Judge interprets an aggregation clause and the meaning of "similar" acts and "related" matters


An insurer sought a declaration that certain claims brought against the insured firm of solicitors should be aggregated. The claims were brought by various investors who had invested in two holiday home developments to be undertaken by a UK development company (Midas) in Turkey and Morocco, which failed when the local Midas companies were unable to complete contracts for the purchase of the relevant land in Turkey or shares in the land-owning company in Morocco. The investors alleged, broadly, that the solicitors had wrongly released monies from an escrow account without adequate security being in place to protect their investment. The investors claimed to have lost over £10 million, and the relevant policy provided cover of £3 million for any one claim.

Clause 2.5 of the Solicitors Regulation Authority Minimum Terms and Conditions of Professional Indemnity Insurance for Solicitors applied and (in relevant part) provided that claims "arising from…similar acts or omissions in a series of related matters or transactions" would be regarded as One Claim for the purposes of the application of policy limits. Teare J was therefore required to interpret the scope of that clause.

He considered that the phrase had to be interpreted in its context and, accordingly, prior caselaw involving a different context was of no real assistance in this case. He concluded that:

  1. "Similar acts or omissions" required a "real and substantial degree of similarity" and that that similarity should not be "fanciful nor insubstantial". That test was satisfied here since, common to all the individual claims (assuming the claims to have been made out), the local Midas company could not pay the vendor, there was a failure to provide effective security so that the relevant test for releasing the escrow monies had not been properly applied, and thus the investors had been exposed to loss in the event that the developments failed. (Teare J held that he was not required to further decide whether the phrase "arise from", used in the Minimum Terms, required only some causative element or, instead, whether the acts/omissions had to be the proximate cause).
  2. "A series of related matters or transactions". Three possible interpretations of that phrase were put forward by the parties between them:
    1. A series of independent transactions which are related because they were of a similar kind (ie there was the same security structure, with Midas as the hub). That argument was rejected by the judge as being very wide, with no clear limit.
    2. A series of independent transactions which are related because they are investments in one particular development. That interpretation was also rejected in favour of the third interpretation.
    3. A series of transactions which are related because they are dependent on each other. That was the interpretation adopted by Teare J and, since the transactions here were not conditional or dependent on each other, the aggregation clause did not apply and the claims could not be aggregated.

Permission to appeal this decision was granted by Teare J.