UK: Insurance And Reinsurance Weekly Update - 4 November 2014

Last Updated: 7 November 2014
Article by Nigel Brook

Welcome to the fortieth 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

  • McDonald v National Grid
    The Supreme Court holds that a lorry driver could recover for exposure to asbestos even though he was not required to go to a particular area where dust was generated.
  • Eurasian Natural Resources Corpn v Dechert LLP
    A Clyde & Co case on the scope of an implied waiver of legal professional privilege where a client seeks taxation of its former solicitors' bill.
  • Altomart v Salford Estates
    The Court of Appeal clarifies when an application for relief from sanctions has to be made and the meaning of a "sanction".
  • Excalibur Ventures LLC v Texas Keystone
    Professional funders are ordered to pay costs on an indemnity basis.
  • Rees v Gateley Wareing
    A Clyde & Co case on whether solicitors had carried out "contentious business" for their clients and whether they were entitled to a contingency fee.

McDonald v National Grid

Supreme Court decides whether lorry driver could recover for exposure to asbestos even though he was not required to go to a particular area where dust was generated

The claimant in this case died from mesothelioma earlier this year. He had worked as a lorry driver in the 1950s, when he would drive to Battersea power station in order to collect ash (which did not contain asbestos). Whilst at the power station he would go to other areas where asbestos dust was generated by lagging work (the work in question required the mixing of asbestos powder with water). The trial judge found that his exposure to asbestos was "of a modest level on a limited number of occasions over a relatively short period of time". Furthermore, he was not required to go to those areas in order to carry out his duties. The issue in this case was whether he could nevertheless sue the occupiers of the power station for breach of their statutory duties (namely, the Asbestos Industry Regulations 1931 and the Factories Act 1937). By a majority of 3:2, the Supreme Court has now held that he could.

The majority held that the 1931 Regulations had a wide scope and applied even if the main business of the workshop/factory was not the manufacture of asbestos and the work in question took place only occasionally. The term "mixing" in the Regulations should not be given a restricted, technical meaning either. It was also held that "it would be remarkable if the group to be protected was confined to those who were carrying out the process but those who were at risk from exposure because of their proximity to it should remain unprotected".

Nor did it matter that the claimant was not employed by the occupiers of the power station and was not required to go the that part of the site where he inhaled the dust which led to his development of mesothelioma. Citing an earlier Court of Appeal decision, it was held that there was nothing in the 1937 Act to justify the "gloss" that an employed person is protected only so long as he is acting within the scope of his employment.

The occupiers were under a duty to take practicable measures whenever a considerable quantity of (any kind of, not just injurious) dust was given off, and it did not matter whether that quantity of dust was considerable at the moment of inhalation.

Eurasian Natural Resources Corpn v Dechert LLP

Scope of implied waiver of legal professional privilege where client seeks taxation of solicitors' bill

Clyde & Co (Richard Harrison and Nicole McKinnon) for respondent.

The claimant applied for an order for the taxation of bills from its former solicitors. The issue in this case was whether the application (and any detailed assessment of the bills which might be ordered) should be heard in private. The solicitors had been instructed to investigate an allegation of fraud made against the claimant. An SFO investigation into the same matter subsequently developed into an active criminal inquiry. The claimant was therefore concerned that, if the application were heard in public, the SFO might attend in order to glean information to assist that inquiry. It therefore wanted the application to be heard in private (otherwise it would withdraw the application) and sought to rely on the argument that a private hearing was appropriate because most of the solicitors' evidence was covered by legal professional privilege ("LPP"). Master Haworth declined the request for the application to be heard in private and an appeal was brought by the claimant.

It is an established principle that there is an implied waiver of LPP when a client commences proceedings against his former solicitors. The issue here was whether that implied waiver can be limited. After an extensive review of earlier caselaw, Roth J concluded that an implied waiver can be limited in the same way as an express waiver.

He rejected an argument by the solicitors that limited waiver can only arise where privileged documents are being provided to a third party and are not already in the possession of a party. Here, although there had been an implied waiver so that the solicitors could defend an application for taxation, there was "no ground for finding that privilege was thereby waived completely and for any use of the documents that is wholly irrelevant to that assessment. For example, the affairs of [the claimant], as a former public company, have attracted some media interest and I think that the implied waiver to which the ... application gave rise could not possibly entitle [the solicitors] to hand over all the documents concerning their former client to an inquiring journalist. Once the potential of an implied waiver being limited is recognised, this seems to me a classic case for its application."

Nor had confidentiality been lost because of the hearing before Master Haworth. There is a general principle that documents which have been read by a judge and relied upon in reaching his judgment are to be regarded as having entered into the public domain. However, Roth J said that that is "only the prima facie position" and this case was one where the interests of justice required that the reading by the costs judge of the papers should not have the effect of putting them into the public domain (and, indeed, Master Haworth had made an order pursuant to CPR r5.4C(4) to prevent non-parties obtaining a copy of any of the documents from the court file).

Roth J concluded on balance that the hearing (and any subsequent assessment) should be in private, and held that the solicitors concern to vindicate their reputation following the claimant's complaints (which have been referred to in the press) could be met by a public judgment determining the costs application.

COMMENT: This is the first reported case to confirm that an implied waiver of LPP between a client and its former solicitors can be limited, thus preventing solicitors (or the client) passing on documents unrelated to the dispute between them to a third party (there being no dispute here that there was no privilege between the client and the solicitors themselves). There is, however, textbook commentary to the effect that privilege cannot be asserted in any event in a dispute between a client and his solicitors because there is no confidentiality between them, although the documents remain confidential as against the rest of the world (see, for example, Phipson on Evidence, 18th edn. paras 26-28 and 26-40).

Altomart v Salford Estates

Court of Appeal clarifies when an application for relief from sanctions has to be made/ meaning of a sanction

As has been previously reported, parties can now agree an extension of time where the rules provide for a sanction for failure to comply with a rule, practice direction or order (the so-called "buffer rule"). If no agreement is reached, the defaulting party can apply to court for relief from sanctions under CPR r3.9. In all other cases, the parties can agree an extension or, failing that, an application can be made to court for an extension pursuant to CPR r.3.1(2)(a).

In this case, the respondent was late filing its respondent's notice and applied for an extension of time. The Court of Appeal held as follows:

  1. Most rules do not provide specific sanctions for their breach and so CPR r3.9 will not apply.
  2. However, a number of cases have recognised the existence of "implied sanctions", capable of engaging the approach contained in CPR r3.9. An example of this was the earlier Court of Appeal decision of Sayers v Clarke Walker [2002], where an application for permission to appeal out of time was sought. The Court of Appeal applied CPR r3.9, on the basis that the consequence of filing the notice of appeal late was that the order of the lower court will stand, and cannot be appealed (and this therefore amounted to an implied sanction). Although the proceedings would proceed in any event if a respondent's notice is filed late, it was held that this case was analogous with Sayers v Clarke Walker: "In my view for a respondent to be prevented from pursuing the merits of a case it wishes to pursue on the appeal is no more or less of an implied sanction than it is for an appellant to be prevented from pursuing its case on appeal. In my view, therefore, the Mitchell principles apply with equal force".
  3. Applying the approach in Denton v TH White (see Weekly Update 26/14), although the delay here had been substantial (36 days late, when 14 days was allowed for the step), and the explanation for the delay was not persuasive, nevertheless it was clear that there would be little, if any, effect on the course of the proceedings, and so relief from sanctions was granted.

Excalibur Ventures LLC v Texas Keystone

Professional funders ordered to pay costs on an indemnity basis

The claimants were ordered to pay the defendants' costs on the indemnity basis. The case was said to be "well outside the norm" because of various factors – such as the speculative and defective nature of the claims, and dishonest conduct by the claimants. When those costs were not paid, the defendants sought non-party costs orders, on the indemnity basis, against the claimants' professional funders. Clarke J held as follows:

  1. Non-party costs orders were justified on the basis that the claims could not have been brought without the assistance of the funders, who had a commercial interest in the outcome of the litigation. The position was no different for those funders who had left everything in the hands of the claimants and their lawyers: "In short, in a case of this kind justice requires that, when the case fails so comprehensively, not merely on the facts but because it was wholly bad in law, the funder should, subject to the Arkin cap, bear the costs ordered to be paid by the person whom or which he has unsuccessfully supported".
  2. The judge rejected an argument that the funder should not have to pay costs on the indemnity basis, absent any impropriety etc by the funders themselves. It was held that the width of the judge's discretion should not be restricted in this way. It did not matter that the funder may not have known about the faults of its client, in the same way that the client may be liable to pay indemnity costs because of the behaviour of those he chooses to engage (eg experts or witnesses).
  3. It was appropriate to apply the Arkin cap in this case (although that position might have been different had the funder behaved dishonestly or improperly or if the funder had taken complete control over the litigation (and thus fallen foul of the rule against champerty)). The Arkin cap restricts the level of a costs order against a funder to the amount of funding which the funder has provided.
  4. However, here, the cap should be measured not only by reference to the amount contributed by the funders in respect of the claimants' costs, but also, in addition, to the amount contributed solely to enable the claimants to give security for the defendants' costs (an order for security for costs having been made earlier in the case). This was a novel finding. The judge said that if the position was otherwise, a funder who only provides money for security for costs would face no possible exposure to a non-party costs order, whereas a funder who funded the costs would bear that burden (alone).
  5. The judge did accept an argument that the funders should be liable only for the costs incurred by the winning defendants after they had provided their funding, if it can be shown that they have not done anything which led to the defendants incurring costs before that time (ie the costs claimed must "to some extent" have been caused by the funder).

COMMENT: Funders and ATE insurers should be aware of the danger of facing a costs order assessed on the indemnity basis because of the conduct of their client (or its lawyers). As a result, it is important that they monitor a case in order to ensure that it is not being conducted in a manner which may give rise to indemnity costs. This should be balanced, though, against the danger of taking so much control over the litigation that they offend against the rule of champerty.

Rees v Gateley Wareing

Whether solicitors had carried out "contentious business" for their clients and whether they were entitled to a contingency fee

Clyde & Co for respondents

Before 1st April 2013, contingency fees (whereby a lawyer would recover a share of a client's winnings) were not permitted for contentious work in England and Wales (although lawyers could conduct litigation under conditional fee agreements, where they would get a success fee (up to 100% of the normal fee) if the case succeeded and nothing, or sometimes a discounted fee, if it was lost).

The lawyers in this case (Gateley Wareing) sought to argue that they were entitled to agree a contingency fee (based on a percentage of any amount recovered for their clients) because they were carrying out non-contentious business for their clients (it was accepted that the agreement in place was not a valid conditional fee agreement). Under statute, non-contentious business is business which is not "contentious business" which in turn is defined as "business done, whether as a solicitor or advocate, in or for the purposes of proceedings before a court...."

Primlake (a company which the clients had a direct interest in) had retained another firm to conduct litigation on its behalf in terms of seeking recoveries from various parties but Gateley Wareing had continued to play a role behind the scenes in respect of their clients' direct interests. The issue was therefore whether Gateley Wareing had been carrying out contentious business for their clients (and were thus entitled to a contingency fee). The Court of Appeal has now held that Gateley Wareing performed tasks "ancillary" to the litigation that would otherwise have been carried out by the firm on the record and so they were exercising the right to conduct litigation (at least in part) and hence providing litigation services (albeit not all of them). It did not matter that Gateley Wareing were not on the record and were not directly involved in the litigation. The only two questions which had to be asked where:

  1. was the work carried out by the solicitor as a solicitor; and
  2. if so, was the work carried out for the purposes of the litigation.

The answer to both those questions here was "yes" and hence the retainer entered into between the clients and Gateley Wareing was unlawful and unenforceable.

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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