Cox v Bankside Members Agency Ltd
| Jurisdiction | England & Wales |
| Judge | THE MASTER OF THE ROLLS,LORD JUSTICE PETER GIBSON,LORD JUSTICE SAVILLE |
| Judgment Date | 12 May 1995 |
| Judgment citation (vLex) | [1995] EWCA Civ J0512-7 |
| Docket Number | QBCMF 95/0191/B |
| Court | Court of Appeal (Civil Division) |
| Date | 12 May 1995 |
[1995] EWCA Civ J0512-7
(MR JUSTICE PHILLIPS)
Before: The Master of The Rolls (sir Thomas Bingham) Lord Justice Peter Gibson Lord Justice Saville
QBCMF 95/0191/B
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
MR J MARTIN QC and THOMAS SEYMOUR (Instructed by Messrs S J Berwin & Co, London) appeared on behalf of the Names Action Groups as Appellants
MR J SUMPTION QC and MR M SWAINSTON (Instructed by Messrs Clyde & Co, London City) appeared on behalf of the E & O Underwriters
MR G VOS QC and MR J GAISMAN QC (Instructed by Messrs Wilde Sapte, London, and Messrs Hextall Erskine & Co, London) appeared on behalf of Gooda Walker & Feltrim Names and Mr Sword-Daniels
MR J GRUDER (Instructed by Messrs Manches & Co, London) appeared on behalf of the Appellant Agent Defendants
Friday, 12 May 1995
THE MASTER OF THE ROLLSThe huge losses suffered by some names at Lloyd's in recent years are common knowledge. Many of these names blame their losses on the negligence of their members' and managing agents. Numerous actions have been started. Some of these actions have run their course, leading to judgments for the plaintiff names. Some actions are still proceeding to trial. In other cases claims have been intimated but actions have not yet been brought.
The agents so sued have the benefit of errors and omissions ("E & O") insurance cover, obtained either by individual agents or groups of agents. The extent of such cover is not known, but it is generally accepted that it will not be adequate to indemnify all the agents against claims which have been and may yet be established. Some agents are already in liquidation. Others will become insolvent if the claims made against them are made good. Thus the plaintiff names' best hope of effective compensation in large measure depends on their exercise, under the Third Parties (Rights against Insurers) Act 1930, of the agents' right to be indemnified by E & O underwriters. But because the E & O cover is accepted to be inadequate to meet all the claims which have been and may be established, it is of acute practical importance to the names to establish the basis upon which the funds payable by E & O underwriters should be allocated.
One view is that names are entitled to enforce claims, against agents when they are solvent or directly against E & O underwriters when they are not, as and when their claims are fully proved. This view, colloquially known as "first past the post" or "first come, first served", rests on a simple principle of chronological priority.
The competing view is that funds available from underwriters to meet claims by names against insured agents should be rateably distributed among names who have established or hereafter establish claims against each agent or ( in the case of a group policy) those agents. The underlying rationale of this view is that chronological priority, particularly where this is not under the sole control of the litigant, should not determine the right to substantial recovery.
In order to seek an authoritative ruling on this issue ( and also other issues, of which one is considered below), E & O underwriters issued an originating summons joining as defendants all those agents and names whom they wished to bind by the decision of the court. The underwriters' objective, obviously legitimate, was to protect themselves against the risk of being ordered to pay twice.
The names whose actions had proceeded furthest (notably the Gooda Walker and Feltrim names), supported by E & O underwriters and some members' agents, contended for chronological priority. The case for rateable allocation was advanced on behalf of names whose actions were less far advanced.
The summons was heard by Phillips J in the Commercial Court, and he handed down judgment on 16 January 1995. In his judgment he acknowledged the strength of the argument for rateable allocation. He said :
" The Merits
If claims against E&O cover are to be settled on a first past the post basis, those who first established their claims may make a full recovery whereas those who lag behind may recover nothing. If this result were to reflect the relative degree of diligence demonstrated by Names in pursuing their claims, there might be some justification for this result, albeit that the reward for expedition might appear disproportionate. In the event, however, the order in which the various stages of the Lloyd's Actions will be progressed will not necessarily reflect the diligence of those responsible for their conduct. To a degree the order of passing the post will be fortuitous. It does not seem to me fair that the timetabling of cases by the Commercial Court with the object of efficient case management should have a decisive effect on the extent to which litigants obtain compensation for wrongs done to them. I have approached this issue in the hope that the ingenuity of Counsel would demonstrate an approach respectable in law and viable in practice that would effect an equitable distribution of the E&O recoveries. The ingenuity has not been lacking, but I fear that it has failed to persuade me that either in law or in practice it is possible to reach the end that I would wish to achieve. I propose first to set out my conclusions as to the approach that the law requires in respect of the unprecedented problems posed by the Lloyd's litigation and then to explain why I have felt constrained to reject the solutions proposed by Mr. Nugee and Mr. Bompas."
The judge's reasons for rejecting the suggested schemes for rateable allocation were clear. He held that if any scheme were to be upheld there must first be a juridical basis for it, and secondly such scheme must be shown to be workable in practice. He concluded that the schemes adumbrated in argument before him failed both tests.
It was inherent in the judge's approach that he considered chronological priority to be the basic rule, from which any departure must be justified. This approach was not challenged, and is plainly correct. In the absence of a stay, a successful plaintiff may enforce his judgment against the defendant as soon as it is given, and if an insured defendant is insolvent he may seek to be indemnified (subject to the terms of the policy) directly by the insurer. There must be some good reason for departing from the basic rule that a successful plaintiff is entitled to the fruits of his judgment.
Before us the case for rateable allocation was very clearly argued by Mr John Martin QC. He did not appear below, and in some respects his argument differed from that put to the judge. He advanced five possible bases for a scheme of rateable allocation, each of them in his submission an acceptable juridical basis for such a scheme.
The first basis rested on the familiar equitable principle that equality is equity. This, he submitted, required that all names who had already established or would hereafter establish claims in negligence against agents should share rateably in the fruits of the agents' limited E & O cover. Our attention was drawn to the right which one co-surety obliged to pay the creditor has to contribution from another co-surety, and to the right which one co-insurer obliged to pay the assured has to contribution from another co-insurer. It was not however suggested that the maxim had ever been applied in any situation remotely like the present and I do not think crude application of this principle can displace the ordinary rule of chronological priority.
The second suggested basis was an implied agreement between the insured agents. It was argued that where a number of assured contribute to the premium for a group policy they impliedly agree between themselves that, if the policy proceeds in total are less than the aggregate claims covered by the policy, then any of the group members who receives more from the policy proceeds than his proportion of claims made shall contribute the excess to other members of the group, the intention being that the policy monies should be shared proportionately to the group's liabilities. As this formulation makes plain, no express agreement is suggested. So the ordinary rules for implying terms apply. The term contended for must be necessary to give the agreement business efficacy, or must represent the parties' obvious but unarticulated intention. The proposed term can in my view satisfy neither of these tests. It is reasonable to suppose that agents who grouped together to obtain E & O cover considered the cover obtained to be adequate to protect them against claims which might foreseeably be made against them. Had they envisaged that the limit of cover might prove too low they would be likely to have contracted for a higher limit. Their group agreement could, however, work effectively on the basis that the cover would be available to the members of the group unless and until it was exhausted, and there is no factual basis whatever for imputing an intention that any shortfall in cover should be rateably borne. Nor is there any factual basis for imputing an intention that any excess applicable to the group should be rateably borne.
The third suggested basis rested on construction of the 1930 Act. In my view this...
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