Brotherton and Others v Aseguradora Colseguros SA and Another
| Jurisdiction | England & Wales |
| Judge | Lord Justice Mance,Lord Justice Buxton,Lord Justice Ward |
| Judgment Date | 22 May 2003 |
| Neutral Citation | [2003] EWCA Civ 705 |
| Docket Number | Case No: A3/2003/0529 |
| Court | Court of Appeal (Civil Division) |
| Date | 22 May 2003 |
[2003] EWCA Civ 705
Lord Justice Ward
Lord Justice Buxton and
Lord Justice Mance
Case No: A3/2003/0529
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
(MOORE-BICK J.)
Royal Courts of Justice
Strand,
London, WC2A 2LL
Richard Millett QC and Edmund King (instructed by Clyde & Co.) for the Appellant
Michael Swainston QC & Roger Masefield (instructed by Reynolds Porter Chamberlain) for the Respondent
This appeal arises from a claim by reinsurers to have avoided reinsurances of two Columbian reinsureds for non-disclosure of reports in the Columbian media of allegations of misconduct and related investigations involving the original insured's business and officers. More particularly, it concerns the question whether the materiality of such reports or investigations, or the validity of reinsurers' purported avoidance for their non-disclosure, may depend upon the correctness of the allegations and whether there was actual misconduct. Whether there was misconduct should, on the reinsureds' case, be ascertained by trial (presently fixed to commence on 16 th June 2003).
Moore-B ick J rejected the reinsureds' case, and on 26 th February 2003 struck out those paragraphs in the defence by which they denied that there had been any actual misconduct. The reinsureds now appeal with his permission. The appeal has been expedited in view of the imminent trial date.
The reinsurers, Peter Malcolm Brotherton and other London insurers, are claimants in the proceedings. They seek declarations that they have validly avoided primary and excess layer reinsurances made in late November 1997 incepting 7 th November 1997 and extended in late November 1998 until 31 st January 1999. The reinsureds, Aseguradora Colseguros S.A. and La Previsora S.A., Compania de Seguros, are Columbian insurance companies. They issued bankers blanket bond and professional indemnity insurance policies to a Columbian state-owned bank, Caja de Credito Agraria Industrial y Minero. ("Caja Agraria"). The policies covered, among other matters, losses caused by dishonest or fraudulent acts of bank employees, subject to qualifications which it is not here necessary to examine. Caja Agraria's president until his suspension in early November 1997 was S. Benjamin Medina.
Between 28 th January 1997 and late November 1997 seven news bulletins and fifteen newspaper articles (including six in El Tiempo said to be Columbia's largest circulation newspaper) carried reports of allegations of misconduct and related investigations involving Caja Agraria's business and S. Medina's conduct thereof. These culminated with reference to his suspension for 90 days in early November 1997. In January and February 1998 there were further reports of such investigations, including disciplinary charges by then formulated against S. Medina and other bank officers.
Reinsurers plead (in paragraph 6 of the claim) that as a result of such reports both reinsureds, prior to entering into the contracts, knew or ought to have known that serious allegations of corruption and embezzlement of public funds had been made against S. Medina and other serious allegations against other officers; that these included allegations of irregular loans; that such loans were being investigated by the Contraloria General; that S. Medina's involvement was being investigated by the Procurador General de la Nacion; that the Procurador General had ordered S. Medina's suspension on or about 4 th November 1997; and that in early November 1997 he had been served with an arrest warrant by the police to comply with a court order to produce evidence in a criminal investigation by the Fiscalia General de la Nacion into corruption or embezzlement of public funds within Caja Agraria. As from February 1998 reinsurers also allege that the reinsureds knew or ought to have known that the Procurador General had brought disciplinary charges against S. Medina and other bank officers. Further, they allege that, at the time of placement (presumably also including the extensions) the reinsureds had no knowledge and no means of proving to reinsurers' satisfaction that the allegations were untrue, or that claims would not arise out of the allegedly irregular loan transactions.
Reinsurers' case is that the reports alone, and all the more the reports coupled with the fact of the investigations, were material to be disclosed, firstly as constituting circumstances which might give rise to claims under the reinsurances, and secondly as suggesting moral hazard. For completeness, I note that the lead reinsurance syndicate also asserts that positive misrepresentations were made to it in November 1997 as to the reasons for S. Medina's non-attendance at a meeting in London and for his suspension.
The reinsureds in their defence admit the reports (although not the accuracy of the summary in paragraph 6 of the claim). They also admit the investigations, including the arrest and charges. It is not their case that the reports were as reports false. They make no admission that they knew or ought to have known of the reports or other matters which reinsurers allege should have been disclosed. But they admit that they could not at placement have demonstrated unequivocally that there was no proper basis for the investigations (a word which I will in this judgment use to include the arrest and later the charges), although they assert that they could have demonstrated their political motivation and that their mere fact was not a reliable basis for any views about S. Medina's veracity or the regularity or otherwise of the loan transactions. They also assert that the lead reinsurance syndicate (through Mr Satterford) knew or ought to have known of the allegations (although they do not suggest that any such knowledge on its part would fall to be attributed to following reinsurers).
The reinsureds' defence denies that such reports or other matters were material for disclosure. Their defence contains these further passages which were either struck out by Moore-Bick J or were drafted subsequently for inclusion only if his judgment is set aside:
"5(1) It is denied that there was any proper basis for the investigation, arrest of and charges against Snr Medina; on the contrary:
(i) they were part of a political campaign by the opponents of the then government of President Ernesto Samper (which opponents included El Tiempo) to smear its supporters and friends, including Snr Medina, in order to discredit the government in the run up to the 1998 elections;
(ii) 63 of the 65 criminal investigations of Snr Medina have been concluded in his favour; the remaining two are still pending; one of them relates to the use of the aeroplane for private purposes (a matter disclosed to Reinsurers) and the other relates to an alleged infringement of public tendering regulations, and is unconnected with the matters reported in El Tiempo as pleaded and /or which are in any event immaterial;
(iii) out of 17 investigations opened by Procuraduria, 16 have been closed and only 1 is live, which is currently being challenged before the Colombian courts; and the 1 Controlaria investigation into Snr Medina is still pending; ….
(1A) Subject to the appeal from the Order of Mr Justice Moore-Bick dated 26 February 2003, it is denied that there was any proper basis for the investigation, or formulation of disciplinary charges against Pablo Jose Ramirez, Patricia Cruz Ortiz, and Guillermo Leno Ocampo; on the contrary:
(i) they were part of the political campaign referred to in sub-paragraph (1)(i) above to smear government supporters in order to discredit the government in the run-up to the 1998 elections;
(ii) in the course of the Procuraduria's disciplinary investigation, Dr Ocampo was acquitted, and the investigation of Dr Cruz and Dr Ramirez is being judicially reviewed by the Contentious Administrative Tribunal at Cundinamarca;
(iii) the investigation before Contraloria General de la Nacion is still live.
…..
11A. …. the Defendants will rely upon:
(i) the fact that the allegations ..… (subject to the appeal of the order of Mr Justice Moore-Bick dated 26th February 2003) were baseless ….." (underlining omitted).
In response to these passages (assuming them to stand), the reinsurers join issue with the allegations in paragraph 5(1) and (1A) that there was no proper basis for the investigations with respect to S. Medina and other officers, and put the reinsureds to proof of the matters pleaded in paragraph 5(1) of the defence.
The forthcoming trial will on any view have to address the following issues:
i) whether, as at the time of the placements in November 1997 (or, as the case may be, the extensions in November 1998), the reports (or the reports coupled with the fact of the investigations) were or ought to have been known either to the reinsureds or to all or any of the reinsurers;
ii) whether, at that time, their mere existence constituted a matter which a prudent reinsurer would have regarded it as material to know. On that issue expert underwriting evidence will, in accordance with modern practice, be admissible; the issue will raise for consideration whether the reports (or the reports and investigations) amounted to intelligence, or were mere "loose" or "idle" rumours;
iii) whether, if the actual reinsurers had known of the reports (or the reports and investigations) at that time, such knowledge would have induced all or any of them to act differently, either by not entering into (or extending) the reinsurances, or by only doing so on...
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