Nesbit Law Group LLP v Acasta European Insurance Company Ltd
| Jurisdiction | England & Wales |
| Judge | Lady Justice Sharp,Sir Geoffrey Vos,Lord Justice Hamblen |
| Judgment Date | 21 February 2018 |
| Neutral Citation | [2018] EWCA Civ 268 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2016/3833 |
| Date | 21 February 2018 |
[2018] EWCA Civ 268
Sir Geoffrey Vos, CHANCELLOR OF THE HIGH COURT
Lady Justice Sharp
and
Lord Justice Hamblen
Case No: A3/2016/3833
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
LEEDS DISTRICT REGISTRY
MERCANTILE COURT
MR STUART BROWN QC (SITTING AS A DEPUTY HIGH COURT JUDGE)
Claim No: 3LS40050
Royal Courts of Justice
Strand
London, WC2A 2LL
Mr Michael McLaren QC (who did not appear below) (instructed by Prosperity Law LLP) appeared for the Appellant
Mr Richard Chapman (instructed by Ozon Solicitors Limited) appeared for the Respondent
Hearing date: 14 th February 2018
Judgment Approved
Sir Geoffrey Vos, Chancellor of the High Court:
Introduction
There are essentially two issues in this appeal, each of which could be determinative as to the outcome. The first issue relates to the proper construction of an exception or exclusion clause contained in a series of Financial Guarantee Indemnity (“FGI”) policies underwritten by the Part 20 defendant and appellant, Acasta European Insurance Company Limited (“Acasta”). The second issue, which arises only if Acasta's construction of the exclusion clause is correct, is whether Acasta should be granted permission to amend its Part 20 defence (the “Defence”) to plead that the defendant, Part 20 claimant and respondent, Nesbit Law Group LLP (“Nesbit”), had acted in breach of the terms of what has been confusingly referred to as a “Term Loan” agreement concluded on 28 th June 2010 between Nesbit and its lender, Clydesdale Financial Services Limited (“Clydesdale”). I shall call that agreement the “Refinancing Agreement”, since it operated to refinance the numerous loans made by Clydesdale to Nesbit under the litigation funding scheme that underlies this case.
On 15 th September 2016, Mr Stuart Brown QC, sitting as a Deputy High Court Judge, decided that the proper construction of the exclusion clause did not include a reference to the Refinancing Agreement. As a result, he made an order on 19 th September 2016 giving Nesbit judgment for £1,195,600.04 against Acasta in respect of insured irrecoverable costs.
The exclusion clause in question provided as follows:-
“2. WHAT IS NOT COVERED BY THIS INSURANCE POLICY
2.1 [Acasta] will not cover [Nesbit] for any …
2.1.3 Irrecoverable Costs:
… (G) where the terms and conditions of the Loan have not been strictly adhered to, including but not limited to any agreement entered into by [Nesbit] and [Clydesdale] to repay a Loan”.
In summary, the question of construction is whether the words “including but not limited to any agreement entered into by [Nesbit] and [Clydesdale] to repay a Loan” either (i) are able to be taken to be referring to what became the Refinancing Agreement which refinanced the earlier series of loans made by Clydesdale to Nesbit (as Acasta contends), or (ii) refer either only to the original Irrecoverable Costs Loan Agreement (“ICLA”) made between Clydesdale and Nesbit, or to any loan agreement specifically replacing the ICLA in question entered into whilst the litigation funding scheme was in full operation (as Nesbit contends).
Also in summary, the amendment issue turns on whether it is now too late for Acasta to amend its Defence, bearing in mind the guidance on this issue given in Swain-Mason v. Mills & Reeve [2011] 1 WLR 2735 (at paragraphs 69 to 72, 85 and 106) (“ Swain-Mason”) and other cases. Acasta acknowledged the need for finality in litigation, and was unable to offer any excuse for making its application only four weeks before the hearing of this appeal, but argued that the case might anyway have had to go back for a further trial, even had the application been made much earlier. Acasta submitted that significant injustice would be caused to it if permission were refused, but there would be little prejudice to Nesbit if it were allowed.
Before dealing in detail with the arguments of the parties, I should set out a little of the factual background.
Factual background
In about 2007, Clydesdale and Acasta (registered in Gibraltar, and previously known as Focus Insurance Company Limited) set up a funding scheme for personal injury solicitors. Its key features included the following:-
i) Clydesdale would provide loans to the solicitors to fund their recoverable and irrecoverable costs.
ii) Acasta would provide two types of insurance: Legal Expenses Insurance for clients who entered into conditional fee agreements with the solicitors, and FGI insurance for the solicitors themselves in respect of irrecoverable costs such as referral fees incurred in respect of unsuccessful claims (those fees being paid out of the solicitors' profits in the case of successful claims).
In April 2007, Nesbit, a solicitors' firm in Bury specialising in personal injury litigation, began its participation in the litigation funding scheme, which involved entering into the following agreements:-
i) A framework agreement with Clydesdale (the “Umbrella Agreement”), which set out the general terms on which monies were to be advanced by Clydesdale to Nesbit.
ii) The ICLAs between Nesbit and Clydesdale for each individual loan made as the scheme progressed (averaging about £1,000 per case).
iii) FGI policies underwritten by Acasta in respect of each funded case (the “FGI Policies”). It was a condition precedent of funding that Nesbit took out an FGI Policy for each case.
After joining the Scheme, Nesbit was introduced to several thousand clients, and its loan facility reached a peak of £6 million. Nesbit encountered financial difficulties, and, as a result, Clydesdale terminated the Umbrella Agreement on 31 st July 2009, leaving large sums due from Nesbit to Clydesdale.
Under the Refinancing Agreement of June 2010, Clydesdale advanced the lesser of £3,165,000 or the amount equal to Nesbit's liabilities to Clydesdale under the “existing litigation funding loans” made between Clydesdale and Nesbit. Those loans were said to be scheduled to the Refinancing Agreement, but the schedule was in fact left blank. The funds were used to repay loans made by Clydesdale in respect of both irrecoverable and recoverable costs, and were repayable by 53 monthly instalments of £65,959.34.
On 22 nd February 2012, Nesbit's solicitors wrote to Acasta, seeking payment under the FGI and Legal Expenses Insurance policies in the sum of £1,257,861.53. Nesbit contended, however, that it had informed Acasta prior to that date of which specific clients' claims had been unsuccessful.
On 29 th January 2013, Clydesdale issued proceedings against Nesbit claiming instalments allegedly unpaid under the Refinancing Agreement. Nesbit then filed a defence and counterclaim, including a Part 20 claim against Acasta for £1,257,861.53.
On 13 th December 2013, Clydesdale's claim against Nesbit was settled by a Tomlin Order, under which Nesbit was to pay Clydesdale a sum by way of settlement by monthly instalments.
On 14 th January 2016, HH Judge Behrens stayed those elements of Nesbit's Part 20 Claim against Acasta relating to the Legal Expenses Insurance policies, in respect of which separate litigation was being brought against Acasta by Nesbit's clients. Nesbit's claim relating to the FGI Policies in the sum of £991,908.86 continued.
On 15 th July 2016, Mr Colin Graham Sayer made a statement on behalf of Acasta in which his summary conclusion was that any right to claim under the FGI Policies was extinguished under the Refinancing Agreement “from the very moment [Nesbit] effected the draw down”, all monies were repaid to Clydesdale on 16 th July 2010 using the draw down, and the alleged irrecoverable costs incurred by Nesbit were paid and settled by the Refinancing Agreement.
On 9 th September 2016, Ms Karen Troy, then counsel for Acasta, filed her skeleton argument for the trial due to commence on 12 th September 2016. She described the full range of issues for trial as being (i) whether on a true construction of the FGI Policies, Nesbit was prima facie entitled to recover; (ii) whether Acasta had any remaining liability after the Refinancing Agreement was entered into, (iii) quantum, and further issues concerning commissions paid to Clydesdale and interest. A joint note from counsel for both sides dated 12 th September 2016 agreed that the court could have regard to certain materials as commercial context in construing the FGI Policies including documents evidencing Nesbit's default under the Refinancing Agreement.
On 19 th September 2016, Mr Brown gave judgment in favour of Nesbit for £991,908.86 plus interest of £203,691.18 and costs. The judgment sum was ordered to be paid into court, and Mr Brown refused permission to appeal.
On 6 th October 2016, Acasta filed an Appellant's Notice. On 11 th October 2016, Moore-Bick LJ refused permission to appeal the judge's order for payment into court. He adjourned the substantive application for permission to appeal, requiring Acasta to file succinct amended grounds of appeal, which were duly filed on 2 nd November 2016. David Richards LJ granted permission to appeal on 11 th April 2017.
On 5 th July 2017, Nesbit filed a Respondent's Notice seeking to uphold the judge's decision on the grounds that no breach of the Refinancing Agreement had been pleaded, and, had Acasta applied for permission to amend, it ought to have been refused. On 22 nd December 2017, Acasta issued an application for permission to amend its Defence to plead for the first time the exclusion clause itself and the construction of it for which Acasta contends, and to plead alleged breaches of the Refinancing Agreement. That application is not opposed insofar as it relates to the...
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