Winterthur Swiss Insurance Company v AG (Manchester) Ltd ((in Liquidation))
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE AIKENS,Mr Justice Aikens |
| Judgment Date | 12 April 2006 |
| Neutral Citation | [2006] EWHC 839 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: 05/613 |
| Date | 12 April 2006 |
[2006] EWHC 839 (Comm)
Mr Justice Aikens
Case No: 05/613
IN THE HIGH COURT OF JUSTICE
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr C Hollander QC and Mr Tim Lord (instructed by Richards Butler, Solicitors, London) for the Claimants
Mr B Patten (instructed by Henmans, Solicitors, Oxford) for the Second Defendants
Ms S Carr QC and Mr J Smith (instructed by Bond Pearce LLP, Solicitors, Exeter) for the Group Two Panel Solicitor Defendants
Mr J Fenwick QC, Mr T Lowe and Mr B Hubble (instructed by Kennedys, Solicitors, London) for the Group One Panel Solicitor Defendants
Mr C Phipps (instructed by Berrymans Lace Mawer, Solicitors, London) for the Group Four Panel Solicitor Defendants
Hearing dates: 19 th, 20 th and 23 rd January 2006
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
I. The Background to the litigation
1. This litigation concerns “After the Event” legal expenses insurance. This type of insurance was introduced with the reduction in the availability of legal aid for many types of civil claim and with the introduction of Conditional Fee Agreements for litigation. The second claimant, (“NIG”) underwrote “After the Event” legal expenses insurance (“ATE policies”) in connection with a litigation funding scheme operated by the first defendant. The first defendant was formerly called The Accident Group Limited. It then changed its name to AG (Manchester) Limited. The company has been in liquidation since 15 January 2004. In these proceedings the company has been called “TAG”. The ATE insurance scheme run by TAG has been called “the TAG Scheme”.
2. By a written agreement dated 1 July 2001, NIG appointed TAG as its agent. NIG effectively delegated to TAG the underwriting and claims handling of ATE policies. The TAG Scheme was marketed to the public as a “no win, no fee” scheme, which would finance the litigation of claims which members of the public wished to take to court. Typically the claims were comparatively small personal injury claims and the claimants were people who were not used to dealing with lawyers. Between February 2001 and December 2002 TAG issued to claimants approximately 75,703 ATE policies on behalf of NIG.
3. The TAG Scheme worked as follows:
(1) An ATE policy would not be issued by TAG on behalf of NIG unless the claim passed a vetting process. The purpose of the vetting process was to ensure that only claims which had a chance greater than 50% of recovering at least £1500 were accepted into the TAG Scheme. In that way NIG hoped to ensure that the TAG Scheme would remain profitable.
(2) The vetting process had four stages. The first stage was by TAG itself. The potential litigant/insured (who I will refer to as “the TAG Claimant”) had to provide TAG with preliminary details about the potential claim to enable completion of the TAG Application Form. The TAG claimant also had to sign a TAG Service Agreement and Declaration. TAG then carried out its own initial vetting of the potential claim, based on the information in the TAG Application Form.
(3) If TAG was satisfied by this vetting, then it passed the potential claim on to the second stage in the vetting. The potential claim went to a company related to TAG, called Accident Investigations Limited (“AIL”). That company is also now in liquidation. A representative of AIL would contact the TAG claimant and ask more questions so as to fill in an AIL Questionnaire. The aim was to obtain more details about the accident circumstances and losses. AIL then vetted the claim based on the AIL Questionnaire. It then returned the documentation to TAG, as well as providing TAG with a recommendation on liability and quantum.
(4) If AIL was satisfied with the vetting, then the potential claim went to the third stage of the vetting process. TAG passed on all the material so far collated (including the AIL Questionnaire) to Rowe Cohen, who are the second defendants in these proceedings. Rowe Cohen is a firm of solicitors and the firm was appointed as being a specialist in this type of litigation. Rowe Cohen vetted the claim if there was sufficient information.
(5) The fourth and last stage of the vetting process was to be conducted by one of the 800 or so solicitors on TAG's panel of solicitors. They have been called “the Panel Solicitors” in these proceedings. The vetting by the Panel Solicitors was based on the content of the AIL Questionnaire and, sometimes, the TAG Application Form.
(6) Once a claim had passed all the vetting processes, an ATE Policy would be issued. At that stage a Panel Solicitor would be treated as retained, subject to the TAG Claimant's instructions. The Panel Solicitor then sent out to the litigant a standard form Client Care Letter and a Conditional Fee Agreement under cover of a standard form Introduction Letter.
(7) A representative of TAG would then visit the TAG Claimant. The TAG representative's task was to explain the documents, (in particular the Client Care Letter and Conditional Fee Agreement), to complete a Fact Find and Oral Explanation Sheet and to obtain the TAG Claimant's signature on a number of documents. 1
(8) The TAG Claimant was provided with a Consumer Credit Agreement by which a funder (usually a bank) would give the TAG Claimant credit to pay for the ATE Policy premium, which was around £1000, and also to provide credit for the payment of disbursements incurred to pursue the personal injury claim. Interest would accrue on the outstanding loan balance.
(9) From this point onwards, the ATE policy was on risk and the TAG Claimant would be issued with a Certificate of Insurance by TAG. The Panel Solicitor was obliged to pursue the claim in accordance with the Conditional Fee Agreement.
(10) If the personal injury claim succeeded, then NIG would retain the premium and the successful TAG Claimant would seek to recover the premium and disbursements from the defendant to the claim, as part of the TAG claimant's recoverable costs.
(11) But if the claim failed or was withdrawn, then NIG would pay, as an indemnity under the ATE Policy, any costs that the defendant to the claim was entitled to recover from the litigant, whether by judgment or settlement. The policy would also indemnify the TAG claimant/insured for the initial fees incurred (including the loan and loan interest) and any disbursements.
4. TAG concluded contracts with (i) Rowe Cohen, the specialist vetting solicitor firm; and (ii) with each of the Panel Solicitors. NIG and Winterthur allege that these contracts were concluded by TAG acting as the agent of NIG under the agreement with NIG of 1 July 2001, so that NIG can sue on them as principal.
5. By the end of October 2005, some 64,741 claims had been concluded under the TAG Scheme. Approximately 67.70% of those claims have resulted in demands for indemnity under the ATE Policies. The average amount of the claim for indemnity under these ATE Policies is at present no higher than £1923.14. The “failure” rate is vastly greater than the figure that NIG had used when it calculated the premium payable on ATE Policies. NIG had projected there would be a 7.5% failure rate. By the end of October 2005 the claims for indemnities under ATE Policies totalled about £90 million. It is estimated that if the present level and rate of claims for indemnity continues, then the total indemnity to be paid out may exceed £104 million.
6. This litigation has been brought because NIG asserts that it has suffered these large losses as a result of breaches of contract and duty by TAG, Rowe Cohen and the Panel Solicitors. The first claimant, (“Winterthur”), is involved as assignee under two Deeds of Assignment by NIG in favour of Winterthur. By these assignments NIG has purported to assign to Winterthur, first, all NIG's causes of action against TAG, Rowe Cohen and Panel Solicitors; and secondly, NIG's rights of access to information and documents relating to claims in respect of which ATE Policies were issued and on which an indemnity has been paid. 2
7. It is said by Winterthur that it was proper to take these assignments because of its past and present relationship with NIG. Until June 2003, Winterthur was the parent company of the Churchill Group of Companies, which was the parent of NIG. On 13 June 2003, Winterthur sold its shareholding in the Churchill Group to the Royal Bank of Scotland. In connection with that sale, Winterthur and NIG concluded an arrangement whereby Winterthur covenanted to maintain almost complete responsibility for the losses (or profits) of NIG's “Special Risks Division”. That division was responsible for ATE business, including that written under the TAG Scheme.
8. When the decision was taken to try and recover the losses suffered by NIG under the TAG Scheme, Winterthur and NIG decided that control of the litigation should be entirely in Winterthur's hands.
9. In December 2004 and January 2005, TAG, Rowe Cohen and some 626 the Panel Solicitors were notified of claims or potential claims against them in connection with NIG's losses under the TAG Scheme. Most of the Panel Solicitors then notified their professional indemnity insurers of these claims or potential claims. Eight different firms of solicitors have been retained by the various Panel Solicitors. 3 These
10. During 2005 there were various attempts by NIG and...
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