UK: (Re)insurance Weekly Update 15- 2016

Last Updated: 9 May 2016
Article by Nigel Brook

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

This week's caselaw

Hyundai Marine & Fire v Houlder Insurance Services & Anor: Court decides whether a standstill agreement covers a fraud claim against a broker

In Satyam Computer v Upaid (see Weekly Update 20/08), the Court of Appeal concluded that the clearest possible specific language is required to exclude a claim for fraud from a settlement agreement (the existence of which was unknown at the time the settlement agreement was signed).

In this case, the agreement in question was a standstill, rather than a settlement, agreement. It was expressed to cover claims which were defined as "any alleged claims, rights or causes of action existing at the date of this Agreement that either party has or may have against the other in the Dispute either now existing or accruing before ...the date of the Standstill Period".

The parties to the agreement were two sub-brokers being sued for negligence by insurance companies when they failed to place a valid reinsurance contract. Cooke J concluded that the evidence was now clear that one of the parties to the agreement (HIS) had not appreciated that the other, HIB, had been deceiving both HIS and other entities as to the level of commission which it had received. The issue was therefore whether the standstill agreement covered that claim (and so could not be pursued until the conclusion of the main action between the insurance companies and the brokers).

HIB sought to argue that standstill agreements are different from settlement agreements because they do not prevent the pursuit of claims, they merely postpone their pursuit until a given time. However, the judge said that the court must still "approach a standstill agreement with caution in deciding whether claims for unknown fraud are encompassed by it".

Although the wording in the agreement here was very wide, it was held that it "cannot be taken to encompass a previously unknown claim for fraud, particularly where that fraud has allegedly resulted in the ignorance of the victim at the time of concluding the Standstill Agreement".

COMMENT: This case may be contrasted with the Court of Appeal's decision last year in Mortgage Express v Countrywide Surveyors, where it was held that the standstill agreement in question did cover a claim in deceit. There the wording of the standstill agreement had been "any claim any way connected with [the background to the case]", and the claim for deceit had been so connected (and the alleged deceit had not resulted in the ignorance of the victim at the time of concluding the standstill agreement). Accordingly, care should be taken when defining a "claim" in a standstill agreement, to ensure it reflects the parties' intentions.

S v A & B: Application to extend time to challenge an arbitral award where award was released late due to non-payment of arbitrator's fees by other side

Section 70(3) of the Arbitration Act 1996 provides that any challenge to, or appeal from, an arbitration award must be brought within 28 days of the date of the award. The award here was dated 27th March and so the deadline for a challenge/appeal was 24th April. The claimant paid its share of the arbitrator's fees shortly before the deadline but the defendants paid their share of all outstanding fees on or about 29th May. The award was released on 20th June and the arbitration claim form issued on 7th July (ie 74 days after the statutory time limit). The claimant sought an extension of time under section 80(5) of the Act. Eder J rejected that application for the following reasons:

(1) Applying the principles set out in Terna Bahrain v Al Shamsi (see Weekly Update 43/12), it was appropriate to consider the merits of the challenge and appeal first, before considering the extension of time application (even though no challenge/appeal could be brought if the application was not brought in time). That was because the strength of the challenge/appeal was a factor to be taken into account when deciding whether to extend time.

(2) Leaving aside the strength of the challenge/appeal, there were other relevant factors which very strongly pointed against the grant of an extension. A delay of even a few days was said to be significant – here, to allow a party such a significant period of delay would undermine the policy of the Act, with its emphasis on speed and finality.

(3) If the claimant had wanted to reserve the right to bring a challenge/appeal, it should have paid all of the fees itself up-front, notwithstanding an arrangement between the parties to split the chairman's fees and pay their own appointed arbitrator themselves: "In that context, I bear in mind the mandatory provision of section 28(1) of the Act that imposes a joint and several liability of parties to pay the arbitrators' reasonable fees and expenses".

(4) Although it was "very surprising" that it had taken the tribunal some 22 days after payment of the outstanding fees to release the award, the claimant had been inactive during this period and had not asked the defendant if/when the fees would be paid. The further delay of 17 days after the award was released before the issue of proceedings, although not unreasonable in itself, had to be seen in context.

(5) In any event, the challenge and appeal would have been refused on their merits.

TBO Investments v Mohun-Smith: Court of Appeal clarifies test for setting aside judgment where defendant failed to attend trial

The defendant's representative failed to attend trial, having been signed off sick for stress by his GP. The trial judge refused an adjournment and entered judgment for the claimant. The defendant appealed against that decision and when that appeal was dismissed, he appealed to the Court of Appeal.

The judge had relied on guidance given in Levy v Ellis-Carr [2012] (which was approved by the Court of Appeal in an earlier decision) that medical evidence should give details of the doctor's familiarity with the party's medical condition, identify with particularity the patient's medical condition (and what prevents him attending trial) and provide a reasoned prognosis (those pre-conditions were held by the judge to be lacking in this case).

The Court of Appeal has now held that the judge had adopted too strict an approach. It held that there is a difference between an application to adjourn a trial (which had been the situation in Levy) and an application to set aside judgment. If an application to set aside a judgment fails, the applicant will have no opportunity whatsoever to have an adjudication by the court on the merits. Accordingly, the guidance in Bank of Scotland v Pereira (see Weekly Update 10/11) should be applied and the court should not adopt too rigorous an approach. On the other hand, it is not the case that any assertion by a party, supported by a sick note, that it did not attend the trial for reasons of ill health will be accepted by the court.

On the facts, the Court of Appeal found that the judge had erred in finding no good reason for the defendant not attending the trial and the appeal was allowed.

(Re)insurance Weekly Update 15- 2016

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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