Dunlop Haywards (DHL) & Anor v Erinaceous Insurance Services Ltd & Ors

In these proceedings, which are still at an interlocutory stage, a producing insurance broker has been sued by its client in negligence and breach of contract for failing to obtain for its client the insurance policy which it is alleged it was instructed to obtain. Among the defences raised by the broker is the plea that in any event the client has suffered no loss because the insurance policy which has been obtained can be rectified to give to the client exactly what it required. The broker now seeks to join the underwriters under that policy pursuant to CPR 19.2(2) so that they will both be required to participate in the dispute by way of disclosure and evidence and be bound by any decision. There are also issues of construction of the policy raised by the broker, which, if decided in accordance with the broker’s submissions, would make rectification unnecessary: and for this reason as well the broker seeks to bind the underwriters by joinder in these proceedings.

The underwriters oppose joinder on the ground that the case against them both in rectification and in construction is so weak that, in the terms of CPR 19.2(2), it is not “desirable” to join them. In sum, the underwriters submit that there is no real prospect of the broker’s pleas being upheld at trial.

As for rectification, the judge, Field J, has held that the claim is so weak that the underwriters should not be required to participate in the trial. He has not, however, struck out the claim which remains as one among other issues to be found on an “Agreed List of Issues” subsequently approved by David Steel J for trial. As for construction, the judge held, or rather said that he was, albeit with considerable hesitation, “prepared to assume” that the issues raised under this heading had a real prospect of success, but even so concluded that it was not desirable for the underwriters to be joined in respect of them. The broker appeals against these interlocutory decisions. A trial of some three to four weeks has now been fixed for October 2009.

The insured, who has not participated in this appeal or in the argument below, is Dunlop Haywards (DHL) Limited, formerly known as Dunlop Heywood Lorenz Limited. I shall call it “DHL”. It is the first claimant. At all material times it carried on business as property consultants and undertook commercial property management, surveying and valuations. In particular, valuations were a significant part of its business. It used to be part of the Hercules Group, which in October 2004 merged with the Erinaceous Group plc. I shall refer to the merged groups as the “Erinaceous group”. It was not represented at the hearing below nor is it present on this appeal. It is now in administration. DHL has assigned its claims in these proceedings and under the policy to the Nationwide Building Society (“Nationwide”).

The broker, who has initiated and conducted these interlocutory proceedings against the underwriters, is Erinaceous Insurance Services Limited, formerly known as Hanover Park Commercial Limited. I shall call it “HPC”. It is the defendant, and here the appellant. It was an in-house insurance broker in the Erinaceous group, but is now independent.

The merger of the Erinaceous and Hercules groups necessitated a review and co-ordination of their insurances. For these purposes HPC was instructed by the Erinaceous group including DHL to renew and consolidate the expanded group’s insurances as of 1 April 2005. In the event inception was delayed until 1 May 2005.

HPC as producing broker instructed a Lloyd’s broker, Lockton Companies International Limited, formerly known as Alexander Forbes Risk Services UK Limited, as placing broker to obtain cover on the London market. I shall call it “Forbes”. It is a Part 20 defendant in these proceedings, having been brought into them by HPC’s Part 20 claim against it. HPC blames Forbes for what is claimed by DHL as the failure to obtain adequate insurance cover as instructed. Forbes was represented before the judge below, because its own applications (for summary judgment against HPC on its Part 20 claim) were heard at the same time as HPC’s CPR 19.2(2) application to join the underwriters. Those applications for summary judgment failed. There is no appeal from those failures, and Forbes is not present on this appeal.

The underwriters concerned are insurers of the Erinaceous group on a primary layer of professional indemnity cover of £10 million each and every claim, together with an excess layer for a further £10 million. We are here concerned with the excess layer, and the underwriters have been referred to in the title to these proceedings as the “excess insurers”. There are six such insurers: Mitsui Sumitomo Insurance Underwriting at Lloyd’s Ltd (“Mitsui”), the leading underwriter; Württembergische Versicherung AG (“Württ), the leading company underwriter; WR Berkley Insurance (Europe) Ltd (“Berkley”); Markel International Insurance Company Ltd (“Markel”); Ace Europe Group Ltd (“Ace”); and DA Constable and others (Lloyd’s syndicate 386 for the 2005 underwriting year, “Constable”).

HPC has sought to join the excess insurers to these proceedings as intended Part 20 defendants, hence its application under CPR 19.2(2). It seeks to do so to make good its defence as against DHL, to the effect that it has committed no breach of its retainer nor caused any loss, since the insurance it obtained either provided DHL with what it required as a matter of the insurance’s true construction or would do so if it were rectified to accord with the parties’ common intentions. Thus the excess insurers are the respondents to this appeal.

In sum, this appeal is between HPC, the producing broker, as Part 20 claimant and appellant on the one hand, and the excess insurers, as intended Part 20 defendants and respondents on the other hand. The claimants, including DHL, and the existing Part 20 defendant, Forbes, the placing broker, are not represented on this appeal.

It should be emphasised at the outset that these are interlocutory proceedings and that therefore the evidence before the court is solely in the form of documents and witness statements. Although the court has to proceed on the basis of the evidence currently before it, any findings beyond what the documents contain are necessarily on a provisional basis only.

There are two policies, a primary policy and an excess policy. Each provides professional indemnity cover. We are principally concerned with a dispute which has emerged with respect to the excess policy. Both policies incepted on 1 May 2005, for a period of eleven months. They superseded policies which, in the case of the Hercules Group and DHL, would otherwise have continued until 9 July 2005. Pre-merger Erinaceous insurances expired on 1 April 2005.

In their final forms, the primary policy provided cover to the whole of the Erinaceous group (save for named subsidiaries who conducted insurance-related business) up to a limit of £10 million; while the excess policy provided cover for £10 million excess of £10 million limited to the “Assured’s commercial Property Management activities only” (see endorsement no 1). The assured under the excess policy was given as “Erinaceous Group PLC and as per primary policy”. The primary policy is not in our bundles but, on the assumption that the policy in this respect follows the primary cover’s slip, the assured is given as –

The critical question which divides the parties is whether the words in the excess policy’s endorsement no 1 (“Assured’s commercial Property Management activities only”) on their true construction or as may be rectified cover not the whole group for a limited range of activities, but DHL for all its activities (and thus, given the serious claims which have begun to appear, particularly for its valuation activities). Thus the excess insurers (and Forbes) say that the excess policy covers the group as a whole, but for a limited range of activities, viz “commercial property management” activities, which they submit do not embrace valuation activities. However, HPC says that those words on their true construction can and do embrace valuation activities; although for present purposes their case which is most under scrutiny is that “commercial Property Management” is a misnomer for DHL, under an erroneous misunderstanding that DHL had changed its name to “Commercial Property Management”: and that that is so either as a matter of construction (falsa demonstratio non nocet) or by way of rectification. DHL’s case in rectification is that the parties’ true intention was to refer to DHL, so that the words “the Assured’s commercial Property Management activities only” should be rectified to “the Assured’s Dunlop Heywood Lorenz activities only”. In other words the limitation of the excess policy was not to a restricted range of activities, but to the activities (all the activities) of a single insured subsidiary.

The excess insurers, however, submit – and this is also Forbes’ case – that the excess policy provided exactly what the parties intended to agree, namely restricted cover for the whole of the Erinaceous group in relation to its commercial property management activities only. The excess insurers also submit that commercial property management activities do not embrace valuation activities. I am not sure what Forbes’ attitude to this last point is.

How did this dispute arise? Whether or not the final policy wording looks unpromising material for HPC’s case, there is a complex hinterland.

The expiring year’s insurances had similarly been divided, in the case of the Hercules Group (which contained DHL in its stable of companies) between primary and excess cover. The primary cover had insured the Hercules Group as a whole for its property activities generally, but the excess cover had been limited to DHL only. In the previous year that excess cover had been for £10 million excess of £10 million (made up of various layers, but totalling the figures just stated). The reason why excess cover had been obtained for DHL alone was that only DHL had a major valuation business. The evidence before the court is that valuation is rated by insurers as much more risky than other business.

The Erinaceous and Hercules merger took place in October 2004. HPC was appointed producing broker. In January 2005 it appointed Forbes as its placing broker, a decision taken by the Erinaceous group’s finance director. The instructions were, to put the matter briefly, to renew the current policies on no worse terms: but there are substantial issues as to what the detailed instructions were and as to the terms of the retainer.

In early April 2005 Mr Brian Hart, HPC’s commercial insurance director, sent to Mr Andrew Bickell, a director in the professional indemnity division of Forbes, information concerning the Erinaceous group including DHL in the form of a draft application for insurance. This was a draft form which was ultimately signed and dated 26 May 2005 and is referred to in the slips. The information gave details of the gross annual fees earned by group companies, including DHL, broken down by areas of activity. Mr Hart also provided similar details from DHL’s major Manchester office. This information made clear that a substantial part of DHL’s business consisted of valuations: 90% of the fee income of DHL’s London office came from valuations; the largest portfolio valued by DHL was valued at £523 million. Under the heading “Current Insurance Cover” reference was made to the “excess layer of £10m in excess of £10m in respect of Dunlop Heywood Lorenz only”.

On 12 April 2005 Mr Hart met Mr Bickell at Forbes’s offices. He handed over hard copies of the previous material which had been sent by email. Mr Bickell’s evidence is that at this meeting Mr Hart told him of his premium targets for the primary and excess covers which he was seeking; and that the £80,000 target for excess cover of £10 million excess of £10 million was in respect of the commercial property management activities of the group. Mr Bickell made a note to that effect, viz “£80k for £10m x/s £10m iro Comm Prop Man”. Mr Bickell describes this note as “contemporaneous”. Mr Hart’s evidence is that he is certain that he never told Mr Bickell that the excess layer of cover was to be limited to the commercial property management activities of the group; nor would he recognise that term as a limiting expression, or as excluding valuation. He also says that Mr Bickell made no note whilst the meeting was in progress.

From 15 to 19 April 2005, Mr Chris Gadd, a colleague of Mr Bickell at Forbes, went into the market to obtain quotes for both the primary and excess covers. He took with him a quotation sheet on a printed form which contained various headings and boxes. The “Proposer” was given as “Erinaceous Group PLC and as per 05 proposal forms”, the “Profession” was given as “Surveying”, and the proposed “Limit of Indemnity” was given as £10 million, viz the primary layer, with an excess each and every claim of inter alia £100,000 in respect of commercial surveys and commercial valuations (the highest such excess proposed, reflecting it is said the greater risk of such work). “Endorsements” proposed were “All as per expiring Erinaceous Policy Endorsements” and among the subjectivities proposed were “Satisfactory details of extent of Commercial Valuations for transactional purposes”. Mr Gadd took with him a proposal form containing the placing information and the previous/current year’s slips which it is assumed would have contained the terms of the expiring covers.

The excess layer was dealt with on this quotation sheet in manuscript either in the bottom left hand corner or (in the case of one underwriter) on its reverse side. That underwriter was Mr Peter Glanfield, underwriter at Berkley, who was in fact the first to quote for the excess cover. He gave a “VRI” quote (“Very Rough Indication”) of £73,500 for £10 million excess of £10 million, subject to leading underwriter (Mitsui). He initialled and dated his quote 15 April. Next to his quote he noted down, under the heading “DHL”, that company’s gross fees from its various activities, including (by far the largest of these figures) fees in respect of valuations. Those figures had been extracted from HPC’s application form, which I take to be the proposal form referred to in the body of the quotation sheet.

On 18 April Mr Robert Ripley, underwriter at Mitsui, wrote his quote in the bottom left hand corner of the quotation sheet as follows:

Field J continued the story as follows:

At this stage, therefore, it appears, and the judge was satisfied, that Forbes was seeking a quotation for excess cover for DHL, and it was clear to the underwriters that this was so.

At some time after the first three initiallings of the excess cover quotation (by Messrs Glanfield, Ripley and Clemence) and possibly after all six underwriters had initialled the sheet, but it is not possible to be sure of that (albeit the excess insurers’ evidence is to the effect that they do not recall what I now refer to), Mr Gadd wrote on it against the reference to “Dunlop Heywood Lorenz” within Mr Ripley’s manuscript: “now called Comm Property Management D H Lorenz Now part of Erinaceous”. There is no statement before the court from Mr Gadd and there is no direct explanation from anyone at Forbes of this notation. The excess insurers’ evidence, as I have remarked, is that they do not recall this comment. At any rate, it would seem that Mr Gadd was under the impression that DHL had changed its name to “Commercial Property Management”. In fact that was not the case at all.

The evidence from Forbes comes from Mr Bickell, who, it will be recalled, wrote up his note of the meeting of 12 April with Mr Hart of HPC by referring to the excess cover “iro Comm Prop Man”. Mr Bickell’s witness statement contains this passage:

Although as will appear below, there came a stage when the documentation adopted a different wording which is then carried through into the excess policy’s endorsement, it is difficult to square Mr Bickell’s evidence in that passage with the quotation sheet, to which he is there referring. It is not clear whether Mr Bickell is purporting to give hearsay evidence of what he had learned from Mr Gadd: it is not what he says, but it may be said to be what the passage implies, since he could not really speak to Mr Gadd’s understanding (“confusion”) without conversing with him on the subject. I understand that Mr Gadd is still with Forbes. However, he has made no witness statement himself.

On 20 April 2005 Mr Bickell sent to HPC a report (the “Professional Indemnity Renewal Review and Report” or “RRR”) which he had prepared. Under the heading “4. Renewal Terms”, the report states: “To follow are details of the renewal terms we have negotiated…” There are then set out the detailed terms of the “Primary Layer” and the “Excess Layer Options” respectively, one of the latter being for £10 million excess of £10 million. The definition of assured was given under the primary layer, in the terms which came through into the policy. Under the heading of the excess layer options there appeared the following:

Indemnity provided by this policy will be restricted to the Insured’s Commercial Property Management activities.”

Mr Hart was on leave from HPC when the RRR was received. He had recently married and was about to depart on his honeymoon. However, he came into the office on 22 April to review the RRR before sending it on to the Erinaceous group. His evidence is that he did not notice the limiting condition. It never occurred to him that Forbes would be proposing to change the basis of the excess policy.

The RRR was passed to DHL. On 26 April Mr Tony Wensley of HPC spoke to Mr Bickell instructing him “to proceed as quoted”, as Mr Bickell’s note of the telephone conversation records. On the same day Mr Wensley e-mailed Mr Bickell to confirm inter alia that the excess layer option chosen was the £10 million excess of £10 million.

Thereupon Forbes went back into the market (I assume by Mr Gadd, but the evidence on that may not be clear) to inform the underwriters of the acceptance of their quotes and to obtain a “FON” endorsement. “FON” stands for “Firm Order Noted”. The only expert evidence presently before the court (on behalf of HPC), albeit this is disputed by the excess insurers, is that a FON endorsement is contractually binding on the terms of the quotation. Even though there were outstanding subjectivities, the expert evidence is that the binding contract binds conditionally and becomes unconditional when the subjectivities are satisfied.

The FON endorsement was obtained by Mr Gadd on a new quotation sheet which reproduced the terms of the original. The six underwriters initialled their “FON” endorsements with effect from 1 May 2005, citing the premium for the excess layer of £10 million excess of £10 million as £58,800 net, which was the net for gross equivalent of the originally quoted £73,500. As the judge observed: “None of the underwriters made a note or endorsement to indicate a change from the previous basis of quotation”.

On 28 April Mr Bickell e-mailed Mr Wensley to confirm the underwriters’ subscribing of the two covers. On 1 May 2005 these insurances incepted. HPC submits that the excess cover which then incepted was on the terms of the quotation, insuring DHL in respect of all its activities.

On 27 May 2005 HPC provided to Forbes the information, including details of the property valuation work undertaken by the Erinaceous group companies, required by the subjectivities. The conditional contracts would have become unconditional when this information was passed to the underwriters.

It may be that this was done contemporaneously with taking the relevant slips to the market for initialling. These slips were the next stage towards execution of the policies. They were lengthy documents which, unlike many slips, set out the cover’s terms in full, including the wording of the “AGD Surveyors Professional Indemnity Policy 2004”. They also referred to a long list of “information…seen and noted by insurers”, namely a “2005 renewal folder” whose lengthy contents were then itemised and included the now signed application or proposal form, dated 26 May 2005. The excess cover slip stated that the assured was “Erinaceous Group PLC And as per primary policy”; that the interest was “Professional Indemnity Insurance in respect of the Insured’s Professional Business Practice activities as stated below”; that that Professional Business Practice was “Property Management, Managing Agents, Chartered Surveyors and as per proposal form and attachments dated 26^th May 2005 and previous proposal forms and attachments”; and that its “Conditions” were as follows:

The slips were initialled between 31 May and 2 June 2005. In the case of four out of the six excess underwriters the underwriters signing the slip were different from the underwriters who had signed the original quotation sheet and/or FON sheet. The two underwriters who were involved at each stage were Mr Denton of Württ and Mr Palmer of Markel.

Forbes’ cover notes to HPC in respect of both primary and excess covers are dated 6 June 2005. Their introductory wording stated:

The Lloyd’s policy was issued on 13 June and the companies’ policy on 21 June 2005.

Field J concludes his account of these facts as follows:

The documentation thus far suggests that it is properly arguable that a mistake of some kind has occurred. The expiring excess cover was for DHL; the quotation was for DHL; the FON was based on the quotation. The premium, which remained unchanged (save for pro-rating and net for gross adjustments) was based on DHL’s fees and their large valuation component. On the other hand, Mr Bickell’s note of his meeting of 12 April with Mr Hart speaks of the excess cover being in respect of commercial property management, and the RRR reflects that, as do the slip, the cover note, its covering letter and the final policy.

What light, if any, does further documentation or other evidence throw on this confusion? The excess insurers have annexed internal documentation to the witness statement made on their behalf by Ms Lindsay Woods of their solicitors Kennedys. This reveals the following.

Mitsui. I start with Mitsui, for this was the lead underwriter, which had also participated as lead underwriter on the previous year’s excess cover for DHL. Mr Ripley of Mitsui drew up his “Renewal Underwriting Notes” on a Mitsui form. He initialled and dated these notes on 18 April 2005, on the same day as he initialled the quotation sheet. His notes refer to DHL as the insured, calculate the premium, and observe: “Insured are now part of Erinaceous Group. Cover still only to apply to DHL…existing policy to be lapsed and cover then added to Erinaceous…”. On 1 June 2005, the day after another Mitsui underwriter had signed the slip, Mr Ripley initialled a risk entry note and observed on it:

There is no evidence directly from Mr Ripley. Ms Woods says that he told her that he “would have” made the entry dated 1 June 2005 using his earlier notes and would not have referred to the slip. The FON was initialled not by Mr Ripley, but by his colleague Mr Potts. Mr Potts told Ms Woods that he had no recollection of the FON signing and made no notes. The slip was scratched by another colleague, Ms Field, an assistant underwriter. Ms Woods had not spoken to Ms Field, who has since left Mitsui.

Württ. I come next to Württ, for it was the lead companies’ underwriter. Mr Denton, its underwriter, was involved at all three stages (quotation, FON and slip). Württ and Mr Denton had also participated in the expiring DHL excess cover. Two rating sheets have come forward from Württ. The first, headed “Erinaceous Group”, refers to Mr Gadd, and is a detailed rating of an excess cover at various levels, calculating a premium for a layer of £10 million excess of £10 million. Under the market quote (gross) figure of £73,500 is typed “IRO Heywood Dunwoody only. See specific sheet for HD”. The other sheet is in similar form but is headed “Heywood Dunwoody”. These references appear to be to DHL. The second sheet refers to DHL’s fees from various activities and it is obvious that the rating for the activity of valuation is significantly higher than for other activities. The market quote figure of £73,500 again appears. Württ’s computer records show that these rating sheets were last modified on 19 April 2005, ie the day that Mr Denton signed the quotation sheet.

Ms Woods says that Mr Denton informed her that he recalls Mr Gadd broking this risk to him and “specifically remembers they were only covering the property management aspect of the business”, although he is unsure when that was but possibly at the time of the FON. He did not regard “Commercial Property Management” as a name change for DHL. It is not easy to see how this recollection accords with either the Württ documentation or the quotation sheet and FON documentation, but may of course be derived from the subsequent slip wording.

Berkley. It will be recalled that Mr Glanfield of Berkley was the first underwriter to sign the quotation sheet and suggested the VRI quote of £73,500. Mr Glanfield also signed the FON. The slip was scratched by a colleague, Mr Cox, who has no specific recollection of the occasion. There is no Berkley documentation. Mr Glanfield told Ms Woods that he recalls Mr Gadd telling him that the risk for which he quoted covered the commercial property activities of the Erinaceous group as a whole. He thinks that was on 27 April, at the time of the FON.

Ace. Mr Driscoll was Ace’s underwriter who signed the quotation sheet. Ace has produced two documents, both in Mr Driscoll’s manuscript. The first, undated, is headed “Insured Erinaceous Group (inc Hercules Group)” and refers among other details to the premium for both layers. As for the excess layer, Mr Driscoll wrote: “£10m xs £10m iro Dunlop Hayward only…@ £73,500”. The second sheet is Ace’s internal front-sheet for the excess cover. It was drawn up between 3 and 10 June 2005, ie after signing of the slip. Mr Driscoll then wrote “Cover for this layer only iro Commercial Property Mgmt activities”. Mr Driscoll did not sign the slip: that was done by his colleague Mr Slater, who has no recollection of doing so. Mr Driscoll told Ms Woods that he specifically recalls Mr Gadd telling him that the excess cover was limited to the group’s commercial property management activities, although he could not recall when.

Constable. The Constable underwriter was Mr Clemence who scratched both quotation sheet and FON. The slip was scratched by a former colleague who has not been contacted. No Constable documentation has been produced. Mr Clemence told Ms Woods that Constable was not keen on insuring valuations and had therefore declined subscribing to the primary layer. However, he subscribed to the excess layer because the layer had no valuation exposure being limited to the group’s commercial property management activities only. It will be recalled that Field J observed that this evidence was “out of accord with the basis of all the other quotations”.

Markel. Markel’s underwriter, Mr Palmer, was the only other underwriter (apart from Württ’s Mr Denton) to be involved at all three stages. He had also been involved in the expiring year’s excess cover for DHL. Markel has produced three documents. The first two are “PI Risk Summary” sheets, both undated. They each refer to the primary and excess layers for 2004 and 2005. However, while the first sheet (which gives the various options for the excess layer) states “only covers Dunlop Heywood Lorenz”, the second sheet (which refers to the excess layer adopted of £10 million excess of £10 million) states “commercial property management only!” It is not known what the significance of that exclamation mark is. It is not known by whom these documents were produced. The third document is dated 31 May 2005 (the date when Mr Palmer scratched the slip) and is a front-sheet to Markel’s excess cover: it states “Doesn’t cover all activities”.

Mr Palmer told Ms Woods that he remembers Mr Gadd broking the risk on the basis that the excess cover was for the commercial property management activities of the group, not for DHL only. “Mr Markel does not recollect any suggestion that the excess layer was only for DHL”.

This material is something of a mixed bag. At one extreme are Mitsui and its underwriter Mr Ripley, whose understanding that the excess layer was for DHL only is fairly well demonstrated. At the other extreme are Constable and its underwriter Mr Clemence, whose evidence was, however, devalued by the judge as “being out of accord” with the quotation slip. In between, there are various grades of uncertainty. Thus, some underwriters give their recollection without internal documentation. Some internal documentation is arguably helpful to HPC, such as Württ’s, some is unhelpful, such as Ace’s, some is equivocal such as Markel’s with its suggestive exclamation mark. Mr Palmer’s evidence appears, like Mr Clemence’s, to fly in the face of the quotation sheet.

In respect of all this evidence, Ms Julia Dias QC, who represents HPC, submits that it is untested by cross-examination and proper disclosure; and that whereas some witnesses suggest a line which is suspect because incompatible with the quotation sheet and FON, others are uncertain as to when they were told that the excess layer related to the group’s commercial property management activities and not to all the activities of DHL, leaving it open to the possibility that they have been influenced upon review by the final documentation of slip and policy. She also submits that some of the post-slip internal documentation may simply be a reflection of what is in the slip. Further, it is significant, she says, that Mr Gadd has given no evidence, and that Mr Bickell’s evidence to the effect that the intention was at all times that the excess cover should relate only to the group’s commercial property management activities is unsatisfactory. She points to the line taken in his witness statement, quoted above, that “The quotation obtained from the Underwriters for the excess cover was for the commercial management activities of all the companies within Erinaceous”: which she submits with some force appears to be incompatible with the evidence relating to the quotation sheet.

I do not think that Ms Dias has suggested the possibility that the legal position may differ from party to party, but I suppose that in theory that is feasible: but not of course if Mr Gadd was in truth broking excess cover for the commercial property management activities of the group and not for DHL only, which is of course what some of the underwriters have told Ms Woods is their recollection.

Before I turn to the law relating to rectification, it is necessary to say something about the structure of the litigation as a whole and, within that, of HPC’s application to join the excess underwriters, leading to this appeal.

The claim by DHL is against its producing broker, HPC, for breach of its retainer and negligence in the renewing of the 2005 year excess cover. DHL has not brought any claim against the excess underwriters, let alone a claim for rectification. It is a matter for speculation, but it may be that DHL feels confident in its claim as formulated without wishing to dilute it by adding an alternative claim against those insurers. HPC in turn has claimed against the placing broker, Forbes, under its sub-contract with it. As part of its defence it has raised the issues of construction and rectification referred to above. If it succeeds in its arguments of construction, there may have been no breach or alternatively no loss; and as for rectification, it pleads this as a point raising a defence of “no loss”. Thus, its defence asserts that the claimants, who include DHL, “are entitled to have the Excess Policy rectified”. In their reply the claimants allege that HPC will have failed in its duties if they are exposed to unnecessary litigation, and, as to the specific plea concerning rectification, simply state “not admitted. HPC is put strictly to proof of the allegations made therein.” In its Part 20 defence, Forbes pleads inter alia that it was instructed by HPC “to obtain cover for the Commercial Property Management activities of the Group companies”.

The question might possibly be raised whether rectification, which is a personal equitable remedy, is available to a defendant like HPC which is not a party to the contract in question. In effect HPC says that DHL has a remedy which would avoid the loss complained about. But if DHL is unwilling to claim that remedy, has HPC itself any right or standing to advance the claim against DHL’s contract partners? However, the excess insurers have not made any such submission; and I therefore assume for present purposes that the point is not there to be made.

HPC’s application to join the excess insurers, which was refused by the judge and is now under appeal, is made pursuant to CPR 19.2(2), which provides as follows:

it is desirable to add the new party so that the court can resolve all the matters in dispute in the proceedings; or

there is an issue involving the new party and an existing party which is connected to the matters in dispute in the proceedings, and it is desirable to add the new party so that the court can resolve that issue.”

Before Field J the excess insurers took a preliminary point on the rule, to the effect that HPC has no standing to join the excess insurers as parties, and the court lacked the jurisdiction to do so, since no claim is made against the excess insurers by any of the parties to the action. The judge briefly rejected that submission. He said:

There is no appeal from that decision. I would observe that that question is different from the point I canvassed and put aside in para 57 above.

The more substantial issue raised below was the excess insurers’ submission that because HPC’s contentions of construction or rectification are not seriously arguable, accordingly it is not “desirable” within the meaning of the rule for the excess insurers to be joined as parties. The judge accepted that submission, although it is debated in exactly what terms he did so. One question to which his decision has given rise is whether it is essentially an exercise of his discretion which this court is unable to overturn. That question involves looking at his reasoning, which I will do below, after first considering the law of rectification.

The judge also had to deal below with Forbes’ application to strike out the whole of HPC’s claim against it on the basis that it had no reasonable prospect of success. It was for that purpose that Forbes deployed its evidence, for instance the witness statement of Mr Bickell, to which I have referred. One issue that the judge had to deal with on this application was whether there was a case that Forbes was instructed to renew the excess cover on no worse terms than the existing cover, or whether, as Forbes submitted, it had been instructed to obtain the excess cover with the limiting condition. The judge rejected Forbes’ application. He held that HPC had a good arguable case. He did so in large part because he accepted HPC’s evidential case based on –

It is in these circumstances that the “Agreed List of Issues” for trial, approved by David Steel J on 17 November 2008, pending this appeal, included the following issues:

As a matter of construction:

do the words “Commercial Property Management” in fact refer to the First Claimant?

Do “Commercial Property Management activities” in fact include commercial property valuations?

Are the Claimants entitled to have the Excess Policy rectified by substituting the words “Dunlop Heywood Lorenz” for “commercial Property Management” in the endorsement? As to this:

Was it the common intention of Forbes and the Excess Policy underwriters that cover under the Excess Policy was to be provided for all the activities of the First Claimant?

Did this common intention continue until the conclusion of the Excess Policy?

If so, does the slip or policy document accurately represent the true agreement of the parties at the time of its execution?

Would the slip or policy document rectified as set out above accurately represent the true agreement of the parties at the time?”

For present purposes, on an interlocutory application, it is not necessary to refine aspects of the principles of rectification to any great degree. It is sufficient to refer to the conditions set out in cases such as Joscelyne v. Nissen [1970] QB 86, Agip SpA v. Navigazione Alta Italia SpA (The Nai Genova and Nai Superba) [1984] 1 Lloyd’s Rep 353 or The Demetra K [2002] 2 Lloyd’s Rep 581. In The Nai Genova at 359 Slade LJ put the matter thus:

Although the standard of proof is the civil standard of the balance of probabilities, it has frequently been said that “convincing proof” is needed of the alleged common intention by which it is sought to override the cogent evidence of the parties’ intention demonstrated by the instrument sought to be rectified.

Normally, the principal obstacle which lies in the path of a party claiming rectification (and it is well known that such a claim is a difficult one to vindicate) is the first hurdle of convincingly proving the prior common intention, especially where that prior common intention is not itself a binding contract, as it need not be. For these purposes, what needs to be shown, as in any case of mutual agreement, are objective manifestations of intention which the parties demonstrate to one another: see, for instance, The Olympic Pride [1980] 2 Lloyd’s Rep 67 at 72 at para 3, per Mustill J.

However, in the present case, because of the relative formality with which the quotation sheet and the FON endorsement were dealt with in the market, and also because the FON is at this stage assumed to be already a binding, albeit conditional, contract, it may be stated (of course provisionally) that there is at the very least a good arguable case that HPC’s first hurdle has been crossed.

What this case discloses, on the other hand, is the second main difficulty of showing that the prior common intention has survived into the instrument which has to be rectified. That is ultimately the policy. Despite the opportunity which existed for a mistake to be picked up and remedied at the stage between slip and policy (see for instance the cover note and its introductory warning), there is a valid argument that, once the slip was in the form which it took, the drawing up and execution of the policy itself was largely a matter of administration.

It may be said therefore that the critical stage for investigation on this application and now at this appeal is the transformation from FON to slip. It will be seen that this was how the judge viewed the matter himself.

In this connection, where one contract (the assumed contract of the FON) is superseded by another contract (the slip), a question may always arise in any event, even in the absence of any claim for rectification, as to (a) whether the earlier contract is admissible evidence for the purposes of construing the superseding contract, and (b) whether, if it is, it can throw any useful light on that later contract. These issues were considered in HIH Casualty & General Insurance Ltd v. New Hampshire Insurance Co [2001] EWCA Civ 735, [2001] 2 Lloyd’s Rep 161 at paras 69/97. We have been referred to that authority, but in my judgment it is not concerned with rectification. It is in the nature of the principles of rectification that, even where one contract is superseded by another contract, the later contract may still be rectified. Otherwise, the more cogently the prior common intention has been established, for instance in a binding agreement, the more difficult it would be to show that the parties’ common intention survived into the superseding contract. That, however, is not what I understand to be the law.

There are cases, however, where one contract has been superseded by another contract in circumstances where the term which is sought to be rectified is not the only change between the two contracts but where there are also many other terms which are new to the superseding contract. In such cases, the evidence of what amounts to a fresh negotiation occurring in the period between the superseded and the superseding contracts may make it difficult for the claimant to prove that the prior common intention survived into the later contract. An example of such a case is Pindos Shipping Corporation v. Raven (The Mata Hari) [1983] 2 Lloyd’s Rep 449 where Bingham J had to consider a claim to rectify an insurance policy together with its slip on the basis of a prior oral agreement that on renewal, and unlike the previous year, the cover did not include a warranty of class maintained. Bingham J reasoned the matter as follows (at 452):

That case, although decided against rectification, illustrates the possibility of rectification of slip and policy. I bear in mind the following passages concerning this context from MacGillivray on Insurance Law, 11^th ed, 2008:

The judge, having assumed for present purposes that a contract came into existence in terms of the FON endorsement, nevertheless applied the reasoning of The Mata Hari. He said:

Ms Dias submits that there are two main difficulties with that passage. First, it uses the problem which the principle of rectification itself serves to resolve, that is to say a change from a prior common intention to the final form of contract, to solve the problem, merely on the ground of the change identified. That amounts, she says, to begging the question. Secondly, paragraphs 53 and 54 veer uneasily between, to start with, a summary conclusion of the whole issue of rectification based on a finding of fact made on a merely interlocutory paper enquiry (para 53), and then, a resurrection of the rectification case but only as one too weak to make it desirable to join the excess insurers (para 54).

The judge went on briefly to consider HPC’s construction case. He said:

As to this conclusion, Ms Dias says that the first issue of construction is so close in its factual underpinnings to the case of rectification that there is an incoherency in the judge’s conclusion, however marginal, that that issue has a real prospect of success when that conclusion is set against his immediately prior rejection of the rectification claim. Secondly, she says that the judge was simply wrong to say that the construction claims could properly be tried without the presence of the excess insurers, and thus to run the risk of separate proceedings, which would involve a re-run of all the same evidence and issues to be explored at the forthcoming trial.

On behalf of the excess insurers, on the other hand, Mr David Railton QC submits that the judge was right for the reasons he gave. His essential submission is that joinder should not be permitted because the rectification claim and the construction claims have no reasonable prospect of success and can thus be disposed of summarily. In developing that submission he concentrates on the evidence provided on behalf of the excess insurers and also on behalf of Forbes (albeit that evidence was tendered below in support of Forbes’ application to strike out the Part 20 claim against it), and does so by means of a respondent’s notice whereby he seeks to analyse that evidence and to say that the judge should have made the order he did for the additional factual reasons there addressed. In the circumstances I have had to go into that evidence in detail above. Ms Dias for her part has joined issue with that material and submits that to a significant extent it supports her. Mr Railton also submits that the judge’s decision amounts to a case management ruling in his discretion which should not be disturbed for the classic reason that he has not “exceeded the generous ambit within which a reasonable disagreement is possible” (per Lord Fraser of Tullybelton in G v. G [1985] 1 WLR 647 at 652).

The difficulties in the way of proving rectification are well-known and have been described as formidable. That is the general background to this appeal. Moreover, I would not seek to disguise my appreciation of the many problems that the facts of this case appear at this stage of the argument to present to HPC. I have already mentioned my concern (and put it aside) that there is no claim for rectification by DHL itself.

That said, I have to bear the following matters in mind. First, the background of the renewal lies in DHL’s expiring excess policy, which was brought to an end prematurely by the new excess policy. This is a significant factor where a claims made professional indemnity is concerned. Secondly, the judge was himself satisfied on a provisional basis that the original quote and thus very arguably the FON contract itself was made to cover the activities of DHL. On that basis it may not make any difference that the insured is expressed as the Erinaceous group as a whole. Thus the difficult first hurdle of a prior common intention, here in the form of a binding albeit conditional contract, has been overcome. Thirdly, there is a good arguable case that the lead underwriter itself, Mitsui, through Mr Ripley, considered that the slip contract continued on the same basis as the FON contract, namely as providing excess cover for DHL. It can also be said that Württ’s documentation, although preceding the slip, goes in the same direction, and Württ was the leading company underwriter. Fourthly, while the evidence relating to the other underwriters is more equivocal, and in some cases may appear to be ranged against HPC, it is nevertheless, like all the evidence in the case, untested by any of the disciplines of litigation such as disclosure, witness statements and cross-examination. Fifthly, Mr Gadd has provided no evidence himself, although he is available to do so. When one considers that the leading figures in the making of the excess policy were, on the one side Mr Gadd and on the other side Mitsui’s Mr Ripley, it would seem to be a strong thing to set aside the claim of rectification at an interlocutory stage.

Sixthly, there is reasonable evidence that a mistake of some kind has been made: although it is impossible to say at this stage how Mr Gadd’s confusion over the name of DHL, demonstrated by his reference on the quotation sheet to its changed name as Commercial Property Management, may have affected the course of the broking, nevertheless that confusion affords some understanding of how the matter could have progressed as it did from its DHL beginnings to its limiting condition conclusion. Seventhly, the case made by Mr Bickell (for Forbes) and by Ms Woods on behalf of many of the underwriters involved, that the excess policy renewal was expressly brokered by Mr Gadd on the basis that the cover was not being provided to DHL but to the group as a whole but on a limited basis, is not easy to square with the documentation as a whole; is not supported by any evidence from Mr Gadd; and is inconsistent with the judge’s finding (as part of his rejection of Forbes’ application for summary judgment) that there is evidence that “there is no reason why an insured exposed to significant valuation claims would want to exclude cover for valuations under an excess layer”. In other words, there is a good arguable case that the excess cover obtained (subject to the surviving arguments on construction) lacks commercial sense.

For a combination of these reasons, I would have been most reluctant to deal with the rectification issue summarily, as the judge appears to have done in his para 53 with its conclusion: “this finding being one that can be made on the evidence before me without the need of a trial”. The issue of rectification is a necessarily fact-based enquiry, and that is how the matter has been argued on both sides before this court on this appeal.

Why then has the judge decided as he has done? In my judgment, he has erred in finding in The Mata Hari, at any rate on the present state of the evidence and argument, a significant authority to assist him. That was a case, as my citation from Bingham J’s judgment above demonstrates, where an alleged oral “held covered” agreement was overtaken by a fresh negotiation concluding in many new terms. It was impossible therefore to say that the class maintained warranty could not have been deliberately introduced at that point without any error. In the present case, however, although the matter is not free of dispute, it is submitted by Ms Dias with some plausibility that all the essential terms of the excess cover were already in place at the time of the quotation sheet and FON. Those were brief documents, but they were premised on the considerable information provided and the terms of the expiring insurances. It is said therefore that the drawing up of the slip was an essentially administrative process, and that it was for that reason that those who signed the slip were for the most part (Mr Denton of Württ and Mr Palmer of Markel were the exceptions) junior colleagues of the underwriters who had signed the quotation sheet and/or FON. It certainly appears to be the case that none of those junior colleagues can recall anything about the signing of the slip. It may be that there was some minor addition or alteration to the slip, but the matter is obscure to me, and the overturning of the whole basis of the contract is quite another matter. It is clear to me at any rate that the judge did not approach the matter on the basis of any new terms other than the disputed term of the limiting condition itself. He gives no example of any other new term. If, however, every rectification case were decided on the basis that the disputed term said to be in need of rectification cannot be rectified because it is different from the prior agreement and thus represents a deliberate superseding of that prior agreement, then there would never be a case for rectification.

In my judgment Field J has rejected the claim of rectification on an erroneous basis. It is also a narrow basis.

Although the judge made a summary finding against rectification in his para 53, he went on in para 54 to describe the rectification case as weak, and indeed too weak to make it appropriate to subject the excess insurers to joinder. It appears to be agreed between the parties that the rectification issues remain in the case as between HPC and Forbes. It is suggested on behalf of the excess insurers that in these circumstances the refusal to join the excess insurers is an exercise in discretion which cannot be revisited. In my judgment, however, this submission cannot survive the judge’s erroneous determination that he can make a finding against rectification without the need of a trial. In such circumstances, he could not regard the claim for rectification as other than too weak to be the basis of joining the excess insurers.

It is nevertheless necessary to broaden the argument on discretion. Would it be right to implicate the excess insurers in this costly litigation, with its danger of irrecoverable costs? Mr Railton submits no.

I emphasise again that I recognise the difficulties in HPC’s path, both generic to rectification and on the facts of this case. In detailing above and concentrating on the factors which have led me to consider that this case must, at least as between HPC and Forbes, be dealt with on its merits at trial, I do not intend to give any impression as to the likely outcome of the trial. I am dealing with an interlocutory application.

That said, however, I do not consider the case to be so weak as to prevent it being desirable to join the excess insurers. The issue has been properly raised from HPC’s first defence in August 2007. The application to join the excess insurers was made at an early stage in November 2007, well before any date was obtained for trial. The issues remain agreed issues for trial. In any event, and irrespective of those agreed issues, the same subject-matter will have to be gone into in order to deal with the other issues between HPC and Forbes. If the excess insurers are not parties to the trial, then these matters will have to be investigated without the discipline, in matters of disclosure and evidence, of their presence as parties. It is of course possible for them to make their documents and evidence available, for instance to Forbes, without their being parties: but that is only to demonstrate that it is but a comparatively small step to joinder. Moreover, without being parties, they cannot be bound by the result of trial.

There is also the matter of the two construction defences. These also remain issues at trial. The judge was prepared to assume, even though he also expressed considerable hesitation, that each of them has a real prospect of success. They have not been argued on their own merits on appeal, since the parties have accepted the judge’s view of them. It seems to me that Ms Dias is right to say that the first of them raises much of the same factual material as the claim to rectification. The judge’s assumption therefore that it has a real prospect of success itself undermines his judgment with respect to the claim for rectification – but I have already explained the narrow basis of that latter decision. In as much as the first construction claim overlaps with the issue of rectification, that is in my view an additional reason why there should be joinder. As for the second construction claim, that might itself require expert evidence as to what comes within the words “commercial Property Management activities”. Certainly Ms Woods purports to give evidence derived from the underwriters to whom she has spoken about the meaning of those words. It is most unsatisfactory that such issues of construction should be argued without the excess insurers contributing to them and being bound by their outcome.

In my judgment therefore it is desirable for the excess insurers to be joined to these proceedings so that the issues of rectification and of construction can be fully litigated between all the parties concerned in them, and so that all the parties can be bound.

In sum, I would allow this appeal and order joinder of the excess insurers for the purpose of participating in the issues of rectification and construction. The consequences of this decision will need appropriate case management.

In the end, and following a reading and then also a re-reading of my Lord's judgment, I now put aside my earlier doubts about the proper despatch of this appeal (upon which it would be fruitless of me to dilate) and agree that the appeal should be allowed for the reasons which he gives.

For the reasons given by Rix LJ I too would allow this appeal and make the order which he proposes.