Professor Rob Merkin

26 JANUARY 2010

  Q80  Lord Sheikh: One point I would like to make is that, bearing in mind that we are only giving some enhancement particularly in regard to notification to others, it could be possible, if the insurers agree to this?

  Professor Merkin: If the insurers agree to it, I would be the first in line, believe me.

  Q81  Lord Sheikh: Because the intention is that the third party does not have any more rights than the insured has, but the point I make is that there is already some enhancement written in the Bill itself.

  Professor Merkin: Yes, there is moderate enhancement. Yes, I would be perfectly happy with that, I would be delighted with it. As I say, any employee who does not get compensated, in my view, is unfortunate and should be dealt with, but this Bill may not be the way of doing it, I do not know.

  Q82  Chairman: Thank you. Are there any questions on paragraph 10? No, which brings us to limitation, paragraph 11, which is obviously a difficult area. Are there any questions on paragraph 11? The main point is really on paragraph 11.3, since the Civil Procedure Rules do not enable the same limitation period to apply where there is an arbitration clause.

  Professor Merkin: That is right.

  Q83  Chairman: Perhaps you had better explain that more clearly than I have.

  Professor Merkin: The problem arises where the third party has obtained judgment against the insured and the insured then has six years to bring a claim against his insurers under the policy within the Limitation Act. The insured, for whatever reason, waits five years, 11 months to bring his action, brings his action and then, three months later, becomes insolvent, at which point the rights of the insured are transferred to the third party. Now, the third party cannot commence a fresh action at that point because he is time-barred, but what the CPRs allow is for him to take over the proceedings which have been started by the insured. The question is: can that be an arbitration? There is nothing in the CPRs which allows it, so what you need to achieve is maybe an assignment of the arbitration proceedings. There is a Court of Appeal authority for the proposition that you can assign arbitration proceedings, but I think it would not be in the context of this Act. I think maybe a statement somewhere that that is possible would be useful as it would resolve the issue. It may be that the court would actually say, "Well, the authority exists and there's no problem", but there is a potential conflict of authority on this point.

  Q84  Chairman: Do you see anything that we could do in this Bill to resolve the particular problem other than hoping that the Civil Procedure Rules might be amended so as to apply to arbitration?

  Professor Merkin: I just wonder whether it is possible to amend the Practice Direction, and I think it is Part 62 which deals with arbitration, just to deal with this particular point, to allow arbitration proceedings to be transferred after the expiry of the limitation period.

  Q85  Lord Sheikh: The six-year rule, as we know, applies to basically third-party property damage, but, if you look at personal injury, the limitation is three years. Do you have any comment on that?

  Professor Merkin: No, we are talking about a claim against the insurer by the insured, not the claim by the insured against a third party. There are separate limitation periods for each of those things. In practice, anyone who is properly advised should not have a problem because they should not allow the insured to wait five years before bringing an action. You should issue a bankruptcy notice immediately against that person as soon as you get your judgment and then of course you get your rights transferred to you.

  Q86  Chairman: So, although there is a problem, it is one which is not perhaps going to arise all that often?

  Professor Merkin: Yes, and, if it is an arbitration issue, it is almost certainly going to be a commercial matter and, therefore, we need not worry too much about it.

  Q87  Chairman: Then paragraph 12. Are there any questions? You have given us help with that already. Then paragraph 13, obtaining information. Again, this is the other aspect of obtaining information.

  Professor Merkin: Sorry, but could we go back to paragraph 12? There is a gap which I think Maggie Hemsworth referred to in her note as well, which is the problem of a settlement prior to an insolvency. Now, most insurers and most policy-holders will reach sensible settlements anyway, but you can imagine the situation in which the insured knows he is going to be insolvent and does not care and insurers are looking to buy off the claim for as small an amount as possible and, if they do a deal at that point, the third party loses his rights. There is a suggestion in the very old cases that you can actually claim conspiracy in that situation, but I would not wish to hang my hat on that one! I just wonder whether there is any method of controlling what happens when the insured is potentially insolvent.

  Q88  Chairman: Yes, and have you any suggestion to make?

  Professor Merkin: I do not. Again, if there is no actual insolvency at that point, the third party has no rights and the insured can bargain away his contract if he so wishes.

  Q89  Chairman: So then paragraph 13, obtaining information, which brings us to Schedule 1. This is an area, paragraph 13.4, where you do make a specific suggestion for amendment. Perhaps you might just touch on that and why you think it would be desirable to have an amendment to cover a case where a third party reasonably believes that the insured may not be able to pay.

  Professor Merkin: I think the spirit of the Civil Procedure Rules is `cards on the table', and I think this is a situation in which sometimes it is possible to buy off litigation by refusing to disclose insurance information. If the response of the defendant is, "I'm not going to tell you whether I'm insured. Sue me and you'll find out", I do not think that is particularly conducive to the way that we should be operating that system. These rules work perfectly well in the first of the situations that identified right at the very start whether the insured is insolvent rightaway and you know whether it is worth suing him because you have obtained the information. Where it does not work is where you know, as a claimant, that the insured cannot afford to pay the bill, but you have no way of knowing whether or not there is a policy in force, whether he has paid the premiums, whether there is a deductible which is overriding the claim and so on and so forth.

  Q90  Lord Goodhart: This really deals with the problem I raised on the question of clause 10 and the problem of set-off. That problem of the set-off would be dealt with to at least a fairly considerable extent by something in the nature of paragraph 13.4. Is that not correct?

  Professor Merkin: Well, insofar as the third party would know that there has been a settlement that he cannot overturn.

  Q91  Lord Goodhart: No, sorry, I was thinking of the right to seek information. The problem is that you will only know whether it is worth suing at the moment if there is actually insolvency, but, if you are in a situation where it is likely that insolvency will be coming along soon, the third party is not able to assess whether it is financially worth going ahead with the proceedings.

  Professor Merkin: Quite, and of course there may be a situation in which insurance is compulsory, but it does not necessarily mean that the defendant has insurance, so there is no way of knowing under the existing law whether there is a policy in force, and there is nothing in the CPRs after the Buncefield case, assuming that is rightly decided and I think it probably is, which allows you to get the policy upfront.

  Q92  Lord Goodhart: In paragraph 13.2, the second line, where it says, "incurred liability to A and also reasonably believes that A is an RP", should that not be "believes that B is an RP"?

  Professor Merkin: Yes, quite right, thank you.

  Q93  Chairman: Are there any other questions on 13.4? Could I just then have your view on this point. The possible amendment would be in paragraph 1 of Schedule 1 to say, "If a person (A) reasonably believes that another person (B) has incurred a liability to A, and B is a relevant person, or maybe unable to satisfy a judgment against him". Is that what you are aiming towards?

  Professor Merkin: Yes, so that you are dealing with both situations, not just the one of the insolvent insured, but the potential insolvent insured.

  Q94  Chairman: So that obviously would be an amendment which would be quite a simple and straightforward amendment.

  Professor Merkin: Yes.

  Q95  Chairman: How often is this likely to arise in practice?

  Professor Merkin: Very often, more often than not in fact, I would have said, because, when there is an insolvent insured, there is normally an employment case or something like that, but in many cases of civil litigation you do not know the defendant's status and you do not know whether he is worth suing. If he is an accountant or a solicitor, you can assume that there is a professional indemnity policy there, but he may be in a profession which does not require liability insurance, so I would have said that it was a very common situation.

  Q96  Chairman: Who would be likely to object to this amendment, if we were to make it?

  Professor Merkin: It would probably be the insurers.

  Q97  Chairman: What would be the nature of their objection?

  Professor Merkin: In the Buncefield case, they actually hired a QC to argue that there was not any obligation upon them to disclose insurance.

  Q98  Chairman: But it is not going to cost them money though, is it, as in the case of set-off?

  Professor Merkin: It is going to cost them money in that claims might be brought which would not otherwise be brought.

  Q99  Lord Archer of Sandwell: My Lord Chairman, that is quite a financial burden which may arise. If the employer is a small firm, presumably somebody is going to go through all their books, all their invoices, all their contracts, and they have got to get all these things out in order to determine whether they might become a relevant person.

  Professor Merkin: I think that all you really want from the insured is the name of the insurer and the policy number and you then want from the insurer whether the policy limit has been exceeded for that year, what is the deductible, what are the policy terms and whether the premiums are paid. The insurer is really the key person here.