UK: (Re)Insurance Weekly Update 43 - 2015

Last Updated: 2 December 2015
Article by Nigel Brook

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

This week's caselaw:

Property Alliance Group v RBS

Litigation privilege and the dominant purpose where a meeting was secretly recorded/use of a document inadvertently disclosed

After litigation had commenced between the parties, the claimant's managing director arranged to meet two former employees of the defendant. The reason he gave for these meetings was said to be a "catch up" (the employees having worked with the managing director whilst employed by the defendant) and to discuss the possibility of working with the claimant in the future. However, the managing director surreptitiously (and unbeknownst to the former employees) made audio recordings of these meetings. The claimant subsequently claimed litigation privilege over the recordings. The issue discussed in this case was whether the recordings had been made "for the sole or dominant purpose of conducting the litigation".

Birss J held that a verbatim recording or transcript (as opposed to a private note) of a non-privileged conversation is not privileged even though it can be said that the reason the recording was made was for use in the litigation (and it makes no difference whether the conversation took place between the parties themselves or between one party and a potential witness or other third party). It was therefore necessary to determine whether the conversation itself had been covered by litigation privilege.

The judge noted that the dominant purpose here was not clear since the claimant held the meetings in order to gather evidence for the litigation, whereas the former employees attended for a catch up and possible future business. He held that the critical point was that the claimant had deceived the former employees, and induced them to speak freely by means of that deception. For that reason, this case differed from a solicitor arranging a meeting with a potential witness in order to take a proof of evidence (and the witness having a variety of reasons for agreeing to meet). Accordingly, the dominant purpose should be assessed from the point of view of the two former employees, and so litigation privilege did not apply.

Although not required to decide the point, the judge also noted that there is a debate amongst academics as to whether a conversation has to be confidential in order to attract privilege. He acknowledged that a solicitor taking a proof of evidence may share confidential information with a witness (who may then speak to the other side too) but that does not affect whether the proof itself is covered by litigation privilege.

The defendant had found out about the recordings because of an email which itself was privileged but which was inadvertently disclosed to the defendant's solicitors. CPR r31.20 provides that "where a party inadvertently allows a privileged document to be inspected, the party who has inspected the document may use it or its contents only with the permission of the court".

Here, it would have been obvious to any reasonable solicitor that the email was likely to be privileged because it was sent from the claimant to the claimant's solicitor. Despite that, the defendant's solicitors had made use of it by contacting the two former employees, without first seeking the permission of the court. The fact that the email indicated that there may have been serious non-disclosure by the claimant did not justify the conduct of the defendant's solicitor. Accordingly, the judge held that a costs sanction should be imposed.

COMMENT: Normally, the existence of the requisite dominant purpose will be assessed objectively. A further issue decided by the judge in this case was that that objective assessment ordinarily requires the court to decide the matter, taking into account all the evidence (including the parties' intentions), as opposed to seeking the viewpoint of a dispassionate observer who, for example, would have been unaware of the claimant's secret purpose. However, here, because of the deception, the fair approach was to instead look at the matter from the point of view of the two employees. This case is also a reminder that care should be taken if a document is inadvertently disclosed to you – any "use" of that document (or its contents) for the purpose of the litigation (even if only to carry out an investigation into the background circumstances), without the permission of the court, can result in a costs sanction against the party.

Ras Al Khaimah v Bestfort

Application for a freezing order in support of foreign proceedings/appointment of a receiver and a power of attorney

The applicants (based in the UAE and Georgia) sought freezing orders against the respondents in support of proceedings taking place overseas. The respondents are LLPs registered in England and Wales and owned by a Georgian national.

The relevant test is whether the court would have granted a freezing order had the substantive claim been brought in England. One of the issues here was whether the respondents had assets which might be caught by the order. A v C [1981] is authority for the proposition that a claimant will only be entitled to a freezing order if he can at least give grounds for believing that the defendant has assets which will be caught by the order – the court will not make an order which is futile.

Rose J held that she was not satisfied that there were substantial assets held by the respondents anywhere in the world (or, at least, assets worth more than the legal costs of enforcing an order). The applicants had also failed to show that an order would be effective to freeze the assets (which might include sums held in bank accounts in Latvia). The evidence showed that the Latvian courts would not recognise an order from the English court freezing assets in Latvia to support substantive proceedings being brought outside of England. To overcome this problem, the applicants proposed the following:

  1. The appointment of a receiver over the respondents, pursuant to the power granted in section 37 of the Senior Courts Act 1981, to obtain payment of all sums standing to the credit of all bank accounts held anywhere in the world in the name of the respondents. The courts have been willing to grant this relief in the past – usually where the frozen asset (eg a property) needs some ongoing management and the freezing order is insufficient on its own. However, the applicants accepted that the appointment of a receiver alone would not be enough as the Latvian courts would not recognise such an order. In any event, Rose J referred to Recital 33 of Regulation 1215/2012, which provides that if protective measures are ordered by the court of a Member State which does not have jurisdiction to hear the substantive claim, the effect of those measures should be confined to that Member State.
  2. An order compelling the respondents to grant a power of attorney to the receivers to act on their behalf. However, the evidence was that the Latvian banks would still be unlikely to comply with the receiver's instructions, even if such an order was made. Rose J did, however, accept (despite little authority on the point) that it would be permissible in theory to grant a power of attorney. However, it would not have been ordered here "against Respondents most of whom who are not defendants to any claim brought by the Applicants; where the sole reason for making the order is to overcome the policy of Latvia not to enforce orders of this kind; where there are unlikely to be assets of sufficient value to justify the very considerable costs that will be incurred by the receivers in using the power of attorney and where there is no history of disobedience to court orders".

The judge also found that a risk of dissipation had not been proven here.

Although a transfer of assets by the owner of the respondents had looked suspicious, that was countered by the fact that neither the respondents nor their owner had failed to comply with any court order. The use of offshore companies was also not a factor in favour of finding a risk of dissipation: "there are many reasons why people working in politically uncertain countries choose to hold their assets in that way and this does not of itself give rise to an inference that [the owner] will try to defeat any judgment awarded against him". Furthermore, there had been considerable delay in bringing the application, and the explanation for that delay- that investigations were ongoing and new material was coming to light all the time - had been weak. This case therefore follows the earlier decision of Anglo Financial v Goldberg (see Weekly Update 37/14), where there had been significant delay to allow protracted negotiations to take place and the judge had held that the defendant would have had ample opportunity to dissipate assets during that time had he been so inclined, and so the risk of dissipation could not be proven.

Pearl Petroleum v Kurdistan Regional Government of Iraq

Enforcement of an arbitral peremptory order by the court

Section 41(5) of the Arbitration Act 1996 provides that: "If without showing sufficient cause a party fails to comply with any order or directions of the tribunal, the tribunal may make a peremptory order to the same effect, prescribing such time for compliance with it as the tribunal considers appropriate". If the arbitrators make a peremptory order but cannot then enforce it, section 42 of the Act provides that (unless otherwise agreed by the parties), the court may make an order requiring a party to comply with a peremptory order made by the tribunal. One of the arguments raised by the respondents in this case was that section 41(5) only applies where a party fails to comply with an order to do something which is "necessary for the proper and expeditious conduct of the arbitration". This argument was based on section 41(1) of the Act which provides that the parties are free to agree on the powers of the tribunal if a party fails to do something necessary for the proper and expeditious conduct of the arbitral proceedings and so, it was submitted, those were the only powers which the parties are free to agree. It was therefore argued that since the peremptory order here – namely, to pay a sum of money to the claimant (which was not security for costs or an interim payment of costs)– did not fall within that definition, the court had no discretion to enforce it.

That argument was rejected by Burton J: "In this case the parties clothed the Arbitrators with a power to enforce their orders, if necessary by a peremptory order, and including an order for the payment of money. Although the proper and expeditious conduct of an arbitration would normally include the parties' compliance with any order which the tribunal may make, nevertheless it is clear that, although arbitrators will in fact be making orders which they consider necessary for the proper and expeditious conduct of the arbitral proceedings, not every breach of every order will lead to a peremptory order – there must clearly be room for de minimis. I do not however consider that it is a requirement for arbitrators in making every order to spell out either that the order they are making is so necessary, or, once the order is made and a party persists in not complying with it, that it is necessary for the proper and expeditious conduct of the arbitration that the party should so comply".

Here, the interim measures order had been necessary to maintain the parties' status quo, and when that order was not complied with, a further peremptory order was required for the proper and expeditious conduct of the arbitration. Accordingly, the court would exercise its discretion to enforce it.

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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