Royal and Sun Alliance Insurance Ltd v Catlin Insurance Company (UK) Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Popplewell,Lady Justice Andrews,Lady Justice Falk |
| Judgment Date | 31 August 2023 |
| Neutral Citation | [2023] EWCA Civ 999 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: CA-2022-002296 |
and
Lord Justice Popplewell
Lady Justice Andrews
and
Lady Justice Falk
Case No: CA-2022-002296
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMMERCIAL COURT (KBD)
MR JUSTICE FOXTON
Royal Courts of Justice
Strand, London, WC2A 2LL
Ben Hubble KC and Brendan McGurk (instructed by DAC Beachcroft LLP) for the Appellants
Richard Coleman KC and Nathalie Koh (instructed by Fenchurch Law (UK) Limited) for the Respondents
Hearing dates: 26 and 27 July 2023
Approved Judgment
This judgment was handed down remotely at 10.00 am on 31 August 2023 by circulation to the parties or their representatives by e-mail and by release to the National Archives.
Introduction
This appeal raises an important issue as to the extent to which compulsory professional indemnity insurance (‘PII’) for solicitors provides cover for liabilities which include the firm's fees.
The appellants are insurers who subscribed to a PII policy (‘the Policy’) led by Royal and Sun Alliance Insurance Limited (‘RSA’) in favour of Tughans, a firm of solicitors practising in Belfast, at the relevant time as a general partnership under the law of Northern Ireland. I shall refer to the appellants as ‘the Insurers’. The Policy, which was in standard terms required for all solicitors in Northern Ireland, was in favour of the partners, solicitors and employees of the firm.
Brown Rudnick LLP (‘BR’), an English limited liability partnership affiliated to a US limited partnership with the same name, engaged Tughans to perform professional services, resulting in a claim against Tughans in the High Court of Northern Ireland. Tughans in turn commenced an arbitration against the Insurers under the Policy seeking declarations of an entitlement to indemnity in respect of such liabilities as might be found to be owed to BR. The arbitrator, Mr Michael Brindle KC, resolved the coverage issues in favour of Tughans and made a final award accordingly. The Insurers appealed on an issue of law pursuant to s. 69 of the Arbitration Act 1996 with leave granted by Henshaw J. The issue of law concerns the element of BR's damages claim which comprises the fee paid by BR to Tughans for the services. Foxton J (‘the Judge’) dismissed the appeal, granting leave to appeal to this court on one ground.
The respondents are referred to in the title to this action as “Tughans (a firm)” because that is how they were named in the title in the arbitration, and in the arbitration claim form. The description is, however, apt to mislead if the firm is treated as the relevant legal entity. The Policy named 22 solicitors as assured, who were the 12 equity partners and 10 salaried “partners”. Only the former were partners under partnership law. The firm was not an assured under the Policy. The claimants in the arbitration were identified in the Particulars of Claim as 10 of the 12 equity partners of Tughans in 2014, who in law constituted the partnership, and each of whom is responsible for 100% of the partnership liabilities under sections 10 and 12 of the Partnership Act 1890 (the arbitration proceeding on the basis that partnership law is materially the same in Northern Ireland as in England and Wales). The Policy is a composite policy of insurance comprising a separate contract between each individual assured and the Insurers. It provides PII cover for the liability of each individual partner to BR, and it is the scope of the cover for that individual liability which is in issue in this appeal. Although it is convenient in this judgment to refer for the most part to Tughans, the firm, just as the parties did in their submissions, it is important for some aspects of the analysis to keep in mind that the relevant assureds are the individual partners. Nothing turns on the fact that the arbitration claim is brought on behalf of only 10 of the 12 equity partners; the other two comprise Mr Coulter, whose alleged fraud gave rise to the claim on the Policy; and one other who is no longer a partner.
The facts
The BR claims against Tughans have not yet come to trial. The arbitrator made some findings of fact, to which I shall refer, and some of the history is not in dispute, but that aside, the appeal falls to be decided on the basis of facts which are to be assumed to be true although they have not yet been determined. What actually happened, and the state of mind with which relevant individuals acted, will be matters to be decided in the Northern Irish proceedings. What follows is a recitation of the assumed facts on which the appeal proceeds, without intending to pre-judge that determination in due course.
Following the 2008 financial crash the Eire government established the National Asset Management Agency (‘NAMA’) in December 2009 as a ‘bad bank’ to acquire and manage impaired loans held by participating Irish banks and any associated security. In relation to transactions involving banks in Northern Ireland, NAMA was assisted in its work by a Northern Ireland Advisory Committee (‘NIAC’). NAMA decided to sell that part of its portfolio which involved Northern Irish property loans (‘the NI Loan Book’), an endeavour which became known as ‘Project Eagle’.
Mr Ian Coulter, then managing partner of Tughans and Chairman of the Confederation of British Industry, Northern Ireland, was at the forefront of the idea of arranging a sale of the NI Loan Book, and had useful contacts with members of the Northern Ireland executive. He contacted Mr Tuvi Keinan, a partner of BR. Mr Keinan had no Northern Irish experience but had good contacts with potential purchasers of the NI Loan Book, mostly in the United States.
Mr Frank Cushnahan was a member of NIAC between 13 May 2010 and 7 November 2013. He is said to have been a well-known Northern Ireland businessman with a background in corporate finance and wide ranging knowledge and experience of the Northern Ireland property market; and to have been acting in 2011 and 2012 also as a financial consultant to approximately 50% by value of the Northern Irish debtors in the NI Loan Book. It is said that he had worked closely with Mr Coulter and that by 2012 was permitted to have his own room at Tughans from which he was able to conduct his own business interests.
Mr Keinan initially introduced a US investment management firm called Pacific Investment Management Company (‘PIMCO’) as a potential purchaser. PIMCO established a special purpose vehicle called Bravo SPV as its proposed purchasing entity. An engagement letter between Bravo SPV and BR dated 26 September 2013 provided that BR would be paid a fee of up to €16 million, payable upon successful completion of the transaction. The engagement letter indicated that the success fee would be split three ways, between BR, Tughans and Mr Cushnahan.
On 13 March 2014, PIMCO withdrew from the proposed acquisition, it is said because it had discovered a proposed payment to Mr Cushnahan. Mr Coulter and Mr Keinan immediately approached another potential buyer comprising a combination of US interests, Cerberus Capital Management LP (‘Cerberus’).
It is alleged by BR that at or around the time PIMCO withdrew, and thereafter, Mr Coulter gave oral assurances to Mr Keinan that Mr Cushnahan had not been involved in the provision of Tughans' services; that it was not intended or expected that he would be so involved thereafter; and that Tughans did not intend or expect to share Tughans' fee with him.
On 23 March 2014 BR sent the terms of a proposed engagement letter to Cerberus. The letter referred to BR providing services to Cerberus on an exclusive basis in connection with its acquisition of the NI Loan Book through a Cerberus special purpose vehicle. The engagement letter provided that BR would be entitled to a fee of £15 million upon successful completion of the purchase transaction (‘the Success Fee’). It contained a section by which BR made various representations and warranties, the relevant one for present purposes being that BR would not promise or make any payments directly or indirectly to anyone in breach of applicable anti-corruption laws, nor promise or make such payment to, or for the use of, any government official. It also required BR to obtain and provide a written certification from Tughans containing the same representations and warranties; and provided that the Success Fee would not be payable unless and until Cerberus accepted the Tughans certification as acceptable. Mr Coulter confirmed to BR and Cerberus that Tughans accepted the terms, following which the BR/Cerberus letter of engagement was signed by BR and Cerberus later that day, 23 March 2014.
On 3 April 2014, NAMA accepted an offer from Cerberus to purchase the NI Loan Book for €1.6 billion. Cerberus had exchanges with NAMA that afternoon, in the course of which NAMA was informed that BR had sub-contracted part of their work to Tughans and that BR would share 50% of its Success Fee with Tughans. That prompted NAMA to seek confirmation from Cerberus that no part of the success fee would be paid to any...
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