UK: (Re)Insurance Weekly Update 40 - 2015

Last Updated: 16 November 2015
Article by Nigel Brook

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

This week's caselaw:

Exmek Pharmaceuticals v Alkem Laboratories

Whether an arbitration agreement referring to UK law/court was valid and arguments about an arbitrator's nationality

The claimant challenged an award on jurisdiction (pursuant to section 67 of the Arbitration Act 1996). The contract between the parties provided for the exclusive jurisdiction of the "courts of the UK" and for any disputes to be arbitrated in accordance with the "law in the UK". Burton J held as follows:

  1. The reference to the exclusive jurisdiction of the courts as well as arbitration was not irreconcilable and could be read together: the procedural law of the arbitration would be "UK law" and the "UK courts" would have supervisory jurisdiction.
  2. The reference to UK law was not ineffective or ambiguous – instead it should be read as referring to the courts and law of England and Wales. This is a case involving an international trade contract and the jurisdiction of England and Wales (and its law) is regularly resorted to for resolving such international legal disputes (and the Commercial Court deals with such disputes on a daily basis). It made no difference that there were no factors indicating a connection with England or London here.
  3. The contract provided for disputes to be referred to arbitration before any legal proceedings are initiated. Although there was no express provision for the arbitration to be final and binding, the judge was satisfied that the parties intended it to be so and in any event section 58 of the Act (which provides that unless otherwise agreed by the parties, an award shall be final and binding) applied.
  4. Although it is possible to abandon an arbitration (either expressly or impliedly), mere "radio silence" by the defendant had not been enough to prove this.
  5. Having concluded that the parties had agreed a binding arbitration clause, the judge also considered whether the arbitrator had been precluded from acting because he was the same nationality as the claimant. A number of arbitral institution rules (including the LCIA and ICC) provide that a chairman or sole arbitrator should not be the same nationality as one of the parties. However, the judge rejected an argument that if an application were to be made under section 18 of the Act, the court would not sanction the appointment of a sole arbitrator with the same nationality as one of the parties. In any event, this was not a jurisdictional issue, instead, a challenge should have been brought under section 68 of the Act on the ground that the duty of fairness had been breached (because the arbitrator had selected which of the LCIA rules he would, and would not, be guided by).

COMMENT: This case confirms that the English courts are prepared to ascertain the intention of the parties in relation to an arbitration agreement, even if the express words used do not make legal sense. For example, in Chalbury McCouat International v PG Foils (see Weekly Update 30/10), the parties had referred to the "laws of European Union in the Europe", but the court had construed this as meaning that there was a strong suggestion that the applicable law should be determined under the laws of the European Union and so the Rome Convention applied. That in turn had indicated that English law would be the governing law in that case.

First Capital East v Plana

Whether committal proceedings can be brought if alleged wrongdoer has been acquitted by the criminal courts

After a claimant's personal injury claim was struck out when the defendant's insurers obtained surveillance footage demonstrating that the claim was a sham, an application for permission to bring committal proceedings for contempt was made. The claimant was then acquitted of fraud by the criminal courts.

The novel issue in this case was therefore whether committal proceedings can be brought where the alleged contemnor has already been tried and acquitted by a criminal court on the same facts (it being well established that someone punished for contempt of court can still be prosecuted in the criminal courts on the same facts). Hughes HHJ noted that the background to this case is "a sense of deep concern, felt by those who insure defendants to personal injury claims, about the increasing number of false and inflated claims. Insurers feel that there is a need for it to be made clear that such dishonesty will not be tolerated by the courts and will be punished as a contempt".

However, and "with reluctance", the judge concluded that permission should be refused.

The court has to balance the consideration that it should itself punish those who make false statements in civil proceedings with the consideration that the same allegations should not be litigated twice over. The judge concluded that: "I do not believe that the acquittal by the jury is an absolute bar to permission being granted for committal proceedings, but, in my view, permission is unlikely to be granted except, for example, where there is material evidence that was not before the jury, or where important new evidence has since come to light".

Accordingly, an application for permission to bring contempt proceedings should be made without any delay (and before the related criminal proceedings come to trial). The judge suggested that the Civil Procedure Rule Committee should consider this issue, since a county court judge is unable to grant permission to bring contempt proceedings, and so this can cause delay.

GB v Stoke City FC & Anor

Court considers whether a football club would be vicariously liable for an alleged assault by a professional footballer on an apprentice

The claimant alleged that he was assaulted by a professional footballer when he was an apprentice footballer at the same club. The court dismissed his claim, but nevertheless went on to consider whether the club could have been held vicariously liable for the acts of its employee (the professional footballer).

Following a review of relevant caselaw, Butler HHJ held that the club could not have been held vicariously liable. The professional footballer had no express or implied duty to train or discipline apprentices. Prior caselaw has focused on the duties given by the employer to the wrongdoer, rather than the victim. However, in this case, the claimant had sought to argue that the duties given to the apprentice created or enhance the risk of confrontation (or of violence, whether frolicsome or vengeful) with players at the club. It was alleged that the club had created an inherent risk (given the disparity of status between the professionals and the apprentices, and the fact that the apprentices were required to perform menial services in an entirely male sporting workplace environment) that informal sanctions would be imposed on the apprentices.

That argument was rejected by the judge as going a step further than the authorities justify: "Most if not all apprentices or trainees in all workplaces, not just sporting organisations, would be at such a theoretical risk and such a finding would be little short of holding that any employer should be vicariously liable for any assault on any apprentice or trainee by a full-time employee in all circumstances... I am not prepared to make that step on the facts of this case. In the absence of the conferring by the club on the second defendant of any formal duties or powers in relation to the apprentices or proof that the management of the club ... actually knew of and condoned the alleged practice, I find that even if it had occurred ... it would have been deliberate and intentional or reckless conduct involving a serious assault outside the course of the second defendant's employment".

Bao Xing v BA Plc

Whether action commenced by a solicitor had been ratified by claimant

A firm of solicitors approached a Chinese trade body, advising it that its members might potentially have a claim against the defendants. The trade body provided details of some 65,000 companies which might have suffered a loss. Because the claim might have become time-barred imminently in China, the solicitors commenced proceedings in England, with a partner signing the statement of truth. PD 22 provides that where a legal representative signs a statement of truth, his signature will be taken as a statement that his client has authorised him to do so.

Prior caselaw has established that, where a solicitor has started proceedings in the name of a claimant without authority, the claimant may ratify the act of the solicitor and adopt the proceedings. After proceedings were commenced, the solicitors claimed that 362 claimants had ratified the commencement of those proceedings. Rose J confirmed that the ratification here had to be valid under English (rather than Chinese) law.

She then went on to find that the commencement of the proceedings had not been ratified. In order to ratify an act, the principal must have full knowledge of all the material circumstances. Here, the claimants had been misled by being told by the solicitors that they would not need to participate directly in the proceedings. However, "by becoming a claimant, the company is participating directly in the proceedings". It might also be misleading to state that the claimants would bear no financial risk, since an application for security for costs might be made here. Accordingly, the claim was struck out.

Furthermore, the claim should also be struck out pursuant to the court's general discretion. This was because there were no grounds for believing that any particular claimant had in fact suffered a loss, the trade body had no authority to tell the solicitors to commence proceedings and the solicitors failed to tell the defendants' solicitors that there were serious difficulties with identifying claimants.

Cavendish Square v Talal El Makdessi

Supreme Court upholds rule against penalties

The parties to a contract may agree, in advance, on the level of damages payable to compensate the innocent party in the event of breach. However, such clauses will be struck down by the court if they are deemed to be penalty clauses. The long-standing view has been that a clause will be treated as a penalty clause if the sum fixed is not a genuine pre-estimate of loss (see Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1914]).

In this case, the relevant clause was held at first instance to be enforceable but the Court of Appeal allowed the appeal from that decision on the basis that it was not a genuine pre-estimate of loss (the same consequences arising on a number of different breaches, regardless of how minor the breach) and was also not commercially justifiable.

The Supreme Court has now overturned the Court of Appeal's decision. It held that the rule against penalties should not be abolished (although neither should it be extended).However, the correct test was not a "genuine pre-estimate of loss". Instead, it was whether any legitimate business interest is protected by the clause and, if so, whether the provision made for that interest is extravagant, exorbitant or unconscionable (ie there is an extravagant disproportion between the stipulated sum and the highest level of damages that could possibly arise from the breach).

Other News

Update on late payment damages: The Earl of Kinnoull's amendments to the Enterprise Bill (referred to in Weekly Update 39/15) were withdrawn, for the time being, on 2nd November. Further evidence is being collated in order to present to the government. The relevant extract from Hansard is attached to this email.

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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