Arbuthnott v Fagan and Feltrim Underwriting Agencies Ltd

CourtHouse of Lords
JudgeLord Keith of Kinkel, Lord Goff of Chieveley, Lord Browne-Wilkinson, Lord Mustill, Lord Nolan
Judgment Date25 Jul 1994
JurisdictionEngland & Wales

[1994] UKHL J0725-1

House of Lords

Lord Keith of Kinkel

Lord Gott of Chieveley

Lord Browne-Wilkinson

Lord Mustill

Lord Nolan

Arbuthnott (and Others)
(Respondents)
and
Fagan and Feltrim Underwriting Agencies Limited (and Others) and Two Other Actions
(Appellants)
(1st Appeal)
Arbuthnott (and Others)
(Respondents)
and
Fagan and Feltrim Underwriting Agencies Limited (and Others) and Two Others Actions
(Appellants)
(2nd Appeal)
Deeny (and Others)
(Respondents)
and
Gooda Walker Limited (In Voluntary Liquidation) (and Others)
(Appellants)
(Conjoined Appeals)
Henderson (and Others)
(Respondents)
and
Merrett Syndicates Limited (and Others) and Two Other Actions
(Appellants)
Lord Keith of Kinkel

My Lords,

1

For the reasons set out in the speech of my noble and learned friend Lord Goff of Chieveley, which I have read in draft and with which I agree, I would dismiss these appeals.

Lord Goff of Chieveley

My Lords,

2

Introduction

3

The appeals now before your Lordships' House arise out of a number of actions brought by underwriting members (known as Names) of Lloyd's against their underwriting agents, in an attempt to recoup at least part of the great losses which they have suffered following upon recent catastrophic events, mainly in the United States of America, which have led to unprecedented claims being made upon Lloyd's underwriters.

4

The actions in question form part of a large number of actions of this kind, which are now approaching trial in the Commercial Court. At the root of many of these actions lie questions of law, upon the resolution of which depends the nature of the legal responsibility which rested upon underwriting agents towards the Names for whom they acted. Accordingly, with the co-operation of the parties to the actions out of which the present appeals arise, Saville J. ordered that certain issues of principle should be decided as preliminary issues. Having heard argument upon these issues, he gave judgment on 12 October 1993, his rulings being favourable to the contentions advanced on behalf of the Names. On 13 December 1993, the Court of Appeal unanimously affirmed the decision of Saville J., for the reasons given by him. The matter now comes before your Lordships' House, with the leave of the House: and the hearing of the appeals has been expedited, in the hope that the fact that the appeals have come before the House will result in as little disturbance as possible to the programme now established for the hearing of the various Lloyd's actions in the Commercial Court.

5

It is necessary for me now to identify, and place in their context, the various issues which fall for consideration on these appeals. But before I do so, it is desirable that I should first set out certain basic facts about the Structure of Lloyd's, with special reference to the relationship between Names and their underwriting agents.

6

Every person who wishes to become a Name at Lloyd's and who is not himself or herself an underwriting agent must appoint an underwriting agent to act on his or her behalf, pursuant to an underwriting agency agreement. Underwriting agents may act in one of three different capacities.

7

(1) They may be members' agents, who (broadly speaking) advise Names on their choice of Syndicates, place Names on the Syndicates chosen by them, and give general advice to them.

8

(2) They may be managing agents, who underwrite contracts of insurance at Lloyd's on behalf of the Names who are members of the Syndicates under their management, and who reinsure contracts of insurance and pay claims.

9

(3) They may be combined agents, who perform both the role of members' agents, and the role of managing agents in respect of the Syndicates under their management.

10

Until 1990, the practical position was as follows. Each Name entered into one or more underwriting agency agreements with an underwriting agent, which was either a members' agent or a combined agent. Each underwriting agency agreement governed the relationship between the Name and the members' agent, or between the Name and the combined agent in so far as it acted as a members' agent. If however the Name became a member of a Syndicate which was managed by the combined agent, the agreement also governed the relationship between the Name and the combined agent acting in its capacity of managing agent. In such a case the Name was known as a direct Name. If however the Name became a member of a Syndicate which was managed by some other managing agent, the Name's underwriting agent (whether or not it was a combined agent) entered into a sub-agency Agreement under which it appointed the managing agent its sub-agent to act as such in relation to the Name. In such a case the Name was known as an Indirect Name.

11

Before 1 January 1987, no forms of underwriting agency or sub-agency agreements were prescribed at Lloyd's; but standard clauses were in common use, and forms of agreement used by underwriting agents were similar, if not identical. For the purposes of the first group of actions now under appeal (the Merrett actions), which were concerned with that period, specimen agreements were placed before Saville J. for use by him in respect of those actions. These are to be found annexed to his judgment. However, pursuant to the Lloyd's Act 1982, Byelaw No. 4 of 1984 was made which prescribed forms of agency agreement and sub-agency agreement. These forms became compulsorily applicable as from 1 January 1987, and are the relevant forms in the other two groups of actions which are the subject of the present appeals, the Feltrim actions and the Gooda Walker actions. A subsequent Byelaw, No. 8 of 1988, prescribed new standard forms of agreement for use in 1990 and subsequent years of account. With these forms, which swept away the distinction between direct and indirect Names, your Lordships are not directly concerned in the present appeals.

12

I turn to the appeals now before your Lordships' House. These are (1) the Merrett Appeals, and (2) the conjoined Feltrim and Gooda Walker Appeals.

13

(1) The Merrett Appeals.

14

The appellants in these appeals (referred to as "Merretts") are in fact Merrett Syndicates Ltd. ("MSL") and Merrett Underwriting Agency Management Ltd. ("MUAM"). Up to 1 January 1986, MSL was a combined agent. It was the Managing Agent of Syndicate 418/417, and was also a members' agent. From 1 January 1986, MUAM became the Managing Agent of Syndicate 418/417, and MSL operated solely as a members' agent. There are three groups of Merrett actions brought by Names who were members of Syndicate 418/417. In all three groups of actions, there are complaints of negligent closure of a year or years of account into subsequent years by reinsurance to close ("RITC"). In one of them, there is also a complaint as to the writing of certain contracts of insurance; and in this case there is also an issue of limitation.

15

(2)(a) The Feltrim Appeals.

16

The appellants are (i) Feltrim Underwriting Agencies Ltd. ("Feltrim"), which acted as a managing agent only; and (ii) about 40 members' agents ("the Feltrim Members' Agents"), which are in fact unrelated to Feltrim. In the actions which are the subject of these appeals, Names who were members of Syndicates managed by Feltrim sue Feltrim as managing agents, and also sue the Feltrim members' agents as their members' agents. All the Names are indirect Names. The Names allege against Feltrim negligent underwriting during the years 1987-1989 arising out of their Syndicates' participation in the London Market Excess of Loss ("LMX") business, it being alleged that the underwriters assumed greatly excessive aggregate liabilities, and took out far too little reinsurance. The Feltrim members' agents are sued on the basis that they are contractually liable for the defaults of Feltrim as managing agents to whom the underwriting was delegated. There is no limitation issue.

17

(2)(b) The Gooda Walker Appeals.

18

The appellants are 65 members' agents ("the Gooda Walker Members' Agents"), against which it is alleged by Names that they are contractually liable to the Names for failure by the managing agents of the Syndicates of which the Names were members, to which the Gooda Walker Members' Agents had delegated the function of underwriting, to exercise reasonable care and skill in relation to such underwriting.

19

It might have been expected that, in all three groups of appeals, there would be appeals by both the members' agents and the managing agents; and that in each case issues would arise whether there was liability on their part in contract, or in tort, or for breach of fiduciary duty. But that is not in fact the case. In the case of the Merrett Appeals, there is no issue before your Lordships between the Names and their members' agents acting as such. Except for one entirely distinct issue concerned with RITC, the appeals are concerned only with the issue of liability, either in tort or for breach of fiduciary duty, of Merretts as managing agents, whether to direct Names (where Merretts were combined agents) or to indirect Names. By way of contrast, in the Gooda Walker Appeals the Gooda Walker Managing Agents are not appealing to this House against the decision of the Court of Appeal, with the result that the ruling of the Court of Appeal that they owed a contractual duty to direct Names, and a duty of care in tort to indirect Names, will remain binding as between them and the Names in question. The only issue now before your Lordships on the Gooda Walker appeals arises in relation to the agency agreements entered into between Names and the Gooda Walker Members' Agents. So far as the Feltrim appeals are concerned, however, issues arise both as to Feltrim's liability as managing agents, viz. whether Feltrim owed a duty of care in tort, or as fiduciary, to the indirect Names who were members of the Feltrim...

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