Commercial Union Assurance Company Plc v Mander [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Moore-Bick J. |
| Judgment Date | 12 June 1996 |
| Date | 12 June 1996 |
| Court | Queen's Bench Division (Commercial Court) |
Queen's Bench Division (Commercial Court)
Moore-Bick J.
Mark Howard QC (instructed by Norton Rose) for the defendant.
Jonathan Gaisman QC (instructed by Clyde & Co) for the plaintiff.
The following cases were referred to in the judgment:
Buttes Gas & Oil Co v Hammer (No. 3)ELR [1981] QB 223.
Charman v Guardian Royal Exchange Assurance plcUNK [1992] 2 Ll Rep 607.
CIA Barca de Panama SA v George Wimpey & Co LtdUNK [l980] 1 Ll Rep 598.
Compagnie Financiere et Commerciale du Pacifique v The Peruvian Guano CoELR (1882) 11 QBD 55.
Formica Ltd v Secretary of State acting by the Export Credits Guarantee DeptUNK [1995] 1 Ll Rep 692.
Hill v Mercantile and General Reinsurance Co plc [1996] CLC 1,247.
Insurance Co of Africa v Scor (UK) Reinsurance Co LtdUNK [1985] 1 Ll Rep 312.
Phoenix General Insurance Co of Greece SA v Halvanon Insurance Co LtdUNK [1985] 2 Ll Rep 599.
Svenska Handelsbanken v Sun Alliance and London Assurance plcUNK [1995] 2 Ll Rep 84.
Evidence — Production Of documents — W documents privileged — contract of reinsurance — settlement by insurer — Contract containing follow settlements” clause — Whether community of interest between insurer and reinsurer entitling reinsurer to access to insurer's documents concerning settlement which would otherwise be privileged.
This was an application by the defendant under RSC, O. 24, r. 11 for the production for inspection of certain documents referred to in a schedule to the plaintiffs” list of documents.
The plaintiffs, with others, were original insurers of a company which had entered, as purchaser, into a shipbuilding contract. The defendant was sued as representative underwriter of Syndicate 552 at Lloyd's which had subscribed to a facultative reinsurance of the original policy in favour of the plaintiffs. Delivery of the vessel was delayed and the purchaser threatened to cancel the contract and make a claim under the policy. The insurers entered into a settlement agreement under which they provided funds to enable the vessel to be completed. The contract was not cancelled and the vessel was delivered to the purchaser. In the present action the plaintiffs sought to recover under the reinsurance their share of the sums paid under the settlement agreement together with legal fees. They contended that those payments were made to avoid a greater loss under the policy and therefore gave rise to a claim under the reinsurance. The reinsurers defended the action on a number of grounds, primarily that that they were entitled to avoid the policy and had done so. They also maintained that, even though the policy contained a “follow settlements” clause, they were not bound by the settlement made in the present case because there could be no claim under the original policy where the contract had never been cancelled. They further said that the delay in the vessel's construction was caused in part by events within a category covered by the original insurance but not by the reinsurance, and that they were therefore entitled to invoke the apportionment provisions of the contract.
The documents the defendant sought to have produced for inspection were contained in Pt. 2 of Sch. 1 of the plaintiffs” list of documents and related only to questions concerning the plaintiffs” liability under the original policy and the negotiations with the original insured which had led to the settlement. The application was resisted on three grounds: (a) that despite their inclusion in the list the documents were not relevant to any issue in the action; (b) that they were privileged from production, and (c) that production was necessary neither for disposing fairly of the action nor for saving costs as required by RSC, O. 24, r. 13.
Held, refusing the application:
1. Although the defendant did not allege that the plaintiffs had failed to act in good faith or in a businesslike manner in handling the claim, since the causes of the delay to the vessel's construction had been put in issue it was very likely that documents relating to the negotiations between the plaintiffs and the purchaser were of relevance to that part of the case, as they appeared to contain some discussion and analysis of the circumstances giving rise to that delay.
2. A contract of reinsurance which contained a “follow settlements” clause created a community of interest between insurer and reinsurer in the original claim such that the insurer could not withhold from the reinsurer on the ground of privilege documents brought into being for the purposes of handling the original claim, even if they would be subject to legal professional privilege as against a third party. However, in the present case the defendant had purported to avoid the reinsurance contract, and unless he was party to a contract of reinsurance with the plaintiffs he had no relevant relationship with them and no interest in the original claim which could support an application to disclose otherwise privileged documents relating to it. (CIA Barca de Panama SA v George Wimpey & Co LtdUNK[1980] 1 Ll Rep 598 applied.)
3. Had it not been for the fact that the documents were privileged, it would have been appropriate in the present case for the plaintiffs to be required to make them available for inspection.
This is an application by the defendant under RSC, O. 24, r. 11 for the production for inspection of certain documents referred to in Pt. 2 of Sch. 1 of the plaintiffs” list of documents dated 1 August 1995.
The plaintiffs, together with others, are original insurers of a Swedish company, Swed-Link AB, who in September 1989 entered into a shipbuilding contract as purchasers with Sour Brodogradevna Industrija “Split” for the construction of a passenger and car ferry identified as Newbuilding 373. The contract, as is usual in such cases, required the purchasers to provide an initial deposit to the builders and to make periodic payments by way of instalments of the purchase price which in this case was US$125m. The purchasers had a contractual right to cancel the contract if the vessel was not completed and delivered by a certain date, in which event they were entitled to recover from the builders the amounts paid by way of deposit and instalments of the purchase price. The builders” obligation to repay these amounts was supported by a bank guarantee. The plaintiffs in the present case insured the purchasers against the loss of the deposit and stage payments arising from the cancellation of the contract as a result of delay in completion or delivery of the vessel by certain insured events. The insured events were set out under five separate categories which can be summarised for present purposes as follows: 1. Physical loss of the vessel, materials or equipment; 2. Force majeure events; 3. Strikes and various kinds of civil disturbances; 4. Confiscation and expropriation; 5. Import and export embargoes.
The defendant is sued as representative underwriter of syndicate 552 at Lloyd's which subscribed to a facultative reinsurance of the original policy in favour of the plaintiffs. Cover under this reinsurance was limited to insured events in categories 3, 4 and 5 and provision was made for the apportionment of loss where the total period of delay leading to the cancellation was attributable to a combination of events, some but not all of which were within the scope of the reinsurance. Delivery of the vessel was delayed in circumstances which are in dispute and with which I am not concerned for the purposes of this application. The purchasers threatened to cancel the contract and make a claim under the policy, and in these circumstances they were able to persuade the insurers to enter into a settlement agreement under which they provided the funds necessary to enable the vessel to be completed. The contract was not cancelled and in due course the vessel was delivered to the purchasers. In this action the plaintiffs are seeking to recover under the reinsurance their share of the sums paid under the settlement agreement, which amounted in all to US$79.4m. together with their share of legal fees amounting to a further US$427,000. They contend that those payments were made to avoid a greater loss under the policy and therefore give rise to a claim under the reinsurance.
The reinsurers are defending the action on a number of grounds. Their primary case is that they are entitled to, and have, avoided the policy, but they also maintain that there can in any event be no claim under the original policy in circumstances where the shipbuilding contract was never cancelled, and therefore, although the policy contains a “follow settlements” clause, they say they are not bound by the settlement made by the plaintiffs in the present case. They also say that the delay in the vessel's construction was caused in part by insured events within the “force majeure” category (category 2) and that they are therefore entitled to invoke the apportionment provisions of the contract.
The list of documents served by the plaintiffs includes in Pt. 2 of Sch. 1 documents described in the following terms:
“Confidential communications passing between [the original insurers], Brocklehursts their Loss Adjusters, and Lloyd's Claims Office (1) and their solicitors Clyde & Co (2) relating to the issues of liability and quantum under the said policy; instructions to Counsel, Counsel's notes, drafts, advices and opinions relating to...
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