UK: (Re)Insurance Weekly Update 28 - 2015

Last Updated: 5 August 2015
Article by Nigel Brook

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

This Week's Caselaw

Equity Syndicate v Glaxosmithkline: Evidence which court will take into account when deciding whether to rectify an insurance policy

It was common ground that the wording of a policy issued by the insurer (insurer 1) to the insured covered the insured's employee, who was involved in a serious car accident. However, both the insured and insurer 1 agreed that this had not been their intention (and that the policy would instead cover only members of the insured's "Employee Car Ownership Scheme"). The employee, who was not a member of that scheme, had been driving a car hired for her by the insured at the time of the accident. Insurance had been arranged by the car rental firm with another insurer (insurer 2). The accident claim was handled and eventually settled by insurer 2, who then sought a contribution from insurer 1, who, it argued, was also liable for the accident. The issue in this case was whether insurer 1's policy should be rectified by the court on the basis that it did not reflect the intention of either insurer 1 or the insured.

The requirements for rectification were approved by Lord Hoffmann in Chartbrook v Persimmon Homes (see Weekly Update 11/08) as being: (1) a common continuing intention by the parties; (2) an outward expression of accord; (3) the intention continued at the time of the execution of the document; and (4) by mistake, the document did not reflect that common intention. The test of a common continuing intention is objective and Lord Hoffmann said that "evidence of subsequent conduct may also have some evidential value". In this case, Males J clarified that statement as follows: "To be clear, this is not to say that subsequent conduct may create a common intention where none existed at the time when the contract was concluded, but that evidence of what the parties said and did subsequently may cast light on what they intended at the time".

On the evidence in the case, the judge found convincing proof that insurer 1 and the insured had not intended to cover employees who were not members of the ownership scheme under the policy. In addition to the evidence of the relevant employees, the judge relied on the fact that the premium was based only on a fixed sum per vehicle in the scheme (and nothing else), and the heading of the policy ("Employee Car Ownership Scheme Motor Fleet Insurance) was also a strong indication of its intended subject matter.

Rectification is an equitable remedy, though, and the judge went on to find that it would be inequitable to render insurer 1 liable to contribute even though it had not agreed to insure the employee and had received no additional premium for that liability (thus giving a windfall to insurer 2, who had received premium to insure the employee).

The judge also noted that the employee had never thought she was insured by insurer 1 and she was, in any event, covered (and fully indemnified) by the policy issued by insurer 2. That, perhaps, begs the question whether rectification would have been ordered had the employee not been covered under any other policy for the accident.

Swiss Life v Kraus: Whether defendant had submitted to the jurisdiction of the US court re enforcement of a US judgment

The claimant insurer had alleged that the defendant to this action, a broker, misrepresented information relating to policies placed by the broker on its behalf. The insureds under the policies commenced proceedings in New York against the insurer, alleging the insurer was in breach of contract ("the Main Action"). The insurer subsequently commenced proceedings in New York against the broker relating to the broker's conduct in various proceedings (one of which was the Main Action). Default judgment was obtained by the insurer but Master Eyre refused to enforce the costs component of the Default Judgment, on the basis that the broker had not voluntarily submitted to the jurisdiction of the New York court. The insurer appealed that judgment.

Green J was therefore required to review the caselaw relating to "submission to the jurisdiction". The general rule is that the party must have taken some step which is only necessary if an objection to jurisdiction has been waived. That issue will be determined in accordance with English law. Of particular relevance to this case is the principle that submission to the jurisdiction will arise not only with regard to the original claim, but also to any other "related" claim. The English courts will also seek to establish who is the "real plaintiff" in proceedings.

In this case, the judge was satisfied that the Master had erred in finding that, on the facts, an argument that the broker was the "real plaintiff" in the Main Action was unsustainable. Although it did not follow inexorably that the broker had also submitted for the purpose of the Default Judgment proceedings, the judge found that it was arguable that there was a sufficient connection between the Main Action and the Default Judgment proceedings to enable submission to the former to constitute submission to the latter (although this issue would have to be determined at trial).

Accordingly, the appeal was allowed. However, Green J did also hold that the Master had not erred in finding that a letter sent by the broker in the context of the Default Judgment proceedings did not amount to a submission to the jurisdiction. In this letter, the broker had denied having deliberately avoided service of the proceedings and asked the court to order the insurer to effect proper service on him. The judge noted that the New York courts did not treat this letter as a submission to their jurisdiction. Had English procedural rules applied instead, the court would have treated this as an informal communication, rather than a formal procedural step. Furthermore, applying an objective test, it was clear that the letter did not reflect an intention by the broker to submit to the jurisdiction.

AB International v AB Clearing: An application for urgent interim relief under the Arbitration Act and the meaning of "asset"

Section 44 of the Arbitration Act 1996 gives the English courts power to grant interim relief in support of arbitration in certain circumstances. Section 44(3) provides that "If the case is one of urgency, the court may, on the application of a party or proposed party to the arbitral proceedings, make such orders as it thinks necessary for the purpose of preserving evidence or assets".

The claimant sought disclosure from the defendants. It argued that the "asset" which required preservation was its business and that unless the order for disclosure was made, the arbitration could not be expedited, and hence its business would collapse and the "asset" lost. There is prior caselaw to the effect that the term "assets" in section 44 should not be construed narrowly, and could include contractual rights (see Cetelem SA v Roust Holdings [2005]).

Phillips J held that the application failed on the basis that the claimant could not demonstrate that there was any real urgency and, furthermore, the claimant was not relying on the arbitration to produce an award which would fund its business. Accordingly, the judge was not required to decide the issue of whether an asset included the applicant's business although he did say that: "it is quite unclear why advance disclosure in the arbitration is necessary to preserve the JVC business, even if that was otherwise a tenable argument".

COMMENT: The argument run by the applicant was an interesting one. Although Cetelem confirmed that the meaning of an asset went beyond property and goods, to include, for example, the right which a claimant is trying to protect or assert in the arbitration, the argument in this case that an asset could include the applicant's business would appear to widen the definition even further. The judge did not expressly state that that was too wide a definition, but he was not required to do so because the application failed on other grounds, and so the argument might be run in another case.

Maritime Investment v Underwriting Members of Syndicate 1183: Applications where a company has been struck off the register overseas

The claimant brought an application to vary a security for costs order made against it. The claimant was a BVI-incorporated company which was struck off the register of BVI companies at the end of last year. Accordingly, Smith J considered the effect of this striking off on the application.

Where an English company is struck off the register, it will be dissolved once a notice has been published in the Gazette. The court will then dismiss proceedings in which the company was a party or (if more appropriate to do so), it might stay the proceedings pending an application to restore the company to the register (see Stearns Fashion v Legal & General [1995]).

However, Smith J noted that the law of the place of incorporation of a company will determine the effect on a company's capacity of an event such as being struck off the register. The evidence on the BVI position was that a company which is struck off can still exist for a further 7 years (at which point it is automatically dissolved), and can continue to carry on legal proceedings that were started before the company was struck off.

Accordingly, the application could not be dismissed on the basis of the company's striking off. A further issue which arose was whether anyone could have authority to act on the company's behalf and whether the former director/shareholder of the company still had authority to act. The judge considered the application on the assumption that she did, although had the issue been of crucial importance, he would have required further argument on the point.

GSK Project Management v QPR Holdings: Court considers whether a costs budget was proportionate and the consequences if it is not

The claim in this case was for £805,675. The claimant's cost budget produced at the first CMC was in the overall sum of £824,000, and stated that £310,000 had already been spent. Stuart-Smith J held that costs budgeting reviews should normally be carried out quickly, adopting a broad brush approach. However, this was an exceptional case, which justified a more detailed approach, because the aggregate sum was "so disproportionate to the sums at stake or the length and complexity of the case". However, he rejected the defendant's argument that the other party's costs budget (in this case, £455,554) should be used as a starting point, because: "different parties to litigation have different roles and responsibilities which are likely to distort one party's costs when compared with those of another: the obvious example is that in some cases the Claimants have to make the running in preparing and presenting the case while the Defendant "can sit and snipe on the sidelines"".

Having concluded that the budget here was unreasonable, the judge went on to consider the 4 options considered by Coulson J in CIP Properties v Galliford (see Weekly Update 10/15): (1) order a new budget; (2) decline to approve the budget; (3) set budget figures; or (4) refuse to allow further costs. Like Coulson J, the judge here found that option (3) was the best solution to adopt and he concluded that the incurred costs/approved costs budget should be £425,000.

The judge also advised that, although "it is hard to imagine anything more sterile than arguing about a grossly excessive costs estimate", the defendant had been justified spending the effort and expense which it had in making a detailed attack on the claimant's grossly excessive costs estimate.

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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