1. This is an appeal against an order made by McLaughlin J on 10 March 2000, whereby he gave answers to a series of questions posed in an originating summons concerning the construction of a contract of insurance. The respondents carry on practice as chartered accountants and took out policies with the appellant underwriter covering them against claims for professional negligence and losses caused by dishonesty or fraud on the part of partners or employees. They discovered in 1995 that their former partner H Wilson Gordon had been guilty of committing substantial frauds upon clients of the practice, who have brought proceedings against the respondents. The matter in issue is the construction of the several insurance documents in order to determine the extent to which the appellant is liable to indemnify the respondents. The appellant contends that the cover afforded by the policy is limited to an aggregate sum of £1 million in respect of all the claims, while the respondents submit that the limit of £1 million applies to each of the claims separately.

2. The respondents carried on practice in partnership with Mr Gordon under the firm name of H Wilson Gordon & Co for a number of years up to 1995. In early 1995 it came to light that Mr Gordon had been involved in a fraud upon a client of the practice, by then deceased, by withdrawing sums from the client’s building society account over a period of years. A police investigation began, but was discontinued when Mr Gordon settled the claim by paying £110,000.00 to the estate of the client out of his own resources. Mr Gordon retired from the partnership on 31 March 1995, apparently at the insistence of the respondents. This did not end the matter, however, for the Securities and Investments Board and the Institute of Chartered Accountants in Ireland, the respondents’ professional body, instituted an inspection and investigation into the affairs of the practice. Further serious defalcations came to light, which have led to claims being made against the respondents.

3. The respondents’ policy of insurance for the year from 9 June 1994 to 8 June 1995 was in a standard form ICA3 negotiated by the Institute of Chartered Accountants for accountancy practices. Section I defined the cover in the following terms:

4. It may be seen from the terms of Section I that the policy is of the type known as a “claims made” policy. The cover is related to claims made or losses discovered in the instant year, rather than to the time when the defalcations leading to the making of the claims or the incurring of the losses were committed. Under General Condition 3 the assured has to give notice in writing to the underwriters as soon as practicable –

5. General Condition 4 then goes on to provide:

6. The limit of cover under the policy was defined in General Condition 1 in the following terms:

7. The sum specified in Item 3 of the Schedule to the policy in respect of Section I was “£1,000,000 any one claim or loss”, subject to an excess of £3500 per claim, the aggregate excess being limited to £14,000.

8. On 8 June 1995 the respondents submitted a proposal on the standard form to the appellant for renewal of the policy. On a sheet annexed to the form and referred to in their replies to Questions 1a, 1b and 2b of the Claims section of the form they made a declaration of the defalcations and investigations in the following terms:

9. The appellant decided to renew the policy with the same amount of cover at a somewhat increased premium. The terms of the policy, in the form ICA4, were unchanged, save that a clause entitled “Specific Claims Exclusion Clause” was attached to the certificate:

10. The investigations into the affairs of the respondents’ practice revealed that Mr Gordon had been guilty of considerably more substantial defalcations over a period of some years. Ms Lynch states in paragraph 7 of her affidavit sworn on 6 January 2000 that neither she nor Mr McHugh had been aware of any of these frauds prior to the investigations. She sets out in the same paragraph details of the frauds which came to their knowledge as a result of the investigations:

11. The Plaintiff in this action is the surviving executor of the estate of the late Mrs. Margaret Aiken whose late husband, together with herself, had been clients of H. Wilson Gordon for many years. The late Mrs. Aiken lived in a Nursing Home in Portrush and H. Wilson Gordon visited her there to deal with her business affairs. So far as I am aware the late Mrs. Aiken never visited the offices of the partnership. Between November 1990 and November 1991 H. Wilson Gordon effected withdrawals from bank and Building Society accounts of the late Mrs. Aiken to a value of £237,939.63 lodged such monies to our firm’s clients’ monies account, withdrew such monies from the said account and lodged the proceeds to his own private account.

12. These Plaintiffs owned and carried on business in a Shop/Post Office in Bellarena, had been clients of H. Wilson Gordon for many years but, so far as I am aware, had never visited the firm’s offices. On 31 March 1993 Mr. Harry Canning provided H. Wilson Gordon with a cheque in the sum of £5,049.00 in relation to a pension payment. This cheque was not lodged to any of the firm’s bank accounts.

13. In or about March/April 1995 the Plaintiffs provided H. Wilson Gordon with 3 bank drafts to a total value of £95,592.43 but none of those Bank drafts were lodged in any of the firm’s bank accounts.

14. These Plaintiffs carried on business together as a farming partnership and had been clients of H. Wilson Gordon for many years. Again I am not aware of either of the Plaintiffs ever having visited the firm’s offices. In January 1987 and January 1988 H. Wilson Gordon received cheques from the Inland Revenue in relation to repayment of income tax relating to the Plaintiffs and in May 1987 and September 1990 H. Wilson Gordon transferred these monies to a private Building Society account.

15. On 29 January 1992 H. Wilson Gordon received a cheque from the Plaintiffs in the sum of £16,156.59 which was lodged to the clients’ monies account. In the following months H. Wilson Gordon used those monies to make payments to the Inland Revenue in respect of both the firm and another client of the firm.

16. The Plaintiff is a retired Teacher for whom the firm primarily completed Income Tax Returns. So far as I am aware H. Wilson Gordon was the sole point of contact between the Plaintiff and the firm and I am never aware of the Plaintiff ever having visited the firm’s offices. Between September 1992 and April 1994 on 6 occasions, H. Wilson Gordon sold Glaxo Holdings plc shares belonging to the Plaintiff, realising a sum of approximately £220,841.00. The proceeds of these sales of shares were lodged to the firm’s Investment Business Clients’ Monies Account but thereafter withdrawn by H. Wilson Gordon and credited to various accounts in which he had an interest. Apart from one such transaction in which the Plaintiff did sign a Share Transfer Form, all the other Share Transfer Forms bore the signature of the Plaintiff but that signature appears to have been forged by H. Wilson Gordon.

17. Furthermore, on 9 September 1992 H. Wilson Gordon received the sum of £10,000 which had been withdrawn from one of the Plaintiff’s Building Society Accounts, for the purposes of making a further investment on her behalf. In the event no such investment was made and H. Wilson Gordon made use of the monies on his own behalf.

18. The Plaintiff, who is a retired Teacher, had been a client of H. Wilson Gordon for a long number of years. H. Wilson Gordon visited the Plaintiff at her own home and the Plaintiff, so far as I am aware, never visited the firm’s offices. On 11 September 1992 the Plaintiff apparently authorised H. Wilson Gordon to withdraw £12,000.00 from one of the Plaintiff’s Building Society accounts for the purposes of making an investment on her behalf. The monies were so withdrawn but no investment was made on behalf of the Plaintiff and the monies were used by H. Wilson Gordon on his own behalf.

19. The late Miss Wilson was not only a client but was also a personal friend of H. Wilson Gordon and he visited her initially in her home and thereafter in a Residential Home, but so far as I am aware the late Miss Wilson never visited the firm’s offices. Upon her admission to the Residential Home H. Wilson Gordon then sold furniture on her behalf, the proceeds of which amounted to approximately £8,000.00. These monies were lodged to an account in which H. Wilson Gordon had an interest.

20. Over a period between September 1989 and January 1994 18,305 Guinness Shares belonging to the late Miss Wilson were sold on the instructions of H. Wilson Gordon and proceeds amounting to approximately £67,898.27 were realised. I believe that H. Wilson Gordon forged the signature of Miss Wilson on each of the relevant Share Transfer forms. Between October 1989 and January 1994 monies arising from the said of such shares were withdrawn from both our Clients’ Monies Account and Investment Business Client Monies Account and lodged to private account in which H. Wilson Gordon had an interest.

21. Following the discovery of the improper sale of Miss Eileen Porterfield’s shares in Glaxo Holdings plc (insofar as Miss Porterfield’s signature had been forged by H. Wilson Gordon) Glaxo Holdings plc restored Miss Porterfield’s shareholding save for the shares relating to the transaction where she had in fact signed the Share Transfer Form. However, Glaxo Holdings plc have instituted proceedings in England against the first named Defendant and myself seeking recovery of the monies expended by it in the restoration of Miss Porterfield’s shareholding.”

22. Claims were instituted by the respective claimants by writs of summons issued on a number of dates, the earliest of which was 23 February 1996. The total amount which the claimants stand to recover from the respondents is likely to be considerably in excess of £1 million, probably of the order of £1.5 million in all.

23. The appellant issued an originating summons on 30 November 1999, seeking to have two questions determined. The questions posed in the summons were amended on 18 January 2000, and in their amended form read:

24. It was agreed at the hearing before McLaughlin J that he should answer Questions (d), (e) and (f) in the form set out in his order and that no answer was required to Question (c). The debate before the judge and in this court was limited to the answers which should be given to Questions (a) and (b). The net issue to be decided was the interpretation of General Condition 1, and whether on its true construction the claims or losses arose out of one occurrence or were consequent upon or attributable wholly or substantially to the same original cause or source, the fraudulent behaviour of Mr HW Gordon.

25. Mr Thompson QC submitted on behalf of the appellant that in the sheet annexed to the renewal proposal of 8 June 1995 the respondents gave notice of a circumstance or circumstances of which they had become aware during the currency of the certificate expiring on that date and which might give rise to a loss or claim against them, viz the defalcation by Gordon and his restitution to the client, together with the institution of an investigation by themselves and by the SIB and the ICA. The effect of General Condition 4 was that the losses or claims which were subsequently incurred or made were deemed to have been incurred or made during the subsistence of that certificate. The Specific Claims Exclusion Clause in the 1995 certificate was complementary to this and had the effect of excluding all liability arising out of the circumstances disclosed in the renewal proposal of 8 June 1995.

26. Mr Morrow QC submitted on behalf of the respondents, however, that the claims fell to be dealt with under the 1995 certificate, not that issued in 1994. The circumstances which gave rise to them were not known to the respondents on 8 June 1995, only that Gordon had defrauded a client and made restitution and that an investigation was under way to see if there had been any other defalcations. The disclosure of these facts in the proposal of 8 June 1995 did not amount to the giving of notice of circumstances of which they had become aware and which might give rise to a loss or claim against the respondent, and accordingly it did not have the effect of triggering the operation of General Condition 4. It followed, on this argument, that the Specific Claims Exclusion Clause in the 1995 certificate did not exclude the claims eventually made against the respondents, because they did not arise out of the “circumstances and claims” disclosed in the renewal proposal.

27. We do not agree that the respondents’ argument on this part of the case is correct. It seems to us that the intention of General Condition 4 was that if potential claims were adumbrated by the disclosure of circumstances such as those set out in the sheet annexed to the 1995 renewal proposal, the claims when they eventually matured were to be regarded as arising from those circumstances and were deemed to have been made during the subsistence of the 1994-5 certificate. The basis on which this rested was the wiping of the slate clean each insurance year, which was effected by this condition and, probably ex abundanti cautela , by the Specific Claims Exclusion Clause in the 1995 certificate. It was then open to the insurer to accept or decline the proposal for the year 1995-6 and to take on the business in subsequent years, freed from the possibility that those potential claims might mature and fall to be dealt with in years subsequent to 8 June 1995, which would make the fixing of a premium extremely difficult and in practice would probably mean that the insured could not obtain cover. Clauses similar to General Condition 4 are not unknown in claims made policies: an example may be found in Haydon v Lo & Lo [1997] 1 WLR 198 at 202E. The interpretation which we have adopted seems to us to recognise the commercial purpose and realities of the insurance contract and to accord with the modern approach to construction of commercial contracts encapsulated in the propositions set out by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98 at 114-5.

28. We come then to the issue which lies at the heart of this appeal, the question whether the claims made against the respondents in consequence of the defalcations of Mr Gordon fall within the terms of General Condition 1 so as to confine the appellant’s liability to the sum of £1 million for the aggregate of those claims. It is clear that those defalcations cannot be described as “arising out of one occurrence”. An occurrence, like an event, is something which happens “at a particular time, in a particular place, in a particular way”: Axa Reinsurance (UK) Plc v Field [1996] 3 All ER 517 at 526, per Lord Mustill. The question for decision therefore is whether the defalcations can properly be described, as the appellant contends, as “any claim or loss or losses ... consequent upon or attributable wholly or substantially to the same original cause or source.” It is not clear why the word “claim” is used in the singular, whereas it is followed by the phrase “loss or losses”. It does appear necessary in order to make grammatical sense of the phrase, however, to construe it as meaning that it includes more than one claim.

29. The appellant’s contention was that the claims or losses are consequent on or attributable wholly or substantially to the same original cause or source, the fraudulent acts of Mr Gordon. Mr Thompson submitted that the unifying factor was the course of wrongdoing upon which Gordon embarked of making away with money which was the property of the firm’s clients. This approach, he argued, was consonant with the conclusion which we have reached on the operation of General Condition 4, that the circumstances disclosed in the renewal proposal gave rise to the claims.

30. The respondents, on the other hand, pointed to the disparate nature of the fraudulent acts, contending that there was no common factor or link between the frauds, save that they were committed by the same man. They argued strenuously that just because one person commits a series of varying types of fraud, that does not mean that those frauds are to be attributed to the same original cause or source.

31. We consider that on the true construction of General Condition 1 the claims brought against the respondents in consequence of fraudulent acts perpetrated by Mr Gordon against clients of the practice are not to be regarded as consequent upon or attributable wholly or mainly to the same original cause or source. Whether claims are to be so regarded may depend on the facts of each case, as the judge pointed out at page 15 of his judgment. We do not think that a single rule can be laid down for the application of General Condition 1. The claims of a client who has suffered a series of losses in consequence of the fraudulent acts of the same person are more likely to be attributable to the same cause or source, as in Haydon v Lo & Lo each of the clients was held to have one single claim. On the other hand, the claims made by a number of clients who have been defrauded by one partner or employee are less likely to be so attributable. In some, perhaps exceptional, cases a client’s claims may on differing facts be regarded as not attributable to the same cause or source even though his losses may have resulted from the wrongful acts of one person in variety of differing ways.

32. The fraudulent acts of Mr Gordon extended over a period of several years. They were committed against several separate clients, in a variety of different ways. In these circumstances we do not consider that they are to be treated under General Condition 1 as being claims arising out of one occurrence or consequent upon or attributable wholly or substantially to the same original cause or source. In so holding we agree with the observation of the judge at page 15 of his judgment, when he said:

33. We accordingly agree with the conclusion reached by the judge, affirm the answers which he gave to the questions posed in the originating summons and dismiss the appeal.