The recent decision in (1) Travelers Insurance Co Ltd (2) Denton Wilde Sapte v Gauri Advani [2012] concerns the recovery of defence costs from an insured former employee of a firm of solicitors, where the employee's conduct was “plainly dishonest".

Background

The recent decision builds upon the earlier case of Nayyar & Others v Denton Wilde Sapte & Advani [2010].  That case saw a claim fall foul of the ex turpi causa defence, namely, the maxim or principle that a claimant cannot rely upon its own illegal or immoral conduct to recover compensation. 

That case involved a claim by purported clients against Dentons and a senior solicitor in its India Group, a Ms Advani, for an unreturned “deposit” of £383,259.  Ms Advani’s role within Dentons was focused on business development, rather than fee earning.  She introduced the Claimant travel agents to an opportunity, via a former Tourism minister for the Indian state of Utter Pradesh, to be the Global Sales Agents of Air India in the UK and Ireland.  Total sums of £383,259 were paid over (out of a total cost originally stated to be £2.4m) although, in the event, the agency was not awarded nor was the money returned.  The Claimants sued Dentons and Ms Advani for the return of the so-called deposit.

The Judge held that the claim against both Defendants failed on the basis of the illegality defence.  The “deposit” was intended to be a bribe and it was irrelevant whether this was successful or not; the moral turpitude of the briber was the same.

That was the end of the matter, although the Judge went on to find that Dentons was not, in any event, vicariously liable for the acts and omissions of Ms Advani.  The Claimants were not (and had never been) clients to the firm and, whilst Ms Advani acted as a “deal broker”, she was not acting within her actual or ostensible authority; she was acting on her own behalf and, significantly, had a personal role and stake in the deal, having sought a commission of £250,000 out of the £2.4m total cost.  To read more about the 2010 decision click here.

The Recent Decision

Dentons' insurer, Travelers, sought recovery from Ms Advani of a sum exceeding £500,000 which it had paid to fund her separate defence of the earlier action.  Dentons sought from her that part of its own defence costs which it had been unable to recover, a sum of approximately £90,000.

Travelers, whose policy covered Dentons’ employees, argued that Ms Advani had acted dishonestly in the transaction and outside the course of her employment, with the result that it was entitled to be reimbursed under the terms of the relevant policy.  Dentons argued that the costs which it had incurred were recoverable from Ms Advani as damages, as she had acted in breach of her contract of employment in conducting herself in the way she had.

The recent judgment held that both claims were successful.  Ms Advani knew that the sums in question were going to be paid, and were paid, as a bribe, and she had been involved in the discussions which led to the payments.  Her role was to be the means of communication between the former Tourism minister and the travel agents and to arrange for the bribe to be paid.  The Court found that, whilst the 2010 judgment did not go as far as to describe Ms Advani’s conduct as dishonest, what her conduct was found to have been in that judgment was “plainly dishonest”.  It was a term of Ms Advani’s contract of employment that she should act honestly and it was wholly foreseeable that, as a result of her dishonesty, Dentons would be drawn into the original action.  

Comment

In this case, the original proceedings went a long way towards finding dishonesty on the part of the insured employee.  It is, however, usually necessary for insurers to fund a defence and separately (e.g. through arbitration) seek a declaration in this respect.  This case is a reminder of the potential value of such recourse, albeit that the individual’s personal resources and ability to satisfy any judgment or award will clearly be a major factor in any costs vs. benefit assessment.

Further reading:

(1) Travelers Insurance Co Ltd (2) Denton Wilde Sapte v Gauri Advani [2012] EWHC 623 (QB); [Nayyar & Others v Denton Wilde Sapte & Advani [2010] PNLR 15