This Week's Caselaw
AXA Seguros v Allianz & Ors
Litigation privilege in a (re)insurance context
http://www.bailii.org/ew/cases/EWHC/Comm/2011/268.html
The claimant reinsured sought to recover under its reinsurance contract with the defendant reinsurers following damage caused to parts of the reinsured property (a highway) as a result of a hurricane in Mexico. Prior to the placement of the reinsurance contract, reinsurers had sought the provision of surveys confirming that the highway had been constructed to internationally acceptable standards. When this was not supplied, reinsurers imposed a "Reverse Onus of Proof" clause, requiring the reinsured to prove the condition had been complied with. The hurricane occurred in October 2001. Loss adjusters were immediately appointed by the reinsurers and the reinsured. The loss adjusters subsequently recommended the appointment of engineers to inspect the highway. The engineers were appointed in January 2002 and inspected the highway in February 2002. After the reinsured was ordered, in January 2003, to pay under its insurance policy following an arbitration in Mexico, the reinsurers denied they were liable to indemnify the reinsured because of the alleged breach of a condition precedent in the reinsurance policy. This case involved an application by the claimant to inspect certain reports and other documents produced by the engineers from March 2002 onwards, in respect of which the defendants claimed litigation privilege. Clarke J decided the following points:
- When had litigation reasonably been in prospect? This case was said to be close to the border line between circumstances which afford a reasonable prospect of litigation (but not necessarily that litigation is more probable than not), on the one hand, and a (mere) possibility of litigation on the other (the latter scenario not giving rise to litigation privilege). However, in this case, litigation was held to have been in reasonable prospect in January 2002. This was because there was "a reasonable prospect" that the engineers' report would reveal a breach of the condition, with the result that the reinsurers would reject the claim and litigation would inevitably follow. Evidence from the reinsurer's claim manager to that effect, although not conclusive, was also not irrelevant;
- However, the engineers had not been instructed to produce reports for the predominant purpose of anticipated litigation. Instead, there had been dual purposes (the other purpose being verification of the original surveyor's quantum calculation - and in that respect, the reinsurers and reinsured shared a common interest). Neither of those two purposes was predominant. Accordingly, the claim for litigation privilege failed;
- Clarke J rejected an alternative argument that confidentiality in all the engineers' reports and documents had been lost because certain information and documentation from the engineers had inadvertently been disclosed to the reinsured; and
- Although not necessary to decide the point, the judge considered whether a claim to privilege could still be maintained in light of the fact that the reinsurers had appointed the engineers as their Part 35 experts. The reinsurers accepted that they would have to waive privilege in due course and the judge said it was "wasteful and inefficient" to spend time arguing a claim for privilege if it was inherently likely that much of the material in dispute would have to be disclosed eventually.
COMMENT: Whilst this case is similar to the Court of Appeal decision in Dornoch v Westminster (see Weekly Update 34/09) in fixing the point at which litigation is said to be in reasonable prospect at a fairly early stage in the claims handling process, it is important to note that the dual role performed by the agents prevented a claim for litigation privilege. Loss adjusters and the like will often perform such a dual role for (re)insurers and it will be a question of fact whether this duality prevents a conclusion that any communications from them were produced for the dominant purpose of assisting in the conduct of any future litigation (and hence the (re)insurer will be unable to claim litigation privilege in respect of such communications).
Association belge des Consommateurs Test-Achats
ECJ rules that it is incompatible with EU law to take the sex of an insured into account as a risk factor
Weekly Update 37/10 reported the Advocate General's opinion that Article 5(2) of Directive 2004/113, which allows Member States to permit differences related to sex in respect of insurance premiums and benefits if sex is a determining risk factor (and that can be substantiated by relevant and accurate actuarial and statistical data) should be declared invalid. As was widely anticipated, the ECJ (grand chamber) has now followed this opinion. In a brief judgment, it has held that:
- Article 6(2) EU provides that the European Union is to respect certain fundamental rights. One of those fundamental rights is the equal treatment of men and women;
- The EU legislature provided in Article 5(1) of Directive 2004/113 that differences in premiums and benefits arising from the use of sex as a risk factor must be abolished by 21 December 2007. However, Member States which did not require unisex premiums and benefits at the time when Directive 2004/113 was adopted were given the option of deciding before 21 December 2007 to allow differences in premiums and benefits based on sex as a risk factor (provided that that could be substantiated by relevant and accurate actuarial and statistical data). Although, under Article 5(2), a decision to allow such differences was to be reviewed by the Member State 5 years after 21 December 2007, the Directive was silent as to the length of time during which those differences may continue to be applied. Accordingly, there was a risk that this derogation from the equal treatment of men and women might persist indefinitely; and
- A provision enabling Member States to maintain, without temporal limitation, an exemption from the rule of unisex premiums and benefits was said to work against the achievement of the objective of equal treatment and hence was invalid.
The ECJ concluded that Article 5(2) will be invalid with effect from 21 December 2012. This is a somewhat shorter time frame than the 3 year transitional period suggested by the Advocate General to allow insurers to adjust to the new legal framework conditions and to adapt their products. However, it does not appear from the judgment that the invalidity will have any retroactive effect. The effect of the ruling, though, is likely to be a levelling up or down of premiums and rates to provide for a unisex rate and possibly even the withdrawal of certain products. Less clear is how matters of indirect gender discrimination will be dealt with - for example, where occupation is used as a risk factor, given that certain jobs traditionally have a higher concentration of either men or women.
Aviva Insurance v Brown
Fraudulent claim and recovery of all amounts paid out under policy
http://www.bailii.org/ew/cases/EWHC/QB/2011/362.html
The claimant insurer sought to recover sums which it had paid out under a property insurance policy. A claim for subsidence was made under the policy in 1989 and a further claim was made in 1996. After considerable delay, the insured admitted the claim and repair works were carried out in 2008. The cost of the repairs was over £175,000 and the insurer also paid just over £58,000 in respect of alternative accommodation. The insurer alleged that the claim for alternative accommodation was fraudulent. Much of the case therefore involves a factual dispute but the following is noteworthy:
- It was accepted by the insured that there could be an alleged fraudulent claim (or use of fraudulent means or devices) even where (as here) they related to a time before any actual loss in relation to the alternative accommodation was incurred. The judge also accepted, as a general statement, that the withholding of information (when knowing or deliberate) may, in certain circumstances, constitute fraud;
- The insurer accepted that the combined test for dishonesty laid down in Twinsectra v Yardley [2002] (ie conduct must be dishonest by the ordinary standards of reasonable and honest people and the defendant himself must realise that by those standards his conduct was dishonest) was the relevant test in this case. However, it noted that motive was irrelevant. Eder J agreed that it did not matter that the insured thought that he had been treated badly by the insurer. The issue of what is fraudulent will also depend on the particular facts of a case and it is impermissible to look at conclusions of fact drawn by another judge in another case;
- Eder J rejected the argument by the insured that an insurance claim will only fail if there is fraud to a "substantial extent" (the insured having sought to rely on Orakpo v Barclays [1995] and Galloway v Guardian Royal Exchange [1999]). However, he did accept that the fraudulent element must not be immaterial or unsubstantial. In this case, the insured had (amongst other things) represented that a certain alternative property had been "available to rent" and that inevitably led to a conclusion that the owner of that property was someone other than the insured (whereas the insured was in fact the owner of that property). This was held to not be "insubstantial" fraudulent conduct and it did not matter that the insured had not continued to pursue the property as possible alternative accommodation (or that other representations, such as "I am getting chased by the landlord" were held to be not substantial);
- Eder J rejected an argument by the insured that Direct Line v Fox [2010] (see Weekly Update 10/09) was authority for the argument that the insurer could not claim reimbursement of the repair costs but only of the £58,000 paid in respect of alternative accommodation. That case was said to turn on "its own very special facts". Here, the cost of repairs and the alternative accommodation were part of the same claim arising out of subsidence and there was no proper basis for dealing with them separately; and
- There was some debate as to whether the insurer's claim was for damages or whether it arose out of eg "forfeiture" or "discharge of liability" but in the event, the parties agreed that the distinction was irrelevant to the case.
COMMENT: In this case, the insured had been entitled to claim for alternative accommodation. At one point, the Financial Ombudsman Service had concluded that he was entitled to accommodation "to the same standard" as the insured property.
Following difficulties with agreeing this alternative accommodation with the insured, the insurer eventually agreed to pay £6,500 per month for alternative accommodation. These sums were then genuinely paid out to cover the cost of alternative accommodation (and were, it seems, less than it would have cost to rent a fully equivalent property). However, the (not insubstantial) fraudulent conduct by the insured in first seeking to obtain (but not actually succeeding in doing so) payment for alternative accommodation in a property which he owned was enough to invalidate the whole claim. This case, together with Sharon's Bakers v Axa (see Weekly Update 07/11 ), provides reassurance to insurers that the courts will adopt a strict approach to fraudulent insurance claims, even in circumstances where the insured could have pursued a genuine, honest claim instead.
Utd Company Rusal PLC & Ors v HSBC & Ors
Application for a Norwich Pharmacal order against a law firm
http://www.bailii.org/ew/cases/EWHC/QB/2011/404.html
A Norwich Pharmacal order is a common law right which requires a respondent who is "mixed up" in wrongdoing (whether innocently or not), so as to facilitate that wrongdoing, to provide "full information" on the alleged wrongful act. This case was unusual in several respects: (1) it was sought against a law firm; (2) it was made in aid of foreign legal proceedings; and (3) it was made to enable shareholders to consider resolutions at an EGM (a Norwich Pharmacal order does not need to be made for the purposes of legal proceedings). Tugendhat J held that the fact that there are so many unusual features in this application did not mean that it must fail, but it did mean that it required more scrutiny than it would have if it had been indistinguishable from established authority. He also held as follows:
- There was no dispute that the standard of proof which the applicant must meet is that of an arguable case. Tugendhat J confirmed that the appropriate test for Norwich Pharmacal applications was that the applicant has "a much better argument than the defendant" (see Bols Distilleries v Superior Yacht [2007]);
- It has been established that where disclosure is sought in aid of proceedings, those proceedings may be outside this jurisdiction. However, the Norwich Pharmacal procedure must not be used to remedy any perceived deficiency in the foreign law;
- No inference was to be drawn from the fact that the solicitors had not provided the requested disclosure. The reason is that it was obvious why the lawyers did not give the disclosure - they had a duty of confidentiality and they must act in their client's best interests. Nor could any adverse inference be drawn against the client himself, who was not a party to the application;
- Just as with banks, a foreign law firm can be the subject of a Norwich Pharmacal order only if its lawyers in England and Wales have been involved in the wrongdoing: "It will not be enough that the lawyers in some other office have become involved";
- On the facts of the case, no wrongdoing was proven and hence the application failed. However, Tugendhat J added that lawyers will not always be "mere witnesses" to (and hence not "involved" in) any wrongdoing. Where a lawyer receives a copy of a document, he may be no more than a witness. However, if he drafts the document, he will be "involved" in any wrongdoing of which (unknown to him) the document forms a part. In any event, in this case, the lawyers were not involved in the alleged wrongdoing under Russian law of their client's failure to give information to its shareholders; and
- Although not required to do so, Tugendhat J also expressed the view that the scope of the material sought in the application was so wide as to be an abuse of the process of the court.
Finally, when deciding whether to exercise his discretion to make the order, the judge said that while lawyers are not immune from being compelled to produce documents (where privilege does not apply) "nevertheless, an order that a lawyer do that is one that the court will scrutinise closely, since...it can cause injustice to the client and to the lawyer which orders against other third parties cannot cause. This is the more so where the relationship between the lawyers and the client is not merely in relation to transactions, but is also in relation to litigation". Norwich Pharmacal orders against lawyers will always be exceptional and usually only made where fraud has been alleged against the client.
Edwards-Tubb v JD Wetherspoon
Whether party seeking permission to rely on an expert's report had to disclose an earlier expert's report
http://www.bailii.org/ew/cases/EWCA/Civ/2011/136.html
CPR r35.4 provides that parties need the leave of the court to rely on expert evidence. This case involved a claim for personal injuries and so the pre-action protocol for personal injuries applied. This expects parties to give notice to the other side of the names of experts they might instruct. That happened in this case, with the claimant giving notice of three experts, one of whom he went on to instruct. This expert provided a report which the claimant did not seek to rely on or disclose. Before proceedings were started, the claimant instructed another expert. The defendant sought to argue that, although it had no absolute right to disclosure of the first report (which was privileged), such disclosure ought to be a condition of the permission which the claimant needed under CPR r35.4 to rely on the second expert's report.
There is prior authority supporting the position that permission will be conditional on disclosure of an earlier report, but the claimant sought to argue that this authority did not apply where a party wishes to change experts prior to (rather than after) the start of proceedings. The Court of Appeal rejected that argument.
Hughes LJ (giving the leading judgment) said there was no difference of principle between a change of expert instructed for the purpose of proceedings pre-issue and a change of expert only instructed, for the same purpose, post-issue. The justification for this stance was that expert shopping is undesirable and, wherever possible, the court should prevent it. Accordingly, the power to impose a condition requiring disclosure of an earlier report should "usually" be exercised "where the change comes after the parties have embarked upon the protocol and thus engaged with each other in the process of the claim".
However, it was also stated that "where a party has elected to take advice pre-protocol, at his own expense, I do not think the same justification exists for hedging his privilege, at least in the absence of some unusual factor".
COMMENT: Note that it remains the case that permission will not be needed to rely on an expert's report where a party changes its mind about the expert but the original expert was not named (in the order giving permission originally). However, this case demonstrates that it can be difficult to avoid naming an expert where a pre-action protocol applies. The Pre-Action Practice Direction introduced in 2009 requires a party to provide the other side with a list of one or more experts which it would like to instruct and this requirement applies to all cases and not just those where a specific pre-action protocol applies.
Crown Aluminium v Northern & Western Insurance & Ors
Default judgment against one of two or more defendants
http://www.bailii.org/ew/cases/EWHC/TCC/2011/277.html
CPR r12.8 provides (in relevant part) that where a claimant applies for a default judgment against one of two or more defendants, if the claim can be dealt with separately from the claim against the other defendants the court can continue the proceedings against the other defendants after default judgment is given. If the claim cannot be dealt with separately, default judgment will not be entered and the application must be heard at the same time as the court disposes of the claim against the other defendants. The issue in this case was whether the claim against one defendant could be dealt with separately from the claim against the other defendant.
The claimant argued that claims in the alternative are classic examples of claims which cannot be deal with separately from one another. However, the second defendant countered that this was not a case involving "alternative" claims (where a claimant relies on the same cause of action, but does not know which of two defendants is liable for it) but, rather, "conditional" claims (ie the claimant's claim against the co-defendant was expressly conditional upon a successful defence by the other co-defendant - thus, the claimant knows exactly who to sue but cannot be sure which defendant will be found liable).
Edwards-Stuart J ruled that claims cannot be dealt with separately "where the effect of entering default judgment against D1 would prevent the claim being pursued against D2, even though the cause of action against the two defendants is different and the doctrine of election does not apply".
On the facts of this case, if the claimant had applied to enter default against the first defendant, that could not have been granted. That was because, if judgment was entered against the first defendant, the claimant would have suffered no loss as a result of anything done by the second defendant.
Antonio Gramsci Shipping & Ors v Stepanovs
Jurisdiction clauses and consensus between the parties/test for identifying the parties
http://www.bailii.org/ew/cases/EWHC/Comm/2011/333.html
Clyde & Co for claimants (Andrew Leader, James Dennison and Julie Allen)
The claimants sought to found jurisdiction by reference to Article 23 of the Judgments Regulation EC No 44/2001, which provides that "If the parties, one or more of whom is domiciled in a Member State, have agreed that a court or the Courts of a Member State are to have jurisdiction to settle any disputes ..., that court or those Courts shall have jurisdiction". The unusual feature of this case was which law applies to the question of identifying the parties to the agreement. In this case, it was alleged that one of the parties to the agreement was a "mere vehicle" for another party.
It was common ground that national law (in this case, English law) governs the existence (ie scope and effect) and interpretation of a jurisdiction clause and EU law governs formality and consensus. Burton J went on to hold that (following the case ECJ case of Coreck Maritime v Handelsveem [2001]), national law resolves the question of the identity of the parties. Coreck was not confined to cases where there is a generic description of the party in the clause.
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