Clearing up the facts

The concluding article on a recent House of Lords case discusses the issues surrounding the aggregation of claims

Lord Hoffmann continued his consideration of whether the phrase "any single act or omission (or related series of acts or omissions)" used in TSB v Lloyds Bank, would enable losses relating to mis-selling to be aggregated by observing that, when events were said to be "related" or forming a "series", the nature of the unifying factor or factors which made them, related or a series, must be expressed or implied by the sentence in which the words were used. Although it might sometimes be necessary to imply a unifying factor from the general context provided, of course, the express language did not make such an implication unnecessary or impermissible.

The only unifying factor that the clause itself provided in this instance to identify the acts or omissions referred to in the parenthesis as being "related" and a "series" was that they "result" in a series of third-party claims. In other words, the unifying element was a common causal relationship: but that common causal relationship was, so to speak, downstream of the acts and omissions within the parenthesis. They must have resulted in each of the claims. This obviously meant that it was not enough that one act should have resulted in one claim and another act in another claim. That provided no common causal relationship.

The acts or events could only form a related series if they together resulted in each of the claims. In this way, the parenthesis played a proper subordinate role of covering the case in which liability under each of the aggregated claims could not be attributed to a single act or omission but could be attributed to acts or omissions acting in combination.

The Court of Appeal had sought to find a unifying factor outside the clause, by implying a reference to a common underlying cause upstream of the acts or omissions in the parenthesis, or some similarity between them. The clause itself said nothing about such unifying factors. Indeed the narrow formulation of the primary concept, "single act or omission", suggested that it was anxious to avoid them. Lord Hoffmann thought such an implication by the Court of Appeal of an unstated unifying factor was impermissible. In his opinion it was quite possible that one could have separate losses caused to a number of people by the combination of more than one act or omission, none of which would have been caused by the one without the other.

Lord Hoffmann adapted an example given by Lord Hobhouse in his decision of losses which may have been caused by the distribution of a misleading document in identical terms by someone who was not himself negligent but ought to have been corrected by someone else who was. The two acts or omissions would be a series that together caused each of the losses.

However, Lord Hoffmann had his doubts about another example given by Lord Hobhouse of the salesman who presented the identical document to a number of customers in succession. Lord Hoffmann was not inclined to accept that those acts were a series just because they were very similar, although he did see it might be said that the relevant single act or series of acts could be described as the distribution of the document and the method of distribution (sending it simultaneously to a number of people, showing it to them in succession or reading it to them at a meeting) was causally irrelevant.

In any event Lord Hoffmann thought that it was wrong to allow doubts about the possibly practical application of the parenthesis (particularly when the clause was applicable to the wide variety of circumstances covered by the insuring clause of section 3 of the policy) to produce a construction that undermined the balance of the clause.

Striking a bargain

In agreeing with Lord Hoffmann's conclusion that the appeal should be allowed Lord Hobhouse, who gave the only other reasoned decision in the House of Lords, started with the general observation that aggregation clauses might favour either the assured or the insurer depending on the circumstances. Consequently, their construction should not be influenced by any need to protect one party or the other. He also remarked that where, as in the present case, there were well established alternatives open to the parties in the drafting of their agreement, the choice made from among these alternatives represented part of the bargain struck by the parties and must be respected by anyone (judge or arbitrator) adjudicating upon a dispute arising under the document.

The argument advanced on behalf of the assureds was that each of them was under a statutory obligation to take the steps indicated in the relevant code of conduct to guard against mis-selling. They did not do so. As a result best advice was not given and mis-selling occurred. It followed that the various assureds had not ensured that it did not occur. The underlying cause of all the cases of mis-selling was the same - the failure to take the steps required by the code to guard against mis-selling. The requisite steps and the failure to take them were either the same in every case or very similar.

However this argument took the inquiry back to an earlier stage. It looked not at what had caused the financial loss to the third party, but at the underlying situation which gave rise to the conduct of the so-called "consultant" vis-a-vis, the third party. The way in which the argument sought to get round this was to say that the failure of each relevant assured to take the requisite steps, while not being the act or omission itself or the proximate cause of the third party's loss, provided the relationship between the various acts and omissions so as to justify the description of them as a "related series".

In other words the assureds were asserting that the aggregation clause should be treated as if it was a clause, like that found in Axa Re v Field[1996] 1WLR 1026, which referred to "any claim or claims arising from one originating cause or series of events or occurrences attributable to one originating cause (or related causes)". In that instance the wording used had permitted the losses caused by a mistake as to the nature of the LMX spiral, which three different underwriters took to be the single underlying cause of a series of fatally defective reinsurance treaties, with the result that the mistake could be treated as the unifying factor justifying the aggregation of the losses suffered under those treaties.

However, the expression "related series" could not be given the same force or create such a strong and wide connecting factor as the words used in the clause in Axa and similar provisions.

Lord Hobhouse concluded that assumed facts for the purposes of the preliminary issue were: (1) that the losses "arose from the same underlying origin"; and (2) that the "consultants'" failures to give best advice and the various assureds' failure to reject the pension transfer business sold by the "consultants" "were of an identical or very similar nature". However, in Lord Hobhouse's view the first of these facts, if it was to justify aggregation, required exactly the type of reclassification and redrafting of the clause that the authorities demonstrated was not permissible. The second without the first proved too much. It could lead to the aggregation of individual acts of negligence by individual employees which were independent of each other but merely could be described as having a very similar character, such as bad advice from bank managers.

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