UK: Insurance And Reinsurance Weekly Update - 25 February 2014

Last Updated: 28 February 2014
Article by Nigel Brook

Welcome to the seventh edition of Clyde & Co's (Re)insurance and litigation caselaw weekly updates for 2014.

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

This week's caselaw

Ted Baker v Axa
Insurers seeking permission to appeal after further documents disclosed to them/estoppel by convention argument .

Wall v Mutuelle de Poitiers Assurances
Court of Appeal determines governing law for an issue concerning expert evidence.

Clark & Anor v In Focus Asset Management
Court of Appeal rules that a claimant cannot accept a FOS award and pursue further losses from the courts for the same cause of action.

Lakatamia Shipping v Nobu Su
Application for relief from sanctions where disclosure list was served 45 minutes late.

The Bank of Ireland & Anor v Philip Pank
Court grants relief from sanctions where budget did not contain correct statement of truth.

Mohamud v WM Morrison Supermarkets
Court of Appeal decision on vicarious liability and the close connection test.

Ted Baker v Axa

Insurers seeking permission to appeal after further documents disclosed to them/estoppel by convention argument

Weekly Update 19/12 reported the first instance decision in this case, in which the judge held, as a preliminary issue, that the insurance policy in question did cover theft by employees, despite the insured's non-selection of a "Theft by Employees Section". In reaching this conclusion, the judge had held the insured was not estopped by convention from reliance on the natural meaning of the wording of the insuring clauses. No challenge was initially made by the insurers to that conclusion. However, following further disclosure from the insured, they sought permission to appeal from the Court of Appeal.

The Court of Appeal has now refused that permission. The evidence which had come to light related to the subjective belief of the broker's employee who had had primary responsibility for placing the insurance. Although the Court of Appeal recognised that this evidence could be of relevance because, "absent dishonesty, a person is more likely to communicate an assumption in line with his belief than one at odds with it", that evidence alone could not prove the estoppel by convention argument. That was because estoppel by convention requires each party to have a shared assumption, "and for that purpose what is critical is not subjective belief but the objective impression reasonably conveyed by the words or conduct "crossing the line". There does not appear to have been any significant issue concerning what did actually cross the line". In other words, it made no difference what cover the broker may have believed was being placed, the key was what impression the broker had reasonably conveyed to the insurer, and the new evidence did not help answer that question.

Wall v Mutuelle de Poitiers Assurances

Court of Appeal determines governing law for an issue concerning expert evidence

The first instance decision in this case was reported in Weekly Update 04/13. The English claimant was injured in a car accident in France (caused by a negligent French driver) and he commenced proceedings in England against the other driver's French insurers. Damages fell to be assessed and Tugendhat J held that the issue of which expert evidence the court should order (and, in particular, the number of experts which should be called) fell to be determined by English, rather than French law (pursuant to Article 1.3 of the Rome II Regulation). This was because the rules as to expert evidence are a matter of "evidence and procedure" (rather than an issue relating to "the nature and assessment of damages", which falls under Article 15 of Rome II).

The Court of Appeal has now unanimously dismissed the appeal from that decision. The exclusion of "evidence and procedure" from the scope of Rome II meant that it was inevitable that there might not be uniformity of outcome on those issues between different member states: "It cannot be the case that the Regulation envisages that the law of the place where the damage occurs should govern the way in which evidence of fact or opinion is to be given to the court which has to determine the case". Accordingly, it is indeed inevitable that the same facts tried in different countries may result in different outcomes.

Longmore LJ said that it was also desirable for the Court of Appeal to express a view on the issue of whether the applicable law should be understood to include "judicial conventions and practices", for example "particular tariffs, guidelines or formulae" used by judges in the calculation of damages under the applicable law (which here was French law, since the accident happened in France). There has been conflicting textbook commentary on this point. The Court of Appeal held that, in the context of a regulation (or convention) which is intended to have international effect, a narrow view of "law" is inappropriate. Accordingly, it was permissible to take account of the French equivalent of our Judicial College Guidelines (formerly known as the English Judicial Studies Board "Guidelines for the Assessment of General Damages in Personal Injury Cases"). In this way, the English court might endeavour to apply the law of damages so as to reflect, as accurately as possible, the level of damages that would actually be awarded in the French courts.

Clark & Anor v In Focus Asset Management

Court of Appeal rules that a claimant cannot accept a FOS award and pursue further losses from the courts for the same cause of action

The Financial Ombudsman has the power to award compensation of up to GBP 150,000. Under the FSA's Handbook, a complainant can choose to accept or reject an award and under section 228(5) of FSMA 2000, "if the complainant notifies the ombudsman that he accepts the determination, it is binding on the respondent and the complainant and is final". In Andrews v SBJ Benefit Consultants [2010], a High Court judge held that, because of the merger doctrine, a claimant cannot accept an award from the Financial Ombudsman and then claim additional losses (above the Ombudsman's limit) in civil proceedings before the courts. However, in the first instance decision in this case (see Weekly Update 01/13), another High Court judge held that the merger doctrine did not apply and there was nothing to stop a complainant using his award from the Ombudsman to finance his court proceedings to recover a greater amount. Accordingly, there were two conflicting High Court decisions on this issue. The appeal in this case has now unanimously held that court proceedings could not be brought for the same cause of action after a complainant has accepted an award from the Ombudsman.

Although the earlier High Court decisions were based on the merger doctrine, the Court of Appeal reached its conclusion based instead on the principle of res judicata. As explained in the decision: "The requirements of res judicata are different from those of merger. All that is necessary to bring merger into operation is that there should be a judgment on a cause of action. Res judicata may apply either because an issue has already been decided or because a cause of action has already been decided" (the latter kind of res judicata was in issue in this case).

The Court of Appeal held that an award from the Ombudsman can give rise to res judicata, because a complaint to the Ombudsman can be a cause of action (and it makes no difference whether the Ombudsman's award was for the maximum sum allowed or not). It acknowledged that there could be situations where a complainant may bring court proceedings after accepting an award, provided that the substance of the court proceedings differs from the substance of the complaint to the Ombudsman. Fresh proceedings cannot be permitted, though, where court proceedings are being used to "top up" an award.

Furthermore, where Parliament is silent on an issue, the common law still applies unless it has been excluded. Accordingly, res judicata could apply in this case even though section 228(5) made no reference to it.

Having reached that conclusion on res judicata, there was no need for the Court of Appeal to consider whether merger was also available.

COMMENT: This case has brought some welcome clarity to the issue of whether a complainant's acceptance of an Ombudsman's award is truly binding in relation to that complaint. However, it does still remain possible for a complainant to reject an award and pursue recovery for the full amount of his claim from the courts.

Lakatamia Shipping v Nobu Su

Application for relief from sanctions where disclosure list was served 45 minutes late

The court made an order that the defence would be struck out unless standard disclosure was provided "on or by 17 January 2014". No time of day was specified in the order. However, para D19.2 of the Commercial Court Guide provides that, absent specific provision in an order, the latest time for compliance is 4.30pm on the day in question. In this case, the defendant's solicitors mistakenly believed that the deadline was 5pm and the defendant's list was not ready until about 4.40pm. Although the defendant's solicitors offered to exchange at 4.45pm, there was some delay caused by the claimant's solicitors and so the defendant's solicitors did not send the list until 5.15pm (i.e. 45 minutes late).

The defendant's solicitors applied for relief from sanctions under CPR r3.9. Hamblen J accepted that the non-compliance here was trivial and had caused no prejudice to the claimant (given that it was this particular, and no other, default in the case which had to be considered). However, he also found that there was no good reason for the default. The delay had not been due to circumstances beyond the control of the defendant - it had been due to a mistake by the defendant's solicitors (as to the time of the deadline and also because the solicitors had mistakenly believed that they had needed to exchange, rather than simply serve, the list).

Nevertheless, having regard to the list of factors which was previously included under CPR r3.9, the judge decided to exercise his discretion in this case to grant relief.

The Bank of Ireland & Anor v Philip Pank

Court grants relief from sanctions where budget did not contain correct statement of truth

Where a costs budget is required, this must contain a full statement of truth. In this case, although the claimant exchanged its costs budget with the defendant, that budget did not contain the correct statement of truth (as set out in PD 22). Nevertheless, Stuart-Smith J, whilst recognising the importance of statements of truth, said that that importance varies depending on context. Here, "the notion that a document which includes the words "Statement of Truth" and is signed by a partner in the firm of solicitors is a complete nullity seems to me to be quite unsustainable". Furthermore, there was nothing in the rules or practice directions which require any and every failure to comply with the formal requirements for budgets as rendering the budget nullity. To hold otherwise, the judge said, would "serve only to bring the rules of procedure and the law generally into disrepute". The absence of a correct statement of truth here was trivial and a failure of form rather than substance. Since the judge concluded that the claimant had not failed to file and exchange a costs budget, no relief from sanctions was required.

Mohamud v WM Morrison Supermarkets

Court of Appeal decision on vicarious liability and the close connection test

The appellant, a customer, was seriously injured in an unprovoked attack by the respondent's employee which took place on the respondent's premises (a petrol station). At first instance, it was held that the appellant had not satisfied the test that there was a sufficiently close connection between the wrongdoing and the employment to make it fair and just to hold the employer vicariously liable (the test laid down in Lister v Hesley Hall [2001]). The appellant brought this appeal, which has now been dismissed by the Court of Appeal.

The Court of Appeal distinguished this case from various cases in which an employee's job involved some obligation to keep order and involving potential confrontation with a customer. Here, an assault could not, and did not, further the employer's aims and "the situation was one in which friction, confrontation or intimacy was not...inherent" (as per Treacy LJ). The fact that the assault took place at the employee's place of work and at a time when he was on duty was relevant but not conclusive. It was held that the law was not yet at a stage where the mere fact of contact between a sales assistant and a customer, which is plainly authorised by an employer, is of itself sufficient to fix the employer with vicarious liability.

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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