[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
	England and Wales High Court (Commercial Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> The Law Debenture Trust Corporation (Channel Islands) Ltd v Lexington Insurance Company & Anor [2001] EWHC 515 (Comm) (02 November 2001) URL: http://www.bailii.org/ew/cases/EWHC/Comm/2001/515.html Cite as: [2001] EWHC 515 (Comm)

[New search] [Printable RTF version] [Help]

Case No: 2001 Folio 211

IN THE HIGH COURT OF JUSTICE

QUEENS BENCH DIVISION

COMMERCIAL COURT

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 2nd November 2001

B e f o r e : THE HONOURABLE MR JUSTICE LANGLEY - - - - - - - - - - - - - - - - - - - - -

Between

	THE LAW DEBENTURE TRUST CORPORATION (CHANNEL ISLANDS) LIMITED	Claimant
	- and -
	(1) LEXINGTON INSURANCE COMPANY (2) JLT RISK SOLUTIONS LIMITED (3) ASSET BACKED CAPITAL LIMITED	Defendants
And Between
	ASSET BACKED CAPITAL LIMITED	Part 20 Claimant (First Claim)
	and
	(1) CREDIT SUISSE FIRST BOSTON (EUROPE) LIMITED (2) JLT RISK SOLUTIONS LIMITED	Part 20 Defendant (First Claim)
And Between
	CREDIT SUISSE FIRST BOSTON |(EUROPE) LIMITED	Part 20 Claimant (Second Claim)
	and
	WEIL GOTSHAL & MANGES (a Firm)	Part 20 Defendant (Second Claim)

- - - - - - - - - - - - - - - - - - - - - (THE HOLLYWOOD 5 ACTION)

CLAIM NO. 2000 Folio 552

(1) HIH CASUALTY AND GENERAL INSURANCE LIMITED

(2) SPHERE DRAKE INSURANCE PLC

(3) INDEPENDENT INSURANCE COMPANY LIMITED

(4) A/S DET KJOBENHAVNSKE REASSURANCE-COMPAGNI

(5) LIBERTY MUTUAL INSURANCE COMPANY (UK) LIMITED

(6) NEW HAMPSHIRE INSURANCE COMPANY

(7) ROYAL & SUN ALLIANCE INSURANCE PLC

(8) CGU PLC

(9) FAI GENERAL INSURANCE COMPANY LIMITED

(10) GENERALI LLOYD VERSICHERUNG AG

(11) AXA COLONIA VERSICHERUNG AG

(12) KRAVAG-SACH VERSICHERUNG DES DEUTSCHEN KRAFTVERKEHRS VaG Claimants

- and -

(1) THE MATRIX ‘NEW PROFESSIONALS’ PARTNERSHIP (a Firm)

(2) THE FIRST MATRIX ‘NEW PROFESSIONALS’ PARTNERSHIP (a Firm)

(3) THE SECOND MATRIX ‘NEW PROFESSIONALS’

PARTNERSHIP (a Firm)

(4) SOVEREIGN PICTURES LIMITED

(5) JLT RISK SOLUTIONS LIMITED

(formerly known as Lloyd Thompson Limited) Defendants

(1) THE FIRST MATRIX “NEW PROFESSIONALS” PARTNERSHIP (a firm)

(2) THE SECOND MATRIX “NEW PROFESSIONALS”

PARTNERSHIP (a firm) Part 20 Claimants (First and Second Claims)

- and –

(1) JLT RISK SOLUTIONS LIMITED (formerly known as Lloyd Thompson Limited)

(2) GORDON DAWSON Part 20 Defendants (First Claim)

- and –

(1) FLASHPOINT I LIMITED

...formerly known as Flashpoint Limited) Part 20 Defendant (Second Claim)

(THE NEW PROFESSIONALS) HOLLYWOOD 5 Mr A. Popplewell QC and Mr R. Bright (instructed by Allen & Overy for the Claimants) Mr D. Railton QC and Mr M. Smith (instructed by Denton Wilde Sapte for the ist Defendants) Mr G. Vos QC and Mr R. Phillips and Mr J. Davies-Jones (instructed by Eversheds for the 2nd and 2nd Part 20 Defendants) Mr P. Talbot QC and Mr B. Dye (instructed by Richards Butler for the 3rd Defendant and Part 20 Claimant) Mr M. Humphries of Linklaters for the 1st Part 20 Defendants and 2nd Part 20 Claimants) Mr R. Lord (instructed by Weil Gotshal for the Defendants in the 2nd Part 20 Claim) THE NEW PROFESSIONALS Mr G. Leggatt QC and Mr R. Masefield (instructed by CMS Cameron McKenna for the Claimants) Mr D. Edwards (instructed by Addleshaw Booth for the 2nd, 3rd and Part 20 Claimants) Mr G. Vos QC and Mr R. Phillips and Mr J. Davies-Jones (instructed by Eversheds for the 5th Defendants and 1st and 2nd Part 20 Defendants) 4th Defendants and Defendants in 2nd Part 20 Claim not represented. JUDGMENT: APPROVED BY THE COURT FOR HANDING DOWN
The Honourable Mr Justice Langley

Mr Justice Langley :

1. This is a Case Management Conference in proceedings in which Law Debenture Trust ("LDT") is the Claimant which bear the reference no 2001 Folio 211. The proceedings are generally referred to as the Hollywood 5 action. It is one of many actions currently before this court involving finance for films and the insurance policies covering a shortfall in repayment known as PLIPs which is short for Pecuniary Loss Indemnity Policy.
2. At the end of the hearing on 26 October I informed the parties of my conclusions on the more significant issues which arose. My reasons for those conclusions follow.
3. The major question which arose concerned 3 other film finance arrangements known as Hollywood 4 and 6 and The New Professionals. All 4 involved the same insurance brokers, shortly described as JLT. JLT seeks an order that all 4 should be consolidated in the sense of tried at the same time. LDT opposes that but submits arrangements should be put in place for the parties in Hollywood 5 to participate at the trial of the New Professionals.
4. In terms of chronology, The New Professionals was the first arrangement (made in May/June 1997) and is the one in respect of which the litigation is most advanced. The project was a proposed TV series. The parties are various insurers (12 in number) as Claimants, claiming Declarations that they are not bound by the relevant PLIPs. Other than the fact that one of the insurers is a company in the same group as the insurance company (Lexington) concerned in Hollywood 4, 5, and 6 there is no common interest between the insurers. The Defendants are JLT and the investors in the project who were the beneficiaries of the PLIPs, shortly described as "Matrix". Insurers allege that JLT on behalf of Matrix did not make a fair presentation of the risk to them and indeed made fraudulent misrepresentations to them about the projected sales revenue from and one of the stars to be in the TV series and as to the timing of the payment obligations under the cover. Insurers have also claimed against JLT in deceit. Matrix counterclaims for sums due under the PLIPs (said to be a principal sum in excess of £10m) and have made a Part 20 claim against JLT. Directions up to and including the trial of the action have already been given and a trial date fixed for 9 April 2002 with an estimate of 16 days. Neither Sovereign nor Flashpoint, the other parties named in the proceedings, are taking any active part in them. Flashpoint is alleged to have procured the PLIPs which were placed by JLT.
5. Hollywood 4, 5 and 6 concern respectively a TV series entitled "Jules Verne", two slates of films to be produced by separate production companies called the Filmworks Slate and the Regent Slate and, for Hollywood 6, another 6 slates of a total of 27 films. Hollywood 4 is said to involve sums and claims in excess of $33m, Hollywood 5 some $42m and Hollywood 6 about $101.
6. As regards the timing of the PLIPs the numbering 4, 5 and 6 reflects the chronology but in terms of litigation Hollywood 5 is ahead. Indeed no proceedings have been issued in Hollywood 6.
7. The structure of the proceedings in Hollywood 5 is that LDT claims as trustee for the investors who purchased the relevant notes in the vehicle company called Hollywood Funding No 5 Limited. The investors can be shortly described as ABC. ABC in fact took all the notes for Hollywood 4 and 5 and over 50% of those for Hollywood 6. The Defendants are the insurers (Lexington) who underwrote the PLIPs, JLT which broked the risk and ABC. ABC, however, was joined as a Defendant to enable it to take Part 20 proceedings against JLT and Credit Suisse First Boston Europe (CSFB). ABC's case against CSFB is that CSFB was the manager for the placement of the Notes and is alleged to have owed duties to ABC as such of which CSFB is said to have been in breach. CSFB in turn has taken Part 20 proceedings against Weil, Gotshal & Manges (WGM) who were the lawyers advising it in the transaction.
8. The allegations made in the principal claims in Hollywood 5 can be summarised for present purposes. LDT claims payment under the PLIPs. Lexington's defence alleges breaches of the policy as to the number and nature of the films made and fraudulent or negligent misrepresentations or non-disclosures by JLT and/or Flashpoint each of which is said to have been LDT's agent to insure the risk. There are 3 basic misrepresentations relied upon. First as to the projected revenues, second as to the quality and nature of some of the films and third (the "moral hazard" claim) as to both Flashpoint and JLT themselves being "reliable and trustworthy". There are numerous other allegations concerning the application of the revenues which were received from the films, the certainty of a claim, the binding of valid reinsurance (Lexington intended to retain only a small portion of the risk) and a number of other matters. LDT in response has claimed against JLT largely reproducing Lexington's allegations. JLT's defence denies all the allegations made against it, and raises issues as to the formation of the PLIPs and its terms.
9. The reason why JLT seeks the orders it does as regards Hollywood 5 and the New Professionals arises from the moral hazard claim. One (and only one) of the bases for that claim is an allegation that JLT and Flashpoint had previously presented sales projections for the New Professionals which they knew to be unreasonably optimistic and reliance is placed by Lexington on much the same allegations as are made about that by the insurers in the New Professionals proceedings.
10. The existing claims in the Part 20 proceedings by ABC against CSFB and JLT and by CSFB against WGM are contingent on Lexington succeeding in avoiding liability under the PLIPs. If it fails LDT will recover as trustee under the PLIPs. Moreover if Lexington succeeded but JLT was found liable to LDT and met the liability, subject to a plea of contributory negligence, again LDT would recover as trustee. However ABC intimated at the hearing that it was likely to seek permission to amend the Part 20 claim to claim losses it had suffered which are not claimed by LDT.
11. I should add that there were 3 earlier transactions known as Hollywood 1, 2 and 3. Claims on the PLIPs in respect of those transactions were paid by the insurers. But their reinsurers disputed recovery and certain preliminary issues have been determined in the Court of Appeal but are now the subject of further appeal to the House of Lords.
12. I will turn then to the submissions on this issue. Unsurprisingly both the insurers in The New Professionals and Matrix resist any consolidation of the proceedings or indeed any form of participation in them by non-parties. They are concerned to keep the trial date and to avoid the extra cost and disruption involved, quite apart from not wishing to find themselves embroiled in the many issues involved in Hollywood 5. They point out that there is only one and on the face of it far from the most important of the many issues in Hollywood 5 which overlaps with the issues in The New Professionals. Indeed the overlap does not extend even to the entirety of the moral hazard issue. They also make the point that whatever decision might be reached as to whether JLT or Flashpoint had presented inflated figures for The New Professionals although that decision would not technically be binding on the parties to Hollywood 5 in reality it would require a degree of obstinacy and more than a little difficulty for any of them to seek to relitigate the issue. It is not suggested that any different evidence is available nor that the issue will not be fully and properly contested. Whilst accepting that it might be feasible to devise some scheme for any Hollywood 5 party which wished to take part in the trial to do so as regards this issue in exchange for being bound by the outcome, Insurers and Matrix also point out the possible problems of setting parameters for disclosure, evidence and representation and indeed the generally indeterminate nature of what is proposed.
13. The submissions of the parties to Hollywood 5 on this issue are as follows. LDT opposes consolidation but submits that it and the other parties should be given leave to participate in The New Professionals trial, including leave to cross-examine witnesses, in exchange for agreeing to be bound by the outcome so avoiding the risk of inconsistent decisions on two trials of the same issues. On that basis, it is said, the trial date in April could remain. Nothing could be offered as to whom LDT might wish to cross-examine or to what end or whether it would wish to adduce evidence itself. It was said the role would probably be only a watching one but that was not certain.
14. Lexington opposes any form of involvement between Hollywood 5 and The New Professionals. It does so because a joint hearing would inevitably mean vacation of the April trial date for The New Professionals and a complex structure for the trial involving as it then would many issues of no concern to one or more parties. It objects to the half-way house of permitting the Hollywood 5 parties to participate in The New Professionals trial because it would provide an isolated and early focus on what is only one of numerous allegations about sales estimates in Hollywood 5 itself and the Hollywood 5 parties would need time to consider the extent of involvement required for example in relation to matters which might go to the credit of witnesses and the like as well as the evidence they might wish to adduce.
15. JLT of course submits that Hollywood 5 (and indeed Hollywood 4 & 6) should be heard together with The New Professionals. The basic concern is that if there are 2 trials there will have to be repetitive cross-examination of witnesses and a serious risk of conflicting decisions. That, it submits, is a particular risk if JLT was cleared of fraud at a first trial and in any event where serious allegations of this kind are made those concerned should only have to give evidence once. JLT recognises that if there is a joint hearing the April trial date for The New Professionals must be vacated. On the other hand JLT opposes the half-way house of the Hollywood 5 parties being permitted to participate in a separate trial of The New Professionals, pointing out that the effect would be to permit them to act as parties without being party to any issue to be determined and that the extent of and limits upon such participation would be difficult to state let alone control and that there were real questions whether such a course would resolve anything useful in Hollywood 5. ABC supports LDT's proposal for participation but not a joint trial and says it would be unlikely it would want to call evidence or cross-examine any witnesses. CSFB submits the degree of overlap is insufficient to justify simultaneous case management and does not want either to participate in or be bound by any outcome of The New Professionals. WGM also opposes consolidation and the half-way house.
16. In my judgment the arguments against a joint trial are considerably more compelling than those in favour of it. I think the extent of overlap of the issues is in fact minimal and the consequence would not only be that the parties to The New Professionals would be deprived of the trial date to which they have been working and are committed but would also find themselves embroiled in a much larger dispute involving issues of no concern to them and which whatever attempts were made to manage a trial would inevitably and substantially increase their costs and time exposure. It is of course true that absent some form of joint trial or agreement any decision in The New Professionals would not be binding on parties to Hollywood 5. It is also true that if there was an appeal the outcome might remain uncertain even at the time of a subsequent Hollywood 5 trial. But I do not think the risks arising from those considerations outweigh the real disadvantages and injustice to the parties to The New Professionals to which I have referred. Moreover I think there must be a possibility that those risks will not materialise or will at least be manageable. There are procedures available whereby evidence given at one trial need not be repeated at another. It is also conceivable that the moral hazard issue, or at least this part of it, in Hollywood 5 will pale into insignificance in the context of all the other issues which arise.
17. I also think what I have called the half-way house should be rejected. The objections to it are not the same because of course the April trial date for The New Professionals might yet be kept and the parties would not be concerned with a trial of the other issues in Hollywood 5. But it would be unusual to permit participation in a single issue by one let alone a number of parties and to do so when what is sought remains ill defined and uncertain. If it were to be allowed I can envisage substantial disputes about disclosure, exchange of statements, the need for interveners to state their case, and risks of wide-ranging questions said to go to credit. If the moral hazard issue is, as I think it plainly is, insufficient to justify a joint trial I think it equally insufficient to justify the half-way house even with the benefit (if it could be specified sufficiently) that the Hollywood 5 parties would then be bound by the outcome (which itself could be the subject of an appeal). Real risks of adding substantially to the length and costs of the trial remain.
18. In my judgment The New Professionals should proceed as it is now constituted and without any participation of the Hollywood 5 parties save of course insofar as they are parties to the action.
19. The second major question which arose was how Hollywood 5 itself should be managed. Lexington submits that the issues between LDT, itself, and JLT should be tried separately from and before the issues which arise in the Part 20 proceedings between ABC, JLT, CSFB and WGM. The basis of the submission is that such a divided trial will save time and cost. The issues about duty of care and the duties of lead managers and solicitors which arise in the Part 20 proceedings would not arise in the first trial. Those disputes alone could involve 10-15 trial days. Moreover ABC's claims are contingent on Lexington succeeding in its defence and JLT doing so also or at least succeeding on its allegations of contributory negligence. Thus on one basis the Part 20 proceedings would never need to be tried. That submission, however, may lose some of its force if ABC is permitted to amend to make a discrete claim of its own for losses it says it has suffered as a result of the PLIPs not responding.
20. LDT opposes a division of the trial. It points out that if ABC, CSFB and WGM are to be bound by the outcome of a first trial they would want to be represented in any event and that some at least of the witnesses from ABC, CSFB and WGM will in all probability give evidence in a first trial even if there were a division. Indeed in the context of the isues between LDT, Lexington and JLT, JLT has made allegations of negligence against WGM which WGM must be entitled to defend. Moreover, if, as it is accepted is really inevitable, the trial of Hollywood 5 is to be moved from its provisional date of June 2002 with an estimate of 6-8 weeks to a date not before October 2002 then there should be no difficulty in accommodating a trial involving all parties and issues. JLT also opposes any division of the trial. It points out that it is obviously sensible for the same judge to try all the issues and that it would be oppressive for JLT's witnesses to give evidence twice on the same issues, first in response to Lexington and second in response to the separate cause of action alleged by ABC.
21. ABC also opposes a division of the trial. It is ABC's case that Lexington is bound by the PLIPs and that they were not constituted as Lexington contends. It wants to be able to make that case itself. It also wishes to pursue its own claim in a context in which all the issues and evidence are before the court pointing out that if the trial were to be divided it could be a considerable time before the Part 20 proceedings were ever heard despite the fact that ABC are the losers. CSFB agrees with ABC. Witnesses will be required to present the whole picture in any event and if those from CSFB and WGM are to give evidence there is sense in them also being parties. WGM agrees with Lexington, largely because it sees itself as tail-end-Charlie and hopes it will never have to argue its case. But it does so only on the basis that WGM be permitted to participate in a first trial "to the extent that it considers appropriate". That is in part at least because of the allegation of negligence made against it by JLT.
22. In my judgment whilst these arguments are quite well balanced, as things stand those in favour of a single trial involving all parties are to be preferred. There is an attraction in trying to produce a more manageable hearing and I think it is obvious that the issues between LDT, Lexington and JLT are the heart of the dispute. But very considerable sums are involved. I cannot see how the issue of WGM's negligence can sensibly be hived of to a later trial. I think that the Part 20 parties could not justly be precluded from participating fully in a first trial, especially so if those employed by them are to give evidence, and if that is right I can see little advantage in two trials. There is also the advantage that they will be bound by the outcome (which I do not think would otherwise be the case) and that the discrete issues are ones which while of course involving time and cost may well themselves be better addressed in the light of the complete picture.
23. In my judgment therefore Hollywood 5 should proceed as a single trial of all the issues in both the claims and Part 20 proceedings and that trial should not take place before October 2002. As I indicated at the hearing only if there is a substantial change in circumstances from those now before the court should it be open to any party to seek to review this outcome.
24. The final issue is whether Hollywood 4 and 6 should be tried together with Hollywood 5. Hollywood 4 has, however, only reached the stage of Lexington serving a defence. LDT has not yet (or may just have) passed on Lexington's allegations to JLT. It may well be, but remains uncertain, that Part 20 claims will be made as in Hollywood 5. Hollywood 6 has not even begun. LDT submits it is premature to consider any form of consolidation. It also points out that if the parties are the same it may be sensible for Hollywood 5 to proceed as a lead action the decisions in which would bind the same parties to the other cases. Lexington submits there is sufficient basis to consolidate Hollywood 4 now but not the anticipated Hollywood 6. Lexington points out that there may be discrete issues about the films in Hollywood 6 which would be inappropriate for a joint trial and in any event require extensive investigation. JLT submits Hollywood 4 and in all likelihood 6 should be heard with Hollywood 5. ABC submits it is premature to consider the matter. CSFB favours consolidation of Hollywood 4 but submits it is premature to consider Hollywood 6. WGM says both are premature.
25. In my judgment it is plainly premature to address questions involving the putative Hollywood 6 and it should suffice to say that if and when proceedings are started the court will consider the question. That said, as I indicated at the hearing, I think it unlikely at present that it will prove sensible for Hollywood 6 to be tried together with Hollywood 4 and 5 if only because of the massive amount of disclosure which seems to be involved, the likelihood of discrete issues, delay, and the benefit that issue estoppels may apply. As regards Hollywood 4 the position is different. I can see a strong likelihood that a joint trial would make good sense between Hollywood 5 and 4. Hollywood 4 seems to involve all the same issues and of course only one further production. It is also likely to involve the same parties and all of them seem confident that it can catch up in terms of procedure so as to be ready for a not before 1 October start. In my judgment therefore the two cases should be case managed together with a view to a joint trial.