Cheltenham And Gloucester Plc V. Sun Alliance And London Insurance
| Jurisdiction | Scotland |
| Judge | Lord Clarke |
| Date | 21 May 2002 |
| Court | Court of Session |
| Published date | 23 May 2002 |
| OUTER HOUSE, COURT OF SESSION | |
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| OPINION OF LORD CLARKE in the cause CHELTENHAM & GLOUCESTER PLC Pursuers; against SUN ALLIANCE & LONDON INSURANCE PLC Defenders: ________________ |
Pursuers: Davidson Q.C.; D.L.A.
Defenders: Murphy Q.C.; Brechin Tindal Oatts
21 May 2002
Introduction
[1]In this action the pursuers seek payment from the defenders of the sum of £103,720.89. They do so on the basis that they had a claim against a solicitor William Graeme St. Clair in respect of his failure, in breach of his instructions from the pursuers, to obtain a first ranking security over certain heritable subjects in security of their having lent £94,480 to clients of St. Clair. The pursuers aver that St. Clair was insured in respect of that claim under a policy of insurance effected with the defenders under the Master Policy Scheme for the Law Society of Scotland professional indemnity insurance.
[2]The pursuers sued St. Clair in the Sheriff Court in respect of the said claim. Decree by default was granted on 27 June 1995. The pursuers have been unable to recover any payment in respect of the decree. The insured, St. Clair, was sequestrated on 10 September 1997 and no dividend was paid from his sequestrated estates. In the foregoing circumstances the pursuers rely upon the provisions of Section 1 of the Third Parties (Rights Against Insurers) Act 1930 and now claim St. Clair had a right of indemnity against the defenders in respect of his liability under the said decree and this right has transferred and vested in the pursuers.
[3]The case came before me for proof before answer. The defenders, while not conceding any questions of onus, agreed that it would be appropriate that they should lead at the proof. The case has been previously the subject of a procedure roll debate, before Lord Carloway, - reported 2000 S.L.T. 347. His Lordship's decision was the subject of a reclaiming motion which was decided by the First Division and is now reported in 2000 S.C. 265. Both Lord Carloway's decision and the decision of the First Division were involved with an issue which is no longer live before me. In the course of their judgments, both Lord Carloway at p349, and Lord President Rodger at p967 did, however, draw attention to the fact that at that stage of the proceedings, the pursuers were not apparently admitting or denying averments of the defenders regarding St. Clair's lack of good faith, a matter which was very much alive before me. A denial in response to the defenders' averments about this matter was included in a Minute of Amendment moved by the pursuers at the commencement of the proof.
[4]The defenders' defence to the action is a three fold one.
[5]The first line of defence is that the act or omission of the insured. St. Clair, in releasing advances by the pursuers, without getting them a first ranking security, was a deliberate one - a risk not covered by the terms of the insurance policy. The second line of defence was that, in any event, if the act or omission could be said to be covered by the relevant terms of the policy, it was not an act, or omission, which occurred when the insured was in good faith and, accordingly, no obligation of indemnity on the part of the defenders arose. The third line of defence was that in support of his claim to be indemnified by the insurer, under the policy, the insured had forged a file note which he claimed was contemporaneous with the events recorded therein but which, in fact, was compiled by him some time after the event and whose contents, in any event, were falsehoods. In so acting, the insured had forfeited any right to be indemnified under the policy, and, as the pursuers stood in the shoes of the insured, no enforceable right of indemnity against the defenders had transferred to the pursuers.
[6]It is right that I set out the relevant terms of the policy in question, which is 6/3 of process. Under the heading "Insurance" it is provided as follows:
"The insurers will indemnify the insured.
1. Against liability at law for damages and claimant's costs and expenses in respect of claims or alleged claims made against the Insured and notified to the Brokers during the Period of Insurance specified in the Schedule by reason of any negligent act, neglect, error or omission on the part of
(a) the Insured or the predecessors of the Practice;
(b) any agent or correspondent of the insured or of the predecessors of the Practice;
occurring or committed or alleged to have occurred or to have been committed in good faith in connection with the Practice."
General condition 5 of the policy is in the following terms:
"If any claim be in any respect fraudulent or if any fraudulent means or devices be used by the Insured or anyone acting on the Insured's behalf to obtain benefit under this Certificate all benefit hereunder in respect of the individual or individuals committing or condoning the fraud shall be forfeited."
[7]I heard evidence from the following witnesses - for the defenders, Sheriff Neil Douglas, Dennis Dunn, Claims Manager of the defenders, David Young, Bank Manager, Bank of Scotland, Dumfries, and Ms Isobel Todd, Solicitor. The only witness led by the pursuers was the insured, St. Clair.
[8]Ultimately, there was very little dispute about the facts and history of this case. Indeed a great deal of the relevant facts are the subject of a joint minute, number 34 of process. The dispute between the parties centred largely on the way in which the actings of St. Clair should be characterised, having regard to the relevant terms of the policy.
The Evidence
[9]In 1990 St. Clair was practising, as the sole partner of a firm of solicitors, whose office was at 90 Battlefield Road, Glasgow. Included among his then clients were a married couple, William Joseph Gallagher and Georgina Gallagher. St. Clair had business interests with this couple, in particular Mrs Gallagher. He had been, since early 1987, a director and shareholder in a company known as Brookfield Developments Limited of which Mr and Mrs Gallagher were also shareholders. St. Clair was also the solicitor of the company. Prior to September 1990 debts of the said company had been secured over heritable subjects owned by Mr and Mrs Gallagher (hereinafter referred to as "the said subjects"). A first ranking security had been granted to the Bank of Scotland and a second ranking security had been granted in favour of the Clydesdale Bank. The security in favour of the Bank of Scotland was recorded on 11 July 1989. The security in favour of the Clydesdale Bank was recorded on 10 April 1990. St. Clair had provided personal guarantees for the company's indebtedness and these were secured over heritable subjects owned by him.
[10]In September 1990 Mr and Mrs Gallagher made an application to the pursuers for a loan to be made to them for the purposes of the said business. The loan monies to be obtained from the pursuers were, in large measure, to be employed to pay off the company's indebtedness to the Clydesdale Bank. The loan was to be secured by means of a standard security to be granted by Mr and Mrs Gallagher over the said subjects. In the first place the pursuers agreed to advance the sum of £119,500 to Mr and Mrs Gallagher, on certain terms and conditions, including a term that the loan was to be secured by a standard security granted by the borrowers over the said subjects as a first ranking security. The term, in question, was included in the loan agreement between the pursuers and Mr and Mrs Gallagher, described as mortgage loan agreement and which is 6/4/33 of process. The term provided as follows:
"The Society requires this mortgage to be registered as a first charge. All other charges must be either repaid or postponed".
St. Clair was instructed by the pursuers to act for them in the loan transaction and, in particular, in relation to the obtaining of the necessary security on their behalf.
[11]In a document headed Acknowledgement of Instructions/Report on Title - 6/4/32 of process, St. Clair confirmed to the pursuers that he would "ensure the mortgage deed/standard security and ALL Loan Agreements are properly executed and in our possession or control". He also undertook, inter alia, "to hold all loan money strictly to the order of the Society and not to release the same until we have complied with all aspects of your instructions". In their instructions to St. Clair, 6/4/39 of process, the pursuers had directed him, inter alia, in the following terms:
"1. Prior to completion you must have in your possession BOTH the properly executed Mortgage Deed/Standard Security AND ALL LOAN AGREEMENT(S) also properly executed. Under no circumstances may the Society's funds be released until this is the case".
St. Clair was, accordingly, fully aware that, prior to releasing any loan money advanced by the pursuers, under the loan agreement, he had to have in his possession a first ranking standard security, granted by the borrowers over the said subjects in favour of the pursuers. I should add, at this point, that the evidence revealed that St. Clair, at the time of the application being made for the said loan from the pursuers, was also seeking to obtain funds on behalf of Mr and Mrs Gallagher from Scottish Mutual Assurance Society and Leamington Spa Building Society. These applications, it seems, were, however not proceeded with.
[12]On 24 August 1990, St. Clair sent to Messrs Miller & Bryce a memo for continuation of search together with the search over the said subjects (6/4/63 of process). The search in question 7/8 of process revealed, inter alia, that on 23 June 1989 Mr and Mrs Gallagher had granted a standard security over the said subjects to the Bank of Scotland. The interim report on search received by St. Clair in response to his request to Messrs Miller & Bryce, on 24 August 1990, to continue the search also revealed, inter alia, that on 24 November 1989 Mr and Mrs Gallagher had...
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