Floods of Queensferry Ltd & Ors v Shand Construction Ltd (2002)


Where a solicitors' firm contended that there had been an equitable assignment of the benefit of an insurance policy in its favour, the court was not satisfied that the second claimant had made a sufficiently clear act of assignment of the insurance fund. * Application for leave to appeal to the House of Lords pending.


Two appeals from the decision of HH Judge Lloyd QC of 15 June 2001: by Shand Construction Ltd ('SCL') from the dismissal of its claims under s.51 Supreme Court Act 1981 ('the s.51 claims') against David Flood ('F') and Winward Fearon ('WF'); and by WF from the rejection of its contention that there had been an assignment of the benefit of an insurance policy and insurance monies in its favour and from the judge's decision that insurance monies paid into court should be paid out to SCL.

SCL contended that the judge was wrong to conclude that F, a director of the first claimant ('FOQ'), had not acted improperly as a director, and had applied the wrong test in deciding whether to make a costs order. He had also wrongly found that the "sole dominant purpose" of the FOQ litigation was to obtain a judgment for more than £350,000 and recovery of costs and that on the basis of the judge's critical findings in relation to F, he was wrong not to exercise his discretion in making a costs order. On the s.51 claim against WF, SLD submitted that the judge wrongly found that WF thought the FOQ litigation would succeed and that it was not unusual conduct on the part of solicitors.

WF submitted that the judge's failure to find that there had been an equitable assignment of the insurance monies was wrong. Alternatively, he was wrong in ordering payment of the whole of the insurance monies to SCL. SCL argued that none of the correspondence alleged by WF to create an equitable assignment came near creating an assignment of the insurance proceeds as, whilst F had made assurances to WF, such offers fell short of a promise to pay WF out of the fund.


(1) The judge's criticisms of F concerned his conduct in the course of the litigation and were not criticisms of the reasons for bringing the action. The question of whether F's conduct was sufficiently extraordinary to attract the sanction of a costs order was entirely for the judge and one with which this court would not interfere. Taylor v Pace Developments Ltd (1991) BCC 406 considered. (2) The judge's criticisms of WF were that WF acted rashly as solicitors and not that they were acting outside their role as solicitors when they made certain decisions. Everything WF was said to have done wrong concerned decisions taken in their capacity as legal advisers to FOQ. Whilst a conditional fee agreement was not in place here, the position between WF and FOQ was similar to that in, Hodgson v Imperial Tobacco Ltd (1998) 1 WLR 1056, in view of which the judge could not have held WF acted in such a way as to put itself in peril of a s.51 costs order. The judge's decision was correct. (3) Once the insurance monies were in F's hand, he was free to do with them what he wished. To ensure they reached the place WF wanted, an equitable obligation had to be imposed on F and one would have thought WF, as solicitors, would have been careful to ensure that was the case. There was no evidence that WF demanded from F a statement concerning the alleged assignment. The court was not persuaded that F made a sufficiently clear act of assignment of the insurance fund. Palmer v Carey (1926) AC 703 considered. Appeal dismissed. (4) The judge was wrong to order that the insurance monies be paid out of court to SCL. Such monies should be repaid into court pending further court order arising from FOQ's insolvency.

SCL's appeal dismissed. WF's appeal allowed in part.

* The petition of Shand Construction Ltd seeking leave to appeal to the House of Lords in this case was presented and referred to an Appeal Committee on 24 September 2002 for consideration.