May 24, 2016

In Gardner v Lemma Europe Insurance Company Limited [2016] EWCA Civ 484, the Court of Appeal considered the notification provisions of a solicitor’s professional indemnity policy for the purposes of determining whether a claim by a solicitor under the policy was seriously arguable. Dismissing the appeal, Patten LJ (with whom Kitchen and Floyd LJJ agreed) held that the claim was not. The Court’s decision is reviewed by Katie Powell of 4 New Square.


Mr Gardner was a solicitor against whom disciplinary proceedings had been brought by the Solicitors Regulation Authority (“SRA”). The SRA proceedings were brought in connection with five transactions involving the exercise by Mr Gardner’s council-tenant clients of their right to buy their council-owned properties.   Those clients had been referred to companies connected with Mr Gardner’s practice for the purpose of obtaining finance and other services relating to the purchase of the properties. It was alleged that this arrangement involved a conflict of interest, or a significant risk of a conflict of interest.

Lemma Europe Insurance Limited (“Lemma”) was a Gibraltar insurance company. It had provided an insurance policy to Mr Gardner for the policy year 2009. Subsequent to the inception of that policy, Lemma had gone into liquidation. The liquidation was recognised in the UK by an order of Briggs J. The recognition order gave rise to an automatic stay on proceedings against Lemma under Schedule 1 to the Cross Border Insolvency Regulations 2006.

Mr Gardner made an application to lift the stay in order to allow him to bring proceedings against Lemma for an indemnity under the 2009 policy in relation to the costs of SRA disciplinary proceedings. The application arose from the refusal by Lemma’s liquidators to recognise Mr Gardner’s claim.


The application came before HHJ Cooke, sitting as a judge of the High Court. Counsel for Mr Gardner accepted that permission should be refused unless Mr Gardner could show a genuinely arguably case against Lemma. The Judge considered whether Mr Gardner had such a genuinely arguable case and determined that he did not ([2014] EWHC 3674 (Ch)).

HHJ Cooke’s decision was upheld on appeal. Patten LJ adopted broadly the same reasoning as HHJ Cooke. He reasoned:

  1. Pursuant to the terms of the policy, Mr Gardner was required to establish that (i) a “claim” under clause 1.1 of the policy had been made during the 2009 insurance year and that (ii) the defence costs (in relation to which the indemnity was being sought) were in relation to disciplinary proceedings “arising” from that claim. A claim was defined under clause 8.3 of the policy as “… a demand for or an assertion of a right to civil compensation or civil damages or an intimation of an intention to seek such compensation or damages.”
  2. The letter relied upon by Mr Gardner as constituting a “claim”, namely a letter prepared by the solicitor acting for former clients of Mr Gardner (“the Curwens”), could not be regarded as such because:
    1. The relevant letter did not articulate an intention to bring proceedings for negligence. Whilst the letter asked for disclosure of the Curwen’s file so that a decision could be reached on whether to bring proceedings, this did not amount to an already-formed intention even to issue proceedings. A subsequent telephone conversion with the Curwens’ solicitors, which Mr Gardner also relied upon, took matters no further.
    2. Mr Gardner did not treat either of the events as a claim, or even as a circumstances “which may give rise to a claim in respect of civil liability” (the definition of circumstances under clause 8.2 of the policy), and notify his insurers.
  3. In any event, even if the Curwens had made a claim in the 2009 policy year, Mr Gardner could not establish that the defence costs of the disciplinary proceedings were costs “arising” from that claim:
    1. As was conceded by Mr Gardner’s Counsel, it could not be said that there was any factual link between any such claim and the disciplinary proceedings brought against him (which related to retainers with different clients).
    2. Mr Gardner could not rely on the definition of “one claim” in relation to clause 2.4 of the policy because that clause existed for the purposes of establishing the limit of cover under the policy and did not relate to any other part of the policy.
  4. Still further, there was no basis on which to interfere with the exercise of by the Judge of his discretion not to lift the stay, even if the Judge had been wrong in concluding the claim was not genuinely arguable (which the Court of Appeal did not consider he had been).


Given the relative paucity of authorities in the context of professional indemnity policies, the Court of Appeal’s decision provides helpful guidance solicitors’ professional indemnity policies are to be construed. The most significant part of the decision is Patten LJ’s finding that the aggregation provisions of clause 2.4 were irrelevant to the construction of the notification provisions of the same policy. Given the frequency with which one part of an insurance policy is used as an aid to the construction of another part, Patten LJ’s decision that it was inappropriate to do so in the context of notification and aggregation clauses warrants close attention.

Further, the Court of Appeal’s relatively narrow construction of the word “claim” is also worthy of note. On one view, a request for a solicitor’s file carries with it “a demand for or an assertion of a right to civil compensation or civil damages or an intimation of an intention to seek such compensation or damages” (or why else ask for the file). However, this was not the construction adopted by Patten LJ, notwithstanding that the letter went on to state that, in the event that the information was not provided within 48 hours “we may issue proceedings in order to protect our client’s position as regards limitation” (potentially implying that that the Curwens already considered themselves in a position to institute proceedings – and hence to have a right to civil compensation or civil damages).

HHJ Cooke’s first instance judgment dealt in some detail with the argument that this threat to issue proceedings was sufficient to constitute a claim. In rejecting the argument, he reasoned that the letter could not be taken to indicate firmly that the solicitors were in a position since it stated only that protective proceedings “may” be issued. Further, he stated that the court needed to be “somewhat realistic” about what Curwens’ true intentions were, even if their solicitors seemingly were prepared to issue proceedings: “It is not at all inconceivable that a claimant’s solicitor might be prepared to issue protective proceedings on the thinnest of possible grounds in order to preserve their options so far as limitation is concerned, whether or not they or their clients have any real intention of pursuing that claim on the basis of the information they have at present.” Interestingly, the Court of Appeal chose not to deal in any detail with this aspect of HHJ Cooke’s reasoning, perhaps wary of being seen to sanction proceedings being issued in circumstances that could be said to amount to an abuse of process on grounds that the claimants were unable to plead a fully constituted cause of action.


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