UK: Insurance And Reinsurance - Weekly Update - 31 July 2012

Last Updated: 6 August 2012
Article by Nigel Brook

Welcome to the twenty-seventh 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.

Faraday Reinsurance v Howden North America & Anor

Whether trial judge precluded from deciding applicable law in an insurance dispute

The first instance decision in this case was reported in Weekly Update 39/11. Insurers had commenced proceedings against their American insured seeking a declaration that the policy was governed by English law and subject to the jurisdiction of the English courts. The judge granted this declaration. In so doing, he rejected an argument that the English proceedings were not justified and did not serve a useful purpose and the insured appealed against that part of his judgment.

The Court of Appeal has now rejected that appeal. In the case of New Hampshire v Phillips Electronic [2008], Phillips LJ advised that the correct approach is that an appeal in relation to the exercise of discretion on a question of jurisdiction should not be allowed unless the judge has made an error "which risks having adverse consequences on the trial of the action that significantly outweigh the prejudice which will inevitably be caused to the proceedings by the appeal process". The Court of Appeal found that the trial judge here had made no error at all.

(As a side issue, Longmore LJ added that where permission to appeal is sought on a jurisdictional issue in an international insurance dispute, any applicant for permission to appeal should draw these remarks of Phillips LJ to the specific attention of the court and say why, in the particular circumstances of the case, they do not furnish good reason for refusing permission to appeal).

Itochu Corporation v Johann MK Blumenthal

Whether an appeal could be brought against judge's decision regarding the number of arbitrators

The agreement entered into between the parties contained an arbitration clause which referred to "arbitrators" but the parties disagreed as to whether this required one or three arbitrators to be appointed. The respondents applied to court for an order under section 18(3)(d) of the Arbitration Act 1996 ("the Act") which allows a court to appoint arbitrators where the appointment procedure has failed. The judge held that in these circumstances, section 15 of the Act applies. Section 15 provides that where there is no agreement between the parties as to the number of arbitrators, the tribunal shall consist of a sole arbitrator.An order was made and the other side sought to appeal that order.

Section 18(5) of the Act provides that "the leave of the court is required for any appeal from a decision of the court under this section". The judge refused leave to appeal. An argument was raised that the judge's decision was not a "decision...under this section" (ie section 18). The Court of Appeal has now rejected that argument. No question of principle had arisen under section 15 – the only issue was whether the clause came within section 15. The judge's decision was made "under" section 18, even if his reasons were based on section 15.

Furthermore, the judge had plainly been correct in coming to the ruling which he did. There had been no agreement as to the number of arbitrators in the arbitration clause.

Mengi v Hermitage

Whether security for costs order should take into account a defendant's CFA

The Master ordered the claimant to provide security for costs. However, he held that no account should be taken of the CFA entered into by the defendant with her solicitors which provided for a 100% uplift in her costs should she win the case. The defendant appealed.

It has now been held that the defendant was entitled to an order for security up to the full amount permitted for a CFA (namely, an uplift of 100%). Tugendhat J took into account the fact that the claimant would not be financially hindered from pursuing his claim if ordered to given security for this amount, whereas the defendant might be unable to obtain legal representation without it. Furthermore "the risk that the Claimant might be ordered to pay into a court a sum greater than the liability for costs that he might ultimately be ordered to meet does not put him at risk of losing the money that he ought not to lose".

The judge also noted that it has not yet been decided whether or not the information in a CFA is subject to legal professional privilege.

Hawksford Trustees Jersey v Stella Global

Recoverability of ATE premium for costs incurred in both a trial and an appeal

The claimant won at trial and on appeal and so the defendant was ordered to pay the claimant's costs. Shortly before the appeal hearing, the claimant had taken out ATE insurance. The premium for that insurance was almost six times the claimant's costs of the appeal. The ATE insurance was intended to protect the claimant against the risk of having to pay the defendant's costs of both the action and the appeal (should the appeal be allowed and the costs order in its favour following trial be reversed).

The defendant argued that the part of the premium relating to the costs of the claim up to and including the trial should not be recoverable (and that only the part of the premium relating to the appeal should be recoverable).

Section 29 of the Access to Justice Act 1999 provides that "where in any proceedings a costs order is made in favour of any party who has taken out an insurance policy against the risk of incurring a liability in those proceedings, the costs payable to him may...include costs in respect of the premium of the policy" (emphasis added).

The Court of Appeal has now held (Patten LJ dissenting) that "those proceedings" here meant the costs of the appeal only and not of the trial as well: "In my judgment, the word "proceedings" in section 29 should be given its traditional meaning which distinguishes between proceedings at trial and on appeal... The risk that the incidence of costs at trial might be changed by the costs order of the appeal court may be a new risk of the appeal, but the costs liability and costs order in question remain those of the trial: the risk insured against is a risk of incurring a liability in the trial proceedings not in the appeal proceedings ...It also follows that the costs liability in respect of which the premium has been taken out remains a costs liability in the trial proceedings, not in the appeal proceedings" (as per Rix LJ).

Thus the claimant was unable to recover that part of the premium relating the costs of the claim up to trial.

Phaestos & Anor v Ho

Extension of time to comply with disclosure orders

In Weekly Update 11/12 we reported on the claimant's application for extra time to comply with various disclosure orders. In this case, the claimant again sought an extension of time. Having regard to the overriding objective, and following an agreement by the defendant (albeit reluctantly), a final extension was allowed. However, Akenhead J remained concerned about the impact of the continuing and culpable failures by the claimants. For example, the exercise on a chronology did not start until about six weeks after the disclosure order. The judge also criticised an argument that "competent document reviewers could not get through substantially more than an average of 214 documents per day; even if they only work an eight hour day, a not insignificant number of electronic documents will be relatively short e-mails, some of which will be repeated later in e-mail trails. Nothing is said about requiring a double shift or overtime to secure compliance or better compliance with the Court orders".

Perry & Ors v SOCA

Supreme Court considers Proceeds of Crime Act and assets outside the jurisdiction

The Court of Appeal's decision in this case was reported in Weekly Update 18/11. Part 5 of the Proceeds of Crime Act grants a power to the courts of England and Wales, Scotland and Northern Ireland to make orders enabling the relevant enforcement authority (in this case, the Serious Organised Crime Agency ("SOCA")) to recover, in civil proceedings, property obtained through unlawful conduct. If a court is satisfied that any property is recoverable, it must make a recovery order vesting the recoverable property in the trustee for civil recovery. The issue in this case was whether the court could make a recovery order in respect of property (moveable or immoveable) which was outside of the jurisdiction. The Court of Appeal held that it could.

The Supreme Court (by a majority of 7:2) has now allowed the appeal from that decision. It held that the High Court has no jurisdiction under Part 5 to make a recovery order in relation to property outside England and Wales. Lord Phillips, giving the leading judgment, found the Court of Appeal's judgment "surprising" and at odds with the scheme of the 1990 Strasbourg Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime. The suggestion that the trustee for civil recovery would be able to recover property situated abroad was "unrealistic".

The Supreme Court also held that information notices addressed to the appellant and his family by SOCA (who were all outside the jurisdiction), pursuant to a disclosure order issued by the court, were invalid. An obligation to provide information (subject to criminal sanctions in the event of non-compliance) can only be imposed on persons within the jurisdiction. To impose the obligation on persons outside the jurisdiction would be "a particularly startling breach of international law".

Robson v Travelscope Holidays & Ors

Whether defendant entitled to strike out following delays in prosecution of the claim

The claimant claims for injuries sustained during a cruise. Teare J agreed that there had been delays of over two years in arranging for the hearing of a preliminary issue. The defendants sought a strike out under CPR r3.4 on the basis that a fair trial was now impossible. In particular, the defendants referred to the fact that the vessel's safety officer was no longer employed by the defendants and could not be traced. Furthermore, witnesses would be required to recall events which had taken place in 2006.

Teare J said that in deciding whether a fair trial was still possible, it was necessary to consider the likely issues in the action. Despite the considerable delay in prosecuting the claim, the judge concluded that the defendants would still be able to provide (mostly documentary) evidence in support of their defence of the principal allegations likely to be advanced against them. Mere delay, without a likely obstruction to the just disposal of the proceedings, was not enough to justify a strike out of the claim.

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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