Michael Phillips Architects v Riklin & Anor
Security for Costs Application Where the Claimant has Taken out an ATE Insurance Policy
http://www.bailii.org/ew/cases/EWHC/TCC/2010/834.html
The defendants applied for security for costs on the basis that the claimant was a company and there was reason to believe that it will be unable to pay the defendants' costs if ordered to do so (CPR r 25.13(2)(c)). That threshold having been established, the court has a broad discretion as to whether to order security for costs. The issue in this case was that the claimant had taken out After the Event Insurance ("ATE insurance") covering the costs payable to the defendants should it lose. The claimant therefore argued that the defendants were already adequately protected in the event of a costs order in their favour. Akenhead J accepted that in principle, an ATE insurance policy could provide sufficient protection and although such a policy would rarely provide as good security as a payment into court or a bank bond or guarantee, the amount fixed by a security for costs might be reduced to take account of any realistic probability that the ATE insurance policy would cover a defendant's costs. However, in this case, the judge concluded that the "ATE Insurance provides no real security for the defendants' costs, let alone any real comfort for the Defendants". That was because of various conditions contained in the policy, including the following:
- A condition that a failure to observe certain conditions in the policy (e.g. informing insurers immediately of anything that may materially alter the insurers' assessment of the claim) could result in cancellation of the policy or a refusal to indemnify. The judge said that it was foreseeable that the insurer could in the context of live litigation, readily avoid paying.
- A condition which gave the insurer the right to cancel the policy if, for example, a CFA entered into by the claimant terminated for whatever reason or if the insurer believes the claim is unlikely to be successful.
- A further condition had the effect that the indemnity cover available for the defendants' costs could be eroded by cover for the claimant's own costs and disbursements.
The claimant had provided a witness statement from the underwriting manager of the insurer. He offered to provide a further endorsement to the effect that the insurer would not refuse to pay on a claim which was found to be fraudulent or false. As for the other conditions in the policy, he said that it was not likely that they would be relied on by the insurer. Understandably, he would not give an assurance that the insurer would pay regardless of any conditions in the policy. As a result, the judge concluded that this did not provide any real comfort to the defendants (for example, the insurer could still cancel the policy should it form the view during the course of the litigation that the claimant's claim was unlikely to be successful).
Geofizika DD v MMB International & Anor
Failure to Arrange Insurance for a Shipment
http://www.bailii.org/ew/cases/EWCA/Civ/2010/459.html
A cargo of ambulances was lost on a voyage and the buyers sought to claim from cargo insurers. However, the insurers declined to pay because there had been a breach of warranty that the goods would be stored under deck. The warranty had been given by the freight forwarders, who in turn had relied on the fact that the bills of lading did not on their face show shipment on deck. The buyers then brought proceedings against the sellers for failing to procure effective insurance and the sellers joined the freight forwarders as Part 20 defendants. At first instance, the judge found in favour of the buyers and the sellers and freight forwarders appealed. In relation to the insurance issue, the Court of Appeal held as follows:
- The freight forwarders were negligent in giving the warranty - it was incumbent on the freight forwarders "who were in no different position to insurance brokers, to check that the facts they were warranting were in fact true".
- The sellers were under a contractual obligation to provide cover on the terms of the Institute Cargo clauses (C), which would not have covered the loss sustained in this case. (In fact, the insurance obtained provided cover on all risks (A) clauses, but subject to the warranty). The sellers argued that a valid insurance would not have covered the loss and so their breach had caused no loss. This argument was rejected by the judge at first instance for two reasons:
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- The sellers should have obtained a contract of insurance which precisely matched the contract of carriage (ie storage on deck). The Court of Appeal said that the judge had been wrong - here the contract had actually spelt out what cover the sellers had to obtain and a term cannot be implied into a contract if it is inconsistent with an express term in that contract.
- Based on a witness statement from the buyers, the judge concluded that the buyers had "put themselves into the hands of the sellers who had then procured insurance on all risks (A) clauses as opposed to the more restricted (C) clauses" and so there had been an agreement to provide more than the minimum cover. The Court of Appeal held that it had been unsafe to rely on the statement when the witness had not been cross-examined on that particular part. The Court of Appeal therefore concluded that there had been no loss and so this part of the appeal was allowed.
Pilon v Breyer Group
Stay of Execution Where Claimant Would be Unable to Repay the Judgment Sum
http://www.bailii.org/ew/cases/EWHC/TCC/2010/837.html
The defendant disputed an enforcement application against it on various grounds. The judge accepted that there had been a failure of jurisdiction and breach of natural justice which was material and which had gone to the heart of the dispute, and so the adjudicator's decision was not enforceable at all. However, in case he was wrong on that point, he also considered whether the defendant was entitled to a stay of execution on the basis that the claimant would probably be unable to repay the judgment sum at the end of a substantive trial or arbitration hearing.
The defendant argued that the burden of proof fell on the claimant because the situation was analogous to a claimant resisting an order for security for costs. Coulson J rejected that argument. In a security for costs application, only the claimant will be privy to certain information (eg whether it can raise money from other sources). The judge said that "at issue here is a different point, unconnected with information to which only the claimant is privy. Here the issue as to whether or not the money could be repaid lies at the heart of Breyer's [the defendant's] application for a stay...and therefore the burden, ultimately, is on them to show, on the balance of probabilities, that the money is unlikely to be repaid".
In this case, the claimant's financial position had not always been parlous and the deterioration in its finances had not been caused by the defendant's failure to pay the sums awarded by the adjudicator. It was also unlikely that the claimant could repay any judgment sum. Accordingly, had the judge given judgment for the claimant, he would have considered it appropriate to grant a stay of execution.
BVG v JP Morgan
Jurisdiction Under Regulation 44/2001 Where One of the Issues in Proceedings Was Whether an Act of a Company's Board was Ultra Vires
http://www.bailii.org/ew/cases/EWCA/Civ/2010/390.html
Article 23 of Regulation 44/2001 ("the Regulation") provides, broadly, that a jurisdiction clause in favour of the courts of a Member State gives those courts exclusive jurisdiction. However, Article 22 provides (inter alia) that where the proceedings have as their object the validity of the decisions of the organs of a company, the courts of the Member State where the company has its seat will have exclusive jurisdiction. Article 25 provides that where a court of a Member State is seised of a claim "which is principally concerned" with a matter over which the courts of another Member State have exclusive jurisdiction by virtue of Article 22, it will declare of its own motion that it has no jurisdiction.
In this case, the appellant (a German company) argued that a decision by its management board to enter into a credit default swap arrangement with the respondent was ultra vires (i.e. beyond the powers granted to the board) and therefore void. The parties had agreed in their contractual arrangements that the English courts would have jurisdiction.
However, the appellant argued that the German courts had jurisdiction because the proceedings had as their object the validity of the decisions of its organs and its seat is in Germany. The Court of Appeal rejected that argument. This was a multi-issue case and only one of the issues fell within the scope of Article 22. There was nothing in the wording of the article to warrant a broad interpretation. The English court has to undertake an exercise in "overall classification" and make an "overall judgment" to see if the proceedings are "principally concerned" with one of the matters set out in Article 22. Just because a particular is matter is not merely "preliminary or incidental", that does not mean that it is "principally concerned" with Article 22 matters.
The Court of Appeal held that it could only interfere with the judge at first instance's decision if it was satisfied that the judge had erred in principle in making his "overall classification" or had gone outside the bounds within which reasonable disagreement is possible. There were no grounds here for holding that the judge had erred in rejecting the argument that the German courts had jurisdiction.
HMRC v Insurancewide
Court of Appeal Ruling on Whether Supplies by Insurance Broker Fell Outside VAT Exemption
At first instance it was found that the provision of certain services by an insurance agent or broker were exempt from VAT because they amounted to the provision of services "by an insurance intermediary". The services in question were introductory services, whereby the taxpayers channelled would-be insureds to insurers by electronic means with a view to their making a contract of insurance, for which service the taxpayer received a commission from the insurer if the policy was placed. The Court of Appeal upheld this decision. There is no requirement for a direct legal relationship between the taxpayer and either the insurer or the insured - it is sufficient that the insurance agent or insurance broker is "carrying out a vital intermediary role in a chain of intermediaries". In this case, the taxpayers were providing more than simply a "click through" facility. They identified, and provided those looking for insurance with access to, insurers who provided a range of competitive insurance products.
Other News
The Arbitration (Scotland) Act 2010 contains the law and rules applicable to any arbitration (domestic or international) taking place in Scotland. Broadly, the Act brings Scotland into line with the modern framework set out in the Arbitration Act 1996 (which applies where the seat of the arbitration is in England, Wales or Northern Ireland). The Act has received the royal assent and is expected to come into force in around May 2010.
Click here for the full text of the Act: http://www.opsi.gov.uk/legislation/scotland/acts2010/asp_20100001_en_1
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