A summary of recent developments in insurance, reinsurance and litigation law.
This week's caselaw:
AIG Europe v OC320301: Court of Appeal rejects "dependence" test for aggregation clause with the phrase "a series of related transactions"
http://www.bailii.org/ew/cases/EWCA/Civ/2016/367.html
Mayer Brown for appellant, Royds for respondents, Russell-Cooke for intervener
The first instance decision in this case was reported in Weekly Update 31/15. The case concerned two property developments by Midas in Turkey and Morocco, for which it had attracted more than 200 investors. The developments failed when the local Midas companies were unable to complete the land purchases. The investors brought proceedings against a firm of solicitors, alleging that it had wrongly released monies from an escrow account without adequate security being in place to protect their investment. The investors claimed to have lost over £10 million. The solicitors were insured with the insurers under a policy subject to an indemnity limit of £3 million for any one claim. Insurers issued proceedings in the Commercial Court seeking a declaration that the underlying claims should be treated as "one claim" on the basis that all the claims arose from "similar acts or omissions in a series of related matters or transactions" pursuant to clause 2.5(a)(iv) of the Solicitors Regulation Authority Minimum Terms and Conditions.
Teare J interpreted "a series of related matters or transactions" as meaning that the transactions were conditional or dependent on each other. As a result, he held that there could be no aggregation of the claims.
The Court of Appeal has now give its judgment on matters of principle only (rather than making any findings of fact). It has concluded that Teare J went too far when he concluded that the transactions had to be "dependent on each other". Nevertheless, it found that there still had to be an "intrinsic" relationship of some kind between the matters or transactions, and an outside connecting factor would be insufficient, even if it was common to the matters or transactions.
In reaching that conclusion, the Court of Appeal took into account the circumstances in which the aggregation clause wording in the Minimum Terms had been amended. Taking this background into account as part of the "matrix" against which it construed the clause, the Court of Appeal concluded that there was support in the history for the argument that "a series of related ... transactions" was not intended to be interpreted in such a way that any relationship, however loose, would suffice; there had to be some restriction on the concept of relatedness and the most satisfactory approach would, the Court said, be an intrinsic relationship not an extrinsic one. Referring to the Lloyds TSB [2003] judgment, Longmore LJ also took note of the importance of interpreting the aggregation wording against the knowledge of different types of aggregation clauses in existence (for example, broad wording such as "original cause").
COMMENT: The Court of Appeal gave only a few hints as to factors which may or may not lead to the test being satisfied: it said, for example, that "transactions which all take place with reference to one large area of land in a particular country might be related transactions if they refer to or (perhaps) envisage one another", and that (on the facts of AIG) if there was a specific requirement that investors' funds were to be held in a separate designated account for each investor, that might militate against a finding of an intrinsic relationship. However, aggregation decisions are notoriously fact-sensitive, and the Court of Appeal was careful not to fetter the decision of the Commercial Court on the facts. As a result much remains to be seen about how "intrinsic relationship" will be interpreted.
Massar v DAS Nederlandse: Legal expenses insurance and the meaning of an "inquiry"
Regulation 6 of The Insurance Companies (Legal Expenses Insurance) Regulations 1999 provides that "Where under a legal expenses insurance contract recourse is had to a lawyer ... to defend, represent or serve the interests of the insured in any inquiry or proceedings, the insured shall be free to choose that lawyer (or other person)" (emphasis added). These regulations give effect to Council Directive 87/344 EEC, which uses the same wording.
The issue to be decided by the CJEU here was the meaning of "inquiry". The case involved a request for insurers to cover an employee's legal expenses in a procedure which took place before the Employee Insurance Agency in the Netherlands. This agency is a public body, independent of the central administration, which has the right to authorise the termination of an employment contract on the ground of redundancy.
The CJEU rejected the insurer's argument that an "inquiry" must take place before a court: ""Inquiry" must be read in opposition to the term "proceedings"". Nor could any distinction be made between the preparatory stage and the decision-making stage of the inquiry. Taking into account the context and objectives of the Directive, the court concluded that the procedure before the agency did fall within its scope: "The general scope and obligatory nature that the right of the insured party to choose his lawyer or representative is recognised to possess militates against a restrictive interpretation".
Here, the employee had no right of appeal against the agency's decision, and so "it is indisputable that the rights of the employee are affected" by the agency's decision and so it was held that his interests as an insured person required protection.
(The CJEU went on to point out that Member States are free to make provision for the rules governing legal expenses insurance contracts, provided that the principles of the Directive are not thereby rendered meaningless. So for example, in the case of Sneller v DAS Nederlandse (see Weekly Update 42/13), the CJEU recognised that a Member State can restrict the amount to be paid by the insurer if the insured exercises its right to choose its lawyer).
Barrier v Redhall Marine: Incorporation of an arbitration clause
http://www.bailii.org/ew/cases/EWHC/QB/2016/381.html
Allyn Walton for applicant, Hawkswell Kilvington for respondent
The applicant sought an order for pre-action disclosure but the respondent alleged that the court had no jurisdiction to make the order because the parties had agreed to arbitrate disputes. The parties had entered into a subcontract which was said to incorporate the terms of a separate contract entered into between the respondent and a third party (the main contract). The main contract contained a valid arbitration clause.
The applicant submitted that ordinary contractual principles applied, but the respondent argued that special rules apply to the incorporation of arbitration clauses. In the case of Aughton Ltd v MF Kent Services Ltd [1991], the Court of Appeal was divided as to whether general words of incorporation were sufficient to incorporate an arbitration clause. In Habas Sinai v Sometal (see Weekly Update 03/10), Clarke J drew a distinction between incorporation of an arbitration clause entered into between two other parties or one of the parties and a third party, and incorporation where the same two parties had previously contracted. In the former case, there was a particular need to be clear that the incorporation of the arbitration clause was intended (ie there should be a specific reference to the arbitration clause), whereas in the latter case, no special rules applied. On the facts of this case, the general words of incorporation in the subcontract were not sufficiently clear to incorporate the arbitration clause in the main contract.
Gurieva v Community Safety Development Ltd: Whether defendant had grounds for failing to comply with a subject access request
http://www.bailii.org/ew/cases/EWHC/QB/2016/643.html
Brown Rudnick for claimants, Pannone for defendant
The defendant, a private investigator instructed by a firm of solicitors, had refused to comply with a subject access request ("SAR") made by the claimant, on a number of grounds. (Under section 7 of the Data Protection Act 1998, an individual can make such a request to a data controller who has processed the individual's personal data). Warby J considered the following grounds raised by the defendant:
(1) The defendant had sought to argue that the SAR was not valid because the claimant's solicitors had not given sufficient evidence that they were acting on behalf of the claimant. Section 7(3) of the Act provides that where a data controller "reasonably requires" further information in order to satisfy himself as to the identity of the person making a request, and has informed him of that requirement, the data controller is not obliged to comply with the request unless he is supplied with that further information. The judge held that this was not a valid objection on the facts of this case: "Where the requester is not the data subject it may be reasonable to look for proof of authority. But if the requester is a firm of solicitors which confirms its authority in the SAR itself, no more should ordinarily be required".
(2) The defendant also argued that it was entitled to rely on the privilege exemption. Schedule 7 paragraph 10 of the Act exempts personal data covered by legal professional privilege. The defendant sought to rely on the scale of the data in question and argued that it would be disproportionate to require it to seek legal advice on the privilege exemption in respect of each and every page which it holds. The judge rejected that argument, and the defendant's lack of any attempt to analyse which data was covered by the exemption. In any event, certain pre-existing documents had been given to the investigators and so would not be caught by litigation privilege.
(3) The judge also rejected the defendant's main argument that the court should not exercise its discretion to enforce compliance with the SAR on the basis that the application was a misuse of the Act and was being brought to gain an illegitimate procedural advantage in overseas criminal proceedings brought against the claimant by the defendant's client.
Warby J held that the Act does not require an individual to justify or explain its request and said that "It seems to me that in general terms the court...should not enquire into or permit investigation of the purpose for which a SAR has been made". He held that dictum by Auld LJ in Durant v FSA [2003] was not authority for the proposition that a data controller can rely on purpose as a ground for refusing to respond. In any event, there was said to be nothing inherently improper in the purpose of obtaining early access to information that might otherwise be obtained via disclosure.
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