Orion Insurance Company Plc v Sphere Drake Insurance Plc
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE LLOYD,LORD JUSTICE STUART-SMITH,LORD JUSTICE MANN,PRESENT |
| Judgment Date | 06 August 1991 |
| Judgment citation (vLex) | [1991] EWCA Civ J0806-1 |
| Docket Number | 91/0833 |
| Court | Court of Appeal (Civil Division) |
| Date | 06 August 1991 |
[1991] EWCA Civ J0806-1
Lord Justice Lloyd
Lord Justice Stuart-Smith (Not Present)
Lord Justice Mann
91/0833
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
(MR. JUSTICE HIRST)
Royal Courts of Justice
MR. KENNETH ROKISON Q.C., MR. JONATHAN MANCE Q.C. and MR. JONATHAN ROWLAND (instructed by Messrs. Denton Hall Burgin & Warrens) appeared for the Appellants (Defendants).
MR. STEWART BOYD Q.C. and MR. RODERICK CORDARA (instructed by Messrs. Linklaters & Paines) appeared for the Respondents (Plaintiffs).
This is an appeal from a decision of Hirst J. given on 20th December 1989, after a trial lasting many days. The plaintiffs, the Orion Insurance Company pic ("Orion") and the defendants, formerly Sphere Insurance Company Ltd. ("Sphere") and the Drake Insurance Company Ltd. ("Drake") were parties to two pool agreements, one marine and one non-marine, dated 7th September 1953 and 17th November 1954. The Orion were appointed sole underwriting agents on behalf of the two pools to accept risks in the following proportions:
| Orion | 50% |
| Sphere | 25% |
| Drake | 25% |
| Orion | 65% |
| Sphere | 17.5% |
| Drake | 17.5% |
The marine pool was divided into two accounts, namely, the "pure" marine account, and the marine miscellaneous and legal liability account ("MLL"). The non-marine pool wrote conventional non-marine business.
Throughout the 1950's and 1960's the London insurance market was writing insurance, both direct and excess of loss, in respect of U.S. product liability. In the late 1970's there began to be a build-up of claims in the United States against producers and users of asbestos. The producers claimed indemnity from their product liability insurers. These claims filtered through to the London market, and by the middle of the 1980's had reached vast proportions. It is common ground that the explosion of claims resulting from asbestosis has been unprecedented.
The MLL account of the marine pool suffered along with the rest of the market. The question in the present case is whether, as the plaintiffs contend, the other members of the pool must contribute towards these exceptional losses; or whether, as the defendants contend, their liability was finally terminated by an agreement made at two meetings between the parties in December 1974 and April 1975.
The plaintiffs say that it was expressly agreed at the meeting in April 1975 that the agreement between the parties was to be a goodwill agreement only, and was not to be legally binding. Evidence to this effect was given by Mr. Leslie Sage, a director of Orion. The learned judge accepted Mr. Sage's evidence. There is now an appeal to this court on the ground that the judge was wrong.
The judge regarded Mr. Sage as a most impressive witness. Mr. Rokison, on behalf of the defendants, accepts that Mr. Sage was a most impressive man; but he submits that he was an unsatisfactory witness. According to Mr. Rokison, Mr. Sage's evidence in cross-examination was inconsistent with his evidence-in-chief; and was contrary to the contemporaneous documents, and what Mr. Rokison called the overwhelming probabilities.
It is further alleged, by a late amendment to the grounds of appeal for which we gave leave, that the judge's frequent interventions in the course of the oral evidence, and in particular during the cross-examination of Mr. Sage, when he is said to have interrupted the flow of cross-examination and to have led the witness to his answers, "made it difficult for the learned judge to assess the oral evidence fairly and dispassionately". This is, of course, a most serious allegation to make against a very experienced commercial judge. I reject it out of hand. A judge has a duty, in a difficult and hotly contested case, to make sure that he is understanding the witness's answers. He also has a duty to curb prolix cross-examination. We have been taken through the essential parts of the evidence, not once, but twice or even three times. I am left with the impression that the judge conducted the case with conspicuous fairness.
The other grounds of appeal require fuller consideration. But first it is necessary to give some account of the background.
Background
In 1965 Sphere got into serious financial difficulties. The major shareholders at the time were Orion, the Baloise Marine Insurance Co. Ltd., a member of a group of companies based in Basle, Switzerland, ("Baloise") and Alexander Howden (Holdings) Ltd. ("Howden"). Orion and Baloise held 35% of the shares each, and Howden held 20%. Baloise treated Sphere as a means whereby it could obtain a foothold in the London insurance market. Consistently, Sphere ceded a substantial quota share in the marine pool to Baloise.
In the course of a series of meetings starting in October 1965 it was agreed between the major shareholders that (1) Sphere must on no account be allowed to become insolvent, or default on its obligations; (2) Sphere should withdraw from the marine and non-marine pools; and (3) Howden should purchase the shareholdings of the other two major shareholders, Orion and Baloise. An important issue was the price to be paid for the shares. This depended critically on Sphere's trading losses. In arriving at these losses it was necessary to take account not only of Sphere's membership of the two pools, but also of Sphere's transaction on another account, known as the Sphere X account, operated on behalf of Sphere by Howden.
The agreements to which I have referred (there were more than one) were known collectively as the Sphere termination agreement, that is to say the agreement for the termination of Sphere's participation in the two pools.
The judge sets out in his judgment extracts from the minutes of important meetings between the parties during the relevant period. I found this of great benefit in understanding the background. Although it will greatly lengthen this judgment, I propose to follow the same course, quoting from the judgment verbatim. I will also include the judge's comments on the documents from time to time, which are helpful and largely uncontroversial.
Dramatis Personae
The individuals taking part in the various meetings were as follows. Mr. Grob, Mr. Comery and Mr. Crockett were all at one time or another directors of Howden, Sphere and Drake. Mr. Turner was a director of Sphere and Drake. Mr. Russell was a director and secretary of Sphere and Drake. Mr. Flint took over as secretary of Sphere and Drake in succession to Mr. Russell. Mr. Sage was a director and the general manager of Orion. Mr. Rousell was company manager and chief accountant of Orion. Mr. Heritage was superintendent of statistics at Orion. Mr. Baumli was a member of the board of management and manager of the re-insurance department of Baloise.
Sphere Termination Agreement
On 29th September 1966 a meeting of the principal shareholders of Sphere and professional advisers was held to discuss Sphere's deteriorating financial position. It was agreed in principle that Howden and Baloise would acquire Orion's shares in Sphere. The minutes so far as relevant provide as follows (332) :
"The Chairman stated that the purpose of calling the present unofficial Meeting was to bring together representatives of the various interests in Sphere in order to consider the financial position of the Company and endeavour to frame and agree upon a course of action which would be in the interests of Sphere and those associated with the Company.
Mr. Sage recapitulated the action taken and development of the present position since September, 1965, when it had first become apparent that Sphere would probably require financial assistance.
Mr. Sage reported on the Statements submitted to the Meeting of the nett asset value of Sphere as at the 30th June, 1966, and detailing the deterioration since 31st December, 1965.
Mr. Sage informed the Meeting that on the basis of the information available it appeared that unless support of £300,000/£350,000 were accorded to Sphere prior to 31st December, 1966, its Accounts for that Year would not show a solvent position.
Mr. Philp [Cooper Bros.] commented on the Statements submitted and concurred with Mr. Sage's conclusion as to the financial support required by Sphere in its 1966 balance sheet.
It was confirmed that it appeared that £350,000 was not the limit of the financial support that might ultimately be required by Sphere.
2. Mr. Aubrey [Sphere] outlined a proposal on the basis that Orion's shareholding in Sphere be purchased by the other two principal shareholders at nett asset value; the run-off of Sphere's participation in the Orion Pool be reinsured with Orion and the run-off of the Excess of Loss business underwritten for Sphere by Alexr. Howden be reinsured under arrangements that would be made by Alexr. Howden/Baloise.
The proposal was considered in detail by the Meeting and it was agreed:-
(a) That Cooper Bros. & Co. in collaboration with Casselton Elliott & Co. should instruct Linklaters & Paines to draw up heads of agreement on the following basis:-
(i) Alexr. Howden and Baloise to purchase, in proportions to be agreed between them, Orion's shareholding in Sphere at a price equivalent to the estimated nett asset value of Sphere as agreed by Cooper Brothers & Co. and Casselton Elliott & Co. and which was estimated to be 2/6d per share.
(ii) As such price was calculated on the basis of projected trading results of Sphere; the price to be adjustable; reviewed annually, and finally determined as at 31st December, 1969,...
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