The Supreme Court in AIG Europe Limited v Woodman and others  UKSC 18 provides welcome clarification of how you can aggregate claims against solicitors under the SRA's Minimum Terms and Conditions.
The first respondent, ILP, was a law firm engaged by a property development company in relation to the development of holiday resorts in Turkey and Morocco. As part of its role, ILP held investor funds in an escrow account, and became a trustee for the property development company. When the property developments in both countries failed, the investors claimed against ILP for losses in excess of £10 million, alleging that the solicitors had released investor money to their client in contravention of the various purchase and loan agreements which had been put in place.
ILP's professional indemnity insurance was with the appellant insurer, AIG. This provided for a £3 million limit of liability per claim. It also incorporated the SRA's Minimum Terms and Conditions of Professional Indemnity Insurance, which, at clause 2.5, contained the following aggregation provision:
"The insurance may provide that, when considering what may be regarded as one Claim for the purposes of the limits contemplated by clauses 2.1 and 2.3:
(a) All Claims against any one or more Insured arising from:
(i) one act or omission;
(ii) one series of related acts or omissions;
(iii) the same act or omission in a series of related matters or transactions;
(iv) similar acts or omissions in a series of related matters or transactions; and
(b) all Claims against one or more Insured arising from one matter or transaction
will be regarded as One Claim."
AIG sought a declaration in the Commercial Court that the investors' claims against ILP should be aggregated and considered as one claim pursuant to clause (iv): "similar acts or omissions [of ILP] in a series of related matters or transactions."
The Commercial Court decision
The Commercial Court dismissed AIG's claim. Mr Justice Teare decided that, on a proper construction of the aggregation provision, the underlying claims were not to be aggregated. Whilst he agreed that all the claims arose out of similar acts or omissions by ILP, these were not in a series of related matters or transactions because "the terms of the transactions are not conditional or dependent upon each other". They were all separate property transactions.
The Court of Appeal decision
The Court of Appeal decided that the approach adopted by Mr Justice Teare was too narrow. Lord Justice Longmore held that the relevant clause required some intrinsic connection between the matters or transactions before aggregation could occur, rather than requiring a relationship of inter-dependency. However, AIG's construction of the clause – that any degree of relatedness between the matters or transactions would be sufficient for the claims to aggregate – was also dismissed as being "impossibly" wide.
AIG obtained permission to appeal to the Supreme Court which was asked the same, namely: what is the true construction of the words "in a series of related matters or transactions" within the aggregation clause of a professional indemnity insurance policy?
The Supreme Court decision
Lord Toulson gave the leading judgment, with whom Lord Mance, Lord Clarke, Lord Sumption and Lord Reed agreed.
Clause 2.5(a)(iv) has two separate limbs which must both be satisfied in order for aggregation to occur. The first, claims arising from “similar acts or omissions”, was satisfied and not in dispute. The Court therefore turned to the second, more contentious, limb of "related matters or transactions".
Lord Toulson rejected the Court of Appeal's reference to “intrinsic” within the context of a relationship between two transactions. He considered that while the word "related" denotes an interconnection, it does not necessarily require criteria as strict as an intrinsic relationship.
Lord Toulson found that the application of the aggregation clause should be viewed objectively and in the round, and not from the perspective of any particular party. He adopted the approach of Lord Justice Rix in the earlier case of Scott v Copenhagen Reinsurance Co (UK) Ltd  Lloyd's Rep IR 696 that it involves "an exercise of judgment, not a reformulation of the clause to be constructed and applied".
The transactions in this case were connected in significant ways; each of the investors invested in a common development, and were participants in a standard scheme and co-beneficiaries under a common trust. However, the transactions were entered into in relation to two separate developments (one in Turkey, and one in Morocco) which could not be said to be related. Each was on a different site, with different groups of investors who were protected by different legal documents; as such, they could not be aggregated together.
Accordingly Lord Toulson found that, on the facts that were agreed before the Supreme Court, all of the claims made by investors in the Turkey development should aggregate and all of the claims made by investors in the Morocco development should similarly aggregate. However, the claims on the two developments should not aggregate with each other. The Supreme Court therefore unanimously allowed AIG’s appeal.
This decision is very important as it is the first judicial consideration of the aggregation clause in the SRA's Minimum Terms and Conditions. The common sense approach by the Supreme Court is very welcome. Each claim will now fall to be considered on its own facts looked at in the round.
The Commercial Court decision can be found here.
The Court of Appeal decision can be found here.
The Supreme Court decision can be found here