Allanfield Property Insurance Services Ltd ((in Administration)) ("APIS") (as trustee of a trust of client money under Chapter 5 of the Client Asset Sourcebook within the FCA Handbook) and Others v Aviva Insurance Ltd and Another

JurisdictionEngland & Wales
JudgeHis Honour Judge Keyser
Judgment Date17 December 2015
Neutral Citation[2015] EWHC 3721 (Ch)
Docket NumberCases Nos: 9707 of 2012 & 191 of 2013
CourtChancery Division
Date17 December 2015

[2015] EWHC 3721 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

COMPANIES COURT

Royal Courts of Justice

Rolls Building, Fetter Lane, London, EC41 1NL

Before:

His Honour Judge Keyser Q.C.

sitting as a Judge of the High Court

Cases Nos: 9707 of 2012 & 191 of 2013

Between:
(1) Allanfield Property Insurance Services Limited (in administration) ("APIS") (as trustee of a trust of client money under Chapter 5 of the Client Asset Sourcebook within the FCA Handbook)
(2) Industrial & Commercial Property Insurance Consultants Limited (in administration) ("ICP") (as trustee of a trust of client money under Chapter 5 of the Client Asset Sourcebook within the FCA Handbook)
(3) Jason Daniel Baker

and

(4) Philip Lewis Armstrong (the joint administrators both of APIS and of ICP)
Applicants
and
(1) Aviva Insurance Limited
(2) Axa Insurance UK Plc
Respondents

Thomas Munby (instructed by Gowlings (UK) LLP) for the Applicants

Simon Davenport QC and Aidan Casey (instructed by Isadore Goldman Ltd) for Aviva

Phillip Gale (instructed by DAC Beachcroft LLP) for AXA

Hearing dates: 10, 11 and 12 November 2015

His Honour Judge Keyser Q.C.:

Introduction

1

Allanfield Property Insurance Services Limited ("APIS") and Industrial & Commercial Property Insurance Consultants Limited ("ICP") formerly operated in common ownership as insurance intermediaries regulated by the Financial Services Authority ("FSA"). On 27 December 2012 APIS went into administration, and on 16 January 2013 ICP went into administration. Mr Baker and Mr Armstrong ("the administrators") are the joint administrators both of APIS and of ICP, having been appointed by the directors under the provisions of paragraph 22(2) of Schedule B1 to the Insolvency Act 1986.

2

When they entered into administration, both APIS and ICP, though heavily insolvent, had significant funds in bank accounts designated as client accounts: approximately £760,000 in the case of APIS and £515,000 in the case of ICP. In broad terms, the moneys in the client accounts represent insurance premiums that had been received from customers and not yet paid on to insurers or other insurance intermediaries for the purpose of effecting insurance. Those who might have claims to an entitlement to moneys in the client accounts fall into three general categories: customers; insurers or insurance intermediaries; and the general body of unsecured creditors.

3

The administrators consider (rightly, in my judgment) that the accounts are subject to the statutory trust regime in Chapter 5 of the Client Assets Sourcebook ("CASS 5") in the Financial Conduct Authority ("FCA") Handbook. (The FCA replaced the FSA shortly after the companies had gone into administration. Nothing turns on that.) The administrators also take the view that, in circumstances where neither company kept proper records of the entitlement to the moneys in its client accounts, any attempt to ascertain with certainty who is entitled to the funds would probably consume most if not all of the moneys in issue. By these two applications, issued on 16 January 2015 in materially identical terms for each company, the administrators seek directions for the distribution of the moneys in the client accounts, whether in accordance with a scheme that they propose for consideration or in any other manner the Court considers appropriate.

4

On 10 March 2015 Mr Deputy Registrar Frith gave directions in the applications. He ordered that the application notices be deemed to incorporate Part 8 claim forms, in order to comply with the requirement in CPR r. 64.3 that a claim relating to the execution of a trust be made by that procedure, and that the applications proceed and be heard together. He joined Aviva Insurance Limited ("Aviva") as a respondent to both applications and gave directions to enable other interested persons to participate in the proceedings or to apply to be joined as respondents. Pursuant to those directions, on 28 May 2015 AXA Insurance UK Plc ("AXA"), which like Aviva claims to be beneficially interested in the APIS client accounts, gave notice of its desire to participate in these proceedings. At the hearing of the applications I indicated that I would join AXA as a respondent to the application in Case No. 9707 of 2012.

5

Aviva and AXA are examples, though not strictly representatives, of insurers who claim to be entitled to moneys in the APIS client account; they are the only such claimants who have sought to participate in these proceedings. No customers of the companies have sought to participate in the proceedings; indeed, only three have so far made claims to entitlement. Of the general body of creditors, only Coutts & Co has made representations, in the form of a Position Statement. The FCA has been kept informed of the progress of the proceedings but has not played any part in them.

6

At the hearing, Mr Munby for the administrators was careful to draw attention to the potential implications of possible and proposed courses of action on persons who were not represented on the applications. Mr Davenport QC and Mr Casey for Aviva, while generally supportive of the course proposed by the administrators, made submissions on particular matters, including the question of the incidence of costs. Mr Gale for AXA attended on the second day of the hearing in order to make submissions on one particular issue. I am grateful to them all for their assistance. In view of the nature of the applications, it is only right that I should express special thanks to Mr Munby for the skill and care with which he expounded to me both the factual background and the legal framework for the issues that arose for consideration.

7

In the remainder of this judgment, I shall proceed as follows. First, I shall explain the legislative and regulatory framework in which the client accounts fall to be considered. Then I shall set out the facts to the extent that it is necessary to do so. Then I shall give an overview of the issues. Then I shall consider briefly the Court's jurisdiction to deal with the issues and to give directions to the administrators. Finally I shall turn to consider the specific issues and state my conclusions on them.

The legal framework

8

Part X of the Financial Services and Markets Act 2000 (" FSMA") conferred on the FSA powers to make rules applying to "authorised persons" under FSMA and to give guidance with respect to the operation of any such rules. Sections 138 and 139 as originally enacted (which is their relevant form for present purposes) provided in part as follows:

Section 138

"(1) The Authority may make such rules applying to authorised persons—(a) with respect to the carrying on by them of regulated activities, or (b) with respect to the carrying on by them of activities which are not regulated activities, as appear to it to be necessary or expedient for the purpose of protecting the interests of consumers."

"(7) 'Consumers' means persons—(a) who use, have used, or are or may be contemplating using, any of the services provided by (i) authorised persons in carrying on regulated activities …"

Section 139

"(1) Rules relating to the handling of money held by an authorised person in specified circumstances ('clients' money') may—(a) make provision which results in that clients' money being held on trust in accordance with the rules; (b) treat two or more accounts as a single account for specified purposes (which may include the distribution of money held in the accounts); (c) authorise the retention by the authorised person of interest accruing on the clients' money; and (d) make provision as to the distribution of such interest which is not to be retained by him."

9

Since wide-ranging amendment of FSMA in April 2013, corresponding provisions in respect of the rule-making powers of the FCA are contained in sections 137A and 137B in Part IXA.

10

The Client Assets Sourcebook ("CASS") was issued as part of the FSA Handbook (now the FCA Handbook). CASS 5, entitled "Client money: insurance mediation activity", was made pursuant to the powers in Part X of FSMA, principally in order to give effect in UK law to requirements of European Parliament and Council Directive 2002/92/EC on Insurance Mediation ("the Insurance Mediation Directive"). For present purposes it suffices to refer to selected passages from the Recitals and Articles of the Insurance Mediation Directive. The Recitals contain the following provisions:

"(1) Insurance and reinsurance intermediaries play a central role in the distribution of insurance and reinsurance products in the Community."

"(8) The coordination of national provisions on professional requirements and registration of persons taking up and pursuing the activity of insurance mediation can therefore contribute both to the completion of the single market for financial services and to the enhancement of customer protection in this field."

"(18) It is essential for the customer to know whether he is dealing with an intermediary who is advising him on products from a broad range of insurance undertakings or on products provided by a specific number of insurance undertakings."

Article 1 defines "insurance mediation" as "the activities of introducing, proposing or carrying out other work preparatory to the conclusion of contracts of insurance, or of concluding such contracts, or of assisting in the administration and performance of such contracts, in particular in the event of a claim"; and "insurance intermediary" as "any natural or legal person who, for remuneration, takes up or pursues reinsurance mediation". "Customer" is not defined but clearly refers to the person who is looking to obtain...

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