High Court refuses to order pre-action disclosure of a defendant's public liability insurance policy

In Peel Port Shareholder Finance Co Ltd v Dornoch Ltd [2017] EWHC 876 (TCC), Peel Port Shareholder Finance Co Ltd (Peel Port) applied for pre-action disclosure of the defendant's insurance policy under Civil Procedure Rule 31.16. Peel Port was not able to rely on the provisions in Third Party (Rights against Insurers) Act 2010 because the defendant was not insolvent. Peel Port argued that it was highly probable that rights against insurers would be transferred to them under the 2010 Act in due course. They argued, therefore, that the court should exercise its discretion to grant disclosure of the defendant's insurance policy at this stage to help avoid litigation and wasted costs. Mrs Justice Jefford refused to exercise her discretion to grant disclosure in anticipation of such a transfer of rights.

Background

Peel Port owned a warehouse that was damaged by fire in January 2013. Peel Port alleged that the fire was caused by European Active Projects Ltd (EAPL). EAPL was insured under a public liability policy by Dornoch Ltd. As Dornoch were the correct insurers they were substituted as the respondent to this application.
Peel Port's position was that EAPL had no defence to the claim and had not articulated any defence in open correspondence. Peel Port therefore took the view that it was highly likely that any claim against EAPL would succeed. The claim would be for sums in excess of £1m. If judgment for that amount was enforced, EAPL would not be able to meet the judgment and would be wound up.

EAPL's insurers denied cover on the basis that EAPL did not comply with conditions in a policy endorsement. Insurers set out the terms of the endorsement in correspondence with Peel Port but did not disclose the policy. Peel Port suggested that there might 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. They therefore sought pre-action disclosure of the policy.

Peel Port's argument

There are four limbs of the test for pre-action disclosure under CPR 31.16(3):

"(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.”

Peel Port argued that they met the test because:

1. Dornoch and Peel Port were likely to be parties to proceedings if they were commenced;
2. the effect of the policy endorsement would be a key issue in any proceedings between Peel Port and Dornoch and therefore the policy would be disclosable in those proceedings; and
3. disclosure before proceedings start is desirable because if Peel Port were 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.

Dornoch's defence

Dornoch accepted for the purposes of this application:

1. that Dornoch and Peel Port were likely to be parties to proceedings if they were commenced because if EAPL were put into liquidation, Peel Port would be entitled to sue Dornoch directly under the 2010 Act; and
2. that the policy would be disclosable in such proceedings.

However, Dornoch did not accept that the judge should exercise her discretion to order disclosure of the policy because to do so would be to ignore the provisions of the 2010 Act.
Dornoch argued that 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. Where the insured B is insolvent, however, A may have a direct claim against B’s insurers under the 2010 Act. The 2010 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 31.16. Additionally (or alternatively) the existence of this specific regime is a powerful reason why the judge should not exercise her discretion to order disclosure that does not fall within the 2010 Act.

Decision

Mrs Justice Jefford did not accept Dornoch's argument in relation to the 2010 Act. She agreed with Peel Port that there are two separate and distinct regimes:

1. CPR 31.16 which gives the Court a power to order pre-action disclosure, exercising its discretion, if the threshold tests are met; and
2. Schedule 1 of the 2010 Act which provides an express right to specific information in certain circumstances.

The existence of the latter did not preclude the operation of the former where the relevant test is met.

Mrs Justice Jefford therefore went on to consider the exercise of her discretion under CPR 31.16. In doing so, she took into account the statutory and procedural landscape and noted that:

1. The provisions of Schedule 1 of the 2010 Act 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.
2. 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).
3. In proceedings against the insured CPR 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.
4. Attempts to deploy other provisions of the CPR to obtain the insurance policy of a solvent insured have failed.

Against this background she held that it would "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".

Peel Port submitted that the circumstances were exceptional because of the high probability that rights against insurers would be transferred to Peel Port. Mrs Justice Jefford did not accept that the circumstances were sufficiently exceptional for her to order disclosure of a solvent insured's insurance policy contrary to established practice.

Peel Port's application for pre-action disclosure of the policy was therefore refused.

Comment

In Black v Sumitomo Corpn [2001] EWCA Civ 1819 the Court of Appeal said that when considering applications for pre-action disclosure, the court does not have to consider the likelihood of there being future proceedings but whether the applicant and respondent are likely to be parties to such proceedings if they are commenced. Peel Port and Dornoch agreed that this test was met.

Mrs Justice Jefford's conclusion (as quoted above) suggests that she took a different view. She construed the subsequent proceedings narrowly as being a matter between Peel Port and EAPL. On this basis the insurance policy was not disclosable because it was not relevant to any issue in the case.

This narrow approach to defining the parties to the subsequent litigation may be justified on the basis that Peel Port was clearly seeking disclosure in relation to potential proceedings against EAPL, not against Dornoch itself. Dornoch had merely been substituted as EAPL's insurer. Indeed, Peel Port did not yet have any standing to bring a direct claim against Dornoch under the 2010 Act since EAPL was not yet insolvent. Therefore the fact that the policy would be disclosable in separate proceedings against Dornoch was not relevant to whether it was disclosable in the proceedings which were actually contemplated against EAPL.

Whether this is a departure from the Court of Appeal approach in Black v Sumitomo or is an exception in limited circumstances where the claimant does not yet have a right to commence proceedings against the potential defendant, is debatable and somewhat academic. This judgment clearly demonstrates the court's support for maintaining the established practice that a claimant cannot obtain disclosure of a solvent defendant's insurance policy even if it is highly probable that the defendant will become insolvent. This is perhaps an unsurprising practice given that a claimant is not automatically entitled at a pre-judgment stage to obtain evidence of a solvent defendant's other assets (such as its credit balance at the bank). If that is the case, why should a claimant be able to obtain details of another asset of a solvent defendant – namely its insurance policy?

Interestingly, the judgment does leave open the possibility that pre-action disclosure of a defendant's insurance policy may be ordered under CPR 31.16 where the test is met. It is thought that disclosure will not be ordered unless there are exceptional or unusual circumstances. It remains to be seen how and in what circumstances disclosure is ordered.