Hih Casualty and General Insurance Ltd and Others (Claimants) The Chase Manhattan Bank and Others (Defendants) The Chase Manhattan Bank (Claimants) Hih Casualty and General Insurance Ltd and Others (Defendants) The Chase Manhattan Bank (Claimants) Hih Casualty and General Insurance Ltd and Others (Defendants) Hih Casualty and General Insurance Ltd and Others (Claimants)
| Jurisdiction | England & Wales |
| Judge | The Hon. Mr. Justice Aikens |
| Judgment Date | 31 July 2000 |
| Judgment citation (vLex) | [2000] EWHC J0731-23 |
| Date | 31 July 2000 |
| Court | Queen's Bench Division (Administrative Court) |
| Docket Number | Claim No. 1999 Folio 1413 Claim No. 2000 Folio 00015 |
[2000] EWHC J0731-23
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
The Hon. Mr. Justice Aikens
Claim No. 1999 Folio 1413
Claim No. 1999 Folio 1443
Claim No. 2000 Folio 00015
Colin Edelman QC and David Edwards instructed by Morgan Lewis & Bockius appeared on behalf of Chase Manhatten Bank
Christopher Butcher instructed by Eversheds appeared on behalf of Heath North America and Special Risks Limited and Heath Insurance Broking Limited
Jeremy Cooke QC and James Drake instructed by CMS Cameron McKenna appeared on behalf of HIH Casualty and General Insurance Limited and Others.
I direct pursuant to CPR Part 39 P.D. 6.1. that no official shorthand note shall be taken of this judgment and that copies of this version as handed down may be treated as authentic.
I have to determine three Preliminary Issues that were ordered to be heard by Longmore J on 4 April 2000. The issues arise in three consolidated actions. 1 The First Action was brought by HIH Casualty and General Insurance Limited and other insurers ("HIH") 2 of financial contingency insurance written for the benefit of the first defendants, Chase Manhattan Bank ("Chase") . Chase acted as agent for all the other lenders who, with Chase, participated in a loan syndicate to provide finance for the production of five films. The second and third defendants in the First Action ("Heaths") are the brokers who were concerned in the negotiations in 1996 leading to the insurance. The insurers issued a line slip facility which, as everyone agrees, was a contract for insurance, rather than a contract of insurance as would be the case with individual policies. Under this line slip three declarations were made by off—slips in respect of three of the five films: "Amy Foster"; "U-Turn" and "Apt Pupil". In the First Action HIH claims to be entitled to avoid or rescind the line slip facility and/or the declarations made under that facility because of non—disclosure and misrepresentations made by Heaths in the course of the negotiations. HIH have alleged that these non-disclosures and misrepresentations were fraudulent or negligent. HIH also claims, in the alternative, damages from both Chase and Heaths for the alleged non-disclosures and misrepresentations.
The Second and Third Actions were brought by Chase against HIH. They concern separate policies of financial contingency insurance that were issued in respect of two of the five films: "The Mirror Has Two Faces" and "The People vs Larry Flynt". In those Actions Chase claims an indemnity under the two policies. The total sum claimed in those actions is about US16.5 million.
The Preliminary Issues to be tried in the consolidated action are as follows:
"On the true construction of the contracts of or for insurance pleaded in the Particulars of Claim No 1999 Folio 1413 and on the assumption that the facts and matters pleaded in those Particulars of Claim are true, are the Claimants (HIH) entitled:
(a) to avoid and/or rescind the contracts of or for insurance against the First Defendants (Chase) ; and/or
(b) to damages from the First Defendants (Chase) for misrepresentation or non—disclosure; and/or
(c) to damages from Heaths for non—disclosure".
The trial of these Preliminary Issues took place on 26—28 June 2000. I heard oral submissions from Counsel for Chase, HIH and Heaths, in addition to the substantial and very helpful Written Submissions that had been made. In the course of the written and oral submissions I was referred to some 50 authorities. I reserved judgment.
(A) The Background Facts
The following facts are summarised principally from the Amended Particulars of Claim of HIH:
(1) Phoenix Pictures Inc ("PPI") was a film production company operating in the USA. In late 1994 and early 1995 PPI had discussions with Mr Graham Bradstreet in the hope that Mr Bradstreet would assist in obtaining insurance backed finance for PPI's proposed film productions. PPI intended to finance its productions by bank loan facilities. These loans would be repaid from revenues created by the exploitation of the films produced. It was intended that the repayment of the loans made by the lending banks would be insured by a form of insurance known as "time variable contingency" or "TVC" insurance.
(2) That type of insurance had been developed by a company called Screen Partners Limited ("SPL") , which Heaths knew and had worked with since 1992. The use of TVC insurance to cover the risk of lending banks being unable to recover loans made to finance films had been developed by SPL and Heaths in 1992. Such insurance had been placed in the London insurance market since 1992 and in the international market since 1995.
(3) On about 7 July 1995 Mr Bradstreet, through his wholly owned company Premier Media Limited ("PML") reached an agreement with PPI by which PML proposed to assist in financing up to 38 of PPI's films (over 5 years) by "procuring the issuance of a time variable contingency policy brokered through CE Heath (Insurance Broking) Limited".3 (HIH say, although this may be the subject of argument, that this agreement made PML contractually responsible for obtaining the contingency insurance in respect of the films, for which PML would be paid a fee. Heaths were paid the "PML fee" which would include the premium payable to the financial contingency insurers) . The agreement contemplated that the insurance would be broked through Heaths.
(4) HIH allege that PML were the agents of the insureds for the purpose of obtaining the insurance. But HIH also alleges that PML, Mr Bradstreet and SPL were at various times acting as the risk managers for the Insurers and so were their agents, although at the time of the placements SPL had been removed from that position.
(5) Therefore, HIH alleges, there was a clear conflict of interests in the position of PML and Mr Bradstreet, as to which the Insurers did not give their informed consent and which was not disclosed to them.
(6) Pursuant to the PPI/PML agreement Heaths were retained as brokers. The wrote to PPI confirming that they would procure the TVC insurance on the terms indicated in the PPI/PML agreement. HIH have alleged that Heaths broked the contracts of or for insurance on the basis that they were the same as the TVC insurance that Heaths had broked in 1992 and subsequent years.
(7) The slip that was subsequently made the subject of Policy No 614/NKA/118A for the film "The Mirror Has Two Faces" was signed by HIH in June 1996 and other Claimants in June to September 1996.
(8) The line slip facility was signed by HIH in June 1996 and by other Claimants in the period June to September 1996. That was subsequently made the subject of Policy No 614/OL077A. Thereafter three declarations for the three films mentioned above were made in September and December 1996 and February 1997.
(9) In October 1996 HIH signed the slip in respect of the film "The People vs Larry Flynt". That slip was subsequently made the subject of Policy No 614/NKA/119A.
(10) Although the policy wording for each of the three policies is not identical, it was broadly in the same terms in respect of the following clauses:
(a) The Insured: This was identified as being Chase, for itself and as agent for the lenders from time to time under the relevant Loan Agreement; 4
(b) The Insuring Clause: This stated that the Policy was to indemnify the Insured for their "Ascertained Net Loss" in respect of the Film Production that was the subject of the policy or the declaration(s) , up to a certain limit "in consequence of their incurring Time Variable and/or Contingent Expenses as defined within this policy".
(c) "Ascertained Net Loss": This was stated to mean the "Time Variable" and/or "Contingent Expenses" that were "outstanding and unpaid on the Claim Determination Date" after various deductions. This meant, broadly, that if the insured banks had not recovered their loans from revenues engendered by the films the subject of the policies by a certain date ("the Claim Determination Date", then they could claim those amounts under the policies up to the "Sum Insured".5
The details of the financing arrangements between Chase and those involved in the proposed films are not dealt with in the Amended Particulars of Claim. However in order to understand the whole commercial background it is necessary to refer to the contracts, which were put in the bundles for the hearing and referred to by Chase without serious objection from HIH.
(1) TriStar Pictures Inc ("Tristar") owned the distribution rights to the film "The Mirror Has Two Faces". It entered into a Revenue Participation Agreement ("RPA") with Elmwood Films Inc ("Elmwood") dated 31 October 1996. Under the RPA Elmwood purchased the right to receive revenues from the film "The Mirror Has Two Faces" (referred to as the "First Film" in the RPA) from Tristar. The purchase price was to be paid for by permitting Tristar to draw down on a Letter of Credit facility that Elmwood had made with Chase under the terms of what is referred to as the " First Picture Reimbursement and Loan Agreement". A copy of the terms of that agreement is exhibited to the RPA.
(2) In the same RPA the parties also agreed to a similar arrangement in relation to the film "The People vs Larry Flynt", referred to in the RPA as "the Second Film". The RPA contemplated that Elmwood would procure from Chase a...
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