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High Court of Ireland Decisions
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Judgment Title: McAleenan -v- AIG (Europe) Limited
Composition of Court:
Judgment by: Finlay Geoghegan J.
Status of Judgment: Approved
Neutral Citation Number:  IEHC 128
THE HIGH COURT
[2008 No. 9658 P]
[2008 No.244 COM]
AIG (EUROPE) LIMITED
JUDGMENT of Ms. Justice Finlay Geoghegan delivered on the 6th day of May, 2010
1. The plaintiff is a solicitor. She worked in the solicitors’ practice of Michael Lynn & Co. from November 2004 until September 2007. The plaintiff, in these proceedings, claims to be entitled to an indemnity from the defendant pursuant to a Professional Indemnity Policy Number SPI36161, issued for the period 1st January, 2007, to 31st December, 2007 (“the Policy”). The Insured named in the Schedule to the Policy are “Overseas Property Law/Michael Lynn & Co”.
2. On 20th December, 2007, the defendant purported to avoid the Policy by reason of alleged material non-disclosures at the time of the proposal for insurance in April 2007, and an endorsement in May 2007. On 22nd September, 2009, by letter from its solicitors, the defendant furnished additional justification for avoiding the Policy against the plaintiff. The defendant issued separate proceedings [2009 No. 4137 P] against the plaintiff and Michael Lynn, in which it seeks a declaration that it was entitled to avoid the Policy. Those proceedings have been stayed as against the plaintiff pending the determination of these proceedings.
3. The defendant asserts that there has been a valid avoidance by it of the Policy against the Insured named in the Schedule, Overseas Property Law/Michael Lynn & Co. The avoidance against Overseas Property Law which is stated to be one of the trading names of a limited liability company, Overseas Legal and Tax Services Ltd., is not directly relevant to these proceedings. Michael Lynn & Co. is not a legal person. It was the name under which either Michael Lynn, as principal, carried on practice as a solicitor, or the name under which Michael Lynn and the plaintiff, in partnership, carried on practice as solicitors. Insofar as the avoidance by the defendant is against Michael Lynn, the plaintiff does not contest same: she does contest the defendant’s entitlement to avoid the Policy as against her.
5. The plaintiff qualified as a solicitor in 1992. In November 2004, she was employed by Michael Lynn & Co., solicitors. At that time, it is undisputed that Michael Lynn & Co. was the professional or business name under which Michael Lynn practised as a solicitor. The plaintiff was therefore an employee of Michael Lynn. The plaintiff was employed as a litigation solicitor with responsibility also for family law. She was given a statement of the terms and conditions of her employment. These do not appear to have been signed. She does not dispute that they are the terms on which she was employed. Those terms include one to the effect that if her employment subsisted for three years, “it is agreed, in principle, that the matter of partnership will be discussed . . .”. The plaintiff’s case is that whilst discussions took place, she never became a partner of Mr. Lynn prior to ceasing to work in the practice. One of the factual issues in dispute is the plaintiff’s status in the practice in 2007. The facts relevant to that issue will be considered separately below.
6. The plaintiff continued to work as a litigation/family law solicitor until she left in 2007. For much of that period, apart from Mr. Lynn, she was the only qualified solicitor in the practice. A solicitor, Ms. Deborah Leonard, was employed in the practice for approximately three months in the summer of 2006. Mr. Peter McCarthy, who had been a trainee solicitor in the practice, qualified in early 2007, and continued to work as a solicitor until he left the practice on 4th July, 2007.
7. In 2004, the practice was based in Blanchardstown. In adjoining offices, there were persons employed by Kendar Holdings Limited, a property development company, owned by Mr. Lynn. In January 2006, Mr. Lynn incorporated another limited liability company, Overseas Legal and Tax Services Ltd., which trades as Overseas Property Law and Overseas Property Tax. The plaintiff had no involvement with that company. Its purpose was to furnish advices to purchasers of property abroad. It appears to have had three employees who also worked out of Blanchardstown.
8. The practice, Michael Lynn & Co., and Overseas Property Law, moved to the Capel Building on 29th April, 2007. The name of the practice was subsequently changed to ‘Capel Law’.
9. Mr. Lynn appears to have been regularly absent from the office. The conveyancing work in the practice was done for much of the period by a Ms. Clair Cooper, who was employed as a legal executive and was also the office manager. She left in January/February 2007. Ms. Cooper was an experienced conveyancing legal executive and gave evidence before me. After she left, conveyancing was done in part by Mr. Peter McCarthy and also by Mr. Daniel Hughes, a trainee solicitor. Mr. Hughes also gave evidence. The plaintiff had little connection with the conveyancing side of the practice in the earlier years (save in relation to the giving of undertakings), but in 2007 she does appear to have given some supervisory assistance to those doing conveyancing.
10. The plaintiff, at all material times, signed undertakings on behalf of the firm, for the purposes of conveyancing transactions.
11. Another employee of the practice, who featured significantly in the evidence but did not give evidence, was Ms. Liz Doyle. She appears, initially, to have assisted the plaintiff in litigation as a legal executive, although it is stated she was not a qualified legal executive. During this period, she also assisted Michael Lynn. However, in early 2006 she became the fulltime personal assistant to Michael Lynn. The evidence of the plaintiff, and all other former employees of the practice who gave evidence, was to the effect that in 2006 and 2007 Ms. Doyle was regarded as a senior member of the practice and the “eyes and ears” of Michael Lynn in the practice. She was the person to whom they gave messages for Michael Lynn and who issued instructions on behalf of Michael Lynn. Michael Lynn appears to have had a decreasing presence in the practice in 2007. I am satisfied on the evidence that there was a culture of secrecy in the practice in relation to Mr. Lynn’s personal transactions and that Ms. Doyle was extremely protective of his position. A significant portion of the conveyancing work appears to have related to property transactions in which Mr. Lynn was personally involved, either directly or through Kendar Holdings.
12. The professional indemnity insurance for the practice of Michael Lynn & Co. was held with the Solicitors Mutual Defence Fund until the end of 2006. It would not provide cover for work outside Ireland. The defendant was contacted through Marsh Ireland Limited, insurance brokers, (“Marsh”) in December 2006 seeking cover for Overseas Property Law/Michael Lynn & Co. The plaintiff was not involved in the initial instructions given for the proposal. A completed but unsigned proposal form was provided through Marsh. On 5th February, 2007, the defendant indicated that it was prepared to note cover for Michael Lynn & Co. as a solicitors’ practice, but not yet Overseas Property Law. On 26th February, 2007, the defendant noted Overseas Property Law in the title of the insured. On 12th April, 2007, the plaintiff signed and dated the proposal form (“the Proposal Form”). On 14th May, 2007, the plaintiff signed a No Claims Declaration Form for the purpose of a dishonesty extension which had been agreed on 9th May, 2007. The Policy document was not issued until 12th October, 2007. Nothing turns on this date. The insurance cover ran from 1st January, 2007, to 31st December, 2007.
13. When Mr. Peter McCarthy left the practice in July 2007, Mr. Daniel Hughes, a trainee, was doing the conveyancing work. The plaintiff gave evidence, which I accept, that she had no choice but to oversee his work. In addition, at this time, all incoming post was brought to the plaintiff. In early July 2007, she became aware of a letter from O’Sullivan & Associates, solicitors, concerning unpaid stamp duty on properties purchased by Michael Lynn & Co. for which finance had been obtained from Anglo Irish Bank and Bank of Scotland. The plaintiff stated that this issue was then dealt with by Ms. Liz Doyle furnishing a cheque to O’Sullivan & Associates.
14. The plaintiff gave evidence that a letter dated 14th August, 2007, was received by fax from McKeever Rowan, solicitors, in relation to legal mortgages which were to be given over eleven residential properties. The plaintiff stated she realised that certain of the properties referred to had been the subject of the earlier correspondence with O’Sullivan & Associates. The plaintiff appears to have made enquiries of Liz Doyle, Daniel Hughes and Peter McCarthy, and stated that she understood initially that whilst Michael Lynn was proposing to obtain refinancing from Ulster Bank this may not have happened. On 5th September, 2007, a further fax was received and, when Mr. Daniel Hughes contacted McKeever Rowan, it became apparent that there was a lending from Ulster Bank to Michael Lynn on the properties referred to in the letter of 14th August, 2007. The plaintiff stated this is how she became aware that Michael Lynn had also drawn down approximately €7m. from Ulster Bank. She further learnt, on enquiry from McKeever Rowan, that they had a letter sent by Michael Lynn & Co. to Ulster Bank stating that charges had been registered, and on that letter was the reference “LD” which was the reference used by Liz Doyle in the practice. The plaintiff then ascertained that the monies from Ulster Bank were not recorded in Michael Lynn’s account in the practice in the month of September 2006, which was the date upon which it was meant to have been obtained.
15. The plaintiff then took advice on Friday 7th September, 2007, from a solicitor in another practice and made contact with the Law Society on Monday 10th September, 2007. She stated that she was advised by the Law Society to immediately leave the Michael Lynn practice. She did so, and resigned on 10th September, 2007, leaving a resignation letter on her desk. She met with the Law Society on 12th September, 2007, and they entered the practice of Michael Lynn & Co.
16. It became apparent that multiple undertakings had been given to many financial institutions on the same properties by Michael Lynn & Co. and that, in many instances, the undertakings were not complied with, in that no fixed charges were registered over the properties in respect of which loans were advanced and undertakings given.
17. A detailed examination was conducted of a sample of undertakings, both by the defendant and by the solicitors acting for Chubb Insurance of Europe S.A. and W.B. Berkley Insurance (Europe) Limited, with whom excess layers of the professional indemnity insurance were placed. A Schedule, setting out the results of that examination, was put into evidence by agreement of the parties herein. Certain of the undertakings were signed by the plaintiff. On other undertakings, the plaintiff’s name appeared as a signature but it is accepted by the defendant that she did not sign her name. Her name appears to have been forged by another person in the practice. The following facts were agreed between the parties for the purpose of these proceedings:
(ii) That Michael Lynn personally (and not the plaintiff) benefited financially from the above arrangements.
(iii) That Michael Lynn was found guilty of misconduct by the Solicitors Disciplinary Tribunal on 28th April, 2008, of, inter alia, “engaging in conduct tending to bring the solicitors profession into disrepute by frequently giving multiple undertakings to financial institutions in respect of the same property” (para. 81.4 of the Solicitors Disciplinary Tribunal Report, 28th April, 2008 - ref. 7153/DT16/08).
(iv) That Michael Lynn has been struck off the Role of Solicitors by order of the High Court dated 23rd May, 2008.
These material non-disclosures include, but are not limited to, the provision of multiple undertakings to multiple financial institutions on the same properties owned by Mr Lynn prior to the proposal and indeed the inception of the policy. As a result of these non-disclosures, we have now decided to void the policy of insurance ab initio.”
20. The plaintiff commenced these proceedings by plenary summons on 19th November, 2008.
21. On 11th May, 2009, the defendant issued proceedings [2009 No. 4137 P] against Michael Lynn and Fiona McAleenan, practicing under the style and title of Michael Lynn & Company and Overseas Legal and Tax Services Limited t/a Overseas Property Law. A declaration was sought in those proceedings to the effect that the defendant had lawfully avoided Policy No. SP13616 ab initio for non-disclosure of material facts.
22. No appearance was entered either on behalf of Michael Lynn or Overseas Legal and Tax Services Limited. On 29th June, 2009, the defendant herein brought a motion for judgment in default of appearance in those proceedings. At the hearing before me, I was informed that Kelly J., having heard that motion, indicated that the defendant herein was entitled to judgment against Michael Lynn (presumably, for the declaration sought) but that, on the application of counsel for the defendant herein, he would not make any order in those proceedings until these proceedings brought by Ms. McAleenan had been heard and determined. The claim against Ms. McAleenan in those proceedings is stayed until the determination of these proceedings.
23. The insurers for the excess layers also avoided their respective policies. They commenced proceedings against Michael Lynn and Fiona McAleenan [2008 No. 4094 P] which were brought on and listed for hearing with the present proceedings. At the commencement of the hearing, I was informed that a compromise had been reached between the excess layer insurers and Ms. McAleenan under which, by consent, the Court made an order that each of the insurers of the excess layers had validly avoided its policy as against the plaintiff herein.
Claim and Defence
25. The defendant disputes that the plaintiff was at all material times an employee and not a partner of Michael Lynn. In the alternative, it contends that the plaintiff held herself out as a partner of the firm Michael Lynn & Co. to the defendant in the Proposal Form and No Claims Declaration signed by her and is now estopped from denying that she is a partner, either by reason of the term of the Policy, which states that the proposal “shall be the basis of this contract” and is “deemed to be incorporated herein”, or by reason of s. 14(1) of the Partnership Act 1890 (53&54 Vict. c. 39) (“the Act of 1890”). The defendant also contends that the Policy is a joint, and not a composite, policy. The defendant contends that any untrue statement in relation to the status of the plaintiff and non-disclosure in the Proposal Form was neither innocent nor free of any fraudulent intent. The defendant also contends that it is entitled to avoid the Policy as against the plaintiff by reason of non-disclosure, misrepresentation or untrue statements in relation to circumstances giving rise to claims against the practice which were not innocent or free of any fraudulent intent.
26. The plaintiff denies any non-disclosure, misrepresentation or untrue statement in relation to circumstances which might give rise to claims against the practice. She submits she was unaware of any such circumstances and made reasonable enquiries prior to completing the Proposal Form and No Claims Declaration.
27. While certain of the issues arising from claim and defences are interconnected, it appears to me that it may be clearest to deal with the issues in the following sequence:
(ii) Whether the Policy is joint or composite.
(iii) Whether, even if the plaintiff was not a partner of Michael Lynn in 2007, and the Policy is composite, the defendant is entitled to avoid the Policy against the plaintiff.
(iv) If the defendant is not entitled to avoid the Policy and the plaintiff was an employee of Michael Lynn is she estopped from enforcing the policy against the defendant as an employee by reason of s.14(1) of the Act of 1890 or otherwise.
28. In considering the issue as to whether the plaintiff, as she claims, was an employee of Michael Lynn, practicing under the style or title of Michael Lynn & Co., or a partner of Michael Lynn, in a partnership under the name Michael Lynn & Co., it is necessary to recall the essential nature of a partnership and the meaning of a partner. The Act of 1890 does not define a partner as such. Rather, it defines a “partnership” as meaning “the relation which subsists between persons carrying on a business in common with a view of profit” (s. 1(1) of the Act of 1890). Section 2 of the Act of 1890 sets out rules to which regard should be had “in determining whether a partnership does or does not exist”.
29. On the facts herein, it is commoncase that when the plaintiff was employed in 2004 Michael Lynn was a self-employed solicitor carrying on practice under the style or title Michael Lynn & Co. He was her employer. There was no partnership in existence. It is not suggested that any other person became a partner of Michael Lynn in the intervening period. The plaintiff’s status in 2007 must therefore be determined by resolving the question as to whether or not, by 2007, a partnership came into existence between the plaintiff and Michael Lynn.
30. The plaintiff’s own evidence is that no partnership between herself and Mr. Lynn came into existence. At all times she remained an employee of Mr. Lynn, subject to PAYE. There were discussions and a number of meetings in relation to a proposed partnership. Evidence was given both by the plaintiff and Mr. John Kinsella, an accountant and partner in the firm of Kinsella Mitchell & Associates who carried out accounting and auditing services on behalf of Michael Lynn & Co. and Kendar Holdings Limited and other related companies. A meeting was held in April 2006, attended by the plaintiff, John Kinsella and Liz Doyle, on behalf of Michael Lynn, and there were meetings in February 2007: one between Michael Lynn, David Gorman, his personal accountant, and Mr. Kinsella, and a second meeting with the plaintiff. There was a further meeting in April 2007. Notwithstanding these meetings, I am satisfied that no agreement was reached as to the terms upon which a partnership would come into existence between Michael Lynn and the plaintiff. No agreement was reached, inter alia, as to the respective share of profits. In July 2007, there was a further meeting and the plaintiff was given a partnership agreement which she refused to sign.
31. Mr. Kinsella’s evidence was that when Michael Lynn changed the name of the practice to ‘Capel Law’, he registered the business name ‘Capel Law’ to himself as an individual and not to any partnership. This change appears to have occurred in the spring/summer of 2007, after the practice moved to the Capel Building. Mr. Kinsella also gave evidence that when the plaintiff resigned in September 2007 she received a P45 from Michael Lynn as her employer. Further, that at all times, the practice bank account was in the name of Michael Lynn, and he always dealt with Michael Lynn personally in relation to the accounts of the practice.
32. All of the above facts suggest that no partnership came into existence prior to the plaintiff’s resignation in September 2007. However, there are some facts which give a contrary indication. First, by letter of 21st June, 2005, the plaintiff wrote to Ms. Keogh in the Traineeship Section of the Law Society in relation to an application to act as training solicitor to a Katie O’Dea and stated, “I hereby confirm that I have now been appointed Partner in the firm of Michael Lynn & Co. I would be obliged if you could amend your records accordingly”. The plaintiff explains this letter on the basis that in the summer of 2005 Michael Lynn asked her to be “named as a partner on the paperwork necessary to facilitate Katie O’Dea becoming a trainee in the practice”. It appears that Mr. Lynn was not then entitled to take on any more trainees in his own name; he wished to take on Ms. O’Dea and that a solicitor then employed by Kendar Holdings, who was intended to act as training solicitor, did not have the requisite years of practice. The plaintiff stated in evidence that she was told by Mr. Lynn that only a partner could become a training solicitor; that he promised that terms of partnership would be agreed between them in November 2005, and that in those circumstances she agreed to let her name be used as a partner for the purposes of facilitating Ms. O’Dea as a trainee. The plaintiff further explained that she perceived her status in the summer of 2005 as “an employee with the promise of a partnership”. She also stated that she was “a named partner” and explained her understanding that this meant that she would, in the course of time, become a partner. She said she understood that she had been given the title of named partner in the practice although remaining an employee. She stated she was aware of a similar arrangement in another firm in which she worked where a solicitor who was an employee was ‘named’ as a partner to clients before being made a partner and whilst remaining an employee. In her evidence, however, she accepted that her letter did not properly describe her position to the Law Society. Whilst there is, undoubtedly, confusion about the status of persons described as partners caused in part by the common use of the term “salaried partners” amongst solicitors, to which I refer in greater detail below, it is an inescapable conclusion that what was stated by the plaintiff to the Law Society in June 2005 was not accurate. On the evidence now adduced, she had not, by the date of the letter, “been appointed partner in the firm of Michael Lynn & Co.” as stated in the letter.
33. Secondly, in her applications for Practicing Certificates for the years 2006 and 2007, the plaintiff ticked the box in reply to a query as to her current professional status as “partner in a solicitors’ practice”. Further, in the application for the year 2006, she indicated that her status had changed in June 2005. Nevertheless, the 2006 application is possibly contradictory insofar as the plaintiff deleted that part of section B (the accounts section) which had to be completed by a partner and completed the section referable to an employed solicitor. However there is no evidence that the Law Society raised any query on this apparent contradiction. The partner accounts section was completed in the 2007 application. The plaintiff’s evidence was that the accounts section had been completed before she signed the form. In her evidence, the plaintiff also stated that she did not notice at the time on the forms that she had the option of answering the query in relation to her status under a heading of “Other” and explaining that she was an employee with a promise of partnership or an employee named as partner or with the title of partner.
34. Thirdly, the plaintiff signed the Proposal Form for the professional indemnity insurance with the defendant on 12th April, 2007, under the description “Signature of partner/principal/director”. In that form, in response to the question as to the total number of partners/principals/directors, the answer given was two, and qualified staff stated to be one. Further, in question 2 in the details of “partners/principals and directors”, both Michael Lynn and the plaintiff are named. There is, however, a distinction in the way in which it is done insofar as the word “partner” appears under the name of Michael Lynn and he is described as “solicitor with own legal practice for 8 years” and it is indicated that he has eight years as partner/principal/director of the firm. The word “partner” does not appear after the name of the plaintiff, but under years as partner/principal/director, she is stated to have two years experience. The plaintiff’s evidence of the circumstances in which she signed the Proposal Form is set out later in this judgment.
35. Fourthly, there is evidence that in the summer of 2007, (i.e. after the proposal for insurance was accepted) the plaintiff agreed that her name be put on the notepaper for the practice under the new name ‘Capel Law’. This notepaper was finalised in August 2007. The plaintiff’s evidence was that, as she believed partnership negotiations were nearly finalised, she agreed that her name should be put on the notepaper as a partner.
36. The law of partnership distinguishes between true partners and apparent partners in the following sense. By true partners is meant persons who are in fact and in law partners to each other in a partnership as defined by s. 1 of the Act of 1890. They have, as between themselves, all the rights and liabilities of partners, and similarly in relation to third parties. By an apparent partner, is meant a person who is not a true partner in the sense of being a partner in a partnership with others, but is held out, either by the true partners of the partnership, or by himself, to be a partner in the partnership. By so holding himself out, or being held out, he may become liable to third parties as a partner whilst not being a true partner, either by reason of s. 14(1) of the Act of 1890, or by application of the doctrine of estoppel by representation. Twomey, Partnership Law, (2000) (Dublin, Butterworths) at para. 7.01, explains:
‘Certain aspects of a salaried partnership are not disputed. The term “salaried partner” is not a term of art, and to some extent it may be said to be a contradiction in terms. However, it is a convenient expression which is widely used to denote a person who is held out to the world as being a partner, with his name appearing as a partner on the notepaper of the firm and so on. At the same time, he receives a salary as remuneration, rather than a share of the profits, though he may, in addition to his salary, receive some bonus or other sum of money dependent upon the profits. Quoad the outside world it often will matter little whether a man is a full partner or a salaried partner; for a salaried partner is held out as being a partner, and the partners will be liable for his acts accordingly. But within the partnership it may be important to know whether a salaried partner is truly to be classified as a mere employee, or as a partner.
‘ . . . It seems to me impossible to say that as a matter of law a salaried partner is or is not necessarily a partner in the true sense. He may or may not be a partner, depending on the facts. What must be done, I think, is to look at the substance of the relationship between the parties; and there is ample authority for saying that the question whether or not there is a partnership depends on what the true relationship is, and not on any mere label attached to that relationship.’
Consistently with the views expressed in the above passage, few identifiable principles can be derived from the decided cases . . .”.
39. Applying the above principles to the facts in this case, I am satisfied on the evidence before me that the true relationship between the plaintiff and Mr. Lynn in 2007 was not one of partnership. No partnership came into existence. A proposed or promised partnership remained under negotiation. Mr. Lynn remained her employer as the person carrying on practice as a solicitor under the style or title ‘Michael Lynn & Co.’ and subsequently ‘Capel Law’. She was an employee of Mr. Lynn. Nevertheless, she had, on occasion, held herself out as a partner of the solicitor’s practice with the name ‘Michael Lynn & Co.’ and ‘Capel law’. There was, in fact, no ‘firm’ comprised of Mr Lynn and the plaintiff as that term is defined in s. 4(1) of the Act of 1890, for the purposes of the Act. This provides:
Construction of Policy
‘It is well settled that in construing the terms of a policy the cardinal rule is that the intention of the parties must prevail, but the intention is to be looked for on the face of the policy, including any documents incorporated therewith, in the words in which the parties have themselves chosen to express their meaning. The court must not speculate as to their intention, apart from their words, but may, if necessary, interpret the words by reference to the surrounding circumstances. The whole of the policy must be looked at, and not merely a particular clause’.
12. As is pointed out in the written submissions of the plaintiffs, Griffin J. goes on to expand on the meaning of ‘surrounding circumstances’ and he refers with approval to a passage from the speech of Lord Wilberforce in Reardon Smith Line Ltd. v. Hansen-Tangen  1 W.L.R. 989, at p. 996:-
‘When one speaks of the intention of the parties to the contract, one is speaking objectively - the parties cannot themselves give direct evidence of what their intention was - and what must be ascertained is what is to be taken as the intention which reasonable people would have had if placed in the situation of the parties. Similarly, when one is speaking of aim, or object, or commercial purpose, one is speaking objectively of what reasonable persons would have had in mind in the situation of the parties. … What the court must do must be to place itself in thought in the same factual matrix as that in which the parties were’.
13. In modern times, these principles have received further expansion from the House of Lords. Lord Hoffman in I.C.S. v. West Bromwich B.S.  1 WLR 896 considered that quite a radical change had come about, the result of which, ‘subject to one important exception’, was to assimilate the way in which such documents are interpreted by judges to the common sense principles by which any serious utterance would be interpreted in ordinary life. He then set out the modern principles at p. 912 as he saw them and which I would accept:-
‘(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
(2) The background was famously referred to by Lord Wilberforce as the ‘matrix of fact’ but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be next mentioned, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.
(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.
(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammar; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meaning of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must for whatever reason, have used the wrong words or syntax; see Mannai Ltd. v. Eagle Star Ass. Co. Ltd.  AC 749.
(5) The ‘rule’ that words should be given their ‘natural and ordinary meaning’ reflects the commonsense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania S.A. v. Salen A.B.  A.C. 191, 201:
“If detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.” ’”
(1) Nothing is relevant unless it was known to, or reasonably capable of being known to, both parties at the time when the contract was made. In particular, an undisclosed intention held in pectore by one of the parties is not admissible for the purpose of interpretation.
(2) The Court looks first at the written document alone, and determines what it means from the ordinary meaning of the language used, unless some customary meaning is pleaded and proved.
(3) However, the Court may also have regard to the surrounding circumstances, now commonly referred to as the matrix, the genesis or aim, the market in which the parties are operating. But this evidence must qualify under principles (1) if it is to be admitted.
(4) Evidence of negotiations is not admissible. This is subject to some exceptions, such as a case of rectification, or if it is said that agreement was reached in negotiations as to the meaning of a particular term, or that the contract was made by a continuous process of agreeing some terms and then turning to consider others.
The boundary of what may be considered surrounding circumstances, within principle (3), is unfortunately not easy to draw. All too often a great deal of evidence is produced under that head which is of little or no help to interpretation. The present case is no exception in that respect.”
43. It is not in dispute that the Policy is a professional indemnity insurance policy for members of the Law Society, and is intended to provide for the practising solicitors in the firm of Michael Lynn & Co. the minimum level of cover required by a solicitor to obtain a practising certificate. The Solicitors Acts and Regulations form part of the background or matrix of fact against which the Policy must be construed. In summary, and insofar as relevant, they provide as follows. Section 26 of the Solicitors (Amendment) Act 1994 authorises the Law Society to make indemnity regulations which, inter alia, would require solicitors to maintain a policy of indemnity insurance with insurers approved of by the Society. In exercise of that power, the Society made the Solicitors Acts 1954 -1994 (Professional Indemnity Insurance) Regulations 1995 (S.I. No 312 of 1995) (“the 1995 Regulations”). Those Regulations (with certain amendments) remained in force until 1st November, 2007, when they were revoked and replaced by the Solicitors Acts 1954-2002 (Professional Indemnity Insurance Regulations 2007) (S.I. No. 617 of 2007). The 1995 Regulations were, therefore, the applicable Regulations when cover was agreed and when the Policy was issued. Insofar as the Policy also covered the period from 1st November, 2007, to 31st December, 2007, when the 2007 Regulations were in force, no submission was made by either party in reliance upon those Regulations. They could not have formed part of the background to the issue of the Policy.
44. The scheme of the 1995 Regulations is that a solicitor will not be issued with a practising certificate unless he provides to the Law Society written confirmation from a qualified insurer, as defined, “of there being in force relating to him the minimum level of cover for the duration of the practice year to which such practicing certificate so applied for relates”. Article 4 provides:
(b) A solicitor, who is employed full-time within the State to provide legal services (other than conveyancing services only) to and for his employer (provided such employer is not a solicitor), may apply to the Society to be issued with a practising certificate without being required to comply with clause (a) of this regulation, where the solicitor in making such application certifies in writing to the Society that, for the duration of the practice year to which such practising certificate so applied for relates, the solicitor will not engage in the provision of legal services to and for any person or persons other than his employer.”
45. Article 5 defines a “qualified insurer” as one designated by the PII Committee of the Law Society who has entered into an Assigned Risks Pool Participation Agreement in the form set out in the Schedule to the Regulations which must include agreement to provide at least the minimum level of cover, pursuant to a contract of insurance, and include at least certain approved indemnity terms set out in the Appendix to the 1995 Regulations. In 2007, Article 6 of the Regulations (as amended by S.I. 122 of 2005) specified the minimum level of cover to be €2,500,000.
46. The “approved indemnity terms” to be included in the contracts of insurance as set out in the Appendix to the 1995 Regulations include, inter alia, the following:
(2) The definition of ‘civil liability’ shall mean any description of civil liability incurred by the insured arising from his practice as a solicitor; provided however that a qualified insurer may (at its option) exclude all and any liability to indemnify in any way the insured in respect of any one or more of the following …
(k) any dishonest, fraudulent, criminal or malicious act or omission by the insured, or any acts or omissions which were done by the insured knowing them to be wrongful, or any of the foregoing in which the insured has acquiesced after obtaining personal knowledge thereof . . .
(7) (a) The approved indemnity terms shall not be subject to repudiation or recision by the qualified insurer, or the level of cover shall not be subject to reduction below the minimum level of cover, on the grounds of innocent misrepresentation or innocent non-disclosure on the part of the insured, and the onus of providing [sic] that a misrepresentation or a non-disclosure was not innocent shall be on the qualified insurer.
(b) Without prejudice to the generality of sub-clause (a) of this clause, it shall be open to a qualified insurer to provide (as between the qualified insurer and the insured only)—
(i) for the objective determination of the prejudice (if any) and financial loss (if any) suffered by the qualified insurer as a result of an innocent misrepresentation or innocent non-disclosure on the part of the insured; and
(ii) for the recoupment by the qualified insurer from the insured of the amount of any financial loss so objectively determined, whether by way of direct payment to the qualified insurer or by way of upward adjustment of the premium payable by the insured.”
2. That the qualified Insurer shall when requested by the PII Committee to do so, furnish to the PII Committee and to the Pool Manager, in respect of any practice year in which the Qualified Insurer is a qualified insurer, the name and address of each [emphasis added] solicitor to whom the Qualified Insurer provides the minimum level of cover; provided that where the minimum level of cover is provided to a practice comprising five or more solicitors (whether partners or employees) there shall be sufficient compliance with this clause if the Qualified Insurer furnishes to the PII Committee and to the Pool Manager written confirmation that each and every [emphasis added] solicitor who is or becomes a partner, or who is or becomes an employee, of the practice during the practice year in question is covered by the minimum level of cover provided to that practice.”
49. The above provisions of the Solicitors Regulations form part of the background against which the Policy must be construed.
50. As the parties are in dispute as to the facts stated in the Proposal Form in relation to the status of the plaintiff, I propose ignoring her position in construing the Policy. Her status is not necessary to construe the policy for the following reason. It is not in dispute that at the time of the proposal for insurance, and as expressly stated in the Proposal Form, there was one qualified solicitor in the practice, in addition to the plaintiff and Mr. Lynn, a Mr. Peter McCarthy, who, indisputably was then an employee. Accordingly, insofar as I am seeking to construe the Policy against the background of the Solicitors Regulations, I propose doing so in a context where it is intended to provide cover, inter alia, for at least one employed solicitor.
51. A solicitor, employed by another solicitor, is required to take out a Practising Certificate by the Law Society and is considered to be in practice as a solicitor, albeit as an employed solicitor. Such was the position of Mr. McCarthy. The 1995 Regulations, in accordance with the provisions set out above, required there to be in force “relating to him” a Policy which provides to him the minimum level of cover, i.e. €2,500,000, from a “qualified insurer”. Further, the qualified insurer must include in the Policy the “approved indemnity terms”. The 1995 Regulations, and its appendices, make clear that the minimum level of cover must be provided to “each” or “every” solicitor in a practice, whether a partner or employee, and that a qualified insurer must provide confirmation of cover if required by the Society. The policy of the 1995 Regulations is obvious. The Law Society is seeking to provide, in the public interest, that if a claim is made against a solicitor arising from his practice as a solicitor that, irrespective of his/her status in the practice, the solicitor has in place insurance which will provide an indemnity up to the minimum level to meet the solicitor’s civil liability to the third party.
Joint and composite policies
Joint and composite policies. Where two or more persons are insured under a single policy, it is important to determine whether the policy is joint or composite, in that the former is regarded as a single contract whereas the latter is a bundle of contracts. The distinction is based on the nature of the interests of the assureds. If the assureds share a common interest in the insured subject matter, e.g. where they are joint owners of property or partners, the policy is joint. By contrast, if the parties have different interests, as in the case of a landlord and tenant or a mortgagor and mortgagee, the policy is composite.”
53. What is meant by “the insured” in an insurance contract was considered by the Court of Appeal in England in New Hampshire Insurance Company v. MGN Limited  L.R.L.R. 24, in the context of considering whether certain fidelity insurance policies relating to the Maxwell Group of companies were joint or composite policies. Staughton L.J., delivering the judgment of the Court, stated at p. 56:
54. The genesis and nature of the Policy is unusual. It, and the Proposal Form, ultimately signed by the plaintiff, form part of the matrix of fact, which must be taken into account in construing the Policy. Insofar as I propose taking into account the genesis, I do, of course, propose excluding any negotiations between the parties in relation to the terms of the Policy. There do not, in fact, appear to have been any such negotiations, save in relation to the cover to be afforded to Overseas Property Law. The only direct evidence given by those involved in the request for cover and writing of the insurance were Mr. Simon Quinn, who was then the underwriter with primary responsibility in the defendant, and Mr. Declan O’Rourke, his immediate superior. However, the parties had agreed that documents discovered in the proceedings, including from Marsh, the brokers, who sought to place the Policy, would be admitted in evidence without necessity of formal proof. No witness was called from Marsh. The primary person dealing with the placing of the insurance in relation to Michael Lynn & Co. at the time appears to have been Ms. Catherine O’Sullivan who was not employed in the solicitors practice but was a director of the limited company, Overseas Legal and Tax Services Limited. Ms. O’Sullivan did not give evidence.
55. The evidence of Mr. Quinn is that the initial request came by email from Mr. Scott Diamond of Marsh on 22nd December, 2006. It sought, as a matter of urgency, solicitors professional indemnity cover for Michael Lynn & Co. /Overseas Property Law, and separate cover from Overseas Property Tax. Included amongst the documents sent was an unsigned and undated Miscellaneous Professional Indemnity Insurance Proposal Form from Michael Lynn & Co., solicitors, and a covering letter which explained the relationship between Overseas Property Law and Michael Lynn & Co.
56. It was explained that Overseas Property Law (“OPL”) was one of the trading names of a limited company, Overseas Legal and Tax Services Limited. The other trading name of that company was Overseas Property Tax. It was further explained that OPL provided marketing and administrative services to Michael Lynn & Co., solicitors, and, in association with Michael Lynn and Co., offered legal services to Irish and UK purchasers of property abroad. The defendant was also informed that Michael Lynn & Co., solicitors, had professional indemnity cover from the Solicitors Mutual Defence Fund.
57. The other unusual feature of the request to the defendant for cover was that it appears Mr. Quinn was informed that Michael Lynn was a brother of a Ms. Breege Lynn, who was then the Finpro manager of Marsh Ireland and who was known to him. It appears that the complicated element of the cover being sought related to OPL. Mr. Quinn was required to seek certain authorisation from a superior in London, a Ms. Elizabeth Ilott, and by an email of 16th January, 2007, explained the position to her, as follows: “By way of background, the Proposer, is the brother of the Finpro manager of Marsh Ireland and needed a favour . . .” The reference by Mr. Quinn to the “the Proposer” is a clear reference to Mr. Lynn. There was a close working relationship between the defendant and Marsh, with which it did significant work. I am satisfied that Mr. Quinn’s perception that he was being asked to do a favour for the brother of the Finpro manager of Marsh may have affected, to some extent, the way in which this matter was dealt with, within the defendant. Mr. Quinn made clear in evidence that if the risk was bad, regardless of who approached the defendant, it would not provide cover. He indicated that the favour meant he prioritised this request for cover, put it at the top, and sought an underwriting solution to bridge the gap, as the cover with the SMDF was going to expire. Nevertheless, it is part of the relevant background to the issue of the Policy.
58. On 2nd January, 2007, Mr. Quinn provided a quote for Overseas Property Law/Michael Lynn & Co., and indicated that the Policy wording would be “Irish solicitors policy”. The quote given was expressed to be subject to both signed and dated proposal forms. A quote was also given, subject to the same condition, for Overseas Property Tax. Whilst the email sent by Mr. Quinn to Mr. Diamond only makes the quote conditional upon signed and dated proposal forms, his evidence is that, having discussed the matter with Mr. Declan O’Rourke, they agreed to provide quotation for the primary layer risk, subject both to a signed and dated proposal form and the risk management questionnaire section of the solicitors proposal form being completed. It appears that the proposal form which had been furnished was a miscellaneous professional indemnity form and not a solicitors one often used by the defendant. The admitted discovery indicates that Mr. Diamond of Marsh furnished to Ms. Catherine O’Sullivan the risk management section of the defendant’s solicitors professional indemnity insurance proposal form and that she returned it to him, completed, on 8th January, 2007.
59. The documents admitted do not evidence its onward transmission to the defendant. Neither Mr. Quinn nor Mr. O’Rourke recalls receiving it. The formal quotation document of the defendant dated 29th December, 2006, addressed to Mr. Diamond of Marsh, in relation to Overseas Property Law/Michael Lynn & Co., as Insured, identifies as subjectivities (prior to binding) both signed and dated proposal form and risk management questionnaire/section of AIG solicitors proposal form. There is no record of the defendant formally waiving this condition at any point in time. The importance of the issue as to whether I find, as a fact, that the defendant received this form is that it identifies Mr. Lynn as being the principal of the firm, Michael Lynn & Co., and also refers to the firm as having “only one Partner”(an indication of terminological confusion). The onus is on the plaintiff to establish the information communicated to the defendant as part of the proposal seeking cover. Discovery has been made by the defendant of the relevant documentation. The risk management questionnaire would be covered by the terms of the discovery and should have been listed if it existed amongst the defendant’s papers. It has not been discovered. Further, there has been discovery from Marsh, by an affidavit from Mr. Kevin Fingleton, and the discovered documentation does not include any document sending on to the defendant the completed risk management form which Marsh appears to have received. On those facts, and in the absence of any evidence from Mr. Diamond of Marsh, I cannot be satisfied, as a matter of probability that the completed risk management form was furnished to the defendant.
60. There were further discussions in relation, in particular, to Overseas Property Law prior to confirmation of cover. The defendant was expressly informed by email from Mr. Diamond to Mr. Quinn on 5th February, 2007, prior to confirmation of cover, that “Michael Lynn owns both Michael Lynn & Co. and Overseas Property Law (100% shareholder)”. Later in the day, on 5th February, 2007, Mr. Quinn confirmed that the defendant would note cover from Michael Lynn & Co. as a solicitors practice, but could not yet agree cover for OPL. On 8th February, 2007, the defendant, by email of Mr. Quinn, confirmed that they had noted, “Overseas Property Law as part of the Insured’s title but only in relation to services provided to Michael Lynn & Co. arising from its as [sic] practice as solicitors”. This cover was expressed to be subject to “satisfactory, clean proposal form, noting both entities in title of Insured”.
61. The next relevant event was the furnishing of the signed and dated Proposal Form on 12th April, 2007. Notwithstanding the express stipulation that Overseas Property Law was to form part of the Proposal Form, it was not included. There is no evidence that the defendant ever sought or obtained a proposal form from Overseas Legal and Tax Services Limited t/a Overseas Property Law for the purposes of the Policy.
62. On 12th April, 2007, Marsh issued the confirmation of minimum level of cover required by the Law Society, citing as Insured solicitors Michael Lynn, Fiona McAneelan (sic) and Peter McCarthy. The evidence is that the form of certificate is dictated by the Law Society and, in practice, is issued by the brokers or by the Insurer. There was some delay in the payment of the premium, but this was paid.
63. On 9th May, 2007, Mr. Diamond appears to have raised the exclusion at Clause 5(c) of the Policy. Whilst the Policy had not issued, the evidence is that it was to be in the wording of the then standard policy of the defendant for solicitors with which, presumably, Mr. Diamond was familiar. The wording had been indicated in the quote of 2nd January. The initial response was that such exclusion was standard, but on the same day, Mr. Quinn, on behalf of the defendant, agreed to a dishonesty extension at a nil additional premium. The relevant No Claims Declaration Form was not signed by the plaintiff until 14th May, 2007. As appears in the Policy, the endorsement is, nevertheless, effective from 9th May, 2007.
64. The Policy was issued on 12th October, 2007 (“date and signature of Policy”). In the Schedule to the Policy, the names of the Insured are stated to be “Overseas Property Law/Michael Lynn & Co. Solicitors”. However, Clause 3 of the Policy defines “Insured” as follows:
(i) the Firm(s) named in the Schedule … and/or
(ii) any past, present, or future partner, solicitor, director, officer or employee of, or under a contract of service or for services with, the above
(iii) the estates and/or legal representatives of any of the persons noted in section 3(a) (ii) above in the event of their death, incapacity, insolvency or bankruptcy in practice as solicitors . . . . ”
65. The Policy commences with a recital:
66. The indemnity provided by the defendant, pursuant to the Policy, is set out in Clause 1, which, prior to 9th May, 2007, provides:
(a) Any civil liability incurred by the Insured arising from its practice as solicitors (including claimants’ costs).
(b) Other costs and expenses incurred by the Insured in the defence and/or settlement of any claims and/or losses under section 1.(a).
(c) Expenses incurred by the Insured in replacing or restoring documents or computer records either owned by, the responsibility of, or in the custody of the Insured, which are damaged, destroyed, lost or mislaid and which after diligent search cannot be found.”
Claims (including claimant’s costs) made against the Insured arising out of civil liability and losses incurred by the Insured due to dishonesty of persons specified in section 3(a)(ii).”
69. Accordingly, I am satisfied that a solicitor in the practice of Michael Lynn & Co. is a person insured under the terms of the Policy, and in that sense, a party to the contract of insurance, notwithstanding that such person has not been identified by name. The Proposal Form asked for the number of “qualified staff” and the answer given was one. In the context of the solicitor’s practice, that must have been intended to refer to persons employed in the practice as a qualified solicitor. The Insurer was then on notice, or ought to have been aware, that there were employed solicitors in the practice.
70. The above construction of the Policy is also consistent with the requirements of the 1995 Regulations. A contrary construction might not be so consistent. Article 4 of the Regulations requires there to be an insurance in force “relating to [the solicitor]” when a solicitor is applying for a practising certificate. Further, Clause 1 of the approved indemnity terms set out in the Appendix requires that the definition of “insured” include the solicitor concerned.
71. I now return to consider whether the Policy, insofar as it includes as co-insured Michael Lynn, as principal or a partner of the practice Michael Lynn & Co., and a solicitor employed by him, is a joint policy or composite policies. This turns, primarily, on the nature of their respective interests and the risks insured against. In a liability insurance policy, such as the present professional indemnity policy, prima facie partners will have a joint interest, in the sense that partners will have joint and several liability for either direct claims made against one partner, or in respect of their vicarious liability for claims made against employees. This is the approach adopted by the Courts in the cases to which I have been referred, including, in particular, General Accident Fire and Life Assurance Corporation Limited v. Midland Bank Limited  2 K.B. 388, New Hampshire Insurance Company Ltd. v. MGN Limited  L.R.L.R. 24, and Arab Bank plc. v. Zurich Insurance Company  1 Lloyd’s Rep. 262. The classic approach is that set out by Sir Wilfrid Greene M.R. at pp. 404 - 405, in General Accident Fire and Life Assurance Corporation v. Midland Bank Limited:
. . .
[Where] [t]here is no joint risk; there is no joint interest; the measure of loss suffered by those two parties will be different, calling for a different measure of indemnity, and, accordingly, it seems to me that there is no joint element about the thing at all.
Such a policy, in my judgment, may be more accurately described as a composite policy, because it comprises, for reasons of obvious convenience, in one piece of paper the interests of a number of persons whose connection with the subject-matter of the insurance makes it natural and reasonable that the whole matter should be dealt with in one policy.”
73. The Policy by its terms does not expressly provide that it is a joint or composite policy. There are certain provisions which favour each construction. It is, in its terms, ambiguous and, as such, to be construed against the defendant in accordance with the contra proferentum principle set out above. There are two terms of the Policy which applied from the inception of cover until 9th May, 2007, which strongly favour the construction of the Policy as a composite Policy.
74. First, until 9th May, 2007, included amongst the exclusions in the Policy at Clause 5(c) was:
75. However, the Policy at Clause 4(e) contains the following provisions in relation to subrogation:
Insurers agree not to exercise any such rights of recovery against any director, partner, solicitor or employee that falls within the definition of Insured unless the claim is brought about or contributed to by the dishonest, fraudulent, criminal or malicious act or omission of the director, partner, solicitor or employee.”
76. Exclusion 5(c) of the Policy was deleted by Endorsement 1, effective from 9th May, 2007, and as already noted, the indemnity at Clause 1(a) was amended to include the claims made against the Insured arising out of both civil liability and losses incurred by an Insured due to dishonesty of persons specified in Section 3(a)(ii). Those persons expressly include, inter alia, any partner, solicitor or employee. That amendment does not alter the nature of the Policy. It is consistent with a composite policy. It is not necessary to consider what was intended by the dishonesty extension and, in particular, whether it was intended to provide an indemnity to a person in respect of claims made in respect of his own dishonest acts or omissions.
77. The defendant submitted that a number of provisions favour construction as a joint policy. First, it relies on the fact that the Policy does not stipulate that the indemnity given is for the “respective interests” of the insured, and there is no severability clause. If such were included, then there would be no issue on the construction of the Policy, as it would be expressed to be a composite policy. It is not so expressed to be. Nevertheless, it is neither expressed to be a joint policy. As the plaintiff points out, the case of New Hampshire Insurance Company Ltd. v. MGN Ltd.  L.R.L.R. 24, is authority for the proposition that words such as “for their respective rights and interests” (which was so important in General Accident Fire and Life Assurance Corporation v. Midland Bank Limited  2 K.B. 388) are not indispensable.
78. Secondly, the defendant sought to rely upon the single proposal form and the single premium paid. These do not appear to me to be determinative of any issue. Rather, I respectfully agree with the approach of the British Columbia Court of Appeal in Fisher v. Guardian Insurance Company of Canada (1995) 123 D.L.R. (4th) 336 that such is in accord with the realities of modern law practice, both for law firms with multiple lawyers and insurers (at p. 350). The only practical means of taking out a professional indemnity insurance is for a single proposal form to be completed by a responsible member of the firm and a single premium to be paid.
79. Similarly, insofar as the defendant seeks to rely upon the fact that Clause 4(j)(a) of the Policy does not expressly preclude avoidance of the Policy against innocent partners or insured, again, if it did so, it would be a clear indication that the Policy was a composite policy. The absence of wording to indicate whether or not it is intended to prevent avoidance of the Policy against an innocent insured is dependant upon its construction in the context of the entire Policy and in a context of the background of the 1995 Regulations, and the requirement, in Clause 7(a) of the Appendix to the 1995 Regulations, of the inclusion of such a clause.
80. The defendant also relied upon the cancellation clause at Clause 4(g) of the Policy as being inconsistent with a construction that it is a composite policy, and as such, a bundle of separate contracts between the defendant and the insured. I recognise that there are difficulties with the application of this clause to the Policy when construed as a composite policy. However, those difficulties do not appear to me to outweigh the matters already referred to in favour of a construction as a composite policy. Further, the enforceability of this clause appears doubtful in a policy issued, expressly, as professional indemnity insurance for members of the Law Society by a qualified insurer. The clause, in its terms, appears to permit of cancellation both by the Insured and by the Insurer on thirty days notice. As already pointed out, the 1995 Regulations require a solicitor seeking a Practicing Certificate to provide written confirmation from the qualified insurer “of there being in force relating to him the minimum level of cover for the duration of the practice year after which such practicing certificate so applied for relates”. The 1995 Regulations also contain the restriction on repudiation or recission set out at clause 7(a) of the approved indemnity terms in the appendix thereto. A simple cancellation clause on thirty days notice appears inconsistent with both of those provisions.
81. Hence, the Policy in its terms is at best, from the defendant’s perspective, ambiguous as to whether it is a joint or composite policy. Applying the contra proferentam principles and having regard to the separate interests insured I have concluded that the Policy, when construed in the context of the background of the 1995 Regulations, should be construed as, first, including an employed solicitor in the practice as being an insured, both in the sense of one of the persons with whom the insurer contracts, and as a person who will be indemnified in accordance with the terms of the Policy, and, secondly, as being a composite policy, rather than a joint policy. As already stated, the fundamental requirement of the 1995 Regulations is that there be in force in relation to each solicitor the minimum level of cover for the duration of the practice year. The clear purpose of that requirement is to ensure that each and every solicitor to whom the Law Society grants a Practicing Certificate has in place insurance cover for the practice year to the minimum specified in respect of any claim made against that solicitor arising out of his practice as a solicitor, subject to the permitted exceptions. The requirement is personal to each solicitor. Each solicitor, in the event that a claim is made against him arising out of his practice as a solicitor, which is not the subject of a permitted exception, must be able to turn to his insurance policy to meet the claim. The Policy was intended to provide cover in accordance with the 1995 Regulations.
82. For all of the above reasons, I have concluded that the Policy issued by the defendant is a composite policy. It follows from that conclusion, in accordance with the agreed principles in relation to such policies, that the Policy is considered to be a bundle of separate contracts between the defendant and each of the Insureds. Accordingly, there exist separate policies of insurance between the defendant and Mr. Lynn and between the defendant and the plaintiff.
Repudiation against plaintiff
(ii) Whether the statements in the Proposal Form constitute a warranty of the facts stated therein, such that the untrue statement permits the defendant to repudiate the Policy, irrespective of whether or not the untrue statement was made innocently and free of any fraudulent intent.
(iii) Whether the Proposal Form signed by the plaintiff contains a material misrepresentation of fact or untrue statement that she was a partner of Michael Lynn, and if so has the defendant discharged the onus of establishing that it is not innocent and not free of any fraudulent intent.
84. The issue as to whether an insurer is entitled to repudiate as against all insureds in a composite policy where there has been dishonest material non-disclosure by one of the insured in the proposal form was considered in great detail by Rix J. in Arab Bank plc. v. Zurich Insurance Co.  1 Lloyd’s Rep. 262. The plaintiff relied upon that judgment and the analysis contained therein. There are significant similarities and also distinctions between the policy and facts in those proceedings and those in the present. However, the judgment is of considerable assistance and appears to me persuasive of the conclusion reached on the issue with which I am concerned.
85. The facts in Arab Bank plc. concerned a managing director, Mr. Browne, of a company whose business was valuing and surveying. Mr. Browne had completed a proposal form insuring the company and the directors against professional liability risks. The policy removed the right of the insurers to avoid liability for misrepresentation or non-disclosure, which was innocent and free of any attempt to deceive. Mr. Browne, as managing director, had been guilty of frauds which were not disclosed to the insurers and which gave rise to claims against the company during the currency of the policy. Rix J. held that the policy was composite and insured separately the interests of the company and of each director. Rix J. also concluded that the insurer was not entitled to repudiate against the company and the innocent directors by reason of the fraudulent non-disclosure of the managing director.
86. Rix J. at p. 272, summarised the general principles in relation to dishonesty:
87. The policy at issue in Arab Bank plc. included at General Condition 2:
89. Accordingly, I have concluded on the facts found herein that the admitted entitlement of the defendant to repudiate against Mr. Lynn for dishonest material non-disclosure does not permit the defendant to also repudiate the Policy against the plaintiff.
Warranty - Basis of Contract
92. The fact that the statements in the Proposal Form is the basis of the Policy is repeated in Clause 4(j)(a) of the Policy:
(a) The statements in the proposal form(s) are the basis of this Policy. Insurers will not exercise their right to avoid this Policy, or to modify it in any way whatsoever, where it is alleged that there has been non-disclosure or misrepresentation of facts or untrue statements in the proposal form(s), if such alleged non-disclosure, misrepresentation or untrue statement was innocent and free of any fraudulent intent. The onus of proving otherwise shall be upon the Insurers.”
94. Accordingly, I have concluded that even if the statements in the Proposal Form are the basis of the contract the defendant is only entitled to repudiate the Policy against the plaintiff by reason of any non-disclosure, misrepresentation of facts or untrue statements in the Proposal Form, if it discharges the onus set out in Clause 4(j)(a) which is considered below. It is therefore unnecessary for me to consider whether or not, on the facts herein, the statements in the Proposal Form are the basis of the contract and, accordingly, warranties.
Avoidance of Policy against plaintiff
97. As a matter of principle, it appears to me that the defendant is now entitled to rely upon the additional justification for avoidance of the Policy. There is no limitation period, as such for avoidance. Equitable principles of delay and acquisition of rights by third parties might come into play in determining whether an insurer should be entitled to avoid in reliance on a justification provided long after an initial purported avoidance. The plaintiff has not relied on any such matter to prevent the defendant from now relying upon the additional justification nor has she alleged any inability at this stage to deal with the matters raised by the justification. The plaintiff has been aware since the letter of 20th December, 2007, that the defendant was avoiding the Policy, inter alia, against her.
98. The plaintiff signed the Proposal Form on behalf of Michael Lynn & Co., solicitors, on 12th April, 2007. The issues to be resolved are:
(ii) was this a material misrepresentation; and if so
(iii) has the defendant discharged the onus of establishing that this misrepresentation is not innocent and free of any fraudulent intent.
104. The first question sought the “Name of individual or Firm and date established (including subsidiary firms requiring cover)”. The answer given was “Michael Lynn & Co., solicitors, Est. 1998”. This question insofar as it related to a firm only sought the firm-name and not the identity of the legal or natural persons who comprised the firm and with whom it was proposed to enter into a contract of insurance. A ‘Firm’ is not normally and, even in the extended meaning used, not necessarily of itself either a natural or legal person.
105. There are three questions, the answers to which collectively form the representation of the plaintiff’s status in the ‘Firm’ Michael Lynn & Co., solicitors, in addition to the signature clause. These are questions 2 a), 3 a) and b) and their answers:“2. a) Please provide the following details for all partners, principals and directors:
b) Qualified staff
107. Ms. McAleenan also signed the Proposal Form under a description “Signature of partner/principal/director”, which Form contained a representation that she was one of two partners/principals/directors of Michael Lynn & Co., solicitors. The Court must consider objectively the information provided on the Form. The defendant submits that in the context of a solicitors practice, the representations must objectively be construed as a representation that she was a partner in the practice of Michael Lynn & Co., solicitors. It submits that as there was no company involved it cannot be regarded as a representation that she was a director. Further than a principal only applies to an individual owner of a practice which she was not.
108. The Court must also construe objectively the representations made in the context of the general duty of disclosure and obligation of utmost good faith. As stated by Henchy J. in Aro Road and Land Vehicles Ltd, “. . . [a] person must answer to the best of his knowledge any question put to him in a proposal form”. Despite the lack of clarity and inconsistencies on the Proposal Form, I have concluded that answers given can only be construed objectively as including a representation that the plaintiff had the status of partner or was a ‘true partner’ in the sense I have explained earlier in this judgment in the practice known as Michael Lynn & Co., solicitors. Any other construction of the completed Proposal Form would be inconsistent with the express representation that she was a ‘partner/principal/director’ of a solicitor’s practice; the answers given to questions 3 a) that there were two partners/principals/directors, naming her as one of these in 2 a); and stating in 2 b) that there was only one ‘qualified staff’ (which it is admitted was not her). Objectively, neither the term ‘principal’ or ‘director’ could apply to her in relation to the solicitor’s practice. However, that representation must be considered alongside the representation that Mr. Lynn was the owner of the practice for eight years. I have further concluded that, objectively construing all the relevant answers given on the Proposal Form, that they must be considered as a representation that Michael Lynn and the plaintiff were partners in the practice, but that the plaintiff had no equity or ownership entitlement to the practice.
109. Nevertheless, as already found in this judgment, there was no partnership in existence and the plaintiff was not a partner of Mr. Lynn in the practice known as Michael Lynn & Co. She was an employee of Mr Lynn who was the sole principal of the practice. The completed Proposal Form, therefore, must be objectively construed as containing a misstatement as to the status of the plaintiff in the practice.
110. Was this a material misstatement? In accordance with the principles set out above, a material fact is a matter or circumstance which would reasonably influence the judgment of a prudent insurer in deciding whether he would take the risk, and, if so, in determining the premium which he would demand. In accordance with the decisions cited, whilst the parties may adduce evidence on the issue (which the defendant did from persons with underwriting experience), it is ultimately a matter for the Court. The Court must have regard to the evidence before it in determining the matter. I have concluded that in relation to professional indemnity insurance the question as to whether a solicitor’s practice for which insurance is sought is one owned by a sole principal or is a firm (in the sense used in the Act of 1890) i.e. a partnership with at least two partners is material. I accept the submission that, objectively, additional supervision, controls or checks may be expected in the running of a practice where there are at least two partners, as compared to a practice with a sole principal who employs qualified solicitors, and that the existence or not of such additional supervision, controls or checks must be considered relevant to the risk of claims against the practice. Hence, that this must be objectively considered as a “matter or circumstance which would reasonably influence the judgment of a prudent insurer in deciding whether he would take the risk, and, if so, in determining the premium which he would demand”. Further, the anticipated supervision, controls or checks must be considered to derive from the presence of two persons with the status of partners, irrespective of their relevant equity ownership. If there are two partners they may both be expected to participate in the management and accounts of the firm. Hence, I have concluded that the misstatement of the plaintiff’s status in the Proposal Form was material.
111. Clause 4(j)(a) of the Policy only permits the defendant to avoid the Policy against the plaintiff if the material misrepresentation was not innocent and not free of fraudulent intent. Whilst drafted in the negative, the defendant submits that this requires it to establish that the plaintiff in the Proposal Form made a fraudulent misrepresentation in the sense used in an action for deceit. That construction of the contractual requirement was not disputed on behalf of the plaintiff and appears correct.
112. The meaning of fraud in an action for deceit is well settled and derives from the decision of the House of Lords in Derry v. Peek (1889) 14 App. Cas. 337, and in particular, the proposition stated by Lord Herschell in his speech at p. 374:
(2) made dishonestly, and
(3) acted upon by the recipient in the sense that it induced him to make the proposed contract.
…. Requirement (2) is the hallmark of fraudulent misrepresentation. It means that the false statement is made without an honest belief on the part of its maker that it is true but with the intention nonetheless that the recipient shall act on it. Either the maker knows that what he says is false or he makes the statement recklessly without caring whether it be true or false.” (Citing Derry v. Peek (1889) 14 App. Cas. 337 and Akerhielm v. De Mare  AC 789, 805-806).
115. On the facts, cover had been confirmed by the defendant on the basis of the unsigned Proposal Form in February 2007. It is not in dispute as a matter of fact that at all times the defendant required the Proposal Form to be dated and signed in substantially the same form as the unsigned version previously given them. I find that the Policy would not have issued without this being done. In making this finding I have taken into account the fact that the defendant had stated that cover of OPL was subject to a clean proposal form “noting both entities in title of Insured” and this was not provided and yet the Policy issued with OPL named as Insured in the Schedule. Whilst the fact that both entities were not included in the names on the Proposal Form as stipulated may have been missed by the defendant, it appears to me improbable that the absence of any proposal form would have been missed. The evidence is that when the plaintiff sought confirmation of cover in relation to Mr McCarthy, Marsh sought the signed Proposal Form prior to giving confirmation. A signed proposal form is such a basic requirement to the issue of a policy of insurance that I have concluded that, notwithstanding some of the unusual facts relating to the placing of this insurance, as a matter of probability, it would have been insisted on prior to issue of the Policy and hence was relied upon.
116. The plaintiff was cross-examined in great detail as to the circumstances under which she came to sign and date the already completed Proposal Form containing the statements as to her status in the answers to questions 2 a) and 3. Whilst certain of the evidence is surprising from a solicitor, having observed the plaintiff, I accept her evidence. She states that the Form was presented to her by Ms. Liz Doyle and it had already been completed. When asked, in particular, about the answers given to question 2 a), she stated:
117. When the plaintiff was asked about the listing of two partners on the form, she stated, “I don’t recall noting on the form that detail that was completed . . .”.
She referred again to the fact that Ms. Doyle, who worked closely with Michael Lynn, had completed the Form and then stated, “I didn’t see that it was necessary for me to check all the detail.”
118. When the plaintiff was again asked about the information given in answer to question 2 a), she stated:
119. The Proposal Form immediately above the signature of the plaintiff contains the typed words “Signature of partner/principal/director”. When asked about the description under which she signed her name, and it being suggested that she was not signing as principal, because Mr. Lynn was the principal, she stated:
121. The plaintiff was aware that she was signing the Proposal Form for the professional indemnity insurance for the practice of Michael Lynn & Co., solicitors. The plaintiff is a qualified solicitor. The plaintiff either was or ought to have been aware of the obligations of full and accurate disclosure on a person seeking insurance. The Form included a disclosure statement which she said she noted. As the person signing the Form on behalf of the practice, the plaintiff must have known that she had to take responsibility for the accuracy of the statements made therein. Notwithstanding the factual evidence given in relation to the fact that the Form had been completed, correctly, no submission was made on behalf of the plaintiff seeking to relieve her of the consequences of signing the Form with untrue statements by reason of the fact that the Form had already been completed by someone else. The plaintiff in signing the Proposal Form made the statements therein including the untrue ones to the defendant. Immediately above where she signed, the Form states: “I/we certify that the above details are correct to the best of my/our knowledge and belief.”
122. Insofar as in this Form the plaintiff made an untrue statement that she was a partner in the practice of Michael Lynn & Co., solicitors, I find as fact that she did not do so knowingly. Her evidence is that she did not read the factual responses given to the questions on the completed Form in relation to the partners/principals/directors nor paid attention to the description under which she had to sign. Having regard, in particular, to the incorrect spelling of her own name in the answer to question 2a) and her evidence I find she did not read the completed questions. It is more difficult to believe that she did not notice the description under which she was asked to sign having regard to its proximity to her signature. Nevertheless, on her evidence, I find that she did not pay any attention to it and signed the Form as requested as the solicitor running the practice on a day to day basis in Mr Lynn’s absence. I also find, as a matter of fact, that the plaintiff had no intent to deceive the defendant as to her status in the Firm.
123. However, in accordance with the principles set out above, neither of the above findings precludes a finding of fraud in the making of the false statement if the untrue statement was made “recklessly”, in the sense that the term was used in Derry v. Peek, i.e. careless as to whether the statement be true or false. It is clear that “careless” for this purpose is not the same as when used in relation to the tort of negligence. The carelessness must be something greater to constitute recklessness for the purposes of fraud. As pointed out by Lord Herschell in the extract from his speech referred to above, a statement may be considered as made recklessly where the circumstances are such that the Court considers the maker can have no real belief in the truth of what he states. It appears to require an objective consideration by the Court as to whether the circumstances in which the plaintiff signed the Proposal Form (and, by doing so, made the representations or statements contained therein) were so careless as to whether the statements were true or false that the Court must conclude that she could have had no real belief in the truth of the statements contained in the Proposal Form.
124. I have concluded that the plaintiff’s own evidence in relation to how she signed the Proposal Form inescapably leads to a finding that the statements contained in the Proposal Form in relation to her status in the practice of Michael Lynn & Co. were made recklessly, in the sense that they were made carelessly as to whether they were true or false. On her own evidence, notwithstanding that the Form, when presented to her for signature, had been completed, she did not read the answers given in relation to her status in the practice and was unaware of the type of person by whom the Form was required to be completed and signed, notwithstanding the express statement at the start of the Form and the description immediately under which she signed. As already stated her actions must be considered in the context of the obligations of ‘utmost good faith’ in relation to the completion of a proposal form for insurance of which she was or ought to have been aware. Considering the matter from the plaintiff’s potential belief in the truth of the statements made in the completed Proposal Form, as on her own evidence, she was unaware of what statements she was making by signing the Form , –and was unaware of the status of the person expressly required to sign the Form, it is not possible for me to conclude that she had any belief in the truth of the statements made. As stated by Lord Herschell, “[t]o prevent a false statement being fraudulent, there must, I think, always be an honest belief in its truth”.
125. As the onus is on the defendant to establish that the untrue statements made by the plaintiff in the Proposal Form were not innocent and not free of any fraudulent intent I have also considered whether if the plaintiff had read the answers given to the effect that she was a partner in the practice but with no equity ownership could she have had any belief in their truth in April 2007. The plaintiff had in December 2006 completed her application for her 2007 Practising Certificate by ticking a box indicating that her current professional status was ‘partner in a solicitors practice’. Notwithstanding in her evidence to this Court which I have accepted she made clear that she understood there to be a difference between what she perceived to be her status, namely that of an employee with a title of ‘named partner’ (variously explained as an employee with the title or name of partner or with a promise of partnership), and a person who is a salaried partner. The plaintiff explained in cross examination that she understood a salaried partner to be “someone who did not have a share in the profits of the firm, but who was involved in the accounts of the firm and who would meet with the accountants in relation to the accounts of the firm, sign off on accounts”. The plaintiff’s evidence was that she had no such role in Michael Lynn & Co and to the effect that she did not become a salaried partner as she understood that term. She also of course maintained that she did not become a partner of Mr. Lynn. Objectively the questions at 2a) and 3 on the Proposal Form in relation to partners/principal/directors of Michael Lynn & Co. cannot be considered as asking about persons who were employees with a right to use the name or title ‘partner’ particularly having regard to the separate question about ‘qualified staff’. They must be considered as asking about persons who had the status of partner, including possibly ‘salaried partners’ in some of its uses including that as understood by the plaintiff which appears to be that of a true partner participating in the accounts of the partnership but whose remuneration is limited to a fixed salary. However, as her evidence is that she was never even a salaried partner as understood by her, and in April 2007 was still in negotiation about the promised partnership even if she had read the answers given, I have concluded that in April 2007 she could not have had any belief in their truth.
126. Accordingly, I have concluded that the defendant has discharged the onus of establishing that it is entitled to repudiate the Policy against the plaintiff, pursuant to the terms of Clause 4(j)(a) of the Policy by reason of the material misstatement of her status in the practice of Michael Lynn & Co., solicitors, on the Proposal Form which was made recklessly in the sense of careless as to whether it be true or false and hence not innocent and not free of fraudulent intent.
127. As I have reached this conclusion, it is unnecessary for me to consider the further issues arising in relation to alleged non-disclosure in the Proposal of circumstances which might give rise to a claim against the Firm, notwithstanding the enquiries which I am satisfied the plaintiff did make directly of Mr. McCarthy and of Ms. Doyle in relation to Mr. Lynn’s knowledge. The evidence of Mr. Gallagher and Mr. Carrigan as expert conveyancing solicitors only relates to that issue and it is therefore not necessary to refer to it. It is also unnecessary to consider the signing of the No Claims Declaration by the plaintiff in May 2007.
128. It is also unnecessary for me to consider whether the plaintiff is now estopped from claiming an indemnity pursuant to the Policy as an employee of Michael Lynn practising as Michael Lynn & Co. by reason of the representations made on the Proposal Form that she was a partner of the practice by reason of s.14 (1) of the Act of 1890 or the general principles of estoppel by conduct. The finding that no partnership came into existence may preclude the application of s.14(1) of the Act of 1890 (see Twomey, Partnership Law, (2000) (Dublin, Butterworths) at para. 7.35).
Summary of Findings and Conclusions
(3) The defendant is not entitled to avoid the Policy against the plaintiff by reason of the alleged fraudulent non-disclosure by Michael Lynn.
(4) The defendant is entitled to rely on the additional grounds of avoidance set out in the letter from its solicitors of 22nd September 2009.
(5) The plaintiff in the Proposal Form signed by her on 12th April, 2007, misrepresented to the defendant that she had the status of partner in the practice of Michael Lynn & Co., solicitors.
(6) The misrepresentation was a material misrepresentation and the defendant has discharged the onus of establishing that the misstatement was made recklessly, in the sense of careless as to whether it be true or false, and hence was not innocent and free of fraudulent intent within the meaning of Clause 4(j)(a) of the Policy. The defendant is therefore entitled to avoid Policy SP 136161 against the plaintiff on this ground pursuant to Clause 4(j)(a) thereof.
(7) It is unnecessary to consider the remaining issues in the proceedings.
130. There will be an Order dismissing the plaintiff’s claim.