Banque Financiere de la Cite S.A. (formerly Banque Keyser Ullmann S.A.) v Westgate Insurance Company Ltd (formerly Hodge General & Mercantile Company Ltd); Banque Keyser Ullmann S.A. v Skandia (U.K.) Insurance Company Ltd

JurisdictionEngland & Wales
JudgeLord Bridge,Lord Brandon of Oakbrook,Lord Templeman,Lord Ackner,Lord Jauncey of Tullichettle
Judgment Date19 July 1990
Judgment citation (vLex)[1990] UKHL J0719-2
Date19 July 1990
CourtHouse of Lords
Banque Financiere De La Cite S.A. (Formerly Banque Keyser Ullman S.A.)
(Appellants)
and
Skandia (U.K.) Insurance Company Limited and Others
(Respondents)

[1990] UKHL J0719-2

Lord Bridge of Harwich

Lord Brandon of Oakbrook

Lord Templeman

Lord Ackner

Lord Jauncey of Tullichettle

House of Lords

Lord Bridge

My Lords,

1

I gratefully adopt the lucid account given in the speech of my noble and learned friend Lord Templeman of the facts of this case. As appears from that account both the banks and the insurers were defrauded by the principal villain of the piece, Mr. Ballestero. It is not a little surprising that presumably hard-headed businessmen were taken in by his barefaced deceptions. Quite independently of any fraud on the part of Mr. Ballestero the banks had the misfortune to employ insurance brokers whose dishonest servant, Mr. Lee, twice deceived them into believing that they had insurance cover to protect them in the event of non-repayment of their loans to Mr. Ballestero and his companies when in fact they had not. Mr. Lee's first fraud was in the issue of a cover note in respect of the first and second excess layers of cover required in connection with the first Ultron loan before he had found insurers willing to complete that cover. But by mid-June 1980 the necessary cover was completed. Mr. Lee's second fraud was to issue a cover note in respect of the additional cover required in connection with the second Ultron loan when he had obtained no effective insurance cover at all. Mr. Dungate, the employee of Hodge, came to know of Mr. Lee's first fraud and, as the judge held, could have foreseen his second.

2

There can never have been any doubt that the frauds of Mr. Ballestero entitled the insurers to repudiate liability under the fraud exclusion clause. But a question of central significance in relation to the other issues in the case is whether Mr. Lee's fraud had the same effect. Both courts below seem to have taken it for granted that it did. The clause provides that the insurers shall not be liable for:

"Any claim or claims arising directly or indirectly out of or caused directly or indirectly by fraud, attempted fraud, misdescription or deception by any person, firm, organisation or company."

3

This is very wide language, but I cannot think that it embraces a fraud practised on the insured by his own agent in a matter with which the insurers are not concerned. Hodge and the other insurers who had covered the first and second excess layers were not affected in any way by the fact that the banks were induced by Mr. Lee's first fraud to advance the first Ultron loan before the insurance cover was complete. Still less was it any concern of theirs that when the banks made the second Ultron loan they had not obtained the additional insurance cover they wanted. If there had been no fraud on the part of Mr. Ballestero, but he had simply become insolvent, the claim by the banks to repayment in virtue of the insurance cover which they had obtained could not in any sense be said to have arisen out of or been caused by Mr. Lee's fraud in relation to the insurance cover which they had not obtained. In that event I would have regarded an attempt by the insurers to repudiate liability under the fraud exclusion clause on the ground of Mr. Lee's fraud as virtually unarguable.

4

This conclusion is of relevance first to the question whether Mr. Dungate's failure to disclose to the banks his knowledge of Mr. Lee's first fraud was a breach of duty as falling within the ambit of the obligation of the utmost good faith which it is common ground both insured and insurer owed to each other. Slade LJ, delivering the judgment of the Court of Appeal, said [1989] 3 W.L.R. 25, 80-81:

"In adapting the well established principles relating to the duty of disclosure falling upon the insured to the obverse case of the insurer himself, due account must be taken of the rather different reasons for which the insured and the insurer require the protection of full disclosure. In our judgment, the duty falling upon the insurer must at least extend to disclosing all facts known to him which are material either to the nature of the risk sought to be covered or the recoverability of a claim under the policy which a prudent insured would take into account in deciding whether or not to place the risk for which he seeks cover with that insurer."

5

I do not dissent from this statement of the ambit of the duty. But an obligation on Mr. Dungate to disclose what he knew of Mr. Lee's first fraud could only fall within the ambit of the duty as "material … to the recoverability of a claim under the policy" if Mr. Lee's frauds were such as would entitle the insurer to repudiate liability. Having concluded that they were not, it follows, in my opinion, that Mr. Dungate's failure to disclose to the banks the dishonesty of their agent, whatever may be said about it as a matter of business ethics, did not amount to the breach of any legal duty.

6

The second relevance of the conclusion that the insurers could not have repudiated liability on the ground of Mr. Lee's fraud is that, even if Hodge, as employers of Mr. Dungate, owed a duty of care to disclose Mr. Lee's fraud to the banks, the breach of that duty did not cause the banks' loss. The reasons for this conclusion are fully explained in the speech of my noble and learned friend Lord Templeman and I need not repeat them.

7

Thus, at the end of this long and complex litigation the outcome is dictated by a short point on the construction of the fraud exclusion clause as applied to a combination of circumstances of a very unusual nature which is unlikely ever to be repeated. This ground alone means that the appellants fail on the issues of both duty and causation. The result is that the questions of law so fully and carefully canvassed in both judgments below become academic. I reserve my opinion on the issues of law on which the judge and Court of Appeal differed, thinking it better that they should be resolved if and when they arise again on facts which require their determination.

8

I would accordingly dismiss the appeal.

Lord Brandon of Oakbrook

My Lords,

9

For the reasons given in the speeches of my noble and learned friends, Lord Bridge of Harwich, Lord Templeman, and Lord Jauncey of Tullichettle, I would dismiss the appeal.

Lord Templeman

My Lords,

10

By an agreement the terms of which were embodied in a consortium loan agreement dated 23 January 1980 ("the loan agreement") the appellant, Banque Financiere de la Cite S.A. then named Banque Keyser Ullman Suisse S.A. ("Kusa") with two other banks, namely, the American Fletcher Bank and Banca Unione di Credito, agreed to advance between them to Ultron A.G. a Liechtenstein company, ("Ultron") S.F.26,250,000 for the purchase of the capital of certain Spanish companies which owned and were developing property in Menorca appropriately named "Shangri-La." The loan was for a limited period of two years with interest payable on 20 June 1980 and thereafter at the end of every six months. The advance was to be made after delivery of the specified guarantees. These guarantees included the pledge of a parcel of gemstones (emeralds, rubies and sapphires) of a replacement value of S.F.75,000,000 later increased to S.F.95,000,000, and an insurance for S.F.37,000,000 "guaranteeing, in the event of the borrower defaulting, payment to the Banks of any outstanding sum after realisation of the pledge." Ultron was a company controlled by a Mr. Ballestero.

11

Kusa appointed a firm of insurance brokers, Ernest A. Notcutt & Co. Ltd. ("Notcutts") to be the agents of the banks in arranging the required insurance. The employee of the brokers who undertook the task of effecting the insurance was a Mr. Lee. He arranged the insurance in three layers. Under the primary cover layer insurance, the respondent, Westgate Insurance Co. Ltd. (then Hodge General & Mercantile Insurance Co. Ltd. ("Hodge") was the sole insurer. By the terms of the primary cover the banks warranted that the contemplated advance to Ultron including accumulated interest would not exceed S.F.37,000,000. Hodge agreed to insure the banks against any difference between the proceeds of sale of the pledged gemstones and the amount outstanding on the loan on 20 December 1981. The liability of Hodge was limited to S.F.9,250,000.

12

Under the first excess layer insurance each of a number of insurers agreed to pay a proportion of any loss suffered by the banks so far as that loss exceeded the S.F.9,250,000 insured by the primary cover. The aggregate liability of the insurers under the first excess layer was limited to S.F.9,250,000.

13

Under the second excess layer insurance each of a number of insurers agreed to pay a proportion of any loss suffered by the banks so far as that loss exceeded the S.F.18,500,000 insured by the primary cover and the first excess layer. The aggregate liability of the insurers under the second excess layer was limited to S.F.18,500,000. Thus the three insurances together provided the cover of S.F.37,000,000 required by the loan agreement.

14

By 28 January 1980, Mr. Lee had issued three cover notes certifying that total insurance had been effected. The cover note in respect of the primary cover correctly stated that Hodge had agreed to insure S.F.9,250,000. The cover note in respect of the first excess layer has been held in these proceedings to have been fraudulent. The cover note showed Hodge as being liable for 20 per cent. of the cover although Hodge had only agreed to insure for 14 days pending written confirmation from other insurers replacing them. The cover note in respect of the second excess layer was also fraudulent because some promised lines of insurance had not been confirmed and a substantial part of the cover had not been placed at all.

15

The negotiations between...

To continue reading

Request your trial
128 cases
  • Reid v Rush & Tompkins Group Plc
    • United Kingdom
    • Court of Appeal (Civil Division)
    • 22 Marzo 1989
    ... ... to advise the plaintiff to obtain such insurance cover for himself. His case is that if he had ... Ltd. v. Heller and Partners Ltd. [1964] A.C.465 in ... A company which recruits a man in this country to work upon ... based in this country, there is in general no protection of compulsory employers' insurance ... 37 In La Banque Financiere de la Cite v. Westgate Insurance Co ... ...
  • Van Oppen v Clerk to the Bedford Charity Trustees
    • United Kingdom
    • Court of Appeal (Civil Division)
    • 23 Junio 1989
    ... ... consequent need for personal accident insurance; and (iii) ... the latter 1970's there was a growing general awareness of the incidence of spinal cord ... contractual relationship' ( Junior Books Ltd. -v- Veitchi Co. Ltd ... [1983] 1 A.C. 520, 533B ... The first is that of La Banque Financière v. Westgate [1988] 2 Lloyd's Rep ... Keyser Ullmann case (that being the operative part of ... (referred to throughout the judgment as "Hodge") by whom Mr Dungate had been employed, but the ... Again I cite the relevant passages from the judgment: ... Davies said in the case of Moorgate Mercantile Co. Ltd. v. Twitchings [1977] A.C. 890 , in most ... ...
  • Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Ltd (The Good Luck)
    • United Kingdom
    • Court of Appeal (Civil Division)
    • 22 Marzo 1989
    ... ... Bermuda and its managers were a limited company by the name of Thomas R. Miller & Son (Bermuda) ... , who has a long experience in mutual insurance and the running of such associations as the Club ... Good Faith's insurances with the Club in general and specifically with regard to Good Luck. Mr ... to a Good Faith vessel mortgaged to the Banque Paribas, Good Challenger, Mr. Ballantyne, on ... in the Banque Financiere case [1987] 1 Lloyd's Rep.69 ... Steyn J. held ... no rights against the silent party: Mercantile Bank of India [1938] A.C.287 ... (ii) ... ...
  • Kirkham v Chief Constable of the Greater Manchester Police
    • United Kingdom
    • Court of Appeal (Civil Division)
    • 20 Diciembre 1989
    ... ... I would, of course, accept his general proposition. But there is an important ... duty in two very recent cases: Bangue Financiere v. Westgate [1988] 2 L.L.R. 513 and the Good ... Pointers Transport Services Ltd ... 1957 2 All E.R. 807 , I would respectfully ... Royal Insurance [1938] Appeal Cases 586 ... Is it any different ... ...
  • Request a trial to view additional results
2 firm's commentaries
  • An American Policyholder in London: English Choice of Law Clauses in United States Insurance Policies
    • United Kingdom
    • JD Supra United Kingdom
    • 21 Marzo 2014
    ...Keyser Ullmann SA v. Skandia (UK) Insurance Co Ltd. [1990] 1 QB 665; Banque Financiere de la Cite SA v. Westgate Insurance Co. Ltd. [1991] 2 AC 249, 280; and Sprung v. Royal Insurance (UK) Ltd [1999] 1 Lloyd's Rep. 111. This generally requires that all parties to an insurance contract must ......
  • Insurance Contract Law Reform - Proposed Amendments to the Duty of Good Faith
    • United Kingdom
    • Mondaq United Kingdom
    • 21 Diciembre 2010
    ...only remedy for such a breach is avoidance ab initio and return of the premium by the insurer (Banque Financière v Westgate Insurance Co [1991] 2 AC 249). This is unlikely to be of much use to the insured particularly if it has suffered a significant Alternative Remedies However, an insured......
5 books & journal articles
  • Tort, Insurance and Ideology: Further Thoughts
    • United Kingdom
    • The Modern Law Review No. 75-3, May 2012
    • 1 Mayo 2012
    ...argument in this paragraph might not thought to have been relevant at the time.74 La Banque Financiere de la Cite vWestgate Insurance Co [1991] 2AC 249; Stansfield Group Pte LtdvConsumers’ Association of Singapore [2011] SGHC 122.75 Spring vGuardian Assurance [1994] 2 AC 296, and there are i......
  • More Questions Than Answers? Caribbean Jurisprudence on the Duty of Uberrimae Fides
    • Jamaica
    • Transitions in Caribbean Law Lawmaking in the Caribbean
    • 21 Noviembre 2013
    ...Fides in Insurance Law – A Critical Evaluation’ [1969] MLR 615. 3. La Banque Financiere de la Cite SA v Westgate Insurance Co Ltd [1991] 2 AC 249 (HL). 4. In the Caribbean there is no comprehensive control of policy terms. Section 155 of the St Lucia Insurance Act Cap 12:08 [2001 Rev], simp......
  • Post‐Contractual Good Faith – Change in Judicial Attitude?
    • United Kingdom
    • The Modern Law Review No. 66-3, May 2003
    • 1 Mayo 2003
    ...has been confirmed to be the exclusive remedy in pre-contractual breach: BanqueFinanciere de la Cite SA vWestgate Insurance Co Ltd [1991] 2 AC 249 (HL).17 The dearth of cases on the insurer’s duty of good faith is perhaps due in large to the fact that thesole remedy of avoidance has proven t......
  • The continuing duty of utmost good faith
    • South Africa
    • South Africa Mercantile Law Journal No. , May 2019
    • 25 Mayo 2019
    ...one, given that what is in effect being achieved under a 'held covered' clause is the creation of a new contract on different terms. 15 [1991] 2 AC 249 (HL) at 282. 16 (1996, unreported), Staughton LJ reserving his position. The majority view was that The Litsion Pride could not be supporte......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT