British Credit Trust Holdings v UK Insurance Ltd.

In this case, Mr McLaren QC on behalf of the Claimants seeks permission to amend his Particulars of Claim. This application is resisted by Mr MacDonald Eggers on the Defendants’ behalf. The application has led to extensive legal submissions and the legal position is not entirely straightforward. The matter comes before the court pursuant to an Order of Toulson J on 11 July 2003, who adjourned the Case Management Conference to enable full arguments to be heard on the application.

This case is about the extent of the insurance cover which was written by the Defendants for the Claimants’ benefit. The Claimants, the assured, finance hire purchase agreements in the motor trade; that is, they provide finance to purchasers of motorcars, including to those who have an ‘impaired credit history’ [non-prime lending]. The losses sustained by the Claimants in respect of the non-prime lending was insured with the Defendants. The relevant policy incepted in March 1998 and business ceased to be written under the Policy on 31 July 2001. As customers default on their HP commitments so claims continue to arise and those claims are notified to the Insurers on a monthly basis, backed up with detailed schedules. The loss which the insured sustains is the difference between the amount of the loan outstanding and the value of the vehicle, if it has been re-possessed. The Claim Form in this action was issued on 6 February 2002. The Particulars of Claim which were served on 14 March 2002 duly quantified the losses up to the date when the Claim Form was issued. Monthly reports of losses continued [and are continuing] to be supplied to the Defendants after this date. On 7 February 2003 the Defence and Counterclaim was served, following a detailed audit by the Defendants of a sample number of the HP Agreements and the claims arising thereunder. On 4 July 2003 the Claimants served a draft Amended Particulars of Claim which included ‘claims which had continued to be made’ by the Claimants since the date of issue of the Claims Form.

At the CMC on 11 July 2003, the Defendants said they would not object provided that:

The first proviso was not acceptable to the Claimants; the second was. As a precautionary step, the Claimants, on 10 June 2003, issued a second action against the Defendants claiming similar relief to that sought in the first action. The Defendants say that claims where the HP Agreements were terminated between about mid-January 2002 [that is, claims made in relation to those reported in the monthly claims reports issued after the first action was commenced] until a date one year before the commencement of the second action are contractually time-barred. These claims have been conveniently described as the Gap claims and are said to be total some £600,000.

In the Claim Form in the first action the Claimants sought the payment of £1 million odd “under the said policy”, plus interest, and “a declaration of liability for further amounts due under the said insurance policy”. This claim was foreshadowed in the letter before action written on the Claimants’ behalf on 14 December 2001:

“… unless you withdraw your reservation of rights and pay all sums due to our client under the policy within 7 days, we are instructed to institute proceedings against you for recovery of all amounts due under the Policy, whether currently outstanding or becoming due and payable in the future.”

In the un-amended Particulars of Claim, through an oversight or word processing error, there was no reference to the declaratory relief sought in the Claim Form. There was a claim for the amount stated in the Claim Form which was said to be due “as at 17^th January 2002”. Now the Claimants wish, by amendment to add these paragraphs:

“20A Further or in the alternative pursuant to the declaratory relief claimed at sub-paragraph (3) of the Claim Form, the Claimant claims a declaration that the Defendant is liable to pay the Claimant the further amounts:

20A.1 which have fallen due under the Policy in the period between 6 February 2002 and 29 September 2003 and

20A2 which will continue to fall due under the Policy.”

They also wish to make a corresponding amendment to the Prayer for relief to add a claim for a declaration “in the terms pleaded at paragraph 20A above”.

In the Insuring Clause of the Policy, it is provided that

“… this insurance shall apply solely in respect of losses sustained by the Insured as a result of the early termination of any Customer’s Agreement/s, such termination to be as a consequence of any act or default or breach of the terms of the Agreement/s by a Customer or insolvency of a Customer and then only for:-

In the case of any vehicle which is repossessed the difference between:-

(a)

The sum due in respect of the Net Outstanding Balance under an Agreement and;

(b)

The sale value of any such re-possessed vehicle realised at auction, such vehicle to be sold within 90 days of termination of an Agreement. Otherwise on day 91 after termination then the value of the vehicle at the date of termination of an Agreement will be determined by reference to Glass’s Guide Trade Value, adjusted for mileage or other similar point of reference agreed with the Insurers.

If the vehicle is not repossessed within such 90 day period and provided the Insured confirms in writing that the Insured has made all reasonable efforts to recover the Vehicle then the Insured’s loss shall be a sum equal to (a) above.”

Clause 2 of the Policy contained a number of “conditions precedent to the liability of the Insurers” at the end of which the policy reads:

“It is agreed that any failure by the Insured to observe the above conditions at any time shall entitle the Insurers to revoke coverage in respect of the relevant Agreement under this insurance at their sole discretion.”

In clause 3, the definition provision, “Net Outstanding Balance” is defined to mean:

“.. the balance outstanding representing the capital balance and all interest charges, including future interest charges ( as shown in the accounts and records maintained by the Insured) at the date of termination of the Agreement …”

Clause 5 of the Policy is headed “CONDITIONS” and sub-clause (n) stipulates:

“No legal action may be brought under this insurance in respect of any Agreement unless the Insured has complied with all the provisions of the insurance in relation to such Agreement and any such legal action must be commenced within one year after any loss occurs in respect of such Agreement.”

Clause 5 (o) requires the Insured “within 15 days of the end of each month” to provide to the Insurers “a written statement containing details of vehicle types and premiums due in respect of all relevant Agreements incepting in the previous month.” And clause 6 of the Policy required the Insured to “maintain on a monthly basis a written statement of claims to be settled hereunder during each month and outstanding at the end of each month in respect of Insurance incepting during the Period”. The Insured were also obliged to maintain certain specified information in their records and “make the same available upon request” to the Insurers.

Have the Claimants abandoned the claim for a declaration sought in the Claim Form in the first action because they did not include within the Particulars of Claim any claim for similar relief? What is the proper construction of clause 5(n)? Does the doctrine of relation back apply to the proposed amendment? If there is a contractual time-bar, does the court have the power to grant an amendment which relates back so as to negative its effect?

The parties’ arguments may be summarised thus:

For the Insurers, Mr MacDonald Eggers submits that the claim in the claim form in relation to liability for “further amounts due” means further amounts due at the date of the Claim Form, namely 6 February 2002 and not to amounts which fall due thereafter. But secondly as it was not a claim made in the Particulars of Claim it “should be regarded as having been abandoned.” He placed reliance on the decision of Harries v Ashford [1950] 1AER 427. For the Claimants, Mr McLaren QC submits that that case can be distinguished; that it contains no analysis of the underlying principles; that it has subsequently been disapproved and in any event under the new the new rules of procedure such a concept does not survive.

I was taken to the relevant authorities.

In my view the suggestion that because a claim in the writ has not been repeated or adopted in the points of claim it has been abandoned and cannot be resurrected, is neither supported by authority nor correct as a matter of principle. Where there are competing conflicting claims, such as a claim for specific performance and damages for breach of contract, or a claim for rescission and a claim for relief on the basis that the contract is to be performed, and both are mentioned in the claim form or writ but only one is pursued in the points of claim, then it is arguable that the Claimant has ‘elected’ to put his claim in the way pleaded in the Particulars of Claim and ‘abandoned’ the conflicting claim in the claim form or writ. Even in such circumstances, there is no principle of law which says that a claim abandoned on the pleadings cannot be resurrected by amendment, or that an ‘election’, once made on the pleadings, cannot be revoked by a change of mind. This is a matter of procedural rather than substantive law. Whether a court permits the resurrection to take place is a pure matter of discretion. There may well be circumstances where the election or abandonment has in some way prejudiced the other party or it is otherwise too late for a change of direction. But those are matters which are weighed in the balance when the discretion is exercised.

In the Cargill case, Fry J declined to say whether the Plaintiff had elected to approbate the contract. In these circumstances he was exercising a discretion not to permit an amendment because the Plaintiff only intended to run the rescission case in the winding-up proceedings. Swinfen Eady J’s observation in the Lewis & Lewis case, if accurately reported, that it was held in the Cargill case that if a Plaintiff omitted to plead in the statement of claim part of a claim which was included in the writ “he will be deemed to have abandoned that part” is unsupportable. That is not what Fry J decided. In Harries, Asquith LJ declined to decide that there was no power to amend a claim on grounds of election or abandonment but treated the matter as one of discretion. It is unlikely that, in those circumstances, he intended to say that the discretion could only ever be exercised in one way; it would be surprising if he had. Although Roxburgh J used the word ‘abandon” he did not regard this as having the effect that a ‘new’ claim could not be made. Indeed, he accepted that the decision to be made was a matter of discretion which, because of delay and a limitation defence, he would exercise against the widow. I respectfully agree with the pithy comment of Danckwerts J set out above. It is significant that Saville LJ in the Barrow case, was taking into account the question whether the Claimant had done anything to indicate that he had “given up any right” and whether the defendant “was led to believe that this was the case”. Those issues are plainly matters which will fall into the balance to be struck when the court exercises its discretion. And Longmore LJ in the Kuwait Airways case referred to “other contemporaneous conduct which the court can take into account”.

In my judgment, there never was a rule of law which prevented a Plaintiff from succeeding on an application for permission to amend on grounds of abandonment or election. The court is likely to be concerned where an application has the effect of opening up a new and different claim. But now all applications for permission are freed of the clanking chains of procedural ‘niceties’ enjoyed by lawyers in previous generations, often at the expense of the litigant. The CPR was designed in part to achieve this freedom by expressing the fundamental, overriding objectives in terms of justice and proportionality.

In this case, the Claimant certainly did not intend to give up his claim in respect of losses which continued to flow after the first action had been started. Furthermore, the Defendants have not said and cannot say that they were misled into thinking that part of their potential liability had been abandoned by the Claimant’s failure to mention these continuing losses in the Particulars of Claim. Indeed, when a sampling exercise was carried out by the Insurers’ experts a significant number of claims which had accrued since the issue of the Claim Form was included. This can only have been on the basis of the Defendants’ understanding that they were going to have to deal with post action claims as they fell due. No question of abandonment arises at all; there was no intention to abandon and no detriment [and, therefore, no estoppel by representation]. Since there is no inconsistency between the claim for losses accrued before the action started and losses accrued after that date, no question of election can arise. My discretion remains unfettered, and I must take account of all the relevant circumstances including the question of contractual time-bar. Mr MacDonald Eggers’ submission on abandonment, although of historical interest, is wrong and is an argument which had better not have been deployed.

I turn, therefore, to the proper construction of clause 5(n). There are a number of questions which arise. First does clause 5(n) provide a bar to claims in legal actions which are commenced after one year after any loss occurs? At what time does a loss occur in respect of an HP Agreement? Third, does the clause prevent claims being made prospectively for future losses, so that a claim for a declaration as to future losses is not within the clause and a succession of actions must be brought within the one year time limit?

It seems to me that the language and context of the clause is such that I can properly construe the clause as a contractual time bar. There are two parts to the clause. The first part reads:

“No legal action may be brought under this insurance in respect of any Agreement unless the Insured has complied with all the provisions of the insurance in relation to such Agreement …”.

Mr MacDonald Eggers submits that this part of the clause applies only to the Insured who is making a claim for an indemnity under the policy and makes it plain that before any proceedings could be taken the Insured would have had to be making a claim for an indemnity in relation to a specified loss arising from a specified Agreement: a loss does not occur at least until a specific Agreement has been terminated. But the sentence is curiously worded and if read literally would have the effect of preventing the Insured from raising any claim unless all the provisions of the Policy had been complied with, which would suggest that the Insured would have no right to have a court determine whether there had been compliance or not. It seems to me that the clause must be read sensibly against the commercial background of the Policy. Had the first part been an attempt to oust the jurisdiction of the court from granting, where appropriate, declaratory relief in advance of an issue affecting the obligation of the Insurers to provide an indemnity against losses, express language to achieve that result would have been necessary and the court would have wished to consider questions of public policy. Thus, a claim for declaratory relief that claims for loss made before the action was started were prepared in accordance with the requirements of the policy and a further declaration that claims since the issue of the writ had been similarly so prepared, would not be precluded by clause 5(n). A contrary conclusion would be nonsensical. The clause does not, as Mr MacDonald Eggers argued, establish a one-year window so that claims could not be made in advance of any loss under any Agreement and could not be made within a year afterwards. Such a construction strains the language beyond breaking point. He was forced to argue that each claim under each HP Agreement gave rise to a separate cause of action and they could not be dealt with by what one might call an ‘umbrella’ claim which referred to Agreements and losses to be incurred in the future. I reject his submission that the word “within” sets the start date for any proceedings in the sense that proceedings could not be started before that date. That would be a restriction which does not have any commercial sense, and could fulfil no useful purpose, and was not, I think, within the contemplation of the parties when the contract was made.

I think the commercial purpose of the clause as a whole, and the second part of the clause in particular [“and any such legal action must be commenced within one year after any loss occurs in respect of such Agreement.”] is to provide a cut-off date, a limitation defence, in relation to claims made more than 1 year after a loss has occurred. On this point, the wording of the clause is clear: “such legal action must be commenced within one year …” The Insurers are entitled to be able to close their books in relation to claims, which by their nature are likely to be small in value, after the stipulated period. Such a clause makes good commercial sense when the parties can anticipate a large number of relatively small claims and where the insured is necessarily keeping records which would enable a claim to be formulated rapidly. Time could always be extended by consent.

Mr McLaren relies on the fact that this clause appears under the section headed “CONDITIONS” and not under Clause 2 where the heading includes the words “CONDITIONS PRECEDENT”. He says that in these circumstances the court can infer that a failure to act within the one year time limit might give rise to an action in damages but does not act as a bar to proceedings brought after the one year period had expired. Mr McLaren suggests that the damages should be calculated on the basis that the defendants should be put into the same position as they would have been in had there been no breach. He gave as an example a loss the Defendants might suffer if they failed to make a reserve which they otherwise would have made had the claim been brought timeously.

Mr MacDonald Eggers submits that this is entirely the wrong approach. There is no contractual duty on the Claimants to bring any proceedings; the Claimants are under a duty not to bring proceedings after the time limit has expired. The Defendants have a right not to have proceedings brought against them after one year. If proceedings are brought after one year, then the Defendant’s rights have been infringed and the Claimants have acted in breach of duty. To restore the parties into the position they would have been in but for the breach would have left the Defendants with a time-bar defence. So the loss they have suffered is the amount which the Claimants recover in the action brought out of time and the claim would fail for circuity. Furthermore, there is no reported case where breach of a contractual time bar has led to damages. The Defendants’ rights under clause 5(n) can be upheld by an injunction, as damages are clearly not an adequate, or appropriate, remedy.

In my view the Defendants are right on this issue. The fact that Clause 5(n) is not preceded by words such as “condition precedent” does not suggest that the clause is not an effective contractual time bar. The matters which are listed in clause 2 are conditions precedent to the Insurers’ liability under the Policy. This clause is not dealing with the question whether the Insurers are liable under the terms of the Policy but, rather, with a procedural requirement that legal proceedings must be brought within one year. A time bar of this sort is not, I think, properly to be described as a condition precedent to the Insurers’ liability. In any event, the suggestion that a breach of this clause could be remedied by a court awarding damages for consequential loss is, in my view, misconceived. As Mr MacDonald Eggers observes the court would be compelling a party to ‘trade’ his legal rights for compensation. The true analysis is that the loss which the Insurers suffer by reason of a breach is the loss of the right to rely on the time-bar and any such action would fail for circuity.

Proceedings must be brought “within one year after any loss occurs in respect of such Agreement.” When does a loss occur in respect of any HP Agreement? In the context of the time bar, and leaving aside the issue relating to a declaration, this clause defines the moment that time starts to run as the time when a claim could first have been brought. The time when such a claim could first have been brought must be a claim in respect of losses sustained by the insured which are recoverable under the Policy. The losses sustained by the Insured are those which are identified in the Insuring Clause, namely losses sustained as a result of the termination of an Agreement “and then only for” the difference between the amount outstanding under the Agreement [the Net Outstanding Balance as defined in clause 3] and any recovery made as a result of re-taking possession of the vehicle. If re-possessed, the vehicle had to be sold within 90 days, failing which the value of the vehicle would be taken as the Glass’s Guide figure with appropriate adjustments; if not re-possessed within 90 days despite all reasonable efforts then the “Insured’s losses shall be” the Net Outstanding Balance. Mr MacDonald Eggers’ reference to the decision of Webster J in Callaghan & Another v Dominion Insurance Co ltd & Others [1997] 2 Lloyd’s Law reports page 541 at page 544 does not assist his argument. The Judge was considering the question as to the time from which a cause of action for an indemnity under an insurance policy arose. He concluded that the rights under the policy arose as soon as the loss was incurred. He concluded:

“Unless therefore there are clear words in the policy which have a contrary effect, liability under this policy, being a policy of indemnity insurance, arises immediately loss is suffered as a result of the happening of the relevant event.”

Here, there are clear words that the losses sustained are only for the sum due under the Agreement, less recoveries actually or hypothetically made.

Mr MacDonald Eggers argued that time started to run under clause 5(n) on the date of termination of the HP Agreement and not later. In my view he is obviously wrong. Termination of such Agreement is the trigger for potential recoverable loss but it is not the moment at which the loss occurs. The Insured may not know whether there is any loss until the vehicle has been re-possessed and sold. And that loss may only be known 90 days after the termination of the Agreement. Time cannot start to run against the Insured until he knows whether there is a loss and has identified what loss is recoverable under the Policy (that is, the loss has crystallised). I can see no justification for the contrary submission: the words of the Insuring clause and 5(n) when taken together are, in my judgment, clear. The date when the loss first becomes recoverable depends upon whether the vehicle is re-possessed and whether it is sold. If it is repossessed and sold within 90 days time starts to run from the date of the sale; otherwise time starts to run from day 91.

Next, Mr MacDonald Eggers argued that on the proper interpretation of clause 5(n), the Insured is effectively prevented from seeking a declaration in the form familiar to this court where losses are still being incurred under an insurance policy which is the subject of dispute, for example on grounds of non-disclosure or misrepresentation. He says that a claim for declaratory relief will not stop the clock running. I reject this submission. He says that a claim must relate to a particular agreement and that a claim which seeks declaratory relief in relation to many unidentified agreements will not do. If clause 5(n) is to be construed as requiring the Insured only to bring claims which have occurred within one year where a loss has occurred and a claim for a declaration falls outwith the clause, then so be it: there is no contractual time-bar in relation to such a claim. If it does apply then the clause must be read in a way which is commercially sensible and in those circumstances a claim for declaratory relief would not fail to have effect either because no agreements were identified or no loss had yet been suffered in respect of them.

The argument on the Insurers’ behalf that the wording of clause 5(n) is such as to prevent an action being commenced in anticipation of a claim seems to me to be wrong in principle. The Insured must be entitled to have access to the courts to seek a declaration, for example, as to the meaning of a clause which is in dispute. There might, for example, be a dispute between the parties as to whether the use of reasonable endeavours to re-possess a vehicle require the Insured to use the services of recovery agents. There might be no ascertained loss in dispute, yet there might be a need for some such issue to be determined. It would be contrary to public policy to oust the jurisdiction of the court where there was a genuine dispute in respect of an Agreement in advance of a claim for loss under the policy. Both parties to this Policy are business entities; it must be assumed that they intended their contract of insurance to be interpreted in a way which made commercial sense. To suggest that the Insured were not entitled, for fear of offending clause 5(n), to include a claim for declaratory relief for losses yet to be incurred but which were in the pipeline at the date of the action, would be to produce a result which neither party can have envisaged.

It cannot have been in the reasonable contemplation of either party that where there was an underlying dispute on a point of principle, the Claimants, in order to preserve their position on time, would have to issue claim forms for each loss as it reached the one year time period. In my view, on a sensible and proper construction of this clause, a properly formulated claim for declaratory relief in respect of losses accruing after the proceedings started and before judgment was not outwith the provisions of clause 5(n), and would have satisfied the requirement that claims had to be brought within one year. In this case, the Claimants ask for a declaration that the policy has not been avoided; the Insurers seek a declaration that the Policy has been avoided and a claim for rectification of the 10% excess. This relief relates to the insurance in respect of all Agreements and falls within clause 5(n): a fortiori a claim for monies accruing after the proceedings had started.

I also reject the argument that it is inconceivable that the court would grant a declaration as sought in the Claim Form. Until the claims were identified, so it was argued, the court would not know which claims were valid and which were not. The purpose of the claim for a declaration was to hold the ring until the court decided issues of principle. If the fresh claims raised new points of principle these could be identified during the case management phase and dealt with at the trial; alternatively directions could be given at the trial for the determination of any further issues. Since the claims made are in the same form, there is no reason to believe that any fresh problems would arise, and, as I have said, some of the new claims have already been analysed by the Insurers in their sampling process. In such cases there will be claims for sums allegedly due as at the date of the Claim Form and for declaratory relief in relation to sums which fall due thereafter up to the date of judgment. That is clearly what the person who drew up the Claim Form in this case had in mind, and the Insurers would have understood it that way. In my judgment, therefore, the claim for declaratory relief in the Claim Form stopped time from running in relation to losses accruing after that date.

If I am right about the effect of the claim for declaratory relief being included in the Claim Form, so far as the contractual time limit is concerned, this issue does not arise. I shall deal with it shortly, out of deference to the full arguments addressed to me by counsel.

I was referred to a considerable body of law on this matter, including in particular the decision of the House of Lords in Ketterman v Hansel Properties [1987] AC 189, and the decision of the Court of Appeal in Maridive & Oil Services (SAE) v CNA Ins Co (Europe) [2002] 2 Lloyd’s Reports 9. I do not propose to attempt an analysis of all the cases: the picture is somewhat confused: judges appear not to agree with one another. For present purposes, the principles which I would have applied are these:

As I understand the position, following Ketterman, the courts adopt, as always, a pragmatic approach. A new party joining the action is entitled to look at it as though the action were started on the day he joined and the court might insist that that is recorded as a condition of permission to amend. So also with a new cause of action: it starts from the date it is first made. But if there is an existing claim which needs amendment then the amendment will relate back so that the claim begins as though in its amended form as from the date when the pleading in question was first delivered. These simple rules produce no difficulty. In respect of any amendment the court is entitled to impose such conditions as it thinks fit, including, I think, conditions as to the date from which the proposed amendment is to take effect. The doctrine of relation back does not apply inflexibly, the court can adjust its operation to achieve the overriding objectives.

Here the picture is not entirely clear. There was a claim in the Claim Form which was effective to give rise to liability on the Insurers from the moment it was issued. It was not abandoned by the Particulars of Claim but it was also not referred to in that document. If I permit the Particulars of Claim to be amended to give effect to what the Claimants always intended am I permitting an amendment which amounts to a new cause of action? The answer to that question lies, I think, by keeping well in mind the overriding objectives. ‘Nice’ pleading points are not to be encouraged. Would it be fair and just to allow the amendment or would I be depriving the defendants of a contractual time-bar? In my view there are no good reasons why the proposed amendment should be refused. By virtue of the claim for declaratory relief in the Claim Form and its obvious import the defendants would be deprived of nothing if I permitted the amendment and permitted it to take effect as from the date when the action first started. In case management terms it makes good sense to have one set of proceedings and not two. From the Defendants’ perspective, they will be put into the same position as they would have been in, and must have contemplated, as if the original Particulars of Claim did not suffer from the error referred to above. The Defendants’ attempt to impose conditions was nothing more than a proper attempt to exploit an obvious error made in the other party’s pleadings.

Having regard to all the circumstances, allowing the Claimants permission to amend and for that amendment to take effect from the date of the Claim Form is the just order to make. The Insurers are not deprived of anything of value: they knew the effect of the claim for a declaration and the claims since the proceedings started have already been sampled to an extent. By the letter sent before proceedings were started they knew that the Insured wanted to hold the ring on the time issue whilst the main dispute as to liability was resolved. They were not misled by the pleading error. Refusing to back date the amendment would prejudice the Insured and will cause more complicated case management problems than are necessary.

I make the order as asked.