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

Last Updated: 9 July 2010
Article by Nigel Brook

Gibbon v Manchester City Council

Part 36 offers: need to withdraw offer and determining whether an offer is "more advantageous"

In this case, the Court of Appeal heard two appeals together. They both concerned the scope of CPR r36 (offers to settle). Moore-Bick LJ prefaced his judgment with the comment that Part 36 embodies a self-contained code and it does not incorporate all the rules of law governing the formation of contracts.

In the first appeal, the claimant had offered to accept £2,500. This offer was never withdrawn and a few months later the claimant rejected an offer from the defendant which was for a similar amount. The defendant then formally accepted the claimant's offer. The Court of Appeal held that the defendant was entitled to accept the offer which had never been withdrawn. There is no concept of implied withdrawal of a Part 36 offer. Rejection of a Part 36 offer does not render it incapable of later acceptance and, unlike in common law, an offer cannot lapse.

Moore-Bick added that "although the rule does not prescribe any particular form of notice [of withdrawal], in order to avoid uncertainty it should include an express reference to the date of the offer and its terms, together with some words making it clear that it is withdrawn". The rejection by the claimant of the defendant's counter-offer did not amount to a withdrawal of her offer which had been on similar terms. This part of the Court of Appeal's decision reflects the views of Coulson J in Sampla v Rushmoor Borough Council (see Weekly Update 40/09).

In the second appeal, Moore-Bick LJ also commented (obiter) that a party can make a number of different Part 36 offers, all of which are concurrently open for acceptance: "Part 36.does not provide that only one offer may be available for acceptance at any one time". In this case, the claimant had recovered £661 more than the defendants' offer. That raised the question whether the claimant had failed to obtain a judgment which was "more advantageous" than the defendants' offer (within the meaning of CPR r36.14(1)(a)).

In the Court of Appeal decision of Carver v BAA [2008], it was concluded that account should be taken of all aspects of a case, including emotional stress and financial factors. Both Moore-Bick LJ and Carnwath LJ expressed criticism of that decision (which has also recently been criticised by Jackson LJ in his Review of Civil Litigation Costs). Although they recognised that they are bound by the decision, they said that it "should not be interpreted as opening the way to a wide-ranging investigation of emotional and other factors in every case, even where the financial advantage is significant". In most cases, obtaining judgment for an amount greater than the offer will outweigh all other factors. Only in rare cases (for example, where the offer is beaten by only a very small amount and the winning party has suffered serious adverse consequences as a result of pursuing the case to judgment) will other factors outweigh success in pure financial terms.

Stainer v Lee

Test for bringing derivative claim under the Companies Act - of possible interest to D&O insurers

The Companies Act 2006 provides that a derivative claim can be brought if two stages are passed: (1) the applicant has a prima facie case; and (2) the court decides that the case should proceed. (Derivative claims were not possible under the previous Companies Act but they are not new in English law as they were possible under common law). In this case, the applicant passed the first stage. The second stage is governed by section 263 which provides that permission must be refused if "a person acting under section 172 (duty to promote the success of the company) would not seek to continue the claim". There is no corresponding provision as to the circumstances in which permission must be granted. Instead, the court must take account of a series of factors in deciding whether or not to grant permission. One of those factors is the importance which a person acting in accordance with section 172 would attach to continuing it.

Roth J reviewed the relevant caselaw and agreed with Lewison J's decision in Iesini v Westrip Holdings [2009] that the test is whether some directors would seek to continue the claim (even if others would not). However, he disagree with Lewison J that the standard to be applied under section 263 must be more than a prima facie case, since that forms the first stage of the procedure. Roth J said that: "It seems to me possible that the court might revise its view as to a prima facie case once it has received evidence and argument from the other side, so the antithesis between [the first stage] and 263 might not be so stark". No particular standard of proof was needed for section 263. In particular, "if the case seems very strong, it may be appropriate to continue it even if the likely level of recovery is not so large, since such a claim stands a good chance of provoking an early settlement or may indeed qualify for summary judgment. On the other hand, it may be in the interests of the Company to continue even a less strong case if the amount of potential recovery is very large".

On the facts of this case (involving a loan by the Company to a third party company (whose sole shareholder was also a director of the Company) on an interest-free basis, at a time when the Company had a very substantial level of bank borrowing at commercial rates of interest), the judge concluded that it could not be said that no director acting in the company's best interests would seek to continue the claim. In fact, he thought that many directors would consider it important to continue it. Accordingly, he granted permission for the derivative claim to continue, but subject to a ceiling on costs.

COMMENT: D&O insurers who have written policies covering derivative claims should note the guidance given by Roth J, since this is one of the first cases post-enactment of the Companies Act 2006 in which permission to continue a derivative claim has been granted.

Best v Smyth

Percentage of reduction for contributory negligence

One of the issues in this case was what the amount of reduction should be for the defendant's contributory negligence. The claimant had not been wearing a seat belt at the time of the accident. Since Froom v Butcher [1976], the maximum reduction likely to be awarded for this is 25%. The claimant was also aware that the defendant driver had been drinking heavily before he got into the car. Since Owens v Brimmell [1977], the usual reduction for this is 20%. The defendant sought to argue that the total reduction in the case should therefore be 50%. Tugendhat J rejected that argument and said that it was "ambitious" to argue that in this case the passenger should be considered equally to blame as the driver. He therefore proceeded on the basis that there should be a maximum reduction of 30% in respect of the issue of contributory negligence.

Anglian Water Services v Laing O'Rourke

Extending time under section 12 of the Arbitration Act 1996

S)12 of the Arbitration Act 1996 gives the court power to extend time for beginning arbitral proceedings. In Lantic Sugar v Baffin (Weekly Update 01/10), Gross J held that an extension could only be granted if the conduct of the defendant contributed to the claimant's failure to comply with the time limit. In this case, notice was sent to the defendant's solicitors (rather than the address specified in the contract), who sent an unqualified confirmation of safe receipt (and this followed the same pattern of service and acknowledgment of documents between the parties as in the past (no question as to validity of service having arisen previously)). The claimant was entitled to assume that if any point was going to be taken about service, the defendant's solicitors would have made this clear. Although the solicitors had not acted with any intention to mislead, their conduct was a material contributing cause to the fact that notice of intention to refer the dispute to arbitration was not sent in time and so an extension of time (if required) would have been granted.

Price & Anor v Carter

Extending time to appeal arbitration award/challenging an award based on delegation of powers by the arbitrator

S) 70(2) of the Arbitration Act provides that an appeal against an arbitration award may only be brought if the appellant has first exhausted "(a) any available arbitral process of appeal or review, and (b) any available recourse under s) 57 (correction of award)". S) 70(3) further provides that an appeal must be brought "within 28 days of the date of the award or, if there has been any arbitral process of appeal or review, of the date when the ...appellant was notified of the result of that process".

Edwards-Stuart J felt that the precisely drafted wording in s) 70(3) meant that only an arbitral process of appeal or review has the effect of extending time within which to appeal. If there is an application for correction of an award under s) 57, any appeal must be brought within 28 days of the award. He noted that this result was "obviously unsatisfactory" though. A party who seeks correction of an award which may affect the ultimate outcome must (in order to preserve his rights of appeal) start his claim within the 28 day period and before he knows the outcome of his application for correction (as the arbitrator has 28 days from the receipt of an application to correct an award within which to make the correction).

Although he reached no firm conclusion on the point, the judge said that he would have granted an extension of time on the facts of this case, because the appellants had applied to the arbitrator for reconsideration of the award and it would be unjust to treat the 28 day period under s) 70 as having started to run before they knew the outcome of their application.

In any event, the judge found that the appeal failed on its merits. One of the arguments raised related to delegation by the arbitrator to an assessor. Edwards-Stuart J held that an arbitrator is not precluded from delegating to another party even if the arbitrator is quite capable of carrying out the work himself (it might, for example, be more cost effective to act in that way). Furthermore, there was no serious irregularity in giving the parties only a limited right to comment on the assessor's conclusions. Both parties had been treated in the same way and there was no evidence that any irregularity caused the appellants substantial injustice (ie there was no evidence of what the appellants would have done if they had been allowed to comment fully or whether any errors would have been found to be significant).

(One further point confirmed by the judge was that an arbitrator, having issued his award, is under no obligation to advise the losing party that he has only 28 days to bring an appeal).

B v A

Whether failure to decide dispute in accordance with applicable law gives rise to challenge under section 67 or 68 of the Arbitration Act/status of dissenting opinion

The parties entered into an agreement which was governed by Spanish law but provided for disputes to be referred to arbitration in London (subject to the rules of the ICC). Following the dispute, a dissenting arbitrator claimed that the other arbitrators had failed to apply Spanish law when reaching their decision. S) 46 of the Arbitration Act provides that the arbitral tribunal shall decide the dispute in accordance with the law chosen by the parties. Whilst the claimant accepted that there would be no breach of s) 46 if the arbitrators made an error in the application of the law, it suggested that a mistake which was so serious as to amount to a departure from the chosen law could be challenged under s) 67 (tribunal lacked jurisdiction) or s) 68(2)(b) (tribunal exceeded its powers) of the Act (no challenge under s) 69 (error of law) could be brought in this case because the parties had waived their right to bring such a challenge under the ICC rules).

Tomlinson J rejected the claimant's arguments. The House of Lords decided in Lesotho Highlands v Impregilo [2006] that an error of law does not involve an excess of power under s) 68(2)(b) and Tomlinson J said that "I do not consider that the conclusion can be any different whether the law under consideration is English law or a foreign law". Nor did an error in the application of the chosen law involve a lack of substantive jurisdiction under s) 67.

Tomlinson J also commented on the status of the dissenting arbitrator's opinion. He concluded that it was not formally part of the award of the tribunal. A dissenting opinion might be admissible as evidence in relation to procedural matters or where the proper law of the dispute is English law and there is an appeal on a point of law. However, in this case the dissenting opinion had no formal status: "In so far as it expresses conclusions of Spanish law which go beyond any evidence as to the content of that law given at the arbitration, I do not see how I can have regard to it". At most, it amounted only to inadmissible opinion evidence.

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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