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The Commercial Court has recently handed down its judgment in the case of Midtown Acquisitions LP v Essar Global Fund Limited and Others [2018] EWHC 789. The decision provides useful guidance on whether “first past the post” is really a legal principle when it comes to charging orders.

Background Facts

Two creditors, Midtown Acquisitions LP (“M”) and ICICI Bank Limited (“ICICI”) had lent funds to the debtor (Essar Steel Minnesota LLC) in respect of the same project, guaranteed by the defendant (Essar Global Fund – “Essar”) under loan agreements.

M secured a US judgment against Essar in respect of those funds on 25 August 2016, which it then used to obtain a summary judgment totalling USD 171 million, from the English Commercial Court on 17 March 2017.   M then obtained an interim charging order on 11 September 2017 and on 16 January 2018, appeared before Mr Justice Robin Knowles CBE in order to seek a final charging order.

ICICI followed a similar path, however, was slightly behind M, with ICICI commencing proceedings in the US on 2 September 2016 and obtaining a US judgment on 27 April 2017. The US judgment was used to obtain a summary judgment (also in the Commercial Court) on 10 November 2017, in the sum of USD 588 million. ICICI then filed a charging order application on 28 November 2017 and obtained its interim charging order on 20 December 2017.   ICICI was also seeking a final charging order at the hearing on 16 January 2018.

It is important to point out that whilst Essar’s solvency was clearly debatable (given the sums owed to M and to ICICI), insolvency proceedings were not in contemplation at the time of the Commercial Court hearing and Essar did not oppose either M or ICICI’s request for final charging orders.   The issue in question was the fact that ICICI considered that its charging order should rank equally to that of M, irrespective of the fact that its interim charging order was granted some three months’ after M’s interim charging order.

Representations

 Neither M nor ICICI was seeking equality of all creditors.   The judgment refers to the clear “objective” of both M and ICICI to “obtain priority over the general body of unsecured creditors of Essar”.

Counsel for M sought to rely upon the “first past the post” rule – which was relied upon in British Arab Commercial Bank plc v Ahmad Hamad Algosaibi and Brothers Coin 2011. It was submitted that “first past the post” was a “default rule” which had been around some time. However, Counsel for ICICI pointed out that Lord Goddard in James Bibby Ltd v Woods & Howard (1949) expressed himself “not in language of articulating a principle, but rather in language of observation of what can happen”.

Mr Justice Knowles in the present case had regard to the fact that precedent (particularly Mr Justice Flaux in the British Arab Commercial Bank case referred to above), made it clear that “first past the post” was the type of “rule” to which there would be exceptions and indeed, Counsel for M did accept that it was not an absolute principle.

Judgment

 Mr Justice Knowles therefore decided that the “rule” could be taken into account, however, what was important was to achieve an equitable outcome having regard to all the circumstances of the case. He referred in his judgment to the fact that The Charging Orders Act 1979 itself sets out that “all the circumstances” must be considered before the making of a charging order.

Other factors considered by Mr Justice Knowles were:

• That both M and ICICI are significant commercial parties – i.e. equally able to look out for their own commercial interests;
• M secured its interim charging order first and this is not a case where the debtor (Essar) did anything to “engineer” that outcome;
• ICICI was not seeking equality of all creditors – simply, equality of itself and M;
• The material in the case suggests that Essar sought to delay M – a factor to be considered in circumstances where M was procedurally ahead of ICICI in terms of the Court process.

In weighing up his conclusion, Mr Justice Knowles states that it is not “inequitable to prefer one diligent party over another diligent party, if in all the circumstances that seems appropriate”.   After balancing all of the factors, it was decided that M’s charging order would rank above ICICI’s in order of priority.   As such, in this case, the party that was “first past the post” is the party who enjoys priority.

Comments

The important message from this judgment is that “first past the post” cannot be relied upon as a principle where final charging orders are being sought.   However, a party can have some confidence that if all other circumstances are equal/equitable, being the first to have been granted an interim charging order could afford that party the benefit of priority when a final charging order is sought.   As such, the underlying message is not to unduly delay in getting on with the court process in circumstances where a decision has been made to seek the award of a charging order.

When do you have to give notice to your underinsured motorist (UIM) carrier—right after the accident occurs, or only when it becomes clear that the tortfeasor’s policy limit will be insufficient to make you whole? That was the fundamental question at stake in Shugarts v. Mohr, 2018 WI 27, a case recently decided by the Wisconsin Supreme Court. Based upon the language of the UIM policy at issue and applicable Wisconsin statutes, the Court concluded, in a unanimous decision, that notice is required upon tender of the tortfeasor’s underlying policy limit, and no earlier. That meant, in this case, that the first notice to the UIM carrier, which came more than four years after the accident, was timely and that there was no need to look into whether the carrier was prejudiced by the delay.

The Facts

On Oct. 11, 2000, an Eau Claire County deputy sheriff, Shugarts, gave chase to a suspect, Mohr. Unfortunately, Mohr’s vehicle struck Shugarts’ squad car, severely injuring him. Shugarts hired counsel, who sent notice of retainer to Mohr’s auto insurance carrier, Progressive, in late 2011.

Progressive denied coverage, on the grounds that Mohr’s striking of the squad car was an intentional act. Years went by, settlement efforts did not succeed, and Shugarts ultimately filed suit against Progressive in mid-2013. Finally, in mid-October 2014, nearly four years to the day after the accident, Progressive offered to pay its policy limit of $50,000.

Several weeks later, Shugarts’ attorney sent notice of retainer to Allstate, Shugarts’ UIM insurer. Four months after that, the attorney followed it up with a more detailed notice, sharing Progressive’s limits offer and explaining that Shugarts’ claim was well in excess of that limit.

In short order thereafter, Shugarts added Allstate as a defendant in the lawsuit. Not surprisingly, Allstate raised untimeliness as a defense and moved for summary judgment. The Eau Claire County Circuit Court granted the motion and the court of appeals affirmed.

The Policy

The Court looked first at the applicable Allstate policy. That policy had seven separate coverage parts, with the two critical ones being “Automobile Liability Insurance” and “Underinsured Motorists Insurance.” The Automobile Liability Insurance section included a provision requiring the insured to notify Allstate “of all details” of an “auto accident” “as soon as reasonably possible.” The Underinsured Motorists Insurance section, however, said nothing about notice of an “accident.” Instead, it only required the insured to submit notice of “claim” “as soon as possible.” According to the Court, Shugarts did not have a UIM “claim” until Progressive tendered its underlying policy limit. Because that did not occur until mid-October 2014, and Shugarts’ attorney promptly communicated with Allstate thereafter, the notice was timely. In the Court’s view, the Allstate policy did not require notice of an accident, only notice of claim, and the notice of claim was timely.

The Court also addressed Allstate’s argument that Wis. Stat. § 631.81 required Shugarts to provide notice earlier. Rejecting Allstate’s contention, the Court noted that while section 631.81 requires “notice or proof of loss” to be furnished “as soon as reasonably possible and within one year after it was required by the policy,” that section did not apply because the policy at issue did not require “proof of loss” for UIM claims, only proof of “claim.” In other words, because the policy did not require proof of loss, the statute could not impose a requirement that was not in the policy itself.

The Upshot

The Court’s decision puts UIM carriers in a tough spot. The purpose of a notice provision is to allow insurers to investigate while the evidence is fresh. If a carrier does not even find out about an accident until four years after it happened, however, it will be rather difficult to explore the situation and preserve the key evidence. One can easily imagine situations where the delay will prejudice the insurer.

To the extent they wish, insurers can probably solve the problem by revising the language in their UIM policies. For example, insurance companies could take the notice of accident language from the liability sections of their policies and insert the essence of it into the UIM sections. Perhaps that would inundate carriers with too many unwanted notices in situations where the UIM coverage is never likely to come into play, but that seems like a small price to pay for the cases in which having early notice and an early opportunity to investigate will help to efficiently and effectively resolve the claim.

Employee discharge decisions often form the basis for disputes – whether they arise in court or before administrative agencies. Such decisions routinely are challenged by unions before the National Labor Relations Board (NLRB), and the agency has overturned terminations and reinstated workers in situations even where egregious misconduct was at issue. The board recently issued a decision where it overturned two employee terminations as a result of selective rules enforcement, which demonstrates yet again the importance of consistency by management when administering discipline.

In Advanced Masonry Associates, LLC, a company discharged two workers who violated the company’s “fall-protection policy.” That policy required employees working at certain heights to wear specified safety equipment to minimize risks from falling. Over the years, employees generally were issued warnings and /or suspensions for violations of the policy. After a union filed a petition to represent the company’s workforce, however, two know union-supporters were discharged for their first violations of the policy. The NLRB ultimately found the two terminations violated labor law because, among other things, the employer had not consistently discharged employees under the policy on prior occasions (which can give rise to an inference that the true reason for the termination was retaliation for union activities).

Another recent decision from the agency shows there are limits and that the NLRB will uphold terminations where employers build a solid record – including by showing consistent rules enforcement – but this case serves as yet another reminder that consistency in discipline administration remains key.

In Jesner v. Arab Bank, PLC, 584 U.S. ___, 2018 WL 1914663 (U.S. Apr. 24, 2018) (Kennedy, J.), the Supreme Court of the United States held that foreign corporations may not be sued under the Alien Tort Statute(“ATS”), 28 U.S.C. § 1350. The Court, disagreeing with opinions from the Seventh, Ninth and District of Columbia Circuits (see blog articles hereand here), concluded that United States courts do not have authority under the ATS to impose liability on foreign corporations for violations of international human rights laws where the law of nations does not impose such liability. This decision provides relief to foreign corporations that otherwise could have been held liable for committing violations of international law under the ATS, in the area of human rights and beyond.

About 6,000 plaintiffs filed five lawsuits between 2004 and 2010 in the United States District Court for the Eastern District of New York, claiming that they or their family members (predominantly foreign nationals) were injured or killed by terrorist attacks in the Middle East. They alleged that defendant Arab Bank, PLC conducted electronic transfers through its New York City office that funded these injurious terrorist operations — aid which is presumptively illegal under international law. The questions facing the Supreme Court revolved around the liability of corporations for human rights violations by their employees who provide such aid through the corporation.

The Supreme Court was first presented with this question in Kiobel v. Royal Dutch Petroleum Co, 569 U.S. 108 (2013). In that case, the Supreme Court declined to decide the narrow question of whether the ATS extended to suits against foreign corporations, and instead held on broad grounds that the ATS does not apply to conduct that is entirely foreign in nature. (See blog article here). The Court left open the issue of whether an ATS claim might appropriately be asserted against a corporation based upon acts occurring outside the United States, but in some way touching and concerning the United States.

The district court dismissed the Jesner plaintiffs’ claims based upon Kiobel. The United States Court of Appeals for the Second Circuit affirmed, applying the reasoning in its own decision in Kiobel v. Royal Dutch Petroleum Co., 621 F.3d 111 (2d Cir. 2010), that, because international criminal tribunals typically limit their jurisdiction to natural persons, the ATS does not apply to violations of international law by corporations. (See blog article here).

In the plurality opinion written by Justice Kennedy, the Court held that there is no “specific, universal, and obligatory norm” in international law providing for corporate liability. Rather, the Court held that there is significant doubt as to whether prevailing international law imposes criminal liability on corporations and, in light of that doubt and the daunting foreign policy consequences (such as mounting tensions with the Hashemite Kingdom of Jordan over this very case), the decision to extend the application of the ATS to foreign corporations is the role of Congress and not the courts.

In concurring portions of the plurality opinion, Justices Kennedy and Thomas, joined by Chief Justice Roberts, note that limited application of the ATS to foreign corporations may likely be deemed favorable by Congress leading legislative action. Concurring with the opinion of the Court in full, Justice Thomas briefly highlighted and supported the views of his concurring colleagues. Justice Gorsuch wrote an opinion concurring in part and concurring in the judgment, urging that the Supreme Court should not be creating new causes of action under the ATS, and arguing more broadly that the ATS likely does not apply to suits between foreign plaintiffs and foreign defendants. Justice Alito penned his particular concerns where doing so may create just the “diplomatic strife” the ATS was intended to prevent.

In a dissenting opinion, Justices Sotomayor, Ginsburg, Breyer and Kagan expressed their view that the international treaty standard rendering the financing of terrorism a violation of international law, not the method of enforcing that standard, is the relevant “specific, universal, and obligatory norm” at issue. The dissenting Justices determined that this is not the proper inquiry at all, and instead believed that the Court should look at whether any reason exists to distinguish between natural persons and corporations under the ATS. Analogizing to pirate ships’ liability under the ATS centuries ago, the dissenting Justices interpreted the corporate form as not being inherently devoid of responsibility under international law, and observed that foreign policy concerns identified by the plurality could instead be addressed on extraterritoriality grounds.

The new precedent set by the Jesner plurality decision reflects this Court’s hesitation to engage in what its consider judicial overreach. It will therefore be up to Congress to decide whether to expand the ATS to allow victims to sue foreign corporations — often the only “deep pocket” for recovery in light of foreign sovereign immunity — in federal courts for their participation or assistance in violations of human rights.

Businessinsurance.com reported that security consultants at F-Secure (a Finnish data security company) discovered about a year ago that by “getting hold of a widely used hotel key card, an attacker could create a master key to unlock any room in the building without leaving a trace,…”. The April 25, 2018 article entitled “Hotel key cards, even invalid ones, help hackers break into rooms” included these comments:

While the researchers have fixed the flaw together with Assa Abloy, the world’s largest lock manufacturer which owns the system in question, the case serves as a wake-up call for the lodging industry to a problem that went undetected for years.

The researchers helped Assa fix the software for an update made available to hotel chains in February. Assa said some hotels have updated it but that it would take a couple more weeks to fully resolve the issue.

Timo Hirvonen (one of the F-Secure consultants) made the following comment in an interview:

We found out that by using any key card to a hotel … you can create a master key that can enter any room in the hotel. It doesn’t even have to be a valid card, it can be an expired one,…

Given the number of plastic Hotel keys used around the world this very alarming news!