UK: A Summary Of Recent Developments In Insurance, Reinsurance And Litigation Law – 12/11

Last Updated: 1 April 2011
Article by Nigel Brook

This Week's Caselaw Fiona Trust & Ors v Privalov & Ors

Discretionary interest on a dollar judgment/US Prime Rate or US$ LIBOR

The claimants were awarded judgment in US dollars. It was uncontested that they would be entitled to compound interest, but one of the issues in this case was the rate of interest to be used for the calculation. In Kuwait Airways v Kuwait Insurance [2000], Langley J considered that "in normal circumstances" US prime rate would be the appropriate rate for interest on a US dollars award. However, the court will depart from a conventional rate where it is just to do so (and the burden of demonstrating this will be on the party who wishes to displace the conventional rate). Smith J accepted that a "broad brush" approach should be adopted by the court but that it is acceptable for the court to consider "the general characteristics of the recipient". So, for example, it has been held to be appropriate to award higher interest to small businessmen in recognition of "the real cost of borrowing incurred by such a class of businessman". Smith J held as follows:

  1. In this case, it was appropriate to depart from the conventional US Prime Rate and to calculate interest by reference to LIBOR instead: "I conclude that, because LIBOR is used widely for setting interest rates on loans to shipping companies and US Prime Rate is not (at least for lending to borrowers outside the USA), it is more appropriate for determining the rate of interest to be awarded in this case". It was clear from the evidence that US Prime Rate was never used to set the interest on funds borrowed by the claimants - LIBOR was used instead. Various arbitral institutions and textbooks have also suggested that LIBOR can more appropriately be used.
  2. Since the rationale for adopting LIBOR was more closely to reflect what is usually used for shipping finance, it was consistent with that to adopt three monthly rests (rather than the annual rests argued for by the defendants).
  3. As for the uplift on the US$ LIBOR rate, Smith J noted that this should be determined by reference to what might be charged for a short-term and unsecured loan. He took an uplift of 2.5% as a starting point because that was said to involve little departure from the conventional US Prime Rate. Smith J refused to depart from the usual practice of disregarding the actual borrowing rates paid by the claimants. He was also not persuaded by submissions that reference should be made to the fact that the claimants are "asset rich" and so typically funded by medium-term secured borrowings. He concluded that 2.5% over US$LIBOR was the appropriate rate.

B v S Whether the court can grant a freezing injunction where there is a Scott v Avery clause in a contract

The parties entered into a contract which contained a "Scott v Avery" clause ie providing that the parties would not bring "any action or other legal proceedings" until the dispute had first been heard and determined by the arbitrators (and making it a condition precedent to the right to bring proceedings that the parties had first obtained an award.

The claimant applied for, and obtained a worldwide freezing injunction over the defendant's assets from the Commercial Court, pursuant to section 44 of the Arbitration Act 1996 which provides, in relevant part, that "unless otherwise agreed by the parties" the court can (inter alia) grant interim injunctions. The defendant applied to set aside the injunction.

Flaux J considered the relevant caselaw on this issue. He noted that all prior caselaw (with one exception) was decided under the regime of the 1950 Arbitration Act (which provided that the court's power was mandatory and not capable of exclusion by the parties). The one case decided under the 1996 Act was the decision of Rix J (as he then was) in Re Q's Estate [1999]. However, in that case, the clause in question was not a Scott v Avery clause and so Rix J's comments on this issue were obiter dicta. However, Flaux J considered that Rix J had found that (if the arbitration clause in question had included the Scott v Avery element present in GAFTA or FOSFA forms) the court would have been deprived of jurisdiction under section 44 of the 1996 Act.

Flaux J agreed with that view. Whilst limitation of the clause to the exclusion of substantive and not ancillary proceedings was regarded by some as commercially desirable: "It seems to me that it is clear that, as a matter of language, proceedings are "in respect of a dispute" not just when they seek to determine the substance of the dispute, but also when they are ancillary to the dispute or are seeking security for it". Any limitation of the clause to substantive proceedings only is "certainly not open to a judge at first instance and probably not open short of the Supreme Court". Accordingly, the freezing injunction was discharged.

AB v CD & Ors

Part 36 offers and split trials/100% "offers"/provision of further information

After Henderson J determined issues relating to liability in a case involving a split trial, he considered various issues arising out of the Part 36 offers made by both sides (none of which were accepted):

  1. Where there is a split trial, should the existence and terms of any Part 36 offer be disclosed after the court has ruled on liability or after the trial on quantum has taken place? Henderson J was not required to resolve this issue because all the parties had agreed that he could look at their Part 36 offers after the liability trial. He did, however, suggest that under the new Part 36 wording (the old wording having expressly provided that the Part 36 offer should not be disclosed until the end of the quantum trial) "it may be that in appropriate circumstances, the new wording should be construed as referring to the conclusion of the first part of a split trial".
  2. What is a genuine "offer to settle"? The concept of an "offer to settle" is not defined in Part 36. However, Henderson J said it was clear that a request to a defendant to submit to judgment for the entirety of the relief sought by the claimant cannot be an offer to settle within Part 36: "In my judgment, the offer must contain some genuine element of concession". For claimant offers, this can be something which it is in the claimant's power to give up either at the time the offer is made or only at or after the trial (provided that agreeing to forego the opportunity to obtain it is not "merely an empty gesture"). On the facts of the case, the claimant had not made a valid Part 36 offer because he had not stated any specific sum which he would be prepared to accept and nor had he made any real concession of significant value. Foregoing an advantage which could have been used in future proceedings against third parties was not a genuine concession either.
  3. What is the effect of a failure to provide clarification of the Part 36 offer? CPR r36.8 provides that an offeree may, within 7 days of a Part 36 offer being made, request the offeror to clarify the offer (and, if the offeror does not provide this, the court can order it to do so). In this case, the defendants had made a valid Part 36 offer but had failed to supply certain financial information requested by the claimant in order to assess the value of the offer. Henderson J confirmed that, although it is "good practice" to provide clarification, a failure to comply with this obligation does not invalidate a Part 36 offer. If an offeree decides to refuse an offer because of insufficient information, and later fails to match or improve on it, he can argue that the usual adverse consequences should not follow (or should at least be mitigated). In any case, it was not clear that the claimant did not have sufficient information to make an educated decision.

Mujur Bakat & Anor v Uni. Asia General Insurance Berhad & Ors

Application to set aside permission to serve out of the jurisdiction in the context of an insurance dispute

The claimants were Malaysian companies insured under a marine insurance policy by the Malaysian defendant insurers. The policy incorporated the Institute Time Clauses Hulls 01/10/83 which are stated to be "subject to English law and practice" (in Novus Aviation v Onus Air [2009] (see Weekly Update 09/09) the court rejected the argument that this amounts to a choice of English jurisdiction). The claimants applied for and obtained permission to serve the defendants out of the jurisdiction and the defendants applied to set aside that order. The claimants were able to bring themselves within the "gateway" contained in paragraph 3.1(6)(c) of PD6B because the policy is governed by English law. However, they must also demonstrate that England is the most appropriate forum.

Eder J noted that the express choice of English law (but not jurisdiction) by the parties can be of great or little importance, depending on the circumstances of the case. One important potential factor is the fact that the foreign forum may not apply English law (and will apply its own law) notwithstanding the express choice of English law. Eder J said there was no evidence here that the Malaysian courts would not apply English law, especially since the issues did not appear to involve any novel, complex or undecided issues of English law.

On the facts of the case, the choice of English law was of little significance. Key documentary material was held at the offices of the claimants, defendants and the surveyors. None was located in England and all the potential factual witnesses were based in Singapore or Burma. Accordingly, Eder J held that England was not the most appropriate forum and he set aside the order for service out.

Bleasdale & Anor v Forster

Allowing late amendments to a statement of claim

Weekly Update 03/11 reported the case of Swain-Mason & Ors v Mills & Reeves, in which the court held that, when deciding whether to allow an amendment to a statement of claim, the court should apply the Court of Appeal test laid down in Worldwide Corporation v GPT [1988] (which looks at all the circumstances which are now summed up in the overriding objective of the CPR) and not that laid down in Cobbold v Greenwich [1999] (that amendments should generally be allowed provided that there is no prejudice thereby caused to the other side, which cannot be compensated for in costs). In Worldwide Corporation, the Court of Appeal held that the payment of costs may well not compensate a party who simply wants to be rid of litigation hanging over him and who is being "mucked around" at the last moment.

In this case, Henderson J held that he would not have refused permission to amend on the ground of delay. Worldwide Corporation was decided in the context of a trial that had already started and where, if the amendment was allowed, there would have been further delay in the trial. That was not the position in this case. The judge said it was hard to see what prejudice there could be to the defendant on the facts and the amendments would not increase the length or complexity of the trial to any significant degree. He also did not rule out the possibility of an application to amend being made at trial once the evidence is complete.

Carey Group Plc & Ors v AIB Group & Anor

Whether English court could restrain bank from complying with the public law of a foreign state markup.cgi?doc=/ew/cases/EWHC/Ch/2011/567.html&query=title+(+carey+and+aib+)& method=boolean

The claimants were customers of AIB UK, a wholly owned subsidiary of an Irish bank. NAMA, an Irish statutory body, intended to acquire from AIB UK its rights under secured lending facilities granted to the claimants. NAMA was allowed to do this under the public law of Ireland. The claimants argued that the acquisition constituted an unlawful exercise within this jurisdiction of sovereign power by a foreign government agency and that it should be restrained by the English court. The claimants sought to rely on the case of Pocket Kings Ltd v Safenames [2010] and the principle that the English courts should not entertain an action for the enforcement, either directly or indirectly, of a penal, revenue or other public law of a foreign state. The claimants argued that the rule applied even if the enforcement did not take the form of legal proceedings invoking the jurisdiction of the English courts. That argument was rejected by Briggs J.

AIB UK carries on business in England and is at liberty to comply voluntarily with a request or demand of a foreign government agency, based upon foreign public law, without fear of restraint by the English courts, provided it commits no wrong which is actionable under English law. That is a different situation from NAMA seeking to bring proceedings itself in England.

Kojima v HSBC Bank

Application to withdraw admission after final order/revocation of final order

The applicant was ordered to execute a charge over his property, failing which the lender respondent was at liberty to enter judgment against him. Prior to the order, the applicant had admitted liability. He applied to withdraw that admission. PD14 para 7 sets out the circumstances which the court must take into account when deciding whether to exercise its discretion to allow a party to withdraw an admission. Briggs J noted that the discretion is, in general, likely to arise during rather than after the final determination of proceedings. Accordingly, the applicant also applied for a revocation of the judge's order (pursuant to CPR r3.1(7)). He sought to argue that the usual principle that it is in the public interest that final orders are, indeed, final should not apply here as there had been no investigation by the court of the claimant's entitlement (because the applicant had made his admission). That argument was rejected by Briggs J. A judgment on admissions is still a judgment on the merits of the case. Judgment is not obtained by some automatic process and could not be equated with a default judgment: "Once a party has admitted a claim, and judgment has been given against him on that claim, the other party is in principle entitled to assume that, barring any appeal, there is an end to the matter".

The judge was not required to decide whether a party will be excluded from seeking the revocation of an order where he has chosen not to present certain materials or where those materials were simply available (whether or not the party chose not to present them). However, had it been necessary to decide the issue, Briggs J indicated that generally a conscious choice not to deploy relevant material would be an "almost insuperable barrier" to an application for revocation, whereas if there was no conscious choice by the applicant, that would be a relevant negative factor against the exercise of the court's discretion but "by no means" an insuperable barrier.

Coys of Kensington v Pugliese

Whether the parties had agreed a jurisdiction clause (Article 23 of Regulation 44/2001)

Article 23 of Regulation 44/2001 provides that where the parties (one of whom is domiciled in a Member State) agree that the courts of a Member State will have jurisdiction to settle any dispute between them, those courts shall have jurisdiction. The jurisdiction agreement should be in writing (or fulfil other conditions). Ramsey J held as follows in this case:

  1. It is common ground that the question of whether the requirements of Article 23 are satisfied is one of EU law and not national law. However, where there is no established principle of EU law, it is permissible to rely on decisions of the English court (provided those decisions are judged for compliance with principles to be derived from Article 23 and EU law).
  2. The judge at first instance had erred by taking into account subjective evidence from the defendant as to her knowledge of the English language. Compliance with Article 23 must be judged on an objective approach. On the facts of this case, the claimant had a "much better argument" that there had been consensus between the parties. A party who signs a document cannot rely on the fact that they have not read it or understood it.

Millharbour Management v Weston Homes

Objections to the court exercising its discretion to allow a class action

The claimants applied, pursuant to CPR r19.6, to act as representatives of other individuals who were said to share "the same interest" with them. After a review of the relevant caselaw, Akenhead J held that the parties did have the same interest. As to the exercise of his discretion, he held as follows:

  1. There would be no real costs risk to the defendants of allowing the application. The existing claimants had taken out After the Event insurance and individual claimants had equity in their property to meet the defendants' costs (if necessary).
  2. The fact that a number of persons (who are not yet claimants) are not particularly keen to become involved in litigation was a reason for (rather than against) allowing the action to proceed in a representative way.
  3. A lack of particularisation of the claim would not be a reason, either, to refuse the application. Further particularisation could be ordered by the court.
  4. The defendants had argued that it would be unfair to allow certain individuals to be represented by the named claimants because the effect would be to allow claims which would otherwise be time-barred. The judge said that this could be dealt with by limiting the representative capacity to a given date (so that any causes of action which were barred by limitation by that date would fail). As to the appropriate date,the claimants suggested the original date of issue of the claim, whereas the defendants argued for the date of this judgment. Akenhead J instead chose a date in the middle - namely, the date when one of the named claimants had claimed to be a representative claimant under CPR r19.6 (on behalf of all individuals who were not already named claimants).

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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