Welcome to the thirty-seventh edition of Clyde & Co's (Re)insurance and litigation caselaw weekly updates for 2014

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

This week's caselaw

Northrop Grumman v BAE
A case on whether there should be a costs penalty for refusing to mediate.

Whitston (Asbestos Victims Support Groups Forum UK) v Secretary of State for Justice and the ABI
A court rules that mesothelioma claimants can still recover success fees and ATE insurance premiums.

Evans v Royal Wolverhampton Hospitals
A case on obtaining the court's permission to withdraw a Part 36 offer.

Winrow v Hemphill
A decision on the applicable law for assessment of damages and whether a tort was manifestly more closely connected with another country.

Anglo Financial v Goldberg
A case on the impact of delay on an application for a freezing order.

Fiona Trust v Privalov
Enforcing a cross-undertaking where the respondent's misconduct did not relate to the freezing order application.

Northrop Grumman v BAE

Whether there should be a costs penalty for refusing to mediate

http://www.bailii.org/ew/cases/EWHC/TCC/2014/3148.html

The defendant won at trial but the claimant argued that its costs should be reduced because of its unreasonable refusal to mediate. This was not a case where the defendant had failed to respond at all to a request for mediation. Instead, it felt that it had a strong case and did not want to incur the costs of a mediation. It did however make an offer to settle the dispute, which was not accepted by the claimant, and also agreed to a face to face meeting. Ramsey J held as follows:

  1. The defendant had been reasonable in believing it had a strong case, the judge commenting that "I would not call it a borderline case nor one which was suitable for summary judgment". Furthermore, he acknowledged that there had been some attempt to settle the dispute.
  2. The costs of a mediation might have been around GBP 40,000. The costs incurred by the parties in the end were around GBP 500,000 (the claim being for GBP 3 million). Ramsey J held that the costs of mediation could not therefore be said to be disproportionately high.
  3. This was said to be a classic case (the two parties having a commercial relationship) where a mediator could have brought the parties together. In assessing the chance of success of a mediation the judge said that the court should not merely look at the positions adopted by the parties. It is often the case in mediations that one side feels very aggrieved and the other believes it has done nothing wrong, but a mediator can help find some middle ground by eg bringing other commercial arrangements or disputes into the discussion. The judge therefore concluded that a mediation would have had a reasonable prospect of success here.
  4. It had therefore been unreasonable for the defendant to reject the offer to mediate: "Where a party to a dispute, which there are reasonable prospects of successfully resolving by mediation, rejects mediation on grounds which are not strong enough to justify not mediating, then that conduct will generally be unreasonable".

However, in view of the offer to settle which was not accepted by the claimant, the judge concluded that there should be no departure from the normal costs consequences in this particular case.

COMMENT: In the leading case on whether a party has acted reasonably in refusing to mediate, Halsey v Milton Keynes [2004], a non-exhaustive list of considerations was given by the Court of Appeal. The defendant in this case appears to have satisfied some of those considerations (eg by making an offer to settle, which the claimant did not end up bettering) and it reasonably believed that it had a "strong" (although not watertight) case. However, the judge placed more emphasis on the consideration that a skilled mediator may be able to engineer a settlement of a dispute even where the parties appear to be diametrically opposed. That consideration outweighed the fact that the defendant had attempted settlement by alternative means.

Whitston (Asbestos Victims Support Groups Forum UK) v Secretary of State for Justice and the ABI

Court rules that mesothelioma claimants can still recover success fees and ATE insurance premiums

http://www.bailii.org/ew/cases/EWHC/Admin/2014/3044.html

When sections 44 and 46 of the Legal Aid Sentencing and Punishment of Offenders Act 2012 ("LASPO") came into force on 1st April 2013, they prevented the recovery of success fees and ATE insurance premiums paid by the winning claimant from a losing defendant. However, section 48 of LASPO provided that those changes would not apply to proceedings relating to diffuse mesothelioma until the Lord Chancellor had carried out a review of the likely effect of the changes in relation to such proceedings. In December 2013, the Lord Chancellor decided to bring into force sections 44 and 46 for mesothelioma claims. The claimant (the chairman of the Asbestos Victims Support Groups Forum) applied for judicial review of that decision, arguing that the Lord Chancellor's review had not complied with the requirements of section 48. That was denied by the Lord Chancellor, who was supported by the ABI (since in almost every case in which a claim is made for damages for mesothelioma, the effective defendant is an insurance company).

Davis J has now ruled that the Lord Chancellor did not conduct a proper review and hence his decision in December 2013 cannot stand. Broadly, it was held that a consultation document sent out by the government could not provide the Lord Chancellor with what he needed in order to conduct a review of section 48. The consultation was designed to speed up mesothelioma claims generally and the proposal to apply sections 44 and 46 to mesothelioma claims was (the objective consultee would have concluded) linked to, and affected by, the other proposals in that consultation document (eg the introduction of the Mesothelioma Bill).

Accordingly, the Lord Chancellor will now be required to conduct a proper review (although the judge did not address the "oddity" that section 48 does not specify what should occur after the review has been concluded, or whether the outcome of the review should determine the bringing into force of sections 44 and 46 for mesothelioma claims).

Evans v Royal Wolverhampton Hospitals

Withdrawing a Part 36 offer

http://www.bailii.org/ew/cases/EWHC/QB/2014/3185.html

CPR r36.3(5) provides that the court's permission must be sought to withdraw a Part 36 offer within 21 days (or any longer "relevant period") of it having been made. The defendant in this case made a Part 36 offer which was accepted within 21 days by the claimant. Unbeknownst to the claimant, the defendant applied to court a day later (and still within the 21 day period) for permission to withdraw the offer. Permission was given by the court after the court was shown a witness statement and skeleton argument. The claimant appealed against that decision.

Leggatt J has now held that it was wrong in principle for the defendant to make its application without notice to the claimant and for the court to entertain that application. It was all the more wrong when the claimant was excluded from the hearing and the grounds on which the order was made were concealed from the claimant too. Nor was there any justification if the defendant thought that the application had to be made within the 14 day period referred to in CPR r36.11(7) (this provides that a defendant must pay within 14 days of its offer being accepted, or else judgment may be entered for the unpaid sum). The claimant could not have taken any step to prevent an order giving the defendant permission to withdraw its offer from being effective.

As a result, the permission to withdraw the offer was invalid and the claimant was entitled to judgment for the accepted sum under CPR r36.11(7). The judge refused an adjournment because the defendant had not served any evidence or given reasons in support of a request for one.

Of more general interest in this case, though, was the judge's comments on the test to be applied when a party applies to court for permission to withdraw an offer. Part 36 itself does not give any guide as to the circumstances which the court will take into account when deciding whether to grant permission and there has been no reported decision to date on that question since the change to Part 36 in 2007.

Leggatt J said the test to be applied was the same as that in relation to payments into court, namely: "whether there had been a sufficient change of circumstances to make it just to permit the party to withdraw the offer". Examples from earlier caselaw which he cited included the discovery of further evidence which puts a "wholly different complexion" on the case or a "change in the legal outlook" brought out by a new case (see Cumper v Pothecary [1941]). The withdrawing party must be aware of such change at the time the offer is purportedly withdrawn and not at a subsequent date.

Winrow v Hemphill

Applicable law for assessment of damages and whether tort manifestly more closely connected with another country

http://www.bailii.org/ew/cases/EWHC/QB/2014/3164.html

The claimant is a British army wife who had been living in Germany for 8 years when she was injured in an accident caused by the defendant driver, another army wife. About a year and a half after the accident, the claimant returned to England to continue receiving treatment for her injuries. The issue in this case was whether the law governing the assessment of damages should be English or German law.

The basic position under Rome II is that the law of the country where the damage occurs will be the applicable law. However, there are two exceptions to that rule on which the claimant wished to rely:

  1. Article 4(2) provides that, where the person claimed to be liable (in this case, the driver of the car and not her UK insurers who would be paying the damages) and the person sustaining damage both have their "habitual residence" in the same country at the time the damage occurs, the law of that country will apply. There is no definition of habitual residence for individuals in Rome II. However, having regard to the claimant's length of stay in Germany, its purpose and the establishing of life there, her habitual residence at the time of the accident was held to be Germany. It made no difference that she was there because her husband had been posted there and Germany had not been his first choice: that did not render her presence there involuntary.
  2. Article 4(3) provides that, where it is clear from all the circumstances of the case that the tort is more closely connected with another country, the law of that country will apply. The judge held that there is no temporal limitation under this article: "The balance of factors pointing to country A rather than country B may change depending upon the time but not the stage in the proceedings at which the court makes its assessment." Furthermore, the consequences of the tort can be taken into account. So, for example, "if at the time of the accident it was anticipated that the Claimant would remain in country A and all her consequential loss would be incurred there, but by the time the issue of whether the exception provided by Article 4(3) applied, she had moved to country B and was incurring loss there, in my judgment both circumstances may be taken into account in deciding whether in all the circumstances the tort is manifestly more closely connected with country B than with country A".

On balance, the judge concluded that the tort did not have a manifestly closer connection with England than with Germany.

Anglo Financial v Goldberg

The impact of delay on an application for a freezing order

http://www.bailii.org/ew/cases/EWHC/Ch/2014/3192.html

In 2010 the claimant entered into prolonged negotiations with the defendant in an attempt to reach a settlement of its claim against him. Eventually, in August 2014, proceedings were launched and the claimant obtained a freezing order against the defendant. The defendant sought a discharge of that order. Roth J therefore considered the effect of the claimant's delay. He acknowledged that the significance of delay "will vary greatly from one case to another". In Enercon v Enercon (see Weekly Update 12/12) Eder J explained that "it is not simply the fact of delay that is so important but what it tells the court about the risk of dissipation".

Roth J held that the delay in this case was "very relevant". If the defendant had intended to dissipate his assets, he had had ample opportunity to do so and was well aware that the claimant was pursuing him for the recovery of substantial losses. Furthermore, had the claimant really believed that there was a serious risk of dissipation, he would have acted years sooner. Nor could the claimant have believed that the defendant was not "worth powder and shot", since it devoted prolonged efforts to seeking payment from him.

There had also been material non-disclosure when seeking the freezing order as the claimant had not referred to an earlier satisfactory transaction with the defendant. Although a claimant is not obliged to show that a defendant is untrustworthy in all aspects of his dealings, evidence of dealing between the same parties regarding a transaction which was very similar to the one forming the basis of these proceedings, at almost the same time and involving a substantial sum of money, was highly material. Accordingly, the freezing order was not continued.

COMMENT: As the judge explained in this case, whether or not delay is relevant to a freezing order application will depend on the circumstances of the case. In Madoff v Raven (see Weekly Update 43/11), Flaux J considered that the claimant could not be criticised for delay because it had had to carry out a global investigation into the whereabouts of the proceeds of a fraud. However, here, the claimant had already entered into lengthy negotiations to seek payment from the defendant (even if it was not yet sure whether the defendant had sufficient assets to make that payment) and that was considered to be an important factor.

Fiona Trust v Privalov

Enforcing a cross-undertaking where the respondent's misconduct did not relate to the freezing order application

http://www.bailii.org/ew/cases/EWHC/Comm/2014/3102.html

At trial, the defendant (who had also been a respondent to earlier freezing orders) was found guilty of certain misconduct. However, the claimant accepted that the freezing orders had been wrongly made (because they had been made in respect of certain other claims which had failed). Hence the cross-undertaking in damages which it had provided could be enforced if it could be shown that the orders had been "improperly obtained".

The issue in this case was what conduct by the defendant was relevant. In Hoffman-La Roche v Secretary of State [1975], Lord Diplock had talked only about conduct relating to "obtaining or continuing of the injunction or the enforcement of the undertaking". Smith J held that Lord Diplock had not thereby intended to define the limits of what conduct might be relevant. Nevertheless, after a review of further caselaw and established equitable principles, he concluded that the defendant was right to say that the conduct on which the claimant could rely is relevant "only if and so far as it relates to the obtaining or the continuing" of the freezing orders.

The judge went on to find that the defendant's misconduct supported the claimant's case that there had been a wider conspiracy and so was linked to the obtaining and continuation of the orders. However, the claimant had breached its duty to make proper disclosure when applying for the orders. Thus the cross-undertaking should be enforced if it could be shown that the defendant had suffered loss.

The judge described the defendant's evidence on that point as "circumspect" and said there was no documentary evidence to corroborate his claim. Had the defendant's contention that he suffered a loss depended on the credibility of the defendant as a witness, the judge would have hesitated to find such a loss. However, he went on to hold that "I accept that: if freezing orders are obtained against an entrepreneur such as [the defendant] and his companies, such loss naturally results". It was said to be wholly credible that, but for the freezing orders, the defendant would have continued to invest in shipping. He had done so for many years with success and there was no evidence or reason to infer that he would have ceased to do so, but for the orders.

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