Case No: A3/2001/2450
Neutral Citation No: [2002] EWCA Civ 1642  
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
COMMERCIAL COURT
The Hon Mr Justice Morison

Royal Courts of Justice
Strand, London, WC2A 2LL

Date:  13 November 2002

Before :

LORD JUSTICE WARD
LORD JUSTICE CLARKE
and 
SIR CHRISTOPHER STAUGHTON
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Between :

	ASSICURAZIONI GENERALI SpA	Claimant/
Respondent	
	- and -		
	
ARAB INSURANCE GROUP (B.S.C.)	Defendant/
Appellant	

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Mr Julian Flaux QC and Mr Simon Picken 
(instructed by Holman, Fenwick and Willan) for the Appellant
Mr Stewart Boyd QC and Mr Richard Millett 
(instructed by LeBoeuf, Lamb, Greene and MacRae) for the Respondent

Hearing dates : 18th to 24th June 2002
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JUDGMENT : APPROVED BY THE COURT FOR HANDING DOWN (SUBJECT TO EDITORIAL CORRECTIONS)

Lord Justice Clarke:

Introduction
1.	This is an appeal by the defendant retrocessionaires (“ARIG”) from a judgment or order of Morison J, which was finally made on 9 November 2001, in which he gave judgment for reinsurers (“Generali”) for US$8,751,000 plus interest of US$1,450,000 after the trial of an action in which he held ARIG liable under the terms of two quota share retrocession contracts (“the contracts”).  He also ordered ARIG to pay Generali’s costs, part on the standard and part on the indemnity basis, and refused permission to appeal.  Tuckey LJ subsequently granted permission to appeal on the merits, but refused permission to appeal on indemnity costs. 
Background
2.	Generali is and was an Italian insurer and reinsurer with a branch office in London.  ARIG is and was an insurer and reinsurer based in Bahrain with an established place of business in London.  The judge held that the contract between the parties was made on 9 September 1992.  It related to the year from 2 July 1992 to 2 July 1993, but in March or April 1993 was extended for two months until 2 September 1993.
3.	The background to the contract was as follows.  In about 1989 Alexander Howden and others developed packages of insurance risks, which essentially concerned builders’ risks in relation to small to medium sized construction projects in the USA, notably in California.  Initially Generali acted as direct insurer of the contractors’ risks.  It was, however, decided that it was desirable, if not essential, to insert a US based insurance company between the insured and Generali.  As a result, an insurance company called United National Insurance Group of Pennsylvania (“United”) entered into the direct insurance contracts with the insured as a front for Generali.  United thus reinsured the risks with Generali, but subject to such reinsurance, or strictly retrocession, as it sold on the market.  In the event Generali retained part of the risk but retroceded part of the risk to others, including ARIG which took 7.5 per cent.      
4.	As effectively the direct insurer or lead reinsurer, Generali had to have a system for investigating and evaluating the claims which it received from the insured contractors.  To that end it had previously entered into a contract dated 1 July 1991 with Gay & Taylor Inc (“G&T”), which was a company of loss adjusters, to evaluate and process the claims.  That contract was still in force at the relevant time.  It included an obligation upon G&T to establish a claim file and “to investigate all claims and to recommend the amount of loss Reserve to be established with respect to such claim”.
5.	Generali paid claims under the insurances and made claims against ARIG under the contract.  ARIG continued to accept premium and to pay claims until 7 February 1999 but thereafter refused to pay any more claims.  As a result Generali commenced this action against ARIG, which relied upon a number of defences.  All the defences failed at the trial.  By way of appeal ARIG raises some of those defences again.
Approach of the Court of Appeal
6.	CPR rule 52.11 provides, so far as relevant, as follows:
“(1)	Every appeal will be limited to a review of the decision of the lower court unless – 
(a)	a practice direction makes different provision for a particular category of appeal; or
(b) 	the court considers that in the circumstances of an individual appeal it would be in the interests of justice to hold a re-hearing. 
 (3)	The appeal court will allow an appeal where the decision of the lower court was 
(a)	wrong; …
(4)	The appeal court may draw any inference of fact which it considers justified on the evidence.”
7.	Mr Boyd correctly observed that ARIG has not suggested that this appeal should be by way of rehearing and not by way of review.  He further drew attention to the contrast between CPR rule 52.11(1) and RSC Order 59 rule 3, which it replaced and which provided that “an appeal to the Court of Appeal shall be by way of rehearing”.  Mr Boyd submitted that it follows both from the contrast between “review” and “re-hearing” within CPR rule 52.11(1) itself and between “review” in CPR rule 52.11(1) and “rehearing” in RSC Order 59 rule 3 that the approach of the Court of Appeal when conducting a review must be different from its approach when conducting a rehearing, either under CPR rule 52.11(1)(b) or under RSC Order 59 rule 3.  
8.	There is plainly force in that submission, although the position is complicated by the fact that “rehearing” does not always have the same meaning.  Thus, under the RSC, an appeal to the judge from a master under RSC Order 58 rule 1 proceeded by way of rehearing, but it was a rehearing of a different kind from that conducted by the Court of Appeal under RSC Order 59 rule 3.  This can be seen from Tanfern Ltd v Cameron-MacDonald [2000] 1 WLR 1311 per Brooke LJ, giving the judgment of the court, at paragraph 30.
9.	That was a case in which the court gave guidance in relation to a number of aspects of appeals conducted under the CPR.  However, as I read it, neither the guidance nor the case was concerned with appeals on the merits after a trial.  Brooke LJ said this:
“The appellate approach: the general rule
30.	As a general rule, every appeal will be limited to a review of the decision of the lower court.  This general rule will be applied unless a practice direction makes different provision for a particular category of appeal, or the court considers that in the circumstance of an individual appeal it would be in the interests of justice to hold a rehearing: CPR r 52.11(1).  The appeal court will only allow an appeal where the decision of the lower court was wrong, or where it was unjust because of a serious procedural or other irregularity in the proceedings in the lower court: CPR r 52.11(3).
31.	This marks a significant change in practice, in relation to what used to be called “interlocutory appeals” from district judges or masters.  Under the old practice, the appeal to a judge was a rehearing in the fullest sense of the word, and the judge exercised his/her discretion afresh, while giving appropriate weight to the way the lower court had exercised its discretion in the matter.  Under the new practice, the decision of the lower court will attract much greater significance.  The appeal court’s duty is now limited to a review of that decision, and it may only interfere in the quite limited circumstances set out in CPR r 52.11(3).
32.	The first ground for interference speaks for itself.  The epithet “wrong” is to be applied to the substance of the decision made by the lower court.  If the appeal is against the exercise of a discretion by the lower court, the decision of the House of Lords in G v G (Minors: Custody Appeal) [1985] 1 WLR 647 warrants attention.  In that case Lord Fraser of Tullybelton said, at p 652:   
“Certainly it would not be useful to inquire whether different shades of meaning are intended to be conveyed by words such as ‘blatant error’ used by the President in the present case, and words such as ‘clearly wrong’, ‘plainly wrong’, or simply ‘wrong’ used by other judges in other cases.  All these various expressions were used in order to emphasise the point that the appellate court should only interfere when they consider that the judge of first instance has not merely preferred an imperfect solution which is different from an alternative imperfect solution which the Court of Appeal might or would have adopted, but has exceeded the generous ambit within which a reasonable disagreement is possible”.
10.	Mr Boyd submitted that the same approach should be adopted to an appeal of this kind.  However, for my part I would not accept that submission.  As Brooke LJ makes clear, Lord Fraser was considering the correct approach where the appeal is against the exercise of a discretion by the lower court.  An appeal of the kind with which we are concerned challenges the judge’s conclusions of fact, not the exercise of a discretion.  
11.	Brooke LJ was not considering an appeal of this kind beyond observing that it is by way of review under CPR rule 52.11(1) and that the question is whether the judge was wrong under rule 52.11(3).  An appeal to the Court of Appeal under RSC Order 59 rule 3, although expressed to be by way of rehearing, was not a “rehearing in the fullest sense of the word” because (for example) the Court of Appeal never exercised its discretion afresh unless and until it had held the judge to have exercised his discretion wrongly.  Moreover it did not hear the oral evidence again.  In these circumstances it seems to me that, although expressed to be by way of rehearing, it was very much an appeal by way of review of the decision of the trial judge.
12.	Thus, for example, in cases in which the court was asked to reverse a judge’s findings of fact which depended upon his view of the credibility of the witnesses, it would only do so if satisfied that the judge was plainly wrong.  This can be seen from many cases, as for example The Ikarian Reefer [1995] Lloyd's Rep 455, where the court reversed the decision of the trial judge that the plaintiff insured shipowners had not deliberately scuttled their vessel or cast her away.  Giving the judgment of the court, Stuart-Smith LJ addressed the correct approach as follows (at pp 458-9):
“(1)	The burden of showing that the trial Judge was wrong lies on the appellant.  …
(2)	When questions of the credibility of witnesses who have given oral evidence arise the appellant must establish that the trial Judge was plainly wrong.  Once again there is a long line of authority emphasizing the restricted nature of the Court of Appeal’s power to interfere with a Judge’s decision in these circumstances though in describing that power different expressions have been used.  In SS  Hontestroom v SS  Sagaporak … [1927] AC 37 at p 47 Lord Sumner said:
“None the less not to have seen the witnesses puts appellate Judges in a permanent position of disadvantage as against the trial Judge and unless it can be shown that he has failed to use or has palpably misused his advantage, the higher Court ought not to take the responsibility of reversing conclusions so arrived at merely on the results of their own comparisons and criticisms of the witnesses and of their own view of the probabilities of the case.”
….
Finally in Mersey Docks and Harbour Board v Proctor [1923] AC 253 at p 258, Viscount Cave LC said:
“In such a case … it is the duty of the Court of Appeal to make up its own mind not disregarding the judgment appealed from and giving special weight to that judgment in cases where the credibility of witnesses comes into question, but with full liability to draw its own inferences from the facts proved or admitted and to decide accordingly.
(3)	When a party has been acquitted of fraud the decision in his favour should not be displaced except on the clearest grounds.  This proposition is not in contest and is supported by the House of Lords in Akerhielm v De Mare [1959] AC 789 at p 806, where the earlier authority of Glasier v Rolb (1889) 42 Ch D 436 is cited.”
13.	In my view, although it is true that RSC Order 59 rule 3 expressly refers to a rehearing, the exercise upon which the court was engaged was essentially one of review.  That is I think so, even though the extract from the speech of Viscount Cave in Mersey Docks and Harbour Board v Proctor might suggest that that was not so because of the reference to the court having “full liability to draw its own inferences from the facts proved or admitted”.  However, I observe that CPR rule 52.11.1(4) expressly gives the appeal court (which of course includes this court) power to draw any inference of fact which it considers justified on the evidence.  There is no suggestion that that rule applies only to appeals by way of re-hearing under rule 52.11(1)(b), so that the court has that power when conducting a review.  In these circumstances, it seems to me that in the type of appeal in which the court is asked to reverse findings of fact based upon the credibility of the witnesses, the same approach should be adopted in this court whether the appeal is by way of review or re-hearing. 
14.	The approach of the court to any particular case will depend upon the nature of the issues kind of case determined by the judge.  This has been recognised recently in, for example, Todd v Adam [2002] EWCA Civ 509, [2002] 2 All ER (Comm) 1 and Bessant v South Cone Incorporated [2002] EWCA Civ 763.  In some cases the trial judge will have reached conclusions of primary fact based almost entirely upon the view which he formed of the oral evidence of the witnesses.  In most cases, however, the position is more complex.  In many such cases the judge will have reached his conclusions of primary fact as a result partly of the view he formed of the oral evidence and partly from an analysis of the documents.  In other such cases, the judge will have made findings of primary fact based entirely or almost entirely on the documents.  Some findings of primary fact will be the result of direct evidence, whereas others will depend upon inference from direct evidence of such facts.
15.	In appeals against conclusions of primary fact the approach of an appellate court will depend upon the weight to be attached to the findings of the judge and that weight will depend upon the extent to which, as the trial judge, the judge has an advantage over the appellate court; the greater that advantage the more reluctant the appellate court should be to interfere.  As I see it, that was the approach of the Court of Appeal on a “rehearing” under the RSC and should be its approach on a “review” under the CPR.
16.	Some conclusions of fact are, however, not conclusions of primary fact of the kind to which I have just referred.  They involve an assessment of a number of different factors which have to be weighed against each other.  This is sometimes called an evaluation of the facts and is often a matter of degree upon which different judges can legitimately differ.  Such cases may be closely analogous to the exercise of a discretion and, in my opinion, appellate courts should approach them in a similar way.
17.	In Todd v Adam, where the question was whether a contract of service existed, Mance LJ drew a distinction between challenges to conclusions of primary fact or inferences from those facts and an evaluation of those facts, as follows, at paragraph 129:
“With regard to an appeal to this court (which would never have involved a complete rehearing in that sense), the language of ‘review’ may be said to fit most easily into the context of an appeal against the exercise of a discretion, or an appeal where the court of appeal is essentially concerned with the correctness of an exercise of evaluation or judgment – such as a decision by a lower court whether, weighing all relevant factors, a contract of service existed.  However, the references in r 52 11 (3) and (4) to the power of an appellant court to allow an appeal where the decision below was ‘wrong’ and to ‘draw any inference of fact which it considers justified on the evidence’ indicate that there are other contexts in which the court of appeal must, as previously, make up its own mind as to the correctness or otherwise of a decision, even on matters of fact, by a lower court.  Where the correctness of a finding of primary fact or of inference is in issue, it cannot be a matter of simple discretion how an appellant court approaches the matter.  Once the appellant has shown a real prospect (justifying permission to appeal) that a finding or inference is wrong, the role of an appellate court is to determine whether or not this is so, giving full weight of course to the advantages enjoyed by any judge of first instance who has heard oral evidence.  In the present case, therefore, I consider that (a) it is for us if necessary to make up our own mind about the correctness or otherwise of any findings of primary fact or inferences from primary fact that the judge made or drew and the claimants challenge, while (b) reminding ourselves that, so far as the appeal raises issues of judgment on unchallenged primary findings and inferences, this court ought not to interfere unless it is satisfied that the judge’s conclusion lay outside the bounds within which reasonable disagreement is possible.  In relation to (a) we must, as stated, bear in mind the important and well-recognised reluctance of this court to interfere with a trail judge on any finding of primary fact based on the credibility or reliability of oral evidence.  In the present case, however, while there was oral evidence, its content was largely uncontentious.”
In the same case Neuberger J stressed (at paragraphs 61 to 64) that the question whether there was a contract of service on the facts involved the weighing up of a series of factors.  Thorpe LJ agreed with both judgments.    
18.	Another example of a case which involved the assessment of a number of factors was Bessant v South Cone, where a key question was whether a trade mark should not be registered because it was to be registered for goods which were identical with or similar to those for which an earlier trade mark was protected within the meaning of section 5(2)(b) of the Trade Marks Act 1994.  Robert Walker LJ, with whom Buxton LJ and I agreed, referred to a statement of Buxton LJ in Norowzian v Arks Ltd (No 2) [2000] FSR 363 at p 370, which was approved by at least three members of the House of Lords in Designers Guild Ltd v Russell Williams (Textiles) Ltd [2000] 1 WLR 2416, to Re Grayan Building Services Ltd [1995] Ch 241, per Hoffmann LJ at p 254, and to Pro Sieben Media AG v Carlton United Kingdom Television Ltd [1999] 1 WLR 605, 612, which included the following:
“On the other hand, the standards applied by the law in different contexts vary a great deal in precision and generally speaking, the vaguer the standard and the greater the number of factors which the court has to weigh up in deciding whether the standards have been met, the more reluctant an appellate court will be to interfere with the trial judge’s decision”   
19.	In paragraph 20 Robert Walker LJ also quoted this passage from the speech of Lord Hoffmann in Biogen Inc v Medeva Plc [1997] RPC 1 at p 45:
“The question of whether an invention was obvious had been called “a kind of jury question” (see Jenkins LJ in Allmanna Svenska Elektriska A/B v The Burntisland Shipbuilding Co Ltd (1952) 69 RPC 63, 70) and should be treated with appropriate respect by an appellate court.  It is true that in Benmax v Austin Motor Co Ltd [1955] AC 370 (1955) 72 RPC 39, 42, this House decided that, while the judge’s findings of primary fact, particularly if founded upon an assessment of the credibility of witnesses, were virtually unassailable, an appellate court would be more ready to differ from the judge’s evaluation of those facts by reference to some legal standard such as negligence or obviousness.  In drawing this distinction, however, Viscount Simonds went on to observe, at page 374, that it was “subject only to the weight which should, as a matter of course, be given to the opinion of the learned judge”.  The need for appellate caution in reversing the judge’s evaluation of the facts is based upon much more solid grounds than professional courtesy.  It is because specific findings of fact, even by the most meticulous judge, are inherently an incomplete statement of the impression which was made upon him by the primary evidence.  His expressed findings are always surrounded by a penumbra of imprecision as to emphasis, relative weight, minor qualification and nuance (as Renan said, la vérité est dans une nuance), of which time and language do not permit exact expression, but which may play an important part in the judge's overall evaluation.  It would in my view be wrong to treat Benmax as authorising or requiring an appellate court to undertake a de novo evaluation of the facts in all cases in which no question of the credibility of witnesses is involved.  Where the application of a legal standard such as negligence or obviousness involves no question of principle but is simply a matter of degree, an appellate court should be very cautious in differing from the judge’s evaluation.”
20.	Robert Walker LJ also considered the overlap between the classes of case, with particular reference to what is meant by inferences of fact.  He said (at paragraph 24):
“It is worth reflecting on what judges mean when they speak of ‘inferences’ in this context.  An inference from a number of primary facts may itself be a simple matter of fact.  That is an inference from circumstantial evidence, or what might be called the ‘smoking gun’ kind of inference.  (Inferences from a litigant’s failure to call a particular witness may be in this category.)  In the present context, however, the inference is not a simple matter of fact because it involves a process of evaluation.  It was put very clearly by Viscount Simonds in Benmax v Austin Motor Co Ltd [1955] AC 370, 373 (a patent case on obviousness):
“I cannot help thinking that some confusion may have arisen from a failure to distinguish between a finding of a specific fact and a finding of fact which is really an inference from facts specifically found or, as it has sometimes been said, between the perception and evaluation of facts.”           
21.	Then, after a reference to Edwards v Bairstow [1956] AC 29, Robert Walker LJ said (in paragraph 26):
“How reluctant should an appellate court be to interfere with the trial judge’s evaluation of, and conclusion on, the primary facts?  As Hoffmann LJ made clear in Grayan there is no single standard which is appropriate to every case.  The most important variables include the nature of the evaluation required, the standing and experience of the fact-finding judge or tribunal, and the extent to which the judge or tribunal had to assess the oral evidence.”
22.	Thus the extent to which the findings of fact depend upon oral evidence or what Lord Hoffmann called the “penumbra of imprecision as to emphasis, relative weight, minor qualification and nuance” will vary from case to case.  In the instant case, the judge had the considerable advantage of seeing the witnesses and of assessing their credibility, although, as ever, he did so against the documentary material that was available.  In these circumstances we should, I think, take particular care before holding that his conclusions of fact were wrong, especially since (as appears below) some of his conclusions depended to a significant extent upon the view which he formed of the witnesses.  On the other hand this is not a case in which the judge was concerned to weigh a number of factors such that the judgment which he was called upon to make was a matter of degree.
23.	Finally, I would add that it seems to me that the approach of this court in this kind of case, where it is not suggested that we could rehear the evidence, is or should be the same whether it is conducting a “review” or “re-hearing” as those expressions are used in CPR rule 52.11.  Where the court is concerned with the exercise of a discretion, the difference will be of considerable importance (see eg Audergon v La Baguette Ltd [2002 EWCA Civ 10 and Asiansky Television Plc v Bayer-Rosin [2001] EWCA Civ 1792), but in a case in which the appeal is after a trial on the facts where the judge’s findings of fact are challenged on appeal, this is an example of the kind of case which, as Jonathan Parker LJ (with whom Pill and Tuckey LJJ agreed) said in Audergon (at paragraph 85), a decision by the appeal court whether to hold a rehearing may make little practical difference.             
The appeal
24.	Before the judge ARIG said that it was entitled to avoid the contract for both non-disclosure and misrepresentation on a number of grounds.  It also asserted a breach of warranty.  It no longer asserts any breach of warranty.  Nor does it rely upon all the grounds upon which it previously alleged non-disclosure or misrepresentation.  It does, however rely upon one alleged non-disclosure and two alleged  misrepresentations as follows:
i)	failure by Generali to disclose that the reserving policy adopted by G&T was imprudent or unusual;
ii)	presentation by Generali of materially inaccurate loss statistics; and 
iii)	misleading ARIG as to the participation of Munich Re by stating or implying that it was participating in the whole package and not (as was the case) in only one section.
25.	The judge treated points i) and ii) as effectively raising only one point.  He made findings of fact as to what the reserving policy was, although he said that the methodology used was never really in dispute.  He rejected ARIG’s case that the policy was unusual or imprudent.  He therefore rejected point i) and, with regard to point ii), held that ARIG had not shown that the figures with which it was presented were materially inaccurate.  He further said that he was not satisfied on the balance of probabilities that, had the files been reserved as ARIG’s reserving expert Mr Beckerman said they should have been, it would have made any difference to ARIG’s decision to participate, either initially or for the additional two months in 1993.
26.	As to point iii), which relates to the participation of Munich Re, he held that there was no relevant misrepresentation and, in any event, he did not consider that any such representation as there was played any part in ARIG’s decision to take part in the programme.
27.	It is convenient to consider points i) and ii) under the heading of reserving policy and point iii) under the heading of Munich Re but, before doing so, I should identify the terms of the relevant insurance arrangements and the role of the participants in them.  I shall at the same time consider the date upon which the contract was made which is relevant to the Munich Re point. 
The insurance, reinsurance and retrocession
28.	As stated earlier, in about 1989 Alexander Howden and others developed packages of insurance risks, which essentially concerned builders’ risks in relation to small to medium sized construction projects in the USA, notably in California.  There were two facilities, nos 0956 and 0957.  No 0956 was known as the WK Cooper “Con-Pac” and Allied Trades Package and no 0957 was known as the Alexander Howden Contractors and Allied Trades Package.  The business was first written in 1990 and Alexander Howden initially acted as claims administrator.  However, Generali subsequently entered into the contract with G&T dated 1 July 1991 to which I referred earlier.  Thereafter it was G&T’s responsibility to administer the claims on behalf of Generali.    I am not quite sure what, if any, participation others had in the 1990 and 1991 years, but the position from the beginning of July 1992 was essentially as follows. 
29.	On 18 June 1992 Alexander Howden sent ARIG a fax inviting participation in the two facilities.  The fax described the placings in general terms.  It included the following:
“As you will see these placings are for Contractors involved principally in Residential, Commercial and associated trades coverage is provided on an all jobs basis with no single project being more than $10,000,000 in Contract.
The estimated premium income over both placings in the next twelve months is estimated at approximately US$20,000,000.
As respects the Liability coverage, please note that any account with a known products exposure is automatically disqualified and not even submitted to the Underwriters for an indication of terms.
Each account is subject to a vigorous pre-qualification procedure in the USA and in London before it is even submitted to Underwriter.
This process has contributed to the success of the placing which is demonstrated by the enclosed figures and the premium volume.
The leading Insurers in London are the Assicurazioni Generali Spa with support from the Commercial Union and the Munich Re.
We believe you will find our submissions self explanatory but if you have any questions pleas contact the undersigned.
We now await details of your proposed participation which can be on a reinsurance basis if you wish.”
30.	Attached to the fax were a series of documents which gave details of the proposed business.  Some of the documents are of some significance to the issues in this appeal.  One such document made a number of statements with regard to the business under the heading “Introduction 1992”.  It included the following:
This placing has a proven record in attracting contracting risks.
…. one of the reasons for its success has been the low handling costs for both Producers and Underwriters.
In order that risks may be handled swiftly and economically by both Leading Underwriters and Brokers, business will be handled in the following manner:
1)	Summary sheets will be completed by the Agent, providing details of risk.
2)	The Leading Reinsurer will indicate terms for the risk and these will be submitted by Alexander Howden to their Agent.
3)	If a firm order is obtained, the Underwriter and their Leading Reinsurer will simultaneously bind the risk.
4)	The Agent of Alexander Howden will then issue a Certificate of Insurance to the Assured.  ….
5)	From renewal 1992, premium payment and claims settlement to be by monthly bordereaux.”
The introduction concluded by saying that no major changes were planned for 1992-3, that steps would be taken to simplify policy issuance and that the placing would be strengthened by improving its geographic base into the Pacific North-west, the South-west and the North-east.
31.	A draft slip was attached setting out the terms of the cover, which included two sections as follows.  Section A was essentially two classes of property cover with a limit in each case of US$10,000,000 each and every loss each and every location.  Section B, on the other hand, was liability cover described as comprehensive general liability insurance with a limit of US$1,000,000.  The draft slip set out the general conditions of the cover in detail.  They included condition I, which provided that claims handling procedure was “as per attached agreement”.  No such agreement was attached.  There followed a schedule of agents which included a number of well known brokers.
32.	The next section of material attached to the fax of 18 June was entitled “Premium and Loss Exhibits”.  It included the crucial document, so far as the reserving policy point is concerned, namely a table of figures expressed to be “as at 8th June 1992” as follows:
AHL CONTRACTORS PREMIUM AND LOSS EXHIBIT SECT A & B

FACILITY NO	GROSS PREMIUM	INCURRED LOSSES	LOSS RATIO	
0919089	$   157,653	$    52,275	  33.15%	
0956090	$ 1,649,525	$    19,347	   1.17%	
0956091	$ 3,869,003	$   140,034	   3.62%	
0956090	$ 8,581,632	$ 3,385,943	  39.45%	
0956091	$11,315,479	$   165,899	   1.46%	
	$25,573,292	$ 3,763,498	  14.71%	

33.	The figures for 0956091 were unclear on the fax but the judge reproduced them in his judgment and there is no evidence that they were not sufficiently clear to ARIG at the time.  The only other figures which Generali provided were figures for section A only, in respect of the two facilities for 1991 as follows:
0956091	 $   636,516	 $    12,084	   1.90%	
0957091	$2,000,000	 $  156,572	   7.60%	
	$2,697,116	 $  168,656	   6.25%	
34.	The next document set out details of the reinsurance available to ARIG.  There followed 12 pages of forms to be filled out by prospective insured which set out detailed information required including five years’ loss history.  In all there were 28 pages of various kinds of information attached to the fax.  The judge made these findings of fact as to what ARIG did on receipt of the fax.  The fax was addressed to Mr Hans Gewalt, who was ARIG’s senior underwriter but who was about to take his summer break.  He left a note in Swedish dated 26 June on the fax addressed to his deputy, Mr Ture Anderberg, saying “sorry, Ture but I did not have time to look at these offers”.  Mr Anderberg subsequently passed the fax to Mr Rehman, who was an underwriter in ARIG’s Engineering Department with experience of writing international facultative reinsurance business, including major construction risks.  By the time he looked at the fax the proposed inception date of 29 June had already passed.
35.	It was regarded as an important offer because Mr Anderberg and Mr Rehman felt it necessary to consult Mr Gewalt.  It was also regarded as an unusual risk because ARIG did not ordinarily write small contractors or US based business risks.  Having reviewed the documents, Mr Rehman spoke to Mr Wardlaw and Mr Toms of Alexander Howden on the telephone on 3 July.  During that conference call he made a number of notes on the documents.  In this regard the judge said this in paragraph 16 of his judgment:
“He recalls discussing the capacity which was on offer at that time and the split of the forecast premium of US$20 millions for the next year between sections A and B, and between the AH package and the WK Cooper package.  He discussed the ‘pre-qualification procedures’ and was led to believe, accurately, that AH would initially assess the suitability of the proposal and weed out those which they believed would be unacceptable to underwriters and that the Lead Reinsurance underwriters at Generali would carry out their own assessment and quote terms, where the risk was acceptable.  He also says that he was led to believe that Munich Re was taking 35%, Generali was taking 40% and Commercial Union 20%.  He says he ‘understood’, from the fax and the telephone call that these percentages applied to both sections A and B.  He says that he formed a very favourable impression of the potential business as the brokers had been able to answer all their questions and ‘give the necessary comfort we were looking for’.  He recalls a further telephone conversation with AH on 9 July 1992, when he chased them up for the ‘wordings’ for which he has asked in the earlier call.”
On his copy of the fax of 18 June Mr Rehman noted 40% against Generali, 20% against Commercial Union and 35% against Munich Re.  
36.	On 9 July Alexander Howden sent ARIG four faxes.  The first attached 33 pages of policy wording for section B and for section C, which set out the general conditions applicable to sections A and B.  The second attached 11 pages of additional broking information and graphics which broke down the account into various classifications.  The third attached 21 pages of standard endorsements and the fourth attached 29 pages which comprised an index of the policy, the policy schedule and the policy wording for section A.
37.	On the next day, 10 July, Mr Rehman, on behalf of ARIG, faxed Mr Toms of Alexander Howden as follows:
“Derek, thanks for your patience and input on this placement in view of which, based on your offer 18-6-92 and faxes 9-7-92, we are prepared to accept a 7.5% line of whole to be signed in full subject the CGL R/I available and total deductions to ARIG 30% in all.
Please forward final slip(s) for our signature after finalising all points such as fronting, protection, etc.
Pls note that our liability only incepts from inception of this facility for projects to be declared from now; no run off liability is accepted from previous periods or contracts already having incepted and/or completed.  Pls confirm.  Best rgds.”
38.	On 14 July Mr Rehman received a fax from Mr Toms and Mr Wardlaw of Alexander Howden dated 13 July which included the following:
“… we confirm that we will be using your line of 7.5% on each sections with respect to declarations attaching on or after the 2nd of July 1992.
… we confirm that we have arranged excess of loss re-insurance in respect of your 7.5 % line on the CGL section – section B.  Your re-insurance cover note will be sent shortly.
… we anticipate that you will be writing as a retrocession of the Generali United Kingdom Branch.  Will advise again if this is not the case.  Will send copy of our slip in next day or so.  … we confirm total deductions to ARIG are 30%.
Lastly, we confirm that this placing only apples to occurrences under declarations bound during the twelve months @ July 2nd 1992.  Liability from back years is not transferred …
Trusting all in order and many thanks.”
39.	On 21 July Mr Toms sent Mr Rehman “the retrocession slips, the reinsurance slips which front them and the direct slips” attached to a fax which contained the following:
“We believe that you will find these to be in order and would ask you to authorize your line, where shown on each retrocession slip and fax them back to us immediately.  
We believe you will find everything in order but if you have any questions please contact the undersigned immediately.”
If, which is by no means certain, I have understood the position, the direct slips evidenced the contract between the insured and United, the reinsurance slips fronting the insurance evidenced the contract between United and Generali and the retrocessions slips evidenced the contracts of retrocession between Generali and the retrocessionaires including ARIG.
40.	The judge held that Mr Rehman carefully examined the retrocession slips.  The judge was to my mind right to reach that conclusion; the care that Mr Rehman took can be seen from the questions he asked and the notes he made on the various documents which he reviewed.  He observed that Alexander Howden had carelessly recorded the reinsured’s retention as nil, which would have meant that Generali’ retention was nil.  Mr Rehman pointed out the error to Alexander Howden on the telephone and was told that Generali was retaining 26.3175% for section A and 39% for section B.  He noted those percentages on the slip before reviewing the slip with Mr Gewalt in early September 1992.  
41.	As to participation, the documents sent to Mr Rehman seem to evidence the following.  So far as section B is concerned the position appears to have been this.  Generali wrote a 96.5% line.  The remaining 3.5% was written as to 1.25% by Commercial Union, 1% by Indemnity Marine and 1.25% by Ocean Marine, although it may be that Indemnity Marine and Ocean Marine were part of Commercial Union so that the reinsurers of United were Generali as to 96.5% and Commercial Union as to 3.5%.  Of Generali’s 96.5% line, Generali retained 39% and retroceded the remainder as follows: ARIG 7.5%, GAN 5%, Star 5% and HIH/Wellington 40%.  Thus Munich Re did not participate in section B in any guise. 
42.	The position was somewhat different in the case of section A.  Generali agreed to write a 41% (or possibly 40%) gross line.  Great Lakes, which as I understand it was part of Munich Re, took a 35% line, Commercial Union took 20%, DP Spyer took 1%, Commercial Union took a further 1.25%, Ocean Marine took 1.25 % and Indemnity Marine took an illegible percentage which may have been 1%.  Generali retroceded 7.5% to ARIG.  It is not at all clear (at least to me) what other retrocession was in place for section A risks.  In these circumstances I am not sure how the figure of 26.3175% given to Mr Rehman on the telephone was arrived at, but it is not necessary to analyse the percentages in any detail in order to resolve the issues in the appeal. 
43.	So far as the Munich Re issue is concerned, the only point of significance is that a careful perusal of the documents sent to ARIG attached to the fax of 21 July would have shown Mr Rehman that Munich Re were participating as to 35% in section A and not at all in section B.  It will be recalled that the original fax of 18 June had stated:
“The leading Insurers in London are [Generali] with support from the Commercial Union and the Munich Re.”
It will also be recalled that Mr Rehman was told on the telephone that their relative percentages were 40%, 20% and 35% respectively.  
44.	The relevant slips included the following condition:
“Claims Handling Procedure:- as per the attached agreement.  Claims settlement authority is US$25,000 per claim”
No agreement was attached, but on 26 August Alexander Howden sent Mr Rehman a fax to which were attached “the Claims Handling Procedures which have been agreed on the direct placings” and which were stated to be given to ARIG to complete their file because they were “participating on a reinsurance basis”.  The document attached gave details of various procedures agreed with G&T but did not make any express reference to any reserving policy or methodology.       
45.	On 7 September Alexander Howden faxed Mr Rehman asking him to sign and stamp the reinsurance slips as a matter of urgency.  Mr Rehman discussed the matter with Mr Gewalt.  As the judge put it, he had carefully compared the conditions on the draft slips sent in June with the retrocession slips sent in July for signature and noticed some minor discrepancies which he corrected before signing and stamping the slips and returning them to Alexander Howden.  He did so by attaching signed copies of the following documents to a fax dated 9 September: the retrocession slips on the basis that ARIG’s participation was 7.5% of the whole, the CGL reinsurance terms and the original/main placing slips.  I note that ARIG’s copy of the fax contains a box stating that it was sent on 8-9-92 and that on its copy of the Alexander Howden fax of 21 July Mr Rehman noted “Replied 8-9-92”. 
46.	The documents as signed by Mr Rehman do not explain how the 26.3175% is arrived at.  On the retrocession slips prepared by Alexander Howden ARIG’s participation was stated to be 7.5%, although in one case the words “NB Signing 95.70%” were added.  In each case in the box marked “Acceptance” Alexander Howden had written “Fax 10-7-92”, which was presumably a reference to the fax sent by Mr Rehman to Alexander Howden referred to above.  By contrast, in each of the four boxes signed by Mr Rehman, which were of course in respect of sections A and B of each of the facilities, the percentage stated was “7.5% line of whole” and the date was 07-09-92, although the fax was sent on 9 September. 
47.	There was an issue between the parties at the trial as to when the contracts were made.  This was relevant only to the question whether ARIG was induced to enter into them by a misrepresentation by or on behalf of Generali as to the participation of Munich Re.  It was said by ARIG that in the fax of 18 June and the subsequent telephone conversation on 3 July Alexander Howden represented on behalf of Generali that Munich Re participated as to 35% in the whole cover, that is in sections A and B, that that representation was material, that it was untrue because Munich Re was participating only in section A, that ARIG was induced to enter into the contracts by the misrepresentation and that the contracts were made by its fax of 10 July.  
48.	Generali’s case, on the other hand, may be summarised as follows.  Alexander Howden made no representation as to the participation of Munich Re in either the fax of 18 June or the subsequent telephone conversation or, if it did, nothing written or said amounted to a representation that Munich Re’s participation was 35% in both sections A and B.  If that was wrong, no representation made was material and in any event it did not induce ARIG to enter into the contracts.  In any event the contracts were made on 9 September, by which time any misrepresentation had been corrected because by then ARIG had been told that Munich Re’s participation was restricted to section A.  
49.	I shall return to the judge’s findings on those issues below, but it is convenient to note here that the judge held that the contract was made on 9 September and not earlier.  ARIG challenges that conclusion in this appeal.  The judge set out his reasons in paragraph 23 of his judgment as follows:
“(1)  The fax of 18 June 1992 was an invitation by AH to ARIG to treat.  It did not amount to an offer since, amongst other things, it did not specify the respect in which ARIG could participate – whether a co-reinsurer of United or as a retrocessionaire of Generali.
(2)  ARIG’s fax of 10 July 1992 was not an acceptance of an offer, because no offer had been made and in any case the acceptance of a 7.5% line could have been on the basis of a co-insurance [where the contracting party would include United] or a retrocession [where the contracting party would be Generali].
(3)  The reference by ARIG in that fax to the need for AH to send final slips for signature after finalising points on matters such as fronting, protection etc is significant for two reasons: first, it shows that as at that date ARIG did not regard the contract as concluded because there were terms and conditions still to be sorted out and agreed; and second, it shows that ARIG regarded the formal act of scratching the slip as the last step in the contractual chain.
(4)  The fax from AH saying that ‘we will be using your line of 7.5% still left open the question whether ARIG was contracting as retrocessionaire or as co-insurer.  That issue remained to be resolved and, until it was, there could not have been a concluded contract.  When AH had decided in which capacity ARIG was to contract they did so at the same time as sending ARIG the final slips to scratch which they asked to be returned signed and stamped as a matter of urgency.  It was only when these slips were sent that ARIG’s contractual position had been clarified.
(5)  From an objective analysis of the contractual documents, it seems to me clear that both parties intended the contract to be concluded when the slips were scratched and returned by ARIG to AH.  That would be the usual method by which insurance, reinsurance or retrocession was concluded.  Thus, in my judgment, the contract was only concluded in September when that step was taken by ARIG. ”
50.	Mr Flaux submitted that the judge was wrong to hold that the contracts were not made until 9 September and that he should have held that they were made on 10 July.  Although the parties had reached a large measure of agreement by the time Mr Rehman sent the fax of 10 July, I agree with the judge that no binding agreement was made until 9 September.  In particular, no agreement had been reached as to who the other party to the contract was going to be and, as I read the fax, Mr Rehman was saying that once points of that kind were resolved the agreements would come into existence when ARIG signed the slips.  
51.	In short, I agree with the judge that an objective analysis of the documents supports the conclusion that both parties intended that the contracts would be concluded when the slips were scratched and returned to Alexander Howden.  Mr Flaux criticised the judge’s statement that that would be the usual method by which, insurance, reinsurance or retrocession was concluded.  While it may be going too far to say that it would be the usual method of contracting, it is certainly a method often used.  In any event, as I read his judgment, his conclusion was essentially based upon an analysis of the documents.  As already stated, I agree with that analysis.     
Legal principles
52.	Before considering the issues of fact, it is convenient to discuss briefly the relevant legal principles.
Non-disclosure
53.	It is common ground that the relevant principles are stated by the House of Lords in Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co Ltd [1995] 1 AC 501.  In order to be entitled to avoid a contract of insurance or reinsurance on the ground of non-disclosure the insurer or reinsurer must show that the fact not disclosed was material and that its non-disclosure induced the contract.
Misrepresentation
54.	In order to be entitled to avoid a contract for misrepresentation an insurer or reinsurer must prove that he was induced to enter into the contract by a material misrepresentation made by or on behalf of the insured or reinsured.  That principle is not in dispute. 
Materiality
55.	In Pan Atlantic the House of Lords, by a majority, held that to be material a fact did not have to have a decisive influence on the mind of the prudent underwriter.  The test is that stated in subsections 18(2) and 20(2) of the Marine Insurance Act 1906, which relate to non-disclosure and misrepresentation respectively and which the House of Lords held set out the common law principles relevant to non-marine (as well as marine) insurance.  The subsections are in the same terms and provide:
“(2)	Every circumstance is material which would influence the judgment of a prudent insurer in fixing the premium, or determining whether he will take the risk.”
Inducement
56.	In Pan Atlantic the House of Lords held that the material non-disclosure or misrepresentation must induce the contract.  It was expressly held that it is not sufficient that the non-disclosure or misrepresentation is material.  Lord Mustill expressed his conclusion in this way at page 549D-E:
“For these reasons I conclude that there is to be implied in the Act of 1906 a qualification that a material representation will not entitle the underwriter to avoid the policy unless the misrepresentation induced the making of the contract, using “induced” in the sense in which it is used in the general law of contract.”
57.	It was not necessary for Lord Mustill to consider the precise meaning of “induced” in the general law of contract.  Lord Mustill did, however, refer to a presumption of inducement which has been given some consideration subsequently: see eg Clarke on The Law of Insurance Contracts, 3rd edition paragraph 22-3C, Arnould on The Law of Marine Insurance, 16th edition, volume 3, paragraph 611, and St Paul Fire & Marine Insurance Co (UK) Ltd v McConnell Dowell Constructors Ltd [1995] 2 Lloyd’s Rep 116.
58.	In paragraph 611 of Arnould the editors say:
“Under the general law, a misrepresentation need not be the sole inducement, but must have been a real and substantial cause affecting the decision of the representee to enter into the contract, or to do so on the terms agreed.”
They cite as examples JEB Fasteners Ltd v Marks, Bloom & Co [1983] 1 All ER 583 and Edgington v Fitzmaurice (1885) 29 ChD 459.  In paragraph 22-3C of Clarke it is said that what is usually required is what is identified as a type B representation, which is defined as follows:
“Type B is a representation such that, if the recipient had known the truth, he would still have been willing to make the contract, but only on different terms, notably, but not only as to premium.”
59.	It seems to me that the true position is that the misrepresentation must be an effective cause of the particular insurer or reinsurer entering into the contract but need not of course be the sole cause.  If the insurer would have entered into the contract on the same terms in any event, the representation or non-disclosure will not, however material, be an effective cause of the making of the contract and the insurer or reinsurer will not be entitled to avoid the contract.  Thus I agree with Sir Christopher Staughton, whose judgment I have seen in draft, that, in this context at least, causation cannot exist when even the ‘but for’ test is not satisfied; cf the recent decision of the House of Lords in a very different context in Fairchild v Glenhaven Funeral Services Limited [2002] UKHL 22.
60.	Those principles seem to me to be consistent with the approach of this court in St Paul Fire & Marine v McConnell: see per Evans LJ (with whom Rose and Nourse LJJ agreed) at pages 124-5, where he discussed the general principles, and at page 127, where he held that, if the three underwriters who gave evidence had been told the truth, on no view would they have underwritten the insurance at the same premium on terms which included subsidence risk.  Evans LJ also considered the role played by presumption in this class of case.  He did so in the context of a fourth underwriter who was not called to give evidence, no doubt because the trial took place before the decision of the House of Lords in Pan Atlantic.
61.	Evans LJ put the position thus at page 127:
“The existence of such a presumption is recognised in the authorities; see Halsbury’s Laws vol 31 par 1067 where the law is stated as follows:
Inducement cannot be inferred in law from proved materiality, although there may be cases where the materiality is so obvious as to justify an inference of fact that the representee was actually induced, but, even in such exceptional cases, the inference is only a prima facie one and may be rebutted by counter evidence.
The authorities cited include Smith v Chadwick (1884) 9 App Cas 187 and in my judgment they justify the above statement of the law.  This provides a reminder of the need to distinguish “materiality” from “inducement”, although inevitably the two overlap.
Here, the evidence of the three underwriters who did give evidence and of the expert witnesses was clear.  If the underwriters had been told the true state of the ground conditions, as revealed by the 1982 report, and of the conflicting views expressed by the authors of that report and by Worleys, then they would have called for further information and in all probability either refused the risk or accepted it on different terms.  In fact, all four underwriters including Mr Earnshaw accepted it without any relevant enquiries.  There is no evidence to displace a presumption that Mr Earnshaw like the other three was induced by the non-disclosure or misrepresentation to give cover on the terms on which he did.  In my judgment, these insurers also have discharged their burden of proof.”
It appears to me that a presumption of this kind really amounts to no more than this.  It simply operates where the evidence before the court is enough to lead to the inference that the insurer or reinsurer was, as a matter of fact, induced to enter into the contract. 
62.	In all the circumstances I would summarise the relevant principles of inducement in this context in this way:
i)	In order to be entitled to avoid a contract of insurance or reinsurance, an insurer or reinsurer must prove on the balance of probabilities that he was induced to enter into the contract by a material non-disclosure or by a material misrepresentation.
ii)	There is no presumption of law that an insurer or reinsurer is induced to enter in the contract by a material non-disclosure or misrepresentation.
iii)	The facts may, however, be such that it is to be inferred that the particular insurer or reinsurer was so induced even in the absence from evidence from him.
iv)	In order to prove inducement the insurer or reinsurer must show that the non-disclosure or misrepresentation was an effective cause of his entering into the contract on the terms on which he did.  He must therefore show at least that, but for the relevant non-disclosure or misrepresentation, he would not have entered into the contract on those terms.  On the other hand, he does not have to show that it was the sole effective cause of his doing so.
Correcting a misrepresentation
63.	Where the insured or reinsured corrects the misrepresentation or discloses the material fact before the insurer or reinsurer enters into the contract, the latter will not be entitled to avoid the contract for misrepresentation or non-disclosure.  In such circumstances it may be said that there was no longer any or any material misrepresentation or non-disclosure or it may be said that there was no inducement.  Perhaps it does not matter.  
64.	The correction must be fairly made to the insurer or reinsurer such that the corrected picture is fairly presented on behalf of the insured or reinsured and comes to the knowledge of the insurer or reinsurer.  It is not sufficient to say that he would have discovered the true position if he had acted with all due care: see eg Chitty on Contracts, 28th edition, vol 1 paragraph 6-036 and Redgrave v Hurd (1881) 20 ChD 1.  As I see it, it will in each case be a question of fact whether the misrepresentation was corrected so as to ensure that the corrected facts came to the knowledge of the insurer or reinsurer or whether, when the contract was made, the insurer or reinsurer was induced to make it by the original material misrepresentation or non-disclosure.                     
Munich Re
65.	Although this is the third of the three points identified above, it is convenient to consider it first because it naturally follows from the primary facts set out above.  I have set out the issues between the parties which are relevant to the Munich Re point above.  The judge’s conclusions, which are to be found in paragraphs 28 to 31 of his judgment, may be summarised as follows:
i)	The fax of 18 June did not contain any representation that Munich Re participated in the whole package.  The words “with support from the Commercial Union and the Munich Re” in the fax of 18 June could not mean more than that Munich Re were participating in the packages and did not necessarily mean that they were participating in both sections A and B.  Mr Rehman misunderstood the position because he wrongly thought that it was not possible to participate in only one of the packages, although (as I read his judgment) the judge expressed considerable scepticism as to whether Mr Rehman was really of that view. 
ii)	As to the telephone conversation on 3 July, the judge said this in paragraph 31:  
“I am not prepared to place any great weight on the oral conversation between Mr Wardlaw and Mr Rehman at the beginning of July 1992.  Mr Wardlaw had no recollection of the conversation; the witnesses were dealing with something that occurred 9 years ago and for which there are no notes relevant to this issue.  Mr Wardlaw says he thinks he would have explained the full position about Munich Re’s participation.  I doubt he did so because Mr Rehman had obviously talked himself into believing that participation could only be across the board.  The most obvious explanation for how this issue came to the fore is simply that Mr Rehman has misled himself and thought, through his own ignorance, that support from Munich Re must have involved their participation in both Sections of both packages.  The truth was staring at him in the face.  It is most improbable that the brokers would have negligently or deliberately misrepresented the position when the true position was there for all to see.”
iii)	In any event the judge did not consider that what was said about Munich Re played any part in the decision taken ARIG to participate in the programme.  In reaching that conclusion he placed particular reliance upon the oral evidence of Mr Anderberg to which I refer below.
Misrepresentation
66.	I agree with the judge that the fax of 18 June does not itself contain a representation that Munich Re and Commercial Union were participating in both sections of the cover.  It merely asserts that the leading insurers were Generali with support from Munich Re and Commercial Union.  That statement seems to me to be consistent with their participating in only part of the cover, especially where any consideration of the documents would show that the business was divided into two sections and there was no reason at all why it should not be possible to participate in one and not the other.
67.	However, for my part, I do not think that it is possible to dismiss the evidence as to what was said in the telephone conversation on 3 July in quite the summary way in which the judge did in the passage quoted above.  In particular, it is not correct to say that no notes relevant to this issue were made at the time.  On the contrary, on his copy of the fax Mr Rehman noted 40%, 20% and 35% against Generali, Commercial Union and Munich Re respectively.  That seems to me to afford strong support for his evidence that he was told that those were the percentage participations of each and for the conclusion that, if he had been told that any of the percentages related to only one section of the business, he would have noted that fact on the fax.
68.	That seems to me especially to be so given that one of the percentages related to Generali.  It must have been clear that Generali was participating in the whole of the cover and it seems to me to be a reasonable inference from the fact that Mr Rehman noted one percentage against each that he understood that they were each participating on the same basis, albeit in different shares.  I would therefore hold that, although the fax itself did not contain the representation alleged, it was represented to Mr Rehman in the course of the telephone conversation that Generali were participating as to 40%, Commercial Union as to 20% and Munich Re as to 35%.  
69.	It is of course possible that Mr Rehman was told that those were the percentages of their respective participation in section A, since those were indeed the true figures for section A.  However, if that was indeed what he was told, it is difficult to understand why he did not note that fact on the fax.  To my mind it is more likely that he understood from what he was told that those were the percentage participations of each in the whole business.  In these circumstances, I would hold that it is more probable than not that that is what he was told.  
70.	It is common ground that any such representation was a misrepresentation because it was not true, since Munich Re was only participating in section A and not in the much more risky section B.  Given my earlier conclusion that the contracts were not made until September, the next question is whether the misrepresentation was corrected by the slips attached to Alexander Howden’s fax of 13 July, which show that Munich Re’s participation was limited to section A.
71.	Mr Flaux submitted that the slips were not sufficient to correct the misrepresentation.  Although he accepted that the slips attached to the 13 July fax show that Munich Re (ie Great Lakes) only participated in section A, he submitted that simply to include that information in the middle of a considerable amount of complex documentation was not enough  to correct the untrue representation made on the telephone on 3 July.  He submitted that ARIG’s attention should have been specifically drawn to the fact that the documents contained different information as to the participation of Munich Re from that which he has been given earlier.
72.	Mr Flaux placed some reliance upon the decision of Hobhouse J in Abrahams v Mediterranean Insurance and Reinsurance Co Ltd  [1991] 1 Lloyd’s Rep 216, but he properly accepted that the case is not directly in point and I have not found it to be of particular assistance in this context.  I have already expressed my view that each case depends upon its own facts.  On the facts here, there is I think force in Mr Flaux’s point that, having misrepresented the true position on 3 July, it was incumbent upon Generali, or its brokers Alexander Howden, expressly to bring the true position to the attention of ARIG, that they failed to do so by doing no more than including the participation of Great Lakes on the slips and that, since no-one at ARIG in fact appreciated the true position, ARIG was induced to make the contracts by the original representation.  It is not, however, necessary finally to resolve this question in order to determine the Munich Re point because of my conclusion on inducement, to which I now turn.          
Materiality and inducement
73.	The judge did not consider materiality separately but expressed his conclusion that ARIG was not induced to enter into the contracts by any misrepresentation as to the participation of Munich Re in paragraph 30 in these terms:
“But in any event I do not consider that what was said about Munich Re played any part in the decision taken by ARIG to participate in the programme.  Although Mr Anderberg suggested in his witness statement that but for Munich Re’s participation ARIG would not have participated, his position modified when he gave evidence.  Quite rightly, I think, he said that the decision taken by ARIG whether or not to participate was taken on the merits of their appraisal of the risk but that the fact Munich Re was also a participant was a comfort factor after the decision had been taken.”
74.	Mr Boyd submitted that that conclusion was justified on the evidence.  He relied in particular upon the following exchange during the cross-examination of Mr Anderberg:
“A.	Am I right in thinking that you are asking me a question -- because it is quite a long question -- that the Munich Re decision did not have any impact on our own decision?
Q.	On your underwriting judgment, on deciding whether or not to accept this risk, that is what I am asking.
A.	You know, we are making an independent underwriting.
Q.	I am sure you are.
A.	On all risks.  All the other factors involved here -- the excellent figures, et cetera -- indicated that this was a very profitable account and I am sure we would have written it without the participation of Munich Re, I am sure.  It was a comfort factor but Munich Re is not guiding our underwriter, we are guiding our underwriting ourselves.
MR JUSTICE MORISON:	The position is that you take an independent underwriting decision, having made the decision to participate, you are feeling comfortable with that decision having regard to the participation of Munich Re in the programme.
A.	Yes.”    
75.	It appears to me that on that evidence the judge was entitled to conclude that ARIG would have entered into the contracts whether Munich Re was a participant or not.  Mr Flaux submitted, however, that the judge should have had regard to other evidence given by Mr Anderberg, including his evidence in re-examination as follows:
“Q	If you had been told that Munich Re was on section A and section B at the time you assessed the risk, and then just before you accepted the line you were told that Munich Re was not, in fact, on section B, what view would you have taken?
A	I would have been very puzzled, asking “why”, because this was a profitable account and I would have gone back to the producer and asked them for a clarification and why Munich Re did not participate in section B, which was actually, as far as I remember, when we were asking for the premium split it generated, on the advice premium volume of 20 million, it actually generated 75 per cent.  Why should Munich Re not participate on this 75 per cent of the 20 million if it was a profitable account with good prospects?  That would have been my immediate reaction.
If I would not have got any clarification which I could buy, I would have declined participation.”
76.	Mr Anderberg did not speak with one voice throughout his evidence.  As the judge pointed out, his evidence in his witness statement was different from that which he gave in cross-examination.  The judge had to weigh up the whole of his evidence including what he said in both cross-examination and re-examination.  There was no evidence as to why Munich Re participated only in section A or as to what they (or indeed Generali) would have said if asked the question suggested by Mr Anderberg in re-examination.  I have reached the clear conclusion that the judge was entitled to reach the conclusion which he did and to hold that what was said about Munich Re played no part in ARIG’s decision to participate.
77.	Since preparing this judgment in draft I have seen Ward LJ’s draft judgment.  I recognise that he has formed a different view on this point.  He has also set out more of the evidence than I have.  I have reconsidered the question of inducement in the light of his judgment.  In doing so I have reconsidered all the evidence including the evidence which he has set out.
78.	I agree with Ward LJ that in determining whether the insurer or reinsurer was induced to enter into the contract the court does not embark upon the exercise of finding the decisive cause or the main reason.  However, I remain of the view that the non-disclosure must be an effective (or as Arnould puts it in the passage quoted in paragraph 58 above) a real and substantial cause of the decision to enter into the contract.  That conclusion seems to me to be supported by the passages from the judgments in Edgington v Fitzmaurice quoted by Ward LJ.
79.	Having reconsidered the evidence I also remain of the view that it was open to the judge to conclude that what was said (or written) about the participation of Munich Re played no part in ARIG’s decision to participate.  In short, it was open to the judge to hold that ARIG had not shown that, if it had known that Munich Re was participating only in section A, it would not have entered into the contracts or would have taken some other share and I can see no basis upon which this court could properly interfere with that conclusion.  
80.	It follows that it is not necessary for us to consider materiality separately, any more than it was necessary for the judge to do so.  Finally, I would simply observe that, even if the misrepresentation was material, there is no inconsistency between such a conclusion and the conclusion that it did not induce the contract.  As was expressly held in Pan Atlantic, in order to show that a misrepresentation is material, it is not necessary to show that it would have a decisive influence on the mind of a prudent underwriter, whereas in order to show that a misrepresentation induced the contract it is necessary to show (at least) that, but for the misrepresentation, the particular underwriter would not have made the contract, either at all or on the terms on which it was in fact made.
81.	For these reasons, in agreement with Sir Christopher Staughton, I would dismiss the appeal in so far as it relies upon the Munich Re point.  I turn to reserving policy.
Reserving policy
82.	The only figures presented to ARIG by Generali before the initial contracts were made were those attached to the fax dated 18 June which I have set out in paragraphs 32 and 33 above.  The only other figures were those similarly produced as at 18 March 1993 when ARIG was considering renewing the contracts for two months from 2 July to 1 September 1993.
83.	They were as follows:  
“CONTRACTORS PREMIUM AND LOSS UPDATE SECTIONS A & B

FAC NO	GROSS PREMIUM	PAID	OUT-STANDING	INCURRED
Paid & O/S	LOSS
RATIO
	
910989
	$     233,991	$       31,772	$          NIL	$       31,772	13.57%	
956090
	$  1,666,516	$       21,833	$    456,732	$     478,565	28.70%	
956091
	$  4,596,397	$     223,529	$    249,454	$     472,983	10.29%	
956092
	$  3,245,289	$           NIL	$      10,500	$       10,500	00.32%	
957090
	$ 10,237,000	$  2,661,930	$  1,783,384	$  4,445,314	43.42%	
957091
	$ 13,334,976	$     330,181	$  1,162,273	$  1,492,454	11.20%	
957092
	$ 11,986,078	$         4,027	$     160,223	$     164,250	01.37%	
						
TOTAL	$ 45,300,347	$  3,273,272	$  3,822,566	$  7,095,838	  15.66%	

Those figures excluded a particular loss in respect of which coverage was not renewed and were stated to be provided by the third party claims administrator (“TPA”), which was of course G&T, as being in excess of deductibles and self insured retentions (“SIRs”).
84.	As in the case of the earlier figures, Alexander Howden also provided the figures referable to section A only, as follows (ignoring the cents):
“FAC NO	GROSS PREMIUM	PAID	OUT-STANDING	INCURRED
Paid & O/S	LOSS
RATIO
	
956091
	$    749,418	$      96,264	$      76,633	$     172,897	23.07%	
956092
	$    394,640	$           NIL	$       6,000	$        6,000	01.52%	
957091
	$  2,332,347	$     148,970	$    366,789	$   515,7594	22.11%	
957092
	$  2,217,193	$         4,027	$      78,223	$      82,250	03.71%

TOTAL	$  5,693,598	$    249,261	$    527,645	$    776,906	  13.65%	
						
85.	The judge observed that it was common ground that both sets of figures were largely accurate as a statement of what was shown on the books of G&T.  They were the result of G&T’s reserving policy.  So far as necessary, I shall return below to what, if anything, they reveal but it is first appropriate to identify ARIG’s case on both non-disclosure and misrepresentation.  By a re-amended defence and counterclaim dated April 2000 ARIG alleged that 
“… [Generali] failed to disclose to [ARIG] that the claims administrator at all material times … [G&T] operated an unusual and/or imprudent reserving policy.”
It was further alleged that that failure was a failure to disclose a material fact and that, as a result, Generali presented materially inaccurate loss statistics in the two sets of figures set out above.  Finally it was said that ARIG was thereby induced to enter into the contracts.
86.	The judge described the position thus in paragraphs 37 and 38:
“What is complained of is [the figures’] misleading character.  ARIG say that the figures would have looked quite different had the TPA [ie G&T] not operated an unusual and imprudent reserving policy.
Through Mr Simon QC, ARIG put their case on the need to disclose the reserving policy in two separate ways.  He submitted that the reserving policy was imprudent and unusual and, ipso facto, should have been disclosed as a material fact as a part of the fair presentation of the risk.  Second, he submitted that without disclosure of it, the figures presented in the fax of June 1992 and in March 1993 were materially misleading.  I agree with Mr Collins QC on behalf of Generali that there is effectively only one point.  The reserving policy is not itself a material fact which requires to be disclosed.  The evidence was clear on this point.  An underwriter would only be expected to be informed of such a policy if it were unusual and imprudent so that it rendered the figures showing the ratio of losses to premiums unreliable.  Was the policy unusual and imprudent so that the figures disclosed were misleading?  Mr Simon’s two points merged into just one.”
87.	ARIG challenges that conclusion in this appeal but, before giving such consideration as may be necessary to the question whether the judge was correct, it is convenient to consider whether G&T’s reserving policy was unusual or imprudent as alleged by ARIG.  This involves a consideration of what that policy was, what the relevant standards were at the time and whether the policy met those standards.  It also involves a consideration of the views formed by the judge as to the expert witnesses called on both sides. 
The expert witnesses
88.	In considering G&T’s reserving policy, the judge had the benefit of the evidence of two expert witnesses called on behalf of ARIG and one expert witness called on behalf of Generali.  ARIG called Mr Kiverstein and Mr Beckerman.  Mr Kiverstein is an accountant and statistician and Mr Beckerman is a US attorney, with considerable claims experience.  Mr Kiverstein carried out an analysis of the results of the coverage as at 1999 and 2000.  He prepared a schedule which formed the basis of Appendix A to ARIG’s pleaded case.  As explained in the judgment, Appendix A contained some 702 entries out of an available 954 claims reported up to 18 March 1993.  
89.	Mr Kiverstein calculated two figures for “expense reserves”, by which he meant both a reserve against the expense of investigating and resisting the claim and a reserve against liability in respect of the claim.  The “expense reserves” thus included an element for indemnity reserves as well as expense reserves properly so called.  The two figures were included in Appendix A, which ARIG initially used to identify the loss ratios which it said that the figures presented to it on inception and renewal would have shown if Generali had not had an unusual and imprudent reserving policy.  They were mostly US$10,000 for section A and US$40,000 for section B. Those figures were then used in many cases instead of nil which appeared in the G&T documents.  The problem with them was, however, that they were based upon the actual results in 1999 and 2000.  They were thus calculated statistically looking backwards.  As the judge put it, they were formulaic in the sense that they were calculated by taking the losses and applying a mathematical averaging process and then rounding the derived figure downwards.  
90.	Mr Kiverstein accepted that the reserves so calculated were not reserves which the TPA would make if approaching the reserving process on a case by case basis.  The judge expressed his conclusions as to the value of this part of Mr Kiverstein’s evidence in this way in paragraphs 43 and 44 of his judgment:
“It seemed to me that Appendix A did not provide the particulars which it purported to provide.  As he said, “my reserve of $40,000 cannot be compared to the reserve needs on any individual file.”  He also explained that his Appendices omitted any deductions for deductibles and … SIRs. … But, crucially, the claims population upon which Mr Kiverstein prepared his work, namely some 5,452 claims, was different from the claims which were known about in June 1992 and March 1993, namely 512 claims and 954 claims respectively. 
It became apparent to ARIG’s advisers that valuable as Mr Kiverstein’s work may have been to ARIG he was not the witness who could talk about the Gay & Taylor reserving policy in response to Generali's expert, Mr Palange.”
91.	Mr Kiverstein was not in the event used as ARIG’s reserving expert, since he approached the problem statistically, looking back in the light of hindsight, and not looking forward as G&T had to do at the time.  It was no doubt in part at least for that reason that ARIG instructed Mr Beckerman, who gave evidence critical of G&T’s system or methodology.  He was instructed to advise ARIG in response to the opinion of Mr Palange.  
92.	In the context of this appeal it is to my mind important to note that the judge formed an unfavourable view of Mr Beckerman and a favourable view of Mr Palange.  The advantage of a trial judge in assessing the evidence of expert witnesses with regard to expert evidence was noted by Brandon LJ in Joyce v Yeomans [1981] 1 WLR 549 at p 556:
“In my judgment, even when dealing with expert witnesses, a trial judge has an advantage over an appellate court in assessing the value, the reliability and the impressiveness of the evidence of the experts called on either side.  There are various aspects of such evidence in respect of which the trial judge can get the ‘feeling’ of a case in a way in which an appellate court, reading the transcript, cannot.  Sometimes expert witnesses display signs of partisanship in the witness box or lack of objectivity.  This may or may not be obvious from the transcript, yet it may be quite plain to the trial judge.  Sometimes an expert witness may refuse to make what a more wise witness would make, namely, proper concessions to the viewpoint of the other side.  Here again this may or may not be apparent from the transcript, although plain to the trial judge.  I mention only two aspects of the matter, but there are others.”
Brandon LJ was there considering the evidence of medical experts, but in my view the same principles apply to all experts including experts on reserving.             
93.	The judge expressed this view of the evidence of Mr Beckerman in paragraph 44 of his judgment:
“I have to say at once that I did not regard Mr Beckerman’s evidence as particularly helpful or reliable.  In the most general terms he tended to advocate ARIG’s case, no doubt through considerable experience of advocating claims in the US courts, often, I suspect, before a jury.  He did not quite have the presence, authority and balance to be expected of an independent expert.  But he was labouring, I think, under the disadvantage of being instructed late. … He was adamant that a claims handler MUST post a reserve within 30 days of a claim being made.  He went on to say that he did not regard a 90 day delay as acceptable.  30 days was a US industry standard.  There was no mention of this standard in his report, nor in the joint memorandum prepared by the experts nor in a book on the subject to which he helpfully drew our attention.  He was of the view that there were really no exceptions to this standard.  He felt able to make judgments about the adequacy of the reserves in relation to files for which he had only one piece of paper extracted.  I consider that he exaggerated the need for a reserve in 30 days and was not prepared to look at the matter from the perspective of a claims handler in 1992/1993.  Broadly speaking, I felt unable to rely upon Mr Beckerman’s evidence unless it was consonant with the evidence of Mr Palange.” 
94.	By contrast, the judge expressed this view of Mr Palange in paragraph 45:
“Mr Palange gave me confidence about the reliability of his evidence.  He is well qualified to give his opinion in this case.  He has conducted “literally hundreds” of reserve and technical audits of US Insurers’ claims departments and TPAs.  What he did was to carry out a sampling of 144 original files which he selected from Appendix A.  He said, and I accept, that he selected samples of large and small incurred losses, large and small paid losses and a sampling of all sizes of loss where Appendix A had used the figure of US$40,000 (repetitively).  He reached a number of conclusions, based on his own analysis of complete files chosen at random within the parameters set out, which I accept and find as follows.”
The judge then made a series of findings of fact to which I shall return below.  For present purposes it is important to note that the judge’s conclusions were influenced to a considerable degree by the adverse view which he formed of Mr Beckerman as compared with the favourable view which he formed of Mr Palange.  In considering the arguments advanced in this appeal, that is to my mind an important factor which we should keep in mind.
G&T’s reserving policy 
95.	Generali called the then Claims Director of the Program Risk Division of G&T, Mr Junior Reynaud, to describe the reserving policy carried out by G&T.  The judge plainly regarded him as an impressive witness.  In paragraph 46 the judge summarised the principal features of his evidence as to the policy adopted by G&T as follows:
“(1)	In almost every case, a claim under the programme would be in the form of a law suit.  Claims were attended to immediately on receipt.  He would look at the claim, as he looked at all of them in the early years.  It would be allocated to a claims examiner, of whom there were 33 and entered in the system.
(2) 	A nil reserve was set until Gay & Taylor were in a position “to set a loss reserve that properly represented underwriters’ most likely financial exposure in the context of coverage provided by the insurance policy”.  This was rarely possible before extensive investigation had been carried out in the circumstances surrounding the event which had given rise to a claim.”  The court papers served on the insured would not usually contain sufficient information to set a reserve; for example, the formal claim might or might not contain a date of loss.  
(3) 	Every claim made in the form of legal proceedings would be reviewed with coverage and defence counsel.  In almost every such case, the files in the Court Depository would have to be looked at by coverage counsel whom Mr Reynaud often accompanied.  The purpose of the search was to establish dates of ‘loss’ and ‘occurrence’ [this was prior to the decision in the Montrose case]; an indication of the damages being sought; a listing of all the insurance carriers and a listing of all sub-contractors.  Once the sub-contractors had been identified it was usually possible to say from whom indemnities might be sought and whether the loss fell outside the insurance year.  If the claim was large, then the amount of documentation would increase in size.  However, completion of this process would not usually provide Mr Reynaud with sufficient information to set a reserve.  It might take anything up to three years from first notification before sufficient information was available to set appropriate loss reserves.
(4) 	In summary, it was not possible to set a loss reserve which properly represented underwriters’ most likely financial exposure “until I had all of the information regarding the circumstances surrounding events that gave rise to the claim”.
(5) 	As regards expense reserves it was not unusual to set a nil reserve because the insured had a minimum deductible/SIR of $2,500 (up to $50,000).
(6) 	As and when necessary, a reserve (and the file) would be reviewed.”
96.	The judge added that Mr Reynaud said that the reserving policy used by G&T was not unique in the United States or in the insurance industry.  He said that it was the policy used by his former employers, who were a large insurance group and by the Alexander Howden Property Claims Division, by whom he was employed for a short period.  No-one had complained about it.  The judge accepted this evidence, as in my opinion he was entitled to do.  
97.	It was always recognised by Mr Reynaud that G&T’s system did not involve a set period within which a reserve must be put on a claim.  His evidence was in effect that it was not sensible, or indeed possible, to do that because of the complexity of some of the claims advanced.  The judge made further findings as to the system adopted in paragraph 45 of his judgment which are set out below.  Those findings included the following specific finding as to the system adopted:
“Gay & Taylor adopted a form of case reserving.  That is, the reserves were applied on a case by case basis.  Initially a nil reserve was set when a new file was opened and the claim would be investigated both as to ‘coverage’ and liability, often through outside attorneys or independent adjusters.  Once the likely outcome was capable of being assessed, Gay & Taylor did not adopt a policy of stair step reserving, but pursued a policy of ‘one-time’ reserving “that is to say, to establish a reasonably accurate reserve for the first time it was set once adequate and accurate investigation information was received.”       
98.	It was submitted to the judge that in expressing his opinions Mr Palange treated G&T’s policy as being different from what it was because, it was said, Mr Palange knew that the system described by Mr Reynaud was an imprudent one and therefore, in effect, pretended that it was a different system.  The judge rejected that submission.  Mr Flaux submitted that he was wrong to do so and that he should, in any event, have held that Mr Reynaud’s evidence showed that the rigid system adopted by G&T was imprudent because it was based on the philosophy that no reserve would be set until all the information was available, which might take years.
99.	It can be seen that there is a close overlap between the question what G&T’s system was and whether it was unusual and imprudent.  I shall therefore return to it after considering the standards of reserving policy.
Relevant standards
100.	The general principle governing reserving policy was not in dispute.  As pleaded on behalf of ARIG, Generali or its agent must:
“make every effort to establish the full circumstances surrounding an event that has given rise to a claim.  Having done so, it is incumbent on the claimant to set a reserve that properly represents its most likely financial exposure in the context of coverage provided by the policy(ies) and for that reserve to be fixed as soon as is reasonably practicable, including reserving for legal and associated expenses.  The reserves should be reviewed on a regular basis (including liaison with and obtaining regular updates from external advisers, such as loss adjusters and/or lawyers involved in actual or potential claims)”.     
101.	The experts, namely Mr Kiverstein, Mr Beckerman and Mr Palange, prepared a joint memorandum which identified points of agreement and points of disagreement.  The points of agreement included the following:
“Matters of Market Practice
It is the custom, practice and procedure in the United States insurance industry to post reasonably accurate loss and expense reserves for primary construction, liability and construction defect liability claims, in as timely a fashion as the facts and circumstances of each individual claim reasonably allow.
Reserving
One of the duties of a TPA is the posting (establishment and maintenance) of reserves.  Reserves are used to help an insurance carrier predict the amount of money it will have to spend on paying claims and lawsuits.
Case reserving is the most common form of reserving practice within the insurance industry in the United States.  “Case” reserving means, simply, that each claim is reserved individually, on its own facts, circumstances, coverage and merits, i.e., case-by-case.  Substantive changes in the facts surrounding a claim will justify increases or decreases in the case reserves set.
Reserving done on a case by case basis, involves the claims handler (or TPA) managing the file and making their best educated appraisal of what each claim will ultimately cost.
It is desirable to avoid “stair stepping” reserves and increasing reserves merely to cover individual partial payments (as made).  However, this does not mean that reserves should not be adjusted.  It merely means that reserves should be posted based on the most accurate information available at the time, acknowledging the fact that all claims and lawsuits evolve.”
102.	There followed lists of factors to be taken into account when setting an initial reserve for construction claims including construction defect liability claims and when setting expense reserves respectively.  The points agreed as set out in the joint memorandum continued:
“Expense reserving should be based upon the reasonable likely cost of the investigation and of the defense of the claim. …
When a new claim is received, there may be times when information is so limited that a determination of the indemnity or expense reserve amount cannot immediately be made.
Normally, defence counsel will provide the claims handler with the information obtained from the discovery process.  Defense counsel may also suggest a future course of discovery.  However, defence counsel will not normally recommend a specific reserve amount, although he or she may be invited to do so by the claims handler.
The retention of defence counsel, and the initiation of the discovery process, should result in the prompt receipt of at least some liability and damages information.  Information discovered should be transmitted promptly by the defence attorney to the claims handler in writing.
No insurer (or TPA) relative to large construction defect claims could establish reserves that would “properly represent[s] its most likely financial exposure in the context of coverage provide by the policy(ies)” until such time as they received adequate investigative data concerning coverage, liability and damages as the facts and circumstances of each individual claim reasonably allowed.
Large losses are more likely to involve complex coverage issues and consideration.  Once a coverage position is adopted by an insurer that is “adverse” to an insured, and the larger the potential damages exposure, the more likely it is that the insured will contest such a coverage position(s).
It is generally accepted within the US Insurance Market that a large loss is so designated when the incurred value of such loss reaches or exceeds a “significant amount”.  Some insurers may select some other value, but US$100,000 is a somewhat common level utilised for a “large loss” designation.
Large losses are more likely than smaller losses to involve or require the engagement of professional outside experts (e.g. engineers, contractors or laboratory testing) in the evaluation of coverage, liability and damages.”
103.	Although the joint memorandum does not mention them, it was common ground between the experts at the trial that there were other methods of reserving which could be adopted.  They included plateau reserving and formula reserving.  It was indeed a type of formula reserving which Mr Kiverstein used when he retrospectively put reserves of $10,000 and $40,000 on section A and section B claims respectively.  It was not in dispute that G&T adopted a form of case reserving.  The essential issue between the parties was (and is) whether it was an unusual or imprudent system to delay putting a reserve on new claims for as long as G&T did.  
Discussion
104.	In paragraph 45 of his judgment, immediately after the passage already quoted, the judge made the following findings based upon the evidence of Mr Palange:
“(1)	Gay & Taylor were reputable and well known TPAs and it was quite reasonable for Generali to have used them.
(2) 	The terms of the agreement between Generali and Gay & Taylor were “reasonable”.  Mr Beckerman was asserting that any such agreement should specify the time for making reserves and that this agreement was unusual in that it did not do so.  I reject this advice.  It is significant I think that when other TPAs were tendering for the job in 1995 none of them included within their bids any time constraints.  Thus, contrary to the pleaded case, the tender documents do not support ARIG’s position; if anything, they are inconsistent with it.
(3) 	Gay & Taylor reported losses via a monthly bordereaux system, which was in accordance with market practice.
(4) 	Gay & Taylor adopted a form of case reserving.  That is, the reserves were applied on a case by case basis.  Initially a nil reserve was set when a new file was opened and the claim would be investigated both as to ‘coverage’ and liability, often through outside attorneys or independent adjusters.  Once the likely outcome was capable of being assessed, Gay & Taylor did not adopt a policy of stair step reserving, but pursued a policy of ‘one-time’ reserving “that is to say, to establish a reasonably accurate reserve for the first time it was set once adequate and accurate investigation information was received”.
(5) 	On the basis of his investigation, stair stepping was successfully avoided with regard to about 90% of the reported claims, although increases in reserves were inevitable in relation to large losses.  Large losses in this sort of business, as a rule of thumb, will represent 20% or less of the number of claims but will account for 80% or more of the incurred losses.  The figures in Appendix A showed that in relation to claims over $100,000 they represented just under 10% of all the claims there recorded and accounted for just under 80% of the losses and some 14 claims made before March 1993 gave rise to a pay-out of just under $6 millions or just 20% of the total losses.
(6) 	He indicated that the decision of the Californian Supreme Court in the case of Montrose v Admiral made a radical change in the law, with retrospective effect.  Although the case was concerned with pollution it resolved the question of whether a carrier was liable for vices which existed during the period of coverage but which commenced before the carrier came on risk.  Prior to this decision carriers had been able to avoid coverage on the basis that the “occurrence” insured against was an “occurrence” which occurred during the policy year and not before.  But the Supreme Court held that there was a “continuous trigger” of coverage.  The danger of Mr Kiverstein’s approach was to ignore the ‘change’ in the law.” 
105.	The judge held that the reserving policy described by Mr Reynaud was not misrepresented by Mr Palange and that it was not unusual or imprudent.  In reaching those conclusions he relied upon the evidence of both witnesses.  He held, to my mind correctly, that reserving is an art and not a science which involved the exercise of judgment.  As he put it, Mr Beckerman would set an indemnity reserve at 30 days whether or not the “full circumstances surrounding an event or claim” had been ascertained.  Mr Reynaud, on the other hand, only made a reserve when the full circumstances had been investigated.  The judge added in paragraph 49(2):
“Adopting Mr Beckerman’s policy would involve some guess work and would put a premium on regular reviews of such reserves thereafter.  Delaying setting a reserve until after an investigation of the full circumstances would be likely to lead to more realistic reserves which were less likely to require review but which were less timely.  To adopt a policy whereby reserves were only set when the last ‘t’ had been crossed and the last ‘i’ dotted would defeat the object of the exercise which was substantially to inform participants in the programme what the relationship was between premium income and losses (actual and anticipated).  If Mr Reynaud had adopted this policy then it would have been both unusual and imprudent”.
Mr Flaux submitted that that was indeed the policy adopted by Mr Reynaud and that it followed from the judge’s own conclusion that it was both unusual and imprudent.
106.	However, the judge held that that was not the policy in fact adopted.  He did so in these terms in paragraph 49(3):
“Mr Palange prepared his first report having had a copy of Mr Reynaud’s witness statement.  His conclusion, based upon that and a study which he had carried out on the sample files led to this conclusion, namely that this form of reserving “was not one uncommon among American Insurers and TPAs in the late 1980s and early 1990s”.  That accords with Mr Reynaud’s own testimony.  Provided that Mr Reynaud did not take the need to investigate all the circumstances to an extreme so that reserves were never set, there was nothing imprudent or unusual about Gay & Taylor’s policy.”
Pausing there, subject to one passage in Mr Palange’s evidence upon which Mr Flaux relied and to which I shall return, I entirely agree with those conclusions.
107.	It seems to me that, in the light of the principles which I have quoted from the joint memorandum, it would be impossible to have a rigid time period after  which a reserve which complied with those principles must be set, at any rate for the class of long tail complicated liability cover which was part of section B, especially if ‘stair-stepping’ was to be avoided.  Thus, as appears above, one of the points agreed was this:
“No insurer or TPA relative to large construction defect claims could establish reserves that would “properly represent its most likely financial exposure in the context of coverage provided by the policy(ies)” until such time as they received adequate investigative data concerning coverage, liability and damages as the facts and circumstances of each individual claim reasonably allowed.”       
It appears to me to be self-evident that in a complex case it would often take some considerable period before that time came.  That is, I think, especially so if it is recalled that, as stated in paragraph 100 above, it was common ground that (as alleged by ARIG) the general principle governing reserving policy was to make every effort to establish “the full circumstances” and, having done so, to reserve at a figure which represented the underwriters’ “most likely financial exposure”. 
108.	The judge continued in paragraph 49(3):
“There was a certain amount of debate as to what Mr Reynaud meant in his testimony.  Mr Simon would say that “all of the circumstances” meant down to the last detail and that explained delays in making reserves.  If “by all the circumstances” one means no more than all of the circumstances relevant to setting a reserve then Mr Reynaud was not describing an unusual reserving policy.”
There follows what is to my mind an important point because it shows that the judge was relying upon the fact that the conclusions reached by Mr Palange were informed by his own work in considering 144 claim files which he regarded as representative.  The judge said:
“Based upon Mr Palange’s own work, it is clear that the policy described by Mr Reynaud in his witness statement was, in fact, carried out and that Mr Reynaud did not indulge in the unacceptable practice of taking the investigations too far before setting the reserve.  Indeed, in many cases a reserve was made very soon after a file was opened.  That did not contradict Mr Reynaud’s evidence since it was not inconsistent with the reserving policy outlined in his witness statement.  The line of questioning pursued of Mr Palange was to try and establish that he was denying the policy of Gay & Taylor.  Taking his evidence as a whole, I do not see a difference between the evidence of Mr Reynaud (which added little to what he said in his witness statement) and what Mr Palange discovered on a review of the files.”
109.	I agree with the judge that Mr Palange’s evidence based upon his analysis of the 144 files is important in this regard because it supports the conclusion that G&T did not operate a system which set no reserves until every ‘t’ was crossed and every ‘i’ dotted.  I also agree with the judge that consideration should be given to the evidence of Mr Palange as a whole.  This is significant in the context of the appeal because Mr Boyd relied strongly upon the evidence of Mr Palange set out in his statement, but Mr Flaux submitted that he made important concessions in the course of his cross-examination by Mr Simon.
110.	In paragraph 6 of his report Mr Palange said that for long tail casualty business such as this it can take 12 to 18 months, and even up to 24 months, from the date reported to the claims handler to set reserves which reflect the most likely financial exposure of underwriters.  Large losses can and do take longer.  Mr Flaux submitted that those views are inconsistent with what Mr Palange said in cross-examination.  I should say at once that there is undoubtedly some force in that submission but, like the judge, I am of the opinion that Mr Palange’s evidence should be taken as a whole.  He did not at any stage resile from the statement in his report and it appears to me that the fair approach to his evidence is to read what he said in cross-examination together with what he said in his statement in order to try to identify his true opinion.
111.	In the relevant part of his cross-examination for these purposes he was first asked whether he would agree that there should be some established time limit in which claims clerks or handlers should work to post reserves and he said that generally, yes, there should be.  He added that there would normally be some form of time limit and some form of review process in place.  Mr Simon asked: “There should be?” and he said “Sure, should be is fine.”  
112.	He was then asked about two documents which were dated 1995 when other TPAs were tendering for the job as a replacement for G&T.  One was from Ward-THG and was dated 8 November 1995.  There were no time limits in the proposed contract but some of the accompanying material did contain time constraints.  There was a document entitled Claims Service Standards which included the following:
“Investigation
1)	The immediate investigation will be sufficient to include the information needed to make a preliminary investigation.  We stress good judgment on a case-by-case basis. …
Evaluation
1)	Evaluation based upon sound claims handling practices and investigation is the key to any successful program.  Our rudimentary investigation is completed within 21 days from the date of the assignment, provides information required to reasonably evaluate any coverage question, negligence issue, merits of the particular case based on local precedence, and a reasonable estimate of injuries/damages.  This permits the claims representative to offer sound recommendations for the ultimate resolution.  …
Reserves
1)	Risk Management cannot effectively operate and obtain its proper goals if our reserves are unrealistically established.  The setting of proper reserves on files is most important and sometimes the most difficult task to accomplish.  We are diligent in our efforts to obtain the necessary information by which a claim can be properly evaluated.  Our reserves are an estimate of the probable ultimate total dollar exposure on a claim.
2)	Reserve worksheets will be completed within 14 days on all  initial and revised reserves.
3)	Reserves are continually reviewed for the life of a file and are submitted in all reports except the final. …
Reporting and Correspondence
…
2)	Our first report will be submitted within thirty (30) days of assignment, unless otherwise specified by the Client, and will include details on any coverage questions.
3)	Subsequent reports shall follow 30-day intervals, unless otherwise specified by the Client …”
113.	As I read that document, although it contains some time periods, it does not provide that a reserve must be set on every claim within 30 days, or indeed any other period.  On the contrary, the “rudimentary investigation” is to be completed within 21 days.  There is no period fixed for the setting of reserves, no doubt because of the warning against reserves being unrealistically established and of the requirement that the reserves are an “estimate of the probable ultimate total dollar exposure on a claim”.  It is to my mind self-evident that there will be many liability claims of the kind covered by section B where it will take a significant period to make any realistic estimate of the probable ultimate total dollar exposure.  The provision that reserve worksheets will be completed within 14 days “on all initial and revised reserves” presumably means within 14 days of the reserve being set.
114.	In these circumstances it does not seem to me to be surprising that when it was put to Mr Palange that the document stated in effect that a rudimentary investigation within 21 days “permits sound recommendations for the ultimate resolution”, he said that he did not agree with that.  He agreed that it might in some cases but not in others.  He agreed that the other time limits were reasonable but he said that he definitely would not put 21 days on “commercial casualty” business.  When 30 or 60 days were put to him he said that it would depend and “would be anywhere from sort of 30 days up to 90 up to six months for initial reserving”.  It was put to him that it is necessary to fix a period and not simply leave it open and the following exchange occurred:
“Q.	….  There must be a finite period, must there not, Mr Palange?
A.	Most insurers would require, for example, a – for example, monthly bordereau reporting and prompt handling and reserve establishment.  They would not necessarily put a specific time limit on reserving.  Some do and some do not.
Q.	I suggest to you that very few, if any, do not insist on some period within which reserves must be posted; do you disagree with that?
A.	I would say that the majority would put a timeframe on that subject.”
115.	Mr Palange was then shown a document from another tenderer or potential tenderer based on a proposed joint venture by a new company to be called CCI.  It was dated 5 December 1995 and was from Ron Coleman & Associates Ltd.  It was in some respects very similar to the one from which I have already quoted.  It stated that the nature and extent of the investigation will vary from claim to claim and identified relevant quality standards as including timely reporting and accurate reserving.  It included the following:
“INVESTIGATION 
1)	The immediate investigation shall be sufficient to include the essential information to make our preliminary evaluation.  We stress good judgment on a case-by-case basis.  …
EVALUATION
1)	Evaluation based upon sound practices and investigation is the key to any successful program.  Thus, our rudimentary investigation will be completed within 30 days from date of assignment and will provide the data required to reasonably evaluate any coverage question, negligence issue, merits of the particular case based on local precedence, and a reasonable estimate of damages.  This will permit the claims representative to offer sound recommendations for the ultimate resolution.
2)	Basis for acceptance or denial of coverage or liability will be documented in the file.
RESERVES
1)	CCI’s philosophy is to set and stabilize realistic reserves on all cases at the earliest time considering the issues of injury/damage, mitigating circumstances, liability, etc.  In no event will we “step ladder” reserves.
2)	Reserves will be continually reviewed for the life of a file, and will be submitted in all reports except the final.  Changes will be adequately explained and promptly reported
REPORTING AND CORRESPONDENCE
…
2)	A first report on claims in excess of our TPA Authority will be submitted within forty-five (45) days of the assignment, and will include details on any coverage questions.
… CONTROL IN HANDLING THE CLAIM
…
5)	The Unit Supervisor will review all files at least every 30 days ….” 
116.	In the light of the suggestion that reserves should be set within a finite period, it is to be noted that that document contains no such requirement.  It merely provides for a rudimentary investigation to be completed in 30 days and a report within 45 days which will include details on any coverage questions.  As I read the document, it is careful not to relate either period to the setting of “realistic reserves”.             
117.	Again Mr Palange agreed with the principles set out.  Of paragraph 1), under the heading of ‘Evaluation’, he said:
“This paragraph or a paragraph similar to it is one goal set by some insurers and claims handlers as a type of goal.”
This exchange followed:
“Q.	Most?
A.	Well, we disagree on that, whether it is most.
Q.	[Reference was made to paragraph 2), under Reporting and Correspondence quoted above.]  You see, I suggest to you that a reserving philosophy or policy in which no time limit is set on the preliminary evaluation is going to get into trouble because there is no discipline; there is nothing to ensure that the claims handlers are doing their job.  Do you disagree with that?
A.	I believe that putting time limits in proposals and agreements of this sort evolved over time and they became quite common.  So earlier versions of the same subject might say “prompt” or might say “regular” or “frequent” or might say “periodic”.  Time limits can and do exist.
Q.	I am not talking about contracts, Mr Palange.  I am talking about what is sensible, prudent reserving.  Unless you have some discipline on the evaluation of the claim, a time limit within which a claim must be reserved, you are going to get sloppy reserving?
A.	I do not agree with you.
Q.	You are certainly going to get sloppy reserving unless there is a system for reviewing the files on a regular basis.  Do you disagree with that?
A.	I do not know what you mean by sloppy.  You  might get delays in reserving if you do not review the files regularly.
Q.	You will get delays in reserving and that is not what you want.  You should try and avoid delays in reserving, should you not?
A.	Sure.”
118.	Mr Palange insisted that there was nothing in the 144 claim files which he examined to lead to the conclusion that G&T had an unusual or imprudent reserving policy.  It was further put to him that the approach identified by Mr Reynaud and set out in his statement was imprudent, even absurd.  In particular, attention was drawn to the evidence that it might take three years to produce a reserve because of problems in particular cases.  Mr Palange said that he would not agree that such an approach was absurd, depending upon the number of claims that it took three years to reserve.
119.	Mr Simon then put paragraph 34 of Mr Reynaud’s statement to Mr Palange as follows:
“The reserving policy adopted by me for the US Contractors Program meant that I believed it was not possible to set a loss reserve which properly represented underwriters’ most likely financial exposure in the context of coverage until I had all of the information regarding the circumstances surrounding events that gave rise to the claim.”
It was put to Mr Palange that, if that was the reserving policy adopted by him, it was absurd and he said no.  The exchange continued:
“Q.	That he deferred setting a loss reserve until he had all of the information regarding the circumstances surrounding the events which gave rise to the claim?
A.	That is also a standard approach to investigation.
Q.	It is not prudent reserving policy to wait until you know all the circumstances because you are never going to know all the circumstances and you should not be put off setting a reserve until you think you do, should you?
A.	As the next sentence says, he did not.
Q.	“On a number of occasions, for the reasons I have stated, this could take a significant amount of time”.  What is the point you are making, Mr Palange?
A.	I think on a small number of occasions it took a significant amount of time and on the rest of the occasions it did not.
Q.	The policy is that he defers setting a loss reserve until he has all the information regarding the circumstances surrounding the events which gave rise to the claim.  If that was his policy -- if that was his philosophy -- it was an absurd claims handling policy, was it not?
A. 	If that was the philosophy of him and Gay & Taylor for all claims reported, up until March 1993, I would not call it absurd, I would call it unacceptable.     
120.	I have set out that part of Mr Palange’s evidence in some detail because Mr Flaux placed considerable reliance upon it.  He submitted that it showed that Mr Palange was accepting that the policy spoken to by Mr Reynaud was unacceptable.  However, Mr Palange’s evidence must be considered as a whole.  He accepted that many insurers and TPAs imposed time limits on some at least of their activities, although, as I indicated earlier, the evidence does not to my mind show that they routinely imposed time limits on the setting of reserves.  
121.	As to Mr Palange’s evidence relating to G&T’s system, he had both the evidence of Mr Reynaud and his own view based on the 144 claims files which he had considered and which the judge accepted was a representative sample.  His view was that if G&T waited to set a reserve until it had, in effect, all possible information in every case, that would be unacceptable, but it was his view that that was not what occurred, in the case of either expense or indemnity claims.
122.	In short, Mr Palange’s view was that it took a significant amount of time to set a reserve on some occasions, which he described as a small number, but that on the rest of the occasions it did not.  In my opinion, the judge was entitled to accept that that evidence was consistent with Mr Reynaud’s evidence.  To my mind it was also consistent with descriptions of the system given by Mr Reynaud to Alexander Howden in letters dated 22 February and 11 June 1993.  For example in the first of those letters Mr Reynaud described G&T’s system for setting reserves and, although the letter was describing a somewhat different class of business, Mr Reynaud said that the same system was adopted for the Alexander Howden business.  The letter included the following:
“A.	Upon receipt of notice of claim, we set a zero reserve.  Upon receipt of the adjuster’s first report, if sufficient information has been developed, we will set the indemnity reserve and expense reserve.
 B.	If suit is our first notice of loss, we will maintain a zero reserve until sufficient discovery reveals our exposure.
 C.	In general, we do not utilize the step reserve theory, and prefer to set a one-time reserve.”
123.	The second letter, dated 11 June 1993, described the system in very similar terms as follows:
“We have resisted setting reserves on first notice claims, as this method evolves into what we classify as step reserving or stair-step reserving.  We prefer to set a zero reserve until we have enough information to set a “one-time” indemnity reserve, sometimes referred to as the loss reserve.  The reason(s) for this method, prevents frequent upgrades/downgrades of reserves and presents Underwriters with reasonably sound financial figures.
Expense reserves we occasionally will set an immediate estimate.  This of course is dependant upon the type(s) of loss(s).  Property losses we know from experience as to how much the adjusting fees will be on various types of losses.  If the loss is large, we will delay the expense reserve setting.  Normally, property loss, indemnity and expense reserves, we will try to post within the first month or thirty (30) days after receipt of the claim.
Liability reserving is the most difficult to set.  On these we usually wait until some discovery has been completed in order to determine the amount of exposure to the Insured.  Serious debilitating injuries reserves, we will evaluate and set a one-time reserve, once we have evaluated the injuries, negligence, venue, policy and case law cases.
Liability expense reserves, we will set depending on the cause of action stated in the summons & complaint.
All reserves set reflect reserves above Deductibles and/or SIR amounts.”
124.	It is to my mind clear from those letters that by “one-time reserve” Mr Reynaud did not mean that a reserve was always set once and for all, since it is clear that changes were made from time to time when new information came to hand.  Moreover, G&T had a system of checking or reviewing the position from time to time.  However, like the oral evidence, the letters make it clear that a key aspect of the system was that stair stepping, in the sense of frequent alterations to reserves, was avoided.  As the letters make clear, and as both Mr Reynaud and Mr Palange made clear in evidence, all depended upon when, as the letters put it, sufficient or enough information had been developed.  G&T would wait until ‘some discovery’ had been completed ‘in order to determine the amount of exposure’.  The purpose of the system was to present underwriters with “reasonably sound financial figures”.  To my mind that was a sensible approach, given that it is common ground that it was G&T’s duty (as ARIG’s pleading put it) to establish the full circumstances surrounding an event that has given rise to such a claim and, having done so, to set a reserve which properly represented underwriters’ most likely financial exposure. 
125.	Quite apart from G&T’s system of setting reserves, there was some criticism of its system of reviewing reserves.  However, I do not think that this part of the system is properly open to independent criticism.  G&T had a diary system for reviewing reserves and, as just stated, altered the reserves from time to time in the light of any new information which became available, while at the same time avoiding stair stepping.  
126.	Of course not all TPAs adopted the same reserving policy but, as I see it, there could be more than one usual and prudent system.  An important strand in the reasoning of the judge was that G&T’s system was not unique but used by others in the industry.  The judge accepted Mr Reynaud’s evidence to that effect, which (as I read it) was supported by the evidence of Mr Palange.  I also note in passing that in the letter of 11 June 1993, from which I have already quoted at some length, Mr Reynaud wrote:
“Our reserving policy is not unique in the states or in the Insurance Industry.”    
127.	In all the circumstances, for my part I am not persuaded that the judge’s findings of fact set out in paragraph 49(3) of his judgment and quoted in paragraph 108 above are wrong.  Nor am I persuaded that the policy was either abnormal or unusual, viewed as at 1992 or 1993.  
128.	The judge rejected a submission that the figures themselves show that the system was imprudent or unusual.  He said in paragraph 49(3) in the passage immediately following that quoted in paragraph 108 above:
“The statistics do not assist either, since a case by case assessment is required.  Mr Simon says that as at June 1992 there were 249 open claims files of which just over 40% had had no indemnity reserve for more than 90 days and 32% had had no expense reserve for more than 60 days.  But these figures say little without some indication of the nature of the claim, what inquiries were underway, what the issues were and how much was the deductible.  Those figures are not inconsistent with Mr Reynaud’s stated policy.  The same is true of the data relating to March 1993.  I can well understand arguments in favour of early reserving with a large slice of ‘judgment’ or guesswork involved.  But over-reserving had its own disadvantages.  Late but accurate reserving avoided stair stepping and a risk of over-reserving, but was less prompt.  There is no reliable evidence before me to say that the one method was unusual or imprudent and the other not.”
129.	I agree.  As the judge pointed out in the next paragraph of his judgment, ARIG did not attempt to analyse the figures on the information available to G&T.  There are many reasons why, in a particular case, a reserve might be shown as nil on a particular date.  One is, of course, that no reserve had yet been set because the TPA did not yet have what it regarded as sufficient information.  Another is the failure of the particular handler to process the particular claim in  accordance with the TPA’s policy.  Others include no coverage because the claim did not fall within the relevant period or because there was no liability on the facts or no liability because of the likelihood that the provable claim would be less than the deductible or the SIR or because a full indemnity could be recovered from a third party.  ARIG did not attempt an analysis of individual claims with those considerations in mind.  
130.	The judge’s final conclusions can I think be seen from this passage in paragraph 49(4) of his judgment: 
“The question was whether [the methodology] was unusual or imprudent as at 1992 and March 1993.  Mr Beckerman says it was; Mr Palange says it was not.  I have had no difficulty in preferring the latter’s opinion to that of the former.  I suspect that over the passage of time, reserving has become more sophisticated and the needs for guesstimates more compelling.  I suspected, though he denied it, that Mr Beckerman was reflecting more modern practice when he expressed his opinions.  Ultimately, Mr Reynaud’s own evidence that his style of reserving was by no means unique or unusual, coupled with an endorsement from Mr Palange resolved this issue in favour of Generali.”                      
131.	In all the circumstances I see no reason to disagree with those views expressed by the judge.  He was in a much better position to assess the opinions of the experts than we are.  He was entitled to accept the evidence of Mr Palange, which was based on his analysis of a reasonably representative sample of claims files, and to prefer it to that of Mr Beckerman, whose evidence was based upon too rigid a time frame.  Moreover, the judge was entitled to hold that the system adopted by G&T was adopted by others in the field and that, while other systems could properly have been adopted, including in particular systems which required earlier setting of reserves (perhaps within a defined time frame) with more frequent subsequent adjustment, there was nothing unusual or imprudent about the system adopted by G&T.
132.	To my mind the judge was justified in reaching these conclusions, which he set out at the end of paragraph 49(3) of his judgment:
“If ARIG had, as they did, the burden of proving that the claims handling procedure, including the reserving was imprudent and unusual, they have failed to discharge it.  Had an exercise been carried out to ‘second guess’ reserving in relation to each of the claims files open as at June 1992 and March 1993 and it had transpired that on a case by case basis there was a pattern which showed imprudent reserving then the result of the case might have been different.  But here ARIG had to prove that the reserving policy which it asserts should have been adopted [namely a prompt reserve after the full circumstances had been established] was not adopted.  They have not proved this by their evidence since there has been no attempt to carry out the necessary exercise to show what should have happened had the claims been ‘properly’ handled, in their opinion.  Reserving with hindsight is not a helpful exercise.”
133.	The judge considered two other aspects of the evidence to which I should refer because they were relied upon on behalf of ARIG.  The first was the contents of correspondence in 1994 and 1995 which was critical of G&T and the second involved a comparison between ISO norms and Generali’s results.
Correspondence
134.	In paragraph 49(5) of his judgment the judge held that the correspondence was of no assistance.  He said:
“I do not find the letters referred to by Mr Simon of any assistance to my decision.  Gay & Taylor’s policy is clear and the letter from a third party carries no weight with me, since I do not know the basis for the writer’s views.  I should make clear that whatever Mr Wardlaw’s misgivings might have been, the reason why Gay & Taylor were replaced in 1995/96 had nothing to do with their reserving policy, but related to some other, irrelevant dispute.”
ARIG does not challenge that last conclusion in this appeal, but it does rely upon the correspondence as evidence that G&T did not operate a usual or prudent reserving policy.
135.	For my part, I would not disregard the contents of the correspondence in quite the way the judge did, but I have nevertheless reached the conclusion that, on a fair reading of it, it does not support the conclusion that the reserving policy was unusual or imprudent.  The criticisms of G&T which the correspondence discloses were somewhat different.  Mr Flaux relied upon a number of documents, although he said (plainly correctly) that they are only some of the documents which must have been available at the time.  
136.	The documents evidence exchanges between United and Generali.  None of them is dated 1993, one is dated 14 September 1994 and the remainder are dated February 1995, although we were also referred to a further document dated 8  May 1995.  Those documents undoubtedly include complaints about the way that G&T carried out its responsibilities.  However, for my part, I would accept Mr Boyd’s submission that they expressed specific concerns and do not justify the conclusion that the judge was wrong to reject ARIG’s case that G&T did not have a usual or normal reserving policy.          
137.	For example in the letter of 14 September 1994 United expressed concern that G&T was acting on the advice of a particular United States attorney, Mr A Raymond Hamrick III, who regularly advised that coverage should be declined on the basis of a particular decision of the California Court of Appeals.  The particular concern expressed in the letter was that United might be exposed to a “bad faith” suit based upon the allegation that, as a result of accepting that advice, United was improperly resisting claims by insured.  United was worried about the effect of such suits on its reputation as an insurer in the United States.  It expressed very similar concerns in a letter dated 14 February 1995.     
138.	It appears that there were a number of discussions between United and Generali in late 1994 and early 1995 during which United expressed criticisms of G&T.  Mr Reynaud was present at at least one of them.  In a letter dated 20 February 1995 United expressed some unhappiness with Mr Reynaud, who (the writer thought) viewed United “as a party interfering with its nifty little operation”.  The letter also asserted that material being forwarded to United by G&T was “virtually worthless”, which Sir Christopher Staughton observed in the course of the argument could have been written by Mr Flaux.  The letter included the following paragraph:
“We have always acknowledged that your past short term experience with this program is inconsistent with the anticipated long term exposure we believe you face.  However, what I personally do not understand is your virtual blind loyalty to Gay & Taylor in view of: (1) its acknowledged inability to keep accurate and current financial records; (2) its obvious input and management of the claims files; (3) its unrealistic (or non-existent) reserving practices; and (4) its total abdication of its proper role in favour of two “coverage” attorneys, who, in my opinion, author simplistic, and to some extent, incomplete analysis of problems.”             
For present purposes, the problem with the allegations in the letter is that they do not identify what was said to be wrong with G&T’s reserving policy apart from G&T’s acceptance of the opinions of Mr Hamrick.
139.	There followed a conference call between representatives of United (including the writer of that letter) and Generali on 23 February 1995.  We have seen a note of the conversation made by Mr Stimpson of Generali (who was a party to it) the next day.  The conversation was concerned with two matters.  The first was a claim by United for US$2 million, which it said that it had paid to G&T and with which we are not concerned.  The second related to actual claims handling.  As I see it, the note shows how the problems were resolved between United and Generali and the responsibilities of each, as follows:
“Firstly 1991/2 and 1992/3 up to September.  The various issues of California coverage and Lawyers utilised were discussed at length but it was finally accepted that for better or worse we have taken the route we have taken and we may get away with it – only time will tell as to whether some of these cases backfire.  In any case whilst United National accept that we are responsible for all issues on those years and they will not intervene further but that they need to be kept informed immediately of any bad faith accusations or litigation which may arise in order that we may deal appropriately with that.  In the final analysis on these years it is up to us to indemnify United National.
With regard to post-September 1993 we acknowledge that United National wish to be responsible for all claims issues, defence coverage etc.  However the reality is that they could not physically take over all these matters now and would have to appoint a TPA.  In the circumstances it seems preferably that we continue to use Gay & Taylor but that Gay & Taylor should follow their instructions on these claims.  Meanwhile United National will start gearing up to take over all of the post-September 1993 claims themselves within say a period of 12 months.  What needs to be clearly agreed are the lines of communications, financial arrangements and controls during this period.”
The note ended with a suggestion that Alexander Howden should be more involved since there had been a decided lack of input from them in the past.                 
140.	As it seems to me, that note highlights the fact that United’s concerns had previously been principally G&T’s reliance upon particular lawyers used in California because of the possibility of allegations of bad faith being made against them.  There is no reference to problems with G&T’s reserving policy generally.  As to the future, again the potential concerns do not relate to reserving policy but to the importance of “lines of communication, financial arrangements and controls”.  
141.	In these circumstances, I do not think that the criticisms of G&T in the correspondence are of any real assistance to ARIG in seeking to persuade us that the conclusions reached by the judge were wrong.  It seems to me that, in so far as the correspondence between United and Generali is concerned, apart from the particular problem with Mr Hamrick in California (which we are in no position to resolve), it contains no particulars of a case that G&T operated an unusual or imprudent reserving policy.  The judge was thus right to say that he did not know the basis for the writer’s views.
142.	The only other document relied upon was a letter dated 8 May 1995 which was written to Mr Jim Bunyan of Generali by Mr CK Stewart of Thomas Howell Group (Americas) Inc, who by this time had taken over G&T.  It contains the following:
“The last area that we were advised of some concerned happened to be reservings.  To fully understand this, I have asked Mr Mark Jones, present manager of the unit, to give me his understanding of the reserving philosophies and practices as instructed by Generali.  Mr Jones admittedly cannot completely clarify the reasoning behind the reserving practices since Mr JG Reynaud was managing the unit at its inception.  Mark Jones has advised that he had received several inquiries from London requesting detailed explanation for large initial reserves.  Mr Reynaud said that his instructions from Generali was not to “stair step” reserves and Generali preferred no indemnity reserves being placed until we had adequate information to set up a final reserve.  This reserving policy is as a result of the majority of our cases are involving construction defect matters, which involve questionable coverages, liability and damages throughout their life cycle.  Certainly, it is extremely difficult to establish correct reserves on these type of claims, however, most of our clients and certainly the insurance industry does expect reserving to be posted as soon as practical.  The instructions by Generali to Mr Reynaud were followed and reserving was not posted until later in the claim file.
Again, I must advise that this is contradictory to what we at Thomas Howell/Gay & Taylor feel are proper reserving philosophies within the industry, however, since we were taking instructions from Generali, Mr Reynaud was utilizing Generali’s reserving philosophies as instructed to him.”
143.	I have found those views somewhat confusing.  The system would not seem to provide for large initial reserves.  Yet it appears that inquiries had been received from London requesting “detailed explanation for large initial reserves”.  In fact, the first paragraph quoted above seems to me to recognise the dilemma.  On the one hand it was extremely difficult to establish correct reserves for this kind of claim, while on the other hand the industry expected reserves to be posted as soon as practical.  It seems to me to be self-evident that how soon is “as soon as practical” depends upon the confidence required in the figure reserved.  Thus, far from supporting ARIG’s case in this appeal, the letter of 8 May 1995 highlights the problems of reserving in this class of case.
144.	I have set out the contents of the documents relied upon by ARIG in some detail because of the prominence which they were given in the course of the argument.  However, the conclusion which I have reached is essentially the same as the judge, namely that they do not lead to the conclusion that the reserving policy was unusual or imprudent.                    
ISO
145.	The second further aspect of the evidence referred to by the judge to which I should briefly refer relates to a comparison between this business and the ISO norms or statistics.    This evidence had a somewhat curious history.  It was initially relied upon by Mr Palange in support of the view that the loss development in the programme was consistent with the ISO norms, no doubt in order to support the inference that the reserving policy and the figures based upon it were not unusual or imprudent.  The ISO figures are, as I understand it, market figures produced by statisticians in the light of events as they turned out.  Mr Palange said that he thought that they gave a reasonable picture of this class of business and that they tended to show the development of losses over the years between 1992/3 and 2000, by which time they had developed (as Mr Boyd put it) very adversely.  
146.	However, Mr Kiverstein demonstrated convincingly that Mr Palange’s reliance on the figures was misplaced, as the judge correctly held.  For its part ARIG had not originally relied upon the ISO figures.  Nor had Mr Kiverstein.  But, perhaps unsurprisingly, in the course of the trial ARIG sought to turn the ISO figures to its advantage.  It was submitted both to the judge and to us that the ISO figures show that the reserving policy must have been unusual and imprudent because they show the wide discrepancy between the reserves and the eventual losses on the account.  
147.	The judge rejected that submission in these terms in paragraph 48(6) of his judgment:
“But the fact that the losses developed more quickly and thus, the reserves did not correspond to the ‘norms’, is neither here nor there unless it can be shown by ARIG what the reasons are for the large loss development.  The Montrose decision may have played a part, but there will have been other factors as well, such as an increase in awards by the courts and so on.”
The judge added at the end of his judgment:
“The reason why there have been such heavy losses on this programme is nothing to do with the reserving policy but is to do with the quality of the underwriting decisions.  This was business that were better not written save with much larger premiums.  But that is not a matter with which the court is concerned.”
For my part, I agree with those conclusions.  I do not think that the ISO figures assist ARIG to show that G&T’s reserving policy was unusual or imprudent.  Even if they provide some assistance, they do not to my mind provide sufficient assistance to displace the conclusions reached by the judge.  
Conclusion on non-disclosure 
148.	This has in some ways been a complex appeal in a case which has not been without its difficulties but in the result I have reached the clear conclusion that the judge was right essentially for the reasons he gave.  I am not persuaded that in all the circumstances the judge was wrong to reject ARIG’s case that G&T had an unusual or imprudent reserving policy.  Reserving was a difficult problem which might on occasion take much longer than suggested on behalf of ARIG if the agreed criteria were to be met.    Further, as the judge put it, because the policy of G&T was not unusual or imprudent it did not need to be disclosed to ARIG and it did not ‘corrupt’ the figures presented to it.
149.	I should perhaps add that in reaching the conclusion just stated I did not regard a document put in by Generali at the end of the appeal, which has given rise to a good deal of correspondence since the hearing, as of any real assistance.  
150.	It follows that I would dismiss ARIG’s appeal against the judge’s rejection of its non-disclosure case identified in paragraph 24 above, namely that Generali failed to disclose that the reserving policy adopted by G&T was imprudent or unusual.
Misrepresentation
151.	ARIG further submitted that Generali made a material misrepresentation to it when its brokers presented materially inaccurate loss statistics.  However, to my mind, as I think was accepted by Mr Flaux, that case could not succeed once ARIG’s case that G&T’s reserving policy was imprudent or unusual was rejected.  It is accepted that the figures presented to ARIG, as set out in paragraphs 32, 33, 83 and 84 above, accurately represented the figures in G&T’s books.  It was understood that the amounts said to be incurred losses in both the June 1992 and the March 1993 figures included both paid and outstanding losses and, in so far as they included outstanding losses, they represented figures which would be shown in G&T’s books as reserves.
152.	If ARIG could have shown that the figures were based on an unusual or imprudent reserving policy, I can see that it might have been said with force that the figures must have been inaccurate and that they must have been misrepresented.  However, once that case failed, in order to show that the figures were misrepresented, it would have been necessary for ARIG to adduce evidence to that effect by some form of reconstruction of the accounts.  As already stated, ARIG did not attempt to do that.  It follows that, if (as in my opinion is the case) ARIG cannot succeed in its appeal on the ground that the judge should have held that G&T's reserving policy was unusual or imprudent, it cannot show that the figures otherwise misrepresented the position.
Conclusion
153.	It further follows that I would dismiss the appeal.  I would dismiss the appeal on the Munich Re point on the ground summarised in paragraph 80 above, namely that the judge was correct to hold that ARIG had not shown that, if it had known that Munich Re was participating only in section A, it would not have entered into the contracts or would have taken some other share and I can see no basis upon which this court could properly interfere with that conclusion.  
154.	I would dismiss the appeal on the reserving policy points on the grounds set out in paragraphs 148 and 151 above.  The judge was entitled to hold that G&T’s reserving policy was not unusual or imprudent and, in short, as the judge put it, because the policy of G&T was not unusual or imprudent it did not need to be disclosed to ARIG and it did not ‘corrupt’ the figures presented to it.  Once that conclusion was reached, there was no other basis upon which it could be held that Generali or its brokers misrepresented the figures to ARIG.
Postscript
155.	It follows from those conclusions on reserving policy that issues of materiality and inducement do not arise.  Nor, as I see it, does the question whether the judge was correct to hold, as he did in paragraphs 37 and 38 of his judgment which are quoted in paragraph 86 above, that ARIG’s case raised only one and not two points because a prospective underwriter in the position of ARIG would only be expected to be informed of an unusual or imprudent reserving policy if it were so unusual or imprudent that the figures disclosed were misleading.  In these circumstances it is not appropriate to do more than comment briefly on these questions.
156.	It appears to me that the judge was correct to conclude that the nature of Generali’s reserving policy was not itself material, unless its unusual or imprudent nature had the effect of misrepresenting the figures.  As Sir Christopher Staughton colourfully put it in the course of the argument, reserving butters no parsnips.  As a potential retrocessionaire, ARIG was not concerned with the reserving policy for the future, but simply with whether the figures presented were, so far as material, reasonably accurate.  As retrocessionaires taking a quota share, ARIG would be interested in the premiums, the deductions before it received its share and the loss ratio.  Thus, unsurprisingly, ARIG at no time asked what the reserving policy was.  As Mr Boyd put it in argument, if Alexander Howden had disclosed the actual reserving policy employed by G&T, ARIG would have been expected to ask: “Why are you telling me that?  Does it have an impact on the figures?”  
157.	For my part, I would accept Mr Boyd’s submission that that is the only relevance of the reserving policy.  So much was accepted by Mr Anderberg in the following passage in his cross-examination:
“Q.	Mr Anderberg, do you accept that what is material to the risk in this context is not the reserving methodology itself but the accuracy of the figures that it produces?
  A.	Well, one thing depends on the other.  If you have a wrong-serving philosophy or guideline or whatever it could be, it would filter through the figures and distort the figures because that is the connection between these two, you know.  That is my opinion.
Q.	The premium and loss figures are what matter to you as an underwriter?
A.	It is very important, yes.
Q.	The use of an unusual reserving philosophy or methodology would only be material to an underwriter to know if it resulted in figures that were materially inaccurate?
A.	Yes.” 
158.	The problem here is, however, that if, contrary to the conclusion which I have reached, it were held that the reserving policy were imprudent or unusual, it would not be possible to say what effect the unusual or imprudent nature of the policy would have had on the figures.  In these circumstances, it might be said with force that ARIG could not show that the fact that the reserving policy was unusual or imprudent was material in the sense that knowledge that it was unusual or imprudent would influence the judgment of a prudent insurer in fixing the premium or in determining whether he would take the risk.  On the other hand, it seems to me that the prudent underwriter would wish to know both that the reserving policy was unusual or imprudent and that Generali could not say what effect the unusual or imprudent nature would have on the figures presented.
159.	I have not found this an easy question because it might be said that, although the prudent underwriter would wish to know those facts, ARIG cannot prove that the fact that Generali could not say what effect the unusual or imprudent nature of the policy would have had on the figures would influence the judgment of the prudent underwriter, which is required by the relevant test.  On this basis ARIG would fail because it could only show that the unusual or imprudent nature of the policy might influence the judgment of the prudent underwriter, which would not be enough.  
160.	However, on balance I would conclude that the test of materiality would be satisfied on the footing that disclosure of those facts would influence the judgment of the prudent underwriter because, as indicated in paragraph 55 above, to be material a fact does not have to be decisive.  It is sufficient if disclosure would influence the underwriter’s judgment.  It seems to me that, on the evidence here, if the position were that a prudent underwriter knew that the policy was unusual or imprudent and that Generali did not know what effect that would have on the figures that fact would be likely to influence his judgment in deciding whether he would take the risk by participating in the business.
161.	To my mind, ARIG would face much more difficult problems in showing that it was induced to enter into the contracts by failure to disclose the unusual or imprudent nature of the reserving policy or the fact that Generali did not know what effect that had on the figures.  I have considerable doubt whether ARIG could show that it would probably not have participated in the business.  
162.	It is true that in re-examination Mr Anderberg said this:                        
“Q.	…. if you had been told that the reserving policy was unusual and/or imprudent, how would that have affected your underwriting judgment?
A.	First of all, I would not have believed in the figures we were given initially and if it would have been a very great deviation from normal standards, I am sure we would have declined participation.  Because then we did not know what we were doing.”
However, that answer has to be considered in the light of Mr Anderberg’s evidence as a whole and assessed in the light of the probabilities.
163.	Mr Anderberg stressed in the course of his evidence that he was impressed by the pre-qualification system which was adopted by Alexander Howden to vet the insured and to ensure that only appropriate insured were reinsured.  He also recognised that when the figures were presented in June 1992 the programme was immature because it had been proceeding for only a short time, whereas it was long tail business.  On no view could the figures be more than a rough guide because they included very recent business and did not include incurred but not reported (or ‘IBNR’) losses.  Mr Anderberg was also aware of the problems of the United States legal system but concluded that it was worth writing a relatively conservative line.  
164.	In addition, and to my mind importantly, he looked at the loss ratio figures and noted that they were far short either of the 60 per cent figure, which was ARIG’s break-even point, or of the 50 per cent figure to which Mr Anderberg referred.  In cross-examination, his attention was drawn to the loss ratio figures for the 1990 year of 1.17 per cent and 39.45 per cent and the following exchange occurred:
“Q.	If the 1990 loss ratio had been over, what, 50 per cent/60 per cent, at what point of time would it have raised a question in your mind as to why the losses were so high in such a short period of time?
A.	I might have queried about it if we would have touched maybe 50/60 per cent but I cannot tell you now how I would have reacted.  I  might have reacted and sought clarification and the clarification might have changed my decision or at least this would have had an impact on the overall programme.”
A little later he said that he might have queried the figures if they showed a loss ratio for, say 1990, “where we have a break-even point, 60 per cent”.
165.	The judge made no findings on this question because it was not necessary for him to do so.  In the light of my conclusions, it is not necessary for me to do so either.  I would only say that I am not persuaded on all the evidence that, if ARIG had been told that G&T had an unusual or imprudent reserving system and that Generali or Alexander Howden did not know what the figures would be if a different system had been used: it is more probable than not that ARIG would not have agreed to participate.  It is I think a matter of speculation because it seems plain to me that ARIG relied principally upon Alexander Howden’s pre-qualification system and not upon G&T’s reserving system of which it was unaware and asked no questions.
166.	These are not, however, easy questions to answer but, whatever the correct answer to them I would dismiss the appeal for the reasons shortly stated in paragraphs 153 and 154 above. 
Sir Christopher Staughton:
167.	The Defence in this action of Arab Insurance Group (whom we have called “Arig”) is that they were entitled to avoid the retrocession contract to which they were a party on the ground of non-disclosure, or alternatively misrepresentation.
168.	First, it is said that the figures of past experience put forward when the contract was made were the product of a reserving policy which was unusual and imprudent; secondly, that Munich Re were represented as participating as a reinsurer of both parts of this risk whereas they participated only in one part of it.
169.	I consider first the point about reserving policy. When placing the retrocession with Arig, the brokers (Alexander Howden Ltd) provided amongst other information a table setting out figures for losses incurred up to 8th June 1992 in respect of years from 1989 to 1991. That was on 18th June 1992. The figures were meagre in the extreme, merely setting out the losses for five different years or parts of the package, and the loss ratio resulting in each case. The loss ratios were 33.15%, 1.17%, 3.62%, 39.45% and 1.46%. An average was also given, although it was largely meaningless, of 14.1%. One line of the figures was to some extent illegible. Mr Justice Morison managed to set it out clearly in his judgment, presumably from some other source.
170.	The table of figures was only a part, and not a very conspicuous part, of a thirty page presentation by Alexander Howden on 18th June 1992. There was a second set of figures put forward as at 18th March 1993 when an extension of Arig’s participation was invited. The average loss ratio was then said to be 15.66%.
171.	One might have thought that, if the case for Arig was that the figures were wrong, they would have said so in plain terms, and stated what would have been proper figures in June 1992 and March 1993. But they have not done that. The figures did not show, and did not purport to show, what losses had been actually paid (a phrase which I use with trepidation in this context). The figures were intended to show, and would have been understood as showing, the totals of sums already paid for existing claims plus the sums anticipated to become payable for those claims in the future. Those additional sums are for this purpose called reserves. But in truth they do not necessarily represent assets set aside to meet future liabilities. They are, as it seems to me, simply a statement of liabilities which have not yet been paid or even become due, but are expected to accrue as due in the future from an existing claim.
172.	One can readily believe that reserves in that sense may be important information for an underwriter who is asked to participate in a risk which has some history. One can also believe that the importance of reserves depends on the rate at which claims mature to the full extent expected, and on the possibility of accuracy in estimating reserves.
173.	The method adopted by Gay & Taylor, the agents employed by Generali to record claims, was this. A reserve was allocated to each claim when all the relevant information was known. Until then the reserve recorded was zero. A significant number of claims had a zero reserve in June 1992; and some claims were not allocated a reserve in 30, 60 or 90 days from the receipt of the claim, or even longer. There was a practice of altering an existing reserve when new factors were known, but in general there was reluctance to alter an existing reserve too frequently, a tendency described as stair stepping.
174.	Some features of that system are commendable, and some are not. The agreement of the experts stated that case reserving is the most common form of reserving practice. (It is difficult to think of any other method which would be appropriate when the purpose is to assess past performance in order to decide whether to participate in the future). So too stair stepping is discouraged, although I cannot myself see why it is deprecated - perhaps because it involves more work. On the other hand, there was no reserve if cover under the insurance was denied, or at any rate no indemnity reserve, apparently for the reason that the existence of a reserve would be disclosable on discovery and thus become an encouragement to jurors to hold the insurer liable. That practice can scarcely be criticised in the circumstances. But it was agreed by Mr Palange and Mr Beckerman, experts on one side and the other, that some time limit for reserving should be used, which was not done in this case.
175.	Mr Palange, who was the expert called by Generali, was asked this in cross-examination:
“Q: 	The policy is that he defers setting a loss reserve until he has all of the information regarding the circumstances surrounding the events that gave rise to the claim. If that was his policy... if that was his philosophy... it was an absurd claims handling philosophy, was it not?
A: 	If that was the philosophy of him and Gay & Taylor for all claims reported, up until March 1993, I would not call it absurd, I would call it unacceptable.”
176.	Mr Justice Morison found that the policy of Gay & Taylor was not that described in the question, with the consequence that the criticism of Mr Palange did not apply to it. However, it is said for Arig that the judge was not entitled to reject the only evidence there was of Gay & Taylor’s policy. In my view, there is some force in that point.
177.	There was also contemporary correspondence in which criticism was expressed of the policy. The judge felt that he could disregard that evidence. This was a decision which I regard as open to question. Overall, I find that there were justifiable grounds for criticising the reserving policy of Gay & Taylor. If figures are to be presented to an underwriter in order to persuade him to take a risk, surely there should be an attempt to ensure that they are as accurate as can reasonably be expected, or else there must be disclosure that the figures do not pass that test.
178.	However, the remedy of avoidance for non-disclosure has very serious consequences, and should not be granted unless there are serious grounds for doing so. In this case it is probable, in my view, that some of the figures put forward by Generali can be criticised; a reasonable assessment of reserves that should be allowed would have produced larger figures. But we are unable to say how much larger they should have been. As I understood it, the case for Arig went no further than calculating what the average figure would have been for the reserve on each kind of claim in order for the total reserves to equal what was later found to be the total of losses. That as it seems to me was a statistical exercise which could not be justified as proof of what the reserves should have been.
179.	Mr Compton, an expert witness called by Arig, was asked:
“Q:	Unless there is something materially wrong with the figures which needs to be explained, the methodology of which they are arrived at and calculated is not of interest to you; is that correct?
A:	Correct, yes.”
180.	The judge did not in terms decide whether the faults alleged in the reserving policy were material and should have been disclosed or whether the failure to disclose induced the making of the retrocession contract. But he was not satisfied, on the balance of probabilities, that if the claims had been reserved as Arig suggested they should have been, it would have made a difference to Arig’s decision to participate. I agree with that conclusion. The extent of error that existed in the figures is unknown. The method of reserving, whilst open to some criticism, was not so faulty as to be worthless. It was a question of degree. Without more information one cannot say either that it was material and ought to have been disclosed, or that it induced the making of the contract on the terms that were agreed.
181.	The second main issue is whether there was misrepresentation as to the participation of Munich Re. The brokers represented, both orally and in writing, that Munich Re were participating in the insurance programme. They wrote in the initial invitation of 18th June 1992:
“The leading insurers in London are the Assicurazioni Generali SpA with support from the Commercial Union and the Munich Re.”
I do not, for my part, consider that there is any need to ponder on the meaning of the word “support”, as the judge was asked to do, and still less to find a meaning for the word in the evidence of expert witnesses. I would be inclined to think that the information thus conveyed was material - otherwise there would be no point in providing it.
182.	Whether the information was false on the ground that Munich Re participated in part only of the programme, is a question which I need not decide, for I find that it did not induce the making of the contract. Mr Anderberg, the underwriter of Arig, said in paragraph 33 of his witness statement:
“I can categorically state that I would not have authorised Arig’s participation if I had known Munich Re only participated in Section A.”
183.	However, in cross-examination Mr Anderberg gave this answer:
“All the other factors involved here - the excellent figures, et cetera ..... indicated that this was a very profitable account and I am sure we would have written it without the participation of Munich Re, I am sure. It was a comfort factor [but] Munich Re is not guiding our underwriter, we are guiding our underwriting ourselves.”
However, on the next day in re-examination he added that he would have asked why Munich Re were not participating in the whole package, and said:
“If I would not have got any clarification which I could buy, I would have declined participation.”
184.	Mr Flaux submitted that too much weight should not be placed on one answer. No doubt that is often true - and sometimes not. The judge was entitled to prefer the answer in cross-examination.
185.	Mr Compton was likewise not over-enthusiastic on the influence of Munich Re. He said in cross-examination:
“You can then derive as a reinsurer some - to a great or lesser degree - additional satisfaction and comfort from the knowledge that Munich Re now have a large vested interest in this business and they will be monitoring in their incomparable way, and if things start to go awry, they will gently make an approach to the leader... Now, I think that, therefore, the existence and the potential of Munich Re to do that is something that brings a little added comfort to an underwriter.”
186.	That is as far as Mr Compton, Arig’s expert, would go. I conclude that the representation as to the participation of Munich Re did not induce the participation of Arig on the terms which they agree to.
187.	In reaching that conclusion I have had regard to the classic speech of Lord Mustill in Panatlantic Insurance Co Ltd v Pine Top Insurance Co Ltd (1995) 1 AC 501 at p. 549, and I hope that I have followed it. A misrepresentation or non-disclosure which did not make any difference, in the sense that the underwriter would have agreed to the same contract on the same terms if it had never been made, cannot be an inducement. Benjamin Franklin once wrote that for want of a nail a shoe was lost; for want of a shoe the horse was lost; and for want of a horse the rider was lost (Poor Richard’s Almanac). But in my view, causation cannot in law exist when even the “but for” test is not satisfied.
188.	Since writing this judgment I have had the advantage of reading the judgment prepared by Ward LJ. I find it most impressive, if I may say so, and am concerned that I have reached a different conclusion on whether the misrepresentation about Munich Re was an inducement. I add only two points to explain why I have the tenacity to stand by my earlier view.
189.	First, I have to say that to my mind, witness statements treated as evidence in chief tend to carry less weight than oral evidence in chief did in days gone by. It is an everyday event in arbitrations to be told that witness statements, and experts’ reports, are held up because they have not yet been “reviewed” by (leading) counsel. We cannot be told, or at any rate are not told, what were the consequences of counsel’s review, or what may have been changed. I do not for one moment suggest that the witness or expert has been improperly persuaded to alter his evidence. But on a critical issue I would rather hear a straight, unaided version from the mouth of the witness. 
190.	Secondly, the question in reexamination which Ward LJ quotes in paragraph 35 of his judgment is, I would suppose, one that was very likely to attract the answer which did come from Mr Anderberg: “If I would not have got any clarification which I could buy, I would have declined participation.” But was that the right question? Should it not have been, “would you have participated if you had not been told anything about Munich Re participating? Or that they were participating only to a limited extent?”
191.	I am concerned indeed that the vital answer in cross-examination came at the end of a long day for the witness. But surely it is for the judge to assess the effect of that; and he did intervene at the time to confirm the answer which the witness gave.
192.	It follows that in my judgment this appeal must be dismissed. I express no view on the effect of the new provision in Part 52.11(1) of the Civil Procedure Rules that every appeal shall be a review rather than a rehearing, unless the court decides otherwise. It replaces Order 59 Rule 3 of the old dispensation, which provided that an appeal to the Court of Appeal should be a rehearing. In my opinion no part of the five days spent in the hearing of this appeal was time wasted. Both of the protagonists, in theory at any rate, come from abroad. I suppose that between them they have invested the best part of a million pounds in this litigation. Permission to appeal was granted by a judge of this court. I would regard it as a matter for regret if they were to be allowed only an abbreviated or summary hearing.

Lord Justice Ward : 
Review or rehearing?  Does it make a difference?
193.	Because the answer to the question has an important bearing on the outcome of the appeal, I express my views in my own way.  They are not meant to be any different in essence from those more articulately set out by Clarke L.J.  Insofar as the appellant challenges the judge’s findings of fact, the ground of appeal is in essence that those findings were against the weight of the evidence.  By virtue of CPR 52.11:-
“(1)	Every appeal will be limited to a review of the decision of the lower court unless –
(a)	a practice direction makes different provision for a particular category of appeal; or
(b)	the court considers that in the circumstances of an individual appeal it would be in the interests of justice to hold a rehearing.
(2)	Unless it orders otherwise, the Court of Appeal will not receive  
(a)	oral evidence;  or
(b)	evidence which was not before the lower court.
(3)	The Appeal Court will allow an appeal where the decision of the lower court was –
(a)	wrong; or
(b)	unjust because of a serious procedural or other irregularity in the proceedings in the lower court.
(4)	The Appeal Court may draw any inference of fact which it considers justified on the evidence. …”
That is in contrast to the old RSC Order 59 Rule 3 which provided that an appeal to the Court of Appeal shall be by way of rehearing.
194.	I am quite satisfied that the main purpose for the change in the language was, as identified in Tanfern v Cameron MacDonald [2000] 1 W.L.R. 1301, to unify the hearing of interlocutory appeals so that the practice on an appeal from a district judge or master to the circuit judge or High Court judge would be the same as an appeal from the circuit or High Court judge to the Court of Appeal, that is to say, reviewing the lower court’s decision, not exercising discretion afresh.  Although nominally by way of rehearing, interlocutory appeals in the Court of Appeal were treated as reviews of the lower court’s decision.
195.	When the Court of Appeal heard appeals on questions of fact the court was essentially conducting a review of the findings made by the judge below in as much as the Court of Appeal examined that judgment in the light of the evidence which had been presented to the court below without (save exceptionally) hearing evidence in this court.  Mr Boyd Q.C. submits that the change of language compels a different approach to be adopted.  I do not agree.  Our task is essentially no different from what it was – we consider the judgment testing it against the evidence available to the judge and we ask, as we used to ask, whether it was wrong.  The Court of Appeal can only interfere if the decision of the lower court was wrong and in deciding whether or not findings of fact were wrong, we take a retrospective look at the case and do not decide it afresh untrammelled by the judge’s conclusion.
196.	The trial judge’s view inevitably imposes a restraint upon the appellate court, the weight of which varies from case to case.  Two factors lead us to be cautious about interfering.  First, the appellate court recognises that judging the witness is a more complex task than merely judging the transcript.  Each may have its intellectual component but the former can also crucially rely on intuition.  That gives the trial judge the advantage over us in assessing a witness’s demeanour, so often a vital factor in deciding where the truth lies.  Secondly, judging is an art not a science.  So the more complex the question, the more likely it is that different judges will come to different conclusions and the harder it is to determine right from wrong.  Borrowing language from other jurisprudence, the trial judge is entitled to “a margin of appreciation”.
197.	Bearing these matters in mind, the Appeal Court conducting a review of the trial judge’s decision will not conclude that the decision was wrong simply because it is not the decision the appeal judge would have made had he or she been called upon to make it in the court below.  Something more is required than personal unease and something less than perversity has to be established.  The best formulation for the ground in between where a range of adverbs may be used – “clearly”, “plainly”, “blatantly”, “palpably” wrong, is an adaptation of what Lord Fraser of Tullybelton said in G v G (Minors: Custody Appeal) [1985] 1 W.L.R. 642, 652, admittedly dealing with the different task of exercising a discretion.  Adopting his approach, I would pose the test for deciding whether a finding of fact was against the evidence to be whether that finding by the trial judge exceeded the generous ambit within which reasonable disagreement about the conclusion to be drawn from the evidence is possible. The difficulty or ease with which that test can be satisfied will depend on the nature of the finding under attack.  If the challenge is to the finding of a primary fact, particularly if founded upon an assessment of the credibility of witnesses, then it will be a hard task to overthrow.  Where the primary facts are not challenged and the judgment is made from the inferences drawn by the judge from the evidence before him, then the Court of Appeal, which has the power to draw any inference of fact it considers to be justified, may more readily interfere with an evaluation of those facts.  The judgment of the Court of Appeal in The Glannibanta (1876) 1 P.D. 283, 287, seems as apposite now as it did then:-
“Now we feel, as strongly as did the Lords of the Privy Council in the cases just referred to [The Julia 14 Moo P.C. 210 and The Alice L.R. 2 P.C. 245], the great weight that is due to the decision of a judge of first instance whenever, in a conflict of testimony, the demeanour and manner of the witnesses who have been seen and heard by him are, as they were in the cases referred to, material elements in the consideration of the truthfulness of their statements.  But the parties to a cause are nevertheless entitled, as well on question of fact as on questions of law, to demand the decision of the Court of Appeal, and that court cannot excuse itself from the task of weighing conflicting evidence and drawing its own inferences and conclusions, even though it should always bear in mind that it has neither seen nor heard the witnesses, and should make due allowance in this respect.”
The first big issue: misrepresentation and Munich Re.
198.	In the 18th June 1992 fax Generali stated:-
“The leading insurers in London are the Assicurazioni Generali Spa with support from the Commercial Union and the Munich Re.”
In a subsequent conference telephone call on 3rd July Arig say they sought clarification and that Mr Wardlaw stated that the respective percentage participations were Generali 40%, Commercial Union 20% and Munich Re 35%.
The first question: were any of these representations?
199.	That leads me to ask, first, what  does “with support” mean.  For the judge it meant “what it says no more and no less”.  In his view the words could not mean “more than that Munich Re are participating in the packages” and furthermore “to say that their support could not properly be described as support because it was limited to one part only is most odd”.
200.	I do not accept that conclusion.  If Generali intended to mean that the support was confined to section A and did not cover section B, it could have and should have said so.  The implication from the general words is that Munich Re supported both packages.  There was, therefore, a representation of that fact.
201.	As to the conversation on 3rd July the judge said this:-
“I am not prepared to place any great weight on the oral conversation between Mr Wardlaw and Mr Rehman at the beginning of July 1992.  Mr Wardlaw had no recollection of the conversation; the witnesses were dealing with something that occurred nine years ago and for which there are no notes relevant to this issue.  Mr Wardlaw says he thinks he would have explained the full position about Munich Re’s participation.  I doubt he did so because Mr Rehman had obviously talked himself into believing that participation could only be across the board.”
202.	Since there was a sharp issue of fact about this conversation, it behoves the judge to make a clear decision whether or not it took place as Arig alleged.  The judgment is Delphic when it could have been categoric.  I am prepared to hold that the judge was wrong in coming to his conclusion.  If Mr Wardlaw had no recollection of the conversation, a fact which may, of course be understandable given the lapse of time, then some good reason must be advanced to explain why another party to the conversation who declares he does recollect it should have his evidence rejected.  The judge’s reasons do not bear analysis.  Firstly he says there were no notes relevant to the issue.  There were.  They were endorsed by Mr Rehman on his fax and they spring from the page.  Secondly he says that Mr Rehman had obviously talked himself into believing that participation could only be across the board.  That misses the point.  The question is whether or not Mr Wardlaw said that Munich Re was participating to the extent of 35%.  Whether that meant 35% in respect of package A only or 35% in respect of both A and B is a matter for the construction of the language.  I would hold that an answer that Munich Re was  participating to the extent of 35% carried with it the implication that it was participating on both parts.  The judge’s finding that Mr Rehman had misled himself through his own ignorance may explain how he understood the answer but it does not lead to a rejection of the conversation ever taking place at all or of the answer being given in the terms in which it was recorded.  Thirdly the truth was not staring him in the face.  At that stage the documents were silent on this point.  He had not then seen the slips which made it plain that participation was limited to part A only.  Finally, it was not being alleged that the statement was negligently, still less deliberately misrepresented.  It is enough that Mr Wardlaw made the mistake and the mistake may have been that he did not understand the implications of what he had written and was saying.  Consequently I agree with Clarke L.J.’s conclusion that it is more probable than not that Mr Rehman was told that Munich Re were participating to the extent of 35% of each of the two parts of the business.
Were those misrepresentations false?
203.	It is common ground that they were since Munich Re were only participating in section A and not in the much more risky section B.
Were the representations material?
204.	A representation is defined by section 20(2) of the Marine Insurance Act 1906 to be material if it would:-
“influence the judgment of a prudent insurer in fixing the premium, or determining whether he would take the risk.”
205.	In Pan Atlantic Insurance Ltd. v Pine Top Ltd. [1995] 1 A.C. 501 Lord Mustill held at p. 518 that the common law relating to marine and non-marine insurance is the same and the Act embodies a partial codification of the common law.  That definition therefore covers this case.  Lord Mustill held at p. 531:-
“… this expression clearly denotes an effect on the thought processes of an insurer in weighing up the risk, quite different from words which might have been used but were not, such as “influencing the insurer to take the risk.””
206.	As Lord Goff of Chieveley made plain at p. 517:-
“The sub-section does not require that the circumstance in question should have a decisive influence on the judgment of the insurer; and I, for my part, can see no basis for reading this requirement into the subsection.”
I agree with Clarke L.J.’s analysis in paragraph 55 of his judgment.
207.	Quite how far this definition can be adapted for non-insurance cases may be less certain.  I can see why the test may be whether the subject matter of the representation must be such as to have influenced the judgment of a reasonable man.  I note, however, the discussion in paragraph 6-040 in Chitty on Contracts Volume 1, 28th Edition.  It is unnecessary for me to say more.
208.	I do not read Morison J.’s judgment as directly addressing the question of materiality.  Generali certainly contend that Munich Re’s non-participation on the high-risk liability section B was not a material fact which needed to be disclosed.  I agree with Sir Christopher Staughton’s summary rejection of that argument.  The information conveyed was material – otherwise there would be no point in providing it. After all Munich Re was a huge player in this field whose participation could not be seen otherwise than as some endorsement of the product.  The experts were agreed in their view that the “participation of Munich Re should be analysed by a prudent underwriter according to their [Munich Re’s] motivation”.  That participation was, therefore, in my judgment material because it would influence a prudent insurer in determining whether to take the risk, even if it was not the decisive factor in coming to that conclusion.
When was the contract made?
209.	Mr Flaux Q.C. submits that the judge ought to have held that the contracts were made on 10th July.  I agree with the judge and with Clarke L.J. that at that time essential terms had still to be agreed, in particular whether Arig was contracting as retrocessionaire or as co-reinsurer.  That is sufficient to dispose of Mr Flaux’s case.  He argues for that contractual date in order to alleviate the possible complication that later documents, upon careful analysis, show that Munich Re were not participating in the schedule B business.  Like my Lord I would conclude that the agreement was made on the scratching of the slips on 9th September. 
The effect of later disclosure of the non-participation by Munich Re in section B business.
210.	The law was succinctly stated by Lord Dunedin in Nocton v Ashburton [1914] A.C. 932, 962:-
“No-one is entitled to make a statement which on the face of it conveys a false impression and then excuse himself on the ground that the person to whom he made it had available the means of correction.”
That was a case of fraudulent misrepresentation, but the principle is equally applicable to a case of rescission based on innocent misrepresentation as in Redgrave v Hurd (1881) 20 Ch. D. 1, where  Sir George Jessel M.R. said at p. 13/4:-
“Nothing can be plainer, I take it, on the authorities in equity than that the effect of false representation is not got rid of on the ground that the person to whom it was made has been guilty of negligence.  One of the most familiar instances in modern times is where men issue a prospectus in which they make false statements of the contract made before the formation of a company, and then say that the contracts themselves may be inspected at the offices of the solicitor.  It has always been held that those who accepted those false statements as true were not deprived of their remedy merely because they neglected to go and look at the contract.  Another instance with which we are familiar is where a vendor makes a false statement as to the contents of a lease, as, for instance, that it contains no covenant preventing the carrying on of the trade which the purchaser is know by the vendor to be desirous of carrying on upon the property.  Although the lease itself might be produced at the sale, or might have been open to the inspection of the purchaser long previously to the sale, it has been repeatedly held that the vendor cannot be allowed to say, "You were not entitled to give credit to my statement”.  It is not sufficient, therefore, to say that the purchaser had the opportunity of investigating the real state of the case, but did not avail himself of that opportunity.”
There the purchaser of the solicitor’s practice had possession of accounts which upon examination would have revealed the falsity of the representation as to the level of profit it was said that the practice was achieving.  Absent proof that he had in fact become aware of the falsity, he was entitled to relief.
211.	If, as I would find, Generali had misrepresented Munich Re’s true participation in their invitation to participate dated 18th June and in the conversation of 3rd July, then I hold, in agreement with Clarke L.J. that it was incumbent upon Generali or its brokers expressly to bring the true position to the attention of Arig.  In my judgment the judge erred in law in holding:-
“Mr Rehman had the information before the contract was made and his failure to read the enclosures is no excuse.  If, which I doubt, Mr Rehman was under any misapprehension it was due to his own preconceived ideas and a failure to study the paperwork properly.”
212.	The judge then continued:-
“In fact, I formed a favourable view of Mr Rehman as a careful man and witness.  I have to say I find it incredible that he would not have read the fax in July as carefully as he did the retrocession slips which were a part of it.  All the other signs are that he approached the underwriting decisions with meticulous care, as did Mr Anderberg.”
I have to say I find this another elliptical part of the judgment.  The judge hinted at but did not expressly say that he disbelieved the witnesses.  The evidence was clear enough.  Mr Rehman said when asked in cross-examination why he did not look at a document which plainly evidenced Munich Re’s participation:-
“The information that the broker supplied at the beginning, that they were participating, led us to go through the analysis of the risk and move on from there.  At this point I do not know why I would have to look for that.  If there was a material change I think the broker should be able to bring it out to my notice or on the front page saying: “Look, there is a change here, the reinsurers you know, are participating in this or that or they are not participating on this””.
213.	Mr Anderberg said:-
“… It would be prudent to tell us they are not supporting part of the package … You cannot expect us to be suspicious.  We are getting information from a producer which we are relying on.”
214.	If the judge was finding that these two gentlemen did read and inwardly digest the information in the security sheets, which were documents of a routine nature, there was scant evidence justifying such a finding.  Absent an express finding that he did not believe their evidence when they said that the matter did not come to their attention, there was no justification for his holding that the misrepresentations had been spent and had ceased to affect Arig’s judgment.  So far I am in Arig’s favour on the Munich Re misrepresentation issue.
The crucial question: did the fact of Munich Re’s represented participation in both parts of the package induce the contract?
215.	I take the law to be this: if it is established that the representee did not allow the representation to affect his judgment in any way then he could not make it a ground for relief.  If on the other hand the representee relied on the misrepresentation, then the representor cannot defeat his claim to relief by showing that there were other more weighty causes which contributed to his decision to enter into the contract.  In this field the court does not allow an examination into the relative importance of contributory causes.  In other words, it is sufficient if the representation is a cause even if it is not the cause operating on the mind of the representee when he enters into the contract.
216.	In my judgment that has been well established since Edgington v Fitzmaurice (1885) 19 Ch. D. 459.  Cotton L.J. expressed the principle at p. 481 as follows:-
“It is not necessary to show that the misstatement was the sole cause of his acting as he did.  If he acted on that misstatement, though he was also influenced by an erroneous supposition, the defendants will still be liable.”
Bowen L.J. said at p. 483:-
“The real question is, what was the state of the plaintiff’s mind, and if his mind was disturbed by the misstatement of the defendants, and such disturbance was in part the cause of what he did, the mere fact of his also making a mistake himself could make no difference.  It resolves itself into a mere question of fact.”
217.	Fry L.J. stated at p. 485:-
“But in my opinion if the false statement of fact actually influenced the plaintiff, the defendants are liable, even though the plaintiff may have been also influenced by other motives.”
That that still represents the law was affirmed in St. Paul Fire & Marine Insurance Co. (U.K.) Ltd. v McConnell Dowell Constructors Ltd. & Others [1995] 2 Lloyds Rep. 18, 124/125 per Evans L.J.
218.	I am happy to express my agreement with the analysis of the law conducted by Clarke L.J. subject to this reservation.  I am not entirely sure that it is necessary to require the misrepresentation to be an effective cause of a party’s entering into the contract on the terms on which he did.  If by that qualification my Lord means no more than that it did actually play upon his mind and influence his decision then I have no argument.  In other words I readily accept it must have some causative effect.  I would be concerned if the insistence on an effective cause were to lead to an evaluation of the weight placed by the representee upon the various matters which in combination lead to the agreement.  We must be careful not to be led back into the error that the cause has to be a decisive cause.
219.	The crucial question has now become, adopting the language of Bowen L.J., a mere question of fact: was Arig’s corporate mind disturbed by the misstatement of Generali and was such disturbance in part the cause of what it did?  I have found this the hardest question to answer.  On the facts as I would hold them to be, Mr Rehman and Mr Anderberg were sufficiently interested in Munich Re’s involvement to have made specific further enquiries about it on 3rd July.  Their mind was certainly being disturbed by this question at that time.  The information given to them reinforced the belief they had formed on reading the first fax.  The information was material.  It was material enough, I would have thought, for there to be at least a presumption that Arig would have acted upon it.  But of course the presumption can be rebutted and Generali rely heavily upon Mr Anderberg’s answer in cross-examination which has been set out in my Lords’ judgments and to which I refer later.
220.	The judge clearly founded his judgment on that answer when he held:-
“But in any event I do not consider that what was said about Munich Re played any part in the decision taken by Arig to participate in the programme.  Although Mr Anderberg suggested in his witness statement that but for Munich Re’s participation Arig would not have participated, his position modified when he gave evidence.  Quite rightly, I think, he said that the decision taken by Arig whether or not to participate was taken on the merits of their appraisal of the risk but that the fact that Munich Re was also a participant was a comfort factor after the decision had been taken.”
221.	I must analyse those matters.  What Mr Anderberg said in his witness statement was clear enough:-
“I can categorically state that I would not have authorised Arig’s participation if I had known Munich Re only participated in section A.”
222.	The judge’s reference to the critical passage in cross-examination was to the opposite effect:-
“I am sure we would have written it without the participation of Munich Re, I am sure.”
But that was not all the evidence.
223.	Mr Collins Q.C. secured the critical answer at the end of his hard day’s cross-examination.  The transcript at p. 173/4 shows that immediately after the judge’s clarification about the comfort factor the case was adjourned, the judge observing:-
“I am sorry you have had a rather long day and fairly uncomfortable.”
224.	It was then 4.15. Mr Collins had not been quite as successful until that time.  The context is more revealing than the time.  I can read from page 167 of the transcript adding the emphases:-
“Q:	… Now, you describe the support of Munich Re or, for that matter, the Commercial Union as a comfort factor?
A:	Yes.
Q:	That is your description of it?
A:	Uh-huh.
Q:	By that you mean what, precisely: a broker’s selling point, or something of that kind?
A:	Part of it, yes.  I would say we are seeing this nearly on a daily basis.  We have, maybe, five flag carriers in the world.  Munich is one of these.  You have Swiss Re, you have Alliance, you have a couple of others which have major resources.  If you are seeing them in a programme, whatever, you are doing your underwriting and you are seeing them on the programme, it is a comfort factor and it is used by the broking community to comfort you, to tell you this is a quality business we are giving you.
Q:	Yes.  In this instance Munich Re was not the lead underwriter, nor was Commercial Union.  Generali was the lead underwriter?
A:	Yes.
Q:	So it indicates that Munich Re was confident in Generali as lead underwriter?
A:	Yes.
Q:	And encourages you, similarly to have confidence in Generali as lead underwriter?
A:	That was only part of it, you know.
Q:	Right.
A:	The major part was actually the figures we have discussed previously.  We had an excellent record and then you expected, Munich Re, to support and Commercial Union, such an excellent record is attracting not the small underwriters, as we are, but even the big ones, so it is an important factor.  The figures combined with those names being on this risk.
… p.169
Q:	So it tells you both that Munich Re has confidence in Generali and it tells you that it has exercised its underwriting judgment in a certain way?
A:	Yes.
Q:	It does not, as I think my Lord put to you at the beginning of this series of question, affect your underwriting judgment and your decision as to whether or not to write this risk, does it?
A:	Of course it has an impact on all underwriters, I would say, not only me.  It has an impact on all underwriters because it is a comfort factor.  Determining that Munich Re is comfortable with the product as such and that they are participating with a substantial line.  So I mean it is an important part of the information and it is widely used by all producers.  Maybe not specifically if you are looking at the Hong Kong producers or Singapore producers but specifically in the London market where they are marketing the risk, this is the line written by so and so, this is the line written by so and so –
Mr Justice Morison:	How did you know that Munich Re were writing or participating with a substantial line?  What was the information that you rely on for that proposition?
A:	Because we queried.  We always queried who is supporting this type of – not specifically this type of policy but who is supporting major type of risks.
…”
225.	Two pages later comes the critical passage upon which the judge relied which I cite in full:-  
“Q:	So far as your underwriting decision was concerned – “yours”, I mean Arig’s, Mr Anderberg – you would agree, I am sure, that the participation of Munich Re in the programme does not affect the matters which we ran through earlier today, the question of limits, premium, excellent loss ratios, whether the business fits the Arig profile, whether it is within the Arig capacity to write, whether it falls within Arig’s reinsurance limits and reinsurance protection; anything of that kind.  It has no bearing on any of those factors which go into Arig’s own decision as to whether or not to write this business.  That is right, is it not?
A:	Am I right in thinking you are asking me a question – because it is quite a long question – that the Munich Re decision did not have any impact on our own decision.
Q:	On your underwriting judgment, on deciding whether or not to accept this risk that is what I am asking.
A:	You know, we are making an independent underwriting.
Q:	I am sure you are.
A:	On all risks.  All the other factors involved here – the excellent figures etc. – indicated this was a very profitable account and I am sure we would have written it without the participation of Munich Re, I am sure.  It was a comfort factor [but] Munich Re is not guiding our underwriter, we are guiding our underwriting ourselves.
Mr Justice Morison:	The position is that you take an independent underwriting decision, having made the decision to participate, you are feeling comfortable with that decision having regard to the participation by Munich Re in the programme.
A:	Yes.
Mr Justice Morison:	That is the way it works?
A:	That is the correct way, your Lordship.”
226.	It was at that point that Mr Collins (though the transcript says Mr Collins) invited the judge “to draw stumps”.
227.	There was more evidence before the judge.  It came in re-examination.  This is the relevant passage:-
“Q:	If you had been told that Munich Re was on section A and section B at the time you assessed the risk, and then just before you accepted the line you were told that Munich Re was not, in fact, on section B, what view would you have taken?
A:	I would have been very puzzled, asking “why”, because this was a profitable account and I would have gone back to the producer and asked them for clarification of why Munich Re did not participate in section B, which was actually, as far as I remember, when we were asking for the premium split it generated, on the advice premium volume of twenty million, it actually generated 75%.  Why should Munich Re not participate on the 75% of the twenty million if it was a profitable account with good prospects?  That would have been my immediate reaction.  If I would not have got any clarification which I could buy, I would have declined participation.”
228.	I see the full force of my Lords’ views that the judge was entitled to rely on the answer given towards the end of the cross-examination.  Yet I am troubled.  These are my concerns:
i)	The judge referred to the evidence in the witness statement and then said that Mr Anderberg’s position “modified when he gave evidence”.  He seized upon the answer in cross-examination.  But that is not the whole picture.  There was ample evidence in the other passages under cross-examination which I have highlighted, as well as the answer in re-examination which indicated the continuing influence of Munich Re’s participation on the eventual decision.
ii)	For the judge to consider that Munich Re paid no part in the decision seems to me to be quite clearly against the weight of the evidence.  In my judgment it was a material fact which was followed up by specific enquiry to confirm their involvement and good reason was given why it made the deal more attractive.  Reserves may well butter no parsnips but Munich Re was icing on the cake.
iii)	That metaphor goes to the heart of my concern.  The law on inducement is, as I have set out, that the court does not embark upon the exercise of finding the decisive cause or the dominant cause or the main reason:  any reason is sufficient if it has actual influence upon the decision taken.  Mr Anderberg made plain enough that he was convinced by his own analysis of the information that the deal was a profitable one.  That was why he agreed to participate.  But he also drew comfort from the fact and therefore relied upon Munich Re’s involvement as a fact which supported his judgment.  One tests the position by asking the question in the negative:  can it be said he entirely disregarded the misrepresentation about Munich Re’s participation?  To that question there is, in my judgment, only one answer.  It is, “no”.  
iv)	This is borne out by an analysis of what he was saying in the context in which he was saying it.  He had explained what he meant by “a comfort factor”, namely that it was a factor “to tell you this is a quality business”.  Munich Re gave him confidence but “that was only part of it”, “the major part” (and those words do need to be emphasised) “was actually the figures we have discussed previously”.  “We had an excellent record” (which I take to mean his analysis showed this new business he was being invited to join had an excellent record) and then Munich Re’s support “is an important factor”.  It is all summed up in the next phrase: “The figures combined with these names being on this risk”.  Again “It is an important part of the information”.  
v)	Let me then analyse the passage which so attracted the judge.  It began by Mr Collins reminding him of the various factors which went into Arig’s own decision and Mr Anderberg anticipates the question to be that the Munich Re decision did not have any impact on their own decision.  He confirms that they made an independent underwriting on all the risks.  They concluded it was a very profitable account and the real meaning of his evidence, in my judgment, is that he was saying he was sure they would have written the business “without the participation of Munich Re” meaning if Munich Re had not taken its percentage, in other words, if there had been no mention of Munich Re at all in the information given to them.  He makes it plain, however, that its participation did not “guide” their underwriting decision, in other words they did not act blindly on the fact of that participation, because they made their own independent assessment of profitability.  Having done that, Munich Re was a comfort factor in that it bolstered their decision.  Translate that into the language in which we reach our decisions: “I am satisfied having regard to all the evidence that this, that or the next thing is the right result and I am fortified in that conclusion by the fact that X, Y and Z”.  That is what Mr Anderberg was saying upon a true reading of the totality of his evidence.  
vi)	The question using Lord Mustill’s words is whether Munich Re’s participation was affecting his thought processes, or, more colourfully, in Bowen L.J.’s words, whether it was disturbing his mind?  If we ask another question, but just as important a question, “Was he ignoring Munich Re?”, then we get an easy answer.  “No, of course not”.  Of course they assessed the proposal on its merits, and would not have signed up if not convinced of its merits, but a second and even if a secondary reason is the confirmation (comfort) they get from knowing Munich Re must have similar confidence in the deal.
So was the judge wrong?
229.	Given the way the Court of Appeal has to approach this question, can I be sufficiently sure that the judge was wrong in the sense that his decision falls outside the generous ambit within which reasonable disagreement is possible.  I have thought long and hard about it.  I must not flinch from making up my mind.  I must - and I do – pay respect to the trial judge’s unique advantages over us, and I am acutely conscious that he has vastly more experience in this field than I do. Yet on this limited issue the judge was not choosing between different witnesses.  He did not find Mr Anderberg’s evidence incredible or criticise it in any way.  He was drawing inferences from the primary facts given in that evidence.  In so doing this court is as able as he is to make those inferences and evaluate the right conclusion.  I bear in mind that on every aspect of this misrepresentation claim the judge has taken a dim view of it.  He dismissed it fairly summarily in only two pages.  In their differing ways my Lords have felt able to criticise him in several respects.  I am now satisfied that he was wrong in this respect also. It seems to me that the judge fell into error because he did not have regard to the totality of the evidence and probably (though it does not expressly appear from the judgment) failed to remind himself that a contributory cause is good enough even if it is not the decisive cause for participation.  I would therefore allow the appeal on this point.
The next big issue: reserving policy and materially misleading statistics.
230.	Arig put its case in two ways:-
i)	there was a failure to disclose the material fact that the reserving policy adopted by Gay & Taylor was imprudent and/or unusual, and, 
ii)	the loss statistics misrepresented the profitability of the packages or, putting the same point another way, there was a failure to disclose the material fact that the loss statistics were materially misleading.
The complaint is that the judge wrongly treated these two discrete defences as substantially the same.
231.	The judge held:-
“[Arig’s counsel] submitted that the reserving policy was imprudent and unusual and, ipso facto, should have been disclosed as a material fact as a part of the fair presentation of the risk.  Second, he submitted that without disclosure of it, the figures represented in the facts of June 1992 and in March 1993 were materially misleading.  I agree with [Generali’s counsel] that there is effectively only one point.  The reserving policy of itself is not a material fact which requires to be disclosed.  The evidence was clear on this point.  An underwriter would only expect to be informed of such a policy if it were unusual and imprudent so that it rendered the figures showing the ratio of losses to premiums unreliable.  Was the policy unusual and imprudent so that the figures disclosed were misleading?  Mr Simon’s two points merged into just one.”
232.	I do not agree with that analysis.  The first defence is that the policy was unusual and/or imprudent.  It seems to me to be axiomatic that the fact that such a policy was being applied was a material circumstance.  A circumstance is material if it would influence the judgment of a prudent insurer in determining whether he will take the risk.  It has to follow that the judgment of a prudent underwriter assessing the risk would be influenced by the operation of a reserving policy which is found to be imprudent.  If it is a material circumstance, then in a contract of the utmost good faith it must be disclosed.
233.	The second defence may be linked to the first in the sense that if the policy is unusual and/or imprudent, then the figures produced by the application of that policy may be misleading, but it seems to me that proving this defence involves a quite different exercise from proving the first.  To establish the first, Arig have to show what the policy was as a matter of fact.  That was a matter on which Mr Reynaud was best placed to speak since he operated it.  That does not mean that the evidence of those who analysed how he operated it was irrelevant.  The judge was fully entitled to take into account Mr Palange’s observations.  Then the next question, the answer to which depends upon the expert evidence, is whether that system was unusual and/or imprudent.  When one comes to the second defence, one starts with the statistics given in the relevant fax.  There are no hard facts: reserves are but estimates of future possible losses.  To prove that information was misleading requires evidence of what the figures should have stated.  Here Mr Kiverstein’s evidence was essential to Arig’s success.
Was an unusual and/or imprudent reserving policy adopted?
234.	I prefer to clarify first what would make the policy unusual and/or imprudent.  It was common ground that the claimants or their representatives must:-
“Make every effort to establish at the earliest possible opportunity the full circumstances surrounding an event that has given rise to a claim.  Having done so, it is incumbent on the claimant to set a reserve that properly represents its most likely financial exposure in the context of coverage provided by the policy[ies] and for that reserve to be fixed as soon as it is reasonably practicable, including reserving for legal and associated expenses.  The reserve should be reviewed on a regular basis (including liaison with and obtaining regular updates from external advisors, such as loss adjusters and/or lawyers involved in actual or potential claims.”
That was the standard which had to be met. 
235.	The experts agreed that:-
“No insurer (or TPA) relative to large construction defect claims could establish reserves that would “properly represent[s] its most likely financial exposure in the context of coverage provided by the policy[ies]” until such time as they received adequate investigative data concerning coverage, liability and damages as the facts and circumstances of each individual claim reasonably allowed.”
Much would thus depend on how far adequate investigation had to go.
236.	The judge held:-
“To adopt a policy whereby reserves were only set when the last “t” had been crossed and the last “i” dotted would defeat the object of the exercise which was substantially to inform participants in the programme what the relationship was between premium income and losses (actually and anticipated).  If Mr Reynaud had adopted this policy then it would have been both unusual and imprudent.”
237.	Mr Flaux would agree and he submits that that is precisely what Mr Reynaud was doing.  He submits that the answer extracted from Mr Palange under cross-examination is as much a knockout blow for Arig as Mr Anderberg’s last answer to Mr Boyd was said to be the death knell to Arig’s case on inducement.  This is the relevant exchange:-
“Q:	The policy is that he [Mr Reynaud] defers setting a loss reserve until he has all of the information regarding the circumstances surrounding the events that gave rise to the claim.  If that was his policy – if that was his philosophy – it was an absurd claims handling philosophy, was it not?
A:	If that was the policy of him and Gay & Taylor for all claims reported, up to March 1993, I would not call it absurd, I would call it unacceptable.”
238.	The task for the judge was to decide on all the evidence which he heard how full an investigation Mr Reynaud demanded.  He held:-
“Provided that Mr Reynaud did not take the need to investigate all the circumstances to an extreme so that the reserves were never set, there was nothing imprudent or unusual about Gay & Taylor’s policy.”
239.	That appears to me to be a correct analysis.  As the judge observed there was scope for debate as to what Mr Reynaud meant in his testimony.  Mr Palange’s research into what actually was happening was a useful check and in Mr Palange’s view, as the judge found, “Mr Reynaud did not indulge in the unacceptable practice of taking the investigation too far before setting the reserve”.
240.	Thus the judge concluded:-
“Taking his evidence as a whole, I do not see a difference between the evidence of Mr Reynaud (which added little to what he had said in his witness statement) and what Mr Palange discovered on a review of the files.”
It is important to stress the fact that in this instance the judge did take the evidence as a whole into account.  That can be compared with my complaint of his treatment of the evidence of Mr Anderberg when he did not take the whole of his evidence into account.
Was the judge wrong?
241.	In this instance I cannot say that he was.  He was clearly impressed both by Mr Reynaud and by Mr Palange and unimpressed with Arig’s witnesses.  It was a matter for him to judge the nuances of their evidence.  I remind myself of Lord Hoffmann’s speech in Biogen Inc. v Medeva plc [1977] R.P.C. 1, 45:-  
“The need for appellate caution in reversing the trial judge’s evaluation of the facts is based upon much more solid grounds than professional courtesy.  It is because specific findings of fact, even by the most meticulous judge, are inherently an incomplete statement of the impression which was made upon him by the primary evidence.  His express findings are always surrounded by a penumbra of imprecision as to emphasis, relative weight, minor qualifications and nuance … of which time and language do not permit exact expression, but which may play an important part in the judge’s overall evaluation.”
242.	In my judgment it goes further than that.  Clarke L.J. has subjected the evidence to meticulous examination which absolves me from the need to repeat it.  I agree with his discussion and his conclusion.  I agree that Arig failed to establish that the reserving policy was unusual and /or imprudent.
Were the statistics of loss materially misleading?
243.	Mr Kiverstein endeavoured to show that they were.  The judge explained why “the value of his work in relation to this case is more doubtful”.  He had adopted a formulaic approach to the reserves in the sense, as the judge explained, “that they were calculated by taking the losses and applying a mathematical averaging process and then rounding the derived figures downwards”.  The difficulties in his approach were that he was working with the benefit of hindsight which would not have been available to Mr Reynaud.  He was driven to concede that “my reserve of $40,000 cannot be compared to the reserve needs on any individual file”.  It is, therefore, not a surprise that the statistical information could not prove Arig’s defence.  This part of the appeal also fails.
Conclusions.
244.	I would dismiss the appeal insofar as it relates to the attacks on the reserving policy and the statistical information of the loss.  I cannot usefully add to Clarke L.J.’s judgment on this part of the case.  Nevertheless, when I reconsider the materials before the judge on the Munich Re point, and have to make up my own mind about it, I cannot shrink from concluding that he was wrong.  I would, therefore, allow the appeal and find that Arig was induced to enter into this contract relying upon a false representation as to the participation of Munich Re.