UK: (Re)Insurance Weekly Update 42- 2016

Last Updated: 29 November 2016
Article by Nigel Brook

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

PricewaterhouseCoopers v SAAD: Privy Council considers entitlement to costs of preparing to comply with a third party disclosure order

The liquidators of two companies sought third party disclosure of PwC's working files in Bermuda. An order was obtained (pursuant to a Bermudian statute) and PwC applied to discharge that order. That application was refused but the judge extended time for compliance with the order. The disclosure order was subsequently quashed by the Bermudian Court of Appeal. PwC then sought to recover its costs of preparing to comply the order before it was quashed (some USD 250,000, said to derive from about 1,500 hours of staff work).

The Privy Council has now dismissed that application.

It rejected an argument that the judge should have ordered the liquidators to give an undertaking for PwC's costs of complying with the disclosure order, against the possibility of a successful appeal. The Privy Council pointed out that undertakings are voluntary, being the "price" the applicant pays in order to be granted the relevant order.

Nor was the disclosure order defective because it did not contain provision for PwC's costs of compliance. PwC had sought to draw an analogy with applications for eg a Norwich Pharmacal order, where it is established practice for the third party's costs of complying with the order to be protected. The Privy Council pointed out that this was not a Norwich Pharmacal case, since there was no suggestion that PwC was mixed up in any tort, and there was no authority dealing with this sort of situation.

There was some sympathy with the view that the third party should be entitled to the costs of compliance with the order, but here, no actual compliance ever took place, because the order was set aside on appeal. It was held that "PwC are seeking precisely what they never asked for at the time, that is, not the costs of compliance, but protection in respect of preparatory costs thrown away as a result of a successful appeal which meant that they did not have to comply. Such protection is achieved, if at all, by appealing, seeking an extension of time for compliance or a stay of execution pending the determination of the appeal, and, if this is resisted, insisting as a condition of the refusal of an extension or stay, on an undertaking in damages to cover costs wasted".

COMMENT: Accordingly, the Privy Council has explained the correct course of action for a third party served with a disclosure order which it seeks to appeal. Should no appeal be brought, the Privy Council has also confirmed that the third party should probably be entitled to its costs, just as it would be in respect of a Norwich Pharmacal order. One further point of interest: the Privy Council clearly proceeded on the basis that the correct test for a Norwich Pharmacal order is whether or not the third party is mixed up in the wrongdoing. However, that test has been the subject of some judicial debate recently (not referred to by the Privy Council), Mann J in in Various Claimants v News Group Newspapers (see Weekly Update 27/13), having held that the only requirement is that the respondent should not be a mere witness.

UPL Europe v Agchemaccess Chemicals: Costs consequences of failing to discuss expert evidence with other side

The claimants applied to court for an order revoking permission for the defendants to rely on certain expert evidence, and for sequential exchange of expert reports. At the hearing, the claimants did not press for this relief, though, and instead the parties were ordered to engage in discussions about expert evidence, and to meet with their experts in order to try to agree the scope of the evidence and prepare a joint statement.

Chief Master Marsh held that an order for costs should be made in favour of the claimants. An application to court had been necessitated by a lack of engagement by the defendants. It was held that "In almost every case where expert evidence is permitted by exchange of reports it is desirable for there to be discussion about the scope of the issues under consideration...Whether the discussion is best held between the lawyers or between the experts (or both) will depend upon the case and the issues which arise. It is clear, however, that in every case the parties must co-operate in the process of producing expert evidence with a view to ensuring, as far as possible that the exercise is properly focussed. The result should be that the reports are shorter and deal only with the core issues upon which expert evidence is required...Whether the discussion is best held between the lawyers or between the experts (or both) will depend upon the case and the issues which arise. It is clear, however, that in every case the parties must co-operate in the process of producing expert evidence with a view to ensuring, as far as possible that the exercise is properly focussed. The result should be that the reports are shorter and deal only with the core issues upon which expert evidence is required".

Although the original court order hadn't required the parties to engage in active discussion, the defendants had failed to comply with their to duty help the court to further the overriding objective of enabling the court to deal with cases justly and at proportionate cost. Their conduct could be taken into account when considering the costs of the application.

Star Polaris v HHIC-Phil: Interpretation of exclusion clauses and the meaning of consequential losses

This case is an appeal from an arbitrator's award which concerned the construction of a clause in a shipbuilding contract. Two points of general interest were discussed by the judge:

(1) The interpretation of exclusion clauses: the judge confirmed that "Although it can no longer be said that exclusion clauses are to be read narrowly when they appear in commercial contracts between sophisticated parties - the wording must be given its ordinary meaning - where there is ambiguity the contra proferentem rule may play a role". This finding mirrors the recent decision in Impact Funding v AIG (see Weekly Update 38/16), in which the Supreme Court also held that exclusions should not always be construed narrowly.

(2) In the recent Court of Appeal case of Transocean Drilling v Providence Resources [2016], Moore-Bick LJ cast doubt on the meaning given to the phrase "consequential losses" in a number of cases. Those cases have held that the phrase covers only damages falling within the second limb of the rule in Hadley v Baxendale (ie losses will be recoverable if they are particular losses (in other words, not losses which may fairly and reasonably be considered as arising naturally) which may reasonably be supposed to have been in the contemplation of both parties as the probable result of the breach, at the time they made the contract).  Moore-Bick LJ said that "It is questionable whether some of those cases would be decided in the same way today, when courts are more willing to recognise that words take their meaning from their particular context and that the same word or phrase may mean different things in different documents".

In this case, it was held that the phrase "consequential or special losses, damages or expenses" did not mean such losses etc as fall within the second limb of Hadley v Baxendale, but instead had a wider meaning of financial losses caused by guaranteed defects (above and beyond the cost of replacement and repair of physical damage), and were therefore excluded here. That was because "the Contract shows that this well-recognised meaning was not the intended meaning of the parties and that the line of authorities is therefore nothing to the point".

(Re)insurance Weekly Update 42- 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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