The issue in this case is whether a contract of insurance between Glaxo Smith Kline (“GSK”) as insured and Equity Red Star (“Equity”, also known as Syndicate 318 at Lloyd’s) as insurer should be rectified. Unusually, however, both parties to the contract agree that it should be rectified because the cover which it provided was wider than was intended. They agree that the contract was never intended to insure the liability of a GSK employee, Ms Janet Ball, who was involved in an accident on 5 October 2006. The claim for rectification is resisted by another insurance company, Axa, which undoubtedly insured Ms Ball. Axa contends that the wording of the Equity cover extends to Ms Ball; that as a result there was double insurance in place; and that it is therefore entitled to a 50% contribution from Equity towards what it has paid to the victim of the accident in which Ms Ball was involved.

This is my judgment in two actions which have been heard together. Axa made its claim for contribution in Claim HQ13X00881. Equity’s claim for rectification was then made in 2013 Folio 1646. GSK was the first (and originally the only) defendant in the latter action but has played no part in the proceedings.

From 1 September 2004 GSK operated what was described as its “Employee Car Ownership Scheme” or “ECOS”, although a different version of this scheme had existed previously. It was a scheme whereby eligible employees of GSK could if they wished use their car allowance to purchase and own a car through the scheme (although they could also, if they wished, take the money and use it to purchase a car independently of the scheme). If they chose to take advantage of the ECOS scheme, they could choose what kind of car to have but were required to be insured through the scheme under a policy arranged by GSK with Equity. About 3,000 GSK employees were members of the scheme, although the precise numbers varied from time to time. The scheme was administered for GSK by a company called Interleasing, which was later renamed Masterlease.

In addition to the vehicles which were the subject of a credit sale agreement entered into by the employee, there were two further situations when a vehicle was regarded as being within the scope of the scheme. The first situation arose when an employee had ordered a vehicle which had not yet arrived. In such a case the employee would be provided with a car temporarily and the temporary car would be counted for the purpose of calculating the premium due to Equity. The second was when a vehicle was temporarily off the road, for example for repair. In such a case the replacement vehicle provided to the employee would be regarded as within the ECOS scheme, although no adjustment to the premium would be required on the basis that the car being repaired was not being driven so the overall number of vehicles within the scheme remained the same.

The premium for cars in the ECOS scheme was paid by GSK to Equity. It was a flat rate per car for each vehicle in the scheme, with payments adjusted monthly to take account of the changing numbers of ECOS vehicles as employees joined the scheme or left it. GSK would then collect premium payments from its employees who were ECOS members by way of deductions from their salary, although these deductions were calculated not as a flat rate but dependent on the kind of car which the individual employee had chosen.

GSK had about 11,000 employees who were not eligible for the ECOS scheme, as well as about 2,000 who were but who chose not to participate in it. Sometimes, however, GSK would provide a car for the use of employees outside the scheme, for example if they needed to drive for business purposes. When that happened, GSK would hire the car from National Car Rental (“National”) and would provide it to the employee for his or her use. Insurance arranged by National would be provided by Axa, the cost of which would be charged to GSK. Interleasing would not be involved. That is what happened in the case of Ms Ball in October 2006. She was not then a member of or eligible for the ECOS scheme.

Unfortunately, on 5 October 2006, Ms Ball was involved in a serious road traffic accident when she was driving to a GSK site which was not her usual place of work in a hired car provided to her by GSK which she had collected from National the day before. Mr Kevin Daniel, who was riding a motorcycle, was very badly injured and in due course made a claim. Although he was guilty of a degree of contributory negligence, and claimed also that his injuries were exacerbated by the negligence of the ambulance service, some liability accrued to Ms Ball. The accident claim was handled by Axa and was settled for a total of some £4.6 million plus costs, of which Ms Ball’s share was £2.3 million plus 50% of Mr. Daniel’s costs (plus amounts for interest and her own costs of defence). Hence Axa’s claim against Equity for contribution. (Although both policies exclude cover where there is other insurance in place, it was common ground that these exclusions cancel each other out: Weddell v Road Traffic & General Insurance Co Ltd [1932] 2 KB 563).

Equity now accepts that the wording of the Equity policy and its associated certificate does cover Ms Ball in these circumstances. I explain below how that is so. However, it is Equity’s case, supported by GSK, that it was never intended to do so, and was only ever intended to cover vehicles in, and members of, the ECOS scheme. Hence the claim for rectification.

Whether the contract of insurance should be rectified is the decisive – and now the only – issue in the case. If the contract remains as it is, it is accepted that Axa is entitled to a 50% contribution. If Equity is entitled to rectification, Axa’s contribution claim will fail.

The contract of insurance was initially concluded in 2004 and was in effect from 1 September 2004 to 31 August 2005. It was renewed for a further year in September 2005 and again in September 2006. It was the September 2006 contract which was in force at the time of Ms Ball’s accident and it is therefore that contract, strictly speaking, which is the subject of the claim for rectification. Not all of the 2004 documents have survived, but the evidence was clear that the renewals did not involve any renegotiation of the terms apart from the premium rates and levels of deductibles. It is therefore safe to proceed on the basis that the terms of the policy and certificate of insurance remained the same throughout.

The policy was headed:

In section 1, which dealt with liability to others, the cover provided was stated as follows:

death of or injury to other people; or

damage to property;

The cover was therefore defined by reference to “you” and “your vehicle”, although a separate clause extended the cover to other authorised drivers:

The policy contained the following definitions:

The definition of the word “You” was wide enough to cover “any driver authorised by” GSK.

The vehicles to be insured were set out in the definition of “Your vehicle, the insured vehicle”. These were in three categories. First, the policy contemplated that there would be a schedule listing the vehicles to be insured. Although no schedule was in evidence and it may be that no document precisely corresponding to the contemplated policy schedule was ever produced, it is clear that what was contemplated was a list of the vehicles which were within the ECOS scheme. These were to be “the vehicles we are insuring”. Moreover, and whether or not correctly described as a schedule, at least a list of those vehicles must have been produced from time to time. That was essential in order for the parties to know what premium was payable. Second, there was to be a certificate of insurance which would also contain a description of vehicles to be covered. Third, the definition makes clear that temporary replacements for or permanent substitutions of vehicles within the scheme were also covered, that provision being intended to deal with the situation when an employee’s ECOS vehicle was temporarily off the road or a permanent replacement was needed.

The definition of “Your vehicle” did not in terms deal with what the certificate was to say, but it seems unlikely that it was intended to broaden significantly the scope of the vehicles to be insured beyond those included in the ECOS scheme. If that had been intended, that would have undermined or rendered misleading the definition and the function of “The schedule”. The schedule was evidently meant to show which vehicles were to be insured and to be limited to those in the ECOS scheme. The two documents, the schedule and the certificate, were clearly intended to march hand in hand. As a matter of language, however, a vehicle described in the certificate would be covered by this policy even if it was not a vehicle within the ECOS scheme.

The insurance certificate actually issued, in terms agreed between the parties, contained a wider description of vehicles, as follows:

The policyholder was described on the certificate as:

The persons entitled to drive were:

It is now common ground that the wording of the certificate was wide enough to include cover for Ms Ball, even though she was not a member of the ECOS scheme and the car she was driving was not a vehicle supplied pursuant to the ECOS scheme or in substitution for a scheme vehicle. That is because, even though the policy appears to contemplate that cover will be limited to such vehicles, the definition of “Your vehicle, the insured vehicle” includes a vehicle “described in the current certificate of motor insurance”, and the description of vehicles in the certificate of insurance extends to vehicles in the custody or control of GSK as the policyholder and vehicles for which GSK is legally responsible and is not limited to vehicles in the ECOS scheme. The vehicle driven by Ms Ball was in the custody or control of GSK and was subject to GSK’s legal responsibility by reason of GSK’s hire of the vehicle from National for the use of its employee. It therefore fell within the description in the policy of “Your vehicle”; Ms Ball was a driver authorised by the policyholder; and cover was provided by section 1 of the policy.

It is Equity’s case that this result was never intended or agreed.

In Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101 at [48] Lord Hoffmann approved Peter Gibson LJ’s summary of the requirements for rectification in the earlier case of Swainland Builders Ltd v Freehold Properties Ltd [2002] EGLR 71:

He confirmed also that in deciding whether a common continuing intention exists, the test is objective, that is to say “what an objective observer would have thought the intentions of the parties to be” and not merely what “the inward thoughts of the parties” may have been (see [60] and [61]). Nevertheless, evidence of what a party subjectively understood to have been agreed “is some evidence tending to show that those terms, in an objective sense, were agreed”, at any rate in a case in which the prior consensus was not entirely in writing, and this might be significant evidence (see [64] and [65]):

Lord Hoffmann went on to say, also in [65], that in such a case:

To be clear, this is not to say that subsequent conduct may create a common intention where none existed at the time when the contract was concluded, but that evidence of what the parties said and did subsequently may cast light on what they intended at the time.

It is in principle possible to have a prior consensus as a result of a discussion in general terms as to the extent of the insurance cover to be provided, rather than by specific discussion of the terms of particular clauses: The Demetra K [2002] EWCA Civ 1070, [2002] Lloyd’s IR 795 at [32].

Other cases in which the principles have been stated in similar terms make clear the need for “convincing proof” that these requirements are satisfied in order to counteract the cogent evidence of the parties’ intention displayed by the written contract itself: e.g. The Nai Genova [1984] 1 Lloyd’s Rep 353.

For Equity Mr Graham Eklund QC submitted, in outline, that:

From the outset the common intention of GSK and Equity was to arrange cover for vehicles within the ECOS scheme only, with insurance of other vehicles owned or hired by GSK being the subject of separate arrangements.

This remained the parties’ intention throughout the negotiations which led to the 2004 contract.

It also remained their intention when agreeing the 2005 and 2006 renewal contracts, when negotiations were confined to the question of rates and deductibles.

An outward expression of this accord can be seen in a variety of ways, most notably in the premium charged and paid for this insurance consisting of a flat premium per vehicle in the ECOS scheme, and nothing more.

The need for “convincing proof” does not apply in a case where both parties to the contract are in agreement that the written contract does not accurately record their bargain and rectification is resisted by a third party, but in any event that requirement is satisfied on the facts of this case.

The contract should therefore be rectified so as to limit the description of vehicles in the certificate to vehicles within the scope of the ECOS scheme.

For Axa Mr Howard Palmer QC submitted, again in outline, that:

The only intention which the parties had was to contract on the terms actually agreed which, including the terms of the certificate, were the subject of careful negotiation between them.

There was no outwardly manifested objective intention to limit cover to vehicles within the scope of the ECOS scheme, any intention which either party may have had to that effect being merely subjective.

In any event the 2006 renewal was negotiated by a different underwriter at Equity (Mr O’Mahoney) from the underwriter who had negotiated the original contract in 2004 (Mr Shepherd). Even if Mr Shepherd had a relevant intention in common with GSK, Mr O’Mahoney did not. His only intention was to renew the policy on the terms contained in the existing policy and certificate.

Two arguments advanced by Axa at an earlier stage were abandoned in the course of the trial. The first of these was that because the membership of the Equity syndicate was different in some respects on renewal in 2005 and 2006 from the membership in 2004, there could be no continuing common intention in 2005 and 2006. This argument was abandoned in the light of the agreed written evidence of Peter Merrett as to the role of managing agents in the working of the Lloyd’s market, as discussed also in Touche Ross v Baker [1992] 2 Lloyd’s Rep 207.

The second argument no longer pursued was that it is impossible to rectify a policy of insurance to which section 148(7) of the Road Traffic Act applies if the effect of such rectification would be that a person purportedly indemnified by the policy (such as Ms Ball) would no longer be so. However, Mr Palmer accepted, at any rate in this court, that this argument is foreclosed by Charlton v Fisher [2001] EWCA Civ 112, [2001] Lloyd’s IR 387, where Rix LJ said at [100] that the section does not take away common law defences available to the insurer.

Oral evidence was given by:

Harsha Modha, GSK’s director of UK employee benefits, who was the person primarily responsible at GSK for the ECOS scheme. Although she was not present at all the meetings which led to the conclusion of the 2004 contract of insurance, her evidence was that she did attend some of them and was aware of the discussions which her colleagues, principally Ann-Marie Dillon who was GSK’s Risk & Insurance Manager, were having with Equity. I accept that Ms Modha was sufficiently involved to be able to give evidence of what the parties intended.

John Shepherd, the underwriter at Equity who took the lead in negotiating the 2004 contract with GSK.

Gavin Jones of Interleasing, subsequently Masterlease, the account manager allocated to the GSK account who was responsible for administering the ECOS scheme, and who was involved in the negotiation of the insurance arrangements for the scheme in 2004.

Mr Mike O’Mahoney, who had become the underwriter at Equity by the time of the 2006 renewal. His evidence was limited to that renewal and he could not speak about events in 2004.

These were all entirely straightforward and reliable witnesses. They were also, in a real sense, independent. Ms Modha has retired, while Messrs Shepherd, Jones and O’Mahoney no longer work for their previous employers and have no interest in this litigation other than to assist the court. Strikingly the witnesses were unanimous in being adamant that the insurance to be provided by Equity was intended to be limited to vehicles in the ECOS scheme.

The unanimous evidence of the witnesses to which I have just referred may be regarded as evidence of their subjective understanding and intention, but it nevertheless represents, in my judgment, powerful evidence of what was agreed between the parties in an objective sense, in the way described by Lord Hoffmann at [64] and [65] of his judgment in Chartbrook. It is not surprising that the witnesses were unable to remember the precise conversation(s) some 11 years ago which gave rise to their belief, but the understanding which all of them had supports the view that this is indeed what an objective observer would have thought the intentions of the parties to be. It is inherently probable that GSK approached Equity seeking insurance for vehicles within the ECOS scheme but not otherwise, and that this is what both parties reasonably understood to be the subject matter of their discussions thereafter.

This is confirmed by two more objective matters. First, the fact that premium was charged and paid based on a fixed sum per vehicle in the ECOS scheme and nothing more is the strongest possible evidence that these and only these were the vehicles which, in an objective sense, the parties intended Equity to insure. Mr Palmer suggested that this was inconclusive, as premium could have been charged by reference to the number of vehicles in the scheme but calculated to take account of the wider liabilities which Equity was undertaking in respect of other vehicles hired by GSK and made available to its employees outside the scheme. This, however, is unrealistic. It was clearly not how the premium was in fact calculated by Equity. Nor could the parties have thought that it was, as no information was ever given to Equity which would have enabled it to calculate what premium was appropriate if cover was to extend beyond the ECOS scheme. If that wider cover had been intended, Equity would inevitably have wanted to know something about the number of additional vehicles likely to be affected and the extent of the liability which it was agreeing to accept.

Equally, if by reason of the certificate wording Equity was insuring all vehicles owned or hired by GSK when driven by an authorised person, there would have been no point in GSK paying premium, as it did, to Royal & Sun Alliance for the relatively small number of vehicles which it owned and to Axa (via National) for the vehicles which it hired for the use of employees outside the ECOS scheme.

Second, the heading of the policy is also a strong indication of its intended subject matter, namely vehicles within the ECOS scheme, as are the definitions within the policy itself which are closely tied to the scheme. Indeed it is only because of the wider wording of the certificate, explained above, that cover does extend beyond vehicles within the ECOS scheme. Even though the terms of the certificate were agreed between the parties, I have no doubt that this consequence of the agreed wording was not intended or appreciated by either of them. The fact that the certificates provided by Royal & Sun Alliance as the insurers of a previous version of the scheme (which were seen by Equity during the negotiations) were in different but also very wide terms is irrelevant. The parties were concentrating on what the certificate should say in the future, not what other certificates had said in the past.

Further, the parties’ understanding of the limited scope of the Equity insurance is demonstrated by GSK’s and Interleasing’s documents from the period when the ECOS scheme was in place and the way in which the scheme was in fact administered. For example, at a meeting on 1 November 2004 between GSK, Interleasing and National, it was acknowledged by National that insurance charges on cars hired by GSK for members of the ECOS scheme while cars which they had ordered were awaited or while their cars were off the road being serviced or repaired should not have been made and would be refunded. This recognised the different insurance arrangements applicable to ECOS vehicles on the one hand (where no insurance charge was payable to National because insurance was already provided separately by Equity) and other hires on the other hand. Similarly, at a meeting on 19 January 2007 attended by representatives of GSK, Equity, Interleasing and National, it was noted that:

This could hardly be clearer. The insurance provided by Equity was for ECOS vehicles, including within that term pre-contract and replacement vehicles which were provided to the ECOS eligible employee by National.

Although these are post contractual matters, they have evidential value in the way described by Lord Hoffmann in Chartbrook at [65] because they show clearly what was always the intention and understanding of both parties. They contradict the suggestion by Mr Palmer that it was in GSK’s interests to obtain the widest possible scope of cover from Equity and that this is what GSK was seeking to achieve. They demonstrate that it never occurred to GSK that it had in fact obtained cover from Equity which extended beyond vehicles in the ECOS scheme and rendered redundant the insurance for other vehicles provided by Axa via National.

All this amounts, in my judgment, to convincing proof that there was indeed a prior consensus as to the extent of the insurance cover to be provided as a result of a discussion in general terms at the outset of the parties’ negotiations, such as was described in The Demetra K; that it was and remained the common intention of the parties that the cover was to be limited to vehicles in the ECOS scheme up to and including the conclusion of the 2004 contract; and that this intention was not merely subjective but was confirmed by an outward expression of the parties’ accord, seen most clearly in their agreement as to the premium to be paid and the way in which it should be calculated. However, without either of the parties realising this, the wide terms of the insurance certificate meant that this common intention was not reflected in the terms of the written documents which they used to record their agreement.

It would follow that Equity has made good a case for rectification of the 2004 contract.

However, as already noted, it is the September 2006 contract which is the subject of the claim for rectification. By that stage the underwriter dealing with the matter was Mr O’Mahoney. He gave no attention to the detailed wording of the certificate or other policy terms. Negotiation of the renewal was confined to two issues, the rate to be charged and the level of deductibles which should apply. Mr Palmer submitted, in effect, that Mr O’Mahoney’s intention was simply to renew the policy on the terms contained in the existing policy and certificate, whatever they might turn out on their true construction to be. I do not consider, however, that this is a fair characterisation of what happened. It does not give proper weight to Mr O’Mahoney’s clear understanding that the policy was limited to vehicles in the ECOS scheme. In truth the mistake which had been made in 2004 had not been spotted, not surprisingly because all concerned thought they knew with what they were dealing and had no occasion to study the terms of the certificate to see whether that understanding was correct, but it remained the parties’ intention to provide insurance for vehicles in the ECOS scheme. The note of the 19 January 2007 meeting mentioned above confirms that the parties’ original understanding and intention continued.

Moreover, it is significant that on 1 June 2006, in preparation for a meeting to discuss the 2006 renewal Ann-Marie Dillon of GSK asked Mr O’Mahoney to “provide an indicative premium per driver for fully inclusive insurance cover for next 12 months” backed up by facts and figures including the cost of claims against premiums collected, which he duly did. This reiterated the common understanding and intention from 2004 that the premium was calculated based on the number of drivers in the ECOS scheme, just as the claims which were relevant in ascertaining the loss ratios experienced were the claims on vehicles within the scheme. Here too there is, in my judgment, convincing proof that the parties’ common intention as to the scope of the cover which had existed in 2004 continued up to and including the 2006 renewal and was confirmed by this outward expression of their accord.

Axa submitted in opening that rectification is an equitable remedy, and that in the circumstances of this case, where GSK has no interest in the rectification sought, where rights accrued many years before Equity raised the suggestion of rectification, and where the contract created rights for third parties (i.e. Ms Ball), it is not equitable to grant this remedy to Equity. I did not understand this submission to be pursued in closing, but in any event I do not accept it.

There is no unfairness in permitting rectification, which merely ensures that effect is given to what the parties to the insurance contract actually agreed and what all parties concerned understood to be the position. To refuse rectification would be unfair to Equity as it would render it liable to contribute to Ms Ball’s liability which it never intended or agreed to insure and for which it has received no premium. It would provide Axa with a windfall claim to contribution when it is the only insurer to have received premium for insuring Ms Ball. Rectification will not affect Ms Ball’s rights. She never thought that she was insured by Equity. She was covered, and has been fully indemnified, by the insurance taken out with Axa when the vehicle which she drove was hired, which is exactly what she would have expected. Nor would rectification affect the injured Mr Daniel, who has been paid his damages. There would be no breach of the requirements of the Road Traffic Act 1988 requiring insurance to be in place. It was. Accordingly it would in my judgment be unjust for rectification to be refused.

Equity’s claim for rectification of the certificate of insurance so as to provide that the cover is limited to vehicles within the ECOS scheme succeeds, with the consequence that Axa’s claim for contribution must be dismissed.