Gardner v Lemma Europe Insurance Company Ltd

Leave to commence or continue proceedings against a company protected by a liquidation stay requires a genuinely arguable claim. If that threshold is crossed, the court must decide whether it is fair and just to permit proceedings rather than require the claim to be dealt with in the liquidation, including whether the issue can be dealt with as conveniently there. The merits belong to the forum in which the claim proceeds. An insurance policy definition of a claim requires communication of an intention to seek compensation or damages. Correspondence seeking information before deciding whether to sue, with only a conditional reference to protective proceedings, is insufficient. An aggregation clause defining one claim for the limit of cover does not create a claim or satisfy a separate requirement that disciplinary proceedings arise from it.

Mr Gardner appealed against the dismissal by HH Judge David Cooke QC of his application to lift the stay on proceedings against Lemma, a Gibraltar company in liquidation. The liquidation had been recognised in the United Kingdom under the Cross-Border Insolvency Regulations 2006. Mr Gardner sought an indemnity under a 2009 insurance policy for costs incurred in defending disciplinary proceedings. He argued that correspondence from the Curwens’ solicitors amounted to a claim made during the 2009 insurance year and could be aggregated with other claims. The central questions were whether a qualifying claim existed and, if so, whether the stay should nevertheless be lifted.

The Court of Appeal, in a judgment delivered by Patten LJ with which Kitchin LJ and Floyd LJ agreed, dismissed the appeal.

1. The automatic stay under Article 20 of the Cross-Border Insolvency Regulations 2006 protected the company in the same way as section 130(2) of the Insolvency Act 1986. The stay protects assets available for distribution and encourages creditors to prove their debts in the liquidation, with access to the Companies Court if a proof is rejected under Rule 4.83 of the Insolvency Rules 1986. Leave is granted only where it is right and fair in all the circumstances, and is unlikely where the issue can be dealt with as conveniently in the liquidation. The claim must first pass the threshold of genuine arguability; the merits are for the forum in which the claim proceeds. The court applied the approach in Re Exchange Securities & Commodities Limited [1983] BCLC 186.
2. Under clauses 1.1 and 1.2(c) of the policy, Mr Gardner needed to establish a claim made during the 2009 insurance year from which the disciplinary proceedings arose. Clause 8.3 required communication of an intention to seek compensation or damages. The Curwens’ letter sought disclosure of files so that the solicitors could decide whether to bring a claim. Its conditional reference to possible protective proceedings did not communicate an existing intention to claim. The subsequent telephone conversation confirmed only that a claim might arise. There was therefore no qualifying claim.
3. The aggregation provision in clause 2.4 concerned the limit of cover under clause 2.1. It did not determine whether a claim existed for clause 1.2(c), or establish the necessary connection between the disciplinary proceedings and a claim.
4. Even if the construction of the policy had been seriously arguable, the judge had acted within his discretion. The competence of the Gibraltar court to determine the dispute in the liquidation was not challenged, and the policy did not require a specialist tribunal. Preservation of the estate for creditors outweighed the contractual preference for determination in England. The order refusing to lift the stay was therefore upheld.

• Court of Appeal (Civil Division): appeal dismissed, affirming the refusal to lift the stay. [2016] EWCA Civ 484.
• High Court of Justice, Chancery Division, Companies Court: HH Judge David Cooke QC dismissed Mr Gardner’s application to lift the stay. [2014] EWHC 3674 (Ch).