Costs award against insurers under s 51 SCA 1981; Exclusion of non- compliant witness statements; Claim form - validity should be challenged using jurisdiction application under CPR 11; Court of Appeal interprets claims notification clause; "Warehousing" claims; Service of court documents on address registered at Companies House
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An insurer, despite having limited its liability to indemnify its insured, by reference to an aggregation clause in its professional indemnity policy, was nonetheless directly liable to the claimants pursuant to a third party costs order under section 51 of the Senior Courts Act 1981 (SCA 1981).
AIG had funded their insureds’ defence under an agreement made outside the insurance policy – knowing that it was unlikely to succeed – and then ceded control of the defence to the defendants, who then conducted it unreasonably.
Foskett J followed Travelers Insurance Company v XYZ  EWCA Civ 1099 in making a costs order against AIG. Despite holding that the defendant was insured, Mr Giambrone, (D) had “effective control” of the litigation, and he concluded that AIG was at fault for failing to control D's conduct: they had
- entered into the agreement compromising their aggregation dispute with D on terms which required AIG to continue to advance defence costs following erosion of the limit of indemnity; and
- failed to invoke the funding limitation in that agreement by contending that the claims had no realistic prospect of success.
Foskett J concluded that AIG had secured some benefit from the ongoing defence of the claims by reason of the settlement of the aggregation issue at a time when the law in that area was uncertain. He applied the principle of reciprocity set out in XYZ, determining that if a person funds and stands to benefit from proceedings, justice requires that if they fail he should pay the successful party’s costs.
The judge refused AIG permission to appeal.
The decision expands on the principle set out in XYZ, where it was decided that a third party funder need only receive some benefit from a successful defence in order to justify the exercise of the discretion to award costs against it.
Together, the cases of XYZ and Giambrone will be of concern for liability insurers. The position is now that any degree of control by a liability insurer over the defence of an insured's claim exposes it to a third party costs order.
Insurers should seriously consider withdrawing funding if the prospects of success of a claim/defence fall below a certain level. They should also regularly reassess the prospect of success, and be in a position to show the court that this has been done.
Exclusion of non - compliant witness statements
The claim was brought by the liquidators of Graisley Investments Limited, a company which owned care homes. It concerned an alleged transaction at an undervalue, which they sought to set aside; they also sought repayment of more than £3.3 million. In reply the respondents made an application to exclude a witness statement which did not comply with the Civil Procedure Rules.
The Court excluded the applicant's witness statement on several grounds:
- The issues being put to the court concerned events from 2009 and 2010, but the witness had only become involved from 2015;
- There was nothing to suggest that the witness had any personal involvement in the investigation; and
- The witness statement failed to state the names of the other individuals who had been involved in preparing the information that the witness was adducing.
The court reiterated the importance of following specific procedural rules, in particular CPR 32 and the Practice Direction relating to witness statements. According to the court a witness statement should:
- as per CPR 32.4, be 'a written statement signed by a person which contains the evidence which that person would be allowed to give orally';
- set out in writing the evidence in chief of the witness and should be expressed in the witness's own words;
- be confined to the facts of which the witness can give evidence, and should not be a commentary on the case nor an opinion on the issues;
- be as concise as the circumstances of the case allow, and should be presented in an straight forward and orderly manner;
- indicate which of the statements made within it are from the witness's own knowledge and which are made on information and belief, providing sources for such information and beliefs; and
- be signed by the witness and contain a statement of truth.
The applicants had previously applied pre-trial to have the witness evidence excluded in advance of the trial, but that application had been rejected. However, at the trial, it was excluded, although the documentary exhibits could be referred to.
Claim form - validity should be challenged using jurisdiction application under CPR 11
The Court of Appeal has recently confirmed in Caine v Advertiser and Times Ltd and another  EWHC 39 (QB) that a party wishing to challenge the validity of a claim form served outside its period of validity should make an application under CPR Part 11 rather than under CPR Part 3.4.
On 9 May 2017, the claimant (C) issued libel proceedings against the defendants (Advertiser) relating to an article which Advertiser wrote about Mr Caine on 14 May 2016.
C did not immediately serve the claim form, nor the particulars of claim, and despite the court's letter to him on 1 September 2017 noting, amongst other things, that an application to extend time for service of the claim form and particulars of claim should be made promptly, and the need to serve the claim form as soon as possible (by 9 September 2017), C failed to do so.
The claim form was served on Advertiser by hand on 5 October 2017. On 19 October 2017, Advertiser (unrepresented) acknowledged service but did not indicate that it intended to contest the court's jurisdiction under CPR Part 11. On 26 October 2017, the solicitors for Advertiser asked the court to strike out the case due to C's failure to serve the claim form in accordance with the CPR and on 7 November 2017 an application was made to strike out the claim pursuant to CPR 3.4(2). On 10 August 2018, the court struck out the claim under CPR 3.4(2).
C appealed to the Court of Appeal on a number of issues, one of which was that Advertiser used the wrong procedure for striking out the claim and should have used CPR 11, which, C argued, Advertiser had failed to do within 14 days of the acknowledgement of service as required under the CPR.
The Court of Appeal held that the correct procedure for challenging the validity of the claim form was to apply under CPR Part 11. However, given the circumstances in this case, the court agreed that an extension of time to enable the application to be made under CPR Part 11 should be permitted. C's appeal was dismissed.
Court of Appeal interprets claims notification clause
This claim concerned the correct interpretation of a share purchase agreement (SPA) which contained indemnity provisions. The Seller agreed to indemnify the Buyer and its group against claims made by the Financial Conduct Authority (FCA) regarding the mis-selling of certain financial products / any losses that may arise from FCA reviews. The court construed the conditions precedent to claims made by the buyer. Clause 6.7.3 provided that:
the "Purchaser shall not make any claims against the warrantors nor shall the warrantors have liability in respect of any matter or thing unless notice in writing of the relevant matter or thing (specifying the details and circumstances giving rise to the Claim or Claims and an estimate in good faith of the total amount of such Claim or Claims) is given to all the warrantors as soon as possible and in any event prior to:
- the seventh anniversary of the date of this agreement in the case of any claim solely in relation to the taxation covenant;
- the date two years from the completion date in the case of any other claim; and
- in relation to a claim under the indemnity in clause 5.9 on or before the seventh anniversary of the date of this agreement."
The SPA defined a 'Claim' as "a claim under the warranties or the tax covenant contained in the Share Purchase Agreement". It did not mention claims under the mis-selling indemnity.
The Buyer notified the Seller that it would make a claim under the indemnity for the potential mis-selling claims. The Seller argued that the notice had not given details of the claim, as allegedly required in clause 6.7.3.
Had the Purchaser given valid notice of the claim under clause 5.9? Did the notice need to comply with the obligation to specify details and an estimate of the claim?
The notice of claim was valid and did not need to specify details and an estimate of the claim. The definition of 'Claim' under clause 6.7.3 did not include claims under the indemnity.
Leggatt J noted in the first instance hearing that "the court should assume, unless driven to a contrary conclusion, that parties who have entered into a professionally drafted agreement in which terms have been elaborately defined intend to use such terms in accordance with the definitions given."
On appeal, the judge ruled that this interpretation made commercial sense; there was good reason for requiring different amounts of detail in warranty claims on the one hand and indemnity claims on the other.
Drafting is vital. In this case the use of a defined term had significant consequences.
Strike out for abuse depends on circumstances
The courts have the power to strike out a statement of case as an abuse of the court's process if it is likely to obstruct the just disposal of the proceedings. The courts have previously found that "warehousing" (issuing and maintaining a claim without a real intention of pursuing it through to trial), could constitute an abuse capable of striking the entire claim out.
In Asturion Foundation v Aljawharah Bint Ibrahim Abdulaziz Alibrahim  EWHC 274 (Ch), the High Court held that where a decision is made to delay progress, for a reason connected with the litigation, even where the reason was not held to be a good reason, to do so was not abusive warehousing and should not result in the claim being struck out.
Asturion Foundation (the Foundation), a legal entity established in Liechtenstein and controlled by a board, was set up to hold and manage assets for the benefit of certain Saudi Royal family members. The defendant, one of the widows of the late King Fahd, received four high value properties from a member of the Foundation board, allegedly on the instruction of the late King.
The Foundation commenced these English proceedings to recover one of these properties, situated in London, on the basis that the board member acted in breach and/or under a fundamental mistake and therefore any transfer would be voidable. It also commenced similar proceedings in other European courts to recover remaining properties and was subject to proceedings in Liechtenstein in which the defendant challenged the positions held by the board members.
On application by the defendant, the English court held that the Foundation's decision not to progress the English claim but to wait for the outcome of the Liechtenstein proceedings, amounted to abusive warehousing and struck out the action.
The Foundation's appeal was allowed. A decision to pause progress of a claim would not necessarily be abusive. The court took into account the following in reaching its decision:
- the nature of the contingency and how related it was to the claim or issues; and
- the length of the delay.
It was held that not all decisions to pause proceedings that are dependent on a contingency or the outcome of other litigation will amount to abuse as a matter of law. HHJ Cooke provided a definition of warehousing, as follows:
'"Warehousing" may be descriptive of some circumstances that show abuse, primarily where for an extended period the claimant has no present intention of pursuing the claim but keeps it going in case it decides to do so in the future…'
Whilst the board members were not unable to progress the claim, it was understandable that they were reluctant to act to avoid any future criticism, given the pending Liechtenstein litigation challenging their appointment. The fact that no real prejudice was caused to the defendant was also relevant to the court's decision not to strike out the claim.
The decision provides useful guidance about the circumstances in which halting progress may be justified. However, the sensible course will always be to seek to agree a pause with the other side or to obtain an order from the court staying the proceedings. Any such application to the court would need to provide evidence justifying the delay.
Even if a delay amounts to "warehousing", that will not necessarily be abusive and therefore capable of striking out. But it might become abusive if maintained for a long enough period.
The court also held that determining whether a party's conduct amounts to abuse capable of striking the claim out is a legal question, not a factual or discretionary matter. Any judgment striking out claims on the basis of warehousing may therefore be open to appeal.
Service of court documents on address registered at Companies House
In February 2018 judgment was entered relating to an unfair prejudice petition. No trial had taken place and the defendant (D) had not attended the hearing.
Prior to the judgment being handed down, D's points of defence were struck out under CPR 3.5 for non-compliance with an unless order. D's former solicitors had ceased acting for him a few months before the judgment was entered. Following the solicitors ceasing to act, Mr Anstey did not provide an alternative address for service.
Although the CPR does not expressly require Mr Anstey or his solicitors to provide an alternative address for service, they do provide:
"where a party, after having conducted the claim by a solicitor, intends to act in person… the party or his solicitor (where one is acting) must file notice of the change and the notice must state the party's new address for service."
The court confirmed that D should have filed a notice of change and provided an address for service. But the question remained whether he had been served with the application and orders relevant to the judgment: the court held that "there is no rule and in these proceedings no Order that service was not required in the circumstance of his failure to provide an address."
In seeking to serve D with the relevant applications, C attempted to serve them by email, to his previous solicitors, by post, to his last known address and to his registered address at Companies House.
D applied to set aside the judgment.
The court had to decide whether the 14 day time limit for an application to set aside the judgment under the CPR is mandatory and whether the applications and orders had been served properly on Mr Anstey.
On whether CPR 3.6 has a mandatory time limit, the court held that it did have discretion to extend the 14 day time limit for Mr Anstey's application to set aside the judgement.
The court did not accept that the rules requiring an order for alternative service under CPR 6.9 applied to court documents generally. CPR 6.9 applied only to service of the claim form.
The court set aside the judgment because an unfair prejudice petition could not be heard without a trial with evidence to satisfy the court that the petition was well founded.
The court found that Mr Anstey's registered address with Companies House was a good address for service of the relevant court documents.
The court noted that Key Homes Bradford Ltd and Others v Rafik Patel  confirms that s1140 of the Companies Act 2006 permits documents to be sent to the director's address given to Companies House whatever the purpose of the document and irrespective of whether the documents concern the director's office or are in connection with the company of which he/she is a director. The Judge said that although that decision was not binding it should be treated as persuasive authority.
Although the court found that service of the documents at the registered address would in principle constitute good service, not all of the relevant documents and court orders had actually been sent to D there. However, judgment should not have been entered without the court hearing evidence as to the petition, so the court ordered an extension of time to permit evidence to be adduced by D.
In this instance C had failed to serve all of the documents at the Companies House address. However it is useful to note that service on a Companies House address will be regarded as good service of court documents.