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Cite as: [2000] EWHC 198 (Comm)

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    IN THE HIGH COURT OF JUSTICE 1999 FOLIO No.343

    QUEEN’S BENCH DIVISION

    COMMERCIAL COURT

    THE HONOURABLE MR. JUSTICE MOORE-BICK

    BETWEEN

    (1) LLOYDS TSB GENERAL INSURANCE HOLDINGS LIMITED
    (2) TSB LIFE LIMITED
    (3) TSB PENSIONS LIMITED
    (4) TSB BANK PLC
    (5) LLOYDS TSB LIFE ASSURANCE COMPANY LIMITED

    Claimants

    and
    LLOYDS BANK GROUP INSURANCE COMPANY LTD

    Defendant

    _______________________

    AND 2000 Folio No.481

    BETWEEN

    ABBEY NATIONAL PLC

    Claimant

    and
    (1) ALAN GODFREY LEE
    (2) CHUBB INSURANCE COMPANY OF EUROPE
    (3) NEW HAMPSHIRE INSURANCE COMPANY

    Defendants

    JUDGMENT
    ________________

    Lord Goldsmith Q.C. and Mr. Timothy Howe instructed by Simmons & Simmons appeared for the claimants in the Lloyd’s TSB action (1999 Folio No. 343).

    Mr. Nicholas Strauss Q.C. and Mr. Laurence Rabinowitz instructed by Herbert Smith appeared for the claimants in the Abbey National action (2000 Folio No. 481).

    Mr. Michael Brindle Q.C. and Mr. Guy Philipps instructed by Barlow Lyde & Gilbert appeared for the defendants in both actions.

    Pursuant to the Practice Statement issued by the Master of the Rolls on 9th July 1990 I hereby certify that the attached text records my judgment in this matter and direct that no further record or transcript of the same need be made.

    The Hon. Mr. Justuce Moore-Bick


     

  1. The passing of the Social Security Act 1986 provided an opportunity for employees who were entitled to benefits under occupational pension schemes to invest for their retirement in private pension plans instead. The claimants in these two actions (other than Lloyds TSB Life Assurance Co. Ltd) are all companies which, among other things, offered or were involved in the provision of personal pension plans to members of the public. The provision of financial services of this kind is regulated by the Financial Services Act 1986. Broadly speaking, under the Act the financial services industry is subject to a regime of self-regulation under the auspices of a supervisory body, the Securities and Investment Board (“SIB”). The provision of financial services in the form of personal pension plans was regulated prior to 18th July 1994 by the Life Assurance and Unit Trust Regulatory Organisation (“LAUTRO”); since that date this function has been carried out by the Personal Investment Authority (“PIA”). In order to retain their ability to carry on the business it was necessary for the claimants in these actions to comply with the rules of the relevant regulatory body.
  2. Employees who might be tempted to invest in personal pension plans rather than take the benefits available to them under occupational pension schemes fell into three distinct categories: those who had left the relevant employment but had a vested right to benefits at a future date and might be inclined to transfer the cash value of those benefits to a personal pension plan; those who were currently employed who might be tempted to opt out of the existing occupational scheme in favour of having contributions paid into a personal pension plan; and those who had just become employed and who might be tempted to invest in a personal pension plan rather than join the occupational pension scheme available to them. The considerations for and against taking out a private pension plan rather than retaining or taking up benefits under an occupational pension scheme would be likely to differ in each type of case; and within each category much would depend on the benefits offered by the scheme, the personal circumstances of the beneficiary and his own preferences. An informed decision based on a fair comparison between the costs and benefits attaching to his membership of the occupational scheme and those attaching to a personal pension plan called for a careful appraisal of the occupational scheme as well as the pension plan being offered.
  3. The rules of LAUTRO were framed in such a way as to impose on its members an obligation to ensure that their representatives were obliged to, and did, comply with the Code of Conduct when selling pension plans to the public. The Code of Conduct, one of the purposes of which was to ensure that members and their representatives exercised due skill and care in providing services to the public and took proper account of the interests of investors, specifically obliged representatives to give investors what was compendiously described as ‘Best Advice’. This included an obligation on the part of the representative to make a comprehensive study of the investor’s need to make any investment and of his financial resources and a positive duty not to advise an investor to give up rights under an occupational pension scheme unless the representative bona fide believed it to be in his interests to do so. These duties could not be discharged in relation to any of the three categories of employees without carrying out a full analysis of the benefits available to them under the relevant occupational scheme and the costs of obtaining similar benefits elsewhere.
  4. In due course a large number of claims were made against the various claimants by investors to whom they had sold personal pension plans. These claims were all based on allegations that the representatives acting on behalf of the claimants had failed to give them Best Advice, in particular by failing to provide a proper comparison between the costs and benefits attaching to the different courses of action being considered and by failing to explain that it would be in their interests to remain members of their existing occupational pension schemes, or to join such schemes where they were eligible to do so, rather than invest in personal pension plans. Although the amount of each individual claim was relatively modest, there were a large number of claims and the total amount involved was very substantial.
  5. The claimants are seeking to recover under policies of insurance issued by the defendants the losses they have incurred in settling claims made by investors. The Lloyds TSB claimants were insured under a Bankers Composite Insurance policy issued by the defendants in the first action. By Section 3 of that policy the defendants agreed to indemnify the claimants in respect of their legal liability for any third party claim first made within the period of the policy which met the requirements set out in the sub-paragraphs which then followed. Condition 2 of this section provides as follows:
  6. “Subject to the Limit of Indemnity, the Underwriters shall be liable only for that part of each and every third party claim during the Policy Period, . . . . . . . . which exceeds the Deductible stated in Item 7 of the Schedule.
    The Deductible shall apply to each and every third party claim and shall be subject to no aggregate limitation.
    If a series of third party claims shall result from any single act or omission (or a related series of acts or omissions) then, irrespective of the total number of claims, all such third party claims shall be considered to be a single third party claim for the purposes of the application of the Deductible.”
  7. The Abbey National policy was in the form of a Lloyd’s Financial Institutions Professional Indemnity Policy. The material clauses are drafted in very similar, though not identical, terms to those of the Lloyd’s TSB policy and it was not suggested that such differences as exist between the wording of the two policies should lead to a difference of outcome. However, I think it right for completeness to set out the deductible clause in the Abbey National policy which provides as follows:
  8. “If a series of third party claims shall result from any single negligent act, negligent error or negligent omission or breach of statutory provisions including breach of statutory duty, or compliance with a Restitutionary Order made under the provisions of the Financial Services Act 1986 (or a related series of negligent acts, negligent errors or negligent omissions or breaches of statutory provisions including breaches of statutory duties, or compliance with a Restitutionary Orders made under the provisions of the Financial Services Act 1986) then irrespective of the total number of claims, all such third party claims shall be considered to be a single third party claim for the purposes of the application of the Deductible.”
  9. The deductible was set at £1 million for some of the Lloyds TSB companies and £2 million for others. The deductible in the Abbey National policy was £1 million. In both cases that is considerably in excess of the individual claims, most of which, apparently, did not exceed about £15,000. Although it is not the only issue between the claimants and their insurers, the operation of the aggregation clause therefore lies at the heart of the dispute. If, as the claimants contend, the claims can be aggregated, they will exceed the deductible and, subject to other matters in dispute, the claimants will be entitled to recover. If, as the insurers contend, the claims cannot be aggregated, none of them will exceed the deductible and nothing will be recoverable under the policies.
  10. In these circumstances orders have been made for the trial of the following preliminary issues:
  11. In the Lloyds TSB action:
    “Whether, as is alleged in paragraph 14A of the Amended Particulars of Claim, the Mis-selling Claims constitute a series of third party claims which resulted from:
    (1) A single act or omission by the TSB Companies their officers or employees, as pleaded in paragraph 15 of the Amended Particulars of Claim, or
    (2) A related series of acts or omissions by the TSB Companies their officers or employees as pleaded in paragraph 16 of the Amended Particulars of Claim
    and are therefore to be considered a single third party claim subject to a single Deductible for the purposes of Condition 2 of the PI Policy.”
    and in the Abbey National action:
    “Whether the third party claims for which the Claimant was liable were the result of
    (a) a single negligent act, error or omission and/or breach of duty under the Financial Services Act 1986 and LAUTRO and SIB rules applicable to it between 1988 and 1994; alternatively
    (b) a related series of such acts, errors, omissions and/or breaches of duty under the Financial Services Act 1986 and LAUTRO and SIB rules applicable to it between 1988 and 1994
    and accordingly fall for the purposes of determining the Deductible under the insurance policy to be regarded as a single third party claim.”
    For the purposes of the trial of these issues the court is required to assume that all the facts pleaded in the particulars of claim in each case are true, that the claims in question fall within the insuring clauses of the policies and that the acts and omissions on the part of the claimants are acts and omissions as defined in the policies.

  12. The facts which must be assumed to have given rise to the claims are these. The immediate point of contact between the company and the individual investor was the sales representative, or ‘Financial Service Consultant’ (“FSC”). It was part of his job to interest those who were existing members of occupational pension schemes, or who were entitled to become members of such schemes, in providing for their retirement by taking out a personal pension plan in place of the occupational scheme. If the FSC was to be in a position to give Best Advice as required by the Code of Conduct, he would have to be made aware of the nature and extent of that obligation and would have to be provided with the means to fulfil it. That would call for appropriate training and perhaps also for the provision of tables or other reference material which might be needed to enable him to carry out the necessary calculations. This, of course, was the responsibility of management. The FSCs could hardly be expected to do the job properly if they were not given the necessary training or equipment. However, those responsible for developing the business of selling personal pension plans did not give proper consideration to what was involved in the provision of Best Advice to investors who were entitled to participate in occupational pension schemes, or if they did, they failed to appreciate that it was necessary to carry out a detailed evaluation of the costs and benefits attaching to an occupational scheme before advising an investor whether it was in his interests to opt for a personal pension plan instead.
  13. In these circumstances Lord Goldsmith Q.C. and Mr. Strauss Q.C. submitted on behalf of the claimants that the third party claims were a series of claims which all resulted from a single act or omission, namely, a failure on the part of management properly to train the FSCs so as to enable them to give investors Best Advice as required by the Code of Conduct. Mr. Brindle Q.C. on behalf of the insurers accepted that the failure of the FSCs to give investors proper advice was the result of a failure on the part of management properly to train and equip them for their task. He was constrained to do so since the allegations to that effect in the points of claim are to be taken as correct. He also accepted that the various claims by investors could properly be described as a ‘series of claims’ within the meaning of the aggregation clause. He submitted, however, that in the context of these policies it is the failure on the part of the FSC in each case to give proper advice to the investor rather than the failure on the part of management to provide FSCs generally with proper training which is to be regarded as the cause of each claim. Therefore, although there was a series of claims, those claims were not caused by a single act or omission, or even a series of acts and omissions, on the part of the management. Nor, on the proper construction of these policies, could the individual failures of the FSCs be regarded as a related series of acts or omissions so as to bring the resulting claims within the scope of the aggregation clause.
  14. Aggregation clauses of various kinds have come before the courts on a number of occasions in recent years. Lord Goldsmith helpfully referred me to a number of decided cases in which different forms of wording have been considered. These included Caudle v Sharp [1995] LRLR 80 (Clarke J.); [1995] LRLR 433 (C.A.), Cox v Bankside Members Agency Ltd [1995] 2 Lloyd’s Rep. 437; AXA Reinsurance (UK) Ltd v Field [1996] 1 Lloyd’s Rep. 26 (C.A.); [1996] 1 W.L.R. 1026 (H.L.), American Centennial Insurance Co. v INSCO Ltd [1996] LRLR 407 and Municipal Mutual Insurance Ltd v Sea Insurance Co. Ltd [1998] Lloyd’s Rep IR 421. One can see from these cases that a broad distinction can be drawn between clauses in which aggregation is based on an originating event and clauses in which aggregation is based on an originating cause, but the distinction lies mainly in the fact that ‘cause’ (particularly when combined with ‘originating’) is generally capable of bearing a broader meaning than ‘event’. Ultimately, however, as all parties acknowledged, the question is one of construction in each case having regard to the language of the policy and the context in which it was issued. The language of the aggregation clauses in the present policies is different from that of any of the clauses considered in previous cases and there is a limit to the amount of assistance that one can derive from decisions on differently worded clauses in policies issued in different commercial contexts.
  15. Both Lord Goldsmith and Mr. Strauss submitted that in view of the high level at which the deductible was set the aggregation clauses in these policies must have been intended to cover the case in which a failure on the part of management resulted in numerous errors of a similar kind by individual employees. If it were not so, they said, the aggregation clauses would have no practical application and the deductible would effectively preclude the insured from recovering under the policy save in the most exceptional circumstances. This would render the policies virtually worthless. I can see some force in that argument, but it has to be approached with some care since it depends on the assumption that the vast majority of individual claims under the policy would be unlikely to exceed the deductible. That depends, of course, on the nature of the business undertaken by the insured. In the case of Abbey National one can see from the policy documents that its business was heavily weighted towards the retail financial services market which might be thought to give rise to a larger number of smaller claims than the commercial sector. The range of businesses covered by the Lloyds TSB policy, on the other hand, was much wider, including some substantial commercial operations. Moreover, as Mr. Brindle pointed out, the level at which the deductible is set is a matter for agreement between the parties. It is obviously likely to have an effect on the level of premium and it is primarily for the insured to make a decision on a commercial basis as to the level of deductible he is willing to accept having regard to the premium and the number and size of claims he thinks he is likely to incur. In the case of Abbey National one can see from the policy documents that for the year in question the deductible was increased substantially over that for the previous period.
  16. These factors all form part of the background which can properly be taken into account when construing the policies, as do the general scheme of regulation of the provision of financial services to the public under the Financial Services Act 1986 and the obligations imposed on companies such as the claimants as members of LAUTRO. When these policies were written in the latter part of 1993 LAUTRO had already voiced concerns about the manner in which some personal pension plans were being sold, but there is no reason to think that the parties to these policies were aware that the problem was widespread or that any of the claimants were affected by it. I would accept, therefore, that one cannot treat knowledge of the widespread incidence of pension mis-selling as part of the commercial background to the policies in this case.
  17. The aggregation clauses speak of a series of claims “resulting from” any single act or omission or a related series of acts or omissions. Generally speaking, language of this kind would require the court to consider whether the series of claims was caused by any single act or omission in the sense in which causation is generally understood in the law, and indeed it was part of the defendants’ case that these words were intended to limit the operation of the clause to cases where several claims were proximately caused by the same act or omission. It is necessary to bear in mind, however, that in the present case the expression is used in the particular context of an aggregation clause and it was the claimants’ submission that in that context they were intended to bear a rather wider meaning.
  18. It is convenient to preface any discussion of the parties’ submissions by considering the approach which the law takes to the question of causation generally. Lord Goldsmith and Mr. Strauss between them drew my attention to a number of well-known cases in which the courts have considered the concept of causation. The first of these was Leyland Shipping Co Ltd v Norwich Union Fire Insurance Society Ltd [1918] A.C. 350. The case concerned a vessel which had been struck by a torpedo causing flooding of the forward part. She was towed to Le Havre where she was moored, but because of the damage she took the ground at each ebb tide and refloated on the flood tide. The strain caused by this grounding and refloating eventually caused her bulkheads to collapse and she became a total loss. The question for consideration was whether the loss was caused by the torpedoing or by perils of the sea. The discussion, as one can see from the report of the argument, turned on whether, when seeking to identify the cause of the loss, it was necessary to look for the immediate cause in point of time or the dominant cause in point of fact. The House of Lords decided firmly in favour of the latter. Lord Dunedin said at page 362
  19. “My Lords, we have had large citation of authority in this case, and much discussion on what is the true meaning of causa proxima. Yet I think the case turns on a pure question of fact to be determined by common-sense principles. What was the cause of the loss of the ship? I do not think the ordinary man would have any difficulty in answering she was lost because she was torpedoed.”
    And at page 363, having referred to the fact that there may be two possible causes to consider, he said
    “But the moment that the two clauses have to be construed together it becomes vital to determine under which expression it falls. The solution will always lie in settling as a question of fact which of the two causes was what I will venture to call (though I shrink from the multiplication of epithets) the dominant cause of the two. In other words, you seek for the causa proxima, if it is well understood that the question of which is proxima is not solved by the mere point of order in time.”
    Similar expressions of opinion can be found in the other speeches.
  20. The equation of the proximate cause with the ‘dominant’, ‘real’ or ‘efficient’ cause which is to be determined by the application of commonsense standards has pervaded subsequent decisions on this question. Examples cited in the present case include Yorkshire Dale Steamship Co. v Minister of War Transport [1942] A.C. 691 per Lord Wright at page 706, Gray v Barr [1971] 2 Lloyd’s Rep. 1 per Lord Denning M.R. at page 5, Wayne Tank and Pump Co Ltd v Employers Liability Assurance Corporation Ltd [1974] Q.B. 57 per Lord Denning M.R. at pages 65-66 and The Oropesa (1943) 74 Ll. L Rep. 86 and many others to like effect could be found. On the face of it, therefore, the question in the present case is simply whether, applying commonsense standards, claims arising in the way I have described can properly be said to have been caused by the act or omission of those responsible for training the FSCs.
  21. Mr. Brindle did not seek to quarrel with the general proposition that when seeking to identify the proximate cause one looks for the dominant or real cause. He did submit, however, that the authorities support the proposition that application of this principle varies depending on whether the court is concerned with the consequences of a breach of duty at common law (‘the tort test’) or the construction of a policy of insurance (‘the insurance test’). In support of that submission he referred me to a number of cases decided under the Workmen’s Compensation Acts. The first of these was Dunham v Clare [1902] K.B. 292 in which a workman suffered an injury by accidentally dropping a heavy pipe on his foot. He attended hospital as an out-patient but subsequently contracted blood poisoning in the foot from which he died. Death from blood poisoning was not a natural or probable consequence of the original injury and the question therefore arose whether the workman had died as a result of an injury received at work within the meaning of the Act. The Court of Appeal took the view that the relevant question was whether as a matter of fact death had resulted from the original injury in the sense that the injury was the real cause of death. It held that it had. All the members of the court rejected the argument that the infection constituted a novus actus interveniens, even on the assumption that the workman had caused the wound to reopen, and so become liable to infection, by walking to hospital. The decision, and indeed the court’s whole approach to the question of causation, is in my view consistent with the approach adopted in later cases such as Leyland Shipping. Much of the discussion concerning the extent of liability in contract and tort appears to be concerned more with what would now be regarded as the concept of remoteness of damage than with the concept of causation as such.
  22. The next case was Fenton v J. Thorley & Co Ltd [1903] AC 443, another case under the Workmen’s Compensation Acts. The appellant injured himself by over-exertion at work and the question arose whether he had suffered an injury by accident. The employer argued that it was necessary to show that the injury had some external cause, relying on authorities relating to the construction of policies of insurance. Mr. Brindle relied in particular on a passage in the speech of Lord Lindley at page 454 where he said
  23. “What is meant by "personal injury by accident"? Mr. Powell, in his very able argument, contended that there must be, first, a personal injury; second, that there must be an accident causing it; third, that such accident must be the proximate cause of the injury, and that nothing more remote than the proximate cause can be properly taken into account. My Lords, I cannot accede to this contention. Assuming that there must be something unintended and unexpected besides the personal injury sustained, or, in other words, assuming that there must be a personal injury and an accident causing it, I cannot agree with Mr. Powell that this statute ought to be construed as if it were a policy of insurance against accidents.
    In an action on a policy the causa proxima is alone considered in ascertaining the cause of loss; but in cases of other contracts and in questions of tort the causa causans is by no means disregarded.”

  24. The next case was Clover, Clayton & Co. Ltd v Hughes [1910] AC 242. In that case the deceased workman had died from the rupture of an aneurism caused by strain arising out of his ordinary work. Again, the question for the court was whether he had suffered personal injury by accident within the meaning of the statute. Lord Loreburn L.C. said at page 245
  25. “Next, the accident must be one "arising out of" the employment. There must be some relation of cause and effect between the employment and the accident, as well as between the accident and the injury.
    My Lords, I think some of our difficulties in applying the Act are due to this. Courts of law have frequently been obliged to consider, especially in actions on policies of insurance, what is to be regarded as the cause of some particular event. In one sense every event is preceded by many causes. There is the "causa proxima," the "causa causans," the "causa sine qua non." I will not pursue scholastic theories of causation. The "causa proxima" is alone considered in actions on a policy, as a general rule. I do not think that is the proper rule for cases under the section now under discussion, for the reasons explained by Lord Lindley in Fenton v. Thorley.”

  26. Finally in this context Mr. Brindle drew my attention to Rothwell v Caverswall Stone Co. Ltd [1944] 2 All E.R. 350. In that case also the plaintiff had suffered a injury at work. A doctor at the hospital to which he was sent for treatment failed to diagnose the true extent of his injury which was subsequently discovered too late for successful treatment and he was incapacitated. On the plaintiff’s claim for compensation a question arose whether the doctor’s negligence constituted a novus actus interveniens. The Court of Appeal by a majority held that it did and that the plaintiff’s claim therefore failed. Mr. Brindle, however, relied on a passage in the dissenting judgment of Scott L.J. at pages 352-353 in which he drew a distinction between the ‘causa proxima’ and the ‘causa causans’, saying that whereas in a contract of insurance the parties must be presumed to refer only to the causa proxima, under the system of workmen’s compensation the causa causans may be, and often must be, more material than the causa proxima.
  27. The terms ‘causa causans’ and ‘causa proxima’ are not often to be found in modern authorities. I think that reflects the move away from an analysis of degrees of causation towards the broader and more commonsense approach to determining causation which one finds in cases such as Leyland Shipping and Yorkshire Dale. Before one can accept that Fenton v Thorley and Clover, Clayton & Co. Ltd v Hughes are authority for the proposition that different principles apply to determining issues of causation under contracts of insurance from those which apply in other contexts it is necessary to understand clearly what the judges in those cases had in mind when they used the terms ‘causa sine qua non’, ‘causa causans’ and ‘causa proxima’. It appears from the argument and the speeches in Leyland Shipping that until the decision of the House of Lords in that case the term ‘causa proxima’ was used to mean the last cause in point of time and it appears that it was still being used in that sense by Scott L.J. in Rothwell v Caverswall Stone. Whether that is so or not, however, there can be no doubt in the light of Yorkshire Dale and the other cases to which I referred earlier that even under a contract of insurance the proper course, in the absence of some indication to the contrary, is to identify the ‘dominant’, ‘efficient’ or ‘real’ cause of the loss and that this approach does not differ in principle from that which is taken when deciding in the realm of tort whether injury has been caused by a defendant’s breach of duty or some other cause. Having said that, however, it is necessary to recognise that parties to a contract of insurance are entitled to decide for themselves whether to extend cover to losses which are more remotely caused by insured perils or to restrict it so as to exclude some losses which would ordinarily be regarded as proximately caused by them. In the absence of agreement to the contrary, however, the presumption will be that the policy is intended to provide cover where an insured peril is the dominant, efficient or real cause of the loss, but not otherwise.
  28. It follows that I am unable to accept Mr. Brindle’s submission that a different and more restrictive approach to causation applies generally in the case of contracts of insurance and I therefore turn again to the language of the policies in the present case. The aggregation clause in the present case differs from those considered in previous cases in that by virtue of the definition of “act or omission” it throws one back into the insuring clause. This means that the unifying factor must be an act or omission (or series of acts or omissions) which are of the same kind as those against which cover is provided under the policy. Mr. Brindle submitted that this tended to narrow the scope of the aggregation clause in contrast to other forms of wording which are designed to broaden the basis of aggregation (for example, words such as ‘one originating cause’, said by Lord Mustill in AXA v Field to be intended to open up the widest possible search for a unifying factor). I think he was right about that, but I do not think it carries the matter very far. The real questions, as he himself acknowledged, are whether the expression “resulting from” in the aggregation clause means the same as “caused by” in the insuring clause, and if so, whether the series of losses represented by the pension mis-selling claims were proximately caused by the failure of management properly to train the FSCs.
  29. Mr. Brindle submitted that the words “resulting from” should naturally be read as importing the same concept of causation as the words “caused by” in the insuring clause. He submitted that it is most unlikely that the parties intended to adopt a different concept of causation for the purposes of the aggregation clause from that which they had adopted in the insuring clause. As Lord Goldsmith pointed out, however, different words are in fact used and he submitted that that was itself indicative of an intention to extend the ambit of the aggregation clause to cases where a series of claims could be seen to have their origin in a single act or omission even though it might be difficult to say that that act or omission was the proximate cause of those claims in the established sense.
  30. I am not myself sure that in this case close attention to the particular words used is likely to give one much insight into the true meaning of this clause. The expression “resulting from” is perfectly apt to mean “caused by” in the conventional sense, but it is also perfectly apt to embody a more generous notion of causation. However, the same might equally well be said of the expression “caused by”. Although the distinction between the language used in the insuring clause and that used in the aggregation clause tends, if anything, to support the claimants’ argument, the meaning has to be collected from the clause as a whole and from the context in which it is found. The purpose of the aggregation clause is quite different from that of the insuring clause and one cannot therefore assume that when the parties were dealing with causation they had precisely the same concept in mind. The purpose of any aggregation clause is to enable two or more separate losses covered by the policy to be treated as a single loss for deductible or other purposes when they are linked by a unifying factor of some kind. The unifying factor may be the proximate cause of each individual loss (e.g. a storm which damages many buildings) or it may be a cause of a more remote kind (e.g. a misunderstanding of some aspect of the business). In the present case the policy provides cover against losses caused by a range of acts and omissions committed by officers or employees of the insured generally. Although it seems unlikely in the field of pension selling (notwithstanding the example suggested by Mr. Brindle of the FSC who gives negligent advice in the course of addressing a meeting of employees) that the act or omission of one FSC would give rise to enough claims of a sufficient size to exceed the deductible when aggregated, it is not difficult to envisage other circumstances in which a single act or omission on the part of one officer or employee might do so. For example, a breach of trust on the part of a senior officer or employee involved in asset management might give rise to many substantial third party claims. Construing the aggregation clause as restrictively as Mr. Brindle suggested would not necessarily, therefore, deprive it of all effect. However, the term “act or omission” in the aggregation clause means acts or omissions of the kinds described in the insuring clause and those acts or omissions may be committed by any officer or employee. I think that the clause in the present case simply requires one to ask as a matter of commonsense whether the series of claims in question was the result of an act or omission of that kind. I do not think that it requires one to draw the same distinction between proximate causes and less direct causes that would be required by the insuring clause. in my view that is supported by the fact that the unifying factor may be a related series of acts or omissions. This is potentially wider than a mere combination of insured perils and suggests that the parties did not intend to limit the operation of the clause in the manner suggested by Mr. Brindle. I have no doubt that in commonsense terms all the third party claims in the present case did result from a failure on the part of management to provide the training required to enable the FSCs to give proper advice to investors. Whether that failure should be regarded as a single act or omission on the part of the assured or as a related series of acts or omissions on the part of those engaged in the management of the business does not matter. In either case the insured is entitled to aggregate the claims for the purposes of the deductible.
  31. This makes it unnecessary to decide whether the failure of the management to provide proper training for the FSCs was the proximate cause of the third party claims, As Mr. Strauss emphasised, each of the third party claims represented a liability attaching to the company itself for failing to ensure that the FSCs complied with the obligation to give Best Advice. That much was not in dispute. In those circumstances the claimants submitted that the company’s failure properly to train and supervise its FSCs could not be regarded in any sense as a remote cause of each claim but was the very omission on which the third party’s claim was based. Therefore, even if it were right to construe the aggregation clause in a restrictive manner, the company’s own acts or omissions were the proximate cause of the loss.
  32. The liability which attaches to a provider of financial services under the Financial Services Act as a result of a failure on the part of one of its employees to give Best Advice is personal, not vicarious. That is because the company itself has a duty to ensure that its employees comply with the Code of Conduct. It must be highly unlikely in the ordinary course of events that any employee giving financial advice on behalf of his employer would hold himself out as assuming personal responsibility for the quality of that advice and unless he were to do so he would not himself incur any such liability: see Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830. Mr. Brindle submitted, however, that the companies’ failure to train the FSCs properly did not in itself cause any financial loss to third parties; loss was caused only when the investor entered into a personal pension plan relying on inadequate advice given to him by the FSC. Thus, he submitted, although the companies’ acts and omissions may have provided the opportunity for the FSCs to give inadequate advice, it was the giving of that advice rather than the acts or omissions of the companies which was the cause of the third party claim in each case.
  33. This is an ingenious argument, but I am unable to accept it. In the first place, it fails to draw the essential distinction between the ‘real’ or ‘effective’ cause of the third party claims and an event which was merely a link, albeit a vital link, in the chain of events leading from breach of duty to loss. In the absence of proper training, and in particular of steps being taken to draw the FSCs’ attention to the need to carry out a full analysis of the benefits available under the relevant occupational pension scheme, it was inevitable that they would in most, if not all, cases fail to give Best Advice to investors as required by the LAUTRO Rules and Code of Conduct. The fact that an act or omission on the part of an individual FSC was necessary to complete the company’s liability does not mean that the failure to provide proper training was not a cause of the third party liability, if not the cause of that liability. In some cases, of course, it can be seen that the operative effect of one act or omission which is capable of causing loss has been eclipsed by a subsequent act: the case of Rothwell v Caverswall Stone provides a good example. However, I can see no basis on which it could be said that where the company had failed properly to train the FSC his failure to give Best Advice could be regarded as eclipsing the company’s breach of duty so as to amount to a novus actus interveniens. Moreover, in a case where the policy covers the insured against the consequences of failing to ensure that his employees act properly it is difficult to see how the policy could work if, as between himself and the insurer, the insured’s own omission were not to be regarded as the proximate cause of the loss. I think that the claimants were right, therefore, in saying that their own failure to ensure that the FSCs were properly trained and supervised can properly be regarded as a proximate cause of the liability to the investor in each case. On the facts alleged in the points of claim it was in my view the dominant cause.
  34. For these reasons as well I am satisfied, therefore, that the claimants are entitled to aggregate claims arising out of pension mis-selling insofar as they were caused in the manner pleaded in the points of claim. In these circumstances it is unnecessary to deal at great length with the various additional ways in which the claimants put their case. One of them can be dealt with quite shortly. Lord Goldsmith submitted that the issues were in any event determined in favour of the claimants by virtue of the fact that for the purposes of the preliminary issue the allegations in the pleadings, including those relating to causation, must be assumed to be true. This argument, if it were well founded, would mean that no purpose was served by embarking on the trial of these preliminary issues. Clearly, therefore, that is not what the court intended when the order was made. I have no doubt that the intention was that the allegations of causation in the points of claim were to be assumed to be true only in the purely factual sense that one thing followed from another. Whether, on the true construction of these policies, or in the application of general principles of law, liability to third parties in the circumstances set out in the pleading is to be regarded as having been caused by any particular act or omission, or series of acts or omissions, was a matter intended to be left open for determination.
  35. A more powerful argument, however, was put forward based on the words “(or related series of [negligent] acts or omissions)”. The claimants submitted that even if the defendants were right in saying that the words “resulting from” made it necessary in a case of this kind to confine oneself to individual failures on the part of FSCs to give Best Advice, nonetheless those individual failures were linked by a common factor in that they were the result of the failure of the management to provide proper training of the FSCs. Therefore, it was said, they gave rise to a series of third party claims resulting from a related series of acts or omissions. Mr. Brindle submitted, however, that these words ought to be read as involving only a slight modification of the preceding language in order to avoid the anomalous introduction of a broader test of unifying factor than that which (on this assumption) the main terms of the clause would allow.
  36. Once again, I think the question has to be decided by giving the words their natural meaning. I can find no indication that the words in parentheses were intended to be construed more narrowly than would naturally be the case. They were obviously intended to extend the range of unifying factors beyond that of the single act or omission; the only restriction on the series of acts to which these words refer is that it (or they) be related. Although as a matter of syntax the word ‘related’ governs the word ‘series’, the sense of the expression is in my view clear: the acts or omissions which constitute the series must be related in some relevant way. It follows that if the words “result from” did have to be read as narrowly as Mr. Brindle suggested, it would still be necessary to ask whether the individual failures on the part of the FSCs to give Best Advice which had caused the series of third party claims to arise themselves constituted a related series of acts or omissions in the sense I have described. In my view they did. The only requirement is that the acts or omissions making up the series should be ‘related’. This seems to me to be capable of being given a wide construction, but I have little doubt that in a policy of this kind it is apt to cover a series of acts and omissions which are directly attributable to a single underlying cause of a kind which is itself within the scope of the cover provided by the policy. Accordingly, on this basis too I would hold that the claimants are entitled to aggregate third party claims arising in the manner set out in the points of claim.
  37. In each case, therefore, the questions raised by the preliminary issues can be conveniently answered as follows:
  38. “The claims resulted from a single act or omission of one of the claimants’ officers or employees, or from a related series of acts or omissions of two or more of the claimants’ officers and/or employees, and are therefore to be considered a single third party claim subject to a single Deductible for the purposes of the policy.”


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URL: http://www.bailii.org/ew/cases/EWHC/Comm/2000/198.html