(Re)insurance Weekly Update 33 - 2018

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

X v Y: Court finds that a risk of dissipation has been made out in worldwide freezing order application

http://www.bailii.org/ew/cases/EWHC/Comm/2018/2506.html

Gide Loyrette Nouel for claimant

The claimant applied to continue a worldwide freezing order ("WFO") in support of a proposed ICC arbitration in Switzerland. The judge accepted that the English court had had the power to make this order. He also rejected the defendants' criticism that the claimant's evidence had been in the form of an affidavit from its solicitor, and as such was only based on what the solicitor had been told by the claimant. The judge held that the undertaking in Schedule B to the WFO that "The Claimant will affirm and file an affidavit…" did not require an affidavit to be sworn by an officer of the company, rather than its solicitor, and this affidavit should be "an affidavit confirming the substance of what was said to the Court by the Claimant's advocate".

Various factors had been relied on by the claimant to prove a risk of dissipation. These had included:

1. the fact that the defendants had not put forward any defence to the underlying case against them; 
2. the defendants' failure to engage with ICC ADR, in breach of a contractual requirement (on the "disingenuous ground" that there was no "dispute"); and
3. unsatisfied county court judgments against one of the defendants (which the defendant had claimed had been caused in part by the premature cessation of financial support by the claimant).

The judge noted that the purpose of a freezing order is to prevent a defendant taking action "designed to ensure" that any judgment against the defendant is rendered less effective. Prior caselaw has found that "designed to ensure" does not mean "intended" but, rather, "having the consequence that". Relevant factors include the defendant's behaviour in response to the claim or anticipated claim.

The judge concluded that a risk of dissipation had been made out by the claimant. In so doing, he dismissed the defendants' concern that the claimant would notify the defendants' client of the WFO and that, as a public utility, that client would be obliged to cease commercial relations until the matter is resolved. The judge found that the claimant had only said that it would be entitled to tell the client, and had agreed that it would not act in an oppressive manner. The claimant also needed to know who the current client is in order to decide whether to enforce the injunction.

Danilina v Chernukhin: Court assesses amount of security of costs to be provided by a claimant

http://www.bailii.org/ew/cases/EWHC/Comm/2018/2503.html

Byrne and Partners for claimant, Clifford Chance and PCB Litigation for defendants

The earlier decisions in this case were reported in Weekly Updates 06/18 and 27/18. The defendants sought security for costs against the claimant, on the basis that she is an individual resident outside the EU/EEA (CPR r25.13(2)(a)). The Court of Appeal held that once, as here, it had been established that there are "substantial obstacles" sufficient to create a real risk of non-enforcement, the starting point is the defendant should get security for the entirety of its costs. The issue in this case was therefore how much security it would be fair and just to order.

The defendants accepted that it was unrealistic for them to be ordered 100% of their costs, but they sought 85-90%, on the basis that, if the claim failed, it was very likely that costs would be ordered to be assessed on the indemnity basis. The claimant argued that claims for security should be on the basis of 60% of the defendant's costs, because it was impermissible for the court to delve into the merits of the claim and consider whether indemnity costs would be ordered.

Teare J held that it was necessary to bear in mind the nature of the claimant's claims. Here, if the claims failed, it was more likely that that would be because her evidence was dishonest, and so it was a reasonable possibility that costs would be assessed on the indemnity basis: "Where there is no possibility of costs being assessed on an indemnity basis or where such possibility is no more than speculative the courts generally make orders for security for costs by reference to 60-70% of the incurred and expected costs. Cases noted by [the defendants' counsel] suggest a range of 60-75% but my experience suggests that 60-70% is more usual. It appears to me that where there is a reasonable possibility of indemnity costs the order should be made (at any rate in this case where very substantial costs are involved) by reference to about 75% of the incurred and expected costs".

When considering whether the order for security would stifle the claim, the court can also take into account amounts which the claimant can reasonably expect to receive from third parties and relatives or, as in this case, "business associates". It was concluded that the claim would not be stifled. Nor was this a case where a counterclaim would be pursued even if the claim was struck out (a factor which weighs in favour of a refusal or order security) – and, in any event, the parties were bound by an earlier decision by a judge who had held that the point did not arise on the facts of the case.