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Petitioner: Quinn Insurance Limited VS Respondent: Price water house coopers
Court Name: Supreme Court of Ireland Judge(s): Clarke, O' Donnell, Macmenamin, Charleton, O' Malley Title: Quinn Insurance Limited vs Price water house coopers Case No.: Supreme Court Record No. 79 of 2017 Date of Judgment:2019-03-08 Reported As: 2020 P SC 1099 Result: Appeal allowed
JUDGMENT
JUDGMENT O'DONNELL, J .--- 1. This appeal arises from one of the largest and most complex cases to come before the Irish courts, but raises an issue which is encountered almost on a weekly basis in courts across the country what particulars of a claim must a party be obliged to provide in pleadings or in further and better particulars in advance of discovery , and where relevant the exchange of witness stateme nts? The answer the law has given for more than a hundred years is well known to almost every lawyer a pleading should contain facts not law and fact not evidence. It is necessary that the pleadings set out in broad outline the case that a party proposes to make, so that the other party can prepare a defence, limit discovery , and will not be taken by surprise at the trial. However the application of these well worn principles in particular cases is often difficult and unpredictable, and remains stubbornly resistant to much greater elucidation than the observation made by Murnaghan J. in Caulfiled v Bell and Company Ltd. [1958] I.R 326 at p. 333 that the matter was essentially a matter of degree". 2. The background facts to this cases are set out in very clear judgments delivere d in the High Court (Costello J) ([2015] IEHC 303), and the Court of Appeal (Hogan J. Ryan P and Irvine J concurring) [2017] IECA 94), and it is accordingly sufficient to set them out in brief outline. The plaintif f, Quinn Insurance Limited ("Quinn") is an insurance company with an extensive business in the Irish market which collapsed and went into administration on 15 April 2010. The deficit was very substantial indeed. At the time of the High Court judgment it was estimated that 1.6 billion ad certainly by that point 1.2 billion had been drawn down from the Insurance Compensation Fund to meet the deficit. The defendant Price water house Coopers ("PwC") is a well-known firm of accountants and registered auditors who audited Quinn's accounts and regulated returns for the years 2005 2006, 2007 and 2008, which are the relevant years for the purposes of these proceedings. In 2012, Quinn, in administration commenced proceedings against PWC for breach of contract and negligence in relation to the auditing of the accounts and
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regulatory returns for the relevant years. It is said that the claim for damages may amount to as much as 800 million. It is agreed that the trial of the case will be enormously complex, and could last for 12 months or . more. One -indicator of this is that the quest for particulars and replies thereto already runs to more than 800 pages. 3. These proceedings' are made more complex by some features that are common to many claims by insolvent companies in liquidation or administration brought against their former auditors. Although the legal entity bringing the claim is the same the persons running it are quite different. This gives, the plaintif f a certain legal advantage, in that the administrators have the benefit of a contractual relationship with the former auditors, and a certain moral advantage in that they can distance themselves from any wrongdoing on the part of the company , and present themselves as seeking recovery on behalf of the creditors. However , this comes with a significant informational and evidential deficit, since the administrators or liquidators v ill not have been involved in the company at the relevant time and may have difficulty securing the cooperation of those Who were. On the other hand it is said that auditors by necessity obtain a very full Understanding of the business of a company and to that extent may indeed know more about the events in issue than their immediate adversaries. 4. These proceedings have an added layer of complexity in comparison to other claims in negligence against auditors in that Quinn was a very substantial insurance company the accounts of an insurance company cannot simply record the transactions Occurring in each accounting year setting premium s received against claims paid Many insurance liabilities will only materi alise in future years. It is necessary , therefore, in order to provide a/true and fair view of the accounts of an insurance company , and to Make proper regulatory returns, that the accounts should include figures for what are described as "technical provisions": that is an estimate of the future costs of claims. The plaintif f's core allegation in these proceedings is that the figure for technical provisions in the annual accounts for the material years was significantly and materially understated. 5. It is agreed that the estimation of technical provisions is an actuarial exercise. First, the company produces its own "best estimate" of future claims. This is done in conjunction with actuarial advice. The company then adjusts that figure applying a margin for risk and prudence, and produces a technical provisions figure, which is then the subject of a statement of actuarial opinion. Unusually , Quinn did not have or use in-house actuarial expertise. Instead, Quinn utilized the services of an independent firm of actuaries, Milliman. A further complication in this case is that Milliman have neither been sued as co-defendants, nor, it appears, are their papers available to Quinn for these proceedings, at least at the moment. In PwC's case, it also had to have recourse to actuarial assistance in auditing the technical provisions, and in this case used the services of its own actuarial arm, PwC AIMS, when carrying out the audit. 6. The claim that the technical provisions were materially understated emerged in the following way. In the immediate aftermath of the collapse of the company , the 2009 accounts remained to be finalised. The defendant was still the auditor . Initially , it recommended increasing the provisioning by 68 million, which would have provided for a total loss for the financial year of 115 million. The administrators retained another firm of actuarial experts, EMB Actuarial Consultants, to carry out a review , which concluded that the reserves had been underestimated by a figure of 380 million. The defendant agreed with this analysis in 2011, and therefore the plaintif f set aside additional reserves of 800 million to cater for the deficiencies. The 2009 accounts were signed off, and the defendant was replaced as auditor for the following years. The Mazars exercise 7. Arising out of the matters which emerged in the finalisation of the 2009 accounts, the plaintif f retained the accountancy firm, Mazars, to report to it on the accounts. Mazars reported their conclusion that, in respect of the material years, the technical provisions were so far outside the range of reasonable estimates that they could not have been conducted properly in acco rdance with appropriate and relevant standards, and were therefore materially underestimated. This exercise is the basis upon which the proceedin gs were commenced, and the pleadings prepared. Considerable further detail was provided, but the essence of the plaintif f's claim remains its contention that the figures contained in the accounts and regulatory returns audited, by the defendant, in respect of the technical provisions, were materially misstated, because Mazars had conducted a re-estimate of those figures which was so dif ferent that the estimate in the material years could not have been properly conducted.
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The detail provided 8. The plaintif f has provided a specific breakdown in relation to the relevant figures. Thus, in replies to particulars delivered on 24 June 2014, while formally maintaining the position that the allegation of material underestimation had been adequately pleaded and that further particulars was a matter for evidence, the plaintif f nevertheless provided, without prejudice, its best estimate of Quinn's ultimate net claims cost, which had been recalculated for eleven classes of business representing between 80 per cent and 91 per cent of the ultimate rejected claims costs as estimated by Millirnan in each year. This exercise was carried out in respect of each of the material years, but it will be sufficient to consider simply the results for year ending 31 December 2005, The plaintif f set out the results as follows.- Best estimate of ultimate claims cost Re-Projected Line BusinessPer Milliman/QIL '000Re-Estimation '000Difference '000 Private Motor ROI 560,726 622,909 (62,123) Commercial Motor ROI 158,365 184,203 (25,338) Liability ROI 140,472 199,086 (58,614) Private Motor NI 82,527 87,328 (4,801) Private Motor GB 26,576 28,502 (1,926) Commercial Motor GB4,504 4,083 (421) Property Damage ROI12,578 13,061 (483) Household ROI 3,243 3,368 (125) Commercial Motor NI26,054 30,339 (4,285) Liability NI 21,220 43,052 (21,832) Property Damage NI 2,944 3,072 (128) Household NI 230 316 (86) Liability GB 25,379 36,377 (10,998) Property Damage GB 2,131 2,297 (166) Total: Paid Claims1,067,499 (624,976)1,257,994 (624,976)(190,545) Best Estimate of Net Claims Reserve442,474 633,018 (190,545)
9. Subsequently , the plaintif f provided an even further breakdown of these figures. The degree of detail can again be illustrated" by taking simply one figure from the previous heading, that is, the first column of figures in respect of "Private Motor ROI-, in respect of which the Milliman/Quinn figure was 560,726,000, and the Mazars estimate was 622,909,000, with a difference of 62,183,000. The plaintif f provided a breakdown in relation this figure by reference to accident years from 1996/97 to 2005 as follows:- Accident year Ultimate net claims cost per Milliman '000Ultimate net claims cost per Re-estimation '000Difference '000
1996/97 25,458 25,986 (528) 1998 27,010 26,327 (683) 1999 42,709 43,515 (806) 2000 61,815 63,415 (1,600) 2001 76,130 78,676 (2,546) 2002 70,156 73,588 (3,432) 2003 70,351 74,096 (3,745)
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2004 77,877 93,868 (15,991) 2005 109,219 143,437 (34,218) Rounding 1 1 1 Total 560,726 622,909 (62,183) 10. In addition to the foregoing, the plaintif f has also pleaded that the errors which it alleged against the defendant were the result of a failure to take into account or take sufficient account of what were described as "relevant factors". These were listed in the statement of claim and particulars, and were helpfully collated in the first affidavit of Mr . Tony W eldon, the senior audit partner in the defendant firm, as follows:- i. The plaintif f did not have qualified actuarial status; ii. Many individuals did not appear to have the appropriate knowledge and skills for their roles and responsibilities; iii. There were significant and ongoing changes in both the claims processes within the plaintif f and the personnel of the plaintif f; iv. A bonus system which rewarded managers) for early closure of claims (the so-called "Fast Track" method of disposing of claims) resulted in an incentive to settle at an inappropriately high level; v. The plaintif f had a materially higher level of 'reopened' claims than industry norms; vi. The plaintif f used regional claims managers who were paid a fee on the basis of, inter alia, the potential claims- which had not yet crystallised into actual claims-that they settled; vii. The plaintif f incentivized claims handlers prematurely to close claim files; viii. The plaintif f did not encourage or accept the making of prudent reserves in claims files; ix. The plaintif f discouraged claims handlers from revising claims reserves upwards; x. The plaintif fs board of directors neither considered nor approved the methodo logy for calculating its technical provision; xi. The plaintif f had a weak file estimation policy; xii. There was a culture within the plaintif f that dictated much lower file estimate s than industry norms in which frequently ignored professional legal advice received; xiii. The scale of change in claims processes was very significant; xiv. The plaintif f was not reflecting the views of its legal panel on quantum on settling claims file estimates and that it failed to discuss this with Milliman; xv. A significant number of files had serious under reserves; xvi. The plaintif f had an overall culture which dictated much lower file estimates than industry norms and which frequently ignored professional legal advice received; xvii. The plaintif f's business grew rapidly; xviii. The plaintif f was inexperienced in the mainland UK market, and faced significant commercial challenges in order to grow its share of that market; xix. There was lack of sophistication in the plaintif f's pricing policies, in particular in the mainland UK market; xx. There was a lack of continuity in the plaintif f's key claim and settlement processes; xxi. There were differences between the plaintif f's approach to claim settlement and to those of a more traditional non-life insurer (including in particular the Fast Track model); xxii. There were relevant industry bench marks for reserving of which insuf ficient account was taken; The plaintif f suffered a deteriorating loss ratio and/or there were inconsistencies between loss ratios in different years; xxiv Claims development patterns were af fected by changes in the plaintif f's portfolio over time; xxv. There were trends in the claim environment of which insuf ficient account was taken; xxvi. There were dif ferences between dif ferent countries in which business had been carried on by the plaintif f; xxvii. There were changes in the mix of the plaintif f's business segment; and xxviii. Insuf ficient account was taken of the plaintif f's status as part of a privately owned group." 11. The plaintif f contends that this is a more than sufficient particularisation of the claim, whereas the defendant maintains that it is entitled to more by way of particulars. Around these basic positions, some further points are
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made by way of argument. The plaintif f maintains that until it receives the defendant's audit capers, it cannot identify the precise errors the defendant must have made. The defendant for its part, maintains that the obligation of the plaintif f was to publish accurate accounts, which must mean that it has carried out the exercise of identifying and correcting what it considers to be the errors of previous years. Accordingly , it must be in a position, identify these in the proceedings. Furthermore, in the intervening period since the Mazars exercise was carried out, the plaintif f has of necessity settled most of the outstanding claims, and, accordingly , is in a position to tell whether the estimates made were correct or not. The result was a certain symmetry in the approach taken by each side in this regard. The plaintif f, as I understand it, wishes to get access to the PwC audit papers and conduct a case involving a detailed review in hindsight of what those papers disclose, in which case the relevance of the Mazars exercise would recede into the background. On the other hand, the defendant would like to have early access to the Mazars exercise in the hope of subjecting it to similarly robust scrutiny , in the belief that this may undermine the re- estimation, and with it the plaintif f's case. 12. The case is undeniably complex, and is further complicated by the following unusual features initially; the defendant brought a motion seeking an order under 0. 19, r. 7 (1) RSC to compel the replies to a large number of particulars. The High Court judge dealt with all of these. The plaintif f appealed, and the Court of Appeal dealt with a number of the issues. However , the defendant has now limited its appeal to this court to four particulars to which the plaintif f was ordered by the High Cour t to provide replies, which order was reversed by the Court of Appeal. The four particulars, identified as particulars 11(3) II, V, VIII and XI, raise essentially identical queries in respect of each of the material years. It is therefore sufficient to identify one of these requests for particulars contained in the plaintif f's rejoinders, namely particular 1 1(3) IL "In respect of the alleged understatement of each accident year within each class within each geographic region at 31 December 2005; please specify the reasons and the financial effect of each reason for the alleged understatement identified by the Plaintif f in its re-estimation of the Plaintif f's technical provisions." 13. However , the detail of this particular does not feature largely in the judgments or indeed the written submissions of either party . Indeed, in the defendant's application for leave to appeal to this court, and in its written submissions, it sought to paraphrase the particular in the following way:- "What do you, [Quinn], say are the errors in your own estimates of the Technical Provisions, attested to by your own actuary , and approved by your own Board?" 14. One of the great and perhaps underva lued skills of advocacy is the capacity to simplify complex issues in order to reveal the core issue to be decided by the court, and it is possible to see in this reformulation just that clarity of analysis and presentation. However , the plaintif f complains, perhaps with some justification, that the formulation is apt to -mislead: certainly the references to Quinn's "own" estimates, actuary , and board, are perhaps somewhat tendentious. It is not suggested that the fact that the figures originated with the plaintiff is relevant to the question of whether the particulars should be ordered: the question is whether , arising, from the plaintif f' pleadings, the defendant is entitled to the detailed particulars sought. While it is highly likely , indeed inevitable, that this aspect of the case (the complaint that the defendant failed to identify errors in, the account s prepared by the plaintif f itself) will be relied on, heavily in the proceedings, it does not appear relevant to the issue of whether or not the particulars sought here ought to be ordered. Here, the question is: what detail of the claim made is required to be provided? However , I do consider that the issue can be reduced to one which illustrates a very clear point of dispute between the parties. In this regard, it is sufficient to look at the particulars originally sought in' relation to the technical provisions, and focus on even one of the issues in respect of which detail has already been produced by the plaintif f. Taking one example, the plaintif f's claim is' that the accounts and regulatory returns were materially underestimated, and accordingly could not have properly been prepared' or audited. Looking at the figures for the year end 31 December 2005, the basis of that claim is certainly crystal clear in one instance, it is said that the figure audited of 560,726,000 for Private Motor ROI could not be correct, because Mazars re-estimate came to the significantly different and higher figure of 622,909,000. Breaking that figure down further , it is possible to identify how the difference of 62,183,00 0 is made up, so that, for example, Quinn/Milliman included a figure of
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70,351,000 and 77,877,000 for the years 2003 and 2004 respectively , while the Mazars re-estimate for those years was 74,096,000 and 93,868,000. This same dispute is replicated across all the other figures for the material years, but the same issue of principle arises: manifestly , the plaintif f has set out the error it contends for, but does not explain why it contends the Quinn/Milliman figures are wrong, or correspondingly why the Mazars figures are correct. As already observed, the High Court judge found that the defendant was entitled to be provided with particulars of why the Quinn/Milliman figures were wrong, but refused to order particulars of the Mazars figures because she considered that that did not truly arise from the pleadings. The Court of Appeal reversed the decision on the Milliman figures so that the plaintif f was not required to provide particulars in either respect. The defendant now appeals from the refusal to order the plaintif f to provide the particulars in relation to the Quinn/Milliman figures. 15. It is easy (and perhaps tempting) to affect an attitude of Olympian detachme nt and suggest that the dispute does not really merit resolution, let alone the attention of two appellate courts. After all, it is inconceivable that this case would go to trial without all this information and more being provided, whether by way of detailed witness statements, or additional pleadings and particulars revised in the light of discovery in expert reports. It might be thought, therefore, that little is gained either way if an order is made or refused: if the defendant does not get the information now, perhaps heavily qualified by statements that these are the best particulars which the plaintif f can now give pending discovery , it is unlikely that this will be particularly- damaging to the defence, and perhaps highly unlikely to have any influence on the outcome of the case. Conversely , the possibility is perhaps equally remote that the plaintif f, if required to provide these particulars (again, possibly heavily qualified in the same way) will damage its case in any significant or measurable way . 16. However , I do not think the court should succumb to the temptation of treating this dispute as trivial or inconsequential. First, hard fought litigation is, like other endeavours, a game of inches. It is not possible to say at the outset what will be the outcome at the end of the day, or whether the margin will be comfortable or wafer-thin. The parties must therefore seek to win all of the small collisions, even by small margins, since that might prove decisive in the end. Furthermore, there are larger and tactical considerations involved, and the plaintif f will often wish to avoid early disclosure of details of its case, if it can avoid it. Equally , a plaintif f will wish to keep open as many lines of attack as possible, in the knowledge that the defendant may view some of these as posing a more serious risk, and accordingly be more inclined to compromise the proceedings. A defendant, for its part, will want to gather as much information as possible, and to try and to turn the focus of the case to perceived weaknesses in the plaintif f's case. Both parties will be nervous about disclosure of the details of their case, which might lead to damage which can be difficult to anticipate, and will seek to avoid being forced to take positions from which it will be difficult to retreat. The affidavit of Mr. Michael McAteer , one of the joint administ rators of Quinn, makes the point clearly: "The joint administrators run the risk of unknowingly prejudicing the plaintif f's case by providing the defendant with evidential information before -inter alia -- discovery has been completed by both parties or the plaintif f's experts have sight of, for example, the defendant's audit working papers". It is almost inevitable in any adversarial process that the mere fact that the opposing parties seek something is often seen as a good enough reason to refuse it. Fundamentally , howev er, both parties are entitled to stand upon their understanding of the legal position. The plaintif f here is entitled to maintain that, while it may have the inform ation sought, it does not wish to provide it, while the defendant is entitled to maintain the position that, while it may, however , have a 'shrewd idea of the detail of what the plaintif f is contending, and will undoubtedly get more detail before the trial, it wishes to have the information in clear , precise, and written form now. The issue the courts must determine is which of them is correct, which raises an important general issue to be decided against the particular facts of this case. Evidence 17. This motion is a microcosm of what might be involved in a trial of the proceedings proper . The parties have deployed an impressive range of expert evidence. On behalf of the defendant, affidavits are sworn by Mr. Tony Weldon, the audit partner of the defendant with more than 25 years' experience. That is supported by an affidavit from Mr. Richard Indge, a partner in the Fraud Investigation and Dispute Services of Ernst and Young in the UK and Ireland. The plaintif f has responded with affidavits from Mr. Philip Haberman, a forensic accountant, who had previously led the same dispute team in Ernst and Young in London prior to Mr. Indge, and provided further
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affidavits from Mr. Andrew Goldsworthy , the leader of the Mazars UK insurance technical team. There were two rounds of affidavits from each witness. Each of the affidavits were obviously carefully…
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