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You are here: BAILII >> Databases >> England and Wales High Court (Queen's Bench Division) Decisions >> Channon (t/a Channon & Co) v Ward [2015] EWHC 4256 (QB) (12 May 2015) URL: https://www.bailii.org/ew/cases/EWHC/QB/2015/4256.html Cite as: [2015] EWHC 4256 (QB) |
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QUEEN''S BENCH DIVISION
EXETER DISTRICT REGISTRY
B e f o r e :
____________________
RODNEY CHANNON( t/a Channon & Co) |
Claimant |
|
| - and - |
||
JOHN WARD |
Defendant |
____________________
Dan Dyson (instructed by Ashfords) for the Defendant
Hearing dates: 10th, 11th March, 22nd April 2015
____________________
VERSION
OF JUDGMENT
Crown Copyright ©
His Honour Judge Cotter Q.C.
Introduction and outline facts
Channon
& Co, which had a significant turnover and a loyal client base. At all material times for the purposes of this claim the practice was not registered to give financial advice and the Claimant repeatedly told his clients that he did not give such advice.
very
significant profit, however it required additional funds to put such plans into practice.
Channon
& Co. or had never previously sought professional advice from Claimant. The Claimant stated that MHP was looking for capital and described what the company was doing. Both Ms Armitage and Ms Stevens decided to commit capital to the projects. A further meeting took place and agreements were subsequently drawn up by
Channon
& Co on the instruction of MHP and signed.
Channon
& Co, also decided to commit capital to MHP after discussions with the Claimant. Again agreements were subsequently drawn up by the practice on the instruction of MHP and signed. The total invested approached £1 million.
very
significant sums.
Channon
& Co.
very
limited funds and produced a schedule of assets. The investors knew by late August /early September 2010 that the Claimant was uninsured, but pressed on. The Claimant did not seek to join the Defendant into the action brought by the investors as a part 20 Defendant seeking a contribution or an indemnity on the basis of a failure to ensure that insurance was in place. However a claim alleging negligence against Defendant was issued on or around 23rd November 2011.
verge
of entering an IVA and could not afford to defend the claims so considered settlement his best option, particularly as by
virtue
of the agreement he was able to continue in practice and was only required to pay a limited sum of £85,000 over a period of time with annual payments of £10,000. So despite the consent agreement the Claimant was and remains adamant that he was not liable to the investors. He did not seek to negotiate on the overall sum sought by the investors, as it was to a large degree academic. He agreed to commit to beast endeavors in an action against the Defendant as there was hope that if a judgment could be obtained against the Defendant, he could then be made bankrupt if, as was overwhelmingly likely he could not pay the sums agreed by the Claimant with the investors (as set out in a further order of 5th December 2012) and the FSCS would then step in and make payments to the investors.
vigorously
pursued. As I have set out the Claimant is indemnifying the seven individual investors as to their costs, so there is little or no incentive for them to do otherwise than pursue the action regardless of its merit.
view
somewhat worrying, aspect of this case that notwithstanding that there is a Tomlin agreement in force between the Claimant and the investors with subsisting obligations, the Claimant’'s case has been conducted by the same solicitor and Counsel who previously acted and no doubt continue to act for the investors against him in the action leading to that agreement. I shall return to this in a moment.
The respective cases
view
an unmeritorious professional negligence action against him (as he was not acting qua accountant), and having faced little defence as he was impecunious, obtained a judgment for all sums claimed and forced the Claimant to pursue this action, also unmeritorious, against the Defendant.
view
no point has been taken by the Defendant about a failure to mitigate, specifically arising out of the failure to contest the allegations and/or the settlement reached whereby the full sums claimed by the investors were conceded. This agreement was reached notwithstanding the Claimant’'s continued assertions, including before me, that these were wholly unmeritorious claims, the content of available documentation which provided some support for his position and the fact that he had some funds and could have defended himself.
Potential conflict
The Issue to be determined
Channon
in respect of the claims either because at all times he was acting in his capacity as a director of MHPL and not as an accountant or relevant exemptions in the policy?
Evidence
Findings of fact
v.
Whatley [2007] PNLR 27 at paragraph 31. Mr Adams'' specific submission was that:
“"In all cases the starting point in the no-negligence world is that there is an insurance policy in place and the claimant makes a claim under it. The question for the court is to assess as a matter of fact what might have happened in that scenario.
I agree.
very
long standing principle in Armory
v.
Delamirie [1722] 1 Strange 505 applies, namely there is an evidential presumption in favour of the claimant which gives him the benefit of any relevant doubt (the ""fair wind"" principle) - see Phillips & Co. (A firm)
v.
Whatley at paragraph 45.
Channon
& Co. The Defendant was already known to the Claimant when he established
Channon
& Co in 1991 and he was his insurance broker from the outset, advising him on what insurance he needed, sending him renewal notices and contacting him when he needed information.
Channon
& Co. MHP needed funds to pursue the purchase and development of properties. The Claimant first secured investments from Candice Armitage and Karen Stevens who were introduced to him by the financial advisor he referred people to who wanted investment advice (also being Mrs Artmitage’'s then boyfriend). Neither was a client of
Channon
& co.
“" I now enclose a signed and witnessed copy of the heads of agreement re your investment in Mill House Partnership… welcome to our investors club – thank you for your interest in this project”"
various
creditors began to call in their debts and the company could only manage to defer repayment for a limited period, stating that any legal action against MHP would trigger the banks taking possession of the company’'s assets as they were the only truly secured creditors.
Various
debentures had been issued to certain creditors but not over MHP’'s assets rather in respect of a company called Homebrick Limited which turned out to hold insufficient assets as security.
very
angry that the Claimant and his co-directors had apparently preferred themselves rather than the creditors upon the sale of one of MHP’'s properties, which had generated a distributable cash surplus.
Channon
& Co. Further, as the heads of agreement subsequently drawn up expressly state, the Claimant represented the company i.e. was acting on behalf of the company. The agreement differentiates between the Claimant and
Channon
& Co which is referred to as that entity.
verified
by a statement of truth that
“"The Defendant told her that he was a director of Mill House and was acting on behalf of Mill House”"
and
“"( the) sole purpose of the meeting was for the Defendant, as a Director of Mill House partnership to brief the Claimant on the activities of Mill House and Hugh Bromage..it was not a professional consultation and no investment advice was sought or given.”"
and
“" the affairs of Mill House were not part of the Defendants professional practice”"
and
“"it is denied any investment advice was given.. the Defendant steered all of his clients requiring financial advice to Richard Armitage ”"
Channon
& Co. They owned a care home and understood that the Claimant was carrying out some property development. The Claimant introduced Mr Bromage stating that he was a partner in his property business. There was then a meeting in which it was alleged that the Claimant advised/induced them to invest i.e. they say that he gave investment advice. The defence to their claim denied that any professional advice was given and set out that Mr and Mrs Whitmoor-Pryer had previously invested in the property market, had their own solicitor and were in contact with Mr Bromage.
Channon
& Co. They had their own Independent Financial Advisor and solicitor Mr Moore who apparently advised in relation to their investment
Channon
& Co. Their claim followed a similar pattern to the other investors as did the defence to it. However this claim can be used as an example of how documentation could lend support to the Claimant’'s case that he was not acting in a professional capacity when discussing investments in MHP. A letter of 30th November 2006 that followed on from a meeting between Mr (Clive) and Mrs Cross and the Claimant and Mr Brommage would have been of obvious significance in any analysis and defence of the claim. It stated
“" At my recent meeting with Clive I did explain thatChannon
& co are not authorised to give investment advice. Hence, whilst I am happy to discuss with you the opportunities that exist for you to invest with Mill House Partnership and/or Hugh Brommage''s main trading company (Goldhart Properties Limited) I cannot give you any specific investment advice. Clive and I have already discussed this fact and Clive understands that any final investment decisions made are entirely your own to make, you should take professional advice in this matter”"
Channon
& Co who had also previously invested in property.
variations
within the Claims the Claimant defended each of them on the basis that he had not given any advice and in any event had not been acting in his professional capacity as an accountant, rather as a director of MHPL.
Channon
with any assistance in respect of the claims.
(a)Channon
& Co was not authorized by the Financial Services Authority (“"FSA”") to conduct FSA business. Clients were expressly told this, as evidenced by its engagement letter such as that sent to Mr and Mrs Hender of 27th March 2003 which stated
“"We are not authorized by the Financial Services Authority to conduct investment business. If you require investment business services we will refer you to a firm authorized by the Financial Services Authority”"
The Claimant would have stressed that he well knew this limitation and was careful not to give any financial advice. So he would have provided evidence that he specifically warned clients ofChannon
& Co that the partnership did not give investment advice.
(b) It would have been and still is his case that he did not in fact give any investment advice. As he stated at paragraph 3 of his witness statement of 24th November 2014
“"I deny that I gave any investment advice whatsoever to the said persons who have claimed against me and who are now my Judgment creditors. I took this stance in my defence and my position has not changed.”"
(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.
(d ) The first claim in time, so the first to be considered by an insurer, was that of Ms Stevens as notified in a letter of 6th October 2009. On initial perusal by any insurer or legal representative of an insurer, and given the matters that I have already set out, it would have appeared that the Claimant was on strong ground to, as he put it, “"personally totally and entirely refute the claim”". Taking the claim of Ms Stevens together with that of Ms Armitage, available information would have revealed that
(i) Neither Mrs Armtiage or Ms Stevens had ever been a professional client in any capacity at any time;
(ii) Mrs Armitage was the partner, now wife of an Independent Financial Advisor, Mr Armitage, to whom the Claimant, as part of a long established arrangement, “"steered”" any clients wanting financial advice;
(iii) Ms Stevens was a client of Mr Armitage and a successful investor in property, including with Ms Armitage;
(iv) The first and main meeting took place at the Claimant’'s house at the instigation of Mr Armitage. This was the first time that the Claimant had met Ms Stevens;
(v)
The Claimant’'s evidence was that he told them that he was a director of MHP; which was true, and that
“"the sole purpose of this meeting was for the Defendant (as a director of MHP) to brief Ms Stevens on the activities of Mill House and Mr Hugh Bromage”"
and
“"It was not a professional consultation of the defendant as an accountant. No investment advice was sought.”"
and
“"the affairs of Mill House were not part of the Defendant’'s professional practice as an accountant”"
and
“"the defendant told the Claimant he was meeting them in his capacity as a director of Mill House and not in advisory capacity”"
and (in relation to Ms Stevens)
“"it is denied that the defendant agreed to advise (professionally or otherwise) or held himself out as acting for the Claimant”";
(vi)
That the offer as accepted was that Ms Stevens invest £100,000 with a return of a guaranteed minimum of 10% (the letter before action stating that Ms Stevens made it clear that she wanted her investment “"guaranteed”"); the return to be repaid by her receiving a penthouse flat up to a
value
of £165,000. The security for the loan was to be a debenture charge over the company;
(vii)
That Ms Stevens rejected the offer to seek independent financial advice and asked the Claimant (acting as director for an on behalf of Mill House to draw up the agreement);
(viii)
The loan agreement stated
(a) the Claimant represented MHP
(b) that the agreement was drawn up byChannon
& Co on the instructions of MHP
(c ) that the investors had been advised to seek independent legal advice.
view
would be as Mr Dyson described when he set out in his submissions that
“"The third parties have been advised by professional negligence experts to shoehorn their commercial claim against MHP into a professional negligence claim in order to tap into the Claimant’'s PII cover. But it is like trying to squeeze a square peg into a round hole. This is because the true nature of their claim is not one for professional negligence.”"
very
vigorously
indeed”". Indeed in due course and in his own defences, he did just that.
The approach of the insurer
view,
and succeeded in maintaining such stance in proceedings if necessary, that at all times he was acting in his capacity as a director of MHPL and not as an accountant or that a relevant exclusion applied. He further submitted that the court had to consider the matter as a matter of chance, because what would actually have happened in the hypothetical situation that the Claimant had been insured is a matter of speculation, which in the real world would have depended on a whole host of different matters including the choices made and the exercise of discretion by the third party insurer. He submitted that the question is not whether the insurer could have relied upon its strict legal rights to repudiate the policy or refuse an indemnity, but whether insurers, with standing and reputation to maintain, would as a matter of business have done so i.e. it is a matter of determining the facts as far as it is possible to do so given that a third party is involved.
“"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 ( 229) 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 Claimant in respect of his 2006 insurance policy was “"Chartered Accountants”" .
""To indemnify the Insured against any Claim or Claims . . . . in respect of any civil liability whatsoever and whensoever arising . . . incurred in connection with the conduct of any Professional Business"" which is not exhaustively defined, but rather as including ""advice given or services performed irrespective of whether or not a fee is charged.""
Clause three
“" … loss arising from any express or implied warranty or guarantee relating to the financial return of any investment or portfolio of investments”"
Clause five
“" … loss arising from or caused by you acting as company secretary or registrar or director other than where the claim or loss arises from the performance of services”"
Clause six
“"or loss arising from any trading losses or trading liabilities incurred by any business managed by or carried on by you.”"
(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.
very
heavily on an argument that, regardless of what the initial
view
of the insurer might have been, given the size of the claims there would subsequently have been expert legal advice provided and that advice would have ruled out refusing to indemnify or reliance on any exemption clause. As I had no evidence in relation to what legal advice would have been provided to an insurer in 2009 about these matters he then advanced his own interpretations of the meaning and scope of the indemnity and the exemptions.
Channon
& Co and as a result the response of an insurer (in line with the approach taken by the insurer on the facts in Thorton Springer-
v-NEM
[2000] 2All ER 489 where the question arose of an accountant’'s private business dealings apart from his work for the practice) would have been that it did not trigger the indemnity and/or in any event would fall within a relevant policy exclusion (as a policy exclusion may still operate even if the indemnity is in principle triggered). He submitted that an insurer would have noted that
a) MHP is a property development business it is not a firm of chartered accountants.
b) The Claimant’'s directorship of MHP was not in relation to ‘'Services’' under the policy. The fact that he was an accountant is merely incidental and of little more relevance than if he had been some other form of professional person
c) The Claimant did not give investment advice in respect of MHP. He made representations on behalf of MHP as its director in order to persuade the creditors to lend it money. The rate of interest was a term of the loan agreement and not advice. In fact certain creditors actually specified their own interest rate such as Mr and Mrs Whitmoor-Pryer .
d) All the creditors realised or ought reasonably to have recognised that the Claimant was procuring the loans on behalf of MHP as the loan agreements was signed by the Claimant for and on behalf of MHP and the creditors were either seasoned business owners themselves or were advised/referred by Mr Richard Armitage - a financial advisor. They would have been able to distinguish between the Claimant’'s professional role and the fact that he was a director of a separate property development company;
e) the Claimant generally corresponded with the creditors on MHP headed letters naming him as a director and setting out the company’'s address and details (see e.g. letter of 14th march 2007 to Mr and Mrs Cross) On the rare occasions he usedChannon
& Co stationery he used words such as “"The company I am personally involved in, Mill House Partnership Limited is seeking investment funds”"; in such correspondence reference was made by the Claimant to “"our company”" and to discussing matters with his “"fellow directors”"
f) when the creditors realised MHP may be unable to repay the loans a meeting was convened at which they discussed with the Claimant ways in which it could be resolved by MHP trading out of the difficulty through his management. There was no accusation of breach of duty as an accountant at that stage.
virtue
of a matter arising from the Claimant’'s profession as an accountant, together with as opposed to wholly separate from the exceptions at clauses 3 and 6 as each may add weight to the other in terms of a route to avoid providing an indemnity or assistance with the defence of the matter. He argued that clause 3 would have been seen to clearly apply as the claims made were that the Claimant had given investment advice or misrepresentation about guaranteed returns on an investment. It was and indeed still is his case that there was no investment advice, however, to the extent that he did give investment advice the clause would obviously bite as the
very
heart of the complaint was that he negligently gave advice “"when he knew or ought to have known that the investment was speculative”" and that could not adequately be secured.
version
of the Norwich Union (Aviva) policy . They then agreed that:
a) Any insurer would have consideredvery
seriously not indemnifying the Claimant;
b) Although he stated that he did not give investment advice if there was a claim that he had given investment advice it could still be a risk covered by the policy but if so it would still remain subject to any relevant exception or condition under the policy;
c) on the basis of the evidence provided to the experts there would be little basis for rejecting the claim on the basis of fraud (notably this was subject to the level of evidence available to the experts enabling them to conclude whether there was any fraud);
d) it could have taken anything up to 12 months for an insurer to accept or reject a claim under the policy.
a) whether or not the Claimant’'s activities would qualify as an insured risk pursuant to the definition of Business and Services;
b) whether the actual Defence raised by the Claimant would have been amended in a material way upon the involvement of the insurer i.e. whether his actual defences as pleaded (although signed with a statement of truth) were relevant (avery
curious position having been adopted by Mr Black);
c) whether the creditors’' subjective understanding of the Claimant’'s role would have influenced an insurer’'s liability to accept the claim: that is, whether they (the creditors) believed he was acting as an accountant providing services to them as clients or as a director of MHP raising loan finance;
d) whether the exceptions at clause 3 would apply;
e) whether exception at clause 5 would apply;
f) whether exception at clause 6 would apply.
very
different
views
of the experts. I regret to say that I found Mr Black to be a rather unimpressive and unreliable expert witnesses. In his report he appeared to reach a firm conclusion and clearly dismissed what he subsequently had to concede in evidence were obvious matters that required detailed consideration. Specifically
(i) he could not justify his conclusion at paragraph 4.12 that
“"from a loss adjuster’'s perspective I would expect indemnity to (the Claimant) to be given and liability to be admitted in all cases subject to the £1 million policy limit”" (underling added).
This was on myview
a wholly unsustainable assertion that provided insight to the way that he had approached his task. His
view
as set out in his report was that the insurer would accept that it should indemnify and then accept that it was going to have to pay out.
(ii) he failed to adequately consider the potentially relevant exemptions in his main report (he did not deal with exemption at clause 6 at all) and gave confused and confusing explanations as to why he did not think that they would be raised. Then after reflection during his oral evidence he conceded that they would be raised even by a novice insurer
(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.
view
that reliance upon exemptions at clauses 3 and 6 would have emboldened the insurer’'s
view
as to the option of also seeking to refuse to indemnify on the scope of cover issue. In his report he had arrived at the conclusion that the insurer would have refused to indemnify. He laid emphasis on the fact that it was the Claimant’'s own case, as he would have repeatedly asserted to the insurer, that he was not acting in the course of his business and that the claims as presented were misleading or a “"try-on”" in seeking to advance a claim based on professional negligence. In his oral evidence he
very
largely stuck to this
view
and stated that in practice once an insurer has made up its mind it will usually stick with the decision and will seek to reinforce it. In his opinion there was “"not a chance”" that an insurer would not have refused indemnity.
view
of an insurer. This means I find that the insurer would certainly have sought to rely on exemptions 3 and 6.
view
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”".
“"It is not, however, necessary for the court to resolve the question of construction (both in relation to the scope of the policy and exemptions) as it is only concerned to assess what might have happened as matter of fact, The betterview
is that the insurers might have used any such argument, in so far as it was available, as a lever in negotiations with the investors in order to drive down a settlement, as advocated by Mr Black in his notional role as investigating loss adjuster - see also Phillips & Co. (A firm)
v.
Whatley at [32].”"
view
and indeed that of both experts, an insurer would have been raised the grounds and sought to avoid involvement in the litigation.
view
of the experts which did not support the submission. It was Mr Dowlen’'s
view
that such risks would hold little force against the ability to avoid significant commercial exposure. As a matter of simple commercial sense and given that these claims concerned significant investments in the property market, not an area likely to invoke considerable sympathy (even though the individual circumstances did
vary)
I think his
view
correctly sums up the position. I see no reason to believe that a large insurer such as Aviva would see a significant risk to its reputation and deviate from an available path away from liability.
Legal advice
very
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.
“"in respect of any claim ...or loss arising from any trading losses or trading liabilities incurred by any business managed by or carried on by you.”"
(a) The losses incurred by the investors/creditors arose as a result of a failure of MHP to be able to meet its financial obligation to them;
(b) The Claimant was a director of MHP with day to day involvement in its management. Indeed the investors complained about his management of the company at the meetings when its difficulties had become apparent.
(c) Any relevant claim under the policy would have to be a claim against the Claimant in relation to loss incurred by reason of advice or conduct.
(d) The clause covers “"any claim”" in relation to “"any business”" and is not limited to a claim by a business managed by the Claimant in respect of loss arising from its trading losses or liabilities.
“"The loan arrangements were commercial transactions between the Claimant’'s company MHP which he managed with his co-directors and the third parties.”"
Channon
""arises from"" such trading losses”". Again I see no reason why this would be so. The cause of the Claimant’'s liability, if there was any, was the failure of the company he managed to be able to meet its liabilities as a result of the property crash. If it had met its contractual liabilities to the investors they would have made a
very
healthy profit upon their investments. That the investors did not deliberately employ him to manage their business is to my mind of no consequence and I cannot see why a lawyer would have advised differently.
“"we will not provide indemnity in respect of
any claim … or loss arising from any express or implied warranty or guarantee relating to the financial return of any investment or portfolio of investments.”"
“" (Mr Dowlen) is of the opinion that this clause would apply in this matter while (Mr Black) is not sure that there is sufficient financial certainty in the outcomes to comply with the requirements.”"
view
that there would have been reliance on this exemption. I did not find this surprising as his
view
that there was insufficient financial certainty in the promised outcomes was untenable on the facts. The
very
basis of the claim presented against the Claimant was that he had negligently advised or misrepresented the facts in relation to guaranteed returns albeit of slightly differing forms. As I have set out Ms Stevens'' claim was in relation to an investment £100,000 “"with a return of a guaranteed minimum of 10%”" (the letter before action stating that Ms Stevens made it clear that she wanted her investment “"guaranteed”"); the return to be repaid by her receiving a penthouse flat up to a
value
of £165,000. The security for the loan was to be a debenture charge over the company.
view
on considering the policy wording was that this exemption applied and I could see no reason why if legal advice was provided it would have given a different opinion.
Channon
& co were not authorised to give financial or investment advice. The Claimant’'s annual declarations to ICAEW and proposal forms state he did not supply investment advice. However, others the subject of professional indemnity cover may be authorised and the definition of services included investment advice. However I do not see this exemption as inconsistent with general cover. It appears to me that there is likely to be a wide range of potential investment advice that does not require express or implied warranties or guarantees relating to financial return.
v
Ching [1956] 3 All ER 821 at 828
“"I do not think that the underwriters are bound by the way in which the claimant has chosen to formulate his claim. I think the underwriters can properly invite the court at this stage to ascertain the true nature of the claim and to make such inquiry as may be necessary for that purpose.”"
v.
NEM. [2000] 2 All ER 486. In that claim the allegations of the claimant in the action in issue were that the accountant had acted as a professional accountant as distinct from in his personal capacity. The insurer refused indemnity in respect of any element of the claim or costs attributable to private dealings; a similar stance to that which I find would have been adopted here. Coleman J concluded that the basic principle of liability insurance is that the required intrinsic character of the eventuality insured against was the true liability of the assured, rather than the alleged liability advanced by the claim. I find that this would have been the advice given the insurer in this claim. I do not accept Mr Adams'' submission for a moment that anticipation and adoption of the reasoning of the Court of Appeal in Rust Consulting Limited –
v-PB
Ltd ( No2) [2012] EWCA Civ1070 would have taken place.
In order to ascertain whether the claim is in substance within the scope of the Insuring Clauses it may be necessary to investigate what the basis of the claim really amounts to, as distinct from the manner in which it is expressed in the claimant''s pleadings, adopting an approach similar to that of Devlin J in West Wake Price & Cov
Ching, supra, at page 53. In a case where on the face of it the claim is so formulated that it falls in substance partly within the scope of cover and partly outside that scope, Special Condition I has the effect that only to the extent that it falls within the scope of cover can the claim be treated as “"falling to be dealt with”" under the policy. Accordingly, insurers might properly confirm their consent to the assured incurring costs and expenses in respect of the defence or settlement only of that part of the claim which is in substance within the cover. However, this is not required to satisfy a high threshold of substantiality. Thus, if a claim were to be formulated against the Practice for breach of its professional duty and in the alternative against a partner in his personal capacity, relying on the same allegations of fact, there would, in my judgment, be a claim within Special Condition I unless the claim for breach of professional duty was on the face of it so manifestly untenable as to justify being struck out, if it had been pleaded.
I think that this would have been the test referred to in any advice as applicable to the requirement to provide indemnity or assistance with costs.
view
of the Claimant himself that at all times he acted as a Director of MHP, that
Channon
& co did not conduct investment advice and that there was correspondence that clearly supported his position that the creditor/investors well knew this (see generally witness statement of 24th November 2014). Further his
view
was fortified by the opinion of his solicitor that it was “"laughable”" to suggest otherwise.
very
different perspective and that is the
view
which would have been advanced to the insurer. Mr Adams failed to recognise that any insurer would be inclined in these circumstances to take the claimant at his own word.
Claimant’'s reaction to the Insurer’'s stance
(i) The claim is that he gave investment advice about the “"guaranteed”" return from an investment, but he knew thatChannon
& Co was not authorised to give investment advice (as his own correspondence repeatedly stated) and the exemptions in the policy.
(ii) That he was adamant that the claim did not arise out of the fact that he was an accountant, rather at best was a misrepresentation claim when he was acting qua director and in respect of a separate business.
The best he could do was to suggest that I ask Mr Adams.
“" the real issue is whether exclusions apply…. although I contended that I was not giving investment advice, the allegations that were made that I was and as I have admitted liability I concede that. I believe that any mainstream professional indemnity insurance policy would have to respond to the allegations that were made against me by the Claimants.”"
“"I deny that I gave any investment advice whatsoever to the said persons who have claimed against me and who are now my judgment creditors. I took this stance in my defence and my position has not changed… I would have wanted my insurers to defend proceedings to trial.”"
He also exhibited the letter of engagement to Mr and Mrs Hender to which I have already referred to support the proposition that
Channon
& co did not give investment advice.
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 have made a claim”". Of course in so far as he means by this that the matter would have been referred to the insurer then he is of course correct, as the Claimant was hoping for some legal assistance. However in so far as this phrase means that if the insurer has refused to provide indemnity or assistance he would have sought legal advice and /or commenced proceedings against the insurer to obtain what he thought the insurer was contractually obliged to provide then that is quite a different matter.
Very
far from it. As I pointed out during submissions he was not directly asked what he would have done by Mr Adams. It may be that Mr Adams was uncertain as to the answer he would have elicited, I know not. However had the position truly been that he would have challenged it then he could have given firm evidence to this effect. Mr Adams'' closing submissions as to what a litigant faced with a refusal to indemnify would have done are a
very
poor substitute for the litigant’'s own evidence on the point a fortiori where it is
very
far from clear what he would have done given the difficult position he would have faced if he sought to challenge the insurer. Whilst he would have been
very
disappointed if an insurer chose not to assist him in his battle and indemnify him if he sought to challenge the insurer''s
view
he would have been fighting on two fronts with all the accompanying costs.
view
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.
very
significant hurdle to positive reaction, Mr Adams suggested in his closing submissions (without there being any evidence on the point) that not only would the insurer have been joined into the actions as a Part 20 Defendant, but that the seven investor claimants would have assisted with the funding of this step.
viewed
as wholly unmeritorious claims, not a contribution to settlement. As I have set out there was clear evidence that supported the Claimant’'s case and there is no reason to believe that anyone advising the investors would have seen it likely to be anything other than a fully contested matter if the Claimant had the means to fight it. So seeking to arm the opposition before liability was determined would have been a
very
strange step to take. Further litigation against the insurer would have been a long way from litigation in which success could be seen as highly likely (so easily distinguishable from the merits of the claim against the Defendant based on an apparently obvious breach of duty; I should add that I bear in mind that the Claimant commenced a claim against the Defendant).
v.
Delamirie can put some fair wind in the sails for the Claimant’'s suggested successful
voyage
to the avoidance of loss considerable care must be taken to recognise what is in reality a rudderless ship on a shoreless sea.
views
have to be treated with
very
great caution not the least of the reasons for which is that he would have been the last person to have been advising the Claimant given that he was Counsel acting against him and in any event his opinion of the merits of the investors’' case would not have been, and is still not, accepted by the Claimant.
Conclusion
Burden
v-BN
Furman [1967] 1 WLR 898 and submitted that in all cases the starting point in the “"no-negligence world”" is that there is an insurance policy in place and the Claimant makes a claim under it. The question for the court is to assess as a matter of fact what might have happened in that scenario. As the Claimant finds himself in a situation which he ought not to be in due to the defendant''s wrongdoing, the principle in Armory
v.
Delamirie applies, namely there is an evidential presumption in favour of the claimant which gives him the benefit of any relevant doubt (the ""fair wind"" principle) - see Philips & Co. (A firm)
v.
Whatley [2007] PNLR 27... PC). It is only if the Defendant can prove that in no circumstances would the insurers have provided an indemnity that the claim will fail.
v-
Hogg Robinson [1973] Lloyds Rep 217, a case which turned on the issue of whether a re-insurer would have repudiated by reason of a failure to disclose an adverse claims record had the broker not been negligent. It was held by Kerr J that if a broker relies on a causation defence he must satisfy the court that the insurer would in fact have exercised its rights and declined to meet the claim; if this is established no loss flows from the breach. If it is not established then damages are assessed on a loss of a chance basis i.e. the court will
value
the chance of recovering a full or partial indemnity. He stated at page 223
"". . . once a plaintiff has proved that as the result of the defendant''s negligence he has lost the benefit of a contract which would have beenvalid
if concluded, but which would have been
voidable
at the election of the other party, then in my
view
the burden of proof shifts to the defendant to show that on the balance of probabilities the plaintiff would in any event have lost all or part of the benefit of the contract as the result of the probable action of the other party.""
v
Simmons & Simmons [1985] 4 All ER 907 (see Stuart-Smith LJ at page 1610G-H and 1614D). I fully accept that the Claimant must establish on the balance of probabilities the causative link between the breach of duty and his loss. However the Claimant’'s path with the burden can be just one step.
valid
if concluded. It is a well settled principle of insurance law dating back to the early 19th century that an assured has the burden of proving that the loss was caused by a peril insured against. That means that if it is a policy that provides only limited cover the burden remains on the assured to bring himself within the terms of the policy. If there is a qualification of the general risk which covers its whole scope (so that there is no unqualified risk left), the burden is on the insured to prove facts which bring the case within the general risk as qualified. In Munro Brice & Co-
v-War
Risks Association [1918] 2 K.B.78 Bailhache J set out the principles succinctly and with clarity as follows [1] ;
When the promise is qualified by exceptions, the question whether the plaintiff need prove facts which negative their application does not depend upon whether the exceptions are to be found in a separate clause or not. The question depends upon an entirely different consideration, namely, whether the exception is as wide as the promise, and thus qualifies the whole of the promise, or whether it merely excludes from the operation of the promise particular classes of cases which but for the exception would fall within it, leaving some part of the general scope of the promise unqualified. If so, it is sufficient for the plaintiff to bring himself prima facie within the terms of the promise, leaving it to the defendant to prove that, although prima facie within its terms, the plaintiff''s case is in fact within the excluded exceptional class….
When a promise is qualified by an exception which covers the whole scope of the promise, a plaintiff cannot make out a prima facie case unless he brings himself within the promise as qualified. There is ex hypothesi no unqualified part of the promise for the sole of his foot to stand upon. ..
Whether a promise is a promise with exceptions or whether it is a qualified promise is in every case a question of construction of the instrument as a whole.
view
that a burden lay on Claimant to establish that but for the negligence of the Defendant there would have been a policy in existence that covered the claim in question. Ordinarily such a step will not be difficult. Thereafter the burden is carried by the defendant broker if he seeks to establish that the insurer would have repudiated for some reason, whether that be by reason of breach of a condition or exemption.
v-
BN Firman).
view
it as technically the case that as that the general promise was to insure in respect of any claim “"arising out of the conduct of your business”" the burden lay on the Claimant to establish that there would have been a
valid
insurance contract covering the risk (or more specifically a substantial chance that this would be established or accepted by the insurer), it would be artificial in a case such as this to separate out this element. The reality here, as in many cases when more than one route is available, is that the insurer''s analysis would consider matters in the round and take a
view
as to whether to indemnify or not taking into account the ability to rely on exemptions or conditions. In such cases it is my
view
that the appropriate course is to treat the burden as on the Defendant’'s shoulders throughout.
Judgment as handed down
His Honour Judge Cotter Q.C.
..
Note 1 Cited with approval by the Court of Appeal in Force India Formula One Team Ltd
v Aerolab SRL (an Italian company) and another [2013] EWCA Civ 780 per Lewison LJ paragraph 55 [Back]