Limit No. 2 Ltd v Axa Versicherung AG (formerly Albingia Versicherung AG)
| Jurisdiction | England & Wales |
| Judge | Lord Justice Longmore,Lord Justice Jackson,Lord Justice Ward |
| Judgment Date | 12 November 2008 |
| Neutral Citation | [2008] EWCA Civ 1231 |
| Docket Number | Case No: A3/2007/2741(B), A3/2007/2741(Z) & A3/2007/2741 |
| Court | Court of Appeal (Civil Division) |
| Date | 12 November 2008 |
[2008] EWCA Civ 1231
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
JONATHAN HIRST QC (SITTING AS A DEPUTY HIGH COURT JUDGE)
Royal Courts of Justice
Strand, London, WC2A 2LL
The Right Honourable Lord Justice Ward
The Right Honourable Lord Justice Longmore and
The Right Honourable Lord Justice Jackson
Case No: A3/2007/2741(B), A3/2007/2741(Z) & A3/2007/2741
2005FOLIO614
Mr Gavin Kealey QC & Mr Peter MacDonald-Eggers (instructed by Clyde & Co) for the Appellant
Mr Nicholas Hamblen QC & Mr Charles Kimmins (instructed by Kennedys) for the Respondent
Hearing dates : 13 th & 14 th October 2008
Lord Justice Longmore:
Introduction
This is a salutary tale about two fac/oblig treaties of reinsurance, relating to construction and operating risks in connection with oil rigs. The first treaty was written for initially twelve months from 1 st July 1996 and then extended (by an endorsement of 20 th June 1997) for a further 7 months to 31 st January 1998; the second treaty was written for twelve months thereafter up to 31 st January 1999. The reassured were syndicates at Lloyd's, the reinsurers a German company, Albingia, now taken over by the Axa group. I shall refer to them as “the syndicates” and “reinsurers” respectively.
The deputy judge has held that reinsurers were entitled to avoid these treaties because the syndicates' brokers, Newman Martin and Buchan Ltd (“NMB”) attached a front cover to the draft slip and information sheet provided by the syndicates for the purpose of placing the reinsurances. On 4 th July 1996 NMB faxed a bundle of 43 pages (including that front cover) to reinsurers. On that front cover sheet NMB, referring to the syndicates, said:-
“As a matter of principle they maintain high standards and would not normally write construction unless the original deductible were at least £500,000 and preferably £1,000,000.”
The treaties turned out badly for reinsurers who in 2005 procured a Mr Jim Hunt to conduct an inspection of the relevant records of risks which were ceded to the treaties. He found that most of the relevant risks ceded by the syndicates had deductibles considerably lower than £500,000 (let alone £1,000,000). It is to be noted that the treaties themselves contained no clause requiring the ceded risks to have any particular deductible. Nevertheless reinsurers sought to avoid the treaties by asserting that the brokers' statement in the previous paragraph was a representation
i) that the syndicates had, on 4th July 1996 (the date of NMB's fax) and earlier, a practice of writing risks with the stated deductibles; or
ii) that the syndicates had, on 4th July 1996, the intention that they would, in the future, write risks with the stated deductibles; or
iii) that this practice (or their intention) as at 1 st July 1996 could be relied upon as an indication or guide to their future underwriting practice.
(This is my attempt to paraphrase the allegations contained in para. 12 and 13 of the re-re-amended defence of reinsurers in the action). It was then said that one or more of these representations was false, was material to the risk, was intended to be acted upon, and induced reinsurers to write the treaties, with the result that the treaties could be avoided.
There are two reasons why these allegations of representation have been made in what may be thought to be a somewhat artificial way. The first is that for a representation to have legal effect, it must be a representation of existing fact not of future fact or opinion; see Chitty, Contracts 29 th ed vol 1 para. 6–004 for the general law. Reinsurers' own solicitors may not have completely understood this basic point since, in their letter of avoidance of 19 th August 2005, they asserted that the syndicates had misrepresented that the risks “would have” substantial deductibles, on the face of it a representation that something would happen in the future. Secondly, it is axiomatic in the law of insurance that no representation as to expectation or belief is actionable if it is made in good faith. This common law rule has been codified for the purposes of contracts of marine insurance (which presumably these treaties are) by section 20(5) of the Marine Insurance Act 1906:-
“A representation as to a matter of expectation and belief is true if it be made in good faith.”
No suggestion of bad faith has been made in this case.
The deputy judge found (para. 46) that the single sentence relied on as a representation
“was a statement of the syndicates' current policy as regards deductibles.”
By current policy I understand him to mean the syndicates' policy as at 4th July 1996. He held, secondly (para. 48):-
“In July 1996, it was not the syndicates' policy normally to write construction risks unless the deductible was at least £500,000 and preferably at least £1,000,000.”
There was accordingly a misrepresentation. He held thirdly that the syndicates had acted in good faith throughout since their underwriter, Mr O'Farrell, had not seen the brokers' fax cover sheet with its reference to deductibles. He held next (para. 53) that the misrepresentation was material. He then held (para. 61) that it had induced the 1996 Treaty which could accordingly be avoided (para. 62). The endorsement extending the treaty could likewise be avoided either because it was a mere extension (or amendment) to the treaty or because the representation continued to be effective as at July 1997. The representation continued also to be effective as at 1 st February 1998 and the second treaty could, therefore, also be avoided. The syndicates now appeal.
There are 4 surviving grounds of appeal put forward by Mr Gavin Kealey QC (who did not appear before the deputy judge) for reinsurers:-
i) That, although the reinsurers' pleaded defence asserted a representation of both the syndicates' “current practice” and their “intention”, the trial had focused, correctly, on their intention. The deputy judge's decision that NMB's fax was a statement of the syndicates' “current policy” reverted back to the allegation of “current practice”, which had never been investigated at the trial since no disclosure of the syndicates' underwriting before 4 th July 1996 had been requested. Had it ever been requested, it would have emerged that the practice of the syndicates as at 4 th July 1996 was indeed to write business with the stated deductibles. The judge's second conclusion that it was not the syndicates' “policy” in July 1996 to write with the stated deductibles had therefore been reached on an unfair basis and was in fact wrong. Judgment in favour of reinsurers could not stand and should be entered for the syndicates; alternatively the case should be remitted to the judge for him to determine what the syndicates' policy was in July 1996 after proper discovery and evidence. I shall call this “the unfairness ground”;
ii) That, even if NMB's fax did constitute a statement of the syndicates' intention in July 1996 to write business with the stated deductibles, it was no more than a statement of expectation or belief; moreover it was a statement of expectation or belief made by NMB as brokers, not even a statement by the syndicates themselves;
iii) That the judge was wrong to hold that the 1997 endorsement only amended or extended the 1996 contract for seven months; it was a separate contract; and the same arguments applied to it as to the 1998 treaty;
iv) That the judge was wrong to hold that (both in June 1997 and in January 1998) the representations as to the syndicates' “current policy” in July 1996 were continuing representations or that there was any obligation on the syndicates to disclose that their “policy” had changed.
The Unfairness Ground
In the light of the way that the syndicates' argument has been developed in their grounds of appeal and in this court, it is perhaps a little unfortunate that the deputy judge used the phrase “current policy” in para. 46 of his judgment, rather than the words “practice” or “intention” as used in the pleading. The words “practice” and “intention” are precise words, the first relating to what was actually happening in relation to the writing of risks in July 1996 and perhaps earlier and the second relating to what the syndicates intended to do in the future. The word “policy” can in general import elements of both the present and the future and thus carries with it an element of ambiguity. The phrase “current policy” could be said not merely to emphasize that ambiguity but even to put greater stress on the present rather than the future.
The judge cannot, however, be blamed for this because it was Mr Hamblen QC, who was then (as now) appearing for the syndicates, who introduced the word “policy” into the legal arena when he was making submissions after the conclusion of the evidence. He was making a submission (Day 6, pages 76–7) as to how the reinsurers' underwriter, Mr Holzapfel, understood the representation:-
“as being a statement of the underwriter's policy, philosophy if you like, of underwriting as part of their [maintaining high] standards ….
JUDGE Is there any difference between policy and intention. I don't think there is there?
MR HAMBLEN Not really my Lord, it's just a way of labelling it really but I suppose it does carry with it implications of being on-going.”
To be fair to Mr Hamblen, the word “philosophy” may not have sprung unprompted into his mind. That word had already been used by the reinsurers' expert,...
To continue reading
Request your trial
-
G. I. Globinvestment Ltd v Federico Faleschini
...or innocent. On this basis I would regard the case of Cramaso LLP v Ogilvie-Grant [2014] AC 1093 and the case of Limit No. 2 v Axa [2008] EWCA Civ 1231 which was relied on in oral argument as rather different cases to the present. Cramaso concerned an allegation of negligent misrepresentat......
-
Manish Goyal v BGF Investment Management Ltd
...it may be unable to be relied upon by a representee even if it was, in fact, relied upon by them: Limit No 2. Ltd v Axa Versicherung AG [2008] 2 CLC 673 at [26]. 56 Where the Court is concerned with a “ continuing” representation that the representor has a duty to “ correct” in the event th......
-
Misrepresentation Of Intention: Two Treaties And An Endorsement
...Limit No. 2 Limited v AXA ([2008] EWCA Civ 1231) Court of Appeal provided guidance on a number of important issues relevant to the placement of insurance and reinsurance, specifically: the effect of comments made by a broker at placement with regard to the reinsured's underwriting principle......
-
Insurance
...Co Ltd v Uni-Polaris Insurance Co Ltd [2003] 1 AC 469 at 494–495 [51], per Lord Hobhouse; Limit No 2 Ltd v Axa Versicherung AG [2008] EWCA Civ 1231 at [27], per Longmore LJ. 165 Insurance Act 2015 (UK) section 8 and Schedule 1; Insurance Contracts Act 1984 (Cth) section 28. In the consumer ......