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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> UK Acorn Finance Ltd v Markel (UK) Ltd [2020] EWHC 922 (Comm) (21 April 2020) URL: https://www.bailii.org/ew/cases/EWHC/Comm/2020/922.html Cite as: [2020] EWHC 922 (Comm) |
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BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMMERCIAL COURT (QBD)
Fetter Lane, London, EC4A 1NL |
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B e f o r e :
SITTING AS A JUDGE OF THE HIGH COURT
____________________
 UK ACORN FINANCE LIMITED | Claimant |
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| - and - |
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| MARKEL (UK) LIMITED | Defendant |
____________________
Mr Michael Pooles QC and Mr Jack Steer (instructed by DWF Law LLP) for the Defendant
Hearing dates: 9-12 and 16 December 2019
____________________
VERSION OF JUDGMENT APPROVED
Crown Copyright ©
HH Judge Pelling QC :
Introduction
Limited (formerly Colin Lilley Surveying Limited) ("CLS"), under professional indemnity policies underwritten by the defendant in 2013 and 2014 (collectively "Policies", and respectively "2013 Policy" and "2014 Policy").
finance lender mainly to agricultural businesses. CLS was a limited company whose business was property valuation. The underlying judgments against CLS concerned a total of 11 agricultural property valuations undertaken between 11 June 2010 and 30 March 2012. In each case the claimant alleged that CLS had negligently overvalued the properties concerned. The defendant purported to avoid the policies in February 2016 and default judgments were entered thereafter in each of the claims against CLS.
(a) Mr Mark Saunders, a director of the claimant; and
(b) Mr David Linsley, formerly a director of CLS and the individual through whom it is alleged CLS made the misrepresentations on which the defendant relies and who was responsible for much of the business undertaken by CLS at the relevant time.
I heard oral evidence from the following witnesses called on behalf of the defendant:
(a) Mr Nicholas Burgess, one of the defendant's underwriters whose evidence was concerned principally with the underwriting of CLS's insurance policy for 2010 and 2011 and the 2014 Policy;
(b) Mr Timothy Spence, one of the defendant's underwriters whose evidence was concerned principally with the underwriting of CLS's insurance policy for 2012 and the 2013 Policy;
(c) Mr David McKechnie, a claims manager employed by the defendant at the time who was responsible for the avoidance of the Policies;
(d) Ms Sonja Wigglesworth, an underwriting manager employed by the defendant who was concerned with both the underwriting of CLS's Policies and the avoidance process; and
(e) Ms Hannah Purves, a claims director employed by the defendant who was ultimately responsible for the avoidance of the Policies.
I heard expert evidence from Mr David Blackburn who was called on behalf of the claimant and Mr Philip Foley who was called on behalf of the defendant. The defendant also adduced evidence in the form of a written report from another expert Mr Mervyn Iles, who purported to give evidence as to the meaning of the phrase "sub-prime lender". His evidence was agreed and he did not give oral evidence.
v. Vergottis [1968] 2 Lloyds Rep 403 at 407 and 413. This is not to say that a judge can, or should attempt to, resolve factual disputes by referring only to contemporaneous documentation. It is necessary to consider all of the evidence see Kogan v. Martin [2019] EWCA Civ 164 per Floyd LJ at paragraphs 88-89. There is nothing either in this authority or the requirement to consider all of the evidence that prevents the evaluation of oral evidence using the techniques I have referred to.
valuer for whom such findings would by definition be very serious. As he observed in paragraph 7 of his first witness statement "
In my 41 years of professional practice I have always been mindful of my ongoing RICS professional and regulatory obligations and prior to this insurance issue throughout my career I have never been accused of dishonesty." In those circumstances, I remind myself at the outset that whilst the standard of proof in a civil case is always the balance of probabilities, the more serious the allegation, or the more serious the consequences of such an allegation being true, the more cogent must be the evidence if the civil standard of proof is to be discharged see Re H (Minors) (Sexual Abuse: Standard of Proof) [1996] AC 563 per Lord Nicholls at 586, where he said:
"'The balance of probabilities standard means that a court is satisfied that an event occurred if a court considers that on the evidence the occurrence of the event was more likely than not. In assessing the probabilities, the court will have in mind as a factor to whatever extent it is appropriate in the particular case that the more serious the allegation the less likely it is that the event occurred and hence the stronger should be the evidence before court concludes that the allegation is established on the balance of probabilities. Fraud is usually less likely than negligence...Built into the preponderance of probabilities standard is a generous degree of flexibility in respect of the seriousness of the allegation.'"
variety of reasons including an entirely misplaced wish to strengthen a true case that is perceived to be evidentially weak as opposed to a desire to advance a dishonestly conceived case in a dishonest manner. What such conduct will usually mean however is that the evidence of such a witness will have to be treated with great caution save where it is corroborated, either by a witness whose evidence is accepted or by the contents of contemporaneous documentation or is against the witness's interests or is admitted.
The Facts
The 2011 Renewal
"Professional Indemnity Insurance
Renewal 2011
The above policy falls due for renewal on 28th January 2011.
To ensure that I receive renewal terms on the up to date basis, I would be grateful if you could please check and confirm that the inserted details on the enclosed "Risk Profile" are correct. If not, please amend accordingly and return this form to me at your earliest convenience."
The risk profile document ("2010 Risk Profile") referred to in the letter was created by the defendant. In form it asked various questions, the answers to which were designed to elicit information relevant to the assessment by the defendant of the risk it was being asked to underwrite for the purpose of deciding whether to renew and if so on what terms. However, unlike a traditional proposal form, answers to the questions were provided by the defendant in the form sent out prior to renewal that reflected information previously provided. Nothing relevant turns on that however since as is apparent from the broker's letter the purpose of sending out the risk profile was to enable the insured to confirm the information remained accurate or to amend it as necessary. This was apparent too from the first page for example of the 2010 risk profile, which read:
"This is the information provided to us, which enabled your policy terms and conditions to be calculated. For the purposes of this insurance, these are material facts that have been disclosed fully and truthfully and to the best of your knowledge and belief.
We recommend that you check this information for accuracy and let us know, within 14 days of inception/renewal, of any inaccuracies or changes required.
Where corrections or changes are required, we reserve the right to recalculate the policy terms and conditions accordingly. Failure to advise us of corrections or changes may make your policy
At Box 4 in the 2010 Risk Profile the following questions and answers were set out:
"4. Residential Surveying and
Residential Surveying and
Can you confirm that all lending institutions for whom the Proposer carries out survey and
During the last 5 years did either
- the maximum
- the average
In Box 5, in relation to commercial surveying and valuing, the following questions and answers were set out:
"In respect of the Commercial Surveying and
Can you confirm that all lending institutions for whom the Proposer carries out survey and
During the last 5 years did either
- the maximum
Under cover of an email from CLS to Mr White, CLS returned the Risk Profile with only one amendment concerning an increase in fee income.
"We cannot cover work provided by the new panel they are suggesting as it involves secondary lenders. As such should the client wish to proceed with this then we would exclude this from the policy.
For the avoidance of doubt we are writing the risk on the basis that there is no sub-prime exposure and there won't be any going forward. Should this not be the case then we will need to have full details and our terms will not stand."
UK Acorn Finance, so following from your earlier question, yes, the answer should have been no." see T2/96-97. At one point in his cross examination he suggested that because the Risk Profile forms already had answers typed in them that in some way made a difference. It did not for the reasons that I explained earlier in this judgment. In the end he was driven to accept that in reality there was no material difference between a proposal form that had to be completed and a risk profile the contents of which had to be approved see T2/95-96. Whilst this concession was correctly made, the exchange that led to it points to a real difficulty with Mr Linsley's evidence. All too often he did not answer the question asked but instead attempted to argue with counsel, divert attention from questions that he had been asked and qualify answers for which there could be no sensible justification. This is one example. There were a number of others. Whilst that does not lead to the conclusion that I should reject all of Mr Linsley's evidence, it does mean that it needs to be approached with caution unless admitted, corroborated or against his interest.
valuation work are either UK clearing banks or building societies was untrue, Mr Linsley repeatedly asserted that it was merely wrong see T2/112 by way of example then asserted it was a mistake and then finally that he didn't know that the claimant was any different from for example Agricultural Mortgage Corporation see T2/117. That last answer was plainly inconsistent with his earlier acknowledgement that the answer given in relation to commercial valuations was wrong because (a) the claimant was not either a clearing bank or building society and (b) CLS had been doing valuation work for the claimant prior to the date when the form had been approved. This inconsistency is another reason why Mr Linsley's evidence needs to be approached with caution unless admitted, corroborated or against his interest.
The 2012 Renewal
valuations that CLS confirm that "
all lending institutions for whom the Proposer carries out survey and valuation work are either UK clearing banks or building societies and that the Proposer has not encountered any problems with any such lending institutions
" to which the answer was recorded as being "Yes" for both residential and commercial valuations.
valuers professional indemnity cover. There was a particular concern about such work undertaken on instructions from lenders other than High Street and clearing bank lenders. This is probably so because of the enhanced risk posed by the quality of borrower covenant and the appetite of such lenders for higher loan to value ratios, each of which is likely to lead to a higher level of borrower default and a higher number of claims against valuers than would be expected in respect of loans to High Street and clearing bank lenders. As Mr Rees on behalf of the defendant observed:
" As you may well be aware we are having big problems with surveyors at present with a large amount of claims and circumstances relating to surveying and
One of the questions that Mr Rees asked in the same email was:
"Can you confirm that as last year, the client has never done any sub-prime work? (To clarify we define sub-prime as those who are not
Mr Linsley's instructions to CLS's office manager was to answer this question by stating "This company has not undertaken any sub-prime bridging work." This response was passed to the broker who in turn passed it to the defendant see the email from Mr White to Mr Rees of 17 January 2012 to which Mr White added " I trust this information will enable you to confirm your renewal terms ".
via its broker it understood by its use of the phrase. As I have noted already, the defendant informed CLS's broker how the defendant defined the phrase in the email. Secondly, he knew that this was what the defendant meant not merely from the terms of the email but from the terms of the risk profile documents that had been received by him from the defendant via CLS's broker. Thirdly, what he says his understanding to be is not consistent with the answer he provided. His evidence was that CLS did not undertake residential valuation work from early 2010. If he believed that the defendant meant only residential lending by institutions other than high street lenders or clearing banks then his answer should have been that the company did not undertake residential valuation work or simply "yes". Bridging was irrelevant. The only person to mention it was Mr Linsley. Finally, Mr Linsley's evidence in paragraph 22 of his first witness statement is different from that set out earlier in his first witness statement as to his understanding of the phrase "sub-prime". In paragraph 14 of his statement, he says that at all material times his understanding was that "
sub-prime related only to residential mortgage lending in situations where a mortgage lender was prepared to lend to an individual with an adverse credit record." Still later in paragraph 36 of his statement, Mr Linsley states that "
In my experience, as I have already said in this statement, 'sub-prime' relates to residential mortgage lending to a borrower with a bad credit history". There is no reference in this evidence to bridging, which only appears when he addresses the response to the 16 January email. If his understanding is as set out in paragraphs 14 and 36, it does not explain his reference to "bridging" since bridge lending can arise in both residential and commercial lending situations. It does not explain either why he did not respond saying simply that the firm did not undertake residential valuation work. Finally, if and to the extent that he understood how the defendant defined the phrase (and as I have said it was set out in the email that Mr Linsley was answering), the answer that he gave was plainly wrong because on any view he understood that the claimant was neither a UK high street and clearing bank, as is apparent from his answers in cross examination concerning the 2011 Renewal. This provides a yet further reason for me to be cautious concerning Mr Linsley's evidence.
"Can you please ask the client to respond to the following:
- The client suggested at last renewal that there has been no work for sub-prime lenders and note they have confirmed there has been no work with sub-prime lenders on bridging work. I have noted from the file that we have a claim from Northern Rock relating to
On this basis, apart from Northern Rock, has the client done any other survey &
If so can you please confirm the specific number of these since 2005. "
Mr Lilley responded by a letter of the same date stating:
" I wish to confirm that Colin Lilley Surveying Ltd have not carried out any surveys for bridging loan facilities etc for sub-prime lenders and Northern Rock were prime lenders and not sub-prime when work was undertaken for that bank."
On the basis of this information the defendant confirmed renewal of cover for the 12 month period ending on 27 January 2013.
UK high street and clearing banks, I reject the notion that there was any actual confusion in the mind of Mr Linsley as to the applicability of such words and phrases to the claimant. I do so because as already noted, Mr Linsley accepted in the course of his cross examination that the claimant is not and was not either a clearing bank or a building society see T2/92 - and at the time when the Risk Profile form for 2011 was approved, CLS "
had done work for UK Acorn Finance, so following from your earlier question, yes, the answer should have been no." see T2/96-97. If that was so in January 2011, it was so in January 2012.
The 2013 Renewal
"Unfortunately however having reviewed our underwriting and claims files I am conscious there are a few aspects of this risk which make us uncomfortable.
As I'm sure you're aware, over the last few years
The email continued:
"The questions below do need to be answered the insured's fullest ability in order for us to consider further.
1. We would define sub-prime as those who are not high street lenders and building societies. This would include those who's lending criteria is more relaxed and would lend to those with adverse credit history for example. Within this definition we would include the Spinnaka panel, Northern Rock, Bank of Ireland, Icelandic banks, e-surv (who we know have sub-prime lenders on their panel) etc.
a. In the insured's email of 22 December 2010 10:05 (attached) they confirmed they did not do any work for any lenders other than high street lenders. It also appears we'
b. With the above in mind can you please confirm whether the client has dealt with any sub-prime lenders? If so we will require rough numbers per annum since 2005."
It is worth noting from this that the examples given within paragraph 1 are merely examples of what the defendant defined as being "sub-prime" namely "
those who are not high street lenders and building societies." It is also necessary to repeat what I said earlier namely that Mr Linsley accepted in the course of his cross examination that the claimant is not and was not either a clearing bank or a building society see T2/92 - and that at the time when the Risk Profile form for 2011 was approved, CLS "
had done work for UK Acorn Finance, so following from your earlier question, yes, the answer should have been no." see T2/96-97. Thus Mr Linsley clearly knew in December 2012 that the claimant was not either a high street lender or a building society. It is also worth noting that there is nothing within this email that suggests the enquiry was limited to residential valuations.
"Thanks Ian, not entirely unsurprising news from
I don't think that
Three days later, on 10 December 2012, Mr Linsley gave instructions to CLS's office manager by an email of that date in these terms:
"Jen, re below we will need to get out a list of sub-prime jobs done under E-Surv, Connells & any other resi. Panels since Jan 2007.
Don't bother about 2005/6 as the 6 year statute of
You may already have done this exercise for previous PII renewals???
Don't bother recording the High Street Bank jobs, we need Northern Rock (before they went bang in Sept 2007) and any others like Swift, Tiuta, Birmingham Midshires, GE Money, Bradford & Bingley, Cheshire, Kensington, Mortgage Express, any Irish Banks etc for 2007, 2008, 2009 in particular
Many thanks!!"
It was submitted on behalf of the claimant that this email is critical because it is one of the few that discloses what Mr Linsley was thinking at this time. It is the claimant's case that Mr Linsley thought and this email shows that he thought that the email from Mr Spence to CLS's broker dated 7 December 2012 (or rather the question within concerning what the defendant referred to as sub-prime lending) was exclusively concerned with residential valuations. It was submitted that this email shows that Mr Linsley thought honestly (if mistakenly) that as he puts it in paragraph 37 of his first witness statement:
"Even though
see the claimant's closing submissions at paragraph 100. In light of my conclusions concerning the true meaning and effect of the UND clause, whether this is so or not is immaterial since it is not suggested that the defendant had sight of any of this material prior to the decision to avoid the Policies.
"Whilst our client is still busy compiling the requested information, there are a few points of concern which they have asked us to bring to your attention i.e.,
1. "I don't think that
Mr Spence responded to this email on 20 December
"Thanks for your email on this one, I appreciate the insured's comments. I would make the following comments in response so hopefully the insured can appreciate our position as insurers and why we're asking these questions.
1. In our experience there's a direct correlation between work for subprime lenders and claims against our surveyors book of business. Whilst we appreciate that in a large number of these cases the lender has simply made a bad lending decision we do incur defence costs which can be significant even if the claims are entirely spurious.
As such, we are looking
Given the claims-made nature of our policy historic work for subprime lenders and panels, including that which the insured undertook up to 2008/09 is still relevant for us.
"
The response from Mr Spence does not address directly the point made in the email he was replying to that CLS was "
a regional commercial valuation firm for the likes of Barclays, Lloyds and Handelsbanken
" However, his comment that "
historic work for subprime lenders and panels, including that which the insured undertook up to 2008/09 is still relevant for us
" could have fortified any belief that the defendant's concern was with residential valuations alone, given Mr Linsley's comment that CLS had "
dumped the residential panel work like E-Surv, Connells etc in 2008/9
"
"We have undertaken a further review of our files archive since 2006. The company never carried out any work for Spinnaka, Icelandic and Irish Banks.
Since December 2006, 4 residential
In relation to question b, Mr Linsley responded:
"2007 4
2008 1
2009 1
2010 NIL
2011 NIL
2012 NIL"
Following confirmation that the valuation for Swift Advances was an instruction received from e-surv and was included within those disclosed in the responses set out above, on 4 January 2013, the defendant produced an updated Risk Profile, which set out that in respect of residential surveying, CLS had carried out 6 sub-prime valuations (being those disclosed in the answer to question a set out above) but in relation to commercial surveying recorded:
"Can you confirm that all lending institutions for whom the Proposer carries out survey and
The Risk Profile also recorded that the maximum valuation undertaken during the last five years was £3 million. In reliance upon the information supplied as summarised in the 2013 Risk Profile, the 2013 Policy was written.
Events During 2013
valuations that CLS acting mainly by Mr Linsley had undertaken between September 2010 and December 2011. The final paragraph of each letter sought acknowledgement within 21 days in accordance with the Protocol and added "
Please also send a copy of this letter to your insurers and confirm to us who they are at the same time as providing your acknowledgement".
valuation of some land off Shepley Street in Glossop in respect of a 3 month bridging loan by the claimant in November 2011. This is significant because it demonstrates that Mr Linsley knew by no later than December 2010 that the claimant's business included that of providing bridging finance and that CLS was providing advice in connection to with the provision of such finance on not less than three occasions between December 2010 and November 2011.
"Dear Sirs,
In reply to your correspondence dated 11 August 2014 we can confirm receipt, and receipt of your earlier correspondence dated 16 July 2014, all of which have been notified to our insurers accordingly
"
It is common ground that this is untrue. Mr Linsley wrote to the claimant in similar terms concerning the Leaventhorpe Hall claim on 11 September 2014. That too was not true.
"Following my previous email to you, I have set out below a timeline of events and accompanying attachments which in my opinion represent evidence of possible fraud, attempted insurance fraud, and money laundering between related companies. I would be grateful for your comments prior to our engaging with our professional indemnity insurers."
and ended with a paragraph to following effect:
"I have not responded to
I would wish you to guide me, in the event that you do not consider this to be a criminal matter, as to who if anyone I should report these circumstances to."
The first part of the first sentence was untrue unless it is read as meaning that Mr Linsley had not responded substantively. Mr Linsley refers to this in paragraph 41 of his first witness statement in these terms:
"Following receipt of these I informed the Serious Organised Crime department of Avon and Somerset Police (the "Police") of a potential "fraud, attempted insurance fraud, and money laundering between related companies". I requested that the Police provide me with their advice and comments prior to informing
"in fact I was specifically told by DC White of the Police that the notifications I had made to the Police should be dealt with in confidence and that I should leave the matter with the Police for further investigation. I did not want to prejudice the Police investigation by notifying anyone of the preliminary notifications and allegations against the Claimants,... If I were to tell
"I was specifically told by SOCA (DC White) to deal in confidence with themselves on these submissions and follow up evidence, statements etc, while they did come back in the interim to state that no one would take Curtis correspondence seriously as it was so ridiculous and self-inflicted by
I have dealt with this matter in utmost good faith, with the Police being of opinion that the Curtis correspondence was only sent out by
I return to this issue later in this judgment when considering the defendant's approach to its decision to avoid the Policies.
"Q. ... and you did not inform your brokers and through your brokers your insurers, until mid-October. Look at page 1304 in the same bundle.
A. Yes, this would be because I had not dealt with PI claims before and I thought we had three months to reply to the notification or letter of claim."
He added that the valuation was one by Mr Colin Lilley, that at some time he took over the correspondence and provided a response. He added that "... I hadn't dealt with claims before and that was my understanding". Although the email acknowledgement dated 6 August 2013 provides some support for the view that Mr Linsley may have taken over conduct from Mr Lilley, that does not explain the delay that followed nor the fact that notification took place as Mr Pooles put in cross examination at "
precisely the end of the third month
" referred to in paragraph 33 of the protocol letter. Secondly, the explanation offered ignores the very clear terms of paragraph 5. If Mr Linsley had read paragraph 33, it is inherently improbable that he would not have read the earlier paragraph. Further, Mr Linsley does not suggest that at this time he was unaware of the need to inform insurers immediately of a notification of claim as the following exchange demonstrates:
"JUDGE PELLING: But hold on, a minute ago - this may be my misunderstanding - but about 25 minutes ago when Mr Pooles asked you in relation to one of the 13 notifications, and he asked you whether you knew that you were required to notify the insurers immediately and after one or two hesitations you said Yes?
A. Yes, your Lordship. The letter of notification would have been notified straightaway. Barclays was not a letter of notification, it was actually a claim with expert witness
Q. Sorry, what is the distinction?
A. The distinction being that we would notify a notification letter, a pre-action protocol letter, yes, straightaway to insurers, but this letter of claim was the first one that I dealt with. I read the Addleshaw Goddard correspondence, which said they required a response, a substantive response, within 90 days or three months of the date of this correspondence, which I took
MR POOLES: I am sorry, what difference does that make to when you notify the insurers?
A. May I just read the Addleshaw Goddard correspondence, please?
Q. If that will help you ...
A. It's a letter of claim, and paragraph 5 of Addleshaws would seem to apply: "We ask that you acknowledge receipt of this letter of claim within 21 days of receipt. We ask that you forward a copy of this letter to your professional insurers."
Q. Yes.
A. "When you write to acknowledge, please confirm that a copy has been forwarded to your insurers."
Q. Well, you had not done any of those things, had you?
A. It would seem not, because it would have been sitting on Colin's desk for a while, when it was received on whatever date in July"
Later in the same section of cross examination Mr Linsley came up with another explanation as to why he did not inform insurers namely that he " would have been working through the documentation to provide a substantive reply and I have it in my head that when I did this first one, I thought we had 90 days or three months to provide a substantive reply." Before finally saying this:
"Q. But that does not yet explain why, knowing as you did that claims should be notified immediately - whether they are notifications or whether they are actual claim letters - you do not do it?
A. I have explained the reasons why in relation to the Simon Curtis' ones. As I say, I fully accept what you are saying about the pre- action protocol procedure with this Barclays/Addleshaw Goddard claim. I took it on from Colin Lilley, on the 6th of August it clearly shows that I acknowledged it and it says, "Pending receipt of our formal written response", which I assume was substantive, that I sent to
Q. Yes, the 14th of October.
A. Ah, and it looks as though on the 14th, I also sent a copy to Addleshaw Goddard, which would have been a mistake because I shouldn't have done that."
This was plainly unsatisfactory and self-contradictory evidence that provides further reasons for the view I have taken concerning the degree of reliance I can safely place on Mr Linsley's uncorroborated testimony. In summary he first sought to explain that he had not had not dealt with claims before and thought he had three months to reply, then when faced with earlier evidence to the effect that he knew that he had to report claims to insurers on receipt, that he did not appreciate that the letter was a letter of claim even though Addleshaws' letter was captioned at the start and in bold "Letter of Claim pursuant to the Professional Negligence Pre-Action Protocol", then he accepted that a Protocol letter should have been notified to insurers immediately but that this was the first he had dealt with and that he understood from the letter that he had three months in which to respond, thereby ignoring the effect of paragraph 5, as to which he had no credible evidence explaining his failure to comply with it.
The 2014 Renewal
"In order for insurers to consider their renewal terms, would you please review and update the attached "Risk Profile". Should any amendments be required, simply annotate on the Risk Profile and return this to me at your earliest convenience."
Mr Linsley responded by email on 18 December 2013, stating that there were no changes to be made other than in relation to income and that was forwarded to the defendant by CLS's broker the same day. Mr Linsley accepted in the course of his cross examination that his response was prepared by reference to the risk profile (T2/164/23-25) and that he would have considered the questions within the risk profile very carefully (T2/166/1-5). The 2014 Policy was written in reliance on these exchanges.
Limited and its owners the Browns". The valuation the subject of the Protocol letter is dated 7 March 2012 and is addressed to Waterman Capital and its subsidiaries. I refer to this claim hereafter as the "Waterman Claim". The report concerned a development site in Liverpool and the valuation that CLS gave for the site was £3.5 million. As Mr Burgess (the underwriter at the defendant responsible for underwriting the 2014 Renewal) said in the course of his cross examination and as is obvious, Waterman Capital is not either a clearing bank or a high street lender see T3/91/18-21. As he also accepted, the effect of the report of the claim was that the defendant had been informed of the claim prior to the 2014 Renewal incepting- see T3/91/22-92/3 which took place on 22 January 2014 see T3/97/17-20.
view plainly material to the renewal because as Mr Burgess had said in his statement, he would not have offered renewal terms had he known of the claim. Whilst after the event assertions of this sort by underwriters have to be considered with care because of the effect of hindsight, the contemporaneous documentation relating to the defendant's ever more cautious attitude to valuer risks satisfies me that that Mr Burgess's evidence on this issue should be accepted.
v. Liberty Mutual Insurance Europe Limited [2016] EWHC 3037 (Comm) per Andrew Baker J at paragraphs 40 to 43. At paragraph 44, Andrew Baker J summarises the effect of the authorities he had set out in the previous paragraphs in these terms:
" In the present case, if there was nothing in the renewal submission that either repeated or specifically incorporated detailed claims information previously submitted to [claims handler], or directed [underwriter] to obtain and consult such information, in my judgment such information was not deemed known to [underwriter] or, therefore, to [insurer] for the purposes of the renewal underwriting and the avoidance defence and, equally, no argument of waiver of disclosure through want of inquiry can run against [insurer] if common prudence would only have demanded inquiry if such information had been known."
very strong indicator that Mr Linsley was not being fraudulent in his representations concerning work undertaken for non-clearing or non-High Street lenders. He submits that had that been Mr Linsley's mind set he would not have notified the claim through CLS's brokers because he would know that (i) it would not be held covered given what had been said in the various renewals and (ii) it was bound to impact on the pending renewal and may have led to the avoidance of the earlier policies. This last point is of substance because Mr Linsley could not have known whether the claim would have been reported by the claims handling side of the defendant's business to the underwriting side. I return to this issue later in this judgment.
The Policy Terms
"Underwriters having received a Proposal which shall form the basis of and be incorporated in this contract and in consideration of the Premium having been paid to Underwriters, We agree to pay or indemnify to the extent and in the manner herein provided subject to the terms,
The Policies contained definitions as follows:
"Assured/You/Your/Yours" shall (for the purpose of the General Exclusions, Claims Conditions, General Conditions and all other General Definitions) have the same meaning as that given in the applicable Insuring Clause under which payment or indemnity is being sought.
" Claim" shall mean
(i) any claim form, writ or summons or other application of any description whatsoever or counter claim issued against or served upon You, or
(ii) any communication or allegation communicated to You which might result in a Loss
Our / Us We" shall mean the Underwriters
Proposal" shall mean all information supplied to Us (whether by written, electronic or any other means) for the purpose of effecting this contract of insurance
INSURING CLAUSE 1 PROFESSIONAL LIABILITY (Civil Liability)
We agree to indemnify You against Loss, arising from any Claim made against You during the Period of Insurance in respect of a Wrongful Act in or about the conduct of the Professional Services.
NOTIFICATION OF CLAIMS
You or the Company shall, as a condition precedent to Your right to payment or indemnity, give Us immediate notice in writing (or within 7 days for riot Damage) and, in respect of Insuring Clauses 1 (Professional Liability),
of
(i) any Claim made against You or the Company,
(ii) the receipt of any notice of an intention to make a Claim against You or the Company,
(iv) any circumstances of which You or the Company shall become aware which is likely to give rise to
(a) a Claim against You or the Company"
Each of the Policies was subject to an Unintentional Non-Disclosure clause in the following terms:
"UNINTENTIONAL NON-DISCLOSURE CLAUSE
(a) In the event of non-disclosure or misrepresentation of information to Us, We will waive Our rights to avoid this Insuring Clause provided that
(i) You are able to establish to Our satisfaction that such non-disclosure or misrepresentation was innocent and free from any fraudulent conduct or intent to deceive
(ii) the Premium and terms shall be adjusted at Our discretion to those which would have applied had such circumstances been disclosed
(iii) where You should have notified a Claim during a preceding Period of Insurance and the indemnity or cover to which You would have been entitled was in any way more restricted than that provided at the date of notification We shall be liable only to the extent applicable during such preceding Period of Insurance
(b) We shall not deny payment or indemnity on the grounds of Your non-compliance with Claims Condition 1 (Notifications of Claims) or 2 (General Handling of Claims) applicable to the Certificate as a whole subject to proviso (a)(iii) of this clause but where You have prejudiced the handling or settlement of any Loss the amount payable in respect of such Loss (including Costs and Expenses) shall be reduced to such sum as in Our opinion would have been payable in the absence of such prejudice.
(c) in the event of any dispute between You and Us regarding the application of (a) and (b) above, such dispute or disagreement shall be referred by either party for arbitration to any person nominated by the President for the time being of The Royal Institution of Chartered Surveyors."
The Issues
(a) In relation to the representations and disclosures made by CLS in the course of the renewal process leading to the 2013 and 2014 policies:
(i) What, if any, misrepresentations or non-disclosures were made by CLS to the Defendant when placing the Policies?
(ii) Were CLS's misrepresentations (if established) warranties?
(iii) Were those misrepresentations or non-disclosures (if established) material and did they induce the Defendant to write the Policies?
(b) In relation to the defendant's rights under the policies, assuming it is proved the misrepresentations, non-disclosures and breaches of warranties alleged by the defendant against CLS are proved:
(i) Did the Defendant waive any breach(es) of warranty by CLS?
(ii) In light of the unintentional non-discourse clause, was the Defendant entitled to avoid the Polices for misrepresentation/non-disclosure/breach of warranty?
In my judgment however, it is the last of these issues on which the outcome of this case depends.
Misrepresentations and Non-Disclosure
valuation work had been undertaken for institutions that were either UK clearing banks or building societies and that it had not undertaken any such work for sub-prime lenders as defined. CLS confirmed that to be the position. That was not correct and thus was a misrepresentation. It is admitted that there was a misrepresentation in the 2013 risk profile see paragraph 150 of Mr Kramer's closing submissions. This is because, as is now common ground, CLS had undertaken valuation work for the defendant, Willow Rivers Wealth Limited, Lancashire Mortgage Corporation and Waterman Capital Limited. This was accepted by Mr Linsley in the course of his cross examination as I have explained and as Mr Kramer put it in paragraph 150 of his closing submissions, "
The risk profiles were submitted on behalf of CLS and were false.".
"Q. Where is it in relation to residential? They define sub-prime as those who are not
A. Yes, I appreciate that you seem to be taking it across the whole board of
Q. What is the difficulty with the phrase in the document, Mr Linsley?
A. There's no difficulty with the phrase in the document.
Q. Right. "Any sub-prime which we define as those who are not
A. Okay.
Q. It is perfectly clear, isn't it?
A. Yes, that statement in itself.
Q. It's not
A. It isn't, no.
Q. No, and we see your answer, "This company has not undertaken any sub-prime bridging work".
A. Correct
Q. That wasn't
A. That was in the context of residential because that's how we look at sub-prime. It's always been a residential lending as opposed to commercial.
Q. What did you not understand about the definition that was being applied in the question?
A. No, I accept what you say about that, yes."
The issue concerning whether Mr Linsley had a genuine subjective understanding that the question was confined to residential lending is something I return to when considering the defendant's decision to avoid the Policies to the extent that it is necessary to do so. For present purposes, this evidence establishes that Mr Linsley fully understood the defendant to mean by the use of the phrase "sub-prime".
various documents to Lycetts asking that Mr White (meaning the insured in context) "
check the Risk Profile to ensure the details are correct". Lycetts forwarded the documentation to Mr Linsley under cover of an email dated 28 January 2014. In respect of the Risk Profile, Mr White asked Mr Linsley "
to please ensure that the inserted details are correct. If not, please alter and return this document to me immediately". Neither Mr Linsley or Lycetts informed the defendant that what was contained in the Risk profile was inaccurate either by reference to the Waterman claim or otherwise. Mr Blackburn (the claimant's broker expert) and Mr Foley (the defendant's broker expert) were agreed that Lycetts should have notified Mr Burgess of the claim since it was a material fact and it was wrong to rely on the notification of the claim as a claim, particularly given the tight time line between the notification of the claim and the renewal application see T4/165/5-166/8.
valuation risks particularly on the instructions of those it defined as "sub-prime" lenders, it is in the highest degree improbable that the defendant would have renewed the risk if those responsible for the underwriting were aware of the claim. There was no waiver in these circumstances. I should add however, that there is no evidence that Mr Linsley knew of the need to inform the underwriters of the claim and there is no evidence that Lycetts advise him that he should do so or even considered doing so. This is material to an assessment of Mr Linsley's honesty in respect of the misrepresentations relied on by the defendant to which I turn in more detail when considering the defendant's decision to avoid the Policies.
The Warranty Issue
Limited v. Axa Corporate Solutions [2002] EWCA Civ 1253 per Tuckey LJ at paragraph 2. It follows, as was held in Arab Bank Plc v. Zurich Insurance Limited [1999] 1 Lloyds Rep 262, that the effect of including a reference to the "right to avoid" in an unintentional non-disclosure clause is that a breach of warranty should be treated as having the same effect as a misrepresentation or non-disclosure but without the need to prove materiality or reliance. There is no material difference between the unintentional non-disclosure clause in that case and the clause in this case.
"Having considered the matter carefully, we regret to inform you that
Other parts of the Avoidance Letter not referred to by Mr Kramer in his closing submissions included paragraph 4, which set out what were described as being the "Relevant Policy Terms". Those set out included the provision that made the Proposal the basis of the contract between the parties. At paragraph 6.7 of the letter, it was stated on behalf of the Defendant that:
"CLSL has not established to
v. Zurich Insurance Limited (ibid.) a breach of a warranty of the representations given by an insured prior to inception of a policy have the same effect as a misrepresentation or non-disclosure. The letter treats them as such.
Limited v. Axa Corporate Solutions (ibid.) per Tuckey LJ at paragraph 7. Secondly, the only waiver available is waiver by estoppel and for that to avail an insured it is necessary that it both plead and prove the necessary ingredients of such a waiver. As was held at first instance in HIH Casualty & General insurance Limited v. Axa Corporate Solutions what is required to be pleaded and proved is:
" a clear and unequivocal representation that the reinsurer (or insurer) will not stand on its right to treat the cover as having been discharged on which the [reinsured] (or insured) has relied in circumstances in which it would be inequitable to allow the reinsurer (or insurer) to resile from its representation. In my judgment it is of the essence of this plea that the representation must go to the willingness of the representor to forego its rights. If all that appears to the representee is that the representor believes that the cover continues in place, without the slightest indication that the representor is aware that it could take the point that cover had been discharged (but was not going to take the point) there would be no inequity in permitting the representor to stand on its rights. Otherwise rights would be lost in total ignorance that they ever existed and, more to the point, the representee would be in a position to deny the representor those rights in circumstances in which it never had any inkling that the representor was prepared to waive those rights. It is of the essence of the doctrine of promissory estoppel that one side is reasonably seen by the other to be foregoing its rights."
By the time this case arrived at the Court of Appeal, it was common ground that to succeed the insured had to establish a clear and unequivocal representation by Axa that it would not insist on its right to treat the reinsurance cover as discharged see HIH Casualty & General insurance Limited v. Axa Corporate Solutions (ibid.) per Tuckey LJ at paragraph 19(a). There is no such representation here. The Court of Appeal did not consider any of the points made by the first instance judge referred to above to be misplaced but focussed instead on the evidence relevant to whether these requirements had been made out.
Limited v. Axa Corporate Solutions (ibid.), the Court of Appeal appeared ready to recognise the possibility that an estoppel by convention might also support a waiver as well as an estoppel by representation. However in that case, as in this, no such suggestion was pleaded and in this case has not been argued so there is no need for me to say anything further about it.
Limited v. Axa Corporate Solutions (ibid.) per Tuckey LJ at paragraph 23. Given that a breach of warranty should be treated as having the same effect as a misrepresentation or non-disclosure see further paragraph 45 above I do not see how detrimental reliance could be established in the circumstances of this case and it hasn't been.
The unintentional Non-Disclosure Clause Defendant's Claimed Entitlement to Avoid the Policies
The Effect of the UND Clause
limited to determining whether the defendant's decision to avoid the policies, on the basis that the misrepresentations on which it relies were not free from any fraudulent conduct or intent to deceive, was one that was open to a reasonable decision maker on the basis of the facts and matters such a decision maker was entitled to take into account in arriving at such a decision. It submits however, that whichever test is applied the result should be the same on the facts of this case and that the court should conclude that the misrepresentations on which it relies were not free from any fraudulent conduct or intent to deceive and in deciding that they were not, the defendant acted rationally.
"a) In the event of non-disclosure or misrepresentation of information to Us, We will waive Our rights to avoid this Insuring Clause provided that
(i) You are able to establish to Our satisfaction that such non-disclosure or misrepresentation was innocent and free from any fraudulent conduct or intent to deceive
(c) in the event of any dispute between You and Us regarding the application of (a) and (b) above, such dispute or disagreement shall be referred by either party for arbitration to any person nominated by the President for the time being of The Royal Institution of Chartered Surveyors."
v. Standard Bank London [2008] EWCA Civ 116; [2008] 1 Lloyds Rep 558 but principally on Braganza v. BP Shipping Limited [2015] UKSC 17; [2015] 1 WLR 1661. The applicability of the approach mandated by Braganza (ibid.) depends on the nature of the clause that is said to be qualified in the way set out in that case. This issue was addressed most recently by Jackson LJ in Mid Essex Hospital Services NHS Trust v. Compass Group UK [2013] EWCA Civ 200 at paragraph 83, where he summarised the position in these terms:
"An important feature of the above line of authorities is that in each case the discretion did not involve a simple decision whether or not to exercise an absolute contractual right. The discretion involved making an assessment or choosing from a range of options, taking into account the interests of both parties. In any contract under which one party is permitted to exercise such a discretion, there is an implied term. The precise formulation of that term has been
However, as Males LJ held in Equitas Insurance Limited v. Municipal Insurance Limited [2019] EWCA Civ 718; [2019] 3 WLR 613 at para. 113 that:
"Although the Mid Essex case uses the expression "absolute contractual right" that is the result of a process of construction which takes account of the characteristics of the parties, the terms of the contract as a whole and the contractual context, not a starting point intrinsic to the term itself. It is only possible to say whether a term conferring a contractual choice on one party represents an absolute contractual right after that process of construction has been undertaken. To say that a term provides for an absolute contractual right and therefore no term can be implied puts the matter the wrong way round."
v. BNP Paribas Securities Services Trust Co (Jersey) Limited [2015] UKSC 72; [2016] AC 742 and applied in Ali v. Petroleum Company of Trinidad and Tobago [2017] UKPC 2; [2017] ICR 531, UTB LLC v. Sheffield United Limited [2019] EWHC 2322 (Ch) and (in a Braganza context) Taqa Bratani Ltd and others v. Rockrose UKCS8 LLC [2020] EWHC 58 (Comm). In summary where, as here, there is a detailed commercial agreement:
(i) Terms are to be implied only if to do so is necessary in order to give the contract business efficacy or was so obvious that it goes without saying;
(ii) It is a necessary but not a sufficient requirement that the term that a party seeks to have implied appears fair or is one that the court considered that the parties would have agreed if it had been suggested to them; and
(iii) no term may be implied into a contract if it would be inconsistent with an express term".
It is only once the construction exercise has been carried out that the necessity and inconsistency issues can be resolved.
v. Britton [2015] UKSC 36 [2015] AC 1619 per Lord Neuberger PSC at paragraph 15 and the earlier cases he refers to in that paragraph. Of these principles, that summarised at (d) is not material in the circumstances of this case because it is not suggested by either party that there is any factual matrix material that is relevant to the construction exercise I have to undertake in this case.
v. Compass Group UK (ibid.) at paragraph 83, which he summarised as being a term that involved a party "
making an assessment or choosing from a range of options, taking into account the interests of both parties
" . I have set out above the relevant principles applicable to the implication of terms into a contract. Applying those principles, the implication of such a term plainly satisfies the necessity requirement since without such a term, it would be open to the defendant to make decisions that were arbitrary, capricious or irrational. As Lady Hale stated in Braganza (ibid.) at paragraph 18:
" the party who is charged with making decisions which affect the rights of both parties to the contract has a clear conflict of interest. That conflict is heightened where there is a significant imbalance of power between the contracting parties as there often will be in an employment contract. The courts have therefore sought to ensure that such contractual powers are not abused. They have done so by implying a term as to the manner in which such powers may be exercised, a term which may
Neither party can be treated sensibly as having intended to permit the defendant to make decisions that were arbitrary, capricious or irrational. Thus it is necessary to imply a term in order to eliminate the possibility of such decision making since it is only by implying such a term that the UND Clause can be given business efficacy or because the necessity for the implication of such a term is so obvious that it goes without saying. There is no question of such an implied term contradicting the agreement of the parties. On the contrary it is giving effect to that which both are to be treated as having intended.
Limited v. Wednesbury Corporation [1948 1 KB 223. This requirement imports two elements namely (i) a requirement that the defendant will not take into account matters that it ought not to take into account and will take into account only matters that it ought to take into account; and (ii) a requirement that it does not come to a conclusion that no reasonable decision maker could ever have come to see Braganza (ibid.) per Lady Hale at paragraph 30 and Lord Neuberger at paragraph 103.
limits on the degree to which the Wednesbury principles can be incorporated into a commercial contract. As Lady Hale observed at paragraph 31 of her judgment: "
It may very well be that the same high standards of decision-making ought not to be expected of most contractual decision-makers as are expected of the modern state
" How in practice this qualification is to be applied is not developed. However, I accept Mr Pooles' submission that it would be a mistake to expect an insurance company in the position of the defendant to adopt "
the same expert, professional and almost microscopic investigation of the problems both factual and legal, that is demanded of a suit in a Court of Law" see CVG Siderurgicia del Orinoco SA v London Steamship Owners Mutual Insurance Association Ltd [1979] 1 Lloyds Rep 557. Finally, it is necessary to note that even in the public law context, if it appears to a court to be highly likely that the outcome would not have been substantially different even taking account of the error then a court ought not generally to interfere with the decision of the decision making body.
view, a UND clause is a classic example of a clause to which the principles in that case should be applied. Secondly, many of the decisions on which Mr Kramer relies pre-date the decision of the Supreme Court in Braganza (ibid.) and therefore may require reconsideration in the future. Thirdly, none of the authorities relied on by Mr Kramer concern UND clauses and in my view should be treated as applying to their own particular facts particularly where they were decided before Braganza (ibid.). This is so not merely because of the general applicability of that authority but because the law relating to the implication of terms qualifying otherwise unqualified contractual decision making provisions has been a relatively recently developing area of the law, not available to the judges deciding most of the authorities relied on by Mr Kramer. With those general points made I turn to the authorities relied on by Mr Kramer.
v. UNUM Limited [1996] 2 Lloyds Rep 550, Tuckey J as he then was, was concerned with a clause that required the production of "
proof satisfactory to
" the insurer of the insured's inability to work. The point about that case is that it was recognised by the Judge that very clear words would be required if the clause was intended to give the insurer the right to decide. It is precisely this concern that underpins the approach of the Supreme Court in Braganza (ibid.). He concluded that the "proof satisfactory" requirement was simply a vouching provision. That of itself is the clear distinction between this case and Napier (ibid.) because the clause in this case was intended to give the insurer the right to decide as I have concluded already. Although Tuckey J considered very clear words to be required for a clause to have that effect and I consider the words used here were of the required level of clarity, in any event it is worth noting Lady Hale's observation in her judgment in Braganza (ibid.) at paragraph 18 that contractual terms "
in which one party to the contract is given the power to exercise a discretion, or to form an opinion as to relevant facts, are extremely common
". It may be that the difference is reflective of the passage of time from 1996 to 2015. In any event the clause being considered by Tuckey J was not a UND clause, which is a provision that potentially exposes the defendant to a liability that the defendant would otherwise have been able to avoid by reason of the representations being warranties. This same point applies to the extracts from textbooks that Mr Kramer relies on at paragraphs 162.2 -162.4 of his closing submissions.
v. AOC International Limited [1997] IRLR 639 does not assist either not least because the clause is not even of passingly similar effect to the UND Clause in this case. Brown v. GIO Insurance Limited [1998] Lloyds Rep IR 202 is consistent with the conclusions that I have arrived at above. There is no merit in the suggestion that the terms of the clause in that case were clearer than the UND Clause. In Brown (ibid.) the sole aggregation clause made the reassured the "sole judge" as to whether losses arose from one or more than one event. There is no material difference between a provision that makes someone the sole judge of something and a provision that requires someone to establish something "
to Our satisfaction."
v. East Thames Housing Group Limited [2002] IRLR 796 does not assist either. The issue in this case is not whether the decision of the defendant is challengeable in the courts it is unless the parties choose to comply with their arbitration agreement but rather with the basis of challenge. The Judge in that case relied on Napier (ibid.) and Brompton (ibid.), which for the reasons I have explained I do not consider assist. The clause being considered in that case was not a UND clause or otherwise similar to the clause that I have to consider and the case was decided years prior to Braganza (ibid.) against which all the authorities relied on my Mr Kramer must be tested.
The Defendant's Avoidance Decision
Process
various issues and that "
in the interim, Markel's position remains completely reserved
". In my judgment there could be no doubt in the mind of Mr While at Lycetts and in reality none in the mind of Mr Linsley that what the defendant was doing was investigating whether or not it could avoid liability for CLS's claims for cover under the Policies. There is nothing in the point therefore that the letter did not state expressly that the defendant was considering avoiding the Policies. In any event as I have noted already, the Decision Letter expressly concluded by inviting CLS "
if you have information that you believe is relevant or should be taken into account by [the defendant] please come back to us and we will consider whether this affects the policy coverage decision". CLS did not respond to that invitation.
via Lycetts. The defendant was fully entitled to assume that the responses were fully considered, particularly given that the responses came via brokers acting for CLS and were in the form of insertions into the letter by Mr Linsley, who knew therefore that the defendant was considering avoiding the Policies and that the answers that he gave would be material to that decision. Although Mr Kramer submits that Lycetts were nothing more than a post box, that submission would have more force if there was any evidence that CLS or Mr Linsley had sought advice from Lycetts in relation to the response to the 12 March letter that had either been refused or was not provided.
5.1 CLSL acted for
5.2 In March 2012, CLSL was instructed to carry out a
5.3 In July 2012, a claim was made in respect of a
6.1 Your client was aware in December 2012 that
6.2 Against that background, there have been misrepresentations and/or non-disclosure by CLSL to
6.3 However, contrary to the representations made to
6.4 At the renewal of the Second Policy, CLSL responded to a direct query from
6.5 CLSL was guilty of misrepresentation both in January 2013 and January 2014 (if not in earlier years also and
6.6 In response to
6.7 CLSL has not established to Markers satisfaction that the non-disclosure or misrepresentation of CLSL's clients was innocent and free from any fraudulent conduct or intent to deceive. Indeed,
"Policy Period January 2011 to January 2012: In so far as your client is concerned, I note from my review of
I refer, in particular, to
Subsequently, and reliant on the above referred clarification,
In fact, it appears that your client had already and
Request A: In the circumstances, it is clear that the representations made to
Mr Linsley's response was:
"
UK clearing bank or building society. Request B in the 12 March letter and Mr Linsley's response added nothing material.
"Request C: For the avoidance of doubt, please can your client confirm that at no time was it on either the ASTL or NACFB panel and explain why, given the prior exchanges about the ASTL, they referred to the NACFB in the responses contained in your email of 23 November 2012."
Mr Linsley's response was:
"I can confirm that at no time has this firm been on the ASTL or NACFB
This issue was the subject both of extensive cross examination and submissions by Mr Kramer. It is necessary to note before considering those submissions further, that this issue is not mentioned and was not relied on as a ground of avoidance in the Decision Letter. Mr Kramer submits however that the real point about ASTL is that Mr Linsley had sought the consent of the defendant before joining the ASTL panel and did not join it when his insurers informed him that he would not be covered in respect of work undertaken as a panel member. Mr Kramer submits that this is obviously inconsistent with a desire to conceal from the defendant that he was undertaking commercial work for lenders other than high Street lender, clearing banks and building societies and is consistent with a belief on the part of Mr Linsley (however misconceived) that this limitation applied only to residential valuation work. In summary therefore, Mr Kramer submits that this was a material consideration that Mr McKechnie ought to have taken into account in arriving at a conclusion. It is worth noting at this stage that this point was not one made by or on behalf of CLS either in the replies to the 12 March letter or by way of answer to the Decision Letter.
" a Risk Profile bearing the date 4 January 2013 was submitted to
In addition, the Risk Profile confirmed, in response to a direct request to confirm, that your client had not, in the preceding five year period, carried out either a residential
In fact, it appears that in addition to the earlier
Having regard to the above referred exchanges, I find it particularly surprising that your client accepted instructions for what was patently a short term lender and at no time informed
Further, it appears that Chatham Place had been
Request D: In the circumstances, it is clear that the representations made to
"Waterman Capital Isle of Man (its subsidiaries and its lending arm of Simple Bridging Ltd) are one of our corporate fund clients to whom we are national property advisers. Waterman Capital is in fact Lakshmi Mittal, Aloke Lohia and other ultra high net worth investors funds administered by the company chairman and solicitor Hassan Sayani. This is a highly
Again, Mr Kramer submits that the point concerning Waterman is one that favours his client because (a) undertaking work for that entity was consistent with a subjectively genuine belief on the part of Mr Linsley that CLS was entitled to undertake work for lenders other than building societies and clearing banks and (b) the claim by Waterman was disclosed during the renewal process and thus at a time when for all Mr Linsley and CLS's broker knew, the claim would come to the attention of those within the defendant managing the renewal application and thus was consistent with a belief on the part of Mr Linsley that CLS was entitled to undertake commercial valuation work for lenders other than building societies and clearing banks. Neither of these points were made by Mr Linsley either in his responses to the 12 March letter or by way of answer to the Decision Letter.
"Further, at Section 8 of the Risk Profile dated 4 January 2013 your client had confirmed that it was not "aware, after enquiry, of any circumstance or incident which they have reason to suppose might afford grounds for any future claim such as would fall within the scope of the proposed insurance which has not already been advised to us". Your email of 18 December 2013 also confirmed that this answer remained correct, by the statement "no change ".
In fact, your client had carried out
It is also clear that, contrary to the representation provided at Section 8, your client had received Preliminary Notices of Claim from
Request E: In the circumstances, it is clear that the representations made to
To which Mr Linsley responded:
"Please refer to my previous responses re
Wednesbury Stage 1
(a) He failed to bear in mind when considering whether to avoid that it is inherently more probably that a misrepresentation has been made innocently or negligently rather than dishonestly in arriving at an evaluative conclusion based on the whole of the material that the decision maker ought to take into account;
(b) He failed to take account of the fact that Mr Linsley's conduct was consistent with a belief that the objection to sub-prime lenders did not apply to commercial as opposed to residential lenders as exemplified by:
(i) Mr Linsley informing the defendant concerning the
(ii) Mr Linsley notifying the Waterman claim;
(iii) Mr Linsley seeking the agreement to CLS joining the ASTL panel before doing so; and
(iv) Mr Linsley's explanation as to why the claimant's claims were not reported to the defendant timeously was consistent with a genuine belief that in the circumstances he was not permitted to do so by reason of the on-going police investigation.
It is necessary to look at each of these points in turn.
"Q. That CLS has just notified you and therefore told you about a
A. True.
Q. Is this the first time you have thought of that?
A. No, at the time they had obviously notified us and the notification includes details of what they were getting involved in.
Q. Did you not when you saw that think, and when you came to consider whether they were fraudsters, think, "Well, they obviously were not hiding Waterman even though they never mentioned it in their answer to the risk profile and the emails, etc."?
A. If you're referring to the correspondence that happened after this notification came in ...
Q. No.
A. You're not?
Q. I am saying, when you are coming to consider whether they are a fraudster, which was a job you had to do ...
A. Later down the line, yes.
Q. So, you therefore knew that - forget about
A. I think that's a fair comment." [Emphasis supplied]
I consider this exchange a telling one because it suggests that in truth Mr McKechnie had not considered this point at all. Whilst this is not a point that was made by or on behalf of CLS either in the 12 March letter or in response to the Decision letter, it is a point that was apparent simply from an objective reading of the communications between the CLS, its brokers and the defendant. It is a point that it is much more likely would have been considered by Mr McKechnie had he been approaching the issue of whether the misrepresentations and non-disclosures that were a concern were more probably made innocently or negligently rather than dishonestly. Mr McKechnie's acceptance that the point was fair comment, his comment a little later that the decision to avoid was not based on work being undertaken for Waterman alone (T3/223/19) and his acknowledgement that he had not taken into account Mr Kramer's point concerning the relevance of the Waterman claim as part of his assessment (T3/224/15) shows entirely clearly that the point made by Mr Kramer had not been considered at all.
"But you already know that he has
A. Yes. Well, I am not sure - I accept we have the information but he has only
Q. The point is this: it is not whether you would have found out, it is whether he has deliberately kept it from you. That is the point you have got to get to in your investigation of the fraud. Yes?
A. Okay.
Q. Yes?
A. Yes."
A little later in this section of the cross examination there was an exchange between Mr McKechnie and Mr Kramer concerning Mr Linsley's failure to disclose the Waterman claim in the renewal documentation as well as making a claim, with Mr Kramer suggesting that this was more consistent with sloppiness that dishonesty. It is illustrative of the same approach apparent from the earlier answers:
"Q. So sloppiness, carelessness, whatever you want to call it, but not deliberate, on this Waterman point alone. Yes?
A. I would have to disagree with that.
Q. Tell me why.
A. Because everything we have seen from this insured, he has never, ever given us a clear answer to anything.
Q. I am asking you to do your job in this situation, which is to evaluate all the evidence.
A. Mm.
Q. So what I am saying is I am relying on some things you know. You have got to work out: is this guy a bit messed up about his admin and does not know whether his head on, or is he a liar? That is what you have to decide. Correct?
5 A. Yes.
Q. So one piece of information you have, and you have not been able to explain it any other way and you agreed with me, is that it makes no sense to notify if you are deliberately hiding the risk, because you do not think it is going to be covered, in fact you think it is going to explode your policy. Yes?
A. I think the difficulty I have got with this, nothing this insured did ever made any sense."
In summary therefore, these exchanges (and another to similar effect at T3/238/5-7) show that Mr McKechnie's approach (if he had considered the point at all, which in my view he had not) would have been to dismiss it as simply showing that what Mr Linsley was doing made no sense. This reflected too in this exchange concerning the same issue:
"A. But I think that suggests there is some logic in what the insured was doing, and I am not sure there was, ever.
Q. He is a clumsy fraudster. Is that what you are saying?
A. Yes."
That approach is wrong it assumes that the real intent was dishonestly to conceal the fact that commercial valuation work was being undertaken for lenders that were not clearing banks or building societies rather than testing whether that was so by reference to conduct that was apparently inconsistent with that intent. This evidence makes it very difficult to conclude that the outcome would have been the same had this issue been approached correctly.
"Q. As regards the explanation that the police told him to leave the matter with them for investigation and that's why he didn't notify you for those initial months, you didn't have any reason to doubt that, did you?
A. Um, I didn't doubt what he was saying, but I don't know, that didn't in my mind mean he shouldn't have told his insurance company. Because I would have thought in those circumstances he would have wanted the backing of his insurers, rather than being left to deal with it himself. So, I hear what he was saying --
Q. Yes.
A. -- but to my mind all the police investigation was just noise and it didn't prevent him from notifying his insurers. He could have at least picked up the phone and spoken to his broker and said, "I'
In my judgment this is significant to the issue I am now considering because it shows that the ultimate issue whether the misrepresentations and non-disclosures relied on were dishonest was not being approached on the basis that were more probably made innocently or negligently rather than dishonestly. The question that had to be asked was not whether the police investigation objectively prevented Mr Linsley from notifying his insurers or brokers (almost certainly it did not) but whether in fact Mr Linsley did not notify the claims for that reason. This wrong approach is reflected in the following further answers on this issue:
"A. No, I don't think so. I appreciate we had the details, but I couldn't get away from the fact that we were dealing with a professional here. He wasn't a layman who didn't have any experience of insurance. He was a professional surveyor. Prior to, let's say, yes, prior to the summer of 2013 he'd already had previous claims with us. He was familiar with insurance. He knew what his obligations were. So, no, I didn't make any inquiries to the police, but my issue was: why did the insured not tell us? And I appreciate he's explained why, I'
Q. In the sense that you thought it was a bad reason or you didn't think it was his reason?
A. A bit of both, I suppose. It wasn't a good reason.
Q. So, it might have been his genuine reason, but not actually a
A. Yes, he obviously was told by the police whatever he was told. He understood he couldn't speak to anybody about it.
Q. Yes.
A. I suspect the police didn't mean his insurers. He obviously assumed that's what it meant, but given his experience I didn't accept that as an explanation"
This approach was confirmed by the following exchange:
"Q. Hasn't he not just told you why he didn't tell us? Because he thinks he's told the police and he understands that they are saying leave it with us in the sense of don't tell anyone else, this is a fraud investigation, and he's taken, as you have just said to me, he's taken don't tell anyone else to mean don't tell my insurers. You might think that's not
A. Yes.
Q. But that's not really the question. That's what he seems to think.
A. Yes, but, as I say, as I said earlier, he's a professional surveyor. He knows about insurance. So that may be his reason, but I don't accept it."
These exchanges shows a very clear confusion between an objective assessment as to whether what Mr Linsley did was objectively justifiable with what his subjective but genuine belief was. Mr McKechnie's conclusion that Mr Linsley had "obviously assumed" that the police advice extended to reporting the claims to insurers or seeking advice from brokers is consistent only with that being the reason. Mr McKechnie's view as to whether that was objectively justifiable was immaterial. Thus his approach to this issue failed to give effect to the requirement that the dishonesty issue be assessed on the basis that the misrepresentations and non-disclosures were more probably made innocently or negligently rather than dishonestly and also involved taking into account something that was immaterial Mr McKechnie's conclusion as to whether Mr Linsley's view was objectively justifiable and a failure to take account of something that was material namely that Mr Linsley had obviously assumed that the police advice extended to reporting the claims to insurers or seeking advice from brokers.
"A. I don't think, as I say, this was at the beginning of when things started to unravel. I think this demonstrated the insured, how can I say it, I think this demonstrated the ... I think this was the first part that made me think about the insurers, I suppose for want of a better word, a moral hazard, and all the things that have happened since then just made me firm up on the fact that I think he's a bad moral hazard.
Q. I can see you might treat even the Barclays alone and then maybe Waterman and whatever are showing he's a shambles and you don't want to insure him because you can't trust his systems, you don't really like the way he does business.
A. Yes.
Q. I can understand that and I can understand you saying: I have had your police explanation and it's a bad reason in the sense of a real professional shouldn't be thinking that way. I understand that and that's what you have said.
A. Yes.
Q. But what I am trying to step onto is the question of whether he is, forget moral hazard, whether he is lying to you, whether he specifically lied to you in the 2013 renewal and lied to you in the 2014 renewal. And what I want to suggest to you is that anyone properly engaging with the task of investigating fraud must accept that someone who is shambolic is quite likely not to be a fraudster.
A. I don't see why you can't be both.
Q. He could be both. You're right, he could be. But given that it's inherently unlikely that anyone is a fraudster, most people are not, you accept?
A. Mm.
Q. And do you take into account that inherent unlikelihood when you are
A. Yes, I think you have to bear in mind we didn't come to this conclusion lightly. We took some time over it and this Barclays notification was a relatively small piece of the jigsaw that made us, you know, conclude the decision that we made."
This is significant for a number of reasons. First, as Mr Kramer suggested in the course of this part of his cross examination and Mr McKechnie appeared to accept, this approach is not consistent with that which must be taken when considering allegations of dishonesty and secondly, it was an acknowledgement that albeit to a minor extent Mr McKechnie was influenced by the late reporting of the Barclays claim. Although this is a relatively minor issue, again in my judgment this issue was immaterial to an assessment of Mr Linsley's honesty, which was the issue that had to be decided. It was not suggested that this was reported late in order to avoid it impacting on a renewal application (as had been alleged in relation to the Waterman claim) or that it was to disguise work being undertaken for lenders other than clearing banks. The point was one that was entirely immaterial to the issue to be resolved.
valuations of Camblesforth Hall. There was a debate of detail during the trial as to what precisely the effect was of the information supplied but that is largely immaterial. The only reason for notifying the information was to ensure that any claim was within the scope of CLS's insurance policy. Since the valuation had been carried out for the claimant, this conduct is not consistent with Mr Linsley thinking that carrying out commercial valuation work for the claimant would not be covered. It is consistent with CLS conducting itself so as to ensure that it maintained the appropriate cover at all times.
valuation work for non-high street lenders. It follows that his conduct in relation the ASTL opportunity was entirely consistent with that professed understanding.
" have been given the opportunity to join the Association of Short Term Lenders which will provide them with more work. Could you please confirm whether you are happy for our client to proceed, and if so, are there any PI implications?. Our client has provided the link below, which sets out the Association lender members;"
This produced a response from Mr Burgess enquiring whether panel membership would mean CLS being involved with sub-prime lenders. Lycetts responded quoting its instructions from CLS by Mr Linsley:
"The Association of Short Term Lenders panel work does not affect maximum
The average
Mr Burgess's response by email of 31 January was
"For the avoidance of doubt we are writing the risk on the basis that there is no sub-prime exposure and there won't be any going forward. Should this not be the case then we will need to have full details and our terms will not stand."
In consequence, CLS did not join the relevant panel.
view and then when [the defendant] said it did not want to write that risk CLS did not take on that work". This postdates the commencement of work by CLS for the claimant. Mr Kramer submits that it shows that if Mr Linsley had subjectively thought that the claimant would not be acceptable to the defendant as a lender he would have asked before undertaking the work.
view about the response, then that he did not believe anything in Mr Linsley's responses to the letter (T4/41/5-10) before he was then taken through the emails or some of the emails referred to above and then the follow exchange took place:
"Q. Now, on the panel point, you have no reason to think that they joined the panel and didn't tell you?
A. Based upon those emails, I'd assume they didn't, yes"
In relation to the suggestion that this was material to an assessment of dishonesty, Mr McKechnie said this:
"Q. Does that not suggest that that's what they generally would have done if they were doing work that they thought you wouldn't like?
A. It suggested it on this occasion, so I would then ask, if they knew they were doing something that we might have an issue with, why didn't they ask us about everything else.
Q. Because they didn't think you had an issue with it. Is that not an obvious explanation?
A. It could be one explanation. It doesn't mean it's the explanation.
Q. Okay, but this piece of information about the ASTL panel and the way they approached it, that wasn't put forward to your superiors as a thing for them to take into account, was it? You didn't mention it?
A. ASTL, the panel? No. I didn't think this - I appreciate it's in the - I think it maybe referenced in a letter but I don't think it was - I think it was a minor point. It wasn't the crux of the issue.
Q. Okay. Well, you will see why I say it's quite important because it shows what sort of person we are dealing with, how they approached issues of risk and whether they hide things and it's all in their favour from this experience. You accept that?
A. No."
This exchange shows that this issue was left out of account by Mr McKechnie in his assessment of dishonesty in relation to the relevant disclosures even though he was aware of the issue because he asked about it in his 12 March letter. Why he asked about the issue is unclear. It may have been because it was thought that CLS had joined the panel notwithstanding the defendant's indication that it would not cover risks arising from such work. Be that as it may, the response when read together with the emails to which Mr McKechnie was taken by Mr Kramer begs the question why Mr Linsley would dishonestly misrepresent the position in relation to the claimant whilst fully and frankly disclosing the position (after accepting instructions from the claimant) in relation to the ASTL panel opportunity.
valuations. Mr Linsley's evidence is that by this stage CLS had ceased carrying out residential valuations. It is thus unlikely that Mr Linsley would have any real interest in carrying out such work. Nonetheless weight is a matter for the decision maker. The issue is one that should have been considered because it was consistent with Mr Linsley's case that a distinction was to be drawn between residential and commercial valuation work. Nonetheless weight is a matter for the decision maker. The issue is one that should have been considered because it was consistent with Mr Linsley's case that a distinction was to be drawn between residential and commercial valuation work.
valuation work for lenders other than clearing banks and building societies. Whilst I do not suggest that ultimately a defensible decision to avoid cover could not be made, in the circumstances it had to be one that considered the points relied on by Mr Kramer, considered the consistency of those points with Mr Linsley's claimed understanding that the defendant's objections to sub-prime lenders was confined to residential lending and omitted any consideration of those points that I consider were immaterial to the decision that had to be made.