PROFESSIONAL INDEMNITY

EXCEL SECURITIES PLC v MASOOD & ORS (2009)

QBD (Merc) (Manchester) (Judge Hegarty QC) 10/6/2009

An application for summary judgment on a claim against solicitors for breach of warranty of authority arising out of a case of identity fraud had to be refused where the solicitors had not impliedly warranted either the identity of their client or his title to certain property, only that they had authority to act on his behalf. Even if the implied warrant of authority given by the solicitors had extended to the identity of their client, there would still have to be a trial of the issue of reliance in order to determine whether the claimant had relied on that warranty.

Halliwells LLP v NES Solicitors –v- Quinn Insurance Limited [2011] EWHC 947(QB)   Claim No: HC0901045

Reported case: [2011] ALL ER [D] 243

Details (value of claim £1.5M)

Summary Judgment had been obtained against the Defendant for breach of a Solicitors Undertaking in the sum of £1.5M plus interest and costs.  NES Solicitors claimed an indemnity from their professional indemnity insurers QIL, supported by the Claimant and the Claimants’ solicitors.  Levi’s disputed the claim, cover having been declined on our advice. We were successful at trial on all grounds, despite the Summary Judgment.  This is a notable case, involving a rare examination of insurer’s grounds for declinature, but also an early application of Starglade Properties Limited v Nash [2010] EWCA Civ 1314 on the Civil test of dishonesty regarding a solicitor.  There is also helpful indicaton as to what is covered as solicitorial work under a professional indemnity insurance policy.  The condoning of dishonesty was also addressed.  The court ruled that the policy did not cover NES’s breach of undertaking because:-

a.   NES had given the undertaking dishonestly;
b.   The undertaking was not given in a solicitorial capacity;
c.   The undertaking was given for NES’s own benefit

Case Note
Judgment 23 February 2011 (approved 13 April 2011).

Judge McCahill QC sitting as a Deputy High Court Judge in the Chancery Division gave Judgment for Quinn Insurance Limited (“Quinn”) in a Part 20 Claim brought by NES Solicitors (“NES”) in which NES sought an indemnity in respect of a claim brought against NES by the Claimant Solicitors Halliwells LLP now in Administration (Halliwells). Halliwells had obtained a Judgment from Deputy Master Matthews dated 17 November 2009 that NES pay the sum of £1,500,000 to Halliwells by 15 December 2009 and pay Halliwells’ costs pursuant to an undertaking given by NES to Halliwells on 22 December 2008 to pay Halliwells the sum of £1,500,000 on or before 10 March 2009.

Background: The undertaking was given by NES on behalf of NES’s client Dr Hassan to Halliwells for the benefit of Halliwells’ client General Capital Finance Limited (“GCF”). GCF had relied on the NES undertaking and made a bridging facility of £1 million to Green Crown Properties Limited (“Green Crown”). This facility was intended to be used as a deposit to buy shares in Stratford Edge, a company which owned a substantial development site in Stratford High Street close to the 2012 Olympic site. GCF charged Green Crown an impressive “administration fee” of £450,000 and the bridging loan was repayable before 11 March 2009. Dr Hassan claimed to be a potential investor in the Stratford Edge Development and was willing to buy 25% of the shares in Green Crown for £1.5 million. He had deposited gold certificates allegedly worth $10 million with NES as security. When NES gave the undertaking to Halliwells on 22 December 2008 NES Dr Hasan had also paid into NES’s office account a cheque for £1.5 million which subsequently did not clear. The Gold Certificates were subsequently established to be worthless.

Grounds relied upon by Insurers for declinature: The insurers had declined NES an indemnity on 19 June 2009 on the grounds that the claim did not arise from the provision of services in private legal practice within the meaning of Clause 1.1 of the Minimum Terms and Conditions because it was not given in the ordinary course of business as solicitors and because the claim was excluded by Clause 6.6 of the Minimum Terms and Conditions on the basis that the claim arose out of the provision of an undertaking by NES in connection with a benefit or advantage directly to the insured, namely the payment of a £15,000 fee for giving the undertaking. Following the issue of proceedings The insurers also contended that the Claim was excluded from cover under the equivalent of Clause 6.8 of the Minimum Terms on the basis that both partners had acted dishonestly and/or condoned dishonesty in giving the undertaking.

The Judge’s findings on the Law: Following a four day trial the Judge found that The insurers was entitled to decline an indemnity on all three grounds. In a useful analysis of the relevant law, the Judge applied Starglade Properties Ltd v. Nash [2010] EWCA Civ 1314 on the civil test of dishonesty, Zurich Professional Ltd v. Karim [2006] EWHC 3335 on the test to apply in determining whether the partners condoned each other’s and/or Dr Hasan’s dishonesty. He found that both partners were dishonest and/or condoned dishonesty. The partners both acted in a manner which they knew was wrong and dishonest and in which no honest solicitors would have acted.

The Judge also carried out a useful review of whether the undertaking was given in the normal course of business of a solicitor, considered the test in United Bank of Kuwait v. Hammoud [1998] 1 WLR 1051 considered the analysis in Ruparel v Awan [2001] Lloyds Rep 258, followed JJ Coughlan v Ruparelia [2003] EWCA Civ 1057 and found that the undertaking was not given in a solicitorial capacity (notwithstanding the Deputy Master’s Judgment).

We acted on behalf of the Successful third party throughout, including regarding original coverage issues.