Templeton Insurance Ltd v Motorcare Warranties Ltd & Ors

This Claim concerns the sale of Mechanical Breakdown Insurance (‘MBI’). This insurance is intended to cover consumers against the costs of the mechanical breakdown of motor vehicles after the expiry of the car manufacturer’s warranty. The policies are sold either as a ‘top-up’ or extension to a new car warranty or, in the case of used cars, to provide insurance after expiry of the manufacturer’s warranty.

The Claimant (‘Templeton’) is an Insurance Company incorporated in the Isle of Man and authorised to write insurance business in the United Kingdom. In four successive annual agreements (the ‘Slips’) Templeton agreed with the Defendant (‘Motorcare’) that it would act as Templeton’s agent in selling MBI in the United Kingdom from July 2004 to July 2008. A necessary part of the Slips were Rate Schedules which set out the rates at which the insurance was to be sold by Motorcare and (more importantly in the present context) the premiums which were to be accounted by them to Templeton.

Contrary to the expectation of the parties, the contracts gave rise to heavy losses to Templeton; and among questions for determination in the action are issues which explain part of the losses. Eventually the contractual relationship between the parties came to an end, with allegations of fraud being made by Templeton against Motorcare and the grant of a Freezing Injunction.

The main focus of the trial was the state of the account between Motorcare and Templeton and the allegation of fraudulent misrepresentation in relation to Slip 4; but issues also arise in relation to Templeton’s claims against the 2nd to 6th Defendants, who are members of the Thomas family and who, to a greater or lesser extent, were involved in the management of Motorcare and its contractual relationship with Templeton.

Motorcare’s business was in the sale of MBI policies which were sold through car dealers to their customers. The policies would either be sold to the customer by the dealer or given away ‘free’ at the time the vehicle was sold. In either case a sum would be payable to Motorcare and premium would be accounted for by Motorcare to Templeton. The difference between these two sums represented Motorcare’s profit.

At the inception of Slip 1 Motorcare’s business was primarily managed by the Third Defendant, Harbinder (Harby) Panesar. Mr Panesar, who had previously worked in the Prison Service, joined Motorcare in 2003 and became a Director in 2004, He was relatively inexperienced in running the business, but he was industrious and was assisted by an experienced back-office staff and a team of salesmen. In addition, he was able to call on his father-in-law, the second Defendant, Anthony (Tony) Thomas. I shall refer to the 2nd Defendant as ‘Mr Thomas’, to distinguish him from his son, James Thomas, who is the 5th Defendant. In addition to Mr Thomas, Mr Panesar had assistance from John Dockerill, an associate of Mr Thomas.

Motorcare had developed over many years as Mr Thomas’s business. In October 2003 he retired and handed over the running of the business to Mr Panesar. Other members of the family carried out nominal roles at Motorcare. The 4th Defendant, Caroline Thomas (who was Mr Thomas’s daughter and Mr Panesar’s wife) was the Company Secretary. James Thomas (the 5th Defendant) was Mr Thomas’s son and acted as a Director. The 6th Defendant, Christine Thomas (Mr Thomas’s wife and the mother of Caroline and James Thomas) was the sole shareholder, up to December 2007, when Mr Thomas became a 50% shareholder and her shareholding was reduced to 50%.

Although Mr Thomas gave evidence that he played a minor and subsidiary role in Motorcare after his retirement, covering for Mr Panesar when he was away, I have concluded (as the contemporary documents clearly show) that he continued to play a major role in the running of the company, particularly in relation to the agreements with Templeton.

An essential part of Motorcare’s business was its computer system. This should have been able to record the relevant details of policies issued by Motorcare’s agents, including the premium and the amount to be accounted to Templeton, and the claims made and paid. During the currency of the four Slips, Motorcare used at least two systems: the Winstar programme, which was used until October 2006, and the Blue-Orange system, which was intended to replace it. The database for the Winstar system was designed by Richard Lailey, who acted as a consultant to Motorcare. When the Winstar system encountered problems some of the claims data was recorded by Motorcare’s back-office staff using manual records. These claims were later referred to as the KJ claims. The Blue-Orange system had the design advantage that it could be accessed by the dealers who could directly input the relevant data, as well as by Motorcare and its brokers. However, until the Blue-Orange system recorded all the relevant MBI policies issued by Motorcare, it was necessary to access two or more sources in order to provide the data which was necessary to monitor the profitability or otherwise of the insurance which Templeton was underwriting.

Mr Dockerill’s relationship with Motorcare pre-dated its relationship with Templeton; and it was Mr Dockerill who, at short notice, arranged for Templeton to provide the underwriting which Motorcare needed to run its business. His company, John Dockerill Associates Limited (or JDA Limited) was described as ‘Producer’ on Slips 1 and 2. His formal status was as the Appointed Representative of Motorcare’s brokers. In practice he took a prominent role as an intermediary during the operation of Slips 1 to 3, with half the broker’s commission being paid to him. He was highly experienced in MBI business; and his advice to Motorcare extended far beyond the usual functions of a broker’s representative.

There were two groups of companies in the contractual chain between Motorcare and Templeton. The first link in the chain was successive FSA registered brokers, who acted as a conduit for some of the information and funds passing between Motorcare and Templeton. From 1 July 2004 until 31 January 2006 the broker was Legal Risks Management Limited (‘LRM’), from 1 February 2006 until 30 June 2007, it was SBM (International) Limited (‘SBMI’) and from 30 June 2007 to 7 July 2008 it was EWC Insurance Services Limited (‘EWC’).

EWC was a company established by Mr Eric Allen. During the operation of Slips 1-3, EWC acted as the second link in the chain, providing assistance to Templeton as underwriting agent. From the start of Slip 4, EWC also became Motorcare’s broker. By the time that EWC had become involved as broker on Slip 4, Mr Allen was receiving assistance from Sean Kent and David Waters in the analysis of the financial outcome under the four Slips.

An intermediary with a dual function is not uncommon in the insurance business. However there is always the danger of difficulties arising from conflicting duties owed to two principals, the Insurer and the Assured. In this case the brokers’ principal was Templeton’s agent and not an assured.

Templeton’s business was run from the Isle of Man. Up until mid 2006 Mr Ralph Brunswick was the Managing Director; and Slips 1 and 2 specified that he was the only person entitled to bind Templeton. Up to 27 July 2006 he was assisted by another director, Mr Antony Corlett. There are a number of letters which appear to have been written by Mr Corlett which Motorcare has relied on, as showing an agreement by Templeton to vary the express terms of the Slip. Mr Corlett did not give evidence, although an affidavit by him is relied on by Motorcare. He has stated, as is now accepted by Motorcare, that one of the letters which appears to be his is in fact a forgery.

Mr Kenneth Wells was employed by Templeton from October 2005; and became involved with the Motorcare Slips in May 2006, taking over as Managing Director of Templeton on 1 January 2007.

It is convenient to describe the terms of Slip 1 in detail since it provided the model for Slips 2 and 3.

The first 5 pages of the document were set out on the headed notepaper of Motorcare’s broker, LRM. Each page is signed by Templeton with an undated signature. The nature of the insurance was described as a 12-month period of cover from 1 July 2004 for Mechanical Breakdown repairs to new or used vehicles. There were further terms:

Maximum Period of Insurance any one vehicle:

New: 36 months after the expiry of the manufacturer’s warranty period

Used: 36 months from the date of purchase, 12 months from the date of purchase in respect of commercial vehicles.

Conditions:

1.

90 day cancellation clause ...

2.

30 day rate review clause ...

...

Exclusions:

4.

Any vehicles used for competitions, racing, pacemaking, rallies, or for hire or reward or by a driving school.

...

6.

Statistics in the format agreed with the Insurer must be submitted to them with the monthly bordereau.

...

8.

The insurer shall not be liable for any VAT or equivalent costs under this contract in respect of any claims where the vehicle owner is registered for VAT in the UK.

9.

Special Category and Excluded Vehicle List as agreed with Insurer (attached as Appendix 3)

...

11.

Person(s) authorised to bind

R Brunswick (Templeton IOM)

...

Rates:

As agreed and attached (Schedule 2).

There was a provision for 10% brokerage to be split: 1.5% to LRM (the Broker), 3.5% to Wood Associates Ltd, and 5% to JDA Limited (the company associated with Mr Dockerill).

Insurance Premium Tax was stated to be due at either 5% of gross for commercial sales or 17.5% for retail sales. The current rate of IPT was 5%. This rate applied where the policy was given away by the motor dealer as part of the sale of the vehicle. However, as a tax avoidance measure, a special IPT rate of 17.5% was levied on premium payable by the dealer where the policy was paid for separately by the policyholder, based on the price paid by the policyholder. The intent was to prevent VAT evasion by dealers artificially reducing the price of the car (on which VAT of 17.5% was payable) and increasing the price of the insurance (on which IPT of 5% was payable), so as to reduce the tax.

Page 6 of the document was on Motorcare’s headed paper and consisted of a document specifying special category and excluded vehicles as envisaged in Condition/Exclusion 9, although it was not headed Appendix 3, and a 4-page document headed Chart of Rates 2004. The first part set out a list of various types of vehicle (for example, Jaguars) which required a minimum 35% loading or uplift on the premium rate which would otherwise apply. The second part set out a list of high performance and high value vehicles (for example, Rolls Royce cars) for which written authorisation ‘MUSTbe obtained’. This list of Excluded Vehicles included Taxis, Hire and Daily Rental cars and Commercial Vehicles over 35cwt in weight.

There was no Schedule 2 to Slip 1; but pages 7-10 consisted of a document headed ‘Chart of Rates 2004’ which set out particular codes for cover according to duration (3, 6, 12, 18, 24 or 36 months), the claim limitation (£250, £300, £500, £750, £1,000, £1,500, £2,000 and £4,000). Against each of these codes were two rates: a gross rate (payable to Motorcare) and a net rate (payable to Templeton). The net rate known as the ‘rate to London’ was a premium from which the 10% brokerage was deducted. Templeton had little interest in the gross rate, apart from ensuring that the appropriate IPT was collected by Motorcare and paid to Templeton for accounting to HM Revenue and Customs.

The rates varied according to the extent of the cover. Thus for Gilt Economy Policy (ZE500f) providing 36 month cover with a claim limit of £500, Motorcare charged a gross rate of £230 and agreed to pay £146 to Templeton. If the warranty was a Gold Economy Policy (GE500f), Motorcare charged a gross rate of £219 and agreed to pay £135 to Templeton.

If the Gold Policy was in respect of a vehicle which was in the category of vehicles for which a 35% loading was to apply, Motorcare would pay Templeton a premium of £182.25 [£135 + (£135 x 35%)]

The previous year’s MBI had been underwritten by a company named NDI. Templeton replaced NDI in July 2004 at short notice due to another Insurer, who had been lined up by Mr Dockerill to replace NDI, notifying him at very short notice that it would be unable to do so for regulatory reasons. This meant that over the weekend of 3-4 July Mr Dockerill had to find a replacement.

In the latter part of 2004 Mr Panesar completed his preparation of a Business Plan on behalf of Motorcare for the purposes of submission to the Financial Services Authority. The Plan described Templeton as ‘fairly new’ to Motorcare, but emphasised Motorcare’s experience in the motor warranty business. There are parts of the Plan which Templeton relied on as showing that Christine Thomas and her children, James Thomas and Caroline Panesar, took a prominent role in Motorcare. There was certainly material which suggested that they did. James Thomas was a Director of Motorcare; and the Plan indicated that the directors had oversight of the business and that, as a director, he assisted the Managing Director in the overall control of the company. Caroline Panesar was the Company Secretary; and the Plan suggested that the systems and controls of the business were scrutinised by the Secretary, who also implemented the compliance strategy. Christine Thomas was the sole Shareholder; and the Plan indicated that the shareholder assisted in the decision-making.

Having heard the evidence I have concluded that James Thomas, Caroline Panesar and Christine Thomas played no significant part in the running of Motorcare. They carried out occasional and relatively menial tasks to help out in what was a family business. In the relevant period the company was run by Mr Panesar, with assistance from his father-in-law Mr Thomas. It was Mr Thomas and not his wife who was the person ‘who assists in the decision-making.’

This finding, based on very clear evidence, necessarily means that the Plan gave a misleading picture about the extent to which the business was managed and the degree of oversight that was exercised.

As part of his plans for the expansion of the business which had been made possible by the withdrawal from the market of a competitor (Warranty Holdings or WH), Mr Panesar was keen to be able to offer warranties for taxis.

In October 2004 Mr Thomas approached Mr Dockerill about an issue raised by Mr Muss the proprietor of a large taxi company in Glasgow, the Taxi Centre. It appeared that the Taxi Centre had paid premium to WH which had not been passed on to their insurers; and for this reason were looking for an assurance that any premium paid by them would be held on their account. Mr Dockerill approached Mr Allen of EWC (acting on behalf of Templeton) for a letter of assurance, which could be sent to Mr Muss. Mr Dockerill drafted the letter and sent it to Mr Allen. The letter was written by Mr Corlett on Templeton’s behalf. It is to be noted that the letter was addressed to Motorcare and did not refer to taxis.

By February 2005 Motorcare had encountered problems with the computer system. It also began to treat the Slip as a contract by which they were able to declare excluded vehicles, rather than being required to obtain written authorisation.

Mr Dockerill became concerned about the state of the account and Templeton’s likely reaction to it. On 20 February he emailed Motorcare:

[EWC] will expect a report from us on a raft of measures to bring the account back into order. These will include rate increases per products/per dealer, claims measures, product changes.

At about this time EWC was becoming concerned about the selling of Lifetime Warranties. These were policies sold on the basis of cover for the lifetime of the vehicle. This was very much longer than the Maximum Period of Insurance as set out in the Slip, 36 months.

By the beginning of March Mr Dockerill was pressing for urgent action and measures in the light of information that the loss ratios were ‘very bad’. The loss ratios were an indication of the profitability of the insurance for Templeton. Mr Wells’s evidence was that he would have expected loss ratios of the order of 90% on this short tail business. Such a loss ratio would give a modest profit on the contract. Anything above 100% would of course mean that the claims exceeded the premium with the resulting loss to the underwriters. The problem from Motorcare’s point of view was that if the loss ratios were unacceptable to it, Templeton might not be willing to renew.

On 9 March Mr Dockerill noted errors in coding the policies and the fact that ‘a substantial sum of additional premium’ was due. He also proposed a rate increase of 10% in the gross premium payable to Templeton in order to improve the loss ratios. On 13 March Mr Dockerill emailed EWC notifying them about errors in the figures for premium due to Templeton and about a 10% rate rise for the 12 month policies from 1 April. On the following day he expressed further concerns to Motorcare about the latest figures. These showed a loss ratio of 110% as at the end of February; and a disconformity between the average premium being accounted to Templeton and the average figure that would have resulted from the rates as set out in the Rate Schedule.

The new average premium for 36 months is £117 net to London instead of £140+ ...

It is clear from the contemporary documents and the evidence of Mr Allen that Templeton had not been receiving the information which was required under the terms of Slip 1. On 17 March Mr Allen wrote to Mr Corlett notifying him that he had ‘at long last’ received an earned to incurred claims report from Motorcare. This indicated a loss ratio of 104%. Mr Allen notified Mr Corlett that he had called for rate review of the 12 month policies.

On 19 April Mr Dockerill notified EWC that he was working with Motorcare to produce changes to the products and the rates for the following year with a view to creating a profitable long-term relationship between Motorcare and Templeton.

Mr Panesar appears to have spent much of his time away from Motorcare’s offices in South Wales trying to pick up business from new dealers. This meant that he was not in the office and able to deal with the problems identified by Mr Dockerill.

The question of reassuring Mr Muss of the Taxi Centre re-emerged in June 2005; and there is a letter of 8 June addressed directly to Mr Muss, at the Taxi Centre Ltd in Glasgow by Mr Corlett of Templeton.

Re: Extended New Car Warranty: To Whom it may Concern

I am writing to confirm that all net premiums, after being transferred by the administrator (maximum 60 days) are being held by Templeton Insurance Limited for the payment of valid claims when the risk period commences.

Slip 2 was signed by Templeton on 5 August 2005 in materially similar terms to Slip 1. The period of the agreement was 12 months from 1 July 2005. Condition 9 provided

Special Category and Excluded Vehicle List as agreed with Insurer (attached as Appendix 3)

As in Slip 1 there was neither an Appendix 3 nor a Schedule 2 ‘agreed and attached’ to the Slip. Instead there was a document which showed ‘current risk premium’ and ‘premium from 1 November 2005’ against a number of codes. The ‘current risk premium’ showed an increase of approximately 10% above the Slip 1 rates, and the premium rates from 1 November represented a further increase. This can be seen from the gross payable to Templeton on 12 month warranties providing £500 of cover

There was also a ‘Dealer Performer Summary’ which suggested that some dealers were no longer selling Motorcare warranties and that Motorcare had imposed price increases for others.

There is an endorsement to the Slip dated 23 September. This is on the headed paper of the brokers LRM and is signed by Templeton. It evidences a float made available to Motorcare by Templeton to enable them to pay the 2004 claims; but the significance is less in the nature of the endorsement than its formal nature, in contrast to the oral conversations relied on by Motorcare as an important part of its case.

On 4 October Mr Thomas wrote to Mr Dockerill expressing the view that a 10% rate increase was unnecessary and that a 5% maximum rise on underwriter premium would give sufficient profit to Templeton.

On 20 December 2005 Mr Dockerill wrote to Motorcare,

... we are now 4 months without reliable data and while I have held underwriters off so far this is at an end. Week commencing 16 Jan we must produce acceptable, reliable, credible reports to the end of December or we will be cancelled.

Mr Dockerill was still expressing concern at the lack of reliable information, anomalies in the accounting for premium and the number of codes being used by Motorcare in his email to Motorcare on 18 January 2006. On 22 March 2006, Mr Allen asked whether the 10% increase in rates had been implemented in November 2005. Mr Dockerill responded on 22 March,

It was implemented on paper but due to the excessive number of product types, did not come through in the averages.

This answer was not as frank as Mr Allen was entitled to expect, as an email from Mr Dockerill to Motorcare of 29 March shows,

The problem is that the 3/6 were entered on the system at the wrong rates and instead of a 10% increase from September 2005, there was actually a decrease of more than 15% against Slip 1.

It followed that no effective steps had been taken to increase the rates as Mr Dockerill had recognised was necessary for a profitable long-term relationship between Motorcare and Templeton.

There was an issue as to the extent to which EWC received relevant information from Motorcare and therefore the extent to which they were informed of the profitability of the Slips. I have concluded that EWC did not receive the Earned to Incurred Reports until January 2006 and that thereafter the reports were not sent regularly.

In May 2006, Mr Wells took over the Motorcare account on behalf of Templeton, in place of Messrs Brunswick and Corlett.

On 16 June, at a time when the negotiations for Slip 3 were taking place, Mr Panesar sent to Mr Allen what he described as the Chart of Rates at 1 July 2005. Taking the same examples as above, the rates were as follows

Slip 3, which applied from 1 July 2006 to 30 June 2007, was issued by SBMI (Motorcare’s new broker) and signed by Mr Wells on behalf of Templeton on 19 June 2006; and followed the format used in Slips 1 and 2. As in Slip 2 there was no attached list of Special Category or Excluded Vehicles. There was however a Rate Schedule which was signed by Templeton. This set out the rates which had been sent by Mr Panesar on 16 June. It seems that, despite the concerns by Mr Dockerill about Motorcare not applying the rates in Slip 2 and the need to increase the rates, Templeton had been persuaded to accept rates which were lower than those in Slip 2.

In an email dated 28 September Mr Dockerill complained about Mr Panesar approaching Mr Wells of Templeton directly.

You cannot change the terms of the contract without a signed and stamped endorsement.

This may have overstated the position; but it was a clear warning of the importance of approaching Templeton through the broking chain and obtaining written confirmation of anything which had been agreed. However, Motorcare are entitled to point to Mr Wells’s letter of 19 October addressed to Mr Panesar as showing that the usual formalities were not observed by either side.

On 29 September 2006 Mr Allen emailed Mr Panesar,

Rates are acceptable on a 60% net to Templeton. Please keep me informed of the progress.

This email is relied on by Motorcare to show that Templeton were prepared to agree to a 60:40 split in the premium in Templeton’s favour. Whether and, if so, the extent to which Templeton agreed to receive 60% of premiums paid rather than the premium specified in Rate Schedule, is an issue which arises particularly under Slip 4.

In October 2006 Motorcare changed its computer operating system from Winstar to the Blue-Orange system.

In a letter dated 20 October Mr Wells of Templeton wrote to Mr Paul Nelson of Allied Vehicles, a customer of Motorcare, setting out Templeton’s legal status as an Isle of Man insurer.

On 11 February 2007 Mr Dockerill raised for the first time with Mr Allen the deficiencies in Motorcare’s records.

I found that for a variety of reasons there are very substantial numbers of policies from last August onwards and some claims that are not entered on the new system and therefore any reports are completely distorted.

...

I believe it would be desirable for a full meeting to be held in March to discuss the rescue plan needed for Slip 2 and the changes to Slip 3 that are obviously necessary to bring the programmes back into line.

On 17 February Mr Dockerill expressed his concerns about the state of the account to Mr Thomas,

... it will not be long before everyone realises the substantial losses looming ...

One of the problems identified was that the premiums paid for certain policy types had reduced after what was supposed to be a rate increase. Some of the problems were due to the lack of reliable information as a result of the computer failures from August 2006 to February 2007.

On 26 March 2007 Mr Dockerill prepared a report entitled ‘Motorcare Review – March 2007. This dealt with the issues which needed to be addressed in the run up to the negotiation for Slip 4.

The first problem was the lack of reliable data.

It has taken nearly 6 months to correct the position and retrieve the data and these are the first realistic reports that can now be relied upon.

The second problem was said to be a consequence of the first,

Due to the lack of management information over the last 6 months it has been impossible to monitor and control Slip positions as we all know is essential in this business.

The third problem was the projected loss ratios. Whereas the loss ratio on Slip 1 was a satisfactory 89-90%, the projected loss ratios on Slip 2 (104-110%) and Slip 3 (101%) were not. The report identified 3 measures which had been implemented to correct the situation.

The first measure was to combine Slips 1 and 2 for loss ratio purposes and provide for the monthly payment of an ‘Additional Premium’ to correct the position. This Additional Premium or ‘Loss Participation’ was an arrangement whereby Motorcare made lump sum payments to Templeton in order to persuade Templeton to continue to support the business.

The second measure was a rate increase of 10% ‘across the board’ implemented on 1 March; and the third was an ongoing review of dealers to exclude those who were unsatisfactory.

In an email dated 29 March Mr Dockerill sent the Motorcare Review to Mr Allen.

Templeton relies on the figures, and in particular the Slip 3 loss ratio of 101%, as the foundation of the claim for fraudulent misrepresentation inducing Templeton to enter into the Slip 4 contract. Its case is that whatever may have been the position on 29 March, by the time Slip 4 was agreed, Motorcare knew that the loss ratio was very much worse.

On 20 May Mr Lailey emailed Mr Panesar identifying a problem of what was described as ‘missing claims’. These were the KJ claims which had been entered manually on spreadsheets, rather than on the Winstar system. The total value of these ‘missing claims’ was said to be £334,000. As Mr Lailey expressed it,

These additions have little effect on Slip 1, but do push Slip 2 out from 105% to 109%; and Slip 3 out from 115% to 123%.

There had been no prior notification to Templeton that the loss ratio on Slip 3 was now 115% and it is Templeton’s case that the omission of any information about the missing claims and their effect on the loss ratios rendered the continuing representation of 29 March untrue and false to the knowledge of Motorcare.

On 24 May Mr Allen raised an issue with Motorcare which had come to his notice: the selling by Motorcare of warranties (Supreme Plus) which lasted for the duration of the customer’s ownership of the car. He pointed out that the agreed rates were limited to finite periods, and asked how the product was rated and who had agreed the rates.

On 18 and 20 June Mr Wells notified Mr Allen and Mr Dockerill respectively of Templeton’s willingness to renew the Motorcare scheme from 1 July 2007 at the existing rates, terms and conditions. It was re-emphasised that any amendments to rates, terms and conditions had to be specifically agreed by Templeton and that EWC had no underwriting authority.

Slip 4 was signed by Mr Wells of Templeton on 28 June 2006, and applied from 1 July 2007 to 30 June 2008 (subsequently extended to 7 July 2008). It followed a similar format to the earlier Slips, but with a number of changes. Brokerage was 12.5%, but the broker was not specified. There were different Slips in relation to different categories of cover; and there was a new and more detailed list of Special Category and Excluded Vehicles in a Schedule 2, which was attached to the Slip and signed by Templeton. The schedule split the Special Category List into two parts with loadings of 50% and 100% applying to different categories. The Excluded Vehicles list included Motorcycles and Motorhomes which were previously permitted vehicles. Taxis were not mentioned in the schedule 2; but there was an exclusion of vehicles ‘for hire and reward’ in the body of the Slip, as there had been in the 3 earlier Slips.

The Rate Schedule for Slip 4 did not expressly list the type of policy to which each premium applied, but the terms of the cover and claims limit were specified. Some of the codes were recognisably the same as in the previous Slips

These were the same rates as had been agreed for Slip 1. However there was no separate division into Gilt and Gold policies; and there were a large number of codes which had not been used on Slips 1-3. How these codes were to be applied and how the premium was to be accounted for these policies gives rise to an important issue between the parties.

In an email of 11 August Mr Dockerill sent to Mr Allen of EWC the current Earned to Incurred Report summaries for Slip1-3. These showed loss ratios of 104% on Slip 2 and 140% on Slip 3 (reduced to 134% by an adjustment to take into account 3 monthly payments of £15,000 monthly Additional Premium paid in April, May and June 2007; although it appears that the monthly ‘Loss Participation’ payments of Additional Premium were £10,000. Mr Dockerill also stated that about £300,000 of claims on Slip 3 had been duplicated; and these would need to be investigated. If these were duplications then it would follow that the Slip 3 statistics would have overstated the claims and the loss ratio.

In his reply of 13 August Mr Allen complained that the statistics were the first he had received for almost a year and showed a marked deterioration from the previous statistics. He informed Mr Dockerill that Messrs Walters and Kent of EWC would carry out an audit of premium and claims in September. Mr Dockerill replied that he had kept Mr Allen informed throughout and that the statistics could not have come as a surprise. This was an evasive and unsatisfactory response. In any event, Mr Dockerill agreed that a premium review of the Slip 4 rates might have to be carried out.

Mr Allen informed Templeton about what appeared to be an ‘overcharging’ of claims; and Mr Wells insisted that the money be returned and that an audit take place promptly. On 7 September Mr Dockerill told Templeton that there had been no overpayment of claims, and that the only effect of the KJ claims was on the statistics, which had overstated the claims.

On 11 September Messrs Kent and Waters of EWC were given a demonstration of the Blue-Orange system. In a report prepared following this demonstration they pointed out the benefits of the system, which included the fact that the dealers could not enter their own prices, but also noted some of the disadvantages: it did not reject vehicles on the Excluded Vehicle list and allowed the dealer to select the loadings for Special Category vehicles. Most importantly Messrs Kent and Waters noted that the premium paid to Templeton was 60% of the agreed dealer fee, rather than the premium set out in the Rate Schedule.

On 13 September Mr Allen passed on Templeton’s comments to Motorcare following Mr Wells’s review of the account. While Templeton were prepared to consider a three-year agreement with Motorcare, it required a number of changes if it were to continue its underwriting support. These included, a 33% increase in premiums due to Templeton on Slip 4 (§2), the formal agreement of Templeton to any rate exceptions or special requests by way of endorsement to the Slip (§5) and confirmation that the 10% rate increase imposed in May 2007 had been enforced (§6). These comments showed that Templeton were, at least at this stage, giving notice that they required drastic action from Motorcare.

On 27 September Mr Panesar replied to the letter of 13 September, agreeing with the points made in the letter, but suggesting that any decision should wait until Templeton’s review of the KJ claims and noting that there had been a substantial increase in rates under Slip 4 and the new system.

In the meantime, on 26 and 27 September 2007, EWC had carried out an audit of the KJ claims. Its report indicated that the claims had not been deducted from premium more than once, but that there were a large number of claims which had not been allocated to particular policies and that additional claims would need to be added to the loss statistics.

In an email of 17 January 2008, Mr Waters of EWC followed up an earlier concern about premium rates payable to Templeton. In an analysis of 2,000 sample policies only 14% of the premiums matched the rates in the Rate Schedule.

On 29 February Templeton asked EWC to comment on reports that Motorcare were offering 48 month and/or Lifetime Warranties. As Templeton pointed out the Slips stated a maximum warranty period of 36 months. On 6 March Mr Allen passed on the enquiry to Motorcare and Mr Dockerill.

On 10 March Mr Allen asked Mr Dockerill to comment on Mr Thomas’s suggestion that Mr Dockerill had approved the acceptance of the excluded vehicles and applicable rates. Mr Dockerill’s response was clear and emphatic.

This is outrageous from Tony and there is no way I have authorised anything regarding excluded vehicle. Please ask for written evidence of this.

An internal Motorcare meeting took place on 26 March at which a number of issues were discussed. One of the issues was the difficulty in matching rate codes to policies issued. Mr Panesar explained that this was due to the differing rates between dealers and the need for different rate codes. Mr Allen pointed out that this should have not affected the net amount due to Templeton. Another issue was the question of Lifetime policies. Mr Panesar explained that Motorcare did not issue Lifetime Policies, but did offer annually renewable policies, which were paid for as 2-year warranties but logged as 12-month warranties. The policy holder could then renew at no extra cost provided he complied with the manufacturer’s service requirements. There was also an issue as to how the 10% brokerage/agent commission payable under Slip 4 should be split as between Mr Dockerill and EWC.

In April Templeton expressed its concern about the difficulties in assessing the correct declaration of premium under Slip 4. This was due to the large number of codes used for pricing. As an example it was noted that there were 34 different codes that might apply to a 12 month policy with a £1,000 limit.

On 15 May Mr Wells emailed Mr Allen expressing a number of concerns about Motorcare’s January declaration. Some of these concerns (the 60:40 split of premium) had been expressed before. Others (the insurance of excluded vehicles, claim limits of £10,000, policies where the premium was nil) were new.

A meeting was held between Motorcare and Templeton on 20 May 2008. It is Motorcare’s case that it was agreed at this meeting that the balance of the account between the parties was settled on the basis that £401,457 was due to Templeton and that the payment of this sum would be in full and final settlement of all issues up to the end of April 2007.

On 17 June Mr Allen sent an email to Mr Dockerill and Motorcare about the premium due to Templeton which, according to a ‘smoke test’ produced by Mr Lailey showed £416,626 as due, and according to EWC’s financial summary showed £401,457 as due.

Later on the same date Mr Wells sent an email to Mr Allen saying that Templeton required the settlement of £401,457 to be paid to EWC by close of business on 20 June.

Following this there were various exchanges concerning the changes that would need to be made if Templeton were to continue to insure the business. On 19 June Mr Thomas wrote to Mr Allen at EWC with an explanation of the 60:40 split which had been applied by Motorcare.

... I have been able to turn up numerous faxes and letters from the original Templeton people. One particular document supports Harby (Panesar) fully in his comment of a 60% premium payment to Templeton on each and every policy that was sold by Motorcare on behalf of the insurance company, this action was supported in writing by the directors of Templeton.

The document that Mr Thomas was referring to was in the form of a letter from Templeton in the name of Mr Corlett and apparently dated 5 November 2004.

I am writing to confirm as discussed, 60% of all gross premium will be net to underwriter, excluding IPT, on contracts made on all Extended Car Warranty Products ..

Mr Corlett, whose witness statement is relied on by Motorcare, says that he did not write this letter; and Templeton submits that it is a forgery.

On 20 June Mr Panesar wrote to Mr Wells at Templeton explaining the premium rating system used by Motorcare. In the course of the letter he made a number of observations.

On 28 June Templeton agreed a 7-day extension to Slip 4; and on 1 July Motorcare sent a schedule of ‘Special Deals’ (ie arrangements with dealers which were outside the range of rates in the Schedules in the Slip).

On 8 July 2008 Nelson J granted Templeton a Search Order against Motorcare and a Freezing Order against Motorcare, Mr Thomas and Mr Panesar on the basis that it was owed substantial sums, that Motorcare had entered into a large number of unauthorised policies from which it had profited at Templeton’s expense and that Templeton had been misled into agreeing Slip 4. Templeton also advanced the case that significant funds had been removed from Motorcare to the prejudice of Templeton and to the benefit of the 2nd to 6th Defendants.

Following this and subsequent Orders, a succession of witness statements were made and affidavits sworn on each side. These 43 documents shaped the evidence which was relied on at trial, but did not provide as a clear picture as conventional trial witness statements would have done.

On 6 July 2009 the case was transferred to the Commercial Court.

Before turning to a consideration of the issues it is convenient to set out my views of the parties and the witnesses who gave evidence.

It is clear that the management at Templeton before the arrival of Mr Wells failed to exercise any real control over the insurance that Motorcare was writing on its behalf. This was partly due to the lack of information which Motorcare provided; but there was also an apparent lack of interest in what was going on before Mr Wells arrived and took over responsibility for the account in May 2006.

Mr Wells and Mr Allen were both impressive witnesses, whose evidence was not significantly weakened in the course of cross-examination. Their evidence was consistent with the contemporary documents and was commercially coherent. This was in striking contrast to the evidence given on behalf of Motorcare

Although Motorcare depended entirely on Templeton to run its business, its management did not understand, and in any event failed to comply with, its contractual obligations to Templeton. I found both Mr Panesar and Mr Thomas to be unreliable witnesses. It is unnecessary to set out all the many occasions when their evidence was evasive, internally inconsistent and contrary to the contemporary documents.

Mr Panesar repeatedly sought to distance himself from decision making which must have been his; and to blame others for matters which, as the manager of the business, he was responsible for. In his 6th witness statement he said that the Slip 3 Rate Schedule was not produced by Motorcare. This was wrong, and was known by Mr Panesar to be wrong. The Rate Schedule for Slip 3 was plainly provided by Motorcare. Mr Panesar’s intention was to justify the use of Slip 1 rates for Slip 3.

Mr Thomas’s evidence that he could not remember particular and important events was unconvincing, not least because it is clear from the documents that he took a close and continuing interest in the business and was involved in a number of important meetings. His evidence about how he came to write to Mr Allen on 19 June 2008 about the 60:40 split and his discovery of the forged letter dated 5 November 2004 was particularly unconvincing.

Quite apart from the unimpressive nature of Motorcare’s two principal witnesses, the credibility of its case was further undermined by the numerous changes in its explanation for what had occurred and the deployment of documents which I find to have been forged in order to support its case.

Mr Dockerill gave the appearance of someone who understood Motorcare’s business as well as anyone. It may be that if Motorcare had followed his advice, its business would have been better run and would have better complied with its obligations to Templeton. However, Motorcare appears to have ignored his advice; and his evidence was not of central significance on the contractual issues. It will be necessary to consider his evidence in more detail on other issues; but where there was a conflict between his evidence and that of Mr Allen I preferred the evidence of the latter.

James Thomas, Caroline Thomas and their mother Christine Thomas all gave evidence. In my view they were truthful witness and I accept their evidence that they were not involved in the commercial operations of Motorcare and that Motorcare’s Business Plan gave an unrealistic picture of its organisation.

So far as the other witnesses are concerned, I will address their evidence under the various headings where it may be relevant.

Apart from Mr Dockerill and EWC, those who were described in the Slips as ‘brokers’ or agents, seem to have played very little part in the transactions in the relationship between the parties.

A number of sub-issues arise under this general heading.

I have expressed the issue in this way because the commercial arrangement between the parties allowed Motorcare a freehand as to what they charged their customers, provided that they accounted to Templeton for the sums set out in the Rate Schedules. So far as Slips 1-3 are concerned, the question for determination is what rates applied.

Motorcare now accept that Rate Schedule attached to Slip 1 applied to Slip 1; but it argues that Slip 2 and 3 were renewed at the rates which applied to Slip 1. I reject this submission for a number of reasons. First, Mr Dockerill prepared the rates attached to Slip 2 on the basis of information which came from Motorcare; and Mr Panesar sent the schedule which was intended to form the Rate Schedule for Slip 3 to EWC on 16 June 2006. Secondly, the suggestion that the rates remained unchanged throughout the operation of Slips 1-3 runs against the clear commercial imperative, shown in many of the contemporary exchanges, to increase the rates in order to make the business profitable, see for example the communications of 9 March 2005, 4 October 2005, 22 March 2006 and 29 March 2006. Thirdly, Motorcare rely on the letter from Mr Corlett to SG Petch dated 4 August 2005,

Further to your conversation with John Dockerill, I am writing to confirm the extended warranty [MBI] programme underwritten for the above has been renewed at 1 July 2005 for a further 12 months on the same terms ...

However, the reference to ‘terms’ in the letter was not to the rates in the schedule which were of no concern to SG Petch; and the letter was not intended and should not be read as a contractual promise to Motorcare that the rates remained unchanged. This was another example of a letter being taken out of context by Motorcare and being used to mislead. No one seems to have been in any doubt at the time that the Rate Schedules attached to Slips 1-3 were those which applied.

Slip 4 raises a different problem. It is clear that the Rate Schedule attached to this Slip was prepared by Mr Panesar. The difficulty arises because of the Rate Schedule was prepared on a new and different basis. All of the codes which appeared in Slips 1-3 reappeared in the Rate Schedule Slip 4; but there were a large number of additional codes. Some of these appear to relate to arrangements which Motorcare agreed with particular dealers (‘Special Deals’). In his 6th witness statement Mr Panesar said that Motorcare had nothing to do with the Slip 4 Rate Schedule. This was untrue. The Rate Schedule came from Motorcare; and at some stage Mr Lailey was given a guide to understanding the Slip 4 codes by Mr Panesar. The difficulty from Templeton’s point of view is that they agreed to the Rate Schedule without understanding it. The question in issue is, what premiums under Slip 4 were to be paid to Templeton as a matter of the construction of Slip 4? It is not sufficient for Templeton to argue that they had been promised a 10% rate increase, because it was plain from the codes which continued throughout the period which Slips 1-4 operated that the rates in Slip 4 did not significantly increase from those which applied in Slip 1.

I shall return later in this Judgement to how this matter is to be resolved.

Motorcare’s case is that there was an agreement between Mr Panesar and Mr Corlett that, where it was necessary to reduce rates in order to secure business, Motorcare would account to Templeton for 60% of premium received from the dealer. In support of this part of the case Motorcare relied on an email from Mr Allen to Mr Panesar on 29 September 2006,

Rates are acceptable on a 60% net to Templeton basis ...

It also relies on Mr Dockerill’s evidence that a 60:40 split of commission is not uncommon and generally acceptable to underwriters.

There are a number of difficulties with Motorcare’s case on this point.

First, although it was said to have been agreed with Mr Corlett, Mr Corlett’s written statement makes clear that such an agreement would have been for Mr Brunswick who was the person named in Slips 1 and 2 as having authority to bind Templeton. In his later unsigned witness statement he says he cannot recall agreeing a 60;40 split. Secondly, neither Mr Dockerill nor Mr Allen, both of whom were involved in the commercial relationship between Templeton and Motorcare were aware of the application of a 60:40 split before Slip 4. Thirdly, when it was discovered that a 60:40 split was being used for most of the Slip 4 premiums, Motorcare was challenged. Mr Panesar failed to mention the agreement with Mr Corlett which on Motocare’s case had occurred in 2004. Templeton are entitled to submit that the delay of 4 months from January to May 2008 in providing the explanation that there had been agreement with Mr Corlett of itself casts doubt on the truth of the explanation.

Fourthly, it is striking that the 60:40 split was not applied to any significant extent until Slip 4. For Slip 3 it was only used in respect of 0.8% of the policies, whereas for Slip 4 it was used for 83.6% of the policies. Mr Panesar’s explanation that more Special Deals were done under Slip 4 was contradicted by the evidence of Mr Dockerill that very few special deals were done after the beginning of the Slip 3 period. Fifthly, if such a large proportion of the premium payable was to be accounted for on a 60:40 basis, it is surprising that it was not recorded or referred to in any contemporary document. Sixthly, I accept Mr Allen’s explanation about his 29 September 2006 email: that it related to a specific enquiry which was never followed up or agreed. Seventhly, it is inconceivable that Mr Wells would have agreed to such an arrangement in relation to Slip 4 if he had been asked about it, or that he would have renewed Slip 4 if he had been told about it. A 60:40 split of premium would have been a less favourable allocation of premium than he expected under Slip 4. Although in his closing submissions Mr Irvin referred to the 11 September 2007 report of Messrs Kent and Walters of EWC which referred to the 60:40 split of premiums and submitted that it was noteworthy that ‘nobody reacted with any serious surprise or concern’, in fact the 11 September Report was confined to a comment on the ‘Negatives of the New [Blue/Orange] System’. It was certainly not an endorsement of a 60;40 division. It appears that due to the way in which the Blue-Orange had been set up, calculating the underwriting premium as 60% of the agreed dealer net fee was the only way premium could be allocated to Templeton. EWC’s criticism of the way the programme had been set up does not assist Motorcare.

Finally, when initially asked to justify the 60:40 split, Motorcare relied on the letter dated 5 November 2004 which appears to be from TempIeton and to be signed by Mr Corlett. This document is a forgery; and Motorcare did not argue to the contrary. It was produced in order to deceive Templeton; and although it is not possible to decide who forged the letter, it was plainly forged on behalf of Motorcare. The fact that Motorcare’s Managing Director, Mr Panesar, was unable to explain how it came to be written and relied on reflects no credit on him.

For all these reasons I have concluded that there was no agreement to split the premium 60:40.

It is apparent from the terms of Slip 1 that taxis were excluded vehicles. This appears both from the express terms of clause 4 and from the inclusion of taxis in the list of Excluded Vehicles. It is clear that for commercial reasons Mr Panesar was keen to do business with taxi companies. In his 5th witness statement Mr Panesar stated that Slip 2 had been specifically amended to include taxis. This is not so: vehicles used for hire and reward were still excluded by the terms of clause 4 of Slip 2 and condition 3 of Slip 3. There was no list of Excluded Vehicles attached to either Slips 2 and 3, but there was a reference to such a list in clause 9 of Slip 2 and condition 2 of Slip 3. In my view if the parties had been asked at the time the agreements had been made what had been intended by these references they would both, acting as reasonable parties, have agreed that they had intended to include the Excluded Vehicle list which had been attached to Slip 1. It is an obvious inference from the terms of Slips 2 and 3, see for example Shirlaw v. Southern Foundries (1926) Ltd [1939] 2 KB 206 at 227.

In the course of the preparation for the trial Motorcare produced two letters which had not previously been disclosed and which, on the face of it showed that Mr Corlett was aware that warranty policies were being sold to taxi firms.

The first was the letter of 8 June 2005. Mr Panesar gave evidence that he had difficulty in getting a decision about the Taxi Centre via his brokers, and therefore spoke to Mr Corlett about writing a letter direct to Mr Muss. The letter was in exactly the same terms as that written to Motorcare on 2 November 2004, and is relied on as evidencing Templeton’s consent to a variation of the Slip terms or alternatively as a waiver of its terms.

The second was a letter apparently dated 8 March 2006 from LRM (with an illegible signature above the initials EA) referring to the number of taxi policies sold.

Motorcare also relied on the evidence of Mr Dockerill to the effect that he had agreed with Mr Allen that taxis could be included among the policies that were sold during the course of Slip 2, although this was not put to Mr Allen on either of the two occasions he was called to give evidence; and a letter from Mr Wells to Mr Nelson of Allied Vehicles on 20 October 2006 confirming that Templeton was underwriting policies issued by Motorcare, although Mr Wells said he did not know that Allied Vehicles were a taxi company and Mr Panesar did not tell him.

I have concluded that there was no agreement to include taxis. First, it is striking that, although taxis were expressly excluded vehicles, there is no formal written endorsement evidencing what Motorcare says was agreed. Instead the Court is invited to draw an inference that Templeton knew that Motorcare were issuing policies in breach of the terms of the Slips from documents which are either ambiguous or (in relation to the letters of 8 June 2005 and 8 March 2006) where I have considerable doubt as to whether they are genuine. This was a feature of Motorcare’s case on a number of issues. Secondly, Motorcare say that Templeton agreed to the inclusion of taxis without any loadings. This would have made no commercial sense. Taxis, like vehicles used by driving schools, are in constant use and therefore far more likely to have warranty claims; yet on Motorcare’s case, Templeton agreed to their inclusion without any discussion or agreement about rates or loading. In my judgment that is highly unlikely. If the matter had been discussed and agreed, Templeton would almost certainly have insisted on a loading of the premium to take into account the enhanced risk on such policies. As it was, I am satisfied that Motorcare tried to conceal from Templeton that it was issuing policies in respect of taxis. I should add that I also reject the argument that Templeton are estopped from relying on the breach or waived it by subsequent conduct in paying claims. It may be that objection could and should have been taken to two identified claims; but against a background in which Templeton were clearly and repeatedly objecting to policies and claims in respect of excluded vehicles, the paying of two claims does not amount to conduct which assists Motorcare.

Mr Dockerill said that he had agreed with Mr Allen prior to Slip 1 that Motorcare could sell policies with a claims value of up to the retail value of the vehicles. If there was such an agreement, it was not embodied in Slip 1 where the Rate Schedule listed premiums for specified claims limits, up to a maximum of £4,000; and no premiums were specified where the maximum claim was for the retail value of the vehicle. It follows that if Motorcare were going to sell a policy of this kind, a premium would have needed to have been agreed with Templeton.

Mr Dockerill suggested that premiums for such policies had been agreed with Mr Allen (although again this case was not put to Mr Allen). However, apart from some rather vague evidence in relation to a 12 month policy, he was not able to specify what rates had been agreed or how they might have been agreed. This is particularly striking in the light of the contemporary documents which show that Mr Dockerill was aware of the need for formal agreement through broking channels.

Mr Dockerill’s suggested provisional figure of £60 for a 12 month policy was also unlikely since it was less than the premium for all car policies with a claims limit of £750 or above.

For these reasons I was not persuaded that any agreement had been reached in respect of any such policies.

Mr Panesar’s evidence was that Mr Dockerill and Mr Corlett orally agreed that Mr Panesar could do ‘special deals’ to attract or retain Motorcare’s dealership network in what was a highly competitive market. Motorcare also relied on Mr Dockerill’s evidence that Special Deals are commonplace in the industry. Mr Irvin submitted that such deals were part of the market forces which inevitably affected the parties’ legal relationship.

Since Mr Dockerill was Motorcare’s agent on Slips 1-3, his assent did not bind Templeton on these Slips. On Slip 4 he was the ‘appointed representative’ of EWC, who were both Motorcare’s broker and Templeton’s agent; but Motorcare was not entitled to assume that he had the legal capacity to agree Special Deals. However, issues of authority do not arise since Mr Dockerill denied that he was involved in any Special Deals other than in relation to Taxis and Retail Values.

In any event there is a striking lack of specificity in the evidence of conversations with Mr Corlett. Although there was little evidence as to who these dealers were or what Special Deals were agreed, I accept that Mr Panesar was prepared to do deals and ‘accommodating business’ where he thought it necessary to preserve Motorcare’s business. However, there is no credible evidence that Templeton agreed or acquiesced in a large-scale change to the rates on which they were prepared to underwrite the business. The lack of documentation showing discussion or agreement about Special Deals, or what premium would be due to Templeton on such deals, is striking. I do not accept that the deals agreed by Motorcare for its own commercial purposes had any effect on its contractual relationship with Templeton.

Motorcare submitted that there was an established practice whereby the terms of the Slips were not strictly applied as between the parties. In the words of Motorcare’s Closing written submissions:

Provided the relationship was profitable, [Motorcare] was entitled to depart from the strict terms of the Slips if this was commercially expedient and providing [Templeton] received its fair share of the premium generated. Indeed it was often easier to agree a loss participation payment to maintain a loss ratio than to go back through each policy to determine individual compliance.

There are a number of assumptions in this submission which demonstrate the weakness of Motorcare’s case on this issue. It assumes: first that the relationship continued to be profitable to Templeton; secondly, that (without providing a full picture to Templeton) Motorcare was entitled to be the sole judge of what commercial expediency required; thirdly, that Motorcare was entitled to decide what share of the premium should be allocated to Templeton; and fourthly, that the Additional Premium or Loss Participation payments were more than a means of persuading Templeton against giving notice of cancellation. None of these assumptions is realistic.

Templeton was not presented with the full picture. The only documents provided to Templeton or EWC on a monthly basis were the financial statements. These only showed the total number of policies received and the total amount of premium said to be due to Templeton. There was no breakdown of the policies which would show whether premiums were being calculated correctly. Neither Templeton nor EWC received regular Earned to Incurred reports, which would have shown the profitability of the business. On 17 March 2005 Mr Allen emailed Mr Corlett informing him that he had received the Earned to Incurred report ‘at long last’, indicating that this was the first report received: some 9 months after the inception of Slip 1. In an email of 20 December 2006 Mr Dockerill regretted being without reliable data for 4 months, indicating that reports had not been provided from at least August 2005. This was followed by computer problems from October 2006. Although Mr Dockerill and Mr Panesar suggested that reports were provided more frequently than this, there is no contemporary evidence to support these assertions. In any event these reports would not have provided information on the premium being paid on individual policies.

It follows that neither Templeton nor EWC received the type of information before Slip 4 which would have allowed them to know that Motorcare was binding Templeton to policies falling outside the terms of the Slips and failing to account for the correct premium.

There is however an abundance of evidence that Motorcare knew it was not abiding by the terms of the Slips, and that Mr Dockerill and Mr Panesar wished to avoid Templeton carrying out an audit which would have revealed Motorcare’s breaches.

The lack of information available to Templeton provides a formidable objection to Motorcare’s argument on waiver and estoppels, quite apart from the other assumptions which underlie Motorcare’s submissions on this issue. For all these reasons I answer the question posed: no.

There is an issue as to whether £401,457.78 was agreed on 20 May 2008 to be due to Templeton as a final settlement of the account between the parties in relation to the period up to the end of April 2008 (as Motorcare submit) or whether it was a provisional statement of the account between the parties (as Templeton say). Mr Thomas, Mr Panesar and Mr Dockerill gave evidence of their understanding that the agreement constituted a full and final settlement, and Mr Wells and Mr Allen that it did not.

£401,457.78 was a sum based on an analysis carried out by EWC and Mr Lailey based on Motorcare’s declarations of premium due and claims paid in respect of the period December 2007 to April 2008. Mr Lailey accepted in the course of his evidence that this exercise involved a reconciliation of Motorcare’s premium and IPT declarations less claims paid. No attempt was being made at that stage to address the question whether the declarations made by Motorcare were in accordance with its liability to account for premiums under the terms of the Slips. It is clear from Mr Wells’s email of 15 May 2008 that Templeton had a number of concerns about these declarations.

Our main concern is summarised in Pivot Table 2. It appears that over 85% of the premium has been written on the basis that Motorcare retain 40% of the Dealer’s Net Premium with the remaining 60% being passed to Templeton. We do not understand how this ties back to the net rates quote in the slip

Apart from this, we have numerous anomalies in the data. These are summarised in Pivot Table 1. We do not think this list is exhaustive by any means

The email then enumerates 11 ‘anomalies’, including policies in relation to vehicles which were on the Excluded Vehicle list and vehicles insured for their Retail Value.

In my judgment it is clear that the reconciliation that had led to the figure of £401,457.78 was intended to be a current statement and not a final statement of the account between the parties, which would depend on a very much fuller investigation. In circumstances where no payment of any kind had been made to Templeton since November 2007, Templeton was keen to agree a payment of what was indisputably due. The determination and payment of what was an irreducible minimum was never intended to be a full and final settlement of any, or on Motorcare’s case, all of the relevant issues.

Mr Wells accepted in his evidence that if it were not a ‘settlement’ in the sense of a settlement of the account between the parties, it was strange that the parties used that word. That may be so, but (as Mr Sweeting QC submitted in his Closing Submissions) the word ‘settlement’ can be, and was used in the Slip, to mean ‘payment.’

However, in my view the issue does not depend on the word used, but on the commercial background to the agreement. This included the previous failure by Motorcare to make payments of premium and Templeton’s expressed concern about Motorcare’s approach to its obligations under the Slips.

It is also notable that the figure of £401,457.78 did not emerge until mid-June 2008. In these circumstances it is difficult to see how it could have been thought that there had been a full and final settlement on 20 May 2008. In any event when it did emerge, Motorcare resiled from the payment of what on its present case it had previously agreed.

I conclude that viewed objectively neither Motorcare nor Templeton thought that the meeting on 20 May 2008 had resolved all of the disputes, so as to prevent Templeton raising them subsequently.

The Claimant’s Expert, Mr Stephen Lewis of Mazars, has calculated what additional sums are due to Templeton if premiums were required to be paid in accordance with the terms of the Slips. His calculations were based on the difference between the sums declared and paid and the sums which should have been due in accordance with the strict terms of the Slips. Mr Lailey, in addition to being called by the Motorcare as a witness of fact, was instructed as an expert; and for present purposes I accept his evidence as admissible opinion evidence. In the Experts Joint Statement, Mr Lailey agreed that if the Slips were to be applied strictly then, subject to an issue about loadings for excluded vehicles and the operation of Slip 4, Mr Lewis’s conclusion about the sums due was correct. This was common ground at the trial and Mr Lewis’s evidence was not challenged.

It follows that the parties agreed that if the written terms of the Slip were to be applied, then subject to Mr Lailey’s reservation, the sum of £2,370,458 was due. This sum is arrived at by adding the sums due under Slip 1 (£193,612), Slip 2 (£376,560), Slip 3 (£728,693) and Slip 4 (£1,071,593).

The two issues which remain in issue are (1) how to account for policies in respect of which no premium was specified, or the risk was excluded; and (2) on Slip 4, whether Motorcare was entitled to take the lowest premium from any of the rate codes listed in the Rate Schedule in the Slip.

Under the terms of the Slips these policies should not have been sold without the written approval of Templeton. This would have provided the opportunity for Templeton to agree an appropriate rate or loading. Mr Lewis’s approach, based on Mr Wells’s evidence, was to extrapolate an appropriate loading from the loadings agreed in the Slip. Thus in Slips 1 to 3, where loadings for special category vehicles were 35%. Mr Wells adopted a figure of 100% for excluded vehicles. In Slip 4, loadings for special category vehicles were 50% and 100% depending on the type of vehicle; and on this basis Mr Wells has suggested figures of 150% and 200% for excluded vehicles, save for extremely high risk categories, primarily taxis, in respect of which Mr Wells proposed a 300% loading figure.

Templeton submits that Mr Wells’s proposed loadings are reasonable. An analysis of Ferraris (an excluded vehicle) sold in Slip 3 showed that Motorcare was able to sell policies on Ferraris at up to 3.7 times the normal policy price i.e. a loading of 270%.

Motorcare has suggested that the better approach is that Templeton should receive an indemnity in respect of claims on excluded vehicles, in practice making Motorcare the insurer; with the indemnity calculated on the claims paid on these excluded vehicles, less premium already paid to Templeton.

There are a number of problems with this approach. Quite apart from effectively making Motorcare the insurer of these claims, it ignores the costs that Templeton has incurred, for example, brokerage and consultant fees, and claims assessment costs. It would also involve a complicated and expensive accounting exercise determining all the claims received and paid on these policies by both Motorcare and APA (Templeton’s new Claims Consultants).

Subject to one adjustment, Mr Lewis’s approach to the calculation of the sums due is correct in principle, and the appropriate way to calculate premium due and/or damages for breach of the agreement. The adjustment which should be made to Mr Lewis’s calculation is to load the high risk vehicles at 250%. In my view a loading of 300% is too high.

There is nothing in the evidence to indicate that Templeton was willing to agree to rate decreases or give Motorcare discretion as to the rates which were to be applied. On this basis Mr Lewis adopted the following approach for the calculation of premiums due.

Again, in my judgment, this approach is correct in principle, and the appropriate way to calculate the premium due.

After a long period during which Templeton received no information about the profitability of the Slips, Mr Dockerill prepared his ‘Motorcare Review’ dated 26 March 2007. This contained the representation based on the attached Earned to Incurred schedules as at 13 March,

... likewise Slip 3 is showing a projected loss ratio of 101%

This was sent to Mr Allen of EWC on 29 March at 15:29.

By 20 May 2007 if not before, Motorcare was aware that this projected loss ratio was unreliable. In his email of 20 May 2007 Mr Lailey had written,

... I am attaching two spreadsheets, which contains a list of both claim numbers and claim payment numbers which are on the Feb 07 version of the data base but which are missing from the Apr 07 version (and probably all subsequent versions); the total cost of the ‘missing’ claims between the two versions is £334,000.

Having made the adjustment to the three slips to take into account the additional claims, Mr Lailey concluded,

These additions have little effect on Slip 1, but do push Slip 2 out from 105% to 109%; and Slip 3 from 115% to 123%.

This information, particularly about the deterioration in the loss ratio on Slip 3, was not passed on to Templeton.

At the time Templeton agreed to participate in Slip 4, it believed that the loss ratio for Slip 3 was 101%, whereas Motorcare knew it was of the order of 123%, and a later calculation showed that it was higher than this. By failing to correct the earlier information, Motorcare fraudulently represented the loss ratio to Templeton. Mr Wells regarded the loss ratio on Slip 3 as material and relied on it when deciding to enter into Slip 4. The proposed 10% rate increase would have turned a 101% loss ratio on Slip 3 into a loss ratio of approximately 90%. As a result of the misrepresentation, Templeton have suffered a loss, represented by the difference between the actual loss ratio on Slip 4 (140%) and the intended loss ratio (90%) which would have resulted from changes to the terms of Slip 4 designed to ensure that Templeton’s loss ratio was below 90%. The sum claimed is £2,035,247 and is calculated by talking the total premium which Templeton say is due under Slip 4 (£3,700,450) and multiplying by 55% to turn a loss ratio of 140% into a loss ratio of 90% (i.e. 140/90 = 1.55).

Mr Irvin submitted that there was no fraudulent misrepresentation. On 29 March 2007 at 20:34 Mr Dockerill emailed Mr Allen:

I am not sure now whether I have sent the correct version since there are claims on the online system which need to be added in. Please use loss ratio as originally directed.

I cannot get into until late tomorrow so please use the worse figures.

This was not consistent with a deliberate attempt to present an over-optimistic figure.

Furthermore, on 21 May 2007 Mr Dockerell sent an email to Mr Moore (of Brokers SBMI) enclosing a further report which indicated that there was a projected loss ratio of 110% on Slip 3. Whether or not this was passed on to Templeton, this is relied on as showing a straightforward approach which is inconsistent with a fraudulent intent. In so far as Templeton rely on the omission of the £300,000 KJ claims, the evidence of Mr Dockerill was that he had added them back and that any errors made the loss ratios worse and not better.

Motorcare submitted that Templeton’s case on who it said knew of the fraud remained unclear and the evidence that it was a deliberate and fraudulent misrepresentation was weak, not least since it was Mr Dockerill who notified Templeton of the error in his email to Mr Allen on 11 August 2007 and explained the significance of the error in a further communication of 7 September. Whether or not there was a fraudulent misrepresentation Templeton did not rely on it, since it did not attempt to cancel the Slip when it discovered the true extent of the loss ratio.

In any event, Mr Irvin submitted, Templeton is estopped from relying on the misrepresentation because, in knowledge of the true position on 11 August 2007, Mr Wells offered to continue doing business with Motorcare on improved terms on 19 September.

The elements of the tort of deceit are well established. A defendant is liable where (i) it makes a representation which is false, (ii) knowing it to be false, or reckless as to whether it is true or not, (iii) intending that the claimant should act in reliance on it, (iv) the claimant does act in reliance on it and (v) suffers loss thereby. These principles only call for slight elaboration in the context of the present case.

(i) The defendant must have made a clearly identified representation of fact which is false. A statement of belief or opinion generally carries with it the implication that the maker holds that belief and that it is reasonably held. Where there is an interval between the time when the representation is made and the time when it is acted on, and the representation relates to an existing state of things, the representation is deemed to be repeated throughout the period, see for example, Briess v. Woolley [1954] AC 333 Lord Tucker at 354. Nevertheless in each case the Court will have to decided whether it was intended to be a continuing representation, see for example, Clerk and Lindsell on Torts, 19th Edition §18.18.

(ii) A defendant will be liable if he has no honest belief in the truth of the representation, or is reckless as to its truth; and is under a duty to correct a statement if he subsequently discovers it is untrue.

(iii) There must be an intent to deceive the claimant .

(iv) The claimant must act in reliance on the representation. It is sufficient if the Claimant is influenced by it; but if he would have done the same thing even if no representation had been made then the action will fail. What is relevant is what the claimant would have done if no representation had been made. It is not open to a defendant to argue that the claimant would have acted in the same way if the representation were true. The representation need not be the sole cause: it is sufficient if the representation substantially contributed to deceiving the claimant, see Clerk and Lindsell §§18.34-35.

(v) The claimant must show that he has suffered loss. The measure of recoverable damages is the loss directly flowing from the claimant’s reliance on the defendant’s representation: ie the sum that will put the claimant in the position he would have been in if the representation had not been made, and not in the position he would have been in if the representation were true. However the loss must result from the deceit and not from some other cause (ie the continuation of the transaction as a business decision).

In addition, all these elements must be established by reference to the heightened burden of proof as discussed in Hornal v. Newburger Products Ltd [1954] 1 QB 247.

Although Templeton has relied on representations in relation to each of the three Slips, by the end of the trial it focussed attention on the loss ratio on Slip 3.

It is clear that when the stated prediction of the 101% loss on Slip 3 was made, Mr Dockerill had a basis for believing that it was true, or at least no grounds for believing it was untrue. The question then is: what is the significance of the information about the deterioration in the loss ratio on Slip 3 contained in Mr Lailey’s email of 20 May 2007? This information which was sent to Mr Dockerill and Mr Panesar was not passed on to EWC or Templeton. There was a reference to what Mr Dockerill referred to as a more up-to-date loss ratio of 110% in his note of 21 May; but this was not sent to EWC or Templeton either. I accept that Mr Dockerill may have thought that Mr Lailey’s figures overstated the loss ratio, and that the position could be brought back by the payment of Additional Premium/Loss participation (£10,000 per month for Slips 1 and 2, and variable amounts of between £10,000 and £15,000 for Slip 3), and by rate increases in July. However, the representation to EWC and Templeton that the loss ratio on Slip 3 was 101% was intended to be relied on and was never corrected or brought up to date.

Mr Dockerill’s reference to using ‘worse’ figures in his 29 March 2007 email does not assist Motorcare since there was only a single figure for Slip 3 rather than the range for Slips 1 and 2. His report of 21 May 2007 which referred to a 110% loss ratio on Slip 3 was not passed on to Templeton, and there is nothing to support his assertion in the email of 8 September 2007, that he had sent the information to Mr Allen ‘later’. In any event the 110% loss ratio must be contrasted with Mr Lailey’s email of 20 May with the information that the loss ratio on Slip 3 was 123%.

The first question is whether it was intended to be a continuing representation. The Motorcare Review document indicated that the available figures were the first realistic reports that could be relied on. Mr Dockerill gave an assurance that these would now be available monthly. The reference to Slip 3 ‘showing a projected loss ratio of 101%’ also carried with it the implication that it might have to be revised, particularly in the light of the effect of the rate increase on 1 March, the figures showing an improvement since December and the immediate dealer review.

There does not in fact seem to have been a rate increase in March. This should perhaps have been noticed by Templeton when it received the Rate Schedule for Slip 4, although this provided a highly confusing picture which, if it could be understood by anyone, could only have been understood by Motorcare. There was however, some form of dealer review whose effect should have been to remove the authority of dealers whose business showed unacceptable losses.

Although it cast doubt on the reliability of any existing figures and made encouraging observations about measures to improve them, I am satisfied that the intention of Motorcare was to conceal what it knew was a large projected loss on Slip 3. By at least 20 May 2007 it knew that the previously notified loss ratio of 101% was unreliable and that the figure was very much worse. It could and should have informed Templeton. If it had wished to do so it might have added its reservations about the reliability of the figures and the potential for improvement. It chose not to do so, and thereby represented that the March loss ratio was still well-founded.

If Motorcare had adopted a straightforward approach to their dealings with Templeton during the previous two years and had not relied on obviously fraudulent or documents of highly doubtful authenticity to justify their conduct it might have been less easy to reach the conclusion that it was dishonest in making its representation. However, for reasons set out earlier in this Judgment, there is abundant evidence to demonstrate that such an argument is not open to Motorcare. In so far as there was an expression of opinion there was not an honest belief in its truth.

In what was the run up to renewal, the representation was clearly intended by Mr Panesar, Mr Thomas and Mr Dockerill to be relied on by Templeton; and I am satisfied by the evidence of Mr Wells that it was a substantial reason for his agreeing to Slip 4, although there were plainly other reasons, not least Mr Dockerill’s reckless promises that Motorcare’s grip on the business would improve.

I reject Motorcare’s argument that Templeton is estopped from relying on the misrepresentation or has in some ways affirmed Slip 4 or otherwise waived Motorcare’s conduct. There was no act of Templeton showing that it was accepting the position it found itself in. Although new terms were proposed in September 2007, these were never accepted by Motorcare and there is nothing to suggest that Templeton was prepared to give up any claim that might arise from the misrepresentation.

There is however difficulty in the quantum of Templeton’s claim. This is partly due to a more general problem in the presentation of expert evidence. In §19 of the Amended Particulars of Claim Templeton set out its claim for damages.

a.

Based on the difference between (i) the level of loss/profit that it will in fact suffer on Slip 4 ... and (ii) the level that would have been incurred if Templeton had had the opportunity to ensure that Motorcare’s claims performance was improved and that premiums were set at any appropriate level going forward

b.

Alternatively, for all losses which it has suffered and/or will suffer in the future pursuant to the policies of insurance that it entered into under Slip 4 from July 2007 onwards

Full particulars of the damages claimed will be provided by way of an expert report from an accountant once the Court has given permission for expert evidence to be relied on.

Leave was given to both sides to call expert evidence; but no particulars of damages were provided until Templeton’s Skeleton Argument at the beginning of the trial, when the calculation based on 55% of £3,700,450 was claimed for the first time as a variation of §19a. Both calculations proceed on the unrealistic basis that Templeton could have ‘ensured’ a loss ratio of 90%. The evidence shows that Motorcare had little control over its business and Templeton would never have been in a position to ‘ensure’ that Slip 4 produced a profit of 90%, although it might have been able to limit its losses. Templeton’s suggestion that a 10% rate increase would have turned a 101% loss ratio into a 90% loss ratio begs a number of questions. It is also to be noted that when it became aware of the true scale of the losses on Slip 3 (at the latest by 13 September 2007) Templeton did not exercise the right to give notice of cancellation. I accept that Templeton have suffered loss. However that loss cannot properly be based on an assumed loss ratio of 90% on Slip 4. It was low rates which increased the level of business. Substantially increased rates would have been likely to depress the premium income figures.

It is now accepted that Motorcare properly paid some of the claims which were made under policies and that these must be accounted for. There is an issue as to whether Motorcare is entitled to set off claims which it paid after 26 August 2008, when the claims handling was taken over by Templeton and different agents (APA). This was a head of claim which (at least in detail) was advanced by Motorcare after the trial had begun. For this reason and because I suspect any entitlement will depend on a detailed consideration of the facts, I have not reached a conclusion about whether any, and if so what, sums might be set off against Templeton’s entitlement.

This leaves the issue of what sums are due. Rather surprisingly, since this is largely if not exclusively a matter of expert accounting evidence, this aspect of the case was not addressed in the lengthy reports of either Mr Lewis or Mr Lailey.

It seems to me that the best way forward is for me to state my views broadly. First, Templeton’s figures seem to be correct and were not challenged in cross-examination. Secondly, there is a sum (substantial but presently uncertain) which Templeton accept is due to Motorcare which must be accounted for. Thirdly, although my provisional view is that the Templeton’s figures on the reconciliation are correct, they should be checked by experts and an account taken of the sums due to the Motorcare. I will hear the parties on the form of an order which reflects these views.

In its closing submission Templeton abandoned its claim against Caroline, James and Christine Thomas, although not without making a few disobliging remarks about them. It was right to abandon these claims. As already indicated I accept the evidence of each of them that they had very little to do with the running of Motorcare and nothing to do with the breaches of obligation which form the basis of Templeton’s claim.

Mr Panesar and Mr Thomas were as I have found, closely involved in the running of Motorcare; and made all the major decisions on Motorcare’s behalf. I reject Mr Thomas’s attempts to distance himself from the decision making; as I do Mr Panesar’s attempts to blame his subordinate, Zoe Duncan, for faults which were his.

The way in which Motorcare conducted its business is important to this aspect of the case. Each week Motorcare calculated its total premium income for that week, deducted Templeton’s premium and IPT and paid the balance to A Thomas Associates Ltd. It follows that sums which Motorcare did not to pay to Templeton were transferred to A Thomas Associates Ltd. Templeton is concerned that Motorcare has dissipated the sums which it ought to have paid to Templeton. Unless liability extends beyond Motorcare, Templeton will be left with a claim against a company without assets, and may be unable to recover from a company which directly benefitted from Motorcare’s breaches.

Templeton allege that there has been dishonesty (deceit and dishonest assistance by a fiduciary) or an agreement with the intent to cause injury (conspiracy).

I have concluded that the evidence of Mr Thomas and Mr Panesar cannot be relied on, that Mr Panesar in particular invited suspicion by the equivocations and changes in his story, and that both are implicated in what I have found to be forged documents or documents of highly dubious authenticity. The crucial question then is whether in relation to representing the loss ratios on Slip 3 (the fraudulent misrepresentation claim) and in the accounting for premium to Templeton, they were acting dishonestly.

So far as the misrepresentation claim is concerned, I accept that Mr Panesar and Mr Thomas were both fully aware of, and parties to, the dishonest misrepresentation. This part of the claim succeeds against them.

So far as accounting for premium is concerned, it is important to determine whether Motorcare held the premium due to Templeton as a trustee or as a debtor. The editors of Chitty on Contracts 30th Ed. Part 2 §§30-31 and Bowstead on Agency 18th Ed §60-040 (FMB Reynolds QC, DCL, FBA, in each case) suggest that that, although there may be indications of the status of an agent, the matter should be approached functionally with a determination of whether a trust relationship is appropriate to the commercial relationship in which the parties found themselves: whether it was appropriate that the money should be, and whether it was, held separately or whether it was contemplated that it was to be used as part of the agent’s normal cash flow in such a way that the creditor debtor relationship was more appropriate. In my view this approach is both practical and jurisprudentially well-founded, see also the observations of Lord Goff in Lord Napier and Ettrick v Kershaw [1993] AC 713 at 744. In the present case the parties anticipated a large number of transactions (20,050 policies were sold under Slip 2, 24,244 policies under Slip 3 and 37,740 under Slip 4) the payment of claims by Motorcare out of premium and the rendering of a periodical general account. Templeton relies on the representation made by Motorcare to a dealer that net premium would be held by Templeton. However, the representation does not point clearly to Motorcare holding premium as trustee rather than debtor and the fact that this was said only to one dealer does not illuminate the issue.

In my view it is clear that the parties envisaged, and conducted their business on the basis, that the sums paid by the dealer would be used as part of Motorcare’s cash flow and that from such sums it would have to account for the proportion due to Templeton. In such circumstances I can see no reason why Templeton’s rights should prevail over the rights of other creditors.

As I have found, Motorcare plainly disregarded its obligation to pay premium to Templeton. Mr Panesar was the personally responsible for this failure. Furthermore, he was evasive in his answers to Templeton’s legitimate questions and (on occasions) untruthful in his explanations. He also took advantage of Templeton’s relative lack of control over and understanding of its underwriting business. None of this reflects credit on him. However I am not satisfied to the standard required that Motorcare dishonestly appropriated premium. I have concluded that the failure was a persistently casual approach to its contractual obligations and a wholly disorganised system for accounting for premium. If there had been dishonesty, others would have had to have been involved at managerial level and in setting up the computer programmes. That has never been part of Templeton’s case; and in these circumstances, I am not prepared to find that Motorcare, Mr Panesar or Mr Thomas were dishonest in relation to the accounting of premium. It is for similar reasons that I not accept Templeton’s further claim for fraudulent misrepresentation based on the monthly financial summaries. Finally, I do not accept that A Thomas Associates Ltd is liable as being in knowing receipt.

The claims for outstanding premium and on the reconciled accounts succeed against Motorcare alone.

The claim for misrepresentation succeeds against Motorcare, Mr Panesar and Mr Thomas.