Third Parties (Rights Against Insurers) 
Act 1930

A Joint Discussion Paper 

Law Commission
Consultation Paper No 152

Scottish Law Commission
Discussion Paper No 104

The Law Commission and the Scottish Law Commission were set up by the Law Commissions Act 1965 for the purpose of promoting the reform of the law.

The Law Commissioners are:

The Honourable Mrs Justice Arden DBE, Chairman
Professor Andrew Burrows
Miss Diana Faber
Mr Charles Harpum
Mr Stephen Silber, QC

The Secretary of the Law Commission is Mr Michael Sayers and its offices are at Conquest House, 37-38 John Street, Theobalds Road, London WC1N 2BQ.

The Scottish Law Commissioners are:

The Honourable Lord Gill, Chairman
Dr E M Clive
Mr P S Hodge, QC
Professor K G C Reid
Mr N R Whitty

The Secretary of the Scottish Law Commission is Mr J G S Maclean and its offices are at 140 Causewayside, Edinburgh EH9 1PR.

This joint consultation paper, completed on 6 November 1997, is circulated for comment and criticism only.  It does not represent the final views of the two Law Commissions.

The Law Commission would be grateful for comments on this consultation paper before 21 April 1998.  All correspondence should be addressed to:

THE LAW COMMISSION

Mr Peter Fish
Law Commission
Conquest House
37-38 John Street
Theobalds Road
London  WCIN 2BQ

Tel:	0171-453 1264
Fax:	0171-453 1297
e-mail:  company.lawcomm@gtnet.gov.uk	THE SCOTTISH LAW COMMMISSION

Mrs Diane Barbirou
Scottish Law Commission
140 Causewayside
Edinburgh
EH0 1PR

Tel:	0131 668 2131
Fax:	0131 662 4900	

It may be helpful for the Law Commission, either in discussion with others concerned or in any subsequent recommendations, to be able to refer to and attribute comments submitted in response to this consultation paper.  Any request to treat all, or part, of a response in confidence will, of course, be respected, but if no such request is made the Law Commissions will assume that the response is not intended to be confidential.

The text of this consultation paper is available on the Internet at:
http://www.gtnet.gov.uk/lawcomm/homepage.htm

Contents
		Paragraph	Page	
PART 1:   INTRODUCTION AND OVERVIEW				1	

Calls for reform		
1.6	
	2	
The nature of liability		1.9		2	
The purpose of liability insurance		1.10		3	
Our approach to reform		1.13		4	
Structure of this paper		1.20		5	
Overview		1.21		6	
	(i)		The scope of the Act		1.22		6	
	(ii)		The third party's rights under an amended Act		1.23		6	
	(iii)		The disclosure of policy information		1.24		6	
	(iv)		The ability of insurers to rely on defences		1.25		6	
	(v)		The distribution of a limited insurance fund to
			multiple claimants		
1.26	
	7		
	(vi)		Limitation and prescription		1.27		7	
	(vii)	Private international law aspects of the Act		1.28		7	
Acknowledgements		1.29		7	

PART 2:    HISTORICAL BACKGROUND TO THE
INTRODUCTION OF THE ACT AND CHANGES IN 
LAW AND PRACTICE SINCE 1930			

	8	

Introduction		
2.1	
	8	
The introduction of the 1930 Act		2.2		8	
Changes in insurance law since 1930		2.4		9	
	The growth of liability insurance since 1930		2.4		9	
	Regulation of the insurance industry		2.6		9	
	The relevance of the 1930 Act today		2.8		10	
Changes in insurance practice since 1930		2.12		11	
	Reinsurance		2.13		11	
	Insurance intermediaries		2.18		12	
	Triggers for cover – "occurrence" and "claims made"
	 policies		
2.19	
	12	
Changes in insolvency law and practice since 1930		2.21		13	

PART 3:    CURRENT LAW:  SUMMARY OF THE SCHEME AND OPERATION OF THE ACT			

	14	

The scheme of the Act		
3.1	
	14	
Aspects of the operation of the Act which have been criticised		3.5		14	

PART 4:    WHEN DO RIGHTS TRANSFER AND DUTIES ARISE UNDER THE ACT?  THE JUDICIAL CONSTRUCTION OF SECTIONS 1 AND 2 AND THE IMPLICATIONS OF THAT CONSTRUCTION			

	16	

When do rights transfer to the third party under section 1 of the Act?		

4.2	

	16	
	Post Office v Norwich Union Fire Insurance Society Ltd		4.4		16	
	Bradley v Eagle Start Insurance Co Ltd		4.6		17	
When do third parties acquire rights to disclosure under section 2 of the Act?		
4.10	
	18	
	Nigel Upchurch Associates v Aldridge Estates Investment Co
	 Ltd		
4.13	
	19	
	Woolwich Building Society v Taylor		4.16		19	
The implications of the judicial construction of sections 1 and 2		4.19		21	
	Multiple proceedings		4.20		21	
	Funding actions under the Act and related proceedings		4.31		24	
	Access to policy information		4.36		25	
Third parties may have to restore a dissolved company to the register of companies and establish its liability before they can proceed against the insurer		

4.38	

	26	
	Section 651 of the Companies Act 1985		4.38		26	
	Limitation of the third party's underlying claim		4.40		27	
	Procedures for restoring companies to the register		4.44		28	

PART 5:    THE RIGHT OF INSURERS TO RELY ON
DEFENCES			

	31	

The rights which are transferred to the third party are those which the insured would have had against the insurer		

5.4	

	31	
Anti-avoidance provisions		5.6		32	
Other restrictions on the ability of insurers to rely on defences against third parties		
5.10	
	33		
	The Employers' Liability (Compulsory Insurance) Act 1969		5.10		33	
	Insurers' Codes of best practice		5.13		34	
Defences commonly relied on by insurers		5.14		34	
	(i)   Misrepresentation and non-disclosure		5.15		35	
	(ii)  Breaches of notice provisions		5.17		35	
	       Can notice requirements be met by third parties?		5.32		38	
	(iii) Arbitration clauses		5.35		39	
	       Scott v Avery clauses		5.36		39	
	       Problems faced by third parties bound by arbitration 
	        clauses		
5.41	
	40	
	       The court's power to stay legal proceedings		5.49		42	
(iv) Breaches of the duty to provide information and          assistance		
5.51	
	43	

(v)  Breaches of conditions relating to the duty of the insured to meet minimum safety requirements, to comply with safety and other regulations/preserve the assets/business insured (for example, to maintain the security of premises)		

5.55	

	44	
(vi)  Breach of conditions relating to payment		5.56		44	
        Payment of premiums and of policy excesses		5.57		44	
        Pay first clauses		5.58		44	
        The Fanti and The Padre Island		5.59		45	
        Can third party claimants against Protection and
         Indemnity Clubs circumvent the House of Lords'
         decision in The Fanti or protect their position by
         other means?		

5.63	

	46	
Limitation and prescription		5.66		47	
Overview of the right of insurers to rely on defences which they
 would have had against the insured to defeat third party claims		
5.68	
	47

PART 6:    PROVISIONS RELATING TO WHO OWES A DUTY OF DISCLOSURE AND AS TO WHAT INFORMATION SHOULD BE DISCLOSED		

	

	48	

The information which must be disclosed		
6.2	
	48	
The duty to disclose does not extend to brokers or to others authorised to hold policy information		
6.7	
	49	
The duties of the insured and of the insurer to disclose are not simultaneous		
6.8	
	49	
The position of officeholders		6.9		49	
Can the third party obtain disclosure by other means?		6.11		50	
Overview of limitations on third parties' rights to disclosure of policy information		
6.19	
	51	

PART 7:    THE DISTRIBUTION OF A LIMITED INSURANCE FUND TO MULTIPLE CLAIMANTS		

	53	

Cox v Bankside		
7.2	
	53	
	Background to the case:  the Lloyd's litigation		7.2		53	
	The judgment of the Court of Appeal		7.5		54	
The implication of the decision of the Court of Appeal in Cox v Bankside		
7.10	
	55	
Could a more equitable distribution of insurance proceeds be achieved under the existing law?		
7.17	
	57	
	Representative, group and consolidated actions		7.18		57	
Conclusions		7.24		59	

PART 8:   PRIVATE INTERNATIONAL LAW			
	60	

What rules govern the applicability of the 1930 Act to cases with a foreign element?		

8.3	

	60	
	The Irish Rowan		8.4		60	
	Davenport v Corinthian Motor Policies at Lloyd's		8.6		61	
When can the third party bring bankruptcy or winding up proceedings against the insured in the United Kingdom?		
8.10	
	62	
	Petitioning for the bankruptcy or winding up of foreign
	 debtors		
8.12	
	62	
Can third parties rely on the Act where the insured has been made bankrupt or wound up in a foreign jurisdiction?		
8.19	
	64	
Where can the insurer be sued?		8.21		65	
	The Brussels Convention		8.22		65	
	Claims not governed by the Brussels Convention		8.25		66	

PART 9:   LIMITATION AND PRESCRIPTION			
	67	

English law		
9.2	
	67	
	The limitation period applicable to disputes arising under
	 contracts of indemnity		
9.2	
	67	
	Limitation of the 1930 Act		9.4		68	
		Lefevre v White		9.4		68	
		The Felicie		9.8		69	
		The Jordan Nicolov		9.14		70	
	The position of third party claimants		9.17		71	
Scottish law		9.18		72	
	Prescription and contracts of indemnity		9.19		72	
	Substitution of the third party in proceedings started by
	 the insured		
9.22	
	73	

PART 10:   REFORM:  APPROACH TO REFORM			
	74	

The structure of this reform section		
10.1	
	74	
Principles governing our approach to reform		10.3		74	
	Freedom of contract		10.4		74	
	In general, the courts should be able to resolve disputes
	 between all relevant parties in one set of proceedings		
10.6	
	75	
	Relevant information relating to potential disputes should
	 be available at an early stage		
10.7	
	75	
	Competing claims to limited insurance funds should be
	 dealt with in a manner which seeks to achieve fairness,
	 certainty and cost efficiency		

10.8	

	75	
The impact of Lord Woolf's report on the civil justice system on our proposed reforms		
10.9	
	76	

PART 11:   THE SCOPE OF THE ACT			
	77

Should the Act be extended to reinsurance policies?		
11.3	
	77	
	The Policyholders Protection Act 1975		11.4		77	
	The problems of extending the Act to reinsurance policies		11.6		78	
Should the Act continue to apply to all liability insurance policies?		11.9		79	
	The purpose of liability insurance		11.10		79	
	Compulsory insurance		11.12		80	
	Claims involving death or personal injury		11.15		81	
	Consumer, as opposed to commercial, claims or claims by
	 an individual		
11.17	
	82	
	Tortious or delictual, as opposed to contractual, claims		11.19		82	

PART 12:   THIRD PARTY RIGHTS UNDER AN AMENDED ACT			

	84	

Should the third party's rights against the insurer arise only once he has established the liability of the insured?		

12.5	

	85	
Should the third party's rights only arise on the happening of one of the insolvency events set out in the Act?		
12.7	
	86	
	Should third parties have rights against insurers,
	 regardless of the insolvency of the insured?		
12.7	
	86	
Should third parties have rights against insurers when the 	 
insured is in financial difficulties, but before the happening
	of one of the insolvency events set out in the Act?		

12.9	

	86		
The implications of the liability of insurer and insured being resolved in the same proceedings		
12.11	
	87	
	The early identification of issues in dispute		12.11		87	
	Possibility of prejudice to the insured or the insurer?		12.12		88	
Should the third party proceed against both insurer and insured?		12.14		89	
Advantages and disadvantages of the liability of insurer and insured being resolved in the same proceedings and of both insurer and insured being party to the third party's action		

12.15	

	89	
	Evidence		12.15		89	
	Binding the insured		12.16		89	
Joinder and substitution		12.22		90	
The nature of a third party's rights under an amended Act		12.24		92	
	Third party rights against insurers in other jurisdictions		12.25		92	
	Third party rights under an amended 1930 Act		12.32		94	
Should the third party's right of action against the insurer be subject to a leave requirement?		
12.34	
	95	
	Advantages and disadvantages of a leave requirement		12.35		95	
Is a leave requirement necessary to deter speculative  actions by third parties whose case against the insured is weak or hopeless but who are pursuing the case because of the existence of insurance cover?		

12.35	

	95	
Is a leave requirement necessary to deter proceedings by  third parties in which the liability of the insurer and of the insured will be in issue when those proceedings are unlikely to succeed because of the insurer's ability to rely on cover points?		

12.36	

	96	
Is a leave requirement necessary to prevent the insured's  case being prejudiced and to protect the insurer from having to run conflicting cases?		

12.37	

	96	
Is a leave requirement necessary to provide the court with  an opportunity to consider whether the insured should be a defendant or defender to the proceedings (where the insurer believes that its ability to conduct the insured's defence would otherwise be prejudiced)?		

12.38	

	96	
	Provisional conclusions on the advantages of a leave 
	requirement		
12.39	
	97	
	When should leave be sought?		12.41		97	
	Possible leave criteria		12.42		98	
	The procedure for leave		12.44		98	
Should a third party have a right to set aside settlements  made between the insurer and the insured prior to the happening of one of the insolvency situations set out in the Act?		

12.45	

	99	
Payment of the insurance proceeds by the insurer		12.48		100	
Should a third party have a right of direct action against  the insurer of an insured party who has disappeared?		
12.49	
	100	

PART 13:   DISCLOSURE OF POLICY INFORMATION			
	101	

When should the duty to disclose policy information arise?		
13.2	
	101	
Information discloseable under section 2		13.5		103	
The categories of policy information which should be disclosed		13.6		104	
	The existence of the insurance policy and the identity of
	 the insurer		
13.6	
	104	
	The terms of the insurance policy		13.7		104	
	Whether or not the insurer has repudiated cover		13.8		104	
The grounds of repudiation (for example, for non-disclosure or breach of warranty and details of the breach)		
13.9	
	104	
The value of the insurance cover and details of whether or not some or all of the insurance fund has already been paid out to other claimants		

13.11	

	105	
	Details of any settlement between the insurer and the
	 insured		
13.14	
	106	
Should the extent of the duty of disclosure vary according to the nature of the third party or of his claim?		
13.15	
	107	
Who should have a duty of disclosure and what should the scope of the duty be?		
13.16	
	107	
Should the duty of the insured and of the insurer to disclose policy information be simultaneous?		
13.16	
	107	
Should an officeholder's duty of disclosure be as onerous as that of the insurer?		
13.18	
	108	
Should others holding policy information have a duty of	 
disclosure and what should the extent of that duty be?		
13.19	
	108	

PART 14:   DEFENCES			
	110	

The position of third party claimants under the 1930 Act		
14.3	
	110	
What bases could be used to limit the ability of insurers to rely on defences?		
14.7	
	111	
	Restrictions which apply when the insurance cover is
	 compulsory		
14.10	
	112	
	Restrictions which apply when the third party's claim is of
	 a particular type		
4.13	
	113	
	Restrictions which apply after a certain point in time		4.15		114	
	Restrictions which depend on the consequences of the
	 breach of duty or of policy terms		
4.19	
	115	
		Safeguarding the interests of the insurer		14.20		115	
		The consequences of breach		14.21		115	
	Restrictions on insurers relying on certain types of defence
	 or on breaches of certain policy terms			
14.28	
	118	
		Non-disclosure and misrepresentation		14.29		118	
		Notice requirements		14.30		118	
		Arbitration clauses		14.32		119	
		Duty to co-operate and provide assistance		14.36		120	
		Conditions relating to the duty of the insured to
		 preserve the assets/business insured (for example,
		 to maintain security)		

14.37	

	120	
		Conditions relating to the ability of the insured to
		 pay		
14.38	
	121	
An insurer's right to an indemnity from the insured		14.42		122	

PART 15:   THE DISTRIBUTION OF A LIMITED INSURANCE FUND TO MULTIPLE CLAIMANTS			

	123	

Disclosure of prior settlements and judgments of the level of remaining insurance cover		

15.2	

	123	
Possible schemes under current law		15.3		123	
	The court's power to give simultaneous judgment		15.4		124	
	A court imposed representative action or consolidation of
	 actions		
15.5	
	124	
How might a statutory scheme of rateable distribution operate?		15.6		124	
	How would the scheme be triggered?		15.7		124	
	Who could administer the scheme?		15.10		125	
	How would the scheme be administered?		15.13		126	
	The problems which a scheme of rateable distribution
	 might cause		
15.16	
	127	
Our provisional views		15.18		127	

PART 16:   PRIVATE INTERNATIONAL LAW			
	129	

Should the Act's provisions address private international law issues?		

16.2	

	129	
What criteria should determine the applicability of the Act?		16.3		129	
	The insured has been declared bankrupt or wound up in
	 this country		
16.4	
	129	
	The insurance proceeds are payable in this country		16.6		130	
	The courts have jurisdiction in respect of the tort or delict
	 or breach of contract committed by the insured		
16.7	
	130	
	The law applicable to the insurance contract is English or
	 Scottish law		
16.8	
	131	
	The insurer is subject to the jurisdiction of a UK court		16.14		132	
Should the jurisdiction of UK courts to hear claims under the 1930 Act be widened?		
16.17	
	133	

PART 17:   LIMITATION AND PRESCRIPTION			
	134	

Should a fresh limitation period govern the actions of third parties under the Act under English law?		

17.3	

	134	
Should third parties be able to substitute themselves in court or arbitration proceedings begun by the insured?		
17.7	
	136	
	Costs		17.9		136	
	Other matters in issue in the proceedings between the
	 insured and the insurer		
17.11	
	136	
	Notice and the mechanics of substitution		17.12		137	
Scottish law		17.14		137	
Section 651 Companies Act 1985		17.17		138	

PART 18:   SUMMARY OF OUR PROVISIONAL PROPOSALS AND CONSULTATION QUESTIONS			

	140	

APPENDIX A:   LEGISLATION			
	152	

Third Parties (Rights Against Insurers) Act 1930			
	152
	
Companies Act 1985				155	
	651 Power of court to declare dissolution of company void				155	
	653 Objection to striking off by person aggrieved				155	
Companies Act 1989				156	
	141 Application to declare dissolution of company void				156	
Civil Jurisdiction and Judgment Act 1982				157	
	Schedule I:  Convention on Jurisdiction and enforcement
	 of Judgments in Civil and Commercial Matters			
	157	
		Title I:  Scope				157	
			Article 1				157	
		Section 3:  Jurisdiction in matters relating to
		 Insurance			
	157	
			Article 7				157	
			Article 8				157	
			Article 9				158	
			Article 10				158	
			Article 11				158	
			Article 12				158	
			Article 12A				159	
The draft EU Convention on Insolvency Proceedings				160	

APPENDIX B:   PROCEDURAL RULES			
	162	

Rule of the Supreme Court			
	162	
	Consolidation, etc., of causes or matters				162	
	RSC Order 4, rule 9				162		
Principal cases in which service of writ out of jurisdiction is permissible			
	162	
RSC Order 11, rule 1				162	
Joinder of parties				163	
RSC Order 15, rule 4				163	
Misjoinder and nonjoinder of parties				164	
RSC Order 15, rule 6				164	
Changes of parties by reason of death, etc.				164	
RSC Order 15, rule 7				164	
Declaratory judgment				165	
RSC Order 15, rule 16				165	
Third party notice				165	
RSC Order 16, rule 1				165	
Time, etc., of trial of questions or issues				166	
RSC Order 33, rule 3				166	
County Court Rules				166	
	Order 5				166	
Causes of Action and Parties				166	
	Joinder of causes of action (O 5, r 1)				166	
	Joinder of parties (O 5, r 2)				166	
	Power to order separate trials (O 5, r 3)				167	
Misjoinder or non-joinder of parties (O 5, r 4)				167	
Order 12				167	
Third Party and Similar Proceedings				167	
	Third Party Notice (O 12, r 1)				167	
Order 13				167	
Applications and Orders in the Court of Proceedings				167	
	Directions (O 13, r 2)				167	
Application of RSC relating to other interlocutory matter (O 13, r 7)				
	168	
Order for consolidation etc. (O 13, r 9)				168	
Order 15				168	
	Amendment				168	
	Amendment by order (O 15, r 1)				168	
Access to Justice, Draft Civil Proceedings Rules, July 1996				169	
	Court's duty to manage cases				169	
	The court's general powers of management				169	
	Persons to whom notice of an application must be given				169	
	Changes of parties - general				169	
Special provisions about adding or substituting parties after the end of a relevant limitation period			
	170	
Scottish procedural rules:  Court of Session rules				171	
	Chapter 22				171	
		Closing records				171	
	Chapter 24				172	
	Amendment of Pleadings				172	
		Powers of court				172	
	Chapter 26				173	
	Third Party Procedure				173	
		Applications for third party notice				173	
	Chapter 36				173	
	Proofs				173	
		Hearing parts of proof separately				173	

APPENDIX C:   STATISTICS			
	175	

Claims brought under the 1930 Act:  ABI statistics			
	175	
Law Commission survey of applications to restore dissolved companies to the register			
	176	
	The nature of the third party's underlying claim				176	
	The application procedure				177	

APPENDIX D:   INSOLVENCY CLAUSE RECOMMENDED BY THE ABI/LIRMA AND ILU			

	178	

APPENDIX E:   THE CITY OF LONG LAW SOCIETY
INSURANCE SUB-COMMITTEE			

	180	

The proposed Third Parties (Rights Against Insurers) Act 1997			
	180	

APPENDIX F:   SUMMARY OF SCHEMES OF THIRD PARTY RIGHTS AGAINST INSURERS IN OTHER JURISDICTIONS			

	182	

Australian Commonwealth legislation			
	182	
New Zealand, the Australian Capital Territory and New South Wales 			
	185	
South Africa				188	
Nigeria				189	
United States of America				190	
France				191	
Belgium				192	
Canada				193	

APPENDIX G:   LIST OF INDIVIDUALS AND
ORGANSIATION WHO HAVE ASSISTED WITH 
THE PROJECT			
	195	

Part 1	Introduction and Overview
1.	
1.1	Our terms of reference are to examine, jointly with the Scottish Law Commission, the scope and operation of the 1930 Act in the light of current law and market practices of the insurance industry.
1.2	The aim of the Third Parties (Rights Against Insurers) Act 1930 was, as its long title indicates, "to confer on third parties rights against insurers of third-party risks in the event of the insured becoming insolvent ...". Before the Act, the proceeds of any insurance policy covering a liability which the insured had incurred to a third party were payable to the insured's insolvency practitioner. Once paid over, they formed part of the insured's assets and were distributed as such to his general creditors. The third party whose loss had triggered the claim against the insurer was likely only to recover a small dividend as one of those creditors.
1.3	When it was first debated in October 1929, the Bill was described as a measure which would "commend itself to all quarters of the House" and this proved to be the case.
1.4	The Act gives third parties a right to claim the insurance proceeds from the insurer ahead of the other creditors. It operates by transferring the insured's rights against the insurer to a third party to whom liability has been "incurred" on the happening of one of the insolvency situations set out in the Act. It also gives third parties certain rights to disclosure of policy information and prohibits policy terms designed to avoid the operation of the Act and settlements between the insurer and the insured reached after the transfer of rights.
1.5	As we shall see, the court has held that the precondition to the transfer of rights in section 1 of the Act that liability has been "incurred" is only met once the third party has established the liability of the insured by judgment, award or agreement. It is not met on the happening of the event giving rise to the liability of the insured. Until the third party has established liability in this way, he has no right of action against the insurer under section 1 and no right to the disclosure of policy information under section 2. 

Calls for reform
1.6	Calls for reform of the Act have centred on the practical consequences for third parties of this judicial construction of sections 1 and 2. Attention has been drawn, for example, to the fact that third parties may go to the expense of establishing the liability of the insured only then to discover, once the duty to disclose has arisen, that the insurer is not liable under the insurance contract. Criticism has also been made of the requirement that third parties restore dissolved companies to the register so that they can establish their liability and acquire rights under the Act.
1.7	The ability of insurers to rely against third party claimants under the Act on all the defences and policy terms on which they could have relied against the insured has been questioned. Also, it has been suggested that distribution of a limited insurance fund, inadequate to meet the claims of all third parties, to those who establish their claims first rather than pro rata to all claimants is unfair. Questions have also been raised as to whether what limitation period governs claims under the Act and the territorial scope of the Act should be clarified.
1.8	As well as reviewing the problems which have been caused by the current operation of the Act, we consider in this Paper whether, in view of changes in insurance law and practice since 1930, the scope of the Act should be extended or restricted. As part of our review, we look at schemes of third party rights in other jurisdictions.
The nature of liability insurance
1.9	A liability insurance policy is a contract of indemnity in which the insurer agrees to indemnify his insured for any loss suffered by reason of the insured's liability to another. In Post Office v Norwich Union Fire Insurance Society Ltd, the Court of Appeal held that an insured did not suffer loss until his liability had been determined by judgment, arbitration or agreement. This approach differs from that taken by the court in Chandris v Argo Insurance Co Ltd, where it was held that an insured had suffered loss when he had incurred liability to the third party, even though the existence and amount of that liability had not yet been established.
The purpose of liability insurance 
1.10	The view is taken in some jurisdictions that the purpose of liability insurance is not merely to protect the financial interests of the insured, but is also to protect the interests of those to whom the insured may incur liability. The Louisiana Direct Action Statute provides, for example, that "all liability policies ... are executed for the benefit of all injured persons ... to whom the insured is liable" and allows third parties a right of direct action against insurers, regardless of the solvency of the insured.
1.11	Some commentators in this country have also suggested that liability insurance could be seen as being for the benefit of third parties. The doctrine of privity of contract is still generally upheld by the English court, although it has been subject to criticism. The Law Commission has recommended that a third party  should be permitted to enforce contractual provisions when the parties to the contract intend that he should have the right to do so. Scottish law already has the concept of ius quaesitum tertio, whereby an identified third party may have rights under a contract to which he is not a party if there is an express or implied intention to benefit him.
1.12	As we have already noted, the 1930 Act operates by transferring the insured's rights against the insurer under the insurance contract to the third party. In cases brought under the 1930 Act, the court has stressed that third parties generally acquire no better rights under the Act than the insured had against the insurer. In the Road Traffic Act 1988 and the Employers' Liability (Compulsory Insurance) Act 1969, Parliament has intervened to protect the interests of third parties by laying down compulsory insurance regimes and prohibiting insurers from relying on particular defences. One of the issues which we consider in this paper is whether insurers should be prevented from relying, as against third party claimants under the 1930 Act, on defences and policy terms on which they could have relied against the insured.
Our approach to reform
1.13	Our approach to reform has been to balance a principled approach to what rights  third parties should have against insurers and an appreciation of the practical consequences of any wide-ranging reform on the insurance industry and, through possible rises in insurance premiums, on those seeking insurance cover. 
1.14	The UK insurance market, despite serious losses suffered by Lloyd's between 1988 and 1992, is the world's leading insurance market. In 1995, the UK insurance industry earned world-wide premium income of £92 billion (equivalent to 14.3% of gross domestic product) and invisible earnings of £5.4 billion. We are aware of the importance of safeguarding the reputation and competitive position of the UK insurance market. We believe that a system of insurance law which adapts to changing circumstances and operates fairly can only add to the reputation of the UK market.  
1.15	As we consider amendments which would alter the rights of third parties under the Act, we look at how such amendments would affect insurers, the insured, the insured's insolvency practitioner and the insured's other creditors. 
1.16	Some of the issues raised by this paper are not only relevant to the 1930 Act: they relate to insurance law and practice in general. Such issues include the disclosure of policy information, the ability of insurers to rely on defences and the distribution of a limited insurance fund to multiple claimants. We have attempted to concentrate on the relevance of such issues in the particular context of the 1930 Act but have, where appropriate, referred briefly to their wider implications. We have, for example, mentioned recommendations for reform to the law on non-disclosure and breach of warranty made previously by the Law Commission and reforms recently recommended by the National Consumer Council.
1.17	We have sought to identify problems which have arisen and which might arise from the current wording of the Act and its construction by the courts. Some of the issues discussed in this paper, such as the limited rights of third party claimants to the disclosure of policy information, have regularly caused problems in practice and have been subject to much criticism. Others, such as the use of pay first clauses and the distribution of limited insurance funds to multiple third party claimants, have been given prominence by a number of recent high profile cases but are rarely encountered.
1.18	Given the costs of legal reform to end users, we are acutely aware of the importance of not reforming for the sake of reforming. We have indicated if, to our knowledge, a particular issue has not caused problems in practice and have sought consultees' views on those issues which they believe to be problematic. Most claims involving the Act appear to be settled without recourse to litigation and we need to balance any advantages of increasing third party rights against insurers against the disadvantages of uncertainty and increased litigation. We need also to bear in mind the importance of the Act as a means of promoting settlement between insurers, insureds and third parties.
1.19	We refer in this paper to a number of proposals contained in Lord Woolf's report on the civil justice system in England and Wales, published in July 1996. Lord Woolf has recommended a number of fundamental changes, some of which will have implications for proceedings under the 1930 Act. One of Lord Woolf's main objectives is increased openness and co-operation between parties. In our view, many of our provisional conclusions are in line with Lord Woolf's approach to reform.
Structure of this paper
1.20	In Part 2, we look briefly at the historical background to the introduction of the Act and changes in law and practice since 1930.  In Parts 3 to 9, we consider the current operation of the Act and in Parts 10 to 17, we consider possible options for reform. In Part 18, we summarise our provisional views and consultation questions. The Act and other relevant UK legislation, regulations and material are set out in appendices A to E. Brief notes on schemes of third party rights in foreign jurisdictions are to be found in Appendix F. The relevance of such schemes cannot be assumed as we consider possible options for reforming the 1930 Act because of the different legal and insurance contexts in which they operate.
Overview
1.21	By way of a brief overview, we set out here some of the issues raised by this paper and the provisional approach we have taken to them.
(i)	The scope of the Act
1.22	We have discussed possible extensions to and restrictions of the scope of the Act. We have suggested that the Act should continue to apply to all liability insurance policies.
(ii)	The third party's rights under an amended Act
1.23	We suggest that a third party's rights against an insurer under an amended Act should not be dependant on his first establishing the liability of the insured, but should arise once two events have occurred: the incident giving rise to the liability of the insured and the happening of one of the insolvency events set out in the Act. We suggest that, as well as acquiring the insured's right to be indemnified, the third party should have an immediate right to seek a declaration or declarator that, on the liability of the insured being established, the insurer will be liable to indemnify the third party. The effect of this would be that the liability of the insured and of the insurer would be dealt with in one set of proceedings. 
(iii)	The disclosure of policy information
1.24	We have suggested that the duty to disclose policy information should also arise on or be referable to the happening of one of the insolvency situations set out in the Act. We have given our provisional view that the categories of information which should be disclosed should include the terms of the policy, details of any purported repudiation and the value of the insurance fund.
(iv)	The ability of insurers to rely on defences
1.25	We have suggested that third parties should be able to meet certain policy conditions themselves and that insurers should only be able to rely against third parties on breaches of certain policy conditions to the extent that such breaches are causative of the loss and have caused prejudice to the insurer.
(v)	The distribution of a limited insurance fund to multiple claimants
1.26	We seek consultees' views on whether the courts' existing powers are adequate to impose a scheme of rateable distribution on claimants under the Act and on whether there should be a new statutory scheme and, if so, how it should operate.
(vi)	Limitation and prescription
1.27	We seek consultees' views on whether or not a fresh limitation or prescriptive period should apply to rights and duties under the Act. We have suggested that third parties should be able to substitute themselves in arbitrations started by the insured.
(vii)	Private international law aspects of the Act
1.28	We have suggested that the applicability of the 1930 Act to cases with a foreign element should be clarified and have sought consultees' views on the criteria which could be applied to determine its applicability.
Acknowledgements
1.29	We gratefully acknowledge assistance from the persons and the bodies listed in Appendix G. We would like to express our particular thanks to our consultant, Dr Malcolm Clarke of the University of Cambridge. In addition to acting as our consultant, he arranged a conference to discuss the Act. The contributions of all who attended that event were of great assistance to our work. We are also grateful to officials of the Companies Court who assisted us in the statistical work referred to in Appendix C. The views expressed in this Consultation paper are those of the Law Commissions. 

Part 2	Historical Background to the Introduction of the Act and Changes in Law and Practice since 1930
2.	
Introduction
2.1	In this Part, we consider the reasons for the introduction of the 1930 Act and outline some of the changes in law and practice which have occurred since then. We consider the extent to which the Act continues to be relevant and look briefly at  developments in liability insurance which might need to be taken into account were the Act to be amended. 
The introduction of the 1930 Act
2.2	It is clear from the Parliamentary debates of the Bill which was to become the 1930 Act that it was intended to deal particularly with the insolvency of insured motorists whose insolvency prevented third party victims from recovering insurance proceeds. In Re Harrington Motor Co Ltd, the court had rejected the claim by a third party who had been knocked down by a car belonging to an insured company which had gone into liquidation. The court reluctantly agreed with the insured's liquidator that the insurance proceeds formed part of the assets of the company for distribution to the creditors as a whole. 
2.3	Both Atkin LJ and Lord Hanworth MR suggested that the law should be amended and further calls for reform followed a similar decision of the Court of Appeal in Hoods Trustees v Southern Union General Insurance Company of Australia Ltd. A Bill was introduced in April 1928 and the Act became law in July 1930. The only amendments to it since have been consequential amendments to the detail of its insolvency provisions following the introduction of the Insolvency Acts 1985 and 1986 and the Bankruptcy (Scotland) Act 1985.
Changes in insurance law since 1930
The growth of liability insurance since 1930
2.4	There has been a huge development in the number of activities covered by insurance since 1930 as areas of liability have expanded and insurance markets diversified. In some cases, Parliament has made insurance compulsory. Shortly after the 1930 Act was passed, the Road Traffic Act 1930 made it compulsory for the user of a motor vehicle on a road to be insured against liability for the death of or injury to third parties. Other legislation laying down schemes of compulsory insurance includes the Employers' Liability (Compulsory Insurance) Act 1969, the Nuclear Installations Act 1965, the Merchant Shipping Act 1995 and the Dangerous Wild Animals Act 1976.
2.5	Some compulsory insurance schemes, such as the Road Traffic Acts and the Merchant Shipping Act 1995, provide third parties with specific rights against insurers on the insolvency of the insured. Others, such as the Employers' Liability (Compulsory Insurance) Act 1969, do not. Prior to 1930, employees were given rights of direct action against insurers on the bankruptcy or insolvency of their employers under the Workmen's Compensation Acts 1906 and 1925. This is no longer the case and employees must now proceed under the 1930 Act in such cases. 
Regulation of the insurance industry
2.6	The insurance industry is regulated by legislation and by voluntary codes and statements of practice. The main legislation governing insurance is the Insurance Companies Act 1982 which provides, among other things, for the authorisation of insurers. The 1982 Act has been substantially amended since 1982, partly as a result of EU law. The Policyholders Protection Act 1975 allows policyholders owed sums by insolvent insurers to recover those sums from a fund set up by insurers.
2.7	The insurance industry, mainly through the ABI, has also adopted a number of voluntary codes and statements of practice, modifying insurance law in some areas. Many insurers are also members of the dispute handling scheme operated by the Insurance Ombudsman Bureau. Not all insurers belong to the ABI, however, or are members of the Bureau's scheme. It is also unclear whether or not insurers apply the Statement to claims brought by third parties under the 1930 Act. Concern has also been voiced that the gap in self regulation will widen as the single European market opens up and insurance is increasingly offered by foreign insurers.
The relevance of the 1930 Act today
2.8	As we have already noted, Parliament's main intention when passing the 1930 Act was to provide a remedy to the victims of insolvent insured motorists. Specific road traffic legislation now protects victims in such cases. It could be argued, therefore, that the 1930 Act has no continuing relevance. We would dispute this, both on the basis that the wording of the 1930 Act is general in scope and that, whatever Parliament's intention in passing the Act, it has operated successfully since 1930 to assist third parties and to encourage settlement of claims over a wide range of activities now covered by insurance.
2.9	Those drafting the 1930 Act borrowed wording from the Workmen's Compensation Acts, which was drafted specifically to cover employee rights, but they did not restrict the wording of the new statute to road traffic cases. Nor did they seek to include the regime of third party rights as part of the Road Traffic Bill which was shortly to be passed. Although the availability of insurance cover was limited in 1930, it was available in respect of a number of activities.
2.10	As we have seen, unlike earlier statutes, the Employment Protection Act 1969 did not include a specific regime of third party rights against the insurers of insolvent employers. Employees rely instead on the provisions of the 1930 Act. Our research suggests that many claims involving the 1930 Act are based on employer's liability cases, cases involving public liability cover, general personal injury claims and professional indemnity cases.
2.11	We discuss in Part 12 whether or not the Act should continue to apply to all liability insurance policies or whether its scope should be restricted. Relevant to this issue is whether developments in insurance law and practice which were not foreseen by those passing the Act need to be reflected in amendments to the Act. We look briefly below, for example, at the growth of reinsurance, at reinstatement provisions and at the use of "claims made" polices. 
Changes in insurance practice since 1930
2.12	As insurance business has expanded and more players have entered the insurance market, insurance practice has changed and insurance arrangements have become more complex. We outline below some of the developments in insurance practice which may be relevant to our review of the 1930 Act and indicate where they are discussed in more detail in the rest of this paper.
Reinsurance 
2.13	As insurers began to take on greater risks, for a wider range of activities, they sought to spread their risk through reinsurance. Reinsurance is currently excluded from the 1930 Act by section 1(5) but the justification for its exclusion has been questioned.
2.14	Reinsurance terminology is complex and views as to the meaning of a particular term may vary. There are two main forms of reinsurance: facultative reinsurance and treaty reinsurance. Facultative reinsurance is the reinsurance of individual risks where the insurer has no obligation to cede and the reinsurer no obligation to accept a particular risk. The reinsurer knows in advance the risks which he is to cover. Because of the high administrative costs of facultative reinsurance, it has largely been replaced by treaty insurance. 
2.15	Treaty reinsurance involves an agreement between the insurer and the reinsurer under which the insurer is obliged to cede and the reinsurer to accept all risks falling within the scope of the agreement. Among the issues covered by the treaty will be the monetary limits of the cover and the classes of business covered. The reinsurer will not know in advance the particular risks which he will cover.
2.16	Insurance business may be reinsured proportionally or non-proportionally. Where reinsurance is proportional, the insurer decides what part of the risk it wishes to retain and reinsures the balance with one or more reinsurers. Premiums and losses on a risk or portfolio of risks are shared by insurer and reinsurer proportionately to that division. Where reinsurance is non-proportional, losses in excess of a certain agreed level are reinsured.
2.17	Although there may be a close relationship between the reinsurer and the reinsured, the reinsured is not the agent of the reinsurer and there is no contractual relationship between the original insured and the reinsurer. If the reinsured defaults, the insured has no right of action against the reinsurer. The validity of "cut-through" clauses which purport to give the insured a cause of action against the reinsurer on the insolvency of the reinsured has been doubted. 
Insurance intermediaries
2.18	The growth in insurance business and the increasing complexity of insurance arrangements has meant that insurance cover is likely to be obtained and managed through insurance brokers and other intermediaries. In many cases, information about the insurance cover held by an insured is likely to be kept by insurance brokers who are not themselves bound by the disclosure provisions contained in section 2 of the Act.
Triggers for cover - "occurrence" and "claims made" policies
2.19	In the mid 1980s, some markets (principally the USA and London) converted liability insurance policies to a "claims made" form. The use of claims made policies grew in response to fears of huge claims in respect of asbestosis and other latent injuries. Under such policies, the insured is covered for claims reported during the period covered by the policy, whenever the incident occurred. Traditional "occurrence" policies cover loss or damage occurring during the policy period, whenever those claims are notified. By using claims made policies, insurers seek to protect themselves from claims made a long time after the incident giving rise to the liability of the insured, for which they might have inadequate reserves. 
2.20	If the insured has a claims made policy which terminates before the third party has acquired rights under the 1930 Act and the insured (or his liquidator or trustee in bankruptcy) cannot renew the policy, there may be no insurer against whom the third party can proceed. This may be a particular problem in the case of "long tail" personal injury claims. It has been suggested that claims made cover may not provide the cover required by employers' liability legislation.
Changes in insolvency law and practice since 1930
2.21	As a result of amendments to the 1930 Act by the Insolvency Acts 1985 and 1986 and the Bankruptcy (Scotland) Act 1985, the Act now applies where an administration order has been made or a voluntary arrangement proposed. It also applies where the estate of the insured falls to be administered in accordance with an order under section 421 of the Insolvency Act 1986, which relates to the administration of the insolvent estates of deceased persons, and an award of sequestration of the estate of a deceased debtor or a judicial factor appointed on the insolvent estate of a deceased person.

Part 3	Current Law: Summary of the Scheme and Operation of the Act
3.	
The scheme of the Act
3.1	The Act has only five sections. The Act is set out in Appendix A. Section 1 transfers the insured's rights against the insurer to a third party to whom liability has been "incurred" on the happening of one of the insolvency situations set out in subsection (1). In the case of an insured individual, these are the insured becoming bankrupt or making a composition or arrangement with his creditors. In the case of an insured company, they are the winding up of the company, the making of an administration order, the passing of a resolution for a voluntary winding up, the appointment of a receiver or manager, possession being taken of any property subject to a floating charge or the approval of a voluntary arrangement under Part I of the Insolvency Act 1986. 
3.2	Section 2 provides for the disclosure of policy information by the insured and the office holder and by the insurer and prohibits terms in insurance contracts purporting to prevent the disclosure of such information or to avoid the contract or to alter the rights of insurer or insured on the disclosure of such information.  
3.3	Section 3 provides that settlements between the insurer and the insured after the transfer of rights under the Act will not defeat or affect the rights transferred to third parties under it.
3.4	Section 4 relates to the applicability of the Act to the estates of deceased insureds in Scotland and section 5 gives the short title of the Act.
Aspects of the operation of the Act which have been criticised
3.5	In Parts 4 to 9, we consider the following aspects of the operation of the Act which have given rise to criticism:-
(i)	Third parties may have to establish the liability of the insured in separate proceedings before they can proceed against the insurer under the Act or obtain policy information;
(ii)	Where the insured is a dissolved company which has been struck off the Register of Companies, third parties may have to restore the company to the register and establish its liability before they can proceed against the insurer;
(iii)	Third parties may find their claims defeated because insurers can rely on defences which they would have had against the insured;
(iv) 	The scope of the provisions in section 2 relating to who owes a duty of disclosure and as to what information should be disclosed is narrow; 
(v) 	Third parties' potential claims under the Act may be defeated by the insurer and the insured settling the insured's claims under the policy before the happening of one of the insolvency situations set out in the Act;
(vi) 	An insurance fund which is inadequate to meet the claims of all third parties is distributed to those who establish their claims first rather than rateably to all claimants; 
(vii)	The territorial scope of the Act is unclear;
(viii) 	It is unclear under English law when limitation periods governing claims under the Act start to run and whether third parties can substitute themselves in arbitrations started by the insured against the insurer; 
(ix) 	The current operation of the Act may cause unnecessary costs to third parties, insurers and officeholders.

Part 4	When do Rights Transfer and Duties Arise under the Act? The Judicial Construction of Sections 1 and 2 and the Implications of that Construction
4.	
4.1	Interpreting section 1 of the Act, the courts have held that the liability of the insured must have been established before the third party can acquire rights under section 1 of the Act and before the duty to disclose can arise under section 2. In this Part, we look at case law on sections 1 and 2 and consider the implications of the judicial construction of these sections. We look, for example, at the costs consequences of the parties being involved in two or more sets of proceedings, at the outset of which the third party may not even know if the insured has insurance cover. Where the insured is a dissolved company which has been struck off the Companies Register, these may include proceedings to restore the company to the Register so that the third party can bring proceedings against the company and establish its liability before proceeding against the insurer.
When do rights transfer to the third party under section 1 of the Act?
4.2	Section 1 of the 1930 Act sets out the insolvency events to which it applies, then provides that
if, either before or after that event, any such liability ... is incurred by the insured, his rights against the insurer under the contract in respect of the liability shall ... be transferred to and vest in the third party to whom the liability was so incurred.
4.3	As we shall see, many of the practical problems associated with the Act stem from the decision in Post Office v Norwich Union Fire Insurance Society Ltd and subsequent cases that a cause of action against an insurer under a liability insurance policy does not arise until the insured's liability to the third party has been established by judgment, arbitration or agreement. Third parties wishing to proceed under the Act must first, therefore, establish the liability of the insured.
Post Office v Norwich Union Fire Insurance Society Ltd
4.4	In the Post Office case, the Post Office alleged that a firm of contractors had damaged one of their cables. Before proceedings could be started against the contractors, they went into liquidation. The Post Office started proceedings against the contractors' insurer, claiming that, on the insolvency of the insured, they were entitled to sue the insurer direct under the 1930 Act. 
4.5	The Court of Appeal held that the insured could not have sued the insurer for an indemnity until his liability to the third party had been established as, before that point, he would not have suffered any loss. Under section 1 of the Act, third parties could only sue the insurer in circumstances in which the insured could have done so. Before proceeding under the Act, they must first, therefore, establish the liability of the insured. This could be by judgment of the court, by an award in arbitration or by agreement.
Bradley v Eagle Star Insurance Co Ltd
4.6	The Court of Appeal's decision in Post Office v Norwich Union Fire Insurance Society Ltd was approved by the House of Lords in Bradley v Eagle Star Insurance Co Ltd. The applicant in the Bradley case had been employed by a company in their cotton mill and developed a respiratory disease caused by the inhalation of cotton dust. The company was wound up in 1975 and dissolved in 1976. Intending to bring an action against the company's insurers under the 1930 Act, the applicant sought an order requiring the insurers to disclose to her the terms and particulars of relevant insurance policies. 
4.7	The House of Lords applied Post Office v Norwich Union Fire Insurance Society Ltd and held, by a majority, that an insured could not sue for an indemnity from the insurer until its liability to the third party had been established. The court held that as the insured company had been dissolved and it was not possible for the third party to restore the company and establish its liability, no right of indemnity could be transferred to her under section 1 of the Act. Accordingly, no useful purpose could be served in making an order for pre-action discovery.
4.8	Scottish law also provides that the liability of the insured must be established before the insured's rights under the insurance contract are transferred to the third party. In Greenlees v Port of Manchester Insurance Company, the victim of a motoring accident obtained a decree against the driver who became bankrupt. Lord Murray stated that liability to the third party is incurred by the insured only when it is established.
4.9	As we shall now see, on the basis of the Post Office and Bradley cases the courts have also held that the duty to disclose policy information under section 2 of the Act does not arise until the liability of the insured has been established. 
When do third parties acquire rights to disclosure under section 2 of the Act?
4.10	Section 2(1) of the Act provides that, in the event of one of the insolvency situations set out in the Act:
it shall be the duty of the bankrupt, debtor, personal representative of the deceased debtor or company, and, as the case may be, of the trustee in bankruptcy, trustee, liquidator, administrator, receiver, or manager, or person in possession of the property to give at the request of any person claiming that the bankrupt, debtor, deceased debtor, or company is under a liability to him such information as may reasonably be required by him for the purposes of ascertaining whether any rights have been transferred to and vested in  him by this Act and for the purpose of enforcing such rights, if any ...
4.11	Section 2(2) imposes a duty on an insurer to disclose information if the information provided to the third party under section 2(1) "discloses reasonable ground for supposing that there have or may have been transferred to him under this Act" rights against that insurer. 
4.12	The wording of section 2(1) might suggest that the duty of the insured and of the officeholder to disclose policy information would arise on the happening of one of the insolvency situations set out in the Act. However, as the following cases show, the court has interpreted section 2 in accordance with cases decided under section 1, holding that third parties have no rights to disclosure under the Act until the liability of the insured to the third party has been established.
Nigel Upchurch Associates v Aldridge Estates Investment Co Ltd
4.13	In Nigel Upchurch Associates v Aldridge Estates Investment Co Ltd, the third party sought an order for disclosure under section 2 of the Act against the insured and the supervisor of the insured's scheme of voluntary arrangement. The Deputy Judge refused the third party's application, construing section 2 in the light of the interpretation which had been given to section 1 in the Post Office and Bradley cases.
4.14	The Deputy Judge reasoned that the statutory duty imposed by section 2 was to provide information for the purposes of ascertaining whether any rights had been transferred under the Act and of enforcing such rights. As the insured could not sue for an indemnity from his insurer until the existence and amount of his liability to the third party had been established, which had not yet happened, no right to claim an indemnity from the insurer could have transferred to the third party. Section 1 transferred to the third party neither a contractual right to seek declaratory relief before a specific liability had been established nor a right to be indemnified contingent upon liability being established.
4.15	The third party argued that interpreting section 2 so as to require liability to have been established before there was a duty to provide information was inconsistent with the wording of section 2 which referred to the third party's "claiming that the insured is under a liability to him" and to his ascertaining "whether any rights have been transferred" and "enforcing such rights, if any". The Deputy Judge rejected this argument and the argument that "commercial common sense requires early information as to insurance cover, so that time and money are not wasted on what may turn out to be a fruitless effort." She held that "the Act was not designed to deal with such mischief, it was designed to remedy the injustice that a creditor had no right to the proceeds as such of any third party insurance effected by an insolvent person when the insurance monies became payable to meet his claim."
Woolwich Building Society v Taylor
4.16	In Woolwich Building Society v Taylor, the judge adopted a different line of reasoning, although the result for the third party plaintiff seeking disclosure of policy information and of the grounds of the purported avoidance was the same. Refusing the plaintiff's application, Lindsay J pointed out that the wording of section 2(1) was in the past tense; it referred to rights which "have been transferred". He recognised that the liability of the insured to the third party "arises ... from the moment when the accident occurred and the damage was suffered", but held that it was impossible to determine whether, in the words of section 1(1), liability had been "incurred" until it had been established. Until liability had been established, it could not be known whether any rights had been transferred so no information could reasonably be required to ascertain whether they had done so.
4.17	Lindsay J concluded that, likewise, the third party could not seek disclosure from the insurer. He suggested that it was "inherently improbable that in 1930 Parliament intended any such pre-trial or advance discovery as between the third party and the insured and as between the third party and the insurer".
4.18	It appears from Hansard, how ever, that the intention of those passing the 1930 Act was to allow pre-trial disclosure of policy information. The court's construction of section 2 has been criticised. It has been suggested that following the House of Lords' earlier decision in The Fanti, it was "open to Miss Dohmann to have held that when the event of insolvency takes place, a contingent right is transferred and the duty arises under section 2 to give information to any person 'claiming that the [insured] is under a liability to him.'" There is judicial support for allowing a plaintiff with a claim against an insolvent insured access to policy information before he has undertaken the costs of litigation. In Scotland, information as to the identity of the insurer and the terms of the policy may be obtained pre-action if the insured is insolvent under section 1 of the Administration of Justice (Scotland) Act 1972.
The implications of the judicial construction of sections 1 and 2  
4.19	In light of the court's approach in the Post Office case and in subsequent cases, it appears that third parties cannot sue the insurer for an indemnity or apply for insurance information under section 2 of the Act before the liability of the insured has been established. We now consider the practical consequences of the court's interpretation of sections 1 and 2 of the Act. As we shall see, it is unclear whether English procedural rules allow third parties to join insurers to proceedings against the insured to seek a declaration of future liability. Third parties can seek a declarator against insurers under Scottish law.
Multiple proceedings
4.20	To obtain judgment under the 1930 Act, a third party may have to bring two or more sets of proceedings. Before he can proceed under the Act, he may have to expend considerable time and money pursuing an insolvent defendant who has no interest in the proceedings. Before bringing proceedings to establish the liability of the insured, he may have to apply for a bankruptcy or winding up order against the insured or for an application to restore a dissolved company to the register and for an order allowing him to proceed against an insolvent insured. He may have problems funding all these applications. 
4.21	In Carpenter v Ebblewhite, an action involving section 10(1) of the Road Traffic 1934, the third party victims of a motor accident argued that they should be able to join in the insured's insurer for such a declaration. They recognised that their cause of action against the insurer had not yet accrued but argued that the desirability of avoiding multiplicity of actions meant that they should be able to proceed against both insured and insurer.
4.22	The Court of Appeal rejected the plaintiffs' claim for a declaration, although their grounds for doing so varied. Greer LJ held that the plaintiffs could not seek a declaration as they had no immediate cause of action against the insurer. This approach appears to have been supported by MacKinnon LJ but Slesser LJ based his decision on his view that, on the facts of the case, to disclose the fact that a defendant was insured would tend to prejudice, embarrass or delay the fair trial of the action. He gave no "concluded opinion" on the issue of the plaintiff's right to seek a declaration against the insurer.
4.23	It appears that Carpenter v Ebblewhite is still cited as authority for the principle that "an insurer will not be allowed to be added as a defendant in a negligence action where there is no dispute between him and the other defendants, and the only claim against the insurer is for a declaration of liability to satisfy the plaintiff's claim." We are not aware of any cases where a plaintiff third party has successfully applied for the joinder of an insurer to proceedings against an insured defendant, although it is possible that the court would allow the joinder of the insurer by a third party given the width of the discretion given to the court in RSC Order 15 and in the light of dicta in Brice v Wackerbarth and Wood v Perfection Travel. Alternatively, it may be that the court is more willing to allow joinder of the insurer by the insured or of the insured by the insurer because of their existing rights and obligations under the insurance contract.
4.24	Brice v Wackerbarth~concerned the application by an insured party to join an insurer into an action against him by an injured plaintiff. The court granted the application, Lord Denning referring to the importance of preventing multiplicity of actions.
4.25	In Wood v Perfection Travel the Court of Appeal allowed the application by an insurer to be joined to an action brought by a third party against a dissolved company which had been restored to the register. The problem which had faced the insurer was described as follows by Hirst LJ:
The present problem arises because the insurers wish to dispute both [the insured's] liability to the plaintiff (the liability issue) and their own liability to [the insured] (the coverage issue) ... Under the coverage issue, they wish to contend that they can avail themselves of the exclusion clause ... In relation to liability, they say that the facts cannot be properly scrutinised and adjudicated unless they assume conduct of [the insured's] defence; this they would readily be prepared to do under the subrogation clause, provided that it was agreed between them and the plaintiff that they could assume conduct of the defence under that clause without prejudice to the coverage issue. Their anxiety is that, without such agreement, there is a risk that they may in consequence, find themselves estopped from disputing coverage.
This anxiety is based on a passage in MacGillivray and Parkington on Insurance Law, 8th edition paragraph 1999 where it is stated that: "... care is needed in undertaking the defence of the claim on behalf of the assured, or else the insurers may become precluded from denying liability under the policy".
4.26	The possibility of this problem arising was overcome by the court allowing the insurer to be joined to the third party's action in its own name.
4.27	In Scotland, an action may contain "eventual conclusions", conclusions which depend on some other eventuality in the action. Thus, in an action by a third party against an insolvent insured to establish the insured's liability, it appears that a declarator may be sought against the insurer that, in the event of liability being established, the insurer is liable to pay the third party in terms of the policy. A declarator was granted in Bell v Lothiansure Ltd although the insurer had conceded the liability of the insured and was defending on the basis that there was no cover under the policy. In Landcatch Ltd v Gilkes, it was held that the insurer and the insolvent insured could not be regarded as jointly and severally liable and the opinion was expressed that the correct way of bringing the insurer in to the proceedings was by way of a declaratory conclusion. Similarly, in McDyer v Celtic Football and Athletic Co Ltd, Lord Macfadyen said that it could be competent for a pursuer to seek declarator as there was sufficient connection between a claim for damages and a conclusion for declarator that if it succeeded, there would be liability on the insurer by virtue of the 1930 Act. 
4.28	Scottish procedural rules allow the insured to apply for a third party notice. The insurer may then take pleas as to his own liability to the insured under the terms of the policy. Once the insurer has been brought in, the third party pursuer could amend his pleadings so as to include a declaratory conclusion against the insurer. 
4.29	It is not clear whether the insurer is entitled to sist himself in a third party's action against the insured in order to take pleas as to the insured's liability and his own liability to the insured. The general rule is that any person having sufficient title and interest may apply to be sisted as a party to an action and this requirement will probably be met if the insured is insolvent or verging on insolvency.
4.30	The requirement that third parties bring proceedings to establish the liability of the insured before they can bring proceedings against the insurer under the 1930 Act causes problems to third parties and to others. Consideration is given below to whether or not third parties should be allowed to proceed directly against the insurer or against both the insured and the insurer in the same set of proceedings.
Funding actions under the Act and related proceedings 
4.31	 A third party who has to bring two or more sets of proceedings before he can obtain judgment under the Act will face legal fees and costs in respect of each set of proceedings. Many of the actions brought under the 1930 Act involve employers' liability and other negligence claims by plaintiffs who may be unable to fund them. The means of funding legal proceedings, which include legal aid, conditional fee agreements and legal expenses insurance, are currently under review.
4.32	Some claimants may meet the financial criteria entitling them to legal aid but, if they cannot show that they are likely to recover from the insolvent insured's insurer, may not be granted legal aid for their proceedings against the insured.
4.33	Other ways in which third parties may be able to fund proceedings are through conditional fee agreements and legal expenses insurance. Since 1995, solicitors have been able to enter into conditional fee agreements with clients bringing particular types of claim, including those relating to personal injury. Such arrangements are commonly known as "no win, no fee" arrangements as the claimant is not responsible for his lawyer's costs unless he wins the case (although he will usually be responsible for his lawyer's disbursements and the other side's costs and disbursements). If he does win, the solicitor's fee is usually based on a percentage of the sum recovered. In Scotland, agreements as to conditional fees have been permitted since 1992. Advocates, solicitors and their clients may agree that fees are payable only in the event of success and the fees may be up to twice the normal fees.
4.34	Unless the chances of the third party's claim succeeding are high, a solicitor may be unwilling to enter into a conditional fee agreement with him. The early disclosure of the existence of insurance cover may therefore be useful in persuading solicitors to take third parties' cases under conditional fee arrangements. 
4.35	Legal expenses insurance has been available in this country since the early 1980s. Currently, most claimants bringing proceedings under the 1930 Act are unlikely to have legal expenses insurance but its use by those entering into conditional fee agreements is likely to increase.
Access to policy information 
4.36	The third party may not obtain policy information until he has established the liability of the insured. Once he obtains disclosure, he may discover that the insurer has no duty to indemnify the insured under the insurance contract. The third party may discover, for example, that certain policy conditions have been breached by the insured, entitling the insurer to repudiate cover. In some cases, the third party might have been able himself to meet those conditions (for example those requiring notice of claims to be given to the insurer) had he known of their existence.
4.37	An interlocutory application in the case of Banque Bruxelles Lambert v Eagle Star Insurance illustrates the wasteful court proceedings that may follow from lack of information as to insurance cover. The plaintiff had lent money on the basis of a surveyor's negligent valuation. One of the defendants to the plaintiff's action, joined to that action in May 1991, was a firm of professional advisers which went into voluntary liquidation. The plaintiff was unable to obtain disclosure of the defendant's insurance position but pursued its action against the defendant. Settlement was finally reached with the defendant's insurer after the trial of the action had started, nearly a year and a half after the defendant had been joined, in October 1992. Another of the defendants, also joined in May 1991, had insurance cover arranged in layers. Its first and third layer insurers purported to repudiate cover at a late stage and it was only following this that the defendant disclosed details of its insurance cover and of the insurers' grounds for purported repudiation. The costs incurred by the plaintiff against these two defendants ran into millions of pounds.
Third parties may have to restore a dissolved company to the register of companies and establish its liability before they can proceed against the insurer
Section 651 of the Companies Act 1985 
4.38	As we have seen, the requirement that the third party establish the liability of the insured before acquiring rights to proceed against the insurer meant that, in Bradley v Eagle Star Insurance Co Ltd, the third party could never acquire rights under the 1930 Act as section 651 of the Companies Act 1985 provided at that time that an application to restore a dissolved company to the register had to be made within two years of the date of dissolution and that period had expired. Following the Bradley case, it was appreciated that the limitation period contained in section 651 was inadequate, particularly in cases involving insidious diseases, such as that suffered by Mrs Bradley, where the injury might take a long time to manifest itself. The Limitation Act 1980 allowed for the three year limitation period for death and personal injury claims to run from the time when the injury was discoverable and gave the court an absolute discretion to extend time limits in personal injury cases, but third parties might not be able to take advantage of these provisions if the wrongdoing company had been dissolved in the interim.
4.39	Amendments to section 651 were introduced by section 141 of the Companies Act 1989. Under the amended section, the two year time limit does not apply to actions involving death or personal injury. Third parties bringing such actions may now apply to resurrect a dissolved company at any time after its dissolution, although the two year limit continues to apply to other types of actions. The amended section was made retroactive to allow Mrs Bradley's action and other outstanding cases to proceed.
Limitation of the third party's underlying claim
4.40	Under the amended section 651(5), an order for restoration may be made unless "it appears to the court that the proceedings would fail by virtue of any enactment as to the time within which proceedings must be brought." Section 651(6) provides that section 651(5)does not affect the power of the court to direct that the period between the dissolution of the company and the making of the order be disregarded for limitation purposes.
4.41	The effect of section 651, subsections (5) and (6) was considered by the Court of Appeal in Re Workvale. Scott LJ held that:
in a case where the primary limitation period has expired the judge should, in my opinion, ask himself whether the applicant has an arguable case for an order under section 33 of the Limitation Act 1980. If there is an arguable case for an order under section 33, then it cannot, in my judgment, be predicated that "the proceedings would fail".
4.42	Given the wide discretion given to the court by section 33 of the 1980 Act, it appears, following Re Workvale, that many applications under section 651(5) will be granted without lengthy consideration by the court as there is likely to be at least an arguable case that a section 33 order could be granted. Disputes as to the application of section 33 of the Limitation Act are likely, therefore, to be postponed to the substantive hearing of the third party's claim against the restored company, although this will not always be the case. It has been argued that it is inappropriate for the Companies Court hearing the application to restore to be required to consider limitation at all.
4.43	There is doubt as to the extent of the courts' powers in Scotland under section 651(6). Courts have power under section 19A of the Prescription and Limitation (Scotland) Act 1973 to extend the limitation period for death or personal injury cases, but have no power to extend any prescriptive period.
Procedures for restoring companies to the register
4.44	We now consider to what extent the procedure which the third party must go through to apply for a company to be restored to the register causes problems in practice. To enable us better to assess this issue, we conducted, in December 1996 to January 1997, a survey of applications to restore companies to the register made between 1994 and 1996. A summary of the findings of this survey appears at Appendix C. 
4.45	Third parties may be uncertain as to how to proceed because both sections 651 and 653 of the Companies Act 1985 provide for applications to be made for the restoration of companies to the register. The requirements of each section are different, but it appears that, in some circumstances, the applicant can choose under which section he wishes to proceed.
4.46	The third party must apply by originating summons or motion under RSC Order 102, a copy of which must be served on the Registrar of Companies. In some of the cases which we looked at, the insurer was also made a respondent to the application. A notice of the application must also be served on the Treasury Solicitor (as the representative of the Crown).
4.47	In many of the applications which we examined, applicants filed long affidavits setting out the particulars of their underlying claims against the company, as well as affidavits of service detailing the parties who had received notification of their applications. 
4.48	These requirements are likely to lead to delay and to the third party incurring legal costs. The vast majority of the applications which we looked at were made by solicitors rather than by claimants themselves.
4.49	The hearing of the application is by a Companies Court Registrar and usually takes about fifteen minutes. It is normally only attended by the applicant, although a few of the applications which we examined were complicated by attempts by the dissolved company's insurers to intervene and to argue that, on the merits of the third party's underlying claim, an order to restore should not be made. In the cases we surveyed, every application to restore was granted. The costs of the application (such as court costs and the costs of the Treasury Solicitor) are awarded against the applicant who must also pay any costs incurred by the Register of Companies and, of course, any costs which he himself has incurred.
4.50	Third parties whose applications to restore are granted will then have to apply for leave to proceed against the insolvent company, and must then establish its liability. They may obtain judgment in default because there will be no-one to defend the restored company or they may find that the insured's defence is conducted by his insurer. Given that the restored company is unlikely to play any part in those proceedings, the question must be asked whether any real purpose is served in requiring third parties to restore the company to the register. 
4.51	In Scotland, an application under section 651 or 653 is made by way of petition intimated to the Lord Advocate and the Registrar of Companies in Scotland. In Percy v Garwin Ltd, it was suggested that a petition should be granted unless there were no prospects of the claim proceeding further. However, in McShane v Comet Group plc, a sheriff court petition under section 653 was refused on the ground that the company was merely a tenant of the property and could not be said to have been "in operation". This decision has been criticised and is out of line with Court of Session practice.

Part 5	The Right of Insurers to Rely on Defences
5.	
5.1	As we saw in Part 4 the 1930 Act operates by transferring the insured's rights against the insurer to the third party. Subject to anti-avoidance provisions contained in the Act and to certain other exceptions, the insurer has, therefore, the same defences against the third party as he would have had against the insured. These might include rescission of the insurance contract for non-disclosure of material facts and a denial of liability on the grounds of a breach of a policy condition (for example, one requiring the insured to give timeous notice of the third party's claim or to keep insured premises secure).
5.2	An insured heading towards bankruptcy or winding up may be increasingly likely to breach policy terms because of his financial position. The nature of many of these terms may be such that they can only be met by the insured himself. Third parties may not be able to meet even those terms which, in principle, they could fulfil themselves (such as notice provisions) because they are not aware of them in time or lack the financial resources to do so.
5.3	In this Part, we consider first the nature of the rights transferred to third parties under the Act.    We then consider anti-avoidance provisions contained in sections 1(3) and 3 of the Act. Next, we look at other statutory and non-statutory restrictions on the ability of insurers to rely on defences. Finally, we look at defences commonly relied on by insurers and at the particular problems which these may cause to third party claimants under the Act.
The rights which are transferred to the third party are those which the insured would have had against the insurer
5.4	As we have seen, section 1 of the Act transfers the rights of the insured against the insurer to the third party on the happening of one of the insolvency situations set out in the Act and on the incurrence of liability by the insured. Section 1 has been interpreted as transferring those rights subject to the conditions and defences in the insurance policy: in the words of Harman LJ in Post Office v Norwich Union Fire Insurance Society Ltd, the third party cannot "pick out the plums and leave the duff behind". The court has stressed that the Act operates to place the third party in the position of the insured. Lord Brandon, for example, in The Fanti, said, "It is abundantly clear from the express terms of the Act of 1930 that the legislature never intended, except as provided in section 1(3) ... to put a third party in any better position as against an insurer than that of the insured himself."
5.5	The Scottish courts have held that the transfer of the insured's rights against the insurer under section 1 of the 1930 Act is a statutory assignation. The third party's rights are those of the insured and all the pleas open to the insurer against the insured are also available against the third party. 
Anti-avoidance provisions
5.6	Those drafting the 1930 Act were aware of the possibility that insurers might seek to avoid or minimise their liability under the Act by making their liability conditional on the solvency of the insured or by settling their claim with the insured before the third party acquired rights under the Act. Provisions were, therefore, included in sections 1 and 3 of the Act making such terms and agreements of no effect.
5.7	Section 1(3) makes void any contract of insurance insofar as it "purports, whether directly or indirectly, to avoid the contract or to alter the rights of the parties" on the happening of one of  the insolvency events set out in the Act. Any term which purported, for example, to end or to restrict cover on a winding up or bankruptcy order being made against the insured would be of no effect.
5.8	Section 3 provides that "no agreement made between the insurer and the insured after liability has been incurred to a third party and after the commencement of the bankruptcy or winding-up...shall be effective to defeat or affect the rights transferred to the third party under this Act, but those rights shall be the same as if no such agreement...had been made."
5.9	Section 3 only prohibits agreements reached between the insurer and the insured after the happening of one of the insolvency events set out in the Act. It does not protect third parties where the agreement between the insurer and the insured was made before this point. It is thought that a similar position would be adopted in Scotland. It is possible, therefore, that some companies or individuals heading towards insolvency might be tempted to compromise their claims against insurers. 
Other restrictions on the ability of insurers to rely on defences against third parties 
The Employers' Liability (Compulsory Insurance) Act 1969	
5.10	 As we discussed above, a number of statutes provide for compulsory insurance to be taken out by certain persons and in respect of certain activities. These statutes include the Road Traffic Act 1988 and the Employers' Liability (Compulsory Insurance) Act 1969, both of which also prohibit insurers from relying, as against third party claimants, on certain defences which they would have against the insured under the insurance contract. Whereas the Road Traffic Act 1988 provides a specific regime of third party rights against insurers on the bankruptcy of an insured driver, however, employees proceeding against the insurer of an insolvent employer must do so under the 1930 Act.
5.11	Regulation 2 of the Employers' Liability (Compulsory Insurance) General Regulations 1971, made under the Employers' Liability (Compulsory Insurance) Act 1969 provides as follows:
(1)  Any condition in a policy of insurance issued or renewed in accordance with the requirements of the Act after the coming into operation of this Regulation which provides (in whatever terms) that no liability (either generally or in respect of a particular claim) shall arise under the policy, or that any such liability so arising shall cease -
(a)  in the event of some specified thing being done or omitted to be done after the happening of the event giving rise to a claim under the policy;
(b)  unless the policy holder takes reasonable care to protect his employees against the risk of bodily injury or disease in the course of their employment;
(c)  unless the policy holder complies with the requirements of any enactment for the protection of employees against the risk of bodily injury or disease in the course of their employment; and
(d)  unless the policy holder keeps specified records or provides the insurer with or makes available to him information therefrom, is hereby prohibited for the purposes of the Act.
5.12	Insurers will not be able to rely, for example, on breaches of notice requirements which occur after the date of the event giving rise to the liability of the employer to the employee. 
Insurers' Codes of best practice
5.13	Insurers will not always insist on their strict rights where there has been non-disclosure, misrepresentation or breach of warranty. They may voluntarily choose not to rely on certain defences or may be bound by codes of best practice, such as the Statement of General Insurance Practice issued by the Association of British Insurers in 1986. It should be noted, however, that the Statement applies only to policyholders resident in the United Kingdom and insured in their private capacity and that paragraph 2(b) does not apply to Marine and Aviation policies. Also, it is not clear whether insurers would consider themselves bound by the Statement when dealing with the claims of third parties under the Act.  Most, but not all insurers submit to this or other voluntary codes. Paragraphs 2(a) and (b) of the Statement provide as follows:
2(a) 	Under the conditions regarding notification of a claim, the policyholder shall not be asked to do more than report a claim and subsequent developments as soon as reasonably possible except in the case of legal processes and claims which a third party requires the policyholder to notify within a fixed time where immediate advice may be required.
(b) 		An insurer will not repudiate liability to indemnify a policyholder:-
		(i)	on grounds of non-disclosure of a material fact which a policyholder could not reasonably be expected to have disclosed;
		(ii)	on grounds of misrepresentation unless it is a deliberate or negligent misrepresentation of a material fact;
		(iii) on grounds of a breach of warranty or condition where the circumstances of the loss are unconnected with the breach unless fraud is involved.
Defences commonly relied on by insurers
5.14	We look now at the following defences commonly relied on by insurers and at the particular problems which they cause to third party claimants:
(i)		misrepresentation and non-disclosure;
(ii)		breaches of notice provisions;
(iii)		arbitration clauses;
(iv)		breaches of the duty to provide information and assistance;
(v)		breaches of conditions relating to the duty of the insured to comply with safety and other regulations/preserve the assets/business insured eg to maintain security;
(vi)		breaches of conditions relating to payment;
(vii)	limitation.
(i)  	Misrepresentation and non-disclosure
5.15	The insurer may claim that the insured misrepresented his insurance position, fraudulently or otherwise, or failed to disclose all material facts when he applied for insurance cover. If the insurer was induced to enter into the insurance contract by misrepresentation or if material facts were not disclosed to him, the contract is voidable and the insurer may also have a remedy in damages.
5.16	Where an insurer raises defences based on misrepresentation or non-disclosure in proceedings where the rights of the insured have been transferred to a third party under the 1930 Act, the position of the third party may be a difficult one. He must raise arguments which would have been available to the insured but is unlikely to know what information was provided by the insured to the insurer. It may be difficult for him to obtain information from an insolvent or bankrupt insured, who is unlikely to be concerned about the third party proceedings and who may, in any case, have a contractual duty under the insurance policy not to assist third party claimants.
(ii) 	Breaches of notice provisions
5.17	Most insurance polices contain notice clauses which require the insured to notify the insurer of matters such as knowledge of a claim or service of a writ immediately or within a specified period of time. Obtaining prompt notice may be vital if the insurer is to conduct the insured's defence. Notice conditions may also require the insured to give notice in a particular form, or at a particular place such as the insurer's head office. We look briefly here at the ability of insurers to insist on the strict observance of notice requirements and at whether third parties are able themselves to notify insurers of their claims.
5.18	In Hassett v Legal & General Assurance Society Ltd, a public liability insurance policy contained a condition that any communication relating to an accident should be forwarded to the insurer immediately. The plaintiff was injured in March 1934 while in the employment of the insured company against which he brought a claim and obtained a default judgment which remained unsatisfied as the company went into liquidation. The plaintiff commenced proceedings against the company's insurers who, although they had received notice of the claim, knew nothing of the legal proceedings against the insured. The insurer denied liability under the 1930 Act on the ground that the insured had been in breach of the notification condition. Atkinson J upheld this defence, observing that:
the moment any proceedings were started there was an obligation imposed upon the insured by these conditions to bring it to the notice of the insurance company, so that the insurance company would be in a position to exercise the rights which these conditions give them ... it is implicit in every word of [the condition] that if proceedings are started, the insurance company must be told about them and be put into a position to exercise their rights. If it were not so, scope would be given for the exaggerated claims going through without any inquiry or testing, and insurance companies would be swindled in all directions. That condition, the performance of which was an essential condition and as it seems to me a condition precedent to the insurance company's liability, was never performed.
5.19	The nature of notice requirements and whether such requirements can be met by the insurer receiving information from a source other than the insured were discussed in Barrett Bros (Taxis) Ltd v Davies, a road traffic case. Conditions 1 and 13 of the policy read as follows:
The insured shall give full particulars in writing to [the insurer] ... as soon as possible after the occurrence of any accident, loss or damage and shall forward immediately any letter, notice of intended prosecution, writ, summons or process relating thereto.
The due observance and fulfilment of the terms, provisions, conditions and endorsements of this policy in so far as they can apply and the truth of the statements and answers in the proposal form shall be conditions precedent to any liability of the underwriters to make any payment under this policy. 
5.20	The insured did not tell his insurer at once about the accident, but the solicitors of the third party victim did. The insurer was also informed of a notice of intended prosecution of the insured and of a summons for careless driving by the police. 
5.21	Lord Denning MR and Danckwerts LJ held that it was unnecessary for the insured to send the documents to the insurer: they were absolved from doing so because the insurer had all the relevant information from the police.
5.22	Lord Denning MR suggested, obiter, that:
This condition 1 was inserted in the policy so as to afford a protection to the insurers so that they should know in good time about the accident and any proceedings consequent on it. If they obtain all the material knowledge from another source so that they are not prejudiced at all by the failure of the insured himself to tell him, then they cannot rely on the condition to defend the claim.
5.23	Salmon LJ disagreed with this approach. In his view:
there was a clear breach of condition 1 of the policy. This imposed an absolute obligation upon the motor-cyclist to forward the summons to the insurers when he received it and also to notify them about the intended prosecution. The observance of that obligation was by condition 13 made a condition precedent to the insurers' liability to pay. But for waiver, I should have felt obliged to hold that, although there is absolutely no merit in the defence - indeed, it is somewhat surprising to find insurers of this standing in circumstances such as these taking the point - they were entitled to succeed.
5.24	The nature of notice requirements was raised again in Farrell v Federated Employers' Insurance Association. The case involved a failure to notify an insurer of the service of a writ in circumstances where the insurer had not received adequate notice from another source. The relevant policy conditions provided as follows:
Condition 1: Every ... writ ... served on the Employer shall be notified or forwarded to the [insurer] immediately on receipt ...
Condition 7: The due observance ... of the ... conditions ... of this Policy in so far as they relate to anything to be done ... by the Employer and the truth of the statements and answers in the Proposal ... shall be conditions precedent to any liability of the [insurer]. 
5.25	The court held that a failure to notify the insurer immediately that the third party had served the insured was a breach of the insurance policy and entitled the insurer to rely on the breach as against the third party. Lord Denning said that the third party was,
claiming the benefit of a policy which is issued to the employers. He must take it as he finds it. He cannot claim the advantages and reject the disadvantages. He cannot claim the benefit and reject the conditions of it.
5.26	In his view, the third party's solicitors should have notified the insurer of the service of the writ soon after they received a response from the receiver of the insured following service of proceedings on the insured. 
5.27	The issue of whether the insurer needed to have suffered prejudice to be able to rely on the notice requirement was also raised. Lord Denning did not appear to view the question of whether the insurer had suffered prejudice or not as important. Megaw LJ held that there had been prejudice to the insurer. 
5.28	The issue of whether or not the insurer needed to have suffered prejudice was considered again in The Vainqueur Jose where Mocatta J reviewed Barrett v Davies and Farrell v Federated Employers' Insurance Association. Of Farrell, Mocatta J said:
It is clear from this case that if prejudice is necessary to sustain a defence by an insurer against a claim against him by his assured or by someone standing in the shoes of his assured under the 1930 Act like the plaintiffs here when the assured has not given timeous notice of his claim as provided for in his policy or cover, relatively little prejudice has to be shown by the insurer in order for him to escape liability under the time clause. 
5.29	In the context of P & I Clubs, Mocatta J discussed a number of other issues relating to notification. He held that notification to the club's representatives in New York was not sufficient as the representatives gave advice and assistance only; they were not the club's agents for the purpose of receiving notice of claims. He also suggested that notification should be by the member himself and that all relevant details should be notified to the club.
5.30	The issue of prejudice was discussed again in Pioneer Concrete (UK) Ltd v Employers Mutual Insurance Association. Bingham J held that, although the plaintiff third party had notified the defendant insurer of the accident, it had not given notice of proceedings as required by the policy. Bingham J held that notification was inadequate and that, even if the insurers had not been prejudiced by the failure to notify, they could rely on it because the condition was clearly worded as a condition precedent. The insurer had, in any event, suffered prejudice in that it had been deprived of the opportunity to consider whether and how to defend the claim made against the insured. He also suggested that, if the insurer needed to show prejudice, "relatively little prejudice will suffice".
5.31	The court may take a strict approach to notice requirements, allowing insurers to enforce such requirements even if they have suffered little or no prejudice. In practice, most insurers will not usually insist on strict observance of such conditions if the Statement of General Insurance Practice issued by the Association of British Insurers in 1986 applies. Paragraph 2(a) of the Statement states that:
Under the conditions regarding notification of a claim, the policyholder shall not be asked to do more than report a claim and subsequent developments as soon as reasonably possible except in the case of legal processes and claims which a third party requires the policyholder to notify with a fixed time where immediate advice may be required.
Can notice requirements be met by third parties?
5.32	It appears, from Barrett Bros (Taxis) Ltd v Davies, that a notice requirement can be met if adequate information is received by the insured from another source, in that case, the police. However, some judges might adopt the approach taken by Salmon LJ in that case and hold that a notice requirement places an "absolute obligation" on the insured which cannot be met by another party. Where third parties do not have access to policy documentation, any notice they give may not fulfil the precise requirements of the insurance policy. As we have seen, a strict approach towards notification was taken by Mocatta J in The Vainqueur Jose, where he suggested, in the context of claims against Protection and Indemnity Clubs, that notification should be by the member himself. 
5.33	In such cases, the insurer may be uncertain as to whether the notice it has received is valid or relates to a potential loss. If it incurs expense in investigating the circumstances in which the notice was given, it may claim that it has suffered prejudice and that it should be able to rely on the notice condition.
5.34	In cases where insurers are entitled to adopt a strict approach to the fulfilment of notice requirements, third parties may face a number of problems. First, notice requirements may be breached before third parties have a right themselves to give notice. As the insured heads towards bankruptcy or insolvency, he is less likely to be concerned with meeting such requirements. Assuming that notice can be given by third parties, they may not be in a position themselves to meet the precise notice terms. Their situation is not made easier by the interpretation by the court of the information provisions in the 1930 Act in such a way as to require the third party actually to have established the liability of the insured before being entitled to discovery of insurance details. The result may be that, again, either as a matter or law or of practice, third parties are unable to ensure that conditions in the insurance policy are met. 
(iii)	Arbitration clauses
5.35	Some arbitration clauses in insurance contracts govern disputes over liability but most provide only for the quantification of liability by arbitration. It is possible that the fairness of arbitration clauses may be challenged under the Unfair Terms in Consumer Contracts Regulations. Clauses which make the referral of a dispute to an arbitrator a condition precedent to the liability of the insurer are known as Scott v Avery clauses, after the case of that name. In Scotland, it is clear that arbitration conditions in the policy are binding on the third party.
Scott v Avery clauses
5.36	The court in Scott v Avery held that arbitration clauses are enforceable as conditions precedent provided that they do not purport to oust the ultimate jurisdiction of the court. Parties can, therefore, agree that no right of action shall accrue in respect of disputes between them until an arbitration award has been made and their agreement will be enforceable.
5.37	The issue of the enforceability of arbitration clauses in insurance policies against third parties was considered in Freshwater v Western Australia Assurance Co Ltd.  The third party had been injured in a motor accident and had obtained judgment against the insured. The insured was declared bankrupt before judgment was satisfied and the plaintiff sought to sue the insurer under the Third Parties (Rights Against Insurers) Act 1930 and the Road Traffic Act 1930. The insurance policy contained an arbitration clause in the following terms:
If any difference or dispute of any kind whatsoever shall arise between the insured or any claimant and the company in respect of this policy or in respect of any claim or any matter or thing or any liability arising or alleged to have arisen hereunder or otherwise connected herewith directly or indirectly the same shall be referred to the final determination and award of a single arbitrator to be agreed upon by both parties ... and the obtaining of the said award shall be a condition precedent to the liability of the company to make any payment under this policy. 
5.38	The insurer sought a stay of the action, relying on section 4 of the Arbitration Act 1889 which enabled a party against whom legal proceedings are brought to apply to court to stay those proceedings on the ground that the plaintiff was bound by an arbitration clause.
5.39	The Court of Appeal stayed the proceedings,  Lord Hanworth MR saying:
A third party such as the plaintiff cannot eliminate all the terms and conditions of the policy, but, if he wishes to rely upon the policy, he is bound by the terms and conditions therein written, in other words, he is bound by the clause which provides for arbitration. 
5.40	The same approach was taken in Dennehy v Bellamy, where the Court of Appeal upheld the argument of the insurer that proceedings started by a third party should be stayed. Greer LJ said:
I think that it was a question of liability under the contract, and it would have been perfectly useless to anybody to allow the action to go on, because the action must necessarily fail, inasmuch as the plaintiff in the action was not in a position to prove that the condition precedent to his liability had in fact been performed. 
Problems faced by third parties bound by arbitration clauses
5.41	Third parties bound by arbitration clauses in the insurance contract may not be able to afford the expense of arbitration. Legal aid, which is available for legal proceedings, is not currently available for arbitration. The question of whether the insurer's ability to rely on arbitration clauses should depend on the personal circumstances of the third party has been raised in a number of cases. 
5.42	Smith v Pearl Assurance Co Ltd was a case involving the 1930 Act. The plaintiff was injured in a road accident caused by the negligence of the insured and had obtained judgment against him. The insured became insolvent and the plaintiff started proceedings against the insurer under the 1930 Act. The insurer applied for a stay of those proceedings on the ground that there was an arbitration clause in the insurance policy. The plaintiff contended that, owing to his poverty, he could not afford to start arbitration proceedings for which he could not receive financial assistance from the Poor Persons Committee.
5.43	The Court of Appeal held that the plaintiff's poverty was not a sufficient ground for exercising any discretion which a court might have to refuse to order a stay. The discretion could not be exercised to interfere with the contract agreed between the insurer and the insured. Clauson LJ said that the plaintiff's poverty was:
a personal disability under which the plaintiff finds himself, a personal disability in no way connected with the contractual rights or obligations arising out of the contract in respect of which he has, or conceives himself to have, a cause of action. 
5.44	He concluded his judgment by suggesting, however, that this position was unsatisfactory:
I only wish to add that, should it become necessary in the future to deal further legislatively with the matter which was dealt with in the Third Parties (Rights Against Insurers) Act 1930, I trust that those who have to deal with the matter will carefully consider whether there are not weighty reasons why persons who have the advantage of some such legislative provision should not be freed from the restriction, which might otherwise fall upon them, of being driven to arbitration. That, however, is a matter of policy, upon which I should not be justified in expressing any view. Nevertheless, I do think, having regard to such experience as I have had in these matters, that I am justified in drawing attention to the desirability of that question being very carefully considered, should the occasion arise.
5.45	A sympathetic approach to those bound by arbitration clauses was taken by Lord Denning MR in Fakes v Taylor Woodrow Construction Ltd, a case which did not involve the 1930 Act. He questioned the reasoning in Smith v Pearl Assurance:
It is bad enough for a poor man to be faced with an arbitration clause, usually in a printed form which he has never read. It is much worse if the courts then insist that he is to go off to arbitration where there is no legal aid... .The poor man who cannot afford arbitration has no remedy. That will not do. If the poor man cannot afford arbitration, he should not be compelled to go there. He should be allowed to continue his action in the courts ... 
5.46	Megaw LJ dissented, on the basis that to allow the plaintiff to proceed with legal proceedings would prejudice the rights of the insurer. Referring to section 1(7) of the Legal Aid and Advice Act 1949, he said that:
the rights conferred by this part of this Act on a person receiving legal aid shall not affect the rights or liabilities of other parties to the proceedings or the principles on which the discretion of any court or tribunal is normally exercised.
5.47	Sir Gordon Willmer referred to the following passage in Clauson LJ's judgment in Smith v Pearl Assurance:
In my judgment, it can only be in some very exceptional case indeed that the court would be justified in holding that one party's mere personal disability of this character would be sufficient reason for the court to exercise the power, given by the Arbitration Act 1889, section 4 or overriding the contractual right of arbitration. 
5.48	The implications of allowing insurers to rely on arbitration clauses against impoverished third party claimants have been described as follows:
While seeking to protect the third party from the poverty of the insured wrongdoer, Parliament showed no intention to protect him from his own.
The court's power to stay legal proceedings
5.49	The discretion of the court to grant or refuse an application by an insurer for a stay of legal proceedings will, in any case, be removed by an amendment to the Arbitration Act 1996. This Act does not apply to Scotland, where the courts must give effect to a valid agreement by the parties to refer matters to arbitration and will sist the proceedings before it~ Arbitration agreements caught by the Act will be governed by section 9, which provides that:
On an application under this section, the court shall grant a stay unless satisfied that the arbitration agreement is null and void, inoperative or incapable of being performed.
5.50	One of the aims of the 1996 Act was to restrict the ability of the court to intervene in situations where the parties to an agreement have provided expressly that certain matters should be resolved by arbitration. There may be a number of reasons why arbitration clauses are included in insurance contracts. The insurer may believe that arbitration will be less costly and formal than court proceedings, will better preserve confidentiality and will allow claims to be decided on a case by case basis, with less scope for the setting of precedents.
(iv)	Breaches of the duty to provide information and assistance
5.51	In many insurance contracts, the insurer has a right to defend any proceedings brought against the insured. In many cases, the insurer will exercise this right and conduct the insured's defence, while reserving his right to rely on any defences which he himself may have under the insurance contract. To enable the insurer to investigate the claim against the insured and to prepare his defence as early as possible, the insurance contract will usually require the insured to provide information of any potential claim to the insurer as soon as he has knowledge of it and to assist the insurer as necessary. It will probably prohibit the insured from making any admissions of liability to the third party.  
5.52	In Edwards v Minster Insurance Co Ltd, the insurance contract required the insured to give all such information and assistance to the insurer as he might require. This requirement was stated to be a condition precedent to the liability of the insurer. The insurer defended proceedings brought by the plaintiff third party, claiming that the condition precedent had not been fulfilled. The third party argued that the condition was an "incident" of the right to an indemnity which had been transferred to him. It had not been suggested, he argued, that he had failed to comply with the condition and the failure of the insured to do so was not relevant.
5.53	Judgment was given by Lord Justice Saville, who rejected the plaintiff's argument, describing the effect of the condition precedent as follows:
The Act operates a statutory transfer of the right of the insured to be indemnified. If the right to an indemnity is subject to a condition, it is a conditional right that is transferred to the third party. If the condition is not fulfilled, then there remains no right to an indemnity. Nothing in the Act transferred to the Plaintiff the performance of the condition ... .The condition imposed a requirement on the insured company that remained with the company and its failure to comply with it, albeit after the statutory transfer of the conditional right, meant that the right to an indemnity disappeared.
5.54	Lord Justice Saville suggested that to accept the plaintiff's argument, 
would produce the ludicrous situation of the third party having to supply to the insurers information and assistance which in the nature of things the third party could hardly do.
(v)	Breaches of conditions relating to the duty of the insured to meet minimum safety requirements, to comply with safety and other regulations/preserve the assets/business insured (for example, to maintain the security of premises) 
5.55	Some conditions of this nature are more likely to be breached in the period leading up to insolvency when the insured is short of money. Even if they have been met by the insured, there may be problems when the insured's obligations are assumed by the liquidator or trustee in bankruptcy. Such conditions cannot be met by the third party as he has no right to intervene in the management of the insured's affairs.
(vi)	Breaches of conditions relating to payment
5.56	Most insurance policies contain detailed provisions relating to the payment of premiums and of policy excesses. The rules of some mutual associations, including Protection and Indemnity Clubs providing insurance cover to shipowners, may provide for cover to be withdrawn when the insured is unable to pay premiums and may also provide that the insurer shall not be liable to indemnify the insured until he has actually paid sums due to a third party in respect of his liability. We consider the effect which such clauses have on third party claims.
Payment of premiums and of policy excesses
5.57	In Murray v Legal and General Assurance Society Ltd, the court held that the insurer could not set off unpaid premiums against the third party's claim because, in the wording of the policy in question, the right to recovery of premiums was "not a term of the policy which arose in respect of the liability of the insured to the third party." The court appeared to suggest, however, that such a clause could be made a condition precedent which would bind third party claimants. Third party claims will be subject to a deduction of any excess which applies to claims under the policy and of the insurer's defence costs if the insurance contract entitles the insurer to an indemnity for such costs.
Pay first clauses
5.58	"Pay first" (or "pay to be paid") clauses require the insured actually to have paid sums due to third parties in respect of his liability before he is entitled to an indemnity from the insurer. Such clauses are usually only found in the rules of Protection and Indemnity Clubs. Historically, such clauses were included so that Club members could rely on the financial soundness of other members. It has been queried whether this argument can be used to justify the use of such clauses as most modern Clubs operate very similarly to insurance companies.   
The Fanti and The Padre Island 
5.59	The ability of Clubs to rely, as against third party claimants, on pay first clauses was considered at length by the House of Lords in the joined cases of The Fanti and The Padre Island. The clauses the subject of those proceedings provided as follows: 
Subject to the provisions of these Rules, the Member shall be protected and indemnified against all or any of the following claims and expenses which he shall become liable to pay and shall in fact have paid in respect of a ship entered in this class of the Association ...
[The Club shall] ... [p]rotect and indemnify members in respect of losses which they as owners of the entered vessel shall have become liable to pay and shall have in fact paid. 
5.60	The arguments raised by the parties centred on three main issues: the nature of rights transferred to third parties under the 1930 Act; the effect of the anti-avoidance provisions of section 1(3) of the Act; and whether equitable principles prevented Clubs from relying on pay to be paid clauses.
5.61	The House of Lords held that, as the members had not paid sums due to the third parties, they had no accrued rights to be indemnified by the clubs. Third parties could not have transferred to them under section 1(1) of the Act any better or larger rights against the clubs than those which the members previously possessed. The House of Lords also held that the clauses were not avoided by section 1(3) of the 1930 Act as the inability of the insured to pay resulted from impecuniosity, not from the winding up order itself. Finally, they held that the third parties could not rely on equitable principles when there had been express agreement between insurer and insured.
5.62	Following the House of Lords' decision, it seems clear that pay first clauses in Protection and Indemnity Club rules will bar recovery by third parties under the 1930 Act. Third parties suing insured shipowners will be in the same position as other creditors unless the Club chooses to exercise its discretion and to allow recovery. The House of Lords appeared to take comfort from the Clubs' assurance that they do not rely on pay to be paid clauses where the third party's claim relates to death or personal injury. Clubs may not always follow best practice, however, especially if they themselves are in financial difficulties.
Can third party claimants against Protection and Indemnity Clubs circumvent the House of Lords' decision in The Fanti or protect their position by other means?
5.63	It has been suggested that schemes could be devised which would enable third parties to circumvent the House of Lords' decision in The Fanti. The third party, it is suggested, (or his insurer, his bank or another person) could lend money to the insured to enable him to pay the sums due and to fulfil the condition precedent and the money could be paid back once the insured had been indemnified. Some clubs have objected to such schemes, claiming that they offend the principle of indemnity, and have amended their rules stating not only that the member's liability must be discharged but that it must be discharged by the member's own funds.
5.64	The success of such schemes is likely to depend on the co-operation of a lender and of the liquidator. The lender would need to be satisfied that the loan would ultimately be recovered from the insurance proceeds. The liquidator would need to be able to satisfy other creditors suspicious of such schemes. Problems might arise as to the capacity in which the liquidator held any monies advanced and as to recovery of his fees for time spent on such schemes.
5.65	Another suggestion is that, if the insured can pay any amount at all to his creditors (including the third party), however small, he should be able to recover a corresponding amount from the P & I Club, which he can then pay over to his creditors again, with the process starting again. If the third party is the only creditor he will eventually be paid in full, otherwise he will receive shares of the money paid out.
Limitation and prescription
5.66	Problems relating to limitation periods governing claims under the 1930 Act are discussed in more detail below. It is sufficient to note here that it is unclear whether the limitation period governing third parties' claims under the 1930 Act is that which applies to the insured's right of action against the insurer or whether the third party's action is governed by a fresh limitation period. It is also unclear whether third parties can be substituted in arbitration proceedings started by the insured within the limitation period.
5.67	The position in Scottish law regarding prescription of the various obligations arising out of the policy is discussed in Part 7 below. Prescription of the third party's claim starts to run when the insurer becomes liable to indemnify the insured. Scottish law allows third parties to be substituted in proceedings started by the insured against the insurer. 
Overview of the right of insurers to rely on defences which they would have had against the insured to defeat third party claims
5.68	In interpreting sections 1 and 2 of the 1930 Act, the court has stressed that third parties should not acquire better rights against the insurer than the insured would have had. Third parties are already placed at a disadvantage by their inability to meet certain policy conditions which can only be fulfilled by the insured. They have been further disadvantaged by the court's interpretation of section 2 as they may not learn of the policy conditions which they could, in theory, have met until it is too late. As we have seen, the legal or practical effect of some insurance terms, such as pay first and arbitration clauses, may be that the third party has no enforceable rights under the Act. We consider in Part 14 below whether insurers should be prevented from relying on certain defences against third parties or whether they should be allowed to rely on the rights which they have against the insured under the insurance contract.

Part 6	Provisions Relating to Who Owes a Duty of Disclosure and as to What Information Should be Disclosed
6.	
6.1	In Part 4, we considered the implications of the court's construction of section 2 of the Act in such a way as to require a third party claimant to have established the liability of the insured before acquiring a right to disclosure. In this Part, we consider the extent of the duty to disclose under section 2 and who owes that duty.
The information which must be disclosed
6.2	Section 2(1) states that those under a duty to disclose must disclose to the third party:
such information as may reasonably be required by him for the purposes of ascertaining whether any rights have been transferred to and vested in him by this Act and for the purpose of enforcing such rights, if any.
6.3	Section 2(3) does not give an exhaustive list of the information to which the third party is entitled. It provides that the duty to give information under section 2 includes a duty to allow:
all contracts of insurance, receipts for premiums, and other relevant documents in the possession or power of the person on whom the duty is so imposed to be inspected and copies thereof to be taken. 
6.4	The definition is not specific in relation to information about the insurance cover, by contrast with policy documentation. We are not aware of the wording of section 2(3) having caused problems to third party claimants, but its vagueness has been criticised. 
6.5	Section 2(1) lists the following as having a duty to disclose information to the third party: 
the bankrupt, debtor, personal representative of the deceased debtor or company, and, as the case may be, of the trustee in bankruptcy, trustee, liquidator, administrator, receiver, or manager, or person in possession of [any property comprised in or subject to a charge].
6.6	Section 2(2) imposes a duty on an insurer to disclose information if the information provided to the third party under section 2(1) "discloses reasonable ground for supposing that there have or may have been transferred to him under this Act" rights against that insurer. 
The duty to disclose does not extend to brokers or to others authorised to hold policy information 
6.7	The list of those with a duty to disclose policy information to third party claimants does not include insurance brokers or others authorised to hold policy information, such as managers of pools set up by a number of insurers or travel agents arranging cover for holidaymakers. In many instances, the third party may remember having dealt with such people who may be those best able to identify the insurer and the policy governing a particular claim. Information held by them is likely to be discloseable by the insurer or the insured, but there might be advantages to their having an express duty themselves to provide such information to third parties under the Act.
The duties of the insured and of the insurer to disclose are not simultaneous
6.8	The insurer's duty to disclose under section 2(2) only arises if the information disclosed by the insured or the officeholder under section 2(1) "discloses reasonable ground for supposing that there have or may have been transferred to him under this Act" rights against that insurer. The third party may face problems obtaining adequate information from the insured or the officeholder. An insolvent insured may not be willing or able to assist the third party and insurance records may not have been kept. If this is the case, the third party may not even acquire a right to disclosure from the insurer under section 2(2).
The position of officeholders
6.9	The duty to disclose under section 2 may cause problems to officeholders. Insolvency practitioners may have conflicting duties, in that they represent the insured, owe contractual duties to the insurer under the insurance contract and owe duties to the insured's creditors. Costs incurred in complying with the duty to disclose policy information to third parties will be charged to the insolvent estate, to the likely detriment of other creditors. Other officeholders will owe duties to their appointors who will not want to pay the costs incurred by the officeholder in connection with proceedings under the Act.  
6.10	We understand that, in some cases, officeholders are uncertain as to their duties of disclosure under the Act. They may find themselves advising both the insurer and the third party as to their rights under the Act and be concerned at incurring personal liability to creditors. They may also be wary of breaching terms in the insurance contract which avoid cover where policy information is made available to third parties. Section 2(1) of the Act makes void any provision in an insurance contract which purports to avoid the contract or otherwise to prohibit the giving of such information once rights have transferred under the Act, but officeholders may be uncertain as to when their duties arise. Officeholders may have to seek detailed legal advice on their duties to the insurer, to third parties and to the insured's other creditors. This may cause further delay and increase the amount deducted from the assets available to the insured's general creditors. 
Can the third party obtain disclosure by other means?
6.11	It is important, as we consider the adequacy of a third party's rights under section 2, to take into account other means by which he may obtain disclosure of policy information. 
6.12	In many cases, the insurer may provide policy information to the third party voluntarily, particularly where it is clear that cover has been avoided. As the insurer will often be conducting the insured's defence, it may well be in his interests to disclose such information as early as possible to avoid the costs of defending unnecessary litigation. Voluntary disclosure of policy information will not always be made, however.
6.13	The procedural rules governing disclosure in proceedings in the High Court are set out in RSC O 24. In general, an application for discovery can only be made against another party and only after proceedings have started. However, pre-action disclosure and disclosure against a non-party may be obtained under sections 33(2) and 34(2) of the Supreme Court Act 1981 (RSC O 7A) where the plaintiff's claim relates to death or personal injury. 
6.14	The information sought by the plaintiff must be relevant to the issues in dispute, however. As the third party's rights against the insurer have been held not to transfer until he has established the liability of the insured, the insurer is likely to argue that its liability to indemnify the insured will not be relevant to the issues in dispute between the third party and the insured.
6.15	In Cox v Bankside Members Agency Ltd, some of the Lloyd's Names made an interlocutory application under RSC, O 24, r 7 for disclosure of insurance policies by underwriters of Lloyd's Agents. The Names requested discovery of the insurance policies, including all details of the limits to and amounts of the cover and the amount of any excess. The Names argued that the information requested was relevant to an issue in the matter in that unless they knew what funds were available they would not know whether any of the questions which the insurers were seeking to have answered in the action were hypothetical or futile, or what stance to take up with regard to those questions. Without information as to level of cover, they could not properly litigate the subsidiary action as they would not know the practical effect of a ruling one way or another. 
6.16	The Court of Appeal held that, although the information requested could satisfy the requirements of RSC, O 24, r 8, in that disclosure of the information would be calculated to dispose fairly of the matter or would save costs, the requirement within r 7, that the information sought should relate to the matters in question, was not met. The arguments raised by the Names, could be used in any case where there was doubt as to the opposing party's ability to pay. The law clearly stated that this was not a reason for the discovery of assets.
6.17	In Scotland, section 1 of the Administration of Justice (Scotland) Act 1972 confers power on the court to order the production and inspection of documents which appear to the court to be property as to which any question may relevantly arise in existing or likely proceedings. The proceedings are not limited to actions involving death or personal injury. Because it is possible to seek declarator against the insurer in the action against the insured to establish the latter's liability disclosure of the policy details at this stage seems competent.
6.18	The Insolvency Act 1986 and the Bankruptcy (Scotland) Act 1985 contain a number of provisions requiring bankrupts and the officers and employees of companies which have been wound up to provide information to creditors and to insolvency practitioners and official receivers. We are not aware of these provisions having been used to obtain policy information to assist the claims of third parties. 
Overview of limitations on third parties' rights to disclosure of policy information 
6.19	As we have seen in this Part and in Part 4, the interpretation given to section 2 of the 1930 Act in the Nigel Upchurch and Woolwich cases has caused problems to third parties and to insolvency practitioners. Some of these problems may be alleviated if some of Lord Woolf's recommendations are implemented. The Woolf Report recommends that parties should be able to make pre-action applications for disclosure against potential defendants in all cases.  It also recommends the use of pre-action protocols setting out codes of practice for litigants in certain types of case, including those involving personal injury. One of the specific purposes of the protocols is said to be to enable parties "to obtain the information they reasonably need in order to enter into an appropriate settlement". 
6.20	The draft pre-action protocol for personal injury cases would provide for early notification of the defendant's insurer. The Woolf Report suggests that employees face particular problems in identifying the insurers of their insolvent employers. Members of the APIL and the ABI have also suggested that there should be a central register of insurance policies to enable a claimant to identify a potential defendant's insurer in cases to which pre-action protocols would apply.
6.21	We discuss in Part 13 below whether the 1930 Act should be amended to allow third parties increased rights to disclosure.

Part 7	The Distribution of a Limited Insurance Fund to Multiple Claimants
7.	
7.1	In some cases, an insured's negligent act may cause him to incur liability to a number of third parties. If the value of the insurance is inadequate to meet all potential claims in full, the issue arises as to the basis on which the insurance fund should be distributed. This problem is not restricted to cases involving the 1930 Act but may be more serious for third parties in such cases as they are unlikely to recover much if anything from the insolvent insured. This issue is not addressed by the 1930 Act but was raised in the context of the Lloyd's litigation. As we shall see, the Court of Appeal in Cox v Bankside decided that the fund should be distributed to those third parties who established their cases first. In this Part, we discuss the background to this case, the grounds for the Court of Appeal's decision and the implications of that decision. We also consider whether a more equitable system of distribution could be achieved under the existing law.
Cox v Bankside
Background to the case: the Lloyd's litigation 
7.2	Having suffered disastrous losses, many of the members of the Lloyd's syndicates (the so-called Names) started proceedings against their agents who had been contractually responsible for the Names' underwriting. They claimed damages for negligence and breach of contract, arguing that the agents had exposed them to unacceptable risks. Because of the mass of actions being brought by Names, the Commercial Court adopted a management plan in July, 1993. The actions were divided into categories and individual cases selected from each to determine preliminary issues of importance to all and to try various allegations of negligence.
7.3	It was clear that some agents were likely to go into insolvency and that Names would have to proceed against the agents' insurers under the 1930 Act. The agents sued by the Names were insured against errors and omissions ("E & O") liability, but the level of cover was capped and, clearly, would be insufficient to meet all potential claims. Of vital importance to all concerned was the basis on which the funds payable by the E & O underwriters would be allocated. One view was that funds should be allocated on a "first past the post" or "first come, first served" basis. The alternative view was that funds should be distributed pro rata to all Names who successfully established their claims.
7.4	The issue was heard first by Phillips J, who held that there was no legal basis for a rateable distribution. He suggested that "first past the post provides a relatively simple and practicable basis for distributing reinsurance recoveries".
The judgment of the Court of Appeal 
7.5	On appeal, the appellants argued again, unsuccessfully, that there was a legal basis for rateable distribution of the insurance fund, which they claimed should be held by a receiver and distributed according to directions from the court. The Court of Appeal rejected the applicability of the principle that equality is equity to allow all Names who had already established or would establish claims to share rateably in the fruits of the insurance cover and held that there was no implied agreement to share the insurance proceeds. Nor was there anything to suggest that a trust of the policy or of its proceeds existed; the requisite certainties for the establishment of a trust were not satisfied. 
7.6	The argument that the 1930 Act should not be construed in such a way as to make late coming plaintiffs worse off than they were before that Act was introduced was also rejected. The court held that nothing in the 1930 Act or in any case decided under it supported a scheme of rateable allocation: the object of the Act was to avoid third party liability insurance money going into the general pool available for all creditors. It did not stipulate what was to happen if there was insufficient insurance money for all third party claimants.
7.7	The appellants also argued that the court should not allow the Commercial Court's management plan to become a source of injustice. It suggested that the court had the power to antedate all judgments in favour of Names to the date of the first such judgment and that all agents or Names receiving insurance proceeds could be ordered to pay such sums to receivers. Receivers would distribute these sums in accordance with directions from the court. 
7.8	Although the Master of the Rolls described this argument as "the most promising", it was still rejected by the court. The court held that the management plan was not designed to lay out in advance the timetable for the selected cases up to and including judgment and said that it was not persuaded that the plan itself had led to unforeseen results or to inequities which would not otherwise have existed. The court did not rule on whether it had the power to antedate judgments, but said that it would be slow to do so unless reasonably confident both that the objective of fair treatment would be achieved and that any directions designed to correct one injustice would not produce other and perhaps even greater injustices.
7.9	Sir Thomas Bingham MR outlined some of the problems of a non-statutory scheme:
It would have to take account of a multiplicity of plaintiffs, with claims based on different grounds, relating to different periods, against different defendants; it would have to take account of a multiplicity of defendants, some fully insured, some not, some solvent, some insolvent with different E & O cover for different underwriting years; it would have to remain in force for a period of years, during which period the receivers of each policy fund would have to seek the approval of the Court to make interim distributions, and would no doubt have to be paid out of the proceeds of the cover; and it would have to do all this without the authority of any statute or subordinate legislation. 
 The implications of the decision of the Court of Appeal in Cox v Bankside
7.10	As we have seen, the Court of Appeal in Cox v Bankside considered that there was no basis on which pro rata schemes of distribution of insurance proceeds to claimants under the 1930 Act could operate under the current law, at least with regard to cases brought as part of the Lloyd's litigation. The court also doubted the workability of such schemes.
7.11	Although many of the arguments raised in Cox v Bankside were particular to the Lloyd's litigation, similar issues might arise in other cases involving multiple claimants against a limited insurance fund.
7.12	The effect of the first past the post system may be that the position of subsequent claimants is worse than if the 1930 Act had not been passed. Before the 1930 Act was passed, the insurance proceeds would have gone into the general assets of the bankrupt individual or insolvent company. Creditors would have received a share of those assets in the form of a dividend representing the value of the debt owed to them by the insured as a percentage of the available fund. Under the 1930 Act, some third party creditors may get nothing. It has been suggested that, although Parliament did not appear to foresee the problems which might arise from multiple claims when passing the 1930 Act, "it is also safe to assume that it did not intend to create inequity between liability claimants or to reward the winners of a rush to judgment or execution".
7.13	Some might argue that those who have taken the risk and expense of obtaining judgment first should be in a better position than claimants who have taken no significant steps to advance their cases. There may, however, be a number of reasons why claimants have not taken such steps. As we have seen, in the Lloyd's litigation, one of the reasons why certain cases were heard first was the management plan laid down by the Commercial court. More generally, the hearing of third party actions and the date of judgment will depend partly on when cases are listed by the court and the speed at which they are heard.
7.14	Another reason for delay might be that third parties postpone starting or pursuing proceedings while settlement negotiations are in progress. As a matter of policy, we suggest that parties should not be discouraged from seeking a negotiated settlement of their disputes, which may be the effect of the "first past the post" system.
7.15	The first past the post system of distribution may also prejudice the most needy third parties as impoverished claimants may have to delay pursuing their claims while they wait for legal aid applications to be approved. It may also prejudice those who act slowly because they are unaware of their rights or have been badly advised as to how to enforce them.
7.16	A claimant may go to the expense of bringing proceedings only to discover that other claimants' cases have been listed first or have proceeded more quickly and that judgment in those cases will mean that, even if his case succeeds, he will receive little or none of the insurance money. As we have seen, his problems may be exacerbated if he cannot obtain disclosure of the insured's insurance position.
Could a more equitable distribution of insurance proceeds be achieved under the existing law?
7.17	We consider briefly below whether, despite the approach taken by the court in Cox v Bankside,  a more equitable distribution of insurance proceeds could be achieved under existing law. We look at the procedural rules governing representative and group actions and at the power of the court to consolidate actions.
Representative, group and consolidated actions
7.18	It is suggested that the rules on representative and group actions cannot be relied on to offer a solution to the problems raised in Cox v Bankside. English procedural rules allow but do not require proceedings affecting numerous persons with the same interest to be brought or defended on their behalf by a single plaintiff or a number of plaintiffs. The court may not of its own motion appoint a person or persons to represent an as yet unascertained class or persons who may be interested in the proceedings.
7.19	The essence of such a claim is that the persons represented should be acting in concert to achieve the same remedy. The fact that all have suffered in different ways as a result of the same wrongful conduct is not sufficient. In personal injury litigation such a test calls for the drawing of very fine distinctions as to what constitutes the 'same' injury. It appears that the only relief available in the representative proceedings is declaratory and that each party (representative or represented) must bring a separate action to recover damages. A representative plaintiff is free to conduct the case as he wishes and can discontinue or compromise the action as he chooses. The represented persons will not, however, be affected by either of these courses and may bring further proceedings if the action does not proceed to judgment.
7.20	In some cases, it may be appropriate for actions to be consolidated. By selecting 'lead actions' and adopting 'master pleadings' some duplication can be avoided and issues common to a number of actions settled "for the benefit of all." In this kind of arrangement, the parties agree to abide by the court's findings on a small number of cases in so far as they affect the whole and may agree the distribution of costs and damages between them. There may be a role for the court and the Legal Aid Board in managing such schemes and this may increase if recommendations contained in the Woolf Report are implemented.
7.21	In a Scottish case, Bell v Lothiansure Ltd a number of disappointed investors claimed against an insurance broker who had persuaded them to invest in bonds that turned out to be worthless. The broker went into liquidation and its indemnity insurers were brought into the action as potentially liable if the broker were to be found liable. The investors' actions were conjoined and decree was eventually granted for payment by the insurer to all of them. The claims would have abated rateably if the amount of cover under the policy had been insufficient to meet them in full. 
7.22	A pursuer who considers that the defender is in financial difficulties may obtain a warrant from a Scottish court to arrest on the dependence of the action. This could be used to arrest the sums payable under the policy, so obtaining a preference over other pursuers in respect of sums eventually found to be payable by the insurer. This preference would not be lost if other pursuers obtained decree first, provided the arresting pursuer followed up his action without undue delay. However, arrestment is not competent if the insured defender is already insolvent and no preference is obtained if the arrestment is executed within 60 days prior to sequestration or liquidation. Where several pursuers arrest the same fund, their arrestments may be equalised if executed within certain times of each other. Such pursuers would rank equally irrespective of the dates of their decrees.

7.23	At present there is no multi-party procedure in Scottish courts. The Scottish Law Commission's Report on Multi-Party Actions, published in July 1996, made recommendations for the introduction of such procedures. The recommended procedure would be voluntary; a pursuer might elect to take part in a class action but could not be compelled to do so
Conclusions
7.24	In situations where a number of third parties suffer loss as a result of the same event or series of events, they may choose to support representative proceedings or to take part in a group action. The court cannot currently require parties to take part in group actions but may be able to do so in some cases if recommendations in the Woolf Report are implemented. It may in some cases use its power to consolidate actions or to order cases to be heard at the same time. In Part 16, we consider whether any inadequacies in the existing law would justify the introduction of a statutory scheme providing for the rateable distribution of an insurance fund to third party claimants under the Act.
7.1	
Part 8	Private International Law
8.	
8.1	Claims under the 1930 Act may raise a number of private international law questions if one or more of the third party, the insured or the insurer is domiciled abroad, if the act of the insured giving rise to liability occurred outside this jurisdiction or if the insurance policy is governed by foreign law. A third party claimant will wish to know whether there are any conflict of laws rules preventing him from relying on the 1930 Act or from suing the insurer in the United Kingdom. If the insured has not yet been declared bankrupt or wound up, the third party may also wish to know whether he can bring bankruptcy or insolvency proceedings against the insured in this country to enable him to proceed with his claim under the Act. Private international law issues are not addressed by the 1930 Act. The only judicial consideration of such issues, in Irish Shipping Ltd v Commercial Union Assurance Company plc ("The Irish Rowan") was obiter and inconclusive.
8.2	In this Part, we look first at what rules may currently govern the applicability of the 1930 Act in cases with a foreign element. Next, we consider the circumstances in which a third party can bring bankruptcy or insolvency proceedings against the insured in the United Kingdom and whether the third party can proceed under the Act if the insured has been declared bankrupt or wound up in another jurisdiction. Finally, we consider the jurisdictional rules governing where a third party can sue the insurer. 
What rules govern  the applicability of the 1930 Act to cases with a foreign element? 
8.3	There is little authority on the private international law rules governing the applicability of the 1930 Act or of other statutes which provide third parties with a right of direct action against insurers. The applicable law for deciding a contractual or tortious or delictual claim by the third party against the insured could be applied to decide whether or not the statutory rights could be exercised by the third party. It may not, however, be correct to classify the statutory right as contractual or tortious. The relationship between the insurer and the insured under the policy is contractual. The act by which the insured incurs liability to the third party is usually tortious, although it may be a breach of contract. The third party's rights against the insurer are grounded in the Act. We look now at two cases in which the private international law rules applicable to statutes providing rights against insurers have been considered.
The Irish Rowan
8.4	In The Irish Rowan, Staughton LJ spoke obiter on what he referred to as the territorial scope of the 1930 Act. The other judges in the Court of Appeal declined to comment on this issue. Staughton LJ said that where statutes did not contain provisions relating to their territorial scope, reference had to be made to conflict of law rules. He referred to the fact that the proper law of the contract of insurance was the preferred solution in Dicey & Morris then referred to another argument that the proper law should be the lex situs (in this context, the law of the place where the insurance proceeds are payable). 
8.5	He suggested that there was "a substantial argument against the proper law of the contract being the connecting factor" as section 1(3) of the Act was designed to override the contract of the parties and the intention of Parliament could be frustrated "if it were open to the parties to a contract of insurance to exclude the operation of section 1 by choosing a foreign proper law ... ." He concluded, however, that
It is fairly arguable that the lex situs [the law of the place where relevant property is situated] governs the transfer of an obligation under section 1 of the Act, or the proper law of the contract (despite what I have just said) or the law governing the bankruptcy or liquidation.
Davenport v Corinthian Motor Policies at Lloyd's
8.6	A different approach was taken by the Scottish court in Davenport v Corinthian Motor Policies at Lloyd's, which involved an action under section 151 of the Road Traffic Act 1988. Lord Prosser rejected the view that the matter related to delict, holding that it was "a claim based upon the statutory provisions and upon nothing else".
8.7	Third party rights under the 1930 Act are somewhat different, however. Instead of creating a new right for third parties, which is the effect of the Road Traffic Act, the 1930 Act operates by transferring an insured's existing rights against the insurer under the insurance contract to a third party. 
8.8	The position is complicated by the fact that the 1930 Act transfers different types of rights to third parties. Staughton LJ's view in The Irish Rowan was that each rule of law enacted by the 1930 Act should be examined separately. He suggested, for example, that the application of conflict of law rules to the transfer of rights under section 1 of the Act could theoretically produce different results from the rule creating the right to disclosure of information under section 2:
Just because two rules of law are enacted in the same statute, it does not follow that the same connecting factor applies in each case. One cannot assume that the territorial application of the statute is wholly governed by the same test; one must examine each rule of law which it enacts. 
8.9	It is difficult to draw a conclusion as to the rules which govern the applicability of  the 1930 Act. This issue may arise more often in the future with the development of the single market and increased cross border insurance. We discuss in Part 16 whether the Act should specifically address private international law issues and, if so, what criteria should determine its applicability. We consider next when third parties can bring insolvency proceedings against the insured in this country then consider the rules which will govern whether or not a UK court will have jurisdiction to hear an action under the 1930 Act.
 When can the third party bring bankruptcy or winding up proceedings against the insured in the United Kingdom? 
8.10	The third party's ability to petition for the bankruptcy or winding up of the insured may be important for two reasons. First, the happening of one of the insolvency situations set out in the Act is a precondition to his acquiring rights under it. Secondly, as Staughton LJ suggested, the applicability of the Act may depend on whether or not the insured was declared bankrupt or wound up in the United Kingdom.
8.11	In some cases, the insured may be domiciled abroad and have no tangible assets in this country. We consider the powers of the court to grant bankruptcy and winding up petitions against foreign insureds and whether third parties can rely on the 1930 Act if the insured has been made bankrupt or wound up in a foreign jurisdiction.
Petitioning for the bankruptcy or winding up of foreign debtors
8.12	Statutory provisions relating to bankruptcy and winding up are contained in the Insolvency Act 1986 and the Bankruptcy (Scotland) Act 1985. Section 265(1) of the Insolvency Act 1986 provides that a petition for the bankruptcy of a foreign insured cannot be presented unless the debtor is domiciled in England and Wales, is personally present there on the day on which the petition is presented, or, at any time in the period of 3 years ending with that day, has been ordinarily resident, or has had a place of residence or has carried on business there. The debt need not have been incurred within the jurisdiction, nor need the petitioning creditor have any territorial connection with England and Wales. 
8.13	In Scotland, the Court of Session has jurisdiction to sequestrate the estates of an individual who was habitually resident in Scotland or had an established place of business there at any time in the year immediately preceding the presentation of the petition. The estates of an entity may be sequestrated if it had an established place of business in Scotland in the year immediately preceding the presentation of the petition or was constituted or formed under Scottish law and at any time carried on business in Scotland. A sheriff has similar jurisdiction in relation to individuals or entities in the sheriffdom.
8.14	The Insolvency Act distinguishes between registered companies registered under the Companies Acts in England and Wales, Scotland and Northern Ireland and unregistered companies (which include foreign companies). Courts in England and Wales have exclusive jurisdiction to wind up companies registered there and Scottish courts have exclusive jurisdiction in relation to companies registered in Scotland. Jurisdiction is exclusive even if the company has offices in another part of the United Kingdom. The courts of the place where an unregistered company has its principal place of business have jurisdiction to wind it up. In some circumstances, Northern Irish companies may be wound up in England and Wales or Scotland if they have a principal place of business there.
8.15	The provisions relating to the winding up of unregistered (including foreign) companies by the English or Scottish court are contained in sections 220 to 229 of the Insolvency Act 1986. Under section 221(5), unregistered companies may be wound up by the court if the company is dissolved, or has ceased to carry on business, or is carrying on business only for the purpose of winding up its affairs, if it is unable to pay its debts, or if the court is of the opinion that it is just and equitable that the company should be wound up. Section 6 of the Bankruptcy (Scotland) Act 1985 provides for the sequestration of the estates of an entity which includes a body corporate (except a company registered under the Companies Acts or where sequestration is expressly or by implication excluded by an enactment). The estates of a foreign company could be sequestrated under this provision.
8.16	The Insolvency Act does not appear to restrict the wider jurisdiction of the court (as developed through case law) to wind up a foreign company which has assets in England. The court has interpreted "assets" very widely and has held that it is not necessary for the company to have actual assets in the jurisdiction if there is a reasonable likelihood of benefit accruing to the creditors in the event of the winding up order being made. In Re Compania Merabello San Nicholas SA, Megarry J made a winding up order against an overseas company whose only asset was its claim against its insurer, a P & I Club. In Re Eloc Electro-Optieck and Communicatie BV, the court granted a winding up order on the basis that the petitioner had a reasonable chance of obtaining a benefit from an outside source (the state redundancy fund) were such an order to be made. In Okeanos Maritime Corp, Peter Gibson LJ suggested that the petitioner need only show "a sufficiently close connection with the jurisdiction, and that there is no more appropriate jurisdiction for the winding-up of the company". There is a lack of Scottish authority on this point. It is not clear whether Scottish courts have an equivalent jurisdiction to wind up a foreign company, but sequestration may be possible if a Scottish court has jurisdiction. 
8.17	As well as considering whether or not another forum would be more appropriate, the court may also consider whether the insurance proceeds are payable in this country so that the third party is likely to receive a benefit here if the order is made. It is unlikely that an order would be made in respect of an overseas company which was insured by an English or Scottish insurer under a contract whose proper law was English or Scottish law but which did not provide for payment in England or Scotland and which had no other assets within the jurisdiction. The situs of the payment obligation may be vital to establish a sufficiently close connection with the jurisdiction.
8.18	In the context of the 1930 Act, it might be argued that there is no possibility of the third party receiving any benefit from the winding up of the insured if it is claimed by the insurer that certain conditions precedent to the liability of the insurer have not been met. The court hearing an application for winding up might, however, be reluctant to consider the merits of any possible defence in a future claim against an insurer under the Act.
Can third parties rely on the Act where the insured has been made bankrupt or wound up in a foreign jurisdiction? 
8.19	The provisions of the 1930 Act refer only to insolvency proceedings brought within the United Kingdom and it is assumed that a winding up order against the insured made in a foreign jurisdiction is unlikely to be sufficient to found jurisdiction under the Act. However, it is possible in some circumstances for a company which has already been wound up in another jurisdiction also to be wound up in this country. 
8.20	Were the EU Convention on Insolvency Proceedings ever to come into force, it might limit the situations in which bankruptcy or winding up proceedings could be brought against some foreign insureds and, if the ability of third parties to rely on the 1930 Act depends on whether the insured was made bankrupt or wound up in this country, limit the circumstances in which third parties could rely on the Act.
Where can the insurer be sued?
8.21	Whatever the basis for the applicability of the Act, a third party will only be able to proceed against the insurer if the court has jurisdiction over the insurer. The jurisdictional rules governing where a claimant can pursue his claim will depend on the nature of his claim, on where the defendant is domiciled and, in some cases, on his identity. The EC Convention on Jurisdiction and the Enforcement of Judgments in Civil and Commercial Matters ("the Brussels Convention") has altered the common law conflicts rules in the case of disputes in jurisdictions which are signatories to the Convention.
The Brussels Convention
8.22	The Brussels Convention lays down common jurisdictional rules for all states bound by it. The court first seised of an action has exclusive jurisdiction over it and the courts of each state are required to recognise and enforce the judgments of courts in other states. 
8.23	Insolvency proceedings are excluded from the Brussels Convention: subsection 2 of Article 1 of the Brussels Convention provides that the Convention does not apply to "[b]ankrupty, proceedings relating to the winding-up of insolvent companies or other legal persons, judicial arrangements, compositions and analogous proceedings". If a claim under the 1930 Act is viewed as relating to UK insolvency law, it might be held to fall outside the scope of the Convention. This question has not yet come before the court and it is not clear what approach the courts might take to it. 
8.24	Under Article 2 of the Brussels Convention, an action must generally be brought in the courts of the jurisdiction in which the defendant is domiciled. There are a number of exceptions to this, however. Articles 7 to 12A lay down special rules for "matters relating to insurance" on the basis that the insured's bargaining power is likely to have been weaker than that of his insurer. Under Article 8, a policyholder can sue his insurer in the place of his own or his insurer's domicile. Article 9 provides that, in respect of liability insurance, the insurer can also be sued in the courts of the place where the harmful event occurred. Article 10 provides that the insurer may be joined into proceedings brought by a third party against the insured, if the law of the court allows it. It also provides that Articles 7, 8 and 9 shall apply to actions brought by the injured party directly against the insurer, where such direct actions are permitted and that, if the law governing such direct actions provides that the insured may be joined, the same court shall have jurisdiction. Article 10 appears to suggest that the third party can use the special rules in Articles 7 to 9 and that the court hearing the action against the insurer shall also have jurisdiction if the third party can join the insured into those proceedings.
Claims not governed by the Brussels Convention
8.25	Under RSC, Order 11, rule 1(2), an English writ may be served outside the jurisdiction without the leave of the court provided that the English court has jurisdiction under the Civil Jurisdiction and Judgments Act 1982. If the Act does not apply, a defendant can only be sued in England if the court gives leave under RSC Order 11. A Scottish court cannot acquire jurisdiction by service of writs outside Scotland.
8.26	Before granting leave, the court must be satisfied that the case falls within one of the paragraphs of RSC Order 11, rule 1(1), that the plaintiff has a good arguable case, that there is a serious issue to be tried and that it is proper for it to exercise its discretion to grant leave to serve out. The court will also consider whether it is clearly the appropriate court (the "forum conveniens") to hear the case, being the most suitable for the interests of all the parties and for the end of justice.

Part 9	Limitation and Prescription
9.	
9.1	Rules limiting the period in which actions can be brought against defendants and providing for obligations to prescribe after a specified period of time are imposed on the basis that it is unreasonable for potential defendants to live indefinitely with the threat of litigation and because actions become increasingly difficult to try when events are no longer clearly remembered and evidence is lost. In this Part, we look briefly at English and Scottish rules on limitation and prescription. We consider how these rules operate to limit the period in which third parties can proceed against insurers under the 1930 Act. We also look at whether, where proceedings against the insurer have been started by the insured within the period during which he can proceed against the insurer, third parties can be substituted in those proceedings. We look first at the position under English law, then at Scottish law.
English law
The limitation period applicable to disputes arising under contracts of indemnity
9.2	Actions founded on contract have a time limit of six years and usually run from the date at which the breach occurred. There has been some debate as to when the six year limitation period should begin to run with regard to contracts providing liability insurance cover. The better view is that the cause of action arises when the insured has suffered loss as a result of the insured event. As we have seen, following Post Office v Norwich Union Fire Insurance Society Ltd, "loss" in the context of liability insurance is incurred when liability has been established. The limitation period governing the insured's right of action against the insurer will, therefore, run from the date when the third party has established the liability of the insured.
9.3	The limitation period may start to run earlier if there has been a purported repudiation of the insurance contract by the insurer and if the insured has accepted the fact of repudiation by the insurer, but not its validity. The basic rule is that, where there has been a repudiation, a right of action accrues as soon as the repudiation has occurred even if, at that time, the plaintiff  has suffered no loss.
Limitation and the 1930 Act 
Lefevre v White 
9.4	In Lefevre v White, the third party plaintiff had suffered severe injuries when, on 22 July 1972, the car in which he was being driven by the insured went out of control. The plaintiff first brought proceedings in France, claiming damages for personal injury, but these were unsuccessful and, in 1977, he started proceedings in England. The proceedings were settled before the court on 16 December 1981 and judgment was given in favour of the plaintiff against the insured. On 8 December 1987, the insured issued a writ against the insurer claiming an indemnity. On 9 December 1987, the insured was made bankrupt by the plaintiff. On 3 June 1988 (nearly six and a half years after he had settled his claim against the insured), the plaintiff started proceedings against the insurer based on the 1930 Act. 
9.5	The plaintiff raised two arguments as to why his action was not time barred. First, the insured had himself issued a writ against the insurer within the limitation period and the plaintiff, standing in the shoes of the insured, was merely continuing in his own name a claim which was not statute barred. Alternatively, the rights of the insured were transferred to him on the bankruptcy of the insured and it was at that moment that his right to sue came into existence and that the limitation period with regard to his claim against the insurer should run.
9.6	Popplewell J rejected both these arguments, holding that the plaintiff's claim was statute barred. The plaintiff could not rely on the proceedings started by the insured as his claim under the 1930 Act was one
in his own name which gives him the benefit of the whole of a successful judgment...the third party ... has his own cause of action direct against the insurance company, namely to exercise his right to claim all the benefits which attached to the insured. He is not carrying on proceedings in the sense envisaged by O 15, r 7; he is merely exercising the rights to claim which previously existed in the insured. To do so, he must issue proceedings within six years of the cause of the action arising.
9.7	In rejecting the argument that the third party had no cause of action until the bankruptcy of the insured, Popplewell J said:
I confess that I find neither logic nor sense in that argument. It would enable a plaintiff to bring an action under the 1930 Act years outside any limitation period contemplated by the Limitation Acts. It would undermine totally the concept that liability under the policy is the starting point for determining when the cause of action arises. Finally it gets no support that I can see from the wording of the Act - indeed, such authorities as there are and the terminology of the Act itself are to the contrary sense.
The Felicie
9.8	A different approach to these issues appears to have been taken two years earlier by Phillips J in The Felicie, a decision not referred to in Lefevre v White. In September 1976, the insured wrongfully failed to carry a cargo owned by the third party. On 21 July 1981, the High Court of Singapore gave judgment in favour of the third party against the insured. The insured's claim for an indemnity from its P & I Club was rejected on 21 April 1982. On 24 June 1987, on the petition of the third party, the Companies Court appointed the Official Receiver as provisional liquidator of the insured. The Club rules contained a Scott v Avery arbitration clause and, on 17 July 1987, an arbitrator was appointed by the provisional liquidator on behalf of the insured. Following the making of a winding up order on 29 July 1987 the third party appointed an arbitrator on that day.
9.9	At the hearing on 13 November 1987, the third party sought a declaration that, included in the rights of the insured against the Club transferred to it on that date, was the right to continue the arbitration commenced on behalf of the insured on 21 July. It also claimed that it was entitled to continue the arbitration which it had commenced on 29 July in its own name. 
9.10	The Club argued that the obligation to arbitrate was a qualification upon the right to recover an indemnity and that the obligation did not constitute one of the rights of the insured under the contract of insurance. If, contrary to this submission, the entitlement to pursue an arbitration was a right under the contract of insurance, the effect of the 1930 Act was not to substitute the third party for the insured in existing legal proceedings: in the case of litigation; substitution could only occur pursuant to court rules and, in the case of arbitration, there was no mechanism for substitution. Practical problems would arise if third parties were substituted in existing proceedings. The third party's claim was time barred because the valid appointment of an arbitrator by the third party on 29 July was outside the limitation period which started to run when the third party obtained judgment against the insured on 21 July 1981.
9.11	Phillips J reviewed previous case law and said that:-
Having considered these authorities, I am driven to the conclusion that there is no wholly satisfactory explanation for the basis upon which, whether by assignment inter partes or by transfer under the 1930 Act, the transferee acquires the right and obligation to arbitrate in his own name. That under the 1930 Act the right to commence and pursue an arbitration does vest in the third party, together with the substantive rights under the contract of insurance is, however, beyond dispute.
9.12	He held that the argument that third party claimants under the 1930 Act  were automatically substituted in arbitration proceedings begun by the insured within the limitation period was "unsound in law and impossible in practice". Among the problems which he suggested automatic substitution would cause were disputes as to the liability for existing costs and one or more third parties becoming party to the arbitration without notice.
9.13	Phillips J allowed the third party to continue the arbitration proceedings commenced in its own name, however, although the legal basis of his decision is not clear. He said that:
Had I felt that my decision would have the effect that [the third party] would be faced with a time bar that would not have been applicable to [the insured], I would have felt it necessary to reconsider my conclusion. It would be absurd if the effect of the 1930 Act, in circumstances such as those of this case, were to be to defeat what might otherwise have been a good claim by the insured. Such a result would  be diametrically opposed to the purpose of the Act.
The Jordan Nicolov
9.14	Similar issues arose in The Jordan Nicolov, which did not involve the 1930 Act but which related to the right of a legal assignee of a right of action under a charterparty to be substituted in arbitration proceedings started by the assignor. The shipowners argued that the assignee must start a fresh arbitration, relying on The Felicie. The plaintiff charterers and insurer argued that the assignee took the cause of action subject to the obligation to arbitrate and with the benefit of the legal remedy in the arbitration, including the appointment of the arbitrator. They referred to section 136 of the Law of Property Act 1925 which provides that "all legal and other remedies" pass on assignment.
9.15	Hobhouse J distinguished The Felicie on the basis that it had been decided under the 1930 Act. He suggested that it was the claim that substitution occurred automatically under the 1930 Act which had most concerned Phillips J and that, where there was a legal assignment under the Law of Property Act, the position was different in that notice would have been given to the other parties. He held that an assignee could rely on the appointment of an arbitrator by the assignor and had the right to intervene in the pending arbitration started by his assignor.
9.16	The approach of Hobhouse J was endorsed by the Court of Appeal in Baytur SA v Finagro Holding SA. The Court of Appeal agreed that assignees can join pending proceedings but held that assignees do not automatically become parties: they must first apply to court for an order under RSC, O 15, r 7(2) or, in the case of arbitration, give notice to the other party and submit to the jurisdiction of the arbitrator. 
The position of third party claimants
9.17	It is not clear from the cases we have discussed whether the limitation period governing third parties' claims under the 1930 Act will be based on that applying to the insured's right of action against the insurer. It is also unclear whether third parties can substitute themselves for the insured in court or arbitration proceedings, although this may be more likely following The Jordan Nicolov and Baytur South Africa v Finagro Holding SA. If the approach taken by Popplewell J in Lefevre v White is followed, third parties may find their right of action statute barred before it has accrued. In most cases, however, third parties will be able to bring bankruptcy or winding up proceedings against the insured to ensure that their actions are not statute barred.
Scottish law
9.18	The Prescription and Limitation (Scotland) Act 1973 provides for a three year limitation period for claims based on deathor personal injury. The period runs from the date of the injury or, if later, the date on which it was reasonably practicable for the pursuer to have become aware of the fact that the injuries were sufficiently serious to bring an action, and that the injuries were attributable to an act or omission of the defender (or his employee or agent). Any period during which the pursuer is incapable or under the age of 16 is not counted. The court has a discretion to allow an action to proceed notwithstanding these time limits. 
Prescription and contracts of indemnity
9.19	Obligations arising out of a contract generally prescribe five years after they become enforceable if no relevant claim has been made or the subsistence of the obligation relevantly acknowledged within that period. The obligation under a contract of insurance will, therefore, prescribe five years after the date when the obligation became enforceable. The obligation becomes enforceable when the insurer becomes liable to indemnify the insured under the policy. As we have seen, the Scottish courts have held that section 1 of the 1930 Act provides for the statutory assignation of the insured's rights to the third party. If the insurer's obligation to pay under the policy has prescribed against the insured, it will, therefore, also have prescribed against the third party.
9.20	Section 7 of the 1973 Act provides for a long-stop prescriptive period of twenty years which cuts off any rights that survive the five year period. The insured's claim against the insurer under the policy will therefore prescribe in any event if it has subsisted for a continuous period of 20 years without any relevant claim having been made or the subsistence of the obligation having been relevantly acknowledged.
9.21	The insurer may purport to repudiate the policy. If the repudiation is accepted by the insured, the policy lapses and there are no rights under it that could be transferred to the third party. Section 3 of the 1930 Act renders void any agreement between the insurer and the insured after liability has been incurred to the third party and after insolvency has occurred so as to defeat or affect the rights that would be transferred to the third party under the Act. If the repudiation is not accepted, any dispute as to the continued existence of the obligation under the policy may have to be the subject of legal proceedings. The effect of these would be to confirm or deny the existence of the obligation rather than altering the date at which the prescriptive period starts to run.
Substitution of the third party in proceedings started by the insured
9.22	If the insured had commenced proceedings against the insurer in relation to the policy then the third party as statutory assignee under the 1930 Act is entitled to be sisted (to be added as a party) to the proceedings. The same rule seems to apply to arbitrations, although the insured would remain bound by the submission to arbitration. 

Part 10	Reform: Approach to Reform
10.	
The structure of this reform section
10.1	In Parts 11 to 17, we consider a number of options for reforming the 1930 Act and seek consultees' views on the extent to which those reform options might address some of the problems which we have identified as arising from current law and practice. In this Part, we set out principles governing our approach to reform and consider the impact of Lord Woolf's report on the Civil Justice System. In Part 11, we consider whether the scope of the Act should be extended or restricted. In Part 12, we consider what rights third parties should have under an amended Act and when those rights should arise. In Part 13, we suggest reforms to the Act's disclosure provisions and, in Part 14, possible limitations on the ability of insurers to rely on defences against third party claimants. In Part 15, we consider whether a statutory system of rateable distribution should be introduced to replace the current "first come first served" system. In Part 16, we consider whether the private international law aspects of the Act should be clarified. In Part 17 we seek consultees' views on the limitation of claims under the Act. A summary of our provisional conclusions and consultation questions is set out in Part 18.
10.2	As we have seen, several of the problems which we discussed in Parts 4 to 9 are inter-related as they have a common source, namely the judicial construction of sections 1 and 2 of the Act in such a way as to require a third party to establish the liability of the insured before acquiring rights under it. We set out below our provisional conclusion that the transfer of rights under the Act should not be conditional on the third party first establishing the liability of the insured. We suggest that the third party should acquire rights once two events have occurred; the incident giving rise to the liability of the insured and one of the insolvency events set out in the Act. His right of action would be against both the insurer and the insured. We suggest that such a reform would itself alleviate a number of the problems faced by third parties under the current Act.
Principles governing our approach to reform
10.3	We set out our general approach to reform in Part 1. The following are some of the more specific principles which have guided our approach to the reform of particular issues, although, as will be seen, it has often been necessary to seek a balance between those principles. 
Freedom of contract
10.4	We do not consider that it is within the scope of our review of the Act to examine when insurance should be in place, nor to determine the terms on which insurance should be available. Subject to the provisions of particular legislation in this field, it is for the insured and insurer to determine these matters. In general, the insurer should be in no better or worse position as a result of the insured's insolvency nor under any greater liability to the third party than he would have been under to the insured. On the other hand, the insurer should not be placed in a better position. 
10.5	Where we have suggested restrictions on the rights of insurers (for example on their ability to rely on defences) or extensions to their duties under the Act (for example their duty to disclose policy information), this has usually been in response to problems associated with the insolvency or pending insolvency of the insured or because the third party is in a worse position than the insured would have been had he been seeking an indemnity against the insurer. 
In general, the courts should be able to resolve disputes between all relevant parties in one set of proceedings
10.6	One of the great objects of the Judicature Acts was "to bring all parties to disputes relating to one subject-matter before the Court at the same time so that the disputes may be determined without the delay, inconvenience and expense of separate actions and trials." We consider that this approach remains the correct one. In so far as it may be unfair in a particular case, or undesirable from a case management point of view, to have all the issues tried at the same time, an order can be made for some issues to be tried separately, but still in the context of a single set of proceedings.
Relevant information relating to potential disputes should be available at an early stage
10.7	Consistent with the aims and approach of the Woolf Report, it is generally desirable that parties should be in possession of all relevant information about potential claims at an early stage so that they can make an informed assessment of the strength of their case and enter into realistic settlement negotiations. 
Competing claims to limited insurance funds should be dealt with in a manner which seeks to achieve fairness, certainty and cost efficiency
10.8	Where the insurance monies available are insufficient to meet all the claims to them brought by third parties, they should be distributed in a manner which seeks to achieve fairness between the respective claimants, but which is also, so far as possible, certain, predictable and cost efficient. 

The impact of Lord Woolf's report on the civil justice system on our proposed reforms
10.9	In March 1994, Lord Woolf was asked by the Lord Chancellor to review the current rules and procedures of the civil courts in England and Wales. Lord Woolf published his final report, Access to Justice, in July 1996, recommending fundamental changes to the civil legal system in England and Wales. He has proposed a "three tier system" of legal proceedings and new Civil Procedure Rules, intended to replace the Rules of the Supreme Court 1965 and the County Court Rules 1981, have been drafted. The proposals do not affect the separate legal system in Scotland, where Lord Cullen recommended changes to the procedures in the Outer House of the Court of Session.
10.10	We refer in this paper to a number of Lord Woolf's proposals and suggest how they might affect proceedings under the current 1930 Act and under an amended Act. We mention, for example, Lord Woolf's proposals to improve parties' rights to pre-action and non-party disclosure, to require parties to abide by pre-action protocols setting out codes of practice in certain areas of litigation and to lay down new procedures for expedited hearings and multi-party actions.
10.11	One of Lord Woolf's main objectives is increased openness and co-operation between parties, an approach building on recent procedural reforms such as the use of witness statements, skeleton arguments and pre-trial hearings. In our view, many of our provisional conclusions are in line with his approach to reform.

Part 11	The Scope of the Act
11.	
11.1	In Part 1, we considered whether the aim of liability insurance is to protect the interests of third parties to whom the insured incurs liability as well as to protect the financial interests of the insured. We asked whether the claims of third parties currently able to proceed under the 1930 Act should be preferred in all cases to those of the insured's other creditors and suggested that consideration should be given to the effect of amending the Act on insurers, the insured and officeholders as well. In Part 2, we looked at developments in insurance law and practice since 1930 and noted how much insurance markets have changed since the Act was introduced. We raised the possibility of the Act being extended to cover reinsurance policies or restricted to certain types of claim.
11.2	In this Part, we consider first whether the Act should be extended to reinsurance policies. We then consider arguments for the Act continuing to apply to all liability insurance policies and discuss options for limiting its scope to risks covered by compulsory insurance, to claims in respect of death or personal injury, to consumer as opposed to commercial type claims or to tortious or delictual, as opposed to contractual claims. In Part 12, we consider whether a third party's right of action under the Act should continue to be conditional on the happening of one of the insolvency situations set out in the Act.
Should the Act be extended to reinsurance policies?
11.3	As we have seen, section 1(5) of the Act excludes reinsurance from its provisions. Given the growth in the use of reinsurance, we need to consider whether this exclusion should be removed so that third parties would have a right of recourse against reinsurers when the insurer is insolvent and unable to meet their claims. We consider briefly first the regulation of insolvent insurers. 
The Policyholders Protection Act 1975
11.4	The Policyholders Protection Act 1975 allows policyholders of insolvent UK or EU insurers carrying on business in the UK~~ to recover from a fund paid for by the insurance industry and administered by the Policyholders Protection Board.~~ Reinsurance is excluded from the scope of the Act.
11.5	It appears that third parties may fall within the definition of policyholder in the 1975 Act.  However, the position is not clear and we understand that the Board has not yet had to decide on this point. Were third parties to have rights under the 1975 Act, those meeting the Act's eligibility criteria would not need a right of recourse against reinsurers.
The problems of extending the Act to reinsurance policies 
11.6	As we have already noted, reinsurance arrangements have become increasingly complex. Simple, facultative reinsurance, where the duty to indemnify a particular liability can be traced through the insurer to a particular reinsurance policy is increasingly rare and a risk may be reinsured a number of times.
11.7	It may be easier to trace a path of liability to a reinsurer where the contract between insurer and reinsurer contains a "cut-through clause". In such clauses, the insurer and reinsurer contract to allow the insured to claim against the reinsurer directly on the insolvency of the insurer. There is a clear link between the reinsurance policy and a specific risk. However, the validity of such clauses in English law may be doubtful.
11.8	Other problems are the different rules of interpretation which may be applied to insurance and reinsurance contracts and the different market practice of insurers and reinsurers. Insurers are likely to be dealing with inexperienced insureds and have different duties towards them than will reinsurers dealing with insurers. A third party claiming under the 1930 Act pursuing a reinsurer might find that he had to raise certain arguments against the insurer, then different arguments against the reinsurer. The reinsurance contract, like the insurance contract, is likely to lay down a number of preconditions (requiring, for example, notification of claims, claims co-operation or control or arbitration of the dispute) which must be met before the liability of the reinsurer arises. Our provisional view is that the Act should not be extended to reinsurance policies. 
Do consultees agree with our provisional conclusion that the Act should not be extended to reinsurance policies? If they do not, to what types of reinsurance policy should the Act apply?
Should the Act continue to apply to all liability insurance policies?
11.9	The Act currently applies to all liability insurance policies. Relatively few cases involving the 1930 Act reach the court, however, and it could not be argued that the applicability of the Act to all liability policies has opened the floodgates of litigation. We provisionally conclude that the scope of the Act should not be limited and suggest that the number of cases under an amended Act might actually increase as parties sought to establish the meaning of any statutory definitions used to limit the categories of potential claimants. Some consultees may consider, however, that the scope of the Act should be limited.
The purpose of liability insurance 
11.10	Consultees' views on what the scope of the Act should be are likely to vary according to whether or not they see liability insurance as purely a contractual arrangement protecting the interests of the insured. In some jurisdictions, the law looks beyond the insurance contract and views the main aim of liability insurance as being the protection of those to whom the insured is liable. It could be argued that, as the insurance fund has come into existence because of the insured's wrongful act, the third party should have access to that earmarked fund. Even where the third party is not a victim of a tort or delict committed by an unknown insured but has chosen to contract with the insured, the insurance fund exists because of the foreseen event giving rise to the liability of the insured to the third party. The third party may have chosen to deal with the insured because he was insured.
11.11	Consultees may believe that the interests of third parties should be protected, but only in certain circumstances. They may take the view, for example, that a third party should have rights under the Act when he has suffered personal injury, but not when his claim is for financial loss suffered as a result of the insured's breach of contract, in which case the insured's other creditors should be preferred.
Compulsory insurance 
11.12	The view could be taken that third parties' rights should be protected if they have suffered as a result of activities which Parliament has decided should be subject to a regime of compulsory insurance. Some might also argue that the 1930 Act was intended to deal mainly with compulsory insurance type situations and should only do this now.
11.13	Compulsory insurance may be criticised as a basis for a system of third party rights, however, as it is often introduced as a reaction to a particular incident and provides a haphazard scheme of protection. In many cases, the insurance market reacts quickly to demand, covering activities long before consideration has been given to whether or not there should be compulsory insurance.
11.14	Consideration needs to be given to whether third parties should only have rights in respect of activities expressly required by Parliament to be subject to compulsory insurance, or whether they should also have rights where, for example, the insured is a member of a trade or professional body which requires its members to carry insurance. In some cases, legislation will require such bodies to make arrangements for insurance cover; in others, it will provide that they may do so. To avoid uncertainty as to whether or not a particular scheme came within the ambit of an amended Act, the Act could contain a schedule of such schemes, which could be amended as necessary by statutory instrument. 
Claims involving death or personal injury 
11.15	Another view might be that there are good public policy reasons for restricting third party rights under the Act to cases where they have suffered death or personal injury. Some statutes already provide rights only to those who have suffered in this way. In some cases, the insured may have caused the third party personal injury and property damage. Should the third party only have rights under the Act in respect of some of his loss and be required to proceed as a creditor in the main insolvency to recover the rest of his loss? It could be argued that there has been a move away from distinguishing personal injury claims from other claims and that the problems caused to victims by damage to their property or by financial hardship should also be recognised. For example, road traffic legislation has been amended to allow third parties to recover from insurers sums due to them in respect of property damage.
11.16	In many cases, third parties pursuing claims for personal injury or death will already have alternative remedies which are not available to other claimants. They may be able to rely, for example, on the Road Traffic Act 1988 or on rights under social security legislation. Also, they may benefit from more lenient insurance practices. 
Consumer, as opposed to commercial, claims or claims by an individual
11.17	A distinction which has been used in some legislation is that between consumer and non consumer claims, or claims brought by an individual claimant. The rationale for such a distinction is that consumers are in a weaker bargaining position and should be treated more leniently than those with commercial claims. In the case of claimants under the 1930 Act, it could be argued that those with a commercial claim against the insured should be treated in the same way as any other commercial creditor and be entitled to a dividend out of the estate. The fairness of such distinctions is disputed, however; it has been suggested, for example, that owners of small businesses may be in equal need of protection as consumers.
11.18	In the insurance context, definitions based on the capacity in which a claimant dealt with a defendant may be less appropriate, particularly where third party claims are concerned. The claimant is statistically more likely to have a claim in tort or delict against the insured and not to have chosen to deal with him as a consumer does, for example, when he purchases something in a shop. Insurance regulation has sought to distinguish individual policyholders. The Policyholder's Protection Act 1975 does not distinguish between consumers and non consumers as such, but uses the term "private policyholders". Similarly, the jurisdiction of the Insurance Ombudsman Bureau ("the IOB") is limited to policies "taken out by or on behalf of or for an individual". The Insurance Ombudsman has suggested that the IOB's jurisdiction should be extended to small commercial claims. The ABI Code of Insurance Practice applies to "policyholders resident in the UK and insured in their private capacity only".
Tortious or delictual, as opposed to contractual claims.
11.19	Most claims under the 1930 Act are based on tort or delict rather than contract. Some cases may, however, be based on a third party's contractual rights against the insured and it might be argued that the protection of the Act should not extend to those who have chosen to deal with the insured. It could also be argued, however, that the insurance fund relates to the particular liability incurred by the insured to the third party and that third parties should not be deprived of the Act's protection in such cases. Should third parties be deprived of protection if they chose to deal with the insured because he was insured? Third parties may, for example, choose to deal with a particular travel agency because it is bonded.
11.20	One of the problems of using a distinction between claims in tort or delict and contract is that some claims may be based in both. For example, an injured employee may have a claim against his employer under his employment contract as well as in tort or delict and a person in receipt of negligent professional advice may also have claims against his adviser in contract and tort or delict. Another problem which may arise from distinguishing between contractual and other causes of action is that one policy may cover all causes of action. Complexities would arise as a result of endeavouring to distinguish between them in applying the 1930 Act. Our provisional view is that not only would it be unjust to make such a distinction but that the complexities that would arise from it militate against any such distinction. 
Consultees' views are sought on our provisional conclusion that the Act should continue to apply to all liability insurance policies, regardless of the nature of the third party claimant or of his claim. 
If consultees disagree, they are asked to specify how the applicability of the Act should be restricted.

Part 12	Third Party Rights under an Amended Act
12.	
12.1	The rights which are transferred to third parties under the current Act are the insured's "rights against the insurer under the contract in respect of the liability", which include the insured's right to an indemnity from the insurer. As we have seen, the Court of Appeal held, in Post Office v Norwich Union Fire Insurance Society Ltd, that, as the insured's right to an indemnity does not arise until his liability has been established, this right does not transfer to the third party until then. Nor, as a result of judicial construction of section 2, does the duty to disclose policy information under that section arise until the liability of the insured has been established. In Scotland, a third party can obtain information for the purpose of his action against the insurer for a declarator.
12.2	We suggest in this Part that a third party's rights against an insurer under an amended Act should not be dependant on his first establishing the liability of the insured, but should arise once two events have occurred: the incident giving rise to the liability of the insured and the happening of one of the insolvency events set out in the Act. We consider what rights the third party should acquire once these two events have occurred. He would continue to have, as under the current Act, the insured's right to be indemnified by the insurer. We suggest that the third party should also have a right to seek a declaration or declarator that, on the liability of the insured being established, the insurer will be liable to indemnify the third party. This would mean that the liability of the insured and of the insurer would be dealt with in one set of proceedings.
12.3	We consider below the nature of third party rights against insurers in other jurisdictions and seek consultees' views on what the nature of the third party's rights should be under an amended Act. We consider whether the third party's right of action against the insurer should be subject to a leave requirement. Also in this Part, we seek consultees' views on whether third parties should be able to set aside settlements reached between the insurer and the insured prior to the happening of one of the insolvency events set out in the Act, on whether the insurer should be required to pay insurance monies due to the third party directly to him and on whether third parties should have rights against the insurers of disappeared insureds.
12.4	First, we consider the implications of the liability of the insured and of the insurer being resolved in the same proceedings and consider whether both insurer and insured should be parties to the third party's action.
Should the third party's rights against the insurer arise only once he has established the liability of the insured?
12.5	As under the current Act, there would be a transfer to the third party of the insured's rights against the insurer. The issue which needs to be addressed is whether or not the liability of the insured should continue to be established in separate proceedings between the third party and the insured or in proceedings involving and binding on the insurer. In many cases, the insurer will conduct the defence of the insured in any event, but some might argue that the insurer should not be forced to be a party in proceedings to establish the liability of the insured as this is an issue between the third party and the insured alone.
12.6	In Parts 4 and 5, we discussed some of the problems arising from the requirement that the third party establish the liability of the insured before acquiring a right of action under the Act, including the fact that parties may have to bear the expense of two or more sets of proceedings. Having considered these problems, we take the provisional view that the third party's right to sue the insurer should arise before he has established the liability of the insured. In our view, the third party should be able to establish the liability of both the insured and the insurer in the same proceedings.
Should the third party's rights only arise on the happening of one of the insolvency events set out in the Act?
Should third parties have rights against insurers, regardless of the solvency of the insured?
12.7	In some jurisdictions, third parties are given rights against insurers referable to the date of the incident giving rise to the liability of the insured, regardless of his solvency. Our provisional view is that a third party's rights should initially be against a solvent wrongdoer, rather than against his insurer. Although the insured will often seek an indemnity from his insurer, he may prefer to pay the claim himself to avoid a rise in his insurance premiums. Were third parties to have a right against insurers whether or not the insured had been declared bankrupt or wound up, there might also be a rise in the number of speculative actions and insurers might need to reassess their claims handling procedures and policy premiums, causing disruption to the insurance market. 
12.8	Where the insured is insolvent, the third party may be likely to recover little or nothing from the insured. In such cases, it is more important, therefore, to safeguard the interests of the third party. The aim of the 1930 Act was to provide a remedy to third parties of which they had been deprived by the insured's insolvency and our provisional view is that the original scheme of the Act should be respected. 
Should third parties have rights against insurers when the insured is in financial difficulties, but before the happening of one of the insolvency events set out in the Act?
12.9	We do not take the view that the third party should acquire rights under the Act when the insured is in financial difficulties prior to the happening of one of the insolvency situations set out in the Act. The concept of apparent insolvency in the Bankruptcy (Scotland) Act 1985 and definitions in the Insolvency Act 1986 are used to provide a basis for a petition for an award of sequestration or an application for a bankruptcy or winding up order. They do not themselves trigger the transfer of rights to creditors. Creditors' rights are affected by the award or order and their position in any insolvency is set out in primary and subordinate legislation. Providing for the provisions of the 1930 Act to be triggered before the occurrence of an event specified in the Act could create uncertainty and undermine the insolvency legislation. Our provisional view is that the third party's rights should continue to be conditional on the happening of one of the insolvency events set out in the Act. His rights would arise, therefore, once two events had occurred: the incident giving rise to the liability of the insured and one of the insolvency events set out in the Act.
12.10	Sections 1 and 2 of the Act use the term "becoming bankrupt", a term not used in Scottish law, which risks being confused with apparent insolvency. We suggest that, in its application to Scotland, the amended Act should instead use the phrase "person's estates being sequestrated."
Do consultees agree that a third party's rights under an amended Act should arise once two events have occurred: the incident giving rise to the liability of the insured and one of the insolvency events set out in the Act?
If consultees consider that the third party's rights should arise before or after this point, when do they think they should arise? For example, should they arise:-
(i)	after close of pleadings in the proceedings brought by the third party against an insured who has been declared bankrupt or wound up; 
(ii)	on the happening of the event giving rise to the liability of the insured, regardless of the solvency or otherwise of the insured; or
(iii)	when an insured who has incurred liability to the third party is in financial difficulties prior to the happening of one of the insolvency events set out in the Act? Consultees who favour this option are requested to suggest a trigger for the third party's rights.
Do consultees agree that, in its application to Scotland, the amended Act should use the phrase "person's estates being sequestrated" instead of "becoming bankrupt"?
The implications of the liability of insurer and insured being resolved in the same proceedings
The early identification of issues in dispute
12.11	The number of preliminary issues which might need to be dealt with by the court may vary greatly, depending, for example, on whether the insurer is conducting the defence of the insured, on whether disclosure has been voluntarily made and on whether the insurer is disputing cover. There could be costs and time advantages to issues between the parties being resolved in the same proceedings. The effect of such a reform might be that costs were incurred earlier on in the proceedings than would otherwise be the case. A more open approach to the resolution of disputes between all relevant parties is in line with the recent "cards on the table" approach to litigation and may encourage settlement. 
Possibility of prejudice to the insured or the insurer  
12.12	If the insurer has to contest cover in proceedings in which the liability of the insured is also being tried, the defence of the insured (which will often be conducted by the insurer) might be prejudiced. Prejudice might be caused, for example, if a third party suing for injuries suffered in a night club fire alleged that the insured owner of the premises failed to exercise due care in providing safe premises. The insurer might be seeking to repudiate cover on the basis that the owner had failed to disclose, when seeking insurance cover, that he had had three previous night clubs which had burnt down. Were the third party to know of the reason for the insurer denying cover, the insured's defence might be prejudiced. It is not unusual, however, for those defending civil actions to plead conflicting arguments and it is also possible that the court's power to determine the order in which issues are tried could be used to balance the interests of the parties and to achieve the fairest trial possible.
12.13	Allowing the liability of the insured and of the insurer to be resolved in the same proceedings may also avoid some of the problems faced by insurers who are concerned that the insured's defence will not be adequately argued in proceedings between the third party and the insured which are not conducted by the insurer. As we have seen, however, insurers may be concerned, in some cases, that if they defend proceedings brought by a third party against the insured, they will waive their right to claim that they are not liable under the insurance contract. In our view, insurers should not risk waiving their rights in this way.
Consultees' views are sought on our provisional conclusion that insurers conducting the defence of their insured under the Act should be able to do so without prejudice to their right to repudiate their liability to the insured under the insurance contract.
Should the third party proceed against both insurer and insured?
12.14	Having considered the advantages and disadvantages of the liability of the insurer and the insured being resolved in the same proceedings, we now consider whether the insured should be a party to those proceedings. We consider first whether there could be advantages for the third party, the insured or the insurer were the insured to be a party or whether the liability of the insured is an issue which could be resolved in proceedings between the third party and the insurer alone. Next, we consider whether current procedural rules would allow the insured to be joined to such proceedings in appropriate cases.
Advantages and disadvantages of the liability of insurer and insured being resolved in the same proceedings and of both insurer and insured being party to the third party's action
Evidence
12.15	Although in many cases there may be little information which the insured is willing or able to disclose, he may have some information relevant to the issue of liability to the third party. Whatever amendments are made to the rules on disclosure, parties will continue to have better rights against other parties than against non-parties.  There may, therefore, be evidential advantages for both the third party and the insurer if the insured is a party to the proceedings. 
Binding the insured 
12.16	In some cases, it may be in the interests of the third party, the insurer and the insured that the insured is a party to the third party's action and can take part in the proceedings and be bound by the court's judgment. A third party who does not recover the totality of his claim from the insurer has a right of recourse against the insured under the Act and could seek that remedy in the same proceedings. We suggest below that, should an insurer be deprived of certain contractual rights against the third party which he would have had against the insured, he might be able to seek an indemnity from the insured. Were this to be the case, it may also be in the interests of the insurer for the insured to be a party to the action.   
12.17	The insured himself may also have an interest in being a party to the action if any allegations or findings are made against him which might have implications beyond the immediate proceedings or if he may be entitled to claim from the insurer any sums in excess of those payable to the third party.
12.18	In many cases under the 1930 Act, however, the insured (or his insolvency practitioner) is likely to play little part in the proceedings. The insured will be the nominal defendant or defender but his interests will be represented by his insurer who will have the right to conduct the insured's defence under the insurance contract. Requiring the third party to proceed against the insured may involve all parties in unnecessary costs. 
12.19	We query, in particular, whether third parties should be required to restore a dissolved company to the register so that the company can be a party to proceedings under an amended Act.
12.20	Were a third party to have a right to proceed against the insurer alone, we suggest that the third party should be able to proceed against the insured as well and that a third party who had already started proceedings against the insured when he acquired rights under the Act might wish to join the insurer into those proceedings, rather than to apply for the insurer to be substituted in them.
12.21	We also suggest that the insurer should be able to apply to join the insured and that the insured should be able to intervene in the proceedings started by the third party. Before seeking consultees' views on whether the third party's right of action should be against the insurer alone or against the insurer and the insured, we consider briefly the procedural rules on joinder and substitution as they might apply to an amended Act.
Joinder and substitution
12.22	We discussed above the interests which the third party, the insured or the insurer may wish to safeguard by ensuring that the insured is a party to proceedings under the Act. To avoid multiplicity of proceedings, RSC Orders 15 and 16 give the court a discretion to order the joinder or substitution of parties. Among the criteria which the court will consider is whether joinder is necessary to ensure that "all matters in dispute may be effectually and completely determined and adjudicated upon." So, for example, if the insured had evidence relevant to the case which, in breach of the policy terms, he refused to hand to his insurer the latter might seek to join him to the proceedings.
12.23	The court would probably make an order for joinder if the third party or the insurer had a right of recourse against the insured in respect of payments he might be required to make to the third party or if the insured was entitled to any sums under the insurance contract which were not payable to the third party or would be adversely affected by a finding of liability against him. We suggest, however, that current procedural rules would not necessarily allow joinder in all the circumstances in which joinder might be sought under an amended Act. We seek consultees' views on whether an amended Act should provide expressly for the joinder of the insured were the third party not required by the Act to proceed against the insured as well as the insurer.
1.	We have reached the provisional conclusion that the insured and the insurer should be parties to the third party's action unless the insured is a dissolved company which has been struck off the Register of Companies, in which case the third party should have a right to proceed against the insurer alone. Do consultees agree?
Consultees' views are sought on the adequacy of existing procedures under sections 651 and 653 of the Companies Act 1985 and on whether and, if so, how the existing procedures should be simplified if, contrary to our provisional view, third parties continue to be required to restore a dissolved company to the register. 
2.	Alternatively, do consultees consider that a third party should have a right to proceed against the insurer alone:
(i)	in all cases;
(ii)	in other limited cases (for example, where insurance was compulsory).
3.	Do consultees agree with our provisional view that, if a third party had a right to proceed against the insurer alone, he should, if he chose, be able to proceed against the insured as well and, if he had already started proceedings against the insured, be able to join the insurer into those proceedings?
4.	If the insured was not a party to the proceedings brought by the third party, do consultees believe that the insurer should be able to join the insured into the proceedings and that the insured should be able to intervene in those proceedings? 
If so, do consultees consider that the existing rules on joinder and substitution are adequate or do they think that specific provision should be made in the amended Act?
The nature of a third party's rights under an amended act
12.24	As we have seen, the rights which are transferred to third parties under the current Act are the insured's "rights against the insurer under the contract in respect of the liability", which include the insured's right to an indemnity from the insurer. We consider here the nature of third party rights against insurers in other jurisdictions and consider what the nature of a third party's rights might be under an amended 1930 Act. 
Third party rights against insurers in other jurisdictions 
12.25	The nature of third party rights against insurers in other jurisdictions varies. Third parties may have a right to enforce their rights against the insured directly against the insurer or to enforce a charge over the insurance proceeds. In some jurisdictions, rights are treated as procedural; in others as substantive. Third parties may be required to proceed against both insurer and insured or may be able to proceed against the insurer alone. Whatever the nature of the third party rights are said to be, the insurer is usually able to rely on some, if not all, of the defences which he would have had against the insured, although the insurer's ability to rely on defences varies greatly.
12.26	In some jurisdictions, a third party's right to proceed against both insurer and insured has evolved through case law and has been justified by the court on the basis that the right of action is merely a procedural innovation. In Florida, for example, it has been said of a reform of the law to enable third parties to join insurers into their proceedings against the insured where previously they were not entitled to do so, that it "did not effect a change in the substantive law of this state dealing with liability of insurers. It merely innovated a procedure which permits the joinder of an insurance carrier in a suit against the insured." Under this rule, the insurer may not, therefore, be sued alone, although the courts have the power to order separate trials which they may do to determine a dispute over cover. 
12.27	A third party's right to a declarator against the insurer under Scottish law is also seen as a procedural, rather than a substantive right. As we have seen, it is unclear whether the English court will allow third parties to join insurers into proceedings against the insured to obtain a declaration as to the liability of the insurer. 
12.28	Where legislation has been introduced providing third parties with rights of direct action against insurers, views have varied as to whether the rights enforceable by third parties are procedural or substantive in nature. Section 68 of the Nigerian Insurance Decree of 1997, which allows a third party to join the insurer to his action against the insured once he has given the insurer at least 30 days notice of the pending action and of his intention to bring the application, has been interpreted as providing third parties with a procedural right to enforce their existing substantive rights against insurers.
12.29	In South Africa, a third party has a statutory right to claim directly against the insurer of an insolvent insured and invariably proceeds against the insurer alone. His right is "to recover from the insurer the amount of the insured's liability" towards him. The insurer may rely on any defence which he would have had against the insured.  
12.30	In New Zealand and two states in Australia, third parties have a statutory right to enforce a charge over the insurance proceeds against the insurer, regardless of the solvency of the insured. The charge attaches "on the happening of the event giving rise to the claim for damages or compensation, and notwithstanding that the amount of such liability may not then have been determined." It is enforceable by the third party against the insurer "in the same way ... as if the action were an action to recover damages or compensation from the insured" but is subject to a leave requirement. The third party may join the insurer into proceedings against the insured or proceed against the insurer alone. 
12.31	Direct action schemes based on third parties enforcing the rights which they had against the insured directly against the insurer and those providing for the enforcement of a statutory charge over the insurance proceeds address the same problems in slightly different ways. Both types of scheme have raised questions as to the enforceability of defences against third parties. Where schemes impose a leave requirement, questions have been raised as to the nature of that requirement and as to its effect on limitation.
Third party rights under an amended 1930 Act
12.32	We have given our provisional view that the third party should acquire rights under an amended Act before he has established the liability of the insured and that his rights should accrue once two events have occurred: the incident giving rise to the liability of the insured and the happening of one of the insolvency events set out in the Act. Like the insured's own right, the third party's right to an indemnity would be subject to the liability of the insured being established and to policy terms being satisfied.
12.33	We suggest that the third party should also have a right to seek a declaration or declarator that, on the liability of the insured being established, the insurer will be liable to indemnify the third party. The aim of such an amendment would be to preserve the third party's existing rights under the Act, being those of the insured assigned to him,  and to ensure that that he also had an immediate right of action against the insurer on the happening of one of the insolvency events set out in the Act.
We have reached the provisional view that once two events have occurred: the event giving rise to the liability of the insured and one of the insolvency events set out in the Act, the third party should acquire the insured's rights under the insurance policy. The third party should in addition have a right to seek a declaration or declarator that, on the liability of the insured being established, the insurer will be liable to indemnify the third party.
Do consultees agree with this provisional view?  If not, what rights do they think third parties should acquire under an amended Act?
Should the third party's right of action against the insurer be subject to a leave requirement?
12.34	As we have seen, in some jurisdictions, a third party's right of action against an insurer is subject to a leave requirement. We now consider whether the third party's right to proceed against the insurer under an amended Act should be automatic or conditional on the third party obtaining leave from the court. We consider the advantages and disadvantages of a leave requirement, looking in particular at whether a leave requirement would prevent unnecessary actions by third parties or solve any of the problems which might stem from allowing third parties to proceed against insurers without having first established the liability of the insured. We also consider what the timing of any leave application should be, possible grounds for leave and leave procedures.
Advantages and disadvantages of a leave requirement
Is a leave requirement necessary to deter speculative actions by third parties whose case against the insured is weak or hopeless but who are pursuing the case because of the existence of insurance cover?
12.35	Insurers who conduct the defence of their insured are used to facing speculative claims and are usually well able to deal with them. The third party would still have to establish the merits of his claim that the insured was liable to him under an amended Act. Were there to be no leave requirement, the insured or the insurer could apply to strike out the claim on the ground that it disclosed no reasonable cause of action under English procedural rules. Such an application might be unlikely to succeed, however, as the court does not consider the factual merits of the case on such applications. The Draft Civil Procedure Rules might, however, allow the insured or the insurer to apply for summary judgment against the third party in such cases. 
Is a leave requirement necessary to deter proceedings by third parties in which the liability of the insurer and of the insured will be in issue when those proceedings are unlikely to succeed because of the insurer's ability to rely on cover points?
12.36	Under current procedural rules, if the court is persuaded that the factual dispute over cover is separate from that over the insured's liability, it can order the cover issue to be tried as a preliminary issue to avoid wasted costs being incurred on the liability issue.
Is a leave requirement necessary to prevent the insured's case being prejudiced and to protect the insurer from having to run conflicting cases? 
12.37	We have already given an example of the prejudice which an insurer might suffer were the liability of the insurer and of the insured to be resolved in the same proceedings. We suggested that it is not unusual for those defending civil actions to plead conflicting arguments and that the court could use its powers to determine the order in which issues are tried to balance the interests of the parties and to achieve the fairest trial possible.
Is a leave requirement necessary to provide the court with an opportunity to consider whether the insured should be a defendant or defender to the proceedings (where the insurer believes that its ability to conduct the insured's defence would otherwise be prejudiced)
12.38	Usually, the insurance contract will require the insured to provide information and assistance to the insurer. We understand from insurers, however, that it is likely to be easier to obtain the insured's co-operation if he is a party to the proceedings.  We have already given our provisional view that, for this and other reasons, the insured should normally be a party to any proceedings brought under the 1930 Act. Insurers may, in any case, be able to join the insured to proceedings brought by the third party and to obtain information from him under existing procedural rules.
Provisional conclusions on the advantages of a leave requirement
12.39	It is our provisional conclusion that a leave requirement would bring few, if any, of the possible advantages set out above. Inevitably, there would be duplication of the issues considered at the leave stage and at trial, which would involve the parties in additional cost and delay. In appropriate cases, preliminary issues could be dealt with by applications for striking out or summary judgment or, in Scotland, for summary decree. In Scotland, pursuers rarely have to seek leave from the court to bring an action and the courts are reluctant to evaluate the strength of a case without hearing the evidence. We believe that to allow third parties an automatic right of action against insurers on the happening of one of the insolvency situations set out in the Act would respect the original intention of those passing the Act.
12.40	Another option would be to require the third party to notify the insurer of his intention to proceed against it. In our view, the only reason for requiring notification to be given to the insurer would be if the insurer were to be given the opportunity to object. For the same reasons as we provisionally conclude that a third party's right of action under an amended Act should not be subject to a leave requirement, we suggest that a third party should not be required to give notice to the insurer of his intention to proceed under the Act.
We seek consultees' views on our provisional conclusion that a third party's right to proceed against insurers under the Act should not be subject to a leave requirement nor to a requirement that he notify the insurer of his intention to proceed against it.
When should leave be sought?
12.41	A leave requirement would be intended to deal, in part, with speculative actions. The court would need, therefore, to consider the merits of the third party's case and would need to have sufficient information to enable it to do this. Leave could be sought, for example, upon service of the third party's points of claim or following close of pleadings or, in Scotland, after closing the record.
Possible leave criteria
12.42	A variety of threshold tests are used as leave criteria in cases where the merits are to be considered at the leave stage. One option would be for the plaintiff or pursuer to establish that there is an issue or question in dispute which ought to be tried or, in other words, that there is a fairly arguable case. Points of law and the construction of documentary evidence would be considered at the leave stage but disputes over fact, unless they were obviously totally without merit, would be left until trial.
12.43	Another option, which would place a greater burden on the plaintiff or pursuer, would be to require him to prove that he had a realistic prospect of success. Were this criterion to be used, the court would be required to consider the merits of the case, including relevant available facts, at the leave stage.
The procedure for leave
12.44	One option would be for the leave application to be made ex parte. Although this might avoid some of the cost and delay of an inter partes application, the court might be ignorant of the case of the insured or the insurer if prior disclosure of any repudiation and of the grounds for repudiation had not been made. Even if some disclosure of the grounds had already been made, the underwriter might subsequently have acquired additional information which would be useful to the court. Our provisional view is, therefore, that any leave application should be inter partes and that the insured and/or the insurer should be able to make representations both on the merits of the third party's case against the insured and on any cover points.
If, contrary to our provisional conclusion, consultees consider that a third party's right of action under the Act should be subject to a leave requirement, their views are sought on:-
(i)  when the leave application should be made;
(ii)  what the leave criteria should be; and
(iii) whether the leave application should be made ex parte or inter partes and whether any other specific procedural requirements should apply.
Should a third party have a right to set aside settlements made between the insurer and the insured prior to the happening of one of the insolvency situations set out in the Act?
12.45	As we discussed above, section 3 of the Act prohibits agreements reached between the insurer and the insured after, but not before, the happening of one of the insolvency situations set out in the Act. It is possible that, in some cases, insured parties heading towards insolvency may be tempted to compromise their claims against insurers. We have suggested that officeholders may be reluctant to use their powers to set aside transactions at an undervalue and transactions defrauding creditors.
12.46	We have already set out our provisional conclusion that rights under the Act should not transfer to third parties until the happening of one of the insolvency events set out in the Act. We have also discussed the problems of defining rights by reference to an earlier period. Were section 3 to be amended to allow settlements reached before this point to be set aside, it might cause uncertainty to insurers and to their insured as to when they could settle claims.
12.47	An amended section 3 allowing third parties to apply to set aside such settlements would, we suggest, have to provide that they could do so only in respect of settlements reached within a certain period before the insolvency event. Before granting such an application, the court would need to consider the merits of the third party's case under the Act. It would need to consider the strength of the third party's claim against the insured as well as the likelihood of the insurer being liable to the third party under the insurance contract. 
We seek consultees' views on whether settlements reached between insurers and insured prior to the happening of one of the insolvency events set out in the Act cause problems to third party claimants under the Act and whether, in their view, the Act should be amended to allow third parties to apply to set aside such settlements. 
Were such an amendment to be made to the Act, within what period prior to the insolvency should settlements be vulnerable to setting aside?
Payment of the insurance proceeds by the insurer 
12.48	In some jurisdictions, legislation requires the insurer to pay the insurance proceeds direct to a third party claimant. We understand that this often happens in practice here or that the insurer will require a receipt from the recipient of the money. We also suspect that problems are less likely to arise here because, if he did not pay the third party, the insurer would pay the insolvency practitioner rather than the insolvent insured (who might be tempted not to pay it over to the third party). As the third party is in the position of the insured following the transfer of rights under the Act, the insurer should arguably pay him in any event. 
We seek consultees' views on whether or not a provision should be included in an amended Act requiring insurers expressly to pay insurance proceeds direct to the third party.
Should a third party have a right of direct action against the insurer of an insured party who has disappeared?
12.49	In Australia, legislation has been introduced providing third parties with rights of action against insurers in cases where the insured has died or cannot, after reasonable enquiry, be found. We are not aware of this causing problems in this country. A third party wishing to proceed against an insured who has disappeared may be able to obtain an order for substituted service or service by newspaper advertisement. Were third parties to have such a right under an amended Act, they would, we suggest, have to satisfy the court that they had made all reasonable efforts to find the insured.
We seek consultees' views on whether the 1930 Act should be extended to provide third parties with a right of action against the insurers of insured parties who have disappeared.
 
Part 13	Disclosure of Policy Information
13.	
13.1	In Part 12, we gave our provisional view that the third party should acquire rights against the insurer once two events have occurred: the incident giving rise to the liability of the insured and one of the insolvency events set out in the Act. In this Part, we suggest that the duty to disclose policy information should arise at the same point, or within a specified time afterwards. We consider what information should be discloseable under section 2 and give our provisional view that the duty to disclose should not vary according to the nature of the third party's claim. We ask who should have a duty to disclose and what the extent of that duty should be. We consider whether the duty should be extended to brokers and others authorised to hold policy information and, if so, what the extent of their duty should be. We suggest that the duty of the insured and of the insurer to disclose should arise simultaneously.
When should the duty to disclose policy information arise?
13.2	It appears, despite the interpretation given to the section by the court, that Parliament intended to lay down in section 2 a duty to disclose policy information before the third party starts proceedings against the insured. Pre-action disclosure of information is also in line with the "cards on the table" approach to litigation which has been taken in recent years and with recommendations in the Woolf Report.  
13.3	Concern has been voiced by insurers that information disclosed to a third party might be passed on to other potential claimants. Documents obtained in discovery may be used only for the proper purposes of conducting that case and an implied undertaking is made to the court not to use the information received for any collateral or ulterior purpose. Any misuse of the information may be restrained by injunction or punished as a contempt. Some insurance policies contain confidentiality clauses which prohibit the recipient of policy information from disclosing that information to others. Depending on the terms of such clauses and the circumstances in which they come into effect, they may be undermined by section 2(1) of the Act.
13.4	We have already given our provisional view that the right to proceed against the insurer should not be conditional on his first establishing the liability of the insured and should arise once two events have occurred: the incident giving rise to the liability of the insured and the happening of one of the insolvency situations set out in the Act. Were the Act to be amended in this way, third parties' rights to pre-action disclosure under the Act and under the general rules of procedure would be improved in any event as the insurer would be a party to the third party's proceedings at an earlier stage. We suggest that, whether or not the Act is amended in this way, the duty to disclose policy information should arise after those two events and should not be dependent on the third party establishing the liability of the insured. We take the view, however, that it would be preferable to postpone the duty to disclose until the disclosing party has had a reasonable period in which to consider what he should disclose and to locate and obtain relevant documentation and information. Once triggered, the duty to disclose should, we suggest, be continuous. This may be particularly important with regard to information on repudiation and the value of the insurance cover. 
Consultees' views are sought on our provisional conclusion that the obligation to disclose policy information should not be dependent on the establishment of the liability of the insured but that it should arise after the incident giving rise to the liability of the insured and after the event of insolvency and that disclosure should be given within 14 days of the disclosing party becoming aware that a third party has a possible claim under the Act.
Do consultees agree that disclosing parties should have a continuing duty to disclose information?
If consultees disagree, when do they consider the duty to disclose should arise?
Consultees' views are sought on whether a time period other than 14 days would be appropriate with regard to some or all of the categories discussed below.
Information discloseable under section 2
13.5	We have already referred to criticism of the vague wording of the definition in section 2. It should be noted that section 2, by contrast with the provisions as to documents, does not specifically list the types of information which may be of use to a third party and which we suggest below should be disclosed. To help us to ascertain the documentation and information to which third parties might be entitled under the Act and to consider whether all such documentation and information should be disclosed at the same time, it is helpful to list the main categories of information which could possibly be of use to a third party seeking to proceed under the 1930 Act:-
(i)	the existence of the insurance policy;
(ii)	the identity of the insurer;
(iii)	details of whether or not the insurer has repudiated cover;
(iv)	the grounds of repudiation (for example for non-disclosure or breach of warranty and details of the breach);
(v)	the terms of the insurance policy;
(vi)	the value of the insurance cover and details of whether or not some or all of the insurance fund has already been paid out to other claimants;
(vii)	details of any settlement between the insurer and the insured.
We have reached the provisional conclusion that the definition in section 2 of the categories of information to which the duty of disclosure extends should be clarified by a list in the Act.
Consultees' views are sought on this provisional conclusion.
The categories of policy information which should be disclosed 
The existence of the insurance policy and the identity of the insurer 
13.6	Unless he has information about whether or not the defendant or defender is insured, the third party will not know whether or not he might have a remedy under the 1930 Act. If he does not know the identity of the insurer, he will not know from whom he can seek that remedy. In many cases, this information will already have been provided to the third party. In some cases, however, an officeholder may find it difficult to establish from the insured's records whether or not insurance cover is in place. 
The terms of the insurance policy 
13.7	As we have seen, third parties must have early disclosure of the terms of the insurance contract if they are to meet certain notice requirements and to assess whether any purported repudiation of cover by the insurer on the grounds of non-compliance by the insured is justified. Early disclosure of this information should discourage third parties from commencing proceedings if it is clear that the insurer is not liable to indemnify the insured under the insurance contract. Pre-action disclosure of the terms of insurance contracts may already be obtainable in Scotland.
Whether or not the insurer has repudiated cover
13.8	In some cases, the insurer will voluntarily inform the third party whether or not he has purported to repudiate cover as this may prevent the third party from pursuing an action against the insured which the insurer will defend. This information alone, without details of the grounds of repudiation, may be of limited use to the third party but should, in our view, also be made available: it too relates to the very existence of cover.
The grounds of repudiation (for example for non-disclosure or breach of warranty and details of the breach)
13.9	Knowledge of the grounds of any purported repudiation of cover by the insurer may be vital to the ability of the third party to challenge the insurer's defence and to pursue his claim under the Act. Disclosure of this information before the liability of the insured has been established may, however, prejudice the defence of the insured.
13.10	We need to consider whether an insurer would or should be able to apply to court for an order exempting him from having to disclose the grounds of repudiation in certain cases or requiring disclosure to be made to certain persons only. Procedural rules only allow parties to limit initial disclosure to the court or to their opponents' legal advisers in exceptional circumstances. In appropriate cases, however, the court may order any issue of fact or law to be tried as a preliminary issue and the disclosure issue could be dealt with in this way. The court may also order split trials.
Consultees' views are sought on whether the disclosing party should be able to apply to court for an order dispensing with their duty to disclose the grounds for a purported repudiation of cover by the insurer, in addition to any right which they may have to apply for a split trial or for the resolution of the cover point as a preliminary issue. 
The value of the insurance cover and details of whether or not some or all of the insurance fund has already been paid out to other claimants
13.11	In English and Scottish law, those defending civil proceedings have no duty to disclose their financial assets, including any insurance policies which they may have. It is argued that such disclosure might encourage litigation. Some commentators suggest that information relating to the value of any insurance cover held by an insolvent insured should be treated differently as the insurance relates to the particular liability of the insured to the third party and is likely to be the insolvent insured's only valuable asset.
13.12	In many cases, third parties proceeding under the 1930 Act may assume that the insured has adequate insurance and proceed with their claims anyway. This may lead to all parties incurring unnecessary costs and to fruitless actions being pursued through the courts. Were third parties to know at an early stage that the insurance fund was likely to be inadequate to meet their claim, they might not proceed with their actions. 
13.13	In Cox v Bankside, there was some judicial support for allowing disclosure of the value of insurance cover in cases involving the 1930 Act. The Court of Appeal held "with regret" that there was no duty to disclose details of insurance cover, but Saville LJ suggested that "in the circumstances of the Lloyd's litigation, there is much to be said for the view that the sooner the parties know where they stand as regards likely recoveries at the end of the road, the sooner and cheaper will be the resolution of this litigation, which can only be for the benefit of all".
We have reached the provisional conclusion that the following categories of policy documentation and information should be disclosed to third party claimants under the Act:-
(i)	the existence of any insurance contract;
(ii) 	the identity of the insurer;
(iii)	relevant policy documentation, including the cover terms;
(iv)	whether the insurer has purported to repudiate cover;
(v)	the grounds of any purported repudiation;
(vi)	the value of the insurance cover and details of whether or not some or all of the insurance fund has already been paid out to other claimants;
Do consultees agree that all these categories should be disclosed? If not, which are objectionable? Are there any other categories of documentation or information which should be disclosed?
Do consultees think that, in addition to any list of discloseable information set out in an amended Act, it should also contain a catch all provision requiring disclosure of "other relevant documents and information"?
Details of any settlement between the insurer and the insured
13.14	We discussed above the anti-avoidance provision in section 3 of the Act preventing the insurer and the insured from settling claims under the policy after one of the insolvency situations set out in the Act. We have also noted that section 3 does not affect settlements reached before that point. We have set out our provisional view that third parties should not acquire rights under the Act, including the right to challenge such settlements, until the happening of one of the insolvency situations set out in the Act.
We have reached the provisional conclusion that the duty to disclose should not extend to details of any settlement between the insured and the insurer before the occurrence of one of the insolvency situations. Do consultees agree with this provisional conclusion?
Should the extent of the duty of disclosure vary according to the nature of the third party or of his claim?
13.15	In Part 11, we discussed whether only certain types of claimant or claimants with a particular type of claim should be able to rely on the amended Act. We gave our provisional view that the scope of the Act should not be restricted in this way. All litigants have better rights to pre-action disclosure and to disclosure against non-parties in cases involving death or personal injury. As we have seen, Parliament has also placed a duty on employers to exhibit certificates of insurance at their place of business. In line with our provisional view that the scope of the Act should not be restricted to particular types of claim or claimant, we also take the provisional view that the duty of disclosure should not vary according to the nature of the third party's claim. 
Do consultees agree that the duty to disclose under an amended Act should not vary according to the nature of the third party's claim?
Who should have a duty of disclosure and what should the scope of the duty be?
Should the duty of the insured and of the insurer to disclose policy information be simultaneous? 
13.16	As we have seen, the insurer's duty to disclose policy information under section 2(2) only arises if the third party has already obtained disclosure under section 2(1) of information which "discloses reasonable ground for supposing" that rights against the insurer "have or may have been transferred" to the third party. As we have said, the insured and the officeholder may be unable or reluctant to meet their duty of disclosure or may delay doing so.
13.17	It may be important for the third party to acquire information from the insurer as quickly as possible. The insurer may be in a better position to provide the relevant information, particularly as he will probably be investigating the insured's rights under the policy himself and deciding whether or not to conduct the insured's defence. Our provisional view is that the duties of the insured and of the insurer to disclose policy information under the Act should arise at the same time. Third parties should be not be able to insist, however, that identical disclosure is made by all parties as this would lead to duplication and unnecessary costs.
Do consultees agree that the duties of the insured and of the insurer should arise simultaneously?
Should an officeholder's duty of disclosure be as onerous as that of the insurer?
13.18	Consideration needs to be given to whether the duty to disclose policy information under the Act should be as onerous for officeholders as for insurers under the Act. The affairs of a bankrupt or wound up insured may be in disarray and it may be very difficult, time consuming and costly for an officeholder to conduct a search for policy documentation. Insolvency practitioners may be reluctant to incur costs which will be deducted from the insured's general assets, to the detriment of all his creditors. Receivers appointed by those with security over particular assets held by the insured may be particularly reluctant to undertake such an exercise.
With regard to each of the categories of information set out above, consultees' views are sought on what the extent of the officeholder's duty to disclose should be. For example, should his duty:-
(i)	apply only to information which is reasonably ascertainable from records to which he is entitled; and/or
(ii)	be limited 
(a) to third parties who seek disclosure from him; or
(b) to third parties who seek such disclosure and whose claims he is aware may be covered by insurance.  
Should others holding policy information have a duty of disclosure and what should the extent of that duty be?
13.19	As we have seen, the duty to disclose policy information is only expressly stated to apply to the insurer, the insured and officeholders. It does not extend to insurance brokers or others authorised to hold policy information, such as managers of pools set up by a number of insurers or travel agents who have arranged insurance cover for their customers. In many instances, such persons may be the best able to identify the policy governing a particular claim. In most cases, however, either the insured or the insurer will be entitled to obtain the information held by such parties and may therefore be able to disclose it. Where there are potential claims against the insured, the insured or the officeholder and the insurer may already have obtained such information to enable them to investigate the claim and possible defences to it.
13.20	Consideration needs to be given to whether there would be advantages to persons other than the insured, the officeholder and the insurer having an express duty to provide information under the Act and to what information they should be required to disclose. Consultees may consider that the involvement of such persons may be unnecessary, particularly if third parties can usually obtain the information from the insured, the officeholder or the insurer.
Consultees' views are sought on the extent to which the position of third parties would be improved were a duty of disclosure under the Act to extend to all those in possession of insurance information or documentation and on whether the duty of disclosure should be extended in this way. 
If such persons were to have a duty of disclosure, should it be limited? For example, should it be limited to information as to the identity of the insurer or to information which is reasonably ascertainable from the records maintained by such persons? 
Do consultees consider that the duty of disclosure should be extended only  to insurance brokers?

Part 14	Defences 
14.	
14.1	In Part 5 we considered the ability of insurers to rely, as against third parties, on defences which they would have had against the insured under the insurance contract and at the problems which this has caused to third parties. In this Part, we consider whether the ability of insurers to rely on certain breaches against third parties should be restricted and, if so, what form any restrictions should take. We appreciate that the issue of the ability of insurers to rely on defences is a wide one, with implications far beyond the 1930 Act. The ability of insurers to rely on defences of non-disclosure and breach of warranty was discussed in a Law Commission report in 1980. We concentrate here on whether the particular problems faced by third party claimants under the Act would justify restricting the ability of insurers to rely on defences against them.
14.2	First, we consider briefly again the position of third party claimants under the 1930 Act. Secondly, we list possible bases for limiting the ability of insurers to rely on defences and consider when limitations might arise. Thirdly, we consider whether, were insurers to be prevented from relying on certain defences, they should have a right of recourse against the insured's assets to recover any sums which they have paid to third parties because of their inability to rely on those defences. We set out a number of tentative suggestions on which we seek consultees' views.
The position of third party claimants under the 1930 Act 
14.3	The transfer of the insured's rights against the insurer to the third party under the Act was intended to place the third party in the position of the insured. As we have seen, however, the effect of the Act has been somewhat different. Third parties may be unable to meet policy conditions which could be met by the insured because the nature of those conditions is such that they can only be met by the insured or because the insurer is able to insist on performance by the insured himself. The insured's failure to satisfy such conditions then prevents the third party recovering under the Act. This has been the case with conditions requiring the insured to co-operate and provide assistance to the insurer and those requiring the insured to pay the third party before seeking an indemnity from the insurer. Our provisional view is that the law should permit third parties to satisfy certain policy conditions, such as notice requirements.
14.4	Without access to policy information, third parties may not know of the existence or scope of even those policy conditions which they might be able themselves to fulfil. Implementation of our provisional recommendations on earlier rights of action and duties of disclosure would itself improve the position of third parties.
14.5	The inclusion in the Act of specific notice and anti-avoidance provisions shows that its draftsmen recognised that third party claimants would need certain additional rights to those transferred to them from the insured.
14.6	We suggest that some restrictions should be placed on the ability of insurers to rely on breaches of conditions. As we have already noted above, the likelihood of such breaches occurring may increase in the period running up to the insolvency of the insured when the insured may be technically insolvent. At that point, rights cannot transfer under the Act because the insured has not yet been declared bankrupt or wound up. Among the issues we discuss below is whether the ability of insurers to rely on such breaches should depend on the consequences of the breaches. 
Consultees' views are sought on our provisional view that:
(i)	restrictions should be placed on the ability of insurers to rely on certain defences against third parties because of the particular problems faced by third party claimants under the 1930 Act which are not faced by the insured;  and
(ii)	insurers should not be permitted to insist that policy conditions are met by the insured personally where the third party can meet them.
What bases could be used to limit the ability of insurers to rely on defences?
14.7	As we have seen, there are already a number of statutory and non-statutory restrictions on the ability of insurers to rely on defences. The Road Traffic Act 1988 and the Employers' Liability (Compulsory Insurance) General Regulations 1971 prohibit certain types of policy condition. Other restrictions have been voluntarily undertaken by insurers themselves, through compliance with industry Statements of Practice. Most but not all insurers abide by these restrictions and there are concerns that, as the single market develops, insurance may increasingly be provided by insurers outside the United Kingdom who are not bound by them. 
14.8	We consider below whether these or other types of restriction introduced in this country and in other jurisdictions should be used as possible bases for limiting the ability of insurers to rely on defences against third party claimants under the 1930 Act. We consider whether insurers should be prevented from relying on defences where the relevant risk is covered by compulsory insurance or where the third party's claim is of a particular type. We discuss whether there should be a ban on insurers relying on certain defences after a certain point in timeor whether the consequences of a breach of duty or policy term should determine the ability of the insurer to rely on the breach. 
14.9	We set out below a number of defences commonly relied on by insurers and suggest that particular considerations may determine whether such general restrictions should apply to them. We suggest, for example, that insurers should not be prevented from relying against third party claimants on defences of non-disclosure or misrepresentation as, in most cases, such defences are likely to relate to the insured's general right to cover rather than to his right to an indemnity in respect of his liability to the third party. We seek consultees' views on whether a number of specific restrictions should apply to limit the ability of insurers to rely on such defences.
We seek consultees' views on whether any of the following or other restrictions should be used individually or cumulatively to limit the ability of insurers to rely on defences against third party claimants under an amended Act.
Restrictions which apply when the insurance cover is compulsory 
14.10	In Part 11, we considered arguments for restricting the scope of the Act to risks covered by compulsory insurance. We suggested that such a restriction would have the advantage of providing additional rights only to third parties who had suffered as a result of activities which Parliament had decided should be covered by compulsory insurance. Our provisional view was, however, that the Act should continue to apply to all liability insurance policies. 
14.11	Limiting insurers' rights to rely on defences against third parties to cases where insurance is compulsory could cause confusion as some statutory schemes of compulsory insurance already prevent insurers from relying, as against third parties, on certain policy conditions. To avoid such confusion, a list of compulsory insurance schemes, to which the restrictive provisions in the amended Act applied, could be included in a schedule to the amended Act.
14.12	Were insurers' rights to rely on defences to be restricted to cases where the risk insured was covered by compulsory insurance, consideration would also need to be given to the type of restriction which should apply. One option would be to put a blanket ban on insurers relying on all defences against third parties in such cases. Alternatively, the restriction on the ability of insurers to rely on defences in such cases could be combined with one or more of the restrictions set out below.
Do consultees consider that restrictions should be placed on the ability of insurers to rely on defences against third party claimants under an amended Act only when insurance is compulsory? If so, what restrictions do they think should apply and what should those restrictions be?
Restrictions which apply when the third party's claim is of a particular type
14.13	In Part 11, we also sought consultees' views on whether the Act should only apply when a third party's claim was of a particular type. We discussed, for example, whether the Act should only apply when the third party's claim related to death or personal injury, was in tort or delict rather than contract or was a consumer claim. Restrictions have already been placed on the enforcement of contractual rights against consumers by the Unfair Terms in Consumer Contracts Regulations 1994.
14.14	We gave our provisional view that the applicability of the Act should not depend on the nature of the third party's claim. We now seek consultees' views on whether the same approach should be taken to restrictions on the ability of insurers to rely on defences against third parties.
Do consultees consider that restrictions should be placed on the ability of insurers to rely on defences where the third party's claim is of a particular type? If so, to what types of claim should the restrictions apply and what should those restrictions be?
 Restrictions which apply after a certain point in time. 
14.15	As we have seen, provisions in the Road Traffic Act 1988 and the Employers' Liability (Compulsory Insurance) General Regulations 1971 prevent insurers from relying on certain breaches of condition which occur after the date of the incident giving rise to the liability of the insured. Employees bringing actions under the 1930 Act are already able to rely on these provisions.
14.16	We have already set out our preliminary view that third parties should acquire rights under the Act once two events have occurred, the incident giving rise to the liability of the insured and one of the insolvency events set out in the Act. We need now to consider whether, if this approach is taken, it is justifiable to restrict the contractual rights of insurers in relation to third party claims before third parties have acquired rights to proceed against them. 
14.17	As we have already discussed, many policy conditions are as likely, or more likely, to be breached before the happening of one of the insolvency situations listed in the Act. Restricting the ability of insurers to rely on those breaches which occur after that point might be of limited benefit to third parties who, in most cases, will not be in a position themselves to ensure that policy conditions are met.
14.18	Another consideration is that restricting the ability of insurers to rely on defences after a certain point in time provides no incentive for the insured, officeholder or third parties to comply with policy conditions. This may be the position even if such conditions could still be met and if the consequences of any breach are grave for the insurer.
Do consultees consider that the ability of insurers to rely on defences should be restricted by reference to the timing of the breaches on which those defences are based? If so, what should be the point in time after which breaches could not give rise to insurers' defences?
Restrictions which depend on the consequences of the breach of duty or of policy terms
14.19	The issue of whether or not insurers should be permitted to rely on breaches which have not caused them prejudice is controversial and has been the subject of much debate. Recommendations for general reform of the law in this area have not been implemented although the legal position is often tempered by insurance practice. In this paper, we consider this issue only insofar as it relates to claims by third parties under the 1930 Act.
Safeguarding the interests of the insurer
14.20	We recognise that many policy conditions may be vital to the protection of the insurer. For example, those relating to notice, to the provision of information and assistance and those requiring the insured not to admit liability may be crucial to the ability of the insurer to investigate claims and to conduct the insured's defence. Those requiring the insured to abide by relevant health and safety regulations or to maintain minimum security arrangements may be key to limiting the risk to which the insurer agreed to expose himself on providing insurance cover. 
The consequences of breach
14.21	A number of criteria have been used in other contexts in this country and in other jurisdictions to determine whether or not insurers should be entitled to rely on breaches of policy conditions.
14.22	An insurer may not be able to rely, for example, on a breach, unless it is causally related to the claimant's loss. The ABI Statement of General Insurance Practice provides that insurers should not rely on breaches of warranty or condition where "the circumstances of the loss are unconnected with the breach". 
14.23	The Insurance Ombudsman has sought to apply what is known as the principle of proportionality to determine whether a breach was sufficiently causative of the loss to justify the insurer making a total rather than a partial denial of cover. In 1996, the Ombudsman commented as follows on the need to strike a balance between the interests of insurer and of insured:
'Splitting it down the middle' works well in some insurance disputes, but I have to ensure that it does not become a cop-out from making a difficult decision in others ...  Something less than all will be quite unfair if the policyholder is entitled to his claim in full, or if the insurer has reasonable grounds for declining to make any payment whatsoever. Adopting a proportionate solution must involve no less an exercise of judgment than deciding one way or the other.
14.24	Assessing the degree of prejudice suffered by the insurer as a result of a breach may be difficult. Tests may be difficult to define and to apply to the facts of a particular case. As we saw in our review of cases involving breaches of notice requirements, the English court has adopted a strict approach to such breaches, allowing insurers to rely on them even if they have suffered little or no prejudice. In some states in the USA, the insurer seeking to rely on certain policy breaches must prove significant prejudice.
14.25	In Australia, the Insurance Contracts Act prevents insurers from relying on a breach which is not capable of causing or contributing to the loss (of the insured) but they can reduce their liability proportionately to the prejudice which they were caused by that breach. This approach avoids the "all or nothing" approach to prejudice which entitles the insurer to repudiate cover if it can show a certain degree of prejudice. This approach appears to us to be fairer, although it might involve each side in expense as each seeks to prove its loss and to challenge the other's. It may be difficult in some cases to put a financial value on the prejudice caused to the insurer. The proportionality and causal connection tests contained in the Australian legislation have caused a degree of uncertainty and have been "the subject of much judicial consideration." We have reached the tentative conclusion that if restrictions are to be placed on the ability of insurers to rely on defences, those restrictions should depend on the consequences of breaches of duty and/or of policy terms and that insurers should not be able to rely on breaches which are neither connected to the third party's loss nor prejudicial to them. 
Do consultees consider that, if restrictions are to be placed on insurers' ability to rely on defences, those restrictions should depend on the consequences of the breach of duty and/or of policy terms? If so, do they agree with our tenative view that insurers should not be able to rely, as against third parties, on breaches unless they are both causative of the third party's loss and prejudicial to the insurer?
14.26	We have reached the provisional conclusion that if such restrictions were to be imposed, insurers should only be able to make deductions from the indemnity paid to third parties under the insurance policy proportionate to the extent that the breach was causative of the loss or to any prejudice to their interests. We recognise that, in some cases, the deductions might reduce the amount recoverable to nil.
Do consultees agree that, if such restrictions were to be imposed, insurers should only be entitled to reduce the indemnity proportionally to the extent that the breach was causative of the loss or to any prejudice to their interests?
14.27	Consideration needs to be given to whether the third party or the insurer should have the burden of proving the connection with the third party's loss and with any prejudice suffered by the insurer. In our view, the third party should have the burden of proving the former and the insurer the latter.
Do consultees agree that, if such restrictions were to be imposed, the burden of proof for establishing that there was no connection between the breach and the loss should be on the third party but that the burden of proof for establishing the prejudice suffered by the insurer should be on the insurer?
Restrictions on insurers relying on certain types of defence or on breaches of certain policy terms
14.28	The restrictions set out above could be applied generally to all types of policy defence. Following on from our analysis in Part 5 of defences commonly relied on by insurers, we now consider whether particular defences should be subject to specific restrictions. 
We seek consultees' views on whether the restrictions set out above or other restrictions should be applied to prevent insurers from relying on each of the following types of defence.
We also seek consultees' views on whether the specific restrictions set out below should apply to them and on whether other specific restrictions should apply to any other types of policy condition to which we have not referred. 
Non-disclosure and misrepresentation
14.29	In most cases, defences based on non-disclosure and misrepresentation are likely to relate to the insured's general right to cover rather than to his right to an indemnity in respect of his liability to the third party. There have been a number of calls for a general review of the law in this area and we do not think it appropriate to consider a narrow reform affecting only the 1930 Act.
Do consultees agree that it would be inappropriate to enact new law in the context of the 1930 Act alone restricting the ability of insurers to rely on non-disclosure and misrepresentation?
Notice requirements
14.30	It is our provisional view that insurers should not be permitted to defend a claim by a third party solely on the ground that a notice requirement has not been met by the insured where the third party can meet it. Where neither the insured nor the third party has complied with such a requirement then insurers should not be able to rely on that breach unless it has prejudiced them and caused them loss. Some degree of prejudice may be caused to insurers by any delay in their ability to investigate the case against the insured. The ABI Statement of General Practice provides that insurers should not rely on notice provisions, providing that notice is given "as soon as reasonably possible". 
14.31	If restrictions are placed on the ability of insurers to rely on breaches of notice requirements, consideration needs to be given to whether those restrictions should extend to insurers under claims made policies. A failure to give notice within the prescribed time may mean that notification is not made within the policy's claim period. It could be argued, however, that to make insurers liable to third parties under claims made policies in respect of claims made outside the claims period would undermine the basis of the insurance cover, not merely their ability to rely on specific policy conditions.
We seek consultees' views on whether insurers should be prevented from relying on breaches of notice requirements in claims made policies where late notification would bring the claim outside the claims period.
Arbitration clauses
14.32	Particular procedural considerations apply to arbitration clauses. As we have seen, third parties, as well as the insured whose rights they acquire under the Act, are bound by arbitration clauses in the insurance contract. This is so even if they cannot afford the expense of arbitration proceedings, for which they will not be entitled to legal aid. As we have seen, there is judicial support for amending the Act to prevent insurers from enforcing arbitration clauses in such cases. 
14.33	Some commercial insurers see arbitration clauses as vital to the cover which they provide. One of the main aims of the Arbitration Act 1996, which applies to England and Wales, was to ensure that, where parties had chosen to include an arbitration clause in the contract between them, they should be bound by that agreement. This is also an established principle of Scottish law.
14.34	We need to consider whether the enforcement of arbitration clauses by insurers against third parties is a problem in practice. We have already noted that, following proposals by the ABI in the 1950s, most insurers do not enforce arbitration clauses against consumer claimants. It is possible that such clauses may also be challenged under the Unfair Terms in Consumer Contracts Regulations. 
14.35	Following amendment to the 1996 Act, it appears that the court's discretion to grant a stay of legal proceedings will be removed, unless the arbitration agreement is null and void, inoperative or incapable of being performed. It appears, therefore, that allowing the court a discretion to refuse to grant a stay of legal proceedings brought by third party claimants under the Act where such a clause exists is no longer available. Instead, any reform of the 1930 Act would have to make arbitration clauses null and void against third party claimants under the Act. Consultees may consider that such a reform would be contrary to the general philosophy of the Arbitration Act and would not be justified, given that, in many cases, arbitration clauses may not be enforced against third party claimants.
We seek consultees' views on the extent to which insurers' reliance on arbitration clauses causes problems to third party claimants under the Act.
Consultees' views are also sought on whether arbitration clauses in insurance contracts should be unenforceable against third party claimants or certain types of claimant under the Act. 
Duty to co-operate and provide assistance
14.36	As such conditions and similar conditions such as those requiring the insured not to admit liability to claimants or to provide them with any assistance may be vital to the insurer's ability to conduct the insured's defence, it may be easy in most cases for the insurer to show that he has suffered prejudice as a result of a breach. In other cases, there may be no link between the breach and the loss suffered.
Conditions relating to the duty of the insured to preserve the assets/business insured (for example to maintain security)
14.37	Again, the breach may or may not be connected to the loss and the insurer may or may not be able to show that the breach caused him prejudice.
Conditions relating to the ability of the insured to pay
14.38	The conditions in insurance contracts relating to the insured's duty to pay are fundamental to the insurer's agreement to provide insurance cover. Third parties may be dismayed to find the amount of any sum they recover under the 1930 Act reduced because of a condition in the insurance contract setting out an "excess" to be paid by the insured in respect of each claim. However, this is a consequence of their acquiring the rights of the insured under the Act.
14.39	Whereas it is reasonable for the third party's claim to be subject to payment conditions which relate to that particular claim, it may not reasonable for the claim also to be subject to conditions which affect the general relationship between the insurer and the insured. For example, a condition allowing the insurer to deduct unpaid premiums from sums recovered would relate to all potential claims, not to the specific claim brought by the third party. In Murray v Legal and General Assurance Society Ltd, it was suggested, however, that insurers might be able to rely on terms allowing them to deduct unpaid premiums from individual claims if such terms were expressed to be conditions precedent.As we have already suggested, the payment of premiums is fundamental to the insurer's agreement to provide cover.
We seek consultees' views on whether insurers should be permitted to deduct unpaid premiums from amounts recovered by a third party under the Act.
14.40	As we have seen, the validity of pay first clauses, requiring the insured to have paid the third party's claim before being entitled to an indemnity from the insurance, was upheld by the House of Lords in The Fanti. Such clauses will, therefore, bar recovery by third parties under the Act. The House of Lords stressed the commercial reasons for the use of such clauses and appeared to take comfort from the practice of most Clubs not to rely on such clauses against third parties bringing claims for death or personal injury.
14.41	It has been questioned whether there continues to be a commercial justification for the use of such clauses and whether voluntary practices are adequate protection for third parties. Because of the particular nature of the cover provided by Clubs, we have not, however, formed a provisional conclusion on the use of such clauses.
We seek consultees' views on whether insurers should be permitted to rely, as against third party claimants under the Act, on pay to be paid clauses.
An insurer's right to an indemnity from the insured
14.42	If the insurer is prevented from relying, as against third parties, on certain defences which he could have invoked against the insured, he should have a right of recourse against the insured's assets to recover any sums which he has paid to the third party because of his inability to rely on those defences.  We suspect that, in most cases, insurers are unlikely to wish to proceed against an insolvent insured as they are unlikely to recover much from him. However, where they wish to do so, it appears to us that insurers should be entitled to an indemnity from the insured to compensate the insurer for the loss of a benefit to which the insurer was entitled under the insurance contract. The insurer would have a provable claim in the insured's insolvency.
Do consultees agree that any right to an indemnity which insurers might have against the insured in cases where they have been prevented by the Act from relying, against third parties, on defences which they could have invoked against the insured is unlikely to be of much practical assistance to insurers in most cases? 
Do consultees consider that such a right should be included in an amended Act in any event?

Part 15	The Distribution of a Limited Insurance Fund to Multiple Claimants
15.	
15.1	In Part 7 we considered the implications of the Court of Appeal's decision in Cox v Bankside that, where there are multiple claimants against a limited insurance fund, the fund should be distributed to those who establish their claims first rather than rateably to all claimants. Some commentators who have claimed that this "first past the post" system leads to the unequal treatment of third party claimants have suggested that it should be replaced by a statutory scheme of rateable distribution. Others have suggested that the introduction of such a scheme is not justifiable as problems such as those which arose in Cox v Bankside arise very rarely.  The problem of the distribution of a limited insurance fund to multiple claimants is not limited to cases involving the 1930 Act but we consider, in this Part, how such a scheme might operate.
Consultees are asked to inform us whether or not they have had experience of problems caused by the "first past the post" principle in the context of claims under the 1930 Act (other than in the Lloyd's litigation). 
Disclosure of prior settlements and judgments and of the level of remaining insurance cover
15.2	In most cases involving the 1930 Act, the insured's insurance cover will be adequate to meet all claims. If the cover is inadequate, this may be obvious from an early stage or only after one or more judgments have been obtained by third parties. As the law now stands, third parties can only guess if the remaining cover is adequate to cover their claims as the insurer has no duty to inform them of this. We have already given our provisional view that insurers should have a continuing duty to disclose the value of outstanding cover to third parties. This would improve the position of claimants under the existing law and protect their rights under any new statutory scheme.
Possible schemes under current law 
15.3	Before considering how a statutory scheme of rateable distribution, and variations on such a scheme, might operate, we consider briefly whether a scheme could be introduced based on the existing powers of the court to give simultaneous judgment in a number of cases or to consolidate actions. 
The court's power to give simultaneous judgment
15.4	We have already mentioned that the court is reluctant to exercise any existing power which it may have to give simultaneous judgments. A scheme based on an express court power to do so in cases under the 1930 Act might not be welcomed by the court and would not be workable in cases where the number of potential claimants was unknown.
A court imposed representative action or consolidation of actions 
15.5	Another option might be for third parties to be required to proceed by way of a representative action or to consolidate their actions. This would be inappropriate, however, where the third parties' claims arose out of different events, involved different allegations and were subject to different defences.  In England and Wales, third parties might choose to bring representative proceedings in any event in cases where group actions were appropriate (for example where the third parties were all victims of a disaster).
Do consultees consider that the court's existing powers are adequate to impose a scheme of rateable distribution on claimants under the Act? If not, do they consider that the court should be provided with additional procedural powers? What additional powers do they consider the court should have?
How might a statutory scheme of rateable distribution operate?
15.6	We consider that the only feasible statutory scheme would be one based on the administration of sums payable under the insurance policy by the court, a court appointed receiver or, possibly, by the insured's insolvency practitioner. We consider how such a scheme would be triggered, who could administer it, how it would be administered and what problems it might cause.
How would the scheme be triggered? 
15.7	The circumstances in which the insurance fund might be fed into the scheme might vary greatly. In some cases, it will be clear that third party claims exceed the available insurance cover and that the insurer is liable to pay under the policy. It might be appropriate for the insurer in such cases to be allowed to pay the entire insurance fund over to be administered under the statutory scheme. This would limit the insurer's exposure to legal costs and be of benefit to claimants as such costs are usually deductible from the sums recovered. 
15.8	Insurers and prior claimants would want to ensure that any payments made (following settlement or judgment) prior to the scheme being triggered were not open to challenge by subsequent claimants. In our view, the interests of insurers and prior claimants should be protected in this way and settlement encouraged but only if the insurer has a duty to disclose the fact that such settlements have been reached (or judgments obtained) to other third parties of whose claims he is aware and if those third parties had an opportunity to apply for any payments made or to be made by the insurer to be caught by the statutory scheme. One option might be that the insurer should not pay such sums over until a certain period after disclosure of this information had been given to other claimants, during which period they would have an opportunity to apply to court to trigger the statutory scheme.
15.9	Third parties would need to be able to trigger the scheme by making an application to court. Their application might be for an order requiring any sums due to a third party who had already obtained judgment or who was about to do so to be paid into a fund to be administered under the scheme or for a stay of execution pending the resolution of other claims. Provision would need to be made for subsequent amounts recovered to be paid into the same fund. The court would have to be satisfied that there was some basis for the third party's claim before making an order, the effect of which would be to deprive the third party who had obtained judgment of the immediate benefit of that judgment.
Who could administer the scheme?
15.10	Those who could administer a scheme of rateable distribution are the court, a court appointee or, possibly, the insured's insolvency practitioner. The insurance fund could be paid into court and payments made following applications for directions and interim payments. If the identity of claimants were known, it might be appropriate for the court to administer such schemes. Otherwise, the court could have the power to order that the scheme be administered by the insured's insolvency practitioner or, if he was not prepared to do so, by a receiver appointed by the court. In any statutory scheme, the court would probably be required to give directions as disputes would be likely to arise between third party claimants, for example, as to the value of their claims and their entitlement to interim payments. The balance of any unpaid claims would be unsecured claims in the insolvency proceedings.
15.11	Where an insolvency practitioner has already been appointed, there would be obvious advantages were the existing officer to administer the day to day management of any scheme of rateable distribution under the Act. The insolvency practitioner would be in a position to establish the existence and the value of third party claims against the insured and have the skills and experience necessary to organise a rateable distribution of the insurance fund. As we have already discussed, however, insolvency practitioners may have conflicting interests which might prevent them from undertaking such a role.
15.12	An insolvency practitioner could only be expected to undertake the administration of such a scheme if payment of his fees and costs (which might be substantial) could be guaranteed from the scheme. Whereas he is able to establish the value of the insured's assets in the main insolvency, he will not know how much, or indeed if any, sums payable under the insured's insurance policies will be recovered by third parties under the Act.
How would the scheme be administered?
15.13	As under the Insolvency Act 1986, there would need to be a statutory order of priority for the payment of monies to be distributed under the scheme. For example, the costs of administering the scheme would have to be deducted first. Were the scheme to be triggered following a successful action by one or more third parties, provision might also need to be made for the costs of those third parties to be met before the fund was distributed.
15.14	A statutory scheme modelled on the insolvency regime would treat all outstanding claims equally, so that they crystallised on the happening of one of the insolvency situations set out in the Act. Another option would be to provide for distribution to be made by reference to the order of the dates of the events giving rise to liability. Provision might also need to be made for interim payments to be made to claimants. The balance of any unpaid claims would be an unsecured claim in the insolvency proceedings.
15.15	As we have already discussed, another issue which would need to be dealt with by the scheme would be whether sums paid out by insurers to third parties before the scheme was triggered should be clawed back for distribution to all claimants under the scheme. We take the view that such payments should not be clawed back. However, in the case of payments made after the happening of one of the insolvency situations, third parties should have an opportunity to trigger the operation of the scheme.
The problems which a scheme of rateable distribution might cause
15.16	A number of problems might arise were a statutory scheme of rateable distribution to be introduced. First, the existence of potential claims would have to be established and provision made for the class of claimants to be closed. It may be difficult or impossible to ascertain possible long-tail claims. The value of each claimant's claim (and of his "share" in the fund) may be difficult to determine, particularly if the insured (and the insurer) had raised defences based, for example, on contributory negligence by the third party. Claimants may dispute values allotted to their claims and they, or the insolvency practitioner, may seek to have issues resolved by the court. Any proper resolution of the value of claims might involve a mini-trial of the issues which would have been raised had the third party proceeded with his case against the insurer.
15.17	Although the insured's insolvency practitioner will ascertain potential claims in the main insolvency, there are likely to be different class closing rules and dates for the third party scheme. A scheme involving the ascertaining and valuation of potential claims is likely to cause delay, both to distribution under the 1930 Act and under the main insolvency, as the insolvency practitioner will not be able to make full distribution until he knows if there are any outstanding claims under the 1930 Act which can be advanced against the insured.
Our provisional views 
15.18	We have not reached any provisional conclusions on whether the first past the post system should be replaced by a statutory scheme of rateable distribution. We appreciate that the current system leads to the unequal treatment of third parties but are concerned that a statutory scheme of distribution might lead to greater uncertainty and complexity.
(i)	Do consultees consider that a new statutory scheme of rateable distribution should be introduced
(ii)	If so, we should be grateful for their views on the following scheme and on any other scheme which they think should be introduced. 

We suggest that any new statutory scheme should work in the following way:-
(a)	the scheme would be triggered following an application to the court by a third party or by the insurer; 
(b)	the court should decide how the fund should be administered. Depending on the circumstances of the case, the court might order sums payable under the insurance contract to be paid into court, to a court appointee or, in appropriate cases, to the insured's insolvency practitioner;
(c)	the scheme would provide for the costs of the court, the court appointee or the insolvency practitioner to be deducted before any distribution was made to third party claimants. In appropriate cases, it would also provide for the costs of the third party triggering the scheme to be deducted prior to distribution. The scheme would provide for interim payments to be made and, if possible, for the value of outstanding claims to be assessed and appropriate "shares" in the fund determined, without further recourse to litigation. 

Part 16	Private International Law
16.	
16.1	In Part 8, we suggested that it is uncertain when the Act will apply to cases with a foreign element. We consider in this Part whether the Act should be amended to clarify the position and whether the jurisdiction of UK courts to hear claims under the Act should be widened.
Should the Act's provisions address private international law issues?
16.2	We suggest that cases raising questions as to the applicability of the Act may arise more frequently as cross border insurance increases. We also suggest that amending the Act so that its provisions addressed private international law issues would avoid disputes over the applicability of the Act and whether different rules should apply to different rights transferred under the Act.
Do consultees agree with our provisional conclusion that the private international law aspects of the Act should be clarified or do they think that such matters should be left to the court?
What criteria should determine the applicability of the Act?
16.3	We consider a number of criteria which could be used to determine the applicability of the Act to cases with a foreign element. Whatever criteria are used, the ability of a third party to rely on the Act will depend on both its applicability and on whether or not the court in which he is proceeding has jurisdiction over the insurer. We consider whether the fact that a UK court has jurisdiction over the insurer should itself be the criterion for the applicability of the Act or whether its applicability should depend on other factors.
The insured has been declared bankrupt or wound up in this country
16.4	The current focus of the 1930 Act is insolvency and we have given our provisional view that it should continue to be so. If this is the case, it would be consistent with the scheme of the Act to allow third parties to rely on it if the insured has been declared bankrupt or wound up within the jurisdiction. As we have seen, the power of the court in England and Wales to grant winding up and bankruptcy orders against foreign insureds is wide.
16.5	Were the applicability of the Act to depend on whether the insured had been declared bankrupt or wound up in the UK, the court might be more likely to decide that actions under it fell outside the Brussels Convention which does not apply to "bankruptcy, proceedings relating to the winding-up of insolvent companies or other legal persons, judicial arrangements, compositions and analogous proceedings." If so, third parties seeking to rely on the Act would have to show that the insurer could be served with a writ and made a defendant to proceedings before the English court under RSC Order 11, rule 1. In Scotland, a court cannot acquire jurisdiction by service of a writ abroad.
The insurance proceeds are payable in this country
16.6	The fact that insurance proceeds are payable in England may be an important factor in the court's decision to grant a bankruptcy or winding up petition against a foreign company which has no other assets in the jurisdiction. Staughton LJ suggested in The Irish Rowan that this fact might itself be sufficient for the Act to apply in a particular case. It is doubtful whether Scottish courts have a similar jurisdiction.
The courts have jurisdiction in respect of the tort or delict or breach of contract committed by the insured 
16.7	This approach has also been supported, on the basis that the third party's right of action under the Act is merely an extension of his main cause of action against the insured.
The law applicable to the insurance contract is English or Scottish law
16.8	This approach has been supported by a number of commentators, including Dicey and Morris. Staughton LJ in The Irish Rowan, suggested that there was "a substantial argument against the proper law of the contract being the connecting factor" as section 1(3) of the Act was designed to override the contract of the parties and the intention of Parliament could be frustrated "if it were open to the parties to a contract of insurance to exclude the operation of section 1 by choosing a foreign proper law ...". In our view, it is unlikely that the applicability of the 1930 Act to any future disputes with third parties will lead parties not to make English or Scottish law the law of the insurance contract as other factors are more likely to dictate their choice of law.
16.9	Whatever criteria are used to determine the applicability of the Act, it is necessary to consider whether the provisions of the Act should override the rights and obligations of the insurer, the insured and the third party under the law applicable to the insurance contract, if its provisions were different from those of the Act. 
16.10	We suggest that it would be inappropriate for the provisions of the 1930 Act to interfere with the provisions of the law applicable to the insurance contract. We see some justification, however, in the argument that once the insurer is liable to provide an indemnity, it should be irrelevant to him to whom the indemnity is payable. So that if the only difference between the Act's provisions and those of the law applicable to the insurance contract is that the Act gives the third party the right to sue the insurer then the Act should prevail. 
16.11	Some of our provisional recommendations might cause problems, however. For example, we have suggested that third parties should be allowed to meet certain policy conditions which had not been met by the insured and that insurers should be able to seek an indemnity from the insured if they are required to pay sums to a third party which they would not have been required to pay to the insured under the insurance contract. These rights may not be available in the law applicable to the insurance contract. 
16.12	Whether or not third parties proceeding before a UK court sought to argue that the 1930 Act or the law governing the insurance contract was the applicable law would depend on which law gave them greater rights. The 1930 Act and the governing law might each under its own provisions be applicable. 
16.13	Consultees may consider that the rights and obligations of the insurer, the insured and the third party under the law governing the insurance contract should not be overridden by the 1930 Act. If so, this might favour making the fact that the insurance contract is governed by English or Scottish law the criterion determining the applicability of the 1930 Act.
The insurer is subject to the jurisdiction of a UK court
16.14	We discussed in Part 8 the circumstances in which a UK court will have jurisdiction over claims against insurers, whether under the Brussels Convention or otherwise. We have already suggested that claims under the 1930 Act may be treated as falling outside the Brussels Convention, in which case third parties would need to seek leave to serve the insurer out of the jurisdiction under RSC Order 11, rule 1. 
16.15	As we have already discussed, problems might arise were the UK court to have jurisdiction but one or other of the parties to claim that the law of another jurisdiction was the applicable law governing the claim and that its provisions conflicted with those of the amended Act. UK courts apply foreign applicable law in appropriate cases and would have to decide whether the provisions of the 1930 Act or of the foreign law were applicable. 
16.16	Were the amenability of the insurer to the jurisdiction of a UK court to be the criterion for the applicability of the Act, the existing rights of third parties might be prejudiced in cases where the applicable law governing the insurance contract is English or Scottish law and where the third party seeks to rely on the Act before the courts of another jurisdiction.
Consultees' views are sought on whether one or more of the following criteria or any other criteria should be used to determine the applicability of the 1930 Act:-
(i)	the insured has been declared bankrupt or wound up in this country;
(ii)	the insurance proceeds are payable in this country;
(iii)	the law governing the insurance contract is English or Scottish law;
(iv)	the courts have jurisdiction in respect of the tort or delict or breach of contract committed by the insured;
(v)	the insured is subject to the jurisdiction of a UK court. 

Consultees' views are also sought on whether the provisions of an amended Act should always override conflicting provisions in the law applicable to the insurance contract. If not, when, if at all, should the applicable law be overridden?
Should the jurisdiction of UK courts to hear claims under the 1930 act be widened?
16.17	In Part 8, we discussed the circumstances in which a UK court would have jurisdiction, under the Brussels Convention or otherwise, to hear claims under the Act. Some of our reform options would enable a third party to proceed directly against the insurer or to join the insurer as a defendant to proceedings against the insured. Under the Brussels Convention,  the ability of a third party to proceed against the insurer in the UK might be improved were he to have such new rights because Article 10 of the Convention would give the UK court jurisdiction over the insurer if it had jurisdiction over the insured.
16.18	The provisions of RSC Order 11, rule 1(1) could be amended to provide expressly that third party claimants under the Act could bring proceedings against foreign insurers under an amended Act. There is no equivalent in Scotland to RSC Order 11 and we consider it would be anomalous to create such a ground of jurisdiction in Scotland merely for the purposes of the 1930 Act. 
We seek consultees' views on whether or not the provisions of RSC Order 11, rule 1(1) are broad enough to found jurisdiction in England and Wales for claims under the current 1930 Act and under an amended Act. If not, do consultees consider that express provision should be made so that third parties can proceed against insurers outside the jurisdiction, for the purposes of proceeding against them under the 1930 Act? 

Part 17	Limitation and Prescription
17.	
17.1	In this Part, we seek consultees' views on whether English and Scottish rules on limitation and prescription should provide for a third party's right of action under an amended Act to be governed by a fresh limitation period or for a new prescriptive period to govern the insurer's obligation. We also seek consultees' views on whether a third party should be able to substitute himself in English arbitration or court proceedings started by the insured against the insurer. Finally, we consider whether amendments should be made to the limitation provisions contained in section 651 of the Companies Act 1985 governing applications to restore dissolved companies to the Register of Companies.
17.2	We look first at English law. The Law Commission is currently conducting a comprehensive review of the law on limitation periods in England and Wales and a consultation paper will be published shortly. We have not, therefore, dealt with wider limitation issues, which will be covered by that paper. 
Should a fresh limitation period govern the actions of third parties under the Act under English law?
17.3	One view is that an insurer's duty to the insured is contractual and that the limitation period governing actions against him should not vary according to whether or not the insured is solvent. The limitation period governing all claims under the insurance contract should be that applicable to the insured's right of action as it is unfair for insurers to face potentially very lengthy extensions to the limitation period.  In many cases, third parties will know of the existence of their claim and may be negotiating it with the insured or the insurer before the insured has been declared bankrupt or wound up.
17.4	Another view is that the relationships between insurer, insured and third parties are fundamentally altered by the Act and that it is unreasonable that a third party's right of action against the insurer should be governed by the same limitation period applicable to that of the insured, which may start to run before the third party's right of action has accrued. In most cases, the third party will be able to take steps to ensure that proceedings against the insured are brought within the existing limitation period, by starting bankruptcy or winding up proceedings against the insured, but this may not always be the case. Although the third party's rights against the insurer are those of the insured assigned to him under section 1 of the Act, the Act gives him a separate right of action which should arguably be governed by a fresh limitation period.
17.5	A third party claimant under the current Act cannot proceed against the insurer until he has established the liability of the insured and the insured has been declared bankrupt or wound up. We have provisionally recommended that rights should transfer to the third party once two events have occurred: the incident giving rise to the liability of the insured and one of the insolvency events set out in the Act and that after those events the third party should be able to sue the insurer for a declaration. We have also suggested amendments to the 1930 Act which would allow third parties to proceed against the insurer, alone or jointly with the insured. 
17.6	We have also provisionally recommended that a third party's right of action should not be subject to a leave requirement. Were a contrary view to be taken, consideration would need to be given to whether the limitation period governing the third party's right of action should not begin to run until leave had been granted.
We seek consultees' views on whether a third party's right of action under the Act should be treated as a new cause of action under English law and governed by a fresh limitation period, or whether it should be governed by the limitation period applicable to the insured's right of action against the insurer.
Were the third party's right of action to be governed by a fresh limitation period and to be subject to a leave requirement, do consultees think that the limitation period should only start to run when leave has been granted?

Should third parties be able to substitute themselves in court or arbitration proceedings begun by the insured?
17.7	As we have seen, there is judicial and other support for allowing third parties to substitute themselves in proceedings started by the insured against the insurer within the limitation period governing his right of action against the insurer. We agree with this view. Were a new limitation period to govern a third party's right of action under the Act, there would be less need for substitution; the main purpose of substitution would be to avoid the wasted costs and delay of fresh proceedings. 
17.8	Were third parties to be entitled to be substituted in such proceedings, consideration would need to be given to some of the practical problems which Phillips J, in The Felicie, suggested might result.
Costs
17.9	Were the third party to be substituted for the insured, should the third party assume responsibility for those costs or should they fall to be met out of the general assets of the insured?  Should the third party be liable for costs already incurred relating to his own claim and, if so, how can such costs be apportioned? There might be problems from other creditors were the trustee in bankruptcy or liquidator to be expected to pay such sums out of the insured's general assets. An insolvent insured's legal advisers might wish to come to some arrangement with the third party for payment of outstanding fees before doing further work. 
17.10	In The Jordan Nicolov, Hobhouse J suggested that such problems should not arise on a legal assignment as this "does not relieve the assignor of his liabilities" but recognised that there might be different considerations where the 1930 Act was concerned. One view is that it is not unreasonable for assets of the insolvent insured to be used to pay costs incurred up to that point because it is his liability and right to an indemnity which are in issue.
Other matters in issue in the proceedings between the insured and the insurer 
17.11	Phillips J suggested that problems might arise if the dispute between the insured and the insurer went beyond the question of whether or not the insured's liability to the third party should be indemnified. Such issues (for example, the liability of the insured towards other third parties) could be severed and pursued by other third parties or by the insured's trustee in bankruptcy or liquidator, as appropriate.
Notice and the mechanics of substitution
17.12	As we have seen, in Baytur SA v Finagro Holding SA, the Court of Appeal held that assignees of rights of action can be substituted in pending proceedings but that they must first apply to court for an order under RSC Order 15, rule 7(2) or, in the case of arbitration proceedings, give notice to the other parties and submit to the jurisdiction of the arbitrator. There seems no reason why a similar system of application and notification could not be used in relation to third party rights under the 1930 Act. 
17.13	It will usually be in the interests of all parties and the court or arbitration that existing proceedings are maintained so that the cost and delay necessitated by commencing fresh proceedings are avoided. We suggest, therefore, that a third party should be able to apply to substitute himself in court and arbitration proceedings commenced by the insured against the insurer.
Consultees' views are sought on our provisional conclusion that a third party should be able to apply to substitute himself in court and arbitration proceedings already commenced by the insured against the insurer prior to the insolvency of the insured
Consultees' views are also sought on where responsibility for the costs of the insured and the insurer incurred prior to substitution should lie. We provisionally favour the first of the following options:-
(i)	requiring the insured to pay his own costs up to substitution and requiring a successful insurer to recover his costs prior to substitution from the insured's estate rather than from the third party; or
(ii)	requiring the third party to indemnify the insured and the insurer for costs incurred prior to substitution in the event of the action against the insurer failing.
Scottish law
17.14	As we have seen, the obligation of the insurer to indemnify the insured under the policy is enforceable once the third party has established the liability of the insured and the five year prescriptive period of this obligation starts to run from that date at the earliest. On insolvency, the third party becomes, by virtue of the 1930 Act, a statutory assignee of the insured's rights as against the insurer. This assignation does not interrupt the running of prescription. As we have also seen, the third party can, under Scottish law, be substituted in proceedings started by the insured against the insurer.
17.15	In our discussion of the English rules on limitation, we discussed some of the arguments for and against allowing a fresh limitation period to govern a third party's right of action against an insurer under an amended Act. The position is rather different under the Scottish law on prescription. The prescription technique focuses attention on the obligation of the person required to pay or to do something, in this case the insurer, rather than on whether the person whose rights are affected has sufficient time to bring proceedings. It may be seen as unreasonable to suggest that the period of prescription should be extended merely because there has been a statutory transfer of the creditor's rights. There could be cases where the third party, having established the liability by decree but having failed to enforce his decree for over 4 years, finds that the insured has been sequestrated and that no relevant claim has been made against the insurer or relevant acknowledgement obtained. The third party then has only a short time in which to make a claim against the insurer. However, this kind of situation is not unusual under the law of prescription and it might be anomalous to give the third party another 5 years if the insured's insolvency occurs just before the expiry of the 5 year period but no rights at all (as there would be none to be transferred) if the insolvency event occurred just after the expiry of the 5 year period. 
17.16	The Scottish Law Commission does not consider that any change is required to the existing law on prescription in Scotland in order to deal with this situation but, as the issue of a new or extended limitation period in English law has been raised, the Scottish Law Commission invites the views of consultees. A similar question might arise if, contrary to our provisional view, the third party were to require leave to raise proceedings against the insurer.
We seek consultees' views on whether the law of prescription in Scotland should be changed to provide for the start of a new prescriptive period where one of the insolvency events set out in the Act (or the granting of leave, if leave were to be required) occurs during the running of the period of prescription of the insurer's obligation to the insured. 
Section 651 Companies Act 1985
17.17	As we have seen, section 651 provides that an application to restore a dissolved company to the register must be made within two years of the date of dissolution, except in actions involving death or personal injury. We have given our provisional view that third parties should not be required to restore dissolved companies to the register before proceeding against insurers under the Act. Should the Act not be amended in this way, we suggest that this distinction should be removed. Third parties would then be able to apply for an order restoring a dissolved company to the register at any time, whatever the nature of their claim against the company. No order would be made, however, if it appeared to the court that the limitation period governing the third party's right of action against the company had expired, although in some death and personal injury actions the court could order that the period between the dissolution of the company and the making of the order restoring it should not count as part of that period.
We seek consultees' views on our provisional conclusion that, if third parties are still to be required to restore dissolved companies to the register for the purposes of proceeding under the Act, the two year limitation period for claims not involving death or personal injury should be abolished.
17.18	Section 141(4) Companies Act 1989 provides that applications cannot be made to restore companies dissolved more than twenty years before the commencement of that section. It has been suggested that this period may be too short, particularly in cases involving long tail personal injury claims.
We seek consultees' views on whether third parties should be able to restore to the register companies dissolved more than twenty years before the coming into force of section 141 Companies Act 1989. If consultees do not consider that all third parties should have this right, do they consider that it should be open to those claiming for death or personal injury?

Part 18	Summary of our Provisional Proposals and Consultation Questions
18.	
18.1	We have formed provisional views on a number of issues in this paper. We have suggested that a third party should acquire rights under an amended Act before he has established the liability of the insured. His rights would arise once two events had occurred: the incident giving rise to the liability of the insured and one of the insolvency events set out in the Act. After those events the third party would also have the right to sue the insurer for a declaration.
18.2	We have suggested that the Act should continue to apply to all liability insurance policies, that third parties should have earlier and increased access to policy information and that the ability of insurers to rely on defences against third parties should be restricted. We have sought consultees' views on whether a statutory scheme of rateable distribution to multiple third party claimants should replace the current "first past the post" system. We have given our provisional view that the private international law aspects of the Act should be clarified and have sought consultees' views on the criteria which might be used to determine the applicability of the Act. We have sought consultees' views on whether a new limitation period should govern the third party's right of action against the insurer~~ and have suggested that third parties should be able to substitute themselves in proceedings started by the insured within the limitation period.
18.3	We set out below a summary of the particular issues on which we seek consultees' comments. We invite comments on any of the matters raised in this paper and any other suggestions which consultees may have. Consultees should not feel obliged to answer all the questions: we appreciate that their views or experience may be relevant to some only. 
The scope of the act
1.	Do consultees agree with our provisional conclusion that the Act should not be extended to reinsurance policies? If they do not, to what types of reinsurance policy should the Act apply?
2.	Consultees' views are sought on our provisional conclusion that the Act should continue to apply to all liability insurance policies, regardless of the nature of the third party claimant or of his claim? 
3.	If consultees disagree, they are asked to specify how the applicability of the Act should be restricted.
Third party rights under an amended Act
When should the third party's right of action arise?
4.	Do consultees agree that a third party's rights under an amended Act should arise once two events have occurred: the incident giving rise to the liability of the insured and one of the insolvency events set out in the Act?
5.	If consultees consider that the third party's rights should arise before or afer this point, when do they think they should arise? For example, should they arise:-
(i)	after close of pleadings in the proceedings brought by the third 	party against an insured who has been declared bankrupt or wound up;
(ii)	on the happening of the event giving rise to the liability of the 	insured, regardless of the solvency or otherwise of the insured; or
(iii)	when an insured who has incurred liability to the third party is in 	financial difficulties prior to the happening of one of the insolvency 	events set out in the Act? Consultees who favour this option are requested to suggest a trigger for the third party's rights.
6.	Do consultees agree that, in its application to Scotland, the amended Act should use the phrase "person's estates being sequestrated" instead of "becoming bankrupt"?
The implications of the liability of insurer and insured being resolved in the same proceedings
7.	Consultees' views are sought on our provisional conclusion that insurers conducting the defence of their insured under the Act should be able to do so without prejudice to their right to repudiate their liability to the insured under the insurance contract.
Should the third party proceed against both insurer and insured?
8.	We have reached the provisional conclusion that the insured and the insurer should be parties to the third party's action unless the insured is a dissolved company which has been struck off the Register of Companies, in which case the third party should have a right to proceed against the insurer alone. Do consultees agree?
9.	Consultees' views are sought on the adequacy of existing procedures under sections 651 and 653 of the Companies Act 1985. 
10.	Consultees' views are sought on whether and, if so, how the existing procedures should be simplified if, contrary to our provisional view, third parties continue to be required to restore a dissolved company to the register.
11.	Alternatively, do consultees consider that a third party should have a right to proceed against the insurer alone:
(i)	in all cases;
(ii)	in other limited cases (for example, where insurance is compulsory).
12.	Do consultees agree with our provisional conclusion that, if a third party had a right to proceed against the insurer alone, he should, if he chose, be able to proceed against the insured as well and, if he had already started proceedings against the insured, to join the insurer into those proceedings?
13.	If the insured was not a party to the proceedings brought by the third party, do consultees believe that the insurer should be able to join the insured into the proceedings and that the insured should be able to intervene in those proceedings? 
14.	If so, do consultees consider that the existing rules on joinder and substitution are adequate or do they think that specific provision should be made in the amended Act. 
Third party rights under an amended Act
15.	We have reached the provisional view that once two events have occurred: the event giving rise to the liability of the insured and one of the insolvency events set out in the Act, the third party should acquire the insured's rights under the insurance policy. The third party should in addition have a right to seek a declaration or declarator that, on the liability of the insured being established, the insurer will be liable to indemnify the third party.
Do consultees agree with this provisional view? If not, what rights do they think third parties should acquire under an amended Act. 
Should the third party's right of action against the insurer be subject to a leave requirement?
16.	We seek consultees' views on our provisional conclusion that a third party's right to proceed against insurers under the Act should not be subject to a leave requirement nor to a requirement that he notify the insurer of his intention to proceed against it.

17.	If, contrary to our provisional conclusion, consultees consider that a third party's right of action under the Act should be subject to a leave requirement, their views are sought on:-
(i)  	when the leave application should be made;
(ii)   	what the leave criteria should be; and
(iii)	whether the leave application should be made ex parte or inter partes 	and whether any other specific procedural requirements should apply.
Settlements between the insurer and the insured 
18.	We seek consultees' views on whether settlements reached between insurers and insured prior to the happening of one of the insolvency events set out in the Act cause problems to third party claimants under the Act and whether, in their view, the Act should be amended to allow third parties to apply to set aside such settlements.  
19.	Were such an amendment to be made to the Act, within what period prior to the insolvency should settlements be vulnerable to setting aside?
Payment of the insurance proceeds by the insurer
20.	We seek consultees' views on whether or not a provision should be included in an amended Act requiring insurers expressly to pay insurance proceeds direct to the third party.
A third party right of direct action against the insurer of a disappeared insured 
21.	We seek consultees' views on whether the 1930 Act should be extended to provide third parties with a right of action against the insurers of insured parties who have disappeared.
The duty to disclose policy information 
When should the duty to disclose policy information arise?
22.	Consultees' views are sought on our provisional conclusion that the obligation to disclose policy information should not be dependent on the establishment of the liability of the insured but that it should arise after the incident giving rise to the liability of the insured and after the event of insolvency and that disclosure should be given within 14 days of the disclosing party becoming aware that a third party has a possible claim under the Act.
23.	Do consultees agree that disclosing parties should have a continuing duty to disclose information?
24.	If consultees disagree, when do they consider the duty to disclose should arise?
25.	Consultees' views are sought on whether a time period other than 14 days would be appropriate with regard to some or all of the categories discussed below. 
Information discloseable under section 2
26.	We have reached the provisional conclusion that the definition in section 2 of the categories of information to which the duty of disclosure extends should be clarified by a list in the Act. Consultees' views are sought on this provisional conclusion. 
27.	Consultees' views are sought on whether the disclosing party should be able to apply to court for an order dispensing with their duty to disclose the grounds for a purported repudiation of cover by the insurer, in addition to any right which they may have to apply for a split trial or for the resolution of the cover point as a preliminary issue.
28.	We have reached the provisional conclusion that the following categories of policy documentation and information should be disclosed to third party claimants under the Act.
(i)	the existence of any insurance contract;
(ii) 	the identity of the insurer;
(iii)	relevant policy documentation, including the cover terms;
(iv)	whether the insurer has purported to repudiate cover;
(v)	the grounds of any purported repudiation;
(vi)	the value of the insurance cover and details of whether or not some 	or all of the insurance fund has already been paid out to other claimants;
(vii)	details of any settlement between the insurer and the insured.
29.	Do consultees agree that all these categories should be disclosed? If not, which are objectionable? Are there any other categories of documentation or information which should be disclosed?
30.	Do consultees think that, in addition to any list of discloseable information set out in an amended Act, it should also contain a catch all provision requiring disclosure of "other relevant documents and information"?
31.	We have reached the provisional conclusion that the duty to disclose should not extend to details of any settlement between the insured and the insurer before the occurrence of one of the insolvency situations. Do consultees agree with this provisional conclusion?
Should the extent of the duty of disclosure vary according to the nature of the third party or of his claim?
32.	Do consultees' agree that the duty to disclose under an amended Act should not vary according to the nature of the third party's claim.
Who should have a duty of disclosure and what should the scope of the duty be?
33.	Do consultees agree that the duties of the insured and of the insurer to disclose policy information under the Act should arise simultaneously?
34.	With regard to each of the categories of information set out above, consultees' views are sought on what the extent of the officeholder's duty to disclose should be. For example, should his duty:-
(i)	apply only to information which is reasonably ascertainable from 		records to which he is entitled; and/or
	(ii)	be limited 
		(a) to third parties who seek disclosure from him; or
		(b) to third parties who seek such disclosure and whose claims he is 			aware may be covered by insurance.
35.	Consultees' views are sought on the extent to which the position of third parties would be improved were a duty of disclosure under the Act to extend to all those in possession of insurance information or documentation and on whether the duty of disclosure should be extended in this way. 
36.	If such persons were to have a duty of disclosure, do consultees consider that the duty should be limited? For example, should it be limited to information as to the identity of the insurer or to information which is reasonably ascertainable from the records maintained by such persons?
37.	Do consultees consider that the duty of disclosure should be extended only to insurance brokers?
The ability of insurers to rely on defences
The position of third party claimants under the 1930 Act
38.	Consultees' views are sought on our provisional view that:
(i)	restrictions should be placed on the ability of insurers to rely on 	certain defences against third parties because of the particular 	problems faced by third party claimants under the 1930 Act which are not faced by the insured; and 
(ii)	insurers should not be permitted to insist that policy conditions are met by the insured personally where the third party can meet them.
What bases could be used to limit the ability of insurers to rely on defences?
39.	We seek consultees' views on whether any of the following or other restrictions should be used individually or cumulatively to limit the ability of insurers to rely on defences against third party claimants under an amended Act.
40.	Do consultees consider that restrictions should be placed on the ability of insurers to rely on defences against third party claimants under an amended Act only when insurance is compulsory? If so, what restrictions do they think should apply and what should those restrictions be?
41.	Do consultees consider that restrictions should be placed on the ability of insurers to rely on defences where the third party's claim is of a particular type? If so, to what types of claim should the restrictions apply and what should those restrictions be?
42.	Do consultees consider that the ability of insurers to rely on defences should be restricted by reference to the timing of the breaches on which those defences are based? If so, what should be the point in time after which breaches could not give rise to insurers' defences?
43.	Do consultees consider that, if restrictions are to be placed on insurers' ability to rely on defences, those restrictions should depend on the consequences of the breach of duty and/or of policy terms? 
44.	If so, do they agree with our tentative view that insurers should not be able to rely, as against third parties, on breaches unless they are both causative of the third party's loss and prejudicial to the insurer?
45.	Do consultees agree that, if such restrictions were to be imposed, insurers should only be entitled to reduce the indemnity proportionally to the extent that the breach was causative of the loss or to any prejudice to their interests?
46.	Do consultees agree that, if such restrictions were to be imposed, the burden of proof for establishing that there was no connection between the breach and the loss should be on the third party but that the burden of proof for establishing the prejudice suffered by the insurer should be on the insurer? 
47.	We seek consultees' views on whether the restrictions set out above or other restrictions should be applied to prevent insurers from relying on each of the following types of defence. We also seek consultees' views on whether the specific restrictions set out below should apply to them and on whether other specific restrictions should apply to any other types of policy condition to which we have not referred.
(i)	Non-disclosure and misrepresentation;
(ii)	Notice requirements;
(iii)	Arbitration clauses;
(iv)	Conditions relating to the duty to co-operate and provide assistance;
(v)	Conditions relating to the duty of the insured to preserve the 	assets/business insured (for example to maintain security) or to hold a 	particular licence or have a particular qualification;
(vi)	Conditions relating to the ability of the insured to pay.
48.	Do consultees agree that it would be inappropriate to enact new law in the context of the 1930 Act alone restricting the ability of insurers to rely on non-disclosure and misrepresentation?
49.	We seek consultees' views on whether insurers should be prevented from relying on breaches of notice requirements in claims made policies where late notification would bring the claim outside the claims period.
50.	We seek consultees' views on the extent to which insurers' reliance on arbitration clauses causes problems to third party claimants under the Act.
51.	Consultees' views are also sought on whether arbitration clauses in insurance contracts should be unenforceable against third party claimants or certain types of claimant under the Act.
52.	Do consultees consider that insurers should be permitted to deduct unpaid premiums from amounts recovered by a third party under the Act?
53.	We seek consultees' views on whether insurers should be permitted to rely, as against third party claimants under the Act, on pay to be paid clauses.
54.	Do consultees consider that other specific restrictions should apply to other types of policy condition to which we have not specifically referred?
The right of the insurer to an indemnity against the insured
55.	Do consultees agree that any right to an indemnity which insurers might have against the insured in cases where they have been prevented by the Act from relying on defences which they could have invoked against the insured is unlikely to be of much practical assistance to insurers in most cases?
56.	Do consultees consider that such a right should be included in an amended Act in any event?
The distribution of a limited insurance fund to multiple claimants
57.	Consultees are asked to inform us whether or not they have had experience of problems caused by the "first past the post" principle in the context of claims under the 1930 Act (other than in the Lloyd's litigation).
58.	Do consultees consider that the court's existing powers are adequate to impose a scheme of rateable distribution on claimants under the Act? If not, do they consider that the court should be provided with additional procedural powers? What additional powers do they consider the court should have?
59.	Alternatively, do consultees consider that a new statutory scheme of rateable distribution should be introduced? If so, we should be grateful for their views on the following suggested scheme and on any other scheme which they think should be introduced.
We suggest that any new statutory scheme should work in the following way:-
(a)	the scheme would be triggered following an application to the court by a third party or by the insurer;
(b)	the court should decide how the fund should be administered. 	Depending on the circumstances of the case, the court might order 	sums payable under the insurance contract to be paid into court, to a court appointee or, in appropriate cases, to the insured's insolvency practitioner;
(c)	the scheme would provide for the costs of the court, the court appointee or the insolvency practitioner to be deducted before any 	distribution was made to third party claimants. In appropriate cases, it would also provide for the costs of the third party triggering the scheme to be deducted prior to distribution. The scheme would provide for interim payments to be made and, if 	possible, for the value of outstanding claims to be assessed and appropriate "shares" in the fund determined, without further recourse to litigation.
Private international law
60.	Do consultees agree with our provisional conclusion that the private international law aspects of the Act should be clarified or do they think that such matters should be left to the court?
61.	Consultees' views are sought on whether one or more of the following criteria or any other criteria should be used to determine the applicability of the 1930 Act:-
(i)	the insured has been declared bankrupt or wound up in this country;
(ii)	the insurance proceeds are payable in this country;
(iii)	the law governing the insurance contract is English or Scottish law;
(iv)	the courts have jurisdiction in respect of the tort or delict or breach 	of contract committed by the insured; 
(v)	the insurer is subject to the jurisdiction of a UK court.
62.	Consultees' views are also sought on whether the provisions of an amended Act should always override conflicting provisions in the law applicable to the insurance contract. If not, when, if at all, should the applicable law be overridden?
63.	We seek consultees' views on whether or not the provisions of RSC Order 11, rule 1(1) are broad enough to found jurisdiction for claims under the current 1930 Act and under an amended Act? If not, do consultees consider that express provision should be made so that third parties can proceed against insurers outside the jurisdiction, for the purposes of proceeding against them under the 1930 Act? 
Limitation and prescription
English law
64.	We seek consultees' views on whether a third party's right of action under the Act should be treated as a new cause of action under English law, and governed by a fresh limitation period, or whether it should be governed by the limitation period applicable to the insured's right of action against the insurer?
65.	Were the third party's right of action to be governed by a fresh limitation period and to be subject to a leave requirement, do consultees think that the limitation period should only start to run when leave has been granted?
66.	Consultees' views are sought on our provisional view that a third party should be able to apply to substitute himself in court and arbitration proceedings already commenced by the insured against the insurer prior to the insolvency of the insured.
67.	Consultees' views are also sought on where responsibility for the costs of the insured and the insurer incurred prior to substitution should lie. We provisionally favour the first of the following options:-
(i)	requiring the insured to pay his own costs up to substitution and 	requiring a successful insurer to recover his costs prior to substitution from the insured's estate rather than from the third party; or
(ii)	requiring the third party to indemnify the insured and the insurer for costs incurred prior to substitution in the event of the action against the insurer failing.
Scottish law
68.	We seek consultees' views on whether the law of prescription in Scotland should be changed to provide for the start of a new prescriptive period where one of the insolvency events set out in the Act (or the granting of leave, if leave were to be required) occurs during the running of the period of prescription of the insurer's obligation to the insured.
The limitation period governing the restoration of companies to the register
69.	We seek consultees' views on our provisional conclusion that, if third parties are still to be required to restore dissolved companies to the register for the purposes of proceeding under the Act, the two year limitation period for claims not involving death or personal injury should be abolished.
70.	We also seek consultees' views on whether third parties should be able to restore to the register companies dissolved more than twenty years before the coming into force of section 141 Companies Act 1989. If consultees do not consider that all third parties should have this right, do they consider that it should be open to those claiming for death or personal injury?
1.	
Appendix A
Legislation

Third Parties (Rights Against Insurers) Act 1930
1 	Rights of third parties against insurers on bankruptcy, etc, of the insured
(1)	Where under any contract of insurance a person (hereinafter referred to as the insured) is insured against liabilities to third parties which he may incur, then-
(a) 	in the event of the insured becoming bankrupt or making a composition or arrangement with his creditors; or
(b) 	in the case of the insured being a company, in the event of a winding-up order or an administration order being made, or a resolution for a voluntary winding-up being passed, with respect to the company, or of a receiver or manager of the company's business or undertaking being duly appointed, or of possession being taken, by or on behalf of the holders of any debentures secured by a floating charge, of any property comprised in or subject to the charge or of a voluntary arrangement proposed for the purposes of Part 1 of the Insolvency Act 1986 being approved under that Part;
if, either before or after that event, any such liability as aforesaid is incurred by the insured, his rights against the insurer under the contract in respect of the liability shall, notwithstanding anything in any Act or rule of law to the contrary, be transferred to and vest in the third party to whom the liability was so incurred. 
(2)	Where the estate of any person falls to be administered in accordance with an order under  section 421 of the Insolvency Act 1986, then, if any debt provable in bankruptcy (in Scotland, any claim accepted in the sequestration) is owing by the deceased in respect of a liability against which he was insured under a contract of insurance as being a liability to a third party, the deceased debtor's rights against the insurer under the contract in respect of that liability shall, notwithstanding anything in any such order, be transferred to and vest in the person to whom the debt is owing.
(3) 	In so far as any contract of insurance made after the commencement of this Act in respect of any liability of the insured to third parties purports, whether directly or indirectly, to avoid the contract or to alter the rights of the parties thereunder upon the happening to the insured of any of the events specified in paragraph (a) or paragraph (b) of subsection (1) of this section or upon the estate of any person falling to be administered in accordance with an order under section 421 of the Insolvency Act 1986, the contract shall be of no effect.
(4) 	Upon a transfer under subsection (1) or subsection (2) of this section, the insurer shall, subject to the provisions of section 3 of this Act, be under the same liability to the third party as he would have been under to the insured, but-
(a) 	if the liability of the insurer to the insured exceeds the liability of the insured to the third party, nothing in this Act shall affect the rights of the insured against the insurer in respect of the excess; and
(b) 	if the liability of the insurer to the insured is less than the liability of the insured to the third party, nothing in this Act shall affect the rights of the third party against the insured in respect of the balance.
(5) 	For the purposes of this Act, the expression "liabilities to third parties", in relation to a person insured under any contract of insurance, shall not include any liability of that person in the capacity of insurer under some other contract of insurance.
(6) 	This Act shall not apply-
(a) 	where a company is wound up voluntarily merely for the purposes of reconstruction or of amalgamation with another company; or
(b) 	to any case to which subsection (1) and (2) of section seven of the Workmen's Compensation Act 1925 applies.
2 	Duty to give necessary information to third parties
(1) 	In the event of any person becoming bankrupt or making a composition or arrangement with his creditors, or in the event of the estate of any person falling to be administered in accordance with an order under section 421 of the Insolvency Act 1986, or in the event of a winding-up order or an administration order being made, or a resolution for a voluntary winding-up being passed, with respect to any company or of a receiver or manager of the company's business or undertaking being duly appointed or of possession being taken by or on behalf of the holders of any debentures secured by a floating charge of any property comprised in or subject to the charge it shall be the duty of the bankrupt, debtor, personal representative of the deceased debtor or company, and, as the case may be, of the trustee in bankruptcy, trustee, liquidator, administrator, receiver, or manager, or person in possession of the property to give at the request of any person claiming that the bankrupt, debtor, deceased debtor or company is under a liability to him such information as may reasonably be required by him for the purpose of ascertaining whether any rights have been transferred to and vested in him by this Act and for the purpose of enforcing such rights, if any, and any contract of insurance, in so far as it purports, whether directly or indirectly, to avoid the contract or to alter the rights of the parties thereunder upon the giving of any such information in the events aforesaid or otherwise to prohibit or prevent the giving thereof in the said events shall be of no effect.
(1A)	The reference in subsection (1) of this section to a trustee includes a reference to a supervisor of a voluntary arrangement proposed for the purposes of, and approved under Part I or Part VIII of the Insolvency Act 1986.
(2) 	If the information given to any person in pursuance of subsection (1) of this section discloses reasonable ground for supposing that there have or may have been transferred to him under this Act rights against any particular insurer, that insurer shall be subject to the same duty as is imposed by the said subsection on the persons therein mentioned.
(3) 	The duty to give information imposed by this section shall include a duty to allow all contracts of insurance, receipts for premiums, and other relevant documents in the possession or power of the person on whom the duty is so imposed to be inspected and copies thereof to be taken.
3 	Settlement between insurers and insured persons
Where the insured has become bankrupt or where in the case of the insured being a company, a winding-up order or an administration order has been made or a resolution for a voluntary winding-up has been passed, with respect to the company, no agreement made between the insurer and the insured after liability has been incurred to a third party and after the commencement of the bankruptcy or winding-up or the day of the making of the administration order, as the case may be, nor any waiver, assignment, or other disposition made by, or payment made to the insured after the commencement or day aforesaid shall be effective to defeat or affect the rights transferred to the third party under this Act, but those rights shall be the same as if no such agreement, waiver, assignment, disposition or payment had been made. 

Companies Act 1985
651 Power of court to declare dissolution of company void
(1) 	Where a company has been dissolved, the court may, on an application made for the purpose by the liquidator of the company or by any other person appearing to the court to be interested, make an order, on such terms as the court thinks fit, declaring the dissolution to have been void.
(2) 	Thereupon such proceedings may be taken as might have been taken if the company had not been dissolved.
(3) 	It is the duty of the person on whose application the order was made, within 7 days after its making (or such further time as the court may allow), to deliver to the registrar of companies for registration an office copy of the order.
If the person fails to do so, he is liable to a fine and, for continued contravention, to a daily default fine.
(4) 	Subject to the following provisions, an application under this section may not be made after the end of the period of two years from the date of the dissolution of the company.
(5) 	An application for the purpose of bringing proceedings against the company
(a) 	for damages in respect of personal injuries (including any sum claimed by virtue of section 1(2)(c) of the Law Reform (Miscellaneous Provisions) Act 1934 (funeral expenses)), or
(b) 	for damages under the Fatal Accidents Act 1976 or the Damages (Scotland) Act 1976,
may be made at any time; but no order shall be made on such an application if it appears to the court that the proceedings would fail by virtue of any enactment as to the time within which proceedings must be brought.
(6) 	Nothing in subsection (5) affects the power of the court on making an order under this section to direct that the period between the dissolution of the company and the making of the order shall not count for the purposes of any such enactment.
(7) 	In subsection (5)(a) "personal injuries" includes any disease and any impairment of a person's physical or mental condition.
...
653 Objection to striking off by person aggrieved
(1)	The following applies if a company or any member or creditor of it feels aggrieved by the company having been struck off the register.
(2)	The court, on an application by the company or the member or creditor made before the expiration of 20 years from publication in the Gazette of notice under section 652, may, if satisfied that the company was at the time of the striking off carrying on business or in operation, or otherwise that it is just that the company be restored to the register, order the company's name to be restored.
(3)	On an office copy of the order being delivered to the registrar of companies for registration the company is deemed to have continued in existence as if its name had not been struck off; and the court may by the order give such directions and make such provisions as seem just for placing the company and all other persons in the same position (as nearly as may be) as if the company's name had not been struck off.
...
Companies Act 1989
141 Application to declare dissolution of company void
(1) 	Section 651 of the Companies Act 1985 (power of the court to declare dissolution of company void) is amended as follows.
(2), (3)...
(4) 	An application may be made under section 651(5) of the Companies Act 1985 as inserted by subsection (3) above (proceedings for damages for personal injury, &c) in relation to a company dissolved before the commencement of this section notwithstanding that the time within which the dissolution might formerly have been declared void under that section had expired before commencement.
But no such application shall be made in relation to a company dissolved more than twenty years before the commencement of this section.
(5) 	Except as provided by subsection (4), the amendments made by this section do not apply in relation to a company which was dissolved more than two years before the commencement of this section.

Civil Jurisdiction and Judgments Act 1982
Schedule 1: Convention on Jurisdiction and Enforcement of Judgments in Civil and Commercial Matters
Title I. Scope
Article 1
This Convention shall apply in civil and commercial matters whatever the nature of the court or tribunal. It shall not extend, in particular, to revenue, customs or administrative matters. 
The Convention shall not apply to:
(1) 	the status or legal capacity of natural persons, rights in property arising out of a matrimonial relationship, wills and succession;
(2) 	bankruptcy, proceedings relating to the winding-up of insolvent companies or other legal persons, judicial arrangements, compositions and analogous proceedings;
(3) 	social security;
(4) 	arbitration.
Section 3: Jurisdiction in matters relating to insurance
Article 7
In matters relating to insurance, jurisdiction shall be determined by this Section, without prejudice to the provisions of Articles 4 and 5(5).
Article 8
An insurer domiciled in a Contracting State may be sued:
(1) 	in the courts of the State where he is domiciled, or
(2)	in another Contracting State, in the courts for the place where the policy-holder is domiciled, or
(3) 	if he is a co-insurer, in the courts of a Contracting State in which proceedings are brought against the leading insurer.
An insurer who is not domiciled in a Contracting State but has a branch, agency or other establishment in one of the Contracting States shall, in disputes arising out of the operations of the branch, agency or establishment, be deemed to be domiciled in that State.
Article 9
In respect of liability insurance or insurance of immovable property, the insurer may in addition be sued in the courts for the place where the harmful event occurred. The same applies if movable and immovable property are covered by the same insurance policy and both are adversely affected by the same contingency.
Article 10
In respect of liability insurance, the insurer may also, if the law of the court permits it, be joined in proceedings which the injured party has brought against the insured. 
The provisions of Articles 7, 8 and 9 shall apply to actions brought by the insured party directly against the insurer, where such direct actions are permitted. 
If the law governing such direct actions provides that the policy-holder or the insured may be joined as a party to the action, the same court shall have jurisdiction over them.
Article 11
Without prejudice to the provisions of the third paragraph of Article 10, an insurer may bring proceedings only in the courts of the Contracting State in which the defendant is domiciled, irrespective of whether he is the policy-holder, the insured or a beneficiary.
The provisions of this Section shall not affect the right to bring a counterclaim in the court in which, in accordance with this Section, the original claim is pending.
Article 12
The provisions of this Section may be departed from only by an agreement on jurisdiction:
(1) 	which is entered into after the dispute has arisen, or
(2) 	which allows the policy-holder, the insured or a beneficiary to bring proceedings in courts other than those indicated in this Section, or
(3) 	which is concluded between a policy-holder and an insurer, both of whom are at the time of conclusion of the contract domiciled or habitually resident in the same Contracting State, and which has the effect of conferring jurisdiction on the courts of that State even if the harmful event were to occur abroad, provided that such an agreement is not contrary to the law of that State, or
(4) 	which is concluded with a policy-holder who is not domiciled in a Contracting State, except in so far as the insurance is compulsory or relates to immovable property in a Contracting State, or
(5)	which relates to a contract of insurance in so far as it covers one or more of the risks set out in Article 12A.

Article 12A
The following are the risks referred to in Article 12(5):
(1) 	Any loss of or damage to
(a) 	sea-going ships, installations situated offshore or on the high seas, or aircraft, arising from perils which relate to their use for commercial purposes,
(b) 	goods in transit other than passengers' baggage where the transit consists of or includes carriage by such ships or aircraft,
(2) 	Any liability, other than for bodily injury to passengers or loss of or damage to their baggage,
(a) 	arising out of the use or operation of ships, installations or aircraft as referred to in (1)(a) above in so far as the law of the Contracting State in which such aircraft are registered does not prohibit agreements on jurisdiction regarding insurance of such risks,
(b) 	for loss or damage caused by goods in transit as described in (1)(b) above;
(3) 	Any financial loss connected with the use or operation of ships, installations or aircraft as referred to in (1)(a) above, in particular loss of freight or charter-hire;
(4) 	Any risk or interest connected with any of those referred to in (1) to (3) above.

The Draft EU Convention on Insolvency Proceedings
1.1	The EU Convention provides for the recognition by Convention states of insolvency proceedings in other Convention states. It was approved by the Council of Ministers in 1995 but was not signed by the United Kingdom during the period fixed for signature. We are not aware of any current plans to revive the Convention, although it is possible that it may be revived in future.  
1.2	The Convention provides that main proceedings should be brought in one Contracting State but that secondary proceedings can be brought in others to allow local creditors to protect their interests. The main bankruptcy proceedings are to be brought in the Contracting State where the centre of the debtor's main interests is located. As regards companies, this is the place of the company's registered office. As regards individuals, this appears to be their professional domicile or habitual place of residence.
1.3	Article 3 provides that secondary proceedings may be brought if the debtor "possesses an establishment" within the Contracting State. Article 2(h) defines "establishment" as "any place of operations where the debtor carries out a non-transitory economic activity with human means and goods". It seems, therefore, that secondary proceedings could only be started in the English court if the insured has an "establishment" in this country: where the insured had no "goods" here (and where his only asset was a claim under an insurance policy), secondary proceedings could probably not be brought.
1.4	The Convention provides for the co-ordination of main and secondary proceedings. For example, liquidators in all proceedings have a duty to collaborate and to exchange information and can lodge claims in other insolvency proceedings. The liquidator in the main proceedings can request a stay on the liquidation of the assets in the secondary proceedings.
1.5	The Convention only applies to insolvency proceedings which satisfy the requirements of article 1. These are listed in an annex to the Convention and do not include receiverships (which are caught by the 1930 Act).

Appendix B
Procedural rules

Rules of the Supreme Court
Consolidation, etc., of causes or matters
RSC Order 4, rule 9
9.-(1)	Where two or more causes or matters are pending in the same Division and it appears to the Court -
	(a)		that some common question of law or fact arises in both or all of them, or
	(b)	that the rights to relief claimed therein are in respect of or arise out of thesame transaction or series of transactions, or
	(c)	that for some other reason it is desirable to make an order under 	this paragraph
the Court may order those causes or matters to be consolidated on such terms as it thinks just or may order them to be tried at the same time or one immediately after another or may order any of them to be stayed until after the determination of any other of them.
(2)	Where the Court makes an order under paragraph (1) that two or more causes or matters are to be tried at the same time but no order is made for those causes or matters to be consolidated, then, a party to one of those cause or matters may be treated as if he were a party to any other of those causes or matters for the purpose of making an order for costs against him or in his favour.
Principal cases in which service of writ out of jurisdiction is permissible
RSC Order 11, rule 1
1.-(1) Provided that the writ does not contain any claim mentioned in Order 75, r.2(1) and it is not a writ to which paragraph (2) of this rule applies, service of a writ out of the jurisdiction is permissible with the leave of the Court if in the action begun by the writ-
(a) 	relief is sought against a person domiciled within the jurisdiction;
(c) 	the claim is brought against a person duly served within or out of the jurisdiction and a person out of the jurisdiction is a necessary or proper party thereto;
(d) 	the claim is brought to enforce, rescind, dissolve, annul or otherwise affect a contract, or to recover damages or obtain other relief in respect of the breach of a contract, being (in either case) a contract which-
(i) 	was made within the jurisdiction, or
(ii) 	was made by or through an agent trading or residing within the jurisdiction on behalf of a principal trading or residing out of 	the jurisdiction, or
	(iii) 	is by its terms, or by implication, governed by English law, or
(iv) 	contains a term to the effect that the High Court shall have 	jurisdiction to hear and determine any action in respect of the contract;
(e)	 the claim is brought in respect of a breach committed within the jurisdiction of a contract made within or out of the jurisdiction, and irrespective of the fact, if such be the case, that the breach was preceded or accompanied by a breach committed out of the jurisdiction that rendered impossible the performance of so much of the contract as ought to have been performed within the jurisdiction;
(f) 	the claim is founded on a tort and the damage was sustained, or resulted from an act committed, within the jurisdiction;
(o) 	the claim is brought under the Nuclear Installations Act 1965 or in respect of contributions under the Social Security Act 1975;

Joinder of parties
RSC Order 15, rule 4
4.-(1)	Subject to rule 5(1) two or more persons may be joined together in one action as plaintiffs or as defendants with the leave of the Court or where 
(a)	if separate actions were brought by or against each of them, as the case may be, some common question of law or fact would arise in all the actions, and 
(b)	all rights to relief claimed in the action (whether they are joint, several or alternative) are in respect of or arise out of the same transaction or series of transactions.
Misjoinder and nonjoinder of parties
RSC Order 15, rule 6
6.-(2)	Subject to the provisions of this rule, at any stage of the proceedings in any cause or matter the Court may on such terms as it thinks just and either of its own motion or on application

(b)	order any or the following persons to be added as a party, namely -
	(i)	any person who ought to have been joined as a party or whose presence before the Court is necessary to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon, or
	(ii)	any person between whom and any party to the cause or matter there may exist a question or issue arising out of or relating to or connected with any relief or remedy claimed in the cause or matter which in the opinion of the Court it would be just and convenient to determine as between him and that party as well as between the parties to the cause or matter.
Change of parties by reason of death, etc. 
RSC Order 15, rule 7
7.-(2)	Where at any stage of the proceedings in any cause or matter the interest or liability of any party is assigned or transmitted to or devolves upon some other person, the Court may, if it thinks it necessary in order to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon, order that other person to be made a party to the cause or matter and the proceedings to be carried on as if he had been substituted for the first mentioned party.
An application for an order under this paragraph may be made ex parte.
Declaratory judgment
RSC Order 15, rule 16
16.	No action or other proceeding shall be open to objection on the ground that a merely declaratory judgment or order is sought thereby, and the Court may make binding declarations of right whether or not any consequential relief is or could be claimed.
Third party notice
RSC Order 16, rule 1
1.(1)	Where in any action a defendant who has given notice of intention to defend-
(a)	claims against a person not already a party to the action any contribution or indemnity; or 
(b)	claims against such a person any relief or remedy relating to or connected with the original subject-matter of the action and substantially the same as some relief or remedy claimed by the plaintiff; or
(c)	requires that any question or issue relating to or connected with the original subject-matter of the action should be determined not only as between the plaintiff and the defendant but also as between either or both of them and a person not already a party to the action;
	then ... the defendant may issue ... a third party notice ... .

(3)	Where a third party notice is served on a person against whom it is issued, he shall as from the time of service be a party to the action...with all the same rights in respect of his defence against any claim made against him in the notice and otherwise as if he had been duly sued in the ordinary way by the defendant by whom the notice is issued.
Time, etc. of trial of questions or issues
RSC Order 33, rule 3
3. 	The Court may order any question or issue arising in a cause or matter, whether of fact or law or partly of fact and partly of law, and whether raised by the pleadings or otherwise, to be tried before, at or after the trial of the cause or matter, and may give directions as to the matter in which the question or issue shall be stated.
County Court Rules
Order 5
Causes of Action and Parties
Joinder of causes of action (O 5, r 1)
1. 	Subject to rule 3, a plaintiff may in one action claim relief against the same defendant in respect of more than one cause of action-
(a) 	if the plaintiff claims, and the defendant is alleged to be liable, in the same capacity in respect of all the causes of action, or
(b) 	if the plaintiff claims or the defendant is alleged to be liable in the capacity of executor or administrator of an estate in respect of one or more of the causes of action and in his personal capacity but with reference to the same estate in respect of all the others, or
(c) 	with the leave of the court.
Joinder of parties (O 5, r 2)
2. 	Subject to rule 3, two or more persons may be joined together in one action as plaintiffs or as defendants-
(a) 	where all rights to relief claimed in the action (whether they are joint, several or in the alternative) are in respect of or arise out of the same transaction or series of transactions and if separate actions were brought by or against each of those persons, some common question of law or fact would arise, or
(b) 	in any other case, with the leave of the court.
Power to order separate trials (O 5, r 3)
3. 	If it appears to the court that the joinder of two or more causes of action or of two or more plaintiffs or defendants, in the same action may embarrass or delay the trial or is otherwise inconvenient, the court may order separate trials or make such other order as may be expedient.
Misjoinder or nonjoinder of parties (O 5, r 4)
4. 	No action or matter shall be defeated by reason of the misjoinder or nonjoinder of any parties and the court may in any action or matter determine the issues or questions in dispute so far as they affect the rights and interests of the persons who are parties to the action or matter.
Order 12
Third Party and Similar Proceedings
Third Party Notice (O 12, r 1)
1.-(1)	Where in any action a defendant-
(a)	claims against a person not already a party to the action any contribution or indemnity, or
(b)	claims against such a person any relief or remedy relating to or connected with the original subject-matter of the action and substantially the same as some remedy or relief claimed by the plaintiff, or
(c)	requires any question or issue relating to or connected with the original subject-matter of the action to be determined not only as between the plaintiff and the defendant but also as between either or both of them and a person not already a party to the action,
then, subject to paragraph (2), the defendant may issue a notice (in this Order referred to as a third-party notice) containing a statement of the nature and grounds of the claim made by the defendant or, as the case may be, of the question or issue required to be determined.
Order 13
Applications and Orders in the Course of Proceedings
Directions (O 13, r 2)
2.-(1)	In any action or matter the court may at any time, on application or of its own motion, give such directions as it thinks proper with regard to any matter arising in the course of the proceedings.
(2)	In the exercise of the power conferred by paragraph (1) the court may, in particular-
(c)	order one or more questions or issues to be tried before the others.
Application of RSC relating to other interlocutory matter (O 13, r 7)
7.(1) 	Subject to the following paragraphs of this rule, the provisions of the RSC with regard to-
(g)	the exercise of the powers conferred by sections 33 to 35 of the Supreme Court Act 1981;
shall apply in relation to proceedings or, as the case may be, subsequent proceedings in a county court as they apply in relation to  proceedings or subsequent proceedings in the High Court. 
Order for consolidation etc. (O 13, r 9)
9.(1) 	Where two or more actions or matters are pending in the same county court and it appears to the court-
(a) 	that some common question of law or fact arises in both or all of them,  or
(b) 	that the rights to relief claimed are in respect of or arise out of the same transaction or series of transactions, or
(c) 	that for some other reason it is desirable to make an order under this rule,
the court may order that the actions or matters be consolidated or may order them to be tried at the same time or one immediately after another or may order any of them to be stayed until the determination of any other of them.
(2) 	An order under paragraph (1) may be made by the court of its own motion or on the application of any party on notice to all other parties to the actions or matters affected. 
Order 15
Amendment
Amendment by order (O 15, r 1)
1.-(1)	Without prejudice to Order 5, rules 8 and 11, and rule 2 of this Order, but subject to the following paragraphs of this rule, the court may, in any action or matter, by order allow or direct-
(a)	any originating process, pleading or any other document in the proceedings to be amended, or
(b)	any person to be added, struck out or substituted as a party to the proceedings, if the amendment, whether falling within sub-paragraph (a) or (b), is such that the High Court would have power to allow in a like case. 

Access to Justice, Draft Civil Proceedings Rules, July 1996
Court's duty to manage cases
1.3 	The court must further the overriding objective by actively managing cases, and in particular-
(e) 	by deciding the order in which issues are to be resolved; 
The Court's general powers of management
5.1
(1) 	The court may-
(f) 	decide the order in which issues are to be tried;
(g) 	direct a separate trial of any issue;
...
Persons to whom notice of an application must be given 
10.5
(1) 	If notice of an application must be given, the applicant must serve notice on-
(b) 	any other person to whom the court's order will apply, if the application is granted.
...
Change of parties - general
18.1 
(2) 	The court may add a new party to the proceedings if-
(a) 	it can resolve the matter in dispute in the proceedings more effectively by adding a new party;
(b)	the new party has a claim connected to the matters in dispute in the proceedings and the court can resolve it effectively by adding it to the proceedings.
(3)	The court may substitute a new party for an existing one if-
(a)	the existing party's interest or liability has passed to the new party; and
(b)	the court can resolve the matters in dispute in the proceedings more effectively by substituting the new party for the existing party.
Special provisions about adding or substituting parties after the end of a relevant limitation period
18.4
(1)	This rule allows a change of parties after the end of a period of limitation under-
(a)	the Limitation Act 1980; or
(b)	the Foreign Limitation Periods Act 1984.
(2)	The court may add or substitute a party if-
(a)	the relevant limitation period was current when proceedings were started; and
(b)	there has been a relevant passing of interest or liability; and
(c)	the addition or substitution is necessary.
(3)	There is a relevant passing of interest or liability-
(a) for the purpose of substituting a party, if the whole of an existing party's interest or liability has passed to the person proposed to be substituted; and
(b)	for the purpose of adding a party, if part of an existing party's interest or liability has passed to the person proposed to be added.
(5)	In addition, in a claim for personal injuries the court may add or substitute a party where it directs that-
(a)		section 11 (special time limit for claims for personal injuries); or
(b)	section 12 (special time limit for claims under fatal accidents legislation)
of the Limitation Act 1980 shall not apply to the claim by or against the new party.
(Rule 19.2 deals with other changes after the end of a relevant limitation period.)

Scottish procedural rules: Court of Session rules
Chapter 22
Closing records
22.3.-(1) The court shall, on the day on which the period allowed for adjustment in a cause expires, pronounce an interlocutor closing the record.
(2) 	The pursuer shall, within four weeks after the date of the interlocutor closing the record-
(a) send not less than six copies of the closed record to every other party; and
(b) lodge three copies of the closed record in process.
(3) 	If the pursuer fails to comply with either of the requirements of paragraph (2), the court may, on the motion of the other party, grant decree of dismissal.
(4) 	A closed record shall consist of the pleadings of the parties and the interlocutors pronounced in the cause.
(5) 	The pursuer shall, on lodging the copies of the closed record as required by paragraph (2), enrol a motion craving the court-
(a) 	where parties have agreed on further procedure, of consent-
(i) to appoint the cause to the Procedure Roll for consideration of all the preliminary pleas of parties or such of the pleas as may be specified;
(ii) to allow to parties a preliminary proof on specified matters or in respect of specified pleas;
(iii) to allow to parties a proof before answer of their respective averments under reservation of such preliminary pleas as may be specified;
(iv) to allow a proof
(v) to allow issues for jury trial; or
(vi) to make some other specified order; or
(b) 	where parties have been unable to agree on further procedure to appoint the cause to the By Order (Adjustment) Roll.
(6) 	In a cause which is one of more than one cause arising out of the same cause of action, the court may, on or after pronouncing an interlocutor ordering further procedure under paragraph (5)-
(a) on the motion of a party to that cause, and
(b) after hearing parties to all those causes,
appoint that cause or any other of those causes to be the leading cause and to sist the other causes pending the determination of the leading cause.
(7) 	In this rule, "pursuer" includes petitioner, noter or minuter, as the case may be.
Chapter 24
Amendment of Pleadings
Powers of court
24.1.-(1) In any cause the court may, at any time before final judgment, allow an amendment mentioned in paragraph (2).
(2) 	Paragraph (1) applies to the following amendments-
(a) 		an amendment of a principal writ which may be necessary for the purpose of determining the real question in controversy between the parties, notwithstanding that in consequence of such amendment-
(i) 	the sum sued for in a summons is increased or restricted; or
(ii) 	a different remedy from that originally concluded for or craved is sought;
(b) 	an amendment which may be necessary-
(i) 	to correct or supplement the designation of a party to the cause;
(ii) 	to enable a party who has sued or has been sued in his own right to sue or be sued in a representative capacity;
(iii) 	to enable a party who has sued or has been sued in a representative capacity to sue or be sued in his own right or in a different representative capacity;
(iv) 	to add the name of an additional pursuer, a petitioner or person whose concurrence is necessary;
(v) 	where the cause has been commenced or presented in the name of the wrong person, or it is doubtful whether it has been commenced or presented in the name of the right person, to allow any other person to be sisted in substitution for, or in addition to, the original person; or
(vi) 	to direct conclusions against a third party brought into an action under Chapter 26 (third party procedure);
(c) 	an amendment of a condescendence, defences, answers, pleas-in-law or other pleadings which may be necessary for determining the real question in controversy between the parties; and
(d) 	where it appears that all parties having an interest have not been called or that the cause has been directed against the wrong person, an amendment inserting in the instance of the principal writ an additional or substitute party and directing existing or additional conclusions or craves, averments and pleas-in-law against that party.
Chapter 26
Third Party Procedure
Applications for third party notice
26.1.-(1) Where, in an action, a defender claims that-
(a) 	he has in respect of the subject-matter of the action a right of contribution, relief or indemnity against any person who is not a party to the action, or
(b) 	a person whom the pursuer is not bound to call as a defender should be made a party to the action along with the defender in respect that such person is-
(i) 	solely liable, or jointly or jointly and severally liable with the defender, to the pursuer in respect of the subject-matter of the action, or
(ii) 	liable to the defender in respect of a claim arising from or in connection with the liability, if any, of the defender to the pursuer, he may apply by motion for an order for service of a third party notice on that other person in Form 26.1-A for the purpose of convening that other person as a third party to the action.
(2) 	Where-
(a) a pursuer against whom a counterclaim has been made, or
(b) a third party convened in the action,
seeks, in relation to the claim against him, to make against a person who is not a party, a claim mentioned in paragraph (1) as a claim which could be made by a defender against a third party, he shall apply by motion for an order for service of a third party notice in Form 26.1-B (notice by pursuer) or Form 26.1-C (notice by third party), as the case may be, in the same manner as a defender under that paragraph; and rules 26.2 and 26.7 shall, with the necessary modifications, apply to such a claim as they apply in relation to such a claim by a defender.
Chapter 36
Proofs
Hearing parts of proof separately
36.1.-(1) In any cause the court may-
(a) 	at its own instance, or
(b) 	on the motion of any party,
order that proof on liability or any other specified issue be heard separately from proof on any other issue and determine the order in which the proofs shall be heard.
(2) 	The court shall pronounce such interlocutor as it thinks fit at the conclusion of the first proof of any cause ordered to be heard in separate parts under paragraph (1).

Appendix C
Statistics

Claims brought under the 1930 Act:
ABI statistics
1.1.	In December 1996 the ABI sought information from a number of its members on  their experience of the 1930 Act. The ABI's findings were that insurers had very few cases involving the 1930 Act. They suggested that there had been no more than one hundred and probably nearer to sixty or seventy cases involving the 1930 Act. Generally, the insurer dealt directly with the third party, without reference to the 1930 Act and without obliging the third party to obtain a judgment unless liability or the status of the cover was in dispute.
1.2.	Many of the cases involving the 1930 Act were claims involving public liability and employers liability. The ABI represented the incidence of 1930 Act cases in the context of the different classes of general business as follows:

Law Commission Survey of Applications to Restore Dissolved Companies to the Register
1.3	In December 1996 and January 1997 we analysed over 1,000 applications under sections 651 and 653 of the Companies Act 1985.
The nature of the third party's underlying claim
1.4	The nature of the third party's underlying claim against the insured and information on whether he intended to proceed under the 1930 Act was usually clear from the application. Those applications which were clearly made with the intention of proceeding under the 1930 Act could be broken down into the following categories:

1.5	The fact that these claims involved actions against companies rather than individuals explains the larger number of applications involving employer's liability and the small number of claims involving professional liability.
The application procedure
1.6	In many of the applications which we examined, applicants filed long affidavits setting out the particulars of their underlying claims against the company, as well as affidavits of service detailing the parties who had received notification of their applications. In the cases we surveyed, every application to restore was granted.

1.	
Appendix D
Insolvency Clause Recommended by the ABI/LIRMA and ILU

Where an Insolvency Event occurs in relation to the Reinsured the following terms apply (and, in the event of any inconsistency between these terms and any other terms of this Agreement, these terms shall prevail):
1. 	Notwithstanding any requirement in this Agreement that the Reinsured shall actually make payment in discharge of its liability to its policyholder before becoming entitled to payment from the Reinsurer:
(a) 	the Reinsurer shall be liable to pay the Reinsured even though the Reinsured is unable actually to pay, or discharge its liability to, its policyholder; but
(b) 	nothing in this clause shall operate to accelerate the date for payment by the Reinsurer of any sum which may be payable to the Reinsured, which sum shall only become payable as and when the Reinsured would have discharged, by actual payment, its liability for its current net loss but for it being the subject of any Insolvency Event.
2. 	The existence, quantum, valuation and date for payment of any sum which the Reinsurer is liable to pay the Reinsured under this Agreement shall be those and only those for which the Reinsurer would be liable to the Reinsured if the liability of the Reinsured to its policyholders had been determined without reference to any term in any composition or scheme of arrangement or any similar such arrangement, entered into between the Reinsured and all or any part of its policyholders, unless and until the Reinsurer serves written notice to the contrary on the Reinsured in relation to any composition or scheme of arrangement.
3. 	The Reinsurer shall be entitled (but not obliged) to set-off, against any sum which it may be liable to pay the reinsured, any sum for which the Reinsured is liable to pay the Reinsurer.
An Insolvency Event shall occur if:
A 	(i) (in relation to (1),(2) and (3) above) a winding-up petition is presented in respect of the Reinsured or a provisional liquidator is appointed over it or the if the Reinsured goes into administration, administrative receivership or receivership or if the Reinsured has a scheme of arrangement or voluntary arrangement proposed in relation to all or any part of its affairs; or
(ii) (in relation to (1) above) if the reinsured goes into compulsory or voluntary liquidation;
or, in each case, if the Reinsured becomes subject to any other similar insolvency process (whether under the laws of England and Wales or elsewhere) and
B 		the reinsured is unable to pay its debts as and when they fall due within the meaning of section 123 of the Insolvency Act 1986 (or any statutory amendment or re-enactment of that section). 
1.	
Appendix E
The City of London Law Society Insurance Sub-Committee

The Proposed Third Parties (Rights Against Insurers) Act 1997
An Outline of Provisions
1. 	The Third Parties (Rights Against Insurers) Act 1930 shall apply only to policies of insurance having inception dates up to and including 31 December 1997, and shall have no effect whatsoever in respect of policies with inception dates thereafter.
2. 	This Act shall apply to policies of compulsory liability insurance having inception dates on or after 1 January 1998.
3. 	Liability insurance is compulsory for the purposes of this Act if it is required by virtue of any Statute, Statutory Instrument, Regulation or Bylaw.
4. 	This Act shall apply, where liability insurance is compulsory, to mutual insurance associations and indemnity funds analogous to contracts of insurance, including (without limitation) the Solicitors Indemnity Fund.
5. 	Where a third party claimant has an actual or contingent claim against any company or individual insured under any contract of insurance to which this Act applies, upon the occurrence of the later of:
(a) 		The completion of the exchange of statements of case in any Court action or arbitration in which the claim has not already been struck out; and
(b) 		The passing, on grounds of insolvency, of a winding-up resolution or the making of a winding-up or Bankruptcy order or the appointment of a Provisional Liquidator,
there shall be transferred to any such claimant all the rights of the relevant company or individual under that contract of insurance in relation to the particular claim.
6. 	The rights transferred by 5 above shall include, without limitation:
(a) 		the right to commence proceedings (including arbitration) against any relevant insurer or to continue in his own name (assuming the risk of costs incurred thenceforth) any such proceedings already begun; and
(b) 		the right to be given all such information as may be necessary to establish whether or not he the claimant stands to benefit from any relevant insurance.
7. 	Any person including, without limitation, any insured, insurer, broker, underwriting agent, liquidator, administrator, provisional liquidator or trustee in bankruptcy, having within his possession, custody or power any of the information referred to in 6(b) above shall, upon written request by the third party claimant, produce such information to him or his representative promptly.
8. 	Upon the transfer of rights pursuant to 5 above:
(a) 		the third party claimant shall be substituted for the insured in any proceedings (including arbitration) already commenced between the insured and the insurer, thereby assuming the risk of costs incurred thenceforth, which proceeding shall be heard together with the principal claim if practicable; or
(b) 		if there are no proceedings in progress, the third party claimant shall promptly require the insurer to state, also promptly, whether there are any coverage issues and, if so, shall join the insurer into the action (including arbitration) against the insured and any coverage issues shall be heard to together with the principal claim.
9. 	Any provision in any contract of compulsory insurance which:
(a) 		directly or indirectly vitiates it to any degree whatever in the event of insolvency; or
(b) 		requires the insured to perform any act or comply with any condition or be in any particular state, which requirement it cannot satisfy by reason of its insolvency; or
(c) 	prohibits the disclosure of any information about it,
shall be void and of no effect whatever as against any third party claimant.
10. 	Any agreement between the insured and the insurer, whether made before or after insolvency, which purports to reduce or remove the insurance available to a third party shall be void and of no effect whatsoever.
11. 	The bankruptcy or death of any individual, and the liquidation or administration or dissolution of any company, insured under any contract of insurance to which this Act applies shall not result in any claim to which the provisions of 5 or 8(a) above apply, or might otherwise apply, being stayed or struck out.

Appendix F
Summary of Schemes of Third Party Rights Against Insurers in other Jurisdictions
1.1	In this appendix, we look briefly at some of the schemes of third party rights which have been introduced in other jurisdictions. We do not examine broader issues, such as the ability of insurers to rely on policy defences generally nor duties of disclosure.
Australian Commonwealth legislation 
1.2	Under Australian Commonwealth legislation, which applies in all states and territories, third parties do not have a right of direct action against insurers where the insured is insolvent, but have rights over the insurance monies in preference to those of other creditors. Third parties have a right of direct action against insurers in cases where the insured has died or disappeared.
The rights of third parties on the bankruptcy or insolvency of the insured 
 1.3	Section 117 of the Bankruptcy Act 1966~~ provides that 
117.-(1) Where-
(a) 	a bankrupt is or was insured under a contract of insurance against liabilities to third parties; and
(b) 	a liability against which he is or was so insured has been incurred (whether before or after he became a bankrupt)
the right of the bankrupt to indemnity under the policy vests in the trustee and any amount received by the trustee from the insurer under the policy in respect of the liability shall, if the liability has not already been satisfied, be paid in full forthwith to the third party to whom it has been incurred.
(2) 	The last preceding sub-section does not limit the rights of the third party in respect of any balance due to him after the payment referred to in that sub-section has been made.
(3)	This section applies notwithstanding any agreement to the contrary, whether entered into before or after the commencement of this Act.
The rights of third parties on the death or disappearance of the insured
1.4	Section 51 of the Insurance Contracts Act 1984 provides that
51.-(1) Where:
(a)  	the insured under a contract of liability insurance is liable in damages to a person (in this section called the "third party");
(b)  	the insured has died or cannot, after reasonable enquiry, be found; and
(c)  	the contract provides insurance cover in respect of the liability;
the third party may recover from the insurer an amount equal to the insurer's liability under the contract in respect of the insured's liability in damages.
(2)  	A payment under subsection (1) is a discharge, to the extent of the payment, in respect of:
(a)  the insurer's liability under the contract; and
(b)  the liability of the insured or of his legal personal representative 	to the third party.
(3)	This section does not affect any right that the third party has in respect of the insured’s liability, being a right under some other law of the Commonwealth or under a law of a State or Territory.
1.5	It is not clear whether or not a third party must actually have established the liability of the insured before he can proceed under section 51. It appears, however, that the third party may be able to bring proceedings against the insured and the insurer in one action. 
The ability of insurers to rely on policy defences against third parties 
1.6	It appears also that the insurer can rely on any defence against the third party which he could have relied on as against the insured but that third parties may be able to rely on section 54 of the Insurance Contracts Act in respect of certain conditions and may themselves be able to fulfil certain conditions in the insurance contract. 
1.7	Section 54 of the Insurance Contracts Act 1984 provides as follows:
54.-(1)	Subject to this section, where the effect of a contract of insurance would, but for this section, be that the insurer may refuse to pay a claim, either in whole or in part, by reason of some act of the insured or of some other person, being an act that occurred after the contract was entered into but not being an act in respect of which subsection(2) applies, the insurer may not refuse to pay the claim by reason only of that act but his liability in respect of the claim is reduced by the amount that fairly represents the extent to which the insurer's interests were prejudiced as a result of that act.
(2)	Subject to the succeeding provisions of this section, where the act could reasonably be regarded as being capable of causing or contributing to a loss in respect of which insurance cover is provided by the contract, the insurer may refuse to pay the claim. 
(3)	Where the insured proves that no part of the loss that gave rise to the claim was caused by the act, the insurer may not refuse to pay the claim by reason only of the act.
(4)	Where the insured proves that some part of the loss that gave rise to the claim was not caused by the act, the insurer may not refuse to pay the claim, so far as it concerns that part of the loss, by reason only of the act.
(5)	Where -
	(a)	the act was necessary to protect the safety of a person or to preserve property; or
	(b)	it was not reasonably possible for the insured or other person to do the act, 
the insurer may not refuse to pay the claim by reason only of the act.
(6)	A reference in this section to an act includes a reference to -
(a)	an omission; and
(b)	an act or omission that has the effect of altering the state or condition of the subject-matter of the contract or of allowing the state or condition of that subject-matter to alter.
1.8	Provided the act or omission could not be regarded as capable of causing or contributing to a loss, the insurer cannot refuse to pay any part of the loss, but can reduce its liability by an amount representing the extent to which its interests were prejudiced as a result of the act. Where the act or omission is capable of causing or contributing to the loss, the insurer can refuse to pay the claim unless the insured proved it did not actually cause the loss. Where part of the loss was not caused by the insured's act, the protection of the section is still applicable to that part. It is not clear whether the section can be used in relation to claims made policies.
New Zealand, the Australian Capital Territory and New South Wales 
1.9	Section 9 of the New Zealand Law Reform Act 1936 allows third parties who have suffered loss due to the fault of a wrongdoer to recover directly from the wrongdoer's insurer. The third party's right is a right to enforce a statutory charge over the insurance money equal to the amount of compensation owed by the insured to the third party and is not restricted to circumstances where the insured has been declared bankrupt or wound up. Similar provisions have been adopted in New South Wales (in section 6 of the Law Reform (Miscellaneous Provisions) Act 1944) and the Australian Capital Territory (in section 25 of the Law Reform (Miscellaneous Provisions) Act 1955). 
1.10	Section 9 provides that: 
9.-(1)  If any person (hereinafter in this Part of this Act referred to as the insured) has, whether before or after the passing of this Act, entered into a contract of insurance by which he is indemnified against liability to pay any damages or compensation, the amount of his liability shall, on the happening of the event giving rise to the claim for damages or compensation, and notwithstanding that the amount of such liability may not then have been determined, be a charge on all insurance money that are or may become payable in respect of that liability. 
(2)  	If, on the happening of the event giving rise to any claim for damages or compensation as aforesaid, the insured has died insolvent or is bankrupt or, in the case of a corporation, is being wound up, or if any subsequent bankruptcy or winding-up of the insured is deemed to have commence not later than the happening of that event, the provisions of the last preceding subsection shall apply notwithstanding the insolvency, bankruptcy, or winding up of the insured. 
(3)  	Every charge created by this section shall have priority over all other charges affecting the said insurance money, and where the same insurance money is subject to 2 or more charges by virtue of this Part of this Act those charges shall have priority between themselves in the order of the dates of the events out of which the liability arose, or, if such charges arise out of events happening on the same date, they shall rank equally between themselves.
(4)  	Every such charge as aforesaid shall be enforceable by way of an action against the insurer in the same way and in the same Court as if the action were an action to recover damages or compensation from the insured; and in respect of any such action and of the judgment given therein the parties shall, to the extent of the charge, have the same rights and liabilities, and the Court shall have the same powers, as if the action were against the insured:
Provided that, except where the provisions of subsection (2) of this section apply, no such action shall be commenced in any Court except with the leave of that Court.
(5)  	Such an action may be brought although judgment has been already recovered against the insured for damages or compensation in respect of the same matter. 
(6)  	Any payment made by an insurer under the contract of insurance without actual notice of the existence of any such charge shall to the extent of that payment be a valid discharge to the insurer, notwithstanding anything in this Part of this Act contained.
(7)  	No insurer shall be liable under this Part of this Act for any sum beyond the limits fixed by the contract of insurance between himself and the insured.
The statutory charge
1.11	The statutory charge attaches on the date of the event giving rise to liability.  The attachment of the charge does not give third parties an absolute right to recover that money, however. In FAI (NZ) General Insurance v Blundell, Hardie Boys J said that, "Until liability of insured to plaintiff, and of insurer to insured, is established, the charge remains in a sense conditional." It appears that the insurer can probably rely on breaches of the insurance contract after the attachment of the charge to justify a refusal of cover.
The leave requirement
1.12	Under section 9(4), the third party's right of action is subject to a leave requirement unless the insured has been declared bankrupt or wound up. Section 9 does not specify any criteria for the grant or refusal of leave, but it appears that leave will be refused if the insurer can show that he is entitled to disclaim liability or if the third party could proceed against an alternative, common law defendant. 
1.13	The leave requirement has raised questions as to when the limitation period governing the third party's right of action against the insurer begins to run. It appears that that the limitation period governing the third party's action against the insurer may expire at the same time as his claim against the insured.
Multiple claimants against the insurance fund
1.14	Specific provision is made in section 9 for the distribution of insurance money to multiple third party claimants. Section 9(3) of the Law Reform Act 1936 provides:
... where the same insurance money is subject to 2 or more charges by virtue of this Part of this Act those charges shall have priority between themselves in the order of the dates of the events out of which the liability arose, or, if such charges arise out of events happening on the same date, they shall rank equally between themselves.
The ability of insurers to rely on policy defences
1.15	Section 11 of the New Zealand Law Reform Act 1977 prevents insurers from relying on breaches to exclude or limit liability "if the insured proves on the balance of probability that the loss in respect of which the insured seeks to be indemnified was not caused or contributed to by the happening of such events or the existence of such circumstances." 
South Africa
1.16	Section 156 of the South African Insolvency Act 1936 provides third parties with a right of direct action against insurers in cases where the insured is insolvent. Third parties need not obtain judgment against the insured before acquiring a right of action against insurers under the Act.
Section 156 provides:
156.-Whenever any person (hereinafter called the insurer) is obliged to indemnify another person (hereinafter called the insured) in respect of any liability incurred by the insured towards a third party, the latter shall, on the sequestration of the estate of the insured, be entitled to recover from the insurer the amount of the insured's liability towards the third party but not exceeding the maximum amount for which the insurer has bound himself to indemnify the insured. 
Establishing the liability of the insured
1.17	When proceeding against the insurer, the third party must establish both the liability of the insured to him and the liability of the insurer under the insurance contract. The third party is not required to join the insured to his action against the insurer. We understand that, although the third party could join the insured to his action under section 156 should he wish to do so, this does not happen in practice. 

The rights of the insurer against the third party 
1.18	In defending an action under section 156, the insurer may rely on any defence which he would have had against the insured. In Przybylak v SANTAM Insurance Ltd, the court referred to the English legislation and to decisions reached by the English court in Post Office v Norwich Union Fire Insurance Society Ltd and Farrell v Federated Employers Insurance Association Ltd with approval: 
In England similar provisions are contained in the Third Parties (Rights Against Insurers) Act 1930. In interpreting these provisions it has been held that it is open to the insurer to rely as against a third party on any defence which would have been available against the insured.
Nigeria
1.19	Section 68 of the Insurance Decree 1997 allows third parties to join insurers into proceedings against the insured in certain circumstances. It provides:
68.-(1)	Where a third party is entitled to claim against an insured in respect of a risk insured against, he shall have a right to join the insurer of that risk in an action against the insured in respect of the claim.
(2)	A third party shall, before bringing an application to join the insurer, give to the insurer at least 30 days notice of the pending action and of his intention to bring the application.
The nature of the third party's right
1.20	There has been some debate as to whether section 68 confers a substantive or merely a procedural right on third parties. It appears that third parties may only have a procedural right under section 68 and that they may only be able to join insurers as defendants to their proceedings against the insured where they have an existing substantive right against the insurer under sections 73 and 67 of the Insurance Decree 1997. These sections provide third parties, respectively, with rights against motor insurers in cases involving personal injury and death and with rights against fire insurers.
The ability of the insurer to rely on policy defences
1.21	Section 68 does not affect the ability of the insurer to rely on policy defences, although it has been suggested that, in practice, joinder may have this effect.  
The United States of America.
1.22	The principle of privity of contract is generally observed in US law, which also maintains the distinction between liability and indemnity insurance, a distinction which has been blurred in English law. However, the effect of some of the specific regimes of third party rights which have been introduced in some states may be to remove this distinction. The rights of third parties against insurers vary greatly from state to state. In some states, they have a right of direct action against the insurer without having first to establish the liability of the insured. In others, they must establish the liability of the insured first. Their right of action may or may not be dependant on the insolvency of the insured. In many cases, such statutes were introduced because of concern over the inclusion of "no action" clauses in insurance contracts. These provided that the insurer would only reimburse the insured after the insured had paid the injured party. If the insured was insolvent, the injured party would not be compensated. Examples of different regimes of third party rights are discussed briefly below.
Louisiana
1.23	The Louisiana Direct Action Statutes state that, "all liability policies are executed for the benefit of all injured persons to whom the insured is liable."  It allows third parties to proceed against both the insurer and the insured and against the insurer alone if the insured is insolvent or dead. 
1.24	The statute provides that the third party has a right of action provided that it is "within the terms and limits of the policy" and that any action "shall be subject to all of the lawful conditions of the policy contract and the defences which could be urged by the insurer to a direct action brought by the insured". However, the court has prevented insurers from relying on some policy defences which they could have used against the insured or which the insured could have raised against the third party. It has been suggested that, in fact, "the insurer can raise those defences which it could raise in an action against it by its insured which do not defeat the public policy underlying the right of direct action in the victim."
Florida
1.25	In Florida, the right of a third party to proceed against both liability insurer and insured is a result of case law rather than legislation. In Shingleton v Bussey, the Florida Supreme Court held that "the time has arrived when the legal reasons advanced in favour of joinder and direct action against an insurer outweigh and preponderate over the traditional notions asserted to justify precluding an injured third party from enjoying such rights." 
1.26	The third party cannot sue the insurer alone, but can join the insurer in an action against the insured. The court can order separate trials, but will only do so if there is dispute as to the existence of insurance cover.
New York
1.27	Article 3420 of the New York Insurance Law 1984 allows third parties to proceed against liability and indemnity insurers once the insured is insolvent and once judgment has been obtained against him. Third parties assume the rights of the insured against the insurer.
France
1.28	French law is largely codified. Specific rules relating to insurance are contained in the Code des Assurances. The doctrine of privity of contract is part of French law but has been eroded and the courts have developed the concept of action directe to allow a third party to proceed against the insurer of the person who caused him harm. Article L124-3 of the Code des Assurances provides:
The insurer cannot pay to a party other than the wronged third party all or any part of the sums due by him until the third party has been indemnified for losses arising from the wrongful act causing the liability of the insured.
Establishing the liability of the insured and of the insurer 
1.29	Third parties may proceed against the insured to establish his liability and then bring a separate action directe against the insurer or may proceed against both insurer and insured in the framework of the action directe proceedings. Unless they have established the liability of the insured in separate proceedings, it appears that third parties must usually join the insured in the action directe and establish the liability of both the insured and of the insurer.
The rights of the insurer against the third party 
1.30	Article L 112-6 of the Code des Assurances provides that the insurer can rely, as against third parties, on conditions which the insurer could have relied on against the insured. The insurer can only rely, however, on breaches of conditions in the insurance contract which occurred prior to the incident giving rise to the insured's liability to the third party.  Article R 124-1 of the Code des Assurances provides that:
Insurance policies relating to civil liability must provide that no breach by the insured of his obligations following the date of the event giving rise to liability shall be used as a defence against injured parties ... 
Belgium
1.31	Belgian law provides third parties with a right of direct action against insurers, regardless of the solvency of the insured. Article 86 of the law of 25 June, 1992 on terrestrial insurance provides:
The insurance creates a personal right against the insurer for the benefit of the victim.
The indemnity due by the insurer belongs to the victim alone, with the exclusion of the other creditors of the insured.
Establishing the liability of the insurer and of the insured 
1.32	The third party can proceed directly against the insurer. He need not pursue the insured as well but the insured may intervene in the proceedings. The insurer can also apply for the insured to become a party to the proceedings. We understand that, in most cases, the third party, the insured and the insurer are parties to the action. 
The ability of the insurer to rely on policy defences
1.33	The ability of the insurer to rely on policy defences varies according to whether or not the insurance is compulsory or non-compulsory. In the case of compulsory insurance, the insurer cannot rely on any policy defences, whether they arose prior to or after the incident giving rise to the liability of the insured. Where insurance is non-compulsory, the insurer can rely on policy defences arising prior to the incident giving rise to the liability of the insured. 
The right of the insurer to an indemnity from the insured 
1.34	The insurer can recover from the insured sums which he has paid to a third party under article 86 and which he could have refused to pay to the insured under the insurance contract. 
Canada
1.35	Insurance law in Canada is governed by provincial legislation, but there is considerable uniformity across the provinces. A third party must have obtained a judgment against the insured and the insured must have failed to satisfy that judgment before he can proceed against the insurer. 
Right to enforce judgment against the insurer 
1.36	Section 132 of the Ontario Insurance Act 1924 provides:
132.-(1) Where a person incurs a liability for injury or damage to the person or property of another, and is insured against such liability, and fails to satisfy a judgment awarding damages against him in respect of his liability, and an execution against him in respect thereof is returned unsatisfied, the person entitled to the damages may recover by action against the insurer the amount of the judgment up to the face value of the policy, but subject to the same equities as the insurer would have if the judgment had been satisfied.
(2)	This section does not apply to motor vehicle liability policies.
1.37	It appears that, in the action against the insurer, the third party need not usually prove the case against the insured again, but must prove that he obtained judgment and that there was insurance cover. The ability of the third party to proceed against the insurer may be limited to certain types of claim in some provinces. 
Multiple claimants
1.38	It appears that an insurer may pay the full amount of the policy to a third party claimant, even if it knows of other claims pending and even though the court has power to apportion the sum amongst claimants.

Appendix G 
List of individuals and organisations who have assisted with the project
Association of British Insurers
De Bandt, Van Hecke & Lagae
Barlow Lyde & Gilbert 
Professor John Birds, University of Sheffield 
Adrian Briggs
Mr Registrar Buckley
City of London Law Society's Insurance Committee
Dr Malcolm Clarke, St John's College, Cambridge
Department of Trade and Industry
Department of the Environment, Transport and the Regions
Professor Bill Dyfwa, University of Stockholm 
Ebsworth & Ebsworth
Richard Eveleigh, Berrymans Lace Mawer
Pete Farthing, Clyde & Co
L J Foster
Mr Justice B H Giles
Peter Goldsmith QC 
Ian Govey, Corporations Law Simplification Program, Australia
Alison Green, British Insurance Law Association
Ray Hodgin, University of Birmingham
The Insolvency Service
Insurance Ombudsman Bureau
International Group of P&I Clubs
Ethne Harkness, Queens University of Belfast
Law Society Consumer and Commercial Law Committee, Insurance Law Sub-Committee
Le Boeuf Lamb Greene & Macrae
Andrew Legg, Linklaters and Paines
Edward Lewis
Lloyd's of London
Lord Chancellor's Department
Mr Justice Mance
Mathew Marshall, Institute of London Underwriters
Minter Ellison
Dr Micheal Muller-Stuler
National Consumer Council
Nigerian Law Reform Commission
Pat Northey, Russell Mc Veagh
Dr Omogbai I Omo-Eboh
Dr Roy Palmer, Medical Protection Society
Policyholders Protection Board
Peter Rees, Norton Rose
Professor Len Sealy, Gonville and Caius College, Cambridge
Robert Seward, Tindall Riley & Co
Shepstone & Wylie
Christopher Symons QC 
Christian Wells, Lovell White Durant
David Wolfson