Savash v CIS General Insurance

Fraudulent insurance claims and knowledge of the insured

http://www.bailii.org/ew/cases/EWHC/TCC/2014/375.html

The insured claimed under his household insurance policy following an alleged burglary at his home. The insurers declined cover on the basis that the claim was fraudulent and supported by fraudulent devices. Much of the case therefore turns on its particular facts (Akenhead J concluding that there had been a burglary but that the claim presented to the insurers had been grossly exaggerated) but one particular issue is of more general interest.

The judge raised the possibility that the insured may have innocently passed on to his insurer fraudulent claims which had been created by his father (although he went on to conclude that, on the facts, this was not the case). It was accepted by the insured's counsel that, had he recklessly adopted and pursued deliberately exaggerated claims, he would be "guilty" of fraudulent devices because recklessness amounts to civil fraud. However, the judge suggested that even if the insured had had no knowledge of his father's fraud in relation to a claim for damaged contents and fixtures and fittings, the insured would still be fixed with the consequences of that fraud. Applying principles established by the Court of Appeal in Direct Line v Khan [2002], Akenhead J held that, since the insured had authorised his father to carry out remedial works and provide relevant information to the insurers, the exaggerated claim presented by his father fell within the scope of the father's authority. Accordingly, "The principal, the son, is fixed with the consequences of the fraud of the agent, the father, because he acts within his authority, albeit in a fraudulent manner".

COMMENT: Although this decision follows the line adopted by the Court of Appeal in Direct Line v Kahn, it is noteworthy because the scenario suggested by the judge involved a fraud by a non-insured. In Direct Line v Kahn, the fraud was committed by a co-insured under a joint policy. However, here, the fraud was committed by someone who was not an insured but was instead authorised by the insured to liaise with the insurers and deal with the claim. That authority was hypothetically enough to fix the insured with the consequences of the fraud. Akenhead J's decision was clearly a policy-driven one. As he put it: "But this [fixing the principal with the consequences of an agent's fraud] is also more apt in the case of fraud or fraudulent devices in connection with insurance because a primary object of what may be described as policy-based decisions of the courts in this context is to ensure that fraudulent or fraudulently exaggerated insurance claims do not succeed".

Summit Navigation & Anor v Generali Romania

Post-Mitchell and the meaning of "sanction"/the need for non-defaulting parties to cooperate/breach of a disclosure order under CPR r58.14 (marine insurance)

http://www.bailii.org/ew/cases/EWHC/Comm/2014/398.html

The claimants were ordered to provide security for costs (the order stating that, in the event that such security is not provided, the action would be stayed). When the claimant missed the deadline by a day (because the brokers were unable to get an underwriter's signature on a bond), the defendants immediately advised that the action was now stayed and the defendants applied to have the stay lifted. Leggatt J has now held as follows:

  1. An application was necessary to lift the stay – it was not "self-lifting" upon provision of the security. (It is possible to use a form of order which provides that "all further proceedings be stayed until security is given" but that was not adopted here).
  2. A stay can be described as a "sanction", so as to require an application for relief under CPR r3.9: "The term "sanction" seems to me apt to include any consequence adverse to the party to whom it applies". There was no need to demonstrate a punitive element. Accordingly, any application to disapply a consequence specified in a court order for failing to do something within a time specified in the order is an application for a relief from a "sanction".
  3. However, the judge held that not all sanctions are equal, and there was a distinction to be drawn between an order providing for a stay in the event of default and one providing for the claim to be struck out. The sanction here was not intended to be permanent and hence a different approach to that adopted in the Mitchell case was required. The two factors listed in CPR r3.9 did not provide a good reason for refusing a stay.
  4. If the judge was wrong in that analysis, and Mitchell was applicable here, the non-compliance was in any event "trivial" (or, as Leggatt J preferred, "not material"). Furthermore, the reason for non-compliance was not the inefficiency of the claimants or their solicitors but, instead, the absence of the underwriter or, possibly, the negligence of the brokers, who should for these purposes be described as third parties since they were not responsible for the conduct of the litigation.
  5. Even if the default had not been "trivial" or due to a sufficiently good reason, the judge would still have held that it was just to grant relief. The defendants' refusal to agree to lift the stay had been unreasonable: "The defendants' stance disregarded the duty of the parties and their representatives to cooperate with each other in the conduct of proceedings and the need for litigation to be conducted efficiently and at proportionate cost.

It stood Mitchell on its head". The judge ordered the defendants to pay the claimants' costs in order to "reflect the defendants' unreasonable conduct in refusing to agree to the stay being lifted and the waste of time and money which that entailed".

A separate issue in this case related to CPR r58.14 which provides that a marine underwriter (in a Commercial Court case) can apply for specific disclosure of a ship's papers and require the other party to "use his best endeavours to obtain the disclosed documents which are not or have not been in his control". Leggatt J observed that this rule "is something of a historical anomaly, since there is no good reason in modern times why marine underwriters should have the benefit of a procedure not available to other litigants".

The defendants applied for an action to stay the proceedings on the basis that the claimants had not used best endeavours to obtain documents not now under their control. Leggatt J described the application as "misconceived": "The ordinary purpose at least of a stay under CPR 58.14(2) must be to protect marine underwriters in circumstances where, without sight of the ship's papers, they cannot properly prepare their case". That was not the case here (and it had been suggested that the defendants already had relevant documents in their possession). Instead, the defendants should apply to court (once the present stay was lifted) for orders requiring the claimants to carry out further searches.

COMMENT: This decision suggests that non-defaulting parties ought to agree to waive defaults in certain circumstances (or risk costs sanctions) even though, even if an agreement is made, an application would still need to be made to court (albeit by consent order) because the order (or rule) provides for a sanction/consequence. The judge's comments re CPR r58.14 are also note-worthy. There is nothing in the rule itself which suggests that a stay cannot be granted in circumstances where a marine underwriter can still properly prepare its case without an order. However, that position must be correct, since the remedy is discretionary and the court will only make the order if it is necessary and expedient to do so.

BDMS v Rafael Advanced Defence Systems

Whether there had been a repudiatory breach of an arbitration agreement where one side had not paid an advance on costs to ICC

The parties entered into an agreement providing for arbitration under the rules of the ICC. Article 30 of those rules provides that the Secretary General can request the payment of a provisional advance to cover the costs of the arbitration until the terms of reference have been drawn up. The Secretary General may direct the tribunal to suspend its work if the advance is not paid and to subsequently consider that the claim as withdrawn.

In this case, the defendant refused to pay its share of a request for an advance on costs until security for costs was provided. When the claimant refused to pay the defendant's share, the claim was eventually withdrawn. In the meantime, the claimant had commenced High Court proceedings and the defendant sought a stay of those proceedings pursuant to section 9 of the Arbitration Act 1996 (which provides that a stay will be granted where proceeding have been brought in breach of an arbitration agreement, unless the court is satisfied that the arbitration agreement is "null and void, inoperative or incapable being performed"). Hamblen J has now held as follows:

  1. The requirement to pay an advance on costs gives rise to a contractual obligation (in turn giving rise to a substantive claim where an interim award can be sought) and is not merely a procedural obligation owed to the ICC Court (where recourse is by way of interim measures). The parties here had expressly agreed that the arbitration would take place under the ICC rules and had therefore agreed, as a matter of contract, that they would comply with mandatory requirements imposed on the parties under those rules. Accordingly, a failure to provide the advance required under Article 30 did involve a breach of the arbitration agreement.
  2. A breach of an arbitration agreement which makes the arbitration unworkable can be a repudiatory breach. In particular, "whilst issues of repudiation are necessarily fact dependent, I accept that these citations provide support for the view that a refusal or failure to pay advance costs may in an appropriate case be repudiatory". However, in this particular case the breach was not repudiatory. That was because: (a) the defendant was not refusing to participate in the arbitration; (b) the breach did not deprive the claimant of its right to arbitrate (it could have posted a bank guarantee for the defendant's share and then sought an interim award to be paid by the defendant); (c) the rules themselves allowed for a mechanism for dealing with this situation; and (d) even if the claim had been deemed withdrawn, there was no restriction on the same claim being brought again in the future (and hence it was the arbitration reference which would have been repudiated, not the arbitration agreement).
  1. Although the judge was prepared to assume that an arbitration agreement can be inoperative if it has become unworkable (even though it has not ceased to have legal effect), for the reasons given above he did not find that the agreement was inoperative in this case.
  2. The case of Traube v Perelman [2001] considered if the question of whether an arbitration agreement is inoperative etc. arises as at the date of the application for a stay or as at the date when the proceedings were commenced (or on some other date). It concluded in that case that the date of commencement of the proceedings should be taken. Hamblen J said that that was not an inflexible rule and it could not be appropriate where an arbitration agreement has become finally and irrevocably inoperative (although it could be the correct approach where an arbitration agreement was inoperative at the time of commencement of proceedings but might become operative thereafter). Had the arbitration agreement been repudiated here, "I would accordingly have refused a stay even if there had been no repudiatory breach...at the date of the commencement of the proceedings".

Cox v MoJ

Court of Appeal finds that the Ministry of Justice is vicariously liable for a prisoner

http://www.bailii.org/ew/cases/EWCA/Civ/2014/132.html

The claimant, a catering manager in a prison, was injured by a prisoner working with her when he accidentally dropped a sack on to her back. The issue in this case was whether the Ministry of Justice was vicariously liable for the prisoner's negligence. The Court of Appeal has now held that it was. On the facts of the case, the relationship in question was one "akin to employment". The prison authorities had to feed the prisoners, and that required help by someone. Here, the job was performed by prisoners for whom the authorities were obliged to provide useful work. The work carried out by the prisoners in this case relieved the authorities from engaging employees at market rates of pay. The work was clearly done on the prison's behalf and for its benefit. The Court of Appeal also cautioned that a focus on the whether a relationship is a voluntary one can be misleading – voluntariness is not a bar to a finding of vicarious liability, instead it is just one factor to be taken into account.

Merchant International v Natsionalna Aktsionerna Kompaniia

Third party debt orders and debts not yet due/ the duty of full and frank disclosure

http://www.bailii.org/ew/cases/EWHC/Comm/2014/391.html

A third party debt order (the rules for which are contained in CPR r72) works by effectively intercepting money owed to the judgement debtor by a third party such as a bank or building society before it reaches the judgment debtor's hands. The money is frozen and seized for the benefit of the judgment creditor. Blair J considered the following issues in this case:

  • CPR r 72.2(1) refers to debts which are "due or accruing": does this extend to debts which do not exist at the date of the application but which will exist at the date of service of the order? Blair J held that it does not. There must be an existing obligation to pay and pre-CPR authorities on the meaning of the words used in CPR r72.2 remain binding.
  • Although not necessary to consider the point, Blair J also gave his opinion on whether the same principles of full and frank disclosure applied as in the case of an application for a freezing order. He said he saw no reason to import the caselaw applying to disclosure in the case of freezing orders to applications for third party debt orders. On the other hand, the duty of disclosure on a without notice application was undoubted. However, the extent of that duty and the gravity of any lack of frankness will depend in any given case on the character of the application: "Applying that approach, where the consequences of an interim third party debt order are potentially serious, and the grounds for making an order debateable, the duty of full and frank disclosure will be commensurately higher".

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