AIG Europe Limited v Woodman and others  UKSC 18
Solicitors sometimes act in situations where there are multiple transactions that all follow a similar course. A common illustration is in the conveyancing arena where there can be a number of clients who are all purchasers / investors in a particular development project. What happens if, in the course of that project, the solicitor makes the same mistake for each client? There’s essentially one mistake but its repetition results in multiple claims; each individual claim may be relatively modest but when all added together the potential liability is substantial.
After dusting off the solicitor’s professional indemnity policy, scrutiny is needed of the aggregation clause as it’s that which determines whether these count as one claim (with one excess and one policy limit) or multiple claims (numerous excesses to be paid but with a separate policy limit applicable to each claim). The terms of the clause have to be applied to the circumstances of the claim – that’s when it can all start to get rather difficult.
This is the issue at the crux of the dispute in AIG v Woodman and others which has again been the subject of judicial scrutiny in the judgment of the Supreme Court today on the interpretation of the aggregation clause in the solicitors’ minimum terms (MTC) providing that "all claims…arising from…similar acts or omissions in a series of related matters or transactions…will be regarded as one claim." AIG has been seeking a declaration that the claims made by a number of investors in two development schemes fall to be aggregated as one claim so limiting its exposure to a single policy limit of £3 million (as against claims totalling over £10 million).
The facts and the decisions
The claimants (some 214 of them) were all investors in two property development schemes (Peninsula Village and Marrakech) in which the solicitors acted. The investor’s money was put in an escrow account to be released by the solicitors when the promised level of security was in place. The investors brought claims against the solicitors when the schemes failed; the money having been lost as it had been wrongly released to the developers without the proper security.
For each development there were contractual arrangements including a trust deed and escrow agreement. In each the investors were involved in a common scheme to provide the developers with working capital. However the development schemes were independent of each other.
At first instance Teare J found that the claims arose from similar acts or omissions, and that finding has not been challenged on the subsequent appeals. However they did not aggregate because it was held they could only be related if they were in some way interconnected or if the transactions were conditional or dependent on each other and these were not.
The judgment in AIG’s appeal to the Court of Appeal was in April last year. Longmore LJ concluded that Teare J had gone rather too far in his approach. Largely adopting the position of the SRA (who had intervened in the action), he found there must be some sort of intrinsic rather than remote relationship; not just an extrinsic relationship with a third factor. The wider interpretation of aggregation sought by AIG having been rejected the case was sent back to the Commercial Court to reach a determination in accordance with the guidance that had been given.
For a more detailed account of the background to the claim; the first instance decision and that of the Court of Appeal see here for our previous newsflash Aggregation in solicitor’s pi policies – Court of appeal orders “A fresh start”.
The Supreme Court
Rather than allow the matter to go back to the Commercial Court and be decided there on the basis of the Court of Appeal’s interpretation of the aggregation clause in the MTC, AIG chose to appeal to the Supreme Court. That decision has now been vindicated, even though AIG was not entirely successful.
Lord Toulson, giving the lead judgment, did not find the Court of Appeal’s approach and in particular the requirement for an intrinsic relationship, to be necessary or satisfactory. His view was that whilst the word related implies that that there must be some form of interconnection between the matters or transactions (they must in some way fit together); it was deliberate that no further definition was given in the MTC. This approach in the drafting recognised the wide range of transactions in which solicitors are involved and to which the clause might apply.
Released from the constraints of the Court of Appeals’ interpretation and objectively taking the transactions in the round, Lord Toulson declared himself satisfied that the claims of the investors for each of the two developments aggregated. They were a series of related transactions; the investors being co-beneficiaries with the common objective of progressing the particular development project. So far so good for insurers’ appeal.
However Lord Toulon was not convinced that the claims of the Peninsula Village investors aggregated with those of the Marrakech investors. Whilst the development companies were related and the legal structures of the development projects were similar, the projects themselves were separate – with different sites; different investors and different deeds of trust over different assets. Based on the detail before the court he concluded AIG could not aggregate the claims of the Peninsula Village investors with those of the Marrakesh investors.
What this means for you
What now for the parties here? The Supreme Court was mindful that it hadn’t been fully addressed on the facts and so gave the opportunity for the case to go back to the Commercial Court to determine the aggregation issue finally with the benefit of full submissions. But whether the parties have the appetite for that remains to be seen, and it may be more likely that a deal will now be done based on the fairly clear markers laid down. AIG had primarily argued for one claim thereby limiting its exposure to £3 million but now faces a capped liability of £6 million which is at least an improvement on where it probably stood following the earlier decisions.
Taking a wider view, the judgment essentially adopts a middle course between the position argued by AIG and the previous judgments of Teare J and the Court of Appeal. There’s been a clarification that the necessary relationship between the matters under consideration for aggregation is not to be constrained by a stipulation that only certain types of relationship will suffice (such as the Court of Appeal’s intrinsic requirement) when there’s no such qualification on the word related in the MTC. That said a striking similarity between matters or transactions is not enough to amount to the relationship necessary to allow for aggregation. The use of the word related requires some interconnection between the matters or transactions for there to be aggregation.
Aggregation clauses have to cater for what Lord Toulson described as the very wide range of transactions which may involve solicitors providing professional services, and the draftsman of the MTC left the expression related matters or transactions to stand in isolation without any limitation on its meaning of the sort suggested by the Court of Appeal. It is therefore hardly surprising that the Supreme Court’s judgment does not provide a definitive answer to future questions on aggregation, which will continue to turn on their facts. But by re-focusing attention on the wording itself, rejecting the notion that it is necessary to imply anything further, and highlighting that similarity of transactions, however striking, is not itself enough to amount to a relationship between them, the judgment should make such questions easier to determine.
If the Supreme Court has not gone as far as AIG argued for in this case, it has at least moved closer to that position than either the Court of Appeal or the Judge at first instance. And whilst being able to collect a second policy excess may be of little consolation to an insurer facing two £3 million claims rather than one, there will of course be other situations where the decision works against an insured by requiring payment of separate excesses on multiple claims that are similar in nature but not actually related. All things considered it therefore seems unlikely that the judgment will generate any real clamour to change the wording of the MTC.