Rodney Mark Gardner v Lemma Europe Insurance Co Ltd (In Liquidation) [2016] EWCA Civ 484

The Court of Appeal has considered the High Court's previous refusal to lift the automatic stay imposed by Article 20 of the Cross-Border Insolvency Regulations 2006 ("Model Law").

The Appellant ("G"), a solicitor in the UK, appealed against a 2014 High Court decision following the court's refusal to lift a stay on UK proceedings against the Respondent ("L"). L,  a professional indemnity insurance company, was incorporated in Gibraltar and entered Liquidation in January 2013 following an order of the Gibraltar Supreme Court. In February 2013, the UK courts recognised the Liquidation of L under the Model Law, therefore automatically staying all proceedings against L without permission of the court.

G took out a professional indemnity policy with L in 2009. A requirement of the policy was that, in order to recover costs, G would notify L of any claims which may give rise to a civil liability claim. In the same year, G received a notification from a previous client ("C") that  protective issues may be brought against him for failure to notify C of a conflict of interest. In accordance with the insurance policy, G notified L, although C took no further steps in respect of any claim. However, the following year claims of 5 other clients were brought against G, for again failing to notify in relation to a conflict of interest. The Solicitors Regulation Authority subsequently brought disciplinary proceedings against G, the costs of which G attempted to claim under the insurance policy, after L had entered Liquidation.

G argued that he had notified L of a similar claim from C and that this claim was sufficiently similar to the disciplinary proceedings which followed, therefore all of the disputes should be treated as the same claim under the policy. L's Liquidators rejected G's claim on the basis that at no time had C actually brought proceedings against G and even if they had, the disciplinary proceedings did not arise from this claim, therefore G could not recover costs under the policy.

In 2014, the High Court considered whether the stay should be lifted to allow G to make a claim against L for the costs he believed to be due to him. The court stated that G must show a "genuinely arguable case" and that a key consideration would be whether it was appropriate and fair in the circumstances to deal with the issue by the liquidation procedure or before a court. The court dismissed the application on the basis that G did not have an arguable case and that claims should be resolved with the least possible cost so as to not adversely affect the interests of creditors.

On appeal, Lord Justice Patten reiterated that leave to commence proceedings would only be granted in the event that the issue could not be dealt conveniently using the usual liquidation procedure. In addition, whilst the Applicant must show that they have passed the threshold of a genuine arguable case, even in the event that this threshold is passed, the court has a discretion to decide whether to lift a stay and allow the commencement of proceedings.

The court concluded that G's claim was not covered by the terms of his insurance policy and subsequently dismissed the appeal due to the absence of an arguable case. In any event, the court stated that even if a good case had been established by G, the previous Judge had been entitled to use his discretion as there had been no misapplication of legal principles. The court concluded that "the need to preserve the estate for the benefit of creditors outweighs the contractual right of the insurance in this case to have his claim determined in England".