Society of Lloyd's v Leighs [QBD]
| Jurisdiction | England & Wales |
| Judge | Colman J |
| Judgment Date | 20 February 1997 |
| Court | Queen's Bench Division |
| Date | 20 February 1997 |
Queen's Bench Division
Colman J.
Gordon Pollock QC, R Jacobs and D Foxton (instructed by Freshfields) for the plaintiffs.
Romie Tager QC, C Orr and I Newman (instructed by Epstein Grower) for the defendants.
C Falconer QC and C Orr (instructed by Warner Cranston) for the intervenor names.
The following cases were referred to in the judgment:
Associated Provincial Picture Houses Ltd v Wednesbury CorpELR [1948] 1 KB 223.
Daly v Lime Street Underwriting Agencies LtdTLR (The Times, 8 June 1987, Staughton J).
Hole v GarnseyELR [1930] AC 472.
Napier (Lord) v R F Kershaw Ltd [1996] CLC 1875.
R v Council of the Society of Lloyd's, ex parte JohnsonUNK (unreported, 16 August 1996).
R v Secretary of State for Trade and Industry, ex parte Lonrho plcWLR [1989] 1 WLR 525.
Smart v SandarsENR (1848) 5 CB 895; 136 ER 1132.
Walsh v Whitcomb (1797) 2 Esp NPC 565; 170 ER 456.
Weddell v JA Pearce & MajorELR [1988] 1 Ch 26.
Lloyd's insurance market — Lloyd's sought summary judgment to recover Equitas reinsurance premium — Names who had not assented to reconstruction and renewal plan refused to pay Equitas premium — Whether defendants had arguable defences — Whether defendants who had not accepted plan could be bound by payment provisions — whether Equitas scheme outside original scope of Lloyd's venture — Whether Lloyd's had title to sue.
These were three actions (and test cases) in which Lloyd's applied for summary judgment under O. 14 for moneys allegedly due from the defendants under the Lloyd's reconstruction and renewal plan (“R & R”).
R & R in its final form was put forward by Lloyd's in a settlement offer document in July 1996. The settlement agreement involved a mutual waiver of claims by Lloyd's and the names. The names who accepted the settlement offer waived all claims in respect of 1992 and prior years. Under R & R Equitas was to reinsure the non-life liabilities of all the names in respect of the 1992 and prior years of account. The funding of Equitas was to be by means of moneys paid by Lloyd's from its central fund and derived from various sources and by premium paid by all the names whose outstanding liabilities, both known and unknown, were reinsured by it. The Equitas reinsurance cover extended to the entire non-life market in respect of the 1992 and prior years to the effect that even those names who did not accept the R & R settlement offer (fewer than ten per cent of the whole) and who therefore did not participate in the mutual waiver of claims, nevertheless had their liabilities reinsured by Equitas and were required to pay a premium for that protection.
The issue between the parties was whether Lloyd's was entitled to impose the Equitas reinsurance contract on non-accepting names. The defendants submitted that they had good arguable defences to Lloyd's claims on various grounds, of which two categories were argued: (1) the defendants did not accept R & R and therefore could not as a matter of law be bound by the payment provisions which formed part of it; (2) Lloyd's had no title to sue in respect of moneys payable under R & R.
Held,giving judgment for Lloyd's under O.14A:
1. As a matter of law the defendants could not withdraw the authority of their managing agents and run-off agents to enter into a future reinsurance contract which had the effect of reinsuring the 1992 and prior years. It followed that when Lloyd's appointed a substitute managing agent in 1996, it did not succeed to an authority vis-a-vis the defendants which was subject to any constraint as regards entering into the Equitas reinsurance contract. Nor could the name withdraw such authority from the substitute agent by giving notice to it or to Equitas.
2. Since each of the defendants was under an obligation to Lloyd's under the general undertaking to comply with the byelaws and the resolutions and directions of the council, they were in any event bound to accept that they had been made parties to the Equitas reinsurance contract having regard to the R & R byelaw of 1995 and to the council's resolution and direction of 3 September 1996 unless that internal legislation was invalid because its effect was to introduce so substantial a departure from the pre-existing venture as to create a fundamentally different bargain from that which is taken to have been originally contemplated by; the parties.
3. The argument based on the Equitas Scheme being outside the scope of the venture was unsustainable. It wrongly elevated the details of run-off reinsurance to fundamental and immutable features of the venture of underwriting at Lloyd's. As those were no more than ancillary features of the business of underwriting, byelaws which had no greater effect than changing those features in the advancement and protection of the interests of members in connection with the business carried on by them had a purpose which was ancillary or collateral to the venture as distinct from a purpose which involved the substitution, of a fundamentally different venture.
4. Even if there were elements of “mutualisation” involved in the pooling of assets for the purpose of obtaining reinsurance, the elements of the scheme were all ancillary to the names” Lloyd's venture and came nowhere near the substitution of a fundamentally different venture outside the scope of that in which the defendants initially participated.
5. The use of the substitute agent as an instrument for imposing uniformity on the market was a clearly justifiable operation of the Substitute Agents Byelaws. In as much as the substitute agent was to be used exclusively for the purpose of effecting the Equitas Scheme, which was in itself a legitimate exercise of Lloyd's legislative powers within the scope of the underwriting venture, the interposition of the substitute agent could not of itself be said to represent a departure from that venture.
6. There was no realistic prospect of the defendants succeeding at trial in showing that Lloyd's acted unreasonably in imposing the Equitas part of R & R on non-assenting names.
7. The substitute agent was validly appointed.
8. The substitute agent stood in the shoes of the managing agents or run-off agents for all purposes and, just as notice to such agent of assignment of premium by an external run-off reinsurer would be an effective notice to that agent's underwriting names, so the notice to the substitute agent by Equitas was an effective notice of assignment to the defendants. Valid notice of assignment having been given, Lloyd's had title to sue in is own name.
Colman J:
In the three actions now before the court Lloyd's apply for judgment under O. 14 for moneys allegedly due from the defendants under the reconstruction and renewal plan (“R & R”) which was brought into operation in September 1996. The defendants, all of whom were underwriting names at Lloyd's in or before 1992, argue that they have good arguable defences to the claims on various grounds which can be divided into three broad categories:
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(1) defences based on the submission that the defendants did not accept R & R and therefore cannot as a matter of law be bound by the payment provisions which form part of it;
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(2) Lloyd's title to sue in respect of moneys payable under R & R;
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(3) defences based on the allegation that the defendants were induced by fraud on the part of Lloyd's to become underwriting names and that Lloyd's cannot therefore now recover amounts which would otherwise be due.
These defendants appear to contemplate a further defence based on art. 85 of the Rome Treaty but this has not so far been clearly formulated and Mr Tager who appeared for the defendants frankly told me that he was not able at this stage and on the materials presently available to specify the factual basis on which this defence could be advanced. It can therefore be ignored for present purposes.
In view of the fact that the group (3) fraud defence will involve consideration of a substantial volume of evidence and would have taken longer to prepare even for an O, 14 hearing, I ordered that the proceedings for summary judgment should be the subject of two separate hearings, the first to be exclusively concerned with the defences in groups (1) and (2) not involving fraud and, in the event of my holding that an arguable defence had not been established on any of those bases, the second hearing to be concerned with the group (3) fraud defences.
I should also add that, in addition to the three defendants involved in these O. 14 applications there are many other underwriting names who did not agree to accept R & R but against whom Lloyd's has commenced proceedings for amounts due under R & R. If those names challenge Lloyd's claims, the group (1) and (2) defence issues are bound to arise in those cases. Accordingly the present proceedings are to be treated as a test case at least on these issues. If the group (1) and (2) defences are held in these proceedings not to amount to arguable defences, and it therefore becomes necessary to determine whether the group (3) fraud defences are arguable, it may be that the determination of this court on those defences will also be determinative on that issue should it arise in the proceedings against the other names.
Finally, Lloyd's has commenced proceedings for amounts due under R & R against 191 non-accepting Canadian names. No O. 14 proceedings have been commenced against any of those names at this stage. By order dated 15 November 1996 I gave leave to some 179 of those names to intervene in these proceedings because it appeared that they wished to rely on the group (1) and (2) non-fraud defences and on fraud defences which might raise issues similar to those arising under the group (3) defences of the three defendants in these proceedings. Those Canadian names also wish to rely on certain defences based upon the Canadian securities and exchange legislation. If it is...
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