HIH Casualty and General Insurance Ltd v Chase Manhattan Bank
| Jurisdiction | England & Wales |
| Judge | Lord Justice Rix,MR JUSTICE LLOYD,LORD JUSTICE ALDOUS |
| Judgment Date | 31 July 2001 |
| Neutral Citation | [2001] EWCA Civ 1250 |
| Docket Number | Case No: A3/2000/3154 & 3155 |
| Court | Court of Appeal (Civil Division) |
| Date | 31 July 2001 |
[2001] EWCA Civ 1250
Lord Justice Aldous
Lord Justice Rix And
Mr Justice Lloyd
Case No: A3/2000/3154 & 3155
(Appeal No 3154)
(Appeal No 3155)
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Mr Justice Aikens
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Grabiner QC, Colin Edelman QC, David Edwards & Michael Holmes (instructed by Messrs Morgan, Lewis & Bockius for The Chase Manhattan Bank)
Jeremy Cooke QC, Simon Picken & James Drake (instructed by Messrs CMS Cameron McKenna for Sphere Drake Ins Ltd, Lexington Ins Co, Generali Lloyd Versicherung AG, Unionamerica Ins Co Ltd, A/S Det Kjobenhavnske Re Assurance-Compagni, Assitalia Le Assicurazioni d'Italia S.p.a.)
Peter Gross QC & Philip Edey (instructed by Messrs D J Freeman for Axa Colonia Versicherung AG)
This appeal concerns film finance insurance, which I have sought to describe at the beginning of my judgment in HIH Casualty and General Insurance Limited v. New Hampshire [2001] 2 All ER (Comm) 39. In the present case, although the commercial structure of the transaction is somewhat different, the essence of the insurance remains the same, namely that the parties providing the syndicated finance for the production of a film, in this case represented by The Chase Manhattan Bank ("Chase"), stipulate for and receive the security of an insurance which is designed to pay, up to the maximum of the sum insured, if for any reason the revenues generated by the film within a certain period are insufficient to repay the loan finance plus associated expenses.
Because the assured is a lender rather than a film producer, it is distanced from an intimate knowledge of the proposed film-making and its marketing, and it is the producer and the entrepreneurial investors in the film who need to procure the insurance policy for the benefit of the assured, as a condition precedent of the lending transaction. In the present case the three policies with which these actions are concerned were placed by Heath North America & Special Risks Ltd and/or Heath Insurance Broking Limited ("Heaths"), who, although in form the agent of the assured, was in practice instructed by a Mr Graham Bradstreet through his company Premier Media Limited ("Premier") pursuant to an agreement with a film production company called Phoenix Pictures Inc ("Phoenix"). Heaths, together with a company called Screen Partners Limited ("SPL"), had developed the use of the form of insurance with which these actions are concerned, known as "time variable contingency" (or TVC) insurance, and had been prominent in placing it in the London market since 1992 and in the international market since 1995.
Since Chase's role was limited and the broking was done by Heaths, the policies contained a clause, the "Truth of Statement" clause, whose purpose may be said, in general, to distance Chase from responsibility for the placing of the insurance. The issues which arise on this appeal are all concerned with the extent to which that clause does or does not operate successfully to protect Chase from the complaints of misrepresentation and non-disclosure in the placing of the policies which the insurers have alleged against Heaths, as Chase's agent to insure. It is to be noted that no complaints are made against Chase personally. It is also to be noted, however, that the misrepresentations and non-disclosures alleged against Heaths are all said to have been made either fraudulently or negligently.
This appeal arises from a trial of preliminary issues. The trial took place before Aikens J, whose judgment is reported at [2001] 1 Lloyd's Rep 30. The facts were taken from the insurers' particulars of claim, as assumed facts. Thus when I speak of any fact in this judgment, it has only been assumed for the purpose of the preliminary issues. The misrepresentations and non-disclosures complained of are all denied, as are the allegations of negligence and fraud.
Since the Truth of Statement clause (also referred to simply as "the clause") is at the heart of this appeal, I shall set it out immediately. In due course, however, I will have to put it in its contractual context and also to say something further about the structure of the overall transaction in which the insurance policies containing this clause are themselves set.
The Truth of Statement clause
The Truth of Statement clause is found as the first of a series of clauses under the general heading of "CONDITIONS PRECEDENT". In his judgment below, Aikens J split the clause up into eight phrases, and on appeal the parties have been content to argue its construction by reference to those subdivisions. I shall therefore set it out in the same way, numbering the eight phrases, thus –
"1. It is a condition precedent to this Policy that: Elmwood Films Inc has truthfully completed Section 1 of the Questionnaire to the best of its knowledge. Any reference in the Questionnaire to the Revenue Participation Agreement is qualified by reference to the copy thereof attached to the Questionnaire or the Declaration. In completing the Questionnaire, Elmwood may rely on certificates of third parties to the extent such reliance is disclosed on the Questionnaire.
2. Provided that Elmwood Films Inc completes the sections of the Questionnaire required to be completed by it and delivers the same to the Lead Insurers…
3. …(it being acknowledged that any misstatement in any part of the Questionnaire (other than Section 1 thereof) shall not be the responsibility of the Insured or constitute a ground for avoidance of the Insurers' obligations under the Policy or the cancellation thereof).
4. In addition, the failure of Elmwood Films Inc to update Section 1 of the Questionnaire for a Film Production shall not be the responsibility of the Insured or constitute a ground for avoidance of the insurers' obligations under the Policy or the cancellation thereof.
5. Subject to the obligation of the Insured under "General Conditions – Due Diligence Clause" after acceptance by the Lead Insurers of the Declaration with regard to the Film Production, the Insured…
6. …[the Insured] will not have any duty or obligation to make any representation, warranty or disclosure of any nature, express or implied (such duty and obligation being expressly waived by the insurers), and …
7. …[the Insured]…shall have no liability of any nature to the insurers for any information provided by any other parties […including, but not limited to, Heath North America & Special Risks Ltd (other than Section 1 of the Questionnaire)]…
8. …and any such information provided by or nondisclosure by other parties including, but not limited to, Heath North America & Special Risks Ltd (other than Section 1 of the Questionnaire) shall not be a ground or grounds for avoidance of the insurers' obligations under the Policy or the cancellation thereof."
In the original version of the clause as set out in the policies the only break in the language came between phrase 1 and the rest of the clause respectively. Thus phrase 1 constituted a single paragraph, and all the other seven phrases constituted a single further paragraph. Moreover it is well to bear in mind that phrases 7 and 8 originally ran together without the interpolation of the language found in square brackets in phrase That language is inserted into phrase 7 to indicate that it is common ground that the reference to Heaths and the exception relating to Section 1 of the Questionnaire apply equally to both phrases 7 and 8.
I shall explain below the references to Elmwood and to the Questionnaire.
It is necessary to have regard to the whole clause in order fully to understand the parties' submissions. However, the critical part of the clause is to be found in phrases 6, 7 and 8. There are to be found exclusions successively of "any duty or obligation to make any representation" (phrase 6), of "[any] liability of any nature to the insurers for any information" (phrase 7), and of any information or non-disclosure providing "a ground or grounds for avoidance…or cancellation" (phrase 8). Prima facie, phrase 6 excludes the duty of disclosure, phrase 7 excludes liability for what others including Heaths may say, and phrase 8 excludes the remedy of avoidance (or cancellation).
It may be observed that it is a complexity of the clause that "Insured" is defined elsewhere in the policy as meaning Chase, whether itself or as agent for the syndicate participants, and that the clause therefore may be said to distinguish between Chase on the one hand and third parties including Heaths on the other (phrases 7 and 8). This feature has led to the submission on the part of the insurers that phrase 6 only excludes Chase's duty of disclosure, and not Heaths' separate duty as the agent to insure.
A synopsis of the dispute
In a nutshell, and subject therefore to the danger of over-compression, the submissions of the parties with respect to these phrases are as follows. Chase submits: that phrase 6 excludes the duty to speak, not only of Chase but also of Heaths, on the basis that an agent to insure can have no duty to speak where his principal has none; that phrase 7 excludes the authority of Heaths to speak and thus makes it impossible for Chase to be liable for anything said by Heaths; and that phrase 8 excludes both the remedy of avoidance (for breach of the duty of utmost good faith found in insurance law) and the remedy of rescission (under the Misrepresentation Act 1967). Chase submits that the...
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