UK: Insurance And Reinsurance Weekly Update - 3 April 2013

Last Updated: 15 April 2013
Article by Nigel Brook

Welcome to the twelfth edition of Clyde & Co's (Re)insurance and litigation caselaw weekly updates for 2013.

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

Beazley & Ors v Al Ahleia Insurance Company & Ors
A case on the interpretation of a Claims Cooperation Clause.

Versloot Dredging v HDI Gerling
Court decides whether insured could have access to its insurer's witness before trial.

SOCA v Azam & Ors
A case on the Proceeds of Crime Act and whether assets outside the jurisdiction were lawfully brought here, and the use of disclosure orders.

Mengiste & Anor v Endowment Fund
Forum disputes and the approach of the courts and whether a fair trial could be obtained in Ethiopia.

Centrehigh v Kare Amen & Ors
The procedure for an application for a third party costs order.

Beazley & Ors v Al Ahleia Insurance Company & Ors

Interpretation of a Claims Cooperation Clause

The claimant underwriters had entered into a reinsurance contract with the defendant reinsured which contained (in relevant part) the following Claims Cooperation Clause ("CCC"): "It is a condition precedent to any liability under this Reinsurance that...a) the Reinsured shall upon knowledge of any loss or losses which may give rise to a claim under this Policy, advise the Reinsurers thereof as soon as reasonably practicable; b) The Reinsured shall furnish the Reinsurers with all information available respecting such loss or losses and the Reinsurers shall have the right ... to control all negotiations, adjustments, and settlements in connection with such loss or losses. c) No settlement and/or compromise shall be made and no liability admitted without the prior approval of Reinsurers".

The claimants alleged that the reinsured had breached paragraphs b) and c) of the CCC. There was no dispute that this was condition precedent. However, Eder J also held that the CCC operated as an exemption clause and should therefore be construed against the claimants, being the parties seeking to rely upon it.

Eder J rejected an argument by the defendant that although the wording may give reinsurers certain rights, it does not take away any of the defendant's rights. Thus, if reinsurers are denied an opportunity to exercise those rights, they will not be liable to pay. However, on the facts, he held that there had been no breach of b) because the reinsured had not entered into "negotiations" at the time alleged by the claimants. Even if there had been "negotiations", the judge said that "I do not think it was commercially realistic for [the reinsured's representative] to refuse to speak to [the insured's representative] when he phoned on 2 December and put the phone down. Nor do I consider that this was legally required by the terms of sub-paragraph b) of the CCC".

The judge went on to analyse paragraph c) of the CCC in detail, including:

  1. Did c) prohibit any settlement at all or only settlement of losses falling within a)? In other words, did it cover a settlement of the reinsured's retention or a settlement of the liability of another reinsurer (which was not a party to these proceedings). Although the wording of c) is unlimited, the judge said that it had to be construed in the context of the CCC as a whole. Furthermore, he held that it made commercial sense that c) would only cover losses which might give rise to a claim under the reinsurance policy and clear words would be needed to produce a different result.
  2. Does "settlement" cover a without prejudice settlement? Eder J held that "the word "settlement" imports, at the very least, either a legally binding agreement (whether oral or otherwise) or the actual transfer of consideration of some kind (whether money or otherwise) including what are sometimes described as "ex gratia payments"". It would therefore cover a legally binding settlement which might be expressed to be "without prejudice to liability".
  3. What does an "admission of liability" mean? Eder J held that it "must at the very least be one communicated in clear and unequivocal terms by one party to the other". However, an admission of part of a claim (rather than all of it) would suffice: "In other words, it is sufficient if the cedant admits the original insured has a valid claim; he does not have to admit liability in respect of the entirety of the claim provided such admission is one which is, as I have said, respecting or in connection with any loss or losses which might give rise to a claim under the [reinsurance policy]". However, an offer to pay money or to settle is not, of itself, an "admission of liability".

On the facts of the case, Eder J concluded that there had been no breach of c) of the CCC either.

COMMENT: This case seems to be part of a trend to construe condition precedent CCCs very narrowly. It also confirms that the burden will be on reinsurers to prove a breach of the clause.

Versloot Dredging v HDI Gerling

Whether insured could have access to insurer's witness before trial

The claimant insured applied for an injunction against the defendant underwriters, requiring them to withdraw their instruction to their witness not to talk to, or provide information to, the claimant. The witness in question was a surveyor who had been retained to investigate the cause and extent of a loss. He had been present at meetings with the defendants and their experts and solicitors, where the case and defence had been discussed. He might also be in possession of confidential (if not privileged) information. However, the claimant sought to rely on the principle that there is no property in a witness.

Clarke J agreed that the claimant would be able to call the surveyor at trial (although in this case the defendants did intend to call him and so the claimant would then have an opportunity to cross-examine him). However, in this case, the claimant sought access to the surveyor before trial. The judge held as follows:

  1. In the absence of a subpoena, it was up to the surveyor to decide if he wished to assist the claimant.
  2. The claimant's solicitor committed no impropriety by asking the surveyor for information, even though he had been retained by the defendants.
  3. The fact that the surveyor could be compelled at trial to reveal confidential information does not mean that he ie entitled to do so before trial.
  4. It cannot be a contempt of court for the defendants to tell the surveyor that he may not reveal information which is truly privileged or confidential. However, "What a solicitor is not entitled to do, or indeed a party, is to order or instruct a witness or a potential witness not to attend an interview with the opposing solicitor or to tell him that he has no real choice in the matter, or to put pressure on him not to comply. Nor must he make it appear that the witness can only be interviewed if the solicitor or his principal consents".

Accordingly, it was up to the surveyor to decide if he wishes to assist the claimant. Similarly, if he did choose to meet the claimant, he could also choose whether his evidence should be recorded. Finally, although not necessary to do so, Clarke J also dealt with the defendants' argument that, in view of the procedure laid down in CPR r 32.5 for the cross-examination of witnesses at trial, it would be inappropriate to allow an "advance cross-examination". The judge rejected that argument: the CPR is not to be treated as the sole source of rights and obligations in respect of witnesses - those rights and obligations will instead be governed by the law relating to confidence, privilege and contempt.

COMMENT: Although this case confirms that a witness is not entitled to share confidential information with the other side, there may still be a risk if a witness chooses to meet with the other side for whatever reason. It would probably therefore still be prudent to limit (so far as practically possible) the degree of confidential information shared with any potential witnesses (notwithstanding that the witness will owe a duty not to disclose confidential information to the other side).

SOCA v Azam & Ors

Proceeds of Crime Act and whether assets outside the jurisdiction were lawfully brought here/use of disclosure orders

In Perry & Ors v SOCA (see Weekly Update 27/12), the Supreme Court held that the High Court has no jurisdiction under Part 5 of the Proceeds of Crime Act 2002 to make a recovery order in relation to property outside England and Wales. In this case, an order had been made (before the Supreme Court decision) over money held in a Luxembourg bank account. It was therefore now accepted that that order should not have been made (although at the time the order was made it had been permissible to make such an order). Jack J concluded that the monies had been lawfully brought within the jurisdiction and that there were no grounds for returning them to Luxembourg. He also noted that this aspect of the Perry decision will be retrospectively reversed by the Crime and Courts Bill, which is expected to come into force in late April or May this year.

The judge also considered whether a disclosure order made for the purpose of a civil recovery investigation could be used to obtain evidence to build a case against a respondent that he had been involved in unlawful conduct. He concluded that it could be. That is because the investigation itself involved establishing that property is recoverable because it was obtained by unlawful conduct (and so SOCA must establish that the respondent was involved in unlawful conduct). This position differs from that of a confiscation investigation.

Mengiste & Anor v Endowment Fund

Forum disputes and the approach of the courts/whether a fair trial could be obtained in Ethiopia

In Spiliada Maritime v Cansulex [1987], Lord Templeman gave guidance on applications challenging proceedings brought here on the ground that England is not a forum conveniens. He said that he hoped that a judge would be "allowed to study the the quiet of his room without expense to parties; and that submissions will be measured in hours and not days". In this case, though, Smith J cautioned against placing too much reliance on this observation. Here, a hearing on the appropriate jurisdiction took 12 days, but the judge said that this amount of time had been required because "everything was in dispute". He said that "This demonstrates that there is no possibility of assuming that every case on this jurisdiction would be dealt with as optimistically forecast by Lord Templeman".

The claimants also sought to challenge the fairness of the Ethiopian judicial system (both in relation to issues already decided by the courts there and on the basis that the political system there is such that there was a real prospect they would suffer harm if the case was heard there).

The English court approaches such arguments with "considerable circumspection" - there has to be cogent evidence that a fair trial cannot take place in the foreign country. Smith J held that this test had not been met here. However, he also held that the fact an English judgment might not be enforceable in Ethiopia was not relevant.

Centrehigh v Kare Amen & Ors

Procedure for an application for a third party costs order Ch/2013/625.html&query=centrehigh&method=Boolean

The claimants sought a third party costs order under section 51 of the Senior Courts Act 1981. The issue in this case was whether an application should be determined following a full trial. Normally, an applicant for an order under section 51 is not entitled to a full trial and the court instead will look at the material before it, having regard to such documents and witness statements as are available. Morgan J recognised that this approach "will often fall short of the very high standards which are conventionally applied where there is a full trial preceded by pre-trial procedures, and involving cross-examination of witnesses". However, he said that the courts have decided, as a matter of policy, that such applications are to be "kept within proper bounds" and there was no feature of this case which made it appropriate for a full trial to take place.

Please note there will be no update next week

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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