Royal & Sun Alliance Insurance Plc & Anor v T & N Ltd

A separate or preliminary trial on assumed facts is a valuable case-management device, but it must be used with great care. It is generally unsuitable where materiality, knowledge, waiver, inducement or affirmation depend upon factual matters that remain uninvestigated.

The court should not permit assumed facts to produce final judgment against one party while withholding the disclosure and factual trial that might reveal a stronger pleaded case. The resulting asymmetry is unfair and may cause duplication, hypothetical appellate decisions, delay and wasted costs. An appellate court will ordinarily respect case-management discretion, but must intervene where the judge has not properly evaluated those consequences and the decision is plainly wrong.

T & N and associated companies sought declarations concerning employers’ liability insurance for asbestos-related claims. The insurers relied, among other matters, on misrepresentation and material non-disclosure. Extensive disclosure and factual investigation would have been required before those issues could be tried.

Mr Justice Lloyd directed that trials fixed for January 2003 should determine parts of the insurers’ non-disclosure cases on assumed facts. The insurers appealed those case-management directions. The central issue was whether the court could fairly determine fact-sensitive insurance avoidance issues on assumptions while postponing investigation of the underlying facts.

1. The appeals were allowed. Chadwick LJ held that appellate restraint applies to case-management decisions. Intervention is nevertheless required where the judge’s decision is plainly wrong and outside the proper ambit of discretion.

2. The directions for a trial on assumed facts could not stand. In the case against Royal, the pleaded general propositions were excluded from the assumptions. They therefore still required disclosure and evidence. That defeated the intended purpose of avoiding extensive preparation before the January trial.

3. The issues of materiality, knowledge, waiver, inducement and affirmation were fact-sensitive. It was inappropriate to determine them on hypothetical facts where the actual facts might materially alter the conclusion. This was especially so for allegations said to concern moral hazard, which could raise important questions of principle only after the relevant facts had been established.

4. Chadwick LJ held that the proposed procedure was inherently unfair to the insurers. If an insurer succeeded on assumed facts, a further factual trial would still be needed. If T & N succeeded on assumed facts, the insurer could be denied the opportunity to advance a stronger case revealed by disclosure. The procedure thus weighted the scales against the insurers.

5. Arden LJ agreed. She explained that preliminary trials are useful but can become a “treacherous short cut” where the legal consequences depend on unresolved facts. The judge had not fully addressed the need for extensive disclosure, the unfairness of finality without a factual trial, or the hypothetical nature of findings on underwriting matters.

6. The Court set aside paragraph 3(1) of the order of 18 November 2002 and paragraph 6 of the order of 5 December 2002. It directed that the January trial should address only issues capable of being tried within the available time without assumptions. The misrepresentation and non-disclosure issues were to be tried separately, subject to further High Court case management.

• Court of Appeal (Civil Division): allowed the insurers’ appeals and set aside the assumed-facts directions in the orders of 18 November and 5 December 2002.
• High Court, Chancery Division (Lloyd J): gave case-management directions requiring aspects of the insurers’ misrepresentation and non-disclosure cases to be tried on assumed facts.