Caribbean General Insurance Ltd v Frizzell Insurance Brokers Ltd

(As Approved)

Tuesday 28th September 1993

I will ask Lord Justice Leggatt to give the first judgment.

On 15th November 1991 Master Foster made an 'unless' order against the plaintiffs, Caribbean General Insurance Limited, in respect of specific discovery. He also made other orders for specific discovery not attended by the same sanction. He allowed 28 days for compliance with the unless order.

On 8th October 1992 judgment in default of compliance with that order was entered by the defendants. Meanwhile the court had made two peremptory orders for discovery by reference to the original unless order. The first of those two orders was made on 11th February 1992 by May J, who granted to the plaintiffs a final extension of time until 21st February 1992 for full and proper compliance with the orders for discovery originally made by Master Foster on 15th November 1991. He, too, made an ancillary order for specific discovery in relation to particular documents.

The second of the intervening orders made by the High Court was made on 30th July 1992, by Mantell J. He granted what was, in effect, a second final extension of time to 2nd September 1992 for full and proper compliance with the previous orders for discovery.

Despite that background, on 3rd December 1992, Mr Patrick Bennett QC, sitting as a Deputy Judge of the Queen's Bench Division, set aside the judgment entered in default and extended time for compliance with the original 'unless' order, thereby bringing the total amount of further time for compliance with it to a total of one year and one month. Against the order of the Deputy Judge the defendants now appeal.

The only description of the action which is necessary for the present purposes is conveniently epitomized in the skeleton argument prepared on behalf of the appellants. The plaintiffs are a non-marine insurance company based in the Caribbean. The defendants, Frizzell International Limited, are Lloyds Brokers.

In May and June 1989, at the behest of the plaintiffs, the defendants placed excess of loss reinsurance for the plaintiffs covering them for losses up to $7.5 million. In September 1989, a few months later, widespread damage was caused in the Caribbean by hurricane Hugo as a result of which the plaintiffs claim to have paid out insurance claims to a total value of $17.5 million. It follows that there is a shortfall, at present borne by the plaintiffs, of about $10 million.

It is the plaintiffs' claim that their excess of loss reinsurance would have been sufficient to cover their actual liability had the defendants not been negligent in failing to arrange sufficient reinsurance cover for them. The particular negligence upon which they rely arises out of a course of dealing during the 1980's between Mr Edgecombe on behalf of the plaintiffs and Mr Hook for the defendants. The case is that the defendants must have realised that the plaintiffs relied on them to obtain information from the plaintiffs' own records for the purpose of assessing what reinsurance the plaintiffs required. They add, for good measure, that had the defendants carried out that work with the care to be expected of them, they would have recommended reinsurance cover of as much as $40 million (more than twice as much as turned out to be required on account of hurricane Hugo).

The defendants assert that it was the plaintiffs' business to obtain from their own records and furnish to the defendants the information necessary to assess what reinsurance was required. They also contend that by reference to the windstorm aggregate figures provided, the reinsurance cover was reasonably estimated and that having regard to the premium that the plaintiffs were prepared to pay, no greater measure of cover would have been obtainable.

The defendants say that if their servant Mr Hook did help the plaintiffs in the way that they allege, he did not do so in the course of his employment. They point to a personal business relationship between him and Mr Edgecombe and to the fact that during the latter part of the 1980's the two of them set up an Isle of Man company which, according to the defendants, was used to divert payments from third parties which in the ordinary course would have been paid through the defendants themselves to insurers on the London market, and that those monies were paid into bank accounts operated by Mr Hook towards payment of the plaintiffs' reinsurance premiums and into the hands of Mr Edgecombe. It should be added that Mr Hook is currently serving a sentence of imprisonment in relation to these matters.

The course of the action itself, and in particular the orders as to discovery, must be considered in a little more detail for the purpose of appraising the task that ultimately befell the deputy judge. When the matter was before May J, he set out in a careful judgment the background matters that I have sought to summarize. He then proceeded to consider the question of striking out. At page 12 C of the transcript of his judgment he said:

"He (referring to counsel) asks me to take into account that any failure to comply with this order has not been wilful and I do not read the evidence before me as establishing a wilful refusal to comply with the order, but that any failure has been rather due to a misguided understanding of what was and was not required to be done. I have to say that I think the misunderstanding that there has been has been of a quite considerable and, to my mind, surprising nature. Nevertheless, I do not find that it has been wilful."

I read that passage to make plain that it was a misunderstanding of the order that was at that early stage relied upon by the plaintiffs.

Later on the same page the judge, referring to counsel for the defendant, said:

"He says that there has been a considerable history of failure to comply with orders, a considerable history of delay and a considerable history of assertion against all the facts that proper discovery has been given. I think he is correct as to those facts."

On page 13 A the judge said:

"I say, and say without hiding the fact, that my inclinations before the luncheon adjournment was to strike this action out, and I would have struck this action out had not the offer that was made after the luncheon adjournment been made. I have considered long and carefully whether this really is a case where the whole history of the matter indicates that the plaintiffs, really at the mercy of the court, do not deserve even such mercy that the court may give them at this stage, but I have come to the conclusion, having considered the matter, that it would not be right to drive them from the judgment seat by ordering here and now the action to be struck out."

The judge mentioned at E on the same page that he was far from convinced that in this case the plaintiffs have made a real effort to comply with the order and added that it was for that reason that he was on the verge of striking them out. He commented again that he found the failure not to be wilful but to have resulted from a misguided appreciation or misappreciation of what ought to be done and concluded by saying:

"The decision that I finally come to is that the plaintiffs should be given one last chance—and I emphasise "one last chance"—on the strictest possible terms. The terms which I say quite explicitly are there to be complied with to the letter are as follows …"

He then recited them. The Order made by May J is to be found at page 22 of the bundle. It was introduced by the words:

"IT IS FURTHER ORDERED that the Plaintiff be granted a final extension of time for full and proper compliance with the Order of Master Foster herein dated the 15th day of November 1991 until 4.00pm on Friday the 21st day of February 1992 upon the following conditions being complied with before that time …"

It was that order, therefore, as well as the order of Master Foster himself, of which the plaintiffs were in breach when the matter came before the court once more.

In dealing with the application made on the later occasion to strike out, Mantell J in the course of a short judgment said, as appears from page 1 of the transcript:

"I have also indicated that in view of the fact that there are admitted breaches of Mr Justice May's order here it will not be necessary for the defendant to apply for leave to enter judgment but that judgment may be entered forthwith upon non-compliance with this further order.

In view of the admitted and serious breaches I have also ordered that costs should be paid on an indemnity basis …"

That reference prompts me to say that both the judges and the Deputy Judge in dealing with this matter made an order for payment of indemnity costs, no doubt as a reflection of their view of the plaintiffs' conduct.

In the course of the submissions made to Mantell J, of which a transcript is before the court, Mr Edelman, on behalf of the defendants, sought specific orders making the requirements of discovery falling upon the plaintiffs, wholly explicit and unambigous. He...