UK: (Re)Insurance Weekly Update 7- 2016

Last Updated: 29 February 2016
Article by Nigel Brook

A summary of recent developments in insurance, reinsurance and litigation law.

This week's caselaw:

Heneghan v Manchester Dry Docks: Court of Appeal considers whether several employers were liable in full or proportionately where exposure to asbestos caused lung cancer

The first instance decision in this case was reported in Weekly Update 47/14. The claimant employee was exposed to asbestos over the course of his working life, during which he was employed by the six defendant employers. He died from lung cancer and the issue in this case was whether each defendant was liable and, if so, whether it would be liable in full or in part. The parties agreed that the claimant's cumulative exposure to asbestos had increased his risk of developing lung cancer fivefold. Since the claimant was also a smoker, this risk had further increased by a multiple of five.

Following the decision in Fairchild v Glenhaven Funeral Services Ltd (2002), a defendant to a mesothelioma claim is liable if the negligent exposure "materially increased the risk" of the claimant developing the disease. This is an exception to the normal common law rule that a claimant must show, on the balance of probabilities, that the defendant's tort caused his injury (applying the "but for" test). This exception was developed because for mesothelioma it is impossible to say which exposure to asbestos triggered the disease. It resulted in an employee being able to sue any one of his employers in full.

At first instance, the judge held that lung cancer should be treated in the same way as mesothelioma, as the two were "legally indistinguishable". However, the judge also held that apportionment between the employers was appropriate in this case.

The claimant appealed against that finding, arguing that an "intermediate" category between the conventional approach and Fairchild applied here. He sought to rely on the case of Bonnington Castings Ltd v Wardlaw [1956], which involved a divisible disease (ie one whose severity increases with increased exposure to the agency). There it was held that a defendant will be liable in full if his breach of duty made a "material contribution" to the disease itself (rather than the risk).

This is the first time that the Court of Appeal has considered whether the Fairchild exception applies to a case of multiple exposures leading to lung cancer, rather than mesothelioma. It held that it does and that Fairchild can be applied to cases which are "truly analogous" to mesothelioma (and it was said that there was some support for that view in IEG v Zurich (see Weekly Update 18/15). The Court of Appeal also held that, on the medical evidence, this was not a case like Bonnington Castings. This was not a case where the additional dust exposure caused by the defendant's breach of duty had a "cumulative" effect by adding to the total dust exposure – in other words, it could not be said that each period of exposure materially contributed to the development of the cancer. Accordingly, apportionment was appropriate.

COMMENT: Caselaw has been developing a "Fairchild enclave", ie extending the Fairchild exception to cases outside of mesothelioma. The precise scope of this enclave, and the types of illness or disease which fall within it, are still being worked out by the courts. So, for example, in Novartis v Grimsby, the Court of Appeal opined that it was "highly arguable" that the exception could apply to bladder cancer. The Court of Appeal has now confirmed in this case that the exception could, in certain circumstances, also apply to lung cancer. The courts have sounded a note of caution in the past, though. For example, Lord Brown observed in Sienkiewicz v Greif (UK) Ltd [2011] that: "the unfortunate fact is that the courts are faced with comparable rocks of uncertainty in a wide variety of other situations too, and that to circumvent these rocks on a routine basis would turn our law upside down and dramatically increase the scope for what hitherto have been rejected as purely speculative compensation claims".

Pyrrho Investments Ltd v MWB Property: English court approves the use of "predictive coding" in an e-disclosure exercise for the first time

"Predictive coding" (also known as technology, or computer, assisted review), is a method whereby software analyses documents and "scores" them for relevance, and thereby reduces both the time and costs needed to complete an electronic disclosure exercise. Typically, the parties agree a protocol and a representative sample of potentially relevant documents is then obtained. The judge in this case advised that "best practice" would be for a single, senior lawyer, who has mastered the issues in the case, to then consider the initial representative sample (marking it as relevant or not), in order to "train" the software to review the whole document set. Further statistical sampling by humans (usually taking at least 3 rounds) is then conducted to ensure the quality of the exercise. Once an acceptable level of accuracy is reached, the software then categorises all the documents.

In this case, the parties had agreed the use of predictive coding, but had sought approval for this from the court. Other than a fleeting reference to predictive coding in one earlier case, there has been no other consideration of this issue by the English courts to date. However, other jurisdictions (such as the US and Ireland) have endorsed the use of this software.

Master Matthews has now given his approval to the parties to use predictive coding. He noted that nothing in the rules/practice directions prohibits its use and there is no evidence that it leads to less accurate disclosure (indeed, it can be more accurate and consistent). In this particular case, a full manual review of over 3 million documents would be unreasonable. Predictive coding would also cost far less than the full manual alternative. Since the "value" of the claims made in this case runs to tens of millions of pounds, the estimated costs of using the software were proportionate.  It was also of relevance that the trial would not take place for over a year, and so there would be plenty of time to consider other disclosure methods, if that becomes necessary. The Master further noted that the parties had agreed the use of the software.

The Master did caution, though, that: "Whether it would be right for approval to be given in other cases, will, of course, depend upon the particular circumstances obtaining in them".

JSC BTA Bank v Ablyazov & Anor: Court considers tort of conspiracy to injure by unlawful means following breach of a freezing order/whether English court had jurisdiction/where a defendant is domiciled

Following the breach of a worldwide freezing order made against Mr Ablyazov (for which he was found to be in contempt), the claimant bank sought to bring a claim against his son-in-law on the basis that he had allegedly assisted the breach. The cause of action relied upon was the tort of conspiracy to injure by unlawful means. The son-in-law sought to argue that "unlawful means" did not include the breach of a court order, but that argument was rejected by Teare J. Although no prior case has decided that issue, the judge said that his conclusion was supported by the Court of Appeal decision in Surzur v Koros [1999], in which the unlawful means had been the creation of false documents. He also rejected an argument that Digicel v Cable & Wireless [2010] had held that unlawful means which are not actionable or criminal should fail. That case had not considered whether the breach of a court order could amount to unlawful means. It made no difference that, as Teare J found, the court does not have power to order damages for contempt.

A further issue was whether the court had jurisdiction over the son-in-law, who is domiciled in Switzerland. The bank sought to rely on Articles 6 and 5 of the Lugano Convention (the "special jurisdiction" rules):

  1. Article 6. This provides that where the defendant is one of a number of defendants, a court will have jurisdiction if one of the other defendants is domiciled here (provided that the claims are so closely connected that it is expedient to hear them together, which, it was accepted, was the case here). The issue therefore became whether My Ablyazov was domiciled here at the date the proceedings against the son-in-law were commenced. Mr Ablyazov had been domiciled in England until 2012. He then fled the country, fearing (correctly) that he was about to be imprisoned for contempt. After being on the run for some time, he was eventually found, and placed in custody in France, where he is currently awaiting extradition to Russia (not England). The judge held that, "in these unusual circumstances", Mr Ablyazov had abandoned England and no longer had any ties or connection with it. Whilst Mr Ablyazov, arguably, should not be allowed to benefit from his own wrongdoing, that did not affect the son-in-law. Accordingly, there was no arguable case for jurisdiction under Article 6.
  2.  Article 5. This provides that a person may be sued, in matters relating to tort, in the courts for the place where "the harmful event occurred". That phrase covers both the place of the event giving rise to the damage and also the place where the damage occurred.

The damage occurred (ie the bank suffered "harmful effects") in the place where the assets were wrongly dealt with in breach of the freezing order. On the facts of this case, that was not England.

As for the place of the event giving rise to the damage, that was the place where the conspiracy was implemented (not where it was hatched). Again, on the facts, some of the dates on which the various assets were allegedly wrongly dealt with pre-dated the time Mr Ablyazov left the country, and so the bank could establish jurisdiction in relation to those alleged breaches.

JSC Mezhdunarodniy v Pugachev & Ors: Freezing orders and non-disclosure/proving the risk of dissipation

The claimant obtained a worldwide freezing order over assets which are being held under discretionary trusts (on the basis that the defendant had sufficient control over those assets). The trustees sought to discharge that order on two grounds:

  1. That there had been non-disclosure by the claimant when the order was obtained. For example, it was argued that only a "glancing reference" had been made to restrictions registered over certain properties owned by one of the trusts. Mann J agreed that the restrictions were a relevant matter. Any points going to illiquidity have to be disclosed if they are not obvious. However, it was clear that the judge had been fully aware of the point and there had been no need to flag up the issue in a more prominent way. In a separate point, it was held that the claimant did not need to send someone to search the full roll of solicitors held by the Law Society where a publicly available database had provided a nil return. The judge rejected other arguments relating to non-disclosure.
  2. That there had not been sufficient evidence of a risk of dissipation. That argument was also rejected by the judge. The trusts did not have a transparent structure and the evidence showed that the defendant had full powers to appoint and dismiss the trustees. That was sufficient to give rise to a risk of dissipation, even if the defendant could not order the disposition of any trust property: "It is not said that [the defendant] had somehow put in place his own "staff" as directors. The case is more subtle than that. It is said that the new trustees would be expected to do his bidding because if they did not they would be removed, and that that is in fact what happened to the old trustees. I accept that that is a plausible inference from the facts as currently known".

Dawnus Sierra Leone v Timis Mining: Steps a claimant should take when applying for alternative service of the claim form

One of the issues in this case was whether the claimant should be given permission under CPR r. 6.15(1) to serve the claim form and the particulars of claim upon the defendant at an alternative place, namely the offices of its solicitors. The witness statement in support of the application stated that it was not known where the defendant was domiciled and it had been unable to ascertain the defendant's registered address in Sierra Leone. The defendant's solicitors had been asked three times to provide details of the address, but there had been no reply.

The defendant argued that its address could have been ascertained by a search of the Companies Registry in Sierra Leone. A search of the entry for another defendant would have revealed a share certificate which gave the defendant's address in the Cayman Islands.

That argument was rejected by the judge: "It should not be incumbent on a party in the position of [the claimant] to have recourse to that level of research". Although the defendant was under no duty to co-operate with the claimant, that failure was said to be a "highly relevant factor in deciding whether there was a good reason for authorising alternative service". Furthermore, if the defendant's solicitors thought that it was justifiable not to co-operate because they believed the claim was clearly lacking in merit, they should have said so: "A repeated failure to give any response at all to polite requests by another solicitor is discourteous".

(Re)insurance Weekly Update 7- 2016

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