Jaffray and Others v Society of Lloyd's
| Jurisdiction | England & Wales |
| Judge | Lord Justice Waller |
| Judgment Date | 26 July 2002 |
| Neutral Citation | [2002] EWCA Civ 1101 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case Nos: A3/2000/3863A; A3/2000/3863B; A3/2001/2013/A; A3/2002/0069; A3/2002/0069B; A3/2002/0069C; A3/2000/3863; A3/2001/0162; A3/2001/0957; A3/2001/1913; A3/2001/2013; A3/2001/0163 |
| Date | 26 July 2002 |
Lord Justice Waller
Lord Justice Robert Walker and
Lord Justice Clarke
Case Nos: A3/2000/3863A; A3/2000/3863B; A3/2001/2013/A; A3/2002/0069; A3/2002/0069B; A3/2002/0069C; A3/2000/3863; A3/2001/0162; A3/2001/0957; A3/2001/1913; A3/2001/2013; A3/2001/0163
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
(CRESSWELL J)
Mr Simon Goldblatt QC and Mr Vincent Nelson QC (instructed by More Fisher Brown) for certain of the appellants
Mr Gordon Nardell and Mr Giles Richardson (instructed by Grower Freeman) for others of the appellants
Sir William Jaffray Baronet, Mrs Heather Adams, Mr Sydney Butler, Mr Richard Carter, Mr Cary Harrison and Mrs Ann Strong appeared in person
Mr Charles Aldous QC, Mr Richard Jacobs QC and Mr David Foxton (instructed by Freshfields) for the respondent
Mr Colin Edelman QC (instructed by Barlow, Lyde & Gilbert) appeared on behalf of Equitas (intervening)
Index to the judgment
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|
| paragraphs |
| I INTRODUCTORY | Overview …………………………………………………….. | 1 to 14 |
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| The threshold fraud issue ……………………………….. | 15 to 30 |
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| The judgment below ………………………………………. | 31 to 48 |
| II LEGAL ISSUES | The tort of deceit ……………………………………………. | 49 to 69 |
|
| Corporate knowledge, intention and bad faith ……. | 70 to 74 |
|
| Approach of the Court of Appeal ………………… | 75 to 79 |
| III THE FACTS | The claimants and their witnesses …………………….. | 80 to 95 |
|
| Working members of the Lloyd's community ……. | 96 to 122 |
|
| Chronological summary: before 1982 ……………….. | 123 to 148 |
|
| Chronological summary: 1982 …………………………. | 149 to 180 |
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| The Lloyd's Act 1982 …………………………………….. | 181 to 201 |
|
| Chronological summary: 1983–8 ……………………… | 202 to 266 |
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| Chronological summary: since 1988 ………………… | 267 to 284 |
| IV THE ALLEGED REPRESENTATIONS | Recapitulation of pleaded case ………………………… The brochures ……………………………………………….. The judge's reasoning ……………………………………. Representations as to the audit system …………….. The globals …………………………………………………… | 285 to 287 288 to 297 298 to 308 309 to 325 326 to 343 |
| V THE AUDIT SYSTEM: WAS THE REPRESENTATION TRUE? | Introduction ………………………………………………….. Reserves and RITC ……………………………………….. Solvency ……………………………………………………… Conclusions …………………………………………………. | 344 345 to 362 363 to 373 374 to 378 |
| VI LLOYD'S STATE OF MIND | Introduction ………………………………………………….. Before Neville Russell letter …………………………… After Neville Russell letter ……………………………… The names' case (summary and discussion) …….. Lloyd's case ………………………………………………….. Conclusions as to 1982 …………………………………… Evidence as to 1983–8 ……………………………………. Discussion as to 1983–8 …………………………………. Conclusions as to 1983–8 ……………………………….. General Conclusions ……………………………………… | 379 380 to 385 386 to 390 391 to 409 paragraphs 410 to 426 427 to 432 433 to 471 472 to 474 475 to 480 481 |
| VII RELIANCE AND INDUCEMENT VIII FAIR TRIAL | ………………………………………………………….. Introduction ………………………………………………….. Correct approach …………………………………………… The Alleged unfairness …………………………………… The Relevant circumstances ……………………………. Unacceptable pressure ……………………………………. The Documents: disclosure and trial bundles …….. Redaction and relevance ………………………………… Confidentiality: general ………………………………….. Attorney's reports ………………………………………….. Equitas reserving figures ……………………………….. Finality statements ………………………………………… LUNMA minutes ………………………………………….. Adverse inferences ……………………………………….. Witness statements ……………………………………….. Timetable for final submissions ………………………. Role of litigants in person ………………………………. Disregard of submissions of litigants in person…. Relationships between Lloyds, Equitas & LUNMA Conclusions on fair trial …………………………………. | 482 to 484 485 486 to 495 496 to 497 498 to 510 511 to 518 519 to 526 527 to 529 530 to 535 536 to 537 538 to 550 551 to 554 555 to 560 561 to 569 570 to 571 572 to 574 575 to 577 578 to 579 580 to 582 583 to 586 |
| IX CONCLUSIONS | …………………………………………………………………….. | 587 to 589 |
I INTRODUCTORY
Overview
This is the judgment of the court (to which we have all made a substantial contribution) on an appeal from an order of Cresswell J made in the commercial court on 3 November 2000. The judge decided what has become known as the threshold fraud issue (described below) adversely to the claimant names. He refused permission to appeal but permission on limited grounds was granted by this court on 8 October 2001, with the rest of the application for permission to appeal being adjourned to the appeal hearing.
It is easy to understand the depth of feeling of those names who became members of Lloyd's between 1977 and 1987. They joined Lloyd's at a time when there were many syndicates infected with asbestos-related risks which were persistently underestimated. The procedure at Lloyd's was that each year's accounts were, at the end of a three-year period, closed into the next year's accounts. The effect was that the new names inherited losses of massive proportions.
Policies written in the fifties and sixties were coming alive again. Claims were being made in the 1970s and for many years thereafter by persons who suffered from cancer and other diseases caused by inhalation of asbestos during the 1940s and 1950s. Those claims were succeeding against producers and producers were claiming on policies written long before the names ever became members of Lloyd's. Lloyd's syndicates were claiming on reinsurances taken out with other Lloyd's syndicates long before the names became members. Courts in the United States were apparently holding producers liable on any basis that gave the claimant the best prospect of succeeding in his or her claim, and were allowing producers to succeed on claims under their policies on any basis that would lead to insurers or reinsurers having to pay.
The names say that by the time they joined Lloyd's it was known by those in the market and at the centre of Lloyd's that there were unquantifiable but potentially massive losses in the pipeline for which proper reserves had never been made, and about which the names were not warned. Indeed they say they were given the impression that all was under control and properly reserved for.
Many actions have been brought against members' agents and managing agents, and indeed against auditors. Some have succeeded by compromise or at trial, although not always with full recovery. The thrust of the actions has been to allege that the names were exposed to these losses only because of bad underwriting or poor advice and (so far as both the underwriters and the auditors are concerned) through failures relating to the RITC (reinsurance to close). It is said either that the premiums paid on reinsurances to close were totally inadequate in various years or that the reality was that certain years should never have been closed, leaving the names on those years to suffer the losses but not new names.
Attempts have also been made to render the Corporation of Lloyd's itself liable. Previous decisions have established first that there is no room for the imposition on Lloyd's of a duty of care by statute or common law, and second that there is no room for the implication of terms in the contract between Lloyd's and names who became external members of Lloyd's. See Ashmore v Corporation of Lloyd's [1992] 2 Lloyd's Rep. 620; Ashmore v Corporation of Lloyd's (No 2) [1992] 1 WLR 446; and Society of Lloyd's v Clementson and v Mason [1994] CLC 71; [1995] CLC 117.
In this action what is in issue is whether Lloyd's are liable for making fraudulent misrepresentations. It is a fact to which the judge referred that the major part of the Lloyd's litigation has been settled by the R&R Settlement (see paragraphs 280ff below), and this action is brought by a limited number of names that have refused to accept that offer. We stress that no inference should be drawn against the names who have chosen to continue with this action from any refusal to accept that offer, and indeed we do not understand Lloyd's (through Mr Charles Aldous QC) to be suggesting that it should.
What is alleged (putting it shortly) is that in brochures issued by Lloyd's and in global accounts ("globals") issued by Lloyd's certain representations were made as to the quality of the Lloyd's regulatory procedures and in particular the audit procedures described in the brochures as "rigorous". It is alleged that the names relied on those representations in making their decisions to join Lloyd's, and in their decisions to remain members and/or increase their underwriting capacity. It is alleged that those representations were untrue. Lloyd's (it is said) did not have the quality of regulatory procedures, and in particular auditing procedures, which it was asserting it had. Furthermore it is said that those making the representations appreciated that fact.
The key to the names' case is a letter, "the Neville Russell letter", written on behalf of a number of panel auditors on 24 February 1982. It will be necessary to look at that letter in detail, but for the present it is enough to set out the penultimate paragraph which said:—
"We consider that the impossibility of determining the liability in respect of asbestosis falls into this category [ie requires to be reported to the Committee] and we accordingly ask for your instructions in this respect."
The names say that that letter establishes that it was in 1982 "impossible" to close accounts fairly because of the totally unquantifiable impact of asbestosis. The names say...
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