UK: (Re)Insurance Weekly Update 37 - 2015

Last Updated: 23 October 2015
Article by Nigel Brook

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

This week's caselaw

Involnert Management v Aprilgrange

When does interest start to run when costs are to be assessed?

Clyde & Co (Andrew Blair and Richard Edwards) for second third party

The claimant was ordered to pay the second third party's costs, to be assessed if not agreed. The basic rule is that interest runs from the date judgment is given. Where damages are to be assessed, interest begins to run from the date when damages are finally assessed or agreed. However, prior caselaw has held that where costs are to be assessed, interest will run from the date of the costs order and not the later assessment date. CPR r 40.8(1), though, gives the court a discretion to order interest to run from a later date than the date of the costs order. Given that interest on judgment debts is still 8% per annum, and so well above the commercial rate of interest which is generally 2.5%, this is a matter of some importance where large sums have been spent on costs.

Leggatt J ruled in this case that interest on costs should run from three months after the date of the costs order. He held as follows:

  1. The default position is that interest on costs runs from the date of the costs order.
  2. The discretion to order interest to run from a different date should be exercised in accordance with the overriding objective of dealing with costs justly. There is no requirement that the case have unusual features in order to justify a later date.
  3. The date from which interest runs should not be deferred just because the statutory rate of interest is higher than commercial rates of interest.
  4. However, it is not just to make an order under which interest begins to run before the paying party could reasonably be expected to pay the debt. Where, as here, the court has ordered a suitable interim payment to be made on account of costs, it is not reasonable to expect the paying party to pay the balance of the debt until it has had a fair opportunity to decide what sums it accepts are properly payable.
  5. In order to provide certainty, the court should apply a reasonable objective benchmark – namely, the period prescribed by the rules of court for commencing detailed assessment proceedings, ie 3 months after the date of the costs order. Accordingly, interest on costs should generally start to run from that date (here, the judge also ordered the claimant to pay the second third party interest at the rate of Bank of England base rate plus 2% from the dates when the costs were incurred up until three months after the costs order was made).

Michael Wilson v Emmott

The Court of Appeal considers freezing orders and whether a payment was in the "ordinary course of business"

A freezing order made against the appellant contained the usual exception allowing assets to be dealt with, or disposed of, "in the ordinary and proper course of business". The appellant made two payments to associated companies – one to repay part of a loan and one to cover outstanding rent arrears. At first instance the judge held that the payments breached the freezing order and the appellant appealed.

The Court of Appeal has confirmed the following:

  1. It is the course of business, and not the payments, which must be "ordinary".
  2. It is not helpful to substitute "ordinary course of business" with other synonyms like "routine" or "recurring". The fact that a payment does not happen every day does not stop it being made in the ordinary course of business.
  3. Just because a payment is not dissipatory in nature does not make it one in the ordinary course of business.
  4. The exception is not restricted to payments to trade creditors.
  5. However, Gloster LJ stressed that this issue is highly fact-sensitive.

In relation to the payments made in this case, the Court of Appeal held that the judge had been wrong to focus on the amount of the payment: "although the amount of the payment may well be relevant where what is in issue is discretionary spending or investment, it is of much less significance when the repayment in question is obligatory and related to liabilities which long pre-dated the making of the freezing order. In such a case it is the nature of the obligation which is more weighty". It did not matter that the loan repayment had been particularly large since earlier repayments had totalled amounts in excess of that figure. Nor did it matter that there had been a lengthy gap since the last payment, as there had been similar time gaps before. Also, the appellant had not repaid the entire loan. In relation to the rent payment, arrears had been allowed to accumulate in the past this liability pre-dated the award in favour of the respondent. Accordingly, the appeal was allowed.

Hertel v Saunders

Whether or not an offer was a Part 36 offer

An offer was made by the defendant in February 2015 and it was accepted by the claimant. The issue in this case was whether that offer was a valid Part 36 offer or not.

At the time of the offer, CPR r36.2(2) provided that a Part 36 offer must, inter alia:

"(c) specify a period of not less than 21 days within which the defendant will be liable for the claimant's costs in accordance with rule 36.10 if the offer is accepted; and

(d) state whether it relates to the whole of the claim or to part of it or to an issue that arises in it and if so which part or issue."

(The Part 36 rules were modified in April 2015 but, other than a change in numbering, the above rule was not altered.)

The offer in issue in this case was headed "Part 36 offer". However, Morgan J held that it was not in fact a valid Part 36 offer because it did not relate to a part of the claim (since that part was only added after the date of the offer). An argument was raised that, since a Part 36 offer can be made at any time (including before the commencement of proceedings), CPR r36.2(2)(d) should be read as including references to a claim which has not yet been brought but which is subsequently brought after the offer. That argument was rejected by the judge who said that: "As Part 36 is a highly prescriptive and self-contained code, it does not seem to me to be right to add in further provisions on the basis that they would have an analogous effect to the express provisions of Part 36". Accordingly, this was not a valid Part 36 offer as it did not comply with CPR r36.2(2)(d).

However, had the judge been required to decide the point, he would have held that there had been no breach of 36.2(2)(c) in this case.

The offer had effectively said to the claimant that it was up to the claimant whether or not to continue with the balance of the claim (to which the offer did not relate). If the offer was a valid Part 36 offer and the claimant had decided to abandon the rest of the claim, it would be entitled to its costs of the proceedings. If it decided to continue with the balance of the claim after accepting the offer, costs would be decided by the court later on. Here, there had been a reference to 21 days and the offer had stated that the claimant would be entitled to its costs of the part of the claim being introduced by the amendment (to which the offer related), but the defendant had not said what the costs consequences would be if the claimant abandoned the rest of its claim. That did not matter, because "r. 36.2(2)(c) does not require a Part 36 letter to explain the costs consequences of an acceptance; instead it requires the offeror to specify the period within which the offeror will be liable for the offeree's costs in accordance with r. 36.10 if the offer were accepted".

Riskstop Consulting v HMRC

Whether a party providing risk evaluation/improvement services is an insurance agent for tax purposes

The appellant claimed that the fees which it received for services which it provided were exempt from VAT on the basis that they were services performed by "insurance agents".

The appellant prepared questionnaire surveys (in cooperation with the insurer) to send to insureds to form a view on the insurance risk being presented. The appellant would analyse the questionnaire and send a report to the insurer. The appellant would then liaise directly with the insured to monitor compliance and help it satisfy any Risk Improvement Requirements adopted by an insurer as a condition of the quotation, within certain deadlines. The appellant's fees were paid by the insurer.

The tribunal held that the appellant was not an insurance agent. It played no part in finding prospects and introducing them to insurers and it did not bring insurance products to the attention of potential insureds.

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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