PA (GI) Limited v Cigna Insurance Services (Europe) Limited

This is the reserved judgment following a four-day trial on the construction of two contractual indemnities given by the Defendant, Cigna Insurance Services (Europe) Limited (“Cigna”) in a Business Transfer Agreement dated 3 April 2003 (the “BTA”) and a Deed of Warranty and Indemnity dated 31 May 2006 (the “DWI”).

The claim by the Claimant, PA (GI) Limited (“PAGI”) is in respect of amounts paid out by it to customers by way of redress in respect of the mis-selling of payment protection insurance policies (also known as “Creditor insurance policies” but commonly referred to as “PPI”) as well as costs associated with this redress. The PPI policies were sold to customers between 1991 and 2004 by Next plc (“Next”) acting as agent for PAGI as the insurer. It should be noted that the Claimant has accepted responsibility for handling complaints and offering redress to customers including where customers had not made complaints to the Financial Ombudsman Service (“FOS”) as discussed below. In this judgment the term “PPI Liabilities” is used to refer to the amounts claimed by the Claimant in these proceedings and since it extends to amounts which were paid out where PAGI assumed responsibility for the payments, is not intended to connote legal liability.

Cigna resists the claim in full.

This judgment deals only with questions of principle and contractual interpretation (Issues 28-44 in the List of Common Ground and Issues). The remaining issues (Issues 45-52) including quantum and relief will be determined subsequently (if not agreed). This judgment addresses the principal submissions and authorities which were raised at the hearing and which in my view were material to explain the Court’s decision. It is neither proportionate nor necessary for the Court to address expressly in the judgment each and every submission made, or authority referred to. The Court had the benefit of daily transcripts of the hearing as well as the written submissions and has reviewed these in the course of preparing this judgment. Accordingly, a failure to refer to a particular authority or submission does not mean that it has not been considered by the Court.

The background is taken largely from the agreed list of issues.

At all material times, PAGI was an insurer.

In 1996, as a result of the merger between the Sun Alliance and Royal insurance groups, PAGI became an indirect subsidiary of Royal & Sun Alliance Insurance plc (“R&SA”).

In September 2004, PAGI (along with the principal UK life insurance operating companies within R&SA’s corporate group) was sold to the Resolution Life Group (a then new insurance business, created to run off closed books of life insurance) by an agreement (the “2004 Agreement”). PAGI’s immediate parent became Resolution Life Limited (“Resolution Life”).

Cigna was established as part of a management buy-out from R&SA in 2003. Cigna was previously known as Oxfordspring Limited (“Oxfordspring”) and subsequently FirstAssist Insurance Services Limited (“FirstAssist”).

Since 1991, PAGI was the insurer under relevant master insurance policies with Next, the retailer. Next sold individual PPI policies to certain of its customers as the agent for PAGI. The last sale of PPI by Next to its customers was in 2004.

Under an agreement for the sale and purchase of healthcare insurance operations of R&SA dated 3 April 2003 (the “BTA”), between R&SA (as Seller), Cigna (then Oxfordspring, as Buyer) and FirstAssist Group Limited, R&SA sold certain insurance operations (including marketing, underwriting and servicing Creditor Insurance products, in addition to several other business lines including private medical and travel insurance) to Oxfordspring as part of a management buy-out from R&SA.

It is common ground that at the time of the BTA, Cigna was not an authorised insurer and so could not itself immediately either (a) be an insurer of any master policies which might transfer or be replaced or (b) renew any existing individual policies. R&SA and Cigna entered into a Risk Carrying and Underwriting Agreement dated 22 April 2003 (the “RCUA”).

Pursuant to a Treaty Quota Share Reinsurance Agreement dated 22 April 2003 made between R&SA (as Reinsured), Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft (“Munich Re”) (as Reinsurer), and Cigna (as Buyer) (the “Reinsurance Agreement”), the Reinsurer agreed to reinsure and indemnify R&SA and any other insurance company member of the Seller’s Group who had issued any of the Existing Products and Interim Products in respect of 100% of all Reinsured Losses (all as defined in the Reinsurance Agreement).

In 2005, PAGI’s life insurance business was transferred to a company within the Resolution Life Group which was then called Royal & Sun Alliance Linked Insurances Limited (“RSALI”) and became known as Phoenix Life Limited (“Phoenix Life”), pursuant to a scheme (the “2005 Scheme”) under Part VII of the Financial Services and Markets Act 2002 (“FSMA”), sanctioned by the order of Evans-Lombe J dated 31 October 2005 (the “2005 Order”).

In May 2006, PAGI’s creditor insurance business (comprising only the non-life components of such business) was transferred to Groupama Insurance Company Limited (“Groupama”), pursuant to a Part VII transfer (the “2006 Scheme”). The 2006 Scheme transferred to Groupama various insurance policies and liabilities “under or attaching to the Transferred Policies”. There was also a further Part VII transfer scheme in 2006, pursuant to which R&SA transferred to Groupama its creditor insurance business (the “R&SA 2006 Scheme”).

In connection with the 2006 Scheme, R&SA, Cigna (then FirstAssist) and First Assist Group Limited entered into a Deed of Warranty and Indemnity dated 31 May 2006 (the “DWI”).

In 2011, PAGI obtained High Court approval for another insurance business transfer to R&SA, pursuant to Part VII of FSMA (the “2011 Scheme”).

Complaints of mis-selling by Next customers in respect of PPI were first made to the FOS after the DWI. In relation to at least one complaint, the FOS made a decision designating PAGI as the respondent to the complaint.

PAGI contended to the FOS that, by the 2006 Scheme, it had transferred mis-selling liabilities to Groupama, and that the FOS should treat Groupama as the responsible insurer and correct respondent to the complaints. In a provisional decision dated 16 December 2013, the FOS stated that Groupama was the correct respondent. However, in a provisional decision dated 17 September 2014, the FOS stated that (subject to any further submissions being received) it was minded to conclude that PAGI was the correct respondent to the complaints.

In January 2015, PAGI issued an application (the “2015 Application”) in the High Court seeking the Court’s determination of the question whether liabilities for PPI mis-selling were liabilities “under or attaching to the Transferred Policies” for the purposes of the 2006 Scheme. Cigna was joined as a party to the 2015 Application. Andrews J (as she was) held that liability for PPI mis-selling in respect of policies underwritten by PAGI was not a liability “under or attaching to the Transferred Policies” and thus had not transferred to Groupama under the terms of the 2006 Scheme.

In a decision dated 27 August 2015, the FOS noted that PAGI had, in light of the decision of the High Court, accepted responsibility for handling the complaint, and as a formality stated that PAGI was the correct respondent to the complaint.

There are two issues to be addressed. The first is the general principles of contractual construction as to which there was little difference between the parties other than a matter of emphasis from the various leading authorities. The second issue is the more contentious issue of the line of authority from Canada Steamship Lines Ltd v The King [1952] AC 192 and its significance to the issue of contractual construction in the light of recent authority.

The principles of contractual construction can be taken from the judgment of the Supreme Court in Wood v Capita Insurance [2017] UKSC 24. They were summarised by Popplewell J in Lukoil Asia Pacific Pte Ltd v Ocean Tankers (Pte) Ltd [2018] EWHC 163 (Comm) but I see no reason not to take the test directly from the key passages of the judgment of Lord Hodge in Wood. Counsel for PAGI also referred me to the cases on construction which preceded the decision in Wood but given the judgment of Lord Hodge reviews the key authorities I see no need to consider those separately.

The relative weight to be given to the context will vary according to the circumstances: Wood at [13]:

PAGI stressed the following from the authorities:

My only observation on these submissions is that, as was submitted by Mr Tolley KC, it is clear from Wood that whilst some professionally drafted contracts can be interpreted successfully by textual analysis, as Lord Hodge said:

For its part whilst stating that the general principles were not in dispute Cigna stressed the following additional points:

My observation on these submissions is that whilst Lord Hodge did say that the court can “give weight” to the implications of the rival constructions and take a view as to which construction is more consistent with business common sense, as Lord Hodge also said in that passage, the court has to be alive to the fact that:

Turning then to the line of authority from Canada Steamship. Cigna submitted that there is an underlying principle based on what is regarded as the “inherent improbability” of one party agreeing to assume liability for another party's wrongdoing, and that inherent improbability calls for clearly expressed words to convince one that is what the parties actually intended, notwithstanding the inherent improbability. [Day 3 109]

Mr Tolley KC submitted that the Court is undertaking the task of ascertaining the objective intention of the parties, in the particular commercial context and in accordance with the general principles of interpretation. But this “inherent improbability” point is treated as a “useful guide” to the correct approach of interpretation where the commercial context makes it improbable that without clear plain words that one party would have agreed to assume responsibility for the wrongdoing of the other. He submitted that this is especially true in relation to intentional or dishonest wrongdoing, but the principle is not confined to that type of the most serious wrongdoing, but it is nonetheless still relevant in the present case. Mr Tolley rejected the proposition advanced for PAGI that these principles are essentially out of date and that they are in effect to be disregarded. [Day 3 p110]

Cigna relied on the decision of Popplewell J (as he then was) in Capita (Banstead 2011) Ltd v RFIB Group Ltd [2014] EWHC 2197 (Comm) where the principles Popplewell J summarised in this regard were approved by the Court of Appeal [2015] EWCA Civ 1310 at [10]. Those principles were as follows:

Although Mr Tolley took the Court to Canada Steamship and the other authorities referred to in the summary by Popplewell J above (Smith v South Wales Switchgear Co Ltd [1978] 1 WLR 165, Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd [1983] 1 WLR 964, HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] 1 All ER (Comm) 349) I see no need to trace the development of the principles prior to Capita (Banstead 2011) given the summary above approved by the Court of Appeal.

The issue is whether, as was submitted for PAGI, the more recent authority indicates that the law has “moved on”.

Cigna referred to Taberna Europe CDO plc [2016] EWCA Civ 1262 at [25] and submitted that “on no view could it be said that the principles to be derived from this line of authority have been consigned to some kind of contractual history.” [Day 3 p124]

The passages of the judgment which in my view are relevant to this issue are as follows:

Further clarification of the approach has been given by Lord Leggatt in the Supreme Court in the more recent case of Triple Point Technology Inc v PTT Public Co Ltd [2021] UKSC 29.

In his judgment whilst Lord Leggatt did acknowledge that commercial parties are free to make their own bargains and allocate risks as they think fit, Lord Leggatt did not entirely reject the principles in Canada Steamship but described them as being “subsumed within the wider Gilbert-Ash principle”. Lord Leggatt then quoted with approval the first instance judgment in Federal Republic of Nigeria v JP Morgan Chase Bank NA [2019] 1 CLC 207:

The relevant passages were as follows:

It was submitted for PAGI [Day 2 p124] that the word “negligence” does not have to be used expressly; what the Court has to do is to look at the words used by the parties to see what was meant. PAGI relied on the decision of Picken J in Cape Distribution Ltd v Cape Intermediate Holdings [2016] EWHC 1119 (QB) and in particular at [89]-[94] of the judgment:

In submissions for Cigna, it was accepted that the overarching principle is and always has been the ascertainment of contractual intention on objective grounds. However in the light of the judgment in Triple Point it seems to me that Cigna puts the matter too highly when it describes the Canada Steamship principles as guidance and submitted that one should approach the question of contractual interpretation on the basis of what will in general be an “inherent improbability” that the parties should agree to allocate responsibility for one party’s wrongdoing to the other. In my view the principle (at least so far as negligence is concerned) is that the Court should bear in mind that a party is “unlikely to have agreed to give up a valuable right that it would otherwise have had without clear words” and if and to the extent that the words “inherent improbability” suggest a higher threshold, it is not consistent with Triple Point. Further applying Lord Leggatt’s approach, there is no need for express words to have been used to exclude negligence.

Clause 8.1 of the BTA contained the following indemnities:

The parties have identified two sub-issues within Issue 30 of the scope of the indemnity. The first sub-issue focuses on the meaning of “Liabilities” within clause 8.1. Although the parties’ List of Issues identified the factual matrix as a separate issue (Issue 28), it is a component of Issue 30 as it is part of the exercise of construction of the indemnity in Clause 8.1, as explained in Wood above. I will therefore deal with it in this section of the judgment and not as a standalone issue.

The second sub-issue focuses on whether any liability in respect of mis-selling was an Excluded Liability under or by reason of paragraph 1 or paragraph 7 of Schedule 7. I did not understand Cigna to be pursuing its case in relation to paragraph 1 of Schedule 7. In relation to paragraph 7, the issue of whether it falls within paragraph 7 leads onto Issues 31 and 32 which are dealt with under that section.

It was submitted for PAGI that (paragraph 43 of its skeleton):

As to the factual matrix, PAGI’s case is that:

As to the witnesses from CIGNA it was submitted that they were honest professionals but that they were not involved in the negotiations. Mr Jolley for Cigna was not called for cross examination. He also was not involved in the negotiations. He did give some evidence in his witness statement which is relevant to the factual context as discussed below.

Although Cigna accepted the general principles of contractual interpretation referred to above, Cigna submitted (paragraphs 35-36 of its skeleton) that the principles summarized by Popplewell J in Capita v RFIB are of particular importance in the present case and that PAGI’s case, that all potential liabilities are included within the scope of the indemnities unless expressly excluded, is the opposite way in which one should approach the interpretation of a contractual indemnity in the present circumstances.

It was submitted (paragraph 37 of its skeleton) that the commercial context makes it improbable that in the absence of clear words Cigna would have agreed to assume responsibility for the relevant negligence or other wrongdoing of PAGI or its agent. The BTA does not contain any words, let alone clear words, that conveyed that Cigna was assuming responsibility for negligence or other wrongdoing of PAGI or Next in relation to the mis-selling of the PPI.

Cigna rejected the proposition that the more sophisticated the drafting, the greater should be the reliance on textual analysis pointing out (paragraph 38 of its skeleton) that in its submissions in relation to the court in relation to the 2006 Scheme PAGI took the view that it was “not going to win any prizes for clarity of drafting” in relation to the proposition that the 2006 Scheme had the effect of transferring PPI mis-selling liabilities to Groupama.

It was submitted that it was clear from HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] 1 All ER (Comm) 349 that the indemnity does not cover fraud.

It was submitted that in 2003 very little was known about PPI mis-selling and it was not realistically “on the horizon”.

As to the management buyout it was submitted that Mr Ablett had been at Groupama and he had no specific experience in relation to creditor insurance and as Mr Jolley explained in his witness statement, the creditor insurance market was self-contained and management was not very familiar with it.

“The court’s task is to ascertain the objective meaning of the language which the parties have chosen to express their agreement.” (Lord Hodge at [10] in Wood)

Clause 8.1 provides that:

On the natural meaning of the relevant defined terms it can be said to be an indemnity for “all liabilities” of the Business other than the Excluded Liabilities. The relevant definitions are as follows:

The court has to balance the indications given by the language and the context. In my view the language is broad enough to capture “liabilities” for mis-selling by PAGI’s agent in that the indemnity extends to “all liabilities” of the Business (unless such liabilities fall within “Excluded Liabilities” which is addressed below). The “Business” extends to the business of marketing Creditor Insurance products (where the business was conducted prior to completion of the sale). Further the definition of “Business” makes express reference to the activities of Next through the reference to “including pursuant to any of the Distribution Contracts” as the “Phoenix Assurance Payments Protection Insurance: Next Plc- Master Policy” is listed as one of the Distribution Contracts in Schedule 5 to the BTA.

It was a professionally drafted contract and although in relation to the 2006 Scheme, PAGI submitted to Andrews J that provisions in the 2006 Scheme lacked clarity, the use of lawyers tends to support the conclusion that the language used in a document was deliberate. The BTA is a complicated document with many interlinking definitions. It is not a document apparently produced in haste or with any informality. Thus whilst lawyers may produce documents which contain provisions that on close analysis are unclear or ambiguous, the clear language must carry considerable weight in these circumstances.

As stated by Lord Hodge:

PAGI submitted that the whole of the business was transferred as a going concern and therefore the allocation of risk was that Cigna would assume all the liabilities of the business going forward.

Cigna submitted (paragraphs 61-63 of its skeleton) that the BTA did not result in the transfer of any Existing Products and RSA was entitled to retain all the premiums paid or payable in respect of the Existing Products. Since neither contractual rights nor contractual liabilities under the Existing Products transferred to Cigna, it was submitted that it was difficult to understand why responsibility for the mis-selling of PPI (non-contractual liabilities) would transfer to Cigna.

However, when one stands back and considers the overall structure of the transaction as reflected in the documents entered into at the time of the sale, it was clear this was the sale of a business: for example Recital B of the BTA recorded:

Mr Jolley’s evidence was that:

However the definition of “Renewal Rights” itself refers to the Buyer “carrying on the Business in succession to the Seller”:

Although the BTA did not result in the transfer of any Existing Products, the structure of the sale arrangements reflected the fact that Cigna needed to obtain authorisation before it could write insurance on its own behalf and this meant that interim arrangements were needed.

The overall structure of the transaction was that it was intended to transfer the business to Cigna but that there would be an “Interim Period” pending Cigna obtaining the necessary authorisations to enable Cigna to issue the policies on its own account or on behalf of another insurer. Accordingly the BTA provided for an Interim Period. The relevant definition read (so far as material):

Mr Jolley’s evidence provides support for this factual context where he said:

Accordingly, the fact that the Existing Products did not transfer to Cigna was due to the lack of authorization to underwrite the Products. Paragraph 1 of Schedule 7 thus excluded:

The “Excluded Liabilities” therefore excluded the liabilities “pursuant to” the policies (both the Existing Products and/or the Interim Products).

Further although certain contracts, notably in this context, the Next master policy, were not transferred at completion, it is clear from the definition of “Interim Period” (above) that the Interim Period was to allow the Distribution Contracts to be assigned, novated, replaced or terminated and once this had been done for a particular category of Products (and authorisation obtained) the Interim Period would end. Accordingly the fact that these contracts did not transfer on the Effective Date does not indicate that it was not the intention of the parties that the business should be transferred. It merely suggests that not all relevant contracts could be transferred by the Effective Date.

This description of the overall structure of the transaction and in particular the analysis that it was the sale of a business as a going concern is borne out by the Recitals to the Reinsurance Agreement which provided as follows:

Recital (C) of the Reinsurance Agreement is also consistent with the purpose which lay behind the Interim Period in the BTA explained above, referring to RSA agreeing to authorise the Buyer to issue the Interim Products on its behalf during the Interim Period until the Buyer can do so on its own account:

The operative provisions of the Reinsurance Agreement then provided for Munich Re to reinsure and indemnify the Seller and members of its Group who had issued policies or who issued policies during the Interim Period:

In my view it follows that on a transfer of a business as a going concern the Seller would look to divest itself of all the assets and liabilities of that business and not to retain any liabilities (unless it was indemnified against the risk).

Cigna relied on the description of the role of Cigna in the RCUA which suggested that Cigna was merely providing “the administration” for the run-off of Existing Products. Recital G stated:

Further clause 12.2 of the RCUA provided:

However this submission ignores the rest of the recitals which refer to the overall arrangements and to the sale of the business. Recital B of the RCUA referred to the sale of the Business to the Cigna as follows:

Further PAGI’s case is not that the liabilities for mis-selling transferred to Cigna but that Cigna agreed to assume the risk and to indemnify it against those liabilities. Accordingly although the Seller controlled the dispute process pursuant to Clause 12.2, it can still be said to be not inconsistent with PAGI’s case that the liability for mis-selling remained with PAGI but the risk passed to Cigna under the indemnity. To the objection that this gave no control to Cigna for the amount of its liability under the indemnity it was submitted for PAGI that any settlement would have to be reasonable in order for PAGI to have a good claim under the indemnity.

It is also notable that where the parties intended to exclude liability for the Seller’s negligence in the RCUA this was expressly referred to. Clause 24.2 of the RCUA provided as follows:

Further in the Reinsurance Agreement claims for mis-selling were expressly excluded from the definition of “Reinsured Losses” as follows:

It was submitted for PAGI [Day 2 p125] that Cigna’s management (who had been running the Creditor Insurance business prior to the BTA) was well-placed to assess the risk of the mis-selling liability.

There is no detailed evidence about the knowledge of Cigna’s management. On the evidence of Mr Jolley, one of the two individuals who led the MBO, Mr Ablett, returned from working for another separate company, although he had previously worked for R&SA, and returned to R&SA at some point before the MBO to “bring about the MBO”.

Mr Jolley’s evidence in this regard was as follows:

Mr Jolley could not provide anything other than general evidence as to the knowledge of the individuals leading the purchase. However at the very least, it can be inferred that the buyer was familiar with the insurance industry and is likely to have been aware at least in general terms of the risks which were attendant on the purchase of such a business including, having regard to the published material referred to below, the risk of mis-selling.

In this regard, it is also relevant to note the common ground as to what was known or reasonably capable of being known to all parties at the time of the BTA (April 2003). It is common ground that at that time, the FSA did not regulate general insurance mediation. However it was also common ground that it was known or reasonably capable of being known to all parties at the time of the BTA that:

It was submitted for Cigna that there is no possible suggestion that the parties to the BTA knew that there were pending claims in respect of the mis-selling of PPI or, that there were facts which would or might give rise to such claims. [Day 4 p74]

Whilst there is no evidence before this Court which would justify a finding that the parties knew there were pending PPI claims or knew of the facts that would give rise to such PPI claims, there is evidence that would justify a finding that the risk of such claims was known to the parties or at the very least, in the reasonable contemplation of the parties.

Although the FSA did not regulate general insurance mediation at the time, the warranties in the BTA provide contextual support for the proposition that the parties were aware of the mis-selling risk at least in general terms. The BTA contained the following warranties in paragraph 15 of Schedule 2:

It was submitted for Cigna [Day 4 p81] that:

Whilst I accept these submissions for Cigna, the significance of the warranties is that they provide context for the interpretation of the language in Clause 8.1. In particular they indicate that at the time of entering into the BTA, the parties were aware (or it was within the parties’ reasonable contemplation) that complaints to the FSA were possible and investigations being referred to the FOS and in particular that complaints or claims (allegations) could be made in respect of advice given in respect of the Products being alleged to have been “unsuitable” or to have amounted to a “misrepresentation”. This is sufficient to infer that the parties were aware (or that it was within the parties’ reasonable contemplation) that there was a risk of claims or complaints within the scope of what is broadly referred to as “mis-selling” of PPI even if the warranties did not amount to an exhaustive description of the possible heads of liability or grounds for complaint.

PAGI also relied on the context of the Reinsurance Agreement. As referred to above, under this Agreement, Munich Re agreed (in summary) to pay all claims (and associated losses, costs and expenses) arising out of the Existing Products or the Interim Products. This was subject to certain exclusions including:

I accept the submission that these express provisions in the Reinsurance Agreement support PAGI’s case that the parties had in mind the risk of mis-selling of PPI, or that it was within the reasonable contemplation of the parties.

PAGI also relied on what it termed “problems with the mis-selling and maladministration of PPI, and thus the risk of liability and/or redress in relation thereto” as being within the parties’ reasonable contemplation when the BTA was entered into.

Mr Jolley’s evidence was that:

Mr Jolley accepted in his witness statement that he was not involved in the negotiations for the sale. However his evidence that mis-selling was not perceived as a “significant concern” at that time is supported to an extent by the materials in the public domain discussed below.

Cigna relied on a letter in September 2014 to PAGI setting out its provisional decision in relation to an individual complaint and referring to the position at the time of the 2006 Scheme, in which the FOS wrote:

Whilst on the materials before this Court I accept that in 2006 it was long before liability for PPI mis-selling became the subject of regulatory action and/or “widespread” publicity, that letter from the FOS was not considering the documentation in 2003 and thus in expressing a view on what was in the reasonable contemplation of the parties to the 2006 Scheme, the FOS was not and could not express a considered view on the position at the time of the BTA in 2003 in that it had not considered the references in the warranties in the BTA and the references to mis-selling in the Reinsurance Agreement discussed above and the other public materials now before this Court which date from the period immediately before the BTA was entered into.

Those public materials included the following:

These and other materials before the Court taken from published sources suggest that whilst the particular form of “mis-selling” was not being raised widely at least in relation to R&SA (and/or its agents) and credit cards, mis-selling was a significant issue in other parts of the business and was beginning to be of concern in relation to PPI.

It would appear from newspaper articles that RSA wanted to raise cash and divest itself of the business. However although the evidence is that RSA was keen to raise cash at this time through the divestment, there is no evidence that this clause was intended to be limited in the way that Cigna contend as a result of any inequality of bargaining position. Had Cigna been using its position of strength in the negotiations, one might have expected an express carve out for mis-selling (as was included in the Reinsurance Agreement, albeit for the benefit of Munich Re) rather than having to rely on any inference from the factual/commercial context to limit an indemnity which on its face is expressed in broad terms.

It was submitted for PAGI that given that the BTA was part of a management buy-out from RSA, and the Business and the Assets (including Renewal Rights) which Cigna was acquiring thereunder, it would make commercial sense for Cigna to have taken on the liability forming the subject of the claim and it would be contrary to business sense for PAGI to retain such liability.

It was submitted for Cigna that nothing was paid for assuming the liability for mis-selling. However the absence of evidence of a specific apportionment of the consideration for the sale to this liability does not indicate in my view whether the mis-selling risk was included within the indemnity.

As referred to above, it was submitted for Cigna (paragraph 37 of its skeleton) that the commercial context makes it improbable that in the absence of clear words Cigna would have agreed to assume responsibility for the relevant negligence or other wrongdoing of PAGI or its agent. It was submitted that the BTA does not contain any words, let alone clear words, which conveyed that Cigna was assuming responsibility for negligence or other wrongdoing of PAGI or Next in relation to the mis-selling of the PPI.

It was submitted for Cigna that the indemnity clearly would not cover a criminal liability such as a health and safety offence committed by RSA or PAGI and in the context of this agreement equally it does not cover a tort liability because it is “self-evidently” improbable that it should be included. It was submitted that what is needed is:

As discussed above, there is no need for express words to be used in order to conclude that the language of the indemnity extended to liability for negligent mis-selling.

The position in relation to fraud or dishonesty was summed up by Popplewell J in Capita as follows:

On the current state of the authorities, as stated in Taberna Europe (quoted above):

Dealing firstly with the issue of whether the BTA indemnity extends to the fraud or dishonesty of the Seller’s agent, this argument did not seem to be pressed by counsel for PAGI who accepted that fraud is a “different category”. [Day 3p20]. This may have been on the basis that in the view of PAGI, it is not likely to be relevant to the mis-selling claims in this case, although this was disputed by Mr Tolley KC who submitted that fraudulent conduct would include a recklessly inaccurate communication about the scope of coverage or, if limitation was in issue, fraud or deliberate concealment to overcome limitation periods or as a consequence of the nature of the allegations if what is, as a matter of substance, alleged is dishonest.

It seems to me that even though the language of the indemnity is broad and unlimited, an interpretation that it extended to liabilities incurred as a result of the fraud or dishonesty or deceit of the agent would be contrary to business common sense and beyond what the parties reasonably contemplated having regard to the factual matrix discussed above. It would be an “extraordinary bargain” and there is nothing in the language or the context to support such an interpretation. I note that the warranties in the BTA refer to the Products being unsuitable or the subject of a misrepresentation. I infer that the warranties were directed at negligence or breach of regulatory/statutory duties rather than fraud or dishonesty and I see nothing to suggest that it was intended to indemnify the Seller against the fraud or dishonest conduct of its agent in relation to the Existing Products.

However if the liabilities arise other than as a result of fraud or dishonesty (including deceit) on the part of the agent, then in my view, it cannot be said that it was unlikely or even, if contrary to my findings above, the test is one of “inherent improbability”, that negligence and/or breach of regulatory/statutory duty was to be excluded from the scope of the indemnity when the language of the clause is considered in its factual context. As discussed above:

I note that PAGI relied on Comyn Ching v Oriental Tube a decision of the Court of Appeal from 1979 where the Court applied the rule in Canada Steamship but found that the parties intended to cover negligence even where the word was not used. Cigna submitted that the circumstances of the case were very similar to Lictor Anstalt v Mir Steel UK Ltd [2012] EWCA Civ 1397 where an indemnity was offered in the context of a “known issue”. To the extent that the authorities can provide any assistance in this regard on what is essentially a question of construction, then it seems to me that the factual context, as discussed above, is that the risk of mis-selling of PPI was within the reasonable contemplation of the parties even if it was not something which was actually appreciated to be a serious risk at the time.

It was submitted for Cigna that it was not possible to verify or quantify the liability for mis-selling and thus any liability would be open-ended.

However as referred to above, given that the potential risk was not a “significant concern”, it may well be the case that with the benefit of hindsight Cigna would not have accepted the risk but the Court cannot rewrite a contract in the light of subsequent events. The task of the court is to interpret the words used fairly applying the ordinary methods of contractual interpretation and the fact that the liabilities with hindsight have proved to be very significant may only indicate that with hindsight it was a bad bargain.

In relation to the Excluded Liabilities and Schedule 7 of the BTA, Cigna submitted that the PPI Liabilities fell within paragraph 7:

Cigna submitted that since “Excluded Business” excludes the creditor life business and liability in relation to underwriting those products, a liability for mis-selling is a liability “in relation to” the Excluded Business as underwriting is just part of the process by which the products came to be underwritten. [Day 4 p84]

The definition of Excluded Business expressly refers only to “underwriting”:

This is to be contrasted with the definition of “Business” from which certain business (defined as the Excluded Business) is excluded. “Business” is defined as “the business… of marketing, underwriting and servicing ” the various products. Thus it reads

In my view therefore the language of the definitions is clear that the only exclusion from the Business which is transferred under the BTA is the underwriting of the relevant products (including Creditor Life Insurance Products) and the exclusion does not extend to the marketing or servicing of such products. There is no ambiguity in that language and no reason to place a broad meaning on the words “in relation to” to contradict the clear distinction in the definition between “marketing, underwriting and servicing” on the one hand and “underwriting” on the other.

The defined term “Liabilities” refers to “all liabilities of the Business (but excludes the Excluded Liabilities) …”. It therefore flows from the definition of Business that if marketing and servicing is part of the Business, liabilities for mis-selling are liabilities “of” the Business. The distinction to be drawn on the wording of the BTA is not as Cigna submitted, between “insurance liabilities” and “non-insurance liabilities” but between “marketing and servicing” and “underwriting”.

Cigna submitted (paragraphs 85 and 86 of its skeleton) that if a liability for mis-selling the PPI is included by the definition of Liabilities it follows that it is excluded by the definition of Excluded Liabilities on the basis that the word “liabilities” in paragraph 7 must mean the same as it does in the definition of “Liabilities”.

In my view that construction is not correct. The indemnity is in respect of “Liabilities” which is defined as (i) all liabilities of the Business but (ii) excludes the Excluded Liabilities (numbering added)

The relevant definitions for limb (i) are “Business” means the business … of marketing, underwriting and servicing … but does not include the Excluded Business (underwriting of Creditor Life products) so a liability of that business would be the business of marketing and servicing but not underwriting Creditor Life products. Limb (i) would therefore capture liabilities in respect of PPI.

In limb (ii) “Excluded Liabilities” means those liabilities of the Business which are identified in schedule 7...[ “Any liabilities in relation to the Excluded Business”.]

In my view there is a distinction between the first and second limbs of the definition of Liabilities: the first limb catches the pool of liabilities “of” the Business which is transferred (and encompasses liabilities in respect of PPI because it is not the underwriting of Creditor Life products); the second limb is the pool of Excluded Liabilities and only excludes liabilities if they “relate” to the business of underwriting the Creditor Life products. In my view the PPI Liabilities do not “relate” to the business of underwriting.

Issues 31 (Was any liability in respect of the life component of the Relevant Policies transferred to Cigna under the BTA?) and 32 (whether Cigna is not in any event liable to indemnify PA(GI) in respect of any element of the redress referable to the mis-selling of the life component of the Relevant Policies) follow from this conclusion and must be answered in favour of PAGI. Cigna is liable to indemnify PAGI in respect of the mis-selling of a policy even where any element of the redress is referable to the mis-selling of the life component of the policy (Issue 32). Liability in respect of the mis-selling of the life component of the policies was transferred to Cigna under the BTA together with liability for mis-selling of the non-life components and thus the issue of whether it is legally possible to transfer part of the liability for mis-selling of a PPI policy does not arise in relation to the BTA.

For the reasons discussed above I find that liabilities in respect of the PPI mis-selling were within the meaning of “Liabilities” other than where such liabilities arose as a result of fraud or dishonesty (including deceit) on the part of the agent.

Issue 29 is as follows:

Clause 8.1 provides (so far as relevant):

Clause 29.1 of the BTA provides:

The relevant definition of Seller’s Group is as follows:

It is common ground that PAGI was a member of the Seller’s Group when the BTA was entered into. PAGI has not been a member of the Seller’s Group since 30 September 2004, when it was acquired by Resolution Life.

PAGI contends that it is entitled to make a claim under the indemnity in circumstances where it was a member of the Seller’s Group on the date when the BTA was entered into.

Cigna contends that PAGI is unable to make a claim under the indemnity because it is no longer a member of the Seller’s Group and/or because the actions, costs, claims, losses, liabilities, proceedings and/or expenses in question were incurred when it was not a member of the Seller’s Group.

It was submitted for PAGI that:

It was submitted for Cigna that:

Starting with the language of the definition it is expressed to cover the following entities (my numbering):

It is therefore notable, and I infer significant in this professionally drafted contract that in relation to holding companies it is expressly stated that it is those holding companies “at the date of the agreement” and for subsidiary undertakings of the holding companies that it is the entities “from time to time”.

Given the absence in [ii] of the words “from time to time” used in [iv] to limit the subsidiaries of holding companies, the more natural interpretation in my view of the language used is that it means those subsidiaries of the Seller at the date of the BTA irrespective of whether it remained a subsidiary at the time of the claim or loss.

When the language is considered against the context of the other provisions of the BTA, the wording of the indemnity can be contrasted with clause 19.2 of the BTA dealing with assignment:

There are two striking distinctions:

This is a professionally drafted contract and the additional express words in Clause 19.2 suggest that the parties had in mind when entering into the BTA that the composition of the Group may change over time and in this context have added express words to limit assignments to only those subsidiaries which is a subsidiary at the relevant time. This therefore supports an inference that had the parties wished to limit the operation of the indemnity in Clause 8.1 or the rights under Clause 29.1 in a similar way they would have done so.

It was submitted for Cigna that it makes commercial sense for the clause to operate in favour of the group at the time the cause of action arose. It was submitted for Cigna that since the cause of action does not arise until the loss occurs (which in relation to the PPI claims was from December 2015 onwards) the companies that should be able to take the benefit of the indemnity should be those members of the Seller’s Group at that time.

In my view it would be contrary to commercial common sense to have excluded the operation of the indemnity in the event of a departure of a member from the Seller’s Group. The indemnity was to protect the Seller, its subsidiaries and its holding company in economic terms from pre-existing liabilities once it had sold the business. Having sold the business and transferred the risk to the Buyer with the protection of those indemnities, the value of the sale to the Seller would be adversely affected if the indemnity to the Seller’s Group was to be lost on a transfer out of the Seller’s Group of one of its subsidiaries which then suffered a loss or expense in respect of the Liabilities of the business conducted by it prior to Completion. It was the subsidiary undertakings at the time of sale that would need the indemnity against the past liabilities of the business carried on by the Seller and its subsidiaries prior to Completion, not new subsidiaries coming into the Group. In my view it would be contrary to commercial common sense to conclude that such a limitation had been agreed between the parties.

I do not accept that Clause 19.2 limiting assignments provides any assistance in this regard. Clause 19.2 operates in favour of both parties and limits the relationship between the parties so that neither party can assign its rights under the BTA outside the then current group. In my view there is a commercial and logical distinction between on the one hand, prohibiting the transfer of rights under or in connection with the BTA (which will extend to the ongoing relationship between the parties in conducting the various aspects of the Business) to a company outside the Group and thereby creating the right for a new entity with no prior links to enforce rights against the Seller or the Buyer and on the other hand, preserving existing rights to an indemnity from the Buyer held by an entity originally within the Seller’s Group which relates to liabilities for the business conducted by the Seller/its subsidiaries prior to the sale even where the relevant subsidiary of the Seller is no longer owned within the Group.

Cigna relied on the proposition that the cause of action under the contractual indemnity arises only when the indemnified party suffers a loss and the decision of the Supreme Court in Enviroco.

In that case a charterparty governed by English law contained clauses whereby the owner of the chartered vessel was obliged to indemnify the charterer and its “affiliates” in respect of all claims and liabilities resulting from loss or damage to the vessel. “Affiliate” was defined as including any “subsidiary” of a company of which the charterer was also a subsidiary, the word “subsidiary” having the meaning assigned to it in section 736 of the Companies Act 1985. A plc, which was registered in Scotland, was the holding company of the charterer and also owned 50% of the contractor, another Scottish company. Since its name was on the contractor’s register of members, A plc was a “member” as defined by section 22 of the 1985 Act. It also controlled voting rights through an agreement with other shareholders. The contractor, therefore, was A plc’s subsidiary for the purposes of section 736(1)(c) of the 1985 Act.

A plc pledged its shares in the contractor to a Scottish bank as security for a loan which, pursuant to Scots law, required that the bank or its nominee be entered on the register of members instead of A plc. The contractor was subsequently employed to clean the oil tanks of the vessel and, while its employees were doing so, a fire occurred causing substantial damage. The vessel’s owner commenced proceedings in Scotland against the contractor for the damage caused. In response the contractor issued proceedings in England seeking a declaration that, because it was one of A plc’s subsidiaries, it was an affiliate of the charterer and the owner was, therefore, obliged to indemnify it under the terms of the charterparty for the losses it claimed.

The Supreme Court held that there was no basis, either in law or arising from the factual matrix, for giving the words of sections 736 and 736A a different meaning or construction in the charterparty from the meaning which they would have in the statutory context; that, consequently, A plc had not been a member of the contractor company after the bank’s nominee had been entered on the register of members in its place; and that, accordingly, the contractor had not been a subsidiary of A plc for the purposes of the charterparty at the time of the damage to the vessel.

I accept that as submitted for PAGI, the issue of timing was not considered by the Supreme Court, and I do not accept that any significance can be drawn from the fact that the Supreme Court accepted this as the premise. The dicta in which the Supreme Court acknowledged that the outcome of their construction was surprising or not the planned result was directed to the issue about the shares having been transferred and not the issue of timing.

Further if and to the extent that the judgment can provide any support for the proposition that the claimant had to be a member of the Group at the time of the event, it is clear that the Supreme Court were construing the particular indemnity before it and in this case the construction of the language in context leads me to a different conclusion.

The fact that the cause of action does not accrue until the loss is suffered does not in my view alter the construction of this clause when the language of the clause is considered and weighed against the context.

In my view there is no basis on the language of the definition to conclude that it was intended to be limited to subsidiaries which at the time of the claim were a member of the Seller’s Group, the context would suggest that there was a deliberate decision in other parts of the contract to make an express qualification in this regard when that was the intention and business common sense supports the interpretation that the indemnity should benefit the subsidiaries who at the time of the BTA were part of the Seller’s Group whether or not they remained a subsidiary at the time of the loss or claim.

As to the Contracts (Rights of Third Parties) Act 1999 (the “1999 Act”) the relevant provisions are in Clause 1 as follows:

In my view the entitlement of PAGI to enforce its rights under the 1999 Act flows from the findings above (as appeared to be accepted by Mr Tolley KC in oral submissions [Day 3p142]) and PAGI is entitled to enforce its rights under the indemnity pursuant to clause 1(1)(a) of the 1999 Act.

Issue 33 is as follows:

There are 2 linked issues here which are best addressed separately:

It was submitted for PAGI (paragraph 46-52 of its skeleton) that:

It was submitted for Cigna (paragraphs 89-91 of its skeleton) [Day 4 p109] that:

The relevant part of Clause 8.1 provides an indemnity against:

The focus of the oral submissions [Day 4 p109] for Cigna was on the defined term “Liabilities” which in the definition refers to “liabilities” and it was submitted that there was nothing in the BTA to give the word “liabilities” a special meaning or to suggest that it means a complaint short of a claim in law. It was submitted that there was no reference to a regulatory investigation, fine or penalty or to a compliance review.

The contention that the defined term “Liabilities” was intended to be limited to liabilities “as a matter of law” is a possible interpretation of the defined term “Liabilities”. However the indemnity extends on its language not just to “Liabilities” but more broadly to any “actions, costs, claims, losses, liabilities, proceedings or expenses” incurred “in respect of” the Liabilities (defined as the liabilities of the Business).

I note that the term “liabilities” is included within the phrase “any and all actions…which the Seller… may suffer or incur in respect [of the Liabilities]”. The defined term “Liabilities” limits the scope of the indemnity to liabilities of the Business (as defined) so it is not open ended but the additional reference to “liabilities…which the Seller…may suffer or incur in respect of [the Liabilities]” would appear unnecessary unless it was intended to give a broader scope to the indemnity.

Further in referring to “actions” “claims” and “proceedings” in addition to “liabilities” the language of the indemnity expressly contemplates not just liabilities which are established or found to exist at law but amounts incurred as a result of actions or claims being brought, whether or not they result in a finding of legal liability.

In making express reference to both “claims” and “proceedings” the clause extends not only to actual proceedings being brought but also to “claims” which one infers would be made prior to any proceedings. On their face the term “claims” and “proceedings” are not limited to claims made to, or proceedings before, a court.

The limited interpretation for which Cigna contends is not consistent with business common sense but as was pointed out by Toulson LJ in Rust Consulting v PB [2012] EWCA Civ 1070 would produce a paradoxical result if one considers the example of a failed defence. He said at [19]:

On the construction of the clause in that case Toulson LJ concluded that the indemnity in question was:

Cigna submitted that although contractual indemnities may be interpreted so as to include a reasonable acceptance of liability such provisions may be interpreted as providing an indemnity only against actual liability: AstraZeneca Insurance Company v XL Insurance (Bermuda) Ltd [2013] EWCA Civ 1660 at [52]. However that case concerned the construction of an insurance policy in a very different context.

In John F Hunt Demolition Ltd v ASME Engineering Ltd [2007] EWHC 1507 (TCC) Judge Peter Coulson QC said at [61]:

It is clear on the authorities that an indemnity can be construed to include the reasonable settlement of claims and the question of whether a settlement was reasonable is then a question of fact. In my view the language used in the indemnity suggests that it was intended to be broad and extend to all losses incurred in relation to the Liabilities and it was not intended to limit this to legal liability established in the courts. It was a professionally drafted contract and therefore the breadth of the scope of the language of the indemnity should be given weight. Commercial common sense (as discussed by Toulson LJ in Rust) also supports a broad interpretation of the language to encompass reasonable settlements.

The question which then arises is whether it extends to payments made under the provisions of the DISP sourcebook in the FCA Handbook where there was no finding of liability and in some cases, no complaint.

The term “complaints” is not used in Clause 8.1. However the language of the indemnity extends to “all actions, costs, claims, losses, liabilities, proceedings or expenses”. The word “claims” is capable of being interpreted as extending to claims other than claims lodged before a court and thus could encompass complaints. Alternatively where complaints resulted in losses, costs or expenses this would fall within the scope of the indemnity if they were “in respect of” the Liabilities (which would encompass the liability for PPI). The word “proceedings” is capable of being construed as extending to proceedings other than before a court.

When the language is considered against the other provisions of the BTA, namely the warranties in paragraph 15 of Schedule 2, these would suggest that the parties had in contemplation at the time of entering into the BTA that there could be action taken in the form of complaints or investigations by either the regulator (at that time the FSA) and/or the FOS and that complaints could be made by customers including “complaints or allegations” of mis-selling.

In turn it must have been in the reasonable contemplation (having regard to the previous fines levied against RSA and the other published material discussed above) that complaints in relation to PPI mis-selling may lead to costs and expenses being incurred. Although Mr Jolley stated that his team did not perceive mis-selling to be a significant concern until 2010 and Cigna relied on his evidence in support of its submission that the potential liability could not be quantified in 2003, that does not displace the broad language used in the indemnity as supported by the context of the warranties and the published material.

The regulatory environment in 2003 was different from the regulatory position in 2015 onwards when complaints were investigated and amounts paid out by PAGI in respect of mis-selling. However the factual context supports a broad interpretation of the indemnity and in particular a conclusion that the terms “claims” and “proceedings” are not limited to claims made to, or proceedings before, a court but extend to complaints to the regulator and FOS and proceedings involving these bodies.

I derive no assistance from any similarities in the underlying fact pattern in Wood v Capita referred to by Cigna. Although the underlying issue for the Supreme Court was whether the contractual indemnity was confined to loss arising out of a claim made to the party or complaint to the FSA or FOS, it is clear that the issue in that case turned on the construction of the clause in question and does not provide any direct parallel or assistance (beyond the general principles of construction).

It was submitted for Cigna that the indemnity was not intended to cover a situation where PAGI chose to provide redress.

Mrs McInnes, the Customer Director at the relevant time for the Phoenix Group provided a witness statement in which she described her role as ensuring that customers of the group were treated fairly and appropriately. She was cross examined on her statement in her evidence that:

She clarified that she meant:

It is an incomplete description of what occurred for Cigna to submit that PAGI “chose to provide redress”. In oral submissions [Day 4 p111] Mr Tolley distinguished between a legal liability to provide redress and an offer of redress to “protect its standing” and I infer that he acknowledged that PAGI provided redress even where customers had not made a complaint in order to protect its standing.

Whilst it is not clear whether Mr Tolley was accepting that PAGI offered redress to protect its standing with the regulator, PAGI submitted that had it not offered redress there would have been complaints to the FOS. [Day 3 p54]

Insofar as these payments were made in recognition of, or pursuant to, its obligations as a regulated entity (even absent any specific pressure from the FCA or FOS) it seems to me that payments made even prior to complaints being made to the FOS, are capable of falling within the scope of the indemnity as losses, costs and expenses incurred in relation to the Liabilities. The question of whether any settlement was reasonable remains for subsequent determination and is not for this Court. The issue of whether PAGI was the correct respondent and whether it was obliged to offer redress in the circumstances is dealt with below under Issues 43 and 44.

For these reasons I find that (subject to my findings in relation to Issue 43 and 44 below) the indemnity in clause 8.1 extends to:

There are two issues to consider in relation to the 2005 Scheme: one is the effect of the 2005 Scheme on the rights of PAGI under the BTA indemnity and the other is the effect of the 2005 Scheme on the liabilities of PAGI for mis-selling. The issues are formulated by the parties as follows:

Dealing first with the question of whether (and to what extent) the mis-selling liabilities were transferred by the 2005 Scheme from PAGI to Phoenix.

The definition of “Transferred Liabilities” was:

It was submitted for Cigna (paragraph 93 of its skeleton) that:

It was submitted for PAGI that:

As a preliminary point I note that the effect of the 2005 Scheme on the liability for mis-selling was not an issue which required determination before Andrews J in 2015 although there is reference in her judgment to the submissions which were made before her.

The conclusion that mis-selling liabilities were intended to fall within the definition of Transferred Liabilities is supported by the express inclusion of mis-selling in paragraph (D) of Transferred Liabilities:

I accept that subparagraph (D) refers to “Policies” and is not expressly limited to life policies or the life component of Composite Policies. The term “Policy” is defined in general terms by reference to the statutory instrument (SI 2001/2361) as a contract of insurance or an instrument evidencing such a contract. In my view subparagraph (D) referring to Policies has to be read subject to the introductory and general language in the definition of Transferred Liabilities which precedes the words “ including (without prejudice to the generality of the foregoing)” namely:

Accordingly subparagraph (D) cannot be given an interpretation which is broader than the scope of “Transferred Business” and subparagraph (D) is limited by the overarching description of “Transferred Business” which is:

Subparagraph (D) therefore does not extend to liabilities which are neither liabilities attributable to the business of effecting long term insurance contracts (the life business) nor activities carried on in connection with the life business.

This interpretation is supported by the express exclusion in the definition of “Transferred Business” of “Excluded Liabilities” which were defined as:

It is clear from the definition of “Excluded Liabilities” that:

The construction of sub-paragraph (D) of “Transferred Business” as being limited to the transfer of the life element of the Policies is supported by the express provisions of the Scheme dealing with Composite Policies. Composite Policies were defined in the Scheme as:

Given the definition of “Excluded Liabilities” which excludes a portion of liability under a Policy and the provisions of Clause 5.8, I do not see a difficulty in apportioning the liability for mis-selling between the life component and the non-life component. I do not find the absence of provisions dealing with the allocation of the liabilities as persuasive given the clear language of “Transferred Liabilities” and Clause 5.8.

Cigna sought support for its interpretation from the underlying materials for seeking sanction for the Scheme in particular sections of the report of the independent expert and the witness statement of Michael Kipling. None of the passages identified by Cigna deal expressly with the issue: the passages reinforce my conclusion on the language that it was intended to transfer the liabilities in respect of the life business but do not provide any clear indication that it was intended to transfer all liabilities for mis-selling even where they related to the general business.

In my view:

For these reasons I find that the 2005 Scheme transferred the mis-selling liabilities from PAGI to Phoenix Life which related to or were attributable to the life business, including the life element of Composite Policies.

Turning then to whether, as Cigna contend, the right on the part of PAGI to bring a claim under the BTA indemnity was transferred to Phoenix Life under the 2005 Scheme (Issue 34).

The Order sanctioning the 2005 Scheme ordered that:

The definition of “Transferred Assets” was:

It was submitted for Cigna that if PAGI had a right under the indemnity after it ceased to be a member of the Seller’s Group, it was transferred to Phoenix Life by the 2005 Scheme.

Cigna relied (paragraph 50 of its skeleton) on the provisions, particularly paragraph (ix), in the Order that:

It was submitted for PAGI that the definition of “Transferred Assets” makes it clear that it is only property “comprised in or attributable to the Transferred Business”.

The provisions of subparagraph (xi) by its terms captures “references” to Phoenix in:

“Transferred Business” is itself broadly defined being, in relation to Phoenix, not only “the whole of the Long Term Business of Phoenix carried on at the Effective Date (i.e. the business of effecting or carrying out long term insurance contracts) but also “ including all activities carried on in connection with or for the purposes of such business , ( save to the extent that such business relates to Excluded Policies or to the General Component of Composite Policies )”.

The language of sub paragraph (ix) is broad enough to cover the BTA as a contract or document relating to “activities carried on in connection with” the life business (which would include marketing and servicing the life business).

The language of subparagraph (xi) dealing with how references in agreements should be construed must be read in context and subject to the key operative provisions which are the transfer of the Transferred Business and the transfer of the Transferred Assets.

The Transferred Assets were defined as:

In my view the rights under the indemnity were within the definition of a “Transferred Asset” as:

The indemnity under the BTA (insofar as it related to the mis-selling of life policies or the life component of Composite Policies) fell within sub paragraph (B) in that it was a “right” (or future claim) against a “third party” (Cigna) which arose as a result of the Transferor (Phoenix) “having carried on the Transferred Business” namely the business of underwriting life contracts and “activities carried on in connection with … such business” which would extend to marketing of such contracts.

Although the Transferred Business was defined as:

These rights, in so far as they related to the rights in relation to an indemnity for the mis-selling of life policies and the life component of composite policies, were not “Excluded Assets” from the definition of “Transferred Assets” which were defined as assets which related to the general business including the general component of the composite Policies. “Excluded Assets” were defined as follows:

“Transferred Assets” also excluded: “any rights, benefits and powers under the Excluded Policies”. “Excluded Policies” were defined as:

As referred to above, the Composite Policies were deemed to be split into the life and non-life component. For the reasons discussed above, in my view the rights which relate to the life component were capable of being transferred and thus do not fall within the exclusion from Transferred Assets of “Residual Assets” as “any property of a Transferor attributable to the Transferred Business which cannot be transferred or vested in RSALI for any other reason”.

For the reasons set out above I find that the entitlement of PAGI to claim under the BTA indemnity was transferred to Phoenix Life insofar as it related to the mis-selling of life policies or the life component of Composite Policies either by virtue of sub-paragraph (ix) of the Order for the 2005 Scheme or in the alternative, under sub-paragraph (i).

Issues 43 and 44 are as follows:

These issues are linked to Issue 33(b) namely whether “Liabilities” extend to redress under the provisions of the DISP sourcebook. The claim by PAGI under Clause 8.1 of the BTA goes further than settlement of claims/complaints made in litigation. PAGI seeks to recover for amounts paid out both where complaints had been made to FOS and the FOS has made findings that PAGI should make redress and where no such findings have been made and where customers may not have made a claim for redress.

It was submitted for PAGI that:

Cigna’s primary proposition was that after the 2005 Scheme PAGI no longer had a liability for mis-selling the PPI [Day 4 p118].

In the alternative it was submitted for Cigna that Phoenix Life was the appropriate respondent in respect of the life component [Day 4 p120].

As to whether PAGI was the correct respondent, Andrews J was concerned with whether liability for mis-selling had passed under the 2006 Scheme to Groupama. Andrews J concluded at [58] as follows:

However as referred to above Andrews J had not decided the argument raised by Mr Tolley and referred to in her judgment at [44]:

On this issue Andrews J said at [47]:

Andrews J was not ruling on whether liability for mis-selling had passed in whole or in part to Phoenix Life under the 2005 Scheme. She was not ruling on whether a claim could be made by PAGI on Cigna under the BTA indemnity for losses incurred by PAGI in relation to the mis-selling of life policies or the life component of Composite Policies. Her judgment was that as between PAGI and Groupama, PAGI was liable for any claims before the FOS.

The evidence of the correspondence shows that the FOS made a provisional decision in September 2014 based on its analysis of the 2006 Scheme documentation that PAGI was the correct respondent. After the judgement of Andrews J PAGI wrote to the FOS in July 2015 stating that the court had determined that PAGI was the correct respondent to mis-selling complaints and PAGI would not appeal the decision. In response the FOS relied on these statements to formally state that PAGI was the correct respondent.

Accordingly the Court in 2015 had only considered the effect of the 2006 Scheme and the language of the 2005 Scheme was different from the language of the 2006 Scheme and in particular referred expressly to the transfer of mis-selling liabilities. The FOS had also not addressed the 2005 Scheme in reaching a conclusion and the implications of that Scheme.

The evidence of Mrs McInnes was that

As referred to above, in her oral evidence to the Court, Mrs McInnes confirmed that there was no pressure from the FOS as a body which could be said to be putting pressure on PAGI to get on with the remediation but there were a number of outstanding cases that the FOS would have expected it to progress.

PAGI also relied on section 234B of FSMA and submitted that even if there is an assumption of liability of a person who would otherwise have been the respondent (Phoenix Life) it is not the case that the complaint has to be dealt with as if the successor were the respondent. It was submitted for PAGI that as a consequence even if the liability transferred to Phoenix Life it was entirely proper for PAGI to remain the respondent. [Day 3 p72]

Section 234B of FSMA provides:

The rules (DISP 1.1A.20) provide that a regulated firm must:

In my view, the FOS was correct to decide that PA(GI) was the appropriate respondent to complaints by subscribing customers about the mis-selling of PPI which related to the general business of PAGI. However it cannot be said that PAGI was the appropriate respondent to complaints to the FOS for claims which related to the life policies or the life component of the Composite Policies. The evidence including the correspondence between PAGI and the FOS shows that its conclusions were based on its analysis of the effect of the 2006 Scheme and the Court’s judgment. The 2005 Scheme and its potential effect was not raised with the FOS and the evidence does not suggest that PAGI was precluded from raising with the FOS the effect on liability of the 2005 Scheme or that, had this been raised the FOS would necessarily have concluded that PAGI was the correct respondent for claims which related to the life policies or the life component of the Composite Policies.

Given that Andrews J had not determined the effect of the 2005 Scheme and the 2005 Scheme expressly referred to the transfer of the mis-selling liabilities, PAGI should have raised the 2005 Scheme with the FCA (as its regulator) and the FOS (as the entity to which customer complaints were made) since in my view it had “reasonable grounds to be satisfied that another respondent may be solely or jointly responsible for the matter alleged in the complaint”. It should not have paid out without raising this with the FCA and the FOS and it cannot be said that a settlement in those circumstances with customers whose complaint related to the mis-selling of life policies or the life component of Composite Policies was reasonable (to the extent that the settlement related to those elements).

Even if I were wrong on that and PAGI acted reasonably in the circumstances having regard to s234B, it does not follow that PAGI was then entitled to recover from Cigna under the BTA indemnity in respect of amounts it had paid out in respect of the mis-selling of life policies or the life component of the Composite Policies.

As found above, in my view, under the 2005 Scheme the liabilities for mis-selling in respect of the life element of the Policies had passed to Phoenix Life and the right of indemnification in respect of such liabilities under the BTA indemnity had passed to Phoenix Life. PAGI no longer had the right to claim against Cigna under the BTA indemnity for the amounts it paid out to customers in respect of the mis-selling of life policies or the life component of the Composite Policies.

For the reasons discussed above I find that:

In 2011, PAGI transferred the remainder of its General Insurance Business to R&SA pursuant to the 2011 Scheme. The 2011 Scheme took effect on 1 January 2012.

Issues 41 and 42 are as follows:

The 2011 Scheme defined the “Transferred Business” as “the PA(GI) General Insurance Business of the Transferor, including, without limitation, all insurance liabilities under any Policy issued by or on behalf of the Transferor in respect of that business, all assets and liabilities of the Transferor in respect of that business …and all activities of the Transferor carried on in connection with, or for the purposes of, that business as at the Effective Date….”

The “PA(GI) General Insurance Business” was defined as:

The 2011 Scheme also transferred the “Transferred Business Liabilities”, which were defined as:

It was submitted for Cigna (paragraphs 55-59 of its skeleton) that:

It was submitted for PAGI that [Day 3 p72]:

In a witness statement filed in the 2015 proceedings Ms Tulloch of Hogan Lovells for PAGI said that:

PAGI now submit that the evidence cannot alter the position as a matter of law and that it was common ground between PAGI and Groupama by the time of the hearing of the 2015 application that the policies transferred to Groupama under the 2006 Scheme.

Cigna described the 2011 Scheme as the “final implementation of the extraction from PAGI of any residual liabilities in respect of the non-life business shifting it back, whatever’s left after the transfer to Groupama, to R&SA” [Day 4 p44].

Cigna referred to the 2004 Agreement and the intention behind the sale of PAGI to Resolution, with the idea being that the non-life business would be transferred back to R&SA and that pending that transfer the economic risk was transferred back to R&SA through the Reinsurance Agreement. However Cigna acknowledged that the 2004 Agreement could not be treated as part of the factual matrix for the Schemes.

Further Cigna accepted that the 2011 Scheme only caught policies that were in force at the effective date of the 2011 Scheme.

The 2011 Scheme does appear to have been a transfer of any residual policies back to RSA and it was that business which was transferred.

The rights under the BTA indemnity so far as they related to claims for mis-selling of general insurance policies were not rights (assets) which were “in respect of” the PAGI General Insurance Business since this was limited by that definition to the business carried on in relation to general insurance contracts in force at the Effective Date (1 January 2012):

The 2011 Scheme did not transfer any PPI Liabilities from PAGI to R&SA since the definition of “Transferred Business Liabilities” was limited to:

The PPI Liabilities did not arise “under or by virtue of” the Transferred Policies but were separate from the policies themselves. The Transferred Business Assets were limited to rights which were “comprised in or relating to the Transferred Business” and as referred to above the “Transferred Business” was limited to the business carried on in relation to general insurance contracts in force at the Effective Date (1 January 2012).

The mis-selling liabilities did not fall within the definition of “Transferred Business” as they were not liabilities “in respect of” the PAGI General Insurance Business which was limited to the business carried on in relation to general insurance contracts in force at the Effective Date.

For the reasons discussed above, in my view the 2011 Scheme did not transfer from PAGI to R&SA any entitlement to bring a claim under clause 8.1 of the BTA and did not transfer any PPI Liabilities from PAGI to R&SA.

This is the alternative case advanced by PAGI. PAGI claims under the indemnity in Clause 3 of the DWI in respect of the PPI Liabilities except that part referable to the life business or to a contract of long-term insurance.

Given the findings above and the overlap in some of the issues, this issue can be taken shortly. It is common ground that if PAGI has a right to an indemnity pursuant to clause 3 of the DWI, PAGI can assert such right pursuant to the 1999 Act.

As discussed above by reference to the authorities, the Court’s task is to ascertain the objective meaning of the language, considering both the language and the wider context and striking a balance between the indications given by the language and the implications of the competing constructions. Issue 36 (the relevant factual matrix) is part of the exercise of construction and is therefore considered as part of this section.

The indemnity in the DWI provided as follows:

By the warranty in 2(e) Cigna warranted that:

In support of its claim under the DWI Indemnity, PAGI relied on an alleged breach of warranty under Clause 2 or a breach of sub-paragraphs (c), (d) or (e) of the DWI indemnity.

Cigna submitted (paragraph 111 of its skeleton) that there is no express provision for Cigna to be required to indemnify PAGI in respect of its negligence (or other wrongdoing) or that of its agents. Nor is there any suggestion that Cigna should indemnify in respect of fraud or other dishonest or reckless wrongdoing.

The first question is the natural meaning of the language of the indemnity and in particular since PAGI’s case depends on it, the meaning of “Creditor Business” such that the PPI Liabilities can be said to be “costs, claims, damages, liabilities and expenses of whatsoever nature arising out of or in connection with … the Creditor Business”.

Cigna submitted (paragraph 116 of its skeleton) that:

Cigna submitted (paragraph 118 of its skeleton) that all that Cigna acquired under the BTA was the right for the future to market, underwrite and service creditor insurance products not the pre-existing business.

It was further submitted for Cigna (paragraph 119 of its skeleton) that the concluding words of the definition of Creditor Business (“and subsequently carried on by FirstAssist”) are obviously intended to have meaning which is in addition to the phrase “only to the extent that such business was transferred pursuant to the Business Transfer Agreement”.

PAGI accepted that “Creditor Business” excluded the life component of PPI. PAGI submitted that Cigna acquired the business as going concern.

It was further submitted for PAGI (paragraph 84 of its skeleton) that the phrase “and subsequently carried on by FirstAssist” did not qualify the scope of the “Creditor Business” by necessitating an enquiry into what exactly Cigna had done since completion with the Creditor Business. It was submitted that the central point “clarified by the words in parentheses” in the definition of Creditor Business was to ensure that only the business that actually transferred under the BTA should be caught and not the Excluded Business.

For the reasons discussed above in relation to the BTA indemnity, I do not accept that all that Cigna acquired under the BTA was the right for the future to market, underwrite and service creditor insurance products not the pre-existing business. As discussed above, under the BTA Cigna acquired the business as a going concern.

However in relation to the words “and subsequently carried on by FirstAssist”, PAGI’s submission in my view gives no real meaning to the words “and subsequently carried on by FirstAssist” and would appear to render them otiose. As PAGI’s skeleton effectively acknowledges, the phrase “(only to the extent that such business was transferred pursuant to the Business Transfer Agreement)” already deals with the point that only the business actually transferred was caught. The Court is disinclined to conclude that the phrase “and subsequently carried on by FirstAssist” has no meaning in a professionally drafted contract.

Cigna submitted that it never carried on the business of underwriting and there is no evidence to suggest that it carried on the business of marketing.

However PAGI submitted that Cigna in effect warranted in the Scheme Agreement (at clause 4.1.3) that Cigna was carrying on the creditor business:

It was submitted that in any event Cigna administered the relevant policies as reflected in Recital B to the DWI:

This brief recital should be read in conjunction with the list of services contained in Schedule 1 to the RCUA. Under the RCUA Cigna dealt with the customers in relation to the Administered Products, was responsible for regulatory compliance and complaints handling in respect of the Administered Products.

“Administered Products” was defined in the RCUA as “together, the Existing Products, the Interim Products and the Ancillary Creditor Life Insurance Products.”

There are 3 separate limbs to Creditor Business:

PAGI’s case is that when the DWI was entered into, the following matters were within the parties’ reasonable contemplation: (i) The risk of financial penalties, fines and compensatory payments to the FSA or to purchasers or beneficiaries of insurance products in respect of mis-selling or maladministration. (ii) Problems with mis-selling of PPI, and thus the risk of liability and/or redress in relation thereto.

In my view, having regard to the findings above in relation to the position in 2003, those matters were within the parties’ reasonable contemplation in 2003 and remained in their reasonable contemplation in 2006 even if the extent of the risk was still not known.

As to whether, as PAGI submitted, Cigna (then FirstAssist) was under considerable time-pressure to reach agreement over the terms of the 2006 Scheme and the DWI, the evidence does not support that. I accept the submission for Cigna (paragraph 125 of its skeleton) the fact that the Interim Period was extended several times does not suggest any time pressure.

The language of the DWI also has to be weighed against the context of the other provisions of the 2006 Scheme.

Cigna submitted (paragraph 121 of its skeleton) that it is clear that the DWI was intended to be directed at liabilities arising after the Effective Date as referred to in the Conditions of the 2006 Scheme and the definition of the DWI:

Such a definition is necessarily a brief description of the agreement and cannot be a substitute for its precise terms. In any event the defined term included the words “inter alia”.

Cigna also relied on the Novation Agreements which were part of the transfer documents entered into in connection with the 2006 Scheme. It was submitted (paragraph 122 of its skeleton) that the Novation Agreements made an explicit distinction between liabilities arising out of matters prior to the Effective Date and liabilities arising in connection with an act or omission occurring after the Effective Date.

The first Novation Agreement related to the profit-sharing agreement with Next. That agreement was not the transfer of a business and in my view no parallel or support can be drawn from that Novation Agreement in interpreting the indemnity in the DWI. If anything is to be taken from that Novation Agreement it suggests that where appropriate, the agreements in relation to the 2006 Scheme expressly addressed the temporal limitations of any indemnity or allocation of risk.

Cigna also pointed out that the indemnity given by Cigna to Groupama is wider than the indemnity in the DWI and submitted (paragraph 124 of its skeleton) that neither R&SA nor PAGI sought an indemnity from Cigna in the same or similar terms for the purposes of the DWI. However, the Court in construing the clause cannot have regard to pre-contractual negotiations and does not know what R&SA or PAGI believed was covered by the DWI indemnity: “The court’s task is to ascertain the objective meaning of the language which the parties have chosen to express their agreement.” (Wood at [10] above)

As to commercial common sense and whether it is unlikely/ “inherently improbable” that the parties would have agreed to transfer liability for negligence or breach of statutory duty, it was submitted for Cigna that:

Some of these submissions have already been addressed in the context of the BTA. It was the sale of a business and there was no reason for there to be separate consideration paid for the indemnity risks which covered a range of products and risks. The liability for mis-selling had been transferred in respect of the life policies and the life component of the life policies but that had no effect on the 2006 Scheme which was drafted in different terms. It was in the reasonable contemplation of the parties that there could be claims for mis-selling and even if they could not have been quantified or verified, liability could have been expressly excluded.

The DWI indemnity was part of a suite of documents which were both sophisticated and complex. Accordingly the Court is entitled to give significant weight to the language that the parties have used particularly where the language is clear and unambiguous.

The language of the indemnity is confined to matters relating to Creditor Business. This did not extend to the life business or to the underwriting of the general insurance contracts.

It did relate to the business which was transferred under the BTA and this was the business as a going concern not merely future rights.

There is no language which apportions the risks to those arising pre and post the effective date of the 2006 Scheme and nothing in the factual context which leads to a contrary interpretation. It was submitted for Cigna that it was commercial common sense that Cigna should be liable for what it has done in the meantime post the BTA in carrying on the business and not in relation to the business which was not transferred to it and which it did not carry on. However in a professionally drafted contract it was open to the parties to make express provision to that effect as was done in the Novation Agreements.

As to whether the indemnity extended to mis-selling, the factual context suggests that the parties were aware of mis-selling risks: it was specifically addressed in the contract with Groupama.

The indemnity in the DWI was extremely broad and as discussed above in relation to the BTA, it is not necessary for there to be an express reference to negligence or breach of statutory duty for mis-selling to be caught. Having regard to the authorities discussed above, I have considered whether in the circumstances of this case the fact that it is “inherently unlikely” that the parties intended to transfer liability for mis-selling should alter the natural meaning of the broad language in this professionally drafted and sophisticated contract viewed in the factual context that the risk of mis-selling and claims were in the reasonable contemplation of the parties and have concluded that it does not insofar as the liabilities arise other than as a result of fraud or dishonesty (including deceit) on the part of the agent.

For all these reasons I find that liabilities in respect of the PPI mis-selling were capable of falling within the meaning of “any and all costs, claims, damages, liabilities and expenses of whatsoever nature arising out of or in connection with …the Creditor Business” other than (for the reasons discussed above) where such liabilities arose as a result of fraud or dishonesty (including deceit) on the part of the agent.

For the reasons discussed above in relation to the 2011 Scheme and the BTA, I find that any right on the part of PAGI to bring a claim under clause 3 of the DWI was not transferred to R&SA under the 2011 Scheme (Issue 37).

For the reasons discussed above in relation to the 2005 Scheme, it is legally possible for Cigna to be liable under the DWI in respect of the mis-selling of the non-life component of the Relevant Policies, but not liable in respect of the life component.

Cigna also relied on the fact that the life component was not included within the scope of the 2006 Scheme and submitted that the absence of allocation between the life and non-life components would generate uncertainty as to the identity of the responsible party and the division of any quantum. Cigna therefore submitted (paragraph 127 of its skeleton) that the absence of any contractual mechanism and the uncertainties that would be generated are “most unlikely to have been intended by rational commercial parties”.

I have no evidence to support the submission that it would generate uncertainty let alone that it would be impossible to allocate responsibility and calculate the quantum to be attributed to the life and non-life components. I do not therefore agree that it can be said that as a result the interpretation of the DWI indemnity to capture the non-life components of PPI is contrary to business common sense. In my view given the language of Creditor Business it was intended for Cigna to be liable under the DWI in respect of the mis-selling of the non-life component of the Relevant Policies, but not liable in respect of the life component. (Issue 39).

In my view the phrase “all costs, claims, damages, liabilities and expenses of whatsoever nature arising out of or in connection with…the Creditor Business is not limited to liabilities owed as a matter of law or to claims by way of legal proceedings as it expressly covers “costs and claims… of whatsoever nature”. Having regard to the authorities discussed above, the indemnities extend to an actual liability and to a reasonable acceptance of liability (including by way of a reasonable and bona fide settlement of claims/complaints), if PA(GI) was not (absent the acceptance) liable, and for the reasons discussed above in relation to the BTA, the indemnities extend to redress under the provisions of the DISP sourcebook in the FCA Handbook (Issue 40).

After this judgment was sent out to counsel in draft form in the usual way, a correction was proposed to paragraph 237 (b) which referred to the FCA. I have considered the proposed amendment and concluded that the paragraph should refer to both the FCA (as the regulator responsible for supervising the conduct of regulated firms) and the FOS (being the entity to which customer complaints were made). A corresponding change has been made to paragraph 234. This change does not affect the substantive conclusions.