UK: Insurance And Reinsurance Update - 10th July 2012

Last Updated: 16 July 2012
Article by Nigel Brook

Sharab v Al-Saud

Whether permission to serve out was unlimited or should be restricted to certain "gateways"/providing note of hearing following application for permission

http://www.bailii.org/ew/cases/EWHC/Ch/2012/1798.html

The claimant alleges that the defendant, who is resident outside of the jurisdiction, owes her $10 million by way of commission for her services in relation to a sale. In the alternative, she claims an amount to be assessed on a "quantum meruit basis". She obtained permission to serve out after an application to the court which focussed almost entirely on the agreement which the claimant alleged was concluded in London. The judge had concluded that she satisfied one of the gateways in PD6B - gateway 5 (namely, that the claim was made "in respect of a contract" (a) made within the jurisdiction and (b) made through an agent trading within the jurisdiction). No reference was made to gateway 6 of PD6B which relates to a claim for restitution where the defendant's alleged liability arises out of acts committed within the jurisdiction. In issue in this case was whether the judge's order allowed the claimant to serve out of the jurisdiction in respect of the claim in restitution. Blackburne J held as follows:

(1) There is a "procedural lacuna" in that the defendant was not told when the proceedings were served on him which gateway had found favour with the judge. He said that "It does seem to me desirable that, as with any other without notice application, the successful applicant should be required to serve on the respondent against whom he has obtained without notice relief a note of what was said by the judge hearing the application and that, to that end, he should be required to ensure that a full note is taken of the hearing".

(2) The gateway, if established to the required standard, is a gateway to the claim or cause of action to which it relates and to no other. Any cause of action which does not fall within the particular gateway which the court has sanctioned will not be maintainable against the foreign defendant, unless the claimant can satisfy to the court that another gateway also applies to which that further claim relates: "It is not sufficient simply to look at the order which the court has made giving permission for service out to see whether its terms are capable of extending to the claim in question".

(3) In this case, permission to serve out was confined to those claims which are "in respect of a contract" and do not include the quantum meruit claim which in this case proceeded on the basis that no contract had been concluded between the claimant and the defendant and hence was of a restitutionary nature. Accordingly, the claimant did not have permission to serve out in respect of that part of her claim. Nor was the judge prepared to exercise his power under CPR r3.1(7) to vary the order giving permission to serve out. He also rejected her application to rely on the restitutionary gateway - it did not apply because the acts in question were not committed in England.

Ted Baker Plc & Ors v AXA & Ors

Part 36 offers and split trials

http://www.bailii.org/ew/cases/EWHC/Comm/2012/1779. html

Following judgment of certain preliminary issues (reported in Weekly Update 19/12), Eder J was required to decide whether he should make an order for costs now or await determination of the further issues (relating to both liability and quantum) which were outstanding. He decided that since the preliminary issues were entirely discrete he could in principle make a costs order now, even if the claimant was to ultimately fail on the other issues.

However, the defendants argued that in deciding what order for costs should be made, the court ought to take into account any offers of settlement (including Part 36 offers) and this could only properly be done at the end of the case.

CPR r36.13(2) provides that "the fact that a Part 36 offer has been made must not be communicated to the trial judge... until the case has been decided" (emphasis added). In AB v CD & Ors (see Weekly Update 12/11), Henderson J was not required to resolve the issue but suggested that "it may be that in appropriate circumstances, the new wording [of Part 36] should be construed as referring to the conclusion of the first part of a split trial". Eder J noted (as did Henderson J) that "there is a "real problem" here. In my view, there is an urgent need for CPR 36.13 to be reviewed and possibly reformulated in order to deal in particular with the question of "split trials" and the kind of difficulties which have arisen in the present case". He further held that:

(1) CPR r36.13 only applies to Part 36 offers. He saw no reason why a party who had made a non-Part 36 offer could not waive privilege and voluntarily tell the judge about it.

(2) There is nothing in CPR r36.13 to prevent the parties telling the court that a Part 36 offer has not been made.

(3) The conclusion which Henderson J had "tentatively suggested" would stretch the wording of CPR r36.13 beyond its proper limit though.

However, in the event, he was not required to decide the issue since the parties agreed that he could proceed on the basis that he could not exclude the possibility that (a) a Part 36 offer had been made and (b) that offer might affect the court's discretion as to costs. In the circumstances of the case he concluded that he should not make any immediate order for costs.

JSC BTA Bank v Ablyazov & Ors

Freezing orders and the right of the respondent to borrow funds

http://www.bailii.org/ew/cases/EWHC/Comm/2012/1819. html

The claimant obtained a freezing order against the defendant preventing him (in the usual way) from disposing of, or dealing with, of any of his "assets". He was also permitted to spend a reasonable amount on legal advice and a specified amount on living expenses. The defendant then entered into four loan agreements, each giving the defendant the right to borrow up to £10 million. Those sums were then used by the defendant to pay for this legal expenses and living expenses.

Assuming for the purpose of this application that the loan agreements were not shams (ie because the lenders may have been ultimately owned by the defendant), Clarke J was asked to decide whether the defendant had disposed of, or dealt with, his asset (ie the right to borrow) when he directed the lenders to make payments to third parties.

Clarke J reviewed the relevant caselaw and concluded that the freezing order ought to be construed "in the way in which it ought reasonably to be understood by a businessman to whom it was addressed" (and not from the viewpoint of a lawyer or an accountant). An "asset" meant something which could be of value to the claimant and against which the claimant would be capable of securing execution. A right to borrow is not an asset in this context (and the exercise of the right to borrow is not a disposal of, or a dealing with, an asset). Thus it did not matter that from a legal point of view, the right to borrow was clearly a chose in action. In any event, exercising a right to borrow money did not constitute disposing of/dealing with a chose - what was needed was a transfer or agreement to transfer.

COMMENT: Clarke J's conclusion accords with the finding in Cantor Index Ltd v Lister [2001] that a freezing order does not prevent a defendant from borrowing money and thus increasing his overall indebtedness. The White Book also supports the stance that a defendant can borrow money in order to pay legal and living expenses "even though the result is that the amounts then spent on these matters exceed the sums stipulated (or, in relation to legal expenses, a reasonable amount)." However, as was recognised in this case, a defendant could borrow large sums (but not grant security, which would be a disposition etc) and pay these sums out to third parties before defaulting on the (short-term) loan. The lender might then obtain judgment against the defendant's assets before the claimant's claim was established (and execution of that judgment would not amount to a disposal) and hence the defendant might make himself "judgment-proof" against any eventual order in favour of the claimant.

R (Omar) v Foreign Secretary

Whether Norwich Pharmacal proceedings can be used to obtain evidence in foreign proceedings/requirement of facilitation

http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/ EWHC/Admin/2012/1737.html&query=title+(+omar+and+ foreign+and+secretary+)&method=Boolean

The claimant sought a Norwich Pharmacal order ("NPO") from the English courts in order to obtain evidence from the Foreign Secretary for use in proceedings in Uganda. (A NPO is a common law right which requires a respondent who is "mixed-up" in wrongdoing (whether innocently or not), so as to facilitate that wrongdoing, to provide "full information" on the alleged wrongful act). Burnett J, the President of the Queen's Bench Division, held as follows:

(1) Since the claimant intended to use any material obtained in the Ugandan proceedings which he was bringing, he was clearly seeking evidence, rather than information.

(2) It is possible to use the NPO procedure to obtain information as to the identity of persons and other details about them so that proceedings can be brought in a foreign state.

(3) However, it is not possible to use the NPO procedure to obtain evidence for use in foreign proceedings. This is because there is a statutory regime for compelling evidence for use outside the jurisdiction - in relation to criminal proceedings, the Crime (International Co-operation) Act 2003 applies and in relation to civil proceedings, the Evidence (Proceedings in Other Jurisdictions) Act 1975 applies (save in relation to Member States where provision is made by EC 1206/2001). Nor did it make any difference that the claimant might not actually be able to obtain the information which it seeks through the statutory regime (eg because there was no appropriate procedure in Uganda).

(4) The claimant sought to argue that, if the speeches in the Norwich Pharmacal case were examined, involvement through facilitation of the wrongdoing was not a requirement and mere involvement was enough. That argument was rejected by Burnett J, who held that "involvement" as used in the Norwich Pharmacal case was "a word synonymous with participation". To hold otherwise would be to impose an obligation on too wide a category of person.

COMMENT: There was no reference in this case to Shlaimoun & Anor v Mining Technologies (see Weekly Update 46/11) where it was held that it is not an abuse of process for an application to be made in circumstances where the applicant knows that the documents are most likely to be used in foreign proceedings and that there will not be any English proceedings. However, that case underlined the difference between applying for a NPO where there is a possibility that documents might be used in foreign proceedings and applying (as in this case) for a NPO where foreign proceedings are already up and running.

Great Elephant v Trafigura & Ors

Interpretation of additional premium clause/ entire agreement clauses

http://www.bailii.org/ew/cases/EWHC/Comm/2012/1745. html

One of the issues which fell to be decided in this case was the interpretation of a War Risk Insurance clause in the agreement between the owners and the charterers. This provided that "War risk insurance additional premiums... directly incurred as a result of the vessel entering and or transiting an excluded area shall be for charterers' account". Teare J rejected an argument that the additional premium which the owners sought to recover was the result in this case of the vessel not being allowed to leave Nigerian waters as opposed to entering or transiting Nigerian waters. The judge said that "it seems to me that the clause is intended to cover the whole time spent by the vessel in an excluded area after it has entered that area".

He also held that an "entire agreement" clause did not have the effect of excluding terms implied by section 12 of the Sale of Goods Act 1979. The clause only meant that the agreement between the parties was to be found in the contract and not in any previous discussions or agreements. (COMMENT: Hence it would seem that any terms implied by statute would still apply notwithstanding the presence in the contract of an entire agreement clause, unless clearly excluded by the contract).

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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