UK: (Re)Insurance Weekly Update 6 - 2015

Last Updated: 20 February 2015
Article by Nigel Brook

Welcome to the sixth 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.

The Insurance Act 2015 received Royal Assent on 12th February 2015 and so will come into force in August 2016

This week's caselaw

Shipowners' Mutual P&I Association v Containerships Denizcilik Nakliyat

A Clyde & Co case on whether a direct right of action against insurers under Turkish law could be heard by the English courts.

Recovery of Medical Costs for Asbestos Diseases (Wales) Bill

The Supreme Court rules that the Welsh legislature cannot make insurers retrospectively liable to cover NHS costs.

Freehold Estates v NatWest

A case on whether a claimant is liable to pay the costs of discontinuing where a settlement has been reached.

Shagang South-Asia v Daewoo

A decision on whether the seat of an arbitration was where it was "to be held".

Graham v Commercial Bodyworks

The Court of Appeal decides if there was vicarious liability following the intentional act of a co-employee.

The Insurance Act 2015 received Royal Assent on 12th February 2015 and so will come into force in August 2016. Below are links to our three updates on the Act.

This week's caselaw

Shipowners' Mutual P&I Association v Containerships Denizcilik Nakliyat

Whether direct right of action against insurers under Turkish law could be heard by the English courts

Clyde & Co for defendant

PD6B para 3.1(6)(c) provides that a claim form can be served out of the jurisdiction, with the court's permission, if "a claim is made in respect of a contract where the governed by English law" (emphasis added).

Following the loss of a vessel, the Turkish charterers commenced arbitration proceedings in London against the Turkish owners. However, under Turkish law, they also claimed to have a right of direct action against the owners' liability insurers, a P&I Club. They commenced proceedings in Turkey. However, the Club sought an anti-suit injunction to restrain the charterers from continuing those proceedings. In order to do so, they required the permission of the English court to serve out of the jurisdiction. The issue was therefore whether the charterers' claim was, in substance, a claim to enforce the contract between the Club and the owners (so that PD6B applied), or whether it was a claim to enforce an independent right of recovery.

Teare J concluded that the "essential content" of the right of direct action was the contract between the Club and its member. Although there were some "exceptions" which pointed to a different conclusion, these were not enough to change the essential nature of the right which had been created. Nor did it matter that the charterers were not a party to the contract between the Club and the owners (see Greene Wood v Templeton Insurance (Weekly Update 06/09)).

The cover granted by the Club provided for English law and London arbitration. CPR r62.5(1)(c) provides that the English courts may give permission to serve an arbitration claim form out of the jurisdiction where "the claimant (i) seeks some other remedy or requires a question to be decided by the court affecting an arbitration (whether started or not) ..; and (ii) the seat of the arbitration is or will be within the jurisdiction". Teare J rejected an argument that CPR r62.5 provided an exclusive code for service of an arbitration claim form and found that permission to serve out could be made under PD6B as well. In so doing, he relied on an observation by the Supreme Court in AES v Ust-Kamenogorsk (see Weekly Update 22/13) to that effect. He said that "I consider that a first instance judge should follow a unanimous observation of the Supreme Court".

In any event, he found that he also had jurisdiction under CPR r62.5 to give permission to serve out of the jurisdiction. Although there was no privity of contract between the charterers and the Club, he said that if they wish to enforce a contractual right which is itself subject to an arbitration clause, the charterers will be bound by that arbitration clause too.

Finally, in finding that the English court should grant an anti-suit injunction in this case, Teare J held that English law gives priority to the Club's contractual rights, rather than the right of direct action.

The charterers have been given leave to appeal against this decision.

Recovery of Medical Costs for Asbestos Diseases (Wales) Bill

Supreme Court rules that the Welsh legislature cannot make insurers retrospectively liable to cover NHS costs

In 2013, the Welsh Assembly passed the Recovery of Medical Costs for Asbestos Diseases (Wales) Bill. This provided that those liable to the victims of asbestos-related diseases would be liable to reimburse Welsh Ministers for the costs of NHS services provided to such victims. It further provided that where liability to the victims was to any extent covered by an insurance policy, the policy would be treated as covering the liability for NHS charges too and such liability cannot be excluded or restricted. The bill therefore imposed new liabilities on compensators in respect of past conduct and on liability insurers under past insurance contracts.

Insurers argued that the Welsh Assembly did not have legislative competence to pass this Bill. The Supreme Court has now upheld that challenge. The Bill did not fall within the powers granted to the Welsh Assembly under the Government of Wales Act 2006. Furthermore, the Bill infringed article 1 of Protocol 1 of the Human Rights Act 1998, which provides that "Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law".

We understand that a similar bill is going to be put to the Scottish Parliament this summer.

Freehold Estates v NatWest

Whether claimant liable to pay costs of discontinuing where a settlement was reached

When a claim is discontinued, the normal position is that the claimant will be liable for the costs incurred by the defendant up to the date of discontinuance. In this case, the claimants commenced proceedings relating to 27 swap transactions entered into with the defendant bank. A full and final settlement was reached in relation to 7 of those transactions. The claimants subsequently served notice of discontinuance in relation to these 7 transactions and also in relation to a further 13 transactions.

The bank sought its costs of the discontinued proceedings in relation to the 20 transactions. Hamblen J has now held as follows:

  1. Where there has been a full and final settlement of a claim and the proceedings in respect of which the claim is made, a party cannot thereafter apply for its costs of the proceedings (unless that right is expressly preserved in the settlement agreement). If costs are not mentioned in the settlement, each side will bear its own costs. Taking steps to discontinue or stay the claim is for the benefit of the court rather than the parties. That analysis applies both where the settled claim is the only claim in the proceedings and where, as here, there has been a settlement of only part of the proceedings.

    The judge also noted that proceedings are usually discontinued where it is recognised that a claim is unlikely to succeed, and hence the defendant should usually receive his costs. However, here, "the effective reason for discontinuance of the 7 claims is the fact that the claimants have been paid over a million pounds in settlement of those claims, and in such circumstances it does appear unfair and unjust that they should have to pay costs in relation to claims so settled". Accordingly, in relation to the 7 settled claims, there should be no order as to costs.

  2. However, the usual rule should be followed in relation to the 13 other transactions which were not settled.

Shagang South-Asia v Daewoo

Whether the seat of an arbitration was where it was "to be held"

The parties entered into an agreement which provided for arbitration of their disputes and specified: "Arbitration to be held in Hong Kong. English law to be applied". The issue in this case was whether that meant the curial law of the arbitration agreement (ie the law of the seat of the arbitration) was English or Hong Kong law (and hence whether or not the Arbitration Act 1996 applied).

There is prior caselaw to the effect that the place of the arbitration will usually be the seat of the arbitration (and hence the curial law of that place will apply to the arbitration). For example, in Shashoua v Sharma (see Weekly Update 17/09) the parties agreed that the venue of the arbitration would be London and hence London was held to be the seat of the arbitration and English law was the curial law. The defendant tried to distinguish the position in this case by arguing that the arbitration agreement here had not referred to a "venue" or "place". Hamblen J rejected that argument: "An agreement that the arbitration is "to be held in Hong Kong" would ordinarily carry with it an implied choice of Hong Kong as the seat of the arbitration and of the application of Hong Kong law as the curial law. Clear words or "significant contrary indicia" are necessary to establish that some other seat or curial law has been agreed..... I do not consider that "English law to be applied" provides clear wording to that effect. Indeed, it is most naturally to be read as referring to the substantive law applicable". The fact that it might be convenient to hold the arbitration in Hong Kong (and hence, it was argued, it was only chosen as a convenient geographical location for hearings), was not a determining factor or a reason to distinguish this case from Shashoua. Hong Kong may have been convenient, but it is also a well-known and respected arbitration forum.

Graham v Commercial Bodyworks

Vicarious liability following intentional act of co-employee

The claimant was injured when his friend and co-employee used a cigarette lighter after having sprinkled the claimant's overalls with a highly inflammable thinning agent when they were both at work at a bodywork repair shop. There was no evidence that the friend had intended to cause any serious harm to the claimant but at trial his actions were described as "clearly reckless". The judge held that the claimant's employer was not vicariously liable and the claimant appealed.

The Court of Appeal has now dismissed that appeal. It noted that in most cases, the focus is on whether an employee's conduct "was so closely connected with acts which the defendants authorised that they may rightly be regarded as modes – though improper modes – of doing them". There was also reference to Canadian caselaw and an inquiry into whether there is a close connection between the creation or enhancement of a risk and the wrong. Here, the defendant employers did create a risk by requiring their employees to work with thinning agents but it was difficult to say that the creation of that risk was sufficiently closely connected with the wrongdoer's highly reckless acts. The wrongful acts did not further the employer's aims, there was no confrontation inherent in the employer's enterprise and the wrongdoer did not have any power in relation to the claimant.

It concluded that the UK authorities "tend to resolve themselves into two groups". On the one hand, there are cases where the use of reasonable force or the existence of friction is inherent in the nature of the employment (eg a bouncer at a nightclub). On the other hand, there are cases (into which category this case fell) where such force or friction is not inherent in the employment relationship. In such cases, intentional acts (whether horseplay or rather more serious conduct) do not usually give rise to vicarious liability.

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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