UK: (Re)insurance Weekly Update 26- 2018

Last Updated: 26 July 2018
Article by Nigel Brook
Most Read Contributor in UK, November 2018

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

Pavilion Property v Urban & Civic Projects: Judge considers without prejudice privilege issues

The main issue in this case was whether a meeting between the parties was "without prejudice". The judge decided, on the evidence, that the meeting had not been expressly agreed to be without prejudice. However, he went on to find that both the meeting and communications between the parties after the meeting were without prejudice because they were negotiations aimed at settlement.

It made no difference that one of the parties did not think that the meeting was conducted on a without prejudice basis: "The "without prejudice" rule did not apply by agreement .... However, the cases show that "without prejudice" protection of negotiations genuinely aimed at settlement is founded on public policy as well as on agreement and, in some cases, where there is no agreement express or implied, rests only on public policy". It is open to the parties to agree that discussions are to be open or to jointly waive the protection in subsequent litigation, but neither of those options was taken up here.

On the facts, the judge also concluded that no exceptions to the rule applied. In relation to the exclusion which applies where an issue has arisen as to whether a "concluded compromise agreement" (as per Robert Walker LJ in Unilever v Proctor & Gamble [2000]) has been reached, the judge commented that "Robert Walker LJ is not writing statute law when setting out these exceptions" and so the exception applies to "any concluded and legally enforceable agreement".

COMMENT: This decision follows the Court of Appeal's decision in Muller v Lindsey & Mortimer [1994] which held that the WP rule has two justifications: (i) the public policy of encouraging parties to negotiate and settle their disputes out of court and, (ii) an implied agreement arising out of what is commonly understood to be the consequences of offering or agreeing to negotiate without prejudice. Accordingly, it was held that even if neither party wanted the privilege to apply, it can still apply just by virtue of the fact that the parties are negotiating (in the absence of an express agreement to the contrary).

Pinkus v Direct Line: Court finds road traffic accident claim was exaggerated and dismisses entire claim

The claimant claimed £850,000 for personal injury damages following a road traffic accident. Liability for the accident was admitted by the defendant, the other driver's insurer. However, the insurer believed that the claim was worth no more than £2-3,000. Various issues arose in the case, including the following:

1) Was the allegation of fundamental dishonesty pleaded too late? The defendant pleaded this in a counter-schedule which was only signed with a statement of truth on the first day of trial. The judge applied the recent decision in Howlett v Davies & Anor (see Weekly Update 39/17), in which the Court of Appeal held that "the mere fact that the opposing party has not alleged dishonesty in his pleadings will not necessarily bar a judge from finding a witness to have been lying" and that "The key question in such a case would be whether the claimant had been given adequate warning of, and a proper opportunity to deal with, the possibility of such a conclusion and the matters leading the judge to it rather than whether the insurer had positively alleged fraud in its defence". Here, it had been apparent from the outset that the claimant's credibility had been in issue: the insurer had denied the accident had occurred as the claimant said and had disputed causation and quantum. The claimant was also aware that he had been subject to surveillance.

2) Was the defendant's insured an independent witness to the accident? The judge held that he was: having admitted liability early on, it was accepted that he had no interest in the litigation, and nothing to gain or lose from it.

3) Did section 57 of the Criminal Justice and Courts Act 2015 apply? This provision provides that, even where there is a valid claim (and so the claimant would be entitled to damages), a finding of fundamental dishonesty can cause a claimant to lose the claim in its entirety. It came into force on 13 April 2015 and applies to all claims for personal injury, where proceedings were issued on or after that date. The judge found that, on the balance of probabilities, the claimant had been fundamentally dishonest and his fabrication and dishonesty substantially affected the claim. Accordingly, the entire claim (which the judge had valued at around £4,500) was dismissed.

Pinkus v Direct Line: Experts and peer review arrangements

In an earlier judgment in the case referred to above, the parties' respective experts had arranged to have a joint discussion. It subsequently became apparent to the defendant's expert (when an email was sent to him in error) that the claimant's expert had been seeking advice from one of her colleagues about certain points in the experts' joint statement. An issue then arose as to whether the discussions between the expert and her colleague were privileged.

The claimant's expert had informed the court that her firm has a peer supervision arrangement in place. The judge said that if it is becoming commonplace for there to be undisclosed arrangements in relation to "supervision" in the preparation of expert evidence (and, in particular, supervision which may alter the content of the report) that is "a very worrying development". He highlighted the importance of disclosing to the court and the other side if the expert's evidence has been "bolstered or added to" by a third party. PD 35 para 9.8 provides that "If an expert significantly alters an opinion, the joint statement must include a note or addendum by that expert explaining the change of opinion". The judge said that that should include adding whether or not the change comes as a result of information provided by another expert.

It was held that communications between an expert and a third party (other than the expert on the other side) are not privileged. The judge concluded that "Any expert who discusses the content of a proposed report in detail with another expert under a peer review arrangement must be extremely cautious if he or she thinks it is not appropriate to disclose the fact and extent of that arrangement. Indeed, I would go as far as to say the circumstances in which he or she cannot properly do so must be very limited indeed".

COMMENT: When instructing experts, a party should clarify who, in addition to the expert, might be involved in the preparation of the expert's report and remind the expert to check and adopt the analysis or conclusions of anyone he has delegated work to. This case is a reminder to also check, where the expert works as part of a group practice, whether a peer supervision or review arrangement is in place, especially since communications between the expert and his/her supervisor will not be privileged.

Barclays Bank v Various Claimants: Court of Appeal confirms that vicarious liability can be established in relation to independent contractors

The claimants brought a group litigation claim against the defendant bank. The claimants were applicants for employment with the bank and the bank had required them to have a medical examination undertaken by a certain GP. The claimants allege that they were assaulted by the GP and that the bank is vicariously liable for the GP's actions. The bank denied liability on the basis that the GP was self-employed and engaged by the bank as an independent contractor. At first instance, the bank was found to be liable and the Court of Appeal has now dismissed the appeal from that decision.

The Court of Appeal held that, adopting the approach set out by the Supreme Court in Cox v Ministry of Justice and Mohamud v WM Morrison Supermarkets (see Weekly Update 9/16), "there will indeed be cases of independent contractors where vicarious liability will be established. Changes in the structures of employment, and of contracts for the provisions of services, are widespread. Operations intrinsic to a business enterprise are routinely performed by independent contractors, over long periods, accompanied by precise obligations and high levels of control".

The Court of Appeal rejected the argument that a "bright line" test of no vicarious liability for independent contractors should be followed because that "would make easier the conduct of business for parties and their insurers".

The judge had correctly applied the following criteria established by the Supreme Court:

(i) The employer is more likely to have the means to compensate the victim and can be expected to have insured against that liability. The Court of Appeal accepted that little weight should be given to this factor and that liability can never be founded on this alone. It also rejected the bank's submission that this issue should be looked at as at the time of the alleged torts.

(ii) The tort will have been committed as a result of activity being taken on behalf of the employer. That was clearly the case here. Although there might have been some benefit for the prospective employees, there was no doubt that the principal benefit was for the bank.

(iii) The relevant activity is likely to be part of the business activity of the employer. Again, that was clearly the case here: "There could hardly be a clearer example of that than the selection of suitable employees for a responsible institution in the service sector".

(iv) The employer will have created the risk of the tort being committed. There is no need to show the bank was negligent: "the criterion is satisfied if it is the potential defendant's acts which put the claimant in a position of risk".

(v) The GP was, to a greater or lesser degree, under the control of the employer. That was said to be "perhaps the most critical factor here". The GP had carried out a general health examination against a standard formula set by the bank.

Cartwright v Venduct Engineering: Court of Appeal case on the QOCS regime where claimant settles with some of the defendants

Under the Qualified One Way Costs Shifting (QOCS) regime, a claimant in a personal injury case can commence proceedings knowing that, if he/she is unsuccessful, he/she will not be obliged to pay the successful defendant's costs. There is a general exception under CPR r44.14, to the effect that a defendant can recover costs up to the amount of damages and interest received by the claimant (but if the claimant is unsuccessful, the defendant will recover nothing).

In this case, the claimant brought a personal injury claim against 4 defendants. He settled with 3 of the defendants, by means of a Tomlin order, and then discontinued the claim against the other defendant (D1). CPR r38.6 provides that a claimant who discontinues must pay the costs of the defendant against whom the claimant is discontinuing. D1 claimed that it was entitled to recover those costs from the sums paid by the other three defendants under the Tomlin order. It lost at first instance, and appealed to the Court of Appeal, which has now held as follows:

(1) A defendant can, in principle, take advantage of sums paid to the claimant by another defendant, in order to satisfy a costs order in its favour, pursuant to CPR r44.14.

(2) However, sums payable under a Tomlin order are not covered by the QOCS regime. CPr r44.14 applies to court orders in the claimant's favour but not settlements or Tomlin orders. Accordingly, D1 could not recover its costs in this case.

Dera Commercial Estate v Derya Inc: Challenge to arbitral award based on "inordinate delay"

The claimant appealed an arbitral award (which had dismissed its counterclaim) on points of law arising out of section 41(3) of the Arbitration Act 1996. That section provides that the tribunal can dismiss a claim if it "is satisfied that there has been inordinate and inexcusable delay on the part of the claimant in pursuing his claim". The judge held as follows:

(1) The relevant limitation period (here, a shorter period of one year, agreed by the parties) was not "the" yardstick, but instead only "a" yardstick, albeit an important one: "The length of the relevant limitation period sets the context in which the nature of the period or periods of delay will be assessed, specifically whether the delay overall is inordinate or not. Whether or not delay is inordinate will always be a fact-sensitive exercise in each case". Although it would be wrong to dismiss a claim for want of prosecution where the limitation period had not yet expired, the fact that the parties have agreed a shorter limitation period demonstrates that they intended to proceed promptly with the arbitration. However, the judge also recognised that if the parties subsequently agree to extensions of time, that can be taken into account when assessing whether any delay has been inordinate.

(2) When assessing whether delay has been "inordinate", the period between the time the cause of action arose and the end of the contractual time limit is taken into account. In cases where there are periods of procedural activity and non-activity, it will normally be appropriate to assess individual periods of delay separately and distinctly, arriving at a cumulative picture of overall delay. However, there were no such separate periods on the facts in this case.

(3) The legal burden lies on the applying party to prove, on a balance of probabilities, that the inordinate delay in question is inexcusable. Although it is generally not helpful to speak in terms of a shift of evidential burden, it will normally be the responding party that identifies a credible excuse for the delay.

Other News

Amendment to Third Parties (Rights Against Insurers) Act 2010 to help insurers bring subrogated claims (in personal injury, and especially asbestos cases):

One of the practical advantages of the Third Parties (Rights Against Insurers) Act 2010 for third party claimants was that they no longer need to restore the insolvent insured to the register of companies in order to bring an action. However, that has had a knock-on effect for insurers of those companies who wish to bring a subrogated action after paying the claimant's claim against others who may have contributed to the damage (and so wish to bring a claim in the insured's name). That is because the time limit for restoring a company is usually 6 years from the date of the dissolution of the company (under section 1024 of the Companies Act 2006). The government has recognised that, especially in asbestos cases, insurers may often be out of time to restore the insured (where, previously, they could have relied on the third party claimant restoring the company in order to bring his/her claim). Section 1030 of the 2006 Act has a carve-out for personal injury claims brought against the dissolved company – in that case, there is no time limit for applying to restore the company. The government is now planning to introduce an amendment to section 1030, so that a further situation in which an application to restore can be made at any time is where there is "an insurer (within the meaning of the Third Parties (Rights Against Insurers) Act 2010) bringing proceedings against a third party in the name of that company in respect of that company's liability for damages for personal injury."

A link to the draft statutory instrument can be found below. It is not yet clear when the change will come into force.

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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