Insurance policy – Pre-action disclosure — Inspection of documents — Insurance contract incorporating term referring disputes concerning fraud and misrepresentation to arbitration – Fraudulent valuations — Claimant underwriter applying for disclosure of documents under Civil Procedure Rules — Whether court having jurisdiction to order pre-action disclosure where underlying dispute referred to arbitration — Application dismissed
In May 2008, the defendant firm of surveyors took out a professional indemnity insurance policy of which the claimant was the lead underwriter. Issues arose concerning claims made against the defendant following surveys carried out by one of its former surveyors (M). A condition in the policy provided that underwriters were not to avoid a policy for non-disclosure or misrepresentation provided that the misrepresentation was free from fraudulent intent. It transpired that M and two of his colleagues might have carried out hundreds of potentially fraudulent valuations, many of which involved the same commercial client. Consequently, it was possible that the claimant would seek to avoid the policy for misrepresentation and/or non-disclosure.
In order to determine fraudulent intent, the claimant sought documentation from the defendant concerning: (i) the extent to which the defendant knew of the possibility of fraud on the part of M, as opposed to allegations of incompetence when the policy was agreed; and (ii) the circumstances surrounding M’s dismissal. The claimant threatened to apply for pre-action disclosure, pursuant to CPR 31.16, in respect of that material; the defendant consequently provided a number of relevant documents. However, the claimant maintained that the defendant had retained numerous documents and it issued an application, under CPR 31.16, for pre-action disclosure. The defendant submitted that the court did not have the necessary jurisdiction to make the order sought because its power to order pre-action disclosure did not extend to the situation where the dispute between the parties would be determined in arbitration rather than in court.
Held: The application was dismissed.
The underlying dispute concerning the possible misrepresentation and/or fraudulent intent as at May 2008 was the subject of a binding arbitration agreement and the court did not have jurisdiction to order pre-action disclosure.
An agreement to arbitrate disputes over the application of a condition in a policy had to be construed in a sensible way so as to give effect to the commercial purpose of the clause. In the instant case, the commercial purpose of the arbitration agreement within the relevant condition was to ensure that all allegations involving misrepresentation, non-disclosure and possible fraud were dealt with in a confidential forum. That was why only disputes under that condition, and not disputes as to the operation of the policy generally, were to be referred to arbitration. The application or otherwise of the condition, in particular the existence of fraudulent intent that lay at the heart of the disagreement between the parties, was a dispute that they had agreed to arbitrate and that the court had to enforce: Fiona Trust & Holding Corporation v Privalov [2007] UKHL 40; [2007] 4 All ER 951 considered.
As a matter of statutory construction, it was clear that the power to order pre-action disclosure in accordance with section 33(2) of the Senior Courts Act 1981 could be invoked only by an applicant that was likely to be a party to subsequent proceedings in the High Court. If the subsequent proceedings between the parties were to be referred to arbitration, the applicant would not be a party to subsequent proceedings in the High Court. Therefore, section 33(2) and, thus, CPR 31.16 did not apply if the underlying dispute was to be referred to arbitration. Arbitration pursuant to the Arbitration Act 1996 was a separate dispute resolution process in respect of which the courts had extremely limited powers of intervention and control. It would be contrary to that policy to find that, in the absence of clear words, the court had the jurisdiction to make an order for potentially wide-ranging pre-action disclosure in an arbitration case: Cetelem SA v Roust Holdings Ltd [2005] EWCA Civ 618; [2005] 1 WLR 3555 considered.
Further, section 37 of the 1981 Act, which applied to injunctions and the appointment of a receiver, did not give the court the necessary jurisdiction under a “sweep-up” arrangement, since it could not be invoked in the absence of an express jurisdiction. The whole structure of Part 1 of the 1996 Act suggested that the scope for the court to intervene by injunction before an award was made by arbitrators was limited. The same approach applied to an application for pre-action disclosure in an arbitration case: Elektrim SA v Vivendi Universal SA [2007] EWHC 571 (Comm); [2007] 2 Lloyd’s Rep 8 considered.
Section 44(3), which empowered the court in certain circumstances to make procedural orders in arbitration proceedings, was intended to be invoked in exceptional circumstances, where, for example, the critical evidence would otherwise be permanently lost or at risk of being destroyed or tampered with, such as to make it of no probative value. On the face of it, it was not to be used in the standard case where, once arbitration proceedings had started, the arbitrator could make the same order for disclosure as the could court, in accordance with his powers under section 44(2).
The application for pre-action disclosure was no different to the run-of-the-mill application for early disclosure which arbitrators were well-versed in addressing. There was the usual need for the matter to be progressed with reasonable speed but, in the instant case, in the absence of any express evidence as to a particular risk of lost documents or an imminent threat to the preservation of the evidence or the assets, there was no urgency. The court did not therefore have the power to make an order under section 44(3). In the absence of real urgency, the provision was not engaged.
Sean Brannigan QC (instructed by CMS Cameron McKenna LLP) appeared for the claimant; Michael Soole QC (instructed by Countrywide Legal) appeared for the defendant.
Eileen O’Grady, barrister
