AIG Europe Limited v Woodman and others  UKSC 18
Supreme Court clarifies the correct interpretation of the aggregation clause contained in the Solicitors’ Minimum Terms and Conditions of Insurance (“MTC”) in what will be considered a partial victory for insurers.
Groups of investors brought claims against a firm of solicitors after funds they had invested in a property development scheme were lost due to the insolvency of the developer. The developer had two main developments, one in Turkey and the other in Morocco; each development was covered by a different deed of trust in which the investment funds were held in escrow. There were 214 claimants with claims totalling £10 million – the solicitors’ PI policy had a limit of £3 million per claim and permitted the aggregation of claims in circumstances where all claims arise from “similar acts or omissions in a series of related matters or transactions” (clause 2.5 of the MTC).
At first instance, it was held that the wording of clause 2.5 required that there was some level of inter-dependency between transactions for aggregation to occur. The Court of Appeal held that the inter-dependency requirement was too strict. Instead the transactions had to have an ‘intrinsic’ relationship with each other to be aggregated.
The Supreme Court held that the ‘intrinsic’ relationship test adopted by the Court of Appeal was unsatisfactory. It viewed clause 2.5 as having two separate limbs: (i) claims that arose from “similar acts or omissions” (which was satisfied in this case) and (ii) were “in a series of related matters or transactions”.
To satisfy the second limb:
- “there must be some identifiable substantive link or connection between them beyond mere similarity”; and
- “use of the word ‘related’ implies that there must be some inter-connection between the matters or transactions, or in other words that they must in some way fit together”.
This test was to be applied objectively. In the present case, the Court held that the transactions entered into in respect of each development were connected in significant ways:
- Each set of investors invested in a common development;
- They were participants in a standard scheme and were co-beneficiaries under a common trust;
- The transactions shared the common underlying objective of the execution of a particular development project and also fitted together legally through the trusts.
The Court did, however, state that the claims in respect of the different developments could not be aggregated as they related to different sites, had different groups of investors and were protected by different deeds of trust over different assets.
This judgment brings long-awaited clarity to an area in which reported case-law is scarce. It should help claimants, insureds and insurers in settling disputed aggregations. The Supreme Court’s decision means the scope for aggregation is potentially wider than was generally understood to be the case although the Court was clear that each case is to be judged on its own facts.
BPE Solicitors v Hughes-Holland (in substitution for Gabriel)  UKSC 21
Supreme Court upholds Court of Appeal decision and reaffirms SAAMCo principles, particularly in the context of solicitors.
In 2007, Mr Gabriel advanced a loan of £200,000 to his friend and property developer, Mr Little, in connection with the development of a disused heating tower on Kemble Airfield. In a ‘misunderstanding’, Mr Gabriel believed the loan was for developing the property whereas Mr Little intended to use it to buy the site. Mr Little did inform Mr Gabriel’s solicitors, BPE, of that intention.
BPE did not check with Mr Gabriel as to his intentions and prepared a facility letter and charge for the building. The facility letter, which was a draft from a previously aborted transaction in a different development, wrongly included references to the ‘development’ of the site which meant Mr Gabriel’s mistaken belief persisted.
The development was a failure. Mr Gabriel lost his money. Had he realised that the funds were to purchase the site, he never would have entered into the transaction.
The Supreme Court clarified the SAAMCo principle and reinforced the ‘advice’ and ‘information’ distinction and the correct application of it.
It held that BPE’s role was to provide information rather than to advise Mr Gabriel on whether to enter into the transaction. Whilst this information would have caused Mr Gabriel to withdraw from the transaction, it was held that the transaction would have been equally disastrous even if the information given by BPE were true (e.g. the funds were being used to develop the site). The Court also clarified that the burden of proof was on Mr Gabriel to show that he would not have incurred the same losses if the funds been applied to the development. The cause of the loss was therefore held to be Mr Gabriel’s commercial misjudgements rather than BPE’s negligence.
The Court also considered the previous SAAMCo authorities. The following key points emerged:
- Information cases are where professionals only provide a limited part of the range of information taken into the account by clients in deciding whether to enter into a transaction (Lord Sumption’s reasoning indicates all standard conveyancing transactions fall into this category);
- A defendant in such cases would only be liable for the financial consequences of the information being wrong rather than for entering into the transaction;
- Even if the information provided is critical to the decision to enter into the transaction (e.g. revealed a fraud) this did not make all losses flowing from the transaction recoverable;
- The decisions in Steggles Palmer and Portman Building Society were consequently overturned meaning the previous exception to the application of the SAMMCo ‘cap’ in solicitor claims has been removed;
- The burden of proof is on the claimant to prove that the loss falls within the scope of duty owed.
In large part, this judgment simply restates the existing distinction between cases where advisers have provided negligent information and negligent advice cases. The starting point for a claimant in an “information case” is to ask “which of my losses would I not have suffered if correct information had been given?” Only those losses will be claimable. In restating this test with conviction, the Court overturned the case of Steggles Palmer which it saw as an unacceptable wrinkle in an otherwise straight line.