QUEEN'S BENCH DIVISION
THE ADMINISTRATIVE COURT
B e f o r e :
|THE QUEEN ON THE APPLICATION OF GEOLOGISTICS LIMITED||(CLAIMANT)|
|FINANCIAL SERVICES COMPENSATION SCHEME||(DEFENDANT)|
Smith Bernal Wordwave Limited
190 Fleet Street London EC4A 2AG
Tel No: 020 7404 1400 Fax No: 020 7831 8838
(Official Shorthand Writers to the Court)
MR R PHILLIPS QC AND MR M FORDHAM (instructed by Herbert Smith) appeared on behalf of the DEFENDANT
Crown Copyright ©
MR JUSTICE DAVIS:
"7) Claims (Action by the Insured)
The insured or his legal personal representatives shall give notice in writing to the Company as soon as possible after any event which may give rise to liability under this Policy with full particulars of such event. Every claim notice letter or writ or process or other document served on the Insured shall be forwarded to the Company immediately on receipt. Notice in writing shall also be given immediately to the Company by the Insured of any impending prosecution inquest or fatal inquiry in connection with any such event.
8) Claims (Conduct and Control)
No admission offer promise payment or indemnity shall be made or given by or on behalf of the Insured without the written consent of the Company.
The Company shall be entitled if it so desires to take over and conduct in the name of the Insured the defence or settlement of any claim or to prosecute in the name of the Insured for its own benefit any claim for indemnity or damages or otherwise. The Company shall have full discretion in the conduct of any proceedings and in the settlement of any claim against the Insured and the Insured shall give all such information and assistance as the Company may require".
"In the event of Bodily Injury [which is the subject of a definition] caused to an Employee within the Territorial Limits arising out and in the course of employment by the Insured the Company would indemnify the Insured in respect of Compensation for such Bodily Injury arising out of such event".
Then, under the heading Section Exception, this is provided:
"The Company shall not provide indemnity against liability in respect of which compulsory insurance or security is required under the Road Traffic Act 1998 . . .", and I need not read the following words.
Then under the heading Section Extensions, this is provided:
"These Extensions are subject otherwise to the Terms Exceptions and Conditions of this Policy.
1) Work Overseas.
The indemnity provided by this Section shall extend to apply in respect of liability for Bodily Injury caused to an Employee whilst temporarily engaged in work outside the Territorial Limits".
Then there are certain provisos to that and certain other paragraphs in this section.
"In the event of accidental
1) Bodily Injury to any person
2) Damage to Property
3) obstruction trespass nuisance or interference with any right of way air light or water or other easement
4) wrongful arrest wrongful detention false imprisonment or malicious prosecution
occurring within the Territorial Limits the Company will indemnify the Insured in respect of Compensation arising out of such event".
There are then set out various provisions relating to limit of liability and section exceptions. One of the section exceptions is in respect of bodily injury to any employee arising out of and in the course of employment by the insured in the business. That, of course, is the subject of cover in Section 1 of the Policy. Another section exception relates to matters caused by or arising from any product supplied. That is the subject of cover contained in Section 3 of the Policy.
"In the event of accidental
1) Bodily Injury to any person
2) Damage to Property
caused anywhere in the world by any Product Supplied the Company will indemnify the Insured in respect of Compensation arising out of such event".
"1) Claimants' Costs and Expenses
The Company will provide indemnity against legal liability for all costs and expenses recoverable by any claimant in connection with any claim to which the indemnity expressed in Sections 1, 2 or 3 applies.
2) Defence Costs and Expenses
The Company will provide indemnity in respect of all
a) costs incurred with the Company's written consent of legal representation at any
i) coronor's inquest or other inquiry in respect of any death
ii) proceedings in any court in respect of any act or omission causing or relating to any occurrence
b) other costs and expenses incurred with the Company's written consent in relation to any matter which may be the subject of indemnity under Sections 1, 2 or 3".
It is not necessary to recite any other of the General Policy Extensions.
(1) First, the Scheme accepts, and has never disputed, that it is liable to pay the amount of damages awarded to Mr Froggatt, together with the awarded interest, and, further, that it is liable to pay Mr Froggatt's costs of the litigation. Those it has paid.
(2) Second, the present claim is for, and only is for, the asserted amount of legal costs incurred by the claimant in the period up to the date of the liquidation on 17th June 2001. Mr Edelman QC (who, with Mr Wynter, appeared for the claimant) told me that there may be questions as to whether the provisional liquidators are entitled to recover from the Scheme the legal costs thus far paid in respect of the conduct of the litigation on behalf of the claimant after 17th June 2001. But that matter forms no part of the proceedings before me and, accordingly, I confine myself to the question of the liability for the pre-liquidation legal costs of the claimant in defending, unsuccessfully, the proceedings brought by Mr Froggatt.
(3) Third, this case may have wider implications with regard to costs incurred by others who had taken out insurance of similar kind with Independent, who have unsuccessfully defended other proceedings brought by other claimants using the services of DAC or Berrymans Lace Mawer or Davies Lavery (or some other firm). Indeed, it may be that this case has implications in the context of a future liquidation of some other insurance company.
"An Act to require employers to insure against their liability for personal injury to their employees; and for purposes connected with the matter aforesaid".
Section 5 of the 1969 Act provides for criminal sanctions in the event of failure to insure in accordance with the Act.
"(1) Except as otherwise provided by this Act, every employer carrying on any business in Great Britain shall insure, and maintain insurance, under one or more approved policies with an authorised insurer or insurers against liability for bodily injury or disease sustained by his employees, and arising out of and in the course of their employment in Great Britain in that business, but except in so far as regulations otherwise provide not including injury or disease suffered or contracted outside Great Britain".
I would add that the phrase "approved policy" is given a particular definition, as is the phrase "authorised insurer" given a particular definition by (3). It is not disputed that the Business Policy in this case was an approved policy and that Independent was an authorised insurer.
"An Act to make provision for indemnifying (in whole or in part) or otherwise assisting or protecting policyholders and others who have been or may be prejudiced in consequence of the inability of authorised insurance companies carrying on business in the United Kingdom to meet their liabilities under policies issued or securities given by them and for imposing levies on the insurance industry for the purpose; to authorise the disclosure of certain documents and information to persons appointed by the Secretary of State to advise him on the exercise of his powers appointed by the Secretary of State to advise him on the exercise of his powers under the Insurance Companies Act 1974; and for purposes connected with the matters aforesaid".
That is followed by section 1. Section 1(2) states this:
"The function of the Board [that is to say the Policyholders Protection Board, now the Scheme] shall be:
(a) to take the measures provided for by section 6 to 16 below for the purpose of indemnifying (in whole or in part) or otherwise assisting or protecting policyholders and others who have been or may be prejudiced in consequence of the inability of insurance companies carrying on business in the United Kingdom to meet their liabilities under policies issued or securities given by them".
It is not necessary to read more of that section.
"6 Compulsory insurance policies and securities
(1) This section applies to any policy which satisfies the requirements of any of the following, that is to say --
(a) section 1(4A)(d) of the Riding Establishments Act 1964 or any corresponding enactment for the time being in force in Northern Ireland;
(b) section 1 of the Employers' Liability (Compulsory Insurance) Act 1969 or Article 5 of the Employers' Liability (Defective Equipment and Compulsory Insurance) (Northern Ireland) Order 1972; or
(c) [Part VI of the Road Traffic Act 1988] or (Part VIII of the Road Traffic (Northern Ireland) Order 1981];
and to any policy evidencing a contract of insurance effected for the purposes of section 19 of the Nuclear Installations Act 1965.
(2) This section applies to any security in respect of third-party risks given by an authorised insurance company which satisfies the requirements of [Part VI of the Road Traffic Act 1988] or [Part VIII of the Road Traffic (Northern Ireland) Order 1981].
(3) In this section "a liability subject to compulsory insurance" means any liability required under any of the enactments mentioned in subsection (1) above to be covered by insurance or (as the case may be) by insurance or by some other provision for securing its discharge.
(4) Subject to sections 9, 13 and 14 below and the following provisions of this section, it shall be the duty of the Board to secure that a sum equal to the full amount of any liability of a company in liquidation towards any policyholder or security holder under the terms of any policy or security to which this section applies is paid to the policyholder or security holder as soon as reasonably practicable after the beginning of the liquidation.
(5) Subsection (4) above does not apply by reference to any liability of a company in liquidation under the terms of a policy to which this section applies arising otherwise than in respect of a liability of the policyholder which is a liability subject to compulsory insurance.
(6) Subject to sections 9, 13 and 14 and subsection (8) below, it shall be the duty of the Board to secure that a sum equal to ninety per cent of the amount of any liability of a company in liquidation towards a private policyholder under the terms of any policy to which this section applies, being a liability arising otherwise than in respect of a liability of the policyholder which is a liability subject to compulsory insurance, is paid to the policyholder as soon as reasonably practicable after the beginning of the liquidation.
(7) In subsection (6) above "private policyholder" means a policyholder who is either --
(a) an individual; or
(b) a partnership or other unincorporated body of persons all of whom are individuals.
(8) The duty of the Board under subsection (4) or (6) above shall not apply --
(a) in the case of any policy, unless it was a United Kingdom policy at the beginning of the liquidation; or
(b) in the case of any security in respect of third-party risks, unless it would have been a United Kingdom policy at the beginning of the liquidation if it had been an insurance policy and the contract governing the security had been a contract of insurance.
(9) References hereafter in this Act to policies which were United Kingdom policies at any time and to policyholders in respect of such policies shall be construed as including references to --
(a) securities to which this section applies which would have been United Kingdom policies at the time in question if they had been insurance policies and the contracts governing the securities had been contacts of insurance; or
(b) security holders in respect of such securities.
7 Third-party rights against insurance companies in road traffic cases
Without prejudice to section 6 above, but subject to sections 9, 13 and 14 below, it shall be the duty of the Board to secure that a sum equal to the full amount of any liability of a company in liquidation in respect of a sum payable to a person entitled to a benefit of a judgment under --
(a) section 149 of the Road Traffic Act 1972 [or section 151 of the Road Traffic Act 1988] (duty of insurers to satisfy judgment against persons insured or secured against third-party risks); or
(b) [Article 98 of the Road Traffic (Northern Ireland) Order 1981] (court orders for recovery from insurers of sums due under unsatisfied judgments against persons insured or secured by them);
Is paid to that person as soon as reasonably practicable after the beginning of the liquidation.
8 General policies other than compulsory insurance policies
(1) This section applies to any general policy other than a policy to which section 6 above applies.
(2) Subject to sections 9, 13 and 14 below, it shall be the duty of the Board to secure that a sum equal to ninety per cent of the amount of any liability of a company in liquidation towards a private policyholder under the terms of any policy to which this section applies which was a United Kingdom policy at the beginning of the liquidation is paid to the policyholder as soon as reasonably practicable after the beginning of the liquidation.
(3) In subsection (2) above "private policyholder" has the same meaning as in section 6(6) above.
(4) In this Act "general policy" means any policy evidencing a contract the effecting of which constituted the carrying on of general business of any class, [other than class 5, 6, 7, 11 or 12, not being a contract of reinsurance].
"15 Interim payments to policyholders of companies in liquidation, etc.
(1) An authorised insurance company, not being a company in liquidation, is a company in provisional liquidation for the purposes of this section if a provisional liquidator has been appointed in respect of the company under [section [135 of the Insolvency Act 1986]] or [Article 115 of the Insolvency (Northern Ireland) Order 1989], provided that the petition for the winding up of the company which led to his appointment was presented after 29th October 1974.
(2) A policyholder is eligible for assistance under this section --
(a) if he is a policyholder in respect of a general policy or a long term policy of a company in liquidation which was a United Kingdom policy at the beginning of the liquidation; or
(b) if he is a policyholder in respect of a general policy or a long term policy of a company in provisional liquidation which was a United Kingdom policy at the time when the provisional liquidator was appointed.
(3) In any case where it appears to the Board to be desirable to do so, the Board may --
(a) make payments to or on behalf of policyholders who are eligible for assistance under this section, on such terms (including any terms requiring repayment, in whole or in part) and on such conditions as the Board think fit; or
(b) secure that payments are made to or on behalf of any such policyholders by the liquidator or the provisional liquidator by giving him an indemnity covering any such payments or any class or description of such payments".
It thus appears from section 15 that discretionary powers are available to the Scheme in the prescribed circumstances in the context of insurance companies in provisional liquidation. However, nothing turns on that in the circumstances of the case before me.
"1 Licensing of riding establishments.
(1) No person shall keep a riding establishment except under the authority of a licence granted in accordance with the provisions of this Act".
The grant of a licence is made subject to conditions. For present purposes, the particular provision of relevance is that contained in subsection (4A)(d):
"the licence holder shall hold a current insurance policy which insures him against liability for any injury sustained by those who hire a horse from him for riding and those who use a horse in the course of receiving from him, in return for payment, instruction in riding and arising out of the hire or use of a horse as aforesaid and which also insures such persons in respect of any liability which may be incurred by them in respect of injury to any person caused by, or arising out of, the hire or use of a horse as aforesaid".
It may perhaps be noted that under subsection (4A) of that particular Act, the use is variously of the words "for" or "in respect of" without any very obvious differentiation.
"145(1) In order to comply with the requirements of this Part of this Act, a policy of insurance must satisfy the following conditions.
(2) The policy must be issued by an authorised insurer, that is to say, a person or body of persons carrying on motor vehicle insurance business in Great Britain.
(3) Subject to subsection (4) below, the policy --
(a) must insure such person, persons or classes of persons as may be specified in the policy in respect of any liability which may be incurred by him or them in respect of the death of or bodily injury to any person caused by, or arising out of, the use of the vehicle on a road; and
(b) must also insure him or them in respect of any liability which may be incurred by him or them under the provisions of this Part of this Act relating to payment for emergency treatment.
(4) The policy shall not, by virtue of subsection (3)(a) above, be required to cover --
(a) liability in respect of the death, arising out of and in the course of his employment, of a person in the employment of a person insured by the policy or of bodily injury sustained by such a person arising out of and in the course of his employment; or
(b) any contractual liability.
149(1) If, after a certificate of insurance or certificate of security has been delivered under section 147 of this Act to the person by whom a policy has been effected or to whom a security has been given, judgment in respect of any such liability as is required to be covered by a policy of insurance under section 145 of this Act (being a liability covered by the terms of the policy or security to which the certificate relates) is obtained against any person who is insured by the policy or whose liability is covered by the security, as the case may be, then, notwithstanding that the insurer may be entitled to avoid or cancel, or may have avoided or cancelled, the policy or security, he shall, subject to the provisions of this section, pay to the persons entitled to the benefit of the judgment any sum payable thereunder in respect of the liability, including any amount payable in respect of costs and any sum payable in respect of interest on that sum by virtue of any enactment relating to interest on judgments.
(2) No sum shall be payable by an insurer under the foregoing provisions of this section --
(a) in respect of any judgment, unless before or within seven days after the commencement of the proceedings in which the judgment was given, the insurer had notice of the bringing of the proceedings; or
(b) in respect of any judgment, so long as execution thereon is stayed pending an appeal; or
(c) in connection with any liability, if before the happening of the event which was the cause of the death or bodily injury giving rise to the liability, the policy or security was cancelled by mutual consent or by virtue of any provision contained therein, and either --
(i) before the happening of the said event the certificate was surrendered to the insurer, or the person to whom the certificate was delivered made a statutory declaration stating that the certificate had been lost or destroyed, or
(ii) after the happening of the said event, but before the expiration of a period of fourteen days from the taking of effect of the cancellation of the policy or security, the certificate was surrendered to the insurer, or the person to whom it was delivered made such a statutory declaration as aforesaid; or
(iii) either before or after the happening of the said event, but within the said period of fourteen days, the insurer has commenced proceedings under this Act in respect of the failure to surrender the certificate".
One can here see repeated use of the phrase "in respect of", with the phrase "in connection with" also used without any clear differentiation. Reference should also, in this context, be made to section 151(5) of the Road Traffic Act 1988, which supersedes, with altered wording, section 149 of the Road Traffic Act 1972.
"I refer to [that case] for this reason: that it is the one case in which reference was made and an explanation attempted -- an explanation rather than a definition -- of the words 'in respect of', again in the particular context in which Mann CJ found them.
It is right that one should say this. This was a decision given under the Farmers Protection Act 1940, by section 5 of which farmers were protected from process or proceedings 'in respect of' a debt unless a notice had been served upon the farmer in question. In the decision, Mann CJ was faced with the contention that they were ejectment proceedings, that they were not proceedings in respect of a debt, but in respect of failure to deliver up possession. In the course of giving his judgment, Mann CJ attempts this explanation of the words 'in respect of', at page 111:
'The words "in respect of" are difficult of definition, but they have the widest possible meaning of any expression intended to convey some connection or relation between the two subject matters to which the order refers.'
I think it unnecessary for me to go any further. Those words of Mann CJ provide helpful guidance at any rate as to the ordinary meaning of the words 'in respect of' and I accept that guidance".
Boreham J went on to express the view that, in the light of the arguments of counsel before him, nothing was said to induce him to take the view that anything except the ordinary and natural meaning of those words should be applied in construing section 32(1) of the Act of 1970. He went on to say this:
"In my judgment, the words 'in respect of' convey some connection or relation between the plaintiff's claim and the personal injuries that she sustained, that is, a claim against her ex-solicitors".
(1) First, it is, I think, fair. I entirely accept, that in the context of many -- perhaps most -- liquidations, the blameless often suffer. Considerations of fairness cannot always, in the context of an insolvent company, carry the day. I further accept that, in the context of the 1975 Act itself, there is an overall scheme whereby, broadly speaking, the individual policy holder frequently stands only to recover 90 per cent, and not 100 per cent, of his loss: and corporate policy holders, indeed, very often stand to recover nothing at all. Yet further, I accept, as Mr Phillips understandably stressed, that one has to bear in mind that ultimate liability for the funding of the Scheme rests on levies from other luckless insurance companies. They, thus, have their own exposure. But even so the reality is, as this case illustrates, that the insured has defended a claim by reference to a liability within the ambit of section 1 of the 1969 Act at the behest of the insurance company itself. It seems hard indeed, in such circumstances, and where the insurance concerned was compulsory, for the insured to be left to bear these legal costs of such defence; and one really must wonder whether Parliament could have intended that. Indeed, were the conclusion otherwise an insured might, for example in the face of impending collapse of its insurance company, feel motivated not to contest a claim otherwise perceived to be wholly unmeritorious through a fear of exposure to ultimate liability for costs. That cannot be desirable.
(2) Second, it is, I think, relevant to consider the position of a successful defendant's costs (taking the familiar example of an unsuccessful claimant who is impecunious or legally assisted) and therefore from whom recovery in practice is impossible. Mr Phillips, understandably keeping a weather eye on the total exposure of the Scheme resulting from this case -- which, as I was told, was being regarded as a test case -- urged me not to deal with that, since it is not the situation arising on the facts of this particular case. But I do not think I should shirk expressing my view, since, as I see it, it potentially bears on the argument. The logic of Mr Phillips' argument (and indeed he so submitted) is that the pre-liquidation costs incurred in a successful defence do not relate to a liability and cannot be recovered from the Scheme either. That seems to me to be little sort of short of monstrous and if the logic of such argument compels such a conclusion then it at least suggests that the premise may be wrong. Moreover, such a conclusion would hardly stand to enhance the reputation of the British insurance industry, which one would have thought would be at least a relevant consideration. The successful defence will by reason of its very success (whether at trial or by favourable settlement) have reduced, or removed altogether, the prospective liability of the insured defendant on any judgment or award in favour of the third party victim. Accordingly, it will have pro tanto reduced or removed the liability of the insurance company and thus pro tanto will have reduced or removed the prospective ultimate liability of the Scheme itself for the erstwhile prospective total judgment liability, had there been no such success. It is in my view extremely difficult to see the sense or justification for removing from the insured in such circumstances its protection under the 1975 Act as to its costs: at all events, I do not think the notional ability to recover from the unsuccessful claimant gives such justification. My view is that the unrecovered pre-liquidation costs incurred on behalf of a relevant insured in the successful defence of such a claim fall within the ambit of the phrase "in respect of a liability of the policy holder which is a liability subject to compulsory insurance" no less than the pre-liquidation costs incurred in the unsuccessful defence of such a claim.
(3) Third, and reflecting perhaps what I have already said, such a conclusion in my view accords with the perceived purpose behind the 1975 Act.