England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		01/04/2008

Mr Justice Field:

Introduction

1. At all material times: (i) the first claimant, which was formerly known as Dunlop Heywood Lorenz Limited ("DHL"), carried on business as property consultants, including commercial property management, surveying and valuations; and (ii) the defendant/part 20 claimant ("HPC") carried on the business of insurance broking, particularly in the fields of general commercial insurance, commercial property insurance and residential property insurance.
2. The first and second claimants are subsidiaries of Erinaceous Group plc ("Erinaceous Group"). By an agreement in writing dated 23 December 2005, the second claimant acquired the business of the first claimant.
3. For the purpose of the applications before the court, it is common ground that in December 2004 HPC was instructed by the claimants to consolidate and renew the professional indemnity insurance for all companies in the Erinaceous group except those carrying on insurance-related business and to procure a primary layer of cover of £10 million on an each and every claim basis, together with an excess layer of cover for DHL for a further £10 million. It is also common ground that HPC engaged the Part 20 defendant ("Forbes") as sub-broker to place the cover it (HPC) had been instructed by the claimants to procure. HPC was not a Lloyd's broker, whereas Forbes was.
4. Forbes proceeded to place a primary layer of professional indemnity cover for the Erinaceous group and an excess layer of such cover, but the excess insurance contained a condition limiting cover to "liability arising from the Insured's Commercial Property Management activities only" ("the limiting condition"). The Excess Insurers are: Mitsui Sumitomo Insurance Underwriting at Lloyds Ltd ("Mitsui"); Württembergische Verischerung AG ("Wurtt"); WR Berkley Insurance (Europe) Ltd ("WR Berkley"); Markel International Insurance Company Ltd ("Markel"); Ace Europe Group Ltd ("Ace"); and D A Constable and others (Lloyd's syndicate 386 for the 2005 Underwriting Year) ("D A Constable").
5. The claimants are facing a number of claims arising out of allegedly negligent and/or fraudulent valuations undertaken by a Mr McGarry. There is a possibility that some of these claims might impact the excess layer especially if, as the primary insurers contend, certain claims fall to be aggregated. The claimants have accordingly notified the claims to the Excess Insurers but the latter have denied liability on the ground that the claims arise out of valuations, not commercial property management activities.
6. In this action the claimants sue HPC for failing to fulfil their instructions by placing excess cover that was limited to liability arising from commercial property management activities only. In its Amended Defence, HPC contends that liability arising from valuations is within the excess cover because: (i) the words "Commercial Property Management" in the limiting condition is a reference to DHL, so that the excess cover is limited to the activities of DHL, including the provision of valuations; alternatively (ii) commercial property valuation activities are included in the words "commercial property management"; alternatively (iii) the excess cover policy should be rectified so that the limiting condition is restricted to the activities of DHL.
7. In addition to defending the claimants' claim, HPC seeks an indemnity or contribution from Forbes in Part 20 proceedings in which it alleges that any liability to the claimants arises out of breaches of contract and/or negligence on the part of Forbes by failing: (i) to draft a slip or policy wording that accurately reflected the agreement of the Excess Insurers to provide cover on the same terms as the existing cover; (ii) to carry out its instructions to procure excess cover on the same terms as the existing cover; and (iii) to appreciate the appropriateness and effect of the excess cover limiting condition and to advise HPC accordingly.
8. It appears that the claimants' rights of action against the Excess Insurers under the Excess policies placed by Forbes have been assigned to the Nationwide Building Society. Be that as it may, no claim, whether in these proceedings or in any other action, has so far been made against the Excess Insurers seeking an indemnity under the Excess Insurance placed by Forbes in respect of claims arising out of valuations undertaken by Mr McGarry.

The applications before the court

9. There are two applications before the court. First, HPC applies under CPR 19.2(2) to have the Excess Insurers joined in as defendants so that they will be bound by any decision in the action as to the true construction of the excess policy and as to whether the policy should be rectified.
10. CPR 19.2(2) provides:

The court may order a person to be added as a new party if:-

(a) it is desirable to add the new party so that the court can resolve all the matters in dispute in the proceedings; or

(b) there is an issue involving the new party and an existing party which is connected to the matters in dispute in the proceedings, and it is desirable to add the new party so that the court can resolve that issue.

11. Second, Forbes applies for summary judgement in its favour on the Part 20 claim brought against it, alternatively to have that claim struck out.
12. The application under CPR 19.2 (2) is resisted by the Excess Insurers on the grounds that: (i) HPC's contentions on the construction or rectification of the excess policy are not seriously arguable and accordingly it is not "desirable" that the Excess Insurers be added as parties and/or the court should exercise its discretion against joining them into the action; and (ii) in any event, HPC have no standing to join the Excess Insurers as parties since no claim is made against the Excess Insurers by any of the parties to the action.
13. Forbes' summary judgement and/or strike out application is based on two principal contentions: (i) even if Forbes approached the market for cover that was not in accordance with HPC's instructions, it informed HPC of the cover it proposed to place, including the limiting condition, and were instructed by HPC to procure such cover; (ii) HPC approved the wording of the slip and the Excess Policy; and (iii) HPC is accordingly: (a) in breach of a sub-broking agreement made between HPC and Forbes and dated 11 February 2005 ("the SBA") and/or estopped from denying that it instructed Forbes to procure excess cover on the terms set out in the slip and the policy.

Events leading up to the execution of the slip and the policy

14. DHL was acquired by Erinaceous Group, together with other companies then owned by Hercules Group plc, in October 2004. Prior to this, Forbes had been appointed in 2004 by HPC to place professional indemnity insurance for the companies in the Erinaceous Group (other than HPC and other insurance related companies) for the year 1 April 2004 to 31 March 2005. After Erinaceous Group's acquisition of the Hercules Group, Forbes was appointed by HPC pursuant to a letter agreement dated 26 January 2005 to place the professional indemnity insurance for the enlarged Erinaceous Group (with certain exceptions) on terms, inter alia, that: (i) the cover was to be on no worse policy wording than the current Erinaceous/Hercules policy wordings unless specifically agreed by HPC in advance; (ii) return premium for the Hercules element of cover from April until July 2005 was to be secured; and (iii) Forbes' fees were to be as set out in the agreement. The decision to appoint Forbes as the placing broker was taken by Mr Nigel Davis, the Finance Director of Erinaceous Group.
15. The letter agreement had been preceded by an oral presentation by Forbes to HPC and a proposal entitled "Professional Indemnity Fee Proposal 2005 for Erinaceous Group plc" sent to Mr Brian Hart of HPC by Mr Andrew Bickell of Forbes on 18 January 2005 by a covering email. In that email, Mr Bickell wrote: "I would like to confirm that if we were successful in being appointed as Insurance and Risk Management advisors to the newly merged Group, we would seek to be instructed on the current Hercules placements in order to assess them thoroughly."
16. The Introduction to the Fee Proposal states: "This report sets out our fee proposal for the placement and servicing of the Erinaceous/Hercules Property Services Professional Indemnity (P.I.) programme for the 12 month period from 1 April 2005. It includes all operating companies other than those specifically insured separately i.e. Hanover Park and Cadogan." Later in this document there is reference to "you" and "your" which are references to the Erinaceous group. Thus under the heading "Remuneration – Our Fee Proposal" appear the words:

Our fee is designed to reflect the negotiations, placement and servicing of your P.I. programme….Our fee will be based upon us providing you with (but not limited to the following services:

E Assistance with regard to the completion of the proposal form.

E Obtaining terms be they in respect of mid-term requests or at renewal.

E Discuss in depth such terms with you, leading to your firm instructions.

E Place cover to the limit instructed, having discussed programme structure, and agreed the parameters for the "proposition" to the market.

E Preparation of cover notes and invoices.

E Preparation of Policy documents.

17. As for the oral presentation, Mr Hart says in his 2^nd witness statement that he understands from a colleague, Mr Brindley, who attended the presentation on behalf of HPC, that "Forbes clearly understood that although they were presenting to HPC, any decisions regarding placing cover would be made by the directors of the [Erinaceous] Group, and not by HPC".
18. On 11 February 2005, Forbes and HPC entered into the SBA under which Forbes agreed: (i) not to contact the client insured of HPC directly save with HPC's agreement (clause 2); (ii) to take instructions only from HPC as regards insurance business produced by HPC (clause 4.1 (b)); (iii) to advise HPC of the key features of any proposed insurance (clause 4.1(g)); (iv) to present quotations to HPC only on the terms quoted to Forbes (clause 4.1 (h)); and (v) not to confirm an order to an insurer until instructed in writing to do so by HPC.
19. HPC agreed under the SBA, inter alia: (i) to ensure that the client is made aware of the appointment of Forbes as sub-broker (clause 4.2 (b)); (ii) to review all information received from Forbes and to advise if the details of cover did not reflect the instructions given (clause 4.2 (e)); (iii) that the renewal of the business of a client of HPC shall be HPC's responsibility and that it would liaise with Forbes as HPC considered necessary to allow consideration of the renewal terms.
20. DHL's existing professional indemnity cover was a primary layer of £2 million, a first excess layer of £3 million in excess of £2 million, a second excess layer of £5 million in excess £5 million and a third excess layer of £10 million in excess of £10 million. It was the only company in the enlarged Erinaceous group to have excess cover of £10 million in excess of £10 million.
21. By letter dated 2 March 2005 HPC appointed Forbes as broker in respect of the Hercules Group Professional Indemnity insurance covers due to expire on 10 July 2005 and instructed Forbes that these covers should be extended by one month, after which 11 month policies would be required to bring the cover back in line to 1 April 2006.
22. In early April 2005, Mr Hart of HPC sent to Mr Bickell of Forbes by email a draft application form headed "The Erinaceous Group PLC -2005 Professional Indemnity renewal ….Application Form with Supplementary Notes and Appendices". Contained in this document was a reference to Dunlop Heywood Lorenz Ltd which was stated to be one of four trading entities comprised within Dunlop Heywood Lorenz and which was due to merge with ISG Occupancy Ltd with effect from 1 May 2005 to become Dunlop Haywards Ltd, after which Dunlop Heywood Lorenz and ISG Occupancy Ltd should go into run off. The draft application form also set out a break-down of the gross annual fees earned by companies in the Erinaceous group which showed, inter alia, the following figures for DHL: £4 million (Estate Agency); £3.755 million (Property/Estate/Land Management); £2 million (Rent Reviews); £195,000 (Residential Structural Survey reports and Valuations); £1,175 million (Commercial Structural Survey reports and Valuations); and £1.9 million (Bank Valuations).
23. At about the same time as he sent the draft application, Mr Hart also sent by email placing information provided by DHL's Manchester office and various completed pro form questionnaires. This information made clear that a substantial part of DHL's business consisted of valuations and that: (i) the average value of UK commercial portfolios valued by DHL's Manchester office alone was £150 million; (ii) the largest UK portfolio valued by DHL's Manchester office was valued at £523 million; (iii) 90% of the fee income of DHL's London office came from valuations; (iv) the average value of the portfolios valued by DHL's London office was £30 million; and (v) the highest UK portfolio valued by DHL's London office was valued at £180 million.
24. On 12 April 2005 Mr Hart met Mr Bickell at Forbes' offices where he handed over paper copies of the documents that had previously been sent electronically. Mr Bickell says in his witness statement that at this meeting Mr Hart told him that the Erinaceous group had a premium target of not more than £750,000 for the primary £10 million layer and £80,000 for a £10 million excess £10 million layer in respect only of the commercial property management activities of the group, and Mr Bickell's note of the meeting is to this effect. Mr Hart says in his first witness statement, however, that he is certain that he said no such thing. He also says that Mr Bickell made no note of the meeting whilst the meeting was in progress.
25. On about 15 April 2005, Mr Gadd, a colleague of Mr Bickell at Forbes, took a Quote Sheet round the market to obtain quotations for the remainder of the primary layer^[1] and for an excess layer of £10 million in excess of £10 million. On this sheet the proposer was stated to be "Erinaceous Group PLC as per 05 proposal forms" and the following appeared under the heading "Subjectivities/Comments":

. Satisfactory details of extent of Commercial Valuations for transactional purposes

. Satisfactory details of any investment advice provided

. Satisfactory NCD

. All 2005 S and Dated Proposal forms completed.

26. The first quotation to be scratched on the sheet was that provided by Mr Glanfield of WR Berkley who gave a very rough indication (VRI) of premium at £73,500 subject to approval of Mitsui as lead underwriter. It is clear from the reverse side of the quotation sheet initialled by Mr Glanfield that he based his quotation on the fee income of DHL alone extracted from the proposal form and he accepts that the basis of this quotation was that the excess cover was to apply to DHL only.
27. On 18 April 2005 Mr Ripley of Mitsui provided a quotation, inter alia, in these terms: "£10m xs £10m from Dunlop Heywood Lorenz as per existing cover £73,500", with an alternative quotation for £20 million excess of £10 million.
28. With the possible exception of Mr Clemence of D. A. Constable, all the other underwriters who provided initial quotations – Mr Driscoll of Ace, Mr Denton of Wurtt, and Mr Palmer of Markel - also did so on the basis that the cover was to apply to DHL only. As for Mr Clemence, his recollection is that the cover was to apply only to commercial property management activities but this is out of accord with the basis of all the other quotations and it is highly likely that he would have quoted after Mr Glanfield who set out the breakdown of DHL's fee income on the reverse of the quote sheet and after Mr Ripley had noted that Mitsui's quote was "from Dunlop Heywood Lorenz as per existing cover."
29. After the initial quotations had been obtained, Mr Gadd added a manuscript notation to the quotation sheet in the following terms very close to Mr Ripley's quote for Mitsui: "Now called Comm Property Management D H Lorenz Now part of Erinaceous". No witness statement from Mr Gadd is before the court and there is no explanation from anyone at Forbes for this notation. The court is accordingly left to assume that Mr Gadd had understood that DHL had changed its name to Commercial Property Management. In fact, DHL had not changed its name at all, although the plan was, as we have seen, that DHL would merge with ISG Occupancy Ltd, with the new company being named Dunlop Haywards Ltd and DHL and ISG Occupancy Ltd going into run off.
30. On 20 April 2005 Forbes sent HPC a document entitled "Professional Indemnity Renewal Review and Report for Erinaceous Group plc" ("the RRR").
31. Under the heading "Introduction" the RRR stated:

We are pleased to provide a renewal report for The Erinaceous Group plc, which we trust meets with, as a minimum, all of your renewal requests and alternatives.

We remain committed to The Erinaceous Group plc and trust you would consider us a supportive member of your professional team…..

Broking is an art and very often under-rated. Language, timing, relationships, underwriter selection and many other factors make the difference between success and failure. Professional Indemnity Insurance (PII) is not a commodity, there is no "published price" and therefore your broker is key to achieving the best terms….

For us it is about getting the right result for you and not just making an effort.

32. Under the heading "Alexander Forbes Professions - Our Expertise" the RRR stated: "Erinaceous Group plc, in its appointment of AFP, enjoys the benefit of dealing with the largest PII broker in the UK" and went on to give details of different fields of activity in which Forbes had been appointed as broker and details of a number of awards won by Forbes. Included in this section were these words: "AFP has unrivalled expertise within the Construction and Property Profession as a whole, including a significant share of the UK Chartered Surveyors PI Market."
33. Pages 8-12 of the RRR contained details "[of] the renewal terms we have negotiated on behalf of the Erinaceous Group plc. The quotations are in respect of the whole Group including all acquisitions since last renewal…."
34. In respect of the primary layer, the Insured was defined as "Erinaceous Group plc including all subsidiary, associated or predecessor companies unless specifically excluded". In respect of the excess layer, there was no further definition of the "Insured", and three options were set out with different indemnity limits together with the terms and conditions applicable to all three options, including:

"Conditions/Endorsements: To follow the primary policy as far as applicable plus:

1) Indemnity provided by this policy will be restricted to the Insured's Commercial Property Management activities."

35. Mr Hart was on leave when the RRR was received: he had recently married and was about to go on his honeymoon. He nonetheless came into the office during the afternoon of 22 April 2005 to review the RRR before sending it on to Mr Nigel Davis of Erinaceous Group. He says in his first witness statement that when reviewing the document he focussed on the limits and premium figures because these were the matters of most concern to Mr Davis; he did not check to see if Forbes was proposing to renew the existing cover in the light of the placing information and instructions it had been given, for it never occurred to him that Forbes would be proposing to do anything different: he did not therefore notice the proposed limiting condition.
36. Mr Hart passed the RRR to DHL that same day, following which Mr Davis by e-mail to Mr Wensley of HPC confirmed that cover should be placed on the basis outlined with an excess layer of £10 million excess £10 million. Thereafter, on 26 April 2005, Mr Wensley passed on Mr Davis's instructions to Mr Bickell over the telephone instructing him to proceed as quoted, which instructions were confirmed by e-mail. Thereupon Forbes went back into the market with a quotation sheet (whose formal parts were in the same terms as in the sheet used to procure the initial quotations) and obtained from the underwriters who had given the previous quotations an FON ("firm order noted") endorsement with effect from 1 May 2005, the policy inception date. None of the underwriters made a note or endorsement to indicate a change from the previous basis of quotation.
37. The evidence of the meaning and effect of FON comes from Mr Cayton, HPC's solicitor, who in his second witness statement dated 15 February 2008 relates what he has been told on this subject by his firm's Claims Manager, a Mr Haylett, who was a Lloyd's broker specialising in professional indemnity insurance for over 25 years. This evidence can be summarised as follows:

(1) A firm quotation such as that given by the underwriters when they gave their initial quotations is treated as an offer which can be accepted by the client.

(2) If the offer is accepted, the broker informs the underwriter and a contract comes into existence at that point.

(3) In the Lloyd's and London market the underwriter is presented with the quotation and asked to confirm that he has been informed of the acceptance of the offer, which he invariably does by writing down "FON".

(4) If the underwriter intends to change the basis of the quotation when putting down an "FON", it is inconceivable that neither he nor the broker would make any note or record of the changed terms on the quotation sheet. This is all the more so where, for whatever reason, the "FON" underwriter is not the same as the underwriter providing the original quote since the "FON" underwriter would need to note the new terms for the original underwriter's information, if nothing else.

(5) If there is no such change noted or endorsed, the "FON" indicates that a binding contract exists on the terms of the previous quotation.

(6) If the original quotation has subjectivities as this one did the "FON" contract will also carry the same subjectivities. However, it is still a binding contract, albeit that it does not become unconditionally binding until the subjectivities are satisfied.

38. The outstanding information required in respect of the subjectivities was provided to Forbes by HPC on or about 27 May 2005. This information included a signed consolidated proposal form in materially identical terms to the draft form previously provided and further details relating to the property valuation work undertaken by companies in the Erinaceous group.
39. The slip for the excess cover was drawn up by Forbes and was scratched by the Excess Insurers at the end of June/early July 2005. It named "Erinaceous Group PLC And as per primary policy" as the Insured and contained the limiting condition that had been set out in the RRR: "It is understood and agreed that indemnity provided by this policy is limited to liability arising from the Insured's Commercial Property Management activities only."
40. In all but two cases, the underwriter scratching the slip was not the original underwriter who had provided the initial quotation and/or the FON.
41. Cover notes and in due course policy documentation were later sent by Forbes to HPC, the Lloyd's policy having been issued on about 13 June 2005 and the companies' policy on about 21 June 2005. The letter from Forbes to HPC dated 7 June 2005 enclosing the cover notes and invoices referred to the enclosed information as "[t]he Invoice and formal Cover Note in respect of the £10,000,000 excess of £10,000,000 layer, which covers the commercial property management activities of the group only." Further, the cover note for the Excess Insurance contained these introductory words:

Please examine this document carefully and advise us immediately if any of the terms and conditions do not accurately meet your requirements or are incorrect, or if any of the underwriters, as detailed herein, are unacceptable.

42. Mr Wensley of HPC checked the cover notes against the RRR and the slips against the cover notes. The documents were all consistent with each other, Mr Wensley did not raise any query; and at a meeting on 22 June 2005, Mr Hart indicated to Mr Bickell that HPC had been through the cover notes and was satisfied with them.
43. None of the underwriters who provided the initial quotations, put down FON, or scratched the slip can recall being told that DHL had changed its name to Commercial Property Management or understood for any other reason that this was the case.

HPC's joinder application under CPR 19.2 (2)

44. In my opinion, the court has jurisdiction to make the order sought by HPC under CPR 19.2(2) notwithstanding that neither HPC nor any other party to the proceedings is in a position to assert a claim against the Excess Insurers. As Mr Fenton submitted, if it were a requirement that an existing party must be able to bring a claim against the party sought to be joined there would be little if any need for Rule 19.2 (2), since the party seeking joinder could always issue a Part 20 claim.
45. The question therefore is whether I should exercise the discretion conferred on me by Rule 19.2 (2) in favour of joining in the Excess Insurers having regard to the purpose and objective of the rule and I turn to consider the submission advanced by Ms Healy on behalf of the Excess Insurers that HPC's rectification and construction contentions are so weak that HPC's joinder application should be refused.
46. The conditions that have to be satisfied if rectification is to be granted are: (i) there must be a common intention in regard to the particular provisions of the written agreement in question, together with some outward expression of accord; (ii) this common intention must continue up to the time of the execution of the instrument; (iii) there must be clear evidence that the instrument as executed does not accurately represent the true agreement of the parties at the time of its execution; and (iv) it must be shown that the instrument, if rectified as claimed, would accurately represent the true agreement of the parties at that time; see The "Nai Genova" [1984] 1 Lloyd's Rep 353 at 359.
47. The instruments sought to be rectified by HPC in its Amended Defence are the Companies' and Lloyd's policies. Ms Healy argued that this meant that in order to obtain rectification of those instruments, HPC will have to show that the insured, acting through HPC and Forbes, and the Excess Insurers, acting through their individual underwriters, had a common intention at the time the policies were issued that the excess cover to be provided was to be in respect of all the activities of DHL. Mr Fenton QC for HPC submitted that issuance of the policies was a purely administrative act and that the relevant time at which the common intention must be shown to have existed is the execution of the slip.
48. Whatever be the relevant time at which the required common intention must have existed – the execution of the slip or the issuance of the policies – Mr Fenton is faced with the formidable difficulty that: (1) it is trite law that in the London market the slip is the contract between the insured and the insurer (see e.g. The "Zephyr" [1984] 1 Lloyd's Rep 58 at 69); and (ii) the slip (which was drafted by Forbes) describes the insured as "Erinaceous Group PLC And as per primary policy" and contains the condition: "It is understood and agreed that indemnity provided by this policy is limited to liability arising from the Insured's Commercial Property Management activities only."
49. In response to this difficulty, Mr Fenton submitted that: (i) on the basis of Mr Cayton's second witness statement, a binding contract for excess professional indemnity cover in respect of DHL's activities came into existence with effect from 1 May 2005 when the underwriters put FONs down, because the only proposal at this time for excess professional indemnity cover was in relation to DHL's activities; and (ii) there was no subsequent intention to create a legally binding variation of the terms of that contract ("the FON contract") by the issue of the slip.
50. I am unable to accept this submission. In my judgement, given the radical difference between the terms of the FON contract and the terms contained in the slip, it is plain that the execution of the slip was not intended merely to record the terms of the FON contract but instead it constituted a fresh contract resulting from the acceptance by the Excess Insurers of the terms set out in the slip. Thus, even accepting that once they had put FONs down on the quotation sheet the Excess Insurers were bound from 1 May 2005 to indemnify DHL in respect of liability arising out of any of DHL's activities, once the slip had been executed a new replacement contract came into being whose terms were those contained in that document. The parties' contractual intention is therefore to be ascertained from the terms of the slip and not from the state of play at the time FONs were put down by the Excess Insurers.
51. A somewhat similar situation arose in Pindos Shipping Corporation v Frederick Charles Raven [1983] 2 Lloyd's Rep 449. There, a claim was made under a policy of marine insurance in respect of the yacht Mata Hari which sank at her moorings during a storm and became a constructive total loss. The slip and the policy contained the condition "Warranted Class Maintained" and the underwriters declined to pay because the yacht was not in class at the time of the loss and never had been. The owners thereupon sought rectification of the policy by the excision of the class condition. They relied on the fact that when the quotation for cover on the yacht was sought, no mention had been made of a term relating to class and nor was there any such term in a subsequent "held covered" agreement. It was only when the slip was drafted by the placing brokers that the class condition crept in, probably because the draftsman inadequately adapted a slip that had been used for another yacht.
52. Bingham J held that the owners were not entitled to have the policy rectified. In his view the slip and the resulting policy did not purport merely to record in writing an oral agreement previously reached or a common intention previously expressed but instead expressed the terms of a contract which was in certain respects entirely new. It was not and was not intended to be a mere continuation of the "held covered" agreement. The contract was on the terms offered by the broker as corrected and supplemented by the underwriter and there was no discrepancy between the language of the instrument and the bargain or understanding between the parties.
53. In The "Mata Hari" a "held covered" agreement making no reference to a class condition preceded the slip. In the instant case, I am prepared to assume that a contract of insurance in respect of all of DHL's activities resulted from FONs being put down by the underwriters. But just as Bingham J held on the facts before him that the slip expressed the terms of a new contract and was not intended to be a mere continuation of any preceding agreement or common intention, so I make the same finding on the facts before me, this finding being one that can be made on the evidence before me without the need of a trial.
54. If the Excess Insurers are joined into these proceedings, the strong likelihood is that they will participate in this part of the case and thereby incur expense and inconvenience, notwithstanding the weakness of the rectification claim against them. In my judgement, so weak is the claim they ought not to be put in that position and I accordingly decline to order that the Excess Insurers be joined in as defendants in respect of the rectification claim.
55. Should the Excess Insurers be made parties in respect of HPC's construction claims? These claims are: (i) the words "Commercial Property Management" in the limiting condition mean DHL, the parties having proceeded on the mistaken basis that DHL had changed its name to Commercial Property Management; and, in the alternative (ii) the words "Commercial Property Management activities" include valuations.
56. With very considerable hesitation, I am prepared to assume that each of these claims has a real prospect of success, but, even so, I do not think it desirable or appropriate that the Excess Insurers should be made parties in respect of them when it is uncertain that the holder of the right to make these claims will indeed make them and when, if it does, the claims can be tried speedily and relatively cheaply in separate proceedings.
57. Accordingly, for the reasons I have given, HPC's application under CPR 19.2 (2) is refused.

Forbes' summary judgement/strike-out application against HPC

58. The question to be decided on this application is whether HPC's claims for indemnity and contribution founded on alleged breaches of contract by Forbes or breaches of a common law duty of care owed to the claimants have a real prospect of success.

HPC's claims against Forbes for breach of contract

59. In substance the principal breaches of contract pleaded by HPC against Forbes are: (i) failure to comply with HPC's original instruction to renew DHL's professional indemnity cover on no worse terms than the existing cover; (ii) failure to ascertain the insurance requirements of the Erinaceous group and to obtain cover appropriate to those requirements; (iii) failure to consider the appropriateness and effect of any limitation or exclusion on or in the cover; (iv) failure to draw to the attention of HPC and/or the Erinaceous group any limitation or restriction included in the cover and to explain and/or query its likely effect in the light of the Insured's activities and insurance requirements.
60. Mr Craig for Forbes contended that his client has a complete answer to these alleged breaches. He submitted that the combined effect of clauses 4.2(e) and 4.2(g) of the SBA was that HPC alone assumed responsibility for correcting any errors made by Forbes that were discernible from the RRR, the cover notes and the policy documentation sent to HPC for its perusal. Accordingly, since the RRR clearly set out how the Insured was defined and the limiting condition, if Forbes were in error in proceeding on these bases, Forbes were not thereby in breach of contract. Mr Craig also submitted that the instruction from Mr Wensley to Forbes to place an excess layer of £10 million in excess of £10 million on the basis of the premium set out in the RRR overrode any previous instructions. And in relation to HPC's case that Forbes was in breach of contract in failing to advise HPC as to the insurance requirements of the Erinaceous group, the quotations received and the terms of the slip, Mr Craig contended that clauses 4.2(e) and 4.2(g) of the SBA and the recitals to that agreement make it plain that it was HPC alone which had an advisory role vis a vis the Erinaceous group in relation to its insurance requirements. As to Forbes's obligations under clause 4.2(g), these were limited to advising HPC of: (a) the key features of any proposed insurance cover including any unusual restrictions exclusions warranties conditions or obligations; and (ii) the fact that any cover required could not be obtained. In particular (submitted Mr Craig), Forbes had no responsibility to interpret or construe what had been quoted to it by underwriters, its obligation being merely to pass on quotations to HPC only on the terms quoted to it, which it did.
61. In my judgement, HPC has a good arguable case that: (i) in light of the letter agreement, the SBA is not the sole source of the duties Forbes owed to HPC in the placing of the excess cover; (ii) Forbes was subject to the contractual obligations alleged to have been breached, those obligations arising under either express or implied terms of the SBA and/or the letter agreement; (iii) the obligations to which Forbes was subject were free-standing and independent from the obligations to which HPC itself was subject under the SBA; (iv) accordingly, breach by HPC of the obligations laid on it by the SBA does not exempt Forbes from liability for breach of the obligations to which it was subject; and (v) Forbes was in breach of contract as alleged by HPC.
62. I agree with Mr Fenton's submission that the primary breach alleged by HPC is the failure to comply with the instruction first given to Forbes to renew the professional indemnity cover on no worse terms than the existing cover except with the consent of HPC. Mr Craig accepted that I must decide his application on the basis that this breach by Forbes is made out. He could hardly have done otherwise, given the evidence that points to Forbes having been instructed in these terms, namely: (a) the wording of the letter agreement; (b) the placing information sent by Mr Hart to Forbes which showed that a substantial amount of DHL's business consisted of valuations; (c) the fact that valuations were covered under the primary layer and there is no reason why an insured exposed to significant valuation claims would want to exclude cover for valuations under an excess layer; (d) the fact that valuations were realistically the only element of the risk likely to generate claims at the excess level of £10 million in excess of £10 million; (e) Mr Hart's evidence that he did not tell Mr Bickell at the meeting on 12 April 2005 to restrict the excess cover to the commercial property management activities of the entire group; (f) the fact that the initial proposal for excess cover was understood by all the quoting underwriters, save possibly for Mr Clemence, to relate to the activities of DHL.
63. It follows in my opinion that HPC has a good arguable case that Forbes acted in breach of HPC's instructions and that that breach, together with Forbes' arguably culpable failure to alert HPC to the discordance between HPC's instructions and the limiting condition and the definition of Insured in the RRR, the slip, the cover notes and the policy documentation, is the primary cause of HPC's breaches of the policing obligations contained in clause 4.2, Mr Hart, Mr Davis and Mr Wensley having assumed that Forbes was executing HPC's instruction to procure excess cover on no worse terms than the existing cover. Thus, contrary to Mr Craig's submission that HPC has no real prospect of establishing the breaches of contract alleged against Forbes, in my judgement HPC has a real prospect of success in establishing those breaches and in persuading the court that if for its part it was in breach of the SBA policing terms, the court should apportion the loss having regard to the relative primacy of the obligations broken and the causative potency of the breaches committed by each side.

HPC's claim against Forbes for breach of a common law duty of care owed to the claimants

64. The question here is whether HPC has a realistic prospect of establishing that the claimants reasonably relied on a representation made to them by Forbes that Forbes assumed responsibility for exercising reasonable care in the placing of excess professional indemnity cover for DHL; see Henderson v Merrett Syndicates Ltd [1995] A.C. 145 and Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830 at 834E-H and 835F-H.
65. Mr Craig submitted that: (i) no representation of assumption of responsibility was made by Forbes to the claimants: all the communications were between Forbes and HPC; (ii) even if such a representation were made to the claimants, there was nothing to suggest that they relied on it; and (iii) the terms of the SBA, particularly clauses 2, 4.1(b) and 4.2(g), ruled out any assumption of responsibility by Forbes.
66. I cannot accept these submissions. In my judgement, the evidence clearly suggests that Forbes knew that the decision to appoint them as placing brokers and to instruct them to place insurance on particular terms would be taken at Erinaceous Group level and not at the level of HPC and they addressed their representations accordingly. I therefore find that there is a good arguable case that the statements made by Forbes: (i) at the oral presentation on 18 January 2005; (ii) in the Fee Proposal sent on 18 January 2005; and (iii) in the RRR, were addressed to Erinaceous Group and all its operating subsidiaries who were included in the Professional Indemnity Insurance Programme for 2005-2006. Further, there is clear direct evidence from Mr Hart that the RRR was forwarded to Erinaceous Group by HPC and there are grounds for inferring that the substance of the statements made at the oral presentation and in the Fee Proposal were also passed on to Erinaceous Group by Mr Hart and/or Mr Brindley, as Forbes intended they should be, and were relied on at Group level. The grounds for this inference are Mr Hart's evidence that: (i) the decision to appoint Forbes was taken by Mr Davis, the Finance Director of Erinaceous Group with in-put from Mr Hart and Mr Brindley; and (ii) the decision to appoint Forbes was taken because Mr Davis and others at the Group level regarded and relied on Forbes as having outstanding expertise in Professional Indemnity (PI) placements particularly for construction and property professionals, as Forbes' literature stated and because of Forbes' commitment to the Group and its interests.
67. I am further of the view that it is well arguable that those parts of the Fee Proposal and the RRR referred to in paragraphs 16 and 31-34 above constitute an assumption of responsibility to the effect that Forbes would be liable to any insureds within the Erinaceous group for whom it placed Professional Indemnity Insurance if it failed to act with reasonable care and skill.
68. The terms of the SBA are not inconsistent with the conclusion expressed in the preceding paragraph. Clause 2 in my opinion is designed to prevent Forbes from competing with HPC as producing broker and is not directed at preventing a relationship in tort between HPC's client and Forbes. Clause 4.2 (b) cannot rewrite history: the evidence points to Forbes having deliberately pitched their oral presentation, the Fee Proposal and the RRR to Erinaceous Group and its operating companies which were within the Professional Indemnity Insurance programme for 2005-2006. Clause 4.2 (g) – the renewal clause – in my view is very arguably designed to do no more than to make it plain that responsibility for the timing and the fact of renewal of cover placed by Forbes is on HPC. Accordingly it does not negative a duty owed by Forbes to an operating company within the Erinaceous group to exercise reasonable care in the placing of renewed cover for that company in accordance with HPC's instructions. Finally, it is also very arguable that the other policing terms contained in clause 4.2 are no more than specific aspects of the general obligation on a beneficiary of a duty of care to act prudently in his own interests. Thus whilst the claimants may have been contributorily negligent through the acts and omissions of HPC, the policing duties imposed by clause 4.2 do not negative an over-arching duty of care owed by Forbes to the claimants.

Estoppel

69. Mr Craig contended that HPC is estopped from denying that its instructions to Forbes were that it should obtain excess cover of £10 million in excess of £10 million for the commercial property management services of DHL. However, there is a strong argument to the contrary for, if, as I have found, HPC has a good arguable case that Forbes was under a primary contractual and tortious duty^[2] to comply with and exercise reasonable care in the execution of HPC's original instruction and to advise on the discordance between that instruction and the proposed limiting condition and definition of "Insured", Forbes would in my opinion have to show not merely that HPC gave the subsequent instruction to place cover in accordance with the proposal in the RRR but also that it represented on its own behalf and on behalf of DHL that the rights it and DHL had by reason of Forbes' breach of the primary duty would not be enforced,^[3]and on the evidence it is doubtful to say the least that such a representation was made.

Conclusion

70. It follows that for the reasons I have given Forbes' summary judgement and strike out application is dismissed.

Note 1   Mr Gadd had previously obtained a quote for part of the primary layer from an underwriter at Abacus Syndicates.    [Back]

Note 2   The tortious duty being owed to DHL    [Back]

Note 3   See Youell and Others v Bland Welch & Co Ltd and Others [1990] 2 Lloyd’s Rep 431 and National Insurance and Guarantee Corporation v Imperio Reinsurance Co (UK) Ltd [1999] 1 Lloyd’s Rep IR 249    [Back]