BAILII is celebrating 24 years of free online access to the law! Would you consider making a contribution?
No donation is too small. If every visitor before 31 December gives just £5, it will have a significant impact on BAILII's ability to continue providing free access to the law.
Thank you very much for your support!
[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback] | ||
England and Wales Court of Appeal (Civil Division) Decisions |
||
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Dornoch Ltd. & Ors v Royal and Sun Alliance Insurance Plc [2005] EWCA Civ 238 (10 March 2005) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2005/238.html Cite as: [2005] EWCA Civ 238 |
[New search] [Printable RTF version] [Help]
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION (COMMERCIAL COURT)
(Mr Justice Aikens)
Strand, London, WC2A 2LL |
||
B e f o r e :
Vice-President of the Court of Appeal (Civil Division)
LORD JUSTICE MANCE
and
LORD JUSTICE LONGMORE
____________________
DORNOCH Ltd & ors |
Appellants |
|
- and - |
||
ROYAL AND SUN ALLIANCE INSURANCE PLC |
Respondent |
____________________
Smith Bernal Wordwave Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
(instructed by Davies Arnold Cooper) for the Appellant
JONATHAN SUMPTION Esq QC and GUY MORPUSS Esq
(instructed by Herbert Smith) for the Respondent
____________________
AS APPROVED BY THE COURT
CROWN COPYRIGHT ©
Crown Copyright ©
Lord Justice Longmore:
"Plaintiff and the Class have suffered damages in that, in reliance on the integrity of the market, they paid artificially inflated prices for Coke stock. Plaintiff and the Class would not have purchased Coke stock at the prices they paid or at all, if they had been aware that the market price had been artificially and falsely inflated by defendants' misleading statements."
"(This section is Claims Made)."
This provided indemnity to Coca-Cola or any subsidiary in respect of what were called "any Securities Claims" made against them during the existence of the policy and also in respect of any such claim made against Directors or Officers of the company
"but only when the Directors or Officers . . .
. . . shall have been indemnified"
by the company. There were then separate provisions for the Directors and Officers themselves to be indemnified if they were themselves not entitled to indemnification from the company in respect of any claims made against them. We were, however, informed that no such claims have been made.
"The Consortium does not, however, under this Coverage Section, assume any duty to defend. The Insureds shall not admit or assume any liability, enter into any settlement agreement or stipulate to any judgment without the prior written consent of the Consortium. Only those settlements, stipulated judgment and Defense Costs which have been consented to by the Consortium shall be recoverable as Loss under the terms of this Coverage Section. The Consortium's consent shall not be unreasonably withheld, provided that the Consortium shall be entitled to effectively associate in the defence and the negotiation of any settlement of any Claim in order to reach a decision as to reasonableness."
Condition B then provided that it was a condition precedent to indemnity that the insured should give notice in writing of any claim "as soon as practicable".
"FULL REINSURANCE CLAUSE
Being a Reinsurance of and warranted same gross rate, terms and conditions as the Original Policy, so far as they may be applicable hereto and shall pay as may be paid thereon, but subject nevertheless to the terms, clauses and conditions of this Reinsurance.
CLAIMS CONTROL CLAUSES
Notwithstanding anything herein contained to the contrary, it is a condition precedent to any liability under this policy that:
(a) The Reinsured shall upon knowledge of any loss or losses which may give rise to claim under this policy, advise the Underwriters thereof by cable within 72 hours;
(b) The Reinsured shall furnish the Underwriters with all information available respecting such loss or losses and the Underwriters shall have the right to appoint adjusters, assessors and/or surveyors and to control all negotiations, adjustments and settlements in connection with such loss or losses."
(1) Of whose losses did RSA have to have knowledge for the Claims Control Clause to become effective? – the USA complainants' loss or Coca-Cola's loss?
(2) Did RSA have knowledge of the relevant loss more than 72 hours before 19th January 2001?
His answers to these questions were:-
(1) The complainants' losses;
(2) No.
The judge devoted the majority of his judgment to the answer to the first question. In paragraph 59 he recorded the Syndicates' acceptance that the word "loss" denoted an actual loss as opposed to an alleged loss. He then set out the relevant background (or matrix) against which the Claims Control Clause fell to be construed. Neither side took issue with this description during the argument and I therefore set it out in full:-
"(1) Coca Cola and its Directors and officers are insured against legal liability under Section V of the MSP.
(2) The type of "loss" of Coca Cola, its Directors and officers that is insured by Section V of the MSP is financial loss suffered as a result of claims made against one, two or all three by third party claimants. The claims by third party claimants will be for money compensation for financial loss that the third party claimants assert they have suffered as a result of the acts, defaults or omissions of Coca Cola, its Directors or Officers.
(3) The terms of Section V of the MSP, including the definition of "Loss", were known to the Reinsurers when the reinsurance contracts were concluded.
(4) The reinsurance is on the same terms and conditions as the original policy, so far as applicable. Moreover, the subject matter of the reinsurance is the same as that of the original insurance in Section V of the MSP: viz. the liability of Coca Cola and its Directors and officers to third party claimants for acts, defaults or omissions of Coca Cola, its Directors and officers.
(5) The original insurance is a "claims made" policy. Therefore, in order to be entitled to indemnity under the MSP, claims by third party claimants must first be made against Coca Cola or its Directors and officers during the policy period (or any agreed extensions).
(6) . . . . . . it is a condition precedent to the liability of the Consortium that it receives written notice "as soon as is practicable" from Coca Cola or its Directors and officers, of any "Claim" that is made against them.
(7) There are provisions in Section V of the MSP which stipulate that the insurers under the MSP will not pay for any "losses" by the original Insured where a settlement has been agreed with third party claimants, unless the insurers have consented to the settlement."
(1) there had to be an actual loss;
(2) the loss had to be a loss that may give rise to a claim on the reinsurance;
(3) RSA had to have actual knowledge of that actual loss.
He then held that these requirements were not fulfilled before 19th January 2001 when notice was in fact given. The result was a declaration in favour of RSA.
For the Syndicates Lord Grabiner QC sought to withdraw the concession made below that "loss" must be an "actual loss" and submitted:-
(1) the loss referred to in the Claims Control Clause must refer to a "claimed" loss or an "alleged" loss;
(2) if it meant an "actual" loss (as had been conceded before Aikens J), no loss would arise until ascertainment if the loss was Coca-Cola's loss; nor would it be likely to arise at any earlier stage if the loss were the American claimants' loss;
(3) that would be absurd because it would deprive part (b) of the clause of any effective force; there is no point in being advised about a loss after judgment in the American proceedings and it would be futile then (and only then) to have the right to appoint an adjuster or surveyor; it would be too late to control negotiations or even to influence them;
(4) it was only by purposively construing "loss" as a "claimed loss" that the clause as a whole could make sense; it was necessary to adopt this construction since everyone at the time appreciated that what was being reinsured was Coca-Cola's liability and in no other way could the Syndicates (who would ultimately have to foot the bill) be meaningfully involved in proceedings which would determine whether the American claimants were entitled to compensation.
(1) "loss" must mean "actual loss"; if the parties had meant or intended it to mean a "claimed loss" or an "alleged loss" it would have been easy to say so; the Syndicates wanted to read into the clause a word that was patently not there; their argument was tantamount to reading the word "loss" as if it had been "claim";
(2) the fact that there was no obligation to notify the Syndicates until RSA knew of an actual loss on the part of the American claimants (or indeed on the part of Coca-Cola) was not of any great moment since it was the duty of RSA and the other members of the Consortium to exercise the rights they had available to them under their own equivalent of the claims control clause and only to make any settlement in a careful and businesslike manner;
(3) the right to appoint adjusters, assessors or surveyors was in any event futile in the context of a liability policy so the Syndicates would not be deprived of anything of value if they were only notified when RSA knew of an actual loss;
(4) RSA had (and still have) no "knowledge" of any "actual" loss on the part of the American complainants;
(5) part (b) of the clause with its reference to the appointment of professionals and the right to control negotiations was, in any event, a powerful pointer to the loss being Coca-Cola's loss rather than that of the American claimants with whom the Syndicates had noting remotely to do; how could the Syndicates in fact control negotiations which would be taking place between the American claimants and Coca-Cola? It might be that RSA could control those negotiations if they had stipulated for a right to do so (in fact they had not), but in practice RSA would, in any event, have to follow the line taken by the majority insurer – here Allianz – in the consortium; on no view could the Syndicates "control" Allianz.
There is no difficulty about Lord Grabiner being entitled to withdraw the concession made below to the effect that "loss" means "actual loss". The first question in the appeal then becomes whether, in its context in the Claims Control Clause in the reinsurance policy, the word "loss" means, as he submits, an "alleged" loss. On one view, there is obvious good sense in so deciding if one knows that the underlying insurance is on a "claims made" basis and requires Coca-Cola to give notice to RSA of any "claim" made against them albeit "as soon as practicable" rather than within 72 hours. It makes even better sense when one appreciates that whoever's loss it is to which the clause refers, RSA may be unlikely to "know" of any actual loss until the loss has been ascertained which will be long after reinsurers would, as the ultimately paying party, wish to be aware of the events which might create their liability.
"The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have understood them to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary (sic) life), to conclude that the parties must, for whatever, reason, have used the wrong words or syntax . . ."
He added a reference to paragraph 18 of the speech of Lord Steyn in Sirius General Insurance v FAI General Insurance [2004] UKHL 54, [2004] 1 WLR 3251, 3257:-
". . . . The aim of the inquiry is not to probe the real intentions of the parties but to ascertain the contextual meaning of the relevant contractual language. The inquiry is objective: the question is what a reasonable person, circumstanced as the actual parties were, would have understood the parties to have meant by the use of specific language. The answer to that question is to be gathered from the text under consideration and its relevant contextual sense."
He encouraged us to escape the prison-gates of literalism and embrace the concept of "business common sense".
Once one has concluded that loss means "actual" loss rather than "alleged" or "claimed" loss it must follow that RSA cannot have had knowledge of any loss. It was not known by anyone in December 2000 or January 2001 that the American claimants had suffered the loss which they claimed or, indeed, any loss. The question whether the claimants have suffered any loss is still in dispute. Lord Hope has recently said in the context of the confiscatory provisions of the Drug Trafficking Act 1994:-
"A person cannot know that something is A when
in fact it is B"
see R v Montila [2004] 1 WLR 3141, 3149. Similarly a person cannot know something is A when A is a fact which is contentious but is as yet undetermined.
It thus emerges that the question on which the parties appear to have concentrated their main energies before the judge namely "whose loss?" is not material to the outcome of this appeal. Whosever loss it may be which is contemplated by the clause, RSA did not know of it.
I would, therefore, dismiss this appeal. The moral of this case is that "knowledge" is (or can be) an elusive concept because in any given case a party to a contract may have difficulty in showing what another party "knows". It would, therefore, be better if "knowledge" were not used as the trigger for any requirement of notification to a liability insurer or reinsurer.
Lord Justice Mance:
Lord Justice Brooke:
ORDER: Appeal dismissed. Appellants to pay respondent's costs of the appeal, to be subject to detailed assessment if not agreed. Appellants to pay interest at the judgment rate fro today on those costs when they are assessed. Appellants to pay £40,000 on account of costs on or before 31st March 2005. Permission to appeal to the House of Lords refused.