UK: Insurance And Reinsurance Weekly Update - 27 May 2014

Last Updated: 17 June 2014
Article by Nigel Brook

Mitsui Sumitomo & Ors v The Mayor's Office for Policing and Crime

Court of Appeal considers liability under the Riot (Damages) Act 1886 and whether consequential losses are covered

The first instance decision in this case was reported in Weekly Update 32/13. The judge found that the insurers of a warehouse and stock damaged and stolen during the UK riots in 2011 were entitled to compensation from the statutory body for the Metropolitan Police Service under the Riot (Damages) Act 1886. Two issues arose on this appeal:

(1) Had the judge been entitled to conclude that the gang of youths in question had been "persons riotously and tumultuously assembled" (as required under the Act)? The Court of Appeal held that he had. The relevant test was not whether the police (even notionally) could have prevented the damage (even though the rationale behind the Act is that "the community is responsible for the wrongdoing of rioters within their midst"). The focus instead should be on whether property has been damaged or destroyed as a result of mob violence. That test had been satisfied here because the judge had found on the facts that the attack was "excited, agitated and ill-disciplined, in other words that it was tumultuous".

In particular, the Court of Appeal held that it did not matter whether the location was a remote one ("a group may be riotously and tumultuously assembled even in a remote location") and nor did it matter whether the individual participants could be recognised. The speed of the incident was relevant, but the judge had taken this into account. The judge had also been entitled to take into account how the group had been behaving before they reached the warehouse and it did not matter whether the police could have dispersed the group earlier on.

(2) Had the judge been correct to conclude that the insurers were not entitled to consequential losses (including loss of profit and loss of rent)? The Court of Appeal held not. Section 2(1) of the Act provides for compensation to be paid "to any person who has sustained loss by such injury, stealing or destruction". The Court of Appeal held that there was nothing in that wording to exclude consequential losses caused by the injury or destruction of the property. Nor did anything in the preamble or other sections of the Act alter that view. The phrase "compensation "for" property damage" meant "all compensation necessary to make good the loss caused by the damage to the relevant property". Caselaw on legislation pre-dating the Act also supported this conclusion. Furthermore, if an owner of a building damaged by rioters chooses to sell it in its damaged state, he would be entitled to the whole of the diminution in value of the property (including loss of rent or profits) and it would therefore be anomalous for an owner who repairs his property to be unable to recover the same loss.

COMMENT: One issue which was not discussed by the Court of Appeal was the judge's point that the Act is analogous to a form of statutory insurance and "most insurance policies will not cover consequential losses without an express provision to that effect". That general rule would appear to be unaffected by this ruling since the Court of Appeal did not refer to it, but the argument might be raised by an insured that the Court of Appeal's interpretation of compensation "for" property damage should be applied to similar wording in an insurance policy.

Bank St Petersburg v Arkhangelsky

Alternative service of a claim form with a Hague Convention country

In Abela v Baadarani (see Weekly Update 24/13), the Supreme Court made 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. In that case, Lord Clarke had suggested that orders permitting alternative service "are not unusual" in cases not involving a bilateral service treaty or the Hague Convention. This in turn appeared to suggest that the situation might be different (and an order under CPR r6.15(2) less likely) in a bilateral service treaty or Hague Convention case.

Although not required to decide the point in this case, Longmore LJ said that "although the Supreme Court pointed out that nothing they said would necessarily apply to Hague Convention cases, it would be surprising if there could never be good reason for alternative service in such cases. I do not read the decision of Cooke J in Deutsche Bank AG v Sebastian Holdings [see Weekly Update 05/14] as so deciding".

On the facts of the case he went on to comment that "it would be surprising if a judge, who was prepared to hold that the application of a foreign limitation period had caused undue hardship to a claimant, were to hold that there was not good reason retrospectively to validate alternative service in England on a firm of solicitors which was already conducting the mirror image of the proceedings in England, at least if an application for alternative service were brought at the appropriate time".

Stoute v LTA

Court of Appeal decides effect of court serving claim form where claimant notified it wished to serve

For claims brought in the Queen's Bench Division (including the Commercial Court and the Technology and Construction Court) and the Chancery Division, the presumption is that the claimant's solicitor, rather than the court, will serve the claim form on the defendant. However, in this case, the claimant issued his claim form in the Central London County Court and hence the court would normally serve the claim form. However, the claimant's solicitors notified the court (in accordance with CPR r6.4(1)(b)) that they wished to serve the claim form. The court then mistakenly served the claim form and the claimant's solicitors advised the defendant's solicitors that that service was to be treated as ineffective (the claimant wished to serve the claim form later in order to await the outcome of certain separate misconduct proceedings). District Judge Avent held that service by the court had been effective (the solicitors' notification to the court not being binding) and that CPR r3.10 (which provides that an "error of procedure" does not invalidate any step taken in the proceedings (without a court order) and the court may make an order to remedy the error) did not apply here because this had been an error by the court, not the litigant. He made an order retrospectively extending time for service of the particulars of claim (which had not been served with the claim form).

HHJ Mitchell allowed the appeal against that decision and the claimant appealed to the Court of Appeal.

The Court of Appeal has now held that CPR r3.10 does apply to this case and accordingly, service by the court had been effective service. Furthermore, the district judge had been entitled to exercise his discretion to extend time. The claimant's failure to serve the particulars of claim had not been "intentional" because he had not believed that the claim form had been validly served yet. That was also a good explanation for his failure to serve the particulars on time.

Sun United Maritime v Kasteli

Whether question of whether a matter has been settled prior to arbitration can fall within scope of section 67 of the Arbitration Act 1996

Section 67 of the Arbitration Act 1996 provides that a party can challenge an award of a tribunal "as to its substantive jurisdiction". Substantive jurisdiction is defined in the Act as meaning whether there is a valid arbitration agreement, whether the tribunal is properly constituted, or "whether matters have been submitted to the arbitration in accordance with the arbitration agreement".

In this case, the tribunal was asked to resolve the question of whether or not the parties had reached a binding settlement (here, in relation to costs). The claimant argued that where there is an issue as to whether there remains any dispute between the parties, that is a dispute about "whether matters have been submitted to the arbitration in accordance with the arbitration agreement". If there is no dispute, the tribunal has no jurisdiction. The defendant countered that the tribunal had jurisdiction because it was being asked to resolve the question of whether or not there had been a settlement.

There is no prior authority or textbook commentary on this issue. Hamblen J concluded that the defendant was correct: "In my judgment, where there is a dispute as to whether the claim....which has been referred to arbitration has been settled that will generally fall within the reference made to the arbitral tribunal" and hence falls outside the scope of section 67.

Hallam Estates & Anor v Baker

Jackson LJ gives guidance on agreeing extensions of time where the rules provide for a sanction

The claimants sought an extension of time to serve their points of dispute on an item in the defendant's bill of costs. The rules provide a sanction where the points of dispute are served late. The defendant refused the extension and so the claimant applied to court, before the expiry of the deadline, for an extension. The extension was granted but the High Court reversed that decision and so an appeal was made to the Court of Appeal. This is the first decision by Jackson LJ, the author of the report which recommended the recent civil litigation reforms, on those reforms. Jackson LJ (with whom Lewison LJ and Clarke LJ agreed) held as follows:

(1) Although an agreement by the parties would have needed the court's approval (pursuant to CPR r3.8(3)), because a sanction was provided for by the rules, that approval would have been a formality. He noted that the rules are being amended to allow parties to agree extensions of time of up to 28 days without needing the approval of the court, provided that a hearing date is not thereby put at risk (this change will come into force on 5 June 2014).

(2) Legal representatives are not in breach of any duty to their client if they agree reasonable extensions of time which do not imperil future hearing dates or disrupt the conduct of the litigation. Instead, they are furthering the overriding objective and saving costs for the benefit of their client. Jackson LJ also said that it had been no part of his recommendations that parties should refrain from agreeing reasonable extensions of time.

(3) In any event, "An application for an extension of the time allowed to take any particular step in litigation is not an application for relief from sanctions, provided that the applicant files his application notice before expiry of the permitted time period. This is the case even if the court deals with that application after the expiry of the relevant period." Since the application here was made before the end of the deadline, it was a straightforward application under rule 3.1(2)(a) and not an application for relief from sanctions. Hence the principles laid down in Mitchell did not apply.

(4) The addition of sub-paragraph 1.1(2)(f) into the overriding objective, requiring the enforcement of compliance with rules, practice directions and orders, had not been one of Jackson LJ's recommendations and it did not require courts to refuse reasonable extensions of time.

Accordingly, an extension of time was granted by the Court of Appeal in this case.

COMMENT: This case gives welcome clarity not just to parties who are likely to breach a rule or court where a sanction will apply, but also to the "innocent" parties who must consider how to deal with a request for an extension of time. Together with the upcoming rule change, it should lessen the need for applications to court and thus relieve some of the increased burdens currently being placed on the courts' time and resources. However, where a rule or court order providing for a sanction has already been breached (or an extension of time will disrupt the timetable), an application to court will still be necessary.

Northumbrian Water v McAlpine

Court of Appeal considers law of nuisance in relation to an isolated escape of concrete

The claimant sought to recover for its loss caused by an escape of concrete from a building site into one of its public sewers. Its claim in nuisance was dismissed because the judge held that the events constituted an isolated escape of materials for which liability could arise only under the rule in Rylands v Fletcher (whereby a person who brings onto his land and keeps there anything likely to do mischief if it escapes is prima facie liable for the damage which is the natural consequence of its escape), on which the claimant placed no reliance.

The Court of Appeal held that three principles can be derived from prior caselaw:

(1) Although liability in nuisance has traditionally been regarded as strict, if the defendant's use of his land is reasonable, he will not be liable for interference with his neighbour's enjoyment of his land;

(2) Unless a case can be brought within the scope of the Rylands v Fletcher rule, the defendant is not liable for damage caused by an isolated escape i.e. one that is not intended or reasonably foreseeable; and

(3) Foreseeability of harm of the type suffered by the claimant is necessary for the defendant to be liable in damages for nuisance.

Here, redevelopment of land in an urban setting is normal and reasonable and there was no reason to think that the defendant should have foreseen the possibility that concrete might find its way onto neighbouring land. Accordingly, the appeal was dismissed.

Finglands Coachways v O'Hare

Whether costs judge could consider if individual items of costs are proportionate under the old rules

Before the changes in the rules in 2013 the starting point for assessing costs on a standard basis was that the court would only allow costs proportionate to the matters in issue and would resolve doubts as to whether costs were reasonably incurred or reasonable and proportionate in amount in favour of the paying party. For cases started on or after 1 April 2013, costs judges will now look not only at individual elements of a bill but also at the global total (which can be reduced even if each item is reasonable, if the global figure is not proportionate).

This case concerned the rules before they changed in 2013 and, in particular, whether a costs judge is entitled to consider if individual items of costs claimed are proportionate and necessary, even if the overall costs are proportionate. Following a review of prior caselaw, Cranston J held that a costs judge could consider individual items.

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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