UK: (Re)Insurance Weekly Update 16 -2017

Last Updated: 12 May 2017
Article by Nigel Brook
Most Read Contributor in UK, December 2017

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

This Week's Caselaw

EMW Law v Halborg: Judge rules on various issues relating to without prejudice privilege

A solicitor delegated work to another firm of solicitors. When the underlying litigation between the solicitor's clients and their opponent settled, the agent-solicitors were not paid their costs and they commenced proceedings against the principal solicitor. Of issue in this case was whether the agent-solicitors were entitled to disclosure of without prejudice documents produced when the principal solicitor had conducted settlement negotiations with the solicitors for the opponents in the underlying litigation. Various issues concerning without prejudice privilege were considered by Newey J, including the following:

(1) Can a party which is entitled to claim without prejudice privilege show a privileged document to a third party? It is an accepted principle that without prejudice privilege can be waived only with the consent of both parties. However, the judge said that a voluntary disclosure differs from compulsory disclosure during litigation: "The fact that a party to without prejudice negotiations is entitled to withhold communications within their scope on disclosure cannot mean that he is not free to show them to someone else if he so chooses, at least if there is a legitimate reason for doing so. Were the position otherwise, a litigant might find himself unable to provide relevant documents to, say, an expert unless and until the other side agreed, which would be absurd".

(2) The judge held that the agent-solicitors could not rely on common interest privilege to insist on seeing without prejudice communications: common interest privilege is a shield, not a "sword".

(3) One of the well-established exceptions to the without prejudice rule is if the court needs to look into the issue of whether or not there was an agreed settlement.  Newey J held that that exception could apply here even though no one involved in the without prejudice correspondence was alleging that an agreement had been reached: "On any view, the concluded agreement exception means that [a party to without prejudice negotiations] runs the risk of the correspondence becoming admissible because his opponent alleges that the negotiations resulted in an agreement. The extent of the risk arising from the exception does not seem to me to be significantly increased if it is understood as allowing not merely a party to the negotiations, but someone else with a legitimate interest in their outcome, to rely on it".

(4) A further exception to the without prejudice rule applied here too: where one of the issues is whether a party has acted reasonably to mitigate its loss. Newey J held that this can be a valid exception to the rule, and it did not matter whether the issue had been raised by a party to the without prejudice negotiations or by a third party: "There is a persuasive argument that if, as here, a client authorises his solicitor to employ an agent on the footing that the agent's remuneration depends on what (if any) agreement as to costs is reached with the other side, the client can hardly complain if his negotiations with the opposing party are susceptible to being revealed to and relied on by the solicitor-agent".

Accordingly, the principal solicitor could not rely on the without prejudice rule to decline disclosure of the relevant documents. However, legal professional privilege could be relied on in relation to certain other documents, the judge finding that "the mere fact that a solicitor delegates work to an agent does not mean that the client has waived privilege, so that the agent can demand disclosure of documents other than those provided to him in the course of his agency".

COMMENT: The judge's conclusion that a document protected by without prejudice privilege can be shown by one party to a third party without the consent of the other negotiating party (if for a "legitimate reason") is of interest. In French v Groupama  (see Weekly Update 37/11) a (probably) privileged (without prejudice) offer was shown by one party (the offeree) to a third party, with the consent of the other party (the offeror). Rix LJ declined to decide whether privilege could be waived unilaterally, without the offeror's agreement and concluded that the matter was "not clear". It may therefore be safer for parties to expressly agree at the outset that documents protected by without prejudice privilege cannot be disclosed to third parties, if this is a concern.

It is also noteworthy that the judge described common interest privilege as a shield and not a sword. He relied on commentary taken from Thanki, The Law of Privilege to reach this conclusion. However, there is other textbook commentary, not referred to in the judgment, which suggests that it can be used as a sword in certain circumstances (see eg Phipson on Evidence, 18th edn, para 24-05 and Passmore on Privilege, 3rd edn, para 6-063).

Dennis v Tag Group: Whether defendant had submitted to the jurisdiction by resisting an injunction application

The defendants are a Jersey and Bahraini company. The English solicitors of the Bahraini company advised that they were not instructed to accept service of the claim form and stated that "all our client's rights, including as to jurisdiction...are fully reserved". The claimant then issued an application for an injunction and the defendants participated in, and resisted, that application. It was argued that they had thereby submitted to the jurisdiction of the English court. The respondents countered that they had had no real option but to defend the injunction and that this should not be treated as a submission to the jurisdiction.

It is an accepted principle that a person who appears merely to contest the jurisdiction of the English court does not thereby submit. It must instead be shown that he/she has taken some step which is only necessary or useful if the objection to jurisdiction had been waived. The defendants sought to argue that the position is different in relation to injunctions because there is no acknowledgement of service form (alerting the defendant that it can contest jurisdiction) and a party is entitled to defend an injunction application without being taken to have submitted to the jurisdiction.

The judge held that those arguments arose from a mis-reading of earlier cases and that there was no special carve-out for injunction applications: "It would be perfectly possible to defend such an application by contesting jurisdiction at the hearing of the injunction". Similarly, if a defendant seeks a declaration that the English court has no jurisdiction and at the same time applies separately for security for costs, that will not amount to a voluntary submission.

Furthermore, the language used by the solicitors did not protect the defendants: "To reserve is not the same as informing the Court or other party that "we are not properly here"". The language used did not inform the court that the respondents intended to challenge jurisdiction.

Godfrey Morgan v Armes: Whether a defendant can be added, in the alternative, after the end of the limitation period

CPR r19.5(3)(a) provides that, after the expiry of the limitation period, a new party may "be substituted for a party who was named in the claim form in mistake for the new party". The Court of Appeal confirmed in this case that it is not possible for a court to allow a new party to simply be added to proceedings after the expiry of the limitation period. The issue in this case was whether the addition of a defendant in the alternative to the existing defendant is permissible after the end of the limitation period.

The Court of Appeal has now confirmed that that is not permissible: "In my opinion, the concept of "substitution in the alternative" does not have any basis in CPR Part 19.5(3)(a). The introduction of the [new party] as a defendant amounted to the addition of a new party outside the limitation period not sanctioned by the rules...CPR 19(5)(a) is concerned with substitution. Save for the limited circumstances envisaged in the Adelson case, where an existing party may remain in the action after another has been substituted on a cause of action by cause of action basis, that rule requires the party named by mistake to fall out of the proceedings and for the new correctly named party to stand in its place". (as per Burnett LJ)

(Re)Insurance Weekly Update 16 -2017

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