UK: (Re)insurance Weekly Update 17/11

Last Updated: 17 May 2011
Article by Nigel Brook

This Week's Caselaw

Berezovsky v Abramovich

Collateral waiver of privilege

The defendant applied for an order for disclosure from the claimant of documents in his possession between the claimant's former business associate (now dead) and the claimant's former solicitors. It was agreed that those documents would normally be protected by litigation privilege. However, the defendant argued that there had been a collateral waiver of that privilege. The claimant's former associate had been interviewed by the solicitors and limited parts of the content of those interviews had been relied upon by the claimant in order to defeat the defendant's application for summary judgment. Although there had been no express waiver, Gloster J accepted that there had been collateral waiver. She concluded that "where, as here, there has been extensive deployment in interlocutory proceedings, such as a summary judgment application, of privileged material (albeit without reference to specific documents) in order to support a party's case on the substantive merits of his claim or defence, such deployment engages the collateral waiver principle, and it is then too late for the deploying party to attempt to turn the clock back".

She rejected an argument that there was no collateral waiver if the deploying party was still making up its mind as to whether to adduce the privileged evidence at trial. To hold otherwise would, in her words, have been to allow "cherry-picking of the worst kind".

The defendant had also applied for permission to re-amend the Defence. Gloster J allowed the amendments. In so doing, she relied on the recent Court of Appeal decision in Swain- Mason v Mills & Reeve [2011] (see Weekly Update 03/11) which endorsed the statements in Worldwide Corporation v GPT [1988] that the court should be less ready to allow very late amendments than it used to be in former times and that a heavy onus lies on a party seeking to make such an amendment to justify it. It will be recalled that a few weeks ago, in Bleasedale & Anor v Forster (see Weekly Update 12/11), Henderson J highlighted that Worldwide Corporation was decided in the context of an application to amend during a trial. However, in this case, the trial had not yet started when the application to amend was made.

Saverymuttu v General Medical Council

Professional misconduct case against physician who misled insurers

A Fitness to Practice Panel found that the appellant (a consultant physician) had dishonestly misled private health insurers by using an inappropriate code when claiming payment from them. The use of this code resulted in a higher payment by the insurers. The appellant argued that his use of the code had not been incorrect according to the classification system adopted by the Office for Population, Censuses and Surveys (the system used primarily to record clinical activities in the NHS). This system had been used by the insurers as their starting point but they had adapted it.

Nicol J agreed with the Panel that: "The insurers' codes are no more than a form of language which the insurers adopt to assist their assessors to deal with claims from doctors efficiently and fairly. Because the insurers could choose their own language, it is not really apt to say that their choice of language was "correct" or "incorrect". The insurers' codes meant whatever the insurers decided." Furthermore, the appellant had been aware of the fact that (whatever his own view on the insurers' coding) he was incorrectly and dishonestly claiming. Although the position might have been different had the appellant included a narrative with his invoice, this had not been done. As the finding of dishonesty stood, the appellant conceded that he could not successfully challenge the sanction of suspension.


Whether parties had entered into an arbitration agreement and effect of contract coming into existence because of performance

This case involved a challenge pursuant to section 67 of the Arbitration Act 1996 ("the Act"). The claimant challenged the arbitrator's decision to strike out the claim on the ground that there was no contract entered into between the claimant and the defendant and thus no arbitration agreement between them. Much of the case involves a factual dispute but there are some points of wider interest in the judgment:

(1) The approach in a challenge under section 67. There has been some recent judicial debate as to whether the hearing of a section 67 appeal should take the form of a review or a re-hearing. Recent cases have, however, supported the position that it is a rehearing. In this case, Beatson J said that in the case of Dallah Real Estate v Government of Pakistan [2010] (see Weekly Update 41/10) the Supreme Court confirmed (albeit in the context of a challenge under section 103(2)(b) of the Act at the time of enforcement) that a section 67 challenge should take the form of a re-hearing rather than a review.

(2) The judge found that a contract had come into existence between the parties because of performance by the claimant instead of the entity named in a recap email. The defendant sought to argue that the Act did not apply because there was no "arbitration agreement in writing" as required by section 5 of the Act. Accordingly, it was argued that the claimant could not apply for relief under section 67. This argument was rejected by Beatson J. He found, on the facts, that there had been a "reference to terms which are in writing" (as referred to in section 5). He added that even if this had not been the case, he would have accepted that there had been an unwritten agreement which included an arbitration clause and "accordingly, I would have held that, as a result of the saving in section 81 of the 1996 Act, the arbitration could proceed at common law".

Withers LLP v Rybak & Ors

Whether solicitors had a retaining lien over monies held in a client account

A dispute arose between R and L as to who was entitled to the proceeds of a property sale. A court order required that the proceeds be paid into the client account of R's solicitors. Following judgment in favour of L, R assigned to L all of its interest in the monies held in the solicitors' client account. However, the solicitors claimed that they had a retaining lien over those monies because they had outstanding fees owed to them. Morgan J concluded as follows:

(1) L did not have a security interest in the monies held in the client account. The monies paid into that account following the property sale belonged to R and the court order (much like a freezing order) did not impose any obligation on R to pay the monies to L. Thus L had no priority over a possible lien in favour of the solicitors.

(2) Did the solicitors have a retaining lien over the monies? In other words, were the solicitors entitled to retain the monies already in their possession until they were paid the costs due to them in their professional capacity? The crucial issue was whether the monies were held by the solicitors in their capacity as solicitors for R, or whether the monies had come into their possession for a particular purpose which prevented them from asserting a retaining lien. L argued that the monies were paid into the client account because it was a secure and neutral place and it was mere "happenstance" that this account was used - the monies could equally have been paid into court or into an account with L's solicitors (or a bank account held by R).

Morgan J rejected that argument. The solicitors held the monies in their professional capacity as R's solicitors (having acted for R during the lengthy litigation between it and L). There was nothing in the order itself which altered this position and "In my judgment, it is not right in the present case to replace the ordinary relationship of a solicitor to his client, in relation to monies in a client account, with an implied tripartite contractual relationship involving [the solicitors], their client and L". Under the court order, R could apply to the court for an order permitting it to pay (amongst other things), legal expenses from the account.

Systemcare v Services Design

Non-party costs order against managing director markup.cgi?doc=/ew/cases/EWCA/Civ/2011/546.html&query=title+(+systemcare+)&met hod=Boolean"

Following judgment in favour of the claimant, the judge made a non-party costs order against the defendant company's managing director and majority shareholder under section 51 of the Senior Courts Act 1981. The managing director appealed against that decision on various grounds: (1) The judge had found that the director had run a counterclaim in the full knowledge that there was no prospect of his company being able to pay the costs awarded against it. The director argued that the claimant had never asserted this and the Court of Appeal accepted that the judge had erred in this respect. However, the Court of Appeal found that the judge had not based his decision to make the order on this finding. Nor was the judge required to consider at what point the defendant company had become insolvent. A non-party costs order can be justified even if the party is not insolvent during the proceedings.

In this case, the defendant had been able to pay its debts as they fell due because the ondemand loans due to the director had not been demanded. This kind of financial support can amount to funding and so, for all practical purposes, the director had funded the litigation. (2) The director had not been warned that he might be personally liable for costs. The Court of Appeal found that, had he been warned, he might have appealed against the original judgment. However, it was held that there had been no prospect of a successful appeal and so the director had not suffered any prejudice.

(3) The Court of Appeal also rejected an argument that weight should be given to the probability that the application was motivated by the claimant's "resentment" at its inability to obtain an effective order for costs. It was found that there were sufficient factors in this case to justify the order. The counterclaim had been, at best, fanciful and, at worst, "trumped up".

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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