England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(MR JUSTICE LLOYD)

		Royal Courts of Justice Strand, London, WC2A 2LL
		30 December 2002

Lord Justice Chadwick:

1. There were before the Court two applications for permission to appeal from case management directions given in orders made on 18 November and 5 December 2002 by Mr Justice Lloyd in proceedings brought by T & N Limited (formerly known as Turner & Newall Plc and Turner & Newall Limited) and other companies in the T & N group for declarations that their former insurers, Royal Insurance Company Limited (now known as Royal & Sun Alliance Insurance Plc) ("the Royal") and Syndicate 45/177 at Lloyds ("the Syndicate") are liable to provide indemnities against the claims of former employees and their dependants in respect of asbestos related diseases. The applications were listed on notice with appeals to follow if permission to appeal were granted. In the course of the hearing we indicated that we were minded to grant permission to appeal; and that we would treat the hearing as a hearing of the appeals.
2. T & N Limited and the other T & N group companies (together "T & N") are in administration pursuant to orders made on 1 October 2001 under Part II of the Insolvency Act 1986. There are parallel orders under Chapter 11 of the US Bankruptcy Code. The need for administration and the protection of Chapter 11 has arisen, in part at least, from the very large number of claims in respect of injury or death suffered, or said to have been suffered, as a result of exposure to asbestos during the course of employment.
3. The administrators are faced with applications made, or threatened, under section 11 of the Insolvency Act 1986 by the individual claimants for leave to commence and pursue proceedings against T & N. The purpose of the present proceedings is to determine whether or not T & N has insurance cover in respect of the individual claims. If cover is in place, the administrators have no interest in opposing applications to pursue the individual claims in litigation. In those circumstances, it is said, the burden of defending and meeting those claims would be borne by the insurers, against whom the individual claimants will be entitled to recover under the Third Party (Rights against Insurers) Act 1930. If, on the other hand, there is no insurance cover in place, the administrators take the view that the claims of former employees and their dependants should be dealt with by a scheme within the administration. In those circumstances it would be contrary to the purpose of the administration to allow many thousands of individual claimants to bring proceedings in the courts.
4. The Royal were T & N's employers' liability insurers between 1969 and 1977. Thereafter, and until 1995, T & N were insured at Lloyds; the Syndicate being the principal underwriter in respect of the employers' liability cover. The defendants to these proceedings are the Royal, Mr Brian Smith, representing the Syndicate, certain T & N companies not in administration and a former employee joined to represent those having or asserting claims as former employees or their dependants.

The procedural history

5. These proceedings were commenced on 30 May 2002 by the issue of a claim form under CPR Part 7, following directions given by Mr Justice Patten in the administration. By 14 June 2002 defences had been served on behalf of each of the two insurers.
6. The defence served on behalf of the Royal took three main points. First, that the employers' liability policies under which it was insurer were not intended to and did not cover employees' claims in respect of disease or bodily injury arising from exposure to asbestos. It is said that the intention of both insurer and insured under those policies was that T & N would self-insure in relation to all claims arising from exposure to asbestos. In particular, the "Pneumoconiosis Exclusion" endorsed on the policies was intended to, and did, extend to all such claims, which (on a true construction of the policies) were excluded from cover. Second, that that position did not change following the enactment of the Employer's Liability (Compulsory Insurance) Act 1969; notwithstanding that statutory certificates confirming the existence of insurance in compliance with that Act were issued by the Royal from time to time. Third, that if the Pneumoconiosis Exclusion did not, as a matter of construction, exclude all claims arising from exposure to asbestos, T & N were estopped from contending to the contrary; such estoppel arising, it was said, by convention from a shared assumption that the Pneumoconiosis Exclusion did have that effect. The defence, as served, did not assert that the Royal was entitled to avoid the policies on the grounds of misrepresentation or non-disclosure. By counterclaim the Royal sought a declaration that, if (contrary to its primary contentions) it was liable to indemnify T & N, or third parties under the 1930 Act, in respect of disease or injury arising from exposure to asbestos, it was itself entitled to a counter-indemnity from T & N. A reply and defence to counterclaim was served on or about 21 June 2002.
7. The defence served on behalf of the Syndicate also took three main points. First, that the insurance cover provided to T & N companies from 1 April 1977 and thereafter (so far as any particular company was insured from time to time) was subject to a condition ("the Asbestos Condition") under which the insured company undertook to pay the full cost of handling and disposing of all claims in respect of asbestos related diseases (including, but not limited to, asbestosis and mesothelioma) arising from exposure to asbestos dust in the course of employment; that the effect of that condition was to exclude from cover liability for asbestos related diseases; alternatively, that the Syndicate's liability to indemnify was conditional upon the insured company complying with that undertaking. It was said that that position was not affected by the issue of certificates of employers' liability insurance in order to conform with the requirements of the 1969 Act. Second, that if (contrary to that first and primary contention) the Syndicate was, upon a true construction of the Lloyd's policies which it had issued, liable to indemnify the T & N companies insured under those policies in respect of employees' claims for asbestos related diseases, the insured companies were estopped by convention from enforcing such indemnity; such estoppel arising from a shared assumption that the policies did not have that effect. Third, that the Syndicate was entitled to avoid each and every one of the policies which it had issued "by virtue of material non-disclosure and/or misrepresentations made to it" prior to the issue of the first Lloyd's policy in 1977. By counterclaim the Syndicate sought a declaration that, if (contrary to the assertions made in its defence) it was liable to indemnify T & N in respect of employees' claims for asbestos related diseases, the insured companies were liable to pay to the Syndicate the full cost of handling and disposing of such claims. The Syndicate also claimed, under CPR Part 20, against Curzon Insurance Limited on the basis that Curzon was liable as a co-insurer. A reply and defence to counterclaim were served on 25 June 2002.
8. On 8 July 2002 the proceedings came before Mr Justice Neuberger for a case management conference. He directed that a trial be fixed to commence not before 28 October 2002 with a time estimate of five to seven days. In the event, the date fixed for the commencement of the trial was 23 January 2003.
9. The contention that the Syndicate was entitled to avoid each and every one of the policies which it had issued "by virtue of material non-disclosure and/or misrepresentations made to it" prior to the issue of the first policy in 1977 was advanced in paragraph 23 of the Syndicate's defence as originally served. Paragraph 23(a) contained the assertion that, prior to entering into the first Lloyds' policy in 1977, the Syndicate was told that T & N subsidiaries had ceased their asbestos operations and that T & N Limited and its subsidiaries were making full reserves internally for asbestos related claims. Further, it was said that the Syndicate had been told in or about 1979 that T & N had set up a "captive" insurance company (Curzon) in order fully to reserve for asbestos related claims. The order of 8 July 2002 required particulars of the representations, non-disclosure and inducement alleged. Those particulars (which were extensive) were provided on 23 July 2002.
10. On 25 September 2002 the Syndicate obtained permission from Mr Justice Lloyd to amend paragraph 23 of its defence. The amended defence contained further allegations of non-disclosure and misrepresentation. In particular, at sub-paragraphs 23(e)(i) and 23(i)(i), it was alleged that (notwithstanding a representation to the contrary) there remained, after March 1977, a significant risk to employees of T & N of dangerous exposure to asbestos which ought to have been disclosed. The permission to amend was made conditional upon the provision of further particulars of the nature of the Syndicate's case pleaded in those two sub-paragraphs. The amended defence was served on 8 October 2002, together with the further particulars of the case in relation to the existence of a significant risk of dangerous exposure to asbestos after March 1977. On 23 October 2002 T & N served an amended reply and defence to counterclaim. That amended reply made certain limited admissions in relation to facts alleged in or under paragraph 23 of the Syndicate's amended defence, but contained a general denial that the Syndicate was entitled to avoid any of the Lloyd's policies by virtue of any material non-disclosure or misrepresentation.
11. By notice dated 30 October 2002 the Syndicate applied to re-amend its defence to raise a further point based upon a settlement agreement made between Turner & Newall Plc (as it then was) and "London Market Insurers" on 21 July 1997. It was said that the effect of that agreement was to release the Syndicate from all liability to indemnify the insured companies in the T & N group. The application sought a stay - in the alternative a stay of the new issue - pending arbitration. In the further alternative, the Syndicate sought directions for the trial of the new issue as a preliminary issue, with a stay in relation to all other issues between T & N, the Syndicate and Curzon in these proceedings pending that trial. By way of response, T & N, by notice dated 31 October 2002, applied for an injunction restraining the Syndicate from initiating arbitration on the new issue; and directions as to the management of the issues to be tried at the trial fixed to commence on 23 January 2003.
12. Those applications came before Mr Justice Lloyd on 12 November 2002 when (it seems) a stay pending arbitration was refused, but permission was given to raise the new issue by further amendments to the Syndicate's defence. The applications were adjourned for further hearing on 18 November 2002. An undertaking was given on behalf of the Syndicate that it would not seek to pursue arbitration on behalf of London Market Insurers. More pertinently, in the present context, the judge gave case management directions which were intended to enable the trial fixed to commence on 23 January 2003 to take place notwithstanding the extensive issues of fact which had been raised by the amendments to the Syndicate's defence of non-disclosure and misrepresentation (and T & N's response of knowledge, waiver and non-materiality) since that date had been fixed. Those case management directions are the subject of the Syndicate's appeal which is now before this Court.
13. As I have said, the defence served on behalf of the Royal in June 2002 contained no assertion that the Royal was entitled to avoid its policies on the grounds of misrepresentation or non-disclosure. It appears, however, that some indication was given by its solicitors to those acting for T & N, prior to the hearing of the Syndicate's application on 18 November 2002, that permission would be sought to amend so as to raise a case of non-disclosure. That application was eventually made by notice dated 27 November 2002. The amendments appear as additional paragraphs 38 to 45 of the draft amended defence served with that notice. In particular, there were set out under paragraph 41 of the draft amended defence, in eleven paragraphs (numbered 41.1 to 41.11), "facts and matters [which] should have been but were not disclosed to Royal by the Insured". The application to amend was coupled with an application for further directions in the event that permission to amend was granted.
14. Those applications, and an application by T & N to re-amend the particulars of claim, came before Mr Justice Lloyd on 5 December 2002. He allowed the applications to amend the pleadings (save for the exclusion of certain allegations not now material) and gave permission for the service of an amended reply consequential thereon. He gave further case management directions which, like those which he had given on 18 November 2002, were intended to enable the trial fixed to commence on 23 January 2003 to take place notwithstanding the new issues of fact which had been raised by the Royal's defence of non-disclosure since that commencement date had been fixed. Those case management directions are the subject of the appeal to this Court made on behalf of the Royal.

The Syndicate's case on misrepresentation and non-disclosure and T & N's response to that case

15. The case management directions given in the order of 18 November 2002 must be read in the context of paragraph 23 of the Syndicate's re-amended defence and the particulars served in response to the order of 25 September 2002. Those are set out in full in Parts 1 and 2 of Appendix 1 to these judgments. It is, I think, sufficient to set out here the following allegations made in paragraph 23 of the re-amended defence:

"23. It is averred that the Syndicate is entitled to avoid each and every one of the policies set out above by virtue of material non-disclosure and/or misrepresentations made to it. The best particulars the Syndicate can presently give of such non-disclosure and/or misrepresentation are as follows. The Syndicate reserves the right to add to or amend such particulars following discovery and/or the giving of information by the Claimants pursuant to such requests for further information as the Syndicate may serve.

a. Prior to entering into the 1977 Lloyd's Policy, in about March 1977, Turner & Newall Ltd or its agent, Hogg Robinson, gave the Second Defendant and/or his agent, Garwyn Ltd,

i. a manuscript document which contained a breakdown of asbestos related claims received by Turner & Newall Ltd and its subsidiaries in 1976. . . .

ii. part of a document which set out inter alia that

1. Newalls Insulation Company Ltd had ceased production of material containing asbestos from February 1972;

. . .

b. The impression given by these documents and the implied representation made by them was that those Turner & Newall subsidiaries which undertook asbestos operations, especially Newalls Insulation Company Ltd, had significantly reduced their asbestos operations and that the risk to employees of dangerous exposure to asbestos or of the development of asbestos related diseases was consequently also significantly reduced and was no more than a minimal risk.

. . .

e. [The] representations set out in sub-[paragraph] (b) . . . above were material, continuing representations and were not true in that

i. there remained, after March 1977, a significant risk to employees of dangerous exposure to asbestos and of contracting asbestos related diseases and, in particular, mesothelioma, by reason of their continued exposure to asbestos, such risk arising as a result of exposure either exclusively after March 1977 or in conjunction with exposures in earlier years; . . .

. . .

i. The non-disclosures relied upon are

i. That employees of Turner & Newall Limited and its subsidiaries remained at significant risk of contracting asbestos related diseases and in particular mesothelioma as a result of exposure after March 1977 to asbestos, such risk arising as a result of exposure either exclusively after March 1977 or in conjunction with exposures in earlier years; . . .

. . .

k. The Second Defendant was induced to enter into the contract of insurance on behalf of the Syndicate covering the period 1^st April 1977 to 31^st December 1977 and all subsequent contracts of insurance issued by the Syndicate by the said representations and/or the said non-disclosures."

16. It is convenient, also, to set out the following extracts from the particulars served pursuant to the order of 25 September 2002:

"Significant Risk

The nature of the Second Defendant's case, pleaded in paragraph 23(e)(i) and (i)(i) that there remained, after March 1977, a significant risk to employees of Turner & Newall Ltd and its subsidiaries of dangerous exposure to asbestos and of contracting asbestos related diseases and, in particular, mesothelioma, by reason of their continued exposure to asbestos, such risk arising as a result of exposure either exclusively after March 1977 or in conjunction with exposures in earlier years is as follows:

. . .

4. The working practices of Turner & Newall Ltd and its subsidiaries in and after March 1977 were such that appropriate steps were not taken to provide a safe environment in which their employees worked with asbestos and employees were exposed unnecessarily to asbestos fibres. The best particulars . . . which the Second Defendant can presently give of Turner & Newall's inadequate working practices, pending discovery and/or further information from the Claimants are as follows:

[a. . . . l]."

17. T & N's response to the Syndicate's case on misrepresentation and non-disclosure had been set out in the amended reply served on or about 23 October 2002 and was before the judge on 18 November 2002. Paragraph 10 of that reply contained a general denial of the allegation, made in paragraph 23 of the amended defence, that the Syndicate was entitled to avoid any of the Lloyd's policies on the grounds of misrepresentation or material non-disclosure. Without prejudice to the generality of that denial, T & N pleaded, with particularity, to each of the sub-paragraphs of paragraph 23. It was averred, in answer to paragraph 23(i), that T & N's obligation was to disclose facts which it knew or ought in the ordinary course of its business to have known; which were material to the risks the Syndicate was being asked to take; which were not known or presumed to be known (as matters which the Syndicate ought to have known as a specialist employers' liability insurer); and which the Syndicate had not waived. It was admitted that T & N knew (or ought in the ordinary course of its business to have known) that there remained after March 1977 both a great likelihood (given the long latency periods sometimes involved) that claims would continue to be made against it in respect of asbestos related diseases arising from exposure to asbestos dust in earlier years and a risk which was more than minimal that, due to failure on occasion to take every available precaution to avoid such exposure, employees might be exposed to potentially harmful quantities of asbestos dust. But it was said that the risk of further asbestos related claims (i) was known to the Syndicate and (ii) was not material to the risk which the Syndicate was being asked to take; and that, in any event, (iii) the Syndicate had waived all further disclosure in relation to that risk.
18. Paragraph 10A of the amended reply was in these terms, so far as material:

"Further and in any event, T&N will (so far as may be necessary) contend that if (which is denied) T&N was guilty of the material misrepresentations pleaded in sub-paragraphs 23(b) and (c) and (e) (i) and (ii) of the Syndicate's Amended Defence and Counterclaim and/or the non-disclosures pleaded in sub-paragraphs 23(i)(i) and (ii) of the Syndicate's Amended Defence and Counterclaim:-

(1) The Syndicate became aware of the existence after March 1977 of a continued risk to employees of dangerous exposure to asbestos and/or of contracting asbestos related disease and, in particular, mesothelioma by reason of their continued exposure to asbestos either exclusively after March 1977 or in conjunction with exposure in earlier years:-

(a) when, after March 1977, it received details of the further asbestos related claims which T&N was receiving from its employees or former employees . . .; and

(b) as a result of a Yorkshire Television documentary entitled "Alice - A Fight for Life" screened on 20 July 1982 (which was highly critical of T&N) and/or a debate about that programme screened on 27 July 1982 . . .

(2) The Syndicate was aware of T&N's reserving policy in relation to asbestos related employers' liability claims . . . from at least December 1985 . . .

(3) Notwithstanding this knowledge, the Syndicate continued to renew the Lloyd's Policy for periods up to 30 April 1995 and, by so doing, affirmed the existence of all earlier Lloyd's Policies and/or is now estopped from rescinding and/or avoiding the Lloyd's Policies on the basis of the alleged misrepresentations and/or non-disclosures identified in this paragraph."

The order of 18 November 2002 and the judge's reasons for the directions which he gave in that order

19. The further case management directions given by Mr Justice Lloyd on 18 November 2002 (where appropriate in substitution for or variation of those given by Mr Justice Neuberger on 8 July 2002) are set out in paragraph 3 of the order. Sub-paragraph 3(1) is in these terms:

"There be no final determination at the trial of this action commencing on 23 January 2003 of the truth or otherwise of the representation referred to in sub-paragraphs 23(b) and (e) i of the Second Defendant's Re-amended Defence or the true facts relevant to the non disclosure alleged in sub-paragraph 23(i) i of the pleading. Rather, that trial will proceed on the assumptions that:-

(a) the facts alleged in relation to the working practices of T & N and its subsidiaries in the first sentence of and in sub-paragraphs (a) to (l) of paragraph 4 of the Particulars of the Second Defendant's case as pleaded in sub-paragraphs 23(e) i and (i) i pursuant to Mr Justice Lloyd's Order dated 25 September 2002 ("the Particulars") are true; and

(b) the Claimants were aware of the existence of the poor working practices alleged.

In the meantime, there shall be no requirement to make disclosure or exchange witness statements in respect of the working practices allegations."

20. In the judgment which he delivered ex tempore on 18 November 2002 the judge analysed the Syndicate's amended defence and T & N's reply. He identified the problem which had arisen from the introduction of the allegations of misrepresentation and non-disclosure:

"If the allegations, particularly those concerning alleged poor working practices, were to have to be fully investigated, there would arise a very extensive obligation of disclosure, because the circumstances so far as the syndicate were concerned, would cover the position as known in March 1977, and the position thereafter up to 1995 when the syndicate ceased to cover the company. It is for that reason that I am satisfied that if that had to be done between now and the trial, the trial could not take place in January."

He described the solution to that problem which T & N was inviting him to adopt:

"That is the problem which the claimant proposes that I should deal with, by directing that in one respect and one respect only, the trial which should take place in January as currently directed, should proceed on assumptions as to the facts. Mr Edelman on behalf of the claimants submits that it would be possible to proceed in January, on the basis of assuming that the second defendant's allegation as to poor working practices is made out."

And he went on to say this:

Mr Edelman submits that even if the second defendant were able to make good this allegation about poor working practices, it would not avail the syndicate, because of his various defences based on waiver, inducement, or lack of inducement, lack of materiality and affirmation some of which I have referred to in the course of going through the reply. He says that if that course were taken the trial date could stand, and there would be a reasonable chance that the matter could be dealt with conclusively, subject of course to appeal, as a result of that trial, which would be satisfactory for all concerned, in particular for the third party claimants.

21. The judge recognised that the effect of proceeding on the assumption that the Syndicate's case of misrepresentation and non-disclosure as to poor working practices was made out might be that the Syndicate would be held entitled (on the basis of that assumption) to avoid liability on the Lloyd's policies. That would be the result if the points taken in paragraphs 10 and 10A of T & N's reply in response to that case (knowledge, lack of materiality, waiver and affirmation) all failed. In those circumstances the judge acknowledged that (subject to T & N having succeeded on the issues as to construction, estoppel by convention and the effect of the 1997 settlement agreement) it would be necessary to have a further trial to decide whether or not the assumption was well founded. But he thought that a risk worth taking. He said this:

"It is inherent in the nature of the trial of any kind of any preliminary issue that that may have to be done, that what would normally be a single trial gets divided up into a number of different trials that may involve some additional expense."

22. The judge accepted that it was necessary to be careful how any preliminary issues were formulated. He reminded himself that the formulation had to be fair to both parties: both the party against whom, and the party in whose favour, the assumption was made. It was submitted on behalf of the Syndicate that it would be wrong to take the first sentence in paragraph 4 of the particulars served in response to his order of 25 September 2002 as a statement of the Syndicate's best case as regards poor working practices in the circumstances that there had been no disclosure. He rejected that submission:

"As to Mr Walker's proposition that it is unfair to tie his clients down to the proposition that I have directed to be assumed to be correct, it seems to me that it is not unfair to take at face value the essential proposition, identified and formulated in quite general terms, and put forward in the particulars in that way."

23. The judge was reminded of the caution that should be exercised before embarking on a trial on assumed facts. He was referred, in particular, to the observations in this Court in Sumner v William Henderson & Sons Limited [1963] 1 WLR 823. He accepted the need for caution. He accepted, also, that there might be many cases in which an assumption as to the facts was not an appropriate course. But he went on:

"But we are dealing here with highly unusual litigation, some of the particular features of which I have already mentioned. I entirely accept the proposition that the size and importance of the issues is such, that this is not a case where it is appropriate to try a short cut for the sake of saving some costs. The sums potentially at risk are very large, or may be very large, and it would not be disproportionate, and nor does Mr Edelman so submit, to incur the costs involved in having the matter fully tried.

The more formidable case in favour of Mr Edelman's submission is the fact of the early trial date pursuant to a direction that has already been given, and the genuine objective need for expedition, if at all possible to achieve.

Furthermore, I think it is fair to remember that under the civil procedure rules there is rather more emphasis in terms of case management on identifying issues, which can be tried separately from others. While I have no doubt that some cases about assuming facts would have been decided in the same way under the civil procedure rules, there are cases, and this case may be one of them, where the complexity of the case, and the circumstances of the case generally, make it appropriate to take what would not otherwise normally be the course taken, of hiving off particular issues, either for trial for early trial, or for late trial, that is to say if they arise at all.

There are inevitably risks in setting up what one might categorise as a preliminary issue, because it may be, and this is certainly the experience of course of the courts and the observation of the appellate courts from time to time, it may be that what looks to the court directing the preliminary issue, to be an appropriate self-contained point, turns out to the judge who has to try it, not to work in the terms defined. Equally one has heard of cases where a preliminary issue has been directed, the judge has found it impossible or unsatisfactory to determine as such, or has refused to give an answer, it has gone to trial and has been decided on precisely the same point.

It seems to me on balance that it would be appropriate in the present case to follow the course proposed by Mr Edelman, in the hope that the matter may be determined at the trial in January, and the belief that if it is not, at any rate what happens thereafter will be, although no doubt expensive, and leading to a substantial hearing, will be more focussed on the relatively few matters then remaining in issue."

24. Accordingly the judge directed that the case should proceed to trial in January 2003 on the basis that there would be no final determination of the truth or otherwise of the representation alleged in paragraph 23(b) of the re-amended defence, or of the facts underlying the allegation of non-disclosure in paragraph 23(i)(i). It was to be assumed for the purposes of the trial that the first sentence in paragraph 4 of the particulars served pursuant to his order of 25 September 2002, and sub-paragraphs (a) to (l) of that paragraph, were true; and that T & N would be taken to have known that its poor working practices posed a significant risk to employees of contracting asbestos related diseases.
25. The effect of the order of 18 November 2002 (if not varied on appeal) is that there will be a trial of all the pleaded issues between T & N and the Syndicate – including all the issues raised by paragraph 23 of the re-amended defence and paragraphs 10 and 10A the amended reply – save that (i) the truth or otherwise of the representation (referred to sub-paragraphs 23(b) and (e)(i)) that T & N companies had significantly reduced their asbestos operations and that the risk to employees of dangerous exposure to asbestos or of the development of asbestos related diseases was consequently also significantly reduced and was no more than a minimal risk and (ii) the true facts relevant to the corresponding non-disclosure (alleged in sub-paragraph 23(i)(i)) that employees of T & N companies remained at significant risk of contracting asbestos related diseases as a result of exposure after March 1977 to asbestos are not to be tried. It is to be assumed that the working practices of T & N companies in and after March 1977 were such that appropriate steps were not taken to provide a safe environment in which their employees worked with asbestos and that employees were exposed unnecessarily to asbestos fibres; and that T & N knew that. On the basis of that assumption the trial judge will be asked to determine whether the representation alleged in paragraph 23(b) of the re-amended defence was made – see paragraph 23(b) of the re-amended defence and paragraph 10(b) of the amended reply - and (if so) whether it was material – see paragraph 23(e) of the re-amended defence and paragraph 10(e)(iii) of the amended reply. And, also on the basis of that assumption, the trial judge will be asked to determine whether disclosure of the existence of the risk was required; that is to say, to determine whether the existence of the risk was known (or ought to have been known) to the Syndicate – paragraph 10(i)(i)(b)(1) of the amended reply; whether the existence of the risk was material – paragraph 10(i)(i)(b)(2) of the amended reply; and whether the Syndicate had, in any event, waived all further disclosure in relation to the risk – paragraph 10(i)(i)(c) of the amended reply. Further, and also on the basis of that assumption, the trial judge will be asked to determine whether the Syndicate had affirmed the Lloyd's policies – paragraph 10A(3) of the amended reply.
26. If, on the basis of those assumptions, the trial judge reaches the conclusion that the representation that the risk to employees of dangerous exposure to asbestos was significantly reduced (so as to have become minimal) was not made, or was not material, or that there was no requirement on T & N to disclose the existence of the risk (because it was not material, or was known to the Syndicate, or because the need for disclosure had been waived), then the intended effect of the order made on 18 November 2002 is that there will be no trial as to the matters assumed – that is to say, no trial as to the truth of that representation or the existence of that risk. But if, on the basis of the assumptions which he is required to make, the trial judge reaches the conclusion that the representation was made and was material, or that that the risk of contracting asbestos related diseases should have been disclosed, then the intended effect of the order is that the truth of the representation or the existence of the risk will be determined at a subsequent trial at which no facts will be assumed and in advance of which full disclosure of documents will have been made. What is less clear (at least to me) is whether, in the event that there is a subsequent trial at which the truth of the representation or the existence of the risk is determined on the facts, the intended effect of the order of 18 November 2002 is that the judge having conduct of that trial will go on to revisit, in the light of the findings of fact which he has actually made, the questions which the judge at the first trial has already determined on assumptions – that is to say, whether the representation was material or the existence of the risk ought to have been disclosed.
27. It is accepted on behalf of the Syndicate that there should be no determination (final or otherwise) at the hearing fixed to commence on 23 January 2003 of the truth or otherwise of the representation referred to in sub-paragraphs 23(b) and (e)(i) of its re-amended defence, or of the true facts relevant to the non- disclosure alleged in sub-paragraph (i)(i). In particular, it is accepted that a trial which required an investigation into the working practices of T & N in relation to asbestos could not be undertaken without extensive discovery; that discovery could not be completed in time for a trial in January 2003; and that, even if discovery could be completed, the five to seven days which have been allotted to a trial commencing on that date would be wholly inadequate if those issues were to be investigated. The Syndicate accepts that a trial of those questions should not take place until after the trial of the issues which do not require an investigation into T & N's working practices; but contends that (if a trial of those questions is to be deferred) a trial of the further questions - whether the representation was material or the existence of the risk ought to have been disclosed – should be deferred also. Indeed, it is said that all issues raised in paragraph 23 of the Syndicate's re-amended defence and paragraphs 10 and 10A of the amended reply should be held over until after the trial of the other issues between the parties – which (it is accepted) can be tried at a trial commencing on 23 January 2003. The Syndicate objects to a trial of issues on assumed facts in the circumstances that, if it were successful on the basis of the assumed facts, it would then be faced with a further trial.

The Royal's case on non-disclosure

28. The Royal's case on non-disclosure was introduced by the amendments to its defence for which permission was given on 5 December 2002. Paragraphs 39, 40, 41, 41.1 to 41.11 and 42 of the Royal's amended defence are set out in full in Appendix 2 to these judgments. It is sufficient to set out here the following extracts:.

"39. Prior to the inception of cover and at each renewal, the Insured failed to disclose to Royal facts which (1) were then known to the Insured or (2) in the ordinary course of the Insured's business, ought to have been known to the Insured or (3) would, on reasonable inquiry, have been ascertained by the Insured but which (A) were unknown to Royal and (B) Royal is not to be presumed to have known and (C) it was material for Royal to know.

40. Royal will rely upon the fact that the Insured was in a unique position in the UK and, indeed, the world to assess the full extent of the risk of an employee developing disease from exposure to asbestos because (a) it had the largest single asbestos factory population in the world at Rochdale (b) the Rochdale coroner had for many years insisted on post mortems being conducted on employees or former employees of the Insured employed in scheduled areas who had died in circumstances indicating that their deaths may have been caused by or connected with exposure to asbestos (c) as a result of (b) a large amount of lung material from deceased employees had been made available confidentially to the Insured's chief medical officer (d) pursuant to its policy described in paragraphs 13.1 and 13.2 above, the Insured had handled and administered all claims made against it by employees arising out of their exposure to asbestos.

41. The following facts and matters should have been but were not disclosed to Royal by the Insured:

41.1 The full claims history of T&N for the 5 years preceding inception and each renewal during the period of cover . . . .

. . .

41.3 The fact that the Insured knew or was in a position to know that, in fact, the risks to employees arising from exposure to asbestos were and continued in the period 1969 – 1977 to be materially greater than was appreciated by persons without its special knowledge and or by underwriters. The facts were that:

(a) . . . (e)

41.4 The facts that Mesothelioma was less rare than was generally understood to be the case and that it was probably less rare than published information suggested and that the Insured was itself concerned that the numbers of reported mesothelioma cases among its employees or former employees were rapidly increasing in the period prior to inception of cover and thereafter. The facts that:

(a) . . . (k)

41.5 The fact that in 1969 there was no generally accepted view as to the extent of exposure to asbestos necessary to give rise to a risk that mesothelioma might develop but that the Insured knew or suspected that it was the fact that mesothelioma could develop after a very long latency period even where the actual exposure to asbestos had been slight and over a only a short period of time. The facts that:

(a) . . . (g)

41.6 The fact that the risk of lung cancer developing in some asbestosis cases was also greater than generally appreciated. . . .

41.7 The fact that in 1968 an article in the Journal of the American Medical Association by Selikoff and others had suggested that an asbestos worker who smoked cigarettes had a 90 times greater chance of dying from lung cancer than a man who neither smokes nor works with asbestos and that this was not generally known at the time but was known to Dr Lewinsohn and the Insured prior to the commencement of cover. . . .

41.8 The fact that the incidence of asbestosis was also greater than generally known and or that it was greater than in published figures. The facts that:

(a) . . . (c)

41.9 The fact that the insured had, over many years, prevented the publication of and or sought to suppress information which might reveal the full extent of the risks for employees arising from exposure to asbestos: The facts that:

(a) . . . (j)

41.10 The fact that despite the known risks, the Insured systematically continued, both prior to the inception of cover and thereafter, to fail to take reasonable or adequate precautions to protect its employees from the effects of exposure to asbestos. The facts that:

(a) . . . (m)

41.11 That facts, as particularised hereunder, were known to the Insured prior to the inception of cover, alternatively, became known during the period of cover, which had undermined or cast serious doubt on each of the propositions stated in a Press Release issued by the Asbestos Information Committee (AIC) on behalf of the Insured and other leading firms in the asbestos industry published on or about 19 May 1967

(a) . . . (e)."

The order of 5 December 2002 and the judge's reasons for the directions which he gave

29. The directions in relation to the trial of the issues between T & N and the Royal are set out in paragraph 6 of the order made on 5 December 2002:

"(1) Subject to any contrary direction which may be made by the trial judge as to whether the trial in January 2003 should proceed in part on assumptions and subject to paragraph 6(2) below, the trial in January 2003 shall be conducted on the footing:

(i) That all the facts and matters alleged in paragraphs 40 and 41 – 41.11(e) inclusive of the Amended Defence of the First Defendant are true.

(ii) That the Claimant had knowledge of those facts and matters at all material times.

(iii) That the Claimant failed to disclose those facts and matters or any of them to the First Defendant prior to inception or at any renewal.

(2) No assumptions shall be made as to the facts and matters identified below:

(i) That the Claimant "was in a unique position in the UK and, indeed, the world to assess the full extent of the risk of an employee developing disease from exposure to asbestos. [Paragraph 40 of the Amended Defence of the First Defendant]

(ii) That "the risks to employees arising from exposure to asbestos were and continued in the period 1969 – 1977 to be materially greater than was appreciated by persons without its special knowledge and or by underwriters". [Paragraph 41.3 of the Amended Defence of the First Defendant]

(iii) That "mesothelioma was less rare than was generally understood to be the case and that it was probably less rare than published information suggested". [Paragraph 41.4 of the Amended Defence of the First Defendant]

(iv) That "in 1969 there was no generally accepted view as to the extent of exposure to asbestos necessary to give rise to a risk that mesothelioma might develop". [Paragraph 41.5 of the Amended Defence of the First Defendant]

(v) That "the risk of lung cancer developing in some asbestosis cases was also greater than generally appreciated". [Paragraph 41.6 of the Amended Defence of the First Defendant]

(vi) That it was not generally known at the time of inception of cover in 1969 and at each renewal that "an asbestos worker who smoked cigarettes had a 90 times greater chance of dying from lung cancer than a man who neither smokes nor works with asbestos". [Paragraph 41.7 of the Amended Defence of the First Defendant]

(vii) That the incidence of asbestosis "was greater than generally known and or that it was greater than in published figures". [Paragraph 41.8 of the Amended Defence of the First Defendant]

(3) The Claimants and the First Defendant shall provide further disclosure by list in relation to those issues arising from paragraphs 38 – 41.11(e) inclusive of the Amended Defence which are not to be the subject of assumptions at the trial in January 2003 . . . There shall be no requirement to make disclosure in respect of the facts and matters to be the subject of assumptions at the trial in January 2003 without further order.

. . .

(5) The parties have permission to serve any further witness evidence of fact . . . dealing with any issues arising out of the amendments [to the Royal's defence] (other than those to be the subject of assumptions at the trial in January 2003) . . . "

30. It appears that no approved transcript of the judgment delivered on 5 December 2002 is yet available; but we have been provided with an unapproved note prepared by those instructed on behalf of the Royal to which counsel for T & N has taken no objection. In the circumstances that the parties need to know, as a matter of urgency, upon what basis the trial fixed to commence in a little over three weeks time is to proceed, we have thought it right to accept that note as a sufficiently accurate record of the judge's reasons for the order which he made on 5 December 2002.
31. After reminding himself of the order which he had made on 18 November 2002 - and the reasons which had led him to make that order - the judge addressed, first, the Royal's application for permission to amend its defence so as to raise (for the first time) a case of non-disclosure. He noted that each of the paragraphs 41.1 to 41.11 were introduced by the words in paragraph 41: "The following facts and matters should have been but were not disclosed to Royal by the Insured". He noted, also, the form of paragraphs 41.3, 41.4, 41.5, 41.8. 41.9 and 41.10. Each of those paragraphs begins with a single sentence containing a general assertion and then continues with a number of sub-paragraphs making more specific allegations on the same theme. The judge described the sub-paragraphs as "particulars supporting the general allegations". He allowed the amendments (with some modifications not material in the present context).
32. The judge then went on to address what he described as "the more difficult question . . . as to the consequences of the First Defendant's Defence as amended in these ways". He observed that the effect of allowing the amendments was that the Royal would advance "a substantial non-disclosure defence which is set out in a good deal of detail". He set out the rival submissions. Mr Moger QC, on behalf of the Royal, had argued that, as the amendments were pleaded as general propositions supported by separate propositions, all should be the subject of disclosure and witness statements; so that each could be fully investigated before any questions of materiality can be addressed by the experts. It was unfair to the Royal, and inconsistent with the overriding objective, to have a trial on the assumption of facts as to the non-disclosure case. A trial on that basis would be unworkable. A defendant who had put forward a properly pleaded defence on non-disclosure was entitled to the normal processes of disclosure and factual evidence before the court came to any conclusion on waiver, affirmation and presumption of knowledge. Mr Edelman QC, on behalf of T & N, had argued that, having regard to the form in which the allegations were pleaded, it was appropriate (and not unfair) to hold the Royal to the specific allegations made. He submitted that, even in advance of an amended reply, the judge should be satisfied that there could be points which T & N could advance (waiver, affirmation and presumed knowledge) which would "knock out" the non-disclosure defence.
33. The judge preferred the submissions made to him on behalf of T & N. He said this:

". . . it seems to me that the nature and circumstances of this case are such that I ought not to give directions which will lead the January trial to be abandoned or such that it could not be conclusive; while as, in November, I recognised a risk that the judge in January could conclude that the trial cannot properly be dealt with on assumptions it may be a conclusion which may be reached in respect of the First Defendant. It is true that if that turns out to be the case the costs of trial may have been incurred unnecessarily; but the financial concerns in this case are such that it would be a very large waste of costs incurred for them to be important. If the facts do come to be investigated it will be very expensive. Those costs will not be disproportionate; but delay would be undesirable and so undesirable that it is worth running the risk and facing the risk that the conclusion may not be arrived at.

I accept Mr Edelman's submission that the consequence ought to be that the trial will proceed on assumption of facts alleged in support of the Defendant's non-disclosure Defence."

34. The judge then turned to consider what assumptions should be made. In particular he considered whether, having regard to the form of the pleading in paragraphs 41.1 to 41.11 of the Royal's amended defence, there should be assumptions as to "the general proposition or just the separate propositions." He recognised that there was a distinction to be drawn. He went on

"The problem starts with paragraph 41.3 where we have the first allegation of disparity between the knowledge of T&N and the knowledge in the public domain. Mr Moger would wish me to direct the assumptions in terms of the first sentence of 41.3 namely that T&N "knew or was in a position to know that, in fact, the risks to employees arising from exposure to asbestos were and continued in the period 1969-1977 to be materially greater than was appreciated by persons without its special knowledge and or by underwriters.

Mr Edelman says that I can properly direct the assumption as to what T&N knew but not as to what was known in the public domain and that that should be the subject of evidence. We don't know what he will say until we see his Reply but I can see the force of that.

The same point arises on paragraphs 41.4 and 41.5 where there is said to be no general view. In paragraph 41.6 the words are "greater than generally appreciated". In 41.7 they are "not generally known at the time." In 41.8 they are "greater than generally known" and "greater than in published figures".

It seems to me that Mr Edelman is right. I should direct to be assumed as right the facts as to knowledge but not the facts alleged generally in a comparative way. That seems to me to be something the parties should be free to adduce evidence on. Therefore the assumptions should be those particulars which allege facts asserting knowledge of T&N."

35. It is, to my mind, not at all easy to ascertain the true effect of the order of 5 December 2002. The difficulties to which it gives rise can be illustrated by reference to the issue raised by paragraph 40 of the Royal's amended defence. Paragraph 6(1)(i) of the order requires (amongst other things) that the trial fixed to commence on 23 January 2003 shall be conducted on the footing that all the facts and matters alleged in paragraph 40 of the amended defence are true; but that direction is subject to paragraph 6(2) of the order, which requires that no assumption shall be made as to the allegation that T & N "was in a unique position in the UK and, indeed, the world to assess the full extent of the risk of an employee developing disease from exposure to asbestos". So it is for the trial judge to determine (in so far as he thinks it relevant to the issue of non-disclosure raised by the amended defence) whether T & N was, indeed, in a unique position to assess the risk of an employee developing an asbestos related disease. And, in determining that question, the trial judge is to assume the facts set out under (a) to (d) in paragraph 40. But is his inquiry limited to considering whether those facts (assumed true) lead to the conclusion that T & N was in a unique position to assess the full extent of the risk – that is to say, to considering whether the causal link alleged by the word "because" is established. And, if so, how can consideration of those facts alone (without regard to the position of other employers engaged in the manufacture of asbestos products, and without knowing, for example, what the "large amount of lung material from deceased employees . . . made available confidentially to the Insured's chief medical officer" had revealed) enable the trial judge to determine whether T & N was in a unique position to assess the risk.
36. Paragraph 41.4 provides a further illustration of the difficulties to which the order of 5 December 2002 gives rise. There are set out in each of paragraphs 41.1 to 41.11 "facts and matters [which] should have been but were not disclosed to Royal by the Insured" – see paragraph 41. Each of the first two sentences of paragraph 41.4 begins with the words "The facts that . . .". The first sentence contains the general description "facts that Mesothelioma was less rare than was generally understood to be the case . . . and that the Insured was itself concerned that the numbers of reported mesothelioma cases among its employees . . . were rapidly increasing . . .". The second sentence contains (or incorporates) more specific facts under eleven sub-paragraphs, (a) to (k). The order of 5 December 2002 requires that the trial fixed to commence on 23 January 2003 shall be conducted on the footing that all the facts incorporated in the second sentence of paragraph 41.4 (and set out in sub-paragraphs (a) to (k)) are true; and, further, on the footing that one of the facts asserted in the first sentence - that "the Insured was itself concerned that the numbers of reported mesothelioma cases among its employees . . . were rapidly increasing . . ." - is also true. But the trial judge is to make no assumption as to the truth or falsehood of the other facts asserted in the first sentence of paragraph 41.4 – that "mesothelioma was less rare than was generally understood to be the case" and "that it was probably less rare than published information suggested". It is for the trial judge to determine whether those facts are established. But is he to do so on the basis only of the facts set out in sub-paragraphs (a) to (k) (the truth of which he is required to assume); or on the basis of any further evidence as to the general understanding as to the rarity (or otherwise) of mesothelioma and T & N's knowledge of that general understanding which the Royal may be able to adduce at the trial. And, further, what is the position if he decides that mesothelioma was not less rare than was generally understood (or that published information suggested). Paragraph 41 of the amended defence contains the assertion that: "The following facts and matters should have been . . . disclosed to the Royal by the Insured". Does the requirement, in paragraph 6(1)(i) of the order of 5 December 2002 that "all the facts and matters alleged in [inter alia] paragraph 41 . . .are true" oblige him to conduct the trial on the footing that facts which he has found not to be established should, nevertheless, have been disclosed to Royal by T & N as if they were true. Similar points can be made in relation to the facts pleaded in paragraphs 41.3, 41.6 and 41.8 of the Royal's amended defence.

These appeals

37. As I have said, we indicated in the course of the hearing that we were minded to grant both applications for permission to appeal. We were reminded, properly, by counsel for T & N that these are appeals from case management decisions made in the exercise of his discretion by a judge who, because of his involvement in the case over time, had an accumulated knowledge of the background and the issues which this Court would be unable to match. The judge was in the best position to reach conclusions as to the future course of the proceedings. An appellate court should respect the judge's decisions. It should not yield to the temptation to "second guess" the judge in a matter peculiarly within his province.
38. I accept, without reservation, that this Court should not interfere with case management decisions made by a judge who has applied the correct principles, and who has taken into account the matters which should be taken into account and left out of account matters which are irrelevant, unless satisfied that the decision is so plainly wrong that it must be regarded as outside the generous ambit of the discretion entrusted to the judge. It is pertinent to have in mind, in the present case, that the judge was well aware of the need for caution when considering whether to direct a trial of issues on assumed facts; and was well aware that there were dangers in the course which he decided to take. The judge appreciated that there was a risk that his decision would lead to delay and to wasted costs. If his approach to the evaluation of the risk was correct, I would not think it right to substitute my own view for the conclusion that he reached.
39. Nevertheless, I am driven to the conclusion that the judge reached decisions which are so plainly wrong that this Court is required to interfere. My reasons can be stated shortly.
40. First, the premise underlying the decision to direct that the trial fixed to commence in January 2003 should proceed on assumptions of fact is that that course will avoid the need for extensive disclosure of documents in advance of the trial; and will enable the trial to be completed within the five to seven day period allotted to it. It seems to me that, in relation to the issues to be tried as between T & N and the Royal, that premise is ill-founded. I have drawn attention to the distinction - which the judge himself recognised – between the general and the specific propositions pleaded in paragraphs 41.3, 41.4, 41.5 and 41.8 of the Royal's amended defence. The effect of the order of 5 December 2002 – which the judge also recognised – is that no assumptions are to be made in relation to the general propositions. It follows that those propositions are to be the subject of disclosure and evidence – see paragraphs 6(3) and (5) of the order. So, for example, the order of 5 December contemplates that there will be disclosure and evidence on the issue that "mesothelioma was less rare than was generally understood to be the case" – see paragraph 41.4 of the amended defence; and on the issue that "the incidence of asbestosis was also greater than generally known" - see paragraph 41.8 of the amended defence. Disclosure in relation to those issues must, as it seems to me, include disclosure by T & N of its experience in relation to the incidence of mesothelioma and asbestosis prior to 1977 (when cover by the Royal ceased); including, in particular, disclosure in relation to matters which are not the subject of the specific propositions which are the subject of assumptions. The judge does not seem to have appreciated that that would be the consequence of excluding the general propositions from the assumptions to be made; at least, he did not address that point. If he had done so he would, I think, have been forced to conclude that the order of 5 December 2002 would defeat the object which he was seeking to achieve.
41. Second, the allegations in paragraphs 41.9 and 41.11 of the Royal's amended defence – and, in particular, that in sub-paragraph (d) of paragraph 41.9 - were characterised by the judge, at the hearing on 5 December 2002, as raising issues of "moral hazard". It is clear that there is likely to be a contest at trial as to the scope of any requirement on those seeking insurance to disclose to a prospective insurer matters amounting to "moral hazard". If the judge determines that question in favour of the Royal on assumed facts, T & N will be in a dilemma. Should it appeal the point on the basis of the assumed facts; or should it go to trial in order to determine the true facts, but with a finding of principle against it. Neither course can be regarded as satisfactory, either to the parties or to the court. In particular, it cannot be satisfactory for an appellate court to be asked to determine a question of principle on assumed facts in circumstances where, if it upholds the judge, there will then be a trial to determine the true facts and, perhaps, another attempt to appeal when the true facts have been found. These considerations, as it appears to me, provide a powerful reason for not allowing the allegations in paragraphs 41.9 and 41.11 to proceed to trial in January 2003 on the basis of assumed facts. The judge did not address the point.
42. Third, the course for which the order of 18 November 2002 provides – and, also, I think, the course implicit in the order of 5 December 2002 – is inherently unfair to the insurer. The insurer is required to argue its case in relation to misrepresentation and non-disclosure – and, in particular, the case as to materiality, knowledge and waiver raised by T & N in response to the allegations of misrepresentation and non-disclosure – on the basis of assumed facts. The true facts – which would emerge at a trial held after the usual process of disclosure of documents and the taking of evidence – may support a case which is stronger than that which can be advanced on the assumed facts. Or, of course, the case which could be advanced on the true facts may be weaker than that which can be advanced on the assumed facts. If the insurer succeeds on the assumed facts, there will be a trial in order to determine the true facts; so T & N will not be disadvantaged. At the end of the day T & N will lose (if it does lose) on the basis of the true facts. But, if T & N succeeds on the assumed facts, there will be no trial to determine the true facts. The insurer will never have the opportunity to advance what may be a better case on the true facts. The scales are weighted against the insurer. If it cannot win on the assumed facts, it must lose. If T & N cannot win on the assumed facts, it may still win on the true facts. I do not find the judge's answer to the submission that it is unfair to tie the Syndicate to the assumed proposition persuasive. It fails to meet the point that (in a case where issues properly raised on the pleadings are not to be struck out) it is unfair to tie one party to an assumed proposition when the other party is not so tied.

Conclusion

43. I would allow these appeals. I would set aside paragraph 3(1) of the order of 18 November 2002 and paragraph 6 of the order of 5 December 2002. I would substitute for those paragraphs directions which will enable a trial to commence on 23 January 2003 in relation to those issues which can be tried in the time available without the need for assumptions. I would invite submissions from counsel as to the form of those directions.

Lady Justice Arden:

44. In Ashmore v Corporation of Lloyds [1992] 1 WLR 446, certain underwriting members of Lloyd's claimed damages for breach of duty against Lloyd's in respect of its supervision of the affairs of a managing agent. Lloyd's denied the existence of any duty of care. Gatehouse J ordered a preliminary issue as to whether Lloyd's owed any duty of care as a matter of law, and his decision to do so was upheld in the House of Lords. The question did not involve the resolution of any disputed question of fact. Lord Templeman with whom the other members of the House agreed held at page 449:

"Before Gatehouse J decided to order preliminary issues of law he considered the dangers involved in that course and the guidance of this House in Tilling v Whiteman [1979] 1 All ER 737, [1980] AC 1. In my opinion, when a judge alive to the possible consequences decides that a particular course should be followed in the conduct of the trial in the interests of justice, his decision should be respected by the parties and upheld by an appellate court unless there are very good grounds for thinking that the judge was plainly wrong."

45. In Tillling v Whiteman [1980] AC 1, at 17 Lord Wilberforce said:

"The judge took what has turned out to be an unfortunate course. Instead of finding the facts, which should have presented no difficulty and taken little time, he allowed a preliminary point of law to be taken, whether Case 10 applies to a case where there are joint owners one only of which requires the house as a residence. So the case has reached this House on hypothetical facts, the correctness of which remain to be tried. I, with others of your Lordships, have often protested against the practice of allowing preliminary points to be taken, since this course frequently adds to the difficulties of courts of appeal and tends to increase the cost and time of legal proceedings. If this practice cannot be confined to cases where the facts are complicated and the legal issue short and easily decided, cases outside this guiding principle should at least be exceptional."

Lord Scarman added ( at page 25):

"Preliminary points of law are too often treacherous short cuts. Their price can be, as here, delay, anxiety and expense."

46. The ability to order preliminary issues or it follows the separate trial of different issues is a valuable case management tool. It is particularly useful where there is a key point of law which turns on the interpretation of a statute and which if decided in one way can reduce the need for an expensive trial. However, as the authorities show, this tool has to be used with great care: a watchful eye has to be kept for the "treacherous short cut". In particular it should not generally be used where the application of a rule of law will depend on the determination of the precise facts of the case and those facts have yet to be identified. For, even if the point of law is tried on the basis of assumed facts, there may have still to be a second trial of the actual facts and it may be found that when the real facts are investigated that they are materially different from those on which the question of law was determined. Appellate courts are unwilling to determine points of law on sets of facts which are hypothetical and which may turn out to be removed from the real facts.
47. The principle that an appellate court should only interfere in matters of case management where a judge is plainly wrong is well-established and has been emphasised on many occasions since the introduction of the CPR. Case management should not be interrupted by interim appeals as this will lead to satellite litigation and delays in the litigation process. Moreover, the judge dealing with case management is often better equipped to deal with case management issues. The judge in the present case was well-acquainted with these proceedings as he had had to deal with several interim applications before the application which led to the orders which are the subject of the appeals by the first and second defendants in this action whom I will call the RSA and the Syndicate respectively. His knowledge of this action was therefore superior to that of this court. Nonetheless I have come to the conclusion that the present appeals must succeed for the reasons explained below.
48. The orders the subject of the present appeals concern the separate trial of issues arising in these proceedings but in circumstances which are very different from those that existed in the Ashmore case. The purpose of this very substantial litigation is to determine whether the respondents are (in principle and not in reference to any specific case) held covered against their liability as employers for asbestosis and other diseases contracted by their employees under policies of employers' liability insurance issued by RSA (between 1969 and March 1977) and by the Syndicate (between April 1977 and 1995). There are many issues in the action (including questions as to the meaning and effect of the policies). A major issue raised by both defendants is non-disclosure of numerous matters which they contend would have influenced the judgement of a prudent underwriter as to whether to grant cover and if so on what terms.
49. We have seen the pleaded response of the respondents only as against the Syndicate but it is anticipated that their response as against RSA will follow the same lines with necessary modifications. There is evidently significant factual dispute, for instance as to whether the respondents disclosed to the Syndicate the reasons why RSA had declined to continue to provide employers' liability cover after March 1977, and as to the respondents' working practices. By virtue of the judge's order, the factual dispute as to the latter will not be resolved at the first trial. In addition, however, the respondents contend in their reply to the Syndicate's defence that it was immaterial to disclose certain matters to the Syndicate, that certain matters allegedly not disclosed were matters of which the Syndicate can be presumed to know already, that, certain disclosures having been made, the Syndicate waived further disclosure, that matters of which the complaint of non-disclosure is made would not in fact have induced the Syndicate to decline cover or require other terms, and that on becoming aware of certain matters by the disclosure of claims experience in about six of the years covered and of the contents of a television documentary entitled "Alice-a fight for life" involving the respondents in 1982 the Syndicate affirmed the policies and is estopped from avoiding the same. It is also said that the Syndicate were put on enquiry as to matters of which the complaint of non-disclosure is made. All of these issues are to be tried on the basis of assumed facts as to non-disclosure by the respondents insofar as it relates to their working practices.
50. The judge accepted the respondents' submission, maintained on this appeal, that lack of actual inducement, waiver, and presumed knowledge could be complete answers to the defence of non-disclosure. (Put very briefly, the respondents' case on lack of actual inducement is based on the appellants' belief that asbestos-related disease was excluded, on presumed knowledge on material in the public domain and on waiver on the television programme referred to above). The judge was clearly and properly concerned to avoid unnecessary costs and delay. The non-disclosure defences would entail disclosure of documents and this would take up to a year to complete. To hold the trial date of January 2003 with some chance of finality the judge decided to order trial of the non-disclosure defence on the basis of assumed facts. If the trial judge did not consider that he could make findings in relation to these issues, he could decline to do so.
51. In his order as respects RSA the judge drew a distinction between certain general propositions in the defence of RSA from the specific allegations of non-disclosure which RSA made and limited the assumed facts to the latter. He thus excluded from the assumed facts a number of general propositions alleged in paragraphs 41.3 to 41.8 of RSA's defence. These included the allegation that the risks to employees arising from exposure to asbestos in the relevant period were materially greater than was appreciated by persons without the respondents' special knowledge or by underwriters (para.41.3). The judge ordered disclosure in relation to all issues other than those the subject of assumed facts.
52. In my judgment the judge failed fully to appreciate the consequences of his orders in four respects.
53. First, he overlooked the fact that the specific facts alleged in paras 41.3 to 41.11 of RSA's defence served a dual function as best particulars of the allegations of non-disclosure and as specific facts which ought to have been disclosed and in addition that RSA's case was that the general propositions were matters which ought also to have been disclosed. The effect of the judge's order is that disclosure of documents would have to be given in respect of the general propositions of non-disclosure made by RSA. This is very extensive on RSA's case and means that the case cannot be ready for trial on the basis directed by the judge by January 2003. It is not suggested that there is a basis for proceeding to trial against the RSA at a different date from that of the trial against the Syndicate. So far disclosure has been made by the respondents only of newspaper and other articles which on their case show the matters which were in the public domain but there are serious issues as to whether this disclosure is sufficient to meet the terms of the judge's order which will have to be considered.
54. Second, the effect of the judge's orders contended for by the respondents was that if the respondents were successful in their reply allegations, the non-disclosure defences would have been tried and produced a final result without full disclosure of relevant documents. Those documents might reveal that the defences were stronger than the assumed facts. RSA has moreover made it clear that the specific allegations of non-disclosure are the best particulars that can be given at this stage (defence para. 42; see also the Syndicate's defence, para. 23). The relevant material is in the hands of the respondents. If the effect of a judgment at the first trial in favour of the respondents is to achieve finality on the non-disclosure issues on which they are successful, then it is in my view unjust for a defendant to be deprived of trial in the usual way of issues which have been pleaded and which it is not suggested could be struck out or made the subject of summary judgment. The risk of injustice would be made manifest if there was judgment for the respondents on some issues of non-disclosure and judgment for the appellants on other issues of non-disclosure and disclosure of documents on the latter revealed that the assumed facts had been materially incomplete. If the effect of success is not to achieve finality there is no point in a trial on the basis of assumed facts. It is no answer to say that there would have been no disclosure if all the alleged non-disclosure had been admitted since it has not been admitted, only assumed for the purposes of the first trial. Disclosure is limited to documents relevant to the pleaded case and is thus not at large, and the use which the appellants wish to make of disclosure is not objectionable.
55. Third, in my judgment the trial judge can at best only make hypothetical findings about such matters as materiality, waiver and affirmation when the full facts about what ought to have been disclosed as a fair presentation of the risk and what was disclosed have not been investigated and remain to be determined. For instance what would have affected the judgement of a prudent underwriter or what would have affected the judgement of the actual underwriters are likely to be peculiarly fact-sensitive. Under the judge's order, experts giving opinion evidence as to what a prudent underwriter would have done with certain information at certain points in time will have to deal with the issues on the basis of hypothetical sets of facts. Affirmation will again depend on the sufficiency of the information in the underwriters' hands. The real facts are likely to be materially different and thus the exercise at the first trial is likely to serve little purpose and waste time and could be unfairly onerous to witnesses. This is particularly undesirable where the events happened so long ago and many of the witnesses will be elderly or even infirm.
56. Fourth (and this point is akin to the last but was argued separately) the respondents contended before the judge that the elements of non-disclosure relied on by RSA in paragraphs 41.9 and 41.11 of their defence pertain to moral hazard and not to the statistical assessment of the underwriting risks of employers' liability. For example RSA has pleaded that in the 1960s the respondents took a deliberate decision not to introduce measures to alleviate the position of smokers who were known to be at greater risk of contracting asbestos-related disease and that this information should have been disclosed to RSA as relevant to the assessment of risk. The respondents say that, as the matters allegedly not disclosed are material if at all only as moral hazard, they provide a defence to the underwriters only if there was dishonesty on the part of the respondents and not here. We understand that there is no authority directly in point. We are not asked to consider the point of law. What RSA submits is that this may well be a point of law appropriate for decision by a higher court. It is well-established that a higher court should not be asked to consider points of law against a background of facts which may turn out to be materially different when ultimately tried. If the matters of non-disclosure alleged by RSA in paragraphs 41.9 to 41.11 are potentially material only as disclosures of moral hazard, then it will be important to know precisely what the real facts were in order that the experts and the court can consider whether they constituted matters which it was material to disclose and which would have influenced the judgement of the actual or a prudent underwriter. To resolve such peculiarly fact-sensitive issues on the basis of assumed facts in my judgment has all the hallmarks of a "treacherous short cut".
57. As far as I can see from the unapproved note of the judgment of the judge in relation to RSA placed before us the judge did not expressly consider these matters in his judgment. In relation to the Syndicate, the judge directed himself as to the relevant considerations but dealt with the application of the principles to the instant case quite briefly in paragraph 38 of his judgment which is as follows:

"It seems to me on balance that it would be appropriate in the present case to follow the course proposed by Mr Edelman, in the hope that the matter may be determined at the trial in January, and the belief that if it is not, at any rate what happens thereafter will be, although no doubt expensive, and leading to a substantial hearing, will be more focussed on the relatively few matters then remaining in issue."

58. With respect to the judge it does not seem to me that he gave the requisite consideration in this paragraph to the matters identified above so far as concerned the Syndicate. The four matters considered above were in my judgment certainly material to the question whether it was appropriate to order the trial of issues on the basis of assumed facts. Thus I conclude that the judge's exercise of his discretion was in the particular circumstances plainly wrong. The matters identified above are of fundamental importance to his decision to order separate trials on the basis of assumed facts, and if the judge had considered them fully in my judgment he would have been bound to concluded that the trial should not proceed on the basis of assumed facts. It follows that his orders in this respect must be set aside. I do not consider that different principles can be applied because of the fact that many of the respondents' former employees are affected by cruel disease and are anxious about the outcome of these proceedings. In my judgment, subject to any further submissions by counsel, the appropriate order is that the defences of misrepresentation and non-disclosure and all issues arising from them should be tried separately from the issues which will be ready for trial in January. Any application for further case management directions should be made to the High Court.
Appendix 1 Part 1

Paragraph 23 of the Syndicate's re-amended defence:

23. It is averred that the Syndicate is entitled to avoid each and every one of the policies set out above by virtue of material non-disclosure and/or misrepresentations made to it. The best particulars the Syndicate can presently give of such non-disclosure and/or misrepresentation are as follows. The Syndicate reserves the right to add to or amend such particulars following discovery and/or the giving of information by the Claimants pursuant to such requests for further information as the Syndicate may serve.

a. Prior to entering into the 1977 Lloyd's Policy, in about March 1977, Turner & Newall Ltd or its agent, Hogg Robinson, gave the Second Defendant and/or his agent, Garwyn Ltd,

i. a manuscript document which contained a breakdown of asbestos related claims received by Turner & Newall Ltd and its subsidiaries in 1976. This document was given to Lloyd Holden of Garwyn Limited at a meeting in Manchester held on 9^th March 1977 with John Atkinson, Tom Pemberton and CJ Dodson of Turner & Newall Ltd and Andrew Mason and Ken Hindle of Hogg Robinson. That claims analysis

1. identified only 4 companies as being the recipients of asbestos related claims, namely TAC Construction Materials Ltd, TBA Industrial Products Ltd, Newalls Insulation Company Limited and Ferodo Ltd and

2. identified Newalls Insulation Company Ltd as being the recipient of the vast majority (in terms of both number and estimated value) of the asbestos related claims received; and

ii. part of a document which set out inter alia that

1. Newalls Insulation Company Ltd had ceased production of material containing asbestos from February 1972;

2. from January 1970 the contracting division of Newalls Insulation Company Ltd had stopped taking asbestos contained materials from the Washington factory and, apart from small quantities of materials, only had contact with asbestos on stripping down materials earlier applied for which operation the Asbestos Regulations 1969 laid down stringent requirements including prior approval from the Factory Inspector of the District

3. TBA Industrial Products Ltd had undertaken no contracting business involving asbestos (i.e. the installation of products containing asbestos) since 1^st January 1972; and

4. frequent medical examinations were carried out on employees of TBA Industrial Products Ltd and TAC Construction Materials Ltd so that suspect cases could be identified early and appropriate action taken;

b. The impression given by these documents and the implied representation made by them was that those Turner & Newall subsidiaries which undertook asbestos operations, especially Newalls Insulation Company Ltd, had significantly reduced their asbestos operations and that the risk to employees of dangerous exposure to asbestos or of the development of asbestos related diseases was consequently also significantly reduced and was no more than a minimal risk.

c. Further, it was orally represented to the Second Defendant that Turner & Newall Limited and its subsidiaries were making full reserves internally for asbestos related claims and maintaining a fund of sufficient size to meet such claims

i. By Mervyn O'Braart or Ken Hindle or Andrew Mason of Hogg Robinson to the Second Defendant himself, on occasions the dates of which cannot now be recalled, but which will have been between 2^nd March and 1^st April 1977, prior to the Second Defendant entering into the 1977 Lloyd's Policy;

ii. In relation to BIP by Brian Heggie, Dale Wright, Tom Pemberton of Turner and Newall Ltd or its subsidiaries and/or CJ Dodson, Turner & Newall's solicitor to Derek M Marchant and Alan Preston of Garwyn Limited at a meeting held on 22^nd March 1977 in the presence of AEH Mason and Brian Ward at BIP's premises. The gist of the words used was that BIP would make reserves in respect of diseases caused by exposure to asbestos and vinyl chloride;

iii. In relation to Engineering Components by G Harper, Steve Jenkins, M Thomas and/or Tom L Pemberton of Turner and Newall Ltd or its subsidiaries to Derek M Marchant of Garwyn Limited at a meeting held on 23^rd March 1977 in the presence of P Davidsen and AEH Mason at Engineering Component's premises. The gist of the words used was that Engineering Components would provide similar reserves in its accounts;

iv. In relation to Ferodo Ltd, by R Houston, JWP Quayle, D Ripley and/or Tom L Pemberton of Turner & Newall Ltd or its subsidiaries to Derek Marchant and Lloyd Holden of Garwyn Ltd in the presence of AEH Mason, Tom Unsworth and Mr Dufficy at a meeting held on 24^th March 1977 at Ferodo's premises. The gist of the words used was that Ferodo would provide similar reserves in its accounts;

v. In relation to TBA Industrial Products Ltd, by K Holehouse, O Oliver and/or J Arnold of TBA to Derek Marchant and Lloyd Holden of Garwyn Ltd in the presence of K Hindle at a meeting on 25^th March 1977 at TBA's premises. The gist of the words used was that TBA would provide similar reserves in its accounts;

vi. In relation to TAC Construction Materials Ltd by F Wolstenholme, C Roobottom and/or K Roberts of TAC to Derek Marchant and Lloyd Holden of Garwyn Ltd in the presence of K Hindle at a meeting on 25^th March 1977 at TAC's premises. The gist of the words used was that TAC would provide similar reserves in its accounts;

vii. In relation to Newalls Insulation Company Ltd by Peter Farrell, Tommy Hunt, Andrew Campbell, Tom Pemberton and/or Trevor Jones of Turner and Newall or its subsidiaries to Derek Marchant and Lloyd Holden of Garwyn Ltd in the presence of AEH Mason at a meeting on 30^th March 1977 at Newalls' premises in Washington, Tyne & Wear. The gist in the words used was that Newalls would provide similar reserves in its accounts.

d. Further, it was orally represented by David Pittway and/or Andrew Mason of Hogg Robinson on behalf of Turner & Newall Ltd and its subsidiaries to Lloyd Holden of Garwyn Limited on behalf of the Syndicate during a telephone conversation on 2^nd March 1977 that in relation to their employers liability insurance, Turner & Newall Ltd and its subsidiaries had the option of staying with their existing insurers, namely the First Defendant, but that they did not wish to take that course.

e. These representations set out in sub-paragraphs (b), (c) and (d) above were material, continuing representations and were not true in that

i. there remained, after March 1977, a significant risk to employees of dangerous exposure to asbestos and of contracting asbestos related diseases and, in particular, mesothelioma, by reason of their continued exposure to asbestos, such risk arising as a result of exposure either exclusively after March 1977 or in conjunction with exposures in earlier years; and

ii. Turner & Newall Limited and its subsidiaries did not make full reserves internally for asbestos related claims or maintain a fund of sufficient size to meet such claims. These facts made the continuing representations that Turner & Newall Limited and its subsidiaries were making full reserves or maintaining a fund of sufficient size false.

iii. By 2^nd March 1977 the First Defendant had refused to continue to insure Turner & Newall Ltd's and its subsidiaries' employer liability risk because of their concern that notwithstanding the agreed exclusion of liability for asbestos related diseases, there was a residual risk of it being liable to indemnify Turner & Newall Ltd and its subsidiaries in respect of asbestos related diseases.

f. In about 1979 the Second Defendant was told that the Turner & Newall group of companies (including the 1977 Assured and the 1978 and the 1979 Insured Companies) had set up a captive insurance company (which was in fact Curzon Insurance Limited (one of the Part 20 Defendants, "Curzon")) in order fully to reserve for asbestos related claims:

i. Mr Tom Pemberton of Turner & Newall Ltd told Mr Lloyd Holden of Garwyn Ltd at a meeting held on or about 25^th July 1979 that Turner and Newall were going to introduce funding by a captive insurance company

ii. On or about 31^st July 1979 the Second Defendant was informed that Turner and Newall Ltd had formed a captive company known as Curzon and that the captive would insure the aggregate excess under the Lloyds' policies along with the asbestos related claims on that cover. This information was passed to the Second Defendant by the production to him of a letter written by Mr AR Irvine of Hogg Robinson (UK) Ltd, Turner & Newall's agents, to Mervyn O'Braart of Hogg Robinson & Gardner Mountain International Ltd dated 27^th July 1979.

g. This representation (set out in sub-paragraph (f) above) was a material, continuing representation and was not true in that the cover provided by Curzon was limited and did not fully reserve against asbestos related claims.

h. Further or alternatively, if, which is denied, the representations set out in sub-paragraphs (c) or (f) above were representations of intention, it is averred that they were false because Turner & Newall Ltd and its subsidiaries had no intention of making full reserves or maintaining a fund of sufficient size for their potential liabilities for asbestos related claims as evidenced by the fact that they did not do so:

i. As is admitted by the Claimants Turner & Newall Ltd and its subsidiaries did not maintain full reserves for asbestos related claims

ii. No fund at all was maintained by Turner & Newall Limited or its subsidiaries for asbestos related claims and

iii. The policies of insurance effected with Curzon provided only limited cover for asbestos related claims.

i. The non-disclosures relied upon are

i. That employees of Turner & Newall Limited and its subsidiaries remained at significant risk of contracting asbestos related diseases and in particular mesothelioma as a result of exposure after March 1977 to asbestos, such risk arising as a result of exposure either exclusively after March 1977 or in conjunction with exposures in earlier years;

ii. That mesothelioma was capable of being contracted as a result of very low exposures to asbestos

iii. That Turner & Newall Limited and its subsidiaries

1. had not fully reserved for asbestos related claims in any year and

2. had made no reserves in any year, as it should have done, for the contingent liability of incurred but not notified claims and

iv. That, after 1979, the policies of insurance effected with Curzon only provided very limited cover in relation to asbestos related diseases

v. That the First Defendant had refused to continue to issue employers liability insurance to Turner & Newall Ltd and its subsidiaries because it was concerned that, notwithstanding the agreed exclusion of liability for asbestos related diseases, there was a residual risk of it being liable to indemnify Turner & Newall and its subsidiaries in respect of asbestos related diseases

j. The facts set out in sub-paragraphs (h)(i) and (ii) above were known to Turner & Newall Limited and its subsidiaries by 1977 by reason of the mesothelioma and other claims against them which had been made by then and the medical advice, reports and researches received by them by then, full particulars of which cannot be given prior to full disclosure.

k. The Second Defendant was induced to enter into the contract of insurance on behalf of the Syndicate covering the period 1^st April 1977 to 31^st December 1977 and all subsequent contracts of insurance issued by the Syndicate by the said representations and/or the said non-disclosures.

Part 2

Particulars of paragraph 23 of the amended defence, served pursuant to Mr Justice Lloyd's order of 25 September 2002:

Significant Risk

The nature of the Second Defendant's case, pleaded in paragraph 23(e)(i) and (i)(i) that there remained, after March 1977, a significant risk to employees of Turner & Newall Ltd and its subsidiaries of dangerous exposure to asbestos and of contracting asbestos related diseases and, in particular, mesothelioma, by reason of their continued exposure to asbestos, such risk arising as a result of exposure either exclusively after March 1977 or in conjunction with exposures in earlier years is as follows:

1. There remained after March 1977 a significant risk to employees of T&N Limited and its subsidiaries of contracting mesothelioma by reason of the fact that mesothelioma is capable of being contracted as a result of low levels of exposure to asbestos fibres. Consequently,

a. a reduction in asbestos operations did not reduce the risk of employees contracting mesothelioma to no more than a minimal risk

b. even compliance with all relevant statutory regulations relating to working with asbestos did not reduce the risk of employees contracting mesothelioma to no more than a minimal risk, but in any event Turner & Newall Limited and its subsidiaries

i. had exposed its employees to dust containing asbestos fibres with a mean value as high as 26 fibres per millilitre between 1961 and 1972 at TBA Industrial Products Ltd, Rochdale; and

ii. were unable to comply with the limit of 1 Chrysotile asbestos fibre per millilitre recommended by the Government's Advisory Committee on Asbestos (the Simpson Committee) in 1979 in respect of 10% of its operations

2. The number of mesothelioma claims which have been made against Turner and Newall Limited and its subsidiaries by employees whose period of employment extended beyond March 1977 shows that the continued (reduced) asbestos operations of Turner & Newall Limited and its subsidiaries must have posed a significant risk to employees of contracting mesothelioma

3. Employees who were employed by Turner & Newall Ltd or one of its subsidiaries prior to March 1977 remained at significant risk of sustaining asbestos related disease injury or death after March 1977 because of the exposure to asbestos fibres to which they had already been subject prior to March 1977. A reduction in asbestos operations did not reduce the risk of such employees contracting asbestos related diseases to no more than a minimal risk: limited exposure of such employees to asbestos fibres after March 1997, when added to the exposure to which they had already been exposed prior to March 1977, could be a cause of such employees sustaining an asbestos related disease

4. The working practices of Turner & Newall Ltd and its subsidiaries in and after March 1977 were such that appropriate steps were not taken to provide a safe environment in which their employees worked with asbestos and employees were exposed unnecessarily to asbestos fibres. The best particulars, derived from Dr PC Elmes' July 1986 Audit of Health and Safety at the Rochdale Plant of TBA Industrial Products Ltd, Geoffrey Tweedale's book entitled "Magic Mineral to Killer Dust: Turner & Newall and the Asbestos Hazard", and Dr TRP Goffe's response dated 6^th May 1983 to Dr Elmes' Report on Health and Safety Arrangements at UK T&N Factories, which the Second Defendant can presently give of Turner & Newall's inadequate working practices, pending discovery and/or further information from the Claimants are as follows:

a. Machinery, filter galleries, corridors, lobbies, staircases and factory walls were not properly cleaned which meant that fly and dust containing asbestos fibre was left lying around, to which workmen were exposed;

b. long handled brooms instead of vacuum cleaners were used for sweeping factory floors in areas in which asbestos was used despite the fact that the Asbestos Regulations did not permit the use of dry brushes for such purposes. This exposed workmen unnecessarily to asbestos fibres;

c. filter bags were used beyond their effective life which meant that they frequently burst leading to asbestos dust being spilled, to which workmen were exposed;

d. workmen did not wear proper protective overalls and/or masks in order to limit their exposure to asbestos fibres;

e. bags of asbestos were not cosied in order to prevent them from being damaged during transit and handling. They were therefore damaged during transit and handling which led to asbestos being spilled to which workmen were exposed;

f. metal instead of plastic straps were used to bind the bags of asbestos which led to the bags being damaged and asbestos being spilled, to which workmen were exposed;

g. where bags of asbestos were opened into blenders, asbestos fibre was spilled on the floor and wastebags were packed outside the exhaust zone exposing workmen to asbestos fibres;

h. the cards were positioned in card loading areas such that when zip bags of asbestos were emptied into the cards, the worker's head was in a cloud of fly;

i. zipped bags were overfilled which led to spillage of asbestos, to which workmen were exposed;

j. there were poor exhaust arrangements in the factories meaning that fly accumulated on the factory floor instead of being sucked into an exhaust system before it reached the floor;

k. dust control schemes were not implemented;

l. Fortex production created an aerosol of dangerous small asbestos fibres."

Appendix 2

Paragraphs 39, 40, 41, 41.1 to 41.11 and 42 of the Royal's amended defence:

39. Prior to the inception of cover and at each renewal, the Insured failed to disclose to Royal facts which (1) were then known to the Insured or (2) in the ordinary course of the Insured's business, ought to have been known to the Insured or (3) would, on reasonable inquiry, have been ascertained by the Insured but which (A) were unknown to Royal and (B) Royal is not to be presumed to have known and (C) it was material for Royal to know.

40. Royal will rely upon the fact that the Insured was in a unique position in the UK and, indeed, the world to assess the full extent of the risk of an employee developing disease from exposure to asbestos because (a) it had the largest single asbestos factory population in the world at Rochdale (b) the Rochdale coroner had for many years insisted on post mortems being conducted on employees or former employees of the Insured employed in scheduled areas who had died in circumstances indicating that their deaths may have been caused by or connected with exposure to asbestos (c) as a result of (b) a large amount of lung material from deceased employees had been made available confidentially to the Insured's chief medical officer (d) pursuant to its policy described in paragraphs 13.1 and 13.2 above, the Insured had 41.

41. The following facts and matters should have been but were not disclosed to Royal by the Insured:

41.1 The full claims history of T&N for the 5 years preceding inception and each renewal during the period of cover.

(i) In respect of the policy periods commencing 1 October 1969, 1 October 1970 and / or 1 October 1971 the Insured failed to disclose details of its claims history (whether for the 5 preceding years or at all) in relation to all asbestos related diseases other than asbestosis. Disclosure was given of the history of other claims against the Insured in their capacity as employers but no disclosure was given in relation to any claims arising from exposure to asbestos, whether at inception or at any of the above mentioned renewals.

(ii) In respect of the policy period commencing 1 October 1971 (or with effect from 1 January 1972) and the policy periods commencing 1 October 1972, 1 October 1973, 31 December 1973 and 31 December 1974, the Insured failed to disclose details of its claims history (whether for the 5 preceding years or at all) in relation to all asbestos related diseases including asbestosis. No disclosure was given in relation to any claims arising from exposure to asbestos at any of the above mentioned renewals. Disclosure was given on each occasion of the history of other claims.

41.2 The fact that the Insured had a substantial claims history in relation to asbestos related disease and had, prior to 1969, dealt with and / or received claims relating to asbestosis, lung cancer, mesothelioma and other asbestos related diseases.

41.3 The fact that the Insured knew or was in a position to know that, in fact, the risks to employees arising from exposure to asbestos were and continued in the period 1969 – 1977 to be materially greater than was appreciated by persons without its special knowledge and or by underwriters. The facts were that:

(a) Reported cases of asbestosis were steadily rising throughout the 1960s, with the most marked increase being in the last 3 years' known results prior to the inception of cover (1966 – 1968).

(b) There was an excess incidence of lung cancer among those dying of asbestosis with a ratio of observed to expected of approximately 10:1, with the excess incidence being most dramatically noticeable among asbestos workers who were also smokers where the ratio was in the order of 90:1.

(c) During the mid to late 1960s an increasing proportion of asbestosis cases were being reported as developing lung cancer as a secondary effect.

(d) Reported cases of mesothelioma had risen dramatically in the few years prior to the inception of cover.

(e) There was an increased incidence of pleural plaques in asbestos exposed workers which, while mostly benign, were sometimes the site of development of mesothelioma.

41.4 The facts that Mesothelioma was less rare than was generally understood to be the case and that it was probably less rare than published information suggested and that the Insured was itself concerned that the numbers of reported mesothelioma cases among its employees or former employees were rapidly increasing in the period prior to inception of cover and thereafter. The facts that:

(a) The Insured had issued a statement in or about November 1965 stating that only 2 cases of mesothelioma had been found in the Greater Manchester area despite hospital pathologists in the area having been asked several years before to keep "a special look-out for this rare condition" whereas information contained within its own compensation claims files identified 7 cases of mesothelioma from the Insured's Rochdale factory and a total of 17 cases within all the group companies up to 1964.

(b) Dr Kerns, a medical officer retained by the Insured, had resigned from his position in 1966 on the following grounds, among others (1) the Insured was under recording the true numbers of mesothelioma cases since suspected cases were submitted to a panel of 7 experts but recorded as mesothelioma cases only if all 7 agreed on the diagnosis (2) this had resulted in several mesothelioma cases not being recorded as such in the period of less than 2 years during the period 1964 – 1966 that Dr Kerns had been retained by the Insured and that (3) he had been refused permission by the Insured (in the person of Mr Waddell) to publish his findings.

(c) As was reported to the Chairman's Committee Meeting on 18 March 1968, that there had been 4 further cases of mesothelioma involving employees or former employees of the Insured in the single year to 31 December 1967.

(d) The Insured's medical officer, Dr Lewinsohn, had reported in an internal confidential memo dated 1 October 1968 that "It is worrying to me that the number of cases of mesothelioma appears to be increasing" and that a future peak of mesothelioma cases might occur. He had expressed concern that the gradual elimination of asbestosis might, given the long latency period for mesothelioma, allow more cases of mesothelioma to develop in the future.

(e) By the date of a confidential letter from Mr Hills, a director of the Insured, to Dr Lewinsohn dated 14 October 1968, the Insured was aware that "we have a quite a number of mesothelioma cases on the records now" but was concerned, as expressed in the letter, that this should not become "common knowledge".

(f) On 30 January 1969 it was noted in an Asbestos & Health Progress Report to the Board of the Insured that the number of cases of mesothelioma then appearing was giving cause for concern.

(g) In a memo from Dr Lewinsohn to Mr Hills dated 16 October 1969, Dr Lewinsohn had noted that (1) the increase in the number of mesothelioma cases in Rochdale was "extremely worrying" and (2) that there had been 11 "fairly definite" cases and a 12^th recently diagnosed with others still under investigation.

(h) In a report dated 28 September 1970 Dr Lewinsohn had reported that mesothelioma was continuing to occur at a "fairly high rate"

(i) The medical Officer's report to the Health Committee on 2 August 1971 had reported that (1) in recent months 2 previously unknown cases of mesothelioma among former employees of the Insured had come to light and (2) that 2 new cases of suspected pleural tumours were being investigated at the Chest Clinic.

(j) The Chief Medical Officer's report to the Board dated 6 November 1972 had stated that 3 more cases of mesothelioma had been added to the figures presented, bringing the total to 19.

(k) In an undated confidential report by Dr Lewinsohn and S Holmes entitled "Asbestos & Health at TBA Part 1 – Medical Report", it was reported that "Deaths due to mesothelioma among current and ex employees have shown a dramatic rise in the past 10 years ie since 1964. The number now totals 23". It was further reported that the "large numbers of mesothelioma cases in the past 10 years gives cause for concern".

41.5 The fact that in 1969 there was no generally accepted view as to the extent of exposure to asbestos necessary to give rise to a risk that mesothelioma might develop but that the Insured knew or suspected that it was the fact that mesothelioma could develop after a very long latency period even where the actual exposure to asbestos had been slight and over a only a short period of time. The facts that:

(a) A memo from Dr Knox to Mr Weddell dated 21 January 1965 concerning a diagnosis of mesothelioma in an employee called Frank Brooks had noted that in his "as in other cases, the actual exposure was short".

(b) Dr Knox, had noted in a letter dated 22 February 1965 that the conclusion that even transient asbestos exposure was an important factor in the aetiology of mesothelioma "commands respect".

(c) Dr Lewinsohn had observed in a letter dated 17 March 1967 that exposure was "often" not prolonged in some diagnosed cases of mesothelioma.

(d) On 30 January 1969 it was noted in an Asbestos & Health Progress Report to the Board of the Insured that the number of cases of mesothelioma then appearing was giving cause for concern and that exposure to crocidolite had been minimal in some cases.

(e) In a paper entitled "Asbestosis, Cancer and Mesothelioma – Cause and Effect" dated September 1969, Dr Lewinsohn had noted that the asbestos exposure in many of the documented cases of mesothelioma had been "brief in duration and minimal in concentration" and that "The prevention of mesothelioma cannot be viewed with any degree of certainty as it may be an all or none effect of asbestos exposure rather than a dose-response relationship".

(f) In a memo from Dr Lewinsohn to Mr Hills dated 16 October 1969, Dr Lewinsohn had noted that no answer was yet available as to how little exposure might cause mesothelioma but that no dose "no matter how small" could be regarded as safe.

(g) The Chief Medical Officer's report dated 6 November 1972 had noted that in 2 of the 3 reported mesothelioma cases since the last board meeting, there had been only "minimal" exposure to asbestos.

41.6 The fact that the risk of lung cancer developing in some asbestosis cases was also greater than generally appreciated. A report to the Board of Turner & Newall Ltd dated 25 May 1967 had pointed out that "an increasing proportion" of asbestosis cases were developing lung cancer as a secondary effect.

41.7 The fact that in 1968 an article in the Journal of the American Medical Association by Selikoff and others had suggested that an asbestos worker who smoked cigarettes had a 90 times greater chance of dying from lung cancer than a man who neither smokes nor works with asbestos and that this was not generally known at the time but was known to Dr Lewinsohn and the Insured prior to the commencement of cover. A significant proportion of the Insured's employees working with asbestos in 1969 – 1977 were smokers.

41.8 The fact that the incidence of asbestosis was, in fact, also greater than generally known and or that it was greater than in published figures. The facts that:

(a) In November 1967, the full scale of asbestosis cases being experienced in shipyards as discovered by Dr Lewinsohn was deliberately kept "off the record" as evidenced by an internal memo of Dr Lewinsohn dated 23 November 1967 .

(b) The Minutes of the Health Committee on 12 July 1972 had recorded concern at the latest statistics and Dr Lewinsohn's particular concern at the number of asbestosis cases then appearing among workers with only relatively recent exposures.

(c) The numbers of asbestosis cases were rising markedly during the 1960s and, in a confidential report by Drs Lewinsohn and Holmes in 1974 the prevalence of asbestosis among workers with 10 or more years exposure was described as "considerable" even allowing for post war improvements in conditions.

41.9 The fact that the insured had, over many years, prevented the publication of and or sought to suppress information which might reveal the full extent of the risks for employees arising from exposure to asbestos: The facts that:

(a) Research conducted by the Insured via its US subsidiary Keasbey Mattison in the 1940s had suggested a link between asbestos and lung cancer but this had never been published.

(b) Research conducted by the Insured's medical officer, Dr Knox and a Dr Doll in the 1950s had also revealed the link between asbestos and lung cancer but that the Insured had not allowed Dr Knox to publish this research and the same had eventually only been published by Dr Doll alone in the British Journal of Industrial Medicine (and not in the general press) in the face of attempts by the Insured to prevent publication on the grounds that to do so would breach its confidentiality.

(c) Dr Knox and Mr Waddell had first become aware of (1) the research of JC Wagner suggesting a link between exposure to asbestos and the development of mesothelioma decades later and (2) his view that a "serious hazard" may exist as early as 1959 but, in a letter dated 4 August 1959, Mr Waddell had directed that Wagner's paper should not be circulated to the Insured's Health Committee.

(d) The risk that asbestos workers who were also smokers were at much increased risk of developing cancer had first been suggested in medical circles in the early 1960's. This was not generally known but had been noted in an internal memorandum of the Insured dated 17 November 1964. The possibility of "having ventilated smoking stations (under positive pressure)" to alleviate the problem had been discussed in the memorandum but it had been noted that "Even this would need a bit of selling to avoid letting the cat out of the bag" and no steps had in fact been taken to reduce or warn of the danger.

(e) The Insured had refused Dr Kerns permission to publish his findings in the mid 1960s in relation to the true incidence of mesothelioma cases among the Insured's workforce and former employees

(f) By letter dated 23 April 1965 Mr Hills had directed that minutes of the Asbestosis Research Council should not be circulated to, in particular, a Dr Gilson to whom Dr Holmes had sent a copy of the minutes of the 28^th meeting to which Dr Gilson had been invited, since there might be future occasions "when things are recorded that we do not want him to know about or at least not have a record of them in writing".

(g) Mr Waddell had directed in a memorandum dated 25 August 1965 that paragraph 6 of a report of his dated 12 August 1965 which concerned the views of a Dr Lloyd-Davies as to the relative "toxicities" of the 3 main types of asbestos, with crocidolite being the worst, should not be publicised in any way and were "best forgotten".

(h) In an internal memorandum dated 2 December 1965 Mr Waddell had observed that "there is strong evidence that blue asbestos (crocidolite) is many times more dangerous than white in relation to mesothelioma but we don't want to stress this in factories where we still process blue textiles, fibre and plaited packings but it may be worth mentioning in connection with insulation work and the Admiralty". Mr Waddell had adopted this approach because, as evidenced by an internal memorandum dated 25 January 1966, trade in blue asbestos products was "too big…to be thrown overboard in a hurry simply because there is fairly strong evidence that (blue) fibre is more dangerous than chrysotile".

(i) In an internal memorandum dated 23 December 1968, Mr Hills had referred to the known numbers of mesothelioma cases at Rochdale and had expressed reluctance "to publish all these figures before we have to".

(j) In an internal memo dated 10 February 1969, Mr Hills had agreed with Dr Lewinsohn that the mesothelioma figures were "disturbing" and had directed him to send all correspondence on the subject under "Confidential" cover.

41.10 The fact that despite the known risks, the Insured systematically continued, both prior to the inception of cover and thereafter, to fail to take reasonable or adequate precautions to protect its employees from the effects of exposure to asbestos. The facts that:

(a) An undated internal report on dust sampling probably written in the late 1950s or early 1960s had concluded that (1) it was not possible to identify a maximum safe concentration of asbestos dust (2) the only complete safeguard to health was having no dust at all (3) the methods of dust sampling used by the Insured were of little or no effect in identifying the true levels of concentration of dust at the Insured's premises.

(b) A report of the Sub-Committee on Health Precautions in the Insulation Contracting Industry dated 17 August 1965 had noted that "certain processes still present very great hazards . . . and consequently need special precautions".

(c) One of the bases of Dr Kerns's resignation in 1966 had been that the levels of asbestos dust to which employees were exposed at the Insured's premises were such as to place the health of his family and himself at risk.

(d) A Confidential internal report dated 12 August 1968 on the Draft new Asbestos Regulations (subsequently implemented in 1969) had made reference to the Insured's intention to make only "token" efforts at compliance with the "minimum possible expenditure" and "circumvent requirements" by such token efforts in the hope that "we can ward off the evil day when asbestos cannot economically be supplied ie " hold on" until 1972/3 period".

(e) In a memo dated 10 December 1968, Dr Lewinsohn had noted that the method of transportation of insulating board and similar material was one of the dustiest procedures and that a range of were at risk in consequence.

(f) An internal dust survey report dated 13 January 1969 had reported that (1) "prohibitive dust concentrations still remain in the Spray Fibre Plant (at Hindley Green) especially where crocidolite fibre is being processed" and that (2) this was indicative of a "high health hazard" and that "the unnecessary exposure of people to such large amounts of dust cannot be condoned".

(g) Following a visit to various of the Insured's premises, Dr Lewinsohn pointed out in a further internal memo dated 18 February 1969 that workers were operating in very dusty conditions without respirators or proper protective clothing and that ventilation was "very inadequate" and, in some cases, non-existent. He had considered that (1) the problems of coping with the dust were "enormous" (2) housekeeping standards were "poor". He had concluded that the Insured had been lulled into a false sense of security as to the number of employees being exposed to asbestos dust.

(h) In a memo from Dr Lewinsohn to Mr Hills dated 16 October 1969, Dr Lewinsohn had noted that it was difficult to know what steps could be taken to reduce the risk but that the use of crocidolite should be discontinued altogether.

(i) On 2 August 1971 the medical Officer had reported to the Health Committee that the contamination of the hair of operatives with asbestos was a continuing cause for concern and that respirators and other forms of personal protection were not being worn.

(j) TAC Construction Materials Ltd was prosecuted for breach of the asbestos regulations in 1971.

(k) Minutes of the Health Committee meeting held on 12 July 1972 had recorded that (1) Dr Lewinsohn was perturbed at the continued use of brooms and hard brushes to sweep up asbestos dust and that (2) Dr Lewinsohn had complained about the lack of dust control at Hindley Green and pointed out that working conditions there "might well lead to long term respiratory disease in the men required to work there. Mr Hills had agreed but had said that "any immediate improvements were unlikely" (3) During routine surveys in the March – June period 6 dust counts above the accepted ceiling for chrysotile had been obtained. Mr Hills had been "very disturbed" at the situation, especially in respect of the carding section where the highest counts had been obtained and had pointed out that the recorded levels were sufficient to warrant prosecution by the Factories Inspectorate.

(l) The confidential 1974 report of Drs Lewinsohn and Holmes entitled "Asbestos and Health at TBA – Part 1 Medical report" had noted that (1) "working conditions in certain areas have not improved to the extent needed" and that the then current incidence of the development of asbestosis showed no improvement over 1957 figures and that (2) there were still problem areas with regard to dust levels and that (3) it had become apparent to those concerned with Health and Safety that "insufficient attention was given to maintaining satisfactory working conditions" and that (4) "the standard of factory housekeeping is not good" and that (5) Although "dry brushes are not permitted by the Regulations, long handled brooms are still used" and that (6) "Burst filter bags are now a frequent occurrence because they are used beyond their effective life" and that (7) "the Asbestos regulations 1969 are being disregarded" because of a failure to insist on protective headgear and clothing and that (8) respirators were "very rarely seen to be worn". The fact (as is to be inferred) that these working practices had existed since before inception of cover.

(m) Working practices at the Insured's premises were no better prior to the inception of cover and in the period from the inception of cover to March 1977 than they were in the period post March 1977 and were, if anything, worse. Royal adopts herein the contentions as to working practices set out in paragraph 4 of the particulars of the Syndicate's Amended Defence and Part 20 Claim served pursuant to the Order of the Hon Mr Justice Lloyd made on 25^th September 2002 as if the same were set out herein verbatim.

41.11 That facts, as particularised hereunder, were known to the Insured prior to the inception of cover, alternatively, became known during the period of cover, which had undermined or cast serious doubt on each of the propositions stated in a Press Release issued by the Asbestos Information Committee (AIC) on behalf of the Insured and other leading firms in the asbestos industry published on or about 19 May 1967 which had represented the Insured's publicly stated position prior to the inception of cover but which it left uncorrected. As evidenced by a Board report of Mr Waddell, also chairman of the AIC, the AIC had been formed "to combat and, if possible, to forestall adverse publicity in all quarters". The Press Release had stated that (1) "Asbestos is only a risk to health if substantial amounts of airborne asbestos dust are inhaled" (2) "Only in extremely rare cases has there been any suggestion that incidental exposure to asbestos dust has been harmful, and proof has been lacking" (3) Only "two diseases are involved, asbestosis..and mesothelioma…Both of these are rare" (4) There was only a "rare incidence of mesothelioma" (5) The "main risk" (of mesothelioma) ..is associated with blue asbestos (crocidolite)".. whereas

(a) There were not only 2 diseases involved. There were a number of such diseases, particularly lung cancer and this had been known to the Insured for many years.

(b) The incidence of mesothelioma among employees of the Insured was known to be increasing at a rapid rate in the late 1960s and early 1970s and could no longer properly be described as a "rare" occurrence among such employees.

(c) There was evidence known to the Insured that only short exposure to asbestos could cause the development of mesothelioma as pleaded above.

(d) On 30 January 1969 it was noted in an Asbestos & Health Progress Report to the Board of the Insured that (1) the number of cases of mesothelioma then appearing was giving cause for concern and that (2) exposure to crocidolite had been minimal in some cases and (3) that this led to the view that chrysotile might also be responsible. This reflected the view of Dr Lewinsohn as stated in an internal memorandum dated 23 March 1967. Chrysotile was widely used by the Insured before and during the period of cover provided by Royal.

(e) There had been large numbers of asbestosis claims made against the Insured over many years. The incidence of asbestosis among the Insured's employees was not properly described as "rare". In his September 1969 paper on Asbestosis, Cancer and Mesothelioma – Cause and Effect, Dr Lewinsohn had noted that the numbers of asbestosis cases being generally reported and referred to the Pneumoconiosis Medical Panel for compensation were "steadily rising". His Table 4 had suggested that there had been a marked increase in reported cases during the years 1961 – 1965 compared to pre 1960 figures and a further marked increase in the years 1966 – 1968. This had reflected the Insured's own experience.

42. Royal reserves the right to rely upon further facts and matters in support of its case on non-disclosure and/or to provide further particulars following the provision of disclosure herein by the Insured."