UK: A summary of recent developments in insurance, reinsurance and litigation law

Last Updated: 2 July 2010
Article by Nigel Brook

Jivraj v Hashwani

Whether arbitration agreement can stipulate arbitrators must come from a particular religious group

The appellant and respondent entered into an arbitration agreement which stipulated that all the arbitrators had to be high office holders within the Ismaili community. The appellant applied to the English courts seeking an order that a particular arbitrator, who was not a member of the Ismaili community, be appointed. It was argued that the requirement that the arbitrators came from the Ismaili community, although lawful when the agreement was made, had been rendered unlawful and was void because it contravened the Employment Equality (Religion and Belief) Regulations 2003 ("the Regulations"). At first instance, the judge held that the Regulations did not apply because the arbitrators were not employees and permission to appeal was granted by the Court of Appeal.

Regulation 6 of the Regulations (broadly) makes it unlawful for an employer to discriminate against a person applying for employment. Regulation 7 provides an exception where belonging to a particular religion is a genuine occupational requirement of the job. The Court of Appeal (Moore-Bick LJ giving the leading judgment) held as follows:

  • Arbitrators are "employees" for the purposes of the Regulations. The Regulations are intended to apply to all forms of employment in the broadest sense, including the provision of services under any form of contract. In most cases, the arbitrator will enter into a contract (even where, as here, the arbitrators do not accept any remuneration for acting).
  • Discrimination is not permitted in respect of private hirings and "the choice of a solicitor, plumber or arbitrator, whether on religious, racial or any other grounds" can fall foul of Regulation 6. Nor are arbitrators "self-employed" for the purpose of Regulation 6, since their working arrangements are controlled, to a greater or lesser extent, by others.
  • A term requiring arbitrators to come from a particular religious background is void. Since the arbitrator was not required to apply any particular ethos of the Ismaili community (the dispute had to be resolved in accordance with English law), there was no genuine occupational requirement that the arbitrator come from the Ismaili community. Accordingly, the term requiring the arbitrator to come from the Ismaili community was void.
  • Although it was possible to strike out the offending sentence from the arbitration clause and the remaining clause would still be workable, the Court of Appeal agreed with the trial judge that that would render the agreement substantially different from that which had originally been intended. Accordingly, the entire arbitration agreement was void.

Lexi Holdings v Pannone & Partners

Request for further information under CPR r18

The claimant (a firm of solicitors now in administration) alleges that the defendants (their solicitors) made payments (which they knew were unauthorised) on the instructions of Mr Luqman (the managing director of the claimant), who, it is alleged, had no apparent or actual authority to give the instructions. The defendants applied for further information under CPR r18. It was not suggested that the defendants needed the information requested in order to plead a full defence. Instead, it was said that they needed the information in order to complete witness statements and to fully to understand the case against them.

Briggs J criticised both parties for their approach to this application. They had spent more than 150 hours between them on this procedural dispute and had made no attempt to compromise. The claimant argued that the defendants' conduct of the case to date had been "extravagant, improper and inappropriate" and there was a good deal of hostility between the parties. Nevertheless, the judge pointed out that the parties and their legal teams are required to set aside "their understandable feelings of mutual outrage and hostility" and to cooperate with each other, whilst ensuring that costs remain proportionate.

On the facts of this case, Briggs J held that most of the requests did not meet the requirement set out in PD18 para 1.2 that they should be reasonably necessary and proportionate. Particulars should not be treated as "a rigid entitlement" and details of the knowledge of the defendants did not have to meet a "preconceived level of detail". The focus should be on the practical effect of providing enlightenment as to the claimant's case. In relation to most of the requests, the defendants had already had enough explanation to understand the claimant's case and to prepare its defence.

Law Society of England v Habitable

Tracing claim and drawing inference from the facts

A firm of solicitors misappropriated client funds. The Law Society intervened in the practice and sought to recover monies paid by the solicitors to a furniture company. The sole shareholder and director of the furniture company failed to attend the trial. The Law Society was therefore required to prove knowing receipt by the furniture company, thus making it accountable in equity. Norris J found that the furniture company had received the payment beneficially and that the director/shareholder had had the requisite knowledge "such as to make it unconscionable for him to retain the benefit of the receipt". In particular, there was no explanation for the credit, Given its sheer scale (some Ł450,000), a failure to make any enquiry into the payment raised an inference of guilty knowledge. The furniture company was therefore liable for knowing receipt of monies paid in breach of trust and the Law Society was allowed to trace into the proceeds of the payment.

The judge went on to find that it was not appropriate to pierce the corporate veil and make the director/shareholder personally liable for knowing receipt. There was inadequate evidence to show that the director/shareholder used the furniture company as a facade or device to facilitate his own wrongdoing. However, there was sufficient evidence to show that he had dishonestly assisted in the solicitors' breach of trust. He had provided the furniture company's banking details to the solicitors in order to facilitate the payment and he knew there was no commercial relationship between the furniture company and the solicitors to justify the payment. He had also made no enquiry as to why the payment was received.

Khudairi v Abbey Brokers Ltd

Dishonest assistance and the meaning of dishonesty

One of the issues in this case was whether the director and shareholder of a firm of mortgage and insurance brokers was liable for dishonestly assisting the firm to breach its fiduciary duties to the claimant. Newey J highlighted a recent debate on the meaning of dishonesty in this context. It is widely believed that the House of Lords in Twinsectra v Yardley [2002] held that a person could not be dishonest unless he appreciated that his conduct would be regarded as dishonest by honest people. However, in the Privy Council case of Barlow Clowes v Eurotrust International [2006] it was said that his knowledge of the transaction only had to be such as to render his participation contrary to normally acceptable standards of honest conduct (ie there was no need for any reflections on what those normally acceptable standards are). Newey J agreed with the Privy Council and held that a person can be dishonest regardless of whether he appreciates that his conduct would be considered dishonest by ordinary honest people. In this case, the director was clearly dishonest according to normally accepted standards.

Enterprise Managed Services v McFadden Utilities

Request for a "proportionate costs order"

In this case, Akenhead J made a number of general observations about the fixing of the relevant percentage for a proportionate costs order. Firstly, it must be determined which party won (if necessary, this may have to be done by looking at the individual issues in the case). Regard should also be had to the conduct of the parties (in particular, how reasonable they have been in taking various points or issues which they lost). A simple mathematical approach will not be usually be appropriate though - for example, if the winning party wins 3 out of 5 issues, that does not mean that it should automatically recover 60% of its costs. Regard must be had to the likely amount of resources applied as well as to the overall impact of the success on the other issues. The court should also be cautious about fixing a proportion by reference to the amount of time or space applied by the judge in his or her judgement to the issues upon which each party has been successful or unsuccessful. The judge may simply have had to take up more time and space in the written judgement to address what may be more complex issues. In this case, the losing defendant was ordered to pay 80% of the claimant's costs.

Other News

The IBA adopted new Rules on the Taking of Evidence in International Arbitration in May 2010. The changes include more specific guidance on factors which the tribunal should take into account when deciding issues of legal privilege (including the need for fairness and equality where the parties are subject to different legal or ethical rules). The new rules can be found here:

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.

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