EU sanctions prohibiting insurance and reinsurance - recent developments and practical steps

Written by AirSP Secretary on .

Economic sanctions imposed by the EU, the UN or by individual countries are a significant feature of international business.

Further measures, intended to combat financial crime and also the financing of terrorism, are closely associated with the sanctions regime. The insurance sector is increasingly subject to the effect of these measures, which often prohibit certain types of activity or transactions involving specified individuals or companies.

Sanctions imposed by the USA, relevant where a payment is wired via the USA or a financial institution subject to USA jurisdiction, are often even wider in scope, adding a further level of prohibition. Moreover, many banks have become cautious in their own right about transactions involving countries perceived to be high risk.

Over 30 countries are now subject to EU sanctions. Sanctions can relate specifically to the provision of insurance and reinsurance as, for example, in the cases of Iran and Syria.

In the UK, sanctions are now being more rigorously enforced. The Office of Financial Sanctions Implementation was established in 2016. Banks and professional advisers are now obliged to monitor transactions and report suspected breaches of sanctions. In recent years, insurance companies, brokers and banks have been prosecuted, or penalised by the regulator, for breaches in relation to international transactions. Post Brexit, the UK government has expressed its intention to continue complying with the EU sanctions regime.

Unfortunately, the terms in which sanctions and other measures are expressed can be imprecise and subject to change at short notice. The position in relation to insurance and reinsurance of Iranian and Russian risks illustrates this, as follows.

Sanctions on Iran

Sanctions have been imposed on Iran since the 1970s, including prohibitions on the provision of financial assistance for certain trade activities. By EU Council Regulation 961 of 2010, the provision of insurance and reinsurance to the government of Iran, entities incorporated in Iran or subject to Iranian jurisdiction, or to those acting on their behalf, was prohibited.

This was not an easy rule to apply in the case of commercial risks, which could provide cover for numerous parties and interests. An insurer would not be in breach of sanctions merely because one of the parties insured was Iranian. For the sanction to bite, the party seeking the cover would have had to be acting on behalf of the Iranian insured, when placing the insurance.

The approach adopted in practice with EU reinsurers was to disclose at the time of placement the name of any Iranian party that would be insured by the underlying original insurance. This gave the reinsurer the opportunity to check whether the Iranian party was connected to the Iranian government, or specifically listed as a target of the sanction. If the reinsurer was willing to accept the risk then, provided cover was not obtained on behalf of the Iranian party, the expectation was that the reinsurer would not be prevented from releasing funds on the grounds of sanctions, if a claim subsequently arose.

In a Joint Comprehensive Plan of Action (the JCPOA) in 2015 it was agreed that the EU prohibition referred to above would be terminated, on condition that Iran took certain action in relation to its nuclear weapons.

Bringing matters up to date, the USA is concerned over the conduct of Iran and threatening not to renew its waiver of sanctions as agreed in the JCPOA, when this comes up for renewal next month. If the USA does take this action, it will be for the EU and Iran to agree whether to continue the JCPOA in some form between themselves. If not, a prohibition along the same lines could be reimposed.

Sanctions on Russia

By EU Council Regulations 833 and 960 of 2014, insuring or reinsuring the importing of goods originating in Crimea or Sevastopol is prohibited. Insuring or reinsuring the supply of military goods, or ‘dual use’ goods, to Russia is similarly prohibited.

There is a prohibition on providing products or services for Russian deep water, arctic or shale oil exploration or production. There is a system of licensing for supplying oil industry-related products or financial assistance therefor, but in this context the term ‘financial assistance’ is not understood to extend to the provision of insurance or reinsurance.

However, the USA and the UK have recently imposed additional sanctions on specified individuals and companies associated with the regime and further extensions of sanctions against Russia are under consideration.

Practical steps

The consequences of a breach of sanctions can be extremely serious. Keeping up with the minutiae of sanctions and sanctions lists is a daunting proposition and will require resources to do so.

Caution is required, as the courts can be expected to implement government policy by adopting a broad reading of sanctions regulations.

Carrying out due diligence (and being able to demonstrate that it has been carried out) is essential and likely to involve obtaining information and warranties to ensure that insureds are not engaged in prohibited activities or dealing with listed individuals. Due diligence is required both at the underwriting stage and claims stage, to ensure that the recipient of claims funds is not subject to sanctions and that the payment is not otherwise in breach.

Consideration should also be given to whether a claim which insurers were contractually liable to pay but which could not be paid because of sanctions, can now be paid In light of a change in the sanctions regime.

Insurers and brokers should also discuss proposed payments with their banks in advance, to allow the bank to make its own enquiries and either satisfy itself that the payment can be made or have further questions answered.

William Sturge and Samantha Zaozirny, Carter Perry Bailey LLP

"This information has been prepared by Carter Perry Bailey LLP as a general guide only and does not constitute advice on any specific matter. We recommend that you seek professional advice before taking action. No liability can be accepted by us for any action taken or not as a result of this information, Carter Perry Bailey LLP is a limited liability partnership registered in England and Wales, registered number OC344698 and is authorised and regulated by the Solicitors Regulation Authority. A list of members is available for inspection at the registered office 10 Lloyd’s Avenue, London, EC3N 3AJ."

Recent developments in the area of solicitors' professional indemnity

Written by AirSP Secretary on .

As the dust settles on the 2017 Solicitors’ PI renewal, we look at recent case law and emerging trends which may affect that market over the coming months.

Conveyancing-related claims continue to be the largest source of notifications to insurers and this trend is unlikely to change given the growth in cyber related claims and the prospect of ground rent claims on the near horizon.

Solicitors’ involvement in so called “Investment schemes” is also likely to become an increasing headache for their insurers.

Further, solicitors and their insurers comprise the Courts’ preferred compensatory route in cases involving fraud extending to circumstances where the solicitors’ conduct cannot be criticised. Judicial instinct and public policy considerations, rather than rigorous application of authority and principle, appear to underpin a number of high profile decisions.

In Dreamvar v Mishcon de Reya [2016] EWHC 3316 (Ch), the Court held solicitors liable for the consequences of a fraudster impersonating the vendor of a property and stealing the purchase monies notwithstanding finding that the solicitors had not acted negligently. The solicitors held the completion monies on terms they would only be released for a genuine completion. As there had been no genuine completion, the sale contract was a nullity and accordingly the money had been paid away in breach of trust.

Further, although the Judge had found that the solicitors acted reasonably, the Court declined to grant relief under Section 61 Trustee Act 1925 on the basis the solicitors were insured to cover such losses and therefore in a better position to absorb the losses as compared to the buyer. A clear application of public policy.

The decision appears to elevate the duty owed by solicitors to a guarantee or warranty that the transaction is genuine and to penalise those who had acted prudently when buying insurance cover. It is unclear what the finding would have been had the solicitors imprudently taken out inadequate cover for the size of the transactions they acted on?

It is understood permission to appeal has been granted on both the issue of “genuine completion” and the application of section 61.

Some relief for insurers and the profession came with the decision in Hughes-Holland v BPE Solicitors [2017] UKSC 21 when the Supreme Court reviewed the circumstances where professionals will be responsible for all or part only of a Claimant’s losses and provided welcome guidance on the distinction between “advice” and “information” cases.

An “advice” case is where the professional essentially “guides the whole decision making process” and takes responsibility for “what matters should be taken into account in deciding whether to enter into the transaction”. In such a case the professional will be liable for all the losses incurred by the client as a result of entering into the transaction.

An “information” case is where a professional provides one part of the material on which the client relies when deciding what steps to take. The professional is accordingly liable for only the consequence of that information being wrong. Furthermore it matters not whether the information is critical to the client’s decision; that does not elevate it to an “advice” case.

The solicitors were not found liable for the Claimant’s losses incurred as a result of making a loan where the solicitors drafted the loan agreement and mis-stated the purpose of the loan. This was an information case; the information provided by the solicitors was one of a number of factors taken into account when making the loan.

Unsurprisingly, the Defendant solicitors relied heavily on the Supreme Court’s decision in Main & others v Giambrone [2017] EWCA Civ 1193.

Giambrone was a firm of Italian lawyers practising in London and Italy. It acted for UK investors who were buying holiday homes “off plan” in Calabria, Italy. Giambrone was to carry out due diligence, with clients’ deposits to be released only on receipt of compliant bank loan guarantees.

Notwithstanding the guarantees were non-compliant, Giambrone released the deposits to the developers. The Italian authorities seized the development, prior to its completion, following allegations the project was a Mafia and IRA money laundering operation. The buyers could not recover their deposits and brought proceedings against Giambrone for recovery.

The Court held that Giambrone was in breach of duty in releasing the deposits without compliant guarantees and for failing to advise the buyers of factors said to be central to the decision to buy the plots, for example that a large percentage of the deposits was being paid to the agent promoting the project; that Calabria was a “crime-ridden part of Italy” and that the Mafia had infiltrated into Calabrian life.

Two issues considered by the Court of Appeal are of interest (1) was the loss of the deposits within the scope of the lawyer’s duties and (2) is there a duty to warn of the risks of organised crime?

If this was an “information” case then following the BPE judgment a finding of no liability appeared the likely outcome.

However, Jackson LJ held that this was an “advice” case, noting that this was not a "conventional conveyancing situation". Whilst the Claimants had decided to buy property in Italy, after that they were reliant on Giambrone. The purchasers were buying properties abroad and had no knowledge of the local law or conveyancing procedures. Giambrone had decided what information the claimants required and provided this to them.

This application of BPE is difficult to understand; many property purchasers in England would not understand conveyancing procedures and would be equally reliant on their conveyancers to conduct the necessary searches.

As to the duty to warn of the risk of organised crime, the Court of Appeal rejected the argument that this would substantially extend the duties of conveyancers and held on the facts of this case there was such a duty.

Jackson LJ held that whilst the solicitors knew of the risk of Mafia activities affecting the construction sector in Calabria, the clients knew nothing beyond what was in the glossy brochure and inspection visits".

Again, this might appear a surprising finding. A simple Google search of “Calabria” brings up “mafia” on its first page. One may expect a prudent prospective buyer to carry out their own, even rudimentary, due diligence before deciding to buy property.

These cases appear to illustrate that decisions are emanating from judicial instinct; Dreamvar involved a wealthy and insured firm of solicitors; BPE an undeserving Claimant with a whiff of fraud in the background and Giambrone deserving and sympathetic Claimants, unhealthy background facts and an international and wealthy law firm.

Looking ahead

Cyber theft and fraud is here to stay. The SRA reported in July that there had been a record number of reports of cyber theft in the 1st quarter of 2017; in the year to March 2017 losses of £11m have been reported, with conveyancing representing 50% of notifications.

The majority of thefts involve some form of e-mail hacking with fraudsters modifying emails and altering bank details to divert funds to their own accounts. We have seen in Dreamvar the Courts’ approach where funds are stolen at completion.

However, it is unclear what the outcome would be where funds are stolen before they reach the solicitors’ account and whether solicitors would be liable in negligence if they do not have adequate protection in their IT systems to prevent hacking.

Claims relating to investments schemes and ground rent clauses are on the increase.

Claims arising out of investment schemes are thankfully rare but when they do occur they give rise to significant losses (£50m in the calendar year to the end of July). Investment schemes are promoted as investments in property promising high returns when in fact the return on the investment depends on the success of a business. Fraudsters use solicitors to give the schemes a badge of authenticity and probity. As interest rates remain low such schemes are superficially attractive.

The increase in claims relating to advice on ground rent provisions of long leaseholds has been well publicised. It is said that 400 claims have been issued in less than a year; the number is only likely to increase as long leaseholders discover that their liability for ground will double periodically.

Such clauses will have a detrimental impact on value such as to render the lease unmortgageable, and claims for diminution in value or cost of rectification will inevitably follow from both buyers and lenders.

Whilst the government has promised to step in to resolve the issue and which may well see an end to long leaseholds, this will take time and will not protect conveyancers who have advised on such leases historically.

Mark Aizlewood, Carter Perry Bailey LLP

"This information has been prepared by Carter Perry Bailey LLP as a general guide only and does not constitute advice on any specific matter. We recommend that you seek professional advice before taking action. No liability can be accepted by us for any action taken or not as a result of this information, Carter Perry Bailey LLP is a limited liability partnership registered in England and Wales, registered number OC344698 and is authorised and regulated by the Solicitors Regulation Authority. A list of members is available for inspection at the registered office 10 Lloyd’s Avenue, London, EC3N 3AJ."

Courts deal with pitfalls at either end of litigation journey

Written by AirSP Secretary on .

Sometimes, when preparing to write an article a nagging feeling arises - what of interest has happened to write about? On this occasion there is no such problem – two recent decisions have been delivered which consider issues at either end of the litigation spectrum; service of proceedings and making an offer of resolution.

Service of proceedings - Barton v Wright Hassall

The facts

Given the changes to availability of legal aid, increasing numbers of litigants are representing themselves in person. Mr Barton was such an individual.

Mr Barton had been embroiled in litigation for 12 years, defending a claim for payment of fees and pursuing professional negligence claims against two firms of solicitors, the second of which gives rise to this matter.

Having issued a Claim Form, Mr Barton had four months in which to serve this upon Wright Hassall (“WH”). Typically, the Court would serve proceedings per CPR 6.4(1). However, Mr Barton elected to effect service himself per CPR 6.4.(1)(b).

On 26 March 2013 Mr Barton received an email from solicitors, BLM (acting for WH), informing him they had been instructed. A further email was sent by BLM to Mr Barton to advise they had also been appointed by WH’s PI insurers. That second email concluded “I will await service of the Claim Form and Particulars of Claim”.

On 24 June 2013, the last day before expiry of the Claim Form, Mr Barton emailed BLM purporting to effect service of both Claim Form and Particulars.

On 4 July 2013, BLM responded that they had not indicated they would accept service by email, the Claim Form had expired and the claim was now statute-barred.

The Law

A claimant can apply under CPR 7.6 for an extension to the period of validity of a Claim Form. An extension may be granted if the court itself has failed to serve proceedings or if the claimant has taken all reasonable steps to effect service in compliance with CPR 7.5.

Alternatively, a claimant is also able to apply under CPR 6.15 for an Order that the step (s)he has taken shall stand as good service notwithstanding that it does not otherwise comply with the Rules. It was this latter aspect that Mr Barton pursued to the Supreme Court.

The Court contrasted the application of CPR 3.9 where it exercises its discretion as to whether to provide a litigant with relief from sanctions for failure to comply with a court rule, order or practice direction on the one hand and CPR 6.15(2) which is directed at the rules governing service of a Claim Form and bringing proceedings to the attention of a prospective defendant, on the other.

In Abela v Baadarani the Court distilled several principles for assessing whether to validate service. These comprised whether:-

(i) in all the circumstances there is good reason to order that steps taken to bring the claim form to the attention of the defendant is good service;
(ii) the defendant has ensured that the contents of the document are brought to the attention of the person to be served [noted as being a ‘critical’ factor]. The mere fact the defendant learned of proceedings, without more, does not amount to a good reason to make an order; and
(iii) there is good reason to validate the method used, not whether the claimant had good reason to use such method.

A further factor was having regard for whether the defendant would suffer prejudice if the court effected retrospective validation even if it knew of the proceedings.

Mr Barton argued the following:

(a) he was entitled to assume that BLM did accept service by email (though he admitted in evidence he knew some firms did not operate in that manner),
(b) the rules as to service were ‘inaccessible’ to him as a litigant in person and/or
(c) BLM had played “technical games” by failing to inform him of the deficiency in service until after the Claim Form had expired.

The Court found against Mr Barton. They concluded that this was not a matter where there was a problem about service, rather Mr Barton had simply not made an attempt to effect service in accordance with the Rules. They noted that “it has never been enough that the defendant should be aware of the content of an originating document such as a Claim Form, otherwise any unauthorised mode of service would be acceptable notwithstanding that it fulfilled none of the other purposes of deserving originating process”.

In reaching its conclusion, the Court recognised the need to balance the interests of both sides, noting that the CPR does not distinguish between represented and unrepresentative parties. Critically the Court found that “unless the Rules are particularly inaccessible or obscure it is reasonable to expect a litigant to familiarise himself with the rules”. The Court did not consider the rules to be such in this instance.

CPB Comment:

By a majority (3:2) the Supreme Court resisted the Appeal to retrospectively validate the purported service of the proceedings. The Court highlighted (again) the dangers associated with leaving (the attempt at) service to the last moment. Mr Barton could have served proceedings via the Court or at any time in the intervening four months. By not doing so, he faced the real risk that a last minute method of service may not be compliant and deprive him of the opportunity to pursue his claim.

As for BLM, the Court recognised that they were not obliged to proffer advice to Mr Barton upon receipt of proceedings and to do so would sound against the interests of their own client(s). It was highly unlikely that WH (or their insurers) would have instructed BLM to inform Mr Barton to correct the error before primary limitation expired.

As a reminder, those receiving legal process should be careful to review whether proceedings have been validly served upon them or whether a service / limitation point arises which could dispose of the intended action.

Part 36 Offer – JMX v Norfolk & Norwich Hospitals

In several previous decisions, the courts had recognised that Part 36 offers were being made not to encourage settlement but rather to place undue pressure upon defendants to settle or otherwise face the prospect of paying indemnity costs if they failed to do so.

Such ‘abuse’ led to the introduction of CPR Part 36.5(e) in April 2015 whereby the court, in deciding whether to award penalty interest / costs on an indemnity basis, shall have regard to “whether the offer was a genuine attempt to settle the proceedings”.

In the current case, the Claimant made a Part 36 offer which expired one working day before trial. The offer was to accept 90% of the claimed sum – an offer the Claimant proceeded to ‘beat’ at trial. The defendant argued the Claimant should not benefit from the costs consequences of ‘beating’ its Part 36 offer since:

(i) the offer was not a realistic assessment of the risks, and
(ii) contrary to published guidance, the Claimant had not set out an explanation as to how its 10% deduction of value had been arrived at.

The Court rejected the defendant’s arguments. They noted that the parties’ assessment of merits would always be different but a court should be slow to conduct a mini-trial as to how the case looked to the offering party at the time the offer was communicated. What one side may view as a reasonable assessment of risk may, rightly or wrongly, be seen by the opposing party to amount to an unrealistic under-evaluation of the merits – if so, then no offer could be said to amount to a genuine attempt at resolution.

The judge also rejected the submission that the failure to provide an explanation invalidated the offer. He reasoned that providing an explanation could lead to satellite correspondence which would hamper rather than assist the negotiation / settlement process.

CPB comment

The making of a Part 36 offer remains a useful tool in a client’s armoury when conducting litigation. Whilst parties to litigation can be reluctant to make any form of concession, believing their own case to be water-tight and a ‘try-on’ against them, the latest guidance ought to provide a framework in which meaningful offers can be made whilst allowing for some modest concession of ground in the interests of achieving a resolution.

Simon Thomas, Carter Perry Bailey LLP

"This information has been prepared by Carter Perry Bailey LLP as a general guide only and does not constitute advice on any specific matter. We recommend that you seek professional advice before taking action. No liability can be accepted by us for any action taken or not as a result of this information, Carter Perry Bailey LLP is a limited liability partnership registered in England and Wales, registered number OC344698 and is authorised and regulated by the Solicitors Regulation Authority. A list of members is available for inspection at the registered office 10 Lloyd’s Avenue, London, EC3N 3AJ."

English Jurisdiction Clauses in Insurance Policies - The European Court's view

Written by AirSP Secretary on .

These are uncertain times for the UK citizen. As the Brexit talks intensify and each side’s bargaining chips are carefully played, the “great unbundling” of 44 years of accumulated legislation and regulations in just two years means decisions on certain matters seem to have been put on the backburner.

In the legal landscape, the future role in the UK of some important institutions is an unknown, and none more so than that of the Court of Justice of the European Union, more commonly known in the UK as the ECJ. The Luxembourg based ECJ interprets and enforces EU law, sanctioning EU institutions, ensuring the EU takes action and annulling EU legal acts. It is the highest Court of the EU in matters of EU law.

So does this uncertainty matter? An important decision of the ECJ handed down on 13 July 2017 in relation to an English law marine policy written by a UK based insurer demonstrates the far-reaching, practical implications of the Court’s findings and why, therefore, it is important to know how significant the ECJ’s rulings will be post-Brexit.

Assens Havn v Navigators Management (UK) Limited – Case C – 368/16 – The Facts

A Swedish company, Skane Entreprenad Service AB (“Skane”) chartered a number of tugs and lighters in 2007, including the tug Sea Endeavour I, to transport a cargo of sugar beet between the ports of Assens and Nakskov in Denmark. Skane took out liability insurance with Navigators to cover the transport. The policy wording contained an English choice of law and jurisdiction clause in the clearest terms, as follows:-

“Choice of law and jurisdiction

This insurance shall be governed by and construed in accordance with the law of England and Wales and each party agrees to submit to the exclusive jurisdiction of the courts of England and Wales”.

Furthermore, Navigators’ conditions of insurance contained the following:-

“(7) Law, practice and dispute resolution

This insurance shall be governed by and construed in accordance with English law and, in particular, be subject to and incorporate the terms of the Marine Insurance Act 1906 … This insurance, including any dispute arising under or in connection with it shall also be subject to the exclusive jurisdiction of the High Court in London”.

When Sea Endeavour I arrived in Assens on 24 November 2007, damage was caused to the quay. The parties disputed how the damage arose and who was liable for it.

During the course of the dispute, Skane went into liquidation. As it is entitled to do under Article 95 of the Danish law on insurance contracts, the port owner, Assens Havn, brought an action directly against Navigators as the insurer of the party, now insolvent, that allegedly caused the harm. It sought an order that Navigators pay it compensation for the damage done. The action was brought in Denmark.

The Danish Maritime & Commercial Court dismissed the action at first instance. It did so on the ground that the Danish Courts did not have jurisdiction, as the agreement on jurisdiction concluded between the parties to the insurance contract (Skane and Navigators) was binding on Assens Havn, that company having effectively stepped in to the shoes of Skane.

Assen Havn disagreed. The issue was brought before the Danish Supreme Court for a preliminary ruling. The Supreme Court stayed the proceedings and referred the question to the ECJ, whose decision was finally issued some 10 years after the incident.

The Decision

The Brussels I Regulation of 2001 (now itself repealed by the 2012 Restated Brussels Regulation) superseded the Brussels Convention. It contains the rules regulating what Courts have jurisdiction in legal disputes of a civil or commercial nature between individuals resident in different Member States of the EU and EFTA (Denmark having become party to it by a separate EC-Denmark Agreement that came in to force in 2007).

Fundamental to the Regulation are the underlying objectives set out at Recital 11:-

(11) “The rules of jurisdiction must be highly predictable and founded on the principle that jurisdiction is generally based on the defendant’s domicile …”

and Recital 13:-

“(13) In relation to insurance … the weaker party should be protected by rules of jurisdiction more favorable to his interests than the general rules provide for.”

The ECJ relied heavily on these objectives in reaching its decision. It made plain that it considered actions involving insurance as characterised by an imbalance between the parties that the Regulation sought to correct by giving the weaker party the benefit of laws of jurisdiction more favourable to his interests than the general rule. What had effectively been established by the EU in enacting the Brussels I Regulation, therefore, was an autonomous system for conferring jurisdiction in insurance matters to address these objectives.

As such, the ECJ pointed out that the provisions of the Regulation enabled the victim of insured damage to sue the insurer before the courts of the place where the harmful event had occurred. In doing so, it made clear that it considered the third party victim of insured damages far removed from the contractual relationship between an insured and an insurer. The victim had not expressly consented to the agreement on jurisdiction. It could not therefore be invoked against him and he was therefore not bound by it.

This finding was so, despite the fact that the Regulation expressly provided for agreements on jurisdiction to be entered into for damage arising from the use or operation of vessels.

What is the effect?

The English law equivalent of the Danish law giving rise to a third party direct action against insurers, is the Third Parties (Rights against Insurers) Act 2010. What is now clear from this ruling is that where there are jurisdictional issues regarding where a claim by a third party should be brought, those issues are governed by the Brussels I Regulation.

So, although insurers might attempt to contract out of the jurisdictional rules, and might do so in the clearest manner, and although it might be expected that a third party has no better right than an insured into whose shoes they step, that third party is not in fact bound by the jurisdictional contracting out, even where the risk is marine, aviation or another “large risk”.

Conclusion

Uncertainty over the significance of the ECJ in the UK in the future was placed firmly in the news in August by the President of the Supreme Court, Lord Neuberger, who made what some hailed “an extraordinary intervention”, stating:-

“… If the Government doesn’t express clearly what the Judges should do about decisions of the ECJ after Brexit … then the Judges will simply have to do their best”.

So far, the Government’s Repeal Bill has been limited to suggesting that Judges would be free to take European case law into account, but not forced to do so, leaving it at their discretion. One can see how future battle lines might be drawn in relation to controversial ECJ decisions like this, that impact on UK companies.

In circumstances where they have already been branded “enemies of the people” in certain tabloid newspapers for daring to challenge on Brexit, this lack of clarity could put Judges truly at the heart of a political battle.

Bernadette Bailey, Carter Perry Bailey LLP

"This information has been prepared by Carter Perry Bailey LLP as a general guide only and does not constitute advice on any specific matter. We recommend that you seek professional advice before taking action. No liability can be accepted by us for any action taken or not as a result of this information, Carter Perry Bailey LLP is a limited liability partnership registered in England and Wales, registered number OC344698 and is authorised and regulated by the Solicitors Regulation Authority. A list of members is available for inspection at the registered office 10 Lloyd’s Avenue, London, EC3N 3AJ."

Is your expert witness interested enough – or too much?

Written by AirSP Secretary on .

An expert witness should be disinterested, though not uninterested. But clients often know the expert they want and it is axiomatic that one does not ask an expert about whom or whose views one knows nothing to give what may be crucial evidence.

Courts frequently have to decide how much it is right to rely on evidence from expert witnesses who are closely involved with the client and/or lawyers who instruct them. As a result, there is much guidance on just how disinterested, and interested, an expert should be.

Civil Procedure Rule 35 sets out clearly an expert’s duties and what should be in his report. It came into effect on 26 April 1999. As early as July 1999, it was held that when an expert [X – poor X will feature quite a lot in this note, to protect the guilty] does not fulfil his duties to the court, his evidence will not be allowed.

In Stevens v Gullis [1999] EWCA Civ 1978, X did not disclose all his material instructions, did not properly set out his qualifications and, having disagreed with the expert report for the other party, merely refused to sign it and did nothing to explain why. Lord Woolf said that "The judge has very properly indicated his view that X is not an appropriate person to give expert evidence in a court having regard to his conduct to which I have referred." Even though the other side consented to X giving evidence, the Court of Appeal upheld the judge’s decision. Consent is not good enough to overcome the Court’s right – and duty - to manage its own procedure.

Americans often ask whether England has anything equivalent to their ‘Daubert’ test of whether someone is actually an expert. We do not – as such. A party may present as an expert anybody he wants. However, as Stevens v Gullis makes clear, the Court has power to control whether someone "is an appropriate person to give expert evidence". The Court can, although it will not usually, exercise this power to disbar somebody but will instead simply give less weight to the evidence of the less expert witness.

Case law provides some guidance on how those putting forward the expert can ensure that their choice will command the respect, rather than the derision, of the Court.

An expert must not be under the influence of his client or anyone else. He must be genuinely independent and verify the facts for himself. Thus:

In Bank of Ireland v Watts Group (2017) EW HC 1667, Coulson J concluded that the claimant's expert "was not a properly independent witness. It was clear that the Bank was his principal client, providing the vast majority of his work (and fees), and that he had spent most of the last few years acting for the Bank as an expert witness …"

In Arroyo v Equion Energia (2016) EWHC 1699, Stuart-Smith J said that "… it appeared that there had been considerable co-operation between [the Claimant's experts]… The first effect of this is to cast doubt upon the integrity of the affected reports … More broadly, it casts doubt on the integrity of the expert evidence process as a whole ..." He added that while "The involvement of solicitors may, of course, be a necessary and proper part of organising expert evidence …" nevertheless they cannot get too involved. "… it is apparent that the lawyers have been coordinating the responses (and their physical production) ... So … I am not in a position to conclude that either [X] or [Y] adopted substantive material that was fed to him by [Z] without independently verifying and adopting it."

In Oldcorn v Southern Water Services Ltd (2017) EWHC 62, one expert relied upon his client’s in-house modelling. HHJ McKenna concluded that he could not rely on it as …"the Court has not heard evidence directly from [X] or his colleagues and they have not been cross-examined as to their methodology and the like and there is no report from them supported by the usual expert’s declaration."

An expert should not be an advocate for his client; he must be objective. In Walter Lilly & Co v Mackay (2012) EWHC 1773, Akenhead J said that X’s report "… reads simply as a suggestion to the Court that the claimant has not proved its case … [and] … was worthless and self-fulfilling when he on a largely subjective basis awarded weightings as to the various causes … selected by him or his client as "significant"."

Nor should an expert be pressured by a client. Akenhead J also said that: "… whether he felt, subconsciously, pressured by [X] or not I cannot say. But his arguments were … scraping the barrel …"

An expert should always disclose all relevant connections with the party instructing him. In EXP v Barker (2017) EWCA Civ 63, the defendant’s expert in a medical negligence case chose not to mention that he had trained the defendant for 2 1/2 years, helped him to obtain foreign placements and become a consultant, co-authored papers with him and been a fellow officer of a relevant professional body. The judge said that this was "a very substantial failure indeed" and that "I must bear powerfully in mind, when I assess the weight that I should give to the evidence, the reservations that I retain about [X]'s independence and objectivity in the case".

The Court of Appeal agreed: "[The judge] was fully entitled to take that view. Indeed, had he decided to exclude [X]’s evidence entirely it would … have been a proper decision."

Experts must know their place. They should not give opinions on the law or the veracity of contentious facts. In Stagecoach v Hind (2014) EWHC 1891, Coulson J made clear his disdain for X, who "spent far too much time dealing with matters of law and contentious matters of fact … experts should not embark on this kind of fact-finding exercise, particularly when they perform it so unprofessionally. Matters of fact are for witnesses of fact, not for experts."

Finally, experts who have talked to witnesses and/or seen the locus delicti contemporaneously should (a) make notes, and (b) disclose them. The same judge, in Wessanen Foods v Jofson (2006) EWHC 1325, recited that X (the good guy for once) "… attended the Claimant's premises the day after the fire and spoke to a number of the most important witnesses, making a full handwritten note of the salient parts of his conversations. … such notes were extremely important. In this Judgment, where there has been a conflict of evidence, I have preferred what was in those notes to the witnesses’ later endeavours to recall what happened and why."

He added, in a salutary reminder of the scope of disclosure, that where such notes are made "they should be made available to everyone at the earliest stage of the proceedings … [they had not been (probably, for once, not X’s fault!)] and certainly no later than the time of standard disclosure."

CPB Comment

So don't call your best friend as your expert. Don't use one standard expert who comes to rely on you for his business. Don't lean on an expert who doesn’t say what you want. Do use someone who is properly qualified, who knows and obeys the court rules. Try to get your expert out to inspect the scene at the earliest opportunity and to take notes (which are safe to make available). Make sure that your expert has done all his own work, knows his own mind and is co-operative (including with your lawyers but not the extent of allowing them to write his report for him). In short don’t be X: be Yise and ensure that your expert’s support of your case is genuine and born of true independence!

Bill Perry

Carter Perry Bailey LLP

"This information has been prepared by Carter Perry Bailey LLP as a general guide only and does not constitute advice on any specific matter. We recommend that you seek professional advice before taking action. No liability can be accepted by us for any action taken or not as a result of this information, Carter Perry Bailey LLP is a limited liability partnership registered in England and Wales, registered number OC344698 and is authorised and regulated by the Solicitors Regulation Authority. A list of members is available for inspection at the registered office 10 Lloyd’s Avenue, London, EC3N 3AJ."

REINSURANCE ROUND-UP - STEPHEN CARTER, CARTER PERRY BAILEY LLP

Written by AirSP Secretary on .

REINSURANCE ROUND-UP

AUTUMN 2016

There have been a number of important legal developments in the last year, both out of and in the courts.

It has been a very active year for legislation. The Insurance Act 2015 and the Third Party (Rights against Insurers) Act 2010 both came into force. The UK government also published a Consultation Paper on reform of UK law to facilitate the issuing in London of insurance linked securities.

The Enterprise Act 2016 introduced into English law the possibility of a (re)insured claiming damages from its (re)insurer if a claim is not paid in a "reasonable time". Damages (not subject to policy limits) will be the actual loss caused by the delay. Issues arising may include reinsurers’ liability for their reinsureds’ own late payment of damages and the risk that following markets may seek to recover damages they have had to pay from the leader that handled the claim. Contract wordings can exclude liability, except in direct consumer insurance. It will be important to review wordings, claims processes and staff training.

Everyone will be aware of the referendum in which the UK voted to leave the EU. Much has been and will be written about the regulatory and other implications that this may have, but of course there is over 2 years before the UK actually leaves in which the new landscape will unfold. Meanwhile, we turn to our annual round-up of some of the cases over the last year that may affect reinsurers.

JURISDICTION

  • AXA Corporate Services v Weir Services Australia PTY [2016] EWHC 904 (Comm)

Weir, an Australian subsidiary of a global group, was insured by AXA under a global group liability policy issued in England and a local policy issued in Australia. Coverage litigation was commenced by Weir in Australia in respect of both policies and by AXA in England in respect of the global policy. There was no English jurisdiction clause in the global policy. The English Court found England to be the appropriate forum, but refused an anti-suit injunction as, absent a jurisdiction clause, AXA had to show that pursuing proceedings before the foreign Court would be unconscionable, vexatious or oppressive. This could not be established so, despite the possibility of conflicting decisions, both actions could proceed. However, as coverage under the global policy depended on the position under the local policy, the English Court stayed the English proceedings pending the outcome of the Australian action.

 

  • Shipowners Mutual P&I v Containerships Denizcilik [2015] EWHC 258 (Comm)

In Turkey, as in a number of jurisdictions, a claimant can sue a defendant’s insurers direct (even if the defendant is not insolvent). A claimant did this in the Turkish courts, despite the policy concerned having a London arbitration clause. The Turkish proceedings could also have circumvented other clauses in the policy, such as the choice of law and "pay to be paid" clauses. However, the English Court issued an anti-suit injunction restraining the Turkish action in favour of London arbitration on the basis that the direct rights against insurers must be subject to policy terms, including the arbitration clause.

FRAUDULENT CLAIMS

  • Hayward v Zurich Insurance [2016] UKSC 48

Zurich did not wholly believe Hayward’s evidence as to the extent of his injuries and settled his claim at a discount. Zurich later obtained evidence that Hayward had fully recovered at the time of settlement. On Zurich’s application, the Supreme Court (reversing the Court of Appeal - see last year’s round-up) set aside the settlement, finding the lies were fraudulent misrepresentations which, even though not wholly believed, had induced it.

  • Versloot Dredging BV & Another v HDI Gerling Industrie Versicherung & Ors [2016] UKSC 45

Insurers have the right to repudiate a fraudulent claim and may terminate the policy from the date of the fraud ("the Fraudulent Claims Rule"). Since "The Aegeon" [2002] EWCA 247 the use of a fraudulent device/collateral lie in support of a claim had, irrespective of its effect, fallen under the Fraudulent Claims Rule. The Supreme Court in Versloot held that if a claimant, with the intention of embellishing a claim, tells a lie that on the facts as they ultimately turn out to be would have made no difference to its recoverability, the claim is recoverable. Whether (re)insurers have a remedy therefore now depends on the true implications of the lie; it is no longer enough simply to establish that it was a lie. Care may be needed in striking a balance between time consuming investigations and the need to pay the claim in a "reasonable time" under the Enterprise Act 2016.

MEANING OF TERMS IN CONTRACTS

  • "Deliberate non-disclosure": Mutual Energy v Star Underwriting [2016] EWHC 590 (TCC)

A policy which allowed avoidance only for "deliberate non-disclosure" did not allow avoidance in the event of a positive, but honest, decision not to disclose a document or fact. "Deliberate" non-disclosure must involve dishonesty.

 

  • "Arising from" and "in any way involving": ARC Capital Partners v Brit Syndicates Ltd & Ors [2016 EWHC 141 (Comm)

The words "arising from" in a coverage clause equate to "proximately caused by". The words "in any way involving" mean "indirectly caused by", thus still requiring a causal connection, but a weaker one.

  • "In connection with" and "arising out of": Kanty-Mansiysk Recoveries Ltd v Forsters LLP [2016] EWHC 522 (Comm)

A Settlement Agreement settled claims "arising out of or in connection with the actions or invoice …" A claim which did not "arise out of" the actions or the invoice, was held to arise "in connection with" it, as these words have a wider meaning.

  • "series of related matters or transactions": AIG Europe v. OC320301 LLP & Ors [2016] EWCA Civ 367)

A professional indemnity policy provided for aggregation of claims arising from "a series of related matters or transactions". The Court of Appeal found that to be "related" they must be inter-connected, but need not be dependant on each other. It held that an "intrinsic relationship" is required; an "extrinsic relationship" would not suffice.

  • "Variation only in writing": C&S Associates UK Ltd v Enterprise Ins [2015] EWHC 3757 (Comm); and

Globe Motors Inc v TRW Lucas [2016] EWCA Civ 396

In C&S an exchange of emails satisfied the provision of a Claims Handling Agreement that variations must be in writing signed by the parties. Globe Motors went further in establishing that parties to such a contract can still agree to vary it in any manner they choose. However, such a term heightens the burden of proving the parties’ intent to vary the contract by other means.

ASBESTOS-INDUCED LUNG CANCER CLAIMS

  • Heneghan v Manchester Dry Dock [2016] EWCA Civ 86

In English law a claimant must show on the balance of probabilities that, but for the defendant’s negligence, the claimant would not have suffered injury. Mesothelioma claims caused by asbestos are an exception (known as "the Fairchild Exception") - proof that an employer had contributed to the risk of contracting the disease is sufficient to establish liability. Each employer defendant (hence its respective insurers) was liable only for its proportionate contribution to that risk, until the Compensation Act 2016 allowed mesothelioma victims to recover in full from any employer (whose insurers then have to seek contribution from any other known employers/insurers). In Heneghan, the Court extended the Fairchild Exception to victims of lung cancer caused by asbestos. However, as the Compensation Act is specific to mesothelioma only, a lung cancer claimant is (at least until further legislation) restricted to recovering from each defendant/insurer only its proportionate contribution to the risk.

CLAIMS HANDLING AGREEMENTS

  • C&S Associates UK v Enterprise Ins [2015] EWHC 3757

Enterprise terminated C&S claims handling agreement on inadequate grounds. Enterprise then added further grounds of defective performance which would, if proved, amount to a repudiatory breach by C&S of the contract. The court found that Enterprise could rely on the new grounds if they in fact existed at the time of termination, provided that the position could not then have been put right. This proviso applies to anticipatory breaches or to situations where steps could have been taken to avoid the party being in breach, either by giving it an opportunity to perform its obligation in time or by enabling it to perform in some other valid way. However, in this case it was found that the breaches had already occurred and could not be remedied.

ARBITRATION

Importance of acting expeditiously:

  • Essar Shipping v Bank of China [2015] EWHC 3266 (Comm)

Essar’s unsuccessful challenge to jurisdiction in the Chinese courts, where Bank of China had sued despite a London arbitration clause, took nine months. The English Commercial Court then refused an anti-suit injunction to restrain the Chinese proceedings, finding that Essar had not been obliged to challenge the jurisdiction in China first, that there is a strong public interest in acting promptly and that, in opposing an anti-suit injunction on the grounds of delay, the respondent does not always have to show that the delay caused it prejudice.

  • Ecobank Transnational v Tanoh [2015] EWCA Civ 1309

Tanoh commenced litigation in Ivory Coast and Togo despite a London arbitration clause. Tanoh prevailed on both jurisdiction and the merits, which the local court heard at the same time, and sought to enforce its judgment. The English Court refused an anti-enforcement injunction as Ecobank should have applied for an anti-suit injunction at the outset.

  • S v A&B [2016] EWHC 846 (Comm)

The Arbitration Act 1996 Section 70 provides that applications to appeal an award must be made "within 28 days of the date of the award". The award was dated 27 March. The arbitrator did not release it until all his fees were paid. The claimant paid promptly but the defendant did not pay until 29 May. The Court refused to exercise its discretion to extend the claimant’s time for appeal. The claimant should have paid the arbitrator’s fees in full within the time limit for appeal and sought recovery from the defendant.

Meaning of "may arbitrate":

  • Anzen Ltd v Hermes One [2016] UKPC 1

An arbitration clause provided that "any party may submit the dispute to binding arbitration". Hermes One commenced court proceedings, which Anzen sought to stay in favour of arbitration. The Privy Council, on appeal from the BVI Courts, decided that the word "may" submit to arbitration gave either party the option to require arbitration. Hence, although Hermes One had validly gone to Court, it remained open to Anzen Ltd to refer the matter to arbitration and the court proceedings were stayed.

Stephen Carter, Carter Perry Bailey LLP

INDEPENDENCE DAY - BILL PERRY, CARTER PERRY BAILEY LLP

Written by AirSP Secretary on .

INDEPENDENCE DAY

There is a relatively small island (a bit smaller than Oregon) off the North West corner of the continent of Europe. Having been populated by a wave of immigrants at a time when it was still joined to that continent, in about 6,000 BC the land bridge which joined them was destroyed by a combination of rising seas levels and the Storegga Slide. Since that time, about 20 miles of water has separated it from the continent.

For the first 6,000 years of that separation, it was left alone, though it traded a bit with the nearest country on the continent, eventually named Gaul. In 55 BC, it was temporarily invaded by a Roman aggressor called Julius Caesar. Having failed to achieve his objectives, he returned in 54BC to have, literally, another bash. He left again the same year.

Finally, the Britons having remained both annoying and apparently resource-rich, the same aggressive power, by then the Roman Empire under the Emperor Claudius, in 43 AD invaded and conquered the country they named Britannia. Even then, Rome’s success was not complete: the country rebelled under a forceful female leader in 61 AD (unsuccessfully). Having not tried very hard and then abandoned attempts to conquer the extreme north of the island, the Romans under the Emperor Hadrian built a wall (about 30 miles south of the eventual English/Scottish border) to keep out the Picts; in 142 AD they built another one further north, between the Firth of Forth and the Firth of Clyde (as they now are) but in 158 AD they reverted to the original plan. (They never tried to conquer the other, rather smaller, island to the west.)

About 350 years after the occupation began, in 410 AD, the British expelled the magistrates of usurping Roman Emperor Constantine III. The true Roman Emperor, Honorius, responded that they were on their own again. There followed 650 years largely of isolation from the continent again, marked however by a series of invasions, perhaps most famously by the Angles (who changed the name of the bit they had conquered) and Saxons, but also a bit later some Norsemen and Danes. Between them the Anglo-Saxons brought a habit of holding ‘moots’ both local and national to do justice and hear and decide grievances.

In 1066 AD, following the death of the King of what by then had been transmuted from "Angleland" to "England", one William the Bastard, the then Duke of Normandy (so called because it is populated by Norsemen who moved in at about the same time as some of them followed the Anglo-Saxons into England), made good a somewhat dubious claim to the throne of England by invading and conquering it - and was duly renamed William the Conqueror by his fair-minded subjects. Within the next 200 years, the Kings of England had, with the blessing of Pope Alexander III, taken over a perennially rebellious Ireland. They had also conquered the Principality of Wales and absorbed it into the nation-state of England.

The island has never been invaded since (unless one counts a quick trip by the Dutch in 1688 AD to assist the English, Scots and Welsh in installing William of Orange (William III) and his wife, Mary, as Protestant monarchs, kicking out the Catholic King James II/VII). This was mainly thanks to a great navy created and led by men like Drake, Pepys, St Vincent, Nelson and Jellicoe, as well an army led by men like Richard the Lionheart, Edward III, Henry V, Marlborough and Wellington.

In 1603, the Scots (who had taken over from the Picts north of the border) kindly allowed their King James VI also to become James I of England (and James I of Ireland). After all, as James himself put it: "Hath He not made us all in one island, compassed with one sea and of itself by nature indivisible"? Scotland and England were formally united in 1707, and union with Ireland was effective on 1 January 1801. Despite vicissitudes which mean that the United Kingdom now only includes Northern Ireland, rather than the whole of Ireland (though any Irish citizen can still vote in the UK), that remains (literally – the relevant laws are still in force) the position.

During this time, England developed its own language (a curious amalgam of Anglo-Saxon, ancient British, a bit of Latin, a bit of Norman French and so on, which has proved remarkably flexible and adept both at absorbing words from any other language and inventing new ones), its own legal system (based on ancient customs, principles and above all precedent rather than sticking with Roman law and trying to create all-encompassing codes), its own system of governance (involving the idea that even the King was subject to the law, and even his subjects had their own rights and freedom, as well as the idea that the King could not levy taxes without the consent of the Commons) and its own religion (Protestant, rather than either Catholic or Lutheran/Calvinist). Some of these developments were happy accidents arising from rather unglamorous roots (such as the Protestant Church) but others, such as Magna Carta (1215 AD) and Simon de Montfort’s Parliament (1265 AD) came about because they were thought to be right and had roots in Anglo-Saxon customs. These all pervaded Wales and strongly influenced both Ireland (except for Protestantism) and Scotland. They made England, and the UK, different from the nations on the European continent.

The purpose of this brief history is simply to indicate that the inhabitants of these islands are on the whole an independent, even insular, bunch. They have intra-family disputes, which can be quite serious, but on the whole (the southern Irish don’t altogether agree) they consider themselves to be just about that: "family". The nations of England, Wales, Scotland, Ireland and Northern Ireland still field separate sports teams (by the way, yes, the Scots, Welsh and Irish play cricket), but 1,000 years of independence and separation has built in all of them a combined mind set which has a stubborn, even rebellious, streak and does not take kindly to being told how to run one’s affairs by an outsider.

That is particularly so since the UK’s intervention in the politics of the continent of Europe has (since we gave up trying to take over France, about 500 years ago) always been directed basically to maintaining the balance of power so that no-one would be able to take us over. We have never permitted one country on the continent of Europe to become completely dominant, though obviously power has waxed and waned as between them.

The reason 900 years of hostility between us and France (largely) ended just over 100 years ago was indeed to preserve that balance by, broadly speaking, supporting France against Germany. Our other interventions have been to support the neutrality and independence of smaller European states: it was support for the neutrality of Belgium that brought us into World War I and support for the independence of Poland that brought us into World War II.

Finally, of course, the acquisition of the greatest empire the world has ever seen (even without some rebellious and religiously unorthodox colonists in North America who felt about 250 years ago that they were more English than the English in preserving their freedoms - and had considerable support within Britain in that - and went their own way) tended to breed a certain imperial belief that we knew what we were doing and were doing it rather better than most. It certainly reinforced a habit of mind that other countries were not going to dictate to us in any way.

Having given independence to the ‘old Commonwealth’ (Canada 1867, Australia 1901, Newfoundland 1907, New Zealand 1919 – 1931 and South Africa (which took with it Namibia) 1931/1934, all formalised in the Balfour Declaration of 1926 and the Statute of Westminster in 1931) first, and to most of the rest of the empire in the years 1947-1964, in the famous words of Adlai Stevenson we "lost an empire but ha[d] not yet found a role". However, in the early 1960s we attempted to join a group of European states in a new venture called the European Economic Community. We were vetoed by the French (twice, in 1963 and 1967), since President De Gaulle considered us, shall we say, not very European-minded. In 1973, President De Gaulle having left the scene, we eventually joined the European Economic Community.

Even in the early 1970s, the decision to join a European grouping caused some angst within the UK. There was a dispute between those who believed in "Commonwealth preference", regarded the protectionist rules of the EEC (which, for example, resulted in our normal suppliers of diary produce such as Australia and New Zealand facing substantial tariffs) as an anathema and preferred to rely upon our old truly international trading links and those who preferred the ‘walled garden’. Both major political parties were seriously split.

In the end the (Labour Party) Prime Minister, Harold Wilson, having come to power in 1974 on a manifesto commitment to renegotiate our terms of membership, did that and called a referendum in order to resolve the issue. The referendum produced a substantial majority (67.2% : 32.8% on a 64.6% turn-out) in favour of remaining in the EEC, despite the warnings of campaigners against it, some of whom warned that it was the precursor of a European "super-state".

Since then, the "European Economic Community" has morphed into the "European Union". The European Union, besides constituting itself a single market (something which had to be fought for very hard by the UK and some other states within the EU and is still incomplete) now has a President (in fact, more than one!) and foreign minister (and a common design of passport), a common currency (not extending to all member states, but all new joiners must commit to it), freedom of movement (i.e. the ability to change permanent residence) between member states, a parliament and so on. To many it invokes the adage that if it looks like a super-state, acts like a super-state and feels like a super-state, it probably is a super-state, at least in embryo.

A combination of these moves on the "macro" level, and micro irritations such as directives being issued by the EU which have direct force in local law, and are perceived as interfering with everyday life and so on, have irritated people long used to self-governance, doing what they want and not what anybody else wants etc. In addition, the EU has been a convenient "whipping boy" for national politicians of all stripes for unpopular things if there is any chance they can be blamed on it.

The substantial British net payment into the EU budget, even after the "Thatcher rebate", has been a permanent irritation, particularly after half of that rebate was given away by the Blair government. Although half of the gross payment comes back in the form of EU grants (a) that, of course, means that it is not the UK which decides how that money is spent; and (b) it is still a large net payment.

There are good arguments in favour of EU membership. The EU is one of the largest markets in the world. Its internal market enables both goods and (increasingly) services to be exported freely from any one member to another, and its system of reciprocal judicial support means legal disputes can be easily resolved and enforced anywhere within the EU. Its size means that it has trade (and diplomatic) negotiating weight enabling it to do good deals with other nations and trading blocs. The European arrest warrant and criminal/anti-terrorist co-operation work well. And so on.

But such arguments do not address the ‘reclaim our country’ political argument, or the suspicion that remaining means not the status quo but yet ‘more Europe’. And those who advocate leaving say that there is more and better trade to be done world-wide than confined within a bloc and constrained in negotiations by the need to get 28 fractious members to agree every position. These views gradually became more attractive as the years went by.

Accordingly, 41 years on from the original referendum on membership of EEC, another (this time Conservative Party) Prime Minister, David Cameron, having come to power in 2015 on a manifesto commitment to renegotiate our terms of membership, did that and called a referendum in order to resolve the issue. The referendum produced this time a majority in favour of leaving the EU. The margin on 23 June 2016 was not large (1.3 million votes; 51.9% to 48.1%, on a turn-out of 72.2%) but was significant.

The campaign was not particularly edifying. A respectable economic case for staying (all the independent forecasters suggested a loss of several points of potential GDP growth due to departure) and the political arguments for it, and the mainly political (but also long term economic) one for leaving, were marred by absurd claims on both sides. Those favouring "Remain" invoked the threat of war (the Prime Minister), the "end of Western political civilisation" (Donald Tusk, President of the European Council), a "20% fall in house prices" (the Chancellor of the Exchequer), and "annual income loss of £4,300 per family" (the Chancellor again). The only omissions were famine and plagues of frogs. The ‘Leave’ campaign called it ‘Project Fear’. By the same token the "Leave" campaign majored on a cost of £350m per week (the gross contribution to the EU budget) which they offered to re-spend several times over, concentrated on the threat of uncontrolled immigration (the economic evidence, while rather a case of ‘lies, damned lies and statistics’, seems on the whole to indicate that the economic effect at any rate is probably somewhere around neutral), bureaucratic interference from Brussels and generally played the "Johnny Foreigner is taking over our country" card.

That campaign was undoubtedly won by ‘Leave’. The bandwagon was halted by the assassination of ‘Remain’ campaigning MP Jo Cox but not derailed. In the end, in this largely economic versus political argument, politics (and Leave’s economic hopes) won. A general feeling that the British wished to be British, rather than European, appears to have swayed the "floating vote".

Economically, at the date of writing (11 July) sterling has declined by over 12% against the US dollar and about 10% against the Euro, which has itself fallen against other currencies. The UK’s credit-rating has been cut from AAA or AA+ to AA (the same as France’s). On the other hand, stock-markets have regained pretty much all the losses which immediately followed the result. How much of that is due to genuine re-appraisal and decision that the economic outlook is not actually as bad as the markets initially feared, as against hopes of interest rate cuts and other monetary and financial stimulus, is unclear.

The uncertainty and the perceived likely loosening of economic ties with the EU countries are already affecting the economy, certainly in the short term. Despite the bounce in the stock markets, monetary and fiscal loosening of policy is expected in the face of these difficulties. The Government has already announced abandonment of its commitment to run a fiscal surplus by 2020 and it is expected that interest rates will be cut shortly in attempts to bolster the economy. The lower exchange rate already acts as a monetary loosening.

Politically, there has been outrage in the liberal metropolitan elite. There has also been some degree of "buyer’s remorse". A petition to have the referendum rerun (the ‘keep voting until you get it right’ approach) has been signed by about 4 million people at the time of writing (of which at least 100,000 appear to be robot-created ghosts). There are even suggestions that since the referendum is, technically, purely advisory and it is known that a majority of Members of Parliament are in favour of "Remain", Parliament may choose to ignore the referendum decision. (Of course, to do so would be political suicide for those concerned.)

David Cameron, the (Conservative) Prime Minister who had campaigned vigorously for ‘Remain’, understandably felt that he was not the man to lead the negotiations for withdrawal and so announced that he would resign as soon as the Conservative Party has chosen new leader. His successor as Leader of the Conservative Party was announced earlier today (pleasantly, Jane’s and my own MP, Theresa May, who we know quite well) who will take office as Prime Minister on Wednesday 13 July.

Quite separately, the Labour Party in Parliament voted by 172 to 40 on 28 June that it had no confidence in its leader. His somewhat ambiguous performance during the referendum campaign seems perhaps more an excuse than the true cause, though no doubt part of the cause. Whether he will be forced out is currently unclear: it appears that a leadership election will be needed. The result is uncertain both as to the votes and the consequences for the party. Certainly the political scene is going to see some changes.

What will actually happen? Our political leadership agrees on one thing with the political leadership in the EU. That is that the verdict of the British people must be respected. The Prime Minister designate (who declared for ‘Remain’ in the referendum campaign, though not very forcefully) has made it clear that "Brexit means Brexit", hence that there will be no second referendum and that she will ensure that the UK leaves the EU.

She is expected to invoke Article 50 of the Treaty of Lisbon, which formally starts a then unstoppable exit process, once the UK’s negotiating position has been decided. She has said may not be until towards the end of 2016.

There is some talk that a formal approval of this by Parliament is required (mostly from ‘Remain’ supporters hoping that Parliament would refuse to give it). It is to be expected that this will either be ignored or that Parliament will, in fact, bow to the will of the people and vote it. A serious constitutional crisis would result if it were not to do so.

Once Article 50 has been invoked, there is no turning back. The only thing that remains is to see what, if anything, takes the place of EU membership.

Many on the "Leave" side seek membership of the single market but without the obligation to pay into the EU budget and above all without accepting freedom of movement. The EU’s leadership has made it clear (both before and after the referendum result) that this is not on offer: it is the so-called ‘four freedoms’ (freedom of movement of goods, services, labour and capital) or none. So, if membership of the single market is sought, then the payment into the budget (maybe at a lower basic level but presumably without the previous British rebate) and acceptance of freedom of movement are required (on the so-called Norwegian model, based on membership of the European Economic Area along with Iceland, Liechtenstein and Norway).

There is then a variety of "middle way" positions, for example the ‘Swiss option’ of bilateral deals not quite as good as EEA membership. The problem is that the Swiss option excludes services, the UK’s strong suit. The UK could re-join EFTA (which it left to join the EEC). There is also the Canadian option, for example, or perhaps the TPP. There are bespoke option apart from these ‘off the peg’ answers. Then one reaches the "no deal at all" position, when one presumes the UK would rely on the World Trade Organisation ("WTO") rules entitling it to Most Favoured Nation status and accordingly enjoy access to the EU’s market but only on that basis, which is considerably less advantageous than the current basis. (Of course, the fall in sterling would compensate for some tariffs.)

In the medium term, there can be no doubt that Dublin/Ireland (English speaking, common law, established financial expertise), Frankfurt/Germany (substantial financial market) and Paris/France (same) in particular will be vying mightily to become the major point of entry into Europe for a number of financial and manufacturing organisations around the world that have previously entered the EU via London/the UK. The Leave campaign believes that this danger is exaggerated and that any loss will be more than offset by trading opportunities elsewhere in the world. All that can be said is that we shall now see!

An enormous number of treaties will have to be renegotiated. The UK, having over the past 43 years interwoven its affairs very substantially with the EU, has its international relationships in a large number of ways conducted through the EU (one of the things, of course, to which the Leave campaign objects). All the relevant treaties will require to be renegotiated.

In addition, a great deal of UK law is based either on EU Directives with direct effect, on UK legislation implementing EU requirements, either in terms as the UK interprets them, or indirectly by UK law having been drafted practically or even expressly to harmonise with EU law. All of this will have to be rethought and much may have to be rewritten.

A special unit was set up within the Civil Service, to be run from the Prime Minister’s office, starting as early as 28 June, to deal with this. The current suggestion is that the Government will have to hire a substantial number of expert outsiders to assist. The timescale for completing it is uncertain: even leaving aside President Obama’s suggestion that the UK would be "at the back of the queue" (which didn’t help the Remain campaign – remember that the British don’t like being pushed around), negotiating trade (and especially services) treaties is notorious for being a long process.

On the other hand, the two year timescale for quitting the EU is fixed by Article 50 and can only be extended with the consent of all the remaining 27 members of the EU. It seems unlikely that every single remaining member will wish to accommodate the UK by extending the period.

The effects are already being felt. As just one example, the EU Regulation and Directive governing the market in financial instruments require that ‘third country’ firms providing investment services to professional investors must offer to submit any disputes relating to those services to the jurisdiction of the Court or arbitral tribunal in a member state, and that in respect of retail investors member states may require that third country businesses who wish to do business must set up a branch in the member state. Two years after Article 50 is invoked, the UK will become a ‘third country’. Accordingly, even contracts being written today will have to take account of these requirements within the EU, which will take effect as soon as the two year transitional period is over.

By the same token, the Brussels Regulation on the automatic recognition of judgments within the EU will cease to be effective in respect of UK judgments two years from the invocation of Article 50. (Granted the length of time some cases take to be decided, this is already a consideration.) Accordingly, amongst the treaties which will have to be renegotiated (even if only by seeking to put in place former treaties, and one would hope these could be improved) will be all the necessary treaties for the 27 member states. And, to quote Professor Burkhard Hess and Professor Marta Requejo-Isidro: "The main interest of the union won’t be to maintain or strengthen London’s dominant position in the European judicial market …. [and] … there is a genuine interest to the Union to see mandatory EU law applied in disputes relating to the internal market by courts operating within its regulatory framework". The UK cannot expect any favours.

Even the English language may suffer. Although English has been the lingua franca in the EU, the UK is the only country which has registered it as its official language. Accordingly, two years from the invocation of Article 50 it will no longer be amongst the languages officially used by the EU. One must suspect that its role as a lingua franca will be under immediate attack.

The UK’s internal political arrangements may also be affected. Leaving aside the party political difficulties mentioned above, the outcome of the referendum was in many ways the worst possible one for the future unity of the United Kingdom. England voted substantially to leave (though London voted substantially to remain); Wales also voted to leave. On the other hand, Scotland voted to remain and Northern Ireland voted to remain.

Scotland has, of course, as recently as 2014 held a referendum of its own on remaining within the United Kingdom. The result was a reasonably substantial majority to stay within the United Kingdom (55.3% : 44.7% on a turnout of 84.6%). Since then, the value of oil, one of Scotland’s major natural resources, has declined precipitously, so the economic case for staying within the UK is better. Further, Scotland apparently wishes to keep sterling as its currency; this would not be possible (except by unlikely special concession) if an independent Scotland sought to join the EU. However, sentiment in Scotland in favour of remaining in the EU (and that objection to being pushed around – this time by the English) is so strong that it is thought that the balance will probably have moved further in favour of leaving the UK, maybe to a point where a new referendum vote could indeed go in favour of independence. There will be considerable politicking on that over the coming months and years.

The terms on which Scotland could join the EU would be difficult to negotiate, however. Besides the economic issues identified above, England contributes substantial sums to Scotland’s budget; EU subsidies would be required to compensate. Spain, with rebellious regions, may wish to make entry difficult o discourage its own separatists; Belgium might feel the same. On the other hand, the EU countries might wish to make the UK’s life difficult and so try to overcome these problems.

The situation in Northern Ireland is difficult. Much of the mechanics put in place by the Good Friday peace agreement will be imperilled by the UK’s departure from the EU. To put it at a basic level: much depends on the border, both political and physical, between the Republic of Ireland and Northern Ireland being porous and readily negotiated. When that border becomes the only land frontier between the United Kingdom and the EU, it is difficult to see how it cannot become quite a "serious" boundary. Considerable goodwill and ingenuity will be required to ensure that Northern Ireland does not revert to more difficult times (and Sinn Fein has already called for Northern Ireland to hold a referendum on joining the Republic).

Other political effects will surface. The effect on Gibraltar (which voted overwhelmingly to remain) may be particularly traumatic. The last time Spain closed the border with Gibraltar, it was reopened promptly after a peremptory intervention by the EU on the grounds of disruption to the single market. That level of protection will no longer be there, and Spain has already raised the issue of sovereignty over Gibraltar.

The influence of the EU and the UK in unrelated international bodies will change. The EU will no longer have two members of the UN Security Council; by the same token, the UK will no longer have to co-ordinate its vote there with France and the EU’s overall policy. The UK will be represented at CITES and many other bodies independently for the first time in many years; the EU’s voice will be weaker (except for example at CITES where it cannot agree a position anyway).

Strange linkages will be found. Thus it is already being pointed out that English law firms will be excluded from South Korea unless the UK negotiates entry for them, since they are there under EU agreements. The only universal law is that of unintended consequences. There are plainly unknown unknowns here!

Of course, there are those in the Leave campaign who believe (maybe hope) that the seismic effects of the UK’s departure will result in the departure of other countries from the EU (Nigel Farage, leader of the UK Independence Party and probably the prime mover of the whole ‘Leave’ movement, predicted as much in his speech to the European Parliament on 28 June) and might even bring down the whole structure. This cannot be ruled out as a possibility but it implies more disruption rather than less. So unless the whole EU structure is completely destroyed, at which point all bets are off, the attitude of those countries which remain in a smaller entity will presumably be less favourable to the country that started the process, the worse the process for that entity becomes.

Two years is a surprisingly short time, especially in matters of this gravity. Companies doing business with the UK, especially if it also involves other countries in the EU, should be taking account now of what is happening. It is to be hoped that the main outlines of the UK’s negotiating position (whether it seeks a Norwegian outcome, a WTO outcome or something in the middle) will be clear well before the end of 2016. The likely outcome of those discussions, however, will probably have to wait longer. In the meantime, the establishment of offices and factories, and the negotiation of contracts and deals, will have to take account of the potential effects of the likely end of the two year period in or about October 2018.

Having once said that, the UK is and always will be very much open for business, both from people within the EU and from people from outside it. We still love all our friends, and the countries of the EU remain in that sense very much friends. London remains, and will remain, a "world City" and buccaneering British businesses will continue to trade goods and services with everyone, using the experience gained over the last 1,000 years!

Bill Perry - Carter Perry Bailey LLP

11 July 2016