Weekly Update A summary of recent developments in insurance, reinsurance and litigation law 12/10 CONTENTS Sylvia Shipping v Progress Bulk Carriers 2 A case on the test for remoteness of damages and whether there has to be an assumption of responsibility Scullion v Bank of Scotland Plc 2-3 A case on surveyors' negligence and whether a duty is owed to a buy-to-let purchaser (of possible interest to PI insurers) Bent v Highways & Utilities Construction & Allianz 3 A Court of Appeal case on whether evidence of hire rates after the material time can be relevant Teasdale v HSBC 3-4 A decision on whether a claimant was entitled to his costs after discontinuing his action FSA v Anderson & Ors 4 An application to adjourn a summary judgment hearing in order not to prejudice an ongoing criminal investigation Fonexco v Manches 5 A case involving reliance on a foreign lawyer's advice Andrews v Aylott 5 A case on Part 36 and interest on future payments www.clydeco.com 1
This Week's Caselaw Sylvia Shipping v Progress Bulk Carriers Test for remoteness of damages The generally accepted test for remoteness of damages is whether the loss claimed is of the kind or type which it would have been within the reasonable contemplation of the parties, at the time that the contract was made, as being not unlikely to result (the "orthodox" approach). However, after the recent House or Lords case of The Achilleas [2009], doubts have arisen as to whether that test is sufficient. In The Achilleas, two of their lordships decided the case on the orthodox approach. However, two of them decided it on the "broader" approach, namely, not only must the parties be taken to have had the type of loss within their contemplation, they must also be taken to have assumed legal responsibility for that type of loss. The remaining judge gave a judgment which contained elements of the reasoning of both approaches. In this case, Hamblen J concluded that the rationale of assumption of responsibility had the support of the majority in The Achilleas. He said: "The orthodox approach remains the general test of remoteness applicable in the great majority of cases. However, there may be "unusual" cases...in which the context, surrounding circumstances or general understanding in the relevant market make it necessary specifically to consider whether there has been an assumption of responsibility. This is most likely to be in those relatively rare cases where the application of the general test leads or may lead to an unquantifiable, unpredictable, uncontrollable or disproportionate liability or where there is clear evidence that such a liability would be contrary to market understanding and expectations". In The Achilleas, the House of Lords had held that where there was a breach of a contract (which caused the shipowners to fail to deliver a vessel in time), the owners were not entitled to the difference between the original and the renegotiated rates of hire. In this case, shipowners had breached their contractual maintenance obligations and so a sub-charter made by the charterers was cancelled. The arbitrators held that the charterers were entitled to the loss of profit on the cancelled sub-charter. Hamblen J held that the arbitrators had not made any error of law. This was not one of those "unusual" cases in which it might be said that assumption of responsibility had to be addressed. On a separate note, the judge also reiterated that on an appeal from an arbitration award, the only documents which should be put before the court should be the award itself and the relevant contract. Unless clearly incorporated by reference, other arbitration documents (eg submissions from the arbitration) will usually be irrelevant and inadmissible (and the same applies to applications for permission to appeal, unless there is a disputed issue as to whether the question of law was one which the tribunal was asked to determine). Scullion v Bank of Scotland Plc Surveyor's negligence case and duty to buy-to-let purchaser (of possible interest to PI insurers) This case involved a claim for negligence brought by the purchaser of a flat in a buy-to-let transaction against the surveyors instructed by the mortgage lender. Some of the issues considered by the judge included the following: Did the surveyors owe a duty of care to the claimant? In Smith v Bush [1990], the House of Lords accepted that in that case the surveyors instructed by a building society owed a duty of care to the purchaser of property. It was argued by the surveyors in this case that Smith v Bush did not apply to the situation where the purchaser was a buy-to-let purchaser engaged in a commercial investment; www.clydeco.com 2
The judge rejected that argument - the crucial facts leading to the imposition of a duty of care in Smith v Bush had been that the purchase was of a "low-end residential property" and the surveyors knew that the purchaser was relying on the survey and would suffer loss if the valuation was excessive (and it was just and reasonable to impose a duty of care). In this case, the property being purchased was not "industrial property, large blocks of flats or very expensive houses" and there was no general proposition that a buy-to-let transaction is very different from an ordinary residential house purchase; Were the disclaimer clauses in the application form effective? The disclaimers in this case were included in the small print of the application form and there were no disclaimers in the valuation report itself. The judge concluded that they were not brought to the attention of the purchaser. Furthermore, they did not satisfy the requirement for reasonableness under the Unfair Contract Terms Act 1977. The surveyors must have known that the purchaser would be relying on their professional expertise and there was no evidence that anyone expected the purchaser to obtain a valuation from an alternative source; and Were the surveyors negligent? There are currently two lines of authority as to the correct approach to be taken by a court to an allegation of negligence against a surveyor. The first concentrates on the result (ie did the valuation fall within the reasonable margin for the "right" value for the property, and if not, did the surveyor depart from acceptable practices) and the second concentrates on the process (so if the valuer departs from acceptable practices, he may be liable even if the result still falls within the margin for the "right" value). In this case, both sides accepted the first approach. The judge rejected an argument, though, that hindsight could be used to determine the "right" value. The value is that which a competent valuer would have made at the time of the valuation and the application of a margin reflects the fact that property valuation is not an exact science. Bent v Highways & Utilities Construction & Allianz Evidence of hire rates The first defendant was responsible for a road accident which damaged the claimant's car - a Mercedes sports car worth 72,000. The defendant's insurers did not accept that they had to pay the full hire charges for the replacement car which the claimant hired - an Aston Martin worth 105,000. The total hire costs came to over 63,000 - almost as much as the value of the claimant's car. At first instance, the judge did not attempt to assess the "spot hire" rate for a broadly similar car, on the basis that there was no proper evidence as to what the spot rate was at the material time (the evidence showed only what the rate was 2 years later). The Court of Appeal held that the judge had erred. Evidence of the later spot rate would have thrown "considerable light" on what the spot rate would have been at the time: "I would add further that one must not be hypnotised by any supposed need to find an exact spot rate for an almost exactly comparable car. Normally, the replacement need be no more than in the same broad range of the quality and nature as the damaged car". Teasdale v HSBC Whether claimant entitled to its costs on discontinuance of action CPR r38.6 provides that, unless the court orders otherwise, a claimant who discontinues his action is liable for the defendant's costs incurred on or before the service of the notice of discontinuance. In this case, the claimants sought an order that the defendants should pay all or part of their costs. They argued that the court ought to look at the whole case and ask who had succeeded in the action and what order for costs was required by justice. The judge rejected that argument and summarised the position as follows: The claimant must show that there is a good reason for departing from the presumption that the defendant will get his costs; www.clydeco.com 3
The fact that the claimant would have (or might well have) succeeded at trial is not itself a good reason. However, if it is plain that the claimant would have failed, that will be a relevant factor against disapplying the presumption; The mere fact that a claimant discontinues for practical or financial reasons (and not for a lack of confidence in the merits of his case), is not enough; The claimant will need to show a change of circumstances since the claim was made. However, the claimant cannot rely on a change if it resulted from the very fact of the claim (eg the defendant has run out of money because he has spent it all on defending the claim). It may be different though if the defendant has, on his own initiative, rendered the claim worthless by eg embarking on some other unsuccessful proceedings which led to his bankruptcy. Nor can the claimant rely on a change resulting from the ordinary course of litigation (eg he believes he has less chance of winning after the defendant's disclosure); and "In truth, it is difficult to see how any change of circumstances could amount to good reason unless it is connected with some conduct on the part of the defendant which deserves to sound in costs against him". An example might be where the defendant has adopted an unnecessarily aggressive and unreasonable stance in negotiations before discontinuance. Even with such conduct though, it must still be shown that, taking into account all the circumstances, there is good reason to disapply the presumption. In this case, the judge found that there was no basis for disapplying the presumption and the claimants were ordered to pay the defendants' costs. FSA v Anderson & Ors Application to adjourn summary judgment in order not to prejudice criminal investigation The defendants applied for an adjournment of the hearing of a summary judgment application (brought by the FSA) on two grounds: The summary judgment application might prejudice the defendants' position in an ongoing criminal investigation being carried out by the City of London Police. In Panton v The Financial Institutions Services [2003], the Privy Council confirmed that an applicant for a stay of civil proceedings (on the ground that it may prejudice actual or threatened criminal proceedings) must show a real risk of serious prejudice which may lead to injustice. Briggs J said it was not enough, for example, that both the civil and criminal proceedings arise from the same facts. Here, the defendants sought to argue that the FSA's claim was in the public domain and might prejudice jurors against them. The judge rejected that argument, saying that dishonesty was not alleged in the FSA proceedings but was likely to lie at the heart of any criminal charges against them. The defendants said they had a lack of representation and of preparation for the summary judgment application. The defendants had faced a number of difficulties including the non-availability of certain files from their former solicitors and of litigation funds following a restraint order obtained by the police. The judge took into account that the FSA had a real prospect of success and, if successful, the trial costs would be substantially reduced but not eliminated. Nevertheless, the judge thought it would be fair to allow the defendants some time to retrieve their files and to have better time to prepare. He therefore ordered a short adjournment. www.clydeco.com 4
Fonexco v Manches Relying on foreign lawyer's advice The claimants alleged that the defendants, a firm of solicitors, had failed to issue proceedings in England prior to the commencement of proceedings by an opposing party in Italy. On the facts, the judge found that the solicitors had not been instructed to issue and serve a claim form as soon as possible. Accordingly, the solicitors were not negligent. One aspect of the case of general interest, though, is that the judge confirmed that, just as a solicitor is entitled to rely on the advice of counsel properly instructed (see Locke v Camberwell Health Authority [2002]), so an English solicitor is entitled to rely upon the advice of an apparently competent foreign lawyer, properly instructed, on a point of the law of practice of the jurisdiction in which the foreign lawyer is an expert. Accordingly, in this case, the solicitors had been entitled to rely on an Italian lawyer's advice that a challenge to the jurisdiction of the Italian courts would not have had any prospect of success. Andrews v Aylott Part 36 and interest on future payments Further information If you would like further information on any issue raised in this update please contact: The defendant rejected the claimant's Part 36 offer and the judgment eventually entered against the defendant was at least as advantageous to the claimant as its Part 36 offer. Judgment was for a lump sum of just over 2m plus index-linked annual payments for future annual net earnings and care. In this case, Tugenhadt J concluded that it would be wrong to make any award of interest (enhanced or otherwise) under Part 36 in respect of those damages which were awarded for future losses and future expenditure - i.e. damages which would not attract interest in the normal way. Interest is intended to reflect the loss to the claimant for being kept out of his money and so it cannot be applied to a payment to be made in the future. Accordingly, enhanced interest was awarded only the lump sum. Nigel Brook nigel.brook@clydeco.com Clyde & Co 51 Eastcheap London EC3M 1JP Tel: +44 (0) 20 7623 1244 Fax: +44 (0) 20 7623 5427 Further advice should be taken before relying on the contents of this summary. Clyde & Co LLP accepts no responsibility for loss occasioned to any person acting or refraining from acting as a result of material contained in this summary. No part of this summary may be used, reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, reading or otherwise without the prior permission of Clyde & Co LLP. Clyde & Co LLP is a limited liability partnership registered in England and Wales. Regulated by the Solicitors Regulation Authority. Clyde & Co LLP 2010 Clyde & Co LLP offices and associated* offices: Abu Dhabi Bangalore* Belgrade* Caracas Dar es Salaam* Doha Dubai Guildford Hong Kong London Moscow Mumbai* Nantes New Jersey New York Paris Piraeus Rio de Janeiro Riyadh* San Francisco Shanghai Singapore St Petersburg* www.clydeco.com 5