UK: Weekly Update: A Summary Of Recent Developments In Insurance, Reinsurance And Litigation Law – 20/11

Last Updated: 8 June 2011
Article by Nigel Brook

THIS WEEK'S CASELAW

AES LLP v JSC

Anti-suit injunction where no arbitral proceedings are ongoing or intended/ enforcement of foreign judgment obtained in breach of an arbitration clause

http://www.bailii.org/ew/cases/EWCA/Civ/2011/647.html

See Weekly Update 15/10 for the first instance decision in this case. The parties had entered into an agreement which was to be governed "in accordance with Kazakhstan legislation" but which contained an arbitration clause which was governed by English law. After JSC commenced proceedings against AES in Kazakhstan, AES obtained an anti-suit injunction from the English courts. JSC's challenge to the injunction failed at first instance and JSC appealed. The Court of Appeal has now held as follows (Rix LJ giving the leading judgment which was described by Burnton LJ as "encyclopaedic"):

  1. The English court does have jurisdiction to grant a declaration or an anti-suit injunction to protect a party's rights under an arbitration agreement even if arbitral proceedings are not on foot and none are intended. It was common ground that section 44 of the Arbitration Act 1996 did not provide this jurisdiction. Instead, the jurisdiction is derived from section 37 of the Senior Courts Act 1981 (which provides that the High Court may grant an injunction "in all cases in which it appears to the court to be just and equitable to do so"). Although an arbitral tribunal may rule on its own substantive jurisdiction, there is no obligation for it to do so. In this case, AES was not relying on section 37 to "get round" the limitations in section 44 (which requires current or intended arbitral proceedings). Instead, AES was asking the English court to prevent foreign proceedings being used against it when it is asserted that an arbitration agreement binds the parties. This would not be an interference with arbitration - it would support it.
  2. AES had shown a good arguable case for reliance on a gateway for service out of the jurisdiction. At first instance the judge had held that AES was entitled to rely on PD6B para 3.1(20) and CPRr 62.5(1)(c) - in both cases, because AES sought an order/required a question to be decided under section 37. The Court of Appeal agreed with the judge's decision (although Burnton LJ did not agree that section 37 was an enactment falling within para 3.1(20)). It also held that AES was entitled to raise, retrospectively, a new gateway to validate service out (namely, PD6B para 3.1(6)(c) ("contract...governed by English law")), even though AES had not sought to rely on that gateway originally.
  3. The judgment of the Kazakhstan court should not be recognised or enforced in this country. Section 32 of the Civil Jurisdiction and Judgments Act 1982 provides that a judgment of a foreign court in proceedings which ought instead to have been brought in arbitration in London shall not be recognised or enforced here. Rix LJ said that "it is clear that the English courts have not hesitated to prefer the parties' choice of English jurisdiction and arbitration clauses to even the public policy requirements of foreign law as expressed in foreign statute and/or applied in the decisions of foreign courts. This court is not bound by the Kazakhstan courts' construction of the English law arbitration agreement (subject to any question of submission) or by its view that it is contrary to Kazakhstan public policy".
  4. The general rule stated under section 32 above does not apply where the person against whom the judgment is given has submitted to the jurisdiction of the foreign court. The Court of Appeal held that it would not be right to reverse the judge's decision that there was at least a good arguable case that there had been no submission in this case: "It was obvious from beginning to end that the operator [AES] was presenting and preserving its challenge to the Court's jurisdiction on the ground of the parties' arbitration agreement, if necessary by way of appeal. All that was done was subject to that challenge and in reliance on it. As a Kazakhstan party there was nothing that the operator [AES] could otherwise do to distance itself from the court's domestic jurisdiction".

COMMENT: Weekly Update 48/09 reported the Court of Appeal decision in National Navigation v Endesa, where it was held that the English court was bound to recognise the judgment of a Spanish court obtained in breach of an arbitration clause and there was "simply no room for any argument that in some way public policy is being infringed". In AES v JSC, Rix LJ said that in Endesa "special factors relating to the Judgments Regulation in EU Law applied", thus adopting the position that public policy arguments are still available where a judgment has been obtained in a non-EU court in breach of a an arbitration clause.

C v D

Part 36 and time-limited offers

http://www.bailii.org/ew/cases/EWCA/Civ/2011/646.html

Weekly Update 43/10 reported the first instance decision in this case. The claimant made an offer to the defendants in which it was stated that "the offer will be open for 21 days from the date of this letter" (emphasis added). The letter was headed "Offer to Settle under CPR Part 36" and made various other references to Part 36. After the expiry of 21 days, the claimant agreed a short extension of time for acceptance of the offer but the defendants failed to respond. Almost a year later the defendants purported to accept the offer, which had never formally been withdrawn. The claimant argued that the offer was not capable of acceptance at that time and so had not been accepted.

At first instance, Warren J held that this was a time-limited offer which was not permissible under Part 36. Accordingly, this was an ordinary (time-limited) offer, which had ceased to be open for acceptance. The defendants appealed that decision. The Court of Appeal has found as follows:

  1. Although there is no express exclusion in Part 36, it is not possible to make a time-limited offer: "unless the offer has been withdrawn before the expiry of the relevant period with the permission of the court, or the offer has been withdrawn after the expiry of that period by the service of a written notice of withdrawal, there is no room for an offer which is neither withdrawn before or after the expiry of the relevant period, but lapses as a matter of its own terms".
  2. However, the offer in question was not a time-limited offer. Reading the offer as a whole, Rix LJ said: "In the context of Part 36, it seems to me to be entirely feasible and reasonable to read the words "open for 21 days" as meaning that it will not be withdrawn within those 21 days." It also served as a warning that a withdrawal of the offer after 21 days was "on the cards". Of particular significance here was the fact that the offer was clearly intended to be a Part 36 offer.
  3. Given that the offer was a Part 36 offer, had it been withdrawn? The Court of Appeal decided that it had not. The terms of the offer itself did not amount to a withdrawal of the offer at the end of the 21 days. The correspondence between the parties had only amounted to an extension of the time for acceptance but there had been no formal withdrawal of the offer. Accordingly, it was still open for acceptance.

Finally, it is worth noting Burnton LJ's comment that: "any ambiguity in an offer purporting to be a Part 36 offer should be construed so far as reasonably possible as complying with Part 36". This approach reflects a growing judicial trend to not allow "technical challenges" to Part 36 offers, where possible. Such an approach will normally favour the offeror (although that wasn't the case for the offeror here - the offer he had made, and which remained open, had become unfavourable by the time the other side accepted it).

Zurich Insurance v Hayward

Whether insurer was entitled to make allegations of fraud after a settlement of the proceedings

http://www.bailii.org/ew/cases/EWCA/Civ/2011/641.html

Mr Hayward was injured in the course of his employment with S and commenced proceedings. S carried employers' liability insurance. His insurers suspected that the claimant was exaggerating his injuries. They obtained video surveillance evidence and thereafter a settlement agreement was reached in October 2003. That settlement was embodied in a court order in the form of a Tomlin Order (whereby the terms of the agreement were annexed in a schedule to the order).

Three years later, Mr Hayward's neighbours contacted the insurers to advise that the claimant had acted dishonestly and had made a complete recovery by mid-2002. The insurers (standing in the shoes of S) then commenced an action against Mr Hayward alleging that the settlement had been obtained by false representations and seeking to recover the sums paid. Mr Hayward argued that the insurers could not pursue this claim because of the settlement and because allegations of fraud had been made against him in the earlier proceedings and so it was an abuse of process to re-litigate this issue. The Court of Appeal unanimously rejected that argument but for slightly different reasons:

  1. Smith LJ held that the two allegations were not essentially the same and so no estoppel could arise. When the settlement was reached, the parties had not agreed on the extent of fraudulent exaggeration (if at all) of Mr Hayward's injuries. Accordingly, the insurers could raise a subsequently discovered fraud because: "If, following a settlement, a defendant or insurer is to be prevented from raising a subsequently discovered fraud merely because it pleaded fraudulent exaggeration in the first action, there would be a disincentive to plead the defence fully. If the insurer were to be so prevented because it had settled a claim leaving the extent of fraud undecided, there would be a disincentive to settle claims. Both of these are important as a matter of public policy."
  2. Moore-Bick LJ held that a Tomlin Order could not ordinarily give rise to an estoppel. That is because Tomlin Orders are designed to end proceedings without requiring any decision of the court on the substance of the claim or defence. Accordingly, the court never decided if Mr Hayward was fraudulently exaggerating his claims. (Moore-Bick LJ did, however, accept that a consent order can give rise to an estoppel).
  3. Kay LJ did not discuss these issues further, since there was unanimous agreement that the claim could continue and that it will be for insurers to establish their case of fraud at trial.

Conarken v Network Rail

Whether loss caused by negligent driver's damage to rail track (because the claimant had entered into a contract with third parties) was recoverable

http://www.bailii.org/ew/cases/EWCA/Civ/2011/644.html

The first instance decision in this case was reported in Weekly Update 28/10. Network Rail sued the employers of certain negligent heavy goods vehicle drivers who had caused physical damage to bridges and railway lines. It was undisputed that the defendants were liable for the costs of repairs. What was in dispute in this case was whether the defendants were also liable for sums which Network Rail had to pay (under the terms of a contract) to various train operating companies because the track was unavailable for use while remedial works were carried out. At first instance, Akenhead J held that the amounts paid to the operating companies were recoverable as consequential losses arising from the physical damage to the property. It did not matter that the defendants would not have been directly liable to the operating companies because no property belonging to those companies was physically damaged. The defendants appealed. The Court of Appeal has now dismissed the appeal for the following reasons:

  1. The losses claimed were a direct consequence of the tort. However, that did not mean that the defendant was bound by whatever Network Rail and the operating companies decided was reasonable compensation: "Making a contract does not confer a licence on the respondents to charge to a tortfeasor whatever types of financial loss, and whatever quantification of financial loss, is included in the agreement provided it is reasonable between the contracting parties" (as per Pill LJ).
  2. It must be decided whether the damage was reasonably foreseeable, and the court should carry out this assessment on the same basis that it would in the absence of a contract. Pill LJ concluded that it was reasonably foreseeable in this case that "the services of the [train operating companies], and their value to the public, would be diminished and that arrangements would have been put in place by the franchising authority to penalise the [train operating companies] for the diminution in their services". Furthermore, "provided a genuine attempt has been made to assess future loss of income from this cause... a bar is not placed on recovery by reliance on passenger psychology with its fears of a repeat of the index event".
  3. Jackson LJ, agreeing that the appeal should be dismissed, characterised the case as "a simple claim for loss of income consequent upon damage to revenue earning property. This is a well established category of recoverable economic loss. Network Rail's loss is the direct consequence of physical damage and it is a type of loss which is readily foreseeable".

Bethell v Deloitte & Touche

Whether claim form had been validly served/whether service should be dispensed with

http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWHC/Ch/2010/3664.html&query=bethell+and+deloitte&method=boolean

The claimant issued a claim form in 2007. This was provided to the defendant's solicitors, but expressly not by way of service. The parties agreed an extension of time for service of the claim form and particulars of claim. In July 2010, the claimants decided to recommence the litigation process. The particulars of claim were then served, but the claim form was not. Hodge J held that:

  1. The parties had agreed that the agreement for an extension of time could be terminated by the giving of 14 days' written notice. Such notice had been given and the claim form should have then been served. The service of the particulars of claim did not mean that there had been good service of the claim form and there had never been any agreement that the claim form need not be served.
  2. CPR r6.15 allows the court to order an alternative method of service or to find that steps already taken to bring the claim form to the attention of the defendant by an alternative method amounts to good service. However, the court must be seen to uphold the basis on which the parties have agreed an extension of time. Here, there had been no attempt to effect service of the claim form in time and in an appropriate way.
  3. CPR r6.16 allows the court to dispense with service of the claim form altogether. Again, this was "not a case where the claim form was delivered to the defendants within the period for service by a method of service which the claimants and their solicitors thought was a reasonable method of service. The claim form had been delivered expressly not by way of service, and was never delivered to the defendants again".

Accordingly, the claimant's claim was now time-barred.

Crown Aluminium v NWIC

Insurance broker's alleged negligence and causation arguments

http://www.bailii.org/ew/cases/EWHC/TCC/2011/1352.html

This case concerned the claimant's claim under three trade credit supplier guarantees issued by the first defendant (an insurance company). The insurer alleged that the calls under the guarantees did not comply with the terms of the guarantee. The claimant alleged that, if that argument was correct, then it was entitled to damages from its insurance broker because it had acted on the broker's alleged negligent advice.

Edwards-Stuart J found, on the facts, that the calls had been compliant (or, if they had not been, the insurer had waived any defects). Accordingly, the judge did not need to decide whether the broker had been negligent. However, he did find that the broker had assumed a duty of care when giving advice to Crown on how to make the calls.

The claimant argued that its loss was suffered when it relied on the advice (and not when a judgment on the merits against the insurer was given) and so, for example, the insurer's subsequent insolvency was irrelevant. The judge rejected that argument. He held that the quantum of the claim was not "frozen" at the time the calls were made. If, as was argued here, the claimant had failed to enter default judgment against the insurer prior to trial, then it may be that the alleged negligence ceased to be an effective cause of the claimant's loss (although the claimant could still recover other related losses that could not be recovered from the insurer).

JSC BTA v Solodchenko & Ors

Contempt proceedings for failure to disclose

http://www.bailii.org/ew/cases/EWHC/Ch/2011/B11.html

The applicant applied to commit one of the defendants to prison for contempt because of his failure to comply with the disclosure provisions in an international freezing order served personally on him. Since service, the defendant had done nothing at all and did not attend the hearing of this application. Briggs J held as follows:

  1. He could hear the application in the defendant's absence. This was described as a straightforward case, and it was wholly unlikely that his presence (with or without legal representation) would make any difference to the outcome. The evidence showed that he was deliberately declining to respond. A bench warrant was unlikely to result in his attendance since he was almost certainly out of the jurisdiction.
  2. The allegation of contempt had been proven beyond reasonable doubt. Where serious contempt is proven in the defendant's absence, the court should "pause" before proceedings to sentence. Briggs J decided that a short adjournment was appropriate. This was because although apparently a fluent English speaker, the defendant was unlikely to have obtained any qualified English legal advice about the risk of a prison sentence. The defendant should also be given a chance to advance arguments of mitigation. The applicant should also show a real prospect that the defendant would wish to re-enter England at some time in the future (otherwise the sentence would be in vain).

Saldanha v Fulton Navigation

Service out of the jurisdiction following accident in territorial waters - of possible interest to marine insurers

The claimant, an Indian national, was the First Engineer on the defendant's ship. The ship is registered in the Marshall Islands. When the ship was within the UK's territorial waters, it began to drag its anchor and the claimant was injured whilst trying to rectify the situation. He was hospitalised in the UK. He commenced proceedings and the defendant claimed that the English court did not have jurisdiction to hear the claim. It was argued that where a tort occurs which arises wholly upon a foreign flagged vessel, it is the jurisdiction of the ship's flag state which must apply. The defendant sought to rely on EC Regulation 44/2001, which provides that the primary basis for jurisdiction is the domicile of the defendant. Although the defendant accepted that Regulation 44/2001 did not apply in this case (the defendant not being domiciled in the EU), it argued that it was desirable that English common law rules be aligned with European Rules.

Kay J rejected that argument. Permission to serve out had been obtained under PD6B para 3.1(9) which provides for service, where a claim is made in tort, where (a) damage was sustained within the jurisdiction or (b) the damage sustained resulted from an act committed within the jurisdiction. In this case, the act was committed within the jurisdiction (alternatively, a considerable portion of the continuing pain and suffering occurred when the claimant was hospitalised within the jurisdiction, and that was enough to found jurisdiction).

Kay J also held that default judgment, obtained against the defendant, should not be set aside. The defendant did not have a reasonable prospect of defending the claim. That was because there is an inference of negligence where (as here) a vessel begins to drag. The onus is on the owners to show that the dragging was not due to negligence and the defendant could not meet that burden.

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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