Society of Lloyd's v Leighs [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Colman J |
| Judgment Date | 23 April 1997 |
| Date | 23 April 1997 |
| Court | Queen's Bench Division (Commercial Court) |
Queen's Bench division (Commercial Court)
Colman J.
Anthony Grabiner QC, Richard Jacobs and David Foxton (instructed by Freshfields) for the plaintiffs.
Romie Tager QC and Ms I Newman (instructed by Epstein Grower) for the defendants.
The following cases were referred to in the judgment:
Adams v Dunn [1978] CrimLR 365.
Babcock v LawsonELR (1880) 5 QBD 284.
Bedford Insurance v IRBELR [1985] QB 966.
Canada Steamship Lines Ltd v The KingELR [1952] AC 192.
Clarke v Dickson (1858) E B & L 148; 120 ER 463.
Coca-Cola Financial Corp v Finsat international Ltd [1996] CLC 1564; [1998] QB 43.
Colonial Bank v European Grain and Shipping Ltd (“The Dominique”)UNK [1989] 1 Ll Rep 431.
Continental Illinois National Bank & Trust Co of Chicago v PapanicolaouUNK [1986] 2 Ll Rep 441.
Croft v LumleyENR (1858) 6 HLC 672; 10 ER 1459.
Erlanger v New Sombrero Phosphate CoELR (1878) 3 App Cas 1218.
Goodbarne v BuckUNK [1939] 4 All ER 107; [1940] 1 All ER 613.
Hulton v HultonELR [1917] 1 KB 813.
Lagunas Nitrate Co v Lagunas SyndicateELR [1899] 2 Ch 392.
Lamport & Holt Lines Ltd v Coubro & Scrutton (M & I) LtdUNK [1982] 2 Ll Rep 42.
Modern Engineering (Bristol) Ltd v Gilbert-Ash (Northern) LtdELR [1974] AC 689.
Mondel v SteelENR (1841) 8 M & W 858; 151 ER 1288.
Morrison v Universal Marine Insurance CoELR (1873) LR 8 Ex 197.
Newfoundland (Government of) v Newfoundland Railway CoELR (1888) 13 App Cas 199.
Oakes v TurquandELR (1867) LR 2 HL 325.
Pearson (S) & Son Ltd v Lord Mayor of DublinELR [1907] AC 351.
Rawson v SamuelENR (1841) Cr & Ph 161; 41 ER 451.
Rutter v PalmerELR [1922] 2 KB 87.
Smith v South Wales Switchgear LtdWLR [1978] 1 WLR 165.
Society of Lloyd's v Clementson (No. 2) [1996] CLC 1590.
Spence v CrawfordUNK [1939] 3 All ER 271.
Stewart v Oriental Fire and Marine Insurance CoELR [1985] QB 988.
Tennent v City of Glasgow BankELR (1879) 4 App Cas 615.
Lloyd's insurance market — Lloyd's sought summary judgment to recover Equitas reinsurance premium — whether defendant names had arguable defence on basis of allegation that they were induced to become members of Lloyd's by Fraudulent misrepresentation — whether names entitled to rescind membership contract — whether restitutio in integrum possible — Whether rescission possible without substantial restitutio — Whether names entitled to set off damages claim — materiality of anti-set-off clause — Whether there should be a stay of execution of summary judgment.
This was the second phase of applications by Lloyd's for judgment under O.14 against defendant names on the claim by Lloyd's for the defendants' respective portions of the amount payable to Lloyd's in respect of the reinsurance premium originally due to Equitas under Lloyd's' reconstruction and renewal plan (“R & R”).
The judge had held under O.14A that the defendants had no defence to Lloyd's' claim on the ground that they were not bound by R & R because they had not agreed to it: see [1997] CLC 759.
The second phase of the applications raised three issues: (1) whether the defendants were entitled to rescind and had rescinded their membership contracts with Lloyd's and avoided them ab initio, on the assumption that they were induced to become and/or remain members of Lloyd's by misrepresentations fraudulently made by Lloyd's or its agents; (2) whether, if the defendants were not been entitled to rescind but had a cross-claim against Lloyd's for damages for fraudulent misrepresentation, they were entitled to set off that cross-claim against Lloyd's' claim for Equitas premium; Lloyd's, as assignee of the premium from Equitas, argued that it was entitled to the benefit of an anti-set-off or “pay now sue later” clause (cl. 5.5) in the reinsurance contract between Equitas and the defendants; (3) whether if the defendants had no more than a counterclaim for damages for fraud for the purposes of 0.14, there should be a stay of execution; Lloyd's again relied on an express provision in cl. 5.5 of the Equitas reinsurance contract whereby the defendants each waived any claim to any stay of execution.
Held, giving judgment for Lloyd's under O.14A:
1. The defendants were not entitled to rescind their contracts of membership with Lloyd's. The benefit of the subject-matter of the contract of membership could not be returned to Lloyd's if the contract were avoided ab initio, because by its very nature it was incapable of being returned. The subject-matter having been irretrievably consumed in the course of the defendants' conduct of their underwriting business over the years, there could be no precise or substantial restitutio in integrum.
2. Nor could restitutio be partially achieved to the extent where it would be possible to create a just and equitable dissolution of the contract of membership. There were considerations weighing conclusively against the court's exercise of its equitable jurisdiction to avoid the contract of membership ab initio without adjustment. In the case of a name who gave notice to rescind before the Equitas reinsurance contract was entered into, those considerations were the detriment to Lloyd's of administrative disruption and the consideration that avoidance of the contract would lead to unlawful contravention of the Insurance Companies Act by the rescinding name. In the case of names who gave notice to rescind after the Equitas contract had begun to operate there was the additional consideration that the payment of claims and provision of administrative services by Equitas for the benefit of the defendant without his having to pay premium would be prejudicial to Lloyd's.
3. As regards names who gave notice to rescind before the Equitas contract came into effect, such rescission, if otherwise valid, would not be impossible due to its impact on the position of policy-holders since it would still be open to policy-holders to sue the name on the policy in spite of rescission. However, a name who waited to give notice to rescind until after the Equitas contract had become binding on him, could not then rescind because the effect of rescission would be to deprive Equitas of its accrued right to the premium under the contract which Equitas had already partly performed.
4. It was clear that the exclusion of set-off in cl. 5.5 on its proper construction precluded the set-off of claims against an assignee, such as Lloyd's which was endeavouring to recover the Equitas premium. Accordingly, the assignee could rely on that clause to avoid what would otherwise be the procedural consequences of the reinsured name asserting such counterclaim or set-off.
5. There was no reason in principle why a clause directed to the procedural insulation of one class of claim from all cross-claims should be construed as inapplicable to cross-claims in fraud, provided that clear words were used. Since cl. 5.5 was neither an exemption clause nor an indemnity clause and its wording was wide enough to cover cross-claims for fraud, it should be construed as insulating claims for premium from such cross-claims.
6. The words of cl. 5.5 were wide enough to include set-off by way of equitable defence to the claim and even if equitable set-off by way of defence was excluded from the scope of cl. 5.5, the defendant's claim for fraud was not such a set-off.
7. Clause 5.5 was not caught by s. 3 of the Misrepresentation Act 1967. It did not exclude or restrict the remedy by way of damages for fraudulent misrepresentation. It insulated recovery of the Equitas premium from recovery of damages for other claims. In any event it could not be suggested that the alleged fraud induced the Equitas contract, which contained cl. 5.5, and there was therefore no basis for the application of s. 3.
8. By cl. 5.5(a) the names waived any claim to any stay of execution and consented to the immediate enforcement of any judgment in respect of the unpaid premium. It was not suggested and could not plausibly be suggested that Lloyd's might not be in a position to satisfy a judgment on the counterclaim for fraud. Accordingly, whatever strength the counterclaim might be assumed to have, there should be no stay of execution. The presence of cl. 5.5(a) did not affect the matter.
Colman J:
This is the second phase of the applications by Lloyd's for judgment under 0. 14against the defendants upon the claim by Lloyd's for the defendants' respective portions of the amount payable to Lloyd's in respect of the reinsurance premium originally due to Equitas under the R & R regime. The facts relating to R & R, and the circumstances in which the defendants, who did not accept R & R, became bound to pay the Equitas reinsurance premium to Lloyd's, as assignee of the premium from Equitas, have already been set out in detail in my judgment in the first phase of these applications which I delivered on 20 February 1997: see [1997] CLC 759.
The issues raised by the second phase of these applications raise points of fundamental importance in the law of rescission of contracts for fraudulent misrepresentation and of the principles of set-off as between the principal debtor and the assignee of a chose in action.
There are three issues before the court. These can be described as:
-
(1) the rescission issue;
-
(2) the set-off issue; and.
-
(3) the stay of execution issue.
The rescission issue is based, for present purposes only and entirely without any factual admission by Lloyd's, on the assumption that the defendants were each induced to become members of Lloyd's by signing the 1986 general undertaking, or subsequently to remain members of Lloyd's, by misrepresentations fraudulently made by Lloyd's or its agents. The defendants contend that by reason of such misrepresentations each of them was entitled to rescind and has rescinded his membership contract with Lloyd's and thereby effectively avoided his membership ab initio. Each contends that in consequence he is not liable to pay the Equitas...
To continue reading
Request your trial
-
Society of Lloyd's v Leighs
...of Lloyd's so that the council had no authority over or on behalf of them thereafter. This possibility was considered by Colman J at [1997] CLC 1012 at p. 1027 and rejected. In a passage, dealing with a contract for services, Chitty at para. 6–073 comments: “The suggestion that a partly per......
-
Society of Lloyd's v White [QBD (Comm)]
...is a party to the English test cases which have found that rescission of the membership contract is barred under English law, see: Society of Lloyd's v. Leighs [1997] CLC 38As to (2) vexatious and oppressive conduct, the defendants' commencement and pursuit of legal action in Australia in ......
-
Society of Lloyd's v Fraser
...hearing, Colman J, in April, delivered a further reasoned judgment covering the fraud issues which the parties before him had raised ([1997] CLC 1012) and declared that: “1. The defendant is unable to rescind his membership of Lloyd's. 2. Clause 5.5 of the reinsurance and run-off contract p......
-
Garrow v Society of Lloyd's
...1/87)WLR [1987] 1 WLR 119. Society of Lloyd's v Fraser [1998] CLC 127; [1998] CLC 1630 (CA). Society of Lloyd's v Leighs [1997] CLC 759; [1997] CLC 1012">1012; [1997] CLC 1398 (CA). TSB Bank plc v PlattsUNK [1998] 2 BCLC 1. Lloyd's insurance market — Claim by Lloyd's for Equitas reinsurance......