England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		17th June 2004

Mr Justice Stanley Burnton :

Introduction

1. The Claimant, Graham Spriggs, is one of 14 Claimants who have brought proceedings claiming damages for sexual and physical abuse that they allege that they suffered between 1965 and 1983 while they were placed by their local authorities at Wessington Court School ("the School") at the hands of staff and the Second Defendant, who was the principal of the School. A Group Litigation Order has been made. Mr Spriggs' is the lead claim.
2. Wessington Court School was an independent school owned by the First Defendant, to which I shall refer as "the Company". The Second Defendant was a director and the majority shareholder, as well as the principal, for most of the relevant period. The Company went into creditors' voluntary liquidation in February 1984 and was dissolved in 1986. On 22 April 2002 an order was made declaring its dissolution to have been void, and it was restored to the register, for the purpose of these proceedings, in February 2003. The claims against the Company are for its vicarious liability for the assaults committed by its staff and its Principal, for its vicarious liability for the failures of staff to protect pupils from the assaults and ill-treatment by other staff, and for the Company's own negligence. The only possible source of moneys for the satisfaction of any award of damages the Claimants might obtain against the Company is its claims to indemnity under its public liability insurance policies for the years in question, to which the Claimants would be entitled by way of, in effect, statutory subrogation under the provisions of the Third Parties (Rights against Insurers) Act 1930. Phoenix Assurance Company ("Phoenix") was the Company's insurer for some of the years in question. No other insurer has been identified. The Ninth Defendant ("RSA") has succeeded to the liabilities of Phoenix. In these circumstances, it is vital for the Claimants to know whether, if their claims to damages are well-founded, they will be met wholly or substantially by RSA, since otherwise there is no practical purpose in incurring the costs of further proceedings against the Company.
3. In these circumstances, on 26 February 2004, Hughes J ordered that the issue whether RSA is obliged to indemnify the Company, and if so over what period, be determined as a preliminary issue by me. On 10 May 2004 I heard argument on the two central insurance issues, namely the period during which Phoenix was the Company's public liability insurer and, most importantly, whether RSA was entitled to avoid the policies on the ground of non-disclosure by its insured. This is my judgment on those issues.
4. I commend the legal representatives of both the Claimant and RSA for the steps they have taken to avoid costs being incurred to no good purpose, to narrow the issues to those having practical consequences, and to minimise the costs of these proceedings.

Non-disclosure

5. The relevant facts for present purposes are set out in the Agreed Facts and Issues, and have been supplemented by documents in the trial bundle. The Second Defendant, Dennis Eagles, was the headmaster of the School from 1966 to 1983. He was the majority shareholder of the Company: he was allotted 54 of the originally allotted 86 ordinary shares. He subsequently acquired additional shares, so that in 1974 he held 70 of the issued 100 ordinary shares. He was a director of the Company. In 1972, following the resignation of another director, he was the sole director, and he was also the sole director on 5 April 1976: presumably, he was the sole director between those dates. On 5 April 1978 there were 2 directors, Mr Eagles and a Mr Whiting, who held 10 shares. Mr Eagles was in charge of the school and ran it. He dealt with insurance on behalf of the Company. He, and another member of the staff, have been convicted of offences committed against pupils at the School. Mr Eagles was convicted of 19 counts of indecent assault and buggery. In the case of Mr Spriggs, Patrick Duggan, a member of the school staff, was convicted on 20 August 1998 of indecent assault and buggery on him.
6. It is evident that Mr Eagles did not disclose to the School's insurers his abuse and ill-treatment of pupils and those committed by other members of staff of which he was aware. The relevance of the abuse and ill-treatment to the risk of claims on the public liability policies, as well as the moral hazard, is obvious. Mr Maxwell QC, for the Claimant, sensibly and realistically conceded for specified purposes, including the trial of the preliminary issue, that RSA were at all material times in and from May 1972 entitled to avoid the policies of insurance effected with Phoenix. The Claimant contends, however, that RSA affirmed the policies with knowledge of the non-disclosure before it served its Defence, in which it purported to avoid the policies, on 29 January 2003.

The period of insurance by Phoenix

7. The existence of insurance cover would normally be proved by the insurance documents: normally the policy, but at least correspondence and proof of payment of premiums. Unfortunately, the years in question in these proceedings go so far back that no such documentation is available, and indeed for the period in dispute the evidence is sparse in the extreme – a matter that, on certain assumptions, might be relevant to questions of limitations.
8. RSA accepts that Phoenix issued public liability and motor contingency policies to the Company for the years from 17 May 1973 to 1983. It denies that Phoenix was the Company's insurer for any period preceding 17 May 1973.
9. It is common ground that the Company placed its insurance through brokers, Holmwood & Back & Manson Ltd ("Holmwoods"), who specialised in schools' insurance. The policy number was 9E21/12 9470. Holmwoods have been taken over by HSBC Insurance Brokers Ltd ("HSBC"). They have disclosed debit notes and correspondence relating to the insurance years on and after 1981. No documents have been disclosed in relation to earlier years, but HSBC has given details of ledger entries relating to debit notes issued in relation to the same policy number in the years 1973 to 1979: hence RSA's admission in relation to those years.
10. RSA itself has no relevant documents, and it appears that there are no relevant entries in the surviving Holmwoods ledgers for years before 1973 or that no such ledgers have survived. Thus the lack of any ledger entry for years before 1973 does not indicate that there was no insurance effected by Holmwoods on behalf of the school with olHHoldhhhhhhHhollmwood HHOlmPhoenix during those years: it is neutral.
11. Phoenix was not the only public liability insurer of independent schools in the market. HSBC's letter of 9 May 2002 states that it and its successors "remain the primary underwriter of Public Liability Insurance risks for Independent Schools for which HSBC Insurance Brokers Ltd, Schools Division, act as Insurance Brokers", but I do not read that as stating that it was so before 1973, and in any event the basis for this statement is not given.
12. The only evidence that Phoenix were the Company's insurers before 1973 is to be found in the affidavit of Mr Eagles sworn on 31 January 2002 and his letter to the Claimant's solicitors of 15 August 2002. The affidavit was put in by RSA under the Civil Evidence Act 1995, principally to establish that Mr Eagles was the person within the School who was responsible for insurance. However, in paragraph 3 he states this:

"I can confirm that there was public liability insurance and building insurance for the school throughout the history that I was headmaster of Wessington School and director of Wessington Court School Limited. I was responsible for obtaining the insurance. I initially took over the insurance for public liability and building insurance when I arrived. I continued with the insurance with the same people that had insured the school previous to me taking over. Practically it was all about just sending a cheque for the premium each year. No brokers were ever involved. I can recall that it was an insurance company who dealt with mainly private schools who had dealt with some of the larger private schools. I am sure that they were in a very specialist market, however, I have racked my brain and cannot recall the name of the insurance company."

13. In paragraphs 9 and 15 he said:

"9. When I had taken over the lease the owners of the property i.e. Miss Adams and Miss Simpson informed me that I should continue to use the insurance that they were using and as it was their recommendation I continued. I cannot recall whether it was a condition of the lease that I use their particular insurance for public liability, however, there was a condition to insure the building. As the building and public liability insurance were all together I continued to use the same insurance company as they had been recommended to me and it seemed reasonable to carry this on.

15. I do recall that an insurance agent/representative called in at the school at the request of Miss Adams/Miss Simpson so that the agent could view the school and ensure that there was sufficient cover for the building insurance and I can remember the insurance agent/representative of the insurance company saying that his insurance company covered some of the big public schools. This came out as a comment at the time as the accommodation was far better than some of the public schools that he had gone to, it was for this reason that he gave me the feeling that his insurance company were a specialised outfit. I cannot recall the date when he came but it was several years after I took over the premises."

14. In his letter of 15 August 2002, Mr Eagles stated:

"I do not recall any change of insurers or insurance brokers. So far as I can tell we had the same company all throughout the school's life.

The name Phoenix has no special meaning."

15. The difficulty with this evidence is that Mr Eagles is clearly wrong on some point. He did use brokers, namely Holmwoods. The policies issued by Phoenix did not include property cover: that must have been the subject of a separate policy, presumably issued by another insurer. Given Mr Eagles' confusion of insurers and brokers, his statement that he does not recall any change of insurers, and his statement that he "continued with the insurance with the same people that had insured the school previous to me taking over" are more likely to refer to the school's insurance broker that the insurance company concerned.
16. In this highly unsatisfactory state of the evidence, I have concluded that the Claimant has not established that Phoenix were the company insurers before 1973. The evidence that they were such insurers is insufficient.

Affirmation: law

17. Mr Maxwell and Mr Stuart-Smith accepted that the applicable principles are summarised in MacGillivray on Insurance Law, 10^th edition, at paragraph 17-90:

"An insurer is said to waive the right to avoid a contract of insurance when, with knowledge of the facts entitling him to avoid it, he elects to continue it and so affirms it. The principles governing affirmation were recently reviewed by Mance J. in Insurance Corporation of the Channel Islands v. Royal Hotel Ltd. They may be summarised as follows:

1. The insurer must have actual knowledge of the facts not disclosed prior to contract. Constructive knowledge is insufficient.

2. He must also know that non-disclosure creates a right to avoid.

3. He has a reasonable time in which to decide what to do.

4. There must be an unequivocal communication to the assured by words or conduct that the insurer has made an informed choice to affirm the contract.

5. Whether such a communication is found depends upon how a reasonable person in the position of the assured would interpret the insurer's words or conduct. In particular, mere delay or inactivity does not demonstrate an intention to waive the assured's breach of duty but it will affect the insurer's position it the assured is prejudiced by it or is led to believe that the delay is explicable only on the basis that the insurer is affirming the policy.

6. Failure to return the premium is not per se a waiver of the right to avoid for non-disclosure. But refusal to pay a claim while not declaring avoidance and making a return of premium is evidence of an intent to affirm the contract. Payment of interim loss with knowledge of an undisclosed previous conviction has constituted waiver. Acceptance of a premium after receiving knowledge of a non-disclosure is good evidence of waiver, and giving instructions to the assured concerning the subject-matter of the insurance would usually be so too. In short, any kind of conduct by the insurer that leads the assured reasonably to believe that the insurers intend to continue to insure him can ground waiver. When the assured acts in reliance on that belief and refrains from seeking cover elsewhere, the doctrine of promissory estoppel may well additionally debar the insurer from avoiding the insurance."

18. In the ICCI case referred to in MacGillivray, Mance J stated, at 161:

"In summary, the type of affirmation here in issue involves an informed choice (to treat the contractors as continuing) made with knowledge of the facts giving rise to the rights to avoid it. Provided that the party knows sufficient of the facts to know that he has that right, it is unnecessary that he should know all aspects or incidents of those facts. Although this point was left open in T v Kanchenjunga [1990] 1 Lloyd's Rep 391, there is Court of Appeal authority in Peyman v Lanjani [1985] 1 Ch 457 that the party must generally also know that he has that right. The making of his choice must be communicated unequivocally to the other party before there can be a binding affirmation."

19. At page 162, Mance J said:

"Where the circumstances justify an avoidance and the choice to avoid, the requirement of an unequivocal communication creates no problem. The claim to avoid demonstrates of itself at one and the same time awareness of the choice and its making. Where it is said that there has been an election to affirm rather than to avoid, the position is more problematic. Is it sufficient that for affirmation that there is knowledge and a communication (by words or conduct) which, assuming such knowledge, demonstrates an unequivocal choice/ or must the communication itself or the surrounding circumstances demonstrate such knowledge to the other party? In principle, it seems to me that the latter approach is correct in the context of affirmation. The communication itself or the circumstances must demonstrate objectively or unequivocally that the party affirming is making an informed choice. In the context of estoppel, where knowledge is not a prerequisite (though reliance is), it is in contrast the appearance of choice with which the law is concerned. Authority on these points is not easy to find, and dicta of Herring CJ in Coastal Estates Pty Ltd v Melevende [1965] VR 433 quoted with approval by Stephenson LJ in Peyman v Lanjani at p 489D-E may be said to point towards the former approach. Slade LJ's judgment in Peyman v Lanjani at pp 502-3 does however offer clear support for the latter approach. Whether the was an unequivocal communication of choice depended, in his view, on whether the party had reason to believe that the party allegedly affirming was aware of the facts and of his rights to object or affirm. In my previous judgment at pp 132-3, I also held that whether there had been an unequivocal representation had to be considered in the context of Royal Hotel's knowledge about what insurers knew or did not know.

Whether conduct amounts to an unequivocal communication of choice to affirm requires therefore, an objective assessment of the impact of the relevant conduct on a reasonable person in the position of the other party to the contract. A reasonable person in that position must, it seems to me, be treated as having a general understanding of the possibility of choice between affirmation and objection. In affirmation (as distinct from estoppel), the actual state of mind of the other party is not the test. Affirmation depends on the objective manifestation of choice. I do not read Lord Blackburn's reference to communication to the other side in such a way as to lead the other party to believe that he had make a choice as intended to suggest the contrary."

20. On the basis of the judgment of Mance J in ICCI, Mr Stuart-Smith submitted that it is necessary for the communication relied upon at the affirmation itself, or the circumstances in which it was made, to demonstrate objectively or unequivocally that the insurer is making an informed choice. Mr Maxwell, in his reply, did not dissent from this position. Mr Stuart-Smith also referred to the judgment of David Steel J in Callaghan and Hedges v Thompson and others [2000] Lloyd's Rep IR 125. David Steel J said, at 134:

"Approaching the matter without reference to the authorities, it seems to me that an unequivocal demonstration of an intention to proceed with a contract can only be exhibited if the other party appreciates that a choice has been made. It would for instance constitute affirmation if a party learning of a misrepresentation justifying avoidance decides simply in his own mind not to avoid and then be the author of a letter to the other party which is consistent with the contract being alive. That letter would not exhibit to the other party any election or choice at all.

I recognise that this may permit, say, an underwriter to keep an entitlement to avoid up his sleeve. But as a practical matter, to do so would almost inevitably lead to an estoppel. Any potential injustice would thus be prevented; see Yukong Line Ltd of Korea v Rendsburg Investments Corp of Liberia [1996] 2 Lloyd's Rep 604 at 608. Common sense suggests to me that only the realisation by the other party that an informed choice has been made could make the relevant act or statement unequivocal and thus 'clear the air'".

21. David Steel J referred to the passage from the judgment of Mance J in the ICCI case referred to above, beginning "Where the circumstances justify an avoidance…". However, it seems to me that there is little consistency between David Steel J's statement that affirmation involves appreciation by the insured that the insurer has made his choice and the statement by Mance J, in the ICCI case itself at page 174, that:

"The test is whether a reasonable person, in (the insured's position) and with its knowledge, would have regarded insurers as making an unequivocal representation or choice."

22. That is an inconsistency that it is unnecessary to resolve in this case. If it were necessary to do so, I should follow the judgment of Mance J. It is unusual, in the context of the law of contracts, for the existence or termination of the contract to depend on any subjective intent or understanding of one of the parties to the contract. In other circumstances, such as waiver of forfeiture, neither the intent of the affirming party nor the understanding of the other party to the contract is relevant.

Affirmation: facts

23. The communications relied upon by the Claimant as constituting affirmation of insurance cover are the letter of 20 September 2002 from Berrymans Lace Mawer ("Berrymans"), RSA's solicitors, to the Claimant's solicitors, and the conduct of Mr Nash, the solicitor who attended the case management conference of 10 October 2002 on behalf of RSA, at that case management conference. In the letter of 20 September 2002, Berrymans stated:

"…In accordance with the court order, we write to confirm that Royal & Sun Alliance are on risk for Wessington Court School. We do not at this stage have details of the dates for which Wessington Court School were covered by Royal & Sun Alliance's insurance policy although we believe it covers most of the relevant period. We are also searching for further information on the limit of the indemnity. We will be in touch in this regard as soon as we have obtained more details."

24. According to his own witness statement, by 8 October 2002 Mr Nash "was aware that the policy might be avoided on the grounds of non-disclosure". In paragraphs 9 and 10 of that witness statement, he states:

"At the hearing before District Judge McGrath I explained that RSA accepted they were on risk for the relevant period but that the terms and extent of the policy were not known. I also explained that further investigations were being made with the relevant underwriters at the time in order to find out what the policy was likely to have covered. The District Judge appreciated that these were relevant to the issue of insurance. He subsequently ordered that RSA be joined to the proceedings and that the Spriggs case be treated as a lead case which would test the issue of insurance.

At both hearings Mr Garsden, solicitor for the Claimant, was aware that RSA had not accepted to indemnify the School and/or Dennis Eagles. Mr Garsden stated on a number of occasions that the issue of insurance was crucial to his case, that he would not want to pursue this claim if the School had no insurance and that the other defendants would be released if RSA agreed to indemnify the School. Indeed that was precisely the reason why the Claimant sought to join RSA to the proceedings. There would have been no point to the joinder of RSA to the proceedings were it not to try the issue of insurance."

25. As can be seen, the key words are that RSA is (or was on 10 October 2002) "on risk". The Claimant submits that these words are a clear acceptance of liability under the insurance policies issued by Phoenix, subject to their existence and terms, which had not been ascertained, communicated when RSA had the requisite knowledge. RSA submits that in their context the words are equivocal, and do not express and could not reasonably have been understood as expressing the making of a choice by it to affirm the insurance policies.
26. RSA also makes a more fundamental submission: that a communication to someone other than the policyholder cannot constitute affirmation of the insurance contract. Mr Maxwell submitted that the communications to which I have referred did constitute affirmation. He pointed out that in any real sense there is no insured to whom an affirmation could be constituted. The Company has no liquidator or other officer: there is no one who can act for it or receive a communication on its behalf. I shall address these submissions first.

Can communication to the Claimant constitute affirmation?

27. This issue appears to be free from specific authority, and must be considered as a matter of principle.
28. In normal circumstances, where the insured is solvent, a party whose claim against him is the subject of indemnity under a contract of insurance entered into by the insured is a stranger to that contract. The third party has no enforceable rights under it. The insured may surrender the policy, or waive his claim to indemnity, or decline to make a claim under the policy, without reference to the third party. In the event of a dispute between the insurer and the insured, the insured may decline to enforce his claim for indemnity without reference to the third party, who has no means of compelling the insured to seek indemnity.
29. Once the insured is insolvent, however, different considerations may arise. In the event of bankruptcy or winding-up (and certain other events) the effect of the 1930 Act is to vest the insured's rights against his insurer in the third party. However, in that event the third party does not replace the insured as the party to the insurance contract: what is transferred to the third party and vested in him are the insured's rights against the insurer under the contract in respect of the liability to that third party. The Act effects a statutory assignment of those rights, but not a novation of the insurance contract. Put otherwise, the third party is subrogated to the insured's right of indemnity.
30. Furthermore, In Bradley v Eagle Star Insurance Co Ltd [1989] AC 957, [1989] 1 All ER 961, the House of Lords affirmed the rule that the 1930 Act does not confer on a third party any enforceable claim against the insolvent's insurer unless and until the third party's claim against the insured has been established by litigation, arbitration or agreement. In the present case, the claim of the Claimant (and similarly the claims of the other Claimants in the group action) have not been so established. It follows that they can have no present enforceable rights against RSA, even if the Phoenix policies are enforceable. At most, they have contingent rights against RSA.
31. Avoidance of a policy of insurance is an act of the insurer that in general must be communicated to the insured. It is an act determining a contract, affecting the contractual rights and obligations between them and them only. Similarly, affirmation of a policy involves conduct on the part of the insurer that is communicated or known to the insured. Like avoidance, it affects the contractual rights and obligations between the parties to the contract and, unless a transfer effected by the 1930 Act has taken place, between them only.
32. In these circumstances, at least before a transfer under the 1930 Act has taken place, I do not see how a communication by an insurer to a third party, unknown to the insured, of itself, can constitute an affirmation of the contract of insurance.
33. During the course of argument, I posed the example of an insurer who with the sufficient knowledge of non-disclosure by his insured sends simultaneously to solicitors for different claimants' letters accepting and disputing cover. The insurer cannot affirm the contract in relation to one third party and avoid it in relation to the other: the contract has either been terminated or not; it either exists or does not. It cannot continue in force in relation to one claimant but not in relation to the other. This hypothetical example suggests that communication with the insured is essential.
34. The example is by no means unrealistic. In the present case, Berrymans were in correspondence and communication with two different firms of solicitors on behalf of Mr Spriggs. RSA was also sent a letter of claim dated 10 July 2002 by a third firm, Forbes, acting on behalf of David Finch, and a letter before action by a fourth firm, Atter MacKenzie, acting on behalf of another Claimant, Michael Evans, (although it is not clear that it was received by them before 20 September), and a letter asserting liability on the part of the School, but not referring to any insurance, from a fifth firm, Burroughs Day, representing David Comer. I have no doubt that Mr Nash did not intend to affirm the insurance policies, and it is obvious that he had no instructions to do so. On one view, the present issue turns on the difference between his stating, in the letter of 20 September 2002, that RSA were on risk rather than stating that they had been on risk. As Mr Maxwell accepted, if the letter had confirmed that "RSA was on risk" rather than "RSA is on risk", the case for affirmation would have been unarguable: the difference is in the tense and easily missed or mistaken. There was room for unintended differences between statements made to one solicitor acting on behalf of one Claimant and statements made to another solicitor acting on behalf of another Claimant. In the event of a difference, it is not obvious why a statement made to one solicitor for one third party claimant should be preferred to that made to another solicitor acting for a different third party claimant; or, where two firms of solicitors are acting for the same claimant, a statement made to one should be preferred to a statement made to another. If, for example, Berrymans had written to one firm of solicitors acting for claimant A "We accept RSA were at risk" (as they clearly were while a policy was in existence and had not been avoided) while to another they stated "We accept RSA are at risk" (the statement relied upon in this case as affirmation), would the policy have been affirmed in relation to both claimants, and if so why? Similarly, if the phrase "the position of the insurers in relation to the policy is reserved" had been included in one of these hypothetical letters, but not the other, would the insurers have affirmed or not?
35. Principle and authority indicate that in general an election requires to be communicated to the other contracting party. The classic statement of the law is the judgment of Lord Blackburn in Scarf v Jardine (1882) 7 App Cas 345, 360:

"The principle, I take it, running through all the cases as to what is an election is this, that where a party in his own mind has thought that he would choose one of two remedies, even though he has written it down on a memorandum or has indicated it in some other way, that alone will not bind him; but so soon as he has not only determined to follow one of his remedies but has communicated it to the other side in such a way as to lead the opposite party to believe that he has made that choice, he has completed his election and can go no further; and whether he intended it or not, if he has done an unequivocal act - I mean an act which would be justifiable if he had elected one way and would not be justifiable if he had elected the other way - the fact of his having done that unequivocal act to the knowledge of the persons concerned is an election."

36. However, the judgment of the CA in Car and Universal Finance v Caldwell [1965] 1 QB 525 shows that this principle is not applied without exception. That case established that in the case of a contract for the sale of goods, rescission on the ground of fraudulent misrepresentation may be effected by unequivocal conduct by the seller showing that he disaffirmed the contract. The fraudulent buyer, by making it impractical for the seller to communicate with him, lost the right to receive notice of the seller's election. However, Sellers LJ put the principle widely. At 550 he said:

"An affirmation of a voidable contract may be established by any conduct which unequivocally manifests an intention to affirm it by the party who has the right to affirm or disaffirm. Communication of an acceptance of a contract after knowledge of a fundamental breach of it by the other party or of fraud affecting it is, of course, evidence establishing affirmation but it is not essential evidence. A party cannot reject goods sold and delivered if he uses them after know ledge of a right to reject, and the judgment cites a case where an instruction to a broker to re-sell was sufficient affirmation of the contract in question even though that conduct was not communicated. It may be said that a contract may be more readily approved and accepted than it can be terminated where a unilateral right to affirm or disaffirm arises. The disaffirmation or election to avoid a contract changes the relationship of the parties and brings their respective obligations to an end, whereas an affirmation leaves the contract effective though subject to a claim for damages for its breach. Where a contracting party could be communicated with, and modern facilities make communication practically world-wide and almost immediate, it would be unlikely that a party could be held to have disaffirmed a contract unless he went so far as to communicate his decision so to do. It would be what the other contracting party would normally require and unless communication were made the party's intention to rescind would not have been unequivocally or clearly demonstrated or made manifest. But in circumstances such as the present case, the other contracting party, a fraudulent rogue who would know that the vendor would want his car back as soon as he knew of the fraud, would not expect to be communicated with as a matter of right or requirement, and would deliberately, as here, do all he could to evade any such communication being made to him. In such exceptional contractual circumstances, it does not seem to me appropriate to hold that a party so acting can claim any right to have a decision to rescind communicated to him before the contract is terminated. To hold that he could would involve that the defrauding party, if skilful enough to keep out of the way, could deprive the other party to the contract of his right to rescind, a right to which he was entitled and which he would wish to exercise, as the defrauding party would well know or at least confidently suspect. The position has to be viewed, as I see it, between the two contracting parties involved in the particular contract in question. That another innocent party or parties may suffer does not in my view of the matter justify imposing on a defrauded seller an impossible task. He has to establish, clearly and unequivocally, that he terminates the contract and is no longer to be bound by it. If he cannot communicate his decision he may still satisfy a judge or jury that he had made a final and irrevocable decision and ended the contract. I am in agreement with Lord Denning M.R. who asked¹ "How is a man in the position of Caldwell. ever to be able to rescind the contract when a fraudulent person absconds as Norris did here?" and answered that he can do so² "... if he at once, on discovering the fraud, takes all possible steps to regain the goods even though he cannot find the rogue nor communicate with him."

37. Upjohn J put the principle more narrowly. He said, at 555:

"If one party, by absconding, deliberately puts it out of the power of the other to communicate his intention to rescind which he knows the other will almost certainly want to do, I do not think he can any longer insist on his right to be made aware of the election to determine the contract. In these circumstances communication is a useless formality. I think that the law must allow the innocent party to exercise his right of rescission otherwise than by communication or repossession. To hold otherwise would be to allow a fraudulent contracting party by his very fraud to prevent the innocent party from exercising his undoubted right. I would hold that in circumstances such as these the innocent party may evince his intention to disaffirm the contract by overt means falling short of communication or repossession.

We heard much interesting argument on the position where one party makes an innocent misrepresentation which entitles the other to elect to rescind and then innocently so acts that the other cannot find him to communicate his election to him. I say nothing about that case and would leave it to be decided if and when it arises. I am solely concerned with the fraudulent rogue who deliberately makes it impossible for the other to communicate with him or to retake the property."

39. Davies J also put the matter narrowly. He said, at 549:

"On the facts of this case Norris must be taken to have known that the defendant might, on ascertaining the fraud, wish to rescind the contract. Norris disappeared; and so did the car. The defendant could, therefore, neither communicate with Norris nor retake the car. It must, therefore, I think, be taken to be implied in the transaction between Norris and the defendant that in the event of the defendant's wishing to rescind he should be entitled to do so by the best other means possible. Lex non cogit ad impossibilia. It is true that it was conceivably possible that the defendant might decide not to rescind but to sue on the cheque instead; but it is most doubtful whether on the facts of this case such a possibility could have occurred to Norris as a real one. The fact that Norris knew that he was a rogue and that, therefore, the defendant was likely to be after him distinguishes this case from that of an innocent misrepresentor. It would not occur to the latter that the other party to the contract would have any right or desire to rescind, so that there would be no such implication as that which I have suggested arose in the present case."

40. The basis of the decision of the Court of Appeal is I think contained in the narrowest of the propositions stated by the members of the Court. It seems to me, therefore, that Caldwell is binding authority that rescission need not be communicated to a fraudulent buyer of goods who has made it impossible or impracticable for the defrauded seller to communicate with him, but not for any wider proposition.
41. If affirmation must be communicated to the insured, surely so does avoidance. If anything, the requirement of communication is more important in the case of avoidance than in the case of affirmation. Obviously, RSA does not suggest that avoidance is impossible in the present case. It relies on its Defence in these proceedings, which I assume was served on the Company at its registered office.
42. There are differences and similarities between the present case and Caldwell. Caldwell was a case of the sale of goods, and the Court of Appeal was impressed with the concession made by the plaintiffs that reception of goods by a seller without communication to the buyer is effective to avoid a voidable contract of sale. A contract for the sale of goods under which the goods have been transferred to the buyer differs from a contract of insurance in at least one respect. The object of the contract is the transfer of the goods. The contract is performed by their delivery and transfer and rescinded by their recaption. In a case such as Caldwell there was a single obligation to perform, i.e., the obligation to deliver the car with title. There was no question of successive obligations coming into existence. In the present case, on the other hand, each liability of the insured that is established by judgment, agreement or arbitration gives rise to a separate obligation to indemnify. Hence the possibility of different communications to different third party claimants. Secondly, of course, Caldwell was a case of fraud, and as the judgment of Davies LJ demonstrates, the same principle is not necessarily applicable in cases where there has been no fraud.
43. There is this similarity between Caldwell and the present case. In Caldwell, it was impossible for the defendant to communicate his avoidance of the contract to the fraud. The fraud had deliberately made it impossible for the defendant to do so. In the present case, the insured exists, and I am told has a registered office, so that communication is in a sense possible. It has been assumed that there is no one who acts for the insured or receives any communication on its behalf, and that its existence is legal and nominal. But it has not deliberately put it out of the power of RSA to communicate with it. Lastly, if service on its registered office (or any substituted service ordered by the Court) is sufficient notice of their proceedings to entitle the Claimants to obtain a judgment against it, it seems to me that notification of an affirmation or avoidance of a contract may similarly be communicated. On this basis, there is no impossibility of communication.
44. I add that the question whether the authority of the liquidator of the Company revived when its dissolution was declared void, as well as the question whether the director or directors of the company have any residual authority to act (and therefore to receive communications) on its behalf were not addressed in argument. The assumption that there is no one who can act for it may not be well founded.
45. It may also be relevant that, in my judgment, a communication to the other party is not the only means by which a party with the requisite knowledge of non-disclosure (in the case of a contract of insurance) or misrepresentation (in the case of ordinary contracts) may avoid his contract. He may also do so by an act that is inconsistent with the continuation of the contract. Conversely, he may affirm the contract, and thereby lose the right to avoid, by an act inconsistent with avoidance: see Clough v The London and North Western Railway Company (1871) LR 7 Exch. 26 and In re Hop and Malt Exchange and Warehouse Company, ex parte Briggs (1866) LR 1 Eq 483. He may also lose the right to avoid if the necessary restitution is impossible. Recaption of goods delivered under a contract for their sale is an act that avoids the contract, even if the buyer is unaware of their recaption: see the discussion in Car and Universal Finance v Caldwell at 558. In the case of a contract of insurance, it is more difficult to suggest examples of acts of the insurer that avoid or affirm the contract that do not also involve a communication with the policy holder. Acceptance of payment of a premium would clearly be inconsistent with avoidance (and might not be known to the policyholder, as in the case of payment by direct debit). Payment of a claim under the policy is normally made to the policy holder, and involves both an act and a communication. Payment of a claim without a communication (as where a motor insurer pays a car repairer directly) with the requisite knowledge would presumably constitute affirmation, or at least evidence from which it could be inferred. But there has been no act apart from Mr Nash's statements in the present case.
46. It is also important to bear in mind that affirmation is not the only legal principle that may preclude an insurer from disputing his liability under a contract of insurance. He may also be estopped from disputing his liability. Unlike affirmation, estoppel does not require the continuation or termination of the contract of insurance. An insurer may be estopped from disputing the validity of insurance cover to one claimant but not to another. However, unlike affirmation, estoppel requires reliance by the third party on the conduct of the insurer, as where a claimant incurs expenditure in consequence of an assurance given to him by the insurer of valid insurance cover. There is no plea of estoppel in the present case, for the obvious reason that it was always known to the Claimants that RSA did not accept liability under any policy it (or rather Phoenix) had issued.
47. In my judgment communication to the Claimants in the circumstances of this case could not of itself effect affirmation of the insurance policies. It follows that RSA did not affirm the various insurance policies issued by Phoenix and was entitled to avoid them when it served its Defence.
48. In case I am wrong on this issue, I shall consider the question whether the communications of RSA relied upon by the Claimant affirmed the policies of insurance, assuming for this purpose that a communication to a third party in the position of the Claimant may effect an affirmation of cover.

Was there an unequivocal affirmation of cover with the requisite knowledge?

49. The letter of 20 September 2002 and what occurred at the CMC of 10 October 2002 must of course be considered in their context.
50. The first relevant communication with RSA was a letter of 2 April 2002. It is not in the trial bundle, but from RSA's reply of 19 April 2002, it appears to have been an inquiry as to whether RSA had insured the School. RSA was unable to trace a policy without the policy number or scheme details. Following information provided by HSBC Insurance Brokers, on 15 May 2002, Abney Garsden McDonald ("AGM"), the co-ordinating solicitors for the Claimants, wrote to RSA informing it of the proceedings, enclosing a list of Claimants, summarising the claims against the School, enclosing copies of the letters from HSBC, and requesting confirmation of indemnity as the insurers concerned. The letter informed RSA that Mr Eagles the headmaster and Mr Duggan the head of care at the School had been convicted of abusing children in their care, and concluded:

"We will be asking for an adjournment of the (Case Management) Conference (fixed for 13 May) to the next available date so that we can confirm insurance cover with you and inform the Court in which direction the insurance will be proceeding."

51. On 27 May 2002, Jones Maidment Wilson ("JMW"), the solicitors instructed on behalf of Mr Spriggs, wrote to RSA asking for confirmation that it would indemnify the School in respect of his claim. They enclosed his claim form and Particulars of Claim, alleging sexual and physical abuse by Mr Duggan. On 20 June 2002, JMW sent the amended claim form and Particulars of Claim to RSA, purportedly by way of service: in fact RSA had not yet been joined as a party to the proceedings. On 17 June 2002, Mr Garsden of AGM spoke on the telephone to Mr Williams of RSA. According to Mr Garsden's letter of 24 June, he told Mr Williams that it was urgent that he (Mr Williams) make enquiries as to the insurance position, period of cover and revert to him immediately. Evidently, RSA still did not know what insurance policies it had issued to the School.
52. Berrymans wrote to JMW on 26 June 2002 informing them that they acted for RSA. In its letter of 8 July 2002 to AGM, RSA stated that they were trying to trace appropriate records to confirm the extent of their involvement. JMW responded to Berrymans on 11 July 2002, pointing out that Mr Spriggs was not the only claimant. On the same date, AGM wrote to RSA itself a strong letter chasing progress, from which it is clear that RSA had informed them that they had not traced any insurance policy.
53. After further correspondence, on 18 July 2002 RSA wrote to AGM stating that they had not found specific evidence that it was the liability insurer of the School, and was therefore unable to confirm its interest. On 23 July 2002, AGM wrote to Berrymans, referring to their frustration at the lack of response from RSA. They asked:

"What is the insurance indemnity position? It seems self evident that we have illustrated that Phoenix Assurance, your client's insurers predecessors, were responsible insurers from at least 1979. We are interested in your confirmation that the Phoenix, and thus your clients, were also the responsible insurers throughout the period of time in which abuse is alleged, i.e. from in or around 1970. We can, if you wish, send you copies of all letters we have sent to Royal & Sun alliance recently. It may be most relevant to enclose a copy of our most recent letter to Mr J Buckett dated 11^th July."

54. Berrymans replied on 1 August 2002:

"Thank you for your letter of 23 July which was received here on the 30^th. We are waiting for instructions from insurers when they have completed they policy investigations and can assure you that we will confirm the results of our client's search or records as soon as possible. We appreciate the need to clarify the position if possible before the case management conference in September. For avoidance of any confusion, we take it that you are asking for confirmation that Phoenix were on risk from 1970, as we have not given you any such confirmation as your letter seems to suggest."

The words "Phoenix were on risk" were entirely neutral for present purposes, meaning only that there had been insurance cover.

55. In a letter of 6 August 2002, JMW asked Berrymans if they would accept service of proceedings on behalf of the School. Berrymans replied on 8 August that they "were waiting for instructions from insurers as to whether or not they were the responsible insurers throughout the period of time in which abuse is alleged. We will confirm the results of our client's search of records as soon as possible."
56. AGM complained of RSA's lack of progress in a letter of 19 August 2002, stating that they saw no alternative to a representative from RSA attending the Case Management Conference on 5 September to give evidence in person of what steps had been taken to trace documentation. Berrymans replied more substantially on 3 September 2002. They stated:

"The present position is that Royal & Sun Alliance have carried out a number of searches of remaining policy records for the period in question and have found no trace of anything which would indicate that they or the Phoenix Assurance were on risk for Wessington Court School. However, it is quite clear form the HSBC correspondence that the brokers may be in possession of information which could assist the search and we hope to speak to somebody there tomorrow to obtain further information which will enable Royal & Sun Alliance to make further enquiries.

At the moment the policy number which was provide by HSBC in their letter of 3 May has not been traced, nor does it bear any resemblance to policy numbers amongst the records.

If we were able to obtain further information from HSBC tomorrow that is likely to enable Royal & Sun Alliance to continue their search, we will of course let you know immediately. At present we are preparing an affidavit for Royal & Sun Alliance which will basically just confirm that the search to date has been unsuccessful but they are of course willing to make further enquiries and searches if anymore information from HSBC is available which confirms the likelihood that Phoenix Assurance was on risk at the relevant time. In particular, HSBC referred to evidence of premium payments which we and our clients have not yet seen, and that may prove to be the key."

57. AGM replied in a letter of 4 September 2002, making the sensible suggestion that RSA should be joined into the proceedings as a Defendant. They stated:

"It seems that before this case gathers pace and substantial amounts of money are spent in costs, the insurance question should be tried as a preliminary issue. We would only agree therefore to bring you in as a Defendant to try the question of insurance provided it should be tried as a preliminary issue and dealt with before the remainder of the action."

58. By 5 September 2002, HSBC had delivered documents in their possession concerning the School to Berrymans on the undertaking not to open it without the consent of Mr Eagles.
59. There was a CMC on 5 September 2002. According to the attendance note of Mr Nash, who attended on behalf of RSA:

"… the court agreed that it was sensible to take the matter one step at a time. Therefore it was agreed that HSBC's papers should be disclosed to BLM immediately, that BLM would give their opinion on policy coverage within 14 days, even if the answer given was that we were unable to form a view based upon the documentation we had."

60. The CMC was adjourned until 10 October 2002. The order made by District Judge McGrath provided:

"1(a) Any information in possession of HSBC…concerning t he question of insurance of Wessington Court School shall, not withstanding the absence of consent by the head of the school, be disclosed by them to the legal representative of Royal and Sun Alliance forthwith.

1(b) The Legal Representative of Royal and Sun Alliance shall by no later than 20 September 2002 identify all Parties of Royal and Sun Alliance's decision on the issue of insurance cover, based on consideration of the documentation disclosed in paragraph (1a) above."

61. This was the order referred to in Berrymans' letter of 20 September 2002 referred to above. AGM replied to that letter on 24 September 2002:

"Since your letter is more optimistic than pessimistic we are preparing to further the action and add to our Directions prepared for our last CMC.

…

If the insurance indemnity is not agreed, then we must prepare for a separate hearing on the question of indemnity before the action is advanced to far.

As stated above we will assume the reverse and prepare to advance the action in the normal way on the basis that you are going to concede indemnity"

62. It seems that AGM copied in Berrymans to their correspondence for solicitors acting for other claimants. AGM's letter of 4 October 2002 stated:

"We were under the impression that Berrymans Lace Mawer had circulated their decision on insurance to all Defendants. This appears not to be the case. Whilst we have corresponded with some Defendants and not others it will no doubt assist if we enclose a copy of their letter to ourselves of the 20 September 2002. You can see that whilst the decision on insurance is more optimistic than pessimistic the position is not entirely clear. Unnecessary though it may be therefore we cannot overlook the possibility that it may become necessary to issue an application so as to ask the Court to decide the matter."

63. MR Nash spoke to Charlotte Capstick of RSA on the telephone on 8 October 2002. According to his attendance note, he "basically discussed the way the application would go, the position that RSA faced, i.e. that they have no policy documentation at present and they are trying to find out what the policy might have said." His attendance note of the pre-CMC meeting between the parties states that among the issues discussed was that "Mr Garsden (of JMW) is going to join in RSA given that they cannot definitively confirm the insurance position". Mr Nash's note of the CMC of 10 October 2002 states:

"There were a number of discussions during the CMC. JON (Mr Nash) explained that whilst RSA accepted there was a policy in force at the time, the terms and extent of the policy was not known. Jon explaining that no document had been found and therefore investigations were being made from the relevant underwriters at the time to find out what the policy was likely to have covered. The District Judge appreciated that the limit of indemnity on whether or not it would cover sexual abuse would be relevant.

It was agreed that the Spriggs case would be the lead case (albeit it is still not a group action) and that would test the issue of insurance."

64. The order dated 22 October 2002, made by District Judge McGrath as a result of the CMC simply provided that the Spriggs case should proceed as Lead Case in claims involving the School and that RSA be joined as ninth Defendant in the case.
65. In their letter of 17 October 2002, to JMW, Berrymans stated:

"We are still investigating into the insurance position in relation to Wessington Court School and have not formally gone on record as yet."

66. Mr Nash's evidence in his witness statement, concerning the hearing on 10 October 2002 is as follows:

"7. On 8 October 2002 I was asked to attend the adjourned case management conference which was due to take place on 10 October 2002. I understood the position to be that RSA were on risk but that the insurance position was not yet resolved as no policy wording had been found. I was also aware that the policy might be avoided on the grounds of material non-disclosure.

8. I dictated a note of my attendance on 10 October 2002, a copy of which is exhibited at Exhibit JON2. At the meeting between legal representatives before the hearing Mr Garsden, solicitor for the Claimant, told me he would ask for RSA to be joined to the proceedings as the insurance position could not definitively confirmed. I did not agree to the joinder and said that this should be left to the court. Mr Garsden also asked me whether BLM would accept service of proceedings on behalf of the School. I specifically recall that I was concerned not to prejudice the position by accepting service when the insurance position was still to be determined. I do recall stating that BLM were the solicitors acting for RSA. My note indicates that I deliberately avoided answering this point. I would probably have said that I needed to take further instructions in order to clarify the position as to the School. If I had been pressed on the point I am certain that I would not have accepted service on behalf of the School without specifying that this was subject to a reservation of rights.

9. At the hearing before District Judge McGrath I explained that RSA accepted they were on risk for the relevant period but that the terms and extent of the policy were not known. I also explained that further investigations were being made with the relevant underwriters at the time in order to find out what the policy was likely to have covered. The District Judge appreciated that these were relevant to the issue of insurance. He subsequently ordered that RSA be joined to the proceedings and that the Spriggs case be treated as a lead case which would test the issue of insurance.

10. At both hearings Mr Garsden, solicitor for the Claimant, was aware that RSA had not accepted to indemnify the School and/or Dennis Eagles. Mr Garsden stated on a number of occasions that the issue of insurance was crucial to his case, that he would not want to pursue this claim if the School had no insurance and that the other defendants would be released if RSA agreed to indemnify the School. Indeed that was precisely the reason why the Claimant sought to join RSA to the proceedings. There would have been no point to the joinder of RSA to the proceedings were it not to try the issue of insurance."

67. Mr Garsden of AGM made a witness statement on 7 October 2002 for the purposes of the imminent CMC. He referred to Berrymans letter of 20 September 2002 and stated:

"One can see that the letter is not entirely conclusive. It states that they do not have details of the dates for cover although they believe it covers most of the relevant period. They also do not have any further information on the limit of indemnity….because this letter is more optimistic than pessimistic I have not issued proceedings in the present time to determine the question of insurance….In contemplation of the question of insurance being resolved I have drafted some proposed Directions which I have served on the other Defendants…."

68. Miss Ellwood a solicitor with Berrymans, spoke to Mr Sutton of JMW on 14 November 2002. He asked whether Berrymans were instructed to accept service on behalf of the School, and:

"I said that the position was difficult as we were still investigating into policy. I said we were instructed to accept service on behalf of Royal and Sun Alliance but what we had done in the past to facilitate matters was to say that we would accept the proceedings but subject to a reservation on our part in relation to the policy. He confirmed that he understood the position."

69. On 26 November 2002, JMW served on Berrymans the re-amended claim form and sealed substituted Particulars of Claim, noting that Berrymans were instructed to accept service on behalf of RSA and the School. Miss Ellwood spoke to JMW on 1 December. According to her attendance note:

"(JMW) agreed that they were happy for us to acknowledge RSA and I explained that we would acknowledge for Wessington Court but reserved rights but as they did not exist there did not seem to be much point. They agreed with this course of action but I said I would check the position with (AGM) and check that they were happy as well."

70. Miss Ellwood wrote to JMW on 11 December 2002, stating that "In accordance with our discussion, we will liaise with you in relation to acknowledging on behalf of the School once it has been restored to the register."
71. Lastly, on 11 March 2003, Berrymans wrote to JMW enclosing the acknowledgment of service on behalf of the School but stating that the insurance position had not yet been clarified.
72. The focus of the communications between RSA and Berrymans on the one hand, and the solicitors for the Claimant on the other, was throughout on the question whether RSA (i.e., Phoenix) had issued any policies covering public liability to the School, and if so for what years and on what terms. At no time did RSA accept a liability to indemnify the School (or any liability for any award of damages that might be obtained by the Claimant); nor were they understood to have accepted any such liability. Quite apart from questions of non-disclosure, the existence of insurance policies, their terms and indemnity limits remained to be established. These were the matters to which the order of 17 September 2002 would have been understood to refer, and in my judgment to which the letter of 20 September similarly referred. These were questions of fact. I do not think that the letter of 20 September would or should have been understood as communicating a decision or choice as to avoidance or affirmation for non-disclosure, a matter that had not been referred to in any way. Indeed, in the normal case one would not expect an insurer to make a decision on avoidance until he knew what policies he had issued and their terms: for until then he would not know if he had agreed to give any relevant cover. Moreover, the dates and terms of the policies (as well as the nature, number and amount of the claims under them) would in the ordinary case be relevant to the question whether the insurer was entitled to avoid each of them and, if so, whether he should do so. In other words, in my judgment the letter of 20 September 2002 meant, in its context, that there were insurance policies issued by RSA (or rather Phoenix) for at least part of the period in question. I do not think that it should be read as confirming that RSA accepted liability under whatever as yet unidentified policy had been issued subject to its unidentified terms.
73. Furthermore, the terms of the policies might themselves give rise to rights to reject liability or to avoid the policies. I do not think that an insurer should easily be held to have affirmed policies in circumstances in which they and their terms have not been ascertained, and it is clear that the insurer has not accepted liability under the policies. In my judgment, in the circumstances of this case, there was no sufficient unequivocal affirmation of the policies.
74. I think that the phrase "RSA is at risk" was used by Berrymans in the letter of 20 September in the same sense that a similar phrase was used by HSBC in its letter of 23 January 2003 to AGM. HSBC stated:

"(The enclosed) documentation confirms that Royal & Sun Alliance is on risk in respect of those policies for which references are given. Royal & Sun Alliance should have access to the policy wording upon which Phoenix Assurance underwrote public liability insurance at the relevant time."

The italics are mine. HSBC did not mean that RSA were liable under those policies: quite apart from the possibility of avoidance for non-disclosure, without the wording and knowledge of the relevant facts (which might give rise, for example, to a breach of warranty, or include a restriction on the scope of cover or exclusion clause) they could not know.

75. For much the same reasons, in my judgment the letter of 20 September 2002 was not an unequivocal confirmation of a choice to affirm the insurance contracts. It left the liability of RSA uncertain.
76. I do not think that the position was taken materially further forward by the CMC of 10 October 2002. Mr Nash should not reasonably have understood to be communicating a decision by RSA to affirm the still unascertained contracts of insurance. He was using the words "on risk" as referring to the fact that RSA (or Phoenix) had issued liability policies for the relevant period. He was not expressing a decision made to affirm liability, or that RSA had made a choice to affirm rather than to avoid the policies.

Knowledge of the relevant facts

77. Mr Stuart-Smith submitted that RSA did not have sufficient knowledge of the relevant undisclosed facts until after 20 September 2002 and, I think, after 10 October 2002. Clearly, by 20 September RSA knew that Mr Eagles had been convicted of abusing boys at the School, and that he had been responsible for insurance. It had received AGM's letter of 29 July 2002 written on behalf of Michael Lawrence informing them of his allegations of sexual abuse by Mr Eagles from about 1976 (although the Claimants' Schedule gives the start date as 1978) and of Mr Eagles' convictions. At some time before 20 September 2002, RSA or Berrymans received a copy of Mr Eagles' affidavit of 31 January 2002, and so they knew that he said that he had been responsible for arranging the School's insurance. They had also received claims from solicitors for David Comer, which did not however refer to Mr Eagles as the perpetrator, and for Wayne Crowther, who alleged abuse by Mr Eagles between 1980 and 1983. On the basis of this information, RSA could have avoided any policies dating from after about 1976, if necessary on a basis qualified by reference to the truth of the Claimants' allegations. If the letter of 20 September and Mr Nash's conduct on 10 October 2002 did not amount to affirmation of the policies issued by Phoenix, the issue of RSA's knowledge at those dates is irrelevant. Its knowledge is only relevant if it is submitted that even if they had affirmed on one or other of those dates, information subsequently coming into their hands justified the subsequent purported avoidance in the Defence.
78. It is implicit in the basis of avoidance that an insurer who has not avoided a policy despite knowledge of non-disclosure may subsequently do so if he learns of material additional non-disclosure by the insured. The requirement of affirmation that the insurer has knowledge of the facts not disclosed is to the same effect. An insurer may be reluctant to avoid for non-disclosure, for reasons connected with its appreciation of its liability or the effect of non-disclosure on its reputation or some other reason, and decide not to avoid a policy initially, but reasonably wish to do so when additional non-disclosure comes to light. But not every new fact not disclosed will entitle an insurer to avoid after affirmation. Just as it is unnecessary for affirmation that the insurer knows (to use the language of Mance J in the ICCI case) "all aspects or incidents of the (undisclosed) facts", provided he "knows sufficient of the facts to know he has the right to avoid", so his learning of the immaterial aspects or incidents of the undisclosed facts cannot entitle him again to elect to avoid the policy. The new non-disclosure must make a material difference to the reasonable insurer's decision whether to affirm or to avoid the policy.
79. The Schedule produced by Mr Stuart-Smith shows that although by 20 September 2002 RSA knew that there were a number of Claimants (a list having been provided with AGM's letter of 15 May 2002), claims that Mr Eagles himself had abused Claimants had been notified only in the case of 3 or 4 of them, Messrs Comer, Lawrence, Crowther and possibly Evans. As against that, it is now alleged that 23 additional Claimants were abused by him. the agreed facts set out at paragraphs 3, 5 and 8 of the Agreed Facts and Issues were not known to RSA (other than that Mr Lawrence and Mr Crowther alleged that he had abused them). In my judgment, these additional undisclosed facts were material, and would have justified avoidance by RSA, even if they had previously decided not to avoid the insurance cover.

Reasonable time

80. Given the uncertainties as to the policies issued and their terms, and the relevant facts, I do not consider that RSA failed to avoid the Phoenix insurance policies within a reasonable time.

Conclusion

81. It follows that RSA were entitled to avoid the public liability policies issued by Phoenix to the Company.