Mayhew v King
| Jurisdiction | England & Wales |
| Judge | Lord Justice Rimer,Lord Justice Sullivan,Lord Justice Sedley |
| Judgment Date | 31 March 2011 |
| Neutral Citation | [2011] EWCA Civ 328 |
| Docket Number | Case No: A3/2010/1427 |
| Court | Court of Appeal (Civil Division) |
| Date | 31 March 2011 |
[2011] EWCA Civ 328
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Sir Edward Evans-Lombe (Sitting as a Judge of the High Court)
Before: Lord Justice Sedley
Lord Justice Rimer and
Lord Justice Sullivan
Case No: A3/2010/1427
Mr Robin Knowles CBE QC and Ms Joanna Perkins (instructed by Beachcroft LLP) for the Appellant
Mr Antony Zacaroli QC (instructed by Browne Jacobson LLP) for the Respondent
Hearing date: 24 January 2011
Lord Justice Rimer:
Introduction
The appellant is Folgate London Market Limited ('Folgate'), an insurance broker. It was formerly known, and was sued, as Towergate Stafford Knight Company Limited. The respondent is Chaucer Insurance Plc ('Chaucer'), a Lloyd's syndicate. Folgate's appeal is against an order dated 20 May 2010 made by Sir Edward Evans-Lombe sitting as a High Court Judge in the Chancery Division.
The issue before the judge was one of law arising on undisputed facts. It turned on whether a clause in a settlement agreement relieving the paying party from its obligation to make payment to the receiving party in the event of the latter's insolvency infringed the so-called anti-deprivation principle that prevents the making of a valid contract by which a man's property is to remain his until bankruptcy but is on such event to pass to someone else and so be taken away from his creditors.
The judge held that the relevant clause infringed the principle and made an order accordingly. Folgate, represented by Mr Knowles CBE QC, challenges his order. Chaucer, represented by Mr Zacaroli QC, seeks to maintain it. Both counsel also appeared before the judge.
The facts
I take these gratefully from the judge's judgment. On 26 September 2001 Justin Mayhew suffered severe personal injuries when a load carried by a lorry driven by Phillip King and belonging to Milbank Trucks Limited ('Milbank') slipped and struck his car. Milbank was insured by Chaucer, but Chaucer declined to indemnify it against Mr Mayhew's claim on the ground that the claim fell within an exception in the policy. On 14 September 2004 Mr Mayhew sued Mr King and Milbank in Cambridge County Court for damages. On 14 July 2005 he obtained judgment against Milbank for damages to be assessed.
Milbank, by a separate action in the Commercial Court, sued Folgate for damages for negligence in arranging Milbank's insurance cover with Chaucer. That claim was, however, settled by an agreement made on 25 August 2006 ('the agreement'). By the agreement, Folgate was to pay Milbank on the defined 'Due Date for Payment' £99,646.69 (being 85% of the payments that Milbank had to date paid out under Mr Mayhew's judgment of 14 July 2005) and to indemnify Milbank in respect of its liability to Mr Mayhew for damages, interest and costs subsequently assessed to the extent of (a) 85% of any sum payable by Milbank by way of damages and costs up to £1m, and (b) 100% of any sum payable by Milbank by way of damages and costs in excess of £1m (whether my summary in (a) and (b) should also include a reference to Milbank's interest liability depends on the correct construction of clause 4.2 of the agreement, but that question is not before us). Certain terms of the agreement are central to the issue before us and so I will break off the account of the facts to set them out.
The agreement of 25 August 2006
Clause 1.5.1 defined the 'Due Date for Payment' as meaning:
'21 days after full and final determination, whether by judgment or settlement, on terms providing for payment of a lump sum, of all outstanding claims for damages and interest in the Justin Mayhew Claim together with agreement as to the liability for claimant's costs, whether those costs are to be paid at the same time as the damages or to be agreed or assessed at a later date; …'
Clauses 2 and 3, in a section headed 'Settlement', provided:
'2. The terms of this agreement set out below are in full and final settlement of any and each Claim or potential Claim which Milbank or [Folgate] may each respectively have against the other, arising in any way whatsoever from any matter connected directly or indirectly with the subject matter of the Action [meaning Milbank's claim against Folgate].
3. In consideration of [Folgate] agreeing to make the payments set out in clause 4 below and agreeing to take over conduct of the Justin Mayhew Claims as set out in clause 5 below, Milbank has agreed to a stay being imposed upon all further steps in the Action.
Clause 4 set out the payments that Folgate was to pay Milbank 'on the Due Date for Payment' and I have summarised them in paragraph [5] above.
Clauses 5, 9 and 11 provided:
'5. The parties agree that [Folgate] shall be entitled to take over the conduct of the defence of the Justin Mayhew Claim, to take such steps to defend or settle that claim as it thinks fit (without, for the avoidance of doubt, having to consult or obtain the consent of Milbank) and that [Folgate] may appoint its own solicitors, counsel and experts for that purpose. …
9. Milbank shall provide all assistance reasonably required by [Folgate]:
9. 1 to conduct the defence of [the] Justin Mayhew Claim; and
9. 2 to pursue any claim assigned to [Folgate] by clause 8. …
11. In the event that Milbank is placed in liquidation, administration or a receiver is appointed or a voluntary arrangement is proposed for the purposes of Part 1 of the Insolvency Act 1986, at any time prior to the date upon which any payment by [Folgate] under clause 4 is due to be made, Milbank's right to an indemnity from Folgate will cease with immediate effect and [Folgate] will automatically be released from all and any further obligation under the terms of this agreement. For the avoidance of doubt, the parties confirm that this agreement is not a contract of insurance.'
It is the validity of clause 11 that is in issue.
More facts
Milbank entered into administration on 4 November 2008. It is insolvent. On 19 January 2009 Mr Mayhew joined Chaucer as the third defendant to his claim, as the insurer liable to meet any judgment by Mr Mayhew against Milbank under section 151 of the Road Traffic Act 1988. On the same day, in consideration of £5,000, Milbank's joint administrators assigned to Chaucer its interest in the agreement of 25 August 2006. It is agreed that the assignment gave Chaucer the like right to challenge the validity of clause 11 as would have been open to Milbank's administrators.
On 12 February 2009, in Mr Mayhew's proceedings, Chaucer commenced a CPR Part 20 claim against Folgate to enforce the agreement and, in particular, its provisions for the indemnification of Milbank (and now, by the assignment, itself) against Mr Mayhew's claim. Folgate filed a defence to that claim on 19 March 2009 relying on clause 11 as releasing it from all indemnification liability to Milbank by reason of Milbank's supervening insolvency. If that assertion was correct, Chaucer, as Milbank's assignee, could be in no better position than Milbank.
On 3 June 2009 Mr Mayhew's claim against Mr King, Milbank and Chaucer was stayed on terms that Chaucer – on behalf of all defendants – paid him damages of £640,000 and £75,000 on account of costs. That meant that the 'Due Date for Payment' under the agreement was 21 days later, 24 June 2009. On 16 June 2009 the Part 20 proceedings in Mr Mayhew's proceedings were transferred from Cambridge County Court to the Chancery Division, following which the trial of the issue between the Part 20 parties – Chaucer and Folgate – came on before the judge on 19 and 20 April 2010. The outcome of this issue has no impact upon Mr Mayhew's position. Chaucer has satisfied his claim pursuant to its liability referred to in paragraph [8] above. The only question is whether it is entitled to be indemnified by Folgate to the extent of the obligation imposed on Folgate by clause 4 of the agreement.
The judge's judgment
The question for the judge was, therefore, whether clause 11 of the agreement validly achieved what it purported to achieve: namely, that Milbank's insolvency released Folgate from its clause 4 payment obligation. The judge said that it was a longstanding principle of insolvency law that a court will refuse to give effect to provisions in a contract which achieve a distribution of the insolvent's property running counter to the principles of insolvency legislation, i.e. other than equally in proportion to their provable debts. He referred to British Eagle International Air Lines Limited v. Compagnie Nationale Air France [1975] 1 WLR 758, per Lord Cross of Chelsea, at 779E; Perpetual Trustee Company Limited v. BNY Corporate Trustee Services Limited [2010] BCC 59, per Lord Neuberger of Abbotsbury MR at [32], [43] and [44], and Patten LJ at [113]. Paragraphs [44] and [113] both made it clear that no insolvent person may at any time contract for its property subsisting at the date of the insolvency to be dealt with or disposed of otherwise than in accordance with the Insolvency Act 1986. 'Put another way', said Patten LJ, 'it is not possible to contract out of the Act.' The judge referred to Ex parte Mackay (1873) LR 8 Ch App 643, where James LJ in this court, at 647, made an observation to the same effect; and to Money Markets International Stockbrokers Limited (in liquidation) v. London Stock Exchange Limited and Another [2001] 2 BCLC 347, a decision of Neuberger J (as he then...
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