This week's case law:
Nesbit Law v Acasta European Insurance: Court of Appeal interprets scope of a policy exclusion
http://www.bailii.org/ew/cases/EWCA/Civ/2018/268.html
The appellant issued a series of Financial Guarantee Indemnity ("FGI") insurance policies to the respondent firm of solicitors. Each policy related to a loan agreement entered into between the solicitors and a bank. The loans financed an underlying litigation funding scheme and there was a framework "umbrella" agreement between the solicitors and the bank. When the solicitors ran into financial problems, the bank terminated the umbrella agreement and entered into a Refinancing Agreement which refinanced the earlier series of loans.
The solicitors subsequently claimed under the insurance policies (following a breach of the Refinancing Agreement) and the insurers sought to rely on a policy exclusion which excluded cover "where the terms and conditions of the Loan have not been strictly adhered to, including but not limited to any agreement entered into by [the solicitors] and [the bank] to repay a Loan". At first instance, the judge held that this exclusion did not cover the Refinancing Agreement and the insurer appealed.
The Court of Appeal has now rejected that appeal. The insurer had argued that even if the first part of the exclusion clause referred only to the individual loan agreements and the umbrella agreement, the second part was wide enough to extend to the breach of any agreement to repay the loans (ie the Refinancing Agreement"). Although the Court of Appeal said that that interpretation was "beguilingly attractive for its simplicity", it went on to find that regard had to be had to the context of the litigation funding scheme. Furthermore, because it held that the second limb was ambiguous, it was also permissible to look at business common sense (ie the approach adopted in Rainy Sky v Kookmin (see Weekly Update 39/11) where it was said that "where there are two possible constructions, the court is entitled to reject the one which is unreasonable and, in a commercial context, the one which flouts business common sense").
The Court of Appeal held that nothing in the original litigation funding documentation had envisaged a global refinancing agreement replacing the umbrella agreement and other documentation after the termination of the litigation funding arrangements themselves: "The Refinancing Agreement was a completely new arrangement between [the bank] and [the solicitors] entered into nearly a year after the litigation funding scheme had ended so as to find some means by which [the solicitors] could repay its outstanding debt. There were still outstanding loans and personal injury claims, but no new loans or FGI Policies were being entered into". Nor was there anything in the policies themselves to indicate that the parties contemplated a future refinancing.
COMMENT: There is no discussion in the judgment as to whether the words "including but not limited to" extended further the types of agreements which might fall within the second limb, but presumably the Court of Appeal did not feel that they did. Of crucial importance to the Court of Appeal here, it seems, was that the particular agreement in question wasn't felt to be within the contemplation of the parties when the policies were entered into. That might seem somewhat harsh, given that refinancing agreements are not an uncommon feature in a loan context. It is unclear whether a further appeal will be brought.
The Swedish Club v Connect Shipping: Court of Appeal holds that notice of abandonment of a vessel was given in time
http://www.bailii.org/ew/cases/EWCA/Civ/2018/230.html
The first instance decision in this case was reported in Weekly Update 25/16. Following a fire on board a vessel on 23rd August 2012, the owners contended that they were entitled to be indemnified on a constructive total loss ("CTL") basis. They gave notice of abandonment (NOA) on 1 February 2013. Insurers agreed that the owners were entitled to be indemnified but argued that the NOA had been given too late. Section 62(3) of the Marine Insurance Act 1906 provides that a NOA "must be given with reasonable diligence after the receipt of reliable information of the loss, but where the information is of a doubtful character, the assured is entitled to a reasonable time to make inquiry". Knowles J held that the NOA had been given in time as achieving reliable information of the loss had been a complex task. The Court of Appeal has now dismissed the appeal from that decision.
The Court of Appeal held that no gloss should be put on section 62(3), which is a very fact-dependent test. There is no uniform approach in cost of repair cases: "There will be some cases, for example, where a ball-park figure for the cost of repairs will suffice, once the scope of repair is known. There will be others, such as the present case, where the vessel is close to the cusp of being a CTL and therefore greater detail and accuracy is likely to be needed for there to be reliable information of the scope and cost of repair. As to the meaning of "reliable", the statutory contrast is made with "doubtful" information. So long as the requisite information remains "doubtful" it will not be "reliable"".
The owners' initial repair estimate had been around USD 9 million, whereas the insurers' initial repair estimate had been around USD 5.5 million. The owners were therefore faced with "two apparently reliable but starkly conflicting repair specifications" and the Court of Appeal said that the judge had been entitled to conclude that "the Owners could properly take into account apparently reliable expert information from the Insurers' side contradicting CTL". Nor did it matter what the owners' subjective belief at the time was, since the issue of whether there is reliable information of loss is an objective question. The judge had been entitled to conclude that there could be no reliable information of the loss until shipyard quotations had been received, and that even after that time, there was still no reliable information given the conflict between the experts' views.
The Court of Appeal countered the insurers' argument that it will therefore be impossible to obtain "reliable information of the loss" whenever there is a bona fide dispute about whether a vessel is a CTL (and so the time for serving a NOA can be postponed indefinitely) by saying that "There are, however, unlikely to be many cases which involve such a stark and critical difference in expert opinion" and that electing to give a NOA cannot be postponed indefinitely because "Under section 62(3), in cases where information of loss remains doubtful, the Owners are only allowed a reasonable time for making inquiry before being required to make their election".
The Court of Appeal also held that the judge had been entitled to conclude that costs incurred before the NOA was given counted as "costs of repair" for the purposes of the CTL calculation (rather than just costs incurred after the NOA). The Court of Appeal held that the caselaw relied on by the insurers had little authoritative weight. It was held that "principle and logic" favoured the judge's conclusion.
Finally, it was also held that the judge had been entitled to count SCOPIC costs (incurred under the Special Compensation Protection and Indemnity Clause) as "costs of repairs" for the purposes of the CTL calculation (the purpose of SCOPIC remuneration is to protect P&I clubs from liability they might otherwise incur in relation to environmental damage caused by a casualty). In order to recover the vessel, the SCOPIC costs had to be paid, and the insurers accepted that costs of recovery are part of the cost of repair.
Barton v Wright Hassall: Supreme Court refuses to validate service of a claim form
http://www.bailii.org/uk/cases/UKSC/2018/12.html
The Court of Appeal's decision in this case was reported in Weekly Update 12/16. The claimant, a litigant in person, sought to serve his claim form on the solicitors appointed by the defendant's insurers by email. Under the CPR, service by email is only allowed where the recipient has previously confirmed in writing that it is willing to accept service in this way. This was not the case here. The solicitors had only informed the litigant in person that service was not valid after the time for service had expired (and the claim was now time-barred). When the claimant's application under CPR r6.15(2), for an order that the steps he had taken to bring the claim form to the attention of the defendant should count as good service, was refused, he appealed to the Court of Appeal. That appeal was dismissed and so the claimant appealed to the Supreme Court.
The Supreme Court has now rejected that appeal by a majority of 3:2. It confirmed that it is not enough that the claim form has come to the attention of the defendant: "This is because a bright line rule is necessary in order to determine the exact point from which time runs for the taking of further steps or the entry of judgment in default of them". Nor is there usually any reason to justify applying to litigants in person a lower standard of compliance (although it may affect the position in a marginal case). It was held that the rules are accessible (via the internet) and not obscure. There was no justification for the appellant assuming that the solicitors would accept service by email. There had also been no problem with serving via other means here: "The problem was that [the appellant] made no attempt to serve in accordance with the rules".
The solicitors were not under any duty to advise the appellant that service was invalid and "Nor could they properly have done so without taking their client's instructions and advising them that the result might be to deprive them of a limitation defence. It is hardly conceivable that in those circumstances the client would have authorised it."
The conclusion that the Supreme Court drew was that the appellant had not allowed himself enough time to rectify any mishap, having attempted to serve both at the end of the limitation period and at the end of the claim form's period of validity: "A person who courts disaster in this way can have only a very limited claim on the court's indulgence in an application under CPR rule 6.15(2). By comparison, the prejudice to [the defendant] is palpable. They will retrospectively be deprived of an accrued limitation defence if service is validated".
(The dissenting judges felt that, provided the claim form has come to the attention of the defendant, and the defendant is aware a claim had actually been commenced, and the recipient has had the opportunity to put in place measures to monitor and deal with service by email, there is prima facie a good reason for validating service. They also felt that the Rules Committee should revisit the rules relating to service by email on solicitors).
Allergan, Inc v Amazon Medica: Judge sets aside order made pursuant to a Letter of Request from a US Court
http://www.bailii.org/ew/cases/EWHC/QB/2018/307.html
Hugh Cartwright & Amin for applicant, Mishcon de Reya for claimants
This was an application to set aside an order made by a master pursuant to a letter of request issued by a US court requiring the UK applicant to provide oral evidence and documents.
Cockerill J said that the first step when considering a contentious letter of request is to keep an eye on the underpinning jurisdiction: "In other words, when talking of compelling oral evidence the comparator is with when a witness summons would be available in proceedings in the English Court". A two-stage has been laid down in the case of First American Corp v Sheikh Zayed Al-Nahyan [1999], namely: (i) whether the intended witness can reasonably be expected to have relevant evidence and (ii) whether there is an intention to obtain evidence for use at trial. Unless the US court has considered the English approach and confirmed that the evidence sought is relevant to issues for trial, the English court is free to scrutinise the request: "It is not the same thing at all ... when a court issues a letter of request without the defendant being heard, or when the Court itself says nothing about relevance but simply records the submission of the applicant".
Here, the letter of request was issued following an unopposed paper application. Although the judge accepted that it could not be said that no consideration of the merits would ever eventually take place in the US, she went on to find that the timeline gave pause for thought: "Here we are looking at a stage even before the pre-trial discovery stage. There are as yet no defined issues; because there is no pleading from the Defendant... Thus it is clear that a part of the purpose of this Letter of Request is investigatory and therefore impermissible". (She did accept, though, that it is possible, in principle, for a letter of request issued at this stage to meet the relevant test).
The judge concluded that the court had no jurisdiction to make the order and the order was set aside.
The judge went on to consider what her approach to the documents request would have been, had she found jurisdiction. Although certain categories of documents had been drafted too widely, she commented that "What matters is whether one can spell out of the compendious description a list of individual documents separately described and whether the witness is left in no real doubt as to what he is being asked to bring". The claimant had attempted to reformulate its request and the judge noted that there is no blanket prohibition on anything other than "blue pencil" deletions. Minor re-drafting which did not alter the essential nature of the request was permissible and "Likewise I find it hard to believe that the court would have objected to additions to add a date range, thereby bringing down the burden on the witness".
COMMENT: This case re-affirms that a letter of request should not be treated as a wide-ranging "fishing expedition", which is investigatory, rather than being aimed at obtaining evidence. Furthermore, it will in certain circumstances be permissible for the English courts to go behind the request to investigate the relevance issue.
Gamal v Synergy Lifestyle: Court of Appeal rules that payment made after Part 36 offer reduced the amount of the offer
http://www.bailii.org/ew/cases/EWCA/Civ/2018/210.html
In August 2015, the defendant made a Part 36 offer to pay the claimant £15,000. The defendant subsequently paid the claimant £10,000 and the issue in this case was whether that payment reduced the Part 36 offer to £5,000 (and so the claimant had beaten the offer at trial – if the Part 36 offer was not reduced, the defendant would have beaten the offer). At first instance, the judge held that the offer had been reduced and the defendant appealed. The Court of Appeal has now dismissed that appeal.
Reference was made to the earlier Court of Appeal decision of Littlestone v Macleish (see Weekly Update 11/16), in which the Court of Appeal held that a part payment made by the defendant following an admission of liability had been made as part payment of the amount of the Part 36 offer and the payment and the offer should not be aggregated. In reaching that decision, the Court of Appeal said that, if it was necessary to decide the point, it differed from Moore-Bick LJ's obiter views on this issue in Gibbon v Manchester City Council (see Weekly Update 25/10).
In this case, the defendant sought to distinguish the position from that in Macleish on the basis that that case had been limited to cases of admissions or where the offeror made it clear that a payment was intended to reduce the Part 36 offer. That argument was rejected by the Court of Appeal, which held that Macleish applied to cases involving any payment of account of a claim: "where such a payment is made, there is a presumption of law that it is also on account of the earlier Part 36 offer". Thus the payment will reduce the Part 36 offer unless the payer, either at the time of payment or promptly thereafter, makes it clear that the payment is not intended to reduce the amount of an earlier Part 36 offer.
Exportadora De Sal v Corretaje Maritimo Sud-Americano: Judge considers meaning of "reasonable diligence" in section 73 of the Arbitration Act 1996
http://www.bailii.org/ew/cases/EWHC/Comm/2018/224.html
Section 73 of the Arbitration Act 1996 provides that if a party to arbitral proceedings takes part without making (either forthwith or within such time as is allowed by the arbitration agreement or the tribunal or the Act) any objection about (inter alia) the tribunal's jurisdiction, "he may not raise that objection later, before the tribunal or the court, unless he shows that, at the time he took part or continued to take part in the proceedings, he did not know and could not with reasonable diligence have discovered the grounds for the objection". Of issue in this case was what was meant by "reasonable diligence".
The claimant in this case (a state entity) accepted that a London arbitration, governed by English law, was validly commenced and that the arbitrator had jurisdiction at the outset. However, it argued that the arbitration agreement was deprived retrospectively of efficacy by a resolution passed by its internal body which declared the tender process by which the defendant had won the claimant's business a nullity.
That resolution was passed over a year after the arbitration was commenced and the challenge to jurisdiction was raised by the claimant 5 weeks after the resolution was passed.
Baker J noted that "The general context in which that question of reasonable diligence falls to be assessed is that when faced with a legal claim asserted through arbitration, logically and practically the first question any respondent can fairly be expected to consider and keep under review throughout is whether it accepts the validity of the process". Given that (and the fact that a final hearing on the merits was due to take place in three weeks in an arbitration in which the claimant had actively participating for months), the judge held that "reasonable diligence" had required the claimant to treat the resolution as "a development of the highest priority", such that a ground for objection to jurisdiction should have been identified within a week of the claimant learning of the resolution. Having failed to obtain legal advice on the potential effect of the resolution before it was passed, "in my judgment there is no excuse for failing to seek such advice immediately....within a matter of a very few days". The challenge to jurisdiction therefore failed.
Ogale Community v Royal Dutch Shell: Court of Appeal holds that parent company did not owe duty to claimants
http://www.bailii.org/ew/cases/EWCA/Civ/2018/191.html
The first instance decision in this case was reported in Weekly Update 3/17. The claimants sought to bring an action against the English parent company of a Nigerian subsidiary which had allegedly caused environmental damage in Nigeria. Fraser J held that the English courts had no jurisdiction over that claim because there was no arguable case that the parent company owed the claimants a duty of care. The Court of Appeal, by a majority of 2:1, has now rejected the appeal from that decision.
Caparo Industries Plc v Dickman [1990] laid down a three-stage test for establishing a duty of care: foreseeability, proximity and reasonableness. The main issue in this case was proximity. Simon LJ said that "It is ... important to distinguish between a parent company which controls, or shares control of, the material operations on the one hand, and a parent company which issues mandatory policies and standards which are intended to apply throughout a group of companies in order to ensure conformity with particular standards. The issuing of mandatory policies plainly cannot mean that a parent has taken control of the operations of a subsidiary (and, necessarily, every subsidiary) such as to give rise to a duty of care in favour of any person or class of persons affected by the policies".
It was concluded that the parent company did not have a sufficient degree of control to establish the necessary degree of proximity here. There was standardisation of policies and practices across all the operation and in all the countries in which the group operated and, crucially, "the detailed policies and practices do not seem to have been tailored specifically for [the subsidiary]".
Simon LJ also criticised the large number of witness statements and exhibits before the judge and on the appeal. He said that "I am firmly of the view that steps must be taken by courts to control and limit what is placed before the Court in the future...The parties should not be allowed to file large quantities of material, much of which is unlikely to resolve the central issue, without the leave of the court".
Abdullah Nasser Bin Obaid v Al-Hezaimi: Court defines scope of a consent order which discharged a freezing order
http://www.bailii.org/ew/cases/EWHC/Ch/2018/243.html
The claimants obtained a proprietary injunction and worldwide freezing order against the defendants. The parties then came to an agreement about using rental proceeds from the frozen properties to meet ongoing essential costs. A few months later, the injunction and freezing order were discharged pursuant to the terms of a consent order made by the Court.
A dispute subsequently arose as to the scope of the consent order and whether an undertaking given by the defendants (and referred to in the consent order) included rental income. That undertaking was not to dispose of or diminish the value of the properties and rental income was not expressly included within the definition of the properties (which was expressed to include the "defendants' right, title, and interest in the assets"). Nevertheless, the judge held that rental income fell within the definition. Very wide words had been used to define the secured properties and the defendants' ability to receive rental income "has been derived from the defendants' "right, title and interest" in those assets.... Indeed, the definition of "Security" and "Secured Properties" is so wide that, if the parties had intended this definition to exclude the rental income, then this exclusion would have needed to be expressly stated using clear wording". In the same way, the judge noted that interest accruing to a cash deposit at a bank would be caught by an undertaking relating to that deposit.
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