A summary of recent developments in insurance, reinsurance and litigation law
This week's caselaw:
Marks and Spencer v BNP Paribas: Supreme Court considers the test for implying terms into a contract
http://www.bailii.org/uk/cases/UKSC/2015/72.html
In this case, the claimant sought to establish that a term should be implied into a lease. The Supreme Court therefore reviewed the test for implying terms into a contract, and in particular the position following the Privy Council decision in Attorney General of Belize v Belize Telecom (see Weekly Update 20/09). That case was widely seen as having lessened the burden of proving an implied term. Lord Neuberger (with whom Lord Sumption and Lord Hodge agreed) noted support for the principle that a term will only be implied if it satisfies the test of business necessity or obviousness (ie the term is so obvious that it goes without saying) and is fair and made the following further comments:
- There is no need to ascertain what the actual parties would have agreed – instead the test is what notional reasonable people in the position of the parties at the time of the contract would have agreed.
- A term should not be implied just because it is fair. A test of reasonableness adds nothing either.
- The need for business necessity or obviousness are alternative tests, but it would be rare for a case to satisfy only one of those tests.
- Business necessity means that a term can only be implied if, "without the term, the contract would lack commercial or practical coherence".
Lord Neuberger then referred to Belize, and Lord Hoffmann's summary that "there is only one question: is that what the instrument, read as a whole against the relevant background, would reasonably be understood to mean?". He said that this should not be interpreted as meaning that reasonableness alone is a sufficient ground for implying a term: "It is necessary to emphasise that there has been no dilution of the requirements which have to be satisfied before a term will be implied, because it is apparent that Belize Telecom has been interpreted by both academic lawyers and judges as having changed the law". Furthermore, the suggestion that the process of implying a term is part of the exercise of interpretation is wrong: "construing the words used and implying additional words are different processes governed by different rules". So the court should first construe the express words used and then decide whether a term should be implied.
Lord Carnwath, agreed with Lord Neuberger that the appeal should be dismissed and that the judgment in Belize (in which the Board as a whole had agreed with Lord Hoffmann), should not be read as having watered down the traditional, highly restrictive, tests for implying a term. However, Lord Carnwath disagreed with Lord Neuberger that the express words must be construed before considering whether a term should be implied, and he preferred the position in Belize on that point. Furthermore, in relation to the tests of "business efficacy" and "officious bystander", Lord Carnwath preferred the view of Lord Hoffmann that "this list is best regarded, not as [a] series of independent tests which must each be surmounted, but rather as a collection of different ways in which judges have tried to express the central idea that the proposed implied term must spell out what the contract actually means".
BDW Trading v Fitzpatrick: Freezing orders and whether court has jurisdiction to order disclosure re payments from third party
http://www.bailii.org/ew/cases/EWHC/Ch/2015/3490.html
The applicant alleges that the respondent (its employee) received bribes from the applicant's sub-contractors. A freezing injunction made against the respondent ordered him to provide an affidavit setting out what assets were bought with monies from the sub-contractors and who now holds those assets (thus allowing the applicant to potentially pursue a tracing claim). It is a principle of English law that an agent who receives a bribe in breach of his fiduciary duty holds those monies on trust for his principal, who has a proprietary remedy in respect of them.
The respondent sought to argue that the court could only make the order that it did pursuant to the Norwich Pharmacal jurisdiction (and an order under that jurisdiction could not be justified here). That argument was rejected by Behrens HHJ, who said that "I do not accept that the equitable jurisdiction and the Norwich jurisdiction are part and parcel of the same jurisdiction". Here, the applicant has a potential tracing remedy and no other method of finding out what has happened to monies received from the subcontractors and there was no reason to believe that the subcontractors themselves would know. Accordingly, the more stringent requirements of the Norwich Pharmacal jurisdiction did not apply here.
The judge also accepted that this was a case where the respondent should not be allowed to dispose of assets "in the ordinary course of business", since it had not been explained how the respondent's business carried out any legitimate business. The applicant was also given permission to use information disclosed by the respondent in separate disciplinary proceedings brought by the applicant against the respondent.
Egiazaryan v OJSC: Court decides which law should govern the issue of whether a party can be joined to an arbitration
One of the issues in this case was which law governed the issue of whether a party which was not a signatory to the arbitration agreement is entitled, or bound, to be a party to the arbitration. The example was given of whether a victim can be a party to an arbitration between a tortfeasor and its insurer, although this case concerned a provision of the Russian Civil Code which made one of the respondents liable in respect of the contractual obligations of its dependent company (the latter having entered into an arbitration agreement with the claimant).
Burton J held that although the question of who is a party to the arbitration agreement is governed by English law where the arbitration agreement is subject to English law (ie the substantive, rather than procedural, law of the arbitration), a different question arises where the question is whether there is jurisdiction over a non-signatory to the arbitration agreement. In such a situation, English conflicts rules will or may address another system of law. So, here, Russian law would determine the issue of whether the respondent in question could be joined to the arbitration.
Insurance Company of the Bahamas Ltd v Antonio: Privy Council considers whether motor policy covered an accident
http://www.bailii.org/uk/cases/UKPC/2015/47.html
The Bahamas has no equivalent of the UK's Motor Insurers' Bureau (ie a compensation fund for the victims of uninsured drivers). The Court of Appeal of the Bahamas in this case had held (somewhat controversially) that the claimant's claim against the negligent driver of a bus owned by a bus company (CCT) fell within the scope of the policy issued to CCT, even though the driver had not been listed as one of the 11 authorised drivers in the insurance certificate.
That decision has now been overturned by the Privy Council. It had been argued that the focus should be on the policy, rather than the certificate, but the Board has held that "it is clear that the policy must be read with the Certificate. The Certificate is not only said in the policy Introduction to "comprise" part of and be "the most important component of" the policy, it is in any event referred at various key points in the policy". Furthermore, the policy itself was clear as to its scope. It was wrong to suggest that the driver in this case should be covered in order to give "business efficacy" to the policy: The policy did cover drivers, but they had to be listed as authorised drivers.
In reaching its decision, the Board agreed with the Court of Appeal that the legislature should consider introducing measures to tackle this issue and to ensure that the victims of uninsured drivers are not left without compensation.
Excess Insurance & Ors, Re: Court makes some general observations about sanctioning a Part VII transfer
http://www.bailii.org/ew/cases/EWHC/Ch/2015/3572.html
In approving the insurance business transfer scheme in this case, Henderson J noted prior authority to the effect that "it is not the function of the court to ensure that the Scheme is in every respect the best which could have been devised. The parties are entitled to design the scheme which suits their commercial objectives, and the task of the court is then to consider whether the scheme before it is fair". Here, one of the central features of the scheme was to replace the disparate protections currently available to policyholders. Provided that the terms used are fair to all concerned, there was no reason for the court to withhold its approval.
A further point was that legal advice had been obtained from a QC at one point to answer various issues connected to the scheme. The independent expert had referred to this advice in his report but did not attach or exhibit it (presumably because of confidentiality/privilege concerns). The judge was critical of that approach: "In the interests of transparency... it is important that all significant material upon which an independent expert relies in evaluating a scheme and reaching his conclusions should (where reasonably possible) be available for review by the court and interested parties". However, the position would be different if the expert had taken legal advice regarding some aspect of his task. The judge also accepted that "different considerations may well apply to the disclosure of material which is commercially sensitive, including regulatory information of a sensitive nature whether provided to, or produced by, the regulators".
In the Matter of the Iraqi Civilian Litigation: Court of Appeal considers the application of a foreign limitation period
http://www.bailii.org/ew/cases/EWCA/Civ/2015/1241.html
Section 1 of the Foreign Limitation Periods Act 1984 provides that if a foreign law applies in English proceedings, then that foreign law will apply to any limitation/time bar arguments too. The short point in this case was whether that principle applied where the foreign procedural law (and not its limitation law) has an effect on limitation.
In this case, Iraqi law provided for a three year limitation period for bringing a claim, but the claimants sought to argue that that period had been suspended because of a provision of the Iraqi Civil Code (which states that the limitation period is suspended where an impediment makes it impossible for the claimant to bring his claim). At first instance, the judge found that the claims were not time barred.
The Court of Appeal has now allowed the appeal from that decision. Section 4(1) of the 1984 Act provides that "references in this Act to the law of any country ... relating to limitation shall, in relation to any matter, be construed as references to so much of the relevant law of that country as (in any manner) makes provision with respect to a limitation period". It was held that the impediment to bringing a claim in this case was a procedural one, rather than part of the Iraqi law on limitation, and hence was not to be given effect by the English court. As Vos LJ put it "Neither a provision for immunity nor a provision for exclusive jurisdiction, as I have said, makes any provision with respect to a limitation period... Whilst the provisions may, as a result, relate indirectly to the interruption of the limitation period, that does not make them provisions with respect to a limitation period, which they are also required to be if they are to fall within the section 4(1) definition".
Various Claimants v McAlpine: Whether a costs budget had been agreed
CPR r3.15(2)(a) provides that a costs management order will record the extent to which the budgets are "agreed" between the parties. One of the issues in this case was whether the defendants' budget had been agreed. A document entitled "Claimant Solicitors' Steering Group Objections to the Costs Budgets 'Precedent H' served by the Defendants" had stated as follows:
"Where an objection has not been raised in respect of the Defendants' anticipated costs, it may be assumed the same is agreed for the purposes of the costs management exercise. However the Claimants reserve the right to raise further objections on detailed assessment. The absence of dispute in the table below is therefore subject to the Claimants' rights on detailed assessment to challenge unreasonable or disproportionate costs."
It was held that: "Where the Claimants have not objected to the Defendants' anticipated costs they will be treated as agreed costs for the purposes of this costs management exercise. Accordingly it is necessary to consider with care what has been agreed between the parties. The purpose of costs budgeting is to reach a figure for each phase of the budget in respect of estimated costs for the future ... That being so agreement for the purposes of Rule 3.15(2)(a) must mean agreement as to the total figure for each phase. It follows that agreement as to all constituent elements of a phase is necessary to constitute agreement of that phase for the purposes of Rule 3.15(2)(a)".
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.