Society of Lloyd's v Fraser [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Tuckey J. |
| Judgment Date | 03 December 1997 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 03 December 1997 |
Queen's Bench Division (Commercial Court).
Tuckey J.
Richard Jacobs (instructed by Freshfields) for the Society of Lloyd's.
Alan Maclean (instructed by Brindley Twist Taft & James, Coventry) for Mr Fraser.
Simon Goldblatt QC (instructed by Epstein Grower & Michael Freeman) for names.
The following cases were referred to in the judgment:
AB v John Wyeth & Bros Ltd (unreported, 13 December 1996, CA).
Ashmore v British Coal CorpELR[1990] 2 QB 338.
Bragg v Oceanus Mutual Underwriting Association (Bermuda) LtdUNK[1982] 2 Ll Rep 132.
Gleeson v J Wippell & Co LtdWLR[1977] 1 WLR 510.
Kruse v JohnsonELR[1898] 2 QB 91.
Nana Ofori Atta II v Nana Abu Bonsra IIELR[1958] AC 95.
Yat Tung Investment Co Ltd v Dao Heng Bank LtdELR[1975] AC 581.
Lloyd's insurance market Abuse of process Res judicata Case management of test cases Privity Lloyd's sought summary judgment against names for payment of Equitas reinsurance premium Judge and Court of Appeal ruled on defences put forward by names Names sought to put forward further fraud defence Whether abuse of process for names to seek to put forward further defence Whether names were privy to and bound by decisions in test cases.
This was a further hearing of Lloyd's summonses under O. 14 seeking summary judgment for premium due under the Equitas reinsurance contract from names who did not accept the Lloyd's reconstruction and renewal settlement.
In two hearings Colman J ruled that various defences put forward by the names were unsustainable, see [1997] CLC 759 and 1012. In particular Colman J held that the non-accepting names were bound by the contract and that cl. 5.5, the pay now sue later clause, prevented the names from raising their claims in fraud as a defence to the claim for premium. The names appeal to the Court of Appeal was dismissed, see [1997] CLC 1398. After the Court of Appeal hearing some names indicated that they intended to allege that cl. 5.5 had been included in the Equitas reinsurance contract in bad faith and was therefore unenforceable. Lloyd's contended that it would be an abuse of process for the names to try to raise that allegation at that stage.
Held, ruling that it would be an abuse of process for names to raise the bad faith allegation as a defence to Lloyd's claim for the Equitas premium:
1. The bad faith allegation pre-dated the second hearing before Colman J. It belonged to the subject-matter of those proceedings and amounted to a collateral attack on the decisions made at those hearings. The point could and should have been raised at the latest before the second hearing before Colman J and was omitted through inadvertence. (Yat Tung Investment Co Ltd v Dao Heng Bank LtdELR[1975] AC 581applied.)
2. Colman J and the Court of Appeal were not just deciding points of law under RSC, Ord 14A. The hearings were devised as part of a process of case management to test whether the non-accepting names had any arguable defences to Lloyd's claims. If the bad faith allegation could be raised it would have the effect of subverting the court's management of the litigation. When the court had ordered the determination of test cases in group litigation it would not permit others to seek to take points at a later stage which would subvert the court's management of the litigation. (Ashmore v British Coal CorpELR[1990] 2 QB 338 and AB v John Wyeth & Bros Ltd (unreported, 13 December 1996, CA) considered.)
3. The names were privy to the test cases and bound by the results either because there was a sufficient degree of identity of interest between their cases and the test cases to make it just to hold that the result of the test cases was binding on them, or because names who were interested in the outcome were content to stand by and see the battle fought by others, knowing that they would be sued once the test cases were over. (Gleeson v J Wippell & Co LtdWLR[1977] 1 WLR 510 and Nana Ofori Atta II v Nana Abu Bonsra IIELR[1958] AC 95applied.)
Tuckey J:
This is a further chapter in the story of Lloyd's attempts to obtain summary judgment for premium due under the Equitas reinsurance contract (the contract) from names who did not accept the R & R settlement. Following two hearings before Colman J and a hearing before the Court of Appeal (see [1997] CLC 759, 1012 and 1398) earlier in 1997, Lloyd's and this court believed that with one exception all possible arguable defence to the claims had been considered and rejected. Two of the main issues decided at these hearings were that the names were bound by the contract and in particular its cl. 5.5, the pay now sue later clause, and that this clause prevented the names from raising their claims in fraud as a defence to Lloyd's claims for premium. After the Court of Appeal hearing Lloyd's issued O. 14 summonses against 628 names which came before me for directions on 31 October 1997. During the fortnight before this hearing Epstein Grower and Michael Freeman (EGMF) who acted for names in the earlier hearings said on behalf of the names that they represented (383 of them) that they intended to allege that cl. 5.5 had been included in the contract in bad faith and was therefore unenforceable (see Kruse v JohnsonELR[1898] 2 QB 91). Lloyd's contend that it would be an abuse of process for them to do so in the light of what has happened and that is the issue I have had to decide. At the hearing I directed that any other Name who wanted to rely on this new allegation should say so by 14 November 1997. In the event one name (Mr Fraser) represented by solicitors and counsel and five names representing themselves did so.
In order to decide this issue it is necessary to look in some detail at what has happened in the last 18 months.
The reasons for R & R and the scheme by which it was implemented have been described at length in earlier judgments and it is not necessary to repeat this background. Pages 13991401 of the Court of Appeal's judgment (Society of Lloyd's v Leighs[1997] CLC 1398) contain a useful summary.
The R & R package was put together in 1995 and 1996. It was approved at an EGM of Lloyd's on 15 July 1996 following intensive scrutiny which included reviews by various committees representing names' interests and independent solicitors. The settlement offer was made to names on 30 July 1996. Like the settlement information document which had been published a month or so earlier, it explained that if the offer was accepted by a sufficiently large number of names the liability of all names on the 1992 and prior years of account would be reinsured by the contract. The premium for the reinsurance would be payable by all names and the contract would contain a pay now sue later clause.
Lloyd's would take proceedings to recover the premium. The offer document referred to allegations of fraud which had been made against Lloyd's. These were allegations that during the 1980s names had been induced to become or remain members by fraudulent misrepresentations which concealed the scale of the threat to Lloyd's from asbestosis claims. From about 1991 the facts giving rise to this allegation had been known and it had been used by some names defensively. They contended that it gave them the right to rescind their membership and damages.
The settlement offer was accepted by over 94 per cent of names. The decision to implement R & R was taken on 3 September. On 12 September Lloyd's wrote to non-accepting names and told them that if they did not pay the Equitas premium proceedings would be taken against them.
On 1 October Lloyd's solicitors sent out letters before action to names resident in the UK, Canada and jurisdictions other than the USA. On 10 October 135 writs were issued against UK names. Further writs were issued and served during October including writs against a large number of Canadian names. Letters before action were sent to names resident in the USA on 21 October 1996.
In the meantime, from at least July 1996, steps were being taken by those who did not intend to accept the settlement to mobilise an action group to continue the fight against Lloyd's. On 9 September under the banner of the United Names Organisation (UNO) non-accepting names were invited to band together to form a fighting force to defend themselves against attack by Lloyd's by relying principally on the fraud defence. Mrs MacKenzie-Smith, Sir William Jaffray and Mr Thomas-Everard, about which more later, were shown as ad hoc members of the committee of UNO. The application for membership of UNO said I hereby instruct EGMF that I wish to plead or support a pleading of bad faith/fraudby way of defence and counterclaim to any claim against me by...
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