UK: A Summary Of Recent Developments In Insurance, Reinsurance And Litigation Law – 39/10

Last Updated: 27 October 2010
Article by Nigel Brook

Owners of the Dredger "Karmal XXVI" & Ors v Owners of the Arelia

Whether non-party costs order should be made against insurers/privilege and the fraud exception

The owners of the ship Arelia successfully defended a claim brought by the owners of a dredger and a barge ("Karmal"). The judge concluded that the claim had been fraudulent from the outset. Karmal failed to meet a costs order against it and so the Arelia's owners sought a non-party costs order (pursuant to section 51 of the Senior Courts Act 1981) against Karmal's insurers. They did so on the basis that insurers supported and funded the action in pursuing recovery by way of a subrogated claim after they paid Karmal's claim under their policy, and in respect of Karmal's uninsured losses. This case concerns an application by the Arelia's owners for disclosure by insurers.

It has been established by caselaw that there are certain (non-exclusive) requirements for success on a section 51 application: "The features ... to justify seeking a costs order against the insurers include the following:

  • the insurers determined that the claim would be fought;
  • the insurers funded the defence of the claims;
  • the insurers had the conduct of the litigation;
  • the insurers fought the claim exclusively, alternatively predominantly, to defend their own interests;
  • the defence failed in its entirety" (see Chapman v Christopher [1998]).

Arelia's owners argued that they required disclosure of communications between insurers and their lawyers and witnesses in order to ascertain the element of control which insurers had exercised over the litigation. One further argument which they raised was that they needed to investigate whether insurers had failed to investigate the claim adequately prior to the commencement of the proceedings. Insurers argued that this issue did not fall within a section 51 application and sought to rely on the Chapman decision to demonstrate that there should be no consideration of the merits of the case. Burton J rejected that argument. Chapman only concluded that it was irrelevant to look at why the claim had failed. The issue of whether insurers should and could have discovered the fraud (which was not previously litigated) was an "arguable issue" (on the question of whether it is just and equitable to make a non-party costs order under section 51) and so disclosure should be given.

There was no question that the insurers were party to Karmal's fraud (indeed, they argued that they, too, had been duped by Karmal into paying the claim) but Arelia's owners argued that the fraud exception applied so that they were entitled to see otherwise privileged documents. The fraud exception provides that there is no privilege in documents or communications which are themselves part of a crime or a fraud, or which seek or give legal advice about how to facilitate the commission of a crime or a fraud.

There is academic opinion in favour of the view that the fraud exception applies even where both the solicitor and his client are innocent but are being used as instruments by third parties (here, Karmal) to facilitate a fraud. Burton J concurred with that opinion. Here, insurers had been the "mechanism" for achieving the fraud: "But for the availability of underwriters to pay out this grossly inflated (in respect of the barge non-existent) claim, and then to pursue the insured and uninsured alleged losses, the fraud would never have been commenced, never mind perpetrated". Accordingly, neither legal advice nor litigation privilege was available to the insurers or their solicitors.

Synergy Health v CGU Insurance Plc & Ors Allegation of material non-disclosure and/or misrepresentation at renewal

Following a fire in February 2007 at the insured's premises, a claim was made under the policy. Insurers sought to avoid the policy on the ground of material non-disclosure and/or misrepresentation but failed on inducement. On 28 December 2005, the brokers had forwarded to the insurers' underwriting agents a letter which dealt with various Risk Improvements outstanding from the insurers' earlier surveys and which stated: "Intruder Alarm. This will be completed by end December". In fact this work was not done prior to renewal of the policy in April 2006 (nor by the time of the fire). Insurers argued that this was therefore non-disclosure and/or a misrepresentation which was continuing as at the date of renewal. Flaux J held as follows:

  • The insured could not claim that the wording "this will be completed by end of December" was a representation as to future intention (under section 20(5) of the Marine Insurance Act 1906 ("the MIA") a representation as to expectation or belief is true if it is made in good faith). On the facts, the letter was received on 28 December, and so it was necessarily implicit in the representation that the work was in fact underway and was about to be completed.
  • It was true that the representation was not made during the negotiations for the renewal (as required under section 20(1) of the MIA). However, Flaux J held that: "I consider that, where, as in the present case, a representation is made to the insurers four months before renewal about a matter which is material to the risk and to its renewal and that representation is a misrepresentation, then if it is not subsequently corrected at renewal, the misrepresentation is implicitly repeated at renewal".
  • Although he did not need to consider the issue (having found that there was a misrepresentation), the judge also considered whether there had been a waiver of disclosure (and hence no non-disclosure by the insured). The judge rejected an argument that, by only requiring it to complete a Declaration of Material Facts which related to moral hazard and previous declinature, the insurers had waived disclosure of any other material facts, specifically anything relating to the installation of the intruder alarm.
  • Section 18 of the MIA provides that an insured need not disclose matters which are presumed to be known to insurers and/or which are superfluous because of an express or implied warranty. The judge rejected the argument that insurers were presumed to know the alarm had not been fitted because no alarm specification was sent to them. Nor, on the facts, was there any implied or express warranty referring to the alarm.
  • However, on the evidence, the underwriter was unable to show that he was induced to write the policy on the basis of the misrepresentation and/or non-disclosure and so the insurers were not entitled to avoid the policy. (It is interesting to note though, that in coming to this conclusion Flaux J did not think it was fatal to an argument of inducement if insurers renewed a policy even after learning of a prior misrepresentation, "as I can see that an insurer might well renew for commercial reasons notwithstanding concerns about the previous year's presentation").
  • One further issue was whether the brokers had been negligent in failing to advise the insured of the importance of complying with the Risk Improvements. The judge held not. Failure to comply with the Risk Improvements (which did not have a contractual status) did not jeopardise the insured's cover under the policy. Further, even if the brokers were at fault in failing to investigate how much the insured's representative understood about the insured's insurance affairs, that would not have caused any loss to the insured.

    Finally, even if the brokers had caused the insured a loss, they were entitled to argue that the insured had been contributorily negligent (the judge also noted that even in cases where the defendant's duty is to protect the claimant against the very damage that has occurred, there is no rule of law that contributory negligence is not available as a defence). In this case, it was the insured who was at fault in failing to install the alarm and the brokers were not under any duty to protect the insured from its own fault.
  • Finally, in relation to the quantum of the claim under the business interruption section of the policy, Flaux J held that depreciation not deducted as a consequence of the fire should be brought into account as a saving, reducing the amount of indemnity to which the insured was entitled under the policy. Nor did it matter that the policy expressly referred to a charge or expense which is "payable" out of gross profit. Even though depreciation is not "paid" to anyone (it is, instead, an accounting exercise), the judge said that, adopting a purposive approach, it did fall within the express term.

Garnat Trading & Anor v Baominh Insurance Non-disclosure and waiver of disclosure

Following the loss of a floating dock, the insured claimed under its hull policy. The Vietnamese insurers purported to avoid the policy for alleged material non-disclosure and breach of the implied warranty of seaworthiness. The case largely turns on its particular facts and there was no dispute as to the relevant legal principles. Clarke J found that the insurers had not been entitled to avoid the policy and that there had been no breach of warranty. A reasonable underwriter, in the business of insuring the ocean towage of a floating dock, would realise that there would be some general limitations, which a towage plan would be likely to contain, upon the circumstances in which such a vessel could be towed across the ocean, and that such limitations would include a limitation as to wave height. An underwriter would not, however, know what the limitation was for any given dock. Every floating dock is different; there are no usual conditions. However, it couldn't be said that the limitations in this case were extraordinary or markedly unusual so that they fell outwith the sort of condition that could be expected to be there.

The judge rejected the underwriter's claim that when he signed the insurance he still wished to see the plan but was persuaded to issue the policy without it because he was under pressure of time from his insured.

Furthermore, disclosure of details of the plan was superfluous given that a towage plan warranty appeared in every draft of the policy up until the date of issue of the policy. However, the draft warranty did not appear in the issued policy because the insurers were satisfied that GMB (a classification society) had approved the plan. The judge concluded that: "An underwriter who, in effect, indicates that he does not require information from the insured about a towage plan because he wants the information vetted to the satisfaction of someone else, is not, when such satisfaction is expressed, then entitled to turn round and say that the insured now owes him a duty to provide the information. It is information as to which he has waived disclosure".

Dolphin Tanker v Westport Petroleum What material can be put before the court when hearing an appeal from an arbitral award on a point of law?

The claimants appealed an arbitration award on a point of law, under section 69 of the Arbitration Act 1996. One of the issues in this case was what material could be placed before the court when hearing the section 69 appeal.

There has been some guidance on this issue in recent caselaw (albeit, as postscripts to the judgments), but in this case Simon J usefully summarised the position as follows:

  • There has been no relaxation of the general rule which has existed for many years that only the award and the relevant contract should be put before the Court.
  • There is a confined category of case where either the award has set out the relevant contractual terms in an abbreviated form, or has summarised the effect of an identified contractual exchange or has identified particular documents as having contractual effect without setting out their terms. These are circumstances in which it may be appropriate for a party to invite the court to view additional material.
  • An appeal on a question of law is confined to facts found by the Award.
  • Although all contracts must be construed against the commercial background which would have been available to the parties at the time the contract was made, see ICS v. West Bromwich BS [1998], the only admissible findings in relation to the commercial background are those in the award. The judge concluded that the new material which the claimants wished to adduce in this appeal was irrelevant and inadmissible. This material included expert evidence seen by the arbitrator.

UBS AG & Anor v KWL GmbH When is a court first seised under EC Regulation 44/2001?

The defendant applied to the court for a declaration that it had no jurisdiction to hear the case. One of the arguments was that a German court was first seised of the proceedings and so, under EC Regulation 44/2001, the English court should stay its proceedings. The claim form in the English proceedings was issued on 18 January 2010. However, the claim form was not served until 1 March. In the meantime, on 26 February, the defendant filed proceedings in the German courts. The defendant argued that the German court was the court first seised because of Article 30 of the Regulation which provides that: "the court shall be deemed to be seised: At the time when the document instituting the proceedings or an equivalent document is lodged with the court, provided that the plaintiff has not subsequently failed to take the steps he was required to take to have service effected on the defendant".

Gloster J rejected the argument that the defendant had failed to take the required steps. CPR r7.5 provides that a claim form must be served within the jurisdiction within 4 months of issue and outside the jurisdiction within 6 months of issue. There is no additional requirement that the claim must be served "forthwith" or "as soon as practicable". Nor must the claimant choose the quickest method of service. CPR r7.7 provides that, where a claim form has been issued, the defendant may serve a notice on the claimant requiring him to serve the claim form. However, "it is only after a claimant fails to serve the claim form, despite having been ordered to do so, or after the relevant four month, or six month, period has expired, that he fails to take the steps required by CPR 7.7". In this case, the claimant had acted reasonably in refraining from serving the claim form when without prejudice communications were still taking place. In any event, the claimant's reasonableness was not relevant: "It cannot be appropriate that, under Article 30, the relevant court has to conduct an enquiry as to whether, applying some wholly uncertain subjective criteria, it regards the issuing party as having inappropriately delayed the service of process. That would introduce the very uncertainty that Article 30 was apparently designed to avoid".

Accordingly, the English court was first seised.

JSC BTA Bank v Granton Trade & Ors Effect of Owusu on claims against other non-domiciled defendants

The applicants applied for an order setting aside service of the claim form and for a declaration that the English court has no jurisdiction to hear the claim against them. The claimant is a Kazakh bank which claims to have been the victim of a fraud directed by two Kazakh nationals carried out in Kazakhstan in breach of their Kazakh law duties as officers of the bank. The claim is based on Kazakh law against Kazakh nationals (who are now presumptively domiciled in England) and other companies, the applicants, said to be complicit in the fraud each of whom have no connection with this jurisdiction. Thus this is a case where there are two "anchor" defendants (who are properly sued in England) and other non-domiciled defendants who are said to be necessary or proper parties to the claim. Following the ECJ case of Owusu v Jackson [2005], if an English court is first seised of proceedings against a defendant domiciled in England, it cannot stay proceedings in favour of a non-member state court. However, the applicants submitted that Owusu does not decide that proceedings against other defendants, albeit necessary or proper parties to the claim against the domiciled defendant, may not be stayed on the grounds of forum non conveniens.

Clarke J drew a distinction between the case where the anchor defendant is "a chief protagonist" from that where he is a "minor player": "A decision that permission should be granted to serve the protagonist out of the jurisdiction because the minor player is domiciled within the jurisdiction would indeed allow the tail to wag the dog. But if the anchor defendant is the protagonist a decision to allow a minor player to be served outside the jurisdiction may be entirely appropriate". The importance of the anchor defendant was not determinative, but it was a factor to be taken into account. Nor was it wrong in this case, where the claim was worth around US$1 billion, for the applicants to be characterised as minor players. On the surrounding facts of the case, England was the appropriate forum for the trial of the action.

Nouri v Marvi & Ors When does cause of action accrue for limitation purposes/solicitors' duties

At first instance the judge found that the the claimant's claim was time barred. This is the appeal from that decision. Mr Marvi lived in the claimant's flat and, holding himself out to be the claimant, instructed a firm of solicitors to sell the flat to himself. The fraudulent sale took place on 2 April 2001 and the solicitors then released a forged transfer to Marvi. This enabled him to register the flat in his own name on 4 July 2001. Section 2 of the Limitation Act 1980 provides that an action founded on tort shall not be brought after 6 years from the date on which the cause of action accrued. These proceedings were commenced on 2 July 2007 and the issue was therefore whether the claimant's cause of action accrued when title was transferred (ie when registration took place) or when the fictitious sale was completed. The Court of Appeal held as follows:

  • This was not a contingent liability case. Instead, the claimant suffered actual damage when the sale took place. Although there was no valuation evidence before the judge, the appellant accepted that, had a potential purchaser been told of the forged transfer in the period prior to registration of Mr Marvi's title, this would undoubtedly have led to a diminution in the price he would have been willing to pay (because the purchaser would have been exposed to the risk of possible litigation (even if that risk was more apparent than real)). Furthermore, a cause of action in tort can accrue for the purposes of the Limitation Act without the claimant being aware of it. The Court of Appeal held that the correct hypothesis is to ask whether the claimant could have maintained an action for damages against the solicitors had he been aware of a breach of duty. In this case, he could have, because the flat was unsaleable without disclosure of the fraud.
  • The solicitors did not have a continuing duty of care to take steps after the sale to prevent the claimant from losing his registered title. There were no special facts to suggest that the solicitors assumed a continuing duty to the claimant which survived the completion of the transaction. They did not need to supervise the registration of Marvi's title or carry out further investigations once they had seen his passport. Even if there has have been a continuing duty of care, the cause of action accrued when loss was first suffered, and this had been when the sale was completed. & ors v Cooper & Ors Non-party disclosure and costs order against non-party

This case concerned an application for disclosure from a non-party, pursuant to CPR r31.17. The legal principles involved were not in dispute. Morgan J noted, however, that the primary motivation for the order was the advancement of the claimant's case under CPR r48.2 (which allows a party to apply for a costs order against a non-party). He pointed out that CPR r31.17 is concerned with the claimant's case against the defendant and not the claimant's potential case against the non-party.

Morgan J added that it was not appropriate, in this judgment, to make any prediction as to whether a court, when giving directions (if the third party was added to the proceedings) under CPR r48.2 would, or would not, make an order for disclosure against the non-party and in particular whether the court would make an order for disclosure of the documents which are now sought from the non-party under CPR r31.17. However, he did record his view that it would not automatically be the case that the court would make such an order.

In the event, the judge did not exercise his discretion to make the order under CPR r31.17. He did however stress that, had he made such an order, the documents should only have been used for the claim against the defendant and not for the potential CPR r48.2 application against the non-party (without further permission from the court).

Masri v Consolidated Contractors Disclosure order in committal proceedings/behaviour of inquiry agents

This case concerned the disclosure obligations in the run-up to a committal order (the defendant not having paid a judgment debt). The main issue in dispute between the parties was the behaviour of the inquiry agents retained by the claimants. The inquiry agents were instructed to conduct a search for documents which might be used to assist in the enforcement process. The defendants maintain that the agents acted unlawfully by searching their dustbins for discarded documents, copying such documents and then returning the originals to the dustbins. Steel J doubted whether the defendants had established the facts. However, he added that even if the defendants' complaint of unlawful and improper conduct had been sufficiently made out, the prospects of excluding such evidence were "wholly remote". The claimants' conduct was not "outrageous" and the defendants still had the documents (and were unlikely to produce them voluntarily). Furthermore, the evidence thus obtained was entirely independent of the conduct of the inquiry agents.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Nigel Brook
In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.