Article preview
Folgate London Market Limited v Chaucer Insurance PLC
Henry Phillips, Barrister, South Square, London UKAny insolvency lawyer worth his or her salt will be familiar with the so-called 'anti-deprivation principle' and the mantra that 'a man cannot make it a part of his contract that, in the event of his bankruptcy, he is then to get some additional advantage which prevents the property being distributed under the bankruptcy law'. Nevertheless, in light of the recent proliferation in cases citing and applying the principle, and in light of its antiquity, it is likely to come as a surprise to many insolvency lawyers that, before the decision in British Eagle International Airlines Ltd v Compagnie Nationale Air France [1975] 1 WLR 758, there were only two reported twentieth century cases in which the principle was alluded to or applied. Moreover, it was not until almost thirty years after British Eagle, in the decision of Neuberger J in Money Markets International Stockbrokers Limited v London Stock Exchange Limited, that the principle was once again revisited.
Even the briefest of historical overviews tells that the torrent of cases on the anti-deprivation principle in recent years is without precedent. To be sure, this has been driven, in part, by an unprecedented global financial crisis which has provided lawyers with a number of high-profile and well funded insolvencies and administrations to level their arguments at. But it has also been driven by an uncertainty as to the ambit of the anti-deprivation principle and a worrying lack of clarity as to its policy-based justifications. The principle has thus been seen as a ‘golden-bullet’ which, as the Perpetual case aptly demonstrates, administrators and liquidators are not afraid to discharge in order to unwind, on insolvency, highly complex transactions between sophisticated commercial counterparties.
Whatever the Supreme Court decides when the appeal in Perpetual is handed down and whatever clarification they give or fail to give as to the outer-limits of the anti-deprivation principle, its core-penumbra is tolerably clear. A person cannot agree to divest himself of a vested right in insolvency. The decision of the Court of Appeal in Folgate London Market Limited v Chaucer Insurance PLC is, perhaps, a textbook illustration of this very simple principle.
The facts
In 2005 a company known as Milbank Trucks Limited (''Milbank') was successfully sued for damages arising out of a road traffic accident. Milbank was insured by Chaucer Insurance Plc ('Chaucer'), the respondent, but was not entitled to an indemnity on as the claim fell within an exception contained in the policy.
Milbank sued its insurance broker, Folgate London Market Limited ('Folgate'), the appellant, alleging negligence in arranging its insurance cover with the respondent. That claim was settled by agreement (the 'Indemnity Agreement'). Under the terms of the Indemnity Agreement Folgate agreed to indemnify Milbank in respect of its liability for damages on the 'Due Date for Payment', defined as falling 21 days after full and final determination of the quantum of damages payable by Milbank to the victim of the road traffic accident.
Copyright 2006 Chase Cambria Company (Publishing) Limited. All rights reserved.