UK: (Re)Insurance Weekly Update 5 - 2015

Last Updated: 13 February 2015
Article by Nigel Brook

Welcome to the fifth 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.

This week's caselaw

  • Impact Funding v Barrington
    The Court of Appeal determines whether a PI insurer is obliged to indemnify a solicitor who is liable to a disbursements funder.
  • Rai v Legal & General Assurance Society
    A case on whether an insured should be restored to the Companies Register in order to allow a beneficiary to claim.
  • Sierra Fishing v Farran
    An application to remove an arbitrator and whether a party had taken part in the arbitral proceedings.
  • Bishop v Chhokar
    A decision on whether a refusal to give permission to appeal should be set aside where the respondent had lied at trial.

Impact Funding v Barrington

Whether PI insurer obliged to indemnify solicitor who is liable to disbursements funder

http://www.bailii.org/ew/cases/EWCA/Civ/2015/31.html

A firm of solicitors arranged funding for disbursements incurred by its clients in order to bring their personal injury claims. When several of those claims were abandoned (because of limitation issues or because they were intrinsically unmeritorious), the funders sought recovery. Where the clients' legal expenses or after the event insurers did not pay (because, for example, the policy had been avoided), the funders sought recovery instead from the solicitors. The issue in this case was whether the solicitors' professional indemnity insurers were obliged to indemnify the solicitors in respect of their liability to the funders.

The answer to that issue turned on the interpretation of an exclusion in the professional indemnity insurance policy which excluded cover for any "(a) trading or personal debt of any insured, or (b) breach by any insured of the terms of any contract or arrangement for the supply to, or use by, any insured of goods or services in the course of the Insured Firm's Practice".

The Court of Appeal held that to determine whether the exclusion applied, it was necessary "to stand back from the detail and ask oneself what is the essential purpose" of this exclusion. It found that it was to prevent insurers being liable for a solicitor's liabilities "in respect of those aspects of his practice which might affect him or her personally as opposed to liabilities arising from his professional obligations to his or her client". So, for example, PI insurers would not cover liability incurred by a solicitor to the supplier of a photocopier or cleaning services. However, such personal obligations should be distinguished from obligations incurred in connection with the solicitor's duty to his clients. The loans in question here, made to cover disbursements in intended litigation, "are essentially part and parcel of the obligations assumed by a solicitor in respect of his professional duties to his clients rather than obligations personal to the solicitor". The position would only be different if it could be proven that the solicitors had been operating a scam of obtaining loans for personal purposes, without any intention of obtaining clients' instructions.

Hence the insurers were liable to indemnify the solicitors.

Rai v Legal & General Assurance Society

Whether insured should be restored to the Companies Register in order to allow a beneficiary to claim

http://www.bailii.org/ew/cases/EWHC/Comm/2015/170.html

A group death in service benefits policy was taken out by a company for the benefit of its employees. That company was struck off the Companies Register, on the application of its directors, in 2012.

In 2008 one of its employees had been killed in India, having permanently transferred there to help expand the company's business. The employee's wife sought to claim under the policy. The judge held that she could not do so, because of a policy exclusion for employees who were not ordinarily employed and resident in the UK. Although not required to do so, the judge nevertheless went on to consider whether (if the claim had been valid) the court ought to have granted a declaration that the insurer was obliged to pay the company after restoration of the company to the register. The policy expressly excluded the right of any third party to enforce the contract and there was no assignment in favour of the widow.

The approach of the court is normally that a declaration will be made if it would serve a useful purpose. Citing earlier caselaw, the judge held that declaratory relief should not necessarily be precluded by the claimant's lack of any beneficial interest in any monies which the company might receive. Nor was it problematic that the widow is not a party to the policy and is unable to enforce it or compel the company to enforce it. Accordingly, had a different conclusion been reached on the merits of the claim, the judge said that he would not have been satisfied that the matter could necessarily have been properly and fairly resolved without restoring the company to the register and joining it to the action (although in the particular circumstances of the case, an adjournment or stay would have been more appropriate).

Sierra Fishing v Farran

Application to remove arbitrator and whether a party had taken part in the arbitral proceedings

http://www.bailii.org/ew/cases/EWHC/Comm/2015/140.html

The claimants applied to remove an arbitrator on the ground of apparent bias (pursuant to section 24 of the Arbitration Act 1996). Popplewell J found, on the facts, that there had been apparent bias. He found that, through his work as a lawyer, the arbitrator had had a financial interest in favouring the defendants. In reaching this conclusion, assistance was derived from the IBA Guidelines which include the following on their Non-Waivable Red List: "the arbitrator regularly advises the appointing party....and the arbitrator or his or her firm derives a significant financial income therefrom". There were also separate objections that the arbitrator had given legal advice on the dispute in the past and his conduct of the reference gave doubts to his impartiality. These also gave sufficient grounds to doubt the arbitrator's impartiality.

The defendants argued, though, that the claimants had lost their right to object under section 73 of the Act. This provides that if a party takes part, or continues to take part, in the arbitration without raising its objection forthwith, when it knew (or could with reasonable diligence have known) about the relevant circumstances, the right to object is lost. Popplewell J held that where there are three sets of circumstances, which are each sufficient on their own to give rise to doubts about the arbitrator's impartiality, it is necessary to consider separately whether the claimants have lost the right to rely on each such set of circumstances.

The judge also held that, where a party has not already been taking part, mere silence or inactivity will not be sufficient to lose the right to object. Here, there had been no "taking part" within the meaning of section 73. For example, a request to put the arbitration on hold (or to adjourn a procedural hearing) was "entirely neutral" and mere silence in the face of revival of the process by the other party was equally incapable of amounting to a first taking part. The judge also noted that "Nor can the Claimants' indication that it would be appointing its own arbitrator amount to taking part, because it does not recognise the tribunal as yet being properly constituted and therefore cannot amount to invoking the jurisdiction of a tribunal in its improperly or imperfectly constituted form".

Bishop v Chhokar

Whether refusal to give permission to appeal should be set aside where respondent had lied at trial

http://www.bailii.org/ew/cases/EWCA/Civ/2015/24.html

This was an application pursuant to CPR r52.17 to set aside an order from the Court of Appeal refusing the appellant permission to appeal. The appellant claims that the original judgment had been obtained by fraud. CPR r52.17 provides that the Court of Appeal will not reopen a final determination of any appeal unless (a) it is necessary to do so in order to avoid real injustice; (b) the circumstances are exceptional and make it appropriate to reopen the appeal; and (c) there is no alternative remedy (an "appeal" in this context includes an application for permission to appeal).

Aikens LJ said that it is requirement (c) which causes difficulty in general. A debate has taken place since this rule came into force in 2003 as to whether, where it asserted that the original decision was obtained by fraud, there is an "alternative effective remedy" because the proper course is that a fresh action should be commenced to set aside the original judgment. If that is correct, CPR r52.17 cannot be relied upon to reopen an appeal (or permission to appeal).

The Court of Appeal accepted that there are difficulties in mounting a second action in the county court to rescind an earlier judgment obtained by fraud and it is seriously open to doubt that the High Court has the jurisdiction to impeach the original county court decision. For those jurisdictional and procedural reasons, it could not be said that there was an effective alternative remedy in this case. Accordingly, the Court of Appeal did have jurisdiction to set aside the order refusing permission to appeal and, on the facts, agreed to do so.

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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