Eagle Star Insurance Company Ltd v Yuval Insurance Company Ltd
| Jurisdiction | England & Wales |
| Judge | THE MASTER OF THE ROLLS,LORD JUSTICE GOFF,LORD JUSTICE SHAW |
| Judgment Date | 04 July 1977 |
| Judgment citation (vLex) | [1977] EWCA Civ J0704-1 |
| Docket Number | 1976 E. No. 2766. |
| Court | Court of Appeal (Civil Division) |
| Date | 04 July 1977 |
[1977] EWCA Civ J0704-1
The Master of the Rolls
(Lord Denning)
Lord Justice Goff and
Lord Justice Shaw
In The Supreme Court of Judicature
Court of Appeal
On Appeal from the High Court of Justice
Queen's Bench Division
(Mr. Justice Parker)
MR. R. BUCKLEY (instructed by Messrs. Elborne Mitchell & Co., Solicitors, London) appeared on behalf of the Plaintiffs (Respondents).
MR. J. FOX-ANDREWS, Q.C. and MR. D. BLUNT (instructed by Messrs. Stilgoes, Solicitors, London) appeared on behalf of the Defendants (Appellants).
This case arises out of a treaty of reinsurance made in 1967. The principal insurers were the Eagle Star Insurance Co. They insured big firms of contractors against the risks incurred by them in carrying out the contract works. Eagle Star received the premiums from the contractors and paid any claims made by the contractors on the policies. But Eagle Star did not want to bear the whole burden themselves. So they "ceded" a proportion of the premiums to other insurance companies on the terms that these other insurance companies would bear a like proportion of the claims.
One of these re-insurers was Yuval Insurance Co. of Israel Ltd. The treaty was negotiated on behalf of Eagle Star by brokers called Pearson, Webb, Springbett Ltd., together with a Mr. Delbourgo whose company Delbourgo Ltd. had an underwriting contract with Eagle Star. He was one of those smart young men who get a lot of business in a short time but leave a lot of troubles behind them. The treaty was negotiated on behalf of Yuval by their London agents Ben-Zur Ltd. The brokers prepared a slip showing the terms of the agreement. According to this slip Yuval were "to cover 7½ per cent quota share, part of an 85 per cents quota share" of contractors' all risk policies. On the slip under the heading "Information" it said: "Estimated premium income £250,000 for 100%". The slip was signed by Ben-Zur on behalf of Yuval. Below the signature there was a handwritten note: "Sub 100% R/I at 1% our credit". That cryptic little sentence showed that Yuval were only to take a reward of 1 per cent of the premiums.
The meaning of that slip was this: Eagle Star were to undertake all the primary insurances. They were to retain 15 percent of the premiums for their own account and be liable for 15 per cent of the losses. They were to "cede" the other 85per cent to various re-insurers: and of that 85 per cent, Yuval were to bear 7½ per cent, that is receive 7½ per cent of the premiums and pay 7½ per cent of the losses. The slip also showed that the re-insurance was based on an estimated premium income of £25,000 as being the income premium expected to be received by Eagle Star.
The important sentence for present purposes is this: "Sub 100% R/I at 1% our credit". Those handwritten words show that this was only a "fronting arrangement". Yuval were only a "front" acting for the real re-insurer. Yuval were to receive the small commission of 1 per cent for so acting.
This case thus brings to our notice the existence in the insurance market of "fronting arrangements". The Yuval company were the front people giving their name to the transaction, vis-a-vis Eagle Star. Yuval were legally the re-insurers. But the real principals to the re-insurance were a company called Bastion Ltd. It was run by Mr. Delbourgo. It was a company of little substance. It was to receive the premiums in regard to this 7½ per cent quota share and to pay the claims. As between Bastion and Yuval, Bastion was the company truly responsible. All that Yuval got out of being a "front" was 1 per cent - a very small sum.
That was the nature of the agreement as evidenced on the slip. The treaty of re-insurance itself was not executed until the 6th December, 1967. The parties were Eagle Star and Yuval. It was in a common form familiar to the reinsurance market. It was signed on behalf of Eagle Star by their reinsurance manager. It was signed on behalf of Yuval by Mr. Jenkins who was then the manager of Ben-Zur. It contained an arbitration clause in these words: "If any question or dispute shall arise … the same shall … be referred to the Arbitration of twoArbitrators … The said Arbitrators shall appoint an Umpire … The said Arbitrators and Umpire shall be executive officers of Insurance or Reinsurance Companies and the seat of the Court of Arbitration shall be in London … The Arbitrators and Umpire shall not be bound by the strict rules of law but shall settle any difference referred to them according to an equitable rather than a strictly legal interpretation of the provisions of this Agreement and the referendum shall be subject to the provisions of the Arbitration Act 1950 or any statutory modification thereof for the time being in force. The obtaining of an award in accordance with this Article shall be a condition precedent to any right of action in respect of any difference falling within the scope thereof". I will come back to that clause later.
To proceed with the story. As long ago as 1967 this treaty of reinsurance was made, but unfortunately that smart young man Mr. Delbourgo seems to have entered into so much business that the premium income, instead of conforming to the estimate of £250,000, went up to £1,750,000. That meant, of course, that the reinsurers would get more premiums - but also they might be faced with very heavy losses. This difference was so great that Eagle Star ought to have warned the re-insurers about it. But they never did so.
The view of the insurance market on such a matter is shown by a decision in an arbitration in another case given on the 14th January, 1976 which was shown to us. The arbitrators were Mr. Addison, the general manager of Sun Alliance, and Mr. Corbett, a director of the Excess Insurance Company Ltd. They said in their report: "We consider that (the insurers) had a duty to inform (the re-insurers) immediately of any material alteration in the estimate of premiums … Whatever may be (the re-insurers) strictly legal rights in relation to the disparity between thepremiums developed and the estimates given, we are charged under the terms of the arbitration clause to settle this dispute according to an equitable rather than a strictly legal interpretation of the terms of the contract … we consider that it is reasonable in the circumstances for the re-insurers to question the validity of the re-insurance".
In the result, these operations of Mr. Delbourgo gave rise to so much trouble that Eagle Star parted company with him and his company Delbourgo Ltd. The arrangements between them were terminated so far as new business was concerned. It was widely noticed in the financial press. About the same time the Yuval company terminated Ben-Zur's agency for them, also in regard to new business.
This gives rise to another point. Although the treaty was terminated in regard to new business, nevertheless it appears that in July 1969 Ben-Zur, without any further communication with Yuval, re-negotiated the 1967 treaty of re-insurance. They increased the retention of Eagle Star to 42½ per cent and reduced the shares of the re-insurers proportionately. Yuval say they were told nothing of this re-negotiation.
For some years Eagle Star submitted re-insurance accounts to Yuval. But in 1976 the losses greatly exceeded the income. Eagle Star claimed nearly £70,000 was due to them from Yuval.
On the 3rd December, 1976 Eagle Star issued a writ against Yuval. They ignored the arbitration clause and issued a writ on which was indorsed the Statement of Claim. It said: "The plaintiffs claim is (1) for damages for breaches of contracts of reinsurance made between the plaintiffs and the defendants in or about 1967 (2) for a declaration that the defendants are liable to the plaintiffs under the aforesaid contracts. Particulars. The aforesaid damages amounted to £69,610.21 asat 10th November 1976, full particulars of which have been supplied to the defendants and exceed three folios".
That indorsement was very defective. There were several contracts of re-insurance in 1967. It does not specify which is the contract that is sued upon. It claims damages at large without giving the slightest indication of the nature of the breach or of the way in which the damages arise.
Seeing that the indorsement was so very defective, Yuval applied to strike it out. They took out a summons on the 21st December, 1976 under order 18, rule 19, and alternatively under the inherent jurisdiction of the Court, asked that "the Statement of Claim herein be struck out or amended on the ground that it may prejudice embarrass or delay the fair trial of the action or is otherwise an abuse of the process of the Court and that in the meantime all proceedings herein be stayed".
Faced with that application, Eagle Star themselves abandoned their very defective statement of claim. They replaced it by another in which they gave proper particulars. They specified several treaties and gave particulars of sums claimed amounting in all to £69,610.21. They took out a summons under order 14 for summary judgment against Yuval.
The Yuval company resisted that summons. They also took out a summons to stay the proceedings on the ground of the arbitration clause. Both summonses came before Mr. Justice Parker in the Commercial Court. He refused to stay the action. He held that Yuval had taken a "step" in the proceedings, and therefore it was not open to them to apply to have the matter sent to arbitration. He held further that there was no real defence to the claim. So he gave judgment for the full amount with interest; but, pending an appeal, he gave a stay on £20,000 being paid into...
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