January 11, 2016

(Re)insurance Weekly Update 01 - 2016

A summary of recent developments in insurance, reinsurance and litigation law

This Week's Caselaw

Ecobank Transnational v Tanoh: Court of Appeal considers whether judge was wrong to refuse an anti-enforcement injunction because of delay

http://www.bailii.org/ew/cases/EWCA/Civ/2015/1309.html

The first instance decision in this case was reported in Weekly Update 25/15. The parties entered into a contract which contained an arbitration agreement. When a dispute arose, the defendant commenced litigation in the Republic of Cote d'Ivoire and the Togolese Republic. The claimant unsuccessfully contested jurisdiction in those proceedings and commenced its own arbitration, but it did not seek an anti-suit injunction from the English courts. The defendant won in the foreign proceedings and sought to enforce judgment. At that point, the claimant applied to the English court for an anti-enforcement injunction. That was refused at first instance, because of the delay in bringing the application.

The claimant appealed that decision and the Court of Appeal has now dismissed the appeal. It was held as follows:

  1. Although section 32(1) of the Civil Jurisdiction and Judgments Act 1982 provides that the English court is bound not to recognise or enforce a foreign judgment obtained in breach of an agreement between the parties, that is subject to the proviso that the claimant did not submit to the jurisdiction of the foreign court. Section 33 of the same Act provides that there is no submission by reason only of the claimant having appeared in the foreign proceedings to contest jurisdiction or ask for a stay/dismissal. However, it does not say what additional facts are sufficient to establish submission.
    The Court of Appeal held that the same approach should be adopted as for cases falling within the recast Brussels Regulation. Accordingly, if the foreign court requires the claimant to plead not just to jurisdiction but also to the merits of the case, that will not amount to submission. Here, the claimant had made it clear that it was still objecting to jurisdiction and that issue had not been determined yet.
  2. However, the test for granting an anti-enforcement injunction is no lower than that for an anti-suit injunction: "In both cases the English court is interfering, albeit indirectly, with the working or output of a foreign court".
  3. The claimant's argument that there had been a "sea change" in the relevant caselaw regarding the effect of delay on an application was rejected. The court is entitled to take into account the extra expense incurred by the respondent (and the interests of any third parties) prior to the application being made. It cannot be argued that the respondent "has only himself to blame" because of his breach of the agreement: "The court is, in an appropriate case, entitled to be reluctant to use its coercive powers to restrain that which the applicant has in fact allowed to continue without any application for relief for some time. This is especially so if, as appears to me to be the case here, little useful purpose is likely to be served by the party who claims to be entitled to an injunction holding back from claiming it". Nor is it necessary for the respondent to establish detrimental reliance in order to defeat the application.
    Furthermore, delay and comity are related issues. The burdens imposed on courts, eg long lists and shortage of judges, are such that a late application to the English court will cause a lot of wasted time, effort and expense for the foreign court.
  4. This reasoning explained why anti-enforcement injunctions are rare: "If… an applicant for anti-suit relief needs to have acted promptly, an applicant who does not apply for an injunction until after judgment is given in the foreign proceedings is not likely to succeed. But he may succeed if, for instance, the respondent has acted fraudulently, or if he could not have sought relief before the judgment was given either because the relevant agreement was reached post judgment or because he had no means of knowing that the judgment was being sought until it was served on him. That is not this case".

Accordingly, the trial judge was entitled to refuse the application because the claimant had delayed making it until after judgment had been obtained in the foreign court.

C&S Associates v Enterprise Insurance: Whether insurer entitled to audit claims handler's files off-site/whether certain allegations amounted to a repudiatory breach/ whether the claims handling agreement had been varied

http://www.bailii.org/ew/cases/EWHC/Comm/2015/3757.html

The claimant provided claims handling services to the defendant insurer pursuant to a Claims Management Delegated Authority Agreement ("the Agreement"). The Agreement provided that the insurer could carry out audits from time to time. After a series of satisfactory audits, the insurer requested an urgent review of every open file being handled by the claimant (of which there were a very large number). Batches of files were sent to the insurer's lawyers but eventually the claimant refused to provide a further 1,500 files without a further meeting with the insurer. The insurer alleged that that refusal, together with alleged defects in the way the claims were being handled, amounted to a repudiatory breach of the Agreement. Various issues fell to be decided by the judge (although at this stage he was not required to decide whether the claims had in fact been handled negligently). Males J held as follows:

  1. The claimant had been under no obligation to send files off-site to the insurer's lawyers. All the claimant's files were paper files (there were no electronic files) and hence the requirement to send these off-site was significantly disruptive to the claimant's business. The judge said that this was a "legitimate consideration" when construing the terms of the Agreement.
    Clause 13 of the Agreement provided that the insurer had the right to examine the claimant's "books and records" at the claimant's premises during business hours. The judge held that this meant the paper claims files and not just (as the insurer claimed) the claimant's own records. Clause 12 of the Agreement provided that "all data" held by the claimant was the property of the insurer and that the insurer had "unrestricted access" to that data. The judge held that that even if that meant ownership of the files themselves (which he did not think was the case), that did not entitle the insurer to insist that the files be sent away from the claimant's premises. Instead, the insurer would have unrestricted access at the claimant's premises.
  2. Even if the claimant had been obliged to send the files off-site, a refusal to do so would not have been repudiatory. Although a refusal to permit any audits at all would be a serious matter, there had been no outright refusal here and the claimant had offered unrestricted access to the files at its premises. The insurer argued that the cumulative effect of the refusal and the alleged defective performance of the claimant's duties amounted to a repudiation. The judge held that although it is in theory possible that the cumulative effect of breaches which individually are not repudiatory may satisfy the test for repudiation, that argument did not arise here as the refusal to send files off-site was not a breach at all.
  3. The judge held that the allegations against the claimant, if true, would be capable of amounting to a repudiatory breach of the Agreement. These allegations related to various issues which are of key importance to insurers eg the need to reserve accurately (without creating an unduly adverse view of the insurer's solvency), the need to close dormant files appropriately, the need to avoid overspending on claims, as well as the desirability of an early settlement (because of FCA requirements and to avoid incurring greater costs). However, the claimant sought to raise the following arguments:

    (a) It referred to the fact that the insurer did not originally rely on an allegation of defective performance as a ground for termination. Although parties can subsequently raise arguments justifying a refusal to perform a contract (provided that that justification existed at the time of the refusal), that general rule will not apply "if the point taken is one which if taken could have been put right" (see Heisler v Anglo-Dal [1954]). Males J held that the Heisler qualification applies only to anticipatory breaches, though, and not to breaches which (as, allegedly, was the case here) have already occurred. In any event, the claimant had been vague as to how the breaches could have been remedied going forward: "in my judgment, there must be at least a real prospect, as distinct from a merely theoretical or fanciful possibility, of the necessary correction being made".

    (b) Reference was also made to terms in the Agreement providing for termination in the event of a "material breach", which the claimant argued applied here. That argument was also rejected by the judge: "Termination for material breach and for repudiation are separate matters even if there is some overlap between them. The criteria for repudiation are demanding but, if they are satisfied so that the effect of a breach is to deprive [the insurer] of substantially the whole benefit of the contract, there is no reason why it should not treat the contract as discharged". Accordingly, an agreement that the Agreement could only be terminated following a material breach if sufficient notice was given did not impact on the insurer's right terminate for repudiatory breach of the contract.

    Accordingly, the claimant's arguments on this point failed.
  4. A further issue in the case was whether the Agreement had been varied by an exchange of emails between the parties. The judge held that, on the facts, and viewed objectively, they had agreed to be bound by the exchange, even though they also contemplated that the agreement would be recorded later on in a formal contract. However, applying the recent Supreme Court decision of Marks & Spencer v BNP Paribas (see Weekly Update 45/15) on implied terms, he rejected an argument that the parties had varied the Agreement to include an implied term that the insurer would continue to pass claims to the claimant. Such a term was neither necessary nor obvious and the amended contract worked perfectly well without it.

Allanfield Property Insurance Services v Aviva and AXA: Judge considers whether premiums held by insolvent broker belong to customers or insurer

http://www.bailii.org/ew/cases/EWHC/Ch/2015/3721.html

Two insurance intermediaries entered into administration. Although heavily insolvent, they had significant funds held in client accounts. Those funds represented insurance premiums collected from customers but not yet paid on to the insurers. The issue therefore arose as to whether the insurers, the customers or the unsecured creditors of the intermediaries were entitled to those funds.

The judge considered the administrators were right to treat the accounts as subject to the statutory trust regime of CASS 5 in the FCA Handbook. The administrators also formed the view that, since no proper records were maintained by the intermediaries regarding the client accounts, any attempt to ascertain with certainty who is entitled to the funds would probably consume most of the funds in issue. They therefore proposed distributing the funds (after the payment of remuneration and costs) to non-insurer clients with admitted claims first, then to the insurers with admitted claims, and finally any remaining funds to be applied as the company's own funds.

The judge held that he had power to give directions to the administrators. Arguments that some monies in the accounts belonged to the intermediaries (and so their general creditors) were rejected by the judge. He also accepted that, where insurers had maintained gratuitous cover for clients (despite no premium having been received), that should not affect an insured's claim against the pooled fund. Finally, he determined that the administrators were entitled to recover their costs and that the amount of those costs should be determined by a Registrar of the Companies Court.

Yentob v MGN: Court of Appeal considers whether it would be unjust to order the usual Part 36 costs consequences

http://www.bailii.org/ew/cases/EWCA/Civ/2015/1292.html

The claimant in this case failed to beat the defendant's Part 36 offer. However, the judge held that it would be "unjust" to order the usual costs consequences and instead made no order as to costs. The defendant appealed that decision on two grounds:

  1. It was argued that the judge had applied the wrong test in finding that the usual order would be unjust. It was suggested that the judge had not considered whether it would be unjust but instead had determined that justice could be met by some other order. The Court of Appeal rejected that argument, finding that the judge had implicitly found that there would be unjustness.
  2. It was argued that the judge had wrongly taken account of certain circumstances (eg the defendant's failure to make unlimited admissions), when considering if the normal consequences would be unjust. The Court of Appeal held that the judge's approach had been correct and that CPR r36.17(5) requires a judge to look at "all the circumstances" of a case (including the terms and circumstances of the offer itself) when considering if the normal consequences would be unjust. The Court of Appeal gave the following example: "Suppose that a person to whom a Part 36 offer had been made had asked for clarification or more relevant information and been refused it or the answer misrepresented the position. If that information was material and might reasonably have altered his view on whether to accept the offer, and was information within the offeror's organisation, the court might well find that it would be unjust to order that the Normal Consequences should follow from non-acceptance". However, it is not enough just to show that a party acted reasonably in not accepting an offer – instead, it must be shown that the normal consequences would be unjust.

The Court of Appeal dismissed the appeal.

COMMENT: Prior caselaw has stressed that a finding that the normal costs consequences would be unjust will be exceptional. For example, in Ted Baker v Axa (see Weekly Update 47/14) Eder J held (adopting the observations by Briggs J in Smith v Trafford Housing (2010)) that the burden of showing such injustice is a "formidable obstacle". Although the Court of Appeal in this case agreed that the normal order would be unjust, it did not suggest that the test is no longer as strict.