Brown v Services Ltd (formerly H G Poland (Agencies) Ltd)
| Jurisdiction | England & Wales |
| Judge | Stuart-Smith,Peter Gibson,Hobhouse L JJ |
| Judgment Date | 12 July 1995 |
| Court | Court of Appeal (Civil Division) |
| Date | 12 July 1995 |
Court of Appeal.
Stuart-Smith, Peter Gibson and Hobhouse L JJ.
Peregrine Simon QC and Simon Bryan (instructed by Elborne Mitchell) for the members' agent.
Adrian Hamilton QC and Stephen Hofmeyr (instructed by DJ Freeman) for the name Brown.
The following cases were referred to in the judgments:
Arbuthnott & Ors v Fagan and Feltrim Underwriting Agencies Ltd & Ors [1994] CLC 918.
Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd & Ors [1995] CLC 410; [1995] QB 375.
Bartlett v Barclays Trust Co Ltd (No. 1)ELR [1980] Ch 515.
British & Commonwealth Holdings plc v Quadrex Holdings Inc & Ors [1995] CLC 1,169.
Deeny & Ors v Gooda Walker Ltd (in voluntary liquidation) & Ors [1994] CLC 1,224.
Hadley v BaxendaleENR (1854) 9 Exch 341.
Islamic Republic of Iran Shipping Lines v Ierax Shipping Co of Panama (“The Forum Craftsman”)UNK [1991] 1 Ll Rep 81.
Koufos v Czarnikow Ltd (“The Heron II”)ELR [1969] 1 AC 350.
Parsons (H) (Livestock) Ltd v Uttley Ingham & Co Ltd [l912] QB 19l.
Phillips v Ward [l956] 1 WLR 471.
Sykes & Ors v Midland Bank Executor and Trustee Co Ltd & Ors. [1971] 1 QB 113.
Victoria Laundry (Windsor) Ltd v Newman Industries LtdELR [1949] 2 KB 528.
Westdeutsche Landesbank Girozentrale v Islington LBC [1994] CLC 96; [1994] 1 WLR 938.
Duty of care — Causation — Negligence — Breach of contract — Lloyd's insurance market — Underwriting by members' agent on behalf of name — Failure of underwriting members' agents to warn name of high risk nature of CATIXOL and LMX syndicates — Heavy losses incurred by names — Whether name would have acted differently if warning of risk received — Whether loss too remote — Whether members' agents liable to names in negligence and for breach of contract — Damages — Assessment of damages — Whether profits to be offset against losses — Whether Lloyd's expenses to be excluded from damages.
This was an appeal by members' agents and a cross-appeal by a Lloyd's name against a decision of Gatehouse J [1994] CLC 492 who held that the members' agents were in breach of duty to the names in this and a related action heard together (Sword-Daniels v Pitel & Ors, against which there was no appeal), by failing to warn them of the high risk nature of CAT/XOL and LMX syndicates.
The plaintiff “B”, a successful businessman, became a name in 1976 while still a student at the London Business School. He began underwriting in 1977 with a small premium income level of £50,000, which he gradually increased over the years in line with his consistently successful results. In 1976 his knowledge of underwriting was minimal and his underwriting policy cautious and conservative, which his members” agent knew. By 1985 he had become more sophisticated and independent, choosing his own syndicates and allocations primarily by reference to profitability as disclosed in the annual reports and accounts of each syndicate. He received advice and information from his members” agent and, although he made up his own mind on the suggestions offered by his members” agent, he never chose any syndicate which had not been implicitly recommended by his members” agent. Although B increased his premium income level significantly and adopted a less cautious investment strategy, he did not fully understand and was not sufficiently warned of the dangers of high-risk syndicates by the members'agent.
Between 1987 and 1990 B suffered very heavy losses as a result of catastrophic losses on high-risk syndicates, and further losses were expected in respect of open years. He brought an action against his members' agent in respect of the years 1988,1989 and 1990 alleging that he had made known to the agent his desire to follow a conservative underwriting policy but by advising him to join high-risk syndicates without warning of their nature the agent was in breach of duty and breach of contract.
Gatehouse J in the Commercial Court gave judgment for B, holding that by failing to warn B of the dangers of high-risk syndicates his members' agent was in breach of duty and breach of contract, for which B was entitled to recover damages. Although the size of the losses had not been foreseen, losses of the type that occurred were reasonably foreseeable. Because of the likelihood that, if warned, B would nevertheless have continued to choose a proportion of high-risk syndicates, the damages for actual losses pleaded and the indemnity for future losses on open years was reduced by 30 per cent. The members' agent appealed on the form of the warning which should have been given, on remoteness and on causation, on the basis that B would not have acted differently even if he had been warned of the dangers, and the losses suffered were too remote to be recoverable. B cross-appealed on the grounds, inter alia, that had he been warned he would have placed only ten per cent of his premium income level on high-risk syndicates and that the judge was wrong to set off against the losses incurred in 1988,1989 and 1990 profits made on CAT/XOL and LMX syndicates in 1986 and 1987.
Held, dismissing the appeal of the members' agent, and allowing the cross-appeal in part:
1. The duty of the members' agent to the name extended beyond merely warning the name of the high risk nature of CAT/XOL and LMX syndicates. The members' agent was under a general duty to advise the names which syndicates to join and the amount of premium to be allocated to each, and to provide him with a balanced portfolio and an appropriate spread of risk. Where a name had special requirements or circumstances the members' agent was under an additional duty to give advice tailored to those individual circumstances. The duty included a requirement to give such information as was necessary in all the circumstances to enable the name to make a reasonably informed decision about the recommendations made by the members'agent.
2. Since the members' agent had neither given B an adequate warning of the risks attached to CAT/XOL and LMX syndicates nor properly advised him about his choice of syndicates, the allocation of premium, a balanced portfolio and an appropriate spread of risk, he had failed to discharge his duty to B, as a result of which B suffered loss.
3. If B had been properly advised in relation to high-risk syndicates, he was likely to have allocated 22 per cent of his premium to such syndicates, which was the average in the Lloyd's market, rather than 30 per cent as assessed by the trial judge. It followed that the appeal of the members' agent failed and B's cross-appeal succeeded to the extent that he was entitled to recover damages on the basis that he would have allocated 22 per cent to high-risk syndicates.
4. Losses of the type which had occurred were foreseeable. The fact that the scale or amount of the losses was not foreseeable did not make them too remote.
5. (Per Hobhouse and Peter Gibson L JJ, Stuart-Smith LJ dissenting) There was a series of breaches of contract by the members' agent, a separate cause of action arising in respect of each year of account. B as plaintiff had sued in respect of three separate years of account and had succeeded in establishing breaches of contract by the members' agent. He was entitled to damages for the losses he had suffered without giving credit for profits made in previous years in respect of which he had brought no action. B's cross-appeal was allowed (by a majority) on that ground.
Stuart-Smith LJ:
On 13 April 1994 Gatehouse J delivered judgment in two related actions which formed part of what is known as the Lloyds” litigation. His decision is reported at [1994] CLC 492. In both cases the plaintiffs were underwriting names at Lloyds; they sued their members” agents for breach of contract and negligence, claiming that very substantial losses that they had suffered as a result of underwriting on Catastrophe Excess of Loss (“CAT7XOL”) and London Market Excess (“LMX”) Reinsurance had been caused by the defendants” breaches of duty. Syndicates doing a substantial amount of this type of business were, or should have been, regarded at the material time as high-risk syndicates.
Undoubtedly names vary widely in their knowledge and experience of insurance, in their resources available to meet losses, in their attitude to risk and reward, in their degree of sophistication and, in the extent to which they exercise independent judgment, as to their underwriting, or simply accept and act upon what their members' agents suggest. It was hoped that by choosing plaintiffs who came from either end of the spectrum, the court would be able to give guidance to facilitate settlement of other cases where similar allegations are made. There is no doubt that Mr Sword-Daniels fell at the bottom end of the spectrum in the sense that he was a man who enjoyed a modest income and resources, who made it plain that he wished to pursue a conservative low risk policy, and who accepted the suggestions of his members agent, seldom if ever exercising independent judgment. On the judge's findings, some of which are challenged in this appeal by Mr Hamilton QC on behalf of Mr Brown, he came at the other end of the spectrum.
The judge found in favour of each plaintiff. He held that they should have been warned of the high risk nature of underwriting on CAT/XOL and BMX syndicates. On the question of causation, he held that Mr Sword-Daniels was entitled to recover all his loss incurred on these syndicates, and that such losses were not too remote, notwithstanding that they were greater in extent than was foreseeable. There is no appeal in Mr Sword-Daniels' case.
In Mr Brown's case, the judge held that, if he had been given the appropriate warning or advice, he would have placed a lesser proportion of his premium income limit (“PIL”) on these high-risk syndicates, but that he would nevertheless have placed 30 per cent, which he considered to be about the market...
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