Royal Courts of Justice
Strand, London, WC2A 2LL
Before:
HIS HONOUR JUDGE RICHARD SEYMOUR QC
(Sitting as a Judge of the High Court)
Between:
(1) IHC (a firm) (2) IHC LIMITED | Claimants |
- and - | |
AMTRUST EUROPE LIMITED | Defendant |
Carl Troman (instructed by Browne Jacobson LLP) for the claimants
Miles Harris (instructed by Lester Aldridge LLP) for the defendant
Judgment (As Approved)
JUDGE RICHARD SEYMOUR QC:
Introduction
This action arises out of another action ("the Original Action") which proceeded in the Cardiff District Registry of this court with the claim number 0CF90132. In the Original Action the claimant was a company called Consortium Hotels & Inns Business Services Ltd. ("Consortium"). There were four defendants. The first two were Mr. Nick Lipczynski and Mr. Mark Satchell, sued as the partners in a firm called, in the Original Action, Independent Healthcare, but actually called IHC. That partnership ("the Partnership") is the first claimant in this action. The third defendant in the Original Action is the second claimant in this action, a company called IHC Ltd. Both the Partnership and IHC Ltd. carried on business as insurance brokers. The fourth defendant in the Original Action was a company called General & Medical Finance Plc ("GMF"), which undertook an insurance business.
The defendant in this action, Amtrust Europe Ltd. ("Amtrust"), carries on business as a provider of after the event insurance ("ATE insurance"). It operates through a managed general agency, Temple Legal Protection Ltd. ("Temple"). Amtrust is the sole principal of Temple, so for practical purposes it is not really necessary to differentiate between Amtrust and Temple.
Amtrust provided ATE insurance to Consortium in the Original Action. Before the trial in the Original Action summary judgment was entered on 4 July 2011 in favour of the Partnership and IHC Ltd. in respect of two alternative claims advanced on behalf of Consortium to which it is convenient to refer in this judgment as "the Secret Commission Claims". It will be necessary to return to the Secret Commission Claims later in this judgment. Also prior to the trial in the Original Action, in fact in about January 2012, Consortium discontinued its claims against GMF. The action continued, however, as between Consortium, the Partnership and IHC Ltd. At the trial in about August 2012 before His Honour Judge Seys Llewellyn Q.C., sitting as a judge of this court in Cardiff, all of the surviving claims of Consortium failed and the action was dismissed as against the Partnership and IHC Ltd. with costs by an order dated 6 December 2012. On 27 February 2013 a default costs certificate was issued in favour of the Partnership and IHC Ltd. that Consortium pay by way of costs the sum of £361,399.98. On 4 March 2013 a winding-up order was made against Consortium. Consortium went into liquidation without paying any part of the costs the subject of the costs certificate dated 27 February 2013.
In this action the Partnership and IHC Ltd. claimed against Amtrust, pursuant to the provisions of Third Parties (Rights Against Insurers) Act 1930 s.1, payment of the amount unexpended of the total amount of cover provided to Consortium under the ATE insurance, a sum of £180,000. The total amount of the cover eventually provided was £190,000, but £10,000 had already been paid to the Partnership and IHC Ltd. in circumstances to which I shall come.
Third Parties (Rights Against Insurers) Act 1930 s.1(1), as amended, is in these terms:-
"Where under any contract of insurance a person (hereinafter referred to as the insured) is insured against liabilities to third parties which he may incur, then -
in the event of the insured becoming bankrupt or making a composition or arrangement with his creditors; or
in the case of the insured being a company, in the event of a winding-up order being made, or a resolution for a voluntary winding-up being passed, with respect to the company, or of a receiver or manager of the company's business or undertaking being duly appointed, or of possession being taken, by or on behalf of the holders of any debentures secured by a floating charge, of any property comprised in or subject to the charge or of a voluntary arrangement proposed for the purposes of Part 1 of the Insolvency Act 1986 being approved under that Part;
if, either before or after that event, any such liability as aforesaid is incurred by the insured, his rights against the insurer under the contract in respect of the liability shall, notwithstanding anything in any Act or rule of law to the contrary, be transferred to and vest in the third party to whom the liability was so incurred."
The effect of the provisions of Third Parties (Rights Against Insurers) Act 1930 s.1(1) is to substitute for the original insured as contracting party with the insurer the party in respect of whom liability covered by the contract of insurance was incurred. That is important. The entitlement of the third party under the Act is to enforce, as a matter of contract against the insurer, the contractual rights of the original insured. The third party does not acquire some sort of statutory right against the insurer independent of the contract of insurance. Consequently it is open to an insurer said to be liable to a third party pursuant to the provisions of Third Parties (Rights Against Insurers) Act 1930 s.1(1) to raise by way of defence any ground which would have been a good ground for refusing indemnity to the original insured.
In the circumstances of the present case it was common ground at the trial before me that in fact Amtrust had been entitled to repudiate the contract of insurance made between itself and Consortium by reason of a serious fraudulent misrepresentation, which also amounted to a breach of the duty of the utmost good faith to disclose material facts, failure to comply with a condition precedent to the liability of Amtrust, breach of condition 3 of the policy of insurance in question and/or a breach of warranty. However, it was contended on behalf of the Partnership and IHC Ltd. that Amtrust was estopped from relying upon that right by reason of matters to which I shall come.
There was no dispute between Mr. Carl Troman, who appeared on behalf of the Partnership and IHC Ltd. at the trial before me, and Mr. Miles Harris, who appeared on behalf of Amtrust, as to the law applicable to the issue of estoppel in relation to waiver by estoppel by an insurer. Again, the basic facts relevant to the question whether Amtrust was estopped from repudiating liability under the contract of insurance with Consortium were not in dispute. In the result it is convenient next to consider the law which needs to be applied in order to reach a conclusion in this action, and then to turn to the facts to which that law should be applied.
The law
In HIH Casualty and General Insurance Ltd. v. Axa Corporate Solutions [2003] Lloyd's Rep IR 1 the only substantive judgment in the Court of Appeal was that of Tuckey LJ. At pages 7 and 8 of the report he said this:-
It is common ground that in order to establish waiver by estoppel HIH had to show:
a clear and unequivocal representation by Axa that it would not insist on its right to treat the reinsurance cover as discharged because of the reduction in the number of films which were made; and
such reliance by HIH on this representation as to make it inequitable for Axa to go back on it.
HIH also had to establish that it had similarly waived the breach of warranty by its insured, but the Judge did not make any express finding about this and although this point is the subject of a Respondents [sic] notice, I do not think it is necessary to consider it further for the purpose of deciding this appeal.
Mr. Flaux submits that the Judge effectively held that you could not have an estoppel of this kind unless the representor knew, not only the relevant facts, but also what his legal rights arising from those facts were. This, he submits, led the Judge wrongly to conclude that Axa had not made the required representation because it had not made a representation that it was prepared to forego its legal rights and that HIH's reliance was not of the kind required because it had not relied on any such representation. Knowledge by Axa or HIH that the reduction in the number of films was a breach of warranty was not required. Axa's representation was to be implied from their conduct in continuing to act as if they were on risk after they knew of the reduction in the number of films. The only right which this reduction gave Axa was to treat the cover as discharged. By continuing to treat it as on foot without protest or reservation of rights Axa acted inconsistently with this right, alternatively any right which it might have had as a result of the reduction. In these circumstances the representation made by Axa was clear and unequivocal and was not derived only from silence or failure to take the point because Axa continued to be actively involved in this cover after they knew of the reduction.
There is no dispute between the parties about the relevance of knowledge to waiver by estoppel and there was apparently no such dispute before the Judge. Mr. Hamblen QC for Axa does not and did not submit that the representor has to have knowledge of the legal right upon which he will not insist. This is clear from the passages in The Kanchenjunga and Superhulls cited by the Judge. Mr. Hamblen submits however that the representation must carry with it some apparent awareness of the right upon which the representor will not insist. Mr. Flaux did not dispute this and I do not think he could have done so because otherwise the representation would lack the necessary character to found the estoppel. As the Judge put it "the essence of the plea must go to the willingness of the representor to forego its rights". Unless the representation carries with it some apparent awareness of rights it goes nowhere: the representee will not understand the representation to mean that the representor is not going to insist upon his rights because he has said or done nothing to suggest that he has any.
What I have said illustrates the difficulty in establishing this type of estoppel when neither party is aware of the right which is to be foregone. A representor who is unaware that he has rights is unlikely to make a representation which carries with it some apparent awareness that he has rights. Conversely a representee who is not aware that the representor has a particular right as [sic] unlikely to understand the representation to mean that the representor is not going to insist on that right or abandon any rights he might have unless he expressly says so.
It follows I think that knowledge, or rather lack of it in this case is important when one comes to consider whether the estoppel has been established. Nothing in the authorities or the texts to which we have been referred casts doubt on this conclusion."
In the later case of Kosmar Villa Holidays Plc v. Trustees of Syndicate 1243 [2008] Lloyd's Rep IR 489 the only substantive judgment in the Court of Appeal was that of Rix LJ. At paragraph 38 of his judgment, page 499 of the report, he said:-
"In sum, therefore, election is the exercise of a right to choose between inconsistent remedies. It generally requires knowledge of the facts giving rise to the choice on the part of the party electing, and knowledge of the choice having been made on the part of the other party. Those are the conditions which make the doctrine mutually fair. It typically arises where the parties to a contract have to know where they stand. Thus the choice has either to be communicated unequivocally by the party electing to the other party or else the objective circumstances have to be such that the effluxion of time by itself constitutes that communication. Since the election is the choice of the party electing, it is his conduct which is decisive. Once made the election is final and irrevocable. Estoppel, however, is a promise, supported not by consideration but by reliance. It is a promise not to rely upon a defence … or a right…. It requires a representation, in words or conduct, which must be unequivocal and must have been relied upon in circumstances where it would be inequitable for the promise to be withdrawn. The need for such unfairness probably means that the reliance of the representee has to constitute a detriment, but even the detriment has, I would think, to be such as to make it inequitable for the promise to be withdrawn. For these reasons, the estoppel may not be irrevocable, but may be suspensory only. An unequivocal representation without the necessary reliance, and reliance without the necessary unequivocal representation, are each insufficient. It follows that, as concepts each in their own way designed to hold parties to fair dealings with one another, waiver by estoppel is the more flexible doctrine."
At paragraph 12-024 the authors of Snell's Equity, 33rd edition, express these views about estoppel, which it was common ground before me are correct:-
"The promise, or encouragement must be "clear and unequivocal" in the sense that, objectively understood, it makes apparent to B that A's right will not be enforced. If A's conduct is instead capable of a number of different reasonable interpretations, at least one of which is inconsistent with A's right not being enforced, no promissory estoppel may arise. If, for example, B's claim is that he or she was encouraged to believe that a right would be suspended, there must be certainty as to the specific right of A's in question and as to the period of the supposed suspension. A must have encouraged B to believe that A's right would not be enforced: if A's conduct can instead be reasonably understood as involving only advice, a suggestion or even a threat that A may act in a particular way, there are no grounds for a promissory estoppel.
As the effect of a promissory estoppel is to prevent A's enjoying the full benefit of a particular right, and as such an estoppel can arise without any contractual consideration's [sic] being provided by B, a court will naturally be cautious in ascertaining whether A did give the required clear and unequivocal encouragement to B. So, whilst it is clear that a promissory estoppel may arise even in the absence of an express statement by A, a court will require clear evidence before finding that A impliedly encouraged B. If, for example, it would not have objectively appeared to B that A was even aware of the right in question, encouragement is likely to be implied from A's course of conduct only if A created the impression that A was willing to "abandon any rights that he might enjoy which were inconsistent with [A's] course of conduct…."
What I think one can distil from these passages is that, although the relevant representation giving rise to a waiver by estoppel may be either in words or conduct, it must result in a clear and unequivocal message from the insurer to the insured that the insurer will not exercise the relevant rights under the contract of insurance, and the insured must rely on that message in a manner making it inequitable for the insurer to go back on it. The insurer must know the facts giving rise to the relevant right or rights under the contract of insurance, but need not necessarily know that those facts give rise to the relevant rights. Nonetheless, to be effective the relevant message must show an awareness of the relevant rights and an intention not to rely upon them. This, as Tuckey LJ pointed out, is a good trick, for it is not to be expected that an insurer who is unaware of his rights will give a sufficiently clear and unequivocal indication of awareness of his rights and his intention not to rely upon them to found an estoppel. Equally, it is improbable that an insured, who is unaware of the right of the insurer said to have been the subject of a waiver, will act in reliance upon the supposed waiver. Yet the concept of a representation which "must carry with it some apparent awareness of the right upon which the representor will not insist" is only relevant in a case in which the representor did not actually appreciate that he had a particular right. If he actually appreciated that he had such right, the issue is not "apparent awareness" but rather whether what was said or done amounted to an election to affirm the contract of insurance or to waive a breach.
As it seems to me, it is impossible to found a waiver by estoppel without each of the insurer and the insured being aware, at very least, of the facts which give rise to some relevant right of the insurer. There can be no estoppel unless both parties share at least that level of knowledge. No doubt the communications between the parties and their conduct towards each other need to be considered in the context of what each side knew the other knew, but the essence of the estoppel is a communication between the parties. Without a communication there can be no estoppel.
If there is a communication, as I have said, it is necessary to consider it in the context of what each side knew the other knew. However, the search is for actual knowledge, not for information or assessments which might have been made had one or other of the parties been more diligent in undertaking research, or more rigorous in evaluating information in his possession. One is not concerned with what a reasonable person in the position of one or other of the parties would have known, or might have discovered, or what such a person might have concluded from the information available to him.
The undisputed facts
The application to Amtrust for ATE insurance was made by Consortium on about 28 June 2010 by submission to Temple of a proposal form ("the Proposal"). The Original Action had actually been commenced by a claim form issued on 11 March 2010. Prior to the commencement of the Original Action Consortium had obtained an Advice ("the Advice") of Counsel, Mr. Ben Harding, dated 5 March 2010. A copy of the Advice was submitted to Temple along with the Proposal. The Advice included these observations of Mr. Harding:-
There followed further correspondence between the Claimant [that is, Consortium], GMF and IHC. Of note in that correspondence were the following points:
In a letter from the Claimant to IHC dated 14th February 2006, Keith Hardwicke of the Claimant informs IHC that "No separate introducer or commission arrangement has been set up". According to my instructions the Claimant will say it did not know that IHC had been paid a commission until it received GMF's letter dated 22nd February 2006, but the reference to "commission arrangement" in this letter at least raises a question whether the Claimant was aware that IHC might be paid a commission. …
The Claimant will say in this case that it did not know a commission would be paid until after the event, in February 2006. I see no reason to doubt that, subject only to a few points:
I have raised above whether reference by the Claimant in its letter dated 14th February 2006 to a "commission arrangement" suggests that it might have been aware of such an arrangement in place in respect of IHC. This should be clarified.
I do not know whether the Claimant paid IHC some form of retainer for its services. If it did not, it would be arguable that it was unrealistic for the Claimant to suppose that IHC would not be paid for its services by commission.
I also do not know if a commission was paid to IHC by other insurers, and if so whether the Claimant knew this. If it did, it would again arguably be unrealistic for the Claimant to suppose that the same would not be the case again.
In this regard, I note that the Court of Appeal in Hurstanger held that it would be relevant whether there was a usage or custom of a particular market (para. 36, citing Bowstead & Reynolds on Agency 18th Edition). IHC may seek to argue that it was commonplace in the healthcare insurance market, and if so it will be necessary to adduce evidence to the contrary."
On the face of the Advice, at any rate, the instructions of Mr. Harding were clear that Consortium had not been aware that IHC (which in the Advice meant the Partnership) was to be paid a commission by GMF in relation to insurance written through the Partnership with GMF on behalf of Consortium.
Particulars of Claim in the Original Action were served on 1 July 2010. However, a copy of the Particulars of Claim was not provided to Temple, for the benefit of Amtrust, until 12 August 2011. The Particulars of Claim included these allegations:-
GMF in a letter dated 22nd February 2006 notified CHIBS [that is, Consortium] that it had paid IHC [meaning the Partnership] a total of £45,571.71 between 1st April 2004 and 31st December 2005 by way of commission on the monthly premiums paid by CHIBS.
CHIBS did not know until it received the said letter that GMF had paid or IHC had received a commission in relation to the GMF Policy.
IHC were in breach of the fiduciary duty set out above by receiving commission payments from GMF without disclosing to CHIBS that it would be paid commission.
In the circumstances CHIBS is entitled to the commission received by IHC, in the sum of £45,571.71."
Those allegations were the first of the alternative Secret Commission Claims. They depended critically upon the proposition that Consortium was unaware until it received the letter dated 22 February 2006 that the Partnership was to be paid commission by GMF in respect of the policy written by GMF through the agency of the Partnership. However, there was a claim alternative to the first of the Secret Commission Claims in paragraph 51 of the Particulars of Claim:-
"If in the alternative it is held that CHIBS did have notice that a commission would be paid, CHIBS avers that IHC failed adequately to disclose the amount of the commission so as to enable CHIBS to give its genuine and informed consent to IHC receiving a commission when to do so was prima facie in breach of the fiduciary duty owed to CHIBS."
The Proposal included this declaration ("the Declaration"), signed on behalf of Consortium by Mr. Keith Hardwicke on 2 July 2010:-
"I declare that the information submitted in this form and accompanying enclosures is true to the best of my knowledge and belief. I agree that this proposal will form the basis of the contract between the insured and [insurer]"
It was common ground that the effect of the Declaration was that Consortium asserted to Amtrust that the instructions which Mr. Harding recorded at paragraphs 25 and 105 of the Advice were correct.
In a Defence in the Original Action served on behalf of the Partnership and IHC Ltd., but of which a copy was not supplied to Temple or to Amtrust until 1 August 2011, the answers of the Partnership and IHC Ltd. to the allegations set out in paragraphs 45 to 48 inclusive, and in paragraph 51, of the Particulars of Claim were pleaded as follows:-
Save that it is admitted that IHC received commission, the Claimant is required to prove Paragraph 45.
Paragraphs 46 and 47 denied. Paragraphs 9 and 31a above are repeated. Further, the Claimant will be required to prove how it thought IHC was being remunerated for acting as its broker. At no stage did the Claimant pay any fees to IHC in respect of the policies complained about. The Claimant had a separate and personal fee arrangement with Mr. Kelly in respect of services that he carried out personally. The Claimant cannot seriously have thought that IHC was acting as its broker for no remuneration.
As to Paragraphs 48 to 50 and 52, it is denied that the Claimant is entitled to commission, equitable interest, or any other interest. The Claimant was well aware that IHC earned commission.
As to Paragraph 51:
It is admitted that IHC did not inform the Claimant the amount of the commission that it earned. The Claimant was aware that commission was earned but never requested to know the amount;
It is denied that IHC was under an obligation to disclose the amount;
It is denied that IHC has acted in breach of fiduciary duty and/or owes any duty to repay commission."
The only plea in paragraph 9 of the Defence, incorporated by reference in paragraph 60, which was relevant for present purposes was, "However the Claimant was well aware that under the Norwich Union and GMF Schemes IHC earned a commission". At paragraph 27 of the Particulars of Claim there was reference to a document called "a "Guide to your Health Scheme" ("the Guide")". It was pleaded in the same paragraph that, "CHIBS received the same in May 2004". The document in question was mentioned, with the same nomenclature, in paragraph 31a of the Defence:-
"The Guide and/or SLA also contained the following provisions:
"This Guide contains details you may need as a member of a General & Medical Healthcare Scheme. We recommend that you read through and satisfy yourself that you understand the terms of your chosen cover";
"The terms and conditions of your membership may be changed from time to time";
"The Introducer will usually receive a commission payment from us for your introduction"."
The answers pleaded in the Defence to the Secret Commission Claims were, consequently: first, that it was obvious to Consortium that the Partnership would receive commission in respect of the policy written by GMF, because otherwise how else would the Partnership be remunerated for its services in arranging the policy; and, second, because there was a reference in the Guide received in May 2004 that the introducer of a policy, "will usually receive a commission payment from us for your introduction", Consortium had been told that a commission was likely to have been paid.
On 2 July 2010 Temple, on behalf of Amtrust, issued a document described as a "certificate of insurance" in favour of Consortium, but which in fact seems to have been intended as the policy governing the ATE insurance which Amtrust agreed to provide. The limit of indemnity was £75,000. The document, to which it is convenient to refer in this judgment as "the Policy", included as condition 3:-
"Duties of the Insured and the Appointed Legal Representative
The Insured and the Appointed Legal Representative must conduct the Legal Action in a reasonable manner in order to minimise costs.
The Insured agrees:
to give full and prompt co-operation to the Appointed Legal Representative;
to provide to the Appointed Legal Representative all material information relating to the Legal Action, including a full and truthful account of the Insured's affairs and all relevant documentary or other evidence in the Insured's possession;
to provide obtain or execute all documents and attend meetings, medical examinations, conferences or hearings as requested by the Appointed Legal Representative or by Temple;
to act in accordance with the advice of the Appointed Legal Representative;
to comply with any order made by the Court;
that the Legal Action will not be settled or discontinued in circumstances which could give rise to a Claim under this Certificate without the prior written consent of Temple."
By an application dated 8 April 2011, but issued on 11 April 2011, in the Original Action the Partnership and IHC Ltd. sought summary judgment against Consortium in relation to the Secret Commission Claims. Amtrust was not told about the application until after it had been heard. Temple was told merely of the fact of the making of the application and that it was expected to be defeated. The application was heard on 4 July 2011 by District Judge Carson sitting in the Cardiff District Registry of this court. The application succeeded. A copy of an unapproved version of the judgment of District Judge Carson was put before me, but no copy was provided to either Temple or Amtrust in 2011. The judgment included these observations:-
It is a matter where the particulars of claim, paragraphs 31 and 32, make it clear that it is the claimant's case that there were two separate contracts. I say that because there seems to be suggestion that it was one continuous contract policy from 1st April 2005, but on the claimant's own case that would make it clear otherwise. It is therefore on the claimant's own case that the claimant knew of commission being paid prior to the inception of the second contract even if, of course, the amount was not known and even if it is a matter of dispute as to whether it was known that commission was paid prior to the inception of the first policy, first contract, of 1st April 2005. But on any view of the matter on the claimant's own case the position was known during a very large part of the material time, that material time being April 2005 for a two-year period from 1st April of that year.
…
Is there anything which has been put before the court to indicate these defendants owed a special obligation to this claimant to disclose the amount of commission? It is a matter of agreement that the third defendant did not tell the claimant of the amount of commission. That is a matter ultimately they found out from the fourth defendant. However, the position then in being with the GISC Commercial Code Insurance Conduct of Business Rules did not require disclosure of the amounts unless a request was made reflecting the common law position. Here there is no evidence of any request being made. The claimant knew, I am satisfied, on the basis of that which I have said, including the previous dealings, including sharing, that the third defendant would earn commission. The reality of the matter is that this commercial defendant was not going to work free of charge for the claimant. There would be payment for the work done. That would be from commission.
There is on that basis, therefore, I am satisfied, a clearly established position that this claimant in reality would know or have known that insurance brokers/intermediaries obtain commission from policies which they are ultimately able to arrange and place business upon.
…
In so far therefore as that is concerned, the matters which have been put before me and which I have referred to at some length in this judgment are such that I am quite satisfied that this is a part of the claimant's claim within paragraphs 45 to 52 inclusive of the particulars of claim where the claimant has no real prospect of succeeding on the issue within those and I can find no other compelling reason why that issue should be disposed of at trial."
Following that decision the solicitors acting on behalf of Consortium in the Original Action, Eversheds LLP, wrote a letter dated 8 July 2011 to Temple enclosing a claim form ("the Claim Form") seeking a payment of an amount of £10,000 to enable the payment on account of costs which District Judge Carson had ordered Consortium to make to be made. The Claim Form was completed by Eversheds LLP. It referred to an "attached attendance note of the Summary Judgment hearing dated 4 July 2011", but it was accepted before me that the evidence put before me did not justify the conclusion that a copy of the relevant attendance note had been attached. What was attached to, or possibly more accurately described as incorporated in, the Claim Form was a document entitled "Answer to Question Six" ("the Attachment"). After setting out what was question 6 in the Claim Form the Attachment went on:-
"The Claimant is pursuing a claim for breach of contract, negligence and breach of fiduciary duty for receipt of a secret commission against the First to Third Defendants. The Claimant is also pursuing a claim for breach of contract and breach of fiduciary duty for payment of a secret commission against the Fourth Defendant.
The First to Third Defendants made an application for Summary Judgment against the Claimant in relation to its claim for breach of fiduciary duty i.e. receipt of a Secret Commission. This application related to the Claimant's claim that the Fourth Defendant paid to the First to Third Defendants commission during the lifetime of the Claimant's PHI scheme with the Fourth Defendant, without notifying the Claimant of the fact or amount of commission.
The Claimant pursued this claim on the basis of Counsel's advice which has been previously provided to Temple Legal Protection Limited. The enclosed email from Ben Harding to Trish D'Souza of Eversheds LLP dated 14 April 2011 [in fact 2010] indicates that Counsel considered that the secret commission claim against either IHC (the First to Third Defendants) or GMF (the Fourth Defendant) had very good prospects of success at 65%.
In its application for Summary Judgment dated 8 April 2011, the First to Third Defendants argued that notice of the fact that commission would be received by them under the Fourth Defendant's PHI scheme was provided upon the Claimant's receipt of the Guide to the PHI scheme. The First to Third Defendants also argued that they were under no obligation to reveal the amount of commission received and that the only case law in this area related to retail customers and not commercial customers.
The Judgment hearing in relation to the First to Third Defendants' application for summary judgment was heard on 4 July 2011.
In their submissions the First to Third Defendants relied on inter alia that fact that the Claimant was a company that had been involved in the provision of insurance to its members for 3 years before the policy complained of; that the Claimant's director had been involved in providing similar schemes since 1996; that the Claimant was aware or should have been aware that commission would be paid to the First to Third Defendants; and that although it was conceded that the Claimant didn't know about the amount of the commission, this was not relevant as the leading case (Wilson & another v Hurstanger [2007] (WCA [sic] Civ 209)) does not apply to commercial customers.
The Court heard counsel for both parties and concluded that neither the factual dispute nor the law was sufficiently complex to prevent an order for summary judgment in favour of the 1st to 3rd Defendants. Crucially, it concluded that the existing case law was distinguished as it related to retail customers and not commercial customers.
Accordingly the Court made the following orders at the Judgment hearing on 4 July 2011:
The Claimant's claim for secret commission has no real prospect of success and there is no compelling reason why its claim for secret commission, set out at paragraphs 45 to 52 in the particulars of claim, should be disposed of at trial.
The First to Third Defendants' application for summary judgment dated 8 April 2011 was granted.
That costs of the application be subject to detailed assessment (i.e. costs before 8 April 2011 on the fiduciary duty claim).
That the costs relating to the claim upon which judgment had been given, are to be determined, by way of detailed assessment, at the conclusion of the trial or by further order of the Court.
The Claimant to pay to the First to Third Defendants the sum of £10,000 on account of such costs by way of an interim payment within 21 days. Such payment is due on or before 25 July 2011.
Those instructing have conferred with counsel about the merits of an appeal. Counsel has verbally advised against an appeal on the basis that, while there are factual inaccuracies in the judgment, the core basis of the decision (i.e. that the duty to obtain informed consent of the Claimant to a commission payment was a claim in equity available to retail and not "sophisticated" commercial customers) does not stand a good prospect of success - not in excess of 50% and given the value of this aspect of the claim (£45,000) it is not considered commercially viable to pursue an appeal and face the prospect of for [sic] their costs when the chances are not above 50%.
No evidence emerged that was not disclosed previously in accordance with the directions given by the Court. There was an e-mail between the first and third defendants that had a positive impact on the case overall from the Claimant's perspective. The decision focussed on whether a broker has the same duties to disclose commission details to a commercial customer as it does to a retail customer. No evidence was misstated or suppressed, the application was by case stated. No witness evidence was given. The insured was advised to oppose the application and took proper advice, in our opinion.
The Claimant is not prevented, as a result of the Court's decision on 4 July 2011 from pursuing its claim for breach of contract and negligence against the First to Third Defendants, or its claim for breach of contract against the Fourth Defendant. The Claimant intends to pursue the above claims to trial which has currently been listed for the first available date after 12 August 2011.
We would be grateful for confirmation that the Insured's claim under Certificate number:Temple/Ever/102009/4/JXR/WYD/PD-2 for £10,000 to be paid the First to Third Defendants on or before 25 July 2011 has been approved and notification of when payment has been made."
In response to the Claim Form Temple wrote a letter dated 13 July 2011 to Mr. Wayne Davies of Eversheds LLP in which it said:-
"Thank you for your letter of 8 July 2011 enclosing claim correspondence.
We enclose herewith our cheque in the sum of £10,000 made payable to Browne Jacobson LLP [solicitors acting for the Partnership and IHC Ltd. in the Original Action] as requested as an interim payment of your opponents [sic] costs.
In the event the claim is successful there is a set off clause which is applied to all monies recovered in the action, ie if you are successful, we must be repaid any interim outlay."
Not long after the hearing of the summary judgment application the question arose of whether Consortium should give security for the costs of the Partnership and IHC Ltd. in the Original Action. In that context Amtrust was asked to increase the limit of indemnity in the Policy from £75,000. In response to that request Mr. Steve Ruffle of Temple sent an e-mail to Mr. Davies of Eversheds LLP dated 18 August 2011 in which he said:-
"Further to your previous correspondence with Michael Lent we write to confirm that we are prepared to increase the Limit of Indemnity provided by
Certificate Number Temple/Ever/102009/4/JXR/WYD/PD-2 to £190,000. To increase your client's cover to this amount the premiums would be increased to the following:-
[The increases were then set out]
This offer of an increase will be open for the next 14 days. If the terms are acceptable to your client, please could you confirm by responding to this email whereupon we will issue an endorsement to put the increase into place."
The offer was accepted by Mr. Davies on behalf of Consortium in an e-mail sent to Mr. Ruffle on 31 August 2011. The necessary endorsement to the Policy was forwarded to Mr. Davies by Mr. Lent of Temple under cover of a letter dated 6 September 2011, in which Mr. Lent wrote:-
"Further to our recent correspondence, I now enclose an endorsement to increase the Limit of Indemnity provided by Certificate Number: Temple/Ever/102009/4/JXR/WYD/PD 2 to £190,000.00. You will note that the premiums have also been increased as agreed.
Please keep us advised of any further developments in accordance with the terms of the policy.
We look forward to hearing from you in due course."
As I have already noted, the Original Action went to trial before His Honour Judge Seys Llewellyn Q.C. in 2012. The learned judge handed down a judgment dated 9 August 2012. It appears that, at the trial, Mr. Hardwicke of Consortium was cross-examined as to credit in relation to the facts underlying the Secret Commission Claims, for in the course of his judgment the learned judge dealt with the credibility of Mr. Hardwicke, and said this, at paragraph 35(v):-
"In these proceedings, the Claimant brought a claim against the Defendant alleging that it did not know that there were commission payments or the amount of the commission. The Statement of Case was that the Claimant did not know until it received a letter dated 22nd February 2006 that GMF had paid or the Defendant had received a commission. On Day 1, in cross examination, Mr. Hardwicke admitted explicitly that he thought that the Defendants were being paid by the introduced insurance company, "being paid commission", and that this is what he thought. Later he first tried to qualify that ("I didn't know they were being paid a commission. It could have been a fee, it could have been anything"); and he then he [sic] tried to resile further. The truth is that on 18th January 2006 the new brokers recorded on a form that IHC received commission; Mr. Hardwicke was constrained to admit in cross-examination that this information must have come from him. He was shown a 2002 statement from the Defendant expressly recording, "Commission payable …. 25%" (Bundle page 40). After significant pauses, and initial denial that he would see what was placed on file, he conceded that a sharing arrangement was set up by Simon Kelly, and that he was aware a fee was being paid "in which we participated". In contrast to the pleaded case (that neither Mr. Hardwicke nor anyone else was aware of the commission arrangement), he then sought to blame his legal advisers for bringing a claim in respect of secret commission, or not knowing the amount of the commission. On 4th July 2011 District Judge Carson gave Summary Judgment against the Claimant dismissing its commission claim. Having seen and observed Mr. Hardwicke I am satisfied that he was pursuing a claim which was inconsistent with what he knew to be the truth and which he must have known was unsustainable."
Having been made aware of those findings, on 15 November 2012 Amtrust communicated its decision not to hold covered Consortium in respect of the costs of the Original Action.
The case for the claimants in this action
A convenient summary of the case for the Partnership and IHC Ltd. in this action was set out in the written skeleton argument of Mr. Troman:-
The Defendant made two clear and unequivocal representations that it would not refuse to indemnify Consortium against its liability for the Claimants' costs. The first was when it paid £10,000 pursuant to the Policy towards the costs order made in the Underlying Proceedings [what I have called the Original Action] against Consortium in favour of the Claimants. … The second was when it increased the limit of indemnity under the Policy to £190,000. … Those acts were both fundamentally inconsistent with the Defendant exercising any right to decline to provide an indemnity under the Policy
Those representations also carried with them some awareness on the part of the Defendant of its rights. That apparent awareness stemmed from what the Defendant knew by the time it made those representations. In particular:
The Defendant knew from Consortium's insurance proposal and the particulars of its claim against the Claimants that Consortium's case was that it was entitled to claim from the Claimants the commission received by the Claimants on the basis that, as a matter of fact, Consortium (through Mr. Hardwicke) did not know the Claimants had received commission until February 2006 …
The Defendant knew from the Claimants' defence in the Underlying Proceedings that the Claimants expressly denied that, as a matter of fact, Consortium did not know the Claimants had received commission until February 2006 … Indeed, the Defendant could see from that defence that the Claimants made the powerful points that:
Consortium paid the Claimants nothing so must have known the Claimants were receiving commission in consideration of their services …
Consortium had received documents indicating the Claimants were receiving a commission …
The Defendant knew from Evershed's report to it that Consortium's claim for secret commission had been summarily dismissed … Thus the Defendant knew that a Court had concluded that Consortium had no real prospect of establishing that it did not know the Claimants had received commission until February 2006. That was not a matter about which Mr. Hardwicke could have been mistaken. He either knew commission was being received by the Claimants or he did not. Thus the Defendant knew from the summary failure of the secret commission claim that Consortium (through Mr. Hardwicke) had pursued a claim against the Claimants for commission which was inconsistent with what it knew to be the truth and which it knew was unsustainable.
Reliance
There were positive acts of reliance showing some significance was attached to the Defendant's representations and they were acted upon such that it would be inequitable for the Defendant to now resile from them. In particular:
Consortium pursued the remainder of its claim against the Claimants to trial exposing itself to the risk that, if those remaining claims failed, it would be ordered to pay the costs and disbursements of the Claimants, on the basis that it would be indemnified by the Defendant.
The Claimants did not pursue to a hearing their application for security for their costs and Consortium agreed to pay the Claimants' costs of that application, on the basis that they would be indemnified by the Defendant…."
Witness evidence
No witness evidence of any sort was adduced at the trial before me on behalf of the Partnership or IHC Ltd. I did not hear any evidence from Mr. Hardwicke or from anyone else associated with Consortium in the period 2010 to 2012.
On behalf of Amtrust Mr. George Beevor, claims manager of Temple, was called to give evidence and was cross-examined. In addition, I was asked to consider a witness statement prepared by Mr. Michael Lent, who was not called to give live evidence, and so was not cross-examined. With all respect to these gentlemen, it has to be said that all one learned from their evidence which was relevant to any issue in this action was that neither Temple nor Amtrust actually appreciated, at the time of the making of the interim payment in July 2011, or later at the time of the increase in the limit of indemnity under the Policy, that Amtrust was entitled to avoid cover under the Policy as a result of the matters recorded in paragraph 35(v) of the judgment of His Honour Judge Seys Llewellyn Q.C., or for any other reason.
Consideration and conclusions
I have to say that the case for the Partnership and IHC Ltd. in this action seemed to me to be pure Alice in Wonderland.
The case seemed to rely simply upon the fact of making an interim payment, rather than upon anything said at the time that was done, and similarly upon the fact of increasing the limit of indemnity, rather than anything said at that time. Everything depended not upon anything actually said, but, so Mr. Troman submitted, upon what each of the acts identified, treated as a representation, carried with it as "some apparent awareness of the right upon which the representor will not insist". In my judgment the necessary "apparent awareness" must appear within what is said to be the representation. However, the submissions of Mr. Troman seemed to come very close to contending that the "apparent awareness" could be found in background circumstances from which the representor ought to have drawn conclusions, without being implicit in what was alleged to be the representation. The argument was along these lines. It was obvious from the making of the interim payment and from the increase in the limit of indemnity that Amtrust was, on each of those occasions, treating the Policy as in force and giving rights to Consortium. That I accept. However, Mr. Troman went on, in the light of the Attachment Amtrust knew, at the time of making the interim payment, and at the time of agreeing to increase the limit of indemnity, that the Secret Commission Claims had been dismissed on the application for summary judgment. That I also accept. Mr. Troman then submitted that it must have been apparent to Amtrust that the giving of summary judgment was on the basis that there was no reasonable prospect of success in the Secret Commission Claims and there was no other compelling reason for a trial on those claims. I accept that also, because it was explained in the Attachment. Had that not been explained in the Attachment I am not sure that it should be assumed that an insurer, rather than a lawyer, should be aware of the conditions laid down in Civil Procedure Rules Part 24.2 as needing to be satisfied before summary judgment could be given. Where Mr. Troman's submissions seemed to depart from reality was at the next stage, for he contended that anyone who knew, as Amtrust and Temple did, that Consortium's case in relation to the Secret Commission Claims, was based on the contention that it had not known before receipt of the letter dated 22 February 2006 that the Partnership and/or IHC Ltd. was receiving a commission from GMF, must have concluded from the grant of summary judgment that Mr. Hardwicke had lied when saying in the Declaration that what were recorded in the Advice as his instructions was true. That does not follow at all. The case for the Partnership and IHC Ltd. in the Original Action was put no higher than that, as an experienced commercial party, it must have been obvious to Consortium that the Partnership and/or IHC Ltd. would be remunerated by a commission from GMF for arranging the insurance between Consortium and GMF, and that in fact an indication that that was the position had been given in the Guide (actually at page 39 of a document which was no doubt a riveting read for an insomniac). It was enough to defeat the Secret Commission Claims that Consortium had been given information indicating that a commission would be paid, whether or not it read that information, or, if it had read it, whether or not it remembered that it had been given that information. It by no means followed from the success of the summary judgment application that Mr. Hardwicke had lied. If it had been suggested at the hearing of the summary judgment application that Mr. Hardwicke had simply lied on the point, that exposed the applicant Partnership and IHC Ltd. to the risk that District Judge Carson might have concluded that such assault upon the veracity and reputation of Mr. Hardwicke provided a compelling reason why there should be a trial of the Secret Commission Claims. Consequently not only do I accept the evidence adduced on behalf of Amtrust that in fact it did not realise that the giving of summary judgment on the Secret Commission Claims meant that Mr. Hardwicke must have lied, but the mere fact of the giving of summary judgment did not, in my judgment, justify any such conclusion.
It is important to recognise that, at the date of the agreement to the making of the interim payment of £10,000, neither Temple nor Amtrust had been provided with either the Particulars of Claim or the Defence in the Original Action. They were thus not in a position to evaluate the allegations in those statements of case. The statements of case were provided before the decision to increase the limit of indemnity in the Policy, but, by the time they were provided, the allegations concerning the Secret Commission Claims were only of academic interest, as summary judgment had been given on those claims. Anyone who, nonetheless, did look at the relevant allegations and answers must have noticed that, while it was plainly alleged on behalf of Consortium that it lacked knowledge at the material time of the commissions, there were two separate points raised in answer, only one of which asserted that the information had been provided in a written document, and that, in respect of that point, it was not asserted that actually Consortium knew perfectly well what the document said, merely that the document had been provided.
However, the issue whether Amtrust did realise, or should have realised, in the light of the success of the summary judgment application, that it had good grounds for avoiding the Policy on the grounds of fraudulent misrepresentation, was but a step on the way to considering whether, by making the interim payment and/or agreeing to the increase in the limit of indemnity, Amtrust clearly and unequivocally made a representation "which carried with it some apparent awareness of the right upon which the representor will not insist", namely a right to avoid the Policy. It was plain, in my judgment, that neither representation carried with it any such "apparent awareness". Each actual representation was made in ignorance of the untruthfulness of Mr. Hardwicke and it was not implicit in either that Amtrust did not care whether Consortium had been truthful or not in completing the Proposal and providing information concerning the Original Action.
It must follow that Consortium did not rely upon the alleged representations, simply because the representations in question did not "carry with it some apparent awareness of the right upon which the representor will not insist".
Mr. Harris submitted, rightly in my judgment, that it was, in any event, incumbent upon the Partnership and/or IHC Ltd. in this action to satisfy me by evidence that Consortium did rely upon what were said to be the indications of "apparent awareness of the right upon which the representor will not insist" said to have been manifested on the part of Amtrust. There was no evidence of actual reliance before me. Mr. Troman accepted that. However, Mr. Troman urged me to conclude that Consortium must have relied upon the representations in deciding to pursue the Original Action. However, that certainly does not follow simply from the fact that Consortium did pursue the Original Action as against the Partnership and IHC Ltd. Having commenced the Original Action Consortium could not simply walk away from it and pretend that it had never been started. Consortium was bound either to pursue the litigation or to take the consequences of discontinuing it, usually paying the costs of the opposite parties. There was simply no evidence that Consortium placed any reliance upon the alleged representations said to carry with them the "apparent awareness" that Amtrust would not seek to avoid the Policy by doing anything which it would not otherwise have done or was not already committed to doing.
In fact, of course, Consortium knew the true position, namely that determined by His Honour Judge Seys Llewellyn Q.C. at paragraph 35(v) of his judgment. Thus Consortium knew that any "apparent awareness of the right upon which the representor will not insist" could not be an actual awareness, and had to have been based upon Consortium successfully duping Amtrust. Consequently it cannot have relied upon any "apparent awareness of the right upon which the representor will not insist" carried with any representation, but only upon the continuing success of the initial fraudulent misrepresentation.
If I had reached the conclusion that there had been, on the part of Amtrust, a representation which carried with it "some apparent awareness of the right upon which the representor will not insist", and that Consortium had relied upon such indication, it would nonetheless still have been necessary for me to consider whether the reliance made it inequitable for Amtrust to go back on the representation. To reach that conclusion I should have had to have broken new ground. So far as I am aware, never in the field of equity has assistance been lent to a crook to the disadvantage of an innocent party defrauded by the crook. It could not possibly be equitable to allow a party who knew the true position to say that it was entitled to rely upon some indication of "apparent awareness of the right upon which the representor will not insist" as against the deluded opposite party.
For the reasons which I have given this action fails and is dismissed.