Bonner v Cox Dedicated Corporate Member Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Waller |
| Judgment Date | 08 December 2005 |
| Neutral Citation | [2005] EWCA Civ 1512 |
| Docket Number | Case No: A3/2005/0252 |
| Court | Court of Appeal (Civil Division) |
| Date | 08 December 2005 |
[2005] EWCA Civ 1512
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Mr Justice Morison
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Waller
Lord Justice Tuckey and
Lord Justice Moses
Case No: A3/2005/0252
Jeffrey Gruder QC and Jessica Wells (instructed by Ince & Co, Solicitors) for the Appellant
Anthony Boswood QC and Robert Anderson (instructed by Clyde & Co, Solicitors) for the Respondent Underwriters
George Leggatt QC and Juliet May (instructed by CMS Cameron McKenna) for the Respondent Brokers
This is a judgment of the Court.
Introduction
After a trial lasting some 35 days spread over the period 3 rd October 2003 to 11 th March 2004, Morison J delivered a reserved judgment on 21 st December 2004. The case was concerned with a claim made by certain Lloyd's syndicates parties to an open cover known as the '77 Cover 1999 (the Cover), on a contract of reinsurance of that open cover. Syndicate 535 held a 50% share of risks written under the cover which was reinsured initially with the 2 nd to 7 th Defendants (referred to as Euclidian), fronting for Tryg-Baltica (a party to associated Part 20 proceedings) and the 8 th Defendant (referred to as "Syndicate 1688"). Tryg-Baltica was itself initially reinsured as to part of this risk by the 1 st Defendant (" Cox"). In October 1999 this structure changed such that Cox reinsured 535 directly for that part in respect of which it had formerly reinsured Tryg-Baltica. Syndicate 228 held a 6.66% share which was also reinsured by Euclidian, fronting for Syndicate 1688 and Tryg-Baltica. Euclidian and Tryg-Baltica settled during the trial.
Syndicate 62 held a 25% share, Syndicate 187 an 8.34% share and Euclidian its own 10% share, all of which were reinsured by Syndicate 1688. In addition, Syndicate 228's 6.66% share, in respect of which Euclidian acted as a front, was reinsured by 1688 and Tryg-Baltica. The judge held that none of the many defences run by Cox and Syndicate 1688 succeeded.
In those circumstances he felt that it was unnecessary to deal with claims by the claimants against the brokers (the 9 th Defendants referred to as "Aon") who brokered the reinsurance as well as broking business to the Cover.
Cox a nd 1688 appealed on only three aspects of that judgment. First, 1688 appealed the judge's conclusion that they were not entitled to avoid their reinsurance by virtue of non-disclosure. 1688 asserted that Aon failed to disclose information relating to what became known as "the Elk Point issue" which related to a well blow-out which occurred on 23 rd November 1998, and resulted in a substantial claim on the 1998 year of the Cover. The judge found that such information as Aon had prior to the conclusion of the relevant reinsurance contracts, (information which they obtained on 1 st December 1998 after the scratching of the slip but before conclusion of the relevant contracts of reinsurance) was not material. He held that the information that they had as at 8 th December 1998 was material, but that the relevant contracts had been concluded by that date. He held in the alternative that if he were wrong about the date of conclusion of such contracts, and if on that basis the information known as at 8 th December 1998 should have been disclosed to Mr Woodgate, the underwriter, prior to the conclusion of the contracts of reinsurance, Mr Woodgate would still have written the risk on the same terms, and was thus not induced by any non-disclosure to enter into the contract. Longmore LJ would have refused permission to appeal this point on the basis that the judge's finding on inducement was a finding of fact, but Mummery and Mance LJJ granted permission to appeal.
Second, Cox who became reinsurers of Syndicate 535 in October 1999, appealed, with the permission of Longmore LJ, the judge's finding that they were not entitled to avoid that reinsurance. They asserted that the judge should have found that there was a material misrepresentation at the time of the placing in October 1999.
Third, Cox and 1688 appealed, again with the permission of Longmore LJ, the finding of the judge that losses on a declaration to the Cover, known as the Oceaneering declaration, was one for which the reinsurers were not liable. The reinsurers contended at the trial that a term should be implied into the contract of reinsurance relating to the duty of those accepting declarations into the Cover. At trial it was argued that many declarations were written in breach of that duty, that number being reduced to six by the time of final submissions. The judge held that some terms should be implied, but that no breach had been established in relation to any declaration. On appeal the reinsurers challenged the judge's decision on one declaration—Oceaneering. In challenging that decision a point of some importance arises as to whether any term imposing some duty of care or prudence in favour of the reinusurers should be implied at all and, if so, the nature of that term.
The points are self contained. At the hearing before us Mr Leggatt QC for Aon accepted that if 1688 represented by Mr Gruder QC succeeded on the Elk Point issue, Aon would be liable to the claimants. He also accepted that if Cox succeeded in avoiding, Aon would be liable to the claimants. In those circumstances Mr Leggatt argued the respondents' case on those points and Mr Boswood QC, who appeared for the claimants, did not address us. On the Oceaneering declaration, Mr Boswood argued the respondents' case.
With that short introduction we can turn to the individual points.
The Elk Point
The Cover was a broker's cover operated by Aon in conjunction with Syndicate 535 (the Cover leader). The Cover was not a contract of insurance but a standing offer by the subscribing Cover Underwriters to be bound to risks accepted by the leader within the terms of the Cover. The Cover had a considerable history and was renewed from year to year. There was no obligation on those on the Cover in any one year to renew for the next, although in practice the participants remained pretty constant. The Cover had a good reputation and produced a lot of premium income. At the end of the 1998 year the Spalding syndicate did not wish to renew their 10% for the 1999 year. Euclidian was chosen to replace it and, as the judge found, Euclidian's underwriter, Mr Hegarty, was "delighted" to be given the opportunity to join the Cover.
The 1999 year was the first year for which reinsurance was to be arranged for the Cover as a whole. Indeed Aon, in broking the renewal with those to be on the Cover for the 1999 year, wished to be able to offer that reinsurance as part of the terms. Aon thus adopted a practice well known at Lloyd's of obtaining a promise from reinsurers before finalising matters with those wishing to renew.
The practice was described by Mustill LJ as he then was in The Zephyr [1985] 2 Lloyds Rep. 529 at 532.
"… a practice has developed whereby a broker instructed to obtain a primary cover will on his own initiative approach potential reinsurers to obtain from them in advance a binding promise to provide reinsurance for whatever person may subsequently write a line on the primary cover and desire to reinsure the whole or part of that line. The reinsurer conveys this promise by initialling a percentage line on a slip, which identifies the subject-matter, the nature of the risk and the value. The slip does not, however, identify the reassured and could not do so: for at the stage when the potential reinsurer is approached, it is not known whether the primary insurance will ever be written at all, and if so by whom; or whether any of the primary insurers will desire to effect reinsurance; or whether any insurer who does desire to reinsure will be willing to do so with the reinsurer whom the broker has approached, and on the terms which he has offered. With this promise "at large" in his pocket, the broker can offer to an underwriter a package consisting of the opportunity to take a line on the primary cover, and at the same time to place an order for reinsurance."
In The Zephyr consideration was given to the question as to when, as a matter of law if at all, any binding contract came into existence where the practice was followed. The Court of Appeal approved Hobhouse J's approach whereby he held not simply that the above, as a matter of market practice, produced a binding promise, but held that on strict contractual analysis in law there was a binding contract once the reinsurance had been accepted, and even without communication of that acceptance to the reinsurers. This was the analysis that Morison J adopted in this case. He held that once the reinsurer had scratched the slip offering the reinsurance that was an open offer capable of acceptance simply by the offeree renewing the Cover for the 1999 year on the basis of that offer of reinsurance.
The Zephyr was not in fact concerned with any question of non-disclosure. Morison J was clearly inclined to feel that the scratch on the slip ought to be the moment in time up to which the duty of disclosure should run. He may well have had in mind paragraph 55 of the judgment of Lord Hobhouse in the Star Sea [2003] 1 AC 469 at 496 where he said having quoted Blackburn J in Lishman v Northern Marine Insurance Co (1875) LR 10 CP 179 at 182
"55. Blackburn J is adopting a similar approach to that which he adopted in the leading case Cory v Patton (1872) LR 7 QB 304 which concerned whether there was...
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