UK: (Re)insurance Weekly Update 14- 2018

Last Updated: 1 May 2018
Article by Nigel Brook
Most Read Contributor in UK, November 2018

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

Engelhart CTP v Lloyd's Syndicate 1221: Court holds that all risks cargo policy did not cover fraudulent documents for a non-existent cargo

The claimant bought copper ingots and re-sold them the same day. However, when some of the containers arrived for transhipment, it was discovered that they contained only slag of nominal value. It was assumed for the purposes of this case that no copper was ever shipped and that the claimant had, in good faith, paid for and taken up fraudulent bills of lading and other shipping documents. The claimant sought an indemnity under its All Risks marine cargo insurance policy and some of the insurers denied liability on the basis that the loss did not fall within the scope of the policy cover.

Sir Ross Cranston has now held that the loss was not covered under the policy. He found that prior caselaw requires a starting position that the purpose of an All Risks marine cargo policy is to cover loss of, or damage to, property. Here, there had been no physical loss of goods: instead, there had never been a cargo of copper ingots. The judge said that "Something must exist to be physically lost. There was no difference between what was loaded and what was discharged".

The judge also noted that "Since an All Risks marine cargo policy is generally construed as covering only losses flowing from physical loss or damage to goods, there must be clear words indicating a broader intention". No such clear wording existed here. The use of the phrase "the broadest coverage shall apply" in the opening clause to the commodity-specific insuring conditions meant only that the broader of the operative conditions and the commodity-specific conditions applied. Nor did any of the specific clauses provide cover for paper losses and fictitious goods, even though the policy was very much broader than the Institute's all risks policy.

Wheeldon Brothers v Millenium Insurance: Court interprets meaning of certain terms used in a property insurance policy

The insured claimed under its insurance policy following a fire at its waste processing plant. The insurers denied liability on the basis of the breach of various conditions precedent and warranties in the policy, and much of the case turns on the underlying facts. However, the judge did consider the meaning of the following terms used in the policy:

(1) "Storage": the policy required the insured "to store materials more than 6 metres from fixed plant and machinery". The insurers argued that materials had to "placed (kept)" 6 metres away, but the judge rejected that argument and instead found that the term "storage" imports "a degree of permanence and a deliberate decision to designate an area to place and keep material".

(2) "Combustible": One of the experts used in the case had noted that some materials which would not normally be considered by a lay person to be combustible would fall under the scientific definition of combustible materials. However, the judge held that: "if the underwriters had intended "combustible" to have a meaning other than that understood by a layperson interpreting the Policy, it was for underwriters to make that express in the Policy. I find that "combustible" as used in the Policy is the meaning which would be understood by a layperson. To take the example given by the experts, a layperson would not consider diamonds and metals to be "combustible"".

On the facts, the judge found that there had not been a breach of any of the conditions precedent or warranties in the policy.

One point of wider significance in the case was the judge's approval of the insured's argument that "In the case of terms such as conditions precedent, the courts generally treat them as onerous or draconian terms". That comment might be contrasted with the decision last year of Denso Manufacturing v Great Lakes (see Weekly Update 19/17) in which the judge noted that recent caselaw indicates that "the hostility to conditions precedent manifested in Re Bradley has been somewhat moderated over the years". However, both judges approved the following quote from MacGillivray on Insurance Law: "Such clauses should not be treated as a mere formality which is to be evaded at the cost of a forced and unnatural construction of the words used in the policy but should be construed fairly to give effect to the object for which they were inserted, but at the same time so as to protect the insured from being trapped by obscure or ambiguous phraseology".

Farah v Abdullahi: Court holds that claim can be brought against unknown driver even if motor insurer has avoided the policy

The claimant was injured after being hit by two cars, one of which was being driven by an unidentified driver. The fourth defendant had insured that car but obtained a declaration that it was entitled to avoid on the basis of material non-disclosure. The main issue in this case was whether the unidentified driver could be included on the claim form.

In Cameron v Hussain (see Weekly Update 19/17), the Court of Appeal held that the claim form could identify a defendant only by description (i.e. "the person unknown" driving the insured car). In this case, the fourth defendant insurer sought to argue that Cameron v Hussain did not apply where there was no "section 151 insurer" (ie an insurer who is statutorily liable to meet the claim). Master Davison has now rejected that argument and held that the position in Cameron v Hussain did not rest on the existence of a section 151 liability. Instead, the question was whether the claim against the unidentified driver was capable of conferring a real benefit on the claimant. He held that it was because: (a) the claimant might challenge the declaration of avoidance (and might be able to rely on ECJ law to the effect that a motor insurer must pay a third party claim even if the policy is void and a provision to the contrary in the Road Traffic Act 1988 (section 152(2) is incompatible with EU law)); and (b) if the avoidance of the policy is upheld, the liability of the Motor Insurers' Bureau to satisfy any judgment in the claimant's favour will fall to be met by the fourth defendant as the "Article 75 insurer".

It was further held that there was no CPR rule which imposes a requirement to obtain permission before issuing against an unnamed party in this type of case. Furthermore, the Master agreed that an order under CPR r6.15 should be made allowing service on the unidentified driver to be made on the solicitors for the fourth defendant. The insurer had a direct and relevant interest in the claim against the unidentified driver and the inability to serve on that driver was a "good reason" for authorising service on the insurer instead: "And given the insurer's strong financial interest in defending the proceedings and of seeking contribution or indemnity from the unnamed driver, service on the insurer may also eventually bring the proceedings to the attention of the driver".

RBRG Trading v Sinocore International: Court of Appeal sets out guidelines where enforcement of an arbitration award is challenged on basis of illegality

Section 103 of the Arbitration Act 1996 provides that the enforcement of a New York Convention arbitration award may be refused if it would be "contrary to public policy" to enforce the award. Prior cases have refused enforcement where there had been illegality relating to the underlying claim. In this case, a judge dismissed the claimant's application for enforcement of an award to be refused. The claimant appealed, arguing (amongst other things) that the judge had failed to apply the correct illegality test and should have applied the Supreme Court's approach in Patel v Mirza (see Weekly Update 27/16) which, broadly, introduced a more flexible approach than just whether a party's case relied on his own fraud.

The Court of Appeal reviewed earlier decisions and set out the following general principles:

(1) The public policy ground should be given a restrictive interpretation and section 103 embodies a pre-disposition in favour of the enforcement of a New York Convention award.

(2) Exceptional circumstances would be needed to re-open a tribunal's determination that there had not been illegality on the facts.

(3) If there is no illegality under the governing law but there is illegality under English law, public policy will only be engaged where the illegality reflects considerations of international, and not purely domestic, public policy.

(4) When assessing if public policy is engaged, the degree of connection between the claim and the relevant illegality will be important. Patel v Miriza did not affect the principles to be applied when considering enforcement under section 103 - it is instead relevant to the question of whether there had been illegality under English law.

Applying those principles to the facts, the Court of Appeal found that there was insufficient connection between the fraud in this case and the claim for enforcement of the award to engage public policy and refuse enforcement.

Akcine Bendrove v Antonov: Judge rules that an undertaking in a freezing order had not been breached by orders obtained abroad

A freezing order granted in favour of the claimant contained an undertaking which provided that the claimant "will not without the permission of the court to seek to enforce this order in any country outside England and Wales or seek an order of a similar nature including orders conferring a charge or other security against the respondent or the respondent's assets". The issue in this case was whether the claimant had breached that undertaking by obtaining orders in both Lithuania and Switzerland restricting the use, or attaching the assets, of the respondent's assets in those countries.

Accordingly, the judge was required to decide whether the undertaking required permission only before taking any steps to enforce the freezing order abroad, or whether permission was also required before obtaining any order, independently of the freezing order, which is similar in nature or effect to the freezing order.

The judge noted that the inclusion of this undertaking originally in freezing orders was intended to avoid multiple proceedings enforcing the English freezing order and to prevent the enforcement of the order in a foreign jurisdiction having a more far-reaching effect in that jurisdiction than in England. Hamblen J had held in E & Ors v M [2013] that if an order of the foreign court is made based on different and independent rights, the English court's permission is not required. Accordingly, the judge concluded that the undertaking here had not been breached because here, the foreign orders (although similar in effect, in whole or in part, to the English freezing order) "were obtained pursuant to rights engrafted in Lithuanian and Swiss law in support of the Lithuanian Civil Claim independently of the existence of the Freezing Order granted in England".

The judge went on to hold that, even if he was wrong on the point above, he would have given permission for the foreign orders to continue and for the English freezing order to be maintained.

Ali v Channel 5: Court considers various Part 36 issues

The defendant made a Part 36 offer in September 2017 and then made another Part 36 offer in October 2017 (in which it additionally offered an undertaking not to broadcast part of a TV programme). The claimants won at trial but failed to beat those offers and Arnold J considered various costs issues including the following:

(1) The claimants were entitled to their costs before the Part 36 offer was made. They had responded to an offer to enter into an ADR procedure by advising that they did not consider that ADR would work at that stage, but that they would keep this option under review. That had therefore not amounted to a wrongful refusal to engage in ADR.

(2) The claimants were also entitled to their costs up until the expiry of the relevant period for the second Part 36 offer in October (and not the first offer in September) because this had been an improved Part 36 offer and so a new 21-day period had started to run again (pursuant to CPR r36.9(5)).

(3) The judge rejected an argument that the September offer was not a valid Part 36 offer because it offered to pay the two claimants jointly. The judge rejected that argument because the claimants had not had distinct individual claims. In any event, the offer had contained the following wording: "If you think that this offer is defective or non-compliant with Part 36, you must let us know promptly". The judge held that the failure to challenge the validity of the offer at the time, and the claimants' acceptance at the time that the offer was a valid Part 36 offer, meant that the claimants were estopped from challenging its validity later on.

(4) Finally, the defendant failed to serve a costs budget and so was only entitled to recover 50% of its assessed costs (pursuant to CPR r36.23(2)(a)). The judge rejected an argument that this restriction did not apply to the period before the costs management hearing. Although the Master at that hearing could only approve budgets for prospective costs (and not incurred costs, as incurred costs are not subject to costs management), "it would undermine the purpose of rule 3.14 to treat it as having no effect with regard to costs incurred between the date on which costs budgets should have been filed and the date on which the court approved such budgets".

COMMENT: The reference to an estoppel argument where the Part 36 offer was not challenged at the time (in light of an express request in the offer for the offeree to do so) is of interest. The judge sought to rely on an earlier Court of Appeal decision in Seeff v Ho [2011], but he accepted that the Court of Appeal had not expressly referred to estoppel and the offer in Seeff v Ho had in any event been held to be a valid Part 36 offer (as it was in this case). Nevertheless, offerors would be well advised to include, as a matter of course, the wording used in the offer in this case when making a Part 36 offer.

More generally, this is the latest in a general trend in recent cases for parties in default to raise an estoppel/duty to warn argument, with varying degrees of success (see, for example, the recent service of a claim form case, Woodward v Phoenix, reported in Weekly Update 12/18).

Williams v Secretary of State for Business: Court of Appeal decides costs issues where claim was not brought under EL/PL Protocol but settled before start of proceedings

CPR r.45.14 provides that where a claimant unreasonably fails to comply with either the RTA or EL/PL Protocol, and starts proceedings under Part 7 instead, the court may order that the winning claimant recovers no more than the fixed costs which would have been recoverable had the claim been brought under the relevant protocol. The issue in this case was what happens where a claim is settled before the commencement of proceedings.

In an earlier judgment, it was held that the claimant's claim for noise-induced hearing loss should have been brought under the EL/PL Protocol and so the claimant was only entitled to the fixed costs specified in that protocol. That judgment was then reversed and a further appeal was brought to the Court of Appeal. The Court of Appeal has now held that:

(1) Neither the EL/PL Protocol nor CPR r45.24 provides a mechanism which automatically applies the fixed costs regime in circumstances where a claim has not been started under the protocol and/or has not been the subject of a Part 7 claim (or judgment).

(2) However, in a case where the protocol should have been used, and its non-use was unreasonable then, pursuant to the CPR r44 conduct provisions, the claimant will usually be entitled to recover only the fixed costs and disbursements permitted by the protocol.

Lord Ltd v HSBC Bank: Whether security for costs application had been made too early

One of the issues in this case was whether the defendant had made its application for security for costs too early as it had not yet served its defence (although it provided evidence to show that it did intend to defend the claim). The judge held that, although security for costs are usually sought at the first case management conference, there was "no reason to think that it should not have been made, if the application is otherwise justified". However, the early stage at which the application is made may be a relevant consideration when the court exercises its discretion to order security.

The judge went on to observe that "There is something to be said for an application for security for costs to cover the costs of a larger segment of the action at a time when more is known about the parties' respective positions which would be revealed by their statements of case". However, he did not see that as a reason for delaying the provision of security for costs (or ordering the amount of such security), given that he had found that it would otherwise be just in all the circumstances to order security.

COMMENT: The same conclusion in this case was also reached by the judge in Brainbox Digital v Backboard (see Weekly Update 36/17) where it was held that a security for costs order could be made even though no defence had been served yet, on the basis that the application should be made promptly. He commented that "There is no requirement that a defendant must first serve a defence before making such an application. Were there to be such a requirement, a defendant may find that an impecunious claimant discontinues having received the defence without any provision having been made for payment of its costs".

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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