England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
IN THE MATTER OF LEMMA EUROPE INSURANCE COMPANY LIMITED (IN LIQUIDATION)
AND IN THE MATTER OF THE CROSS BORDER INSOLVENCY REGULATIONS 2006
AND IN THE MATTER OF THE INSOLVENCY ACT 1986
HH Judge David Cooke QC
[2014] EWHC 3674 (Ch)

		Royal Courts of Justice Strand, London, WC2A 2LL
		24 May 2016

Lord Justice Patten :

1. This is an appeal by Mr Rodney Gardner, a solicitor, against an order of HH Judge David Cooke, sitting as a judge of the High Court, dismissing Mr Gardner's application to lift the stay on proceedings in the UK against the respondent, Lemma Europe Insurance Company Limited ("Lemma"), which is a Gibraltar company now in liquidation. The liquidation has been recognised in the UK by an order of Briggs J made on 14 February 2013. The effect of the order was to impose an automatic stay on proceedings against Lemma pursuant to Article 20 of the UNCITRAL Model Law set out in Schedule 1 to the Cross-Border Insolvency Regulations 2006. As a consequence, Lemma has the same protection against proceedings as would be conferred in the case of the liquidation of an English company by s.130(2) of the Insolvency Act 1986 ("IA 1986"). No action or proceeding shall be commenced against the company except by leave of the court.
2. The imposition of an automatic stay is designed to avoid the unnecessary expenditure of assets otherwise available for distribution amongst creditors and to support the replacement of a creditor's right to establish a claim by judgment in an action with a right to lodge a proof of debt. This process is inherently less expensive and carries with it a right of access to the Companies Court in the event that the proof is rejected: see Rule 4.83 of the IR 1986. Consistently with this, leave to commence proceedings will only be granted by the court when it is right and fair to do so in all the circumstances and is unlikely to be granted where the issue in the action could be dealt with as conveniently in the liquidation as in other proceedings: see Re Exchange Securities & Commodities Limited [1983] BCLC 186 at 196.
3. The judge set out the relevant principles in [7] – [11] of his judgment and Mr Sterling accepts that these contain an accurate statement of the law. In particular, he accepts that if the claim which the creditor wishes to make does not pass the threshold of genuine arguability then the application is almost bound to be dismissed. But if that threshold is crossed then the court's function is to determine whether it is fair and just to allow it to be made in some form of proceedings rather than in the liquidation. The further determination of the merits of the claim will be a matter for the forum in which the creditor's claim is allowed to proceed.
4. I propose to give a short judgment in this case because we have reached the conclusion that the appeal should be dismissed essentially for the reasons given by the judge for dismissing Mr Gardner's application: see [2014] EWHC 3674 (Ch). In short, we consider that the claim against Lemma for an indemnity under the insurance policy relating to the 2009 insurance year is not covered by the terms of the policy. We also consider that even had Mr Gardner's construction of the policy been seriously arguable, the judge acted within his discretion in declining to lift the stay in this case.
5. The full facts are set out in Judge Cooke's judgment and it is unnecessary to repeat them. Mr Gardner seeks an indemnity under the policy for 2009 in respect of the costs of defending disciplinary proceedings brought against him by the Solicitors Regulation Authority. These took place in 2012. They arose from five transactions involving the exercise by council tenants of their right to buy council owned property. Mr Gardner acted for several hundred such clients during the relevant period.
6. As part of these arrangements, the clients were referred to companies connected with Mr Gardner's practice for the purpose of obtaining finance and other services relating to the purchase of the properties. It was alleged, inter alia, that this involved a conflict, or a significant risk of a conflict of interest.
7. None of the five transactions resulted in a claim being made against Mr Gardner during 2009. But one of those five cases involved a Mr and Mrs Foster who did issue a claim against Mr Gardner for professional negligence in 2010 or 2011. The only claim which Mr Gardner says was made in 2009 was by a Mr and Mrs Curwen whose complaints did not feature in the disciplinary proceedings. But Mr Gardner says that, under the terms of the insurance policy, the claim by the Curwens falls to be aggregated with that by the Fosters together with the other subsequent claims and this provides the link with the costs of the disciplinary proceedings necessary to establish his right to an indemnity in respect of the defence costs.
8. Clauses 1.1 and 1.2 of the policy state:

"1.1 Civil Liability

The Insurer will indemnify the Insured against civil liability to the extent that it arises from Private Legal Practice in connection with the Firm's Practice provided that a Claim in respect of such liability is first made against the Insured:

(a) during the Period of Insurance; or

(b) after the Period of Insurance and arising from Circumstances first notified to the Insurer during the Period of Insurance.

1.2 Defence Costs

The Insurer will also indemnify the Insured against Defence Costs subject to clause 2.3 in relation to:

(a) any Claim referred to in clause 1.1, 1.4 or 1.6; or

(b) Any Circumstances first reported to the Insurer during the Period of Insurance; or

(c) Any investigation, inquiry or disciplinary proceedings during or after the Period of Insurance arising from any claim referred to in clause 1.1, 1.4 or 1.6 or from Circumstances first notified to the Insurer during the Period of Insurance."

9. To succeed in his claim for an indemnity in respect of the defence costs, Mr Gardner must therefore establish that a "claim" under clause 1.1 was made during the 2009 insurance year and that the defence costs were incurred in relation to disciplinary proceedings "arising" from that claim: see clause 1.2(c). The cover available under clause 1.1(b) is not available because no "circumstances" as defined in relation to the Curwens were notified to Lemma during the 2009 year.
10. A claim is defined by clause 8.3 as:

"… a demand for or an assertion of a right to civil compensation or civil damages or an intimation of an intention to seek such compensation or damages."

11. Mr Gardner says that a claim was made by the Curwens in the letter from Bracewell Law of 10 August 2010 which is set out in [23] of the judgment below and/or in a subsequent telephone conversation between Mr Gardner and a solicitor at Bracewell Law which is recorded in an attendance note of 13 August 2010 quoted in [24] of the judgment. In our view, this did not amount to a claim by the Curwens for the reasons given by the judge. The definition of a claim requires there to be the communication of an intention to seek compensation or damages. The letter was designed to press Mr Gardner for disclosure of the files relating to the Curwens which their solicitors needed to see in order to decide whether to bring a claim. It did not articulate an intention to bring proceedings for negligence because that depended on what the files disclosed. Nor did it exhibit an already-formed intention even to issue a protective claim form. It said we "may" issue protective proceedings. The telephone conversation took matters no further. It merely confirmed that there might be a claim for negligence once the files had been inspected.
12. Mr Gardner did not treat either of these events as a claim and notify his insurers. He might perhaps have treated these communications as matters "which may give rise to a claim in respect of civil liability" which is the definition of "circumstances" in clause 8.2 of the policy and notified his insurers. But he did not even do that.
13. There was therefore no "claim" in this case during the 2009 period but Mr Gardner is also unable to demonstrate that the disciplinary proceedings in fact arose from that claim. Mr Sterling accepts that there is no factual link established by the evidence but he relies on clause 2 of the policy which deals with the limits of the cover and what is meant by "one claim". Lemma's liability under the policy was limited to £3m for any one claim. The definition of "one claim" in clause 2.4 includes all claims arising from "similar acts or omissions in a series of related matters or transactions": see clause 2.4(a)(iv). But even if this would apply to link any claim by the Curwens to those made by other claimants such as the Fosters, that does not assist Mr Gardner. The definition in clause 2.4 exists for the purpose of establishing the limit of the cover under clause 2.1. It does not relate to any other part of the policy including clause 1.2(c).
14. That leaves discretion. As I said earlier, there is no challenge to the judge's direction on the law and this ground of appeal therefore requires Mr Gardner to show that the decision reached by the judge was one which he could not reasonably have come to on a proper application of those principles in this case. In practical terms, the choice in terms of resolving the dispute as to the terms of the policy lies between a judge of the Gibraltar Court exercising a supervisory jurisdiction over the liquidation and an arbitration in London under the terms of the policy. Had the contract in question been of a highly specialised or technical kind which could more efficiently have been dealt with by a specialist arbitrator, much more might have been able to be said in favour of resolving the dispute in that way. But the contract in question does not require that kind of specialist tribunal nor can or does Mr Sterling suggest that a judge in Gibraltar would not be perfectly competent to decide the issue of construction which has, in the event, now been considered in England both by a High Court judge and by the Court of Appeal. His sole point is that in principle an English solicitor should have a dispute relating to his indemnity cover determined in England, particularly having regard to the fact that both parties to the policy chose arbitration in England for that purpose.
15. I am not persuaded that the judge was wrong to reject this as sufficient to justify the lifting of the stay. The liquidation of a company in Gibraltar or in any foreign jurisdiction will invariably impose a stay of proceedings against the company in order to protect the interests of creditors. In the absence of any challenge to the competence of the courts of that jurisdiction to determine the dispute in the liquidation, the need to preserve the estate for the benefit of creditors outweighs the contractual right of the insured in this case to have his claim determined in England. Therefore, had Mr Gardner persuaded us that the judge was wrong about whether he had established a good arguable case that there was a claim in 2009 from which the defence costs in question arose, I would still not have disturbed the judge's order refusing to lift the stay.
16. For those reasons, I would therefore dismiss this appeal.

Lord Justice Kitchin :

17. I agree.

Lord Justice Floyd :

18. I also agree.
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