Travelers Insurance Company Ltd v Countrywide Surveyors Ltd
| Jurisdiction | England & Wales |
| Judge | MR. JUSTICE COULSON |
| Judgment Date | 06 September 2010 |
| Neutral Citation | [2010] EWHC 2455 (TCC) |
| Court | Queen's Bench Division (Technology and Construction Court) |
| Docket Number | Claim No.PI21 |
| Date | 06 September 2010 |
[2010] EWHC 2455 (TCC)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
St. Dunstan's House
Before: Mr. Justice Coulson
Claim No.PI21
Mr. Sean Brannigan QC (instructed by CMS Cameron McKenna) appeared on behalf of the Claimant.
Mr. Michael Soole QC (instructed by Countrywide Legal) appeared on behalf of the Defendant.
A INTRODUCTION
The Defendant (“Countrywide”) provides residential surveying services. On 25 th May 2008 Countrywide took out a professional indemnity policy of insurance (“the Policy”) in respect of which the Claimant (“Travelers”) was the lead underwriter. Issues have arisen in connection with claims made against Countrywide arising out of surveys carried out by one of the former surveyors, a Mr. Morley. It now appears that hundreds of potentially fraudulent valuations may have been carried out both by Mr. Morley and two of his colleagues. Many of these were for the same commercial client. As a result, there is now a possibility that Travelers will seek to avoid the policy for misrepresentation and/or non-disclosure.
In order to reach a concluded view on that important question, Travelers have been seeking documentation from Countrywide. These documents concern the extent to which the possibility of fraud on the part of Mr Morley, as opposed to allegations of incompetence, was known to Countrywide at the time that the policy was agreed on 25 th May 2008. They also relate to the circumstances surrounding Mr. Morley's dismissal. The documents would allow Travellers to reach a view as to whether or not there had been fraudulent intent which, as we shall see in a moment, formed the critical part of the relevant exclusion clause in the policy. Travellers threatened to make an application for pre-action disclosure pursuant to CPR 31.16 in relation to this material and it appears that, as a result of the threatened application and other letters written by Travelers' solicitors, Countrywide have provided a large number of documents relating to this topic. However, Travelers maintain that there are still numerous documents relevant to this issues with which they have yet to be provided.
Accordingly, on 5 th August 2010 Travelers issued an application pursuant to CPR 31.16 for pre-action disclosure. This application was made after receipt and study of the documents sent by Countrywide's solicitors on 29 th July 2010. In response to the application Countrywide submit that the court does not have the necessary jurisdiction to make the order sought, because the court's power to order pre-action disclosure does not extend to the situation where the dispute between the parties will be determined in arbitration rather than in court. They also submit that, even if the court had the appropriate jurisdiction, the necessary test under CPR 31.16 has not been made out in any event.
I propose to deal with the issues as follows. I identify the relevant terms of the policy in section B below; thereafter at section C, I deal with Travellers' threshold response on this issue which is that, as a matter of construction of the policy, the dispute between the parties will inevitably be litigated rather than arbitrated. Then, at sections D and E, I address Travelers' submissions to the effect that, even if they were wrong on that threshold point, the court does have the necessary jurisdiction to make the order sought. There is a short summary of my conclusions at section F below. I am very grateful to both leading counsel for the typical economy and skill with which their submissions have been advanced.
B THE RELEVANT TERMS OF THE POLICY
What was called the Special Institution Condition within the Policy provided as follows:
“Underwriters will not exercise any right to avoid this insurance where it is alleged that there has been non-disclosure or misrepresentation of facts or untrue statements in the proposal forms, provided always that the assured shall establish to Underwriters' satisfaction that such alleged non-disclosure, misrepresentation or untrue statement was free of any fraudulent intent …
In the event of any dispute or disagreement between the Assured and Underwriters regarding the application of the Special Institution Conditions, such dispute or disagreement shall be referred by either party for arbitration to any person nominated by the President for the time being of the Royal Institution of Chartered Surveyors or the Financial Ombudsman Service as appropriate.”
I accept the submission that the overall purpose of the Condition was to ensure that the policy was not avoided because of an inadvertent misrepresentation or non-disclosure. As to the arbitration agreement within the Condition, it is to be contrasted with the general provisions in the policy which make plain, in two separate places, that all other disputes under the policy will be dealt with in the English courts.
For the purposes of this application, I accept that there may well be a legitimate issue between the parties as to whether or not there was a fraudulent intent on the part of Countrywide at the time of the inception of the policy. I have been shown documents which indicate that, prior to 25 th May 2008, various individuals at Countrywide were aware that the scope of Mr. Morley's default went beyond the two particular valuations which formed the basis of his dismissal, and which were the only two potential claims notified to Travelers at the time of the inception of the policy. Of course, whether or not that demonstrates a fraudulent intent for the purposes of the Special Institution Condition is an entirely separate question, and not one that I can begin to answer on this application. On the basis of the material, all I can say is that, if fraud was asserted, such an assertion could not be regarded as fanciful.
C THE CONSTRUCTION OF THE SPECIAL INSTITUTION CONDITION
The first question for me is, if Travelers seek to avoid the policy on the ground of fraudulent intent, and that course was challenged by Countrywide, in what forum would such a dispute be determined? Mr. Soole maintains that, in accordance with the Special Institution Condition, such a dispute would centre on whether the Condition applied on the particular facts or not, and would therefore have to be referred to arbitration in accordance with its express provisions. Mr. Brannigan, on behalf of Countrywide, argues that this confuses the application of the Condition with its effect. He says that, whilst there is no dispute here that the Condition applied, and therefore nothing to be referred to arbitration, there is a dispute about the effect of the Condition which is not caught by the arbitration clause and would therefore have to be dealt with in court. In those circumstances he says that the court's power to order pre-action disclosure would be clear.
Mr. Brannigan also has an alternative submission on this aspect of the case, which is that, on a proper construction of the Special Institution Condition, the arbitrator would have jurisdiction, but it would be limited to the second issue, namely whether or not any misrepresentation or non-disclosure was fraudulent or not. He maintains that the first issue, namely whether or not there was misrepresentation or non-disclosure in the first place, fell outside the arbitration clause and would have to be determined in court in any event.
Although Mr. Brannigan's submissions on the construction of the Condition were put forward with his customary skill, I do not accept that either element of it is correct. The issue between the parties will be whether or not the Condition bites in all the circumstances of this case; whether or not the Condition, and in particular the condition precedent of fraudulent intent, applies on the facts which are found. That, so it seems to me on a proper construction of the Condition itself, was precisely the sort of dispute which the parties agreed would be referred to arbitration.
It seems to me that it would be in very rare circumstances that there could ever be a dispute about the simple application of the Condition, as opposed to a dispute about its effect. Mr. Brannigan maintained that there might be a dispute as to whether this particular Condition met the RICS minimum term in relation to non-disclosure and misrepresentation, but it seems to me that such a dispute is manifestly unlikely. I accept Mr. Soole's submission that, in this case, the Condition plainly 'applied' because it was in the agreed written contract of insurance, so that the only likely dispute to arise out of the Condition was whether or not, on the facts, Travelers were entitled to avoid the policy because of the express provisions of this Condition. Any distinction, so it seems to me, between application and effect in such circumstances would be artificial and, so it seems to me, impossible to police sensibly.
Further, the agreement to arbitrate any disputes about the application of the Condition must be construed in a sensible way so as to give effect to the commercial purpose of the clause (see paragraphs 6 and 8 of the judgment of Lord Hoffmann in Fiona Trust Cor v. Yuri Privalov [2007] UKHL 40). In this case, I have no doubt that the commercial purpose of the arbitration agreement within the Special Institution Condition was to ensure that all allegations involving misrepresentation, non-disclosure and possible fraud were dealt with in a confidential forum. That was why it was only disputes under this Condition which were to be referred to arbitration and not other disputes as to the operation of the policy generally.
Mr. Brannigan's alternative submission on the construction of the Condition was that, whilst an arbitrator might be necessary for stage...
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