KR v Royal & Sun Alliance Plc

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLord Justice Scott Baker,Lord Justice Longmore
Judgment Date22 November 2006
Neutral Citation[2006] EWCA Civ 1701,[2006] EWCA Civ 1454
Docket NumberA2/2006/0374,Case No: B5/2006/0374/QBENF
Date22 November 2006

[2006] EWCA Civ 1454

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

MR JUSTICE SIMON Case No: HQ03X02173

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Master of The Rolls

Lord Justice Longmore and

Lord Justice Scott Baker

Case No: B5/2006/0374/QBENF

Between:
Kr & Ors
Claimants/Respondents
and
Royal & Sun Alliance Plc
Defendant/Appellant

Edward Faulks Q.C. and Nicholas Fewtrell (instructed by Messrs Hill Dickinson Llp) for the Appellant

Robert F. Owen Q.C. and Philip Turton (instructed by Messrs Uppal Taylor) for the Respondent

Lord Justice Scott Baker

This is the judgment of the court to which each member has contributed.

1

On 26 January 2006 Simon J. gave judgment for six claimants against Royal & Sun Alliance PLC ("the Insurer") in claims under section 1 of the Third Parties (Rights against Insurers) Act 1930 ("the Act"). The Insurer appeals against that judgment in all six cases. It is said that the outcome of this appeal has ramifications for many other cases of a similar nature.

The background.

2

Because of widespread allegations of abuse in residential children's homes in North Wales a Tribunal of Inquiry was set up chaired by Sir Ronald Waterhouse to investigate them. The area covered by the inquiry was North Wales and the period 1974 to 1997.

3

Many of the allegations gave rise to civil claims and the ensuing group litigation was made the subject of a practice direction dated 30 July 1998. The claims were tried in tranches. One of those tranches involved five children's care homes known as the "Bryn Alyn Community" ("Bryn Alyn") owned and operated from 1973 until its financial collapse in 1997 by Bryn Alyn Community Holdings Ltd ("the Company").

4

Fifteen lead cases were chosen to be tried by Connell J. Fourteen of those cases were tried by him between February and April 2001. The Company had gone into voluntary liquidation in March 1997 and took no part in the litigation. But the Insurer attended and participated in the trial as described by Connell J. at paragraph 3 of his judgment:

"…in due course solicitors (for the Insurer) …gave notice to the claimants' solicitors of a potential conflict of interest arising out of an exception clause in the contract of insurance which they had entered into with (the Company). As a result (the Insurer) might be entitled to refuse to indemnify (the Company) against any judgment entered against them in these claims. Accordingly (the Insurer) was added as second defendant and it has contested each claim through leading and junior counsel. It has advanced no positive case, save in the claim by JS, but equally has made few concessions and has required each claimant to prove their claim."

(J.S. is irrelevant to the issues in the present appeal.)

5

On 26 June 2001 Connell J. gave judgment in favour of 13 of the claimants against the Company. He found that there had been extensive abuse at the children's homes owned and managed by the Company. There was an appeal and cross-appeal in which the 13 claimants were successful, see KR and Others v Bryn Alyn Community (Holdings) Ltd and another [2003] QB 1441.

6

Following the appeal the 13 claimants brought proceedings against the Insurer claiming (1) that the Insurer was the Company's liability insurer, (2) that the Company incurred liability to the claimants by the judgment of Connell J. and (3) that in consequence of the Company's liquidation they were entitled to claim directly against the Insurer under the Act.

7

Several of the claims were settled. Two claims failed entirely because all the abuse occurred before 22 August 1976, which was the date from which, as Simon J. held, cover was provided. In the case of two claimants, P.S. and D.J., they succeeded but their damages were reduced by 10% and 25% respectively because part of their abuse occurred before August 1976 when the insurers came on risk. The other four claimants D.K., G.S., G.O'M. and J.M. succeeded entirely. It is the six claimants who succeeded either substantially or in full who are the respondents to this appeal.

The Act.

8

The material parts of section 1 provide:

"(1) Where under any contract of insurance a person (hereinafter referred to as the insured) is insured against liabilities to third parties which he may incur, then

(b) in the case of the insured being a company, in the event of a winding-up order being made, or a resolution for a voluntary winding-up being passed, with respect to the company…

if, either before or after that event, such liability as aforesaid is incurred by the insured, his rights against the insurer under the contract in respect of the liability shall… be transferred to and vest in the third party to whom the liability was incurred.

(4) Upon transfer under subsection (1) … of this section, the insurer shall … be under the same liability to the third party as he would have been to the insured…"

It is common ground that the respondents cannot be in a better position against the insurer than they would be against the insured.

The policy.

9

The policy of insurance was a Combined Insurances Policy and the relevant wording in the liability section was, from August 1976, as follows:

"A. Indemnity to Insured

1. In the event of…(b) bodily injury to any person not being an employee…happening in the territorial limits and caused in the course of the business the insurers will subject to the limits of liability indemnify the insured in respect of any legal liability incurred in respect of such injury or damage.

D. Exceptions

1…

The Insurers shall not be liable for

8. Injury or damage which results from a deliberate act or omission of the insured and which could reasonably have been expected having regard to the nature and circumstances of such act or omission."

10

There was a change in the policy wording in 1981. The cover remained the same but the exception was broadened to include not just the insured but also partners, directors and managerial employees. Thereafter the material exception read:

"C. Exceptions

This section does not cover liability in respect of…

4. Injury damage or financial loss which results from any deliberate act or omission of the insured his partners directors or managerial employees and which could reasonably have been expected having regard to the nature and circumstances of such act or omission…"

11

Simon J. found that from 22 August 1976 the Company was covered under the policy by the Insurer and that the facts did not fall within the exception either before or after its terms were broadened in 1981. In short, the injuries sustained by the respondents were not caused by the deliberate acts of the insured i.e. the Company or, latterly, the insured, its directors or managerial employees.

12

Because this appeal raises the question when the acts of an individual can be attributed to a company it is necessary to describe in a little detail the set up with regard to the Company, the homes and the key individuals.

13

From 1969 until 1990 John Allen operated a number of care homes for children. They were largely, but not entirely, in North Wales. They became known after the first and main home as Bryn Alyn. Bryn Alyn ran five homes, Bryn Alyn Hall, Cotsbrook Community Hall, Pentre Saeson Hall, Bryntirion Hall and Gatewen. In 1972 the Company was incorporated and in 1973 it took over the operation of the business from John Allen.

14

The Company operated successfully for over 25 years before ending in financial failure in 1997. It employed a large number of staff and at times made a significant profit. Its stated aim was to provide an alternative to the strict discipline and training regime of approved schools for children. The majority of the children in the Bryn Alyn homes had been placed in the care of local authorities.

15

In 1995 John Allen was convicted of six offences of indecent assault upon young male residents between 1972 and 1983 and sentenced to six years imprisonment. John Allen was a director of the Company from the outset until he resigned in October 1991.

16

Lest there is any confusion about the name of the Company the brief history is as follows. Bryn Alyn Community Ltd was incorporated on 10 November 1972 and started trading on 1 July 1973. On 1 May 1996 Bryn Alyn Community (Holdings) Ltd was formed as a wholly owned subsidiary of Bryn Alyn Community Ltd. On 9 July 1996 the name of Bryn Alyn Community Ltd was changed to Bryn Alyn Community (Holdings) Ltd and vice versa. Bryn Alyn Community Ltd was put into voluntary liquidation on 6 March 1997. Bryn Alyn Community (Holdings) Ltd was compulsorily wound up in 1998. For the purposes of this appeal the changes of Company identity are of no significance and we refer throughout this judgment simply to "the Company".

17

John Allen set up his first children's home in Holywell in the mid 1960s. This was an after-care facility for borstal boys who had been released on licence. He established the Bryn Alyn Community, which he initially ran as a sole trader, in 1968. He first took a lease of Bryn Alyn Hall but bought the freehold in 1972, incorporating the Company soon afterwards. From the outset he was majority shareholder and chief executive of the Company. He remained majority shareholder until 1989 and chief executive until he resigned in October 1991.

18

The undisputed evidence of David Evans, who worked at Bryn Alyn from 1968 until August 1983 and then again from 1985 was:

"John Allen devised all the original systems relating to childcare that were used at Bryn Alyn until he took a less involved role with the day-to-day...

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