UK: (Re)Insurance Weekly Update 23 - 2015

Last Updated: 3 July 2015
Article by Nigel Brook

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

This week's caselaw:

Maccaferri v Zurich Insurance

Judge construes a notification condition precedent in a policy

A worker was seriously injured whilst using a tool which had been hired from the claimant. The claimant was insured under a public and products liability policy issued by the defendant insurer.

The policy contained the following notification condition precedent ("CP"): "The Insured shall give notice in writing to the Insurer as soon as possible after the occurrence of any event likely to give rise to a claim with full particulars thereof. The Insured shall also on receiving verbal or written notice of any claim intimate or send same or a copy thereof immediately to the Insurer and shall give all necessary information and assistance to enable the Insurer to deal with, settle or resist any claim as the Insurer may think fit".

The accident occurred in September 2011. However, the claimant only received a solicitors' letter informing it that a claim was to be brought against it in July 2013, and notification was made shortly thereafter. The insurer argued that notice should have been given far earlier. It sought to argue that the use of the words "as soon as possible" in the notification CP indicated that the obligation to notify arises when an insured could with reasonable diligence discover that an event was likely to give rise to a claim. Coupled with the obligation to give full particulars, it was argued that the insured was under an implied duty to be proactive and make inquiries (and for that reason, notification was not required "immediately" – even though the insured was required to send the written notice of a claim immediately).

That argument was rejected by Knowles J. The phrase "as soon as possible" referred only to the promptness with which notification had to be made. However, notification was only required when an event was "likely" to give rise to a claim and this meant at least a 50% chance of a claim being made against the claimant (see Layher Ltd v Lowe [2000]). There was no need for the insured to carry out a "rolling assessment" of the likelihood of a claim.

Although the judge accepted that a claim may still be likely even if it is a bad claim, that was not a relevant argument given the facts of this case. At the time of the accident, there had been a possibility (but not more) that the tool was faulty, but there had been other possibilities too, such as a fault in the way in which the tool had been used. Although the accident had been serious, the judge concluded that "seriousness does not increase the likelihood that the allegation would be that there was a fault in the [tool]. At least in context, the likelihood of a claim cannot simply be inferred from the happening of an accident".

Accordingly, the notification CP had not been breached.

COMMENT: Prior cases regarding the meaning of "as soon as possible" in a notification condition have focussed on the reasonableness of the time taken to notify by an insured once it has become aware of a relevant loss/event etc. This case rejects the idea that the phrase imports an obligation to make further reasonable inquiries. However, the overall conclusion in the case may appear harsh given decisions in other cases such as Alfred McAlpine Plc v BAI [1998], where it was concluded (and upheld on appeal) that notification had not been made "as soon as possible" in circumstances where the insured could have had (but did not in fact have) full details of the accident within a few days of its occurrence (notwithstanding that no claim was advanced by the third party for several months).

BV Scheepswerf v The Marine Institute

Whether an award should be set aside because of the delay (of over a year) in publishing it

The claimant applied to set aside an award under section 68 of the Arbitration Act 1996 on the basis that the inordinate delay by the arbitrator in producing the award (it was published 376 days after a three day hearing) was failure by the arbitrator to comply with his general duties under section 33 of the Act. The arbitrator had repeatedly apologised for the delay which he claimed was due to pressure of work and neither party had chased the award or complained about the delay before it was published.

Flaux J noted that, without more, delay alone will not amount to a serious irregularity under section 68, since an otherwise unimpeachable award will have caused the applicant no substantial injustice. He commented: "However, it does not follow that extensive delay, let alone inordinate delay of twelve months in publishing an Award, should be permissible". The solution to the excuse of pressure of work was to take on fewer appointments, he said. Flaux J also referred to Clause 20 of the LMAA terms which provides that an award should "normally be available within not more than six weeks from the close of the proceedings". However, that was not an "immutable rule". He also rejected the defendant's argument that the remedy for the claimant would have been to apply to remove the arbitrator under section 24: the claimant had not lost the right to complain about the delay after the award was produced by failing to make such an application or by failing to complain at the time.

The judge concluded that the application failed on the basis that the claimant could not show serious injustice – namely, that the arbitrator might well have reached a different conclusion more favourable to the claimant in the absence of the delay: "If the Award is otherwise unimpeachable and has dealt with all the issues, it makes no difference whether it was produced a month or twelve months after the hearing, since however long the Award has taken to produce, the applicant cannot show that it has caused or will cause substantial injustice. That is why delay on its own does not amount to serious irregularity".

Dar Al Arkan v Al Refai

Whether previous costs orders against a defendant are overridden by discontinuance

Where a claim is discontinued, unless the parties have agreed otherwise, or the court orders otherwise, the normal position will be that the claimant will be liable for the costs incurred by the defendant up to the date on which the notice of discontinuance was served. The issue in this case was whether that position overrides previous orders made in the case that the defendant should pay the claimant's costs.

In Safeway Stores v Twigger (see Weekly Update 01/11), Pill LJ considered that service of a notice of discontinuance has the legal consequences that costs orders already made in favour of the discontinuing party are automatically reversed without further order (unless that party is able to show that the defendant's conduct was abusive or vexatious). However, Longmore LJ and Lloyd LJ expressly left open this point.

In this case, Smith J said that he disagreed with Pill LJ's view. The general position is that interlocutory costs orders are not affected by other costs orders in the proceedings, and there is nothing in CPR r38.6 or elsewhere in the CPR to suggest that discontinuance reverses previous costs orders. Furthermore, "As a matter of policy it would be surprising if the CPR provides for harsher consequences on a litigant who discontinues a claim or part of a claim than are typically visited on one who pursues an invalid claim or arid litigation to the bitter end. Surely a litigant who comes to appreciate that there is no point in pursuing a claim or part of one is to be encouraged to discontinue it promptly".

Euro-Asian Oil v Abilo

Test for an order to strike out for failure to comply with a disclosure order

A consent order was made requiring the defendant to give standard disclosure and inspection by an extended deadline. When the defendant failed to comply with that order, its defence was struck out and judgment entered against it. The defendant applied to set aside that judgment.

The case largely turns on its particular facts, but Smith J examined the relevant test for compliance with an order like the consent order in this case. He concluded as follows: "Hence various tests are mentioned in the authorities: whether the prima facie compliant document is "illusory", whether it can fairly bear its description, and whether it is made "in good faith". The tests are different, and it is not clear to me whether the authorities regard them as reflecting alternative or cumulative requirements. For my part, I find it difficult to accept that a document provided in "good faith" will always be either necessary or sufficient to comply with an unless order, and in particular I would think that a litigant who deliberately did not disclose a document of marginal significance – perhaps because of some embarrassing content unrelated to the litigation - but otherwise made full and proper disclosure would not fail to comply with a typical "unless" order for disclosure".

On the facts of this case, although there had been deficiencies in the defendant's disclosure, it could not be said that its list had been illusory or served in bad faith. Accordingly, judgment was set aside.

Smailes v McNally

Court considers whether respondents complied with a disclosure unless order

The applicants applied for relief from the sanction imposed by an earlier unless order – namely, that the proceedings would be automatically struck out if a reasonable search for documents (as part of standard disclosure) was not conducted (and a list provided) by a certain deadline. The disclosure exercise conducted by the applicants was said by the respondents to have been defective on three grounds. Although the original decision to uphold the strike out was based on one ground, in this case all three grounds were considered. They were as follows:

(1) No reasonable search had been carried out (the ground on which the strike out decision had been upheld). In particular, it was alleged that a certain category of documents, although referred to earlier in the proceedings by the applicants, had not been disclosed. This was held to be a serious failure which had occurred due to human error (the relevant employee having failed to search for these documents). However, Pelling QC HHJ held that this failure had not been significant because "once the omission was pointed out it was the work of a few phone calls to establish what had happened and the omission was easily resolved, and was in the end resolved, by service of a supplemental list that was compliant" (as far as these documents were concerned). Hence the proceedings should not have been struck out on this ground.

(2) The disclosure list had not complied with CPR r31.10 (which provides that documents must be identified "in a convenient order and manner and as concisely as possible" and provides further details on how this should normally be done). The applicants had sought to rely on the provisions of PD 31B, but it was held that that practice direction applies only to electronic documents and not to hard copy documents which are scanned into an electronic database in order to carry out the disclosure exercise.

Although it was held that the list had not complied with the requirements of CPR r31.10, the judge found that this was not significant here because, by giving the respondents access to a searchable database of scanned documents, it would have  been "the work of a moment" to click through to the actual document and see what it consisted of.

(3) Documents had not been properly disclosed. The particular issue here was that when hard copy documents were scanned onto the database, the OCR process (which converted scanned versions into an electronic format which can be searched) had resulted in OCR scans which had been of such poor quality that a keyword search of those documents had failed reliably to return documents with those keywords. The judge considered the various factors set out in CPR r31.7(2) to determine whether a search has been reasonable (eg the number of documents involved) and concluded that no reasonable search had been carried out. The applicants ought to have increased the resources being made available to physically examine all documents not yet examined once it had become clear that the OCR scan was defective.

The judge concluded that it would therefore be inappropriate to grant relief from sanctions in this case.

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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