UK: (Re)Insurance Weekly Update 35- 2018

Last Updated: 25 October 2018
Article by Nigel Brook
Most Read Contributor in UK, November 2018

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

Mamancochet Mining v Aegis Managing Agency: Court construes a sanctions clause in a marine insurance policy

The defendant insurers issued a marine insurance policy to the claimant, protecting it against the theft of two cargoes of steel billets which were carried from Russia to Iran in 2012. The policy contained, in relevant part, the following sanctions clause: "No (re)insurer shall be deemed to provide cover and no (re)insurer shall be liable to pay any claim ... hereunder to the extent that the provision of such cover, payment of such claim ... would expose that (re)insurer to any sanction, prohibition or restriction under ... the trade or economic sanctions, laws, or regulations of the European Union ... or the United States of America" (emphasis added).

It was common ground that at the time the policy commenced, the defendants were not prevented by US law from insuring the cargoes. However, at the time the cargoes were stolen and at the time the claim was submitted, US sanctions prevented the defendants (who were all "US owned or controlled foreign entities" for the purposes of US law) from paying a claim under the Policy. That prohibition was lifted from 16th January 2016, but the relevant sanction is set to be re-imposed at 11.59pm eastern standard time on 4th November 2018.

The insurers sought to rely on the sanctions clause in the policy to deny cover. Teare J has now held as follows:

  1. The word "expose" in the sanctions clause meant that "the insurer is not liable to pay a claim where payment would be prohibited under one of the named systems of law and thus "would expose" the Defendants to a sanction". The clause in question did not refer to being exposed to the risk of a sanction – it referred to a payment which "would expose" the insurer "to any sanction etc" and "unless the conduct is prohibited, in law there can be no sanction". In reaching this conclusion, the judge noted that, although the dictionary definition of a word can be "a useful starting point, it is not determinative of the meaning which the clause as whole, read in context, would convey to a reasonable person".
  2. Having heard evidence from US experts on the point, the judge concluded that if a payment under the policy were made in sterling after 16th January 2016, such payment would not be prohibited under US law. The judge also found that there was no prohibition on paying the claim under EU law.
  3. There was nothing in the sanctions clause to support the defendants' argument that once the sanction clause was triggered, its effect was to extinguish any liability of the defendants to pay the claim. The use of the words "to the extent" would convey to a reasonable person the meaning that, for as long as payment would expose the insurer to sanction, the insurer is not liable to pay, but once a prohibition is lifted, the insurer was again liable to pay the claim.

Accordingly, payment of the claim before 11.59pm eastern standard time on 4th November 2018 would not expose the defendants to a sanction within the meaning of the sanctions clause and the claimant was therefore entitled to payment of its claim.

One final point, which the judge did not need to decide, was whether the EU Blocking Regulation applied. The Blocking Regulation, broadly, prevents a EU person from complying with (inter alia) the re-imposition of sanctions on Iran. The judge said that he saw "considerable force" in the defendants' argument that the Blocking Regulation is not engaged where the insurer's liability to pay a claim is suspended under a sanctions clause in a policy: "In such case, the insurer is not "complying" with a third country's prohibition but is simply relying upon the terms of the policy to resist payment".

Bellman v Northampton Recruitment: Court of Appeal finds company vicariously liable following altercation at a post-works event

The first instance decision in this case was reported in Weekly Update 44/16. The managing director of a company attacked another employee at a spontaneous post-Christmas party drinks at a hotel near the Christmas party venue. The attack had taken place after the managing director's authority was challenged and he a had "lectured" several employees on the nature and extent of his authority. The judge had found that there was no vicarious liability because the managing director had not been "on duty" and the attack had taken place after the organised work social event.

The Court of Appeal has now unanimously allowed the appeal from that decision.

In order to succeed in a claim for vicarious liability, there must be the necessary relationship between the company and the wrongdoer and the necessary connection between that relationship and the wrongdoer's conduct. In the Supreme Court decision of Muhamud v VW Morrison Supermarkets (see Weekly update 9/16), the Supreme Court held that two questions should be considered: (a) what functions or "field of activities" have been entrusted by the employer to the employee (and this question should be addressed broadly)?; and (b) was there a sufficient connection between the position in which he was employed and his wrongful conduct to make it right for the employer to be held liable for reasons of social justice?

The Court of Appeal said that in relation to (a), the correct question to ask is "what is the nature of the job"? It was not a question of whether the employee had actual or ostensible authority because "Adherence to an additional or secondary test necessarily limits the first". In this case, the company was described as a "round the clock operation" and the managing director did not have set hours and had authority to control his own methods of work. He also had responsibility for all management decisions and "would have seen the maintenance of his managerial authority as a central part of his role". Accordingly, both his remit and his authority were very wide.

In relation to (b), the Court of Appeal held that the judge had been wrong to rely on the temporal gap between the Christmas party and the drinking session as a decisive factor. The key issue here was that the managing director had been "purporting to exercise his authority over his subordinates and was not merely one of a group of drunken revellers whose conversation had turned to work". This had not been an "impromptu drinks party between work colleagues which might happen on any night of the week after work": the participants had attended the Christmas party qua staff and managing director and "just because the drinking session was unscheduled and voluntary, I do not consider that their roles changed or if they did, that on the facts of this case, the role of managing director was not re-engaged".

However, Irwin LJ expressed some reluctance and emphasised that the facts of this case were unusual and liability will not arise just because there is an argument about work matters between colleagues which leads to assault, even where one is much more senior than the other. He said that "What was crucial here was that the discussions about work became an exercise in laying down the law by [the managing director], indeed an explicit assertion of his authority, vehemently and crudely expressed by him, with the intention of quelling dissent. That exercise of authority was something he was entitled to carry out if he chose to do so, and however unwise it may have been to do so in such circumstances, it did arise from the "field of activity" assigned to him".

COMMENT: At first instance, the judge had emphasised the importance of timing when considering if a defendant is vicariously liable for the wrongdoing of its employee, especially where there was no expectation or obligation on any employee to participate in an event. However, the focus in this Court of Appeal decision was instead on what had led to, and motivated, the assault and the context in which the drinks party had occurred. As Aspin LJ put it: "misuse of authority can occur out of hours or when the parties are off-duty, particularly by someone in a senior position".

Page v RGC Restaurants: Judge rules on whether a costs budget had been filed and whether relief from sanctions should be granted

CPR r3.14 provides that " Unless the court otherwise orders, any party which fails to file a budget despite being required to do so will be treated as having filed a budget comprising only the applicable court fees". In this case, the claimant's solicitors completed Precedent H but left out the preparation for trial and trial phases, because they believed that these would be dealt with at a second CMC. The parties agreed all directions and costs budget figures up to and including this proposed second CMC. However at the (first) costs and case management conference, the master refused to direct a second CMC and held that the claimant had not filed a costs budget within the meaning of CPR r3.14 and the claimant was only entitled to court fees. The claimant appealed and Walker J held that:

  1. The claimant was wrong to argue that an incomplete budget was still "a budget" for the purpose of CPR r3.14 and that CPR r3.14 only applied if there was no budget at all. Although a mere irregularity would not nullify what would otherwise be a costs budget, here important sections of Precedent H had been omitted. Although the use of the term "Interim Costs Budget" was not determinative, there could be no "budget" if it was materially incomplete.
  2. CPR r3.15(2)(a) provides that in a costs management order the court will record the extent to which the budgeted costs are agreed between the parties. The claimant argued that the court has no power to either approve or vary budgets to the extent they have been agreed and that where, as here, the parties agree, CPR r3.14 can be overridden. That argument was also rejected by the judge: "It seems to me that on the ordinary use of language CPR 3.15(2)(a) is not engaged once CPR 3.14 has taken effect.
  3. However, the master had erred in failing to consider whether to disapply the sanction under CPR r3.14. Accordingly, Walker J considered whether to disapply that sanction. Applying the approach laid down in Denton v TH White (see Weekly Update 26/14), he held that the CPR r3.14 sanction should not be applied to those parts of the agreed budget which dealt with the position up to the phases of trial and trial preparation. In reaching that decision, the judge noted that the claimant's lawyers had not been "deliberately wrong" in considering that a second CMC was needed and that that CMC could deal with the trial and preparation for trial phases.

Grant v Dawn Meats: Court of Appeal rules that claim form does not have to be served during a stay of proceedings

In this employers' liability case, the employer admitted liability but when the parties were unable to agree quantum, the claim form was issued. The claim form sought a stay of the proceedings pending the receipt of up-to-date medical evidence. The stay was granted but the employer subsequently argued that the claim form had been served late because it was not served within 4 months of issue. The deputy district judge rejected that argument but Judge Gore QC allowed the appeal from that decision. The Court of Appeal has now held that the deputy district judge was correct.

The Court of Appeal confirmed that a stay operates to freeze proceedings, so that when the stay is lifted "the parties (and the court) pick up where they left off at the time of the imposition of the stay". The issue in this case was whether service of the claim form should be treated differently. The Court of Appeal held that it should not. There was nothing in the rules to concluded that service of the claim form stands outside a stay of proceedings. To hold otherwise would be to introduce an unnecessary level of complexity, since the stay would be effective for some procedural steps, but not others.

The Court of Appeal went on to add that "whilst the judge was right to say that, if a claim form is eventually not served at all then it is as if the proceedings had never happened, he was wrong to say that the proceedings "do not really have a legal life" until the service of the claim form. The issue of the claim form creates a lis, regardless of its subsequent service".

Finally, Coulson LJ said that "it is right to note that, in the present case, there has been an element of opportunism on the part of the respondent which I would be reluctant to reward. The absence of a served claim form did not in fact make any difference to the progress of this case".

COMMENT: The final comment made by Coulson LJ, referred to above, is of interest. In Woodward v Phoenix (see Weekly Update 12/18), Master Bowles referred to the comment by Lewison J in Abela v Baadarani (see Weekly Update 05/11) that service is not "about playing technical games", and on that basis validated service of the claim form on solicitors who had not given written notification that they were instructed to accept service. Although the Supreme Court in Barton v Wright Hassell (see Weekly Update 7/18) had held that the defendant's solicitor was under no duty to help the claimant to serve, Master Bowles said that the Supreme Court had not been asked to consider the impact and effect of the duty to further the overriding objective. This latest case suggests that there may be growing concern amongst the judiciary about parties who are "opportunistic" or play "technical games", at least in relation to service of the claim form. Obviously, though, the dividing line between opportunism and simple reliance on the CPR rules may not always be clear.

Eastern European Engineering Ltd v Vijay Construction: Judge interprets arbitration clause following challenge to enforcement of a NY Convention award

The defendant challenged the enforcement of a NY Convention award on various grounds, including that the tribunal lacked jurisdiction because its composition was not in accordance with the parties' agreement (section 103(2)(e) of the Arbitration Act 1996).

The arbitration agreement entered into between the parties provided that "Should any dispute arise between the Parties under or out of this Contract...each Party shall notify another Party of such dispute, and both Parties shall try to settle such dispute amicably before any arbitration starts. However, unless otherwise agreed between the Parties, the arbitration shall not start before expiration of a 2-month period starting on the day of the notice of a dispute, even though attempts may not be made to settle the dispute amicably". The defendant argued that the claimant did not comply with this agreement because it did not itself serve a notice of dispute (although the defendant did serve two notices of dispute).

Cockerill J accepted the claimant's preliminary argument that the defendant's complaint was not about the composition of the tribunal, but instead was about pre-arbitration procedure. Accordingly, the ground relied on failed.

In any event, the defendant's reading of the arbitration agreement was flawed. It did not require both parties to notify each other of the same dispute – either party could notify. Nor did it restrict the right to commence arbitration to the party that issued the notice of a dispute: either party could commence "any" arbitration once either party had issued "the" notice of "a" dispute and the 2 month waiting period had passed. It was also clear that attempts to settle were not a condition precedent to commencing arbitration.

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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