Kosmar Villa Holidays Plc v Trustees of Syndicate 1243

The primary issue argued on this appeal concerns the difference between waiver by election and waiver by estoppel. Can breach of a condition precedent in a claims notification clause in an insurance policy be waived as a matter of irrevocable election, or is it only susceptible to waiver in face of an estoppel caused by reliance on a representation? As will appear below, there are important differences between the two types of waiver. However, common to both is the need for communication to the other party of an unequivocal representation. Therefore, also in issue in this appeal is whether the communication was unequivocal.

The claimant, and in this court the respondent, is Kosmar Villa Holidays plc (“Kosmar”), a specialist tour operator with a particular focus on destinations in Greece. At the time relevant to these proceedings, Kosmar held public liability insurance cover from Euclidian Direct Limited, of whom the defendants, in this court the appellants, the Trustees of Syndicate 1243, are the successors. Like the judge, I will continue to call the insurers “Euclidian”. The policy in question is a Combined Liability Policy which incepted on 10 December 2001 (the “policy”).

On 22 August 2002, during the period of the policy, James Evans, then aged 17, who had booked a holiday with Kosmar at the Marina Beach Apartments, Kavos, in Corfu, dived at 0400 into the shallow end of a swimming pool and, tragically, fractured his spine resulting in incomplete tetraplegia. Kosmar had exclusive use of those apartments but did not own them.

It was not until 4 September 2003, over a year after Mr Evans’ misfortune, that Kosmar first gave notice to Euclidian of the occurrence. It is this failure to give immediate notification, as required by the policy, that has led to this litigation.

Kosmar’s notice followed its receipt from Mr Evans’ solicitors, Messrs Hugh James, of a claim letter dated 14 August 2003. Despite its date, it was received by Ms Flora Souidhou, Kosmar’s customer relations and legal manager, on 4 September 2003. That was the first that she knew of the incident. She immediately telephoned Mr Gary Armstrong, an underwriter with Euclidian, to tell him about the claim, and she sent a copy of the claim letter on to him that same day. She regarded Mr Armstrong as the right person to contact at Euclidian, although in fact he was not in its claims department.

The policy provided that “Insurers will indemnify the Insured against all sums which the Insured shall become legally liable to pay as damages consequent upon accidental injury to any person…occurring during the Period of Insurance, in connection with the Business…”. It is General Condition 7 with which this appeal is concerned, and that provided as follows (I have added the sub-clause numbering):

The Insured shall immediately after the occurrence of any Injury or Damage give notice in writing with full particulars thereof to insurers. Every letter, claim, writ, summons or process shall be notified or forwarded to insurers immediately on receipt. Notice shall also be given in writing to insurers immediately the Insured shall have knowledge of any impending prosecution or inquest in connection with any accident for which there may be liability under this insurance. So far as is reasonably practicable no alteration or repair shall without the consent of the insurers be made to any works, machinery, plant, commodities or goods which are directly or indirectly connected with the occurrence until insurers shall have had the opportunity of examining the same.

Upon receipt by or on behalf of the Insured of notice…of an intention by any person or body to make a claim against the Insured or of any allegation of negligence which might give rise to such a claim or on the discovery of any such act of negligence, the Insured shall notify insurers as soon as practicable and shall provide full information respecting it so far as such information is in the Insured’s possession…”

It was common ground at the trial below that compliance with General Condition 7 (“GC7”) constituted a condition precedent to Euclidian’s liability under the policy; and that Kosmar had failed to comply with limb (1) of the clause in that notification of Mr Evans’ grave injuries (the “occurrence”) was not given to Euclidian “immediately” following 22 August 2002 as required, and was not given until over a year later on 4 September 2003. Euclidian therefore denied liability in respect of Kosmar’s claim in these proceedings. However, no complaint is made by Euclidian regarding limb (2) of GC7, concerning notification of claims, for it is accepted that Kosmar gave prompt notice in that regard.

The waiver issue arises predominately out of the circumstances which followed Ms Souidhou’s notification of the Evans claim to Mr Armstrong on 4 September 2003. The judge observed:

The documents show what then happened. On 5 September Kosmar sent to Euclidian copies of various reports completed by its local representatives, on the day of the accident, together with other contemporaneous documentation. On 17 September Ms Souidhou e-mailed Mr Armstrong, providing further information about the swimming-pool and the (assumed) state of Mr Evans’ knowledge of its depth. She also pointed out that alterations had been made to the swimming-pool “due to the owners wanting it bigger”.

Also on 17 September 2003, Mr Armstrong e-mailed Ms Souidhou as follows:

The judge commented:

On 19 September 2003 Ms Rogers of Euclidian wrote directly to Mr Evans’ solicitors as follows:

On the same day Ms Rogers wrote also to Ms Souidhou, to say that Mr Armstrong had asked her to write to request answers to 25 questions which she set out in her letter. She added that she had written to Mr Evans’ solicitors noting Euclidian’s interest.

The judge observed that Mr Armstrong accepted that Ms Rogers’ letters would have given the impression that Euclidian was dealing with the claim.

Following a request from Mr Evans’ solicitors to the owners of the Apartments seeking access to the swimming-pool, Euclidian wrote on 22 September directly to the solicitors, at Kosmar’s suggestion, to say that the owners had no objection, but that the pool had since been refurbished.

It was on 30 September 2003 that Mr Armstrong wrote to Ms Souidhou reserving Euclidian’s position on the ground of GC7 and the late notification. During this period Kosmar had been in the process of compiling answers to Ms Rogers’ 25 questions. The judge recorded the following comment about Mr Armstrong’s evidence:

In his e-mail of 30 September Mr Armstrong wrote as follows:

Ms Souidhou replied on 2 October 2003 and said:

On 21 October 2003, Messrs Hill Dickinson, then Euclidian’s solicitors wrote to Kosmar to repudiate liability for Mr Evans’ claim, in reliance on the breach of the condition precedent in limb (1) of GC7.

At trial the question of why immediate notification of the claim had not been given was investigated. Ms Souidhou’s evidence, to the effect that Kosmar’s resort representatives had advised Kosmar’s Overseas Department (“OD”) but that the OD did not react to accidents but only to claims, was not accepted by the judge. If the OD had been informed of so serious an incident, Ms Souidhou would also have been promptly advised by the OD. Neither did the judge accept that the OD would have failed to pass on such information because of confidence in resisting liability, as Ms Souidhou had suggested in her answer of 2 October. The judge said:

The judge also made (albeit limited) findings about the circumstances in which Euclidian came to decline the claim. The only witness who dealt with this was Mr Armstrong. He accepted that he knew immediately, on 4 September 2003, that Euclidian could reject the claim, but explained that he did not personally have authority to do that, for he was an underwriter, whereas a Mr Holmes was in charge of the claims department and a directive from Mr Holmes was required for Euclidian to reserve its rights. Mr Armstrong made no recommendations either way: he was against knee-jerk reactions. Although he was in close contact with the claims department, his evidence left unexplained how and exactly why Euclidian came to reserve its rights. The judge said:

It may be observed that the judge made no finding there that Euclidian had in fact decided to waive the breach of condition precedent, in fact he suggested the contrary. The reference to the trial before HHJ Thorn QC, sitting as a judge of the High Court, was to the trial of Mr Evans’ claim against Kosmar on liability alone, which resulted in a judgment on 15 December 2006. Judge Thorn gave judgment for Mr Evans, although he assessed contributory negligence at 50%. Even on that basis it was thought that liability could amount to damages in the order of £1 million. Gross J referred to the fact that Judge Thorn had formed an extremely adverse impression of the truthfulness and reliability of the Kosmar employees who gave evidence before him. However, in between Gross J’s judgment in these proceedings and the hearing of this appeal, Kosmar’s appeal against Judge Thorn’s judgment was heard and resulted in total success: Evans v. Kosmar Villa Holidays plc [2007] EWCA Civ 1003, [2008] 1 All ER 530. Richards LJ referred (at para 3 of his judgment) to the fact that –

Kosmar’s success in its appeal from Judge Thorn means that there is no liability to pass on to Euclidian in any event. However, we are informed that Kosmar still seeks an indemnity for its costs, and it is common ground that this appeal has not become moot.

The facts set out in this passage of my judgment were in general sufficient for the purpose of the judge’s decision that Euclidian had elected to waive compliance with the condition precedent of immediate notification of the occurrence under limb (1) of GC7, and thus also for the purpose of the main issues argued in this court. However, Kosmar has a respondent’s notice in which it seeks to support Gross J’s decision in its favour on additional grounds, namely those of promissory estoppel and also estoppel by convention: and, although these additional grounds were only lightly argued at the oral hearing before us, it is necessary to say something further about the background facts in explanation of these additional grounds.

From December 1998 until December 2000 Kosmar’s public liability insurance had been placed with the Independent Insurance Company. That insurance contained a clause materially identical to GC7. The Independent policy had been arranged through a cover holder scheme operated by brokers Howson Devitts, where Mr Armstrong (and another Euclidian underwriter, Mr Lumsden) had been employed. There was evidence that, given the volume of “occurrences” in the travel industry, travel firms and their insurers generally turned a blind eye to the need for immediate notification of such occurrences, as distinct from claims. However, this was not put as high as an usage. Nevertheless, Kosmar had never before had failure to give immediate notification of an occurrence held against it. Even so, Mr Armstrong and Mr Lumsden gave evidence that insurers remained concerned to have the protection of a clause requiring prompt notification of occurrences. Incidents were dealt with on a case by case basis. They did not want to be deprived of the opportunity of investigating an incident promptly.

In the previous year to its policy with Euclidian Kosmar was insured with St Paul Insurance Company. That policy also contained a clause materially identical to GC7. During this year Kosmar streamlined its claims-handling procedures by out-sourcing them to Ms Alliston of TAC.

In late 2001, when the Euclidian policy commenced, Kosmar had a turnover of £80 million and was providing package holidays to some 250,000 clients annually. On 1 March 2002 a meeting was held to discuss claims-handling procedures. It was attended by Ms Souidhou of Euclidian, Mr Day (a broker), Ms Alliston of TAC, and Mr Armstrong and Mr Lumsden of Euclidian. These individuals had all worked together in the days when the cover had been placed with Independent. Kosmar wanted to speed up claims handling, to improve its claims record and earn lower premiums. Euclidian was eager for Kosmar’s business. If all occurrences, trivial or not, were notified, this would be burdensome for Euclidian and the cost of the Kosmar account, leading to uncompetitive higher premiums. The upshot of the meeting was that whereas all claims would be sent directly to Euclidian, complaints and claims would be handled initially through Ms Alliston’s TAC: where she felt confident in denying liability, the files would not be sent on to Euclidian; she would only refer to Euclidian cases which were not clear-cut, where there was or might be liability on Kosmar’s part. However, the meeting did not address the policy terms and there was no intention to alter them. There were no agenda or minutes. Occurrences were not discussed.

In the period between the meeting of 1 March 2002 and 4 September 2003 when notification of Mr Evans’ claim was given to Mr Armstrong there had been sixteen other claims notified to Euclidian, ranging from 2 to 5 months after the incidents in question. Four claims involved fractures, three others were of at least some significance. None were rejected for late notification. Mr Armstrong explained Euclidian’s response as a “practical and pragmatic” approach. None of these claims was anything like as serious as that of Mr Evans.

At trial the arguments ranged far and wide. It was suggested that the meeting of 1 March 2002 had altered the terms of the policy, in particular by amounting to an estoppel by convention. This was clearly a major element in Kosmar’s argument below, but it failed. As the judge said (at para 54(ii) and (iii)):

Kosmar’s next argument was that the history of claims handling in the period between the 1 March 2002 meeting and 4 September 2003 had estopped Euclidian by convention or representation from enforcing the condition precedent requiring immediate notification of an occurrence. The judge rejected this version of the argument as well. He concluded that Euclidian’s conduct showed no more than the insurers taking a case by case approach. There was simply no common assumption or representation otherwise. In any event, the seriousness and likely size of Mr Evans’ claim, together with the extent of the delay, made this occurrence quite unlike any previous case. The judge took into account what he described as Mr Armstrong’s “generous” answers in cross-examination as to what he, subjectively, thought Kosmar might reasonably have assumed as to whether Euclidian would enforce the condition precedent in question: but he concluded that such answers were outweighed by objective consideration of the material. The fact that some claims are paid notwithstanding non-compliance with the clause did not give Kosmar carte blanche for the future.

The judge then finally came, towards the end of his judgment, to the primary subject-matter of this appeal, namely the effect of Euclidian’s reaction to notification of Mr Evans’ claim itself. He dealt first with the question whether waiver by election was open in such a context. Having considered the authorities which we have been asked to reconsider on this appeal, he accepted that they showed that, at any rate in the case of breach of a promissory warranty in an insurance contract, an insurer is automatically discharged from liability and has no choice to make, and that therefore there is no room for an election. However, he was not persuaded that this analysis applied to non-performance of obligations relating to the procedure for making claims contained in a condition precedent such as GC7 in this case (paras 66 and 68 of his judgment). He reasoned that there was no automatic discharge from liability in such a case, and said (at para 70):

The judge next considered whether there had been unequivocal communication of an election by Euclidian to waive compliance with the condition precedent of immediate communication. He concluded that there had been. He regarded the communications of 17, 19 and 22 September 2002 (the “September communications”) as being “only consistent with Euclidian dealing with the Evans claim” (at para 76). He could see no basis upon which Euclidian would be dealing with that claim “unless it had chosen to accept liability in respect of it under the policy” (ibid). The communications “demonstrate objectively or unequivocally the making of an informed choice by Euclidian to deal with the Evans claim”. They would have objectively and unequivocally conveyed to a reasonable person that Euclidian had taken an informed choice to deal with that claim on Kosmar’s behalf. Mr Armstrong’s evidence that that would have been Kosmar’s subjective impression could not be decisive, but fortified the judge in his views.

The judge also considered in this connection that Euclidian knew all it needed to know for its election immediately on 4 September 2002, and therefore that a reasonable time for making its election had passed by 17 September. “Instead, it elected to proceed on a basis consistent only with accepting liability for the Evans claim and it is bound by that election” (at para 85).

Finally, the judge briefly considered Kosmar’s argument that the September communications constituted an estoppel and/or affirmation. He was inclined to reject both. As for the former, there was insufficient reliance, still less detriment. As for the latter, it applied only where the existence of a contract as a whole was in question. In any event, it required the same as election, and therefore added nothing to the argument.

In sum, but only on the argument of waiver by election, coupled with an unequivocal communication of a decision to deal with the claim and thus accept liability for it, the judge found in favour of Kosmar’s claim and concluded that Kosmar was entitled to an indemnity in respect of it.

The classic statement for the difference between waiver by election and waiver by estoppel is that of Lord Diplock in Kammins Ballrooms Co Ltd v. Zenith Investments (Torquay) Ltd [1971] AC 850 at 882/883:

Lord Goff of Chieveley returned to the subject in Motor Oil Hellas (Corinth) Refineries SA v. Shipping Corporation of India (The Kanchenjunga) [1990] 1 Lloyd’s Rep 391 (HL), where he said (at 398/399):

In sum, therefore, election is the exercise of a right to choose between inconsistent remedies. It generally requires knowledge of the facts giving rise to the choice on the part of the party electing, and knowledge of the choice having been made on the part of the other party. Those are the conditions which make the doctrine mutually fair. It typically arises where the parties to a contract have to know where they stand. Thus the choice has either to be communicated unequivocally by the party electing to the other party or else the objective circumstances have to be such that the effluxion of time by itself constitutes that communication. Since the election is the choice of the party electing, it is his conduct which is decisive. Once made the election is final and irrevocable. Estoppel, however, is a promise, supported not by consideration but by reliance. It is a promise not to rely upon a defence (per Lord Diplock) or a right (per Lord Goff). It requires a representation, in words or conduct, which must be unequivocal and must have been relied upon in circumstances where it would be inequitable for the promise to be withdrawn. The need for such unfairness probably means that the reliance of the representee has to constitute a detriment, but even the detriment has, I would think, to be such as to make it inequitable for the promise to be withdrawn. For these reasons, the estoppel may not be irrevocable, but may be suspensory only. An unequivocal representation without the necessary reliance, and reliance without the necessary unequivocal representation, are each insufficient. It follows that, as concepts each in their own way designed to hold parties to fair dealings with one another, waiver by estoppel is the more flexible doctrine.

Which doctrine applies in the present circumstances, or do both? The judge considered that if GC7’s condition precedent had been like breach of a promissory warranty in an insurance contract, which discharges the insurer from liability, then it would have been correct to say that only the doctrine of estoppel applied. As it was, however, he said that breach of a procedural condition precedent lies within the scope of the doctrine of election. On this appeal the parties have disputed whether this is so.

On behalf of Euclidian, Mr Richard Slade has relied on the following authorities. He begins with Bank of Nova Scotia v. Hellenic Mutual War Risks Association (The Good Luck) [1992] 1 AC 233 because that is a recent decision of the highest authority which he relies on as demonstrating that (1) breach of a promissory warranty is, contrary to the judge’s view, just like failure to comply with a condition precedent, and (2) both breach of a promissory warranty and failure to comply with a condition precedent result in automatic discharge from liability, and thus, it is to be inferred, do not give rise to a situation of election. The context of promissory warranties in an insurance policy is governed by sections 33 and 34 of the Marine Insurance Act 1906. Section 33(2) provides “A warranty…is a condition that must be exactly complied with…If it is not so complied with, then, subject to any express provision in the policy, the insurer is discharged from liability as from the date of the breach of warranty…” Section 34(3) provides: “A breach of warranty may be waived by the insurer.” In The Good Luck however there was no question of waiver. Lord Goff explained (at 262/263):

Secondly, Mr Slade showed us authorities decided since The Good Luck which, building on this analysis, have concluded that waiver of breach of a promissory warranty, if it is to occur, must be waiver by estoppel rather than waiver by election, and that it is to such a waiver that section 34(3) of the 1906 Act is looking. Thus in J Kirkaldy & Sons Ltd v. Walker [1999] Lloyd’s Rep IR 410 Longmore J said this (at 422):

Kirkaldy was followed in Brownsville Holdings Ltd v. Adamjee Insurance Co Ltd (The Milasan) [2000] 2 Lloyd’s Rep 458 (at 467, Aikens J), and in Agipatos Laiki Bank (Hellas) SA v. Agnew (No 2) [2002] EWHC 1558 Comm, [2003] Lloyd’s Rep IR 542 (at 66, Moore-Bick J). In both those cases the point was conceded. In HIH Casualty and General Insurance Ltd v. Axa Corporate Solutions [2002] Lloyd’s Rep IR 325 before Mr Jules Sher QC, sitting as a deputy high court judge, it was argued that Kirkaldy had been wrongly decided, but he gave his own reasons for following it (at 330/331). Before the court of appeal in that case, [2002] EWCA Civ 1253, [2003] Lloyd’s Rep IR 1, there was no longer any argument in favour of waiver by election and the appeal proceeded on a different issue as to what knowledge was needed on the part of either representor or representee to found a case of waiver by estoppel (at 7/8). There is at most a glancing reference to the decision below about waiver by election when Tuckey LJ said:

On behalf of Kosmar, on the other hand, Mr Graham Eklund QC submits that on those authorities the point is at least open in this court. He relies rather on two different authorities in support of his submission that the doctrine of election can arise in the context of conditions precedent in an insurance contract. Thus in Bolton Metropolitan Borough Council v. Municipal Mutual General Insurance Ltd [2006] EWCA Civ 50, [2006] 1 WLR 1492 an issue arose as to whether an insurer who had denied liability on coverage grounds had waived his right to deny liability also on the ground of late notification. The argument appears to have been put in terms of waiver by election. Both the trial judge and the court of appeal rejected the argument of election, on the ground that there had been no inconsistency in the conduct of the insurer, who had always denied liability. Although Longmore LJ, giving the leading judgment, referred to Lord Diplock in Kammins and to Lord Goff in The Kanchenjunga, he does not appear to have been referred to The Good Luck. HIH v. Axa (in the court of appeal) was cited in argument but not referred to in the judgment. There is therefore no clear sign that the point that the waiver in issue at best could only have been waiver by estoppel had been raised. In the circumstances it seems to me that there is not much to be derived from the comment by Longmore LJ (at 1506G in para 32) that –

Perhaps of more importance is Longmore LJ’s observation (at 1506E in para 31) that –

The other authority relied on by Mr Eklund is Diab v. Regent Insurance Co Ltd (Belize) [2006] UKPC 29, [2006] Lloyd’s Rep IR 779, to which the judge also made reference. The fire insurance policy there contained a clause which required prompt notice of any loss or damage. Lord Scott referred to the clause (at para 14) as a condition precedent, while observing that it did not necessarily follow that “every element of Condition 11 must be treated as a strict condition precedent”. There was a submission that the requirement of prompt notice had been waived, whether by election or estoppel. Both limbs of this submission were rejected on the facts (at paras 25/26). The matter was dealt with briefly, and on the facts. As for law, Lord Scott simply said this:

All that Mr Eklund can get out of this is that Lord Scott did not say that there is no scope for waiver by election in the situation with which he was concerned. In a case where no point appears to have been taken in this respect, and where the alleged waiver in any event failed, there is in my judgment nothing of real value for present purposes to be gained here, for either party. It will appear, moreover, that MacGillivray is against Mr Eklund’s submission (see paras 55/56 below).

Apart from these two cases which in my judgment do not assist, Mr Eklund was unable to point to any authority as one in which a condition precedent had been waived by election as distinct from waived by estoppel.

For his part, Mr Slade also relied on Soole v. Royal Insurance Company Ltd [1971] 2 Lloyd’s Rep 33 as a straightforward example of the proper analysis to be adopted in this context. The insurance policy there was against the risk that a restrictive covenant would be enforceable so as to prevent a proposed property development being feasible. A claim came to be made under the policy arising out of proceedings brought against the insured in reliance on the restrictive covenant, and the insurers, as they were entitled to do under a condition of the policy, undertook the defence of those proceedings. The insurers subsequently denied liability on coverage grounds, namely that the proceedings brought against the insured had been intimated (albeit not issued) before the commencement date of the policy. The (assignee of the) insured contended that the insurers were estopped from denying liability on that ground because they knew all the relevant facts at the time when they took over the defence of the proceedings against the insured. That amounted, it was said, to a representation that the insurers acknowledged the claim to be within the policy; alternatively to an election to treat the claim as being within the policy. Shaw J held that the insurers’ coverage defence failed. However, he also went on, obiter, to decide the waiver points, against the insured.

Shaw J construed the clause which gave the insurers the right to take over the defence of the proceedings, although expressed in terms of “any claim being made against the Insured which is covered by this Policy” (emphasis added), as referring to claims of the class or character in respect of which indemnity was given, even if for one reason or another they turned out to be outside its scope. It followed that –

Shaw J turned to the waiver by election point at 342. As there formulated in the first paragraph of that page, it appears to be to be little different from waiver by estoppel, but the judge was willing to analyse it as turning on “the adoption of a course of conduct which is irreconcilable and inconsistent with an alternative course of conduct which has been open to a party”. He concluded, however, as follows:

We have also been assisted by reference to various textbooks. Gross J himself referred (at para 71) to Clarke on The Law of Insurance Contracts (4^th ed) and to MacGillivray on Insurance Law (10^th ed, 2003): as “if anything” supporting the availability of the doctrine of election in this context.

Clarke at para 26-4A2 contrasts the language of Lord Diplock in Kammins, distinguishing between rights (the subject-matter of election) and defences (the subject-matter of estoppel), with that of Lord Goff in The Kanchenjunga, distinguishing between the exercise of a right (election) and the representation that legal rights will not be insisted on (estoppel). Professor Clarke states his preference for Lord Goff’s formulation, on the ground that rights may also be used as defences or alternatively given up in advance, not by election, but by representation. That is to say that the area of rights may enter into the doctrine of estoppel as well, rather than to say that the area of mere defences may give rise to elections: as indeed the commentary goes on to illustrate. Professor Clarke then concludes:

I would respectfully comment that: (1) Professor Clarke there, very understandably, adopts a functional point of view that these doctrines have been developed to help find “a sensible answer”; (2) I am not sure why, in the example he gives, Lord Goff’s formulation would be considered in terms of election rather than estoppel: and reference to the factor of the claimant’s detriment suggests that we are really in the realm of estoppel; (3) if the example were considered in terms of election, then the election would, as he observes, be irrevocable, which would be satisfactory only where it was too late for the claimant to obtain his evidence and would be unsatisfactory where it was not too late for him to do so.

It is also interesting to observe that in footnote 6 Professor Clarke refers to some well known examples of estoppel relevant to the present context, from both within and outside the field of insurance. Thus in Barratt Bros (Taxis) Ltd v. Davies [1966] 2 Lloyd’s Rep 1 (motor insurance), where the insurers wrote to the insured saying that they wanted to conduct his defence, Lord Denning MR said that in the circumstances this was a waiver of the condition precedent that called for notice of the summons. He described that waiver in the classic terms of promissory estoppel (at 5). Dankwerts and Salmon LJJ agreed.

MacGillivray discusses the differences between waiver by election and waiver by estoppel at paras 10-101ff. Having set out the differences between the two doctrines in terms which afford no assistance to Mr Eklund (other than in allowing that estoppel can operate in relation to both rights and defences, ie adopting the formulation of Lord Goff, at para 10-103), MacGillivray then links both breaches of warranty and breaches of procedural conditions precedent together under the doctrine of estoppel, not election, thus –

In my judgment, there is very little in Clarke and nothing in MacGillivray of any assistance to Mr Eklund’s submissions. On the contrary, MacGillivray recognises in terms that the law in relation to breach of warranty applies equally to breach of a procedural condition precedent. Both textbooks refer to Barratt Bros as a leading case in the latter context.

Finally, we were also referred to Spencer Bower, The Law Relating to Estoppel by Representation, 4^th ed, 2004, at paras X.3.30/31, where the following is found:

However, no authority is there cited for those propositions. The text goes on to distinguish between election and estoppel, and to state that, even in the absence of election, there may be an estoppel in such circumstances, which would not be controversial. For these purpose it cites Craine v. Mutual Fire Insurance Co Ltd (1920) 28 CLR 305 (HCA), affirmed sub nom Yorkshire Insurance Co Ltd v Craine [1922] 2 AC 541 (PC) as an example of estoppel (at para X.3.30). It later cites Barratt Bros as another example of estoppel (at para X.3.33). It may be observed that Craine is also dealt with in Soole as a case of estoppel.

Now it is true that in Bolton MBC v. Municipal Longmore LJ said (at para 33), in relation to the first sentence of Spencer Bower’s para X.3.31, that it was “unexceptional” as being in accordance with his Lordship’s own para 32. However, as I have already remarked, what Longmore LJ said at his para 32 (see para 43 above) appears to have been said without the issue before us based on The Good Luck having been raised before him; and even then he went no further than a cautious “might then be held to have elected not to deny liability”. As it is, Longmore LJ specifically rejected (at his para 33) what Spencer Bower went on to say (at para X.3.31) about specific reliance on one defence amounting to an election not to rely on an available further defence of breach of condition precedent, while allowing that it might amount to a waiver by estoppel (if reliance or detriment might be shown). In doing so, Longmore LJ preferred the analysis to be found in Clarke (at para 26-4D). In these circumstances, and a fortiori where Longmore LJ’s reasoning there conspicuously does not depend on lack of unequivocal language or conduct, the citation of Spencer Bower and the limited approval given to it in Bolton MBC must, in my respectful judgment, be of little assistance to Kosmar here.

On behalf of Euclidian, Mr Slade submitted that the judge was correct to say (para 66) that there is no room for election in the case of breach of a promissory warranty, but in error to conclude (para 68) that procedural conditions precedent were different and were not bound by the same logic. He relied in particular on The Good Luck to dispute the judge’s distinction. Lord Goff did not there say that promissory warranties were sui generis, but on the contrary drew a direct analogy with conditions precedent.

In any event, Mr Slade continued, the judge was also in error in saying that the September communications were unequivocal. Even though there was no express reservation of rights until 30 September 2002, Euclidian’s earlier reactions were only provisional: see, for instance, Mr Armstrong’s initial reaction upon reading the file (“We have taken the view, given the possible size of the claim, not to deny liability yet and will await your reply to our various requests”), for all that that was a reference to liability to Mr Evans. There was nothing in Euclidian’s response to indicate that any election was being made one way or the other. There was in fact no evidence of any decision on the part of Euclidian. There was nothing in the communications to tell Kosmar that Euclidian had abandoned or would abandon its rights to rely on GC7’s limb (1). As in Soole, merely dealing with the claim for the short period in question was not inconsistent with repudiating liability.

On behalf of Kosmar, on the other hand, Mr Eklund adopted a root and branch attack on the line of cases which had developed out of the reasoning in The Good Luck. He agreed that at the point of breach of GC7 and the automatic discharge from liability which accompanies it there is no need of any election to make good that discharge from liability. However, that merely gives rise to a defence and the insurer thereafter has to decide, to elect, whether to rely on that defence or not. Such an election arises every time a party has to decide in face of a claim whether or not to take a defence of which he knows.

In the present case, Mr Eklund submitted, Euclidian’s dealing with the Evans claim involved the “fair inference” that Euclidian was accepting liability to indemnify Kosmar in respect of it. The judge was entitled to say that the September communications were consistent only with Euclidian’s dealing with the claim and to infer from that the unequivocal making of an informed choice to accept liability for it.

As for the respondent’s notice, Mr Eklund submitted, albeit briefly, that the same communications amounted to a representation on which it was to be inferred that Kosmar had relied in beginning to assemble the answers to the questions asked of it by Euclidian. Therefore there was in any event a promissory estoppel. Finally, there was an estoppel by convention arising out of the meeting of 1 March 2002 and the subsequent treatment of claims.

The first issue and the major question debated before us was whether there was scope for the doctrine of election in this context. As I understand Mr Eklund’s submissions as he developed them, he accepts that, by analogy with the case of breach of promissory warranty, non-fulfilment of a condition precedent to liability does discharge a party from liability at the time of the relevant breach, but he contends that when a claim is thereafter made and there is knowledge on the part of the insurer of the breach, the insurer is put to his election whether or not to rely on its defence (that it is discharged from liability). In the case of a breach of promissory warranty, the election is to decide whether or not to rely on the defence of a total discharge from all liability (from the date of breach) under the policy; and in the case of breach of a procedural condition precedent, the election is to decide whether or not to rely on the defence of discharge from liability for the claim in question.

So understood, Mr Eklund’s submission gives to the doctrine of election a position both fundamental and all-embracing. It would apply, I suppose, to any defence of any kind, or at least to any defence which amounted to a complete answer to a claim. In my judgment, however, so expressed his submission goes far wider than the doctrine of election has ever been previously explained or applied. Although the formulation of Lord Goff in emphasising that rights as well as defences may be the subject matter of estoppel may be preferable to the formulation of Lord Diplock which speaks exclusively of defences in that context, neither Lord Diplock nor Lord Goff give any support for the idea that the doctrine of election extends as far as Mr Eklund suggests. On the contrary, all the examples of election cited in the authorities discussed above deal with a much more limited field, such as the acceptance of repudiation or the avoidance of contracts or the rejection of goods. They are concerned with contracts in the course of their execution, not with the pathological treatment of claims. While a contract is in operation, it is important to know, in circumstances where it lies in the choice of a party, whether the contract lives or dies (or at least whether purported performance under it, such as a delivery of goods, is accepted or not); and, whether the option is for life or death, acceptance or rejection, the choice is unilateral and irrevocable. But when it is merely a defence to a claim that is in question, there would not seem to be the same necessity to choose timeously and irrevocably between reliance or not on the defence in question. Certainly in the context of litigation, a defence can be utilised at any time subject to the case management discretion of the court, limitation and abuse of process.

Perhaps it was in recognition of some such thoughts as these that buried within and possibly at the heart of Mr Eklund’s position was, as it seemed to me, a much narrower submission, to the effect that what required an analysis in terms of election was the fact that Euclidian was called upon to decide whether or not to take upon itself the conduct of any claim of which Kosmar had given it notice. If therefore Euclidian decided to undertake the conduct of a claim, then that was an election to recognise that claim as having a valid status under the terms of the policy, which it would not have if Euclidian was discharged from any liability for it because of breach of a condition precedent to give timely notice of it. That is not, I think, the way in which the matter was put to, or at any rate decided by, the judge because he ultimately considered that the critical factor was that by dealing with the claim Euclidian was electing to acknowledge liability to indemnify Kosmar in respect of it. It was that election, to acknowledge liability to indemnify, to be inferred from Euclidian’s conduct, rather than an election under the contract to deal with the claim or to undertake the conduct of the claim, that was critical to the judge. Moreover, he paid no attention to that part of GC7 which was concerned with Euclidian’s conduct of claims (see below). Neither, as it happens, did Mr Eklund on this appeal.

Thus at the end of GC7, but not relied upon by the judge or by Mr Eklund, is found its fourth paragraph, as follows:

Thus an insurer who begins to deal with a claim, even if, as I will assume for the moment, he thereby represents that he views that claim at that time as being, if good, a matter for indemnity under the policy, is not thereby required for all time to maintain his dealing with or conduct of the claim. He can leave it to his insured to conduct a defence, although he may turn out to be liable at the end of the day to indemnify his insured against both liability and the cost of defending liability. Moreover, he may discover matters which lead him to believe that the claim is not within the policy, and it remains open to him to withdraw his support for it. None of this fits happily with the idea that some dealing with a claim is an irrevocable election to accept liability for it under the policy so far as any procedural defect in it is known to the insurer. My view is consistent moreover with the analysis in Soole, which is to the effect that the exercise by an insurer of a right to conduct a claim made against his insured under a liability policy is not an election, and certainly not an unequivocal election, to accept liability under the policy. An essential consideration is that dealing with a claim is not necessarily inconsistent with repudiating liability for indemnifying the insured in respect of it. I underline that I am dealing with the current situation emphasised by the judge, that of a procedural condition precedent. I am not dealing with the question whether an insurer’s exercise of rights under his policy for instance to conduct a claim in the name of the insured, is consistent with or pre-empts his right of election to avoid his policy, as for non-disclosure. Thus the exercise of a right under a policy to conduct an insured’s defence might be unequivocally inconsistent with a right to avoid the policy, but only a merely equivocal alternative (to not conducting the defence) so far as concerns any alleged representation to the effect that the insured is accepting liability, to indemnify the insured for a claim.

In sum, I do not think that we have been shown any case where the doctrine of election has been applied, in the context of a merely procedural condition precedent, to the conduct of a claim on behalf of an insured by an insurer, nor do I think it would be consistent with the paradigm examples of election, or with the nature of the doctrine, which requires unequivocal conduct which has irrevocable effect, to treat that doctrine as being by its rationale applicable to this situation. The doctrine is ill-fitting in these circumstances, and unneeded. For there remains the doctrine of estoppel: in circumstances where it can be said that the handling of a claim by an insurer is an unequivocal representation that the insurer accepts liability and/or will not rely on breach of some condition precedent as affording a defence, and there has been such detrimental reliance by the insured as would make it inequitable for the insurer to go back on his representation, the insured will have all the protection that he needs.

In case I am wrong about this, the second issue debated before us becomes important: were the September communications or the effect of them as found by the judge, that Euclidian was willing to handle the claim, an unequivocal communication that Euclidian had elected to waive reliance on the condition precedent of immediate notification? The question of whether Euclidian had a properly informed choice was wrapped up within this issue.

The judge considered that the September communications were to be so regarded, on the ground that it was objectively obvious to both parties that Euclidian knew everything that it needed to know already on 4 September 2002, so that its willingness to deal with the claim, as indicated in the September communications, was consistent only with the inference of an informed choice to accept liability in respect of the Evans claim under the policy. Euclidian knew everything because it knew that the incident had occurred on 22 August in the previous year and therefore that notification of the occurrence had taken over a year to reach it. Therefore,

In this connection the judge was willing to apply the analysis of Mr Justice Mance in Insurance Corporation of the Channel Islands v. The Royal Hotel Ltd [1998] Lloyd’s Rep IR 151 at 162/3 that –

That was said in a case concerned with an established area of true election, the affirmation of an insurance contract which an insurer is entitled to avoid for non-disclosure. I take this analysis as relating to what in that context needs to be objectively available to the non-electing party. I do not think that it is saying that in cases of election the party with the choice will be bound by sufficiently clear appearances even in the absence of any informed choice. That is a potentially difficult subject: on the whole it is necessary for the election to be exercised and to be exercised with sufficient knowledge. It is only in the case of estoppel that the representee is entitled to rely on an apparent promise or choice conveyed by the representation irrespective of the actual knowledge and decision of the party with the choice: see Chitty on Contracts, 29^th ed, 2004, Vol I at para 24-008. However, there will be some circumstances where, even in the absence of an actual election, the party with the choice created by relevant knowledge, actual or obviously available, will be regarded as having exercised it after a reasonable time has passed: see Lord Goff in The Kanchenjunga at 398 LHC, and Clough v. L & N W Ry (1871) LR 7 Ex 26 at 34/35. This is, I think, part of the rationale of a doctrine which seeks to give a pragmatic response to parties in contractual relations who need to know where they stand. In the present case, there was no evidence that Euclidian had in fact taken any decision to waive the need for timely notification of the occurrence in a claim as potentially serious as that of Mr Evans. Mr Armstrong made it clear that, as an underwriter, he did not have the authority to take that decision: that could only be done in the claims department. However, whatever the detailed answer might be to such questions was not explored on this appeal, and I do not think they were explored at any rate to any conclusion in the judgment below: see para 44 of that judgment (cited at para 21 above) which suggests unresolved uncertainty within Euclidian right up until the 30 September reservation of rights. Instead, the judge appears to have taken a purely objective view of the September communications in themselves. In a critical part of his judgment he said that they “constitute, disclose and communicate an election to accept liability for the Evans claim” (at para 76).

In my judgment, however, the September communications were far from unequivocal. Euclidian did not say in terms either that it was waiving the need for immediate notification or that it was accepting liability under the policy for indemnifying Kosmar. So the necessary unequivocal communication has to be derived from the circumstances that Euclidian responded by giving the appearance that it was willing to deal with the claim. That was indicated inter alia by Euclidian writing directly to Mr Evans’ solicitors, with a copy to Kosmar, asking them to note Euclidian’s interest as Kosmar’s insurers and to ensure that all future correspondence was sent to it, and also asking questions about Mr Evans.

That is perhaps the high point of the effect of the communications from the point of view of Kosmar’s case. However, that is also to ignore other aspects of this correspondence. First of all, Euclidian made it immediately clear to Kosmar that, pending Kosmar’s response to requests for information, it was going to postpone any decision on liability to Mr Evans. Therefore, there was no specific acceptance of liability on the part of Euclidian to meet Mr Evans’ claim. Secondly, Euclidian made it clear that, in order to go forward with this matter, it would need answers from Kosmar to its enquiries. It seems to me that before Euclidian could be said to be unequivocally manifesting any election to accept the Evans claim as a matter for indemnification despite the breach of condition precedent in limb (1) of GC7, it would need to be given an opportunity to take on board Kosmar’s answers at any rate in general to its questions about the circumstances of the incident. The same could be said for Kosmar’s understanding of the position. Why should Kosmar objectively be justified in thinking that its late notification of a serious claim would be accepted, even though it was in breach of a condition precedent, when Kosmar had not answered Euclidian’s many questions about the incident, and had not begun to address the question which hung in the air – even if it was not specifically asked in writing by Euclidian until 30 September – as to why so serious an incident had not been notified for over a year? After all, there was no urgent need for any decision about the consequences of the breach of condition precedent. It is not as though Euclidian had even begun in any real sense to have undertaken the conduct of the Evans claim. No proceedings had yet been issued, and no solicitors had yet been instructed. Nothing had been taken out of Kosmar’s hands. On the contrary, Euclidian still remained in Kosmar’s hands for its understanding of the claim.

As it is, the judge surmised that in their initial telephone conversation of 4 September 2003 Mr Armstrong had asked Ms Souidhou why it had taken so long to notify the occurrence, and that Ms Souidhou had answered: because she had only just received the claim (see para 28 of the judgment below, cited at para 8 above). That was perhaps the only thing Ms Souidhou could say at that moment, but it was certainly inadequate, indeed it was a non-answer. When later in his e-mail of 30 September 2003, Mr Armstrong told Ms Souidhou that Euclidian was reserving its position on the breach of condition precedent pending a brief statement as to why this had happened, Ms Souidhou’s response was not that it was too late to raise such an issue, but to give an explanation (which evidence at the trial of Mr Evans’ claim was to suggest was by no means an adequate explanation, and which the judge in any event rejected in terms: see para 22 above) and to say “I hope the above clarifies our position and I look forward to hearing from you”. The definitive answer came in Euclidian’s solicitors’ letter of 21 October 2003 that Euclidian was rejecting liability for the Evans claim.

This view of the matter is, in my judgment, again supported by Soole. It is also supported in this court by McCormick v. National Motor and Accident Insurance Union, Limited (1934) 40 Com Cas 76 (CA). There the insurers were conducting their insured’s defence to a claim arising out of a fatal motor accident when it emerged in the course of his cross-examination that he had lied about having no previous motoring convictions. Under a term of the policy, that lie made the policy void, but the matter was treated as though it rather gave to the insurers the option of avoiding the policy, a paradigm case of election. The insurers did avoid the policy five days later, after making enquiries. In the meantime the trial had concluded in a verdict against the insured. On the victim’s subsequent claim to be indemnified directly by the insurers under the provisions of the Third Parties (Rights against Insurers) Act 1930 the insurers were held at first instance to have elected to affirm the policy by not straightway avoiding it. This court disagreed. Scrutton LJ put it on the basis that the insurers had at least the five days to make enquiries to confirm the position and were not bound to react straightway (at 82). Greer LJ put it on the basis that the continuation of the trial was equivocal (at 88). Slesser LJ put it on both bases, that is to say that the fact that the insurers were entitled to a reasonable time to consider their position entered as an element into the question of whether their conduct was an unequivocal election (at 93/94).

In my judgment, the same applies here. The correspondence was equivocal, for the reasons stated above. That is sufficient for present purposes to dispose of the appeal on that ground alone. However, Euclidian was in any event entitled to a reasonable time to get to grips with this serious and lately notified occurrence: and the questions which it had asked Kosmar and to which it had had so far no answer showed that it was still in the stage of assimilating the circumstances of the case. The judge considered, contrary to the argument before him, that Euclidian “knew all it needed to know on the 4^th September”, so that in the absence of any reservation of rights it was straightway in the grip of an election if it acted inconsistently with a repudiation of the claim, as he considered it did (but I respectfully conclude it did not) in the September communications (at paras 83 and 85). In my judgment, however, it did not know all it needed to know.

One of Euclidian’s grounds of appeal was that Gross J was wrong to say that a reasonable time for repudiating the claim had come and gone by at latest the time of the September communications. During argument, however, Mr Slade did not press the issue of reasonable time because, as he was prepared to volunteer, if he succeeded on the separate ground that there was no unequivocal election he did not need the additional point, and if he failed on that ground, the question of reasonable time would not rescue him. The logic of that is satisfactory as far as it goes, but it begs the question of what elements may go into the question of whether there has been an unequivocal communication of an election or not. In my judgment, in this case, as in McCormick, the need to allow Euclidian a reasonable time to get to grips with the Evans claim is an element in the question whether there had been an unequivocal election. It is in truth part and parcel of the question whether there was any election in circumstances where Euclidian was still waiting for further information about the occurrence in answer to its own questions. In such equivocal circumstances there is in my judgment no need for a reservation of rights (even if such a reservation may be practical and wise). What a reservation of rights does is expressly to preserve a situation where otherwise it might be held that something unequivocal had occurred. However, since this issue of a reasonable time was not separately argued, I do not rely on it for the purposes of my decision.

For all that, I have felt it sufficiently important a matter to be given some attention here. The judge was himself conscious in this connection of sympathy for Euclidian’s position. He said:

In my respectful judgment, these points were well stated, but were then effectively ignored. It would not be good practice for insurers to rush to repudiate a claim for late notification, or even to destabilise their relationship with their insured by immediately reserving their position - at a time when they were in any event asking pertinent questions about a claim arising out of an occurrence about which they had long been ignorant in the absence of prompt notification. Insurers traditionally armour themselves with all kinds of conditions precedent, but, in a relationship where there is trust, they are just as likely to forgo their strict rights. If they did not, the conduct of the insurance market might very well undergo considerable adaptation. Legal doctrine should not push insurers into over-hasty reliance on their procedural rights. No explanation for the very late notification of this serious claim had been vouchsafed to Euclidian, and I do not see why any doctrine such as election which is concerned with maintaining a fair balance between the parties to an insurance should be used to put insurers, who have been kept in ignorance of a serious occurrence for a long period of time, into peril of being forced to accept a claim advanced in breach of condition precedent before they have been put in a position properly to understand the circumstances of the accident and of its late notification.

That said, I would certainly not like to give the impression that insurers can equivocate for long while giving the plain impression that they are treating a claim as covered by their policy, especially at a time when a decision might be required, without running at least the risk that they will be treated as having waived some requirement of their contract or their right to avoid it. Moreover, there may well be express options given to insurers under their policy the unguarded exercise of which is simply inconsistent with the right to decline cover. In my judgment, however, this is not such a case.

Two issues were briefly raised under this heading. One was that, if election was not open, the judge had been or would have been at any rate wrong to refuse relief to Kosmar on the ground of waiver by estoppel. However, my holding that there was no unequivocal communication makes this submission an impossible one. Moreover, the judge was surely right to doubt that there was sufficient reliance, let alone detriment. Whatever work that Kosmar may have undertaken to begin to compile answers to Euclidian’s questions could not in my judgment amount to such detrimental reliance as to make it inequitable for Euclidian to be entitled to rely on Kosmar’s breach of the GC7 condition precedent.

The other issue was that of estoppel by convention arising out of the meeting of 1 March 2002 and the subsequent treatment of claims. In my judgment, it is impossible in this connection to go behind the judge’s detailed findings that these events did not amount to a common assumption necessary to found an estoppel of this kind. As the judge emphasised, the situation, even in the light of this background, was that Euclidian would have been notified of the occurrence of Mr Evans’ injury “at once” had either Ms Souidhou or Ms Alliston learned of it prior to 4 September 2003.

In sum, Euclidian did not waive, either by election, or by estoppel, its right to rely on Kosmar’s admitted (and unexplained) breach of condition precedent in failing to notify the occurrence of Mr Evans’ injury timeously; nor was there any estoppel by convention. For these reasons, I would allow this appeal.