CONTENTS
Sharon's Bakers v Axa
A case on whether insurers were entitled to avoid for moral hazard and "fraudulent means or devices"
X v Y
A decision on whether an arbitration claim was out of time
Nanjing Tianshun v Orchard Tankers
A case on failure to comply with a 30 day deadline in an arbitration clause
Hydropool Hot Tubs v Roberjot
A case on dispensing with the need to serve an order personally on a defendant
Rolf v De Gijerin
A Court of Appeal case concerning the failure to beat a Part 36 offer and the costs consequences of an unreasonable refusal to mediate
In the Matter of Sompo Japan Insurance Inc
A case dealing with objections to a Part VII transfer
RBS v Hicks & Ors
A decision on anti-suit injunctions and USC s) 1782
This Week's Caselaw
Sharon's Bakers v Axa
Insurers entitled to avoid for moral hazard/fraudulent means or devices
http://www.bailii.org/ew/cases/EWHC/Comm/2011/210.html
The claimant insured (a bakery) sought an indemnity from the defendant insurers following a fire at its premises. The insurers defended the claim on two grounds:
1) There had been a non-disclosure of material facts - not relating to the insurance but to a financial leasing transaction. This was said to constitute a "moral hazard" and accordingly the insured was entitled to avoid. The insured accepted that allegations of dishonesty must be disclosed to an insurer when applying for insurance (see North Star Shipping v Sphere Drake [2006]). However, it argued that the insured was under no duty to disclose where the insured does not believe himself to have acted dishonestly and no-one has suggested otherwise at the material time (even if the insured is aware that another person might potentially suspect dishonesty). On the facts of the case, though, Blair J concluded that the insured had been aware that a false invoice for equipment had been sent to the financing company for the purpose of obtaining a loan which would not otherwise have been extended. This was a material fact which ought to have been disclosed to insurers: "False documents are inimical to commerce, and in my view, this factual scenario also falls within the "moral hazard" principle". It made no difference here that there had been valuable equipment on the premises which was damaged in the (accidental) fire, or that the financing company had not apparently been concerned about how the insured had acquired its equipment.
2) Following the fire, the insured submitted the false invoice in support of its claim and this therefore amounted to "fraudulent means or devices" in aid of its claim. This argument was also accepted by the judge. The invoice was provided as evidence of a true sale and purchase agreement which had not taken place and was used to support the insurance claim. Again, it made no difference that the insured claimed to have a perfectly valid set of documentation to show how it had acquired the equipment and the judge had rejected any suggestion that the equipment was of dubious provenance or worth less than the insured claimed. Accordingly, all the benefit under the policy was forfeited.
X v Y
Whether arbitration claim was out of time
http://www.bailii.org/ew/cases/EWHC/Comm/2011/152.html
An arbitration clause in a charterparty provided that a claim would be time-barred unless the claimant's arbitrator was appointed "within 12 months of final discharge or termination of this Charterparty". The claimant, X, argued that the claim had therefore become timebarred twelve months after the first date of discharge. The defendant, Y, countered that its claim was not time-barred as the appointment was made within 12 months of the date of termination. The arbitrator agreed with Y and X appealed to the High Court. Burton J dismissed the appeal. He agreed that "final discharge" meant the discharge of the cargo for the voyage in respect of which the claim is made (here, the first voyage out of three). However, on the wording of the clause, either trigger date could be used. There was no need to add in the words "whichever is the later" (or, for that matter, "whichever is the earlier"). There was no "black hole" here, just two alternative trigger dates. There was no need to adopt the contra proferentem rule (although, if the judge had, that would have worked against X in this case).
Nanjing Tianshun v Orchard Tankers
Failure to comply with 30 day deadline in arbitration clause
A shipbuilding contract provided that the seller had the right to dispute the buyer's cancellation by instituting arbitration "if such institution of arbitration is made within thirty (30) days of the Buyer's cancellation". The sellers sought to dispute the buyer's cancellation but failed to comply with the 30 day deadline. The buyers argued that the sellers' claim was therefore time-barred. The sellers countered that any failure to institute arbitration proceedings timeously did not bar the right to dispute the cancellation but merely barred the remedy to be obtained by way of an arbitral award. That argument was rejected by Steel J. It was only in the arbitration that the sellers could dispute the buyer's cancellation.
The judge reached this conclusion based on all the terms of the contract. He also found that there would be no commercial purpose in granting the sellers an option to either institute a private arbitration within 30 days or to be able to institute public litigation after 30 days but within 6 years. The judge also referred to a textbook by Mustill and Boyd in which it was stated that the courts will lean in favour of construing clauses such as the one in this case as "claim-barring" rather than "remedy barring" (because it is easy to see why parties to a commercial contract would want to bar a claim entirely but not that a stale claim should be litigated rather than arbitrated). Nor were express words needed to bar a right to start legal proceedings.
Hydropool Hot Tubs v Roberjot
Dispensing with need to serve order personally on defendant
The claimant obtained a court order against the defendants. This was addressed to both defendants but it was not personally served on either defendant. RSC Order 45 (which continues to have effect post-CPR) rule 7 provides that, where a person who fails to comply with an order, the order cannot be enforced by an order for committal or writ of sequestration if it has not been served personally on that person. However, the court does have discretion to dispense with personal service (including retrospectively - see Davy International v Tazzyman [1997]). "With some hesitation", Arnold J held that it was just to dispense with personal service in this case. The defendants were represented by solicitors and counsel (who would have explained to the defendants the consequences of disobedience) and the applications for the orders had been made on notice. The defendants had not opposed the orders and they were clearly aware of them. Furthermore, the breaches were not trivial and nor were they committed inadvertently.
Rolf v De Gijerin
Failure to beat Part 36 offer and costs consequences of unreasonable refusal to mediate
http://www.bailii.org/ew/cases/EWCA/Civ/2011/78.html
Rix LJ described this as a "sad case about lost opportunities for mediation". The claimant homeowner sued her builder. The claimant made two part 36 offers, which the defendant rejected. At trial, she did not beat her offer and the judge ordered her to pay the defendant's costs from the date on which the first Part 36 offer expired, on the basis that her offer had been too high. The claimant appealed that costs decision.
The Court of Appeal agreed that the judge had erred fundamentally in his appreciation of the significance of the Part 36 offer: "There is nothing about the [Part 36] procedure which states that an offeror is to be prejudiced as to costs because he has expressed a willingness to accept less than his open position". Taking into account all the circumstances of the case, the Court of Appeal held that the right order was that there should be no order as to costs. In coming to this decision, it was noted that an unreasonable refusal to mediate can have costs consequences. Rix LJ also referred to the Jackson Report on Civil Litigation Costs, where the virtue of ADR, particularly in low value construction disputes, was highlighted. In this case, the claimant had offered to mediate several times and the defendant had had no reasonable grounds for refusing this offer. Although it was possible that settlement discussions or mediation would not have produced a solution, such discussions or mediation "would have had reasonable prospects of success".
In the Matter of Sompo Japan Insurance Inc
Dealing with objections to a Part VII transfer
http://www.bailii.org/ew/cases/EWHC/Ch/2011/260.html
In this case, Briggs J gave his reasons for sanctioning a scheme for the transfer of certain insurance business from the UK branch of Sompo Japan Insurance Inc ("Sompo") to Transfercom. Various objections to the scheme had been raised by certain transferring policyholders. Some of the objections had been as follows:
- There would be a reduction in the transferring policyholders' security. The judge held that reduction in the confidence level attributable to the transferring policyholders from 99.88% to 99.6% was not material - that was still a satisfactory level of security. Nor was it significant that there was a corresponding increase in the security available to Transfercom's existing policyholders - this had not been achieved at the expense of the transferring policyholders.
- The independent expert had relied on research carried out by other qualified professionals. The judge accepted that this was "inevitable and acceptable", especially as he had done so only after his own sufficient review of their work.
- It was said that Sompo had no rational commercial purpose for the transfer. The judge rejected this - a desire to achieve finality was in itself a rational commercial purpose.
- Objection was made that "since probably a majority in value of the transferring policies were governed by laws other than that of the UK, there was a serious risk that the scheme would be legally ineffective to bring about a substitution of Transfercom for Sompo as reinsurer". Briggs J agreed with Richards J that, provided the evidence showed that a sufficient proportion of transferring policies were governed by English law (and therefore by FSMA), so that the court's sanction of the scheme could not be characterised as acting in vain, then the risk that transferring policies governed by non-English law might not be validly altered as to reinsurer by the scheme, was not a persuasive reason to refuse sanction. This was subject, though, to the independent expert confirming (as he did) that there was no unacceptable level of uncertainty or unfairness.
RBS v Hicks & Ors
Anti-suit injunctions and USC s) 1782
http://www.bailii.org/ew/cases/EWHC/Ch/2011/287.html
This case involved an application to discharge an anti-suit injunction. Floyd J rejected that application for a number of factual reasons. He was then asked to consider whether the defendant to the English proceedings could (if it wanted to) still make an application under USC s)1782. This section of a US statute gives the US courts power to grant assistance to litigants in aid or proceedings in foreign courts (by ordering a US resident to give evidence for use in the foreign proceedings). Floyd J held that he should apply the general principle that the English courts do not exercise control over the manner in which litigants choose to obtain evidence. The proceedings in England in this case had not reached a stage where it could be said that an application under USC s)1782 would "necessarily be abusive, neither has any application for a 1782 order been formulated". However, to counter the objection that an application can be made under USC s)1782 ex parte, the judge allowed applications under USC s)1782 but only if 7 days' prior notice is given to any respondent to such an application of the intention to issue proceedings under that statute.
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