AIG Europe Ltd v Woodman and Others
| Jurisdiction | England & Wales |
| Judge | Lord Toulson,Lord Mance,Lord Clarke,Lord Sumption,Lord Reed |
| Judgment Date | 22 March 2017 |
| Neutral Citation | [2017] UKSC 18 |
| Date | 22 March 2017 |
| Court | Supreme Court |
[2017] UKSC 18
Lord Mance
Lord Clarke
Lord Sumption
Lord Reed
Lord Toulson
Appellant
Colin Edelman QC
Ben Lynch
Peter Morcos
(Instructed by Mayer Brown International LLP)
Respondents
Tom Leech QC
Edward Risso-Gill
(Instructed by Royds Withy King)
Intervener (The Solicitors Regulation Authority)
David Edwards QC
Tim Jenns
(Instructed by Russell-Cooke LLP)
Heard on 10 October 2016
(with whom Lord Mance, Lord Clarke, Lord SumptionandLord Reedagree)
Under section 37 of the Solicitors Act 1974 the Law Society may make rules requiring solicitors to maintain professional indemnity insurance with authorised insurers and specifying the terms on which indemnity is to be available. As the House of Lords explained in Swain v Law Society [1983] AC 598, the power is intended to be for the protection of the public as well as the premium-paying solicitor. The rules made by the Law Society require such insurance to satisfy certain Minimum Terms and Conditions (MTC). There is a prescribed minimum figure for which solicitors must be insured for any one claim, but clause 2.5 of the MTC permits the aggregation of claims in the following circumstances:
"The insurance may provide that, when considering what may be regarded as one Claim …
(a) all Claims against any one or more Insured arising from:
(i) one act or omission;
(ii) one series of related acts or omissions;
(iii) the same act or omission in a series of related matters or transactions;
(iv) similar acts or omissions in a series of related matters or transactions
…
will be regarded as one Claim."
Sub-clauses (iii) and (iv) were added in 2005 in circumstances to which I will refer. The dispute in this appeal arises from sub-clause (iv). More specifically, it is about the meaning of the expression "related matters or transactions".
In 2013 two actions were begun in the Chancery Division (EWHC 13E01675 and EWHC 13C02077) against two now defunct firms of solicitors. One of the firms, the International Law Partnership LLP, was the successor in practice of the other, John Howell & Co. It is unnecessary for present purposes to distinguish between the two firms, and I will refer to them as the solicitors. The actions were brought by a total of 214 claimants. The claimants in 13E01675 were all investors in a project to develop holiday resorts on a plot near Izmir, Turkey, referred to as Peninsula Village. The claimants in 13C02077 were all investors in a similar project at Marrakech, Morocco. A certain number of investors in the Peninsula Village development subsequently transferred their investment to the Marrakech development because of planning delays. They have been referred to as the "crossover" investors. I will refer to the investors collectively as the investors or, where appropriate, as the Peninsula Village investors, the Marrakech investors or the crossover investors.
The developers were a UK property company called Midas International Property Development Plc, which operated through subsidiary Midas companies for each development. The precise details of the companies' interrelationship do not matter and I will refer to them as the developers. In 2004 they instructed the solicitors to devise a legal mechanism for the financing of foreign developments by private investors who would have security over the development land. The investments would take the form either of loans, at an attractive rate of interest, or of purchase of holiday properties. A trust was created for each development with the object of providing security for the investors. The solicitors were the initial trustees. The trust would either own or hold a charge over the development land as security for the amounts invested. The beneficiaries were the investors. The funds advanced by the investors would initially be held by the solicitors in an escrow account. They were not to be released to the developer unless and until the value of the assets held by the trust was sufficient to cover the investment to be protected, applying a "cover test" set out in the trust deed.
As well as devising the scheme, the solicitors acted for the developers in relation to the individual investments. For each investment the solicitors would open a file, which would include a loan or purchase agreement between the investor and the developer and an escrow agreement between the investor, the developer and the solicitors.
The developers signed an agreement for the purchase of the Peninsula Village site in April 2007. They did not enter into a similar agreement for the Marrakech site, but instead they entered into an agreement in November 2007 to buy the shares in the local company which owned it. The solicitors released tranches of Peninsula Village investment funds to the developers in April 2007 and October 2008. They released tranches of Marrakech investment funds on five occasions between November 2007 and March 2008.
In May 2008 the Financial Services Authority prohibited the developers from receiving any further investment in relation to the developments. The developers were unable to complete either the purchase of the Peninsula Village site or the purchase of the shares in the company which owned the Marrakech site, and in November 2009 the developers were wound up. All the money in the escrow accounts had been paid out.
The investors' claims against the solicitors were put in various ways, alleging breach of contract, breach of trust, breach of fiduciary duty, misrepresentation and negligence, but the essence was that the solicitors failed properly to apply the cover test before releasing funds to the developers, with the result that the funds were released without adequate security. The claims were due to be tried in the next few months.
The solicitors had professional indemnity insurance with the appellant ("the insurers") on terms corresponding with the MTC. The insurers' liability is limited to £3m in respect of each claim. The investors' claims in total amount to over £10m. In March 2014 the insurers issued proceedings against the solicitors in the Commercial Court for a declaration that the investors' claims in the two Chancery Division actions are to be considered as a single claim under the MTC. The present trustees of the Peninsula Village and Marrakech trusts ("the trustees") applied successfully to be joined in the proceedings as representatives of all the beneficiaries under each trust.
The insurers' case is that the investors' claims against the solicitors all arise from "similar acts or omissions in a series of related matters or transactions" within the meaning of clause 2.5(a)(iv) and therefore there is an overall limit of indemnity of £3m. The trustees' primary case is that none of the investors' claims fall to be aggregated with those of any other investor. If that argument fails, their secondary case is that the Peninsula Village claims and the Marrakech claims cannot be aggregated with one another and so there are two available pots of indemnity. It was also the insurers' alternative case that the claims could be aggregated by reference to the two developments.
The case was tried by Teare J, whose judgment is reported at [2016] Lloyd's Rep IR 147. He accepted that all the claims arose from similar acts or omissions, and that finding is not challenged in this court, but he rejected the argument that they were "in a series of related matters or transactions". He interpreted those words as referring to transactions which were related in the sense that, by reason of their terms, they were conditional or dependent on each other. Since the transactions entered into between the developers and each investor were not mutually dependent, the claims of each investor did not fall to be aggregated with one another. The action was therefore dismissed.
Teare J gave permission to appeal. The Court of Appeal ordered an expedited hearing, confined to issues of principle. The parties agreed a list of issues, the first of which was "what is the true construction of the words 'in a series of related matters or transactions'?" The judgment of the Court of Appeal (Longmore, Kitchin and Vos LJJ) is reported at [2016] Lloyd's Rep IR 289; [2017] 1 All ER 143. The court concluded that Teare J went too far in saying that the transactions had to be dependent on each other. It accepted a submission made by Mr David Edwards QC, appearing for the Law Society as an intervener, that there must be an "intrinsic" relationship between the transactions rather...
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