Morgan Walker Solicitors Llp v Zurich Professional & Financial Lines

1, INTRODUCTION

1. There are three matters for determination by me. First, the appeal of Morgan Walker (hereafter “MW” in this judgment) against the order of Deputy Master Lloyd dated 26 August 2009 in action number HCO9CO1478. Norris J granted MW permission to appeal on 13 November 2009 subject to a condition that it could not seek the costs of the appeal. He was rightly in my view concerned about the small size of the costs and the disproportionate costs incurred in pursuing at such small amount. The second matter before me is an application by MW for permission to appeal against the order of Master Moncaster made on 9 October 2009 in action HC08CO2208. The third application is an application to strike out Zurich's Part 8 proceedings commenced originally in the Commercial Court but transferred to this division in March, number 2010–392 and if that application was unsuccessful for the substantive hearing of those proceedings.

2. At the outset of the appeal Ms Dewar(?) who appears for MW abandoned any application to strike out the part 8 proceedings. She also acknowledged that in respect of the decision of Master Moncaster that the only issue there was whether he should have refused to join Zurich to the action. The other substantive issues are no longer alive because the proceedings in question, as I shall set out below, have been compromised already by Zurich and MW do not seek to revisit that decision.

2. BACKGROUND

3. MW is a firm of solicitors. At all material times Zurich was its professional indemnity insurer. There was some confusion over whether the insured is MW, a partnership formed in 2000, Morgan Walker Solicitors Limited, or Morgan Walker LLP. They are all controlled, as I understand it, by a Mr Sancheti. The only entry apparently in the Solictors Regulatory Authority website is the limited company and I will refer to all three entities collectively as MW in this judgment. Nothing turns on the different entities for the purpose of this appeal so far as I am aware. Clause 65 of the policy of insurance has a provision regulating the control of any claims brought against the firm covered by the policy. Clause 65C says this:

“The insurer shall be entitled as it may in its absolute discretion think fit at any time to take over the conduct in the name of the insured or the firm of the defence or settlement of any claim or proceedings and the insured shall at all times give full information, cooperation and assistance for these purposes. The insured authorise any solicitor appointed by the insurer to go on the record in any proceedings. The provision shall apply even to entry(?) at the defence and prosecution of any proceedings, whether or not the insurer seeks indemnity under this policy.”

Subsection D:

“The insured shall in the conduct of any claim follow all reasonable advice given by any solicitor appointed by the insurer.”

Clause 6.12:

“That has a standard arbitration clause which provides that save as provided in Clause 66, any dispute or disagreement between the insured and the insurer arising out of or in connection with this policy shall be referred to arbitration according to the Arbitration Act of 1986 before a sole arbitrator to be mutually agreed upon by the insured and insurer, or failing agreement to be appointed by the President of the Law Society of England and Wales.”

Clause 66 is a well known QC clause, a provision that the insured is not required to contest any legal proceedings unless the QC has so advised. This is not relevant to the current dispute.

3. THE DISPUTE

4. Two claims were intimated against MW during the subsistence of the policy. The first was by Mastercraft Limited and second was by Bestway Finance Limited. The action in question by Bestway included the hearing before Master Moncaster subject to appeal. MW fell out with its original solicitors, Barlow Lyde and Morgan Cole herein after MC were retained by Zurich. This was done pursuant to Zurich's power to take control as set out above. I will not set out the various actions taken by MW but they do seem to me somewhat surprising. The most significant one, however, is that they purported to serve their own defence in action number 228 after a defence had already been served at the instigation of Zurich It also sought later to serve a part 20 claim against a former partner, a Mr Banerjee blaming him for the losses and seeking to recover from him such losses. Unsurprisingly this embarrassed Bestway, to put it mildly, because it was faced with two competing parties claiming to be representing the Defendants. This was clearly unsatisfactory.

5. Master Moncaster stayed the proceedings on 12 January 2009 pending a determination of which party was entitled to represent MW. This dispute had to be resolved unless the parties agreed otherwise by arbitration under clause 6.12. The Law Society appointed a Mr Howard Oakley to resolve the dispute. Ultimately on 20 August 2009 he made an award by consent as follows. The final award says:

“Whereas I, Howard Oakley, was appointed by the President of the Law Society by a letter dated 6 January 2009. Neither party has asked for a reasoned(?) award. The parties have agreed terms in full and final settlement as set out in the schedule hereto. By consent I do hereby award that the parties shall be bound by the terms set out in the schedule hereto and that those terms shall constitute the full and final settlement between the parties in this arbitration.

6. The schedule:

1)Zurich Professional & Financial Lines will have control of the proceedings and Morgan Walker Solicitors will relinquish any attempts to control proceedings in either the Bestway or Mastercraft matter. Zurich may settle the claim or defend on such terms it thinks fit.

2)There will be no liability to costs between either party for the dispute between Morgan Walker Solicitors and Zurich Professional & Financial Lines including but not limited to costs of the application to the High Court and the costs of either party of resort to arbitration.

3)Morgan Walker Solicitors will not be responsible for any excess payment under any terms of settlement agreed by Zurich Professional on either claims.”

7. Zurich had in the meantime issued proceedings number 1478 in May 2009 seeking a declaration that it was entitled to instruct solicitors. The circumstance of the issue of those proceedings will appear from the correspondence as analysed below. It received an application by MW on 23 June 2009 seeking a stay of those proceedings under Section 9 of the Arbitration Act 1996, as the matter be referred to arbitration it being covered by the arbitration clause. Zurich, in view of the correspondence, issued an application to amend its particulars of claim in the proceedings at issue to contend that the proceedings were compromised by MC, its solicitors, on 6 April 2009 by its acceptance of an offer to settle from MW dated 16 March 2009. This was the first issue which was to have been decided by Deputy Master Lloyd. The second issue was that if there was a binding settlement, what were its terms?

4. HEARING BEFORE ON DECISION OF DEPUTY MASTER LLOYD 28 AUGUST 2009.

8. In the event because of the award, to which I have referred, Deputy Master Lloyd was only asked to determine the costs of the action. He reviewed the correspondence that passed between MC for Zurich and MW between January 2009 and the hearing. He referred to the MW offer letter dated 16 March, which contained an offer to dispose of the matters then in dispute. The key word there is ‘then’ in my view. The sole issue was the control of the proceedings and costs at that time. MW added a claim as appears from paragraph 3 of the schedule to the award relieving it of any liability to make any excess payment. That was not actually in dispute but Zurich never challenged that issue, so in my view it has no relevance to the dispute before me. It was asserted initially that the offer letter 16 March 2009 did not arrive, but it was re-sent on 6 April 2009. MC replied on 8 April accepting the offer. Thereafter, MW sent a draft which was ultimately accepted on 15 May. The wording was precisely the same as set out in the letter of 16 March 2009, as indeed is the award. Zurich initialled the terms of the offer but MW did not sign the terms of the award until 20 August. When they did the award was made. By the time therefore, of the hearing before Deputy Master Lloyd the issues were did Clause 2 catch all costs in litigation? If not then he should decide the issue of costs in the action on the normal basis. Both sides were represented by leading counsel. MW by Mr Lord QC and Zurich by Mr Halpern QC, who also appears for them now. To my mind that is an expensive exercise in representation given the amount of costs that were being talked about. It clearly troubled Norris J in light of the costs being expended in challenging these decisions. A troubled view with which I agree. Mr Lord QC for MW argued that the deal was done on 8 April. At that time the proceedings number 1478 were not issued and that therefore Clause 2 cannot have been relevant to that action. Mr Halpern for Zurich argued that there was no deal until the draft...