceedings, Field J reached the same conclusion and dismissed an argument that the grant of the declaration would not be of sufficient utility. The insured appealed against that finding.

The Court of Appeal has now held that Field J erred on the utility point. It also held (in contrast to the Court of Appeal decision in Faraday) that his judgment on that point was not an exercise of discretion. This case differs from the Faraday proceedings in that insurers had already started the English proceedings prior to being sued in the US - and so the Court of Appeal here held that the decision of the court in Faraday was not binding on it.

The Court of Appeal held that a judgment in the English courts would not be "at the very least...of considerable assistance" to the US court. The Pennsylvanian judge had already held in an interlocutory hearing that it was unlikely that English law would apply. Even if English law was the applicable law, the foreign court could consider evidence of English law. Finally, and "most importantly", the Pennsylvanian judge is a well-respected federal judge and has expressed no request or need to be instructed by the English courts on what is (in their view and according to English conflict of laws rules) the applicable law of the policies: "I would regard the idea that the English court should give its unsolicited judgment as "advice"....as both presumptuous and condescending" (as per Aikens LJ).

Accordingly, the sole aim of starting the English proceedings had been to make a "pre-emptive strike in England in an attempt to undermine the legitimacy of any Pennsylvania judgment against the insurers in accordance with Pennsylvania law". Although that might be proper in some cases, no reason had been given as to why that would be a legitimate exercise in this case.

COMMENT: The English courts were at one time hostile to claims for negative declarations on the basis that they might be improper attempts at forum shopping. Although the courts now recognise that such claims can be legitimate, provided they serve a useful purpose and England is the appropriate forum, this case demonstrates the difficulty in predicting how a particular case might be decided. The Court of Appeal has now reached two conflicting decisions on the same point (the utility of the English proceedings) arising out of the same facts. Although the Faraday proceedings started before the US proceedings commenced against the insurers, that alone does not explain the difference in the Court of Appeal's approach - it only explains why the Court of Appeal in this case did not feel bound to follow the decision in Faraday. Indeed, if anything, the utility argument might be said to have been stronger in the Faraday proceedings because no proceedings against the insurers had been brought by the insured yet.

Brown-Quinn v Equity Syndicate & Anor

Whether BTE insurers liable to pay the full fees of non-panel solicitors

http://www.bailii.org/ew/cases/EWCA/Civ/2012/1633.html

The first instance decision in this case was reported in Weekly Update 38/11. European legislation provides that an insured under a legal expenses policy must be allowed to choose the lawyer representing him/her. Here, the claimants were insured under a Before the Event legal expenses insurance policy and wished to instruct non-panel solicitors. Those non-panel solicitors wished to charge rates which were higher than the rates set by the insurers for non-panel solicitors. At first instance, the judge held that the non-panel solicitors' costs should be used "not as a starting point, but as a comparator" when it came to assessing the solicitors' costs. However, the Court of Appeal had now held that the insurers are entitled to require the insured to instruct the non-panel solicitors on the insurers' standard terms of appointment for such solicitors:

(1) (A general condition in the policy referred to the standard terms of appointment for appointed representatives. These were not annexed to the policy but instead could only be viewed by asking the insurers for them. Nevertheless, that was sufficient to bring the terms to the notice of the insured and to make them part of the policy (and in practice, it will be the insured's solicitor who will inquire about the non-panel rates). The position was no different just because the insured was a consumer. Although the insurers could not refuse to accept the non-panel solicitors unless they agreed to the non-panel rates, they were only bound to pay the rates set out in the standard terms.

(2) The European legislation did not make any difference to that conclusion. The ECJ has confirmed that insurers are allowed to seek to limit the costs for which they are liable provided that the the freedom to choose a lawyer is not thereby "rendered meaningless".

COMMENT: This decision will be a welcome result for legal expenses insurers in that it confirms (in the words of Longmore LJ) that: "The fact that some potential insureds may be unable to pay extra to secure the solicitor of their choice can hardly mean that all insureds can always choose any solicitor however expensive he may be and expect the insurers to pay". The comment regarding incorporation of standard terms into a policy will also be of wider interest.

Webb Resolutions v Waller Needham & Green

Accepting a Part 36 offer and varying the normal rule that the claimant gets its costs

The usual rule where a party accepts a Part 36 offer after the expiry of the relevant period is that the defendant must pay the claimant's costs up to the date of expiry and the offeree pays the offeror's costs thereafter, up to the date of acceptance. However, the court has a discretion to make a different order (see CPR r36.10). In this case, the claimant made a Part 36 offer (with a relevant period of 21 days) on 17 May 2011 and the defendant accepted the offer a year later.

The judge held that the test under CPR r36.10 was the same as that under CPR r36.14 (where a Part 36 offer is not beaten at trial): he was required to take into account all the circumstances of the case, including whether there has been substantial compliance with any relevant pre-action protocol (in this case the Professional Negligence Pre- Action Protocol applied).

The judge decided that it would be just to depart from the normal costs rule in this case because the claimant had failed to comply with the defendant's requests for disclosure (made before proceedings commenced). The judge said that even if those requests were "too ambitious", the claimant ought to have supplied copies of two particular files (and not just extracts from them) because the defendant had explained why they were important to it. The claimant's conduct was therefore not "helpful or conducive to an early disposal of the case".

It was held, though, that the defendant shouldn't be put in a better position than if it had accepted the Part 36 offer within the relevant period. So the claimant was entitled to its costs up to the end of the relevant period and, furthermore, up to the date it advised that it would not give disclosure until liability was admitted and gave notice that it would be commencing proceedings. The claimant was ordered to pay the defendant's costs thereafter though. Those costs would not have been incurred had the claimant acted reasonably and responded properly to the disclosure requests.

Dar Al Arkan v Al Refai & Ors

Breach of applicant's undertaking following ex parte application/ attribution and reputational damage issues

http://www.bailii.org/ew/cases/EWHC/Comm/2012/3539.html

The claimants applied ex parte for interim relief (including a worldwide freezing order). The various orders were granted but the claimants were also required to provide an undertaking to preserve the original hard drives containing the material referred to in their supporting affidavit. The defendant applied to set aside the orders on the ground that (inter alia) the claimants had not complied with this undertaking. Smith J considered various issues including the following:

(1) Does the defendant have to prove an abuse of process in order to discharge the order? The judge said that it did not: "The court will in an appropriate case discharge an order on the grounds of breach of a related order or undertaking without engaging with the question whether the breach is to be labelled as an abuse of process".

(2) Could the knowledge of the claimants' head of IT be "attributed" to the claimants? Smith J accepted that it was not "inherently improbable" that the head of IT had acted without reporting to his superiors. However, the issue of attribution was "a distraction". The real question was whether the claimants had fulfilled their duty to make full and frank disclosure of all material facts. They had a duty to make proper enquiries and this included asking the head of IT what he knew (the judge did not accept that the head of IT would not have said anything if asked).

(3) It is well established that the applicant on an ex parte application owes a duty to the court to provide it with proper guidance as to the relevant law. Here, it was argued that the claimants had not properly assisted the court about when compensation for damage to reputation is recoverable (this formed part of the claimants' underlying case against the defendant). Smith J rejected the claimant's argument that reputational damage is generally, and in principle, a recoverable head of loss in tortious claim: "The more conventional view is, I think, that the recognised claim is for the financial consequences of reputation being damaged rather the damage to reputation, reflected in and quantified by reference to the financial consequences".

(4) However, there had been no need for the claimants to refer the court specifically to the Dadourian guidelines (which cover the enforcement of a worldwide freezing order abroad) - Commercial Court judges are well aware of them.

Alliance Bank v Aquanta Corporation

Service out and the meaning of a claim "in respect of a contract"/defendant not a party to the contract

http://www.bailii.org/ew/cases/EWCA/Civ/2012/1588.html

One of the issues in this case was the meaning of one of the "gateways" for service out of the jurisdiction (outside the EU) in PD 6B para 3.1: a claim made "in respect of a contract" (where that contract is eg made in the jurisdiction or governed by English law - see gateway (6)). The question here was what the court's approach should be where the potential defendant was not a party to the contract in question.

In Greene Wood & McLean v Templeton Insurance (see Weekly Update 06/09), the Court of Appeal granted permission to serve out on ATE insurers who had authorised a contract between solicitors and the insureds (even though the insurers were not party to that contract). However, in this case, Tomlinson LJ said that: "I see great force in the argument that it is implicit in the rule that the contract upon which reliance is placed must be one to which the intended defendant is party" and he "tentatively" described the principle as follows: "unless the claimant is suing in order to assert a contractual right or a right which has arisen as a result of the non-performance of a contract, his claim is not in this context properly to be regarded as one made in respect of a contract". Ordinarily, for gateway (6) to apply, the defendant will be a party to the contract, but that will not always be the case. It is just that it will be more difficult to find the necessary connection between the claim and the contract where the defendant is not a party to the contract.

UK Highways A55 v Hyder Consulting

Effect of stay on requirement to serve pleadings/relief from sanctions

http://www.bailii.org/ew/cases/EWHC/TCC/2012/3505.html

The claimants issued and served a claim form, proceedings having been started to avoid an argument that the claim was time-barred. Thereafter, the parties agreed a stay and a consent order was made. Further stays were agreed, the last one expiring in June 2011. However, the particulars of claim were not served and some five months later, the claimants sought an extension of time to serve the particulars. The claimants also argued that since the first stay was agreed before the expiry of the 14-day period within which the particulars should have been served in accordance with the CPR, and the action was agreed to be stayed for more than 14 days, it became impossible to serve the particulars in time and so the time limit must be abrogated. Edwards-Stuart J held as follows:

(1) (The time limit still applied, notwithstanding the stay. Where a stay is agreed until a specified date, it automatically ceases when that date is reached and the proceedings "start up again at the point where they left off when the stay was imposed". Thus the claimant had missed the time for service of the particulars in this case. However, as the parties clearly intended to continue the stay of proceedings, it would be unjust for the defendants to take the point.

(2) At the expiry of the final stay agreed by the parties, no further stay could be implied. A letter from the claimants made it clear that they intended to pursue their claim and so they no longer had any reasonable ground for not serving their particulars.

(3) CPR r3.9 sets out the circumstances which the court can take into account when deciding whether to grant relief from sanctions. Here, the judge, taking into account those considerations, decided to allow the claim to proceed.

Phillips v Bath Housing

Limitation period for solicitors' fees

http://www.bailii.org/ew/cases/EWCA/Civ/2012/1591.html

If a solicitor carries out contentious work for a client (and there is no agreement as to the basis on which costs will be payable), he/she will be entitled to the costs which would be determined by a costs judge if the client were to seek an assessment of the bill. If the work was of a non-contentious nature, the solicitor is entitled to a "fair and reasonable" sum, taking into account all the circumstances of a case (and the client can require the costs to be assessed). Thus, although a solicitor puts a figure on his own claim for costs, that is not an ascertained sum until it has been fixed by agreement or assessment. The issue in this case was whether a solicitor's bill (which has not yet been fixed) falls within the terms of section 29(5) of the Limitation Act 1980 (which provides that "where any right of action has accrued to recover..any debt or other liquidated pecuniary claim...and the person liable ...for the claim acknowledges the claim... the right shall be treated as having accrued on and not before the date of the acknowledgment"(emphasis added)). The Court of Appeal held that it does.

In this case, the client had expressed concern about the amount of the bill but not about the fact that payment was due. The Court of Appeal therefore concluded that the claim had been acknowledged and that accordingly, the proceedings brought by the solicitors for their fees were not time-barred.

Other News

The government has published the Equality Act 2010 Regulations 2012 which reflect the change in law following the Test Achats ECJ judgment. The regulations, which disallow differences in premiums and benefits arising from the use of sex as a risk factor, will come into force on 21 December 2012. The regulations require the Treasury to review their operation and effect and to publish a report within five years after they come into force (and within every five years after that). Following a review it will fall to the Treasury to consider whether these Regulations should remain as they are, or be revoked or amended. The government has urged insurers to seek their own legal advice when considering how to amend their practices to comply with the ECJ ruling. Please see below for links to both the regulations and the accompanying explanatory memorandum:

http://www.legislation.gov.uk/uksi/2012/2992/pdfs/ uksi_20122992_en.pdf

http://www.legislation.gov.uk/uksi/2012/2992/pdfs/uksiem_20122992_en.pdf

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.