UK: (Re)insurance Weekly Update 27- 2017

Last Updated: 8 August 2017
Article by Nigel Brook
Most Read Contributor in UK, November 2017

Assens Havn v Navigators: CJEU holds that third party bringing a direct action against a marine insurer is not bound by jurisdiction/choice of law agreement between insurer and insured

Under Regulation 44/2001 (which has since been replaced by Regulation 1215/2012, but the relevant provisions in this case have remained the same), special jurisdiction rules apply to insurance (but not reinsurance) contracts. Broadly, an insured can only be sued in the place of his domicile although the insured can sue its insurers in his own domicile, or that of the insurers, or in the place of the loss (usually that position applies even if there is a valid jurisdiction clause, but there are some exceptions, one of which is referred to further below). The Regulation further provides that an injured third party which is allowed under local law to bring a direct action against an insurer is also permitted to sue the insurers, in his own domicile, or that of the insurers or in the place of the loss. Of issue in this case is whether a valid jurisdiction clause in the insurance contract can override that position in respect of the injured third party. The CJEU has now held that it cannot.

The facts of the case are that a Swedish charterer took out liability insurance with the UK insurer. The vessel caused damage to the Port of Assens in Denmark, which sought to bring a subrogated claim against the insurer under Danish law when the Swedish charterer/insured went into liquidation. The insurance policy contained an English choice of law and jurisdiction clause and the issue was whether the Danish courts nevertheless could hear the claim brought by the Port of Assens.

The fall-back provisions regarding jurisdiction and insurance referred to above can be departed from by (amongst other things) a jurisdiction agreement which relates to a policy which covers risks set out in Article 14 of Regulation 44/2001 (which includes "any liability....arising out of the use or operation of ships..."). However, it was held that that article does not apply to direct action claims brought by an injured third party – it only applies to actions between the insurer and the insured. Hence the third party was not bound by the English jurisdiction clause: "The view must therefore be taken that an agreement on jurisdiction made between an insurer and an insured party cannot be invoked against a victim of insured damage who wishes to bring an action directly against the insurer before the courts for the place where the harmful event occurred... or before the courts for the place where the victim is domiciled".

COMMENT: The Third Parties (Rights against Insurers) Act 2010 is the UK equivalent of the Danish Act which gave rise to the third party direct action against insurers in this case. It applies where the insolvency procedure takes place under the law of one of the parts of the UK. However, jurisdictional issues regarding where that claim should be brought are governed by Regulation 44/2001 or, now, Regulation 1215/2012. Although marine and aviation and "large risks" insurers can in certain circumstances contract out of the jurisdictional rules laid down by the Regulations in their policies, this case confirms that that contracting out will not affect the ability of an injured third party which can bring a direct action against insurers to rely on those jurisdictional rules. Whilst (as the CJEU pointed out) the third party never directly contracted out of jurisdiction in the first place, the decision is noteworthy because the third party's claim is still a subrogated/assigned claim and usually third parties can have no better rights than the insured into whose shoes they step. Nor will insurers be able to protect themselves against this risk, in the absence of the third party's agreement.

Ras Al Khaimah v Bestfort: Court of Appeal sets out test for whether defendant has assets for a freezing order application and considers the impact of delay in applying

The first instance decision in this case was reported in Weekly Update 43/15. The judge refused to grant worldwide freezing orders in favour of the applicants (based in the UAE and Georgia) against the respondents (LLPs registered in England and Wales and owned by a Georgian national) in support of proceedings taking place overseas. Her decision was in part based on A v C [1981], which is authority for the proposition that a claimant will only be entitled to a freezing order if the defendant has assets which will be caught by the order – the court will not make an order which is futile. She was not satisfied that there were substantial assets held by the respondents anywhere in the world. She also held that there had been considerable delay in bringing the application, and therefore the defendant would have had ample opportunity to dissipate assets during that time had he been so inclined, and so the risk of dissipation could not be proven. The Court of Appeal has now allowed the appeal from that decision. It held as follows:

(1) The test for showing that a respondent has assets which will be caught by the order was not merely that the defendant is wealthy and therefore must have assets somewhere. Instead, the correct test is that there are "grounds for belief" that the respondent has (or is likely to have) assets: "That is not an excessive burden but if an order is sought against numerous companies or LLPs and those companies and LLPs can show that there is no money in their accounts and the claimant cannot show that the account has been recently active, it may well be right to refuse relief".

(2) Risk of dissipation. The Court of Appeal held that, whilst a failure to obey court orders might invite adverse inferences to be drawn, "it does not follow that compliance with a court order will negative a risk of dissipation if that risk has already been found to exist".

On the issue of delay, the Court of Appeal found that the delay in making the application had not been as long as the judge had found (ie it was in fact only about a month). That was far shorter than the delay in the case of Anglo-Financial v Goldberg (see Weekly Update 37/14, in which the delay had lasted several years), on which the judge had relied to find that delay had negatived the risk of dissipation.

The Court of Appeal noted that delay usually gives rise to two arguments:

(a) An applicant does not genuinely believe there is any risk of dissipation. The Court of Appeal said that that argument is open to the objection that it is the fact of the risk that matters, not whether the claimant believes in it; and

(b) A defendant who is prone to dissipate will have already done so by the time the court is asked to intervene. The Court of Appeal commented that this "argument assumes that a defendant is already of dubious probity and it is a curious principle that would allow such a defendant to rely on his own dubious probity to avoid an order being made against him".

The Court of Appeal found no reason on the facts here to counter the finding of a risk of dissipation because of delay.

COMMENT: The Court of Appeal's comments on the impact of delay on an application for a freezing order are noteworthy. Prior caselaw has tended to take this into account as a factor (depending on all the circumstances of the case), but usually for the reasons cited above which the Court of Appeal appears to have generally discounted. However, the Court of Appeal did not go so far as to hold that Anglo-Financial v Goldberg was wrongly decided: instead, it appears to have distinguished this case on the basis of the length of the delay.

Atlantisrealm v ILI: Court of Appeal considers inadvertent disclosure in a "two solicitors" situation

CPR r31.20 provides that, where a party inadvertently allows a privileged document to be inspected, the party who has inspected it may use it (or its contents) only with the permission of the court. Caselaw has clarified that, in the absence of fraud, the court may grant an injunction only if there has been an "obvious mistake", which in turn means either the solicitor who received the document appreciated a mistake has been made or it would have been obvious to a reasonable solicitor in his position that a mistake had been made. In Rawlinson & Hunter v Director of the SFO (see Weekly Update 30/14), the Moore-Bick LJ said that "once it is accepted that the person who inspected a document did not realise that it had been disclosed by mistake, despite being a qualified lawyer, it is a strong thing for the judge to hold that the mistake was obvious". Just because a disclosed document had obviously been privileged did not mean that it was also obvious that a mistake had been made in disclosing the document. Some documents may be so sensitive that it will be obvious that a mistake has been made, but that will often not be the case.

In this case, a privileged document was disclosed by the defendant to the claimant because it had not been flagged as privileged by a junior member of the defendant's review team, and so was not referred to the more senior lawyer working on the case. At first instance, the judge accepted that the claimant's solicitor who had reviewed the disclosed document had not appreciated that it had been disclosed by mistake and refused to order the deletion of the privileged document.

On appeal, the Court of Appeal accepted that it could not go behind this finding of fact. However, in this case, the solicitor who had reviewed the privileged document had then passed it on to a more senior colleague. This was therefore a "two solicitors" situation, which has not previously been considered in the authorities.

The Court of Appeal held that the more senior colleague had appreciated that the document had been disclosed by mistake (he had drawn it to the attention of the defendant's more senior solicitor in the belief that the latter was unaware of it). It went on to add a "gloss" to the principles laid down in earlier caselaw: "If the inspecting solicitor does not spot the mistake, but refers the document to a more percipient colleague who does spot the mistake before use is made of the document, then the court may grant relief. That becomes a case of obvious mistake".

COMMENT: As in Rawlinson & Hunter, the Court of Appeal's decision again concentrates on the recipient's actual knowledge (when deciding whether an obvious mistake was made by the disclosing party), rather than on what the recipient ought to have known about the disclosing party's intentions. The decision makes clear that it will be the knowledge of all the members of the reviewing team which will be relevant, rather than simply the first solicitor to look at the inadvertently disclosed document, where that document has been shown to other members of the team.

(Re)insurance Weekly Update 27- 2017

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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