UK: Insurance And Reinsurance Weekly Update - 28 May 2013

Last Updated: 10 June 2013
Article by Nigel Brook

Welcome to the nineteenth 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

  • Joyce v O'Brien & Anor
    The Court of Appeal determines whether insurers can deny liability based on the ex turpi causa principle.
  • Golden Ocean v Humpuss Intermoda & Anor
    A case demonstrating the court's approach to deciding whether a dispute is governed by an arbitration agreement.
  • X v Y
    A security for costs application arising out of a challenge to an arbitral award.
  • E & Ors v M
    A case on whether a claimant had breached the terms of a worldwide freezing order and whether he controlled assets.
  • Actavis Group HF v Eli Lilly
    Whether solicitors had agreed to accept service of a claim form from a parent company and service on a foreign company.
  • Ali v Ali & Ors
    Whether a defendant and his insurer were reasonable to instruct solicitors separately.

Joyce v O'Brien & Anor

Court of Appeal determines whether insurers can deny liability based on ex turpi causa principle

http://www.bailii.org/ew/cases/EWCA/Civ/2013/546.html

The first instance decision in this case was reported in Weekly Update 18/12. The claimant claimed against the first defendant (his uncle) following a road accident in which he was seriously injured and after his uncle had pleaded guilty to driving carelessly. The second defendant (the uncle's insurers) defended the claim on the basis that the claimant and his uncle had been engaged in a common criminal enterprise (escaping from a burglary) at the time of the accident. The judge held that the insurers had no liability to pay (because the ex turpi causa principle applied - ie that no action can arise from the claimant's own illegal act). The claimant appealed. The Court of Appeal has now dismissed that appeal and held as follows:

  1. In Delaney v Pickett (see Weekly Update 46/11), Ward LJ had commented that the crucial issue was whether the injury suffered by the claimant was caused by his criminal activity (or was merely incidental to it). Here, the Court of Appeal held that the same principle applied in a joint enterprise case but "The material additional feature in such a claim is that the claimant may be denied recovery not merely where the injury results directly from his own criminal conduct, but also where it results from the action of a joint participator carried on in furtherance of the joint enterprise. In certain cases the injury will still be treated as having been caused by the claimant even though the direct cause of the injury was his co-defendant".
  2. The judge had been entitled to conclude that, although the injury may not have occurred but for the uncle's careless driving, it was still "caused" by the criminal activity in which the claimant was engaged: "The injury resulted both from his personal conduct in placing himself in such a dangerous position; and because he took the heightened risk of dangerous driving by his uncle and that risk materialised".
  3. The judge had gone too far in holding that the law will not recognise a duty of care owed by one participant in a crime to a co-participant. However, that did not undermine his actual decision. (4) Although there is some flexibility in the operation of the ex turpi causa principle (eg it will not apply to minor traffic offences), it clearly applied in the case of a theft of ladders (which is an imprisonable offence carrying a 7 year maximum sentence).

Golden Ocean v Humpuss Intermoda & Anor

Court approach to deciding whether a dispute is governed by an arbitration agreement

http://www.bailii.org/ew/cases/EWHC/Comm/2013/1240.html

Various issues fell to be considered by Popplewell J in this case, including whether there was a serious issue to be tried that the claimant was entitled to bring proceedings in England for a declaration that it was not a party to an arbitration agreement with the second defendant. This required the judge to consider section 9 of the Arbitration Act 1996 which provides, in relevant part as follows: "9(1) A party to an arbitration agreement against whom legal proceedings are brought...in respect of a matter which under the agreement is to be referred to arbitration may.. apply to the court..to stay the proceedings....9(4)...the court shall grant a stay unless satisfied that the arbitration agreement is null and void, inoperative, or incapable of being performed".

Popplewell J summarised the position as follows:

  1. The defendant must establish that there is an arbitration agreement to which it is a party. It is not enough to show merely an arguable case - unless the court is satisfied that he is a party to the agreement (and the dispute falls within the scope of the agreement), it has no jurisdiction to stay the proceedings.
  2. Accordingly, the court must determine that issue and if it cannot do so on the written evidence, it must direct a trial (although the court retains an inherent jurisdiction to grant a stay without resolving that issue).
  3. If the defendant has shown that he falls within section 9(1), it is for the claimant to satisfy the court that the arbitration agreement in null and void etc. The court may order a trial of this issue, but is not bound to do so. It can decide that the defendant must just show an arguable case that the arbitration agreement is valid and effective.

In determining whether to order a trial under section 9(1) or 9(4) (or to grant a stay under its inherent jurisdiction and so allow the tribunal to determine the issue), the court will take into account various factors, including whether findings of fact or law are likely to be made which will impact on the parties' rights and obligations in the underlying dispute; how long it will take the court to determine the issue; whether the law governing the existence of the arbitration agreement is English law; and the location and language of potential witnesses. In this case, it was held that it would be appropriate for the court to decide whether there was a valid arbitration agreement between the parties.

X v Y

Security for costs application arising out of a challenge to an arbitral award

http://www.bailii.org/ew/cases/EWHC/Comm/2013/1104.html

During consultation on the bill which was to become the Arbitration Act 1996, there was a widespread view that the English courts should no longer be able to order security for costs in respect of arbitration proceedings. However, since the power was to be retained for arbitrators, it was eventually decided that the courts should retain this power in relation to applications, appeals or challenges made to the court. In Azov v Baltic [1999], Longmore J held that there was no formal fetter on the court's discretion to order security for costs but that regard must be had to section 1(a) of the Act which provides that "the object of arbitration is to obtain the fair resolution of disputes...without unnecessary delay or expense." He therefore held that it would be rare to order security for costs if the claimant in the proceedings has sufficient and available assets to meet any adverse costs order (because an order for security for costs in such circumstances would be an unnecessary expense).

Longmore J also held that it could be a "potentially relevant matter" if the challenge to the arbitral award is "a second bite at the cherry" - provided that there is "no cogent reason" for saying the tribunal reached the wrong conclusion. Longmore J cautioned, however, that this factor should not be given "excessive weight" and should only "tip the scales" if the court was uncertain about the claimant's assets.

Teare J held that in this case, there was a real risk that the claimant's assets are not readily available to meet an adverse costs order. Furthermore, it had clearly set its mind against meeting any of the awards made against it, and it had already failed to successfully challenge some of those awards: "Whilst X could probably be made to pay in the end, it probably could not be made to pay with any high degree of promptness".

However, the judge declined to make a further order under section 70 of the Act that money payable under an award should be brought into court pending the determination of the challenge to the award. Applying the guidance given by Flaux J in A v B [2011], the section 67 challenge here was "flimsy and lacking in substance". There was no such threshold test for the section 68 challenge. Accordingly, it had to be shown, in relation to both the section 67 and section 68 challenges, that those challenges would prejudice the defendant's ability to enforce the award (normally, that there was some risk of dissipation of assets). That test could not be met on the facts.

E & Ors v M

Whether claimant had breached the terms of a worldwide freezing order/delay/control of assets

http://www.bailii.org/ew/cases/EWHC/Comm/2013/895.html

Various issues arose to be considered by Hamblen J in this case:

  1. The claimant obtained a worldwide freezing order ("WFO") against the defendant which contained the usual undertaking that it "would not without the permission of the court seek to enforce this order in any country outside England and Wales or seek an order of a similar nature including orders conferring a charge or security against the respondent".

    The claimant had applied to the courts of another jurisdiction for the arrest of a vessel owned by a third party for the purpose of obtaining security in the underlying arbitration proceedings between it and the defendant. The defendant sought to argue that the arrest was intended to fulfil the same purpose of the WFO and hence was a breach of the standard undertaking. That argument was rejected by the judge. The main concern underlying the undertaking is an inappropriate or oppressive extension of the WFO through its enforcement abroad or its duplication. It is not, however, directed at precluding the pursuit of different and independent rights of security that may be available abroad.
  2. The claimant sought to vary the WFO to include securities which were not legally or beneficially owned by the defendant. It asserted that the defendant had the "power, directly or indirectly, to dispose of or deal with those assets as if they were his own". Hamblen J held that there had to be good reason to suppose that the defendant could be compelled (through some process of enforcement) to cause the assets to be used to satisfy any eventual judgment. It was not enough that the defendant might, in practice, be able to prevail upon another party to use its assets to pay the judgment.
  3. It was argued that the defendant had not successfully purged an earlier contempt because it had failed to explain why it had not complied with the earlier court order. Hamblen J held that such an explanation was not necessary - an apology would suffice.

Actavis Group HF v Eli Lilly

Whether solicitors had agreed to accept service by parent company/service on a foreign company

http://www.bailii.org/ew/cases/EWCA/Civ/2013/517.html

If a solicitor acting for the defendant has notified the claimant in writing that the solicitor is instructed by the defendant to accept service of the claim form on behalf of the defendant, the claim form must be served at the business address of that solicitor. The problem in this case was that the defendant's solicitors mistakenly informed the claimant that they were authorised to accept service of proceedings commenced by a different company in the claimant's group, rather than the claimant.

Applying the reasoning in Rainy Sky v Kookmin Bank (see Weekly Update 39/11), the Court of Appeal considered how the letter from the solicitors would have been understood by a reasonable person with the defendant's background knowledge. It held that it was clear that the defendant had consented to service of proceedings brought by the claimant. If the reasonable person had had no knowledge of the claimant's group of companies, he would have assumed that the letter had been written on behalf of the trading subsidiaries which would commence the proceedings. If, on the other hand, the reasonable person did have knowledge of the group structure, he would have realised that the reference to the other company had been a mistake. The Court of Appeal also held that, in this context, it was reasonable to expect the defendant to know about the claimant's group structure.

The defendant also appealed against the decision that the second proceedings had been validly served on it. The claimant had served this claim form on the defendant's representative in the UK. Service on a foreign company (whose particulars are registered) is often made under the Companies Act but the Act does not apply where the company's business is carried on by a representative or agent. CPR r6.9 (which applies where the defendant has not given an address for service) provides that service of proceedings on a foreign company may be made at "any place in the jurisdiction where the corporation carries on its activities, or at any place of business of the company within the jurisdiction". Prior caselaw confirms that the place of business must be fixed and definite and the activity must have been carried on for a sufficient time for it to be characterised as a business. However, it is not necessary to establish that a substantial part of the business of the corporation is carried on from the place in question, and a corporation may have a place of business even if the activities carried on there are incidental to the main objects of the corporation.

On the facts of the case, the Court of Appeal concluded that the representative here was a part of the defendant's business (and not just its UK subsidiary) and was carrying out work for the defendant's global programme. Accordingly, service was validly effected under CPR r6.9.

Ali v Ali & Ors

Whether defendant and its insurer were reasonable to instruct solicitors separately

http://www.bailii.org/ew/cases/EWHC/QB/2013/1233.html

The claimant was injured in a car accident whilst a passenger in his brother's car. He commenced proceedings against his brother (and his insurers) and the driver of the other car (the third defendant). The third defendant joined his insurers to the action. The third defendant and his insurers were represented separately because, the judge was told, the third defendant was not entitled to an indemnity under the policy (the insurers having obtained a declaration from the court that they were entitled to avoid the policy). On that basis, the judge, after finding the claimant's brother wholly to blame for the accident, ordered the brother's insurers to pay the costs of the third defendant and his insurers "it being recorded that it was reasonable for the third defendant and [the insurers] to be represented separately in the action".

The brother's insurers subsequently applied for an order revoking that costs direction. Swift J DBE allowed the application. Had she known that the third defendant had entered into an indemnity arrangement in respect of damages with his insurers (and hence was not "potentially at personal risk" in relation to damages) she would not have made the order. In the circumstances, the third defendant would only have been at risk of being called to pay any damages awarded against him if he failed to cooperate with his defence. In that respect, he was in no different position from a defendant with a valid policy of insurance and "in the absence of some special feature, such a motorist would not be entitled to the costs of representation separate from his insurer".

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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