UK: Weekly Update: A Summary of Recent Developments in Insurance, Reinsurance and Litigation Law – 30/10

Last Updated: 10 August 2010
Article by Nigel Brook


City & General v Royal & Sun Alliance

Whether judge was wrong to set aside order extending time for service of claim form/acknowledgment and insurance claims

Clyde & Co for appellant

Developers claimed against both their contractors' all risks and property damage insurers in respect of damage allegedly suffered as a result of (a) water ingress in 2002, (b) the collapse of a crane in 2003 and (c) infestation of water systems in 2004. The developers appealed against a decision to set aside an order which had extended time for service of the claim form (on the basis that insurers would arguably have been deprived of a time bar defence (in relation to the crane collapse claim, which had be come time-barred during the period when the claim form should have been served). The Court of Appeal dismissed the appeal for the following reasons:

  1. The judge could not be criticised for not considering the 3 claims separately. He was not asked to do so and this would have been a complicated and unjustified approach.
  2. The judge did not purport to come to any conclusion regarding an "arguable" but "by no means straightforward" argument that each separate ingress of water gave rise to a separate cause of action against the insurers.
  3. It was not appropriate to extend time to enable a "doubtful" response to the time bar defence to be taken. The developers argued that offers made by the insurers in 2007 amounted to an acknowledgment of those claims and so the limitation period started again at the date of acknowledgment (section 29(5) of the Limitation Act 1980). Insurers had offered £25,000 in respect of the water ingress claim (for which the developers were claiming over £1 million) and just under £25,000 for the crane claim (for which the developers were claiming just over £500,000). Longmore LJ said that: "It is not immediately obvious that an open offer of a small amount, in response to a claim of a much larger amount, is an acknowledgment of a claim in that much larger amount. It might, no doubt, be said that it is at least an acknowledgment of the claim in the smaller amount, see Surrendra Ltd v Sri Lanka [1977]..., but it would be a question whether it would be right to extend time for service of a claim form merely to enable that much smaller amount to be claimed".

Furthermore, section 29(5) only applies "where any right of action has accrued to recover ... any debt or other liquidated pecuniary claim." Longmore LJ said that the claims against the insurers were not, on the face of it, claims for a debt or other liquidated claims. Not only were they not currently quantified, there was considerable caselaw authority that claims under a policy of indemnity are claims for unliquidated damages (for failure to pay a proper claim).

Bacon v Nacional Suiza Cia Seguros Y Reseguros

Temporal scope of Rome II

The English claimant was injured by a Spanish driver (insured by the Spanish defendant) on 7 September 2007. An issue arose as to whether Spanish or English law applied to the assessment of damages and this in turn depended on whether Rome II applied. In last week's Update, it was reported that Slade J was of the opinion in the case of Homawoo v GMF Assurance that Rome II applied to events giving rise to damage which occur only on or after 11 January 2009.

In this case, Tomlinson J (who had been shown a copy of Slade J's judgment) concluded that Rome II applies to events giving rise to damage which occur on or after 20 August 2007. In so doing, the judge commented that it is well-established in EU legislation that there can be a difference between the date when an instrument comes into force and the date when it "applies". However, it should be noted that Tomlinson J's comments were made obiter, since he had also concluded that the defendant was not liable to the claimant.

COMMENT: This issue is commonly of importance to foreign insurers in particular when faced with an English third party claimant. If Rome II applies, as it was held to here, then the law of the insurer's home state will govern the assessment of the quantum of damages. Otherwise, English law will apply (see Harding v Wealands [2007]).That is important because the assessment of quantum under English law is significantly more beneficial to claimants than in several other European jurisdictions. There are now, therefore, two conflicting views from two High Court judges (in under a week) as to the temporal scope of Rome II and it remains to be seen whether a reference will in fact be made to the ECJ to finally determine the point.

Chalbury McCouat International v PG Foils

Failure of procedure to appoint arbitral tribunal and connection with England

A contract entered into between an English company and an Indian company contained the following arbitration clause: "In case if there is any dispute between the parties of this contract the same will be sorted out by mutual discussion, But in case if the issue is not resolved even after discussions the same will be referred to arbitration as per prevailing laws of European Union in the Europe. The decision of the Arbitrator is final and binding on both parties."

When the parties could not agree on the procedure to appoint an arbitral tribunal, the English company commenced proceedings in England asking the court to exercise its powers under s)18 of the Arbitration Act 1996 (which includes the power to give directions for appointments). That in turn required the English court to decide whether or not the seat of the arbitration would be in England and whether the court had the power to support the arbitral process because of a connection with England and Wales under s) 2(4) of the Arbitration Act). Ramsey J concluded as follows:

No seat of arbitration was chosen in the arbitration clause. There is no statutory guidance as to the degree or type of connection required under s) 2(4). The supplementary report of the Departmental Advisory Committee on Arbitration Law (which commented on the Arbitration Bill before it became law) provided that there "must not be a clash with a foreign jurisdiction of the type there would be if there is a seat of arbitration elsewhere". Ramsey J held that the report did not have in mind the type of clash where one party may apply to a court in one jurisdiction and the other party to a court in another jurisdiction (as here).

There was no express choice of law in the arbitration clause. One of the matters relevant to the exercise of the court's discretion under s) 2(4) is the law likely to govern the substance of the dispute. In this case, there was a strong suggestion that the applicable law should be determined under the laws of the European Union and so the Rome Convention applied. This indicated that English law would be the governing law (because it is presumed that the contract is most closely connected with the country where the party who is to effect the performance which is characteristic of the contract has its central administration and, in this case, that was England).

Furthermore, (given the conclusion on English law) the judge found that an English seat of arbitration was possible but an Indian seat was unlikely. This in turn meant that there was sufficient connection with England for the court to exercise its powers under s)18 to support the arbitral process.

Ramsey J went on to find that it would not be appropriate for the President of the English Law Society to nominate an arbitrator. Instead, the appointment should be made by a well-respected independent international arbitration institution. He concluded that the President of the LCIA should make the appointment.

Omak Maritime v Mamola Challenger

Wasted expenditure where claimant would be in a better position than if the contract had been performed

Charterers appealed from an LMAA tribunal award in favour of the owners. Unusually, the charterers had repudiated the charterparty when the market rate of hire was then higher than the charterparty rate of hire. Accordingly, the owners were able to trade at the higher market rate. Nevertheless, the owners claimed damages for the expenses which they had incurred in preparing to perform the charterparty. The charterers appealed against the tribunal's decision.

Teare J said that it was accepted that expenditure which has been wasted as a result of a breach of contract is recoverable as damages. In Robinson v Harman (1848), Baron Parke said that it was a rule of common law that in a breach of contract case, a claimant should be placed in the same position as if the contract had been performed. A corollary of that principle is that a damages award should not put the claimant in a better position than he would have been in had the contract been performed. Teare J said that this rule governs claims for wasted expenses as well as a claim for loss of profits. The tribunal had erred in holding that a claim for wasted expenses and a claim for loss of profits were two separate and independent claims which could not be mixed. In other words, the fact that the vessel could be hired out at a higher rate as a result of the repudiation should have been taken into account and the owners net overall position should have been looked at.

(Teare J also held (obiter) that, had he dismissed the appeal he would have also allowed the owners' appeal from the tribunal's decision regarding loss of earnings by the owners (for the time which they had spent making the vessel ready for the charterparty). Teare J said that the owners could have claimed not just for wasted expenditure but also for "a wasted decision to forego earnings at the market rate").

Lockheed Martin v Willis Group

Substitution of party, on the ground of mistake, after expiry of limitation period

The claimant entered into a settlement agreement with London Market insurance companies in 2002. It was not, however, paid all that it was owed - in part because certain insurers had become insolvent but also in part because its brokers had allegedly failed to maintain adequate records and so it was unable to indentify who certain of the relevant insurers were. Shortly before expiry of the limitation period, it issued a claim form naming Willis Group Holdings Limited ("Holdings") as a defendant. Holdings is the ultimate holding company in the Willis Group and is a Bermudian company. After the claim form reached the Willis Group, an in-house solicitor at Willis Ltd told the claimant that valid service could not be effected on Holdings in England and so the claimant applied to substitute Willis Group Limited ("Group") (the principal holding company in the UK) and Willis Limited ("Limited") (the principal broking company within the UK operation) as defendants. As reported in Weekly Update 24/09, Beatson J set aside an order for substitution under CPR r19.5 and the claimant sought permission to appeal from the Court of Appeal.

The Court of Appeal has refused permission to appeal but for different reasons than those given by the judge. Since this is a case for substitution of a party, it must be shown that Holdings was named in mistake for Group and/or Limited. On the facts, the claimant intended to claim against the senior holding company of the group's UK broking operations. Thus it had intended to sue Group, but not Limited.

The judge had then considered a second "requirement": whether the mistake was misleading to the other party or caused reasonable doubt as to the identity of the party intended to be sued. However, the Court of Appeal has held (expressly on an obiter basis) that this is not a formal condition of the CPR r19.5 jurisdiction. It is, instead, just an aspect of discretion. In this respect, therefore, the judge had erred.

The Court of Appeal then went on to hold that there is no jurisdiction to allow the claimant to substitute a new party out of time unless to do so is necessary. This necessity test could not be satisfied by the claimant. The duties of care pleaded in the claim form (including, for example, the duty to maintain adequate records) could not arise against Group, which is a holding and not a broking company. Accordingly, the claimant had no cause of action against Group and so permission to appeal was refused.

Rubin & Anor v Eurofinance

Whether English courts should enforce decision of US bankruptcy court

Weekly Update 32/09 reported the first instance decision in this case. It involves an application by receivers under the Cross-Border Insolvency Regulations 2006 ("the Regulations") - which give effect to the UNCITRAL Model Law relating to cross-border insolvency - for recognition of a US bankruptcy court decision and an order enforcing that decision as a judgment of the English courts. At first instance, the judge held that the judgment could not be enforced. The Court of Appeal has now allowed an appeal from that decision.

Ward LJ, given the leading judgment, held that proceedings brought in the US to recover monies were part of the bankruptcy proceedings. The ordinary rules for enforcing foreign judgments do not apply to bankruptcy proceedings. Accordingly, the ordinary private international law rules preventing enforcement of judgments where a defendant is not subject to the jurisdiction of the foreign court do not apply. The US proceedings must be recognised as a "foreign main proceeding" under the Regulations. He pointed out that "there should be a unitary bankruptcy proceeding in the court of the bankrupt's domicile which receives world-wide recognition and it should apply universally to all the bankrupt's assets". Permission to appeal to the Supreme Court was refused "in the confident expectation that Lord Collins of Mapesbury or Lord Walker of Gestingthorpe will not need much time to decide whether to jump at the opportunity to take the appeal or to leave it be".

Black Horse v Speak & Anor

ICOB and joint borrowers

This case involved customers who had taken out a payment protection insurance policy at the same time that they received a loan from the claimant bank. One of the issues to arise was whether there had been a breach of ICOB, since the bank was acting as an insurance intermediary. Waksman J found on the facts that there had not been any misrepresentation to the customers. One argument which was raised though was whether the bank's employee ought to have gone through a questionnaire with both the husband and wife where they were to be joint borrowers. The judge said that there was no hard and fast rule and it depends on the circumstances of the case. In this case, he found that the wife had authorised her husband to deal with the loan and the bank's employee had sought confirmation of this. There was therefore no need to go through the questions again with the wife and there had been no breach of ICOB.

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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