A summary of recent developments in insurance, reinsurance and litigation law.
This week's case law:
Aspen Underwriting v Kairos Shipping: Whether assignee of insurance policy bound by jurisdiction clause in settlement agreement or policy/whether insurer must sue assignee in assignee's country
The claimant insurers in this case had insured the owners of a vessel. The owners' bank was an assignee of the policy and named as a loss payee under the policy (but was not named as an insured). When the vessel was lost, the insurers paid out and entered into a settlement agreement with the owners. It was subsequently held by the Commercial Court that the vessel had been deliberately sunk by the master, at the request of the owners. The owners are seeking permission to appeal that finding. In the meantime, the insurers sought recovery of the insurance proceeds and brought a claim against the owners and the bank in England. The bank argued that this claim against it should have been brought in its own country, the Netherlands.
The following arguments were forwarded by insurers to support their argument that the English courts had jurisdiction:
(1) The bank was bound by the exclusive jurisdiction clause (in favour of the English courts) in the settlement agreement. There was no suggestion that the bank had been a party to the settlement agreement between the insurers and the owners, and so the issue was whether the owners had entered into the settlement as the agent of the owners. This issue in turn depended on whether the owners had only been able to pursue the insurance claim with the bank's consent.
The argument that the assignment of the policy to the bank was a legal assignment was not pressed by insurers. Accordingly, it was accepted that there had been an equitable assignment instead, and so the owners had retained the right to purse a claim under the policy in their own name. Although the bank had provided a letter authorising insurers to pay the insurance proceeds to the brokers (and agreeing that such payment would be a good discharge of the insurers' obligations), it did not follow that the claim must have been made on behalf of the bank. Accordingly, the insurers did not have the better of the argument that the English courts had jurisdiction because of the jurisdiction clause in the settlement agreement.
(2) The bank was bound by the exclusive jurisdiction clause in the policy. It is an established principle that where an assignee seeks to enforce the terms of a policy for its benefit, he/she will be subject to such conditions as would apply to the assignor enforcing the policy. The judge held that that principle did not apply here, though, as the bank had not asserted its right to payment under the policy, in the sense of demanding that the insurance proceeds be paid to it. Nor had the bank ever expressly subscribed to the jurisdiction clause. Accordingly, the insurers did not have the better of the argument that the English courts had jurisdiction because of the jurisdiction clause in the policy.
(3) The claims brought against the bank are torts or delicts and the harmful event occurred in England (Article 7(2) of Regulation 1215/2012). If the matter "relates to insurance", though, Article 14 will apply instead and so the insurers can only sue the bank (a "beneficiary" of the insurance policy) where the bank is domiciled. Teare J concluded that the insurers claims did "relate to insurance" as the insurance policy in this case was "much more than a feature of the history or pathology of the claim": "In my judgment the nature of the claim made by the Hull Underwriters against the Bank is so closely connected with the question of the Hull Underwriters' liability to indemnify in respect of the loss of the Vessel pursuant to the Policy that it can fairly and sensibly be said that the subject-matter of the claim relates to insurance and so is governed by Article 14".
However, relying on ECJ casleaw, the judge held that the special rules for matters relating to insurance did not apply here as the bank could not be described as "the weaker party". The ECJ has previously held that "the protective role fulfilled by these provisions implies that they should not be extended to persons for whom that protection is not justified. Further… no special protection is justified where the parties concerned are professionals in the insurance sector".
Although the insurers' claim in restitution based on mistake did not fall within the scope of Article 7(2) (and so that claim had to be pursued in the Netherlands), the judge accepted that the claim for damages based on misrepresentation could be brought in this jurisdiction, so long as the "harmful event" occurred here. It was accepted that it did because: (a) the settlement agreement was signed here and the insurance proceeds were paid into the brokers' account in London), or (b) the misrepresentations were made in London and the insurers were induced here too.
Redman v Zurich Insurance: Court considers transitional rules for the Third Parties (Rights against Insurers) Act 2010
The claimant is the widow and adminstratix of an employee who in 2013 died from lung cancer allegedly caused by his exposure to asbestos up to 1982. The employer was the subject of a voluntary winding up in 2014. The claimant wished to rely on the Third Parties (Rights against Insurers) Act 2010, rather than the 1930 Act, and so circumvent the more stringent procedural requirements of the 1930 Act.
Schedule 3 of the 2010 Act provides that the 1930 Act continues to apply where the insured incurs a liability (against which it is insured) and the insured became "a relevant person" before 1st August 2016. There was no dispute that the insured employer became "a relevant person" when it was wound up in 2014. The claimant sought to argue that the insured had not incurred a liability before 1st August 2016. However, that argument was subsequently abandoned in light of prior caselaw which has established that "Liability is incurred when the cause of action is complete and not when the claimant's rights against the wrongdoer are thereafter crystallised whether by judgment or otherwise".
An argument was then raised that both the 1930 and 2010 Acts could run in parallel. Unsurprisingly, that argument was rejected by Turner J on various grounds, including the point that there are specific transitional provisions in the 2010 Act. The claimant had sought to convince the court that her argument would avoid the need to identify the date on which damage was caused, which can be a challenging exercise in the context of industrial claims. The judge responded that that was no reason to "ride roughshod over the clear wording of the 2010 Act…In any event, the problems commonly found in industrial disease cases do not arise in the vast majority of more straightforward claims and, in most cases, there is likely to be no difficulty in establishing when liability accrued".
Goldtrail Travel v Onur Air: Supreme Court sets out correct test for applying a condition of a payment into court for the continuation of an appeal
The appellant was granted permission to appeal, but the Court of Appeal imposed a condition of a payment into court for the continuation of the appeal. When that payment was not made, the Court of Appeal dismissed the appeal, on the ground that in exceptional circumstances, the ability of a third party to provide funds could be taken into account when assessing if the appellant could make a payment into court. By a majority of 3:2 the Supreme Court has now held that the Court of Appeal erred in reaching that conclusion.
Lord Wilson (delivering the majority judgment) said that "for all practical purposes, courts can proceed on the basis that, were it to be established that it would probably stifle the appeal, the condition should not be imposed". If the appellant has insufficient assets itself, a condition for payment will not stifle the appeal if it can raise the required sum. The issue in this case was whether the Court of Appeal had applied the correct test by determining that the corporate appellant could raise money from its controlling shareholder.
It was held that a court needs to be cautious and "The question should never be: can the shareholder raise the money? The question should always be: can the company raise the money?" The correct criterion to be applied is "Has the appellant company established on the balance of probabilities that no such funds would be made available to it, whether by the owner or by some other closely associated person, as would enable it to satisfy the requested condition".
The court should not take a refutation from the appellant and the owner at face value: "It should judge the probable availability of the funds by reference to the underlying realities of the company’s financial position; and by reference to all aspects of its relationship with its owner, including, obviously, the extent to which he is directing (and has directed) its affairs and is supporting (and has supported) it in financial terms."
Here, it was held by the majority that the Court of Appeal had erred in applying the test of whether the shareholder could advance the necessary funds, irrespective of whether he probably would do so. The matter was therefore remitted to the Court of Appeal.
Sabbagh v Khoury: Court of Appeal rules on test for establishing jurisdiction against a non-anchor defendant
The anchor defendant in this case is sued under Article 2(1) of Regulation 44/2001 ("the Regulation") on the basis of his domicile in England. Article 6(1) provides that a person domiciled in another Member State can be sued here (where one of the defendants is domiciled) where he is one of a number of defendants and the claims are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments from separate proceedings.
One of the issues in this case was the test that had to be satisfied in establishing jurisdiction against a non-anchor defendant. It is established practice in the Commercial Court that a good arguable case against the anchor defendant must be shown. However, it was argued in this case that in Aeroflot v Berezovsky  the Court of Appeal had held that the strength of the case against the non-anchor defendants need not be assessed and so the same position should apply in respect of the anchor defendant too.
The Court of Appeal was divided on this question but the majority (Patten LJ and Beatson LJ) held that it was necessary to consider the merits of the claim against the anchor defendant (although in the end it was not necessary to decide the issue, and so their views are obiter). They were doubtful that the Aeroflot judgment could be applied to the position of an anchor defendant and noted that "If the claims against one or more foreign co-defendants fall away, there would be no effect upon the claim against the anchor defendant or the claims against other foreign co-defendants. In contrast, without a legitimate claim against the anchor defendant, there is no reason for the foreign co-defendants to be ousted from their jurisdiction of domicile. .. Accordingly, how can it be expedient to determine a claim against an anchor defendant that is not seriously arguable together with a claim against a foreign co-defendant over whom there would be no jurisdiction under Article 6 apart from the link to the anchor defendant?"
By contrast, Gloster LJ, in her dissenting judgment, found that there was clear CJEU authority that Article 6(1) can be used to establish jurisdiction against non-anchor defendants even if the claim against the anchor defendant will not proceed (unless the claimant is engaged in a fraudulent abuse of Article 6(1)).
Grosvenor Chemicals v UPL Europe: Judge rules on committal application where "use" allegedly made of disclosed documents for collateral purpose
The claimants applied for permission to bring committal proceedings against the defendants and their solicitors. Those defendants had previously obtained a Norwich Pharmacal order ("NPO") which was then replaced by a consent order. The consent order did not specify the use which could be made of documents disclosed pursuant to the order. After receiving the documents, the defendants' solicitors wrote to a former employee of the claimants warning that if certain steps were not taken by him, proceedings would be commenced against him.
The claimants allege that that was a breach of CPR r31.22 because the defendants and their solicitors were using the disclosed documents for a collateral purpose.
Birss J has now held as follows:
(1) Committal proceedings could be brought against the defendants, as well as their solicitors, because (on the evidence) any misconduct by the solicitors was done on the instructions of the clients (albeit those instructions were on the solicitors' advice).
(2) As there was nothing expressly provided for in the consent order, CPR r31.22 applied.
(3) Reference was made to the earlier decision of Tchenguiz v Grant Thornton (see Weekly Update 07/17) in which it was held that if the purpose of a review of disclosed documents was to advise on whether other proceedings would be possible, then the review would be a use for a collateral purpose, but if the purpose of the review had been to advise on the ongoing litigation, but when undertaken the review showed that other proceedings would be possible then the review would not have been for a collateral purpose (a further step would be a use for a collateral purpose, but the use of the document for the purpose of seeking permission or agreement to take that further step would be impliedly permitted). Here the review had been for orthodox reasons in the course of existing proceedings.
(4) Furthermore: "If a party reviewing documents disclosed in a given set of proceedings identifies that there is a properly arguable basis for joining a third party into those proceedings as a co-defendant with the existing defendants, in relation to the existing causes of action pleaded in the proceedings, then that party has done nothing other than use the documents for the purposes of the proceedings in which they were disclosed".
(5) However, here, new proceedings were threatened against the third party, and that had been a breach of CPR r31.22.
(6) The application for permission to bring committal proceedings was refused, though, on the basis that there was no prima facie case of a deliberate or reckless breach of the rule. It was also relevant in this case that, had the NPO still be in place, the solicitors could have written the letter which they sent to the former employee.
Yukos Finance v Lynch: Judge rules on various service of a claim form issues
Teare J ruled on various issues relating to service of a claim form in this case, including the following:
(1) The claimants had done nothing wrong in waiting 4 months after the issue of the claim form to apply for permission to serve out of the jurisdiction. On the evidence, it was clear that the claimants had initially hoped to serve in the jurisdiction because it was thought that the defendant travelled to England on a regular basis (he was not domiciled in an EU country). Permission to serve the defendant out of the jurisdiction in Florida and Moscow had been given and it had been appropriate for the claimant to attempt to serve in Florida as a priority because the Foreign Process Service had advised that service in Russia would take a minimum of 12 months.
(2) The claimants had then attempted personal service in Lebanon. Tseitline v Mikhelson (see Weekly Update 39/15) established that a process server must hand the relevant document to the person upon whom it has to be served. If the defendant refuses to accept it, the process server may tell him what the document contains and leave it with him or near him. A person can only "accept" the document if the nature of the document is readily apparent or known to the recipient. Where the defendant refuses to accept the claim form, the focus is on the knowledge of the recipient, not the process by which it is acquired. Whilst in most cases knowledge of the nature of the document will be found to have been imparted by a simple explanation, it is clear that it can be also readily be inferred from pre-existing knowledge, prior dealings or from conduct at the time of or after service.
In this case, the defendant was not told that documents placed in front of him in a bag at a check-in counter at an airport were related to legal proceedings in London. However, it could be inferred that the defendant had that knowledge because the documents were visible and easily accessible and the defendant had leafed through them.
Catalano v Espley-Tyas: Court of Appeal holds that QOCS does not apply where there is a CFA in place pre-1st April 2013, even if it is terminated
On 1st April 2013, ATE insurance premiums and CFA success fees ceased to be recoverable from the losing defendant and personal injury claimants were instead protected by the QOCS regime, whereby they do not have to pay the costs of the successful defendant. Of issue in this case was whether the personal injury claimant who discontinued her claim in 2015 was entitled to the benefit of the QOCS regime. She had entered into a CFA with her solicitors in 2012, but this was replaced by a new CFA which she entered into with the same solicitors in July 2013.
The relevant transitional provision (CPR r44.17) provides that QOCS does not apply where the claimant has entered into a "pre-commencement funding arrangement". There was no dispute here that the first CFA entered into by the claimant here was such an arrangement. The claimant sought to argue that as that arrangement had been terminated and been replaced by the second CFA, the claimant had become entitled to the benefit of QOCS. That argument was rejected at first instance and the Court of Appeal has now rejected the appeal from that decision.
It was held that there was no requirement that the relevant funding arrangement should be "unterminated" in order to remain a "pre-commencement funding arrangement": "The right construction of the rule, therefore, is to give the words "funding arrangement" their natural meaning and apply them to any pre-1st April 2013 agreement (whether terminated or not)".