The Right Honourable Francis Nigel Baron Napier and Ettrick and Another (Plaintiffs) v R.F. Kershaw Ltd and Others
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE NOURSE,LORD JUSTICE HOBHOUSE,LORD JUSTICE PILL |
| Judgment Date | 24 October 1996 |
| Judgment citation (vLex) | [1996] EWCA Civ J1024-3 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | FC3 96/5877/B |
| Date | 24 October 1996 |
[1996] EWCA Civ J1024-3
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION, COMMERCIAL COURT
(Mr. Justice Saville) and
CHANCERY DIVISION (The Vice-Chancellor)
Royal Courts of Justice
Strand, London WC2
Lord Justice Nourse
Lord Justice Hobhouse
Lord Justice Pill
FC3 96/5877/B
CHANF 96/0725/B
In The Matter of the applicable Lloyd's Premiums Trust Deeds of Plaintiffs in the Outhwaite proceedings made with their respective Members' Agents, and with the Society incorporated by Lloyd's Act 1871 by the Name of Lloyd's
In The Matter of all existing Lloyd's Premiums Trust Deeds made by individual members of Lloyd's Before 3rd March 1995 in respect of post-1986 or pre-1987 underwriting years of account
MR. J. SHER QC, MR. J. CHILD and MISS J. WICKS (instructed by Messrs. Simmons & Simmons, London EC2) appeared on behalf of the Appellant The Society of Lloyd's.
MR. N. WARREN QC and MR. P. NEWMAN ( Miss E. Campbell 24.10.96) (instructed by Messrs. Richards Butler, London EC3) appeared on behalf of the First Defendant Mr. Woodard.
MR. R. SLOWE (instructed by Messrs. Richards Butler, London EC3) appeared on behalf of the Second Defendant Mr. Wilson.
Thursday, 24th October 1996
Introduction
The main question on these appeals is whether the pre-1995 form of premiums trust deed ("PTD") which every Name at Lloyd's must enter into pursuant to section 83(2) of the Insurance Companies Act 1982 embraces, in addition to premiums and other receipts of his underwriting business, sums recovered in litigation against his agents for negligent underwriting. On 14th May 1992, in Napier v. Kershaw, Mr Justice Saville decided that question in favour of the members of the Outhwaite 1982 Names' Association and answered it in the negative. On 16th May 1996 a like answer was given by the Vice-Chancellor in Lloyd's v. Woodard. Lloyd's says that the question ought to be answered in the affirmative.
The circumstances in which this and related questions have arisen are fully explained in the judgment to be delivered by Lord Justice Hobhouse, whose account I gratefully adopt. Some further explanation of the circumstances in which the appeal in Napier v. Kershaw has come to be brought so late is necessary. Immediately after Mr Justice Saville had given his decision, Lloyd's decided not to appeal and made an announcement to that effect. In an affidavit sworn on 19th April 1996 Mr David Rowland, the present chairman, has said that at that time Lloyd's was seeking to avoid further confrontation with the Names and that the decision not to appeal was made at a time when the magnitude of the problems which had come to confront it by 1996 were simply not appreciated. The failure by so many Names to meet their liabilities had thrown a totally unexpected burden on the central fund, which by 1996 was threatening Lloyd's future solvency. That was not the situation in 1992 and Mr Rowland was very confident that, if it had been, Lloyd's would have appealed at that time. He added that in the intervening four years Lloyd's had concentrated its efforts and a substantial part of its resources, not on confrontation with the Names, but in finding a solution to the market's problems, it being fundamental to any such solution that it would bring an end to the litigation brought by Names against their underwriting agents. This had culminated in the plan, embarked on in early 1995, for reconstructing and renewing Lloyd's (R & R). The implementation of the R & R proposals was well advanced by April 1996 and it was hoped, as indeed has been the case, that it would be completed by the end of August. Mr Rowland went on to explain how the destination of the Names' litigation recoveries had become critical to the completion of R & R and that it was desired to raise the question not only in Lloyd's v. Woodard but in Napier v. Kershaw as well.
Accordingly, on 19th April 1996, Lloyd's applied to this court for an extension of time for appealing against Mr Justice Saville's order. The application was listed for hearing before us on 24th July, with the appeal to follow if an extension was granted, together with the appeal in Lloyd's v. Woodard. Lloyd's' particular concern in seeking a reversal of Mr Justice Saville's decision was to ensure that the Names affected by his order did not have the benefit of any issue estoppel (it was not accepted that they could have) which would allow them to claim preferential treatment over other Names affected by a successful appeal in Lloyd's v. Woodard. It was accepted from the outset that an extension could only be granted on terms that Lloyd's did not seek to disturb the destination of the £116m received by the members of the Outhwaite 1982 Names' Association in settlement of the Outhwaite action. It was agreed that Mr Woodard should be allowed to intervene in the appeal in Napier v. Kershaw. There being, with those terms, no opposition from any of the interested parties and the court being of the opinion that an extension ought to be granted, on 26th July we made an order accordingly and proceeded with the hearing of the appeal.
The argument on both appeals was completed on 29th July. On 31st July, for reasons to be given later, we allowed the appeal in Napier v. Kershaw, stated that we would make a declaration in an appropriate form and deferred consideration of all consequential matters until after our reasons had been given, no order to be drawn up in the meantime. We made no decision in Lloyd's v. Woodard at that stage and said that we would take time to consider our judgments in that case. We emphasised, however, that our decision in Napier v. Kershaw would necessarily apply to all litigation recoveries of the same nature as those covered by the declaration to be made in that case.
We now give our reasons for allowing the appeal in Napier v. Kershaw and our judgments in Lloyd's v. Woodard. The convenient course is to deal first with the question of litigation recoveries in respect of negligent underwriting (which necessarily includes reckless underwriting), they being the most common form of recovery and that being the only question which arises in Napier v. Kershaw.
Litigation recoveries—negligent underwriting
The form of PTD to be considered in Napier v. R.F. Kershaw Ltd. is the pre-1987 form as amended, whereas in Lloyd's v. Woodard it is the post-1986 form. In all material respects the two forms are the same. As the hearing proceeded, the argument became exclusively directed towards the yellow printed draft headed "PTD G 91 Deed for General Business".
Before turning to the PTD, I desire to say this. The argument has throughout proceeded, correctly, on the footing that its relevant provisions must be construed in "the contextual scene" as it was called by Sir Thomas Bingham MR in delivering the judgment of this court in Society of Lloyd's v. Morris [1993] 2 Re LR 217. The material aspects of that scene are set out in the judgment of the Vice-Chancellor in Lloyd's v. Woodard, who quoted in full the material section of the judgment in Lloyd's v. Morris, at pp.218–219, and added four more pertinent points which had been made to him by counsel. Important though the contextual scene may be, however, the process of construction must start with the words of the relevant provisions themselves. As will appear, they are ordinary words in the English language, whose effect in relation to the main question is, to my mind, plain. I cannot help thinking that a tendency in these and some other recent cases to abstain from a close consideration of the words to be construed has made their decision appear to be more difficult than it is.
The parties to the PTD are the Name, his members' agent and Lloyd's. There are four recitals of which the first three state:
..."(A) The Name is an Underwriting Member of Lloyd's and proposes to underwrite insurances that are not long term business…through the agency of or under arrangements made by or through the Members' Agent and accordingly may do so as a member of syndicates upon which the Name may be placed by the Members' Agent or through arrangements made by the Members' Agent with other agents.
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