HLB Kidsons (A Firm) v Lloyd's Underwriters subscribing to Lloyds Policy No 621/PKID00101 & Others
| Jurisdiction | England & Wales |
| Judge | MRS JUSTICE GLOSTER, DBE,Mrs Justice Gloster, DBE |
| Judgment Date | 14 October 2008 |
| Neutral Citation | [2007] EWHC 1951 (Comm),[2008] EWHC 2415 (Comm) |
| Docket Number | Case No: 2005–459,Claim No 2005 Folio 459 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 14 October 2008 |
[2007] EWHC 1951 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Mrs Justice Gloster, DBE
Case No: 2005–459
Nicholas Davidson Esq QC and William Godwin Esq
(instructed by Holman Fenwick & Willan) for the Claimant
Gavin Kealey Esq, QC and Craig Orr Esq QC
(instructed by Fishburns) for the 1 st to 5 th Defendants
Michael Harvey Esq, QC and John Greenbourne Esq
(instructed by Herbert Smith) for the 6 th Defendant
Roger Stewart Esq, QC and Graeme McPherson Esq
(instructed by Eversheds) for the 7 th Defendant
Hearing dates: 29 th January-31 st January; 6 th February-8 th February;
th February-15th February; 28th February-2nd March; 5th March.
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Mrs Justice Gloster, DBEIntroductory overview of the action
The Claimant in this case, HLB Kidsons, formerly known as Kidsons Impey (“Kidsons”), was a firm of chartered accountants. Kidsons was a mid-size, national accountancy practice. In 2002 it merged with another such practice, Baker Tilly, the effective date being 1 April 2002. The merged entity took the name Baker Tilly.
The 1st to 5th Defendants are Lloyd's underwriters and insurance companies, whom I shall refer to as “Underwriters”. Underwriters provided Kidsons with professional indemnity insurance cover, on a claims made basis, under a policy incepting on 1 May 2001 for a period of 12 months and terminating on 30 April 2002 (“the Policy”). The Policy Document was actually issued on 29 April 2002, the penultimate date of the period of insurance. There are in fact three policies, namely Lloyd's policy 621PK 1D 00101 subscribed to by the First Defendants, an IUA policy subscribed to by the Second and Third Defendants and incorporating the terms of the Lloyd's policy and a Company's Collective Policy subscribed to by the Fourth and Fifth Defendants, also incorporating the terms of the Lloyd's policy, but nothing turns on any distinction between the three policies. 70% of the risk was placed with Lloyd's syndicates, the balance with the companies. Although I refer to the 1 st to 5 th Defendants collectively as Underwriters, they are several, not joint, insurers.
From 1 May 2002 Kidsons became insured under Baker Tilly's then current policy, which was renewed later that year with effect from 1 December 2002. So the claim is made in relation to the firm's last independent insurance period,
Kidsons sues Underwriters in this action for a declaration that Underwriters are bound to indemnify Kidsons in respect of claims made against Kidsons by clients in relation to the activities of Solutions at Fiscal Innovation Limited (“S@FI”), a company formerly owned and managed by Kidsons, which marketed tax avoidance schemes. Kidsons has received claims from third parties, and may receive further such claims, in connection with tax avoidance work and advice given by S@FI and/or Kidsons.
None of these claims was first made against Kidsons during the period of the Policy, but Kidsons contends that it is entitled (subject to excess provisions) to be indemnified in respect of the claims by reason of having notified the circumstances giving rise to each of the claims in accordance with General Condition 4 (“GC4”) of the Policy. This provides:
“The Assured shall give to the Underwriters notice in writing as soon as practicable of any circumstance of which they shall become aware during the period specified in the Schedule which may give rise to a loss or claim against them. Such notice having been given any loss or claim to which that circumstance has given rise which is subsequently made after the expiration of the period specified in the Schedule shall be deemed for the purpose of this Insurance to have been made during the subsistence hereof.”
Kidsons relies principally upon two letters sent during the currency of the Policy as constituting valid and effective notice of the circumstances giving rise to the claims made in respect of S@FI. The first is dated 31 August 2001 (“the 31 August 2001 letter”). The second is dated 28 March 2002 (“the 28 March 2002 letter”). There are other intervening documents upon which Kidsons also relies: in particular, a letter dated 5 October 2001 and a claims file and bordereau prepared by the 7 th Defendant, Miller Services Limited (formerly Miller Professional Risks Limited) (“Millers”), which referred to, or précised, the information in the 31 August 2001 and/or 28 March 2002 letters). Kidsons also alleges that a Report, called the Tax Faculty Report, which was sent to Underwriters in October 2003, constituted notice under the Policy, notwithstanding that the Policy had expired 18 months previously. However, it is only if the Court accepts Kidsons' submission that the only temporal requirement for the giving of a valid notification is that there be first awareness of the circumstance in the policy period (and that, in the absence of prejudice, a notification will not fail if it is not given “as soon as practicable”) that Kidsons will be entitled to rely upon the Tax Faculty Report. However, Kidsons accepts that it can only rely upon those circumstances of which it first became aware in the policy period, and that any new circumstance referred to in the Tax Faculty Report must be disregarded.
Underwriters dispute that these documents (whether read separately or together) purported to constitute, or constituted, valid and effective notices under GC4. In particular, they contend that, in view of the delay from the date of Kidsons' awareness of the relevant circumstances in late August 2001, until the dates of the purported notifications to Underwriters, such notices were not served as soon as reasonably practicable. In the alternative, Underwriters say that, if these documents were valid notifications under GC4, they were (at most) notification of procedural difficulties (and even then only affecting the implementation of Discounted Option Schemes, one of many products marketed by S@FI), which is not a circumstance that has, in fact, given rise to any claims. Finally, Underwriters contend that, even if that is wrong and there was indeed valid notification of procedural difficulties affecting implementation of schemes other than Discounted Option Schemes, that too is not a circumstance which has given rise to any significant claims and/or loss. Underwriters deny that, on the true construction of the Policy, there is any entitlement to rely upon the Tax Faculty Report submitted to Underwriters in October 2003 as notification under the Policy. Underwriters submit that, if Kidsons were indeed aware of the matters canvassed in the Tax Faculty Report during the period of the Policy (which is a prerequisite for GC4 to apply), then October 2003 was far too late for valid notice under GC4, which requires notice to be given “as soon as practicable” as 18 months after expiry was not, on any view, as soon as practicable.
The claims made against Kidsons in respect of S@FI in fact cover a variety of S@FI tax schemes and allege almost exclusively that Kidsons were negligent in (i) advising their clients in relation to the schemes, (ii) making false representations about the schemes, and (iii) failing to give their clients adequate warning of the risks, if not the likelihood, of the schemes being challenged and rejected by the Inland Revenue because of their inherent defects. The claims have arisen because of Kidsons' allegedly poor advice and because, on analysis, the schemes have been found to be fundamentally flawed in their design and conception, and hence ineffective to avoid tax. The clients who entered into them now say that they would never have done so, had they been competently advised. It is Underwriters' contention that these circumstances are a long way from the “procedural” criticisms, or “procedural difficulties affecting implementation”, which are alluded to in Kidsons' letters.
Thus it can be seen that the contest is about notification. Kidsons contends that, if and to the extent that Underwriters' arguments prevail, then one or both of the 6 th and 7th Defendants will be liable. The 6th Defendant is CMS Cameron McKenna (“Camerons”), Kidsons' former solicitors, with whom Kidsons had a claims handling agreement during the period of the Policy. The 7th Defendant is Miller Services Limited (formerly Miller Professional Risks Limited) (“Millers”), Kidsons' former insurance brokers. They are sued on the grounds that they were negligent if the notice of circumstances that was given does not encompass the claims made in respect of S@FI. The claims against Camerons and Millers have been stood over pending the outcome of this trial.
Underwriters suggest that, if there was no valid notification of any circumstance relating to S@FI, or, alternatively, only notification of a limited circumstance, then claims not covered by the Policy will be covered by the insurers of Baker Tilly's 2002/2003 policy, or indeed subsequent years' policies by whom Kidsons was insured. However, underwriters in respect of subsequent year policies are not parties to this action, and it was common ground that I should proceed on the basis that there was no certainty that policies in respect of any subsequent year would respond or accept liability.
The issues
The main issues which I have to decide are:
i) whether the communications relied upon by Kidsons as notice of circumstances under GC4 constituted valid and effective notification of any (and if so, what) circumstance relating...
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