The case of Law Society v Dixit Shah (2007) EWHC 2841 (Ch) arose from the intervention of the Office for the Supervision of Solicitors into an association of firms owned by Dixit Shah which traded under "the BJ Brandon Group" name. The Law Society alleged that the OSS discovered that around £12.5 million of client money had been misappropriated by Mr Shah. The Law Society compensated the victims of the alleged misappropriation, was subrogated to the victims' rights and began proceedings to recover the money against the partners of the law firms, including three who were discharged bankrupts. The bankrupt partners were protected by liability insurance. The Law Society wished to obtain the proceeds of that insurance in respect of their claim against the parties using the Third Party (Rights against Insurers) Act 1930. That Act provides that on the bankruptcy of an individual (or the insolvency of a company) protected by third party liability insurance, his rights to claim on this insurance are transferred to the third party claimant: in this case, the Law Society. This means that the third party claimant can obtain the proceeds of the insurance, in respect of his claim, instead of the insured individual. The transfer, however, can not take place until the third party first "establishes" its claim against the bankrupt individual (Post Office v Norwich Union Fire Insurance Society Ltd (1967) 2 QB 363). Only at that point does an indemnifiable loss come into being and the indemnity under the contract arises. The insurers in the present case argued that because the bankruptcy against the partners had been discharged, it was impossible for the Law Society to establish its claims against those partners.
Mr Justice Floyd disagreed. The fact that the bankrupts had been discharged did not mean that any right of action which arose before their discharge was destroyed, the right of action was only lost in the sense that recovery was no longer possible against the bankrupts. Furthermore, it was sufficient to establish an indemnifiable loss by the admission of the debt in the bankruptcy (Financial Services Compensations Scheme Ltd v Larnell (Insurances) Ltd (In Liquidation)(2005) EWCA Civ 1408 applied). Thus with the debt established the Law Society was permitted to claim directly in the insurance. This case is a further example of the court doing its utmost to ensure that third party claimants are able to recover from the insurers of an insolvent individual or company under the 1930 Act even in circumstances where such claims would seem to be prevented by a legal technicality.