SUTHERLAND PROFESSIONAL FUNDING LIMITED v (1) BAKEWELLS (a Firm) (2) MARK CADELL COLLINS (3) MARTIN GERARD JINKS (4) ANDREW ROBERT MURFIN [2011] EWHC 2658 (QB)

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
MANCHESTER DISTRICT REGISTRY
MERCANTILE COURT
[2011] EWHC 2658 (QB)Case No Case No: 0MA30298Venue Manchester Civil Justice Centre, Manchester
Between
SUTHERLAND PROFESSIONAL FUNDING LIMITEDClaimant(1) BAKEWELLS (a Firm) (2) MARK CADELL COLLINS (3) MARTIN GERARD JINKS (4) ANDREW ROBERT MURFINDefendants and Part 20ClaimantsCHARTIS INSURANCE (UK) LIMITEDThirdPartyROYAL & SUN ALLIANCE INSURANCE PLCFourthParty
Before
JUDGE HEGARTY QCGeoffrey Zelin (instructed by Bakewells) for the Part 20 Claimants Mark Cannon QC (instructed by Mayer Brown International LLP) for the Third Party James Purchas (instructed by Dewey & LeBoeuf) for the Fourth Party (Hearing dates: 13th & 14th June 2011judgment circulated in draft 23rd September 2011)Date 27 September 2011
[1]Contents Introduction 1 The Background 2 The Present Proceedings 15 The Preliminary Issues 19 The Agreement between Sutherland and Bakewells 20 Solicitors' Professional Indemnity Insurance 33 The Minimum Terms and Conditions 37 The AIG Policy 44 The RSA Policy 53 The First Issue 59 Sub-Issue (1): Does Bakewells' Liability to Sutherland Arise from Private Legal Practice? 61 Sub-Issue (2): Is any Liability to Sutherland a "Claim" for the Purposes of Either Policy? 100 The Second Issue: Trade Debts 142 Conclusions 167 Judge Hegarty QC: Introduction This is my judgment on the trial of certain preliminary issues in Part 20 proceedings by which a firm of solicitors claim an indemnity against their professional indemnity insurers in respect of certain claims made against them in the main action. No evidence was adduced and no witnesses were called at the trial of the preliminary issues, but I was provided with a written statement of facts which were either agreed between the parties to the Part 20 proceedings or which could be assumed for the purposes of the preliminary issues, without prejudice to the parties' pleaded cases. In addition, I was provided with two trial bundles containing the pleadings in both the main action and the Part 20 proceedings together with various other documents. The Background The Claimant in the main action, Sutherland Professional Funding Limited ("Sutherland"), is a finance company which provides financial assistance for the purposes of funding personal injury and industrial disease litigation. The First Defendant in the action, Bakewells, is a firm of solicitors which carries on practice from offices in Derby. The individual Defendants, Mr Collins, Mr Jinks and Mr Murfin were partners in the firm at all material times prior to 20 th November 2008, though Mr Collins has since left and has taken no part in these proceedings. At all material times, in the course of its professional practice, Bakewells acted on behalf of clients who wished to pursue claims for damages for personal injuries or industrial disease. In all or most cases of this kind, Bakewells agreed to act under a Conditional Fee Agreement ("CFA") with the client; and after the event legal expenses insurance ("ATE") was also taken out by or on behalf of the client to cover certain costs and liabilities in the event that his claim was ultimately unsuccessful. The standard form of CFA under which Bakewells agreed to act for a client who wished to pursue such a claim was subject to and incorporated the standard Law Society Conditions for such agreements as then in force. If the claim was successful, the client would be liable to pay Bakewells' basic charges and disbursements together with a success fee which was normally 100% of the basic charges. In those circumstances, of course, the client could normally expect to recover most of these costs from the other party. On the other hand, if the claim did not succeed, the client would remain liable to Bakewells in respect of any disbursements, but not for their charges or success fee. But he could not normally expect to recover the amount of any such disbursements from the other party; on the contrary, he would usually be obliged to pay the costs incurred by that party. It was to cover the risk of such financial consequences in the event of the failure of the client's claim that ATE insurance was taken out on his behalf. During the period with which I am concerned, the ATE insurance policy was issued by Compensation Claims Limited ("CCL") on behalf of Templeton Insurance Limited ("Templeton"), of Douglas, Isle of Man, in accordance with an agreement entered into directly between Templeton and Bakewells. Another company, BCR Legal Assist Limited ("BCR") was appointed by Templeton as its insurance manager to administer the policy on its behalf. The indemnity granted by the policy extended to both the client's own disbursements and to the other party's legal costs where the client had been ordered to pay the other side's costs or had agreed to do so by way of a settlement entered into with the prior written consent of BCR. In most cases, therefore, the client represented by Bakewells under arrangements of this kind could expect to recover most of his costs from the other side, if his claim was successful; and, if it was not successful, he could usually assume that, in the ordinary course of events, he would be indemnified against any liability in respect of such costs or disbursements under the ATE policy of insurance. But these arrangements were primarily designed to deal with the financial rights and obligations of the parties once a claim had been finally resolved, whether the outcome was favourable or unfavourable to the client. They did not address the problem of interim funding. In order to progress the claim, certain costs would inevitably be incurred. Under the CFA, Bakewells would have to wait until after the final resolution of the claim before it could expect to recover its own costs and any success fee. Indeed, if the claim was unsuccessful, they could not expect to recover any charges whatever. That, of course, is the principal justification for claiming a success fee in those cases where the claim is successful. But they would also incur liabilities to third parties in the form of disbursements, such as fees for medical reports and, most notably perhaps, the premium payable in respect of the ATE insurance policy. These would not normally be recoverable by Bakewells until after the final resolution of the claim. Furthermore, particularly in disease cases, the amounts involved could be quite substantial. Thus, it seems that the premium payable for the ATE insurance cover in such cases would be in excess of £1,000, though payment of some or all of the premium might be deferred. Of course, if the claim was successful, the premium would normally be recoverable from the party against whom the claim had been made; and, if it was unsuccessful, the ATE insurance policy would itself normally provide an indemnity in respect of the premium. But, in the absence of any other funding arrangements, Bakewells would themselves have to carry the costs of any such disbursements so long as the claim remained unresolved. But Bakewells had in fact put in hand arrangements designed to provide interim funding for any disbursements which it incurred in pursuing such a claim on behalf of a client. By a minute of agreement ("the Agreement") made on or about 31 st August 2004 between Sutherland of the one part and Bakewells, Mr Collins, Mr Jinks and Mr Murfin of the other part, Sutherland agreed to provide loan finance to clients of Bakewells in order to assist them to pay "legal fees and outlays" to Bakewells for their professional services. The total amount allocated by Sutherland for that purpose was £250,000 and the maximum sum which could be provided as a loan to any individual client was £2,000. Any such loan was to be the subject of a Consumer Credit Act loan agreement between Sutherland and the client; and Bakewells were provided with appropriate standard forms of loan agreement and were required to ensure that they were enforceable against the clients in accordance with their terms. Once a loan agreement had been accepted and signed on behalf of Sutherland, the amount of the loan would be remitted to Bakewells, though it was provided that any payment due to Sutherland by Bakewells under the Agreement could be set off against the amount of any such remittance. This would seem to include what was termed an administration fee of £40 payable by Bakewells on the execution of any loan agreement by or on behalf of Sutherland which could not be charged to the client. A substantial number of loans were made by Sutherland to clients of Bakewells in accordance with the arrangements embodied in the Agreement. In most cases, it would seem, the amount of the loan was the maximum sum of £2,000. It would also seem that in each case interest was chargeable at an APR of 16.3% and that the total amount of both principal and interest was repayable 18 months after the date of the Agreement or, if earlier, when the claim was settled or concluded. I do not know precisely how Bakewells dealt with the monies remitted to them by Sutherland under these various loan agreements. But by paragraph 3 of the Statement of Agreed Facts, it is agreed that the purpose of the loans was to pay for the ATE insurance premium and any disbursements incurred by the client; and I have no reason to suppose that the monies were not used for these purposes. I do not, however, know what happened to any remaining balance of the loan or, for that matter, to any premium which may have subsequently been returned by or on behalf of Templeton. Now, if all had gone to plan, some of those clients of Bakewells who had taken out loans of this kind would have been successful in their claims and others would not. As I have already pointed out, where the claim was successful, the likelihood was that the ATE premium and any other disbursements would be recovered from the other party, though any shortfall might have to be paid by the client. On the other hand, if the claim was unsuccessful, it could normally be anticipated that the amount of the premium and other disbursements could be claimed under the ATE policy. More importantly, perhaps, it is to be assumed for present purposes that the ATE policy would provide an indemnity to the client in respect of the client's liability to repay Sutherland the loan and interest in the event that he or she was unable to recover the same from the defendant to that client's claim. I refer to paragraph (D) of the Statement of Assumed Facts. As a result of these interlocking arrangements, therefore, there should normally have been no problem in repaying the loans made by Sutherland to Bakewells' clients, whether or not the claim was successful. Unhappily, however, things did not go to plan. A substantial proportion of the claims pursued by Bakewells on behalf of their clients were unsuccessful or remained unresolved after 18 months, when the loan from Sutherland was due for repayment. Indeed, in a number of cases, Bakewells arranged for an extension of the loan, paying a fee of £75 in each case, apparently out of their own resources. In itself, of course, the fact that a number of claims were unsuccessful would not have had any adverse impact on the client's ability to repay the loan, since a claim could then be made upon the ATE insurance. But, in many cases, Templeton has refused to provide an indemnity to the client under the ATE policy of insurance. It is to be assumed for present purposes that, in each case of this kind, the manner in which Mr Collins conducted the claim was such as to permit Templeton to refuse to indemnify the client and that this was the basis upon which it did so. I refer, once again, to paragraph (D) of the Statement of Assumed Facts. In consequence of this refusal of indemnity, many of the loans made by Sutherland to Bakewells' clients remained unpaid after 18 months or by the end of any extension to the period of the loan obtained by Bakewells. In those circumstances, of course, Sutherland could have sought to recover the full outstanding amount of the loan, together with interest, directly from the client in accordance with the Consumer Credit Act loan agreement with the client. But it has not chosen to do so. Instead, it has invoked its rights under the Agreement with Bakewells. By clause 5.1 of the Agreement, Bakewells agreed to pay Sutherland immediately upon demand the total amount payable under any individual loan agreement in the event of any breach of the loan agreement by the client or if it was unenforceable against him. The Present Proceedings Accordingly, on 9 th April 2010, Sutherland issued proceedings against Bakewells, as well as against Mr Collins, Mr Jinks and Mr Murfin personally, claiming the total sum of £259,896.15, being the total amount of the alleged indebtedness which is said to have remained unpaid after the expiration of 18 months from the date upon which each loan was made. It is alleged that each of the clients was, therefore, in breach of the terms of his loan agreement and that, despite a demand for payment of the amount in question under clause 5.1 of the Agreement, Bakewells have failed to make any payment in respect of these sums to Sutherland. It is therefore alleged that Bakewells are in breach of the provisions of clause 5.1, that they are therefore indebted to Sutherland in the total sum of £259,896.15 and that, in the alternative, Sutherland has suffered loss and damage in that sum by reason of Bakewells' breach of contract. The amount in question is, therefore, claimed as a debt or, alternatively, as damages for breach of contract. Bakewells, Mr Jinks and Mr Murfin are defending Sutherland's claim on various grounds, though Mr Collins appears to be taking no part in the proceedings. I am not, however, concerned with the issues raised in the main action but only with certain of the issues arising out of the Part 20 proceedings commenced by Bakewells, Mr Jinks and Mr Murfin against their professional indemnity insurers under which they claim an indemnity in respect of Sutherland's claim, or damages, together with declaratory and other consequential relief. The Defendants to the Part 20 claim are the Third Party, Chartis Insurance UK Limited ("Chartis") and the Fourth Party, Royal and Sun Alliance Insurance Plc ("RSA"). Chartis (then known as AIG Europe (UK) Limited) ("AIG") insured Bakewells under professional indemnity insurance policy number 034012910 from 1 st October 2007 to 30 th September 2008; and RSA insured them under policy of professional indemnity insurance number PI52162A from 1 st October 2008 to 30 th September 2009. Both were "claims made" policies under which AIG and RSA provided appropriate indemnities against certain types of liability in respect of certain types of claim made against Bakewells during the respective periods of insurance. There are issues between the parties to the Part 20 proceedings as to when any relevant claims were made and when they were notified to the insurers. But, more fundamentally, there is an issue between the parties as to whether Bakewells would in any event be entitled to an indemnity under either policy in respect of the claim made against them by Sutherland in the main action. Both Chartis and RSA contend that a claim of the kind made by Sutherland against Bakewells does not fall within the scope of the insurance cover provided by their respective policies and that, even if it did, such a claim would come within one of the exclusions in each policy so that Bakewells would not be entitled to any indemnity. Various preliminary issues were, therefore, directed to be tried between the parties in the Part 20 proceedings in order to resolve this coverage dispute; and it is those preliminary issues which I am now called upon to resolve. The Preliminary Issues As amended by agreement between the parties, the preliminary issues were formulated in the following terms: On the assumption that the First, Third and Fourth Defendants are liable to repay the Claimant pursuant to Clause 5.1 of the Agreement made between the Claimant and the Defendants on 31 August 2004 ("the Agreement") in respect of loans made to the First Defendant's clients that were outstanding after 18 months ("the funding liability");(1) Under the terms of the insurance policy between the Defendant and the Third Party (Chartis) for the period 1 October 2007 to 30 September 2008 under policy no 034012910 (the AIG Policy) i. Does the funding liability fall within the definition of "Claim" and/or within the insuring clause of the AIG Policy? ii. Is the funding liability excluded by reason of the Trade Debts exclusion of the AIG Policy?(2) Under the terms of the insurance policy between the Defendant and the Fourth Party (RSA) for the period 1 October 2008 to 30 September 2009 under policy no PI52162A (the RSA Policy): i. Does the funding liability "arise from Private Legal Practice" within the meaning of clause 1.1.1 of the RSA Policy and/or within the insuring clause of the RSA Policy? ii. Is the funding liability excluded by reason of the Trade Debts exclusion of clause 5.6 of the Policy? The Agreement between Sutherland and Bakewells I have already sought to summarise the salient features of the Agreement between Sutherland and Bakewells by virtue of which Sutherland agreed to provide loan finance to Bakewells' clients. It recites Bakewells' desire to have such provision available in order to assist its clients to pay "legal fees and outlays" to Bakewells. By clause 2.1, the total sum allocated by Sutherland as a provision which might be available to clients was £250,000; and this provision was referred to as "the Legal Fees Loan Fund". I rather doubt if any separate fund was, in fact, ever established for this purpose. But it seems quite clear that Bakewells had a contractual right under the Agreement to require Sutherland to make loan finance available up to this limit, provided, of course, that the requirements for any individual loan were complied with. It is an agreed fact that the purpose of the loans was to pay for an insurance premium in respect of ATE insurance taken out on behalf of the client to protect him against liability for third party costs and disbursements in the event that his claim did not succeed and to pay for disbursements incurred by the client. I do, however, note that the recitals to the Agreement itself appeared to envisage that the loan could be used for the payment of "legal fees" as well as outlays; and clause 2.2 likewise provided that any loan agreement with the client should state that the purpose of the loan was "for payment of legal fees and outlays" to Bakewells for its professional services. However, though the point was mentioned during the course of the hearing, no reliance was placed upon it; and I have no reason to suppose that any loan monies would have been used to pay Bakewells' own charges where that would have been contrary to the terms of any CFA. By clause 2.3, Sutherland agreed that, once it had executed any loan agreement with a client, it would pay the amount of the loan to Bakewells in accordance with clause 4.1. Indeed, by clause 2.2, it was specifically provided that any loan agreement would itself provide that the amount of the credit or loan should be subject to an irrevocable mandate in favour of Bakewells for the payment of legal fees and outlays. Clause 4.1 made more detailed provision for the payment of these monies to Bakewells. They were to be remitted by return post, subject to Sutherland's right to set off any sums due to it from Bakewells. As previously noted, this right of set-off would presumably be exercisable in relation to the administration fee payable by Bakewells pursuant to clause 2.4 of the Agreement. By clause 4.2, any payment by Sutherland under clauses 2.3 and 4.1 was to be by cheque accompanied by a bordereau listing the items for payment and specifying any deductions. It is to be noted, therefore, that, subject to any such deductions, Bakewells would receive the full amount of any loan made to any of its clients in accordance with the terms of the Agreement and not merely the amounts required to defray any disbursements. The Agreement was not stated to be for any specific term. But, by clause 6.1, Sutherland could immediately withdraw the "facility" on written notice to Bakewells. For their part, Bakewells could give 14 days' written notice to Sutherland stating that it no longer wished to have access to the fund. But the commercial expectation appears to have been that the fund would be a rolling facility which would be available to Bakewells' clients for a considerable period, since it was stipulated at clause 6.9 that Bakewells should supply Sutherland with copies of its audited accounts within nine months after the end of each financial year. The provisions of clause 5.1, upon which Sutherland's claim against Bakewells in the main action is based, are in the following terms:
"In the event of any breach of the Loan Agreement by the Borrower or in the event that the Loan Agreement is unenforceable against the Borrower at the instance of the First Party, the Second Party hereby agrees to pay the First Party immediately upon demand the amount of the Total Amount Payable under the Loan Agreement which remains unpaid at the date of such breach or unenforceability together with any accrued interest and charges which remain unpaid. A certificate signed by the Accountant for the time being of the First Party shall ascertain and constitute conclusively the amount due in terms of this Clause by the Second Party to the First Party and such Certificate shall be final and binding on Second Party."
The "First Party" is, of course, Sutherland; and the "Second Party" is Bakewells. I need only mention one or two other provisions of the Agreement. By clause 4.2, Bakewells were required to inform Sutherland in writing as soon as reasonably practicable after becoming aware of any breach of any loan agreement by a client. Furthermore, by clause 6.5, Bakewells were required to supply such information relating to any claim as Sutherland might require and permit it or its representatives to review its files in respect of any such claim. But, though there may be issues between Sutherland and Bakewells as to whether Bakewells complied with these requirements, they are not material to the issues which I have to determine in the Part 20 proceedings. It should also perhaps be noted that by clause 6.6, Bakewells represented and warranted, amongst other things, that the services provided or to be provided by them should be provided to their clients in accordance with their agreement with the clients. Finally, by clause 6.7, it was recorded that neither Sutherland nor Bakewells was the agent of the other so that Sutherland should not be liable to any borrower for any action, omission, negligence or breach of contract on Bakewells' part. Nonetheless, Bakewells agreed to indemnify Sutherland against all claims, awards of damages, expenses, losses or liabilities incurred by Sutherland arising out of any such action, omission, negligence or breach of contract on Bakewells' part. But no claim based on either of these provisions is made against Bakewells in the main action. As it seems to me, it is really quite clear that the Agreement was of significant commercial benefit to Bakewells. It gave them access to funds which could be drawn upon by their clients in order to assist them in defraying the cost of disbursements. The availability of such funding is likely to have assisted Bakewells in attracting clients and thus expanding the business of the firm. Furthermore, the money was paid directly to Bakewells allowing immediate payment of any disbursements and relieving them of the necessity of financing such payments out of their own resources pending the resolution of any claim. I assume that the balance of the money would be credited to the client account; but I do not know what arrangements, if any, may have been made in relation to interest. In those circumstances, I do not find it surprising that Bakewells were willing to pay an administration fee of £40 on each occasion when a loan was made to one of its clients out of the monies allocated for that purpose by Sutherland. Nor do I find it surprising that, at paragraph (5) of the Statement of Agreed Facts, it was recorded that:
"By being able to offer potential clients a loan from the Claimant pursuant to the facility under the Agreement, the First Defendant was able to attract new business."
But in the ordinary course of events, the availability of loan finance from Sutherland to clients of Bakewells, in conjunction with a CFA and ATE insurance, was also likely to be in the interests of the clients themselves, since the overall package would allow claims to be pursued on behalf of clients who might not otherwise have had the financial resources to enable them to do so. For reasons which I have already given, it could normally be expected that, win or lose, the clients would not themselves be out of pocket as a result of pursuing their claims. But, whatever they may have believed or been led to believe, they remained potentially liable to Bakewells for certain charges and disbursements, save insofar as those were paid by the party against whom the claim was made or were recovered under the indemnity provided by the ATE policy of insurance. Furthermore, they remained liable to Sutherland under any loan agreement, insofar as the amount of the loan and interest remained unpaid and the loan agreement itself was enforceable. By paragraph (C) of the Statement of Assumed Facts, it is to be assumed for the purposes of the preliminary issue that Bakewells and Mr Collins, Mr Jinks and Mr Murfin personally are liable to Sutherland pursuant to clause 5.1 of the Agreement in respect of unpaid loans advanced to clients of Bakewells pursuant to the Agreement. But no agreement was recorded as to the precise nature of the liability in question. In the course of argument, however, the question was raised as to whether Bakewells' liability under clause 5.1 was to be regarded as a guarantee or some other form of secondary liability or whether the Agreement imposed a direct, primary liability upon the firm. This is an issue which may have to be resolved in the main action, since various defences are advanced on behalf of Mr Jinks and Mr Murfin on the basis that the obligation amounted to a guarantee. So I would be reluctant to determine this question in the Part 20 proceedings, to which Sutherland is not a party, unless it were strictly necessary for me to do so. But I do not think that the resolution of this issue is essential in order to reach a definitive conclusion on the preliminary issues, since it appears to be material for present purposes only in order to decide whether Sutherland's claim is one for a liquidated sum or for damages. If and insofar as it imposes a direct, primary liability upon Bakewells to pay the amount outstanding under any loan agreement to Sutherland immediately upon demand, the obligation clearly gives rise to a liquidated claim or debt. On the other hand, if it is to be regarded as a guarantee or some other form of secondary liability, it seems to me that the clause must similarly be construed as creating an obligation to pay a liquidated sum in the event of a default by the client. In this regard, I was referred to decision of Mr Kevin Garnett QC in Hampton v Minns [2002] 1 WLR 1 . The head note summarised the Deputy Judge's primary finding in the following terms:
"...that, although a contract of guarantee was usually one whereby the guarantor promised due performance by the principal of its obligations, it was necessary in each case to construe the agreement in question; that, if the guarantor promised that a third party would perform specified obligations, any failure by the third party to do so would mean that the guarantor became liable in damages for breach of his promise, but, if he promised that in certain events he would pay a sum of money, he became liable in debt once those events happened...."
For my part, I am quite satisfied that the provisions of clause 5.1 of the Agreement, even if construed as amounting to a guarantee or some other form of secondary liability, are apt to impose a liability on Sutherlands and the individual partners to pay a liquidated sum which sounds in debt rather than damages. Solicitors' Professional Indemnity Insurance Solicitors in private practice are and were at all material times under a professional obligation in accordance with the Solicitors' Indemnity Insurance Rules to secure professional indemnity insurance complying with certain Minimum Terms and Conditions laid down from time to time by the Solicitors Regulation Authority. They are not permitted to practise as solicitors without having such insurance in force. This obligation is no doubt intended to protect both the solicitors themselves and any clients who may have a claim against them. What, of course, is in issue in the present case is whether, at least under the terms of the AIG and RSA policies, professional indemnity insurance may also be available in respect of claims by a body such as Sutherland which was never their client and whose claim is based upon a contractual provision of the kind embodied in clause 5.1 of the Agreement. Solicitors' indemnity insurance is, of course, designed to provide an indemnity against certain liabilities. The obvious liability risk which a solicitor faces in the course of his professional practice is that he may be faced with claims from dissatisfied clients alleging breach of his contractual duty of care or of a similar tortious duty in negligence. Occasionally, a solicitor may owe a duty solely in tort, as, for example, where he provides his services gratuitously. Exceptionally, he may owe such a tortious duty to a person who was not his client, as in the case of a disappointed beneficiary where a solicitor fails properly to implement his client's instructions in relation to a will. Liabilities of this kind represent, as it seems to me, the core risk which a solicitor faces in the course of his professional practice and which one might, therefore, expect to come within the scope of his professional indemnity insurance. The position is, perhaps, somewhat less obvious in relation to certain other liabilities which may arise directly from the provision of professional services by a solicitor. I refer, for example, to undertakings given by a solicitor either to a client or to a third party, as is commonly the case in conveyancing transactions. Such undertakings may be enforceable either contractually or under the summary jurisdiction exercisable by the High Court. There was some debate during the course of submissions at the trial of the preliminary issues as to whether any liability of a solicitor on his undertakings would or would not normally be covered by his professional indemnity insurance. This was not a point which was directly in issue in the present case and was raised only insofar as it might help to cast some light on the extent to which liabilities which did not arise out of any alleged negligence or which were for liquidated sums might be expected to fall within the scope of such insurance. But no authority was cited to me on such matters; and I did not, in the end, consider that much assistance could be gained by considering such questions in an evidential vacuum. But a solicitor may incur other kinds of liability in connection with his professional practice which are essentially of a business nature. One obvious example would be in respect of any rent which he agrees to pay for the use of his offices. But one would not normally expect liabilities of this kind to be covered by his professional indemnity insurance, if only because they do not arise out of claims made against him in his professional capacity. In the present case, it is contended on behalf of both Chartis and RSA that any liability of Bakewells to Sutherland under clause 5.1 of the Agreement was itself just such an example of a business liability which was not one of the core risks which professional indemnity liability insurance could be expected to cover. The Minimum Terms and Conditions But whether or not the claim made against Bakewells in the present case is or is not one which is covered by either the AIG or the RSA policy must ultimately turn upon the wording of the policy in question. In each case, of course, those policies can be expected to comply with the Minimum Terms and Conditions laid down by the Solicitors Regulation Authority in respect of such insurance. Indeed, by clause 4.11 of the version of the Minimum Terms and Condition which was in force at the material time, it was a requirement that any such policy must provide that it was to be construed or rectified so as to comply with those requirements and that any provision which was inconsistent with them was to be severed or rectified so as to comply. The scope of the cover required by the Minimum Terms and Conditions were set out in clause 1.1 which is headed "Civil Liability". It reads as follows:
"The insurance must indemnify each Insured against civil liability to the extent that it arises from Private Legal Practice in connection with the Firm's Practice, provided that a Claim in respect of such liability: (a) is first made against an Insured during the Period of Insurance; or (b) is made against an Insured during or after the Period of Insurance and arising from Circumstances first notified to the Insurer during the Period of Insurance."
At the material time "Private Legal Practice" was defined as follows at clause 8.2 of the Minimum Terms and Conditions:
"Private Legal Practice means the provision of services in Private Practice as a solicitor or Registered European Lawyer including, without limitation: (c) providing such services in England, Wales or anywhere in the world, whether alone or with other lawyers in a Partnership permitted for practice in England and Wales by rule 12 of the Solicitors' Code of Conduct 2007; and (d) the provision of such services as a secondee of the Firm; and (e) any Insured acting as an executor, trustee, attorney, notary, insolvency practitioner or other personal appointment; and (f) the provision of such services by any Employee. Private Legal Practice does not including practising as an Employee of an employer other than a solicitor, a Registered European Lawyer, a Partnership permitted for practice in England and Wales by rule 12 of the Solicitors' Code of Conduct 2007, or a Recognised Body."
But, insofar as may be material, it should be noted that the Minimum Terms and Conditions have since been amended, so as to provide amongst other things that Private Legal Practice would include the provision of such services pro bono publico, but that the discharge of various judicial offices and appointments of a similar nature would be excluded. The expression "Claim" is also a defined term for the purposes of the Minimum Terms and Conditions. It is defined at clause 8.2 in the following words:
"Claim means 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. For these purposes, an obligation on a Firm and/or any Insured to remedy a breach of the Solicitors' Accounts Rules 1998 (as amended from time to time), or any rules which replace the Solicitors' Account Rules 1998 in whole or in part, shall be treated as a Claim, and the obligation to remedy such breach shall be treated as a civil liability for the purposes of clause 1, whether or not any person makes 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 as a result of such breach."
But by clause 6 of the Minimum Terms and Conditions it was also provided that the policy of insurance must not exclude or limit the liability of the insurer save to the extent that any claim or related defence costs arose from any of the matters set out in the following sub-clauses. By sub-clause 6.6, which is headed "Debts and Trading Liabilities", an exclusion or limitation of liability was allowed in respect of any of the following, namely any:
"(a) trading or personal debt of any Insured; (b) breach by any Insured of the terms of any contract or arrangement for the supply to, or use by, any Insured of goods or services in the course of the Firm's Practice; or (c) guarantee, indemnity or undertaking by any particular Insured in connection with the provision of finance, property, assistance or other benefit or advantage directly or indirectly to that Insured."
Against that background, I turn to consider the relevant provisions of the two policies of insurance under which an indemnity is claimed in these proceedings. The AIG Policy The AIG policy was issued on behalf of AIG Europe (UK) Limited on 2 nd October 2007 and covered the period from 1 st October 2007 to 30 th September 2008 inclusive. The policy is a claims made policy, as required by the Minimum Terms and Conditions; and the insuring provisions are set out in the opening section of the policy in these terms:
"Cover. All cover under this policy is afforded solely with respect to Claims first made against an Insured during the Policy Period and reported to the Insurer as required by this policy. Professional Liability. The Insurer will pay on behalf of any Insured all Loss resulting from any Claim for any civil liability of the Insured which arises from the performance of or failure to perform Legal Services. Ombudsman Awards. The Insurer will pay on behalf of the Insured any Loss resulting from any recommendation of the Legal Services Ombudsman or any other regulatory authority which arises from performance or failure to perform Legal Services. Defence. The Insurer has the right to defend any Claim which this policy may respond to under its Covers. The Insurer shall pay Defence Costs incurred in defending such Claim."
Some of these terms are specifically defined in the following section of the policy. I need refer only to the following provisions:
"Claim means any: (i) demand for, or intimation of an intention to seek, compensation or Damages for a civil liability of an Insured , (ii) assertion of a right against an Insured , (iii) any obligation on the Insured to remedy a breach of the Solicitors' Account Rules 1998 or re-enactment thereof, or (iv) any case accepted for review by the Legal Service Ombudsman or any other regulatory authority which arises out of the performance of or failure to perform Legal Services. Damages means any amount that an Insured shall be legally liable to pay to a third party for all civil liabilities including but not limited to judgments or arbitral awards rendered against an Insured , or for settlements negotiated with the consent of the Insurer. Damages also means any amount paid or payable resulting from any recommendation by the Legal Service Ombudsman or any other regulatory authority which arises out of the performance or failure to perform Legal Services. Legal Services means the provision of services in private practice as a solicitor or registered European lawyer including: (1) providing such services in England, Wales or anywhere in the world, whether alone or with other lawyers in a Partnership , or a Recognised Body ; (2) any person providing such services as an Employee; (3) any Insured acting as an executor, trustee, attorney, notary, insolvency practitioner or other personal appointment Legal Services does not include practising as an Employee of an employer other than a solicitor, a registered European lawyer, a Partnership or a Recognised Body. Loss means Damages and Defence Costs. Loss shall not mean and this policy shall not cover any (1) fines or penalties; (2) first party loss or expense of an Insured (other than as Loss) or (3) any matters which may be deemed uninsurable under the law governing this policy or the jurisdiction in which a Claim is brought."
The policy then sets out a number of exclusions, one of which is directly material to the issues which I have to determine. Under the heading "Trade Debts" it is provided that the policy should not cover "Loss" in connection with any " Claim " (presumably as those terms are defined for the purposes of the policy) or any loss:
".. .arising out of, based upon or attributable to any: (i) trading or personal debt incurred by an Insured; (ii) breach by any Insured of terms of any contract or arrangement for the supply to, or use by, any Insured of goods or services in the course of providing Legal Services ; and (iii) guarantee, indemnity or undertaking by any Insured in connection with the provision of finance, property, assistance or other benefit or advantage directly or indirectly to that Insured."
There then follows a section of the policy dealing with " Claims ". Amongst other things, it requires written notice of any Claim to be given to the insurer as soon as practicable; and notification is similarly required in relation to any circumstance which might give rise to a Loss or a Claim. These provisions may well be relevant to other issues raised in the Part 20 proceedings; but they are not material to the resolution of the preliminary issues. Finally, in accordance with the requirements of the Minimum Terms and Conditions, it is expressly provided as follows:
"In any dispute in connection with the terms, conditions, exclusions or limitations of this policy it is agreed and understood that the Minimum Terms and Conditions will take precedence over any terms, conditions, exclusions or limitations contained herein."
It will be appreciated that some of these provisions, unsurprisingly, precisely mirror those set out in the Minimum Terms and Conditions themselves. This is perhaps most obviously the case in relation to the exclusion of liability for "Trade Debts" in the policy, which, save for the introductory words, is very nearly identical, in its material parts, to the wording adopted at clause 6.6 of the Minimum Terms and Conditions. Likewise, the definition of "Legal Services" for the purposes of the policy closely follows the wording used to define "Private Legal Practice" at clause 8.2 of the Minimum Terms and Conditions, although the reference to services provided by a "Secondee" is, for some reason, incorporated within an extended definition of the term "Employee" in the policy. The definitions of the expression "Claim" in both instruments are substantially the same, though the Minimum Terms and Conditions do not incorporate any reference to cases accepted for review by the Legal Services Ombudsman in the definition of the term. But clause 1.8 of the Minimum Terms and Conditions requires the insurance to indemnify the insured against any amount paid or payable in accordance with the recommendation of the Legal Services Ombudsman or any other regulatory authority "to the same extent as it indemnifies the Insured against civil liability". But this close similarity of wording does not hold true of the core insuring provisions of the policy. Clause 1.1 of the Minimum Terms and Conditions imposes a requirement that the insurance must indemnify each insured "against civil liability to the extent that it arises from Private Legal Practice in connection with the Firms' Practice". That requirement is, however, subject to the important proviso that a "Claim", as subsequently defined, must first have been made against the Insured during the Period of Insurance, or thereafter, if it arose from Circumstances first notified to the Insurer during the Period of Insurance. Unhappily, however, as it seems to me, the wording of the AIG policy does not follow the simple wording adopted by the Minimum Terms and Conditions, distinguishing, as it does, between the nature and scope of the indemnity and the limitation of cover by reference to the requirement that a claim must be made, or circumstances notified to the insurer, during the period of the insurance. Whilst the essential wording of the policy is apt to provide an indemnity against any civil liability which arises from the provision of services in private practice as a solicitor, as required by the Minimum Terms and Conditions, it chooses to define the extent of the indemnity by reference to the phrase "all Loss resulting from any Claim for any civil liability", where the expressions "Loss" and " Claim " are defined terms. The reference to "Claims" in this insuring clause of the policy clearly harks back to the immediately preceding provision which states that cover is afforded "solely with respect to Claims first made against an Insured during the Policy Period '. Furthermore, as already noted, the definition of "Claim" in the policy closely follows the equivalent definition in the Minimum Terms and Conditions. So, on the face of it, in this rather circuitous way, the policy would seem to provide cover equivalent to that required by clause 1.1 of the Minimum Terms and Conditions. But the use of these defined terms in the insuring provisions may have further consequences which I will have to consider in due course. Thus the definition of the expression "Claim", in accordance with the requirements of the Minimum Terms and Conditions, includes a reference to any "demand for, or intimation of an intention to seek, compensation or Damages for a civil liability of an Insured'. But, whilst the expression "Damages" is not defined in the Minimum Terms and Conditions, it is a defined term for the purposes of the policy. Similarly, unlike the Minimum Terms and Conditions, the policy also defines the expression "Loss", primarily by reference to the definitions of the expressions "Damages" and "Defence Costs", subject to certain specific exclusions. The RSA Policy I now turn to consider the relevant terms of the RSA policy, which covered the period from 1st October 2008 to 30 th September 2009. It follows the wording of the Minimum Terms and Conditions rather more closely than in the case of the AIG policy. The preamble to the RSA policy states that it is a "claims made" insurance and that it covers only Claims made against the Insured or Circumstances first notified during the period of insurance. The insuring provisions are then set out in clause 1. Clause 1.1.1 reads as follows, under the general heading "Civil Liability":
"The company will indemnify the insured against: (a) Any civil liability; or (b) any amount paid or payable in accordance with the recommendation of the Legal Services Ombudsman, the Legal Complaints Service or any other regulatory authority. to the extent that it arises from Private Legal Practice carried on from offices in England or Wales by or on behalf of the Firm's Practice or any Prior Practice or Successor Practice. Provided that a Claim in respect of such liability is: (i) first made against an Insured during the Period of Insurance; or (ii) made against an Insured during or after the Period of Insurance and arising from Circumstances first notified to the Company during the Period of Insurance."
Clause 5 provides for a number of exclusions from the cover provided by clause 1.1.1. In particular, at clause 5.6, under the general heading "Debts and Trading Liabilities etc", it is provided that the Company shall not be liable for:
"Any (a) trading or personal debt of the Insured; or (b) breach by the Insured of the terms of any contract or arrangement for supply to, or use by, the Insured of goods or services in the course of the Firm's Practice; or (c) guarantee, indemnity or undertaking by the Insured in connection with the provision of finance, property, assistance or other benefit or advantage directly or indirectly to that Insured. Various definitions are set out at clause 9 of the policy. By clause 9.3 the word "
Claim" is defined as follows:
"Claim means 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. For these purposes, an obligation on a firm and/or any Insured to remedy a breach of the Solicitors' Accounts Rules 1998 (as amended from time to time), or any rules which replace the Solicitors' Account Rules 1998 in whole or in part, shall be treated as a Claim, and the obligation to remedy such breach shall be treated as a civil liability for the purposes of Insuring Clause 1.1, whether or not any person makes a demand for, or an assertion or a right to, civil compensation or civil damages or an intimation of an intention to seek such compensation or damages as a result of such breach."
The expression "Private Legal Practice" is defined at clause 9.22, the terms of which are set out in an Addendum to the policy. The definition is as follows:
"Private Legal Practice means the provision of services as a solicitor or registered European Lawyer in private practice from offices in England and Wales including without limitation: (a) providing such services in England, Wales, or anywhere in the world, whether alone or with other lawyers in a Partnership permitted for practice in England and Wales by rule 12 of the Solicitors' Code of Conduct 2007, or a Recognised Body; and (b) the provision of such services as a secondee of the Firm; and (c) any Insured acting as an executor, trustee, attorney, notary, insolvency practitioner or other personal appointment; and (d) the provision of such services by an Employee. (e) any professional services carried out by the Insured Private Legal Practice does not include practising as an Employee of an employer other than a solicitor, a registered European lawyer, a Partnership permitted for practice in England and Wales by rule 12 of the Solicitors' Code of Conduct 2007 or a Recognised Body."
Finally, it should be noted that, once again, by clause 6.10 it is provided that:
"This Policy is to be construed or rectified so as to comply with the requirements of the Minimum Terms and Conditions, and any provision of this Policy which is inconsistent with the Minimum Terms and Conditions is to be severed or rectified to comply."
The First Issue Against that background, I must now turn to consider the preliminary issues which I am called upon to determine. These are formulated in slightly different terms in relation to each policy, but there is little difference of substance between them. I will start with Issues 1(i) and 2(i). It will be recalled that the first of these arises in connection with the AIG policy and is in the following terms:
"Does the funding liability fall within the definition of "
Claim" and/or within the insuring clause of the AIG policy?" The second of these issues relates to the RSA policy and is formulated as follows:
"Does the funding liability "arise from Private Legal Practice" within the meaning of clause 1.1 of the RSA policy and/or within the insuring clause of the RSA policy?"
In fact, this question, at least as formulated in relation to the AIG policy, gives rise to two distinct sub-issues. The first of these is whether any liability of Bakewells to Sutherland in the main action is one which "arises" from the performance of or failure to perform "Legal Services" by Bakewells; and the second is whether Sutherland's "Claim" amounts to a demand for, an assertion of a right to, or an intimation of an intention to seek, compensation or damages for a civil liability of Bakewells. Sub-Issue (1): Does Bakewells' Liability to Sutherland Arise from Private Legal Practice? I start with the first of these two sub-issues. It is, of course, Bakewells case that any liability to Sutherland arose from the performance of or failure to perform "Legal Services", the primary meaning of which, as defined for the purposes of both policies, is the provision of services in private practice as a solicitor. It was acknowledged by Mr Zelin, on behalf of Bakewells, that the risk in respect of which the policy was intended to indemnify Bakewells was the risk of loss arising from what could broadly be described as professional negligence on the part of Bakewells. In itself, that was not contentious. Indeed, both Mr Cannon QC on behalf of Chartis and Mr Purchas, on behalf of RSA, placed similar emphasis upon what was said to be the obvious commercial purpose of both policies. But Mr Zelin's argument was based upon two further propositions. The first of these was that it was to be assumed for the purposes of the trial of the preliminary issues that there had been professional negligence on the part of Mr Collins in handling the claims of those clients of Bakewells whose loans from Sutherland remained unpaid and that his conduct in respect of each claim was such as to permit Templeton to refuse to indemnify the client under the ATE policy. Accordingly, but for Mr Collins' breaches of duty to Bakewells' clients, funds would have been available under each such policy to have enabled the individual loans to Sutherland to be paid off in full, including interest, in which case there could and would have been no claim by Sutherland against Bakewells under clause 5.1 of the Agreement. Furthermore, submitted Mr Zelin, each of the individual clients involved would have a potential claim against Bakewells for damages for breach of their professional duty, any liability for which would, at least in principle, have fallen within the scope of the insuring provisions of each policy. It is as well to set out the full text of the relevant assumptions, which are to be found at paragraph (D) of the Statement of Assumed Facts. It is as follows:
"In respect of each client with an unpaid loan that forms part of the Defendants' Liability: (a) The client obtained through the First Defendant an ATE Insurance Policy of which: i) at the time it was taken out was enforceable by the client; and ii) provided an indemnity to the client in respect of that client's liability to repay the Claimant the loan and interest in the event that he or she was unable to recover the same from the defendant to that client's claim. (b) Following execution of the ATE policy, subsequent conduct by the Second Defendant in respect of the client's claim was such as to permit the ATE insurer to refuse to indemnify the client under the ATE policy. (c) Such conduct also amounted to a breach of the Second Defendant's duty of care to the relevant client. (d) The client made a claim on the ATE policy. (e) The ATE Insurer refused to indemnity the client on the basis of that conduct. (f) The ATE insurer has no other grounds for refusing to indemnify the client. (g) The entirety of the client's borrowing (including any borrowings related to fees, administrative charges or interest) would but for the conduct in paragraph (b) above have been reimbursed under the ATE policy. (h) The client has and continues to have a potential claim for damages arising out of the assumed breach of duty, but (save as otherwise stated below) has not brought a claim. (i) Were the client to bring such a claim it would fall within the definition of "
Damages" under the AIG policy and/or a "Civil Liability" under the RSA policy." The parenthetical qualification to the statement at sub-paragraph (h) to the effect that no client has yet brought a claim is addressed at paragraphs (I), (J), (K), (L), and (M) of the Statement of Assumed Facts which summarise various letters sent out by Bakewells to the clients concerned in or about April 2011. In substance, the clients were initially informed, not always in precisely the same terms, that, at least in some cases, Bakewells' advice to the client may have been inappropriate and that the ATE insurers were unlikely to settle sums due under the loan agreements; and the client was advised to take independent legal advice. Subsequently, they were informed of the amount outstanding on each loan agreement, warned that Bakewells might wish to consider joining the client to the proceedings brought by Sutherland and, once again, advised to take independent advice. It appears that letters of this kind were sent out to some 60 clients and that responses have been received from or on behalf of 36 of the clients of whom 15 have intimated a claim or sought independent legal advice. It is probably as well also to mention at this stage the terms of paragraph (7) of the Statements of Agreed Facts, which is in these terms:
"At the time of entering in to the Agreement and at all material times prior to any client of the First Defendant entering into a loan agreement with the Claimant pursuant to the facility provided by the Agreement, the Defendants were unable to be certain that within 18 months of that client entering into a loan agreement with the Claimant that: (a) the client's claim would have been finally determined at a court hearing or otherwise resolved. (b) if the claim was unresolved, the client would in any event have been able to repay and would have repaid the sum advanced under the loan together with interest to the Claimant. (c) If the claim was resolved and successful, the client would have been able to recover successfully from the defendant of that claim any award of damages and/or costs in his favour. (d) If the claim was resolved and unsuccessful, the client would have been able to recover from the relevant ATE insurer any liability in respect of the loan and interest."
Accordingly, Mr Zelin submitted that it was to be assumed that Bakewells were under a potential liability to each of the clients concerned for the professional negligence of Mr Collins in handling their claims and that, but for his negligence, both the principal and any interest on their loans would have been discharged by way of a claim under the ATE policy of insurance. Though it is not, I think, something which is specifically agreed or assumed for present purposes, it might also be contended, I suppose, that, but for advice given by Mr Collins, some or all of the clients might never have entered into any loan agreements with Sutherland or incurred any liability for disbursements. The next and final step in his argument was that the claim which is being pursued by Sutherland in the main action is one which "arises from" the way in which the firm performed or failed to perform the legal services which it undertook to provide to these clients. The way in which he put it at paragraph 23 of his skeleton argument was as follows: (The liability) "arises from the (non) performance of legal services/Private Legal Practice because, but for Mr Collins' negligence in dealing with the clients' affairs in the course of his practice as a solicitor (for which the other partners in the firm are liable), there would be no liability to (Sutherland). The ATE insurer would have paid out and the client loans would have been repaid". At paragraph 25 of his skeleton argument, he submitted that any liability of the firm to Sutherland was a consequence of the client's default and that the quantum of any claim by the client against Bakewells would include the full amount of any liability in respect of the loan. Furthermore, but for Mr Collins' conduct, Bakewells would have been able to recover payment from any client whose debt they had paid. But if they were to seek to do so, in the light of the assumed facts, any such client would be entitled to defend and counterclaim for the same sum by reason of Mr Collins' negligence, in which case Bakewells would have suffered loss in the like amount which would, at least in principle, have been covered by the policies. Accordingly, Mr Zelin submitted, Sutherland's claim against Bakewells is one which falls within the insuring provisions of both policies, so that, subject to any other defences raised by the insurers, Bakewells are entitled to an indemnity under the policy in respect of the claim made in the main action. In aid of his submissions, Mr Zelin invited me to take notice of the fact that the use of CFAs in conjunction with ATE insurance is widespread and designed to provide access to justice for clients who might not otherwise be able to pursue legitimate claims. He also pointed out that, under clause 9.22(e) of the RSA policy, the expression "Private Legal Practice" was defined as including "any professional services" carried out by the insured. That appears to be wider than the equivalent definition in the Minimum Terms and Conditions. But he reminded me that, as the title itself indicated, those Terms and Conditions represented the minimum cover required of a solicitor in private practice. So, he submitted, arranging funding and ATE insurance on behalf of clients must now properly be regarded as part of the professional services which a solicitor can be expected to provide to his clients. As I have already indicated, the first step in Mr Zelin's argument did not seem to me to be particularly controversial, at least at the level of principle. The obvious commercial purpose of a policy of professional indemnity insurance is to provide an indemnity in respect of the risk that a solicitor may become liable to a third party as a result of the way in which he performs or fails to perform his professional duties as a solicitor. As I have previously observed, any such liability will normally arise out of an alleged breach of his duties to a client, whether the duty is said to arise in contract or in tort. But I entirely accept that, outside this core area of risk, a solicitor might also be potentially liable for breach of his professional duties to third parties who were not his clients. One obvious illustration is the case of a disappointed beneficiary under a will which a solicitor negligently fails to draw in accordance with instructions from his client. I have also already mentioned the somewhat more problematical area of undertakings given by a solicitor in connection with conveyancing transactions and the like. But what is common to all these cases is that the potential liability is to a third party to whom the solicitor owes a duty in connection with the use of his legal and professional expertise. So one might not, therefore, expect a policy of professional indemnity insurance to provide cover against the risk that a solicitor might be potentially liable to a third party to whom he did not owe any professional duty as a solicitor. The most obvious category of cases of this kind would involve liability arising from commercial transactions entered into by a solicitor for the purposes of operating the business side of his practice. In this context, I was reminded by Mr Cannon QC on behalf of AIG of the observations of Greer LJ in Haseldine v Hosken [1933] 1 KB 822 at 837-8. That was a case in which a solicitor had entered into a champertous agreement with his client, apparently without realising the implications of so doing, under which he agreed to act on the client's behalf in a claim against a third party on the footing that the solicitor himself would fund any disbursements and that he would charge no fee to his client, if the action was unsuccessful, but that he would receive a share of the proceeds, together with any costs he could recover against the third party, if the action were successful. Such an agreement was, however, both illegal and tortious; and when the action failed, the solicitor was sued by the third party and was compelled to pay damages to the third party on account of the costs which that party had been unable to recover from the solicitor's client. The solicitor then took proceedings against underwriters under his policy of professional indemnity insurance, which provided cover in respect of "loss arising from any claim or claims which may be made against them... by reason of any neglect, omission or error whenever or wherever the same was or may have been committed or alleged to have been committed.... in or about the conduct of any business conducted by or on behalf of the firm or their predecessors in business in their professional capacity as solicitors." At first instance, Swift J (as he then was) held that he was entitled to an indemnity; but, on appeal, his decision was reversed. That was the background against which Greer LJ made the following observations:
"With regard to the policy sued on it is important that its construction should be approached from the point of view that it was not intended to indemnify against a criminal act. What it was intended to do was to cover the case of a solicitor who, in conducting the business of his client, either in conveyancing or when representing him in litigation, made a mistake about the facts or a mistake about the law, or did something while acting on behalf of his client which rendered him, the solicitor, liable to a third party. The acts intended to be covered were those he was doing not to secure a benefit for himself, but those he was doing on behalf of his client. Read in that way this policy does not indemnify Mr Haseldine in respect of the consequences of his making the two agreements by which he was to secure an interest in the result of the litigation - agreements which, in view of the law of this country, he ought not to have made. The damage that arose did not arise owing to any neglect, omission or error of Mr Haseldine in his professional capacity as a solicitor, and therefore was not covered by the policy sued on."
But, of course, in the end it must be the terms of the particular policy, construed if necessary by reference to the Minimum Terms and Conditions laid down by the Solicitors Regulation Authority, which determine whether a solicitor is or is not entitled to an indemnity in respect of any particular form of liability. Nonetheless, in the absence of clear words in the Minimum Terms and Conditions or in the policy itself, I have some difficulty in seeing how an indemnity against civil liability arising from the provision of services as a solicitor would extend to a claim by a third party to whom no professional duty was owed by the solicitor, whether as his client or otherwise. If this were the correct analysis, it would be fatal to Bakewells' claim for an indemnity under either policy, since Bakewells owed no duties to Sutherland in their professional capacity as solicitors. On the contrary, at least as the main action is presently constituted, Sutherland's claim against them is based solely on their failure to comply with the provisions of clause 5.1 of the Agreement. Indeed, Mr Zelin appeared to anticipate that such an argument might be raised against him, since he had this to say at paragraph 24 of his skeleton argument:
"It is not open to the insurers to say that the liability must arise from a breach of professional duty owed to (Sutherland). If they had wanted to stipulate for such a connection between the negligence and the liability they could easily have done so but they did not."
For my part, however, I would not regard this as a decisive counter-argument. The task of the court is to construe the policies as they stand, whether or not any specific difficulty of interpretation could have been avoided by the use of clearer language. Furthermore, insofar as Mr Zelin's counter-argument is based on the proposition that any ambiguity in the policy should be construed against AIG, it does not seem to me that the contra proferenten principle could be applied in this case where the relevant wording closely mirrors the Minimum Terms and Conditions laid down by a regulatory authority. But the argument anticipated by Mr Zelin was not specifically raised as a separate point by AIG or RSA in the pleadings in the Part 20 proceedings; nor was it canvassed, at least as a free-standing point, in the skeleton arguments of Mr Cannon QC or Mr Purchas or in their oral submissions. Furthermore, the issue is one of general application in relation to policies complying with the Minimum Terms and Conditions, and the specific factual circumstances of other cases may conceivably cast further light upon the issue. In the circumstances, therefore, I would not wish to rule definitively upon the point unless it was strictly necessary in order to resolve the preliminary issues. Be that as it may, Mr Zelin did not seek to contend that the claim made against Bakewells by Sutherland in the main action was, in itself, one in respect of a civil liability arising from the performance of or failure to perform legal services which Bakewells had undertaken to provide directly to Sutherland. Instead, he sought to anchor it to the assumed breach or breaches of duty on the part of Mr Collins towards the firm's clients. This step in his argument was, of course, based upon the facts and matters set out in the Statement of Assumed Facts which I have already referred to. Unsurprisingly, therefore, there was no dispute, at least for present purposes, in relation to those assumptions. But it was emphasised on behalf of AIG that any claim against Bakewells by any of the clients concerned would be quite different and distinct from the claim presently made against the firm by Sutherland. If any such claim were made and pursued, quite different questions would then arise as to whether Bakewells would be entitled to an indemnity under either policy. Indeed, it is not specifically agreed or assumed for the purposes of the present issues that Bakewells would be entitled to an indemnity in respect of any such claim, though it is, of course, to be assumed that such a claim would fall within the definition of "damages" under the AIG policy and would constitute a "civil liability" for the purposes of the RSA policy. I acknowledge, however, that, as Mr Zelin pointed out, but for the assumed negligence of Mr Collins, Bakewells might well have been entitled to recover from any individual client any sum which they might be held liable to pay to Sutherland in the present proceedings insofar as the amount in question is referable to the loan agreement with that client. But, in the circumstances, any such claim by Bakewells against the client might well be met by a cross-claim based upon Mr Collins' negligence. But it was the third step in Mr Zelin's argument which was the primary focus of counsels' submissions. Mr Zelin submitted that, having regard to the assumed negligence of Mr Collins to the clients in question, any liability of Bakewells in respect of the claim made in the main action was properly to be regarded as one which "arises from" the provision of legal services. The counter-argument raised by Mr Cannon QC and supported by Mr Purchas was that any link between Sutherland's claim and any negligence on the part of Mr Collins was insufficient to justify a conclusion that the claim "arose from" the negligence in question. It is quite clear that the expression "arises from" in this context connotes some form of causative connection between the performance or failure to perform legal services and the claim in respect of which an indemnity is sought. That is no doubt why Mr Zelin sought to anchor the chain of causation to the assumed negligence of Mr Collins. Mr Cannon QC, supported by Mr Purchas, however, submitted that this was an illusory anchor point and that, as a matter of substance, the claim was caused by the crystallisation of the commercial risks undertaken by Bakewells which were not within the scope of either policy. In this connection, my attention was drawn to paragraphs (5), (6) and (7) of the Statement of Agreed Facts. I have already set out the full text of paragraphs (5) and (7); and for completeness, paragraph (6) reads as follows: (6) Each loan agreement between the Claimant and the relevant client provided that: a. The client was required to repay the Claimant the sum advanced together with any administration fee and interest 18 months after the date of the client's loan agreement or in the event that the client's claim was settled or concluded prior to that date. b. Pursuant to clause 3.1 of the client's loan agreement, the client was to be held in default under the agreement on the occurrence of certain events including the failure to make payment of any sum due under the Agreement, time of payment being critical. So, submitted Mr Cannon QC and Mr Purchas, if one sought the real and substantial cause of any liability in respect of Sutherland's claim, it is to be found in the commercial risks undertaken by Bakewells in connection with the management and expansion of their practice and not in any breach of their duty as solicitors towards any of their clients. The obvious and immediate cause of the claim made against them by Sutherland is, it was submitted, Bakewells' own failure to honour their own contractual obligations towards Sutherland and, more remotely, their clients' failure to pay the sums due under their individual loan agreements with Sutherland. Though the clients in question may themselves have a claim for damages against Bakewells on the footing that, but for Mr Collins' negligence, they would have been able to repay their loans out of the proceeds of ATE insurance, the negligence in question would simply be too remote a cause of Bakewells' liability to Sutherland. I was referred to a number of authorities illustrating the court's approach to causation issues in policies of insurance. I start with certain statements of general principle set out in MacGillivray on Insurance Law, 11 th edition (2008). At paragraph 19-001 of that work the general rule is stated in these terms:
"It is a fundamental rule of insurance law that the insurer is only liable for losses proximately caused by the peril covered by the policy. This rule is easily stated in general terms, but its application to particular facts has been hotly disputed. Insofar as problems arise in connection with specific clauses they are considered in the appropriate chapter but it may also be helpful to attempt to formulate certain general principles. A proximate cause is not the first, or the last, or the sole cause of the loss; it is the dominant or effective or operative cause. The insurer is liable if such a cause is within the risks covered by the policy and is not liable if it is within the perils accepted."
But, as the learned editors of MacGillivray note at paragraph 19-004, the rule can be displaced by clear words in any particular policy. However, they add a qualification that expressions such as "in consequence of" or "originating from" or, more particularly, "arising from" would not prevent the operation of the rule. This last form of words is, of course, that which was adopted in both of the present policies in accordance with the requirements of the Minimum Terms and Conditions; and it was specifically considered by Scrutton J (as he then was) in Coxe v Employers' Liability Assurance Corporation Ltd [1916] 2 KB 629. That was a case in which a claim was made upon a policy of life assurance which was subject to a condition that the death should not be "directly or indirectly caused by, arising from, or traceable to....war." In fact, the deceased was accidentally killed by a train when, in the course of his wartime military duties, he was walking along a railway line for the purpose of visiting guards and sentries posted at various points. The lights which would normally have illuminated the track had been obscured because of the war. The claim under the policy had been referred to arbitration and the arbitrator had found that the death of the deceased was "traceable to war, within the meaning of the condition." On appeal, Scrutton J confirmed the arbitrator's award, placing particular emphasis on the expressions "directly or indirectly" and "traceable to the war" as used in the policy. For present purposes, however, I need only to refer to a comparatively short observation which appears at page 634 of the report. It is in these words:
"The words in the condition "caused by" and "arising from" do not give rise to any difficulty. They are words which always have been construed as relating to the proximate cause. I am not sure whether the words "traceable to" would of themselves necessarily go any further. They are very vague words, and I should have been disposed to hold if those were the only words, that, if the defendants choose to employ very vague words of that kind, the words must be read strictly against them and in accordance with the ordinary maxim. But the words which I find it impossible to escape from are "directly or indirectly"."
In the light of those authorities, it would seem that no distinction is normally to be drawn between expressions such as "caused by" or "arising from" in construing the insuring clauses of a policy of insurance. Whatever expression is used to link the loss with the insured peril, the insurer will be liable only if the dominant or effective or operative cause of the loss is one of the perils covered by the policy. As it seems to me, formulations of this kind indicate that the test of causation in such circumstances is a fairly strong one. But I was also referred to a more recent decision of the Court of Appeal in the case of Dunthorne v Bentley [1999] Lloyd's Rep I.R.560. That was a case in which the plaintiff had suffered serious injuries when his car collided with the defendant who herself suffered fatal injuries as a result of the collision. The defendant had been driving her own vehicle when it ran out of petrol. She then got out of her car and ran across the road in order to seek assistance from another person and was struck by the plaintiffs car as she did so. It was admitted that the plaintiffs injuries were caused by the negligence of the defendant and judgment was entered against her estate. The question which then arose was whether the defendant's insurers were obliged to satisfy the judgment by virtue of section 151 of the Road Traffic Act 1988. The insurers would only be liable if the plaintiffs injuries were "caused by or arising out of" the use of the car by the defendant. At first instance, the insurers were held liable; and the decision was upheld on appeal. With some hesitation, the Court of Appeal held that the judge was entitled to conclude that, in the particular circumstances of the case, the Plaintiffs injuries were "caused by or arising out of" the use of the car by the Defendant. Both Rose and Pill LJJ considered that the expression "arising out of" contemplated more remote consequences than those envisaged by the words "caused by". They both cited the observations of the High Court of Australia in Government Insurance Office of New South Wales v Green & Lloyd (1965) 114 CLR 437. In the Australian case which, I am told, concerned a similar statutory provision, Wyndeyer J is recorded as having said at page 447: ""Caused by" connotes a "direct" or "proximate" relationship of cause and defect, "Arising out of" extends this to a result that is less immediate; but still carries a sense of consequence. It excludes cases of bodily injury in which the use of a vehicle is a merely casual concomitant, not considered to be, in a relevant causal sense, a contributing factor." As Mr Cannon QC emphasised, the decision in Dunthorne v Bentley involved the consideration of a form of words in the context of statutory provisions intended to protect the general public against certain types of danger on the roads. So one can see that the Court might tend to favour a wider interpretation than in other contexts, though no considerations of that kind were expressly referred to in the course of the judgments. More importantly, perhaps, it must be borne in mind that, in that case, the expression "arising out of" was used disjunctively in association with the words "caused by". So one can readily see why the Court of Appeal was prepared to hold that, at least in that particular context, some distinction was properly to be drawn between the two expressions. I note, however, that no similar distinction was drawn by Scrutton J in Coxe v Employers' Liability Assurance Corporation Limited [1916] 2KB 629, despite the use of a similar disjunctive expression. I also note that this case was not cited to the Court of Appeal in Dunthorne v Bentley. Furthermore, it was submitted by Mr Purchas, that the expression "arising from" as used in both policies, has a somewhat narrower meaning than the words "arising out of" which were considered by the Court of Appeal in Dunthorne v Bentley, even when used in isolation rather than in conjunction with the words "caused by". Whilst I would hesitate to place too much weight on such subtleties of language, the fact remains that the decision of the Court of Appeal in that case involved different words in a different context from those which I have to construe in these proceedings. I was also referred to the decision of Akenhead J in Kajima UK Engineering Ltd v The Underwater Insurance Co Ltd [2008] Lloyd's Rep IR 391 . The facts of that case were far removed from those which I have to consider for present purposes. It primarily concerned the obligation of an insured under a claims made policy to notify underwriters of any circumstances which might result in a claim. But at para 97 of his judgment, Akenhead J briefly referred to Government Insurance Officer of New South Wales v Green & Lloyd and Dunthorne v Bentley, merely commenting that those cases were simply authority for the "relatively obvious proposition" that where a policy of insurance covered a loss "arising out of" a particular contingency, that expression might well be wider than an expression such as "caused by". For my part, in the context of both the AIG policy and the RSA policy, I consider that the expression "arising from", standing, as it does, on its own, should be construed as referring to the dominant, effective or operative cause of the liability in question in accordance with the general principles summarised at paragraph 19- 001 of MacGillivray. In the present case, there is no direct causative link between Bakewells' liability to Sutherland and the way in which Mr Collins performed or failed to perform the legal services which he provided to the firm's clients. On the contrary, the obvious and direct cause was Bakewells' failure to fulfil the contractual obligations which they had undertaken under the Agreement. The circumstances which have given rise to the present dispute are very far removed from the paradigm case in which a solicitor incurs a liability towards a client for breach of his duty to that client. Any liability to Sutherland in the present case represents the coming to pass of a commercial risk arising out of a contractual obligation towards a party to whom Bakewells owed no professional duties. It may well be the case that Mr Collins' breaches of duty towards his clients were the principal reason why individual loans were not repaid by the clients in question and that, but for their failure to do so, Bakewells would not have been faced with the claim made against them by Sutherland in the main proceedings. But it seems to me that the causal link between the claim made upon them by Sutherland and the assumed negligence of Mr Collins is simply too tenuous to justify the conclusion that the one "arose from" the other, even if one were to take the somewhat wider meaning of the phrase adopted in Dunthorne v Bentley. Mr Cannon QC provided a telling analogy in order to illustrate his proposition that the claim was simply the outcome of the commercial risks undertaken by Bakewells. Suppose, suggested Mr Cannon QC, that a firm of solicitors such as Bakewells had embarked upon complex group litigation on CFA terms seeking damages for industrial disease on behalf of a large number of clients. Suppose also that they had arranged funding to enable them to conduct the litigation in question by means of a bank loan in the hope and expectation that, in due course, they would recover their costs and disbursements. But let it also be supposed that the litigation ended in failure owing to the negligent manner in which it was pursued by the solicitors, so that they were unable to recover their costs and disbursements from the opposing parties or from their clients. If the bank then sought to recover the amount outstanding on the loan account from the solicitors, could it seriously be argued, asked Mr Cannon QC, that the claim would be covered by their professional indemnity insurance? The obvious answer to this rhetorical question is in the negative. The liability would be no different from any other commercial liability undertaken by the solicitors for the development of their practice. Whatever the nature of the loan, they would no doubt have anticipated that funds would be available to them in due course out of the profits their professional practice so as to enable them to repay the monies outstanding. But, of course, expectations may be dashed for any number of reasons. The mere fact that the monies which they expected to receive were not ultimately forthcoming because of the negligent way in which they had conducted some of their professional activities does not mean that any claim against them by their bankers is one which can fairly be said to "arise from" the performance or non-performance of legal services as required by the Minimum Terms and Conditions and by both the AIG and the RSA policies. The reality, submitted Mr Cannon QC, is that Bakewells chose this specific method of funding litigation on behalf of their clients and undertook certain contractual liabilities to Sutherland as part of the arrangements for the provision of that funding. No doubt that was for the benefit of the clients; but it was also for their own benefit as it enabled them to attract new business. So it was no different in principle from any other funding arrangements of the kind instanced by counsel. Mr Cannon QC also reminded me of the passage on the judgment of Greer LJ in the case of Haseldine v Hosken [1933] 1KB 822 at 837 to 838, which I have previously cited. In this case, it seems to me that the liability which Bakewells undertook was intended to secure a benefit for themselves and that Sutherland's claim does not arise from any neglect, omission or error of Mr Collins in his professional capacity as a solicitor. I conclude, therefore, that the claim does not come within the insuring clause of either the AIG policy or the RSA policy. Sub-Issue (2): Is any Liability to Sutherland a "Claim" for the Purposes of Either Policy That conclusion is, in itself, sufficient to dispose of the preliminary issues in favour of AIG and RSA. But it was also contended that Bakewells were not entitled to an indemnity under either policy because the claim made by Sutherland in the main action does not amount to a "Claim" as defined by the policy conditions. Both policies are, of course, "claims made" policies. In each case, the right to an indemnity arises in respect of claims made against the insured during the period of insurance or, of course, claims subsequently made which arise out of circumstances notified to the insurers during the period of insurance. But it is contended on behalf of both AIG and RSA that, save as is specifically set out in the policy conditions, any "claim" for these purposes encompasses only claims for damages or for civil compensation of a similar nature and does not extend to any claim to enforce any contractual liability in the nature of a debt. The relevant provisions of each policy differ somewhat, with the RSA provisions more closely following those set out in the Minimum Terms and Conditions. But given the primacy of the Minimum Terms and Conditions, it is, I think, helpful to analyse the argument, at least in the first instance, by reference to the Minimum Terms and Conditions themselves rather than to the words adopted in the individual policies. It will be recalled that by clause 1.1 of the Minimum Terms and Conditions, any solicitor's professional indemnity policy was required to indemnify the insured against "civil liability" to the extent that it arose from private legal practice in connection with the firm's practice. But this general provision is subject to the proviso that a "Claim" in respect of such liability must be made against the insured during the period of insurance, or subsequently, if it arises out of circumstances first notified during that period. Now the expression "civil liability" is not a defined term. On the face of it, however, it is apt to cover any form of liability which can be enforced by means of civil proceedings. In the absence of any qualifying or controlling words, therefore, the expression would seem to extend to contractual liabilities of a commercial kind as much as to tortious liabilities or breaches of a contractual duty of care. Furthermore, there is no explicit or implicit distinction to be found in these words between liabilities of a liquidated or an unliquidated kind. In itself, therefore, I do not see that the use of this expression in the Minimum Terms and Conditions and in each policy would prevent Bakewells from seeking an indemnity in respect of their liability to Sutherland. But it will also be recalled that by clause 8.2 of the Minimum Terms and Conditions, the word "Claim" is defined as meaning "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." This general definition is, however, followed by a specific provision by which any obligation on the part of the insured to remedy any breach of the Solicitors' Accounts Rules is to be treated as a "Claim" and as a "civil liability" for the purposes of clause 1, whether or not any person makes 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 as a result of such breach. The essential question, for present purposes, therefore, is whether the requirement for a "Claim", as defined, narrows the scope of the indemnity to cases where "civil compensation or civil damages" are claimed and whether those expressions are narrower than the phrase "civil liability", as used in the Minimum Terms and Conditions. Now, I accept that, whether it is regarded as a limitation on the cover provided by such a policy or as a condition precedent to any liability, the requirement for a "Claim" must mean that an indemnity can be claimed only where there has been 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". It was contended on behalf of both AIG and RSA that the particular civil liability which Bakewells faced in the main action does not constitute a claim for "civil compensation or civil damages" for the purposes of the Minimum Terms and Conditions and does not fall within any wider definition of "Claim" in either policy. Mr Cannon QC took the point succinctly. He submitted that the liability was in respect of a debt owed by Bakewells and, as such, could not properly be regarded as involving a claim for damages or any other form of civil compensation. He pointed out that the claim against Bakewells, as pleaded in the main action, was for the recovery of a liquidated sum said to be due in accordance with clause 5.1 of the Agreement, though he acknowledged that the amount in question was also claimed, in the alternative, as damages for breach of that obligation. But notwithstanding this alternative pleading, he submitted that, as a matter of substance and reality, the claim was clearly one for a debt and not for damages. Mr Purchas generally adopted Mr Cannon's submissions but formulated the point slightly differently at paragraph 38 of his skeleton argument. He submitted that a claim for "civil compensation" was "without more" a reference to a claim in tort. Whilst he accepted that a claim for "civil damages" might encompass a claim for damages in contract, he submitted that it did not extend to all such claims. Thus, it would cover a case where the damages sought arose from some breach of duty or obligation on the part of the insured for which it was responsible, but would not stretch to any claim for a payment of a sum unrelated to the performance of any duty or obligation. This latter distinction sought to be drawn by counsel seems to reflect the more general question which I have already considered in detail as to whether the liability in question can be said to "arise from" the performance or non-performance of legal services. Indeed, that point was specifically made in this very context at paragraph 38(e) of counsel's skeleton argument. Now, for reasons which I have already given, it seems to me that any liability on Bakewells' part under clause 5.1 of the Agreement must be regarded as amounting to a debt, whether the liability constitutes a primary obligation on their part or merely a secondary obligation in the nature of a guarantee of their client's obligations under the individual loan agreements. On the face of it, therefore, it does not constitute a liability for damages, as that expression is commonly used in legal parlance. To illustrate the distinction between debt and damages, I was referred to a recent decision of the Court of Appeal and to an Australian case in which the Supreme Court of Victoria had to consider a similar point in connection with a policy of professional indemnity insurance. The case before the Court of Appeal was Bedfordshire Police Authority v Constable [2009] Lloyd's Rep IR 607 . The issue was whether a Police Authority's obligation under the provisions of the Riot (Damages) Act 1886, to compensate property owners for damage to their property caused by a riot was covered by the public liability section of an insurance policy which promised to indemnify the Authority in respect of sums of which the Authority "might become legally liable to pay as damages for accidental damage to property arising out of the business" of the Authority. The principal argument raised on behalf of the insurers was that these insuring provisions were not apt to cover any liability on the part of the Police Authority under the 1886 Act, which provided for statutory "compensation" in specified circumstances, since that did not amount to a legal liability to pay "damages" under the public liability section of the policy. At first instance, this argument was rejected by Walker J and his decision was upheld on appeal. The leading judgment was given by Longmore LJ who referred to various earlier authorities dealing with the meaning of the expression "damages", particularly in an insurance context. At paragraph 23 of his judgment, he referred to the observations of Sir Wilfred Greene MR in Hall Brothers Steamship Co Ltd v Young [1939] 1 KB 748 where the Master of the Rolls said this: "Damages" to an English lawyer imports this idea, that the sums payable by way of damages are sums which fall to be paid by reason of some breach of duty or obligation, whether that duty or obligation is imposed by contract, by the general law, or legislation". Longmore LJ went on to hold, at paragraphs 24, 25, 26 and 27 of his judgment, that the underlying feature which afforded the distinction between sums for which an insured was liable in damages and sums for which he was not so liable was to be found in the concept of responsibility. But, for my part, I do not consider that this analysis is likely to be of any assistance in resolving the question whether a contractual liability for a debt would amount to a liability in damages for such purposes. In the Australian case of Kantfield Pty Ltd v Lockwood & Allianz Australia Insurance Limited [2003] VSC 420, Byrne J had to consider whether the receiver and manager of a company was entitled to an indemnity under his policy of professional indemnity insurance in respect of various debts incurred during the receivership for which he had been held personally liable. The insuring clauses of the policy provided an indemnity in respect of all civil liability arising from any "claim", which was defined as meaning a demand for, or civil proceedings brought, by a third party for "compensation or damages". But the policy conditions excluded any claim based upon, attributable to or in consequence of a "trading debt". The insurers contended that the claim against the receiver could not properly be characterised as a claim for "compensation or damages" but was a claim for a sum certain, that is to say a debt. It was nonetheless argued on behalf of the receiver that, since his liability arose by statute and was intended for the protection of the supplier, it amounted to a liability to make compensation to the supplier. The learned judge rejected these arguments on various grounds. For present purposes I need only cite a brief passage from paragraph 12 of his judgment where he said this: "...the expression in the definition of claim, "compensation or damages", shows that what is there intended is a claim for pecuniary redress for some actionable wrong. An obligation in contract or otherwise to pay a sum in a certain event is not properly to be seen as an obligation to compensate; it is an obligation to perform the contract. Finally, s.419 imposes upon the receiver personal liability for certain debts. A claim to enforce this liability for debt is not in normal parlance to be characterised as a claim for compensation or damages." The learned judge also addressed the argument that the exclusion from the scope of the indemnity of any "claim based upon, attributable to, or in consequence of any trading debt" indicated the contrary conclusion, namely that a liability in respect of a debt would have fallen within the primary cover afforded by the policy but for this exclusion clause. At paragraph 14 of his judgment he dismissed that argument in these terms: "Again, this argument does not survive a close analysis. The exclusion is not for a claim for a debt, it is a claim, as defined, which is "based upon, attributable to, or in consequence of" any trading debt which the insured may incur. These conjunctive expressions are found in a number of the exclusions in Part 4 of the policy. It appears from these that the drafting is intended to cast a wide causal relationship between the excluded risk and the loss. Moreover, in this policy, the exclusion may operate notwithstanding that the cover itself specifically deals with the event specified, such as prior claims which are not within the insuring cl. 1.1 and fraud and dishonesty claims which are covered by cl. 6.1. It may be that cl. 27 is intended to make abundantly clear that the cover does not extend, not only to claims for trading debts, but also to claims consequent upon trading debts." For my part, I cannot see any obvious reason why the word "damages", as used in the definition of "Claim" in the Minimum Terms and Conditions should be given any wider meaning than it normally bears in an insurance context so as to extend to a liquidated liability in the nature of the debt. On the other hand, insofar as may be material, I do not see why it should be confined to claims in tort or for breach of a contractual duty of care, so as to exclude other claims for damages for breach of contract. But, of course, the expression "Claim" for the purposes of the Minimum Terms and Conditions is defined as including a claim for "civil compensation" as well as "civil damages". It seems to me that, in this context, the expression "civil compensation" may well bear a different and somewhat wider meaning than "civil damages". That is not inconsistent with the observations of Longmore LJ in the case of Bedfordshire Police Authority v Constable which I have already referred to. At paragraph 20 of his judgment, the Lord Justice said this: "The 1886 Act says that the property owner is entitled to apply for and receive "compensation". "Compensation" is itself an ambiguous word. On any view it can include what an English lawyer would call "damages" since it is the whole purpose of the law of tort to compensate persons who have suffered damage if there is legal liability for that damage. It is not enough to say that because the 1886 Act uses the term "compensation", the person liable to pay compensation does not become liable to pay a sum payable "as damages". When on a previous occasion, I was called on to construe the phrase "compensatory damages" I said that I could not sensibly differentiate between that phrase and "compensation" (i Charterhouse Development (France) Ltd v Sharp [1998] Lloyds Rep I.R. 266, page 279). Now that I am called upon to construe the phrase "liable to pay as damages", I cannot see that the word "compensation" in the 1886 Act is a necessarily different concept. Nor did the draftsmen see them as different concepts. He did after all give to the statute the short title The Riot (Damages) Act 1886; see section 1. The question whether the compensation payable to (sic) the police authority is a sum which they are "liable to pay as damages" must depend on the true nature of the liability as a matter of law." In that specific case, of course, the word "compensation" did not appear in conjunction with the word "damages". For present purposes, it suffices to note that Longmore LJ considered that "compensation" was, in itself, an ambiguous word which could "include" what an English lawyer would call "damages". But it does not follow that the two expressions are to be equated for all purposes. I nonetheless accept that, in general, the word "compensation" is not apt to describe the payment of a contractual debt. The concept underlying the expression, as it seems to me, is that it involves a payment (or perhaps some other form of redress) intended to make amends to another party for something which has happened or failed to happen to him. The payment of a contractual debt represents the fulfilment of a contractual obligation rather than the making of amends for non-payment. I do not readily see how any distinction is to be drawn for these purposes between a voluntary payment of the debt in accordance with the tenor of the contractual obligation in question and payment after a default or pursuant to a judgment. But I nonetheless hesitate to hold that in this particular context the expression "civil compensation" necessarily excludes the payment of liquidated sums. I do not feel that the landscape of possibilities has been explored as fully as it might have been. There was some inconclusive debate during the course of the hearing as to whether a solicitor's liability upon his undertakings might, in appropriate circumstances, be covered by such an indemnity, even where it involved the payment of a specific sum of money. Indeed, I was told that it was the experience of counsel that claims in respect of undertakings are from time to time made by solicitors upon their policies of professional indemnity insurance. Of course, in many, perhaps most, cases, undertakings will be non-contractual in nature. But there is no reason why they might not sound in contract. Another situation in which a solicitor may become liable to pay a debt to a third party would be where he had undertaken a personal liability for disbursements in connection with litigation or non-contentious business carried out on behalf of a client. In neither of these cases is it evident that the jurisprudential nature of the liability should in itself be sufficient to exclude any claim in respect of such liability from the cover required by the Minimum Terms and Conditions. It seems to me that the obvious controlling factor delimiting the scope of the cover required by clause 1.1 of the Minimum Terms and Conditions is that the civil liability in question must "arise from" the provision of professional services as a solicitor. As will be apparent from the previous section of this judgment, that requirement is likely to exclude most, if not all, liabilities of a commercial nature from the cover afforded by such a policy. Moreover, the obvious purpose of the proviso to clause 1.1 of the Minimum Terms and Conditions is to ensure that the insurer must respond only to claims made against the insured solicitor during the period when the insurer is on risk or which arise from of circumstances first notified to the insurer during that period. There would seem to be no obvious reason why the proviso should also have the effect of limiting the scope of the indemnity contemplated by the substantive wording of clause 1.1 of the Minimum Terms and Conditions by reference to the jurisprudential nature of the civil liability in respect of which such a claim is made. There are some further indications in the Minimum Terms and Conditions which might tend to suggest that the expression "civil liability" should not be construed narrowly. As will be recalled, the definition of the word "Claim" itself in the Minimum Terms and Conditions provides that an obligation to remedy any breach of the Solicitors' Accounts Rules could, in itself, be treated as a "Claim" and as a civil liability for the purposes of clause 1. But, as between solicitor and client, any such breach would presumably give rise to a contractual liability on the part of the solicitor to make good his default by payment of a liquidated sum. I recognise that the inclusion of this extended definition of the word "Claim" cuts both ways, since it might suggest that it would not otherwise have amounted to a liability to make "civil compensation" or pay "civil damages". But it seems to me that the primary purpose of this provision is to obviate the need for any demand for redress in such cases rather than to extend the conceptual boundaries, for these purposes, of the expression "civil liability". But the Minimum Terms and Conditions also provide that a solicitor's policy of professional indemnity insurance may exclude or limit the liability of the insurer to the extent that any claim arises out of certain specified types of debt. Both the AIG policy and the RSA policy take advantage of these provisions by incorporating the appropriate words of exclusion; and I rather imagine that this will commonly be the case under other similar professional indemnity policies. But the exclusion is not mandatory; so it would seem to follow that, in the absence of such an exclusion, the insuring provisions in the form required by clause 1 of the Minimum Terms and Conditions would extend to such debts, provided, of course, that they "arose from" the provision of services as a solicitor. I appreciate, of course, that the availability of such an exclusion might be intended simply to avoid any possible doubt. But it nonetheless seems to me to indicate that a liability for a debt is not, for that reason alone, outside the cover provided by the insuring provisions. I am, of course, conscious of the observations of Byrne J in Kantfield v Lockwood to which I have already made reference. He clearly held that an obligation in contract or otherwise to pay a sum certain was not an obligation to pay "compensation", even though, as in the present case, that word appeared in conjunction with the word "damages". Likewise, as in the present case, the insuring provisions provided an indemnity against all "civil liability" though this was limited to liability "arising from any claim" made against the insured during the period of cover in respect of his conduct of his professional business. That seems to me to be somewhat narrower than the equivalent requirements of the Minimum Terms and Conditions, namely that the "civil liability" should arise from the provision of services as a solicitor in private legal practice, subject to the proviso that a claim must be made during the period of insurance or thereafter if arising from circumstances first notified to the insurer during the period of insurance. Furthermore, Byrne J dismissed the argument based upon the exclusion of certain liabilities in connection with trading debts on the footing that the exclusion was wider than a mere claim for a debt but one "based upon, attributable to or in consequence" of any such debt. I have found this point to be both interesting and difficult. I incline to the view that the Minimum Terms and Conditions should not be construed in such a way as to exclude any liability in debt, as a matter of principle, from the cover required in respect of any "civil liability", even though this might seem to do some violence to the expression "civil compensation or civil damages" in the definition of the word "Claim". But the issue is one which might have wider implications for policies of this kind in very different circumstances from those of the present case. In view of my findings on the scope of the insuring provisions and, as will be seen, on the "trade debts" exclusion, the resolution of this particular point can have no bearing on the outcome of the preliminary issues. It seems to me, therefore, that any issue of this kind should be left to be determined in a case in which it is strictly necessary to do so in order to resolve a disputed claim under a policy of professional indemnity insurance. Since the point is unnecessary for the determination of the present issues, I think that the better course would be for me to express no definitive opinion upon it and leave its resolution to another occasion. In the circumstances, I can deal comparatively briefly with the terms of the individual policies. The RSA policy closely follows the relevant wording of the Minimum Terms and Conditions, so it does not seem to me that any different questions arise from those which I have already considered in relation to the Minimum Terms and Conditions. Indeed, as Mr Zelin pointed out, the terms of the preliminary issue, do not explicitly raise the question whether the liability falls within the definition of "Claim" in the RSA policy. But the point is clearly raised by the agreed terms of the preliminary issues as between Bakewells and AIG. As I have already observed, the AIG policy does not simply adopt the wording of the Minimum Terms and Conditions in relation to the insuring provisions or, for that matter, the definition of the word "Claim". But, if and insofar as the wording adopted by the policy might seem to provide for more restrictive cover than that required by the Minimum Terms and Conditions, the latter will take precedence over any limitations in the policy by reason of the requirements of clause 4.11 of the Minimum Terms and Conditions which are expressly incorporated in the policy itself. So, if the AIG policy wording was apt to exclude any right of indemnity in respect of any debt, whether or not it arose from legal practice, whereas the Minimum Terms and Conditions did not, the wider cover required by the Minimum Terms and Conditions must prevail over any narrower cover which would otherwise have been afforded by the policy. On the other hand, if, contrary to what I would be inclined to hold, the cover required by the Minimum Terms and Conditions would not, as a matter of principle, extend to any liability in respect of a debt, it would be open to an insurer such as AIG to provide wider cover which might, in principle, embrace such liabilities, subject to any other restricting or controlling factors. So, if it had been necessary for my decision on the preliminary issues to resolve this particular point in relation to the AIG policy, I would have had to consider whether the wording actually adopted by the policy was, or was, not apt to provide cover in respect of liabilities of this kind. I will, therefore, briefly summarise the submissions of counsel on this issue, though, for reasons which I have already given, I do not propose to essay a definitive resolution of the point. Mr Cannon QC sought to support his submission that the word "Claim" in the AIG policy meant that a claim in respect of a debt was outside the scope of the indemnity by reformulating the insuring provisions of the policy so as to incorporate within them the definition of the expressions "Loss", "Claim" and "Damages" His version, excluding various immaterial provisions therefore, reads as follows: "Professional Liability. The Insurer will pay on behalf of the Insured [any amount that an Insured shall be legally liable to pay to a third party for all civil liabilities including but not limited to judgments or arbitral awards rendered against an Insured , or for settlements negotiated with the consent of the Insurer ] resulting from [any demand for, or intimation of an intention to seek, compensation or Damages for a civil liability of an Insured] for any civil liability of the Insured which arises out of the performance of or failure to perform [the provision of services in private practice as a solicitor or registered European lawyer]." It will be seen that in this version, the word "Damages", as it appears in the definition of "Claim" is not expanded for a second time. This was a point which Mr Zelin picked up in the course of his submissions and which led him to put forward an alternative version in which this expression was expanded both where it appears in the expression of "Loss" and in the definition of "Claim". His version reads as follows: "Professional Liability. The Insurer will pay on behalf of the Insured [any amount that an Insured shall be legally liable to pay to a third party for all civil liabilities including but not limited to judgments or arbitral awards rendered against an Insured , or for settlements negotiated with the consent of the Insurer ] resulting from [any demand for, or intimation of an intention to seek, compensation or (any amount that an Insured shall be legally liable to pay to a third party for all civil liabilities including but not limited to judgments or arbitral awards rendered against an Insured, or for settlements negotiated with the consent of the Insurer) for a civil liability of the Insured] for any civil liability of the Insured which arises from performance of or failure to perform [the provision of services in private practice as a solicitor or registered European lawyer]". It was Mr Cannon's submission that it followed from his reformulation of this primary insuring clause of the AIG policy that no indemnity could be claimed against any liability incurred by Bakewells in respect of a debt. This conclusion flowed, he submitted, from the fact that the indemnity afforded by the policy was in respect of "Loss" resulting from any "Claim" which in turn involved a demand for, or an intimation of an intention to seek, "compensation or Damages". But, it was submitted, the expression "compensation or Damages" is not apt to describe a liability in the nature of a debt. So the argument advanced on behalf of AIG is essentially the same as that which I have already considered in relation to the provisions of the Minimum Terms and Conditions. Bakewells, it is submitted, are entitled to an indemnity under the policy only where a "claim" is made on Bakewells: and the only sort of claim which gives rise to a right to an indemnity is one which amounts to a demand for, or an intimation of an intention to seek compensation or damages, rather than a debt. It is only, therefore, in respect of any "civil liability" of this kind that AIG is obliged to indemnify Bakewells. It does seem to me to be at least arguable that the wording of the insuring clause in the AIG policy is such as to tie the right to an indemnity more closely to the nature of the claim. The obligation of the insurer is to pay any "Loss" resulting from a "Claim", as defined, albeit that the claim must be "for a civil liability of the insured which arises from the performance of or failure to perform Legal Services". That contrasts with the wording of clause 1.1 of the Minimum Terms and Conditions which, as will be recalled, simply requires the insurer to provide an indemnity "against civil liability" to the extent that it arises from Private Legal Practice. The requirement for a "Claim" only appears thereafter by way of a proviso as to the time within which any such claim must be made. The terms of the AIG policy are, therefore, somewhat closer to those which were considered by Byrne J in the Australian case of Kantfield v Lockwood. That is emphasised by the way in which Mr Cannon QC has sought to reformulate the insuring provisions in the manner set out above. But it will be recalled that the expression "Damages" is defined for the purposes of the AIG policy as meaning "any amount that an Insured shall be legally liable to pay to a third party for all civil liabilities including but not limited to judgments or arbitral awards rendered against an Insured ...and the word "Loss" in the insuring clause is itself defined by reference to "Damages" in this sense. Hence, as Mr Cannon QC's version shows, the insuring clause of the AIG policy requires the insurer to pay on behalf of the Insured "any amount that an Insured shall be legally liable to pay to a third party for all civil liabilities including but not limited to judgments or arbitral awards rendered against an Insured....". So, the insuring provisions, in this indirect way, seem to reintroduce a general right of indemnity in respect of any amount which the insured should be legally liable to pay to a third party for all civil liabilities. But the insuring provisions also provide that the liability in question must result from a "Claim" as defined. Accordingly, Mr Cannon QC submitted that any such liability must result from a demand for or intimation of an intention to seek "compensation or damages". So the argument was, once again, reduced to the same point, namely that these words controlled the scope of the indemnity and that the expression "compensation or damages" was not apt to cover a claim based upon a debt. For my part, I would be loath to interpret the relevant wording of this policy in any different sense from that required by clause 1 of the Minimum Terms and Conditions. It seems to me that the issue arising from the particular wording of this policy is, in substance, precisely the same as that which I have considered in relation to the Minimum Terms and Conditions, namely whether the obligation on the part of the insurer to indemnify the insured in respect of any amount that he may be legally liable to pay for "all civil liabilities" is wide enough to cover a claim in respect of a debt and, if so, whether that obligation is cut down or restricted by the use of the expression "compensation or damages" in the definition of the word "Claim". As I have already noted, Mr Cannon did not seek to expand the word "Damages" where it appeared for a second time in his expanded version as part of the definition of the word "Claim". But it seems fairly clear that, even upon its second appearance, the word "Damages" is intended to be interpreted as a defined term. In Mr Zelin's version, therefore, it is expanded for a second time, indicating that any relevant claim may be for "all civil liabilities including but not limited to judgments or arbitral awards rendered against an insured". Though expanding the expression in this way does not produce a syntactically elegant form of words, it is difficult to see why the expression "Damages" in the definition of "Claim" in the AIG policy should not be interpreted in this way so as to extend to "all civil liabilities" rather than to damages in the narrow sense. So, Mr Cannon QC's argument seems to fall away. So, I incline to the view that, notwithstanding the somewhat different way in which the relevant clauses are formulated in the AIG policy, the scope of the indemnity is no wider or narrower, at least in this particular respect, than that required by the Minimum Terms and Conditions. Indeed, if the narrower interpretation of the Minimum Terms and Conditions were to be held to be the appropriate one, it might well be said that the insuring provisions of the AIG policy, as expanded in this way, provide wider cover than that required by the Minimum Terms and Conditions. But, for reasons which I have already given, it is neither necessary nor desirable to make a definitive finding on the point in order to resolve the present dispute. The Second Issue: Trade Debts Paragraphs 1(ii) and 2(ii) of the preliminary issue, as formulated and agreed between the parties, raise a further question as to whether any right to an indemnity under either policy which might otherwise be available to Bakewells in respect of the claim made against them by Sutherland would, in any event, be excluded as constituting a debt of the kind referred to at clause 6.6 of the Minimum Terms and Conditions. It will be recalled that clause 6 permits the exclusion or limitation of the insurers' liability to the extent that any claim arises from any of the matters therein set out including any debts and trading liabilities of the kind specified at clause 6.6. In the case of both the AIG policy and the RSA policy, advantage has been taken of these provisions so as to exclude any such liability in terms which are largely identical to those set out in the Minimum Terms and Conditions themselves. It is, of course, the contention of both AIG and RSA that any relevant liability of Bakewells to Sutherland falls within this exclusion so as to disentitle them to an indemnity under either policy. Strictly, it is unnecessary for me to resolve this question, since my decision on the construction and application of the insuring clauses in each policy means that Bakewells cannot claim an indemnity against either insurer. But the point was a discrete one which was the subject of a separate question in the agreed formulation of the preliminary issues and I have come to a clear view as to the outcome. In the circumstances, in case I am wrong in my decision on the other issues, I propose to go on to deal with the point. I have already set out the factual background and the various assumptions on the basis of which this question falls to be determined. I should perhaps record that there was some brief debate during the course of submissions as to whether, in the case of either policy, the relevant provision was properly to be categorised as amounting to an exclusion or as a clause defining and controlling the extent of the cover provided by the insuring provisions. But nothing turns on the point and it is unnecessary for me to consider it further. The principal question was the simple and straightforward one as to whether any liability of Bakewells to Sutherland under clause 5.1 of the Agreement was one which arose from any "trading or personal debt" of Bakewells within the meaning of those words in clause 6.6(a) of the Minimum Terms and Conditions and adopted, in substance, by both of the policies. It should, perhaps, be noted that the material parts of the policies do not slavishly follow the introductory wording of clause 6 of the Minimum Terms and Conditions. In the case of the AIG policy, the opening words state that the policy should not cover "Loss" in connection with any "Claim" or any loss "arising out of, based upon or attributable to" trading or personal debts or the like. By contrast, once again, the RSA policy follows the wording of the Minimum Terms and Conditions rather more closely, though the introductory words simply provide that the insurer should not be "liable for" any trading or personal debt and so forth. But nothing turns on these modest differences in terminology. A "personal debt" is, presumably, one incurred by a solicitor in his own personal and private capacity unconnected with his professional practice. It was not suggested that any liability to Sutherland in the present case fell into this category. The principal argument raised on behalf of the AIG and RSA was, therefore, whether the liability in question amounted to a "trading debt" of the firm. For my part, I can see no answer to the proposition that it did amount to a "trading debt". The practice of the law is a business as well as a profession. Though some might not care for the analogy, a solicitor sells his services just as a market trader sells the goods he displays on his stall. In the course of his practice, a solicitor will inevitably incur debts and liabilities of a business nature in order to enable him to pursue and promote his professional activities. He will require offices, equipment, secretarial assistance and the like and may well require overdraft or loan facilities from his bank or other sources. In the ordinary course of events, it could hardly be said that his liability for rent, hiring charges or wages and salaries could be anything other than business debts and liabilities. The same would seem to apply with equal force to any debts and liabilities incurred in respect of financial accommodation provided by his bankers. In the present case, Bakewells have entered into arrangements with Sutherland in order to provide interim funding of their costs and disbursements in connection with individual claims for damages intended to be pursued on behalf of clients for whom they act. Whilst these arrangements were no doubt intended to be for the benefit of the clients, they also enabled Bakewells to provide their services, for reward, to clients for whom they might well otherwise have been unable to act. Indeed, by paragraph (5) of the Statement of Agreed Facts, it is agreed that, by being able to offer potential clients loans by virtue of these arrangements, Bakewells was able to attract new business. But part of the price which Bakewells had to pay for obtaining the benefit of this facility from Sutherland was that they had to accept a personal liability under clause 5.1 of the Agreement if, for whatever reason, any individual loan was not repaid by their client. For reasons which I have already set out, I am quite satisfied that any liability to Sutherland under clause 5.1 of the Agreement is to be regarded as a debt. But, in the light of my analysis of the arrangements which gave rise to the debt, I am also satisfied that it is to be regarded as one which was incurred by Bakewells in connection with arrangements which were made so as to allow them to provide their services, for reward, to clients for whom they would or might not otherwise have been able to act. In my judgment, the liability is clearly a business or trading debt which falls squarely within the exclusion permitted by clause 6.6(a) of the Minimum Terms and Conditions and adopted in both the AIG and the RSA policies. For completeness, I should perhaps add that I was briefly referred to certain authorities which, it was suggested, might cast some light upon the concept of a trading debt. These were the decision of the Court of Appeal in the case of In Re Allen ex parte Shaw [1915] 1 KB 285 and the decision of the House of Lords in Theophile v Solicitor General [1950] AC 186. But, for my part, I did not gain any real assistance from either of these cases so it is unnecessary for me to deal with them. Since I have found that the present case falls within the first category of debts and liabilities excluded from cover under clause 6.6 of the Minimum Terms and Conditions, as incorporated in each of the two policies, it is, once again, strictly unnecessary for me to consider the other two limbs, as set out at sub-clauses (b) and (c) of clause 6.6. But I will nonetheless briefly deal with them. The exclusion at clause 6.6(b) of the Minimum Terms and Conditions, as imported into each policy, excludes any liability arising out of any breach by the insured of "the terms of any contract or arrangement for the supply to, or use by, any Insured of goods or services in the course of the Firm's Practice." The submissions of counsel on this issue were directed to the question whether the arrangements with Sutherland were for the supply of goods or services to Bakewells or for the use of the firm in the course of its practice. Mr Cannon QC emphasised the fact that, by clause 2.2 of the Agreement, Sutherland was to provide Bakewells with "the appropriate standard Consumer Loan Agreement or Company Loan Agreement", for execution by the client and that, under clause 2.4 Bakewells was to pay an "administration fee" in respect of any loan, indicating that Sutherland was to provide administration services to Bakewells in respect of each individual loan. He also pointed out that Sutherland was obliged to make payments by cheque directly to Bakewells, together with a list of items for payment, specifying any deductions and the like. Mr Purchas, on the other hand, based his argument primarily on the fact that the Agreement, properly understood, involved the supply of financial services to Bakewells and its clients and that Bakewells was a direct beneficiary of those services. He emphasised that the full amount of any individual loan was payable directly to Bakewells, whether or not they had incurred any liability for disbursements or fees. This would appear, he suggested, to be of immediate and direct financial benefit to Bakewells, quite regardless of the indirect benefit of enabling their clients to use their services for the purposes of pursuing their claims for compensation. Hence, he suggested, the apparent willingness of Bakewells to pay a £40 administration fee in each case. For my part, I find the argument that the provision of forms by Sutherland to Bakewells amounted to a "supply of goods" within the meaning of the exclusion to be highly artificial. I am also unpersuaded that a payment of an "administration fee" in itself means that Sutherland must be regarded as having agreed to provide administration services in return for the fee. But I agree with the submission of Mr Purchas that the substance of the arrangements embodied in the Agreement amounted to a contract for the provision of financial services. The question is whether it can properly be said that those services were supplied to or for the use of Bakewells in the course of their practice. One purpose of the arrangements, perhaps the primary purpose, was to provide loan finance to individual clients. The provision of financial services of this kind to the clients would not, in itself, mean that there was a supply of such services to or for the use of Bakewells. But, in each case, the full amount of the loan was payable directly to Bakewells to enable them to pay fees and disbursements which they would or might otherwise have had to carry out of their own resources. Furthermore, on any view, a major purpose of the arrangements embodied in the Agreement was to enable Bakewells to arrange loan finance for the benefit of its clients. In the circumstances, though the point is not entirely straightforward, I take the view that, at least in part, the Agreement between Sutherland and Bakewells was one for the supply of financial services to Bakewells in the course of its practice and is, therefore, within the exclusion set out at clause 6.6(b), as adopted by both AIG and RSA in the policies under consideration. The third limb of the exclusion is that permitted by clause 6.6(c) of the Minimum Terms and Conditions, that is to say where the claim arises from any "guarantee, indemnity or undertaking" by the insured "in connection with the provision of finance, property, assistance or other benefit or advantage directly or indirectly that that insured." It is not particularly easy to discern the purpose behind this exception or to be entirely confident of the circumstances in which it might apply. The words "guarantee" and "indemnity" would seem to presuppose that it applies only where the liability is, in some way, ancillary to or dependent upon arrangements made with some other party. There seems little doubt that, in the present case, the obligations accepted by Bakewells under the provisions of clause 5.1 of the Agreement are to be regarded as amounting to either a guarantee or an indemnity, or both, for these purposes, since they arise only where their clients have failed to repay their individual loans within the time stipulated. What is much less clear is whether the word "undertaking" in this context should be construed as meaning any form of contractual obligation undertaken by the insured or whether it should be confined more narrowly to solicitors' undertakings in the strict sense. I incline to the latter. What is also quite unclear is what weight, if any, is to the given to the reference to "any particular insured" in this context, as opposed to the more usual reference simply to "the insured". Nonetheless, since it seems plain that the obligations under clause 5.1 of the Agreement amount to a guarantee or indemnity for these purposes, the question which arises is whether they were given by Bakewells "in connection with the provision of finance, property, assistance or other benefit or advantage directly or indirectly to that insured." I do not find this easy to construe. On the face of it, the guarantee or indemnity in question is given in connection with the provision of finance to the firms' clients' rather than to the firm itself. Indeed, it is not easy to see how a guarantee or indemnity in the true sense can be given by a firm in respect of an obligation owed by itself. So the exclusion would seem to be designed to cover cases where a firm enters into a guarantee or indemnity in relation to the obligations of a third party, provided that it does so in connection with the provision of finance, property, assistance or other benefit or advantage directly or indirectly to the firm. The mere fact that the party whose obligations are the subject of the guarantee or indemnity may himself, as in the present case, obtain finance, property, assistance or other benefit or advantage from the arrangements in question does not, as it seems to me, necessarily mean that the guarantee or indemnity is not given in connection with the provision of finance and so forth directly or indirectly to the insured. On that analysis, the question is simply, therefore, whether Bakewells accepted the obligations under clause 5.1 of the Agreement "in connection with the provision of finance, property, assistance or other benefit or advantage directly or indirectly" to themselves. It seems to me that a question framed in these terms must be answered in the affirmative. For reasons which I have already given, I consider that, under the arrangements in question, finance was provided directly to Bakewells. Furthermore, a major purpose of the arrangements was to allow Bakewells to act, for reward, for clients for whom they might not otherwise have been able to act and to extend their practice. It seems to me that this must be regarded as a benefit or advantage provided at least indirectly to Bakewells. I conclude, not without some hesitation, that the circumstances of the present case are such as to fall within this final limb of the exclusion, since Bakewells' obligations under clause 5.1 of the Agreement amount to a guarantee or indemnity given by the firm in connection with the provision of finance directly to the firm and in connection with the provision of other benefits or advantages indirectly to the firm. Accordingly, I have come to the conclusion that any liability of Bakewells to Sutherland under clause 5.1 of the Agreement comes within the debts and trading liabilities exclusion in both policies so that Bakewells would not be entitled to an indemnity even if the claim would otherwise have come within the scope of the insuring provisions of the policies. Conclusions For the reasons set out above, I answer the questions raised by the terms of the amended preliminary issue in the following way: 1. Under the terms of the insurance policy between the Defendant and the Third Party (Chartis) for the period 1 October 2007 to 30 September 2007 under policy no. 034012910 (the AIG policy) (i) Does the funding liability fall within the definition of "Claim" and/or within the insuring clause of the AIG policy? Answer: No. (ii) Is the funding liability excluded by reason of the Trade Debts exclusion of the AIG policy? Answer: Yes. 2. Under the terms of the insurance policy between the Defendant and the Fourth Party (RSA) for the period 1 October 2008 to 30 September 2009 under policy no. PI52162A (the RSA policy) (i) Does the funding liability 'arise from Private Legal Practice' within the meaning of clause 1.1.1 of the RSA policy and/or within the insuring clause of the RSA policy? Answer: No. (ii) Is the funding liability excluded by reason of the Trade Debts exclusion at clause 5.6 of the Policy? Answer: Yes. This is my judgment on the trial of certain preliminary issues in Part 20 proceedings by which a firm of solicitors claim an indemnity against their professional indemnity insurers in respect of certain claims made against them in the main action. No evidence was adduced and no witnesses were called at the trial of the preliminary issues, but I was provided with a written statement of facts which were either agreed between the parties to the Part 20 proceedings or which could be assumed for the purposes of the preliminary issues, without prejudice to the parties' pleaded cases. In addition, I was provided with two trial bundles containing the pleadings in both the main action and the Part 20 proceedings together with various other documents. The Background[2]The Claimant in the main action, Sutherland Professional Funding Limited ("Sutherland"), is a finance company which provides financial assistance for the purposes of funding personal injury and industrial disease litigation. The First Defendant in the action, Bakewells, is a firm of solicitors which carries on practice from offices in Derby. The individual Defendants, Mr Collins, Mr Jinks and Mr Murfin were partners in the firm at all material times prior to 20 th November 2008, though Mr Collins has since left and has taken no part in these proceedings.[3]At all material times, in the course of its professional practice, Bakewells acted on behalf of clients who wished to pursue claims for damages for personal injuries or industrial disease. In all or most cases of this kind, Bakewells agreed to act under a Conditional Fee Agreement ("CFA") with the client; and after the event legal expenses insurance ("ATE") was also taken out by or on behalf of the client to cover certain costs and liabilities in the event that his claim was ultimately unsuccessful.[4]The standard form of CFA under which Bakewells agreed to act for a client who wished to pursue such a claim was subject to and incorporated the standard Law Society Conditions for such agreements as then in force. If the claim was successful, the client would be liable to pay Bakewells' basic charges and disbursements together with a success fee which was normally 100% of the basic charges. In those circumstances, of course, the client could normally expect to recover most of these costs from the other party. On the other hand, if the claim did not succeed, the client would remain liable to Bakewells in respect of any disbursements, but not for their charges or success fee. But he could not normally expect to recover the amount of any such disbursements from the other party; on the contrary, he would usually be obliged to pay the costs incurred by that party. It was to cover the risk of such financial consequences in the event of the failure of the client's claim that ATE insurance was taken out on his behalf.[5]During the period with which I am concerned, the ATE insurance policy was issued by Compensation Claims Limited ("CCL") on behalf of Templeton Insurance Limited ("Templeton"), of Douglas, Isle of Man, in accordance with an agreement entered into directly between Templeton and Bakewells. Another company, BCR Legal Assist Limited ("BCR") was appointed by Templeton as its insurance manager to administer the policy on its behalf. The indemnity granted by the policy extended to both the client's own disbursements and to the other party's legal costs where the client had been ordered to pay the other side's costs or had agreed to do so by way of a settlement entered into with the prior written consent of BCR.[6]In most cases, therefore, the client represented by Bakewells under arrangements of this kind could expect to recover most of his costs from the other side, if his claim was successful; and, if it was not successful, he could usually assume that, in the ordinary course of events, he would be indemnified against any liability in respect of such costs or disbursements under the ATE policy of insurance.[7]But these arrangements were primarily designed to deal with the financial rights and obligations of the parties once a claim had been finally resolved, whether the outcome was favourable or unfavourable to the client. They did not address the problem of interim funding. In order to progress the claim, certain costs would inevitably be incurred. Under the CFA, Bakewells would have to wait until after the final resolution of the claim before it could expect to recover its own costs and any success fee. Indeed, if the claim was unsuccessful, they could not expect to recover any charges whatever. That, of course, is the principal justification for claiming a success fee in those cases where the claim is successful.[8]But they would also incur liabilities to third parties in the form of disbursements, such as fees for medical reports and, most notably perhaps, the premium payable in respect of the ATE insurance policy. These would not normally be recoverable by Bakewells until after the final resolution of the claim. Furthermore, particularly in disease cases, the amounts involved could be quite substantial. Thus, it seems that the premium payable for the ATE insurance cover in such cases would be in excess of £1,000, though payment of some or all of the premium might be deferred. Of course, if the claim was successful, the premium would normally be recoverable from the party against whom the claim had been made; and, if it was unsuccessful, the ATE insurance policy would itself normally provide an indemnity in respect of the premium. But, in the absence of any other funding arrangements, Bakewells would themselves have to carry the costs of any such disbursements so long as the claim remained unresolved.[9]But Bakewells had in fact put in hand arrangements designed to provide interim funding for any disbursements which it incurred in pursuing such a claim on behalf of a client. By a minute of agreement ("the Agreement") made on or about 31 st August 2004 between Sutherland of the one part and Bakewells, Mr Collins, Mr Jinks and Mr Murfin of the other part, Sutherland agreed to provide loan finance to clients of Bakewells in order to assist them to pay "legal fees and outlays" to Bakewells for their professional services. The total amount allocated by Sutherland for that purpose was £250,000 and the maximum sum which could be provided as a loan to any individual client was £2,000. Any such loan was to be the subject of a Consumer Credit Act loan agreement between Sutherland and the client; and Bakewells were provided with appropriate standard forms of loan agreement and were required to ensure that they were enforceable against the clients in accordance with their terms. Once a loan agreement had been accepted and signed on behalf of Sutherland, the amount of the loan would be remitted to Bakewells, though it was provided that any payment due to Sutherland by Bakewells under the Agreement could be set off against the amount of any such remittance. This would seem to include what was termed an administration fee of £40 payable by Bakewells on the execution of any loan agreement by or on behalf of Sutherland which could not be charged to the client.[10]A substantial number of loans were made by Sutherland to clients of Bakewells in accordance with the arrangements embodied in the Agreement. In most cases, it would seem, the amount of the loan was the maximum sum of £2,000. It would also seem that in each case interest was chargeable at an APR of 16.3% and that the total amount of both principal and interest was repayable 18 months after the date of the Agreement or, if earlier, when the claim was settled or concluded.[11]I do not know precisely how Bakewells dealt with the monies remitted to them by Sutherland under these various loan agreements. But by paragraph 3 of the Statement of Agreed Facts, it is agreed that the purpose of the loans was to pay for the ATE insurance premium and any disbursements incurred by the client; and I have no reason to suppose that the monies were not used for these purposes. I do not, however, know what happened to any remaining balance of the loan or, for that matter, to any premium which may have subsequently been returned by or on behalf of Templeton.[12]Now, if all had gone to plan, some of those clients of Bakewells who had taken out loans of this kind would have been successful in their claims and others would not. As I have already pointed out, where the claim was successful, the likelihood was that the ATE premium and any other disbursements would be recovered from the other party, though any shortfall might have to be paid by the client. On the other hand, if the claim was unsuccessful, it could normally be anticipated that the amount of the premium and other disbursements could be claimed under the ATE policy. More importantly, perhaps, it is to be assumed for present purposes that the ATE policy would provide an indemnity to the client in respect of the client's liability to repay Sutherland the loan and interest in the event that he or she was unable to recover the same from the defendant to that client's claim. I refer to paragraph (D) of the Statement of Assumed Facts.[13]As a result of these interlocking arrangements, therefore, there should normally have been no problem in repaying the loans made by Sutherland to Bakewells' clients, whether or not the claim was successful. Unhappily, however, things did not go to plan. A substantial proportion of the claims pursued by Bakewells on behalf of their clients were unsuccessful or remained unresolved after 18 months, when the loan from Sutherland was due for repayment. Indeed, in a number of cases, Bakewells arranged for an extension of the loan, paying a fee of £75 in each case, apparently out of their own resources. In itself, of course, the fact that a number of claims were unsuccessful would not have had any adverse impact on the client's ability to repay the loan, since a claim could then be made upon the ATE insurance. But, in many cases, Templeton has refused to provide an indemnity to the client under the ATE policy of insurance. It is to be assumed for present purposes that, in each case of this kind, the manner in which Mr Collins conducted the claim was such as to permit Templeton to refuse to indemnify the client and that this was the basis upon which it did so. I refer, once again, to paragraph (D) of the Statement of Assumed Facts. In consequence of this refusal of indemnity, many of the loans made by Sutherland to Bakewells' clients remained unpaid after 18 months or by the end of any extension to the period of the loan obtained by Bakewells.[14]In those circumstances, of course, Sutherland could have sought to recover the full outstanding amount of the loan, together with interest, directly from the client in accordance with the Consumer Credit Act loan agreement with the client. But it has not chosen to do so. Instead, it has invoked its rights under the Agreement with Bakewells. By clause 5.1 of the Agreement, Bakewells agreed to pay Sutherland immediately upon demand the total amount payable under any individual loan agreement in the event of any breach of the loan agreement by the client or if it was unenforceable against him. The Present Proceedings[15]Accordingly, on 9 th April 2010, Sutherland issued proceedings against Bakewells, as well as against Mr Collins, Mr Jinks and Mr Murfin personally, claiming the total sum of £259,896.15, being the total amount of the alleged indebtedness which is said to have remained unpaid after the expiration of 18 months from the date upon which each loan was made. It is alleged that each of the clients was, therefore, in breach of the terms of his loan agreement and that, despite a demand for payment of the amount in question under clause 5.1 of the Agreement, Bakewells have failed to make any payment in respect of these sums to Sutherland. It is therefore alleged that Bakewells are in breach of the provisions of clause 5.1, that they are therefore indebted to Sutherland in the total sum of £259,896.15 and that, in the alternative, Sutherland has suffered loss and damage in that sum by reason of Bakewells' breach of contract. The amount in question is, therefore, claimed as a debt or, alternatively, as damages for breach of contract.[16]Bakewells, Mr Jinks and Mr Murfin are defending Sutherland's claim on various grounds, though Mr Collins appears to be taking no part in the proceedings. I am not, however, concerned with the issues raised in the main action but only with certain of the issues arising out of the Part 20 proceedings commenced by Bakewells, Mr Jinks and Mr Murfin against their professional indemnity insurers under which they claim an indemnity in respect of Sutherland's claim, or damages, together with declaratory and other consequential relief.[17]The Defendants to the Part 20 claim are the Third Party, Chartis Insurance UK Limited ("Chartis") and the Fourth Party, Royal and Sun Alliance Insurance Plc ("RSA"). Chartis (then known as AIG Europe (UK) Limited) ("AIG") insured Bakewells under professional indemnity insurance policy number 034012910 from 1 st October 2007 to 30 th September 2008; and RSA insured them under policy of professional indemnity insurance number PI52162A from 1 st October 2008 to 30 th September 2009. Both were "claims made" policies under which AIG and RSA provided appropriate indemnities against certain types of liability in respect of certain types of claim made against Bakewells during the respective periods of insurance.[18]There are issues between the parties to the Part 20 proceedings as to when any relevant claims were made and when they were notified to the insurers. But, more fundamentally, there is an issue between the parties as to whether Bakewells would in any event be entitled to an indemnity under either policy in respect of the claim made against them by Sutherland in the main action. Both Chartis and RSA contend that a claim of the kind made by Sutherland against Bakewells does not fall within the scope of the insurance cover provided by their respective policies and that, even if it did, such a claim would come within one of the exclusions in each policy so that Bakewells would not be entitled to any indemnity. Various preliminary issues were, therefore, directed to be tried between the parties in the Part 20 proceedings in order to resolve this coverage dispute; and it is those preliminary issues which I am now called upon to resolve. The Preliminary Issues[19]As amended by agreement between the parties, the preliminary issues were formulated in the following terms: On the assumption that the First, Third and Fourth Defendants are liable to repay the Claimant pursuant to Clause 5.1 of the Agreement made between the Claimant and the Defendants on 31 August 2004 ("the Agreement") in respect of loans made to the First Defendant's clients that were outstanding after 18 months ("the funding liability");(1) Under the terms of the insurance policy between the Defendant and the Third Party (Chartis) for the period 1 October 2007 to 30 September 2008 under policy no 034012910 (the AIG Policy) i. Does the funding liability fall within the definition of "Claim" and/or within the insuring clause of the AIG Policy? ii. Is the funding liability excluded by reason of the Trade Debts exclusion of the AIG Policy?(2) Under the terms of the insurance policy between the Defendant and the Fourth Party (RSA) for the period 1 October 2008 to 30 September 2009 under policy no PI52162A (the RSA Policy): i. Does the funding liability "arise from Private Legal Practice" within the meaning of clause 1.1.1 of the RSA Policy and/or within the insuring clause of the RSA Policy? ii. Is the funding liability excluded by reason of the Trade Debts exclusion of clause 5.6 of the Policy? The Agreement between Sutherland and Bakewells[20]I have already sought to summarise the salient features of the Agreement between Sutherland and Bakewells by virtue of which Sutherland agreed to provide loan finance to Bakewells' clients. It recites Bakewells' desire to have such provision available in order to assist its clients to pay "legal fees and outlays" to Bakewells. By clause 2.1, the total sum allocated by Sutherland as a provision which might be available to clients was £250,000; and this provision was referred to as "the Legal Fees Loan Fund". I rather doubt if any separate fund was, in fact, ever established for this purpose. But it seems quite clear that Bakewells had a contractual right under the Agreement to require Sutherland to make loan finance available up to this limit, provided, of course, that the requirements for any individual loan were complied with.[21]It is an agreed fact that the purpose of the loans was to pay for an insurance premium in respect of ATE insurance taken out on behalf of the client to protect him against liability for third party costs and disbursements in the event that his claim did not succeed and to pay for disbursements incurred by the client. I do, however, note that the recitals to the Agreement itself appeared to envisage that the loan could be used for the payment of "legal fees" as well as outlays; and clause 2.2 likewise provided that any loan agreement with the client should state that the purpose of the loan was "for payment of legal fees and outlays" to Bakewells for its professional services. However, though the point was mentioned during the course of the hearing, no reliance was placed upon it; and I have no reason to suppose that any loan monies would have been used to pay Bakewells' own charges where that would have been contrary to the terms of any CFA.[22]By clause 2.3, Sutherland agreed that, once it had executed any loan agreement with a client, it would pay the amount of the loan to Bakewells in accordance with clause 4.1. Indeed, by clause 2.2, it was specifically provided that any loan agreement would itself provide that the amount of the credit or loan should be subject to an irrevocable mandate in favour of Bakewells for the payment of legal fees and outlays.[23]Clause 4.1 made more detailed provision for the payment of these monies to Bakewells. They were to be remitted by return post, subject to Sutherland's right to set off any sums due to it from Bakewells. As previously noted, this right of set-off would presumably be exercisable in relation to the administration fee payable by Bakewells pursuant to clause 2.4 of the Agreement. By clause 4.2, any payment by Sutherland under clauses 2.3 and 4.1 was to be by cheque accompanied by a bordereau listing the items for payment and specifying any deductions. It is to be noted, therefore, that, subject to any such deductions, Bakewells would receive the full amount of any loan made to any of its clients in accordance with the terms of the Agreement and not merely the amounts required to defray any disbursements.[24]The Agreement was not stated to be for any specific term. But, by clause 6.1, Sutherland could immediately withdraw the "facility" on written notice to Bakewells. For their part, Bakewells could give 14 days' written notice to Sutherland stating that it no longer wished to have access to the fund. But the commercial expectation appears to have been that the fund would be a rolling facility which would be available to Bakewells' clients for a considerable period, since it was stipulated at clause 6.9 that Bakewells should supply Sutherland with copies of its audited accounts within nine months after the end of each financial year.[25]The provisions of clause 5.1, upon which Sutherland's claim against Bakewells in the main action is based, are in the following terms:
"In the event of any breach of the Loan Agreement by the Borrower or in the event that the Loan Agreement is unenforceable against the Borrower at the instance of the First Party, the Second Party hereby agrees to pay the First Party immediately upon demand the amount of the Total Amount Payable under the Loan Agreement which remains unpaid at the date of such breach or unenforceability together with any accrued interest and charges which remain unpaid. A certificate signed by the Accountant for the time being of the First Party shall ascertain and constitute conclusively the amount due in terms of this Clause by the Second Party to the First Party and such Certificate shall be final and binding on Second Party."
The "First Party" is, of course, Sutherland; and the "Second Party" is Bakewells.[26]I need only mention one or two other provisions of the Agreement. By clause 4.2, Bakewells were required to inform Sutherland in writing as soon as reasonably practicable after becoming aware of any breach of any loan agreement by a client. Furthermore, by clause 6.5, Bakewells were required to supply such information relating to any claim as Sutherland might require and permit it or its representatives to review its files in respect of any such claim. But, though there may be issues between Sutherland and Bakewells as to whether Bakewells complied with these requirements, they are not material to the issues which I have to determine in the Part 20 proceedings.[27]It should also perhaps be noted that by clause 6.6, Bakewells represented and warranted, amongst other things, that the services provided or to be provided by them should be provided to their clients in accordance with their agreement with the clients. Finally, by clause 6.7, it was recorded that neither Sutherland nor Bakewells was the agent of the other so that Sutherland should not be liable to any borrower for any action, omission, negligence or breach of contract on Bakewells' part. Nonetheless, Bakewells agreed to indemnify Sutherland against all claims, awards of damages, expenses, losses or liabilities incurred by Sutherland arising out of any such action, omission, negligence or breach of contract on Bakewells' part. But no claim based on either of these provisions is made against Bakewells in the main action.[28]As it seems to me, it is really quite clear that the Agreement was of significant commercial benefit to Bakewells. It gave them access to funds which could be drawn upon by their clients in order to assist them in defraying the cost of disbursements. The availability of such funding is likely to have assisted Bakewells in attracting clients and thus expanding the business of the firm. Furthermore, the money was paid directly to Bakewells allowing immediate payment of any disbursements and relieving them of the necessity of financing such payments out of their own resources pending the resolution of any claim. I assume that the balance of the money would be credited to the client account; but I do not know what arrangements, if any, may have been made in relation to interest. In those circumstances, I do not find it surprising that Bakewells were willing to pay an administration fee of £40 on each occasion when a loan was made to one of its clients out of the monies allocated for that purpose by Sutherland. Nor do I find it surprising that, at paragraph (5) of the Statement of Agreed Facts, it was recorded that:
"By being able to offer potential clients a loan from the Claimant pursuant to the facility under the Agreement, the First Defendant was able to attract new business."
[29]But in the ordinary course of events, the availability of loan finance from Sutherland to clients of Bakewells, in conjunction with a CFA and ATE insurance, was also likely to be in the interests of the clients themselves, since the overall package would allow claims to be pursued on behalf of clients who might not otherwise have had the financial resources to enable them to do so. For reasons which I have already given, it could normally be expected that, win or lose, the clients would not themselves be out of pocket as a result of pursuing their claims. But, whatever they may have believed or been led to believe, they remained potentially liable to Bakewells for certain charges and disbursements, save insofar as those were paid by the party against whom the claim was made or were recovered under the indemnity provided by the ATE policy of insurance. Furthermore, they remained liable to Sutherland under any loan agreement, insofar as the amount of the loan and interest remained unpaid and the loan agreement itself was enforceable.[30]By paragraph (C) of the Statement of Assumed Facts, it is to be assumed for the purposes of the preliminary issue that Bakewells and Mr Collins, Mr Jinks and Mr Murfin personally are liable to Sutherland pursuant to clause 5.1 of the Agreement in respect of unpaid loans advanced to clients of Bakewells pursuant to the Agreement. But no agreement was recorded as to the precise nature of the liability in question. In the course of argument, however, the question was raised as to whether Bakewells' liability under clause 5.1 was to be regarded as a guarantee or some other form of secondary liability or whether the Agreement imposed a direct, primary liability upon the firm. This is an issue which may have to be resolved in the main action, since various defences are advanced on behalf of Mr Jinks and Mr Murfin on the basis that the obligation amounted to a guarantee. So I would be reluctant to determine this question in the Part 20 proceedings, to which Sutherland is not a party, unless it were strictly necessary for me to do so.[31]But I do not think that the resolution of this issue is essential in order to reach a definitive conclusion on the preliminary issues, since it appears to be material for present purposes only in order to decide whether Sutherland's claim is one for a liquidated sum or for damages. If and insofar as it imposes a direct, primary liability upon Bakewells to pay the amount outstanding under any loan agreement to Sutherland immediately upon demand, the obligation clearly gives rise to a liquidated claim or debt. On the other hand, if it is to be regarded as a guarantee or some other form of secondary liability, it seems to me that the clause must similarly be construed as creating an obligation to pay a liquidated sum in the event of a default by the client. In this regard, I was referred to decision of Mr Kevin Garnett QC in Hampton v Minns [2002] 1 WLR 1 . The head note summarised the Deputy Judge's primary finding in the following terms:
"...that, although a contract of guarantee was usually one whereby the guarantor promised due performance by the principal of its obligations, it was necessary in each case to construe the agreement in question; that, if the guarantor promised that a third party would perform specified obligations, any failure by the third party to do so would mean that the guarantor became liable in damages for breach of his promise, but, if he promised that in certain events he would pay a sum of money, he became liable in debt once those events happened...."
[32]For my part, I am quite satisfied that the provisions of clause 5.1 of the Agreement, even if construed as amounting to a guarantee or some other form of secondary liability, are apt to impose a liability on Sutherlands and the individual partners to pay a liquidated sum which sounds in debt rather than damages. Solicitors' Professional Indemnity Insurance[33]Solicitors in private practice are and were at all material times under a professional obligation in accordance with the Solicitors' Indemnity Insurance Rules to secure professional indemnity insurance complying with certain Minimum Terms and Conditions laid down from time to time by the Solicitors Regulation Authority. They are not permitted to practise as solicitors without having such insurance in force. This obligation is no doubt intended to protect both the solicitors themselves and any clients who may have a claim against them. What, of course, is in issue in the present case is whether, at least under the terms of the AIG and RSA policies, professional indemnity insurance may also be available in respect of claims by a body such as Sutherland which was never their client and whose claim is based upon a contractual provision of the kind embodied in clause 5.1 of the Agreement.[34]Solicitors' indemnity insurance is, of course, designed to provide an indemnity against certain liabilities. The obvious liability risk which a solicitor faces in the course of his professional practice is that he may be faced with claims from dissatisfied clients alleging breach of his contractual duty of care or of a similar tortious duty in negligence. Occasionally, a solicitor may owe a duty solely in tort, as, for example, where he provides his services gratuitously. Exceptionally, he may owe such a tortious duty to a person who was not his client, as in the case of a disappointed beneficiary where a solicitor fails properly to implement his client's instructions in relation to a will. Liabilities of this kind represent, as it seems to me, the core risk which a solicitor faces in the course of his professional practice and which one might, therefore, expect to come within the scope of his professional indemnity insurance.[35]The position is, perhaps, somewhat less obvious in relation to certain other liabilities which may arise directly from the provision of professional services by a solicitor. I refer, for example, to undertakings given by a solicitor either to a client or to a third party, as is commonly the case in conveyancing transactions. Such undertakings may be enforceable either contractually or under the summary jurisdiction exercisable by the High Court. There was some debate during the course of submissions at the trial of the preliminary issues as to whether any liability of a solicitor on his undertakings would or would not normally be covered by his professional indemnity insurance. This was not a point which was directly in issue in the present case and was raised only insofar as it might help to cast some light on the extent to which liabilities which did not arise out of any alleged negligence or which were for liquidated sums might be expected to fall within the scope of such insurance. But no authority was cited to me on such matters; and I did not, in the end, consider that much assistance could be gained by considering such questions in an evidential vacuum.[36]But a solicitor may incur other kinds of liability in connection with his professional practice which are essentially of a business nature. One obvious example would be in respect of any rent which he agrees to pay for the use of his offices. But one would not normally expect liabilities of this kind to be covered by his professional indemnity insurance, if only because they do not arise out of claims made against him in his professional capacity. In the present case, it is contended on behalf of both Chartis and RSA that any liability of Bakewells to Sutherland under clause 5.1 of the Agreement was itself just such an example of a business liability which was not one of the core risks which professional indemnity liability insurance could be expected to cover. The Minimum Terms and Conditions[37]But whether or not the claim made against Bakewells in the present case is or is not one which is covered by either the AIG or the RSA policy must ultimately turn upon the wording of the policy in question. In each case, of course, those policies can be expected to comply with the Minimum Terms and Conditions laid down by the Solicitors Regulation Authority in respect of such insurance. Indeed, by clause 4.11 of the version of the Minimum Terms and Condition which was in force at the material time, it was a requirement that any such policy must provide that it was to be construed or rectified so as to comply with those requirements and that any provision which was inconsistent with them was to be severed or rectified so as to comply.[38]The scope of the cover required by the Minimum Terms and Conditions were set out in clause 1.1 which is headed "Civil Liability". It reads as follows:
"The insurance must indemnify each Insured against civil liability to the extent that it arises from Private Legal Practice in connection with the Firm's Practice, provided that a Claim in respect of such liability: (a) is first made against an Insured during the Period of Insurance; or (b) is made against an Insured during or after the Period of Insurance and arising from Circumstances first notified to the Insurer during the Period of Insurance."
[39]At the material time "Private Legal Practice" was defined as follows at clause 8.2 of the Minimum Terms and Conditions:
"Private Legal Practice means the provision of services in Private Practice as a solicitor or Registered European Lawyer including, without limitation: (c) providing such services in England, Wales or anywhere in the world, whether alone or with other lawyers in a Partnership permitted for practice in England and Wales by rule 12 of the Solicitors' Code of Conduct 2007; and (d) the provision of such services as a secondee of the Firm; and (e) any Insured acting as an executor, trustee, attorney, notary, insolvency practitioner or other personal appointment; and (f) the provision of such services by any Employee. Private Legal Practice does not including practising as an Employee of an employer other than a solicitor, a Registered European Lawyer, a Partnership permitted for practice in England and Wales by rule 12 of the Solicitors' Code of Conduct 2007, or a Recognised Body."
[40]But, insofar as may be material, it should be noted that the Minimum Terms and Conditions have since been amended, so as to provide amongst other things that Private Legal Practice would include the provision of such services pro bono publico, but that the discharge of various judicial offices and appointments of a similar nature would be excluded.[41]The expression "Claim" is also a defined term for the purposes of the Minimum Terms and Conditions. It is defined at clause 8.2 in the following words:
"Claim means 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. For these purposes, an obligation on a Firm and/or any Insured to remedy a breach of the Solicitors' Accounts Rules 1998 (as amended from time to time), or any rules which replace the Solicitors' Account Rules 1998 in whole or in part, shall be treated as a Claim, and the obligation to remedy such breach shall be treated as a civil liability for the purposes of clause 1, whether or not any person makes 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 as a result of such breach."
[42]But by clause 6 of the Minimum Terms and Conditions it was also provided that the policy of insurance must not exclude or limit the liability of the insurer save to the extent that any claim or related defence costs arose from any of the matters set out in the following sub-clauses. By sub-clause 6.6, which is headed "Debts and Trading Liabilities", an exclusion or limitation of liability was allowed in respect of any of the following, namely any:
"(a) trading or personal debt of any Insured; (b) breach by any Insured of the terms of any contract or arrangement for the supply to, or use by, any Insured of goods or services in the course of the Firm's Practice; or (c) guarantee, indemnity or undertaking by any particular Insured in connection with the provision of finance, property, assistance or other benefit or advantage directly or indirectly to that Insured."
[43]Against that background, I turn to consider the relevant provisions of the two policies of insurance under which an indemnity is claimed in these proceedings. The AIG Policy[44]The AIG policy was issued on behalf of AIG Europe (UK) Limited on 2 nd October 2007 and covered the period from 1 st October 2007 to 30 th September 2008 inclusive. The policy is a claims made policy, as required by the Minimum Terms and Conditions; and the insuring provisions are set out in the opening section of the policy in these terms:
"Cover. All cover under this policy is afforded solely with respect to Claims first made against an Insured during the Policy Period and reported to the Insurer as required by this policy. Professional Liability. The Insurer will pay on behalf of any Insured all Loss resulting from any Claim for any civil liability of the Insured which arises from the performance of or failure to perform Legal Services. Ombudsman Awards. The Insurer will pay on behalf of the Insured any Loss resulting from any recommendation of the Legal Services Ombudsman or any other regulatory authority which arises from performance or failure to perform Legal Services. Defence. The Insurer has the right to defend any Claim which this policy may respond to under its Covers. The Insurer shall pay Defence Costs incurred in defending such Claim."
[45]Some of these terms are specifically defined in the following section of the policy. I need refer only to the following provisions:
"Claim means any: (i) demand for, or intimation of an intention to seek, compensation or Damages for a civil liability of an Insured , (ii) assertion of a right against an Insured , (iii) any obligation on the Insured to remedy a breach of the Solicitors' Account Rules 1998 or re-enactment thereof, or (iv) any case accepted for review by the Legal Service Ombudsman or any other regulatory authority which arises out of the performance of or failure to perform Legal Services. Damages means any amount that an Insured shall be legally liable to pay to a third party for all civil liabilities including but not limited to judgments or arbitral awards rendered against an Insured , or for settlements negotiated with the consent of the Insurer. Damages also means any amount paid or payable resulting from any recommendation by the Legal Service Ombudsman or any other regulatory authority which arises out of the performance or failure to perform Legal Services. Legal Services means the provision of services in private practice as a solicitor or registered European lawyer including: (1) providing such services in England, Wales or anywhere in the world, whether alone or with other lawyers in a Partnership , or a Recognised Body ; (2) any person providing such services as an Employee; (3) any Insured acting as an executor, trustee, attorney, notary, insolvency practitioner or other personal appointment Legal Services does not include practising as an Employee of an employer other than a solicitor, a registered European lawyer, a Partnership or a Recognised Body. Loss means Damages and Defence Costs. Loss shall not mean and this policy shall not cover any (1) fines or penalties; (2) first party loss or expense of an Insured (other than as Loss) or (3) any matters which may be deemed uninsurable under the law governing this policy or the jurisdiction in which a Claim is brought."
[46]The policy then sets out a number of exclusions, one of which is directly material to the issues which I have to determine. Under the heading "Trade Debts" it is provided that the policy should not cover "Loss" in connection with any " Claim " (presumably as those terms are defined for the purposes of the policy) or any loss:
".. .arising out of, based upon or attributable to any: (i) trading or personal debt incurred by an Insured; (ii) breach by any Insured of terms of any contract or arrangement for the supply to, or use by, any Insured of goods or services in the course of providing Legal Services ; and (iii) guarantee, indemnity or undertaking by any Insured in connection with the provision of finance, property, assistance or other benefit or advantage directly or indirectly to that Insured."
[47]There then follows a section of the policy dealing with " Claims ". Amongst other things, it requires written notice of any Claim to be given to the insurer as soon as practicable; and notification is similarly required in relation to any circumstance which might give rise to a Loss or a Claim. These provisions may well be relevant to other issues raised in the Part 20 proceedings; but they are not material to the resolution of the preliminary issues.[48]Finally, in accordance with the requirements of the Minimum Terms and Conditions, it is expressly provided as follows:
"In any dispute in connection with the terms, conditions, exclusions or limitations of this policy it is agreed and understood that the Minimum Terms and Conditions will take precedence over any terms, conditions, exclusions or limitations contained herein."
[49]It will be appreciated that some of these provisions, unsurprisingly, precisely mirror those set out in the Minimum Terms and Conditions themselves. This is perhaps most obviously the case in relation to the exclusion of liability for "Trade Debts" in the policy, which, save for the introductory words, is very nearly identical, in its material parts, to the wording adopted at clause 6.6 of the Minimum Terms and Conditions. Likewise, the definition of "Legal Services" for the purposes of the policy closely follows the wording used to define "Private Legal Practice" at clause 8.2 of the Minimum Terms and Conditions, although the reference to services provided by a "Secondee" is, for some reason, incorporated within an extended definition of the term "Employee" in the policy. The definitions of the expression "Claim" in both instruments are substantially the same, though the Minimum Terms and Conditions do not incorporate any reference to cases accepted for review by the Legal Services Ombudsman in the definition of the term. But clause 1.8 of the Minimum Terms and Conditions requires the insurance to indemnify the insured against any amount paid or payable in accordance with the recommendation of the Legal Services Ombudsman or any other regulatory authority "to the same extent as it indemnifies the Insured against civil liability".[50]But this close similarity of wording does not hold true of the core insuring provisions of the policy. Clause 1.1 of the Minimum Terms and Conditions imposes a requirement that the insurance must indemnify each insured "against civil liability to the extent that it arises from Private Legal Practice in connection with the Firms' Practice". That requirement is, however, subject to the important proviso that a "Claim", as subsequently defined, must first have been made against the Insured during the Period of Insurance, or thereafter, if it arose from Circumstances first notified to the Insurer during the Period of Insurance.[51]Unhappily, however, as it seems to me, the wording of the AIG policy does not follow the simple wording adopted by the Minimum Terms and Conditions, distinguishing, as it does, between the nature and scope of the indemnity and the limitation of cover by reference to the requirement that a claim must be made, or circumstances notified to the insurer, during the period of the insurance. Whilst the essential wording of the policy is apt to provide an indemnity against any civil liability which arises from the provision of services in private practice as a solicitor, as required by the Minimum Terms and Conditions, it chooses to define the extent of the indemnity by reference to the phrase "all Loss resulting from any Claim for any civil liability", where the expressions "Loss" and " Claim " are defined terms. The reference to "Claims" in this insuring clause of the policy clearly harks back to the immediately preceding provision which states that cover is afforded "solely with respect to Claims first made against an Insured during the Policy Period '. Furthermore, as already noted, the definition of "Claim" in the policy closely follows the equivalent definition in the Minimum Terms and Conditions. So, on the face of it, in this rather circuitous way, the policy would seem to provide cover equivalent to that required by clause 1.1 of the Minimum Terms and Conditions.[52]But the use of these defined terms in the insuring provisions may have further consequences which I will have to consider in due course. Thus the definition of the expression "Claim", in accordance with the requirements of the Minimum Terms and Conditions, includes a reference to any "demand for, or intimation of an intention to seek, compensation or Damages for a civil liability of an Insured'. But, whilst the expression "Damages" is not defined in the Minimum Terms and Conditions, it is a defined term for the purposes of the policy. Similarly, unlike the Minimum Terms and Conditions, the policy also defines the expression "Loss", primarily by reference to the definitions of the expressions "Damages" and "Defence Costs", subject to certain specific exclusions. The RSA Policy[53]I now turn to consider the relevant terms of the RSA policy, which covered the period from 1st October 2008 to 30 th September 2009. It follows the wording of the Minimum Terms and Conditions rather more closely than in the case of the AIG policy. The preamble to the RSA policy states that it is a "claims made" insurance and that it covers only Claims made against the Insured or Circumstances first notified during the period of insurance.[54]The insuring provisions are then set out in clause 1. Clause 1.1.1 reads as follows, under the general heading "Civil Liability":
"The company will indemnify the insured against: (a) Any civil liability; or (b) any amount paid or payable in accordance with the recommendation of the Legal Services Ombudsman, the Legal Complaints Service or any other regulatory authority. to the extent that it arises from Private Legal Practice carried on from offices in England or Wales by or on behalf of the Firm's Practice or any Prior Practice or Successor Practice. Provided that a Claim in respect of such liability is: (i) first made against an Insured during the Period of Insurance; or (ii) made against an Insured during or after the Period of Insurance and arising from Circumstances first notified to the Company during the Period of Insurance."
[55]Clause 5 provides for a number of exclusions from the cover provided by clause 1.1.1. In particular, at clause 5.6, under the general heading "Debts and Trading Liabilities etc", it is provided that the Company shall not be liable for: "Any(a) trading or personal debt of the Insured; or(b) breach by the Insured of the terms of any contract or arrangement for supply to, or use by, the Insured of goods or services in the course of the Firm's Practice; or(c) guarantee, indemnity or undertaking by the Insured in connection with the provision of finance, property, assistance or other benefit or advantage directly or indirectly to that Insured.[56]Various definitions are set out at clause 9 of the policy. By clause 9.3 the word "Claim" is defined as follows:
"Claim means 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. For these purposes, an obligation on a firm and/or any Insured to remedy a breach of the Solicitors' Accounts Rules 1998 (as amended from time to time), or any rules which replace the Solicitors' Account Rules 1998 in whole or in part, shall be treated as a Claim, and the obligation to remedy such breach shall be treated as a civil liability for the purposes of Insuring Clause 1.1, whether or not any person makes a demand for, or an assertion or a right to, civil compensation or civil damages or an intimation of an intention to seek such compensation or damages as a result of such breach."
[57]The expression "Private Legal Practice" is defined at clause 9.22, the terms of which are set out in an Addendum to the policy. The definition is as follows:
"Private Legal Practice means the provision of services as a solicitor or registered European Lawyer in private practice from offices in England and Wales including without limitation: (a) providing such services in England, Wales, or anywhere in the world, whether alone or with other lawyers in a Partnership permitted for practice in England and Wales by rule 12 of the Solicitors' Code of Conduct 2007, or a Recognised Body; and (b) the provision of such services as a secondee of the Firm; and (c) any Insured acting as an executor, trustee, attorney, notary, insolvency practitioner or other personal appointment; and (d) the provision of such services by an Employee. (e) any professional services carried out by the Insured Private Legal Practice does not include practising as an Employee of an employer other than a solicitor, a registered European lawyer, a Partnership permitted for practice in England and Wales by rule 12 of the Solicitors' Code of Conduct 2007 or a Recognised Body."
[58]Finally, it should be noted that, once again, by clause 6.10 it is provided that:
"This Policy is to be construed or rectified so as to comply with the requirements of the Minimum Terms and Conditions, and any provision of this Policy which is inconsistent with the Minimum Terms and Conditions is to be severed or rectified to comply."
The First Issue[59]Against that background, I must now turn to consider the preliminary issues which I am called upon to determine. These are formulated in slightly different terms in relation to each policy, but there is little difference of substance between them. I will start with Issues 1(i) and 2(i). It will be recalled that the first of these arises in connection with the AIG policy and is in the following terms:
"Does the funding liability fall within the definition of "
Claim" and/or within the insuring clause of the AIG policy?" The second of these issues relates to the RSA policy and is formulated as follows:
"Does the funding liability "arise from Private Legal Practice" within the meaning of clause 1.1 of the RSA policy and/or within the insuring clause of the RSA policy?"
[60]In fact, this question, at least as formulated in relation to the AIG policy, gives rise to two distinct sub-issues. The first of these is whether any liability of Bakewells to Sutherland in the main action is one which "arises" from the performance of or failure to perform "Legal Services" by Bakewells; and the second is whether Sutherland's "Claim" amounts to a demand for, an assertion of a right to, or an intimation of an intention to seek, compensation or damages for a civil liability of Bakewells. Sub-Issue (1): Does Bakewells' Liability to Sutherland Arise from Private Legal Practice?[61]I start with the first of these two sub-issues. It is, of course, Bakewells case that any liability to Sutherland arose from the performance of or failure to perform "Legal Services", the primary meaning of which, as defined for the purposes of both policies, is the provision of services in private practice as a solicitor. It was acknowledged by Mr Zelin, on behalf of Bakewells, that the risk in respect of which the policy was intended to indemnify Bakewells was the risk of loss arising from what could broadly be described as professional negligence on the part of Bakewells. In itself, that was not contentious. Indeed, both Mr Cannon QC on behalf of Chartis and Mr Purchas, on behalf of RSA, placed similar emphasis upon what was said to be the obvious commercial purpose of both policies.[62]But Mr Zelin's argument was based upon two further propositions. The first of these was that it was to be assumed for the purposes of the trial of the preliminary issues that there had been professional negligence on the part of Mr Collins in handling the claims of those clients of Bakewells whose loans from Sutherland remained unpaid and that his conduct in respect of each claim was such as to permit Templeton to refuse to indemnify the client under the ATE policy. Accordingly, but for Mr Collins' breaches of duty to Bakewells' clients, funds would have been available under each such policy to have enabled the individual loans to Sutherland to be paid off in full, including interest, in which case there could and would have been no claim by Sutherland against Bakewells under clause 5.1 of the Agreement. Furthermore, submitted Mr Zelin, each of the individual clients involved would have a potential claim against Bakewells for damages for breach of their professional duty, any liability for which would, at least in principle, have fallen within the scope of the insuring provisions of each policy.[63]It is as well to set out the full text of the relevant assumptions, which are to be found at paragraph (D) of the Statement of Assumed Facts. It is as follows:
"In respect of each client with an unpaid loan that forms part of the Defendants' Liability: (a) The client obtained through the First Defendant an ATE Insurance Policy of which: i) at the time it was taken out was enforceable by the client; and ii) provided an indemnity to the client in respect of that client's liability to repay the Claimant the loan and interest in the event that he or she was unable to recover the same from the defendant to that client's claim. (b) Following execution of the ATE policy, subsequent conduct by the Second Defendant in respect of the client's claim was such as to permit the ATE insurer to refuse to indemnify the client under the ATE policy. (c) Such conduct also amounted to a breach of the Second Defendant's duty of care to the relevant client. (d) The client made a claim on the ATE policy. (e) The ATE Insurer refused to indemnity the client on the basis of that conduct. (f) The ATE insurer has no other grounds for refusing to indemnify the client. (g) The entirety of the client's borrowing (including any borrowings related to fees, administrative charges or interest) would but for the conduct in paragraph (b) above have been reimbursed under the ATE policy. (h) The client has and continues to have a potential claim for damages arising out of the assumed breach of duty, but (save as otherwise stated below) has not brought a claim. (i) Were the client to bring such a claim it would fall within the definition of "
Damages" under the AIG policy and/or a "Civil Liability" under the RSA policy."[64]The parenthetical qualification to the statement at sub-paragraph (h) to the effect that no client has yet brought a claim is addressed at paragraphs (I), (J), (K), (L), and (M) of the Statement of Assumed Facts which summarise various letters sent out by Bakewells to the clients concerned in or about April 2011. In substance, the clients were initially informed, not always in precisely the same terms, that, at least in some cases, Bakewells' advice to the client may have been inappropriate and that the ATE insurers were unlikely to settle sums due under the loan agreements; and the client was advised to take independent legal advice. Subsequently, they were informed of the amount outstanding on each loan agreement, warned that Bakewells might wish to consider joining the client to the proceedings brought by Sutherland and, once again, advised to take independent advice. It appears that letters of this kind were sent out to some 60 clients and that responses have been received from or on behalf of 36 of the clients of whom 15 have intimated a claim or sought independent legal advice.[65]It is probably as well also to mention at this stage the terms of paragraph (7) of the Statements of Agreed Facts, which is in these terms:
"At the time of entering in to the Agreement and at all material times prior to any client of the First Defendant entering into a loan agreement with the Claimant pursuant to the facility provided by the Agreement, the Defendants were unable to be certain that within 18 months of that client entering into a loan agreement with the Claimant that: (a) the client's claim would have been finally determined at a court hearing or otherwise resolved. (b) if the claim was unresolved, the client would in any event have been able to repay and would have repaid the sum advanced under the loan together with interest to the Claimant. (c) If the claim was resolved and successful, the client would have been able to recover successfully from the defendant of that claim any award of damages and/or costs in his favour. (d) If the claim was resolved and unsuccessful, the client would have been able to recover from the relevant ATE insurer any liability in respect of the loan and interest."
[66]Accordingly, Mr Zelin submitted that it was to be assumed that Bakewells were under a potential liability to each of the clients concerned for the professional negligence of Mr Collins in handling their claims and that, but for his negligence, both the principal and any interest on their loans would have been discharged by way of a claim under the ATE policy of insurance. Though it is not, I think, something which is specifically agreed or assumed for present purposes, it might also be contended, I suppose, that, but for advice given by Mr Collins, some or all of the clients might never have entered into any loan agreements with Sutherland or incurred any liability for disbursements.[67]The next and final step in his argument was that the claim which is being pursued by Sutherland in the main action is one which "arises from" the way in which the firm performed or failed to perform the legal services which it undertook to provide to these clients. The way in which he put it at paragraph 23 of his skeleton argument was as follows: (The liability) "arises from the (non) performance of legal services/Private Legal Practice because, but for Mr Collins' negligence in dealing with the clients' affairs in the course of his practice as a solicitor (for which the other partners in the firm are liable), there would be no liability to (Sutherland). The ATE insurer would have paid out and the client loans would have been repaid".[68]At paragraph 25 of his skeleton argument, he submitted that any liability of the firm to Sutherland was a consequence of the client's default and that the quantum of any claim by the client against Bakewells would include the full amount of any liability in respect of the loan. Furthermore, but for Mr Collins' conduct, Bakewells would have been able to recover payment from any client whose debt they had paid. But if they were to seek to do so, in the light of the assumed facts, any such client would be entitled to defend and counterclaim for the same sum by reason of Mr Collins' negligence, in which case Bakewells would have suffered loss in the like amount which would, at least in principle, have been covered by the policies.[69]Accordingly, Mr Zelin submitted, Sutherland's claim against Bakewells is one which falls within the insuring provisions of both policies, so that, subject to any other defences raised by the insurers, Bakewells are entitled to an indemnity under the policy in respect of the claim made in the main action.[70]In aid of his submissions, Mr Zelin invited me to take notice of the fact that the use of CFAs in conjunction with ATE insurance is widespread and designed to provide access to justice for clients who might not otherwise be able to pursue legitimate claims. He also pointed out that, under clause 9.22(e) of the RSA policy, the expression "Private Legal Practice" was defined as including "any professional services" carried out by the insured. That appears to be wider than the equivalent definition in the Minimum Terms and Conditions. But he reminded me that, as the title itself indicated, those Terms and Conditions represented the minimum cover required of a solicitor in private practice. So, he submitted, arranging funding and ATE insurance on behalf of clients must now properly be regarded as part of the professional services which a solicitor can be expected to provide to his clients.[71]As I have already indicated, the first step in Mr Zelin's argument did not seem to me to be particularly controversial, at least at the level of principle. The obvious commercial purpose of a policy of professional indemnity insurance is to provide an indemnity in respect of the risk that a solicitor may become liable to a third party as a result of the way in which he performs or fails to perform his professional duties as a solicitor. As I have previously observed, any such liability will normally arise out of an alleged breach of his duties to a client, whether the duty is said to arise in contract or in tort. But I entirely accept that, outside this core area of risk, a solicitor might also be potentially liable for breach of his professional duties to third parties who were not his clients. One obvious illustration is the case of a disappointed beneficiary under a will which a solicitor negligently fails to draw in accordance with instructions from his client. I have also already mentioned the somewhat more problematical area of undertakings given by a solicitor in connection with conveyancing transactions and the like.[72]But what is common to all these cases is that the potential liability is to a third party to whom the solicitor owes a duty in connection with the use of his legal and professional expertise. So one might not, therefore, expect a policy of professional indemnity insurance to provide cover against the risk that a solicitor might be potentially liable to a third party to whom he did not owe any professional duty as a solicitor. The most obvious category of cases of this kind would involve liability arising from commercial transactions entered into by a solicitor for the purposes of operating the business side of his practice.[73]In this context, I was reminded by Mr Cannon QC on behalf of AIG of the observations of Greer LJ in Haseldine v Hosken [1933] 1 KB 822 at 837-8. That was a case in which a solicitor had entered into a champertous agreement with his client, apparently without realising the implications of so doing, under which he agreed to act on the client's behalf in a claim against a third party on the footing that the solicitor himself would fund any disbursements and that he would charge no fee to his client, if the action was unsuccessful, but that he would receive a share of the proceeds, together with any costs he could recover against the third party, if the action were successful. Such an agreement was, however, both illegal and tortious; and when the action failed, the solicitor was sued by the third party and was compelled to pay damages to the third party on account of the costs which that party had been unable to recover from the solicitor's client. The solicitor then took proceedings against underwriters under his policy of professional indemnity insurance, which provided cover in respect of "loss arising from any claim or claims which may be made against them... by reason of any neglect, omission or error whenever or wherever the same was or may have been committed or alleged to have been committed.... in or about the conduct of any business conducted by or on behalf of the firm or their predecessors in business in their professional capacity as solicitors."[74]At first instance, Swift J (as he then was) held that he was entitled to an indemnity; but, on appeal, his decision was reversed. That was the background against which Greer LJ made the following observations:
"With regard to the policy sued on it is important that its construction should be approached from the point of view that it was not intended to indemnify against a criminal act. What it was intended to do was to cover the case of a solicitor who, in conducting the business of his client, either in conveyancing or when representing him in litigation, made a mistake about the facts or a mistake about the law, or did something while acting on behalf of his client which rendered him, the solicitor, liable to a third party. The acts intended to be covered were those he was doing not to secure a benefit for himself, but those he was doing on behalf of his client. Read in that way this policy does not indemnify Mr Haseldine in respect of the consequences of his making the two agreements by which he was to secure an interest in the result of the litigation - agreements which, in view of the law of this country, he ought not to have made. The damage that arose did not arise owing to any neglect, omission or error of Mr Haseldine in his professional capacity as a solicitor, and therefore was not covered by the policy sued on."
[75]But, of course, in the end it must be the terms of the particular policy, construed if necessary by reference to the Minimum Terms and Conditions laid down by the Solicitors Regulation Authority, which determine whether a solicitor is or is not entitled to an indemnity in respect of any particular form of liability. Nonetheless, in the absence of clear words in the Minimum Terms and Conditions or in the policy itself, I have some difficulty in seeing how an indemnity against civil liability arising from the provision of services as a solicitor would extend to a claim by a third party to whom no professional duty was owed by the solicitor, whether as his client or otherwise.[76]If this were the correct analysis, it would be fatal to Bakewells' claim for an indemnity under either policy, since Bakewells owed no duties to Sutherland in their professional capacity as solicitors. On the contrary, at least as the main action is presently constituted, Sutherland's claim against them is based solely on their failure to comply with the provisions of clause 5.1 of the Agreement. Indeed, Mr Zelin appeared to anticipate that such an argument might be raised against him, since he had this to say at paragraph 24 of his skeleton argument:
"It is not open to the insurers to say that the liability must arise from a breach of professional duty owed to (Sutherland). If they had wanted to stipulate for such a connection between the negligence and the liability they could easily have done so but they did not."
[77]For my part, however, I would not regard this as a decisive counter-argument. The task of the court is to construe the policies as they stand, whether or not any specific difficulty of interpretation could have been avoided by the use of clearer language. Furthermore, insofar as Mr Zelin's counter-argument is based on the proposition that any ambiguity in the policy should be construed against AIG, it does not seem to me that the contra proferenten principle could be applied in this case where the relevant wording closely mirrors the Minimum Terms and Conditions laid down by a regulatory authority.[78]But the argument anticipated by Mr Zelin was not specifically raised as a separate point by AIG or RSA in the pleadings in the Part 20 proceedings; nor was it canvassed, at least as a free-standing point, in the skeleton arguments of Mr Cannon QC or Mr Purchas or in their oral submissions. Furthermore, the issue is one of general application in relation to policies complying with the Minimum Terms and Conditions, and the specific factual circumstances of other cases may conceivably cast further light upon the issue. In the circumstances, therefore, I would not wish to rule definitively upon the point unless it was strictly necessary in order to resolve the preliminary issues.[79]Be that as it may, Mr Zelin did not seek to contend that the claim made against Bakewells by Sutherland in the main action was, in itself, one in respect of a civil liability arising from the performance of or failure to perform legal services which Bakewells had undertaken to provide directly to Sutherland. Instead, he sought to anchor it to the assumed breach or breaches of duty on the part of Mr Collins towards the firm's clients. This step in his argument was, of course, based upon the facts and matters set out in the Statement of Assumed Facts which I have already referred to. Unsurprisingly, therefore, there was no dispute, at least for present purposes, in relation to those assumptions.[80]But it was emphasised on behalf of AIG that any claim against Bakewells by any of the clients concerned would be quite different and distinct from the claim presently made against the firm by Sutherland. If any such claim were made and pursued, quite different questions would then arise as to whether Bakewells would be entitled to an indemnity under either policy. Indeed, it is not specifically agreed or assumed for the purposes of the present issues that Bakewells would be entitled to an indemnity in respect of any such claim, though it is, of course, to be assumed that such a claim would fall within the definition of "damages" under the AIG policy and would constitute a "civil liability" for the purposes of the RSA policy. I acknowledge, however, that, as Mr Zelin pointed out, but for the assumed negligence of Mr Collins, Bakewells might well have been entitled to recover from any individual client any sum which they might be held liable to pay to Sutherland in the present proceedings insofar as the amount in question is referable to the loan agreement with that client. But, in the circumstances, any such claim by Bakewells against the client might well be met by a cross-claim based upon Mr Collins' negligence.[81]But it was the third step in Mr Zelin's argument which was the primary focus of counsels' submissions. Mr Zelin submitted that, having regard to the assumed negligence of Mr Collins to the clients in question, any liability of Bakewells in respect of the claim made in the main action was properly to be regarded as one which "arises from" the provision of legal services. The counter-argument raised by Mr Cannon QC and supported by Mr Purchas was that any link between Sutherland's claim and any negligence on the part of Mr Collins was insufficient to justify a conclusion that the claim "arose from" the negligence in question.[82]It is quite clear that the expression "arises from" in this context connotes some form of causative connection between the performance or failure to perform legal services and the claim in respect of which an indemnity is sought. That is no doubt why Mr Zelin sought to anchor the chain of causation to the assumed negligence of Mr Collins. Mr Cannon QC, supported by Mr Purchas, however, submitted that this was an illusory anchor point and that, as a matter of substance, the claim was caused by the crystallisation of the commercial risks undertaken by Bakewells which were not within the scope of either policy. In this connection, my attention was drawn to paragraphs (5), (6) and (7) of the Statement of Agreed Facts. I have already set out the full text of paragraphs (5) and (7); and for completeness, paragraph (6) reads as follows: (6) Each loan agreement between the Claimant and the relevant client provided that:a. The client was required to repay the Claimant the sum advanced together with any administration fee and interest 18 months after the date of the client's loan agreement or in the event that the client's claim was settled or concluded prior to that date.b. Pursuant to clause 3.1 of the client's loan agreement, the client was to be held in default under the agreement on the occurrence of certain events including the failure to make payment of any sum due under the Agreement, time of payment being critical.[83]So, submitted Mr Cannon QC and Mr Purchas, if one sought the real and substantial cause of any liability in respect of Sutherland's claim, it is to be found in the commercial risks undertaken by Bakewells in connection with the management and expansion of their practice and not in any breach of their duty as solicitors towards any of their clients. The obvious and immediate cause of the claim made against them by Sutherland is, it was submitted, Bakewells' own failure to honour their own contractual obligations towards Sutherland and, more remotely, their clients' failure to pay the sums due under their individual loan agreements with Sutherland. Though the clients in question may themselves have a claim for damages against Bakewells on the footing that, but for Mr Collins' negligence, they would have been able to repay their loans out of the proceeds of ATE insurance, the negligence in question would simply be too remote a cause of Bakewells' liability to Sutherland.[84]I was referred to a number of authorities illustrating the court's approach to causation issues in policies of insurance. I start with certain statements of general principle set out in MacGillivray on Insurance Law, 11 th edition (2008). At paragraph 19-001 of that work the general rule is stated in these terms:
"It is a fundamental rule of insurance law that the insurer is only liable for losses proximately caused by the peril covered by the policy. This rule is easily stated in general terms, but its application to particular facts has been hotly disputed. Insofar as problems arise in connection with specific clauses they are considered in the appropriate chapter but it may also be helpful to attempt to formulate certain general principles. A proximate cause is not the first, or the last, or the sole cause of the loss; it is the dominant or effective or operative cause. The insurer is liable if such a cause is within the risks covered by the policy and is not liable if it is within the perils accepted."
[85]But, as the learned editors of MacGillivray note at paragraph 19-004, the rule can be displaced by clear words in any particular policy. However, they add a qualification that expressions such as "in consequence of" or "originating from" or, more particularly, "arising from" would not prevent the operation of the rule.[86]This last form of words is, of course, that which was adopted in both of the present policies in accordance with the requirements of the Minimum Terms and Conditions; and it was specifically considered by Scrutton J (as he then was) in Coxe v Employers' Liability Assurance Corporation Ltd [1916] 2 KB 629. That was a case in which a claim was made upon a policy of life assurance which was subject to a condition that the death should not be "directly or indirectly caused by, arising from, or traceable to....war." In fact, the deceased was accidentally killed by a train when, in the course of his wartime military duties, he was walking along a railway line for the purpose of visiting guards and sentries posted at various points. The lights which would normally have illuminated the track had been obscured because of the war. The claim under the policy had been referred to arbitration and the arbitrator had found that the death of the deceased was "traceable to war, within the meaning of the condition."[87]On appeal, Scrutton J confirmed the arbitrator's award, placing particular emphasis on the expressions "directly or indirectly" and "traceable to the war" as used in the policy. For present purposes, however, I need only to refer to a comparatively short observation which appears at page 634 of the report. It is in these words:
"The words in the condition "caused by" and "arising from" do not give rise to any difficulty. They are words which always have been construed as relating to the proximate cause. I am not sure whether the words "traceable to" would of themselves necessarily go any further. They are very vague words, and I should have been disposed to hold if those were the only words, that, if the defendants choose to employ very vague words of that kind, the words must be read strictly against them and in accordance with the ordinary maxim. But the words which I find it impossible to escape from are "directly or indirectly"."
[88]In the light of those authorities, it would seem that no distinction is normally to be drawn between expressions such as "caused by" or "arising from" in construing the insuring clauses of a policy of insurance. Whatever expression is used to link the loss with the insured peril, the insurer will be liable only if the dominant or effective or operative cause of the loss is one of the perils covered by the policy. As it seems to me, formulations of this kind indicate that the test of causation in such circumstances is a fairly strong one.[89]But I was also referred to a more recent decision of the Court of Appeal in the case of Dunthorne v Bentley [1999] Lloyd's Rep I.R.560. That was a case in which the plaintiff had suffered serious injuries when his car collided with the defendant who herself suffered fatal injuries as a result of the collision. The defendant had been driving her own vehicle when it ran out of petrol. She then got out of her car and ran across the road in order to seek assistance from another person and was struck by the plaintiffs car as she did so. It was admitted that the plaintiffs injuries were caused by the negligence of the defendant and judgment was entered against her estate. The question which then arose was whether the defendant's insurers were obliged to satisfy the judgment by virtue of section 151 of the Road Traffic Act 1988. The insurers would only be liable if the plaintiffs injuries were "caused by or arising out of" the use of the car by the defendant. At first instance, the insurers were held liable; and the decision was upheld on appeal.[90]With some hesitation, the Court of Appeal held that the judge was entitled to conclude that, in the particular circumstances of the case, the Plaintiffs injuries were "caused by or arising out of" the use of the car by the Defendant. Both Rose and Pill LJJ considered that the expression "arising out of" contemplated more remote consequences than those envisaged by the words "caused by". They both cited the observations of the High Court of Australia in Government Insurance Office of New South Wales v Green & Lloyd (1965) 114 CLR 437. In the Australian case which, I am told, concerned a similar statutory provision, Wyndeyer J is recorded as having said at page 447: ""Caused by" connotes a "direct" or "proximate" relationship of cause and defect, "Arising out of" extends this to a result that is less immediate; but still carries a sense of consequence. It excludes cases of bodily injury in which the use of a vehicle is a merely casual concomitant, not considered to be, in a relevant causal sense, a contributing factor."[91]As Mr Cannon QC emphasised, the decision in Dunthorne v Bentley involved the consideration of a form of words in the context of statutory provisions intended to protect the general public against certain types of danger on the roads. So one can see that the Court might tend to favour a wider interpretation than in other contexts, though no considerations of that kind were expressly referred to in the course of the judgments. More importantly, perhaps, it must be borne in mind that, in that case, the expression "arising out of" was used disjunctively in association with the words "caused by". So one can readily see why the Court of Appeal was prepared to hold that, at least in that particular context, some distinction was properly to be drawn between the two expressions. I note, however, that no similar distinction was drawn by Scrutton J in Coxe v Employers' Liability Assurance Corporation Limited [1916] 2KB 629, despite the use of a similar disjunctive expression. I also note that this case was not cited to the Court of Appeal in Dunthorne v Bentley.[92]Furthermore, it was submitted by Mr Purchas, that the expression "arising from" as used in both policies, has a somewhat narrower meaning than the words "arising out of" which were considered by the Court of Appeal in Dunthorne v Bentley, even when used in isolation rather than in conjunction with the words "caused by". Whilst I would hesitate to place too much weight on such subtleties of language, the fact remains that the decision of the Court of Appeal in that case involved different words in a different context from those which I have to construe in these proceedings.[93]I was also referred to the decision of Akenhead J in Kajima UK Engineering Ltd v The Underwater Insurance Co Ltd [2008] Lloyd's Rep IR 391 . The facts of that case were far removed from those which I have to consider for present purposes. It primarily concerned the obligation of an insured under a claims made policy to notify underwriters of any circumstances which might result in a claim. But at para 97 of his judgment, Akenhead J briefly referred to Government Insurance Officer of New South Wales v Green & Lloyd and Dunthorne v Bentley, merely commenting that those cases were simply authority for the "relatively obvious proposition" that where a policy of insurance covered a loss "arising out of" a particular contingency, that expression might well be wider than an expression such as "caused by".[94]For my part, in the context of both the AIG policy and the RSA policy, I consider that the expression "arising from", standing, as it does, on its own, should be construed as referring to the dominant, effective or operative cause of the liability in question in accordance with the general principles summarised at paragraph 19- 001 of MacGillivray. In the present case, there is no direct causative link between Bakewells' liability to Sutherland and the way in which Mr Collins performed or failed to perform the legal services which he provided to the firm's clients. On the contrary, the obvious and direct cause was Bakewells' failure to fulfil the contractual obligations which they had undertaken under the Agreement.[95]The circumstances which have given rise to the present dispute are very far removed from the paradigm case in which a solicitor incurs a liability towards a client for breach of his duty to that client. Any liability to Sutherland in the present case represents the coming to pass of a commercial risk arising out of a contractual obligation towards a party to whom Bakewells owed no professional duties. It may well be the case that Mr Collins' breaches of duty towards his clients were the principal reason why individual loans were not repaid by the clients in question and that, but for their failure to do so, Bakewells would not have been faced with the claim made against them by Sutherland in the main proceedings. But it seems to me that the causal link between the claim made upon them by Sutherland and the assumed negligence of Mr Collins is simply too tenuous to justify the conclusion that the one "arose from" the other, even if one were to take the somewhat wider meaning of the phrase adopted in Dunthorne v Bentley.[96]Mr Cannon QC provided a telling analogy in order to illustrate his proposition that the claim was simply the outcome of the commercial risks undertaken by Bakewells. Suppose, suggested Mr Cannon QC, that a firm of solicitors such as Bakewells had embarked upon complex group litigation on CFA terms seeking damages for industrial disease on behalf of a large number of clients. Suppose also that they had arranged funding to enable them to conduct the litigation in question by means of a bank loan in the hope and expectation that, in due course, they would recover their costs and disbursements. But let it also be supposed that the litigation ended in failure owing to the negligent manner in which it was pursued by the solicitors, so that they were unable to recover their costs and disbursements from the opposing parties or from their clients. If the bank then sought to recover the amount outstanding on the loan account from the solicitors, could it seriously be argued, asked Mr Cannon QC, that the claim would be covered by their professional indemnity insurance?[97]The obvious answer to this rhetorical question is in the negative. The liability would be no different from any other commercial liability undertaken by the solicitors for the development of their practice. Whatever the nature of the loan, they would no doubt have anticipated that funds would be available to them in due course out of the profits their professional practice so as to enable them to repay the monies outstanding. But, of course, expectations may be dashed for any number of reasons. The mere fact that the monies which they expected to receive were not ultimately forthcoming because of the negligent way in which they had conducted some of their professional activities does not mean that any claim against them by their bankers is one which can fairly be said to "arise from" the performance or non-performance of legal services as required by the Minimum Terms and Conditions and by both the AIG and the RSA policies.[98]The reality, submitted Mr Cannon QC, is that Bakewells chose this specific method of funding litigation on behalf of their clients and undertook certain contractual liabilities to Sutherland as part of the arrangements for the provision of that funding. No doubt that was for the benefit of the clients; but it was also for their own benefit as it enabled them to attract new business. So it was no different in principle from any other funding arrangements of the kind instanced by counsel.[99]Mr Cannon QC also reminded me of the passage on the judgment of Greer LJ in the case of Haseldine v Hosken [1933] 1KB 822 at 837 to 838, which I have previously cited. In this case, it seems to me that the liability which Bakewells undertook was intended to secure a benefit for themselves and that Sutherland's claim does not arise from any neglect, omission or error of Mr Collins in his professional capacity as a solicitor. I conclude, therefore, that the claim does not come within the insuring clause of either the AIG policy or the RSA policy. Sub-Issue (2): Is any Liability to Sutherland a "Claim" for the Purposes of Either Policy[100]That conclusion is, in itself, sufficient to dispose of the preliminary issues in favour of AIG and RSA. But it was also contended that Bakewells were not entitled to an indemnity under either policy because the claim made by Sutherland in the main action does not amount to a "Claim" as defined by the policy conditions.[101]Both policies are, of course, "claims made" policies. In each case, the right to an indemnity arises in respect of claims made against the insured during the period of insurance or, of course, claims subsequently made which arise out of circumstances notified to the insurers during the period of insurance. But it is contended on behalf of both AIG and RSA that, save as is specifically set out in the policy conditions, any "claim" for these purposes encompasses only claims for damages or for civil compensation of a similar nature and does not extend to any claim to enforce any contractual liability in the nature of a debt.[102]The relevant provisions of each policy differ somewhat, with the RSA provisions more closely following those set out in the Minimum Terms and Conditions. But given the primacy of the Minimum Terms and Conditions, it is, I think, helpful to analyse the argument, at least in the first instance, by reference to the Minimum Terms and Conditions themselves rather than to the words adopted in the individual policies.[103]It will be recalled that by clause 1.1 of the Minimum Terms and Conditions, any solicitor's professional indemnity policy was required to indemnify the insured against "civil liability" to the extent that it arose from private legal practice in connection with the firm's practice. But this general provision is subject to the proviso that a "Claim" in respect of such liability must be made against the insured during the period of insurance, or subsequently, if it arises out of circumstances first notified during that period.[104]Now the expression "civil liability" is not a defined term. On the face of it, however, it is apt to cover any form of liability which can be enforced by means of civil proceedings. In the absence of any qualifying or controlling words, therefore, the expression would seem to extend to contractual liabilities of a commercial kind as much as to tortious liabilities or breaches of a contractual duty of care. Furthermore, there is no explicit or implicit distinction to be found in these words between liabilities of a liquidated or an unliquidated kind. In itself, therefore, I do not see that the use of this expression in the Minimum Terms and Conditions and in each policy would prevent Bakewells from seeking an indemnity in respect of their liability to Sutherland.[105]But it will also be recalled that by clause 8.2 of the Minimum Terms and Conditions, the word "Claim" is defined as meaning "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." This general definition is, however, followed by a specific provision by which any obligation on the part of the insured to remedy any breach of the Solicitors' Accounts Rules is to be treated as a "Claim" and as a "civil liability" for the purposes of clause 1, whether or not any person makes 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 as a result of such breach.[106]The essential question, for present purposes, therefore, is whether the requirement for a "Claim", as defined, narrows the scope of the indemnity to cases where "civil compensation or civil damages" are claimed and whether those expressions are narrower than the phrase "civil liability", as used in the Minimum Terms and Conditions.[107]Now, I accept that, whether it is regarded as a limitation on the cover provided by such a policy or as a condition precedent to any liability, the requirement for a "Claim" must mean that an indemnity can be claimed only where there has been 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". It was contended on behalf of both AIG and RSA that the particular civil liability which Bakewells faced in the main action does not constitute a claim for "civil compensation or civil damages" for the purposes of the Minimum Terms and Conditions and does not fall within any wider definition of "Claim" in either policy.[108]Mr Cannon QC took the point succinctly. He submitted that the liability was in respect of a debt owed by Bakewells and, as such, could not properly be regarded as involving a claim for damages or any other form of civil compensation. He pointed out that the claim against Bakewells, as pleaded in the main action, was for the recovery of a liquidated sum said to be due in accordance with clause 5.1 of the Agreement, though he acknowledged that the amount in question was also claimed, in the alternative, as damages for breach of that obligation. But notwithstanding this alternative pleading, he submitted that, as a matter of substance and reality, the claim was clearly one for a debt and not for damages.[109]Mr Purchas generally adopted Mr Cannon's submissions but formulated the point slightly differently at paragraph 38 of his skeleton argument. He submitted that a claim for "civil compensation" was "without more" a reference to a claim in tort. Whilst he accepted that a claim for "civil damages" might encompass a claim for damages in contract, he submitted that it did not extend to all such claims. Thus, it would cover a case where the damages sought arose from some breach of duty or obligation on the part of the insured for which it was responsible, but would not stretch to any claim for a payment of a sum unrelated to the performance of any duty or obligation. This latter distinction sought to be drawn by counsel seems to reflect the more general question which I have already considered in detail as to whether the liability in question can be said to "arise from" the performance or non-performance of legal services. Indeed, that point was specifically made in this very context at paragraph 38(e) of counsel's skeleton argument.[110]Now, for reasons which I have already given, it seems to me that any liability on Bakewells' part under clause 5.1 of the Agreement must be regarded as amounting to a debt, whether the liability constitutes a primary obligation on their part or merely a secondary obligation in the nature of a guarantee of their client's obligations under the individual loan agreements. On the face of it, therefore, it does not constitute a liability for damages, as that expression is commonly used in legal parlance.[111]To illustrate the distinction between debt and damages, I was referred to a recent decision of the Court of Appeal and to an Australian case in which the Supreme Court of Victoria had to consider a similar point in connection with a policy of professional indemnity insurance.[112]The case before the Court of Appeal was Bedfordshire Police Authority v Constable [2009] Lloyd's Rep IR 607 . The issue was whether a Police Authority's obligation under the provisions of the Riot (Damages) Act 1886, to compensate property owners for damage to their property caused by a riot was covered by the public liability section of an insurance policy which promised to indemnify the Authority in respect of sums of which the Authority "might become legally liable to pay as damages for accidental damage to property arising out of the business" of the Authority. The principal argument raised on behalf of the insurers was that these insuring provisions were not apt to cover any liability on the part of the Police Authority under the 1886 Act, which provided for statutory "compensation" in specified circumstances, since that did not amount to a legal liability to pay "damages" under the public liability section of the policy.[113]At first instance, this argument was rejected by Walker J and his decision was upheld on appeal. The leading judgment was given by Longmore LJ who referred to various earlier authorities dealing with the meaning of the expression "damages", particularly in an insurance context. At paragraph 23 of his judgment, he referred to the observations of Sir Wilfred Greene MR in Hall Brothers Steamship Co Ltd v Young [1939] 1 KB 748 where the Master of the Rolls said this:
"Damages" to an English lawyer imports this idea, that the sums payable by way of damages are sums which fall to be paid by reason of some breach of duty or obligation, whether that duty or obligation is imposed by contract, by the general law, or legislation"
. Longmore LJ went on to hold, at paragraphs 24, 25, 26 and 27 of his judgment, that the underlying feature which afforded the distinction between sums for which an insured was liable in damages and sums for which he was not so liable was to be found in the concept of responsibility. But, for my part, I do not consider that this analysis is likely to be of any assistance in resolving the question whether a contractual liability for a debt would amount to a liability in damages for such purposes.[114]In the Australian case of Kantfield Pty Ltd v Lockwood & Allianz Australia Insurance Limited [2003] VSC 420, Byrne J had to consider whether the receiver and manager of a company was entitled to an indemnity under his policy of professional indemnity insurance in respect of various debts incurred during the receivership for which he had been held personally liable. The insuring clauses of the policy provided an indemnity in respect of all civil liability arising from any "claim", which was defined as meaning a demand for, or civil proceedings brought, by a third party for "compensation or damages". But the policy conditions excluded any claim based upon, attributable to or in consequence of a "trading debt".[115]The insurers contended that the claim against the receiver could not properly be characterised as a claim for "compensation or damages" but was a claim for a sum certain, that is to say a debt. It was nonetheless argued on behalf of the receiver that, since his liability arose by statute and was intended for the protection of the supplier, it amounted to a liability to make compensation to the supplier. The learned judge rejected these arguments on various grounds. For present purposes I need only cite a brief passage from paragraph 12 of his judgment where he said this:
"...the expression in the definition of claim, "compensation or damages", shows that what is there intended is a claim for pecuniary redress for some actionable wrong. An obligation in contract or otherwise to pay a sum in a certain event is not properly to be seen as an obligation to compensate; it is an obligation to perform the contract. Finally, s.419 imposes upon the receiver personal liability for certain debts. A claim to enforce this liability for debt is not in normal parlance to be characterised as a claim for compensation or damages."
[116]The learned judge also addressed the argument that the exclusion from the scope of the indemnity of any "claim based upon, attributable to, or in consequence of any trading debt" indicated the contrary conclusion, namely that a liability in respect of a debt would have fallen within the primary cover afforded by the policy but for this exclusion clause. At paragraph 14 of his judgment he dismissed that argument in these terms:
"Again, this argument does not survive a close analysis. The exclusion is not for a claim for a debt, it is a claim, as defined, which is "based upon, attributable to, or in consequence of" any trading debt which the insured may incur. These conjunctive expressions are found in a number of the exclusions in Part 4 of the policy. It appears from these that the drafting is intended to cast a wide causal relationship between the excluded risk and the loss. Moreover, in this policy, the exclusion may operate notwithstanding that the cover itself specifically deals with the event specified, such as prior claims which are not within the insuring cl. 1.1 and fraud and dishonesty claims which are covered by cl. 6.1. It may be that cl. 27 is intended to make abundantly clear that the cover does not extend, not only to claims for trading debts, but also to claims consequent upon trading debts."
[117]For my part, I cannot see any obvious reason why the word "damages", as used in the definition of "Claim" in the Minimum Terms and Conditions should be given any wider meaning than it normally bears in an insurance context so as to extend to a liquidated liability in the nature of the debt. On the other hand, insofar as may be material, I do not see why it should be confined to claims in tort or for breach of a contractual duty of care, so as to exclude other claims for damages for breach of contract.[118]But, of course, the expression "Claim" for the purposes of the Minimum Terms and Conditions is defined as including a claim for "civil compensation" as well as "civil damages". It seems to me that, in this context, the expression "civil compensation" may well bear a different and somewhat wider meaning than "civil damages". That is not inconsistent with the observations of Longmore LJ in the case of Bedfordshire Police Authority v Constable which I have already referred to. At paragraph 20 of his judgment,

the Lord Justice said this:

"The 1886 Act says that the property owner is entitled to apply for and receive "compensation". "
Compensation" is itself an ambiguous word. On any view it can include what an English lawyer would call "damages" since it is the whole purpose of the law of tort to compensate persons who have suffered damage if there is legal liability for that damage. It is not enough to say that because the 1886 Act uses the term "compensation", the person liable to pay compensation does not become liable to pay a sum payable "as damages". When on a previous occasion, I was called on to construe the phrase "compensatory damages" I said that I could not sensibly differentiate between that phrase and "compensation" (i Charterhouse Development (France) Ltd v Sharp [1998] Lloyds Rep I.R. 266, page 279). Now that I am called upon to construe the phrase "liable to pay as damages", I cannot see that the word "compensation" in the 1886 Act is a necessarily different concept. Nor did the draftsmen see them as different concepts. He did after all give to the statute the short title The Riot (Damages) Act 1886; see section 1. The question whether the compensation payable to (sic) the police authority is a sum which they are "liable to pay as damages" must depend on the true nature of the liability as a matter of law."[119]In that specific case, of course, the word "compensation" did not appear in conjunction with the word "damages". For present purposes, it suffices to note that Longmore LJ considered that "compensation" was, in itself, an ambiguous word which could "include" what an English lawyer would call "damages". But it does not follow that the two expressions are to be equated for all purposes.[120]I nonetheless accept that, in general, the word "compensation" is not apt to describe the payment of a contractual debt. The concept underlying the expression, as it seems to me, is that it involves a payment (or perhaps some other form of redress) intended to make amends to another party for something which has happened or failed to happen to him. The payment of a contractual debt represents the fulfilment of a contractual obligation rather than the making of amends for non-payment. I do not readily see how any distinction is to be drawn for these purposes between a voluntary payment of the debt in accordance with the tenor of the contractual obligation in question and payment after a default or pursuant to a judgment.[121]But I nonetheless hesitate to hold that in this particular context the expression "civil compensation" necessarily excludes the payment of liquidated sums. I do not feel that the landscape of possibilities has been explored as fully as it might have been. There was some inconclusive debate during the course of the hearing as to whether a solicitor's liability upon his undertakings might, in appropriate circumstances, be covered by such an indemnity, even where it involved the payment of a specific sum of money. Indeed, I was told that it was the experience of counsel that claims in respect of undertakings are from time to time made by solicitors upon their policies of professional indemnity insurance. Of course, in many, perhaps most, cases, undertakings will be non-contractual in nature. But there is no reason why they might not sound in contract. Another situation in which a solicitor may become liable to pay a debt to a third party would be where he had undertaken a personal liability for disbursements in connection with litigation or non-contentious business carried out on behalf of a client. In neither of these cases is it evident that the jurisprudential nature of the liability should in itself be sufficient to exclude any claim in respect of such liability from the cover required by the Minimum Terms and Conditions.[122]It seems to me that the obvious controlling factor delimiting the scope of the cover required by clause 1.1 of the Minimum Terms and Conditions is that the civil liability in question must "arise from" the provision of professional services as a solicitor. As will be apparent from the previous section of this judgment, that requirement is likely to exclude most, if not all, liabilities of a commercial nature from the cover afforded by such a policy.[123]Moreover, the obvious purpose of the proviso to clause 1.1 of the Minimum Terms and Conditions is to ensure that the insurer must respond only to claims made against the insured solicitor during the period when the insurer is on risk or which arise from of circumstances first notified to the insurer during that period. There would seem to be no obvious reason why the proviso should also have the effect of limiting the scope of the indemnity contemplated by the substantive wording of clause 1.1 of the Minimum Terms and Conditions by reference to the jurisprudential nature of the civil liability in respect of which such a claim is made.[124]There are some further indications in the Minimum Terms and Conditions which might tend to suggest that the expression "civil liability" should not be construed narrowly. As will be recalled, the definition of the word "Claim" itself in the Minimum Terms and Conditions provides that an obligation to remedy any breach of the Solicitors' Accounts Rules could, in itself, be treated as a "Claim" and as a civil liability for the purposes of clause 1. But, as between solicitor and client, any such breach would presumably give rise to a contractual liability on the part of the solicitor to make good his default by payment of a liquidated sum. I recognise that the inclusion of this extended definition of the word "Claim" cuts both ways, since it might suggest that it would not otherwise have amounted to a liability to make "civil compensation" or pay "civil damages". But it seems to me that the primary purpose of this provision is to obviate the need for any demand for redress in such cases rather than to extend the conceptual boundaries, for these purposes, of the expression "civil liability".[125]But the Minimum Terms and Conditions also provide that a solicitor's policy of professional indemnity insurance may exclude or limit the liability of the insurer to the extent that any claim arises out of certain specified types of debt. Both the AIG policy and the RSA policy take advantage of these provisions by incorporating the appropriate words of exclusion; and I rather imagine that this will commonly be the case under other similar professional indemnity policies. But the exclusion is not mandatory; so it would seem to follow that, in the absence of such an exclusion, the insuring provisions in the form required by clause 1 of the Minimum Terms and Conditions would extend to such debts, provided, of course, that they "arose from" the provision of services as a solicitor. I appreciate, of course, that the availability of such an exclusion might be intended simply to avoid any possible doubt. But it nonetheless seems to me to indicate that a liability for a debt is not, for that reason alone, outside the cover provided by the insuring provisions.[126]I am, of course, conscious of the observations of Byrne J in Kantfield v Lockwood to which I have already made reference. He clearly held that an obligation in contract or otherwise to pay a sum certain was not an obligation to pay "compensation", even though, as in the present case, that word appeared in conjunction with the word "damages". Likewise, as in the present case, the insuring provisions provided an indemnity against all "civil liability" though this was limited to liability "arising from any claim" made against the insured during the period of cover in respect of his conduct of his professional business. That seems to me to be somewhat narrower than the equivalent requirements of the Minimum Terms and Conditions, namely that the "civil liability" should arise from the provision of services as a solicitor in private legal practice, subject to the proviso that a claim must be made during the period of insurance or thereafter if arising from circumstances first notified to the insurer during the period of insurance. Furthermore, Byrne J dismissed the argument based upon the exclusion of certain liabilities in connection with trading debts on the footing that the exclusion was wider than a mere claim for a debt but one "based upon, attributable to or in consequence" of any such debt.[127]I have found this point to be both interesting and difficult. I incline to the view that the Minimum Terms and Conditions should not be construed in such a way as to exclude any liability in debt, as a matter of principle, from the cover required in respect of any "civil liability", even though this might seem to do some violence to the expression "civil compensation or civil damages" in the definition of the word "Claim". But the issue is one which might have wider implications for policies of this kind in very different circumstances from those of the present case. In view of my findings on the scope of the insuring provisions and, as will be seen, on the "trade debts" exclusion, the resolution of this particular point can have no bearing on the outcome of the preliminary issues. It seems to me, therefore, that any issue of this kind should be left to be determined in a case in which it is strictly necessary to do so in order to resolve a disputed claim under a policy of professional indemnity insurance. Since the point is unnecessary for the determination of the present issues, I think that the better course would be for me to express no definitive opinion upon it and leave its resolution to another occasion.[128]In the circumstances, I can deal comparatively briefly with the terms of the individual policies. The RSA policy closely follows the relevant wording of the Minimum Terms and Conditions, so it does not seem to me that any different questions arise from those which I have already considered in relation to the Minimum Terms and Conditions. Indeed, as Mr Zelin pointed out, the terms of the preliminary issue, do not explicitly raise the question whether the liability falls within the definition of "Claim" in the RSA policy.[129]But the point is clearly raised by the agreed terms of the preliminary issues as between Bakewells and AIG. As I have already observed, the AIG policy does not simply adopt the wording of the Minimum Terms and Conditions in relation to the insuring provisions or, for that matter, the definition of the word "Claim". But, if and insofar as the wording adopted by the policy might seem to provide for more restrictive cover than that required by the Minimum Terms and Conditions, the latter will take precedence over any limitations in the policy by reason of the requirements of clause 4.11 of the Minimum Terms and Conditions which are expressly incorporated in the policy itself.[130]So, if the AIG policy wording was apt to exclude any right of indemnity in respect of any debt, whether or not it arose from legal practice, whereas the Minimum Terms and Conditions did not, the wider cover required by the Minimum Terms and Conditions must prevail over any narrower cover which would otherwise have been afforded by the policy. On the other hand, if, contrary to what I would be inclined to hold, the cover required by the Minimum Terms and Conditions would not, as a matter of principle, extend to any liability in respect of a debt, it would be open to an insurer such as AIG to provide wider cover which might, in principle, embrace such liabilities, subject to any other restricting or controlling factors.[131]So, if it had been necessary for my decision on the preliminary issues to resolve this particular point in relation to the AIG policy, I would have had to consider whether the wording actually adopted by the policy was, or was, not apt to provide cover in respect of liabilities of this kind. I will, therefore, briefly summarise the submissions of counsel on this issue, though, for reasons which I have already given, I do not propose to essay a definitive resolution of the point.[132]Mr Cannon QC sought to support his submission that the word "Claim" in the AIG policy meant that a claim in respect of a debt was outside the scope of the indemnity by reformulating the insuring provisions of the policy so as to incorporate within them the definition of the expressions "Loss", "Claim" and "Damages" His version, excluding various immaterial provisions therefore, reads as follows:
"Professional Liability. The Insurer will pay on behalf of the Insured [any amount that an Insured shall be legally liable to pay to a third party for all civil liabilities including but not limited to judgments or arbitral awards rendered against an Insured , or for settlements negotiated with the consent of the Insurer ] resulting from [any demand for, or intimation of an intention to seek, compensation or Damages for a civil liability of an Insured] for any civil liability of the Insured which arises out of the performance of or failure to perform [the provision of services in private practice as a solicitor or registered European lawyer]."
[133]It will be seen that in this version, the word "Damages", as it appears in the definition of "Claim" is not expanded for a second time. This was a point which Mr Zelin picked up in the course of his submissions and which led him to put forward an alternative version in which this expression was expanded both where it appears in the expression of "Loss" and in the definition of "Claim". His version reads as follows: "Professional Liability. The Insurer will pay on behalf of the Insured [any amount that an Insured shall be legally liable to pay to a third party for all civil liabilities including but not limited to judgments or arbitral awards rendered against an Insured , or for settlements negotiated with the consent of the Insurer ] resulting from [any demand for, or intimation of an intention to seek, compensation or (any amount that an Insured shall be legally liable to pay to a third party for all civil liabilities including but not limited to judgments or arbitral awards rendered against an Insured, or for settlements negotiated with the consent of the Insurer) for a civil liability of the Insured] for any civil liability of the Insured which arises from performance of or failure to perform [the provision of services in private practice as a solicitor or registered European lawyer]".[134]It was Mr Cannon's submission that it followed from his reformulation of this primary insuring clause of the AIG policy that no indemnity could be claimed against any liability incurred by Bakewells in respect of a debt. This conclusion flowed, he submitted, from the fact that the indemnity afforded by the policy was in respect of "Loss" resulting from any "Claim" which in turn involved a demand for, or an intimation of an intention to seek, "compensation or Damages". But, it was submitted, the expression "compensation or Damages" is not apt to describe a liability in the nature of a debt.[135]So the argument advanced on behalf of AIG is essentially the same as that which I have already considered in relation to the provisions of the Minimum Terms and Conditions. Bakewells, it is submitted, are entitled to an indemnity under the policy only where a "claim" is made on Bakewells: and the only sort of claim which gives rise to a right to an indemnity is one which amounts to a demand for, or an intimation of an intention to seek compensation or damages, rather than a debt. It is only, therefore, in respect of any "civil liability" of this kind that AIG is obliged to indemnify Bakewells.[136]It does seem to me to be at least arguable that the wording of the insuring clause in the AIG policy is such as to tie the right to an indemnity more closely to the nature of the claim. The obligation of the insurer is to pay any "Loss" resulting from a "Claim", as defined, albeit that the claim must be "for a civil liability of the insured which arises from the performance of or failure to perform Legal Services". That contrasts with the wording of clause 1.1 of the Minimum Terms and Conditions which, as will be recalled, simply requires the insurer to provide an indemnity "against civil liability" to the extent that it arises from Private Legal Practice. The requirement for a "Claim" only appears thereafter by way of a proviso as to the time within which any such claim must be made. The terms of the AIG policy are, therefore, somewhat closer to those which were considered by Byrne J in the Australian case of Kantfield v Lockwood. That is emphasised by the way in which Mr Cannon QC has sought to reformulate the insuring provisions in the manner set out above.[137]But it will be recalled that the expression "Damages" is defined for the purposes of the AIG policy as meaning "any amount that an Insured shall be legally liable to pay to a third party for all civil liabilities including but not limited to judgments or arbitral awards rendered against an Insured ...and the word "Loss" in the insuring clause is itself defined by reference to "Damages" in this sense. Hence, as Mr Cannon QC's version shows, the insuring clause of the AIG policy requires the insurer to pay on behalf of the Insured "any amount that an Insured shall be legally liable to pay to a third party for all civil liabilities including but not limited to judgments or arbitral awards rendered against an Insured....".[138]So, the insuring provisions, in this indirect way, seem to reintroduce a general right of indemnity in respect of any amount which the insured should be legally liable to pay to a third party for all civil liabilities. But the insuring provisions also provide that the liability in question must result from a "Claim" as defined. Accordingly, Mr Cannon QC submitted that any such liability must result from a demand for or intimation of an intention to seek "compensation or damages". So the argument was, once again, reduced to the same point, namely that these words controlled the scope of the indemnity and that the expression "compensation or damages" was not apt to cover a claim based upon a debt.[139]For my part, I would be loath to interpret the relevant wording of this policy in any different sense from that required by clause 1 of the Minimum Terms and Conditions. It seems to me that the issue arising from the particular wording of this policy is, in substance, precisely the same as that which I have considered in relation to the Minimum Terms and Conditions, namely whether the obligation on the part of the insurer to indemnify the insured in respect of any amount that he may be legally liable to pay for "all civil liabilities" is wide enough to cover a claim in respect of a debt and, if so, whether that obligation is cut down or restricted by the use of the expression "compensation or damages" in the definition of the word "Claim".[140]As I have already noted, Mr Cannon did not seek to expand the word "Damages" where it appeared for a second time in his expanded version as part of the definition of the word "Claim". But it seems fairly clear that, even upon its second appearance, the word "Damages" is intended to be interpreted as a defined term. In Mr Zelin's version, therefore, it is expanded for a second time, indicating that any relevant claim may be for "all civil liabilities including but not limited to judgments or arbitral awards rendered against an insured". Though expanding the expression in this way does not produce a syntactically elegant form of words, it is difficult to see why the expression "Damages" in the definition of "Claim" in the AIG policy should not be interpreted in this way so as to extend to "all civil liabilities" rather than to damages in the narrow sense. So, Mr Cannon QC's argument seems to fall away.[141]So, I incline to the view that, notwithstanding the somewhat different way in which the relevant clauses are formulated in the AIG policy, the scope of the indemnity is no wider or narrower, at least in this particular respect, than that required by the Minimum Terms and Conditions. Indeed, if the narrower interpretation of the Minimum Terms and Conditions were to be held to be the appropriate one, it might well be said that the insuring provisions of the AIG policy, as expanded in this way, provide wider cover than that required by the Minimum Terms and Conditions. But, for reasons which I have already given, it is neither necessary nor desirable to make a definitive finding on the point in order to resolve the present dispute. The Second Issue: Trade Debts[142]Paragraphs 1(ii) and 2(ii) of the preliminary issue, as formulated and agreed between the parties, raise a further question as to whether any right to an indemnity under either policy which might otherwise be available to Bakewells in respect of the claim made against them by Sutherland would, in any event, be excluded as constituting a debt of the kind referred to at clause 6.6 of the Minimum Terms and Conditions.[143]It will be recalled that clause 6 permits the exclusion or limitation of the insurers' liability to the extent that any claim arises from any of the matters therein set out including any debts and trading liabilities of the kind specified at clause 6.6. In the case of both the AIG policy and the RSA policy, advantage has been taken of these provisions so as to exclude any such liability in terms which are largely identical to those set out in the Minimum Terms and Conditions themselves.[144]It is, of course, the contention of both AIG and RSA that any relevant liability of Bakewells to Sutherland falls within this exclusion so as to disentitle them to an indemnity under either policy. Strictly, it is unnecessary for me to resolve this question, since my decision on the construction and application of the insuring clauses in each policy means that Bakewells cannot claim an indemnity against either insurer. But the point was a discrete one which was the subject of a separate question in the agreed formulation of the preliminary issues and I have come to a clear view as to the outcome. In the circumstances, in case I am wrong in my decision on the other issues, I propose to go on to deal with the point.[145]I have already set out the factual background and the various assumptions on the basis of which this question falls to be determined. I should perhaps record that there was some brief debate during the course of submissions as to whether, in the case of either policy, the relevant provision was properly to be categorised as amounting to an exclusion or as a clause defining and controlling the extent of the cover provided by the insuring provisions. But nothing turns on the point and it is unnecessary for me to consider it further.[146]The principal question was the simple and straightforward one as to whether any liability of Bakewells to Sutherland under clause 5.1 of the Agreement was one which arose from any "trading or personal debt" of Bakewells within the meaning of those words in clause 6.6(a) of the Minimum Terms and Conditions and adopted, in substance, by both of the policies. It should, perhaps, be noted that the material parts of the policies do not slavishly follow the introductory wording of clause 6 of the Minimum Terms and Conditions. In the case of the AIG policy, the opening words state that the policy should not cover "Loss" in connection with any "Claim" or any loss "arising out of, based upon or attributable to" trading or personal debts or the like. By contrast, once again, the RSA policy follows the wording of the Minimum Terms and Conditions rather more closely, though the introductory words simply provide that the insurer should not be "liable for" any trading or personal debt and so forth. But nothing turns on these modest differences in terminology.[147]A "personal debt" is, presumably, one incurred by a solicitor in his own personal and private capacity unconnected with his professional practice. It was not suggested that any liability to Sutherland in the present case fell into this category. The principal argument raised on behalf of the AIG and RSA was, therefore, whether the liability in question amounted to a "trading debt" of the firm.[148]For my part, I can see no answer to the proposition that it did amount to a "trading debt". The practice of the law is a business as well as a profession. Though some might not care for the analogy, a solicitor sells his services just as a market trader sells the goods he displays on his stall. In the course of his practice, a solicitor will inevitably incur debts and liabilities of a business nature in order to enable him to pursue and promote his professional activities. He will require offices, equipment, secretarial assistance and the like and may well require overdraft or loan facilities from his bank or other sources. In the ordinary course of events, it could hardly be said that his liability for rent, hiring charges or wages and salaries could be anything other than business debts and liabilities. The same would seem to apply with equal force to any debts and liabilities incurred in respect of financial accommodation provided by his bankers.[149]In the present case, Bakewells have entered into arrangements with Sutherland in order to provide interim funding of their costs and disbursements in connection with individual claims for damages intended to be pursued on behalf of clients for whom they act. Whilst these arrangements were no doubt intended to be for the benefit of the clients, they also enabled Bakewells to provide their services, for reward, to clients for whom they might well otherwise have been unable to act. Indeed, by paragraph (5) of the Statement of Agreed Facts, it is agreed that, by being able to offer potential clients loans by virtue of these arrangements, Bakewells was able to attract new business.[150]But part of the price which Bakewells had to pay for obtaining the benefit of this facility from Sutherland was that they had to accept a personal liability under clause 5.1 of the Agreement if, for whatever reason, any individual loan was not repaid by their client.[151]For reasons which I have already set out, I am quite satisfied that any liability to Sutherland under clause 5.1 of the Agreement is to be regarded as a debt. But, in the light of my analysis of the arrangements which gave rise to the debt, I am also satisfied that it is to be regarded as one which was incurred by Bakewells in connection with arrangements which were made so as to allow them to provide their services, for reward, to clients for whom they would or might not otherwise have been able to act. In my judgment, the liability is clearly a business or trading debt which falls squarely within the exclusion permitted by clause 6.6(a) of the Minimum Terms and Conditions and adopted in both the AIG and the RSA policies.[152]For completeness, I should perhaps add that I was briefly referred to certain authorities which, it was suggested, might cast some light upon the concept of a trading debt. These were the decision of the Court of Appeal in the case of In Re Allen ex parte Shaw [1915] 1 KB 285 and the decision of the House of Lords in Theophile v Solicitor General [1950] AC 186. But, for my part, I did not gain any real assistance from either of these cases so it is unnecessary for me to deal with them.[153]Since I have found that the present case falls within the first category of debts and liabilities excluded from cover under clause 6.6 of the Minimum Terms and Conditions, as incorporated in each of the two policies, it is, once again, strictly unnecessary for me to consider the other two limbs, as set out at sub-clauses (b) and (c) of clause 6.6. But I will nonetheless briefly deal with them.[154]The exclusion at clause 6.6(b) of the Minimum Terms and Conditions, as imported into each policy, excludes any liability arising out of any breach by the insured of "the terms of any contract or arrangement for the supply to, or use by, any Insured of goods or services in the course of the Firm's Practice." The submissions of counsel on this issue were directed to the question whether the arrangements with Sutherland were for the supply of goods or services to Bakewells or for the use of the firm in the course of its practice. Mr Cannon QC emphasised the fact that, by clause 2.2 of the Agreement, Sutherland was to provide Bakewells with "the appropriate standard Consumer Loan Agreement or Company Loan Agreement", for execution by the client and that, under clause 2.4 Bakewells was to pay an "administration fee" in respect of any loan, indicating that Sutherland was to provide administration services to Bakewells in respect of each individual loan. He also pointed out that Sutherland was obliged to make payments by cheque directly to Bakewells, together with a list of items for payment, specifying any deductions and the like.[155]Mr Purchas, on the other hand, based his argument primarily on the fact that the Agreement, properly understood, involved the supply of financial services to Bakewells and its clients and that Bakewells was a direct beneficiary of those services. He emphasised that the full amount of any individual loan was payable directly to Bakewells, whether or not they had incurred any liability for disbursements or fees. This would appear, he suggested, to be of immediate and direct financial benefit to Bakewells, quite regardless of the indirect benefit of enabling their clients to use their services for the purposes of pursuing their claims for compensation. Hence, he suggested, the apparent willingness of Bakewells to pay a £40 administration fee in each case.[156]For my part, I find the argument that the provision of forms by Sutherland to Bakewells amounted to a "supply of goods" within the meaning of the exclusion to be highly artificial. I am also unpersuaded that a payment of an "administration fee" in itself means that Sutherland must be regarded as having agreed to provide administration services in return for the fee. But I agree with the submission of Mr Purchas that the substance of the arrangements embodied in the Agreement amounted to a contract for the provision of financial services. The question is whether it can properly be said that those services were supplied to or for the use of Bakewells in the course of their practice.[157]One purpose of the arrangements, perhaps the primary purpose, was to provide loan finance to individual clients. The provision of financial services of this kind to the clients would not, in itself, mean that there was a supply of such services to or for the use of Bakewells. But, in each case, the full amount of the loan was payable directly to Bakewells to enable them to pay fees and disbursements which they would or might otherwise have had to carry out of their own resources.[158]Furthermore, on any view, a major purpose of the arrangements embodied in the Agreement was to enable Bakewells to arrange loan finance for the benefit of its clients. In the circumstances, though the point is not entirely straightforward, I take the view that, at least in part, the Agreement between Sutherland and Bakewells was one for the supply of financial services to Bakewells in the course of its practice and is, therefore, within the exclusion set out at clause 6.6(b), as adopted by both AIG and RSA in the policies under consideration.[159]The third limb of the exclusion is that permitted by clause 6.6(c) of the Minimum Terms and Conditions, that is to say where the claim arises from any "guarantee, indemnity or undertaking" by the insured "in connection with the provision of finance, property, assistance or other benefit or advantage directly or indirectly that that insured."[160]It is not particularly easy to discern the purpose behind this exception or to be entirely confident of the circumstances in which it might apply. The words "guarantee" and "indemnity" would seem to presuppose that it applies only where the liability is, in some way, ancillary to or dependent upon arrangements made with some other party. There seems little doubt that, in the present case, the obligations accepted by Bakewells under the provisions of clause 5.1 of the Agreement are to be regarded as amounting to either a guarantee or an indemnity, or both, for these purposes, since they arise only where their clients have failed to repay their individual loans within the time stipulated. What is much less clear is whether the word "undertaking" in this context should be construed as meaning any form of contractual obligation undertaken by the insured or whether it should be confined more narrowly to solicitors' undertakings in the strict sense. I incline to the latter. What is also quite unclear is what weight, if any, is to the given to the reference to "any particular insured" in this context, as opposed to the more usual reference simply to "the insured".[161]Nonetheless, since it seems plain that the obligations under clause 5.1 of the Agreement amount to a guarantee or indemnity for these purposes, the question which arises is whether they were given by Bakewells "in connection with the provision of finance, property, assistance or other benefit or advantage directly or indirectly to that insured." I do not find this easy to construe.[162]On the face of it, the guarantee or indemnity in question is given in connection with the provision of finance to the firms' clients' rather than to the firm itself. Indeed, it is not easy to see how a guarantee or indemnity in the true sense can be given by a firm in respect of an obligation owed by itself.[163]So the exclusion would seem to be designed to cover cases where a firm enters into a guarantee or indemnity in relation to the obligations of a third party, provided that it does so in connection with the provision of finance, property, assistance or other benefit or advantage directly or indirectly to the firm. The mere fact that the party whose obligations are the subject of the guarantee or indemnity may himself, as in the present case, obtain finance, property, assistance or other benefit or advantage from the arrangements in question does not, as it seems to me, necessarily mean that the guarantee or indemnity is not given in connection with the provision of finance and so forth directly or indirectly to the insured.[164]On that analysis, the question is simply, therefore, whether Bakewells accepted the obligations under clause 5.1 of the Agreement "in connection with the provision of finance, property, assistance or other benefit or advantage directly or indirectly" to themselves. It seems to me that a question framed in these terms must be answered in the affirmative. For reasons which I have already given, I consider that, under the arrangements in question, finance was provided directly to Bakewells. Furthermore, a major purpose of the arrangements was to allow Bakewells to act, for reward, for clients for whom they might not otherwise have been able to act and to extend their practice. It seems to me that this must be regarded as a benefit or advantage provided at least indirectly to Bakewells.[165]I conclude, not without some hesitation, that the circumstances of the present case are such as to fall within this final limb of the exclusion, since Bakewells' obligations under clause 5.1 of the Agreement amount to a guarantee or indemnity given by the firm in connection with the provision of finance directly to the firm and in connection with the provision of other benefits or advantages indirectly to the firm.[166]Accordingly, I have come to the conclusion that any liability of Bakewells to Sutherland under clause 5.1 of the Agreement comes within the debts and trading liabilities exclusion in both policies so that Bakewells would not be entitled to an indemnity even if the claim would otherwise have come within the scope of the insuring provisions of the policies. Conclusions[167]For the reasons set out above, I answer the questions raised by the terms of the amended preliminary issue in the following way: 1. Under the terms of the insurance policy between the Defendant and the Third Party (Chartis) for the period 1 October 2007 to 30 September 2007 under policy no. 034012910 (the AIG policy)(i) Does the funding liability fall within the definition of "Claim" and/or within the insuring clause of the AIG policy? Answer: No.(ii) Is the funding liability excluded by reason of the Trade Debts exclusion of the AIG policy? Answer: Yes. 2. Under the terms of the insurance policy between the Defendant and the Fourth Party (RSA) for the period 1 October 2008 to 30 September 2009 under policy no. PI52162A (the RSA policy) (i) Does the funding liability 'arise from Private Legal Practice' within the meaning of clause 1.1.1 of the RSA policy and/or within the insuring clause of the RSA policy? Answer: No. (ii) Is the funding liability excluded by reason of the Trade Debts exclusion at clause 5.6 of the Policy? Answer: Yes.

Cited in 5 later judgments