XL Insurance Company SE v IPORS Underwriting Limited & Ors.

An underwriting agent authorised to receive insurance premiums must account for all premiums received, subject only to contractually permitted deductions. Failure to segregate and remit those premiums may constitute breach of contract, trust and fiduciary duty.

Knowing receipt requires receipt of trust property or its traceable proceeds, receipt through a breach of trust or fiduciary duty, and knowledge making retention unconscionable. Tracing is an evidential process concerned with attribution and substance. Strict chronological order is unnecessary, and backwards tracing may be available where a close causal and transactional link exists between acquiring property with borrowed money and repaying the borrowing with misappropriated funds.

XL Insurance Company SE appointed IPORS Underwriting Limited as its coverholder under successive binding authority agreements. IPORS was required to declare premiums, deduct permitted commission and remit the balance to XL, while holding premiums in segregated accounts on trust.

XL alleged that IPORS substantially under-declared premiums and transferred trust money to its business account, to Paul Corcoran personally and to Cheshire Prestigious Cars Limited. It also sought to trace the funds into account balances and property acquired or financed through mortgage borrowing. The first to third defendants did not participate at trial. The central issues were the contractual and trust liabilities, knowing receipt, dishonest assistance and the availability of proprietary relief.

1. Proceeding in absence. The court proceeded under CPR Part 39.3 (1). The defendants had been served, knew of the trial and had deliberately chosen not to attend. XL nevertheless had to prove each claim.
2. IPORS’s liability. The Binders made IPORS XL’s agent for receiving premiums and required it to declare all premiums, hold them in separate accounts on trust and remit them after permitted deductions. IPORS breached those obligations by under-declaring premiums, transferring trust money elsewhere and failing to account. XL recovered £296,589 and €7,360,909 in debt and/or damages for breach of contract, and as equitable compensation for breach of trust and fiduciary duty. IPORS’s contractual commission had to be deducted when calculating the loss arising from under-declaration.
3. Knowing receipt and tracing. The court applied the requirements stated in El Ajou v Dollar Land Holdings Plc and Bank of Credit and Commerce International (Overseas) Ltd v Akindele. IPORS was the primary trustee and a knowing-receipt claim against it added nothing to its primary liability. Mr Corcoran and CPC, however, knowingly received traceable proceeds. Their control, knowledge, unexplained transfers and lack of contrary evidence made retention unconscionable.
4. Tracing was an evidential process concerned with attribution rather than a “but for” causation test. The court could draw inferences about the source and purpose of payments, disregard strict chronological sequence where the substance of the transactions remained clear, and apply the principles in Foskett v McKeown, In Re Tilley’s Will Trusts, In Re Hallett’s Estate, In Re Oatway, Relfo Limited (in liquidation) v Varsani and Federal Republic of Brazil v Durant.
5. Dishonest assistance. Mr Corcoran procured or assisted IPORS’s breaches. Applying Group Seven Ltd v Nasir, dishonesty was assessed objectively by reference to the standards of an ordinary honest person possessing his knowledge. His conduct was dishonest.
6. Proprietary relief. XL could trace into the remaining balances in the Ulster Bank, Mr Corcoran and CPC accounts. Backwards tracing applied to the mortgage payments funding Quarrymans View and 14 Moseley Road because there was a close causal and transactional link between the borrowings and their repayment with XL’s funds. XL was entitled to a beneficial interest of £551,879 in 14 Moseley Road or its sale proceeds, subject to NatWest’s prior charge.
7. Judgment was entered for XL against IPORS, Mr Corcoran and CPC. Consequential orders and costs were to be addressed after judgment.