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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Direct Line Insurance Plc v Khan & Anor [2001] EWCA Civ 546 (4 April 2001) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2001/546.html Cite as: [2001] EWCA Civ 546

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IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION
(Mr Justice Jackson)

		The Royal Courts of Justice The Strand London WC2A Wednesday 4 April 2001

Wednesday 4 April 2001

1. LORD JUSTICE MANCE: This application for permission to appeal relates to a claim against insurers in respect of a fire at a house belonging (according to the proprietorship register, in title absolute) to the two claimants in the action, Munawar Khan and his wife Waheeda Khan ("Mr and Mrs Khan"). So in law it appears that they were and are joint owners. However, in all likelihood, although we have no evidence of this formally before us, they were in equity probably tenants in common; in other words, they had several interests in respect of the property. For my part, I am prepared to assume that they were. As regards contents and the like insured in the property, no doubt some were owned together and others belonged to one or other.
2. The property was insured by a policy with the defendants (of which we have a copy), which was taken out in Mrs Khan's name for the reason, as it appears, that she had had a motor policy with the defendants and was therefore able to get some discount in respect of a house insurance. It being formally in her name, however, it provided for the husband's interests by recording that he was a joint policy holder under the next heading in the schedule, which is "Other interests". The concept of a joint policy holder is then later explained in the body of the policy by an endorsement which states this:

"Joint Policyholder. It is noted that the policyholder and the other interest(s) shown in the Schedule are joint policyholders for their respective rights and interests."

3. The only other interest, apart from Mr Khan as joint policy holder, was Barclays Mortgages as mortgagee.
4. It has been submitted before us (and it seems to me properly arguable for the purposes of granting permission to appeal) that the effect of that situation regarding ownership and those policy provisions is that the policy covers Mr and Mrs Khan for their several interests in equity and is not a joint policy in strict legal terms. The distinction is shown in a number of authorities, the most well-known of which is General Accident v Midland Bank Ltd [1940] 2 KB 388. New Hampshire Insurance Co Ltd v MGN Ltd [1997] LRLR 24 is also relevant.
5. Even if that is not right, it is submitted that there may be scope for development of English law in a way which, in a case of fraud or other wrongdoing by one of the joint policy holders, might limit the relief granted to that policy holder. That is a proposition of law which does not seem to me to receive much support from the speech of Viscount Cave in p Samuel & Co v Dumas [1024] AC 431 or, indeed, from the work by Professor Clarke on Insurance Contracts; but does receive some possible support from Canadian authority, albeit in a dissenting judgment (of La Foret J) in Scott v Wawanesa (1989) 59 DLR 660 at page 667. It is sufficient in any event for present purposes to note the possibility, properly arguable on appeal, that this may be a several insurance rather than a joint insurance.
6. The fire took place on 8 January 2000. It did considerable damage both to the house and contents allegedly in it. It appears that, informally at least, claims were pursued, since payments were made by insurers in respect of both the damage to the house and contents and the cost of what was claimed as alternative accommodation. That related to another house which it seems likely (from the limited information before us, which does not include the proprietorship register) Mr Khan bought in his own name after the fire, and to which he and his wife then moved; no doubt while the damage to their main house was being repaired.
7. Mr Khan, however, claimed, again informally, as against insurers that this other house was being rented from someone called Mr Gabriel (who, in fact, subsequently proved to be related to him) and that he was paying £1,200 a month in respect of the rental. He, and on two occasions Mrs Khan, pressed insurers to pay £1,200 monthly under the insurance. He at least undoubtedly did this on the basis that I have stated; namely that the house was being rented from a Mr Gabriel at that sum monthly.
8. The evidence put in by the insurers in relation to a freezing order which they sought in this action (which is for recovery of all the sums they paid) deals with the two monthly occasions on which the wife made such a claim. In reality, since Mr Khan at any rate owned the house himself, there was no question of any such payment being made to Mr Gabriel, and the basis of the present action by insurers against Mr and Mrs Khan is that there was a fraud and that the policy has been validly voided in its entirety so that all sums paid under it are recoverable; and, they say, recoverable from Mr and Mrs Khan.
9. The judgment below was given on a summary basis, pursuant to a witness statement and application at which it is necessary to look in a little detail in order to observe the limited nature of the basis on which the claim was made. At paragraph 3, under the heading of "Joint Policy Holders", the evidence of Mark Aitken, the solicitor supporting the application, was as follows:

"At paragraph 2 of the Defence it is decided that the Second Defendant was a joint policyholder with the First Defendant. I assume that the purpose of this plea is to mount a defence that, even if the First Defendant made fraudulent misrepresentations to the Claimant which caused the Claimant to make payments under the policy, this did not entitle the Claimant to rescind the policy as against the Second Defendant, presumably on the basis that she did not make the fraudulent misrepresentations. The Claimant's case is that the Second Defendant was a joint policyholder with the First Defendant and thus the fraud of the First Defendant entitles the Claimant to rescind the policy as against the Second Defendant."

10. Then Mr Aitken produces the policy document and says:

"These pages show that the First Defendant was a joint policyholder with the Second Defendant."

11. For these reasons, he goes on:

"The Claimant's case is that there is no real prospect of the Second Defendant succeeding on her pleaded defence that she was not a joint policy holder. I understand from Mr Treloar [who may have been the loss adjuster] that, as the parties were both joint policyholders, the terms of the policy . . . applied equally to both policy holders."

12. In fact there were no particular relevant terms. There is one which might arguably mirror the equitable position relating to avoidance, but I think it is probably unapt and it has not been referred to before us. The basis of avoidance, on the face of it, is simply the general duty of good faith which exists, and the basis of the summary judgment claim was (as I have indicated) simply that this was a situation of joint policy holders.
13. When the summary judgment application came before the judge, the argument was relatively limited in scope. Different counsel from Mr Nicol (who appears before us) submitted on behalf of both the defendants that the principle in Galloway v Guardian Royal Exchange [1999] LRIR 209 was inapplicable. He suggested that, since the defendants would anyway have been entitled to let the second property if they had not had to move into it, they could be said to have lost rental income in respect of it equivalent to the amount which they claimed against insurers as being the rental sum they were having to pay to rent it. That ingenious argument was, in the judge's view, bound to fail. It is not suggested that the judge was in any way wrong in that rather obvious conclusion.
14. The other point argued related purely to Mrs Khan. It was that she was unaware of any fraud and that the policy was not a joint policy but a policy in respect of the several interests of Mr and Mrs Khan. It was conceded that if it was a joint policy then the fraud of Mr Khan would taint the whole policy. The judge said that he would assume in favour of Mrs Khan that she was unaware of the fraud being perpetrated by her husband, the first defendant, but he concluded that it was a joint policy because that was what the wording of the schedule effectively said, so that this defence failed.
15. For reasons I have already indicated, it seems to me that the judge's reasoning on the second point argued before him is open to proper doubt, such as to justify a grant of permission to appeal. However, as we have indicated to counsel in the course of argument, that may not be the end of the matter. It may be that, in the light of the limited way the summary judgment application was pursued, it will prove to be the end of the matter; but Mrs Khan does evidently face some further difficulties at some stage. First, there is the fact that she herself twice rang up the insurers, pressing for the payment of £1,200 in two particular months. That was the subject of the following sentence (not, as far as I am aware, contradicted in any evidence so far) in an affidavit of Mr John Baldock, sworn in October 2000. At the end of paragraph 8 he said:

"GAB Robins' [the adjuster's] file indicates that the Second Defendant [Mrs Khan] had on occasions rung GAB Robins chasing reimbursement in respect of the Defendants' costs of alternative accommodation."

16. When one looks at the documents to which he then refers, they are internal adjuster's memoranda. They are in quite specific terms recording telephone calls from Mrs Khan. The message in the first case was "Mrs Khan rang, chasing payment for alternative [accommodation]" and then a note of the action taken, including a response to her that she should be in receipt (of payment) by the middle of next week; and then later, in April 2000, another message from Mrs Khan was recorded as "Has A/A payment been made", with a record of the response.
17. When we asked Mr Nicol what was the position relating to that, he told us (and I record that Mrs Khan was and is sitting at the back of the court) as follows, and I quote from my note:

"My instructions are that she was not aware he [that is Mr Khan] owned it [that is the second property] and she too thought it was being rented. She was wholly unaware of any dishonesty of her husband."

A little earlier, Mr Nicholls had said the same thing:

"She thought it was rental accommodation for which rent was being paid. In fact he had purchased the property from Direct Line."

18. These (no doubt in my notes slightly abbreviated) statements by Mr Nicol obviously indicate a basis which, if true, would mean that Mrs Khan was innocent of any involvement. However, I note that in a letter of 3 October 2000 from the solicitor, Barrie N Barker, then acting for her, the third paragraph reads as follows:

"It is quite clear that, notwithstanding any action taken by Mr Munna Khan, there can be no suggestion that my client has failed to act with utmost good faith throughout the conduct of this claim. She has assured me that she was not aware that Mr Khan had made a claim for rent under a false tenancy agreement and had assumed, unsurprisingly, that he was claiming for loss of rent which he would have received had he been able to let the property at Standard Road."

19. That is a different explanation. Mr Nicol said, when his attention was directed to it, that, even assuming that explanation is correct and ignoring for the moment the apparent discrepancy between the two explanations, still the position would be that she was innocent; and that, no doubt, was the thrust of the point being made by Barrie M Barker's letter.
20. There may be, however, a further difficulty which it is appropriate to mention. That is that, even assuming innocence on Mrs Khan's part, claims were made (including the claim in respect of alternative accommodation) by the husband, and it is a general principle (which appears, for example, in The Litsion Pride [1985] 1 Lloyd's Rep 437 at pages 513-514 in the context of claims) that fraud, albeit by an agent, in the presentation by a claim affects the principal.
21. Here again, it seems to me that it should be borne in mind that this aspect was not argued below and may not even be arguable, on the way the summary judgment application was put. It may be arguable by Mrs Khan that the alternative accommodation claim was not a claim which was being put forward on her behalf. It related to a house which, it may be, her husband alone was interested in, and she thought it was a claim for loss of rent which he would have received, according to the letter of 3 October 2000. Without in any way prejudging that point, I identify it simply to show that it is a point which has been discussed before us and which may create some difficulty at some stage for Mrs Khan.
22. For present purposes, I consider that Mr Nicol has shown before us a proper basis on which to grant permission to appeal in respect of Mrs Khan's interest. The payments which had been made are set out in Mr Baldock's affidavit in paragraph 4. They consist of:

"(1) Reinstatement of buildings (£43,425.90)

(2) Replacement of contents (£18,915.95)

(3) Rent payable in respect of alternative accommodation [that is apparently at the second house, 68 Standard Road, Hounslow] (£8,257.47)".

23. It appears that some (possibly all) of the third head of claim has been repaid after Mr Khan was confronted with his fraud, now not effectively challenged. In respect of reinstatement of buildings, since Mrs Khan's case is that she is an entirely innocent assured with a severable interest of (probably) half, if she succeeds in her appeal, the logic might appear to be that half was recoverable, but that it was recoverable from Mr Khan alone (though he has not in fact renewed any application for permission to appeal against the judgment given against him in half). As regards contents, the contents may consist to a large extent or to a very small extent of Mrs Khan's property or of joint property: we simply do not know. But again Mrs Khan, if her appeal succeeds, may avoid any liability to make any repayment. In respect of the rent claimed for alternative accommodation, Mrs Khan is again entitled to permission to appeal in respect of the whole of that, on the basis that I have indicated, that she has a case for saying that it was nothing to do with her and not received on her behalf. So I for my part would give her permission to appeal against the whole judgment against her.
24. LORD JUSTICE SIMON BROWN: When initially this application came before me on the documents, I refused it in these terms:

"It is perfectly plain that on the core facts of this case the insurers' claim was irresistible: Galloway v GRE covered the case. No amount of detail or argument could escape those core facts and the application of the central principle established in Galloway. Documents 22a to 22j cannot help the applicants; as the Judge observed, the policy document (eg page 22E) describes Mr Khan as a Joint Policyholder.

No appeal here would have any realistic prospect of success. Indeed, it would merely involve throwing good money after bad."

25. The application is now renewed on a very different basis. We have had the benefit of most skilful and helpful submissions, both written and oral, from Mr Andrew Nicol, only recently instructed in the matter.
26. The application is now made solely by the second defendant, Mrs Khan, and exclusively on the basis that she had no knowledge of her husband's fraud so that (it is contended) her relationship with the claimant insurers ought not to be affected. Difficult though this argument may be, and not least on the facts as my Lord has explained, I share my Lord's view that it cannot simply be said to have no realistic prospect of success, at least as to part of the insurer's claim.
27. In the result, I concur in the order proposed by my Lord.
28. I add just this. I asked my Lord to deliver a fuller judgment than might ordinarily be expected on the grant of a permission to appeal. I did so because of his special expertise in insurance law, and in the hope and, indeed, expectation that this will be of benefit hereafter both to the parties and, no doubt, the court.
29. As to directions, the time estimate is one day, excluding judgment. We direct that the appeal is heard in a court consisting of three Lords Justices (one of them with insurance expertise). Given that there are freezing orders and the like here, we direct that some expedition, so far as practicable, be given to the case.
ORDER: Application allowed (Order not part of approved judgment)