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OVERVIEW
This article was authored by Joseph England of Quadrant Chambers.
Introduction
Following a trial lasting over three months and a 230-page judgment, Butcher J recently handed down a judgment dealing with consequential matters in the Russian aviation insurance litigation, the so-called "LP" (Lessor Policy) claims. Some claims had settled, or largely settled, by the time of the consequentials hearing.
The consequential matters in this case were especially significant due to the sums involved. In the AerCap claims, for example, debates about interest arose in the context of a c.£1 billion judgment in AerCap's favour and AerCap's costs were over £80 million. There were also complexities arising from: (i) the fact the claimants had sued both War Risk ("WR") and All Risk ("AR") insurers and, although all defendants to the claims, WR and AR were fighting each other on the issues of peril and causation i.e. whether any loss of the aircraft was caused by a WR or AR peril; (ii) whether to make a joint or several costs order against the various WR insurers; (iii) the effect of settlements; and (iv) in the Genesis claim, what costs order to make given Genesis had received an indemnity against all WR defendants save for its WR leader due to the effect of a cancellation notice that Butcher J found only applied to the slip leader rather than to the following WR market.
Interest
Butcher J said that "as a matter of technical and legal analysis, I accept an insurer is in breach in failing to pay the assured the sum due under the policy at the date of the loss" [6]. However, having given examples from case law, he noted the experience of the Commercial Court in relation to insurance claims in unusual cases or those that are not straightforward. He said: "In such cases, the court usually exercises its discretion on the basis it is proper to allow insurers some time to consider the claim. The time varies accordingly to the nature of the loss, the way the claim is presented and the circumstances that require investigation. In many cases the time may be quite short." [8]
In this case, Butcher J held that the date of loss (10 March 2022) was not the appropriate start date for the accrual of interest because of the finding he had made in his judgment that, in order for there to be a successful claim under the Lessor Policies, there should at least have been a claim made on the Operator Policies [12]. He also said that, as recognised in Quorum v Schramm (No. 2), the Court usually exercises its discretion to allow insurers some time to consider their position after a loss. In the present case, that time should not be an extensive period given the nature of the insurance and circumstances of the loss such that the insured could reasonably expect promptitude from insurers [13]. He found the appropriate time to be a little over a month from Genesis's letter of claim to its OP insurers dated 18 April 2023 and in the case of AerCap from the date AerCap issued its claim on 9 June 2022.
In terms of the rate of interest, Butcher J applied Foxton J's decision in Lonestar that - for judgments in US dollars - the default rate in the Commercial Court will be US Prime [20]. He indicated that if that position was to be departed from (including seeking plus or minus US Prime) that should be pleaded and subject to detailed evidence [21] to show that a claimant would not pay the rate US banks offer to their most creditworthy customers. He also rejected AerCap's claim for compound interest on the basis it was not adequately pleaded or proven. [27]
Costs in AerCap Claim
WR were ordered to pay AerCap's costs as it had succeeded under its WR policy but Butcher J reduced the costs by 35% on account of AerCap failing on its primary case that the loss was caused by an AR peril (AerCap's AR cover had no cap like its WR cover) and as some of AerCap's key witnesses and experts promoted an AR peril [45]. Butcher J rejected AerCap's estimate that the issue of peril only accounted for about 20% of its costs in the case.
Butcher J also held it was appropriate in this case for WR to be liable for costs on a several, not joint, basis in accordance with their percentage share on the WR slip, otherwise one insurer could be liable for an amount of costs out of all proportion to its liability under the slip.
In terms of the impact of settlements, Butcher J found that where a settlement between AerCap and Swiss Re and HDI had no order as to costs, the costs AerCap should recover from the other WR defendants should be reduced for the proportion of costs in respect of Swiss Re and HDI up to the dates of the settlements. He said otherwise there would be satellite litigation and contribution claims between the defendants. He also considered AerCap gained a financial advantage by agreeing to bear their share of the costs as against HDI and Swiss Re and that was priced into the settlements as a whole. [49]
In terms of AR costs, Butcher J held that AR should be awarded their costs given that they had, essentially, been successful and the judgment had found there to be no AR loss. However, he reduced their costs by 10% due to AR adopting other defences/arguments which were unsuccessful that went beyond the issues of peril or causation [45]. He held that WR insurers should, by way of a Sanderson order (having cited the key case on the subject of Irvine v Commissioner of the Police for the Metropolis) pay 65% of AR's costs and AerCap should pay 35% of those costs. This reflected AerCap having run a primary case of an AR peril albeit recognising that much of the fight and cost was between AR and WR insurers (and the issue of peril would have had to have been resolved in the other claims).
Costs in the Merx Claim
Butcher J held that WR should pay 100% of (90% of) the AR costs in the Merx claim as, unlike AerCap, Merx supported the AR case on peril with Merx's opening submissions describing the case for a WR peril as "irresistible". AR also relied on Merx's witnesses and experts. Butcher J rejected WR's argument that settlements reached between Merx and WR precluded a claim for costs by Merx against those insurers and that a Bullock order was appropriate. If the settling parties had failed contractually to provide for the situation of a Sanderson order being made against WR insurers, that was not a good reason not to make a Sanderson order if it was otherwise appropriate to do so, as Butcher J considered it to be [65-69].
Costs in the Genesis Claim
The Genesis claim was complicated by the fact that Genesis did not obtain an indemnity (of c.13%) under its WR slip from its WR slip leader (TMK 510) due to the effect of a cancellation notice. The other WR defendants agreed to pay Genesis's costs but on a several basis according to their shares on the slip and with TMK 510's share excluded; and sought a 20% deduction due to Genesis apparently failing on four issues. TMK 510 sought its costs against Genesis and a 50% payment on account.
Genesis argued that it was overall the successful party by obtaining an indemnity of over 80% under its WR slip and that all WR defendants had joined in a common cause of unsuccessfully resisting Genesis's claim under its WR cover and run and lost on a number of issues. Genesis said the costs caused in respect of TMK 510 alone would be de minimis and non-specific common costs rather than costs incurred by TMK 510 solely in respect of the Genesis claim. Genesis also resisted the broadbrush discount on the costs sought by the other WR defendants as Genesis was the successful party as against them and the issues on which Genesis did not succeed were reasonably advanced alternative arguments that had a low costs profile.
Butcher J nonetheless made a 15% reduction on account of Genesis running an alternative case on possessed cover and its primary case being that the loss occurred before the cancellation notices took effect on midnight of 2 March 2022 [77]. He also made a costs order against WR on a several basis for the same reasons given in other claims. He excluded TMK 510's share from that order as he held that TMK 510 had been successful and should have its costs but subject to a substantial discount of 35% due to running a number of unsuccessful defences. Butcher J also considered TMK 510's costs figure of over £2.1 million in the Genesis claim alone high and raised issues over apportionment of TMK 510's costs to the Genesis claim given its involvement in and greater exposure to other LP claims and awarded a payment on account of 45%. He also made a Sanderson order for the WR insurers to pay the AR insurers' costs in the Genesis claim but made Genesis pay TMK 510's share (based on its line on the slip).
Permission to Appeal
Finally, Butcher J refused WR permission to appeal but certain WR insurers have applied to the Court of Appeal for permission to appeal in respect of the main LP Judgment.
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