UK: Weekly Update - A Summary Of Recent Developments In Insurance, Reinsurance And Litigation Law - 24/11

Last Updated: 7 July 2011
Article by Nigel Brook


Gard Marine v Tunnicliffe & Ors

Construction of an excess or limit clause in a reinsurance policy/whether it scales to reflect assured's interest

Clyde & Co (Bryan Young and Alex Reynolds) for claimant

The defendant reinsured the claimant's 12.5% line on an energy policy. The "Sum Insured" clause in the reinsurance policy provided as follows: "To pay up to Original Package Policy limits/amounts/sums insured excess of USD 250m (100%) any one occurrence of losses of the original placement". The dispute in this case was what the 100% referred to. Was it (a) the total insured value of the original lost asset (so that if, as here, the insured had a less than 100% interest, the excess point had to be "scaled" to reflect that lower interest) or (b) the insured's interest in the original lost asset.

The parties agreed that the court should approach the question of construction on the assumption that the parties intended to use words which have a special or peculiar meaning in a trade that way (Myers v Saarl [1860]). Steel J held that in this case "the evidence is overwhelming that the notation of "(100%)" in regard to an excess or limit has a recognised and established meaning in the market writing direct insurance of offshore energy risks and facultative reinsurance. It means that the limit or excess scales to reflect the assured's interest in the relevant assets". The judge also rejected an argument by the reinsurer that the initial reaction to the claim (and the suggestion that the excess point scaled) demonstrated that there was no market practice regarding the use of the 100%: "I accept that the reluctance to treat the point as beyond argument reflected a combination of the impact of a very large claim and the input of legal advice". Nor, on the facts, was an argument of misrepresentation by the broker (on behalf of the reinsured) made out.

Carillion JM v Phi Group

Whether offer was a Part 36 offer

Following a judgment on liability and quantum in this case, Akenhead J considered various costs issues. One of these was whether a letter sent by one party (Phi) to another party amounted to a valid Part 36 offer. The letter was stated on its face to be made under Part 36 and, in light of some pressing timescales, requested a response within 7 days. Akenhead J held that the offer was not Part 36-compliant because it did not specify a period of not less than 21 days within which the defendant would be liable for the claimant's costs in accordance with rule 36.10 if the offer was accepted (CPR r 36.2(2)(c)).

Akenhead J said that although "the letter said that the offer was "made under Part 36...and the offer is intended to have the consequences of Part 36...", this does not, in my judgement, begin to comply with the prescriptive requirements of Rule 36.2. A Court should be cautious about seeking to introduce purely contractual interpretation and construction principles into the exercise of determining whether an offer is compliant with Part 36. It should however be clear that it is compliant. The failure to spell out a 21 day period is an important one because it provides not only a timetable within which the offeree needs to accept the offer but also points the offeree to the cost consequences of accepting it. This is perhaps even more important when, as here, the offeree was not yet a party to the proceedings ... and the offeree was nowhere near as well informed about the underlying litigation as Phi was". Instead, the letter was an ordinary contractual offer which was impliedly withdrawn when a further offer letter were sent by Phi.

COMMENT: This case contrasts with the Court of Appeal decision in Onay v Brown (see Weekly Update 10/10), as well as Crystal Fibres v Fianium (see Weekly Update 17/10) and Sutherland v Turnbull (see Weekly Update 40/10) where the failure to specify the period of not less than 21 days (as required under CPR r 36.2(2)(c)) was held to not be fatal to an argument that the offer was a valid Part 36 offer. However, in Onay and Sutherland, there was, at least, a reference to 21 days in the letter itself, whereas in this case there was reference only to a 7 day period.

Charles Terence Estates v Cornwall Council

Late application to adduce expert evidence

The defendant sought permission to rely on expert valuation evidence at a trial on liability which was due to start a month later. CPR r35 provides that "expert evidence shall be restricted to that which is reasonably required to resolve the proceedings". However, there has been recent caselaw on interlocutory applications made late and close to an imminent trial (see for example the Court of Appeal case of Swain-Mason v Mills & Reeve (see Weekly Update 03/11) in which the Court of Appeal held that the judgment in Cobbold v Greenwich [1999] (that amendments in general ought to be allowed provided that any prejudice to the other side can be compensated for in costs and there was no injustice) was wrong and preferred the test laid down in Worldwide Corporation v GPT [1998] (which pays greater regard to all the circumstances which are now summed up in the overriding objective of the CPR)). Here, too, Coulson J preferred the test in Worldwide Corporation and held that it was equally applicable to any applications made late (including applications to serve and rely on expert evidence shortly before trial).

On the facts, the judge found no justification for the delay (for example, "in any civil case, the court expects the parties to be attempting to resolve their differences, and it cannot ever justify a failure to comply with court orders to say that the parties were negotiating"). To allow the application would be to "muck about" the claimant and, furthermore, the expert evidence was on a matter which was "peripheral" so that any prejudice to the defendant would be small (or even non-existent). He therefore refused to allow the application.

Excalibur Ventures v Texas Keystone

Jurisdiction of the English court to grant an anti-arbitration injunction

The parties disputed whether they had entered into an agreement (which purportedly contained an ICC arbitration clause). The claimants started proceedings before the English courts (alleging breaches of the agreement) and, unusually, on the same day also commenced arbitration proceedings (with the seat in New York). The defendants applied for an injunction restraining the claimant from taking any further steps in the arbitration.

Gloster J held that she did have jurisdiction to make the injunction. She found that there was no evidence that the claimant had only started the proceedings in the English courts to protect time (nor that they were intended to be subsidiary to the arbitration). The English court will be "particularly slow to restrain arbitration proceedings where there is an agreement for arbitration to have its seat in a foreign judgment and the parties have "unquestionably agreed" to the foreign arbitration clause" (see Weissfisch v Julius [2006]). However, in exceptional cases, the court will grant an injunction where, for example, the very question is whether or not the parties have consented to a foreign arbitration. She rejected an argument that, absent exceptional circumstances, the court could determine whether there had been an agreement to arbitrate only if there was also an application for a stay of legal proceedings under section 9 of the Arbitration Act 1996. She granted the injunction.

She also rejected the claimant's application for a stay of the English action. In this case, no application could be made under section 9 because the claimant was not "a party to an arbitration agreement against whom legal proceedings are brought". Instead, the claimant asked the court to exercise its inherent jurisdiction. Gloster J observed that "in circumstances where a claimant is applying to stay proceedings voluntarily brought by it, it needs to show that there are "special", "rare" or "exceptional" circumstances to justify a stay" (see Ledra Fisheries v Turner [2003]). She held there were no such circumstances in this case.

One further argument raised by a defendant was that the court had no discretion anyway to stay the English action because it was being sued in the place of its domicile (for the purpose of EC Regulation 44/2001). Since that argument had wider ramifications than this case (and she had not heard full argument on the point) Gloster J declined to decide the point.

Mouchel v Van Oord

Whether it is possible to seek a contribution for costs as well as damages

The claimant claimed a contribution under the Civil Liability (Contribution) Act 1978 from the defendant in respect of the claimant's liability to its main contractor (in a separate claim). The claimant settled with the main contractor and paid costs to the main contractor. It then sought a contribution for those costs (both under the 1978 Act and pursuant to the court's general discretion to make costs orders under section 51 of the Senior Courts Act 1981).

Ramsey J held that a "contribution" under the 1978 Act is not limited to a contribution in respect of "damages" but also includes a contribution based on "liability for damage". It is therefore possible for the court to order a contribution for both damages and costs paid to a third party (although, under section 2(3) of the 1978 Act, the judge considered that it might not be possible to obtain a contribution for costs in excess of limited or reduced damages). However, Ramsey J also held that there were no grounds for the claimant to seek a contribution in relation to its own costs because that was not a liability to the third party for damage. Although such costs are, in principle, recoverable under the 1981 Act, the judge declined to make an order in this case. That was because, in the underlying proceedings, the issues were confined to the claimant's liability to the main contractor and did not involve the defendant's liability to the main contractor. There were therefore no grounds for making an order for the defendant to contribute to the claimant's costs in defending proceedings to establish the claimant's liability.

Rust Consulting v PB

Whether indemnifier estopped from challenging consent judgment

The claimant sued the defendant for an indemnity (pursuant to an agreement which they had entered into) following a consent judgment entered into between the claimant and a third party.The claimant argued that as the judgment was entered into at the instigation of the defendant, the defendant was estopped from now challenging the existence or amount of the claimant's liability to the third party. In other words, having actively concurred in the making of the settlement, the defendant was now bound by it. Furthermore, it was argued that an absence of belief that the indemnifier (here, the defendant) was liable to indemnify the claimant was irrelevant.

That argument was rejected by Edwards-Stuart J. He held that for any estoppel to arise: "there must be notice to the indemnifier that a claim is being made under the contract... of indemnity". In certain circumstances, it might be sufficient that the indemnifier knows a claim is being made against the indemnifiee and he can reasonably be expected to know that the indemnifiee will claim against him. However, knowledge of a claim against the indemnifiee will not be sufficient where (a) the indemnifier is unaware that he is under an obligation to indemnify or believes positively that he is not under such an obligation and (b) the party claiming the indemnity has not asserted that there is such an obligation. That was the position here and so the defendant was not estopped from challenging the consent judgment.

Joujou & Ors v Masri

Considerations of comity following receivership order by the Commercial Court

The defendants owe a judgment debt which they have consistently sought to avoid paying (despite having the financial means to do so). Several orders have been made by the English courts to enable the judgment creditor to recover the sums owed. One such order was a receivership order in relation to the assets of one of the defendants (held outside the jurisdiction). In order to prevent that order from being effective, the directors of the defendant resigned and were eventually replaced by judicial administrators who were appointed by the Lebanese courts. The judicial administrators refused to accept the English court's jurisdiction and appealed against the receivership order. The Court of Appeal has now allowed that appeal.

Toulson LJ said that: "For an English court to appoint a manager to enter into contracts of sale of oil outside the jurisdiction in the name of a foreign company whose sole organ of government is a judicial administrator appointed by, and acting under the direction of, a court of the company's place of incorporation is, on the face of things, to exercise an exorbitant jurisdiction and is contrary to the principle of comity". He thought that the order should be set aside.

However, Rimer LJ and Arden LJ thought that the order had gone too far only because it purported to be binding not just on the defendant but also on the judicial administrators. They held that the order should be varied by removing all references to the judicial administrators.

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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