Welcome to the fourteenth edition of Clyde & Co's (Re)insurance and litigation caselaw weekly updates for 2015
This Week's Caselaw
Jetivia SA v Bilta
Supreme Court considers whether a company which is a victim of fraud by its directors can sue those directors/the ex turpi causa defence
The Court of Appeal decision in this case was reported in Weekly Update 30/13. The directors of Bilta perpetrated a VAT fraud which left Bilta owing HMRC over £38 million. Bilta was wound up and its liquidators sought to claim against the former directors. The directors in turn raised the ex turpi causadefence (which is a public policy principle that prevents a claimant from using the court to benefit from his own illegal conduct). The directors' argument was rejected at first instance and the Court of Appeal dismissed the appeal from that decision. The Supreme Court has now unanimously dismissed the directors' further appeal.
Although the Supreme Court's decision was unanimous, differing reasons for the decision were advanced by the Lords.
Lords Neuberger, Clarke and Carnwath held that illegality could not be raised as a defence because the wrongful activity of Bilta's directors cannot be attributed to Bilta in these proceedings. They disapproved of the expression "the fraud exception"(ie in an action for breach of duty against the directors there cannot be attributed to the company a fraud which is being practised against it by its agent, even if it is being practised by a person whose acts and state of mind would be attributable to it in other contexts). Instead they (and Lord Mance) saw the question as an open one: whether or not it is appropriate to attribute the act of a director to the company in relation to a particular claim.
Lord Sumption held that prima facie there was attribution, regardless of the nature of the claim, but that a breach of duty exception applied (he noted that this is commonly referred to as the fraud exception, but said that it was not limited to fraud).
Lords Toulson and Hodge based their decision on the question whether the illegality defence would deprive the duties owed by the directors to the company of all content (but did not believe that the directors' acts could be attributed to Bilta either).
COMMENT: As in the House of Lords case of Stone & Rolls v Moore Stephens (see Weekly Update 28/09), there was disagreement here as to the precise rationale for the court's decision. (In Stone Rolls, the House of Lords allowed the ex turpi causa defence where a claim was being brought against a third party by the company, rather than against the fraudulent directors themselves). These two decision therefore lead to the sense that the courts will look at the overall justice of each case in order to determine whether the defence should be allowed. In this case, it was plainly unjust to bar a claim by the victim of the fraud (ie the company) against the very perpetrators of that fraud by attributing the fraudulent acts to the company.
The London Steamship Owners' Mutual Insurance Assocn v (1) Spain (2) France
Court of Appeal considers whether right of direct action against an insurer under foreign law was subject to the terms of the insurance policy
The first instance decision in this case was reported in Weekly Update 40/13. The claimant insured a vessel which sank off the coast of Spain, causing an ecological disaster. Both Spain and France brought criminal proceedings directly against the insurer in Spain (relying on both the International Convention on Civil Liability for Oil Pollution Damage ("the CLC") and Spanish legislation (for non-CLC claims relating to the insurer's obligation to indemnify the owners against their independent liability for the tortious acts of the master)). The insurer obtained negative declaratory relief from a London arbitral tribunal and sought to enforce the award as a judgment in England. The key issue was whether the direct action brought by Spain and France for the non-CLC claims was subject to the terms of the insurance policy (and, in particular, the arbitration agreement and "pay to be paid" clause). Spain and France argued that they were not bound by the arbitration agreement in the policy because their rights of direct action arose independently under Spanish law.
At first instance, Hamblen J granted the application to enforce the award as an English judgment (with the result that the insurer could rely on the (then) Article 34(3) of the Judgments Regulation to prevent recognition of any later Spanish judgment against the insurer). Spain and France appealed and the Court of Appeal has now held as follows:
(1) The nature of the right conferred by Spanish legislation is defined by the insurance policy (and is not an independent statutory right): "Where a wrongdoer is insured against liability of some kind it will be possible to identify an insurer who may be held liable in his place, but, unless the legislation is intended to work in an arbitrary fashion, it will be necessary to establish that the contract covers the liability in question. That in turn means ascertaining the limits of the insurer's obligation, which also means that he should be able to raise any defences that would be available to him in an action brought by the insured" (as per Moore-Bick LJ). It is only if the legislation conferring the right of direct action expressly prevents the insurer from relying on the terms of the policy that it can be said that a new right (which is not intended to mirror in substance the insurer's liability under the policy) has been created. In this case, the Spanish legislation in question pointed to the conclusion that it was intended to enable the enforcement of obligations arising under the insurance policy. Since the policy provided for London arbitration, under English law Spain and France must pursue their claims against the insurer in arbitration.
(2) France and Spain were not entitled to claim state immunity for the following reasons:
(a) They had "taken a step" in the English proceedings (and so the exception set out in section 2(3) of the State Immunity Act 1978 applied). The Court of Appeal confirmed that merely filing an acknowledgment of service does not amount to a waiver of immunity (in this case, the box headed "I intend to dispute the court's jurisdiction" had not been ticked).
However, Spain and France had commenced proceedings under section 67 and 72 of the Arbitration Act 1996 (challenging the award) and so had waived immunity in relation to the insurer's application under section 66 of the Act (to enforce the award) too: "If the application had been issued only for the purposes of claiming immunity, it would not have constituted a relevant step in the proceedings… but in fact by its application notice Spain sought a declaration that the arbitrator did not have substantive jurisdiction because there was no arbitration agreement between itself and the [insurer]. The application notice, therefore, was directed to the substantive grounds for setting aside the award and had nothing to do with Spain's right to claim immunity from the jurisdiction of the court".
(b) Although not necessary to decide the point, the Court of Appeal also held that section 9(1) of the 1978 Act applied: "Where a State has agreed in writing to submit a dispute which has arisen, or may arise, to arbitration, the State is not immune as respects proceedings in the courts of the United Kingdom which relate to the arbitration".
Spain and France had not consented to the arbitration merely by acquiring a right under Spanish law to make a claim against the insurer. However, by bringing proceedings in Spain to enforce against the insurer an obligation which was subject to an arbitration clause, it was held that they had consented to arbitration. The Court of Appeal agreed with Hamblen J that there was no need for a document signed by or on behalf of the state for there to be an "agreement in writing". Instead, by pursuing the claim in Spain, Spain and France had adopted the arbitration clause (even though they had not formally signed it).
Accordingly, the appeal against the order enforcing the award was dismissed.
Moreno v Motor Insurers' Bureau
Court considers impact of Rome II on assessment of damages for English national injured by uninsured driver in Greece
The claimant, an English national, was injured by an uninsured driver in Greece who was driving a car which had been registered there. She therefore made a claim against the Motor Insurer's Bureau under Regulation 13 of the 2003 Regulations (which implemented the fourth motor insurance directive). Liability was admitted but there was a dispute as to whether the measure of compensation payable should be assessed in accordance with Greek or English law (in this case, the level of damages would be higher if assessed by English law).
The same issue was considered by the Court of Appeal in Jacobs v Motor Insurers' Bureau (see Weekly Update 40/10). There, it was held that English law governed the assessment of damages and it was said that the Rome II Regulation (which the ECJ eventually held was not in force at the relevant date inJacobs) would not change this position. This was despite the basic position prescribed by Rome II that, for claims in tort for personal injury, the law of the country in which the damage was inflicted applies to issues of both liability and damages.
In this case, Gilbart J agreed that the position prior to the coming into force of Rome II was that compensation was assessed in accordance with the law of the country hearing the claim (ie, here, the law of England and Wales). However, he said that since Rome II came into effect, if a UK claimant is injured in a motor accident in Greece by an uninsured driver, the law by which compensation will be calculated will be the law of Greece. However, he said that he was bound by the decision in Jacobs (even though he believes it was wrongly decided).
It is worth noting that the judge subsequently granted the MIB a certificate allowing it to appeal this decision directly to the Supreme Court.
Webb v Liverpool Womens' NHS
Whether court can make an issues-based costs order where claimant beat its Part 36 offer
The claimant made a Part 36 offer covering her entire claim. It was rejected but she went on to beat it at trial. However, she lost on one issue. The defendant therefore argued that it was entitled to an issues-based (or proportionate) costs order. The claimant countered that it is not possible to make an issues-based costs order where a Part 36 offer has been bettered because Part 36 is a self-contained regime and costs have to be considered in the context of that regime and not the regime created by Part 44.
Saffman HHJ held that, leaving aside the Part 36 offer, an issues-based costs order would have been appropriate in this case (the issue on which the claimant had failed having been a separate, self-contained and discrete claim). The judge went on to consider the effect of the Part 36 offer on that position. He held that the fact that there has been a successful Part 36 offer does not mean that the court is unable to make an issues-based order: "I accept that Part 36 is a self-contained regime and that the Rule itself makes no reference to such orders - in distinction to Part 44.2. Nevertheless, in so far as such an order is necessary to avoid injustice it is in my view permissible for the court to make it". Accordingly, the claimant would be entitled to only a percentage of her costs under Part 36.
Birdseye v Roythorne
Whether privilege can be only be waived by someone who is aware of their rights
This case involved alleged waiver of legal advice privilege by executors. Of general interest is the argument raised by one of the executors that his reference to advice given to him by his solicitors did not amount to a waiver because he had not been aware of his rights at the time. The executor referred to the general principle that a right cannot be waived unless a person is aware of his right of election as well as the facts giving rise to it (see eg Peyman v Lanjani ).
However, Newey J confirmed that that principle does not apply to waiver of privilege. In so doing he cited Thanki, "The Law of Privilege": "the basic position in England is that once the substance of privileged material is divulged to one's opponent, even by accident and even where there is no implication of an intention to waive, privilege is prima facie lost" and that waiver in this context differs from its meaning elsewhere in the law. The judge also rejected an argument that privilege can be waived by accident only at trial or as a result of disclosure by list and inspection: "To my mind, however, privilege can be waived by inadvertence at any point".
However, the judge did note that it may be easier to remedy a mistake made in advance of trial (eg by applying for an injunction or relying on CPR r31.20 (which provides that where a party inadvertently allows a privileged document to be inspected, the other side can use it only with the permission of the court).
Christofi v National Bank of Greece
Whether time for an EU resident to appeal registration of a judgment can be extended
CPR r74.8 provides that if a judgment debtor is not domiciled within a Contracting State, and an application to extend the time for appealing registration of a foreign judgment is made within two months of service of the registration order, then the court may extend the period for filing an appellant's notice against the registration order. In all other cases, the rule provides that the appellant's notice must be served within one month or, where service is to be effected on a party not domiciled in England and Wales, two months of the service of the registration order.
The issue in the case was whether an EU resident could ask the English court to extend time for appealing registration.
The judge held that he cannot. The fact that the rule expressly refers to extending time for a non-EU resident, but is silent in relation to EU residents implies that the Rules Committee envisaged that an extension of time could not be given to an EU resident. Nothing in previous European and domestic case law contradicted that view. Accordingly, "there is no general power to extend the mandatory two month time limit for appealing in this case. The Court is obliged to enforce that time limit strictly, subject only to the residual power to extend a mandatory time limit in the rare case where its application would impair the very essence of the right of appeal, and strict adherence to it would infringe Article 6 ECHR".