UK: Weekly Update - A Summary Of Recent Developments In Insurance, Reinsurance And Litigation Law - 28/11

Last Updated: 15 August 2011
Article by Nigel Brook

This Week's Caselaw

W v Veolia Environmental Services

Whether defendant's insurers have to pay claimant's hire charges for a replacement car (where claimant has already paid those charges)

Following a motor accident caused by the defendant, the claimant hired a replacement car. Hire charges of £138,000 were incurred. The replacement car was provided by Accident Exchange and the claimant entered into two hire agreements with Accident Exchange. Under those hire agreements, the claimant's liability for the hire charges is deferred while a claim for hire costs is pursued against the defendant. In case the hire costs (and legal expenses) are not recovered by the defendant, these are insured by Accident Exchange (that policy being underwritten by another insurer).

Following the entry into force of certain consumer regulations in the UK, the hire agreements were possibly unenforceable. Accordingly, the defendant's insurers argued that they were not liable to pay the hire charges. They sought to rely on the House of Lords case of Dimond v Lovell [2002], which held that if hire charges were incurred under an unenforceable consumer credit agreement, the claimant could not recover them from the defendant as this would offend the rule against double recovery (since the claimant had no legal obligation to pay the hire charges and so had obtained the replacement car for free).

However, in this case, matters were complicated by the fact that Accident Exchange (as insurer) had, as a tactical move, already paid the hire charges to itself (as supplier of the replacement car). Did that mean that the hire charges were recoverable?

Mackie J held that they were indeed recoverable. Although the hire charges had not been paid by the claimant personally (but by his insurers), they should be treated as having been made by the claimant. Since the claimant had paid, there was no risk of a double recovery: "The risk of a windfall to a claimant who obtains payment from the defendant but then declines to pay the hire car provider on legal grounds falls away. The insurer is subrogated to the position of the claimant". However, in this case, the policy limit under the policy had been £100,000. Since insurers had been under no contractual liability to pay out more than that limit, anything above that amount was not a good faith payment and was not recoverable.

As for the regulations, the judge held that the first hire agreement was unenforceable because it was sold to the claimant at his home and business address. However, the second agreement was enforceable because it was sent to him in the post and returned by him without a further visit by Accident Exchange's representative.

Finally, the judge held that the claimant was entitled to the cost of hiring a new and valuable Bentley, despite his own car being an old Bentley worth not more than £16,000. The claimant passed the "impecunious" test laid down by the House of Lords in Dimond, because he did not have "the benefit of a recognised credit or debit card". In this case, he had had difficulty with credit cards and could not have paid anything like the spot rate on his cards. The anomaly here was said to be due to the defendant's "generous concessions" - (it had not challenged the reasonableness of the replacement car) - and not the legal test.

Dowans Holding v Tanzania Electric Supply

Whether foreign arbitration award had become enforceable in England and application for adjournment pending appeal in the foreign jurisdiction

The defendant applied to set aside permission to enforce an ICC award in England (or to adjourn the issue of recognition/enforcement of the award). Section 103(2)(f) of the Arbitration Act 1996 provides that recognition or enforcement may be refused if an award "has not yet become binding ...or has been set aside or suspended by a competent authority of the country in was made". In this case, the award was made in Tanzania and the defendant has filed a petition with the Tanzanian court seeking to have the award set aside. That application will not be heard until September 2011 and any further appeal could take around 12 months or more.

Burton J rejected the defendant's argument that the award was not yet binding. Indeed, the parties themselves had agreed that the award was binding. The defendant had sought to argue that because it was not yet enforceable in Tanzania, that prevented it being enforced as a binding award in England. The judge rejected that argument. It did not matter whether or not the Tanzanian court regarded the award as binding.

The judge had a general discretion whether or not to enforce the award under section 103(2) (even in the absence of an exception under that section). He said he should exercise that discretion in the same way in which he would exercise his discretion to adjourn under section 103(5). Section 103(5) provides "Where an application for the setting aside or suspension of the award has been made to such a competent authority as is mentioned in (2)(f), the court before which the award is sought to be relied upon may, if it considers it proper, adjourn the decision on the recognition or enforcement of the award".

Burton J said that he would approach the question by considering the prospect of success for the defendant's application in Tanzania ("in the confident expectation" that in applying Tanzanian law, "the Tanzanian court will have full regard to the international approach to the undesirability of interfering with the careful decisions by arbitrators on issues which, by virtue of an arbitration agreement such as in this case, have been referred to those arbitrators in order for them to make a final and binding decision"). He concluded that he could not say that the defendant's chances of success of setting aside the award in this case were fanciful and so he allowed an adjournment, on condition that security be provided (especially since the defendant intended to continue purchasing equipment, and hence there might be insufficient assets in this jurisdiction to subsequently enforce against). Accordingly, Burton J ordered security in the sum of US$ 5m as a condition for the grant of an adjournment.

Robins v Kordowski & Anor

Application for default judgment and effect of procedural error

One of the issues in this case was that the claimant had made a procedural error when applying for default judgment. CPR r12.4(1) provides that a request can be filed using the relevant practice form where the claim is for a money judgment only. CPR r12.4(2) requires the claimant to bring an application under CPR r23 if the claim "consists of or includes a claim for any other remedy".

In this case, the claim included a claim for an injunction but the claimant requested a default judgment under CPR r12.4(1). The defendant sought to argue that the effect of that error was that the claimant had abandoned its claim for an injunction and could no longer pursue it. Tugendhat J rejected that argument. He said that the defendant's argument would lead to "an unnecessary and unjust result". Instead, the effect of the error was that if the claimant wished to pursue the injunction (ie the non-money claim) it would have to make an application to the court. The judge said that even if he was wrong on this point, he would have exercised his discretion under CPR r3.10 to remedy the error.

Berezovsky v Hine & Ors

Whether claimant could call expert to give evidence on contemporary Russian history

The claimant sought permission to serve an expert report dealing with various issues including business practice in Russian in the 1990s and early 2000s. The claimant intended to rely on an expert in the field of contemporary Russian history. It is wellestablished that a court must be satisfied that expert evidence is properly admissible and will genuinely assist the trial judge in determining the matters which are in issue. In this case, the underlying litigation concerned two issues of fact: (1) whether a defendant used words intentionally to convey a threat (to influence the Russian government to expropriate the claimant's business interest); and (2) whether that defendant orally agreed to hold certain shares on trust for the claimant.

The defendant argued that the expert's evidence would likely consist of opinion to the effect that similar things had happened in other cases or would be "no more than gossip or highly contentious or controversial matters which were of marginal relevance anyway". Gloster J held that, although there was force in that argument, the court would need an understanding of the contemporaneous political and/or economic situation in Russia and the history of Russia since 1990. Although that evidence could theoretically be obtained from books and articles, it was more practical to have that evidence put forward by a historian or economist (who could summarise the relevant material). Permission was therefore granted, but without prejudice to any argument which the defendant might wish to raise on admissibility after the actual evidence was adduced.

Masri v Consolidated Contractors

Whether a company has an automatic right of appeal from a finding of contempt of court

The respondent companies were found to be in contempt of court. The issue in this case was whether they had an automatic right of appeal to the Court of Appeal or whether they needed the permission of either the judge or the Court of Appeal to bring the appeal.

It is common ground that an individual who is committed to prison for contempt of court may appeal as of right under the Administration of Justice Act 1960. There was no general requirement for permission to appeal under the 1960 Act - that innovation was introduced by the Access to Justice Act 1999, which provides (in relevant part) that permission is required where the appeal is from a High Court decision "except where the appeal is against (i) a committal order".

The companies sought to argue that "committal order" means "any order in relation to a contemnor which is part of the process leading to punishment for contempt. It matters not that a corporate contemnor cannot be committed to prison. It has, and is intended to have, the same protection as that enjoyed by individuals whose liberty is at stake."

That argument was rejected by the Court of Appeal. The natural meaning of the words is an order whereby the individual to whom it relates is committed, and a corporation cannot be committed. Accordingly, permission to appeal was required.

Towers v Premier Waste Management

Allegations of breach of loyalty and conflict of interest by a director - of possible interest to D&O insurers

At first instance it was found that a director had breached his duty of loyalty and his duty to avoid a conflict between his personal interests and his duty to the company (the claim was based on equitable principles because the events in question pre-dated the Companies Act 2006 (although the Court of Appeal said that regard could still be had to the statute, since it expresses the essence of the rules and principles which it replaced)).

In this case, the director had acquired equipment for his personal use by way of a free, undisclosed and unapproved loan from one of the company's customers. The Court of Appeal agreed with the judge's decision. It did not matter that the director had not made a significant profit from the equipment or that it would have been of no value to the company. It was enough that he had disloyally deprived the company of the ability to consider whether or not it objected to the diversion of an opportunity offered by one of its customers. It did not matter, either, that there had been no evidence that the company would have taken the opportunity, nor that it had not in fact suffered any loss. Other factors which were irrelevant included the fact that the director did not have a corrupt motive and had received only a small benefit, and that if there had been no free loan, he would have hired equivalent equipment in the market.

Finally, there could be no criticism of the brevity of the judge's decision: "A judge should not feel obliged to be a legal windbag repeating himself at length just for the sake of it. Reasons for a decision do not have to be long-winded or repetitive in order to pass muster as sufficient and satisfactory in value".

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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