Re a Firm of Solicitors

In this judgment I shall refer to the appellants as the firm. They are a well-known and well respected firm of solicitors in London. By originating summons dated the 5th February 1991, Alexander and Alexander Services Inc.(A & A), Alexander Howden Holdings plc (formally Alexander Howden Group plc), Alexander Howden Underwriting Ltd., Alexander Howden Insurance Brokers Ltd. and Sphere Drake Insurance plc (Sphere Drake) applied for an injunction to restrain the firm from acting as solicitors for the defendant Mark Edmund Denby in an action (the main action) commenced against him by Sphere Drake by writ dated the 30th November 1984. On the 28th February 1991 Evans J. ordered that the firm be so restrained. The firm appealed. We heard the appeal on the 14th March 1991. After full argument we dismissed the appeal for reasons to be given later. I now set out my reasons.

The facts

The basic facts are undisputed and simple. In 1982 A & A took over the Howden Group of Companies which included an underwriting company now known as the respondent, Alexander Howden Underwriting Ltd. This company then managed the affairs of Syndicate 126 and 127 at Lloyds. The leading underwriter for those syndicates and others was a Mr. Posgate.

Soon after the takeover A & A discovered irregularities and caused them to be investigated in great detail through their solicitors who now act for Sphere Drake in the main action. Such investigations led ultimately to criminal proceedings in which serious allegations were made against Mr. Posgate and four other individuals who became known publically as "the gang of four".

From an early stage A & A were concerned both that Syndicates 126 and 127 should continue underwriting and that their members should not suffer loss from the irregularities. Accordingly they set up a new company originally known as Newco, but now as Alexander Syndicate Management Ltd. (ASM) which took over the management of those syndicates and which carried out a full investigation on their behalf. In that they were advised by the firm. ASM were wholly independent of A & A but were closely associated with them and it was arranged between the two that ASA and the former managing agents should cooperate closely with ASM and the firm and would provide them with full information even if such information could be used against them. They, that is A & A and the former managing agents, did so cooperate and did provide full information. As a result claims were in due course brought against the former managing agents and the Howden Broking Company. All claims were settled in late 1985 or early 1986. Thereafter the firm no longer acted for ASM.

The respondents contend that during the three years for which the firm acted for ASM, they and the firm received much confidential information from A & A and its subsidiaries which would be of value to Mr. Denby in the main action and that they should not therefore be permitted to act for Mr. Denby in that action.

At this point it is necessary to refer briefly to that action. In it Sphere Drake claims against Mr. Denby as representing himself and all other members of Syndicate 701 at Lloyds, sums allegedly due pursuant to quota share reinsurances issued to Syndicate 126 and 129 and for breach of an agreement to issue an Excess of Loss Reinsurance on its quota share reinsurance.

The amended defence of Mr. Denby makes it, in my view, abundantly clear that the issues raised in the main action are very closely bound up with the matters being invested by ASM and the firm between 1982 and 1985. Serious allegations are being made involving the conduct of Mr. Posgate and the gang of four which were then under investigation. Furthermore there is specifically pleaded amongst other things a meeting on the 14th August 1982 between Mr. Posgate and, amongst others, Mr. J. A Bogardus the Chairman and Chief Executive of A & A and Mr. Bercardi the Treasurer of A & A, both of whom were closely concerned in the supply of information to and co-operation with ASM and the firm in the three year period when the firm was acting for ASM.

With this diversion I return to the history of events leading up to the respondents' application for an injunction. The main action proceeded in the normal course until the 26th November 1990 when for reasons which do not matter but which have no reflection whatever on the validity of Mr. Denby's defence or on the conduct of their then solicitors, such solicitors were replaced by the firm. Four days later on the 30th November, Sphere Drakes' solicitors wrote to the firm objecting to them continuing to act for Mr. Denby. I quote that letter in extenso because, although it repeats some of what I have already stated, it fills in certain details. It reads.

"…it has become clear to us that your firm finds itself in a position of conflict.

As was mentioned to your Mr. "B" there are a number of reasons why this is the case including, but not necessarily limited to the following:

• 1. In early 1982 Alexander and Alexander Services Inc. ("A & A") acquired Alexander Howden Holdings plc ("Alexander Howden") and its various subsidiaries including our clients, now known as Sphere Drake Insurance plc. As a result of an investigation commenced during 1982 of certain transactions and business practices involving Alexander Howden, a number of matters arose which caused senior management of A & A concern and which ultimately resulted in a number of legal proceedings.

  At the time, an Alexander Howden subsidiary, Alexander Howden Underwriting Ltd ("AHUL") was responsible for the management of Lloyds Syndicates 126 and 127. Due to concerns regarding transactions involving those Syndicates and to avoid a possible conflict, A & A arranged for the setting up of an independent company to be responsible for the management of them. That company was originally known as Newco but changed its name to Alexander Syndicate Management Ltd. ("ASM"). The company was originally a wholly owned subsidiary of AHUL but at A & A's instigation became an independent company.

  You will recall that your firm acted on behalf of ASM at the instigation of A & A and was responsible for the preparation of two Heads of Agreement signed on 1st and 10th November 1982 respectively, between various A & A and Alexander Howden companies and the newly appointed independent directors of ASM. These agreements established the company's responsibility for management of the syndicates concerned.

• 2. ASM was set up by A & A to ensure that the Syndicate names suffered from no possible conflict in their representation. However A & A and its subsidiaries made provision for all relevant information to be provided to ASM and we would draw your attention in particular to clauses 6(A) and (B) of the Heads of Agreement dated 1st November 198 You will note in particular at Clause 6(B) the provision that A & A and all its subsidiaries would keep ASM fully informed of all actions and legal proceedings taken by them which may affect any interests of ASM or the names, nor would they settle or compromise any claims without first informing ASM and providing it with the opportunity to intervene.

• 3. ASM itself commenced proceedings in the Chancery Division against AHUL and Alexander Howden Insurance Brokers Limited (Action 1983 A No. 4878). Claims made by ASM included damages in respect of certain quota share reinsurances of Syndicate 126/129 rewritten into our client and also an "equitable claim" in respect of the premiums that had been paid out originally by those Syndicates to Southern International Reinsurances S.A. ("SIR"). Those transactions form an integral part of the basis of the present claim against Syndicate 701.

• 4. You will be aware that A & A continued to meet the costs of ASM and the ASM litigation which was eventually settled following an offer to the names of the relevant Syndicates.

• 5. You will be aware, from correspondence between our firms during 1983 and 1984, in particular with your Mr. Knight, that certain of our clients' expert witness reports (prepared by Deloitte Haskins & Sells) were disclosed to you in circumstances of the utmost confidentiality.

Your firm has received confidential information and acquired relevant knowledge in acting on behalf of ASM which is relevant to the present litigation.

We understand from our client that you have in any event acted on behalf of A & A companies in relation to various matters concerning the period in question and which would have involved divulging of certain confidential information.

You will be aware of the Law Society rules concerning conflict and it is clear on the basis of any one of the matters set out above that your firm is in conflict in continuing to act on behalf of Syndicate 701 and must cease immediately.

We must therefore ask for your confirmation by return that a notice of discontinuance will be filed immediately."

On the totality of the evidence there can in my judgment be no doubt whatever that A & A and their subsidiaries did supply detailed information to the firm and to ASM concerning the very...