Rathbone Brothers Plc & Anor v Novae Corporate Underwriting & Ors [2013] EWHC 3457 (Comm) (08 November 2013)

Neutral Citation Number: [2013] EWHC 3457 (Comm) Case No: 2012 Folio 1002 IN THE HIGH COURT OF JUSTICE QUEEN'S BENCH DIVISION COMMERCIAL COURT Royal Courts of Justice Strand, London, WC2A 2LL 08/11/2013 B e f o r e : MR JUSTICE BURTON ____________________ Between: (1) Rathbone Brothers Plc (2) Mr Michael Paul Egerton-Vernon Claimants - and - Novae Corporate Underwriting & Ors Defendant ____________________ Dominic Kendrick QC and Richard Harrison (instructed by Addleshaw Goddard LLP) for the Claimants Peter MacDonald Eggers QC and Alex Hall Taylor (instructed by Reynolds Porter Chamberlain LLP) for the Defendants Hearing dates: 10, 14, 15, 16 and 17 October 2013 ____________________ HTML VERSION OF JUDGMENT ____________________ Crown Copyright © Mr Justice Burton : Proceedings have been brought in Jersey against the Second Claimant (PEV), who was for many years a trustee of trusts and settlements established by the late Mr Jack Walker (the industrialist and chairman of Blackburn Rovers PLC) and in particular of the JW 1987 Settlement. PEV, a solicitor since 1971 and, since his move to Jersey in 1984, a partner of a firm of Jersey Solicitors called Nigel Harris & Partners ("NH&P"), became a director, and, through the firm, a shareholder in Nigel Harris Trust Company Limited ("NHTC"), to which NH&P transferred its trust business on 1 November 1998. He has for many years carried on an international practice from Jersey, specialising in trusts, and has been a professional trustee of a substantial number of trusts, including the Walker Trusts. On 31 March 2000, NHTC was acquired by the First Claimant ("Rathbone"), a substantial international group whose trust business included the management of family trusts for wealthy clients, and the PEV became, by an agreement dated 31 March 2000 ("the Employment Contract"), an employee of NHTC, which changed its name on 7 May 2002 to Rathbone Trust Company Jersey Limited ("RTCJ"). He ceased to work full time on 30 June 2007, whereafter he became a consultant of RTCJ by a number of consecutive agreements on materially the same terms, commencing with that of 3 August 2007 ("the Consultancy Agreement"). On 15 October 2008 RTCJ was acquired by Hawksford Holdings Limited ("Hawksford"), changing its name to Hawksford Trust Company Jersey Limited ("HTCJ"): I shall call the company which was variously NHTC, RTCJ and then HTCJ simply RTCJ. On 21 July 2009 PEV retired as trustee. By a Settlement Deed dated 9 July 1987 ("the Walker Settlement"), Mr Walker appointed two trustees, PEV and Lex Nominees International Limited (a company supplied by NH&P), as personal and corporate trustee respectively. It is normal in Jersey to have such an arrangement, which thus ensures both continuation of succession and the involvement of an individual, and also the existence of a team of staff to assist the trustees. Subsequently on 10 July 1997 another such company Walker Representatives Limited ("WRL"), of which PEV and other NH&P or, subsequently, RTCJ, partners or directors, including Ms Anita Lovell, were directors, became the corporate trustee, and an associate of Mr Walker, a Mr Mark Chown, at his instance became an additional personal trustee on 1 February 2001. A company or entity run by another associate of Mr Walker, Worthy Trust Company Ltd, provided administrative services to the Walker Trusts until 1996, whereafter NH&P, and subsequently RTCJ, became the administrators. An Administration Agreement dated 31 December 2002 (the "Administration Agreement") was agreed between WRL and RTCJ, which set out the terms upon which RTCJ was administering the trust, to include (as set out in a Schedule of Services) procuring the services of its directors to act in their capacity as directors of WRL, the corporate trustee. A special 'Office' was set up in 2003 within RTCJ, called the Walker Family Office, of which PEV was non-executive Chairman and Ms Lovell managing director, dedicated to the administration of the various Walker Trusts. PEV retired as personal trustee on 21 July 2009. NH&P and, subsequently, RTCJ submitted invoices at all times from 1996 to the Trust (approved until his death in August 2000 by Mr Walker, and thereafter by a close colleague of Mr Walker, a Mr Brown), for all the services provided to the Walker Trusts, and in particular the 1987 Settlement. Until 2002 a fixed annual ' responsibility fee ' was charged, as well as time charges, but from then on such fee was no longer charged and the invoices were rendered with a full detailed backup account of the time spent variously by PEV, Ms Lovell and all other RTCJ employees, without differentiation as to whether the services were provided in respect of administration, corporate trusteeship or personal trusteeship. In particular PEV did not so differentiate when he notified his time spent to RTCJ for inclusion in their fee notes, and at no time was this basis of charging ever challenged. As an employee of RTCJ from 31 March 2000, PEV was remunerated on the basis of the Employment Contract by a fixed salary (together with certain benefits such as private medical insurance) specifically upon the basis that (by clause 3(E)) the sum paid was inclusive of any remuneration to which he might be entitled by way of holding office in any external body, such that he was to give credit to RTCJ in respect of any such remuneration. RTCJ and Rathbone entered into with him an Instrument of Release and Indemnity dated 31 July 2003 ("the Indemnity"), whereby, upon terms to which I shall refer further below, they gave him an indemnity (limited to £40,000,000 per event and excluding fraud or wilful misconduct by him) in respect of his provision of any services or conducting of any activity " at the request or in the service of " RTCJ, Rathbone or any group member including (by clause 1.3.2) " acting as a trustee ", confirming by clause 4 that the indemnities extended to " all existing and future trusteeships…where the Employee is… acting…on behalf of [RTCJ]". By the Consultancy Agreement, his remuneration was provided for as follows: " 5.1 [RTCJ] shall pay you by way of a consultancy fee one half of all time costed fees recorded by you and billed to Clients and paid….. 5.2 The consultancy fee will not include any fixed trustee or director's responsibility fees which shall accrue to [RTCJ] absolutely. " There was no mention of professional indemnity insurance in the Employment Contract, but in the Consultancy Agreement there was the following clause:- " 5.3 [RTCJ] will provide you with Professional Indemnity Insurance (on a similar basis to that provided to [RTCJ's] staff) [f] or work done and services provided to Specified Clients and any Clients for which [RTCJ] receives appropriate fees. " Such cover was taken out by Rathbone, for itself and its subsidiaries (including RTCJ). The first layer of £5,000,000 is with AIG. The excess layer (limited to a maximum of £45,000,000) is placed with the Defendants. The Jersey proceedings are brought against PEV, WRL and Mr Chown in respect of alleged breaches from " the end of 1999 " of their obligations as trustees. By a proposed amendment, permission for which is imminently being considered by the Jersey Court, the plaintiff beneficiaries of the 1987 settlement are seeking to join RTCJ as itself liable and as vicariously liable for PEV. In relation to the present proceedings against PEV, PEV and Rathbone now seek cover under the 2008 – 2009 Professional Liability Insurance: AIG as primary insurer has accepted cover (although placing a reservation in the light of these proceedings), but the Defendants as excess insurers have denied any cover, and these proceedings are now brought by the Claimants to establish such cover against continuing substantial defence costs and against liability in the Jersey proceedings, if such be established at the Jersey trial. The policy is a claims made policy and there is no issue before me that there has been timeous notification (28 July 2008). I am only asked to deal with the issue of cover since 31 March 2000, when PEV became a employee of RTCJ. The trial of these proceedings relates in general terms to three issues, namely first a coverage issue, secondly whether, by virtue of an 'excess' clause, PEV must first exhaust his remedies otherwise than against the Defendants (in particular PEV's right of indemnity against his co-insured Rathbone and RTCJ), and whether the Defendants have a right of subrogation or contribution (again primarily as against Rathbone or RTCJ). There has been some short oral evidence, from PEV himself, but also from Mr Christopher Harris, Senior Partner in NH&P and fellow Director of RTCJ, and Mr Andrew Pomfret, the Chief Executive of Rathbone. This related primarily to explaining the practice of NH&P and RTCJ, and in Jersey generally, of appointing personal and corporate trustees, the degree of supervision and control under which PEV worked while employee and director of RTCJ and trustee of the Walker Trust, and the method of fee charging, to which I have referred: in particular it was not challenged that PEV never received any personal remuneration from the Walker Trusts for his position and work as trustee for more than 20 years. As for the excess policy, it followed the form of the primary policy (expressly the copyright of AIG), and there was no dispute that insofar as the contra proferentem approach became relevant, it would be applied against the insurers. There was considerable discussion of the recent cases on principles of construction of contract, particularly of course by reference to Rainy Sky S. A v Kookmin Bank [2011] 1WLR 2900 , and also Charter Re v Fagan 1997 AC 353 at 384, 388: but notwithstanding considerable reference to authorities it did not seem to be in dispute between the parties that if I concluded that in relation to a particular term two alternative constructions were possible, I should adopt that which was the more consistent with business common sense. There was of course dispute about whether particular clauses were so open to such construction, and if so which rival version was the more consistent with business common sense. I turn to consider the relevant clauses of the Policy in the context of the issues between the parties. The first issue, or series of issues, relates to cover (in respect of the period ending on 15 October 2008, when RTCJ was acquired by Hawksford), and the following clauses are relevant:- First Clause 1:- " The insurer will indemnify any insured for any (i) loss as a result of a civil liability… arising out a claim first made during the policy period. " The insured is defined by clause 3.9 as " any insured company or any insured person " and by clause 3.10 insured company is " the policyholder or a subsidiary ". The disputes relate to whether PEV is an insured person (clause 3.11, below) and whether (closely related) - although there is no issue in respect of there being, if liability is established in the Jersey proceedings, a loss - such loss is as a result of a civil liability, namely (clause 3.3) a " legally enforceable obligation to a third party arising from a wrongful act ", by reference to the definition of wrongful act in clause 3.30 (below). Then Clause 3.11:- " Insured person an actual person who was, is or, during the policy period, becomes:- (i) a director or officer, but not an external auditor or insolvency office-holder, of an insured company; (ii) an approved person; (iii) a paid employee (full time, part time or temporary) working under the direct control or supervision of an insured company; …. …insured person means exclusively those persons employed by an insured company in the performance of professional services. The term insured person does not mean any independent broker, independent financial advisor, external auditor or any similar agent or independent representative remunerated on a sales or commission basis, unless specifically agreed by the insurer and endorsed to this policy. " The dispute arises as to whether PEV was:- a) in respect of the period covered by the Consultancy Agreement, (the issue being conceded in respect of the period of the Employment Contract) a paid employee (full time, part time or temporary) within (iii). There is the further dispute as to whether he would be, if a paid employee , excluded by the words at the end of the clause as being an " independent representative remunerated on a sales or commission basis ," b) working under the direct control and supervision of [RTCJ], c) employed by [RTCJ] in the performance of professional services. Clause 3.21 defines professional services:- " the financial services declared in the submission performed by or on behalf of an insured company pursuant to an agreement with a third party: (i) for compensation; or (ii) in conjunction with services for compensation ." As to this clause: (i) The submission is defined by clause 3.27 as " each and every signed proposal form, the statements, warranties and representations therein its attachments, the financial statements of and other documents of any insured entity filed with a regulator and all other information submitted to the insurer ". The issue is whether the services of personal trustee provided by PEV were declared in the submission – which included, in the description of Rathbone Group Business Activities incorporated with the proposal form, the following:- " 2.1 Full UK and international trust and nominees services including personal and corporate trusteeship and trust administration including the ownership of trust assets. … 2.3 The administration of existing structures to ensure our clients needs continue to be satisfied, including the provision of trustees, company officers and other fiduciary responsibilities. " (ii) But more significantly the questions are:- a) Whether PEV's services as personal trustee were services performed by or on behalf of [RTCJ]: b) pursuant to an agreement with a third party c) for compensation or in conjunction with services for compensation . Some reference is made to clause 4.14 (as amended or clarified by a subsequent rider) which excludes Trustee Liability where it arises out of an act or an omission by an insured as a trustee of trusts, companies and pension plans owned ultimately by Rathbone or for the benefit of Rathbone employees. In clause 3.30 Wrongful Act is defined as:- " any actual or alleged act, error, omission in the performance of or failure to perform professional services by: (a) any insured; or (b) any other person for whom an insured company is legally liable. " The same dispute as to the definition of professional services arises as in clause 3.11 above, and stands or falls with the same conclusion as to whether, when PEV acted as a personal trustee, first as an employee and subsequently as a consultant, he was providing those services on behalf of RTCJ. The next issue arises in relation to the disputed construction of the excess clause 5.14:- " Other Insurance Insurance provided by this policy applies excess over insurance and indemnification available from any other source. " The issue here is as to whether, before PEV is entitled to claim under this cover, he must first exhaust all other remedies, and most materially that he must first recover under the indemnity he has (limited to £40,000,000 per event) as against Rathbone (the policyholder) and RTCJ (an insured company) under the Indemnity (or otherwise). The Defendants also assert that he must first exercise any rights he has under a subsequent indemnity dated 8 May 2009 from RTCJ (quae HTCJ) and Hawksford (limited to £50,000,000), though there is a dispute as to the relevance of this document to the period prior to 15 October 2008, which is, as set out in paragraph 7 above, the only period of cover in issue in these proceedings. The dispute arises as to whether clause 5.14 is intended (whether by reference to its heading or otherwise) to address indemnification from other sources than insurance, and in particular whether it extends to indemnities from the policyholder or other co-insureds such as RTCJ. As for other insurances, there is no dispute as to the applicability in principle of the clause, but the question is whether there are any other relevant insurances which have not been exhausted. With regard to a Chubb primary trustee liability policy and an AIG excess trustee liability policy, it is now common ground that there is a materially equivalent clause in those policies whereby (by virtue of the principles established in Weddell v Road Transport and General Insurance Co Ltd [1932] 2 KB 63 and National Employers Mutual v Haydon [1980] 2 Lloyd's Rep 149), the two materially identical excess clauses cancel each other out. There is however an issue as to whether there is cover which would fall within the ambit of clause 5.14 granted by Directors' & Officers' ("D & O") Liability policies with AIG (with a total limit of £30,000,000). AIG as primary layer insurer has refused cover, on the basis that liability in respect of professional services is excluded by those policies, a case which in these proceedings Mr Dominic Kendrick QC (with Mr Richard Harrison) for the Claimants supports by reference to construction of the relevant clauses, while Mr Peter MacDonald Eggers QC (with Mr Alex Hall Taylor) for the Defendants asserts that there is no such exclusion on a proper construction of the AIG policy. Although AIG is not before the court, I shall have to resolve this issue in order to decide whether, even if the Claimants are successful in respect of the rest of their arguments on clause 5.14, they are barred by the excess clause, by reference to the £30,000,000 limit available under the D & O policies. In respect of both this issue and the subrogation issue to which I refer below, two other clauses of the policy should be recited, both of them relating to exclusions:- " 4.3 Contractual Liability arising out of, based upon, or attributable to any; (i) liability assumed or accepted by an insured under any contract or agreement except to the extent such liability would have attached to the insured in the absence of such contract or agreement… " The relevance of this is that there would be no cover for e.g. Rathbone or RTCJ in respect of any payment by them to PEV under the Indemnity (or, as Mr MacDonald Eggers points out, any implied contractual indemnity). " 4.7 Insured v insured/parent company brought by or on behalf of (i) an insured … unless such claim is brought by or on behalf of an insured person as a customer or client of any insured company; or (ii) the parent company of any insured company or any entity that is operated, managed or controlled by any insured ." The last issue in respect of the policy arises in respect of the Defendants' claim for subrogation into the shoes of PEV:- " 5.13 Subrogation and Co-Operation The insurer shall be subrogated to all insureds' rights of recovery, contribution and indemnity before or after any payment under this policy. The insured shall do nothing to prejudice such rights. It shall be a condition precedent to the obligations of the insurer that insureds will, at their own cost.. give the insurer full details..and..assist and cooperate… The insurer shall not exercise its rights of subrogation against an insured person in connection with a claim unless the insurer has established that Exclusion 4.9, Established Misdeeds, applies to that claim and that insured person. " Again there is an issue as to whether, if there is found to be cover (which has survived clause 5.14) in respect of any sums that they pay PEV, the Defendants are entitled to be subrogated to PEV's claims. The significance of this issue (because all other matters can be left to sort themselves out hereafter) is whether the Defendants have a right of subrogation against Rathbone, the policyholder, and RTCJ, PEV's co-insured under this policy, in respect of PEV's indemnity. There is also a dispute as to whether the express provision that such subrogation is " before or after any payment under this policy " overrides the ordinary presumption that subrogation can only arise once payment has been made by the insurer claiming subrogation (MacGillivray on Insurance Law 12 th Ed paras 23-001-2, 23-024 and 23-027-8). There was another issue for consideration at the hearing, described as the Retroactive Clause issue, but it is now agreed between the parties that I no longer need to consider this. The Claimants submit that there was a fundamental purpose of the policy, which was to supply professional indemnity insurance so as to comply with Jersey law, so that they, as " registered persons " under Jersey financial services legislation, should thus " maintain adequate insurance cover at all times, commensurate with [their] business activities " as required by clause 5.8 of the Code of Practice for Trust Company Business established by the Jersey Financial Services Commission under the Financial Services (Jersey) Law 1998 – which requires cover of at least £10,000,000. Mr Kendrick submits that because the Defendants were told that, of the worldwide business of the Rathbone group, 17% was in Jersey, including the international trust business referred to in paragraph 13(i) above, the Defendants were accordingly taken to have knowledge of the Jersey legislation. I do not accept this: there is no indication that the Defendants were told of this requirement, nor do I consider that they should be taken to know of Jersey regulatory requirements. In the alternative Mr Kendrick relies on the terms of clause 3.27 of the policy set out in paragraph 13 above, whereby there is cover in clause 3.21 for " the financial services declared in the submission ", and the submission is defined in clause 3.27 as including " the financial statements and other documents of any insured entity filed with the regulator ". He asserts thereby that anything filed with any regulator, whether supplied to the Defendants or not, is incorporated. I agree with Mr MacDonald Eggers that this is an impossible construction of that clause, which is governed by the last words of the clause " submitted to the insurer ". I do not even need to resort to the eiusdem generis principle of construction to be satisfied that the clause is simply giving quite a wide definition to the documents which were submitted to the Defendants, and which hence help to define the cover, and which also constitute the " representation " referred to in clause 5.16 of the policy as having being relied upon by the Defendants as the basis for cover. In the event there was a substantial number of documents submitted to the Defendants, including the description of the Rathbone Group Business Activities set out in paragraph 13(i) above (the " Business Activities information "); but not any material documents filed with a regulator (widely defined in the policy, and certainly not limited to financial services) which could begin to found a case for incorporation of the Jersey Codes of Practice. I am therefore unpersuaded by any case as to special knowledge on the part of the Defendants, where such is required. I shall however be prepared to take note, as part of the evidence, spoken to by the witnesses, of the context, of the Jersey Regulations, when it comes to consideration of matters of fact. For example, when I address the issue of whether RTCJ exercised control over PEV as professional trustee, I shall be entitled to note that RTCJ, because it was obliged by the Codes of Practice (paragraph 3.1.1) to operate an effective corporate governance system in relation to trust company business with an " adequate span of control appropriate to the nature of its business " comprising " at least three appropriately skilled and experienced individuals " (which Mr Harris described as the " six eyes " principle), is asserted by the witnesses in fact to have exercised such control. The Cover I have found it convenient to adopt the same order of considering the various sub-issues constituting the question as to whether there was cover for PEV under this policy as was adopted by Mr MacDonald Eggers in his closing submissions:- (i) Were professional services performed by or on behalf of the insured company (by PEV)? (ii) Were professional services performed pursuant to a relevant agreement? (iii) Was PEV in his capacity as a personal trustee working subject to the direct control and supervision of RTCJ? (iv) Was PEV an employee from 1 July 2007? I have set out the relevant clauses of the policy above. The professional services in question are those of a personal trustee. The evidence of the witnesses was not challenged that it is normal in Jersey for a firm of solicitors or similar institutions when taking on trust business to provide both a corporate trustee and one of their partners or senior staff to act as a personal trustee. There is no doubt that the Business Activities information was part of the Rathbone submission , so that the Defendants knew that they supplied (inter alia) full UK and international trust and nominee services, including personal and corporate trusteeship and trust administration, including the ownership of trust assets. Also part of the submission was the Rathbone group reply to the proposal form, which included the fact that 11% of their current year's revenues was derived from the administration of trusts, estates or guardianships, that they offered trust management services and that the value of total trusts under management was between £3billion and £4billion. In answer to the question as to whether any claim had been brought against " the Proposer or any of its directors, officers, partners, trustees or employees during the last five years " and whether " the Proposer, or any of its directors, officers, partners, trustees or employees " had any knowledge of any act etc which could give rise to a claim, an affirmative answer was given, indicating a potential for such liability. Mr MacDonald Eggers submits as follows:- (i) Rathbone/RTCJ do not provide the services of personal trustees. They might provide the services of a corporate trustee, e.g. WRL, of which PEV was a director, but not of a personal trustee. (ii) Any agreement in any event in relation to PEV's appointment must have antedated the existence of RTCJ. (iii) Although there is no mention of this in the Administration Agreement, so far as concerns the period as from 2002, the most that RTCJ can have agreed to do was to agree to select or find someone to act as a personal trustee (or, in the case of PEV, to continue to act as trustee) but it agreed to provide no continuing services. The only services they provided after 2002 were those under the Administration Agreement. (iv) The Defendants point to the " letter to clients ", which was scheduled to the Consultancy Agreement, and which PEV agreed to, and no doubt did, send, which referred to his being, and intending to continue his role as, a trustee in his " personal capacity ". (v) Any cover provided under the policy to an insured person can only be co-extensive with the cover for an insured company. Mr Kendrick, irrespective of his submission as to the fundamental purpose of the insurance referred to above, is critical of the attitude taken by the Defendants, when in fact it is clear that PEV's services " unlocked millions of fees " for RTCJ. The provision of corporate and personal trustees was an important part of Rathbone's business, certainly in Jersey. PEV was (at least until 2007 – see below) an employee of RTCJ, and hence providing the services of personal trustee on behalf of - PEV in evidence called it " at the behest of " - RTCJ :- i) Although PEV's appointment as personal trustee antedated RTCJ, RTCJ simply stepped into the shoes of the firm, on whose behalf he was previously acting as personal trustee – or, as he accepts, trustee in a personal capacity, rather than corporate trustee. He was never paid any sum of money himself for being trustee; the entirety of the remuneration due to him as personal trustee pursuant to clause 20(a) of the Settlement was paid first to the firm and thereafter to RTCJ, who rendered the bills for his time as such personal trustee. ii) I have referred to the Employment Contract of 31 March 2000, by clause 1(A) of which he was required to " perform such duties " as are usual to such offices, in paragraph 6 above, and to his obligation under clause 3(E) to account in full to the firm for any remuneration received as a result of his holding office (plainly including being trustee) in any external body. Significantly, Mr Kendrick submits there was by clause 9(c) a two year restrictive covenant preventing him from rendering " any trust and company administration services " to any client with whom he had dealt for services of the like nature, and by clause 16 he agreed to resign at the request of RTCJ from any relevant offices, which Mr Kendrick says must have included his office as trustee of a client. iii) Mr Kendrick particularly relies upon the terms of the Indemnity of 31 July 2003, whereby it was specifically recited that PEV " acts on behalf of [RTCJ]. .. as a trustee " (Recital A) and (by Recital B) his willingness is recited to " act or continue to act in the capacities set out above ", as a result of which he is given the indemnity to which I have referred in paragraph 6 above, in respect of liability arising out of or in connection with (by clause 1.3) the following activities conducted by [PEV] at the request or in the service of [RTCJ or Rathbone] acting as a trustee . iv) By the Consultancy Agreement he is to continue providing services, including services to a client for which he has (inter alia) acted as a " settlor, protector, or beneficiary of a trust ". He is required to continue to perform services which include (according to Schedule 1) attending the trust and company board meetings of clients including the Walker Trust, and there is a special provision in clause 4 of that schedule whereby he must:- " do all things necessary to retain the clients [including the Walker family]; endorse and recommend the services of [RTCJ] and secure timely succession [to himself] as trustee.. in the case of .. Walker by Anita Lovell or such other directors of [RTCJ] as may be agreed. " Significantly it was provided by clause 5.2 that his consultancy fee " will not include any fixed trustee... responsibility fees, which shall accrue to [RTCJ] absolutely. " Similarly to the provisions in the Employment Contract, as part of a restrictive covenant he agreed by clause 12.2.2 to resign forthwith as a trustee of a client on the receipt of written notice from RTCJ. v) By reference to the evidence as to the rendition of bills which was fairly closely examined, it became apparent that the firm, and then RTCJ, simply recorded the time that PEV spent, whether as personal trustee or director of the corporate trustee or (where relevant) on administrative services pursuant to the Administration Agreement, and charged them, without distinguishing between his roles, to the Walker Trust. In an analysis of the business, carried out by management consultants, in 2003 it was noted that, as a separate matter to the charges under the Administration Agreement, " annual responsibility fees " are charged for PEV and WRL (although in fact, as set out in paragraph 5 above, the fee ceased to be separately charged). It is clear that all the time spent by PEV, in whatever capacity, was treated as spent on behalf of RTCJ and billed to the trust on that basis. vi) Liability in respect of an act or omission as a trustee by either an insured person or an insured company is expressly excluded by clause 4.14 in respect of being a trustee of a Rathbone pension fund etc; which suggests that liability is not excluded, where otherwise appropriate, for an insured person acting as a trustee in other circumstances. vii) Mr Kendrick does not accept what he calls Mr MacDonald Eggers ' construct ' of co-extensive liability. If, as he submits he was, PEV was acting on behalf of RTCJ when performing his services whether as personal or corporate trustee, and is adjudged liable, then, whether or not there is co-extensive liability at English or other foreign law with RTCJ, be it as employee, agent or provider of services, as insured person he is covered. In any event the amendment in the Jersey proceedings, which it appears to be likely will now go forward, is based upon vicarious liability of RTCJ for PEV, and direct liability of RTCJ, in respect of the same loss. I am satisfied that PEV was, when acting as a personal trustee, just as when he was acting as a director of a corporate trustee, acting on behalf of RTCJ. If he was not, then, since he never charged for his time, he would have been acting gratuitously, which I am satisfied he was not doing. RTCJ charged for his services as such trustee, which it recognised in the Indemnity were performed on its behalf, and which continued to be performed on its behalf once he ceased to be an employee and became a consultant. The next question is whether PEV was providing such services pursuant to what Mr MacDonald Eggers calls a relevant agreement . He submits that clause 3.21 (set out in paragraph 13 above) must be construed as providing that the financial services must be performed " pursuant to an agreement by an insured company with a third party ." He submits that there was no agreement pursuant to which PEV supplied his services as personal trustee made between the third party (Walker) and RTCJ. In any event insofar as the agreement relied upon is the Settlement, RTCJ was not in existence, and the partnership NH&P was not a party. The fact that, both at the time and subsequently, first the firm and then RTCJ in fact rendered the bills is irrelevant as this was simply what he calls a 'billing arrangement', because clause 20(a) of the Settlement entitled PEV as trustee to " charge and be paid all usual professional or other charges for business done and time spent services rendered by him or his firm in the execution of the trusts ", and thus entitled PEV to charge for his own time and for that of his firm, but did not entitle the firm to charge. Mr Kendrick submits that, given that PEV was providing the services on behalf of his firm (and later RTCJ), he thus was then and thereafter agreeing on their behalf: alternatively he submits, if necessary, that there was an agreement by conduct between the trust and the firm, and subsequently RTCJ, when first Mr Walker himself and then his colleague Mr Brown agreed to accept and pay the firm's/RTCJ's bills, which included PEV's time. But Mr Kendrick's primary submission is that there is no call for the interpolation of the requirement that the agreement with a third party must be by the insured company . If the policy had meant to say so it could have done: and it is thus sufficient that there was an agreement with the third party, Walker, by the insured person, for compensation (payable to his firm). I agree. It seems to me that the proper construction of the clause, getting at its objective intention, had nothing to do with whether the agreement was with the insured person or the insured company. What was required was that the services should be provided pursuant to an agreement with a third party for compensation, i.e. that the trustee services should not be gratuitous. PEV's services as personal trustee were provided pursuant to an agreement (the Settlement) for compensation, the services being provided on behalf of, and the compensation being payable to, the firm and thereafter RTCJ. This seems to me to be plain and obvious. If necessary, insofar as there are two alternative constructions, I would have preferred that of the Claimants both on the basis of contra proferentem and of complying with commercial sense. The question whether PEV was " working under the direct control and supervision " of RTCJ falls within a very narrow compass, being almost a philosophical question. Mr MacDonald Eggers submits that as a personal trustee he must always be free to exercise his trustee's discretion, and so cannot be said to be under the control and supervision of RTCJ. This must be so both when he was working under the Employment Contract and under the Consultancy Agreement; he cannot have been under RTCJ's supervision or control, or if he was he must have been in breach of his duty as trustee. As to the evidence:- (i) I have already referred to the Codes of Practice. Mr Harris agreed that the six eyes principle was one of corporate governance and internal management, but that it was in fact operated, and what this meant was that there was a proper system of compliance to which PEV was subject: and PEV described in evidence that he had " fellow professionals working with me at a senior level who could exercise that control: we had a whole compliance team making sure that the rules laid down by the Financial Services Commission were respected. If they were not respected, the breach would be reported to the board, and, if it was a serious breach, it would then be reported to the Financial Services Commission. " Mr Kendrick described this as keeping the trustee " on the straight and narrow ". (ii) The obligations in the Employment Agreement (including, by clause 1(A), that he must " diligently and faithfully obey and observe all lawful and reasonable instructions of the.. Board ") were spelt out rather more thoroughly in the Consultancy Agreement:- " 2.6 You understand and agree that you will not attend meetings with Specified Clients, their employees or advisers without the knowledge or consent of the Company and where you are acting as a trustee or director in that regard without a representative of the Company in attendance save where the Company is provided with advance notice of such meeting and a detailed note or minutes of the meeting within one month thereafter. … 4.1 During the continuance of the Consultancy you shall: … 4.1.3 obey all lawful and reasonable requests, instructions and regulations made by the Company and/or the Rathbone Board from time to time and perform and observe such duties and restrictions and supply such information (in writing if so requested) and conduct and manage such of the affairs of the Specified Clients as may from time to time be reasonably required of you by the Company and/or the Rathbone Board; … 4.1.5 keep the Rathbone Board promptly and fully informed (in writing if so requested) of your conduct of the business and affairs of the Specified Clients and provide such explanations as the Rathbone Board may reasonably require; … 11.5 All notes, memoranda… relating to the business of… any Client shall be and remain the property of the Company… or Client… and shall be delivered by you to the Company. … 15 Monitoring To enable the Company fully to comply with the requirements of the Jersey Financial Services Commission in relation to the carrying on of trust company business, the Company reserves the right to monitor your use of telephones, email and the internet when you are connected to the Company's computer systems. Monitoring is carried out only for lawful business purposes including: to establish the existence of facts relevant to the Rathbone Group's business: to ascertain compliance with regulatory and self-regulatory practices or procedures that are relevant to the business; " I have already referred in paragraph 28(iv) above to clause 12.2.2 and the provisions of Schedule 1. Mr MacDonald Eggers submits that effectively any element of supervision or control of a personal trustee must be offensive to the very nature of a trustee, fettering his discretion and putting him in breach of duty. Mr Kendrick accepts that there may be steps that it would be unlawful for a trustee to take simply on the basis of being instructed to follow the requirements of his employer, but that the existence of a lawful system of control and supervision is not offensive to the existence of the trustee's discretion. I do not consider that it is unlawful for a trustee to be supervised, in the sense of someone ensuring that he is carrying out his duties. As for control (and I do not consider that 'direct' as opposed to 'indirect' adds anything to the principle), the kind of control which ensures that the trustee is doing his job and complying with the Codes of Practice cannot in my view be unlawful or inconsistent with the trustee's discretion. To the contrary, as appears from clause 15 of the Consultancy Agreement above, the ' monitoring ', as defined, of a trustee is positively required for, and thus consistent with, a trustee lawfully operating in Jersey. In any event clause 3.11 does not require 'absolute' control, and is consistent with control insofar as permitted by law. I conclude that while performing his services as personal trustee on behalf of RTCJ from 2000 to 2008 PEV was working under the direct control and supervision of RTCJ. The next question is whether PEV was a paid employee full time, part time, or temporary. Mr MacDonald Eggers accepts that he was such an employee from 2000 to 2007, but submits that he ceased to be so when the Consultancy Agreement was executed, which expressly provided (by clause 2.1) that " this Agreement is a contract for services and not a contract of employment. It is agreed that nothing in this Agreement shall make you an employee of the Company ". Of course there is plenty of authority that at common law the language used by the parties constituting a relationship in a contract is not determinative – particularly where both parties may be leaning over backwards to try to avoid some tax consequences so as to be able to assert that the party supplying services, otherwise subject to PAYE etc, is not to be an employee. But Mr Kendrick accepts that by virtue of the terms of the Consultancy Agreement PEV is not an 'employee for employment tribunal purposes'. He submits however, that he was nevertheless an employee, and treated by both parties as an employee, by virtue of the regulatory position, and indeed he was and remained registered as a " Category A employee " with the Regulator. A trust company business employee is defined by the Financial Services (Trust Company Business (Registration) (Jersey) Order 2003 (clause 1(a)) as " a person employed, either under a contract of service or a contract for services, by the registered person to assist in the provision of trust company business ". This is not put by Mr Kendrick upon the basis that the Defendants must be taken to have knowledge of the Jersey legislation, or of PEV's registration, although Mr Kendrick points out that there is very similar provision in the UK where, by the FSA Handbook (as at 29.04.2008) an employee is defined as " an individual.. who is employed or appointed by a person in connection with that person's business, whether under a contract of service or for services or otherwise "; but simply on the basis that he remained after 2007 a paid employee, albeit now part time or temporary, working under the direct control or supervision of RTCJ, still benefiting from the indemnity, in particular as provided in clause 4, set out in paragraph 6 above. Significantly when it came to the Instrument of Release and Indemnity dated 8 May 2009, releasing Rathbone (for the future), after Hawksford had acquired the shares in RTCJ, given by PEV and RTCJ, PEV was described throughout as the " Employee ". Quite apart from the factual and regulatory position, Mr Kendrick relies upon the construction of clause 3.11 itself in establishing that the meaning of employee is not restricted by the fact that PEV entered into a contract for services. The last sentence of clause 3.11 exempts from what would otherwise have been the meaning and construction of insured person " any independent broker, independent financial advisor, external auditor or any similar agent or independent representative remunerated on a sales or commission basis ". This, submits Mr Kendrick, means that, but for that exemption, such a person would, or could, be an employee. Mr MacDonald Eggers has two answers to this. His first is that PEV was " remunerated on a sales or commission basis ": I shall return to this proposition below. Secondly he submits that this last sentence addresses not only 3.11(iii) but 3.11(i) and (ii) (set out in paragraph 12 above), such that no inference should be drawn from the existence of such exemption (which in any event he submits is simply intended for the avoidance of doubt) as to the construction of sub-clause (iii), when it could be referring to sub-clause (i) or (ii). I find this latter argument of Mr MacDonald Eggers unpersuasive. Sub-clause (i) relates to a " director or officer ", and it seems unlikely to me that that sub-clause is in play for the purposes of the exemption for independent brokers. As to (ii), that relates to an " approved person " which, by clause 3.1 of the policy, is defined as " any natural person employed by an insured company to whom the Financial Services Authority has given its approval ". The very use of the word " employed " in 3.1 and hence 3.11(ii) (and in the context of the Jersey regulations to which I have referred in paragraph 39 above) supports the proposition that in 3.11(iii) there is also intended to be a broad definition of the word employee , and that the exemption in the last sentence is intended to apply to both sub-clauses (ii) and (iii). As to Mr MacDonald Eggers' suggestion that the Defendants could take advantage of the exemption, I am unpersuaded. The remuneration of PEV under the Consultancy Agreement was by reference to his hours spent for the Walker Trust (primarily as personal trustee and director of the corporate trustee, as discussed above) which he notified to RTCJ, for them to bill the Trust. Whereas he had received a fixed remuneration as employee, he was now paid as a consultant by reference to half the sum charged by RTCJ to the trust. The evidence was unclear as to how this was arrived at, and it seems probably to have been on the basis that it seemed a fair allocation, since he did not have to carry any of the overheads which would otherwise justify the hourly rate which RTCJ were charging (which appears to have been a continuation of the hourly rate previously charged for him as a partner). I do not regard that as a " sales or commission basis ". Neither counsel could produce a universal definition of " commission basis ", but Mr Kendrick referred to the Commercial Agents (Council Directive) Regulations 1993, where commission is (at paragraph 2) defined as meaning " any part of the remuneration of the commercial agent which varies with the number or value of business transactions. " Mr MacDonald Eggers submitted that it could be said to be a commission basis because the amount received would increase the more hours he worked, of which he would receive 50%. That does not seem to me to be a commission basis : rather than being an agreement for an hourly rate dependent on the number of hours worked. I am satisfied that, on a proper construction of clause 3.11, PEV was a paid employee, both before and after 2007, and that he does not fall within the limited exemption. Excess I turn now to the construction of clause 5.14, which is said by Mr MacDonald Eggers to mean that PEV cannot access the cover which I have found he has under the policy without first exhausting one or more of the other routes available to him. Not only does PEV resist this course, but Rathbone has (as will be seen) an obvious interest in ensuring that the policy for which it paid pays out to PEV as an insured person, rather than that PEV is first required to sue Rathbone for the £40,000,000 cover under the Indemnity. There are in fact three routes which the Defendants assert PEV should take before becoming entitled to claim under the Policy:- (i) The indemnity (with a limit of £40,000,000 per event) given to PEV by Rathbone and RTCJ under the Indemnity. (ii) The indemnity (limited to £50,000,000) given to PEV by Hawksford and RTCJ (by now HTCJ) in an Indemnity dated 5 May 2009 in similar form to the Rathbone Indemnity of 2003, after the release of Rathbone from that Indemnity, by the agreement referred to in paragraph 40 above. (iii) Other insurance. The Defendants no longer pursue a case under clause 5.14 by reference to a Chubb policy, because they accept that it contains a similar excess clause which would cancel this one out (see paragraph 17 above). (iv) Then there are the D & O policies (referred to in paragraph 18 above), which the Defendants assert would give cover. AIG has denied cover under those policies, and the Claimants accept that they are right to have done so, but nevertheless if they, and AIG, are wrong then those policies stand in line before the Defendants. The issues are different as between the indemnities and the insurance. As to the former, the question is whether indemnities of that kind fall within clause 5.14. As to the D & O insurance, the question is whether the policies provide cover (and if they do whether there is, as in the case of the Chubb policies, a similar excess clause such as to cancel this one out). As to the indemnities, the issue revolves around a construction of clause 5.14. The heading of the clause is " other insurance ", but the Defendants point to clause 5.20 (i), which provides that " unless the context otherwise requires.. headings are descriptive only, not an aid to interpretation. " Mr Kendrick submits that the excess provision is limited to the availability of other insurance, as is expressly provided by the identical clause in Section 1 in this very policy, relating to crime as opposed to civil liability, which reads:- " 5.13 Other insurance Unless otherwise required by law any insurance as is provided under this policy shall apply only as specifically excess over any other valid and collectable insurance whether or not such policy is actually maintained by the insured. " He submits that " insurance and indemnification available " is simply another way of describing " valid and collectible insurance ", i.e. that the insurance only qualifies for the excess clause if it both provides cover and will pay out. Hence the heading, which in both cases refers only to " other insurance " and not to indemnities, which are not intended to be included in either excess clause in Section 1 or Section 2. Mr MacDonald Eggers submits as follows:- (i) Clause 5.20 rules out any reference to the heading. The provision expressly does not enable the heading to be resorted to for the purpose of interpretation, and the exclusion does not provide for resort to the headings in the case of ambiguity, but only where the context requires, of which there is no sign in this case: for example there could be some cross reference to a heading which elevates it in significance, but there is none such here. (ii) The words are in any event clear – insurance and indemnification. In case it might be of any assistance, he refers to the fact that there is a reference in Chapter 3 of Directors' & Officers' Liability Insurance : Paolini & Nambisan to the Higgs Report which dealt with " insurance and indemnification ". (iii) In any event the addition of the words " available from any other source " could only be of relevance if something other than insurance were intended, because there would be no need for those words if only insurance were being referred to. (iv) There is reference (albeit in different words) to " all of the insured's rights of recovery, contribution and indemnity " in the subrogation clause, clause 5.13. I agree with Mr MacDonald Eggers' submissions:- (i) If there is ambiguity, that does not entitle reference to the heading (ii) I conclude that the right way to read the clause is to differentiate between insurance and indemnification available from any other source . However Mr Kendrick has a further contention by reference to the words " from any other source ". He submits that:- (i) If the clause refers both to insurance and indemnities, it is a very wide exemption of cover, certainly wider than the clause in the crime Section. (ii) There are regularly likely to be indemnities available from employers or principals to insured persons quae agents or employees, not necessarily express; and such construction would enable insurers to seek to find ways out of the obligation which on the face of it they have by having provided cover, by seeking to argue the existence of implied indemnities. (iii) The insurers should not be entitled to seek by way of an effective avoidance of cover reliance on an indemnity for the insured person against the policyholder, being the very party who paid the premium to avoid the risk. In his submission the words " any other source " should be construed as referring to any source outside the policy, i.e. not a claim over against the policyholder or a co-insured within the policy. Mr MacDonald Eggers disputes the construction, or the need for it. He points to the fact that (as set out in paragraph 19 above) clauses 4.3 and 4.7 mean that if the policyholder or a co-insured has to pay up under a contractual indemnity (express or implied) to a co-insured, he cannot recover that sum under the policy against the insurer. However that seems to me to render it all the more significant that the existence of such a possible indemnity should not rule out entirely (because of the existence of the excess) the cover for which the policyholder has paid and which the insured person is expecting and entitled to. I conclude that Mr Kendrick is right to construe the words as he does. Thus " insurance provided by this policy applies excess over insurance and indemnification available from any other source " (my underlining). It does not apply excess over indemnification from the policyholder or other co-insured. The Hawksford indemnity, if it is applicable, is not affected by this latter argument, as Hawksford is not a co-insured under this policy. If there is an indemnity for PEV (up to a limit of £50,000,000) available from Hawksford, in respect of this period of cover, then that would no doubt be of advantage to him, provided that Hawksford is solvent, in case the liability exceeds this cover, but it looks most unlikely. Hawksford is of course not a party to this action, and I am effectively invited by the parties not to reach a conclusion about it, but the argument seems very slim. In the Indemnity of 8 May 2009, to which I referred in paragraph 47(ii) above, an agreement, which was for some reason not signed until nearly 7 months after the purchase by Hawksford of the shares in RTCJ and of the business, Hawksford and RTCJ indemnified " the employee " (PEV) " with effect from the Relevant Date ", which was 15 October 2008. In clause 4 there is what is argued by the Defendants to be an unlimited forwards and backwards indemnity for PEV in relation to acts on behalf of the company RTCJ (HTCJ), which the Defendants assert antedates the " Relevant Date ". Given that I am not deciding this point, on the face of it the availability of a Hawksford indemnity, in respect of events prior to 15 October 2008 and thus during the period of the Defendants' cover, remains in play within clause 5.14, but I give it no support, and it is to be hoped that the Defendants will feel that the argument is not worth pursuing. I turn to the D & O insurance, which I am invited to decide, since AIG has already declined cover. The Defendants assert that there would be cover for PEV. Under the clause 1.1 " Management Liability " there is specific cover for an outside entity director , defined by clause 3.36 as " a natural person who.. served.. at the specific request or direction of, or with the approval of a company, as a director, officer, trustee, governor or equivalent of an outside entity " , thus such as the Walker Trust. However there is an express exclusion, upon which AIG relies and which is pointed out by the Claimants, namely:- " 4.7 Professional services for damages or other relief for any actual or alleged wrongful act in performance of or failure to perform professional services or related back – office supporting services ". Mr MacDonald Eggers submits that this cannot possibly exclude cover for an outside entity director, because it would mean that the exclusion would always apply, since such an outside entity director would be bound to be liable, if at all, in relation to wrongful acts in the performance of or failure to perform professional services etc. Mr MacDonald Eggers submits that the exemption therefore can only refer to the exclusion of liability of the company in its performance of professional services, which would be the subject matter of other cover (e.g. PII cover such as is provided by the Defendants). Mr Kendrick submits that this is an impossible construction of the exemption, and that, notwithstanding the exemption, the outside entity director cover does have substance, because by clause 3.57 wrongful act includes, for example, " employment practice violation ", as defined at some length in clause 3.13, all of the acts being directly relevant to management and management services; and the exemption is making it clear that only liability for that managerial kind of wrongful act will be covered, and not any inadequate professional services. I agree with Mr Kendrick, whose argument is actually supported by the failure of his own fallback case. His fallback was that the excess clause 5.14 in our policy is mirrored by an identical excess clause in the D & O policy (see the authorities in paragraph 17 above). But the excess clause (5.19) applies " excess over more specific management liability insurance and indemnification ". This would certainly not qualify as an identical excess clause for 'cancelling-out' purposes, but it emphasises the managerial nature of the D & O policy. In closing, Mr MacDonald Eggers submitted that even if there were no cover for " damages or other relief " in respect of any alleged wrongful acts for which PEV might be found liable as an outside entity director, there would be cover for defence costs, which is not " damages or other relief ", and which is otherwise included in the definition of loss under clause 3.31 – " any defence costs…. For which an insured is legally liable resulting from a claim against an insured ". Mr MacDonald Eggers points to the fact that in clauses 4.2 and 4.6 of the policy, where there are exclusions of certain claims, it is expressly stated that " this exclusion shall not apply to… defence costs ": there is no such provision in relation to the exclusion under clause 4.7. Mr Kendrick refers to Astrazeneca Insurance Co v X L Insurance (Bermuda) Limited [2013] Lloyds Rep (IR) 290 , which Mr MacDonald Eggers sought to distinguish on the basis that on the facts of that case there was no actual legal liability demonstrated. It seems to me clear that there may be a difference between cover for defence costs where there is a disputed claim, which in the end is found to fall without the policy, and a claim for a matter which is clearly excluded from cover from the outset. This case is the latter, and I do not believe it is a proper construction of the D & O policy to assert that the D & O insurers will be obliged to cover defence costs in relation to a claim which is bound, as I have found, not to fall within the policy: and the absence of a similar provision to that in clause 4.2 and 4.6 supports that conclusion. Subrogation I turn finally to clause 5.13, with regards to the Defendants' rights of subrogation, and to contribution. There is a preliminary point to be discussed, which may in the event not be of great significance. The clause provides that " the insurer shall be subrogated..before or after any payment under this policy ". Mr Kendrick refers to chapter 23 of MacGillivray on Insurance Law (12 th Ed) at 23-001-2, whereby the description of the doctrine, originating in Roman law, is that it " confers..rights on the insurer after payment of a loss " and in terms states at 23-028 that the " right of subrogation cannot be exercised until payment is made by the insurer ": at para 23-024 the prior making of payment by the insurer is listed as one of the three conditions precedent of subrogation. Mr MacDonald Eggers submits that by contract, here, the parties have agreed that subrogation will be available before payment. He has produced no authority in which this fundamental precondition of subrogation has been ousted by contract, or rather is replaced by a contractual form of anticipatory subrogation. In the same passage of MacGillivray , 23-028, the editor refers to the right being " a contingent right, vesting at the time when the policy is entered into ", and Mr MacDonald Eggers submits that there might be an appropriate case where some injunctive relief could be granted in order to protect such contingent right. But that does not mean that it exists as an actuality, together with all the rights which go with subrogation, of being able to compel an insured before he has been paid out to issue proceedings and/or to cooperate in any proceedings brought in his name by the insurance company. As Mr Kendrick points out, there would need to be a whole range of new rules and considerations as to precisely when this right arose prior to payment; as to whether it arose, for example, at a time when the insurer was still disputing liability, or when the liability itself had not been established. I am not prepared to conclude that the right to subrogation exists and can be enforced prior to payment by the insurer. I turn to the question of whether the Defendants have rights of subrogation in this case against Rathbone and/or RTCJ. Mr Kendrick's first submission is that the Defendants' rights of subrogation are, upon proper construction of clause 5.13, ruled out by virtue of the last sentence of the clause, which provides that " the insurer shall not exercise its rights of subrogation against an insured person in connection with a claim unless the insurer has established that Exclusion 4.9, Established Misdeeds, applies to that claim and that insured person ". Mr Kendrick submits that this means that the only right of subrogation that can be exercised by the insurer in respect of a co-insured is against an insured person who falls within that exclusion, by dishonesty etc. Mr MacDonald Eggers submits that this is a misreading, and that whereas that is the only circumstance in which there can be the exercise of the rights of subrogation against an insured person , there is no similar exclusion of a right of subrogation against an insured company , and what the insurers are here seeking to exercise, in the event that they have to pay out to the insured person, PEV, is the exercise of a right of subrogation against the policyholder Rathbone or an insured company, RTCJ. Mr MacDonald Eggers seems to me to be clearly right. However that does not end the matter, because Mr Kendrick digs deep into the law of subrogation to assert that, irrespective of the precise construction of clause 5.13, the Defendants are not entitled to exercise such rights. The principle of subrogation arises out of the need to prevent double recovery by an insured ( Castellain v Preston [1883] 11 QBD 380 ), subject to the exception provided by Parry v Cleaver [1970] AC 1 that an innocent claimant who has paid a premium should not have to give credit for its recovery as against the tortfeasor. It appears now to be common ground, as a result of the series of authorities which were carefully considered by Rix LJ in Tyco Fire & Intergrated Solutions (UK) Ltd v Rolls Royce Motor Cars Ltd [2008] Lloyds Rep IR 617 , that there are circumstances in which the right of subrogation can be excluded as between co-insureds, namely by reference to:- (i) the policy itself (" policy waiver ") (ii) the underlying contract between the co-insured (if any) (" contract waiver ") This is derived from the conclusions of Colman J in National Oilwell (UK) Ltd v Davy Offshore Ltd [1993] 2 Lloyds Rep 582 and most recently of Rix LJ in Tyco at paras 74-81. Mr Kendrick seeks to derive a principle from the authorities, of which both sides carried out a very helpful review, that the right of subrogation by an insurer on behalf of a co-insured against (in particular) a policyholder who has paid the premium (like Rathbone), in respect of the risk covered, should be excluded where the insurance was taken out for the benefit of the party against whom the subrogated claim is being sought to be brought. I am satisfied that if this is to be derived, it can be derived only by reference to considerations of policy waiver or contract waiver . There is no dispute between counsel that if the co-insured against whom subrogation is sought is insured in respect of the same loss , there is a policy waiver . This is derived from Colman J in National Oilwell at 603, 604 and 615, and is described by Jackson J in the Board of Trustees of the Tate Gallery v Duffy Construction Ltd [2007] Lloyds Rep 758 at 773-4 as the " co-insurance defence ". Mr MacDonald Eggers submits that that does not arise in this case, because, insofar as Rathbone and/or RTCJ are sued by way of a subrogated claim, that will be pursuant to an express contractual indemnity, and such loss is not covered under the policy as a result of the exclusions in clauses 4.3 and 4.7 referred to in paragraph 19 above. That is of course right, so far as Rathbone is concerned. However the position seems to me to be clearly different in respect of RTCJ. Although not yet pleaded, there is to be a claim against RTCJ in the Jersey proceedings which claim will plainly be in respect of the same loss, by way of vicarious liability for PEV and/or direct liability, as that which I have found to be covered by the policy in respect of PEV. The policy waiver is therefore apt so far as concerns RTCJ. I turn to contract waiver . This is, as Rix LJ implied at paragraph 80, bound to depend on the facts of the individual case, and the construction of the relevant underlying contract, as to whether, for example as in Scottish and Newcastle PLC v GD Construction (St Albans) Ltd [2003] Lloyds Rep IR 809 at 823-4 per Longmore LJ the parties can be said to have apportioned the risks and benefits. Because of my conclusion in relation to RTCJ, I need to deal only with the position of Rathbone. Rathbone gave the Indemnity on 31 July 2003. That Indemnity remains in force, save insofar as it was overtaken by the Hawksford indemnity as from October 2008. By the Consultancy Agreement of 3 August 2007, to which Rathbone was not a party, RTCJ agreed, by clause 5.3 to " provide you with Professional Indemnity Insurance ". Rathbone took out the policy, with RTCJ and PEV as co-insured. The issue seems to me to be whether the Consultancy Agreement, to which Rathbone was not a party, should be construed as an agreement somewhat similar to that discussed by Longmore LJ in Scottish and Newcastle . It seems to me it cannot be said that by that agreement PEV agreed to look to the insurance and not to Rathbone's Indemnity or indeed to look to the insurance as the primary source of indemnity. I do not find any contract waiver . Mr Kendrick has sought to derive, from cases such as Mark Rowlands Ltd v Berni Inns Ltd [1986] QB 211, in which the landlord's insurers were not entitled to be subrogated as against the tenant because the insurance had been taken out for the benefit of the tenant, a principle that subrogation can never be permitted where the insurance was taken out for the benefit of the party against whom a subrogation claim is pursued. He then extends this by asserting that in this case the insurance was taken out for the benefit both of PEV (for whose benefit it plainly was taken out, but that is not relevant as no subrogated claim is being sought against him, but rather by him) and of Rathbone. The benefit suggested presumably is that Rathbone's Indemnity was thereby being rendered less likely to be called upon by virtue of the existence of the insurance; but the insurance policy as taken out expressly excluded consideration of the Rathbone Indemnity from its cover. It seems to me that effectively, if Mr Kendrick is right, there can never be a subrogated claim brought against a policyholder who has paid the premium in respect of coverage of a loss for which the policyholder itself was not insured. But this seems to me to go much further either than the authorities, or the rather broad statements of Kerr LJ in Mark Rowlands at 233b referring to " considerations of justice, reasonableness and public policy ", can lead, in the absence of policy waiver or contract waiver . Mr Kendrick in short written submissions after the hearing submitted that the policyholder here is in a special position because (inter alia) the express undertaking of the insurer under the policy is to pay all claims to Rathbone as policyholder: " We the Insurers bind ourselves to pay or make good to the Policyholder.. all such loss as may happen ", although Mr MacDonald Eggers points out that the excess policy (which governs in the case of specific provision) provides for payment to the insured. I do not consider that in any event the provision for payment has the effect of exempting the policyholder from the effects of subrogation. I conclude that, although not until after payment, the Defendants will be entitled to seek to exercise their rights of subrogation in respect of any claim paid to PEV against Rathbone, but not against RTCJ. The Defendants do thus not need their fall back case on contribution, but since I am satisfied that on a proper construction of the Consultancy Agreement, to which Rathbone was not a party, the insurance was not the primary source of liability, the ordinary principles, whereby in cases of contract the insurance is the last resort (see Caledonia North Sea Ltd v British Telecommunications PLC [2002] 1 Lloyds Law Rep 553 and HIH Claims Support Ltd v Insurance Australia Ltd [2011] HCA 31) would apply. As Mr MacDonald Eggers submitted, a payment under the policy would not discharge the Rathbone Indemnity, while a payment under the Rathbone Indemnity would discharge the Defendants' liability under the policy. Conclusion Accordingly, in his capacity as a personal trustee of the Walker Trust, PEV is an insured person in respect of the wrongful acts alleged in the Jersey proceedings under the policy (subject to the policy limit of £45 m or £35 m, depending on the Retroactive Clause issue) for the period from 31 March 2000 to 15 October 2008, and is not required by the Excess Clause to proceed first against Rathbone under the Indemnity, but the Defendants can exercise, in the event of the payment out to PEV under the policy, rights of subrogation against Rathbone. BAILII: Copyright Policy | Disclaimers | Privacy Policy | Feedback | Donate to BAILII