A summary of recent developments in insurance, reinsurance and litigation law.
SFO v Eurasian Natural Resources Corpn: Court of Appeal considers the scope of litigation privilege and who is the "client" for legal advice privilege
The first instance decision in this case was reported in Weekly Update 17/17. The SFO sought disclosure of documents generated during investigations undertaken by the defendant's solicitors and accountants in relation to a SFO investigation. It was held that neither litigation nor legal advice privilege could be claimed in respect of most of those documents and the defendant appealed. The Court of Appeal has now upheld that appeal. It held as follows:
(1) Litigation Privilege: The Court of Appeal held that it was largely a factual issue whether criminal or civil proceedings are reasonably in contemplation. Here, the judge had erred in finding that proceedings were not reasonably in prospect. Whilst not every expression of concern by the SFO could be regarded as adversarial litigation, here the SFO had made clear the prospect of its criminal prosecution, and legal advisers were engaged to deal with that situation. (The judge had commented on the position in the insurance-related case of Westminster v Dornoch (see Weekly Update 34/09), in the context of whether litigation can be in prospect even if investigations are not yet complete, but the Court of Appeal did not review that case in any detail).
At first instance, the judge had also held that litigation privilege covers litigation tactics (including settlement) but does not cover advice on how best to avoid contemplated litigation. That was held by the Court of Appeal to be wrong. It was said that "In both the civil and the criminal context, legal advice given so as to head off, avoid or even settle reasonably contemplated proceedings is as much protected by litigation privilege as advice given for the purpose of resisting or defending such contemplated proceedings".
There was also a consideration of the situation where there are potentially 2 separate purposes in creating a document: In Waugh v British Railways Board , it was held that a report was produced for 2 separate purposes (rail safety and litigation) and that litigation privilege could attach only if dealing with anticipated litigation is the dominant purpose. That decision was followed in the later cases of Re Highgrade  and Bilta v RBS (see Weekly Update 5/18), where it was held on the facts that such dominant purpose existed (and in fact it was said in this case to be hard to see what any alternative purpose might have been in those two cases). The dominant purpose test was satisfied in this case as well: although the defendant had wanted to deal with governance issues too, it was clear that the investigation was primarily intended to deal with future litigation.
(2) Legal Advice Privilege: Given the finding that the relevant documents were protected by litigation privilege, it was not necessary for the Court of Appeal to determine whether legal advice privilege applied as well. The Court of Appeal also recognised that it would be "highly undesirable for us to enter into an unseemly disagreement" with the judgment of the Court of Appeal in the Three Rivers (No.5)  case, and that "If the ambit of Three Rivers (No. 5) is to be authoritatively decided differently from the weight of existing opinion, that decision will, in our judgment, have to be made by the Supreme Court rather than this court".
The decision in Three Rivers (No.5) has been the focus of several recent High Court judgments, some of which have criticised its finding that not all officers and employees (and ex-employees) within a company should be treated as the "client" for the purposes of legal advice privilege, and that only those employees within the organisation who are dealing with the matter on which the lawyer is giving advice will be the “client”.
At first instance in this case, the judge affirmed the Three Rivers (No.5) decision but in this case, the Court of Appeal said that "If … it had been open to us to depart from Three Rivers (No. 5), we would have been in favour of doing so". That was because it recognised that, whilst the Three Rivers' approach presents no problems for individuals and many small businesses, it does not cater for legal advice sought by large national and multinational corporations: "If a multi-national corporation cannot ask its lawyers to obtain the information it needs to advise that corporation from the corporation’s employees with relevant first-hand knowledge under the protection of legal advice privilege, that corporation will be in a less advantageous position than a smaller entity seeking such advice. In our view, at least, whatever the rule is, it should be equally applicable to all clients, whatever their size or reach. Moreover, it is not always an answer to say that the relevant subsidiary can seek the necessary legal advice and, therefore, ask its own lawyers to secure the necessary information with the protection of legal advice privilege. In a case such as the present, there may be issues between group companies that make it desirable for the parent company to be able to procure the information necessary to obtain its own legal advice".
It was further recognised that the current English law approach is out of step with the international common law on this issue. Nevertheless, for now, it remains correct.
The Court of Appeal declined to resolve a further argument that all working papers produced by a lawyer should be privileged, provided that they are confidential documents created for the purpose of giving legal advice (and there should be no additional requirement that the documents would betray the tenor of legal advice given by the lawyer). That issue too, it decided, would be better decided by the Supreme Court. It remains to be seen if this case will be appealed further to the Supreme Court.
Hodgson v National House Building Council: Judge considers whether insured is required to reinstate property
The claimant's bungalow was constructed by a builder and the property had the benefit of an NHBC Buildmark policy which, broadly, provided that NHBC would pay, in certain circumstances, the cost of remedial works. By the time of the claim against the NHBC in this case, the claimant had sold the property without carrying out any remedial works.
One of the defences advanced by the NHBC in defence of the claim was that the claimant had suffered no recoverable loss because he will never now incur the costs of remedial works. It was argued that the NHBC policy was a contract of indemnity, covering loss suffered by the claimant, but diminution in the property's value was said to be expressly excluded.
Reference was made to the case of Great Lakes Reinsurance v Western Trading (see Weekly Update 36/16), in which the insured sought the cost of reinstatement from property insurers in circumstances where the insured had no intention of reinstating and the value of the property had increased as a result of the fire. Clarke LJ had said, obiter, that "I doubt whether a claimant who has no intention of using the insurance money to reinstate, and whose property has increased in value on account of the fire, is entitled to claim the cost of reinstatement as the measure of indemnity unless the policy so provides".
That view contrasted, though, with the view in Colinvaux's Law of Insurance that "subject to the terms of the policy, the insurer will be liable on the cost of reinstatement basis even where actual reinstatement is no longer possible, as for instance where the damaged premises have been sold… in which case the cost is assessed on a notional reinstatement basis".
The judge in this case held that "There is no decided authority that where the claim is in respects of defects in or damage to property, such loss cannot include the cost of remedial works if the remedial works will not be carried out. The views expressed in the Great Lakes case are obiter and at odds with the views expressed in a leading textbook". In any event, the policy in this case did not provide for the NHBC to indemnify against loss – it instead required the NHBC to pay the "Cost", as defined in the policy (and so could be distinguished from Great Lakes on that basis). She further found that there was no general exclusion of liability for diminution in value in the policy.
Vik v Deutsche Bank: Court of Appeal considers committal order issues where defendant is out of the jurisdiction
The earlier decisions in this case were reported in Weekly Updates 46/16 and 10/17. The defendant, a judgment debtor who is domiciled in Monaco, breached an order pursuant to CPR r71 to provide information. The claimant applied for a committal order and Teare J held that a party who alleges breach of an order made under CPR r.71 does not have to proceed under CPR r71.8, but can instead elect to proceed with a committal application under CPR r81 (which has extra-territorial effect). When Teare J found that the applicant could not bring itself within one of the jurisdictional gateways of PD 6B, it sought to argue that permission to serve out was not required and Teare J accepted that argument. The defendant then appealed to the Court of Appeal which has now held as follows:
(1) Teare J was correct to find that the CPR r71 procedure does not supplant that available under CPR r81.
(2) Teare J was also correct to find that permission to serve out was not required because the English court already had substantive jurisdiction over the defendant because he had been personally served with the CPR r71 order and the order for committal was incidental to that CPR r71 order.
Those conclusions were sufficient to dispose of the appeal. Nevertheless, the Court of Appeal also considered the judge's view that the claimant also did not need permission to serve out because of Art. 24(5) of the Recast Regulation, which provides that, regardless of the domicile of the parties, "in proceedings concerned with the enforcement of judgments, the courts of the Member State in which the judgment has been or is to be enforced" shall have exclusive jurisdiction. The Court of Appeal said that its provisional view was that the judge had been correct on this point too.
The Court of Appeal also felt that the Rules Committee should consider introducing a new gateway allowing service on an officer of a company "where the fact he is out of the jurisdiction is no bar to the making of a committal application".
Dreymoor Fertilisers v Eurochem: Judge rules documents and evidence given by US citizen in the US can be used in London arbitrations
The defendant in this case had applied to a US court under section 1782 of the United States Code for an order requiring a US citizen resident in the US to disclose documents and give evidence by way of deposition. That order was granted ("the 1782 Order") and was stated to be for the purpose of providing evidence in proceedings taking place in the British Virgin Islands and Cyprus. However, under US law, the defendant is free to use the documents and evidence provided pursuant to the 1782 Order for any purpose. The defendant intended to use them in London arbitrations. The claimant obtained an injunction restraining the defendant from enforcing the 1782 Order, but Males J has now declined to continue that injunction.
Prior caselaw has established that, in some circumstances, use by a party of the procedure under section 1782 can constitute (as a matter of English law) unconscionable conduct, interfering with the fair disposal of English court or arbitration proceedings (which the English court will restrain by injunction). However, the judge held that there was no such unconscionable conduct in this case. A key factor was that the 1782 Order had been sought in respect of third countries (the BVI and Cyprus) and whilst the English court has a legitimate interest in protecting the fairness of English litigation or arbitration proceedings "It has, however, no legitimate interest in policing a party's attempt to obtain documents or evidence for use in foreign proceedings, let alone in reviewing the decision of the United States court as to whether its procedures should be utilised for that purpose". Furthermore, in this case, the US court had reached a reasoned decision that the documents and evidence were needed for use in the proceedings in the third countries and that the defendant had or would suffer prejudice if it did not have that material. It also could not be said in this case that the London arbitrations were the "lead proceedings" in which the liability disputes between the parties would be resolved.