Case No: 2010 FOLIO 209 Neutral Citation Number:  EWHC 1406 (Comm) IN THE HIGH COURT OF JUSTICE QUEEN'S BENCH DIVISION COMMERCIAL COURT Royal Courts of Justice Strand, London, WC2A 2LL Date: 25/05/2012 Before : MR JUSTICE EDER --------------------- Between : (1) TED BAKER PLC Claimants (2) NO ORDINARY DESIGNER LABEL LIMITED - and - (1) AXA INSURANCE UK PLC Defendants (2) FUSION INSURANCE SERVICES LIMITED (3) TOKIO MARINE EUROPE INSURANCE LIMITED --------------------- --------------------- Stephen Cogley QC and Tim Marland (instructed by Browne Jacobson) for the Claimants Richard Lynagh QC and James Medd (instructed by Kennedys) for the Defendants Hearing dates: 27, 28, 29 February 2012 1, 5, 6, 9, March 2012 --------------------- Judgment Mr Justice Eder : Introduction 1. This is an insurance claim. The present trial concerns coverage and certain related issues in relation to claims made by the claimants against their insurers for the years 2004-2008 in respect of employee theft. Pursuant to the Order of Steel J dated 18 March 2011, other issues in relation to both quantum and “claims cooperation” will be dealt with, if appropriate, at a later stage. 2. The first claimant is a holding company for businesses that conduct the design, distribution and marketing of the well-known Ted Baker brand worldwide. The second claimant is its wholly owned UK subsidiary. Issues may arise in due course about the distinction between the two claimants but for present purposes there is no relevant distinction and I shall refer to them compendiously as “Ted Baker”. 3. During the relevant period, Ted Baker sold merchandise through various shops and other retail outlets. Between early 2006 and December 2008 Ted Baker, as part of its stock take, noticed losses at its warehouse in Abbey Road, London (the “warehouse”) and called in independent security consultant to investigate. Initially, the cause could not be identified; but the losses were confirmed. On 9 December 2008 an anonymous tip-off was received: an employee (Mr Okyere-Nsiah) at the warehouse who was in charge of processing returns of stock, along with two accomplice van drivers, was stealing stock from the warehouse. Mr Okyere-Nsiah was arrested on 12 December 2008. On 13 March 2009, he pleaded guilty to conspiracy to steal between 10 September 2000 and 12 December 2008. As I have indicated, the present trial is not concerned with quantum. Nevertheless, I should mention that the claims advanced are sizeable and, in broad terms, fall into two main categories. First, there was the loss of the stock itself which, at cost, is said to be of the order of £1 million. Second, there is a claim for what is variously described as “consequential loss” or “business interruption” (“BI”) which is said to amount to about £3 million. 4. So far as insurance is concerned, the position may be summarised as follows. In the early part of 2001 Ted Baker was insured by another insurer, the Independent Insurance Company Limited (the “Independent”). In May 2001 the Independent collapsed and the first defendant (“AXA”) issued its own cover on terms which I describe below and which was renewed from time to time and continued in substantially similar form during the relevant period ie until at least the end of 2008. 5. During this period, Chambers and Newman acted as Ted Baker’s insurance brokers until May 2004 when that firm was taken over by another brokerage firm, Layton Blackham. Initially, the cover provided by AXA was 100%. However, again as described below, for certain periods the second defendant (“Fusion”) and the third defendant (“Tokio Marine”) also provided part of the cover as co-insurers. During at least some part of this period, Ted Baker also had what has been referred to as separate “Fidelity Cover” with other insurers, viz AIG and Norwich Union. 6. In essence, it is the defendants’ primary case that the insurance wording does not, as a matter of construction, cover theft by or in collusion with an employee (which the defendants refer to variously as “surreptitious theft by an employee”, “surreptitious theft”, “fidelity guarantee”, “fidelity”, “theft by employee” or “dishonesty of employee”). In particular, the defendants assert that if such cover were going to be provided, then it would only be provided via a discrete form of cover known as “Fidelity Insurance” and as this cover was not provided in this case, employee theft was not covered. Alternatively, the defendants advance a claim for rectification and raise other defences based upon mistake and estoppel. Fusion and Tokio Marine also, discreetly, allege that Ted Baker, via the brokers, materially “non-disclosed” the true meaning of the AXA policy wordings that each of Fusion and Tokio Marine adopted and assert that they can avoid cover on this basis, alternatively misrepresentation said to arise from the same non-disclosure. Finally, each defendant asserts that, notwithstanding the negotiation of employee theft/BI cover, other wordings exclude liability for employee theft. 7. These issues have necessitated the calling of a substantial number of witnesses as set out below – although it was the claimants’ primary case that most, if not all, of this evidence was irrelevant. Moreover, I should mention that much of this evidence related to events some years ago and its reliability was, at best, sometimes most uncertain. The Issues 8. The parties initially agreed a list of issues relevant to this trial. In the course of the trial, it was agreed between the parties that some at least of these issues did not arise but it is convenient to retain the original numbering system to avoid confusion. Thus, the agreed issues (as amended) relevant for the purposes of this trial are as follows. Issue 1 – Are direct losses by non forcible and violent (“F&V”) theft by employees covered under the Policy? 1. On its true construction does the AXA policy wording cover direct losses viz. the cost of stock sustained by the claimants, or either of them, as a result of the alleged acts of Mr Okyere-Nsiah? 2. Deleted. Issue 2 – Are business interruption losses arising from non F&V theft by employees covered under the Policy? 3. On its true construction does the AXA policy wording cover business interruption losses consequent on the alleged loss of stock sustained by the claimants, or either of them, as a result of the alleged acts of Mr Okyere-Nsiah? 4. Deleted. 5. Are the claimants entitled to indemnity under the policy in respect of the business interruption losses claimed even if they are not entitled to indemnity under the Theft section of the AXA policy in respect of the direct losses claimed? 6. Are business interruption losses excluded because they were the subject of policy exclusions relied upon by the defendants, namely that they were caused by or consisted of acts of fraud or dishonesty ? 7. What is the significance, if any, for this purpose of the fact that the parties agreed by an express endorsement entitled “Theft Extension Endorsement” to delete from the Policy an exclusion which read “This section does not cover….Consequential loss…arising directly from theft or attempted theft.” ? Issue 4 - Estoppel 8. If, on its true construction, the Policy does cover the losses referred to in issues 1 and 2 above, are the claimants nonetheless estopped by convention from relying on such construction? 9. Is the knowledge and conduct of the claimants’ brokers to be imputed to the claimants for the purposes of determining the defendants’ claim to an estoppel? 10. If, on the true construction of the Business Interruption section of the Policy, the losses claimed are excluded by policy exclusion 4(c), are the defendants nonetheless estopped from relying on such construction as alleged by the claimants in paragraphs 43 and 44 of the Reply? Issue 5 – Rectification 11. If, on its true construction, the Policy does cover the losses referred to in Issues 1 and 2, should the Policy nonetheless be rectified as alleged by the defendants so as expressly to exclude theft of stock by employees by non forcible or violent means from the cover provided on the basis of mutual mistake? 12. Is the knowledge and intention of the claimants’ brokers to be imputed to the claimants for the purposes of determining the defendants’ claim to rectification? 13. If, on the true construction of the Business Interruption section of the Policy, the losses claimed are excluded by exclusion 4(c), should the section nonetheless be rectified as alleged by the claimants in paragraphs 43 and 44 of the Reply so as to remove such exclusion? Issue 6 The Factual Matrix/Custom of the Trade Alleged by AXA 14. Is the existence and/or nature of ‘Fidelity’ or Theft by Employee policies relevant to construing the AXA wording or to the claims for rectification or estoppel? 15. If so, are the averments made by the defendants about such policies in paragraphs 18 to 22 of AXA’s Defence correct? 16. Is the extent of coverage under the Independent policy previously issued to the claimants relevant to the issues of construction, rectification or estoppel in the circumstances of this case? And if so, 17. What were the terms of the Independent policy and would it have covered losses sustained by the claimants, or either of them, as a result of the acts of Mr Okyere- Nsiah and his accomplices? 18. Is evidence of the matters pleaded at paragraphs 32 to 45 of AXA’s Defence relevant and admissible in respect of the construction of the AXA policy wording, it being common ground that it is, if proved, admissible in connection with the issues of rectification or estoppel? 19. If so, are these facts correct? 20. Did the claimants or their brokers, prior to inception or renewal of the policy, provide disclosure of any the following facts and matters: i) Experience of fidelity losses. ii) Size of annual payroll iii) A statement as to the nature of the insured’s supervision, checking and management system; iv) The existence of the Norwich Union and/or AIG policies. v) The claimants’ annual stock variance or “shrinkage” percentages. 21. Would it have been material for a prudent underwriter to know these or any other facts and matters prior to providing insurance against surreptitious theft of stock by the claimants’ employees or consequential business interruption? 22. Are sub-issues 20 and 21 above relevant to the issues of construction, or AXA’s claims to rectification or estoppel? Issue 6A: The Co-Insured Policies 23. If the Court finds for the claimants on the construction of the AXA policy and rejects the defences of rectification and estoppel pleaded by AXA, do Fusion and Tokio Marine nevertheless have defences to the claims against them? The Fusion Co-insurance 24. Did Mr Burbedge orally describe the cover provided by endorsements A05/F08 as “larceny” cover to Mr Watts? 25. If so, did he thereby negligently or innocently misrepresent the scope of the AXA policy/Ted Baker risk to Mr Watts? 26. If there was misrepresentation by Mr Burbedge, did Mr Watts/Fusion reasonably rely on the misrepresentation and were they induced by that misrepresentation to agree to take a 20% line of the AXA insurance? 27. Deleted. 28. If so, do these facts and matters give rise to any cause of action for Fusion and if so what is Fusion’s remedy? i) Is the scope of a policy to which the co-insurer is being asked to subscribe by a broker a fact which, if misrepresented, can ground a cause of action in misrepresentation? ii) Is the fact that Mr Wisdom of Fusion was sent a copy of the terms of the AXA endorsements and policy wordings in September 2004 a complete answer to Fusion’s claims based on misrepresentation and/or mistake? Tokio Marine Co-insurance 29. In March 2006 did Mr Read send to Mr Monahan: i) a spreadsheet summarising the AXA cover and referring to “theft not by VFEE—Excess £5k”? ; ii) A brokers’ presentation referring to the AXA Policy/Ted Baker Risk as “Commercial “all risks” of physical loss or damage including Theft (following Forcible/Violent Entry/Exit to or from the premises, Glass, Subsidence and Sprinker leakage.” And listing as principle extension “larceny--own premises only”? ; 30. If there was a misrepresentation by Mr Read and/or Mr Burbedge, did Mr Monahan/Tokio reasonably rely on the misrepresentation and was he/they induced thereby to agree to take a 25% line of the AXA insurance co-insurance? 31. Deleted. 32. If so, do these facts and matters give rise to any cause of action for Tokio and if so what is Tokio’s remedy? i) Is the scope of policy to which the co-insurer is being invited to subscribe by a broker a fact which, if misrepresented, can ground a cause of action in misrepresentation? ii) Is the fact that Tokio were sent a copy of the terms of the AXA endorsements in about May 2006 a complete answer to Fusion’s claims based on misrepresentation and/or mistake? The Evidence 9. On behalf of Ted Baker, the following witnesses provided written statements and gave oral evidence: A. Mr Lindsay Page. He joined Ted Baker in 1997 and is the Financial Director. From the start, he was very closely involved in the placing of Ted Baker’s insurance policies until about 2003 when Mr Charles Anderson, Head of Finance, became more closely involved. B. Mr Charles Anderson. He joined Ted Baker in July 2001 and is the Head of Finance. Part of his job was to deal with insurance. The companies actively assess risk and how best to deal with that risk. There is a Risk Management Committee consisting of himself, Mr Page, Mr Jarvis and other members of management. C. Mr Douglas Jarvis. He joined Ted Baker in 1990 when it was relatively small and became the Financial Controller. According to his own statement, he was on the periphery so far as organising the various insurance policies are concerned but was involved in the risk management side of things and sat on the Risk Management Committee. D. Mr Laurence Connolly. He was the Distribution Director at the warehouse. He gave evidence in particular with regard to the security procedures in relation to staff employed at the warehouse and the information he provided to the surveyors who carried out inspections of the warehouse from time to time on behalf of the insurers. E. Mr Guy Burbedge. Between 1978 and 1984 he worked at General Accident Fire and Life Assurance Company Limited (“GA”) where he was employed in the commercial underwriting team. Thereafter he worked at a number of broking firms and joined Layton Blackham in February 2004. He took over the Ted Baker account shortly thereafter in May 2004. 10. On behalf of the defendants, the following witnesses provided witness statements and gave oral evidence. (I should mention that prior to the trial, the claimants objected to certain passages in some of these witness statements on the basis that they were inadmissible. That application was, at least in part, acceded to by Burton J. resulting in certain redactions and amendments.) A. Mr Martin Vallins. He was the AXA underwriter who dealt with the “rollover” of the Ted Baker account when the insurance incepted on 18 June 2001 following the demise of the Independent. B. Mr Kenneth Bynorth. He was an underwriter at AXA until August 2011. He became involved with the Ted Baker account just before a pre-renewal meeting in January 2004. His involvement continued until about the end of March 2004 with respect to the renewal for that year. C. Mr Edward Hale. He has been an underwriter with AXA since 1996. He had little involvement with the Ted Baker account until about March 2007 when he became involved in discussions for the renewal for 2007-2008. D. Mr Douglas Smith. He is a Senior Commercial Underwriter at AXA and has held that position for over 11 years. He is a qualified ACII and a Chartered Insurer. He became involved with the Ted Baker account in about July 2007 as part of what was then called the “Bluefin Team”. This was shortly after renewal terms had been agreed for the period 16 April 2007 to 15 April 2008. He was responsible for the subsequent renewal in April 2008. E. Mr Patrick Conneely. He has been an underwriter with AXA since 1981. He had no direct involvement in the Ted Baker account but gave general evidence with regard to the background and use of AXA’s Fidelity Guarantee Insurance Manual as well as AXA’s approach to Fidelity Insurance. F. Mr David Boulcott. He was an underwriter at Fusion. His involvement in the Ted Baker account began in about January 2004 when Fusion were approached to take over the then existing cover from AXA on a 100% basis. In the event and following certain negotiations, he declined to take on this risk and had no further involvement after about 1st March 2004. G. Mr Michael Watts. He has been in underwriting for approximately 40 years. Previously, he was at the Independent. He joined XP Underwriting, which is part of Fusion, in about 2001. He became involved with the Ted Baker account in about July 2004 and, in his capacity as underwriter, agreed to take a line (initially 10% subsequently increased to 20%). H. Mr Ian Monahan. Until recently he was an underwriter manager at Tokio Marine. He was involved in the negotiations in 2006 which culminated in Tokio Marine taking a 25% line from 28 March 2006 until 15 April 2007. I. Mr Jon Avant. He is currently an underwiter at Tokio Marine where he has worked for some 8 years. He became involved in the Ted Baker account in the early part of 2006 after Tokio Marine agreed to co-insure 25% of the risk until 15 April 2007 when the matter was passed to him to be handled by his team. J. Mr Roy Preston. He is a risk surveyor of almost 40 years experience. He previously worked for AXA for just under 10 years until he was made redundant in May 2010. He carried out certain surveys of Ted Baker premises between about 2002-2006. K. Mr Anthony Hutchins. He has worked as an underwriter since 1979 when he joined Commercial Union and was with them at the time of the merger with GA in 1998 to form CGU. He subsequently joined Allianz in about March 2001 where he remained until May 2010 to join AXA. He is currently Head of Commercial Property at AXA’s Head Office but was not with AXA during the time that Ted Baker was insured with AXA. His evidence focussed mainly on the types of cover provided by Commercial Union in particular during the late 1970s and early 1980s. 11. The defendants also put in evidence under the Civil Evidence Act two written statements from the following viz. A. Mr Adam Clifford. He was employed as a Commercial Underwriter at AXA from late 2001 until the summer of 2003 and was involved in the 2003/2004 renewal. B. Mr Stephen Hartshorne who was unable to be called for medical reasons. He is an underwriter and joined AXA in 2003. He was involved with the Ted Baker account from about late March 2004 until shortly after July 2007. 12. In addition, I heard evidence from two further fact witnesses viz Mr Steven Cash and Mr Simon Glover, both account executives in the Commercial Department of Chambers and Newman/Layton Blackham, who had certain involvement with the Ted Baker account in 2003 and 2004. Initially, the defendants served written statements from both these persons. However, they subsequently indicated that they were not prepared to give evidence. The position was apparently considered at the pre-trial review when Burton J ordered that these witnesses should be called by the court itself and that they should then be cross-examined by counsel on behalf of the parties. This is what happened during the trial. In my experience, this procedure was highly unusual and one that I found somewhat surprising. In any event, and despite certain protestations by Mr Cogley QC, I took the view that given such course had been ordered by Burton J it would be inappropriate to seek to revisit it. 13. Finally there was evidence from experts, viz A. Ms Shirley Beglinger. She is an Associate of the Chartered Insurance Institute and a Chartered Insurance Practitioner. Between 1998 – 2004 she worked for Swiss Re and thereafter became Managing Director of Aon UK Ltd, concentrating on financial institutions business. She currently works for her own consulting company, Director Swiss Partnership Ltd. B. Mr Stephen Coates. He worked for Eagle Star from 1983 – 1992 in a variety of commercial underwriting roles; at the Independent from 1992 – 2001 where, latterly, he was the UK property Underwriting Manager; and thereafter at Allianz Insurance plc (“Allianz”) as a regional senior underwriting manager. He is currently employed as UK Head of Property & Casualty Underwriting by Allianz. C. Both experts served written reports and, following a meeting, provided a joint statement. In addition, they gave oral evidence. The scheme of this Judgment 14. The claimants’ primary submission is that the issues concerning the proper construction of the contracts of insurance turn solely on the terms of such insurance and that extraneous matters are either inadmissible or of no significance. In stark contrast, the defendants submitted that it was important and indeed necessary to avoid a purely literal approach and to consider a much wider horizon, including matters which they referred to as “factual matrix” and “market practice” - although no formal “custom” was alleged; and that, in any event, such matters were relevant to their case on estoppel and rectification. However, without prejudice to the claimants’ position with regard to the admissibility and relevance of such matters in relation, in particular, to construction, it is convenient at this stage to summarise at least in broad terms the history of potentially relevant events in chronological sequence and the arrangements with regard to the insurance which took up the bulk of the trial and which were, in summary, as set out below. Having carried out that exercise, I then propose to return to consider the main issues which arise for consideration under the following main heads viz A. Construction; B. Estoppel; C. Rectification; and D. The Co-Insurance Policies. In so doing and so far as relevant, it is my intention to address the list of issues set out above but not necessarily in the same order. The brokers 15. Ted Baker’s insurance had been managed by their insurance brokers, Chambers and Newman, since the business started. After Mr Page joined Ted Baker in 1997 he would meet up with Chambers and Newman in particular Mr Davenport a couple of times a year and occasionally Mr Chris Dongray who was a director of Chambers and Newman. Neither of these individuals gave evidence. Mr Davenport 16. Mr Davenport was potentially a crucial witness. Given that he was the claimants’ own broker and someone who appears to have played an important role in the initial placement of the cover with AXA, Mr Lynagh QC submitted that in the ordinary course he ought to have been called by the claimants and that their failure to do so justified the court drawing an adverse inference against them. However, the position is more complicated because the defendants had themselves approached Mr Davenport, served a “witness summary” from him and, at the beginning of the trial, indicated that he would be called to give evidence as one of the defendants’ witnesses. However, in the course of the trial shortly before Mr Davenport was due to be called by the defendants to give evidence, Mr Lynagh QC informed the court that the defendants had decided not to call him. That came as something of a surprise; and the reason for that decision is a matter of speculation. On one view, it might be said that such decision ought to give rise to an adverse inference against the defendants rather than the claimants. However, in these highly unusual circumstances, it seems to me that the more appropriate course is to draw no adverse inference one way or another. (I should also mention that Mr Lynagh QC invited the court to draw adverse inferences from the claimants’ failure to call Mr Read. Although named in the defendants’ pleadings, it seems to me that Mr Read was on the periphery of relevant events and his absence is, in my view, of little significance.) 17. The meetings between Mr Page and Mr Davenport would usually last between one or two hours. Mr Davenport would tend to talk through the various options for insurance. They would generally discuss whether Ted Baker had adequate insurance and where the insurance was going to be placed. The timing of the renewals tended to be linked to Ted Baker’s financial year end of January. Ted Baker’s witnesses: Mr Page, Mr Anderson and Mr Jarvis 18. The first renewal that Mr Page would have been involved in was in February 1998. As Mr Page frankly acknowledged, it was difficult for him to recall after such a long period the precise nature of those discussions. However, I accept his evidence that, as a company, Ted Baker were very concerned that insurance was in place to cover loss of profit claims, wherever or whenever such claims arose; that in particular they had identified the warehouse as being a particular area of concern, given that it was the only warehouse they had and all their stock passed through it; that they knew that if there were was a fire at the premises or a substantial theft, that it would have a very significant impact on the business as they would not be able to supply either the wholesale or the retail outlets for a period of time and it would take some time (possibly months) to organise replacement stocks; and that in general terms the brokers were told to obtain the most appropriate cover to ensure that both direct losses and loss of profits would be covered in the event of an incident arising. Similarly, it was (in summary) Mr Anderson’s evidence that Ted Baker wanted to ensure that their insurance covered them both in relation to any direct losses suffered and also for any loss of profits; and that the brokers were instructed to obtain cover for loss of profits arising from theft whatever nature that theft may take. As stated above, Mr Jarvis’ own evidence was that he was on the periphery so far as organising the various insurance policies were concerned; but his evidence was similarly that it was extremely important that the business had insurance to cover loss of profits in the event of a fire or theft of any kind. 19. So far as this evidence is concerned, Mr Lynagh QC submitted that, in reality, it went no further than that Ted Baker expected as much cover as possible and that, in truth, they gave their brokers general instructions and then simply relied on their brokers to deal with the details. In particular, Mr Lynagh QC relied on the fact that Mr Page repeatedly said in cross-examination that he was not familiar with the details of the cover and left that to the brokers; that this was demonstrated by Mr Page’s unsatisfactory evidence with regard to the increase in the excess to £5,000 in 2004 referred to below; and that there were no contemporaneous documents emanating from Ted Baker as to their instructions to their brokers. As to the last of these points, in the course of cross-examination of Mr Page, an issue arose as to whether any written instructions were ever given by Ted Baker to their brokers with regard to the intended scope of insurance. A much later report by Layton Blackham dated 15 April 2007 (which was only disclosed by Ted Baker at a late stage following a succession of court orders and ought to have been disclosed much earlier) referred to Ted Baker’s “tender brief”. This plainly suggested the existence of some tender briefing document emanating from Ted Baker. Although Mr Burbedge’s evidence was that such a document had indeed existed, both Mr Page and Mr Anderson gave evidence to the contrary. In any event, no “tender brief” has apparently been found. 20. Despite these points of criticism of the Ted Baker’s witnesses, I found them generally to be honest witnesses. However, it is noteworthy that none of them stated in terms that they were specifically told that Ted Baker had cover for direct or consequential losses as a result of employee theft. In this context, the highpoint of these witnesses’ evidence is that of Mr Page in his witness statement that the brokers told him that Ted Baker had cover for consequential losses (ie direct losses and loss of profits) arising out of theft, however that theft arose. Notwithstanding in cross-examination, he could not recall a specific instance when he had been so informed and, on a balance of probabilities, I remain unpersuaded that the brokers ever did specifically tell Mr Page that Ted Baker had cover for consequential losses (ie direct losses and loss of profits) arising out of theft, however that theft arose. However, I am persuaded that, that given his instructions to the brokers, Mr Page assumed and therefore believed that they were so insured; that he understood and thought that they had consequential loss cover in relation to the dishonesty of an employee; and that if the brokers had told him that they did not have such cover he would have told them to go out and secure it. I accept that evidence. The Independent 21. Up to 2000, Ted Baker was insured with Chubb. Thereafter, relevant insurance cover was placed with the Independent. For the 2000 and 2001 renewal, Mr Page dealt again with Mr Davenport. As to the latter renewal, on 30 March 2001, Mr Davenport confirmed that all policies had been renewed for a 12 month period. Mr Page was asked to make the usual end of year declarations in relation to such items as wages and salaries and the gross profit for the purposes of the Business Interruption section of the policy. Ted Baker would then receive a Statement of Account from Chambers and Newman and on this policy year that was dated 20 April 2001. This broke down the monies due in relation to each insurance class but gave no further detail other than that. 22. Due to the passage of time, the actual original policy with the Independent cannot be found and is no longer available. Nor are any other contemporaneous documents specific to Ted Baker’s insurance and issued by Independent available. What are available are the following two sets of documents. Copy of the Independent Policy 23. First, there is a copy of the policy with schedules and endorsements which has in effect been recreated recently by Independent’s current run-off manager, Capita Insurance Services, who confirmed in a letter dated 12 May 2011 that, as far as they can tell, such copy is an accurate representation of the documents that would have been in force as at 18 June 2001. Although this was not formally admitted by the claimants, there seems to me no good reason to doubt that this is indeed an accurate copy of the relevant policy. In relevant respects, the documents appear to show that the type of cover provided by Independent was “Commercial Combined” which is a reference to a standard printed form of policy wording used by the Independent and divided into a number of discrete sections (Sections A to K) with detailed standard wording; and that cover was for a period of three years beginning 12 February 2000 (that is somewhat over simplistic but adequate for present purposes). In addition, there was a list of various sections (which referred to the sections in the standard form wording) described as either “operative” or “inoperative”, the former including “Business Interruption” and “Material Damage All Risks” (i.e. operative) and the latter including “Theft” and “Theft by employee” (i.e. inoperative). However, it is important to note the following: A. As to the section “Material Damage All Risks” (which was, in fact, Section K in the standard wording): a) It provided general cover of an all risks nature i.e. “Damage occurring during the Period of Insurance arising from any accidental cause not being an Excepted Cause”. b) Within that section, there was a subsection headed “Section Exceptions” which provided in material part that the Independent shall not indemnify the insured for (amongst other things) the following: “4) Damage caused by theft or attempted theft unless a) involving forcible and violent entry to or exit from Buildings at the Premises…. 7) Damage caused by a)… b)… c) acts of fraud or dishonesty on the part of the Insured or any partner director or employee of the Insured members of their families or any other person to whom Property Insured has been entrusted…” c) There was a separate endorsement headed “BAR K05 Full Theft Cover” which provided: “It is hereby noted that Section Exception 4) a) is deleted.” B. As to the section “Business Interruption” (which was in in Section B in the standard wording): a) The printed standard wording provided two discrete types of business interruption cover viz “all risks” and “specified perils”. Here, the relevant schedule stipulated that the wording applicable was the latter ie “specified perils” and specified the relevant perils as those numbered 01 to 15 inclusive. b) The printed wording provided cover for “Consequential Loss” (a defined term) occurring during the period of insurance caused by any of the “Specified Perils” (as listed) subject to a proviso which provided: “…Provided that at the time of the happening of the Consequential Loss there shall be in force an insurance covering the interest of the Insured in the property at the Premises against such loss or damage and that 1) payment shall have been made or liability admitted therefor or 2) payment would have been made or liability admitted therefor but for the operation of a proviso in such insurance excluding liability for losses below a specified amount” c) Under the list of “Specified Perils”, paragraph 13 (which was one of the specified perils) provided in material part: “13) Theft or attempted theft involving a) forcible and violent entry to or exit from Buildings at the Premises including such thefts or attempted thefts involving collusion by any employee but not partner or director of the Insured…..” d) The relevant schedule also specified various applicable endorsements including “B06” viz. “BUS B06 FULL THEFT COVER:- It is hereby noted that Section Exception 4) a) is deleted.” This is confusing because there was no exception 4)a) in the “business interruption - specified perils” part of the standard wording. There was an exception 4)a) in the “business interruption - all risks” section; but, as I have said, on the face of the documents, this had not been chosen as the applicable wording. This suggests some error of some kind but at this point in time it is unclear what the error was. In any event, for the reasons set out below, I do not consider that any such error affects the outcome of the present proceedings. Registers of Insurances 24. Second, there is a document entitled “Register of Insurances for Ted Baker PLC” dated 15 March 2000 and prepared by Chambers and Newman summarising the insurance cover with the Independent (and others). That was, of course, no more than a brokers’ summary document but as appears below a subsequent version of this document was sent to AXA as part of the presentation to AXA after the collapse of the Independent. This Register described the class of cover as “TRADERS COMBINED” which, it was common ground, was a reference to the standard form of policy used by the Independent which I have already referred to above. Under a main heading entitled “MATERIAL DAMAGE”, the Register stated: “ ‘ALL RISKS’ OF LOSS OR DAMAGE…. AS DETAILED BELOW SUBJECT TO THE INSURERS POLICY TERMS LIMITS AND CONDITIONS. INCLUDING THEFT FOLLOWING FORCIBLE AND VIOLENT ENTRY INTO AND/OR EXIT FROM THE PREMISES….” Under the same general heading, there then followed a summary of various other terms and the identification of the property insured by reference to column headings (ie buildings, plant, stock and miscellaneous) followed by a list under the heading “Clauses” including the following wording: “Larceny (own premises only) – Subject to £1,000 excess”. This was then followed by a second main heading: “CONSEQUENTIAL LOSS” under which there was the following wording: “CONSEQUENTIAL LOSS FOLLOWING: ‘ALL RISKS’ OF LOSS OR DAMAGE…….SUBJECT TO INSURERS POLICY TERMS LIMITS AND CONDITIONS. INCLUDING THEFT FOLLOWING FORCIBLE AND VIOLENT ENTRY INTO AND/OR EXIT FROM THE PREMISES”. 25. A similar updated Register dated 5th February 2001 and “Renewal Presentation” dated March 2001 are, in relevant respect, in substantially similar form. The collapse of the Independent and “rollover” to AXA 26. In June 2001, the Independent collapsed. When this happened, Mr Davenport contacted Mr Page and told him that Chambers and Newman were working hard to find alternative cover. Later, Mr Davenport contacted Mr Page and told him that he was transferring Ted Baker’s insurances to AXA. According to Mr Page’s evidence in his witness statement, Mr Davenport put this to Mr Page on the basis that this was a “safe haven” and that Ted Baker would be able to replicate the cover that they had with the Independent. Given what (as I have found) Mr Page believed ie that they had cover for consequential losses (ie direct losses and loss of profits) arising out of theft however that theft arose, Mr Page assumed that Mr Davenport put this cover in place with AXA. I accept that evidence. 27. In his opening skeleton argument, Mr Cogley QC submitted that the defendants’ case that the new cover with AXA was intended to replicate precisely the cover provided by the Independent policy was “devoid of reality” because “there can be no doubt that the Independent’s and AXA’s policy wordings would be different”. Be that as it may, it seems clear from the evidence of both Mr Page and Mr Anderson that so far as they were concerned the intention was that the AXA cover would indeed replicate the Independent cover. Thus, in cross-examination [Day 1/p.101] Mr Page stated as follows: “Q. You were told, I think, by the brokers that the rollover to AXA was on the same terms and cover as the Independent? A. Yes. Q. You regarded the AXA policy as replicating the Independent’s covers? A. Yes ” To similar effect was the evidence of Mr Anderson at Day 1/151. “Q. Were you involved in the transfer of insurance to AXA and subsequently the other co-insurers, or not? A. Not directly. I was aware of it, but our insurance brokers – I was aware a transfer was going to happen, because of the events about the preceding insurer, but it was very much left with the broker. Q. I take it that it is also your understanding that the aim was for AXA to replicate the Independent cover? A. That was the intention, yes. Q. That the rollover was effected on the same terms and cover? A. That is what I believed happened, yes.” 28. With regard to such “rollover”, the evidence as to what transpired between Mr Davenport and AXA is scanty. As I have said, Mr Davenport was not called to give evidence. Mr Vallins (who did give evidence) frankly acknowledged that he had no clear recollections of the Ted Baker insurances but had refreshed his memory from the documents which had been disclosed. In particular, an email dated 22 June 2001 shows Mr Vallins requesting Mr Davenport to submit a full presentation of the risk to Mr Frost of AXA. A later email dated 28 June 2001 shows that this must have been done although the actual presentation which Mr Davenport must have sent can no longer be found. However, it appears that the Register dated 5th February 2001 which I have referred to above was at least part of that presentation submitted to AXA. As to Mr Vallins’ understanding, his evidence was as follows: “12. I would have read the documentation comprising the full presentation of risk and certainly read the Risk Register that I attached to the Risk Survey Requests as the handwriting on this is mine. Had it made reference to any form of fidelity risk I would have noted that and there would be reference to that in the documents in the underwriting file. I have always understood that the main part of indemnity cover is cover for losses of property as a result of thefts by employees which do not involve the use of forcible or violent means of entry or exit. The Risk Register did make reference to "larceny own premises cover" (which I did not understand as any type of fidelity cover) and that is information I subsequently passed onto the risk surveyors." I consider this evidence further below. 29. The documentation disclosed also indicates that AXA were considering their own reinsurance costs for the risk. Thus, there is an email dated 9 July 2001 from Mr Vallins to Mr Davenport which states in material part as follows: “We are now beginning to obtain details of the re-insurance costs to us for this risk and our Head Office colleagues have advised us that we can no longer continue to write this policy at the Independent (sic) terms. We have been instructed to increase the current MD [ie Material Damage] rating by 100% and the BI [ie Business Interruption] rating by 120%.....” On behalf of the claimants, Mr Cogley QC submitted that this email was significant because it showed increased rating which was consistent with a special premium being charged for the risk of employee theft. That may or may not be correct but it seems to me that this is reading too much into the email: it is simply impossible to know from the email itself the reason for the increased reinsurance costs were and (despite certain comments by Ms Beglinger which supported Mr Cogley QC’s submission but which I found somewhat speculative) there was no other cogent evidence which might provide an explanation. 2001: The AXA Policy 30. In the event, AXA did agree to provide cover backdated to 18 June 2001 on terms which appear in a document which is somewhat confusingly referred to as the “Schedule” but which is, in effect, the primary document constituting the policy. This provided in material part as follows: A. The document states “SCHEDULE: COMMERCIAL COMBINED” which, it is common ground, refers to AXA’s then standard printed wording which consisted of a number of discrete sections including, in relevant respect, Material Damage (All Risks), Business Interruption (All Risks) and Theft, all of which were described in the Schedule as being “Sections in Force”. B. In the standard wording: a) The Material Damage section had an express exclusion (Exclusion clause 3(b)) in effect excluding “DAMAGE” (as defined) caused by or consisting of “…acts of fraud or dishonesty by the Insureds employees….” b) The Business Interruption section provided in material part as follows: “BUSINESS INTERRUPTION – ALL RISKS Indemnity Clause A (Applicable to all items other than any item on Accounts Receivable) The Company agrees that if any building or other property used by the Insured at the Premises for the purpose of the Business be accidentally lost destroyed or damaged and in consequence the Business carried on by the Insured at the Premises be interrupted or interfered with then the Company will pay to the Insured in respect of each item in the Schedule the amount of loss resulting from such interruption or interference provided that 1. at the time of the happening of the loss destruction or damage there shall be in force an insurance covering the interest of the Insured in the property at the Premises against such loss destruction or damage and that i) payment shall have been made pr liability admitted therefore or ii) payment would have been made or liability admitted therefore but for the operation of a proviso in such insurance excluding liability for losses below a specified amount” In addition, there were express exclusions in the BI section in effect excluding “CONSEQUENTIAL LOSS” (as defined) “..arising directly from theft or attempted theft…” (Exclusion clause 2(c)) and “…caused by or consisting of…acts of fraud and dishonesty…” (Exclusion clause 4(c)). However, as referred to in the Schedule, there was a special endorsement which provided: “637 THEFT EXTENSION CLAUSE (ALL RISKS) – Exclusion 2c) of the Cover is deleted.” In passing, it should be noted that exclusion clause 4(c) was not deleted. c) The Theft section stipulated in material part that “…in the event of (1) any of the Property Insured while within the Premises being lost or damaged as a result of (a) theft (or attempted theft) involving entry to or exit from the Premises by forcible and violent means…[AXA] will….indemnify the Insured in respect of such loss and damage….” However, as referred to in the Schedule, there was an endorsement which provided: “A05 THEFT EXTENSION CLAUSE The insurance by this Section extends to cover loss or damage resulting from theft or any attempted thereat but the Insured shall be responsible for the first £1,000 of each and ever loss which does not involve entry to or exit from the Premises by forcible and violent means.” 31. As to the circumstances in which these endorsements ie 637 and A05 came to be added at the time, Mr Vallins’ evidence in his written statement was as follows: “15 I am told by Kennedys that endorsements A05 to the Theft Section and 637 to the Business Interruption section attached later in 2001. I do not recall the circumstances in which these came to be added at that time. I was very busy around the time in question and think it unlikely that these came about because I had revisited the documents received from the brokers but it is possible. It is more likely that the brokers approached me after receipt of the early schedule which did not contain these endorsements and told me that the schedule I had sent out did not match the Independent cover because the larceny cover was missing. 16 As a result of that I would have looked for an appropriate endorsement on the AXA system for shoplifting from retail risks and scrolled through to find one that I considered best matched the cover required (and previously given by Independent) and clearly decided A05 was the best fit. If there had been discussion about AXA giving any form of fidelity cover that would appear in the underwriting file. 17 I am quite sure I did not intend A05 to give cover for fidelity risks. I did intend to give cover for theft and not involving forcible and violent entry to or exit from the premises. I did not intend to give cover for surreptitious theft by an employee. 18 If cover for surreptitious theft by an employee was required by the brokers then that would be clear on the file and would have required a different set of underwriting considerations and would have been given under a different section of the policy. It would have been additional cover to that provided by the Independent and would have been reflected in a further premium on the AXA Schedule. It would never be given by a short endorsement of the type in question. I would have had to refer it upwards as underwriting of fidelity risks is closely controlled at AXA. There was an AXA manual for this and not everyone was authorised to underwrite it even within the terms of the manual. 19 As regards the deletion of exclusion clause to 2(c) in respect of consequential loss following theft, I confirm that it is standard to delete that exclusion to give cover for business interruption consequent upon theft but I did not intend by doing so to give cover for business interruption consequent upon fidelity risks or surreptitious theft by an employee. I intended by this deletion to provide cover for business interruption consequent upon theft using forcible and violent means. In any event AXA does not give cover for business interruption losses consequent upon fidelity and I do not recall ever seeing that type of cover. 20 It would not have crossed my mind to delete the exclusion of fraud and dishonesty exclusion at 4(c) as I did not intend to give cover for business interruption consequent upon fraud or dishonesty. In my mind this would have included thefts by employees using surreptitious means. 21 Having refreshed my memory of this risk from the documents with which I have been provided I confirm that in my dealings with this matter I and, it seems to me, the brokers proceeded at all times from 18th of June 2001 on the assumptions that the AXA policy provided the same cover, in terms of scope, as the Independent policy and did not provide cover for surreptitious thefts by employees or business interruption losses consequent upon such thefts.” 32. I have set out Mr Vallins’ evidence in his witness statement as to his subjective intentions and understanding because it forms the bedrock of much of the defendants’ case and because similar views were expressed by numerous other witnesses called by the defendants – although, as already indicated, it was the claimants’ case that such evidence was inadmissible with regard to the proper construction of the cover or otherwise irrelevant. I consider this evidence and its relevance further below. 33. In addition, it is important to note that one of the sections in the standard wording of AXA’s commercial combined policy is entitled “Theft by Employees Section.” In essence, this provided cover (sometimes referred to as “fidelity cover”) against “direct loss of money or property belonging to the Insured or for which the Insured is legally responsible as a direct result of any act of fraud or dishonesty committed by an Employee…..” subject to detailed terms and exclusions including an exclusion against “loss of interest loss of profits or consequential loss of any kind.” However, this section was not selected and did not form part of the cover provided by AXA (or the other defendants). 34. It is not clear when AXA in fact came on risk but it would appear that this must have been sometime before 6 August 2001 (although the actual policy documentation may not have been issued by AXA until the end of 2001) and, as indicated above, this new cover was backdated to 18 June 2001. That date ie 6 August 2001 comes from a new “Schedule of Assurances” prepared by Chambers and Newman which is in substantially similar form to the earlier Registers referred to above and purportedly summarises the new cover with AXA. Again, the class of cover was described as “TRADERS COMBINED”. It referred to the insurers as “AXA GENERAL INSURANCE”. The period of insurance was identified as from 18th June 2001 to 11th February 2002. Otherwise, the description of the cover under the headings “MATERIAL DAMAGE” and “CONSEQUENTIAL LOSS” was, in relevant respect, substantially identical to the previous Registers referring to the former cover with the Independent as described above. 35. On the following day, ie 7 August 2001, there was a meeting attended by Mr Page, Mr Davenport, Mr Jarvis and Mr Anderson to review the insurance arrangements. On 9 August, Mr Davenport sent to Mr Page a copy of the notes of that meeting. Renewals: 2002 and 2003 36. Thereafter, the cover with AXA was renewed in both 2002 and 2003 on terms which were substantially similar to the original cover including endorsements 637 and A05. The only material difference would appear to be the addition of a new endorsement (from 2002) in the Theft Section which reads: “F06 – EXCESS AMENDMENT CLAUSE It is noted that the Excess is £5,000.” Additionally, during these years the cover provided by AXA was in effect reduced to a line of 50% with another co- insurer (NIG Skandia) taking the other 50% line. Mr Clifford 37. So far as AXA is concerned, Mr Clifford had at least some involvement between about September 2002 and June 2003 which would have included the 2003/2004 renewal. As stated above, his evidence was contained in a signed witness statement; he did not give oral evidence. It would seem from that statement that he has little, if any specific recall of relevant events. However, I should note that the statement makes reference to certain general matters including that he does not recall being asked to provide “fidelity cover” during his conversations with Layton Blackham and if such cover, including cover for surreptitious theft by an employee, had been required, he would have expected it to be provided by way of a separate section, for example a theft by employee section. Mr Cash 38. So far as the brokers are concerned, Mr Cash had the day-to-day handling of the Ted Baker account from about May 2002 to April 2003 and would therefore have been involved in the renewal for 2003/2004. He had never been asked to provide a quotation for cover for theft by an employee just purely for property as opposed to general fidelity cover which would cover theft by an employee of both property and money; and he had never come across full theft cover being granted in respect of an employee of the insured. So far as the Ted Baker account is concerned, he was not the “decision maker” and his involvement was very limited. In particular, although he was involved in certain correspondence and had certain meetings with AXA during this period, he had no contact himself with Ted Baker; and at the time that renewal cover was actually discussed and agreed with Ted Baker he was no longer the person dealing with the account. So far as endorsement A05 is concerned, he was unable specifically to recall whether he gave any thought at all as to whether it concerned non-forcible and violent theft by employees. However, he agreed that endorsement A05, in effect, removed the requirement of violent and forcible entry and thereby gave “pure theft cover” subject to any specific exclusions, excess and proof of loss. 39. During this period, a Memo dated 5 September 2002 from Mr Cash to Mr Clifford shows that Mr Cash checked through the schedule and policy wording and identified a number of corrections which were required. In particular, Mr Cash noted (i) under the heading “Material Damage”, “6. Larceny (own premises only) should be included”; (ii) under the heading “Business Interruption”, “What is endorsement 637 – Theft Exclusion Clause ? I cannot find exclusion 2c) in the policy wording”; and (iii) under the heading “Theft Section”, “The policy excess is £5,000 each and every loss ….There are various clauses on the policy noting variations to the excess eg A05, 008, F02. Please clarify”. It is not clear what further discussions (if any) there were with regard to such matters although it would seem from an email dated 12 January 2004 that Mr Glover was still waiting even then for new documents to be issued by AXA despite numerous reminders provoking Mr Glover’s comment: “AXA are crap at issuing documentation !!!”. Mr Glover 40. As to Mr Glover, he became involved in the Ted Baker account in about April 2003 and subsequently took over the handling of the account from Mr Cash. I found at least some of his evidence difficult to follow. For example, prior to giving oral evidence in this trial, he had provided a formal signed statement to the defendants’ solicitors dated 9 November 2011. In that statement he said: “I do not recall now what I considered “larceny” cover meant”. However, when he came to give evidence, he told the court that “larceny” meant “full theft cover” and that he would have had full knowledge of that in 2004. I am unable to accept that evidence. In cross-examination by Mr Cogley QC, Mr Glover sought to explain how his knowledge had seemingly increased in the four months between November 2011 and March 2012. I found that explanation wholly unpersuasive. If he did not know the meaning of “larceny” when he signed a formal statement in November 2011 I find it impossible to understand how he had such knowledge in March 2012 still less how he could assert (as he did so positively in the witness box) that he would have had full knowledge of such meaning in 2004. 41. Mr Glover then went on to explain that “full theft cover” did not mean all sorts of theft but “theft by third parties not following forcible and violent entry” ie not including theft by employees. His reasoning for this view was to my mind, confusing and unsatisfactory. Initially, his explanation was that this was not the intention of the wording. Then, when pressed by Mr Cogley QC in cross- examination, Mr Glover explained that the full theft cover in this case did not include theft by employees because there was a “dishonesty exclusion”. However, as pointed out by Mr Cogley QC in further cross-examination, there was no “dishonesty exclusion” in the basic theft section of the policy. (There was, of course, a dishonesty exclusion in the BI section although the theft exclusion was deleted, a point I consider separately below.) None of these explanations is, in my view, satisfactory or acceptable. Finally, Mr Glover suggested that if the policy did include such cover, he would not have had a separate fidelity policy; and the wording was “badly written”. 42. In the event, I am unable to place any reliance upon this evidence. In truth it seems to me no more than Mr Glover arguing the case: I do not consider that it provides any reliable basis for what Mr Glover knew or thought at the time in 2004. However, in fairness to Mr Glover I should note that he accepted in evidence that he had no recollection of considering endorsement A05 in 2004; that he did not recall any meetings with Ted Baker; that he was not involved in negotiating or renegotiating the extent of cover; that he had no discussion with Mr Burbedge about the Ted Baker account and was not involved in the handover to him in 2004; that he had no idea whether Mr Burbedge had the same understanding as to the scope of cover as he (ie Mr Glover) had told the court in evidence; and that he had no present recollection of applying his mind at the time, ie in 2004, as to what full theft cover was meant to be for because he was just looking at renewing rates ie getting a better deal. Renewals: 2004-2006 43. As to the renewal in 2004, so far as AXA were concerned, arrangements were dealt with initially by Mr Bynorth and Ms Rudd. On the broker side, arrangements were dealt with primarily by Mr Burbedge who had joined Layton Blackham in February 2004. Mr Bynorth 44. It appears from contemporaneous documents that Mr Bynorth became involved with the Ted Baker account in early 2004 and, after internal discussions with Ms Rudd, had a meeting with Mr Glover on or about 23 January 2004 although it was plain from his evidence that he had no clear present recollection of such involvement. In his witness statement, he stated that he had no recall of focussing on endorsement A05 and that although he would have recognised it as a “full theft” endorsement, it would be aimed at the exceptionally high value shoplifting event and/or “steaming” (where gangs go into a shop and take everything they can carry) and walk in thefts (say of a laptop from an office) not involving forcible and violent entry or exit; and that, on the contrary, it was not intended to provide any form of cover for theft by employees which did not include the use of forcible and violent means. Further, according to his statement, the terms “larceny” or “full theft” do not include thefts not involving forcible and violent means by employees as such thefts fall within the ambit of fidelity cover; and he would not have understood the BI section to cover business interruption losses consequent upon surreptitious thefts. I consider this evidence further below. 45. Mr Bynorth had some further involvement with the Ted Baker account in March 2004. However, he then went on holiday and about this time handed over the handling of the account to Mr Hartshorne whose involvement I consider further below. Mr Burbedge 46. Meanwhile, so far as the brokers are concerned, Mr Burbedge took over the account in about May 2004. As stated above, he had previously been employed at GA. It was his evidence that at GA there was an extension available under their commercial combined policies for what he referred to as “larceny cover”; that it operated as a separate endorsement to the combined policy amending the theft section and also the business interruption section; that although he could not recall the precise wording, it would cover theft by any person who was lawfully on the insured’s premises including employees and cover both direct loss (ie under the theft section) and loss of profits (ie under the business interruption section); that it would typically attract a higher excess than applied for normal theft cover in order to cut out the petty claims; and that during this time at GA, it was quite rare for this type of cover to be taken up. 47. After taking over the account, Mr Burbedge quickly brought himself up to speed and reviewed the file in advance of a meeting with Mr Page and Mr Anderson on or about 10 May 2004. In particular, it was Mr Burbedge’s evidence that he read the memo dated 5 September 2002; that it was his understanding that item 6 (“larceny”) was to cover theft or theft by persons lawfully on the premises including employees; that based on his experience at GA he regarded this as being the normal way in which such cover would be dealt with; that he considered that the business interruption section had also been amended to include theft; and that there needed to be certain revisions to the policy wording. 48. On behalf of the defendants, Mr Lynagh QC submitted that I should reject this evidence of Mr Burbedge. Mr Lynagh QC fell shy of inviting the court to say that Mr Burbedge was a liar but in effect submitted that the defendants did not have to go this far; that the court should conclude that Mr Burbedge had persuaded himself that he always believed that the AXA policy as extended provided the disputed cover when such was not in fact the case; and that the evidence pointing to this conclusion was overwhelming. In support of that submission, Mr Lynagh QC relied on six main points viz A. In fact no such cover has ever been available in the combined insurance market and Mr Burbedge’s recollection of the cover available from the GA nearly 30 years ago in 1984 was faulty. B. If such cover was available it was very rarely requested or granted, as Mr Burbedge accepted. C. Such cover would also be extremely valuable to Ted Baker and provided without additional premium or the usual underwriting requirements or terms and conditions. D. It is inherently improbable that Mr Burbedge, if he thought that the AXA policy provided this cover would never have mentioned it to anyone, including AXA, his clients or co-insurers. E. It is inherently improbable that if Mr Burbedge really believed the AXA policy provided this cover, that he would voluntarily request a five fold increase in the excess to avoid confusion. F. It is inherently improbable that as a broker he would describe such rare cover simply as “larceny” or “Theft Not by FVEE” when he knew that that term would not convey that it included surreptitious employee theft. I consider each of these points in turn. A. Was the cover in fact available even from GA? 49. To my mind, this dispute was somewhat surreal. It seems rather odd if not bizarre that the rights and obligations of the present parties to a series of policies entered into during the 2000s should depend on the subjective recollection of a broker when he was not acting for the present claimants in relation to policies with different wording issued by another insurer (GA) in favour of other unknown third parties in about 1984. 50. Be that as it may, the point arises because Mr Burbedge’s evidence in his witness statement was that when he was at GA in the early 80’s, GA had an extension available under their commercial combined policies and that such experience informed his understanding in 2004 as I have already summarised above. This evidence was the subject of detailed cross-examination by Mr Lynagh QC in particular by reference to the terms of the standard GA policies in the eighties (which Mr Burbedge had not seen for many years when he prepared his witness statement). 51. It was Mr Lynagh QC’s submission that Mr Burbedge’s evidence in this regard gave rise to certain difficulties viz (i) it seems clear that the GA policy in fact distinguished between “persons lawfully on the premises” on the one hand and “employees” on the other whereas Mr Burbedge’s evidence was to the effect that they were one and the same thing; (ii) Mr Burbedge thought that if a person asked for larceny cover, the GA would delete the entire exclusion in the first policy which, on one view, might be regarded as somewhat odd; (iii) Mr Burbedge’s original evidence was that the endorsement in the theft section would “thereby also amend the business interruption section which followed the cover under the theft section” - however, once he had seen the GA policies, he said that it would have been necessary to add an endorsement to the BI section as well; (iv) The same point applied to the second policy: in order to provide the larceny cover as suggested by Mr Burbedge it would have been necessary to delete two separate exclusions; (v) Mr Burbedge’s evidence was inconsistent with the evidence of Mr Hutchins ie that no such cover as suggested by Mr Burbedge was available from GA; in particular, Mr Hutchins’ evidence was that fidelity underwriting was strictly controlled by the Guarantee Society and Mr Burbedge agreed that fidelity business would be directed to it at least if the broker was requesting “full fidelity cover” ie including money losses; and (vi) Mr Burbedge also accepted that normally additional information would be required by an insurer if he was underwriting cover for theft and money; however he said that GA did not require this information for the cover for just property if provided which, Mr Lynagh QC submitted, had no commercial logic. 52. Some at least of these points raise significant queries and I agree that there is, at the very least, some uncertainty as to whether Mr Burbedge’s recollections as to (a) the exact scope of “larceny cover” provided by GA in the eighties and (b) the precise mechanisms by which such cover was provided are correct. Be that as it may, I considered that Mr Burbedge was an honest witness and I accept his evidence with regard to the availability generally of what he described as “larceny cover” at GA as summarised in paragraph 46 above and that this informed his views in relation the cover the subject matter of the present dispute. B. The rarity of the cover ? 53. There was no dispute about this. As stated above, it was Mr Burbedge’s own evidence as set out in his witness statement that during his time at GA it was quite rare for this type of cover to be taken up. C. Extremely valuable cover ? 54. There was also no real dispute that in 2004 usual limits for what the defendants described as “fidelity cover” for loss of both property and money did not generally exceed £1m and that the bulk of the evidence was that in 2004 those limits were generally around £250,000 for which (for example) the CGU charged £4500 although of course higher cover could be purchased. By contrast, Mr Lynagh QC emphasised that if the claimants were right the disputed cover provided surreptitious employee theft cover floating over some £13m of contents and £12.5m of stock at various locations as well as cover for gross profits in the sum of £43m and yet there was no identifiable premium in either section. This, submitted Mr Lynagh QC, is wholly implausible, a point made by Mr Glover. I was, at least initially, impressed by this argument but in my view it suffers from a number of flaws. First, there is always an inherent difficulty for a court to seek to test the alleged meaning of a contract by reference to some alleged economic yardstick. Second, as Mr Lynagh QC accepted, fidelity cover is used as a term to describe cover for loss of both property and money. Here, it is common ground that the cover provided by AXA did not extend to cover for loss of money. Thus, the figures relied upon by Mr Lynagh QC are not comparable; and without comparable figures, it is difficult if not impossible to evaluate how strong or weak this argument might be. Third, I am far from convinced that surreptitious employee theft cover of property alone bears the description “extremely valuable” although of course, it is part of the cover and no doubt an important part of the cover. Fourth, it is right that no discrete additional premium was charged for the disputed cover but it does not seem to me necessarily to follow that such cover did not form part of the parties’ contract particularly where, as here, the mechanism adopted was to extend cover under the Theft Section by endorsement A05 and the deletion of exclusion 2 (c) in the BI section. Nor am I persuaded that the adoption of such mechanisms would automatically or necessarily trigger an additional separate premium. Fifth, although it is right that there was evidence that an underwriter who agreed to provide “usual” fidelity cover (ie covering non-FVEE theft of property and money by an employee) would normally have particular underwriting requirements (eg with regard to employee identity and references), I was unpersuaded that such requirements were “normal” in the particular circumstances of the present case. Mr Lynagh QC submitted repeatedly that there was no logical difference between the two situations. But I remained unpersuaded by such argument: it seems to me that the risks involved in an employee stealing money from his employer are, or at least may be, very different from those involved in stealing physical property. D/E/F Inherently Improbable? 55. Mr Lynagh QC’s last three points were founded upon alleged inherent improbabilities. As to the first, I do not consider that the absence of specific mention assists the defendants. As to the second, it is plain that following the collapse of the Independent it was urgent and important for the brokers to find alternative cover. When Mr Burbedge became involved in 2004, he noticed that there were apparently different excesses as reflected in his email to Ms Rudd which states in material part: “Endt 008 shows excess of £5,000. Endt A05 shows £1,000 and Endt F06 shows £5,000. To avoid confusion, could we just have the one endt showing a £5,000 excess ?.” In the event, F06 was deleted and the excess in A05 was increased to £5,000. In this context, the thrust of Mr Lynagh QC’s submission was that this suggestion by Mr Burbedge ie to increase the excess to £5,000 was inconsistent with Mr Burbedge’s evidence that there was cover for employee theft in particular because no competent broker who believed that A05 provided very rare and valuable cover would have done this without consulting his client and without receiving some consideration from the insurer in return and, as Mr Burbedge confirmed, the increase in excess was not done for any alteration in premium. I do not accept that submission. As appears from that email, Mr Burbedge requested the change to avoid confusion. The possibility for such confusion appears from the earlier Memo dated 5/9/2002 which Mr Cash had sought to clarify. Mr Burbedge’s evidence (which I accept) was that he thought the £5,000 excess figure was the correct figure – hence his request which he regarded as no more than a “tidying-up” exercise. On that basis, I do not consider that Mr Burbedge believed he was giving up any significant cover. 56. As to the last point, Mr Lynagh QC relied in particular on two matters. First, he relied upon a passage at the very end of the cross-examination of Mr Burbedge in relation to a spreadsheet in early 2006 setting out a summary of renewal terms including the phrase “Theft not by VFEE – Excess - £5k”. Mr Burbedge accepted that if another insurer was being shown that and that insurer did not have the AXA policy documents, there was nothing to suggest to him that he was being asked to provide cover in relation to theft by Ted Baker employees. Mr Lynagh QC submitted that this answer fatally undermined Mr Burbedge’s evidence. It is right that this comment from Mr Burbedge may possibly assist the defendants with regard to other aspects of the case but I do not agree that it undermines Mr Burbedge’s evidence whether fatally or at all: Mr Burbedge’s evidence was concerned primarily with his understanding of “larceny” and “larceny cover” and the scope and effect of the theft extension endorsement (A05). 57. Mr Lynagh QC sought to bolster his attack on the evidence of Mr Burbedge by reference to various emails in December 2008 shortly after the employee theft was discovered. In particular, Mr Lynagh QC relied upon an email from Mr Burbedge dated 15 December 2008 which stated in material part as follows: “The actual stock is covered by a Crime Policy placed with AIG (thereby satisfying the Material Damage proviso), however this does not cover loss of profit and therefore this element of the claim will need to be made under AXA’s Commercial Combined policy LC COM 1203344).” Mr Lynagh QC submitted that this showed that Mr Burbedge did not believe that the employee theft was covered under the theft section of the AXA policy. I agree that that is an inference which could possibly be drawn from this email. However, as explained by Mr Burbedge in cross-examination, this was only very shortly after it was discovered that there might be a potential claim; at that stage, they did not believe that the loss would have exceeded the limit under the AIG policy and thought that the AXA policy would have an exclusion in relation to losses covered by other more specific insurances. I accept that explanation and, on that basis, it does not seem to me that this email assists Mr Lynagh QC. (In passing, I should note that, insofar as may be relevant, it is certainly consistent with Mr Burbedge’s view that loss of profit by employee theft is covered under the policy.) 58. Mr Lynagh QC also relied, in particular, on a second email later that same day ie 15 December 2008 which stated in material part as follows: “Having had a look over the actual policy wording booklet, I cannot see that theft by employee is excluded from the AXA policy (the visible signs clause has been deleted). Please could you have a think about this and let me know what your and/or AXA’s thoughts are on this as it may be that the stock itself is covered under two policies”. On this basis, Mr Lynagh QC suggested to Mr Burbedge in cross-examination that this wording (“..it may be…”) is extremely tentative and was wholly inconsistent with Mr Burbedge’s other evidence that he believed that the policy covered employee theft. I agree that this email suggests on its face that in December 2008, Mr Burbedge was uncertain whether the stock itself was covered. Mr Burbedge accepted that the phrasing of the email could have been better. However, his evidence (which I accept) was that he believed the cover was there although, as he stated, “one can always argue about words” and whether or not it was covered would depend on the limit of loss. 59. Notwithstanding Mr Lynagh QC’s sustained attack on Mr Burbedge, I regarded him as an honest witness and, in the event, I accept his evidence that at all material times, he believed that there was cover for employee theft both under the theft section and the BI section. Broker’s knowledge 60. Before reverting to consider the chronology of events with regard to the insurance arrangements, I should mention that an important part of the defendants’ case was that in accordance with well-established principles a broker has actual or, at the very least, ostensible authority to enter a contract of insurance on behalf of and binding on the insured. In that context, Mr Lynagh QC relied on HIH Casualty & General Insurance Ltd v Chase Manhattan Bank  UKHL 6 per Hobhouse at para 104 and Freeman & Lockyer v Buckhurst Park Properties  QB 480 per Diplock J at p.503. Further, Mr Lynagh QC submitted that Mr Burbedge’s knowledge of matters relating to insurance acquired by the broker while acting within the scope of his authority is to be imputed to Ted Baker. This gave rise to some debate between the parties, in particular with regard to the defendants’ case in relation to non-disclosure, mistake and rectification. In particular, Mr Cogley QC sought to rely on a number of authorities including Irish Life Assurance Company Ltd v Dublin Land Securities Ltd  I R 332, 346 – 347; Blackburn, Low & Co v Vigors (1887) 12 App Cas 531, 542; SAIL v Farex  LRIR 116, Stanton & Stanton v Starr (1920) 3 11 L. Rep 259; Pindos v Raven (“The Mata Hari”) (1983) 2 Lloyd’s Rep 449; and Kemp v Neptune Concrete 1989 57 P. CR 369. The resolution of that debate would, or at least might have been, important if I had rejected Mr Burbedge’s evidence that he believed that he had obtained cover for employee theft; but I have not done so. On that basis, it seems to me that this part of the defendants’ case is now otiose and it is unnecessary to consider further the parties’ respective submissions in this context. Mr Hartshorne 61. As I have stated, so far as AXA was concerned, the handling of the Ted Baker account was handed over by Mr Bynorth to Mr Hartshorne in about March 2004. On 17 May 2004 Mr Burbedge wrote to Mr Hartshorne setting out a number of items which were outstanding from the earlier Memo dated 5 September 2002 and another email dated 9 June 2003 including in relation to “Material Damage” item 6 which I have quoted above. In addition, Mr Burbedge noted as a “new item” in relation to “Theft” that endorsement A05 had been omitted from the policy wording. The letter concluded by asking AXA to let him have the amended schedules as soon as possible. 62. As I have also stated, Mr Hartshorne was not called to give evidence but a statement signed by him was put in evidence. In that statement, he states that he believes that his involvement came about in around March 2004; that he recognises the notes on the margin of the letter of 17 May 2004 as being those of Ms Rudd; that it is likely that he sat with Ms Rudd to go through each item and would undoubtedly have also considered the wording of endorsement A05; and that he would have instructed Ms Rudd to put in place any changes. As to this endorsement, A05, Mr Hartshorne’s statement says as follows: “35. When I read endorsement A05 I certainly did not consider it gave any form of fidelity cover. In my view surreptitious theft of employer’s property by their employees is the major part of any fidelity policy and I am clear that I did not intend the extension to provide that cover. … I … understood the purpose of the Theft Extension Clause to be for shoplifting. … 36. I would have mentioned my understanding to Guy I believe in the context of discussion with him taking him through one of my early renewal spreadsheets to which I refer below but I could not say if it was in 2004 or later. 37. Had it been suggested to me by anyone that this clause was providing cover for fidelity losses/surreptitious thefts of stock by employees, I would most certainly have focussed on it as to be told that would most certainly have rung alarm bells. As I deal with further below, I would have confirmed with Ken Bynorth what was required by way of information in order for such a risk to be underwritten. I would also have made initial enquiries of Guy as to precisely what cover was being sought and with what limits. Once we had received the information, it would probably have been necessary to refer it to Head Office unless what was required was within the very limited cover provided by the Theft by Employees section and within Branch empowerment.” So far as relevant, I consider this evidence further below. 63. Thereafter, it appears that there was regular contact, both correspondence and discussions, between Mr Burbedge and AXA (in particular Ms Rudd) in relation to these matters. So far as Mr Burbedge is concerned, it was his evidence (which I accept) that at no stage during 2004 was there any indication that AXA had any problems with the insurance that he had requested or that he believed to be in place, such insurance including consequential losses arising out of theft. In the event, AXA increased its line for the period from 23 July 2004 until 14 March 2005 to 60% and NIG Skandia reduced its line to 30%. The balance ie 10% was taken up by Fusion, arrangements with regard to the latter being dealt with initially by Mr Boulcott who declined participation and subsequently by Mr Wisdom (who did not give evidence) and Mr Watts (who did give evidence). This new cover was set out in a new Schedule issued by AXA whereby the previous endorsement A05 was replaced with a new endorsement F08 which was in substantially similar terms save that it had an excess of £5,000. In addition, the previous endorsement (F06) which provided for an excess of £5,000 was deleted. 2004: Fusion 64. As stated above, so far as Fusion is concerned, after the risk was initially declined by Mr Boulcott, arrangements were dealt with (at least in 2004) by Mr Wisdom and Mr Watts. They gave oral evidence but it was plain that he had little if any direct recollection of any relevant events or discussions. The documents show that Mr Burbedge had a telephone conversation with Mr Watts on 22 July 2004. A note of that conversation refers to “Larceny cover”. As to this, Mr Watts’ evidence was that he did not recall any such conversation but accepted that it probably took place if Mr Burbedge recorded it. However, he was not sure whether they had a specific conversation as to what it meant but that, if they did and if Mr Burbedge said that it included thefts by employees he would undoubtedly have remembered this and refused cover. In the event, Mr Burbedge accepted that there was no discussion in relation to policy interpretation. However, more generally, it was Mr Watts’ evidence that XP Underwriting (ie Fusion) was not prepared to provide cover for surreptitious theft by an employee or business interruption consequent upon it (what he described as “fidelity cover”); that they had never been asked to provide such cover; and that he did not believe that they were providing such cover. I consider this evidence further below but it is important to note that full policy documentation was provided to Mr Wisdom in about September 2004 and nobody queried the lack of any exclusion. Renewals: 2005, 2006 65. Thereafter, it is common ground that cover continued on the same terms (including endorsements 637 and F08) save only that the proportions changed. Thus, in 2005/2006 (until 28 March 2006), the proportions were AXA (50%), NIG SKANDIA (30%) and Fusion (20%). Thereafter, Fusion dropped out and Tokio Marine took over an increased line from Fusion, the proportions from 29 March 2006 until 15 April 2007 being AXA (50%), NIG Skandia (25%) and Tokio Marine (25%). In passing, I should note (with regard to the renewals in 2005 and 2006) various comments in Mr Hartshorne’s statement the effect of which (in broad terms) is that AXA were not providing fidelity cover or cover for surreptitious theft and that had AXA been providing such cover he would have used different wording and this would have attracted a separate and very substantial premium which would have been included in the schedules. 2006: Tokio Marine 66. So far as Tokio Marine is concerned, the arrangements were dealt with by Mr Monahan following a telephone call and e-mail (attaching a spreadsheet describing the cover: “theft not by VFEE – Excess £5k?”) from Mr Keith Read of Layton Blackham on or about 3 March 2006 in effect asking whether Tokio Marine would be interested in taking on some of the risk. The presentation referred to the AXA Policy/Ted Baker Risk as “Commercial “all risks” of physical loss or damage including Theft (following Forcible/Violent Entry/Exit to or from the premises, Glass, Subsidence and Sprinkler leakage”; and listed as the principal extension: “larceny – own premises only”. Mr Monahan frankly acknowledged that he could not now recall the conversation or indeed the risk. In particular, he could not recall if he had noticed the phrase “Theft not by VFEE – Excess £5K” contained in the spreadsheet but he thought it likely that he did and that when he agreed to quote for a line of this risk he thought that he was being asked to quote for a risk which included what he called "full theft cover, namely cover for non-forcible theft by third parties". In essence, it was his evidence (as set out in his witness statement) that it is likely that he believed that this full theft cover would be aimed at walk in shop thefts (basically shoplifting) as well as potentially opportunistic thefts (by third parties) from head office such as walk in thefts of laptops etc; that this is the risk that he intended to underwrite and thought he was being asked to underwrite; that he did not think by this phrase he was being asked to cover non FVEE thefts by an employee because that would be provided by way of a separate cover, namely Fidelity Guarantee or Fidelity cover as it is often known; and that he was confident that the separate presentation was supplied to him and that he considered it prior to the decision to take the 25% line. However, Mr Monahan’s evidence was that he did not recall seeing the phrase “Larceny – own premises only” at the time; nor had he come across such phrase before; that at no stage was he asked to provide what he described as “fidelity cover” i.e cover for surreptitious theft by employees and/or business interruption consequent upon such theft; that Tokio Marine did not provide cover for business interruption consequent upon fidelity risks; that he had never heard of business combined insurance providing such cover; that had he been asked to provide fidelity cover, in accordance with Tokio Marine’s practice, he would have issued a standard set of questions to be answered by the insured. In summary, it was his evidence that he was sure that he did not intend to provide cover for surreptitious theft by an employee or for business interruption consequent upon it. So far as relevant, I consider this evidence further below. 67. I should mention that after Tokio Marine had agreed to go on cover, the matter was passed to Mr Avant to be handled by his team. He gave evidence as to his subjective understanding of the terms of such cover but given that he had no involvement in the agreement of the wording and acceptance of the risk, it seems to me that his evidence was of little, if any, relevance. Renewals: 2007, 2008 68. With effect from the renewal on 16 April 2007, the co-insurers dropped out and AXA continued to provide cover with 100% line. So far as AXA is concerned, Mr Hartshorne was concerned in the renewal with effect from that date and Mr Smith was responsible for the renewal for 2008/2009. As to the renewal in 2007 and so far as Mr Hartshorne was concerned, it appears that Mr Burbedge sent him an “Underwriting Submission” dated February 2007 and that they had a meeting on or about 1 March 2007. In relation to the underwriting submission, Mr Hartshorne’s statement states: “94. Looking at the document now, I would make the same comments as I made in connection with the 2004 Risk Schedule. I did not think reading it that Guy was requesting … either fidelity cover or cover for surreptitious thefts by employees. Again, I have never come across a broker requesting such cover… by putting forward a document with an extension to the Material Damage section called “larceny (own premises only).” 69. As to the renewal in 2008, Mr Smith explained what he understood was the effect of the cover. In particular, it was, in summary, his evidence that he never thought that the AXA policy provided cover for surreptitious theft by employees still less business interruption, consequent upon it; that this was not his intention at renewal in April 2008 or any subsequent renewals and, at all times in his dealings with the brokers, he proceeded on the basis that such cover was not provided under the policy; and that he had never come across business interruption cover consequent upon fidelity risks and AXA had never provided it. I revert to this evidence further below. 70. Against that summary of the facts, I now turn to consider the particular issues. A. Construction Issue 1 – Are direct losses by non F&V theft by employees covered under the Policy? 71. As to the applicable principles, Mr Cogley QC on behalf of Ted Baker submitted in summary as follows: A. The starting point is the decision of the House of Lords in Investors Compensation Services v West Bromwich Building Society  1 WLR 896. B. The relevant principles in the context of a policy of insurance were summarised by Stuart-Smith LJ in Yorkshire Water Services Ltd v Sun Alliance & London Insurance plc  2 Lloyds Rep 21: “(1) The words of the policy must be given their ordinary meaning and reflect the intention of the parties and the commercial sense of the agreement. Thus they must be construed in their context or, as Lord Mustill put it in Charter Reinsurance Co Ltd v Fagan and Others  2 Lloyd’s Rep 113 at 177… ‘the words must be set in the landscape of the instrument as a whole’. (2) A literal construction that leads to an absurd result or otherwise manifestly contrary to the real intention of the parties should be rejected, if an alternative more reasonable construction can be adopted without doing violence to the language used. (3) In the case of ambiguity the construction which is more favourable to the insured should be adopted; this is the contra proferentem rule.” C. As noted by Hobhouse J in M/S Aswan v Iron Trades Mutual Insurance Co  1 Lloyds Rep 289 at 293: “A policy of this kind needs to be construed having regard to the ordinary use of language. If the words used have an ordinary and natural meaning that is reasonably clear that is the meaning which should be adopted and the Court should not entertain an obscure or contrived argument to give these words some different meaning. This principle is reinforced where it is the insurance company that is seeking to reject the ordinary meaning and where the document is, as here, a standard form document produced by the insurance company itself.” (emphasis added) D. It is not the function of the Court to give a contract a ‘reasonable’ interpretation if the contract is clearly expressed, but happens to be unfair to one of the parties (Jason v Batten  1 Lloyds Rep 281 at 290), nor should the Court override a clear interpretation of the words used just because that interpretation would effectively defeat the main commercial purpose of the Policy – Standard Life Assurance v Oak Dedicated Ltd and others  EHWC 222 (Comm). E. Here the position is not nearly so drastic as in the Standard Life case – the claimants’ interpretation of the clear words used does not defeat the commercial purpose of the policy – at its highest for the defendants, it merely reflects what is, in this one discrete area of the policy and with the benefit of hindsight, a ‘bad bargain’ for the defendants. That is not and never has been a reason to strain the literal construction of clear words used - see eg Cook Arkwright v Haydon  2 Lloyds Rep 579, where Hobhouse J observed at 582: “…even if these policies were unbusinesslike, such a consideration does not provide an escape from the clear contractual provision. These policies represent a bargain freely entered into between assured and underwriter, and it is not for the Court to remake that bargain, even if it were to think that a different bargain would have been better” (affirmed by CA) F. This is not a situation governed by Rainy Sky v Kookmin Bank  1 WLR 2900 in that there simply are not two (or any) competing constructions of the words used, there is only their plain meaning. None of defendants’ witnesses were able to point to any other contender as to what the relevant words mean, save by reference to (non-existent) exclusions elsewhere in the policy. In all the circumstances there is undoubtedly cover under the ‘direct’ theft section of the Policy and the wording should be given its plain meaning, namely that theft means theft, including theft by employees as this is not otherwise excluded. If it is necessary to go any further than this, Ted Baker say that, this being a policy of non-marine insurance, ‘theft’ means theft as per the Theft Act 1968, following Grundy (Teddington) v Fulton  1 Lloyds Rep 16, but it would suffice for the claimants’ purposes even if it meant theft as understood by an ordinary businessman. 72. Consistent with these principles, Mr Cogley QC submitted that endorsement A05/F08 means what it says ie theft means theft; and that there is no evidence before the court of any customary usage of the expression “theft or any attempt thereat” to mean anything other than what it says. Further, Mr Cogley QC submitted that within the policy itself, the selfsame expression is used to mean all types of theft; that it is used in exclusion 2(c) of the unamended business interruption section to mean exactly that; that it cannot realistically be maintained that the exact same expression has two different meanings in the same policy document; that if the defendants’ interpretation of the meaning of this clause were correct, it would meant that the unaltered BI section excluded consequential loss caused by “theft by any means, unless committed by an employee” ie even in its unamended form the BI section would always cover theft by an employee, which would be contrary to all defendants’ arguments on that section. 73. Mr Cogley QC submitted that this was in effect confirmed by at least those of the defendants’ witnesses who were involved in the placement or underwriting of the risk as well as Mr Cash in particular: A. Mr Vallins: “… [A05] in fact covers, doesn't it, just looking at it, all theft? That is what it says. A. Yes. Unless it is otherwise anywhere else in the wording there are any other restrictions restricting the type of theft, then yes, it would cover all theft.” [T3/49/15]; B. Mr Bynorth: “Q. Yes. So, as you have agreed with me just a few moments earlier, even with F&VE in the insuring clause, in other words E1 at page 124, employees could be covered, it follows, doesn't it, both as a matter of logic and just looking at the words, that employee theft was also covered by extension AO5, wasn't it? A. Yes, if it is not otherwise excluded.” [T3/102/22ff.] C. Mr Smith: “Q. AO5 covers employee theft, doesn't it? A. It doesn't exclude employees. Q. Therefore, it ...? A. By interpretation, then it would include theft by employees.” [T3/132/19ff.] “If I wanted to word [A05] to exclude employee theft, I would have had to edit it as well.” [T3/139/13ff.] “It doesn't - - AO5 doesn't exclude theft by employees.” [T3/140/25]. D. Mr Cash: “MR JUSTICE EDER: The question was: "Full theft, as you have defined it, would not cover theft by an employee, would it?" You said: "Not specifically, no". A. There is no specific exclusion that I am aware of that would exclude an employee.” [T4/33/5ff.]…A. A05 equals full theft cover” [T4/63/24ff.] 74. In addition Mr Cogley QC submitted that much the same was said by others, eg Mr Monahan (“theft means theft”) and Mr Glover who (after considerable argument) accepted that larceny equals full theft cover and that A05/F08 would cover theft by an employee unless there was an exclusion. 75. For present purposes, it seems to me that these are no more than subjective declarations as to these witnesses’ intentions or views of the meaning of the contract wording and, in my view, are inadmissible in this context ie as an aid to construction. 76. So far as construction is concerned, Mr Lynagh QC raised two main points, the first based on a general appeal to “business commonsense”; and the second, by reference to the fact that the parties did not select the “Theft by Employees” section of the standard wording. I deal with these in turn. Business Commonsense 77. Mr Lynagh QC submitted that this is one of those cases where the court should find that the literal meaning of the words in the relevant context must yield to business commonsense and that it is plain that something has gone wrong with the wording. Although not expressly conceded by Mr Lynagh QC it seems to me that inherent in that submission is an acceptance that Mr Cogley QC is correct in his submission that the literal effect of endorsement A05/F08 is that direct losses by non F&V theft by employees are covered by the Policy. In any event, it seems to me that that is indeed the clear effect of the words used. In reaching that conclusion, I ignore for present purposes all extraneous evidence and focus simply on the wording of the Policy including endorsement A05/A08. 78. As stated in the leading textbook, MacGillivray on Insurance Law, 11th Edition para 27-6, policies against burglary or theft may expressly except from the risk any loss by theft or dishonesty of the assured’s servants. However, absent such express exception, I see no reason in principle why a policy which covers "theft” should not include theft by an employee. The passage in MacGillivray is, at the very least, consistent with that view as is the decision in Greaves v Drysdale (1935) 53 Ll L Rep 16 cited in footnote 16 although, I accept, the point did not arise for decision in that case. 79. In light of that analysis in MacGillivray, I am unable to accept Mr Lynagh QC’s general submission that such construction is somehow contrary to business commonsense or that it is plain that something has gone wrong with the wording. 80. In reaching that conclusion I focus on the wording of the policy and ignore for the time being the specific matters of what is described as “factual matrix” relied upon by Mr Lynagh QC which I deal with below. I also bear in mind the observations of Longmore LJ in Royal v Sun Alliance Insurance Plc v Dornoch  Lloyd’s Rep IR 544 at para 16 in response to a submission by counsel in that case that the court should “escape the prison gates of literalism and embrace the concept of “business common sense””: - “Attractive as that proposition is in general, there are dangers in judges deciding what the parties must have meant when they have not said what they meant for themselves. This is particularly dangerous when the parties have selected from the shelf or the precedent book a clause which turns out to be unsuitable for its purpose. The danger is then intensified if it is only one part of such a clause which is to be construed in accordance with “business common sense”. 81. There is no doubt that where a term of a contract is open to more than one interpretation it is generally appropriate to adopt the interpretation which is most consistent with business common sense: see Rainy Sky v Kookmin Bank  1 WLR 2900 per Lord Clarke at para 30. However, fairly read, I do not consider that the terms of the present contract are open to more than one interpretation. In any event, even if that were wrong, I am not persuaded that business common sense points generally either in favour of the policy providing cover for employee theft or not. Non-Selection of the Theft by Employees Section 82. So far as the wording of the policy was concerned, it was an important part of the defendants’ case that the fact that the parties did not select the AXA theft by employees section (“TES”) was significant and something that the court could and should take into account. In particular, Mr Lynagh QC submitted that the deletion or non-activation of this section is an aid – indeed an important aid - to construction in two respects. First, it supports the proposition that the claimants did not want to obtain any cover for non FVEE employee theft from AXA as this would have been the obvious mechanism to do so. Second, the use of the words “act(s) of fraud or dishonesty” in the relevant section assist with the interpretation of exclusion 4(c) in the BI section which uses the same words as it renders it more appropriate to construe exclusion 4(c) as excluding loss due to acts of fraud or dishonesty on the part of an employee of the insured, namely non FVEE theft. 83. This submission gave rise to some debate as to whether it was permissible to take into account the non-selection of this section as an aid to construction. In that context, Mr Lynagh QC relied upon the following passage from the judgment of Diplock J in Louis Dreyfus & Cie v Parnaso Cia Naviera SA  QB 498 at p.513 “There is a pleasant diversity of authority on this subject which the curious can find conveniently listed in a note in Scrutton on Charterparties, 16th ed. (1955), p. 33. But the court, in construing a contract, is seeking to ascertain the intention of the parties as expressed in the words that they have used. Where there is a standard form of words familiar to commercial men and contained in a printed form in general use, such as the "Gencon" charter, it seems unreal to suppose that when the contracting parties strike out a provision dealing with a specific matter, but retain other provisions, they intend to effect any alteration other than the exclusion of the provision struck out. I cannot, prima facie at any rate, ascribe to them any intention of altering the meaning of the words in the provisions which they have chosen to retain. I say "prima facie" because there may be added or substituted words which drive one to the conclusion that they did intend to ascribe to the words retained a meaning modified by the added or substituted provisions; but, while I think that I must look first at the clause in its actual form without the deleted words, if I find the clause ambiguous, I think that I am entitled to look at the deleted words to see if any assistance can be derived from them in solving the ambiguity, bearing in mind the prima facie rule which I have indicated.” In addition, Mr Lynagh QC relied upon the Mopani Copper Mines v Millennium Underwriting  1 CLC 992 where Christopher Clarke J undertook a review of the authorities on the admissibility of deletions and omissions from written contracts. He acknowledged that there was a diversity of authority, but concluded that the general tenor of the authorities was that recourse could be had to the fact and content of a deleted clause where: “(a) deleted words in a printed form may resolve the ambiguity of a neighbouring paragraph that remains; and (b) the deletion of words in a contractual document may be taken into account, for what (if anything) it is worth if the fact of the deletion shows what it is the parties agreed that they did not agree and there is ambiguity in the words that remain. This is classically the case in relation to printed forms… or clauses derived from printed forms…” (paragraph 120) Mopani itself concerned the pencilling out of a phrase and the superimposition of the words “TBA MLM”; in the event Christopher Clarke J was of the view that he would resolve the ambiguity without reference to the deleted words specifically, but by reference to the factual background; nevertheless, reference to the legible deleted words “fortified” him in his conclusions (paragraphs 85 and 86). 84. I respectfully agree with the views expressed by Christopher Clarke J in Mopani. On that basis and given my view that the effect of A05/F08 is clear and there is no relevant ambiguity, I do not consider that it is permissible to take into account the non-selection of the TES as an aid to construction of these endorsements in the Theft section of the policy. But, even if I am wrong, I am not persuaded that the fact of non- selection of the TES is of assistance to the defendants. In my view, the difficulty is that the TES covers loss of both property and money and is subject to stringent terms and conditions. If Ted Baker (or indeed any would-be insured) wanted cover in respect of loss of property only by employee theft, they could not have simply selected the TES without significant amendment. Further, if they did not want to be subject to the stringent conditions in the TES standard wording, significant further amendments would have been required. Of course, it is possible that the TES could have been selected suitably amended. However, despite the raft of evidence in this context from the defendants’ witnesses including Mr Coates, I do not consider that it is a simple question of whether the TES might or might not have been selected. Nor do I consider that the mere fact of non-selection of the TES necessarily leads to the conclusion that the theft extension endorsement A05/F08 was not objectively intended to provide cover for employee theft. In my view, the correct approach is to read the wording of A05/F08 fairly as it stands. Adopting that approach, I do not consider that the fact of non-selection of the TES requires or even suggests that such wording should be read as, in effect, excluding employee theft. As submitted by Mr Cogley QC, it seems to me that such an exercise would involve reading words into that theft extension endorsement which are not there. Of course, a specific exclusion could have been incorporated; but it was not. In my judgment, there is no basis for implying such an exclusion. 85. For these reasons, it is my conclusion that as a matter of construction of the wording of the policy, there is cover for employee theft under the Theft section. 86. Notwithstanding, Mr Lynagh QC submitted that a different conclusion should be adopted in light of what he described as “factual matrix” which I now turn to consider. In so doing, I should mention that certain of these submissions potentially relate as well to the proper construction of the BI section of the policy which it will be necessary to consider again briefly in that context. Factual Matrix 87. Consistent with the decision of the House of Lords in ICS v West Bromwich I accept, of course, that evidence as to what is described as “factual matrix” is admissible and may well be relevant and indeed important as an aid to construction. However, it is important to bear in mind the limits of such “factual matrix” evidence. Authorities since ICS v West Bromwich continue to show some uncertainty in identifying the proper limits of admissible “factual matrix” evidence. Whatever the precise limits may be, it seems to me plain that it does not include negotiations and declarations as to the purely subjective views of the parties or their representatives as to their intention with regard to the meaning or effect of their contract although it will be necessary to consider whether, and if so to what extent, such matters are relevant to other aspects of the case eg rectification. However, for present purposes, it is necessary to consider two particular areas of “factual matrix” relied upon by the defendants viz (i) “market practice” and (ii) matters which, it is said, “crossed the line” between the parties. I consider each of these in turn. Market Practice 88. Under this head, Mr Lynagh QC submitted that the courts have moved away from the strict principles previously adhered to in respect of the relevance of custom and practice: see Crema v Cenkos Securities plc  1 WLR 2066 (CA); that the Court is entitled to hear evidence of market practice falling short of trade usage or custom in order to assist it in a full understanding of the factual background: per Aikens L.J. at p2078 B – 2079 H; and that this can include the evidence of persons other than expert witnesses, such as brokers and insurers experienced in the relevant market: Gard Marine & Energy Limited v Lloyd Tunnicliffe  EWHC 1658 at paras 38 – 39 and 44. Further, Mr Lynagh QC relied upon the decision in Lancashire County Council v Municipal Mutual Ins  QB 897 in support of the proposition that, unlike a traditional plea of custom and practice, it is sufficient if most reasonable persons in the position of the contracting parties would have understood the words used to have a particular effect. In particular Mr Lynagh QC submitted that that case provides an example of how this approach to construction defeats literalism. The issue was whether exemplary damages were “compensation” for the purpose of a liability insurance policy covering, inter alia, liabilities for assault and wrongful arrest. The Court of Appeal held that exemplary damages fell outside what lawyers would understand to be the natural meaning of the term ‘compensation’: see per Simon Brown LJ at p903H-904B, Thorpe LJ agreeing (911B). Thus, Mr Lynagh QC submitted that the case is also a good example of the Courts resisting literalism in the interpretative process, an approach reaffirmed by Lord Steyn in Sirius International Insurance Co (Publ) v FAI General Insurance Ltd  UKHL 54;  1 Lloyd's Rep. 461 at para 19; that it is consistent with the approach endorsed in Reardon Smith Line v Yngvar Hansen- Tangen  1 WLR 989; that in this case the dealings between the brokers and the defendants insurers were conducted by experienced insurance professionals who are to be taken to be familiar with market practices and understanding against the background of which the words used must be construed; and that the insurance market, its practices and the understanding of individuals operating therein are an important part of the relevant background. 89. Finally, Mr Lynagh QC submitted in this context that the relevance of the factual matrix and background extends to the mistaken common assumptions of the contracting parties and the state of the law at the date the contract was made. “It is not, for example, confined to the factual background but can include the state of the law (as in cases in which one takes into account that the parties are unlikely to have intended to agree to something unlawful or legally ineffective) or proved common assumptions which were in fact quite mistaken.” (BCCI v Ali  1 AC 251 at 269 (paragraph 39) per Lord Hoffmann dissenting). 90. In broad terms, I accept Mr Lynagh QC’s submissions as stated above. However, in my judgment, the evidence of market practice such as it is does not assist Mr Lynagh QC for the following reasons. 91. First, it is important to recognise the limited nature of any potentially relevant market practice at least as agreed by the experts and set out in their Joint Statement: “Points of Agreement between the Experts 1. The experts agreed that fidelity insurance provides cover for theft by employee(s), although the cover provided is usually wider than just employee theft. An underwriter providing such cover would want to know such material facts as outlined in Mr Coates’ statement at para 52. The policy cover provided by such a fidelity policy would contain clauses particular to that type of insurance as detailed in Mr Coates statement para 33, although the exact wording would vary between insurers. 2. The experts agreed that since 2000 commercial combined polices invariably extend to include violent and forcible theft cover and this is the standard cover provided in the commercial combined market. They further agreed that cover for non-violent/forcible theft was and is frequently available upon request. Business Interruption (BI) cover written within commercial combined polices will also provide cover for violent/forcible theft as standard and sometimes be extended to cover theft not involving violent/forcible entry/exit. 3. BI cover following thefts by employees is always excluded under fidelity policies and such cover is not available in the general commercial market. 4. It was agreed that one key element of fidelity cover has for some considerable time been cover for theft of property (money & goods) by employees. ” 92. Both experts (Ms Beglinger and Mr Coates) gave oral evidence and were cross- examined as to the points of disagreement. In the event, I do not consider that it is necessary to consider that evidence in any detail. In my view, it is sufficient to say that I was unpersuaded that there was any relevant “market practice” which went beyond the points which had been agreed. 93. In light of the points of agreement, it was thus common ground that separate cover referred to as “fidelity insurance” was available and that (see para 4) a key element of such cover was theft of property (money and goods) by employees. However, the experts also agreed (see para 2) that cover for non-violent/forcible theft was and is frequently available upon request. It is true that the latter could be described as providing “fidelity” cover to the extent that it covered theft by an employee but it is not necessarily equivalent to ordinary “fidelity insurance” properly so called which (as was common ground) generally provides cover for both property and money and is often subject to particular restrictions and conditions. Of course, it might have been open to the parties to agree “fidelity insurance” and if they had done so, they might have had cover under that particular section of the standard policy. However, consistent with para 2 of the points of agreement of the experts, it was equally open to the parties to agree an extension to the standard cover in respect of non-F&V theft. To my mind, none of this is particularly surprising. Nor, in my view, is it of any particular assistance in resolving the particular issue that arises in relation to the construction of the specific wording in this policy. Here, as I have concluded, the effect of A05/F08 was, in effect, to provide “full theft cover”. There was no exclusion of employee theft. It may be that such exclusion was, as a matter of practice, “normal”; and it may be that as a matter of practice, such exclusion was often incorporated. But that did not happen here. I consider further below the defendants’ case in relation to rectification but at this stage my focus is the construction of the wording; and, in that context, it seems to me that the evidence of “practice”, such as it is, cannot displace the ordinary meaning of the words used, still less have the effect of incorporating by implication an exclusion. 94. For the avoidance of doubt, I should emphasise that I do not consider that the declarations of the subjective intentions of many of the defendants’ witnesses (which I have quoted or summarised above) as to the cover being provided by the agreed wording are of any assistance in relation to construction. For example, Mr Vallins’ evidence in his witness statement was that in agreeing endorsement A05, he did not intend to give cover for surreptitious theft and that, so far as AXA was concerned, cover for surreptitious theft would never be given by a short endorsement of that type. Other witnesses eg Mr Clifford, Mr Bynorth, Mr Hartshorne, Mr Watts, Mr Monahan and Mr Smith (whose evidence I have again quoted or summarised above) all gave evidence to similar effect. Apart from Mr Clifford and Mr Hartshorne (whose evidence was served under CEA notices), all these witnesses were subject to cross- examination by Mr Cogley QC. Although it was not always easy to identify when those witnesses were giving present evidence as to what they thought or understood at some period in the past as distinct from expressing their present views and arguing the case, I regarded all of these witnesses as honest witnesses. And I accept their evidence with regard to their subjective intentions which was, in effect, all of one piece ie that they did not intend to provide cover for surreptitious theft by an employee whether under either the Theft Section or the BI Section. Nevertheless, it is important to note that at least certain of these witnesses (in particular, Mr Vallins, Mr Bynorth and Mr Smith) accepted that the wording as agreed would cover surreptitious theft by an employee unless otherwise excluded. However, in my judgment, none of this evidence is admissible or relevant so far as construction is concerned. Matters that crossed the line 95. Mr Lynagh QC submitted that the following matters “crossed the line” between the parties and were therefore admissible as part of the relevant factual matrix as an aid to construction viz. A. The fact that the parties intended that the AXA policy should replicate that provided by the Independent and that the premiums were originally the same. B. An outward expression of accord crossing the line is to be found in the wording of the risk registers sent out by the claimants’ brokers Layton Blackham and the exchanges that took place between AXA and the brokers prior to the conclusion of the policy terms in 2004. C. The fact that the parties did not use the theft by employee section of the AXA policy. This applies to all the brokers, including Mr Davenport who was seeking to replicate the Independent policy. It also applies to Mr Burbedge who accepted that if, as a broker in 2004, he wanted to obtain for his client cover for theft by that client’s employees using that section would “probably be the obvious way, yes”. D. Mr Burbedge’s request for the excess to increase to £5,000 from £1,000 crossed the line: it cost his client £1.5m. This was accepted by Mr Page in cross-examination. It is entirely inconsistent with an assumption or intention that this policy was covering surreptitious theft by employee of stock and contents because no competent broker would do such a thing if he really thought he had such valuable cover. E. The fact that the brokers provided information which was relevant to the alleged cover under the heading “liability policy” rather than “property policy” crossed the line. This is because it would be expected that if the alleged cover was being provided, it would have been provided in respect of that cover as well. Mr Burbedge accepted that the information was not given in that context. There is no evidence in the documents which suggests that facts which were material for any insurer to know if he was providing cover for non FVEE thefts by employees was provided to AXA in the context of the property policy. All the evidence is to the contrary. F. Mr Smith gave evidence as to what information he would have expected Mr Burbedge to give if he thought he was obtaining theft by employee cover. The main thing was the check and supervision statement. This makes sense and is consistent with the evidence that both Mr Cash and Mr Glover gave: In the event that this is solely a matter for expert evidence, Mr Coates dealt with it in his report and was not challenged upon it. G. The fact that no additional premium was charged from year to year either under the theft section or the BI section for this very valuable cover crossed the line. H. The absence of any document or any other evidence as to any discussion about such unusual cover crosses the line particularly when one considers the long period over which this policy spanned by way of renewal and the negotiations as to premium and terms at each renewal. The stark fact is however that the claimants have not produced a single document in which this cover was discussed as between AXA and the brokers. 96. It seems to me that some of these matters go well beyond evidence of legitimate “factual matrix” but, in any event and to the extent relevant, I have already addressed points B, C, D, E, F, G, and H above. However, the first point in relation to an alleged mutual intention to “replicate” cover provided by the Independent requires separate consideration and potentially impacts on both the Theft Section and the BI Section. “Replication”? 97. As stated above, in support of their case on construction, the defendants sought to rely upon what they asserted was the fact that the parties intended that the AXA policy should replicate that provided by the Independent and that the premiums were originally the same. This raises a number of points of considerable difficulty. 98. First, the reference to what the parties “intended” needs to be properly understood. So far as construction is concerned, the parties’ subjective intentions cannot in my view be relevant or indeed admissible. Thus, although it is right, as I have already concluded, that both Mr Page (and also Mr Anderson) subjectively regarded the AXA policy as replicating the Independent policy, such evidence cannot, in my judgment, be relevant or admissible in the context of construction. At the very least, as Mr Lynagh QC accepted, the focus must be on what “crossed the line”. However, so far as this requires consideration of the parties’ stated intentions (ie one to another across the contractual line) I am at least extremely doubtful whether this would (even assuming it to be true) be properly admissible as “factual matrix” as an aid to construction. In my view, it is at least strongly arguable that this is, at best, part of the parties’ negotiations and therefore inadmissible. Nevertheless, I propose to assume, in the defendants’ favour at least initially, that the parties’ stated intentions as to the aim of the transaction would (or at least might) be admissible. 99. Second, it does not seem to me that the position of each of the defendants is necessarily identical. In particular, AXA came into the picture immediately after the collapse of the Independent. The other two defendants ie Fusion and Tokio Marine provided cover much later. Nevertheless, I am going to assume (again in the defendants’ favour) that these latter defendants stand in the same position as AXA. 100. Third, the underlying premise of this part of Mr Lynagh’s case is that the Independent policy did not cover employee theft either for direct losses or consequential losses/business interruption. As to this, I have already quoted the relevant parts of the policy as to which my comments and conclusions are as follows: A. First, it is important to note that the main part of the Independent policy was under section K ie “Material Damage All Risks”. Thus, it was on an “all risks” basis. The scheme of such type of insurance is, of course very different from the scheme of the Theft section of the AXA policy which provided cover not on an “all risks” basis but on the basis of specified perils. B. Second, within that section K there was an exception (ie exclusion 4(a)) which I have already quoted above and which in effect excluded “damage caused by theft or attempted theft unless (a) involving forcible and violent entry or exit from the premises”. However, again as I have quoted above, there was a separate endorsement headed “BAR K05 Full Theft Cover” which in effect deleted the exception 4(a). In the result, it seems to me that the Independent policy did cover what is referred to as “full theft” including theft by employees not as a specified peril but as part of the all risks cover and the deletion of the relevant exclusion. Thus, if and to the extent that the parties’ stated intention was to “replicate” the cover with the Independent and this is admissible, this would seem to be a point in the claimants’ rather than the defendants’ favour. C. Third, so far as cover for business interruption under the Independent policy is concerned, the position would seem to be as follows. As a starting point, it is important to note that unlike the earlier “material damage” section, this part of the policy was not on an all risks basis. On the contrary, as appears above, this section provided cover for “consequential loss” (a defined term) occurring during the period of insurance covered by any of the “Specified Perils” subject to the stated proviso which I have already quoted. Importantly, the specified perils did not include what might be described as “full theft”. For present purposes the only relevant specified peril was that set out in paragraph 13 which I have already quoted above and in effect only provided cover under this section for theft or attempted theft involving forcible and violent entry/exit. On this basis, it would seem that the Independent policy did not provide BI cover for “full theft” or, more specifically, “employee theft”. However, this analysis does not take account of the possible effect of the endorsement BUS B06 which I have quoted above. As I have stated, the inclusion of this endorsement does not seem to make sense in the context of the applicable “specified perils” wording and that this suggests an error of some kind although at this point of time it is impossible to say what that error was. However, in my view, endorsement BUS B06 cannot simply be ignored and, on this basis, the effect would seem to be that there was business interruption cover under the Independent policy for “full theft” which for reasons similar to those which I have stated in relation to the theft section would include theft by an employee. 101. In any event, the difficulty is that, as stated above, the focus must in this context be on what “crossed the line”. It is true that Mr Vallins’ evidence was that his instructions were that AXA had agreed to take on cases on the same terms as to cover and premium as the Independent; and that (I quote) “…As such the intention was to match the Ted Baker cover as closely as possible to the Independent cover. It was not to enhance or extend that cover.” However, there is no evidence that AXA ever saw a full copy of the Independent policy. Mr Vallins’ evidence was that he could not now recall what the full presentation documentation comprised: he only specifically identified various survey requests and a copy of the Risk Register that I have already referred to above. Thus, in considering what “crossed the line” and what can properly be regarded as part of the “factual matrix”, it seems to me that it is not the actual Independent policy which is relevant but, at most, the Risk Register: that is what Mr Vallins was given. 102. So far as the Risk Register is concerned, I have already quoted the material parts above. This gives rise to further difficulty because in my view it does not accurately reflect the terms of the Independent policy – or it is, at the very least, very confusing. In particular, as quoted above, the Register states that the cover is “ALL RISKS” but goes on to state: “INCLUDING THEFT FOLLOWING FORCIBLE AND VIOLENT ENTRY INTO AND/OR EXIT FROM THE PREMISES.” That is confusing because that wording is the exception to the exception in Exclusion 4(a); but, as stated above, the exception was deleted and therefore it makes little sense to make reference to such wording although it is true that the Independent policy provided cover for FVEE theft. For present purposes, the more important point is that, as stated above, the effect of endorsement BAR K05 is to provide, as it states, “Full Theft Cover” and it seems to me that the existence of such cover is confirmed or at least reflected in the words in the Register: “Larceny (own premises only) – subject to £1000 excess”. Moreover, in my judgment, the reference to “larceny” includes all kinds of theft including employee theft. All of this is somewhat confusing but it seems to me that the bottom line is that Risk Register in effect reflects and confirms that the material damage section of the Independent policy did cover full theft including employee theft (subject £1000 excess). If that analysis is correct and admissible as part of the relevant factual matrix, it seems to me that it does not assist the defendants but, on the contrary, is of assistance to the claimants. 103. So far as business interruption cover is concerned, this was summarised in the Risk Register under the heading “CONSEQUENTIAL LOSS” which I have also quoted in material part above. However, it is important to note that, in my view, the broker’s Register is again inaccurate. In particular, as quoted above, it describes this part of the cover as consequential loss following “all risks of loss and damage”. As stated above, it does not seem to me that this part of the Independent policy was on an “all risks basis”. However, the Register is accurate to the extent that it refers to the cover as including theft following FVEE although that is by virtue of such cover being one of the stipulated perils, not because it is part of any “all risks” cover under this section of the policy. Again, this is very confusing but it seems to me that the bottom line is that the fact that the Register describes the cover – albeit wrongly - for consequential loss as being “all risks”, that is what “crossed the line” and, on the assumption that this is all admissible and relevant factual matrix evidence, I am not persuaded that it is of assistance to the defendants. On the contrary, in my view, it is, if anything, of assistance to the claimants. 104. I confess that I have found this aspect of the case difficult to resolve. As stated above, I initially assumed (for the purposes of the exercise I have carried out) that the evidence which “crossed the line” was admissible. However, in my view, that assumption is incorrect: in truth, it seems to me that, at most, this evidence is part of the negotiations and cannot override or affect the terms agreed by the parties as found in the terms of the AXA policy. In any event, even if that is wrong, it seems to me that whether regard is had to the Register (which did cross the line) or even the Independent policy itself (which did not cross the line) as part of the relevant factual matrix, I do not consider that this assists the defendants. 105. In summary, my earlier conclusion based on the wording of the policy stands ie it is my conclusion that the Theft Section provided cover for direct losses as a result of employee theft and that such conclusion is not displaced or otherwise affected by any “factual matrix” or market practice as alleged by the defendants. Issue 2 – Are business interruption losses arising from non F&V theft by employees covered under the Policy? 106. On behalf of the claimants, Mr Cogley QC submitted that it follows inexorably from the fact that there is cover under the direct section of the policy that there is cover under the Business Interruption section of the policy, business interruption in this context meaning no more than ‘loss of profits’. I do not agree with that submission formulated in that way. The two sections of the AXA Policy are discrete: it does not follow that because a particular loss is covered under the direct section, consequential loss is also recoverable under the BI section. Whether or not such consequential loss will be recoverable will depend upon the terms of the policy in the light of any admissible factual matrix and market practice. 107. So far as the BI section of the AXA Policy is concerned, I have already quoted the material part above. My comments and conclusions with regard to the scope and effect of such wording are as follows. 108. First, it is important to note that the cover under this section is on an “all risks” basis. In my view, so far as Ted Baker is concerned, if any theft by a third party (including theft by an employee) occurs and in consequence its business is “interrupted or interfered with”, this would fall within the basic terms of BI cover and, in principle, it must follow that Ted Baker would be entitled to recover under this section the amount of loss resulting therefrom subject of course to the proviso and the other terms and exclusions. 109. Second, given my conclusion with regard to effect of endorsement A05/F08 in the Theft Section, it seems to me that the requirements of the proviso in the BI Section are satisfied. 110. Third, in the ordinary course, the effect of exclusion 2(c) would be to exclude any consequential loss arising directly from theft or attempted theft. However, that exclusion is deleted by Endorsement 637. In my judgment, it follows that as a matter of wording business interruption losses arising from theft including non F&V by employees are covered under the Policy. 111. So far as the wording of the policy is concerned the main counter-argument is the one advanced by the defendants in reliance upon exclusion 4(c) which I have already quoted above ie the exclusion of consequential loss “caused by or consisting of …acts of fraud and dishonesty”. This is a short but important point. 112. In summary, Mr Lynagh QC submitted that clause 4(c) should be construed so as to exclude the non FVEE thefts of employees; that this would give effect to the presumed intention of the parties; and that such construction was consistent with the use of similar words in standard fidelity or theft by employee sections. Further, Mr Lynagh QC relied upon certain parts of the evidence of Mr Coates as to how these words are generally understood in the industry and how, until recently, most policy wordings used only “fraud and dishonesty” but it was now more common to add words “by an employee” to the end of the clause. 113. Mr Lynagh QC advanced these submissions with great persuasiveness but I cannot accept them for four main reasons. First, I have to construe these words as they appear in this particular policy. In that context, it seems to me important to note that the standard unamended wording exclusion clause 4(c) stands alongside other exclusions, in particular exclusion clause 2(c) which specifically excludes consequential loss arising directly from theft or attempted theft. In such circumstances, it seems to me that Mr Cogley QC is right in his submission that exclusion clause 4(c) is not concerned with theft at all but with fraud or dishonesty other than theft. Second, in my judgment, the deletion of exclusion 2(c) demonstrates an objective intention to bring within cover consequential loss arising directly from theft or attempted theft. Such deletion is, in my view, inconsistent with Mr Lynagh QC’s construction of exclusion 4(c). Third, as I say, I have to deal with this case on the basis of the wording in this policy. Mr Lynagh QC fairly conceded that none of the witnesses had ever seen this form of AXA Policy with clause 2(c) deleted. On that basis, it does not seem to me that reference to other wordings or any supposed “market practice” is of any assistance. Fourth, it seems to me that, at the very least, exclusion clause 4(c) is ambiguous; that it is trite law that exclusions from cover are to be construed against insurers: see, for example Pike v Independent Insurance Co. Ltd  Lloyd’s Rep I.R. 410; and that, on this basis, exclusion clause 4(c) must therefore be construed against the defendants. 114. For all these reasons, it seems to me that as a matter of wording of the policy and ignoring for present purposes any external factual matrix evidence or market practice, the claimants are right viz business interruption losses arising from non F&V theft by employees are covered under the Policy. 115. So far as factual matrix evidence/market practice is concerned, I have already addressed these matters above in the context of considering the Theft Section; and, in my view, for reasons already stated, I do not consider that such matters assist the defendants. It is perhaps worth emphasising again that none of the witnesses had ever seen this form of AXA Policy with clause 2(c) deleted. Issue 2 (5): The Springboard Point 116. It is common ground that the BI insuring clause in effect required that at the time of the happening of the loss destruction or damage there was in force “an insurance covering the interest of the Insured in the property at the Premises against such loss destruction and damage and that (1) payment shall have been made or liability admitted therefore or (2) payment would have been made or liability admitted therefore but for the operation of a proviso in such insurance excluding liability for losses below a specified amount”. This is what has been referred to as the “springboard point”. 117. It was common ground that there were three “candidates” which might potentially satisfy the terms of the clause. First, the AXA policy itself. Given my conclusion that the theft section of the policy covered the relevant interest in the property, it seems to me that this satisfies the clause and that it is unnecessary to consider the other “candidates”. However, for the avoidance of doubt I should record that as to the other possible “candidate”, Mr Cogley QC accepted that the NU policy, having declined to pay out for reasons other than these permitted in the business interruption insuring clause, would not satisfy the terms of the clause; and Mr Lynagh QC accepted that the AIG Crimeguard policy would satisfy the clause which would at the very least mean that there was business interruption cover for the 2007 and 2008 years. However, this is academic because of my conclusion with regard to the theft section of the AXA policy. Issue 4: Estoppel 118. In my judgment, the defendants’ case on estoppel by convention fails in limine. As I have found, the claimants, in particular Mr Page, believed that Ted Baker had cover for consequential losses (ie direct losses and loss of profits) as a result of employee theft ie under both the Theft Section and the BI Section of the policy. So far as the brokers are concerned and so far as their belief might be relevant, so too did Mr Burbedge. There is no evidence as to Mr Davenport’s belief. As to Mr Cash and Mr Glover, my conclusions with regard to their evidence are such that it does not, in my judgment, avail the defendants. In any event, their involvement was limited to 2003 and the early part of 2004 and, as such, can have no relevance to the present claims which relate to the years 2004-2008. Further, given (a) the terms agreed, (b) my conclusions with regard to the effect of such terms and (c) the continuing beliefs (as I have held) of both Mr Burbedge and, in particular, Mr Page, it seems to me (i) that there was no relevant shared assumption and (ii) in any event it would be unconscionable for AXA now to assert there was no cover for employee theft under the Theft Section or BI Section of the policy. Issue 5 – Rectification 119. The defendants seek an order that the AXA policy schedule upon which clause F08 was endorsed in August 2004 be rectified so as to contain the following additional phrase: “..save that the Company shall not indemnify the Insured in respect of loss of Property Insured as a result of any act of fraud or dishonesty committed by any employee of the Insured.” 120. Rectification for common mistake at the very least requires AXA to establish that the policy erroneously fails to express an intention that the parties shared, i.e. that non- FVEE theft by employees would be excluded. The necessary requirements are succinctly summarised in Swainland Builders Ltd v Freehold Properties Ltd  EGLR 71 viz. (1) the parties had a common continuing intention, whether or not amounting to an agreement, in respect of a particular matter in the instrument to be rectified; (2) there was an outward expression of accord; (3) the intention continued at the time of the execution of the instrument sought to be rectified; (4) by mistake, the instrument did not reflect that common intention. 121. Further it is important to bear in mind the observations of Lord Hoffman in Chartbrook Ltd v Persimmon Homes Ltd  1 AC 1101 at paragraph 60. “Now that it has been established that rectification is also available when there was no binding antecedent agreement but the parties had a common continuing intention in respect of a particular matter in the instrument to be rectified, it would be anomalous if the ‘common continuing intention' were to be an objective fact if it amounted to an enforceable contract but a subjective belief if it did not. On the contrary, the authorities suggest that in both cases the question is what an objective observer would have thought the intentions of the parties to be. Perhaps the clearest statement is by Denning L.J. in Frederick E Rose (London) Ltd v William H Pim Jnr & Co Ltd  2 Q.B. 450, 461: ‘Rectification is concerned with contracts and documents, not with intentions. In order to get rectification it is necessary to show that the parties were in complete agreement on the terms of their contract, but by an error wrote them down wrongly; and in this regard, in order to ascertain the terms of their contract, you do not look into the inner minds of the parties-into their intentions- any more than you do in the formation of any other contract. You look at their outward acts, that is, at what they said or wrote to one another in coming to their agreement, and then compare it with the document which they have signed. If you can predicate with certainty what their contract was, and that it is, by a common mistake, wrongly expressed in the document, then you rectify the document; but nothing less will suffice.'” 122. As to the need for an “outward expression of accord”, Mr Lynagh QC submitted that this was not a legal requirement but only an evidential factor and, in support of such submission, relied upon Munt v Beasley  EWCA Civ 370. However, that case was considered by Christopher Clarke J in P.T Berlian Laju Tanker TBK v Nuse Shipping Ltd  2 Lloyd’s Rep 246 at paras 44-48. Having referred to the facts of the case and the authorities cited, Christopher Clarke J concluded as follows: “48. I do not regard Mummery, LJ's obiter observations as indicating that rectification is dependent on a continuing common subjective intention. Where one party has admitted that he had the same belief as the other, itself something of a rarity in a contested case, the likelihood is that the parties will have communicated that belief to each other in some way. Where such an admission is made it may be justifiable to infer that they did or to take the admission as accepting that. Further the requirement for an outward expression of accord may not require an express statement of the parties' agreement if it can be implied or is obvious from what occurred. But the basis for rectification, in a contract case, remains that "there must be some material upon which it can be said that the instrument does not reflect what the parties agreed, not merely what they or one of them thought that it meant." per Hoffmann, LJ, in Britoil v Hunt, to which I refer below.” I respectfully agree with those observations. 123. As to the standard of proof, I would refer to the observations of Mustill J in The Olympic Pride  2 Lloyd’s Rep 67 at p.73 “The Court requires the mistake to be proved with a high degree of conviction before granting relief. There are sound policy reasons for this. The Court is reluctant to allow a party of full capacity who has signed a document with opportunity of inspection, to say afterwards that it is not what he meant. Otherwise, certainty and ready enforceability would be hindered by constant attempts to cloud the issue by reference to pre-contractual negotiations. These considerations apply with particular force in the field of commerce, where certainty is so important. Various expressions have been employed in the reported cases to describe the standard of proof required of the person who seeks rectification. Counsel in the present case were agreed that the standard can adequately be stated by saying that the Court must be “sure” of the mistake, and of the existence of a prior agreement or common intention before granting the remedy.” 124. In light of above and given my conclusions with regard to the evidence of the claimants (in particular, Mr Page and Mr Anderson) and the brokers (in particular, Mr Cash, Mr Glover and Mr Burbedge) as I have set out above, the defendants’ claim for rectification also fails in limine. Even taking the evidence of the defendants’ witnesses at its highest, I am not “sure” that any of those involved on the claimants’ side (including their brokers) believed that the insurance did not provide cover for loss of property or consequential loss/business interruption caused by surreptitious employee theft. On the contrary, I would refer again to my conclusions on the facts as I have summarised under the previous heading in relation to the defendants’ case in relation to estoppel. Moreover, there is no outward expression of accord indicating an agreement to an exclusion clause or an agreement that employee theft is excluded; nor any cogent material upon which it can be said that the policy wording does not reflect what the parties agreed not merely what they or one of them thought that it meant. The Co-Insured Policies Fusion 125. Given my conclusion that the cover sought by Mr Burbedge from Fusion was intended to and did include cover for non FVEE employee theft and BI cover thereon, it is in essence the defendants’ case that he should have realised that the Fusion underwriters (including Mr Watts) would not appreciate that he was seeking such cover and that accordingly he should have disclosed the nature of the cover that he was seeking and/or misrepresented the position by the use of the word larceny. It is on this basis that Fusion seek a declaration that they are entitled to rescind their contract and/or damages, 126. As to the circumstances in which Mr Watts came to agree to the line by Fusion, I have already summarised the basic facts above. There is no issue with regard to Mr Burbedge’s description of the cover as “larceny”; and there is no doubt authority to support the general proposition that a statement as to the meaning or effect of a document can amount to an actionable misrepresentation: see Wauton v Coppard  1 Ch 92; Kyle Bay v Underwriters Subscribing under Policy No 019057/08/01  Lloyd’s Rep I.R. 460. However, I do not consider that such brief description constituted a material misrepresentation as to the scope of the cover. Moreover, even if that is wrong, I am not persuaded that Mr Watts relied upon any such misrepresentation; nor, even if that is wrong, that any such reliance was reasonable. In particular, Mr Watts had a copy of the wording and the booklets – so, as Mr Burbedge emphasised, Mr Watts could see for himself what the cover provided. In any event, Mr Watts confirmed that he understood the wording of A05/F08 to be wide enough to include employee theft but in evidence said that (contrary to his witness statement) he had mistakenly assumed that the standard AXA wording had an employee theft exclusion in it but he did not check. Nor do I consider that there was any material non- disclosure giving rise to any entitlement to rescission or damages. Tokio Marine 127. There is no dispute as to what Mr Read sent to Mr Monahan. I have already summarised this above. However, for similar reasons to those set out above in relation to the Fusion line, I do not consider that there was any material misrepresentation or non-disclosure. Moreover, I found Mr Monahan’s evidence unreliable: although he said that he thought it likely that he did notice at least some of the wording that he had been provided, it was plain that he had no present or at least reliable recollection that this was indeed the case. Thus, I am not persuaded that Mr Monahan relied upon any such misrepresentation; nor, even if that were wrong, that any reliance was reasonable. Nor do I consider that there was any material non-disclosure giving rise to any entitlement to rescission or damages. Conclusions 128. So far as relevant and using the same numbering, I therefore answer the questions posed in the list of issues as follows: 1: Yes; 2: N/A; 3: Yes; 4: N/A; 5: In part, yes; 6: No; 7: See answer 1 above; 8: No; 9: Unnecessary to determine; 10: Not relevant; 11: No; 12: Unnecessary to determine; 13: No; 14-22: It is unnecessary to answer each of these questions individually. So far as relevant, I have addressed them in the course of my judgment and it is sufficient to say generally that my conclusions with regard to cover under the Theft Section and BI Section are not displaced or otherwise affected by any “factual matrix” or market practice as alleged by the defendants; 23: No; 24: Yes; 25: No; 26: No; 27: N/A; 28: No; 29: Yes; 30: No; 31: N/A; 32: No. 129. In light of these conclusions, Counsel are requested to seek to agree a draft order for my approval (including costs) failing which I will deal with any outstanding issues.
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