Lexington Insurance Company & Ors v Multinacional De Seguros SA (Rev 1)

This judgment determines a number of preliminary issues ordered by Teare, J on 8^th February 2008. The Claimant, Lexington Insurance Company Limited (“Lexington”) sues on behalf of itself and the other reinsurers of the Defendant, Multinacional de Seguros S.A. (“Multinacional”). Those other reinsurers are Arab Reinsurance Group (“ARIG”) and Reliance National Insurance Company (Europe) Ltd.

Multinacional is one of Venezuela’s largest insurers, providing insurance of many different kinds. It was the insurer of several companies in the Corporacion Venezolana De Guyana Group (“CVG”), including Industria Venezolana de Alumino CA (“Venalum”), under a property and business interruption policy for the period of 12 months from 1^st July 1997. Venalum produces liquid aluminium, aluminium ingots and aluminium cylinders. Multinacional was a fronting insurer for the reinsurers, and was itself selected as the insurer after the reinsurance had been negotiated.

The reinsurance is under seven slips, subscribed in 1997. Lexington subscribed four slips; Reliance subscribed two slips, and ARIG one slip. The slips are layered, providing cover overall for the first $6.5m each and every loss. The layering was as follows, in respect of each and every loss:

Accordingly, as is common ground, the answer to the first issue – Was there a single reinsurance contract between the parties? – is: No, there were seven.

The next question is: “For each reinsurance contract (or if there was only one contract, the reinsurance contract) was a Claims Settlement Clause a term of that contract and, if so, what was the wording of that clause?” On that Multinacional contends and Lexington is content to accept, that, so far as Lexington is concerned, each reinsurance contract with it incorporated the wording of the Claims Settlement Clause set out in a brokers’ booklet which reads:

“Notwithstanding anything contained in the reinsurance agreement and/or the policy wording to the contrary, it is a condition precedent to any liability under this policy that:

(a)

Upon the reinsured being advised of any circumstances which may give rise to a claim against this policy, the reinsured will advise reinsurers of such notification as soon as is reasonably practicable;

(b)

The reinsured shall furnish the reinsurers with all information in respect of such circumstances and shall co-operate with the reinsurers in the adjustment and settlement of the claim.”

In respect of Reliance and ARIG there is also now agreement that, for the purposes of the preliminary issue, the same wording (“the clause”) can be treated as incorporated into the reinsurance contracts with them.

On 16^th April 1998 an event occurred at Venalum’s plant which gave rise to a claim by Venalum against Multinacional for property damage and business interruption loss. A cell in the production line developed a perforated cathode. The cell was by-passed. Following restoration of power to the line, a subsequent shut-down occurred, apparently due to melting of shunts used to by-pass the cell. When power was again restored, Venalum decided to try to restart all 175 cells in the production line. Subsequently 120 cells were shut down as they became impossible to control. Eventually 55 cells were saved. Others were damaged, and replaced over time. Multinacional was notified of the event by fax on 17^th April.

Adjusters were appointed to deal with the claim. Those adjusters were Crawford-THG Venezuela C.A. (“Crawford”) who were retained by Multinacional, upon the nomination of reinsurers. Technical experts were also appointed. Crawford provided a series of Interim Reports, one of which recommended a reserve of $ 26.9 million. Another mooted a possible interim payment of $ 2 million. Reinsurers did not agree to make such a payment, pending further investigation as to Venalum’s conduct. On 22^nd October 1999, in its Interim Report No 6, Crawford THG concluded that Venalum had failed to mitigate its loss and recommended a nil reserve. Multinacional regarded this as a volte face and strongly disagreed with the conclusion of the report. It did not, however, produce any detailed technical evidence or analysis in support of its position. Lexington points out that in July 1999 Mr Maynard of Crawford had explained to Multinacional that because Venalum had failed to respond to inquiries about failure to mitigate, no figure could be reached, and that reinsurers' decision on whether to make an interim payment would depend on the adjusters’ further report.

On 10^th December 1999 there was a meeting in London between Lexington, ARIG, the brokers and Multinacional. According to Lexington, Multinacional indicated that it had already instructed an expert. A letter from Crawford was produced showing a low estimate of probable loss if all proper steps had been taken to mitigate loss. After the meeting Lexington disagreed with Multinacional’s idea that the matter be resolved by going to another adjuster.

On 23^rd December 1999 Lexington asked Multinacional to provide them with any technical grounds there might be to dispute Crawford’s conclusion and to participate in a conference call on 4^th January 2000. The letter pointed out that cooperation with reinsurers was a condition precedent to liability under the reinsurance. On 4^th January 2000 Mr Espinoza, a Vice-President of Multinacional, sent an e-mail to Lexington saying that Multinacional was still preparing a reply but that he was available for a conference call. No such conference call took place.

On 7^th January 2000 reinsurers faxed two letters to Multinacional. The first referred to the immediate history and expressed the view that Multinacional’s failure to co-operate discharged reinsurers from all liability under the reinsurance. It also asked whether Multinacional was planning to instruct a new expert.

The second letter, headed “Without Prejudice” (Footnote: ¹), expressed bitter disappointment that recent discussions with Multinacional had not resulted in a common position being adopted in relation to the future handling of the Venalum claim and stated that it had always been reinsurers’ wish, in the spirit of cooperation envisaged by the co-operation clause, to work closely with Multinacional to resolve the claim in a sensible and commercial manner. The letter then said that, without prejudice to their position that they had no liability to Multinacional by reason of the breach of the condition precedent, reinsurers would give Multinacional a further seven days in which to provide a substantive and detailed response to the issues raised in Crawford’s 5^th and 6^th reports and the 1^st and 2^nd reports of Penta, a firm with engineering expertise, failing which reinsurers would start proceedings before the English Court seeking a declaration that they were discharged from liability. The letter went on to state that reinsurers still considered that proper discussion between the reinsurers and Multinacional was essential if a negotiated settlement of the claim was ever to be arrived at; and that reinsurers were prepared to make one final attempt at meeting with Multinacional to review the outstanding issues and to consider how best the claim might be resolved. It indicated that primary layer reinsurers would be prepared to travel to Venezuela to meet with Multinacional within the next 14 days.

Matters then proceeded on two levels. On one level reinsurers maintained their position that there had been a prior failure to co-operate, which discharged them from liability. On 16^th February 2000 Lexington issued a claim form on this basis, seeking a declaration of non-liability.

On another level the parties communicated with each other in relation to the claim. On 27^th January 2000 Mr Espinoza provided reinsurers with Multinacional’s detailed technical comments on Venalum’s claim. On 22^nd and 23^rd March the parties met in Fort Lauderdale to discuss the technical issues. After that meeting Multinacional provided reinsurers with its expert report from Miller International, a firm of loss adjusters. On 19^th April Lexington wrote to Mr Espinoza setting out reinsurers’ agreement to instruct the experts to produce lists of questions needed for completion of the adjustment process without prejudice to the position in the English proceedings. Multinacional agreed to pass these lists on to Venalum.

In the summer of 2000, a further dispute arose. Reinsurers took the view that Crawfords should not continue with the adjustment, due to the departure from Crawfords of Mr Andrew Maynard, whom they regarded as a key individual. Reinsurers were concerned about the impartiality of Crawfords’ Venezuela office and wanted to ensure that the parties continued to use Mr Maynard. Multinacional took the view that reinsurers, who in April 1998 had agreed to the appointment of Crawford, which was one of three adjusters nominated in the policy, had no entitlement to change the adjuster, and insisted that Crawfords’ Venezuela office should continue with the adjustment. Debate on these matters continued during the latter part of 2000 and early 2001.

On 13^th September 2000 Multinacional applied to the Venezuelan Superintendencia de Seguros (“the Superintendencia”) for an order that Crawford deliver the final adjustment report. Crawford replied to the Superintendencia the same day to say that it could not issue the report because it had not received the final report from the experts it had instructed to determine the loss of revenue and the reasons for the accident.

On 12^th January 2001 the Superintendencia began an administrative investigation into the failure of Crawford to complete the adjustment. On 7^th February 2001 Multinacional and Crawford agreed that Crawford would produce the final report within 90 days. Crawford was not able to comply with this timetable and Multinacional granted a 60 day extension.

On 27^th February 2001 Ince & Co (“Ince”), who act for Multinacional, sought reinsurers’ agreement to their proposal that Crawford proceed with the adjustment, with Mr Maynard assisting Crawford “behind the scenes”, without prejudice to reinsurers’ position in the English proceedings.

In April 2001 the three-year limitation period under Venezuelan law for a claim by Venalum against Multinacional expired.

On 1^st May 2001 reinsurers’ then solicitors (“DWS”) informed Ince for Multinacional that they believed that Venalum’s claim had become time barred. They suggested that further negotiations should be put on hold pending instructions being taken on the time bar point. Thereafter much of the inter-solicitor correspondence concerned the time bar. Ince stated that Multinacional’s lawyers adamantly denied that Venalum’s claim was time-barred. DWS suggested that the time bar issue should be resolved as a matter of urgency, and it was agreed that the parties’ Venezuelan lawyers should liaise in relation to this issue.

Multinacional then took steps to obtain from the Superintendencia a decision as to whether or not the Venalum claim was time barred. The Superintendencia has a power to give a decision on such a question; but such a decision is not a binding determination of the rights of the parties.

On 4^th July 2001 a meeting took place between Mr Espinoza of Multinacional and seven representatives of CVG and Venalum. The minutes record that Mr Espinoza explained the progress of the action taken to resolve the case and that he undertook to file an application with the Superintendencia by 6^th July 2001 “requesting its decision on whether the case was time barred as is claimed by the reinsurer”.

On 6^th July 2001 Multinacional duly filed such an application, the terms of which were plainly intended to encourage the Superintendencia to confirm that time had not elapsed. On 23^rd August 2001 the Venezuelan Insurance Superintendent gave a decision that confirmed that to be so. His reasoning was that, although Article 576 of the Commercial Code prescribes, in the case of terrestrial insurance, a time limit of 3 years from the event giving rise to the action, nevertheless, because Multinacional had interrupted the time bar by requesting a final adjustment and because Multinacional had not issued any refusal letter, the time limit had not expired.

Reinsurers were not informed of what was going on with the Superintendencia until, on 11^th September 2001, Ince wrote to DWS to say that Multinacional had approached the Superintendencia which had opined that the claim was not time barred. DWS protested at this unilateral approach, in respect of which reinsurers had not been consulted, and had had no input. DWS took the view that this constituted a further failure of co-operation by Multinacional, and that the time bar issue still needed to be resolved .

The parties then discussed possible procedures for the time bar issue to be raised and resolved. It was agreed that the parties’ Venezuelan lawyers should meet to discuss the matter further.

A meeting took place on 25 October 2001 in Venezuela. It was attended by Venezuelan lawyers for Multinacional and for reinsurers. At the meeting it was agreed that Multinacional would invoke the time bar against Venalum, in accordance with a strategy to be agreed with reinsurers. The discussions covered a number of topics including the following:

After the meeting it was made plain by DWS (e.g. by their letter of 20^th November 2001) that Lexington’s Venezuelan lawyers did not have authority to bind reinsurers. The minutes of the meeting record that the discussions as to the procedures to be adopted remained subject to agreement by reinsurers.

Similarly, Ince and Co made plain that Multinacional did not accept that time had expired. As Mr Espinoza’s evidence confirmed, Multinacional always maintained to reinsurers that the time bar point was legally incorrect, as Multinacional’s lawyers understood it to be.

In the meantime, the English proceedings, begun by reinsurers in 2000, had remained at a standstill. Given that both parties recognised the importance of invoking the time bar against Venalum, consideration was given to the terms of an order staying the English proceedings indefinitely, pending resolution of the time bar point.

By a letter dated 10^th December 2001 Ince confirmed that Multinacional had agreed, as part of the strategy discussed at the October meeting, to argue that the claim was time barred. In this letter and subsequently, Ince requested that a formal action plan relating to the procedure to be adopted in Venezuela should be agreed. DWS made it clear that they were not in a position to discuss any action plan with their clients until they had received the documentation referred to in the minutes of the October meeting.

By a Consent Order dated 22^nd January 2002 the English proceedings were stayed. The Schedule to the Order provided in paragraph 4 that Multinacional would, in its defence of the claim, and in accordance with a procedure to be agreed, argue that, as a matter of Venezuelan law, the claim was time-barred. It also provided, in paragraph 5 that the proceedings would be stayed until the issue as to time bar had been resolved between Venalum and Multinacional to the satisfaction of Lexington.

During January 2002, Ince made further requests for an action plan to be agreed. DWS reiterated that its Venezuelan lawyer was still awaiting the documents requested at the October meeting, which were needed in order for the lawyer to advise, and for further proposals to be made regarding an action plan. The documents were provided in February 2002. On 14^th March 2002 DWS reported that they had received copies, but the documents needed translation and a preliminary review had thrown up issues which needed further discussion with the Venezuelan lawyer.

Meanwhile Venalum was getting restless. The CVG group was regarded by Multinacional as an important “client” with whom it wished to preserve good relations, not least because of the prospect that Multinacional might be sued without having agreed an action plan with reinsurers.

Matters came to a head in April 2002. On 1 April 2002 Ms Marlene Quintana of Venalum, who was responsible for its insurance matters, invited Mr Espinoza, on behalf of Multinacional, to attend a meeting at Venalum to discuss the claim. Mr Espinoza was reluctant to go to this meeting and initially ignored the invitation. He did not communicate with reinsurers about it.

Mr Espinoza had a good professional relationship with Ms Soraya Gonzalez of CVG and Venalum. On 3^rd April he had several telephone calls with Ms Gonzalez, who was demanding an explanation of his position. She told him that it was extremely important the he should attend the meeting. What he decided to do was to try to cast a positive light on the situation. He referred to the suspension of the English proceedings as a positive development for Venalum. This was misleading. A stay of proceedings in which reinsurers claimed to have been discharged from liability could, on its own, be regarded as a positive development from Venalum’s point of view. But the terms of the stay were that Multinacional would take the time bar point. Further, the upshot of the October meeting was that the parties contemplated taking that point in conjunction with coverage points, derived either from Crawford’s adjustment or reinsurers’ arguments. Mr Espinoza made no mention to Venalum of either of these things.

At 1458 on 3^rd April Ms Gonzalez emailed Mr Espinoza in the following terms:

“I have been advised of the reasons for your not attending the meeting (Missing text ….) delivered by Crawford on 1 March of this year, in respect of which I wish to make some comments which for us, CVG Venalum, are of great importance and reflect the degree of your commitment or liability as ourinsurer.

I greatly acknowledge all the actions that you have carried out and which in the end achieved the non-prescription of the claim, 4 years after its occurrence, however your absence from prior meetings, taking into account the fact that the adjuster, Crawford, is appointed by Multinacional, shows your apparentapathy in contributing to the conclusion of the Final Adjustment Report, when the success of the process of technical discussions between CVG Venalum and the adjuster, which have led to a definition of the technical aspects of this case, in respect of Direct Losses, has been obvious.

CVG Venalum is aware of the legal proceedings in which Multinacional has found itself involved with the Reinsurer, whom we are aware was appointed by CVG; the choice of Multinacional as Insurer for several consecutive years is proof of the confidence placed in you.

The presence of Multinacional at the meetings signifies for us the responsibility which you have to Venalum as its insurance company.”

It is apparent from this email that Ms Gonzalez had understood that Multinacional had achieved the non-prescription of the claim. Whether by that she had in mind the ruling of the Superintendencia (sought at Venalum’s request), or the suspension of the English proceedings (of which Multinacional had just informed her), or both, is not wholly clear. The likelihood is that Mr Espinoza’s reference to the suspension of the English proceedings (without any mention of the terms of that suspension) either caused, or at least contributed to, her belief that non prescription had been achieved (Footnote: ²). Whatever the cause of her belief Mr Espinoza did nothing to tell her that she was mistaken.

At some time before 1754 on 3^rd April Mr Espinoza sent an e-mail to Ms Gonzalez telling her that he would be sending her a more formal response but that he felt that he ought also to reply to Ms Quintana and asking her whether he should (a) send Ms Quintana a copy of his formal reply to Ms Gonzalez or (b) “give her a more ambiguous answer, stating that on the basis of the circumstances of the case we are obliged not to participate as this is a meeting of a strictly technical nature where [Multinacional] cannot now give an opinion and you will end up explaining it on this basis”. Mr Espinoza drafted, or had drafted for him, a letter on the latter basis. But that was not the one he sent.

Instead at 1754 he sent Ms Gonzalez an e-mail which included the following:

“My dear Soraya

First of all thank you for your note and the trust placed in our Company, which will never be betrayed. However I think it necessary to give some formal clarifications in relation to this delicate situation, which are:

1)

It is true that our Company has taken on a commitment and has worked hard not only in relation to this case but in relation to all the cases it has handled. Nevertheless it should be recalled that in all claims handled with CVG we have to follow the conditions and clauses negotiated with the reinsurers selected by CVG and particularly the clause relating to ClaimsCooperation.

2)

The correct observance of this clause has been the precise reason for the high level of recovery in all the claims presented to date.

3)

In the case of the claim relating to the cells, we have explained the circumstances affecting the case, where the adjuster, after delivering contradictory preliminary reports at the direct petition of the reinsurer, apart from ceasing to continue with the adjustment, delivered to the reinsurer all the documents presented by you which we consider probative in this case.

4)

Having insisted on answers from the reinsured (sic) that we could give to Venalum, the reinsurer simply responded by filing an action against us for an alleged breach of the above mentioned clause and conclusively ratified the prohibition of the adjuster’s continuing on the case, and stated its position of rejecting the claim on the basis of time bar.

5)

Considering how incomprehensible this attitude seems both to you and to us, we have obviously employed all the legal resources, sparing no expense, both in Venezuela, which includes our denunciation to the Superintendencia de Seguros, and in London in order to reverse this state of affairs and ensurethe continuation of the adjustment and the suspension of the proceedings, which to date has been achieved.

6)

The adjustment, that by order of the Insurance Commission should have been completed some time ago, is apparently under technical discussion at present. We cannot intervene at this stage on account of our liability with Venalum as this could be legally interpreted by the reinsurer as biased interference by ourselves and lead to results that could only be to the detriment of Venalum…

It should be indicated that Multinacional have never directly intervened in discussions of a technical nature and the closing of adjusted figures (we are legally prohibited from doing so) inany claim, as this is totally entrusted to the appointed adjuster who should act in a totally objective manner with regards to all the parties.

For the reasons indicated above and in order to safeguard the interests of the parties and avoid any undesirable consequences for the settlement of the claim, we feel that it would be incorrect for us to attend the meeting.

I hope that this serves to clarify why it would be unfitting for us to attend this meeting and those requested earlier. We similarlywish to confirm our strong undertaking to continue with all the procedures necessary to bring this case to a conclusion once the corresponding adjustment has been finalised and delivered.

Best Regards

Wilson Espinoza”

Later on 3^rd April 2002 (Footnote: ³) he faxed a letter (“the letter”) to Ms Quintana, which was copied to eight others, including Ms Gonzalez, Mr Tobias Carrero, who was the President of Multinacional, Mr Jimenez, the President’s assistant, and Dr Carlos Mourino, Multinacional’s lawyer. The letter was in the same terms as the email sent at 1754 save as follows:

Paragraphs 3, 4 and 5 of the letter read as follows:

“3)

In the case of the claim relating to the cells, we have already explained in previous meeting the circumstances affecting the case, where the adjuster, after delivering various preliminary reports at the direct and formal petition of the reinsurer, ceased to continue with the adjustment and delivered to the reinsurer all the documents presented by you which we consider probative of the case.

4)

For insisting to the reinsurer (Lexington) seeking definite answers that Venalum reasonably demanded and which had to be given to them, the reinsurer simply responded by filing an action against us for an alleged breach of the above mentioned clause and conclusively ratified to the adjuster the prohibition to continue with the case and stated its position of rejecting the claim on the basis of time bar, which we rejected as we considered that it was legally incorrect.

5)

Considering how incomprehensible this attitude seems both to you and to us, we have obviously employed all the legal resources, sparing no expense, both in Venezuela, which includes our reports to the Insurance Commission (Superintendencia de Seguros), and in London in order to reverse this state of affairs and ensure the continuation of the adjustment and the suspension of the proceedings, which to date has been achieved.”

There was some discussion about the correct translation of paragraph 4 of the letter. I am satisfied that the translation set out above is accurate, including, in particular, the words added to paragraph 4 i.e. “which we rejected as we considered that it was legally incorrect” (“a lo qual nos negamos por considerer que legalmente la misma no era procedente”). “Procedente” in this context means “according to law”.

Reinsurers were not informed, at the time, that Multinacional was being pressed by Venalum, or that Multinacional intended to make, or had made, the response contained in the letter of 3^rd April 2002. Reinsurers only discovered that this message had been sent because it was included in documents attached to the claim lodged by Venalum in the court in Venezuela.

Reinsurers contend that Multinacional was in breach of the clause because it failed to consult them about the letter of 3^rd April 2002 or to inform them about it at or around the time that it was sent; and because by sending the letter Multinacional (a) waived the time bar defence available to it in respect of Venalum’s claim, (b) encouraged Venalum to pursue its claim notwithstanding the time bar point and (c) completely undermined the strategy agreed between reinsurers and Multinacional and any negotiations based on that strategy. As a result they are, they say, released from any liability to indemnify Multinacional in respect of the Venalum claim. Whether that is so or not is the fourth preliminary issue.

The third issue is this: “For any applicable Claims Settlement Clause in a contract between the parties, would a breach by the Defendant of that clause preclude the relevant Claimant from incurring any liability to the Defendantunder that reinsurance Contract and entitle the Clamant to a declaration to thateffect?” To that question the parties are agreed that the answer is: “Yes”.

Crawford produced an adjustment of the material damage claim (excluding the business interruption/loss of profit claim) on 17^th June 2002. This did not provide any grounds for rejecting the whole claim. In August 2002, unaware of the existence of the letter of 3^rd April 2002, DWS provided comments on the proposed action plan. They also raised further points as to failure of co-operation by Multinacional (in the light of the documents provided earlier in 2002). DWS indicated that a letter should be sent to Venalum relying on time bar and other matters raised by reinsurers/loss adjusters. In September 2002 Ince stated that Multinacional was working on a draft refusal letter. Protracted correspondence followed about who would draft any refusal letter, and about the provision by reinsurers of technical points for any such letter. In the event, no refusal letter was sent.

It seemed, however, that the Venalum claim had gone to sleep. In April 2004 Ince stated that, since no proceedings had been brought by Venalum, Multinacional would close its file and that it would instruct the brokers and adjusters to do likewise. Ince added that, if proceedings were brought, they would be defended on the basis of time bar.

In fact Venalum had commenced proceedings in October 2003. It seems that Multinacional was served in October 2005; and that in November 2005 Venalum and Multinacional apparently filed pleadings on a preliminary point (that Multinacional could not be liable unless it had been paid by reinsurers). Nothing thereafter has happened in the Venezuelan proceedings.

The last issue is: “If the Defendant did breach any applicable claims settlement Clause, did the Claimant prospectively waive any such breach by repudiating any liability to the Defendant for Venalum’s claim and commencing the action?”

Multinacional’s submissions, as developed, were twofold. First, and increasingly foremost, it submitted that, as a matter of construction of the clause, the stance taken by reinsurers in January 2000, namely that they were discharged from any liability because of a breach of the clause, which was a condition precedent, meant that there was no room for its continued operation. The clause, so far as presently relevant, required Multinacional to “co-operate with the reinsurers in the adjustment and settlement of the claim”. Co-operation requires insurers and reinsurers to work together to achieve a common object, namely the adjustment (i.e. determination of the appropriate amount) and settlement of the claim (Footnote: ⁴) (i.e. payment, in whole or in part, or a conclusion that nothing will be paid). Once reinsurers had taken the stance that there was no claim open to Multinacional there ceased to be a common object. Whatever the dealings between Multinacional and reinsurers after January 2000 amounted to they did not constitute the co-operation with insurers specified in the clause. They were an attempt to find some way forward outside the contractual framework.

Secondly, Multinacional submitted that, by the action that reinsurers took in January 2000 of repudiating liability on the grounds of breach of a condition precedent, reinsurers waived any right to rely on the clause. The type of waiver relied on was waiver by election. I shall deal with the second point first.

In Kosmar Villa Holidays plc v Trustees of Syndicate 1243 [2008] EWCA Civ 147 the Court of Appeal considered the difference between waiver by election and waiver by estoppel. In that case Kosmar Villa Holidays, the insured, a tour operator, had failed to give notice to its public liability insurers of a tragic accident at one of its leased villas in Corfu, in which a 17 year old had become tetraplegic, until over a year after it had occurred. The insured thereby failed to comply with a condition precedent of the policy which required it to give notice in writing to the insurers immediately after the occurrence of any Injury. The trial judge had determined that the insurers had elected to waive compliance with the condition precedent by reason of the action that they had taken in the month after notification of the claim on 4^th September 2003 and before they had on 30^th September 2003 reserved their rights in relation to late notification of the occurrence. He was not persuaded that non-performance of a condition precedent automatically discharged the insurers from liability for the claim so that there was no choice for the insurer to make. He also concluded that there had been an unequivocal communication of an election by the insurers to waive compliance with the condition precedent of immediate communication.

The Court of Appeal cited the classic statements as to the difference between waiver by election and waiver by estoppel of Lord Diplock in Kammins Ballrooms Co. Ltd v Zenith Investments (Torquay) Ltd [1971] AC 850, at 882.3 and by Lord Goff of Chievely in The Kanchenjunga [1990] 1 Lloyd’s Rep 391. It summarized those as holding that:

“…election is the exercise of a right to choose between inconsistent remedies. It generally requires knowledge of the facts giving rise to the choice on the part of the party electing, and knowledge of the choice having been made on the part of the other party…Estoppel, however, is a promise supported not by consideration but by reliance. It is a promise not to rely on a defence (per Lord Diplock) or a right (per Lord Goff). It requires a representation in words or conduct, which must be unequivocal and must have been relied on in circumstances where it would be inequitable for the promise to be withdrawn... The estoppel may not be irrevocable but may be suspensory only…”

The Court then concluded that, contrary to the decision of the judge, breach of a procedural condition precedent automatically discharged the insurer from liability, thus leaving no scope for a choice between inconsistent remedies and the doctrine of waiver: see Bank of Nova Scotia v Hellenic Mutual War Risks Association “The Good Luck” [1992] 1 AC 233 in the House of Lords ; and, at first instance, J Kirkaldy & Sons Ltd v Walker [1999] Lloyd’s Rep IR 410; Brownsville Holdings Ltd v Adamjee Insurance Co. Ltd (The Milasan) [2000] 2 Lloyd’s Rep 458,467; Agapitos Laiki Bank (Hellas) SA v Agnew (No 2) [2003] Lloyd’s Rep IR 54; HIH Casualty and General Insurance Ltd v Axa Corporate Solutions [2002] Lloyd’s Rep IR 325; Forrest & Sons Ltd v GCU Insurance Ltd [2005] Lloyd’s Rep IR 113.

It was submitted on behalf of the insured that, whereas at the point of breach of the condition precedent, there was an automatic discharge from liability and therefore no need for an election, nevertheless that merely gave rise to a defence and the insurer had thereafter to elect, whether to rely on that defence or not. Such an obligation to elect arose, it was submitted, every time a party has to decide in face of a claim whether or not to take a defence of which it knows, and on the facts the insurer had decided to indicate its acceptance of liability.

The Court rejected this submission, which it regarded as extending the doctrine of election far beyond any previous expression or application. It observed that “when it is merely a defence to a claim that is in question, there would not seem to be the same necessity [as in the case where it was necessary to know whether the contract lived or died] to choose timeously and irrevocably between reliance or not on the defence in question.”

The Court also concluded that, if election was relevant, the insurers had never unequivocally communicated to the insured any election to waive reliance on the condition precedent of immediate notification; and that the insurers did not know all that they needed to know when they supposedly made their election.

In Diab v Regent Insurance Co Ltd [2007] 1 WLR 797 the Privy Council was concerned with a case in which the insurer’s points were taken in reverse order to the order taken in the present case. The insured had insurance against fire damage. When his premises were destroyed by fire he approached the insurers. On May 7^th 1997 the insurers’ managing director told him, in effect, that the fire had been deliberately started, that he knew who had done it and that until a claim had been made no fraud had been committed against him. When the insured commenced proceedings he was met with a claim that he had failed to comply with a condition precedent that any claim be made in writing within 15 days after the loss and damage in question and be accompanied by “as particular an account as may be reasonably practicable of all the several articles or items of property damaged or destroyed and of the amount of loss or damage thereto”. It was common ground that no such written claim had ever been submitted within 15 days and that no such account had ever been submitted. By the conclusion of the trial the arson/fraud claim had been withdrawn.

The insured argued, inter alia, that the insurers’ repudiation of liability on May 7^th relieved him, as a matter of law, of his obligation to comply with the condition precedent, or, alternatively amounted to a waiver or an estoppel by representation having the same effect. These contentions were rejected. The Privy Council proceeded on the basis that the condition precedent had not been complied with, whilst leaving for further consideration the extent to which every part of the relevant clause constituted a condition precedent. It held, inter alia: (a) that since the repudiation of liability was never treated by the insured as a repudiation of the contract or accepted as putting an end to the contract, the contractual obligations owed by each party under the contract continued, following Super Chem Products Ltd v American Life and General Insurance Co Ltd [2004] 2 AER 358; (b) that the circumstances in which the repudiation has taken place, and the repudiatory words in question may justify the inference of a waiver by the insurer of its right to insist on compliance by the insured with the contractual provisions in question; (c) that a waiver by an insurer of a procedural obligation on the insured might be produced by conduct either before or after the insured was in breach; but (d) that there was no basis on which it could be said that the managing director on May 7^th had been electing on behalf of the insurers to relieve the insured of his obligation to comply with the condition precedent and that nothing said by him on that date constituted a representation, let alone an unequivocal one, that, if the insured decided to pursue a claim, the insurers would not hold him to the condition.

Nothing in this case affords any assistance to Multinacional. In Kosmar the Court of Appeal regarded the case as providing nothing of real value for the insured’s purposes in relation to waiver by election. The Board’s affirmation of the principle that repudiation of liability does not, in the absence of an acceptance of a repudiatory breach, relieve the insured of its obligations to comply with conditions precedent does not avail Multinacional. The Board’s recognition that in some circumstances repudiation may justify the inference of a waiver by the insurer of a procedural obligation begs the question as to whether such circumstances are present in this case.

In the present case the doctrine of waiver by election is not, in my judgment, engaged. Reinsurers were not, in January 2000, presented with a choice between two mutually inconsistent rights. If they were right to contend that Multinacional was in breach of a condition precedent, then they were automatically discharged from liability. If they were wrong, they were not. There was no choice to make.

It is true that Kosmar was a case where the insurers were said to have waived (by election) a past breach of the condition precedent, whereas in the present case, the reinsurers are said to have waived future performance, which is the equivalent of saying that reinsurers waived any future breach. That makes no difference. If, because of the automatic effect of the breach of a condition precedent, the original breach asserted gave rise to no obligation to choose between inconsistent rights, and, thus, to no duty to elect between them, it is impossible to see how any question arises of reinsurers having to elect between reliance on the original breach and any future breach of the clause. The assertion by the reinsurer that he has a defence to liability arising from breach of a condition precedent is not a choice by him between inconsistent remedies. It is simply an unproved assertion that he is not liable to the reinsured on that account. Nor is it an irrevocable decision. The reinsurer may change his mind about the defence he asserts (as insurers often do) and abandon it; or rely on a different one or none at all. As the Court held in Kosmar raising a defence, although it may involve a choice, is not a contractual election.

Invocation of the doctrine of election is problematic for Multinacional for another reason. Waiver by election arises per Lord Diplock:

“in a situation where a person is entitled to alternative rights inconsistent with one another. If he has knowledge of the facts which give rise in law to these alternative rights and acts in a manner which is consistent only with his having chosen to rely on one of them, the law holds him to his choice..”

[underlining added]

This and other formulations of the doctrine are premised upon the existence of facts which give rise in law to alternative rights. In the present case, Multinacional vigorously denies that as at January 2000 the facts were such as to discharge reinsurers from liability on account of a breach of condition precedent. In those circumstances it does not seem to me that Multinacional can justly claim that reinsurers had a choice to make. If they could, it would mean that Multinacional could eliminate reinsurers’ reliance on alleged failure to comply with the clause in April 2002 on the grounds that reinsurers had elected to rely on a different failure occurring prior to January 2000; and then eliminate reinsurers’ reliance on the alleged pre-January failure on the ground that there was no failure at all.

In truth Multinacional’s contention is, as it was eventually put, that reinsurers had a choice between one of two inconsistent courses (a) to decide to assert that reinsurers were discharged from liability by January 2000 or (b) to rely on their rights under the clause. Reinsurers chose the former and their election to do so is irrevocable.

Reliance was placed on the words of Lord Goff in The Kanchenjunga:

“In particular, where with knowledge of the relevant facts a party has acted in a manner which is consistent only with his having chosen one of the two alternative and inconsistent courses of action open to him – for example to determine a contract or alternatively to affirm it – he is held to have made his election accordingly…”

Here, it is said, reinsurers had chosen course (a), which was inconsistent with course (b).

I reject this submission, which appears to me very similar to that rejected by the Court of Appeal in Kosmar. It is plain from what Lord Goff said in The Kanchenjunga, taken as a whole, and from the example given in the passage cited, that he was dealing with a party who has, in fact, mutually inconsistent rights e.g. to treat a contract as discharged by breach or to affirm it. He was not addressing the situation of someone who, not having mutually inconsistent rights, has to make a decision as to what course to take.

Whether or not after reinsurers’ denial of liability for breach of condition precedent, the clause is inapplicable as a matter of construction, falls to be determined upon the assumption (which Multinacional claims to be the true position) that the denial is not well founded. If it is well founded, the reinsurers are released from liability on that account alone; unless they have waived their entitlement to rely on that breach. It was not suggested that the reinsurers had done so, and, given the plethora of references to reinsurers acting without prejudice to their January 2000 denial of liability such a contention would not enjoy any realistic prospect of success.

A denial of liability does not ordinarily relieve the insured of its ongoing obligations in relation to claims unless the insured, being entitled so to do, has treated an insurer’s repudiatory breach as discharging him from the contract: Diab at para 23, citing Super Chem.

Whether or not the reinsurers’ denial of liability in this case meant that, as a matter of construction, there could be no “[co-operation] with the reinsurers in the adjustment and settlement of the claim” seems to me to be dependent on the nature of the denial and the stance actually taken by reinsurers in consequence. A reinsurer who denies liability and thereafter refuses to have anything to do with the claim on that account precludes cooperation by his very refusal. Contrariwise a reinsurer can maintain a contention that he has already been discharged from liability whilst actively co-operating with the adjustment and settlement of the claim without prejudice to that contention (which may itself be wrong).

A contrary conclusion would have several potential disadvantages. Reinsurers often have, or seek to rely on, more than one defence to any claim. Some of them, if to be taken at all, have to be asserted at an early stage. It is, however, in the interests of both parties that adjustment and settlement of the claim as contemplated by the clause should continue, without prejudice to any contention that, as a result of what has happened (or not happened) at an early stage, reinsurers are relieved from liability. The act of working out how much the claim is truly worth and further considering its validity may lead to it being settled, in whole or in part. Reinsurers may reconsider their original assertion of non-liability; or be willing to compromise; or the process may, itself, establish that the insured has no viable claim, or that the reinsured has no claim for some reason other than the original denial of liability. At the lowest the process of quantifying the loss figure will mean that, if the reinsurers’ original defence fails, the amount to be paid will be known and can be paid immediately.

Further, if the reinsured is, as a matter of construction, to be released from any further obligation to co-operate on account of reinsurers’ initial denial of liability, certain odd and undesirable consequences would follow. The clause contains an obligation to furnish reinsurers with all information in respect of circumstances “which may give rise to a claim against this policy”. But the reinsured would be absolved from any duty to co-operate with the reinsurers in the handling or analysis of that information in relation to the claim. Further, as Mr Mark Templeman, QC, for Multinacional, accepted, if Multinacional’s contentions be right, it would be open to the reinsured to admit the claim (subject to the risk that it might later be said that it had admitted a claim for which it had no legal liability).

This conclusion is supported by the following citation from MacGillivray, 10^th Edition (paragraph 19-46) in a passage which is dealing with waiver of non-compliance with a condition precedent :

“In practice insurers who intend to take advantage of the lateness of the notice should immediately repudiate liability on that ground. They may then ask for proofs and evidence “without prejudice” and the claimant is obliged to supply them according to the conditions of the policy because the insurers are entitled to a full opportunity of investigating the claim on its merits”.

Mr Espinoza understood from reinsurers’ without prejudice letter of 7^th January 2000 that reinsurers hoped that a common position could be reached and wanted to work with Multinacional to resolve the claim in a sensible and commercial manner. He also appreciated, and was always aware, that both parties were expected to cooperate in accordance with the obligations of the reinsurance contract and, as he put it, “that’s always how we did it”. The sequence of events to which I have referred in paragraphs 14 to 32 above demonstrates that the parties were, in fact, cooperating in the adjustment and settlement of the claim without prejudice to the reinsurers’ denial of liability.

During the course of dealing between the parties both of them referred on a number of occasions to the need to co-operate and the co-operation obligation. What follows are examples. The second letter of 7^th January 2000 referred to reinsurers’ wish to work closely with Multinacional in the spirit of cooperation envisaged by the cooperation clause to resolve the claim. In their letter of 11^th April 2001 DWS referred to a common position being agreed in the spirit of the co-operation clause which forms part of the reinsurance. On 20^th April 2001 Ince informed DWS that Multinacional had asked them to stress certain essentials including that “Our clients are fully mindful of their duty to cooperate with your clients”. On 18^th September 2001 Ince reserved the right to rely on antecedent correspondence should any question arise as to the willingness of the parties to cooperate with each other at this stage: a qualification repeated in later letters. The minutes of the October meeting record the parties’ “promise to continue cooperating to solve the Casualty thus complying with the obligations established in the insurance and reinsurance contracts”. Whilst the reinsurers did not bind themselves to these proposals the minutes reflected the expectations of the parties as to contractual co-operation.

Multinacional’s submissions included two further points. The first was that the “without prejudice” nature of the co-operation between the parties showed that it fell to be regarded as non contractual. I disagree. In a field where a failure timeously to take a point may, or may be argued to be, a waiver preventing it being taken at all, so that insurers will see a need to protect themselves from waiver arguments by a “without prejudice” caveat before going any further, I see no reason to treat reinsurers’ cooperation (without prejudice to their original point) as something happening outwith the contract that calls for it. By repeating the “without prejudice” mantra reinsurers should not be regarded, and were not in fact regarded, as indicating that any co-operation was extra-contractual.

The second point was that from May 2001 onwards the focus of the communications between the parties was on whether, and if so, how and when, Multinacional would take the time bar defence against Venalum, and that discussion on this topic was neither adjustment nor settlement of the claim. I disagree. The process of settlement and adjustment of a claim involves considering and determining whether and, if so, to what extent it (and the claim underlying it) is well founded. The process may result in a determination that the whole of the claim is due, or part, or none of it, for whatever reason or reasons. In a case such as this the process involves considering whether or not there is an effective time bar applicable to the claim of the original insured; since, if there is, the reinsurers will be under no obligation to indemnify the reinsured, especially where, as here, the time bar extinguishes the right.

I conclude, therefore, that reinsurers are not precluded from invoking the clause as a matter of construction.

It is now common ground between the parties (i) that, as a matter of Venezuelan law, the applicable time period for a claim by Venalum against Multinacional was three years; beginning on 16^th April 1998, (ii) that Venalum took no step capable of stopping the running of time during that three year period; and (iii) that Venalum’s claim was, accordingly, time barred from 16^th April 2001 onwards.

I have received written and oral evidence of Venezuelan law from two distinguished Venezuelan lawyers. The reinsurers called Dr Federico Araujo Medina (“Dr Araujo”), an experienced Venezuelan practitioner in commercial and tax law. Multinacional called Dr Adan Febres Cordero (“Dr Febres”), who is currently a Professor of Civil Procedural Law at the Andres Bello Catholic University, and who has been a judge in the Civil, Commercial and Employment Chamber of the Supreme Court of Justice from 1984 to 1992. The Supreme Court is Venezuela’s highest court.

As one would expect there has been a measure of agreement between the two, albeit not entire agreement. What is set out in paragraphs 83 to 85 below is agreed to represent Venezuelan Law. Insofar as it has been necessary to prefer the evidence of one to another, I prefer that of Dr Araujo, whose views seemed to me more likely to reflect the modern law of Venezuela and current learning.

Article 4 of the Venezuelan Civil Code is the general rule for the interpretation of the laws of Venezuela. That article provides:

“4.

The law must be attributed the meaning which appears obvious from the meaning of the words themselves, according to the connection between them and the intention of the legislator.

When there is no precise provision in the Law, provisions which govern similar texts or analogous subjects will be taken into account and if there are still doubts the general principle of law will be applied.”

Similarly in the case of private documents, the Court is concerned to discern the intention of the writer.

The provisions relating to what amounts to a waiver (“renuncia”) of time bar are contained in Articles 1.954 and 1.957. Article 1.954 provides:

“1.954

Time bar can only be renounced after it is acquired”

Article 1.957 provides:

“1.957

The renunciation of time bar may be express or tacit. Tacit renunciation results from any action incompatible with the desire to make use of time bar.”

Time bar in Venezuelan Law operates so as to extinguish obligations. A time bar is a matter of substance and can be dealt with both civilly and procedurally. Thus the party in whose favour the time bar operates can enforce it judicially (i.e. by relying on it in court) and rely on it extra judicially, every time that fulfilment of the time barred obligation is required of him. In the present case it is the insurers who are able to renounce the time bar.

Dr Febres’ evidence was that any express renunciation must, also, be “clear patent and specific”, revealing without any doubt of any sort the intention and the purpose of the debtor to renounce the time bar defence. He prays in aid an observation of Professor Gert Kummerow, in relation to express renunciation that “any statement intended not to claim the time bar defence must be seen to be unequivocal and clear”: Compendio de Bienes y Derechos Reales; Caracas 1986 pp 160-162.

Dr Araujo regards this as an unwarranted gloss on the words of the Article and observes that Professor Kummerow’s observation was made in a different context.

As to that, Venezuelan law recognizes two types of “prescripcion”, a concept which is somewhat inadequately translated as “time-bar”. The first relates to the extinction of liability if proceedings are not commenced within the prescribed period and is called “La Prescripcion Extintiva”. The second relates to the doctrine of “Usucapion” and is called “La Prescripcion Acquisitiva”. Under the latter doctrine a person who has been in possession of property for 20 years, apparently as owner, may claim title to the property but must bring an action to vindicate his title. As Dr Araujo put it, that person ends up “with a declaratory judgment whereby by a kind of legal fiction, possession becomes ownership”. The passage cited from Kummerow relates to Usucapion and, as I understand it, the possibility that the person who claims title as a result of the expiry of the 20 years may lose his prescripcion right if, when sued by the owner of the paper title, he fails to claim usucapion but limits himself to claiming payment for improvements, because he will be held to have renounced.

This is apparent from the passage in which the words quoted appear:

“Renunciation, however, is not assumed. Therefore, any statement intended not to claim time bar must be unequivocal and clear. Thus, in action for recovery, if the defendant is limited to claiming payment for improvements actually made to a property and even existing, without the plaintiff (Footnote: ⁵) claiming usucapion, despite having owned it for twenty years or more in the context of owner, it is understood that he renounces the effect of the institution”.

Multinacional submits that there is no reason why the need for the renunciation to be clear and unequivocal should arise in respect of one type of prescripcion and not the other.

I regard this as something of a barren controversy. What is under consideration is a renunciation or waiver of the time bar. In its decision of 12^th April 2007 the Social Cassation Division of the Venezuelan Supreme Court explained what waiver meant. It observed that “... case law and academic authority point out the following: “The waiver of the time bar defence is an act by means of which the debtor conveys, either expressly or tacitly his intention not to exercise that right””. The judgment then considers tacit waiver, which “derives from any act that is incompatible with the intention to take the time bar defence”, of which it give some examples such as “voluntary compensations, petitions for deferment, offers by a guarantor or any debtor and, in general any act that seriously conveys the assumption that the intention is not to take the time bar defence”.

In those circumstances any express waiver must be in terms that are sufficiently clear to convey the creditor’s intention not to take the time bar defence. It is not necessary, as Dr Araujo confirmed, that the creditor should say in terms “I am waiving the time bar”; but the effect of what he says must be to indicate that he does not intend to take the time bar point, or that he recognises the validity of the right which is said to have been time barred. If the letter is clear enough to give that indication that is sufficient. Insofar as reference to the need for it to be “clear, patent and specific” requires something more than that I do not accept that such a requirement is part of Venezuelan law.

Whether or not the letter of 3^rd April 2002 did convey that intention is for this court to decide. The meaning conveyed by words is prima facie to be discerned by examining the context in which the words were written, what those words were, and how they would have appeared to a reasonable person in the position of the person to whom they were addressed.

As to context, the words were written in circumstances where Venalum was, and was known by Multinacional to be, very concerned as to the progress of the claim. Both Multinacional and Venalum knew that reinsurers were seeking to contend that the Venalum claim was time barred and Multinacional had, in accordance with an undertaking given to Venalum, obtained a favourable, although erroneous, ruling on time bar from the Insurance Superintendent. Venalum, through Ms Gonzalez, was concerned that Multinacional should show its commitment to Venalum. Mr Espinoza had sought to cast a positive light on the situation and Ms Gonzalez had understood, as Mr Espinoza knew, that Multinacional had achieved the non prescription of the claim. (He also knew that he had not disabused her of this idea). Against that background the focus of Venalum and Multinacional was on whether or not Venalum’s claim against Multinacional was time barred. It would have been a matter of indifference to Venalum whether or not Multinacional’s claim against reinsurers was time barred. If that claim was governed by English law, it was not.

The significant paragraphs of the words used are paragraphs 4 and 5:

“4.

For insisting to the reinsurer (Lexington) seeking definite answers that Venalum reasonably demanded and which had to be given to them, the reinsurer simply responded by filing an action against us for an alleged breach of the above mentioned clause and conclusively ratified to the adjuster the prohibition to continue with the case and stated its position of rejecting the claim on the basis of time bar, which we rejected as we considered that it was legally incorrect.

5.

Considering how incomprehensible this attitude seems both to you and to us, we have obviously employed all the legal resources, sparing no expense, both in Venezuela, which includes our reports to the Insurance Commission (Superintendencia de Seguros) and in London in order to reverse this state of affairs and ensure the continuation of the adjustment and the suspension of the proceedings, which to date has been achieved.”

[Bold added]

In my judgment those words clearly conveyed to anyone in the position of Ms Gonzalez and Ms Quintana of Venalum: (i) that the contention (advanced by reinsurers) that Venalum’s claim against Multinacional was time barred had been rejected because that contention was, in Multinacional’s view, legally incorrect; (ii) that Multinacional considered reinsurers’ attitude in raising this point (together with its filing of an action in London and stopping the adjustment) to be incomprehensible; and (iii) that it had no intention of taking the time bar point since it recognised that Venalum’s right to claim was not extinguished by time bar. Although the last point is not expressed in so many words it is plainly implicit in what was being said.

The letter contains no indication that Multinacional was keeping open a right to rely on the time bar point (legally incorrect and incomprehensibly taken as it was said to be) in the future. On the contrary, the letter confirmed “our strong undertaking to continue with all the procedures necessary to bring this case to a conclusion once the corresponding adjustment has been finalised and delivered”. If the claim was time barred there would be no valid claim in relation to which there could be any relevant post-adjustment procedures (Footnote: ⁶).

Multinacional submits that paragraphs 4 and 5 were ambiguous. The phrase “which we rejected as we considered that it was legally incorrect” was intended to mean, and could be interpreted as meaning, that what was rejected by Multinacional was the position of rejecting the claim on the grounds of time bar alone. Alternatively it could mean that what Multinacional had rejected was the prohibition of the adjustment. Further the reference to the incomprehensibility of the reinsurers’ attitude and the employment of legal resources in Venezuela and London was intended to be, and could be understood as, a reference to the attempts made through the Superintendencia and in London to ensure the continuance of the adjustment.

I do not accept that what was said was, or could be regarded as being, ambiguous to the recipient. The words used contain no indication that what Multinacional had rejected was a proposal to reject Venalum’s claim on the basis of time bar alone or that what they were dealing with was an issue as to the procedure for rejecting the claim. Multinacional cannot reasonably be supposed to have been telling Venalum, in a letter intended to deliver a positive message, that reinsurers’ mistake was to propose to take only one point by way of defence to the claim rather than two (or more). Nor can Venalum reasonably be supposed to have understood that that was what was being said. It is also unrealistic to suppose that Venalum would have any interest in learning, or Multinacional in teaching Venalum, the correct procedural method of Multinacional rejecting its claim. There had been no prior discussion about procedure with Venalum. Venalum’s communication at 14.58, to which the letter was a response, had been talking about whether or not the time bar applied. Nor is there any reason to interpret the “which we rejected ….” phrase as not referring to its immediate antecedent viz “its position of rejecting the claim on the basis of time bar”.

There is, also, no basis for limiting Multinacional’s expression of incomprehension, or its reference to its efforts before the Superintendencia and in London, to the cessation of the adjustment and the accusation of failure to co-operate made in the London proceedings, in circumstances where (a) the efforts before the Superintendencia were known by Venalum and Multinacional to include seeking and obtaining a favourable ruling on the time bar point; and (b) Multinacional had allowed the suspension of proceedings in London to appear to have some link with the lifting of the prescription. The state of affairs (“esta situacion”) which Multinacional was seeking to reverse included the contention that the claim was time barred.

Mr Espinoza’s evidence was that he was being “very ambiguous” when he talked about the conclusion (see paragraph 97 above) because the conclusion might be to reject the claim. I do not think that he succeeded in his aim. The message conveyed to Venalum was not that, once the adjustment was delivered, the claim might be rejected on the ground of time bar.

This conclusion renders it unnecessary to determine what Mr Espinoza or Mr Espinoza and Dr Mourino subjectively intended the letter of 3rd April 2002 to mean. If I had not been able, looking at the matter objectively, to reach a clear conclusion as to the message which the letter conveyed, it would have been permissible, under Venezuelan law to take into account what Mr Espinoza, and, to the extent that he was the draftsman, Dr Mourino intended.

Multinacional’s pleaded claim was that the relevant words involved Multinacional “opining that legally or procedurally” (bold added) rejection of the claim on the basis of time bar was inappropriate. Mr Espinoza’s evidence was that he was in a difficult position, and was approaching the question of what to say in a diplomatic way. What he intended to convey was that reinsurers had in the past sought to reject the claim on the basis of time bar alone and that he took the view that this was the wrong way to proceed because it was incumbent on an insurer under Venezuelan law to give technical reasons in declining a claim and not to reject it on the basis of time bar alone, a stance that would, in any event, have been inconsistent with what was agreed in October. He was trying to buy time because he did not then have a technical reason for rejecting the claim since the adjustment had not been completed. Moreover he did not want to tell Venalum that Multinacional and the reinsurers had already agreed to reject the claim in any event, which he thought would have been very difficult to explain to Venalum, and might well lead to an immediate claim in the Venezuelan Courts.

In this connection he drew attention to Article 175 of the Law of Insurance which provides:

“Paragraph Four. Insurance companies cannot reject claims with generic arguments, being obliged to notify their contracting parties, insureds or beneficiaries of the policies, within the period stated, of the reasons that they are alleging for considering a claim not to be covered”.

I do not regard Mr Espinoza’s evidence as to what Multinacional intended to convey by this letter as likely to be correct for a number of reasons. Firstly, it is inconsistent with the objective meaning of the words actually used. It is more likely that he intended the words to mean what they say. Secondly, if the message which Mr Espinoza intended to give was as he claims, it was not a message which would have given much comfort to Venalum, when giving comfort was the purpose of the letter. Thirdly Mr Espinoza’s explanation does not readily fit the facts. It is also difficult to see why he should wish to expose to Venalum a disagreement between Multinacional and reinsurers as to how the claim should be rejected.

Mr Espinoza suggests that he was referring to the position adopted by the reinsurers before the October meeting, and Multinacional draws attention to a letter from DWS of 21^st May 2001 in which it recorded its instructions that it should not incur further costs negotiating the future adjustment of the claim on a without prejudice basis “when there may not be any claim which Venalum can properly bring”. I do not find this convincing. The communications between the parties prior to October do not reveal Multinacional rejecting a procedural position adopted by reinsurers that the claim must be rejected on the grounds of time bar alone. Even if there had been such a dispute prior to October 2001 there was not one thereafter; and it would make little sense to refer in April to an issue now over six months old.

Further, Article 175 does not appear to impose any legal requirement for time bar to be taken with other defences. When Dr Febres was cross examined the tenor of his evidence was that the obligation to take a time bar defence together with technical defences was a matter of commercial practice. I bear in mind, however, that Mr Espinoza is not a lawyer and that he may have taken the view that technical and time bar defences should go hand in hand (Footnote: ⁷).

But that was not the point he was making in the letter. The version of the letter sent to Ms Gonzalez at 1754 did not include the words “which we rejected as we considered that it was legally incorrect”. Mr Espinoza’s evidence was that the wording of the letter was amended in discussion with Dr Mourino. I infer that one of the results of that discussion was the insertion of those words; and that Dr Mourino (and Mr Espinoza) intended them to mean that Multinacional had rejected the proposition that the claim was time barred because it was, in Multinacional’s view, wrong as a matter of law.

That is what Multinacional’s lawyers had thought in May 2001. On 17^th May 2001 Ince informed DWS that Multinacional’s Venezuelan lawyers were “adamant” that it was not the case that there was a three year time limit that had expired. Multinacional’s application to the Superintendencia suggested that a three year time limit from the date of loss was not correct. That position was always maintained by Multinacional and its lawyers. Multinacional agreed at the October meeting to take the time bar point. But, as Ince made clear in their fax of 21st November 2001, they did not concede its correctness.

In the light of what had been agreed with reinsurers’ lawyers about taking the time bar point I regard it as unlikely that Dr Mourino and Mr Espinoza thought that the letter amounted to a renunciation. But I cannot determine whether (a) they considered, having thought about it, that the letter, including reference to Multinacional having rejected the time bar point for legal incorrectness, did not have that effect; or (b) they did not address their minds to the question whether it did or might do so. I suspect the latter.

Accordingly, I conclude that the letter of 3^rd April was an express waiver of the time bar.

Reinsurers submit that, if for any reason the wording of the letter was insufficiently clear to amount to an express waiver, then there was an implied waiver because the letter was incompatible with an intention to rely on the time bar. Multinacional submits that if the letter does not amount to an express waiver, the only act that can be relied upon for the purpose of tacit waiver is the act of sending it, which could scarcely convert what was not a waiver into one.

In my judgment the correct analysis is that the waiver here was express because the words used and what is implicit in them convey the necessary intention. Tacit waiver principally arises as a result of some act, such as part payment or the offer by the debtor of a guarantor, which is incompatible with reliance on the time bar. But, in the Supreme Court decision to which I have referred, the appellant was held to have waived the time bar because, in a memorandum, he stated that he agreed with certain data, which were, I presume, only correct upon the footing that no time bar operated. In a decision of the Social Cassation Division of the Supreme Court of 29^th March 2007 the Court decided that the Personnel Secretariat of the State of Apure had tacitly waived a time bar defence, after a claim had been filed, by informing a claimant’s judicial representative that he had not submitted the documentation necessary to calculate his employment benefits - on the ground that such statement was incompatible with an intention to use the time bar defence. The same Division in February 2000 decided that a failure to take the time bar point in the defence operated as a waiver (Footnote: ⁸).

A statement, not expressly relating to time bar, can, therefore amount to a waiver, if it necessarily assumes that no time bar applies. Tacit waiver, as the Supreme Court has held, arises from any act which seriously conveys the assumption that the intention is not to take the time bar defence. If I am wrong to conclude that there was an express waiver arising from the words used and what is implicit in them, then I regard the letter of 3^rd April 2002 as constituting a tacit waiver on the grounds that it seriously conveys that assumption. In describing the time bar point as legally incorrect and the action of taking it as part of the reinsurers’ incomprehensible behaviour, without any suggestion that the time bar defence had already arisen or that they would be taking it, Multinacional can only be assumed to intend not to take the time bar defence. This assumption is confirmed by the reference to the continuation of the adjustment and Multinacional’s commitment to taking all necessary steps to bring the matter to a satisfactory conclusion.

Multinacional belatedly contended that Mr Espinoza lacked authority to send the letter of 3^rd April. This contention is unpleaded and was not raised at the CMC at which the preliminary issues were ordered. One consequence of that is that there is no statement of truth signed on behalf of the company attesting to a plea of want of authority.

In English terms the plea is somewhat surprising. Mr Espinoza was one of a small number of Vice-Presidents. His position was one rung below the President. Each of the Vice-Presidents managed a different part of the business. Mr Espinoza was Vice President (Technical Operations). He was an alternate director of Multinacional. He signed the insurance policy on which Venalum claims; and dealt with the Venalum claim and the claim against reinsurers. Part of his role involved the negotiation of excess of loss reinsurance placements and, if the claim was large enough, reinsurance recoveries. He was in charge of claims management, decided questions of policy, and was personally involved on behalf of Multinacional in relation to important claims on Multinacional. This could involve deciding what points to take in relation to a claim. The letter, which was on Multinacional’s paper, was copied to Multinacional’s President and its Legal Advisor, and the latter had amended the draft.

Whether or not Mr Espinoza had the requisite authority is, however, a matter of Venezuelan Law, the provisions of which are not entirely straight forward. Two Codes are relevant in this respect (a) the Civil Code and (b) the Commercial Code.

Section XI of the Civil Code deals with mandates. The Articles principally relevant are as follows:

“1.685

The mandate may be express or tacit. Acceptance may be tacit and result from the execution of the mandate by the agent.

1.687

The mandate is special for a transaction or for certain transactions only, or general for all of the principal’s transactions.

1.688

The mandate granted in general terms does not include anything more than acts of administration.

In order to be able to sell, transfer, mortgage or conclude any other act which exceeds ordinary administration, the mandate must be express.”

Article 1.955 in Section XXIV on Time Bar provides that:

“1.954

He who cannot transfer cannot renounce the time bar”

Although Article 1.954 appears more relevant to prescripcion adcquisitiva Mr David Owen, QC, for reinsurers, accepts that it is applicable to both types of prescripcion.

In order, therefore, for the waiver to be authorised it is necessary that it should have been authorised by someone with the power of transfer of Multinacional’s property. The President of Multinacional had that power. There is, however, as it seems to me, nothing in the Civil Code that prevents the President from authorizing another to do that which amounts to a waiver.

The effect of the Code appears, therefore to be as follows. The first question is whether the mandate relied on is general or special. A general mandate covers all of the principal’s transactions but only for acts of administration. It may be express or tacit. A special mandate is more limited, and covers only a particular transaction or certain specified transactions. It, also, may be express or tacit. But, in order for a mandate to cover an act which goes beyond ordinary administration the mandate must be specific and express. There is no indication in the Code that an express mandate must be in writing.

Accordingly the following questions arise:

Waiving of a time bar is probably an act exceeding ordinary administration. The Civil Code provides no further definition of what is meant by “ordinary administration”. Dr Araujo indicated that, in the commercial field, it would include the making of contracts which the relevant business would ordinarily make. It might, therefore, be said that, since it was part of Mr Espinoza’s job to make insurance contracts and to deal with claims arising thereunder, the dispatch of a letter such as the letter of 3^rd April 2002, was, for him, an act of ordinary administration.

But the waiver of a time bar removes Multinacional’s right to rely on the extinction of its liability to Venalum otherwise effected by the lapse of time. That does seem to be beyond the ordinary course of administration, even for Mr Espinoza, particularly having regard, by way of analogy, to Article 154 of the Code of Civil Procedure which provides that “the legal mandate itself does not imply authority to abandon, settle, commit to arbitrations, request a decision in accordance with the rules of equity, to make bids in auctions, to receive sums of money, to establish the right in lawsuits, for which respective acts express authority is required.”

Mr Espinoza’s evidence was that the letter was carefully considered within Multinacional; that he and Dr Mourino worked on the text of it together, and that Dr Mourino was happy with it, having corrected some things on it. Mr Espinoza’s evidence then contains the following passage:

“Q And because he had been involved, he was copied in on the fax.

There is no reason for any such disagreement. The letter was

As is apparent from the passage that I have cited, having accepted that the President obviously authorised the letter, Mr Espinoza rowed back from that position and said that he was not aware whether the President was in that day. His evidence must, of course, be looked at as a whole and care must be taken not to seize, inappropriately, on one particular answer. I have, however, come to the conclusion that the likelihood is that the President did authorise the sending of the letter before it was sent.

I have reached that conclusion for the following reasons. The President was a very hands-on manger. He was always at the company, wanting to know exactly what was going on. He was one floor above Mr Espinoza, from whom he required and received daily updates and reports. Mr Espinoza was a regular visitor to his office. The letter was the subject of careful consideration in the company before it was sent. Venalum was regarded as a major client. The President and his assistant were copied in on the letter when sent, without any accompanying memorandum explaining why it was being sent. Lastly the confident tone with which Mr Espinoza volunteered the evidence that the President had obviously authorised the letter seemed to me more consistent, despite what Mr Espinoza later said, with the true position being that the President had authorised it before it was sent. I also take into account that no evidence, oral or written, has been adduced from the President or Dr Mourino.

Even if I am wrong on that, it is clear that the President was aware of the letter very soon after it was sent, and that Venalum knew that he was so aware. If, contrary to my view, the President did not discuss the letter with Mr Espinoza and Dr Mourino, before it was sent, he certainly did so very soon afterwards and approved it. This would not have been done tacitly. Although it is convenient to discuss the authority issue in the first instance in terms of whether or not the President authorised the sending of the letter before it was sent the critical question is whether he authorised Mr Espinoza to convey to Venalum Multinacional’s intention not to take the time bar point. The letter of 3^rd April 2002 conveyed that intention by its terms and continued to do so thereafter. It was never countermanded. In those circumstances, when the President discussed the letter with Mr Espinoza, and approved it, he must be taken to have authorised its message as to Multinacional’s intentions to continue to be conveyed to Venalum.

Those conclusions render it unnecessary to decide whether, quite apart from any specific authorisation in respect of the letter of 3^rd April 2002, Mr Espinoza had express verbal authority from the President to carry out acts exceeding ordinary administration which would have enabled him to send the letter. Rejection of the argument that the writing of a letter such as that was part of Mr Espinoza’s job, and therefore must have been an act of ordinary administration, does not inevitably involve rejection of an argument that an act beyond ordinary administration, if that is what the letter was, was something that he was authorised to do. Provided that any authority purportedly given in respect of such an act was express, (but not necessarily written) the authorisation would be valid.

It does not seem to me, however, that such an express grant of authority is established or to be inferred. Mr Espinoza’s authority to do what his job required (and for which he did not have a written contract) is better viewed as a tacit authorisation arising from the fact of his being employed to do the job and his acceptance of that. Whilst it is possible that the President gave some express verbal authorisation to him to carry out his functions in such terms as embraced the sending of a letter which renounced a time bar, it seems to me somewhat unlikely that he did so. There is no evidence that he did; nor was it suggested to Mr Espinoza in evidence that he had.

Reinsurers also rely on the fact that Dr Mourino approved the letter as constituting the necessary authority. Multinacional’s opening skeleton submitted that “only the President and designated “Legal Advisor” of Multinacional had the general authority to perform such extraordinary acts [i.e. to renounce the time bar] without specific authorisation from the Board of Directors (paragraphs 40-47 of Dr Febres’ report...)” It then went on to observe that although Dr Mourino was, of course, consulted by Mr Espinoza “about the drafting of the letter, he did not in any sense authorise it: it was sent out by Mr Espinoza under his own name”.

Dr Febres’ report referred to the company statutes of Multinacional and the minutes of a meeting of the Board dated 14^th July 2000 in which powers were delegated to the President and noted that “only its President and its Legal Adviser can commit [Multinacional] in acts which exceed ordinary administration, as inferred by the content of articles 14 and 16 of its company statutes …dated 13 September 2000”. Therefore, Dr Febres concluded, “only the President and the Legal Advisor of Multinacional are authorised to renounce a legal defence without exhibiting express authority or an express Mandate to do so”. He expressed the view that if there was no verbal instruction to Mr Espinoza to renounce the time bar defence, Mr Espinoza did not have the power to renounce it on behalf of Multinacional.

That submission and report indicated that, in respect of Dr Mourino, the relevant question was whether he authorised the sending of the letter. As to that I am satisfied that he did. The fact that Mr Espinoza signed it does not mean that Dr Mourino did not authorise it to be sent. Dr Mourino, among others, was closely involved with its drafting. He made a number of corrections so as to ensure that he was happy with the resulting text. The likelihood is that the words “which we rejected as we considered that it was legally incorrect” were his. He was the Legal Adviser. Mr Espinoza was not a lawyer. In those circumstances he must be taken to have authorised the sending of the letter in the form in which it was sent.

In his closing submissions, however, Mr Templeman prayed in aid the provisions of Article 16 of Multinacional’s constitution. Under Article 14 the Board of Directors is granted “full powers to conclude acts of administration and disposal” and the President is said to be the “body enforcing the decisions of the Board of Directors and will represent the Company with third parties”.

Chapter VI is headed “On Legal Representation”. Article 16 provides:

“Representation of the Company before the Republic’s Courts and before National, State or Municipal Authorities will be the responsibility of an official called Legal Consultant…..he will be authorised to carry out all procedural acts not reserved by Law for the Company itself, being able to grant and revoke powers of attorney, make bids in auctions and receive sums of money for the Company. He may agree, abandon, settle, commit to arbitrations, request a decision in accordance with equity or establish rights in disputes when authorised in writing by the President or the person standing in for him”.

Mr Templeman submits that Dr Mourino cannot have had authority to renounce, or authorise anyone else, to renounce the time bar, which is in effect an abandonment of a legal right, in the absence of a written authority from the President.

I accept Mr Owen’s submission that Multinacional cannot be regarded as having established, the evidential burden being on them, that Dr Mourino lacked authority because he had no written authorisation. The point is nowhere pleaded. It did not surface until the end of the case. It does not appear in Dr Febres’ report, nor was he asked any questions about it. In the light of the way in which the case was presented and the content of that report, reinsurers were, and the Court is, entitled to proceed on the basis that authorisation of the letter of 3^rd April 2002 by Dr Mourino would be effective, at any rate in the absence of evidence that he lacked written authority. There is no evidence from either Dr Mourino or the President about the extent of Dr Mourino’s written authority. If Multinacional sought to take this point it was for them to plead and prove it.

Accordingly, in my judgment, Mr Espinoza had the necessary authority from Dr Mourino to renounce the time bar. It is nothing to the point that Dr Mourino (or the President) may not have appreciated (if, indeed, they did not) that that was the effect of the letter.

Reinsurers also contend that Mr Espinoza had authority to renounce the time bar by virtue of the provisions of Section V of the Commercial Code. Under Article 8 of the Commercial Code the Civil Code in relation to commercial transactions only applies where the Commercial Code does not contain applicable rules.

Section V (“On Mercantile Factors and Subordinate Employees”) provides as follows:

“Article 94

A factor is the manager of a company or mercantile or manufacturing establishment, or a branch of these, who manages on behalf of the owner.

Subordinate employees (dependientes) are the subordinate employees that the trader has beside him/her to assist in his/her operations, working under his/her direction.

The owner is known as principal with regard to the factors and subordinate employees.

Article 95

A factor must be constituted by means of a registered document that will be filed with the Commercial Register Office and shall be publicly displayed in the Court hearings room.

The factors are understood to be authorized for all the acts concerning management of the company or establishment entrusted to them; and they may execute anything that is necessary for the proper performance of their position, unless their principal expressly limits the powers that he grants to them.

Article 96

In the operations they carry out, the factors shall state that they enter into the contract on behalf of their principals; and on the documents they sign they shall state before the signature that they sign under power of attorney.

Article 97

If the factors should not state that they are acting under power of attorney, they will be personally liable for performance of the contracts. It shall be understood that they have acted in representation in the following cases:

Reinsurers submit (a) that Mr Espinoza was a factor within the meaning of Article 94; and (b) that, being such a factor, he was authorised for all the acts concerning the management of the company entrusted to him. Accordingly Mr Espinoza had authority to renounce the time bar on behalf of Multinacional.

It was faintly suggested on behalf of Multinacional that since Article 94 referred to “the manager” of a company, it was necessary for the supposed factor to be the only manager. I reject this. I do not regard the use of the definite article in Article 94 as indicating that there can only be one manager. The opening words of Article 94 (“Factor es el gerente …”) are there to describe what a factor does. He is the manager of a company, establishment or branch. It is not necessary that he should be the only one (“El unico gerente”). I note also that the Spanish in Article 95 (“El factor debe ser constituido..” ) has been translated as “A factor must be constituted …”

More significantly Multinacional submits that Articles 94 – 97 establish a series of requirements which must be satisfied if someone alleged to be a factor is to bind the company. Firstly, the person in question must be a factor. Secondly, he must have been constituted as factor by means of a registered document filed with the Commercial Register Office. If no such documents is filed the person in question will not be a factor. Thirdly, the factor must, in relation to any contract, state that he enters into the contract on behalf of his principal, and in relation to any documents that he signs, that he signs under power of attorney. If he enters into a contract and does not state that he does so on behalf of his principal, he will be personally liable for performance. If he has contracted on behalf of his principal in any of the circumstances set out in 1-4 of Article 97, third parties who have contracted with him may claim against him or the principal but not both. Otherwise he is liable alone. Similarly, if he signs a document without stating that he signs under power of attorney, the company is not bound by it.

I am quite satisfied that Mr Espinoza was a factor within the meaning of Article 94. He was one of the highest ranking managers of Multinacional below the President himself. There is Venezuelan authority, to which Dr Araujo refers, in which a Vice-President was held to be a factor.

The critical question is whether the effect of the opening words of Article 95 (“A factor must be constituted by means of a registered document …”) is that, in the absence of a registered document, filed and displayed as that article requires, Mr Espinoza was, for the purposes of the Commercial Code, invalidly constituted as a factor and, on that account, bereft of any factorial authority. Looked at in English terms the issue is whether the opening words of Article 95 are directory, or mandatory in the sense of being a pre-condition of factorial authority.

So far as the language used is concerned, registration is obviously not merely permissive, and non registration has consequences. One such consequence is that a third party is not bound by any limitations on the factor’s authority of which he is not aware: see section 25 of the Commercial Code. At the same time the words do not specify that the effect of non-registration is that the apparent factor has no authority at all.

Reported Venezuelan authority is sparse in the extreme. Dr Febres refers to a passage from a ruling of the Supreme Court of 26^th October 1961. But the facts of the case and the nature of the dispute are obscure, and the short passage cited casts no real light on the issue.

In paragraph 14 of his supplemental report Dr Febres says:

“Amongst the case law on commercial agents, a single author, Alfredo Morles Hernandez, supports a doctrine which accepts the constitution of an agent despite there being no regulation recorded dedicated to the subject in Section V of Chapter II of the Commercial Code. The doctrine concludes that it is necessary to analyse each specific case because there is no regulation, but the doctrine does not offer either regulations or examples. Classic authors such as Luis Sanojo and Anibal Dominici maintain the contrary. The Supreme Court of Justice , since 1961, has established case law in the sense that the commercial agent, in order to be constituted as actually existing, needs two records, one in the Secondary Register and one in the Commercial Registry”

The Commercial Code was published in 1862. The concept of a factor was introduced in 1873. Although there have been changes to the Code since then, in terms of punctuation and numbering, there appears to have been no change of substance. Luis Sanojo and Anibal Dominici were late 19^th Century commentators. Sanojo produced a commentary in 1862 on the 1862 Code. He died in 1876. Whether he produced a commentary on the 1873 Code is uncertain. Dominici produced a commentary in 1896 and died in 1897. Neither commentary has been produced.

There is, however, modern commentary on the Code. Professor Alfredo Morles Hernandez, who was described by Dr Febres as “one of the greatest commentators in Venezuela” in the area of commercial law (Footnote: ⁹), holds that registration is not required as a precondition of effective factorship. He is supported by Dr Roberto Goldschmidt, whom Dr Febres described as one of the most important persons concerned with the development of modern commercial law in Venezuela.

In his Course on Mercantile Law Professor Morles (Footnote: ¹⁰) states, citing Goldshcmidt, that:

“The fact that the document constituting the factor is not made public does not affect its validity but only its effect vis-à-vis third parties….the documents that are not registered and made public have no effect with respect to third parties. In addition, the parties interested in the documents may not argue before third parties in good faith the lack of timely registration and publication…”

In other words, as I understand it, the principal cannot rely upon his own failure to register a document to avoid liability to the third party. Morles then deals with factors who ware tacitly appointed and those appointed by a document in the following terms:

“When the capacity as factor arises from factual circumstances, that is to say, it derives from a tacit constitution, the principal will not be able to allege that the powers of the factor have limitations of which third parties are aware. It is a different matter when the factor is constituted by means of a private document or indeed a public document that has not been registered as per Article 19 (11) (Publicity). If the third parties are aware of the instrument granting the factor powers of representation and they enter into contracts, the may not allege in their favour that the document was not made public”.

He goes on to indicate, that in the case of a tacit factor relationship, which he describes as “particularly difficult to prove”, the question whether a third party is affected by a limitation of the factor’s authority depends on whether or not the third party was told, or was otherwise aware, of the limitation:

“In Venezuela, the validity of a tacit representation relationship between principal and factor and the existence of effective limitations binding on third parties depend on the facts of the specific case, proof of which need to be provided.. A third party who makes evident the existence of a tacit factor relationship may not refuse to recognise the limitations which the factor had and of which the third party had been informed or of which he was aware. Neither could a malicious or negligent principal (just as he cannot allege the lack of registration and publication in his favour) invoke limitations of which the third party is unaware. The rules on the express relationship of factor should be applied to the tacit factor relationship in a logical and coherent manner, particularly those relating to making public the document constituting the factor.”

In his Course on Mercantile Law at the Central University of Venezuela Dr Goldschmidt wrote:

“39

CONSTITUTION OF THE FACTOR

The factor must be constituted by the registered document which will be registered in the Registry of Commerce and recorded in the Court Room (article 95, heading). Where such formalities are not complied with, the internal relationship between the parties and the external relationship with regard to third parties must be taken into account separately. Despite one unfavourable judgment in the Federal Court and Court of Cassation, the formalities have nothing to do with the validity of the contract of employment between the principal and the factor, i.e. the validity of this contract does not depend on the compliance of formalities. This is due to the purpose of the formalities which have been established. The constitution of factor via a registered document has no autonomous meaning and only constitutes the first stage of the successive registration of the power in the Registry of Commerce and its recording, and consequently the only penalty which can be applied as a result of the omission in carrying out the formalities is that indicated in article 25 of the Code. The latter requires the registration only in relation to the interests of third parties who will be dealing with the factor, and through him with the principal, who must be able to avail themselves of information with regards to the granting of the authority and its limitations. But there is no reason to protect the principal before the factor through the establishment of formalities, so that it is absurd and against the principles of the right to work to sustain that the contract is not valid without the fulfillment of the formalities. The result of the opposite solution would be that the factor, despite the work carried out, would lack a contractual action and it would end up being reduced to an action for unjust enrichment. In fact, in other countries, in particular Brazil until Law No. 5.571 of 13 November 1928 and today still in Argentina there are contrary provisions according to which the omission of formalities has a bearing on the validity of the contract (Argentine Code of Commerce, articles 42 and 134); but precisely because a regulation of this type goes against the spirit of the right to work ,at the time when those provisions were being drawn despite the text of the law, the rules on contracts of employment were applied by analogy to the so called preposition of fact

With regard to external relationships, one can refer to what is discussed in relation to article 25. There, we have pointed out that an appointment that is neither registered nor recorded has no effect vis-à-vis third parties, but a principal cannot plead against the third party the lack of timely registration or publication of the appointment document. Thus, the grant of authority in a manner other than that prescribed in article 95 can be considered valid by third parties vis-à-vis them, and this presupposes that the grant [of the authority] was valid, and they [the third parties] can proceed against the principal relying on the acts performed by a factor that is appointed without compliance with formalities.

Mr. Templeman submitted that, in the latter paragraph, Dr Goldschmidt was concerned with an appointment in writing which had not been registered or published. In such a case the principal could not rely on want of registration or publication vis-à-vis a third party, whereas, if the appointment was made orally or by conduct, he could. I do not believe that Dr Goldschmidt was making this distinction; nor did Dr Araujo. It does not seem to make much sense: if an unregistered documentary appointment is effective, why should an unregistered, but proved, appointment made orally or by conduct not be effective as well? If that was really what he meant he could be expected to have said so. Instead he referred to the validity of a “grant of authority in a manner other than that prescribed in article 95”. In addition, it seems to me clear from the passage from Morles to which I refer that he did not understand Goldschmidt to be denying the validity of a proved non-documentary appointment of a factor. He refers specifically to “the capacity as factor” arising “from factual circumstances, that is to say, it derives from a tacit constitution.”

I am satisfied that the proper analysis of the modern commercial law of Venezuela is that the requirements of Article 95 are directory not mandatory; so that an individual who is shown to be a factor will have the authority specified in the second sentence of that Article, even though the factorship has not been registered (Footnote: ¹¹). It is not open to the principal to rely upon his own failure to register to escape liability for acts done by the factor. The effect of non registration is, however, that third parties are not fixed with notice of any limitation on the factor’s authority contained in his appointment.

Such a conclusion is supported by (a) the absence of any clear indication of a contrary intention in the Code, when wording to that effect could easily have been inserted; (b) the combined authority of Morles and Goldschmidt; (c) the absence of any disagreement with this approach by any modern commentator; and (d) the consequences of any contrary interpretation. There is no satisfactory reason why a principal should be able to avoid liability for an act done by his factor because he has failed to comply with the registration and filing provisions of the Commercial Code.

Dealing with the Venalum claim and Venalum’s complaint, as a matter of both policy and execution, fell four square within the “acts concerning the management of the company” entrusted to Mr Espinoza.

If Article 95 does not dictate that an unregistered factor lacks authority because he is unregistered, it seems to me that a failure by the factor to state that he enters into a contract on behalf of his principal or that he signs under power of attorney (assuming that that obligation extends to documents other than contracts) cannot mean that the principal is not bound. The reasons for concluding that Article 95 does not require registration as a pre-condition of authority support the conclusion that compliance with Article 96 is not a precondition either. A failure by the factor who signs a contract to state that he acts under a power of attorney will, however, expose him to potential personal liability for its performance.

The construction argued for by Multinacional would have certain odd effects. The factor who signs a large contract, stating that he does so on behalf of his principal pursuant to a power of attorney, binds his principal. But a notice determining the contract a year later is ineffective if the factor does not state that he signs it under power of attorney.

I entertained some doubt as to whether the reference to “the documents they sign” in Article 96 was intended to refer to anything other than contracts. My doubt arises because, although Article 96 deals with factors (a) stating that the contract is entered into on behalf of their principal and (b) signing documents below a statement that they sign under power of attorney, Article 97 provides that, if a factor does not state that he is acting under such a power, he will be personally liable for the performance of the contract. On one view that might be thought to indicate that the documents which are to be signed by the factor under a statement that he signs pursuant to a power of attorney are contracts and not documents other than contracts; and that Article 97 deals with contracts alone.

However, I accept Dr Araujo’s evidence that Article 97 should be regarded as covering not only contracts themselves but documents relating to contracts (such as orders or notices under the contract). On this footing Article 96 is referring to (i) contracts and (ii) documents, which include but are not limited to contracts. Article 97 provides for personal liability under a contract if the contract is signed without a statement that the factor is acting under power of attorney. But in the circumstances specified in paragraphs 1-4 of Article 97 it is to be understood that the factor has acted as representative of his principal. Where, as here, the contract entered into relates to the ordinary commercial activity of the establishment that understanding is to be applied to the execution by the factor of documents relating to the contract, which Article 96 contemplates that he shall execute.

If, however, I am wrong on that, then Article 95 is, nevertheless, effective to authorise Mr Espinoza.

There remains for consideration whether or not the effect of Article 1.955 of the Civil Code (“He who cannot transfer cannot renounce the time bar”) means that Mr Espinoza, even if a factor, lacked authority to send a letter which amounted to such a renunciation. In my judgment he did not. The effect of Article 95 is to authorise the factor for all the acts concerning the management of the company entrusted to him.

This is confirmed by Morles:

“….You cannot contrast acts of administration against acts of disposal which the law does not even suggest, nor refer to acts “inherent” to management of a business. The scope of the factor’s authority must be placed in the context of the professional exercise of business: the factor carries out business on behalf of his principal; in consequence, he is authorised to carry out any act which may be necessary to carry on the business.”

Accordingly I conclude that Mr Espinoza had authority to renounce the time bar by reason of his being a factor within the meaning of the Venezuelan Commercial Code.

Renunciation of the time bar was a plain breach of Multinacional’s obligation to “co-operate with Reinsurers in the relevant …settlement”. The purpose of the clause is to oblige the parties to work together to reach a settlement of the claim to their best advantage. There are no doubt limits to what the clause requires of the reinsured. He is not obliged to take false points, much less to act in any way improperly. In some cases there will be legitimate debate about the extent to which he is bound to march in step with the reinsurers. But, in the present case, the reinsured, without any prior notice to the reinsurers, chose to write a letter whose effect was to renounce an applicable time bar, which, unrenounced, would have extinguished the claim. It did so notwithstanding that it had agreed with the reinsurers a strategy for taking the time bar point as well as whatever coverage points were available.

Moreover there was no necessity for Multinacional to take this course. It could have sent a holding reply. Mr Espinoza drafted such a reply on 3^rd April but did not send it. Or it could have sent a reply which said that the time bar point was still under discussion. Mr Espinoza sent the reply that he did in order to keep Venalum at bay, having got himself into a difficult situation by discussions with Venalum that focused on the question whether the claim was time barred. But the fact that he felt the need to do so did not justify him writing in the terms that (with Dr Mourino’s amendments) he did.

It is possible that the Venezuelan Courts will, if the matter ever comes before them, take the view that Multinacional did not renounce the time bar. I turn, therefore, to consider whether, upon that hypothesis, the sending of the letter of 3^rd April 2002 was, none the less, a breach of the clause. Reinsurers contend that it was because the letter encouraged Venalum to pursue its claim notwithstanding the time bar point, gave Venalum grounds to contend that there had been a waiver, and completely undermined the agreed strategy and any negotiating position based upon that strategy.

Multinacional submits that it is unrealistic to describe the letter as having encouraged the bringing of the claim notwithstanding the time bar point, when it took Venalum until October 2003 to start proceedings. Further it was no breach of the clause for Multinacional, without waiving the time bar, to express an erroneous view that the time bar point was legally incorrect. The time bar point is, on the present hypothesis, still there to be taken.

The clause contemplates that reinsured and reinsurers will collaborate in the approach to be taken to the insured; so that the safe way for the reinsured to proceed will be in accordance with the agreed approach. At the same time the clause must not be interpreted in such a way that any expression by the reinsured which is favourable to the insured, but which is not cleared with the reinsurers in advance, and which the reinsurers would prefer had not been said, is to be treated as a breach.

In the present case, however, the letter of 3^rd April 2002 said, in effect, the exact opposite of that which had been agreed. The parties had agreed that Multinacional would take the time bar point i.e. assert the time bar point was legally correct. The letter stated that the time bar point was legally incorrect. Writing in those terms was intrinsically likely to encourage Venalum to believe either that there was as at April 2002 no applicable time bar, or that no point on time bar was being taken. At the lowest it gave Venalum an argument that the time bar had been renounced, which it did not previously have. The fact that proceedings were not issued until October 2003 does not mean that Venalum derived no encouragement or assistance from the letter. If the letter amounted to a waiver of the time bar, Venalum had another three years in which to bring the claim. If the time bar point was then taken, Venalum could be expected to approach any settlement negotiations by discounting the significance of the time bar point more than it would have done, if the letter had never been written.

The fact that the letter gave Venalum such an argument does not necessarily mean that there was a breach of the clause. If under Venezuelan law there was no realistic prospect of the argument succeeding, or the strong likelihood was that it would fail, the letter might be of limited, or no, significance. But, here, the content of the letter is such as to cause at least one distinguished Venezuelan jurist (Dr Araujo) to conclude (i) that it amounts to a renunciation under Venezuelan law (and, as a question of fact, for me to do so as well), and (ii) that the renunciation is binding on Multinacional. In the latter respect he relies on the opinions of two very well respected Venezuelan law scholars.

In my judgment it was a breach of the clause for Multinacional, in contradiction of the strategy previously agreed and without notice to reinsurers, to write a letter which asserted the legal incorrectness of the time bar point in a manner which was likely to encourage, or provide support for, Venalum in the manner that I have described. In Shinedean Ltd v Alldown Demolition (London) Limited [2006] 1 WLR 2696 the Court of Appeal decided that there is no absolute principle that a duty on the insured to provide relevant information within a reasonable time will not be broken if, in the end, it turns out there is no prejudice to the insurers. On the facts of that case insurers were entitled to receive the information in good time whether they were in the end prejudiced by the insured’s failure to achieve this or not. In the present case, even on the assumption that it is eventually held that the time bar has not been validly renounced, reinsurers have, in my judgment, not received the co-operation in the settlement of the claim to which they were entitled.

I conclude therefore, that, even if I am wrong to hold that the letter of 3^rd April 2002 waived the time bar defence, its dispatch was a breach of clause.

I invite submissions from counsel as to the appropriate order to give effect to these findings.