UK: Insurance And Reinsurance Weekly Update - 2 July 2013

Last Updated: 16 July 2013
Article by Nigel Brook

Welcome to the twenty-fourth 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

  • Aspen Insurance UK v Adana Construction
    A Clyde & Co case in which the court decided whether a loss fell within the scope of a policy and the relevance of market practice.
  • Abela & Ors v Baadarani
    The Supreme Court decides whether permission to serve out of the jurisdiction by an alternative method should have been given.
  • Antonio Gramsci Shipping v Lembergs
    A Clyde & Co case on whether the corporate veil can be pierced to show consent to a jurisdiction clause.
  • Kyla Shipping v Bunge
    A case on whether the Court of Appeal should set aside a High Court judge's refusal to allow an appeal.
  • The Northampton Regional Livestock Centre Co v Cowling & Anor
    Court decides a security for costs application.

Aspen Insurance UK v Adana Construction

Whether loss fell within scope of policy/relevance of market practice

http://www.bailii.org/ew/cases/EWHC/Comm/2013/1568.html

Clyde & Co (Victor Rae-Reeves and Richard Butt) acted in this case

Insurers sought a declaration of non-liability from the court. The policy in question included cover for both public liability (which excluded liability "caused by any product") and product liability. The insured sought cover for any liability which it might have arising out of the collapse of a tower crane at a construction site which caused personal injuries and property damage. The insurers argued that the crane base in question was a "product" as defined in the policy, and hence was not covered under the public liability section. Furthermore, it was argued, the claim did not fall to be covered under the product liability section of the policy because the parties had agreed that insurers would have no liability "arising in connection with the failure of any Product to fulfil its intended function".

Much of the case turns on its particular facts and the particular wording of the policy, but there are some general points worth noting:

  1. The court should generally be cautious about granting a declaration of non-liability before the insured's liability has been established and before a trial in the action against the insured has taken place. Mackie HHJ referred to the Court of Appeal decision in Horbury Building Systems v Hampden Insurance [2004] (where it was the insured seeking a declaration from the court).
  2. The insurers had adduced expert evidence on the market's conventional understanding as to the division between public liability and product liability (with the latter cover applying only once the works have been handed over). The judge held that such evidence was irrelevant and that "everything depended on the terms of the policy" in this case.
  3. Although the insurer's view about how the public liability and product liability sections of the policy worked was "legitimate", he held that the policy did not reflect that view and that such a view would result in a "gap in the cover which reasonable business people would expect to have taken out". The judge appears to have been influenced, to some degree, by the fact the insured is a "medium sized private family company".
  4. The judge did not decide the correct test for how an insurer should act when being asked to consent to the insured incurring defence costs (the parties had disagreed on the nature of this test).

COMMENT: Whilst the judge found that evidence of market understanding was irrelevant in the context of this case, there is prior caselaw and textbook commentary supporting the view that market understanding at the time the policy is issued can be material.

The case is being appealed.

Abela & Ors v Baadarani

Supreme Court decides whether permission to serve out of the jurisdiction by alternative method should have been given

http://www.bailii.org/uk/cases/UKSC/2013/44.html

The first instance and Court of Appeal decisions in this case were reported in Weekly Updates 05/11 and 46/11. The claimant applied for, and obtained, an order under CPR r6.15(2) providing that steps already taken to bring the claim form to the attention of the defendant by an alternative method amounted to good service. The claimant had sought to effect service in Lebanon, which is not a party to any bilateral treaty with the UK or the Hague Service Convention. The evidence showed that it was likely to take several months to serve via consular/judicial channels and so the claimant had instead delivered the claim form (within 6 months of issue) to the business address of the defendant's lawyer in Beirut. This did not amount to good service on the defendant under Lebanese law.

Evans-Lombe J held that this was an appropriate case for the exercise of his discretion under CPR r6.15(2), but the appeal from that decision was allowed. The Supreme Court has now unanimously held as follows:

  1. A concession by the defendant that CPR r6.15(2) applied to service out, as well as service within, the jurisdiction was correctly made (notwithstanding that the rule appears in the part of the CPR dealing with service within the jurisdiction).
  2. CPR r6.15(2) authorises service where a method is not otherwise permitted. Accordingly, it only applies if none of the other methods provided in the CPR (including a service by a method permitted by local law) has been successfully adopted. It therefore applied in this case. The only bar to the exercise of the court's discretion is if the method used is actually contrary to local law (which was not the case here).
  3. The issue on appeal here was whether the judge had been entitled to hold that there was "a good reason" to exercise his discretion. The Court of Appeal had been wrong to add a gloss to this test by saying that there will only be a good reason in exceptional circumstances. In cases not involving a bilateral service treaty or the Hague Convention (and where service can take a very long period of up to a year), Lord Clarke suggested that orders permitting alternative service "are not unusual".
  4. Although the fact that the claim form has been brought to the attention of the defendant cannot constitute a good reason in itself, it will be a "critical factor". The fact that the defendant here had refused to cooperate was also highly relevant (even though a defendant is under no duty to disclose his address). The Supreme Court concluded that the judge had been entitled to make the order he did: "critical points were that the documents were delivered within the six months' validity of the claim form and brought to the respondent's attention and that service via diplomatic channels had proved impracticable". Events before the issue of the claim form (eg delay by the claimant) were not relevant.
  5. Finally, Lord Sumption said it was "no longer a realistic view of the situation" to describe service out of the jurisdiction as an "exorbitant" jurisdiction and "it should no longer be necessary to resort to the kind of muscular presumptions against service out which are implicit in adjectives like "exorbitant". The decision is generally a pragmatic one in the interests of the efficient conduct of litigation in an appropriate forum".

COMMENT: This Supreme Court decision brings some welcome clarity to various service out issues (for example, whether CPR r6.15 applies to service out of the jurisdiction and whether a method which is not valid under local law (but not expressly prohibited either) can be ordered under this rule). However, Lord Clarke did appear to suggest that it may be less easy to obtain an order under CPR r6.15 where the country where the claim form is to be served is a signatory to a service treaty/convention to which the UK is also a signatory. He referred to the case of Cecil v Bayat (see Weekly Update 08/11) in which the Court of Appeal held that "service on a party to the Hague Convention by an alternative method under CPR 6.15 should be regarded as exceptional, to be permitted in special circumstances only". However, it would appear that Lord Sumption (with whom Lords Neuberger, Reed and Carnwath agreed) was of the opinion that an order under CPR r6.15 should not be seen as exceptional even where there is a relevant treaty/convention.

In any event, claimants can take comfort from the fact that the English courts (as evidenced in this case and several others in recent years) are apparently willing to assist them where service out by the methods specified in the CPR is likely to be (or has proved) difficult for reasons beyond their control, especially where a defendant has not been cooperative.

Antonio Gramsci Shipping v Lembergs

Whether corporate veil can be pierced to show consent to a jurisdiction clause

http://www.bailii.org/ew/cases/EWCA/Civ/2013/730.html

Clyde & Co (Edward Mills-Webb and Chris Moxon) acted in this case.

Article 23 of Regulation 44/2001 provides that, where the parties (one or more of whom is domiciled in the EU) agree that the courts of a Member State shall have jurisdiction to hear a dispute, those courts will have exclusive jurisdiction. The issue in this case was whether the corporate veil should be pierced so that an individual who had not entered into a contract containing a jurisdiction clause could still be bound by it in certain circumstances.

At first instance in this case, the claimant had shown a good arguable case that the defendant was the beneficial owner and controller of a company which had been incorporated as a device to conceal wrongdoing. That company had entered into a contract with the claimant which contained an English jurisdiction clause. The claimant sought to rely on EU jurisprudence and policy grounds to support an argument that the defendant should be treated as a party to the contract.

That argument was rejected by the judge. He held that EU law leaves the regulation of when the veil can be pierced to national law.

In VTB Capital v Nutritek (see Weekly Update 05/13), the Supreme Court had refused to pierce the corporate veil as "it would lead to the person controlling the company being held liable as if he had been a co-contracting party with the company concerned to a contract where the company was a party and he was not" and it was held that there was no prior caselaw to support such an extension of the law.

Applying that principle to this case, the Court of Appeal held that the defendant was not bound by the jurisdiction clause.

Kyla Shipping v Bunge

Whether Court of Appeal should set aside High Court judge's refusal to allow an appeal

http://www.bailii.org/ew/cases/EWCA/Civ/2013/734.html

The underlying dispute between the parties was whether the charterparty which they had entered into was frustrated. The charterparty had contained a continuing warranty that the owners would maintain insurance at a stipulated level. When the ship was damaged, the owners argued that the charterparty was frustrated because it would cost more to repair the vessel than it was worth. The charterers sought to argue that the owners were obliged to repair the vessel using the insurance proceeds. At arbitration, it was held that the contract was frustrated. Hamblen J gave permission to appeal on a point of law under section 69 of the Arbitration Act 1996. That appeal was allowed by Flaux J who held that the contract was not frustrated. Flaux J also refused permission to appeal to the Court of Appeal.

The owners sought to rely on the Court of Appeal's residual jurisdiction to set aside a refusal of permission to appeal. They therefore needed to demonstrate that the decision to refuse permission had come about as a result of "unfair or improper process such that the decision to refuse permission cannot be categorised as a decision at all". Longmore LJ described this as an "extraordinarily high hurdle to surmount". There is no prior caselaw in which the residual jurisdiction has been exercised.

The Court of Appeal refused to exercise the residual jurisdiction in this case too. The arguments raised by the owners were, in essence, a criticism of the judge's reasons and not of the decision-making process.

The Northampton Regional Livestock Centre Co v Cowling & Anor

Security for costs application

http://www.bailii.org/ew/cases/EWHC/QB/2013/1720.html

The claimant appealed against an order that it give security for costs in the amount of GPB 240,000. Some of the grounds of the appeal were as follows:

  1. The Deputy Master's finding that the action "certainly looks as though it is more likely than not to succeed" should in itself have led to a dismissal of the application for security for costs. Stewart J rejected that argument. In Al-Koronky v Time Life (see Weekly Update 22/06) it was held that security for costs should not be ordered where a claimant "appears highly likely to succeed at trial". That test had not been satisfied here.
  2. The Deputy Master had been wrong to take account of the fact that the claimant had not applied for summary judgment. That argument was rejected - this had just been a reflection on the fact that he could not say more than that the claimant was more likely to succeed than not.
  3. The Deputy Master had held that the claimant could not prove the claim would be unfairly stifled. Stewart J agreed with commentary in the White Book that in considering whether a claim might be unfairly stifled, the court should consider not just whether a claimant can raise security out of its own resources, but also whether it could raise the amount needed from outside sources (eg directors or shareholders). The burden lies on the claimant to prove that alternative funding would not be available.
  4. The Deputy Master did not take into account the defendants' liability insurance. The judge was not persuaded that this was a material point (and in any event, there were "question marks" over the insurance).

The appeal was dismissed.

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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