England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION
(COMMERCIAL COURT)
(MR JUSTICE MOORE-BICK)

		Royal Courts of Justice The Strand London, WC2A 2LL
		Wednesday, 13th March 2002

1. LORD JUSTICE MANCE: I will ask Mr Justice Neuberger to give the first judgment.
2. MR JUSTICE NEUBERGER: This is an application by Mr Roger Owen James, trading as Sovereign Motor Company, for permission to appeal a decision of Mr Justice Moore-Bick given on 17 October 2001. Mr James's claim against his insurers, CGU Insurance plc, arose out of a fire which broke out in his premises from which he carried on his business as a motor dealer and repairer at Laws Bridge, Hele Road, Torquay on 22 September 1994. The hearing of the case lasted ten days. It was split into two parts in order to deal with two separate grounds upon which the defendant was seeking to avoid liability. The first was on the basis that Mr James deliberately started the fire himself. The second ground upon which liability was repudiated was on the basis of non-disclosure. We have been told that the first issue took longer than the second, and, in the light of the detailed evidence which was considered by the learned judge, that does not surprise me. The conclusion the judge reached in relation to the cause of the fire is that, bearing in mind in particular the seriousness of the allegation against Mr James, the defendant had not made out its case. Accordingly, its repudiation of liability on that ground failed.
3. In relation to non-disclosure however, the judge's conclusion was that, in light of four separate items of non-disclosure, the defendant was entitled to avoid the policy. In reaching that conclusion the judge, correctly directed himself as to the law. He identified the need for a causal connection between the non-disclosure and making of the contract as well as the need to be satisfied that the fact not disclosed "would have influenced the judgment of a prudent insurer". He then mentioned the statement of general insurance practice published by the Association of British Insurers. This practice statement applied to private insuring, i.e. to cases of people insuring in their private capacity only; however, there was evidence before the judge from Mr Williams, the expert called on behalf of Mr James, to the effect that it was treated by at least some insurers as applicable to all insurance policies. The judge also considered moral hazard, which my Lord, Mance LJ, sitting at first instance, had characterised in Insurance Corporation of the Channel Islands v The Royal Hotel Ltd. The judge then dealt in a little detail with the evidence of Mr Moore, the underwriter responsible for effecting this insurance on behalf of the defendant, and again carefully directed himself as to the weight he should give to Mr Moore's evidence. He then identified the various alleged items of non-disclosure and rejected some of them, about which I say no more.
4. The four items of non-disclosure on which the defendant succeeded were the carrying on of a skip hire business from the premises; the carrying on of a car hire business from the premises; disputes with the Commissioners of Customs and Excise and the Inland Revenue; and Mr James's treatment of breakdown warranties, which was provided to purchasers of second-hand vehicles. In relation to each of those items, the judge concluded, first, that the failure to disclose each of these matters amounted to a material non-disclosure in the objective sense, and, secondly, in the light of the evidence from Mr Moore, he was satisfied that there was the necessary causal connection. He also had to consider whether or not the policy was a combined policy - i.e. whether it should be treated as a number of different policies or a single policy. At least insofar as voidability was concerned, the judge concluded, for reasons which I do not think are capable of challenge, and which I do not understand are challenged, that the policy was to be treated as a single policy.
5. The grounds of appeal advanced on behalf of Mr James by Mr Simon Brown QC, who appeared on his behalf below, were set out in the written application for permission to appeal and have been expanded before us today both by reference to documents and through oral argument. I was unaware that the application had been dismissed in writing, and even now I have not seen the reasons. For my part, I think that it is satisfactory because it ensures that I am able to form an independent view.
6. The view that I have formed is that this appeal, if it were permitted to be made, would stand no reasonable chance of success and therefore, although that I have real sympathy for Mr James, I consider that to grant him permission to appeal would merely falsely raise his hopes and increase his costs liability in respect of what already must have been something of a financial disaster. In brief, my reasons are as follows.
7. If the judge had decided that the defendant was entitled to void the policy only on the first two of the four grounds that he relied, I would have been minded to grant permission to appeal. It seems to me that the carrying on of those two businesses in the premises could arguably be said not to be sufficient to justify the defendant voiding the policy on the basis that no questions were directed in the policy proposal form, which was of some length and went into some detail, on that sort of issue. Bearing in mind the state, and the possibility of development, of the law in relation to what one might reasonably call "no questions" and "limited questions", as developed in paragraph 23(12) of Clark, I would have said that there was a prospect of an appeal succeeding on those two grounds, possibly supported by the appellant's reliance on the statement to which the judge referred in paragraph 54 of his judgment.
8. Where I think that an appeal would face greater, indeed insurmountable, problems is in relation to the third and fourth ground upon which the judge found the policy could be voided and, in particular, the fourth ground. In relation to the fourth ground, Mr James, as I mentioned, provided mechanical breakdown warranties to purchasers of motor vehicles. The judge described the purpose of the warranties, namely to bring about a contract of insurance between the purchaser and the syndicate and he went on to say this:

"It was the responsibility of the dealer [Mr James] to send one copy of the documentation to MBIA [they were the insurers] for registration and also to remit the premium. The insurers say that Mr James failed to disclose the fact that in many cases he failed to inform MBIA that a warranty had been issued and failed to account for the premium."

9. The judge recorded that both experts agreed that "any dishonesty on the part of Mr James in dealing with the warranties was material and ought to have been disclosed." He then went on to consider the evidence relating to that issue and said this:

"Mr Williams [it will be recalled he was Mr James' expert witness] considered that there was incompetent financial management in the present case, as much on the part of the underwriters and MBIA as on the part of Mr James, and laid some emphasis on the fact that the purchaser could claim under the warranty even if the premium had not been remitted to the underwriter."

10. Unfortunately for Mr James, the judge said that he preferred the evidence of Mr Vale who was the expert witness called by the defendant. The judge said this:

"Once one accepts that matters not directly relevant to the operation of the insured perils may be material because they have a bearing on moral hazard, any matters which a prudent underwriter would take into consideration when assessing the risk are material. The fact that both experts accept that dishonesty in the handling of the warranties would be material seems to me only to emphasise the point. Mere incompetence in the administration of the warranties would not in my view be material. What is more disturbing about the present case, however, is that Mr James deliberately failed to process many of the warranties altogether, despite the fact that a representative from MBIA called from time to time to collect the paperwork and premiums."

11. He then expressed difficulties in accepting that this was honest and he ended this part of his judgment thus:

"In my view it was material for insurers to know that Mr James had not been accounting to MBIA for all warranties sold to customers. Mr Moore said that he would not have accepted the renewals if he had been aware of these matters and I see no reason to doubt his evidence."

12. Reading this part of the judgment and in particular the passages that I have read, it seems to me that the effect of the judge's determination was that there was clear moral hazard in this connection and that this is something which would be objectively regarded by an insurer as relevant and would, in particular, have been regarded by the defendant, as relevant to the ultimate extent, namely as leading to its not agreeing the renewal of the policy. In my judgment, unless there were real grounds for saying that the judge was not entitled to reach this conclusion -- and, not surprisingly in the light of the careful nature of the judgment as a whole and this part in particular, that is not suggested -- it seems to me that this finding represents an insuperable hurdle for Mr James. First, it cannot be said to be covered by the practice statement, even if it did apply in this case, which I rather doubt. Secondly, no serious argument in relation to "no questions" or "limited questions" to which I have briefly referred, could be raised in relation to it. Thirdly, the concept of moral hazard is well established in law, and the prospect of it being eroded to the extent necessary for Mr James to succeed in an appeal appear to me to be effectively non-existent.
13. In those circumstances, on that ground alone, it would seem to me that an appeal would be bound to fail. I do not propose to say much in relation to the third aspect of non-disclosure to which I have not referred in any detail, namely disputes with the Custom and Excise Commissioners and the Inland Revenue. I would have concluded, also on that ground, that permission to appeal should be refused. It essentially raised the same sort of issue, namely moral hazard. However, in my judgment, the fourth aspect, breakdown warranties is so clear that it is unnecessary and inappropriate to burden this judgment, which is only concerned with permission to appeal, and more detailed reasons on that aspect. I would therefore, for my part, refuse permission to appeal.
14. LORD JUSTICE MANCE: I agree with what my Lord has said and would only say this for my part, that I have of course reconsidered all the papers and the matter particularly in the light of the fuller way that it has been put before us helpfully today by Mr Brown QC. I think he has said all that could have been said in support of this appeal, and said it as cogently as it could be said.
15. With regard to the statement of standard insurance practice, that contains, amongst other things, under the heading "Proposal forms" in paragraph 1(d) this sentence:

"Those matters which insurers have found generally to be material will be the subject of clear questions in proposal forms."

16. The whole statement of course applies only to insurances in a private capacity. The present policy simply says it "may" apply; it clearly does not apply. The material before us which Mr Brown produced indicates that some insurers apply it in certain contexts other than insurance of individuals in a private capacity. It has not been suggested, however, that this applicant or his brokers thought that these insurers were such insurers, or were led to believe in any way that it did apply to this insurance except insofar as reference is made to that statement in the policy form to the effect that it "may" apply. That is not an unequivocal reference. Indeed, it is the opposite. There is no plea of any particular estoppel or waiver in this case, so none was investigated.
17. What Mr Brown submits is that the statement is of general assistance in indicating that matters about which no question was asked in the proposal form could not be material. Even if that had any force, which I do not think it does for the reasons I have already mentioned, it does not seem to me that the paragraph I have read from the statement of general insurance practice is directed to moral hazard. Paragraph 1(d) goes, as I read it, to matters about which insurers could be expected to ask questions and moral hazard is pre-eminently one in relation to which it is difficult to ask specific questions.
18. The most that could have been included would perhaps have been a statement along the lines identified in paragraph 1(c):

"(i) drawing the attention of the proposer to the consequences of the failure to disclose all material facts, explained as those facts an insurer would regard as likely to influence the acceptance and assessment of the proposal;

(ii) warning that if the proposer is in any doubt about facts considered material, he should disclose them."

Again, it is not suggested that paragraph 1(c) was in the broker's or the applicant's mind at the time this insurance was placed and there is no plea to that effect. So it cannot, it seems to me, assist this application.

As to the facts, they are, as set out in the judgment, accepted by Mr Brown, particularly those contained in paragraphs 95 to 100. His skeleton suggests an administrative muddle, but Mr Brown accepts that whether that is a correct description involves an interpretation of these paragraphs of the judgment. In my judgment, it is not a correct interpretation of these paragraphs of the judgment. The judge clearly found deliberate withholding of information and premiums, as my Lord has indicated. The judge also said this, reading the last two sentences of paragraph 99:

"Mr Vale, on the other hand [and he was the expert for the insurers] considered that the manner in which Mr James had dealt with the paperwork as well as the premiums showed that he was not accounting properly to the underwriter and this he regarded as essentially dishonest. As such he considered it to be relevant to moral hazard and therefore material.

100: On this issue I prefer the evidence of Mr Vale. Once one accepts that matters not directly relevant to the operation of the insured perils may be material because they have a bearing on moral hazard, any matters which a prudent underwriter would take into consideration when assessing the risk are material. The fact that both experts accept that dishonesty in the handling of the warranties would be material seems to me only to emphasise the point. Mere incompetence in the administration of the warranties would not in my view be material. What is more disturbing about the present case, however, is that Mr James deliberately failed to process many of the warranties altogether, despite the fact that a representative from MBIA called from time to time to collect the paperwork and premiums."

19. Like my Lord, I do not see any real prospect of the applicant overcoming this particular hurdle. Moral hazard going to financial probity is, it seems to me, obviously relevant, as the judge thought, under a combined policy, covering the peril which emerged: fire; and also, I note, covering the peril of business interruption, which involves necessarily investigation of financial matters. The moral hazard principle itself was not challenged in Mr Brown's submissions. For those supplementary reasons, I would also dismiss this renewed application.
Order: Application for permission to appeal dismissed.