Society of Lloyd's v Jaffray [QBD (Comm)]
| Jurisdiction | England & Wales |
| Judge | Colman J. |
| Judgment Date | 22 January 1999 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 22 January 1999 |
Queen's Bench Division (Commercial Court).
Colman J.
Anthony Grabiner QC and David Foxton (instructed by Freshfields) for the plaintiff.
Michael Freeman of Grower Freeman & Goldberg for the defendant.
The following cases were referred to in the judgment:
Hall v Paulet (1892) 66 LT 645
Henderson v HendersonENR (1843) 3 Hare 100; 67 ER 313
Hines v Birkbeck College (No. 2)ELR [1992] Ch 33
M'Cabe (Pauper) v Governor & Company of the Bank of IrelandELR (1889) 14 App Cas 413
Martin v Earl BeauchampELR (1884) 25 ChD 12
Payne, Re. Randle v PayneELR (1883) 23 ChD 288
Society of Lloyd's v Fraser [1998] CLC 127; [1998] CLC 1630
Society of Lloyd's v Leighs [1997] CLC 1012; [1997] CLC 1398 (CA)
Thames Investment & Securities plc v BenjaminWLR [1984] 1 WLR 1381
Theakston v Matthews (unreported, 13 April 1998, CA)
Lloyd's litigation — Costs — Stay of proceedings — Fraud — Whether Lloyd's name's proceedings should be stayed until costs of previous proceedings paid.
This was an application by Lloyd's to stay proceedings by or against Lloyd's names until names had paid the costs ordered against them in previous proceedings in which similar issues were raised between the names and Lloyd's.
Lloyd's took proceedings against names who had not accepted Lloyd's reconstruction and renewal settlement offer on the basis that the non-accepting names were nevertheless liable to pay the Equitas reinsurance premium due under the plan to reinsure their Lloyd's liabilities. The Court of Appeal in Society of Lloyd's v Leighs [1997] CLC 1398 decided in test cases that names had no arguable defence to actions by Lloyd's to recover the premium. The names sought to rely on allegations that they had been fraudulently induced to become and remain names but the court held that cl. 5.5 of the Equitas reinsurance contract had the effect of insulating recovery of the premium from the names' fraud claims. Lloyd's then applied for summary judgment against non-accepting names, who sought to argue that the inclusion of cl. 5.5 in the reinsurance contract was itself fraudulent and in bad faith. The Court of Appeal in Society of Lloyd's v Fraser [1998] CLC 1630 held that it was an abuse of process to raise the bad faith argument which should have been raised earlier in the managed proceedings. In the result Lloyd's was entitled to summary judgment for the Equitas premium but names could still pursue their fraud claims by way of separate action or counterclaim. Following the judgments in Leighs and Fraser orders for costs were made in Lloyd's favour. Lloyd's applied to stay proceedings in which names raised allegations of fraud by Lloyd's by way of claim or counterclaim until the costs were paid.
Held dismissing the application by Lloyd's for a stay:
There was a settled practice that where a plaintiff was ordered to pay the costs of an action and then brought a second action against the same defendant concerning the same subject matter a stay would be ordered until payment of the costs of the first action. The underlying purpose of such orders was to prevent misuse of the court's procedure by a needless duplication of proceedings, short of such abuse as would justify striking out the second proceedings. The practice did not apply to payment of a costs order in the same action. The practice did not apply in this case because the essential ingredient of needless duplication did not exist. The prosecution of the fraud claims and counterclaims did not involve any duplication, since Leighs and Fraser had been decided on the basis that it was unnecessary to determine the fraud issues in those proceedings. The fraud issues had not previously been determined and would be determined at the earliest possible stage of the proceedings consistently with the case management regime.
Colman J:
This is an application by Lloyd's to stay proceedings variously brought by way of claim or counterclaim in a number of different actions brought by or against four members of Lloyd's which were by my order of 30 June 1998 ordered to be tried at the same time. The reason for that order was that all such claims and counterclaims raised substantially similar issues between the names and Lloyd's. For present purposes it is sufficient to describe those points as allegations by each of the names that in the course of the period from about 1980 they were induced to become members of Lloyd's and to renew their membership year by year by fraudulent misrepresentations made to them by or on behalf of Lloyd's. They also claim as a subsidiary point that one of the consequences of those on-going misrepresentations was that, as members, the claimants had been bound by the regime, involving Equitas as reinsurer of the names and by the duty to pay reinsurance premiums associated with the reconstruction and renewal settlement subject to the “pay now sue later” provision (cl. 5.5) of the reinsurance contract. The names claimed or, as the case may be, counterclaimed damages for fraud. Those damages would in substance be quantified by reference to their overall net losses as members and the computation of the amount recoverable would clearly have to take into account amounts paid or payable by the names in respect of Equitas reinsurance premium.
The factual basis of the application to stay these actions is as follows. Lloyd's issued writs against names who did not accept the R & R settlement offer described in Society of Lloyd's v Leighs[1997] CLC 1012 (Colman J) and [1997] CLC 1398 (CA). Lloyd's proceeded under O. 14 and recovered judgment on the basis that the three names in those test cases had no arguable defence. Amongst the issues raised by way of defence was the allegation that Lloyd's had fraudulently induced those names to become members and to remain members. The names sought to rely on their fraud allegations as a foundation for their claim to have rescinded their membership agreements, as a set-off of damages for fraud against Lloyd's claims and as a basis for a stay of execution of any judgment for the Equitas premium. These defences all failed for reasons to be found in the judgments given by me and the Court of Appeal. A major obstacle to the names' defences based on fraud was cl. 5.5 of the reinsurance contract which had the effect of insulating recovery of the premium from the names' cross-claims for fraud. The hearings were conducted on the express assumption that the question whether there had been fraud by Lloyd's and whether it had induced the names to become and remain members and thereby sustain loss was a matter which would have to be tried if it became relevant. As appears from the judgments, it would become relevant by way of defence only if the names were held to be right as a matter of law on their rescission argument or on their set-off argument. If they were wrong on both issues as a matter of law and if there could be no stay of execution, the position was recognised by all parties to be that Lloyd's would be entitled to judgment without a stay in respect of the Equitas premium, but that the names would be left to pursue their fraud claims by way of separate action or counterclaim in the actions brought by Lloyd's.
Following the judgment in the Court of Appeal in Leighs, Lloyd's issued a large number of O. 14 summonses against other names who had failed to pay the Equitas premium, including Mr Fraser and Sir William Jaffray. In the O. 14 proceedings which followed, those and other names put forward an argument that Lloyd's could not rely on the insulation provided by cl. 5.5 because its insertion into the reinsurance contract was part and parcel of a device to protect Lloyd's from the consequences of its own fraud and was therefore a matter of bad faith. There was also an argument based on art. 6 of the European Convention on Human Rights. Tuckey J in Society of Lloyd's v Fraser[1998] CLC 127 declined to permit the names to rely on the bad faith argument on the ground that, in the context of managed litigation, it should have been raised in the Leighs case and it was an abuse of process to raise it at that later stage. He also rejected the European Convention defence. The Court of Appeal dismissed an appeal from this judgment on 31 July 1998.
Accordingly, the position at the end of July 1998 was that there had been held to be no viable defence...
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