UK: (Re)Insurance Weekly Update 10 -14

Last Updated: 24 March 2014
Article by Nigel Brook

Welcome to the tenth 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

  • AB v CD
    The Court of Appeal determines that an injunction can be granted where a contract contains a provision limiting or excluding the recoverable amount of damages.
  • Kairos Shipping Ltd & Anor v Enka & Ors
    A Clyde & Co case on whether a Limitation Fund can be constituted by a letter of undertaking from a P&I Club – of possible interest to marine insurers.
  • Stevens v Equity Syndicate Management Ltd
    A court considers issues arising out of the hire of a replacement car following an insured accident.
  • Dunhill v Burgin
    The Supreme Court considers the situation where a person lacking mental capacity (of which the other side was unaware) settles a personal injury claim.
  • Rattan v UBS AG
    A Judge cautions against "opportunism" post-Mitchell.


Court of Appeal determines that an injunction can be granted where a contract contains a provision limiting or excluding the recoverable amount of damages

As Underhill LJ put it in this case, "it is trite law that [an interim] injunction will not be granted if damages would be an adequate remedy for the wrong, if proved". However, this case considered how that principle applies where there has been an alleged breach of a contract which contained a provision limiting or excluding the recoverable damages to an amount below what might otherwise have been awarded as a matter of general law.

The Court of Appeal unanimously agreed that it was bound by the paragraph 15 of Mance LJ's judgment in Bath v Mowlem [2004], in which it was stated that "the agreement on liquidated and ascertained damages is not an agreed price to permit Mowlem [to breach its contract], and it does not preclude the court granting any other relief that may be appropriate".

In this case, Underhill LJ said that he was prepared to go a little further and find that "The primary obligation of a party is to perform the contract. The requirement to pay damages in the event of a breach is a secondary obligation, and an agreement to restrict the recoverability of damages in the event of a breach cannot be treated as an agreement to excuse performance of that primary obligation". Where there is a contract term limiting the amount of damages recoverable to an amount which bore no relation to a party's loss, those damages cannot be said to be an adequate remedy: "The rule – if "rule" is the right word – that an injunction should not be granted where damages would be an adequate remedy should be applied in a way which reflects the substantial justice of the situation". Nor could it be said that this view failed to give effect to the commercial expectation of the parties by holding that damages were not an adequate remedy where the parties had agreed to restrict the amount of damages recoverable.

Ryder LJ added that he thought the question to be asked on an application for injunctive relief was: "is it just in all the circumstances that a [claimant] should be confined to his remedy in damages?"

Laws LJ also pointed out that "Where a party to a contract stipulates that if he breaches his obligations his liability will be limited or the damages he must pay will be capped, that is a circumstance which in justice tends to favour the grant of an injunction to prohibit the breach in the first place".

Kairos Shipping Ltd & Anor v Enka & Ors

Whether a Limitation Fund can be constituted by a letter of undertaking from a P&I Club – of possible interest to marine insurers

Clyde & Co (Ed Mills-Webb, Rob Collins and Chris Moxon) for appellants

The Convention on Limitation of Liability for Maritime Claims 1976 (as amended by the 1996 Protocol) ("LLMC 1976") provides a mechanism by which an owner may limit their liability for all claims arising out of a single maritime incident. To do so, owners are required to establish a Limitation Fund for the limitation amount, calculated with reference to the vessel's tonnage. At first instance in this decision, Simon J held that a cash payment was the only option available to the owners and the use of a Letter of Undertaking given by a P&I Club was not "acceptable" in the UK. The owners and their P&I insurers appealed that ruling.

The Court of Appeal recognised that this issue is one of considerable importance to the shipping industry, including P&I Clubs and others who provide insurance and reinsurance in respect of maritime claims. The Court of Appeal has now overturned the first instance decision and ruled that a Limitation Fund can be constituted by a P&I Club Letter of Undertaking. As a result, it will now be quicker and considerably less expensive to establish a Limitation Fund. It also aligns the position in the UK with that in many other countries where the provision of cash deposits as security for maritime claims has already largely been superseded by P&I Club Letters of Undertaking.

Stevens v Equity Syndicate Management Ltd

Issues arising out of the hire of a replacement car following an insured accident

Following a road traffic accident, the innocent driver in this case hired a replacement car. The hire charges incurred were challenged by the other driver's insurers. The judge found that the claim had been exaggerated and ordered the claimant to pay the defendant's costs. The claimant appealed and Burnett J considered the following issues:

  1. Was the judge right to find that the claimant was not impecunious? This issue was relevant because if an innocent driver can afford to hire a replacement car without using credit, he will be able to recover only the basic hire rate and not any interest or extra costs which he has incurred because he has used a credit hire company. On the evidence, the claimant had a GBP 500 balance in his bank account every month after his mortgage repayment and he indicated that he liked to keep a "cushion" of money for emergencies. Burnett J held that the judge had been entitled to rest his conclusion on the "continuous healthy balance in the account".
  2. How should the basic hire rate be calculated where a claimant has used a car provided on credit hire when he was not impecunious? Burnett J referred to the Court of Appeal decision in Pattni v First Leicester Buses (see Weekly Update 42/11) but that case had concerned damage to an expensive specialist car and so a very substantial claim for hire charges had been made. That was not the case here. The judge concluded that the search must be for the figure which the claimant was willing to pay, on the basis that he would have gone into the ordinary hire car market (rather than using the company used by his insurers). A reasonable claimant would be expected to phone around for quotes, but it was accepted that "cheapest is not necessarily best". The judge had erred in averaging the rates available from the four nearest companies. Instead, he should have looked at a range of basic hire rates from which he should have most likely picked a figure somewhere in the middle (which, on the facts, was a little less than the average).
  3. This was not a case where the claimant had failed to mitigate his loss by leaving his car at a garage for a protracted period without any repairs being carried out.

Dunhill v Burgin

Supreme Court considers situation where a person lacking mental capacity (of which the other side was unaware) settles a personal injury claim

The Supreme Court held that the claimant in this case had not had capacity to conduct this claim (having first found that the test of capacity related to the conduct of the claim which the claimant has, rather than the claim as it is formulated by her lawyers). As a result of that finding, the claimant ought to have had a litigation friend when the proceedings were begun (as required by CPR r21.1). Furthermore, CPR r21.10 provides that where a claim is made by or on behalf of a someone without mental capacity, no settlement shall be valid without the approval of the court. The Supreme Court held that the consent of the court had been required in this case, even though it had not been recognised at the time the settlement was reached that the claimant lacked capacity. This is therefore an exception to the common law rule that a contract made by a person who lacks capacity is not void, but can be avoided if the other party knew (or ought to have known) about his incapacity.

Rattan v UBS AG

Judge cautions against "opportunism" post-Mitchell

The claimant in this case argued that, because the defendant had failed to exchange and file its costs budget in time, it should be treated as having filed a budget for court fees only (pursuant to CPR r3.14). Males J was highly critical of the claimant's stance because there had been an exchange of correspondence between the parties prior to the deadline in which, it was held, the parties had clearly agreed that the budget could be filed a day late. In any event, if relief from sanctions had been necessary (which the judge held it was not), this would have been a situation where the case for such relief would have been "overwhelming". The judge described the claimant's stance as "a misguided piece of opportunism", which had increased the expense of the CMC and, in all probability, damaged the relationship of co-operation and trust which ought to exist between the parties' legal representatives and which is necessary for the efficient conduct of litigation.

COMMENT: The judge's criticism of the claimant, although perhaps understandable in light of the agreement between the parties, does not, however, take into account that parties are not able to agree an extension of time where the rules provide for a sanction (see CPR r3.8), and in this particular case, the rules do provide for such a sanction. However, the decision does indicate that judges are alive to the issue of "game-playing" by non-defaulting parties post-Mitchell.

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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