COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
(THE VICE CHANCELLOR)
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE LONGMORE
LORD JUSTICE MAURICE KAY
| IN THE MATTER OF OT COMPUTERS LTD
|FIRST NATIONAL TRICITY FINANCE LTD
|- and -
|OT COMPUTERS LTD (IN ADMINISTRATION)
(instructed by Nabarro Nathanson) for the Appellant
GABRIEL MOSS Esq QC and BARRY ISAACS Esq
(instructed by Lovells) for the Respondent
Hearing dates :29th, 30th March 2004
Crown Copyright ©
Lord Justice Longmore:
This appeal raises two important points in relation to the Third Parties (Rights Against Insurers) Act 1930 ("the 1930 Act") pursuant to section 1 of which the rights of a person, insured against liability to third parties, to recover against his insurers is, in the event of insolvency on the part of the insured, transferred to the third party to whom the insured was liable. In order to give effect to such rights, section 2 gives third parties the right to obtain information about the insurance arrangements made by the insolvent insured.
"1 . . .
(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 I 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.
. . . . . . . . . . . . . . . . . . . .
(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.
. . . . . . . . . . . . . . . . . . . .
2 . . .
(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.
(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."
The dispute between the parties arises from an extended warranty scheme given by computer suppliers to their customers. A customer (who will normally be a consumer for the purposes of consumer legislation) may be content with the mixture of common law and statutory rights he has under the ordinary law but computer suppliers often offer additions to these rights for an extra price. The standard support package included a promise to repair or replace faulty parts or, indeed, faulty products if any defect appeared within one year. There was then a one year on site option by which the company promised to visit the customer and rectify any hardware problem arising within one year of purchase. An additional option was the "Premier on site option" for 3 or 5 years by which the company promised to send someone to the customer's premises to repair the computer at home or, if that was impossible, to take it away and return it when repaired. Different schemes had different features but the feature of each scheme was that it was additional to a customer's ordinary rights, which would merely entitle the customer to compensation for any breach of a contract which a customer could prove.
The administrators have informed FNTF that OT Computers and Tiny have taken out insurance with, among others, AXA Insurance (UK) Ltd ("AXA") in relation to their liability under the extended warranty contracts made with their customers but neither the administrators nor AXA have been willing to disclose to FNTF further information about the contracts of insurance or their terms. Accordingly FNTF in their own name or that of a customer (to whose rights they are subrogated) have claimed the following relief:-
"(1) Information in the possession of the Respondents as Administrators of OT Computers Limited ("the Company") and required for the purpose of ascertaining whether any rights against the Company's insurers have been transferred to and vested in customers by the Third Parties (Rights Against Insurers) Act 1930 in respect of breaches of contract by the company which have been remedied by or at the expense of the Applicant;
(2) Leave under section 11(3)(d) of the Insolvency Act 1986 to commence and prosecute proceedings against the Company for the enforcement by way of subrogation of the rights of customers in respect of breaches of contract by the Company which have been remedied by or at the expense of the Applicant."
The information sought in paragraph (1) is not specified but Mr John McDonnell QC made clear in his submissions on behalf of the claimants that he wanted disclosure of the policy or policies of insurance which, according to the administrators, OT Computers and/or Tiny had taken out with AXA and others in respect of their liability under extended warranty contracts.
(1) a claim made in pursuance of the extended warranty contracts was not a claim in respect of which OT Computers or Tiny were "insured against liability to third parties" under section 1 of the 1930 Act, which only applied to liabilities in tort or liabilities arising in tort and contract concurrently;
(2) even if the liability was of a kind covered by the 1930 Act, either no rights against any insurers had yet been transferred to the claimants or it was impossible to know whether any such rights had been so transferred with the result that there was no information "reasonably . . . required . . . for the purpose of ascertaining whether any rights have been transferred to and vested" in the claimants for the purpose of section 2(1) of the 1930 Act.
For these reasons paragraph 1 of the relief claimed should be refused as, indeed, should paragraph 2 if the first argument was correct. Mr Moss has also sought to put forward a third argument viz. that the extended warranty contract scheme was itself insurance and that OT Computers were carrying on the business of insurance so that section 1(5) of the Act applies, because the relationship of OT Computers and AXA is effectively one of reinsurance.
Mr Moss's first submission is far-reaching. It is, I think, the first time that it has ever been suggested that, if a person insures against his contractual liabilities to third parties, the 1930 Act has no application to claims made in respect of those contractual liabilities. This was not the view of the Law Commission in 1998 when it published its consultation paper on possible reforms to the 1930 Act, see Law Com. Consultation Paper paras. 11.9 and 11.19. Moreover, claims for loss of or damage to cargo laden in ships have given rise to a number of reported cases which have considered problems arising under the Act but none of the array of distinguished counsel who argued such cases or the judges who decided them have suggested that, when a shipowner has become insolvent, the cargo-owner's claim that the vessel was unseaworthy, or that the shipowner failed to exercise due diligence to make the vessel seaworthy, was a claim which, if liability for it was insured, falls outside the 1930 Act.
"an unliquidated claim against the company for breach of [a] contract of carriage in respect of the shortages and for damages based on [the vessel] being unseaworthy"
In due course judgment was entered against the company for £12,388.50 and costs and the claim thus became a claim for that liquidated claim and a further unliquidated sum for costs. As Megarry J observed (81E) once a winding-up order was made (if it were to be made), then the 1930 Act would apply automatically and
"the company's claim against [its insurers] will vest in [the claimant cargo-owners] and could be pursued by [the claimant cargo-owners] against [the insurers], though as to the costs only after they have been quantified by taxation."
"It will be seen that there is an automatic transfer of the rights of the insured company to the third party upon the making of a winding up order in respect of the insured company. Mr. Edwards-Jones accepted that for the purposes of his argument before me the insurance . . . fell within the Act . . ."
If Mr Moss's argument before us were correct, the insurance would not have fallen within the Act, there would have been no automatic transfer of the rights of the insured company to third party and the whole application to Megarry J would have been an exercise in futility which that learned judge would have been most unlikely to sanction.
"Where under any contract of insurance a person . . . is insured against liabilities to third parties which he may incur"
are perfectly general. To confine "liabilities" to tortious liabilities or, even, "tortious liabilities and contractual liabilities akin to tortious liabilities" is to put a considerable gloss upon the statute. Such gloss goes far beyond any normally permissible exercise of construction.
"I have to choose between construing the words "where a person is insured against liabilities to third parties which he may incur" as limited to insurance against liabilities which may be imposed on that person by operation of law, whether for breach of contract or in tort, or as including the underwriting of liabilities voluntarily undertaken by that person, i e the payment of contract debts. I do not believe that the words were intended to include the latter."
He therefore dismissed the claim.
"insured against liabilities to third parties which he may incur".
These words are perfectly general (as I have already observed) and are apt to include liabilities in debt just as much as liabilities in damages.
I turn therefore to the application made pursuant to section 2(1) of the Act that the administrators do make disclosure of the insurance policies with AXA and others covering claims made pursuant to the extended warranty scheme. It is far from clear to me what commercial purpose is being served by the administrators resisting such disclosure, if they fail on the first limb of the argument. Mr Moss informed us that the administrators were negotiating with the insurers for a commutation of the policy but mere disclosure of the policy will not prevent any commutation; nor will non-disclosure assist commutation since commutation is not feasible while customers are trying to proceed with claims under the extended warranty scheme.
"could be pursued by [the cargo-owners] against Oceanus, though as to the costs only after they have been quantified by taxation"  Ch 75, 81E.
It was also accepted as being correct by Lord Templeman in Bradley v Eagle Star who stated in terms ( AC at 969F) that on the passing of a resolution for the voluntary winding-up of the insured company, the company's rights against Eagle Star were transferred to Mrs Bradley, even though the amount of the company's liability to Eagle Star had not then been established. Lord Templeman's speech was, however, a dissenting speech and in Nigel Upchurch Associates v The Aldridge Estates Investment Co Ltd  1 Lloyd's Rep. 535 Miss Barbara Dohmann QC, sitting as an Official Referee, decided that Lord Templeman's view on this matter, as well as the other (principal) matter, had been rejected by the majority of the House.
(1) until the result of the pending action it was impossible to know whether Jackson-Stops had actually incurred any liability; the cause of action in respect of the liability accrued when the breach of contract occurred (or when the loss occurred if suit was in tort) but one could not then know that there had been negligence since no-one had then so decided or agreed that there had been negligence;
(2) nor was it possible to know whether any rights against the insurer had been transferred on the insolvency since those rights only accrued on the establishment of liability
"Until such establishment not only is it impossible to know whether the triggering event "any such liability is incurred by the insured" has occurred but it is also impossible to identify the transferee, the third party to whom the liability was so incurred" (140i 141a);
(3) in the light of this impossibility no information could be reasonably required by the Woolwich "for the purpose of ascertaining whether any rights have been transferred . . . . or for the purpose of enforcing any such rights, if any" within section 2(1) of the 1930 Act. It was like saying on a Monday that information was reasonably required to ascertain the winner of a horse race on a Tuesday or saying between presentation and disposition of a petition for winding-up of a company that information was reasonably necessary for the purpose of ascertaining the date of commencement of the winding-up. If, in the event, the petition for winding-up is dismissed, the winding-up has never commenced;
(4) the purpose for which information is to be given is impossible of achievement and if no information could answer those purposes, it cannot reasonably be required to serve those unachievable purposes;
(5) Mr Symons' "conclusion" that the information sought from the liquidator was not yet reasonably required was correct not because, as Mr Symons urged, there was no transfer yet of the rights of the insured but because, as a variant of that argument:-
"no information can possibly exist which can serve the only permitted purposes of a request for information under section 2(1), namely ascertaining whether rights have been transferred and to enforce them".
"It seems to me 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."
Unfortunately the extracts from Hansard which we were shown (but, as I would say, in the event inadmissibly shown) indicate that that was exactly the intention of the proposer of the amendment which became sub-section 2(2) and of the government minister accepting the amendment.
On 16th November 1994 Sir Jonathan Mance delivered his widely admired and highly authoritative Donald O'May Lecture at Southampton called "Insolvency at Sea" later published in  LMCLQ 34. He there expressed reservations about both the Nigel Upchurch and the Woolwich cases and my indebtedness to his analysis of them will be apparent to anyone who knows his lecture. Sir Jonathan as jurist has a much freer rein to refer to Hansard than any judge sitting in his judicial capacity and he exercised that freedom. He even said (page 42) that Hansard "must . . . be a candidate for admission in any future litigation under section 2 of the Act". I have already said that I cannot go as far as that but again a question arises whether, pursuant to Pepper v Hart, Sir Jonathan's researches and conclusions have to be ignored. His views are well-known to those who concern themselves with insurance. A number of judges were in the audience at the lecture. These days judges read academic articles as part of their ordinary judicial activity. Yet Pepper v Hart constrains a judge in his judicial capacity to "forget" what he already knows. This was easy enough when recourse to Hansard was absolutely forbidden; but with Hansard partly within and partly outside the judicial domain, it is not an easy exercise.
"In a situation of solvency, the ranking of claims against the E&O underwriter depends upon the order in which the third party Names establish liability against the assured by judgment, arbitration award or settlement, thereby giving rise to a vested right on the part of the assured to indemnity in accordance with the terms of the cover. The same is true in a situation of insolvency. If the insolvency occurs after third party Names have established quantified liability, the right or rights to indemnity that were thereby established in the assured agent will be transferred to the Names upon the assured becoming formally insolvent. If quantified liability has not been established at the date of insolvency, a third party Name asserting a claim will have transferred under the Act merely an inchoate or contingent right. If before that Name establishes a quantified claim, other quantified claims are established which exhaust the cover, his contingent right will be rendered nugatory."
In describing the right transferred to the third party on insolvency as an "inchoate or contingent right" Phillips J was, consciously or unconsciously, echoing the language of Mr David Clarke QC (as he then was) on behalf of the appellant in Bradley v Eagle Star  AC 957 at 959C in a submission which, as I have already said, was not, in my view, rejected by the majority of the House.
"It is common ground that the obligation of the E&O underwriters to pay under their insurances only arises when the liability of their insured is established and quantified by judgment, arbitration award or settlement: see Post Office v. Norwich Union Fire Insurance Society Ltd  1 Lloyd's Rep. 216;  2 Q.B. 363 and Bradley v. Eagle Star Insurance Co. Ltd  1 Lloyd's Rep. 465;  A.C. 957. Under the Act the rights of the insured against the insurer are transferred to the third party on (in the case of an insured company) the making of a winding up order etc.: see s. 1(b) of the Act. It follows from this that a statutory transfer can take place before the obligation of the insurer to pay arises i.e. before the liability of the insured has been established. In such an event, since it is clear from the authorities that the third party is to be put in no better position than the insured, the third party does not obtain the right to immediate payment until the liability of the insured is established.
Mr. Martin's submission was that when the statutory transfer took place, all those who had good claims against the insured simultaneously had transferred to them the rights of the insured against the insurers. From this it is suggested that it followed that all should be treated equally so far as the insurance proceeds were concerned.
In my view this argument in effect treats as necessarily one and the same thing the rights which are transferred under the Act when the insured is wound up with the right to immediate payment from the insurers concerned. Where none of the claims has been established before the transfer is effected, it is true to say that all the third party claimants have the same rights transferred to them at the same time, but for the reason given, unless the claims have already been established, those rights do not at that time include the right to immediate payment by the insurers. That right only arises when, in each case, the claim is established, just as that right, while owned by the insured, would also arise only when the particular claim in question was established. It is only when that right arises that the insurers come under the correlative obligation to make payment. To my mind it follows that as each claim is established (whether this occurs before or after the statutory assignment), the right to payment arises and thus the amount of the available insurance is in effect diminished, so that when it is exhausted later established claims have no right to an indemnity. I can find nothing in the Act which begins to suggest that somehow a claimant third party whose claim is established cannot recover that claim under the Act, or has to share that recovery with others who have no rights against the insurers because the limit of cover has been reached."
Unfortunately the answers to the questions so far do not dispose finally of this appeal because the administrators have served a Respondents' Notice in respect of an argument that OT Computers and Tiny were acting "in the capacity of insurer under some other contract of insurance" within section 1(5) of the 1930 Act so that the liabilities of the companies to their customers do not constitute liabilities to third parties under the Act. The object of section 1(5) was to exclude a right of an insured person to proceed directly against reinsurers in the event of insolvency of an intermediate insurer; although the section does not in terms refer to reinsurance, if OT Computers and Tiny were themselves insurers of their customers, then their own insurers would effectively be reinsurers.
I would summarise the effect of this judgment in the following way:-
(1) there is no reason in principle why the 1930 Act does not apply to contractual liabilities (whether in debt or for damages), although the actual terms of the insurance may determine whether the Act will apply in any particular case. Tarbuck v Avon  QB 571 and T&N v Royal and Sun Alliance (unreported) should no longer be followed;
(2) Section 2 of the 1930 Act will usually enable a third party claimant to obtain disclosure of documentation before the establishment of the insured's liability to that third party. Nigel Upchurch v Aldridge  1 Lloyds Rep 535 and Woolwich v Taylor  1 BCLC 132 are no longer to be treated as authoritative on this question.
Lord Justice Maurice Kay:
Lord Justice Jonathan Parker: