UK: Insurance And Reinsurance Weeky Update - 13 January 2015

Last Updated: 21 January 2015
Article by Nigel Brook

Welcome to the first edition of Clyde & Co's (Re)insurance and litigation caselaw weekly updates for 2015.

These updates are aimed at keeping you up to speed and informed of the latest developments in caselaw relevant to your practice. Please follow this link for further details of the following recent cases:

Regulation 44/2001 was replaced by Regulation 1215/2012 on 10 January 2015.

A summary of the new Brussels Regulation, which came into force on 10 January 2015.

This week's caselaw

Vestergaard v Bestnet Europe
A case on whether joint without prejudice privilege attaches to the first offer.

Barnett v Creggy
A judge considers a limitation defence and acknowledging a debt, as well as the appropriate rate of interest on a judgment in US dollars.

JSC Mezhdunarodniy Bank v Pugachev
A case on reliance on hearsay evidence in a freezing order application and proving the risk of dissipation.

Public Joint Stock Company v Maksimov
A judge disapproves of a contempt of court application following the breach of a freezing order.

Regulation 44/2001 was replaced by Regulation 1215/2012 on 10th January 2015.

The main points under the new Regulation are as follows:

(1) Regulation 1215/2012 restates the arbitration exception and confirms that proceedings relating to arbitration fall outside of its scope. As a result it clarifies that any court proceedings brought in order to support an arbitration (including enforcing or challenging an award and deciding the validity of an arbitration agreement) fall outside the scope of the Regulation, and hence a court which is not first seised can decide these matters, despite the risk of parallel judgments. If, for example, the agreement between the parties provides for London arbitration but one party commences court proceedings in Italy, and the Italian court then finds that there is no valid arbitration agreement and goes on to rule on the underlying merits of the case, that judgment must still be recognised and enforced by other EU courts. However, if the English court finds that the arbitration agreement is binding and the arbitrators eventually make an award, it is not currently clear whether the Italian judgment or the award will take precedence. Recital 12 of the Regulation suggests that the award might take priority, but does not expressly state this.

(2) The EU court named in an exclusive jurisdiction clause can hear the case, even if it is not the court first seised in the EU now. Other EU courts must stay their proceedings if the court named in the clause determines that it does have jurisdiction. The court named in the exclusive jurisdiction clause can hear the case even if the court first seised has not yet decided on a stay.

(3) A jurisdiction clause will fall within the scope of the Regulation even if neither party is domiciled in the chosen EU state or any other EU state. So, for example, if the English court is chosen to have jurisdiction, permission to serve out will not now be required even if neither party is domiciled in the EU (but if proceedings are ongoing in another EU country, permission will be required if the jurisdiction clause is not exclusive).

(4) The EU courts now have a discretion to stay their proceedings in favour of a non-EU court if the non-EU court was first seised. The non-EU court's judgement must also be capable of recognition and enforcement in order for a stay to be granted.

In a separate development, Advocate General Wathelet has recently issued an Opinion in the case of "Gazprom" OAO. In it, he opined that the recast Regulation overturns the West Tankers decision (see Weekly Update 06/09) and that if the same facts were to arise again, the English court would be entitled to issue an anti-suit injunction, as such an injunction would not be incompatible with the recast Regulation (the Regulation itself is silent on this point). The opinion can be found below. The ECJ will not reach a decision in this case, though, until spring this year. Although the ECJ usually follows an Advocate General's opinion, it is not obliged to do so and it remains to be seen whether the ECJ will adopt the same approach as Advocate General Wathelet.

http://curia.europa.eu/juris/document/document.jsf?docid=1603 09&mode=lst&pageIndex=1&dir=&occ=first∂=1&text=&docl ang=EN&cid=108502

Vestergaard v Bestnet Europe

Whether joint without prejudice privilege attaches to first offer

https://www.lawtel.com/UK/FullText/AC0144672ChD.pdf

The defendants wished to contest the claimants' entitlement to its costs (following judgment in the claimants' favour) and, in doing so, to refer to an exchange of letters marked "without prejudice" (but not, crucially, "without prejudice save as to costs"). It was suggested that these letters demonstrated a "certain attitude of mind on the part of the Claimants" towards settlement negotiations. The judge, Ian Purvis QC, doubted the relevance of the correspondence, given that it was already clear from the evidence that the claimants had never made any admissible offers and had not responded to Part 36 offers (which they went on to beat). However, the defendants did not question the relevance, but only the admissibility, of the letters.

Despite earlier caselaw to the contrary, the judge noted that it is now established that "without prejudice" negotiations are not generally admissible on the question of costs (as well as not being admissible on questions of liability). The defendants raised two arguments though:

(1) The privilege only applies to communications which are genuinely aimed at settlement and the claimants here had not made any genuine attempt to settle. That argument was rejected by the judge: "Once a party has made a without prejudice offer, the recipient of the offer is plainly free to make a without prejudice response" which "may be simply to reject the offer outright. He may even choose to ignore the offer completely. All those responses are protected by privilege".

Nor could it be said that the initial "without prejudice" offer was not in fact subject to joint privilege at all, but rather to a unilateral privilege belonging to the writer of the letter. There was no authority to support that argument and, furthermore, it would mean that a failure to reply would never be protected because the writer of the first offer would be able to waive his privilege.

(2) Nor could it be argued that the claimants had impliedly waived privilege by making a claim to indemnity costs, since that claim was based on the defendants', and not the claimants', conduct in the litigation. The position would be different, though, had the claimants been seeking to rely on some aspect of the defendants' conduct in the without prejudice discussions.

Barnett v Creggy

Limitation defence and acknowledging a debt/ appropriate rate of interest on a judgment in US dollars

http://www.bailii.org/ew/cases/EWHC/Ch/2014/3080.html

Section 29(5) of the Limitation Act 1980 provides that where there is a right to recover "any debt or other liquidated pecuniary claim", and the liable person acknowledges the claim or makes any payment in respect of it, time will start running only from the date of acknowledgment or payment. There is no particular format for an acknowledgment, other than it should be in writing and signed. One of the issues in this case was whether a debt had been acknowledged when the "debtor" signed a letter effectively undertaking to acknowledge a debt should funds not be paid by a third party. Richards J held that a debt could only be acknowledged if it already existed and so the letter had "necessarily acknowledged" the creditor's claim.

A further issue discussed in the case was the appropriate rate of interest for a judgment debt in dollars (none of the parties or the underlying transactions having had any connection with the United States). Noting that the general approach of the courts is that the rate should be the rate at which the recipient could have borrowed the funds of which he has been deprived, Richards J identified three potential rates:

(1) US Prime Rate – a benchmark based on what US banks charge their best customers;

(2) Federal Funds Rate – the rate at which US banks borrow from each other on an overnight basis (this applies only to US banks);

(3) LIBOR – the rate at which banks lend to each other on an international basis (hence an international interest rate benchmark, fixed in London).

Although LIBOR and Federal Fund Rates tend to be very similar, US Prime Rate runs at 2.5-3% above those rates.

Citing recent caselaw (eg Fiona Trust v Privalov (see Weekly Update 12/11)), the judge concluded that the appropriate rate would be USD LIBOR plus 3% in this case: "Neither US Prime Rate nor Federal Funds Rate has any obvious application to parties and transactions which are unconnected with the United States. In view of the long period involved in this case, I consider that six-month LIBOR, rather than three-month LIBOR, should be adopted as the base rate".

JSC Mezhdunarodniy Bank v Pugachev

Reliance on hearsay evidence in a freezing order application and proving the risk of dissipation

http://www.bailii.org/ew/cases/EWHC/Ch/2014/4336.html

The respondent sought the discharge of a freezing order against him. Various issues were considered in the case, including the following:

(1) Can hearsay evidence be relied on when applying for a freezing order if the source is not identified? PD 32 provides that an affidavit must indicate "the source for any matters of information or belief". The respondent argued that it is unacceptable to base an application for a freezing order on evidence which does not conform to the requirements for identifying sources (ie without an identified source, the affidavit by the claimant's solicitor should be given less weight). Here, the claimant's solicitor had indicated that his affidavit was prepared following discussions with a number of people (and he had provided the names of some of those people).

Mann J held that once information has been disclosed, privilege no longer exists and so there can be nothing objectionable in a solicitor identifying the source of what is now non-privileged information: "If [a litigant] wishes to rely on this information, then the price is that the source is no longer privileged". However, the judge went on to find that it would have made no difference to the respondent's case had he known precisely which individual from the group had held a particular belief.

(2) Is the risk of dissipation proven if the respondent uses corporate structures and offshore companies? Mann J agreed that the mere holding of assets in offshore structures would not be enough in itself. However, in some cases the quality and nature of the arrangements may be a "pointer" towards a risk of dissipation. Here, there was evidence (albeit not conclusive evidence) that elaborate structures had been set up in order to shield assets from view. Looking at the available material as a whole, the judge found that the risk of dissipation had been proven.

COMMENT: Although a risk of dissipation was established on the facts here, this case continues the line of authority that the use of offshore companies alone will not suffice in itself. For example, in VTB Capital v Nutritek (Weekly Update 43/11), the fact that the defendant operated a "complex web of companies in a number of jurisdictions" did not suffice, with the judge saying: "It is not uncommon for international businessmen, and indeed quoted UK companies, to use offshore vehicles for their operations, particularly for tax reasons. This may make it difficult to enforce a judgment. But in that respect claimants ....have to take defendants ....as they find them." Similarly, in UL v BK (Weekly Update 25/13), Mostyn J commented that holding assets in off-shore structures will not of itself amount to an unjustified dealing of assets and Morgan J also agreed in Sukhoruchkin & Ors v Van Bestein & Ors (Weekly Update 26/13) that it was a "less powerful" argument that the defendants had created an "elaborate and sophisticated structure" using off-shore companies and nominee shareholdings.

Public Joint Stock Company v Maksimov

Court disapproves of contempt of court application following breach of a freezing order

http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWHC/ Comm/2014/4370.html&query=vseukrainskyi&method=Boolean

The claimant applied to commit the defendant to prison for contempt of court in breaching earlier worldwide freezing orders. Hamblen J rejected all the alleged grounds of contempt (bar one "technical" contempt ie where the claimant had had disclosure of the assets in question but there had not been any separate asset disclosure statement). The total costs for both sides were in excess of GBP 1 million. Hamblen decided in this case to order the claimant to pay 80% of the defendant's costs.

The judge said that the claimant could have pursued various options in place of an "immediate" application to commit for contempt when it believed the defendant had failed to comply with the asset disclosure requirement of the order. For example, It could have raised any queries in inter-solicitor correspondence or it could have applied for permission to cross-examine the defendant. Furthermore, there was no evidence that the claimant had been prejudiced by the defendant's actions or that "meaningful assets" had been concealed.

Referring to the decision in Sectorguard v Dienne plc [2009], he approved the comments there that the court should be astute to the use of committal proceedings for non-legitimate ends (ie not to enforce compliance with court orders). Applications which have no real prospect of success or relate to only technical, or involuntary. contempt should properly be regarded as an abuse of process. Hamblen J said:" An increasing amount of this court's time is being taken up with contempt applications. Claimants should give careful consideration to proportionality in relation to the bringing and continuance of such proceedings. In appropriate cases respondents should give consideration to applying to strike out such applications for abuse of process. The court should be astute to detect when contempt proceedings are not being pursued for legitimate aims. Adverse costs orders may follow where claimants bring disproportionate contempt applications".

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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