Impact Funding Solutions Ltd v Barrington Support Services Ltd (formerly Lawyers at Work Ltd)
Supreme Court
Citations: [2016] UKSC 57; [2017] AC 73; [2016] 3 WLR 1422; [2017] 4 All ER 169; [2017] 2 All ER (Comm) 863; [2016] Bus LR 1158.
Facts
A firm of solicitors made a written contract with the claimant, a loan company. The contract tasked the firm with looking at potential claims by third-party clients. It would then decide which claims to proceed with. If the firm approved a claim, the client would obtain a loan from the claimant to meet the costs of the court action. The firm was liable under the contract to provide a ‘professional service’. It also undertook personal liability to pay back any loans in specific circumstances. One of these circumstances was if the firm was in breach of contract.
The claimant sued the firm for breach of contract after several claims were abandoned and the loans went unpaid. At first instance, the judge found that the firm had failed to properly assess the merits of the claims. The judge also found that the firm had used the loans improperly in a manner which breached the contract. This triggered the firm’s obligation to pay back the loans.
However, by this stage, the firm was in liquidation. Any claim had to proceed against their professional indemnity insurers. The firm’s policy excluded indemnity for ‘debts and trading liabilities’ which arose from ‘any breach by any insured of the terms of any contract or arrangement for the supply to, or use by, any insured of goods or services in the course of the insured firm’s practice’. The insurers argued that the present facts fell within the scope of this exclusion clause. Accordingly, they were not bound to pay the firm’s liabilities to the claimant.
Issue(s)
- Did the firm’s liability to the claimant fall within the scope of the exclusion clause in their insurance policy?
Decision
The Supreme Court held that the insurers could rely on the exclusion clause. The purpose of the insurance scheme was to protect clients using solicitors from losing out if the solicitor breaches their duties. Accordingly, the policy was intended only to apply to professional conduct connected with legal services to their clients. It did not intend to cover liability arising from secondary contracts with non-clients for the supply of services or goods used by solicitors in the course of providing services to clients.
Properly interpreted, the exclusion clause was intended to exclude this latter category of liability from the scope of the policy. This is what the clause’s express language indicated. There was no basis by which the court could imply extra words into the clause to restrict its effect.
The present facts fell into the latter category. The contract was a commercial bargain the solicitors made on their own behalf for their own benefit, not as agents of a client. The exclusion clause therefore applied. The claim against the insurers failed.
This Case is Authority For…
In the past, exclusion clauses were interpreted narrowly and contra proferentem – against the party seeking to rely on them. Lord Toulson (with whom Lords Mance, Sumption and Hodge agreed) in this case confirmed that this is not the modern approach. Exclusion clauses should be interpreted in light of the whole contract and the parties’ purpose. The court should not necessarily have any view to construing them narrowly.
Terms should only be implied into a contract in fact if, after the express terms have been construed, it is necessary to give business efficacy to the contract or is so obviously intended that it went without saying.
Other
Lord Carnwath JSC dissented. He noted that the contract’s essential purpose was to provide loans to the firm’s clients. This was not ‘a service comparable in any way to the supply of goods or services for use in the practice’, and so not within the scope of the exclusion clause.
