UK: Insurance And Reinsurance - 20th November 2012

Last Updated: 28 November 2012
Article by Nigel Brook

Welcome to the forty-first 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.

This week's caselaw

Genesis Housing Association v Liberty Syndicate
Court considers "basis of the contract" clauses in insurance proposal forms and the test for belief.

Wah & Anor v Grant Thornton & Ors
A decision on whether a "chief executive clause" amounted to a valid arbitration agreement.

Ansari v Knowles & Ors
Court decides whether a settlement released a joint tortfeasor as well.

Dunhill v Burgin
A case on whether a settlement should be set aside after the lack of capacity of the claimant was discovered.

A H Baldwin & Ors v Sheikh Al-Thani
Court decides whether a case for a freezing injunction in aid of foreign proceedings had been made out.

Genesis Housing Association v Liberty Syndicate

Basis of the contract clauses in insurance proposal forms and the test for belief

If a prospective policyholder signs a statement on a proposal form stating that the answers given form the "basis of the contract", this has the effect of converting all the answers into warranties. In this case, when completing a proposal form for a policy covering a building contract, the name of the building contractor was mistakenly put as "TT Construction" rather than "TT Bedford". The proposal form contained the following clause: "I/we declare that to the best of my/our knowledge and belief, the information I/we have given is correct and complete..this proposal and the statements made therein shall form the basis of the contract between me/us and the insurer". Following a review of prior caselaw, Akenhead J concluded as follows:

  1. "Basis of the contract" clauses are enforceable. An insurance contract will be void or unenforceable if the proposal form contains such a clause and the contents of the form are untrue. The basis of the contract clause can be modified either in the policy or in any other documents such as the quotation or certificate of insurance.
  2. Prior caselaw suggests that where a statement is said to be true "to the best knowledge or belief" of the representor, reference can be be made to the honesty of a representor in the case of an individual. However, Akenhead J said that: "in determining particularly whether a corporate organisation making a declaration as to various statements being true to the best of its knowledge and belief is wrongful, the Court must determine what it corporately is likely to have known when it made the declaration. There does not have to be dishonesty as such on the part of the organisation but, if that organisation actually knows that something said to be true on the declaration is in fact wrong, then it is making a statement which is not true to the best of its knowledge or belief".

In this case, the error on the proposal form had been entirely innocent but the individuals signing the proposal form on behalf of their company would have known that it was wrong, had they thought about it. They "knew and must have known" the correct name for the builder. Thus the insured had breached the basis of contract clause and so was in breach of warranty.

COMMENT: Basis of the contract clauses have been the subject of some academic criticism and (in relation to consumer insurance contracts) are to be outlawed when the Consumer Insurance (Disclosure and Representations) Act 2012 becomes law next year. The Law Commissions have also mooted the abolition of basis of the contract clauses in business insurance (although insurers will still be able to contract out). However, this case makes it clear that the courts are still willing to enforce such clauses in a non-consumer context.

The judge's comments regarding belief and the corporate insured are also of interest. Section 20(5) of the Marine Insurance Act 1906 provides that a representation as to a matter of "expectation or belief" is true if it is made in good faith. In the case of Economides v Commercial Union [1998], the court rejected the insurers' argument that there should be an implied representation of fact that the insured had reasonable grounds for his belief - an insurer could only avoid if the insured had wilfully closed his eyes to the truth, or made a "blind guess". Akenhead J has drawn a distinction between Economides and the case of a corporate insured - the test for the latter is not one of honesty but rather actual (and possibly even objective) knowledge (although he does not discuss this in detail, nor who in the organisation must have the relevant knowledge). This appears to be the first time that the courts have suggested a different test for corporate insureds in relation to representations of belief. However, it might be argued that the statement as to the identity of the builder could be categorised as one of fact rather than belief, notwithstanding the clause at the end of the proposal form.

Wah & Anor v Grant Thornton & Ors

Whether "chief executive clause" amounted to a valid arbitration agreement

The members of an international group of accountancy firms entered into an agreement which provided that any dispute in the first instance should be referred to the Chief Executive in an attempt to settle that dispute. If the Chief Executive could not resolve the dispute, it should be referred to a Panel. Until the Panel determines that it cannot resolve the dispute (or until one month after the referral to the Panel) "no party may commence any arbitration in accordance with this Agreement".

Hildyard J reviewed prior caselaw and extracted the following guidelines:

  1. Agreements to agree or to negotiate in good faith are unenforceable.
  2. However, when a provision is just part of a concluded and otherwise legally enforceable contract, the court will strain to find a construction which gives it effect. Each case will be considered on its own terms.
  3. The test is whether the obligations imposed in the clause are sufficiently clear and certain to be given legal effect. If there is a positive obligation to attempt to settle a dispute prior to a referral to arbitration, it must be sufficiently certain that there is a commitment to commence a process and that there are steps which each party must take to put the process in place.

In this case, the judge held that the relevant clause was "too equivocal in terms of the process required and too nebulous in terms of the content of the parties' respective obligations to be given legal effect as an enforceable condition precedent to arbitration". In particular, there was no guidance as to the quality or nature of the attempts to be made to resolve the dispute.

The provision that "no party may commence any arbitration" until certain other steps had been taken was intended to "reinforce the provisions of the preceding sub-sections but also to provide an end date after which any restriction on the right to commence arbitration procedures in accordance with the [agreement] lapses". If the conciliation process failed for whatever reason (including because no Panel was established or no referral was made to it), the parties were still entitled to refer the dispute to arbitration, provided that the requisite time period set out in the clause had elapsed.

Ansari v Knowles & Ors

Whether settlement released joint tortfeasor as well

The claimant settled against one defendant and the issue was whether that settlement also released the other joint tortfeasor defendants. The defendants sought to argue that there is a "rule" to the effect that the release of one joint tortfeasor in a settlement operates to release all the other tortfeasors as well. Eady J noted that there has been considerable criticism of this "supposed rule" and that judges have devised ways of escaping the rigours of its application. Furthermore, "If it is helpful to speak at all of such a "rule" as still subsisting, it is nevertheless necessary to recognise that any rigidity it once had has been so eroded by judicial interpretation that it is probably better simply to take into account the policy considerations underlying it (such as the desirability of finality) when construing the individual settlement agreement before the court. It should not be allowed to override what would otherwise be the common sense interpretation of the particular factual matrix."

He held that the "rule" did not apply in this case. The claimant had deliberately left the other defendants out of the settlement negotiations and the settlement covered a cause of action which had nothing to do with those defendants.

Although a claimant should not be able to obtain a double recovery, where a settlement is reached with a tortfeasor for only part of a claim, it may be possible to recover the balance from any other tortfeasor. It will depend on the particular circumstances of the case though. A further principle to be taken into account is the desirability of avoiding successive claims (although that did not apply here because only one action had been brought against the defendants, who were said to be jointly and severally liable).

Dunhill v Burgin

Whether settlement should be set aside after lack of capacity of one side discovered

The claimant suffered personal injuries following a road traffic accident and settled with the defendant's insurers shortly before trial. The Civil Procedure Rules provide that where a claim is made by a party who lacks capacity, no settlement of that claim will be valid without the approval of the court. In this case, the claimant was not known to lack capacity at the time of the settlement. However, it was subsequently alleged that at the time of the settlement, she had been a patient within the meaning of the Mental Health Act 1983.

Bean J noted that when a claim is issued in the civil courts, the Civil Procedure Rules are impliedly incorporated into any settlement between the parties and take precedence over the general law of contract. He held that CPR r21 applies to invalidate a consent judgment involving a protected party reached without the involvement of a litigation friend and the approval of the court, even where the individual's lack of capacity was unknown to anyone acting for either party at the time of the settlement.

The judge recognised that this was a harsh decision for the insurers who had reasonably thought that the case had been settled following the settlement (which took place several years ago). However, he also recognised the public interest in protecting vulnerable people. Although the claimant here was represented, and so might have an alternative remedy against her lawyers, the decision in this case applied equally to unrepresented parties (of whom there are likely to be more in the future). He concluded that: "It is not difficult to imagine the case of a claimant who is capable of signing and posting an acceptance form sent by a loss adjuster, but who (unknown to the defendant or the loss adjuster) is incapable of managing his affairs. It would be disturbing if the "compromise" reached by such a person could not be reopened".

COMMENT: As the judge recognised, this is a hard decision for insurers. Although the presence of a mental health advocate on the day of the trial might have alerted insurers to a potential issue, in other cases it may be difficult for them to investigate the capacity of a claimant prior to concluding a settlement with him/her.

A H Baldwin & Ors v Sheikh Al-Thani

Whether a case for a freezing injunction in aid of foreign proceedings had been made out

The claimants sought a worldwide freezing injunction against the defendant, a wealthy individual whose main family residence is in Qatar but who spends a significant amount of time in London (and has assets here), in order to support ongoing proceedings in the US. The defendant sought to argue that there was no credible risk of dissipation of assets because this was in essence a simple "debt" claim with no evidence of any fraud, and because he had considerable assets both within and outside the jurisdiction.

Haddon-Cave J held that there was a real risk of dissipation, though, because: (1) the defendant had absolutely no defence to the claim; (2) his explanations for non-payment were unsatisfactory: "not a cent has been paid (despite his professed wealth)"; and (3) his recent behaviour of leaving a large trail of outstanding debts owing to a succession of auction houses was "discreditable, dishonourable and disturbing". The judge added that "although I do not base my decision on this point, I should mention that I see no reason, in principle, why the creation of a spiral of debt around a limited pool of assets cannot amount to dissipation in certain circumstances", especially where there has been conduct outside the ordinary course of business. In addition, there had been previous allegations of fraud against the defendant which should not be ignored.

There was also no reason to hold that it would be inexpedient to order the freezing injunction. There had been some dispute as to whether the US court had jurisdiction to grant a worldwide freezing injunction but the judge held that this dispute was "somewhat sterile" because of the obvious expediency of the the English court granting the order. He shared the view of Morritt LJ in Refco v Eastern Trading [1999] that it made no difference whether the foreign court has jurisdiction but is unable to exercise that jurisdiction or has no jurisdiction at all.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Nigel Brook
In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.