UK: (Re)Insurance Weekly Update 43-12 - 4 December 2012

Last Updated: 11 December 2012
Article by Nigel Brook

Terna Bahrain v Al Shamsi & Ors

Application to extend time to challenge an award/opportunity to advance case

The claimant sought to challenge an award made in a London arbitration. It also sought an extension of time because the challenge was brought well beyond the 28-day deadline specified in the Arbitration Act 1996 (section 70(3)). Popplewell J noted that the primary factors which the court should take into account are the following:

(1) The length of delay. The judge said that a "delay measured even in days is significant". In this case, a delay of almost 17 weeks was very substantial.

(2) Explanation for the delay. The judge held that it is normally incumbent on the applicant to adduce evidence to explain his conduct. There was no supporting evidence in this case. The applicant must show that he has acted reasonably, and this encompasses the question whether he has acted intentionally in making an informed choice to delay the application. The applicant here was not unsophisticated - instead he had chosen a "deliberate and tactical delay", whilst he sought to challenge enforcement in another country.

(3) The respondent or arbitrator has caused or contributed to the delay - that was not applicable here. The respondent's neutral stance in the foreign proceedings was normal procedure in that court.

(4) The strength of the application. The judge said that this will depend on the procedural circumstances of the case. Normally the court will not conduct a substantial investigation into the merits of the challenge application and this will be a factor only if the claim can readily be seen to be strong or weak.

However, in this case, the application for a time extension was listed for hearing at the same time as the challenge application itself. In those circumstances, the court was in a position to decide whether the challenge would succeed or not (not just whether it was strong or weak). In this case, the judge held that the challenge would fail even if a time extension was granted. (The claimant had argued that it had not had a chance to put its case on a particular point to the tribunal. The judge found that the other side had raised the point only very briefly, but that was not the same as the claimant having had no opportunity to deal with it). The fact that the challenge would have failed was fatal to the application to extend time.

The judge added that even if a party has good grounds for challenging an award, if it deliberately chooses not to do so timeously, there is nothing unfair in denying it the opportunity to have its challenge heard.

Coulson v News Group Newspapers

Indemnity clause and the requirement to cover defence costs for criminal charges

The parties entered into an agreement whereby the company agreed to "pay any reasonable professional...costs and expenses properly incurred by [the employee] ...which arise from his having to defend..any..judicial ...proceedings as a result of his having been the editor..."

At first instance, Supperstone J held that the indemnity did not apply to the defence of criminal proceedings against the employee. The employee appealed and the Court of Appeal has now allowed that appeal.

The Court of Appeal held that "there is nothing in the criminal nature of the proceedings to render it objectionable that the indemnity should apply". The key issue was whether the criminal allegations arose out of the performance of the employee's job or whether they had nothing whatever to do with performing the job. For example, a fraudulent claim for expenses would not be connected to the performance of his job. However, the charge in this case was that he had unlawfully conspired to hack telephones and that was said to "arise out of the allegedly criminal manner of his performance of his role as editor".

The argument that the costs were not "properly incurred" because the employee did not "have to defend" where he is guilty of an offence was also rejected. The indemnity was not subject to a scrutiny of the nature or merits of the intended defence or the outcome of the criminal case: "I consider that the phrase costs "properly incurred" in this contract simply means costs of a nature properly to be regarded as required in the defence of the particular proceedings in question".

Finally, the indemnity covered the costs incurred pre-charge too eg for advice and representation on arrest and in interview with the police. Although the judge at first instance accepted that such costs would be covered if charges were eventually brought, he held that if no charges were ever brought, there would not have been any "proceedings" and hence those costs would not fall within the indemnity. The Court of Appeal disagreed. Advice and representation at a police station are "part and parcel of the criminal process". The indemnity covers the costs and expenses of defending criminal proceedings and so "cannot be taken to exclude costs at a pre-charge stage, even if no charges are ultimately preferred".

Nor did the ex turpi causa principle apply here - this was not an indemnity for fines imposed for a breach of law, it was an indemnity for the costs of defending oneself. There is nothing contrary to public policy in one person providing funds to another to defend himself against a criminal charge.

COMMENT: D&O policies frequently provide cover for defence costs incurred in defending criminal charges, although sometimes this cover is excluded. This case demonstrates that it is important to expressly exclude cover (if an exclusion is required), otherwise the costs of defending such proceedings (even if they never result in a charge) will be covered by the type of wording involved in this case - notwithstanding the absence of an express reference to criminal proceedings.

Nemeti & Ors v Sabre Insurance Co

Insurer appeals against decision to substitute another party after limitation period has expired

The claimants were passengers in a car which crashed in Romania (due to the driver's negligence). The claimants and the driver are Romanian. The defendant is an English insurer who provided motor insurance to the driver's father (the driver was uninsured). The claimants sought to rely on the European Communities (Rights Against Insurers) Regulations 2002 to bring a direct action against the insurer. However, the claimants subsequently conceded that they had no right of action against the insurer (because the accident did not take place in the UK and because the driver was not insured by the insurer). The claimants then applied to substitute the estate of the driver in place of the insurer (in an attempt, it seems, to eventually claim that the insurer was liable to satisfy any judgment against the estate). This application for substitution was made after expiry of the limitation period (which was governed by Romanian law but applied to the present case by virtue of section 1(3) of the Foreign Limitation Periods Act 1984). The substitution was allowed at first instance and the insurer appealed.

Section 35 of the Limitation Act 1980 provides that a party can be substituted after the expiry of a limitation period if the substitution "is necessary for the determination of the original action". CPR r19.5(2)(b) provides only that the substitution must be necessary but the judge, Cotter HHJ, held that the additional words should be read into the rule otherwise the CPR would be relaxing the statutory requirement. The judge held that section 35 and CPR r19.5 are "necessarily restrictive as to the very limited circumstances in which it is permissible to deprive a Defendant of the accrued right of a limitation period". They are intended only to correct defects in the original action (relating to the parties joined to it, or the capacity in which they sue or are sued). He held that the substitution here was not necessary for the determination of the original action: "It may be thought necessary for effective recovery from an insurer; but that is a very different thing".

He also rejected an argument that the Regulations should be given a purposive construction and that they "under-implemented" the relevant EU directive because they gave a direct right of action only where the accident takes place in the UK. The judge concluded that claimants were arguing for a purposive interpretation to be applied to the wrong statute. The relevant statute here was the Limitation Act and not the Regulations: "Any under-implementation is a wholly separate issue to the need to act within a relevant limitation period".

Accordingly, he allowed the insurer's appeal.

TAG Capital Ventures v Potter

Whether an abuse of process after intention not to continue case/freezing injunctions

The defendant sought to strike out this action on the basis that its continuance would be an abuse of process. The defendant relied in part on delay by the claimant, but delay on its own (however great) cannot amount to abuse. Instead, he sought to rely on an email sent to him by the Official Receiver (OR) of the claimant. This stated that the OR was "not in a position to continue this action". In Grovit v Doctor [1997], Lord Woolf said that "To commence and to continue litigation which you have no intention to bring to conclusion can amount to an abuse of process." Warren J held that the principle still applied following the introduction of the CPR. However, it did not apply in this case because this was not a case where, prior to the email, the action was being kept on foot with no intention of continuing it to trial (as had been the case in Grovit). The OR could have sent a further email the next day saying that he had reconsidered his position and that would not have amounted to abuse at all. Furthermore, the email referred only to the OR and someone else in control of the company could have decided to continue the action. The action should be struck out only if it could not be suggested that someone else would take over control of the company. In any event, even if there was abuse, it was at "the very low end of the scale" and would not justify a strike-out.

The defendant also sought the discharge of a freezing injunction obtained against him on the basis of delay of the underlying action. It is a well-established principle that a person is only entitled to retain a freezing order if he prosecutes the proceedings promptly and without unnecessary delay. The judge found that delays in this case had not been unreasonable. He also questioned whether there had been any delay at all in the sense of putting back a trial date. He concluded that: "I do not suggest that the fact that delay in getting on with all the matters which have to be carried out before a trial has no impact on the actual trial date will inevitably mean that the delay will never justify discharge of a freezing order. I do, however, consider that it is, in the present case, a factor which I am entitled to take into account. I do not need to rely on it but it does, in my view, support the conclusion which I have reached".

Smith v Stafford Housing Trust

Part 36 offers and whether it is unjust to award the usual costs consequences after the claimant failed to beat the defendant's offer

The claimant was suspended and then demoted after posting certain comments on Facebook. He claimed damages for breach of his employment contract and won on that point at trial. He was awarded damages of around £100. However, he had rejected an earlier Part 36 offer by the defendant of £1,000. He sought to argue that it would be unjust to order the usual Part 36 consequences for rejecting the defendant's offer and failing to beat it at trial. Briggs J agreed that it would be unjust to order the usual Part 36 consequences in this case. He summarised the applicable principles as follows:

(1) The question is not whether it was reasonable for the claimant to refuse the offer. The question is whether, having regard to all the circumstances and looking at the matter as it affects both parties, it would be unjust for the claimant to pay the defendant's costs.

(2) The court should assess who in reality is the winning party and who has been responsible for costs having been incurred when they shouldn't have been.

(3) The court is not constrained by the list of potentially relevant factors set out in CPR r36.14(4) - there is no limit to the types of circumstances which might make it unjust to make the usual order.

(4) Nevertheless, the court does not have an unfettered discretion and the burden of proving injustice is a "formidable obstacle".

Taking into account those principles, the judge concluded that it would be unjust for the claimant to pay the defendant's costs in this case. This had not been a case which was primarily about money or obtaining damages - the claimant was seeking to restore his reputation. The case raised important matters of general principle too (and for that reason was transferred to the High Court at the beginning of the trial). Unusually, this was also a case which had properly been taken to trial by both parties (an earlier settlement would have left real matters in issue between the parties unresolved). The judge decided to make no order for costs.

Trebor Bassett v ADT Fire

Test for interim payment/whether court should take account of insurance arrangements when assessing damages

The claimant obtained judgment in its favour but issues of quantum remained to be decided. The claimant applied for an interim payment under CPR r25.7. Coulson J said that the correct approach to an application is that the claimant should be entitled to an "irreducible minimum part" of his claim ie that part which may be capable of being established without venturing far into disputed areas of fact or law. Furthermore, it is not enough that the claimant is likely to obtain judgment or a substantial amount of money - the test is whether he "would" obtain both judgment and a substantial amount. He rejected the claimant's approach that the judge should look at the pleaded value of the claim, reduce it for contributory negligence and then 50% for the risk of litigation and award an interim payment for that amount. Coulson J said that it was not appropriate to adopt a broad brush approach. Instead, each aspect of the claimant's case had to be considered individually.

When looking at the claimant's case, the judge considered the following issue: the claimant is seeking the cost of reinstatement but the defendant is arguing that the situation is more complicated where an asset has been destroyed by fire. It claims that the correct measure of loss is the cost of restitution or diminution in value. The claimant says that it spent £70m on reinstatement but then sold the asset for £55m and the defendant has suggested that the claimant was only prepared to spend this amount on reinstatement because it did so at its insurers' expense: "on that analysis, the fact that there was an insurer who was paying for the reinstatement and the re-equipment becomes a critical factor in the claimants' commercial approach". This in turn raised a further problem. Conventionally, the nature and extent of any insurance arrangement are irrelevant to the court's evaluation of quantum. Should the court take them into account, though, in order to explain a claimant's apparently uneconomic decision to reinstate? Coulson J declined to decide that issue at this stage. All he could conclude was that the defendant's argument was not fanciful or bound to fail.

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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