Group Josi Re v Walbrook Insurance Company Ltd
| Jurisdiction | England & Wales |
| Judge | Staughton,Rose,Saville L JJ |
| Judgment Date | 02 October 1995 |
| Court | Court of Appeal (Civil Division) |
| Date | 02 October 1995 |
Court of Appeal (Civil Division)
Staughton, Rose and Saville L JJ.
Andrew Bartlett QC and Marion Egan (instructed by Cameron Markby Hewitt) for the reinsurers.
Kenneth Rokison QC and David Joseph (instructed by Freshfields) for the defendants.
The following cases were referred to in the judgments:
Alan (W J) & Co Ltd v El Nasr Export & Import CoELR [1972] 2 QB 189.
American Cyanamid Co v Ethicon LtdELR [1975] AC 396.
Bates & Ors v Robert Barrow Ltd & Ors [1995] CLC 207.
Bedford Insurance Co Ltd v Institute de Resseguros do BrasilELR [1985] QB 966.
Belmont Finance Corp Ltd v Williams Furniture Ltd & OrsELR [1979] Ch 250.
Blackburn, Low & Co v VigorsELR (1887) 12 App Cas 531 (HL).
Bolivinter Oil SA v Chase Manhattan Bank NA & AnorUNK [1984] 1 Ll Rep 251.
Bowmakers Ltd v Barnet Instruments LtdELR [1945] KB 65.
Deutsche Ruckversicherung Aktiengesellschaft v Walbrook Insurance Co Ltd [1994] CLC 415; [1995] 1 WLR 1017.
Doug Jin Metal Co Ltd v Raymet Ltd (unreported, 13 July 1993, CA).
DR Insurance Co v Seguros America BanamexUNK [1993] 1 Ll Rep 120.
Elian & Rabbath v Matsas & Matsas & OrsUNK [1966] Ll Rep 495.
Euro-Diam Ltd v BathurstELR [1990] 1 QB 1.
Fothergill v Monarch Airlines LtdELR [1981] AC 251.
Hampshire Land Co, ReELR [1896] 2 Ch 743.
Intraco Ltd v Notis Shipping CorpUNK [1981] 2 Ll Rep 256.
IR Commrs v Ayrshire Employers Mutual Insurance Association LtdUNK [1946] 1 All ER 637.
M (a minor),[1994] 2 AC 424.
Meridian Global Funds Management Asia Ltd v Securities CommissionUNK [1995] BCC 942 [1995] 2 AC 500.
Owen (Edward) Engineering Ltd v Barclays Bank International LtdELR [1978] QB 159.
PCW Syndicates v PCW Reinsurers [1995] CLC 1,517:
Phoenix General Insurance Co of Greece SA v Halvanon Insurance Co LtdELR [1988] QB 216.
Proudfoot v MontefioreELR (1867) LR 2 QB 511.
Themehelp Ltd v West & Ors [1995] CLC 703; [1995] 4 All ER 215.
Tinsley v MilliganELR [1994] 1 AC 340.
United City Merchants (Investments) Ltd v Royal Bank of CanadaELR [1983] 1 AC 168.
United Trading Corp SA v Allied Arab Bank LtdUNK [1985] 2 Ll Rep 554.
Insurance — Reinsurance — Reinsurer not authorised to carry on insurance business in Great Britain — Avoidance for non-disclosure — Fraud on principal by agent of insured — Whether fraud to be disclosed by agent to principal “in ordinary course of business”— Whether knowledge of fraud to be imputed to principal — Alleged misrepresentation by assured as to commission — Whether reinsurer entitled to avoid policy for non-disclosure and misrepresentation of agent's fraud on principal — Whether contract illegal, void and unenforceable because reinsurer not authorised to carry on insurance business in Great Britain — Marine Insurance Act 1906, s. 18, 19; Financial Services Act 1986, s. 132(6).
This was an appeal by reinsurers concerning the enforceability of reinsurance contracts.
The plaintiffs, a Belgian reinsurance company (“the reinsurers”), were not authorised to carry on insurance business in Great Britain under the Insurance Companies Acts 1974 to 1982. Fourteen of the defendants (“the stamp companies”) were insurance companies which were so authorised. The stamp companies authorised the remaining defendants (“Weavers”) to conduct insurance business on their behalf. Reinsurance contracts were concluded between 1974 and 1976 between the stamp companies and the reinsurers through the agency of Weavers. In 1983 Weavers paid to the reinsurers certain loss reserves held in respect of reinsurances under those contracts, in return for which the reinsurers arranged for the opening of letters of credit for those loss reserves. In order to draw down on the letters of credit Weavers had to submit debit notes stating that the reinsurers were liable for the amounts in question under the contracts.
The reinsurers sought to avoid the reinsurance contracts for non-disclosure, alleging that certain officers of Weavers defrauded 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. The fraud of Weavers was said to be a material circumstance within s. 18 of the Marine Insurance Act 1906 which ought to have been disclosed when the reinsurance contracts were made, and was not. The reinsurers further alleged misrepresentation by Weavers as to the overriding commission, and that the money was affected by a constructive trust which conferred a proprietary right to it on the reinsurers. Further the reinsurers asserted that the reinsurance contracts they made through Weavers with the stamp companies were illegal, void and unenforceable because the reinsurers themselves were not authorised to carry on insurance business under the Insurance Companies Act 1974. The reinsurers applied for an injunction to restrain the defendants from presenting documents for payment under two letters of credit, declarations and delivery up of the letters of credit.
The issues were decided in favour of the defendants in December 1993 by Clarke J and in April 1994 by Phillips J, who discharged an injunction granted ex parte. The reinsurers appealed.
Held, dismissing the appeals:
1. The fraud by officers of Weavers on their principals, the stamp companies, was not a material circumstance which those companies ought to have known and which ought to have been disclosed to the reinsurers in the ordinary course of business within s. 18 of the 1906 Act. The reinsurers were accordingly not entitled to avoid the contracts for non-disclosure of the fraud. (Per Rose and Saville L JJ) Since innocent brokers were employed to effect the reinsurances, neither the fraudsters nor Weavers were agents to insure within s. 19 of the 1906 Act.
2. There was insufficient evidence that a material misrepresentation as to the intention to pay overriding commission to the stamp companies rather than to Weavers was made, still less relied on by the reinsurers, for the reinsurers to succeed.
3. The purpose of s. 132(6) of the Financial Services Act 1986 was to prevent insurers and reinsurers from refusing to pay claims merely because they were carrying on unauthorised insurance business. It followed that although the contracts when entered into were illegal, s. 132(6) rendered the performance of those contracts by the reinsurers no longer illegal. The beneficiaries were accordingly entitled to draw down on the letters of credit.
Per curiam (Staughton LJ) A bank was entitled and bound to pay on presentation of apparently conforming documents under a letter of credit, unless at the time of presentation the demand of the beneficiary was clearly fraudulent. An interlocutory injunction would therefore not be granted to restrain a beneficiary from presenting documents to a bank for payment under a letter of credit, unless the demand of the beneficiary was clearly fraudulent.
Per curiam (Staughton LJ) Illegality was a separate ground from fraud for the purposes of non-payment under a letter of credit. If it were clearly established that the reinsurance contracts were illegal and the letters of credit were being used as a means of paying sums due under those contracts, the courts would restrain the bank from making payment or the beneficiary from demanding it, because the letters of credit were being used to carry out an illegal transaction.
Staughton LJ: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.
The action is concerned with reinsurance contracts concluded in the period 1974-1976, 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.
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 Syndicates v PCW Reinsurers[1995] CLC 1,517, in which we gave judgment last July.
A third onslaught is based on misrepresentation. It is said that...
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