Impact Funding Solutions Ltd v Barrington Support Services Ltd & Anor

An exclusion for debts and trading liabilities in solicitors’ professional indemnity terms is aimed at liabilities personal to the solicitor, such as office and trading obligations. It does not exclude liabilities arising from professional duties owed to clients. Loans made to clients to fund litigation disbursements may form an integral part of the solicitor’s professional arrangements. A solicitor’s duty to assess the prospects of success includes avoiding needless disbursements, and the insurer’s position does not change because funding was advanced before, or without, that advice. Fact-sensitive VAT authorities do not establish universal rules and offer little assistance in the distinct context of professional indemnity insurance.

Impact Funding Solutions Ltd funded disbursements in industrial deafness claims conducted by Barrington Support Services Ltd under conditional fee arrangements. Claimants entered loan agreements with Impact and proposed after-the-event insurance; a disbursements funding agreement governed the relationship between Impact and Barrington. Barrington failed to assess claims properly and used some loan money for unauthorised purposes. Impact obtained judgment against Barrington for £581,353.80 and pursued AIG Europe Insurance UK Ltd under the Third Parties (Rights Against Insurers) Act 1930.

His Honour Judge Waksman QC held that AIG could rely on exclusion 6.6(b) of the solicitors’ Minimum Terms because the funding agreement was an arrangement for services supplied to Barrington and the repayment liability arose from breach of contract. The appeal concerned whether the liability was a personal trading debt or a liability professionally incurred in performing duties to clients.

Lord Justice Longmore gave the leading judgment, with which Lord Justice Patten and Lady Justice Gloster agreed.

1. Appeal allowed. Judgment was entered against AIG for the sum for which Barrington was liable in the first action, together with interest.
2. The essential purpose of exclusion 6.6 in the solicitors’ Minimum Terms is to exclude liabilities personal to the solicitor, including obligations to suppliers, landlords and mortgagees. It does not exclude liabilities arising from professional obligations owed to clients.
3. Loans made nominally to clients to fund litigation disbursements may be an integral part of the solicitor’s professional arrangements. The solicitor’s duty includes advising on the prospects of success and avoiding needless disbursements. Liability caused by negligent failure to give that advice remains professionally incurred, whether the disbursement was incurred before the advice or without advice being given.
4. Accordingly, Barrington’s liabilities under clauses 6 and 13 of the funding agreement were professionally incurred liabilities. Exclusion 6.6 did not apply. The analysis was not altered by the fact that Impact made the advances to clients, or by the interconnected contractual arrangements.
5. The VAT authorities, including HMRC v Amia Coalition Loyalty UK [2013] UKSC 15 and Airtours Holidays Transport Ltd v HMRC [2014] EWCA Civ 1033, were of little assistance. VAT decisions are highly fact-sensitive and do not establish universal rules in the distinct context of professional indemnity insurance. Even if the transaction involved two supplies, the services were inherent in the solicitor’s performance of client obligations and were outside the exclusion.
6. The position could differ if a solicitor operated a scam, never intended to obtain client instructions and intended to use the loans for personal purposes. That situation was neither alleged nor consistent with the trial findings.

• Court of Appeal (Civil Division): allowed Impact’s appeal and entered judgment against AIG for the amount for which Barrington was liable, with interest.
• High Court of Justice, Queen’s Bench Division: His Honour Judge Waksman QC held that exclusion 6.6(b) applied and gave judgment for AIG in the insurance proceedings.