Insurance Update February 2009

Transcription

1 Insurance Update February 2009 Contractual negotiations... 1 Allianz Insurance Co Egypt v Aigaion Insurance Co SA formation of reinsurance contract... 1 Extending the limitation period... 2 Cain v Francis personal injury claims and prejudice... 2 Waiver exclusion clauses... 4 Tele2 International Card Co SA v Post Office Ltd exclusion of doctrine of waiver by election... 4 Wasted expenditure claims... 5 Parker v S J Berwin & Co loss of chance claim and burden of proof... 5 In brief... 6 Arbitration anti-suit injunctions - ECJ decision... 6 Reliance on counsel... 6 Security for costs... 6 Service of claim against solicitor... 6 Solicitors negligence forthcoming trials... 6 Special account rate change... 7 Contractual negotiations Allianz Insurance Co Egypt v Aigaion Insurance Co SA formation of reinsurance contract [2008] EWCA Civ 1455 Negotiations for a contract of marine reinsurance were carried out by . Towards the end of the negotiations, the reinsurer asked the reinsured s broker to forward slip soonest for our agreement. The broker sent the slip but unfortunately omitted a vital clause, a class warranty, which had previously been stipulated by the reinsurer Aigaion and agreed between the parties. The reinsurer, presumably failing to notice the omission, replied Cover is bound with effect from 31/03/05 as we had quoted ie 1.33% H&M and 0.4% IV for our 30% line. Those rates had already been agreed and were set out in the slip. The 30% line was also agreed. 1 February 2009

2 The issue which arose following the loss in July 2005 of a tug scheduled to the slip, was whether the reinsurer s final message was agreeing to cover with or without the class warranty clause. The reinsured s primary case was that the contract included the missing clause but that in any event a contract was concluded. The reinsurer argued that the exchanges did not result in a contract at all because the parties were not ad idem: the offer was on the basis that the clause was not included and the would-be but unsuccessful acceptance was on the basis previously quoted which had included the clause. The court concluded that a contract had been concluded. It was not possible to construe the contract reached as including the missing warranty. Either Aigaion s was a counteroffer giving priority to their previous stipulations or an acceptance giving priority to the agreement on the slip. Rix LJ said that the mutual indicia of finality about the exchange are so strong that it would be wrong to interpret them as ending in a mere offer and counter-offer. The reasonable reader of these exchanges would conclude that Aigaion was agreeing to the terms set out in the slip. Comment: this is a textbook problem, simply explained but needing the Court of Appeal to answer it. It illustrates the limits of a clinical approach to offer and acceptance. In theory, the parties were not of one mind because of the mistake in the slip. However, the surrounding circumstances spoke so clearly to an agreement that the court was not prepared to find that a contract had not resulted. The fact that Aigaion was seeking to avoid meeting the claim undoubtedly affected this result. As Moses LJ put it, the reasonable reader would assume that these exchanges were conducted in an honest and straightforward manner. It would have been disingenuous for Aigaion to ask for a slip to be forwarded for our agreement and, on receipt, to announce that cover is bound if in fact it was making a counter-offer. The omission of the warranty wasn t important (except to permit Aigaion to argue that they weren t bound to pay out for the loss of the tug) because there was no breach of warranty before the casualty occurred. If that had happened, Aigaion would have been able to apply for the contract to be rectified to include the missing warranty. Aigaion argued that this would not have been possible because the court can only rectify a contract and not an offer. The court said that it did not see why this was so but refused to say whether or not an application for rectification would have been successful. Extending the limitation period Cain v Francis personal injury claims and prejudice [2008] EWCA Civ When a judge decides whether or not to exercise the discretionary jurisdiction to extend the three year limitation period for personal injury claims under s33 Limitation Act 1980, the defendant s loss of a limitation defence will not usually amount to prejudice. In two test cases, the claimants solicitors had failed to issue personal injury proceedings in time. In Cain v Francis the claim was one day late; in McKay v Hamlani the claim was issued in time but not served. A second claim form was issued a year later. In both cases, liability was accepted before proceedings began. 2 February 2009

3 In Cain v Francis the judge refused to exercise his discretion to extend the limitation period. He held that the defendant would suffer prejudice by losing a limitation defence, the only prejudice to the claimant being that he would have to sue his solicitor instead. In McKay v Hamlani, on the contrary, the judge granted the claimant s application, holding that the defendant s loss of its limitation defence was a windfall which could not amount to prejudice. The Court of Appeal acknowledged that section 33 applications should not be a lottery for litigants and that there should be a consistent approach as to whether the loss of a limitation defence amounts to real prejudice where there is no defence to liability on the merits. They concluded that the relevant authorities support the conclusion that such a loss does not amount to real prejudice, although the reasoning for this conclusion varies from case to case. Reviewing the purpose of section 33, the court stated that the defendant only deserves to have the obligation to pay damages due to the claimant removed if the passage of time has significantly diminished his opportunity to defend himself on liability or quantum. The real question which should be asked is whether it is fair to expect the defendant to meet the claim on the merits given the delay in commencing proceedings. This will depend on: the length of the delay; the reasons for the delay; the extent to which it has prejudiced the defendant in investigating the claim or assembling evidence. It will always be relevant to consider when the defendant knew a claim was to be made against him. If he has had an early opportunity to investigate the claim and collect evidence, some delay after the expiry of the three year period will have had no prejudicial effect. Comment: the diametrically opposite approaches taken by the judges in these two cases illustrates a problem caused by conflicting case law and in particular by comments made by Lord Diplock in Thompson v Brown. These comments gave support to the view that the financial prejudice to a defendant resulting from the loss of a limitation defence was prejudice for the purpose of section 33. The Court of Appeal stated bluntly that this was wrong and that since the comments were not essential to the ratio of the decision, they were not bound by them. In both of these cases, the defendant had suffered no other significant prejudice. The claimant was able to sue his or her solicitor but the court was clear that this did constitute prejudice even if the claimant had an open and shut case. A claim against solicitors who fail to issue proceedings in time is a loss of chance claim. Although not vulnerable on liability in such circumstances, a claimant will be vulnerable on quantum since the solicitors are likely to be privy to the weaknesses of the claim. So the upshot of this is that there will be fewer claims made against solicitors and their professional indemnity insurers arising out of failures to begin personal injury proceedings in time. There should also be fewer contested section 33 applications. 3 February 2009

4 Waiver exclusion clauses Tele2 International Card Co SA v Post Office Ltd exclusion of doctrine of waiver by election [2009] EWCA Civ 9 The claimant Tele2 made various claims against Post Office Ltd (POL) concerning a contract under which it agreed to supply pre-paid phonecards. Tele2 breached the agreement, but POL took no steps to deal with the breach or to require Tele2 to remedy the breach until it gave notice to terminate 11 months later. Tele2 argued that POL had no right to terminate as it had affirmed the contract by its continued performance. POL accepted that it knew of the facts giving rise to the right to terminate and of its right to choose between terminating and carrying on with the agreement but said it still had the right to terminate because the contract contained the following no waiver" clause: In no event shall any delay, neglect or forbearance on the part of any party in enforcing (in whole or in part) any provision of this Agreement be or be deemed to be a waiver thereof or a waiver of any other provision or shall in any way prejudice the right of that party under this Agreement." The court held that POL had elected to affirm the agreement by continuing to perform it when it knew of Tele2 s breach. It ruled that the clause did not prevent the supplier from relying on the doctrine of affirmation of the contract by election. The effect of the clause was merely to emphasize the requirement that an election will only be shown if there has been a clear and unequivocal communication of an election to abandon the right to terminate and continue the agreement. The clause could not prevent the fact of an election to abandon the right to terminate from existing. Comment: waiver, both by affirmation by election and by estoppel, is an important concept in insurance. Waiver by election now has a smaller role to play since last year s Court of Appeal decision in Kosmar Villa Holidays plc v Trustees of Syndicate The court held that waiver by election has no application where an insured fails to comply with a procedural condition precedent under the policy. This approach was followed in Lexington Insurance Co v Multinacional De Seguros SA where it was held that the assertion by a reinsurer of a defence to liability arising from the breach of a condition precedent was not a choice by him between inconsistent rights. Raising a defence, although it might involve making a choice, was not a contractual election and waiver by election did not arise. Waiver by estoppel, on the other hand, may apply in such circumstances. This requires an unequivocal representation by the insurer that he will not insist upon his legal rights against the insured and reliance upon it by the insured so as to make it unfair for the insurer to go back on his representation. The present decision considers whether the parties to a contract can bar the doctrine of affirmation of a contract by election by a well-worded no waiver clause. The wording of the POL clause failed to achieve this. The court noted that the clause did not attempt to say that 4 February 2009

5 the doctrine of election shall not apply even assuming that any contractual provision could exclude the operation of the doctrine. The question which remains, therefore, is whether a differently worded clause could have enabled POL to have avoided affirming the contract by continuing to perform for 11 months following a material breach by Tele2. The impression given by the judgment is that it could not. This is presumably on the basis of a presently unstated rule of law founded in public policy, as there is preventing the exclusion of liability for one s own fraud, preventing a party from excluding the doctrine of affirmation by election. However, the possibility that a clause expressly excluding reliance on the doctrine could be effective is not ruled out. For the time being, innocent parties should make sure that they do not unwittingly affirm the contract following a breach entitling them to terminate. Wasted expenditure claims Parker v S J Berwin & Co loss of chance claim and burden of proof [2008] EWHC 3017 (QB) Following a breach of contract a claimant has can choose whether to pursue a claim for his loss of profit or to claim for his wasted expenditure. In this case the claimants alleged that the defendant solicitors failure to comply with their obligations in progressing the claimants takeover bid for Leicester City Football Club and sought to recover their wasted expenditure preparing for the bid. They applied to amend their particulars of claim in order to claim the entirety of this expenditure as damages without having to prove on a loss of chance basis that there was a real chance of their bid succeeding. The claimants argued in reliance on CCC Films (London) Ltd v Impact Quadrant Films Ltd that there is a legal presumption that they would not have wasted the expenditure if the defendants had not breached their duty and that the burden was on the defendants to rebut this presumption. The judge refused to allow the amendment. The principle in CCC Films is directed at loss of bargain cases where it is well-established that wasted expenditure cannot be recovered where the claimant has made a bad bargain and would not have recovered the expenditure incurred. In such a case, it is generally fair to impose the burden of proving whether the bargain would or would not cover the expenditure on the defendant contract breaker. But in a professional negligence claim there is no bargain. The solicitor is not agreeing or warranting that any particular result will be achieved. He is simply contracting to exercise reasonable care in carrying out the services contracted for. Comment: it is still open to the claimants to recover damages on the Allied Maple loss of chance basis provided they can prove that there was a real and substantial chance of the bid succeeding and the expenditure being recouped. It was not therefore unfair for the burden of proof to remain on the claimants. On the contrary, it would have been unfair to the defendants to impose the burden on them since this would leave them with the unenviable task of proving a negative. The bid s success depended about the availability of finance. If the burden was placed on the defendants, the claimants would not have to identify the sources of finance they say would have been available, leaving the defendants to show that 5 February 2009

6 there were no viable sources of finance anywhere. This was a bold attempt by the claimants to side-step the loss of chance approach but one which was properly rejected. Those on the receiving end of such claims will now have authority to rely upon in rebutting this argument in future. In brief Arbitration anti-suit injunctions - ECJ decision The ECJ has held as expected that the grant of anti-suit injunctions restraining a party from commencing or continuing with proceedings in the court of a Brussels Regulation member state, where those proceedings are in breach of an arbitration agreement, is incompatible with the Brussels Regulation. The ruling extends the effect of Turner v Grovit and Gasser GmbH v MISAT srl which preclude anti-suit injunctions where proceedings are brought in courts of member states in breach of jurisdiction clauses to cases where proceedings are brought in breach of arbitration clauses. English courts will now only be able to grant antisuit relief where the foreign proceedings in question are brought in the court of a nonmember state (Allianz SpAv West Tankers Inc C-185/07). Reliance on counsel Instructing solicitors have an independent duty to instruct counsel fully on the facts to form the basis of the advice he is asked to provide. They also have an independent duty to consider and form their own judgement on the advice given and are not bound to follow counsel's advice (McFaddens (a firm) v Platford). Security for costs When insurers issue proceedings for a declaration that they are entitled to avoid the policy, and the insured counterclaims for an indemnity under the policy, it being a matter of chance which party issued a claim first, the insurers may obtain security for costs where there is doubt about the financial security of the insured (Jones v Environcom Ltd). Service of claim against solicitor Where a solicitor is acting as a legal representative for a party, his agreement to accept service by fax or will be inferred if his headed paper shows a fax or address. Where, however, a solicitor is being sued and is not acting in a representative capacity, such an agreement cannot be inferred. Service of a claim form by fax in such circumstances is bad service (Thorne v Lass Salt Garvin). Solicitors negligence forthcoming trials Three substantial professional negligence cases are proceeding against City firms. A claim brought against Linklaters by Baltic telecoms company Levicom began in the High Court earlier this month. The Lawyer reports that the company is seeking damages for advice Linklaters gave on a dispute with Tele2. Hammonds is defending a claim from its former client Albert Abela (see January s Litigation Update for details at and Clifford Chance is defending a professional negligence claim brought by with Jersey property company Al Salam UK Properties Investment. 6 February 2009

7 Special account rate change The special account rate fell from 6% to 3% with effect from 1 February It may be the appropriate rate to use in a professional negligence action where there is a claim for a loss of a chance. In Harrison v Bloom Camillin, the special account rate was applied both to the notional judgment and the notional judgment debt. Reserves and settlement offers will require adjusting to take this reduction into account. Miranda Whiteley Professional Support Lawyer for Mills & Reeve LLP +44(0) miranda.whiteley@mills-reeve.com The contents of this document are copyright Mills & Reeve LLP. All rights reserved. This document contains general advice and comments only and therefore specific legal advice should be taken before reliance is placed upon it in any particular circumstances. Where hyperlinks are provided to third party websites, Mills & Reeve LLP is not responsible for the content of such sites. Mills & Reeve LLP is a limited liability partnership regulated by the Solicitors Regulation Authority and registered in England and Wales with registered number OC Its registered office is at Fountain House, 130 Fenchurch Street, London, EC3M 5DJ, which is the London office of Mills & Reeve LLP. A list of members may be inspected at any of the LLP's offices. The term "partner" is used to refer to a member of Mills & Reeve LLP. 7 February 2009