UK: Weekly Update: A Summary of Recent Developments in Insurance, Reinsurance and Litigation Law – 29/10

Last Updated: 4 August 2010
Article by Nigel Brook

THIS WEEK'S CASELAW

Homawoo v GMF Assurance

Temporal scope of Rome II Regulation

http://www.bailii.org/ew/cases/EWHC/QB/2010/1941.html

Rome II (Regulation (EC) 864/2007) introduced a new uniform EU-wide regime for determining the law applicable to non-contractual obligations. Of issue in this case is its temporal scope.

The regulation came into force on 20 August 2007 (in accordance with the EC Treaty then in force). Article 31 (Application in Time) of the regulation provides that "This Regulation shall apply to events giving rise to damage which occurs after its entry into force". Article 32 (Date of Application) provides that "This Regulation shall apply from 11 January 2009". There is therefore confusion as to whether the regulation applies to events giving rise to damage which occur on or after 20 August 2007 or on or after 11 January 2009.

Slade J said that her preliminary view of the issue is that Article 32 was not a reference to the commencement or determination of legal proceedings and that there would be legal certainty if Article 31 was construed as applying to events giving rise to damage which occur on or after 11 January 2009 (irrespective of whether litigation were to be or had been commenced). She said there was no reason why Rome II should only apply where legal proceedings have been commenced or are determined by a court. However, she went on to find that, given the clear language of Article 31, she could not reach such a determination without a ruling from the European Court of Justice.

Axa Corporate Solutions v National Westminster

Whether terrorism excluded from cover under public liability and products liability Policy

http://www.bailii.org/ew/cases/EWHC/Comm/2010/1915.html

Clyde & Co case

In 2005, Nat West was sued in the USA by victims of Hamas suicide bombings in Israel who allege that a British charity, Interpal, is a fundraiser for Hamas and that it collected donations through Nat West bank accounts. Nat West notified its insurer of potential claims under its public liability and products liability ("PPL") combined policy for the policy years when the relevant suicide bombings occurred. Of issue in this case was whether the policy in question contained an express term excluding liability for terrorism (the insurer sought a declaration that it did).

Much of the case therefore turns on the particular factual events surrounding the renewal for the policy. Hamblen J (having agreed that it made no difference if Nat West, or its parent company RBS Group, were ignorant of the fact that the insurer had told RBS/Natwest's broker that it would only renew on terms which included a terrorism exclusion) accepted that a terrorism exclusion had been included in the PPL policy.

The exclusion was agreed in the following terms: "Terrorism exclusion (wording to be agreed)". Hamblen J rejected the argument that this did not amount to an effective agreement to a terrorism exclusion in the absence of any wording being agreed. He said that the further wording was not an essential term of the contract: "The fact that the parties then contemplated a fuller expression of the same exclusion in a wording subsequently to be agreed could not and does not undermine the fact that the exclusion was cast in terms which are capable of both interpretation and application. It is a common feature of the London market that parties contemplate a fuller wording to follow the slip or short-form statement of their agreed terms".

The insured also sought to argue that the exclusion should be construed as referring only to an act of terrorism affecting premises owned or occupied by it. The judge said that it would not be appropriate for him to seek to construe the term agreed in the abstract. If the insured wished to have the term construed by the courts, it should make a separate application to the court.

Cooper Tire v Dow Deutschland

Article 28 of EC Regulation 44/2001 and related proceedings

http://www.bailii.org/ew/cases/EWCA/Civ/2010/864.html

This case involved alleged anti-competitive practices. The alleged infringers commenced proceedings in Italy, seeking a declaration that there had not been a cartel. Certain of the defendants in those proceedings then commenced proceedings in England. The alleged infringers then sought a stay of the English proceedings, inter alia, pursuant to Article 28 of EC Regulation 44/2001. Article 28 provides that where related actions are pending in the courts of different Member States, any court other than the one first seised may stay its proceedings. At first instance, Teare J refused a stay, even though the Italian courts were first seised, and the alleged infringers appealed.

The Court of Appeal has dismissed the appeal. It was held that the judge had balanced the various factors involved in this case (eg the connections with England were slight, but nor could it be said that Italy was the centre of gravity, since the conspiracy was alleged to be Europe-wide). Longmore LJ agreed with the judge that the fact that the Italian court was first seised did not operate "as some sort of trump card or even as a primary factor when there was as much care and deliberation on the part of [one of the alleged infringers] in starting proceedings for negative declaratory relief as there was in the Claimants' decision to make their substantive claim in England". Nor was there any implied criticism by the judge of the Italian court system by saying that it was unlikely that a decision would be reached there until September 2012 (in fact the next hearing in the appeal is not due to occur until January 2014). The judge was not wrong to take into account the stage of the proceedings reached in Italy. As Longmore LJ put it: "The fact that it may take different periods of time for similar proceedings to come to a conclusion in different jurisdictions, for whatever reasons, is not a criticism; it is merely a fact of life to which a judge cannot be expected to close his eyes".

How Engineering v Southern Insulation

Concurrent liability where collateral warranties have been given

http://www.bailii.org/ew/cases/EWHC/TCC/2010/1878.html

Clyde & Co case

In these proceedings, a sub-sub-contractor (Southern) sought to strike out proceedings brought by the sub-contractor (How). Because of limitation difficulties in bringing a contractual claim, How sought to argue that Southern owed it a concurrent duty of care in tort, alongside its contractual duty to exercise reasonable care and skill (this claim was arguably not time barred because of the "long stop" provision of 15 years provided for under the Latent Damage Act 1986). The type of loss claimed by How was the economic loss which it sustained because How had provided a collateral warranty to the end user (a law firm). Akenhead J concluded that a concurrent duty of care in tort was owed by Southern. He then considered two arguments raised by Southern:

  1. The kind or type of loss was in some material way altered because it came down through a chain of collateral warranty, as opposed to a chain of main contract, subcontract and sub-sub-contract. The judge rejected that argument. The basic loss represented the cost of remedial work and the contractual route through which it comes does not alter intrinsically the kind of loss it is. Nor could it be said that Southern was not responsible for How voluntarily undertaking to be liable to the law firm where no liability would exist at common law. It was said that that ignored the commercial realities of commercial developments - collateral warranties to end users were common.
  2. Southern should not be liable where other parties, without reference to it, entered into a standstill agreement in effect extending limitation by several years. This argument was also rejected by the judge. The standstill agreement only froze limitation and if it had not been issued, the law firm would simply have started proceedings straight away.

    Akenhead J said that Southern could have protected itself from the possibility of a claim being brought up to 15 years after it carried out its work by way of insurance, enhanced pricing, negotiation of limitation clauses and the like.

He therefore dismissed the application to strike out How's claim.

Petition of the Scottish Lion Insurance Co Ltd

Waiver of privilege in relation to application to sanction of a scheme of arrangement

http://www.bailii.org/cgi-bin/markup.cgi?doc=/scot/cases/ScotCS/2010/2010CSOH87.html&query=title+(+scottish+and+lion+)&method=boolean

The petitioners sought sanction of a scheme of arrangement under section 899 of the Companies Act 2006. The court can only sanction such a scheme if the majority of creditors (in number and value) vote for it. The respondents (certain creditors) allege that the scheme did not achieve the required majorities. To make their challenge, they sought disclosure of documents provided to the petitioners by the noters (who were other creditors). The noters argued that this documentation was privileged. It has not yet been determined if those documents are privileged, but in this case, the Outer House of the Court of Session, a Scottish court, had to decide whether there had been an implied waiver of the documentation.

Generally, implied waiver occurs to prevent a party "cherry picking" i.e. waiving privilege in such a partial and selective manner that unfairness or misunderstanding may result. However, in this case, there was no "cherry picking" - the noters did not want to disclose any of the documentation at all.

Lord Glennie held that there had been an implied waiver of the documentation. Creditors who lodge documentation with the petitioners for voting purposes do so as part of a court process which is always potentially adversarial and may well become highly contentious. The noters wanted the documents to be relied upon so that the scheme succeeds. They must therefore be taken to have waived, vis-a-vis other creditors and those involved in the court process, any privilege in the documents. Nor can the noters rely on any confidentiality agreements entered into between themselves and the petitioners. A party who has lodged evidence with the petitioners cannot "seek by private agreement to prevent its circulation to other parties to the litigation".

Complete Retreats v Logue & Ors

Freezing orders and good arguable case

http://www.bailii.org/ew/cases/EWHC/Ch/2010/1864.html

This case concerned an application to discharge a worldwide freezing order because of material non-disclosure when the application for the freezing order was made. Most of the legal principles were not in dispute and much of the case turns on its particular facts. However, one point of interest was Roth J's discussion of the test for a good arguable case on the merits (which is one of the tests for the grant and continuation of a freezing order). Roth J said that the test applied by the Court of Appeal in Canada Trust Co v Stolzenberg (No 2) [1998] (a case on service out of the jurisdiction) should be applied. The test in that case for "good arguable case" was whether one side has much the better argument on the material available. Roth J stressed that that should not mean that this imports the ordinary civil standard of proof "by the back door".

He also added that where a freezing order is in support of foreign, not domestic, proceedings, the test involves consideration of whether the applicant has a good arguable case in those proceedings. In this case, the complaint in the underlying US proceedings was based on the US Bankruptcy Code and so involved the application of terms of art under US bankruptcy law.

Kneale v Barclays Bank

Application for pre-action disclosure and test for arguable case

http://www.bailii.org/ew/cases/EWHC/Comm/2010/1900.html

An order for pre-action disclosure pursuant to CPR r31.16 can only be made where the court has jurisdiction to make the order and where it chooses to exercise its discretion to make the order. For the jurisdictional issue, some of the conditions which must be satisfied are that both the respondent and the applicant are likely to be a party to subsequent proceedings. In Black v Sumitomo [2002], the Court of Appeal held that it is not a requirement that proceedings are likely to be issued, but only that if subsequent proceedings are issued, it is likely that the respondent (or applicant) will be a party to those proceedings. It went on to hold that "likely" means "more probably than not" or "may well".

However, in a later Court of Appeal case - Rose v Lynx Express [2004], the Court of Appeal held that the test was whether a substantive claim was properly arguable and had a real prospect of success. This higher threshold was recently followed in Pineway v London Mining (see Weekly Update 20/10), where Steel J said that it was still a necessary requirement that there is a prima facie claim upon which proceedings could be instituted.

In this case, Flaux J said that, if he had to decide the point, he would have held that the correct test was the lower one set out in Black v Sumitomo. At the pre-action stage, where the whole purpose of the application is to ascertain whether or not to bring a claim, the judge believed that it cannot be right that an applicant has to establish a case which is sufficiently arguable to have a "real prospect of success". However, he also believed that (as CPR r31.16 does not require an applicant to show that proceedings may well ensue), the applicant does have to show some sort of prima facie case which "is more that a merely speculative "punt"". He went on to find that even with the lower jurisdictional threshold, the applicant could not satisfy the test. The application was said to smack of "Micawberism" - the hope that something will turn up.

Rosario v Nadell Patisserie

Whether Pt 36 offer had been accepted/whether settlement agreed

http://www.bailii.org/ew/cases/EWHC/QB/2010/1886.html

One of the issues in this case was whether the defendant's Part 36 offer had been accepted. Tugendhat J pointed out that although the provisions of Part 36 are not part of the law of contract, they are made against the background of that law. So an objective test is applied - in other words, a party may be bound if his words or conduct are such as to induce a reasonable person to believe that he intends to be bound, even though he in fact has no such intention.

In this case, the defendant made a Part 36 offer in November 2009. There was then a further exchange of correspondence between the parties and on 30 April 2010, the claimant's solicitors wrote saying that they accepted the defendant's offer. However, Tugendhat J found, on the facts, that this was not an acceptance of all the terms set out in the November 2009 letter. The use of the wording "Without Prejudice Save As For Costs" in the 30 April letter, as well as a statement that the claimant would revert with further figures relating to one aspect of the offer, could not be ignored. Furthermore (although on their own they would have counted for little) the fact that no copy of the letter was filed with the court (as required by PD 36A para 3.1) and that no reference was made to the time for payment under CPR r36.11(6), suggested the same conclusion.

Accordingly, the 30 April letter was a counter-offer, and on the facts, this offer had been accepted by the defendant.

Barnes v Seabrook

Contempt of court where defendants made false statements during county court Proceedings

http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWHC/Admin/2010/1849.html&query=seabrook&method=boolean

Three claimants sought permission from the High Court (QBD) to commence proceedings for contempt of court for having (during county court proceedings) made false statements in documents verified with a statement of case and (in one case) in a false disclosure statement. Hooper LJ referred to one claimant's explanation as to why the applications were being made: insurance fraud is endemic (it was submitted that the Lists in Ilford and Central London County Court are clogged with fraudulent motor claims) and, with the advent of no win no fee lawyers, fraudsters need only invest one day of their time at trial. Following a review of the relevant legislative framework, a defendant's argument that a claimant cannot come directly to the Divisional Court (but must instead ask the county court judge to refer the matter to the Attorney General) was rejected. It was doubted that a single judge in the High Court had jurisdiction over a contempt of court committed in county court proceedings, but this point was not decided as it was not directly relevant to this case.

The principles to be applied by a court when deciding whether to grant permission to commence committal proceedings for contempt of court were also examined. It was highlighted that the fact that a claimant has delayed in bringing the proceedings is a significant factor which the court should take into account. In some cases, it may be appropriate to commence contempt proceedings even before the conclusion of the main proceedings (but after the alleged contemnor has finished giving his evidence). In terms of procedure, it was also important to detail fully the grounds on which the committal application is made. The applicant must identify, separately and numerically, each alleged act of contempt in the statement which must support the application (see RSC Order 52.2).

OTHER NEWS

The Lord Chancellor and Secretary of State for Justice (Kenneth Clarke) has made a Written Ministerial Statement, in which he advises that there is to be a public consultation on the form and content of the guidance which is to be published in relation to section 9 of the Bribery Act. Section 9 establishes a duty on the Secretary of State to publish guidance about procedures which commercial organisations can put in place to prevent bribery. The consultation will begin in late summer with a view to publishing guidance early in the new year in preparation for commencement of the Act in the spring of 2011:

http://www.publications.parliament.uk/pa/ld201011/ldhansrd/text/100720-wms0001.htm

The Law Commission and Scottish Law Commission have recently published two further Issues Papers relating to their review of insurance contract law. Issues Paper 7 (published on 9 July 2010) relates to the law on fraudulent claims. Section 17 of the Marine Insurance Act 1906 ("the 1906 Act") provides that if a policyholder acts fraudulently, the insurer may deny the whole insurance contract and demand back any money paid on previous claims. The courts are often reluctant to allow this though (holding that non-fraudulent claims should remain unaffected) and the paper tentatively proposes reform of section 17. Responses to the paper must be received by 11 October 2010. Here is a link to Issues Paper 7:

http://www.lawcom.gov.uk/docs/issues7_duty-of-good-faith.pdf

Issues Paper 8 (published on 19 July 2010) relates to the broker's liability for premiums. Section 53 of the 1906 Act makes the broker directly responsible to the insurer for premiums due under an insurance contract (whether or not the broker has received the premium from the insured). The paper queries whether section 53 should be reformed to bring it into line with the general law on contract and agency. Responses to the paper must be received by 19 October 2010. Here is a link to Issues Paper 8:

http://www.lawcom.gov.uk/docs/issues8_brokers-liability.pdf

The Civil Justice Council has launched a consultation on a draft voluntary code of conduct for third party funders. The consultation ends on 3 September 2010 and the draft code can be found at Annex A in the document below:

http://www.civiljusticecouncil.gov.uk/files/TPF_consultation_paper_(23.7.10).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.

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