UK: (Re)Insurance Weekly Update 25- 2016

Last Updated: 21 July 2016
Article by Nigel Brook
Most Read Contributor in UK, November 2017

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

Connect Shipping v The Swedish Club: Whether notice of abandonment was given in time and whether certain costs were recoverable – of possible interest to marine insurers

Following a fire on board a vessel on 23rd August 2012, the owners contended that they were entitled to be indemnified on a constructive total loss ("CTL") basis. They gave notice of abandonment (NOA) on 1 February 2013. Insurers agreed that the owners were entitled to be indemnified, but only on a partial loss basis. They argued that the NOA had been given too late.

Section 62(3) of the Marine Insurance Act 1906 provides that a NOA "must be given with reasonable diligence after the receipt of reliable information of the loss, but where the information is of a doubtful character, the assured is entitled to a reasonable time to make inquiry".

Knowles J held that the NOA had been given in time. Achieving reliable information of the loss would be a complex task and take time here: "Broadly speaking, it was not realistic to take one source in isolation; the presence of conflicting information from other sources threw the reliability of any one source into question. The assessment to be made was a major one for any person to make, if it was to be undertaken reasonably and responsibly. It is also important to keep in mind the difference between the calm of the courtroom some years later with the moving situation in Egypt at the time".

He also held that, although it is necessary to distinguish between knowledge of facts and the conclusions to be drawn from them, the task of ascertaining what repairs were needed (and how much they would cost) amounted to "facts" rather than "conclusions".

The judge also considered what costs would be included in the CTL calculation. Amongst other issues, he held that the cost of recovery or repair before NOA was given should be included in the calculation. The policies had incorporated the Institute Time Clauses – Hulls (1/10/83) and the Institute Time Clauses – Hulls Disbursement and Increased Value Clauses (1/10/83) and neither limited the cost or recovery or repair to after NOA (in reaching this decision, the judge departed from part of the decision in the "Medina Princess" (Helmville Ltd v Yorkshire Insurance Company Ltd) [1965]. There are therefore now two conflicting High Court decisions on the point).

It was also held that the owners could not have given a "protective NOA": once a NOA is accepted, the abandonment is irrevocable and binds the insured if accepted (even if the insured has not yet made up its mind on whether to call for a CTL).

The judge also held that the owners should be allowed a 10% contingency in respect of post-NOA repairs (rather than the 5% argued for by insurers).

Mitsui v Beteiligungsgesellschaft: Whether certain expenses were allowable as general average, after ransom demand was paid – of possible interest to marine insurers

A vessel laden with cargo was seized by pirates and, following a negotiation of almost two months, a ransom was paid of USD 1.85m (the original demand was for USD 6 million). The issue in this case was whether the vessel operating expenses incurred during the period of negotiation are allowable in General Average. The bill of lading stated that General Average would be settled in accordance with the York-Antwerp Rules 1974. It was accepted that the ransom payment itself was allowed under Rule A of the Rules. The main dispute was whether the negotiation period expenses would be allowed as substituted expenses under Rule F.

Rule F provides that: "Any extra expense incurred in place of another expense which would have been allowable as general average shall be deemed to be general average and so allowed without regard to the saving, if any, to the other interests, but only up to the amount of the general expense avoided".

The Court of Appeal held that the judge had erred in concluding that the expenses were incurred in adopting a course of action as an alternative to (or in substitution for) one where the expense would have been allowable as general average. There had been only one course open after the hijacking of the vessel (ie negotiation to achieve the release of the vessel and cargo). Whether or not a ransom is paid on demand, there will still be a negotiation, delay and the incurring of running costs during the period of delay: "there is only one road open to owners.... It is a single track road with no forks in the road and it ends in the eventual ransom payment agreement. That there are no forks in the road is significant. Just as acceptance of the initial ransom demand is not a true alternative; nor is acceptance of any other ransom sum less than that initially demanded but greater than that eventually agreed".

Accordingly, the negotiation period expenses were not recoverable under Rule F.

The Court of Appeal further found that, had the expenses been recoverable under Rule F, they would have been reasonably made or incurred (and so allowable as general average under Rule A), in the event that the owners had paid the initial ransom demand without attempting to negotiate (ie had the owners paid USD 6 million). In reaching that conclusion, the Court of Appeal agreed with the conclusion in Masefield AG v Amlin (see Weekly Update 08/10) that "the most safe, timely and effective means of [securing the release of a ship and crew] is to pay as soon as possible. It may be that the general practice was to try to negotiate the ransom down, but that does not mean that it would be unreasonable to pay the ransom straight away so as to avert the very real danger to vessel, cargo and crew as quickly and effectively as possible".

Campbell v Gordon (Scotland): By a narrow majority, the Supreme Court rejects claim against director of a company which failed to take out appropriate employers' liability insurance

The appellant was employed by a company which failed to buy appropriate employers' liability insurance, in breach of its obligation under the Employers' Liability (Compulsory Insurance) Act 1969. As a result the employee was unable to claim under the policy following a workplace accident. The company went into liquidation and the employee sought to claim damages against a director of the company for the company's failure to provide adequate insurance cover. By a majority of 3:2, the Supreme Court has now rejected that claim.

The employee had sought to draw an analogy with Monk v Warbey [1935], in which the Court of Appeal held a car owner (who had allowed an uninsured driver to use the car) liable in damages to a third party for breach of his statutory duty to insure. That argument was dismissed by the Supreme Court because: "there is no basis in the caselaw for looking through the corporate veil to the directors or other individuals through whom the company acts. That can only be done if expressly or impliedly justified by the statute".

Merchant International v Naftogaz Ukrainy: Court of Appeal decides whether security condition should be imposed on permission to appeal

The respondent sought an order (pursuant to CPR r52.9) that a condition be imposed on the permission to appeal (granted earlier by the Court of Appeal) that the appellant provide security for the full amount of the unpaid judgment debt (plus unpaid costs and the estimated costs of the appeal).

The Court of Appeal reviewed prior caselaw in which an application for security of the judgment debt as a condition of the appeal was made. It summarised the position as follows:

  1. A compelling reason is required to impose such a condition, and the court should exercise caution.
  2. The fact that judgment has been entered against the appellant, and no stay sought, does not in itself amount to a compelling reason.
  3. Each case turns on its particular facts, but a court is likely to find a compelling reason where the judgment debtor has previously taken steps to puts its assets beyond the reach of normal enforcement processes (or is likely to do so in the future). However, even if this factor cannot be established, there may still be a compelling reason if there are considerable practical difficulties in effecting execution.

Applying those principles to this case, the Court of Appeal agreed to impose the condition. The appellant was an entity against which it will be very difficult to exercise the normal mechanisms of enforcement. It has the resources both to mount the appeal and pay the judgment debt and so the appeal would not be stifled. Furthermore, the appellant had shown that it has no intention of honouring the judgment against it unless forced to do so, and would attempt to dispose of its assets to put them beyond enforcement procedures (although that factor alone would not have been enough to justify imposing the condition).

Finally, the Court of Appeal held that the fact that this was an execution appeal (ie not against the judgment in favour of the respondent, but against an order made as part of the process of execution) did not justify the court adopting a different stance.

Purrunsing v A'Court: Interest after the date of acceptance should be excluded when deciding if a Part 36 offer has been beaten

One of the issues in this case was whether the claimant had bettered its Part 36 offer. On the facts of the case, the claimant had only beaten the offer if interest was added to the offer from the expiry of the date for its acceptance up until the date of judgment.

CPR r36.5(4) provides that a Part 36 offer will be treated as inclusive of all interest until the date for acceptance expires (or 21 days have expired since the offer was made). HHJ Pelling QC held that "the only interest that is material is that included or deemed included within the offer". Interest accruing after the end of the date for acceptance up until the date of judgment was not to be taken into account when deciding if the offer had been beaten: "If it was otherwise then whether an offer from a claiming party should be accepted by a defending party would depend not on an analysis of liability in respect of the claim but what in many cases will be entirely unpredictable namely the date when a trial takes place and what is perhaps even more unpredictable, when judgment will be handed down".

COMMENT: This decision reaches the same conclusion as the Court of Appeal in Stephen Blackman v Entrepose (2004), which was decided before the changes to the Part 36 rules in 2007 (and in 2015).

Aqua Global v Fiserv: Court considers whether document can be redacted

CPR r31.14 provides that a party may inspect a document mentioned in a statement of case. The claimant sought inspection of a document referred to in the defence (a licence agreement). The defendant wished to provide only a redacted copy of the agreement, on the basis that some parts of the agreement were said to be irrelevant.

Referring to textbook commentary, Chief Master Marsh noted that there is no difficulty in redacting a document which contains two or more distinct subject matters, only one of which is relevant (eg board minutes) or where a document lists the names of individuals whose identity is irrelevant. As stated in Documentary Evidence by Charles Hollander QC, "A distinction should be drawn between the blanking out of names and the blanking out of a separate part of a document. Where names are blanked out, it will usually be obvious to the other party what has occurred and why, and it will be open to the other party to make an application to court in case of dispute. But where part of a document is blanked out, it will not be apparent to the other party what has been blanked out and the other party may not have the basis of a challenge. So it is the solicitor's obligation not to blank out in such circumstances unless satisfied that there is an entitlement to redact".

In this case, the document in question was a single document referred to in the defence and so the starting point was that the claimant had a right to inspect it without limitation. Although the document contained commercially sensitive information, that could be protected by other means (eg an order under CPR r31.22 and an order preventing non-party access to the court file without the permission of the court). It was concluded that, although elements of the agreement were of only "marginal" relevance: "I do not consider, however, that redaction of parts of the document is either necessary or desirable. It is axiomatic that the meaning of a document must be derived from a consideration of the whole document. This is not a case which is analogous to the example given by Mr Hollander QC of board minutes where it is obvious that there are different subject matters".

Brown v BCA Trading: Court approves use of predictive coding where one party objected

"Predictive coding" (also known as technology, or computer, assisted review), is a method whereby software analyses documents and "scores" them for relevance, and thereby reduces both the time and costs needed to complete an electronic disclosure exercise. Typically, the parties agree a protocol and a representative sample of potentially relevant documents is then obtained. A single, senior lawyer, who has mastered the issues in the case, will usually then consider the initial representative sample (marking it as relevant or not), in order to "train" the software to review the whole document set. Further statistical sampling by humans (usually taking at least 3 rounds) is then conducted to ensure the quality of the exercise. Once an acceptable level of accuracy is reached, the software then categorises all the documents.

Weekly Update 07/16 reported the decision of Pyrrho Investments Ltd v MWB Property, in which the parties had agreed the use of predictive coding, but had sought (and received) approval for this from the court. In this case, one party objected to the use of predictive coding.

Registrar Jones held that predictive coding should be ordered. He applied the various factors identified in the Pyrrho decision, and placed importance on the "extremely significant" costs saving (or around Ł120k, on a conservative estimate), although he noted that cost alone is not a determining factor. It must be shown that the predictive coding will be effective and achieve the disclosure required. That does not depend merely on the software used – it also requires the parties to identify what documents should be disclosed within the context of proportionality and the overriding objective. It was held that there was nothing, as yet, to suggest that predictive coding could not achieve that (in the same way that a keyword search would).

It was also held that the lawyers must "identify by reference to the true issues, the anticipated categories of documents and to enter into discussions to minimise the work required". Accordingly, directions were given for the parties to "sit down before the predictive coding begins in order to discuss the criteria to adopt and the general process of disclosure".

AS Latvijas v Antonov: Applicable law for recovery of interest plus judgment debt interest

It was held that the defendant had breached duties owed to the claimant Latvian bank. The issue in this case was which law governed the bank's claim for interest on its damages. Some breaches occurred pre-January 2009 and some occurred after that date. The breaches before January 2009 fell outside the temporal scope of Rome II and so the Private International Law Act 1995 applied instead. This meant that the existence of a right to recover interest was a question governed by Latvian law, but the English court's discretion to award interest is a procedural issue which is governed by English law. By contrast, Leggatt J held that the position under Rome II meant that the rate of interest recoverable on damages is governed by Latvian law.

The judge also held that for sums denominated in Euros, the appropriate commercial rate of interest should be 2% above the European Central Bank rate (and for damages denominated in US dollars, it should be 2.5% above 6 month US dollar LIBOR).

The Judgments Act 1838 provides that every judgment debt shall carry interest at a rate of 8% p.a.. However, the court has a discretion (under the Administration of Justice Act 1970) to award a different rate of interest if the judgment debt is expressed in a currency other than sterling. Leggatt J held that in this case, the appropriate rate should be 6% p.a. (the rate which a Latvian court would have applied). That was because: "I do not think it right that for any period while the judgment remains unpaid the Bank should be prejudiced by the fact that these proceedings have been brought in England because the defendant had re-located here after the Bank collapsed, rather than in Latvia where the Bank's losses were incurred and are being felt".

(Re)insurance Weekly Update 25- 2016

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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