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England and Wales High Court (Commercial Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Persimmon Homes Ltd & Anor v Great Lakes Reinsurance (UK) Plc  EWHC 1705 (Comm) (12 July 2010)
Cite as:  Lloyd's Rep IR 101,  EWHC 1705 (Comm)
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QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| (1) PERSIMMON HOMES LTD
(2) PERSIMMON (CITY DEVELOPMENTS) LTD
|- and -
GREAT LAKES REINSURANCE (UK) PLC
(instructed by NABARRO LLP) for the CLAIMANTS
MISS SUE CARR QC & MR JONATHAN HOUGH
(instructed by DAVENPORT LYONS SOLICITORS) for the DEFENDANT
Hearing dates: 10, 11, 12, 13 May 2010
Crown Copyright ©
MR JUSTICE DAVID STEEL :
i) CPH had the opportunity to purchase and exploit a development site owned by National Carparks Limited ("NCP") at Navigation Road, Birmingham ("the Site") and had done some preliminary work needed to obtain planning permission and had incurred professional fees for this purpose.
ii) CPH did not have funds to develop the Site or even pay the existing professional fees it had incurred, and during the course of 1999 NCP increasingly lost patience with CPH and its attempts to purchase the Site, and indicated that it was going to look for an alternative buyer.
iii) In those circumstances Persimmon (who had already expressed an interest in getting involved in the residential elements of the Site) had discussions with CPH in early August 1999, with a view to acceding to CPH's negotiating position with NCP for the purchase of the Site.
iv) What was agreed during these oral discussions was the first significant area of dispute. The respective positions were as follows:a) CPH's case was that there was an "understanding" but not an agreement that Persimmon would accede to its negotiating position and buy the Site and that this was agreed during a series of telephone conversations between Bernard Tracey for CPH and Steve Watt for Persimmon. Its case was that it was agreed that Persimmon would pay their professional fees come what may but would also pay an introduction fee of 2%.b) Persimmon's case was that there was a binding agreement reached at this time at a face to face meeting between Steve Watt and Paul Tracey (son of Bernard Tracey) that in exchange for taking over CPH's negotiating position with NCP, Persimmon would upon exchange of contracts for the Site, discharge the Insured's existing professional fees.
v) Persimmon went on to exchange contracts on the Site on 11th November 1999 and there was then another meeting between CPH (Paul Tracey) and Mr.Watt on 1st December 1999. This was the second disputed meeting. The respective positions were as follows:a) CPH's case was that at this meeting (but not previously) an agreement was reached as to the terms upon which Persimmon had been allowed to take over its negotiating position as set out in a manuscript note prepared during the meeting by Paul Tracey and a letter to Persimmon dated 16th December 1999.b) Persimmon's case was that at this meeting the earlier agreement relating to professional fees was reiterated and that most of the matters referred to in the manuscript note and letter of 16th December 1999 were discussed, but no agreement was reached on any of them.
Application for funding the claim
"I regret that I am unable to agree all of the contents as I am still endeavouring to reach agreement with some of the parties to the relevant jigs involved. "
"12.08.99 BT [Bernard Tracey] agrees with SW [Stephen Watt] that Persimmon would take over as purchaser and an outline remuneration package agreed.
1.12.99 Meeting CPH and Persimmon when detailed terms of remuneration package agreed."
"2.2 Mr Watt has confirmed that as far as he can recall Mr Tracey did not appear to be taking any detailed notes at the meeting. We note from paragraph 14 of your letter dated 23 January 2004 that you do not state when your client is alleged to have made the notes (i.e. during or after the meeting).
2.3 There is no dispute that the matters set out in your client's letter to Persimmon dated 16 December 1999 were discussed at the meeting. It is however denied that these matters were agreed with your client."
Also attached were Counsel's advice and a clip of some of the contemporary correspondence. At this stage Edwin Coe had yet to prepare witness statements.
"I said that in relation to the oral evidence, we also have a contemporaneous note which we took and which the other side did not have anything to contradict. I also said that the more and more that I spoke to witnesses they confirmed the client's viewpoint and my view on the case became stronger and stronger."
i) the case had enough merit to consider offering terms.
ii) given the level of cover required there was a need to refer to a higher managerial level.
iii) Also given the reliance on oral evidence further advice from Counsel might be required.
"2. I now confirm that I am willing to act on a Conditional Fee basis. I consider that the appropriate uplift is 100%. This is because, so far as the alleged contract is concerned, the Claimant's case depends on what view is taken of the evidence of Paul Tracey and Steve Watts. So far as the claim based on quantum meruit is concerned, the points raised by Nabarro Nathanson in their letter of 17th June 2004 (see especially para.3.1.3) suggest that there will be a conflict of evidence as to whether services were provided, or what their value was. Although I have no doubt about Mr. Tracey's honesty, he would be the first to admit that there are gaps in his recollection, and I also have concerns about how confident he will be in the face of aggressive cross-examination. It is therefore impossible to be confident that his account will be accepted in its entirety."
The term used to denote collectively both the Insured Litigant and the Insured Solicitor in their capacity as beneficiaries under this Policy.
The individual, business or other organisation named as the Insured Litigant on the Schedule.
The Solicitor representing the Insured Litigant under the Condition Fee Agreement and named on the Schedule.
The net costs of the Opponent in the Legal Proceedings to the extent that the Insured Litigant is legally liable to discharge them, after taking account of any costs awarded against the Opponent or agreed to be paid by the Opponent. No cover is provided in respect of any success fee to which the Opponent or Opponent's solicitor or Opponent's barrister may be entitled.
The costs of the Insured Solicitor acting for the Insured Litigant under the Conditional Fee Agreement and which form the basis for the calculation of the Success Fee.
Where the outcome of the Legal Proceedings is not a Success the Insurer will, subject to the Limit of Indemnity, indemnify the Insured Litigant in respect of
1. the Court makes an award of Adverse Costs against the Insured Litigant or..
Where the outcome of the Legal Proceedings is not a Success the Insurer will, subject to the Limit of Indemnity and the Insured Solicitor's Contribution, indemnify the Insured Solicitor in respect of his entitlement to Normal Fees
This insurance does not cover…
12. Any payment by the Insurer under the Policy where there has been misrepresentation or material non-disclosure by the Insured Litigant or Insured Solicitor.
2. Insolvency of Insured Litigant
If the Insured Litigant is bankrupt, insolvent or becomes bankrupt or insolvent during the Period of Insurance the Insurer shall have the right to withdraw its support of the Legal Proceedings.
The Policy will terminate if the Insured Litigant or Insured Solicitor terminates the Conditional Fee Agreement.
We may cancel the Policy by giving fourteen days' notice in writing to the Insured Litigant and Insured Solicitor if….
c) the Insured Litigant does not follow Our recommendations with regard to settlement of the Legal Proceedings..
6. Fraudulent Claims
If the Insured Litigant or Insured Solicitor makes any request for payment under the Policy knowing it to be fraudulent or false in any respect (or circumstances where it ought reasonably to be known so) or where there is collusion between the parties to the dispute the Policy shall be voidable at the Insurer's option.
8. Provision of information
The Insured Solicitor must
a) provide to Us regular progress reports on the Legal Proceedings and associated costs and when specifically requested by Us.
b) advise Us in writing as soon as an offer to settle the Legal Proceedings or a payment into Court is made by the Opponent…
f) provide Us promptly with any requested information.
10. Conduct of Legal Proceedings
a) All information to be given to the Insured Solicitor
The Insured Litigant must give all information and assistance required by the Insured Solicitor. This must include a complete and truthful account of the facts of the case and all relevant documentary or other evidence in the Insured Litigant's possession."
Security for costs
"We do not regard an After the Event Insurance Policy as being adequate security for costs. One of our fundamental concerns arises out of the fact that such policies normally contain provisions which entitle the insurer to avoid the policy as a result of any material non-disclosure. Our client would have no assurance that grounds do not exist (or will not arise) entitling insurers to avoid the policy. We trust therefore that your client will not seek to offer any AEI policy as security for costs."
Thereafter, Nabarro Nathanson asked for copies of the policy documents which were duly provided. No doubt active consideration was given as to whether underwriters could realistically avoid its contractual liability to pay Persimmon's costs if the claim was unsuccessful: see Michael Phillips Architects Ltd v. Riklin  EWHC 834 (TCC). However, following it would appear gloomy advice from counsel, Persimmon decided not to pursue an application for security.
2. I have no appetite to extend our exposure, so I support your view of sitting tight.
3. I am nervous about a 50/50 case based on oral testimony but we are on cover and can only hope for a win."
a) The only note of the December meeting was that of Paul Tracey. It reflected the scope of the agreement reached.
b) Mr Watt's response to Paul Tracey's letter summarising the terms which had been "discussed and agreed" fell well short of any convincing challenge to Mr. Tracey's description of the outcome of the meeting.
i) Any agreement reached in December 1999 would have required a formal legal agreement.
ii) The ensuing correspondence was inconsistent with any agreement having been reached.
iii) CPH had conferred no benefit to support the quantum merit claim: they had only approached Persimmon because they were under pressure to finalise an agreement with NCP but had no funds to be able to do so.
a) The proposed Pallant v. Morgan claim would fail as none of the required constituents of such a cause of action could be made out.
During the unsuccessful mediation, CPH's claim increased yet again and was put forward at £3 million on the basis of an alleged increased profit level derived from commercial space in the development.
a) because his father was ill: and
b) because CPH had no funds to meet its existing commitments let alone fund a purchase.
"We have also received some further documents from Nabarro by way of disclosure and amongst these is a bankruptcy order, which confirms that Bernard Tracey was made bankrupt on 30 April 1999. As a result, we have prepared a further supplemental witness statement for Bernard Tracey, which I enclose. Mr. Tracey's bankruptcy does not have any bearing on the contractual aspects of the case, but undoubtedly Persimmon are going to assert that this had some impact on the funding position and that this supports their case that Paul Tracey pleaded with Steve Watt for Persimmon to take over the case. The fact is of course that the intention was for the company, CPH Enterprises Limited, a solvent company of which Bernard was not even a director, to purchase the site and of course that any funders would have ensured their security was linked into the company's interest in the site in any event."
a) Mr. Watt's recollection was "very poor" and unlike the Traceys' did not tie up with the time sheets of the architects.
b) There might, it was thought, be something involuntary about Mr. Watt's departure from Persimmon.
c) Mr. Bernard Tracey's first witness statement was prepared before he fell ill and could not be challenged on that basis.
d) There were independent witnesses who supported Mr. Tracey's account.
"I am pleased that the case continues to enjoy good prospects of success and there are avenues for opening up the opponent's weaknesses."
This response was important in that it was in due course submitted by Persimmon that it constituted an election to affirm cover (or at least as a representation that it would not be avoided).
i) As regards the contract claim, no agreement was reached, Paul Tracey's note was not contemporaneous, the subsequent correspondence was not consistent with any agreement having been reached and, in any event, there was no consideration.
ii) As regards the Pallant v. Morgan claim, the evidence of Bernard Tracey was not reliable. He was responsible for encouraging a false letter from Mr. Dorin. He was taking part in the management of CPH but was bankrupt.
iii) The quantum meruit claim was not supported by any benefit.
"46J. This is not a case of a witness who lies once about one matter but is otherwise to be regarded as reliable. The extent of falsehoods engaged in by Paul Tracey and indeed by Bernard Tracey render the whole of their evidence unreliable. Not only did they create false documents Paul Tracey in the witness box was clearly not telling the truth about a whole range of issues. He was for instance given the opportunity to say that the letters he wrote to Persimmon (referred to above) claiming that he had to cure "obstacles" in the way of the transaction was part of his tendency to talk things up. He did not do that. He sat in the witness box and sought to pass this off as truth. Such an ingrained inability to tell the truth makes it very difficult for the Court to accept any of his evidence unless corroborated by a truthful document."
a) The correspondence demonstrated that Bernard Tracey "lied in business correspondence…wherever and whenever he perceived it to be in his best interests to do so." The judge held that he could not accept anything said by him unless corroborated by reliable independent evidence or was against his interest.
b) Paul Tracey was a witness who's "evidence needs to be treated with enormous caution". He had also acted deceitfully in relation to the project on occasion.
c) Paul Tracey's evidence that he had had no involvement in discussions with Mr. Watt on 11/12 August 1999 was untrue. Equally, the evidence of Bernard Tracey that he had telephone conversations with Mr. Watt at that time was untrue.
d) As regards the meeting on 1 December 1999, Paul Tracey's note was not made at the meeting, but some time after 27 January 2000 in circumstances "which have not been truthfully explained".
e) The subsequent correspondence (including internal notes between the Traceys) was entirely inconsistent with an agreement having been reached on 1 December.
a) The claim had been deliberately inflated from £450,000 to £3.2 million.
b) The claim was hopeless from outset.
c) The evidence relied on by CPH was dishonest in substantial part.
d) Documents had been manufactured.
e) Paul Tracey had lied in the witness box.
f) Although for the purposes of seeking to recover indemnity costs it was only necessary to establish the case was "outside the norm", the circumstances went well beyond that.
"112. I return to the facts of this case. I have had, in the course of this case, to make some wide-ranging findings, frankly of dishonesty in the way in which evidence has been given and of documents which have been created after the event for the purpose of creating a false impression. I have to say those are not facts or conduct which are normally found in commercial or Chancery litigation; on the contrary, in my judgment they take "…the situation away from the norm.". This trial lasted for the number of days it took up and had to be rigorously defended essentially because of that dishonest conduct.
113. An order for costs on the indemnity basis is not a punishment. The usual outcome will be that, whereas costs on a standard basis will enable a party to recover a proportion, perhaps 70 per cent or thereabouts, of its actual costs of litigation, the effect of an indemnity costs order is to allow a party to recover slightly more than it would be recovered on the standard basis but does not, in any sense, allow them to recover more than the costs actually incurred. It seems to me that the defendants have been put to the expense of defending this claim, to which, to the knowledge of the Traceys, was a claim that could not succeed."
"This is a case which my learned friend has indicated we have been fighting on a CFA. Therefore, there are insurers behind us for recovery of costs by the other side. We have made inquiries. They will submit to any order which your Lordship makes in relation to that. The usual order is a 14 day order."
I mention this because in due course it was submitted in the course of the present trial that, in the alternative, this constituted an election not to avoid the policy or alternatively an unequivocal representation that the policy would not be avoided.
"In summary, the court held your clients' representative Bernard Tracy to have been dishonest in that:
1. He lied in business correspondence wherever and whenever he perceived it to be in his best interest to do so (paragraph 17);
2. He represented untruthfully that your clients were being funded in relation to the acquisition of the site by a merchant bank, which was never the case (paragraphs 18(a) – (d) and (f), 30 and 47);
3. He corresponded on company notepaper which identified him as a director, despite being prohibited by statute from being a director or concerned in the management of companies, as an undischarged bankrupt (paragraph 18(e));
4. He claimed untruthfully that pre-lettings had been granted on the block of flats and hotel to be built on the site (paragraphs 18(f) and 38);
5. He created a false document backdated for the purposes of evidencing an oral agreement which was not subject to a written confirmation at the time it was made (paragraph 22);
The court held your clients' representative Paul Tracy to have been dishonest in that:
1. Like his father, Paul Tracy also claimed untruthfully that there was bank funding when there was none (paragraph 26(b));
2. He also stated that a deal had been struck with Persimmon for use of most of the residential space, when this was not the case (paragraph 26(c));
3. He claimed that a document was a contemporaneous note of a meeting on 1 December 1999, whereas the judge concluded he had in fact created it retrospectively and improperly (paragraphs 77 and 99);
4. He made untrue statements giving oral evidence at trial about his dealings with NCP, the payment of professional fees, and his dealings with Persimmon (paragraphs 26, 28 and 41 – 42 respectively).
i) The bankruptcy of Bernard Tracey.
ii) The presentation of the risk without reference to the untruthful statements of the Traceys and their fabrication of evidence.
Further it was asserted that there had been material misrepresentation in regard to:
iii) Bernard Tracey's relationship to CPH.
iv) The fact that CPH had been incorporated not because of Bernard Tracey's ill-health but because he was in fact bankrupt but nonetheless thereafter acted in fact as a shadow director.
Reliance was also placed on the terms of the policy including General Exclusion 12 and Conditions 6, 10(a) and 7.
"The source of your clients' current problems is their failure to obtain an order for security of costs. The only way your clients were ever going to win was if Mr. Tracey was disbelieved at trial and therefore the potential insurance consequences of a victory at trial should have been obvious. No doubt you advised your clients accordingly."
a) That Bernard Tracey had reached an understanding with Steve Watt in mid-August 1999.
b) That Paul Tracey had not been involved in any substantive discussions with Steve Watt at that time.
c) That CPH (through Paul Tracey) had entered into a binding oral contract with Persimmon on 1 December 1999.
d) That Paul Tracey's note of the meeting was a contemporaneous record.
a) Failure to disclose Bernard Tracey's bankruptcy.
b) Failure to disclose Bernard Tracey's continued participation in the management of the claimants.
c) Failure to disclose the breach by Bernard Tracey of the Company Directors' Disqualification Act 1986.
d) Failure to disclose dishonest statements by Bernard Tracey in documents relating to the site.
e) Failure to disclose Bernard Tracey's request to Mr. Dorin to draft a false document.
f) Failure to disclose Mr. Dorin's compliance with that request.
g) Failure to disclose dishonest statements by Paul Tracey in regard to the site.
h) Failure to disclose that Bernard Tracey had not been in contact with Mr. Watt after 24 June 1999.
i) Failure to disclose that by August 1999 the claimants were in serious financial difficulties.
"5. As such, the prudent underwriter would be unconcerned about individual facts being disclosed at inception of the Policy. He would be concerned as to material developments and more particularly, the opinion of "Insured Solicitor" and of counsel (provided and updated under clause 8 of the Policy) in light of such developments. In the premises in the context of ATE insurance the Claimant has to show that the material misrepresentation and/or non-disclosure would have affected the opinion of the "insured solicitor" and /or retained counsel if it had been made known. The Claimant will contend that such an approach is justified by the nature of ATE insurance and/or on the basis that the Insured Solicitor acts as the Insurer's agent when performing this reporting role under clause 8 of the Policy. As such when matters are disclosed to the Insured Solicitor they are also thereby disclosed to the Insurer."
a) Mr. Peter Smith, a director of First Assist Insurance Services, the cover holder for the underwriters.
b) Mr. Ian Coleman, ATE Technical Manager at First Assist.
All three witnesses sought to assist the court. Their evidence was, however, somewhat at the periphery of the issues in respect of which there was a wealth of contemporary documents.
No genuine belief in claim
As regards inducement it was contended that, in the absence of any evidence from Mr. Fallon (and in any event), underwriters had not established that they were induced to enter into the policy on the relevant terms by the alleged misrepresentations or non-disclosure. In short it was boldly contended that underwriters would have entered into the policy on the same terms even if all the material facts had been disclosed: Assicurazioni General SpA v. Arab Insurance Group  Lloyd's Rep IR 131, North Star Shipping v. Sphere Drake Insurance  2 Lloyd's Rep 76..
a) Such had not been pleaded or argued at the trial. Indeed, as the judge said, it was not a fraud claim.
b) All that had been suggested was that the claim was "misconceived" and to that extent "hopeless".
c) Although it had been successfully contended that the Traceys had lied and had produced documents which were untrue, it had never been suggested that there was no honest belief on their part in the truth of the claim.
d) The true position was that, being dyslexic and in-experienced, Paul Tracey had convinced himself as to the legitimacy of the claim.
e) The judge's finding in the course of his judgment on costs was "out of the blue" and constituted a throwaway line in an extempore judgment.
i) The judge had just conducted the trial during which he heard the evidence of Paul Tracey and considered the statement of Bernard Tracey.
ii) He had been in an ideal position to assess their evidence and the whole background to the claim in the light of their cross-examination, in the light of the contemporary documents, the probabilities and the motives of those involved.
iii) He had prepared a full and detailed judgment in which his findings on the key facts were decisively influenced by his findings of dishonesty and the manufacture of documents on the part of the Traceys in the respects set out.
iv) As appears from their skeleton argument it had been Persimmon's submission that the Traceys were involved in systemic dishonesty. As developed in oral submissions, matters went way beyond "talking up" matters into the territory of going out dishonestly to deceive and to fabricate documents. These submissions were accepted in their entirety by the judge.
v) As the judge put it, if a party wished to bring an exaggerated claim based on false evidence, they could expect to pay more on costs. It followed that in the judge's view the claim had been inflated in the sense of being put forward dishonestly. Indeed his award of indemnity costs was premised on his finding of dishonesty.
vi) No challenge was raised to the finding, either at the hearing or thereafter, although the risk as regards insurance cover associated with a finding of dishonesty had been fully aired in correspondence and must have been well in mind at the hearing.
vii) To the extent that it is relevant, it is difficult to see how the judge could have come to any other conclusion given the systemic dishonesty exhibited by the Traceys in regard to the evidence in the case and the associated fabrication of documents.
"Total Reject List
There are no risks which we are unwilling to consider for pursuit. However, there are some preliminary checks we must always carry out, which may lead us to decline the proposal. These include:
Cases where the solicitor is not acting on a CFA
Cases where we have insufficient confidence in the ability of the solicitor to handle the case satisfactorily
Cases with merits at or below 50 % (our assessment)
Cases with an estimated exposure of over £250,000
Cases primarily dependent on oral testimony
Cases where there are doubts as to the solvency of the opponent
Cases which have the hallmarks of "David v Goliath"
We should swiftly agree our stance on such cases, so as not to waste the time of the proposer or ourselves."
a) A case with merits at 50%.
b) A case primarily dependent on oral testimony.
c) The hallmarks of a 'David v. Goliath'.
This is correct so far as they go and thus, in the words of Persimmon, furnishing three amber lights to warn against writing cover.
a) Whilst counsel had given an assessment of a 50% prospect of success in respect of their conditional fee agreement, of greater significance was the assessment of the merits by both counsel and solicitors in the region of 60% or more.
b) Whilst the claim was mainly dependent on the resolution of a dispute between the witnesses, the dominant issue was the outcome of the December 1999 meeting in respect of which CPH had an apparently contemporary note written by Mr. Paul Tracey with Mr. Watt's assistance.
c) There was an element of inequality of arms, but that would seem to be true of any claim for which a claimant was in need of a CFA in order to prosecute it.
"As a prudent ATE underwriter I may well have underwritten this risk. I would perhaps have wanted to meet the Traceys beforehand to assess their credibility as witnesses. This could potentially have had a bearing on my ultimate decision."
a) The "extremely" positive factor of both counsel acting on a CFA in a commercial case where there was an oral dispute in regard to a meeting some 6 years earlier thus demonstrating a view that it was more likely to succeed than fail.
b) Although there was a need to have an explanation for the Part 36 offer being initially at £180,000 being some £270,000 below the solicitor's view of the minimum level of recovery, this was duly furnished in a letter from Edwin Coe to Mr. Fallon dated 7 September 2005 to the effect that it was the lowest recovery anticipated on the fall back quantum meruit claim.
c) Although there was a vigorous challenge on the key factual issues by Nabarro Nathanson, that was only a "typical response from an aggressive defendant legal team".
d) The rejection of cover by other ATE insurers was not unusual and may have simply reflected lack of ability to write a large risk.
e) The rating at 73% was not unusual.
"6.6.10: In view of the foregoing, it is likely that a prudent ATE insurer would have wanted to review all documentation in this matter and possibly may even have wished for the solicitor to attend upon a meeting to discuss the case generally before accepting the risk"
I accept this analysis. Although many underwriters might (and indeed did) reject the risk, I am unable to accept the proposition that underwriters would certainly have rejected it as too risky. Indeed Mr. Smart's original report was inconsistent with that conclusion.
Whilst the underwriter should of course look to see the solicitor's risk assessment or Counsel's advices regarding the merits of an action, the underwriter must also form their view, as it will ultimately be the underwriter who determines the merits of the action on behalf of the Insurer. It is therefore for the underwriter to justify their assessment…
It is a useful approach when looking at a Proposal, if appropriate, to read through the Particulars of Claim and then the Defence and relevant expert evidence in order to form your own opinion on the merits before reading Counsel's opinion. This helps the underwriter understand the case and the likely strengths of the defence, which can then be compared with Counsel's views. Above all, the underwriter should understand the basis of the claim and how it arose. Does it make sense or is there something which does not ring true?
Any cases with merits under 60% need to be given extra consideration, and the underwriter must ask themselves "do we really want to run this risk?""
Non-disclosure but genuine belief
a) The dishonest statements of both Traceys about their financial backing and the extent to which the site had been pre-sold or pre-let.
b) The production of the dishonest note by Mr. Dorin on the instigation of Bernard Tracey.
c) The spurious contemporary note of the meeting of 1 December 1999.
d) The bankruptcy of Bernard Tracey and the financial difficulties faced by the Traceys in 1999.
e) The dishonest account of Bernard and Paul Tracey regards the key events of 11 – 12 August and 1 December 1999.
"I have been closely monitoring the progress of the purchase of the above site. Gordon Allison of NCP Midlands has been phoning me very regularly to ascertain whether Persimmon are definitely intent on proceeding with the purchase of this site on the latest terms agreed by ourselves."
This was entirely untrue yet was set out extensively in the "Summary of Evidence in Support" furnished with the proposal form.
a) The agreement was for a 1% fee.
b) Bernard Tracey had sent a fax to Mr. Dorin in August 1999 asking him to create a back-dated letter detailing a purported agreement at 2%.
c) The letter of "15 October 1998" was the outcome of that request.
(a) The Traceys Fund and their lawyers were not being helpful and thus Bernard Tracey had had to "switch horses in mid-stream".
(b) Persimmon had agreed to pay Mr. Dorin's fee.
(c) The fee had altered to 2%.
No disclosure was made as to the untruthfulness of all these points. What is relied upon is simply the revelation that the Traceys were a party to an invitation to backdate a letter recording the altered fee.
a) Paul Tracey's draft statement stated in regard to the progress of the meeting:
"We then sat down and I wrote notes as he talked me through the various figures. He confirmed to me that we would need an up front payment of 2 percent based on the purchase price…."
b) This account was duly repeated in the Summary of Evidence in Support: "manuscript note of the meeting between Paul Tracey of CPH and Steve Watt of Persimmon at which agreement was reached for payment terms to CPH".
a) The whole point of the note was to give credence to the proposition that agreement on the computation of various payments was reached at the meeting. Indeed, in his supplementary statement Paul Tracey stated:
" The meeting on 1 December 1999 took place at Persimmon's office at Kardelton House, Windsor. The agreement as to CPH's involvement was reached in principle on 12 August 1999 and firmed up in the meeting on 1 December 1999. If these terms had been complete fiction, then Steve Watt's reply to my letter of 16 December 1999 would merely have been to deny that any such terms were agreed. That was not the case.
I took contemporaneous notes at the meeting on 1 December 1999 and Steve Watt actually assisted me in completing my personal notes by leaning over me and explaining the way in which the figures would be computed.
Why, if it was the case that Persimmon were not to pay CPH any more than the discharging of the professional fees, were the other items set out in my letter to Steve Watt of 16 December 1999 discussed at the meeting? It is simply not credible that Steve Watt would have taken the trouble to discuss such terms if he had no intention of honouring any of them…"
b) Such was exactly how the document had been viewed by Edwin Coe. Indeed it is not remotely surprising that the availability of an apparently contemporaneous note was regarded as a formidable support to the claim.
i) The note was a forgery.
ii) It was written to bolster the story that an agreement had been reached on the terms suggested.
Furthermore, it was not suggested that the underwriters became aware of the fact of forgery until the judgment was handed down.
a) that Mr. Watt had a poor recollection of events.
b) that the independent witnesses supported the Traceys.
i) that Paul Tracey (not Bernard Tracey) had had a substantive meeting with Mr. Watt on 12 August and had reached agreement for Persimmon to take over as purchaser.
ii) that the only consideration for that agreement was the discharge of outstanding professional fees.
iii) that in December a range of possible financial rewards for the Tracey and their companies was discussed but no agreement was reached.
i) The issue was which account of the meetings in August and December 1999 was more accurate.
ii) The underwriters' legal advisors remained of the view that the Traceys' account was probably correct.
iii) It is wholly unrealistic to expect underwriters to embark on their own detailed analysis of the statements and the documents so as to second-guess the legal advisors whilst unaware:a) that the Traceys were in desperate financial straits in mid-1999 but prepared to lie systematically about the position.b) that the Traceys were prepared to manufacture documents and persuade others to do the same.c) that the Traceys' account of the meeting was untrue.
a) The misrepresentation and non-disclosure on any view went to the heart of the risk, namely that of the claim failing.
b) Furthermore, I accept the proposition (which in any event was not in dispute) that the misrepresentation and non-disclosure also went to moral hazard: see ICCI v. Royal Hotel  Lloyd's Rein. LR 151.
c) Mr. Fallon was an experienced underwriter who, as already demonstrated, appears to have approached the underwriting task with diligence and care: thus the task of persuading the court that the misstatements and non-disclosure made no difference to him becomes formidable, if not, insuperable: Pan Atlantic Insurance Ltd v. Pine Top Ltd  1 AC 501 at p.551.
d) Both Mr. Smith, the underwriting manager, who had reviewed the original proposal and the accompanying documents, and Mr. Coleman gave evidence that they would not have written the risk if full disclosure had been given.
a) By definition, the approach to disclosure before and after inception must be different. Late disclosure does not give rise to a process of re-writing of the risk. The only immediate issue at that stage is the decision whether to avoid cover (or withdraw the same under the contractual terms).
b) This in turn raises a number of broader considerations spoken of by the experts such as market reputation and the threat of the involvement of the Financial Ombudsman Service or the FSA.
c) Any consideration of avoidance should be undertaken against the background of what would have constituted full disclosure in the form of a fair presentation. The later disclosures were, however, piecemeal and incomplete.
d) Although it was suggested that the underwriters could have invoked condition 3(c) of the policy to cancel the policy for failure to follow underwriters' recommendations as to settlement, such a power would not be available (or not at least realistically exercisable) when solicitors and counsel reassured the underwriters that the prospect of success remained good in the light of the independent and documentary evidence.
a) General Exclusion 12 excluded cover where there had been misrepresentation or material non-disclosure (on the face of it even absent inducement).
b) Condition 10 required a "complete and truthful account of the facts of the case".
a) that the communication (or the surrounding circumstances) must demonstrate objectively that the party affirming was making an informed choice.
b) that such in turn required an assessment of the impact of the relevant conduct on a reasonable person in the position of the other party to the contract.
i) Mr. Coleman's e-mail of 20 May 2008.
ii) The failure to avoid in late May 2008 in the run up to the trial.
iii) Counsel's submission to the trial judge in the wake of the costs ruling.
i) Mr. Coleman's e-mail merely acknowledged receipt of earlier letters and enclosures from Edwin Coe with the coda that it was pleasing that the case still "enjoyed good prospect of success" and asking for an update. It is quite impossible to treat that communication as giving any indication that underwriters were aware of a ground of avoidance and were electing not to exercise it. To the contrary, it was all premised on the Traceys' account being truthful and accurate and thus likely to succeed. Equally the impact on a reasonable person in the position of the then claimants could not conceivably be to that effect.
ii) It is true that the detailed Persimmon skeleton for the trial set out some of the submissions that would be advanced to the effect that the Traceys were dishonest. But in forwarding a copy, Edwin Coe expressed no concern. The resulting absence of any comment by underwriters cannot amount to an election nor could it reasonably be viewed as such.
"This is a case which my learned friend has indicated we have been fighting on a CFA. Therefore, there are insurers behind us for recovery of costs by the other side. We have made inquiries. They will submit to any order which your Lordship makes in relation to that. The usual order is a 14 day order."
i) The "representations" relied upon contain nothing to suggest the underwriters were aware of their rights: this, taken with the absence of any evidence from the Traceys, greatly undermines any case of reliance.
ii) There is nothing inequitable or unconscionable in allowing the underwriters to resile from any indication of an intention not to rely on the right of avoidance given the dishonesty of the Traceys.
Note 1 “jigs” was typographical error for “figs” i.e. figures [Back]
Note 1 “jigs” was typographical error for “figs” i.e. figures [Back]