Society of Lloyd's v Fraser
| Jurisdiction | England & Wales |
| Judge | Hobhouse,Pill,Judge L JJ |
| Judgment Date | 31 July 1998 |
| Date | 31 July 1998 |
| Court | Court of Appeal (Civil Division) |
Court of Appeal (Civil Division).
Hobhouse, Pill and Judge L JJ.
Anthony Grabiner QC, Richard Jacobs QC and David Foxton (instructed by Dibb Lupton Alsop) for the Society of Lloyd's.
Simon Goldblatt QC and Vincent Nelson (instructed by Epstein Grower & Michael Freeman) for names.
R Mathew QC, M Jefferis and J Anderson (instructed by James Barnett) for names.
Michael Wood of Charles Russell for names.
A Leczner QC (instructed by Warner Cranston) for names.
Applicant names appeared in person.
The following cases were referred to in the judgment of the court:
Allen v Lloyd's (unreported)
Arbuthnott v Fagan [1995] CLC 1396 [1995] CLC 1396
Ashmore v British Coal CorpELR [1990] 2 QB 338
Brown v KMR Services Ltd [1995] CLC 1418 [1995] CLC 1418
Coca-Cola Financial Corp v Finsat International Ltd [1996] CLC 1564 [1996] CLC 1564; [1998] QB 43
Foster v DriscollELR [1929] 1 KB 470
Henderson v HendersonENR (1843) 3 Hare 100; 67 ER 313
Henderson v Merrett Syndicates Ltd (unreported, 26 October 1995, Cresswell J)
Higgins v Marchant & Eliot Underwriting Ltd [1996] CLC 301 [1996] CLC 301
House of Spring Gardens v WaiteELR [1991] 1 QB 241
Manning v Society of Lloyd's [1997] CLC 1411 [1997] CLC 1411
Missouri Steamship Co, ReELR (1889) 42 ChD 321
Pezim v British Colombia (1994) 114 DLR (4th) 385
Ralli Bros v Compania Naviera Sota y AznarELR [1920] 2 KB 287
Regazzoni v KC Sethia (1944) LtdELR [1958] AC 301
Vita Food Products Inc v Unus Shipping Co LtdELR [1939] AC 277
WRM Group Ltd v Wood [1998] CLC 189 [1998] CLC 189
Insurance — Lloyd's market — Lloyd's sued names who did not accept reconstruction and renewal plan for summary judgment for Equitas reinsurance premium — Whether names had any arguable defences.
These were applications by Lloyd's names for leave to appeal against O. 14 judgments entered against them by Lloyd's.
The Society of Lloyd's took proceedings against names who had not accepted the Lloyd's reconstruction and renewal plan (“R & R”). Although those names had not accepted R & R their Lloyd's liabilities were to be reinsured through Equitas and Lloyd's, as assignee, claimed the Equitas reinsurance premium from names. The litigation was managed by Colman J who determined under O. 14A (see [1997] CLC 759 and 1012) that various defences put forward by names were unsustainable, in particular that non-accepting names were bound by a “pay now sue later” clause (cl. 5.5) of the Equitas reinsurance contract and could not set off against their liability for premium any claim they had against Lloyd's for fraud. The clause did not seek to bar such claims but only to prevent set-off. The Court of Appeal ([1997] CLC 1398 [1997] CLC 1398) dismissed appeals from Colman J's judgments and ruled that it was not open to names to argue in the Court of Appeal that inclusion of cl. 5.5 in the reinsurance contract was itself fraudulent. On the basis that all issues of liability which names sought to raise in answer to the claim for the Equitas reinsurance premium had been decided in Lloyd's favour (except for an issue raised by Canadian names under Canadian securities legislation and possibly an EC law point) Lloyd's began to apply for summary judgment against non-accepting names. On those applications names sought to raise the defence that Lloyd's had included cl. 5.5 in the Equitas reinsurance contract in bad faith and could not rely on it. Tuckey J ([1998] CLC 127) held that it was an abuse of process to raise the bad faith defence because it was too late and would subvert the court's management of the litigation, and that the courts' previous decisions had the character of test cases and were binding on all non-accepting names. Tuckey J also decided the Canadian securities legislation point against the names. The EC law point was reserved to the Court of Appeal should leave to appeal be given. Tuckey J directed O. 14 judgments to be entered against names and they sought leave to appeal.
Held, refusing all the applications for leave to appeal:
1.The bad faith argument provided no basis for distinguishing the previous decisions: it provided no basis for the argument that any of those decisions was wrong. The Court of Appeal had already decided that the reconstruction and renewal scheme was within the powers of Lloyd's and that cl. 5.5 was enforceable. The clause was a standard type of clause and an obviously appropriate part of the reinsurance contract which was an essential part of R & R. Since the bad faith argument did not disclose a triable defence it was not necessary to decide whether some or all of the applicants could successfully challenge the abuse of process ruling.
2.If it had been necessary to consider the merits of Tuckey J's judgment, he was right that it was an abuse of process for parties coming within a scheme of marshalled litigation to seek without justification to avoid the outcome of the cases selected for hearing. The administration of justice and fair disposal of litigation required those who had chosen not to intervene should be bound. Tuckey J was also right that there was a spectrum of names between those who were clearly bound and those who merely had notice of intended proceedings. If Lloyd's did not commence proceedings against a name and did not apply for an order which put him on terms as to the raising of defences or required him to be bound by the outcome of other proceedings then it was not an abuse of process for him to raise any defence when he was sued. The number of applicants who would have been found to have been in that position was probably very small.
3.The Canadian names' contracts for membership of Lloyd's were made in England and governed by English law. The fact that the “sale procedure” might have breached Canadian securities legislation was irrelevant. The contract did not require an illegal performance in Canada nor did enforcement of the contract by Lloyd's. Tuckey J was right that the Canadian securities legislation did not provide any basis for giving leave to defend.
4.European law did not provide a defence to the claim for premium. Names sought to rely on the alleged direct effect of the non-life insurance directives, arguing that Lloyd's was in breach of the directives and that the breaches gave rise to defences to the claim for premium. Apart from the question of direct effect, names had remedies for the alleged breaches under UK law. Clause 5.5 did not deprive the names of those remedies but only prevented them setting them off against their liability for the reinsurance premium.
(Delivered by Hobhouse LJ)
In March 1998 Tuckey J sitting in the Commercial Court directed that judgments be entered under O. 14 against a large number of individuals. The plaintiff in all the relevant actions in whose favour the judgments were entered were the Society of Lloyd's. The various defendants were underwriting names who had not accepted the settlement offered to them in August 1996. The judgments were for various liquidated sums and interest which the society claimed were payable by the individual names under the reinsurance and run-off contract dated 3 September 1996. The sums of money involved are in the aggregate very substantial and of very considerable concern to many of the individual names who say that they will be unable to satisfy the judgments which have been entered against them. The extent to which this is correct has not been investigated but it must be assumed that in respect of at least some of the names this is the position. Similarly it must be accepted that it is of importance to the society that it should recover the sums which it says are owing to it.
The society started to send out letters before action to non-accepting names in October 1996 and in the same month started to issue writs against them individually. This process continued until the following summer and some individual names did not have writs served upon them until after July 1997. Thus it was that although by the latter part of 1996 there were well established proceedings against a large number of non-accepting names which claimed sums said to be due under the reinsurance contract, not all the individuals with whom we are now concerned and against whom O. 14 judgments have now been entered were parties to any litigation at that stage although they no doubt appreciated that, failing their reaching some acceptable agreement with the society, they too would be sued.
This feature has given rise to one of the difficulties which we have had to consider. In November 1996, Colman J sitting in the Commercial Court gave directions for the marshalling of the actions and the determining of certain issues under RSC, O. 14A. The purpose of this exercise was to identify what arguments it was contended by the various defendants would amount to defences to the claims of the society and to determine whether they had legal validity. He also gave certain directions concerning the pending O. 14 proceedings which by then had been started. In a series of subsequent judgments he determined certain points under O. 14A. These determinations are contained in the orders of 20 February and 24 April 1997 (see [1997] CLC 759 and 1012). These orders were appealed by certain of the names to the Court of Appeal. On 31 July 1997 the Court of Appeal dismissed those appeals (see [1997] CLC 1398).
These points having been determined, it was necessary for the Commercial judge to consider further the O. 14 summonses which had been issued both in the actions started in 1996 and those started subsequently. Tuckey J took charge of the litigation and gave various directions in October and December 1997 in order to enable all the arguments which the various defendants were raising in answer to the applications for O. 14 judgment against them to be considered. So far as any question of...
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