Lord Justice Longmore:
- Introduction
This appeal raises two important points in relation to the Third Parties (Rights Against Insurers) Act 1930 ("the 1930 Act") pursuant to section 1 of which the rights of a person, insured against liability to third parties, to recover against his insurers is, in the event of insolvency on the part of the insured, transferred to the third party to whom the insured was liable. In order to give effect to such rights, section 2 gives third parties the right to obtain information about the insurance arrangements made by the insolvent insured.
- The first question is whether the 1930 Act applies to insurance against liability generally or only to some kinds of liability and, if so, which kinds of liability. The second question is whether the third party claimant is entitled to obtain information about the insurance arrangements as soon as the insured person has become insolvent or whether he must first seek a determination of the insured's person's liability to him. Concealed in this second question is (or may be) a third question viz. at what date can it be said that there occurs the statutory transfer (provided for by section 1 of the 1930 Act) from the insured person to the third party claimant? Is it on insolvency or on ascertainment of the insured's person's liability to the third party?
- The answer to all these questions is to be found in the relevant provisions of the 1930 Act which (as subsequently amended) can conveniently be set out at this stage:-
"1 . . .
(1) Where under any contract of insurance a person (hereinafter referred to as the insured) is insured against liabilities to third parties which he may incur, then –
(a) in the event of the insured becoming bankrupt or making a composition or arrangement with his creditors; or
(b) in the case of the insured being a company, in the event of a winding-up order or an administration order being made, or a resolution for a voluntary winding-up being passed, with respect to the company, or of a receiver or manager of the company's business or undertaking being duly appointed, or of possession being taken, by or on behalf of the holders of any debentures secured by a floating charge, of any property comprised in or subject to the charge or of a voluntary arrangement proposed for the purposes of Part I of the Insolvency Act 1986 being approved under that Part;
if, either before or after that event, any such liability as aforesaid is incurred by the insured, his rights against the insurer under the contract in respect of the liability shall, notwithstanding anything in any Act or rule of law to the contrary, be transferred to and vest in the third party to whom the liability was so incurred.
. . . . . . . . . . . . . . . . . . . .
(5) For the purposes of this Act, the expression "liabilities to third parties", in relation to a person insured under any contract of insurance, shall not include any liability of that person in the capacity of insurer under some other contract of insurance.
. . . . . . . . . . . . . . . . . . . .
2 . . .
(1) In the event of any person becoming bankrupt or making a composition or arrangement with his creditors, or in the event of the estate of any person falling to be administered in accordance with an order under section 421 of the Insolvency Act 1986, or in the event of a winding-up order or an administration order being made, or a resolution for a voluntary winding-up being passed, with respect to any company or of a receiver or manager of the company's business or undertaking being duly appointed or of possession being taken by or on behalf of the holders of any debentures secured by a floating charge of any property comprised in or subject to the charge it shall be the duty of the bankrupt, debtor, personal representative of the deceased debtor or company, and, as the case may be, of the trustee in bankruptcy, trustee, liquidator, administrator, receiver, or manager, or person in possession of the property to give at the request of any person claiming that the bankrupt, debtor, deceased debtor, or company is under a liability to him such information as may reasonably be required by him for the purpose of ascertaining whether any rights have been transferred to and vested in him by this Act and for the purpose of enforcing such rights, if any, and any contract of insurance, in so far as it purports, whether directly or indirectly, to avoid the contract or to alter the rights of the parties thereunder upon the giving of any such information in the events aforesaid or otherwise to prohibit or prevent the giving thereof in the said events shall be of no effect.
(2) If the information given to any person in pursuance of subsection (1) of this section discloses reasonable ground for supposing that there have or may have been transferred to him under this Act rights against any particular insurer, that insurer shall be subject to the same duty as is imposed by the said subsection on the persons therein mentioned.
(3) The duty to give information imposed by this section shall include a duty to allow all contracts of insurance, receipts for premiums, and other relevant documents in the possession or power of the person on whom the duty is so imposed to be inspected and copies thereof to be taken."
- The Facts
The dispute between the parties arises from an extended warranty scheme given by computer suppliers to their customers. A customer (who will normally be a consumer for the purposes of consumer legislation) may be content with the mixture of common law and statutory rights he has under the ordinary law but computer suppliers often offer additions to these rights for an extra price. The standard support package included a promise to repair or replace faulty parts or, indeed, faulty products if any defect appeared within one year. There was then a one year on site option by which the company promised to visit the customer and rectify any hardware problem arising within one year of purchase. An additional option was the "Premier on site option" for 3 or 5 years by which the company promised to send someone to the customer's premises to repair the computer at home or, if that was impossible, to take it away and return it when repaired. Different schemes had different features but the feature of each scheme was that it was additional to a customer's ordinary rights, which would merely entitle the customer to compensation for any breach of a contract which a customer could prove.
- The suppliers of computers in the present case were a Jersey corporation OT Computers Limited ("OT Computers") and their Jersey subsidiary, Tiny Computers Ltd ("Tiny"). OT Computers supplied the computers in the name of Tiny and were thus undisclosed principals liable on the contracts. The customers, insofar as they thought about it, thought that they were dealing with Tiny; these customers were able to obtain credit facilities from a subsidiary of First National Bank Plc known as First National Tricity Finance ("FNTF"). Pursuant to section 75 of the Consumer Credit Act 1974 FNTF (as lenders of money to enable a consumer to purchase goods) were jointly and severally liable with the supplier to compensate the customer for any breach of contract on the part of the supplier. As financiers they would have a remedy against the supplier to the extent that they compensated the customer. That remedy was reinforced in this case by an express indemnity given by Tiny under the terms of an agreement between FNTF and Tiny of 28th October 1999. Tiny's obligations under that agreement were guaranteed by OT Computers.
- Unfortunately OT Computers and Tiny ran into difficulties. The court in Jersey appointed administrators of OT Computers and requested the English Chancery Division to do the same. This was done on 29th January 2002 and the defendants in the present action are the administrators appointed by the court. (We are told that the company is now in creditors' voluntary liquidation.) OT Computers' business was sold the very next day but, naturally enough, the purchasers did not assume any of the liabilities under the extended warranty scheme. FNTF was left holding the extended warranty "baby" and have had themselves to make arrangements to honour OT Computers' obligations under the scheme. They have, at some considerable cost, arranged for customers' computers to be repaired or replaced pursuant to their obligations under the Consumer Credit Act and now claim to be subrogated to claims which those customers have against OT Computers for failure on the part of the company to comply with their obligations under the extended warranty contracts. The administrators have been content to accept for the purposes of FNTF's application that there will be customers who do have rights to which FNTF will be subrogated. They do not, for example, take the point that, once the customers have been indemnified by FNTF, the customers no longer have any remedy against Tiny or OT computers. But there is a dispute (which we were not asked to resolve) whether the particular customer presently nominated as a potential claimant is correctly so nominated since it is suggested that she may have acquired rights only after any relevant policy of insurance expired.
- The Arguments
The administrators have informed FNTF that OT Computers and Tiny have taken out insurance with, among others, AXA Insurance (UK) Ltd ("AXA") in relation to their liability under the extended warranty contracts made with their customers but neither the administrators nor AXA have been willing to disclose to FNTF further information about the contracts of insurance or their terms. Accordingly FNTF in their own name or that of a customer (to whose rights they are subrogated) have claimed the following relief:-
"(1) Information in the possession of the Respondents as Administrators of OT Computers Limited ("the Company") and required for the purpose of ascertaining whether any rights against the Company's insurers have been transferred to and vested in customers by the Third Parties (Rights Against Insurers) Act 1930 in respect of breaches of contract by the company which have been remedied by or at the expense of the Applicant;
Alternatively,
(2) Leave under section 11(3)(d) of the Insolvency Act 1986 to commence and prosecute proceedings against the Company for the enforcement by way of subrogation of the rights of customers in respect of breaches of contract by the Company which have been remedied by or at the expense of the Applicant."
The information sought in paragraph (1) is not specified but Mr John McDonnell QC made clear in his submissions on behalf of the claimants that he wanted disclosure of the policy or policies of insurance which, according to the administrators, OT Computers and/or Tiny had taken out with AXA and others in respect of their liability under extended warranty contracts.
- Mr Gabriel Moss QC for the administrators submitted that the claimants are not entitled to the relief claimed because
(1) a claim made in pursuance of the extended warranty contracts was not a claim in respect of which OT Computers or Tiny were "insured against liability to third parties" under section 1 of the 1930 Act, which only applied to liabilities in tort or liabilities arising in tort and contract concurrently;
(2) even if the liability was of a kind covered by the 1930 Act, either no rights against any insurers had yet been transferred to the claimants or it was impossible to know whether any such rights had been so transferred with the result that there was no information "reasonably . . . required . . . for the purpose of ascertaining whether any rights have been transferred to and vested" in the claimants for the purpose of section 2(1) of the 1930 Act.
For these reasons paragraph 1 of the relief claimed should be refused as, indeed, should paragraph 2 if the first argument was correct. Mr Moss has also sought to put forward a third argument viz. that the extended warranty contract scheme was itself insurance and that OT Computers were carrying on the business of insurance so that section 1(5) of the Act applies, because the relationship of OT Computers and AXA is effectively one of reinsurance.
- Section 1 of the 1930 Act
Mr Moss's first submission is far-reaching. It is, I think, the first time that it has ever been suggested that, if a person insures against his contractual liabilities to third parties, the 1930 Act has no application to claims made in respect of those contractual liabilities. This was not the view of the Law Commission in 1998 when it published its consultation paper on possible reforms to the 1930 Act, see Law Com. Consultation Paper paras. 11.9 and 11.19. Moreover, claims for loss of or damage to cargo laden in ships have given rise to a number of reported cases which have considered problems arising under the Act but none of the array of distinguished counsel who argued such cases or the judges who decided them have suggested that, when a shipowner has become insolvent, the cargo-owner's claim that the vessel was unseaworthy, or that the shipowner failed to exercise due diligence to make the vessel seaworthy, was a claim which, if liability for it was insured, falls outside the 1930 Act.
- Nevertheless now that the argument is made it has to be addressed. The argument is that the 1930 Act makes a serious inroad into the pari passu principle of insolvency and should, therefore, be construed restrictively. It is, of course, well-known that the Act owed its origin to the unfairness disclosed in Re Harrington Motor Co Ltd [1928] Ch 105 and Hood's Trustees v Southern Union General Insurance Company of Australasia Ltd [1928] Ch 793 whereby a person injured or killed in a motor accident, for which a second (negligent and insolvent) motorist was liable and in respect of which that motorist was insured, was confined to his remedy in the negligent motorist's bankruptcy; these cases held that any insurance monies went to swell the sum available to the general body of creditors. Parliament considered this to be unfair particularly, no doubt, in light of the fact that third party insurance was shortly to become compulsory for all motorists. It was for this reason that the 1930 Act was introduced. It was modelled on a similar scheme already in existence in relation to workmen's compensation. The Act was not, however, confined to motor insurance.
- The shipping cases appear to begin with In re Compania Merabello San Nicholas SA [1973] Ch 75. The point at issue was whether jurisdiction existed to wind up a foreign (Panamanian) company if it had no place of business within England or Wales and had never transacted business here. Megarry J held that such jurisdiction did exist if there were one or more assets within the jurisdiction and if there were one or more persons, concerned in the proper distribution of the assets, over whom the jurisdiction was exercisable. The relevant asset was the insolvent shipowner's chose in action in the form of an available claim under the relevant insurance policy made with an English insurance company. The petition to wind up the one-ship Panamanian company was brought by a claimant cargo-owner who had what the judge described as (81B)
"an unliquidated claim against the company for breach of [a] contract of carriage in respect of the shortages and for damages based on [the vessel] being unseaworthy"
In due course judgment was entered against the company for £12,388.50 and costs and the claim thus became a claim for that liquidated claim and a further unliquidated sum for costs. As Megarry J observed (81E) once a winding-up order was made (if it were to be made), then the 1930 Act would apply automatically and
"the company's claim against [its insurers] will vest in [the claimant cargo-owners] and could be pursued by [the claimant cargo-owners] against [the insurers], though as to the costs only after they have been quantified by taxation."
- The claimants' petition was opposed by the insurers who were themselves creditors of the company and did not wish the insurance proceeds to go directly to the owners of the cargo. They were represented by Mr Ian Edwards-Jones QC and Mr Stephen Boyd (as they then were). After Megarry J had set out the provisions of section 1(1) of the 1930 Act, he then said this (82H):-
"It will be seen that there is an automatic transfer of the rights of the insured company to the third party upon the making of a winding up order in respect of the insured company. Mr. Edwards-Jones accepted that for the purposes of his argument before me the insurance . . . fell within the Act . . ."
If Mr Moss's argument before us were correct, the insurance would not have fallen within the Act, there would have been no automatic transfer of the rights of the insured company to third party and the whole application to Megarry J would have been an exercise in futility which that learned judge would have been most unlikely to sanction.
- Nevertheless Mr Moss is entitled to say that his precise argument was not raised or adjudicated upon. Nor was it the subject of express decision in other shipping cases such as The Vainqueur José [1979] 1 Lloyds Rep 557 or The Fanti and The Padre Island [1989] 1 Lloyds Rep 239; [1991] 2 AC 1. His argument or, more accurately, that of his junior was, moreover, accepted by the Vice-Chancellor in the present case albeit on the basis of earlier decisions of first instance judges which he was not convinced were wrong. It will be necessary to examine those decisions in a moment.
- Before doing so, however, it is appropriate to say that there is no support for Mr Moss's argument in the statutory wording. The words
"Where under any contract of insurance a person . . . is insured against liabilities to third parties which he may incur"
are perfectly general. To confine "liabilities" to tortious liabilities or, even, "tortious liabilities and contractual liabilities akin to tortious liabilities" is to put a considerable gloss upon the statute. Such gloss goes far beyond any normally permissible exercise of construction.
- I turn, therefore, to the two decisions which are said to support this construction. They are Tarbuck v Avon Insurance Plc [2002] QB 571 and T&N Ltd v Royal & Sun Alliance Plc [2003] EWHC 1016 (Ch) (unreported). Tarbuck concerned legal expenses insurance carried by a Miss Nicholson who ran a Natural Health Clinic in Clerkenwell. The insurance was called an "Office or Surgery Policy" and section 7, headed "Legal Expenses", provided that the insurers would pay the insured's legal costs incurred in relation to claims against her for (inter alia) negligence or for possession of freehold or leasehold property up to £50,000. She instituted proceedings against her landlord for breach of his repairing covenant and he counterclaimed for possession. She instructed Mr Tarbuck as her solicitor; the litigation went against Miss Nicholson in the sense that she was granted relief from forfeiture only on condition that she made certain payments. She failed to make those payments and was made bankrupt on the landlord's petition, before she paid her solicitor's bill. The bill came to £69,000 which she was unable to pay and, indeed, unwilling to pay. Mr Tarbuck sought to rely on the 1930 Act because, as he put it, Miss Nicholson had insurance against her liability to pay his fees and she was thus "insured against liabilities to third persons which she may incur". The insurers argued that all that had happened was that Miss Nicholson had voluntarily incurred a liability to pay a contract debt and that was not the sort of liability envisaged by the 1930 Act.
- Toulson J found the problem "very difficult" (576B). He resolved it thus (577B):-
"I have to choose between construing the words "where a person is insured against liabilities to third parties which he may incur" as limited to insurance against liabilities which may be imposed on that person by operation of law, whether for breach of contract or in tort, or as including the underwriting of liabilities voluntarily undertaken by that person, i e the payment of contract debts. I do not believe that the words were intended to include the latter."
He therefore dismissed the claim.
- The dichotomy between "liabilities which may be imposed . . . by operation of law" and "liabilities voluntarily undertaken" is not an altogether easy one to understand because in one sense all contractual duties are voluntarily undertaken. Yet Toulson J (unlike Mr Moss in his argument to us) seems to proceed on the assumption that liability for breach of contract is involuntary and is included in the phrase "insured against liabilities to third parties which he may incur". What, as it seems to me, Toulson J is saying is that liabilities are imposed by law in the event of breach of duty and breach of contract and are covered by the Act. But a liability to pay money one has agreed to pay is different because it is not a liability imposed by law; there is, moreover, no liability to pay damages if the money is unpaid. The creditor's remedy is to sue for the debt; he cannot sue for damages for breach of contract for failure to pay the debt. There is thus no liability imposed by operation of law.
- So understood Tarbuck is distinguishable from the present case and any observation on it by this court will be obiter. Mr Moss expressly accepted that in this case OT Computers and Tiny would be liable to damages to customers if they failed to repair or replaced faulty hardware or if they failed to attend the customers' premises when they were obliged to do so.
- Nevertheless the question whether Tarbuck was rightly decided was fully argued and in those circumstances it would only be right for me to express my view. I am, for my part, reluctant to draw a distinction for the purposes of the Act between a liability which sounds in debt and liability which sounds in damages and to say that it is only the latter which is covered by the Act. The words are (to repeat them again)
"insured against liabilities to third parties which he may incur".
These words are perfectly general (as I have already observed) and are apt to include liabilities in debt just as much as liabilities in damages.
- That is not to say that the insurance policy itself may not specifically provide that the insured liability is to be a liability in damages or even a liability for damage; in such a case the policy will not apply to a contract debt since liability for such a contract would not be a liability in damages and it will probably not be a liability for damage either (although we heard no argument on the point). This court does not, of course, know the terms of the insurance in the present case because the administrators have so far declined to reveal it. But as far as the 1930 Act is concerned there is no such limitation in the phrase "liabilities to third parties". In Tarbuck itself the insurance provided for "payment of legal costs up to £50,000"; on the assumption that those were the only relevant words of the policy I would say that the insurance was against the liability to pay legal costs and that that is sufficient for the purposes of the Act. I note that the Law Commission proposes in its final Report on the 1930 Act (Law Com No 272, of 14th June 2001) that Tarbuck should, in any event, be reversed by legislation, see paras. 1.20 – 1.21 and 2.39 – 2.44.
- T&N v Royal & Sun Alliance is potentially more relevant since the insured was potentially liable in damages but Lawrence Collins J, following Tarbuck, held that the 1930 Act did not apply. As is well-known T&N had exposure to asbestosis claims; these claims were insured by Lloyd's but on terms that if payments were to be made, T&N should make certain reimbursements to Lloyd's. T&N then insured with a captive company known as Curzon their liability to make such reimbursements. Lloyd's called on T&N to make such reimbursement and when T&N became insolvent claimed that the right of recovery from Curzon became transferred to them (Lloyd's) so that they could claim against Curzon under the 1930 Act.
- Lawrence Collins J held that he should follow Tarbuck and conclude that what was insured was the non-payment of a contract debt due from T&N to Lloyd's and that such non-payment was not covered by the 1930 Act. But a liability to make a payment in a certain event is, as I have said, something against which insurance can be taken out and, if it is, there is no reason why the 1930 Act should not apply. It may be that the terms of the policies justified Lawrence Collins J's conclusion on the facts of his case but his apparent acceptance of Curzon's argument that the 1930 Act only covered "tortious liabilities and contractual liabilities akin to tortious liabilities" cannot, in my view, be justified. It is not clear that the shipping cases were cited - certainly no reference to them is made - and, in my view, T&N v Royal and Sun Alliance insofar as it accepted the full width of Curzon's argument, should, with respect to Lawrence Collins J, no longer be treated as authority for the proposition that the 1930 Act only applies to tortious liability or liability akin to tortious liability.
- It follows, therefore, that the customer's claims (to which FNTF are admittedly subrogated) are, if made out, liabilities to third parties within section 1(1) of the 1930 Act.
- Section 2 of the 1930 Act
I turn therefore to the application made pursuant to section 2(1) of the Act that the administrators do make disclosure of the insurance policies with AXA and others covering claims made pursuant to the extended warranty scheme. It is far from clear to me what commercial purpose is being served by the administrators resisting such disclosure, if they fail on the first limb of the argument. Mr Moss informed us that the administrators were negotiating with the insurers for a commutation of the policy but mere disclosure of the policy will not prevent any commutation; nor will non-disclosure assist commutation since commutation is not feasible while customers are trying to proceed with claims under the extended warranty scheme.
- The administrators' argument is one of some technicality and is based on Woolwich Building Society v Taylor [1995] 1 BCLC 132 a decision of Lindsay J followed by the Vice-Chancellor in this case in the court below. Lindsay J held that the third party claimant's right against the insured arose at the time when the claimant suffered a loss but that the right of the insured to sue his insurer in respect of the liability he had incurred did not arise until the liability had been ascertained by judgment, award or agreement. Since it was impossible to know whether a right had been transferred until such judgment award or agreement had occurred, no information could reasonably be required, before such judgment award or agreement, "for the purpose of ascertaining whether any rights have been transferred or vested" in the claimant by the Act. It is important to note that Lindsay J did not hold that the right to sue the insurer was only transferred on judgment or award against the insured or agreement with him; he merely said that until such judgment, award or agreement it was impossible to know whether there had been a transfer in fact. This reasoning needs to be set in the context of the decided cases.
- In Post Office v Norwich Union Fire Insurance Society Ltd [1967] 2 QB 363 this court decided that a third party claimant could not sue the insurer directly, pursuant to the 1930 Act, until the existence and amount of the liability of the insured had been established by judgment or award or agreement. The reason for this was that the rights transferred by the Act were subject to the terms of the policy. Since the insured could not have claimed an indemnity until their liability had been established, the Post Office could be in no better position. The insurers' argument that the Post Office had no cause of action against the insurers until the establishment of the existence and amount of the liability of the insured was therefore accepted. Although the leave of the court was necessary to begin or continue proceedings against a company in liquidation, the court considered that leave ought to be given automatically if the 1930 Act were applicable. This decision was approved in Bradley v Eagle Star Insurance Co Ltd [1989] AC 957 a case in which the third party claimant had not issued proceedings against the insured company before it was dissolved. The House of Lords held by a majority that the dissolution of the company meant that it was impossible ever to ascertain the existence and amount of the company's liability.
- Neither of these authorities directly addressed the question: when are the insured's rights transferred to the third party? Is it on the occurrence of the event constituting insolvency or is it, if later, when the liability is established? If establishment of liability takes place before insolvency, the rights are obviously transferred on insolvency but if insolvency precedes the establishment of liability, is it a possible reading of the Act that the transfer of rights only takes place when liability is established?
- The 1930 Act makes no reference to the need to establish the insured's liability before the transfer takes place. It is, therefore, more natural to read the Act as envisaging that the transfer to and vesting in the third party of the rights of the insured occurs on insolvency whether the establishment of the right occurs before or after the insolvency. The rights so transferred may be contingent or inchoate in the sense that the rights may not give rise to legal liability on the part of the insurer until the existence and amount of the liability is established but the transfer nevertheless takes place on the insolvency. This was appreciated by Megarry J in In re Compania Merabello when he described the shipowners' claim against their insurers Oceanus as vesting in the cargo owners "automatically" on the making of the winding-up order and as a claim which
"could be pursued by [the cargo-owners] against Oceanus, though as to the costs only after they have been quantified by taxation" [1973] Ch 75, 81E.
It was also accepted as being correct by Lord Templeman in Bradley v Eagle Star who stated in terms ([1989] AC at 969F) that on the passing of a resolution for the voluntary winding-up of the insured company, the company's rights against Eagle Star were transferred to Mrs Bradley, even though the amount of the company's liability to Eagle Star had not then been established. Lord Templeman's speech was, however, a dissenting speech and in Nigel Upchurch Associates v The Aldridge Estates Investment Co Ltd [1993] 1 Lloyd's Rep. 535 Miss Barbara Dohmann QC, sitting as an Official Referee, decided that Lord Templeman's view on this matter, as well as the other (principal) matter, had been rejected by the majority of the House.
- I do not myself read the majority speeches as rejecting Lord Templeman's view on this particular matter. The leading speech was made by Lord Brandon of Oakbrook and what divided the majority and the minority was the question whether the fact that the insured company had been dissolved (rather than merely being in liquidation) made the vital difference between the claimant having a right to sue the insurers and having no such right. The majority held that the dissolution was a critical fact because the insurers were entitled to say that no cause of action accrued against them until liability was established and that there was no way of establishing that liability once the insured company no longer existed. This logical but unsatisfactory conclusion has now been remedied by statute and a dissolved company can be restored to the register (and thus be sued) at any time during the period of 20 years after dissolution. But the majority did not need to express a view about the time when the rights of the insured were transferred to and vested in the third party claimant. Miss Dohmann QC thought that Lord Brandon did express the view, at pages 966 B-D and 967 C, that the rights could not be transferred until liability had been established, but I cannot read those passages in that way.
- The next decided case is that of Lindsay J in Woolwich Building Society v Taylor [1995] 1 BCLC 132 which the Vice-Chancellor followed in the court below. Woolwich had lent a large sum of a money to a mortgagor called Forthill on the faith of a valuation given by the well-known firm of surveyors Jackson-Stops and Staff Ltd. Forthill went into liquidation and Woolwich, facing a substantial loss on the realisation of their security, sued Jackson-Stops for £7 million for negligence or breach of contract. Jackson-Stops themselves passed a resolution for voluntary winding-up on 28th June 1993 and on the same day a creditors' meeting confirmed the appointment of Mr Taylor as liquidator in the creditors' voluntary winding-up; the trial date for the Woolwich action was, at some stage, fixed for 3rd May 1994. On 4th October 1993 solicitors for Sun Alliance, the insurers of Jackson-Stops in respect of a number of claims including the Woolwich claim, informed Mr Taylor as liquidator that cover was not available to the insured as a result of what they alleged was material non-disclosure; on 18th October Mr Taylor passed that information to solicitors for the Woolwich who on 8th November 1993 asked first the liquidator and secondly Sun Alliance's solicitors for all documents in their possession relating to the policies of insurance with Sun Alliance. This was followed by proceedings issued on 21st March 1994 for relief pursuant to section 2 of the 1930 Act. The liquidator took no part in the proceedings but Sun Alliance instructed Mr Christopher Symons QC to resist the application which was heard on 22nd April 1994 very shortly before the trial against Jackson-Stops (now in liquidation) was to begin on 3rd May. In the light of the date Lindsay J could not allow himself "the indulgence of any profound reflection" (136c).
- Mr Jules Sher QC for the Woolwich submitted (submissions (iv) and (v) at 137f – 138a) that the rights of Jackson-Stops against Sun Alliance were transferred on insolvency even though neither the existence nor the amount of that liability had yet been established. It then followed according to Mr Sher (submission (vii) at 138b) that Woolwich was entitled to obtain the information mentioned in section 2(1) of the Act because it would be reasonably required by the Woolwich for the purpose of ascertaining "whether any rights have been transferred to the Woolwich by the Act". Mr Symons submitted (140a) that there was no transfer of rights to the Woolwich until the liability of Jackson-Stops had been ascertained by judgment award or agreement. Lindsay J rejected this argument of Mr Symons and accepted Mr Sher's submissions (iv) and (v). Nevertheless, treating the hearing of the motion as the trial of the action, Lindsay J dismissed the proceedings.
- His reasoning, under direct attack by Mr McDonnell in this appeal ran as follows:-
(1) until the result of the pending action it was impossible to know whether Jackson-Stops had actually incurred any liability; the cause of action in respect of the liability accrued when the breach of contract occurred (or when the loss occurred if suit was in tort) but one could not then know that there had been negligence since no-one had then so decided or agreed that there had been negligence;
(2) nor was it possible to know whether any rights against the insurer had been transferred on the insolvency since those rights only accrued on the establishment of liability
"Until such establishment not only is it impossible to know whether the triggering event – "any such liability is incurred by the insured" – has occurred but it is also impossible to identify the transferee, the third party to whom the liability was so incurred" (140i – 141a);
(3) in the light of this impossibility no information could be reasonably required by the Woolwich "for the purpose of ascertaining whether any rights have been transferred . . . . or for the purpose of enforcing any such rights, if any" within section 2(1) of the 1930 Act. It was like saying on a Monday that information was reasonably required to ascertain the winner of a horse race on a Tuesday or saying between presentation and disposition of a petition for winding-up of a company that information was reasonably necessary for the purpose of ascertaining the date of commencement of the winding-up. If, in the event, the petition for winding-up is dismissed, the winding-up has never commenced;
(4) the purpose for which information is to be given is impossible of achievement and if no information could answer those purposes, it cannot reasonably be required to serve those unachievable purposes;
(5) Mr Symons' "conclusion" that the information sought from the liquidator was not yet reasonably required was correct not because, as Mr Symons urged, there was no transfer yet of the rights of the insured but because, as a variant of that argument:-
"no information can possibly exist which can serve the only permitted purposes of a request for information under section 2(1), namely ascertaining whether rights have been transferred and to enforce them".
- With all respect to the great authority of Lindsay J in matters of company law and insolvency, I have difficulty with this reasoning. What a third party claimant needs to know is whether the person against whom he is making a claim is insured and, if so, in what terms. If the proposed defendant has no insurance or only limited insurance or insurance to which it is a condition precedent that the insured shall have obtained an arbitration award (to take 3 examples), the third party claimant may well think that it is not sensible or worthwhile to issue (or continue) legal proceedings. In this sense he needs to have information about the proposed defendant's insurance position if any and that information is "such information as may be reasonably required" within section 2. The fact that in the event the third party claimant may not establish that the proposed defendant is liable in fact so that his action fails or the fact that he cannot be certain that his rights against the insurer will be effective because he may not, in the result, have established the liability of the defendant have, in my judgment, nothing to do with the reasonable requirement of being given information about the defendant's insurance for the purpose of ascertaining whether rights against the insurer have been transferred.
- This is all the more so once it is accepted, as Lindsay J did accept, that the transfer occurs on the event of insolvency. If there are rights against an insurer they are transferred to the third party at that time but what the third party reasonably needs to know is whether there are any rights which, in the statutory words, "have been transferred to and vested in him by this Act". If there is insurance, then there are rights which will have been transferred but he is not in a position to know whether those rights have, in fact, been transferred until he discovers the identity of the insurers and obtains information about the terms of the insurance. Only then will he know if there are rights which "have been transferred to and vested in him by the Act" and such information is reasonably required for the purpose of ascertaining whether those rights have been transferred and, also, for the purpose of enforcing such rights "if any".
- The words "if any" are significant. They contemplate that there may in fact be no rights to be transferred. But the third party is entitled to discover that no rights have been transferred just as much as to discover that rights have been transferred. What he needs to know is whether there are rights against the insurers which have been transferred or whether there are not.
- It is also important that the person entitled to the statutory information is the "person claiming that the . . . company is under a liability to him", not the "person who has established that the company is under a liability to him". Yet Lindsay J has effectively construed the statute as meaning the latter rather than the former.
- A further indication of the true construction of section 2(1) of the 1930 Act is to be found in section 2(2) which provides that if information given by the administrator pursuant to section 2(1) discloses reasonable grounds for supposing that "there have or may have been transferred" to the third party rights against any particular insurer, that insurer shall be subject to the same duty as imposed by sub-section (1). Lindsay J (at page 142c) found the words "or may have been transferred" puzzling and the truth is that the wording is not really consistent with his construction of sub-section (1). The answer to the puzzle is that the words "or may have been" are no more, but no less than, legislative shorthand for the longer phrase in sub-section (1) "for the purpose of ascertaining whether any rights have been transferred to and vested in him by this Act and for the purpose of enforcing such rights, if any".
- In the light of all the above indications in the statute as to its meaning, I have come to the conclusion that the decision of Lindsay J to the effect that, in the absence of any establishment of liability, there cannot be said to be in existence any reasonably required information with respect to any rights of the insured against its insurer which have been transferred to any third party, cannot be supported and should be overruled. I note that the Law Commission has decided that this case also should be reversed by legislation, see Law Com. No 272 (2001) paras. 1.14 and 4.1 – 4.6.
- Mr McDonnell submitted that section 2(1) of the statute was ambiguous since the construction adopted by Lindsay J was a possible construction even though he attacked it. We should accordingly avail ourselves of such assistance as could be gained from extracts from Hansard which he sought to place before us. I do not, however, consider that the statute is ambiguous in the sense that it is genuinely open to two possible constructions as required by Pepper v Hart [1993] AC 593. The fact that two judges differ as to the correct construction does not mean the statute is necessarily ambiguous. It just means they differ on a question of construction which judges not uncommonly do. It cannot be the case that Hansard can be referred to in any case where there is an appeal on a point of construction and the court thinks that the judge's construction might be wrong.
- It is not entirely easy to leave the matter there, however, because Lindsay J pointed out (page 142f) that on the construction which I favour (viz that the statute entitles a third party to information about an insolvent defendant's or proposed defendant's insurance position even before liability to the insured is established if it is information which he reasonably requires), the third party will have rights to information from the representative of the insolvent defendant (and indeed from the insurer), even if proceedings have not yet been instituted against the insured. He said:-
"It seems to me inherently improbable that in 1930 Parliament intended any such pre-trial or advance discovery as between the third party and the insured and as between the third party and the insurer."
Unfortunately the extracts from Hansard which we were shown (but, as I would say, in the event inadmissibly shown) indicate that that was exactly the intention of the proposer of the amendment which became sub-section 2(2) and of the government minister accepting the amendment.
- This could have raised the question whether reference may be made to Hansard in a case where a judge in a previous case (or at first instance in the case of an appeal) has expressed a view about the intention of Parliament which can be verified or falsified by reference to Hansard. As it is that question will have to be decided on another occasion but there must be much to be said for the view that reference to Hansard should be admitted. It would also, of course, be a question whether such a decision can be made by any court other than the House of Lords in the light of the existing restrictions on citation from Hansard laid down by Pepper v Hart.
- Before leaving Woolwich, I should notice what Lindsay J said about Nigel Upchurch v Aldridge Estates which was itself an application brought under section 2 of the 1930 Act. It will be remembered that Miss Dohmann considered herself bound to decide that the transfer to the third party claimant of the insured's rights against his insurer only took place after the establishment of the insured's liability or the insolvency whichever was the later. Lindsay J said that he had reached his decision by a different route and that he did not need to decide whether the decision was wrong. But fundamental to her decision that the third party was not entitled to information under section 2 was her conclusion that no right was transferred to the third party claimant until his claim had been established by judgment, award or agreement. In upholding Mr Sher's submissions (iv) and (v) Lindsay J had in fact disagreed with Miss Dohmann. For the reasons I have given, he was right to do so and, in my view, Nigel Upchurch v Aldridge Estates should, with respect to Miss Dohmann, no longer be treated as authoritative.
- Developments since Woolwich
On 16th November 1994 Sir Jonathan Mance delivered his widely admired and highly authoritative Donald O'May Lecture at Southampton called "Insolvency at Sea" later published in [1995] LMCLQ 34. He there expressed reservations about both the Nigel Upchurch and the Woolwich cases and my indebtedness to his analysis of them will be apparent to anyone who knows his lecture. Sir Jonathan as jurist has a much freer rein to refer to Hansard than any judge sitting in his judicial capacity and he exercised that freedom. He even said (page 42) that Hansard "must . . . be a candidate for admission in any future litigation under section 2 of the Act". I have already said that I cannot go as far as that but again a question arises whether, pursuant to Pepper v Hart, Sir Jonathan's researches and conclusions have to be ignored. His views are well-known to those who concern themselves with insurance. A number of judges were in the audience at the lecture. These days judges read academic articles as part of their ordinary judicial activity. Yet Pepper v Hart constrains a judge in his judicial capacity to "forget" what he already knows. This was easy enough when recourse to Hansard was absolutely forbidden; but with Hansard partly within and partly outside the judicial domain, it is not an easy exercise.
- Later authority has now clarified the date when the rights of the insolvent insured against his insurer are transferred to the third party claimant. It is the date of insolvency and not (if it is later) the date of establishment of liability. The 1990s Lloyds litigation raised (among many other issues) the acutely important question in relation to the limited amount of errors and omissions cover available to members' agents and managing agents liable to the Names, whether the first Names or sets of Names who obtained judgments against the agents (who were unable to satisfy all the claims) should take the limited cover on a "first past the post" principle or whether all claimants against the agents should rank together. The courts held that "first past the post" applied but it was necessary to analyse the legal position of both a solvent insured with limited E&O cover who experienced a series of third party claims and the position of an insolvent insured. In Cox v Bankside Members Agency Ltd [1995] 2 Lloyd's Rep. 437, Phillips J at first instance said (page 443):-
"In a situation of solvency, the ranking of claims against the E&O underwriter depends upon the order in which the third party Names establish liability against the assured by judgment, arbitration award or settlement, thereby giving rise to a vested right on the part of the assured to indemnity in accordance with the terms of the cover. The same is true in a situation of insolvency. If the insolvency occurs after third party Names have established quantified liability, the right or rights to indemnity that were thereby established in the assured agent will be transferred to the Names upon the assured becoming formally insolvent. If quantified liability has not been established at the date of insolvency, a third party Name asserting a claim will have transferred under the Act merely an inchoate or contingent right. If before that Name establishes a quantified claim, other quantified claims are established which exhaust the cover, his contingent right will be rendered nugatory."
In describing the right transferred to the third party on insolvency as an "inchoate or contingent right" Phillips J was, consciously or unconsciously, echoing the language of Mr David Clarke QC (as he then was) on behalf of the appellant in Bradley v Eagle Star [1989] AC 957 at 959C in a submission which, as I have already said, was not, in my view, rejected by the majority of the House.
- The reason why it was necessary for the court to decide when the transfer took place was that those proposing a rateable distribution rather than the application of the "first past the post" principle began by asserting that rights were transferred on insolvency rather than on establishment of the insured's liability in order then to argue that, if rights were transferred to all third party claimants at the time of insolvency, Parliament must have intended all the third party claimants to benefit equally. Phillips J accepted the first part of the submission (as to timing) but rejected the second part of the submission (as to presumed equality). The Court of Appeal also accepted the first part of the submission. This most clearly appears from the judgment of Saville LJ in the Court of Appeal ([1995] 2 Lloyds Rep 437 at page 467) where the argument for rateable distribution was being put by Mr Martin QC:-
"It is common ground that the obligation of the E&O underwriters to pay under their insurances only arises when the liability of their insured is established and quantified by judgment, arbitration award or settlement: see Post Office v. Norwich Union Fire Insurance Society Ltd [1967] 1 Lloyd's Rep. 216; [1967] 2 Q.B. 363 and Bradley v. Eagle Star Insurance Co. Ltd [1989] 1 Lloyd's Rep. 465; [1989] A.C. 957. Under the Act the rights of the insured against the insurer are transferred to the third party on (in the case of an insured company) the making of a winding up order etc.: see s. 1(b) of the Act. It follows from this that a statutory transfer can take place before the obligation of the insurer to pay arises i.e. before the liability of the insured has been established. In such an event, since it is clear from the authorities that the third party is to be put in no better position than the insured, the third party does not obtain the right to immediate payment until the liability of the insured is established.
Mr. Martin's submission was that when the statutory transfer took place, all those who had good claims against the insured simultaneously had transferred to them the rights of the insured against the insurers. From this it is suggested that it followed that all should be treated equally so far as the insurance proceeds were concerned.
In my view this argument in effect treats as necessarily one and the same thing the rights which are transferred under the Act when the insured is wound up with the right to immediate payment from the insurers concerned. Where none of the claims has been established before the transfer is effected, it is true to say that all the third party claimants have the same rights transferred to them at the same time, but for the reason given, unless the claims have already been established, those rights do not at that time include the right to immediate payment by the insurers. That right only arises when, in each case, the claim is established, just as that right, while owned by the insured, would also arise only when the particular claim in question was established. It is only when that right arises that the insurers come under the correlative obligation to make payment. To my mind it follows that as each claim is established (whether this occurs before or after the statutory assignment), the right to payment arises and thus the amount of the available insurance is in effect diminished, so that when it is exhausted later established claims have no right to an indemnity. I can find nothing in the Act which begins to suggest that somehow a claimant third party whose claim is established cannot recover that claim under the Act, or has to share that recovery with others who have no rights against the insurers because the limit of cover has been reached."
- Whether or not this court is strictly bound by this part of the decision in Cox v Bankside, the question of the date of transfer to the third party of the rights of insured against the insurer should now, in my judgment, be regarded as conclusively determined, at the level of the Court of Appeal, in favour of the view that the transfer takes place on the event of insolvency. This analysis has already been accepted at first instance by Blackburne J in Centre Reinsurance v Curzon [2004] EWHC 200 (Ch.) who has decided that the rights (inchoate at this stage) are transferred on insolvency even where there is an, as yet unreached, excess in the policy of insurance.
- I have already said that, if this conclusion is correct, it militates against Lindsay J's decision in Woolwich rather than in its favour and, for my part, I would say that the claimant to whose rights FNTF are subrogated (and thus FNTF themselves) do reasonably require information about OT Computers or Tiny's insurance arrangements and they are entitled to obtain that information from the administrators.
- The Third Argument
Unfortunately the answers to the questions so far do not dispose finally of this appeal because the administrators have served a Respondents' Notice in respect of an argument that OT Computers and Tiny were acting "in the capacity of insurer under some other contract of insurance" within section 1(5) of the 1930 Act so that the liabilities of the companies to their customers do not constitute liabilities to third parties under the Act. The object of section 1(5) was to exclude a right of an insured person to proceed directly against reinsurers in the event of insolvency of an intermediate insurer; although the section does not in terms refer to reinsurance, if OT Computers and Tiny were themselves insurers of their customers, then their own insurers would effectively be reinsurers.
- The time allotted to the appeal was not sufficient to canvass this issue and we, in any event, indicated that if the point was to be pursued, the Department of Trade and Industry should be notified so that they could, if they wished, participate in the argument. If extended warranty schemes are to be held to constitute insurance, there are serious implications because promoters of such schemes will have to comply with the Department's requirements as to solvency and funding in the same way as all those who do indubitably carry out the business of insurance within the jurisdiction of the United Kingdom and the Department will have to police such compliance.
- The Vice-Chancellor rejected the argument saying (para. 30) that it could not be sensibly said that the liability of the company in this case to its customer under an extended warranty contract is a liability "in the capacity of an insurer". He did, however, point out (para. 28) that in some of the extended warranty contracts a limited form of insurance cover was included. This was a reference to the fact that, if a customer chose a Premier On Site option for 3 or 5 years, one of the benefits was "insurance cover for accidental damage, theft and hardware damage due to lightning strikes". The small print appears to exclude fire damage, although that is not made clear in the option clause itself.
- If the administrators wish to pursue this argument, the appeal will have to be restored for further hearing at a future date. One matter which the administrators may wish to bear in mind, however, is that it may not be easy to resolve this issue in the absence of full discovery of all the company's actual insurance arrangements including not merely the policies covering accidental damage, theft and lightning strikes but also policies covering other relevant risks including the company's liability for the cost of repairing and replacing customer's computers under the extended warranty contract scheme. Such discovery would be likely to disclose all the documents sought by the applicants on this appeal. One may wonder, therefore, whether it is a sensible use of time and money for the question raised in the Respondents' Notice to be further debated.
- The appropriate form of order to be made in the light of our judgments can be debated at the time of handing down but I would, for myself, be minded to allow this appeal and grant the applications sought with the proviso that the order of the court should not be drawn up for 21 days. If within that time the administrators indicate (1) that they wish to restore the Respondents' Notice for argument, (2) that they have notified the Department of Trade and Industry of that intention and (3) that they are willing to make appropriate discovery of OT Computers and Tiny's insurance arrangements, then no order is to be drawn up until judgment is given on the Respondents' Notice.
- Conclusion
I would summarise the effect of this judgment in the following way:-
(1) there is no reason in principle why the 1930 Act does not apply to contractual liabilities (whether in debt or for damages), although the actual terms of the insurance may determine whether the Act will apply in any particular case. Tarbuck v Avon [2002] QB 571 and T&N v Royal and Sun Alliance (unreported) should no longer be followed;
(2) Section 2 of the 1930 Act will usually enable a third party claimant to obtain disclosure of documentation before the establishment of the insured's liability to that third party. Nigel Upchurch v Aldridge [1993] 1 Lloyds Rep 535 and Woolwich v Taylor [1995] 1 BCLC 132 are no longer to be treated as authoritative on this question.
Lord Justice Maurice Kay:
- I agree.
Lord Justice Jonathan Parker:
- I also agree.
