Sirius International Insurance Company (Publ) v FAI General Insurance Ltd and Others
| Jurisdiction | England & Wales |
| Judge | Lord Justice May,Lord Justice Carnwath,Mr Justice Wall |
| Judgment Date | 04 April 2003 |
| Neutral Citation | [2003] EWCA Civ 470 |
| Docket Number | Case No: A2/2002/1658 |
| Court | Court of Appeal (Civil Division) |
| Date | 04 April 2003 |
[2003] EWCA Civ 470
Lord Justice May
Lord Justice Carnwath and
Mr Justice Wall
Case No: A2/2002/1658
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM
The Hon Mr Justice Jacob
MICHAEL BRIGGS QC (instructed by Ince & Co) for the Appellant
G VOS QC AND P ARDEN (instructed by Reynolds Porter Chamberlain) for the Respondents
Introduction
This is an appeal by the defendants, FAI General Insurance Company Limited, against a decision and order of Jacob J of 23 rd July 2002 on the trial of preliminary issues. The judge gave them permission to appeal. The issue is whether the claimants, Sirius International Insurance Corporation, or FAI's provisional liquidators are entitled to US$5m. now in an escrow account. The source of the money was a letter of credit established by FAI for the benefit of Sirius which the parties agreed should be drawn down into the escrow account pending determination of the issue.
The judge decided that one of the conditions of an agreement between the parties recorded in a letter dated 3 rd September 1999 as to the circumstances in which Sirius were entitled to draw on the letter of credit was satisfied. He also decided however that, if the condition had not been satisfied, FAI could have relied on the agreement to prevent Sirius from resorting to the letter of credit, although the letter of credit itself contained no such restriction. The first subject matter of the appeal is the construction of the schedule to a Tomlin order dated 6 th April 2001 which had the effect of compromising arbitration proceedings between Sirius and FAI. By respondents' notice or, if necessary, by cross-appeal, Sirius challenge the judge's decision rejecting their contention that the letter of credit was autonomous entitling them to resort to it according to its terms without reference to the underlying agreement by which it was established.
Facts
The facts were not in the end in dispute. The judge summarised them as follows:
"A syndicate at Lloyd's, Agnew, wished to reinsure its liabilities. Its brokers were Lambert Fenchurch Ltd. ("Lambert"). FAI General Insurance Ltd. ("FAI") were proposed as the reinsurers. Agnew were not happy with this, there being questions (justified in the event) as to the solidity of FAI. Agnew wanted a stronger reinsurer. Sirius International Insurance Company Ltd. became that reinsurer. This was set up in the following way: Sirius wrote the policy on the basis that FAI would in turn pay Sirius should Sirius be called upon to pay. In the jargon of the business, Sirius "fronted" the arrangement and "retroceded" it to FAI. As a requirement for fronting the reinsurance Sirius required and eventually got a letter of credit from a bank, namely Westpac. … it is now common ground that the letter of credit which was eventually provided was on the terms contained in an offer letter of 3 rd September 1999, the contract being concluded by an acceptance letter of 22 nd October 1999.
The key terms of the letter of 3 rd September read as follows:
"With regard to the LOC, we are happy to agree to the two conditions which you propose, but with reservations as regards the first of the conditions. We therefore undertake that we will not agree or pay any claim presented to Sirius by the Agnew Syndicate without FAI's prior agreement in writing, nor will we draw down under the LOC, unless (1) FAI has agreed that Sirius should pay a claim but has not put Sirius in funds to do so, notwithstanding the simultaneous settlements clause in our retrocession contract (see below), or (2) the Agnew Syndicate obtains a judgment or binding arbitration award against Sirius which Sirius is obliged to pay.
We agree unreservedly to the second condition, ie. that the existence of the LOC will be kept completely confidential …"
An additional paragraph of the letter of 3 rd September 1999, not quoted by the judge was as follows:
"We note what you say concerning the provision of a binding letter. While we appreciate the force of the arguments which you make, we should point out that FAI has already agreed to a simultaneous settlements clause which provides that FAI shall pay their share of any loss under the retrocession simultaneously with Sirius' payment to Agnew. It is only on this basis that we will not pursue further our request for a binding letter making it a condition precedent to our obligation to pay Agnew's claims that FAI first puts us in funds to do so."
The judgment continued:
"The letter of credit from Westpac finally emerged on 24 th January 2000. By this time Agnew had made a claim against Sirius under the reinsurances. A dispute arose: were Sirius liable to Agnew? If they were, it would follow that FAI would be correspondingly liable to Sirius under the back-to-back retrocession arrangements.
On 23 rd March 2000 Lambert, Sirius and Agnew entered into a tripartite funding arrangement. Clause 2 says:
"Sirius acknowledges that Agnew has a reasonable case for arguing: (a) that there exists no ground upon which to challenge the Reinsurances, so that the Reinsurances should be deemed fully binding and effective;"
(b) does not matter. The agreement went on to provide that Agnew would not take steps to enforce payment by Sirius until specified proceedings against FAI were concluded, and Lambert agreed to fund Agnew for its losses by way of loan until then.
Sirius agreed to try to set up an arbitration between the real protagonists, namely Agnew and FAI. If that failed (as it did) Sirius would permit Lambert to use its name to enforce its rights. Lambert agreed to indemnify Sirius completely against all and any liability to FAI. Any recoveries were to be applied by Lambert on behalf of Sirius towards payment of Sirius' liability to Agnew under the reinsurances.
In May 2000 Sirius, behind whom by then stood Lambert, started an arbitration against FAI. In March 2001, owing to the insolvency of its parent, provisional liquidators were appointed over FAI. This had the effect, under section 132 of the Insolvency Act 1986, of staying the arbitration proceedings. These by then had become very heavy. Sirius applied to the court for the removal of the stay. By then of course it was the provisional liquidators who were running FAI, as they continue to do at present. They are formally named as defendants, but nothing turns on that.
The application for [for the removal of the] stay was compromised by a Tomlin order of 6 th April 2001. I turn to some of the terms of the schedule to this order:
"1. FAI … is indebted to [Sirius] in the sum of US$22,500,000 and [Sirius] shall be entitled to prove in the liquidation … in the said sum …
2. [Sirius] shall draw down on [the letter of credit].
3. [Sirius] shall pay the proceeds of the LOC … into an escrow account to be held together with accrued interest thereon by [a firm of solicitors] pending the resolution of the parties' claims (if any) in respect of the LOC.
4. For the avoidance of doubt, the position and all arguments of the Applicant and the Respondents in respect of the LOC are preserved in respect of the proceeds notwithstanding the terms of this Schedule.
5. Save for the parties' rights with respect to the LOC and the agreements associated to the LOC, the terms herein shall be in full and final settlement of all claims raised by either party in the arbitration proceedings …"
The money was drawn down and put in an escrow account. The question is: who is entitled to it? Sirius or FAI?
Because there is no dispute as to the relevant facts, it is agreed that I can and should determine certain preliminary points. These are somewhat opaquely defined in an order of Mr Registrar Baister of 27 th May 2002. There are no actual points of claim or defence on the points. When I read the skeleton arguments, there were signs of ships passing in the night, points being answered which were not being taken and so on. The course of argument before me has narrowed these points further. It is to the points as they finally emerged that I now turn."
The judge's decision
The first issue before the judge was whether the preconditions entitling Sirius to draw down the letter of credit were fulfilled.
Sirius contended that the terms of paragraph 1 of the schedule to the Tomlin order in substance fulfilled the first alternative condition of the letter of 3 rd September 1999, that is that FAI had agreed that Sirius should pay Agnew's claim but had not put Sirius in funds to do so. The judge rejected FAI's contention that paragraph 1 determined the amount for which Sirius were entitled to prove in FAI's liquidation or scheme of arrangement, but did not constitute an agreement that Sirius should pay Agnew that amount. The judge further rejected FAI's contention that paragraph 4 of the schedule to the Tomlin order preserved arguments relating to the letter of credit which included those which, according to Sirius, had been determined by the agreement in paragraph 1 of the Tomlin order. FAI appeal against these decisions.
Sirius contended in the alternative that the letter of credit was an autonomous contract not affected by the conditions as to its draw down agreed between themselves and FAI. They were entitled to draw the letter of credit according to its terms. Even if Sirius resorted to it in breach of those conditions, the remedy would be a claim for damages and an injunction would not be granted. Sirius further contend that, in the light of the...
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