England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		23 September 04

The Hon. Mr Justice Langley:

CHUBB

The Applications

1. The Claimant Insurer ("Chubb") seeks summary judgment under CPR Part 24 for a declaration that Chubb is not liable to indemnify the Defendant ("Mr Davies") under a contract of directors and officers insurance in respect of the liability of Mr Davies following a judgment of Buckley J dated 29 April 2004 in a claim brought against Mr Davies by Herbert Black and two companies (collectively referred to as "the Black parties").
2. The Black parties seek permission to be joined as Second to Fourth Defendants with a view to contesting Chubb's right to the declaration which Chubb seeks against Mr Davies. They also seek a stay of Chubb's Part 24 application pending the outcome of an appeal by Mr Davies against the judgment of Buckley J.

Background

3. In 1996 and 1997 Mr Davies was the Chief Executive Officer and a director of Brandeis (Brokers) Ltd ("Brandeis") a firm of brokers engaged in business on the London Metal Exchange. Brandeis was a subsidiary of a French metal trading company, Pechiney. Mr Davies acted as broker to the Black parties.
4. In 2002 the Black parties began the proceedings against Mr Davies which led to the judgment of Buckley J to which I have referred. The claims of the Black parties included allegations that they had suffered very substantial losses on the copper market by reason of fraudulent representations made by Mr Davies.
5. Buckley J concluded in his judgment that Mr Davies had made representations knowing them to be false and that the Black parties relied upon those representations in their conduct of their dealings in the market. Buckley J upheld the claim in deceit against Mr Davies. The loss to the Black parties on the basis of the judgment has subsequently been determined to be US$18.7m.
6. Mr Davies was granted permission to appeal and is pursuing an appeal in respect of reliance, causation and calculation issues. There is no appeal against the findings that Mr Davies made fraudulent representations to Mr Black.

The Insurance

7. The contract of insurance is between Chubb and Pechiney. It provides cover for directors' and officers' liability including the liability of Mr Davies as a director of Brandeis. The policy was written in French. Chubb contends that it contains an exclusion of cover for conduct of the sort of which Mr Davies has been found liable to the Black companies. Chubb also contends that a claim by Mr Davies for an indemnity under the policy is excluded in the circumstances as a matter of English public policy.
8. The present proceedings were commenced on 17 May. The Defence of Mr Davies served on 2 June (apart from issues about the costs of the proceedings with the Black parties) simply "does not admit" that Chubb is entitled to the relief it seeks.
9. The application for summary judgment was issued on 9 June. No relief is now sought in respect of the costs issues as Chubb recognises that there are arguable defences and indeed Chubb has funded and continues to fund the costs of Mr Davies' appeal.

Jurisdiction

10. Article 6 of the General Conditions of the policy contains a French jurisdiction and law clause. Chubb contends that the clause only applies to disputes between Chubb and Pechiney, and so not to the claim against Mr Davies, and that under Article 12 of EC Regulation 44/2001 Chubb is in any event bound to make such a claim in England where Mr Davies is domiciled. Chubb also relies on Mr Davies' submission to the jurisdiction by acknowledgement of service and service of a defence.

Applications by the Black parties

11. The Black parties applied to intervene as Defendants on 26 July. The basis of the application is that they are the real parties interested in whether or not the policy entitles Mr Davies to an indemnity. Pending the outcome of his appeal, the Black parties are not able to pursue Mr Davies by seeking a bankruptcy order against him because execution of the judgment has been stayed. So long as no bankruptcy order has been made, the Black parties do not have any rights under the Third Parties (Rights against Insurers) Act 1930. On the other hand, provided the judgment of Buckley J is upheld to at least a substantial extent, the probability must be that such rights will then be acquired if it is felt that the value of the policy justifies such a course. Indeed, as Mr Flaux QC for Chubb acknowledged, the real target of Chubb's Part 20 application is the Black parties rather than Mr Davies. If permitted to intervene it is also the Black parties' submission that Chubb's Part 24 application should be stayed pending the outcome of the appeal by Mr Davies. If the appeal succeeds or succeeds sufficiently to extinguish any liability of Mr Davies then the Part 24 application will be otiose.

The Policy Issues.

12. As the submissions developed it became apparent that if it were the decision of the court that the Black parties should be permitted to intervene, but also that the Part 24 application should not be stayed, then the hearing of the merits of Chubb's Part 24 application should be adjourned. That was the wish of both Chubb and the Black parties. There are questions about the applicable law and, if French law, what French law may be. I propose to say no more on those questions and what other issues may arise as, in the event, they will be for another day.

Mr Davies' Submissions

13. Mr Davies is, of course, concerned to pursue his appeal and to have the costs of doing so met by Chubb. That he has secured. There is no date yet for the hearing of the appeal. The best estimate is Easter 2005. The time estimate is 3-4 days. The Black parties were paid substantial sums by Brandeis in settlement of their claim against Brandeis and if Mr Davies succeeds in his appeal it may result in no remaining uncompensated loss to the Black parties. Mr Davies is "neutral" in relation to the application of the Black parties to intervene.

Intervention

14. It is accepted that if permitted to intervene the Black parties can have no better answers to Chubb's Part 24 application than those available to Mr Davies.
15. Mr Mallin, for the Black parties, sought to submit that even if permitted to intervene the Black parties could still reserve the right to contend that these courts had no jurisdiction over the substantive issues raised by Chubb. That seemed to the court to be both wrong as a matter of law but also (if necessary) as a matter of discretion. If the court concluded intervention should be permitted it should do so only on the basis of an acknowledgment of jurisdiction. Mr Mallin, whilst not consenting, acknowledged that he could advance no argument against the conclusion that by seeking to intervene for the very purpose of arguing substantive issues which Mr Davies was not concerned to advance his clients, if permitted to intervene for that reason, were bound to accept the court's jurisdiction to determine those very issues.

Conclusion on Intervention

16. It was Mr Flaux's primary submission that because the Black parties did not have any legal or equitable interest in the insurance it followed that they could not intervene in a dispute between insurer and insured. He referred the court to Normid Housing Association v Ralphs [1989] 1 Lloyd's Rep 265. That case is indeed authority that absent a bankruptcy order against an insured no rights are conferred upon a third party under the 1930 Act. Mr Mallin readily accepts that. But I do not read the case as precluding an application of the kind made by the Black parties in these proceedings. The proposed intervener in Normid was seeking an injunction to prevent the conclusion of a settlement of the claim by the insured against insurers. The Court of Appeal was concerned to find an arguable cause of action at the instance of the third party and held that there was none.
17. Mr Mallin, supported by a preliminary report on French law, submits that French law does give a third party in the position of the Black parties a direct cause of action against the insurer regardless of any insolvency of the insured and, in any event, it is not a pre-condition of permission to be joined in proceedings that the prospective party should have an accrued right of action. Mr Mallin referred the court to Wood v Perfection Travel Ltd [1996] LRLR 233 in which an insurer sought to intervene in proceedings between a third party and the insured on the basis that the insured would not otherwise advance defences to the claim with the consequence that the third party would then be able to bring a claim against the insurer pursuant to the 1930 Act. The Court of Appeal there held that RSC Order 15 rule 6(2)(b)(ii) gave jurisdiction to permit intervention and, granted that the object of the third party's claim against the assured was to establish rights under the 1930 Act, "justice" required that the insurer should be permitted to do so. Although in a sense the reverse of the present circumstances these principles are in my judgment just as applicable here as in Wood v Perfection.
18. The starting point today must be CPR Rule 19.2(2). It is in very general terms. So far as material it provides:

"The court may order a person to be added as a new party if:

(a) it is desirable to add the new party so that the court can resolve all the matters in dispute in the proceedings;

(b) there is an issue involving the new party and an existing party which is connected to the matters in dispute in the proceedings, and it is desirable to add the new party so that the court can resolve that issue."

19. The rule does not require "the new party" to have a cause of action. The wording is, if anything, more general than RSC Order 15 rule 6. I am sure it should be interpreted more generously if the overriding objective requires it. The real target of Chubb's present claim is the Black parties. Chubb seeks prospective relief in the form of a declaration. Yet Chubb seeks to prevent the Black parties from intervening on the ground that they only have a prospective cause of action. In common justice the Black parties should, in my judgment, be permitted to advance such case as they can that the insurance should respond to their claim against Mr Davies.

Stay

20. Once, as they now will be, the Black parties are parties to these proceedings I see no real justification for a stay of Chubb's Part 24 application. The issues, albeit potentially involving French law, are not complicated. It is agreed that a court day should be sufficient time to resolve them. The court can accommodate such a hearing in December. I think Chubb is entitled to know where it stands and indeed, if it is successful, consideration might be required to be given to the utility of the appeal by Mr Davies. I shall not therefore order a stay of the proceedings.

The Order

21. At the conclusion of the hearing I informed the parties of the conclusions I had reached and on that basis directions as to the future progress of the matter were discussed and determined. As requested, the parties have prepared and agreed the terms of an Order to reflect those discussions. The terms of the Order are acceptable to the court and it will be formally signed and issued to the parties when this judgment is handed down. Should there be any other matters then outstanding they should be addressed on that occasion.