The Facts

This case involves an application brought by the trustee in the bankruptcy of Harlequin Property SVG Ltd (the "Company"), property developers incorporated under the laws of St. Vincent and the Grenadines ("SVG"). The Company's main asset was a property in SVG, the construction of which was funded by more than 1,900 deposits from individual investors. However, only 116 units were completed.

The Company had sued its former accountants and professional advisers for breach of contract and professional negligence. Litigation was supported with policies from three insurers, who had agreed to defer the premiums due. The claim was successful and the court ordered that payment of £7.9 million be paid into the Court Funds Office.

The Company was heavily insolvent, with unsecured claims of around £200million. The applicant obtained an order from the English courts recognising the proceedings as foreign main proceedings under the Cross-Border Insolvency Regulations, and brought the application for directions to determine the rights of various respondents to the fund held by the Court Funds Office.

The rights of the Company, the solicitors, the funders and the insurers were regulated by a Priorities Agreement between them. The issues between with the legal advisers and funders were settled prior to Judgment being given, leaving the Court to consider the claim by the insurers.

The insurers claimed entitlement to just over £3 million under the policies in respect of their premiums. They submitted that they had a lien, in a similar manner to a solicitor's common law and equitable lien over the proceeds of a judgment, over the funds held by the court, or alternatively that they were entitled to payment under the principle in Ex p. James, Re (1874), which entitled the court to prevent a trustee in bankruptcy from taking full advantage of its legal rights where it would be unfair to do so.

The Decision

The insurers' argument that without their insurance policies the Company could not have pursued the claim was itself dismissed.

The Court considered whether the insurers should be entitled to priority over unsecured and preferential creditors was a matter for the legislature, not the courts. It would be inappropriate for the courts to extend the law in relation to solicitors' liens to insurers, because this would create an exception to the statutory regime, which it was not the court's place to do.

A lien arises if there is an express or implied agreement for it. The Priorities Agreement between the parties, however, did not provide for it. Having agreed that the balance of the fund would be paid to the company without first paying the premiums, the insurers could not then contend that they were entitled to a lien as security for the payment of such sums to give them priority.

It was held that the principle in Ex p. James applied only to officers of the English court. Given that the trustee had been appointed by the High Court in SVG, he was not an officer of the English court and the principle did not apply to him, so the insurers could not rely on it. The recognition order obtained by the Trustee had no effect on this position.

It was further held that even if the Trustee has been recognised as an officer of the court, classing the insurers as unsecured creditors was not unfair on the facts of the case. The insurers' claims were therefore dismissed on both grounds.

Comment

The case highlights the court's reluctance to legislate where the implications of doing so are such that it is deemed more appropriate for the matter to be left for Parliament. Here, the Court did not look beyond the principle of pari passu distribution amongst unsecured creditors in an insolvency.

This is not an uncommon approach for judges in insolvency cases. Whilst the Insolvency Act generally gives the court a wide scope of discretion, judges will rarely act in a way which alters its fundamental principles.