Ms Shirin Rahim v Arch Insurance Company (Europe) Ltd
| Jurisdiction | England & Wales |
| Judge | His Honour Judge Waksman |
| Judgment Date | 22 November 2016 |
| Neutral Citation | [2016] EWHC 2967 (Comm) |
| Docket Number | Claim No: CL-2015-000068 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 22 November 2016 |
[2016] EWHC 2967 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
COMMERCIAL COURT
His Honour Judge Waksman QC
(sitting as a Judge of the High Court)
Claim No: CL-2015-000068
Graham Chapman QC and Tom Asquith (instructed by Kennedys Law LLP, Solicitors) for the Claimant
Michael Pooles QC (instructed by Reynolds Porter Chamberlain LLP Solicitors) for the Defendant
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.
Hearing dates: 24–26 and 31 October 2016
INTRODUCTION
In this action Ms Shirin Rahim, a solicitor, seeks an indemnity and other relief from her professional indemnity insurers, the Defendant, Arch Insurance Co. (Europe) Ltd ("Arch"), in respect of judgments entered against her by mortgage lenders Barclays Private Clients International Ltd and Barclays Bank Plc ("Barclays") and Heritable Bank Plc ("Heritable"). The claims made by Barclays and Heritable ("the Claims") arose out of mortgage frauds perpetrated by Mr Shariful Islam, a solicitor in whose firm O'Sullivan Last & Co., later renamed O'Sullivan Law, Ms Rahim worked from about December 2005 to 18 June 2007 and who was held out as a partner there for most of that period. The Claims did not allege that Ms Rahim had any personal involvement in the particular mortgage frauds alleged but included her because she was stated to be and admitted that she was a partner at the material times and therefore liable for the fraud or negligence on the part of Mr Islam, a fact which she did not deny.
On 22 June 2012 Barclays entered judgment against Ms Rahim for £2,118,793.00 in action number HQ10X02929 and for £2,230,724.94 in action number HQ10X02930 with no order as to costs. This was by consent following the submission of Defences by her on 4 January 2011 Heritable entered judgment in default against her for £300,580.15. An application to set aside judgment made by her was not ultimately heard and was later dismissed by consent.
Both Ms Rahim and Mr Islam were investigated by the Solicitors Regulation Authority ("the SRA"). Following disciplinary hearings and by an order made on 30 November 2011 by the Solicitors Disciplinary Tribunal ("the SDT"), Ms Rahim was fined £2000 and ordered to pay 5% of the costs. She had been charged with and admitted signing certificates of title while failing to disclose material information to her lender clients, failing to act in their best interests, and certain other matters. The case was not put against her on the basis of dishonesty.
As for Mr Islam, he did not attend the disciplinary hearing. The SDT found him guilty of numerous charges connected with mortgage frauds, put on the basis of dishonesty. He was struck off and ordered to pay 95% of the costs. Earlier this year, he stood trial in the Crown Court for fraud and was found guilty. He was sentenced to 4 years in prison.
In the meantime, by a letter dated 18 November 2008 from Arch's solicitors, Reynolds Porter Chamberlain ("RPC"), Arch repudiated liability to indemnify Ms Rahim on the basis of her own dishonesty. The particular policy exclusion relied upon ("the Dishonesty Exclusion") reads:
"we will not cover The Insured for any Claim or Defence Costs in respect of:
5.6 Fraud or dishonesty
any Insured to the extent that any civil liability or related Defence Costs arise from dishonesty or a fraudulent act or omission committed or condoned by The Insured except that:
(a) We shall nonetheless cover each other Insured."
That repudiation is contested by Ms Rahim and is the subject of this trial.
In early 2012, Ms Rahim sought a direction from the SRA that notwithstanding the coverage dispute, Arch should pay her defence costs in relation to the Claims. By a first instance decision given on 5 March 2012 this direction was refused on the ground, among others, that she did not have a reasonable prospect of winning as against Arch on the Dishonesty Exclusion issue. That decision was upheld on appeal for similar reasons on 25 July 2012.
The judgments obtained by Barclays and Heritable against Ms Rahim remain enforceable against her, hence her claim for an indemnity. Furthermore, she has spent £69,147.63 in dealing with the Claims and the SDT proceedings. She also seeks an indemnity in respect of such costs from Arch. Quantum is not in dispute here.
While the central issue in this case is the application or otherwise of the Dishonesty Exclusion, some other points have been raised as well. The issues may be stated as follows:
(1) Did Ms Rahim herself commit dishonest or fraudulent acts?
(2) If so, did she condone dishonest or fraudulent acts from which the Claims arose?
(3) Was Ms Rahim a partner in the firm?
(4) If she was not, did she dishonestly hold herself out or allow herself to be held out as a partner?
(5) If so, was it her apparent status as partner that led to the judgments being entered against her pursuant to the Claims?
(6) If Arch is otherwise liable to indemnify Ms Rahim, can it rely upon the aggregation clause set out at paragraph 4.12 of the policy and paragraph 3 of the Schedule thereto?
BACKGROUND
Ms Rahim is now 60. She completed a BA (Hons) degree in law in 1979. She left the UK in 1982 after she had married, and moved to Zimbabwe, which is where her husband wanted to establish a catering business. She did not pursue a legal career at that stage but helped in the business. The family moved to Johannesburg in 1990 and she and her husband were victims of a robbery there in 1996. They decided to return to the UK with their children, Alia, born in 1983, and Zahra, born in 1985. Their third child, Zain, was born in December 1996 after they returned.
Ms Rahim's husband moved to the Lake District to try and establish a catering business there while his wife and children lived with her mother and later in temporary accommodation in London. The business did not succeed and in fact Ms Rahim never lived with her husband again. They were finally divorced in 2007.
After doing various temporary jobs, Ms Rahim decided to return to the law; she completed the CPE Course and then the Legal Practice Course ("LPC") in 2001. Her elective modules were family, personal injury and employment. Her first job was as a paralegal in late 2001, for a firm doing mainly immigration work which was closed down by the Law Society in March 2002. In May 2002 she obtained a training contract with a small firm in Balham doing civil litigation and immigration work. That firm closed down in November 2004. She was admitted as a solicitor in December 2004.
By no later than 1 December 2004, she had started work at a practice in Wimbledon run by Mr Islam, then trading as Shariful Solicitors. The location suited her because she could drive from her home in Putney to drop off her son at school and continue on to the office.
Ms Rahim's pay then, and throughout her association with Mr Islam, was £1500 gross per month on a self-employed basis so she had to deal with her own tax and National Insurance. To begin with, she did mainly immigration work but Mr Islam wanted to move into conveyancing and he did. Ms Rahim was a little apprehensive at first and told him that her only knowledge of conveyancing had come from her CPE and LPC training. Nonetheless she started in that field and continued.
In early 2005 Mr Islam bought the practice of a Mr Last in Woking and the firm was renamed O'Sullivan Last & Co. which later was renamed as O'Sullivan Law. I shall refer to both as "OSL". Mr Islam required Ms Rahim to work in the Woking office on conveyancing matters. This was an inconvenient location for her but she had no choice if she wanted to keep her job. In April 2005 she was able to return to the Wimbledon office.
In around February 2005 Mr Islam told her that she was now a partner although none of her work or remuneration changed. This was not recorded in writing anywhere and was evidenced only by her name on the firm notepaper. From June to November 2005 her apparent status changed to consultant, according to Mr Islam's wishes. From November 2005 to February 2006 she was recorded as a "Senior associate" and then once more as a partner until June 2007.
As time went on, more and more lawyers joined OSL. They were all men who would speak mainly Bengali among themselves and Ms Rahim felt somewhat excluded. Her work was exclusively conveyancing of which there was a very substantial amount and the atmosphere was pressurised.
It is common ground that in fact there was a very substantial amount of mortgage fraud going on at OSL presided over by Mr Islam. Its principal form was misleading lenders to make mortgage advances based on a sale price which was higher than the true price in circumstances where the lenders would not have lent as much had they known the real price. The actual price was either simply a lower contract price or the notional price less a discount, allowance or bonus for the purchaser.
On 16 May 2007 Barclays visited the office and removed some files and the next day they returned with representatives of the SRA. On 24 May 2007 the SRA returned and interviewed Ms Rahim and Mr Islam at the office. There was a fuller interview by the SRA with them both on 18 June 2007. Shortly afterwards OSL was closed down.
Ms Rahim then helped Mr Islam's brother Mr Mainul Islam who also had worked at OSL although he was not a qualified solicitor. He set up a new firm called Osborn Reed LLP. It took over a number of ongoing matters from OSL. Ms Rahim stayed at Osborn Reed until February 2008. She then worked as a locum solicitor until May 2010 with McLee and Co. whereupon she...
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