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Solicitors' professional indemnity insurance

Background

The recent decision builds upon the earlier case of Nayyar& Others v Denton Wilde Sapte & Advani [2010]. That case saw a claimfall foul of the ex turpi causa defence, namely, the maxim or principle that aclaimant cannot rely upon its own illegal or immoral conduct to recovercompensation.

That case involved a claim by purported clients againstDentons and a senior solicitor in its India Group, a Ms Advani, for anunreturned “deposit” of £383,259. Ms Advani’s role within Dentons was focusedon business development, rather than fee earning. She introduced the Claimanttravel agents to an opportunity, via a former Tourism minister for the Indianstate of Utter Pradesh, to be the Global Sales Agents of Air India in the UKand Ireland. Total sums of £383,259 were paid over (out of a total costoriginally stated to be £2.4m) although, in the event, the agency was notawarded nor was the money returned. The Claimants sued Dentons and Ms Advanifor the return of the so-called deposit.

The Judge held that the claim against both Defendants failedon the basis of the illegality defence. The “deposit” was intended to be abribe and it was irrelevant whether this was successful or not; the moralturpitude of the briber was the same.

That was the end of the matter, although the Judge went onto find that Dentons was not, in any event, vicariously liable for the acts andomissions of Ms Advani. The Claimants were not (and had never been) clients tothe firm and, whilst Ms Advani acted as a “deal broker”, she was not actingwithin her actual or ostensible authority; she was acting on her own behalfand, significantly, had a personal role and stake in the deal, having sought acommission of £250,000 out of the £2.4m total cost.

The recent decision

Dentons' insurer, Travelers, sought recovery from Ms Advaniof a sum exceeding £500,000 which it had paid to fund her separate defence ofthe earlier action. Dentons sought from her that part of its own defence costswhich it had been unable to recover, a sum of approximately £90,000.

Travelers, whose policy covered Dentons’ employees, arguedthat Ms Advani had acted dishonestly in the transaction and outside the courseof her employment, with the result that it was entitled to be reimbursed underthe terms of the relevant policy. Dentons argued that the costs which it hadincurred were recoverable from Ms Advani as damages, as she had acted in breachof her contract of employment in conducting herself in the way she had.

The recent judgment held that both claims were successful.Ms Advani knew that the sums in question were going to be paid, and were paid,as a bribe, and she had been involved in the discussions which led to thepayments. Her role was to be the means of communication between the formerTourism minister and the travel agents and to arrange for the bribe to be paid.The Court found that, whilst the 2010 judgment did not go as far as to describeMs Advani’s conduct as dishonest, what her conduct was found to have been inthat judgment was “plainly dishonest”. It was a term of Ms Advani’s contract ofemployment that she should act honestly and it was wholly foreseeable that, asa result of her dishonesty, Dentons would be drawn into the original action.

Comment

In this case, the original proceedings went a long waytowards finding dishonesty on the part of the insured employee. It is, however,usually necessary for insurers to fund a defence and separately (e.g. througharbitration) seek a declaration in this respect. This case is a reminder of thepotential value of such recourse, albeit that the individual’s personalresources and ability to satisfy any judgment or award will clearly be a majorfactor in any costs vs. benefit assessment.

This article first appeared in Law-Now, CMS CameronMcKenna's free online information service, and has been reproduced with theirpermission. For more information about Law-Now, click here. http://www.law-now.com/law-now/

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