UK: A Summary of Recent Developments in Insurance, Reinsurance and Litigation Law

Last Updated: 15 July 2010
Article by Nigel Brook

Abbey Forwarding Ltd v Hone Varying a freezing order/meaning of "ordinary course of business" markup.cgi?doc=/ew/cases/EWHC/Ch/2010/1532.html

A freezing order obtained by the provisional liquidator of a company against three former directors contained the standard form provision that the respondent could still use any of his assets "in the ordinary and proper course of business". The directors wanted to make a loan to another company (Wingpitch) of which they were also directors and shareholders. Morgan J held that the loan was proper (i.e. it was not a device to release money from the freezing order), but it was not "in the ordinary course of business". The way in which Wingpitch had been carried on in the past had not involved the directors lending money to it (in fact, money always passed from Wingpitch to the directors). The directors' intention to make the loan to Wingpitch "involves them stepping outside anything that has happened before and anything that is in the nature of an established practice".

The judge went on to consider whether he ought to exercise his general discretion to vary the freezing order. He referred to the principles which he ought to have regard to (as summarised in Noga v Australia and New Zealand Banking Group [2006]), in particular: 1) the interests of justice; 2) the purpose of the freezing order; 3) the consequences of allowing or refusing the variation; and 4) the alternatives available to the directors.

The judge concluded ("by a very short head") that the order should be varied. Although it was suggested that the directors could obtain money from other sources, there were difficulties for them in doing so and the evidence was not definitive.

Pacific v Surkis & Ors Appropriate forum and defects in another country's legal system

The first instance decision in this case was reported in Weekly Update 28/09. In this case, it was accepted that the courts of Ukraine were the natural forum to hear the dispute. However, the claimant had commenced proceedings in England on the basis that he could not obtain justice in Ukraine. This argument was rejected by Blackburne J and the claimant appealed. That appeal has now been rejected by the Court of Appeal. Mummery LJ (giving the leading judgment) noted that the appeal could only be allowed if the judge had misdirected himself on the law or it could be shown that he had been influence by irrelevant matters. He said that the judge had rightly focussed on the serious criticisms of the judicial system in Ukraine. However, crucially, there had been no cogent evidence that the defendant or his associates "were successful in manipulating the Ukrainian legal system by improperly influencing the Ukrainian courts in any of the particular cases in which [the claimant] sought to ventilate its claims". In other words, it is not enough that the foreign legal system is defective, the party seeking to bring proceedings in England must also demonstrate that the other party is personally seeking to take advantage of those deficiencies by trying to put pressure on the foreign judges.

Atlantic Air v Hoff

Third party costs orders

A costs order against a non-party to proceedings can be made where there are "exceptional" circumstances (ie "outside the ordinary run of cases", as per the Privy Council decision in Dymocks v Todd [2004]) and an appropriate warning had been given to the third party that an application might be made for costs against him. The judge, Master Fontaine, acknowledged that the underlying claim in this case had been genuine and, although the third party (Mr Kirby) effectively controlled the claimant, he was not a director or officer of the company. Furthermore, it is not an abuse of the process of court for an impecunious claimant to bring a bona fide claim, even though it lacks the means to pay the defendant's cost if it fails and, in this case, Mr Kirby had funded the company but had not directly funded the litigation. Nevertheless, he did make a third party costs order against Mr Kirby on the following bases:

  1. Mr Kirby had effectively controlled the proceedings but was not a director of the claimant company, so no issue of eroding the principle of the separate liability of the company arose;
  2. As a substantial creditor of the company, Mr Kirby would have derived a potential benefit from the proceedings;
  3. Crucially, although there was no evidence of impropriety against Mr Kirby, there was evidence of bad faith (in particular, the claim was conducted in order to cause the defendant to incur the maximum amount of costs and inconvenience); and
  4. Although Mr Kirby was not warned about an application for a third party costs order at the earliest possible opportunity, "it was only when it became apparent that the company was not prepared to fund any adverse costs orders that the warning became necessary". Therefore this was not a factor which prevented the judge from exercising his discretion to make the order.

Gunn & Anor v Taygroup Ltd

Withdrawal of pre-action admission

A defendant does not need the permission of the court to withdraw a pre-action admission (see Stoke on Trent v Walley [2006]). In this case, the claimant sought to strike out those parts of a Defence which resiled from earlier admissions of liability. Akenhead J held as follows:

  1. The first letter sent by the claims handling agents appointed by the defendant's insurers in June 2005 did not amount to an admission. It had been stated that the defendant was "responsible" but this was ambiguous - it might mean liable in law or it might just mean that the defendant had caused the accident. In this case, it was clear from the facts that within weeks, and over the next two years, liability was not admitted. However, a second letter sent in September 2007 was clearly an admission;
  2. It was not asserted by the claimants that there was any bad faith on the part of the defendant and so the court could not strike out all or parts of the Defence on the grounds of "abuse of process" within the meaning of CPR r3.4; and
  3. The Claimants therefore had to show that they would suffer some prejudice which will affect the fairness of the trial if the requisite parts of the Defence are not struck out. Akenhead J held that it was not proper to infer that prejudice had occurred. For example, the claimant could have taken witness statements and secured other documentary evidence in the 28 month period between the accident and the admission. Furthermore, evidence should be produced to show that there was a real possibility that documents which went to liability had been lost post-September 2007.

The judge also commented that it seemed "somewhat unfair" to hold a defendant to an admission of liability on a claim then specifically quantified at around £600,000, when the claim over two years later had increased to over £3.4 million: "It is not at all unlikely that, if in September 2007, the Defendant, its then solicitors and its insurers had known that it faced a claim of over £3.4 million, it would not have admitted liability so readily if there was an arguable defence on the facts."

Owneast Shipping v Qatar Navigation

Meaning of "intention" in a contract

One of the issues in this case was the meaning of "intention" and whether it includes recklessness. The factual context in this case was a clause in a charter which allowed the charterers to rectify a failure to make punctual payment provided there was an "absence of intention". The owners appealed an arbitral award which held that there had been severe incompetence, but not intentional non-payment, by the charterers. Clarke J rejected the appeal. He held that a commercial man in the position of the parties would not extend the meaning of "intention" so as to include recklessness. He said that intention was not a "word of legal art" - it is an ordinary English word and it has a distinct meaning from recklessness. Furthermore, there are many statutory or contractual provisions which make a clear distinction between intent and recklessness. He also rejected the owners' arguments that intention must at least encompass awareness that late payment will be the virtually inevitable consequence of a deliberate course of action: "Someone who is aware that something is the virtually inevitable consequence of his action is very likely, but not certain, to be held to have intended that consequence".

BSkyB v HP Enterprise & Ors Indemnity costs and discretionary interest taking into account taxation

One of the issues in this case was whether costs should be assessed on an indemnity basis (rather than the usual standard basis). The judge said that the conduct of one of the defendants had not been so unreasonable as to justify indemnity costs. However, the case is noteworthy insofar as the judge found that a senior employee of the defendant had given perjured evidence and that that conduct could be described as the conduct of the defendant. Nevertheless, Ramsey J held that this was not a case where there had been "a systematic" fraud perpetrated by the defendant and it had had no control over what its employee had said in the witness box.

The judge also held that he should take taxation into account when assessing damages, i.e an allowance should be made for the difference between the Corporation Tax treatment which the lost benefit would have received and the Corporation Tax treatment which the sums awarded as damages are likely to receive (a reduction in Corporation Tax having the result that damages for lost benefits would now be taxed at 28% whereas the benefits for which such damages are providing compensation would have been taxed at the rate of 30% at the relevant time). He also held that, when awarding discretionary interest on those damages pursuant to section 35A of the Senior Courts Act 1981, such interest should be based on the net amount of the lost benefits, after the deduction of tax.

Other News

On 1 July 2010, the International Association of Insurance Supervisors (IAIS) published a paper setting out its programme for the development of its common framework for the supervision of internationally active insurance groups (ComFrame):

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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Nigel Brook
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