Michael Eunan Mclarnon Deeny & Others (Plaintiffs) Gooda Walker Ltd and (Defendants) Hugh Sinclair Arbuthnott & Others (Plaintiffs) Patrick Feltrim Fagan Feltrim Underwriting Agencies Ltd and (Defendants) Ian McIntosh Henderson & Others (Plaintiffs) Merrett Syndicates Ltd and (Defendants) Hugh Sinclair Arbuthnott & Others (Plaintiffs) Feltrim Underwriting Agencies Ltd (Defendants)
| Jurisdiction | England & Wales |
| Judge | THE MASTER OF THE ROLLS,LORD JUSTICE HOFFMANN,LORD JUSTICE HENRY |
| Judgment Date | 13 December 1993 |
| Judgment citation (vLex) | [1993] EWCA Civ J1213-6 |
| Date | 13 December 1993 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | No's. QBCMF 93/1540/B QBCMF 93/1542/B QBCMF 93/1543/B |
[1993] EWCA Civ J1213-6
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
(Mr. Justice Saville)
Before: The Master of the Rolls (Sir Thomas Bingham) Lord Justice Hoffmann and Lord Justice Henry
No's. QBCMF 93/1540/B
QBCMI 93/1541/B
QBCMF 93/1542/B
QBCMF 93/1543/B
MR. G.C. VOS Q.C. and MR. D. LORD (instructed by Messrs. Wilde Sapte, London EC4V) appeared on behalf of the Gooda Walker Names.
MR. B. EDER Q.C. and MR. C. BUTCHER (instructed by Messrs. Elborne Mitchell, London EC3N) appeared on behalf of the Gooda Walker Members Agents.
MR. B. EDER Q.C. and MR. D. FOXTON (instructed by Messrs Elborne Mitchell, London EC3N) appeared on behalf of the Feltrim Members Agents.
MR. A. BOSWOOD Q.C. and MR. S. MORIARTY (instructed by Messrs Richards Butler, London EC3A) appeared on behalf of the Feltrim Names.
MR. A BOSWOOD Q.C and MR. S. MORIARTY (instructed by Messrs More Fisher Brown, London E1) appeared on behalf of the Merrett Names.
MR. A. TEMPLE Q.C. and MR. J. ROWLAND (instructed by Messrs Reynolds Porter Chamberlain, London WC1V) appeared on behalf of the Merrett Syndicates.
MR. C. EDELMAN (instructed by Messrs. Oswald Hickson, Collier Co., London EC4A) appeared on behalf of the other Defendant Underwriting Agents listed in the Schedules to all the Merrett Writs (save for J.H. Minet Agencies Limited).
Monday, 13th December, 1993.
THE MASTER OF THE ROLLSThere are several appeals before the Court. They arise in actions now awaiting trial in the Commercial Court. In each action the plaintiffs are Underwriting Members (Names) at Lloyd's. In each the defendants include the Names' Underwriting Agents, some of these being Members' Agents, some Managing Agents and some both.
These actions are but a few of those now proceeding in the Commercial Court. In order to simplify and shorten the trial and preparation of these cases, Saville J ordered, with the consent and co-operation of the parties, that a number of issues of principle common to many of the actions be determined as preliminary issues. These issues, largely directed to deciding whether Underwriting Agents (and if so, which) owed a duty of care to their Names, were plainly fundamental to the outcome of the actions.
Saville J heard argument on the issues and gave judgment on 12 October 1993. He ruled in favour of the Names. The Underwriting Agents now appeal. Having heard argument in this Court, I find myself in agreement with the judge, for the reasons which he very clearly and succinctly gave.
Background
A Name who is not a professional underwriter has at all material times been required to appoint an Underwriting Agent to conduct the underwriting on his behalf. Such Agents are known as Members' Agents and the appointment is made under an Underwriting Agency Agreement. The actual underwriting is done on behalf of the Name through a Syndicate of which the Name (with other Names) is a member. Such Syndicates are managed by Managing Agents, who employ a professional ("active") underwriter. Sometimes the Underwriting Agent is both the Members' Agent and Managing Agent : the Name is then called a direct Name, because he is in direct contractual relations with the Managing Agent. Sometimes the Members' Agent does not combine these roles, but appoints a Managing Agent under a Sub-Agency Agreement to conduct the actual underwriting : the Name is then called an indirect Name, because he has not been thought to have a direct contractual relationship with the Managing Agent.
Before 1987 there was no prescribed form of agreement between Name and Underwriting Agent. Some variation in the terms of these agreements was accordingly to be found. But to a large extent the terms of these agreements were standard and there was in practice a high degree of uniformity. We have before us what is accepted as being a typical pre-1987 agreement. It was made in October 1982 between a Name and Merrett Syndicates Limited as Underwriting Agent. This company in fact combined the roles of Members' Agents and Managing Agents and so, under this agreement, the Name was a direct Name. But had the Underwriting Agent been a Members' Agent only, the same form of agreement would have been used; then, however, the Members' Agent would have entered into a sub-agency agreement with a Managing Agent. We have a sample of such a sub-agency agreement before us, dated March 1978. It can be treated as typical.
In 1985 the Council of Lloyd's exercised its statutory powers to make The Agency Agreements Byelaw. This prescribed a standard form of agency agreement and a standard form of sub-agency agreement. Subject to transitional provisions (to which reference must be made below) the Byelaw prohibited the underwriting of insurance business at Lloyd's after 31 December 1986 save under the standard form of agency or sub-agency agreement. Thus the form of agreement became mandatory and standardised. But the structure described above remained intact. If the Underwriting Agent was to combine the roles of Members' Agent and Managing Agent, the Name entered into one agreement only, the Standard Agency Agreement. He remained a direct Name. If, however, the Underwriting Agent was to act as Members' Agent only, the Name entered into the Standard Agency Agreement with the Underwriting (Members') Agent and the Underwriting (Members') Agent entered into the Standard Sub-Agency Agreement with the Underwriting (Managing) Agent. The Name remained an indirect Name.
The distinction between direct and indirect Names came to an end in 1990. The Name himself then entered into a Members' Agents' Agreement and a Managing Agents' Agreement, and the Sub-Agency Agreement which had been made under the 1985 Byelaw was replaced by a different form of Agreement between Members' and Managing Agents. For present purposes it is not necessary to examine the detail of these Agreements, since no issue arises on them. It is enough to note that there was no longer a distinction between direct and indirect Names.
In considering what, if any, duties were owed to Names by different types of Underwriting Agents at different times, it would be logical to begin with the pre-1987 agreement between Names and Underwriting Agents acting as Members' Agents only. This is a live issue between the Merrett Names and the Merrett Members' Agents. But it was agreed that Saville J should not rule on the obligations owed to the Merrett Names by their Members' Agents before 1987, and there is accordingly no appeal before us on that point. It is agreed that anything said in relation to any other issue which bears on that point is not to bind the Merrett Names and the Merrett (pre-1987) Members' Agents.
Issue 1
The first issue which the judge ordered to be tried concerned the liability of Managing Agents to Names under the forms of agreement in force before 1987. The declaration which he made was in these terms :
"(1) That Managing Agents of syndicates at Lloyd's did owe a tortious duty of care to Names (whether direct or indirect Names) to conduct the underwriting business for the account of Names with reasonable care and skill for the 1979 to 1985 underwriting years of account (inclusive), including a duty of care in relation to the assessment or effecting of any RITC and in fixing the premium therefor.
(2) That the terms of the pre-1985 Byelaw Agreements (and, in particular, the true and proper construction of the expression "absolute discretion" in clauses 6(a) and 7(e) of such Agreements) did not have the effect that any cause of action or remedy in damages or otherwise concerning decisions taken by a Managing Agent in the management and conduct of the underwriting business for the 1979 to 1985 underwriting years of account (including decisions to accept risks and decisions taken in effecting an RITC) was precluded from arising save insofar as alleged and shown that the decisions were taken in bad faith or dishonestly, or were totally unreasonable."
Both the issue as framed and the declaration as made relate to both indirect and direct names. But the arguments are not exactly the same in relation to each, and for convenience of analysis I shall separate them.
Q.1 Did Managing Agents (who were not also Members' Agents) owe Names a duty under the pre-1987 forms of agreement to carry out their underwriting functions with reasonable care and skill?
It was argued for the Merrett Managing Agents that they did not, for two main reasons :
(1)because the Managing Agents had absolute discretion in the acceptance of risks and settlement of claims and this excluded any duty other than a duty to act honestly, rationally and loyally; and
(2)because the law of tort did not impose on the Managing Agents a duty in tort not to cause economic loss to the Names.
These points require separate consideration.
Absolute discretion
The pre-1987 agreement between Name and Underwriting (Members') Agent contained the following terms relevant for present purposes :
"1. The Agent shall act as the Underwriting Agent for the Name for the purposes of underwriting at Lloyd's for the...
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