Better rights against insurers of ‘insolvent’ entities – finally here

The Third Parties (Rights against Insurers) Act 2010 will come into force on 1 August 2016, replacing the current legislation (which dates from 1930) and providing for a less complex procedure for a third party claimant to claim directly against the insurer of an insolvent individual or corporate defendant. The new law will improve the position of third parties with claims against insolvent assureds. For more information see our insurance and reinsurance disputes team's e-bulletin.

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Supreme Court holds that a settlement may be set aside for fraud even if fraud was suspected

The Supreme Court has held unanimously that, where a party seeks to set aside a settlement agreement on the grounds that it was induced to enter into it by its opponent's fraudulent misrepresentations, it will not necessarily be a bar to the claim that the party did not fully believe the representations: Hayward v Zurich Insurance Company plc [2016] UKSC 48.

Overturning the Court of Appeal's ruling on this point, the Supreme Court identified the appropriate question as whether the party was "influenced by" its opponent's representations in entering the agreement.  There is no independent requirement that the defrauded party actually believed the representations to be true. The fact that it had doubts or suspicions may be highly relevant to the court's assessment of whether it was influenced, but it will not be determinative.  In particular, in the specific context of an agreement to settle court proceedings, a party may have been influenced in the sense that it took into account the risk that the court hearing the claim would believe the representations, even if the party itself did not. Each case will however turn on its facts.

The Supreme Court's decision clarifies an uncertain area of the law regarding misrepresentation and deceit in a settlement context and will be particularly welcomed by insurers and other parties involved in proceedings where an element of fraud is suspected.

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Commercial Court finds commitment letter unsigned by one party to be legally binding

The recent decision of the Commercial Court in Novus Aviation Limited v Alubaf Arab International Bank BSC(c) [2016] EWHC 1575 (Comm), serves as a cautionary tale to any financial institutions that regularly use letters of commitment.

The court found that a letter of commitment, which was expressed to be "conditional upon satisfactory review and completion of documentation", was nevertheless legally binding. Further, although it was intended that the commitment letter would become contractually binding once executed by both parties, this did not prevent it from having legal effect when executed by only one party. There was no term of the commitment letter that stipulated that the only means of acceptance was by countersignature, such that acceptance could be communicated by conduct. For more on the decision, please see our banking litigation e-bulletin.

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Supreme Court rules that a “collateral lie” is immaterial to an insurance claim

In Versloot Dredging BV and another v HDI Gerling Industrie Versicherung AG and Others [2016] UKSC 45, the Supreme Court held that policyholders who advance otherwise valid insurance claims by lies which are irrelevant to their rights to recover do not forfeit their claims under the policy: "the lie is dishonest but the claim is not".

In doing so, the Supreme Court overruled the decision of the Court of Appeal ([2015] QB 608), and rejected the analysis of the law by Mance LJ (as he then was) in Agapitos v Agnew (The Aegeon) [2003] QB 556 (on which the Court of Appeal decision had been based) that an insured who supports a valid claim with a lie forfeits his claim. For more on the decision, see our insurance and reinsurance disputes team's e-bulletin on the decision.

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Court of Appeal decision on inconsistency clauses in context of lenders’ reliance on contradictory mortgage conditions

A recent Court of Appeal decision provides a useful reminder of the courts' approach to resolving inconsistency in cases where there is an inconsistency clause incorporated in the relevant contract: Alexander v West Bromwich Mortgage Company Ltd [2016] EWCA Civ 496.

In this case, the Court of Appeal considered the right of a lender to rely on standard term mortgage conditions that contradicted the special conditions of a "tracker mortgage". In particular, the case concerned whether the lender could rely on provisions entitling it (1) unilaterally to vary the loan interest rate for any "valid reason" and (2) to terminate the mortgage on one month's notice absent borrower default. The contract contained an "inconsistency clause", favouring the lender's bespoke "Offer of Loan" over its standard conditions in the event of inconsistency. The court agreed with the borrower that both the standard conditions in question were inconsistent with the specific terms of the "tracker mortgage" sold to the borrower and hence could not be relied on by the lender.

The court noted that, where there is an inconsistency clause, the question of inconsistency should be approached without any pre-conceived assumptions: "one should not strive to avoid or to find inconsistency". The courts' general reluctance to find that parts of a contract are inconsistent with each other does not apply where the contract itself acknowledges, through the inclusion of ‎an inconsistency clause, that inconsistency may exist. As to what amounts to an inconsistency, it is is not enough if one term qualifies or modifies the effect of another; there will be an inconsistency if the clauses cannot fairly or sensibly be read together.

For more on the decision, please see our banking litigation e-bulletin.

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Supreme Court reformulates test for when a claim will fail due to illegality

The Supreme Court has established a new approach to the question of whether a defendant will be able to rely on the defence of illegality: Patel (Respondent) v Mirza (Appellant) [2016] UKSC 42

Under this new approach, the defence will apply if enforcing the claim would be harmful to the integrity of the legal system. In assessing whether that is the case, the court must consider:

  1. whether the underlying purpose of the law which has been broken will be enhanced by denying the claim;
  2. any other relevant public policy which may be affected by denying the claim; and
  3. whether denying the claim would be a proportionate response to the illegality. 

The Supreme Court found that, under this new approach, a claimant will not ordinarily be debarred from enforcing a claim for unjust enrichment simply because the money he seeks to recover was paid for an unlawful purpose – though there may be rare cases where enforcing such a claim might be regarded as undermining the integrity of the justice system. In this case there were no such circumstances, and so the claimant succeeded in his claim for recovery of money paid under an illegal contract (for insider dealing) which was not ultimately performed.

This new approach replaces the test adopted by the House of Lords in Tinsley v Milligan [1994] 1 AC 340, under which a claim would be barred if the claimant had to rely on the illegality to bring the claim. The so-called reliance test has been much-criticised on the basis that it is arbitrary, uncertain and potentially unjust, in particular because the question of whether a claim could proceed depended on a procedural issue of how the case must be pleaded rather than the merits of the parties or questions of public policy.

On numerous occasions in recent years, the courts have identified the need for the Supreme Court to address the proper approach to the defence of illegality in an appropriate case (see for example this blog post on Jetivia SA v Bilta (UK) Limited [2015] UKSC 23). It is therefore welcome that the Supreme Court has clarified the law in this difficult area.    

That said, there is force in the view expressed by a minority of the Supreme Court that the new approach risks enabling the courts to apply the illegality principle in an inconsistent way and possibly beyond its proper limits.  There is a fear, succinctly expressed by Lord Sumption, that the new approach "converts a legal principle into an exercise of judicial discretion", in the process exhibiting all the vices of "complexity, uncertainty, arbitrariness and lack of transparency". It has however been authoritatively established as the correct approach to the law.

Tom Henderson, a senior associate in our dispute resolution team, considers the decision further below.

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Supreme Court clarifies status of Privy Council decisions

The Supreme Court has confirmed that, subject to one qualification, the English courts should never follow a decision of the Privy Council if it is inconsistent with a decision that would otherwise be binding on the lower court: Willers v Joyce [2016] UKSC 44

There was previously some uncertainty as to whether this rule could be disapplied where the first instance judge or the Court of Appeal considered it a "foregone conclusion" that the Privy Council's view would be accepted by a superior court. The Supreme Court has rejected that approach, confirming that the rule is absolute unless the Privy Council has expressly directed that domestic courts should treat its decision as representing the law of England and Wales (under a new procedure which will be available where an appellant gives notice that it will invite the Privy Council to depart from a previous decision of the Supreme Court, House of Lords or Court of Appeal). Where there is no contradictory authority, Privy Council decisions will continue to be regarded as having great weight and persuasive value.

This question arose in the context of an appeal against a decision that the tort of malicious prosecution was not available in respect of civil, as opposed to criminal, proceedings. The first instance judge reached that conclusion on the basis that she was bound by House of Lords authority, despite a subsequent conflicting Privy Council decision. Ultimately the Supreme Court allowed the appeal by a majority (see our separate blog post on that decision). However, Lord Neuberger delivered this separate, unanimous, judgment on the question of precedent, confirming that the judge had been correct to follow the House of Lords authority.

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Supreme Court finds tort of malicious prosecution extends to civil claims

The Supreme Court has held, by a majority of 5 to 4, that the tort of malicious prosecution is available for civil as well as criminal claims: Willers v Joyce [2016] UKSC 43

This settles an important point that was previously uncertain, as there were conflicting views expressed by the House of Lords and Privy Council. In Gregory v Portsmouth City Council [2000] 1 AC 419, the House of Lords held that the tort did not extend to disciplinary proceedings and, although it was not necessary for its decision in that case, expressed the view that there should not be an extension to civil proceedings either. However, in Crawford Adjusters (Cayman) Ltd v Sagicor General Insurance (Cayman) Ltd [2014] AC 366 (considered in this blog post), the Privy Council held, by a majority, that the tort should be available for civil proceedings.

As in Crawford, the majority was not persuaded by concerns expressed in the dissenting judgments, in particular that there was a risk of deterring parties from bringing valid claims and of prolonging disputes by way of secondary litigation. The majority decision emphasises that the requirement to prove not only absence of reasonable and probable cause for the proceedings but also that there was no bona fide reason to bring them means that the claimant has a "heavy burden to discharge".

The decision leaves open a number of questions, including whether there may be a further extension of liability to malicious defence of proceedings, or malicious applications or allegations in proceedings which would not otherwise be malicious. The minority clearly considered this to be a logical further extension, if the appeal was allowed, but the majority did not consider that it would necessarily follow. Neil Blake and Maura McIntosh consider the decision further below.

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Court of Appeal finds judge was wrong to exclude one claimant from court while the other claimant gave evidence

The Court of Appeal found that a judge had been wrong to make an order excluding one claimant from court while the other claimant gave evidence, despite allegations that the claim was fraudulent. However, the order did not render the proceedings as a whole unfair and, therefore, a retrial was not necessary: Da Costa and another v Sargaco and another [2016] EWCA Civ 764.

This contrasts with Tuckwell v Limata [2014] EWHC 536 (Fam) in which the High Court concluded that there were good reasons for excluding a father from court while his daughter (the claimant) gave evidence: there were issues of fact on which the evidence was still obscure and the father’s evidence would have greater value if he was not able to hear what his daughter said before giving his own evidence (see our blog post on that decision).

The present decision suggests that courts will be less willing to exclude a witness where he or she is also a party to the proceedings. The Court of Appeal held that a party did not have an absolute right to be present for the entirety of the hearing but the starting point is that he or she should be entitled to be present. The difference in approach can be justified by the need to ensure that the party receives a fair trial and that justice is seen to be done.

The practical message is that parties should be cautious in seeking to exclude an opponent from court for part of a trial unless strong reason can be shown for adopting such a course. Although in this case the Court of Appeal found that the exclusion did not render the proceedings unfair, there is clearly a risk that, in other circumstances, a retrial may be ordered. Gary Horlock, an associate in the disputes division, considers the decision further below.

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High Court decision highlights that service of proceedings in another EU member state must be carried out under the EU Service Regulation

A decision of the High Court has highlighted a trap for the unwary when serving proceedings in another EU member state: it is not sufficient to serve proceedings in a way that would be valid for service of proceedings begun in that state; service must instead comply with the provisions in the EU Service Regulation (Regulation (EC) No 1393/2007), including any reservations notified to the European Commission by that state: Asefa Yesuf & ors v A.P.Moller & ors [2016] EWHC 1437 (Admlty).

Personal service of English proceedings in Denmark by the claimant's solicitor was therefore not good service as the Service Regulation only allowed personal service of proceedings from another member state by a Danish judicial officer. The court moreover had no power under the CPR to dispense with service or permit service by an alternative method, save possibly where there was a minor procedural error in serving by a method permitted by the Service Regulation.

The message therefore is clear: service in the EU must be carried out in accordance with the provisions in the Service Regulation, at any event while we remain a member of the EU and subject to the terms of the Regulation.

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