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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Lloyds TSB General Insurance Holdings Ltd & Anor v Lloyds Bank Group Insurance Company Ltd & Anor [2001] EWCA Civ 1643 (8 November 2001) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2001/1643.html Cite as: [2001] EWCA Civ 1643, [2001] Pens LR 325, [2002] Lloyds Rep IR 113, [2002] CLC 287, [2002] Lloyd's Rep IR 113, [2002] Lloyd's Rep PN 211, [2002] 1 All ER (Comm) 42

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IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL Thursday 8th November 2001

LORD JUSTICE POTTER:

INTRODUCTION

1. This is the appeal of the defendants in two actions from the judgment of Moore-Bick J dated 5^th October 2000 on a preliminary issue common to both actions. The issue was determined on assumed facts and relates to the construction of an aggregation clause in two policies of insurance. The answers to the questions contained in the preliminary issues before the judge determined whether or not the underwriters of the policies were potentially liable for claims totalling some £100,000,000 in relation to pensions mis-selling by the salesmen of the claimants in the course of pension transfer business transacted in the wake of the Financial Services Act 1986 ("the FSA") during the years 1988 to 1995.

THE BACKGROUND FACTS

2. All but one of the claimants in the two actions are companies which offered or were involved in the provision of personal pension plans to members of the public. The provision of financial services of this kind is regulated by the FSA, which imposed upon the financial services industry a regime of self-regulation under the auspices of a supervisory body, the Securities and Investment Board ("SIB"). The provision of financial services in the form of personal pension plans was, until 18 July 1994, regulated by the Life Assurance and Unit Trust Regulatory Organisation ("Lautro"). After that date the regulatory function was transferred to the Personal Investment Authority ("PIA"). In order to become and remain authorised to carry on their business it was necessary for the claimants to comply with the rules of the successive regulatory bodies.
3. By the Social Security Act 1986, employees who were entitled to benefits under occupational pension schemes became entitled to invest for their retirement into private pension plans instead. As the judge summarised it below, there were three distinct categories of employees who might be tempted to invest into personal pension plans rather than to take the benefits available to them under their occupational pension schemes: those who had left the relevant employment but had a vested right to benefits at a future date and might be inclined to transfer the cash value of those benefits to a personal pension plan; those who were currently employed who might be tempted to opt out of the existing occupational scheme in favour of having contributions paid into a personal pension plan; and those who had just become employed and who might be tempted to invest in a personal pension plan rather than join the occupational pension scheme available to them. The considerations for and against taking out a private pension plan rather than retaining or taking up benefits under an occupational pension scheme would be likely to differ in each type of case. Within each category much would depend on the benefits offered by the scheme, the personal circumstances of the beneficiary and his own preferences. An informed decision based on a fair comparison between the costs and benefits attached to his membership of the occupational scheme and those attached to a personal pension plan called for a careful appraisal of the occupational scheme as well as the pension plan being offered.
4. In connection with the soliciting of personal pension plans from members of the public, the rules of Lautro were framed in such a way as to require its members to ensure that their representatives were obliged to, and did, comply with the Code of Conduct when selling pension plans to the public. One of the purposes of the Code of Conduct was to ensure that members and their representatives exercised due skill and care in providing services to the public and took proper account of the interests of investors. In this respect it specifically obliged representatives to give investors what was compendiously described as 'Best Advice'. This included an obligation on the representative to make a comprehensive study of the investor's need to make any investment and of his or her financial resources, as well as a positive duty not to advise an investor to give up rights under an occupational pension scheme unless the representative bona fide believed it to be in the investor's best interests to do so. These duties could not be discharged in relation to any of the three categories of employees without carrying out a full analysis of the benefits available to them under the relevant occupational scheme and the costs of obtaining similar benefits elsewhere.
5. At this point it should be noted that members of Lautro such as Lloyds TSB and Abbey National who are providers of financial services under the FSA are personally rather than vicariously liable for the failure of their employees to give Best Advice or otherwise comply with the rules of Lautro which impose no direct duty upon representatives to comply with the Code of Conduct, but only the duty to ensure compliance to which I have already referred.
6. In due course there were a large number of claims made by investors to whom representatives of the various claimants had sold personal pension plans. All claims were based on allegations that the representatives had failed to give Best Advice to the third parties concerned, in particular by failing to provide a proper comparison between the costs and benefits attached to the different courses of action being considered and by failing to explain that it would be in their interests to remain members of their existing occupational pension schemes, or to join such schemes when they were eligible to do so, rather than invest in new personal pension plans. The amount of each individual claim was relatively modest (we were informed that the highest was in the region of £35,000); however, there was a large number of claims which, if aggregated, reached a total of some £125,000,000. The two principal reasons for the high total in respect of the period concerned were, first, the large scale of the financial services business of the TSB group. Second, the number of claims was stimulated and concentrated by the decision of the SIB to require member of Lautro to seek out claimants rather than waiting for claims to come in. Members of Lautro were obliged to trawl critically through their files and intimate the possible existence of a claim to members of the public affected. This led to the accumulation and concentration within a relatively short period of a large number of diverse claims arising out of separate incidents of mis-selling over a number of years, to the large total already mentioned.

THE RELEVANT POLICY TERMS

7. The material clauses in the Lloyds TSB and Abbey National policies were drafted in similar though not identical terms. Both before the judge and before this court the parties have agreed that the differences which exist between the wording of the two policies do not dictate any difference in outcome upon the question of construction before the court and in this respect, like the judge below, I shall concentrate on the wording of the Lloyds TSB policy.
8. The Lloyds TSB policy was originally issued to TSB Group plc as the assured. It was entitled 'Bankers Composite Insurance' and covered the main operating companies of the TSB Group, which had not yet merged with Lloyds Bank. Those companies included the TSB Bank itself, a major 'retail' bank with many branches; Hill Samuel, the well known merchant bank and its associated leasing and asset management companies; and a number of traditional hire purchase companies such as United Dominions Trust Limited. All three sections insured specified losses up to £99,137,500 in the aggregate with a Deductible of £1,000,000 each and every loss. In the case of the Abbey National policy the losses were insured up to £10,000,000 in the aggregate with the same deductible.
9. Section 1 covered losses arising from the fraudulent acts of employees of the insured, as well as loss of and damage to a wide variety of physical property and securities. It also covered forgery and transit risks which extended beyond the Group's employees. There was no aggregation clause.
10. Section 2 related to computer and electronic crime. Again there was no aggregation clause.
11. The Insuring Clause of Section 3 was in the following terms:

"This Policy subject to its terms, exclusions, limitations and conditions provides an indemnity to the Assured in respect of the Assured's legal liability to third parties for any third party claim … which meets the following requirements:

Any third party claim must:

(i) be for compensatory and/or restitutionary damages; and

(ii) be first made against the assured during the policy period and

(iii)(a) be for financial loss caused by a negligent act, negligent error or negligent omission on the part of an Officer or Employee of the Assured; or

(b) be for financial loss caused by a breach of trust on the part of the Assured or an Officer or Employee of the Assured; or

(c) be for financial loss caused by a breach of fiduciary duty on the part of [etc] ..; or

(d) be for a financial loss caused by a breach of professional duty on the part of [etc] ..; or

(e) be for financial loss caused by a misrepresentation on the part of [etc] ..; or

(f) be for financial loss caused by defamation on the part of [etc] ..;or

(g) be for financial loss caused by a breach on the part of the Assured or an Officer or Employee of the Assured of the provisions of the Financial Services Act 1986 (including without limitation any rules or regulations made by any Regulatory Authority or any Self-Regulatory Organisation pursuant to the provisions of the Act) or any other statute enacted in the United Kingdom, or the Channel Islands including breach of a statutory duty in respect of which civil liability arises on the part of the Assured; …"

12. Condition 2 of Section 3 provided as follows:

"Deductible

Subject to the Limit of Indemnity, the Underwriters shall be liable only for that part of each and every third party claim during the Policy Period … which exceeds the Deductible stated in Item 7 of the Schedule. [i.e. £1,000,000]

The Deductible shall apply to each and every third party claim and shall be subject to no aggregate limitation.

If a series of third party claims shall result from any single act or omission (or related series of acts or omissions) then, irrespective of the total number of claims, all such third party claims shall be considered to be a single third party claim for the purposes of the application of the Deductible."

13. Paragraph 2 of an endorsement attaching to Section 3 provided:

"Where the term "act or omission" appears in the conditions or exclusions of Section 3 of this Policy it is agreed that it shall be deemed to mean

(a) negligent act, negligent error or negligent omission as described in Insuring Clause (iii)(a), and

(b) breach of trust …

(c) breach of fiduciary duty …

(d) breach of professional duty …

(e) misrepresentation …

(f) defamation …

(g) breach of the provisions of the Financial Services Act 1986 (including rules or regulations made by any Regulatory Authority or any Self Regulating Organisation pursuant to the provisions of the Act) … as described in Insuring Clause (iii)(g) and (h) …"

13. As already indicated, the Abbey National Policy, which was in the form of a 'Lloyd's Financial Institutions Professional Indemnity Policy', contained clauses drafted in similar (though not identical) terms to those of the Lloyds TSB Policy. It is unnecessary to set out the Insuring Clause. However, for the sake of completeness, I set out Condition 2 which provided as follows:

"DEDUCTIBLE

… the Underwriters shall be liable only for that part of each and every third party claim during the Policy Period .. which exceeds the Deductible …

The Deductible shall apply to each and every third party claim and shall be subject to no aggregate limitation.

If a series of third party claims shall result from any single negligent act, negligent error or negligent omission (or related series of negligent acts, negligent errors or negligent omissions) then, irrespective of the total number of claims, all such third party claims shall be considered to be a single third party claim for the purposes of the application of the Deductible."

THE PRELIMINARY ISSUES

14. The preliminary issues were as follows.

In the Lloyds TSB action:

"Whether, as is alleged in Paragraph 14A of the amended Particulars of Claim, the Mis-Selling Claims constitute a series of third party claims which resulted from:

(1) A single act or omission by the TSB Companies their officers or employees, as pleaded in Paragraph 15 of the Amended Particulars of Claim, or

(2) A related series of acts or omissions by the TSB Companies their officers or employees as pleaded in Paragraph 16 of the Amended Particulars of Claim

and are therefore to be considered a single third party claim subject to a single Deductible for the purposes of Condition 2 of the PI Policy."

15. In the Abbey National action:

"Whether the third party claims for which the Claimant was liable were the result of

(a) a single negligent act, error or omission and/or breach of duty under the Financial Services Act 1986 and Lautro and SIB Rules applicable to it between 1988 and 1994; alternatively

(b) a related series of such acts, errors, omissions and/or breaches of duty under the Financial Services Act 1986 and Lautro and SIB Rules applicable to it between 1988 and 1994

and accordingly fall for the purposes of determining the Deductible under the Insurance Policy to be regarded as a single third party claim."

16. For the purposes of the trial of the preliminary issues, the court was required to assume that all the facts pleaded in the Particulars of Claim in each case are true, and that the claims in question fall within the insuring clauses of the policies and that the acts and omissions on the part of the claimants are acts and omissions as therein defined.
17. The relevant facts to be assumed as having given rise to the claims, as set out in the copious pleadings may be summarised as follows. The contact between the claimant companies and their individual investors was the Financial Service Consultant ("FSC") who was in fact a sales representative. It was part of his job to interest existing members of occupational pension schemes, or employees who were entitled to become members of such schemes, in providing for their retirement by taking out a personal pension plan in preference to the occupational scheme. If the FSC was to be in a position to give Best Advice as required by the Code of Conduct, he required training and instruction in order to be made aware of the nature and extent of his obligation and to be provided with the means to fulfil it, such as the provision of tables or other reference material which might be needed to enable him to carry out the necessary calculations. This was the responsibility of management. However, those in management responsible for developing the business of selling personal pension plans failed to give proper consideration to what was involved in the provision of Best Advice by FSCs to potential investors or, if they did consider the matter, they failed to appreciate that it was necessary for the FSC to carry out a detailed evaluation of the costs and benefits attaching to an occupational scheme before advising an investor whether it was in his interests to opt for a personal pension plan in its place. Schedule 3 to the Particulars of Claim in the Lloyds TSB action sets out in some detail the nature of the failures complained of and the criticisms made. It is common ground that the matters relied on amounted to a systemic failure of the companies within the Lloyds TSB and Abbey National groups properly to assimilate the effect of the provisions of the FSA and the regulatory rules made thereunder, and/or to appreciate the Best Advice responsibilities of the FSCs when pension-selling and/or to institute a proper scheme of training and instruction to ensure that such responsibilities were carried out.

THE FSA

18. S.62 of the FSA provides that:

"(1) … a contravention of –

(a) any rules or regulations made under this chapter …

shall be actionable at the suit of a person who suffers loss as a result of the contravention subject to the defences and other incidents applying to breach of statutory duty.

(2) Sub-section (1) applies also to a contravention by a member of a recognised self regulating organisation … of any rules of the organisation or body relating to a matter in respect of which rules or regulations have been or could be made under this chapter …"

THE LAUTRO CODE

19. The rules of Lautro so made and binding on its members (including the various claimant companies), which are of particular relevance to the issues before us appear in Part III of the Rules headed 'Selling Practices'. Under the further heading 'Compliance with the Code of Conduct', Rule 3.4 provides:

"(3) the Member shall make arrangements … for the monitoring of the performance of its company representatives to ensure that they comply with the Code of Conduct (insofar as it applies to them) …

(4) The Member shall-

(a) ensure that its company representatives comply with the Code of Conduct (insofar as it applies to them);"

20. The Code referred to is that set out in Schedule 2 to the Rules under the heading 'Code of Conduct for Members and Company Representatives'. Under the further heading 'Best Advice to be given', Rule 6 provides:

"A company representative who, in the course of any relevant investment business, has dealings with an investor-

(a) shall give the investor all information relevant to those dealings and that information shall in particular include the information required to be disclosed in such dealings by Part V of these Rules;

….

(e) shall not advise the investor to convert, cancel or allow to lapse any investment contract or realise any investment under an investment contract unless the representative has previously –

(i) … made a comprehensive study of the investor's need to make any investment and of his financial resources; and

(ii) disclosed to the investor all relevant consequences and disadvantages likely to follow from the action advised including in particular the loss of Life Assurance Premium Relief …

and the representative shall not in any event advise the taking of such action unless he bona fide believes it to be in the interests of the investor."

21. Rule 7 provides:

"A company representative shall not advise an investor on the purchase of any investment contract unless he is authorised by the Member to sell that contract or on any matter unless he is competent to advise on that matter."

22. Rule 8(1) provides:

"A company representative shall, in advising an investor as to the suitability for that investor of any investment contract, have regard, in particular, to the investor's financial position generally, to any rights he may have under an occupational pension scheme or the State Earnings Related Pension Scheme (such rights are relevant in a particular case) and to all other relevant circumstances; and he shall use his best endeavours to ensure

(a) that he recommends only that contract or those contracts which are suited to that investor; and

(b) that there is no other contract available from the member … which would secure the investor's objectives more advantageously."

23. Rule 12 provides:

"A company representative shall so far as practicable ascertain all details relating to an investor and his particular circumstances as may be required for the purpose of complying with any duty in this Code or to enable the Member to comply with any requirement of these Rules."

THE DECISION OF THE JUDGE

24. Before the judge the primary submission for the claimants was the compendious one that, under the aggregation clause, the third party claims were a series of claims which all resulted from a single act or omission (or related series of acts or omissions), namely the collective failure of the management of the claimant companies properly to train FSCs so as to enable them to give investors Best Advice as required by the Code. For the defendants it was conceded (as was pleaded and assumed for the purpose of the issues) that the failure of FSCs to give Best Advice was the result of the failure of management to give them proper training or equipment for their task. It was also accepted that the various third party claims could properly be described as a series of claims. However, the defendants argued that, in the context of the policies before the court, the relevant and causative failure (and that relied on by the third parties in each of their claims) was the failure of the FSC in each case to give Best Advice rather than the underlying failure of management asserted by the claimants. Accordingly, although there was a series of claims, they did not result from (i.e. were not caused by) a single act or omission or a series of acts or omissions. Nor were the individual failures of the FSCs to be regarded as a related series of acts or omissions for the purposes of the bracketed words in the aggregation clause.
25. In considering the wording of the aggregation clause, the judge was referred to various authorities which drew a broad distinction between clauses in which aggregation is based on an originating event and those where it is based on an originating cause, the latter generally bearing a broader meaning than the former. However, in the light of the language of the instant aggregation clauses (i.e. act or omission, rather than cause or event) the judge derived little assistance from the authorities. Further, in the light of the nature of the wide-ranging commercial operations insured under the policy, the judge derived no assistance from the submission for the claimants that the high level of the deductible meant that the aggregation clause was unlikely to have practical application save in exceptional circumstances. Nor did he accept that, at the time the policies were entered into, there was knowledge of the likely widespread incidence of pension mis-selling as part of the commercial background to the policies.
26. In construing the scope of the aggregation clauses, the judge treated the words 'resulting from' as importing the notion of causation in a manner which left open the question of whether (as the defendants argued) it was necessary for the claimants to show that several claims were proximately caused by the same act or omission, (in the sense that the management failures were the dominant, effective or real cause, as he put it) or whether (as the claimants argued) a broader test was applicable, more generous to the assured. As the judge put it the real question was:

"Whether the expression 'resulting from' in the aggregation clause means the same as 'caused by' in the insuring clause, and if so, whether the series of losses represented by the pension mis-selling claims were proximately caused by the failure of management properly to train the FSCs." (paragraph 22 of judgment)

27. However, having posed that question, the judge declined to become bogged down in it, by reason of what he regarded as the broad purpose of the aggregation clause. He observed:

"24. … Although the distinction between the language used in the insuring clause and that used in the aggregation clause tends, if anything, to support the claimants' argument, the meaning has to be collected from the clause as a whole and from the context in which it is found. The purpose of the aggregation clause is quite different from that of the insuring clause and one cannot therefore assume that when the parties were dealing with causation they had precisely the same concept in mind. The purpose of any aggregation clause is to enable two or more separate losses covered by the policy to be treated as a single loss or deductible for other purposes when they are linked by a unifying factor of some kind. The unifying factor may be the proximate cause of each individual loss (e.g. the storm which damages many buildings) or it may be a cause of a more remote kind (e.g. a misunderstanding of some aspect of the business). In the present case the policy provides cover against losses caused by a range of acts and omissions committed by officers or employees of the insured generally ... Construing the aggregation clause as restrictively as Mr Brindle suggested would not necessarily ... deprive it of all effect. However, the term 'act or omission' in the aggregation clause means act or omission of the kind described in the insuring clause. Those acts or omissions may be committed by any officer or employee."

28. The judge stated that he considered that the clause simply required one to ask as a matter of common sense whether the series of claims in question was the result of an act or omission of that kind. There was no requirement to draw the same distinction between proximate causes and less direct causes as would be required by the insuring clause; that was supported by the fact that the unifying factor could be a related series of acts or omissions. He said:

"I have no doubt that in common sense terms all the third party claims in the present case did result from a failure on the part of management to provide the training required to enable the FSCs to give proper advice to investors. Whether that failure should be regarded as a single act or omission on the part of the assured or as a related series of acts or omissions on the part of those engaged in the management of the business does not matter. In either case the insured is entitled to aggregate the claims for the purposes of the deductible." (paragraph 24 of judgment)

29. The judge said that it was thus unnecessary to decide whether the failure of the management to provide proper training for the FSCs was the proximate cause of the third party claims. He went on to reject the defendants' submission that the companies' failure to train the FSCs properly did not in itself cause any financial loss to the third parties, such loss being caused only when the investor entered into a plan relying on the inadequate advice given by the FSC; and that, although the companies' acts and omissions might have provided the opportunity for the FSCs to give inadequate advice, it was the giving of that advice rather than the acts or omissions of the companies which was the cause of the third party claim in each case. The judge found that the management failure to train the FSCs was the real or effective cause of the third party claim, in that it rendered 'virtually inevitable' the failure of the FSCs to give Best Advice as a result. He held that in that sense such failure by the FSC was no more than a link, albeit a vital link, in the chain of events leading from the breach of duty by the management to the loss sustained by the third party. He thus concluded that:

"The claimants were right, therefore, in saying that their own failure to ensure that the FSCs were properly trained and supervised can properly be regarded as a proximate cause of the liability to the investor in each case. On the facts alleged in the points of claim it was in my view the dominant cause." (paragraph 27 of judgment)

30. Finally, the judge held that, even if the defendants were right in saying that the words "resulting from" made it necessary to confine oneself to individual failures on the part of FSCs to give Best Advice, those individual failures were nonetheless linked by the common factor that they were the result of the failure of the management to provide proper training for the FSCs. This link was sufficient and appropriate for them to be regarded as a related series of acts or omissions, so that they fell within the words contained in brackets in the aggregation clause. He stated:

"30. … I can find no indication that the words in parentheses were intended to be construed more narrowly than would naturally be the case. They were obviously intended to extend the range of unifying factors beyond that of the single act or omission; the only restriction on the series of acts to which these words refer is that it (or they) be related. Although as a matter of syntax the word 'related' governs the word 'series', the sense of the expression is in my view clear: the acts or omissions which constitute the series must be related in some relevant way. It follows that if the words 'result from' did have to be read as narrowly as Mr Brindle suggested, it would still be necessary to ask whether the individual failures on the part of the FSCs to give Best Advice which had caused the series of third party claims to arise themselves constituted a related series of acts or omissions in the sense I have described. In my view they did. The only requirement is that the acts or omissions making up the series should be 'related'. This seems to me to be capable of being given a wide construction, but I have little doubt that in a policy of this kind it is apt to cover a series of acts and omissions which are directly attributable to a single underlying cause of a kind which is itself within the scope of the cover provided by the policy. Accordingly, on this basis too, I would hold that the claimants were entitled to aggregate third party claims arising in the manner set out in the points of claim."

THE GROUNDS OF APPEAL

31. Upon this appeal, Mr Sumption QC, who did not appear below, has altered the focus of the defendants' submissions from the arguments of causation which pre-occupied the parties before Moore-Bick J and has concentrated upon the interrelationship of the Insuring Clause and the Aggregation Clause which he submits is the key to the proper construction of the latter and should have led the judge to a conclusion contrary to that which he reached. Mr Sumption's submissions may be summarised in this way.
32. (1) He emphasises that the words act or omission in the aggregation clause mean the relevant negligent act, breach of duty or breach of the 1986 Act and Lautro Rules specified in the insuring clause (see text at paragraph 11 above). Not only do the words and context so suggest, but paragraph 2 of the Endorsement to Section 3 expressly so provides (see paragraph 13 above).
33. (2) The insuring clause identifies the breaches of duty which must be the basis of the third party claim against which indemnity is provided. Thus, by use of the phrase act or omission and the requirement that the claims to be aggregated must result from such act or omission, the aggregation clause necessarily refers to the basis of the third party claim.
34. (3) The use of the phrase shall result from is thus not concerned with some antecedent state of affairs or underlying cause which in turn constitutes the reason for the assured's breach of duty. By its express terms, the causal link is simply to the breach of duty (i.e. act or omission) itself.
35. (4) Furthermore, in each of the third party claims the claim against which indemnity is provided is based on the defendant's breach of duty in their manner of dealing with the claimant, i.e. in the failure of the FSCs to give Best Advice. The claimant neither pleads nor is concerned with the underlying reasons such as some failure in training. It is the inadequacy of the advice given which founds the claim which is brought and it is thus the act or omission referred to by the aggregation clause.
36. (5) It is no answer to the above analysis to assert, as the judge in effect held, that the systemic failure in training and monitoring was itself the mode of breach of the aggregation clause, being an act or omission (or series of acts or omissions) for that purpose. That is because (i) by the definition in paragraph 2 of the Endorsement, one is directed to the act or omission in the insuring clause which defines the type of claim against which indemnity is granted; (ii) Under paragraph 3(g) of that clause, breach of the rules of Lautro is only within the insuring clause if it is one in respect of which civil liability arises on the part of the Assured. The claims of the third parties are based on, i.e. arise from, the absolute duty of the claimant companies to procure a particular result i.e. the giving of Best Advice (see clause 3.4.(4) of the Lautro rules at paragraph 20 above). It neither necessitates nor gives rise to a separate or independent duty to the third party in respect of the training or monitoring of FSCs, because Rules 3(3) and (5) which relate to monitoring and the ensuring of competence, impose no more than regulatory obligations enforceable by Lautro rather than duties owed to or enforceable by a member of the public.
37. (6) Even if the rules give rise to an independent duty on the part of the claimants to monitor and train, it is not the relevant breach for the purposes of the aggregation clause, because it is not relevant to the third party's claim which is simply founded on breach of the Best Advice obligation (cf the reasoning of the court in BF Caudle and others –v- Alec Sharp and others [1995] LRLR 433(CA)). Even if a breach can be demonstrated, it is still no more than the historical explanation for the relevant, i.e. operative breach.
38. (7) If upon those principles, the systemic oversight and failure of the claimants in respect of the FSCs was not a single act or omission for the purposes of the aggregation clause, then neither could it be properly be regarded as a related series of acts or omissions. The bracketed words in the aggregation clause merely enlarge its scope by applying it to cases where the relevant loss the subject of the third parties' claims was produced by the combined effect of more than one act or omission. The intention is to permit aggregation where multiple claims result from a series of acts or omissions, no one of which suffices to produce the loss or losses claimed but the combination of which has undoubtedly done so. If, as the judge effectively held, it were enough to justify aggregation that the claims related simply to similar acts or omissions, having a common origin in some antecedent state of affairs, the effect of the bracketed words would be so wide as to render the preceding words result from any single act or omission redundant. If the intention were to refer to a relationship with a common originating cause, one would expect to see wording to that effect.
39. (8) Given that the substance of the third party claims was that they had not received Best Advice from the FSCs, a 'common sense' approach to construction (see paragraph 29 above) should not have led the judge to conclude that the negligent management failure by the claimants to provide the necessary training to the FSCs was an act (or related series of acts) as defined in the policy; rather he should have concluded that it was simply a failure or state of affairs which made the relevant breach of duty more likely to occur.

DISCUSSION

"a series of third party claims"

40. It has not been in issue here or below that the third party claims relied on by Lloyds TSB and Abbey National are 'a series of third party claims' for the purposes of the aggregation clause.

"shall result from"

41. The judge accepted the submission of the claimants that the use of the words result from rather then the expression caused by meant that there was no requirement to draw the same distinction between proximate and less direct causes (see paragraph 29 above) and that, putting the matter as a broad question 'did the claims result from a failure on the part of the management to train the FSCs', he had no doubt that, in terms of causation, such failure was the dominant cause. In that context, however, he observed that, whether the failure was regarded as a single act or omission or a related series of acts or omissions did not matter. I have considerable sympathy with that approach. However, I do not agree with it. In my view the expression result from undoubtedly imparts the notion of causation which in turn, in all branches of insurance law, involves application of the notion of proximate cause, applied with good sense, so as to give effect to and not to defeat the intention of the parties. It does not depend on nice distinctions between the particular varieties of phrase used in particular policies to express the causation of the loss; see Lawrence –v- Accidental Insurance Co (1881) 7 QBD 216 at 220. As observed by Lord Sumner in Becker Gray & Co –v- London Insurance Corporation [1918] AC 101 at 112:

"Proximate cause is not a desire to avoid the trouble of discovering the real cause or the 'common sense cause', and, though it has been and always should be rigorously applied in insurance cases, it helps one side no oftener than the other. I believe it to be nothing more nor less than the real meaning of the parties to a contract of insurance."

'single act or omission'

42. In that spirit, it seems to me that a requirement that the third party claim should result from a single act or omission is a phrase which is ill-adapted and, indeed, not intended, to refer to what Mr Sumption has characterised as an antecedent state of affairs or underlying reason for the breach of duty directly causing loss.
43. The reasoning of the Court of Appeal in the case of Caudle –v- Sharp (supra) provides a good analogy although concerned with very different facts. In that case, names at Lloyds had sued their managing agency and members' agents claiming that they were liable for the alleged negligence of the active underwriter of the syndicates, Mr Outhwaite, in writing thirty-two run off contracts which gave rise to heavy losses. Having paid out on those claims, the underwriting agents' errors and omissions insurers sought recovery from reinsurers under four excess of loss insurance contracts. The question at issue was whether, for purposes of aggregation, the losses arose from 32 separate events, namely the underwriting of each of the run off contracts, so that 32 retentions would be applied, or were, as arbitrators held, a 'series of losses … arising out of one event', namely Mr Outhwaite's failure to conduct the necessary research and investigation into the nature and extent of the underlying risks insured. It was held at first instance that Mr Outhwaite's failure to take the steps he should have taken was a state of affairs in the nature of 'one event' out of which the losses eventually arose.
44. This court held that the relevant event was the writing of the policies. The ignorance of Mr Outhwaite was a state of affairs which could not properly to be regarded as an 'event'. However, even if it could properly be regarded as an event, it was not a relevant event because it did not manifest itself unless or until Mr Outhwaite wrote one-off policies; see in particular the reasoning of Evans LJ at [1995] LRLR p.439 and the first paragraph of his conclusions at p.440.
45. I accept the burden of Mr Sumption's submissions (1), (2) and (4) to the effect that the words act or omission in the aggregation clause are, by the 'deeming' paragraph 2 of the endorsement to section 3, restricted to and co-terminous with the acts or omissions which give rise to the liability to a third party claimant and causes his financial loss. In the instant cases the relevant liability and/or the acts or omissions which caused the loss are those specified in insuring clause (iii)(a) and (g). That being so, and the focus being upon the act or omission relied upon by the third party as causative of his loss, I agree also that the relevant act or omission and/or the means by which the loss is caused is the failure of the claimants through their FSCs to give Best Advice to the third party. There can be no doubt that such an omission is the proximate cause of the loss in the sense that it is immediately causative of such loss and that, without it, there could be no third party claim. The only question is whether, as the judge held, it is right to regard the underlying general failure of management to monitor and/or train FSCs generally as the dominant cause of the loss because, as he put it, there was:

"no basis on which it can be said that, where the company had failed properly to train the FSC, his failure to give Best Advice could be regarded as eclipsing the company's breach of duty so as amount to a novus actus interveniens." (paragraph 27 of judgment.)

46. I do not think that is the correct analysis. I say that, not because the failure of management was other than an extremely potent cause which gave rise to the failure of the individual FSCs to give Best Advice, but because I do not consider it came within the definition of act or omission as contemplated by the insuring clause, and hence by the aggregation clause. In this respect, I am inclined to accept submission (5) of Mr Sumption to the effect that the duty of the members of Lautro to monitor and ensure the competence of their FSCs were no more than regulatory duties not giving rise to duties directly enforceable by action by a member of the public.

'related series of acts or omissions'

47. Whether or not that is so, however, I consider that the judge was correct when he held that the series of claims fell within the aggregation clause being the result of a related series of acts and omissions.
48. The judge set out his reasoning clearly and succinctly in paragraph 30 of his judgment which I have already quoted at paragraph 31 above. I can do little better than repeat it.
49. In this respect the focus is not upon the test for causation imported by the words result from but upon the scope and meaning of the term related. In my view it is plain that a series of acts or omissions may be related by reason of having a single underlying cause or common origin. While it is not necessary that such underlying cause or common origin should itself be an act or omission as described in the insuring clause this is a case (as the judge pointed out) where that cause or origin consists of a failure to institute a system of training, supervision and monitoring of the very type which is expressly (in the case of monitoring) or impliedly (in the case of training and supervision) required under Lautro rules. Like the judge, I consider that the word related is wholly apt to apply to a series of acts or omissions which are of an identical or very similar nature and which share a common causal origin of that kind. I also consider that there is no warrant for placing upon the use of the word related in the aggregation clause the restricted interpretation argued for by Mr Sumption.

CONCLUSION

50. Accordingly I consider that the claims in this case fall within the aggregation clause. I would answer the question in the Preliminary Issue in the Lloyds TSB action as follows:

"The claims resulted from a related series of acts or omissions by the TSB Companies their officers or employees and are therefore to be considered a single third party claim subject to a single deductible for the purposes of the policy."

and in the Abbey National action as follows:

"The claims were the result of a related series of acts, errors, omissions and/or breaches of duty under the Financial Services Act 1986 and Lautro rules applicable to the claimant between 1988 and 1994."

LADY JUSTICE HALE:

51. This is a very short point of construction upon which a very large sum of money depends. The relevant wording is different from that in any of the other cases to which we have been referred. They are therefore of very limited assistance. The context, however, is one with which my Lords are very much more familiar than I.
52. I agree with Potter LJ and Longmore LJ that these two 'series of third party claims' did not result from 'any single act or omission'. That term is defined in the endorsement and refers to the conduct giving rise to the third party losses for which the insured is liable as set out in the insuring clause. Those were the individual acts of misselling giving rise to the individual claims, not the systemic management failure which is said to be the explanation for all those individual misdeeds.
53. Clearly 'acts or omissions' in the bracketed words 'a related series of acts or omissions' must have the same meaning. It cannot therefore refer to 'acts or omissions' which do not in themselves give rise to the liability covered. But what makes them 'related'? Family lawyers are familiar with two different types of relationship, kindred and affinity, of which there are many different degrees. Treated as a pure matter of language, many different relating factors and many different degrees of relationship might be considered. The very closest degree would be that suggested by Mr Sumption: i.e. those which had to be combined if there was to be liability at all. The most distant might be those falling within the same category of liability, i.e. any breach of the regulatory code, or arising from essentially similar breaches of the code, as here. But similarity is not the same as relationship: being related involves a connecting factor, such as kindred or affinity. In this context, a linking factor might be that they were all committed by one dishonest employee; or that they all arose from a single underlying cause, as is assumed to be the case here.
54. Hence it would be a surprise if the parties to these contracts intended the aggregation clause to link a large number of small consumer claims even if they arose over a comparatively short period of time and had the same or similar subject matter. But these claims are not only similar in their subject matter, but also (it is assumed) linked to one another by a single underlying cause. In those circumstances it would be a bold family lawyer who would disagree with the conclusion reached by no less than three very experienced commercial judges that they are sufficiently 'related' for this purpose.

LORD JUSTICE LONGMORE:

55. I agree that the appeal should be dismissed. The liability of the claimants arises from the fact that their representatives failed to give "Best Advice" pursuant to the Lautro code. As my Lord explains, that is a personal not a vicarious liability; it is also a liability that does not depend on negligence or any breach of duty of care. Once it is established that "Best Advice" has not been given, liability is automatic. The failure to give "Best Advice" was a breach of the provisions of the Financial Services Act 1986 or the Lautro Rules and constitutes the relevant act or omission for the purposes of (a) the definition of that term contained in paragraph 2 of the endorsement to section 3 of the policy and (b) the Deductible clause in condition 2 of the same section.
56. On the assumption that the faults asserted in the Claimants' Points of Claim can be proved there was thus a series of acts or omissions resulting in a series of third party claims. The only question then is whether that series of acts or omissions is a "related series of acts or omissions" within the meaning of the bracketed phrase in the Deductible clause. It is, no doubt, more appropriate to describe a failure to give "Best Advice" as an omission rather than an act; if a number of different people are responsible for such omissions and such omissions give rise to different losses for different customers, the omissions are nevertheless, in my view, related and constitute a related series of omissions because they are an omission to do the same thing, although the consequences of each omission are, of course, different.
57. Mr Sumption accepted that a "related series of acts or omissions" must be a series of acts or omissions which are related to each other but submitted that the object of the phrase was only to ensure that the clause would cover those cases where a claim resulted from two or more acts or omissions rather than a "single" act or omission. For my part, I have some difficulty with the concept of a claim which is only a claim if it results from two acts or omissions rather than one single act or omission and I cannot believe that the draftsman of the clause was aiming at such a comparatively esoteric concept. It is much more likely that he or she wanted to ensure that the clause should cover the same omission, when it occurred a number of times but caused different loss to different people.
58. For these brief reasons I would affirm the judgment and agree that the preliminary issues should be answered as my Lord proposes.
Order: Appeal dismissed with costs. Permission to appeal was refused. (Order does not form part of the approved judgment)