CASE UPDATE: Travelers Insurance Company Ltd v Countrywide Surveyors Ltd (1)

This case in the High Court (2) has confirmed that the English courts will not order pre-action disclosure in support of arbitration.

Background

A relatively new development in English civil procedure is the court's power to order disclosure of documents prior to the commencement of proceedings. Originally brought in to support personal injury actions, it now applies to all actions. The basis for the application is section 33(2) of the Senior Courts Act 1981, which provides that only a party which appears to the High Court “to be likely to be a party to subsequent proceedings in that court” can make the application. The rule implementing this power in the Civil Procedure Rules is to be found at CPR 31.16.

Facts

Countrywide were surveyors which had taken out a policy of professional indemnity insurance with Travelers as lead underwriters. It was suspected that up to three of Countrywide's employees had been participating in fraudulent schemes involving valuations. Travelers was considering whether to invoke its power to avoid the policy on the grounds of misrepresentation or non-disclosure and so sought from Countrywide documents to show just how much Countrywide knew about what had been going on.

The policy contained a special condition to ensure that the policy was not avoided because of an inadvertent misrepresentation or non-disclosure, and there was an arbitration agreement applying to disputes about that special condition (other disputes would go to the English courts as usual).

The judgment

The judge (Coulson J) found that the arbitration agreement was effective and noted that it applied only to disputes about this particular special condition. He deduced that there was a deliberate intention to take advantage of the privacy afforded by arbitration on this one sensitive issue.

Furthermore, he found that on the strict words of the Senior Courts Act 1981, applications to court for pre-action disclosure are simply not available in support of arbitration. Not only were the words of the Act quite specific in limiting this sort of application to court proceedings only, but the general intention of the Arbitration Act 1996 was to establish a separate regime for arbitration in which the role of the courts was kept deliberately limited to certain specific instances - and pre-action disclosure was not one of them.

The judge also rejected two further arguments:

• The judge rejected an application based on s 37(1) of the Senior Courts Act 1981, which is a general power to grant an injunction or to appoint a receiver where it appears to the court just and convenient to do so: this power could not be invoked where there was not some express jurisdiction conferred on the court
• The judge also rejected an application based on s 44(3) of the Arbitration Act 1996, which allows a court to make an order in a case of urgency for the purpose of preserving evidence or assets: this was an exceptional power to be used where there was e.g. a danger of evidence being permanently lost, and there was no evidence here of that

Analysis

In coming to this conclusion, the judge was in line with an earlier decision of High Court in EDO Corporation v Ultra Electronics (3). It is also noteworthy that the judge indicated that, if this had been a court case, he would probably have ordered pre-action disclosure.

The case highlights that the courts adopt a hands-off approach to arbitration and will not intervene unless there are specific powers given to them to do so. Coulson J was very keen to say that he reached his decision on the basis not only of the specific words of the relevant Act, but also applying the policy, as frequently enunciated by the courts, of showing reluctance in intervening in arbitration without good reason. He cited Cetelem SA v Roust Holdings (4) in which Clarke LJ said that he entirely accepted “the submission that a central and important purpose of the [Arbitration Act] was to emphasise the importance of party autonomy and to restrict the role of the courts in the arbitral process . In particular, the [Arbitration] Act was intended to ensure that the powers of the court should be limited to assisting the arbitral process and should not usurp or interfere with it.”

As the judge noted, there really was no need for this sort of application, as “this application for pre-action disclosure is no different to the run-of-the-mill application for early disclosure which arbitrators are well-versed in addressing”.

Notes

(1) Copyright Richard Stephens 2010. The law is stated as at 18 October 2010.

This note is intended to provide general information about legal developments in England & Wales and you should not apply any of the advice or information contained in it to specific situations without seeking professional advice first.

(2) [2010] EWHC 2455 (TCC)

(3) [2009] EWHC 682 (Ch)

(4) [2005] 1 WLR 3555