UK: (Re)insurance Weekly Update 29- 2016

Last Updated: 19 August 2016
Article by Nigel Brook
Most Read Contributor in UK, December 2017

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

This week's caselaw

National Iranian Oil Co v Crescent Petroleum: Judge holds that arbitration award challenge could not be discontinued

The claimants sought to challenge an arbitration award on liability in favour of the defendants (the arbitration has continued in order to decide quantum). The claimants then sought to discontinue the challenge proceedings unilaterally. CPR r38.4 provides that where a claimant seeks to unilaterally discontinue its claim, the defendant can apply to set aside the Notice of Discontinuance (although no guidance as to the circumstances when a court will set aside a Notice of Discontinuance is given in the rules). The letter which enclosed the Notice of Discontinuance in this case advised that the decision to discontinue should not be interpreted as an admission with regard to the claimants' grounds for challenging the award.

As a result, the defendants argued that this was a way "of avoiding the consequences of no longer asking the supervisory court to deal with the allegations made, and seeking to preserve them to be heard elsewhere in a less appropriate court".

In Sheltam v Mirambo Holdings (2008), the party which sought to discontinue its challenge of an arbitration award (because it had run out of funds) had offered an undertaking not to challenge recognition and enforcement of the award by using arguments raised in its section 67 application. That undertaking was accepted by the court. A similar undertaking by the claimants in this case was not accepted, because of the way it was worded. Burton J commented that "What might have been capable of consideration was an undertaking in no circumstances whatever to rely on these remaining grounds in any forum". However, since such an undertaking was not proffered (and even if it had, a risk of an attempt to resist enforcement in a NY Convention court remained, since the only sanction would be contempt proceedings), he concluded that the appropriate approach was to set aside the Notice of Discontinuance and to proceed to hear the challenge application (which he went on to dismiss).

Xstrata Coal v Benxi Iron & Steel: Court considers scope of Article 27 of the LCIA Rules and agrees to extend time to correct an award

Clyde & Co (Hatty Sumption and Peter Ward) for claimants

The defendant had refused to pay sums awarded by a tribunal because, it claimed, one of the four claimants in the arbitration (and these proceedings) had not been a party to the contract which contained the relevant arbitration agreement (which provided for arbitration under the LCIA Rules and with the seat of the arbitration to be London). The defendant, which is incorporated in China, had obtained a judgment from the Chinese courts that recognition and enforcement of the award should be refused, on the ground that there was no agreement to arbitrate between the defendant and the fourth claimant.  Accordingly, the claimants wished to use Article 27 of the LCIA Rules to request the arbitral tribunal to make an additional award or to correct the award which it had made, in particular to explain the basis upon which the Tribunal had found that it did have jurisdiction to resolve disputes between the fourth claimant and the defendant.

Article 27 provides that such an application must be made within 30 days of the publication of the award. Because it took over four years for the recognition proceedings in China to reach their conclusion, this deadline had necessarily long passed by the time the Claimants knew that they needed to apply to the Tribunal under Article 27.  The claimants therefore applied to the Commercial Court to extend time pursuant to its powers under section 79 of the Arbitration Act 1996 (the judge noted that "It is relevant to observe that, realistically, the time limit under Article 27 of the LCIA Rules would almost always expire before the outcome was known of a contested attempt under the New York Convention to obtain recognition and enforcement of an award in another country").

Article 27 provides that a request can be made to "correct in the award any errors in computation, clerical or typographical errors or any errors of a similar nature". "Errors of a similar nature" was held to include clarifying or removing any ambiguity (a phrase used in section 57 of the Arbitration Act 1996). The judge held that although the language of Article 27 and section 57 differed, those differences were not material. The judge concluded that "the claimants would be entitled to request the tribunal to make corrections to the award that would clarify a matter that omission had left unclear or unambiguous" (ie the tribunal should explain how it had concluded that the claimant was a party to the arbitration agreement).

An extension of time was granted. The judge was satisfied that a substantial injustice would otherwise be done (section 79(3)(b)). Even though questions of enforcement had already been decided by the Chinese courts, "without correction, it is reasonable to assume that attempts to seek recognition and enforcement of the Award will be met by the same type of challenge elsewhere in the world as the [defendant] has mounted in China".

Dawnus Sierra Leone v Timis Mining: Security for costs application and disclosing identity of third party funder/identifying if a counterclaiming defendant is a claimant

CPR r25.14 permits the court to make a security costs order against someone other than the claimant. The claimant in these proceedings sought a security for costs order against the defendant (on the basis that it was a claimant in relation to its counterclaim – see further below) and alternatively sought an order that the defendant disclose the identity of the third party funder funding its litigation (so that it could then make an application against the funder under CPR r25.14).

The judge accepted that the court has the power to make such an order in order to give efficacy to CPR r25.14, but declined to do so, on the basis that there was no evidence that the defendant had agreed to share the proceeds of litigation with the funder (who had taken no security and received no fee for its loan).

As to the counterclaim, the claimant argued that the counterclaim introduced complex new elements into the proceedings, and had an "independent vitality of its own".

The judge agreed that the counterclaim did have an independent vitality of its own but held that the important question is not whether the defendant stands in the position of a claimant as a matter of technicality (as it did here), but rather as a matter of substance. The key factor here was that the defendant would not have sought to instigate proceedings here had the claimant not done so: indeed, it had started its own proceedings in Sierra Leone and had sought to stay the English proceedings: "In considering this central question, one cannot ignore what has gone on in Sierra Leone...The researches of counsel have found no case that is similar in respect of the existence of foreign proceedings and the peculiarity of what may be termed a cross-claim with obvious independent vitality which, nevertheless, has not been actively sought and would not have been actively sought in this jurisdiction. Accordingly, I must deal with the matter in accordance with the rule and its underlying rationale".

Noting that the purpose of the rule is to protect a party who is forced into litigation at the election of someone else against adverse costs consequences, the judge concluded that the application for security for costs should be refused.

Apex Global v Fi Call: Whether default judgment should be set aside on the ground of fraud

As has been previously reported in Weekly Update 44/14, at a CMC, the appellant was ordered to file and serve a disclosure statement certified by a statement of truth, to be personally signed by him. Although the appellant's duty of disclosure was explained to him by his solicitors, the statement of truth was signed by the appellant's agent (because the appellant is a Saudi prince and, it was claimed, there is a Saudi Arabian protocol that members of the Royal Family should not become involved in any way in litigation). The respondents applied for, and obtained, an unless order, and when the appellant failed to comply with that order his defence was struck out and judgment entered against him. The Supreme Court subsequently dismissed the appeal from that decision and refused to order relief from sanctions.

The issue in this case was whether the default judgment should be set aside where the prince alleged fraud. (Although the judge did not in the end need to decide the point, he decided to give his preliminary views on the basis in case he was wrong on other arguments raised in the case).

It was argued that the default judgment could only be set aside if the claim was plainly and obviously flawed or unsustainable and "Only a process that did not require a trial was available to Prince Abdulaziz: for the same reason as he had been debarred from defending the trial (failure and refusal to make a disclosure statement), so too he could not prosecute a claim based on fraud (which would necessitate a disclosure statement likewise)".

Relying on the decision of Gentry v Miller (see Weekly Update 10/16), in which the Court of Appeal refused to allow an insurer to set aside a default judgment on the basis of fraud, the judge held that "Prince Abdulaziz could only set aside the Default Judgment if in separate proceedings which proceed to trial he ultimately demonstrates that the claim on which it was based was fraudulent. If (as is the assumption on which this question is premised) he had failed to satisfy the requirements for summary judgment, a separate action to establish fraud is the only remaining recourse. In that separate action Prince Abdulaziz would have to fulfil the procedural requirements (which may well include those he apparently felt unable to fulfil in these proceedings) or once more be unable to proceed to establish his claim".

(Re)insurance Weekly Update 29- 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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