Ukegheson v Gresham Insurance Company Ltd & Ors

On summary judgment, the court must assess whether a claim has a realistic, rather than fanciful, prospect of success without conducting a mini-trial. An insurance policy requiring continuing prospects of success may be construed by reference to the prospects of the underlying claim as a whole, rather than an interlocutory appeal within an otherwise unsuccessful claim. A contractual decision-maker must act honestly, rationally and without arbitrariness, assessed by reference to the material available when the decision was made. A contractual promise is not, without more, a representation of fact capable of founding deceit. Damages for mental distress are generally unavailable for breach of an ordinary commercial contract, and a personal-injury claim may be time-barred under the Limitation Act 1980.

The claimant brought proceedings against his home legal-expenses insurer, its administrator and an employee. He alleged breach of the insurance contract and fraudulent misrepresentation arising from refusals to fund employment proceedings, including an appeal to the Employment Appeal Tribunal, the Court of Appeal and an application for permission to appeal to the Supreme Court.

The defendants applied for summary judgment. They accepted liability for the costs of the Employment Appeal Tribunal proceedings, subject to quantification, but disputed the remaining heads of loss. The central issues were the proper construction of the policy’s prospects-of-success clause, the viability of the fraud allegations, recoverability of damages for mental distress, limitation, and the claim for lost earning capacity.

1. Summary judgment. The court applied the approach stated in Easyair Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch). The claim had to carry some degree of conviction, but the court was not to conduct a mini-trial. A short point of construction should be decided summarily where the evidence and argument were sufficient. Swain v Hillman [2001] 2 All ER 91, ED & F Man Liquid Products v Patel [2003] EWCA Civ 472, Royal Brompton Hospital NHS Trust v Hammond (No 5) [2001] EWCA Civ 550, Doncaster Pharmaceuticals Group Ltd v Bolton Pharmaceutical Co 100 Ltd [2007] FSR 63 and ICI Chemicals & Polymers Ltd v TTE Training Ltd [2007] EWCA Civ 725 were considered in that context.
2. Contractual discretion and policy construction. The insurer had to act honestly, rationally and without arbitrariness, applying the material available at the time of its decision, consistently with Braganza v BP Shipping [2015] UKSC 17. The policy required prospects of success for the duration of the claim. Properly construed, this referred to the prospects of the underlying claim as a whole, not merely the prospects of an interlocutory appeal. The defendants were therefore entitled to refuse cover for the Employment Appeal Tribunal appeal, notwithstanding that permission to appeal had been granted.
3. Deceit and fraud. The court applied the principles concerning fraud pleadings discussed in Palladian Partners LP and others v The Republic of Argentina and another [2020] EWHC 1946 (Comm), Three Rivers DC v Bank of England (No 3) [2001] 2 AC 1 and JSC Bank of Moscow v Kekhman [2015] EWHC 3073 (Comm). The pleaded policy definition was a contractual promise, not a factual representation. It could not support a claim that the defendants knowingly or recklessly made a false statement. The unpleaded allegation of fraud by omission also failed because the defendants were entitled to deny cover.
4. Other losses. The claim for lost earning capacity lacked a sustainable cause of action and, insofar as it concerned time spent corresponding about the litigation, was potentially a costs issue. Damages for mental distress were not recoverable for breach of this commercial contract. The distinction drawn in Watts v Morrow [1991] 1 WLR 1421, including its discussion of Perry v Sidney Philips & Son [1982] 1 WLR 1297, Jarvis v Swans Tours Ltd [1973] QB 233, Jackson v Horizon Holidays Ltd [1975] 1 WLR 1468 and Heywood v Wellers [1976] QB 446, placed the claimant’s litigation-related stress outside the recoverable category. The alleged personal injury was also prima facie time-barred under section 11 of the Limitation Act 1980.
5. Disposition. All claims failed except the defendants’ accepted agreement to pay the costs of the Employment Appeal Tribunal appeal. Those costs were referred to a costs judge for assessment, subject to the policy limit of £50,000, which applied to the insured event.

The judgment records earlier Employment Tribunal, Employment Appeal Tribunal and Court of Appeal proceedings arising from the claimant’s employment claims, followed by refusal of permission to appeal to the Supreme Court. The present insurance action was determined at first instance.