“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.”
“S@FI Limited You will recall that the fiscal engineering activity of the practice has been channelled through S@FI, which is manned in entirety by partners and staff of HLB Kidsons. Fiscal engineering work has been developed significantly over the last year or two and now forms about 7% of the turnover of the practice. The products marketed by S@FI have all been validated by virtue of Counsel’s opinion (in some cases two opinions) but a tax manager in Edinburgh, Iain Torrance, has expressed the view that the Inland Revenue, if minded, could be critical of some procedures followed in certain cases. The Board of S@FI and the National Executive Committee of HLBK intend to investigate this view fully and have approached Ray Armstrong, who I gather has been a senior Inland Revenue official and has retired as a partner in PWC, to invite him to carry out the investigation and submit a report. The Board has taken the view that this might be regarded as material information for insurers. There is no sign of a claim arising at the present time but the Board feels that it is appropriate in the circumstances to advise what is happening and to take your instructions.”
“Thus the recipient was not being told…(g) that there was any possible issue falling outside the scope of some wholly unidentified procedures, relating to wholly unidentified products, of which the Inland Revenue might, if minded, be critical, in some unidentified cases.”
“S@FI Limited Some months have passed since we last corresponded. We have put a lot of effort into a technical investigation of the sale of products with the intention of having a report prepared by the Independent Review Body under Ray Armstrong referred to in my letter of31 August 2001 . This work has been slowed to a certain extent because of health problems suffered by Ray Armstrong and his ability to carry on leading the investigations is now in question. There is likely to be a further delay in the production of the report. A meeting was held on Tuesday26 March 2002 with Colin Tyre QC who had raised observations on two transactions concerning Discounted Option Schemes. The result of the meeting was a general view that the technical efficiency of the products was accepted but in some instances there might be procedural difficulties involving the Trustees for each scheme affecting the implementation of the scheme and this might lead to the possibility of criticism in the future. Mr Garner-Jones, a Tax Partner in our Chester office and one of the Managing Partners for S@FI, was present at this meeting and will very shortly be producing a report to summarise the results of the meeting and the general activity in this area over the last few months.”
“WP – Please keep uwrs fully advised. Noted for information only.”
“I refer to your letter of31st August 2001 and confirm that we have seen insurers on your behalf. They have noted the information on a strictly without prejudice basis and have asked that they be kept fully advised. The details provided have been noted for information purposes only. I would suggest that once Ray Armstrong’s investigation report has been completed that a copy is forwarded to us to show insurers further.”
“Products: The only product with which there was now a problem was the Discounted Option Scheme, given that the Capital Redemption Scheme had ceased in the previous November…”
“138. Although the briefing memorandum for the IRB expressly referred to all S@FI schemes, and the possibility of a further review into such schemes, the reality was that, at that time, the mandate given to the IRB was merely to investigate Discounted Option Schemes…Thus whether or not further schemes were to be reviewed, depended on what, if anything, came out of the Initial Review, and whether it became necessary to conduct a further review. This was consistent with Kidson’s low level of concern about Mr Torrance’s wider allegations. However, one of the reasons for leaving open the stated scope of IRB’s work was no doubt the need for Kidsons to be able to show the Inland Revenue, if necessary, that they had taken all reasonable steps to put its house in order, which was a point that Mr Torrance had raised…However, in my judgment, that fact that the scope of the investigation was left open, does not demonstrate that, contrary to my conclusions, Kidsons had any real or pressing concerns at this stage about the validity or implementation of the wider range of S@FI products, other than Discounted Option Schemes. Indeed, the evidence showed that, apart from an aborted attempt to review SHEPS in February 2002, no instructions were given to the IRB to undertake any Further Review into any S@FI products and the IRB did not in fact get beyond looking at Discounted Option Schemes… 143. I agree with Mr Kealey’s analysis of the evidence that, after14 September 2001 , Kidsons regarded the IRB’s Draft Report as effectively endorsing its methodology and approach and that, subject to the outstanding review of individual Discounted Option Schemes cases, its house was in order. The IRB was effectively disbanded in about February or March 2002, when Mr Armstrong indicated that he was too ill to proceed with the review of SHEPS. This was confirmed by the subsequent Project Island Report prepared by Baker Tilly in March 2004 which stated “It should be noted that the IRB having concluded its review and prepared the draft report in September 2001, was disbanded”.”
“What I agree is that the insured were purporting to notify a circumstance irrespective of whether it had been shown to the placing side first or a claims examiner first” (F2.626); and on another occasion he answered “Agreed, yes” to the question “you must have thought that the letter of 31st August amounted to a circumstance because otherwise you would have said: we do not accept this as a circumstance?” (F2.628). The judge’s comment on this evidence was this (at para 195): “All he was actually accepting was that he appreciated that an attempt was being made to notify a circumstance, but the rights and wrongs of that were being left for another day. In any event, as all counsel agreed, his views as to whether a circumstance had been notified are not relevant.”
“(b) Claim situation: - Concern that tax products marketed by S@FI Ltd (manned entirely by staff and partners of Insured) could be criticised. Awaiting results of investigation being conducted by independent expert (retained by S@FI) to see if concerns founded. Await update once investigations complete.
“Seen nil o/s. Please advise how claims reserves are going to be managed at LCO. As per C/H [claims handling] agreement we do not need to see files routinely.”
“The only circumstance of which notice was effectively given on 17 and18 October 2001 to the two leading Lloyd’s syndicates was in respect of procedures followed in certain cases relating to Discounted Option Schemes: this was because by the time when purported notification was made to these two syndicates of the circumstances set out in the31 August 2001 letter, the only circumstance of which Kidsons was aware falling within the description of “some procedures followed in certain cases” related to Discounted Option Schemes.”
“However, for reasons different from those put forward by Mr Kealey, and indeed more fundamental than his, I conclude that there was no effective notification…”
“I conclude that if Kidsons had at this stage been genuinely concerned about wide-spread and deep-seated problems across the entire range of S@FI products, it is highly likely that these concerns would have been reflected in the Disclosure letter or uncovered by Baker Tilly in the course of its due diligence enquiries.”
“b. IRB Report GGJ described his recent meeting with Colin Tyre QC, the Counsel who had originally doubted the efficacy of certain of the DOSs. With appropriate proofs available, he was now of the view that if firm supporting arguments were put forward there was a reasonable chance of the schemes succeeding… GGJ suggested that DOS cases should be dealt with on an individual basis…There was no need now to make any pre-emptive reports to the Inland Revenue. Much work needed to be done, but GGJ believed that all difficulties could be handled in the normal course, generally by correspondence. All this should be presented to the IRB who, hopefully, would be able to approve the situation… DG [Mr Gwilliam, another member of the NEC]…believes that there was now less risk from the Inland Revenue, but there was still a risk of claims from clients where schemes had failed because of procedural mistakes… c. Report to PII Underwriters As mentioned in the previous NEC meeting, it would now be appropriate for a report on the situation to be prepared for PII underwriters.”
“I note that investigations are continuing but that there is likely to be a delay in the production of Ray Armstrong’s report. I look forward to hearing from you once you are in a position to provide me with further information, when presumably, it will be possible to tell whether this matter is likely to develop. Until such time it, of course, remains unclear as to whether this constitutes a circumstance/claim within the terms of the policy and, accordingly, we are not in a position to confirm whether cover will apply.”
“In my judgment, the presentation of the28 March 2002 letter, together with the other documentation, did at this stage amount to a valid notification of circumstances...On a fair reading of the28 March 2002 letter, and of the summary contained in the S@FI data sheet prepared by Camerons of the earlier31 August 2001 letter, and in the context of the investigation into S@FI products, in my judgment the reference in the28 March 2002 letter to the fact that “in some instances there might be procedural difficulties involving the Trustees for each scheme affecting the implementation of the scheme and this might lead to the possibility of criticism in the future” cannot sensibly be read as confined to the two specific named examples of Discounted Option Schemes that Mr Tyre was considering…The bordereau adverted to the possibility of claims, and liability, and although the information provided was still exiguous, the reasonable recipient would at this stage, in my judgment, have appreciated…the possibility of claims…” “in some instances there might be procedural difficulties involving the Trustees for each scheme affecting the implementation of the scheme and this might lead to the possibility of criticism in the future”
“220. No information was presented to XCS, the successor to the Lloyd’s Claims Office representing the following Lloyd’s market, until July 2002 (over 2 months from the expiry of the Policy). No presentation at all was made to XCS during the Policy period. The first presentation to XCS in respect of the policy year was on24 July 2002 … 221. In my judgment, the notification given to the following Lloyd’s market was not given as soon as practicable and therefore was not compliant with the time requirements of GC4. Notice which was not given until24 July 2002 , almost three months after the expiry of the policy period, cannot, on any realistic basis, be regarded as given “as soon as practicable”, if the start date is taken as27 March 2002 . There was no impediment to the following market being notified within the Policy Period, as indeed the Lead Underwriters and for the most part, the Company market were. Although the experts agreed that it was not unusual for there to be delay in presentation to the following market, and Mr Ellis opined that “in practice” no point would be taken, Underwriters are nonetheless entitled to take the point that strict compliance with the requirements of the Policy was necessary and that, even allowing for latitude in presentation to the following market, notification at the end of July was not on any basis “as soon as practicable”. 222. Even if I were wrong in this conclusion, for similar reasons to those stated above, any notification was confined to procedural difficulties affecting the implementation of Discounted Option Schemes as referred to in the letter dated28 March 2002 .”
“It is recognised in the market that it takes time for notification of a claim or circumstance to be made to following insurers, with the result that there may be a delay between the time of first notification of the matter by the assured to his broker and notification by the broker to the following market. The kind of delay that is acceptable would normally be measured in weeks or at most “some months”
“I agree with Mr Kealey’s analysis of the evidence, namely that the notes of the conversation between Mr Patten and Mr Flaxman show that they intentionally put together a letter which was studiedly non-committal (“not to be alarmist”), gave away as little as possible (“less said best”) and was deliberately sent to the placing, and not the claims, side of Millers. Their clear objective was to mention, almost as it were in passing, the possibility of a matter in the briefest language, and to avoid notifying a circumstance until and unless it was established that it was necessary, following receipt of the IRB’s report, which was expected shortly.”
“Underwriters accepted that the fact that a document was not intended by an assured to constitute notice under GC4, did not preclude it from qualifying in fact as such a notice…I agree that, whilst Kidsons’ intention as to what it was intending to notify, is not relevant to the objective interpretation of a purported notice from the perspective of the reasonable recipient, Kidsons’ state of mind is nevertheless relevant to determine the extent to which it was aware, and hence capable of notifying, circumstances which might give rise to a loss or claim under GC4. I also accept that such evidence informs the Court why the31 August 2001 and28 March 2002 letters came to be written in what I regard as the coy and restricted terms in which they were written. Moreover, and more generally, the evidence relating to what Kidsons intended to notify to Underwriters necessarily informs the Court in relation to the underlying merits of the case, which even in a case of construction it cannot disregard.”
“99. Mr Kealey submitted that awareness, for the purposes of GC4, was tantamount to knowledge, and that that required Kidsons to have a genuine belief, at the actual time of notification, that there was a real possibility that claims would be made in relation to such wide-ranging matters. In the absence of such a belief at the time of notification, Mr Kealey submitted that there was no relevant “awareness” for the purposes of GC4.”
“101…Thus if, contrary to my conclusion, Mr Kealey’s submissions as to what was required for an assured to be “aware” were correct, and it were relevant to examine the strength of Kidsons’ “belief”, I would have concluded that Kidsons did not have “a genuine belief at the actual time of notification that there was a real possibility that claims would be made in relation to such wide-ranging matters”
“A typical example would be a belated realization, based upon a study of professional journals, that perhaps he had specified inadequate foundations for a building which he had designed and which had already been erected.”
“Even if such notices under contractual rights reserved contain errors they may be valid if they are “sufficiently clear and unambiguous to leave a reasonable recipient in no reasonable doubt as to how and when they are intended to operate:” the Delta case, at p. 454E-G, per Slade L.J and adopted by Stocker and Bingham L.JJ.; see also Carradine Properties Ltd. v. Aslam [1976] 1 W.L.R. 442, 444. That test postulates that the reasonable recipient is left in no doubt that the right reserved is being exercised. It acknowledges the importance of such notices. The application of that test is principled and cannot cause any injustice to a recipient of the notice. I would gratefully adopt it.”
“He would not be any further informed by the description in the October bordereau that the nature of the claim was “possible tax errors in fiscal engineering work”, not merely because the description is so vague as to be useless, but also because it does not even reflect the view of Mr Torrance, as stated in the31 August 2001 letter, that the Inland Revenue might be critical of “procedures”
“I am not therefore convinced that semantic cavilling over the precise formulation of the test assists the ultimate resolution of the problem. There may well be uncertainty at the time of notification as to what the precise problems or potential problems are…”
“Whereas the Assured have made the Underwriters a written proposal bearing the date stated in the Schedule containing particulars and statements which together with any other information which may have been supplied it is hereby agreed are the basis of this Insurance and are to be incorporated herein. SECTION I – INSURING CLAUSES Now we the Underwriters to the extent and in the manner hereinafter provided hereby agree 1 To indemnify the Assured against any claim or claims first made against the Assured during the period of insurance as shown in the Schedule in respect of any Civil Liability whatsoever and whensoever arising (including liability for claimant’s costs) incurred in connection with the conduct of any Professional Business carried on by or on behalf of the Assured. 2 To indemnify the Assured for any loss which during the period specified in the Schedule they shall first discover they have sustained by reason of any dishonest or fraudulent acts or omissions of any former or present partner director or employee of the Firm(s) or any sub-contractor or alternate subject always to Special Condition 2 hereof.”
“This Insurance shall not indemnify the Assured against any claim or for any loss… 4) Arising out of any claim or circumstance which has been notified under any other policy or certificate of insurance attaching prior to the inception of this Insurance. 5) In respect of dishonest or fraudulent acts or omissions committed by any person after discovery by the Assured of reasonable cause for suspicion of fraud or dishonesty on the part of that person.”
“3. The Assured shall as a condition precedent to their right to be indemnified under this Insurance give to the Underwriters notice in writing as soon as practicable a) Of any claim made against them or any of them b) Of the receipt of notice from any party of an intention to make a claim against them c) Of any loss suffered by them or any of them d) Of the discovery of reasonable cause for suspicion of dishonesty or fraud on the part of any former or present partner consultant sub-contractor director or employee of the Firm(s) whether giving rise to a loss or claim under this Insurance or not 4. 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 expiry of the period specified in the Schedule shall be deemed for the purpose of this Insurance to have been made during the subsistence hereof. 6. Any claim first notified to the Assured prior to the expiry date of this policy will be deemed to be dealt with under this policy provided it is properly notified to Underwriters within 15 calendar days of the expiry day. 11. In any dispute in connection with the terms conditions exclusions or limitations of this Insurance it is specifically understood and agreed that the terms conditions exclusions and limitations of the Approved Wording contained in the Prospectus for Approved Insurers to the Institute of Chartered Accountants (in England and Wales/of Scotland/ in Ireland) shall take precedence over any terms conditions exclusions or limitations contained herein which are less favourable to the Assured.”
“B.6. The Insurers will not exercise their right to avoid this Certificate or any contract of insurance therein, or claim to be discharged from any liability hereunder, on the grounds of any alleged non-disclosure or misrepresentation of facts or alleged untrue statements in the Proposal Form, provided always that the Insured shall establish to Insurers’ reasonable satisfaction that such alleged non-disclosure, misrepresentation or untrue statement was free of any fraudulent conduct or intent to deceive. However, if such alleged non-disclosure, misrepresentation or untrue statement consists of or includes a failure to inform the Insurers of any circumstance of which the Insured was aware which might give rise to a loss or claim against the Insured the indemnity hereunder in respect of that loss or claim shall be limited as follows: (a) Where the Insured should have notified such circumstance under any previous insurance (whether with other Insurers or not) the indemnity hereunder shall be limited to the indemnity which would have been available under the earliest such previous insurance if such circumstance had been properly notified. (b) Where the Insured should have notified such circumstance under this Certificate prior to obtaining any increase in the limit of indemnity hereunder or other variations of the terms hereof the indemnity hereunder shall be limited to the indemnity which would have been available prior to such increase in cover or variation of the terms hereof. B.7. Where the Insured’s breach of or non-compliance with any condition of this Certificate has resulted in prejudice to the Insurers: (a) in the handling or settlement of any claim against the Insured; (b) in the amount of any loss sustained by the Insured; (c) in the obtaining of reimbursement from any dishonest or fraudulent person as referred to in condition B.11, the indemnity afforded hereunder (including liability for claimants costs) shall be reduced to such sum as in the Insurers’ reasonable opinion would have been payable by them in the absence of such prejudice. B.9. The Insured shall as a condition precedent to their right to be indemnified hereunder give to the Insurers notice in writing as soon as practicable: (a) Of any claim made against them or any of them. (b) Of receipt of notice from any party of an intention to make a claim against them. (c) Of any loss suffered by them or any of them. (d) Of the discovery of any reasonable cause for suspicion of dishonesty or fraud on the part of any former or present partner, director, employee, consultant, sub-contractor or alternate of the Firm(s) whether giving rise to a loss or claim hereunder or not. B.10. If the Insured shall become aware during the period of any insurance of any circumstance which may give rise to a loss or claim the Insured shall give notice in writing to the Insurers as soon as possible. Such notice having been given: (a) any claim which may subsequently be made against the Insured arising out of that circumstance shall be deemed to have been first made against the Insured during the Period of Insurance; (b) any loss which the Insured may subsequently discover they have sustained, being a loss arising out of that circumstance, shall be deemed to have been first discovered by the Insured during the Period of Insurance”
“Claims handling 6.5 All members, whether sole practitioners, partners or directors, together with their employees, should be aware of the importance of notifying insurers promptly of claims or circumstances which may give rise to a claim. Everyone in the firm should know that failure to comply with underwriters’ requirements in this regard could seriously prejudice the firm’s rights and entitlement to indemnity under the policy. 6.6 One person, at the level of principal, should be given the task of recording and coordinating information about claims or circumstances and of notifying brokers/underwriters accordingly. That person should regard the prompt notification to brokers/underwriters as a first priority and should not wait until there have been developments or until a detailed report of the matter has been prepared. 6.7 All staff should be encouraged to report promptly to the individual designated in the above paragraph any matter of which they become aware. 6.8 Claims or circumstances should be regarded objectively. If there are circumstances which might reasonably give rise to a claim then insurers should be notified immediately. This is regardless of the fact that currently allegations may be vague or not specified and regardless of whether the member personally thinks liability is unlikely. (In this latter regard the question of liability is a legal one which only lawyers and, ultimately, the courts are competent to decide.)” 6.5 All members, whether sole practitioners, partners or directors, together with their employees, should be aware of the importance of notifying insurers promptly of claims or circumstances which may give rise to a claim. Everyone in the firm should know that failure to comply with underwriters’ requirements in this regard could seriously prejudice the firm’s rights and entitlement to indemnity under the policy. 6.6 One person, at the level of principal, should be given the task of recording and coordinating information about claims or circumstances and of notifying brokers/underwriters accordingly. That person should regard the prompt notification to brokers/underwriters as a first priority and should not wait until there have been developments or until a detailed report of the matter has been prepared. 6.7 All staff should be encouraged to report promptly to the individual designated in the above paragraph any matter of which they become aware. 6.8 Claims or circumstances should be regarded objectively. If there are circumstances which might reasonably give rise to a claim then insurers should be notified immediately. This is regardless of the fact that currently allegations may be vague or not specified and regardless of whether the member personally thinks liability is unlikely. (In this latter regard the question of liability is a legal one which only lawyers and, ultimately, the courts are competent to decide.)”
“6. Any claim first notified to the Assured prior to the expiry date of this policy will be deemed to fall to be dealt with under this policy provided it is properly notified to Underwriters within 15 calendar days of the expiry day.”