England and Wales High Court (Technology and Construction Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		26/04/2017

MRS JUSTICE JEFFORD:

1. This is an application for pre-action disclosure made under rule 31.16 of the Civil Procedure Rules.

Background

2. Peel Port Shareholder Finance Company Ltd. ("Peel Port") are the owners of a warehouse at Sheerness Docks in Kent which was damaged by fire on 14 January 2013.
3. Peel Port's case is that that fire was caused by activities undertaken by a company called European Active Projects Ltd. ("EAPL"). These activities involved flame cutting work carried out in the vicinity of flammable insulation material. It is common ground that EAPL was insured and on the hearing of this application, Dornoch Ltd., were substituted as the respondent to this application on the basis that they were the correct insurers.
4. Peel Port's position put shortly is that EAPL has no defence to the claim against it and EAPL has not articulated any defence in open correspondence. It is therefore highly likely that any claim against EAPL will succeed. Peel Port's claim will be for sums in excess of £1m. EAPL is not insolvent and is trading but, Peel Port also say, if a judgment for this amount was enforced against EAPL it would not be able to meet that judgment and would be wound up.
5. As I have said, EAPL is insured. However, its insurers have denied that the claim is covered. They rely on a "hot working" endorsement to EAPL's public liability policy. That endorsement provides that it is a condition precedent to liability under the policy that certain precautions are taken when using any oxy-acetylene or similar spark emitting equipment or other specified equipment. Insurers have denied cover on the basis that EAPL did not comply with the conditions in this endorsement. They have set out the terms of the endorsement in correspondence with Peel Port and their insurers. They have not, however, disclosed the policy, so Peel Port suggest that there may be issues as to the incorporation of the endorsement or the effect of the endorsement when construed in the context of the policy as a whole.

The application

6. This application by Peel Port is for disclosure of a copy of the full insurance policy. The application is made under CPR Rule 31.16. That rule was made pursuant to s. 33(2) of the Senior Courts Act 1981.
7. CPR 31.16 provides as follows:

"(1) This rule applies where an application is made to the court under any Act for disclosure before proceedings have started.

…

(3) The court may make an order under this rule only where –

(a) the respondent is likely to be a party to subsequent proceedings;

(b) the applicant is also likely to be a party to those proceedings;

(c) if proceedings had started the respondent's duty by way of standard disclosure, set out in rule 31.6, would extend to the documents or classes of documents of which the applicant seeks disclosure; and

(d) disclosure before proceedings have started is desirable in order to –

(i) dispose fairly of the anticipated proceedings;

(ii) assist the dispute to be resolved without proceedings; or

(iii) save costs."

8. Sub-paragraphs 3(a) and (b) were construed by the Court of Appeal in Black v Sumitomo Corpn [2001] EWCA Civ 1819 at [71] to mean not that the court had to consider the likelihood of there being proceedings but that the applicant and respondent were likely to be parties to proceedings if they were commenced. Whilst reserving the right to argue differently on any appeal, Dornoch accepts on this application both that that is the proper construction of the rules and that this test is fulfilled. It is fulfilled because if EAPL were put into liquidation, Peel Port would be entitled to sue Dornoch directly under the Third Parties (Rights against Insurers) Act 2010.
9. Dornoch also accepts that the test in sub-paragraph 3(c) is met because, in such proceedings, a key issue would be the effect of the endorsement, and the policy would be disclosable in those proceedings.

Discretion

10. So far as sub-paragraph 3(d) is concerned, Rix LJ in Black v Sumitomo observed at [79] that it is a difficult test to interpret "for it is framed both in terms of a jurisdictional threshold ("only where") and in terms of the exercise of a discretionary judgment ("desirable")." At [81] he concluded:

"In my judgment, for jurisdictional purposes the court is only permitted to consider the granting of pre-action disclosure where there is a real prospect in principle of such an order being fair to the parties if litigation is commenced, or of assisting the parties to avoid litigation, or of saving costs in any event. If there is such a real prospect, then the court should go on to consider the question of discretion, which has to be considered on all the facts and not merely in principle but in detail."

11. In the light of this approach, it was common ground before me that I had to take into account the three particular matters set out in sub-paragraph 3(d) as part of the threshold test but that my discretion as to whether to order pre-action disclosure was still an unfettered one both because of the use of "may" and because of the need to assess desirability.
12. Peel Port's submission is that the jurisdictional threshold is met, in particular because, if the policy were disclosed and Peel Port were then satisfied that the endorsement was effective, it would not pursue EAPL (so avoiding putting EAPL into liquidation) and it would not pursue insurers. That in itself would avoid litigation and wasted costs. Peel Port argue that it is then clearly desirable that disclosure should be ordered.
13. Dornoch does not take issue with these arguments but Dornoch argues that I should not exercise my discretion to order pre-action disclosure in particular because to do so would be to ignore the provisions of the Third Parties (Rights against Insurers) Act 2010.
14. In summary that argument runs as follows. Where a claimant (A) sues a defendant (B), and B is insured, the general position is that the insurance policy is not disclosable because it is not relevant to any issue in the case. It neither advances nor undermines any party's case - see for example West London Pipeline and Storage v Total UK Ltd. [2008] EWHC 1296. Where the insured B is insolvent, however, A may have a direct claim against B's insurers under the Third Parties (Rights against Insurers) Act 2010. That Act contains a specific regime for the provision of information about B's insurance position. There would have been no need for Parliament to have made such provision if disclosure of B's insurance policy could be obtained under CPR Rule 31.16 and/or the existence of this specific regime is a powerful reason why I should not, in the exercise of my discretion, order disclosure that does not fall within the Act.

The Third Parties (Rights against Insurers) Act 2010

15. This Act (which came into force in August 2016) is the successor to the Third Parties (Rights against Insurers) Act 1930. The effect of the 1930 Act and its 2010 successor is to transfer to a party to whom an insolvent insured is liable the insured's right to claim against its insurers.
16. Section 2 of the 1930 Act imposed a duty to give such information as might reasonably be required for the purpose of ascertaining whether any rights had been transferred under the Act and for the purpose of enforcing such rights. That duty was imposed on the insolvent person (s. 2(1)) and on the insurer (s. 2(2)) in the particular circumstances provided for by that subsection. The duty arose on an insolvency event. However, the Act was for some time construed to mean that the right to sue the insurer only arose once the liability of the insured was established and, without going into the detail of the reasoning, s.2 was similarly construed so that no duty to provide information was thought to arise until after the insured's liability was established. It was against that background that the Law Commission Consultation Paper and Report to which I refer below were drafted.
17. That reasoning was, in the event, rejected by the Court of Appeal in First National Trinity Finance Limited v OT Computers Ltd. (in administration) [2004] EWCA 653, the Court of Appeal concluding that section 2 would usually enable a third party to obtain disclosure of documentation following the insured's insolvency but before the establishment of the insured's liability to the third party. I note that it was not argued in that case that disclosure could be obtained, whether before or after the insured's insolvency, on some other basis under the CPR.
18. The Third Parties (Rights against Insurers) Act 2010 provides for the transfer of the rights of the insured against his insurer to a third party to whom he is liable in the event of his insolvency or on the voluntary winding up of a company. In contrast to the 1930 Act, under s. 1(3): "The third party may bring proceedings to enforce the rights against the insurer without having established the relevant person's liability; but the third party may not enforce those rights without having established that liability." The "relevant person" is a defined term and, in summary, is a person who is insolvent.
19. Section 11 then also enacts Schedule 1 to the Act. It is this Schedule that sets out the specific regime for the provision of information. Paragraph 1 is headed "Notices requesting information" and provides as follows:

"(1) If a person (A) reasonably believes that –

(a) another person (B) has incurred a liability to A, and

(b) B is a relevant person

A may, by notice in writing, request from B such information falling within sub-paragraph (3) as the notice specifies.

(2) If a person (A) reasonably believes that –

(a) a liability has been incurred to A,

(b) the person who incurred the liability is insured against it under a contract of insurance

(c) rights of that person under the contract have been transferred to A under section 1, and

(d) there is a person (C) who is able to provide information falling within sub-paragraph (3)

A may, by notice in writing, request from C such information falling within that sub-paragraph as the notice specifies.

(3) The following is the information that falls within this sub-paragraph –

(a) whether there is a contract of insurance that covers the supposed liability or might reasonably be regarded as covering it;

(b) if there is such a contract –

(i) who the insurer is;

(ii) what the terms of the contract are;

………………"

20. The provision of the information requested is then governed by paragraph (2). It is clear from these paragraphs that the relevant information may be sought from the insurer and others and that it may be sought before the insured's liability is established.
21. Paragraph (3) addresses notices requiring disclosure of documents, in contrast to information. This paragraph applies where proceedings have been started by the third party against the insurer in respect of a liability and the third party claims that the liability has been incurred by a corporate body that has been dissolved. The third party may, by notice, require disclosure of documents relevant to that liability. In summary such disclosure can be sought from representatives of the corporate body or insolvency practitioners (who are not party to the proceedings). Paragraph (4) deals with such disclosure and inspection.
22. As I have said, Dornoch's central objection to this application is that, if disclosure of insurance policies were available under CPR Rule 31.16 in the circumstances of this case, there would be no point in this statutory regime. Moreover the statutory regime draws a clear distinction between provision of information and disclosure and paragraph (1) provides only for the provision of information. It would be inconsistent with these provisions for the Court to give pre-action disclosure, where the statute only envisages the provision of information.
23. In this context, Mr Medd, on behalf of Dornoch, drew my attention to the recommendations of the Law Commission that preceded the 2010 Act. He did not rely on the Law Commission recommendations as an aid to construction but rather as explaining the statutory progression from the 1930 to the 2010 Act.
24. The Law Commission produced a Consultation Paper in 1998 and a Report in 2001 (Law Com. No. 272). I note that that Report therefore pre-dated the decision in OT Computers. At paragraph 4.11 of the Report, the Law Commission said this:

"Under the 1930 Act the third party is unable to overcome deficiencies in the statutory regime by obtaining disclosure orders under rules of court. Notwithstanding the changes we propose to the statutory transfer of rights, in our view, before he issues proceedings, the third party will still be able to obtain little (if any) information about the insured's insurance position under the CPR. We note, in particular:

(1) Orders for pre-action disclosure will only be granted against prospective litigants. They would not, for example, be available against insurance brokers.

(2) Such orders will only be granted in respect of specified documents. A third party who is completely ignorant of the insured's insurance potion may find it difficult to specify documents.

(3) Such orders will only be granted if early disclosure is desirable in order to dispose of the further proceedings fairly, avoid future proceedings or save costs."

25. The comments of the Law Commission in paragraphs (1) and (2) were focussed on issues that do not arise on this application. In paragraph (3), the Law Commission was concerned with how the Court's discretion would be exercised and in a footnote said simply that "It is not yet clear how the courts will view this requirement."
26. Further at paragraph 4.21, the Law Commission said:

"The specific disclosure regime we are recommending places the third party who receives a transfer of rights under the draft Bill in a better position than the third party faced with a solvent insured. In particular, it enables him to obtain information before issuing proceedings. By contrast, a third party faces with a solvent insured would in the usual case receive nothing that was not volunteered."

27. The Law Commission recommended a disclosure regime which is essentially what is now in Schedule 1 to the 2010 Act and is concerned only with the position of insolvent insureds.
28. It seems to me that the Law Commission was not expressing any view that a third party should not obtain early disclosure under the CPR where the insured was insolvent but rather that it seemed to them at best unclear whether the third party would obtain such disclosure. They do not appear to have anticipated at all that a third party would obtain disclosure of a solvent insured's insurance policy.
29. Further, it seems to me that the most I can take from the Report in the context of this application is as follows: the Law Commission assumed that the established position was that the Court would not order disclosure of a solvent insured's insurance policy in litigation against the insured; they considered it uncertain whether the Court would order pre-action disclosure of the policy in relation to anticipated proceedings against the insurer of an insolvent insured; and they recommended a regime to bring as much certainty as a statutory regime ever can bring to the provision of information about the insurance position of an insolvent insured.

The Applicant's argument

30. Mr Shapiro, for the applicant, argues that in the result there are 2 statutory regimes that may be relevant: s. 33(2) of the Senior Courts Act (together with CPR Rule 31.16) and Schedule 1 to the 2010 Act. The existence of the latter does not somehow preclude the operation of the former where the relevant tests are met. What Schedule 1 does is provide an express right to specified information, while s. 33(2) and Rule 31.16 gives the Court a power to order pre-action disclosure, exercising its discretion, if the threshold tests are met. In my judgment that is right in principle and, to the extent that it may be relevant, consistent with the Law Commission's view of the position.
31. I note that Mr Shapiro relied on paragraph (6) of Schedule 1 which provides:

"Rights to information, or to inspection of documents, that a person has by virtue of paragraph 1 or 3 are in addition to any such rights as the person has apart from that paragraph."

The Explanatory Notes expressly give as an example of such rights, rights under the Civil Procedure Rules. The Explanatory Notes are expressly not part of the Act and have not been endorsed by Parliament and are not, therefore, an aid to construction. In any case, whether or not paragraph (6) is intended to refer to CPR Rule 31.16, that rule does not confer any right to disclosure until the Court has in its discretion ordered such disclosure. Paragraph (6) seems to me more apt to refer to, for example, a contractual right to documentation/ information or to an entitlement to disclosure in proceedings against the insured (if not stayed) of the type with which paragraph (3) is concerned. In my judgment, however, Mr Shapiro does not have to rely on this paragraph for his argument that there are, in principle, two statutory regimes which may potentially be applicable.

32. Since this application can only be made under CPR Rule 31.16, the issue that remains is one of the exercise of discretion. In the exercise of that discretion, it seems to me that I should take into account the statutory and procedural landscape:

(i) The provisions of Schedule 1 demonstrate that Parliament cannot have envisaged that CPR Rule 31.16 would or would commonly be used to obtain insurance policies from the insurers of insolvent insureds.

(ii) There has never been an express statutory provision entitling a litigant to obtain the insurance policy of a solvent insured (because a litigant takes his defendant as he finds him).

(iii) In proceedings against the insured Rule 31.16 does not provide a route for a prospective litigant to obtain the insurance policy of a solvent insured because the policy does not meet the test for standard disclosure.

(iv) Attempts to deploy other provisions of the CPR to obtain the insurance policy of a solvent insured have failed (see for example West London Pipelines; XYZ v Various [2013] EWHC 3643 and [2014] EWHC 4056).

33. It would, against this background, be curious if a potential claimant (A) could say that because the solvent insured might become insolvent and that he, A, might then have a claim against insurers, he should have disclosure of the policy under Rule 31.16. In my judgment, this militates strongly against my exercising my discretion to order disclosure in this case.
34. Mr Shapiro submits, however, that the circumstances of this case are unusual or perhaps exceptional, and that I should, therefore, nonetheless exercise my discretion to order disclosure. He submits that this is a case where, if litigation were to proceed against EAPL, it is highly probable that EAPL would be held liable as it has declined to set out any defence; there is strong evidence that EAPL would not be able to meet a judgment against it and would be put into liquidation; and it is, therefore, also highly probable that rights against insurers would be transferred to Peel Port. So, he says, it goes beyond a case merely of what might happen. In my view, these circumstances, whilst perhaps not common are equally not that uncommon and still depend on a series of hypotheses about what might happen. They are not sufficiently exceptional circumstances for me to order disclosure of a solvent insured's insurance policy contrary to established practice.
35. The application is, therefore, refused.