Chike-C Onyeari v Churchill Limited & Ors

The court dismissed the proposed appeal and allowed the underwriting members' Part 8 claim in principle. Key legal principles applied were the public policy/circuity principle as explained in Brumder (a director cannot profit from his own wrongdoing) and the rules on strike out/summary judgment (CPR 3.4 and CPR 24), leading to the conclusion that the original personal injury claim was properly struck out as an abuse where the claimant was the "controlling mind" of the corporate defendant. The court set aside a Tomlin order obtained without notice to the insurer's solicitors because the change of solicitors had not been validly served and the order impaired the insurer's contractual and equitable rights of subrogation. The policy wording (General Condition 8) was construed so that co-insured immunity from subrogation did not prevent recovery of costs where the insured's conduct in bringing and continuing proceedings was wilful, malicious or dishonest; the court found that the claimant's conduct satisfied the exception. The Underwriters were held to have a contractual and tortious remedy (breach of contract by the company and inducing breach by the claimant) and are entitled to damages to be assessed; ancillary relief (including possible transfer of rights) and directions for quantum were ordered.

This case arises from a personal injury claim brought by Mr Onyeari against Churchil Limited in which liability was, at an early stage, purportedly admitted on behalf of the company and which was defended by solicitors instructed by the employer's liability insurers (the Underwriters). HHJ Lethem struck out the personal injury claim under CPR 3.4(2), finding that Mr Onyeari was the "controlling mind" of the company and that the claim sought to recover from the company what was in reality his own wrongdoing (applying Brumder).

Nature of the applications before the court:

• an application by Mr Onyeari for permission to appeal/extension of time;
• an application by the Underwriters to set aside a Tomlin order said to discharge the costs liability;
• an application to amend the Underwriters' Part 8 claim to clarify and add causes of action; and
• the substantive Part 8 claim by the Underwriters for declarations, transfer/assignment of rights, specific performance and/or damages for impairment of their subrogation rights.

Issues framed and decided:

• whether the appeal ought to be permitted and whether the earlier strike out/summary judgment was wrongly decided;
• whether the Tomlin order should be set aside because the notice of change of solicitor had not been served and the order impaired the insurer's rights;
• whether the Underwriters could be properly named and permitted to amend the Part 8 claim;
• whether the Underwriters' claim was an abuse of process for not having been joined earlier;
• whether the Underwriters held a proprietary right in the company’s cause of action or only contractual/equitable subrogation rights;
• whether the company breached its contractual obligation not to impair insurers' subrogation rights and whether Mr Onyeari procured that breach; and
• whether General Condition 8 exempted Mr Onyeari from subrogation.

Court's reasoning (concise):

• the application for permission to appeal was refused: the strike out by HHJ Lethem was correctly based on contemporaneous and other documents showing that Mr Onyeari was the de facto controller of the company in respect of the matters giving rise to the claim and therefore the claim was an abuse or otherwise had no real prospect of success;
• the Tomlin order was set aside because the purported change of solicitors (N434) had not been served on DWF (the solicitors on the record) so DWF remained on record and the Tomlin schedule, entered without their knowledge, improperly impaired the Underwriters' subrogation rights and had been procured without informing the insurer; the circumstances justified setting the order aside;
• the Part 8 amendment was permitted: the Underwriters (by RCCL and, in the alternative, Westfield) were sufficiently identified and able to sue as representative claimants; claims for breach of contract and for procurement of breach of contract were appropriately pleaded;
• the Part 8 claim was not an abuse of process: the insurers were entitled to enforce subrogated rights when the insured and its director acted to impair those rights after the costs order had been made;
• on construction General Condition 8 does not immunise a director from subrogation in respect of amounts paid for costs when the payments were caused by the claimant-director's own deliberate and blameworthy conduct; the court found the exception for "wilful, malicious or dishonest" acts or omissions satisfied in the circumstances of the prosecution and continuation of a claim certified as totally without merit;
• the Underwriters therefore have contractual and tortious remedies: the company breached its contract by impairing subrogation rights and the director procured that breach; remedies include damages to be assessed and potential transfer/assignment of the company’s rights, with consequential directions to quantify loss.

The court ordered consequential directions for assessment of damages and other steps to progress the claim to quantum and enforcement.

First instance decision: the court refused permission to appeal and dismissed the proposed appeal; it set aside the Tomlin order made on 28 June 2021; allowed the Underwriters' amendment to their Part 8 claim; and held that the Underwriters have viable causes of action in contract against the Company for breaching subrogation rights and in tort against Mr Onyeari for procuring that breach. The court reasoned that (i) HHJ Lethem was entitled to strike out the original claim because the claimant was the controlling mind of the company and the claim was an abuse/no real prospect; (ii) the Tomlin order was obtained without proper service of the notice of change of solicitor and unjustly impaired insurer rights and should be set aside; (iii) General Condition 8 does not bar recovery where the insured's conduct was wilful/blameworthy; and (iv) remedies will be by damages (to be assessed) and, as appropriate, orders to transfer or protect the Underwriters' rights, with directions for quantum.