X Y Z v Various companies (PIP Breast Implant Litigation)

In this group litigation nearly a thousand women seek damages from companies running private hospitals for supplying to them defective implants manufactured by the French company, PIP, for use in breast implant surgery. It is their case that the implants were of unsatisfactory quality in breach of S4(2) of the Supply of Goods and Services Act 1982 [SOGSA]. A significant number of claimants also bring actions against the providers of credit cards pursuant to the Consumer Credit Act 1974 (as amended by the 2006 Act). Some of those claims may soon be included in the Group pursuant to an order I made at the Case Management Conference in August of this year. Further claimants bring actions against the surgeons who carried out the surgery. Those claims are not within the GLO although that may change.

The estimated average value of each claim is £13,000. Thus the total value of the claims is in the region of £13m, plus costs on both sides. Over 670 claims are brought against the second defendant, Transform Medical Group (CS) Ltd (Transform). Another defendant, Harley Medical Group, which faced 1200 claims, went into liquidation at an early point in this litigation. Those claims were removed from the group and currently remain outside. I am told that negotiations are taking place between the claimants and the liquidators with a view to the claimants obtaining assignment of the Harley Group claim, if any, against the UK suppliers of the breast implants, Clover Leaf. Clover Leaf already face claims from other defendants under Section 14(2) of the Sale of Goods Act (SOGA) 1979 (as amended). Those Part 20 claims are being managed within the group litigation.

I have held a number of case management hearings. In early August after significant argument and discussion I gave comprehensive and detailed directions with a timetable leading to trial in October 2014. This will be a trial of three issues in four sample cases in which Transform is, effectively, the lead defendant. The issues are:

In the sample cases

The decisions I make in the trial should lead to the resolution of the whole of the group litigation. If the claimants succeed at trial, their cases and the others should be amenable to settlement. If not, there will be a need for some relatively short hearings on quantum. If the claimants fail it is most unlikely that there will be a need for further hearings.

By this application the claimants seek an order

“that Transform do provide information to the claimants as to the nature and extent of its liability insurance cover in respect of its potential liability in these proceedings to the relevant claimants on the group register and/or that it do serve a copy of the relevant insurance policy documents upon those said claimants, pursuant to CPR part 18 and/or part 3.1(2) (m) and the defendant do

pay the claimants’ costs in any event”.

In the course of his submissions, Mr Preston accepted that the claimants want to know whether:

The information is required, the claimants say, because they have serious concerns about the financial position of Transform. Mr Preston submits that unless Transform has adequate insurance cover it is likely that i) successful claims against Transform will not be met, nor will the costs incurred by their lawyers with whom they have Conditional Fee Agreements. ii) Transform will collapse before or at the time of trial, with the obvious consequences for the timetable and the resolution of all the cases.

In support of the application, the claimants rely on a witness statement (no.14) from the lead solicitor, Mark Harvey, of Messrs Hugh James. He exhibits to the statement a report dated 22^nd July 2013 from Hugh Gregory, a fellow of the Institute of Chartered Accountants, described by Mr Harvey as a forensic accountant. Mr Gregory has reviewed Companies’ House files in respect of Transform, its parent company and other related companies. His researches reveal the following, which is not controversial. Transform is a wholly owned subsidiary of Health and Surgical Holdings Ltd. (H & S). It has guaranteed the liability of H & S under a substantial loan of which around £8 million is repayable in May 2015. The consolidated balance sheet for H & S for the year ending May 2012 shows it has insufficient assets to meet its debts ie it is technically insolvent. In the course of submissions Mr Waite said that “technically insolvent” was not understood by Transform. I reject that. It is quite plain from the statement of Mr Ainley, Chief Executive of Transform, that he understands the term. He says that technical solvency is not the issue. He says that the H & S accounts were signed off by its auditors (Ernst and Young) on a going concern basis. H & S can meet its liabilities as they fall due for the twelve months from May 2012. Those liabilities do not, I note, include any part of the £8m loan repayable no later than May 2015.

The profit and loss accounts of Transform show that a trading profit of £10 million in the year ending May 2008 has declined to a trading loss in the year to 2012 of £800,000. Net assets have reduced from £36,347 to £7,606. Considered in isolation, Transform currently has net assets of £8 million. On the information available to me, they will reduce by at least £800,000 this year to take account of the trading loss to which I have just referred. Mr Preston submits that there is no reason to suppose that the trend of the last 5 years will change. Mr Ainley describes in his statement the difficult trading conditions which have faced Transform and many other companies in recent years.

Mr Waite submits that the corporate structure is entirely normal in the modern world. My concern is not with the structure but with how the debts are to be paid. Mr Waite says that Mr Ainley is not in a position accurately to predict what the future will hold and how H & S will meet its liabilities. I cannot speculate. On the evidence before me the only way that H & S can meet its liabilities under the loan is by reliance on Transform’s guarantee. Should Transform be called upon to honour the guarantee, payment of £8 million would erase its assets at a stroke. It follows therefore that the claimants’ concerns are entirely justified.

Mr Waite accepted that on the evidence I was entitled to conclude that Transform may not be able to fund the litigation to trial, meet any award of damages or meet any award of costs. I so conclude.

Insurance

For many months the claimants’ solicitors have sought reassurance from Transform and its advisers about the extent of its insurance policies. Transform’s solicitors refer in correspondence to their “insurer clients”. They are not however prepared to indicate (even on strict terms as to confidentiality) whether or not the insurance is adequate to cover the costs to Transform of running the litigation or to meet an award of damages and to meet costs. In his statement the Chief Executive refers to insurance policies in the plural. In the same paragraph (173) he deals with the Part 20 claims by Transform against Clover Leaf. The existence of the policies and the claims against Clover Leaf are included as part of the explanation as to why there is no provision in the accounts for the PIP claims. Thus Transform hints that it may be in a position to fund the litigation and pay the claims but refuses to make the position clear.

If Transform has adequate insurance then there is no need for concern. If they do not then the directions and timetable which have been fashioned with care and after significant expense are in jeopardy. Mr Waite submits that if it becomes clear (presumably at a moment of Transform’s choosing) that Transform is not able to continue funding this litigation a few minor adjustments to the case management directions will be necessary. I do not share his relaxed approach. What will be required, as a minimum, will be new sample cases with different claimants, different defendants and (for the defendants) different legal teams. I would hope that the arrangements for experts would be amenable to rearrangement without the need for change of individuals but I do not know. Whether it would be possible to maintain the current trial date I rather doubt. To have any prospect of doing so I would need to revisit the case management directions now. Such a course would be unnecessary and wasteful were Transform ultimately to reveal it had adequate insurance after all.

Transform’s position comes to this: we have insurance but we are not prepared to say how much. Transform claimants must take their chances. The court will have to cross its fingers, as will all the other litigants. If Transform collapses before the conclusion of the trial the court can rewrite the timetable. The other parties will bear their wasted costs. The waste of court time and resources will be borne by the public purse.

Jurisdiction

Mr Waite says that the court has no jurisdiction to make the order, either as sought in the written application, or as refined by Mr Preston. The claimants rely on CPR 3.1 (2) (m) and CPR 18.

CPR rule 18.1 reads as follows:

Mr Preston submits that Part 18 is broad enough to encompass information concerning the extent of a party’s insurance cover because this is a relevant issue in the proceedings. He submits that the claimants need to know whether Transform is able to satisfy judgment otherwise there is no point in their proceeding against it. Mr Preston and Mr Waite have drawn my attention to 2 conflicting authorities which deal with the ambit of CPR 18. In Harcourt v Griffin [2007] EWHC 1500 (QB) (Irwin J), the claimant, 16, had suffered very serious spinal injury in a gymnastics accident at a gym club. Liability was admitted on the basis of a 75-25% apportionment in the claimant’s favour. Judgment was entered and an order was made for a £1 million interim payment. Quantum was likely to be somewhere between £8 and £10 million. The individuals responsible for satisfying any award were not wealthy. The claimant made a request under Part 18 to elicit the extent of any insurance cover held by the defendants. The defendants resisted the request.

At paragraph 10 Irwin J said

“the nature and extent of the defendant’s insurance cover is not in itself “a matter…in dispute in the proceedings” between the parties, in the sense that proper quantum of damages payable to the claimant could be determined without determining whether the defendant can actually pay those damages. However, it appears to me that the wording of CPR rule 18 requires to be interpreted reasonably liberally. The purpose of the jurisdiction must be taken to be to ensure that the parties have all the information they need to deal efficiently and justly with the matters which are in dispute between them. Moreover the wording need not be taken to imply that there must be a live disagreement about the relevant issue, since on very many occasions parties are properly required to furnish information pursuant to CPR rule 18 precisely to discover whether there is or is not a live disagreement between the parties on a given point. The whole thrust of the new approach to civil litigation enshrined in the CPR is to avoid waste of time and cost and to ensure swift and as far as possible, proportionate and economical litigation. Therefore, I have no hesitation in finding that if there is no rule of law or significant rule of practice to the contrary then the wording of CPR rule 18 is broad enough to cover information of this kind.”

In that case the claimant was seeking periodical payments. At some point the disclosure of the insurance position would have been inevitable. At paragraph 23 Irwin J points out “without knowing (i) whether the appropriate level of periodical payments can be met (ii) what is the nature and extent of the cover provided in relation to compensation by way of periodical payments, lump sum damages and costs, it seems to me neither the claimant nor the court can make a reasonably informed assessment of the relative advantages and disadvantages as between a periodical payment award and a lump sum award. The complexity and obscurity of the defendant’s response on this point demonstrates the weakness of that position.” Irwin J went on to order the defendant to reply in full to the Part 18 request for information in that case.

The case of Harcourt was relied on in West London Pipeline and Storage v Total (UK) Ltd and TAV and others [2008] EWHC 1296 (Comm). The defendants (Total UK Ltd) made an applicationfor an order for disclosure in respect of the insurance arrangements of the third party (TAV Engineering Ltd) on the grounds that (i) the material was relevant to the issues and/or (ii) the material was necessary from the perspective of efficient case management. The defendants relied only on CPR 18.

The application arose in the context of the massive litigation generated by the Buncefield explosion. Total were seeking a contribution from TAV who were the designers, manufacturers or suppliers of a switch which failed to operate. As a result an overflow of fuel occurred leading to the explosion. The claims totalled over £700 million. TAV argued that the court had no jurisdiction to make the order. Steel J agreed. In resisting the application in this litigation Mr Waite relied, where relevant, on the submissions of TAV which succeeded in the Total case. There is no need for me to set them out separately here.

At paragraph 21 Steel J said

“in my judgment, TAVis correct in its submission that the court has no jurisdiction to require disclosure of their insurance position. It appeared to be common ground that the insurance policies were not disclosable under Part 31, whether as part of standard disclosure or otherwise. They do not support or adversely affect any parties’ case, they are not relevant to the issues nor do they constitute documents which may lead to a trail of enquiry enabling a party to advance his own case or damage his opponents.”

At paragraph 22

“by the same token it is difficult to see how information furnished under CPR Part 18 would relate to any matter which is in dispute in the proceedings. Such was the position in Harcourt as well.”

Steel J went on to consider whether or not it was possible to construe the rule at CPR Part 18 more liberally. He pointed to the terms of the practice direction which supplements Part 18:

“a request should be concise and strictly confined to matters which are reasonably necessary and proportionate to enable the first party to prepare his own case or to understand the case he has to answer.”

I detect no conflict in this practice direction with the terms of the Rule which it supplements. The insurance position does not impact on the ability to prepare the case let alone understand any potential defence.

At paragraph 24 Steel J observed “it is not suggested that the court has power to order production of the information otherwise than under the provisions of the CPR. CPR Part 18 accordingly provides the only avenue for Total to pursue. I bear well in mind the overriding objectives of the CPR and, in particular, the need for the court to manage cases in a manner which will save expense and achieve expedition. I have also not forgotten that the court must have regard to the overriding objective in exercising any power under the rules or otherwise interpreting the rules. That said Total’s submission requires a rewriting of both the rule and the practice direction.”

Steel J considered (and Mr Waite relies on) the decision in Bekhor v Bilton [1981] QB923, a decision as to scope of the rules of the Supreme Court on an application for disclosure of assets made in the course of an application for a freezing order. The court concluded that there was no power to order disclosure of assets since the documents concerned did not relate to “matters in question in the action” and the power to order interrogatories did not relate “to any matter in question between the applicant and that other party in the court or matters.”

He considered the decision of the Court of Appeal in Cox v Bankside Members Agency C/A 29 November 1994, a decision (also relied on by Mr Waite) in the Lloyd’s names litigation. Members and Agents sought disclosure of the errors and omissions insurance cover provided by underwriters. This was long before the CPR came into force. Relying on the decision in Bekhor and Bilton 1981QB 923, Saville LJ said

“the funds available (or not available) are relevant to the question as to whether the names will recover anything from their agents or the errors and omissions underwriters; they are not in my judgment relevant to the questions which fall to be answered under the originating summons.”

Sir Thomas Bingham MR said

“the underwriters claim to be entitled to cover up the financial particulars in the relevant policies (the limit of the cover, the excess, the premium) these particulars, they contend, do not relate to any matter in question in the cause since none of them can affect in any way the answers which the court will give to the legal questions raised. In this context as in many litigious contexts, it is highly advantageous for a litigant to know what his opponent is worth, and this knowledge may be very relevant to enforcement. But the ease or difficulty of enforcement cannot bear on the matters of legal principle in question in the cause.”

Steel J went on to consider the Law Commission’s paper on 3^rd parties – rights against insurers Cm 5217 of 2001 where it was accepted that details of insurance were a private matter between an insurer and an insured production of which would encourage speculative “deep pocket” litigation. In short a claimant must take a defendant as he finds him: insolvency at sea: Mance J: [1995] LMCLQ 34 at 43. Steel J noted that none of this material had been drawn to the attention of Irwin J in Harcourt. He said

“it would obviously have had some bearing on the existence of a rule of law (or at least a significant rule of practice) in deciding whether CPR Part 18 applied in this case.”

Mr Waite relies on the arguments deployed in Total, the authorities referred to there and to the conclusions come to by Steel J in support of his submission that there is no jurisdiction (pursuant to CPR18 or CPR 3.1.12 or at all). Harcourt was, he submits, wrongly decided.

I accept Mr Waite’s submissions that the claimants’ request does not come within Part 18. The insurance position of the defendant is not a matter in dispute in these proceedings. Information about it does not relate to any matter in dispute. In light of the Practice Direction I cannot conclude that it should be given a sufficiently broad interpretation to permit me to make the order sought here.

CPR 3.1(2) (m)

CPR r.1(2)(m) provides:
“except where these rules provide otherwise, the court may ….take any …step or make any…..order for the purpose of managing the case and furthering the overriding objective.”

The overriding objective was amended recently so as to require the court to deal with cases justly and at proportionate cost. Dealing with cases justly always included, so far as was practicable, dealing with a case in a way which was proportionate to the financial position of each party (1.1 (2) (iv)).

Mr Preston submits that the court cannot deal with cases in a way which is proportionate to the financial position of the parties without knowing what the respective parties’ financial positions are. He submits that CPR 3.1 (2) (m) must include the power to require a party to provide that information. He offers “suitable undertakings” in case the information is sensitive. He submits that the availability and extent of relevant insurance cover is part of the “financial position” of a party. The claimants need to know whether it is worth pursuing Transform and effective case management requires this information to be made available.

Mr Waite submits that Parts 31, 34 and 18 are a comprehensive and complete code which regulates the obtaining and use of documents and other information in civil litigation. Since this application comes within none of those rules the court has no power to grant it. When the CPR were drafted and amended there were opportunities to require disclosure of insurance policies in the same way as is provided in the Federal Rules of Civil Procedure in the USA (to which I was taken). In Cox v Bankside (pre CPR) Saville LJ said “much thought is presently being given as to how the existing rules and practices regarding discovery could be improved, and one suggestion is that the Court should be given wider or different powers in this regard.” Those who drafted the rule must be taken to have decided against including such a rule. If, in the CPR, “financial position” was to be taken to mean “financial position including insurance” the rules would have included those words. If CPR 3.1.2 (m) gave the court the power for which Mr Preston contends it would have been relied on by eminent counsel in Total. There, the judge found that the defendants either succeeded under CPR 18 or they failed. CPR 3.1.2 (m) was not referred to. If it had the effect for which the claimants contend there would, he submits, be no need for any other rules on disclosure. This rule would trump them all.

Mr Waite submitted that were I to accede to this application I would be undermining a fundamental procedural right not to have to disclose details of any relevant insurance they may have, which right they have held for hundreds of years. I think this rather overstates the position. In this case the existence of the insurance contracts was made known to the claimants by Transform in the way I have described. The details of the insurance arrangements are, in the main, irrelevant. There is no question of speculative “deep pockets” litigation. The litigation is on foot and advanced.

CPR 3.1 (2) (m) is a case management rule. Whether or not the claimants will be able to enforce judgment is not a matter which affects case management. I am satisfied therefore that I should not make any order which requires Transform to provide the answers to the questions (ii) and (iii) of paragraph 6. Whether or not Transform can fund this litigation to trial (and any appeal) does affect case management for the reasons I have set out earlier in this judgment. I remind myself that dealing with a case justly includes (see CPR 1.1 (2) (e)) allotting to it an appropriate share of the court’s resources. Were I to revise the directions now and it later transpired that Transform had been adequately insured all along, the litigation would plainly have consumed (indeed wasted) more than its appropriate share of the court’s resources for no good reason. That could not adequately be remedied in costs.

I am satisfied that CPR 3.1 (2)(m) gives me the power to order Transform to provide to the court a witness statement (or statements) setting out whether Transform has insurance adequate to fund its participation in this litigation to the completion of the trial and the conclusion of any appeal. That knowledge will permit me to case manage this litigation now on the basis of adequate information. I am sure that is also in accordance with the overriding objective. It gives no unfair advantage to the claimants. There is no prejudice to Transform. The result will be that the court retains control over the use of its resources in this litigation.

I shall hear submissions on Friday 22^nd November as to the precise wording and from whom the statement should come. I have in mind the Chief Executive and/or the solicitor for Transform. The time for the completion of this exercise I have in mind is by 4pm on Thursday 28^th November 2013 but I am prepared to hear submissions on that also.