UK: (Re)Insurance Weekly Update 15 - 2015

Last Updated: 11 May 2015
Article by Nigel Brook

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

  1. This Week's Caselaw

Hin-Pro v Compania Sud Americana De Vapores SA

Jurisdiction clause was held to be an exclusive English jurisdiction clause by the Court of Appeal where it provided for English law

http://www.bailii.org/ew/cases/EWCA/Civ/2015/401.html

The parties entered into a bill of lading which contained the following clause: "This Bill of Lading and any claim or dispute arising hereunder shall be subject to English law and the jurisdiction of the English High Court of Justice in London. If, notwithstanding the foregoing, any proceedings are commenced in another jurisdiction, such proceeding shall be referred to ordinary courts of law...."

The appellant argued that this was not an exclusive jurisdiction clause in favour of the English courts since it did not say that only the English court would have jurisdiction and indeed it recognised that proceedings may not be begun in England and made provision for that eventuality. That argument was rejected by the Court of Appeal. It held that this was an exclusive jurisdiction clause in favour of the English courts for the following reasons:

  1. The use of the words "shall be subject to" are imperative and directory and are not apt to provide for an option;
  2. The natural commercial purpose of a clause such as this one is to stipulate what law will govern and which court will be the court having jurisdiction over any dispute. If English law is mandatory, "the parties must...be taken to have intended (absent any convincing reason to the contrary) that the same should apply to English jurisdiction". In this case, some of the other countries which might have jurisdiction over a dispute might not apply English law or might apply it in an idiosyncratic way. It would make little commercial sense therefore to add England as an optional additional court.
  3. There was said to be "obvious sense" in making both English law and jurisdiction mandatory.
  4. The use of the phrase "notwithstanding the foregoing" recognises that the first sentence requires litigation in England. The second sentence applies where the first sentence is ineffective (eg because another country does not recognise the exclusive jurisdiction clause). In reaching this conclusion, the Court of Appeal drew a distinction with the situation where an insurance policy provides for English jurisdiction: that will not create an exclusive jurisdiction clause if it is only the insured (who may be foreign) who is likely to sue (see S&W Berisford v New Hampshire [1990]).

COMMENT: This Court of Appeal decision comes close to saying that selection of English law in a jurisdiction clause will make the clause an exclusive jurisdiction clause in favour of the English courts, in the absence of a clear indication to the contrary. A similar stance was adopted by Waller J in British Aerospace Plc v. Dee Howard [1993], who held that, by expressly agreeing English law, there would be no need to expressly agree that the English court should have jurisdiction as it would have non-exclusive jurisdiction anyway and so by expressly agreeing to English jurisdiction they must be seeking to add something, i.e. that the English courts should have exclusive jurisdiction.

AmTrust Europe v Trust Risk Group

Court of Appeal looks at approach to be adopted in appeal from a decision on jurisdiction

Clyde & Co for claimant

The first instance decision in this case was reported in Weekly Update 46/14. The claimant insurer began proceedings in England but its Italian broker argued that the dispute should be heard in an Italian arbitration rather than by the English courts and challenged the jurisdiction of the English courts. This in turn required an examination of the Terms of Business Agreement ("TOBA") entered into between the parties in 2010 and a Framework Agreement which they entered into in 2011. The TOBA provided that all disputes would be heard by the English courts and the Framework Agreement provided for Italian arbitration. At first instance, Blair J noted that where there are different jurisdiction clauses in agreements between the same parties, the "one-stop" presumption stated by Lord Hoffmann's dictum in Fiona Trust & Holding Corp v Privalov (see Weekly Update 40/07) is relevant. This is an assumption that the parties, as rational business people, are likely to have intended any dispute arising out of the relationship into which they have entered to be decided by the same tribunal. However, he held that it did not apply here because the TOBA and Framework Agreements were dealing with different subject matters and hence the claimants had a "good arguable case" that the English courts have jurisdiction. The broker appealed and the Court of Appeal has now dismissed that appeal.

In considering the case, the Court of Appeal examined the approach which an appellate court should adopt when hearing an appeal from a judge who has ruled at the interlocutory stage on a jurisdiction challenge. Although the courts are usually slow to interfere in such circumstances, it was noted that this case involved the construction of a contract – which has only one "right" answer and so does not involve an evaluative exercise by the judge. As a result there is more justification for interference by the appellate court. There was also more reason to interfere where a defendant who is not ordinarily resident here and who objects to English jurisdiction is being compulsorily brought here.

The Court of Appeal therefore concluded that in a case involving service out under a relevant gateway, the appellate courts should show less circumspection than to a first instance assessment that the English court is the appropriate forum.

Turning to the merits of the case itself, it was held that the one-stop presumption does not apply where the overall contractual arrangements contain two or more differently expressed choices of jurisdiction and/or law in respect of different agreements. Here, the claimants had a "good arguable case" (ie "a much better argument") that the Framework Agreement had not superseded the TOBA and that this dispute fell to be decided under the TOBA and was therefore subject to English law and jurisdiction.

Van Hove v CNP Assurances

Court of Justice of the EU considers whether a term in a consumer insurance policy is unfair

http://curia.europa.eu/juris/document/document.jsf;jsessionid=9ea7d0f130de2a3d5e22a23b48b6b5fe8100459f023e.e34KaxiLc3eQc40LaxqMbN4ObxeLe0?text=&docid=163876&pageIndex=0&doclang=en&mode=lst&dir=&occ=first∂=1&cid=163748

The claimant (a consumer) took out an insurance policy with the defendant. That policy guaranteed to cover all loan repayments owed by the claimant to a company as follows: "75% of such loan repayments in the event of total incapacity for work", which was in turn defined as an inability "to take up any activity, paid or otherwise" after a certain waiting period.

The claimant claimed under the policy when he became unable to work but the insurer ceased covering his loan repayments when he was certified by a doctor as being fit to carry on appropriate employment, at least on a part-time basis (although he was not fit to return to his former post). The claimant alleged that the relevant term in his insurance policy was an unfair term in a consumer contract and sought to rely on EC Directive 93/13 (which aims to protect European consumers against unfair terms in contracts).

The recital to the Directive provides that terms which clearly define an insured risk and the insurer's liability do not fall within the Directive (since these restrictions are taken into account in calculating the premium) and Article 4(2) also provides that terms which relate to the main subject-matter of the contract fall outside of the Directive "in so far as these terms are in plain, intelligible language". The insurer argued that the relevant term was clear and that it concerned the very subject-matter of the contract. The counter-argument was that a clause which prevents the claimant from receiving cover even if his employment provides him with insufficient or no income whatsoever to meet his loan repayments would frustrate the purpose of the policy.

The Court of Justice of the EU has now provided some guidance on the interpretation of Article 4(2):

  1. The "main subject-matter of the contract" means the essential obligations of the contract, which for an insurance transaction: "are that the insurer undertakes, in return for prior payment of a premium, to provide the insured, in the event of materialisation of the risk covered, with the service agreed when the contract was concluded". It is for the referring court to decide whether the definition of "total incapacity to work" falls within the scope of the main subject matter of the policy, but the CJEU said it "cannot be ruled out" that such a term does circumscribe the insured risk and the insurer's liability.
  2. The referring court must also decide if the term has been drafted in "plain, intelligible language". The CJEU stated that it cannot be ruled out in this case that "even if the term is grammatically intelligible, which it falls to the referring court to assess, the scope of that term was not understood by the consumer".

The national court is entitled to take into account "the broader contractual framework" and the fact that this policy was related to loan contracts: "It is for the referring court to determine whether, having regard to all the relevant information, including promotional material and information...and more generally, of the contractual framework, an average consumer who is reasonably well informed and reasonably observant and circumspect" would be able to understand the "specific functioning of the arrangements to which the relevant term refers" and "would also be able to assess the potentially significant economic consequences for him resulting from the limitation of the cover".

Harelequin Property v Wilkins Kennedy

Whether an ATE insurance policy provided adequate security for defendant's costs

http://www.bailii.org/ew/cases/EWHC/TCC/2015/1122.html

The defendant issued an application for security for costs. The parties eventually agreed that security would be provided but the issue was whether the claimants' ATE insurance policy would provide sufficient security.

Coulson J reviewed the relevant caselaw and drew the following principles:

  1. Adequate security can be provided by an ATE insurance policy, depending on the terms of the insurance and the circumstances of the case;
  2. A defendant can argue that certain terms of the policy reduce or remove security, but such objections should be approached "with care" by the court and concerns must be "realistic, not theoretical or fanciful".

The defendant in this case had raised two objections to the ATE policy.

Firstly, it was argued that the insurer and the claimants could agree to commute the policy. That objection was rejected by the judge: the reputable insurer in question here had addressed the point in the proceedings and there was no basis for saying that it was even possible that the insurer would risk its reputation by acting in a way that it had expressly disavowed.

Secondly, it was argued that there was a risk that the claimants would be put into liquidation and hence the insurer would be legally required to pay out to the claimant's insolvency practitioner. That argument was accepted by Coulson J as being a legitimate and realistic concern, since the Third Parties (Rights Against Insurers) Act 1930 does not apply in St Vincent and the Grenadines (where the claimants are incorporated). As a result, the claimants would have no greater claim over the policy proceeds than any of the other creditors of the claimants. Even if the 2010 Act had been in force, that would not have helped since the claimants would not be wound up in the UK. Furthermore, the Contracts (Rights of Third Parties) Act 1999 had been expressly excluded in the policy. The insurer refused to remove that exclusion, arguing that that would "fundamentally alter" the policy.

McCracken v Smith

Court of Appeal considers the ex turpi causa defence

http://www.bailii.org/ew/cases/EWCA/Civ/2015/380.html

The claimant was injured when the trials bike on which he was a pillion passenger collided with a minibus. The bike had been stolen (although it was not proven at trial that the claimant knew that) and was not allowed on normal roads. The rider of the bike was uninsured and did not have a licence and the bike was being ridden at dangerous speeds on a cycle path. At first instance, the judge rejected the Motor Insurer's Bureau's defence of ex turpi causa (ie the principle that no action can arise from the claimant's own illegal act). However, the MIB was not liable because the claimant knew the bike was being used without insurance. The driver of the minibus was found to have been negligent and he challenged the finding that ex turpi causa did not succeed here.

The Court of Appeal has now held that although the rider of the bike (and hence the MIB too) could rely on a defence of ex turpi causa, the driver of the minibus could not.

Reference was made to the earlier Court of Appeal decision in Joyce v O'Brien (see Weekly Update 19/13). There, the Court of Appeal held the defence could not apply where a claimant was engaged in a joint criminal enterprise such that it was foreseeable that the enterprise would be subject to unusual or increased risks of harm – if the risk materialised, the injury will have been caused by the criminal act (even if it results from the negligence of a third party). In this case, the Court of Appeal found that that test was satisfied as against the bike rider. There had been a joint enterprise between the claimant and the bike rider to ride the bike dangerously and such conduct amounted to turpitude. The Court of Appeal left open the question, though, of what constitutes a "minor traffic offence" (Elias LJ having said in Joyce v O'Brien that the ex turpi causa defence did not apply to such offences).

However, the accident had had two causes: the claimant's own criminal conduct and the minibus driver's negligence: "I do not think that the fact that the criminal conduct was one of the two causes is a sufficient basis for the ex turpi causa defence to succeed....for reasons I have explained, cases involving a claim by one party to a criminal joint enterprise against another party to that joint enterprise are materially different. In my judgment, the right approach is to give effect to both causes by allowing [the claimant] to claim in negligence against [the minibus driver] but, if negligence is established, by reducing any recoverable damages in accordance with the principles of contributory negligence so as to reflect [the claimant]'s own fault and responsibility for the accident".

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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