The National Insurance & Guarantee v Corporation Ltd v Young & Anor

MR JUSTICE DAVID CLARKE: This is an application on notice for an interim injunction in the terms set out in the draft which is before me. In view of the urgency of this case I am giving judgment this afternoon rather than taking any further time to consider the matter, having reached, by the end of this morning's argument, a clear conclusion as to the proper disposal of this application.

The application is based on the material set out in the lengthy witness statement of Mr Ghafoor, supplemented by a second witness statement and by a very helpful skeleton argument prepared by the claimants' counsel. The claimants are an insurance company. The defendants are legal associates who acted as their agents under a delegation agreement which was renewed from time to time. The defendants issued, under that agreement, insurance policies on behalf of the claimants for "after the event" insurance cover to insure policy holders against unrecovered litigation costs and expenses in connection with damages claims pursued under Conditional Fee agreements. The number of such policies that they were authorised to issue was limited to a maximum number per year for different categories of claims. The contracts thereby formed were between the claimants and the individual assured persons who were mostly Road Traffic Act claimants but included other litigants in certain circumstances.

The agreement was terminated by the claimants in June 2003, but this left the defendant continuing to handle existing claims under Clause 5 (d) of the agreement. There is a potential factual dispute whether this termination was effective or whether the agreement was in fact only terminated in December 2003 but, in either event, the run-off period continued into 2004. There is a further potential dispute as to whether new policies incepted by the defendants on behalf of the claimants after the termination date were authorised, the defendant claiming that they could continue to do so if there was some unused number from an earlier period which could be rolled over, but I am not today concerned with either of those issues.

On 13^th September 2004 the claimant formally terminated the agreement by letter from their solicitors pursuant to Clause 8 (1) of the Delegation Agreement which entitles either party "to cancel the agreement immediately by giving written notice by registered post if either party … (c) commits any material breach of the conditions of this agreement which it fails to remedy upon request."

The validity of that termination is itself in issue, the defendant's case being that the run-off period still subsists for claims which are still unresolved. The purported termination was for material breach, and the defendant's case is that either there was no material breach at all or that there was no material breach that it had failed to remedy upon request.

The effect of the termination, in the submission of the claimant, is that it brought to an end any run-off period so that the defendant no longer has any right, let alone any duty, to continue to manage the claims and thus has no need to retain any of the documents which, pursuant to the application for the interim injunction, it would now be directed to return.

The defendant's position in correspondence appeared to be to concede that they would no longer wish to perform any such function, but it has been made clear today that that was part of a proposed settlement, which has not been accepted in full, and that they do in fact remain willing to continue to manage the claims, that they want to manage the claims and, indeed, they maintain that they remain capable of managing the claims despite what was said by the defendant's principal, Mr Young, the managing director, in his letter of 21^st September, by which he replied to the purported termination of the 13^th, and said, among other things:

The alleged material breaches of the agreement are set out at length in the correspondence and in Mr Ghafoor's statement and in the skeleton argument. I do not go through them all but for present purposes I am satisfied that there is a very strong prima facie case of such material breaches as are there set out and, indeed, of failure to remedy them despite requests, particularly in the area of persistent failure to keep the claimant fully informed in accordance with clauses 4 and 7 of the delegation agreement. I refer particularly to the breaches that are set out in paragraph 21 of Mr Ghafoor's witness statement and paragraph 7.3 of the skeleton argument of counsel.

Thus far, it seemed to me on reading these papers last night, including the letter dated Wednesday, 13^th October, two days ago, from the defendant's solicitors giving the defendant's initial response to this application, that the claimant had a very strong prima facie case for the granting of interim relief. In response, however, Miss Cockerill, on behalf of the defendants, raises a major stumbling block. She draws attention to the arbitration clause in the agreement, which is clause 10, reading as follows:

Miss Cockerill went so far as to argue that this court action has been brought in breach of the arbitration agreement. If that was meant to mean that the claimant should not have brought the action, then I reject that. Recourse to arbitration in the event of any dispute is not compulsory even though, once a stay is sought under section 9, the court will grant the stay except in specific limited circumstances and, indeed, can be expected to do so in this case once the application is validly made. But no application for a stay has yet been made. It cannot be made until after acknowledgement of service has been given but before taking any step beyond that in the action, and that is under section 9 (3). Therefore, Miss Cockerill's primary application to me is to adjourn the claimant's application for interim relief until that has been done. If I were to do so, then Mr Marks acknowledges that it will not be contended by the claimant that by arguing today's application, the defendant has taken a further step in the action.

Miss Cockerill argues that since the action will be stayed under section 9, I should not proceed to grant interim relief even if I am otherwise satisfied that it would be appropriate to do so on the facts. She draws my attention in detail to the provisions which would apply if an equivalent application were made in the context of actual or intended arbitration proceedings, in particular to section 44 of the Arbitration Act, which would be heard in the Commercial Court as an arbitration claim made under Part 62.3 of the CPR. She argues that such an application in the circumstances of the present dispute would fail because it would not fall within the terms of that section.

In response to this powerful submission, Mr Marks' first point is that the claim in this action is not solely a contractual one, but includes a claim in tort being a claim for conversion of the claimant's documents and, insofar as it is a claim in tort, it is not caught by the arbitration clause in the agreement. He relies on the general common law principle of agency set out in Bowstead at Article 51, paragraph 6-08:

At first it seemed to me that this argument could not be right since the defendant only became the claimant's agent pursuant to the delegation agreement, and any documents generated by the defendant were generated pursuant to that contractual relationship, but I am satisfied that there is at least a strongly arguable case that the documents that I am concerned with here are indeed the claimant's property. They are documents which either constitute or evidence or are closely ancillary to contracts entered into by the claimant with assured persons, policy holders, albeit entered into by the claimant through the defendant as their agent. The arrangement between the parties cannot, in my view, sensibly be taken to mean that the databases of policies and all associated documents remain the property of the defendant even after termination and the end of any run-off term.

There remains the question whether the contract provides otherwise, that is, the contractual provision at 8 (2) which reads:

But if I am wrong on this, and the entire application, that is, paragraphs 5 and 6 of the draft injunction as well as paragraph 7, are going to be caught by the stay, then it is effectively common ground that the principles of section 44 are relevant, even though Mr Marks relies primarily on the more general interim powers of the court under section 37 of the Supreme Court Act. But the powers under section 44 include 'making orders relating to property which is the subject to the proceedings, or as to which any question arises in the proceedings, for the inspection, photographing, preservation, custody or detention of the property' and it is said that this is precisely an order of that sort. These powers would be exercisable in the circumstances set out in either s.s. (3) or s.s. (4) of the section which read as follows:

This is not a s.s. (4) situation since there is no agreement between the parties and there is no arbitral tribunal yet constituted. Miss Cockerill says it is not a s.s. (3) situation. Those are situations of extreme urgency, such that a 'without notice' application would be appropriate, for example, where dissipation of assets is imminently likely to occur. To Mr Marks she appeared to be arguing that because the claimant had been good enough to give notice, although not very much notice, they could not claim that this was an urgent situation.

I am satisfied that this is, for the reasons fully set out in the evidence before me, one of urgency. There are very many policies in existence of which the claimant has no knowledge and no means of knowledge. It has come to their notice that in many such cases the other side in the litigation has been seeking to enforce payment of those very costs which this cover is supposed to provide. I have no doubt that substantial distress is being caused to many of the claimant's policy holders and that relief from that distress by rapid management and resolution of the claims is an urgent matter.

I am also satisfied that there is no good reason for the court to await the stay and an arbitration claim before granting the interim relief which is sought. The balance of convenience strongly favours it being granted now. The defendant is fully protected by the undertaking in damages in the event that the injunction proves to have been wrongly granted or to have occasioned them any actionable loss. I have been told that they are themselves subject, or soon to be subject, to winding up proceedings, but I have also been told that this is itself in issue and I have ignored it, but I have had regard, as I say, to a passage in a letter written by the defendant's managing director.

I therefore consider that both parts of the injunction should be granted. I shall of course hear the parties on the form of order and any consequential matters that cannot be agreed.