UK: Weekly Update: A Summary Of Recent Developments In Insurance, Reinsurance And Litigation Law – 19/11

Last Updated: 2 June 2011
Article by Nigel Brook

THIS WEEK'S CASELAW

Arash Shipping v Groupama

Sanctions Clause and whether notice of cancellation was valid

http://www.bailii.org/ew/cases/EWCA/Civ/2011/620.html

A marine insurance policy contained an Iran Sanctions Clause which provided (in relevant part) that "Insurers hereon may, on such notice in writing as the Insurer may decide, cancel the Insurer's participation under this Policy in circumstances where the Assured has exposed or may, in the opinion of the Insurer, expose the Insurer to the risk of being or becoming subject to any sanction,.....in any form whatsoever against Iran by.... the European Union..." A 12-month extension to the policy was agreed, subject to the assured's claims history. Five months after inception, Council Regulation (EU) No 961/2010 ("the Regulation") came into force. This, amongst other things, prohibited the provision of (re)insurance to an Iranian entity. It was accepted that the appellant in this case was an Iranian entity.

The key article in the Regulation for the purposes of this case was Article 26(4), which prohibits the extension or renewal of (re)insurance agreements concluded before the entry into force of the Regulation but "it does not prohibit compliance with agreements concluded before that date".

Two months after the Regulation came into force, the insurers served a notice of cancellation (this was withdrawn but subsequently re-served after the appellant had commenced proceedings). The appellant argued that the insurers were not entitled to cancel. At first instance, Burton J held that the notice of cancellation had been valid. The Court of Appeal has now rejected the assured's appeal. Two of the arguments raised by the assured had been as follows:

  1. The wording of the Sanctions Clause required the assured to expose the insurer to the specified risk and this, in turn, required an act or omission by the assured.This argument was rejected by the Court of Appeal. Sanctions are imposed not necessarily because of what the specific entity has done but because of who it is.
  2. The notice of cancellation was not given in good faith and was given unreasonably. The key issue was whether the provision in Article 26(4) allowing compliance with agreements concluded before the Regulation came into force included contractual extensions or renewals.

The appellant argued that this was a case of automatic extension and that amounted to an agreement concluded before the Regulation came into force. The Court of Appeal held that this was not a case of automatic extension (the assured's entitlement to the extension depending on its claims history). In any event, both HM Treasury and the European Commission had rejected the appellant's interpretation in relation to automatic extensions: they had formed the view that the Regulation did not provide a carve-out for automatic renewals. There was therefore no scope to argue that insurers had acted unreasonably.

In view of its conclusion on the point, the Court of Appeal held that it was unnecessary to decide whether the insurers had been entitled to serve the notice of cancellation. Although the issue was said to be of general importance to the insurance market, Burnton LJ stated that the court should be cautious before deciding on the effect of legislation, especially where the proceedings were taking place in the absence of submissions from the relevant prosecution authority. Furthermore, the court of final decision on the issue would be the European Court of Justice, and so the decision of the English courts would not be binding on all of the insurers subscribing to the policy. However, Tomlinson LJ expressed the view that Article 26(4) did not exempt an extension which can be said to amount to no more than the compliance by underwriters with an agreement they have made before the operative date: "It is also my present view that the word "agreements" as last used in Article 26(4) means .... a contract of insurance. Insofar as underwriters may be contractually obliged to extend the existing policy, that as it seems to me is compliance with an agreement which is not itself a contract of insurance or an "insurance agreement" but rather a contract to provide a contract of insurance or "insurance agreement".

COMMENT: Insurers are likely to welcome the Court of Appeal's decision that they acted reasonably in cancelling the policy. However, it should be borne in mind that the decision (based on the particular wording of the policy in question) in essence concerned the reasonableness of the insurers' decision and did not reach a binding conclusion on the correctness of the decision itself (although Tomlinson LJ, at least, clearly felt that the cancellation had been correct).

Chen & Ors v Chui & Ors

Freezing injunction post judgment

http://www.bailii.org/ew/cases/EWHC/Ch/2011/1276.html

The claimants in this action were ordered to pay one of the defendants (D) his costs. Those costs remained unpaid. Furthermore, shortly after the order was made, the claimants transferred the title in their home to their son. They then unsuccessfully appealed the order. D then applied for a freezing injunction over specified assets held, or previously held, by the claimants (including the home). Since the son was not a party to the original order, he argued that under CPRr 19.4 he would not become a party until an amended claim form had been served on him. That in turn would require amended particulars of claim setting out the case against him.

Barker J rejected that argument: "At this stage of the proceedings, what is required is an intention to apply to join the non-party ... and an explanation of the reason for seeking to join the non-party and, coupled with that, a proximate deadline for the formulation and issue of any application". He agreed that the grant of a freezing injunction cannot be allowed to become an end in itself though. Accordingly he required an application notice to be issued, served and filed on the claimants and the son, stating any challenge to the property transaction, promptly after the provision of witness statements.

Mumtaz Properties Ltd, Re

Definition of a de factor director - of possible interest to D&O insurers

http://www.bailii.org/ew/cases/EWCA/Civ/2011/610.html

An individual who was never appointed as a director (or whose appointment was defective) yet who acts as a director will be a de facto director. In principle, de facto directors could insure their potential liability under a Directors' and Officers' insurance policy although some policies exclude them. Of issue in this case was whether a judge had erred in finding that the appellant was a de facto director of a company and hence was liable to replace monies owing to the company on a director's loan account.

The Court of Appeal noted that it is a serious matter for a person to be found liable on the basis that he was a de facto director. It must be shown that the individual undertook functions in relation to the company which could properly be discharged only by a director - in other words, he must exercise "real influence" in the corporate governance of the company. It is not necessary to prove that he has been held out as a director.

In this case, the individual had not held himself out as a director but he had been permitted to have a director's loan account. He dealt with suppliers and made contracts with the local authority. He had also changed his tax return to indicate hat he was a director or employee (and not self-employed).

The Court of Appeal held that these factors did not in themselves make him a director. However, when the evidence was looked at as a whole, it was found that the judge had not erred in concluding that he was (in the words of Arden LJ) "one of the nerve centres from which the activities of the company radiated".

Fiona Trust v Privalov

Judgments Act interest and deferring start date

http://www.bailii.org/ew/cases/EWHC/Comm/2011/1312.html

After judgment is received, interest normally accrues automatically on the full amount of the judgment debt at a rate of 8% from the date of the judgment (see the Judgments Act 1838). However, the court has a discretion to order interest to run from an earlier or later date. In this case, the claimants applied to defer the date from which Judgments Act interest should run for 6 months.

Smith J commented that Judgments Act interest should not be deferred simply because it is at a considerably higher rate than current commercial rates. There must be something about the circumstances of a case to justify a departure from the normal rule and this will typically be that the application of the rule is so unjust to the debtor that justice requires a departure. For example, Smith J said justification might arise from the fact that "a large amount of costs is likely to be outstanding for a particularly long period and the applicant cannot be expected to avoid this by assessing what costs he will have to pay and making (or tendering) a substantial payment on account".

The judge added that he did not consider that it is in itself a sufficient justification that the costs are likely to be unusually large. In this case, though, the claimants argued that the complexity of the case meant that significant questions of reasonableness and proportionality were bound to arise on a detailed assessment of costs. Smith J said that there were no particular difficulties in this case in determining whether costs had been properly incurred and he dismissed the application. He also rejected a defendant's application for payment on account. There was no evidence of a pressing need for such a payment - he had funded the litigation by loans from a related company and any sums which he received would be used to repay those loans.

Les Laboratoires Servier v Apotex

Discretionary rate of interest: base rate or interbank rate

http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWHC/Patents/2011/1318.html&query=title+(+servier+and+apotex+)&method=boolean

The defendant was ordered to pay the claimant Ł17.5 million plus interest. The claimant argued that interest should be awarded at a rate of EURIBOR or LIBOR plus 1%, whereas the defendant asked for interest at base rate plus 1%. Arnold J said that, as there is no EURIBOR sterling rate, and as the currency of the award in this case was sterling, LIBOR was to preferred. The choice then was between LIBOR (the rate at which banks are prepared to lend to each other) and the lower base rate (the rate at which prime banks can borrow from the Bank of England).

Although the conventional rate in commercial cases is base rate plus 1%, the court has a discretion to consider the general characteristics of a recipient. In this case, Arnold J departed from the conventional rate. He accepted the statement from the claimant's forensic accountancy expert that (1) commercial lending rates are much more commonly set with reference to interbank lending rates; and (2) a company like the claimant (a private company in the pharmaceutical sector with significant assets) would be likely to have been able to borrow the sums involved at the relevant time at a rate close to LIBOR plus 1%.

Stribog v FKI

Stay of related actions where issue only introduced later on

http://www.bailii.org/ew/cases/EWCA/Civ/2011/622.html

The appellant (S) commenced proceedings against the respondent (FKI) in Germany in September 2009. FKI commenced proceedings in England against S in January 2010. S then introduced into the German Action a new issue which resulted in the English and the German action then becoming related actions. Under Article 28 of Regulation 44/2001, "where related actions are pending in the courts of different Member States, any court other than the court first seised may stay its proceedings". S applied for a stay of the English proceedings and this was refused by Burton J, who held that the English court was first seised within the meaning of Article 28 because the relevant issue had not been raised in the German action until after the English court was seised.

The Court of Appeal agreed that, in the absence of related proceedings, no question of a stay would arise since there would be no risk of irreconcilable judgments. However, as the proceedings were related by the time the application for the stay was made, the fact that they were not related when the English action was commenced did not affect the result that the German court had been first seised. Although the Court of Appeal decision was unanimous, Rix LJ and Mummery LJ had slightly different reasoning, summed up by Wilson LJ as follows: "The only difference which I can detect in my Lords' judgments is that, whereas Mummery LJ... prefers to ask "which court was first seised of a pending action?" before asking "are the actions related?" Rix LJ ..... prefers to ask the questions in the reverse order. I do not see why the order matters; but Rix LJ seems to have the terminology of Article 28 on his side".

Other News

Consumer Insurance (Disclosure and Representations) Bill:

This bill was introduced to the House of Lords on 16 May and it is following the procedure for uncontroversial Law Commission Bills (which will speed up its passage because certain stages can be carried out in committee). The bill only relates to consumer insurance contracts (ie contracts entered into by individuals for purposes unrelated to the individual's trade, business or profession). In its current form, the bill provides for a one-year gap between the date the bill is passed and the date it comes into force.

The main points of the bill are as follows:

  1. Consumer insurance contracts will no longer be contracts of utmost good faith and there will be no requirement for the consumer to volunteer information to the insurer. Instead, the consumer must take reasonable care when answering the insurer's questions;
  2. If a consumer has taken reasonable care, there can be no avoidance and any claim must be paid;
  3. If the consumer makes a careless misrepresentation, the insurer's remedy will be based on what it would have done had the consumer not breached its duty. That may result in the insurer being able to avoid the contract or to impose different terms or to reduce proportionately the payment to the consumer (because a higher premium would have been charged);
  4. If the misrepresentation was deliberate or reckless, the insurer can void the contract and keep any premium (unless it would be unfair to the consumer to keep it).
  5. "Basis of the contract" clauses will be abolished and it will not be possible to contract out of the terms of the Act (insofar as any contract term purports to put the consumer into a worse position);
  6. The bill also provides rules for determining whether a broker (or other agent) is acting as the agent for the consumer or for the insurer. A link to the bill can be found here:

http://www.publications.parliament.uk/pa/bills/lbill/2010-2012/0068/2012068.pdf

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Nigel Brook
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.