Axa Insurance Ltd v Akther and Darby Solicitors and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Flaux |
| Judgment Date | 27 March 2009 |
| Neutral Citation | [2009] EWHC 635 (Comm) |
| Docket Number | Case No: 2008 FOLIO 577 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 27 March 2009 |
[2009] EWHC 635 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
The Honourable Mr Justice Flaux
Case No: 2008 FOLIO 577
Charles Hollander QC, Tim Lord QC and Colin West (instructed by Reed Smith LLP) for the Claimant
Sue Carr QC, Philip Jones QC, Ben Hubble, Helen Evans and Ruth Holtham (instructed by Kennedys) for the Defendants
Hearing dates: 4 and 5 March 2009
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.
The Hon. Mr Justice Flaux
Mr Justice Flaux:
Introduction
This is the judgment following a two day trial of preliminary issues of limitation arising in this litigation which concerns the part played by the defendants, panel solicitors, in a Scheme operated by Composite Legal Expenses Limited ('CLE'). Under the CLE Scheme, an insurer, National Insurance and Guarantee Corporation ('NIG') provided ATE (After the Event) legal expenses insurance to members of the public who had various kinds of claim which they wished to litigate but could not fund from their own pocket. CLE was one of the legal expenses insurance providers and claims management companies who had started to provide ATE insurance, underwritten by commercial insurers, in the wake of the introduction of section 29 of the Access to Justice Act 1999, which took effect from 1 April 2000, under which the premium under a legal expenses insurance policy was recoverable as part of the costs. The inception of that section coincided with the introduction of amendments to section 58 of the Courts and Legal Services Act 1990, under which for the first time, a party to proceedings was permitted to recover by way of costs the success fees charged by his legal representative under a conditional fee agreement. These legislative changes were the catalyst for the development of schemes of the sort presently under consideration. The ability to recover the ATE premium as part of the costs paved the way for claims management companies to offer schemes under which potential litigants could be assured that their damages would be recovered in full without deduction for costs. Central to the existence of these schemes was the ATE policy, which provided the mechanism for the litigant to be protected from the risk of costs.
The CLE Scheme pursuant to which NIG provided legal expenses insurance for various types of claim ran from October 2000 until August 2003, when NIG gave notice to terminate its participation in the Scheme. During the operation of the Scheme NIG issued about 40,000 ATE policies in respect of claims conducted by some 170 firms of panel solicitors. It is no exaggeration to say that its participation in the Scheme proved financially disastrous for NIG.
Axa (as alleged assignee of NIG) has brought the present proceedings against 89 firms of panel solicitors, alleging that they acted in breach of duty to NIG in accepting and/or thereafter conducting some 26,000 claims. The value of the overall claim pursued is said to be about £65 million. The proceedings were issued on 17 June 2008 and relate to NIG ATE policies which incepted from April 2001 onwards. Of those, 7,383 policies incepted more than six years before the proceedings were issued. The value of those claims is £19,544,472. The panel solicitors contend that any claim against them in respect of those policies is time barred both in contract and in tort.
By an Order dated 11 December 2008 as amended by a consent Order dated 26 January 2009, I ordered the trial of various preliminary issues of limitation, as set out in more detail below, to be determined on the basis of a Statement of Assumed Facts to be agreed between the parties.
Factual background relevant to the preliminary issues
Pursuant to the Statement of Assumed Facts, various allegations made in the statements of case have been assumed to be correct. The matters assumed are not binding on the parties as having been proved, and the facts remain for determination hereafter. The Statement of Assumed Facts is included at Appendix 1 to this judgment, so I do not propose to set out the detailed assumed facts in the body of the judgment, but only a summary sufficient to make sense of the preliminary issues for the reader of the judgment.
CLE acted as coverholders for NIG in issuing ATE policies and provided claims management functions. CLE as agent of NIG entered into agreements with panel solicitors governing the role the solicitors would have in the handling of Scheme Claims. For the purposes of the preliminary issues, the court is asked to assume that the relationship is governed by a Funded Solicitors Agreement ('FSA'). Part of the role performed by the panel solicitors under the FSA was the vetting of claims which members of the public wished to pursue. Claims accepted under the Scheme had to have prospects of success of at least 51% and be for a minimum amount of £1,000. In respect of claims accepted, CLE acting on behalf of NIG would issue an ATE policy of insurance insuring the Scheme Claimant. In conjunction with the policy, a Funder (either First National Bank or Bank of Scotland as appropriate) would grant a loan to the Scheme Claimant which would be the source for payment of (i) the premium for the ATE policy and (ii) funded disbursements. NIG also entered into agreements with the Funders under which it agreed to indemnify the Funder in respect of the loan in certain circumstances, for example where NIG avoided the ATE policy for misrepresentation.
The allegations made by Axa which are relevant to the preliminary issues are that, pursuant to the FSA and/or at common law, panel solicitors owed duties to NIG, as insurer, to:
(1) Vet and only take on Scheme Claims that had (i) greater than a 50% prospect of success and (ii) a likelihood of damages of £1,000.
(2) Conduct cases with reasonable care and skill thereafter. This duty falls into two relevant categories. First a duty to notify to NIG Scheme Claims for withdrawal of indemnity where (i) the prospects of success fell below 50% and/or (ii) it became clear that damages would not exceed £1,000. Second, a duty to conduct claims with due care and diligence (where appropriate to a successful conclusion).
The requirement that a claim should not only have greater than 50% prospects of success but should also be likely to result in a damages award of at least £1,000 resulted from the costs regime on the small claims track. If the value of the claim was less than £1,000 then it was extremely unlikely that the Scheme Claimant would be able to recover his costs and disbursements, including the sums insured by NIG under the NIG Policy, (which NIG would have to pay out instead). These requirements that the claim should be worth at least £1,000 and should have greater than 50% prospects of success are alleged by Axa in paragraph 1.3 of the Amended Generic Particulars of Claim to be 'vital to the success of the [CLE] Scheme (and to the financial interests of the Insurer thereunder)'.
Axa contends that by reason of panel solicitors' breaches of those duties, NIG suffered loss and damage, consisting in essence of the following:
(1) In relation to breach of the duties set out at paragraph 7 (1) above ('vetting breaches') the amount paid by NIG to the relevant Funder to discharge the Scheme Claimant's loan account and/or other amounts paid pursuant to the NIG Policy (such as the successful party's costs) when a Scheme Claim failed; and
(2) In relation to breach of the duties set out at paragraph 7 (2) above ('conduct breaches'), either:
i. The extra interest and/or disbursements incurred during the period where a Scheme Claim was wrongly continued; or
ii. The lost opportunity of securing a successful outcome at trial or settlement and so avoiding a call on the NIG Policy, where a Scheme Claim should have been brought to a successful conclusion.
The preliminary issues
The preliminary issues ordered to be tried are as follows:
(1) In relation to the alleged vetting breaches when did time start running under the Limitation Act 1980 for the purposes of any cause of action asserted by Axa in contract (under the FSA) and in tort?
(2) In relation to the alleged conduct breaches when did time start running under the Limitation Act 1980 for the purposes of any cause of action asserted by Axa in contract (under the FSA) and in tort?
At the outset of the trial of the preliminary issues, any claim in contract in respect of ATE policies which incepted prior to 17 June 2002 or in respect of conduct breaches which occurred before that date, was abandoned by Axa, on the basis that it was accepted that in contract such claims were time barred. This acceptance was scarcely surprising, given that under section 5 of the Limitation Act 1980, any cause of action in contract accrues when the breach of contract occurs. It follows that although overall the case concerns alleged parallel duties in contract or tort owed by a professional, the court is only concerned with the question whether claims in tort are time barred under section 2 of the Limitation Act. This question turns on when 'damage' (what is described in several authorities as 'actual damage') was suffered by NIG for the purposes of the cause of action for breach of the duties said to be owed by the panel solicitors in tort.
The preponderance of both the written and oral submissions of both parties concentrated on the vetting claims, not least because they are by far and away more significant financially and, accordingly,...
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