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Legal Watch:Property Risks & CoverageJuly 2014
Issue 007
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
Alison Heard
T: 0207 469 6236
Marise Gellert
T: 0207 469 6249
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.
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.
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
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.
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.
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’.
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
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.
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
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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