UK: A Summary Of Recent Developments In Insurance, Reinsurance And Litigation Law

Last Updated: 10 February 2011
Article by Nigel Brook

This Week's Caselaw

Masefield AG v Amlin Corporate Member Ltd & Anor

Court of Appeal upholds decision that act of piracy does not amount to actual total loss

Section 57(1) of the Marine Insurance Act 1906 ("the Act") provides that there is an actual total loss ("ATL") where "the subject-matter insured is destroyed, or so damaged as to cease to be a thing of the kind insured, or where the assured is irretrievably deprived thereof". In this case, Somali pirates had seized a tanker and the claimant cargo owner served a notice of abandonment on the defendant cargo insurer. The notice was declined. Eleven days later the shipowners paid the pirates a ransom and the vessel was released. At first instance, it was held that there had been no actual total loss (nor constructive total loss ("CTL") as defined in section 60 of the Act). The claimant appealed on two grounds:

  1. Capture by pirates created an immediate ATL, whatever the prospects of recovery might be. After a thorough review of the leading caselaw, the Court of Appeal rejected this argument: "piratical seizure in the circumstances of this case, where there was not only a chance, but a strong likelihood, that payment of a ransom of a comparatively small sum, relative to the value of the vessel and her cargo, would secure recovery of both, was not an actual total loss. It was not an irretrievable deprivation of property. It was a typical "wait and see" situation. The facts would not even have supported a claim for a CTL, for the test of that is no longer uncertainty of recovery, but unlikelihood of recovery" (as per Rix LJ). Likewise, even if there had been a theft (which was an insured peril) that peril had not caused an ATL because the claimant had not been "irretrievably deprived" of the cargo.
  2. Although the claimant accepted that payment of ransom was not illegal or contrary to public policy under English law, it argued that it was so undesirable that an insured could not be required to pay a ransom and hence the property had been irretrievably lost if only the payment of a ransom would secure the vessel's release. That argument was also rejected by the Court of Appeal. The fact that there was no duty to make a ransom payment did not mean that there was an obligation not to make such payment: "The fact that there may be no duty to make a ransom payment does not turn a potential total loss which may be averted by the payment of ransom into an actual total loss". Questions of reasonableness are pertinent to whether there has been a CTL but not an ATL.

Accordingly, the appeal was dismissed.

Consolidated Contractors v Masri

Application disclosure orders/behaviour of enquiry agents/waiver of privilege.

Masri obtained judgment against Consolidated Contractors ("CC") and sought to enforce that judgment in England. CC sought to use every legitimate means to resist enforcement because it felt the judgment was unfair. Masri subsequently applied for an order that CC was in contempt of court. Enquiry agents were retained by Masri's solicitors to aid the enforcement process. As part of their search for documents, the enquiry agents had searched documents which had been discarded as rubbish on the pavement outside the London offices of CC - copies of documents had been taken and the originals replaced in the refuse sacks. Steel J had refused to make various orders sought by CC (see Weekly Update 39/10) and CC appealed to the Court of Appeal.

The Court of Appeal has now held as follows:

  1. Masri's solicitor must disclose the source of information set out in his affidavit. The affidavit referred to confirmation from "the enquiry agents" of the methods they had used and that they had used those methods previously to obtain documents in other court proceedings without attracting criticism. PD 32 requires an affidavit to "indicate" the source for any matters of information or belief. The Court of Appeal held that, save in exceptional circumstances (for example, where confidentiality is in issue), "the deponent must identify the source of the relevant information or belief. If the source is a person, that person must, save in exceptional cases, be identified with sufficient certainty to enable the person against whom the affidavit is directed to investigate the information or belief in accordance with the rules of court or other relevant legal principles". Accordingly, the solicitor must name the specific enquiry agent and, because that individual was engaged in a professional activity on the instructions of Masri's solicitors, the firm which employed him or her must also be named.
  2. However, Steel J had not erred in refusing to order disclosure of certain documents on the basis that no prima facie case of theft had been established on the facts. The judge was also correct in stating that even if a prima facie case had been made out, the evidence would still be admissible (unless a court ruled that it was just to exclude it). The judge had concluded that it was "wholly remote" that the evidence would be excluded.
  3. A document forwarded to Masri's solicitor was privileged. CC argued that privilege had been waived because only part of the document had been redacted. The Court of Appeal supported the decision in GE Capital v Bankers Trust [1995] that if a document is only privileged in part, the privileged part alone may be redacted.

Sibthorpe & Anor v London Borough of Southwark

Whether solicitor's agreement to indemnify client against liability for defendant's costs rendered CFA invalid/whether a contract of insurance

The issue in this case was whether the ancient rule against champerty (whereby a funder shares in the proceeds or the subject matter of an action) prevented a claimant's solicitor from agreeing to indemnify the claimant client against any liability for the defendant's costs (if the claimant could not obtain insurance against that risk). It was argued that the inclusion of this indemnity in a conditional fee agreement ("CFA") rendered the whole CFA invalid. The Court of Appeal reviewed the relevant caselaw and held as follows:

  1. Although the modern approach of looking at the CFA in the round applies where the person conducting the litigation is not a party, that approach does not apply where the allegedly champertous agreement is entered into with a person who is conducting the litigation in question (or providing advocacy services). That is a "special category" which is subject to stricter rules. The law is that set out in Wallersteiner v Moir (No 2) [1975]: "English law has never sanctioned an agreement by which a lawyer is remunerated on the basis of a 'contingency fee' that is he gets paid the fee if he wins, but not if he loses".
  2. However, in this case, the lawyer would have made a loss if the action failed but would not have made a gain if the action succeeded. There is no prior caselaw where such an arrangement has been held to be champertous. The Court of Appeal believed that, in the interests of access to justice, there was "attraction in the notion that an otherwise unobjectionable CFA with the indemnity should be valid, at least in small cases where After the Event is unavailable or is prohibitively expensive". It concluded that the arrangement was not against the public interest and so it declined to extend the law of champerty to cover this type of arrangement.
  3. Although the point was not argued before the Court of Appeal, Lord Neuberger MR held that "at least when it comes to agreements with those who conduct litigation (and, presumably, with those who provide advocacy services), there can be champerty without maintenance". (Maintenance is the "wanton and officious intermeddling in the disputes of others" without justification or excuse).
  4. The Court of Appeal also held that the judge had been correct to find that the CFA was not a contract of insurance (within the meaning of FSMA Order 2001) because of the inclusion of the indemnity (if it had have been a contract of insurance, the CFA would have been void because the solicitors were not authorised to enter into it). The trial judge had found that this was a contract for the provision of legal services, albeit that the indemnity created some principles similar to an insurance contract.

BMT Marine v LWB

Contribution claim following a fire at a shipyard - date for determining if other party was liable

A fire took place at a shipyard owned by LWB as repairs were carried out to a ship. Those repairs were being carried out pursuant to a contract between LWB and the shipowners which was governed by German law. The ship was significantly damaged. It was insured and the owners and LWB were co-insureds. After the owners were paid under the policy, the insurers sought to claim, as assignees of the owners, against BMT, on the ground that it had negligently carried out a survey of the shipyard. BMT then sought a contribution from LWB (on the ground that the fire had been caused by LWB) under the Civil Liability (Contribution) Act 1978 ("the 1978 Act"). Certain issues of German and English law fell to be decided by the English court:

  1. As a matter of German law, had the owners waived any right to claim against LWB? Simon J held that they had not. However, also as a matter of German law, he found that LWB did not have any liability to the owners. As a result, BMT could not claim a contribution from LWB under the 1978 Act.
  2. If the judge was wrong on the German law point, could BMT claim a contribution from LWB under English law? In order to recover a contribution, BMT would have to demonstrate that the owners were entitled to compensation in respect of the damage done to the ship against both BMT and LWB

As to whether the 1978 Act should be read broadly or narrowly, Simon J held that in the Royal Brompton [2002] case, it was recognised that although "the 1978 Act extended the reach of the contribution principle to a wider range of cases, a purposive and enlarged view of the reach of the statute did not assist where the words 'liable in respect of the same damage' were clear". In this case, it was clear that the owners were not entitled to recover compensation from LWB in respect of the damage "because they had contractually agreed to look to their Insurers to cover their losses."

The judge also rejected an argument by BMT that, even if there was now no existing liability, such liability did exist at the time of the fire. Simon J said that in Co-op Retail Services Ltd v Young [2002], Lord Hope had clearly rejected such an argument and had concluded that the relevant time for determining whether a person was liable was the date when the contribution was claimed. Simon J also rejected the argument that Lord Hope's observations were not binding: "Where a matter is fully argued and considered by the Court of Appeal and in speeches of members of the House of Lords, even if it were inclined to another view, a First Instance Court should be very slow to come to a different conclusion. Here the observations of the Court of Appeal and the House of Lords were not parenthetical but fully considered conclusions, and the views were unanimous. In such circumstances it is very likely that these Courts would come to the same conclusion if the matters were argued again. In any event I agree with the conclusions".

Case of MGN Ltd v The UK

ECHR rules on whether success fees breach Article 10 of the ECHR

Naomi Campbell won a libel case against a newspaper - the appeal to the House of Lords was conducted pursuant to a CFA, which provided that, if the appeal succeeded (which it did) solicitors and counsel would be entitled to their base costs as well as success fees amounting to 95% and 100% of their base costs, respectively. The newspaper applied to the European Court of Human Rights, claiming (inter alia) that the success fees violated its right to the freedom of expression guaranteed by Article 10. The case therefore concerned success fees only in the context of potentially restricting a newspaper from publishing information which ought to be published. It is nevertheless interesting to note the ECHR's stance on success fees. It found that (having reviewed the Jackson report in detail - see Weekly Update 02/10 for more details) "the depth and nature of the flaws in the system...are such that the Court can conclude that the impugned scheme exceeded the broad margin of appreciation to be accorded to the State". In the circumstances of this case, the success fee was disproportionate and there had been a violation of Article 10. This decision therefore adds weight to the criticisms of CFAs made in the Jackson report.

Carter-Ruck v Mireskandari

Whether solicitors entitled to recover their fees where narrative in bill of costs was sparse

The claimant firm of solicitors sought to recover their professional fees from the defendant, a former client. The defendant argued, inter alia, that he was not liable to pay the fees because the bill of costs had no proper narrative or breakdown of costs. The defendant sought to rely on the case of Kingsley [1978] to support his argument that a bill stating merely "for professional services" is inadequate and void. Swift J, hearing an appeal from an earlier decision, said that although Kingsley is cited as authority for that proposition in at least two textbooks, the judgment does not support that assertion.

The correct position is instead that there has to be "something in the written bill to indicate the ambit of the work but that inadequacies of description of the work done may be redressed by accompanying documents ... or by other information already in the possession of the client" (see Garry v Gwillim [2002]).

In this case, the bill of costs had not contained details of the work done by the claimant and the costs claimed were described as "professional charges". Accordingly, the judge said that "of itself, the information within the bill and invoices was sparse, although it was in my view sufficient to constitute the "something" referred to" in Gwillim. Of key importance, though, was the fact that the defendant was an experienced solicitor with knowledge of the costs regime. He was well able to query the bill and the fact that he did not seek a detailed bill and a detailed assessment strongly suggested that he had all the information which he needed. Furthermore, although there was no narrative for a certain period of time, work had been performed at the defendant's specific request, so he was fully aware of the work carried out on his behalf. Accordingly, Master Leslie had been correct to conclude that the defendant had no reasonable prospect of successfully defending the claim

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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