Group Josi RE (formerly Groupe Josi Réassurance S.A.) v Walbrook Insurance Company Ltd

JurisdictionEngland & Wales
Judgment Date02 October 1995
Judgment citation (vLex)[1995] EWCA Civ J1002-1
Docket NumberFC3 95/6364/B
CourtCourt of Appeal (Civil Division)
Date02 October 1995
Group Josi Re
Plaintiffs (Appellants)
and
Walbrook Insurance Co Ltd & Ors.
Defendants (Respondents)

[1995] EWCA Civ J1002-1

Mr. Justice Clarke

Before: Lord Justice Staughton Lord Justice Rose Lord Justice Saville

FC3 95/6364/B

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE ORDER OF

MR. A. BARTLETT QC AND M. M. EGAN (Instructed by Cameron Markby Hewitt, Sceptre Court, 40 Tower Hill, London, EC3N 4BB) appeared on behalf of the Appellants Plaintiffs.

MR. K. ROKISON QC AND D. JOSEPH (Instructed by Freshfields, 65 Fleet St, London, EC4Y 1HS) appeared on behalf of the Respondents Defendants.

1

Staughton LJ

2

The plaintiffs are a Belgian reinsurance company ("the Reinsurers"), not authorised to carry on insurance business in Great Britain under the Insurance Companies Act 1974, or for that matter under the Insurance Companies Acts of 1981 and 1982. Fourteen of the defendants are insurance companies which were so authorised. They have been called "the Stamp Companies" because they had authorised the remaining defendants, H.S. Weavers (Underwriting) Agencies Ltd ("Weavers") to conduct insurance business on their behalf, and that was apparently done by using a stamp of rubber or similar material with all their names on it. It is not suggested that all the insurance business of the Stamp Companies was carried on through Weavers, but only some part of it.

3

The action is concerned with reinsurance contracts concluded in the period 1974 to 1976, between the Stamp Companies and the Reinsurers, through the agency of Weavers. There is a dispute as to whether the contracts were concluded in London, or in Holland. That is said to depend on whether the formal acceptance of the business in Holland involved any decision making, or whether in reality it had already been accepted by agents of the Reinsurers in London. The affidavit evidence on behalf of the Reinsurers is that the acceptance was in London. To that there is as yet no evidence in answer on behalf of the Stamp Companies. It is said that they have no direct knowledge of where the Reinsurers' decisions were taken; and will have to probe the Reinsurers' case by interrogatories, discovery of documents and cross-examination. If the Reinsurers turn out to be right in saying that the contracts were made in London, then the Reinsurers say that they were and are illegal.

4

A second and alternative attack is that the reinsurance contracts have been avoided for non-disclosure. It is said that Messrs Driver, Henry Weavers and Wilson were respectively the chairman, deputy chairman and managing director of Weavers; and were defrauding their principals, the Stamp Companies, by taking an overriding commission from the Reinsurers for their own benefit instead of crediting it to the Stamp Companies. From there it is alleged that the fraud of Weavers was a material circumstance which ought to have been disclosed when the reinsurance contracts were made, and was not. This of course raises very similar issues to those that arose in the case of PCW Insurers v. The PCW Reinsurers, in which we gave judgment last July.

5

A third onslaught is based on misrepresentation. It is said that Weavers, on behalf of the Stamp Companies, represented that they intended to credit the Stamp Companies with the overriding commission, whereas in fact they or their three officers intended to keep it for themselves.

6

Fourth-and-lastly, it is argued that there is a constructive trust affecting the money in dispute, which has the effect of conferring a proprietary right to it on the Reinsurers.

7

In point of form the principal claim in the action is for an injunction to restrain the defendants from presenting documents for payment under two letters of credit. It would seem that the Stamp Companies, or Weavers on their behalf, retained part of the premium due on the reinsurance contracts as a reserve against claims. Then there came a time when the Reinsurers argued that the money should be in their hands until such time as the claims did (or did not) materialise. It was agreed that the money would be paid to the Reinsurers, who would open

8

letters of credit. That was done. The letters of credit, issued by Chase Manhattan in London, provide for payments on presentation of

9

Your sight drafts on us to be accompanied by your Debit Notes covering the liability for outstanding loss reserves under your umbrella quota share facilities.

10

At first instance the proceedings took place in two stages. Clarke J. dealt with the case based on illegality. He gave judgment for the defendants and against the Reinsurers on 21st December 1993. The second stage came before Phillips J, whose

11

judgment (also for the defendants) was given on 21st April 1994. Nevertheless there has been an interlocutory injunction pending the hearing of these appeals. The Reinsurers were granted leave to appeal against the decision of Clarke J; their application for leave to appeal against the decision of Phillips J was referred to the full court, and we have since granted it.

12

Parallel and consolidated proceedings by Deutsche Ruckversickering against the defendants have been settled.

13

There were two aspects of the proceedings before Clarke J. The first was the trial of a preliminary issue which he had ordered. In substance the issue was whether, on the facts alleged in the Points of Claim and in some part of the Reinsurers' evidence, the letters of credit were illegal, or tainted with illegality by reason of the illegality of the reinsurance contracts. The judge answered that they were not. Secondly, the judge had to decide whether an injunction granted ex parte until trial by Colman J. should be discharged. That was an injunction restraining the Stamp Companies and Weavers from presenting a claim for payment under the letters of credit. On this second aspect of the proceedings the judge was again in favour of the defendants, so far as concerned the possible effect of illegality on the letters of credit. But in point of form he adjourned the application for discharge of the injunction, pending the consideration of a new plea, that the reinsurance contracts had been avoided for non-disclosure. In the event that issue came before Phillips J. some months later. That too was decided in favour of the Stamp Companies and Weavers.

14

It will be noticed that the preliminary issue fell to be decided as a question of law on assumed facts. The question whether the injunction should be discharged, on the other hand, is an interlocutory problem to be considered on familiar principles to which I shall return.

15

There are eight issues:

16

(1)Do the Reinsurers have a cause of action sufficient to justify an injunction?

17

(2)Can the Reinsurers bring this action when it involves asserting their own illegality?

18

(3)What is the level of proof required for the grant of an interim injunction in a letter of credit case?

19

(4)Has there been non-disclosure sufficient to justify avoidance of the reinsurance contracts, or misrepresentation?

20

(5)If so, would a claim on the letters of credit be clearly fraudulent?

21

(6)Can a letter of credit be affected by illegality of the underlying transaction?

22

(7)Is there illegality of the reinsurance contracts in this case?

23

(8)Is there a constructive trust, and do the Reinsurers have a proprietary right?

24

I shall consider those issues in turn, although in the event it is not necessary to reach a conclusion on all of them.

25

(1) Do the Reinsurers have a cause of action?

26

In the consolidated three-times-amended Points of Claim, the Reinsurers seek declarations, an injunction, delivery up of the letters of credit and other relief. The claim is, on this occasion, not against the Chase Manhattan Bank but against the beneficiaries of the letters of credit.

27

The argument that the Reinsurers have no cause of action was not raised below; nor was it raised in this court until on the suggestion of Saville LJ it was adopted by Mr Rokison for the defendants. Nor, for that matter and as far I can see, has it ever been raised in the many cases where an injunction has been sought to restrain payment under a letter of credit, with an exception. That is United Trading Corporation v. Allied Arab Bank Ltd (1985) 2 Q.R. 554. There Ackner LJ said (at p. 559):

28

"It is common ground that the Courts can only intervene by way of injunction in order to prevent the alleged breach of a legal duty owed by the defendant to the plaintiff, or by way of ancillary relief required by a party to proceedings who asserts a cause of action against the other party. See The Siskina, [1978] 1 Lloyd's Rep. 1; [1979] A.C. 210 at pp. 6 and 256 where Lord Diplock said:

29

…The right to obtain an interlocutory injunction is merely ancillary and incidental to the pre-existing cause of action …

30

see also The Chief Constable of Kent & Others v. V., [1983] 1 Q.B. 34 at pp. 45 and 49.

31

The court went on to hold (at p. 560) that it was

32

arguable that a bank owes a duty of care to the party ultimately liable at the end of the chain not to pay out on a performance bond if, on the information available to it, there is clear evidence that the beneficiary's demand is fraudulent, because it is the party at the end of the chain who may have to bear the ultimate loss.

33

On the other hand in Elian & Rabbath v. Matsas (1966) Q.R. 495 the Court of Appeal granted an injunction to restrain the beneficiaries of a guarantee from enforcing it, without any apparent consideration of the plaintiffs' cause of action. That case was not about a letter of credit or a performance bond, but merely an ordinary guarantee. But if a cause of action...

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