Legal Watch: Property Risks & Coverage July 2014 Issue 007
Introduction We start this month’s issue with a look at the impact of the
In This Issue:
appeals in Denton and others, for which thanks go to Geoff Owen. Geoff’s article also appeared in Legal Watch: Personal Injury Issue 26. Thanks also go to Alison Heard for her article on Northumbrian Water Ltd v Sir Robert McAlpine Limited. 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 • Re-amendment of claim not permitted • Nuisance claim fails where escape and consequent damage are unforeseeable • Insurance Bill • Guideline Hourly Rates – Update
Contact Us If you would like any further information on the cases or articles featured in this issue, please contact: Geoff Owen T: 01908 298 216 E: gro@greenwoods-solicitors.com Alison Heard T: 0207 469 6236 E: arh@greenwoods-solicitors.com Marise Gellert T: 0207 469 6249 E: msg@greenwoods-solicitors.com
Jackson/Mitchell Judgment has been handed down in the much anticipated
“all the circumstances of the case, so as to enable [the
appeals relating to early Jackson/Mitchell case management
court] to deal justly with the application”. Thirdly, it had led
decisions. The outcome is a new set of guidelines as to how
to the imposition of disproportionate penalties on parties
CPR should be applied by the courts.
for breaches which had little practical effect on the course
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 CPR 3.9, 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.
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
Allowing all three appeals but with Jackson LJ dissenting in
assess the seriousness and significance of the “failure to
part in the reasoning, the Court of Appeal held that Mitchell
comply with any rule, practice direction or court order”
had been misunderstood and was being misapplied by
which engages CPR 3.9(1). If the breach is neither serious
some courts. It was clear that it needed to be clarified and
nor significant, the court is unlikely to need to spend much
amplified in certain respects.
time on the second and third stages. The second stage is
‘...Mitchell had been misunderstood and was being misapplied by some courts’
to consider why the default occurred. The third stage is to
The principal criticisms were summarised as follows. First,
not be on whether the breach has been trivial. Rather,
the “triviality” test amounted to an “exceptionality” test
it should be on whether the breach has been serious or
which was rejected by Sir Rupert Jackson in his report and
significant. The court should concentrate on an assessment
was not reflected in the rule. It was unjustifiably narrow.
of the seriousness and significance of the very breach in
Secondly, the description of factors (a) and (b) in CPR 3.9(1)
respect of which relief from sanctions is sought.
as “paramount considerations” gave too much weight to these factors and was inconsistent with CPR 3.9 when read in accordance with CPR 1.1. They should be given no more weight than all other relevant factors. It was said that the Mitchell approach downplayed the obligation to consider
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 1 In these circumstances, the court felt it would be preferable if in future the focus of the enquiry at the first stage should
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 2 The second stage cannot be derived from the express wording of rule CPR 3.9(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 Mitchell at paragraph 41.
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
It would be inappropriate to produce an encyclopaedia of
reason is demonstrated, or (c) where it is otherwise obvious
good and bad reasons for a failure to comply with rules,
that relief from sanctions is appropriate, parties should
practice directions or court orders. Paragraph 41 of Mitchell
agree that relief from sanctions be granted without the need
gives some examples, but they are no more than that.
for further costs to be expended in satellite litigation. The parties should in any event be ready to agree limited but
Stage 3 The important misunderstanding that has occurred is
reasonable extensions of time up to 28 days as envisaged by the new CPR 3.8(4).
that, if (i) there is a non-trivial (now serious or significant)
It should be very much the exceptional case where a
breach and (ii) there is no good reason for the breach, the
contested application for relief from sanctions is necessary.
application for relief from sanctions will automatically fail.
This is for two reasons: first because compliance should
That is not so and is not what the court said in Mitchell: the
become the norm, rather than the exception as it was in
court will consider “all the circumstances of the case, so as
the past, and secondly, because the parties should work
to enable it to deal justly with the application�.
together to make sure that, in all but the most serious
Thus, the court must, in considering all the circumstances of the case so as to enable it to deal with the application justly,
cases, satellite litigation is avoided even where a breach has occurred.
give particular weight to these first two important factors.
The court will be more ready in the future to penalise
In doing so, it will take account of the seriousness and
opportunism. The duty of care owed by a legal representative
significance of the breach (which has been assessed at the
to his client takes account of the fact that litigants are
first stage) and any explanation (which has been considered
required to help the court to further the overriding objective.
at the second stage). The more serious or significant the
Representatives should bear this important obligation to
breach the less likely it is that relief will be granted unless
the court in mind when considering whether to advise their
there is a good reason for it. Where there is a good reason
clients to adopt an uncooperative attitude in unreasonably
for a serious or significant breach, relief is likely to be
refusing to agree extensions of time and in unreasonably
granted. Where the breach is not serious or significant, relief
opposing applications for relief from sanctions. It is as
is also likely to be granted. But it is always necessary to
unacceptable for a party to try to take advantage of a minor
have regard to all the circumstances of the case. The factors
inadvertent error, as it is for rules, orders and practice
that are relevant will vary from case to case. As has been
directions to be breached in the first place. Heavy costs
pointed out in some of the authorities that have followed
sanctions should, therefore, be imposed on parties who
Mitchell, the promptness of the application will be a relevant
behave unreasonably in refusing to agree extensions of
circumstance to be weighed in the balance along with all the
time or unreasonably oppose applications for relief from
circumstances. Likewise, other past or current breaches of
sanctions. An order to pay the costs of the application under
the rules, practice directions and court orders by the parties
CPR 3.9 may not always be sufficient. The court can, in an
may also be taken into account as a relevant circumstance.
appropriate case, also record in its order that the opposition to the relief application was unreasonable conduct to be
taken into account under CPR 44.11 when costs are dealt
be aggravated by the fact that the non-defaulting party will
with at the end of the case. If the offending party ultimately
almost certainly feel safer ‘sitting on its hands’, rather than
wins, the court may make a substantial reduction in its
taking any active steps and risking criticism. Secondly, how
costs recovery on grounds of conduct under rule 44.11. If
will courts interpret stage 3 which appears to reintroduce
the offending party ultimately loses, then its conduct may
the concept of standing back and looking at the issue of
be a good reason to order it to pay indemnity costs. Such
justice between the parties. Can we expect consistency
an order would free the winning party from the operation of
of approach here when the recent experience has been of
CPR 3.18 in relation to its costs budget.
widespread inconsistency? And to what extent will the issue
The judges commented on the submissions that have been addressed to the consequences of scarce public resources.
of court resources impact on judges’ decisions and attract disproportionate weighting?
This, they said, is now sadly a fact of life, as much in litigation
Some of the real fear of Jackson/Mitchell has been removed
and in the courts as elsewhere. No judicial pronouncement
but there remains uncertainty as to how far into default a
can improve the position. It does, however, make it all the
party may fall and yet still be saved by invoking the stage
more important that court time is not wasted and hearings,
3 test.
once fixed, are not adjourned.
Comment On 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 CPR 3.8 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 CPR 3.9. 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 significant breach, 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
Nuisance claim fails where escape and consequent damage are unforeseeable A claim in nuisance will fail where the escape and consequent damage are unforeseeable. That was the decision upheld by the Court of Appeal in Northumbrian Water Ltd v Sir Robert 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.
Background
Investigations The 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
Northumbrian provides sewerage services in Newcastle-
at three metres below ground level. This was not shown on
upon-Tyne. One of Northumbrian’s sewers runs under
Northumbrian’s current plans of the sewer system.
Newgate Street.
The existence of this private drain was only discovered by
McAlpine was carrying out redevelopment works on a site
McAlpine when one of its employees was carrying out a
which was adjacent to Newgate Street. The works being
search of museum archives in relation to a problem which
carried out by McAlpine included the sinking of a large
was unconnected to the sewer. The court heard evidence
number of concrete piles to support a new building.
that McAlpine’s search of the museum archives had lasted
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
several hours and had eventually produced a plan from 1908 on which the private drain was shown.
drain and then into Northumbrian’s sewer where it set
The Claim in Negligence
and caused a partial blockage. It cost Northumbrian
The Court of Appeal agreed that the judge at first instance
approximately £320,000 to remove this obstruction.
was entitled to reject the contention that a reasonably
It was not in dispute that McAlpine owed Northumbrian a
competent and careful contractor would have searched
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.
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 Nuisance
Comment
The Court of Appeal considered the three important
Clearly, to be able to defend a claim on this basis, one is
principles derived from Cambridge Water Co v Eastern
going to have to show that all ‘normal’ investigation methods
Counties Leather Plc [1994] 2 AC 264 and Transco Plc v
have been exhausted. It remains to be seen whether the
Stockport Metropolitan Borough Council [2003] UKHL 61:
next argument will be about what is meant by ‘normal’.
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 Rylands v Fletcher [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.
Insurance Bill The Treasury has finally unveiled the final Insurance Bill,
Regular readers will be aware that Graham Brown covered
dealing with commercial insurance contracts, which was
the previous draft version of the Bill in his article in Issue 2
introduced into Parliament on 17 July 2014, following
of Legal Watch: Property Risks & Coverage and in his talk at
consultations undertaken by the Law Commission and
the Property Risks & Coverage Conference on 3 April 2014.
Scottish Law Commission over the last eight years. The Bill
The broad principles remain the same but there have been
follows the review of consumer insurance law, which led to
some drafting changes.
the Consumer Insurance (Disclosure and Representations)
The most important change, apart from the incorporation of
Act 2012 (which came into force on 6 April 2013).
a section dealing with the amendment to the Third Parties
Previously referred to as the Insurance Contracts Bill, the
(Rights Against Insurers) Act 2010 (the 2010 Act), is in
name change presumably arises as a result of the fact that
relation to the commencement date. Save in respect of Part
the final version now includes an amendment to the Third
6 (the amendment of the 2010 Act) the commencement date
Parties (Rights Against Insurers) Act 2010, so does not
will be 18 months after what will be known as the Insurance
merely deal with commercial insurance contracts. Whether
Act 2014 is passed.
this amendment will now finally trigger a commencement
In respect of Part 6, commencement is split into two parts:
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”.
(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.
Guideline Hourly Rates Update 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
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Dyson will, in due course, publish its report alongside his
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final decisions on what the rates should be, and the date from which they will take effect.
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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.
Contact Us For 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: msg@greenwoods-solicitors.com
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