Discovery Land Company LLC v Axis Specialty Europe SE
| Jurisdiction | England & Wales |
| Judge | Mr Justice Robin Knowles CBE |
| Judgment Date | 03 April 2023 |
| Neutral Citation | [2023] EWHC 779 (Comm) |
| Docket Number | Case No: CL-2020-000451 |
| Court | King's Bench Division (Commercial Court) |
[2023] EWHC 779 (Comm)
THE HON Mr Justice Robin Knowles CBE
Case No: CL-2020-000451
IN THE HIGH COURT OF JUSTICE
THE BUSINESS AND PROPERTY COURTS OF ENGLAND & WALES
KING'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
William Flenley KC and Heather McMahon (instructed by Davis Woolfe) for the Claimants
Patrick Lawrence KC, Helen Evans KC and Ian McDonald (instructed by CMS) for the Defendant
Hearing dates: 11–14; 20–21 July 2022
Introduction
The Defendant (“AXIS”) was the provider of the primary layer (£3 million per claim, less excess) of solicitor's professional indemnity insurance to Jirehouse Partners LLP, a limited liability partnership, and two private limited companies, Jirehouse and Jirehouse Trustees Ltd (“JTL”) (together, “the Jirehouse Entities”).
Claims under the policy arise in circumstances of dishonest and fraudulent acts, errors and omissions committed by the Jirehouse Entities through Mr Stephen Jones (“Mr Jones”), a solicitor. The Solicitors Regulation Authority (the “SRA”) which had undertaken a number of earlier investigations over time, ultimately intervened in the legal practice.
The terms of the insurance policy give rise to two main questions for determination at this trial. The first main question is whether Mr Jones was the only director of the limited companies and the sole member of the limited liability partnership that make up the Jirehouse Entities, or whether a Mr Vieoence Prentice (“Mr Prentice”) was also a director and member.
If Mr Prentice was also a director and member, then the question whether he “condoned” the dishonest acts, errors and omissions committed by the Jirehouse Entities through Mr Jones becomes material as the second main question for determination. There is a further issue on aggregation.
The Claimants have judgments against the Jirehouse Entities in respect of two claims, each in respect of client money provided in connection with the purchase of Taymouth Castle in 2018 and 2019. The two claims have been termed the Surplus Funds Claim and the Dragonfly Loan Claim.
The Surplus Funds Claim involved Mr Jones dishonestly and without authority removing, on 16 April 2018, a sum of US$ 14,050,000 that the First Claimant had just paid to the account of JTL in relation to the purchase of Taymouth Castle.
The Dragonfly Loan Claim involved Mr Jones, over the period 21 January to 12 February 2019, dishonestly and without authority arranging and drawing down £4,980,470 from Dragonfly Finance s.a.r.l. as a loan against security over Taymouth Castle, and then removing that sum from Jirehouse's client account.
The Jirehouse Entities have not satisfied the judgments, and are insolvent. It is not in dispute that the Claimants are entitled to pursue against AXIS the rights (if any) of the Jirehouse Entities to be indemnified, under the terms of the insurance, in respect of the judgments.
An issue on excess was agreed in advance of the start of the trial.
Documents have been obtained from Jirehouse's servers and from regulatory files of the SRA. In the result the Court also has before it many documents, however these are not complete and some are heavily redacted, apparently on the basis of claims to legal professional privilege. I am left feeling quite sure that not all the relevant facts are known about the period of more than a decade that this case spans.
The insurance policy
The insurance policy was written pursuant to the rules established by the SRA for the primary layer of solicitors' professional indemnity insurance.
Clause 5.1 states that the policy is “intended to comply with the minimum terms and conditions.” Clause 8.17 of the policy defines the ‘minimum terms and conditions’ as being the SRA Minimum Terms and Conditions of Professional Indemnity Insurance which were in force at the commencement of the policy.
It is common ground that the version of the SRA minimum terms which was in force when the policy was issued was that which appeared in Appendix 1 to the SRA Indemnity Insurance Rules 2013. The Rules were made by the SRA Board pursuant to powers given in section 37 of the Solicitors Act 1974. Section 37 has as its principal purpose “to confer on the Law Society the power to safeguard the lay public”: see Impact Funding Solutions Ltd v Barrington Support Services Ltd [2017] UKSC 57; [2017] AC 73.
There is no dispute that the Surplus Funds Claim and the Dragonfly Loan Claim fall within the insuring clause of the insurance policy issued by AXIS. The basis on which it is said neither Claim is the subject of indemnity from AXIS under that policy, is that each falls within an exception contained at clause 2.8 of the policy (“Clause 2.8”).
Clause 2.8 provides (bold and italics as in the original):
“ EXCLUSIONS
The insurer shall have no liability under the policy for:
…
2.8 FRAUD OR DISHONESTY
Any claims directly or indirectly arising out of or in any way involving dishonest or fraudulent acts, errors or omissions committed or condoned by the insured, provided that:
(a) the policy shall nonetheless cover the civil liability of any innocent insured; and
(b) no dishonest or fraudulent act, error or omission shall be imputed to a body corporate unless it was committed or condoned by, in the case of a company, all directors of that company or, in the case of a Limited Liability Partnership, all members of that Limited Liability Partnership.”
Condonation
Subject to the proviso in Clause 2.8 (which narrows the exclusion), the only claims that are excluded under Clause 2.8 are “[a]ny claims directly or indirectly arising out of or in any way involving dishonest or fraudulent acts errors or omissions committed or condoned by the insured…”.
A professional indemnity policy of this nature is to be construed against the background of the purpose of section 37 (identified above): see Impact Funding at [16]–[17] per Lord Hodge and endorsing Thomas J (as he then was), and at [41]–[45] per Lord Toulson.
The decisions of Irwin J (as he then was) in Zurich Professional Ltd v Karim [2006] EWHC 3355 (QB) at [107] – [108] and of Wyn Williams J in Goldsmith Williams v Travelers Insurance Co Ltd [2010] EWHC 26 (QB), [2010] Lloyd's Rep IR 309 were helpfully cited. However these concerned a clause with different wording and applied to different facts. For example, in Karim the Court accepted that the two condoning partners knew that flows of money out of the firm to themselves could not come legitimately from the income of the firm. In Goldsmith Williams, the Court found that, before the relevant transactions, the condoning partner engaged in mortgage fraud in her own right and knew that her partner did. There are not true parallels between those facts and the facts of the present case.
I understood all parties fundamentally to accept that the words in Clause 2.8 should be given their ordinary meaning. It was to that end, that is, resisting a wider meaning rather than urging a narrower meaning than the ordinary meaning, that Mr William Flenley KC and Ms Heather McMahon for the Claimants referred to the compulsory statutory scheme for insurance.
In my judgment the word “condone” is best applied as it is, as an ordinary word. Elaboration risks supplying different or additional words that the parties did not use. That said, I consider a fair reflection of the meaning is conveyed by the Claimants' argument that, used in ordinary language, to “condone” conveys acceptance or approval. In some situations it does not require an overt act.
In the present case however what may be more important still is what is required to be condoned to come within Clause 2.8.
The Claimants submit that, on the wording of Clause 2.8, what has to be condoned are the “dishonest or fraudulent acts errors or omissions” which were committed and out of which the Claimants' claims arose. I respectfully consider the Claimants' submission is here open to the criticism that it omits reference to the wording “or in any way involving”. The language of Clause 2.8 is: “directly or indirectly arising out of or in any way involving dishonest or fraudulent acts errors or omissions” committed or condoned by the insured.
For their part, AXIS submit (their emphasis):
“… there is nothing in the language used to suggest that it is only if a person knows of a particular fraudulent act before or at the time it is committed that he is taken to have condoned it. It is enough to know and condone a pattern of dishonest behaviour of which the particular fraudulent act forms part.”
In my judgment that submission is correct. The Claimants respond rhetorically “How can I condone something of which I am ignorant?”. I do not think that fully meets the point AXIS are making. If the Surplus Funds Claim and the Dragonfly Loan Claim represented the totality of Mr Jones' behaviour then perhaps that behaviour could not be condoned without knowing of it, but Mr Patrick Lawrence KC, Ms Helen Evans KC and Mr Ian McDonald for AXIS paint a broader canvas in this case.
All that said, the question, if there was condonation, of what it was that was condoned will require close attention on the facts.
Mr Prentice
After study at the University of Pennsylvania Mr Prentice studied law at the LSE. He had studied finance and had worked in the regulation of financial services. He worked for the Nevis Financial Services Regulator and co-authored chapters in a book on “Due Diligence”, published in 2009.
He undertook both the Bar Vocational Course and the Legal Practice Course and, in 2013, qualified as a solicitor. He was to go on to qualify as a barrister and then as a...
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