Brown and Others v GIO Insurance Limited



[1998] Lloyd's Rep IR 201, The Times 18 February 1998, (Transcript: Smith Bernal)







S Kentridge QC and A Popplewell QC for the Appellants; J Hirst QC and M Swainston for the Respondents









This is an appeal from a judgment delivered on 28 January l997 by Langley J. In that judgment Langley J decided what he described as a short point of construction on two special conditions in certain Excess of Loss Reinsurance agreements. He recognised that however short the points might be they were not that easily determined.

Syndicate 7O2 represented by the plaintiff (Mr Brown) underwrote proportions of the Lloyds Agents E&O line slips for the years l988-l99l. These included Members Agents whose Names were placed on the Gooda Walker and Feltrim syndicates who underwrote LMX business. By judgments of Phillips J in Deeny v Gooda Walker [l996] LRLR l83 and Arbuthnot v Feltrim [l995] CLC 437 the Members Agents were held liable to the Names. The agents claimed indemnity under the E&O cover from, inter alia, Syndicate 7O2. The agents' cover was on the basis of a limit of indemnity "any one occurrence or series of occurrences arising from one originating cause". In Cox v Bankside [l995] 2 Lloyds Rep. 437, Phillips J held that the Gooda Walker losses arose from three originating causes. On that occasion the underwriters argued for one originating cause. The Names argued for four originating causes and Phillips J held at p 455 that there were three, viz, each underwriter's approach to underwriting.

Having paid claims, Syndicate 7O2 claimed against the defendants in these proceedings under four contracts of Excess of Loss Reinsurance issued by the defendants, being two layers for l99l (under which Gooda Walker losses were claimed) and two layers for l990 (under which Feltrim losses were claimed). Each of the Excess of Loss Reinsurance contracts provides for an excess and a limit of liability to be calculated on the basis of "each and every loss and/or series of losses arising out of one event".

In three of the four Excess of Loss Reinsurance contracts, Special Condition 9 provided:-

"The Reassured shall be the sole judge as to what constitutes each and every loss and/or one event."

In the fourth Special Condition 9 provided:-

"The Reassured's definition of each and every loss and/or event shall be final and binding on the Reinsurers hereon."

Both parties to this appeal have accepted that there is no difference in meaning between the Special Conditions.

Mr Brown, on behalf of Syndicate 7O2, made claims under the Excess of Loss covers in the following terms. I take as an example the claim made under cover of a letter dated 2l March l995 p.l78:-

"Reinsurers will be aware that the Honourable Mr. Justice Phillips has judged that the approach to underwriting of each underwriter to be a separate underwriting cause. Stan Andrews was the underwriter for Syndicate 298. This presentation therefore follows the Honourable Mr. Justice Phillips determinations."

The reference to Mr Justice Phillips judging was clearly a reference to Cox v Bankside (supra), that judgment being delivered on l6 January l995. As a matter of background to that claim of 2l March l995 we were shown various documents. It appears from a report prepared by a group of underwriters and reinsurers that following the judgments in Gooda Walker and Feltrim, and prior to the decision in Cox v Bankside, there was considerable debate about the definition of an "event" under reinsurance contracts. In that report which was produced in February l995 which is at p 2l8 in the bundle, the following paragraphs appear at p 222:-

"24. Prior to the l6th January judgment, which dealt with the number of events in Gooda Walker (in terms of the original policies) we examined the findings of Justice Phillips in the liability judgment of October l994. Certain extracts from that judgment could have led to a first conclusion that there was only one event. For example: "There are common views in the approach to the conduct of excess of loss by Mr Andrews, Mr Willard & Mr Walker" and elsewhere "The Plaintiffs have pleaded that Gooda Walker were .... in breach of their own duties to manage the underwriting."

25. Any tendency to this view was over-shadowed by the specific comments made by the Judge on the competence on the individual underwriters, for example: "Mr Andrews ..... The recurring theme is the individual incompetence of each of the underwriters and for that reason it was thought that "each underwriter, all years of account" should constitute a separate event, giving three events in all. This notwithstanding that there were four syndicates involved ... because Walker underwrote for both 29O and l64.

27. It was therefore with great interest subsequently to read the following extracts from the judgment handed down on l6 January: .... "

There then followed a quotation from the judgment of Phillips J in Cox v Bankside. It is unnecessary to set out the totality of the quotation. It is sufficient to say that the judge followed the approach of Clarke J in Caudle v Sharp and concluded that "the approach to underwriting of each underwriter was a separate originating cause resulting in the losses suffered by the Names on whose behalf that underwriter was writing business". It is right to stress that in the previous paragraph in the judgment the judge drew no distinction between a single event or originating cause being responsible for negligent acts and consequences, and proceeded on the basis that "one originating cause" had the same meaning and effect as the words "arising out of one event"..

Mr Brown's own thinking appears from a document dated l March l995 at p 2l3 in the bundle. The thrust of that paper is to the following effect. First, Mr Brown believed that the Special Conditions in the reinsurance contracts gave him the right to interpret the contract in an advantageous way to the Syndicate. Second, he took the view that that would have entitled him to disagree with the approach of Mr Justice Phillips and claim on the basis that the Gooda Walker losses were one loss or one event. But, thirdly, notwithstanding as it is put Mr Brown's "distaste for the report of the ad hoc committee" he was offering to follow the recommendations in the spirit of goodwill and flexibility.

In reinsurance policies which did not have wordings equivalent to Special Conditions 9 the subject of the present appeal, the point has been tested as to whether "events" are equivalent to "originating causes". On 27 July l995 in Axa Reinsurance (UK) plc v Field, Phillips J decided that there was no distinction between the "originating cause" formulation in the E&O policies and the "event" formulation in the reinsurance policies which Mr Field had obtained. This decision was upheld by the Court of Appeal [l996] Lloyds Rep 26 on l4 September l995. Following that decision in the Court of Appeal further claims were made by Mr Brown eg. by letter dated 3 October l995 (p 235 of the bundle). He in that letter referred to the decision of the Court of Appeal in Axa v Field and said:-

"This effectively means that there are three originating causes under the direct lineslip and three events as far as the reinsurance contracts are concerned."

This view expressed by Mr Brown was much criticised by Mr Kentridge QC before us for reasons which will appear.

By analogy with the decision in relation to Gooda Walker, Mr Brown in relation to Feltrim made claims based on two events. That appears from a letter dated l6 February l996 (p 264 in the bundle). As appears from that letter the claims were made by reference to two underwriters and as the letter states "collections have been based on two events".

What has given rise to the argument in these proceedings is that in the House of Lords Axa Reinsurance v Field [1996] 3 All ER 517, [l996] l WLR l026 the decision of the Court of Appeal was reversed. It is however important to stress that Axa Reinsurance v Field was concerned with a "follow the settlements" clause in a reinsurance contract. Thus the point at issue in that case was whether a provision in the reinsurance policy which aggregated by reference to "an event" would lead to the re-opening of settlements made under the direct policy aggregated by reference to "originating cause". In that context Lord Mustill expressed the view contrary to that expressed in the Court of Appeal that it was not right to adopt the approach to a reinsurance contract that it should be read if possible to apply back to back with the underlying insurance. He accordingly expressed the following view:-

"The contrast is between "originating" coupled with "cause" in Cox v Bankside and "event" in the present case. In my opinion these expressions are not at all the same, for two reasons. In ordinary speech, an event is something which happens at a particular time, at a particular place, in a particular way. I believe that is how the Court of Appeal understood the word. A cause is to my mind altogether something less constricted. It can be a continuing state of affairs; it can be the absence of something happening. Equally the word "originating" was in my view consciously chosen to open up the widest possible search for a unifying factor in the history of the losses which it is sought to aggregate. To my mind the one expression has a much wider connotation than the other."

Ultimately he regretted being unable to examine the facts and arrive at a basis of aggregation by applying the relevant clause to the facts. That as he said was not what the court had been asked to do and it would thus not be appropriate to do so. But it is important in my view to appreciate that the decision went no further than saying that "an originating cause" and an"event" will not necessarily be the same thing; it equally follows that in some circumstances they may well be precisely the same thing, or at least lead to no different conclusion so far as aggregation is concerned.

It is at this stage worth noting in passing that prior to Axa v Field being decided in the Court of Appeal, the decision of Clarke J in Caudle v Sharp had itself been reversed by the Court of Appeal [l995] Lloyds RLR 433. In Axa v Field in the Court of Appeal, Caudle v Sharp had been distinguished. But the reasoning in Caudle v Sharp would appear to be more consistent with the House of Lords in Axa Reinsurance v Field, than the Court of Appeal in the same case. Caudle v Sharp was concerned with the underwriting of Mr Outhwaite and the question that arose was whether his underwriting of 32 contracts could be described as one event flowing from "his failure to conduct the necessary research and investigation" or "his blind spot" as decided by Clarke J; or whether there were 32 separate events resulting from entry into 32 separate contracts. Evans LJ giving the main judgment said:-

"I would hold that Mr Outhwaite's "blind spot" or "his failure to conduct the necessary research and investigation" does not fall within the natural and ordinary meaning of the word "event" except by reference to each and every occasion when he entered into an insurance contract which given his lack of knowledge it was negligent for him to do. In my judgment his ignorance or failure cannot be regarded as a single event for the purposes of or within the meaning of the clause, and I therefore must hold that the arbitrators' and the judge's conclusions on this issue were wrong in law. There were thirty two separate occasions when Mr Outhwaite's "failure" manifested itself and his ignorance gave rise to an occurrence of negligence, whether an act or omission, which itself gave rise to a claim and a loss under the original policy. But the continuing failure cannot, in my view, properly be regarded in isolation as a single event for the purpose of the clause."

There is in the judgment of Evans LJ considerable discussion in relation to the meaning of the word "event". It is recognised for example that the word in its ordinary meaning can describe an historical event like the Hundred Years War. But since the clause in an insurance contract is concerned with losses arising out of an event, that context "straightaway implies some causative element and some degree of remoteness, or lack of remoteness, which must be established in the circumstances of the particular case".[see p 438]. I stress this point because there is a distinction between the Outhwaite claims and the Gooda Walker and Feltrim claims which it is worth noting at this stage. In the case of Outhwaite his failure to conduct research lead to nothing until he entered into one of the insurance contracts, and once he entered into one contract, the losses on that contract were bound to follow. In the case of Gooda Walker and Feltrim, it was the failure to plan and appreciate the risks to which the names were being exposed which caused the losses; the entry into any particular contract was not an occurrence giving rise to loss; loss flowed from the totality of the underwriting.


Firstly, it is submitted that Mr Brown, by following the approach of Phillips J, has found that the individual underwriter's state of mind constituted an event within the meaning of the reinsurance. It is further submitted that Axa v Field in the House of Lords and Caudle v Sharp in the Court of Appeal have demonstrated as a matter of law that a state of mind cannot constitute an event within the meaning of the reinsurance policies. It is further submitted that Special Condition 9 does not permit Mr Brown to define as an event something which is incapable in law of constituting an event within the meaning of the policy.

Secondly, it is submitted that in any event any decision made pursuant to Special Condition 9 must be made reasonably and in good faith. It is submitted that the question whether the decision is reasonable must be tested objectively. Accordingly it is submitted that since the House of Lords were merely decreeing the law to be that which it had always been, it must have been unreasonable for Mr Brown to define as an event something incapable in law of constituting an event.

Thirdly, in the alternative, it is submitted that since by this process of litigation there has been a postponement of any acting on the decision of Mr Brown, it is still open to Mr Brown to change his previous decision. Indeed it is submitted that it is not only open to him to do so but he is bound to do so having regard to the fact that now following the House of Lords decision it is clearly unreasonable to decide as he did.

The starting point for consideration of the above submissions has to be the ambit of Mr Brown's decision making power under Special Condition 9. Does his power include, for example, an ability to decide questions of construction as well as fact? Having decided the ambit the next task will be to consider whether he made a decision within that ambit. Within that question must be included the question whether his decision was reasonable, and the question whether reasonableness should be tested by reference to the construction the courts would place on terms as at today's date or by reference to the time when the decision was taken. Finally it will be necessary to consider whether if his decision has not been acted on, there is any obligation to reconsider his decision as at today's date.

In relation to ambit there were various threads to Mr Kentridge's argument. First he pointed to the express words of Special Condition 9, and emphasised that what Mr Brown had to decide was what constituted "one event" for the purposes of aggregating losses. What was not a matter for decision was whether there was an originating cause so as to aggregate losses, and in reliance on Lord Mustill's speech in Axa he reminded us that an originating cause was not an event - or, as in my view it should more accurately be put, necessarily an event. Second he reminded us that the ambit of Mr Brown's decision making powers should be construed in a limited way first so as to prevent them falling foul of the rule of public policy relating to ousting the jurisdiction of the court, and in this context we were referred to Lee v Showman's Guild [l952] 2 QB 329, [1952] 2 All ER 1175; Baker v Jones [1954] 2 All ER 553, [l954] l WLR l005; and The Glacier Bay both my decision [l995] l Lloyds Rep. 56O, and in the Court of Appeal [l996] l Lloyds Rep. 37O; and second because where one party to the contract (as opposed to a third party certifier for example) is responsible for deciding a matter within his discretion the court will normally insist on the discretion being exercised not only reasonably but without misdirection of law; see The Vainqueur Jose [l979] Lloyds Rep. 557 at 573-4 and Balfour Beatty Civil Engineering Ltd v Docklands Railway Ltd unreported (tab 2l of Bundle of Authorities).

In The Glacier Bay I attempted to summarise certain of the principles which I felt were established by the authorities dealing with one party to the contract having a decision making power, and with the court's attitude to contractual terms which could be argued to be ousting the court's jurisdiction. Albeit I concluded that the clause in that case should not be construed as allowing one party to be the sole judge of fact and law, and the Court of Appeal took the view that the clause would and should allow one party to be the sole judge of fact but not law, I do not understand the Court of Appeal judgment to criticise the principles which I thought were established. In considering however where in the spectrum the contract in that case fell, the Court of Appeal did take a different view because of the nature of the contract. They were not as reluctant as I had been to construe the clause as making one party the sole judge as to whether a claim was valid because, as emphasised in the judgment of Neill LJ, (a) clauses appointing independant experts to decide questions of construction eg.what transactions were included in the term sales - see Jones v Sherwood Computer Services Plc [1992] 2 All ER 170, [1992] l WLR 277 "as conclusive and binding for all purposes" had been recognised by the courts as not contravening the policy against ouster, and (b) because of the unusual nature of the international agreement with which the court was concerned.

It seems to me that on the proper construction of the clauses with which this case is concerned, it was intended to give Mr Brown the power to decide in making a claim, whether as a matter of fact and construction of the reinsurance contracts losses arose from one or more events for the purpose of aggregation. Such a clause as it seems to me does not actually fall clearly within any of the situations which I described as ones where the court would be reluctant to enforce terms. It is not an example of one party having complete freedom as to whether to fulfil a contractual bargain or not (principle l 565);it is not a clause which precludes recourse to the court both because it does not purport to do so, and because it is accepted that the decision of Mr Brown could be challenged for unreasonableness (principle 2 566); nor is it in fact a clause which grants rights to one party subject to the fulfilment of conditions, and makes the other party the sole judge of whether those conditions are fulfilled (principle 3 566). It is this last category, if any, which is of relevance, but as I pointed out when dealing with provisions which the court has recognised, (a) there is no question that if what one party bargains for is simply to be entitled to have that which has been determined even as a matter of construction of the contract by his co- contractor, that is the bargain which the court will enforce; and (b) the distinction between that type of case , and the principle 3 type of case is often a fine one (567).

It further seems to me that the Court of Appeal demonstrated that in some situations the court should not be as reluctant as I had suggested it should be, to recognise the binding effect of a clause allowing a decision on both fact and construction to be taken by an independent expert. I would also deduce, despite the limitation of the court's decision in that case to questions of fact, that they would not have contemplated striking down a clause which as in this case gives to one party when making a claim a right to decide one point of mixed fact and construction. The sort of issue left to be decided in this case by a reinsured is very much one for the expertise of a market man as recognised by Nourse LJ in Caudle v Sharp. It is not very surprising that a reinsured who may have had to pay claims on a certain basis should be left with the decision. Furthermore, a reinsurer may be quite prepared to leave the decision to the reinsured to save endless litigation about the point.

I turn then to the question of what Mr Brown did decide and the reasonableness or otherwise of that decision. First, it is not fair to characterise Mr Brown's decision as a finding that the state of mind of each individual underwriter was an "event". It is true that Phillips J had characterised their approach to underwriting as an originating cause, but that fact and Mr Brown's explanation in the letter of 2l March l995 that Phillips J had judged the "approach to underwriting to be a separate underwriting cause", does not lead to the conclusion that Mr Brown is deciding that the approach was an event. The originating cause was of an "event" ie. the negligent planning and underwriting that took place. That is, on a fair reading, all Mr Brown was saying.

Second, all the House of Lords decided in Axa v Field was that an originating cause is not necessarily an event. It did not decide that negligent underwriting caused by some originating cause ie. a negligent approach, could not be an event.

The real questions accordingly are - l. Is Mr Brown's decision that the underwriting of the individual underwriters over a period of time caused by their negligent approach was an event, susceptible to challenge? 2. If not, is Mr Brown, in the light of matters as they now are, bound to re-consider his decision?

It was accepted by Mr Hirst that Mr Brown's decision could be attacked if it was unreasonable. Mr Kentridge suggested either that the concept of reasonableness involved consideration of whether the decision was correct in law, a decision being unreasonable (he submitted) if it could be shown ultimately to be incorrect in law; or alternatively he submitted in reliance on The Vainqueur Jose [l979] l Lloyd's Rep. 557, 573-4, that in addition to there being an obligation to decide reasonably, there was an obligation to decide without misdirection of law. Reference was also made to a passage in the judgment of Sir Thomas Bingham MR in Balfour Beatty Civil Engineering Limited v Docklands Railway Limited, CAT pp.ll and l3 where it was suggested that the Master of the Rolls was accepting the submission of Counsel that a decision of the employer under a construction contract could be impeached on "the ground for instance, of legal misdirection, dishonesty, unfairness or reasonableness."

There is in my view a distinction to be drawn between a "misdirection in law", and a view on construction of a contract which may turn out to be wrong. I do not accept that where fact and construction have been left to an expert or to one of the parties, it can be enough in order to challenge that decision to show that on construction the court would or has taken a different view. The clause is of little value if that were the test. I doubt whether in the instant case there is any point of challenge other than by reference to reasonableness (or of course perversity or dishonesty). If on a question of construction and fact a decision was taken which was not even arguable when the matter came to be considered by the court, then that would provide a basis of challenge. In that context it is right to say that Mr Brown's view that he was entitled to take any decision which favoured the syndicate, goes too far if it was being suggested that even an unreasonable view was permissable, and that has been recognised by the submissions made on his behalf.

In the instant case, in my view Mr Brown's view that the overall underwriting of an individual underwriter caused by his negligent approach was an event from which the losses arose, was a reasonable view. It followed the reasoning of Phillips J in relation to originating causes, and has not in fact as yet been shown to be wrong, never mind unarguable.

Is Mr Brown bound to reconsider his decision? It seems to me that if the Special Conditions allow Mr Brown to decide what constitutes one event, that decision is either reasonable or unreasonable when the claim is made. It would be strange if it were to be the case that simply by refusing to pay a claim reasonably made when made, a further obligation could arise to reconsider. In my view there is nothing in this point.

For the reasons I have endeavoured to give I would dismiss this appeal.





CHADWICK LJ: The issue on this appeal is whether the plaintiff, as the re-assured under excess of loss re-insurance contracts providing for an Excess and Limit of Liability to be calculated on the basis of "each and every loss and/or series of losses arising out of one event", was entitled to advance a claim on the basis that losses which could be attributed to the same originating cause were, in the particular events which had occurred, losses arising out of one event.

In order to determine that issue it is necessary to answer two questions: (l) whether the effect of special conditions 9 of the re-insurance contracts is such as to leave to the re-assured (subject always to considerations of good faith and reasonableness) the decision as to what constitutes the event out of which any loss or series of losses for which he has to accept liability as the primary insurer can be said to arise; and (2), if so, whether the decisions which the plaintiff reached on that matter were vitiated on grounds that they were unreasonable - alternatively that the plaintiff misdirected himself as to what it was that he had to decide.

It seems to me beyond doubt that, as a matter of construction, the parties to the re-insurance contracts did intend, by special conditions 9, that the re-assured should be entitled to decide whether losses (or a series of losses) for which he had to accept liability as primary insurer arose out of single event. The words used in special conditions 9 could hardly be clearer: "The Re-assured shall be the sole judge of what constitutes each and every loss and/or one event" and "the Re-assured's definition of each and every loss and/or event shall be final and binding on the Re-insurers hereon". Nor do I find it in the least surprising that they should have intended that to be the effect of their bargain.

The effect of the provisions in respect of excess and limit of liability were such that someone had to determine which losses should be treated as arising out of one event. Someone had to identify the events relevant for that purpose. Someone had to decide whether historical acts or omissions - or a combination of historical acts and omissions - constituted a single event. All those matters, as it seems to me, were suitable for decision by an experienced underwriter having a full knowledge of the facts and circumstances which had given rise to the claims which he had to meet as primary insurer. It is, of course, accepted that he was obliged to act reasonably and in good faith. Given the commercial objective of avoiding unnecessary cost and expense in the settlement of re-insurance claims, it seems to me entirely sensible that the parties should have agreed to leave to the decision of the re-assured (as the person best able to take that decision with a minimum of expense) what losses or series of losses could properly be said to arise out of any single event.

Further, although it might appear to a lawyer that issues of causation - and the question whether any particular combination of acts or omissions does constitute a single "event" - are questions of law, I am not persuaded that the parties would have seen matters in that light; or that, if they had done so, they would have intended to exclude those matters from the ambit of special conditions 9. A provision which makes the re-assured's "definition" of an "event" final and binding on the re-insurers is consistent with an intention that the re-assured should decide mixed questions of fact and law. Although special condition 9 appears in that form in only one of the four relevant re-insurance contracts, it has not been suggested that the special condition in its alternate form has any different effect.

The real question, as it seems to me, is not whether the parties intended that the plaintiff should be left to decide these matters; but whether that is a bargain which the law permits them to make. I start from the position that the courts should be slow to strike down a sensible commercial bargain, made between parties experienced in their field, unless there is some clearly identifiable element of public policy which requires that to be done.

I am satisfied that there is no rule of public policy which prevents parties from agreeing to submit to the final and conclusive decision of a third party some issue which involves questions of construction or of mixed fact and law. I adopt, as correct, the conclusion of Mr Justice Knox in Nikko Hotels (UK) Ltd v MEPC plc [1991] 28 EG 86, [l99l] 2 EGLR l03 at l08.

Following a careful analysis of the judgments of the Court of Appeal in Jones v Sherwood Computer Services plc (now reported at [l992] 2 All ER l70) Mr Justice Knox said this:

"The result, in my judgment, is that if parties agree to refer to the final and conclusive judgment of an expert an issue which either consists of a question of construction or necessarily involves the solution of a question of construction, the expert's decision will be final and conclusive and, therefore, not open to review or treatment by the courts as a nullity on the ground that the expert's decision on construction was erroneous in law, unless it can be shown that the expert has not performed the task assigned to him. If he answered the right question in the wrong way, his decision will be binding. If he has answered the wrong question, his decision will be a nullity."

That passage was cited, without disapproval, by Lord Justice Neill in West of England Shipowners Mutual Insurance Association (Luxembourg) v Crystal Limited (the "Glacier Bay") [l996] l Lloyds Rep 37O at pages 377/8.

It is necessary, therefore, to go on to consider whether different considerations must apply where the effect of their bargain is that the parties have sought to entrust the decision to one or other of themselves rather than to an independent expert. I can see no reason, in principle, why a different approach is required.

It is, of course, necessary to keep in mind that there are some questions of law, which it would be repugnant to the very existence of a legally enforceable contract to leave to the exclusive decision of one party. An obvious example would be a decision as to the existence or otherwise of contractual liability in given circumstances. It must also be kept in mind that in many, if not most, situations it will be inherently unlikely that one party will intend to leave a question of law to be decided by the other party. Further, an agreement wholly to oust the jurisdiction of the courts is against public policy and is void. But I can see no objection in principle to a bargain in which one party is left to decide (i) what the facts are in relation to some matter which is to arise in the future and which is plainly intended to have some contractual consequence under a provision of the agreement which they have made and (ii) whether or not that combination of facts does fall within that provision. The jurisdiction of the court is not ousted in those circumstances; provided that the agreement which the parties have reached on that matter allows the court to interfere if the decision-making party has acted unreasonably, perversely or in bad faith. It seems to me that the court will be ready (in the absence of express words to the contrary) to construe the agreement, if necessary by implying an appropriate term, so as to impose on the decision-making party to obligation to act reasonably and in good faith. An agreement which did not permit of such a construction would, I think, be void; but that is not an issue in the present case.

It follows that, in agreement with Lord Justice Waller, I hold that the effect of special conditions 9 of the re-insurance contracts is such as to leave (subject always to considerations of good faith and reasonableness) to the plaintiff, as the re-assured, the decision as to what constitutes the event out of which any loss or series of losses for which he has to accept liability as the primary insurer can properly be said to arise.

I turn therefore to the second question: whether the decision which the plaintiff reached on that matter is vitiated on the grounds that it was unreasonable - alternatively that the plaintiff misdirected himself as to what it was that he had to decide. I remind myself of the observation of Mr Justice Knox to which I have already referred : "if he has answered the right question in the wrong way, his decision will be binding. If he has answered the wrong question his decision will be a nullity".

The plaintiff's presentation to re-insurers, annexed to the letter of 2l March l995, was expressed to follow the determination of Mr Justice Phillips in Cox v Bankside [l995] 2 Lloyds L R 437 that the approach to underwriting of each underwriter was a separate underwriting cause. I agree with Lord Justice Waller that a fair reading of the presentation -the relevant paragraph of which he has set out in his judgment - does not lead, necessarily, to the conclusion that the plaintiff had addressed to himself to the wrong question. The passage is, to my mind, equally consistent with the view that, in considering the correct question - namely "out of what event does each loss or series of losses arise" - the plaintiff had taken account of, and given proper weight to, Mr Justice Phillips' decision in relation to the different question "from what originating cause did any occurrence or series of occurrences arise". It is, therefore, necessary to look behind the presentation annexed to the letter of 2l March l995 in order to ascertain whether or not the plaintiff was addressing himself to the correct question.

In my view the documents which we were shown demonstrate that the plaintiff, and other underwriters in a similar position, were conscious of the question which had to be addressed under the re-insurance policies. Those documents commenced with the report of February l995 to which Lord Justice Waller has referred. The paras 24 - 27, set out in his judgment, are part of a section to which the heading is "Definition of an Event". Paragraph 23, which is part of the same section, sets out the standard indemnity provision in the form ... "each and every loss... and /or series of losses... arising out of one event"; and continues "it is therefore of critical importance to determine what constitutes an event". After analysing extracts from Mr Justice Phillips' judgment in Cox v Bankside which contain, inter alia, the following passage . . . "A culpable misappreciation in an individual which leads him to commit a number of negligent acts can arguably said to constitute the single originating event or originating cause responsible for all the negligent acts and their consequences". . . the report expresses the conclusion, in para 28, that there were, in that case, "three events". It is clear that the writers of that report were conscious that the correct question under the re-insurance contract was "how many events"; but took the view (in the light of the judgment of Mr Justice Phillips in Cox v Bankside) that the answer to that question was the same as the answer to the question "how many originating causes".

The plaintiff's own view appears from the document dated l March l995 which he prepared for his syndicate. It is clear that he did not accept that he was bound to take the view that the answer to the question "how many events" was necessarily the same as the answer to the question "how many originating causes". He was prepared to disagree with Mr Justice Phillips' view. Nevertheless, in the interests of unity, he was prepared to recommend that the claim be presented as arising from "three events". It is, I think, plain that the plaintiff was in no doubt as to the question to which he had to address his mind; and was well aware that in reaching the answer he was not obliged to follow Mr Justice Phillips' analysis in relation to "how many originating causes". Nevertheless he decided that he would in fact do so.

In those circumstances I am satisfied that the plaintiff did not misdirect himself as to what it was that he had to decide. The further question, therefore, is whether, in reaching the view that, on the facts which he had to consider, that there were three events in relation to Gooda Walker he was unreasonable in following the analysis of Mr Justice Phillips in respect of the related, but different, question "how many originating causes".

It was urged upon us that the decision of the House of Lords in Axa Reinsurance v Field [l996] l WLR l026 has made it clear that the answer to the question "how many originating causes" is not the same as the answer to the question "how many events". I agree with Lord Justice Waller that, on a true understanding of Lord Mustill's judgment in Axa Reinsurance v Field, the House of Lords did not decide that the answer to "how many originating causes" could never be the same as the answer to the question "how many events". Lord Mustill explained why, in that case, the two answers would not necessarily be the same; but he did not decide that, even in the circumstances of that case, they could not be. More pertinently, he did not rule out the possibility that in other circumstances, in other cases, they might well be. It would depend on the particular facts under consideration.

It is not necessary for this court to attempt to decide whether it would reach the same answer to the question "how many events" as the plaintiff has reached. There is no material which would enable us to begin to attempt that task. All we need to decide is whether Mr Brown's answer was a reasonable one. As to that, it is sufficient to point out that it is an answer which is wholly consistent with the reasoning of Mr Justice Phillips in Cox v Bankside. In my view it was a conclusion which the plaintiff was entitled to reach.

For those reasons I, also, would dismiss this appeal.





SIR BRIAN NEILL: For the reasons given in the judgments of Waller LJ and Chadwick LJ, I agree that the appeal should be dismissed.



Appeal dismissed.



Barlow Lyde & Gilbert; Clyde & Co, Guildford, Surrey