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

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

		Claim No: 9MA90759
		23 August 2010

INTRODUCTION

1. This is the trial of the liability of the Defendant insurer ("Aviva" –formerly Norwich Union – "NU") to indemnify the Claimant (" JFP") in respect of a fire which occurred at its property at Hoo Hill Industrial Estate, Blackpool on 26 November 2008. The principal shareholder in and director of JFP is Mr Peter Leonard.
2. Although quantum is not before me, the present claim is substantial – over £2m has been sought to cover the reinstatement of the individual tenanted units at "the kiln" on the estate which have been damaged. The subject policy was presented on 18 March and incepted on 28 March 2008. Aviva denies liability not on the basis of any defect in the subject claim itself but on three other grounds:

(1) During the currency of this policy JFP made a fraudulent claim for which Aviva paid it £9,870, in respect of damage to a drain at Hoo Hill in September 2008 ("the Drainage Claim"); and/or

(2) JFP failed to disclose to Aviva at inception that Mr and Mrs Leonard had made a fraudulent claim against a prior insurer, National Insurance & Guarantee Corporation ("NIG") in respect of water damage to a lodge owned by them at Whitecross Bay Leisure Park and Marina, Windermere ("Whitecross Bay") in February 2007 ("the Langdale 9 Claim"); and/or

(3) The failure by JFP to disclose to Aviva at inception the fact that on numerous occasions previously Mr Leonard had made misrepresentations and/or nondisclosures when presenting to other insurers in the past.

3. Aviva has sought to avoid the subject policy on all three grounds referred to above. It contends that if it succeeds on any one of them it is entitled not merely to refuse to indemnify in respect of the subject fire but also (a) recover the £9,870 paid in respect of the Drainage Claim and (b) the further sum of £37,624 paid to JFP in respect of an earlier fire which took place at Hoo Hill in June 2008.
4. JFP denies all of these allegations.
5. The burden of proof is of course upon Aviva to make out these defences. They contain serious allegations of fraud. That being so I remind myself of the words of Lord Nicholls in Re H [1996] 1 AC 563, 586:

" The balance of probability standard means that a court is satisfied an event occurred if the court considers that, on the evidence, the occurrence of the event was more likely than not. When assessing the probabilities the court will have in mind as a factor, to whatever extent is appropriate in the particular case, that the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability. Fraud is usually less likely than negligence…Built into the preponderance of probability standard is a generous degree of flexibility in respect of the seriousness of the allegation. Although the result is much the same, this does not mean that where a serious allegation is in issue the standard of proof required is higher. It means only that the inherent probability or improbability of an event is itself a matter to be taken into account when weighing the probabilities and deciding whether, on balance, the event occurred. The more improbable the event, the stronger must be the evidence that it did occur before, on the balance of probability, its occurrence will be established…"

6. I heard oral evidence from the following lay witnesses:

(1) for JFP, Mr and Mrs Leonard, Peter Lund, a site manager employed by Mr Leonard or one of his companies, Sean Cummings, a self-employed general builder who has worked for Mr Leonard, Martin Salthouse, who is self-employed and runs a contracting and plant hire business, Nicola Duignan, JFP's company secretary and book-keeper who has also worked for Mr Leonard in his other businesses, and John Holdsworth who used to work at Whitecross Bay;

(2) for Aviva, Robin Wintrip who was previously an insurance claims investigator employed by the loss adjusters Crawford & Co. ("Crawfords"), Alastair Watson, previously the General Manager at Whitecross Bay, Alex Hodgson formerly the Maintenance Manager at Whitecross Bay, Alisha Bamford a special investigator in the technical department of Halifax General Insurance Limited ("Halifax"), and Geoffrey Woods, the underwriter at Aviva who wrote this particular policy.

7. Each side called one underwriting expert: Miles Emblin for JFP and Stephen Coates for Aviva. They produced a joint statement of areas of agreement and disagreement on 21 May 2010.
8. Mr Leonard's evidence is considered extensively below. As will be clear I often found his evidence to be unreliable or implausible. In my view he was someone who was not averse to telling untruths to insurers in the past, or on occasion to the Court, if he felt it necessary, and whose general attitude towards the duty of disclosure upon an insured was cavalier at best. In considering his evidence, I have taken into account the unfortunate fact that after she attended Court on the first day, Mr Leonard's mother was taken seriously ill. She was diagnosed as having had a heart attack and a stroke. As a result the Court did not sit on the second day because Mr Leonard needed to be with her. However he was able to, and wanted to, resume his evidence on the next day. Obviously all of this put additional pressure on him. However it could not explain the difficulties with and implausibility of much of his evidence (given mainly on Day 1 and completed on Day 2), as recounted below. Nor, to be fair, was his mother's illness invoked by Mr Vaughan as a reason why his evidence might be less satisfactory than otherwise.
9. Mrs Leonard also gave evidence briefly. She could only provide relevant information in respect of the Langdale 9 Claim. As I make clear below her evidence was unsatisfactory in certain respects and I formed the view that she was also prepared to tell untruths if it assisted Mr Leonard.
10. I should add that prior to his acquisition of JFP, Mr Leonard ran a garage business called the B.A.R MOT centre. He then went into the property business and formed a company called Leonard Property Services Limited ("LPS") to own his portfolio. At the end of December 2007 he acquired JFP which owned Hoo Hill Estate. This in turn was comprised of industrial units and 15 residential properties.
11. Following the conclusion of the evidence I received two sets of written submissions from each of Mr Vaughan, for JFP, and Mr Eklund QC for Aviva. Oral submissions were made on 18 June and 1 July. I am extremely grateful to Counsel for their assistance throughout the trial and for their very helpful submissions. On 28 July this judgment was sent out to the parties in draft.

THE DRAINAGE CLAIM

Introduction

12. On or around 10 September 2008, according to Mr Leonard, a problem with the drains was experienced at the Hoo Hill industrial estate. The tenants had complained that their waste pipes which led into the main drain were backing up which suggested a problem with the main drain itself. Its route can be seen on the large plan referred to at trial. The drain was found to have collapsed in the area between units 8 and 11. The cause was thought to be a lorry or lorries running over the concrete above and forcing the drain out of place so that it disconnected with the lengths of drain before and after it. Hence the blockage. Mr Leonard says that he called in Martin Salthouse a contractor whom he often used, and Sean Cummings to inspect the drains on that day. By Friday 12 September it was clear that the main drain had collapsed and would have to be replaced with various attendant works. Because it had collapsed the jetting of the drain had not solved the problem. Mr Leonard decided to call out the insurers ie Aviva and at around 3pm on Friday 12 September Ms Alicen Schofield of Crawfords, the loss adjuster appointed by Aviva, attended at Hoo Hill.
13. It is common ground that Ms Schofield was told that the drain had collapsed and that Mr Salthouse gave a verbal quotation for the cost of the repair works at £8,000. Ms Schofield did not give evidence but this figure is stated in her notes at 17/30 and broadly accords with Mr Salthouse's evidence on this point. She approved the execution of the repair/replacement works to the drain.
14. On 23 September, Ms Schofield wrote to Mr Leonard and confirmed receipt of some photographs relating to the drain and then said "We look forward to receiving copy repair estimates/accounts in order that we might consider this matter further." Some time afterwards, probably just before 10 October she received a copy of the invoice which is at the heart of this part of the defence. It purports to come from Mr Salthouse, is dated 15 September and is for the sum of £8,400 plus VAT making £9,870 in respect of work to the drains. It also has on it the manuscript words "Paid in full with thanks". I shall refer to this document as "the Main Invoice". One of her notes for 10 October records that Mr Leonard called on that day urgently requesting payment. There was a chaser from Mr Leonard on 12 October and on 13 October Ms Schofield authorised payment of £8,400 ie net of VAT. This was because she thought the VAT would be reclaimable by JFP. Aviva sent out the cheque but on 15 October her notes record a conversation with Mr Leonard who said that on this estimate he could not recover VAT and so she agreed to send a further cheque for the VAT which she did that day.
15. Condition 7 of the general policy conditions applicable to the subject policy reads as follows:

"Fraud

We will at our option avoid the policy from the inception of this insurance or from the date of the claim or alleged claim or avoid the claim

(a) if a claim made by you or anyone acting on your behalf to obtain a policy benefit is fraudulent or intentionally exaggerated, whether ultimately material or not or

(b) a false declaration or statement is made or fraudulent device put forward in support of a claim."

("Condition 7")

16. In this case Aviva contends that

(1) The claim was entirely false because the problem with the drain was in fact not its collapse but a lack of maintenance which was not an insured peril;

(2) The Main Invoice was bogus alternatively parts of it were fraudulent and/or the amount claimed was exaggerated as a result of which Aviva was entitled to, and did, avoid the whole policy from inception once it became aware of this matter. The effect is said to be that not only must the £9,870 be repaid but so should a payment made in respect of the earlier fire in June 2008. Moreover, Aviva is absolved from any liability to pay the subject claim in respect of the fire in November 2009.

17. JFP denies these allegations.

The Main Invoice -description

18. The actual copy invoice is at 18/1A and 1B. It is important to look at the document itself but I set out the contents below.
19. The first page reads thus:

"M. SALTHOUSE CONTRACTORS
Invoice no : 2645
Date : 15^th September 2008
VAT reg no 784422122
Martin Salthouse
Catterall hall farm
Esprick Preston
PR4 3HJ

TO:
JFP Limited
Site Office
Hoo Hill Ind Estate
Bispham Road
Blackpool
Lancashire
FY3 7HJ

WORKS CARRIED OUT

Inspection of drains




Jet drains




CCt drains




Flush drains




Excavation of drains




Replace / back-fill"

20. The second page reads thus:

"M. SALTHOUSE CONTRACTORS
Invoice no 2645 CONT....
Date 15^th September 2008
VAT reg no 784422122


Martin Salthouse
Catterall hall farm
Esprick
Preston
PR4 3HJ

Finish Road surface




As above – Top water drains




All work inclusive of:
Hire of plant
Transport of Plant
Fuel.
Labour materials as discussed.

Sub-Total now Due: £8400 + VAT
Total amount now due: £9870.00"

PAID IN FULL
WITH THANKS"

21. It is common ground that the number 2645 and "2645 CONT..." on the first and second pages, the dates 15 September 2008 and words "Paid in full with thanks" were written not by Mr Salthouse but by Nicola Duignan, JFP's Company Secretary and book-keeper, after receipt by JFP of the invoice from Mr Salthouse and before it was sent to Ms Schofield. Prior to it being sent to Crawfords Mr Leonard added the manuscript words at the top: "F.A.O. A SCHOFIELD". The colon after "Invoice no" and "Date" is in manuscript. I was asked to find that it was written by Ms Duignan. I declined to do so because this was not a matter put to her in cross-examination. So there is no evidence as to who wrote them on.

Procedural history

22. The way in which JFP dealt with this defence is important and it is necessary to set out some aspects of the procedural history.
23. The Particulars of Claim were issued on 7 May 2009. The original Defence and Counterclaim was served on 18 June. Paragraph 22 thereof alleged that the true cause of the drain problem was lack of maintenance. Paragraph 23 quoted the Main Invoice saying that the words "Paid in full with thanks" was a representation that Mr Salthouse had been paid in full at the time when he had not. Paragraph 24 alleged that the invoice was not genuine anyway because the number 2645 was not a genuine invoice number and the words "Paid in full with thanks" were not his writing. Paragraph 25 said that the drainage claim was accordingly false and paragraph 26 invoked Condition 7.
24. The original Reply and Defence to Counterclaim was served on 3 August 2009. Paragraph 39 (g) to (k) denied that the cause of the problem was not the collapse. In paragraph 39 (l) JFP denied that the Main Invoice had not been paid in full because "the Claimant paid for all the materials that were required to carry out that work and then paid the contractor for its labour. The total cost of those materials and labour came to the sum of £9,870 (inclusive of VAT)".
25. Paragraph 39 (m) said that the invoice numbered "2645" was genuine. It was accepted that the words "paid in full" were written by Mr Leonard's personal assistant whose practice it was to write such words on all invoices paid by her on behalf of JFP. The allegations of fraud and the relief claimed were all denied. It will be noted that at this stage no positive case about the origin of the number 2645 was made, neither were the words "with thanks" following the words "paid in full" addressed.
26. JFP served an initial list of documents on 7 January 2010. It did not contain any document relating to materials or Mr Salthouse's labour charges said to have been paid by JFP and encompassed by the Main Invoice. This was pointed out to JFP's solicitors by Aviva's solicitors and on 25 February JFP served a signed supplemental list referring to further documents which had been served a day or two before. This included an undated item as follows:

"Break down of payments for drain claim


Payments made ref drain fox bro machine hire on acc	162.66
Payments made ref drain fox bro concrete on acc	398.25
Payments made ref for res bar steel petty cash	90
Payment for drainage paid on card b & q	380
Payment for safety fence on acc AAA	329
Payment for woods waste stone chq 001458 12/9/08	193.99
Additional labour Sean Cummings cash 19/9/08	1000
Payments made to M Salthouse cash 12/9/08	2000
Payments made to M Salthouse chq 001462 15/9/08	1000
Payments made to M Salthouse cash 19/9/08	2000
Payments made to M Salthouse chq 23/9/08	500
Total	10053.90


See bank statement for cash withdrawals"

27. Although this might be thought to have been some historic document, in fact it was a breakdown drawn up by Mr Leonard in early February 2010 to explain the various payments made in respect of the Main Invoice. A number of the underlying documents for this breakdown were contained in the supplemental list but others emerged in the following weeks. They will be addressed individually below. It will be seen that if this account was correct JFP had paid somewhat more than the invoice sum of £9,870.

The Main Invoice -Analysis

28. Having heard the evidence of Mr Leonard and Mr Salthouse I am satisfied that the Main Invoice itself did emanate from Mr Salthouse. I do not consider that it was a creation of Mr Leonard's. Although it is dated 15 September it is common ground that Ms Duignan wrote this in. The 15 September was a Monday and she said that she usually picked documents up from Hoo Hill that needed to be dealt with, her office being in a different location, being the garage operated by Mr Leonard. Mr Leonard had no clear recollection of when it arrived.

The number 2645

29. I have no doubt that, objectively read, the placing of this number by the word "invoice" on its first page and the number "2645 CONTD..." by the same word on page 2 was designed to, and did, represent that the number of this invoice was 2645. In fact it was not, because it was not a number applied by Mr Salthouse as is admitted. The explanation given by Mr Leonard and Ms Duignan is that it was necessary to give some reference number to this document once received for JFP's own purposes, not to suggest that it was Mr Salthouse's invoice number. Moreover it is said that the number itself was procured when details of this invoice were entered onto JFP's book-keeping software. It no longer has that software or the computer which used to run it because when the garage was later sold all of that went with it. I find this explanation of the number highly implausible and indeed untrue for the following reasons:

(1) If this was intended simply as a reference number it could have gone anywhere on the document; see for example the manuscript writing on other invoices from Mr Salthouse at 18/129, 130 and 132; Ms Duignan said that she did not intend the number to look like an invoice number and just put it next to the word "invoice" because there was a gap. But there were plenty of other gaps in the document.

(2) Not one other document has been produced bearing a similar reference number. This is notwithstanding the fact that Ms Duignan said that the number would have been produced by the old system when logging on an invoice which had been received but not yet paid. At that stage it was a journal entry. The invoice would be tied to that reference number until it was paid when its status would change from being "outstanding" to "paid" when a different number would go on, for example a cheque number. It is remarkable that it has not been possible to find even one document bearing this out even granted the absence of the old software and computer. There are other invoices from Mr Salthouse without any invoice numbers eg those at pp129, 130 and 132 and yet when first received there was not thought to be a need to put a reference number on them;

(3) Mr Leonard said that Mr Salthouse was not very good with his paperwork and if he missed things out on his invoices they would add them for their records. But that does not support the claim that they were adding a mere reference number of their own. Mr Leonard also said that the addition of these numbers was so that JFP could track its payments to Mr Salthouse on that invoice. But I did not understand how. What appears usually to be done is that details of payments are written on the invoice itself (again see 18/129, 130 and 132) and also entered in the company ledgers. But no payment details are shown on the Main Invoice. Ms Duignan said that she only became aware that the Main Invoice had been paid just before it was sent off to Ms Schofield. She said that no payment details were entered for this invoice because there were too many entries relating to it. I do not accept that. I also do not understand why, when the invoice was eventually entered as paid, as Ms Duignan said it was, there is no reference to the invoice itself anywhere in the ledger; she said that the journal entry was overridden when details of two cheque payments in relation to that invoice were entered. But the invoice does not appear anywhere with cheque numbers as its payment reference. Or even the number 2645 as a substitute for an invoice number. Contrast the payment of what turned out to be two Fox Bros invoices shown in the purchase ledger extract at 18/5 where their numbers are referred to albeit elided into one.

30. In my judgment the number 2645 was written on the Main Invoice to suggest that this was its invoice number. Ms Duignan, who wrote it, knew that, and so did Mr Leonard who in all probability asked her to do it. The obvious reason was to confer legitimacy on the invoice. This was going to be the basis of JFP's claim to reimbursement for the repairs to the drains and it needed to appear to be in proper form. For the same reason Ms Duignan put the date on the invoice. This conclusion is supported by why the words "Paid in Full With Thanks" were added, to which I now turn.

"Paid in full with thanks"

31. The expression "paid in full" might be thought to be capable as having been written on an invoice by the debtor – as an internal note of payment, or by the creditor – as a receipt. The same is not true for the words "Paid in full with thanks". This clearly connotes that it is a receipt from the creditor endorsed on a copy of the invoice sent back to the debtor. There is no need for the debtor to "thank" the creditor for paying him. And even if it could somehow be said that it was thanks for the service of goods supplied (which I regard as extremely unlikely) there would be no point in placing those words on the document unless it was then sent to the creditor. But there is no suggestion that this happened here.
32. In the pleaded case the importance of the additional words "with thanks" was simply ignored by the Reply. See paragraph 25 above. It was suggested in JFP's written submissions (p9) that the "Claimant at time of serving the Reply and up to the present time still fails to see any significance in the words 'With thanks' ". I do not accept that. The significance is obvious.
33. Surprisingly, although Ms Duignan was to be called as a witness at trial there was no witness statement ("WS") from her dealing with the words and numbers she wrote on the Main Invoice and why. Eventually she produced one on the second day of the trial. She said that her habit was to write "paid in full" or sometimes "Paid in full with thanks" depending on what came into her head at the time. There was no significance in the words "with thanks" on the Main Invoice. This explanation might have been more convincing if there was a plethora of earlier invoices showing her use of the expression "Paid in full with thanks". But not one such document was produced before the trial. In the course of her evidence she said that she had indeed used those words sometimes and thought there were documents to prove it. Very belatedly, two documents were then produced. Both were copies. One was an invoice to JFP dated 9 October 2009 and bore the manuscript words (along with others) "Paid in full with thanks" with a cheque reference and manuscript date of 22 October. The other was an invoice undated but endorsed in manuscript 11 December 2009 and in the address box were the words "Paid in full with thanks". I can place no reliance on these documents which only came into existence some time after the "Paid in full with thanks" issue had arisen. Although Ms Duignan stated that it had been her habit to write "Paid in full with thanks" back in 2008 and before, the fact remains that no document has been produced to show this.
34. For his part Mr Leonard accepted that the words "Paid in full with thanks" on the invoice was a representation that JFP had paid Mr Salthouse the sum of £9,870. He also accepted that the invoice was a representation that Mr Salthouse was owed £9,870. He went on to say that in truth JFP had paid £9,870 but not all directly to him and also that when the invoice first arrived he was owed indeed £9,870. I deal with these matters below. When he was shown other invoices where Ms Duignan had written merely "paid in full" and not "Paid in full with thanks" he said he did not know why not unless maybe she was not grateful on that occasion.
35. I am quite sure that the words "Paid in full with thanks" were written deliberately here so as to convey the clear message that this was a receipt from the contractor, Mr Salthouse, that he had been paid in full. This was an invoice to go to an insurer as evidence of the sums paid for the repairs and I have no doubt that Mr Leonard thought that the simpler he could make it the better. He must have realised that Ms Schofield would read the document as if (a) £9,870 had been owed to Mr Salthouse and (b) he had now himself been paid it. Payment to Mr Salthouse is what she would have expected, as Mr Leonard knew, given that Mr Salthouse had given her the quotation in around that amount in the first place. It follows that I reject the suggestion that the words "Paid in full with thanks" here meant, or could reasonably have meant, "paid the amount shown in the invoice" as opposed to "paid Mr Salthouse".
36. Mr Leonard knew at the time when he sent the Main Invoice to Ms Schofield that JFP had not paid £9,870 to Mr Salthouse and that such a sum was due to him. He also knew that JFP had not paid that sum to third parties as well as Mr Salthouse so as to make up the entire amount. I explain why not, below.
37. Ms Duignan said that she was unsure about payment of this invoice originally and ultimately wrote the words "Paid in full with thanks" because Mr Leonard told her that Mr Salthouse had now been paid. If he told her, she may have believed him but in my judgment she still knew and intended that by writing "Paid in full with thanks" she was suggesting a receipt from Mr Salthouse. Moreover, on any view, so did Mr Leonard and it is his state of mind that is important at the end of the day. In my view he told her to write the words "Paid in full with thanks" on that occasion to create the impression of a receipt.
38. The point is also made as to why Ms Duignan would take part in a fraud or be asked to. But from her point of view she may have seen this as simply writing on the invoice on Mr Leonard's instructions to get in an insurance payment which to her mind was or may have been due because (on her evidence) Mr Leonard told her that Mr Salthouse had been paid in full. It is no more sophisticated than that. I do not regard it as implausible that Ms Duignan would go along with this. Moreover parts of her own evidence were disingenuous to say the least for example why the number 2645 was placed where it was and why the words "with thanks" were added.

The date on the invoice

39. Although not central to my findings I think it unlikely that the Main Invoice came on 15 September. The only documentary evidence of a request for it from Ms Schofield is the letter dated 23 September. It may have been dated 15 September because that was when the job was finished or more or less finished (see below). No allegation of fraud is made in relation to the date but the fact that it was filled in was no doubt because it would look odd (to an insurer) for a contractor's invoice not to bear a date.

Was this an insured peril?

40. The reason why Aviva contested this after the event, and indeed the reason why they challenge the Main Invoice now, is because Mr Salthouse was interviewed as part of a very thorough review conducted by or on behalf of Aviva following the making of the claim in respect of the fire in November 2008. By that time JFP had made and had been paid out on a claim for the fire in June 2008 and then for the drain in October 2008. In a statement made to Mr Wintrip of Crawfords (for Aviva) on 13 May 2009. Mr Salthouse is recorded as saying that the problem with the drain being full of water (ie blocked) and refilling when the water was removed, had been there at least 6 months. He then said that the depression in the ground above the drain may have occurred "some time ago. It definitely was not recent." See the manuscript statement at 4/340-343 and the typed up version at 346-347.
41. This statement needs to be treated with some care however. First it was taken in less than ideal circumstances. Mr Wintrip and his colleague Mr Pattington had made several unsuccessful attempts to speak to Mr Salthouse, having called at his parent's house twice in March. When they did find him home, they asked him questions outside, in the evening. Mr Wintrip said that he was a somewhat reluctant witness and was not very forthcoming with information. I am not surprised about that because on a previous visit they had left with him to sign, a document by which he was to declare that the Main Invoice was indeed his and that the works referred to therein had been paid for. He completed that part of the document affirmatively. But he was then asked to declare that the invoice had been included in his annual accounts and that the VAT element had been remitted to HMRC. In fact, as he frankly accepted in evidence, he had not been making proper VAT or tax declarations in particular in respect of that part of his income which had been received in cash. With that sort of approach from Mr Wintrip it is hardly surprising that he may have been somewhat cagey. Indeed Mr Salthouse gave the same impression initially in the witness box. He appeared to me to be extremely nervous which was, I am sure, because he felt that his own financial affairs in relation to HMRC were going to be gone through in detail. Once he could see that this was not the main focus of cross-examination, he became more confident and articulate. Mr Wintrip was asked about the VAT question and said that he did not have the "impression" that Mr Salthouse was uneasy as a result. But I think that he must have been. So this does not make for an easy situation when taking a statement.
42. Equally Mr Wintrip was not clear whether he took down the manuscript note of what Mr Salthouse said as he was saying it or only after he finished saying it. He said the former in evidence although paragraph 18 of his WS suggested the latter.
43. Finally Mr Salthouse did not actually refer to a lack of maintenance of the drain. At best what he said might mean that the problem which was related to a depression in the ground had started some time back. And indeed it may have done. It is possible that it was the cumulative effect of lorries going over this part of the estate road beneath which was the drain that caused a depression in it which pushed down on the drain until it collapsed.
44. So I do not accept that what Mr Salthouse said showed that it was not an insured peril.
45. One then turns to the general evidence given by Mr Leonard, Mr Salthouse and Mr Cummings that when they excavated that did indeed find that the drain had collapsed. The photographs bear this out and show the depression in the road. Moreover Mr Salthouse and Mr Leonard both said that they took out a piece of broken pipe and showed it to Ms Schofield who placed it in the boot of her sports car. This was such an unusual and specific piece of evidence that I think it is true. In her WS Ms Schofield denied it but as she was not in the event called, the evidence on this is all one way. Moreover, Ms Schofield had the opportunity to speak to Mr Salthouse and Mr Leonard when she attended on Friday 12 September. If she had any reservations as to the cause of the problem she did not express them. This is not conclusive on the point but it does suggest that on its face the reason for the problem as given by Mr Leonard and Mr Salthouse was plausible enough.
46. In my judgment it cannot be said that this was not an insured peril.

Length of the works

47. This is relevant to the issue of payment, addressed below.
48. Aviva contends that the job took no more than 2 days and did not involve any weekend working. This is based in particular on the statement made by Mr Leonard in interview with Mr Wintrip at which his broker was present, among others, on 22 January 2009 when he said that the drain problem was "a simple job and took only two days..". (19/621). However Mr Leonard and indeed Mr Salthouse say that in fact the job took over a week. Because of the other evidence referred to below, I do think that it took significantly longer than 2 days. Although it does no credit to Mr Leonard I consider that the reason he lied in his interview (for it can be nothing else) is because he wanted at that stage to play down the whole incident in a context where he was being asked about previous claims and wanted to speed up the processing of his present claim for the fire in November. That is more or less what he eventually said in evidence about this answer in interview, having first said that he did not recall saying 2 days.
49. I accept that this was a reasonably substantial piece of work having heard from Mr Leonard and Mr Salthouse and seen the photographs. A significant length of the road had to be dug up and then the drain underneath removed and replaced. See the marked plan. The connections to it from the individuals units had to be refixed with some new connectors. A considerable amount of equipment was required. See the invoices discussed below. Also, although this is not conclusive, it is to be recalled that when Mr Salthouse gave a quote of around £8,000 Ms Schofield did not baulk at it. I have no doubt that as Mr Leonard said she was very anxious to have work start straight away to minimise disruption to, and potential claims by, the tenants of the units but nonetheless that strikes me as a very large sum for a simple two day job.
50. Some work was undoubtedly done on Thursday 11 and Friday 12 September. There are photographs showing Mr Salthouse and Mr Cummings by the drain at the stage when it was still in situ. On the face of one of the invoices concrete then arrived on the Monday. But this would be very much at the final stages since it could not be poured until the drain itself was fully reinstated and hardcore/backfill placed above it. Mr Leonard's own evidence initially was that the job would have been finished around then or possibly the Tuesday. But at the end of his evidence he said Thursday. Mr Salthouse said in paragraph 8 of his first WS the job took 10 days but when pressed on this said that he meant the equivalent of 10 8-hour days. In truth I think he was exaggerating when he said 10 days. Without clear documentary evidence it is impossible to be precise about this but I consider that the work started on around Thursday 11 September, went through the weekend (so as to be ready for concrete on Monday 15 September) and ended on around the Tuesday. That is more or less consistent with the date Ms Duignan wrote on the Main Invoice of 15 September. Absent clear evidence of it being sought before then by Ms Schofield (who after all had only authorised the work the Friday before) there would be little reason for Mr Salthouse to send it before the job was done. And if in truth it arrived later and the date was put on retrospectively there was no real logic in dating it before the job was done. The fact that Ms Schofield did want the job done as quickly as possible is also consistent with weekend working, even though there is no specific record of that having taken place.

The arrangement with Mr Salthouse

51. Just as Mr Salthouse gave a quotation to Ms Schofield so he gave a quotation to Mr Leonard on Friday 12 September. However, I do not accept that there was a binding contract between Mr Salthouse and JFP in the specific sum of £8,400 plus VAT although Mr Leonard has asserted this now. In truth I think that it was a contract to pay a reasonable sum for the work done. It is common ground that JFP never paid Mr Salthouse anything like £9,870. Instead it paid him as follows:

(1) £2,000 cash on Friday 12 September;
(2) A cheque for £1,000 on Monday 15 September;
(3) £2,000 cash on Friday 19 September;
(4) A cheque for £500 on Monday 15 September

making a total of £5,500.

52. Mr Salthouse has some equipment of his own. This includes a jetter used to clear blocked drains, a vacuum tanker, a muck spreader, a digger and two trailers which can be towed by tractors. He said that on this job he used both of his tractors, his trailers, the jetter and digger. If he was hiring out tractors he might charge £200 per day and £300 per day if he was hiring out the digger plus driver fuel and transportation. Obviously here he was using his own equipment as part of the overall contract rather than hiring them out to others.
53. Mr Leonard said that the monies he paid to Mr Salthouse were for his labour, materials and the use of his equipment. However, Mr Salthouse stated clearly that the cheques for £1,500 were for his labour and the remaining £4,000 in cash was a "sub" to him to cover the cost of materials and equipment hire from others. However what both of them say is that in the event Mr Salthouse, although the contractor for the whole of the works, did not pay for equipment hired from third parties, or material such as backfill/hardcore, concrete and new drain pieces and that JFP did instead. As can be seen from the breakdown referred to in paragraph 26 above, JFP's case is that one way or another it did in fact pay the amount claimed in the Main Invoice, in fact slightly more, for this job and that is sufficient to show that there was no fraudulent claim. It is therefore necessary to consider each item separately. I deal first with particular invoices from third parties then the payments to Mr Salthouse and Mr Cummings.

Mr Leonard's Diary entries

54. Mr Leonard used to write down payments and related items in his diaries. There are two entries of importance here.
55. First his entry for Friday 12 September shows Mr Salthouse as having worked on the Thursday and Friday and Mr Cummings all week. Against Mr Salthouse's name is "H/H" (ie Hoo Hill) and the figure 2000. Against Mr Cummings' name is "H/H" and then "Martin" then the figure 380.
56. Second his entry for Friday 19 September says this:

"Martin owes
Drain BXQ £380
Fleton Steel £90
Sean wages £1000 Fox Bros ?
Fence ?"

57. It is not suggested that he did not make these notes at the time.

Fox Bros Invoices

58. These were produced as part of the supplemental list on 25 February 2010. The first invoice numbered 1951 is dated 30 September 2008 and is for the hire of a mini-digger, breaker and dumper plus fuel for the hire period 12-19 September. The amount is £1162.66 including VAT. The second invoice from an associated company called Fylde Wood Shredding & Recycling Limited numbered 153 is dated 13 October 2008 and is for the supply of 7 sq.m of concrete delivered on 15 September. The amount is £1190.66 including VAT. I shall refer to these invoices as "the First Fox Invoices". I accept that it is likely that such equipment and material was used for this job. I certainly cannot say that it clearly was not.
59. There is no entry in any of JFP's books (or those of any of Mr Leonard's other businesses) to show that these invoices have been paid. There is an entry in JFP's purchase ledger for 18 December 2008 however showing a payment of £2,335.84 to Fox Bros with a reference number 17613038. This document was produced on 15 April 2010. There is also the cheque stub for that payment endorsed with the words "plant hire" produced on 6 April 2010. However that payment was not made in respect of the First Fox Invoices but what turned out to be two later invoices whose numbers combined to make up the reference number set out above. The first is dated 13 October 2008 numbered 1761 and is in respect of road sweeper hire for the period 29-30 September 2008 in the sum of £94 including VAT. The second is dated 1 December 2008 numbered 3038 and is in respect of equipment hire for the period 1-8 November 2008 in the sum of £2,241.84 including VAT. I shall refer to these two invoices as "the Second Fox Invoices". What this means is that as at the time when the Main Invoice was submitted to Ms Schofield in early October 2008 JFP had not paid the First Fox Invoices assuming that they were genuine. There was a question mark over even the Second Fox Invoices because it transpired that they had been submitted as part of the expenses claimed for the November Fire being site clearance. See 19/504. That itself must have been a false claim because the work to which the Second Fox Invoices relates was done before that fire. Mr Leonard admitted that there was an error in submitting them. When electronic copies of the Second Fox Invoices were sought it was said that JFP only had hard copies and that the electronic versions were with Fox Bros. Fox Bros in turn declined to supply such copies. Aviva contends that not only the First Fox Invoices but also the Second Fox Invoices were not genuine and had been concocted in some way. It is not necessary for me to make a finding one way or other about the latter. As for the former I am unable to find on the material before me that the First Fox Invoices were not genuine documents produced by Fox Bros. First as indicated above it is plausible that the equipment and materials they refer to were required for the job. Second I was provided with electronic versions thereof whose metadata showed in the "properties" section that they were created on the dates they bore ie 30 September and 13 October 2008. Of course it is possible to tamper with the dates and Mr Eklund QC said that although they were in excel spreadsheet form the totals did not appear to have been calculated using an automatic calculation function. Absent a full analysis of this, with expert evidence, this is far from sufficient to impel a conclusion that they were forged in some way. And the fact that there was some mis-spelling of the Hoo Hill estate name, among other errors of that kind did not seem to me to be compelling evidence either.
60. However the critical question is if and when the First Fox Invoices were paid by JFP. The invoices themselves are not referred to in the company books at all. Although the breakdown compiled by Mr Leonard referred to payments for these as "on acc" there is no entry of any kind in JFP's books that any payment on account of those invoices were made. Indeed Mr Leonard could not himself say that there had been. What was relied upon ultimately was an e-mail dated 3 March 2010 produced following the supplemental list, from Gill Barker at Fox Bros. which states as follows:

"This is a receipt for the amount of £2335.84 received on 15.12.08 cheque number 001569
Allocated as follows invoice 1951 £1162.66
invoice 153 £1398.25
This leave an outstanding balance of £225.07"

61. So the argument is that at some point the payment made against the Second Fox Invoices was actually used as payment for the First Fox Invoices leaving a small balance over. I find all of this highly implausible. First the e-mail does not say how or when this allocation was made or at whose bidding. Neither Ms Barker nor anyone else from Fox Bros were called to give evidence. If it was only made recently it cannot alter the fact that the December payment was for the Second Fox Invoices. Secondly, even if the e-mail were true there is a balance left over which has still not been paid. Third the question is then raised as to when the Second Fox Invoices were in fact paid. Mr Leonard and Ms Duignan said that they would have been paid later, in 2009, and that there should be a ledger entry to show this. Despite this point being ventilated fairly early in the trial, the fact that other documents were able to be produced during it and the obvious importance of the point, no such ledger entry or other proof of payment was ever produced. And of course when the November fire claim was made the Second Fox Invoices were presented as having been paid in December 2008 as the ledger shows, not some later date.
62. In those circumstances the only realistic conclusion is not only that on any view the First Fox Invoices were not paid at the time of the Main Invoice or anywhere near it, but that in truth they have not been paid at all. And even if some notional allocation had been made recently by Fox Bros all that really amounts to is JFP paying now a bill which it said it had paid long ago, and after the issue over the Main Invoice had arisen. That cannot assist JFP.
63. What this means is that at the time when the Main Invoice was submitted £2,560.91 thereof had not in fact been paid although the presentation contained in that invoice was that it had. Mr Leonard must have known that this was false and indeed has not suggested that payment was made at the time. So it was fraudulent.
64. Of course it is possible that Mr Salthouse himself paid the First Fox Invoices. He had on his evidence been given cash for such a purpose although he said that in the event he used it for purposes other than this job. But that cannot help JFP because if correct it had no business saying that it paid the First Fox Invoices anyway.
65. It is true that Mr Leonard makes a reference to Fox Bros in his diary entry for 19 September. But that is consistent simply with Fox Bros having supplied materials and equipment, not that JFP had paid for them. Equally, the fact that the First Fox Bros invoices were created at the time and emerged at some point is irrelevant if in fact JFP did not pay them.

Res bar steel petty cash -£90

66. Evidence of payment for such an item at the time has been produced. I cannot say that this has been concocted or that such an item was not needed for the job.

B & Q payment -£380

67. The original contention by JFP was that (new) drainage materials had been purchased at the time from B & Q as part of a payment in the total sum of £481.91 including VAT on 16 September 2008. If they were purchased then, it would surely have been too late given that concrete had been delivered on 15 September. Aviva checked the position with B & Q and obtained the till receipt for this transaction which indeed showed that the items purchased (including a new toilet seat which would have been for residential works being done at another part of the Hoo Hill site) were not the drainage materials claimed.
68. JFP then said that there was a mistake here. The £380 had not been purchased from B & Q although Mr Lund who worked as a site manager for Mr Leonard at the time had so informed him at the time. The goods had in fact been purchased from a different supplier namely Firwood. Before the trial handwritten documents bearing Firwood's name dated 16 and 17 September 2008 were produced, showing the purchase of drainage materials, in the respective amounts of £220.62 and £159.61. This comes to £380.32. Mr Lund gave evidence. He said that his practice was to write down what he had spent on a "spent" sheet which would show the supplier amount and job it was for but not the items purchased. He used cash but also debit and credit cards. He agreed that it was unlikely that he would have told Mr Leonard there was £380 spent on drainage materials at B & Q when this was clearly wrong but on the other hand he was on the verge of a nervous breakdown at the time because of his wife having an affair and on any view he was off work for significant periods not long after. Aviva invited me to disbelieve Mr Lund altogether and also to reject the Firwood documents as not being genuine. I am not prepared to do so because although belatedly, during the trial JFP did produce a selection of other documents from Firwood which were of a similar kind together with till receipts. It appeared from these that often, goods might be collected but paid for later and that the sheets were filed out later. Also Mr Cummings volunteered in evidence that it was actually he who had gone to get these materials at the time. He did so after hearing the point being ventilated with other witnesses. I thought that here his evidence had the ring of truth about it. Finally, there is an entry on Mr Leonard's diary for "Drain BXQ £380". This is contemporaneous evidence he thought at the time that the materials had come from B & Q in that amount.
69. So I do not find that this element of expenditure is fraudulent.

Access all areas -£329 -fencing

70. There is no entry in JFP's books in this amount. But JFP rely (a) on an invoice from Access All Areas (Scaffolding) Ltd ("AAA") dated 12 September 2008 for the supply to "barrier temporary fencing" in the sum of £329 plus VAT making £378.35 and (b) a payment to AAA of £446.50 by cheque on 15 September 2008. There are various discrepancies here:

(1) First the invoice is numbered 226 and is addressed to another of Mr Leonard's companies LPS. But it seems out of sequence with other invoices, addressed to JFP. See invoices 222-225 from May to August 2009. Those other invoices formed part of the expenses claimed in relation to the November fire. See 19/471504;

(2) Second the payment relied upon amounts to £380 plus VAT not £329 inclusive of VAT. Mr Leonard says that the £329 was an agreed amount exclusive of VAT and there is writing to this effect on the invoice at 18/28. Mr Leonard says that he received a credit to bring the cost down to £329 but there is no evidence of this. There is a credit note in the sum of £100 plus VAT but this is undated and in the wrong amount;

(3) Third the invoice is dated 12 September 2008 but charges VAT at the post-November 2008 rate of 15%. That would be impossible unless the invoice was produced at some point after its date. Mr Leonard had no real explanation for this. There was no evidence, for example, that a payment might have been made without an invoice in 2008 and then an invoice produced to evidence it in 2009 when VAT had changed.

71. In my judgment this invoice was not actually produced at the date which it bears. And I do not accept that the sum claimed therein (with or without VAT) was the cost of the fencing then supplied. I accept that some fencing was required and indeed a small section can be seen on one of the photographs. But in my judgment there is no evidence of how much was actually charged or paid for it. It follows that there is no evidence that JFP had paid £329 for it at the time when the Main Invoice was sent to Ms Schofield. Precisely how or when the disputed invoice was in fact produced is not necessary for me to say.

Woods Waste stone -£193.99

72. There are documents to show a payment in this amount at the time and it is not suggested that it has been concocted.

Payment to Sean Cummings of £1,000

73. I accept that Mr Cummings received £1,000 from JFP. This payment is noted in the diary entry for 19 September. The diary note for 12 September records Mr Cummings as having worked at Hoo Hill all that week. It is common ground that there was other work going on for which he would be required. The note then shows "£380" and "Martin" against Mr Cummings' name and the cash ledger shows a payment to him of £320 on 12 September. But these sums are not claimed in relation to the Main Invoice. Mr Cummings said that he was there that week and saw Ms Schofield when she visited. He said that by then there had been some excavation. He thought that if there was no claim for the monies paid the previous week then he did not work on the drain then. But he did work on it for some days. He also thought that the work on the drain was about 6 days or a week and that they worked the weekend. His usual daily rate was £100 per day so £1,000 for 6 or even 7 days was paying at a higher rate. Nonetheless it was possible because they worked late and at the weekend. Although the evidence is not very clear on the point I cannot say that the £1,000 paid to him was not in respect of the drain job.

Payments to Mr Salthouse

74. I do not accept that Mr Leonard considered that JFP was bound to pay Mr Salthouse (whether directly or indirectly) a fixed contract sum of £8,400 plus VAT agreed at the outset. I accept, as Mr Salthouse, says, that he received £4,000 in cash for equipment and materials. He then had a cheque for £1,000 for himself as it were. There is also a cheque for £500 which Mr Leonard says was for this job. On the basis that in fact JFP bore all the other costs Mr Salthouse in fact received £5,500 for his labour and equipment. That seems high and of course at the time Mr Leonard thought, as I find it, that £4,000 was going on equipment and materials from third parties. I am quite sure from the note of 19 September which refers to what "Martin owes" that Mr Leonard thought he had been paid enough by then. The word "owes" suggests that Mr Salthouse should pay something back to Mr Leonard or JFP. But that would not follow if the true agreed price was £9,870. I should add here that on any view it would be wrong to say that as at the invoice date of 15 September £9,870 was due to Mr Salthouse. That is because according to Mr Leonard's note, he had already received £2000 the Friday before.
75. Furthermore, in my judgment the £500 paid on 23 September was nothing to do with this job. It is recorded in JFP's books as relating to residential works at Hoo Hill. See the ledger for those works at 18/123 and the description on the cheque stub ("residential (houses)") at 18/125. All Mr Leonard could say about this in evidence was that he could allocate payments how he liked and he mixed up residential and other work at Hoo Hill. I do not accept this. In my judgment Mr Leonard has simply added this payment in later so as to reach, with other payments, a total sum equal to or in excess of that claimed in the Main Invoice.
76. Aviva's case is that Mr Salthouse was paid a total of (at best) £5,000 in respect of this work and that this was the true cost. He was meant to purchase all the materials and equipment hire out of this sum so that to the extent that JFP spent money on additional items this should have been repaid by Mr Salthouse. On the findings made above this was something in the region of about £1,700. That would then have left Mr Salthouse with something like £3,300 for his own labour and equipment. That would sound reasonable save that if he had paid the Fox Bros invoices as well he would be down to about £1,000.
77. Part of the reason why Aviva says that the £5,000 actually paid to Mr Salthouse was the true cost of the job was because it also maintains that in truth it took not much more than 2 days. I have rejected that contention.
78. It seems to me that the only approach I can take is to look at what was claimed ie £9,870 and what costs were in fact incurred by JFP. The actual costs are the key issue because JFP was entitled to no more than an indemnity from Aviva.
79. Mr Vaughan invites me to say that the actual costs do not matter because there was a fixed price agreement between JFP and Mr Salthouse in the sum of £9,870. But I do not accept that there was. Mr Vaughan said that the final payment of £500 could be regarded as a sum agreed to be paid after a final accounting between Mr Leonard and Mr Salthouse. But there is absolutely no evidence to support this. Indeed Mr Salthouse told Mr Wintrip in May 2009 that he had received some money for the job but he did not know whether he had been paid "all of the £9870 yet" (4/347).
80. Moreover, as at 19 September in Mr Leonard's view Mr Salthouse owed him money for expenditure made by JFP. See the diary note. He was hardly likely therefore to pay him another £500 on the following Wednesday. Mr Leonard did say that what the note meant was that Mr Salthouse would have to give credit for those sums expended by JFP which he should have paid rather than necessarily pay them back. I do not agree (see paragraph 74 above) but in any event the fact remains that no accounting actually occurred between them. Mr Leonard said that the expectation was that Mr Salthouse would receive payment from Aviva and then remit the monies owed to JFP. That never happened because of course Aviva paid JFP. That is because the Main Invoice clearly suggested that JFP had already paid Mr Salthouse. And when Mr Leonard was pressing for payment as shown in Ms Schofield's notes he was seeking payment for JFP not for Mr Salthouse.
81. I also reject the suggestion that the contract became fixed price once the Main Invoice was sent because it arrived part-way through the job and no objection was taken. But in my view it did not arrive in the middle but more or less at the end. And in any event there was no evidence from Mr Leonard that he accepted the invoice amount as being the agreed price then. His case (which I rejected) was that it was a fixed price contract from the outset. And the focus of delivery of the invoice was to get it sent to Aviva so that the claim could be paid out.
82. As against Aviva, JFP was only entitled to be indemnified only for what it had spent.
83. On the findings made above it spent £5,000 on Mr Salthouse and a further £1,700 making £6,700. Quite apart from the fact that on any view, JFP had not paid £9,870 to Mr Salthouse it had not actually paid out that total sum to anyone. To that extent the claim was exaggerated and it can only have been knowingly so.
84. It is no answer to the point that JFP did not pay the First Fox Invoices or the amount of £329 for AAA that there was a contract in any event with Mr Salthouse for £9,870. First because there was no such contract. Second because it does not alter the fact that JFP never paid Mr Salthouse in respect of those invoices. Third because it falsely represented to Aviva that in effect it had, because on its case they formed part of the £9,870 allegedly paid.
85. The true position is, in my judgment, obvious. Mr Salthouse had given a quote to Ms Schofield for £8,000 or so plus VAT. He and Mr Leonard agreed that he should put in an invoice for around that sum. I do not believe that Mr Salthouse would have sent the invoice when he did without prompting by Mr Leonard who in turn was being chased after 23 September to send it in. The manuscript additions made by Ms Duignan but at the instance of Mr Leonard were designed to show that the monies claimed in the invoice were all properly due to Mr Salthouse and had been paid to Mr Salthouse. This would then avoid the need to go into who exactly paid for what. Because the only relevant party was the contractor. Aviva would apparently have a receipt from Mr Salthouse written on the invoice which was in the region of the quote and that would be the end of it. This was a dishonest way to proceed. The honest way would have been to state exactly what had been spent on what by JFP producing the relevant invoices.
86. Then, once the issue over the Main Invoice was raised by Aviva in the context of the present claim Mr Leonard has had to scrabble around to try and make a list of payments fit the amount of the invoice knowing that JFP only paid Mr Salthouse at most £5,000.

Conclusions on the drainage claim

Fraud

87. I therefore find as follows:

(1) JFP falsely and fraudulently stated by submitting the Main Invoice in its ultimate form to Aviva that

(a) Mr Salthouse was owed £9,870 by JFP for the work done and

(b) JFP had paid that sum to him;

(2) The claim for £9,870 was fraudulently exaggerated anyway because on any view JFP had not paid more than about £6,700 to anyone; here even if an allowance for some fencing were included it would not make much difference;

(3) The claim made was thus both fraudulent and intentionally exaggerated within the meaning of Condition 7;

(4) The Main Invoice, as sent, was also a fraudulent declaration or statement or device within the meaning of Condition 7 firstly because of the matters referred to in sub-paragraphs (1) -(3) above and secondly because the number 2345 AND "2645 CONT" and "PAID IN FULL WITH THANKS" were written on it as if they had come from the author of the invoice Mr Salthouse. In fact they did not, as Ms Duignan and Mr Leonard knew;

(5) Although there is no further requirement under Condition 7 or the common-law rule as to fraud to show that the insured was dishonest, it must follow on the facts found by me here that Mr Leonard (and thus JFP) was, in relation to the matters set out in sub-paragraphs (1) to (4) above.

A lesser genuine claim?

88. The terms of Condition 7 are entirely clear. It would be no defence to its operation for JFP to say that a lesser claim could have been made in a non-fraudulent manner.
89. Nor, on the facts of this case, would such an argument have assisted it if Aviva were simply to rely upon fraud at common law. It is clear law that if a claim has been dishonestly exaggerated or tainted by fraud then the insurer can avoid liability for the whole of that claim – see for example the observations of Evans LJ in Diggens v Sun Alliance [1994] CLC 1146 at p1164-1165. To the extent that the fraudulent element needs to be "substantial" the fraud here was substantial – the claim was worth at least around £2,500 less than the sum claimed of £9,870 looking at the figures alone. See in this regard the decision of the Court of Appeal in Galloway v GRE 15 October 1997 and in particular the observations of Millett LJ towards the end of his judgment as follows:

Assuming (without deciding) that a policy of insurance is avoided only by a claim which is "substantially fraudulent" or "fraudulent to a substantial degree", I reject the submission that this is to be tested by reference to the proportion of the entire claim which is represented by the fraudulent claim. That would lead to the absurd conclusion that the greater the genuine loss, the larger the fraudulent claim which may be made at the same time without penalty. In my judgment, the size of the genuine claim is irrelevant. The policy is avoided by breach of the duty of good faith which rests upon the insured in all his dealings with the insurer. The result of a breach of this duty leaves the insured without cover. In the present case the insured took advantage of the happening of an insured event to make a dishonest claim for the loss of goods worth £2,000 which to his knowledge had not occurred. In my view, the right approach in such a case is to consider the fraudulent claim as if it were the only claim and then to consider whether, taken in isolation, the making of that claim by the insured is sufficiently serious to justify stigmatising it as a breach of his duty of good faith so as to avoid the policy.

The making of dishonest insurance claims has become all too common. There seems to be a widespread belief that insurance companies are fair game, and that defrauding them is not morally reprehensible. The rule which we are asked to enforce today may appear to some to be harsh, but it is in my opinion a necessary and salutary rule which deserves to be better known by the public. I for my part would be most unwilling to dilute it in any way."

90. See also the decision of the Court of Appeal in Direct Line v Khan [2001] EWCA Civ 1794 which cites the dicta of Millett LJ with approval. Although the latter case was concerned with an argument that the fraudulent insured could have made an honest but different kind of claim, which was rejected, the general rule applies equally to where the argument is that the insured could have claimed a lesser amount in the same kind of claim.

Proportionality?

91. Nor can JFP rely on a concept of proportionality to the effect that if in truth it had paid out most of the sum claimed, Condition 7, or fraud at common-law should not apply. Neither Diggens (supra) nor Orakpo v Barclays [1995] IRLR 443 is authority for the proposition advanced in JFP's written submissions that "the nature and extent of the fraud must be viewed proportionately with regard to the likely harm that is likely to be caused to the insured." In Orakpo (supra) Staughton LJ, made some observations which were obiter which might be said to support that proposition but he was in the minority in this respect.
92. Moreover Condition 7 applies here and there is no basis for introducing a proportionality requirement into it.

Reliance

93. Mr Vaughan suggested that before Condition 7 operates Aviva must show that it relied on the fraudulent statements which I have found. I disagree. There is no such further requirement in Condition 7.
94. And even if there were, although there was no positive evidence on the point from Aviva, I am entitled to and do infer reliance upon the statements here as referred to in paragraph 87(1) above. Had Ms Schofield known the true position Aviva obviously would not have paid out £9,870 since this had not been spent by JFP. And I have no doubt that it would then have gone through all the underlying invoices and payments very carefully indeed. Submitting the Main Invoice in the form sent was designed just to avoid such consequences. And at the time it succeeded.
95. Mr Leonard in fact admitted in cross-examination that he intended Ms Schofield to have the invoice as a statement of the amount owing to Mr Salthouse and that she should rely upon it. Insofar as that admission did not cover reliance in the sense referred to above, I find that he so intended. It is the only realistic conclusion to reach.

Consequences

96. On its face, if Condition 7 operates, Aviva is in the same position as if it had avoided for material misrepresentation or non-disclosure at inception. So it is not liable to indemnify in respect of the November fire and can reclaim the monies paid out on the Drainage Claim and the June 2008 fire. Whatever the common-law position might have been is irrelevant since Aviva has invoked an express condition of the policy whose meaning is clear – Aviva "may avoid the policy from inception".
97. Aviva concedes that if it could rely only upon fraud at common-law then it could not recoup the monies paid out on the first, honest, fire claim. But Mr Vaughan argues that in this case, Aviva would be prevented from denying liability to indemnify JFP for the November 2008 fire. The argument runs thus: if the fraud is based on the Fox Bros invoices, these were not served until well after the November 2008 fire (the claim for which was intimated on 26 November), in fact only in support of its position in these proceedings. So the fraud did not occur until after the fire. He then invokes what Mance LJ said obiter in Axa v Gottlieb (supra):

"...there is no basis or reason for giving the common law rule relating to fraudulent claims a retrospective effect on prior, separate claims which have already been settled under the same policy before any fraud occurs. It is unnecessary to reach any conclusion in this case on the common law position relating to separate claims which are still unpaid at the time of the fraud, though there seems to be some force in the argument that the common law relating to fraudulent claims should be confined to the particular claim to which the fraud relates while the potential scope and operation of more general contractual principles might in some circumstances also require consideration.."

and submits that in truth the November fire claim is an unpaid claim which arose prior to the fraudulent drainage claim.

98. This is a hopeless contention. Quite apart from the fact that what Mance LJ observed was indeed obiter the fraud here was perpetrated by the sending of the Main Invoice to Aviva in the circumstances described above (as was pleaded in paragraph 25 of the Defence and Counterclaim) . This occurred in early October before both the fire and the claim made in respect of it. The fact that JFP has sought to shore up its position falsely in these proceedings by false reliance upon some particular documents is neither here nor there. Moreover this point is academic since Condition 7 applies and there is no need to resort to the common law rule.
99. Accordingly, Aviva is entitled to avoid the subject policy and recover the sums paid out on the earlier fire and the Drainage Claim.

LANGDALE 9

Introduction

100. Aviva alleges that in February 2007 Mr and Mrs Leonard made a false claim against the insurers of their lodge at Whitecross Bay known as Langdale 9 ("the Lodge"). It is said that they took out a policy with Park Home Insurance Services Limited ("Park Home") (which was underwritten by NIG) to cover the Lodge after they had discovered that it had been affected by flood damage and then made a claim representing that the damage had occurred after inception. If correct it is accepted by JFP that such a fraudulent claim ought to have been disclosed to Aviva at inception of the subject policy and as it was not, Aviva was entitled to avoid it from inception and reclaim all monies paid thereunder.
101. It is common ground that Mr and Mrs Leonard signed a written contract for the purchase of the Lodge on 1 May 2006 when they paid a deposit of £4,000. The sale price was £45,000 and site fees were £3,170 for the rest of the year. That left a balance payable of £44,170. This was paid on 20 May to Rebecca Morphet, the daughter of John Morphet the then owner of Whitecross Bay but who was in the process of selling it to South Lakeland Parks Limited ("SLP"). The receipt says that payment was made by credit card. In fact Mr Leonard says that it was by debit card because he had more than £50,000 in his bank account at the time. It is also common ground that between 14 and 26 February 2007 calls from Whitecross Bay (015394 43937) to Mr or Mrs Leonard were made on one day only namely 14 February 2007. There were two calls, the first being at 16.02pm to Mr Leonard's home landline, for 2 mins 35 secs and the second at 16.06pm to Mr Leonard's mobile, for 3 mins 30 secs. Then, on 15 February, Mrs Leonard telephoned Park Home to obtain a quote for insuring the Lodge (see transcript at 9/23-30). The total price of £250.95 for the year was acceptable. Mrs Leonard wanted cover to start as soon as possible. The operator said that paperwork would go out in the post. On the next day Mrs Leonard rang back and asked to be put on cover immediately which was done by a credit card payment. A cover note effective 16 February 2007 to 16 February 2008 was duly sent out. A blank proposal form was set out on 19 February.
102. On 26 February Mr Leonard telephoned Park Home to report that the Lodge had been flooded. He said that he may have called first on 24 February but there is no record of such a call. As a result he was sent a claim form to fill in. On 28 February he called again about the claim. In the meantime, on 26 February Mrs Leonard completed the proposal form. In answer to Question 13 "have you ever insured the buildings and/or contents of this or any previous home?" she ticked the "no" box and added: "Recently bought our holiday home thus first time insured." This form was received on 28 February and on the same day the policy itself was issued. Mr Leonard then said that he wished to be joint policyholder and on 4 March he sent in his own proposal form which was blank save for the Leonards' name and address etc and his signature. An amended policy showing both names was sent out on 8 March. Originally Mr Leonard sought around £70,000 on the claim on the basis that the Lodge would effectively have to be rebuilt but ultimately it became apparent that it could be repaired and the claim was settled at £8,500.
103. It is also clear from the detailed weather records that between Tuesday 6 and Friday 9 February there was a severe air frost in the area of Whitecross Bay with minimum temperatures between -7 and -9 ºC. There was no frost between 10 and 24 February save on 18 February when the minimum temperature was -4 ºC on that day alone.

The Rival Contentions

104. Mr Leonard says that at the time when the Lodge was purchased he effected insurance by paying £400 in cash to James Morphet the son of John Morphet. He never asked for, or received any documents although it was a rule of the park that lodge owners should deposit copies of their insurance certificates. But he was not chased up at the time either. Then, on about 14 February he received a call from the new owners at Whitecross Bay (ie SLP) asking for a copy of his insurance certificate which he did not have. They said they had no record of any insurance. This caused him to ask his wife to seek new cover on the Lodge which she did, as recounted above.
105. Mr and Mrs Leonard say that they first visited Whitecross Bay after the winter on Saturday 17 February when they started to move things back into the Lodge. All was well then and Mr Leonard turned on the mains water supply which he had turned off at the end of the season in November 2006. The new season was to start on 1 March and they could not stay overnight until then. They then came back on 24 February and found that the Lodge was flooded with about 2 inches of water on the floor. There had been a major leak. They had no prior warning from Whitecross Bay about this. They then made the insurance claim described above.
106. Aviva contends that either or both of Mr Hodgson and Mr Holdsworth, both employed at Whitecross Bay at the time, discovered the leak at the Lodge 9 (such leaks not being uncommon) and telephoned the owner as was their usual practice. The only day when this could have been done was 14 February. But if so, the later insurance claim was made fraudulently. It follows that the true reason for the telephone calls on 14 February is critical, as both sides accept.

The Evidence

107. Mr Holdsworth was called by JFP. He was the Assistant Park Manager and Sales Manager at Whitecross Bay at the time and lived on site. He was based in the sales office not the main office. He no longer works for SLP. He said that he discovered the leak one morning as he walked to work, past the Lodge. He could not recall the date but it was mid-week, towards the end of the off-season at the time when they were making the park ready for the new season. He turned off the stop-cock and would have contacted Mr Leonard about it. On 13 April 2007 he provided information to NIG by then investigating this claim. There are notes of two conversations with Mr Holdsworth that day made by Lisa Coombes of NIG. It seems that she called him as the Site Manager. In the note of 9.40am he said that he had discovered the leak and was unsure of the date but it was midweek. He called Mr Leonard at the time. He did not attend the same day but waited until the weekend. It is material to note here that 14 February was a Wednesday, and therefore mid-week on any view. He also said that it was at the start of the season, early March. On any view that was wrong. Ms Coombes asked him to check because the leak had been reported in February, and revert. Mr Holdsworth did so at 15.40pm. He said that he could not confirm when he discovered the leak but it was "definitely" mid-week. He thought it strange because Mr Leonard did not actually attend following his call until mid-week of the following week. He said that he discussed the incident with his area manager who also stated that Mr Leonard did not attend the property until a week afterwards. On 27 April he was asked and agreed to obtain telephone records for Whitecross Bay to see when the insured might have been notified but despite several chasers he never reverted with that information although he says he asked his manager for it. NIG did later obtain it however.
108. Mr Holdsworth said that he thought that the telephone calls on 14 February were nothing to do with reporting the leak – they would have been too early – and were in fact calls made by him as part of his general role in generating business for the park. He would speak to owners about the possibility of upgrading to better lodges but would also use such calls to see if the owners' paperwork was in order which would include insurance. It was however a "guesstimate" that he spoke to these particular owners on 14 February. He has no specific recollection of a conversation with them. It was his regular practice to speak to everyone however but he could not say when he spoke to Mr Leonard. He would normally make a note of such a conversation but had not checked whether there was one here. He consulted no records about this. Mr Holdsworth did not mention to Ms Coombes that he called Mr Leonard about insurance at around this time even though there was a focus on calls being made to him by NIG. In fact the thrust of his call would have been about upgrades, as Mr Holdsworth confirmed in examination in chief, but Mr Leonard did not say that he was asked about that.
109. As for the calls to notify them of the leak he had to deal in evidence with the fact that the only landline records for Whitecross Bay show the calls being made on 14 February. At one stage he said that these records did not show calls from the sales office where he worked which had a separate number. So he could have called about the leak on another day. However it transpired from the very clear evidence given by Mr Watson that there was no such separate or direct line to the sales office. Any call from there would be shown on the records as being made on the main number. But Mr Holdsworth also said in evidence, for the first time, that he may have made the call to the Leonards on his mobile phone. Indeed at one point he said he did make the call this way. There is no reference in his WS or any other note to calling them on his mobile. He said that he regularly used both his mobile phone and landlines to call lodge owners. But he only mentioned it to JFP's solicitors in the week before the trial. I found this part of his evidence very unsatisfactory. The question of the telephone calls is key and if all the focus on the case was on landline records (disclosed in January 2010 by Aviva) when they may have been of limited value because the calls could have been made on a mobile it is remarkable that this did not emerge before, particularly when Mr Holdsworth agreed to obtain the records for NIG. Nor were Mr Holdsworth's mobile records produced back in 2007. Moreover Mr Watson's evidence confirmed that contact details for owners were kept in the general office. If someone had spotted a leak the logical thing would be to go to the main office find the relevant telephone numbers and then call from there on the landline. It is difficult to see why Mr. Holdsworth could not make contact by the landline. Mr Watson also said there was a poor mobile signal in the buildings. He said it was not part of Mr Holdsworth's job to check on insurance anyway although this was not put to him in cross-examination. It is said that Mr Holdsworth agreed his sales role with the directors not Mr Watson but the issue here is checking on insurance. I consider that if Mr Holdsworth informed the Leonards of the leak he did so on the Whitecross Bay office landline.
110. I take the point that Mr Holdsworth seems to have been identified at an early stage as the member of staff who contacted the Leonards about the leak. But that does not mean he is right about either the date when he did so or earlier calls about insurance. And if he called them about the leak it cannot have been on or after 24 February (see paragraph 119 below).
111. Mr Holdsworth said that although he did say to Ms Coombes' in the second conversation that Mr Leonard did not come to the park for a week, he had in fact come at the weekend. But then I do not follow why he said something else when he reverted to her having been asked specifically to think about this matter. He also said that "mid-week" could have meant Wednesday Thursday or even Friday. Friday as "mid-week" does not seem very plausible to me. The clear thrust of the second note (and there is no reason to doubt its accuracy) is that those at Whitecross Bay thought Mr Leonard had taken a long time to visit the Lodge after being informed.
112. Although he said that when he discovered the leak it was "definitely" towards the end of February it is not clear why he was so sure especially when he told Ms Coombes it was early March. He said that he knew it was near the end of the season because he was checking that all was in order but that was not a strong point since he said that he discovered the leak not as part of a pre-season check but on the way to work.
113. Generally I did not find Mr Holdsworth to be a very reliable witness. I do not accept that his evidence gave any real corroboration to JFP's case that the calls on 14 February could not have been to report the leak and were in fact about insurance. I agree that the fact that there were two calls on 14 February would not be inconsistent with calls from Mr Holdsworth to discuss insurance because Mrs Leonard may have asked him to call her husband. But that point hardly outweighs the difficulties with his account described above.
114. Mr Hodgson was called by Aviva. He was the maintenance manager at Whitecross Bay at the time. He recalls discovering the leak while doing his rounds when the park was closed so sometime before 1 March. He would be looking for escapes of water from burst pipes and listening for the sound of rushing water. He turned off the stopcock and saw about 2 inches of water inside the Lodge. He specifically recalled this leak because it was a bad one. He saw water running out of the Lodge. He also recalled someone later coming to do work on the Lodge after the flood which work started before the park opened and he had to give special permission for him to stay overnight. He also said that what was unusual was that he received no contact from Mr Leonard following his being told and did not see him at the park for some time. He could not recall actually making any telephone calls to Mr Leonard but thought that if the only calls were on 14 February they must have been about the leak. Given that there were two calls he said that the caller must have been asked to call someone else, and possibly Mrs Leonard asked him to call Mr Leonard whether because she was upset or otherwise. In his experience it was not unusual to be asked to call someone else. I did not find that implausible. He was not sure that it was he who called them but certainly he went to the office and told Mr Watson (the general manager) about it. I thought that Mr Hodgson was a very fair and honest witness. He accepted that he could not be certain about dates or who made the calls but was clear that he did discover this leak and that someone would have called Mr Leonard. His evidence that he discovered the leak was not in fact challenged. It does not seem to me to be an answer to that to say that there was no need because he may well have believed it.
115. Although Mr Hodgson cannot be sure that it was he who called the Leonards, what emerges very clearly from his evidence and that of Mr Holdsworth is that it is inevitable that they would have been called. But Mr Holdsworth's evidence that he called them other than on the landline 43937 is implausible for the reasons already given. If so the only candidate remains 14 February. And Mr Holdsworth's positive evidence that he would have called on 14 February to make a sale pitch and ask about insurance is itself limited, as noted above. Further, Mr Leonard does not say that the call to him on 14 February was about anything other than insurance. He was not asked about upgrades or given any sales pitch.
116. It is correct to add that Mr Hodgson recalls substantial works being done at the Lodge before the season started whereas the major repair work was not in fact done until much later. He may have been confusing this with the attendance at the Lodge by Mr Cummings (see below). It is also correct that in an initial brief statement he said he could not recall the date or month when he discovered the leak. But the truth is that neither Mr Hodgson nor Mr Holdsworth could be sure of dates. This is not a reason to think that Mr Hodgson was wrong when he said he discovered the leak. Indeed he accepted that both he and Mr Holdsworth discovered it. But the undoubted fact of the discovery of the leak at a point in time before 24 February when the Leonards were on site does not itself assist on the purpose of the call on 14 February. It was said that if he had discovered the leak on 14 February he would have remembered it specifically because it was Valentine's Day. I do not think there is anything in this point.
117. As noted above Mr Watson gave evidence, too. He accepted that James Morphet was on the office staff and could take money from lodge owners but would give them a receipt. He would then be required to tell the office about the transaction and put it on the system. Obviously if he failed to tell them the office would have no record. He also said clearly, and there is no reason to doubt it, that there was only one number for Whitecross Bay. All callers would be put through to reception and then given three different internal numbers. But outgoing calls from whichever office are shown as from the single number. He also explained that the telephone records produced were for all the SLP sites (for example Morecambe, Ocean Edge and Head Office) not just Whitecross Bay. But the only number relevant to Whitecross Bay on those records was the 43937. He also said that there was a poor signal for mobile phones within the main office. It is true that paragraph 15 of Mr Hodgson's WS says that he received calls to his mobile phone from the general office. These would be to him while on site or elsewhere in the main building. This is not actually inconsistent with what Mr Watson said about the signal in the office. Mr Watson said that Mr Holdsworth worked under him and his job was to do sales, not chase up insurance. He had sales targets. It is correct that this was not put to Mr Holdsworth and it is not impossible that Mr Holdsworth could decide to check on insurance as well – but it does seem somewhat unlikely especially where, according to Mr Leonard, there was no sales pitch made to him – the only point was insurance. Mr Watson also said that owner contact details were kept in the office so someone would have to get them from there. He fairly conceded that it would have been possible for someone like Mr Holdsworth to ring into the office and ask someone to go and get those details so that they could be called from outside. But again this seems somewhat unnecessary. Mr Holdsworth was on his way into work when he says he spotted the leak. And it is hard to see it as being of such urgency that it could not wait until he went into the general office.
118. Mr Watson also explained the system for insurance quotations. He said that new owners were asked at the time of completion if they would like an insurance quotation from Whitecross Bay in respect of its own block policy. If they said they would, then a letter would be sent out. That would be the subject of the entry for 7 June 2006 here. See the record at 4/473. On this basis the Leonards must have asked for a quotation initially. Of course if they received the letter they could have ignored it and seemed to have done here. Until Mr Watson gave evidence it seems to have been thought that the contact recorded for 7 June was verbal rather than by letter.
119. On any view if Mr Holdsworth and/or Mr Hodgson were right and there was at some stage a call to Mr Leonard about the leak, this conflicts with Mr Leonard's own evidence which was that he received no such call until he was already at the Lodge on 24 February. That was a Saturday. But neither of them said that they called him then when no doubt he would have said that he was already there. Both said that there was at least some time before he came to the park. This cannot be ignored even though there was no record of visitors and it could in theory be the case that he came in unnoticed. Also since both agreed that the owner would be called the same day, had they called on 24 February they would have discovered it that day. But Mr Leonard was already there. So there would be no need to call him. So it must follow that there was a call before 24 February about the leak. But Mr Leonard does not accept this.
120. The weather records, although not conclusive, point much more firmly to the conditions for a burst pipe being in place on or before 14 February than between 17 and 24 February. A prolonged period of severe frost ended on 10 February and the subsequent thaw makes a leak discovered on 14 February entirely likely. One day's worth of a lesser frost on 18 February was less likely to have caused a burst pipe. I do not accept JFP's suggestion that an earlier leak must have started on 10 February and so would have gone unnoticed for 4 days if Aviva was right. That ignores the time for a thaw which could be more than a day. It was not the case that staff would only be looking for leaks in the cold weather itself. Mr Hodgson said that they would look around after a period of frost.
121. Mr Leonard says that he was contacted by a sales manager at the park asking for insurance details. He puts the date as around 14 February. He now says that it was Mr Holdsworth although he did not know him at the time. He was apparently new to the park. In fact Mr Holdsworth was not new – he had joined the previous September. In his WS Mr Leonard says that he explained how he had paid £400 for cover under their block policy but they claimed to be unaware of this. He does not suggest that any form of sales pitch was made to him.
122. As to the previous insurance, Mr Leonard said that he procured it by a payment of £400 in cash to James Morphet at the time when he was completing the deal. But given that he paid the purchase price and the site fees by debit card it is very hard to see why he paid Mr Morphet in cash even if he had that much on him. It is equally hard to see why he was never given any document (a policy or even a receipt) to prove the insurance or why he did not ask for it, having parted with a large sum of money. Paragraph 23 of his WS and oral evidence is to the effect that he purchased the insurance at the time of completion ie 20 May. If so it is difficult to see why Rebecca Morphet would not have raised the question of insurance and why he did not pay her. Indeed the receipt has a space for insurance. And if he purchased insurance at completion there would have been no reason for him to request or to agree to have sent to him a written insurance quotation of the kind sent later on 7 June 2006.
123. In his paragraph 43 of his statement to NIG dated 30 May 2007 in support of his claim he said that it was possible that he was contacted about this and would have told them he would be "shopping around". In evidence he accepted there must have been some sort of contact and later said he did tell them that he would shop around. This was all in the context of the assumption that someone from Whitecross Bay spoke to him on 7 June. That now seems to be wrong because it was a letter. But it is worth noting that paragraphs 44 and 45 of that statement clearly suggest that he paid the £400 at some time after 7 June ie well after completion. But that is not his case now.
124. It is also to be noted that Ms Coombes' note for 16 April at 9/231 says that Mr Leonard told her that there was a gap in cover of 9 days. As new cover was sought on 15 February and the existing one apparently ran out at the end of January I did not follow this. Moreover his evidence here was that he discovered on 14 February that he had no cover at all at least as far as SLP was concerned. But he never mentioned this to Ms Coombes. It is said that there was no need to because Ms Coombes was talking about the new cover not the old one. I do not agree. He was being asked about when his last cover expired and the circumstances in which he purchased it. He also said that when he and his wife were away ski-ing so they took out insurance with NIG when they returned. But that does not fit with being alerted to the fact of no insurance here on 14 February. He also said there that when he purchased the property the site fees and insurance were "paid as one and pro rate for the year." That is not his case now. He also asked why they were checking prior insurance. That was at 9.07am. At 3.25pm Mr Leonard called back to say that he paid £400 for site fees insurance water rates and electricity. That was not right either. Again he asked why she needed to know about previous cover. Mr Leonard did not positively allege that Ms Coombes had incorrectly recorded what he said. At best, he said that he could not recall speaking to her (for example on the note at 9/231). In those circumstances although Ms Coombes was not called to give evidence there is no reason to suppose that her notes were not accurate.
125. Also, on Mr Leonard's case Mr Morphet had pocketed the £400 cash without ever giving him insurance cover – yet Mr Leonard seems not to have complained about this to SLP nor did he try and pursue Mr Morphet. It was suggested that Mr Morphet had an incentive effectively to steal from Mr Leonard as the family was selling the site and moving away but that does not sound very plausible. There was no evidence that he was disposed to do such a thing.
126. It is also odd that Mr Leonard made no mention of how he now says he discovered he was not insured in his statement to NIG dated 30 May 2007. Instead he there says that he sought insurance with Park Homes simply because it was time to renew – see paragraphs 48 and 49.
127. In evidence Mrs Leonard said that she had received the first call from Whitecross Bay on 14 February and as a result called Mr Leonard to say that there was no insurance. But paragraph 5 of her WS says that Mr Leonard called her to say that he had received a call to say there was no insurance and that she should arrange it. When asked about this she changed her evidence and said that on receiving the first call she told the caller to call her husband. But she then said that she did call him to say there was no insurance and then he called her to ask her to arrange it. I did not find any of this very plausible. Mr Leonard, for his part, says in paragraph 25 of his WS that he learned of there being no insurance not from his wife but direct from SLP. See above.
128. There is then the statement made by Mrs Leonard in the proposal form "Recently bought our holiday home thus first time insured" which is inconsistent with there having been cover previously in place and which suggests that there was no attempt previously to obtain it. In evidence Mrs Leonard explained this by saying, not that she was unaware about the £400 previously paid for insurance but rather that she did not mention it because she did not think that was her insurance. Yet in paragraph 9 of her WS she says that she thought "we paid about £400 for insurance as part of the whole transaction". She explained her use of the word "recently" as being because they could not use the Lodge over the winter. That makes little sense. First it was still there and second they had used it the previous summer from late May when they bought it presumably through to November when the season ended. I have to say that this declaration is much more consistent with giving a reason why the Lodge had not been insured at all thus far.
129. Mr Vaughan asks rhetorically why should Mr Leonard not insure the Lodge once he had purchased it? I agree that a prudent owner would have done. But then a prudent owner is not likely to have paid it in cash without seeking a receipt or any kind of policy document. The fact that Mr Leonard was not apparently chased for a copy of an insurance policy by SLP before 14 February is not to my mind a reason why he would not want a receipt or written confirmation of cover – lest he needed to make a claim.
130. Insofar as it is relevant here I should add that it is clear that although Mrs Leonard initially sought insurance from Park Homes in her own name, this was a joint endeavor on behalf of them both. After all, according to Mr Leonard, the prior insurance had been effected by him and they were joint owners of the Lodge. The reason why she was asked to obtain cover on 15 February according to Mr Leonard was simply that he was too busy. But he participated in the call on 15 February to Park Homes and once the claim had been intimated he sought to be joined on the policy. In paragraph 53 of his statement dated 30 May 2007 he said that "we received a proposal form and Jill tried to fill it in. There were some questions which seemed a little inappropriate which is why I asked her to telephone..to check.." In cross-examination however he denied, and in evidence Mrs Leonard denied, implausibly, that he had seen the form. In paragraph 54 he said that she then forgot to put his name on the form which is why it had to be amended later. He agreed that this paragraph suggested that they always intended that both should be on the insurance. Yet he had previously suggested, again implausibly, that she had procured the policy in her own name and not on his behalf. I think that the evidence he gave in Court on these matters was because he now wishes to distance himself from that particular policy because of the alleged false answers to Question 11 dealt with below. Finally it should be noted that in paragraph 56 of his statement he gave an explanation for why Mrs Leonard answered Question 13 as she did, which is not the same as her own, noted above. For her part, Mrs Leonard said that she signed the form for herself as an independent person but she had earlier accepted that she had sought the insurance in the first place for both of them.
131. It is said that NIG investigated this claim having had sight of the telephone records and having expressed initial concerns about the proximity of the claim to inception – and yet it was content to pay out. Quite so but I do not see that as really assisting JFP in the context of a case where the matter has been gone into in much more detail and in the context of other allegedly unsatisfactory conduct on the part of Mr Leonard.
132. Sean Cummings said that he was called out by Mr Leonard to deal with a leak at the Lodge and he brought dehumidifiers and dried it out. He puts the date of being called out as 24 or 25 February because he was shown Mr Leonard's telephone records showing 8 calls to his mobile on those days. But first, no records for other days were produced and second, even if that is when he was called about the leak it does not really assist on when the Leonards found out about it.
133. In general it is said that if Mr and Mrs Leonard had decided to take out insurance already knowing there had been a leak and thus make a fraudulent claim this would have been a huge risk to take because for all they knew Whitecross Bay might have had a record of when they were specifically told about it. I take that point. But I do not think that they were the sort of people who would necessarily think things through to that extent. And indeed, on this analysis, they got away with it as far as NIG was concerned.

Conclusion

134. In my judgment, taken as a whole, the specific evidence on Langdale 9 points clearly to the telephone call on 14 February as having been to notify the Leonards of a leak and a decision by them both thereafter to try and get cover then to make a claim. That conclusion is itself supported by Mr Leonard's conduct in other contexts – the Drainage Claim and prior false statements and non-disclosures which are detailed above and below. Regrettable though it is, I am quite satisfied that the evidence overall shows that the Leonards were not beyond making a false claim in respect of the Lodge and they did so.
135. I should add that it is not necessary to make a specific finding as to whether the Leonards attended the Lodge on 17 February. I suspect that they did not but if they did the leak had already occurred. Either way they were not telling the truth about 17 February. As they both accepted, there is no actual record of their visit that day.
136. Accordingly, Aviva is entitled to avoid the subject policy on the grounds that this false claim was not disclosed to it, and recover the sums paid out on the earlier fire and the Drainage Claim.

NON-DISCLOSURE

Introduction

137. Aviva contends that when presenting to it for the subject policy JFP made material non-disclosures as follows:

(1) It failed to disclose that it had made a fraudulent claim upon NIG in relation to Langdale 9;

(2) It failed to disclose that Mr Leonard or one of his businesses had made false statements to other insurers in the past either when seeking insurance from them or when making a claim under a policy with them; there are said to be 10 such instances;

(3) It failed to disclose to Aviva when adding Langdale 9 to another policy held by Mr and Mrs Leonard in December 2007 that it had suffered the water damage in February 2007.

138. The first failure can be dealt with shortly. It is accepted by JFP that if I were to find, as I have, that the Langdale 9 claim was fraudulent, that fact should have been disclosed to Aviva and it was not. Therefore Aviva was entitled to avoid on this ground alone. See paragraph 136 above. I deal with the other allegations as well however because much evidence and argument were devoted to them and they are relevant on the question of credibility and Mr Leonard's approach to obtaining and claiming on, insurance policies.
139. The other matters relied upon may be summarised thus:

Item No.	Date	Nature of allegation	Insurer	Paragraph in Re-Amended Defence and Counterclaim
1	Pre-23 March 2001	False statement that Mr Leonard had no previous convictions in proposal for 14 Bispham Road	Halifax	15 (3)
2	18 July 2001	False statement in claim WS that Mr Leonard had no previous convictions	Zurich	15H
3	21 September 2001	False statement that Mr Leonard had no previous convictions in proposal for 11 Preston Old Road	IGI	15 (1)
4	Pre-23 March 2001	False statement re prior losses in proposal for 14 Bispham Road	Halifax	15A
5	11 February 2002	False statement re size of prior claim against Zurich	Halifax	15C
6	Pre-25 November 2002	False statement re prior losses in proposal for 10 Clayton Gate	Halifax	15D
7	December 2003	False statement re prior losses in proposal for 34 Eastbank Avenue	Halifax	15E
8	21 April 2004	False statement re prior insurance and losses in proposal for Cocker Avenue	Axa	12
9	29 April 2004	False statement re other businesses in proposal for garage business insurance	NIG	15G
10	26 February 2007	False statement re prior losses in proposal for Langdale 9	NIG	10
11	30 May 2007	False statement in WS re prior losses and insurers when making claim for Langdale 9	NIG	15F
12	17 December 2007	Failing to disclose prior water damage to Langdale 9 when adding it to NU policy 24176964CHC	NU	18

140. Paragraphs 15G and 15H were added by way of amendment in the course of the trial after Mr Leonard had been asked in cross-examination about the matters to which they refer,
141. Paragraphs 15G and 15H were added by way of amendment in the course of the trial after Mr Leonard had been asked in cross-examination about the matters to which they refer, without objection. Although this amendment should have been foreshadowed earlier, there was no prejudice to JFP. I gave Mr Vaughan the opportunity to recall Mr Leonard if he wished to deal further with these matters but Mr Leonard did not want to add anything to what he had already said. Mr Woods, the underwriter, gave evidence and was cross-examined about them following the amendment as were the experts. These allegations, which were very similar to the ones already made, were then the subject of full submissions at the end of the trial in the usual way. I gave a brief judgment when permitting these amendments, at the time.
142. The fact of Mr Leonard's previous conviction is uncontroversial. On 6 November 2000 Mr Leonard was convicted in the Magistrates Court of criminal damage relating to a family incident. A pane of glass worth £20 was smashed. He was ordered to pay compensation of £81.30 and costs of £70 and given a 12 month conditional discharge. The conviction thus became spent on 5 November 2001. I shall refer to it as "the Previous Conviction".

Presentation for the subject policy

143. The policy was a property owners' policy in the name of JFP in respect of Hoo Hill. The presentation was in the form of an e-mail, sent on 18 March 2008, rather than a proposal form. See 4/467-469. The underwriter responsible for accepting it, on 25 March 2008, was Mr Woods. He did not require a survey of the property prior to acceptance nor was it made a condition of the policy.

The Law

Generally

144. It is trite law that Aviva must prove that the non-disclosure to it which is complained of must be material and must have induced it to write the policy on the terms provided. A material fact is one which would have an effect on the mind of a prudent underwriter. It is not necessary that it would have had a decisive effect on his writing the risk or the terms of the policy.
145. Materiality has to be applied to that which was not disclosed to Aviva. Two particular points arise here. First where there are several facts said not to have been disclosed, the Court must first find the relevant facts and then consider materiality in the round. It is possible that if there was only one fact not disclosed that non-disclosure would not be regarded as material. But if it is one of 5 or 10 it may become material as part of the collection of facts not disclosed. See the observations of Philips J (as he then was) in The Dora [1989] 1 Lloyds Rep. 69 at p89. It is the full picture which has to be assessed. Second in this case the focus is upon a collection of false statements made to prior insurers. In any given case it may be possible to conclude that taken in isolation the subject matter of the false statement was relatively insignificant. And where an insurer wishes to avoid on the grounds of a false statement, leaving aside any "basis" or other relevant express clauses, the misrepresentation must be shown to be material. Mr Vaughan has contended that if the individual false statement would have been immaterial to the particular insurer at the time, then it is to be removed from the picture, as against Aviva, altogether. Thus for example a collection of 10 or 20 false statements made to prior insurers each of which was in isolation immaterial cannot be material as against Aviva. I reject that contention. The question at the end of the day is the materiality to the prudent underwriter of the collection of facts not disclosed to Aviva. Moreover, as will appear below, the actual evidence does not establish the premise for Mr Vaughan's argument – that individually all the instances were immaterial. My approach to the evidence is to deal with the items individually and what is said about them by Mr Leonard, Mr Woods and the experts – but the overall assessment of materiality and inducement can only be made after they are considered in the round.
146. It is further to be noted that of the false statements alleged 7 were responses to questions in proposal forms (items 1, 3, 4 and 6-10). That is a strong although of course not conclusive factor pointing to materiality. Two were cases of WS's produced by Mr Leonard in support of a claim. Again, although not conclusive, if they were included in such statements it rather suggests that they were viewed as significant or important things to tell the insurer at the time.
147. The final point to make here which concerns both materiality and inducement is that the claimed non-disclosure here as against Aviva is concerned with moral hazard, not physical risk in respect of the property to be insured. The key feature is the collection of occasions when Mr Leonard made false statements to insurers regardless of the importance or otherwise of the underlying facts to which they related. As a matter of principle the making of such false statements is clearly capable of going to moral hazard and Mr Vaughan did not really dissent from this. The other consequence of this is that if there is perceived to be moral hazard it is unlikely to be something which can be cured by the imposition of a further condition on the policy – it goes to the desirability of insuring this person – or his company or business – at all. That was Mr Woods' view as the actual underwriter and neither expert disagreed with it. Indeed they agreed (at paragraph 5 of their joint statement) that a prudent underwriter would always be very cautious in considering a proposal from a proposer where moral hazard was a consideration. They agreed that where a proposer had not been truthful in his dealings with an insurer in the past, that could influence any prudent underwriter.
148. In final submissions following the conclusion of the evidence Mr Vaughan sought to introduce an entirely new point. This was that by reason of s4 (2) and/or (3) of the Rehabilitation of Offenders Act 1974 ("the 1974 Act") Aviva could not rely upon items 1, 2 or 3 which were all concerned with Mr Leonard's false statements about the Previous Conviction. At the time of making those statements, the Previous Conviction was not spent. But it was spent by 2002. Although made extremely late Aviva was prepared to deal with this point which was ventilated by both sides in writing and then orally. It is more convenient to deal with it after considering the evidence.

Mr Wood's Evidence generally

149. I deal in detail with Mr Woods' evidence below but make some general observations here. First I thought that he was a fair and honest witness. Second he is an experienced underwriter, having started in 1977. Third he accepted that on the question of physical risk the policy should have been made subject to survey. For some reason this was not done even though (as I accept) he required that it should be done. And the question of a survey was not revisited after the first fire. But I do not conclude from this that Mr Woods would therefore be unconcerned about moral hazard. Fourthly, there were a

number of prior claims that were disclosed in the presentation. They are set out at 4/429 in paragraph 8 of his WS. He said that they were not so significant or unusual that they caused him to impose particular terms on this policy. Although challenged on the point I accept that he did review briefly each of those claims to see if they would affect the policy. Next, as the documents show, JFP was presented as an insured connected with Mr Leonard who already held policies with Aviva in his name or in the name of his other businesses. See for example the internal document at 4/465. I am sure that Aviva was keen to get his business on this occasion and secure future business if possible. But I do not think that this caused Mr Woods to be unconcerned about the risk. Equally, the fact that Mr Woods had a good relationship with Andersons, the broker to JFP, does not in my view detract from his evidence that overall he would not have written this policy had he been aware of the prior false statements and non-disclosure. It simply does not follow that Mr Woods would not have had the qualms which he said he would have had.

150. To the extent that it was suggested, I do not consider that he was not acting as a reasonable or prudent underwriter in general terms when writing the risk as presented to him. I do not accept the proposition that he had so little regard to the physical risk that it was unlikely that he would have any regard to moral hazard. The thrust of his evidence, which I accept, was that he certainly did.
151. He also accepted in cross-examination that where there were a number of past failures alleged not to have been disclosed to him, he would need to consider their extent and consider how long ago they occurred, their nature and seriousness, their relevance to the cover to be given for Hoo Hill, and whether any failure was deliberate on the part of Mr Leonard. As to whether the fact that the broker was responsible for the non-disclosure as opposed to Mr Leonard he said that would depend on why the broker got it wrong. Here in relation to item 8 for example he said that if the broker failed to make a disclosure he would nonetheless become concerned as to why Mr Leonard did not check. Overall he said that he would expect a fair picture to be presented. He also said that one default may become more significant if there were others. I set out below what Mr Woods said about individual items, and items taken with certain others, but what is absolutely clear in my view is that looking at the overall picture ie the totality of the prior defaults, Mr Woods would not have written this risk. He made reference to the overall picture on more than one occasion but he was not in fact cross-examined on the question of inducement from the total picture point of view. I suspect that this was largely due to the approach taken by JFP that if one default can be regarded as immaterial taken in isolation it can be disregarded altogether. As already explained I think that this is a flawed approach.

Item 1: False statement that Mr Leonard had no previous convictions in proposal for 14 Bispham Road

152. Shortly before 23 March 2001 when the policy was incepted Mr Leonard sought home insurance from the Halifax on an buildings-only basis for 14 Bispham Road, Blackpool. His proposal was dealt with over the telephone and a Demands and Needs Statement was sent to him recording the conversation. Mr Leonard accepted that it was an accurate record and that he did not seek to change it. The second question and answer is recorded thus at 14/11:

"Have you or any member of your family normally residing at this property ever had any criminal convictions or cautions or is any prosecution pending?

NO."

153. That was a false answer because of the then-unspent Previous Conviction. Before being asked about this answer Mr Leonard was asked about a similar false statement made to Zurich later in the year (Item 2). His answer there was that there was no falsity when making the WS in support of the claim because the Court made a conditional discharge order and this meant that it was already spent or otherwise did not count, and that his solicitor had told him this at the Magistrate's Court. I did not find this plausible. It is most unlikely that a solicitor would have given such advice. Nor did Mr Leonard seek to adduce any evidence from his solicitor. Further, when answering the same question in November 2002 for the Halifax policy on Clayton Gate (Item 6) he said "YES". When asked why, he said because they had asked if he had ever had a conviction. Ironically the conviction by then was spent, but he said he felt he had to answer. I did not find this plausible either especially as the question was in the same form as that asked in March 2001.
154. He was then asked about the answer given in March 2001. Here he accepted that it was false but said he made a mistake. I do not see how. This was a simple question and the conviction was only a few months before. Even if he mistakenly said "No" on the telephone he could have corrected it when he saw it in writing. He did not here explain his answer by reference to some advice that it did not count.
155. The only explanation is that Mr Leonard knew that he should have said "Yes" here but decided not to.

Item 2: False statement in witness statement to Zurich that he had no convictions 18 July 2001

156. On 18 July 2001 Mr Leonard signed a WS in support of his claim against Zurich to be indemnified in respect of a theft at 14 Bispham Road for which he claimed £28,560.78. He had issued proceedings in the Blackpool County Court to recover this sum on 21 December 2000. For the sake of completeness I should add here that the claim was eventually settled for £10,000.
157. Paragraph 5 of the WS begins: "I do not have any convictions. I am not a bankrupt…"
158. It is not suggested that this WS was not served in the proceedings. Indeed there was a further statement from a police officer signed in October 2001. Mr Leonard's WS would have formed his evidence in chief at trial had one taken place. Although not an answer to a specific question therefore, this was information voluntarily provided by Mr Leonard in a formal statement intended to be seen and relied upon by Zurich.
159. I have already dealt with Mr Leonard's explanation for the falsity here in paragraph 152 above. In my judgment Mr Leonard deliberately decided to make that false statement.

Item 3: False statement made to IGI Insurance that Mr Leonard had no previous convictions in proposal for 11 Preston Old Road

160. This was a landlord's policy in Mr Leonard's name. In answer to the question in the proposal form dated 21 September 2001 (13/7):

"Have you ..even been convicted of, or is any prosecution pending for arson or any criminal offence other than road traffic offences?"

Mr Leonard ticked the "No" box. He also signed at declaration at the end of the form stating that all the information provided was true to the best of his knowledge and belief.

161. Here Mr Leonard said that he did not fill out the form but he signed it. He accepted that his declaration was false. He said that he did not recall signing it. He said that he had given all the information to the brokers who dealt with the insurance not him. I do not believe this. There was no evidence from the brokers and anyway, consistent with his answers on Item 1 and item 3 below, at that time he would not have told the brokers about the conviction so they would have made no mistake themselves if they had filled in the form. In truth however, I think that he did fill it in or certainly read it and decided to answer "no" when he knew it should be "yes".

Items 1 – 3: materiality and inducement

162. It is convenient to take the evidence about this together at this point.
163. On item 2 Mr Coates said that any prudent underwriter would want to take this into account when writing the policy in March 2008. On whether Mr Leonard's belief that he did not need to disclose the conviction because he thought it did not count, should be taken into account, Mr Coates said that it would. However, in my judgment this does not assist because I do not accept that this was Mr Leonard's belief at the time anyway. If on investigation it was concluded that Mr Leonard deliberately chose not to disclose the conviction it is hard to see how it was not a material matter in 2008.
164. On items 1 and 3, Mr Coates thought that if one took the later disclosure in 2002 and the explanation given for the IGI false statement then, in isolation the 2001 failures would not be material in 2008. However they cannot of course be taken in isolation and this answer takes no account of the item 2 breach. Mr Coates was not asked in cross-examination about the cumulative materiality of all three matters.
165. Mr Emblin, for his part accepted that items 1 and 3 were material as at 2008. They were both examples of Mr Leonard being untruthful to his then insurers. The later insurer would want to know about this. But the fact that he disclosed it in 2002 showed that he had made a clean breast of it. And it would reassure the underwriter that Halifax continued to insure him afterwards. But on item 2 he said that a prudent underwriter would want to know if he had signed a false statement in legal proceedings like this. If he knew he would then want to go back and get details. In my judgment, that amounts to saying that item 2 was material. While it might not have made a difference to writing the risk at the end of the day, it was still something which the prudent underwriter needed to know in the first place. And as noted above it is doubtful whether the answers as to how this statement came about would be very satisfactory.
166. Taken together items 1-3 were clearly material in 2008.
167. As for Mr Woods, on items 1 and 3 he said in his WS that either of these false statements would have made him very concerned. He did not know then that Mr Leonard had disclosed the Previous Conviction to Halifax in 2002. But he did not accept that this nullified the significance of the false statement in 2001. That was still a non-disclosure and it had not gone away. On item 3 had it been the broker who filled out the IGI proposal and not Mr Leonard this would not have made a difference because he should have read the form and if so he did not correct it. He said that the later disclosure in 2002 and the broker filling in the IGI form were not much mitigation. On any view had there been disclosure about these failures he would certainly have asked questions including why he failed to disclose it in 2001 particularly if it was trivial, and why he would sign documents without reading them. He accepted that he could not say if he would still have written cover or not because it would depend on the answers to his questions. But an indication of his approach was given by his evidence on item 3 -that if the broker had said that he was not in the habit of signing without reading and there was nothing else to disclose he would have written the policy. But on the facts of this case no broker could have said that. In my judgment given the implausible nature of Mr Leonard's explanations for the false statements about his conviction I am satisfied that the answers to the questions which Mr Woods would have raised would not have satisfied him.
168. Ultimately he said that the 2002 disclosure would not have changed his approach to not writing the risk. Overall there was a "pattern of little and big things."
169. As to item 2 he said that false statement in paragraph 5 was a very serious matter. It would have to be taken into account with all the other matters not disclosed. If there was just one default that is one thing but if there was a catalogue of defaults it is another. He needed to look at the whole picture which had to be a fair picture. Mr Woods also said that if one took the false statement made to Zurich (item 2) and that to NIG (item 11), he would not have written cover.
170. So there was clearly inducement here as well.

Item 4: False statement re prior losses in proposal for 14 Bispham Road

171. The relevant telephone proposal embodied in the demands and needs statement from Halifax has already been referred to in paragraph 151 above. Another part of it read:

"Have you or any member of your family normally residing at this property ever had any losses during the last 5 years whether insured or not, for any property or event now to be insured?

NO."

172. There were in fact three prior losses in relation to the property to be insured: a broken window in 1998, storm damage in December 1999 and the theft in January 2000 for which Mr Leonard made the claim against Zurich and which caused damage to door locks.
173. The important item here is the claim against Zurich. Although various points were raised as to whether it was necessary to disclose a contents claim where, as here, only building cover was sought, the prior point is that Mr Leonard says that he did disclose this item to Halifax in March 2001. If there was only his word to go on, I would be doubtful about this especially as there is no reference to it in the demands and needs statement. However, there is an electronic record from Halifax dated 11 February 2002 saying that "customer called to say that they have moved and that the contents claim that they had was actually for £10,000 and not £20,000. I have amended but still unable to quote for contents cover." Ms Bamford, from Halifax, who gave evidence for Aviva, agreed that on the face of the documents the only contact between Mr Leonard and Halifax prior to 11 February would have been back in March 2001. So it could well be that this is when he gave information to Halifax about the Zurich claim. Saying that it was for £20,000 (and not £28,560) in the context of where this was a buildings policy only did not seem significant to me. In effect there was no false statement to Halifax then concerning the Zurich claim. The broken window is not relevant -Mr Leonard did not own the property at the time.
174. As for storm damage, Mr Coates said that the failure to disclose this would have been material at the time because although for £745 only it was still more than the premium on the new policy. As at 2008 assuming one was only looking at the storm damage and there was an innocent explanation for why it was not mentioned it would not be material. But he added that if there were innocent explanations offered for a variety of other false statements one would have to ask why and whether they really all were innocent. Mr Emblin thought it was not material as at 2008.
175. Mr Woods, for his part saw item 4 as part of the overall picture. They would not have affected him in isolation.

Item 5: False statement to Halifax re size of claim against Zurich

176. On the basis of the Halifax record, Mr Leonard told them initially that the Zurich claim was for £20,000 and then told them in February 2002 that the claim was for £10,000 whereas in fact it was for over £28,000. Mr Coates was uncertain about the materiality of this item in isolation on the basis that the insured might consider, especially on the telephone, that what needed to be disclosed was the sum received in settlement, not the claim. And Mr Woods saw this item very much as part of the overall picture.

Item 6: False statement to Halifax in November 2002 in proposal for 10 Clayton Gate

177. This was for a buildings and content policy. But the demands and needs statement from Halifax at 14.2/42 still read:

"Have you or any member of your family normally residing at this property ever had any losses during the last 5 years whether insured or not, for any property or event now to be insured?

NO."

178. The two relevant items here are the storm damage and the claim against Zurich. Other prior claims either concerned Mr Leonard's then girlfriend or a loss when Mr Leonard did not own Clayton Gate.
179. As for the storm damage claim the position is as set out in paragraph 173 above.
180. As for the claim against Zurich, Mr Leonard said by way of explanation that this was just a continuation of the earlier policy. But the documents suggest otherwise and Ms Bamford thought that it was a fresh policy. He also said that Halifax had prior knowledge of the prior loss in respect of the Zurich claim. But now this had been put at £10,000. Mr Leonard was clearly asked about prior losses for the purpose of this policy as otherwise there would not have been a fresh demands and needs statement. And looking at the particular question it is about losses insured or not. Whatever may have been the position in March 2001 or February 2002, the question is clearly stated here. What he should have said was that there was a loss of £28,560. Mr Coates saw this as a second non-disclosure in respect of the same claim, innocent or not. While innocence was a factor where there was a pattern the non-disclosure might not be innocent. He then said that a mere repetition of this non-disclosure taken by itself would not add to materiality.
181. Mr Emblin thought that it was material and the fact of some prior disclosure did not alter the position. It was material as at 2008 because it was another example of the proposer not being truthful with insurers. Mr Woods said that if told of this failure in 2008 but also that Halifax knew (it is not clear whether this hypothesis was that Halifax knew of the figure of £10,000 or the whole claim) it would probably not be relevant. But in reexamination he said that if he had been told of this false statement in the context of assessing the whole picture, then it would have hardened his resolve not to write the risk.

Item 7: False statement to Halifax in December 2003 in proposal for 34 Eastbank Avenue

182. This was for a buildings and content policy. The demands and needs statement from Halifax at 14.3/68 still read:

"Have you or any member of your family normally residing at this property ever had any losses during the last 5 years whether insured or not, for any property or event now to be insured?

[claims advised]

Contents      Theft      £9,000."

183. This was a reference to the settlement sum in the Zurich claim. The main error here was that the losses were put at £9,000 not £28,560.
184. Mr Coates thought that this should have been disclosed although he accepted that in isolation it might not have been material in the light of some sort of disclosure about the Zurich claim in February 2002 after which Mr Leonard might have assumed he could move on as it were.
185. Mr Woods said in cross-examination that his position would have been the same as under item 6. He was not re-examined on this point.

Item 8: False statement re prior losses in proposal to AXA for Cocker Avenue

186. On 21 April 2004 Mr Leonard completed a proposal form for insurance by AXA of a commercial property at Cocker Avenue. Question 6 asked:

"Have you ..

(a) previously held insurance for any of the covers to which this proposal relates at these premises or elsewhere? If YES please advise name of insurers and policy number....

(e) had within the last five years any losses whether insured or not...."

187. For both of those questions Mr Leonard ticked the "No" box.
188. In fact Mr Leonard had insurance over 5 other properties. Two of them were insured by IGI and three were already insured by AXA.
189. The only relevant prior loss alleged in this context is a claim for storm damage at 32 Wyre Grove Blackpool on 27 October 2002 made to IGI.
190. Mr Leonard accepted that the claim for storm damage should have been disclosed. As for other insurance, three properties were already with AXA and he was going to transfer the other two. I did not find that a persuasive reason. All he had to do was say what the other insurances were. And there is no evidence that the two policies not with AXA were indeed transferred.
191. Mr Coates was of the firm view that even though three properties were already insured with AXA the underwriter dealing with this particular proposal might not know that and it was material for him to know of all the other insurance policies to have an understanding of the insurance over Mr Leonard's portfolio and how the other insurance policies performed. I accept that. And merely because the AXA proposal form does not itself seek the claims history of all of those policies does not mean that an underwriter might not wish to seek it out. And the false information given here would be material as at 2008 because Aviva was being asked to underwrite property where a previous insurer had not been given the opportunity to investigate the insured's other properties and insurance. Also the fact that AXA had been provided with a list of properties including these ones in 2004 made no difference. Mr Emblin agreed that this failure was material. It was an example of Mr Leonard not being truthful and would certainly be relevant to an underwriter of Hoo Hill in 2008.
192. Mr Woods said that even if there was an innocent explanation for the false statement about other insurance (and it does not seem to me that there is) he would still have been bothered about the false statement. Later he said that if he had been told about the false statements to Axa in the context of the other matters "it would have made it worse" and he would not have written the risk.
193. The position is less clear about the prior losses because it might be thought that the question was directed only to that property. No great reliance was placed on this aspect of item 7 in the end and so I disregard it.

Item 9: False statement about other businesses in proposal to NIG for garage business insurance

194. In the proposal form signed by Mr Leonard on 29 April 2004 he ticked the "no" box to question 10

"Do you or any of the directors or partners engage in any other business or occupation?"

195. In fact Mr Leonard was already trading as a property developer through LPS incorporated in September 2003 and through his tanning shop since 2002. He questioned originally whether the tanning shop started in 2002 which is what he told Mr Wintrip and Mr Pattington in January 2009, by not accepting the accuracy of their transcript but this was the version which he had already accepted as accurate. In any event the employer's liability certificate was from March 2003. Mr Leonard agreed that the answer given was false at least in relation to LPS but said that the brokers filled in the form. Even if so, he signed the form and one assumes that he read it.
196. Mr Coates said that this question was material because an underwriter would want to know what other businesses the insured carried on and in particular if any of them were unsavoury. As at March 2008 by itself it was a minor point but as part of a wider picture it showed at best an inability to fill in proposal forms correctly. Mr Emblin agreed that the false answer is something that the underwriter in 2008 would want to know about and would take it into account when writing the risk though later he said that as Aviva knew that he had other properties and businesses they would not rely on this default. I did not quite follow that because in 2008 the point was not that Aviva were aware of his other businesses but that he had given a false answer in 2004. That was the view Mr Woods took. And viewed together with other defaults in particular items 2 above and 11 below he would not have written this risk. In my judgment item 8 was clearly material in the context of the whole picture.

Item 10: False statement re prior losses in proposal to NIG for Langdale 9

197. I have set out the process by which this proposal form was filled in, initially by Mrs. Leonard and then followed by a blank form signed by Mr Leonard, in paragraphs 101102 and 128 and 130 above. Leaving aside any questions relating to the condition of the Lodge where the falsity was because the flooding had already occurred (where JFP admits that this should have been disclosed to Aviva) the relevant questions are questions 11 and 13. Question 11 asked:

"Have you or your spouse/domestic partner…in respect of the risks now to be insured:

(a) made any claim, suffered any loss or damage during the last five years whether the subject of an insurance claim or not?"

198. Question 13 asked:

"Have you ever insured the buildings and/or contents of this or any of your previous homes?"

199. In both cases the answer was "No", with the addition in the case of Question 9 of the statement about no prior insurance on the Lodge dealt with in paragraph 128 above. The answer to Question 11 was wrong because at the very least there had been storm damage at 34 Eastbank Avenue in January 2007. I disregard the flood damage to the Lodge itself because although not referred to on the form, it had just been reported. The answer to question 13 was false because there had been various prior insurances on other homes.
200. In paragraphs 14 and 15 of her WS Mrs Leonard says that she "feels sure" that on one occasion she rang up Park Homes to see how to fill the form in and someone there said that she need not put in details of any prior claims other than those affecting the Lodge. I do not accept this. Transcripts of calls made between her and Park Homes have been made available and there is no reference to this query. When Mr Leonard called Park Homes on 26 February he said that his wife had called because there were questions that she was not sure about. But he then goes on to deal with what appear to be those questions and they are concerned with the Lodge itself not prior claims.
201. Neither expert saw these defaults as being material on the footing that the form filled in by Mrs. Leonard (and any false statements therein) should be regarded as hers alone. Equally Mr Woods would not have seen it as relevant or material in isolation assuming that he knew that Mr Leonard had become an insured after his wife had incorrectly filled out the proposal form.
202. In view of my findings as to the joint nature of this insurance from the outset, these premises are unrealistic. Mr Coates said in his report at paragraph 32 (vi) that a prudent underwriter would have regarded it as material that Mr Leonard had not provided this information. That would be relevant if this insurance was at all times jointly obtained. So would Mr Woods' evidence in his WS at paragraph 16 (2) that had he been aware of the false statements in connection with prior losses and insurance he would not have written the policy. This would be reinforced by, but was not dependent on, the fact (if it was so) that Mr and Mrs Leonard made a fraudulent claim on NIG for Langdale 9.
203. In those circumstances I consider that this item was material and contributed inducement certainly as part of the overall picture. But if it were left out, my overall conclusion would be the same.

Item 11: False statements in WS made to NIG in relation to claim for Langdale 9

204. On 30 May 2007 Mr Leonard made a statement to NIG in support of the Langdale 9 claim.
205. In paragraph 11 he stated that:

"I have made two previous claims. One was for storm damage on 18^th January 2007. In February 2007 I was involved in a ski-ing accident…"

206. Aviva says that this was false because he had prior claims including the claim against Zurich and the storm damage claim from 1999. There was also a claim made by Mr Leonard under a travel policy in February 2006 where Mr Leonard recovered £1,000.
207. Mr Coates agreed that the normal time span for disclosure of prior claims was 5 years and so if the loss assessor drafted this statement it might be limited to that. But he accepted that the travel claim should have been disclosed on the basis that according to Mr Leonard it was a claim made by him under his policy in respect of the loss of a holiday which could not be taken because his son suffered an injury. In that regard it is worth noting that Mr Leonard pleaded (1/160) that he could not see the relevance of this claim to the claim against NIG for water damage to the Lodge. But if so it is hard to see why he thought the ski-ing claim was relevant.
208. In paragraph 12 he stated that:

"For several years my property portfolio, my garage and my sunbed shops have all been insured with National Insurance and Guarantee Corporation Ltd with no claims."

209. This was false first because his property portfolio was not all insured through NIG and his sunbed shop was not insured by NIG. Other insurers were Axa and Norwich Union. Also there had been at least one prior claim on NIG. Mr Leonard accepted this but said that his loss assessor Mr Williams had prepared the WS for him and set its agenda.
210. A general point was made in respect of paragraphs 11 and 12 that these paragraphs were not required by NIG when telling Mr Leonard and his assessor what information was wanted as set out in the letter from Ms Coombes at NIG dated 27 April 2007. I do not see that as an answer. Mr Leonard read the statement and knew that it was being submitted in support of a claim which at the time was substantial – and that NIG would rely upon what he said in it. He specifically confirmed its truth and his duty to disclose all relevant material at paragraphs 61, 62 and 66. For the same reason the fact that the loss assessor may have set the agenda for the WS is not an answer if part of it was false.
211. Mr Coates thought that the falsity in paragraph 12 was material as at 2008 even allowing for the fact that what was being sought was personal insurance and what information the letter from NIG of 27 April specifically sought, because it was a false statement. Mr Coates also would not have drawn a distinction in terms of materiality between a false statement given in answer to a question and one proferred voluntarily as it were. In his view, Mr Leonard was suggesting that he was an important customer of NIG and perhaps that all his insurance was with them. Mr Emblin also thought it was material because of its falsity. What an underwriter in 2008 might decide to do eventually about it might be a different matter but it should have been disclosed. Later Mr Emblin said that it would not be material. In my view, taken with the other defaults it clearly was. I cannot see the fact that NIG would have known that paragraph 12 was false because it knew or could find out that it did not insure all the businesses there referred to, makes any difference, certainly not to the materiality of the false statement in 2008.
212. Mr Woods' evidence in his WS was that he would have declined cover if the false information in this WS had been disclosed. In evidence he said that the way that paragraph 11 was put was just not right – it was a very definite statement and not correct. It said there were two prior claims when there were more even if more than 5 years old. The underwriter would want to know why things had been left out and it was material. Mr Woods added that he would have been very concerned about this because it went to moral hazard. The false statements in paragraphs 11 and 12 were particularly relevant as they had only been made in 2007. If he took the false statements here and that to Zurich in item 3 he would not have written this risk. A pattern of false statements had emerged.

Item 12: Failing to disclose prior water damage to Langdale 9 when adding it to NU policy 24176964CHC

213. Mr Leonard did not disclose anything about the fact of the prior water damage claim to Langdale 9. On the facts found by me, the key point is of course the failure to disclose the making of a fraudulent claim but even leaving that aside, not to disclose a prior recent claim in relation to the property now being insured by Aviva was clearly material. Mr Coates said that this non-disclosure was material as at 2008 because it showed that a true picture was not given in 2007. The fact that when the claim was made against NIG in 2007 information about it was passed on to NU did not alter the position. They were different departments. Mr Emblin did not think it material in the round as at 2008 although it was in 2007. I preferred Mr Coates' evidence here and consider that it was material as at 2008.
214. Mr Woods said at paragraph 16 of his WS that the failure to disclose this loss in 2007 was an unacceptable moral hazard as at 2008. He was not specifically challenged on this. He was asked whether he would have added the Lodge to the policy regardless of whether he knew in December 2007 of the water damage claim. He said that he would have wanted to know because it was a prior claim. He accepted that the prior claims that were disclosed in 2008 would not have affected his decision to add the Lodge to the policy in December 2007. But that is not the issue. In paragraph 16 he accepts that he cannot say if disclosure of the water damage would have made a difference then. The issue is the effect of being told of this non-disclosure as a matter of moral hazard in 2008, and his evidence was that he would have regarded it as an unacceptable moral hazard.

Conclusions on materiality and inducement

215. In my judgment taking the collection of non-disclosures referred to above as a whole the picture they presented was clearly material. This was Mr Coates' firm view and I accept it. There might be innocent explanations for the non-disclosures but taken together it leads one to question whether they were innocent. Or to consider whether this insured was actually able to fill in proposal forms correctly and whether there was proper communication between insured and broker. And Mr Emblin accepted that the big picture was relevant. Insofar as there were differences between them I prefer Mr Coates' evidence to that of Mr Emblin. I found the former to be a somewhat more considered and precise witness.
216. As to inducement, Mr Woods' evidence was clear which is that one did have to look at the entire picture on the question of whether or not the policy would be written in relation to moral hazard. As appears above, in some cases items combined with others would have caused him not to write the risk. In others the items themselves would have had this result. It is not the case that he would have gone back through the history of each of those defaults – the big picture on any view would have been sufficient to dissuade him from writing cover. Moreover in my judgment, any detailed investigation would have revealed that for the most part Mr Leonard knowingly entered a false answer. He may have done not thinking it was very important or because he preferred the insurer not to know. In general I do not accept that he did so out of some misunderstanding. Inducement is clearly made out here.
217. Accordingly, Aviva is entitled to avoid the policy and recover the sums paid out on the earlier fire and the Drainage Claim on this ground, too.

The right to refer to Mr Leonard's previous conviction and the Rehabilitation of Offenders Act 1974

218. s4 (2), (3) and (5) of the 1974 Act provide as follows:

"4.— Effect of rehabilitation....

(2) Subject to the provisions of any order made under subsection (4) below, where a question seeking information with respect to a person's previous convictions, offences, conduct or circumstances is put to him or to any other person otherwise than in proceedings before a judicial authority—

(a) the question shall be treated as not relating to spent convictions or to any circumstances ancillary to spent convictions, and the answer thereto may be framed accordingly; and

(b) the person questioned shall not be subjected to any liability or otherwise prejudiced in law by reason of any failure to acknowledge or disclose a spent conviction or any circumstances ancillary to a spent conviction in his answer to the question.

(3) Subject to the provisions of any order made under subsection (4) below,—

(a) any obligation imposed on any person by any rule of law or by the provisions of any agreement or arrangement to disclose any matters to any other person shall not extend to requiring him to disclose a spent conviction or any circumstances ancillary to a spent conviction (whether the conviction is his own or another's); and

(b) a conviction which has become spent or any circumstances ancillary thereto, or any failure to disclose a spent conviction or any such circumstances, shall not be a proper ground for dismissing or excluding a person from any office, profession, occupation or employment, or for prejudicing him in any way in any occupation or employment.....

(5) For the purposes of this section and section 7 below any of the following are circumstances ancillary to a conviction, that is to say—

(a) the offence or offences which were the subject of that conviction;

(b) the conduct constituting that offence or those offences; and

(c) any process or proceedings preliminary to that conviction, any sentence imposed in respect of that conviction, any proceedings (whether by way of appeal or otherwise) for reviewing that conviction or any such sentence, and anything done in pursuance of or undergone in compliance with any such sentence......"

219. Mr Vaughan first invoked sub-section (2). This could only be engaged if Aviva had asked a question of JFP or Mr Leonard, in March 2008 when considering the presentation of the subject risk. But it did not. Mr Vaughan said that this provision could not be "circumvented" by arguing that there was no question where there was nonetheless a duty to disclose. I do not agree. Sub-section (2) is clearly and specifically limited to where questions have been asked. If Mr Vaughan's argument is to run at all it has to be made in the context of sub-section (3) to which I now turn.
220. Here Mr Vaughan relies upon sub-section (3) (a). He submitted that the obligation imposed on JFP to make disclosure to Aviva of all material facts was a duty imposed upon it by a rule of law or agreement. To that extent I agree. In the context of this case the argument runs that if such a duty would have required JFP or Mr Leonard to disclose his prior false statements in relation to the Previous Conviction, which is now spent, that duty must be cut-down so as not to require this, for otherwise, compliance would involve the disclosure of the now-spent Previous Conviction. Mr Vaughan readily accepted that a consequence of this argument would be that if, for example, the insured had made a series of false declarations to prior insurers about a string of serious offences of dishonesty which were now all spent, he would not now be required to disclose those facts.
221. I do not think that sub-section 3 (a) should be so broadly interpreted. In my judgment the restriction on the duty of disclosure which it imposes applies where its direct object is the spent conviction. So in 2008 there was no obligation on JFP to disclose to Aviva the fact of the Previous Conviction even if such a fact were otherwise material. But the focus of the duty of disclosure here of which breach is alleged is not the Previous Conviction as such, which Aviva accepts was relatively minor, but the making of the false statements about Mr Leonard having no convictions at a time when it was not spent. The nature of the Previous Conviction was incidental to the breach of duty complained of. If subsection (3) (a) were interpreted as Mr Vaughan would have it, there would be the consequence referred to in paragraph 219 above. That would be an absurd consequence and one which the framers of the statute cannot have intended.
222. Nor can this conclusion be avoided by relying on the further phrase within sub-section (3) (a) namely "or any circumstances ancillary to a spent conviction.." so as to encompass the false statement directly. When first considering this matter I could not see how a later false statement about the lack of convictions is itself a circumstance "ancillary" to the Previous Conviction. That false statement has nothing whatever to do with the Previous Conviction itself, or the facts underlying it. Rather the expression seemed clearly to be concerned with the nature of or the facts surrounding the offence in question, not some later reference back to the conviction. I have now considered sub-section 3 (5), cited above, to which neither side referred me. That puts the matter beyond doubt by giving an exhaustive definition of what are ancillary circumstances. They do not include a later statement about the conviction.
223. In any event what sub-section (3) (a) cannot outlaw is the duty to disclose the making of false statements if material to the present insurance. A string of lies to previous insurers, for example, should be disclosed. In my judgment, as appears above, the false statements which are the subject of items 1-3 were knowingly made by Mr Leonard. On the face of it, even if JFP was not obliged to make reference in any disclosure to Mr Leonard to the Previous Conviction it should at least have declared that there were three material false statements to other insurers in the past. On that hypothesis the underwriter for Aviva would then have been likely to ask what the false statements were about. If JFP chose to refuse to say, because it did not have to disclose the Previous Conviction, the underwriter would be unlikely to regard this as a very satisfactory state of affairs. And if so, it is hard to see that he would have been prepared to write the risk. None of this was the subject of any evidence because Mr Vaughan had not raised this point at that stage. But common sense strongly suggests that this would have been the outcome. If so, this new point does not help JFP.
224. At one stage Mr Vaughan was also disposed to argue that sub-section (3) (b) applied. But in oral argument he accepted, correctly in my view, that it could not.
225. For all the reasons given above, I reject JFP's contention based on the 1974 Act. There is therefore no impediment to the conclusions expressed in paragraphs 214 -216 above.

OVERALL CONCLUSION

226. Aviva has succeeded on each of the three defences dealt with above. It therefore follows that Aviva is absolved from indemnifying JFP on the subject fire claim and can recoup the monies already paid out on (a) the earlier fire claim from June 2008 and (b) the Drainage Claim.
227. Following the handing-down of this judgment I will hear Counsel on all consequential matters.