UK: ReInsurance and Reinsurance - Weekly Update 17.7.2012

Last Updated: 24 July 2012
Article by Nigel Brook

Provident Insurance PLC & others v FSA

Part VII transfers where transferor authorised in Gibraltar/notification requirement EWHC/Ch/2012/1860.html&query=title+(+provident+and+fin ancial+and+services+and+authority+)&method=Boolean

Clyde & Co for applicants

This case was novel in that it involved the first (so far as the parties were aware) insurance business transfer scheme under Part VII of the Financial Services and Markets Act 2000 ("FSMA") involving the transfer of the insurance business from a firm authorised in Gibraltar to a firm authorised in the UK. The first issue to be addressed, therefore, was whether the court had the power to sanction the scheme under section 111 of FSMA.

This in turn required an examination of section 105 of FSMA and, in particular, whether the following condition was satisfied: "the whole or part of the business carried on in the United Kingdom by an authorised person who is neither a UK authorised person nor an EEA firm but who has permission to effect or carry out contracts of insurance .... is to be transferred to another body". Henderson J held that the Gibraltarian firm was not an EEA firm. However, all of its business is carried on in the UK under the so-called passporting rights conferred by the Financial Services and Markets Act 2000 (Gibraltar) Order 2000. As a result of this Order, the judge concluded that the Gibraltarian firm did have "permission to effect or carry out contracts of insurance" and so the court did have jurisdiction to deal with the transfer.

The applicants also sought certain waivers of the notification requirements contained in the Transfer Regulations. Some of those waivers were uncontroversial and were approved by Henderson J who highlighted that this shows "to my mind, the benefits of an early dialogue and negotiation between the claimants and the FSA". In relation to two disputed waivers, the judge cautioned that an "appeal to the virtues of realism needs to be treated with some caution when what is proposed is that some 100,000 present and recent policyholders of [one of the proposed transferors], and a smaller, but still substantial, number of policyholders of [the proposed transferee] should receive neither direct notification of the scheme, nor targeted advertisements designed to bring it to their attention. That is a very large constituency of policyholders to disenfranchise, so to speak, even if most of them - through no fault of their own - are probably unaware of the identity of their insurer, and even if the scheme appears to be a straightforward one which, on the available evidence, is likely to attract the approval of the court in due course".

However, the judge was prepared to allow the parties to consider whether some form of targeted advertising might be possible.

(1) JSC BTA Bank v Solodchenko

Waiver of privilege and the meaning of "deployed in court"

One of the issues in this case was whether there had been a collateral waiver of privilege because the defendant had "deployed in court" material which would otherwise have been privileged (see Nea Karteria Maritime v Atlantic and Great Lakes [1981]). A party which deploys a privileged document will be required to disclose all relevant material because it is not just to allow a party to "cherry pick" and disclose a document out of context. The meaning of "deployed in court" has been debated in the courts, with Hobhouse J in General Accident Fire v Tanter ("The Zephyr") [1983] holding that it meant the material was relied on in evidence and Phipson on Evidence (17th edn para 26-28) advises that "If, however, the document, affidavit or witness statement has been disclosed to the other side but not yet deployed in court, it is not too late to retrieve the situation".

However, in this case, Smith J held that "a document is deployed if it is served in a witness statement, referred to in a pleading". Furthermore, "if you waive something, you waive it forever" (thus contradicting the statement in Hollander, Documentary Evidence (10th edn para 19- 17) that "If, however, the document, affidavit or witness statement has been disclosed to the other side but not yet deployed in court, it is not too late to retrieve the situation"). It is also unclear whether Smith J was referring to just the particular proceeding in which the waiver took place or to any other proceedings as well (the latter would be counter to current understanding of the position).

(2) JSC BTA Bank v Solodchenko

The correct test for allowing amendments to statements of case

In Swain-Mason & Ors v Mills & Reeves (see Weekly Update 03/11) the Court of Appeal approved the test laid down in Worldwide Corporation v GPT [1998] when the court considers an application by a party to make an amendment to a statement of case. That test provides that the payment of costs may not be an adequate remedy where a party to litigation has been "mucked about" and greater regard should be paid to all the circumstances of the case. The Court of Appeal in Mills & Reeves rejected the test in Cobbold v Greenwich [1999] which had held that amendments generally ought to be allowed, provided that any prejudice to the other side could be adequately compensated for in costs.

Since 2011 there have been conflicting cases on whether Mills & Reeves was correctly decided and a number of High Court judges (eg Blair J, Henderson J and Akenhead J) have applied the Cobbold test instead. Smith J said in City of Nottingham Fire Authority v Cornwall [2011] that Cobbold represented the correct approach for late applications.

In this case, he has again criticised Mills & Reeves, saying: "in my view, the Court of Appeal decision in Mills & Reeve plainly wrong". On the facts of the case, the application had not been made sufficiently late to invoke the Mills & Reeves principles (the hearing was 6 weeks away).

Odedra v Ball

Whether expert who prepares two reports must disclose both of them

The claimants were given permission to rely on the report of a certain expert (Mr Dutch) and that report was disclosed. At around the same time (the exact date is not given in the judgment), the claimants' solicitors asked Mr Dutch to prepare another report (they said in order to assist them in considering the report which they expected to receive from the defendants' expert). That report was not disclosed and the claimants did not intend to rely on it at the hearing.

The defendants sought to argue that the report should be disclosed. They argued that an analogy could be drawn with the Court of Appeal's decision in Vasiliou v Hajigeorgiou [2005] where it was held that if a party changes experts, he should be able to rely on the second expert's report only if he also disclosed the earlier (named) expert's report. Furthermore, in Edwards-Tubb v JD Wetherspoon (see Weekly Update 09/11), the Court of Appeal confirmed that a party must disclose the earlier report of a named expert, who was appointed before proceedings were started, where he later wishes to obtain permission to rely on a second expert's report. However, there is no prior caselaw on the situation where the same expert has produced two reports.

Coulson J agreed that the openness required under the CPR may sometimes "trump" privilege, and sometimes an expert may be required to disclose everything he has produced (regardless of privilege) in order to avoid an injustice. However, there was no general rule to this effect because "taking the point to its logical extreme, it might mean that all expert's draft reports become disclosable, or all documents produced by the expert for the sole purpose of assisting counsel with topics for cross-examination". The claimants were not ordered to disclose the other report.

Coulson J was also critical of the defendants' expert for failing to attend a joint meeting with Mr Dutch (pursuant to a court order and CPR r35.12). Although there had been confusion on both sides "it is hard to think of a situation in which one expert, having been ordered to meet his or her counterpart by the court, would be justified in refusing to do so". He therefore again ordered the two experts to meet.

Sibir Energy v Tchigirinski & Ors

Article 6(1) of the Lugano Convention where claimant might not be proceeding against the "anchor defendant"

The (intended) defendant in this case is a Swiss resident and so the Lugano Convention applies. The main principle behind the Convention is that a defendant should be sued in his own country. However, Article 6(1) of the Convention provides that a person may also be sued "where he is one of a number of defendants, in the court for the place where any one of them is domiciled, provided that the claims are so closely connected that it is expedient to hear ...them together to avoid the risk of irreconcilable judgments" (there is an equivalent provision in the Brussels Convention and Regulation 44/2001).

Here, the claimant issued proceedings against an individual domiciled in England (the "anchor defendant"). However, the Swiss resident argued that the court should take into account the claimant's motive for proceeding against the anchor defendant and the extent to which the litigation against him will in practice be pursued. The claimant sought to argue that those were irrelevant factors.

Mackie J noted that prior caselaw cautions that Article 6(1) should not be applied to allow a claimant to claim against a number of defendants with the sole objective of ousting one defendant's domicile. That risk is usually avoided because, if the claim against the anchor defendant is not to be pursued, there is no risk of irreconcilable judgments being handed down. However, Mackie J rejected the Swiss resident's argument. He relied on the ECJ case of Reisch Montage [2006], which demonstrated that "Article 6(1) can be used to bring in a defendant even when in practice, as opposed to analysis of the nature of the claims, there can be no risk of irreconcilable judgments".

JGE v The Portsmouth Roman Catholic Diocesan Trust

Court of Appeal considers the relationship required to establish vicarious liability

The first instance decision in this case was reported in Weekly Update 40/11. The judge held that the defendant could be held vicariously liable for the alleged torts of a priest, even though the priest was clearly not an employee of the defendant (the defendant did not pay the priest's wages and there was no formal contract between them). In reaching his decision, the judge had relied on a decision of the Supreme Court of Canada in which it was held that "the relationship between the tortfeasor and the person against whom liability is sought must be sufficiently close".

By a majority of 2:1, the Court of Appeal has now dismissed the appeal against that decision. Ward LJ reviewed the prior caselaw and policy reasons for making someone vicariously liable. He concluded that "the time has come to recognise that the context in which the question arises cannot be ignored". Thus it is possible to be an employee for some purposes but not for another (namely vicarious liability). He also rejected the Supreme Court of Canada principle: "If there is a close connection test, it is that the relationship between the defendant and the tortfeasor should be so close to a relationship of employer/employee that, for vicarious liability purposes, it can fairly be said to be akin to employment". The question of control was an important factor and it should be viewed in the wider sense than whether the "employer" has the legal power to control how the "employee" carries out his work: "it should be viewed more in terms of whether the employee is accountable to his superior for the way he does the work so as to enable the employer to supervise and effect improvements in performance and eliminate risks of harm to others". Although the priest did not match every facet of being an employee, he was "very close to it indeed". Davis LJ added that the degree of control does not need to be entire and absolute. The appropriate level of control for vicarious liability to arise will depend on the facts of the case. Here, the defendant's control over the priest was "real and substantial".

Although the Court of Appeal recognised that this was a difficult issue to resolve and acknowledged that this judgment will widen the scope of vicarious liability, it refuse permission to appeal to the Supreme Court (believing that the Supreme Court may prefer to deal with this point after trial and not as a preliminary issue).

Taokas Navigation v Komrowski Bulk Shipping

Whether War Risks clause applied even though there had been no change in piracy risk - of possible interest to marine insurers

The charterparty between the parties included the BIMCO War Risks Clause (CONWARTIME 2004) which provides (broadly) that the vessel shall "not be ordered to ...any area...where it appears that the the reasonable judgment of ...the Owners...may to War Risks". The Owners refused to perform the instructions to proceed to Mombasa because of "recent developments in Indian Ocean in respect of piracy". Charterers had to charter another vessel and, following an arbitration, the arbitrators determined that the owners could rely on the CONWARTIME 2004 clause even though there had been no material change in the risk of proceeding with the journey between the date of the charterparty and the date of the order. The charterers appealed.

Teare J had now dismissed that appeal. The owners had not accepted the risk of piracy in trading in Mombasa in this case - for example, there were provisions in the charterparty for the payment of war risk insurance by the charterers, but no provision for the costs of war risk insurance for going to a named place. The owners had liberty to refuse to proceed to Mombasa if, within the meaning of CONWARTIME 2004, there was a likelihood of the vessel being exposed to acts of piracy on such route. There was no requirement that any such likelihood should have materially increased from the date of the charterparty.

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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