Aig Europe Ltd v OC320301 LLP (formerly The International Law Partnership Llp) and Others
| Jurisdiction | England & Wales |
| Judge | Mr. Justice Teare |
| Judgment Date | 14 August 2015 |
| Neutral Citation | [2015] EWHC 2398 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: 2014 FOLIO 238 |
| Date | 14 August 2015 |
[2015] EWHC 2398 (Comm)
Mr. Justice Teare
Case No: 2014 FOLIO 238
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Rolls Building, 7 Rolls Buildings
Fetter Lane, London EC4A 1NL
Ben Hubble QC, Carl TromanandPeter Morcos (instructed by Mayer Brown LLP) for the Claimant
Tom Leech QC and Edward Risso-Gill (instructed by Royds LLP) for the 5 th and 6 th Defendants
Hearing dates: 28 and 29 July 2015
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.
In this action the Claimants, AIG Europe Limited, seeks a declaration that certain claims ("the underlying claims") brought by many individuals against a firm of solicitors are to be aggregated and thus considered a single claim for the purposes of a claim brought by the firm of solicitors against AIG under an insurance policy. In order to determine the claim for a declaration it is necessary to construe the aggregation clause in the policy and apply it to the facts of the present case.
The underlying claims have been brought in two actions in the Chancery Division. They are yet to be determined and so, for the purposes of the present proceedings, it is necessary to assume that the allegations made in the underlying claims are true.
AIG's claim for a declaration has been opposed by the Fifth and Sixth Defendants ("the Trustees") who are the trustees of the trusts that are the subject matter of the underlying proceedings. The Trustees represent the claimants in the underlying proceedings. Although the Trustees are not party to the insurance policy in reality the dispute as to the true construction of the aggregation clause and its application to the facts of this case is between AIG and the Trustees. The firm of solicitors, two of its partners and an employee (the First to Fourth Defendants) were not represented at this trial.
The parties agreed that the Solicitors Regulation Authority ("SRA") could informally intervene in the proceedings by providing written submissions as to the governing principles of construction. The SRA did so but did not seek to make submissions as to how the aggregation clause should be applied to the particular facts of this case.
The factual background
This can most conveniently be taken from the letter before the underlying actions which I was asked to read and to which I was referred at the trial. Other matters which are not in dispute are taken from counsel's skeleton arguments.
Midas International Property Development PLC ("Midas") was a UK company which wished to develop holiday homes at Peninsula Village, Turkey and at Al Johara, Morocco. Between April 2006 and August 2009 Midas offered opportunities to invest in those holiday homes, principally by way of interest bearing loans or by the direct purchase of holiday homes. Midas engaged the firm of John Howell & Co., subsequently the International Law Partnership LLP ("TILP"), to advise it on all international property law aspects of the property transactions.
An elaborate scheme was devised with a view to protecting the interests of the investors and thereby encouraging them to invest. The investor became party to an Escrow Agreement with TILP as escrow agents to whom the investors' monies were paid. The investor also became a beneficiary of a Deed of Trust. The trust was to hold security over the land to be purchased. Pursuant to the loan and purchase agreements the monies received from investors were not to be paid over by the escrow agent to the local Midas development company until the promised level of security was in place. The deed of trust contained an express provision for the test which the original trustees (the Second to Fourth Defendants) had to apply prior to the release of any money from the escrow account. This was known as the cover test. If it was met the original trustees were entitled to authorise the release of monies from the escrow account for the purchase of land or to finance the development generally.
There was one trust established for Peninsula Village and one trust established for Al Johara. They were separate. The investors were only intended to be admitted to the relevant trust once the cover test had been applied and the monies released from the escrow account. The objects of the trust were to realise the assets in order to repay the investors if the developments failed.
Typically, the files maintained in relation to each investor contained an escrow agreement, a loan or purchase agreement and a copy of the relevant trust deed. Each file had its own designated matter and ledger number and contained records of payments into the escrow account, transfers from that account to a holding account and, finally, the release of the funds to the local Midas company.
Peninsula Village involved the acquisition of a substantial plot of land near Cesme, close to Izmir. The development involved the construction of about 420 villas and apartments. A contract for the purchase of the land was entered into by the local Midas company in April 2007. Al Johara involved the development of 8 plots of land near Marrakech ("the Marrakech development") and was a larger development than Peninsula Village. The local Midas company did not enter into a contract for the purchase of land but, in November 2007, entered into a contract for the purchase of shares in Les Kasbahs du Sud SA, a local company which owned the land in question.
However, the local Midas companies were unable to complete the contracts for the purchase of the land and for the purchase of shares in the land-owning company, which inability led to the failure of both the Peninsula and Marrakech developments. By November 2009 Midas was wound up. It is the case of the investors that by this time all of the invested monies held in escrow had been paid out to the local Midas companies.
The investors' case is that had the defendants put in place an effective form of security and/or applied the cover test properly the investments would have been protected or would never have been released from the escrow account.
The mortgage established over Peninsula Village was defective because it was subject to a "usufruct" in favour of the vendors. The security established over the shares in Kasbah (a "nantissement") had limited value because, pursuant to the terms of the shares sale, the local Midas company owned only 16.5% of the shares in Kasbah and in any event it was subject to prior pledges in favour of other shareholders.
In the result the investors claim to have lost in excess of £10m. (though credit will be given for any capital recovered as a result of steps taken in Turkey and Marrakech to realise at least some of the trust assets).
The trustees represent 214 investors or beneficiaries, the vast majority of whom are private individuals. In broad terms they fell into the following categories. First, there were those who lent money to the Peninsula Village development which was paid out of the escrow account in April 2007. Second there were those who lent money to the Marrakech development which was paid out of the escrow account in November 2007. Third, there were those who had lent money to the Marrakech development which was paid out of the escrow account on various dates between November 2007 and February 2008. Fourth, there were those who had paid money to purchase holiday homes in Peninsula Village which was paid out of the escrow account in October 2008.
There was also a group of investors or beneficiaries who are known as "crossover" beneficiaries. They had originally entered into loan or purchase agreements with regard to Peninsula Village but, when there were planning delays at Peninsula Village, were encouraged to invest in the Marrakech development instead.
Several causes of action are relied upon. In the Amended Particulars of Claim the claims of those who loaned money are put in negligence and breach of fiduciary duty and the claims of those who paid money to purchase a holiday home are put in misrepresentation, breach of the escrow agreements and breach of duty as trustee. These claims are particularised in several ways. Counsel for AIG has identified the key complaints as a failure to apply the cover test adequately or at all with the result that the escrow funds were released without there being adequate security (see paragraphs 63–73 of his skeleton argument). Counsel for the Trustees has also summarised the breaches of duty relied upon in essentially the same, though slightly fuller terms (see paragraphs 86 and 96 of his skeleton argument).
The policy of insurance
Each year the Law Society makes rules under section 37 of the Solicitors Act requiring solicitors to arrange insurance with Qualifying Insurers. Such policies must comply with the Minimum Terms and Conditions of Professional Indemnity Insurance for Solicitors and Registered European Lawyers in England and Wales ("the MTC"). The MTC are therefore in the nature of delegated legislation but are, in effect, incorporated into the policies of insurance issued by the Qualifying Insurers.
TILP arranged insurance with AIG. The limit of liability (any one Claim, Defence Costs in addition) was £3m. The cover was in respect of "all Loss resulting from any Claim...
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