UK: Insurance And Reinsurance Weekly Update - 22 July 2014

Last Updated: 29 July 2014
Article by Nigel Brook

Welcome to the twenty-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

  • Insurance Contract Law Reform Update
    Insurance Contract Law reform – a bill is presented to parliament.
  • Beacon Insurance v Maharaj Bookstore
    The Privy Council considers fraudulent devices and the need for dishonest intention.
  • Kousouros v O'Halloran & Anor
    A case on joint privilege and waiver of legal advice privilege.
  • SRJ v Person(s) Unknown
    Judge decides whether the disclosure of a client's identity by solicitors is protected by legal advice privilege.
  • Central Trading v Fioralba Shipping
    A case on a section 67 of the Arbitration Act 1996 challenge and whether new evidence, not put before the arbitrators, can be adduced.
  • Yates v Revenue & Custom
    The "Specialist mesothelioma list": A Master sets out a procedure for accessing employment schedules from HMRC.

Insurance Contract Law Reform Update

Weekly Update 23/14 referred to the HM Treasury's consultation on the draft insurance bill. That consultation has now closed and the bill was presented to parliament on Thursday 17th July. The two clauses which were deemed to be most controversial (relating to late payment damages and the breach of a policy term reducing the risk of a particular type of loss (or a loss at a particular time or place) allowing insurers to refuse claims only for losses within those categories) have been removed (although the Law Commissions are still working on solutions to be introduced "at the next legislative opportunity"). It is also worth noting that the bill makes amendments to the Third Parties (Rights against Insurers) Act 2010 in order to allow that Act to finally be brought into force. The bill may undergo further amendments during its passage through parliament. The bill is available here:


Beacon Insurance v Maharaj Bookstore

Privy Council considers fraudulent devices and the need for dishonest intention

A (genuine) fire at the insured's premises destroyed all its stock. Insurers repudiated liability on the ground that the insured had submitted false invoices (purportedly showing amounts paid by the insured for stock) in support of its claim (a condition in the policy expressly provided that all benefit under the policy would be forfeited if any false declarations were made, or fraudulent devices were used, in support of a claim). At first instance, the judge found that the insured had not used fraudulent devices. He held, broadly, that invoices had been altered but that there had been no fraudulent purpose (e.g. because the stock in question had genuinely been bought by the insured). The Court of Appeal allowed the insurers' appeal from that decision and the Privy Council has now set aside the Court of Appeal's decision.

The Privy Council noted the statement by Mance LJ in Agapitos v Agnew [2003] that "a fraudulent device is used if the insured believes he has suffered the loss claimed but seeks to improve or embellish the facts surrounding the claim by some lie" (the Board's emphasis). Given that the trial judge had found that there had been no dishonest intent, it was held that he had been entitled to find that fraudulent devices had not been used.

COMMENT: This case might be contrasted with that of Sharon's Bakers v Axa (see Weekly Update 07/11), where the insured submitted a false invoice in support of its claim. The court held that all benefit under the policy should be forfeited, even though the insured did own the equipment in question (and the equipment was not of dubious provenance or worth less than the insured claimed) and the equipment had been genuinely destroyed. In that case, though, the judge may have been influenced by the fact that the same invoices had been used to obtain a loan which would not otherwise have been extended and that fact should have been disclosed to insurers since it fell within the "moral hazard" principle. Here, the Board was satisfied that there was no fraud at all, since the invoices had been altered only to record genuine purchases by the insured. Nevertheless, this might be seen as a generous decision for the insured since it is arguable that the false invoices (no matter why they were altered) were "some lie" and thus met the criteria laid down by Mance LJ in Agapitos: "any lie, directly related to the claim to which the fraudulent device relates, which is intended to improve the insured's prospects of obtaining a settlement or winning the case, and which would, if believed, tend, objectively, prior to any final determination at trial of the parties' rights, to yield a not insignificant improvement in the insured's prospects".

Kousouros v O'Halloran & Anor

Joint privilege and waiver of legal advice privilege

The second defendant (A) in this case instructed a firm of solicitors. A partner at the firm acted for her, whilst an assistant subsequently acted for another connected party (B). When a potential conflict of interest arose, the partner ceased to act for A. The issue in this case was whether joint interest privilege has arisen (with the effect that each party can obtain disclosure of the other's (otherwise privileged) documents). Simon J held as follows:

  1. Although A and B had a joint interest, A was able to maintain the legal advice privilege in relation to her original instructions to the partner and in relation to the advice she received (which was before the joint interest arose). The judge summarised the legal position as follows: "First, the joint interest must exist at the time that the communications which are in issue come into existence. Secondly, the communications must have come into being for the furtherance of the joint interest. Thirdly, it remains unclear whether a client is necessarily prevented from asserting privilege in advice he has obtained simply because someone else, who was not a party to the original lawyer-client relationship, can assert a joint interest in the advice".

    Here, A had sought legal advice before any question of joint interest had arisen and the partner remained bound by a duty of confidentiality to A even after ceasing to act for her. If he felt that there was a conflict between his duties, he ought to have ceased acting for both A and B.
  2. Had the privilege been lost, since it had come into the hands of B? The judge said that the starting point is that the court will normally intervene to prevent the use of the confidential information and that it is not concerned with a balance between the public interest in the emergence of the truth (on the one hand) and the maintenance of confidentiality (on the other). As a result, to the extent that the relevant material had come into the hands of B, an order was made maintaining its confidentiality and precluding its use. Although A would normally be expected to act promptly - seeking an undertaking not to use the relevant information before any application is made to court - that did not matter here because an undertaking would clearly not have been given.

COMMENT: The general rule is that only the owner of the privilege (or his agent, acting with express or implied authority, e.g. his solicitor) can waive privilege. However, here, the solicitor was no longer acting for A when the privileged document was given to B and that would explain why the judge was able to hold that there had been no waiver. However, it is interesting that it was also held that a court should intervene to prevent the use of confidential information. The general principle is that privilege is waived where confidentiality in a document is lost. In reaching his decision, Simon J referred to the decision of Collins J in Istil Group v Zahoor [2003], but Collins J had apparently been referring to the situation where the recipient was aware of an obvious mistake and had acted unconscionably, which was not the situation in this case.

SRJ v Person(s) Unknown

Whether disclosure of client's identity by solicitors protected by legal advice privilege

The claimant sought an order requiring the respondents, a firm of solicitors, to disclose the name of a former client. There was no dispute that the court has an inherent jurisdiction to order a solicitor to disclose a client's details, but the issue in this case was whether such an order should be made. In the case of JSC BTA v Solodchenko (see Weekly Update 30/11), solicitors were ordered to disclose the contact details of a client. However, in this case, it was the identity of the client that was being sought and Eady J agreed that that information can be the subject of legal professional privilege. It did not matter that the name might have been supplied before any retainer came into existence. That was not an absolute bar to privilege. Instead, the issue is "precisely what was discussed or conveyed". On the facts of this case, the client's name was not "simply a piece of neutral background information", as would generally be the case. Here, the client had given clear and express instructions from the outset that his identity should be kept confidential, and the solicitors were only retained on that basis. Balancing that against the potential harm to the claimant if disclosure was not made, the judge concluded that it was not appropriate to order disclosure and go behind the legal professional privilege which he had upheld.

Central Trading v Fioralba Shipping

Section 67 of the Arbitration Act 1996 challenge and whether new evidence not put before the arbitrators can be adduced

The claimant challenged an arbitration award under section 67 of the Arbitration Act 1996. Section 67 challenges involve a rehearing (and not merely a review) of the issue of jurisdiction (but not the merits of the underlying case), so that the court must decide this issue for itself. The issue in this case was whether a party can be prevented from relying on evidence which is relevant and admissible but which was not adduced before the arbitrators. After a review of earlier caselaw, Males J concluded that in general a party is allowed to adduce such evidence, even if it may cause prejudice to the other side. Contrary to some earlier caselaw, it is not the case that the only ground on which such evidence may be excluded is prejudice: "I doubt, moreover, whether "prejudice" in the abstract is a free standing ground on which such evidence may be excluded".

However, the parties' right to adduce new evidence is not unconstrained by the court's rules of procedure and so, for example, the court may refuse to allow evidence which does not comply with the rules on ensuring evidence is presented fairly (e.g. the rules relating to witness statements). It may not be sufficient in such circumstances to say that less weight should be given to that evidence instead. Generally, the parties should seek to agree such procedural matters at an early stage for section 67 challenges.

Furthermore, the court is not bound by procedural rulings made by the arbitrators. However, a party's failure to comply with an order made by the arbitrators can be highly relevant. In this case, the judge agreed that it would be unjust to permit the claimant to rely now on a selection of documents without having given the full disclosure which was ordered in the arbitration (which it was probably now too late to give) and for that reason the claimant was not permitted to rely on the new evidence.

Yates v Revenue & Custom

"Specialist mesothelioma list": Judge sets out procedure for accessing employment schedules from HMRC

The "specialist mesothelioma list" refers to a procedure established by the Royal Courts of Justice whereby two specialist Masters hear all types of asbestos-related disease claims. The Masters apply a "show cause" process, which requires a defendant to identify the evidence and legal arguments that give it a real prospect of success on any or all issues of liability. They also waive most aspects of procedural formality in order to streamline the process as much as possible.

An issue arose in this case because of a recent change in approach adopted by the HMRC regarding the disclosure of employment schedules to enable potential claimants to identify and sue the correct tortfeasors. The HMRC decided to take the view that they could not lawfully disclose those schedules before court proceedings had been started. That was because, they argued, (1) the Data Protection Act did not apply; (2) third party disclosure under CPR r31.17 requires the existence of an issued claim; and (3) the Norwich Pharmacal jurisdiction could not apply because the mere keeping of employment records did not "facilitate" a wrongdoing in which the HMRC was "mixed up".

However, since the application here was issued, cross-government clearance was obtained to amend the Deregulation Bill (which will become law by the end of 2014) in order to allow HMRC to disclose schedules to potential claimants. Accordingly, Master McCloud set out in this judgment a procedure for dealing with requests for HMRC employment histories in the interim. In short, this will allow the issue of a claim form against "Persons Unknown", followed by an emailed application to the specialist Masters who will in turn serve the HMRC with a draft order and a schedule of information to assist HMRC to trace the records.

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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