UK: Insurance And Reinsurance - Weekly Update - 15 January 2013

Last Updated: 18 January 2013
Article by Nigel Brook

A summary of recent developments in insurance, reinsurance and litigation law.

These updates are aimed at keeping you up to speed and informed of the latest developments in caselaw relevant to your practice.


Clark v In Focus Asset Management

Whether claimant can accept FOS award and pursue further losses in the courts

The Financial Ombudsman has the power to award compensation of up to £150,000 (where a complaint has been made on or after 1 January 2012 – complaints made before that date are subject to a compensation limit of £100,000). Under FSMA 2000 and the FSA's Handbook (Dispute Resolution: Complaints), a complainant can choose to reject or accept an award. Section 228(5) of FSMA provides that "if the complainant notifies the ombudsman that he accepts the determination, it is binding on the respondent and the complainant and final".

In Andrews v SBJ Benefit Consultants [2010], a judge in the Chancery Division of the High Court held that the merger doctrine applies where a claimant has accepted an award from the Financial Ombudsman, so that he cannot claim for additional losses above the Ombudsman's limit in civil proceedings before the courts. However, in this case, Cranston J has held that the merger doctrine does not apply and that Andrews was wrong on this point. He held that there is nothing wrong with a complainant using his award from the Ombudsman to finance his legal costs in bringing court proceedings to recover a greater amount (above the level of the Ombudsman's limit). The term "final" in this context merely means the end of the Ombudsman's process.

COMMENT: Last year, the Ombudsman Service received some 180,000 complaints related to insurance products (of which over 155,000 related to payment protection insurance) and so the issue of finality will be of importance to many insurers. There are now two conflicting High Court decisions on this issue and, as a result, clarification as to the correct position will be needed from the Court of Appeal. It remains to be seen whether this decision will be appealed.

Insight Group v Kingston Smith

Substitution of the name of a defendant after expiry of the limitation period

The claimants commenced proceedings against an LLP but it had no liability for wrongful acts committed by the partners of a firm prior to formation of the LLP. Although the claimants realised their error (in naming the LLP and not the former partnership in the claim form) prior to expiry of the limitation period, they did not commence a fresh action. Instead they applied under CPR r19.5 for substitution of a new party after expiry of the limitation period.

CPR r19.5(3)(a) provides that the court can order substitution only if "the new party is to be substituted for a party who was named in the claim form in mistake for the new party". The Court of Appeal in The Sardinia Sulcis [1991] held that this test was satisfied where a claimant "gets the right description but the wrong name". That decision was based on an earlier rule (RSC Order 20 r5) which required that any mistake is "not to the identity of the person...intended to be sued" – a requirement which was removed in CPR r19.5(3). However, in this case, Leggatt J noted that (until the point is again considered by the Court of Appeal) the Sardinia Sulcis test must still be applied.

Thus in this case, in order to decide whether the claimants were mistaken as to name, it was necessary to decide whether:

  1. the claimants had mistakenly believed that the LLP, and not the former partnership, had provided the relevant services (in which case the LLP was mistakenly named in the claim form and so CPR r19.5(3)(a) applied): or
  2. the claimants had been aware that the services had been provided by the former partnership but mistakenly believed that the LLP was liable (in which case CPR r19.5(3) (a) would not apply).

He held that this case fell within (a) above. Although the claims made against the former partnership were different from those originally asserted against the LLP, it was held that the Master had not been justified in refusing to exercise his discretion to allow the substitution and the appeal from that decision was allowed.

Moondance Maritime v Carbofer Maritime

Payment into court for costs pending challenge to arbitral award

Shipowners referred a dispute with charterers to arbitration – that claim was dismissed and the shipowners were ordered to pay the charterers' costs. Following non-payment of hire, the ship was withdrawn and the charterers were declared bankrupt. A second arbitration awarded the owners damages and their costs. Owners sought to challenge the first arbitration award under section 68 of the Arbitration Act 1996 ("the Act") and charterers made the following two applications:

  1. An application under section 70(7) of the Act for payment into court of its costs which it said were payable under the first award. Section 70(7) provides that the court can order that "any money payable under the award shall be brought into court or otherwise secured pending the determination...of the appeal". Field J held that section 70(7) is predicated on there having been a specific sum of money ordered to be paid under the award and since the charterers' costs had not been assessed, the provision did not apply here.
  2. An application under section 70(6) of the Act. This provides that the court may order an appellant to provide security for the costs of the appeal (where, as here, the appellant is a foreign company or individual). The judge concluded that the relevant condition under CPR r25.13 had been met – in particular, the owners had "taken steps in relation to its assets that would make it difficult to enforce an order for costs against it" (CPR r 25.13(2)(g), in part because the company was registered in the Marshall Islands, where fairly minimal information relating to companies is required to be made publicly available). The judge then considered whether security should not be ordered if the owners undertook to allow the charterers to set-off against the amount awarded in the second arbitration (in favour of the owners) any sums which the owners are liable for in respect of the charterers' costs. Applying the Court of Appeal's decision in Geldof v Simon Carves [2010], Field J held that the owners' cross-claims were not "so closely connected" with a costs award in favour of the charterers as would make it manifestly unfair to allow the charterers to enforce a costs award without taking into account the cross-claims. Since the owners could not therefore claim an equitable set-off, it did not assist them to offer the undertaking. The owners were therefore ordered to provide security.

Jones & Ors v Secretary of State for Energy

Group litigation and the failure to mediate/ disclosure of a CFA

Following judgment in this case (in which the claimants had been registered under a Group Litigation Order), Swift J considered various costs issues, including the following:

  1. Had the defendants been unreasonable in rejecting the claimants' offer to mediate and in failing to make a Part 36 offer? The judge held that there are significant practical problems in making appropriate offers in group litigation, and so the defendants' failure to make a Part 36 offer was not unreasonable. Nor had it been unreasonable to refuse to mediate since it was "highly unlikely" that any mediation would have been successful.
  2. The claimants sought to argue that they should be entitled to interest on disbursements which were in fact paid by their solicitors because they were obliged to pay such interest pursuant to a funding agreement entered into by the claimants with their solicitors. The judge agreed that determination of this issue should be deferred to a later date. However, the defendants sought disclosure of certain documents relevant to this issue, including certain conditional fee agreements (CFAs). The judge held that because the CFAs had been referred to in a witness statement prepared by the claimants' solicitor, there had been a waiver of privilege – but only in respect of the provisions in the CFAs referring to the obligation to pay disbursements.

Webb Resolutions v E.Surv

Various issues arising out of professional negligence claim against surveyors – of possible interest to professional indemnity insurers

The mortgage lender claimants sued the defendant valuers for negligence and/or breach of contract. Coulson J considered various issues arising out of this claim, including the following:

  1. There has been a debate in some case as to whether, in a negligent valuation case, the focus should be on the valuer's methodology or just the result of the valuation. Coulson J said that the right approach is to focus on the negligent valuation.
  2. It is accepted that, in any negligent valuation case, there is a permissible margin of error, or bracket. Although the judge cautioned that it is unwise to fix the applicable bracket solely by referring to earlier cases, he accepted that for standard residential properties, the margin of error will be 5%, although for a one-off property it will 10% (and in exceptional cases can be as high as 15% or more) – see K/S Lincoln v CB Richard Ellis (Weekly Update 20/10).
  3. The defendants sought to raise a contributory negligence argument, claiming that the lenders had failed to look after their own interests. Coulson J noted that he should take into account lending market practices at the time because "if the claimant is doing what its competitors were doing, negligence was unlikely, unless it could be shown that it was irrational or illogical". In this case, it was clear that self-certified mortgages had been common at the time. However, a combination of particular circumstances in this case led to the conclusion that the claimants had been negligent. Here, both parties were equally to blame and so a 50% deduction for contributory negligence was made.

Royds LLP v Pine

Litigants in person and procedure for appeal

The appellant was unable to afford legal representation and (by reason of disability) unable to attend a hearing either in person or by video link or telephone. She therefore applied for her appeal to be determined without a hearing and on the papers alone. The Court of Appeal rejected that application. It held that all parties to an appeal are entitled to a hearing. The applicant's inability to attend a hearing did not affect the respondent's entitlement to such a hearing. In the absence of the respondent's agreement, a hearing ought to take place.

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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