AIG Europe Ltd v OC320301 LLP (formerly The International Law Partnership LLP) and Others
| Jurisdiction | England & Wales |
| Judge | Lord Justice Longmore,and |
| Judgment Date | 14 April 2016 |
| Neutral Citation | [2016] EWCA Civ 367 |
| Docket Number | Case No: A3/2015/3082 |
| Court | Court of Appeal (Civil Division) |
| Date | 14 April 2016 |
[2016] EWCA Civ 367
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
THE HONOURABLE MR JUSTICE TEARE
Royal Courts of Justice
Strand, London, WC2A 2LL
The Right Honourable Lord Justice Longmore
The Right Honourable Lord Justice Kitchin
and
The Right Honourable Lord Justice Vos
Case No: A3/2015/3082
and
Mr John Lockey QC & Mr Ben Lynch & Mr Peter Morcos (instructed by Mayer Brown) for the Appellant
Mr Tom Leech QC & Mr Edward Risso-Gill (instructed by Royds LLP) for the 5 th & 6 th Respondents
Mr David Edwards QC & Mr Tim Jenns (instructed by Russell-Cooke) for the Intervener
Hearing dates: 21 st & 22 nd March 2016
This is the judgment of the court.
This appeal turns on the true construction of an aggregation clause contained in an insurance policy applicable to all solicitors' indemnity policies pursuant to the requirement in the Solicitors' Act 1974 for compulsory liability insurance for solicitors and the Minimum Terms and Conditions ("MTC") required to be incorporated into such polices.
The claimant is AIG Europe Limited ("AIG"), a multinational insurance corporation. The first respondent is a solicitors' firm which from 1 st September 2006 until it was dissolved in 2010 was called The International Law Partnership LLP ("ILP"). It was subsequently restored to the Register of Companies for the purpose of meeting claims brought against it ("the Underlying Claims"). The second and fourth respondents, Mr John Howell and Mr Peter Esders, were two of the firms' partners and the third respondent, Mrs Janine Howell, was an employee at the firm and Mr Howell's wife. The fifth and sixth respondents are the trustees of the trusts that are subject to the Underlying Claims and were appointed in place of the second, third and fourth respondents by a deed of appointment dated 24 th February 2010. The first to fourth respondents have played a limited role in the matter and were unrepresented below. Although the fifth and sixth respondents are not parties to the insurance policy written by AIG, they are the principal opponents to the declaratory relief sought by AIG.
The Underlying Claims
ILP specialised in international legal work. In late 2004, when the solicitors' firm was called John Howell & Co, it was engaged by a UK property development company, Midas International Property Development Plc ("Midas"), to assist with its intention of building holiday resorts in a number of foreign locations, which included for present purposes Peninsula Village, near Izmir, in Turkey and Al Johara near Marrakech in Morocco. In particular, Midas sought "seed corn" capital in order to finance the development of the projects. ILP were engaged to devise a mechanism whereby Midas could solicit investments in the developments (either by way of loans bearing interest at attractive rates or by way of direct purchase of holiday homes) and those investments could then be held on some form of security for the investors. ILP devised a scheme whereby the investment funds were held in an escrow with ILP as the escrow agents who received the funds. A Deed of Trust was also granted in favour of the investors as beneficiaries, holding security over the land to be purchased. There was one trust for Peninsula Village and another trust for Al Johara. ILP were not to release the funds from the escrow to the local Midas developer until the value of the security held in the trust was at least the same as the total amount of the investments to be protected ("the Cover Test"). Once the Cover Test was met ILP was entitled to release monies from the escrow account for the purchase of a holiday home or for the purpose of generally financing the development.
Between April 2006 and August 2009 Midas was successful in attracting investors to the developments, including 214 investors who now claim to have lost their investment. On 30 th April 2007 the local Midas company in Turkey signed an agreement for the purchase of development land in Peninsula Village at a price of €6.4 million. In or about November 2007, Midas agreed to purchase a Moroccan-based company, Les Kasbahs du Sud ("Kasbah") which owned a large area of land near Marrakech for €13million. On various occasions ILP authorised the payment of monies including from the Marrakech escrow on dates between November 2007 and February 2008 and from the Peninsula Village escrow in October 2008. However, the local Midas companies were unable to complete the contract for the purchase of the land in Turkey or for the land-owning company in Morocco which in turn led to the failure of the two developments.
There is a dispute about the reasons for these failures. It is said that, although Midas or ILP established some sort of security in respect of the Peninsula Village, it was always subject to what was called a "usufruct" in favour of the vendors. Likewise the security established over the shares in Kasbah was only over a minority shareholding and was in any event subject to prior pledges in favour of other shareholders. The failures are also said to have arisen because the FSA in England prohibited Midas and its subsidiaries in May 2008 from receiving any further investment in relation to the developments. By November 2009 Midas had entered liquidation, and it was found that all the invested monies held in the escrow accounts had been paid out.
The 214 investors brought what have been called their Underlying Claims in the Chancery Division (one claim in relation to each trust) on 20 th August 2013 and 19 th September 2013 respectively. There is a prospective trial window of 1 st February to 30 th April 2017. In each action the case of the 214 investors is (inter alia) that ILP failed to apply the Cover Test properly when electing to release the investment funds from the escrow, with the consequence that the investors have lost over £10million. The principal causes of action are in negligence, breach of fiduciary duty, misrepresentation and breach of the escrow agreements. The claimant investors may on investigation be found to fall into five broad categories:-
i) those who lent money to the Peninsula Village development which was paid out of the escrow account in April 2007;
ii) those who lent money to the Marrakech development which was paid out of the escrow account in November 2007;
iii) those who lent money to the Marrakech development which was paid out of the escrow account on various dates between November 2007 and February 2008;
iv) those who had paid money to purchase holiday homes in Peninsula Village which was paid out of the escrow account in October 2008; and
v) those who had originally entered into loan or purchase agreements regarding Peninsula Village but following planning delays were encouraged to invest in the Marrakech development instead – also referred to as the "crossover" investors.
The policy of insurance
ILP had insurance cover with AIG dated 1 st October 2008. Pursuant to the terms of the policy AIG now provides run-off insurance cover to ILP on the same terms as the policy, for the six year period commencing from 30 th September 2009. The AIG cover has a limit of liability of £3million and a retention or excess clause of £7,500 subject to an overall aggregate limit of £22,500. There was an aggregation clause in the AIG cover, but it is common ground that it is not in the same terms as the aggregation clause 2.5 in the MTC and thus the latter was the governing clause. Clause 2.5 of the MTC entitled "One Claim", provides as follows:-
"The insurance may provide that, when considering what may be regarded as one Claim for the purposes of the limits contemplated by clauses 2.1 and 2.3:
and(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
(b) all Claims against one or more Insured arising from one matter or transaction.
will be regarded as One Claim."
The Judgment
On 4 th March 2014, AIG filed a claim form in the Commercial Court seeking a declaration that the Underlying Claims were to be considered "One Claim" for the purposes of the Aggregation Clause. On 14 th August 2015 Teare J refused to grant AIG the declaration it sought. He said (para 40):-
"… the most natural meaning of the phrase "a series of related matters or transactions" in the context of a solicitors' insurance policy is, in my judgment, a series of matters or transactions that are in some way dependent on each other. It is difficult to talk of transactions being related unless their terms are in some way inter-connected."
It was common ground on the pleadings that the individual transactions were not dependent on each other. The judge plainly thought, therefore, that there are 214 claims, although he did not incorporate that conclusion into his formal order which merely refused the claimant the declaration sought in the Claim Form.
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