Crown Aluminium Ltd v Northern & Western Insurance Company Ltd & Anor

This is an application by the Second Defendant ("Camrisk") for summary judgment and/or to strike out the Particulars of Claim. The basis for the application is that the claim against Camrisk is a claim in the alternative to the claim by the Claimant (“Crown”) against the first Defendant ("NWIC") and, since NWIC has not put in a defence and is now, by an order of the court, debarred from defending, Crown's case against NWIC must succeed so that Crown’s alternative case against Camrisk must fail.

The brief facts, which I take in part from the skeleton argument submitted by Miss Laura John, who appeared for Camrisk, are as follows. NWIC is an insurance company based in Nevis, West Indies. It issued three trade credit supplier guarantees to Crown. Between 17 April and 16 June 2009 Crown made claims under the guarantees in the sum of some £187,000 odd plus interest. Those claims were not met.

Camrisk's case is that its involvement in the trade credit supplier guarantees in question was as a consultant to a firm of risk advisors whose clients were the companies for whom the guarantees were arranged. Crown’s case is that the terms of the guarantees, relating to the procedure for making a demand under them, were varied by Camrisk, acting as NWIC's agent. NWIC has refused to make payment under the guarantees on, essentially, two separate grounds.

The first ground is that the calls on the guarantees were not made in accordance with the terms of the guarantees, with the result that NWIC is not liable. The second ground is that the nature of the commercial purpose of the guarantees was misrepresented to it, but for which it would not have entered into the guarantees.

In August 2009, following the making of the calls under the guarantees, NWIC instructed solicitors in London. Those solicitors wrote to Crown’s solicitors on 11 August 2009 saying that they were instructed on behalf of NWIC to accept service of proceedings relating to the dispute. On 3 February 2010 they wrote a long letter to Crown’s solicitors setting out NWIC's position. However, on 24 May 2010 after some further correspondence NWIC’s solicitors wrote to Crown’s solicitors saying that they no longer had instructions to accept service of proceedings.

As a result, Crown obtained permission to serve the proceedings out of the jurisdiction on NWIC in Nevis. NWIC has not acknowledged service or served a defence. On 12 November 2010 Crown obtained an unless order directing that if NWIC did not acknowledge service of the proceedings and serve a Defence within 14 days of the service of the order, NWIC would be debarred from defending the claim. On the same day the court gave directions for the further conduct of the action.

On 7 December 2010, as soon as NWIC became debarred from defending the claim having failed to comply with the order, Camrisk issued this application.

Crown's case is that on 16 April 2009 there was a telephone conversation between Crown and Camrisk about the non-payment of the underlying debts and Crown's intention of making a claim on the first guarantee. It is alleged that Camrisk advised Crown as to the wording of a letter which should be sent to Camrisk (not NWIC) giving notice of Crown's claim under the guarantee. It is also alleged that Crown was advised by Camrisk that it could accept the letter on behalf of NWIC.

Crown then pleads:

“By the said advice Camrisk, for NWIC, varied or waived the terms of the guarantees with respect to the requirements as to the form, content and address for service of Crown’s written notice of claim under the guarantees."

Crown then alleges that pursuant to the varied terms of the guarantees it gave notice of its claims to NWIC through Camrisk. It did this, it says, in reliance on Camrisk's advice.

Crown goes on to allege that NWIC has indicated that it will challenge Crown’s entitlement to payment under the guarantees because (a) Crown failed to comply exactly with the provisions of the guarantees as to the form, content and address for service for the giving of written notice of claims under the guarantees and/or (b) that the guarantees were invalid because NWIC was unaware that their purpose was to support the giving of extended credit to the relevant supplier.

In these circumstances, Crown’s primary case is that it gave valid notice of demand under the guarantees in compliance with the terms as varied or waived by Camrisk on behalf of NWIC. It then alleges that if, contrary to that primary case, “NWIC is successful in any defence as to the effectiveness of the written notice, Crown will claim from Camrisk the sums that it is unable to recover from NWIC". I should pause here to note that Miss John relies on the words "If . . . NWIC is successful in any defence": this is because she says that NWIC cannot succeed in any defence because it is debarred from defending. Mr James Howells, who appeared for Crown, said that if the point was being taken, he would apply to amend the relevant words to substitute "If it is found that NWIC is not liable to Crown ..." or something similar. Whilst Miss John’s submission is correct, I regard this as a pleading point which has no real substance.

Crown alleges also that if Camrisk did not have the authority of NWIC to vary or waive the terms of the guarantees, nonetheless Camrisk owed Crown a duty of care when giving the relevant advice about the form and content of the written notice of claim. It is probably unnecessary to say anything more about the precise formulation of Crown’s claims.

By its Defence, Camrisk asserts that NWIC is liable to pay under the guarantees or, alternatively, if there were any defects in the notification of the claims under the guarantees, the same were waived by the clear and unequivocal actions of NWIC. Camrisk denies that it was the agent of NWIC or that it drafted the guarantees. It admits the conversation between Crown and Camrisk, but disputes what was said. It denies that it varied or waived the terms of the guarantees.

In relation to each of the guarantees, Camrisk pleads specifically that “no admissions are made as to whether the notices of claim were timely, nor whether Crown is entitled to payment under" the guarantees (see paragraphs 21, 23 and 25 of the Defence). There is also a general non-admission as to Crowns entitlement to payment by NWIC of the sums claimed in paragraph 27 of the Defence. Paragraph 29 of the Defence is important, so I shall set it out in full:

“For the reasons given in paragraphs 19 to 27 above, Crown’s primary case as pleaded in paragraph 27 is denied. However, it is noted that the claim against Camrisk is conditional upon the issue of the effectiveness of the written notices of claim. In this respect, Camrisk repeats that the written notices of claim were immediately forwarded by Camrisk to NWIC. It is Camrisk's position that the procedure adopted for notification of Crown’s claims did not invalidate such claims under the Guarantees. It is further denied that Crown is able to claim from Camrisk any sums that it is unable to recover from NWIC".

It will be seen from this that there may be some inconsistency in Camrisk's position as to whether it does or does not assert that NWIC is liable under the guarantees. However, looking at the matter broadly, it seems that Camrisk's position is that the terms of the guarantees were not varied or waived (it having no authority from NWIC to do this) and that Crown had good claims under the guarantees against NWIC. At any rate, this was the position adopted by Miss John in her submissions and I will proceed on this basis.

It seems to me that the first issue at any trial will be whether or not Crown’s claims under the guarantees were made in accordance with their terms. If they were not, then the next issue is whether or not the terms were varied or waived by Camrisk on behalf of NWIC. I would expect the first issue to turn exclusively on the terms of the guarantees themselves and what was actually done by way of notification of the claims: the former is a pure point of construction, and the latter is a question of fact that will be determined in the light of the available documents. Whilst evidence may be required to prove the relevant documents, that will be the extent of its ambit.

In relation to the second issue, this will require evidence from Crown as to the content of the relevant telephone conversation or conversations, and the extent to which Camrisk was held out as an agent of NWIC. Each of these issues can be determined in the absence of both NWIC and Camrisk, unsatisfactory though that may be.

If Camrisk takes part in the trial of those issues, it will have to take a tactical decision as to how it responds to Crown’s evidence. It could choose to do nothing and leave Crown to prove its case, or it could advance its own case in relation to the variation and waiver issues. However, whatever course is taken by Camrisk, the court will be able to decide the issues in a manner which is binding on both Crown and Camrisk. In addition, if it decides that Crown is entitled to recover under the guarantees, then judgment can be entered for Crown against NWIC. That would be a judgment on the merits after a trial.

At this point it is worth considering what might happen if Camrisk is not present at the trial. If, for example, Crown failed to prove that Camrisk had authority to act as NWIC's agent, or that as a result of Camrisk’s advice the notice procedure was invalid, the claim against NWIC would fail (I must emphasise at this point that what I say here is not intended in anyway to bear on the issues of liability when they come to be decided).

At this point, Crown would pursue a separate claim against Camrisk, effectively adopting the findings in the first trial and deploying the case against Camrisk that is presently pleaded. However, Camrisk would not be bound by the findings in the first action, not being a party to it. It would be open to Camrisk to lead evidence and present arguments directed at undermining the findings in the first trial that were unfavourable to it. Of course, if the reason why Camrisk was not present at the first trial was because it had made a successful application for summary judgment against Crown, then there could never be a second trial between Crown and Camrisk.

Mr Howells submits that this application is effectively a collateral attack on the principle enshrined in rule 12.8 of the CPR, namely that where a claim cannot be dealt with separately from a claim against another defendant and there is an application for default judgment the court must deal with the application at the same time as it disposes of the claim against the other defendants. He submits that claims in the alternative are a classic example of claims which cannot be dealt with separately from one another.

In Yates v H Elaby (unreported) 17 November 2003, the Claimant sued the person that she thought was her landlord claiming damages for breach of the tenancy agreements and for statutory damages under the Housing Act 1988. That defendant said that he acted only as agent for the true landlord, a Mr Moss, and was not personally liable either for breach of the tenancy agreements or for statutory damages. The Claimant amended her claim to join Mr Moss as Second Defendant in the following terms:

However, at some stage prior to the trial the Claimant entered judgment in default against Mr Moss, with damages to be assessed. The issues at the trial were the liability of the First Defendant and the assessment of damages against Mr Moss, the Second Defendant. The Recorder held that the default judgment entered against Mr Moss constituted an election which precluded the Claimant from obtaining judgment against the First Defendant, who would otherwise have been found liable.

On appeal, having set out the procedural history in relation to the doctrine of merger and election, Mitting J then considered the application of CPR 12.8. That rule provides as follows:

In terms of the effect of this rule, Mitting J said this:

With respect, I agree entirely with the observations of Mitting J in that case, but the question is whether or not those observations are applicable to the position here. In her skeleton submissions Miss John submitted that Crown is confusing truly "alternative" cases - where the issue in dispute cannot be dealt with separately - with conditional cases, of which she says the present case is one, where a claimant's claim against a co-defendant is expressly conditional upon a (particular) successful defence by another co-defendant. At first sight this would appear to be precisely the situation that was described by Mitting J in the second paragraph from his judgment quoted above.

But in developing this point in her oral submissions, I have to say with skill and persistence in the face of a number of interjections from the court, Miss John relied strongly on the words “in respect of the same matter” that I have emphasised. She said that the situation was confined to cases where the claimant relies on the same cause of action or claim but does not know which of two (or more) defendants is liable for it. In Yates the question was which defendant was the landlord. Another example raised in argument was the case of a pedestrian struck by a car with two (identified) occupants, each of whom claimed that the other was the driver. Miss John submitted that it is only in those cases, like the position in Yates, where the cause of action against each of the defendants is the same that CPR 12.8 applies, because entering judgment against one of them would constitute an election and therefore a bar against suing the other.

She submitted that the position here was different. Crown knows exactly who to sue for what, but cannot be sure - so Crown contends - which defendant will be found liable. Its primary case is against NWIC but, if for some reason connected with Camrisk’s participation that claim fails, it wishes to sue Camrisk for having been the cause of the failure of its claim against NWIC. She submits that a default judgment would not amount to the exercise of any election, because only NWIC is said to be liable under the guarantees. She submits that it is only when the doctrine of election is in play that CPR 12.8 is engaged.

Mr Howells submitted that the focus had to be on the words of the rule: "if the claim cannot be dealt with separately from the claim against the other defendants". He submitted that this must be construed in a practical sense so that in any case where it would be impracticable or inconvenient to try the cases separately against two or more defendants, judgment should not be entered in default against one of them.

There is a difficulty in taking the words at face value in isolation from their context because in almost any situation of alternative liability there will be a scenario in which the claims against the defendants can be dealt with separately. Reverting to the case of the pedestrian and the road accident, if the claimant sues D1 and fails he can then proceed to sue D2. However, if his claim against D1 succeeds, he cannot pursue a claim against D2: either because there would be an issue estoppel, or because to do so would be an abuse of the process of the court.

I have to confess that I was initially unimpressed with Camrisk’s arguments, however Miss John persuaded me that my first impression might have been wrong. I therefore decided to reserve judgment over the week-end. I have concluded on reflection that neither party's argument on the construction of CPR 12.8 is quite correct. The rule is about default judgments and when they should or should not be entered. In my judgment it applies where the effect of entering a default judgment would be that the claim could not be pursued separately against another defendant. It therefore applies to the simple claims in the alternative referred to by Miss John, where the doctrine of election would operate to bar the claim against the other defendant. However, it seems to me that it must apply also to any case where the effect of entering default judgment against D1 would prevent the claim being pursued against D2, even though the cause of action against the two defendants is different and the doctrine of election does not apply.

In this case, I agree with Miss John that if judgment was entered against NWIC, Crown would not be able to pursue its claim against Camrisk. This is because Crown would then, subject to NWIC's solvency, be able to enforce that judgment against NWIC with the result that it would have suffered no loss as a result of anything done or not done by Camrisk (for the purpose of construing the rule I have to ignore the question of whether or not a default judgment against NWIC would be enforceable in Nevis). Since Crown is not making any allegations against Camrisk in relation to the choice of NWIC as a guarantor, any reason why NWIC could not pay, such as insolvency, would not be the result of any breach of duty by Camrisk.

Accordingly, for these reasons I agree with Mr Howells that if Crown had applied to enter default judgment against NWIC the court would have been bound by CPR 12.8 to refuse that application. This application for summary judgment in favour of Camrisk (or to strike out the Particulars of Claim) is unusual because the court has not been asked to consider the merits of the claim against Camrisk, but to consider the merits of the claim against NWIC. In these circumstances it would be curious if the rule could be circumvented by permitting Camrisk to obtain summary judgment against Crown on the basis that Crown would, absent CPR 12.8, have an unanswerable claim to enter default judgment against NWIC.

However, this is not the end of the matter. Mr Howells submits that there should be a trial at which Camrisk is present because (a) it cannot be assumed that Crown will succeed against NWIC and (b) there are disputed issues of fact as between Crown and Camrisk that affect NWIC’s liability.

As I have said, on this application the court is not being asked to consider the merits of the claim against Camrisk - for example, whether Camrisk owed any duty to Crown or whether Camrisk was the agent of NWIC - but to consider only the merits of the claim against NWIC. It is unusual, at least in my experience, on an application for summary judgment or a strike-out for the court to be asked to consider, not the case against the defendant who is applying for judgment or to have the claim struck out, but the case against another defendant.

Whilst in one sense it is correct for Camrisk to submit that it is not in dispute that the calls on the guarantees were validly made, the difficulty is that the basis of the claim made by Crown, namely that the terms of the guarantees were varied by Camrisk acting as agent for NWIC, is denied by Camrisk (see, for example, paragraph 29 of Camrisk's defence). Further, in relation to each guarantee Camrisk makes no admissions as to whether the notices of claim were timely, or as to whether Crown is entitled to payment under the guarantees (see paragraphs 21, 23, 25 and 27 of the Defence).

Crown accepts and submits, in effect, that the calls were not made in accordance with the strict requirements of the guarantees, with the result that it has to rely upon a variation of the terms of the guarantees. Camrisk's position, by contrast, is that it did not vary or waive the terms of the guarantees and that the procedure adopted for the notification of Crown’s claims did not invalidate the claims under the guarantees (see paragraph 29 of its Defence).

Camrisk's position on this application effectively asks the court to assume that Crown’s case against NWIC must succeed because NWIC cannot defend it. I accept that there may well be cases where the inability of a defendant to defend the claim, perhaps because he has been debarred from doing so, may have the consequence that the claimant is bound to succeed. However, I consider that this case is not one of them. As I have already indicated, the court will have to consider the terms of the guarantees and whether the calls on the guarantees were validly made in accordance with the terms of the guarantees. If the court finds that the calls did not comply strictly with the original terms of the guarantees, and that such non-compliance would be fatal to the claims, it must go on and consider whether or not the guarantees were varied as Crown contends. Once on this territory, it will come up against the disputed issue as between Crown and Camrisk. There is no predicting how either of these issues will be resolved, with or without the participation of NWIC. That is for the simple reason that the resolution of these questions need not turn on the presence or absence of any evidence or argument from NWIC, but simply on the terms of the guarantees themselves and, possibly, the extent to which they were varied in a manner contended for by Crown.

Camrisk submits that since Crown has abandoned its secondary claim against Camrisk, as a result of the fact that NWIC has been debarred from defending the claim, it must follow that it should abandon its primary claim against Camrisk also. I disagree. The secondary claim against Camrisk arises out of an assertion made by NWIC (in pre-action correspondence) that it was unaware of the true nature and purpose of the guarantees (the precise point does not matter). It is quite clear that this is an issue that can arise only if NWIC were to plead and prove that assertion. However, if NWIC is not permitted to take any part in the action, which is the position at present, then it cannot raise this point and so it will fall away. Crown was therefore right to abandon this part of its claim against Camrisk.

In my judgment there is a clear risk that, if the claims against NWIC and Camrisk are not heard together, the court may hear evidence and submissions directed to making different findings on the same point. Suppose, for example, that Crown’s case against NWIC fails because one aspect of the advice given by Camrisk is found to have been wrong. Relying on that failure, Crown pursues the claim over against Camrisk. However, in the trial between Crown and Camrisk, at which different evidence and arguments are presented, the court finds either that the advice in question was not in fact given or that it was given and was correct.

This is a paradigm situation, it seems to me, where the interests of fairness and justice require the two claims to be heard and determined at the same time in order that there is no risk of inconsistent findings of fact or conclusions as to the consequences of the facts found.

In these circumstances I consider that this provides a compelling reason why the case against Camrisk should be disposed of at a trial for the purposes of CPR 24.2, and not by way of summary judgment on this application. For the same reasons I consider that the claim should not be struck out.

Another compelling reason for reaching the same conclusion, which is perhaps only a variant of the first, is that Crown has to prove its claim against NWIC on the merits and those merits cannot be investigated on this application. If it was the case that Camrisk agreed with Crown's case that the terms of the guarantees had been varied with NWIC’s authority, then the position might be different (I say “might”, because I have not heard full argument on this). In that event there would be no dispute of primary fact and the court might be able to conclude at a summary judgment application that there was no conceivable way in which Crown's case against NWIC could fail, and so costs would be saved by giving summary judgment. But since that is not the position, I do not have to consider it further.

However, Miss John had a further argument which, in the light of these conclusions, I will take shortly. She submitted that Crown’s loss, namely the failure to recover from NWIC, has been caused by Crown’s failure to enter judgment in default (and then, presumably, to enforce it in Nevis).

The difficulty with this argument, leaving aside the fact that it is not pleaded, although it is perhaps foreshadowed in Camrisk’s Defence, is that it seems to me that Camrisk must prove also that a default judgment, as opposed to a judgment on the merits, would be enforceable in Nevis. There is no evidence about this. Faced with an indication to this effect from the court, Miss John asked me to adjourn this part of the application so that appropriate expert evidence could be obtained. The obvious difficulty with this course is that Crown would have the right to obtain such evidence also and there is no certainty either that the evidence would be in Camrisk’s favour or that the two experts would agree.

Mr Howells submitted that this was just the sort of issue that should be resolved at the trial, which is presently listed for 9 May 2011. I agree with him and so, for the reasons that I have given briefly, I refuse this additional application on its merits, leaving aside any technical objections based on the pleadings.

Accordingly, for all these reasons I consider that this application fails and must be dismissed. I am grateful to both counsel for their very able arguments. In the ordinary way, the costs of this application would follow the event. However, if the position in relation to costs cannot be agreed, or if Camrisk wishes to apply for permission to appeal, I will deal with those matters by way of written submissions unless both parties would like an oral hearing. If there are to be written submissions, Camrisk is to lodge its submissions within 7 days from receipt of this draft judgment and Crown is to respond 7 days thereafter.