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

An appellate court respects case management decisions made on correct principles and with proper consideration of relevant matters. It may intervene where a decision falls outside the generous ambit of judicial discretion.

A trial on assumed facts must operate fairly between the parties. It is unfair to determine a pleaded defence conclusively against a defendant on assumptions where disclosure might reveal a stronger case, while allowing the claimant a subsequent factual trial if the defendant succeeds. Expedition cannot justify that imbalance.

Directions must also achieve their intended practical purpose. Assuming particular allegations does not remove the need for disclosure concerning broader allegations left for determination. Questions of principle should not be decided on hypothetical facts liable to differ materially from the facts ultimately established.

T & N Limited and other group companies, principally in administration, sought declarations that their former employers’ liability insurers covered claims by former employees and dependants arising from asbestos exposure. Royal & Sun Alliance Insurance Plc had provided cover between 1969 and 1977. Brian Smith represented the Lloyd’s syndicate which subsequently provided cover until 1995.

The insurers disputed coverage and pleaded avoidance for non-disclosure or misrepresentation. T & N relied on matters including the insurers’ knowledge, lack of materiality or inducement, waiver and affirmation. Extensive factual investigation threatened a trial already fixed for January 2003.

Lloyd J made case management orders on 18 November and 5 December 2002 requiring parts of the trial to proceed on assumed facts without corresponding disclosure. The insurers sought permission to appeal. The central issue was whether those directions fairly and effectively preserved the trial date while permitting proper determination of the avoidance defences.

Both appeals were allowed unanimously. Chadwick LJ and Arden LJ concluded that the directions for trial on assumed facts were plainly wrong.

1. Both judges recognised the restraint required when reviewing case management decisions. The managing judge’s accumulated knowledge deserved respect. Chadwick LJ explained that a decision made on correct principles, taking account of relevant matters and excluding irrelevant matters, should stand unless it fell outside the generous ambit of discretion. Arden LJ relied on the equivalent standard in Ashmore v Corporation of Lloyds [1992] 1 WLR 446.

2. The directions concerning Royal rested on an unsound practical premise. Although specific allegations were to be assumed, broader allegations about the disparity between T & N’s knowledge and general understanding remained for determination. Those allegations required extensive disclosure and evidence. The directions therefore frustrated their intended purpose of enabling the January trial to proceed within the allotted time.

3. The proposed procedure was unfair to both insurers. Disclosure might establish a stronger defence than their existing particulars supported. If T & N succeeded on the assumptions, the insurers would lose without establishing the true facts. If the insurers succeeded, T & N could still obtain a factual trial. Properly pleaded issues which were not liable to be struck out could not fairly be resolved through that unequal arrangement.

4. Both judges identified the difficulty of deciding questions of principle on facts which might change materially after investigation. This was particularly significant for the alleged moral hazard disclosures. The substantive legal question concerning those disclosures remained undecided. Arden LJ additionally explained that materiality, actual inducement, waiver and affirmation were sensitive to the full facts. Hypothetical findings could waste time and impose unnecessary burdens on witnesses.

5. Arden LJ emphasised that preliminary issues remained a valuable case management tool, but required great care. She distinguished the undisputed factual setting in Ashmore v Corporation of Lloyds and applied the caution expressed in Tilling v Whiteman [1980] AC 1. The distress and urgency affecting former employees did not justify different principles.

Paragraph 3(1) of the November order and paragraph 6 of the December order were set aside. Submissions were invited on replacement directions permitting the January trial to address issues ready for determination without assumptions. Arden LJ proposed separate later trial of the avoidance defences and associated issues, subject to further submissions.

• Court of Appeal (Civil Division): In [2002] EWCA Civ 1964 , granted permission and allowed both insurers’ appeals. The directions requiring trial on assumed facts were set aside, with submissions invited on replacement directions.
• High Court, Chancery Division: Lloyd J made case management orders on 18 November and 5 December 2002 requiring parts of the January 2003 trial to proceed on assumed facts. No citation for either order is supplied.