ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
LEEDS DISTRICT REGISTRY
MR STUART BROWN QC (SITTING AS A DEPUTY HIGH COURT JUDGE)
Claim No: 3LS40050
London, WC2A 2LL
B e f o r e :
LADY JUSTICE SHARP
LORD JUSTICE HAMBLEN
B E T W E E N
| NESBIT LAW GROUP LLP
||Part 20 Claimant / Respondent
|ACASTA EUROPEAN INSURANCE COMPANY LIMITED
||Part 20 Defendant / Appellant
Mr Richard Chapman (instructed by Ozon Solicitors Limited) appeared for the Respondent
Hearing date: 14th February 2018
Crown Copyright ©
Sir Geoffrey Vos, Chancellor of the High Court:
"2. WHAT IS NOT COVERED BY THIS INSURANCE POLICY
2.1 [Acasta] will not cover [Nesbit] for any …
2.1.3 Irrecoverable Costs:
… (G) where the terms and conditions of the Loan have not been strictly adhered to, including but not limited to any agreement entered into by [Nesbit] and [Clydesdale] to repay a Loan".
i) Clydesdale would provide loans to the solicitors to fund their recoverable and irrecoverable costs.
ii) Acasta would provide two types of insurance: Legal Expenses Insurance for clients who entered into conditional fee agreements with the solicitors, and FGI insurance for the solicitors themselves in respect of irrecoverable costs such as referral fees incurred in respect of unsuccessful claims (those fees being paid out of the solicitors' profits in the case of successful claims).
i) A framework agreement with Clydesdale (the "Umbrella Agreement"), which set out the general terms on which monies were to be advanced by Clydesdale to Nesbit.
ii) The ICLAs between Nesbit and Clydesdale for each individual loan made as the scheme progressed (averaging about £1,000 per case).
iii) FGI policies underwritten by Acasta in respect of each funded case (the "FGI Policies"). It was a condition precedent of funding that Nesbit took out an FGI Policy for each case.
The relevant terms of the FGI Policies
"3. GENERAL TERMS AND CONDITIONS …
3.5 [Nesbit] shall inform [Acasta] immediately in writing of any notification, offer or payment into Court made with a view to Settlement. No Settlement, which may result or has resulted in a claim under this Policy, shall be made without [Acasta's] prior written approval. …
4. UNDERTAKINGS …
4.2. If the Client's Claim is unsuccessful and [Nesbit] wish to make a Claim against this policy [Nesbit] will submit to [Acasta] a detailed account in respect of the Irrecoverable Costs which [Acasta] may be liable to discharge under the terms of this Policy. Immediately upon receipt of the same [Nesbit] will, when [Acasta] so require, at [Nesbit's] cost have any account assessed or audited by an appropriate expert appointed by [Acasta]. …
8.1. No payment under this Policy will be made by [Acasta] until the Proceedings Conclude.
8.2. Any payments made under the terms of this Policy will be made so as to satisfy any Loan indebtedness that [Nesbit] have incurred that has been notified to [Acasta] by [Clydesdale]".
The judge's judgment
"a. The nature of the cover provided under the FGI; was it cover in respect of irrecoverable costs or was it cover in respect of defaulted upon loans …
b. In particular whether, on the proper construction of the policy terms, the refinancing of the original funding loans caused the irrecoverable costs claimed to be outside the scope of cover;
c. Similarly did the settlement agreement [a yet further and subsequent agreement between Nesbit and Clydesdale] have an impact of the same kind".
"47. The first part of this exclusion is, I think, easy to construe. Acasta would not be obliged to provide cover if there had been a breach of one of the obligations of the loan agreement but no such breaches are relied upon …
49. It is the second limb of the [exclusion clause] upon which [counsel for Acasta] focuses. She asserts that Nesbit were not only possibly in breach of the original loan agreements but also of the [Refinancing Agreement] and thus Nesbit are not covered. I am bound to say that I find the argument difficult to follow. As at the moment of inception of the policy the only loan then in existence was that advanced upon confirmation the policy was in existence. In my view the refinancing (and any breach of that agreement) are wholly irrelevant to Acasta's obligations under the policy. If the bystander were asked he would simply say that Acasta remained liable to provide cover unless it could point to some specific breach of the original loan agreements.
50. In this regard I am bound to say that, even after re-reading the [Defence], I can find no pleading which mirrors or foreshadows this particular submission … There is no specific reference to [the exclusion clause] still less is any breach (any failure to strictly adhere whether to the original Loan or any other agreement to repay) identified.
51. I do not decide the matter on a 'pleading point' but rather I simply confirm that, in my view, Mr Chapman [counsel for Nesbit] is right when he asserts that the clause is intended to allow Acasta to avoid cover if the loan (and the initial loan only) conditions, including obligations to repay, are breached. That is not pleaded nor relied upon. Further I am bound to note that the term loan does not, on its face meet the definition of 'Loan' (Capital L) given the use of the past tense. The term loan was a substitute not fulfilling such definition and certainly not made in respect of past advances.
52. Given my determination that refinancing had no impact upon Acasta's accrued or potential obligations it follows that the settlement agreement had no such impact either. Acasta's only liability is in respect of those policies taken out with funds supplied by Clydesdale under the scheme. It has no liability arising out of [the Refinancing Agreement] …
58. It follows from the above that I am quite satisfied that the policy cannot be read in the way contended for by [Acasta], namely that Acasta's obligations thereunder ceased upon the loan being refinanced or compromised. Nor am I persuaded that any breach of the [Refinancing Agreement], such being, as I understand it, the thrust of the submission under Clause 2.1.3 (G) is material to any deliberations. That clause refers to the advance loan only and no breaches in respect of that loan are pleaded or made out".
Acasta's grounds of appeal
i) The judge ought to have concluded that the exclusion clause covered the Refinancing Agreement.
ii) The judge was wrong to conclude that any lack of strict adherence by Nesbit to the terms and conditions of the Refinancing Agreement was irrelevant to his decision.
iii) The judge was wrong not to have made findings of fact, or to have postponed to a further hearing the issues of fact, about whether there had been a lack of strict adherence by Nesbit to the terms and conditions of the Refinancing Agreement prior to Nesbit's claim on the FGI Policies.
iv) The judge ought to have found that Nesbit had failed strictly to adhere to the terms and conditions of the Refinancing Agreement prior to its claim on the FGI Policies, and therefore that Nesbit's claims on the FGI Policies were not covered.
The proper construction of the exclusion clause
The amendment issue
Lady Justice Sharp:
Lord Justice Hamblen: