G Absalom and Another v Tcru Ltd and Another
| Jurisdiction | England & Wales |
| Judge | Longmore,Jacob L JJ,May |
| Judgment Date | 19 December 2005 |
| Neutral Citation | [2005] EWCA Civ 1586 |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: 2005 1340 A3 |
| Date | 19 December 2005 |
[2005] EWCA Civ 1586
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION (COMMERCIAL COURT)
Hon Mr Justice Aikens
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice May
Lord Justice Longmore and
Lord Justice Jacob
Case No: 2005 1340 A3
DAVID EDWARDS Esq (instructed by Lovells) for the Respondent
Miss REBECCA SABBEN-CLARE (instructed by Dechert LLP) for the Appellant
Lord Justice Longmore
This case came before us as an application for permission to appeal with the appeal to follow if permission was granted. Permission was granted in the course of the hearing. The background facts are well-known to the parties and can be found in paragraphs 1 – 28 of the judgment of Aikens J [2005] EWHC 1090 (Comm); neither party quarrelled in any way with those paragraphs. The preliminary issue, which has to be answered for the purpose of the appeal, is as follows:-
"Do the terms of the reinsurance contracts identified in Schedule 1, on their proper construction, entitle the defendant to charge brokerage on both (a) the deposit premium, and (b) the total adjusted premium (without deduction of the deposit premium) ?"
This issue arises in connection with 4 excess of loss reinsurance contracts and 7 burning cost contracts. The relevant clause in chronologically the first of the excess of loss contracts, DN 97 7060, is as follows:-
"PREMIUM Deposit Premium: US$1,000,000 payable in six equal instalments on 20 th February 1997, 20 th May 1997, 20 th August 1997, 20 th November 1997, 20 th February 1998 and 20 th May 1998.
Settlement due dates in respect of each instalment will be 90 days in arrears of the instalment date.
Adjustable at 100/70ths of the total claims paid hereunder. Subject to a minimum premium payable in all of 10% of the net premium income written under the Master Lineslip facility in the name of Lloyd Thompson Limited and or David Gyngell and Company Limited in respect of declarations attaching during the period 20 th February 1997 (at noon Greenwich Mean Time) to 20 th February 1998 (at noon Greenwich Mean Time) and a maximum of 35% of the net premium income written under the Master Lineslip Facility in the name of Lloyd Thompson Limited and or David Gyngell and Company Limited in respect of declarations attaching during the period 20 th February 1997 (at noon Greenwich Mean Time) to 20 th February 1998 (at noon Greenwich Mean Time) .
BROKERAGE: 15% applicable to deposit premium and minimum rate."
The brokerage clause is in similar terms in the other reinsurance contracts.
The judge held that the reinsurance broker defendants before him (the appellants before us) were not entitled to 15% brokerage on both the deposit premium and the minimum premium (or rate) payable to reinsurers, but only on the deposit premium as it became payable and on the minimum premium as the premium came to be adjusted, taking into account the deposit premium already paid. In the light of this conclusion the preliminary issue could perhaps be better phrased by substituting in (b) the words "the minimum premium after adjustment" for the words "the total adjusted premium", but it is agreed that nothing turns on the precise formulation of the issue.
The brokers now appeal and, on their behalf, Miss Rebecca Sabben-Clare submits:-
(1) the natural and ordinary meaning of the word "and" is conjunctive and cumulative so that the applicable rate must be applied to both of the elements joined by the word "and";
(2) that is the end of the matter unless the reinsured can show that the natural and ordinary meaning cannot have been intended by the parties because e.g. it makes no commercial sense or much less commercial sense than the natural and ordinary meaning;
(3) in any event, the natural and ordinary meaning makes better sense than reinsured's meaning because
(a) it would neutralise or smooth out what she called the large "swing" between the minimum of 10% and the maximum of 35% of net premium income of the reinsured on which reinsurers' premium was to be calculated; and
(b) the brokers would otherwise be relatively under-remunerated in a soft market.
Mr David Edwards on behalf of the reinsured submits:-
(1) it is not a proper process of construction to look at one clause of a contract and determine the natural and ordinary meaning of the clause, apart from its context in the contract as a whole;
(2) once one reads the brokerage clause in its context, particularly in the context of the premium clause, one sees that the parties to the contract agreed to pay premium in separate parts, a "deposit" part and an "adjusted" part; the "adjusted" part is subject to a minimum and a maximum limit; the "deposit" part is payable up front and the "adjusted" part takes into account the "deposit" part already paid;
(3) it cannot have been intended that while the reinsured should pay the deposit premium as part of the premium as a whole, the reinsured's brokers should be entitled to be paid commission on the deposit premium twice;
(4) consideration of under- or over-remuneration or the softness or the hardness of the market should play no part on a question of construction but, if they did, the brokers' overall position was that they were well (and, certainly, sufficiently) remunerated.
It is a curiosity of the law relating to insurance and reinsurance brokers that such brokers procure their remuneration by negotiation with the insurers or reinsurers and not by arrangements with their own principals who are the insured or the reinsured. In the first instance, at any rate, the insured or reinsured will usually not be told and will not know what part of the insurance premium will be collected by the broker by way of commission. All that the insured or reinsured will know is the amount of premium which he has to pay which will be inclusive of the brokers' remuneration, see Great Western Insurance Co v Cunliffe (1874) LR 9 Ch App 525. The premium will normally be paid by the insured or reinsured to the broker who will then normally pass the premium to the insurer or reinsurer after deducting his commission. In the present case the judge made no findings about any deduction of commission and we do not know how much (if any) of the reinsurance premium the brokers sought to deduct. All we know is that, in the context of a much larger dispute than is apparent to us, the accounting position between the brokers and their principals is such as to allow the brokers to assert vis-à-vis the reinsured Syndicate (their principals) that, before accounting to their principals for sums due, they are entitled to deduct sums equal to an amount...
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