McManus & Ors (t/a Mcmanus Seddon Runhams (a firm)) v European Risk Insurance Company

The Claimants, who are the members of a firm of solicitors, seek a declaration as to the validity of a notification they say they have made to the Defendant, their professional indemnity insurers, alerting the Defendant to circumstances that may give rise to future claims against their firm.

The Claimants are partners in the firm of McManus Seddon Runhams ('MSR'). They had previously been the partners in the firm McManus Seddon which had operated since August 1999 in Bradford as a busy high-street practice, covering many areas of law including family law work, conveyancing, crime and personal injury. McManus Seddon was primarily a legal aid practice with the largest proportion of its turnover derived from legally aided family work. On 17 June 2011, McManus Seddon took over the work in progress and goodwill of another firm Runhams LLP ('Runhams'). Runhams was also a well-established Bradford high-street firm, mainly carrying out commercial and residential conveyancing, civil litigation and probate.

MSR achieved Lexcel accreditation in April2012. Until the firm took over Runhams in 2011 it had an unblemished professional indemnity record with no successful negligence claim being made since its establishment. I should also say at the outset that there is no suggestion in these proceedings that any of the work done by the Claimants in their practice is likely to give rise to a claim against the firm.

Runhams had itself taken over another firm, Sekhon Firth, in October 2010. The work of Sekhon Firth mainly comprised residential conveyancing and some other civil work. None of the partners of Sekhon Firth or Runhams joined McManus Seddon though some of the fee earners and junior staff working at Sekhon Firth did join MSR. It is common ground between the parties that MSR is the successor practice so far as insuring against any claims against Sekhon Firth is concerned.

It is convenient to note here that in April and July 2011 (after Sekhon Firth had been taken over by Runhams) three former members of Sekhon Firth were subject to proceedings before the Solicitors Disciplinary Tribunal. It was alleged that one of them (Mr Shaqil Ahmed) had created false documents and misled his clients. It was also alleged that Mr Iqbal Singh Sekhon failed to make arrangements for the effective management of the firm and that all three members had failed to act in the best interests of their clients or provide a proper standard of work or ensure that the practice was effectively supervised and managed. In a judgment handed down 12 October 2011 ('the SDT Judgment') the Solicitors Disciplinary Tribunal recorded that Mr Ahmed admitted the allegations regarding creating false documents and misleading his clients but the Tribunal found that he had not acted dishonestly. The allegations against Mr Sekhon and the other partner were dismissed.

The Defendant ('European Risk') is a qualifying insurer for the purpose of providing professional indemnity insurance to solicitors. They were the insurer on risk so far as MSR is concerned for the year beginning 1 October 2011. MSR dealt with European Risk through the latter's designated agent Bar Professions and in particular with Mr Tony Patterson of that firm.

The insurance policy in operation between MSR and European Risk was a 'claims made' policy. This means that the event that has to occur within the insured period in order to fix liability on the insurer is not the misconduct or negligence itself but rather the making of the claim. As is common in such policies, the contract provided for MSR to notify European Risk if it became aware of circumstances that might give rise to a future claim. The effect of a valid notification would be that if in later years a claim was made, European Risk would be liable to pay out on that claim if the claim was covered by that notification, as if the claim had been made while they were on risk.

The nature of claims made policies and the importance of the notification process was described by Moore-Bick J in Friends Provident Life & Pensions Ltd v Sirius International Insurance Corp [2004] EWHC 1799 (Comm) in the following terms (at paragraph 13 of his judgment):

The terms of the insurance policy which are relevant for this case are as follows:

Sekhon Firth and Runhams LLP are 'Prior Practices' of MSR for the purposes of this policy.

In November 2011 MSR received a claim from a former lender client of Sekhon Firth. The claim alleged breach of fiduciary duty and/or breach of contract and/or negligence arising out of advice given by Sekhon Firth in connection with a property mortgage. The claim concerned instructions to Sekhon Firth by the lender in May and June 2007. The letter of claim was notified to European Risk in December 2011.

Thereafter further claims arrived, all relating to files handled by Sekhon Firth. One was notified in January 2012 and then 12 lender claims were notified on the same day in February 2012. By mid May 2012 a total of 17 claims had been made, directed to MSR as successor practice of Sekhon Firth. Of these, about 12 were claims relating to files where the transaction involved the same borrower and three related to another particular individual.

Evidence on behalf of the Claimants was given by Mrs McManus. I found her an entirely straightforward and credible witness doing her best to assist the court. Her evidence was that she was not initially aware of the number of claims made against MSR arising from Sekhon Firth business. The claims were handled by her colleagues Mr Seddon and Mr Dowling. Ms McManus said she only became aware of the extent of the claims in about August 2012 when she was chivvying Mr Seddon about the renewal of the firm's insurance which was due to expire at the end of September. He told her that this was not a straightforward matter as they had received a number of claims. She said in evidence that when she was told the number of claims she was shocked and thought the situation was 'horrendous'.

Ms McManus understood that her colleagues had held meetings with European Risk and with Mr Patterson to discuss how to handle the claims and to consider particularly whether there was any prospect of the firm mounting a successful defence. They did not seem to have turned their mind to the significance of the claims for the purpose of making a notification to the insurers. She examined the files giving rise to the claims herself and concluded that there were similarities between all the claims in that they all related to conveyancing files conducted by Sekhon Firth before they were taken over by Runhams.

Ms McManus sought guidance from various sources and was put in touch with Corre Partnership ('Corre') which is a professional compliance, risk and regulatory consultancy. Ms Cracknell of Corre was engaged by MSR to investigate the matters which had come to light. Ms Cracknell is a qualified solicitor with experience of lender claims. She advised that an urgent review should be undertaken of the files relating to the existing claims and of a number of other property transaction files. She asked Ms McManus to retrieve from the Sekhon Firth archives any other files for the client who was involved in a number of the claims already made and also to give her a number of randomly selected files in respect of other clients.

Mrs McManus had two lists of archived files to work with. The first, which has been referred to as 'the spreadsheet', was a lengthy document listing all the files from Sekhon Firth giving the name of the client and the address of the property. The second list, referred to as 'the list of matters' was a list of files from Runhams. Ultimately 385 files were selected to be available for Ms Cracknell.

Ms Cracknell attended MSR's offices on 13 September 2012 and examined 32 files. These files were made up of the 17 which had already given rise to the claims lodged with MSR and 15 other files relating to the same borrowers - 13 of those 15 related to the same individual who had since become bankrupt. Ms Cracknell also instructed MSR to examine further files from the Sekhon Firth archive to identify additional problematic transactions and for this purpose she gave MSR a proforma check list setting out a series of questions to be filled in for each file examined as the person worked through the selected file. This further task was carried out by MSR employees on Saturday 15 September 2012 ('the Saturday file review'). The completed check lists (but not the files themselves) were then sent to Carre and they went through them collating the information provided.

Ms Cracknell prepared a report for MSR dated 19 September 2012 ('the Carre Report'). The Carre Report is based on the information gleaned by Ms Cracknell from her own examination of files on 13 September combined with the information on the completed check lists from the Saturday file review which had been sent to her. The conclusion of the Carre Report was as follows:

The Carre Report conclusions went on to describe the dramatic fall in conveyancing transactions following the collapse of Lehman Brothers in Spring 2008 and stated that it was probable that further claims against MSR as a successor practice "will relate purely to those matters dealt with by [Sekhon Firth] during the period of 2007 to 2008".

On 21 September 2012 Ms McManus sent a letter to Mr Patterson headed 'Blanket Notification of Circumstances which may give rise to claims' ('the Notification Letter'). The Notification Letter opened with the statement that the purpose of the letter was to give notice to MSR's professional indemnity insurers of circumstances which may give rise to claims against MSR. It went on to say:

The Notification Letter acknowledged that the due diligence that MSR had carried out when it acquired Runhams "now appears to be grossly inadequate". The Letter then went on to describe a number of matters. The first was the arrival of the 17 claims between November 2011 and May 2012, all of which had already been reported to European Risk.

The second was that when the claims and their underlying allegations had been considered by the partners of MSR, those partners were "... conscious that there was considerable similarity in the allegations made in relation to these conveyancing transactions." The Notification Letter then set out in effect the same list as had been included in the conclusions of the Carre Report.

The third matter was a reference to previous disciplinary proceedings that had been taken by the Solicitors Regulatory Authority against the former members of Sekhon Firth (see paragraph 5, above). A copy of the SDT Judgment was enclosed with the Notification Letter.

In the course of the SDT Judgment, the panel referred to a report prepared by the Solicitors Regulation Authority prompted by the conviction for mortgage fraud of an individual whose purchase and remortgage transactions had been handled by Sekhon Firth. The SDT Judgment stated that:

The Report raised concerns that:

The judgment referred in detail to 10 particular transactions- I understand that those files were not amongst the 32 files that the Corre Report reviewed but that they were all related to transactions introduced to Sekhon Firth by one particular broker. The SDT Judgment noted that Mr Sekhon and another partner in the firm accepted that there were errors in relation to seven transactions. As regards the three contested files, the Tribunal found that errors had been proved in relation to two of them but not in relation to one. The Tribunal found both men to be honest and credible witnesses. It found that the failures could not be attributed to a failure in the adequacy of systems or a systemic fault " the Tribunal accepted that there were errors of judgment in every business which were human errors." The Tribunal was satisfied that the partners had not failed to act in the best interests of their clients and had not failed to provide a proper standard of work.

The fourth matter raised in the Notification Letter related to three of MSR's fee earners who had worked at Sekhon Firth at some time in their past "and in particular during the period covered by those files we have referred to in this letter". The Notification Letter said:

It was accepted by MSR that this part of the Notification Letter was incorrect in that although the fee earners identified had worked for Sekhon Firth, they had not been there at the time covered by the files reviewed by Corre or in the Saturday file review.

The fifth matter raised was that MSR had carried out 'a random review of over 110 files' and that 'the overwhelming majority of those 110 files' further endorsed and confirmed the firm's 'worst suspicions of shortcomings as above'.

In two separate paragraphs, the Notification Letter stated the conclusions to be drawn from the matters set out. It said:

The Notification Letter estimated that there were about 5000 files or case matters but that the firm could not rule out that they may be more. The Notification Letter enclosed the spreadsheet listing the many hundreds of files from Sekhon Firth and the list of matters archived from Runhams. The Notification Letter closed as follows:

The Notification Letter was emailed to Mr Patterson on the afternoon of Friday 21 September 2012. On the afternoon of 27 September, Mr Patterson replied to MSR by email ('the Rejection Email'). He accepted that all the 32 matters reviewed in the Corre Report "have circumstances attached to them which may give rise to a claim". He then referred to the two schedules of files that had been enclosed with the Notification Letter and stated:

Following the notification made by MSR and its rejection by European Risk, MSR found itself unable to obtain insurance for the year commencing 1 October 2012 from a qualifying insurer. The investigations into the Sekhon Firth files were taking place at the time that MSR was also completing the form required to apply for insurance renewal. European Risk declined to cover them for the 2012/2013 year. The proposal form drawn up by MSR of course included information about the claims that had been made and enclosed a copy of the Notification Letter. MSR's broker approached several insurers on behalf of MSR but they all declined to quote. Mrs McManus herself contacted other brokers who had access to other insurance companies and they too all declined to quote. As a result MSR has now entered the Assigned Risks Pool ('ARP')- the insurer of last resort provided for solicitors who are uninsurable in the general market.

European Risk pointed out that, as a matter of timing, it is clear that the problems that MSR encountered in obtaining insurance for 2012/2013 arose after the date of the Notification Letter but before the Rejection Email. They therefore disputed the suggestion that it was the Rejection Email that caused MSR's problems. Whether MSR would have been able to obtain insurance from a qualifying insurer if European Risk had responded differently -or if it had simply not responded at all -is not a matter which I have to decide. However, I note here that Ms McManus's evidence was that some at least of the insurers who declined to quote asked Mrs McManus to let them know what happened about the Notification Letter. One insurer told Mrs McManus that if the notification was accepted they would consider offering MSR terms.

Further, the evidence of Mr Seddon, whose witness statement was not challenged by European Risk, is that if a firm can obtain cover from a qualifying insurer, that cover can be backdated for a maximum of 30 days. If MSR had been able to obtain cover before 30 October from a qualifying insurer, then the firm would be treated as never having been in the ARP.

Both Mr Seddon and Mrs McManus described the devastating effect that these events have had on their practice. Mr Seddon described the terms of admission to the ARP as "very harsh" involving a premium for six months' cover (the maximum period of cover which is provided by the ARP before a firm must close down) costing more than double the amount that MSR had previously paid for a full year's premium. This is a liability which makes it difficult for MSR to continue in business since the profit margins generated by its work are very modest.

There is also a concern that being in the ARP will jeopardise the renewal of MSR's Legal Services Commission contract which comprises about 36 per cent of its work. A further significant percentage of MSR's work comes from conveyancing for which it needs to retain membership of the panels of firms approved by the main mortgage lenders. Membership of the ARP may rule out the renewal of MSR's membership of those panels and may also jeopardise its chances of a successful application to join the Law Society's Conveyancing Quality Scheme.

Ms McManus has described the situation MSR finds itself in as 'extremely traumatic' and 'a total shock'. She states:

Counsel drew my attention to a number of cases where the courts have considered the validity of notifications and the kinds of claims that are to be treated as arising from them. However, counsel were agreed that the current proceedings are unusual, if not unprecedented, in contesting the issue of the validity and scope of a notification at a time before any claim alleged to arise from circumstances notified has actually been made.

The leading case on blanket notifications is J Rothschild Assurance plc & Ors v Collyear & Ors [1998] C.L.C 1697 ('Rothschilds'). In that case the claimant ('JRA') sought to notify its insurer of possible future claims for pensions mis-selling. The letter of notification referred to bulletins issued by the relevant regulatory authority describing wrong advice given to investors to transfer out of occupational pension schemes and into personal pension plans. The letter also referred to a report by KPMG produced for the Securities and Investment Board recording that a large percentage of the 735 client files that KMPG reviewed from a representative sample of firms undertaking pensions transfer business did not comply with conduct of business rules. None of those files had been JRA files. JRA's notification letter had attached a schedule of 2,500 pension transfer policies so far effected by JRA and stated that 'the circumstances may, in respect of each policy identified or to be identified, give rise to a claim by each client against any of the Assured'. The letter also purported to notify claims relating to clients who had been advised to opt out of entering into an occupational pension (rather than to transfer out of an existing occupational pension), although it had not been possible for JRA even to identify each transaction where the firm had given opt out advice to its clients.

The insurer in Rothschilds objected to the notification on the grounds that it purported to make a blanket notification. They argued that no cause for concern specific to any transfer or opt out case had been mentioned in the letter. There was no reference in the regulator's bulletin or the KPMG Report to any criticism or complaints directed against JRA itself. The insurer said that the KPMG findings were no basis for a fear of claims against JRA. In response to the notification letter, the insurer had written to JRA inviting it to carry out a review of its files, saying that "when and if they identify particular client cases which give rise to concern and in respect of which a claim may be made against them" they should notify the case to the insurer at that point.

Claims were subsequently made against JRA by former clients alleging that they had been mis-sold pensions. The question arose whether these claims were covered by the notification. Rix J held that the prevalence of mis-selling by other providers as evidenced by the KPMG report meant that it was at least possible that equivalent non- compliance would give rise to claims against JRA themselves. He held that the letter was a valid notification not only as regards advice relating to transfers out but also as regards advice about opting out.

The case of HLB Kidsons (a firm) v Lloyd's Underwriters [2008] EWCA Civ 1206 ('Kidsons') concerned a notification made by a firm of chartered accountants of concerns about the efficacy of various tax avoidance products that they had provided to clients. Concerns about the products had been expressed in trenchant terms by a tax manager in the Edinburgh office of the firm and were supported by an opinion from Scottish tax counsel. The notification letter was described by the court as having been written in 'limited and anaemic terms'. Nonetheless it was held by the Court of Appeal to be a valid notification. At first instance, Gloster J had found that the letter did not amount to a notification because it was vague and nebulous; it contained no identification of any error, act or omission or possibility of any claim and did not identify the products or procedures that gave rise to concern. The Court of Appeal rejected this test as too stringent and held that the letter had been a notification of circumstances that may give rise to a claim, those circumstances being the Edinburgh tax manager's view that implementation of certain products might be criticised and might give rise to possible claims or losses.

In my judgment, the key point arising from these authorities is that in both cases the notifications were held to be valid in relation to later claims that arose from the circumstances notified, even though the notification had not even referred to the transaction from which the later claim arose, let alone identified a defect in relation to the handling of that particular client as likely to give rise to a claim by that client. In Rothschilds the Court clearly rejected the view expressed by the underwriter's initial response to JRA that the notification was premature and that JRA must instead notify only once it had identified a possible defect in a specific case. On the contrary, the Court, having found that there was a sufficient factual basis to amount to a 'circumstance', held that the notification covered not only transfers out of pensions but also opt out advice, despite the fact that JRA had not even been able to list the clients to whom opt out advice had been given. Similarly in Kidsons there was no suggestion either in the judgment of Gloster J or in the judgment of the Court of Appeal that the notification was ineffective because it failed to identify particular clients to whom the tax avoidance products had been sold or to examine whether that particular client might have a claim. The assumption was that provided circumstances exist which may give rise to a claim, and provided those circumstances are notified, then any future claim arising out of those circumstances must be paid out by the insurer at risk at the time of notification whether or not the particular transaction or possible claimant has been identified at the time of notification.

This means that the stance taken by European Risk in the Rejection Email was clearly wrong. The only reasonable interpretation of the email was that European Risk were asserting that they could be liable only in relation to claims arising from the 32 files which had been examined in the Corre Report. They purported to rule out the possibility that claims arising from the other files handled by Sekhon Firth could be laid at their door unless and until a 'specific incident, occurrence, fact, matter, act or omission' had been identified 'on each individual file'. The two lists of other files provided with the Notification Letter were contrasted with the Corre Report files where problems had been highlighted and in respect of which European Risk accepted that a valid notification had been made.

European Risk's contention in the Rejection Email that their liability is limited to identified files is misconceived and at odds with the case law. Whether or not a future claim arising from other Sekhon Firth files will fall to be paid out by European Risk as a result of the Notification Letter depends on the nature of that future claim and whether it arises from circumstances that were validly notified. It will not be conditional on MSR having separately notified a problem on that particular file as being a separate circumstance under the policy.

Having found that the Rejection Email was wrong in the terms in which it was written, should I then grant declaratory relief? The Claimants ask for declaratory relief because they hope that this will enable them to persuade a qualifying insurer to insure them for the remainder of the year and enable them to leave the ARP.

The declaratory relief sought in the Amended Particulars of Claim was a declaration that a valid notification of the circumstances was made on 21 September, those circumstances being, broadly, 'a range of facts and matters that were indicative of serial malpractice in the conduct of conveyancing transactions' carried out on behalf of Sekhon Firth or Runhams clients.

During the course of the hearing before me, Mr McGurk appearing for MSR redrafted the proposed terms of the declaration. The draft, made up of five paragraphs sought declarations that:

It is common ground that the power to grant a declaration pursuant to CPR 40.20 is not limited to cases where the claimant has a subsisting cause of action: see Guaranty Trust Co of New York v Hannay [1915] 2 KB 536 (CA). In Financial Services Authority v Rourke [2002] C.P. Rep 14 ('Rourke'), Neuberger J said that the court's discretion should be exercised taking into account justice to the claimant, justice to the defendant, whether the declaration would serve a useful purpose and whether there are any other special reasons why or why not the court should grant the declaration.

MSR asserted in these proceedings that there was an implied term in the contract of insurance which European Risk had breached by sending the Rejection Email. The existence of the implied term is also relevant to the other relief sought by MSR, that is a mandatory injunction requiring European Risk to accept the notification of circumstances and damages for breach of contract. The appropriateness of granting a mandatory injunction was not argued before me separately from the question of the appropriateness of granting the declaratory relief sought. It was also agreed by the parties that any question of damages would be dealt with at a later hearing. It is not in the event necessary for me to determine whether such an implied term exists: the existence of an implied term is neither necessary nor sufficient for the grant of declaratory relief and in this case it does not assist me exercising my discretion.

The situation considered in Rolls Royce v Unite the Union [2009] EWCA Civ 387 had some similarities with MSR's case. There the Court of Appeal was asked to make a declaration as to the legality or illegality of a particular criterion that the employer and unions had collectively agreed would be used in selecting people for redundancy. The Court noted that employees dismissed pursuant to the implementation of the collective agreement might seek to argue in employment tribunals ('ETs') that the criterion was illegal. Was it right that the Court should make a binding declaration on that issue without hearing from the employees who would be affected by it? Wall LJ (with whom Arden L J agreed), having expressed his concerns, decided that it was appropriate to determine the issue between the parties. His reasons were first that the Court was being asked to construe a statutory instrument deriving from a European Directive and the construction and interpretation of material emanating from Parliament was both a matter of public importance and one of the Court's proper functions (see paragraph 54 of his judgment). Secondly, the point was not an academic one but the subject of a real dispute between the parties; thirdly, the point was an important one and likely to affect a large number of people; fourthly, the lower court had dealt with the application without challenge from either party and finally the parties both wanted the point to be determined by the Court and the matter had been fully argued before them. Finding therefore that 'the thrust of modern authority favours engagement rather than abstention' on the part of the courts, Wall LJ concluded that it was right for the Court to hear the appeal. However, he went on to say:

After setting out his conclusions that the appeal should be dismissed, Wall L J dealt with the question of relief:

Applying the test formulated in Rourke the first question is where the balance of justice lies as between the parties. As regards justice for MSR, I have already found that the Rejection Email was wrong in purporting to rule out future liability for anything other than the handling of the 32 matters covered by the Corre Report. MSR therefore have a strong claim that the justice of the case demands that a declaration be granted since it might assist them in persuading a qualifying insurer to provide cover and allow them to come out of the ARP.

On the other hand, Mr Holwill appearing for European Risk, argued that it would be unjust to European Risk for the court to make a declaration which in effect binds them to accept claims in respect of the circumstances covered in the Notification Letter without either the insurer or the court really being in a position to determine precisely what circumstances existed at the time and what circumstances were therefore validly notified.

This raises the question of what matters could properly be the subject of a declaration in this case. Some paragraphs of the proposed declaration (see paragraph 48 above) purport to describe the range of conveyancing files to which 'the circumstances notified shall extend' as being all the conveyancing files over which the former fee earners or members of Sekhon Firth had conduct between a particular date (subject to some specified exceptions). It is not at all clear what the effect of such a declaration would be. Insofar as it might be read, for example, as a determination by the court that the identity of the fee earner or member handling a particular file from which a claim emerges is irrelevant to any question of whether that claim is covered by the notification, such a declaration would go too far. I am not in a position to say whether the circumstances notified indicate that errors were likely to be made by all the fee earners in Sekhon Firth rather than a few 'bad apples'. I note that, as I have described, the SDT Judgment (which was attached to the Notification Letter) shows that the Tribunal there was satisfied that the failures in the transactions before it were not systemic 'particularly in view of the fact that they appeared to be in such a small number of cases given the number of overall cases dealt with' (see paragraph 103.21 of the SDT Judgment). Insofar as such a declaration would be relied on by MSR as a finding by me that claims made in relation to files created during any particular period after Sekhon Firth had been acquired by Runhams must be treated as arising from the circumstances notified, that would also go beyond any finding that would be justified by the evidence before me. The date of the transaction in respect of which a future claim is made may or may not be a material factor in deciding whether that claim can be said to arise from the circumstances described in the Notification Letter. It would not be fair to close off any arguments European Risk might want to make in future in that regard.

Other paragraphs in the proposed declaration seek to set out in more detail the scope of the circumstances notified by the Notification Letter. There are problems with trying to pull out of the Notification Letter something that purports to be an exhaustive list of the misconduct notified. The case law is clear that a notification can only be valid insofar as it is based on circumstances which are known to the insured at the time the notification is made: there must be 'a substratum of underlying external fact, over and above the [insured's] mere concerns' see Kidsons at paragraph 74. A declaration setting out the circumstances which have been 'validly notified' would appear to prevent European Risk from being able, once a claim is made, from arguing that the underlying matters to which MSR referred as circumstances in the Notification Letter were not in fact true and so could not validly be notified to European Risk. Mr Holwill said therefore that any declaration must be limited to those circumstances which it· is possible for the court to verify. Those are limited to the facts in the 32 files examined by the Corre Report and the files found to be defective in the SDT Judgment.

A declaration limited to the circumstances set out in those files would exclude a range of other circumstances which the Notification Letter describes which might well turn out, on further investigation, to have existed and to have been validly notified but which it is not possible to verify now. For example, the fact stated in the Corre Report that a number of the fee earners who had conduct of the transactions did not appear to be qualified solicitors may or may not turn out to be significant in relation to later claims. There is also a dispute between the parties as to which years are covered by the circumstances notified. A limited declaration is likely to turn out to be too narrow in the sense that future claims arising from a wider range of facts than that fall to be paid out by European Risk as a result of the Notification Letter.

Conversely, to declare that MSR has validly notified circumstances wider than the defects apparent from the Corre Report and SDT Judgment files would be to go further than the evidence currently before me justifies. During the course of cross-examination, Mr Holwill took Ms McManus to various instances where a particular proforma checklist completed during the Saturday file review had been treated for the purposes of the Corre Report as showing that the file exhibited an error whereas it was really not clear, looking at the checklist whether such an error existed. For example, there were instances where the Saturday file review denoted some files as failing to comply with the Mortgage Code without first establishing that the Code had applied to the transaction and, in a couple of instances, where it appears that there had been no loan involved at all. There are also instances where a file had been denoted as problematic because the monies used in the transaction had come from another client account held by the firm, without exploring whether this was actually from another account held for the benefit of the same client, or a member of their family (which would not set alarm bells ringing) rather than from an apparently unconnected third party (which would). Some files were denoted as problematic because there was no identification document for the client, but this might not have been necessary if the client was already known to the firm from other transactions.

I am sure that Ms Cracknell, Ms McManus and the staff at MSR who carried out the Saturday file review were conscientious in the way they conducted their investigations and were doing their best to understand the breadth of the problems likely to arise from the Sekhon Firth files. But Ms McManus fairly accepted that it appears that some errors were made in the course of the exercise, something which is not at all surprising given the speed at which they were working and the fact that she was at the same time trying to sort out insurance for the following year. The Notification Letter stated that the overwhelming majority of files looked at showed that there were potential claims to be made. Mr Holwill's calculation was that in fact only a few files of the ones that he regarded as really having been picked at random seem to show defects similar to the ones referred to in the Corre Report. What the correct proportion is and whether in fact or law that makes any difference to the scope of the notification are not matters that it is possible for me to determine at this stage.

To qualify any declaration by stating either that it is not an exhaustive list of the circumstances notified or that it is based on an assumption rather than a finding that the listed circumstances really existed at the time of the Notification Letter would denude the declaration of any real value to either party.

In my judgment, issues about the limits of the circumstances notified and the range of claims that might be said to arise from them are matters better left to be determined if and when a claim arises. It may be that no further claims come in, or that any that are made display so many of the features described in the Notification Letter that European Risk will accept its liability to pay without demur. Mr Holwill referred me to the case of Quinn v Law Society [2010] EWCA Civ 805 where the Court of Appeal decided that a solicitor is not entitled without the client's consent to disclose to his insurer on notification the client's confidential and privileged documents. This compounds the problems for any court trying to determine the true scope of a valid notification at the time when the notification is made. Although those problems may well also arise if the validity of the notification is called into question once a claim has been made, that is a better time at which to assess how far privilege needs to be waived, how far relevant material can be redacted to avoid the need for such waiver and by whom any privilege must be waived to enable the court to resolve the issues before it.

With some reluctance I must conclude that almost inevitably any declaratory relief would be either too narrow or too broad. It would also risk raising more problems than it solves rather than providing assistance to the parties or any future court faced with deciding whether a particular claim arose from circumstances notified in the Notification Letter. Having regard to the factors described in Guaranty Trust Co of New York v Hannay, this is not a case where a declaration would serve a useful purpose. For the same reasons, I do not consider that this is a suitable case for the grant of a mandatory injunction that European Risk accept the Notification Letter.

I consider that the best course to follow is that which was adopted by the courts in the Rolls Royce case, namely for me to restate my conclusions on the issues raised by the parties so far as I can but to decline to grant declaratory relief. My conclusions, therefore, are as follows: