Non‐Disclosure: Hairshirt or Halo?
| Published date | 01 January 1992 |
| Date | 01 January 1992 |
| Author | David Allen |
| DOI | http://doi.org/10.1111/j.1468-2230.1992.tb01864.x |
CASES
Non-Disclosure: Hairshirt
or
Halo?
David
Allen
*
The decision of the House of Lords in
Banque Financi2re de
la
CitP
SA
v
Westgate
Insurance Co Ltd
I
(hereinafter
Banque Financibre)
represents the culmination, if
not the high spot, of a case which at different stages has seen much fruitful and
stimulating analysis by the courts, and has raised a number of difficult and interesting
questions.
The facts
of
the case are complex and detailed, and will be simplified as far as
is reasonably possible. A fraudster named Ballestero, the controller of a company
called Ultron, obtained a series of loans from various banks, including Banque
Financikre, the collateral including the pledge of a parcel of gemstones and various
insurance policies. Insurance brokers were appointed to act as the banks’ agents
in arranging the required insurance. Cover notes were issued by Lee, an employee
of
the brokers, in January 1980, certifying that total insurance of the initial loan
had been effected. Two of those cover notes were subsequently found to be fraudulent
in that some of the cover had in fact not been placed at all or, where promised,
had not been confirmed. Further advances were made. In May and June 1980
Dungate, an employee of the insurer, became aware that the January cover notes
were false, but he failed to disclose this to the banks. Subsequently, further advances
were made and further false cover notes were issued. By March 1981, a total of
80m Swiss francs had been advanced to Ballestero. His fraud was discovered later
that year, the gemstones were found to be of little value, and the insurers rejected
claims made under the policies, as the policies contained fraud exemption clauses.
The banks, in Lord Templeman’s graphic phrase, ‘sued everyone in sight.’ They
settled with the brokers and abandoned their claims against the insurers under the
policies. However, they sued the insurers for negligence and breach of duty owed
by them as insurers to the banks as assured.
At the trial, Steyn
J
held the insurers liable in damages to the banks, both on
the basis that breach of the duty of utmost good faith owed by an insurer to its insured
was actionable in damages, and also that it was just and reasonable to impose a
duty of care on the insurers in the circumstances. Westgate, Dungate’s employers
up to 1 October 1980, pursued an appeal. Skandia, Dungate’s employers after
1 October 1980, withdrew their appeal. Neither the Court of Appeal nor the House
of
Lords agreed with Steyn J. Both bases of liability merit examination in some detail.
Liability in Negligence
Steyn
J
approached the issue of liability in negligence on the basis that a sufficient
degree of proximity had to be established and, further,
it
had to be shown that it
was just and reasonable to hold that a duty of care existed. He did not consider
that the contractual setting precluded the existence of a duty of care, nor was he
*Faculty
of
Law, University
of
Leicester.
1
96
[
19901
2
All
ER
947.
The
Modern
Law
Review
55:l
January
1992 0026-7961
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