Premier Motorauctions Ltd v PricewaterhouseCoopers LLP [2017] EWCA Civ 1872
Ever since Stuart-Smith J’s decision in Geophysical Service Centre v Dowell Schlumberger…
In Denso Manufacturing, Ms Sara Cockerill QC (sitting as a judge of the Commercial Court) upheld Great Lakes’ declinature of cover under an ATE policy. The Court’s decision is considered by Jamie Smith QC of 4 New Square.
THE BACKGROUND FACTS
Mploy Group Limited (“Mploy”) was an employment agency. It brought claims in the Commercial Court against Denso. On 15 March 2013 Mploy obtained ATE insurance cover from Great Lakes. The premium was deferred and payable in the event of success or partial success.
On 12 March 2013 Denso made a Part 36 Offer in the amount of £110,000. Mploy rejected the offer. At trial, Mploy achieved only limited success at trial in July 2014 obtaining an order for payment by Denso of damages of £34,410. Mploy received its costs to the date of expiry of Denso’s Part 36 Offer, but was ordered thereafter to meet Denso’s costs, which were significant.
On 11 November 2014 Mploy went into liquidation and, by the statutory transfer pursuant to the Third Party (Rights against Insurers) Act 1930, Denso became assignee of Mploy’s rights under the ATE policy.
On 3 September 2015 Denso obtained a default costs certificate requiring Mploy to pay £319,696.59 in costs. Denso sought this sum under the ATE policy. Great Lakes disputed liability to pay.
THE ISSUES AND THEIR RESOLUTION
Argument 1: Great Lakes’ reliance on conditions precedent
Policy terms and conditions
The ATE policy contained a general clause stating that:
“The Conditions which appear in this Policy … are, where their nature permits, conditions precedent to liability; failure to comply with them may mean you will not be able to claim under this Policy.”
Condition 7 of the policy, headed “Due Observance”, stated that:
“The due observance and compliance with the terms provisions and conditions of the Policy in so far as they relate to anything to be done or complied with by the Insured or Solicitor shall be conditions precedent to any liability of the Insurer to make any payment hereunder. In addition the Insured and the Solicitor are obliged to cooperate with us …”
Condition 9 of the policy obliged the insured to provide to Great Lakes (amongst other things):
“regular progress reports on the Legal Proceedings and associated costs and when specifically requested by us”.
Condition 11 of the policy required the insured to give all information and assistance required by the insured’s solicitor and Clause 11(c) further stated: “All bills or other communications relating to fees or costs which may be payable under this Policy should be forwarded to Us without delay.”
Were the terms were Conditions Precedent?
The Deputy Judge held that each of Conditions 7, 9 and 11 were “apt to be conditions precedent in circumstances where insurers are exposed to the risk of adverse costs as the central plank of their liability” (para 40).
In reaching that conclusion, the Deputy Judge:
“Little more can be said than that it is a matter of construing the policy as a whole. Such clauses should not be treated as a mere formality which is to be evaded at the cost of a forced and unnatural construction of the words used in the policy but should be construed fairly to give effect to the object for which they were inserted, but at the same time so as to protect the insured from being trapped by obscure or ambiguous phraseology”.
Timing of crystallisation of rights
Denso argued that the breaches of conditions precedent did not ‘bite’ because Mploy had become entitled to payment from Great Lakes prior to the breaches. This depended upon whether insurers’ obligations to pay were triggered by the costs order following trial (5 September 2014) or only pursuant to the default costs certificate (3 September 2015).
The issue distilled down to whether Mploy’s rights to payment arose on the making of the costs order or only on quantification.
The Deputy Judge upheld Great Lakes’ argument that crystallisation occurred only on 3 September 2015. Only then was the insured’s liability (to Denso) ascertained and determined. She referred to and relied on: Post Office v Norwich Union Fire Insurance Society [1967] 1 All ER 577; para 30-002 of MacGillivray, Cox v Bankside [1995] CLC 180, at 442 per Phillips J and more recent judicial and extra-judicial pronouncements of Lord Mance (see para 100).
Other interpretational aspects
The Deputy Judge resolved four further interpretational aspects as to the policy terms and conditions:
Disposition
The Deputy Judge concluded that Mploy had been in breach of Condition 11(c) in:
Argument 2: non-payment of the premium
Introduction
Great Lakes’ second argument in support of declinature was that Mploy had failed to comply with a condition precedent to pay the premium. This argument comprised a number of sub-arguments.
Was Mploy “Partially Successful”?
Great Lakes contended that Mploy had been “Partially Successful” within the meaning of the policy definition of that term such that the premium became payable. Denso countered that the effect of the order at trial was that Mploy enjoyed no net benefit and therefore was “Unsuccessful”.
The Deputy Judge preferred Great Lakes’ arguments: “The correct approach to construction is one which holds a balance between purposiveness and literalism and which pays due attention to the background against which the contract arises” (para 91).
Did Great Lakes fail to operate machinery within the policy for calculating the premium?
The next series of sub-arguments requiring analysis by the Deputy Judge were whether, the premium being due and owing (on account of Mploy being “Partially Successful”), Mploy was in breach of condition precedent.
The Deputy Judge ruled that there was no breach of condition precedent, because:
Argument 3: set-off
The final point of substance related to whether Denso, as the statutory assignee of Mploy under the Act of 1930, had become the transferee of Mploy’s liability to pay premium such that set-off could arise.
Although her views on this issue were obiter, the Deputy Judge preferred Denso’s argument that no such transfer took place and so no set-off could occur. In expressing that preference, she:
CONCLUSION
Denso is noteworthy not only for its treatment of several important principles of insurance law, but also for the warning it serves to litigators considering whether an ATE policy is suitable security for a defendant’s costs. Set against the courts’ ever-increasing readiness to treat ATE cover as valid security for costs, this case is a timely reminder that the terms and conditions of an ATE policy do present real opportunities for insurers to avoid cover. For Denso the pill was a particularly bitter one as the declinature arose from events happening after judgment in the underlying dispute and centred upon costs.
Keywords: ATE Insurance, Breach of condition, Conditions precedent
Ever since Stuart-Smith J’s decision in Geophysical Service Centre v Dowell Schlumberger…
In Denso Manufacturing, Ms Sara Cockerill QC (sitting as a judge of…