Poole v HM Treasury
| Jurisdiction | England & Wales |
| Judge | Lord Justice Buxton,Lord Justice Jacob,Lord Justice Moore-Bick |
| Judgment Date | 24 October 2007 |
| Neutral Citation | [2007] EWCA Civ 1021 |
| Docket Number | Case No: A3/2007/0073 |
| Court | Court of Appeal (Civil Division) |
| Date | 24 October 2007 |
[2007] EWCA Civ 1021
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
MR JUSTICE LANGLEY
Lord Justice Buxton
Lord Justice Jacob
Lord Justice Moore-Bick
Case No: A3/2007/0073
Mr R Plender QC, Mr H Mercer and Mr G Nardell (instructed by Grower Freeman) for the Appellants
Mr D Friedman QC, Miss J Stratford and Mr A Henshaw (instructed by The Solicitor to Her Majesty's Treasury) for the Respondent
Hearing dates: 11,12 October 2007
The background to this appeal
This appeal is brought from a judgment of Langley J in proceedings in which a substantial number of insurers or “names” on the Lloyd's market complain of losses suffered by them in the course of underwriting. The focus of their complaint, which has been pursued in other proceedings both against their agents and the persons who introduced them to the Lloyd's market, and against Lloyd's itself, is that the market was inadequately regulated, thus leading to the acceptance of risks that under a proper system of regulation would not have arisen, or which would have been identified in advance.
The vehicle through which those failings are sought to be relied on in these proceedings is a complaint that Her Majesty's Government wrongly failed to transpose into UK domestic law Council Directive 73/239/EEC on the co-ordination of national provisions on the taking up and pursuit of the business of what the Directive describes as direct insurance. It is said that had that Community law duty been properly discharged the market would have been properly regulated and the losses of the insuring names would not have occurred, or would have been less in extent.
The proceedings raised two preliminary questions. First, whether the assumed failure to transpose the requirements of Directive 73/239 into national law can be the basis of claims against the national government by the present claimants. That was referred to below as the “Grant of Rights” issue, and I will continue to use that label. Second, whether, even if the claimants were the beneficiaries of such rights, they had lost the ability to assert them by reason of the rules of limitation.
The appellants had to succeed on both issues in order to succeed in this appeal. At the close of argument on the Grant of Rights issue we concluded that the appellants had not succeeded in dislodging Langley J's dismissal of their case on that point, and we therefore did not hear argument on the limitation issue. This judgment is accordingly solely directed to Grant of Rights, as identified above.
The nature of the case
The story of the Lloyd's debacle has been told many times, most fully in the judgment of Cresswell J in Lloyd's v Jaffray [2000] EWHC (Comm) 51. Put very shortly, a “name”, by joining a syndicate at Lloyd's and thus becoming a person offering the services of an insurer on the Lloyd's market, accepts unlimited liability for his proportion of the obligations of the syndicate incurred in the relevant year of account. These include, in addition to obligations arising during the year in question, obligations incurred by the syndicate's predecessors in earlier years but not yet reported, which the syndicate has accepted by way of reinsurance of the immediately preceding year under the practice known as reinsurance to close. At the beginning of the 1980s it became apparent that persons insured by Lloyd's syndicates were faced with very substantial liabilities, in particular in respect of asbestos-related injuries, many of them incurred many years previously but not until lately identified or reported. In its judgment in Lloyd's v Jaffray [2002] EWCA Civ 1101 this court held that in 1981 and subsequent years the “brochure” issued by Lloyd's to intending underwriters contained a representation that Lloyd's had in place a rigorous system of auditing the accounts of syndicates, which involved the making of a reasonable estimate of outstanding liabilities, including unknown and unreported losses. That representation was found by this court to have been untrue. Relying on that representation, or alternatively or additionally on representations by agents who recruited them to the syndicates or by persons managing the syndicates, the appellants agreed to become underwriting members, or alternatively continued or extended their commitment. Their underwriting experience was, largely because of the unnotified liabilities, disastrous. Heavy losses were suffered not merely in the course of underwriting business, but also in the form of liabilities that they would incur to Lloyd's itself under the “R&R” reconstruction scheme introduced by Lloyd's in July 1996.
Quite apart from many actions brought by particular names against leading underwriters and agents, the present appellants, or many of them, sought to resist claims by Lloyd's under the reconstruction scheme on the basis of the misrepresentations by Lloyd's referred to in the preceding paragraph: saying that if the false representations had not been made they would not have started or continued in business as underwriters. Those claims however failed in the proceedings before this court in Lloyd's v Jaffray, because Lloyd's enjoys a statutory immunity from suit by its own members save in the case of bad faith; and this court held that bad faith had not been established.
The present claim, although brought in respect of the same losses as were in issue in Lloyd's v Jaffray, and although springing from the same representations as were complained of in that case, as already explained has a different defendant, and invokes a different chapter of the law. The appellants were names at Lloyd's at various times between 1980 and 1996. Relying on the jurisprudence of the European Court of Justice [ECJ] in Cases C-6/90 and C-9/90 [1991] ECR I-5357 ( Francovich) they claim damages from the British government to compensate for losses in their underwriting business. They do so by alleging that those losses arose in consequence of the failure of the British government to transpose into English domestic law Council Directive 73/239/EEC on the coordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of direct insurance other than life assurance. It is the claimants' case that the Directive obliged the government to make it a requirement of English law that syndicates had adequate reserves to meet liabilities, and in particular liabilities not yet identified. Had there been such a system, the inadequacy of syndicate reserves and the impossibility of assessing outstanding liabilities would have become apparent and the claimants would, again, not have become or continued to act as underwriting members.
For the purposes of the present enquiry it will be assumed, though not accepted by the respondents, that English domestic law was not altered so as to transpose Directive 73/239 until the entry into force of Part XIX of the Financial Services and Markets Act 2000, a date well after the last permissible date provided for implementation.
The claimants' case
The case made by the claimants was summarised in the Amended Particulars of Claim, as set out by the judge in §2 of his judgment:
The Claimants' case in outline is that:
2.1 Each Claimant participated in the writing of insurance Business by Lloyd's syndicates, which are annual ventures acting as insurance undertakings, and in so doing subscribed capital to the venture and placed at risk his entire net personal wealth to meet, if necessary, syndicate liabilities;
2.2 The liabilities of each syndicate included liabilities incurred but not reported (“IBNR”) in respect of insurance business written in previous years, acquired on supposedly commercial terms under a system known as reinsurance to close (“RITC”) which involved, among other things, fixing reserves at a level sufficient to meet all liabilities including IBNR;
2.3 Contrary to the requirements of the Insurance Directive, the Defendant failed to implement in the domestic law of the UK, or to achieve the result prescribed by, the provisions of the Insurance Directive relating to (among other things) the conditions to which the authorisation of insurance undertakings at Lloyd's was to be subject, and the monitoring of same; the classes of insurance business such undertakings are permitted to write; requirements at to technical reserves and solvency margin of such undertakings; and the verification of such requirements.
2.3A The Defendant failed to ensure, as at the date of each annual RITC exercise after the Insurance Directive came into force, that there was in place at Lloyd's any adequate system of accounting reasonably capable of ensuring that syndicate assets (including reserves) were sufficient to meet known and IBNR liabilities, including those inherited through successive RITC exercises.
These errors were, as the pleading says, caused by the failure of the government to put in place in English domestic law various requirements of the Directive. The nature of the loss that that caused to the claimants is explained in a further passage from the pleadings also set out by the judge in his §2, without complaint by the appellants. The claimants became or continued as names or increased their underwriting liability
when the IBNR liabilities inherited by many syndicates were, unbeknown to them, far greater than was revealed by the...
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