Factual and Procedural Background
The litigation arises from a failed litigation funding scheme involving participants who entered loan agreements with Company A and conditional fee agreements with solicitors from a panel, primarily conducted by Company B or Company C (together "the Scheme Solicitors"). Both Scheme Solicitors subsequently entered administration. Their professional indemnity insurance was provided by the Respondent, Company D, trading as Company E. Participants were also required to obtain after the event ("ATE") insurance policies from the Appellant, Company F. Company F had entered into a Deed of Indemnity with Company A and Terms of Business Agreements ("TOBAs") with the Scheme Solicitors, which imposed duties on the Scheme Solicitors to assess risks and notify material changes affecting claims.
Company F alleges that the Scheme Solicitors are responsible for the scheme's failure due to insufficient prospects of success of claims and mishandling, a contention disputed by Company D.
The failure of the scheme led to claims by Company A against Company F for approximately £56 million relating to unsuccessful cases, and Part 20 proceedings by Company F against Company D seeking to pass on liability and recover damages of around £15 million. Company F’s claims against Company D rely on the Scheme Solicitors’ contractual and common law duties, with Company F as statutory assignee under the Third Parties (Rights against Insurers) Act 2010. Company D denies liability, arguing that the Scheme Solicitors’ liabilities fall outside the scope of the insurance policies or fall within exclusion clauses.
A five-week trial of preliminary issues is scheduled, focusing on whether the liabilities fall within the insuring clause and exclusions of the policies issued by Company D to the Scheme Solicitors, and the relevance of pre-contractual communications incorporated into the policies.
At a case management conference, Company F sought disclosure of correspondence between Company D and the Scheme Solicitors prior to the inception of the policies. The deputy High Court Judge refused disclosure on the basis that the communications were unlikely to affect the construction of the policies or assist in resolving trial issues.
Legal Issues Presented
- Whether the communications between Company D and the Scheme Solicitors prior to the inception of the insurance policies are relevant and should be disclosed for the purpose of construing the policies.
- Whether the deputy High Court Judge erred in refusing disclosure on the basis of these communications at the case management conference.
- The proper approach to the identification and formulation of issues for disclosure under CPR Practice Direction 57AD in the context of insurance policy construction.
Arguments of the Parties
Appellant's Arguments
- The Scheme Solicitors’ communications with Company D prior to policy inception are incorporated into the insurance contract and may influence the construction of the insuring clause and exclusion clauses.
- The deputy judge erred by pre-judging the construction of the policies and refusing disclosure of relevant documents, thereby limiting Company F’s ability to argue its case and restricting the trial judge's consideration.
- The documents sought are not disproportionate to disclose, are likely to have probative value, and fairness requires disclosure given Company F’s status as statutory assignee without access to these documents.
Respondent's Arguments
- The insuring clause and exclusions are standard form, reflecting Solicitors Regulation Authority ("SRA") Minimum Terms, and their construction is unlikely to be affected by pre-contractual communications.
- The incorporation clause’s effect is limited or superseded by section 9 of the Insurance Act 2015, reducing the relevance of the requested documents.
- Disclosure of the communications is not necessary as the issues are questions of law to be decided at trial without reference to these documents.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| McParland & Partners Ltd v Whitehead [2020] EWHC 298 (Ch) |
Guidance on formulation of issues for disclosure under Practice Direction 51U/57AD |
Used to clarify that issues for disclosure differ from issues for trial and must relate to key issues needing contemporaneous documents for fair resolution. |
| Financial Conduct Authority v Arch Insurance (UK) Ltd [2021] UKSC 1 |
Objective interpretation of insurance contracts including background knowledge reasonably available to parties |
Supported the view that construction of insurance policies must consider all background documents, including those incorporated by reference. |
| Impact Funding Solutions Ltd v Barrington Support Services Ltd [2016] UKSC 57 |
Construction of professional indemnity policies and exclusions relating to contractual liabilities |
Distinguished on facts; confirmed policies cover breaches of professional conduct, not contractual obligations for supply of services; court considered regulatory background. |
| Sutherland Professional Funding Ltd v Bakewells [2011] EWHC 2658 (QB) |
Referenced in relation to litigation funding and professional indemnity insurance |
Referred to but not analyzed in detail; no direct application to disclosure issue. |
| Doorway Capital Ltd v American International Group UK Ltd [2022] EWHC 182 (Comm) |
Referenced in relation to professional indemnity insurance and policy interpretation |
Referred to but not analyzed in detail; no direct application to disclosure issue. |
Court's Reasoning and Analysis
The court began by emphasizing the requirements of CPR Practice Direction 57AD, which mandates that issues for disclosure be key issues in dispute requiring contemporaneous documents for a fair resolution, and that orders for extended disclosure must be reasonable and proportionate considering multiple factors including the likelihood of documents having probative value.
The deputy judge erred by effectively deciding the construction of the insurance policies at the case management conference, concluding that the pre-contractual communications were unlikely to affect the meaning of key policy terms such as "Professional Business" and thus refusing disclosure. This pre-judgment improperly restricted Company F’s ability to argue the relevance of the documents and prevented the trial judge from considering their probative value in context.
The court held that the incorporation clause in the policies, which expressly incorporates pre-contractual proposals and information, means the communications may be relevant to the construction of the insuring and exclusion clauses. The effect of the Insurance Act 2015 on such incorporation clauses is uncertain, but for disclosure purposes the documents should be considered potentially probative.
The court rejected the Respondent’s argument that the policies’ standard form and alignment with SRA Minimum Terms preclude the relevance of the communications, explaining that the trial judge must determine whether the policies’ terms cover the activities in question, including any incorporated documents.
Fairness considerations also favor disclosure, as Company F, as statutory assignee, lacks access to documents in the possession of Company D, creating an imbalance. Given the importance of the case and the absence of any suggestion that disclosure is disproportionate, the court concluded that the documents should be disclosed.
Holding and Implications
The court ALLOWED the appeal and set aside the deputy High Court Judge’s decision refusing disclosure of the communications between Company D and the Scheme Solicitors prior to the inception of the insurance policies.
The direct effect is that the relevant documents must be disclosed to Company F for the purposes of construing the insurance policies and preparing for trial. This ensures Company F can fully argue the relevance of the documents to the construction of the policies and the applicability of exclusion clauses. No new legal precedent was established; rather, the decision reinforces established principles regarding the identification of disclosure issues and the need to avoid pre-judging issues of contract construction at case management stages.