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Cite as: [1999] Lloyd's Rep IR 6, [1998] EWHC 1205 (Comm)

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Neutral Citation Number: [1998] EWHC 1205 (Comm)
Case No. 1997 Folio 1945


St Dunstan's House
29 September 1998

B e f o r e :

Mr Justice Rix

- and -
(on his own behalf and on behalf of all other Lloyd's Underwriters subscribing to insurance policy No. 200492/AA)
OTHERS Defendants


Mr C Symons QC and Mr P Cranfield, instructed by Messrs Titmuss, Sainer Dechert, London, EC4Y 1LT, appeared for the Plaintiffs.
Mr G Kealey QC and Mr J Nash, instructed by Messrs Hartfields, London, WC2A 1DU, appeared for the Defendants.



Crown Copyright ©

    Mr Justice Rix:

  1. This, I am told, is the first case to come to trial arising out of what is called "Pension Mis-selling" in which a life assurance company seeks to be indemnified by its professional indemnity insurance underwriters for the losses it has or may yet sustain by reason of the need to compensate investors for such mis-selling of pensions to them. The plaintiffs, J Rothschild Assurance plc ("JRA"), are well known sellers of life assurance and pension policies. The first defendant, Mr John Robert Collyear, is a representative Lloyd's underwriter, and the other defendants are either also representative Lloyd's underwriters or insurance companies who together subscribed to three policies, numbered 200492/AA, 200492X1/93 and 200492X2/93. These three policies are "claims made" policies covering the period from 1 February 1993 to 31 January 1994 inclusive (the "policies"). The limit under the first (primary layer) policy is 5 million. The limit under the second (first excess) policy is 5 million excess of 5 million. The limit under the third (second excess) policy is 10 million excess of 10 million. Thus the total cover under the three policies extends to 20 million. Each of the policies is otherwise in all material respects on identical terms.
  2. As of June 1998 JRA have already compensated or offered to compensate some 400 priority cases. The value of such compensation in individual cases is generally under 10,000 or at any rate 20,000, but some are of a higher order. There are only three which go above 50,000. I mention such figures because one of the issues debated before me concerns the policies' excess limits. It may be that further investigations will show that up to many times that number of 400 investors will need to be compensated. JRA calculate that the cost of implementing the review of their investors' cases has amounted to 840,254 up to the end of 1997 alone. There is an issue before me as to whether or how such costs are to be dealt with under the policies.
  3. To assist the parties to this litigation to get to grips with the many issues which arise on the many different individual cases of compensation for which JRA are seeking an indemnity, Mr Justice Clarke made an order on 10 February 1998 that a maximum of ten sample claims be selected and that those ten claims be tried "and that proceedings in relation to all other issues be stayed pending such trial". Ten such sample claims have been selected; but in the preparation for and in the course of this trial the parties have come to appreciate that they are not in a position to try such cases on their facts, but have rather used them to illustrate certain basic themes and to isolate certain basic issues which they wish to have argued and resolved. This trial has therefore followed a somewhat different path from that envisaged by Mr Justice Clarke: but I think the goal aimed at is much the same.
  4. In brief, then the issues which have been debated before me are as follows.
  5. First, there is an issue regarding notification. The policies, as I have already mentioned, are on a "claims made" basis. No claims, at any rate no claims with which this litigation is concerned, were made in the policy year. However, the policies required JRA to give notice of any circumstance of which JRA became aware which might give rise to a claim against them, whereupon any claim to which that circumstance gave rise, even though made after the policy year had expired, would be deemed to have been made within it. Following a report by KPMG Peat Marwick to the Securities and Investment Board (SIB) in December 1993 (the "KPMG report"), Lautro (the Life Assurance and Unit Trust Regulatory Organisation), the self regulating organisation (SRO) of which JRA were a member for the purpose of regulation under the Financial Services Act 1986 (the "Act"), wrote to their members to say that the KPMG report disclosed a "problem which needs to be tackled" regarding non-compliance in the selling of pensions in certain classes of cases, known as "transfers" and "opt-outs" (of which more below). On 27 January 1994, only a few days before the expiry of the policy year, JRA's solicitors, Messrs Titmuss Sainer & Webb, wrote to the underwriters' agents purporting to give notice by reference to the Lautro letter and the KPMG report of circumstances "which may give rise to a claim" against them (ie against JRA). The underwriters, however, disputed that that was a valid notice for the purpose of the clause, on the basis that no criticism had been levelled against JRA personally, and no cause for concern specific to any of JRA's investors had been identified. The clause in question is General Condition 2.
    Secondly, there is a non-disclosure issue. The underwriters say that if, contrary to their primary case on the first issue, JRA's notice in January 1994 was a valid notice, then JRA ought also but previously to have disclosed to underwriters the contents of a Lautro document of 15 July 1992 called "Enforcement Bulletin No 16", in which reference is made to an "overall problem" regarding that particular category of pension sales known as "opt-outs", namely sales to investors who were opting out of their occupational pension scheme. Since JRA had not disclosed the circumstances described in that Bulletin, the underwriters say that in the case of investor claims arising out of opt-outs JRA are without cover by reason of Exclusion 2 to the policies which excludes inter alia any claim arising out of any circumstances "known" to JRA prior to inception. A question arises whether Exclusion 2 is inconsistent with the policies' Special Conditions, which both limit the underwriters' right to avoid for non-disclosure or misrepresentation to instances of fraudulent intent, and limit JRA's recovery, in the case of claims arising out of circumstances which were known and ought to have been notified under a preceding insurance, to the amount and extent afforded by that preceding insurance.
    Thirdly, there is what is perhaps the most fundamental issue of all, and that is whether the cases of compensation come within the policies at all as "claims ... made" under Insuring Clause 1. What happened was that Lautro and its successor, the PIA (the Personal Investment Authority), required their members to set up a review to investigate the pensions mis-selling problem, and to offer redress to all those investors who, as a result of such review, were shown to have been mis-sold a pension in breach of the applicable self-regulatory rules and to have suffered loss as a result. Thus the initiative was taken by the members, JRA among them, rather than by the investors. In these circumstances the underwriters submit that, with rare exceptions, no claims have ever been asserted. This is the claims issue.
    Fourthly, there is an issue regarding costs. Insuring Clause 4 provides that underwriters will also indemnify JRA in respect of all costs and expenses incurred "in defence or settlement of any claim" which falls to be dealt with under the policies. Since there are no such claims, submit the underwriters, there can be no such costs, and in any event such costs must be those incurred on specific claims, and not the whole expense of the review of JRA's investors.
    Fifthly, there is an issue regarding excess limits. JRA's excess under the policies is 50,000 each and every claim, but only three cases of compensation so far identified are for more than that figure. However, the pensions in question were sold through JRA's salesforce of "appointed representatives" who have self-employed status but who enter into contracts for services to act as agents for JRA. JRA are responsible under section 44(6) of the Act for everything that their appointed representatives do in carrying on JRA's investment business. However, each appointed representative is also potentially liable for his own mis-selling. JRA's appointed representatives are also insured under the policies and are defined therein as "Joint-Assureds" with separate inner limits on the underwriters' liability in respect of each of them, and with separate excess limits. These excess limits depend on the representatives' commission income and rise from a minimum of 1,000 up to 10,000 (save where commission income is over 1 million in which case the excess is to be separately agreed). The underwriters submit that it is JRA's excess of 50,000 which applies to every claim which JRA makes against them, whereas JRA submit that in effect it is the excess of the individual appointed representative concerned which applies.

    These five issues can be identified in the terms of five declarations which the parties invite me to decide whether or not to make, viz:

    (1) Notification: A declaration that JRA's solicitors' letter dated 27 January 1994 was a valid notification under General Condition 2 of the policies in relation to sample claims 2, 3, 4, 6, 9 and 10.
    (2) Non-disclosure: A declaration that JRA are not deprived by Exclusion 2 of the policies of an indemnity in respect of opt-out claims by reason of their knowledge prior to the inception of the policies of the terms of Lautro's Enforcement Bulletin No 16 dated 15 July 1992.
    (3) Claims: A declaration that the indemnities sought by JRA against the underwriters in relation to sample claims 2, 3, 4, 6, 9 and 10 are in respect of "any claim or claims ... made against them ... in respect of any Civil Liability" within the meaning of Insuring Clause 1 of the policies.
    (4) Costs: A declaration that JRA are entitled to be indemnified pursuant to Insuring Clause 4 of the policies in respect of such part of the costs incurred in reviewing and investigating those cases of pension mis-selling in respect of which the underwriters are liable to indemnify JRA in accordance with Insuring Clause 1.
    (5) Excess: A declaration that on the true construction of Insuring Clause 5, the First Schedule and Special Memorandum 1 of the policies the appropriate excess to be applied where JRA are indemnified by underwriters in relation to claims under the policies arising out of the mis-selling of pensions by appointed representatives is the relevant excess of the appointed representative who sold the pension.
  6. Since the trial did not take the form which the order of Mr Justice Clarke provided for, I can foresee that, potentially or theoretically at any rate, questions may hereafter be raised as to the status of other issues which were present, or might be said to have been present, on the pleadings but which have not been debated before me. I have not discussed this with counsel. I would be happy to think that no questions of this nature will arise. If, however, they do, they will have to be resolved in due course. Certainly, it was common ground that the sample claims were not before me for the purpose of any money judgment or the trial of any factual issues upon which a money judgment might be dependent - other than the (in part) factual issue of whether the written documentation before me on sample claims 2, 3, 4, 6, 9 and 10 amounted to a "claim". Even so, I think that JRA reserved the right to seek to show that in individual cases - but perhaps not in those cases - there were oral complaints or communications which in any event might be said to amount to a "claim". Moreover, express mention was made before me of issues of legal liability and of co-insurance which by common consent were stood over.
  7. A particular difficulty was discussed in the case of the excess issue. This arose out of a late amendment to the underwriters' pleadings, for which I gave leave during the trial: see paragraph 11A of the reamended points of defence and counterclaim. JRA disputed the underwriters' entitlement to leave, on the basis that the amendment was entirely new and disruptive. The underwriters submitted that the excess issue had been sufficiently on the pleadings from the start, and their reamendment was only to make the matter plainer. On behalf of the underwriters, however, Mr Kealey QC accepted that any riposte involving an issue of fact could and would be put off to another day: such as the possibilities, not yet pleaded, that had been floated by Mr Symons QC on behalf of JRA relating to estoppel by convention (on the basis that past claims had always been dealt with on the basis of the appointed representative's excess), or to a special market meaning of the excess provisions. Mr Symons also pointed out that the excess issue would necessitate him looking more carefully at the definition of a "claim" in the aggregation clause to be found in Definition 4 - which would itself need further evidence of fact which had not been prepared for the present hearing. It might turn out, Mr Symons suggested, that some or all of JRA's claims were to be treated as "one claim" for the purposes of that clause, in which case the JRA excess of 50,000 could apply only once (or a few times at most). In granting leave, I ruled that any issue of fact would have to be adjourned, but that I would deal with the basic issue of construction if I could. I had in mind that it was not possible then to know whether that issue could be properly decided by itself, or whether it would turn out to be safer to consider it in the context of such other arguments as might arise on a later occasion.
  8. Having set out the bare bones of the issues which fall for decision, I must next refer to the detailed terms of the policies and then to the regulatory framework in which the parties were operating.
  9. The policies

  10. The policies are fully composite policies insuring not only JRA and associated companies but also the appointed representatives. Thus General Condition 5 (see below) points out that the various assureds and joint-assureds are separately indemnified "as if a separate policy had been issued to each".
  11. The "assureds" are defined in Definition 1 as including JRA as well as named associated and all subsidiary companies and their appointed representatives. When the policies wish to refer only to the assured companies, they use the term "J Rothschild". When they want to refer only to the appointed representatives, they use the term "Joint-Assureds(s)". "Appointed Representatives" are themselves defined by reference to section 44 of the Act. That and other references to the Act (see Insuring Clause 1 below) indicates, as would in any event be inferred, that the policies were drafted with knowledge of and against the background of the Act and its regulatory framework.
  12. The Insuring Clauses read in relevant part as follows:
  13. "1. To indemnify the ASSURED against any claim or claims first made against them during the period of insurance set forth in the First Schedule in respect of any Civil Liability whatsoever or whensoever arising (including liability for Claimants' costs) incurred in the course of the business carried on by or on behalf of THE ASSURED. With respect to any breach of Section 62 of the Financial Services Act 1986 no indemnity shall be afforded to any person committing or condoning any malicious or deliberate breach.
    "2. To indemnity THE ASSURED against any loss or losses which, during the period specified in the First Schedule, they shall discover they have sustained by reason or any fraudulent act or omission of any past or present partner, director, principal or EMPLOYEE ...
    "4. The liability of the Underwriters shall not exceed in all under this Policy the sum specified in the First Schedule but Underwriters shall in addition indemnify THE ASSURED in respect of all costs and expenses incurred with their written consent in the defence or settlement of any claim which falls to be dealt with under this Policy ...
    "5. The amount specified as the Excess in the First Schedule shall be borne in respect of each and every claim by THE ASSURED at their own risk, and Underwriters' Liability shall only be in excess of this amount.
    The excess shall not be applicable to:-
    5.2 Costs and expenses incurred with Underwriters' consent."
  14. There follows a section headed Special Conditions. There are three unnumbered paragraphs, but I have numbered them for ease of reference:
  15. "[1]. Underwriters will not exercise their right to avoid this Policy where it is alleged that there has been non-disclosure or misrepresentation of facts or untrue statements in the proposal form, provided always that THE ASSURED shall establish to Underwriters' satisfaction that such alleged non-disclosure, misrepresentation or untrue statement, was free of any fraudulent intent.
    "[2]. However, in any case of a claim first made against THE ASSURED during the period of this insurance where (1) they had previous knowledge of the circumstances which could give rise to such claim and (2) they should have notified the same under any preceding insurance, then, where the indemnity or cover under this Policy is greater or wider in scope than that to which THE ASSURED would have been entitled under such preceding insurances (whether with other Underwriters or not), Underwriters shall only be liable to afford indemnity to such amount and extent as would have been afforded to THE ASSURED by such preceding insurance."
  16. The third paragraph stated that in the event of any dispute regarding the application of the Special Conditions, such dispute shall be referred to arbitration. The parties, however, have been content to waive that provision for arbitration.
  17. Exclusions then contain the following provision (Exclusion 2) of relevance:
  18. "The Policy shall not indemnify THE ASSURED against any claim or loss:-
    2. Arising out of any circumstances or occurrence which has been notified under any other policy or certificate attaching prior to the inception of this Policy or which were known to THE ASSURED prior to the inception of this Policy."
  19. The next section of the policies is headed General Conditions, from which I cite the following:
  20. "2. THE ASSUREDS shall as a CONDITION PRECEDENT to their right to be indemnified under this Policy give to the Underwriters notice as soon as possible during the period of this Policy as set forth in the Schedule:-
    (a) of any circumstance of which THE ASSURED shall become aware which may give rise to a claim or loss against them or any of them;
    (b) of the receipt of notice from any person whether written or oral of an intention to make a claim against any of them; ...
    Such notice having been given to Underwriters THE ASSURED shall give to the Underwriters as soon as possible full details in writing of the circumstances which may give rise to a claim or loss against them or any of them. Any claim or loss to which that circumstance has given rise which is subsequently made after the expiration of the period specified in the First Schedule shall be deemed for the purpose of this Policy to have been made during the subsistence hereof."

    Special Memoranda set out the following further provisions:

    "1. (a) The indemnity provided under this Policy to each and every APPOINTED REPRESENTATIVE shall be limited to either 250,000 ANY ONE CLAIM or 500,000 any one claim as specified by J Rothschild.
    Each such indemnity shall be evidenced by the issue of an EVIDENCE of COVER DOCUMENT issued to each JOINT-ASSURED.
    All such indemnities under the said ECD shall be subject to the Limit of Liability in aggregate of all claims ...
    The excesses applicable in respect of each and every claim under the said ECD shall be in accordance with the following scale and shall be borne by the APPOINTED REPRESENTATIVE:-
    Commission Income Excess
    Up to 100,000 1,000
    100,001 - 250,000 2,500
    250,001 - 500,000 5,000
    500,001 - 1,000,000 10,000
    Above 1,000,000 To be agreed

    The applicable excess shall be shown on each ECD ...

    "(d) Fully retroactive cover may be provided by this Policy for any APPOINTED REPRESENTATIVE in respect of their activities prior to their engagement by J ROTHSCHILD subject to full disclosure of those activities and claim declaration being made in their proposal. There are some 7 appointed representatives who used to be independent financial advisers and who have retroactive cover under the policies.
    "2. Subject otherwise to the terms, limitations and conditions of this Policy, Underwriters shall indemnify THE ASSURED against liability to meet any adjudication made by the Investment Referee or under the complaints procedures of LAUTRO or by the Insurance Ombudsman or similar scheme.
    4. Subject to the deductible, terms limitations and conditions, of this Policy, Underwriters agree to indemnify J ROTHSCHILD for the net ascertained and identifiable costs and expenses of contacting, corresponding with or visiting its clients and policyholders with such urgency and by such means as J ROTHSCHILD deem necessary in order to limit and/or quantify loss in the event of their discovery of any fraud or dishonesty.
  21. The First Schedule sets out the assured, the period of insurance (1.2.93 to 31.1.94), the premium (separately calculated for each appointed representative), as well as the following:
  22. "LIMIT OF LIABILITY: [5,000,000] with inner Limits of Liability to JOINT-ASSUREDS as provided by Special Memorandum No 1 of this Policy ...
    "EXCESS: 50,000 each and every claim however scale excesses in respect of JOINT-ASSUREDS are as provided for in Special Memorandum No 1 of the Policy ..."

    Finally, I should mention Definition 4, the aggregation clause:

    "4. Claim
    All claims resulting from the same act, error or omission or a series of acts, errors or omissions arising out of the same cause or the same acts, errors or omissions of one person or persons acting together or in which such person or persons is/are concerned or implicated are deemed to be one claim for all purposes of this Policy."
    The regulatory framework
  23. Personal pension plans are contracts of insurance constituting long term business within the meaning of the Insurance Companies Act 1982 (the ICA). As such they are investments covered by the Act, and selling, or offering or agreeing to sell, personal pensions whether as principal or agent constitutes engaging in "investment business". Such business has been regulated by the Act since it came into force on 29 April 1988.
  24. JRA, as authorised insurers under the ICA, are automatically an authorised person for the purposes of the Act as respects the selling of personal pensions. Appointed representatives are persons employed by an authorised person (the "principal") for the purpose of carrying on specific investment business, viz selling and giving advice to investors about buying the principal's investment agreements. Sections 44(6) and (7) of the Act provide:
  25. "(6) The principal of an appointed representative shall be responsible, to the same extent as if he had expressly authorised it, for anything said or done or omitted by the representative in carrying on the investment business for which he has accepted responsibility.
    "(7) In determining whether an authorised person has complied with -
    (a) any provision contained in or made under this Act;
    (b) any rules of a recognised self-regulating organisation or recognised professional body,
    anything which a person who at the material time is or was an appointed representative of the authorised person has said, done or omitted as respects investment business for which the authorised person has accepted responsibility shall be treated as having been said, done or omitted by the authorised person."
  26. The regulatory functions created by the Act were in the first instance entrusted to the Secretary of State for Trade and Industry, but section 114 provided for the transfer of all or any of those functions to a new self-standing body. In the event, the majority of those functions were transferred to the SIB. As from 28 October 1997, the SIB changed its name to the Financial Services Authority, but I shall refer throughout to the SIB for convenience.
  27. By section 48 of the Act the SIB has power to make rules regulating the conduct of investment business of authorised persons any by section 47A to issue statements of principle regarding the conduct of authorised persons. In the event that its rules or statements or principle are contravened, the SIB has numerous powers, in particular the power to bring proceedings under section 61 to prevent or remedy the breach of its own rules or the rules of a recognised SRO. That section entitles a court inter alia to order a person to pay for the loss suffered by investors.
  28. If, however, an authorised person is subject to the rules of an SRO, then in the first place it is for that SRO to enforce its rules, and the SIB is only permitted to take action under section 61 if it appears to the SIB that that SRO is unable or unwilling to take appropriate steps itself to enforce compliance: see sections 61(1)(a)(iv) and 61(2).
  29. An SRO is a body which regulates the carrying on of an investment business by enforcing rules which are binding on persons carrying on business of that kind either because they are members of that body or because they are otherwise subject to its control (see section 8 of the FSA). Lautro, which I have already mentioned, was recognised by the SIB (see section 10) on 28 April 1988. Lautro was replaced by PIA (the Personal Investment Authority) as of 18 July 1994. PIA has also replaced Fimbra (the Financial Intermediaries Managers and Brokers Regulatory Association).
  30. JRA became a member of Lautro prior to their commencement of trading on 1 January 1992, and are now a member of PIA. The Lautro (PIA) Rules (the "Rules") came into force at the time of Lautro's recognition as an SRO and are binding on members in contract as part of the contract of membership between members and Lautro. Therefore as from the time of the commencement of their membership of Lautro, JRA became contractually subject to the Rules. As stated above, the general scheme of things is for the SROs to be the primary regulators. It is only if the appropriate SRO fails to act that SIB can exercise its powers under section 61.
  31. The power of an SRO to enforce its rules in contract or of the SIB to enforce its own rules by virtue of section 61 does not prevent an investor himself exercising any rights or remedies to which he may be personally entitled (see section 61(9)). Those rights or remedies may lie at common law, but in addition ("private") investors who have suffered loss as a result of a contravention of an SRO's or the SIB's rules are given a right of action for damages for breach of statutory duty: see sections 62 and 62A.
  32. Rule 3.4 of Lautro's Rules requires members to ensure that company representatives are appointed on terms that impose on them a duty to act in compliance with Lautro's Code of Conduct, that such representatives in fact comply with the Code, and that the member itself is in a position to enforce compliance by the representatives with the Code. Moreover, as shown above, a member is personally liable under section 44 of the FSA for the conduct of its appointed representatives.
  33. The Code of Conduct enshrines a number of principles which have become well known. There is the "general principle of fair dealing", which includes a principle of due diligence:
  34. "2. A company representative shall exercise due skill, care and diligence in his business dealings and shall deal fairly with investors."
  35. There are the bundle of principles gathered together under the rubric of "best advice". Thus, there is the duty to provide adequate information (para 6(a)), the duty to explain risk (para 6(aa)), the duty to avoid giving misleading information (para 6(c)), and the duty to have regard to the investor's general financial situation (para 8(1)):
  36. "6. A company representative who, in the course of any relevant investment business, has dealings with an investor -
    (a) shall give the investor all information relevant to those dealings ...
    (aa) shall use his best endeavours to enable the investor to understand the nature of any risks involved;
    (c) shall not make inaccurate or unfair criticism of other investment contracts or of any other method of saving or investment, or of any occupational pension scheme or the State earnings-related pension scheme ...
    "8.(1) A company representative shall, in advising an investor as to the suitability for that investor of any investment contract, have regard, in particular, to the investor's financial position generally, to any rights he may have under an occupational pension scheme or the State earnings-related pension scheme (if such rights are relevant in the particular case), and to all other relevant circumstances; and he shall use his best endeavours to ensure -
    (a) that he recommends only that contract or those contracts which are suited to the investor ..."

    There is also the "general duty to make all relevant enquiries", sometimes known as the duty to know your customer, under para 12:

    "12. A company representative shall so far as practicable ascertain all details relating to an investor and his particular circumstances as may be required for the purpose of complying with any duty in this Code or to enable the Member to comply with the requirement of these Rules."
    Pension mis-selling and the SIB review
  37. The opportunity to provide for retirement benefits by means of a personal pension, which originally had only been available to the self-employed, was extended to employees by the Social Security Act of 1986. Employees in the state pension arrangements were enabled to contract out of the state earnings-related pension scheme (SERPS) by investing in a personal pension plan ("PPP"), and those eligible to participate in an occupational pension scheme were enabled to purchase a PPP instead. The Social Security Act followed a government White Paper ("Reform of Social Security", Cmnd 9691) which stated at para 2.38:
  38. "For the first time, everyone will be able to choose whether to stay in his employer's pension scheme, or fully in the state earnings-related scheme; or to rely upon a personal pension to give him additional income in retirement. The government are determined that the choice should be as wide as possible ... To give people the maximum choice, the Government want to encourage as wide a range of financial bodies to provide group and personal pension schemes."
  39. Approval of PPPs by the Inland Revenue became available with effect from 1 July 1988. As a consequence many employees were advised to leave, or not to join, their occupational pension scheme, and to invest in a personal pension themselves, or when leaving their employment to transfer to their personal pension existing funds from their occupational scheme. In particular there were two categories of employee investor who invested in PPPs, who, or whose investments, became known as "opt-outs" and "transfers". "Opt-outs" are essentially cases in which the investor remains employed in employment where he either has been a member of an occupational pension scheme or has been entitled to have been a member, and instead of remaining or becoming such a member, takes out a PPP. Sometimes this category is sub-divided into those who come out of an occupational scheme when they invest in a PPP (who may be called "non-joiners"). "Transfers", on the other hand, are essentially cases were the investor leaves his employment and wishes to transfer into his PPP the current value of his accrued benefits. Thus in its October 1994 "Pension Transfers and Opt-outs: Review of Past Business" the SIB used the following glossary of terms:
  40. "Non-joiner: An individual who has declined or failed to join an occupational scheme for which he/she was or is eligible, while continuing in the relevant employment.
    "Opt-out: The giving up of active membership of an occupational scheme while continuing in the relevant employment. This includes the situation where an individual remained in an occupational scheme for life insurance purposes, but left the scheme for pension purposes.
    "Transfer: The payment into a personal pension of the cash value of accrued benefits under an occupational scheme for a member who has left active membership of that scheme. Transfers of all or part of accrued benefits by individuals who have opted out, as well as by former employees, are included."
  41. There were, however, potential traps for the unwary in this greater flexibility. Thus, under occupational pension schemes the employee is generally guaranteed "defined benefits" which are linked to salary at retirement or on leaving. The employer is therefore obliged to fund what, apart from the employees' own contributions, is needed to enable the guaranteed benefits to be provided. By contrast, a PPP is a "money purchase" scheme where the benefits available are not guaranteed but will be dependent upon the performance of the investment fund over time and the eventual cost of purchasing pension annuities at the date of retirement. Moreover, an occupational pension scheme typically provides a variety of benefits, such as widows' pensions and provisions for dependants and favourable early retirement options, which for a PPP to match would or may require an unrealistically high rate of return to be earned. Thirdly, opting out of an occupational scheme means the loss of the employer's contributions as well as his payment of the scheme's administration costs, whereas part of the investor's contributions in a PPP, particularly in the early years, goes in expenses.
  42. On 1 January 1992 JRA started selling pensions to investors. Its first PII policies, also for a total cover of 20 million, ran from 1 January 1992 to 31 January 1993. On 7 February 1992, when JRA had been in business for only a few weeks, Lautro published and circulated its Enforcement Bulletin 14. It contained extracts from the report which Lautro's monitoring committee had submitted to the Lautro board regarding activities in the year ending June 1991. That was of course a period during which JRA had not been in business. Under the heading of "Complaints" in section 6 of the Bulletin, there appeared a passage (at paras 6.06/10) concerning personal pensions in which members were informed of instances arising of advice to transfer out of occupational schemes without sufficient analysis of the merits of doing so. The Bulletin commented that
  43. "... the level of complaints received on this score may well understate the scale of the potential problem ...
    "... following the Monitoring Committee's consideration of the case described above, a future Enforcement Bulletin will remind Members of the requirements of the rules in this area and the cost and complexity of restoring an investor's rights."
  44. That led in due course to Lautro's Enforcement Bulletin No 16 ("EB16") which was circulated to members on 15 July 1992. The Introduction contained this passage:
  45. "The Bulletin does not form part of the Rules and members should bear in mind that any view or opinion contained herein is based on circumstances and facts arising in a particular case. Members should not, therefore, assume that any interpretation, view, or conclusion based on such a case is necessarily applicable to their circumstances."

    Under the heading of "Opting out" the Bulletin introduced the subject with the comment that

    "As described in Enforcement Bulletin 14, it is possible - given the public's understandable lack of expertise in the complexities of pensions - that the cases coming to Lautro's attention understate the size of the overall problem. It has therefore been decided to issue guidance to Members concerning both future sales and current investors."

    As for future sales, EB 16 stated the monitoring committee's view

    "that the starting point for a company representative ... should be to assume that it would not constitute "best advice" to recommend opting out into a personal pension plan unless positive arguments in favour of such advice can be established."

    As for future sales to prospective investors contemplating transfers, EB16 merely recommended that the terms of the preserved benefits needed to be examined. Otherwise members were reminded of the importance in all cases of proper documentation of the advice given, and that analysis would "by no means always" confirm clients as prospective investors.

  46. There then followed a short passage on "Existing Investors", in which members were requested to undertake a special monitoring exercise in respect of PPPs previously sold by company representatives which during the third quarter of 1992 would be terminated or made "paid up" by the investor within two years of purchase. Among such sales members should then identify any "opt-outs", and contact the investors concerned to determine whether there was any evidence that the sales were made on the basis of inappropriate advice. JRA conducted this survey, but, not surprisingly given how little time they had been in business, found no such opt-outs falling within the specified criterion.
  47. As it was, both opt-outs and transfers had to be vetted by management at JRA before a pension sale involving either could proceed. Moreover, on 16 September 1992, probably as a response to EB 16, JRA issued their own advice to their representatives, headed "Transfers, Best Value or Not?" It stated inter alia:
  48. "1. Leaving the scheme and remaining in service

    Rarely will there be valid arguments for advising a client to opt out of their current employer's occupational scheme and the initial approach must be one of "stay where you are" ...
  49. "2. A transfer of accrued benefits and has left service
  50. ... a thorough examination of the preserved benefits must be made. Important factors to be considered include:-
    1. Any guarantees that will be foregone
    2. How the deferred benefits will increase between now and retirement
    3. The benefits on early death ...
    4. The rate of escalation on pensions in payment
    5. The amount of spouse's and/or dependants benefits on death both before and after retirement"
  51. On 11 January 1993 JRA completed the proposal form for the policies which I am considering. Question 11 asked:
  52. "Is the Proposer or any of its Partners or Directors, or Officers, AFTER INQUIRY, aware of any circumstance which may give rise to a claim against the Proposer or its predecessors in business?"

    This question was answered by reference to an attached sheet which listed eleven clients who had complained. One of the eleven listed the "allegation" as "Client should have stayed in occupational scheme".

  53. In August 1993 SIB commissioned a report from KPMG on a pensions transfer pilot study. Opt-outs were not part of this study. On 15 December 1993 KPMG made its report to SIB. 735 client files were reviewed, reflecting over 400 different ceding occupational schemes, sales effected between January 1991 and June 1993, and a representative sample of firms undertaking pension transfer business. It was found that only 9% of files passed scrutiny as compliant with the conduct of business rules, and that even after guidance issued in EB 16, that figure moved up to only 20%. Although the majority of cases of non-compliance occurred because of a failure to evidence compliance, and although, as the report stated -
  54. "There is no automatic connection between a client's file not evidencing compliance and the client suffering financial disadvantage..."

    nevertheless, the letter dated 22 December 1993 which Lautro wrote to its members as a result stated that "there is a problem which needs to be tackled". Lautro indicated that that problem was likely to embrace opt-outs as well.

  55. Lautro's letter informed members that SIB had therefore created various groups (a steering group, an advisory group, and a working group) to conduct a review (the "SIB review") aimed at developing recommendations for establishing the nature and extent of the problem in both areas of transfers and opt-outs, in particular to discover whether the main problem was poor advice or poor recording, "and what the cost of rectification will be"; for establishing the basis for assessing whether best advice was given; for establishing the appropriate means of restoring the position; and for confirming that the guidance given in EB16 remained valid. In the light of the publicity which the KPMG report had received, Lautro also gave recommendations as to how its members should meanwhile handle queries or complaints. The letter added:
  56. "Complaints of significance about transfers and opt-outs should be ring-fenced and handled under separate arrangements from the normal complaints system. This is to prevent the normal system from being overwhelmed and to permit special procedures to be adopted under guidance from SIB when this is available."
  57. JRA have not called evidence to elucidate how JRA reacted to the KPMG report and Lautro's letter, although they could have done so from senior managers who are still in place. The upshot of the matter, however, was that on 27 January 1994 their solicitors, Titmuss Sainer & Webb, sent to the underwriters' agents the letter relied on in this litigation as constituting notice under General Condition 2 of circumstances "which may give rise to a claim ... against them". The letter (the "TSW letter") referred to the KPMG report and the Lautro letter of 22 December 1993 (the "Lautro letter"), a copy of which was attached, and to a schedule, also attached, of some 2,500 pension transfer policies so far effected by JRA, which they believed but could not guarantee to be complete. Having briefly restated the principal findings of the KPMG report and described the review proposed by SIB as described in the Lautro letter, TSW continued:
  58. "The circumstances set out above may, in respect of each policy identified and to be identified, give rise to a claim by each client against any of the Assured.
    "Furthermore, claims may arise against any of the Assured in relation to any advice concerning an "opt-out" from an existing or prospective occupational scheme. An exercise to identify "opt-out" advice is in hand."
  59. The reason why transfers could be promptly listed on the attached schedule, but opt-outs could not be, was that transfers could be easily recalled from the JRA computerised data-base, but opt-outs could only be identified by visiting each pension transaction separately.
  60. To an outsider reading merely what the Lautro letter had to say about the proposed SIB review, it may not appear clear that what SIB had in mind was that the recommendations to be generated were for a review by the industry as a whole into the relevant transactions. I have no doubt, however, that the TSW letter put the matter accurately when it glossed the review proposals as follows:
  61. "The SIB and Lautro have put in hand enquiries and other steps to lead to the establishment within the financial services industry of suitable mechanisms to ensure that all pension transfers and opt-outs are checked against the proper standards and the necessary remedial work undertaken by the relevant life office to ensure that proper advice is given to investors and, where appropriate, compensation paid to those who have suffered loss."
  62. The underwriters' agents replied to the TSW letter on 31 January 1994. The first point they took was to put in issue the claim by TSW that the notice sought to be given in their letter was given on behalf of each and every of the assureds, including all the joint-assured appointed representatives. That objection I am told is no longer pursued. Formally it may not matter, since none of the appointed representatives have so far been made parties to this litigation. The main point taken by the underwriters, however, was that the matters relied on in the TSW letter were not circumstances which may give rise to a claim within General Condition 2. In particular they objected that the TSW letter purported to make a blanket notification, that no cause for concern specific to any transfer or opt-out case had been mentioned, that no reference had been made to any criticism or complaints directed against JRA personally, and that the KPMG findings were no basis for fearing a claim against JRA or indeed any claim at all based upon poor advice as distinct from poor recording. They continued:
  63. "Assuming that your clients intend to complete a review of the kind described by LAUTRO in their letter, when and if they identify particular client cases which give rise to concern and in respect of which a claim may be made against them, it would then be the appropriate point at which to notify the insurers concerned, to enable the latter to give consideration to those cases."
  64. When the TSW letter of 27 January 1994 was sent, within a few days of the end of the period of the then current year's policies, JRA had already completed a new proposal form for the following year's PII cover. This was effected through different brokers, as there had been dissatisfaction with JRA's previous brokers leading to a change. The new proposal was in fact dated 21 January 1994, six days before the TSW letter. At the end of the proposal JRA added two items of "Additional Information ... that we believe to be material to this application", the first of which was:
  65. "We have notified our existing PII underwriters of circumstances that may give rise to a claim in respect of the transfer of Pension rights from Occupational Schemes to J Rothschild Personal Pension Plans: the fact that the Securities Investment Board has given notice of its intention to require all life companies to review all such business transacted by them. Accordingly details of all such cases transacted in 1992/93 have been supplied and reviews are currently underway."
  66. I infer that the TSW letter had been under discussion for a little time, even though in the event it was delayed for a few days more. On behalf of the underwriters, Mr Kealey speculated that the notification to underwriters was itself a reaction to the following year insurers' unhappiness at undertaking responsibility for past pension mis-selling. Indeed Mr Kealey was prepared to infer that with new brokers in the saddle the new insurers were saying - "Not in our policy!" He submitted, however, that the nature of any such discussions or negotiations was irrelevant to the issues before me, even if the prospective new insurers were threatening to exclude past pension mis-selling or to weight the premium.
  67. On 28 February 1994 SIB issued an interim progress report on the steps it was taking to implement its review. After referring to the development of recommendations regarding safeguards for future business, the interim report turned to "Remedial action" and outlined a timetable for SROs to issue guidance to their members on which categories of pension transfer cases they must actively reconsider as a matter of priority and as to what members would be expected to do by way of providing remedies for past inadequate advice.
  68. In April 1994 Caryn Putney started work at JRA as pensions review manager, having been recruited specifically to respond to the need to investigate past transfers in the light of the KPMG report and the SIB review.
  69. In May 1994 SIB circulated its paper called "Past Pension Transfers and Opt Outs: Model Guidance on Priority Cases and Complaints". The model guidance outlined in the paper was directed both at SROs, as being the medium through which the formal regulation would be conducted, and at SRO membership "to indicate what they should start doing now", viz to make progress on preparing for future but already flagged requirements.
  70. In October 1994 SIB published its "Review of Past Business", which contained a programme for the review of transfers and opt-outs by the industry. In para 1 of the Summary SIB stated that:
  71. "The Statement indicates how SIB expects the front line regulators, the SROs and the RPBs Recognised Professional Bodies, to ensure that their members who undertook such business review past cases, and make redress if it is due. SIB is satisfied from all the information it has that some of the business was done in a materially non-compliant way, and that some of the investors concerned will be found to have suffered loss as result of unsuitable advice."
  72. It was contemplated that the review of past business would take firms at least two years to complete substantially and for that reason certain classes of case were to be prioritised. As is well known, the industry has been criticised for taking too long on the process, but it may be that the problems have turned out to be even larger than envisaged. The Summary continued -
  73. "The aim of the redress programme is to offer recompense to investors who have been disadvantaged as a result of bad advice...Investment firms should provide the redress themselves...The relationship between the review and redress process and firms' obligations under their professional indemnity insurance is important: the proposals are intended to cause no risk to firms of jeopardising their PI cover..."
  74. The aim of the review programme was to provide proper redress where it was due without recourse to the courts. Entitlement to redress was to depend on there being a loss, actual or prospective, which had been caused by a firm's material contravention of an applicable regulatory requirement.
  75. The review process was divided into a number of stages - identification of the cases in question, fact gathering, compliance assessment, loss assessment and the provision of redress where due. Redress was only to be regarded as due where the review found that there had been fault (ie a breach of rules), loss, and causation - a classical analysis. The assessment of compliance was to be addressed through four essential tests which reflected the regulatory regime: know your customer and suitability, understanding of risk, adequate information, and misleading statements.
  76. As for redress, it was anticipated that this could be achieved by reinstatement in occupational schemes and/or by topping up of personal pensions - at the cost of the non-compliant firm.
  77. At paras 39/42 there appeared on PII cover which the underwriters have relied on. It contained the following advice:
  78. "Typically, PI policies require the insurers to be given immediate notice in writing of an occurrence which may subsequently give rise to a claim. Such notice may need to be given in the course of a case review, depending on what emerges. Firms would be wise to consult their PI insurers at the outset, and certainly before agreeing to pay any charges for obtaining information. When notice is given, the insurer can give the firm directions on the subsequent handling of the case..."

    SIB indicated it was developing a model questionnaire to be used by firms to help them identify priority cases of opt-outs and non-joiners. This was issued in December 1994.

  79. The stage had now been reached where the SROs had to take over from SIB's preliminary work in implementing the regulatory regime proposed by SIB. In December 1994 PIA (the successor of Lautro) issued a consultative paper broadly indicating that it would follow SIB guidance. In February 1995 PIA published a Statement of PIA's Policy. That Statement referred to new rules enacted by PIA which for the first time empowered PIA to require members to review their past business (see below). It also annexed model letters for sending out to investors. This Statement was followed in April 1995 by PIA's Guidance for review of opt-outs and non-joiners and in July 1995 by its Guidance for review of transfers.
  80. The new rules just referred to were Rules 7.2.2/3, which provided as follows:
  81. "7.2.2 (1) Where it appears to PIA that it is necessary or desirable in the interests of investors, PIA may require a Member (or a class of Members) to carry out a review of any aspect of its investment business with a view to determining whether redress should be offered to any investor who has suffered loss or damage as a result of a failure by the Member to comply with its relevant duties.
    (2) PIA may prescribe the standards and a specification for the conduct of any such review.
    (3) A Member to whom any such requirement applies shall take all reasonable steps to carry out a review of its investment business in accordance with such standards and specification as PIA may prescribe.
    "7.2.3 Where a Member employs an appointed representative which has conducted investment business of a kind which is the subject of a requirement under Rule 7.2.2 above, the Member shall take all reasonable steps to ensure that the representative conducts a review of that business in accordance with any standards or specification as PIA may prescribe.
    "Guidance: It is not PIA's intention that Members should under Rule 7.2.3 assume any legal responsibility in respect of any liabilities which appointed representative firms may have incurred toward customers in respect of investment business which they conducted prior to becoming a representative of a Member."
  82. Having resolved to require its members to carry out the review of transfer and opt-out business implemented in its Guidance papers, with effect from their dates of publication, the PIA was now entitled to enforce its rule in contract, and JRA were formally obliged to carry out the review as required. In the meantime, they had of course been guided by the various SIB publications to set in place substantial preparations for that review.
  83. There were many other papers issued by SIB and PIA over the course of the next few years defining, refining and seeking to simplify the review which member firms were undertaking, but I do not think that I need go into the details of them. It will already have appeared that the essence of the process which SIB, through Lautro/PIA, required to be conducted was the identification of transfer and opt-out investors who had suffered or would suffer loss as a result of breaches of the regulatory code of conduct governing the selling of pensions to them, and the offering of compensation, called "redress", to them. The process was designed to make amends, to safeguard the reputation of the industry for the future, and to avoid the need for a multiplication of law-suits, with their attendant anxieties and costs. As is common knowledge, the process received widespread publicity.
  84. JRA's review

  85. I shall indicate the course of JRA's review of its past transfer and opt-out business by reference to six of the sample cases whose documentation is before me. The details concerning non-compliance or the calculation of the compensation offered to investors does not, for present purposes, matter. All that is necessary is what suffices to illustrate the background to the issues with which I am concerned.
  86. The earliest evidence in the sample cases before me (I have been asked to look at only six out of the original ten sample cases) of contact being made with an investor by JRA is in the case Mr Mowbray sample 6), to whom JRA wrote on 19 December 1994. That would be after SIB's October 1994 guidance as to how firms should undertake their reviews, but before PIA's 1995 guidance and requirements. I would imagine that this was something of a standard letter. It read as follows:
  87. "As I expect you are aware, concern about investors, such as yourself, who have chosen to transfer deferred pension benefits from occupational pension schemes into personal pensions has led to the regulators of the financial services industry imposing an industry wide review of such cases.
    "The aim of the review is to identify whether or not advice given to clients was right for them at the time it was given. If the advice was demonstrably not right and a financial loss has been suffered as a result of the advice, then some form of redress may be necessary.
    "The Securities and Investments Board (SIB) have published detailed guidelines laying out exactly how this review is to be carried out.
    "In fact we have already carried out extensive internal reviews and have satisfied ourselves that, in our view, the majority of our investors have been given "best advice". Nevertheless, you will appreciate that we are now following SIB guidelines...
    "Your case falls into the top priority as defined by SIB. Consequently we hope to review your case as soon as possible. However, I should point out that it may be some time before we are able to contact you again.
    "SIB have published a factsheet giving details of the review; I enclose a copy of this.
    "Please be reassured that your case will be reviewed and that I will contact you again as soon as possible."
  88. I do not know on what basis JRA said that they had satisfied themselves that the majority of their investors had been given best advice. Certainly, by February 1995 in its Statement of Policy PIA had made it clear that they expected very few, if any, sales to pass the compliance assessment. Moreover, in her evidence Mrs Putney said that she believed that most firms had automatically conceded non-compliance for all cases, and that whereas JRA had been assessing compliance, their experience was that only a negligible numbers of cases passed such assessment. I recognise that a case may be non-compliant (for instance because of lack of proper recording), and yet best advice may have been given. But it is hard to see how JRA could be satisfied of the latter in the absence of proper recording; and my understanding therefore is that non-compliance in this part of Mrs Putney's evidence meant that a case was treated as substantively and not merely formally defective.
  89. JRA wrote to Mr Mowbray again on 7 April 1995 enclosing two questionnaires for him to complete. This was an error, since both questionnaires were designed for occupational pension schemes to respond to. This was still before PIA had issued its detailed guidance concerning transfers. In the result JRA wrote to the occupational scheme involved in December 1995 and spent the next fifteen months chasing for an answer. JRA does not appear to have got back to Mr Mowbray until later in 1997, when an offer of redress was made and accepted (see below).
  90. In September 1995 a questionnaire entitled "Pensions Review Form" in the model form originally developed by SIB and finally required by PIA was sent to opt-out (including non-joiner) investors under a model letter which stated as follows: The model letters are not in the files before me in certain cases, but I regard it as likely that they were sent.

    "The investment watchdog which oversees investment firms, The Personal Investment Authority, is looking to see whether some people may have been badly advised to leave or not to join an employer's pension scheme, and take out a personal pension plan instead. Where that advice did not meet the relevant standards and has resulted in loss to the customer, compensation may be due.
    "The Personal Investment Authority has asked all firms who sell personal pension plans to look at the pension arrangements of some of their customers. So that we can find out whether we need to look at your pension arrangement, we are asking you to complete the enclosed form.
    "This may be important for you even if:
    * you have now stopped your personal pension plan; or
    * you feel you received good advice.
    "Please could you fill in the form and return it in the prepaid envelope. We will write to you again to let you know whether or not there may be a problem at this stage. We cannot do this if you do not return your form."

    Mrs Heafield (sample 3), returned her questionnaire very promptly, and Mr Lock (sample 9) after three months. In both cases offers of redress were made and accepted in 1997/8. I am not concerned here with the reasons for the delay.

  92. A similar covering letter was sent in the case of a transfer investor, for instance to Mr Malcolm (sample 10) on 5 August 1996. I am not sure that that letter was in model form, but the essence of it was to state that concern about cases of transfer had led to an industry wide review and that:
  93. "The aim of the review is to identify whether or not advice given to clients was right for them at the time it was given. If the advice was demonstrably not right and a financial loss has been suffered as a result of the advice, then some form of redress may be necessary."
  94. In the case of Mr Malcolm no questionnaire or model "Transfer Review Form" seems to have been sent to him. This was perhaps because JRA had already reviewed his case by reference to information obtained from his occupational scheme. At any rate Mrs Putney assessed his case as non-compliant and as requiring redress without needing further information from him. In due course an offer of redress was made and accepted in 1997.
  95. The case of Mrs Kendle (sample 4), another opt-out (non-joiner), is the only one of the six cases I am considering where underwriters have admitted there was a "claim ... made" by her. Mrs Kendle stands out from the other investors for her understanding and assertiveness. In early 1988 (even before the commencement of the Act and therefore outside the remit of its regulatory scheme or the SIB/PIA review) she bought an Allied Dunbar PPP from a Mr Gamble, then an independent financial adviser, and in April 1992, after he had become an appointed representative of JRA, she topped up with a JRA PPP. In August 1994 Mrs Kendle wrote to JRA (to whom her original letter to Mr Gamble's company had been copied) to complain about the advice he had given her in 1988, saying that she intended to seek "redress". Her letter appears to have been well informed by the regulatory publications which had been issued by that time. By January 1995 she had consulted solicitors who wrote to Mr Gamble to complain about both his 1988 and 1992 advice. Mr Gamble passed this letter to JRA who told Mrs Kendle that they would deal with the matter as part of their review. Thus in September 1995 she was sent and promptly returned a pensions review questionnaire. In 1997 JRA offered her redress for the bad advice given in 1992 (ie Mr Gamble's failure to advise her to rejoin her NHS scheme), redress which she accepted, but not before her solicitors had entered into correspondence with JRA even to the extent of enclosing draft points of claim.
  96. In the last of the six cases, the opt-out case of Mr Harwood, who had died in 1994, no direct contact appears to have been made between JRA and his widow at any time (sample 2). This is presumably because this case does not concern a JRA PPP, but a National Mutual plan sold by an appointed representative prior to his joining JRA. The case was therefore originally included as a sample case for the sake of an example of a claim on underwriters falling within the retroactive provisions of the policies (see Special Memorandum 1(d)). In December 1995 PIA issued further guidance relating to the monitoring of appointed representatives undertaking pension review work: PIA required members to ensure that such reviews were promptly and properly undertaken. There is an internal JRA memorandum dated 31 October 1997 which states in part -
  97. "At the moment as far as I can see, the widow is unaware of this shortfall and Andy Cameron has yet to discuss this with her. This is despite the fact that death took place some three years ago on 23 August 1994."
  98. It would seem that it was not until 10 December 1997 that Mr Cameron, the appointed representative in question, visited and first informed Mrs Harwood that there was anything amiss. His fax to JRA of that date says:
  99. "Following your advice, I visited Mrs S Harwood today and informed her that we have identified that she has a shortfall of pension income due to the decision to opt out of the C&G scheme, and that we are in the throws of sorting this out for her, and that it could take up to some months before she was recompensed. I did not enter into any specific details or apportion any blame.
    "She was delighted to hear the news, but stated that she hoped that this would cause me no problems!"
  100. An offer of redress was finally made by Mr Cameron to Mrs Harwood by letter dated 17 April 1998, which she accepted on 7 May 1998. The agreed redress requires Mr Cameron to purchase an annuity of 8,490 pa, increasing in line with RPI. One quotation for this, already out of date and lapsed, was in the sum of over 220,000. JRA are planning to lend the cost to Mr Cameron to enable him to make this redress. This is the single largest claim on underwriters of which I am aware.
  101. When in 1997 or 1998 JRA's (or in sample 2 Mr Cameron's) offers of redress were made and accepted, the correspondence took the following form. Although there appears to have been no prescriptive model letter in which the offer was made (eg, sometimes apologies were tendered for delay, and sometimes they were not), the letter would begin by explaining that the review of the investor's pension had now been completed and that JRA wished to make an "Offer of Redress" which was designed to put the investor in the same position as he might have been expected to be in if he had not transferred his accrued benefits (in the case of transfer) or if he had not left or failed to join an occupational scheme (in the case of opt-out). The mechanics of the redress were then explained, eg reinstatement where that was possible. There then followed a passage under the rubric of either "Summary of Offer of Redress" or "How you can accept this offer", which invited the investor, if he had first satisfied himself that the offer was satisfactory, to complete and return either an enclosed acceptance letter or an enclosed copy of the offer letter to which was subscribed a simple formula essentially in the form of - "I, xyz, agree to accept the offer of ... as set out in this letter." However, either the offer letter or the acceptance letter or both typically made certain points regarding the offer being made without admission of liability, in full and final settlement, and regarding acceptance as preventing the making of "any further claim".
  102. Thus, in the case of Mrs Heafield (sample 3), JRA wrote:
  103. "The above offer is made without any admission of liability on our part and represents full and final settlement in respect of [JRA's review of your PPP] ...
    "If you decide to accept the Offer of Redress please complete and return the enclosed offer acceptance letter in the prepaid envelope. Completing and returning it prevents you from making any further claim against J Rothschild Assurance in respect of this matter."

    The enclosed acceptance letter, which Mrs Heafield signed and returned, read:

    "My acceptance of these terms is in full and final settlement of all claims that I have or may have against J Rothschild Assurance plc or any of its employees or appointed representatives in connection with ..." etc.
    "Please proceed to act upon your offer, the terms of which are set out in your letter ..."
  104. In the case of Mrs Kendle (sample 4) the offer letter stated, to the same effect, but in slightly different language:
  105. "Please confirm you would like us to go ahead with reinstating you into the National Health Pension Scheme by completing and returning the enclosed offer acceptance letter in the prepaid envelope. Completing this letter and returning it prevents you from making any further claim against J Rothschild Assurance in respect of this matter ...
    "Finally, although J Rothschild Assurance agree to provide the redress offered, if you accept the offer in the manner specified, this offer does not constitute an admission of legal liability on the part of J Rothschild Assurance."

    Her acceptance letter was in the same form as in the case of sample 3.

    In the case of Mr Mowbray (sample 6) the offer letter simply said:

    "Please confirm which option you would like by completing, signing and returning the enclosed attached copy of this letter ...
    "Completing this letter and returning it prevents you from making any further claim against J Rothschild Assurance and/or our advisor apparently a reference to the appointed representative concerned. in respect of this matter."
  106. In the case of Mr Lock (sample 9) the paper-work was in essentially identical form to that of sample 6. In the case of Mr Malcolm (sample 10) the paper-work was in essentially identical form to that of sample 4.
  107. The case of Mrs Harwood (sample 2) was somewhat different as the offer letter there was prepared and sent by Mr Cameron. He wrote:
  108. "I would like to obtain your agreement to my proposal, which although made without any admission of liability, will then legally commit me to an agreed course of action ...
    "In return for my commitment to this course of action, I will ask you to agree that the offer of redress made in this letter is made without admission of liability and that any redress given under this letter, when carried out, will be in full and final settlement of any claim that you may have against myself arising out of the advice given in respect of the above Plan."
  109. As for the underwriters, they had been kept informed through their agents and latterly their solicitors of the course of JRA's review, eg by means of copies of JRA's monthly review reports to PIA. On 26 April 1995 JRA had sought the underwriter's guidance or comments as to how they should carry out the review required by PIA. On 11 May 1995 the underwriters replied, by their agents, that they denied liability and left JRA to act as they considered appropriate in following the PIA guidelines. Intended offers of redress were notified in advance for underwriters' approval, but elicited the standard response that liability was denied. By October 1997 JRA was giving only one day's notice of the sending out of an offer letter. Ultimately a modus vivendi was arranged whereby the positions of the parties would be taken as set out in the pleadings and a summary of offers was to be sent monthly in arrears.
  110. In the light of the material set out above, I now turn to deal with the five issues debated before me.
  111. Issue 1, the notification issue.

  112. On behalf of underwriters Mr Kealey submitted that the TSW letter of 27 January 1994 was invalid as a purported notice under General Condition 2 ("GC2"). He emphasised that the term, where it applied, afforded to the assured a valuable benefit in extending into the future the right to be indemnified by claims made subsequent to the original period of insurance but arising out of the notified circumstances. It followed, he argued, that the benefit should not be abused by an assured's attempt to seek spurious protection for the future where present circumstances did not justify the giving of a notice. The words "any circumstance of which THE ASSURED shall become aware" required some new knowledge on the part of JRA. The words "which may give rise to a claim" laid down an objective test, which required that there must be a real, or material, risk, something more than a de minimis risk, something more than a negligible, fanciful or speculative risk, that the circumstance notified may lead to a claim. Neither the KPMG report nor Lautro's letter in reaction to it justified the view that JRA had become aware of anything new which could objectively and reasonably be said to amount to such a risk. All that had been identified was a possible problem. The statistical risk that each year's pension selling might ultimately give rise to claims was nothing new, and the KPMG report was merely further statistics. In any event, it did not apply to JRA. There was no evidence of any new knowledge on the part of JRA to suggest that their appointed representatives were mis-selling pensions. There was no evidence of any new knowledge on the part of JRA that their procedures for vetting opt-outs and transfers were not working. The fact that competitors carrying on business in the same market might be susceptible to criticism in certain cases in which they, but not JRA, had been involved was irrelevant.
  113. It might have been different if or as and when JRA had conducted an investigation into their own files and discovered mis-selling there. That was the view of SIB itself in the guidance it wrote regarding PII cover in its October 1994 report (quoted above), viz -
  114. "Such notice may need to be given in the course of a case review, depending on what emerges ..."
  115. In the meantime, JRA appear to have been confident in their own procedures: witness the fact that transfers appear to have been effected in the period between the KPMG report and the TSW letter, also what JRA wrote to Mr Mowbray on 19 December 1994, viz
  116. "we have already carried out extensive internal reviews and have satisfied ourselves that, in our view, the majority of our investors have been given "best advice" ..."

    Moreover, JRA were not moved to give notice by prior warnings, such as Lautro's Enforcement Bulletin 14, which spoke of "the potential problem", or EB16, which spoke to "the size of the overall problem". It was probable, therefore, that the notice of 27 January 1994, coming as it did more than a month after Lautro's letter of 22 December 1993, but only a few days before the end of the current period of insurance and only a few days after the completion of a proposal form for the next year's cover, was a tactical reaction to difficulties experienced in obtaining the next year's cover rather than a genuine reaction to the KPMG report and Lautro's letter. In this connection, it was significant that there had been no witness from JRA to speak to the origins of the TSW letter.

  117. In my judgment, however, these submissions were not persuasive. While it is true that GC2 gives to an assured a significant extension of cover, a "claims made" policy could hardly work on any other basis. Otherwise, by the time that a claim came to be made, it is quite likely that it would have become impossible to obtain cover for it, either at all or on any but prohibitive terms. Therefore as or more significant than the extension of cover itself are the factors first, that the test of materiality for notice is a weak one - "which may give rise to a claim", not "which is likely to give rise to a claim; and secondly, that the price of the extension of cover is notification of such circumstances, which is a condition precedent to a right to be indemnified. That latter factor is important, for, together with the additional requirement that the assured shall give underwriters "as soon as possible full details in writing of the circumstances which may give rise to a claim", it enables underwriters to adopt or require such immediate steps as they think appropriate to minimise or avert any potential loss. I do not think, therefore, that there is any justification for demanding too much of the test that the notified circumstance "may" give rise to a claim. In this connection, it is noticeable, albeit it remains at root a forensic point, that in the agents' letter rejecting the notification the error was made of misstating the test when they said:
  118. "Your letter appears to rely heavily upon a study undertaken by KPMG Peat Marwick in December 1993 as containing a finding that there was no "evidence of substantial compliance" with the LAUTRO Rules in 91% of cases considered. On what basis is it contended by your clients that such a finding is likely to give rise to a claim against them or any one of them?" [emphasis added]

    And yet it seems to me that the fact that 91% of files examined by KPMG were found to be non-compliant did mean that it was at least possible that equivalent non-compliance would give rise to claims against JRA themselves. After all, the KPMG study was on a significant number of files, 735 of them, representing over 400 different occupational schemes, and so selected as, in the words of the report's executive summary -

    "to cover a representative sample of firms undertaking transfer business ..."
  119. Moreover, KPMG found that even after the issue of regulatory guidance on pension transfers the percentage of compliant files rose only to 80%. It was true, as the report itself emphasised, that the non-compliance might be in the matter of recording the advice rather than in the advising itself; and that non-compliance by itself did not mean loss. But even so, it was realistic of Lautro to see in such figures, as the Lautro letter said, "a problem which needs to be tackled", and tackled, as that same letter pointed out, inter alia by establishing "what the cost of rectification will be". Lautro therefore showed that it was anticipating, and would be requiring, compensation to remedy the problem.
  120. In this connection I believe that it is legitimate to test a view of what the future may bring, where that view has been contemporaneously and prophetically expressed, against what happened in due course. I do not mean, of course, that hindsight can be used to justify an unreasonable position: but, as Lord Sumner said, in the context of the doctrine of frustration, in Bank Line Limited v. Arthur Capel and Company [1919] AC 435 at 454:
  121. "The question must be considered at the trial as it had to be considered by the parties, when they came to know of the cause and the probabilities of the delay and had to decide what to do. On this the judgments in the above cases substantially agree. Rights ought not to be left in suspense or to hang on the chances of subsequent events. The contract binds or it does not bind, and the law ought to be that the parties can gather their fate then and there. What happens afterwards may assist in showing what the probabilities really were, if they had been reasonably forecasted, but when the causes of frustration have operated so long or under such circumstances as to raise a presumption of inordinate delay, the time has come at which the fate of the contract falls to be decided."
  122. In this case, the future showed that JRA were more than justified in saying that there were circumstances which might give rise to a claim against them in the identification of the problems which KPMG had reported on and which SIB had provisionally determined would have to lead to a review of past business and the provision of financial remedies. Where a prediction based not only on objective evidence which has itself been under scrutiny by independent professionals, but also on the concern of regulatory authorities, turns out to have been entirely justified by events, it seems to me to be unrealistic to say that that prediction was invalid and unjustified merely because there was much other evidence which was not yet to hand, even though that evidence was of particular relevance to an important aspect of the prediction. This must be a fortiori the case where the prediction has to be not of what will be but only of what might be.
  123. Mr Kealey submitted that the notification was connected with JRA's difficulties in obtaining cover for the future year, and in this connection he pointed out that there was no evidence from those who were involved in the renewal and the decision to notify. It seemed to me that this submission rebounded on him, for in the course of it he was prepared to infer that the new insurers wished to exclude cover for claims arising out of the SIB review or to load premium rates, and to concede that at any rate exclusion would be relevant to the objective risk which might justify notification under the existing policies. It seemed to me that in the light of the inference which Mr Kealey was himself prepared to make, which is likely to have been correct, it would be obvious that there was objective justification for JRA's notice.
  124. Finally, I would point out that the Lautro letter not only stated that consideration would have to be given to "what the cost of rectification would be" and "the appropriate means of restoring the situation", but also that so many "complaints of significance" regarding transfers and opt-outs could be expected that, unless they were ring fenced and handled under separate arrangements, the normal complaints system would be likely to be "overwhelmed".
  125. For these reasons I hold that the TSW letter was a valid notification within the terms of GC2. Although only transfers were listed in the schedule to the letter, I regard the letter as covering opt-outs (including non-joiners) as well.
  126. Issue 2, the non-disclosure issue.

  127. Mr Kealey submits that, if the TSW letter was a good notice, then it should follow that opt-outs claims are excluded from cover by Exclusion 2 by reason of JRA's knowledge of the contents of E16. He stresses that already in that document Lautro had said that the cases coming to its attention "understate the size of the overall problem". Moreover, whereas the KPMG report may have transformed SIB's, Lautro's and the industry's knowledge of non-compliance in connection with transfers, it did not add to their knowledge about opt-outs: but that did not stop SIB including opt-outs in its call for a review.
  128. Mr Symons has two answers to this. First, on the facts he submits that EB16 was different from the KPMG report and the reactions then engendered: it was primarily concerned with providing guidance for future sales. In as much as it called for "a special monitoring exercise" as respects existing investors, that exercise was limited to PPPs which during the third quarter of 1992 had been terminated or made paid up by investors within two years of purchase. JRA's own exercise merely showed that there were no such PPPs in their own as then short history. Secondly, as a matter of construction he submits that the last line of Exclusion 2 ("or which were known to THE ASSURED prior to the inception of this Policy") and the Special Conditions are inconsistent with one another, in that the latter purport to cover, albeit limited to the amount and extent of the previous year's insurance, what the former seeks to exclude - with the result that the exclusion must make way for the express inclusion.
  129. On the facts, I agree with Mr Symons' first submission. The position as at the time of EB16 was that the case of opt-outs was causing some concern, but the extent of the problem had not yet even been probed. It was like the situation in the case of transfers before the study conducted and reported on by KPMG. So it was that in EB16 Laurto called for its members to conduct the limited monitoring exercise spoken of above. In JRA's case, this exercise produced a nil return. JRA would have been entitled to take account of that nil return and also in that connection the introductory language of EB16 to the effect that members should not assume that Lautro's views went beyond particular cases so as to be necessarily applicable to each member's own circumstances. In the case of other members, however, it would seem that this monitoring exercise was disturbing, because in the Lautro letter of 22 December 1993 Lautro referred to a "study of opt-out business carried out earlier by Lautro" as one of the bases of its concern that there was a problem "which needs to be tackled": which can have been a reference only to the monitoring exercise called for in EB16. In my judgment, I do not think that it can be said that the opt-out cases which JRA have finally been called upon to remedy arose from "any circumstances or occurrence which ... were known to" JRA prior to inception of the policies.
  130. The question of construction is more complex. Mr Kealey submits that the two clauses are not inconsistent in that Special Condition 2 is only dealing with "a claim first made ... during the period of this insurance". Therefore it did not apply at all to claims which only came within the cover by reason of the deeming provision in GC2. Mr Symons submits, to the contrary, that by reason of the deeming provision in GC2 ("shall be deemed ... to have been made during the subsistence hereof"), any relevant claim first made will be made during the period of the insurance; and that if it was otherwise there would be a gap in cover, whereby claims within the extended period were not covered, but claims within the defined year were, even though they arose out of the same notified circumstances.
  131. In my judgment, even if the opt-out problem had been a circumstance known to JRA by reason of EB16, I do not agree with Mr Kealey that Exclusion 2 would apply to exclude cover. The Exclusions state that the policy "shall not indemnify" where they operate, viz where the circumstances which have given rise to a claim "were known" prior to inception. Special Condition 2, on the other hand, states that even "where (1) [the assureds] had previous knowledge of the circumstances which could give rise to such a claim and (2) they should have notified" them under a preceding insurance, then underwriters "shall only be liable to afford indemnity" to the extent and amount of the preceding insurance. It follows that under Special Condition 2, there will be cover to the extent of cover in the previous year. That is simply inconsistent with a view of Exclusion 2 that would simply deny cover in all cases of knowledge prior to inception of circumstances which have given rise to a claim. The whole logic of the Special Conditions is that underwriters can only avoid the policy for non-disclosure etc in the case of fraudulent intent (with the burden being on the assured to disprove such intent). It would run entirely counter to such logic if, irrespective of fraudulent intent, the underwriters could deny cover for non-disclosure etc of matters known before inception. And what if the circumstances known to the assured prior to inception were also known to underwriters? Why then should there be no cover? The logic of Exclusion 2 should, if possible, make sense with the rest of the policy.
  132. There are it seems to me two possible approaches to this problem. There is the approach reflected in Mr Symons' submission that, in the case of inconsistency, the exclusion must make way for the inclusion. There is, however, the alternative approach of asking whether the exclusion can be given some more limited scope, so as not to be in head-long inconsistency with Special Condition 2. The latter approach is to my mind more satisfactory, if it is open. In this connection I am inclined to think that Exclusion 2 is intended to apply in circumstances where there is fraudulent intent, or strictly speaking where the assured has been unable to establish to underwriter's satisfaction that a non-disclosure, misrepresentation or untrue statement was free of any fraudulent intent, but where underwriters do not wish to avoid the whole policy. Nevertheless, they wish to be free to refuse to indemnify the assured in the case of claims arising out of the non-disclosure of circumstances known to the assured prior to inception and which have led to claims being made during the period of the policy. So limited, the last line of Exclusion 2 makes sense. It is part of the non-disclosure code of the policy. If there is a waiver of such non-disclosure, the exclusion does not operate. But if there is no fraudulent intent, the Special Conditions prevail, which is to say that not only is there no right of avoidance (Special Condition 1), but there is a guarantee of cover limited to the cover of a preceding insurance (Special Condition 2). It follows that, if there was no cover in the previous year, Special Condition 2 cannot apply, for then neither hypothesis (2) within it nor the limitation to the previous year's cover, can operate. In the present case, however, there was insurance in the preceding year.
  133. It seems to me that this is a satisfactory way of doing justice to all the terms of the policies. There is no suggestion of any fraudulent intent in the non-disclosure of EB16 prior to the policies' inception, so that Exclusion 2 is irrelevant. If, however, this interpretation is unsound, then I would be prepared to agree with Mr Symons that the last line of Exclusion 2 must make way for Special Condition 2. It is after all a Special Condition.
  134. Therefore, in my judgment the underwriters' reliance on Exclusion 2 for the purpose of seeking to exclude cover for any opt-out claim fails both on the facts and on the construction of the policies.
  135. Issue 3, the claims issue.

  136. There is perhaps the most fundamental of the underwriters' defences. It is an intriguing issue because my narrative of the process of review will have indicated that this was a situation where the industry went out to uncover non-compliance and to volunteer recompense, rather than the more normal situation where an assured awaits claims to which he is then forced to respond.
  137. I do not think that the underwriters say that the mere fact that JRA volunteered investigation and recompense ipso facto prevents there being cover under the policies. They certainly do not avail themselves of the requirement of their written consent for the incurring of costs in the defence or settlement of claims under Insuring Clause 4. But they do submit that "claims made" policies such as these are simply not designed to respond to such situations.
  138. Mr Kealey points out that whereas a "claim" might in certain circumstances mean no more than a mere right of action (eg "Do I have a claim?" "Yes"), juxtaposed as it is in these policies with the word "made" it requires the assertion of a claim. Thus in Re St Paul Fire & Marine Insurance Co and Guardian Insurance Co of Canada [1983] 1 DLR (4th) 342, the Ontario court of appeal held that the bringing of a suit, without service or any notice of its issue, while constituting a "suit brought", did not constitute a "claim made" (Goodman JA dissenting on the latter point). At 352/3 Thorson JA (with whom Houlden JA agreed) said:
  139. "Clearly the expression "claim made" is broader than "suit brought" since a claim can be made in any of a number of ways without the institution of an action. My brother Goodman accepts that this is so but answers that, where an action has been commenced by the issue of a writ, the consequence in law of the writ's issue is that the claim must be taken as having been made at that time, on the common law principle that the defendant must be deemed to have notice of it at that time.
    "With great respect I am unable to agree that this is a correct statement of the law as it applies in this province ...

    At 355 Thorson JA continued:

    "Until such time as the write is served on, or the existence of the claim is otherwise brought to the attention of, the other party, what does it avail to say that as a matter of law he has "made a claim" against the other party of which the latter must be deemed to have notice? How does it accord with any reality to view him, as a matter of law, as having made such a claim at the time the writ was issued, even though that time has passed, the writ has been put away unserved in a file in his solicitor's office, its very existence is unknown to the other party and he himself has not decided whether the matter should go any further?"

    It is to be noted that even Goodman JA founded his minority holding of "claim made" on the basis that notice had been given to the world at large. He also said (at 349):

    "A claim, other than one made by way of the institution of legal proceedings, can only be made by notifying the person against whom the claim is being asserted of such claim. Prior to the giving of such notice, there can only be an intention to make a claim."
  140. In Thorman v. New Hampshire Insurance Co (UK) Ltd [1988] 1 Lloyd's Rep 7 complaints were made in 1976 against the plaintiff architects regarding cracking of brickwork. In June 1982 the architects' client claimed arbitration, saying "Serious problems have arisen ... inter alia with regard to cracking and defective brickwork", and in the same month he commenced proceedings by issuing a generally endorsed writ. Notice of the intention to issue that writ for limitation purposes was given to the architects, and the architects in turn gave notice of the issue of the writ against them to their insurers, but the writ was not ultimately served until December 1983. A statement of claim followed in January 1984 which pleaded a variety of defects going beyond the complaints regarding brickwork. The architects were insured by yearly policies up to 30 September 1983, so that service of the writ and of the statement of claim was outside the period of the policy. The defendant insurers said that the only "claim made" during the period of the policy was in respect of the complaints about the brickwork. At first instance Steyn J held that the architects were only covered for the claim regarding defective brickwork.
  141. Stocker LJ and Russell LJ regarded the issue of the writ together with notice to the architects of its issue as a claim made embracing all matters subsequently particularised: see at 17 and 18. Sir John Donaldson MR was inclined to agree, but was concerned by the objection that notice of the issue of the writ was
  142. "more accurately to be regarded as notice of an intention to make a claim at a later date by serving the writ" (at 12).
  143. Stocker LJ in the course of his judgment at 15 referred to Steyn J's adoption of what Devlin J had said in West Wake Price & Co v. Ching [1956] 2 Lloyd's Rep 618 at 627:
  144. "I think that the primary meaning of the word "claim" - whether used in a popular sense or in a strict legal sense - is such as to attach itself to the object that is claimed; it is not the same thing as a cause of action by which the claim may be supported or as the grounds on which it may be based. In the Oxford Dictionary "claim" is defined as, first, "A demand for something as due; an assertion of a right to something" ..."

    Stocker LJ went on, however, to say:

    "For my part, these appear to me to be definitions which can be accepted without further refinement. They do not, however, solve the question since the application of the definition may vary according to the circumstances in which it falls to be construed ..."
  145. I too would accept, as I am probably in any event bound to do, that the words "claim ... made" require not only the assertion of a claim, of some remedy as due, but also the bringing of that assertion to the notice of the assured. To echo Stocker LJ's words, however, that does not by itself solve the question.
  146. There was no submission before me that Lautro's requirement, under its new rule binding in contract upon its members, to conduct a review of past transfer and opt-out business, and to offer redress where it was found to be due, was itself a "claim ... made". It is therefore unnecessary for me to consider whether any such submission was in any event open to JRA on the pleadings. The argument before me proceeded on the basis that the relevant claim or claims were those of the investors themselves. Nor was it argued before me that the investors' claims had been made on their behalf by means of Lautro's requirements. If it had been, there would no doubt have been submissions about agency and so forth. Nevertheless, it was submitted that the regulatory background was the context in which the issue had to be considered, and that these policies had been written with that regulatory background well in mind.
  147. Mr Symons submitted that the investors concerned had made claims by answering questionnaires and in any event by agreeing to the offers of redress in the terms in which such offers were made and accepted. In particular, reliance was placed on the words (or their equivalents) -
  148. "Completing this letter and returning it prevents you from making any further claim against J Rothschild Assurance in respect of this matter";

    and also the language of full and final settlement. He argued that it could hardly have made any difference whether or not JRA, in writing to their investors, had said: "Do you want to make a claim for redress?" and received the answer "Yes". It therefore did not matter, could not and should not matter, whether an investor was more or less assertive.

  149. Mr Kealey on the other submitted that, save in the case of sample 4 (Mrs Kendle), there had simply been no assertion of any rights against JRA and that to find or manufacture such an assertion would be fundamentally to alter the risk being insured under a "claims made" policy. In such a case, JRA's conduct of the review would cause underwriters to be insuring the settlement of contingent liabilities before any claim was made. As for the suggestion that JRA could have asked their investors "Do you want to make a claim?", that question, if it had been asked, would have given rise to questions as to whether under a "claims made" policy the solicitation of claims would have been in good faith. In any event, the purpose of the review was the provision of compensation, not the solicitation of claims. Participation in the review process was not the making of a claim.
  150. Two analogies were prayed in aid. Mr Symons referred to a car manufacturer calling in cars for repair or redesign where it was discovered that the cars contained some fault. It was recognised that such costs were covered under the manufacturer's liability policies. However, Mr Kealey was able to say, and I accepted his statement for the purpose of the argument, that such cover was dealt with by special provision in product liability policies.
  151. The second analogy was utilised by Mr Kealey. He pointed to the fact that in the Lloyd's R & R settlement each accepting name was asked to agree that his acceptance was in full and final settlement of all claims: but it was well known that there were both litigating names and non-litigating names, and that the settlement treated them in certain respects differently. That illustrated the fact that it is one thing to settle a claim that you have made on full and final terms, and another thing to accept a settlement offered to you on full and final terms even though you have not made a claim, but perhaps might have done so. I accept that distinction. However, it did not seem to me that that analogy was helpful either, since even though there were certainly names who either had or had not made claims arising out of such matters as syndicate selection or the conduct of syndicate business, the Lloyd's settlement was designed not only to settle claims that had been or might have been made but also to charge every name an Equitas premium and to allow or charge every name credits or debts in respect of their syndicate reserves and liabilities. Thus a name might well have received a payment under the settlement even though he had made no claim and was making no claim qua litigating name. In the case of the SIB/Lautro review, however, the only settlements that were offered were those where the review had persuaded the reviewing member that there was a liability which ought to be remedied. It is therefore easier to infer that the participating investor was laying claim to such compensation.
  152. It is interesting in this connection to consider sample 3 both for its own sake and by way of comparison with sample 4. It is accepted by underwriters that there was a claim in the case of sample 4, but they deny a claim in the case of sample 3. Sample 4 was the one where Mrs Kendle showed understanding and assertiveness and ultimately instructed solicitors to press her case. Sample 3 shows the following. In September 1995, Mrs Heafield, having been sent the model letter, with its reference to review of appropriate cases and its holding out of the possibility of compensation for bad advice, and its enclosed pensions review form questionnaire, returned the latter. On 26 April 1996 JRA wrote to her to ask her to complete a different questionnaire and also to recommend that she join her NHS scheme without delay, because it was to her advantage to do so ("it is the view of our regulators that it is seldom "best advice" to opt out of, or not join, a defined occupational pension scheme") and because she had an obligation in law "to mitigate any loss you may have suffered". After some prompting, she was persuaded that she was better advised to do so, and therefore also asked for her PPP to be paid up. Her understanding at this point appears to have been that she was owed by way of redress the monies paid to her PPP, and she wrote to ask for their reimbursement on 26 September 1996. On 8 November she wrote again in similar terms, complaining of no reply, and asking
  153. "that I will soon receive the amount due to me."
  154. In a letter dated 6 November 1996, which either crossed with her second request or was pre-dated to avoid embarrassment, JRA replied to point out that her PPP had not been cancelled but paid up and would continue to earn investment returns while her case was reviewed. JRA wrote:
  155. "As you are aware, we are reviewing the advice given to you to take out the PPP PRP was the acronym given by JRA to a JRA PPP.
    in November 1993. If our review shows that you were not given "best advice" and that you have suffered a financial loss as a result, then we will offer you some form of compensation."
  156. On 12 November 1996 JRA wrote again to say that their recent letters appear to have crossed and to express the hope that
  157. "my letter answered your queries, but if it raises any further questions, please do not hesitate to contact me."

    Mrs Heafield appears to have been satisfied with JRA's explanation, for there is no further letter on file from her until her reply dated 3 July 1997 to JRA's offer of redress dated 20 June 1997.

  158. In my judgment it is plain from this correspondence that Mrs Heafield's understanding of the review was not in the details of it but in the faith that her case would be reviewed, and that she would be compensated in due course if the review found that there had been fault on JRA's part to fail to give her best advice. Was this a claim? It seems to me that it was. By returning the questionnaire in the light of the model letter, Mrs Heafield was asking JRA to take account of her case in their review and, if appropriate, to compensate her. In any event, by asking JRA to pay her the redress offered on the basis that such payment would prevent any further claim. Mrs Heafield was again making claim to use the review procedures to satisfy her loss.
  159. Ultimately, it seems to me that I have to take an overall view of the review process and the documentation which it engendered and ask myself whether claims had been made against JRA. In my judgment the answer is to say that they had. I think that the investors made claim on JRA by participating in the review process and/or in accepting the redress offered in the light of its terms. I am persuaded that any other answer would do insufficient justice to the context of the regulatory regime as a whole. If that regime made claiming easy, it was designed to do so, because that was the policy of the Act itself, because of regard for the complexities of the subject matter, for the sake of the good name of the industry, and because the alternative prospects of dealing with these matters in the courts was not to be contemplated. It seems to me that JRA's underwriters were familiar with the regulatory regime and cannot complain that they are being asked to underwrite risks of a different nature from those they entered upon. It could similarly be said that by delivering their cars to their dealers car owners are claiming to have those cars repaired in accordance with a car manufacturer's recall of them. It is a matter of context. Mr Kealey agreed that if JRA had asked "Do you wish to make a claim for compensation if our review shows you to have been badly advised" and the investor had said "Yes", there would have been a claim within the policies. In my judgment that indicates that at root the underwriters' argument is one that depends on excessive formality.
  160. Nevertheless, the case of Mrs Harwood in sample 2, should in my view for present purposes be left on one side. This is in part because Mrs Harwood's case has certain unique features to it and in part because it seems to me that any claim is against Mr Cameron, and not JRA. The unique features are that Mrs Harwood was not contacted about the review until 10 December 1997 and then the contact involved a personal meeting between Mr Cameron and Mrs Harwood. Although I have Mr Cameron's brief report about that meeting (see above), I am uncertain whether it was made clear to Mrs Harwood that any blame or liability might even arguably have attached to him; her comment was to express the hope that Mr Cameron would be caused "no problems". Moreover, the final offer of compensation which she accepted is not much more illuminating. In these circumstances it seems to me far more satisfactory that the issue of sample 2 should be left to proceedings which can bind Mr Cameron and the underwriters, which the present proceedings cannot do. For these reasons, even though I cannot see any reason why sample 2 presents any idiosyncratic problems in relation to any of the other issues, apart from issue 5, I shall omit reference to it in any declaration for present purposes.
  161. As a postscript, I note that JRA did not rely on the words "or loss" in GC2 as an alternative to claims subsequently made. This was because, correctly in my judgment, "loss" was viewed as reflecting Insuring Clause 2 which indemnifies JRA against loss sustained by reason of dishonest or fraudulent acts or omissions of directors and employees.
  162. Issue 4, the costs issue.

  163. On the basis that issue 3 has been answered in favour of JRA, it follows that there may have been costs incurred in connection with such claims. Even so, the underwriters submit that at most some modicum of cost incurred in connection with the final settlement of the claims can be recovered. What JRA cannot recover, is the whole cost of conducting the review, a fortiori cannot recover the cost of reviewing cases which do not result in a settlement. In any event, there have been no costs incurred in "defence" of such claims. The much more ample indemnity for costs in the event of the discovery of fraud or dishonesty under Special Memorandum 4 is contrasted.
  164. Mr Symons was not disposed to take issue with many of these submissions, save to say that much work may be performed and costs incurred in anticipation of a claim, so as to achieve a better settlement, which will still remain costs incurred "in the settlement of any claim", even if not in its defence. He gave the example of the investigation of an accident.
  165. In my judgment Mr Symons' limited submission was well founded. I do not think that costs were incurred in the defence of claims: JRA were not in the business of defending any claims, but conceding them. However, there always was an intention to settle. That was the purpose of the review. It does not seem to me to matter that the costs of settlement may have started to have been incurred when the claim was potential rather than actual. Provided that in any case a claim has been made, then the costs of settling it, whether before or after it was made, are costs "incurred in the ... settlement of any claim which falls to be dealt with under this Policy".
  166. I do not think that I can, or am expected to, perform any act of quantification. It seems to me that in principle the identification of a particular case as non-compliant and the task of evaluating the cost of compensation should come within the indemnity of Insuring Clause 2.
  167. Issue 5, the excess issue.

  168. The declaration sought by JRA under this heading asks that the relevant excess in respect of each claim is that of the appointed representative who sold the pension in question.
  169. However, at present I can see no basis in the policies for saying that that is so.
  170. The appointed representatives are separately insured under individual policies (within the overall composite policies) in which there are provisions for separate excesses and limits. Whether the position may change when and if the appointed representatives are joined as plaintiffs and show that they have themselves had claims made against them, is another question. I also note that in the contract between JRA and their appointed representatives there appears the following provisions under the Misconduct clause 3.23:
  171. "Failure to comply with the requirements of this Contract, including the SIB Principles and Rules, Lautro Rules and Code of Conduct and the Act will constitute a breach of your Contract and possible sanctions against you.
    "You will be responsible for and indemnify J Rothschild Assurance against all loss, damages, costs, expenses or liabilities incurred by it directly or indirectly in consequence of any breach of your obligations expressed or implied under this Contract. This provision shall survive termination of this Contract and remain in force in respect of all liabilities incurred both before and after such termination.
    "Due to your responsibilities outlined above, it is important that you maintain your Professional Indemnity Insurance to afford you as much protection as possible."
  172. It is therefore possible that JRA will seek to recover from their appointed representatives under such contracts indemnities for the cost of providing redress for their investors. Questions might arise under the Civil Liability (Contribution) Act 1978. The appointed representatives on the other hand may be joined as plaintiffs in these proceedings. In such circumstances claims against the underwriters may arise in which the excess limits applicable to individual appointed representatives become relevant. For the moment, however, I do not see how they can be. The review was designed to operate on the basis that firms would provide the compensation, and that is what has happened.
  173. I do not seek to anticipate what may happen in different circumstances. Nor am I called upon to say anything about the aggregation clause found in Definition 4, nor about unpleaded matters that may subsequently become relevant, such as estoppel by convention or special trade meanings and so on.
  174. Sample 2 is perhaps worth mentioning separately in this context. As I understand the matter the claim in respect of sample 2 is made by JRA, but JRA are not responsible for it, and have not offered redress to Mrs Harwood in respect of it. That has been done by Mr Cameron, to whom JRA are merely minded to lend the money to enable compensation to be made. If Mr Cameron were a plaintiff in this action, then the claim would be his, and plainly his excess and not JRA's would be relevant.
  175. In these circumstances I am not prepared to make the declaration under issue 5 which has been sought by JRA. However, I do not treat this as a final determination of the question raised by that declaration, for I think it would be more satisfactory if all questions raised in connection with the subject-matter of excesses were visited as a whole.

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