Brian Glasgow (Bankruptcy Trustee Of Harlequin Property SVG Ltd) (Applicant) v ELS Law Ltd & 11 Ors (Respondents) & Bar Council Of England & Wales (Intervener) (2017)
It was for the legislature, not the courts, to decide whether insurers who had funded an insolvent company's successful claim for damages should be entitled to priority payment of their premiums ahead of unsecured and preferential creditors, by analogy with solicitors' liens. It would be inappropriate for the courts to so extend the law in relation to solicitors' liens given that it would create an exception to the statutory regime for the distribution of the assets of an insolvent debtor among its creditors.
The bankruptcy trustee of a company incorporated in Saint Vincent and the Grenadines applied for directions concerning creditors' rights to the company's fund of £7.9 million.
The company had taken money from investors to fund the construction of apartments in Saint Vincent and the Grenadines. More than 1,900 deposits were taken but only 116 units were completed. The company had the benefit of legal expenses and financial guarantee policies with three insurers, who had agreed to defer the premiums due. The company successfully sued its former accountants and professional advisers in the English courts for breach of contract and professional negligence. The net proceeds formed the £7.9 million fund. The rights of the company, the solicitors, the funders and the insurers were regulated by an agreement between them (the priorities agreement). The insurers claimed entitlement to some £3 million under the policies in respect of their premiums, notwithstanding that the priorities agreement excluded the premiums from the scope of their proprietary rights. The bankruptcy trustee obtained an order from the English courts recognising the proceedings as foreign main proceedings under the Cross-Border Insolvency Regulations 2006and brought the instant application.
The insurers submitted that they had a lien, analogous to a solicitor's lien, over the fund, or, alternatively, that they were entitled to payment under the principle in Condon Ex p. James, Re (1873-74) L.R. 9 Ch. App. 609, 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.
Existence of a lien - The decision whether persons in the insurers' position should, as a matter of general law, 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 those in the position of the insurers given that such a decision would create an exception to the statutory regime for the distribution of the assets of an insolvent debtor among its creditors. The authorities had established that the statutory regime represented "an important public policy designed to achieve a pro rata distribution of the company's estate between its creditors...", D&D Wines International Ltd (In Liquidation), Re  UKSC 47 and Buckingham International Plc (In Liquidation) (No.2), Re  B.C.C. 943 followed. Further, in terms of solicitors' liens, it was foreseeable that litigation proceeds would be subject to a priority claim in respect of the fees of the lawyers who had acted. The same could not be said of those such as the insurers, as third parties would not know if a claim had been maintained with the assistance of after the event insurance or financial guarantees. In addition, there was no "pressing need" to extend the law given that it was always open to insurers to contract for security, R. (on the application of Prudential Plc) v Special Commissioner of Income Tax  UKSC 1 followed (see paras 57-69 of judgment).
The priorities agreement - A decision that the insurers were entitled to a lien would have been inconsistent with the terms of the agreement. Having agreed that the balance of the fund would be paid to the company without first discharging sums due to them by way of premium, the insurers could not then contend that they were nevertheless entitled to a lien as security for the payment of such sums to give them priority (paras 70, 76).
The principle in Condon Ex p. James - The principle applied to officers of the English court. Given that the trustee had been appointed by the High Court in Saint Vincent and the Grenadines, he was not an officer of the English court and the principle did not apply to him. Consequently, the insurers could not rely on it. That position was not affected by the trustee having obtained the recognition order. Such recognition entitled a foreign representative to seek the English court's directions, as the trustee had done, but it did not make them an officer of the English court. There was no indication that the Regulations were intended to permit the English court to exercise its punitive and disciplinary powers against a foreign professional (paras 81-85).