Brotherton v Aseguradora Colseguros SA [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | The Hon. Mr. Justice Moore-Bick,Mr Justice Moore-Bick |
| Judgment Date | 22 May 2003 |
| Neutral Citation | [2003] EWHC 335 (Comm) |
| Docket Number | Case No:2001 Folio 983 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 22 May 2003 |
[2003] EWHC 335 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Moore-Bick
Case No:2001 Folio 983
Mr. Michael Swainston Q.C. and Mr. RogerMasefield (instructed by Reynolds Porter Chamberlain) for the claimants
Mr. Richard Millett (instructed by Clyde &.Co) for the defendants
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this Version may be treated as authentic.
In November 1997 the claimants subscribed to the primary and excess layers of the defendants' reinsurance of a Banker's Blanket Bond and Professional Indemnity insurance written in favour of a Colombian bank, Caja de Credito Agraria Industrial y Minero. The contracts of reinsurance originally ran for a period of 12 months from 7 th December 1997, but in or about November 1998 they were extended to 31 st January 1999. They covered, among other things, losses caused by dishonest or fraudulent acts of the bank's employees, subject to certain qualifications which do not matter for present purposes.
In November 1997 the President of the bank was Mr. Benjamin Medina. The claimants say that during 1997 and 1998 allegations of serious impropriety on the part of Mr. Medina and certain other senior officials of the bank were made in the Colombian press and on national television which eventually led to investigations of a criminal and disciplinary nature. These include allegations in the press in January 1997 that the bank had made irregular loans to persons and companies connected to Mr. Medina that might cause it to sustain substantial losses, allegations that the authorities had been asked to carry out an investigation into the position, reports in the media in July 1997 that charges were to be brought against Mr. Medina and four senior directors, of the bank and reports in the television news in early November that Mr. Medina had been suspended from his position for 90 days while the investigation proceeded. The claimants also rely on reports in the press in November 1997 that Mr. Medina had been arrested on suspicion of embezzling public funds and on reports in February 1998 that disciplinary proceedings were being brought against other senior officers of the bank. The claimants say that although the defendants were aware of these matters when the reinsurance was placed, they failed to disclose them and that because of that nondisclosure, and because of certain misrepresentations which were also made to them, they were entitled to avoid the contracts and have done so. They have brought this action to obtain.a declaration to that effect.
To set the present application in context it is necessary to refer briefly to the history of the proceedings. The claim form was issued on 28 th August 2001. Shortly afterwards the claimants obtained permission to serve the defendants out of the jurisdiction, although an order was subsequently made to allow service on the brokers Butcher Robinson & Staples International Ltd through whom the reinsurance had been placed. The proceedings were served shortly thereafter. The defendants sought to set aside service but that application was dismissed in December 2001 and the defendants then set about pleading a defence.
In paragraphs 6 and 7 of their original particulars of claim served on 24 th September 2001 the reinsurers referred to a number of reports in the newspaper El Tiempo dealing with the alleged involvement of Mr. Medina and his colleagues in irregular loans made by the bank to some of their acquaintances. In paragraph 12 they alleged that the allegations were material, partly because some of the losses suffered by the bank which the defendants had notified to the reinsurers had arisen out of the transactions in question, but also because they are relevant to moral hazard, and in paragraph 13 they asserted that they would not have entered into the contract on the same terms, if at all, if the existence of those reports had been disclosed.
In their defence which they served on 11 th February 2002 the defendants admitted the existence of the reports in El Tiempo, but they did not admit the truth of the allegations. On the contrary, in response to paragraph 7 of the particulars of claim they denied that any proper basis existed for the investigations into the activities of Mr. Medina, for his arrest or for the charges being brought against him which were part of a political campaign against the government. The defendants went on to plead that nearly all of the investigations had already been concluded in his favour, although a few were still pending. In paragraph 11 of the defence they denied that the allegations against Mr. Medina were material, without saying why, although they did admit that some of the losses in respect of which they were making claims were related to transactions that were the subject of those allegations. Having regard to the pleading as a whole, I think it is fair to say that the legal relevance of the allegation in paragraph 5 that there was no proper basis for the charges against Mr. Medina is not clearly spelled out.
In their reply served on 14 th March 2002 the claimants joined issue with the defendants on their case that there was no proper basis for the allegations against Mr. Medina. They also made it clear that it was not a necessary part of their case that the allegations were true, simply that they had been made.
This was how the case stood when the matter came before Toulson J. at a case management conference on 26 th July 2002. Whatever criticisms may be made of the defence, it seems that it had by then become apparent to all concerned that the defendants intended to adduce evidence at the trial to show that the allegations against Mr. Medina were unfounded in order to argue that they were therefore not material. The judge gave directions covering the usual steps in preparation for trial, including an order for the exchange of witness statements by 20 th December 2002. He directed that the trial be fixed for a date not before 1 st April 2003 with an estimated duration of 8 days.
Toulson J. was clearly alive to the fact that the hearing might well be significantly affected by the need to determine whether there had been any foundation for the allegations against Mr. Medina, but at that stage it was not clear what the ambit of the evidence might be. He therefore directed that the case management conference be restored in January this year to enable the court to consider the position afresh in the light of the witness statements that should by then have been served. The matter now comes before me on the restored case management conference.
In preparation for this hearing the claimants issued an application notice on 22 nd January seeking an order
"that the defendants be debarred from adducing or relying on evidence of, or relating
to, any matters that occurred after the contract of reinsurance had been written or
evidence that was not available to them at that time, with a view to proving that the
allegations against Mr. Medina were without foundation".
The basis of the application is that evidence of that kind is irrelevant to the issues in the action and that to allow it to be called would only prolong the trial and lead to a pointless waste of costs. In my view, however, the form of the application masks its true nature. As the pleadings stand at present there is an issue between the parties as to whether there was any foundation for the allegations against Mr. Medina and while that remains the case I do not think that the defendants can properly be prevented from calling evidence in relation to it. The real question that divides the parties, as was recognised in the course of argument,
is whether the allegations made against Mr. Medina are no longer to be regarded as
material (assuming they ever were) if the defendants can show at trial that they were
without foundation. To put it another way, the question is whether the allegation in
paragraph 5(1) of the defence is legally relevant, or whether it is irrelevant and
embarrassing because it gives rise to a factual dispute of sonic complexity that can
ultimately have no bearing on the outcome of the litigation. If the allegation is irrelevant
and embarrassing, the right course in my view is to strike it out rather than debar the
defendants from calling evidence in support of it, although the effect of doing so will be
much the same.
Mr. Swainston Q.C. submitted that the materiality of any circumstances can only be judged by reference to the position as it existed at the time of placing the risk. Circumstances that are material at the time of placing cannot be treated as immaterial by reference to additional information that was not, and in this case could not have been, before the underwriter when he accepted the risk. He therefore submitted that the defendants should not be allowed to pursue this part of their case since it would only lead to the postponement of the trial and to both parties incurring a considerable amount of costs that were bound to be wasted. Mr. Millett reminded me, however, that Toulson J. did not order that this question be tried as a preliminary issue; he simply directed that the case management conference be restored after the exchange of witness statements to enable the court to consider the position again. He submitted that materiality is a question of fact (see section 18(4) of the Marine Insurance Act 1906) and that the issue should therefore be left for determination at trial when the court will have had the benefit of hearing...
To continue reading
Request your trial
-
Meisels and another v Norwich Union Insurance Ltd [Q]
...of balance to be struck. In this regard, I derive considerable assistance from the observations of Lord Justice Mance (as he was) in Brotherton v Aseguradora in which allegations against an insured were extant at the time of the placing. In material part, Lord Justice Mance said this: 'Howe......
-
Ian Crane v Hannover Ruckversicherungs-Aktiegesellschaft
...... [2008] EWHC 3165 (Comm) IN THE HIGH COURT OF JUSTICE COMMERCIAL ...paragraphs 7.70–7.74, pp. 151–3; Brotherton v Aseguradora Colseguros [2003] Lloyd's Rep IR 746 , ......
-
North Star Shipping Ltd and Others v Sphere Drake Insurance Plc and Others (No 2)
...... [2006] EWCA Civ 378 [2005] EWHC 665 (Comm) IN THE SUPREME COURT OF JUDICATURE COURT ... J was considered in the Court of Appeal in Brotherton v Aseguradora Colseguros SA [2003] 1 Lloyd's Insurance and ......
-
North Star Shipping Ltd and Others v Sphere Drake Insurance Plc and Others
...on the general approach taken by this court in The Grecia Express, supra, and approved by the Court of Appeal in Brotherton v. Aseguradora Colseguros SA (No.2) [2003] 1 Lloyd's Rep 746. In particular, the would-be assured is under a duty to disclose all matters which, as tested at the time ......