Ted Baker Plc & Anor v Axa Insurance UK Plc & Ors

This is an appeal against the rejection by Eder J of a claim against insurers for alleged business interruption (“BI”) losses said to have arisen in respect of goods stolen by a trusted employee named Joseph Okyere-Nsiah (“JON”). Ted Baker PLC, the first appellant, is the overall holding company for the Ted Baker brand. No Ordinary Designer Label Ltd, the second appellant, is the UK operating company of the group. Since the first appellant owned none of the stock and suffered none of the losses claimed, the proper claimant is the second appellant, which for convenience the judge described as Ted Baker or TB. I shall do the same.

The hearing before Eder J followed an earlier determination by him of issues of coverage, estoppel, rectification etc. where the defendant insurers (“the insurers”) lost on every issue. In the hearing the subject of this appeal the judge rejected the claims advanced by the claimants in their entirety but without “any great enthusiasm”. He found against the claimants in three respects, namely that:

the claimants were in breach of a condition precedent to the insurers’ liability in not providing certain documentation relating to quantum to insurers’ loss adjusters;

it was not possible on the evidence to reach any conclusions about the modus operandi of the employee concerned;

largely on that account he could not conclude that the loss of profit on any theft exceeded the £5,000 deductible.

The judgment is long and detailed. For present purposes, it is only necessary to refer to some of it. In paragraphs [4] – [14] the judge set out the general nature of TB’s business operations which involved ordering and buying goods from overseas manufacturers, predominantly in China, and despatching them, once imported, from its main warehouse in North London known as the Ted Baker Distribution Centre (“TBDC”). In paragraphs [15] – [19] he described TB’s case as to the thefts of stock from 2003-2008 for which thefts JON was convicted and sentenced to 3 years imprisonment.

The claim was advanced in respect of BI losses under a series of policies beginning on 14 March 2004 under which the insurers and their respective proportions changed from time to time. The insurers were (i) AXA Insurance UK PLC (“AXA”), the first defendant/respondent; (ii) NIG, not a defendant; (iii) Fusion Insurance Services Ltd, the second defendant/respondent; and (iv) Tokyo Marine Europe Insurance Ltd, the third defendant/respondent.

The main terms of the policies were as follows:

The amount claimed in the Re-Amended Particulars of Claim of 13 January 2013 for the policy years 2004/5 – 2008/9 was £1,998,000 after application of the policy excess, although a number of different figures were put forward in evidence. The claim reduced shortly before trial to £904,000, although it went up again to £1,453,000. The judge estimated the combined costs of the past and present trials as likely to exceed £5 million – a state of affairs which he rightly categorised as appalling and which he hoped, under the Jackson reforms, would never happen again.

The first set of issues with which the judge had to deal were what he described as the Claims Co-operation issues. In essence the defendants said that TB had failed to provide certain information and documentation required under the terms of the policies with the result that TB was debarred from advancing any claim at all. TB, for their part claimed that the insurers were precluded from making these complaints for a number of reasons, including estoppels of different kinds and waiver.

In [41] - [92] the judge made a number of factual findings, which it is necessary to summarise insofar as they bear on and are necessary to determine the first two grounds of appeal. I do so, in part, by quoting the relevant paragraphs of the judgment.

As the judge recorded in [42] - [44]:

On 23 December 2008 Mr Coonan sent his IMMEDIATE ADVICE (CONSEQUENTIAL LOSS) report to the insurers with various comments including “supposed cause” as “loss of gross profit due to theft of stock by employee” and a suggested reserve of £300,000. On 29 December 2008 Mr Coonan sent his “Preliminary Report (Consequential Loss)” to AXA. Then:

Then:

On or about 1 January 2009 Bluefin commenced operations taking over LB’s responsibilities as insurance brokers for the claimants, together with some of LB’s employees, including Mr Burbedge.

On 8 January 2009, a meeting took place at AXA, recorded in a document entitled “STRATEGY PLAN”. This recorded, inter alia, that AXA should hold off instructing forensic accountants until they got legal advice; and that in relation to professional accountants’ charges “Agree to pay under the terms of the Policy for producing information”. In her oral evidence, Mrs Taylor of AXA explained that what that meant was that AXA would pay whatever the policy called for (as to which there was a dispute with TB). But, as she said, until the liability question was determined AXA could not commit to paying whatever might be payable under the Professional Accountants Clause (“PAC”).

Then:

On 6 February 2009, Mr Coonan of WC, the Loss Adjusters, who had received none of the documentation and information requested on 29 December 2008 (or at the meeting on 18 December 2008, when he was said to have asked for the same information), sent a chasing email to Mr Burbedge which said:

On 10 February 2009 Mrs Stone spoke to Mr Coonan on the phone asking for a further meeting with him, Mr Raby and Mr Page to discuss the further information required. She said that she hoped she would be able to provide some response to his request for information.

Then:

On 17 February 2009, Mrs Stone sent an email to Mr Coonan attaching Mr Page's finalised drafts, which she described as 'headline details' of claims for loss of stock and loss of profits. The claims were for the years 2005-2008 only, with an explanation that TB believed the thefts began in 2005. The claims totalled £3,756,397 for loss of profits plus £1,435,373 for stock cost, without allowance for excesses in relation to either.

Then:

In [68] the judge said:

On 10 March 2009 AXA’s underwriting department in London produced their Large Loss Advice. On 17 March 2009 Mr Coonan produced an interim report to AXA, covering some 6 pages. In that report [70]:

On 24 March 2009:

Then:

Then:

Thereafter there were telephone calls between Mrs Stone of Bluefin and Mrs Woodgate and Mrs Taylor, both of AXA. A note of a telephone call from Mrs Taylor to Mrs Stone of 16 April 2009 reads:

Then:

On 28 August 2009 Mrs Stone emailed Ms Raby of ASL, AIG’s Loss Adjuster, copied in to Mr Coonan, to say that AXA were still dragging their feet and to record that as previously discussed Ted Baker would not be willing to undertake this exercise twice and would wish to “re-visit the opportunities that the AIG policy presents to provide accounting assistance to the Insured”. She suggested four different dates for a meeting. On 9 September 2009 Mr Coonan emailed Mrs Taylor of AXA to record that “The insured is reluctant to carry out the necessary quantification works twice and the brokers have advised that they are pressing you and your underwriters for your own admission of liability”.

Thereafter a meeting took place on 16 September 2009 at TB’s offices between Mrs Stone, Mr Page and Mr Ledger, on TB’s side and Ms Raby of ASL, for AIG, and Mr Coonan of WC, for AXA. The main purpose of the meeting was to progress finalisation of the loss amount in respect of cost of stock with AIG. Following the meeting Mr Page emailed to Ms Raby, copied to Mr Coonan, PI reports for the season from Spring/Summer 2005 to Spring/Summer 2009 inclusive.

The insurers first contended that, in breach of Special Claims Condition 2 b) (i) TB failed to deliver to ACA any “particulars of claim” until their email dated 17 February 2009 and were, therefore, out of time. The judge found that AXA had, in effect, allowed “further time” as contemplated by 2 b) (i) and that the email of 17 February 2009 was properly to be characterised as the delivery of particulars of claim within the time allowed by the insurers. But he accepted that the particulars sent in that email made no claim in respect of 2004 and that, in consequence, any such claims were now precluded as a matter of construction of the policy.

The insurers contended, secondly, that, in breach of BI section, Special Claims Condition 2b) (ii) and/or General Conditions, Claims Condition 1 d) TB failed to deliver to AXA relevant information and documents thereby precluding any claim at all. The information and documentation which had not been provided was that contained in Mr Coonan’s shopping list as set out in his email of 29 December 2008.

As to that the judge decided three matters. First, he held the requirement to deliver the Categories of documents other than Categories 1 and 7 was not “reasonable” in the circumstances and having regard to the time and expense which would have to be incurred by TB in complying with that requirement. In relation to Category 7 even TB’s own expert accepted that this was reasonably requested and it was common ground between both experts that a request for management accounts was routine for commercial claims. None of this information was provided and neither the experts nor the judge could see any reason why it was not.

Second, the judge concluded that so far as the material in Category 7 was concerned, the PAC had no relevance. That clause included (see [5] above) the following provision:

TB had contended that the information and documentation sought in the email of 29 December 2008 qualified for payment under the PAC and that the insurers’ refusal to accept to pay for the cost of complying with the shopping list was a breach of the PAC such that they could not justifiably complain of any breach by TB in failing to deliver the documentation. As to that, the judge found that, whilst assistance from external accountants would probably have been desirable if not essential in respect of Categories 2-6, the information and documentation under Category 7 was not such as to qualify for payment under the PAC and it could and should have been provided by TB themselves without any input from external accountants.

Thirdly, the judge considered the various ways in which TB claimed that the insurers were precluded from taking the point that the condition precedent was not complied with. In effect, TB said that the parties had agreed to “park” all issues of quantum until the question of liability in principle was in effect agreed, or settled in one way or another, and that the insurers had either agreed this contractually or had waived such entitlement as they might have had to take the point that they did, or had, by one or other of three species of estopppel (estoppel by representation, estoppel by convention or estoppel by acquiescence) become precluded from doing so.

The judge set out in summary in paragraphs [119] - [125] the legal submissions that had been made to him and his observations thereon. He did not find it necessary to resolve all the issues that had been ventilated. As he recorded, he had rejected the insurers’ case that TB was in breach of any relevant claims co-operation clause save in respect of (i) TB’s claims in respect of 2004; and (ii) Category 7 of Mr Coonan’s shopping list.

As to the former, he regarded any suggestion of any agreement, waiver or estoppel which might preclude the insurers from asserting a breach with regard to any claim in respect of 2004 as “quite hopeless”, if only because there was no suggestion of any such claim until after the commencement of the proceedings.

As to the Category 7 material the strategy adopted by Mrs Stone and Mr Page was that TB were not prepared to do the additional work and incur the additional expense in providing the documentation/information in the shopping list, apart from Category 1 (which was provided), until liability was admitted in principle. Whilst no blanket “agreement” to such effect had been made at the meeting of 24 March 2009, nevertheless either at that meeting or as confirmed in Mr Coonan’s email of 24 March 2009, Mr Coonan:

However, as the judge found, that agreement or estoppel related only to the additional work as referred to by Mr Coonan specifically in his email of 24 March 2009. There was “never any unequivocal representation” that TB were not required to deliver the documents/information in Category 7 of Mr Coonan’s original shopping list. The delivery of such information did not involve the additional cost of any accountants and both experts, as the judge had already observed, could see no reason why this information was not delivered. Further:

Mr Stephen Cogley QC submits that Eder J’s conclusion that Category 7 was not parked was in error for a number of reasons. First, neither party had pleaded that any distinction should be drawn between different items on the shopping list. TB’s case was that everything was parked, consistent with their view that all the outstanding items were covered by the PAC. The insurers’ case was that none of it was. This is not, he submits, a mere pleading point. The absence of any such distinction in the pleadings reflected the fact that none of the documentation or emails supported any such distinction. Further there was no evidential foundation for such distinction. TB’s evidence from those present at the meeting (Lindsay Page of TB and Anne Stone of Bluefin, its broker) was consistent with everything outstanding on the list being treated in the same way. Mr Coonan’s evidence did not depart from this. Mrs Taylor, AXA’s claims handler agreed that everything raised by Mr Coonan in his report was parked (Footnote: ¹). She certainly agreed that “whether, and the extent to which, the professional accountants clause can be used to obtain information was parked” and that everything that was parked remained so until unparked, which never happened.

In the second and fourth paragraphs of Mr Coonan’s email of 24 March 2009 Mr Coonan had said:

The judge sought to support his view in respect of the non-parking of the material in Category 7 by reference to the PAC clause. But his construction of it was erroneous. On its literal and unambiguous construction it extended to “…the Insureds books of account or other business books or documents which may be required by [the insurers] under Part (b) of Special Condition 2...” In turn the relevant part of Special Condition 2 relates to delivering to the insurer “such books of account and other business books vouchers invoices balance sheets and other documents proofs information explanation and other evidence as may be reasonably required by the Company for the purpose of investigating or verifying the claim ...” Thus, the profit and loss accounts and management accounts, which ordinarily the insured would be able to provide, fall within the wording of Special Condition 2 (b) and the PAC. Ease or cost of production does not come into it. Further the PAC clause is part of AXA’s standard wording and it cannot be suggested that its construction can depend on post contractual circumstances such as how much it might cost to produce the material sought.

Thus there is no reservation inherent in the PAC clause based on whether the requirement to produce is onerous or whether the involvement of accountants is necessary. The PAC clause covers material which “...may be produced by professional accountants....” There is no requirement that the material must or can only be produced by professional accountants, or that, if the materials could be furnished without the additional cost of accountants, then it is somehow excluded. The word “may” is permissive and gives the insured an option as or how it meets any demand for material that falls within it.

What the judge should have found, and the only possible correct conclusion, was that the PAC clause prima facie covered all outstanding material on the shopping list; that in any event, the entirety of the shopping list was parked until Mr Coonan responded to the claimants with the substance of instructions from the defendants. Since neither Mr Coonan nor the insurers ever did revert the claimants were never in breach of condition precedent. This was entirely in accord with the insurers’ own evidence.

Mr Cogley submits that the judge failed properly to consider the claimants’ arguments on duty to speak. He appears to have confined such a duty to situations where the insurer is hoodwinking the insured. This is not so. The duty arises (even in a case that is not one of utmost good faith) where the claimant would expect the estopped party “acting honestly and responsibly” to make its position known. Even more so must that be the position in a case where there is a duty of utmost good faith.

It was not the claimants’ case that the insurers were hoodwinking them. They advanced a submission that, if the court accepted, as was the case, that the laimants believed the provision of the shopping list material was parked but in fact it was not then it would follow that (as the defendants knew that that was the claimants’ belief) the defendants were, indeed hoodwinking the claimants by their silence into breaching a condition precedent. This was not, however, a necessary constituent of the claimants’ case.

What the judge found was that both sides agreed to park the provision of the shopping list items (subject to his findings on item 7) – so the hoodwinking concept fell away. But that did not mean that the duty to speak did as well.

On the judge’s hypothesis:

Mr Coonan knew that the claimants and their broker regarded all of the material requested including that in Category 7 as being covered by the PAC clause and wanted confirmation as to whether insurers would pay under that clause for its production;

Mr Coonan had undertaken to seek instructions on that issue and to get back to the claimants with a response;

Nonetheless, and notwithstanding the claimants’ position, the provision of material under item 7 remained somehow “live” and was not dependent on the response;

Nobody expressly or otherwise differentiated between the items on the list; and

There was never any renewed request for the material on the list post 2 March 2009.

In those circumstances the conduct of Mr Coonan and/or the insurers in not renewing the request for the Category 7 material and/or not pointing out that the provision of that material was not dependent on instructions which Mr Coonan was seeking can only be characterised as misleading. It does not matter whether or not it was deliberately or calculatedly misleading. Silence and inactivity combined with the representation that Mr Coonan would get back to the claimants with the response on their position meant that the agreement to park or estoppel by acquiescence extended to all the matters on which the claimants were awaiting a response including the material in Category 7.

Introduction

It is important to distinguish four different issues:

The four issues interrelate. But the answer to one issue does not necessarily determine the answer to another. Thus, an item may fall within the Condition, but it may not be reasonable to require its production. Whether it is reasonable to require its production may depend on whether the charge for its production is payable by the insurers. But even if it is payable, it might be unreasonable to require its production e.g. if the labour required in producing it, whoever paid for it, was disproportionate to any value to be derived from it. Or it might be unreasonable to require its production unless the insurers had confirmed in advance that they would in fact pay the cost of producing it. As to (d), the parties could in March 2009 have agreed to park the production of material whose production would be expensive but to make no such agreement in relation to what could readily be provided without any real expense. Or they could have agreed to park the production of the whole list on the basis that items 1-6 were expensive to produce and the material in Category 7 was not much use on its own. What agreement or understanding, if any, was reached between the parties was a question of fact. Lastly, the fact that the Category 7 material could be supplied without expense does not necessarily mean that it was excluded from any agreement or representation.

It is not disputed that the production of the accounts in Category 7 fell within the Condition and that their production was reasonably required.

The PAC

The judge found that “assistance from external accountants would probably have been desirable, if not essential in respect of Categories 2-6” [112]. The appellants submit that item 7 also fell within the PAC, which, for ease of reference, is set out again below:

There is not, however, a complete overlap between the Condition and the PAC. The Condition, so far as relevant, provides:

A company such as TB will in ordinary course prepare management and profit and loss accounts. It can produce them, if requested to do so by insurers, by the simple expedient of copying them. Under Category 7 of the shopping list Mr Coonan sought copies of such accounts for specified years. No professional accountant was needed for their production.

The PAC is not directed towards getting the insurers to pay for the production of accounts (whether management or profit and loss) which the company would in ordinary course produce, or for the audit thereof, or the costs of copying accounts already in existence. It is concerned with work that is necessitated by a request from the insurers which falls within the remit of a professional accountant. Its first paragraph deals with the production, not of the Insured’s books of account or other business books or documents, but of “any particulars or details contained in” such material. The second paragraph provides for the insurance company to pay the reasonable charges payable by the Insured to their accountants “for producing such particulars or details” or “any other proofs information or evidence as may be required by the Company” under the Condition, and “reporting that such particulars or details are in accordance with the books of account or other business books or documents”. The clause is, thus, concerned with extracting particulars or details in books of accounts or other documents as required by insurers. The phrase “or any other proofs information or evidence” cannot in context be regarded as intended to cover photocopying an existing account in the possession of the insured, as opposed to providing proofs, information or evidence as to the accuracy or composition of items contained or reflected in such accounts or which form part of the underlying material. If all that had been sought was the material in Category 7 the suggestion that TB should instruct accountants to copy the accounts and pay them for that exercise would have been viewed with some hilarity.

It was, accordingly, open to the judge to hold [115] that, so far as Category 7 was concerned, the PAC was irrelevant. The appellants contend that the judge appeared to have thought that if the item sought was not covered by the PAC and could easily have been provided without cost, there could not have been an agreement or an estoppel in relation to its production. I do not regard the judge as having been guilty of that error. But the fact that the material in Category 7 was easy to produce and that the appellants did not need the protection of the PAC in respect of it had a bearing on whether any agreement was made or any estoppel arose.

The judge was not precluded from holding that there was no agreement or understanding to the effect that Category 7 would be parked because of the pleadings. In circumstances where one side said there was no agreement to park anything and the other said that the agreement extended to everything in the shopping list, the judge was not disabled from finding that parking extended to only six of the seven items. From a purely technical point of view a pleading that none of seven items were parked includes an averment that each of them was not. More significantly, it is often the case that the position is not as absolute as one side would have it and a judge is entitled to come to an intermediate finding.

Agreement or representation as to parking Category 7

As to parking, the gist of the judge’s findings as to what happened at the meeting on 2 March 2009 was threefold.

First, Mr Coonan reiterated that the information he was seeking was largely unchanged from what he had sought in December 2008. This obviously included Category 7.

Second, neither Mr Page nor Mrs Stone said that the requests were unreasonable as such. Mr Page said that in the first instance AXA should confirm whether or not liability was accepted and TB would then go on to provide all documentation that would be required in support of the figures and agree the methodology and assumptions. The reason given was that Mr Page did not have the resources to provide all the financial and stock detail requested and was not prepared to put in the time and incur the cost of obtaining and preparing such information unless he knew that AXA was in principle going to pay the claim. All necessary supporting documents, turnover records and stock reconciliation sheets would then be supplied; but producing such information would be laborious and require the use of external resources the cost of which the appellants were unwilling to incur before agreement in principle by AXA that losses of gross profits adequately demonstrated would be reimbursed. Mr Coonan disagreed with this.

Third, Mrs Stone said that TB wanted the insurers to pay for KPMG to provide the information listed in items 2 – 7. Mr Coonan said that in his view TB had to pay for the cost of preparing and presenting a quantified claim to AXA but that cover was available for additional costs incurred to produce particulars to verify the information. The meeting ended on the basis that Mr Coonan would report back to underwriters, take further instructions and get back to Mrs Stone when such instructions had been obtained.

Thereafter Mr Coonan sent the email of 24 March 2009. It said:

The second paragraph of the email does not specify the nature of the instructions Mr Coonan awaited. But the meeting of 2 March 2009 had raised two principal issues: (i) whether any quantum documents should be produced before an admission of liability in principle; and (ii) whether payment would be made under the PAC for production of the material in Categories 2-7. In those circumstances the inference that a reasonable person in TB’s position would draw was that he was seeking instructions on both issues. Mr Coonan’s report of 17 March 2009 had in fact covered both subjects and Mr Coonan made plain in his evidence at trial that he was seeking instructions on whether there was to be an admission of liability and on the PAC issue.

The judge found [129] that either at that meeting or as confirmed in the 24 March 2009 email Mr Coonan in effect agreed to take instructions with regard to paying the costs of instructing accountants to do the work described in the email as the “exhaustive reviews and analysis of stock shortage” or at least made a representation that that was what he would do and that he would revert once such instructions had been received. Any agreement or reasonable assumption by Mrs Stone and Mr Page was so limited. But there was never any unequivocal representation, let alone agreement, that TB was not required to deliver the accounts in Category 7.

The question whether there was an agreement or a sufficiently unequivocal representation to found an estoppel was an objective question in the sense that it was necessary to determine what, in the light of the background knowledge known to both parties and the communications which passed between them, a reasonable person would understand to have been agreed or represented. The appellants submit that the judge’s finding was a consequence of a finding of fact and not a finding of fact itself. They do so in order to escape the practical restrictions on an appellant’s ability to overturn findings of fact, including the evaluation of primary facts, on appeal: see McGraddie v McGraddie [2013] UKSC 58; Fage UK Ltd v Chobani UK [2014] CWCA Civ 5 at [114] – [115]; DB’s Application for Judicial Review [2017] UKSC 7.

The distinction is somewhat misplaced. A determination as to (i) the background knowledge of the parties; (ii) the communications between them; and (iii) what a reasonable man would conclude in the light of them is properly to be treated as a composite question of fact. As Aiken LJ said in Argo Systems v Liberty Insurance [2012] Lloyd’s Rep IR 67 at [41]:

The relevant facts known to both sides included the fact (a) that items 2 - 6 were, or were claimed to be difficult and expensive to supply; and (b) that item 7 did not fall into that category. The concerns raised by TB were concerns about producing information that would be costly or difficult to produce and not about producing the material in Category 7 which was neither of those. The fact that Mrs Stone asked for all the items on the shopping list to be covered by the PAC did not signify that there was any concern about the cost of producing the Category 7 material. No cost was involved. The rationale invoked for not supplying the items in Categories 2 – 6 before any admission of liability, namely excessive cost, and the dispute as to whether such costs should be incurred before any admission, did not apply to Category 7.

In those circumstances the judge was entitled to find that it was not clear that a willingness to take instructions necessarily carried with it a representation that copies of accounts which required practically no expense to produce, and which the insurers still wanted, need not be produced until after the instructions had been obtained. His conclusions were not without evidential foundation but based on what he found had happened at the meeting (which was the subject of oral evidence which it was for him to evaluate) and the written communications between the parties. He was entitled to conclude that the evidence did not establish that the parties agreed or that the insurers unequivocally represented that the entirety of the shopping list, whether expensive to produce or not, did not have to be provided pending the taking of instructions.

Duty to speak

The judge recorded Mr Cogley’s submission that there was, in the present case, a relationship between the parties (namely that of insured and insurer with duties of good faith on each party) that sufficiently engaged the duty to speak; and that, in any event, regardless of the general position between insured and insurers, the duty to speak arose on the facts of this case. Here, it was said, the position adopted by the defendants was such that they were “hoodwinking” TB and Mrs Stone into committing a breach of a condition precedent, which was just the sort of unsavoury and unconscionable behaviour which gave rise to a duty to speak.

The judge regarded that submission as:

In relation to insurance such authority as there is in relation to a duty of good faith arising after the contract has been made and operating to the benefit of the insured is slender. In Drake Insurance plc v Provident Insurance plc [2003] EWCA Civ 1834 [2004] 601 Rix LJ said that he was not aware that it had actually been successfully invoked to provide the assured with any remedy other than a return of premiums. Clarke LJ, as he then was, said that, so far as he was aware, there was no authority for the proposition that the insurer owed a duty to take reasonable care to make appropriate inquiries before avoiding the policy. Pill LJ observed that the post contractual duty of good faith was a very limited one, citing Mance LJ in Brotherton v Asegurados Colseguros SA [2003] 2 All E.R (Comm) 298. He referred to the words of Lord Clyde in Manifest Shipping Co. Ltd v Uni-Polaris Insurance Co Ltd [2003] 1 AC 469:

In relation to commercial contracts generally there is authority supporting a duty to speak in certain circumstances. In The Lutetian [1982] 2 Lloyd’s Rep 140, 157 Bingham J, as he then was, regarded the dissenting speech of Lord Wilberforce in Moorgate Mercantile Co Ltd v Twitchings [1977] AC 890 at 903 as having provided persuasive authority for the proposition that the duty necessary to found an estoppel by silence or acquiescence arose where a reasonable man would expect the person against whom the estoppel was raised acting honestly and responsibly to bring the true facts to the attention of the other party known by him to be under a mistake as to their respective rights and obligations. In Moorgate Mercantile Lord Wilberforce said that the question whether there was an estoppel had to be asked “having regard to the situation in which the relevant transaction occurred, as known to both parties” and the reasonable man was to be one in the position of the party asserting the estoppel. His formulation has found favour subsequently: see the Indian Endurance [1998] AC 878, 913 where Lord Steyn said:

In ING Bank NV v Ros Roca SA [2011] EWCA Civ 252 Rix LJ observed obiter that a duty to speak might arise pursuant to either contractual obligations involving collaboration and co-ordination with other business advisors or obligations as an honest business partner. He adopted the general principle contained in Moorgate Mercantile and The Indian Grace. In that case the question arose in circumstances where ING Bank failed to disclose what it knew to be a difference between it and Ros Roca on the calculation of its fee.

Blair J considered this line of authority in Starbev GP Ltd v Interbrew Central European Holdings BV [2014] EWHC 1311. In essence he held that a duty to speak, failure to fulfil which would give rise to estoppel by acquiescence, may arise on the particular facts where one party is proceeding on the assumption that something is agreed, whereas the other party knows that it is in dispute. In such a case the duty to speak may arise because a reasonable man would have the expectation referred to by Bingham J and set out in paragraph 72 above.

The reference to “acting honestly” did not, he held, mean that the party against whom the estoppel was asserted had to be guilty of actual dishonesty in the sense of acting fraudulently. He accepted [133] the submission that, absent a relationship of good faith or partnership or something akin to a joint enterprise the courts would not impose a duty to speak in the absence of impropriety of some description by the person alleged to be estopped. That impropriety might, however, come from the act of staying silent itself, as where a reasonable person would expect the person who is alleged to be estopped, acting honestly and responsibly, to bring the true facts to the attention of the other party known to him to be under a mistake as to their respective rights and obligations. Andrew Smith J adopted this statement in Kaupthing Singer & Friedlander Ltd v UBS AG [2014] EWHC 2450 (Comm), where he held that a bank would not be acting honestly (in the sense explained by Blair J) or responsibly if it knew about or even seriously suspected a mistake of the kind then in question.

In the present case, which does involve a relationship of good faith, impropriety in the sense identified by Blair J is, a fortiori, sufficient to give rise to an estoppel. I would add that in the paragraphs preceding [133] Blair J appears to have been resolving the question as to whether it was necessary, in a case not involving a good faith obligation, to show that the person estopped was acting both dishonestly and irresponsibly; and to have answered that question in the affirmative [132]; but then [133] to have given “dishonesty” a limited meaning: “dishonesty’ in an equitable sense”. This seems to me, with respect, a misreading of the phraseology used by Lord Wilberforce, Bingham J and Rix LJ. The question is what a reasonable person in the position of the person asserting the estoppel would expect of a person acting “honestly and responsibly” so that irresponsible but not dishonest behaviour could itself give rise to an estoppel. The reasoning in Starbev ends up by identifying that as the question; but by a somewhat circuitous route. I would, however, adopt his approach to what could amount to dishonesty in this context.

The judge considered Drake Insurance, Starbev, and ING Bank and the authorities referred to in them.

In determining whether there was a duty to speak there are a number of material considerations.

First, an insurer is, generally speaking, under no duty to warn an insured as to the need to comply with policy conditions. That was particularly so in the present case, where TB was represented by Mrs Stone, an Executive Director of its insurance brokers. She was described by the judge as a highly-experienced broker, specialising as a claims advocate in pursuing large and difficult claims against insurers. She knew from an early stage – at least 14 January 2009 – of the effect of the Condition Precedent clause.

Second, the judge was not satisfied that there was any bad faith in the form of hoodwinking on the part of the insurers i.e. deliberately keeping quiet about the obligation to provide the information requested in order to avoid TB waking up to the need to do so before it was too late. That was, in fact, the claimants’ case but it was never put to Mr Coonan or any other witness. The judge was right to reject it on that account.

Third, on the judge’s findings any agreement or representation went no further than to deal with the material in Categories 2-6 and did not deal with Category 7. The judge found [130] that no agreement or representation was made that the Category 7 material did not have to be provided.

That is not, however, necessarily the end of the matter. The authorities show that whether an estoppel arises is not wholly dependent on whether the person sought to be estopped has made some representation express or implied. It may arise if, in the light of the circumstances known to the parties, a reasonable person in the position of the person seeking to set up the estoppel (here TB) would expect the other party (here the insurers) acting honestly and responsibly to take steps to make his position plain. Such an estoppel is a form of estoppel by acquiescence arising out a failure to speak when under a duty to do so.

This is not a matter with which the judge deals otherwise than to say that, even if Mr Cogley’s legal submissions as to waiver were correct, and even taking Mrs Taylor’s evidence at its highest, those matters did not avail TB with regard to the requirement to deliver documents in Category 7 “for similar reasons to those stated above”. Those reasons had addressed the question as to whether there was any agreement or representation.

TB’s failure to provide the Category 7 material did not occur in a vacuum but in circumstances where Mr Coonan was due to get back to TB with a response to its position after taking instructions on the two issues. It seems to me that, in the particular circumstances of this case, as known to the parties, someone in the position of TB would reasonably expect the insurers to say if they required the Category 7 material before Mr Coonan reported back, particularly if failure to provide the information was to be said to be fatal to the claim. True it is that the considerations of cost and expense raised by TB which had prompted Mr Coonan to say that he would take instructions and report back did not apply to the Category 7 material. Nevertheless, the material sought by the insurers had been sought as a package by them and, as the judge found, Mrs Stone had sought confirmation that the insurers would pay for KPMG to provide the information listed in Categories 2-7, not 2-6. She was, accordingly, rightly or wrongly, treating the Category 7 material as covered by the PAC, on which Mr Coonan was to revert, and in the same class as Categories 2-6. No separate consideration appears to have been given by either side to Category 7, nor any differentiation made in discussion between Categories 2-6 and 7, and it was apparent from what Mrs Stone said that she was not doing so.

Further, the information contained in Category 7 was of very little use on its own. The insurers must have realised (or would if they had thought about it) that TB would have the Category 7 material to hand: in February 2009 Mrs Stone had said that “the balance of your shopping list is currently parked here”. It would have been the simplest thing for them to confirm that, notwithstanding the wait for instructions, they still wanted the Category 7 material before the upshot of those instructions was communicated. But they did not do so. Indeed, the suggestion that the insurers were under no liability because of a failure to comply with the Condition by providing the material in the shopping list did not appear in Kennedys’ letter of 19 November 2009 (in which, whilst denying liability, they invited TB to produce evidence of each theft, evidence of what was stolen and its value, and a calculation by reference to the BI terms – but not the Category 7 material) but only in AXA’s Defence of 27 April 2010.

On 16 April 2009 Mrs Taylor told Mrs Stone that she would “advise her in meantime if anything to report”. This message did not indicate that there was something outstanding from TB. On the contrary, the absence of any reference to that effect suggested the opposite. Further, on 28 May 2009 Mrs Stone telephoned WC and said that she had sent all outstanding information required to them and would like to know the present position. The insurers, through their loss adjusters, thus knew that that is what TB thought (and inferentially that they thought that everything was parked). On 10 August 2009 Mr Coonan said that he looked forward to receiving any further claim submission TB wished to make without any suggestion that something already required was outstanding.

In the light of what had passed between the parties, TB was, in my view, entitled to expect that if the insurers regarded the Category 7 material (alone) as outstanding, due, and unparked, then, acting honestly and responsibly, they should have told her. Not to do so was misleading.

An estoppel of this nature in a contract of this kind does not require dishonesty or an intention to mislead; nor any impropriety beyond that inherent in the conclusion that the insurers should have spoken but did not. In the circumstances to which I have referred the insurers were, in my view, under a duty to tell TB that the Category 7 material was indeed outstanding and was required before the upshot of any instructions was revealed. If they had done so the documents would no doubt have been supplied. Since they did not do so it would be unjust and unconscionable to allow them to escape any liability on the ground of non-compliance with a condition precedent in relation to the Category 7 material.

I would not regard this conclusion as dependent on the contract being, as it was, one uberrimae fidei. It is not, therefore, necessary to decide the extent to which, if at all, the fact that it is such a contract may enlarge the circumstances in which a duty to speak arises. It is however, clear that the fact that the contract is of such a nature will, if it does anything, increase the likelihood of a party having a duty to speak.

Accordingly, the judge was in error in finding that a condition precedent to liability under the policy had not been complied with and that TB’s claim failed on that account alone.

I have had the advantage of reading in draft the judgment of David Richards LJ on the remaining grounds of appeal, with which I agree,

I agree with the judgment of Sir Christopher Clarke. While TB succeeds as regards the insurers’ duty to speak, it fails in my view on its appeal against the quantum findings made by Eder J. for the reasons which I set out in this judgment. It follows, if the other members of the court agree, that overall the appeal must be dismissed.

The judge rejected TB’s claim in its entirety on the grounds that it failed to establish any loss recoverable under the policies. To reiterate, TB’s claims were for the loss of profits resulting from those of JON’s thefts of stock under the business interruption cover. It abandoned before trial claims for the value of the stolen stock. There was an excess of £5,000 under the policies for each and every loss. The insurers speculate that TB withdrew its claim for the loss of stock because it knew it could not show that stock with a value of more than £5,000 had been stolen on any occasion. Instead its claim was based on showing that each theft resulted in a loss of profits in excess of £5,000.

It was an issue before the judge as to whether the excess fell to be treated as an exception to cover, so that the burden of proving that the loss was less than £5,000 fell on the insurers, or as part of the cover under the policy, so that the burden of proving loss in excess of £5,000 lay on TB. The judge decided in favour of the insurers on this issue and TB has not appealed against that ruling.

TB sought to establish its case by expert accountancy evidence provided by Mrs Katherine Britten, to which the insurers responded with expert accountancy evidence from Mrs Catherine Rawlin and expert retail stock control and systems evidence from Mr Richard Emery.

A huge volume of expert evidence was filed and relied on at trial. Each expert provided four reports and there were two joint statements. These reports extended to well over 1,000 pages. In addition, each expert was the subject of searching cross examination. The judge referred at [31] to “a vast mass of expert evidence which depends on certain assumptions and very complicated analyses which, in turn, depend on matters which are somewhat speculative”. At [141], he was driven to describe it “as something of a swamp” and commented that the difficulty in handling such evidence and identifying relevant issues was exacerbated by the fact that a large amount of this material “was a moving feast (if that is the right word) right up to – and even during – the trial”. Coming, as they do, from a judge with great experience of trials with highly complex issues and evidence, these are very serious criticisms of the way this evidence was presented to the court, and made a task that would be challenging in the best of circumstances significantly more difficult.

These observations and descriptions of the evidence are material, too, to the application of the principles that govern the approach of appellate courts to challenges to findings of fact made by the trial judge. These principles and the authorities establishing them are too well-known to need lengthy discussion. Referring to the decisions of the Supreme Court in McGraddie v McGraddie [2013] UKSC 58; [2013] 1 WLR 2477 and Henderson v Foxworth Investments Ltd [2014] UKSC 41; [2014] 1 WLR 2600, Henderson LJ recently commented in Hamid v Khalid [2017] EWCA Civ 201 that what emerges with clarity is that an appellate court should not interfere with a trial judge’s conclusions on primary facts unless satisfied that the judge was “plainly wrong”. In Henderson, Lord Reed said [62] that “[w]hat matters is whether the decision under appeal is one that no reasonable judge could have reached. At [67] Lord Reed said:

On the issue of quantum, TB relies on two grounds of appeal. The first (Ground 3) is that the judge was wrong to conclude that TB had failed to demonstrate that on each occasion of theft, stock with a value of more than £5,000 was stolen, so that it could not demonstrate that its loss of profit resulting from each theft exceeded the policy excess of £5,000. The second (Ground 4) is that the judge was wrong to reject TB’s case as to the gross profits lost as a result of the thefts or, alternatively, should have accepted the figure advanced by the insurers’ expert witness.

Ground 4 was added only after the hearing of TB’s renewed application for permission to appeal. Underhill LJ considered that the judge had rejected TB’s case on the loss of gross profits in its totality and had not accepted that TB had suffered any loss of gross profits, and that therefore Ground 3 on its own would not assist TB. Plainly, if TB could not establish that it had sustained any loss of gross profits, it could not show losses of gross profits in excess of £5,000 as a result of any theft.

TB did not accept that this was a correct reading of the judgment, and so Ground 4 is prefaced by a statement that it is without prejudice to TB’s contention that the judge did not make any finding that no loss of gross profit had been established. In my view, TB is right about this. Underhill LJ identified paragraphs [159] – [164] as containing the finding that TB had failed to prove that it had suffered any loss of gross profit at all. The judge states his conclusion arising from those paragraphs at [165] where he referred to his “overall conclusion that TB has failed to establish even on the basis of the broad approach any lost profit above the excess” (my emphasis). That this accurately states his conclusion and that he did not find that TB had failed to prove any loss of gross profits at all is made clear in [175] where he referred to “the facts that….(ii) there is no doubt that TB suffered substantial losses arising out of the thefts…(iii) such losses amounted, even on the defendants’ experts’ evidence, to some £2.16 million”.

Properly understood, the judge found that TB had not proved any loss of profits in excess of £5,000 as a result of any of JON’s thefts, and he had two discrete grounds for this finding. The first is that covered by Ground 3, that the judge did not accept the assumptions made by TB’s expert as to the number of boxes and items stolen on each occasion. This was referred to by the parties and the judge as JON’s modus operandi. The second is that he rejected the assumptions as to the rate of lost sales that underlay Mrs Britten’s model. This is covered in his judgment at [159] – [172] and I will proceed on the basis that this is covered by Ground 4.

It is accepted by TB that if it fails on Ground 4, it cannot succeed on this appeal. I propose therefore to deal first with Ground 4.

At [135] the judge noted Mr Cogley’s submission on behalf of TB that the fact that an insured peril and consequential loss may be difficult to demonstrate by direct evidence does not preclude the Court from finding that both have occurred. Mr Cogley relied in particular on Equitas v R & Q Reinsurance Co (UK) [2009] EWHC 2787 (Comm); [2010] 1 Lloyd’s IRLR 600 and Municipal Mutual Insurance Ltd v SEA Insurance Co Ltd [1998] Lloyds Rep IR 421 to establish, and the judge accepted, that modelling and drawing inferences can be used both to establish that the insured event occurred and the quantum of loss. This is not disputed by the insurers. At [138] the judge, while acknowledging the role of this type of evidence, noted that “ultimately, in order for a claimant to succeed, the Court must be satisfied on a balance of probabilities that one or more events have occurred as a result of one or more insured perils; “nothing less will do”. This is not disputed by TB.

At [140] the judge held that once one or more events caused by an insured peril is shown and an actionable head of loss established, the Court will generally assess damages as best it can by reference to the materials available to it. Eder J accepted that (i) the balance of probability test is not an appropriate yardstick to measure loss; and (ii) lack of precision in relation to quantum is not a bar to recovery. The judge referred to this approach as the broad approach.

The basic but critical aspect of TB’s claim for the loss of gross profits resulting from the theft of an item is that TB loses no profit until the time at which the item would have been sold, and its loss of profit is calculated by reference to the price at which the item would then have been sold.

At [159] the judge identified correctly that the biggest issue concerning loss of gross profit is what has been referred to throughout the proceedings as the “timing of unfulfilled demand”. The “timing of unfulfilled demand” describes the point at which a sale of an item is lost as a result of the theft of the item. As Eder J set out:

TB’s case was based on the modelling exercise carried out by their expert witness, Mrs Kathryn Britten. At [162] the judge said:

The blended gross margin approach started by taking the average sales figures for TB, which produced an average margin. Certain adjustments were then made to those average sales figures to reflect that, compared to actual sales, there was a lower probability that the stolen items would have been sold in the early weeks of the sales period for any season. At [163] the judge noted how this adjustment was made by Mrs Britten:

At [164] the judge said in relation to the modelling exercise of Mrs Britten:

Eder J then went on at [165] to state that:

Before Eder J there was an argument advanced by the insurers that the model employed by Mrs Britten was not contractually compliant with the adjustment provision for calculating loss. Mr Cogley in his written submissions advanced arguments that Mrs Britten’s methodology is contractually compliant. That aspect of the insurers’ case is not pursued by them before us.

Mr Cogley submitted before us that the judge’s rejection of Mrs Britten’s evidence is flawed because it does not recognise the similarity between her evidence and the evidence of the insurers’ expert Mrs Rawlin. Mr Cogley submitted that the reason for the discrepancy in the figures which each expert produced is that Mrs Rawlin’s sale of the lost stock would have occurred later in the season (being the timing of unfulfilled demand).

Mr Nicholson for the insurers pointed out that in her first report Mrs Britten did not consider the unfulfilled demand threshold. It was only after one of the insurers’ experts, Mr Emery, said that there would be a lag before a depletion in the warehouse resulted in a lost sale that Mrs Britten made adjustments. Her adjustments took Mr Emery’s rate at which a particular item ran out in the last few weeks of a season and applied it to the first few weeks of the season. Mr Nicholson referred to Mr Emery’s criticism of this approach in his fourth report dated 7th July 2014 at 5.3.5-6:

This was put to Mrs Britten in cross examination:

At [164] of the judgment Eder J made findings of fact when he said that he was not persuaded that Mrs Britten’s methodology “provides a sufficiently reliable or reasoned method for assessing the appropriate loss of profit in the present case” and that “it assumes wrongly in my view, that the hypothetical sales profile of the stolen items would have followed the profile of actual sales”.

Mr Cogley’s submissions on Ground 4 are essentially an attempt to re-argue TB’s case. In my judgment, he cannot establish, as he must, that the judge was plainly wrong in his assessment and rejection of Mrs Britten’s modelling exercise. The rejection was not because of any objection to modelling per se as a means of establishing loss but because the judge did not accept Mrs Britten’s approach to the timing of unfulfilled demand, which Mr Cogley accepted before us was the nub of this part of the case.

As earlier noted, Eder J was provided with voluminous expert evidence, heard extensive cross examination of the expert witnesses and received very full written and oral submissions. All of this he examined in detail in the preparation of his careful judgment. In reviewing his decision, it is not for this court to embark on the same exercise and it is precisely because of the nature of the trial judge’s fact-finding exercise that this court will interfere only if he has neglected evidence, which is not suggested here, or has gone plainly wrong.

As I earlier observed and he made clear, Eder J was not well served by the way in which the expert evidence was presented to him. Nor were we. In giving permission to appeal, Underhill LJ underscored the necessity of a clear presentation of the issues on quantum and the relevant expert evidence. In his decision granting permission to appeal, he stated that “the quantum issues will require the Court to be given a thorough understanding of the approaches taken by the parties and their experts” and he went to emphasise “that it is particularly important that the skeleton arguments give a clear, succinct [his emphasis] and well-analysed guide to the quantum evidence and to how their respective cases on the quantum issues were put to Eder J, supported by full cross-referencing”. On this basis, Underhill LJ did not think it necessary to increase the estimate of two days, of which one was available for the quantum issues. I am grateful to Mr Nicholson and his team for the analysis annexed to their skeleton argument for the appeal. But the greater onus was on TB which needed to explain the issues and clearly identify the ways in which the judge was plainly wrong. The benefit of an oral hearing is that the essential issues can be identified and examined, albeit with only limited available time. Having done so, I am for the reasons given above satisfied that TB cannot succeed on its appeal under Ground 4.

Ground 3 relates to the other basis on which the judge found that TB had not established any loss of profits in excess of £5,000 as a result of each and every theft.

In order to establish recoverable loss, TB assumed that the amount of stock stolen by JON on each occasion was 3.5 boxes, with each box containing 68.25 items, meaning an average of 238 items per incident. The calculation of the profits lost as a result of each theft was calculated on this basis. The figures chosen were an extrapolation of the quantity of stock stolen by JON on the last five or six thefts before his arrest, of which there was some evidence.

This was an assumption of fundamental importance to the establishment and calculation of the loss allegedly suffered by TB. But it was only an assumption and the judge considered that it was too speculative to provide a viable foundation for TB’s case. At [154] he said that it was “not based on any real evidence at all – or at least, it is based on evidence which is extremely tenuous.” While agreeing that it was “a possible average” (the judge’s emphasis), “it seems to me difficult, if not impossible, to say that other figures are not equally possible and, indeed, reasonable and realistic”.

The judge observed that even slight changes to the input assumptions produce quite significant changes to the number of incidents and, ultimately, the amounts recoverable after applying the £5,000 excess to each and every incident. He proceeded to illustrate this by some examples, “which would dramatically reduce the total amount recoverable and in certain policy periods extinguish any claim completely” and some other examples that would have the opposite effect. He concluded that “[o]n the evidence available and within a relatively broad range, it seems to me quite impossible to say that one set of assumptions is more or less reasonable than any other set of assumptions even adopting the broad approach” [i.e. to establishing the quantum of a claim].

The judge considered that figures for the last few thefts carried out by JON did not provide a sound basis for extending a similar average backwards over a period of four years. Nor did it help to assume, as the judge accepted was likely, that JON started small but grew greedy. If anything, it suggests that JON would steal a smaller number of items on each occasion. While the judge was also prepared to accept that JON would try to minimise the risk of detection, “whether he would do this by minimising the number of incidents of theft or the number of boxes/items stolen on each incident of theft is, in my view, entirely speculative”.

For these reasons, the judge at [158] concluded that “the evidence fails to show that the claimed losses as calculated by TB fall above the excess of £5,000 each and every loss”.

In his submissions, Mr Cogley focussed on the last year or so of JON’s thefts. He emphasised, correctly, that JON could not probably have executed more than one theft per day and that, on that basis, some of the judge’s hypothetical examples were not feasible for that period. Mr Cogley accepted that there would have been variations, with the amount of stock stolen on some occasions being incapable of resulting in lost profits in excess of £5,000. But, he submitted, that was the whole point of the modelling of an average loss. It was not speculation, but the only way realistically to account for the known facts of the case.

In my judgment, these submissions do not provide a sound basis for overturning the judge’s finding that TB had not, and indeed probably could not, establish the loss it claimed. The assumed volume of stolen items for each theft was crucial for establishing the quantum of TB’s claim but it was highly speculative. For understandable reasons, Mr Cogley focussed his attention on the last year or so, because the scale of the thefts had grown to a point that, when combined with the maximum number of probable incidents of theft (one per each of JON’s working days), enough items may well have been stolen on a substantial number of occasions to create the possibility of lost profits in excess of £5,000. But that is very far from being enough to establish a basis for TB’s claim as pleaded and presented to the judge.

I conclude that the judge was entitled to form the view that this fundamental element in the establishment and calculation of TB’s claim lacked the substance needed to prove its case on the balance of probabilities.

For these reasons, I reject the challenge to the judge’s decision that TB had failed to establish the loss it claimed on both of Grounds 3 and 4. I would therefore dismiss this appeal.

I agree with both judgments. In consequence, the appeal is dismissed.