Judgment

(As Approved)

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Mr Justice Newey:

1. I have before me an application made by Mr Frederick White as the liquidator of Enterprise Insurance Company plc, to which I shall refer simply as “Enterprise”. The application concerns matters that have hitherto been handled by the respondent, Ozon Solicitors Limited, to which I shall refer as “Ozon”.

2. The principal focus of the application is on whether files held by Ozon in relation to cases that they have been handling should be delivered up. At the heart of the issues before me is the question of whether the liquidator has been entitled to transfer the relevant case load from Ozon to another firm of solicitors, Hill Dickinson.

3. Enterprise was put into provisional liquidation in Gibraltar on 25 July of last year and Mr White was at that stage appointed as provisional liquidator. Very shortly afterwards, on 28 July, the Financial Services Compensation Scheme declared Enterprise to be in default. Subsequently, on 26 October, Mr White was appointed as liquidator of Enterprise. By then, an order made by Deputy Registrar Middleton on 26 August had already recognised the Gibraltar insolvency proceedings as foreign main proceedings in accordance with the UNCITRAL Model Law on Cross-border Insolvency.

4. Even before Mr White had become the liquidator, there had been correspondence about the termination of Ozon's retainer. In fact, the question had first arisen before Mr White had been appointed as provisional liquidator. At all events, on 19 October of last year Mr White took steps to determine Ozon's retainer definitively. In a letter of that date from Triay & Triay, the Gibraltar lawyers, it was explained to Ozon that Mr White asked that all files be transferred to Hill Dickinson. A little while after that, Mr White disclaimed the insurance policies that Enterprise had underwritten, but he did so, as he has explained, on the basis that policies in respect of which a claim had already been made would be honoured.

5. Given the insolvency of Enterprise, and following on from its declaration that the company was in default, the FSCS has of course been involved, and it has recently written a letter in which it has explained that it has so far paid over £2 million in returning premiums on motor claims policies to thousands of consumers and it had also, as at the date of the letter, paid over £26 million in compensation to more than 30,000 policyholders. The penultimate paragraph of the FSCS letter is relied on by Mr White. That reads as follows:

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6. When Enterprise went into liquidation, there were some 46,000 policyholders in the United Kingdom with motor insurance policies underwritten by the company. The focus of the present application is on the outstanding claims, numbering, I gather, some 1,300.

7. The liquidator, through Mr Nigel Jones QC, who appears with Ms Sarah McCann for him, maintains that he was entitled to transfer the workload, and consequently to demand the files, pursuant to claims control clauses which are to be found in the motor insurance policies. It is sufficient to quote one such provision. Under the heading “Claims Procedure” there are several sub-paragraphs, the second of which reads as follows:

8. I was referred to the Court of Appeal decision in Groom v. Crocker [1939] 1 KB 194 for guidance on the implications of such provisions. There, the relevant policy included a condition in these terms:

Greene MR said, having quoted that clause, this:

9. In the present case, for a significant period, Ozon acted as a panel solicitor for Enterprise and it was routinely, I think, nominated to handle relevant matters. I have seen a number of sample documents relating to the way in which Ozon responded to a nomination. For example, in 2015 Ozon wrote to a Mr Hakim:

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Under the heading “Ambit of work”, Ozon confirmed that it had been:

The letter ended with this:

10. The papers before me include a number of engagement forms and Mr Nicholas Bacon Q.C, who appears with Mr Richard Chapman for Ozon, told me on instructions that it was thought that policyholders had returned signed engagement forms in some 70 per cent of cases.

11. There has been debate before me, and perhaps to a greater extent in the written skeleton arguments, over the retainer or retainers that arose in relation to a particular matter. Mr Jones told me that there is a school of thought which considers that the only retainer of the solicitor in such a case is that of the solicitor by the insurer. He explained that his own view is that the preferable analysis is that there is a joint retainer so that the solicitor is retained both by the insurer and by the policyholder. In contrast, Mr Bacon submitted that the correct analysis must be that there are two separate retainers, one with the insurer and another with the policyholder.

12. In the end, it seems to me that the debate does not matter. The question that I have to consider, regardless of whether there is a single retainer with the insurer, a joint retainer or two separate retainers, is whether the claims control clause entitled Enterprise not merely to nominate a solicitor at the outset, but to change solicitor.

13. Subject to the points that I shall address in a moment, it seems to me that it did. In Groom v. Crocker, Greene MR took the view that the claims control clause clearly entitled the insurers to nominate a solicitor. That followed from the fact that the clause provided for the insurer to have absolute conduct and control of proceedings and to use the name of the insured to make or defend claims. The logic that led Greene MR to conclude that the insurer was entitled to choose an initial solicitor would, it seems to me, equally have led him to take the view that an insurer who wished to use a different solicitor could do so. That would have been an aspect of the absolute conduct and control that the insurer was to have.

14. Similarly, the provisions with which I am concerned provide for Enterprise to take over the defence of a claim or to take proceedings to recover any payment and state that Enterprise was to have full discretion in the conduct of any proceedings or the settlement of any claim. It seems to me, subject as I say to the points I shall discuss in a moment, that in principle that must entitle Enterprise, not only to nominate a solicitor at the outset, but to change solicitor. That, moreover, is by no means an uncommercial 5result. It is the insurer that is faced with having to pick up the bills. In those circumstances, it makes sense that it should be able to choose the legal representatives for the time being.

15. Two main points were put forward by Mr Bacon as reasons why I should not accede to the liquidator's application. One concerns the application of the Insurance Companies (Legal Expenses Insurance) Regulations 1990. The other relates to the liquidator's reasons for seeking to replace Ozon with Hill Dickinson.

16. So far as the Regulations are concerned, these were made to give effect to European Union provisions. The purpose of the relevant Directive, 87/344/EEC, was stated to be to facilitate the effective exercise of freedom of establishment and:

The Directive is stated to apply to legal expenses insurance, which:

in particular with a view to securing compensation or defending proceedings.

17. The material law was considered by the Court of Appeal in Sarwar v. Alam [2001] EWCA Civ 1401; [2002] 1 WLR 125 where Lord Phillips, MR, noted at paragraph 20 as follows:

In the following paragraph, Lord Phillips noted:

In paragraph 22, Lord Phillips observed that before the event (“BTE”) insurance features most commonly as part of a motor insurance policy. He explained:

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18. Returning to the wording of the Regulations, Regulation 2(1)(c) defines “legal expenses insurance business” as:

Regulation 3 then explains that the Regulations that follow are to apply to all legal expenses insurance business subject to specified exceptions. Regulation 4 states that:

Regulation 5 details possible:

Then Regulation 6, on which Mr Bacon relies, provides a right for an insured to be able to choose a lawyer for himself in relation to litigation. Here, Mr Bacon says that the Regulations are applicable and that the Regulation 6 right is being infringed.

19. In contrast, it is Mr Jones's submission that the Regulations are simply inapplicable in relation to the matters with which I am concerned. That is said to be apparent from the Directive that I have quoted, but also from the explanatory notes to the Regulations, which state that they are designed “primarily to avoid possible conflict of interests.”

20. It is easy to understand how a conflict of interest could arise in relation to conventional legal expenses insurance. There might, for example, be a situation where an individual with the benefit of legal expenses insurance is in dispute with another individual where the same insurer is a liability insurer. Plainly there could then be a conflict of interest and plainly the Regulations are directed at that sort of case.

21. According to Mr Jones the position is quite different here, where the question of legal expenses cover arises only as an adjunct to the motor insurance cover and where the insurer is seeking to limit its exposure on that cover. Here, he says, there is no logic in applying the Regulations and, having regard to one of the exceptions to be found in Regulation 3, they do not apply.

22. Before I address that submission further, I should mention that Mr Bacon pointed out to me that there are to be found in Enterprise policies sections headed “Legal defence costs” where, among other things, Enterprise agrees to bear solicitors' fees for representing the policyholder at a fatal accident enquiry, Coroner's, Magistrates or similar court and the costs of defending the policyholder against criminal charges. Those particular provisions are not in terms in point, but Mr Bacon maintains that there is to be found in the policies provision for legal expenses insurance both in those respects and in relation to motor insurance claims, with the result that the Regulations are in the relevant respects in point, albeit that the policies also cover conventional motor insurance. He points out that Regulation 4 recognises specifically that an insurance policy can include both legal expenses insurance and provision for one or more other classes of general insurance.

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23. Both counsel told me that, despite their researches and the researches of their juniors, they had not succeeded in finding any authority that cast further light on the key provision, which is the exception in Regulation 3(3). That is in these terms:

Mr Jones says that that wording covers the present case. Mr Bacon on the other hand contends to the contrary. He says that it would apply in particular where an insurer had already paid out and was bringing a claim by virtue of subrogation.

24. The wording of Regulation 3(3) is not, to my mind, as clear as it might be. I agree, however with Mr Jones that it covers the present situation. That conclusion seems to me to accord both with the terms of the provision and the overall context and purpose of the Regulations. Where, as here, the insurer is involved in litigation with a view to limiting its liabilities in respect of motor insurance cover, it seems to me that the aims underlying the Regulations and the Directive simply are not engaged. The danger of conflict of interest that underlies both the Directive and the Regulations does not arise.

25. Coming back then to the wording of Regulation 3(3), it appears to me that it is apt to apply to an indemnity insurer taking steps in litigation to defend the policyholder and, hence, to limit the insurer's exposure. As Mr Jones said, the words “at the same time” are not obviously apposite in relation to a subrogated claim.

26. What comes through, as it seems to me, is that the Regulations are not meant to apply where an indemnity insurer is involved in proceedings in both the insured's interests and its own, as is the case where it is liable to pick up the bill in respect of the relevant claim and is seeking to limit what it has to pay. There, it seems to me, the insurer is acting both for the purpose specified in Regulation 3(3) and at the same time in the insurer's own interest under the relevant cover.

27. In short, I do not consider the Regulations to apply. Further, it seems to me entirely plausible that Mr Jones is correct that, were the Regulations to be taken to be applicable, there could be very considerable confusion amongst insurers more widely.

28. I pass then to the other main point on which Mr Bacon focused, the suggestion that, even if the claims control clause is in principle capable of allowing an insurer to change solicitor, it has not been shown that the liquidator is justified in exercising the power here. According to Mr Bacon, the court cannot be satisfied that the liquidator is acting reasonably in the interests of Enterprise and the individual policyholders in seeking a transfer of the files from Ozon to Hill Dickinson. He says that the power conferred by the claims control clause must be impliedly subject to a limitation and, having regard to that limitation, that I should reject the proposition that the liquidator has validly terminated whatever retainer or retainers existed with Ozon such that the files should now be transferred to Hill Dickinson.

29. Developing that submission, Mr Bacon queries what relevant interest the liquidator can now have where (he says) the policies are effectively defunct. He maintains that the 8discretion conferred by the claims control clause cannot be an unfettered one and here, he says, it appears that the liquidator has been influenced by an inappropriate desire or consideration.

30. I have considerable doubts as to whether this is an argument that it would be appropriate for Ozon to run. On the face of it, were there to be a question as to whether the clause was being exercised properly, it would be a matter for the contractual counterparties, the policyholders rather than Ozon.

31. In any case, I am persuaded by Mr Jones that, the liquidation notwithstanding, Mr White and Enterprise continue to have a very real interest in how claims are handled. True it is that the FSCS steps in as indemnifier, but it in turn looks to the insurer, Enterprise, for recovery. That being so, the liquidator has a real interest (and indeed duties) in relation to the size of the claims submitted to the FSCS and how they are resolved.

32. There is, moreover, the further point that, as I mentioned earlier, the FSCS has itself said that it is content to rely on the judgment of the liquidator as regards handling arrangements, including the appointment of solicitors. I do not think, therefore, that it can be said at all that the liquidation has deprived the liquidator of a relevant interest.

33. Beyond that, it has been suggested on behalf of the liquidator that the fees charged by Ozon can be considered to be excessive. It is also evident from the history of this matter, and now this hotly disputed application, in respect of which Mr Ozon has himself put in a witness statement expressing views in very strong terms, that the relationship between liquidator and solicitors has been so impaired that they could not be expected to work well together.

34. In short, it seems to me that, to whatever extent there might be an implied fetter on the power conferred by the claims control clause, there is no reason to doubt that the power has been validly exercised here. It follows that I do not accept Mr Bacon's second main point any more than his first.

35. Other matters have featured more peripherally in the course of submissions. None of them to my mind indicates that I should deny the liquidator the relief sought in paragraph 1 of his application notice. It seems to me that he has succeeded in terminating Ozon's retainers and was entitled to instruct Hill Dickinson in their place. That being so, I accept that it is appropriate to order Ozon to transfer the files as sought.

36. Further relief is claimed in paragraphs 2 and 3 of the application notice. Paragraph 2 asks for an account and paragraph 3 seeks further information. Neither aspect strikes me as particularly urgent and, at least as regards the account, there have been developments which, as I understand it, the liquidator has not yet managed fully to take account of. It now being 4.45 p.m., the right course seems to me to be grant relief along the lines of paragraph 1 of the application notice and to adjourn the claim for the further relief sought in paragraphs 2 and 3 of that notice.