UK: (Re)Insurance Weekly Update 31 - 2015

Last Updated: 11 September 2015
Article by Nigel Brook

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

AIG Europe v OC320301

Judge interprets an aggregation clause and the meaning of "similar" acts and "related" matters

An insurer sought a declaration that certain claims brought against the insured firm of solicitors should be aggregated. The claims were brought by various investors who had invested in two holiday home developments to be undertaken by a UK development company (Midas) in Turkey and Morocco, which failed when the local Midas companies were unable to complete contracts for the purchase of the relevant land in Turkey or shares in the land-owning company in Morocco. The investors alleged, broadly, that the solicitors had wrongly released monies from an escrow account without adequate security being in place to protect their investment. The investors claimed to have lost over £10 million, and the relevant policy provided cover of £3 million for any one claim.

Clause 2.5 of the Solicitors Regulation Authority Minimum Terms and Conditions of Professional Indemnity Insurance for Solicitors applied and (in relevant part) provided that claims "arising from...similar acts or omissions in a series of related matters or transactions" would be regarded as One Claim for the purposes of the application of policy limits. Teare J was therefore required to interpret the scope of that clause.

He considered that the phrase had to be interpreted in its context and, accordingly, prior caselaw involving a different context was of no real assistance in this case. He concluded that:

  1. "Similar acts or omissions" required a "real and substantial degree of similarity" and that that similarity should not be "fanciful nor insubstantial". That test was satisfied here since, common to all the individual claims (assuming the claims to have been made out), the local Midas company could not pay the vendor, there was a failure to provide effective security so that the relevant test for releasing the escrow monies had not been properly applied, and thus the investors had been exposed to loss in the event that the developments failed. (Teare J held that he was not required to further decide whether the phrase "arise from", used in the Minimum Terms, required only some causative element or, instead, whether the acts/omissions had to be the proximate cause).
  2. "A series of related matters or transactions". Three possible interpretations of that phrase were put forward by the parties between them:

    1. A series of independent transactions which are related because they were of a similar kind (ie there was the same security structure, with Midas as the hub). That argument was rejected by the judge as being very wide, with no clear limit.
    2. A series of independent transactions which are related because they are investments in one particular development. That interpretation was also rejected in favour of the third interpretation.
    3. A series of transactions which are related because they are dependent on each other. That was the interpretation adopted by Teare J and, since the transactions here were not conditional or dependent on each other, the aggregation clause did not apply and the claims could not be aggregated.

Permission to appeal this decision was granted by Teare J.

Sarpd Oil v Addax Energy

Security for costs application where there is little financial information about the claimant/costs of Part 20 proceedings

The defendant sought security for costs from the claimant, a company incorporated in the British Virgin Islands. The application was not made pursuant to ground (a) of CPR r25.12 (ie that the claimant is resident out of the EEA), because it could not be shown that there would be an extra burden/cost of enforcing a judgment in the BVI. Instead, the application was brought under ground (c) (ie that the claimant is a company and "there is reason to believe that it will be unable to pay the defendant's costs if ordered to do so").

However, the claimant had given no details of its financial position and the defendant had access to only limited information. As a result, Smith J concluded that ground (c) had not been established. There was nothing inherently "secretive" about incorporation in the BVI and the claimant had filed such returns as were required in that jurisdiction. Nor was the claimant required to demonstrate that it would have means to pay a costs order: "It might be tempting to ask why, if it has means, should [the claimant] not avoid the expense of an application for security by demonstrating them, and therefore to suppose that its refusal itself provides reason to believe that it will not be able to pay an order for costs, but that ignores the adversarial realities of commercial litigation".

The judge also noted that it was suggested that a practice had developed in the Commercial Court where security was ordered in this type of situation (ie where the claimant has not filed accounts that are publicly available, has no discernible assets and declines to reveal its financial position), but he said that "if such a practice has developed, I cannot think it justified and I decline to follow it".

Although not required to decide the point, the judge also considered whether, if security had been ordered, it should also have covered the costs of the defendant bringing and pursuing Part 20 proceedings against a third party. That in turn depended on whether those costs were costs "of the proceedings" as referred to in CPR r25.12. Smith J held that they were and that the defendant would have been entitled to those costs, provided that the Part 20 proceedings did no more than protect the defendant against the consequences if the claim against him succeeds. However, no security could be ordered to protect the defendant against a possible order requiring it to pay the third party's costs.

The judge also considered how the defendant's costs should have been assessed given the earlier approval of the defendant's costs budget. Despite that approval, the claimant had argued that the defendant's budget was excessive. The judge said that he could not depart from the earlier order as "that would destroy the scheme of the new costs regime". As for costs incurred by the time of the budget, the judge noted that the White Book states: "While those costs that were incurred cannot form part of the budget and so fall for assessment unfettered by the restraints of the budget, once assessed, on the basis that they were reasonably incurred and reasonable in amount, and added to the budgeted costs, the total figure is still subject to an overall assessment of proportionality".

British Airways v Spencer

Test for whether permission should be given to adduce expert evidence

The appellant appealed against a deputy master's decision refusing permission for it to call expert evidence.

Warren J held that the deputy master had erred in finding that because the judge would be able to decide a matter without expert evidence, the judge would not be assisted by it. That was not the correct approach: if the evidence might be helpful, the court should determine whether it falls within CPR r35.1, which provides that "expert evidence shall be restricted to that which is reasonably required to resolve the proceedings". The judge laid down the following test:

  1. Looking at each pleaded issue, is it necessary to have expert evidence to resolve that issue? If so, expert evidence must be admitted.
  2. If, however, the evidence is not necessary, would it still be of assistance to the court in resolving that issue? If so, the court can determine the issue without the evidence.
  3. The next question is then whether, in the context of the proceedings as a whole, expert evidence on that issue is reasonably required to resolve the proceedings. In deciding this, the court will take into account factors such as the value of the claim, the effect of a judgment either way on the parties, who will pay for the expert evidence and any delay which the evidence would entail (especially if a trial date will have to be vacated).

The judge added that: "although CPR 35.1 does not refer to issues, but only to proceedings, if evidence is not reasonably required for resolving any particular issue, it is difficult to see how it could ever be reasonably required for resolving the proceedings. I therefore see a test directed at issues as a filter".

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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