Notes from the Bar: Claim handlers, beware!

In this edition of Notes from the Bar, we look briefly at a case where the P&I Club, its managers and solicitors appointed by the Club were sued in connection with representations made by the solicitors when handling the claim.

Factual background

The case of Anglo American Corp Sdn Bhd v. The London Steam-ship Owners’ Mutual Insurance Association Ltd concerns a collision between “United Endurance” and “Sunbright”.  There were four main parties in the proceedings: the owner of “Sunbright” (“Sunbright Owner”), P&I Insurer of “United Endurance” (“P&I Insurer”), Manager of the P&I Insurer of United Endurance (“Manager”) and solicitor appointed by the manager to represent the owner of the “United Endurance” (“United Endurance Solicitor”).

In the course of handling the claim, United Endurance Solicitor wrote to Sunbright Owner’s solicitors which said in brief that the matter was capable of a quick commercial settlement.  The email exchange also talked about holding off formal steps while parties negotiate the quantum of the claim.

When the settlement negotiations broke down, Sunbright Owner commenced proceedings against the other three parties alleging breach of the standstill agreement, misrepresentation, unjust enrichment and an additional head of claim against United Endurance Solicitor for breach of duty of good faith.

Sunbright Owner’s case is that there was an agreement that;

(a) the parties would hold off any formal steps until an amicable settlement is reached;

(b) failing which, the P&I Insurer and/or Manager would provide Sunbright Owner with suitable security in the usual form of a P&I letter of undertaking from the P&I Insurer.

The application before the Court was an application by the defendants to strike out the claim on the grounds that the claim amounted to an abuse of the court’s process and was plainly and obviously unsustainable.

In this article, we look only at the claim in contract.

Authority to bind P&I Insurer

One issue which arose was whether United Endurance Solicitor had the authority to bind the P&I Insurer and Manager.

It was argued that since the United Endurance Solicitor was appointed to act on behalf of the “United Endurance”, there was no actual nor apparent authority to enter into the standstill agreement on behalf of the P&I Insurer and Manager.

The Court referred to the Club’s rules which provides that the P&I Insurer shall have the right to direct the conduct of any claim or legal proceedings against the assured, including the right to dispose of the claim in such manner and upon such terms as the P&I Insurer may require.

The evidence adduced also showed that even though the United Endurance Solicitor said on record that he was acting on behalf of the “United Endurance”, the truth of the matter was that he took instructions from the P&I Insurer and Manager.

The Court went on to find that there was an arguable case that United Endurance Solicitor had the authority to bind P&I Insurer and Manager in entering into the standstill agreement.

Terms of the standstill agreement

The standstill agreement was recorded in a brief email from United Endurance Solicitor.  An issue which arose was what exactly was agreed between the parties.

In essence, the United Endurance Solicitor invited the “Sunbright” to submit its claim documents to him as the parties should ‘cut through all the protocol’ since the claim (where liability did not appear in dispute) was capable of a quick commercial settlement.

The Court found that reading the correspondence between the parties, there was an agreement to “hold off any formal steps” while parties are negotiating the quantum of the claim.

The Court found that ordinarily, where a collision occurs, the usual protocol would be to secure the claim which often occurs before attempts at settlement. The issuance of an in rem writ would be contemplated and a warrant of arrest would be sought if security is not provided voluntarily.

Here, the United Endurance Solicitor’s representation that the parties intend to “hold off any formal steps” would include an agreement not to seek security while parties are still in negotiations.

And even though it was not expressly mentioned in the email exchange, the Court found that there was an arguable case that there was an implied term that if the settlement negotiations fell through, the P&I Insurer was obliged to provide security.

Key Lessons Learnt

  • Caution should be exercised when making representations, both orally and in writing.
  • If the terms are not spelt out carefully, the Court may step in to imply terms in order to make the agreement work.
  • The Court will not hesitate to find that solicitors appointed by the insurer to act for the insured could also be held to be authorized to contract on behalf of the insurer in appropriate cases.