UK: Weekly Update: A Summary of Recent Developments in Insurance, Reinsurance and Litigation Law – 33/10

Last Updated: 14 September 2010
Article by Nigel Brook


Chubb Fire Ltd v The Vicar of Spalding

Duty to warn and the doctrine of a "new intervening act"

Vandals discharged a fire extinguisher in a church. The operation to clean up the fine dust which was released cost about £240,000. Insurers paid and, exercising their right of subrogation, brought a claim against the suppliers of the extinguisher. As a contractual claim would have been time-barred, they claimed in tort, alleging that the suppliers had negligently failed to warn the church that any discharge of the extinguisher was likely to cause a mess. At first instance, the judge found that the suppliers were liable and the suppliers appealed.

The Court of Appeal rejected the submission that the judge should, on the facts, have found that a warning about the messiness of the extinguisher was given to the church. However, it was also held that the judge had erred in finding that, if the warning had been given, the church would not have installed the extinguisher. On the available evidence, the judge should have concluded that the church would have taken further advice and would, ultimately, have installed the extinguisher in any event.

In light of that finding, the appeal was allowed. Nevertheless, Aikens LJ went on to consider the argument that the action of the vandals should be regarded as a "new intervening act", such that the suppliers were not liable (even if the extinguisher would not have been installed in any event).

He found that the judge had failed to properly apply the correct legal principles (in particular because the suppliers did not owe a duty to protect the church against vandals). The four issues set out in Clerk & Lindsell on Torts had to be addressed: (1) Did the third party's intervening conduct render the original wrongdoing "merely a part of the history of events"?; (2) was the third party's conduct either deliberate or wholly unreasonable?; (3) was the intervention foreseeable?; and (4) does the defendant owe the claimant any responsibility for the conduct of the third party?

Aikens LJ concluded that the suppliers were not liable for the damage caused by the vandals. The attack took place 7 years after the failure to warn and although malicious discharge was foreseeable in 1999, no one thought then that there was any degree of likelihood that the exact combination of events which did occur (eg that the vandals would enter the church in the short space of time when it was unattended and would go into the room where the extinguisher was stored before returning to the body of the church to discharge it) would in fact do so. The particular combination was, at most, a mere possibility.

However, Longmore LJ and Arden LJ refused to comment on the new intervening act argument, since it was not determinative of the appeal.

Sebastian Holdings v Deutsche Bank

Jurisdiction dispute where different agreements have different jurisdiction clauses

The first instance decision in this case was reported in Weekly Update 31/09. A dispute arose between the parties and one of them (Sebastian) commenced proceedings in New York (alleging that the other party (the bank) had breached its duty to it, resulting in large foreign exchange (FX) losses). Two months later, the bank commenced proceedings in London seeking amounts due to it. Sebastian applied for an order that the English courts did not have jurisdiction but at first instance the judge refused to grant the order. The Court of Appeal has now upheld the judge's decision, although for somewhat different reasons.

The parties had entered into a number of agreements concerning equities and FX trading carried out by Sebastian. However, the jurisdiction clauses in the various agreements did not match. A master agreement (and certain other agreements) provided for the nonexclusive jurisdiction of the English courts, whereas the FX Prime Brokerage Agreement provided for US jurisdiction. A further Master Netting Agreement provided for the exclusive jurisdiction of the English courts.

The Court of Appeal construed the agreements focusing on finding the "commercially rational construction" (even if this resulted in a degree of fragmentation in the resolution of the disputes between the parties). Although Sebastian accepted that claims could be brought in England, it argued that the parties must have intended claims to be brought in the forum specified in the agreement "from which the claim had its cause or origin or the agreement which was at the commercial centre of the dispute" (i.e. the FX Prime Brokerage Agreement). This argument was rejected by the Court of Appeal. The bank was bringing a claim for debts which would be due under agreements which were subject to English jurisdiction clauses:

"Rational businessmen entering into agreements relating to different aspects of trading in the financial markets would understand that the Bank would wish to be entitled to bring proceedings to enforce payment of debts under each agreement which gave rise to the specific debt".

Azimut-Benetti Spa v Healey

Whether a clause in a contract was a penalty/liability of a guarantor

Clyde & Co for defendant

If a clause in a contract provides for payment (in the event of a breach of contract) of an amount of money which exceeds a genuine attempt to pre-estimate the loss which might arise following that breach, it will be considered to be a penalty and the courts will refuse to enforce it. However, if the amount specified is a genuine pre-estimate, it will be treated as liquidated damages and will be enforceable. The courts are generally reluctant to find that a clause is a penalty, though, and this case is an example of that approach.

In this case, the buyer of a "super yacht" which was being constructed by the claimant failed to pay amounts due and the claimant sought to recover from the buyer's guarantor. Clause 16.3 of the contract provided for retention by the claimant of 20% of the contract price in the event of the buyer's non-payment (the claimant also agreeing to return the balance of sums received from the buyer). The guarantor sought to argue that clause 16.3 was a penalty. The following issues arose:

  1. Clause 2(f) of the contract provided (inter alia) that the guarantor's liability was not diminished by any illegality in whole or in part of the contract and the claimant therefore argued that even if clause 16.3 was held to be a penalty, this would not mean that the guarantor was also released from liability. That argument was rejected by Blair J. Since a penalty clause does not bring into existence any obligation on the part of the debtor, there is no relevant liability covered by the guarantee. It would also be contrary to public policy principles to allow the indirect enforcement of a penalty.
  2. However, the judge held that clause 16.3 was not a penalty. When looked at as a whole, and taking into account the negotiations between the buyer and the claimant prior to entering into the contract (insofar as this showed the reasons why the parties agreed the clause), the judge concluded that the buyer had freely agreed the clause, which was intended to strike a balance between the parties in the event of the claimant's lawful termination: "As the authorities .... show, in a commercial contract of this kind, what the parties have agreed should normally be upheld".

Raggett v Society of Jesus Trust

Extending time for bringing personal injury claim - test to be applied

Generally, a claim for personal injury will become time-barred after three years from the date of the cause of action or the date of knowledge of the injured person (section 11 of the Limitation Act 1980). However, section 33 of the 1980 Act gives judges a discretion to disapply the time limits laid down in section 11 where it would be equitable to allow a claim to proceed. A list of factors which the judge must take into account when deciding whether to exercise this discretion is set out in section 33. In KR v Bryn Alyn [2003], the Court of Appeal held that a judge must decide whether to exercise his/her discretion under section 33 before determining liability. To do otherwise would be, it was said, to "put the cart before the horse".

In this case, the judge at first instance had decided to allow the claim to proceed and the appellant argued that she had erred in doing so because she had made findings that the abuse in question had occurred before deciding the limitation issue under section 33. However, the Court of Appeal has held that the judge approached the section 33 issue entirely in accordance with principle. Bryn Alyn required a judge to decide the section 33 issue not on the basis that abuse had occurred but on an overall assessment, including the cogency of the evidence. That is what the judge had done in this case, where the evidence against the alleged perpetrator of the abuse was strong.

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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