Case No: A2/2015/1777
Neutral Citation Number: [2017] EWCA Civ 13
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
EXETER DISTRICT REGISTRY
HIS HONOUR JUDGE COTTER QC

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 18/01/2017
Before :

LORD JUSTICE TOMLINSON
and
LADY JUSTICE GLOSTER

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Between :

	Rodney Channon
(trading as Channon & Co)	Claimant/
Appellant	
	- and -		
	John Ward
(trading as Ward & Associates)	Defendant/Respondent	

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Leslie Blohm QC and Guy Adams (instructed by WBW Solicitors) for the Claimant/Appellant 
Neil Hext QC and Dan Dyson (instructed by Ashfords LLP) for the Defendant/Respondent

Hearing dates : 22 & 23 November 2016

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Judgment
Lord Justice Tomlinson : 
Introduction
1.	This appeal against a decision made by His Honour Judge Cotter QC sitting as a Deputy Judge of the Queen’s Bench Division in Exeter on 12 May 2015 arises out of a most unusual case.  Elements of it are difficult to understand but explain some unusual features of the way in which the hearing before Judge Cotter was conducted.  
2.	The Claimant/Appellant Mr Rodney Channon is a chartered accountant, trading as a sole practitioner as Channon & Co in Newton Abbot, Devon.  The Defendant/Respondent Mr John Ward was his insurance broker.  Since around 1991 Mr Ward had been responsible for placing Mr Channon’s professional indemnity insurance cover.  In 2009 and 2010 Mr Channon notified Mr Ward, for onward transmission to insurers, of receipt of a number of connected claims by persons who claimed to have suffered loss in consequence of negligent investment advice given to them by Mr Channon in the course of his practice as a chartered accountant.  In late 2010 it transpired that Mr Channon had not in fact been insured since June 2007.  In late 2011 Mr Channon began proceedings against Mr Ward alleging that he had negligently failed to procure the indemnity insurance and that in consequence Mr Channon had suffered loss, in that he had neither liability cover to respond to the losses to which the claims would or might give rise nor the support of insurers in respect of the cost of defending the claims brought against him.  
3.	On 16 April 2012 judgment in default for damages to be assessed was entered against Mr Ward on account of his failure to particularise his Defence as he had been ordered to do.  In point of form the hearing before Judge Cotter in Exeter in 2015, which occupied 3 days, was the assessment of damages pursuant to the default judgment.  The judge assessed the damages at nil and ordered Mr Channon to pay Mr Ward’s costs.  Mr Channon appeals with permission of the single Lord Justice.  
4.	This bald recital of the conduct of the action conceals the remarkable circumstances which underlay it.  The first such circumstance is that the claims brought against Mr Channon had nothing whatever to do with his practice as a chartered accountant.  Mr Channon was also a successful property developer.  He was, together with a Mr Bromage and another, a director of a company called Mill House Partnership Limited (“MHP”) which had ambitious plans in particular concerning a site in Newton Abbot.  Between 2004 and 2007 several individuals were persuaded by Mr Channon to lend money to MHP on terms which promised an attractive rate of interest together with a profit share, the purpose of the loans being to enable MHP to pursue its purchase and development projects.  Those individuals, to whom I shall refer hereafter as “the investors”, were not all clients of Channon & Co.  Four married couples were clients, three other individuals were not.  
5.	Channon & Co was not authorised by the Financial Services Authority to conduct investment business, a fact of which all its clients were advised.  Mr Channon repeatedly told his clients he did not give financial advice, by which was meant and would have been understood investment advice.  
6.	Mr Channon denied having given any investment advice to the investors, who all knew that he was a director of MHP.  Mr Channon was able to point to numerous statements in the documentation surrounding and evidencing the various loan agreements that made clear that his involvement with the transactions was as a director of MHP and not as a chartered accountant practising as Channon & Co.  His role was plainly limited to discussion of the investment opportunity which he undertook as a director of MHP.  The investors were all advised to take independent professional advice before investing, and some did.  Some looked to Mr Bromage, and his involvement was influential in their decision to invest.  The loan agreements were however drawn up by Channon & Co “with the full authority of MHP Limited and [the investor/s]”.  The agreements provided that security for the loans would be provided in the shape of a debenture over the assets of MHP but these instruments seem not to have materialised.  Debentures were issued to creditors over a different company which turned out to have insufficient assets to meet the claims.  The loan agreements are unprofessional in their drafting and unimpressive.  The aggregate amount lent to MHP by the investors was £1,045,000.  Much more detail of the manner in which the investments were made is set out by the judge in his judgment, [2015] EWHC 4256 (QB), but it is unnecessary to go into further detail here.    
7.	Some payments of interest were made on the loans, but as a result of the catastrophic fall in the property market consequent upon the 2008 global financial crisis MHP became unable to meet its liabilities.  MHP has entered no formal insolvency process but it was Mr Channon’s evidence in March 2015 that it was insolvent.  A bank had charges over the relevant properties in which there was no equity.  With the assistance of the bank MHP was completing some or all of its developments but there was no prospect of a payment to the investors.  
8.	Relations between the investors and Mr Channon rapidly deteriorated after MHP had become insolvent.  Anger was expressed at the manner in which he had managed the affairs of the company, with allegations that he and his fellow directors had preferred their own interests to those of other creditors upon the sale of one of MHP’s properties, which had apparently generated a distributable cash surplus.  The investors naturally wanted redress for their losses.  However Mr Channon presented himself as impecunious and not worth suing.  He had apparently himself lost money invested in MHP.  The investors concluded and/or were advised that by framing claims against Mr Channon alleging that he had given negligent advice in his capacity as a chartered accountant they would, as the judge put it, effectively gain access to his professional indemnity insurance cover.  
9.	Hence the letters of claim to which I referred at paragraph 2 above.  Those letters asserted that Mr Channon had given negligent advice in connection with a proposed investment when acting for and advising the investors in his professional capacity as a chartered accountant.  
10.	The letters were swiftly followed by proceedings in the High Court.  Particulars of Claim were settled on behalf of the investors by Mr Guy Adams of Counsel, who represented Mr Channon at the trial before the judge and who with Mr Leslie Blohm QC represented him also on the appeal before us.  Mr Channon drafted his own Defences.  It suffices to say that the pleadings exchanged in 2010 and 2011 revealed that there was an issue whether Mr Channon had given any advice concerning the proposed investments and, if he had, whether he had done so in the course of his practice as a chartered accountant.  It was the contention of Mr Channon that he had at all times made clear that he was acting as a Director of MHP.  It was his position that the claims were misconceived and a contrivance.  The claims were those of investors disappointed at becoming victims of the unexpected downturn in the market consequent upon the financial crisis.  
11.	By late 2010 the investors knew that Mr Channon was uninsured, but they nonetheless pressed on.  In November 2011 Mr Channon brought these proceedings against Mr Ward.  The investors were also by then aware that the circumstance that Mr Channon lacked insurance cover had come about as a result of the alleged negligence of Mr Ward.  
12.	By June 2012 the investors must also have become aware (a) that judgment had been entered against Mr Ward in default and (b) that he in turn was uninsured in respect of the consequences of his own negligence.  Just as he had neglected Mr Channon’s affairs, so he had neglected his own.  So now the investors devised a new strategy.  The strategy was to pursue Mr Channon’s claim against Mr Ward in the hope that judgment for a substantial sum could be obtained against him.  If, as was overwhelmingly likely, Mr Ward was unable to meet that judgment, he could be made bankrupt, in which event the investors would pursue a claim for compensation pursuant to the Financial Services Compensation Scheme (“FSCS”) which would be available in view of his having traded as a regulated insurance broker.  
13.	Pursuant to that strategy in June 2012 Mr Channon and the investors entered into a settlement agreement which is contained within the Schedule to a Tomlin Order dated 19 June 2012.  Mr Channon consented to judgment being entered against him in favour of each of the investors with damages to be assessed.  He thus conceded his liability although he was confident he had none.  The proceedings were stayed for a year to enable Mr Channon’s claim against Mr Ward “and the anticipated claim against the FSCS” to be pursued.  Mr Channon authorised the investors to pursue in his name both the action against Mr Ward and “his claim for payment out of (sic) the FSCS in his name” and declared that he would hold the proceeds of any such claim on trust for the investors.  Mr Channon undertook both to use his best endeavours to assist in the claim against Mr Ward and for “payment out of” the FSCS and to indemnify the investors in respect of all costs incurred in pursuing these claims.  In return the investors agreed that Mr Channon’s liability to them both in damages and in respect of the costs indemnity should be capped at £85,000, payable in annual instalments of about £10,000.  The investors also agreed to refrain from making against Mr Channon any further claim or complaint of whatsoever nature and in particular to withdraw any claims that any one of them may have made to the Institute of Chartered Accountants of England and Wales.  
14.	The judge found that when entering into this agreement Mr Channon believed, as he still does, that the claims against him were completely unmeritorious and, in effect, a try-on.  He knew that pursuit of the claims against him was a contrivance the ultimate objective of which was, or had become, to secure the bankruptcy of Mr Ward to act as a conduit to access the FSCS as a source to repay the debts owed to the investors by the insolvent company MHP of which Mr Channon was a director.  Mr Channon for his part asserts that without the benefit of insurance cover he could not afford to defend the claims against him and that he was on the verge of entering into an IVA.  He considered that settlement was his best option as he was only required to pay the relatively modest sum of £85,000 over a period of time and was enabled to continue in practice.  
15.	Had matters rested there I could understand why no point was taken at trial that Mr Channon, in admitting liability, had failed to act reasonably in mitigation of his loss.  As the judge records Mr Channon had some funds and could have defended himself against the baseless allegations.  However the deal which he had secured was remarkably favourable to him, and he might have spent £85,000 in irrecoverable costs.  The ability to continue in practice was obviously of great and perhaps incalculable value to him, both financially and otherwise.  
16.	However on 19 February 2013 matters took a strange turn.  The court, in the shape of District Judge Taylor, was invited to make a further consent order in the action between the investors and Mr Channon.  Now Mr Channon submitted to judgment in the full amount which had been advanced to MHP by each investor, together in each case with accrued interest at the rate stipulated in the loan agreements, and continuing until payment.  This agreement is to my mind quite extraordinary.   It is true that the earlier agreement had not finally crystallised Mr Channon’s liability at £85,000 and no more.  But it had effectively done so, as his counsel accepted both before the judge and before us.  Clause 8 of the Schedule to the first Consent Order provided: 
“If and when all the remedies against Mr Ward and/or claims for payment out of the FCSC have been exhausted, but not before, then the Claimants agree that all further proceedings against the Defendant [Mr Channon] will be stayed save for carrying into effect an agreement that Mr Channon will pay a contribution of up to £85,000 towards the Claimants then remaining outstanding losses, costs for the claim against the Defendant and in respect of the costs incurred in pursuing the claims against Mr Ward and/or claims for payment out of the FCSC giving credit for the sums already paid on account with payment by further annual instalments of £10,714.28.”
So it was only a question of time before liability crystallised.  It should be noted that the obligation to use best endeavours was not a condition of the agreement.  A breach would have sounded only in damages.  It would not have invalidated the agreed £85,000 cap.  A breach was in any event most unlikely to occur.  It was not in Mr Channon’s interests that it should.  His best endeavours were not arduous.  He could plainly only be required to act honestly.  So doing would not assist the investors so he was unlikely to be asked to do much.  
17.	Thus I am at a loss to understand how the court could be asked to give judgment in a sum in excess of £1.8 million and increasing daily when Mr Channon’s liability had been capped at £85,000.  The court was given no explanation but merely asked to send “a sealed order at your earliest convenience”.  It is fair to point out that the investors’ solicitors, Messrs WBW as they had now become, did send to the court a draft Consent Order signed by Mr Channon who, as they pointed out, was no longer represented.  Apparently he had been represented by Messrs WBW when in December 2012 he signed the agreement, and the investors by Messrs Bynes.  By January 2013 when the draft order was sent to the court Messrs Bynes and Messrs WBW had merged and Messrs WBW represented the investors.  However that may be this was hardly adequate explanation in the circumstances.  I also consider that this second agreement with Mr Channon was unnecessary for the investors’ purposes.  On the strength of the first Consent Order the investors could have argued that their claims and thus Mr Channon’s loss would have been substantial and that the agreement contained in the first Consent Order was to be disregarded in considering what was the true measure of Mr Channon’s loss as being neither an agreement entered into as a consequence of the negligence of Mr Ward nor an agreement made in the ordinary course of business.  The first agreement could therefore be said to be collateral or res inter alios acta – see the discussion in McGregor on Damages, 19th Ed, paragraph 9-103 et seq, and not to result in any diminution of the sum properly recoverable from Mr Ward.  
18.	A further extraordinary feature of the second agreement is that Mr Channon consented to judgment against him for the full amount of contractual interest due to the investors from MHP.  That cannot be appropriate.  The contention of the investors could only have been that had it not been for the alleged advice from Mr Channon, they would not have entered into the loan agreements.  This judgment is entered on the basis that Mr Channon was a guarantor of the agreements.  That is particularly ironic in the light of the debate at trial and before us as to the potential applicability of a provision in the putative insurance cover of the benefit of which Mr Channon was denied which would have excluded insurers’ liability for loss arising from any guarantee relating to the financial return of any investment.  
19.	Equally inexplicable is the failure to grant credit for those interest payments which had been made by MHP before the financial crisis.  However, as no point was taken at trial concerning the reasonableness of these agreements, or the propriety of entering into them, I need say no more about them.  In the event they are irrelevant to the outcome of the appeal, just as they were irrelevant to the dismissal of the claim.    
The Putative Insurance Cover 
20.	It was common ground that but for Mr Ward’s negligence Mr Channon would have had in place at the relevant time, 2009 to 2010, a policy of insurance on the same terms as the Norwich Union Policy which he had had in place in 2006/2007.  It was also agreed that that wording had to be read subject to the Institute of Chartered Accountants of England and Wales (“ICAEW”) minimum approved policy wording in force at inception to which express reference was made in the Norwich Union cover in these terms: 
“In any dispute in connection with the cover, conditions, exceptions, or limits of this policy, it is specifically understood and agreed that the cover, conditions, exceptions and limits of the Approved Wording shall take precedence over any cover, conditions, exceptions or limits contained herein which are less favourable to You.”
21.	Thus the putative policy would have provided cover as follows: 
“We will indemnify you in respect of any Claim arising out of the conduct of Your Business, first made against You and notified to Us during the Period of Insurance”...
	“Your Business” is defined as:
“(1) 	The provision of advice or Services by You or on Your behalf as declared to Us in the Proposal or shown in the Schedule as the Business.
  (2) 	Any individual personal appointment (other than as company secretary or registrar or director) held by You but only in respect of advice or Services shown in (1) above.
  (3) 	Any individual personal appointment as company secretary or registrar or director, but only in relation to the performance of Services.”
	“Services” is defined as:
“All services performed or advice given by You in connection with tax matters, secretarial work, share registration, financial advice to management, book-keeping, management accounting, financial investigation and reports, financial claims (including their negotiation and settlement), company formations, investment advice, insurance and pension scheme advice and computer consultancy.”
The relevant declaration contained in the Schedule for the purposes of what is “your business” made by Mr Channon in respect of his 2006 insurance policy was “Chartered Accountants”.
22.	The cover would have further provided under the rubric “Other Costs”: 
“All costs and expenses incurred in the investigation, defence or settlement of any Claim insofar as those costs and expenses have been incurred with Our written consent.”
23.	Finally, there would have been two potentially relevant exceptions as follows: 
“We will not provide indemnity in respect of any Claim . . . 
(3)		or loss arising from any express or implied warranty or guarantee relating to the financial return of any investment or portfolio of investments.
. . .
(4)		or loss arising from any trading losses or trading liabilities incurred by any business managed by or carried on by You.”
24.	It was also agreed that had the investors’ claims been settled, they would have settled within the minimum limit of indemnity required by the ICAEW, £1.3 million subject to seven excesses of £1,000.  No doubt that is because the claims would in all probability have aggregated as a single claim arising from one originating cause.     
The claim as presented at trial 
25.	In these circumstances it was suggested that Mr Channon was entitled to recover from Mr Ward to the full extent of his liability as indicated by the Consent Orders, i.e. a sum in excess of £1.8 million, subject possibly to credit of seven excess payments of £1,000.  This was on the footing that, had the insurance been in place, and had the matter been properly considered by insurers, there was a substantial chance that insurers would have offered a full indemnity in respect of the claims either on the basis that the two exception clauses did not apply to the claims or to Mr Channon’s loss or on the basis that insurers would not take the risk of defending the claims on the basis that those clauses were applicable.  In such circumstances it was submitted that Mr Channon had lost the substantial chance that he would have been held harmless by his insurers and that the claims would have been disposed of without liability to him.  An alternative formulation is that even if the insurers had been dubious whether the claims arose out of the conduct by Mr Channon of his insured business as a chartered accountant, nonetheless insurers would have provided financial assistance to Mr Channon in his defence of the claims which would in consequence either have been defeated or have been settled on terms much more advantageous to Mr Channon than the basis upon which he had in the event felt compelled to settle with the investors, which amounted to complete capitulation.  
26.	It is important to notice at the outset that Mr Channon does not suggest that the consent judgments of themselves comprise or evidence a loss in respect of which he would have been entitled to an indemnity from insurers.  It is inconceivable that insurers would have agreed to their insured settling on those terms and they would thus not have been bound either by the settlements or the judgments.  Furthermore Mr Channon made no attempt at trial to prove that he was under any liability to the investors, and thus that he had suffered a loss which would have ranked for indemnity had there been a policy in place.  It was his evidence to the judge that he had given no investment advice, let alone in his capacity as a chartered accountant.  His evidence was that the claims were wholly unfounded.  The investors or some of them were present at trial, the conduct of which they controlled.  No investor gave evidence to the judge in support of his/her pleaded case that investment advice had been given by Mr Channon and moreover given in his capacity as a chartered accountant.  Thus Mr Channon made no attempt at trial, or no attempt was made on his behalf, to prove that he had suffered a loss which would have ranked for indemnity under the putative policy.  
The question for decision
27.	I accept at the outset that, as submitted by Mr Adams below, it is the task of the court, as a matter of evaluative judgment, to assess in monetary terms the difference between the position Mr Channon finds himself in and the position he would have been in if he had been insured, assessed on an expectation or loss of a chance basis.  In those circumstances the enquiry must be focused on two matters.  First, what would the putative insurers have done when presented by Mr Channon in 2009/2010 with notice of the claims made against him?  Second, what would Mr Channon’s response have been to the stance adopted by insurers?  
28.	Logically prior to the insurers’ response is the manner of presentation of the claims by Mr Channon.  As to this, the judge observed, at [53], that: “his overarching position as presented to any insurer would have been that these were wholly unmeritorious.”  At [53(c)] the judge found: 
“(c) 	He would have pressed the insurer to defend the proceedings on the basis that he had not provided investment advice or at any stage acted in his professional role as an accountant (see paragraph 3 of his witness statement of 24th November 2014). As I have set out he only reluctantly compromised what he believed were unmeritorious claims as he had not got the funds to defend them. I find as fact that his instructions would never have wavered. He would have told any representative of an insurer (including any lawyer) that the claims arose out of disappointment at the losses of  a trading company of which he was a director and were nothing  to do with his role as an accountant for Channon & Co.”
The decision below
29.	The judge heard evidence from Mr Ward and from expert witnesses on both sides who had experience in claims handling by insurers.  In the light of the experts’ analysis and evidence the following matters were common ground: 
(a)	that the insurers could not have repudiated the insurance for non-disclosure. 
(b)	that if the Claimant gave investment advice in the course of his business as an accountant, then claims that such advice was negligent could not be excluded under the ICAEW minimum policy requirements. 
(c)	that the insurers would have found it difficult to refuse an indemnity on the grounds of fraud or misrepresentation.
(d)	That the insurer would have considered the claims as a whole and taken a consistent stance in respect of all of them.
30.	The judge was unimpressed by the expert evidence of Mr Black for Mr Channon and much preferred the evidence of Mr Dowlen for Mr Ward.  Perhaps unsurprisingly neither party called evidence from Norwich Union or Aviva as it had become.  The judge considered that in that regard Mr Ward had taken the greater risk since, in his view, Mr Ward had borne the relevant burden of proof.  At [155] the judge said: 
“155.	I treated the burden as on the Defendant throughout to establish that the insurer would have refused to indemnify or assist and that this would have not been the subject of challenge and that as a result the chances that the insurers have provided an indemnity and/or assistance were no more than speculative. That burden has been successfully carried and the test met.”
31.	The judge concluded at [84] that as a result of the expert evidence there was in effect agreement on the following matters: 
“(i) 	the insurer would have approached these cases with considerable caution not just because of the value but also because of a sense that all was far from right with the claims and/or the facts underlying the claims. 
(ii) 	that given all available information the insurer would be looking to avoid liability to indemnify, would have queried why these claims were considered covered by professional indemnity insurance and the “first reaction would be to avoid it” ( per Mr Black). 
(iii) 	The experts did not seem to attach any real weight to Mr Adams’ suggestion (that he repeated in closing submissions) that the reputation of insurer would be a very relevant consideration i.e. that an insurer would not want a reputation for refusing to indemnify. It may well be that this has to be seen in light of the first two points and in contra distinction to where a view could be taken that an insurer was taking a technical point to avoid indemnifying in an otherwise straightforward case. In any event neither expert supported Mr Adams' submission. Mr Dowlen stated “reputation is not that important when it comes down to the insurer’s product.”     
(iii) 	the insurer would have taken time to consider the claims as presented and would not have reached a snap judgment. In the interim it may have given some advice to the Claimant as to how to protect his position.  
(iv) 	the issue of whether indemnity could or would have been refused because the Claimant was not acting in the course of his business for the purposes of the policy was a difficult one to assess. Whilst the Claimant was adamant that he was not so doing and had evidence to support his case, the allegations in the claim were that he was. Had the issue of whether the Claimant was acting in the course of his business been the sole issue for the insurer it would probably have continued to provide assistance, whilst preserving its position as regards indemnity; although this would have been difficult to achieve it was a path sometimes taken. 
(v) 	The insurer would not have relied on the exception at clause 5.
(vi) 	the insurer, indeed even a novice insurer, would have raised and sought to rely on exemption clauses 3 and 6. Both experts had considerable experience of how the insurance business works and they were both of this view (albeit that Mr Black had failed to deal with clause 3 in any significant way, or clause 6 at all, in his expert report). As regards clause 6, Mr Dowlen stated that he had some experience of this clause, that it must be remembered that it is a professional indemnity insurance policy and that in simple terms the clause was present because the policy was not intended to “(be)  there to cover where there is a muck up on (his) own business”. He said it was “a very simple exemption” and would be applied as such.  It appeared to me that for the experts it was not just a possibility or even a probability; it would have happened (in his report Mr Dowlen previously stated that these clauses “would certainly  have been given  by insurers as reasons to avoid an indemnity”; paragraph 9.5.6.).  As I indicated during the expert evidence this accorded with my own impression when I first considered the policy terms which was that given the facts of these claims these exemptions would obviously have been closely considered given all the relevant facts.”
32.	Mr Blohm submitted that the evidence did not justify the conclusion at paragraph 84(iv) that, on the hypothesis there stated, the insurers would have preserved their position as regards indemnity, whilst nonetheless providing assistance to Mr Channon in defending the claim.  In view of further unchallenged findings in the judgment, to which I shall come shortly, to the effect that insurers would certainly have sought to rely on exceptions 3 and 6, this point is not of great relevance.  It is relevant, if at all, only to a hypothesis upon a hypothesis.  However for what it is worth Mr Blohm’s contention proceeds, as it seems to me, upon an interpretation of what Mr Dowlen meant when he said, at the end of a long passage of evidence at pages 192-193 of the Appeal Bundle, “no, they would mount a defence based on that”.  It is not entirely clear to me whether this answer refers to defending the investors’ claims or declining to assist Mr Channon on the basis that the claims fell outwith the scope of the cover.  As the judge was I think saying at the end of paragraph [84(iv)], if the insurers unsuccessfully defended the investors’ claims on the footing that Mr Channon had not been acting as an accountant when advising, if he did, it would be difficult for them to deny cover if, despite their best efforts to defend Mr Channon’s position, it was held by the court that Mr Channon had indeed advised in the course of his professional practice.  
33.	Relevant to this debate is that the judge said, at [86]: 
“86.	So it was Mr Dowlen’s clear opinion that the insurer would have refused indemnity in this matter on at least two and probably three grounds; the two exemptions and also that the Claimant was not acting in the course of his business.  He conceded that the insurer would face a “theoretical risk” (he had no experience of such a scenario) that if it relied on the argument that the Claimant was not acting qua accountant and it was found at trial that he had been that the insurer could then face a liability. However the thrust of his evidence was that the insurer would have relied on this argument in addition to the exemptions.”
34.	The judge also found: 
“87.	Having carefully considered these areas of agreement between the experts, as further expanded upon by Mr Dowlen, I accept that they accurately reflect what would have been the view of an insurer. This means I find that the insurer would certainly have sought to rely on exemptions 3 and 6. 
88.	I also find that in all probability the insurer would also have relied upon an argument that the Claimant was not acting in the course of his business. In so doing I have found the submissions of Mr Dyson at paragraphs 71-73 above to have force. Whilst that may have been a stance taken on less certain ground I take the view that it would have been used, at the very least, to add ballast or as Mr Adams described (in a slightly different context as I shall set out) as an additional “lever”.
89.	So it is my finding of fact that the insurer would certainly have been set to refuse indemnity or any further assistance.”
35.	Mr Blohm did not challenge any of these findings.  Underpinning them was Mr Dowlen’s evidence, recorded and accepted by the judge, that there was “not a chance” that an insurer would not have refused indemnity.  So the judge was very clear in his findings to the effect that Mr Channon would have been told that the claims made against him were not within the scope of the cover, were in any event expressly excluded therefrom, and moreover that he would not be given assistance in defending the claims.  
36.	The judge also found that Mr Channon would not have challenged the insurers’ approach.  At [142] he said this: 
“142.	My distinction (sic) impression is that he would have had some sympathy with the insurer if it had relied on the approach which I believe would have been taken, as it was consistent with his own view of the claims i.e. they were a device to try get around the problem of the company having no money and to get to his professional insurance cover, whereas the true dispute solely concerned what he did or do not do on behalf of a separate company when acting as a director.”
And at [150]: 
“150.	Underlying and colouring my assessment of the evidence and what inferences can be taken from it was the Claimant’s consistent belief that the claims were unmeritorious, a device, and did not truly concern his practice as an accountant rather his other life as a property developer. Of course if help was available from an Insurer he would have gladly taken it, but it seems to me that the overwhelming likelihood is that he would not have so strongly thought that it was his right as to risk litigation against his insurer if it was refused.”
The judge also found that even if there had been some challenge to the insurers’ decision not to indemnify or to assist, there was no chance that the insurers’ decision would have been revoked or reversed.  Finally, the judge said: 
“152.	These findings are not just on mere balance of probabilities leaving a significant possibility that matters would have progressed otherwise. Returning to the issue as framed by Mr Adams I do not find that there is a substantial and not merely speculative chance that the end result would have been different had insurance been in place. I am not persuaded by the proposition that there is a substantial chance that an insurer would have provided an indemnity or such a significant contribution as to costs as significantly alter the position that the Claimant found himself in when he was, on his account, effectively forced into a position where he had to compromise the claims of the investors.”
The argument on appeal – discussion 
37.	Mr Blohm’s room for manoeuvre in arguing this appeal in the light of these various unchallenged findings of fact was extremely limited.  
38.	So far as concerns what the insurers would have done, Mr Blohm attempted to construct an argument to the effect that there was a significant prospect that the insurers would have sought and received legal advice which would have caused them to take a different course.  This is a difficult ground to pursue in the light of the paucity of the evidence on the point and the judge’s findings.  Thus the judge said: 
“95.	I had no direct evidence on the issue of legal advice would have been taken or not. Mr Black opined that once initial conclusions had been reached there would probably be a conference between solicitors and insurers to agree on a common response and reasoning (report paragraph 3.64).
 96.	Mr Dowlen stated that in practice with claims such as these the insurers would consider the matter carefully, and may take time to do so, but once a decision had been taken the insurer would stick with it. However he stated that it would go to a senior person; the claims director.
97.	In the absence of direct evidence from Aviva (which is a very large organisation  with no doubt many very experienced insurance practitioners) I am not persuaded that Mr Black’s opinion is right, as the insurer is likely to have considered that the clauses were sufficiently clear and it was on sufficiently strong ground that this was not needed. I also did not see (and neither expert saw) inconsistency with the balance of the policy or any in-built restriction within the clause that raised a question requiring expert legal interpretation.
98.	I also find that the reasons why they were relied upon would have been easily communicated to and understood by the Claimant; there was no need for great care in the wording of any letter such that legal input was needed.”
39.	The judge went on to find that there was of course a possibility that legal advice may have been taken and turned to consider what shape that advice may have taken.  On this appeal Mr Blohm submits that the judge should have found that legal advice probably would have been taken by insurers.  Mr Blohm relied in this regard on the following passage from the evidence of Mr Dowlen: 
“Mr Dowlen		You’re making lots of assumptions there.  I think broadly what happened . . . well I know what happens in the insurance world.  The insurers will not say anything much.  They will reserve their rights.  They will actually not admit liability to the insured, and the insured may find that they are having to deal with the matter themselves because the insurers won’t step up to the plate, if I use a metaphor from sport.  So the insurers can actually hang back and not give a firm opinion on their liability to indemnify for quite a long time. 
Mr Adams	And you’re saying that would have happened in this case? 
Mr Dowlen	I think it would have happened in that case.  That’s my opinion.  That they would have waited and probably looked very carefully at the papers.  They would not rush to issue a denial of liability, or repudiation, and nor would they necessarily have rushed to give Mr Channon lots of help and defence costs and appoint lawyers.  The insurers would probably appoint their own lawyers, they usually do in a fairly significant matter, to review the papers with them so that they have a legal fall back.”
40.	The point can therefore be made that Mr Dowlen said two different things in evidence on the question whether legal advice would have been taken by insurers.  However I do not think that the point goes any further than that.  The judge had to evaluate the entirety of the evidence and to reach his own conclusions.  He was not bound to accept any part of the expert evidence and he was entitled to take into account his own experience of the manner in which insurers approach claims handling, as indeed are we.  It has to be remembered that insurers, not unnaturally, can be very influenced by what they perceive to be the flavour of the case.  Mr Dowlen agreed with the leading question put to him by Mr Dyson that when presented with the claims as made and the response to them, and the initial evidence as provided by Mr Channon, the insurers’ likely initial reaction would have been that “the facts stink”.  Leading question or no, that was in the experience of the judge and in my own experience an entirely justified and realistic answer.  It has to be remembered that, as the insurers would have seen from the correspondence, Mr Channon’s initial reaction to the claims had been that he personally and MHP Limited would have to appoint solicitors to defend past actions which “we would do very vigorously indeed”.  The insurers would, as the judge found, have recognised that the investors had been advised to “shoehorn their commercial claim against MHP into a professional negligence claim in order to tap into Mr Channon’s PII cover”.  The pithy but apt language is again that of Mr Dyson. 
41.	In these circumstances the attempt to persuade this court that the insurers would probably have taken legal advice was in my view forlorn.  They might have done, but that is speculation.  The claim stank, and in the view of their own insured it was a contrivance.  Of course the insurers had to bear in mind the allegation by the investors that Mr Channon had indeed been acting in the course of his professional practice, but there were also two exceptions in the cover which the judge found that the insurers would have considered sufficiently clear in their application that external independent legal advice was not required.  
42.	In my judgment it is fanciful to think that the insurers would have taken independent legal advice unless their stance was challenged by Mr Channon.  The judge has found that it would not have been.  Mr Blohm’s attack on this last finding is in my view even more forlorn than the attack on the earlier finding as to the likelihood of insurers taking independent legal advice.  It founders principally on the circumstance that Mr Channon was not asked at trial what would have been his response to the hypothetical refusal of insurers to assist his defence to the investors’ claims.  That failure or omission is open to the obvious interpretation that the question was not asked because the answer would have been unhelpful to Mr Channon’s case.  However the judge did not approach the matter on that basis, rather reaching a firm and fully justified conclusion that Mr Channon would not have challenged a decision which would have coincided with his own appraisal of the situation.  What the judge did observe, with justification, was that had the position truly been that Mr Channon would have challenged the decision, he could have given evidence to this effect.  Instead the judge was simply presented with speculation by Mr Adams as to what Mr Channon might have done.  
43.	That speculation was no more persuasive when employed by Mr Blohm, and was in particular not assisted by a new and thoroughly bad point which had not been taken by Mr Adams below.  Condition 11 of the Norwich Union cover provided: 
“You shall not be required 
(a)	To contest any legal proceedings . . . unless a senior barrister (to be mutually agreed upon between You and Us) shall advise that such action has a reasonable prospect of success.”
Clause B.7 of the ICAEW Conditions is to similar effect: 
“The Insured shall 
. . . 
Nevertheless neither the Insured nor the Insurers shall be required to contest any legal proceedings unless a Queen’s Counsel or in the Republic of Ireland a Senior Counsel (to be mutually agreed upon by the Insured and Insurers or failing agreement to be appointed by the President of the Institute of Chartered Accountants in England and Wales/of Scotland/in Ireland as applicable) shall advise that, taking due account of the interests of both Insurer and Insured, such proceedings should be contested.”
Clauses such as this are very familiar in professional indemnity insurance.  Mr Blohm submitted that Mr Channon would have had resort to these clauses and that a QC would probably or at any rate might have advised that the exceptions were inapplicable and that the insurers should assist Mr Channon with the defence of the claims.  However, as is apparent from a careful reading of the relevant clauses, the agreed role of the Senior Barrister or Queen’s Counsel does not extend to resolving disputes as to the scope of the cover.  Rather the role is limited to deciding whether, in the event that cover is acknowledged, the insurers can require their insured to defend a third party claim.  The reason for this is obvious.  Professional men ought not to be required to defend claims in circumstances where no defence can conscientiously be advanced.  The QC clause had no role to play here.  
44.	Mr Blohm noted that Mr Channon had at one stage consulted solicitors specialising in insurance matters, namely Messrs Beale & Co, and suggested that that is the best evidence of what he would have done in the event that his putative insurers had refused to stand behind him.  I leave out of account that it is a little unclear on what basis Mr Channon in fact contacted Mr Redfern, a partner in Messrs Beale & Co, as indeed he did.  Mr Hayman of Messrs Bynes Solicitors, acting on behalf of the investors, spoke to Mr Redfern on 11 April 2011.  Mr Redfern reportedly gave it as his view that it was “laughable” to suppose that the investors could prove that Mr Channon had been acting in the course of his professional practice, and furthermore that he considered that everyone would have known that Mr Channon was acting as Director of MHP Limited.  Mr Blohm asks whether Mr Redfern would have given the same advice to Mr Channon in the context of an extant insurance policy, pointing out that he was speaking to Mr Hayman in an adversarial manner, Mr Hayman acting for the investors claiming against Mr Channon.  This remains speculation.  
45.	Mr Blohm also suggested that the judge had erred in regarding Mr Channon as having hypothetically faced a binary choice, either to accept the insurers’ decision or to issue proceedings against them.  Whilst paragraph [140] of the judge’s judgment provides some support for this criticism, paragraph [143] is differently expressed, a choice between contesting insurers’ decision or “focusing his mind on defending what he believed to be unmeritorious claims”.  Whilst Mr Blohm’s point is not without substance, I do not consider that it can undermine a very clear finding which additionally accords with commonsense.  Mr Channon did not consider that these claims by the investors had anything whatever to do with his professional practice as a chartered accountant, so why should it be assumed that in the hypothetical world of having professional indemnity cover in place he would have potentially wasted his own funds in seeking legal advice in a hopeless endeavour?  It should not be overlooked that the judge remarked, at [136], that “having heard [Mr Channon] I have little doubt that he pursues this case with no passion or indeed clear belief in its merits.  This is very far removed from a case in which a committed claimant believes that he should win.  I repeat my impression was that he was going through the motions as required by the settlement reached with the investors”.  
46.	In all these circumstances it is unnecessary to consider what advice either the insurers or Mr Channon would probably have received had either of them asked solicitors to advise on the applicability of the exception clauses.  Those clauses would have appeared to the insurers so clear in their effect that they had no need of independent advice.  In that regard the judge restated his conclusion at paragraphs [106] and [115] as being that there was “no significant possibility that legal advice would have been taken” by the insurers and that such advice would have been that either exception could not be relied upon.  There are of course there stated two separate conclusions, the second of which the judge based upon his own determination as to the proper construction of the exception clauses.  The second enquiry and conclusion is unnecessary once the first conclusion has been reached, that there is no significant possibility that independent legal advice would have been taken.  Moreover it is in my view fallacious to assume that the legal advice received would necessarily have coincided with the judge’s own view as to the proper construction of the clauses.  In that regard I was attracted by Mr Hext’s submission in relation to exception (6) that there was no real chance that a lawyer instructed by the insurers would have advised that there was no real chance that this exclusion could be relied upon.  
47.	As to the proper construction of exceptions (3) and (6), it is equally if not doubly unnecessary for present purposes to express a view, and I prefer not to do so.  So far as concerns exception (3), there may be force in Mr Blohm’s contention that it looks principally to contractual claims against the insured, and I am not immediately persuaded by Mr Hext’s suggestion that the clause is intended to exclude cover in respect of a particular but limited type of financial advice, viz, that relating to financial return guarantees.  So far as concerns exception (6), I do not consider that Mr Blohm obtains much assistance from the decision of the Inner House in Bell v Lothiansure 1993 SLT 421, in which it was conceded that the words “arising from” in a cognate clause imported a need to identify the excepted cause as the proximate cause of the loss in question.  I agree with Mr Blohm that the [proximate] cause of Mr Channon’s alleged liability to the investors was not the circumstance that MHP made trading losses, nor in suing Mr Channon were the investors seeking to enforce a trading liability of MHP.  However it may be too simplistic to assert that exception (6) serves simply to exclude liability in respect of the insured’s business activities carried on in businesses other than the insured professional practice.  
48.	The reality is however that concentration upon the scope of these clauses serves only to reinforce the judge’s clear conclusion, shared by Mr Channon at the time, that the claims brought against him had nothing whatever to do with his insured professional practice, despite the contrived allegation that he had given relevant advice in the course of that practice.  Any advice or encouragement he had given was given in his capacity as a director of MHP, not as professional advice given in the course of his accountancy practice.  The reinforcement of that view, and a conclusion that the exceptions to the cover simply did not arise for consideration, would I think have been the principal outcome of detailed and expert consideration of the proper construction of exceptions (3) and (6).  The more the claim was subjected to close analysis, the more it would have become apparent that the investors were seeking redress for their disappointment at the performance of their investment, not for the consequences of reliance upon professional advice by a chartered accountant of whom most of them were not even clients.  This would have been a claim which insurers would have stoutly resisted from the outset on the basis that it was a plain contrivance in an attempt to formulate a claim in such a manner as to engage Mr Channon’s professional indemnity cover.  
49.	I would dismiss the appeal.      
Lady Justice Gloster :
50.	I agree that this appeal should be dismissed. Like Tomlinson LJ (see paragraphs 16 and 17 above), I have great difficulty in understanding how the court could have properly been asked to give a consent judgment in a sum in excess of £1.8 million when Mr Channon's liability had been capped at £85,000.