in the cause







Pursuers: Wylie, Q.C., Young; Balfour & Manson

Defenders: Peoples, Q.C., Fairley; Dundas & Wilson, C.S.

10 January 2002

[1]In this commercial action the pursuers, who are involved in precision engineering, designing and manufacturing, sue the defenders, who are insurance brokers, for damages for alleged breach of contract and for alleged breach of common law duties of care. Although founded on each of these legal bases, the particularisation of the claims is in substantially the same terms. In short, the pursuers complain that, by reason of the defenders' failure to carry out certain testing of the relative insurance market before renewal of various insurances was effected on their behalf, the pursuers paid in two particular years (1995/96 and 1996/97) higher premiums than they need have done. The case was sent to debate to discuss the defenders' contention that the pursuers had no relevant averments of damage sustained by them as a result of any breach of duty or obligation by the defenders and that in any event their averments in support of damage and of quantification of loss were lacking in necessary specification. At debate counsel for the defenders moved me to sustained their first plea-in-law and to dismiss the action.

[2]The genesis of this action, according to the pursuers, was that in early 1998 they decided to test the performance of the defenders (who were formally known as Stewart Wrightson Limited and are one of the largest insurance brokers in the United Kingdom) by seeking alternative quotes through two other brokers. The result of this exercise was that the total insurance premium paid by the pursuers in 1998/99 was, although providing more extensive cover, very substantially less than had been paid in the last year for which the defenders had acted as their brokers. The pursuers thereafter caused enquiries to be made in relation to earlier years. On the basis of advice subsequently received the pursuers make the present claim.

[3]The primary issue between the parties at this stage concerns the adequacy for inquiry of the pursuers' averments of damage and of the causal relationship, if any, of such damage to the alleged breaches. There is a secondary issue concerning the sufficiency of specification given by the pursuers of certain matters; I shall deal with that later. Before narrating the submissions on the primary issue it is appropriate to set them in context by referring in summary to the grounds of fault. The pursuers aver that by 1996 the relative insurance market was extremely "soft", that is, one in which the competitive situation among insurers was such that the levels of premium at which they were prepared to write the relative business were falling. In such a market, they aver, substantial brokers such as the defenders can obtain large savings for their client. This would be particularly so where the recent claims experience of the client was good (from a prospective insurer's point of view) and where the nature of its business had altered so as to present a lighter risk for insurers - both of which, according to the pursuers, applied to them in 1996. The pursuers' primary complaint is that the defenders did not carry out a full re-marketing exercise in that year. Had they done so and made a proper presentation of the risk to insurers, the defenders "would have obtained significantly reduced quotes with the consequence that the pursuers would have obtained the necessary insurance cover at greatly reduced premiums". The pursuers aver that in these circumstances as a result of the defenders' breach of contract and also of their fault and negligence they have suffered "loss and damage".

[4]So expressed, the averments of damage causally related to breach of duty appear unremarkable. The issue for determination, however, arises out of the particularisation of damage which follows. The relative averments are in the following terms:-

"The pursuers lost the opportunity of obtaining substantial reductions in the premiums paid for years 1996/97 and 1997/98. The pursuers have been advised that if the defenders had fulfilled the aforesaid duties, they ought to have been able to arrange insurance cover for the pursuers at far lower premiums than those actually paid. The claims on the pursuers' traders combined policy over the period 1989-95 averaged between £2,500 - £3,000 per annum. This would have been viewed as a very profitable policy. Underwriters would have been keen to secure the business. The liability cover of the pursuers was also an extremely profitable policy for insurers when the total premiums were compared with the claims paid for and the claims reserved. Underwriters would have been keen to offer competitive quotes for the liability cover on account of the pursuers' improving claims record and the move away from riskier types of work. In 1996/97 the pursuers paid premiums of £66,500. In 1997/98 the pursuers paid premiums of £77,504.88. Had the defenders fulfilled the aforesaid duties it is reasonably estimated that the pursuers could have obtained savings in premiums calculated as follows..."

There then follows, in respect of each of the years 1996/97 and 1997/98, details of a calculation of alternative premiums, some types of cover involving savings and some not. The total savings on that calculation against the premiums actually paid by the pursuers for the relative years amount to an aggregate of £65,175.64, which is the sum sued for. The savings are expressed in terms of the possible rather than the probable, expressions such as "would have been achievable" and "capable of being placed" being typical. The pursuers' averments of damage conclude with the following:-

"In any event if the defenders had carried out a proper marketing of the pursuers' insurance portfolio, there was a real and substantial chance that the pursuers would have been offered insurance cover at premium levels far lower than that actually obtained by the defenders".

[5]Mr Fairley, junior counsel for the defenders, submitted on this aspect that, reading the pursuers' averments as a whole, they were not offering to prove on a balance of probabilities that they had suffered a loss; in any event they were not offering to prove on a balance of probabilities that any loss had been caused by failure on the part of the defenders. He referred to the essential elements to be pled as formulated by Lord Maxwell in Jamieson v Allan McNeil & Son, W.S. 1974 S.L.T. (N.) 9. He accepted that no special test required to be met in a case of alleged professional negligence but emphasised the third element referred to by Lord Maxwell, namely, "it should be reasonably apparent how any alleged loss is claimed to be attributable to any one or more alleged breaches of duty". The standard of proof was that on a balance of probabilities (Wardlaw v Bonnington Castings 1956 S.C. (H.L.) 26, per Lord Reid at p. 31). The correct starting point was consideration of the kind of loss claimed (Banque Bruxelles S.A. v Eagle Star [1997] A.C. 191, per Lord Hoffmann at pp. 210-1). The chance of loss was not itself damage (Kenyon v Bell 1953 S.C. 125, per Lord Guthrie at pp. 127-8). Loss of an opportunity which was not itself a legal right did not, as a matter of Scots law, constitute damage (Kyle v P. & J. Stormonth Darling W.S. 1993 S.C. 57, especially per Lord Prosser at pp. 59-63 and per Lord McCluskey, delivering the Opinion of the Extra Division, at pp. 67-8). The pursuers' averments on a fair construction amounted to no more (on either their primary or secondary formulations) than that they may have suffered a loss. That was not a relevant case of any actual loss. Even if the pursuers' averments could be construed as amounting to an offer to prove the loss of some right, they did not on either formulation amount to a loss having "an ascertainable, measurable, non-negligible value" (Kyle v P. & J. Stormonth Darling W.S. at p. 69).

[6]Mr Young, junior counsel for the pursuers, submitted that either the defenders' plea to the relevancy should be repelled at this stage and a proof allowed or that a proof before answer should be allowed. As a preface to his submissions, Mr Young observed that the pursuers were faced with a situation in which particular insurers were unwilling to give retrospective quotes, that is, to indicate hypothetically at what rates they would, had they been approached, have been prepared to write the relative business in the relative years; insurers for obvious reasons were unwilling to become involved in a litigation of this kind. The pursuers relied in the present case on advice that they had received from a broker who would give evidence as to the levels of rates which he would have expected insurers to have offered for the relative business. The defenders were themselves brokers and well acquainted not only with the pursuers' insurance portfolio but also with the relative insurance market at the material time. A parallel could be drawn with the situation of the defenders in Kyle v P. & J. Stormonth Darling W.S. Mr Young referred to the test for dismissal of an action without inquiry formulated in Jamieson v Jamieson 1952 S.C. (H.L.) 44. He accepted the elements identified by Lord Maxwell in Jamieson v Allan McNeil & Sons, W.S. A crucial distinction between a case such as Kenyon v Bell and the present case was the involvement of a third party. In the latter case there would inevitably be an element of hypothesis. In such a case a claimant was entitled to succeed provided he showed that there was a substantial, rather than a speculative, chance that the third party would have entered into the relative transaction, the evaluation of that substantial chance being a question of quantification of damages (Allied Maples Group v Simmons & Simmons [1995] 1 W.L.R. 1602, especially per Stuart-Smith L.J. at p. 1611A-C). It was unnecessary for the claimant to prove that on a balance of probabilities the third party would have so transacted. Nor, as Allied Maples Group v Simmons & Simmons illustrated, was it essential that the loss of opportunity could be classified as a "right". The primary basis of the pursuers' contention was that, had the defenders performed their duties, the rates referred to in the pleadings (which reflected the evidence to be given by their expert) would have been obtained in the market. If that were established at proof, the pursuers, if they had proved breach of duty, would be entitled to damages in the amount claimed. There was, however, the possibility that, although such rates were available at the time, due performance of the pursuers' duties might not have identified them. In that event, the pursuers' recoverable damages might require to be scaled down to reflect that risk. That was the pursuers' alternative claim. The pursuers' averments, insofar as they referred to possibilities, simply reflected the hypothetical nature of the situation.

[7]Mr Peoples, senior counsel for the defenders, in developing their contentions submitted that in any case a pursuer to succeed must aver and prove on a balance of probabilities that he had sustained some actual loss. The kind of loss might vary from case to case. In some authorities "loss of opportunity" had been recognised as a form of loss but care was required in this context. In Kyle v P. & J. Stormonth Darling W.S. the loss of opportunity involved the loss of a legal right (the right effectively to defend a claim). A similar situation arose in Paul v Ogilvy 2000 G.W.D. 5-176 (where the loss was the benefit of a secure tenancy), the issue then being the true measure of that loss. No Scottish case had been found where loss of opportunity had been recognised as a loss other than where there was loss of a legal right. Mr Peoples did not, however, in light of Allied Maples Group v Simmons & Simmons, exclude the possibility of relevant loss arising in some circumstances in the absence of loss of a "right"; but in the present case the pursuers' averments, on a fair reading, amounted to no more than that, if more insurers had been approached as part of a fuller marketing exercise, there was chance that lower premiums would or could or might have been obtained. That did not amount to a "loss of opportunity" in the sense of recoverable loss. In contradistinction to Kyle v P. & J. Stormonth Darling W.S. and to Allied Maples Group v Simmons & Simmons there was in this case no attempt to identify any particular opportunity of value which had existed at the material time. Reference was also made in this context to Banque Bruxelles S.A. v Eagle Star, per Lord Hoffmann at p. 218.

[8]Mr Wylie, senior counsel for the pursuers, submitted that, having regard to the pursuers' averments read as a whole, they did undertake to prove that the defenders' breaches of obligation were causative of loss. The absence of averments about particular insurers and particular transactions was not fatal to the relevancy of the pursuers' case. The critical matter was the insurance market, not any particular insurer. The approach in Allied Maples Group v Simmons & Simmons was relevant and sound. The appropriate disposal was to allow a proof before answer.

[9]Although Mr Fairley had confined his argument to consideration of Scottish authority, Mr Peoples in responding to Mr Young's citation of Allied Maples Group v Simmons & Simmons did not go so far as to maintain that the approach and decision in that case was inconsistent with Scots law. He acknowledged that in some cases "loss of opportunity" might found a relevant claim of damage sustained, albeit no "pure" right as such had been lost. In these circumstances I proceed on the basis that there is nothing inimical to Scots law in the principles discussed in that case upon which all three distinguished judges were agreed, albeit on the particular facts Millett L.J. differed on some aspects. At p. 1611 Stuart-Smith L.J. expressed a firm opinion that in circumstances where a plaintiff's loss depended on the hypothetical action of a third party his claim could succeed provided he showed that he had a substantial chance rather than a speculative chance that the third party would have acted in the relevant way, the evaluation of the substantial chance being a question of the quantification of damages. He expressly rejected a submission that the plaintiff required to prove on a balance of probability that the third party would have acted in the relevant way. He also (at p. 1611F-G) rejected a submission that recovery was open only where the plaintiff had lost a "valuable right or chose in action". Those rejections were concurred in by both the other judges. They appear to me to be sufficiently supported, at least for present purposes, by the (English) cases there discussed. These include observations on the general matter, albeit in a slightly different context, by a very distinguished Scottish judge (Lord Reid in Davies v Taylor [1974] A.C. 207). Although the decision in Kyle v P. & J. Stormonth Darling W.S. proceeds on the basis of the loss of a "right", I do not read the Opinions in that case as requiring me to hold as a matter of settled Scots law that such a loss is in very case an essential prerequisite to a relevant claim. Mr Peoples did not suggest that I should.

[10]Mr Peoples submitted that the present case could be distinguished from both Kyle v P. & J. Stormonth Darling W.S. and Allied Maples Group v Simmons & Simmons in respect that in each of the latter the chance was of a particular transaction being effected (respectively, a compromise with the defender in the original action and a bargain in different terms with the seller); in the present case the pursuers did not offer to prove that a particular insurer or insurers would have transacted with the pursuers upon better rates for the latter than were in fact achieved. Although that distinction can be made, I am not satisfied that it is material. Although the pursuers do not offer to prove that any specific insurer would have so transacted, they do offer to prove that better rates were at the material time available in the relative market. That amounts to an offer to prove that in the relevant hypothetical situation at least one, albeit unidentified and unidentifiable, member of a class of persons would have been prepared to contract at those rates. That is not, in my view, different in principle from an offer to prove the attitude of a specified third party. As Stuart-Smith L.J. pointed out in Allied Maples Group v Simmons & Simmons at p. 1614H, a third party's attitude must be a matter of inference and in many cases direct evidence from him will not be available. That appears to me to be equally so in relation to a limited class of relevant third parties.

[11]In these circumstances the pursuers' averments of loss are not simply of a formal character such that on examination of their detail they can plainly be seen to be no more than an offer to prove a possibility of loss; they include an offer to prove on the balance of probabilities that by reason of the defenders' fault the pursuers sustained actual loss in the form of the loss of a substantial chance (or opportunity) to obtain in the insurance market cover at materially lower rates than were in fact achieved. In these circumstances I am unable to say that the pursuers are bound to fail to establish recoverable loss. I was not invited by the defenders' counsel, if minded to allow the pursuers' primary formulation to go to inquiry, to exclude the alternative formulation. The causal connection between the alleged fault and the alleged loss also appears on averment to be sufficiently clear.

[12]The defenders also submitted that, even if the pursuers' case in either formulation relevantly averred a loss, no proper basis had been laid for quantification of that loss. Mr Fairley presented his argument under two separate heads, first, as earlier narrated, that, as Kyle v P. & J. Stormonth Darling W.S. required not only that there be a loss of a right but also that that right be one of ascertainable, measurable, non-negligible value, it was incumbent on a pursuer to aver a basis for quantifying such a claim and the present pursuers had not done so and, second, that there was a lack of necessary specification in the pursuers' pleadings of the bases for the figures averred. The latter, it was argued, put the defenders in an impossible position in respect of preparing for any proof. Reference was made in this context to Argyll & Clyde Health Board v Strathclyde Regional Council 1988 S.L.T. 381, per Lord McCluskey at p. 384H-K.

[13]The pursuers set out in their pleadings in some detail a calculation of the savings in premiums which they contend could have been achieved. The calculation includes reference to, among other matters, specific rates which, according to the pursuers' expert, could have been obtained and a formula which, if applied, would have produced certain more advantageous premiums. The provenance of such rates and of such a formula are not identified either in the pleadings or in the expert's report lodged by the pursuers. I have come, however, to the view that the defenders' complaints in this area truly relate to the lack of vouching or support for the evidence intended to be led from the pursuers' expert rather than to fair notice in the pleadings of the pursuers' case. In contrast to Argyll & Clyde Health Board v Strathclyde Regional Council (where the difficulty arose in relation to lack of notice of the pursuers' case on liability) here the issue concerns the quantification of damages and in particular the sources, if any, on which the pursuers' expert rests his figures. If these matters are to be supported by the pursuers' expert at proof by documentary material, that material will require to be lodged in advance. Likewise, the defenders would be entitled in advance of the proof to recover by diligence any documentation on which the pursuers' expert's calculations proceed. Under commercial procedure it is necessary for a party to lodge lists of any witnesses whom he intends to call and summaries of the evidence they are expected to give. The commercial judge has also wide powers otherwise to secure the disclosure in advance of proof of any relevant materials. In these circumstances the defenders are, in my view, sufficiently protected against surprise by the mechanisms which exist for the disclosure of materials. Of course, if there are no such materials (documentary or oral) and the pursuers' expert's views proceed solely on his ipse dixit, the weight and value of that evidence will be affected. It is also material to notice that the defenders are and at the material time were closely involved in the relevant area for inquiry (the insurance market) and will have their own sources, as well as independent expert advice, to assist them in meeting the pursuers' contentions. In these circumstances I am not satisfied that the defenders are unfairly prejudiced by the state of the pursuers' pleadings. It may also be observed that, while a proof in this case may be relatively expensive in relation to the amount at stake, there is no suggestion that the unsuccessful party will be unable to satisfy any award of expenses made against it.

[14]There are subtle and possibly difficult questions of law to be addressed before a final judicial decision can be taken on this dispute. These questions are, however, best addressed after evidence has been led. I shall allow to parties a proof before answer of their whole averments on record.