(1) Ian Oakley Smith (2) Dan Schwarzmann (Joint Liquidators of Surety Guarantee Consultants Ltd) v (1) QBE Insurance (Europe) Ltd (2) Markel International Insurance Company Ltd and Another
| Jurisdiction | England & Wales |
| Judge | Mr Justice Norris |
| Judgment Date | 08 December 2010 |
| Neutral Citation | [2010] EWHC 3172 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: 1854 of 2007 |
| Date | 08 December 2010 |
[2010] EWHC 3172 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Before Mr Justice Norris
Case No: 1854 of 2007
In the Matter of Surety Guarantee Consultants Limited
And in the Matter of the Insolvency Act 1986
Reuben Comiskey (instructed by Davies Arnold Cooper) for the Claimants
David Eaton Turner (instructed by Nelsons, Nottingham) for the Respondents
Hearing date: 10 November 2010
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Mr Justice Norris…………………………………………………………………………………8 December 2010
Mr Justice Norris:
Surety Guarantee Consultants Ltd (“SGC”) was authorised by QBE Insurance (Europe) Ltd (“QBE”) and by Markel International Insurance Ltd (“Markel”) to act as cover holder and to issue performance bonds on the terms contained in formal Binding Authority Agreements. QBE and Markel claim that these Binding Authority Agreements provided for the establishment of respective trust accounts in respect of any premiums paid pursuant to business written under those Authorities.
One of the principal shareholders in SGC was Mr Brunswick. He was also a director of Templeton Insurance Ltd (“Templeton”). Like Markel and QBE, Templeton underwrote performance bonds: and there were dealings between SGC and Templeton in connection with such insurance business, though it does not appear that the relationship was formally documented.
In about April 2007 QBE presented a winding up petition against SGC in respect of unpaid premiums that SGC admitted that it owed to QBE. At the time the petition was presented QBE and Markel were also conducting proceedings in the Queen's Bench Division against SGC, Mr Brunswick and others in respect of a fraud which they alleged (and which was subsequently found) to be operated by SGC and Mr Brunswick in respect of policies issued under the Binding Authority Agreements.
On 26 April 2007 Mr Williams, a director of SGC, told the solicitors for Templeton that in the course fraud investigations he had discovered that on 13 April 2005 SGC had received from Templeton the sum of $371,498, shown in SGC's cash book as “direct commission” relating to a performance bond in the sum of $100 million to be issued by Templeton in relation to a construction project in Kazakhstan. On 9 May 2007 Templeton issued proceedings in the Queen's Bench Division. Paragraph 3 of the Particulars of Claim pleaded:—
“On 13 April 2005 Templeton paid to SGC $371,498 representing commission on [a] bond issued by Templeton…in the sum of $100 million…the said bond related to a construction project in Kazakhstan…the said bond never took effect as the said construction project never commenced and no premium was ever paid to Templeton…consequently, no commission was ever due from Templeton to SGC and Templeton is entitled to the immediate return of the said $371,498 being monies had and received by SGC to the use of Templeton in this regard together with interest thereon at the judgment rate of 8% per annum from 13 April 2005…”
Although paragraph 6 also pleaded that further or alternatively “Templeton is entitled to trace the sum of $371,498 into any assets which SGC holds on trust for Templeton” the prayer for relief contained no proprietary claims and sought no tracing remedies. The only prayer for relief was for payment of the sterling equivalent of $371,498 plus interest.
SGC (acting by Mr Williams) filed an Acknowledgment of Service which admitted the claim: and on 11 May 2007 Templeton obtained judgment on admissions against SGC in a sterling sum which included the $371,498 plus interest at 8% from 13 April 2005 (“the 2007 Judgment”). So within the space of a couple of days Templeton had issued and secured judgment on its claim against SGC, Mr Williams being speedy with his acknowledgement of service and with his admission.
On 22 May 2007 Templeton informed QBE that it was a judgment creditor of SGC and would be supporting the winding up petition. SGC was wound up the following day.
It is not difficult to see what is going on. Alerted to the possibility that it had a claim against SGC, Templeton was anxious to turn that claim into a judgment debt before SGC was wound up, so that when it came to proof in the liquidation Templeton could rely on the 2007 Judgment and would not have to persuade the liquidator to admit the claim to proof. It looks as though Mr Williams was particularly co-operative and Templeton's objective was achieved. In the ordinary course Templeton would be treated (for voting and other purposes) as an unsecured judgment creditor in the liquidation: and nothing in the papers suggests that this case is out of the ordinary.
By August 2009 it had become apparent that the joint liquidators of SGC had collected £1.48 million from the nine bank accounts that were operated by SGC of which (assuming the liquidation expenses could be paid out of that fund) about £1.3 million was available for distribution amongst the creditors. But Markel and QBE said that it was trust money under the terms of the Binding Authority Agreements. But none of the accounts was a designated account for QBE or Markel (or any other insurer operating on the same basis). All of the accounts contained mixed funds. The total trust claims far exceeded £1.3 million: so there would be nothing for unsecured creditors.
Templeton decided that it was not an unsecured creditor and that it too had a proprietary claim, not under any formal document, but under a constructive trust. On 26 March 2008 it wrote to the joint liquidators setting out the facts which had been pleaded in the Queen's Bench action (to the effect that the $371,498 represented commission on a bond that was never issued, and that Templeton was entitled to the return of its money together with interest) and saying:—
“It is Templeton's position that SGC has acted fraudulently in retaining Templeton's funds for itself whilst knowing that they should be returned to Templeton. SGC has therefore been unjustly enriched to the extent of [the payment] at Templeton's expense and it would be unconscionable to allow SGC to keep these monies…this means that a constructive trust arises by operation of law and Templeton has a proprietary claim over the funds as beneficiary”.
Faced with these competing claims the joint liquidators sought the directions of the Court. On 2 November 2009 Mr Registrar Simmons directed:—
(a) That until further order the joint liquidators should take no further part in the proceedings:
(b) That the issue of whether the funds collected by the joint liquidators belonged to the company or to somebody else (and if so to whom) should be fought out between QBE, Markel and Templeton:
(c) That each of them must serve Points of Claim “setting out the basis on which they claim to have a proprietary interest in the Fund”:
(d) That each should serve Points of Response to the other's Points of Claim by 18 January 2010:
(e) That each should then serve Points of Reply on the other by 1 February 2010.
When Templeton's Points of Claim were served they duly asserted a proprietary claim. But the proprietary interest that was pleaded was not the same as that which had been asserted in the January 2008 letter. The claim now advanced was:—
(a) That in March 2005 Templeton had insured certain bloodstock risks brokered by Godwin Higgins Insurance Brokers Ltd (“Godwin”):
(b) That the premium payable in respect of those insurances was $371,498 net:
(c) That on 30 March 2005 Godwin paid this premium to Templeton:
(d) That on 13 April 2005 Mr Brunswick and another procured that the $371,498 was transferred to SGC:
(e) That there was no commercial justification for that transfer (which was dishonest and in breach of Mr Brunswick's fiduciary duties): and
(f) “In the premises the sum of $371,498 was received and is held by SGC on constructive trust for Templeton”.
The genesis of this significantly different account of how Templeton came to pay $371,498 to SGC (and the quite different legal claim to which it gave rise) is explained in a witness statement which Mr Wells (the managing director of Templeton) made in the Queen's Bench proceedings on 13 April 2010. When Templeton examined its own books, documents and records it found:—
(a) That there had been a proposed (though not completed) performance bond for the Kazakhstan project, but that the brokers involved were not SGC but Legal Risks Management (Templeton's own “in house” broker) to whom any commission would have been payable: and
(b) That its books recorded the receipt from Godwin of a sum very slightly in excess of $371,498 on 1 April 2005 in respect of the bloodstock risks (recorded in a payment confirmation of 11 April 2005); and
(c) That its books recorded a “reversal” of this payment, and that there was a payment instruction (recording instructions from Mr Brunswick) that the sum be transferred to SGC (recorded on a remittance advice and on Templeton's bank statement).
When this proprietary claim was advanced in the Companies Court QBE and Markel took the point that a cause of action estoppel arose by virtue of the 2007 Judgment which prevented Templeton from asserting that the personal claim for repayment of commission on the Kazakhstan bond (a debtor/creditor relationship on which it had secured judgment) was really a proprietary claim to the return of an identical sum representing a fraudulently diverted premium on the Godwin...
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