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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Channon (t/a Channon & Co) v Ward (t/a Ward & Associates) [2017] EWCA Civ 13 (18 January 2017) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2017/13.html Cite as: [2017] EWCA Civ 13 |
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ON APPEAL FROM QUEEN'S BENCH DIVISION
EXETER DISTRICT REGISTRY
HIS HONOUR JUDGE COTTER QC
Strand, London, WC2A 2LL |
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B e f o r e :
and
LADY JUSTICE GLOSTER
____________________
Rodney Channon(trading as Channon & Co) |
Claimant/ Appellant |
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| - and - |
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John Ward(trading as Ward & Associates) |
Defendant/Respondent |
____________________
Neil Hext QC and Dan Dyson (instructed by Ashfords LLP) for the Defendant/Respondent
Hearing dates : 22 & 23 November 2016
____________________
VERSION
OF JUDGMENT
Crown Copyright ©
Lord Justice Tomlinson :
Introduction
Channon
is a chartered accountant, trading as a sole practitioner as
Channon
& Co in Newton Abbot, Devon. The Defendant/Respondent Mr John
Ward
was his insurance broker. Since around 1991 Mr
Ward
had been responsible for placing Mr
Channon's
professional indemnity insurance cover. In 2009 and 2010 Mr
Channon
notified Mr
Ward,
for onward transmission to insurers, of receipt of a number of connected claims by persons who claimed to have suffered loss in consequence of negligent investment advice given to them by Mr
Channon
in the course of his practice as a chartered accountant. In late 2010 it transpired that Mr
Channon
had not in fact been insured since June 2007. In late 2011 Mr
Channon
began proceedings against Mr
Ward
alleging that he had negligently failed to procure the indemnity insurance and that in consequence Mr
Channon
had suffered loss, in that he had neither liability cover to respond to the losses to which the claims would or might give rise nor the support of insurers in respect of the cost of defending the claims brought against him.
Ward
on account of his failure to particularise his Defence as he had been ordered to do. In point of form the hearing before Judge Cotter in Exeter in 2015, which occupied 3 days, was the assessment of damages pursuant to the default judgment. The judge assessed the damages at nil and ordered Mr
Channon
to pay Mr
Ward's
costs. Mr
Channon
appeals with permission of the single Lord Justice.
Channon
had nothing whatever to do with his practice as a chartered accountant. Mr
Channon
was also a successful property developer. He was, together with a Mr Bromage and another, a director of a company called Mill House Partnership Limited ("MHP") which had ambitious plans in particular concerning a site in Newton Abbot. Between 2004 and 2007 several individuals were persuaded by Mr
Channon
to lend money to MHP on terms which promised an attractive rate of interest together with a profit share, the purpose of the loans being to enable MHP to pursue its purchase and development projects. Those individuals, to whom I shall refer hereafter as "the investors", were not all clients of
Channon
& Co. Four married couples were clients, three other individuals were not.
Channon
& Co was not authorised by the Financial Services Authority to conduct investment business, a fact of which all its clients were advised. Mr
Channon
repeatedly told his clients he did not give financial advice, by which was meant and would have been understood investment advice.
Channon
denied having given any investment advice to the investors, who all knew that he was a director of MHP. Mr
Channon
was able to point to numerous statements in the documentation surrounding and evidencing the
various
loan agreements that made clear that his involvement with the transactions was as a director of MHP and not as a chartered accountant practising as
Channon
& Co. His role was plainly limited to discussion of the investment opportunity which he undertook as a director of MHP. The investors were all advised to take independent professional advice before investing, and some did. Some looked to Mr Bromage, and his involvement was influential in their decision to invest. The loan agreements were however drawn up by
Channon
& Co "with the full authority of MHP Limited and [the investor/s]". The agreements provided that security for the loans would be provided in the shape of a debenture over the assets of MHP but these instruments seem not to have materialised. Debentures were issued to creditors over a different company which turned out to have insufficient assets to meet the claims. The loan agreements are unprofessional in their drafting and unimpressive. The aggregate amount lent to MHP by the investors was £1,045,000. Much more detail of the manner in which the investments were made is set out by the judge in his judgment, [2015] EWHC 4256 (QB), but it is unnecessary to go into further detail here.
Channon's
evidence in March 2015 that it was insolvent. A bank had charges over the relevant properties in which there was no equity. With the assistance of the bank MHP was completing some or all of its developments but there was no prospect of a payment to the investors.
Channon
rapidly deteriorated after MHP had become insolvent. Anger was expressed at the manner in which he had managed the affairs of the company, with allegations that he and his fellow directors had preferred their own interests to those of other creditors upon the sale of one of MHP's properties, which had apparently generated a distributable cash surplus. The investors naturally wanted redress for their losses. However Mr
Channon
presented himself as impecunious and not worth suing. He had apparently himself lost money invested in MHP. The investors concluded and/or were advised that by framing claims against Mr
Channon
alleging that he had given negligent advice in his capacity as a chartered accountant they would, as the judge put it, effectively gain access to his professional indemnity insurance cover.
Channon
had given negligent advice in connection with a proposed investment when acting for and advising the investors in his professional capacity as a chartered accountant.
Channon
at the trial before the judge and who with Mr Leslie Blohm QC represented him also on the appeal before us. Mr
Channon
drafted his own Defences. It suffices to say that the pleadings exchanged in 2010 and 2011 revealed that there was an issue whether Mr
Channon
had given any advice concerning the proposed investments and, if he had, whether he had done so in the course of his practice as a chartered accountant. It was the contention of Mr
Channon
that he had at all times made clear that he was acting as a Director of MHP. It was his position that the claims were misconceived and a contrivance. The claims were those of investors disappointed at becoming
victims
of the unexpected downturn in the market consequent upon the financial crisis.
Channon
was uninsured, but they nonetheless pressed on. In November 2011 Mr
Channon
brought these proceedings against Mr
Ward.
The investors were also by then aware that the circumstance that Mr
Channon
lacked insurance cover had come about as a result of the alleged negligence of Mr
Ward.
Ward
in default and (b) that he in turn was uninsured in respect of the consequences of his own negligence. Just as he had neglected Mr
Channon's
affairs, so he had neglected his own. So now the investors devised a new strategy. The strategy was to pursue Mr
Channon's
claim against Mr
Ward
in the hope that judgment for a substantial sum could be obtained against him. If, as was overwhelmingly likely, Mr
Ward
was unable to meet that judgment, he could be made bankrupt, in which event the investors would pursue a claim for compensation pursuant to the Financial Services Compensation Scheme ("FSCS") which would be available in
view
of his having traded as a regulated insurance broker.
Channon
and the investors entered into a settlement agreement which is contained within the Schedule to a Tomlin Order dated 19 June 2012. Mr
Channon
consented to judgment being entered against him in favour of each of the investors with damages to be assessed. He thus conceded his liability although he was confident he had none. The proceedings were stayed for a year to enable Mr
Channon's
claim against Mr
Ward
"and the anticipated claim against the FSCS" to be pursued. Mr
Channon
authorised the investors to pursue in his name both the action against Mr
Ward
and "his claim for payment out of (sic) the FSCS in his name" and declared that he would hold the proceeds of any such claim on trust for the investors. Mr
Channon
undertook both to use his best endeavours to assist in the claim against Mr
Ward
and for "payment out of" the FSCS and to indemnify the investors in respect of all costs incurred in pursuing these claims. In return the investors agreed that Mr
Channon's
liability to them both in damages and in respect of the costs indemnity should be capped at £85,000, payable in annual instalments of about £10,000. The investors also agreed to refrain from making against Mr
Channon
any further claim or complaint of whatsoever nature and in particular to withdraw any claims that any one of them may have made to the Institute of Chartered Accountants of England and Wales.
Channon
believed, as he still does, that the claims against him were completely unmeritorious and, in effect, a try-on. He knew that pursuit of the claims against him was a contrivance the ultimate objective of which was, or had become, to secure the bankruptcy of Mr
Ward
to act as a conduit to access the FSCS as a source to repay the debts owed to the investors by the insolvent company MHP of which Mr
Channon
was a director. Mr
Channon
for his part asserts that without the benefit of insurance cover he could not afford to defend the claims against him and that he was on the
verge
of entering into an IVA. He considered that settlement was his best option as he was only required to pay the relatively modest sum of £85,000 over a period of time and was enabled to continue in practice.
Channon,
in admitting liability, had failed to act reasonably in mitigation of his loss. As the judge records Mr
Channon
had some funds and could have defended himself against the baseless allegations. However the deal which he had secured was remarkably favourable to him, and he might have spent £85,000 in irrecoverable costs. The ability to continue in practice was obviously of great and perhaps incalculable
value
to him, both financially and otherwise.
Channon.
Now Mr
Channon
submitted to judgment in the full amount which had been advanced to MHP by each investor, together in each case with accrued interest at the rate stipulated in the loan agreements, and continuing until payment. This agreement is to my mind quite extraordinary. It is true that the earlier agreement had not finally crystallised Mr
Channon's
liability at £85,000 and no more. But it had effectively done so, as his counsel accepted both before the judge and before us. Clause 8 of the Schedule to the first Consent Order provided:
"If and when all the remedies against MrWard
and/or claims for payment out of the FCSC have been exhausted, but not before, then the Claimants agree that all further proceedings against the Defendant [Mr
Channon]
will be stayed save for carrying into effect an agreement that Mr
Channon
will pay a contribution of up to £85,000 towards the Claimants then remaining outstanding losses, costs for the claim against the Defendant and in respect of the costs incurred in pursuing the claims against Mr
Ward
and/or claims for payment out of the FCSC giving credit for the sums already paid on account with payment by further annual instalments of £10,714.28."
So it was only a question of time before liability crystallised. It should be noted that the obligation to use best endeavours was not a condition of the agreement. A breach would have sounded only in damages. It would not have invalidated the agreed £85,000 cap. A breach was in any event most unlikely to occur. It was not in Mr
Channon's
interests that it should. His best endeavours were not arduous. He could plainly only be required to act honestly. So doing would not assist the investors so he was unlikely to be asked to do much.
Channon's
liability had been capped at £85,000. The court was given no explanation but merely asked to send "a sealed order at your earliest convenience". It is fair to point out that the investors' solicitors, Messrs WBW as they had now become, did send to the court a draft Consent Order signed by Mr
Channon
who, as they pointed out, was no longer represented. Apparently he had been represented by Messrs WBW when in December 2012 he signed the agreement, and the investors by Messrs Bynes. By January 2013 when the draft order was sent to the court Messrs Bynes and Messrs WBW had merged and Messrs WBW represented the investors. However that may be this was hardly adequate explanation in the circumstances. I also consider that this second agreement with Mr
Channon
was unnecessary for the investors' purposes. On the strength of the first Consent Order the investors could have argued that their claims and thus Mr
Channon's
loss would have been substantial and that the agreement contained in the first Consent Order was to be disregarded in considering what was the true measure of Mr
Channon's
loss as being neither an agreement entered into as a consequence of the negligence of Mr
Ward
nor an agreement made in the ordinary course of business. The first agreement could therefore be said to be collateral or res inter alios acta – see the discussion in McGregor on Damages, 19th Ed, paragraph 9-103 et seq, and not to result in any diminution of the sum properly recoverable from Mr
Ward.
Channon
consented to judgment against him for the full amount of contractual interest due to the investors from MHP. That cannot be appropriate. The contention of the investors could only have been that had it not been for the alleged advice from Mr
Channon,
they would not have entered into the loan agreements. This judgment is entered on the basis that Mr
Channon
was a guarantor of the agreements. That is particularly ironic in the light of the debate at trial and before us as to the potential applicability of a provision in the putative insurance cover of the benefit of which Mr
Channon
was denied which would have excluded insurers' liability for loss arising from any guarantee relating to the financial return of any investment.
The Putative Insurance Cover
Ward's
negligence Mr
Channon
would have had in place at the relevant time, 2009 to 2010, a policy of insurance on the same terms as the Norwich Union Policy which he had had in place in 2006/2007. It was also agreed that that wording had to be read subject to the Institute of Chartered Accountants of England and Wales ("ICAEW") minimum approved policy wording in force at inception to which express reference was made in the Norwich Union cover in these terms:
"In any dispute in connection with the cover, conditions, exceptions, or limits of this policy, it is specifically understood and agreed that the cover, conditions, exceptions and limits of the Approved Wording shall take precedence over any cover, conditions, exceptions or limits contained herein which are less favourable to You."
"We will indemnify you in respect of any Claim arising out of the conduct of Your Business, first made against You and notified to Us during the Period of Insurance"...
"Your Business" is defined as:
"(1) The provision of advice or Services by You or on Your behalf as declared to Us in the Proposal or shown in the Schedule as the Business.
(2) Any individual personal appointment (other than as company secretary or registrar or director) held by You but only in respect of advice or Services shown in (1) above.
(3) Any individual personal appointment as company secretary or registrar or director, but only in relation to the performance of Services."
"Services" is defined as:
"All services performed or advice given by You in connection with tax matters, secretarial work, share registration, financial advice to management, book-keeping, management accounting, financial investigation and reports, financial claims (including their negotiation and settlement), company formations, investment advice, insurance and pension scheme advice and computer consultancy."
The relevant declaration contained in the Schedule for the purposes of what is "your business" made by MrChannon
in respect of his 2006 insurance policy was "Chartered Accountants".
"All costs and expenses incurred in the investigation, defence or settlement of any Claim insofar as those costs and expenses have been incurred with Our written consent."
"We will not provide indemnity in respect of any Claim . . .
(3) or loss arising from any express or implied warranty or guarantee relating to the financial return of any investment or portfolio of investments.
. . .
(4) or loss arising from any trading losses or trading liabilities incurred by any business managed by or carried on by You."
The claim as presented at trial
Channon
was entitled to recover from Mr
Ward
to the full extent of his liability as indicated by the Consent Orders, i.e. a sum in excess of £1.8 million, subject possibly to credit of seven excess payments of £1,000. This was on the footing that, had the insurance been in place, and had the matter been properly considered by insurers, there was a substantial chance that insurers would have offered a full indemnity in respect of the claims either on the basis that the two exception clauses did not apply to the claims or to Mr
Channon's
loss or on the basis that insurers would not take the risk of defending the claims on the basis that those clauses were applicable. In such circumstances it was submitted that Mr
Channon
had lost the substantial chance that he would have been held harmless by his insurers and that the claims would have been disposed of without liability to him. An alternative formulation is that even if the insurers had been dubious whether the claims arose out of the conduct by Mr
Channon
of his insured business as a chartered accountant, nonetheless insurers would have provided financial assistance to Mr
Channon
in his defence of the claims which would in consequence either have been defeated or have been settled on terms much more advantageous to Mr
Channon
than the basis upon which he had in the event felt compelled to settle with the investors, which amounted to complete capitulation.
Channon
does not suggest that the consent judgments of themselves comprise or evidence a loss in respect of which he would have been entitled to an indemnity from insurers. It is inconceivable that insurers would have agreed to their insured settling on those terms and they would thus not have been bound either by the settlements or the judgments. Furthermore Mr
Channon
made no attempt at trial to prove that he was under any liability to the investors, and thus that he had suffered a loss which would have ranked for indemnity had there been a policy in place. It was his evidence to the judge that he had given no investment advice, let alone in his capacity as a chartered accountant. His evidence was that the claims were wholly unfounded. The investors or some of them were present at trial, the conduct of which they controlled. No investor gave evidence to the judge in support of his/her pleaded case that investment advice had been given by Mr
Channon
and moreover given in his capacity as a chartered accountant. Thus Mr
Channon
made no attempt at trial, or no attempt was made on his behalf, to prove that he had suffered a loss which would have ranked for indemnity under the putative policy.
The question for decision
Channon
finds himself in and the position he would have been in if he had been insured, assessed on an expectation or loss of a chance basis. In those circumstances the enquiry must be focused on two matters. First, what would the putative insurers have done when presented by Mr
Channon
in 2009/2010 with notice of the claims made against him? Second, what would Mr
Channon's
response have been to the stance adopted by insurers?
Channon.
As to this, the judge observed, at [53], that: "his overarching position as presented to any insurer would have been that these were wholly unmeritorious." At [53(c)] the judge found:
"(c) He would have pressed the insurer to defend the proceedings on the basis that he had not provided investment advice or at any stage acted in his professional role as an accountant (see paragraph 3 of his witness statement of 24th November 2014). As I have set out he only reluctantly compromised what he believed were unmeritorious claims as he had not got the funds to defend them. I find as fact that his instructions would never have wavered. He would have told any representative of an insurer (including any lawyer) that the claims arose out of disappointment at the losses of a trading company of which he was a director and were nothing to do with his role as an accountant forChannon
& Co."
The decision below
Ward
and from expert witnesses on both sides who had experience in claims handling by insurers. In the light of the experts' analysis and evidence the following matters were common ground:
(a) that the insurers could not have repudiated the insurance for non-disclosure.
(b) that if the Claimant gave investment advice in the course of his business as an accountant, then claims that such advice was negligent could not be excluded under the ICAEW minimum policy requirements.
(c) that the insurers would have found it difficult to refuse an indemnity on the grounds of fraud or misrepresentation.
(d) That the insurer would have considered the claims as a whole and taken a consistent stance in respect of all of them.
Channon
and much preferred the evidence of Mr Dowlen for Mr
Ward.
Perhaps unsurprisingly neither party called evidence from Norwich Union or Aviva as it had become. The judge considered that in that regard Mr
Ward
had taken the greater risk since, in his
view,
Mr
Ward
had borne the relevant burden of proof. At [155] the judge said:
"155. I treated the burden as on the Defendant throughout to establish that the insurer would have refused to indemnify or assist and that this would have not been the subject of challenge and that as a result the chances that the insurers have provided an indemnity and/or assistance were no more than speculative. That burden has been successfully carried and the test met."
"(i) the insurer would have approached these cases with considerable caution not just because of thevalue
but also because of a sense that all was far from right with the claims and/or the facts underlying the claims.
(ii) that given all available information the insurer would be looking to avoid liability to indemnify, would have queried why these claims were considered covered by professional indemnity insurance and the "first reaction would be to avoid it" ( per Mr Black).
(iii) The experts did not seem to attach any real weight to Mr Adams' suggestion (that he repeated in closing submissions) that the reputation of insurer would be avery
relevant consideration i.e. that an insurer would not want a reputation for refusing to indemnify. It may well be that this has to be seen in light of the first two points and in contra distinction to where a
view
could be taken that an insurer was taking a technical point to avoid indemnifying in an otherwise straightforward case. In any event neither expert supported Mr Adams' submission. Mr Dowlen stated "reputation is not that important when it comes down to the insurer's product."
(iii) the insurer would have taken time to consider the claims as presented and would not have reached a snap judgment. In the interim it may have given some advice to the Claimant as to how to protect his position.
(iv) the issue of whether indemnity could or would have been refused because the Claimant was not acting in the course of his business for the purposes of the policy was a difficult one to assess. Whilst the Claimant was adamant that he was not so doing and had evidence to support his case, the allegations in the claim were that he was. Had the issue of whether the Claimant was acting in the course of his business been the sole issue for the insurer it would probably have continued to provide assistance, whilst preserving its position as regards indemnity; although this would have been difficult to achieve it was a path sometimes taken.
(v)
The insurer would not have relied on the exception at clause 5.
(vi)
the insurer, indeed even a novice insurer, would have raised and sought to rely on exemption clauses 3 and 6. Both experts had considerable experience of how the insurance business works and they were both of this
view
(albeit that Mr Black had failed to deal with clause 3 in any significant way, or clause 6 at all, in his expert report). As regards clause 6, Mr Dowlen stated that he had some experience of this clause, that it must be remembered that it is a professional indemnity insurance policy and that in simple terms the clause was present because the policy was not intended to "(be) there to cover where there is a muck up on (his) own business". He said it was "a
very
simple exemption" and would be applied as such. It appeared to me that for the experts it was not just a possibility or even a probability; it would have happened (in his report Mr Dowlen previously stated that these clauses "would certainly have been given by insurers as reasons to avoid an indemnity"; paragraph 9.5.6.). As I indicated during the expert evidence this accorded with my own impression when I first considered the policy terms which was that given the facts of these claims these exemptions would obviously have been closely considered given all the relevant facts."
Channon
in defending the claim. In
view
of further unchallenged findings in the judgment, to which I shall come shortly, to the effect that insurers would certainly have sought to rely on exceptions 3 and 6, this point is not of great relevance. It is relevant, if at all, only to a hypothesis upon a hypothesis. However for what it is worth Mr Blohm's contention proceeds, as it seems to me, upon an interpretation of what Mr Dowlen meant when he said, at the end of a long passage of evidence at pages 192-193 of the Appeal Bundle, "no, they would mount a defence based on that". It is not entirely clear to me whether this answer refers to defending the investors' claims or declining to assist Mr
Channon
on the basis that the claims fell outwith the scope of the cover. As the judge was I think saying at the end of paragraph [84(iv)], if the insurers unsuccessfully defended the investors' claims on the footing that Mr
Channon
had not been acting as an accountant when advising, if he did, it would be difficult for them to deny cover if, despite their best efforts to defend Mr
Channon's
position, it was held by the court that Mr
Channon
had indeed advised in the course of his professional practice.
"86. So it was Mr Dowlen's clear opinion that the insurer would have refused indemnity in this matter on at least two and probably three grounds; the two exemptions and also that the Claimant was not acting in the course of his business. He conceded that the insurer would face a "theoretical risk" (he had no experience of such a scenario) that if it relied on the argument that the Claimant was not acting qua accountant and it was found at trial that he had been that the insurer could then face a liability. However the thrust of his evidence was that the insurer would have relied on this argument in addition to the exemptions."
"87. Having carefully considered these areas of agreement between the experts, as further expanded upon by Mr Dowlen, I accept that they accurately reflect what would have been theview
of an insurer. This means I find that the insurer would certainly have sought to rely on exemptions 3 and 6.
88. I also find that in all probability the insurer would also have relied upon an argument that the Claimant was not acting in the course of his business. In so doing I have found the submissions of Mr Dyson at paragraphs 71-73 above to have force. Whilst that may have been a stance taken on less certain ground I take theview
that it would have been used, at the
very
least, to add ballast or as Mr Adams described (in a slightly different context as I shall set out) as an additional "lever".
89. So it is my finding of fact that the insurer would certainly have been set to refuse indemnity or any further assistance."
very
clear in his findings to the effect that Mr
Channon
would have been told that the claims made against him were not within the scope of the cover, were in any event expressly excluded therefrom, and moreover that he would not be given assistance in defending the claims.
Channon
would not have challenged the insurers' approach. At [142] he said this:
"142. My distinction (sic) impression is that he would have had some sympathy with the insurer if it had relied on the approach which I believe would have been taken, as it was consistent with his ownview
of the claims i.e. they were a device to try get around the problem of the company having no money and to get to his professional insurance cover, whereas the true dispute solely concerned what he did or do not do on behalf of a separate company when acting as a director."
And at [150]:
"150. Underlying and colouring my assessment of the evidence and what inferences can be taken from it was the Claimant's consistent belief that the claims were unmeritorious, a device, and did not truly concern his practice as an accountant rather his other life as a property developer. Of course if help was available from an Insurer he would have gladly taken it, but it seems to me that the overwhelming likelihood is that he would not have so strongly thought that it was his right as to risk litigation against his insurer if it was refused."
The judge also found that even if there had been some challenge to the insurers' decision not to indemnify or to assist, there was no chance that the insurers' decision would have been revoked or reversed. Finally, the judge said:
"152. These findings are not just on mere balance of probabilities leaving a significant possibility that matters would have progressed otherwise. Returning to the issue as framed by Mr Adams I do not find that there is a substantial and not merely speculative chance that the end result would have been different had insurance been in place. I am not persuaded by the proposition that there is a substantial chance that an insurer would have provided an indemnity or such a significant contribution as to costs as significantly alter the position that the Claimant found himself in when he was, on his account, effectively forced into a position where he had to compromise the claims of the investors."
The argument on appeal – discussion
various
unchallenged findings of fact was extremely limited.
"95. I had no direct evidence on the issue of legal advice would have been taken or not. Mr Black opined that once initial conclusions had been reached there would probably be a conference between solicitors and insurers to agree on a common response and reasoning (report paragraph 3.64).
96. Mr Dowlen stated that in practice with claims such as these the insurers would consider the matter carefully, and may take time to do so, but once a decision had been taken the insurer would stick with it. However he stated that it would go to a senior person; the claims director.
97. In the absence of direct evidence from Aviva (which is avery
large organisation with no doubt many
very
experienced insurance practitioners) I am not persuaded that Mr Black's opinion is right, as the insurer is likely to have considered that the clauses were sufficiently clear and it was on sufficiently strong ground that this was not needed. I also did not see (and neither expert saw) inconsistency with the balance of the policy or any in-built restriction within the clause that raised a question requiring expert legal interpretation.
98. I also find that the reasons why they were relied upon would have been easily communicated to and understood by the Claimant; there was no need for great care in the wording of any letter such that legal input was needed."
"Mr Dowlen You're making lots of assumptions there. I think broadly what happened . . . well I know what happens in the insurance world. The insurers will not say anything much. They will reserve their rights. They will actually not admit liability to the insured, and the insured may find that they are having to deal with the matter themselves because the insurers won't step up to the plate, if I use a metaphor from sport. So the insurers can actually hang back and not give a firm opinion on their liability to indemnify for quite a long time.
Mr Adams And you're saying that would have happened in this case?
Mr Dowlen I think it would have happened in that case. That's my opinion. That they would have waited and probably lookedvery
carefully at the papers. They would not rush to issue a denial of liability, or repudiation, and nor would they necessarily have rushed to give Mr
Channon
lots of help and defence costs and appoint lawyers. The insurers would probably appoint their own lawyers, they usually do in a fairly significant matter, to review the papers with them so that they have a legal fall back."
very
influenced by what they perceive to be the flavour of the case. Mr Dowlen agreed with the leading question put to him by Mr Dyson that when presented with the claims as made and the response to them, and the initial evidence as provided by Mr
Channon,
the insurers' likely initial reaction would have been that "the facts stink". Leading question or no, that was in the experience of the judge and in my own experience an entirely justified and realistic answer. It has to be remembered that, as the insurers would have seen from the correspondence, Mr
Channon's
initial reaction to the claims had been that he personally and MHP Limited would have to appoint solicitors to defend past actions which "we would do
very
vigorously
indeed". The insurers would, as the judge found, have recognised that the investors had been advised to "shoehorn their commercial claim against MHP into a professional negligence claim in order to tap into Mr
Channon's
PII cover". The pithy but apt language is again that of Mr Dyson.
view
forlorn. They might have done, but that is speculation. The claim stank, and in the
view
of their own insured it was a contrivance. Of course the insurers had to bear in mind the allegation by the investors that Mr
Channon
had indeed been acting in the course of his professional practice, but there were also two exceptions in the cover which the judge found that the insurers would have considered sufficiently clear in their application that external independent legal advice was not required.
Channon.
The judge has found that it would not have been. Mr Blohm's attack on this last finding is in my
view
even more forlorn than the attack on the earlier finding as to the likelihood of insurers taking independent legal advice. It founders principally on the circumstance that Mr
Channon
was not asked at trial what would have been his response to the hypothetical refusal of insurers to assist his defence to the investors' claims. That failure or omission is open to the obvious interpretation that the question was not asked because the answer would have been unhelpful to Mr
Channon's
case. However the judge did not approach the matter on that basis, rather reaching a firm and fully justified conclusion that Mr
Channon
would not have challenged a decision which would have coincided with his own appraisal of the situation. What the judge did observe, with justification, was that had the position truly been that Mr
Channon
would have challenged the decision, he could have given evidence to this effect. Instead the judge was simply presented with speculation by Mr Adams as to what Mr
Channon
might have done.
"You shall not be required
(a) To contest any legal proceedings . . . unless a senior barrister (to be mutually agreed upon between You and Us) shall advise that such action has a reasonable prospect of success."
Clause B.7 of the ICAEW Conditions is to similar effect:
"The Insured shall
. . .
Nevertheless neither the Insured nor the Insurers shall be required to contest any legal proceedings unless a Queen's Counsel or in the Republic of Ireland a Senior Counsel (to be mutually agreed upon by the Insured and Insurers or failing agreement to be appointed by the President of the Institute of Chartered Accountants in England and Wales/of Scotland/in Ireland as applicable) shall advise that, taking due account of the interests of both Insurer and Insured, such proceedings should be contested."
Clauses such as this are
very
familiar in professional indemnity insurance. Mr Blohm submitted that Mr
Channon
would have had resort to these clauses and that a QC would probably or at any rate might have advised that the exceptions were inapplicable and that the insurers should assist Mr
Channon
with the defence of the claims. However, as is apparent from a careful reading of the relevant clauses, the agreed role of the Senior Barrister or Queen's Counsel does not extend to resolving disputes as to the scope of the cover. Rather the role is limited to deciding whether, in the event that cover is acknowledged, the insurers can require their insured to defend a third party claim. The reason for this is obvious. Professional men ought not to be required to defend claims in circumstances where no defence can conscientiously be advanced. The QC clause had no role to play here.
Channon
had at one stage consulted solicitors specialising in insurance matters, namely Messrs Beale & Co, and suggested that that is the best evidence of what he would have done in the event that his putative insurers had refused to stand behind him. I leave out of account that it is a little unclear on what basis Mr
Channon
in fact contacted Mr Redfern, a partner in Messrs Beale & Co, as indeed he did. Mr Hayman of Messrs Bynes Solicitors, acting on behalf of the investors, spoke to Mr Redfern on 11 April 2011. Mr Redfern reportedly gave it as his
view
that it was "laughable" to suppose that the investors could prove that Mr
Channon
had been acting in the course of his professional practice, and furthermore that he considered that everyone would have known that Mr
Channon
was acting as Director of MHP Limited. Mr Blohm asks whether Mr Redfern would have given the same advice to Mr
Channon
in the context of an extant insurance policy, pointing out that he was speaking to Mr Hayman in an adversarial manner, Mr Hayman acting for the investors claiming against Mr
Channon.
This remains speculation.
Channon
as having hypothetically faced a binary choice, either to accept the insurers' decision or to issue proceedings against them. Whilst paragraph [140] of the judge's judgment provides some support for this criticism, paragraph [143] is differently expressed, a choice between contesting insurers' decision or "focusing his mind on defending what he believed to be unmeritorious claims". Whilst Mr Blohm's point is not without substance, I do not consider that it can undermine a
very
clear finding which additionally accords with commonsense. Mr
Channon
did not consider that these claims by the investors had anything whatever to do with his professional practice as a chartered accountant, so why should it be assumed that in the hypothetical world of having professional indemnity cover in place he would have potentially wasted his own funds in seeking legal advice in a hopeless endeavour? It should not be overlooked that the judge remarked, at [136], that "having heard [Mr
Channon]
I have little doubt that he pursues this case with no passion or indeed clear belief in its merits. This is
very
far removed from a case in which a committed claimant believes that he should win. I repeat my impression was that he was going through the motions as required by the settlement reached with the investors".
Channon
would probably have received had either of them asked solicitors to advise on the applicability of the exception clauses. Those clauses would have appeared to the insurers so clear in their effect that they had no need of independent advice. In that regard the judge restated his conclusion at paragraphs [106] and [115] as being that there was "no significant possibility that legal advice would have been taken" by the insurers and that such advice would have been that either exception could not be relied upon. There are of course there stated two separate conclusions, the second of which the judge based upon his own determination as to the proper construction of the exception clauses. The second enquiry and conclusion is unnecessary once the first conclusion has been reached, that there is no significant possibility that independent legal advice would have been taken. Moreover it is in my
view
fallacious to assume that the legal advice received would necessarily have coincided with the judge's own
view
as to the proper construction of the clauses. In that regard I was attracted by Mr Hext's submission in relation to exception (6) that there was no real chance that a lawyer instructed by the insurers would have advised that there was no real chance that this exclusion could be relied upon.
view,
and I prefer not to do so. So far as concerns exception (3), there may be force in Mr Blohm's contention that it looks principally to contractual claims against the insured, and I am not immediately persuaded by Mr Hext's suggestion that the clause is intended to exclude cover in respect of a particular but limited type of financial advice,
viz,
that relating to financial return guarantees. So far as concerns exception (6), I do not consider that Mr Blohm obtains much assistance from the decision of the Inner House in Bell
v
Lothiansure 1993 SLT 421, in which it was conceded that the words "arising from" in a cognate clause imported a need to identify the excepted cause as the proximate cause of the loss in question. I agree with Mr Blohm that the [proximate] cause of Mr
Channon's
alleged liability to the investors was not the circumstance that MHP made trading losses, nor in suing Mr
Channon
were the investors seeking to enforce a trading liability of MHP. However it may be too simplistic to assert that exception (6) serves simply to exclude liability in respect of the insured's business activities carried on in businesses other than the insured professional practice.
Channon
at the time, that the claims brought against him had nothing whatever to do with his insured professional practice, despite the contrived allegation that he had given relevant advice in the course of that practice. Any advice or encouragement he had given was given in his capacity as a director of MHP, not as professional advice given in the course of his accountancy practice. The reinforcement of that
view,
and a conclusion that the exceptions to the cover simply did not arise for consideration, would I think have been the principal outcome of detailed and expert consideration of the proper construction of exceptions (3) and (6). The more the claim was subjected to close analysis, the more it would have become apparent that the investors were seeking redress for their disappointment at the performance of their investment, not for the consequences of reliance upon professional advice by a chartered accountant of whom most of them were not even clients. This would have been a claim which insurers would have stoutly resisted from the outset on the basis that it was a plain contrivance in an attempt to formulate a claim in such a manner as to engage Mr
Channon's
professional indemnity cover.
Lady Justice Gloster :
Channon's liability had been capped at £85,000.