Prentis Donegan & Partners Ltd v Leeds & Leeds Company Inc. [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Rix J. |
| Judgment Date | 05 May 1998 |
| Date | 05 May 1998 |
| Court | Queen's Bench Division (Commercial Court) |
Queen's Bench Division (Commercial Court).
Rix J.
John Rowland QC (instructed by Norton Rose) for the plaintiff.
Jonathan Gaisman QC (instructed by Waterson Hicks) for the defendant.
The following cases were referred to in the judgment:
Calico Printers Association v Barclays Bank LtdUNK (1930) 36 Com Cas 71.
De Bussche v Alt (1878) 8 ChD 286.
Henderson v Merrett Syndicates Ltd [1994] CLC 918; [1995] 2 AC 145.
New Zealand and Australian Land Co v WatsonELR (1881) 7 QBD 374.
Powell & Thomas v Evan Jones & CoELR [1905] 1 KB 11.
Power v Butcher (1829) 10 B & Cr 329; 109 ER 472.
Universo Insurance Co of Milan v Merchants Marine Insurance Co LtdELR [1897] 1 QB 205; [1897] 2 QB 93 (CA).
Velos Group Ltd v Harbour Insurance Services LtdUNK [1997] 2 Ll Rep 461.
Insurance — Marine insurance — Whether placing broker which had paid premiums to underwriters entitled to be paid by producing broker.
This was an application for summary judgment by a placing broker against a producing broker to be paid for the insurance premiums which the former had itself paid to underwriters.
The plaintiff Lloyd's brokers claimed US$125,135.90 from the defendant New York brokers in respect of the third and fourth instalments of net premium payable under policies of marine insurance under which three shipowning companies, managed by an English company, “Offshore”, were insured for hull and machinery risks. Under the policies premium was due in four equal instalments with a provision for automatic termination following non-payment of any of the last three instalments. The plaintiff invoiced the defendant for the net premium agreed with underwriters plus its commission and the defendant invoiced Offshore for the gross premium including its commission. The net premiums due to underwriters were automatically debited from the plaintiff's account and credited to the underwriters in accordance with custom and s. 53(1) of the Marine Insurance Act 1906. The defendant paid the first two instalments of premium to the plaintiff but not the last two and was in dispute with Offshore.
The plaintiff claimed that as sub-agent it was not in contractual relations with the principal (whether the shipowners or Offshore) but with the defendant as agent, and was entitled to the premiums from the defendant on the basis of an implied term. The defendant accepted that generally there was no privity between sub-agent and principal but relied on Velos Group Ltd v Harbour Insurance Services LtdUNK [1997] 2 Ll Rep 461 as showing that by reason of the necessity of using a Lloyd's broker in the Lloyd's market the principal could be regarded as in privity with the sub-agent.
Held giving summary judgment for the plaintiff:
There was no arguable defence that there was privity between the plaintiff and Offshore so as to exclude privity between the plaintiff and the defendant. There was a general rule that there was no privity between sub-agent and principal (subject to limited exceptions). The fact that it might be possible to sue the sub-agent in tort supported the classical position of absence of privity. Where a producing broker employed a placing broker at Lloyd's the normal situation was that there was privity of contract between them. The defendant would have to show that the plaintiff's involvement was intended by each of Offshore, the defendant and the plaintiff to create contractual relations directly (and only between) Offshore and the plaintiff. The evidence did not support such a submission. There was no direct contact between Offshore and the plaintiff, and the terms on which the plaintiff dealt with the defendant were not the same as the terms on which the defendant dealt with Offshore. The automatic termination clause did not forfeit the policy under English law because the premiums were deemed paid by the brokers and there was no arguable defence on that ground. (De Bussche v AltELR(1878) 8 ChD 286, Calico Printers Association v Barclays Bank LtdUNK(1930) 36 Com Cas 71 and Henderson v Merrett Syndicates[1994] CLC 918; [1995] 2 AC 145considered; Velos Group Ltd v Harbour Insurance Services LtdUNK[1997] 2 Ll Rep 461distinguished.)
Rix J: This is an application for summary judgment under RSC, O. 14 by a placing broker against a producing broker to be paid for the insurance premiums which the former has itself paid to underwriters. The producing broker denies liability on the primary ground that it was at all times acting as an agent only and that the sole responsibility for the payment of premiums was that of its principal. It submits that the plaintiffs' claim is in any event and for other reasons unsuitable for summary treatment.
The plaintiffs are a firm of Lloyd's brokers, Prentis Donegan & Partners Ltd. The defendants are insurance brokers based in New York, Leeds & Leeds Co Inc. The claim, in the sum of US$125,135.90, is in respect of the third and fourth instalments of net premium payable under policies of marine insurance under which three shipowning companies (the “shipowners”), managed by an English company called Offshore Oil Services UK Ltd (“Offshore”), were insured for hull and machinery risks. Offshore was itself the London agent of the shipowners' foreign managers, a company called Kassos Maritime Enterprises Ltd (“Kassos”).
The marine policies were written in part by Lloyd's syndicates and in part by various insurance companies. The interests on each of the three vessels were valued at $6.4m respectively. The policy period was 12 months from 31 August 1996. The gross premium was $284,399.76, the amount recorded in the policies. The net premium agreed with underwriters was $232,923.40, a deduction of 18.1 per cent. The brokerage split agreed between the plaintiffs and the defendants was 6.1 per cent for the plaintiffs and 12 per cent for the defendants. Thus on 5 September 1996 the plaintiffs invoiced the defendants for a net amount of $250,271.79, applying a deduction of 12 per cent upon the gross figure. That premium was payable in four equal instalments of $62,567.95 on 31 August, 31 October 1996, 31 January and 30 April 1997.
The premium payable by the shipowner assureds was of course the gross premium. To that the defendants added a “surcharge” of $3,600 per vessel. The defendants invoiced Offshore in respect of each assured separately under three debit notes dated 23 September 1996. Each was in the sum of $98,320, being made up as to $94,720 premium plus $3,600 surcharge. That gave a total sum due of $294,960. The policy gross premium worked out at not $94,720 per vessel but $94,800 (to be precisely accurate, $94,799.92): I do not know why there was the small adjustment to $94,720 in the defendants' debit notes. The premium payable under the defendants' debit notes was also payable in four instalments, but the dates of them differed somewhat from those specified in the plaintiffs' debit note. Moreover, the instalments were not for identical amounts throughout the year. Thus, across the three debit notes, $79,500 was payable on each of 31 August and 19 November 1996, and $67,980 was payable on each of 17 February and 17 May 1997.
These instalment dates, but not the loading of the first two instalments, I was told reflected the terms of the policies, which provided, by a standard printed clause on the “Deferred Premium — 10/21/81” form, that the premium was “due and payable in cash at the office of the Underwriters” in four instalments of 25 per cent each 30, 80, 170 and 260 days after policy attachment. On my understanding, however, the policies attached at 31 August 1996, so that the first instalment was strictly due at 30 September, not 31 August, and the other instalments similarly fell due 30 days later than the dates specified by the defendants. The intervals of the defendants' debit notes did, however, reflect the intervals of the clause.
The policies also contained an “Automatic Termination” clause as follows:
“This Policy shall automatically terminate (no notice to the Assured(s) being required) and all liability of Underwriters herein shall end at noon of the tenth day following non-payment of any of the last three instalments on the due date thereof, unless such payments are made within such ten day period.”
Section 53(1) of the Marine Insurance Act 1906, reflecting the custom previously established in the marine insurance market in England, provides that the broker is directly responsible to underwriters for payment of premium, as follows:
“Unless otherwise agreed, where a marine policy is effected on behalf of the assured by a broker, the broker is directly responsible to the insurer for the premium, and the insurer is directly responsible to the assured for the amount which may be payable in respect of losses, or in respect of returnable premium.”
The net premiums due to the underwriters, in accordance with this custom and statutory provision, were automatically debited from the plaintiffs' accounts and credited to the underwriters. It has to be said, however, that as a result of delay in processing the relevant paperwork, the debiting of the premium instalments was late. The initial delay may have been the fault of the plaintiffs, for the automatic Lloyd's and companies' settlement systems only take over once the relevant signing slips and premium advice notes are sent to the relevant bureaux. Ultimately, however, the late payment of subsequent instalments must have been the responsibility of the automatic systems and not of the plaintiffs. At any rate there is clear evidence before me that the plaintiffs have indeed been debited in respect of the full amount of premium due to the underwriters.
The plaintiffs were in turn paid the first two instalments of premium (the gross premium less the 12 per cent deduction) by the defendants, although there appears to have been some initial difficulty about the second instalment. The...
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