legal watch - property risks & coverage - issue 7

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Legal Watch: Property Risks & Coverage July 2014 Issue 007

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Page 1: Legal Watch - Property Risks & Coverage  - Issue 7

Legal Watch:Property Risks & CoverageJuly 2014

Issue 007

Page 2: Legal Watch - Property Risks & Coverage  - Issue 7

In This Issue:

• Jackson/Mitchell

• Re-amendment of claim not permitted

• Nuisance claim fails where escape and

consequent damage are unforeseeable

• Insurance Bill

• Guideline Hourly Rates – Update

Contact UsIf you would like any further information on the cases or articles featured in this issue, please contact:

Geoff Owen

T: 01908 298 216

E: [email protected]

Alison Heard

T: 0207 469 6236

E: [email protected]

Marise Gellert

T: 0207 469 6249

E: [email protected]

IntroductionWe start this month’s issue with a look at the impact of the

appeals in Dentonandothers, for which thanks go to Geoff

Owen. Geoff’s article also appeared in LegalWatch:Personal

InjuryIssue26.

Thanks also go to Alison Heard for her article on Northumbrian

WaterLtdvSirRobertMcAlpineLimited.

We also look at the Insurance Bill, introduced to Parliament

on 17 July 2014 and provide a short update in respect of

Guideline Hourly Rates.

Page 3: Legal Watch - Property Risks & Coverage  - Issue 7

Jackson/Mitchell

Judgment has been handed down in the much anticipated

appeals relating to early Jackson/Mitchellcase management

decisions. The outcome is a new set of guidelines as to how

CPR should be applied by the courts.

In Denton and others v TH White Ltd and another (and

related appeals) (2014) EWCA Civ 906 there were three

conjoined appeals in which one or other party had sought

relief from sanctions arising pursuant to CPR3.9, the court

was required to determine the correct approach to the rule

and to the guidance given in Mitchell.

The respective judges had purported to apply the Mitchell

guidance, but in each case, the parties had been treated

inconsistently.

Allowing all three appeals but withJacksonLJ dissenting in

part in the reasoning, the Court of Appeal held that Mitchell

had been misunderstood and was being misapplied by

some courts. It was clear that it needed to be clarified and

amplified in certain respects.

‘...Mitchell had been misunderstood and was being misapplied by some courts’The principal criticisms were summarised as follows. First,

the “triviality” test amounted to an “exceptionality” test

which was rejected by Sir Rupert Jackson in his report and

was not reflected in the rule. It was unjustifiably narrow.

Secondly, the description of factors (a) and (b) in CPR3.9(1)

as “paramount considerations” gave too much weight to

these factors and was inconsistent with CPR3.9 when read

in accordance with CPR1.1. They should be given no more

weight than all other relevant factors. It was said that the

Mitchell approach downplayed the obligation to consider

“all the circumstances of the case, so as to enable [the

court] to deal justly with the application”. Thirdly, it had led

to the imposition of disproportionate penalties on parties

for breaches which had little practical effect on the course

of litigation. The result was that one party got a windfall,

while the other party was left to sue its own solicitors.

This was unsatisfactory and added to the cost of litigation

through increases in insurance premiums. Fourthly, the

consequences of this unduly strict approach had been

to encourage (i) uncooperative behaviour by litigants; (ii)

excessive and unreasonable satellite litigation; and (iii)

inconsistent approaches by the courts.

A judge should address an application for relief from

sanctions in three stages. The first stage is to identify and

assess the seriousness and significance of the “failure to

comply with any rule, practice direction or court order”

which engages CPR3.9(1). If the breach is neither serious

nor significant, the court is unlikely to need to spend much

time on the second and third stages. The second stage is

to consider why the default occurred. The third stage is to

evaluate “all the circumstances of the case, so as to enable

[the court] to deal justly with the application including

[factors (a) and (b)]”.

Stage 1In these circumstances, the court felt it would be preferable

if in future the focus of the enquiry at the first stage should

not be on whether the breach has been trivial. Rather,

it should be on whether the breach has been serious or

significant. The court should concentrate on an assessment

of the seriousness and significance of the very breach in

respect of which relief from sanctions is sought.

If a judge concludes that a breach is not serious or

significant, then relief from sanctions will usually be granted

and it will usually be unnecessary to spend much time on

the second or third stages. If, however, the court decides

that the breach is serious or significant, then the second and

third stages assume greater importance.

Page 4: Legal Watch - Property Risks & Coverage  - Issue 7

Stage 2The second stage cannot be derived from the express

wording of rule CPR3.9(1), but it is nonetheless important

particularly where the breach is serious or significant. The

court should consider why the failure or default occurred:

this is what the court said in Mitchellat paragraph 41.

It would be inappropriate to produce an encyclopaedia of

good and bad reasons for a failure to comply with rules,

practice directions or court orders. Paragraph 41 of Mitchell

gives some examples, but they are no more than that.

Stage 3The important misunderstanding that has occurred is

that, if (i) there is a non-trivial (now serious or significant)

breach and (ii) there is no good reason for the breach, the

application for relief from sanctions will automatically fail.

That is not so and is not what the court said in Mitchell: the

court will consider “all the circumstances of the case, so as

to enable it to deal justly with the application”.

Thus, the court must, in considering all the circumstances of

the case so as to enable it to deal with the application justly,

give particular weight to these first two important factors.

In doing so, it will take account of the seriousness and

significance of the breach (which has been assessed at the

first stage) and any explanation (which has been considered

at the second stage). The more serious or significant the

breach the less likely it is that relief will be granted unless

there is a good reason for it. Where there is a good reason

for a serious or significant breach, relief is likely to be

granted. Where the breach is not serious or significant, relief

is also likely to be granted. But it is always necessary to

have regard to all the circumstances of the case. The factors

that are relevant will vary from case to case. As has been

pointed out in some of the authorities that have followed

Mitchell, the promptness of the application will be a relevant

circumstance to be weighed in the balance along with all the

circumstances. Likewise, other past or current breaches of

the rules, practice directions and court orders by the parties

may also be taken into account as a relevant circumstance.

The appeal court went on to say that it wished to make

it plain that it is wholly inappropriate for litigants or their

lawyers to take advantage of mistakes made by opposing

parties in the hope that relief from sanctions will be denied

and that they will obtain a windfall strike out or other

litigation advantage. In a case where (a) the failure can be

seen to be neither serious nor significant, (b) where a good

reason is demonstrated, or (c) where it is otherwise obvious

that relief from sanctions is appropriate, parties should

agree that relief from sanctions be granted without the need

for further costs to be expended in satellite litigation. The

parties should in any event be ready to agree limited but

reasonable extensions of time up to 28 days as envisaged

by the new CPR3.8(4).

It should be very much the exceptional case where a

contested application for relief from sanctions is necessary.

This is for two reasons: first because compliance should

become the norm, rather than the exception as it was in

the past, and secondly, because the parties should work

together to make sure that, in all but the most serious

cases, satellite litigation is avoided even where a breach

has occurred.

The court will be more ready in the future to penalise

opportunism. The duty of care owed by a legal representative

to his client takes account of the fact that litigants are

required to help the court to further the overriding objective.

Representatives should bear this important obligation to

the court in mind when considering whether to advise their

clients to adopt an uncooperative attitude in unreasonably

refusing to agree extensions of time and in unreasonably

opposing applications for relief from sanctions. It is as

unacceptable for a party to try to take advantage of a minor

inadvertent error, as it is for rules, orders and practice

directions to be breached in the first place. Heavy costs

sanctions should, therefore, be imposed on parties who

behave unreasonably in refusing to agree extensions of

time or unreasonably oppose applications for relief from

sanctions. An order to pay the costs of the application under

CPR3.9 may not always be sufficient. The court can, in an

appropriate case, also record in its order that the opposition

to the relief application was unreasonable conduct to be

Page 5: Legal Watch - Property Risks & Coverage  - Issue 7

taken into account under CPR44.11 when costs are dealt

with at the end of the case. If the offending party ultimately

wins, the court may make a substantial reduction in its

costs recovery on grounds of conduct under rule 44.11. If

the offending party ultimately loses, then its conduct may

be a good reason to order it to pay indemnity costs. Such

an order would free the winning party from the operation of

CPR3.18 in relation to its costs budget.

The judges commented on the submissions that have been

addressed to the consequences of scarce public resources.

This, they said, is now sadly a fact of life, as much in litigation

and in the courts as elsewhere. No judicial pronouncement

can improve the position. It does, however, make it all the

more important that court time is not wasted and hearings,

once fixed, are not adjourned.

CommentOn the face of it this clarification is helpful and relieves

some of the pressure on practitioners. Everyone is now

aware of the importance of avoiding a default which results

in a sanction. If a default is unavoidable the new ‘buffer’

provision in CPR3.8 may be used to agree an extension of

up to 28 days, provided that there is no impact on a hearing

date – a point relating to court resources. If more than 28

days is required and/or a hearing may be put at risk, an

application must be made before the default arises but that

is not one for relief under CPR3.9. It falls to be considered

by reference to the overriding objective.

If, despite all of this, a party does find itself in default it

must consider its position under the new 3 stage test.

The inference is that missing a time limit by a short period

and applying for relief promptly will probably be looked on

favourably, particularly as the opposing party is positively

discouraged from raising any objection, at risk of bearing

severe costs consequences. With a more serious or

significantbreach, for which there is likely to be little good

reason, the prospects of successfully applying for relief from

sanctions will be lower. However, two problems remain.

First, how long will it take before we know how stages 1

and 2 are going to be interpreted? This situation is bound to

be aggravated by the fact that the non-defaulting party will

almost certainly feel safer ‘sitting on its hands’, rather than

taking any active steps and risking criticism. Secondly, how

will courts interpret stage 3 which appears to reintroduce

the concept of standing back and looking at the issue of

justice between the parties. Can we expect consistency

of approach here when the recent experience has been of

widespread inconsistency? And to what extent will the issue

of court resources impact on judges’ decisions and attract

disproportionate weighting?

Some of the real fear of Jackson/Mitchellhas been removed

but there remains uncertainty as to how far into default a

party may fall and yet still be saved by invoking the stage

3 test.

Page 6: Legal Watch - Property Risks & Coverage  - Issue 7

Nuisance claim fails where escape and consequent damage are unforeseeableA claim in nuisance will fail where the escape and consequent

damage are unforeseeable. That was the decision upheld by

the Court of Appeal in NorthumbrianWaterLtdvSirRobert

McAlpine Ltd [2014] EWCA Civ 685 when Northumbrian

Water Limited (Northumbrian) appealed against the High

Court’s dismissal of its claim against Sir Robert McAlpine

Limited (McAlpine) for loss and damage caused by the

escape of concrete from a building site into a public sewer.

BackgroundNorthumbrian provides sewerage services in Newcastle-

upon-Tyne. One of Northumbrian’s sewers runs under

Newgate Street.

McAlpine was carrying out redevelopment works on a site

which was adjacent to Newgate Street. The works being

carried out by McAlpine included the sinking of a large

number of concrete piles to support a new building.

Northumbrian suffered losses when, in the course of

McAlpine pouring concrete to form the piles, the concrete

was able to escape from the shaft, into a disused private

drain and then into Northumbrian’s sewer where it set

and caused a partial blockage. It cost Northumbrian

approximately £320,000 to remove this obstruction.

It was not in dispute that McAlpine owed Northumbrian a

duty to take reasonable care to avoid causing damage to

its property. The critical question was whether it had done

so. In particular, Northumbrian complained that McAlpine

had failed to take proper measures to investigate the site

and to identify the existence of the disused private drain

and sought to recover its loss in nuisance and negligence,

alleging that McAlpine had failed to take reasonable care.

InvestigationsThe investigations carried out by McAlpine prior to

developing the site led it to believe that there were no

unidentified obstructions below ground level that were likely

to be affected by the works. In particular, their searches had

revealed that the site had been extensively redeveloped in

the 1970s and in those circumstances, McAlpine considered

it unlikely that any earlier drains had survived. However, there

was, in fact, a private drain, which connected to the public

sewer running under Newgate Street, which had been laid

at three metres below ground level. This was not shown on

Northumbrian’s current plans of the sewer system.

The existence of this private drain was only discovered by

McAlpine when one of its employees was carrying out a

search of museum archives in relation to a problem which

was unconnected to the sewer. The court heard evidence

that McAlpine’s search of the museum archives had lasted

several hours and had eventually produced a plan from

1908 on which the private drain was shown.

The Claim in NegligenceThe Court of Appeal agreed that the judge at first instance

was entitled to reject the contention that a reasonably

competent and careful contractor would have searched

the local museum archives for several hours to ascertain

whether a private drain had existed on the site a hundred

years earlier and might have survived the previous

redevelopment, even though it had not been detected by

normal investigation measures.

Page 7: Legal Watch - Property Risks & Coverage  - Issue 7

The Claim in NuisanceThe Court of Appeal considered the three important

principles derived from Cambridge Water Co v Eastern

Counties Leather Plc [1994] 2 AC 264 and TranscoPlc v

StockportMetropolitanBoroughCouncil[2003]UKHL61:

1. Although liability in nuisance has traditionally been

regarded as strict (i.e. that it does not depend on proof

of negligence), if the defendant’s use of his land is

reasonable he will not be liable for interference with his

neighbour’s enjoyment of his land.

2. Unless the case can be brought within the scope of the

rule in RylandsvFletcher[1868]UKHL1 the defendant is

not liable for damage caused by an isolated escape (i.e.

one that is not intended or reasonably foreseeable).

3. Foreseeability of harm of the type suffered by the

claimant is necessary for the defendant to be liable in

damages for nuisance.

“...the redevelopment of land in an urban setting cannot be regarded as anything other than normal and reasonable, unless it involves unusual methods of working.”Applying the facts in Northumbrian v McAlpine to these

principles the Court of Appeal held that the redevelopment

of land in an urban setting cannot be regarded as anything

other than normal and reasonable, unless it involves unusual

methods of working. Whilst McAlpine was aware that

concrete can leak out of shafts drilled to create piles, there

was no reason to think that McAlpine should have foreseen

that the concrete might escape the confines of the site and

onto neighbouring land.

CommentClearly, to be able to defend a claim on this basis, one is

going to have to show that all ‘normal’ investigation methods

have been exhausted. It remains to be seen whether the

next argument will be about what is meant by ‘normal’.

Page 8: Legal Watch - Property Risks & Coverage  - Issue 7

Insurance BillThe Treasury has finally unveiled the final Insurance Bill,

dealing with commercial insurance contracts, which was

introduced into Parliament on 17 July 2014, following

consultations undertaken by the Law Commission and

Scottish Law Commission over the last eight years. The Bill

follows the review of consumer insurance law, which led to

the Consumer Insurance (Disclosure and Representations)

Act 2012 (which came into force on 6 April 2013).

Previously referred to as the Insurance Contracts Bill, the

name change presumably arises as a result of the fact that

the final version now includes an amendment to the Third

Parties (Rights Against Insurers) Act 2010, so does not

merely deal with commercial insurance contracts. Whether

this amendment will now finally trigger a commencement

date for the Third Parties (Rights Against Insurers) Act 2010

remains to be seen.

“bringing insurance contract law into the 21st century.”It is understood that as the Bill has cross-party support,

it will benefit from the special parliamentary procedure,

allowing it to proceed through Parliament more rapidly than

would otherwise be the case.

The full text of the Bill can be found at:

http://www.publications.parliament.uk/pa/bills/

lbill/2014-2015/0039/15039.pdf

The Bill is said to introduce a “more modern legal regime”,

which it is hoped will benefit insurers and their commercial

customers, reducing the number of disputes and providing

greater transparency. It is also apparent that the Treasury

hopes that the changes introduced by the Bill will mean that

British insurers can compete on a more even global playing

field, “bringing insurance contract law into the 21st century”.

Regular readers will be aware that Graham Brown covered

the previous draft version of the Bill in his article in Issue2

ofLegalWatch:PropertyRisks&Coverage and in his talk at

the Property Risks & Coverage Conference on 3 April 2014.

The broad principles remain the same but there have been

some drafting changes.

The most important change, apart from the incorporation of

a section dealing with the amendment to the Third Parties

(Rights Against Insurers) Act 2010 (the 2010 Act), is in

relation to the commencement date. Save in respect of Part

6 (the amendment of the 2010 Act) the commencement date

will be 18 months after what will be known as the Insurance

Act 2014 is passed.

In respect of Part 6, commencement is split into two parts:

(a) Section 17 in relation to the power to change the

meaning of “relevant person” for the purposes of the 2010

Act - come into force two months after the passing of the

Insurance Act 2014

(b) Section 18 and Schedule 2 come into force on the date

the 2010 Act comes into force

The Bill contains seven parts and two schedules:

1. Insurance Contracts: Main Definitions

2. The Duty of Fair Presentation

3. Warranties

4. Fraudulent Claims

5. Good Faith and Contracting Out

6. Amendment of the Third Parties (Rights Against

Insurers) Act 2010

7. General (dealing with commencement and the like)

Schedule 1 – Insurers’ remedies for qualifying breaches

Part 1 — Contracts

Part 2 — Variations

Part 3 — Supplementary

Page 9: Legal Watch - Property Risks & Coverage  - Issue 7

Schedule 2 — Rights of third parties against insurers:

relevant insured persons

The reforms in the Bill encompass three main areas:

• Disclosure and misrepresentation in business and

other non-consumer insurance contracts. The duty on

policyholders will be amended to require businesses to

disclose risk information to insurers on the basis of a

“fair presentation” of the risk. Schedule 1 sets out the

proportionate remedies for qualifying breaches

• Warranties – ‘basis of contract’ clauses will be

abolished under the Bill, so that pre-contractual

information supplied to insurers will no longer be

‘converted’ into warranties. The Bill also provides that in

the event of a breach of a warranty, insurers’ liability will

be suspended, not discharged, so that the remedying of

the breach will restore cover under the policy

• Insurers’ remedies for fraudulent claims – clear, robust

remedies are available to insurers where a fraudulent

claim is submitted by a policyholder

The Bill has already faced some criticism for failing to

include recommended reforms enabling policyholders to

pursue their insurers for damages in cases where there

has been late settlement of claims. Many consider this to

be a watered down version of what had previously been

proposed. However, bearing in mind it is the first attempt to

reform commercial insurance law since the Marine Insurance

Act 1906, the progress that has been made should not be

belittled.

Page 10: Legal Watch - Property Risks & Coverage  - Issue 7

The information and opinions contained in this document are not intended to be a comprehensive study, nor to provide legal advice, and should not be relied on or treated as a substitute for specific advice concerning individual situations. This document speaks as of its date and does not reflect any changes in law or practice after that date. Plexus Law and Greenwoods Solicitors are trading names of Parabis Law LLP, a Limited Liability Partnership incorporated in England & Wales. Reg No: OC315763. Registered office: 8 Bedford Park, Croydon, Surrey CR0 2AP. Parabis Law LLP is authorised and regulated by the SRA.

www.plexuslaw.co.ukwww.greenwoods-solicitors.co.uk

Contact UsFor more information on any articles and cases featured in

other editions of Legal Watch: Property Risks & Coverage

newsletters please contact:

Marise Gellert, Partner

T: 0207 469 6249

E: [email protected]

PublicationsIf you would like to receive any of the below, please

email indicating which you would like to receive.

Weekly:

• Legal Watch: Personal Injury

Monthly:

• Legal Watch: Property Risks & Coverage

Quarterly:

• Legal Watch: Counter Fraud

• Legal Watch: Health & Safety

• Legal Watch: Marine

• Legal Watch: Professional Indemnity

• Legal Watch: Disease

To unsubscribe from this newsletter please email:

[email protected]

The Civil Justice Council Costs Committee has now

submitted its report to Lord Dyson, Master of the Rolls.

The delay was said to be “a reflection of the scale and

complexity of the task and the need to reach agreement as

far as possible on some very difficult issues.”

The report will not be published until Lord Dyson has had

an opportunity to consider it fully and to decide whether or

not to accept the Committee’s recommendations. The Civil

Justice Council has indicated that it envisages that Lord

Dyson will, in due course, publish its report alongside his

final decisions on what the rates should be, and the date

from which they will take effect.

Lord Dyson has, in turn, indicated that he will “consider the

Committee’s very comprehensive report with great care”

and will announce the date on which his decision will be

published as soon as possible.

So far no date has been announced but we will keep you

advised of developments.

Guideline Hourly RatesUpdate