Napier and Ettrick (Lord) v R F. Kershaw Ltd
| Jurisdiction | UK Non-devolved |
| Judge | LORD BROWNE-WILKINSON,LORD WOOLF M.R.,LORD STEYN,LORD HOPE OF CRAIGHEAD,LORD HUTTON |
| Judgment Date | 25 March 1999 |
| Judgment citation (vLex) | [1999] UKHL J0325-5 |
| Date | 25 March 1999 |
| Court | House of Lords |
and Another
[1999] UKHL J0325-5
Lord Browne-Wilkinson
Lord Woolf M.R.
Lord Steyn
Lord Hope of Craighead
Lord Hutton
HOUSE OF LORDS
My Lords,
I have had the advantage of reading in draft the speech which has been prepared by my noble and learned friend, Lord Steyn. I agree with it, and for the reasons which he has given I would dismiss the appeal and allow the cross-appeal.
My Lords,
I have had the advantage of reading in draft the speech which has been prepared by my noble and learned friend, Lord Steyn. I agree with it, and for the reasons which he has given I would dismiss the appeal and allow the cross-appeal.
My Lords,
This appeal by a representative Lloyd's underwriter and cross-appeal by Lloyd's is yet another phase in the seemingly endless litigation which has plagued Lloyd's in recent years. The issues all relate to the Premium Trust Deed (the PTD) which each underwriting member of Lloyd's, or Name, must execute. The relevant provisions of the PTD are as follows:
"Clause 2(a) Subject as hereinafter provided the Trust Fund shall consist of -
(i) All premiums and other monies whatsoever … now belonging or payable or hereafter at any time belonging or becoming payable to the Name in connection with the Underwriting and …"
Clause 1(a) defines "the underwriting business" as follows:
"The underwriting business (whether current or past or future) of the Name at Lloyd's carried on through the agency of the Members' Agent or under arrangements made by or through the Members' Agent …"
"Clause 22 … the Council may from time to time revoke and determine the trusts hereby constituted or (subject always to the prior approval of the Secretary of State) vary or amend all or any of them or any of the provisions hereof in such manner as the Council think fit and the Council shall notify the Members' Agent (and the Members' Agent in turn shall notify the Name) of any exercise of the powers conferred upon the Council under this clause"
On 3 March 1995, and purportedly acting in terms of clause 22, the Council of Lloyd's made amendments to clause 2. It was done by introducing into clause 2 a new sub-clause (d), the effect of which was to make all litigation recoveries by Names subject to the trust in clause 2(a)(i).
The questions of interpretation arising on clause 2(a)(i) of the unamended PTD are:
(1) Whether damages awarded to a Name against his managing agent as compensation for negligent underwriting are caught by clause 2(a)(i).
(2) Whether damages awarded to a Name against his members' agent as compensation for negligence in advising on the taking out of personal stop loss insurance cover are caught by clause 2(a)(i);
(3) Whether damages awarded to a Name against a members' agent as compensation for negligence in advising on syndicate selection are caught by clause 2(a)(i).
Lloyd's contend that all three questions should be answered affirmatively. The representative underwriter makes a contrary submission in regard to all three questions. If Lloyd's are successful on all three questions that is the end of the matter. If all or any of the questions are answered in the negative, a further question arises, namely -
(4) Whether amendments purportedly made to the PTD in 1995, which undoubtedly cover the categories of damages described in (1), (2) and (3) above, were validly made under clause 22.
Underwriting at Lloyd's
The Corporation of Lloyd's does not carry on insurance business. The function of Lloyd's is to manage and regulate the Lloyd's insurance market. Underwriting at Lloyd's is done by Names. A person desiring to become a Name at Lloyd's must first execute a General Undertaking in favour of Lloyd's and be accepted by Lloyd's. Names then join in syndicates which specialise in underwriting particular forms of risk. A syndicate is not a legal entity or a partnership. It is simply a group of Names who have joined a particular syndicate for a particular underwriting year. Each policy issued at Lloyd's consists of individual contracts made on behalf of individual Names. Each Name is only liable for his share of the risk but not for the share of any other Name: see section 8(1) of the Lloyd's Act 1982. A Name has unlimited liability to the extent of all his assets in respect of his insurance obligations at Lloyd's.
Names are obliged to act through professional agents. A prospective Name must employ a members' agent, who will advise him on his choice of syndicates and place him on the chosen syndicates. A members' agent will also advise on personal stop loss insurance cover. A managing agent is an underwriting agent who manages one or more Lloyd's syndicates. A managing agent employs an active underwriter to effect insurance business on behalf of Names on a syndicate. A managing agent will also obtain reinsurances, collect premiums and pay claims. Names are required to keep agents in funds for the purpose of meeting underwriting liabilities. Both members' and managing agents owe duties of care and skill and fiduciary obligations towards Names. Except for this brief outline, it is unnecessary to describe the way in which underwriting is conducted at Lloyd's: see a fuller account in Society of Lloyd's v. Morris [1993] 2 Re. L.R. 217, at 218-219, per Sir Thomas Bingham M.R.: and in the judgment of Hobhouse L.J. (now Lord Hobhouse) in the Court of Appeal: Napier and Ettrick v. R.F. Kershaw Ltd. [1997] 1 Re. L.R. 1, at 7-8.
The forensic saga
The circumstances in which the issues come before the House are complex. For the benefit of those who are interested in exhuming the origin of the present disputes I must describe the forensic saga. The position is as follows: (1) In 1989 a large number of Names who were members of syndicates managed by RHM Outhwaite (Underwriting Agencies) Ltd. brought proceedings against their members' agents and managing agents for negligent underwriting. In early 1992 the proceedings were compromised by a payment to the Names of £116m. Before that sum could be distributed to the Names Lloyd's asserted that the monies was caught by the trust constituted by the PTD. In May 1992 Saville J. (now Lord Saville) in Napier and Ettrick and others v. R.F. Kershaw Ltd. and others held that clause 2(a)(i) does not cover damages for negligent underwriting. Lloyd's announced that it accepted Saville J.'s decision. (2) In Society of Lloyd's v. Morris [1993] 2 Re. L.R. 217 the Court of Appeal approved Saville J's reasoning and decision. The issue in Morris was however a different one, namely whether receipts from personal stop loss policies were covered by clause 2(a)(i) of the PTD. The Court of Appeal held that such receipts were not covered. (3) In the meantime a number of other actions had been commended by other groups of Names. The first action to come to trial was that brought by Names of the Gooda Walker Syndicates. On 4 October 1994 Phillips J. (now Lord Phillips) found in favour of the Names. Over the following eighteen months or so judgments were also given in favour of Names on several other syndicates. (4) In order to facilitate a plan for "reconstruction and renewal" Lloyds wanted litigation recoveries to be brought within the scope of the PTD. On 2 March 1995 the Council of Lloyd's amended the terms of the PTD by introducing a new clause 2(d) which was expressly designed to catch litigation recoveries. (5) When interim payments in respect of damages awarded to successful Names were due to be made, Lloyd's asserted a proprietary claim over such sums. By agreement the sums paid by the various judgment debtors were held in escrow accounts pending resolution of the validity of Lloyd's proprietary claim. (6) On 31 March 1995 Lloyd's started Originating Summons proceedings in order to resolve the issue as to the validity of the 1995 amendments to the PTD. (7) On 7 March 1996, the House of Lords decided Deeny v. Gooda Walker Ltd. (No. 2) [1996] 1 W.L.R. 426. The issue was whether damages recovered by a Name for negligent underwriting were chargeable to tax as a receipt of his business under Case I of Schedule D. The House answered that question in the affirmative. Lord Hoffmann made observations about the decision in the Napier case which Lloyd's believed supported an argument that it had been wrongly decided. (8) Lloyd's obtained leave to amend their Summons in order to raise the question whether litigation recoveries were caught by the unamended PTD. The issue raised by the amendment also covered damages awarded for negligent advice in regard to personal stop loss insurance and syndicate selection. (9) On 17 May 1996 Sir Richard Scott, V.-C., gave judgment in Lloyd's v. Woodard. He held in favour of the Names on all issues. He followed and applied the decision in Napier v. Kershaw. And he held that the 1995 amendments were invalid. (10) On the first day of the appeal in Lloyd's v. Woodard the Court of Appeal granted an extension of time for the hearing of an appeal by Lloyd's from the order of Saville J. in Napier v. Kershaw. The extension was granted on condition that no attempt was made to disturb the destination of settlement moneys. The two appeals proceeded in tandem. (11) On 31 July 1996 the Court of Appeal allowed the appeal in Napier v. Kershaw, with reasons to follow. The Court of Appeal reserved judgment in Lloyd's v. Woodard, where the issues were wider. On 24 October 1996 the Court of Appeal gave judgment in Lloyd's v. Woodard, together with reasons for the decision in Napier v. Kershaw. The Court of Appeal unanimously ruled that clause 2 (a)(i) is apt to catch damages for negligent underwriting. Nourse and Pill L.JJ. felt unable to rule on the application of clause 2(a)(i) to damages for negligent...
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