UK: Insurance And Reinsurance - 12 June 2012

Last Updated: 21 June 2012
Article by Nigel Brook

Welcome to the twentieth edition of Clyde & Co's (Re)insurance and litigation caselaw weekly updates for 2012.

These updates are aimed at keeping you up to speed and informed of the latest developments in caselaw relevant to your practice.


  • Fortress Value v Blue Skye
    Applications for security for costs and a stay of proceedings.
  • Thomas v Jeffery & Ors
    A Court of Appeal case on the costs consequences of late disclosure.
  • Attrill & Ors v Dresdner Kleinwort & Anor
    A decision on discretionary interest and the effect of the financial crisis.
  • Latvian Shipping Company v The Russian People's Insurance Company
    A Clyde & Co case on whether arbitrators had been entitled to make no award for recovery after finding damage which was covered by the policy.

Fortress Value v Blue Skye

Applications for security for costs and a stay of proceedings

The defendants applied for the claimants (who were all domiciled outside of the EU) to provide security for costs. When considering the issue of whether the claimants would be unable to pay the defendants' costs, if ordered to do so, the first claimant argued that it had a considerable net asset value (USD 159 million) and was prepared to undertake to guarantee the costs liabilities of the other claimants. Nevertheless, Blair held that the first claimant should provide security. That was because the first claimant was in wind down and had, in fact, only offered to undertake to inform the defendants if its net assets fell within USD 50 million. Further, the first claimant had not given any assurance that it would maintain sufficient cash to meet any potential costs liabilities.

It was common ground that the amount of security should reflect the extra costs of enforcement (in this case, in New York). The defendants estimated that that would be no less than USD 150,000 and (although the claimants argued that that figure had been "plucked out of the air" and that it would be relatively easy to enforce in New York), Blair J accepted that figure "in view of [the defendants' solicitor's] extensive experience in the field".

The defendants applied for a stay pursuant to section 9 of the Arbitration Act 1996. Certain of the defendants sought to rely on an arbitration clause contained in a contract to which they were not parties. The contract did expressly incorporate the Contracts (Rights of Third Parties) Act 1999. Section 8 of the 1996 Act provides that, where a substantive right is subject to an arbitration agreement, a third party who wishes to enforce it is not only able, but also bound, to do so through arbitration (and so a stay under section 9 can be ordered). However, in this case, the relevant defendants did not seek to enforce a substantive right - instead, they sought to raise a contractual defence (by relying on an exclusion clause in the contract). Blair J held that they could rely on that defence regardless of the forum of the particular proceedings against them. Furthermore, the exclusion could not be "assigned" to the defendants (and hence did not carry with it the benefit and burden of the arbitration clause). Accordingly, the defendants were not entitled to a stay.

Thomas v Jeffery & Ors

Costs consequences of late disclosure

The claimant appealed against the decision of a judge to reverse a recorder's costs order. The defendants had argued that the claimant should pay their costs because of certain alleged deficiencies in the way he had conducted the claim (in particular, because he had made a late disclosure of relevant documents). The recorder, having reviewed the Court of Appeal decision of Ford v GKR Construction [2000] (in which the claimant was awarded her costs because the defendant's late disclosure had not allowed her to assess the merits of her claim), tried to identify whether anything different would have actually happened in this case had there been timely disclosure. The judge held that the recorder had failed correctly to apply Ford by introducing "an additional requirement of causation". The Court of Appeal has now upheld the appeal and restored the recorder's order.

It held that Ford is not authority for the proposition that any shortcoming on the part of a litigant dictates a particular costs consequence. Judges have a broad discretion to take into account "all relevant aspects of the litigation" when making costs decisions. The recorder had been entitled to conclude, taking into account the relevant facts, that, had disclosure taken place earlier, it would not have made any difference to the outcome of the proceedings.

Attrill & Ors v Dresdner Kleinwort & Anor

Discretionary interest and the effect of the financial crisis

The court has a discretion to award interest on damages or a debt. The rate of that interest is at the discretion of the court. If awarded, the court asks what rate of interest the claimant would have had to pay in order to borrow money to replace the money which he has been kept out of. The normal rate of interest in a commercial case is Bank of England base rate plus 1%. In this case, Owen J decided to award an interest rate of 5% above Barclays bank base rate.

He held that this was not a commercial case or even akin to a commercial case (the claims were brought by the claimants as individuals against their former employer). The rate awarded by the judge was said to reflect the cost of borrowing for a private individual from January 2009 onwards. Although the base rate fell significantly at the end of 2008, as a result of the global financial crisis, the cost of unsecured borrowing by individuals did not follow suit.

Evidence was adduced in this case to support this divergence between bank rate and new unsecured lending rates between 2008 and 2010.

Latvian Shipping Company v The Russian People's Insurance Company

Whether arbitrators had been entitled to make no award for recovery after finding damage covered by policy

Clyde & Co for claimant

An arbitration award was challenged on the ground (inter alia) that, having found that damage was sustained by an insured peril, the arbitrators should have found (but did not) that the losses incurred in respect of that damage were recoverable under the policy. Field J rejected that challenge, finding that the arbitrators had found, as a question of fact, that some damage had been caused by a peril not insured under the policy. Since the insured's case had been advanced on an "all or nothing" basis, and the tribunal had not been asked for a split hearing with quantum to be determined in light of the factual findings, the tribunal had not committed any serious irregularity in failing to award the insured for damage which was covered under the policy.

One of the questions raised in the case was "where there is a finding that some damage in respect of which an assured claims under an insurance policy has been caused by an insured peril, is it correct that unless the assured can prove all of the damage was caused by the insured peril, then its claim under the insurance policy must fail entirely?" The insured sought to argue that although a claim is for a greater sum, it can nevertheless recover for a lesser loss if the evidence proves only the lesser loss. However, the judge found that the claim had failed entirely only because the tribunal had concluded on the evidence that it was not possible to determine the extent of the damage caused by an uninsured peril: "That was a pure finding of fact and was a matter for the Tribunal alone". There had been no case advanced for a partial award and it had not been possible on the evidence to quantify the extent of the damage which was covered under the policy.

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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