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

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		25/02/2011

Mr Justice Eder:

Introduction

1. The Claimant ("Aviva") is an insurer, formerly known as Norwich Union Insurance. The present action and trial relates to policy number 01-2116392-CBC whereby Aviva insured the Defendant ("Mr Brown") against the risk of subsidence to his property at 13 Friern Barnet Lane, London, N11 3LT ("No.13").
2. Mr Brown bought No.13 in February 1978 and insured it through Abbey National Home Insurance ("Abbey"). Aviva and its predecessors ("Aviva") were the underwriters of the Policy. (For convenience, reference to Aviva also includes Abbey.) According to Mr Brown, he lived in No.13 with his wife. He was and is an Estate Manager, letting out the house next door, No.15, to tenants as a house in multiple occupation (as 'bedsits'). He had other properties and a caravan. He and his wife are directors and shareholders in Northway Design & Development Co Ltd ("Northway") which owned No.15 from 1968 until about 2005. Mr Brown held 951 of the 1500 issued shares, his wife 49 shares and the balance (500 shares) were held by R G Brown Discretionary Trust.
3. Mr Brown originally made a claim under the policy for subsidence in 1989. A further claim was made in 1996. After some considerable delay, Aviva admitted the claim but the repair works were not carried out until 2008. Aviva paid the cost of repairs (£176,951.68) and a further amount for damage to a skylight (£3,132.82). As part of the claim, Aviva also paid an amount in respect of alternative accommodation in the sum of £58,500.
4. Aviva brings this action to recover the sums which it has paid under the policy (together with interest and costs) on the basis that the claim made by Mr Brown in relation to alternative accommodation was fraudulent. Aviva also asserts that it is discharged from any further liability.
5. Mr Brown denies any fraud on his part. He denies that he is under any liability to pay any sum to Aviva and seeks to claim further sums from Aviva in respect of (i) the cost of repairs which have not been paid by Aviva (a total of £68,314.75 plus VAT) and (ii) alternative accommodation in the sum of £102,266. In addition, Mr Brown claims interest and costs.
6. The central issue is: Was Mr Brown fraudulent in relation to his claim for alternative accommodation?

The Policy

7. The Policy was underwritten by Aviva. The introduction to the insurance policy provided:

"[Abbey National] will agree to pay for any damage, liability or losses or costs as set out in this Policy or any amendment agreed between you and Abbey National which occur during any Period of Insurance and any subsequent period for which [Abbey National] have issued a renewal notice and you have paid the premium. This Policy booklet is issued by Abbey National on behalf of the Insurer."

Section 1 of the Policy provided that:

"[Abbey National] will insure your home against loss or damage occurring during the Period of Insurance caused by... Subsidence or ground heave of the site on which the home stands, or landslip… [Abbey National] will pay the cost incurred in rebuilding or repairing the part of the home which is lost or damaged by an insured cause, but not more than its rebuilding cost..."

8. The Policy also provided:

"We cover

17. Cost of Temporary Accommodation and Loss of Rent if your home becomes uninhabitable due to any cause set out in paragraphs 1-15 we will pay for;

a) the cost of reasonable temporary alternative accommodation for you and your household if you occupy the home"

"General Conditions

5. Fraud

We will not pay any claim which is in any respect fraudulent"

The Oral Evidence

9. During the trial, I heard oral evidence from the following witnesses:-

A. On behalf of Aviva:

1.) Duncan Hamilton. He is a Building Surveyor who commenced employment with Cunningham Lindsey Loss Adjusters ("Cunningham") in 1997 and became a Project Manager in September 2003. He took over the project management of the claim at the post tendering stage in March 2007. Mr Hamilton was involved in consideration of the alternative accommodation claim.

2.) Keeley Yeatman (née Norwood). She started employment with Cunningham in 2004 in the customer service department. In September 2006 she was promoted to customer support team leader and in October 2009 was promoted to customer support person.

3.) Robin Harris. He is a special investigator with Cunningham and became involved in the claim in July 2008.

B. Mr Brown. In addition, there were called on his behalf:

1.) Brian Sidney Regler. He is a practising solicitor of some 37 years standing of Colemans Solicitors. He has been friends with Mr Brown for 50 years and has worked as a solicitor for Mr Brown and his family for approximately 35 years.

2.) Derek Root, his accountant since 1989 and a consultant with Slater Perry & Co, chartered Certified Accountants.

3.) John Hydon, Director of Surveying at Halsteads Associates, ("Halsteads"), a firm of consulting engineers and surveyors who dealt with the claim.

4.) Dennis McManus, the director of a building firm which carried out the repair works.

History of the Insurance Claim

10. Mr Brown first made an insurance claim for subsidence on 14 February 1989. The matter dragged on while the subsidence was monitored over a long period and there was much discussion about repair of the drains. The drains were repaired, but the subsidence worsened and the cracking continued. So Mr Brown made a further subsidence claim in October/November 1996.
11. Aviva appointed Cunningham (then called Ellis & Buckle) to act as loss adjusters on its behalf and to investigate the claim. Following a lengthy investigation, Cunningham and the appointed engineers, Halsteads, could not agree on the scope of the works.
12. Cunningham carried out an inspection on 26 November 1996 and submitted a report to Aviva. It noted damage to the rear single storey extension and next to the front two storey bay. It accepted Halsteads' conclusion that the cause was attributed to subsidence due to clay shrinkage with nearby trees being a dominant factor. Two of the trees were on council land and the other was owned by No.15. Cunningham noted that the neighbour "was likely to cooperate and remove the tree". This was because Mr Brown had told Cunningham that he owned No.15.
13. Site investigations to test movement and boreholes took a long time. Halsteads recommended to Cunningham on 18 December 1997 that they liaise with the insurers of the adjoining property in which Mr Brown had an interest so that the works could be carried out at the same time. Halsteads gave details of Northway's insurers and an engineer proposing a common approach to save cost. Cunningham's file does not reveal what steps it or Aviva took to liaise with Northway's insurers.
14. Cunningham produced a report dated 1 June 1998. The opening part of that report states: "We last spoke to the Policyholders engineer at the beginning of May and they advised that damage had occurred to the neighbouring attached property to which the Policyholder also has an interest…and we have written to them noting them of our interest as any repairs to the party wall areas are likely to be a joint responsibility". A copy of that report was provided to Aviva at that time.
15. Cracking to the party walls with No.15 was still an issue a year later in October 1999 as the dispute as to the extent of the subsidence dragged on into another year. The engineers were not instructed by Aviva to draw up the specification for works until April 2000 and these included a reference to the party walls. The contractors were informed in June 2000 that "With regard to Party Wall matters, the Client (i.e. Mr Brown) also owns the adjacent property so access will not be a problem". This was copied to Cunningham.
16. Halsteads forwarded four tenders for the works to Cunningham in July 2000. However, more delays ensued. Mr Brown told Cunningham that he could not live in the house during the period of works as he had chronic asthma. He provided Cunningham with a G.P. certificate as requested. The Policy provided for the costs of alternative accommodation in such circumstances. Mr Brown was most unhappy with Aviva's reluctance to agree that he could move out during the works. He made plain that he was "fed up" at the time it was taking for his claim to be settled.
17. The dispute over the alternative accommodation rumbled on and there was no progress. Cunningham produced a further report dated 19 April 2002 which recorded that a "possible solution was agreed whereby the Policyholder would be paid the sum of £9,000 for three calendar months for him to make his own arrangements… He has undertaken to investigate the local market and/or staying with relatives etc and this matter is yet to be agreed". Mr Brown pointed out that he was entitled to alternative accommodation that was equivalent to the insured premises whereas Cunningham noted that he and his wife only lived in part of the house as part of No.13 was tenanted. Cunningham asked again in December 2002 whether there was an option for Mr Brown to stay with family in which case Cunningham stated that they would be pleased to discuss an increased monthly cost.
18. Further discussions took place with regard to the type and cost of alternative accommodation. Cunningham's position was that the maximum was £3000 per month for 3 months. Mr Brown's view was that this might not be satisfactory but Cunningham were adamant that £3000 was the monthly limit. In February 2003 Countrywide Property Management (a property letting company) were instructed by Cunningham to assist Mr Brown in searching for alternative premises. Cunningham instructed them of the ceiling of £3,000 per month for 3 months on the equivalent rental. Mr Brown insisted that under the Policy he was entitled to an equivalent house for the duration of the works.
19. Mr Brown was also insistent that Aviva pay for everything caused by the subsidence. Cunningham sought to reduce Aviva's exposure and resisted certain elements of the claim. Mr Brown suggested that an independent engineer be appointed to resolve the differences. Aviva disagreed.
20. The parties could not agree and so Mr Brown took the matter to the Financial Services Ombudsman Service ("FOS"). Mr Brown's complaint was copied to Aviva on 24 July 2003. The complaint set out a short account outlining some of the main events covering the claim. That account began: "I lived at number 15 Friern Barnet Lane and bought number 13 Friern Barnet Lane in 1978. These two houses are semi-detached". The adjudicator upheld Mr Brown's complaint in a letter dated 30 December 2003. In particular, he concluded that Aviva should provide Mr Brown with alternative accommodation for the full repair period and to the same standard as the insured property. Aviva did not dispute the decision and agreed to pay the claim, including equivalent alternative accommodation costs. However, thereafter Aviva at various times attempted to resile from that position with Cunningham suggesting a smaller house would be reasonable or hotel accommodation. Mr Brown was resolute in demanding an equivalent house as decided by the Ombudsman was required by the Policy.
21. In 2005 with the insurance claim still unresolved, Mr Brown applied for planning permission to demolish both No.13 and No.15 and to redevelop the two houses as apartments. His application was rejected, but upheld on appeal. However he was advised that he needed to be the legal owner of both houses to rely on the planning consent. He therefore transferred the legal title in No.15 from Northway to himself. Northway became the leasehold owner of the house under a 7 year lease over the property. Mr Brown allowed bed-sit tenants to vacate without replacing them so that No.15 gradually became empty.
22. On 29 September 2005, Halsteads wrote to the FOS seeking clarification with regard, in particular, to the scope of the repair works and alternative accommodation. In the event, it appears that Aviva agreed to all the points raised by Halsteads in that letter. This was confirmed by the FOS in its letter to Mr Brown dated 11 October 2005. which stated in material point as follows:

"…I am pleased to say that [Aviva] has agreed to meet with [Halsteads' proposals] as follows:-

(a) Alternative accommodation – That alternative accommodation can be obtained by you for the duration of the works which is equivalent to the standard of the insured property…."

Mr Brown obtained costings for "equivalent" alternative accommodation from Foxtons and a removal quotation from Pickfords. According to a letter from Foxtons dated 31 October 2005, the rental cost for an equivalent 6 bedroom house in North London would be between £1300-£1600 per week for a 12 month let with a 6 month break clause. This would increase to anything from £2500-£3000 per week for a short let i.e. less than 6 months. That letter was forwarded to Cunningham.

23. Matters continued to drag on with regard to agreement on both the scope of repairs and alternative accommodation. On 30 January 2006, Mr Brown wrote to Cunningham referring to both the letter from the FOS dated 11 October 2005 and the Foxtons valuation and insisting that he was entitled to alternative accommodation "equivalent" to No.13. The letter also stated:

"If you are prepared [to] pay a cash incentive for me to move to my caravan, stay in a hotel or make some other arrangement during the works I will consider that proposal. The incentive will need to match the saving made by the insurers. You have the rental projections from Foxton's. They suggest £2500 to £3000 per week for a period of less than six months".

After further correspondence with Cunningham, Mr Brown spoke direct to Mr Cowley of Aviva who confirmed to him that he was entitled to alternative accommodation equivalent to No.13. Shortly thereafter Mr Brown wrote to Mr Cowley setting out his (Mr Brown's) understanding of that conversation. The letter stated in material part:-

"1. Alternative accommodation. It is your understanding that the Ombudsman decision entitles me to rent a house equivalent to that insured. I have sent to Cunningham Lindsay details from Messrs Foxtons of the costs of renting similar houses in this area together with removal and storage costs from Messrs Pickfords. You will instruct Cunningham Lindsey to write to me directly confirming the entitlement to rent a house during the repair works".

The letter also complained that he was growing 'tired and dispirited living in a house with substantial damage'. The second insurance claim had taken 10 years to resolve by this time. On 13 April 2006, Mr Brown also wrote to Cunningham complaining about how they had been "…twittering on for months about hotel accommodation, small houses etc…" wasting his time and delaying a settlement.

24. According to an internal note disclosed by Aviva dated 13 April 2006, it appears that Cunningham were of the view that a comparable property would be expensive and unnecessary and that £3,000 per week was "unreasonable". However, Mr Cowley was of the view that having agreed to fund comparable accommodation they should not now renege on this despite the cost. In the event, by letter dated 24 April 2006 Cunningham confirmed to Mr Brown that they had received instructions from Aviva concerning alternative accommodation i.e. they agreed in principle to Mr Brown renting a similar house in the same location once the contractor had been appointed.
25. Matters continued to drag on. In February 2007 Cunningham agreed with Mr Brown that they would reimburse Mr Brown for monies paid to the contractors that were pre-agreed. They asked for a schedule of payments required by the contractor and informed Mr Brown that they would require at least 4 weeks notice prior to payment to ensure that the cheques were raised in time. At about this time, the repair work was put out for tender and in May 2007 Cunningham confirmed that the tender from Mr McManus' firm was acceptable. Cunningham also recommended that Mr Brown make enquiries to find a suitable property of comparable nature for a 12 month let within the local area and suggested that, if Mr Brown preferred, Cunningham would utilise the services of Countrywide, a property management services company based in Southend - on - Sea, Essex. On about 23 May 2007, Mr Brown spoke to Cunningham and asked them to contact Countrywide on his behalf. At the same time, he told Cunningham that he would contact local agents and make other enquiries with regard to alternative accommodation. Countrywide's searches during June 2007 revealed houses with a rent of £10,000 or more per month. Cunningham rejected these as too expensive in what Mr Brown described as a 'U-turn'.
26. In view of this impasse, Mr Brown decided to investigate whether he might use his mother's old house, 38 Lyonsdown Avenue, New Barnet ("No.38"), where his office was based. At that time, No.38 was owned by Mr Brown. It had been the family home since Mr Brown was about 13. In 1980, Mr Brown's father transferred the freehold to his children (including Mr Brown himself). Subsequently, Mr Brown bought out his siblings' interest. Mr Brown obtained a valuation from an estate agent (Arnold & Goodall) who valued it at approximately £2,750 per week. That valuation was contained in a letter from Arnold & Goodall dated 15 June 2007. Only the first page of that letter was still available. The letter was addressed to: "A & E Trust, 38 Lyonsdown Avenue, New Barnet, Herts, EW5 1DX". Arnold & Goodall also produced full letting details with a photograph of No.38 at this rental figure.
27. On 11 July 2007, Mr Brown wrote to Countrywide enclosing details of No.38. The letter stated as follows:-

"Please find enclosed details of a house that I consider will be suitable as alternative accommodation. I have spoken to the agents who have been in touch with the owner.

Could you please obtain permission from the insurers that I can proceed to rent this house and that they will pay the deposit and rent. I have spoken to Helen from your office and the date that we are aiming at is August 4^th 2007.

This matter is urgent, I cannot be certain that the house will remain available if an approval from the insurers is not obtained without undue delay and in any event before August 4^th 2007.

I have been dealing with Mr Ronnie Goodall a representative of the letting agents. You have my permission to contact him on my behalf. His address and telephone number are on the enclosed sheet"

Shortly thereafter, Countrywide notified these details to Cunningham indicating a total rental of £142,992 for 12 months with a 6 month break clause. Cunningham advised Countrywide that this quote was too expensive. In the event, Mrs Brown said that she would not move into No.38 because it was Mr Brown's mother's old house and so he did nothing more about it.

28. At about the same time, Mr Brown went back to Foxtons for a further lettings valuation of No.13. On 23 July 2007, Foxtons wrote to Mr Brown proposing that rental of an equivalent size house in respect to size, condition and residential location in the North London region would range from £2500-£3000 per week.
29. Cunningham continued to search for alternative accommodation and on 10 August 2007 sent to Mr Brown details of various properties that were considered might be suitable. These were all rejected by Mr Brown. As he explained in oral evidence (which I accept), this was primarily on the basis that although they might be "suitable" they were not "equivalent" to No.13 and that is what he considered he was entitled to have as the adjudicator had confirmed in the letter of 11 October 2005.
30. Mr Brown then had further discussions with Countrywide. On 23 August 2007, Mr Brown spoke to Mr Hamilton following which he wrote to Mr Hamilton on the same day as follows:-

"Further to our conversation today I have spoken to Ms Belisha Sadler and Ms Jo Cox of Countrywide Properties. They have confirmed to me that they were appointed by Cunningham Lindsey to find alternative accommodation in this matter.

Ms Sadler has told me that she looked on 13 search engines in an attempt to find a property offering similar accommodation within the costs limits that you have imposed of £1500-£2000 per week. She has reported that her search was unsuccessful. She has also reported that you have now instructed Messrs Countrywide not to continue looking for property for me.

I enclose a copy of the letter written by the FSA on 11^th October 2005. This letter sets out the terms of the agreement with CGU who are the insurers in this matter. You will note that the alternative accommodation shall be "to the equivalent standard of the insured property."

You appointed Countrywide back in May this year and they have been looking without success since then. You have obstructed the renting of an equivalent property that I found myself.

You have been advised by your own experts that a similar property is not available at £1500 to £2000 per week.

I have no alternative but to refer this matter back to the FSA and complain that you and the insurers are not abiding by the terms of the agreement.

Unless I have a letter from you within the next seven days to say that you will lift the arbitrary rental limit and will abide by the FSA agreement I shall have no alternative but to make another formal complaint firstly to the CGU representative and then the FSA.

I understand that you are on holiday next week. Perhaps you could appoint another person to deal with this matter in your absence".

31. Following his discussion with Mr Brown, Mr Hamilton sent an email to Mr Cowley referring to the difficulties agreeing alternative accommodation with Mr Brown. The email stated in material part as follows:

"Mr Brown says the FOS states he is allowed an "equivalent property". He is therefore insistent on a 5 reception room, 6 bedroom property, with significant storage space (e.g. loft or studio area) plus garage and parking for approx 4 cars and maybe a racing yacht. This is all fine except we cannot find a property suitable in the local area within that price. There are many large properties but these are either too far away or in our consideration too expensive, circa £3,000 per week.

Mr Brown wants an equivalent property and in his terms this is in regard to size and facilities, as this was the FOS ruling – apparently. He considers that the cost is irrelevant. At present we are looking at a cost prediction of £90,000 for the 30 week project, but this is subject to if we can obtain a property for this exact length and does not take into account of any unforeseen circumstances increasing the contract period for a valid reason. A 12 month let would be £156,000. Mr Brown considers insurers should be funding this amount.

Do you want us to approve such an expense? Mr Brown says he will refer maters (sic) back to the FOS is (sic) we cannot agree".

32. The following day i.e. 24 August 2007, Mr Hamilton replied to Mr Brown stating that Cunningham considered £1500 pw a reasonable figure by which a property which was equivalent to the standard of No.13 could be sought, that this was not against the terms of the Financial Ombudsman's agreement and, in effect, offering that sum for the duration of the works (currently at 30 weeks).
33. According to an internal email, it appears that Mr Cowley took the view that the FOS had not formally adjudicated on this matter and withdrew from the complaint once agreement had been reached; and that therefore he did not consider that Aviva was bound by the content of the FOS letter.
34. On 12 (or possibly 14) September 2007, Mr Cowley wrote a long letter to Mr Brown expressing Aviva's position that the £1500 figure was both reasonable and realistic; refusing to increase that figure, and reminding him of a term in the policy which (it was said) put a limit on any claim for alternative accommodation. The letter continued:-

"I appreciate that you may now wish to consider all the options available to you in proceeding with the alternative accommodation part of your claim and in an effort to assist you with this we are prepared to settle this aspect of your claim on a cash basis. This will allow you the flexibility of making your own arrangements and to contribute to the costs incurred if you wish.

Please note however that we would expect you to make these arrangements as soon as possible to avoid any increase in repair costs which we would not be able to fund".

(For the avoidance of doubt, I should note that Aviva no longer rely on any "limit" in the Policy with regard to alternative accommodation.)

35. Shortly thereafter, Mr Cowley and Mr Brown had an important conversation following which Mr Brown sent a letter dated 25 September 2007 to Mr Cowley enclosing some notes which set out what he (i.e. Mr Brown) considered they had agreed together. Those notes stated in material part as follows:-

"1) Abbey, the insurers, will pay for temporary accommodation for Mr R.G. Brown and his family up to a limit of £1500 per week for the duration of the works.

This is to include any period after the repairs have been completed which may necessitate the correction of minor snagging items (see note A).

The duration of the works is the time it may take for the works to be completed and may be shorter or longer than the time specified in the building contract.

2) Mr Brown may choose the accommodation that he wishes to move into as alternative accommodation. This may have a rental cost of more or less than £1500 per week. In the event that the chosen alternative accommodation which costs more than £1500 per week the insurers will not be liable to pay any sum above that figure".

36. Mr Cowley responded by letter dated 15 October 2007 which stated in material part as follows:-

"1. We will pay the cost of renting reasonable temporary accommodation for you and those members of your family permanently resident with you for the period during which your home is rendered uninhabitable because of the insured repairs. This will also exclude any period after the repairs have been completed that may be necessary for the correction of minor snagging items. The maximum we will pay is £1500 per week for rent.

2. Agreed, however, any other additional costs which may arise directly from taking up your own choice of alternative accommodation and which would not otherwise have been incurred by underwriters will also be paid by you…

I hope that the above is in order and that we can now proceed with this matter accordingly. It you are happy to proceed on the above basis please contact Duncan Hamilton at Cunningham Lindsey to progress matters".

37. Following further conversations and correspondence, this was agreed by Mr Brown. There was some debate before me as to the precise scope and effect of this agreement between Mr Brown and Mr Cowley on behalf of Aviva. Be that as it may and whatever the precise legal effect of such agreement, Mr Brown's evidence (which I accept) was that he honestly thought that the effect of the agreement was that he could move to whatever accommodation he wished regardless of the actual cost and even at no cost; that the figure of £1500 pw was in effect a compromise figure which Aviva would pay in any event during the period of repairs; and that Mr Brown would have to pay any additional costs himself above £1500 per week.
38. Following this agreement, Mr Brown then had to work out where he and Mrs Brown would move to. He discussed the matter with his wife and according to his evidence, which I accept, they both decided that it would be a good idea to move into No.15 which had been empty since the summer. This was of course next door to No.13 and they would be able to keep an eye on the repair works and the garden at No.13.
39. Mr Brown's evidence was that he was worried about whether Northway was allowed to rent No.15 to him and that he therefore took advice from his accountant, Mr Root. According to Mr Brown, the advice he received from Mr Root was that he (Mr Brown) would be liable to a personal tax liability if the rental of No.15 was not done both at a market rate and as an arm's length transaction. However, if the transaction were treated as an arm's length transaction, Northway could rent No.15 to him at a market rent. Mr Root's evidence was broadly to similar effect. I consider this evidence further below. Mr Brown's evidence was that he decided that the lowest Northway could reasonably charge for No.15 was £1700 per week and that, in line with Mr Root's advice, he (Mr Brown) therefore arranged for Mr Regler to assist him in arranging the tenancy of No.15 so that it was done at arm's length and with no personal tax liability for him. Again I consider this evidence further below. Thereafter on the basis of instructions from Mr Brown, Mr Regler wrote to Cunningham by letter dated 26 October 2007 which stated as follows:-

"We are instructed by our above named client, to write to you, to confirm that our clients are willing to negotiate terms for a tenancy of the above property [15 Friern Barnet Lane, London, N11] in favour of Mr R G Brown and Mrs R V Brown, currently of 13 Friern Barnet Lane, London, N11.

It is proposed that our client will grant to Mr and Mrs Brown an Assured Shorthold Tenancy Agreement for an initial term of six months, renewable thereafter from month to month, up to a maximum of 12 months. The proposed rent is £7,366.67 per month, payable monthly in advance by bankers order and with a one months' rent deposit paid at the commencement of the tenancy.

The proposed tenancy will comprise the whole of the above property and the letting will be on a part furnished basis.

We understand that you have agreed with Mr Brown that you will make a contribution of £1500 per week, towards the rent. Please advise us whether this contribution will be paid to Mr Brown, or to ourselves.

We shall be grateful if you would confirm your agreement to the above, as soon as possible. We understand that the parties are intending to commence the tenancy by mid November, at the latest. You will appreciate that our client does not want the property to remain empty for a protracted period, especially having regard to the pending onset of winter weather."

40. That letter was sent under cover of a fax from Colemans dated 29 October 2007 which stated in its heading that Colemans acted for Northway who were the "freehold owner" of No.15. It was common ground that this was untrue i.e. Northway was not at that time the freehold owner of No.15. Originally, this had been relied on by Aviva as an instance of fraud by Mr Brown. However, Mr Regler's evidence was that this was a simple error on his part. In closing submissions, this explanation was accepted by Aviva and the suggestion that this was part of the alleged fraud was abandoned.
41. On 29 October 2007 Mr Brown also spoke to Mr Hamilton and on the following day Mr Brown wrote back to Cunningham in the following terms:

"Further to my telephone conversation with your Mr Duncan Hamilton on Tuesday 29^th of October 2007 I confirm that you have received a letter from the solicitors for the owners of the next door house confirming that they are willing to grant a tenancy to me and my wife.

I also confirm that I have your permission to proceed with negotiating the terms generally in accordance with those set out in their letter to you of 26^th October 2007.

I have spoken to Messrs Colemans this morning and they suggest the tenancy should start on the first day of December rather than the 26^th day of November. I have agreed this proposal. The solicitors will require a cheque for the first months rent together with one months rent as deposit to be cleared funds in their account before the 1^st December 2007. I am happy to send a cheque for my portion direct to them or via yourselves.

The builders have agreed a start date in the contract for December 10^th 2007".

42. On the same day i.e. 30 October 2007, Mr Regler sent Northway a fee note for £264.38 in receipt of professional charges for "proposed tenancy of No.15." That fee note was duly paid on 28 November 2007.
43. Meanwhile, on 31 October 2007, Cunningham wrote to Colemans confirming that they were in agreement to the proposals in Mr Brown's letter and stating "Insurers will fund £1500 per week and these funds will be paid directly to Mr Brown who will pay the full monthly rental directly to you".
44. On 2 November 2007 Colemans wrote to Cunningham. The letter stated:

"The Tenancy Agreement is being prepared upon the basis of a term commencing 1^st December 2007. In order to commence the tenancy on that date, we will need cleared funds to cover the first month's rent and the Rent Deposit, equivalent to one month's rent. We have notified Mr Brown accordingly. Please accordingly ensure that the contribution which the insurers have agreed to make is paid to Mr Brown, in good time before the commencement date of the tenancy."

45. At some stage thereafter, Mr Brown signed the Tenancy Agreement for No.15 with Northway. It was signed on behalf of Northway by Mr and Mrs Brown and by Mr Brown as tenant. It was dated 1 December 2007 for a term of 6 months from that date at a rental of £1700 per week.
46. Meanwhile, under cover of a letter dated 23 November 2007, Aviva sent a cheque for £13000 payable to Colemans to Mr Brown covering the deposit and the first month's rental. Mr Brown sent this cheque to Mr Regler asking him to pay the cheque into Colemans' client account and to send a cheque to him (Mr Brown) payable to Northway. At about the same time Aviva agreed to send all further cheques payable to Mr Brown to Mr Brown.
47. On 30 November 2007 Mr Brown wrote to Cunningham and stated:

"I acknowledge with thanks receipt of your cheque for £13,000 made payable to Colemans. This covers the rent until the last day of December 2007 together with a deposit.

I have forwarded this cheque and should have access to the alternative accommodation on December 1^st 2007. I have made arrangements with Messrs Pickfords to do the moving and they will bill you directly.

The next rental payment must be cleared funds into my account before January 1^st 2008.

Please arrange that a cheque can be cleared by me for payment of the next month's rent on January 1^st 2008. The week after the 24^th December 2007 contains only four working days (Taking into account Christmas and New Year bank holidays the cheque will need to be in my possession on December 24^th 2007)."

48. Pickfords were then instructed by Cunningham to move Mr and Mrs Brown from No.13 to No.15 on 4 December 2007. Pickfords arrived on 3 December and started work. However, they did not bring a large enough vehicle. Pickfords eventually returned to complete the job on 24 December. They also refused to put the carpets into storage as had been envisaged in the specification. Mr Brown informed Cunningham promptly. Despite these problems, Mr and Mrs Brown moved into No.15 on 5 December leaving behind furniture and the carpets in No.13. On 12 December 2007, Mr Brown wrote to Cunningham with a proposal and quotation for the carpets. Cunningham initially rejected this proposal and the works were delayed. Mr Brown was so frustrated by this delay that he agreed to be responsible for the contractors' fees before the contract was signed and this enabled some work to start before 21 January. On 28 January 2008 Cunningham eventually agreed the proposal and Mr Brown instructed the contractors to remove the carpets. Mr Brown complained about the delay of nearly 2 months but said that some preparatory works had been started.
49. During this period, Mr Brown began to receive accommodation payments from Aviva. In particular, he received £6500 in December for the January rental, and the further sum of £6500 on 9 February 2008 for the February rental. He and Mrs Brown lived next door in No.15 while the works progressed on No.13. There was originally a suggestion by Aviva that Mr and Mrs Brown did not in fact move to No.15 and perhaps moved elsewhere, but I do not accept this suggestion.
50. During the course of 2008, Aviva paid certain amounts in respect of repair costs (viz £40,000 on 18 March, £50,000 on 31 March and £30,000 on 11 June i.e. a total of £120,000) and alternative accommodation. Mr Brown's evidence was that these were generally paid late and, as a result, he became angry in particular because he had to pay Mr McManus some £40,000 out of his own pocket.
51. On 7 March 2008 the Defendant telephoned Cunningham with regard to the March payment for alternative accommodation which had not been received. He spoke to Ms Norwood who recorded that conversation on her computer as follows:-

"Note:

Mr Brown called. I have received the next batch of rent.

Oh dear this was recommended on the 18/2. I have no idea what is happening. I will get onto this and let you know.

Ok thanks. I am getting chased from the landlord so what shall I say.

Well I have recommended it. By all means if they wish to call me they can.

Oh that will be extra costs then.

Well I will chase Abbey now.

Ok. "

52. On 30 May 2008, Mr Hamilton telephoned Colemans to ask for a copy of the tenancy agreement for No.15. He spoke to Mr Regler. Mr Regler wrote to Mr Brown asking for a copy. Mr Regler then spoke to Mr Brown and on Mr Brown's instructions, Mr Regler wrote to Cunningham by letter dated 5 June stating in material part:-

"We have contacted our client, who has instructed us to obtain from you an undertaking to pay this firm's further costs in this matter. We will require the consent of both our client and Mr and Mrs Brown, to release the information, which you have requested."

53. On 16 June 2008 Mr Brown wrote to Cunningham acknowledging receipt of a cheque for £30,000 (in respect of alternative accommodation), listing the amounts claimed and payments received in respect of repair costs and stating that he was holding a balance of £32,326 for repair work. The letter concluded as follows:

"The Abbey National have paid for alternative accommodation up to the end of July 2008, the last cheque from them was for £13,000 and was dated 16^th April. On the 1^st August I will have to pay a further month's rent, please ensure that I have the cleared funds available to make this payment. Your cheque should arrive not later than 28^th July which is 6 weeks hence."

54. On 3 July 2008, Mr Hamilton sent an internal email to Mr Cowley listing a number of matters in particular that Mr Brown apparently owned No.38, that it had been discovered that Mr and Mrs Brown were the company directors of Northway, that No.13 was registered in Mr Brown's name and that Mr Brown was "renting the property from himself". Mr Harris was then brought in to carry out further investigations. Meanwhile, Mr Brown chased Aviva for further payments. On 31 July 2008, Cunningham informed Mr Brown that Aviva had suspended all payments. This was confirmed on 1 August by Mr Cowley. On 4 August 2008, Mr Brown wrote to Mr Cowley complaining of this action in particular that Aviva were unable to explain why payments had been suspended or when they would be resumed. Copies of that letter were sent by Mr Brown to the FOS, as well as all other parties. Mr Brown asked Mr Cowley to make every effort to resolve the matter. Mr Brown received no reply.
55. On 18 August 2008, Cunningham wrote to Mr Brown confirming no further payments would be made until their investigations had been completed. The letter referred to their request that Mr Brown attend a meeting with Mr Hamilton and Mr Harris and stated that until this had taken place, they would not recommend that any further payments were considered.
56. Mr Brown responded by saying that he was happy to have a meeting at any time during the weekend or before 8am or after 5:30 pm during the working week and that he would be pleased to answer their questions either by post or over the telephone at any time. Aviva considered that these times were not convenient and insisted on a meeting during working hours during the week. After another period of considerable delay, it was eventually agreed to have a meeting which took place on 18 February 2009. A transcript of that meeting was produced.
57. After some further delay, Aviva wrote to Mr Brown on 18 May 2009 stating inter alia that Mr Brown had presented a fraudulent claim or otherwise used fraudulent means or devices in order to persuade Aviva that there was a genuine "at arms length" transaction; that Aviva was entitled to repudiate his claim in its entirety and to terminate the contract from the date of the claim; and that Aviva was entitled to decline to pay the balance of the claim and to recover the payments which they had made. Following further discussions, these proceedings were commenced by Aviva on 12 August 2009.

The Law

(1) Aviva's Claim

58. Aviva denies that it is liable to pay any further amounts to Mr Brown and seeks an order for repayment of sums already paid including payments in respect of both alternative accommodation and repair costs on two main grounds viz.

i. The claim for alternative accommodation was fraudulent within the meaning of clause 5 of the Policy; and/or

ii. The claim was fraudulent and/or Mr Brown used fraudulent means or devices and, as a matter of common law, Aviva was thereby discharged from liability.

In either case, Aviva says in effect that it is not liable to pay any further sums to Mr Brown and is entitled to recover back the payments already made. In its written Opening Submissions, Aviva described its claim as a claim for damages. This gave rise to some debate before me as to whether such characterisation was correct and the precise legal mechanism underlying Aviva's claim at common law viz whether it operated rather by way of "forfeiture" or "discharge of liability". In the event, it was agreed between the parties that (subject to a possible "timing" point) the precise characterisation probably did not matter in the circumstances of the present case.

(2) Burden and Standard of Proof

59. It was common ground between the parties that whether for the purposes of clause 5 of the Policy or at common law, the burden of proof was on Aviva to establish some relevant fraud on the part of Mr Brown. Nothing less would do.
60. It was also common ground that the standard of proof is the balance of probabilities but, in practice, as Lord Nicholls noted in Re H and Others (Minors) [1996] AC 563 at p586 since allegations of fraud are serious: "…hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probabilities…" This is because if an event is inherently improbable then it takes better evidence to satisfy the court that it has happened – the allegations must be proved to the necessary high standard of proof. Again, this was common ground.

(3) Fraud ?

61. The classic definition of fraud is to be found in Derry v Peek (1889) 14 AC 337 in the speech of Lord Herschell at p374:

"Having now drawn attention, I believe, to all the cases having a material bearing upon the question under consideration, I proceed to state briefly the conclusions to which I have been led. I think the authorities establish the following propositions: First, in order to sustain an action of deceit, there must be proof of fraud, and nothing short of that will suffice. Secondly, fraud is proved when it is shown that a false representation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false. Although I have treated the second and third as distinct cases, I think the third is but an instance of the second, for one who makes a statement under such circumstances can have no real belief in the truth of what he states. To prevent a false statement being fraudulent, there must, I think, always be an honest belief in its truth. And this probably covers the whole ground, for one who knowingly alleges that which is false, has obviously no such honest belief. Thirdly, if fraud be proved, the motive of the person guilty of it is immaterial. It matters not that there was no intention to cheat or injure the person to whom the statement was made."

62. In Agapitos v Agnew [2002] 1 Lloyd's Law Reports 573, 581, Mance LJ said:

"…A fraudulent claim exists where the insured claims, knowing that he has suffered no loss, or only a lesser loss than that which he claims (or is reckless as to whether this is the case). A fraudulent device is used if the insured believes that he has suffered the loss claimed, but seeks to improve or embellish the facts surrounding the claim, by some lie…"

63. As stated in that precise form, those definitions are difficult to apply in the present circumstances because the alleged fraudulent claim or use of fraudulent means or devices relate in part at least to a time before Mr Brown had moved into No.15 i.e. before there was any actual loss in relation to alternative accommodation. However, Mr Burns accepted that similar principles would apply.
64. Mr Eklund QC submitted that it is not only a positive misrepresentation that constitutes fraud, but also the wrongful withholding of information when knowing and deliberate. As a broad proposition, I accept that depending on the particular context, the withholding of information in that context may in certain circumstances constitute fraud. However, as stated by Rix J in AIC Ltd v ITS Testing Services (UK) Ltd. (The "Kriti Palm") [2007] 1 Lloyd's Rep 555, context remains everything (see paragraph 252) and in any case of fraud the dishonest representation must be clearly identified (see paragraph 254).
65. The main difference between the parties (at least at the opening of the case) was whether Aviva needed to show "dishonesty" on the part of Mr Brown. In his written opening submissions, Mr Eklund QC relied upon a passage from the judgment of Moore-Bick LJ in Kensington International Ltd v Republic of Congo [2008] 1 Lloyd's Law Reports 161 (at paragraph 59) where he stated:

"For my own part I think that the essence of fraud is deception of one kind or another coupled with injury or an intention to expose another to a risk of injury by means of that deception. That broadly coincides with the view expressed by Stephen in his History of Criminal Law of England quoted in para 7.8 of the Law Commission's Report on Fraud (Law Com No 276) (Cm 5560). Both misrepresentation and the wrongful withholding of information, when knowing and deliberate, amount to calculated deception, and even abuse of position of the kind falling within section 4 can be described as deception of a kind since the wrongdoer deliberately deceives the person whose interests he is bound to safeguard by allowing him to believe in his trustworthiness while actively falsifying that belief. Although I find it difficult to see how fraud of any kind properly so called can be committed without dishonesty, dishonesty is not the critical distinguishing mark of fraud. These considerations lead me to the conclusion that in order for an offence to involve some form of fraudulent conduct or purpose it must involve an element of deception in the sense mentioned earlier."

Carnwath and May LLJ agreed with Moore-Bick LJ. That case was not concerned with insurance but a question of privilege against self-incrimination and, in particular, whether that privilege was abrogated by s.13 of the Fraud Act 2006.

66. In response, Mr Burns relied upon what is stated by MacGillvray on Insurance Law at 16-002 viz that fraud is "a serious allegation which must be clearly substantiated and must not be confused with carelessness, however gross that may be." Mr Eklund QC did not dissent from that general proposition. However, Mr Burns went on to submit that in order to succeed, Aviva must prove "dishonesty and deception". In support of that submission and, in particular, the need for Aviva to prove "dishonesty", Mr Burns relied upon Manifest Shipping Co Ltd v Uni Polaris Insurance Co Ltd ("The Star Sea") [2003] 1 AC 469 in which (Mr Burns submitted) the House of Lords held that the post-contractual duty of good faith is limited to one of honesty: see, in particular, para 111 per Lord Scott with whom Lord Steyn and Lord Hoffman agreed; and paragraphs 61-72 in the speech of Lord Hobhouse in particular where he cited at paragraph 70, with apparent approval, the statement by Roskill LJ in Piermay Shipping Co Sa v Chester (The Michael) [1979] 2 Lloyd's Rep 1, 22-22: "The relevant test must be honest belief."
67. In further support of his submission, Mr Burns also relied on Twinsectra Ltd v Yardley [2002] 2 AC 164 in particular what Lord Hutton described as the "combined test" as referred to at p172C-D. Having referred to the purely subjective standard (the "Robin Hood test") and the purely objective standard, Lord Hutton stated at p172C-D:

" Thirdly, there is a standard which combines an objective test and a subjective test and which requires that before there can be a finding of dishonesty it must be established that the defendant's conduct was dishonest by the ordinary standards of reasonable and honest people and that he himself realised that by those standards his conduct was dishonest. I will term this the "combined test".

As is apparent, this test has two distinct limbs, each of which must be satisfied before there can be any finding of dishonesty. Nevertheless, it is important to bear in mind that Twinsectra was not concerned with the definition of fraud but what constituted "dishonesty" for the purposes of the particular issues in that case. Thus, particularly in the light of the passage from the judgment of Moore-Bick LJ in Kensington International v Republic of Congo (cited above), it might be said that Mr Burns' reliance on Twinsectra was misplaced to the extent that he relied upon it to show that the combined test was the relevant test for the plea of fraud in the present case. However, in the event, Mr Eklund QC accepted that the combined test was the relevant test in the present circumstances whether for the purposes of determining that there was a fraudulent claim or the use of fraudulent means or devices, subject to two main points.

68. First, Mr Eklund QC submitted that motive is irrelevant i.e. a person who acts fraudulently cannot say by way of defence that he thought he was justified in acting fraudulently because, for example, he had been treated badly by the other party. In my view, that proposition, formulated in that way, is obviously correct.
69. Second, Mr Eklund QC submitted that the second limb of the combined test would be satisfied if the relevant misrepresentation were made "recklessly, careless whether it be true or false" i.e. the third "case" referred to by Lord Herschell in Derry v Peek. That is also, of course, correct. However, as Lord Herschell himself stated, this third "case" is but an instance of the second. I accept, of course, that a person who makes a false statement recklessly, careless whether it is true or false can have no honest belief in the truth of what he states. However, in that context, it is important to bear in mind what was said by Rix LJ in AIC Ltd v ITS Testing Services (UK Ltd (The Kriti Palm) [2007] 1 Lloyd's Rep 555 at paragraphs 256 to 259:

"256. As for the element of dishonesty, the leading cases are replete with statements of its vital importance and of warnings against watering down this ingredient into something akin to negligence, however gross. The standard direction is still that of Lord Herschell in:

Derry v Peek (1889) 14 App Cas 337 at 374:

"First, in order to sustain an action in deceit, there must be proof of fraud and nothing short of that will suffice. Secondly, fraud is proved when it is shown that a false representation has been made (1) knowingly, (2) without belief in its truth, or (3) recklessly, careless whether it be true or false."

257. In effect, recklessness is a species of dishonest knowledge, for in both cases there is an absence of belief in truth. It is for that reason that there is "proof of fraud" in the cases of both knowledge and recklessness. This was stressed by Bowen LJ in Angus v Clifford [1891] 2 Ch 449 where he said (at 471):

"Not caring, in that context, did not mean not taking care, it meant indifference to the truth, the moral obliquity of which consists in a wilful disregard of the importance of truth, and unless you keep it clear that that is the true meaning of the term, you are constantly in danger of confusing the evidence from which the inference of dishonesty in the mind is to be drawn - evidence which consists in a great many cases of gross want of caution - with the inference of fraud, or of dishonesty itself, which has to be drawn after you have weighed all the evidence."

258. And in Armstong v. Strain [1951] 1 TLR 856 at 871 Devlin J, after a full citation of passages in earlier authorities which stress the need for dishonesty (also called actual fraud, mens rea, or moral delinquency), said this about the necessary knowledge:

"A man may be said to know a fact when once he has been told it and pigeon-holed it somewhere in his brain where it is more or less accessible in case of need. In another sense of the word a man knows a fact only when he is fully conscious of it. For an action of deceit there must be knowledge in the narrower sense; and conscious knowledge of falsity must always amount to wickedness and dishonesty. When Judges say, therefore, that wickedness and dishonesty must be present, they are not requiring a new ingredient for the tort of deceit so much as describing the sort of knowledge which is necessary."

259. Moreover, whether it is in the matter of identifying the relevant misstatement or in the finding of a dishonest mind, it is necessary to bear in mind the heightened burden of proof which bears on the claimant, as discussed in cases from Hornal v Neuberger Products Ltd [1957] 1 QB 247 to In re H (Minors) [1996] AC 563. In the latter case Lord Nicholls of Birkenhead said this (at 586):

"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. Ungoed-Thomas J. expressed this neatly in In re Dellow's Trusts [1964] 1 WLR 451, 455: "The more serious the allegation the more cogent is the evidence required to overcome the unlikelihood of what is alleged and thus to prove it."

70. In considering an issue as to what constituted a fraudulent misrepresentation in a claim for deceit, those passages were cited by Flaux J in Grosvenor Casinos Ltd v National Bank of Abu Dhabi [2008] 2 Lloyd's Rep 1 at para 106 and, as there stated by Flaux J, the Kriti Palm is a salutary reminder to any judge as to the importance of not confusing fraud with incompetence, even if it amounts to gross negligence and as to the importance of being satisfied to the necessary heightened standard of proof that was is involved is dishonesty. I agree.
71. So far as the present case is concerned, Mr Eklund QC placed much reliance on Direct Line v Khan [2002] Lloyds Rep IR 364 where the insured suffered a loss and submitted a claim which included a claim for alternative accommodation. In support of the claim for alternative accommodation, the insured submitted:

1.) A rental agreement for six months for rented accommodation, the insured said they would be moving into.

2.) Receipt for one month's rent and one month's deposit paid, £2,400. (The total amount allegedly paid for rent was £8297)

In fact, the insured did not pay any rent at all. The reason for that was that the insured in fact owned the property, which he alleged he was renting. As a result, when Direct Line ascertained the fact that the insured was claiming for rent, when he was not in fact paying it, it sought summary judgment to recover the whole amount which had been paid out pursuant to the claim, not just the fraudulent amount.

72. Jackson J considered two arguments advanced on behalf of the insured.

"I must now address two specific arguments which Mr Spencer-Lewis has advanced on behalf of the Defendants. The first argument was this. If the Defendants had gone about matters in a different way, they could have put forward a perfectly genuine claim arising out of their occupation of 68 Standard Road. The claim would have been put on this basis. But for the fire at 22 Camborne Way, the Defendants would have been in a position to let out the property at 68 Standard Road. Thus the Defendants have lost the rental income which they might have derived from 68 Standard Road. They have suffered that loss because of the fire at 22 Camborne Way and because of the Defendants' consequential need to occupy 68 Standard Road.

In my view, this line of defence is bound to fail. If the Defendants wished to advance a claim for loss of rental income, they should have done so honestly. The insurers could then have considered that claim on the true facts. The Defendants did not take this course. Instead, the first Defendant put forward a wholly false claim for rent which he pretended that he was paying. He pretended that 68 Standard Road belonged to Mr Gabriel. He produced a forged receipt for monies allegedly paid to Mr Gabriel. He produced a forged rental agreement. He even had the audacity to say, in a fax to the loss adjusters, that the rental payments were "a very large chunk from my account". Therefore I regard the first proposed line of defence as hopeless."

73. Mr Eklund QC submitted that the facts of that case bear close resemblance to the facts in the present case and that I should reach the same conclusion as did Jackson J. In one sense, Mr Eklund QC is, of course, correct. Direct Line v Khan was concerned about a claim for alternative accommodation and certainly raised similar issues to the facts in the present case including the central issue viz did the insured act fraudulently? However, the question whether or not an individual is fraudulent ultimately depends on the facts of each case having regard to all relevant circumstances in that particular case bearing in mind the important matters which I have outlined above. In my view, it is dangerous to look at conclusions of fact drawn by one Judge in one case (albeit in similar circumstances) for the purpose of assisting in reaching a conclusion in another case. Indeed, in my view such exercise is not only dangerous, it is impermissible.

Consequences of a fraud

74. In The Star Sea, Lord Hobhouse considered at paragraphs 62-67, the relevant authorities concerning the consequences of a fraud. In particular, he stated (at paragraph 62):

"The law is that the insured who has made a fraudulent claim may not recover the claim which could have been honestly made. The principle is well established and has certainly existed since the early 19^th century: Halsbury's Laws of England, 4^th ed reissue, vol 25 (1994), p 284, para 492, Welford & Otter-Barry, Fire Insurance, 4^th ed (1948), p 289 et seq. This result is dependant upon the inclusion in the contract of a term having that effect or the type of insurance; it is the consequence of a rule of law. Just as the law will not allow an insured to commit a crime and then use it as a basis for recovering an indemnity (Beresford v Royal Insurance Co Ltd [1937] 2 KB 197), so it will not allow an insured who has made a fraudulent claim to recover. The logic is simple. The fraudulent insured must not be allowed to think: if the fraud is successful, then I will gain; if it is unsuccessful, I will lose nothing."

That statement is no doubt part of the overall policy of the law to discourage the making of fraudulent claims: see the well-established principle articulated by Willes J. in his directions to the jury in Britton v Royal Insurance Co (1866) 4 F & F 905 at pages 908 and 909 ("…if there is a wilful falsehood and fraud in the claim, the insured forfeits all claim whatever upon the policy."); and, in more modern times, Galloway v Guardian Royal Exchange (UK) [1999] 2 Lloyd's Rep. IR 209 in particular per Lord Woolf at p.213.

75. In broad terms, the foregoing was uncontroversial subject to two main points raised by Mr Burns.
76. First, Mr Burns submitted that a claim will only fail if there is fraud to a "substantial extent" or if it was "substantially fraudulent". That submission was based primarily on references in Orakpo v Barclays Insurance Services [1995] LRLR 443, CA in particular per Hoffman LJ at p.451 and Sir Roger Parker at p.452. These references were explained by Lord Woolf MR in Galloway's case at p.213 as intended to exclude fraud which could be regarded as "immaterial".
77. In this context, Mr Burns also relied on a passage from the judgment of Millett LJ in Galloway's case where he stated at p.215 that the right approach was to consider whether the making of a claim was "sufficiently serious to justify stigmatitising it as a breach of [the insured's] duty of good faith so as to avoid the policy". Relying on this passage, Mr Burns suggested at one stage of his argument that this necessitated the Court carrying out some kind of value judgment with regard to the seriousness of the breach. I do not agree. At most, it seems to me that the law is as stated by Mance LJ in Agapitos v Agnew [2003] QB 556, 572 at paragraph 38: -

"The view could, in this situation, be taken that, where fraudulent devices or means have been used to promote a claim that by itself is sufficient to justify the application of the sanction of forfeiture. The insured's own perception of the value of the lie would suffice. Probably, however, some limited objective element is also required. The requirement, where a claim includes a non-existent or exaggerated element of loss, that that element must be not immaterial, "unsubstantial" or insignificant in itself offers a parallel. In the context of use of a fraudulent device or means, one can contemplate the possibility of an obviously irrelevant lie – one which, whatever the insured may have thought, could not sensibly have had any significant impact on any insurer or judge. Tentatively I would suggest that the courts should only apply the fraudulent claim rule to use of fraudulent devices or means which would, if believed, have tended, objectively but prior to any final determination at trial of the parties' rights, to yield a not significant improvement in the insured's prospects – whether they be prospects of obtaining a settlement, or a better settlement, or of winning at trial. Courts are used enough to considering prospects, e.g. when assessing damages for failure by a solicitor to issue a claim form within a limitation period. "

78. Second, Mr Burns submitted that even if (which was emphatically denied) there was some fraud in the alternative accommodation claim, Aviva cannot in law claim reimbursement of the repair costs but only of the £58,500 in respect of alternative accommodation. In support of that submission, Mr Burns relied on Direct Line Insurance Plc v Fox [2010] Lloyd's Rep IR 324 in which case fraudulent invoices were generated to meet the condition in a settlement agreement with an insurer but the court limited the consequences holding only that the condition precedent had not complied with. However, in my judgment, that case turned on its own very special facts and provides no assistance in the present case.

Aviva's Specific Allegations of Fraud

79. Against that background, I turn to the specific allegations of fraud made by Aviva against Mr Brown. These were contained in 21 separate paragraphs as particulars under paragraph 8 of the Defence and also in paragraph 9 of the Defence. The relevant paragraphs are quoted below and I then deal with each of these specific allegations viz.

1.) The representation that 38 Lyonsdown Avenue, New Barnet, Barnet was available to rent to the Defendant for £11,916 per month was false. The Defendant was the owner of that property and lived at that property.

2.) Further or alternatively, 38 Lyonsdown Avenue, New Barnet, Barnet was a property at which the Defendant could live and did live, without incurring any additional costs of accommodation, such as would be incurred by renting third party property in an arm's length transaction.

3.) The representation that 15 Friern Barnet Lane was available to rent to the Defendant for £7,366.67 per month was false. The Defendant was the owner of that property.

4.) The representation that Northway Design and Development Ltd was the freehold owner of 15 Friern Barnet Lane was false. The Defendant was the freehold owner of that property.

5.) The Defendant failed to disclose to the Claimant that he was the owner of 15 Friern Barnet Lane.

6.) The Defendant failed to disclose to the Claimant, that he was the majority shareholder, secretary and a director of Northway Design and Development Ltd. He held 951 of the 1,500 issued shares, the other shares being held by R G Brown Discretionary Trust (500 shares) and Rita Brown (49 shares). The Defendant and/or Colemans on his behalf, represented and/or intended the Claimant to believe that Northway Design and Development Ltd was a company which would enter into an arm's length tenancy agreement with the Defendant, when such was not the case.

7.) The representation in the letter dated 26 October 2007 that Northway Design and Development Ltd was willing to negotiate terms for a tenancy in favour of the Defendant and his wife, was false and misleading. There was and would be no negotiation. Insofar as there was any negotiation, the Defendant would decide and determine the rent to be paid and received as policyholder, owner of 15 Friern Barnet Lane and as director of Northway Design and Development Limited.

8.) The representation in the letter dated 26 October 2007 that the proposed tenancy would comprise the whole of the property [at 15 Friern Barnet Lane] and the letting would be on a part furnished bases was false. 15 Friern Barnet Lane comprised a number of self-contained rooms or flats or bed sits (each or several of which had its own independent number) which were let to a number of people. The Claimant will refer to the electoral roll for 15 Friern Barnet Lane which records that 6 persons were registered as living at that address from October 2007 to July 2008 (the date of the electoral roll search). Those persons were Marie Armand, Clive Bebe, Anita Franchese, Camilla Hawkins, Marjo Paavilainen and Hiyi Phawg.[Abandoned during the course of the trial].

9.) The representation in the letter dated 26 October 2007 and/or the implication from that letter that there would be an arm's length tenancy agreement between Northway Design and Development Ltd and the Defendant and his wife, was false.

10.) The representation in the letter dated 26 October 2007 that Northway Design and Development Ltd did not want the property to remain empty for a protracted period, especially having regard to the pending onset of winter weather, was false and/or misleading. The Claimant will refer to the matters pleaded above, namely that the property comprised a number of self-contained rooms or flats and/or to the registration on the electoral roll of six persons registered as living at the address from October 2007 to July 2008 and will contend that the property was not empty and/or would not be empty.[Abandoned during the course of the trial].

11.) The representation in the fax dated 29 October 2007 that Colemans acted for Northway Design and Development Ltd as the freehold owner of 15 Friern Barnet Lane, was false. The Defendant was the freehold owner of that property. [Abandoned during the course of the trial].

12.) The statement by the Defendant in his letter dated 30 October 2007 to Cunningham Lindsey that Cunningham Lindsey had received a letter from the solicitors for the owners of the next-door house confirming that they were willing to grant a tenancy to the Defendant and his wife was false and/or deliberately misleading. The letter was expressed to have been written on behalf of Northway Design and Development Ltd (the alleged freehold owner of 15 Friern Barnet Lane) when it was not. The Defendant was the freehold owner of that property. The statement that the owners were willing to grant a tenancy to the Defendant and his wife was false and misleading. There was no need for a tenancy, since the Defendant was the owner of that property.

13.) The statement as to the confirmation referred to in the second paragraph of the Defendant's letter dated 30 October 2007, namely that he had Cunningham Lindsey's permission to proceed with negotiating the terms generally in accordance with those set out in Colemans' letter to Cunningham Lindsey dated 26 October 2007 was false and misleading. As the Defendant well knew, there would be no negotiation because he was the owner of 15 Friern Barnet Lane. Alternatively insofar as it may be proved that Northway Design and Development Ltd had an interest in that property, the Defendant as the major shareholder and director of that company, would decide on the rent which would be payable and there would be no negotiation.

14.) The statement in the third paragraph of the Defendant's letter dated 30 October 2007 that he had spoken to Messrs Colemans that morning and that they suggested a tenancy should start on the first day of December rather than 26 November, was false and misleading. The Defendant is put to proof of having spoken to Colemans on or about 30 October 2007 as represented. The statement was false and misleading because the Defendant himself (as the owner of 15 Friern Barnet Lane) would decide when the tenancy could commence and further, it suggested an arm's length transaction, when such was not the case.

15.) The statement that these solicitors would require a cheque for the first month's rent together with one month's rent as deposit to be cleared funds in their account before the 1 December 2007 was false and misleading. Insofar as there was such a requirement, that was a requirement of the Defendant and not of the solicitors, who in any event would take their instructions from the Defendant.

16.) The statement that the builders had agreed a start date in the contract for December 10 2007, was false. No such agreement had been reached. The contract for the building works to be undertaken, recorded that the start date was 21 January 2008. The Claimant will contend that the statement that the building contract would commence on 10 December 2007 was a fraudulent statement or means or device to secure a payment for alternative accommodation earlier than could have been justified and/or was a fraudulent statement or means or device to persuade the Claimant to believe that there was a genuine need for a payment for the cost of alternative accommodation, when such was not the case.

17.) The statement (in Colemans' letter dated 2 November 2007) that in order for the tenancy to commence they would need cleared funds to cover the first month's rent and rent deposit was false and misleading. The Defendant was the owner of 15 Friern Barnet Lane and did not require cleared funds in order to be able to move into that property (if that was his intention and it was vacant, neither of which are admitted). The terms of the letter were intended to suggest and did suggest that there was an arm's length transaction being entered into by the Defendant in relation to the alternative accommodation, when such was not the case. It was the Defendant who had provided the relevant information to Colemans in order for them to write the letter dated 2 November 2007.

18.) The statement in the Defendant's letter dated 30 November 2007 that he should have access to the alternative accommodation on December 1st 2007 was false and/or misleading. The alternative accommodation was occupied by a number of other persons, as indicated by the results of the electoral roll search referred to above. If not occupied by those persons, The Defendant, as owner of the alternative accommodation, could have access to the alternative accommodation when he decided. [Abandoned in part in course of the trial].

19.) The statements in the Defendant's letter that "The next rental payment must be cleared funds into my account before January 1 2008" and "please arrange that a cheque can be cleared by me for payment of the next month's rent on January 1 2008" were false and/or misleading. The Defendant was the owner of 15 Friern Barnet Lane and did not require cleared funds in order to be able to remain at that property (if that was his intention and it had become vacant for him to move into). The terms of the letter were intended to suggest and did suggest that there was an arm's length transaction being entered into by the Defendant in relation to the alternative accommodation, when such was not the case.

20.) The Defendant's statement to Cunningham Lindsey on 7 March 2008 that "I am getting chased from the landlord so what shall I say" was false and/or misleading. The Defendant was not getting chased by the landlord -- he was the owner of 15 Friern Barnet Lane and, in so far as that property was let, he was the landlord. Insofar as it may be proved that Northway Design and Development Ltd had an interest in 15 Friern Barnet Lane, the statement was still false and/or misleading, because the controlling mind of the company was the Defendant and he was the landlord or was effectively the landlord.

21.) The statement in Colemans' letter dated 5 June 2008 that in order for a copy of the tenancy agreement between Mr Brown and Northway Design and Development Limited to be made available, the consent of both the company and Mr and Mrs Brown would be required was false and/or misleading. The letter stated that Colemans had contacted its client (allegedly Northway Design and Development Limited) and had received instructions. Insofar as the instructions came from Northway Design and Development Ltd, Mr Brown had provided those instructions and he was in a position to provide the consent there and then of Northway Design and Development Limited and himself. If a tenancy agreement had been entered into, the Defendant could and should have provided his consent there and then to the agreement being provided to Cunningham Lindsey.

22.) In the premises, the purported tenancy agreement between the Defendant and Northway Design and Development Limited was false and/or not genuine and the claim for alternative accommodation made to the Claimant, was fraudulent and false. Further or alternatively, the Defendant has used fraudulent means and devices to support his claim.

80. As noted above, paragraphs 8, 10, 11 and part of paragraph 18 were abandoned in the course of the trial.
81. These are serious allegations both individually and cumulatively. At their heart is the allegation that Mr Brown acted fraudulently over a period of time. His evidence is obviously important. In his written statement he deals with all of the allegations and denies any fraud. He was cross-examined at some length. I had an opportunity of both seeing and hearing him give evidence. Mr Brown's own Counsel (Mr Burns) described him as a little eccentric, cantankerous, a robust individual careful to get what he was entitled to, someone who did not show give and take, who often had a blinkered view of what he was talking about and had to be happy with the way he saw it. Ms Norwood described him as an "insistent customer" who wanted everything done in a precise and particular manner. I agree with all of that. In addition, I would say that he was an experienced businessman, clever, articulate and generally obdurate. He was increasingly frustrated and indeed exasperated by the delay by Aviva in dealing with his claim. That sense of exasperation may or may not have been justified in whole or in part. That is not an issue I need to determine. But in my judgment there is no doubt that that sense of exasperation was based upon a perception genuinely held by Mr Brown that he had been treated badly by Aviva over a period of time – although, to be clear, even such perception genuinely held is of course no excuse for fraud.
82. I confess I have had considerable difficulty in assessing the credibility of Mr Brown. In particular, there were two main difficulties with Mr Brown's evidence. First, some of the explanations he gave were difficult to understand and contradictory. Second, in my judgment there is no doubt that he lied in at least one respect viz when (according to Ms Norwood's contemporaneous note) he told Ms Norwood on 7 March 2008 that "I am getting chased from the landlord so what shall I say" (Allegation No.20). Ms Norwood explained how she produced this note i.e. by typing into her computer what Mr Brown told her in the course of that telephone conversation. Mr Brown's evidence was that he had no recollection of saying this to Ms Norwood but I have no hesitation in accepting her evidence. Equally, there can be no doubt that Mr Brown was not being "chased from the landlord" since the landlord was Northway which he controlled and, in any event, there was no evidence of any "chasing". Mr Brown's explanation was that he was simply trying to push Aviva to pay on time i.e. to perform its existing contractual obligation. However, even if this was the motive for Mr Brown's statement to Ms Norwood, it is no proper justification for it. Mr Burns submitted that this was at most no more than what he described as a white lie and is to be regarded as de minimus or not significant. I consider the consequences of that particular lie below. But it demonstrates that Mr Brown was if necessary prepared to lie and to that extent is at least relevant to Mr Brown's general credibility. However, the fact that a person lies on one occasion does not of course necessarily mean that his evidence is untruthful on another occasion or generally. At the end of the day I have to consider the other allegations having regard to all the circumstances.
83. In broad terms, Mr Eklund QC submitted that the thrust of the fraud was that in relation to both No.38 and No.15 the impression given by Mr Brown was that the proposed rental of each property would be an arm's length transaction with an independent third party; and that such impression was false. In truth (submitted Mr Eklund QC) Mr Brown owned or had an interest in both No.38 and No.15 and that Mr Brown was, in reality if not in law, simply proposing to rent No.38 and both proposing to rent and actually renting No.15 to himself. Such arrangement was not a true rental. On the contrary it was all part of a fraud to extract money from Aviva.
84. In considering the specific allegations in turn, Mr Eklund QC submitted that it was important to bear in mind the similarities in relation to both No.38 and No.15 because they showed a pattern of fraudulent behaviour on the part of Mr Brown, viz.

1.) In relation to No.38, Mr Brown used an estate agent to act on his behalf. In relation to No.15, Mr Brown used a solicitor to act on his behalf. In each case, the use of an intermediary was designed to give a semblance of objectivity. This semblance was false.

2.) In relation to No.38, Mr Brown gave the impression that it was urgent to reach a conclusion. So too with regard to No.15. However, in both cases, there was no urgency because Mr Brown was in control of both properties.

3.) In each case, it was said that the owner would require a deposit. That is only explicable on the basis that the owner of the property was an independent third party. This was false with regard to both No.38 and No.15.

4.) In relation to No.38, Mr Brown was hiding behind a trust. In relation to No.15, Mr Brown was hiding behind a company.

5.) In relation to No.38, the impression given was that Mr Brown was in discussion with the owner through the estate agent. In relation to No.15, the impression was that Mr Brown was in discussion with the owner through the solicitor. But in each case the impression was not a reality.

85. These points certainly have some attraction and I have borne them in mind when considering the specific allegations made against Mr Brown to which I now turn.

No. 38: Allegations 1 and 2

86. The first two allegations relate to No.38. It is convenient to consider them together. The starting point is that Mr Brown was at the material time (i.e. 2007) the owner of No.38. That was not in dispute. As to the allegation that Mr Brown lived at the property, this was in dispute. On this point, I unhesitatingly accept the evidence of Mr Brown viz he and Mrs Brown both lived at No.13 which was their principal main residence and matrimonial home. Since autumn 2005, Northway (and Mr Brown) used No.38 as an office. Since late 2005, Mr Brown stayed at No.38 from time to time and to that extent occasionally used it as a home. He has a bedroom available and keeps the kitchen stocked with essential items. He would sometimes sleep over at No.38 if he worked late or his wife was away when he would watch test matches or entertain his golfing friends. However, Mrs Brown does not like No.38 in particular because it was previously occupied by Mr Brown's mother and she (i.e. Mrs Brown) has made it clear that she will not consider living there.
87. The essence of the allegation is that Mr Brown represented (falsely) that No.38 was "available to rent". That allegation is based on the fact that (as Mr Brown accepted) he obtained the valuation from Arnold & Goodall and then forwarded the letting particulars that they produced to Countrywide under cover of his letter dated 11 July 2007 who in turn used it as a basis for sending the fax also dated 11 July 2007 to Cunningham. Although the precise words "available to rent" were not used, there is no doubt (as Mr Burns accepted) that that was the representation which in effect, Mr Brown made. For the avoidance of doubt, Mr Burns also accepted that the representations contained in that letter were to be regarded as being directed and made through Countrywide to both Cunningham and Aviva. However, what Mr Burns says is that this representation was true and that in any event there was no dishonesty on the part of Mr Brown.
88. In my judgment, the letter dated 11 July 2007 that Mr Brown sent to Countrywide, in effect represented (i) that No.38 was "available to rent" and (ii) that the owner was someone other than Mr Brown. The latter seems to me inevitably to follow from the terms of the letter (in particular, the first paragraph) and the fact that the letter was signed by Mr Brown. That conclusion is, in my judgment, further confirmed by the third paragraph of the letter. On this basis, the latter representation was in my judgment false. Equally in my judgment, given that Mr Brown was the owner of No.38, the former representation i.e. that No.38 was "available to rent" was also false because in context the clear impression given by that letter was that the rental would be by some party other than Mr Brown.
89. The question then arises whether Mr Brown acted fraudulently in making either or both of those representations.
90. Although, as I have stated, it was common ground that Mr Brown in fact owned No.38 in 2007, his oral evidence was that at the time, he thought it had been transferred into a trust (i.e. The Roger G Brown Discretionary Trust 1990 called by him The "A & E Trust" after his two children); and that his instructions to Arnold & Goodall were given on behalf of the Trust. On this basis, Mr Burns submitted that even if the representation was false there was no dishonesty because Mr Brown genuinely (albeit wrongly) believed that No.38 was owned by a third party (i.e. the Trust); that if he and his wife moved there he would incur costs of moving out of his office and equipment; and that he would rent it from the Trust and pay rent.
91. In my judgment, this explanation is not merely difficult but impossible to accept. First, Mr Brown was, as I have said, an experienced businessman, clever and articulate. Any transfer of No.38 into a trust would have been a significant transaction. In the ordinary course, it would have necessitated the involvement of solicitors and the consideration of tax implications in particular the possible liability for capital gains tax at the date of any transfer. It seems to me inherently improbable in the extreme that Mr Brown genuinely thought that there had been such a transfer if in fact (as is common ground) this was not the case. Second, there are no contemporary documents which might explain Mr Brown's stated view that he thought No.38 had been transferred into the Trust. For example, there are no documents indicating that he even took any advice in relation to such possible transfer or even took any preliminary steps to effect such a transfer. Third, such explanation is inconsistent with Mr Brown's pleaded case as set out in paragraph 12c of his Defence which asserted that at the time (i.e. in June 2007) Mr Brown was merely proposing to transfer No.38 into the Trust. That Defence is dated 28 October 2009 and signed with a statement of truth by Mr Brown. Paragraph 6 of Mr Brown's written statement is to similar effect:

"At some point I was thinking of transferring 38 Lyonsdown into a Trust called the Roger G Brown Discretionary Trust 1990 as an inheritance tax measure but I have not got around to doing this yet."

That statement was dated 30 November 2010. Paragraph 59 of the Skeleton Argument on behalf of Mr Brown dated 21 January 2011 and served shortly before the commencement of the trial is also to similar effect:

"However there was no fraud as Mr Brown was honestly investigating whether he could turn his mother's old house (where his office was based) into a rental property to be owned by a family trust."

92. Mr Burns submitted that there could not have been any deception intended by Mr Brown as everyone knew that No.38 was his business correspondence address. In particular, he relied on the fact, as confirmed by Mr Hamilton, that this was shown on Cunningham's files. However, it does not seem to me that such fact necessarily says anything at all about the ownership of No.38.
93. Mr Burns also relied on two other matters. First, he said that the fact that the letter dated 15 June 2007 from Arnold & Goodall is addressed to the "A & E Trust" supports Mr Brown's evidence. I do not agree. As Mr Eklund QC submitted, it is equally consistent with an attempt by Mr Brown to create a semblance that No.38 was not owned by him but by some third party. Second, Mr Burns relied on the last paragraph of Mr Brown's letter dated 11 July 2007 to Countrywide where Mr Brown expressly told Countrywide that he had been dealing with Mr Ronnie Goodall and openly invited them to contact him direct. Mr Burns submitted that this was inconsistent with any intended fraud by Mr Brown because if Countrywide had contacted Mr Goodall, Mr Brown's role would have become apparent. However, as Mr Eklund QC submitted, this seems (at best) very uncertain. As Mr Eklund QC pointed out, there was no evidence from Mr Goodall. The letter dated 15 June 2007 was addressed to the A & E Trust not Mr Brown and it is totally speculative as to what might have happened if Countrywide had contacted Mr Goodall.
94. At the end of the day, I remain of the view that the explanation that Mr Brown gave in oral evidence that he thought he had transferred No.38 into the A & E Trust was untrue and that that was not his honest belief at the time in 2007. In terms of the second limb of the combined test, I am satisfied to a high degree of probability that Mr Brown himself realised that what he was saying was dishonest by the standards of reasonable and honest people. On this basis, in my judgment, the representations made in the letter dated 11 July 2007 were not only false but made dishonestly and therefore fraudulently.
95. Given the delay in progressing his claim and, as I have accepted, Mr Brown's genuine perception that he has been treated badly by Aviva over a long period of time, Mr Brown may well have felt justified in seeking to put forward No.38 as alternative accommodation for him and his wife during the period of repairs. However, in my judgment, this provides no excuse whatsoever for putting forward No.38 on the basis he did, as I have found.
96. For the avoidance of doubt, I should make clear that I do not consider that Mr Brown's fraudulent conduct in relation to No.38 could be said to be "insubstantial", "not significant" or "immaterial". On the contrary, in my judgment it was regarded by Mr Brown and was in fact a substantial and material part of Mr Brown's pursuit of his claim for alternative accommodation. In the event, Mr Brown did not continue to pursue No.38 as possible alternative accommodation because, as I have accepted, Mrs Brown was not prepared to live at No.38. However, this is irrelevant in law.

No.15

97. The allegations in relation to No.15 overlap to a large extent but it is convenient to take each in turn.

Allegation No.3

98. It was common ground that Mr Brown was the owner of No.15 i.e. the reversionary freeholder. It was also common ground at least by the beginning of the trial that No.15 had been let to Northway in 2006 under a 7 year lease. The last tenants had vacated in about July 2007 since when it had been empty. The alleged representation that No.15 was "available to rent" is based on the letter dated 26 October 2007 from Colemans (sent on Mr Brown's instructions) to Cunningham; I have already quoted the letter above. On its face, it identifies Colemans' client as Northway (which was true) and that the proposed tenancy would be between Northway and Mr Brown (which was also true). As such, it seems to me that the representation that No.15 was available to rent from Northway was true. Mr Eklund QC submitted that the representation was false in particular because (whatever the strict legal position might be) Mr Brown was the individual behind or in control of Northway and that as a matter of reality Mr Brown could not rent No.15 from himself. I do not accept that submission simply because it ignores the fact that Northway was a separate legal entity. I do not consider that this conclusion is affected by the fact that Mr Brown was a director or shareholder of Northway. Nor do I consider that it is affected by the fact that Mr Brown would derive a financial benefit by any rental of No.15 through his interest as a majority shareholder. The position would or at least might be different if the duty was wider than a duty of honesty. But it is not. In any event, I should make plain that in my judgment there was no dishonesty by Mr Brown in relation to this alleged misrepresentation or at least I am not satisfied that he was dishonest. Mr Brown's evidence (which I accept) was that he considered that Northway was a separate legal entity and that he was perfectly entitled to rent No.15 from Northway as alternative accommodation in particular against the background of the agreement which Mr Brown reached (or at least thought he had reached) with Mr Cowley in October 2007.

Allegation No.4

99. There was, I believe, some confusion as to the basis of this misrepresentation. It is different from allegation No.11 which was abandoned in the course of the trial. However, although this allegation No.4 was never itself abandoned, I am not aware of any other evidence of such a representation i.e. that Northway was the freehold owner of No.15. The letter from Mr Brown dated 30 October 2007 refers to Colemans' letter dated 29 October 2007 and states that Colemans were the solicitors for the "owners of the next door house". However, since Aviva abandoned its case in relation to the letter from Colemans dated 29 October 2007, it seems to me that this allegation must also fall away. In any event, I do not consider that the reference in the letter dated 30 October 2007 to Colemans being the solicitors to the "owners" was false. Northway was not the freehold owner but it was the leasehold owner. On that basis, it seems to me that the alleged misrepresentation was neither false nor dishonest.

Allegations No. 5 and 6

100. It is convenient to take these two allegations together. It is important to note that as formulated, the allegations are that Mr Brown "failed to disclose" the matters stated. In that context, it is also important to bear in mind that there is no post-contractual duty of disclosure – only a duty of honesty. So the essential question is not whether Mr Brown failed to disclose certain matters but whether Mr Brown acted dishonestly. On this point, Mr Eklund QC cross-examined Mr Brown at some length and submitted that he (i.e. Mr Brown) ought to have told Cunningham/Aviva that he was the owner of No.15 and that he had a controlling interest in Northway. Mr Brown readily accepted that with hindsight that is something he could have done although he rejected any suggestion that he had acted dishonestly.
101. In my judgment, the proper approach to considering this central part of Aviva's case is the application of the combined test in Twinsectra. I am prepared to assume in favour of Aviva that Mr Brown's conduct (i.e. in failing to disclose specifically in October 2007 that he was the majority shareholder in Northway and thereby had an interest in No.15) was dishonest by the ordinary standards of reasonable and honest people. However, in order to succeed, Aviva must also show that Mr Brown realised himself that by these standards his conduct was dishonest. In considering that question, I bear in mind the following matters. Mr Brown thought (correctly) that he had told Aviva that he owned No.15 or had a property interest in No.15. This is confirmed by Aviva's files and Cunningham's files, the relevant parts of which I have quoted above. Mr Hydon also confirmed that he knew that Mr Brown had an interest in No.15 and that he did not recall at any time being asked by Mr Brown to conceal that fact. I accept that evidence. Having heard and seen Mr Brown give evidence, I am satisfied that he assumed that everyone involved in the claim over the years knew in general terms about his interest in No.15 and that the newest people on the scene (including Mr Hamilton) would have read the file notes of his predecessors. Mr Brown's real and, in my judgment, genuine indignation over this pivotal allegation was when giving evidence clear to see. He was amazed and indeed angry that it was suggested that Aviva and its agents did not know about his involvement in No.15 when the documents demonstrate that it was plainly recorded on Aviva's files, the adjusters' files and indeed even in the Ombudsman complaint for all to see if they had just looked. As he exclaimed so vividly "the adjusters knew, the engineers knew, the quantity surveyors knew, the contractors knew, everybody knew! How could Cunningham Lindsey possibly not know?" I accept Mr Brown's evidence that that is what he thought at the time. In my judgment, Mr Brown did not act dishonestly in this regard or at least I am not satisfied that he did.
102. Allegation No. 6 also alleges that Mr Brown represented and/or intended Aviva to believe that Northway was a company which would enter into an arm's length tenancy agreement with Mr Brown when such was not the case. I accept that such representation was in effect made in the letter from Colemans (sent on the instructions of Mr Brown) dated 26 October 2007 and Mr Brown's own letter dated 30 October 2007. Indeed, I did not understand Mr Burns to suggest otherwise. The position was, as already summarised above, that once Mrs Brown decided that she would not move to No.38 and both Mr and Mrs Brown began to consider the possibility of moving to No.15, Mr Brown took advice from his accountant, Mr Root, as to the tax position. This was confirmed in evidence by Mr Root. In my judgment, Mr Root was patently an honest witness and I accept his evidence without hesitation. In effect, the evidence of Mr Brown and Mr Root (which I accept) was that the proposed lease between Northway and Mr Brown had to be an arm's length transaction at market rent. This was the basis of the instructions which Mr Brown gave Mr Regler. As Mr Regler explained, he knew that Mr Brown was the majority shareholder in Northway and that it was important to show that this was an arm's length transaction. Like Mr Root, Mr Regler was patently an honest witness and I accept his evidence without hesitation. The result is that in my judgment the representation was neither false nor dishonest.
103. In his final submissions, Mr Eklund QC made two main points with regard to this evidence. First, he submitted that the explanation proffered in relation to the tax position made little, if any, sense. That may or may not be the case but, as I have said, I accept the evidence of Mr Root as to the advice he gave to Mr Brown; and I also accept Mr Brown's evidence that he accepted that advice and genuinely believed that he should proceed in accordance with it.
104. Second, Mr Eklund QC submitted that Northway's accounts did not support Mr Brown's explanation as to an arm's length transaction In particular, Mr Eklund QC submitted:-

1.) Any lease between Mr Brown and Northway would be in the nature of a "related party transaction" which should be shown as such in the company's accounts. This was not done.

2.) The Accounts for the year ending 31 July 2008 show rent received in the sum of £52,000. That is not correct. Mr Brown accepted that he in fact only paid over to Northway the sum of £13,000 in respect of the deposit and the first month's rental in December 2007. Thereafter, he did not in fact pay any rent to Northway until 28 November 2008. Thus the Accounts should have shown the rent as an amount in part "receivable" i.e. rent due and payable but not yet paid in the relevant year of account.

3.) The figure for the rent was based on an amount of £1500 per week which was what Aviva had agreed to pay. However, on the basis of the lease signed by Northway and Mr Brown, the rent was £1700 per week. The extra £200 per week was not shown in the accounts.

105. These points were put to Mr Root in cross-examination. He was unable to give satisfactory answers although he was, as I have said, a patently honest witness. The best he could do was to say that there must have been some error. Some at least of these points were corrected in the latest draft 2010 Accounts but such Accounts were prepared after the commencement of these proceedings and, as Mr Eklund QC rightly submitted, do not really assist. I accept that the accounts produced in 2008 (and also 2009) are not consistent with Mr Brown's evidence. However, these points were never put to Mr Brown in cross-examination and it is impossible to know what his explanation might have been. At the end of the day, the anomalies or discrepancies identified above are not, in my judgment, sufficient to alter or to affect my conclusion with regard to Mr Brown's explanation of the lease with Northway.

Allegation No.7

106. I have already dealt with the broad thrust of this allegation above. In my judgment, it was not false and not dishonest for the reasons set out in relation to allegation (3). Mr Brown's evidence (which I accept) was that he had a very clear distinction in his mind between Mr Brown, director of Northway and Mr Brown, private individual and tried to maintain that distinction when arranging the tenancy because of the tax advice. He engaged Mr Regler for Northway to ensure that there was a proper arm's length dealing with the terms of the tenancy. He needed to ensure that he acted in the best interests of Northway. He used the language of a 'normal' tenancy at arm's length as that was what he had been advised to do.

Allegation No.8

107. Abandoned at trial.

Allegation No.9

108. This is repetition. In my judgment, this representation was not false and not dishonest for the reasons set out in relation to allegation (3) and (7).

Allegation No.10

109. Abandoned at trial.

Allegation No.11

110. Abandoned at trial.

Allegations No.12 and 13

111. This again is repetition. There was no falsity and no dishonesty for the reasons already stated above.

Allegation No.14

112. There was no fraudulent device here. This was true and not dishonest. Mr Brown, with his Northway director's hat on, as advised by Mr Regler on behalf of Northway, decided when the tenancy should commence. Mr Brown accepted that the instructions to Mr Regler came from him as a director of Northway. I am not satisfied that there was any dishonesty by Mr Brown in this regard.

Allegation No.15

113. The statement that Northway required a cheque for the first month's rent together with one month's rent as deposit to be cleared funds was true. Northway did require that in every case. Mr Brown was treating it as a 'normal' let and as a landlord Northway always made that requirement. The requirement was, of course, Northway's requirement as client. The solicitors would need the cheque. The cheque was indeed sent to the solicitors acting for Northway. Again, I am not satisfied that there was any dishonesty by Mr Brown in this regard.

Allegation No.16

114. In my judgment, this allegation of a fraudulent device to extend the claim is utterly hopeless. The builders had agreed a start date for December 10, 2007. Mr McManus' evidence that he orally agreed that date and was ready to start went unchallenged. Pickfords' removal was scheduled for 4 December and was delayed through no fault of Mr Brown.

Allegation No.17

115. Mr Regler's statement was true and honest. This is simply a repeat of allegation (15) against Mr Brown, but made without justification against Mr Regler. Northway did require cleared funds to cover the first month's rent and rent deposit. Mr Regler and Mr Brown were honestly treating this as an arm's length transaction for the reasons already given. Again, I am not satisfied that there was any dishonesty on the part of Mr Brown in this regard.

Allegation No.18

116. This was abandoned in part at trial. In my judgment the statement was not false. Mr Brown would have access to No.15 on 1 December as the tenancy began that day. The allegation about it being otherwise occupied has been abandoned and the last sentence does not provide a basis for the statement to be false or fraudulent. Again, I am not satisfied that there was any dishonesty on the part of Mr Brown in this regard.

Allegation No.19

117. This is a repetition of allegation (15) and (17) except in relation to the next rent payment. That statement was not false and again I am not satisfied that there was any dishonesty on the part of Mr Brown in this regard.

Allegation No.20

118. I have already referred to this allegation in paragraph 82 above. In my judgment, whatever the motive, what Mr Brown said to Ms Norwood was untrue and dishonest. However, I accept Mr Burns' submission that looking at this allegation in isolation it was not "substantial".

Allegation No.21

119. I accept Mr Burns' submission that this cannot be part of a fraudulent claim and was not a fraudulent device to improve the claim. In any event Mr Regler's statement was true. The consent of both the company and tenant was required. He was not intending to mislead anyone. He was not challenged on his evidence that they were acting honestly. It is correct that Mr Brown could provide that consent, but that does not make Mr Regler's statement fraudulent. Whether it was unreasonable to require Aviva to pay the costs or unreasonable not to provide immediate consent is irrelevant to fraud. I am not satisfied that there was any dishonesty on the part of Mr Brown in this regard. The background is that this letter came after the time that Mr Hamilton says that he discovered the fraud and after Aviva had stopped paying. Mr Brown was furious at the new obstruction of Cunningham. He was not cooperative due to his suspicions that Cunningham was trying to find a new way to avoid paying the claim.

Allegation No.22

120. I have difficulty dealing with this allegation because Mr Eklund QC did not challenge Mr Brown that the Tenancy Agreement was not signed on or about 1 December 2007. Mr Eklund QC did of course put to Mr Brown that the Tenancy Agreement was not an arm's length transaction and I have already dealt with that allegation and Mr Eklund QC's submissions in that regard above. I have also rejected the separate suggestion that Mr and Mrs Brown did not move into No.15. For these reasons, I am not satisfied that there was any dishonesty on the part of Mr Brown in this regard.

Summary Conclusion in relation to Aviva's Specific Allegations of Fraud

121. For the reasons stated above, I have concluded as follows:-

1.) Mr Brown acted fraudulently in putting forward No.38 and that this was not "insubstantial", "insignificant" or "immaterial".

2.) Mr Brown also acted fraudulently in his conversation with Ms Norwood in March 2008 but such conduct was not "substantial".

3.) Mr Brown did not act fraudulently in relation to No.15.

122. The consequences of my conclusion with regard to No.38 are that Mr Brown's claim for alternative accommodation is, in effect, forfeited and that Aviva is in entitled to recover back the sum of £58,500 paid in that regard. In my judgment, it also follows that Aviva is entitled to recover back the cost of repairs (£176,951.68). As I have stated in paragraph 78 above, it does not seem to me that the decision in Direct Line Insurance PLC v Fox [2010] Lloyd's Rep IR 324 is of assistance. The claims for the cost of repairs and alternative accommodation were part of the same claim arising out of the subsidence at No.13 and there is, in my judgment, no proper basis for dealing with them separately. (As I understood, the small claim in respect of the damaged skylight was entirely different. I hope that the parties can agree the position with regard to this item). In addition, Mr Brown's counterclaims must fail. I recognise that this conclusion might seem harsh but it seems to me that it is the inevitable result of the conclusions I have reached on the facts and the well-established policy of the law, set out in the authorities I have already cited.

Quantum

123. Given my conclusions, the quantum of Mr Brown's counterclaims is not relevant but in case this matter goes further, I should deal briefly with this aspect on the assumption that I had found that Mr Brown was in principle entitled to succeed.
124. Mr Brown's written statement, confirmed in oral evidence, supported the amount of his claim by reference to a summary schedule and specification of works. In final submissions, Mr Eklund QC, made two points with regard to quantum.
125. First, he submitted that the claim in respect of repair costs included a sum of approximately £16,740 for electrical repairs which were an upgrade and ought therefore to be disallowed. However, such submission was unsupported by any evidence (whether factual or expert) from Aviva and the point had never been put to either Mr Brown or Mr McManus. On that basis, there seemed to me no proper basis upon which I could accept Mr Eklund QC's submission.
126. The second point on quantum made by Mr Eklund QC concerned the period of time claimed by Mr Brown for alternative accommodation viz until 1 October 2009 due (it was said) to Aviva's conduct in rejecting the claim and causing the works to come to a halt. Mr Eklund QC submitted that any claim should not extend beyond the end of July 2008. This was on the basis that Mr McManus stopped work on 18 July 2008 when according to Mr McManus' evidence, most of the work had been done apart from decorating and panelling in the billiard room and such outstanding works were well on target to be finished by the completion date. On this basis, I was perplexed as to why it took until 1 October 2009 (i.e. over 14 months) for the remaining works to be completed and for Mr and Mrs Brown to vacate No.15 and return to No.13. The evidence in relation to this was virtually non-existent. The fact and amount of the claim was included in the schedule attached to Mr Brown's statement but it was not otherwise dealt with or explained by Mr Brown whether in his statement or in oral evidence. Nor was this part of the claim explored still less challenged (as it should have been) by Mr Eklund QC in cross-examination if this point was going to be taken by Aviva. Thus, the position was very unsatisfactory. In my judgment, on the evidence before me, I was not satisfied that Mr Brown had proved the quantum of this part of his claim. On this basis, I would have been minded (at least initially) simply to dismiss this part of Mr Brown's claim. However, it is, I believe, fair to say that if Aviva were seeking to challenge this part of Mr Brown's claim, this point ought (at the very least) to have been put to him in cross-examination so that he could have been given a fair opportunity to deal with this aspect and to explain his position. In these circumstances, it did not seem right simply to dismiss this part of Mr Brown's claim. In all the circumstances, if I had held that Mr Brown was entitled in principle to succeed, I would have adjourned this part of Mr Brown's claim for a further hearing.

Conclusion

127. For all these reasons (and subject to my caveat with regard to the skylight), my conclusion is that Aviva's claim succeeds and Mr Brown's counterclaim fails. Counsel are requested to agree a draft order.