BETWEEN Hugh Sinclair Arbuthnott Respondent and Patrick Feltrim Fagan Appellant and BETWEEN: Michael Eunan Mclarnon Deeny Respondent and Gooda Walker Ltd ((in Liquidation)) Appellant

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeTHE MASTER OF THE ROLLS,LORD JUSTICE STEYN,LORD JUSTICE HOFFMANN
Judgment Date13 December 1993
Judgment citation (vLex)[1993] EWCA Civ J0730-2
Date13 December 1993
Docket NumberNo. QBCM1 93/0903/B

[1993] EWCA Civ J0730-2

IN THE SUPREME COURT OF JUDICATURE

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

QUEEN's BENCH DIVISION (COMMERCIAL COURT)

(Mr. Justice Saville)

Before: The Master of The Rolls (Sir Thomas Bingham) Lord Justice Steyn and Lord Justice Hoffmann

No. QBCM1 93/0903/B

QBCM1 93/0935/B

BETWEEN Hugh Sinclair Arbuthnott Respondent And Patrick Feltrim Fagan Appellant And BETWEEN: Michael Eunan Mclarnon Deeny Respondent And Gooda Walker Limited (in liquidation) Appellant

MR. B. EDER Q.C. and MR. D. FOXTON (instructed by Messrs. Elborne Mitchell, London EC3) appeared on behalf of the appellant Fagan.

MR. B. EDER Q.C. and MR. S. BRYAN (instructed by Messrs.Elborne Mitchell, London EC3) appeared for the appellant Gooda Walker Limited.

MR. A. BOSWOOD Q.C. and MR. S. MORIARTY (instructed by Richards Butler, London EC3) appeared for the respondent Arbuthnott.

MR. J. MANCE Q.C. and MR. D. LORD (instructed by Messrs. Wilde Sapte, London EC3) appeared on behalf of the respondent Deeny.

1

Friday, 30th July, 1993.

THE MASTER OF THE ROLLS
2

THE MASTER OF THE ROLLSThis appeal, against a decision of Saville J given on 13 May 1993, raises an issue of construction. All the plaintiffs are Lloyd's Names. The relevant defendants are these Names' Members' Agents and also (in the Gooda Walker action) their Managing Agents. The issue of construction arises from the agreements between the Names and these Agents.

3

In the Feltrim action the Names sued their Members' Agents claiming damages for breach of contract in the conduct of underwriting for four syndicates. The claim related to three underwriting years (1987–89 inclusive). During that period the Names and the Members' Agents were parties to a Standard Agency Agreement in the form mandatorily prescribed by Lloyd's Agency Agreements Byelaw No.1 of 1985. For purposes of this appeal the crucial provision of that agreement is clause 9. After 1989 that form of Agreement was superseded.

4

In the Gooda Walker action the Names sued their Members' Agents for damages for breach of contract and tort in the conduct of underwriting for four (different) syndicates during the years 1988 and 1989. The same form of Agreement as in the Feltrim action governed relations between the Names and their Members' Agents during that period and the construction of clause 9 is accordingly in issue in this action also. But a further claim has been made by these Names relating to the 1990 underwriting year. It has been made against the Names' Members' Agents and also their Managing Agents. Against the former it was made under the standard Members' Agents' Agreement prescribed by Lloyd's Agency Agreements Byelaw No.8 of 1988 and against the latter under the standard Managing Agents' Agreement prescribed by the same Byelaw. These forms of Agreement came into force for the year 1990 onwards. In this action an issue also therefore arises on the construction of clause 7.1 of the 1990 form of standard Managing Agents' Agreement.

5

Although these factual distinctions exist between the Feltrim and Gooda Walker actions, and although clause 7.1 of the later Agreement does not exactly reproduce the language of clause 9 of the earlier Agreement, it is only very faintly suggested that the two clauses are, for any purpose relevant to this appeal, to be differently construed and I do not think there is any ground for doing so. It is therefore convenient to confine attention to one of the clauses and I turn to clause 9 as the clause under which most of the pleaded claims have been made.

6

Clause 9 is headed "Undertaking by the Name to pay all liabilities and outgoings" and its first three sub-clauses read as follows :

"(a) The Name shall keep the Agent at all times in funds available for the payment of the liabilities, expenses and outgoings of the underwriting business. All such funds and any other monies for the time being held on the Name's behalf may in the absolute discretion of the Agent be paid or applied in or towards the discharge of such liabilities, expenses and outgoings provided that in the case of expenses and outgoings incidental to the conduct of the underwriting business they are proper and reasonable in incidence and amount. The Agent shall have an unfettered discretion in determining the funds from time to time required from the Name for the purpose of making any such payments as aforesaid, and the Agent shall be the sole judge both as to the existence and as to the amount (or the estimated amount) of any such liability, expense or outgoing. The Agent shall be under no liability to make any such payments otherwise than out of assets for the time being held for the account of the Name; but should the Agent nevertheless do so, the Name shall reimburse the Agent in respect thereof.

(b) The Name shall pay any funds required by the Agent under sub-clause (a) of this Clause free from and clear of any set-off, counterclaim or other deduction on any account whatsoever and promptly within such period for payment as the Agent may in its discretion specify in its requirement; and in respect of such payment time shall be of the essence. The Name hereby agrees that no such set-off, counterclaim or deduction shall be a defence to any proceedings instituted by the Agent to enforce a requirement, and the Name waives stay of execution and consents to the immediate enforcement of any judgment obtained in such proceedings.

(c) It shall be a condition precedent to the issue of proceedings or the making of any reference to arbitration by the Name in respect of any matter arising out of or in any way connected with either the making of such requirement by the Agent or the subject matter thereof, or the preparation or audit of the accounts referred to in Clause 6, that the Name shall have duly complied with any such requirement made or purported to be made by the Agent, and no cause of action in respect of any such matter shall arise or accrue in favour of the Name until such requirement shall have in all respects been duly complied with. At no time shall the Name seek injunctive or any other relief for the purpose (or which has the result) of preventing the Agent from making or enforcing any such requirement or of preventing the Agent or any sub-agent from applying any money or assets for the time being held by them respectively on behalf of the Name in or towards the discharge of the liabilities, expenses and outgoings of the underwriting business."

7

"The underwriting business" referred to in sub-clause (a) is defined in clause 2(a) of the Agreement to mean :

"… underwriting at Lloyd's for the account of the Name such classes and descriptions of insurance business, other than those prohibited by the Council, as may be transacted by the Syndicate."

8

"The Syndicate", by virtue of clause 1(a), means the syndicate or syndicates of which the Name is a member.

9

Sub-clauses (a) and (b) are not directly in issue in this appeal, but they provide the essential prelude to sub-clause (c), which is. Sub-clause (a) contains two important stipulations : that the Name must keep the Agent in funds to enable the Agent to meet the liabilities, expenses and outgoings of the underwriting business as defined; and that it is for the Agent alone (subject no doubt to a duty of honesty: Boobyer v Holman & Co Ltd [1993] 1 Lloyd's Rep 96) to decide what sum is needed for those purposes. Sub-clause (b) obliges the Name promptly to pay any sum required by the Agent in full and without deduction of any kind. Should the Agent issue proceedings to enforce any requirement, the Name agrees to forgo any right to plead any set-off, counterclaim or deduction or to claim a stay of execution or to resist the enforcement of any judgment.

10

So one comes to sub-clause (c). The Agents draw attention to the Names' claims in the actions and suggest that the loss and damage claimed relate directly to and are founded upon the cash requirements made upon the Names for purposes of the underwriting business. They accordingly submit

(1)that a Name who has not met a requirement made for a particular syndicate for a particular year of account has no cause of action and cannot bring proceedings for breach of contract or negligence in respect of that syndicate and that year of account; and

(2)that in any event a Name has no cause of action and is precluded from bringing proceedings in respect of claims for breach of contract or duty when the damages which he seeks to claim relate to a requirement made upon him for underwriting liabilities or expenses which he has not met.

11

It appears that before the Judge the Agents put their case more broadly, but I have quoted the submission as put in the skeleton argument provided to this Court.

12

The Names contend that sub-clause (c) has an altogether more limited purpose : to preclude the Name from making any legal challenge to the making of a requirement or to its substance (i.e., the Agent's assessment of the liabilities, expenses and outgoings of the underwriting business) until he has paid the sum called for. But while accepting that such a challenge is precluded the Names deny that their claims arising from negligent underwriting are, or need be, related to cash calls made against them.

13

Saville J preferred the Names' construction, basing himself both on the language of the sub-clause and on its wider commercial purpose.

14

As always on an issue of this kind, the parties have, very properly, analysed the precise language of clause 9(c) in great detail in order to identify every possible pointer to the true construction of the sub-clause. I do not in any way disparage this exercise,...

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