[All England Reporter] -- --All England Reporter--2004--July--Society of Lloyds v Levy and others

Society of Lloyds v Levy and others
[2004] EWHC 1860 (Comm)
30 JULY 2004
[2004] All ER (D) 566 (Jul)
Practice and procedure - Defence - Application to amend - Lloyd's litigation - Abuse of process.
The defendants were Lloyd's names. In 1996, the claimant implemented a reconstruction and renewal plan which involved the compulsory reinsurance of all names for the 1992 underwriting year and prior year's underwriting liabilities by Equitas Reinsurance Ltd in return for a premium payable by each name. By cl 13 of the completion agreement of September 1996, the debt owed by the names to Equitas was assigned to the claimant. In September 1996, the reinsurance and run-off contract was entered into between Equitas and the names. By cl 5(1)(b), the names including the defendants in the instant case, became liable for the premium which was payable to Equitas in September 1996. At the same time, they were offered a settlement under the terms of a settlement agreement. The validity of the reconstruction and renewal plan and its related contracts was the subject of extensive litigation. The defendants to the instant case were issued with the writ claiming payment of outstanding Equitas premiums were issued in March 1997. A voluntary stay was undertaken by the claimant whilst other litigation was being pursued (see [2000] All ER (D) 1674 and [2002] All ER (D) 399 (Jul). In the instant hearing, the defendants applied for permission to amend their pleadings to raise certain defences, and the claimant applied for summary judgment.
The primary issue on which the defendants sought permission to amend concerned an allegation that the Department of Trade and Industry, which was responsible for regulating the insurance industry in the UK, had delegated to the claimant a supervisory role in accordance with the obligations laid on the state by Council Directive (EC) 73/239 and that the claimant had failed to fulfil its duty of supervision and audit responsibilities.

The claimant submitted, inter alia, that it was an abuse of process for the defendants to raise the point when they had not done so in earlier litigation.
The court ruled:
It was an abuse of process for the defendants to seek to introduce the European Directive point; in any event, the point was devoid of merit and would fail.

The Directive did not confer rights directly on the names, nor on any class of individual. Lloyd's was not an emanation of the state nor an agent under the directive of the Department of Trade and Industry. The issue had been debated before the courts already and the matter was finally settled. Permission to make the amendment sought should be refused. A reference was not appropriate.
The defendants were refused permission to make the various amendments sought and, in those circumstances, there was no arguable defence to the claims. There would be judgment for the claimant.
Laws and others v Society of Lloyd's [2003] All ER (D) 392 (Dec) considered.
David Foxton (instructed by Lloyd's) for the claimant.
Mark Watson-Gandy (instructed by James Barnett) for the defendants.
James Wilson Barrister (NZ).
[2004] EWHC 1860 (Comm)
30 JULY 2004


1 There are two cases in which applications are being heard together. They arise out of the Lloyd's of London affair. Both sets of Defendants, Dr and Mrs Levy and Mr & Mrs Johnson live outside the jurisdiction. In each case Lloyd's say that they owe the Society monies in respect of renewal premiums, the rights to claim which were assigned to the Society by Equitas Reinsurance Limited by way of security. The amounts involved are reasonably substantial; 300,000 odd, plus interest, in relation to Dr and Mrs Levy; over 1/2 million in relation to Mr and Mrs Johnson, plus interest. This matter was set down for a two day hearing by Cooke J on 5 August 2003.
2. There are, in essence, four applications before me:
(1) An application by Lloyd's, the Claimants, for summary judgment on their claims and in respect of a counterclaim brought by the Johnsons; (2) Three applications brought by the Defendants:
(1) permission to amend to tidy up the existing pleading to remove points which cease to be arguable in the light of the decisions of this court and the Court of Appeal and to "plead or more fully explain the defendants' case ... on the remaining issues [which] the defendants rely on" namely:
(a) the registration point, namely that the security on which the Claimants' debt claim is based is unregistered;
(b) in the Levys' case, that Lloyd's are unable to prove the cause of action for unpaid premium was assigned to them "given that no stamp duty has been paid";
(c) The European Directive point
(d) In the case of the Johnsons, to raise a question on quantum (2) An application for specific disclosure and Inspection;
(3) An application that the court should refer this case to the ECJ under Article 234 because there has been an infringement of The Insurance Companies Act 1982 and EC Directive 73/239.
3. The background to the Lloyd's litigation in general is too well known to require extensive recital. In brief, Lloyd's implemented a Reconstruction and Renewal Plan in 1996 which involved the compulsory reinsurance of all Names for the 1992 underwriting year and prior year's underwriting liabilities by Equitas Reinsurance Limited in return for a premium payable by each name. By clause 13 of the Completion Agreement, dated 3 September 1996, the debt owed by the Defendants to Equitas was assigned to Lloyd's. Notice of the assignment was formally given to the Defendants by pro forma letter dated 24 February 1997. On 3 September 1996 the Reinsurance and Run-Off Contract was entered into between Equitas and the Names. Pursuant to clause 5.1(b) of the Reinsurance Contract, the Names, including the Defendants became liable for the premium which was payable to Equitas on 4 September 1996, although interest did not accrue until 30 September 1996. At the same time Names were offered a settlement under the terms of a Settlement Agreement. Accepting Names became obliged to pay on 30 September 1996, and interest accrued as from that date.
4. The validity and effectiveness of the Reconstruction and Renewal Plan and its related contracts has been the source of much litigation. The background to the present litigation is conveniently set out in Mr Foxton's skeleton argument and I incorporate it, with a few minor changes, as it is accurate.
The Background
The Levys
5. The writs against Dr and Mrs Levy claiming payment of outstanding Equitas premiums were issued on 24 March 1997. Service was acknowledged on 20 May 1997 by Grower Freeman. On 16 January 1997, Epstein Grower wrote to Lloyd's solicitors, identifying the Levys amongst the list of Names for whom they acted. The Levys were also among the "funders" of the Leighs litigation who were made liable for the costs of that litigation pursuant to the order of Colman J dated 26 October 1998. Summary judgement on the claim against the Levys was not initially pursued because they filed for bankruptcy in the US on 9 February 1998 in the Northern District of California. It would potentially have been a contempt of court to proceed with court proceedings here whilst the bankruptcy was pending. In fact, the Levys' application for bankruptcy was dismissed.
6. Dr and Mrs Levy also participated in the Jaffray action. Again, they were, initially, represented by Grower Freeman, until More Fisher Brown became the solicitors on the record. The Levys were joined to this action as at 5 January 2000 pursuant to paragraph 1 and Schedule 3 of the Order of Cresswell J dated 14 January and stamped on 21 January 2000. Although the writ against the Levys had been served by this time, they were listed in the case as "original claimants" rather than "counterclaimants" (perhaps as a result of an oversight). The Levys participated in the Jaffray proceedings throughout.
7. In the run-up to the trial of that action, at the Court's request, Lloyd's voluntarily undertook not to pursue proceedings against Names who were parties to the Jaffray action. This stay was voluntarily continued to the final disposition of the appeal against Mr. Justice Cresswell's judgment. The Court of Appeal handed down judgment on 26 July 2002, and Lloyd's voluntary stay came to an end at the hearing refusing permission to appeal to the House of Lords on 28 October 2002.
8. At this point, the Levys:
(1) made an application for permission to amend their claim in the Jaffray action (made on their behalf by MFB) to plead a claim in negligent misrepresentation in reliance on the Human Rights Act 1998. This application was made on 25 October 2002, and became known as the Laws application;
(2) served Defences and Part 20 Claims in their Equitas Premium proceedings (served by Grower Freeman) relying by way of counterclaim on the proposed claim of negligent misrepresentation for which permission was being sought in the Jaffray claim: the Defences and Part 20 Claims were served on 14 November 2002.
9. In these circumstances, it was eventually agreed that the applications for summary judgment which Lloyd's had issued against the Levys should be heard after the application for permission to amend had been heard and determined in the Laws application (L2/28/8). The Levys, again represented by MFB, were parties to the Laws litigation. Their applications for permission to amend were refused by Cooke J in his judgment of 17 April 2003 (Society of Lloyd's v. Laws and others [2003] EWHC 873 (Comm)), and their applications for permission to appeal were refused by the Court of Appeal by judgment dated 19 December, 2003 (Laws and others v. Society of Lloyd's [2003] EWCA 1887).
10. After Cooke J. had refused the application for permission to amend in Laws, the Levys instructed a new solicitor, Mr. Barnett. On 28 November 2003, he provided Lloyd's with a new draft Amended Points of Defence and Counterclaim (to which Lloyd's did not consent) which sought to attack the vires or validity of the steps by which the Levys had become parties to the Equitas Contract, and which challenged the entitlement of Lloyd's to rely on the assignment of the Equitas Premium debt by Equitas to Lloyd's, the Stamp Act point. In addition, various challenges were made to the quantum of Lloyd's claim. This draft has been superseded by a further draft provided to Lloyd's on 8 June 2004 which forms the basis of the application for permission to amend.
The Johnsons
11. The Johnsons were not served with Equitas Premium writs until 18 January 2000. They were "conditional acceptors" and issues had to be resolved as to their status (J1/30). They participated in the Jaffray action as original claimants, by virtue of their inclusion in a schedule served by their then solicitors, Grower Freeman, on 26 June 1998 (J1/7-9). Thereafter they have participated in the Jaffray and Laws cases, represented by MFB.
12. The Johnsons served Defences and Counterclaims on 25 February 2000. These raised allegations of deceit and alleged that "Lloyd's have failed to comply with the European Insurance Regulations and audit obligations ". These Defences were amended in May 2000 to replace the allegation against Lloyd's with an allegation against the British Government that it failed properly to apply the provisions of European Directive 73/239 and to raise an issue as to the debt credits. By application notice dated 14 July 2004, the Johnsons (who are now instructing Mr. Barnett) seek permission to re-amend the Defence and Counterclaim to raise similar arguments raised by the Levys, and in addition an argument based on an alleged breach by Lloyd's of Directive 73/239.
The parties' submissions
13. Professor Watson-Gandy has represented the Defendants' case with ability and good sense. He explained that the latest versions of the draft pleadings endeavour to cut out from them those points which have become unarguable in the light of the Court's many previous decisions. The points which are left for consideration are those identified for convenience as The European Directive point; the stamp duty point; the registration point and, in the case of the Johnsons, the quantum point.
14. I have put the European Directive point at the top of the list because it is the point upon which most emphasis was placed by counsel for the Defendants, during his submissions, and, at the end of the day, was the only point of any potential substance.
The European Directive
15. The allegation is that the Department of Trade and Industry, which was responsible for regulating the insurance industry in the UK, had delegated to Lloyd's a supervisory role to be performed in accordance with the obligations laid on the State by the Directive 73/239 and that Lloyd's had failed to fulfil its duty of supervision and audit responsibilities. Reliance was placed on the judgment of the Court of Appeal in the Jaffray litigation. The court said this:
"374. It is clear that detailed consideration was given each year by the audit department at Lloyd's, 'the Audit Committee, and the Committee as to the instructions to be given to underwriters and auditors. All this was intended to procure a system that enabled proper RITCs [Reinsurances to Close] to be produced and proper certification of solvency. But was the system actually producing a result where audit reserves were being calculated in a way that involved the making of a reasonable estimate of outstanding liabilities including IBNRs [Incurred but not Reported].
375. We have felt obliged to consider the system in detail but we can answer these questions shortly because the facts simply speak for themselves. The mere fact that ultimately, when the R & R was carried out, so many syndicates were shown to be massively under-reserved demonstrates that the system simply had not been producing reasonable estimates of outstanding liabilities over the years. The liabilities which ultimately had to be paid had in fact been incurred before the period with which this litigation is concerned. With the benefit of hindsight it is clear that IBNRs were grossly underestimated throughout the relevant period. This is not an indictment of particular underwriters or particular auditors. We have not explored the way in which estimates were made by individual syndicates or individual auditors. The simple fact is that as it turned out most syndicates were under-reserved. Mr Murray in his evidence said there was no doubt he was under-reserved, and all those involved in the writing of business which included asbestos would, unless they were covered by reinsurance, have to accept the same.
376. In, short, through the relevant period the system did not involve the making of a reasonable estimate of outstanding liabilities including unknown and unnoted losses. It follows that the answer to the question ... namely whether there was in existence a rigorous system of auditing which involved the making of a reasonable estimate of outstanding liabilities, including unknown and unnoted losses, is no. Moreover the answer would be no even if the word 'rigorous' were removed. The first representation which we found to exist [namely that there was in existence a rigorous system of auditing which involved the making of a reasonable estimate of outstanding liabilities including unknown and unnoted losses in the 1981 brochure] .. is untrue."
16. The relevant provisions of the Directive are these;
Article 8
1. each Member State shall require that any undertaking set up in its territory for which an authorization is sought shall:
- in the case of the United Kingdom:
'incorporated companies limited by shares or by guarantee or unlimited', 'societies registered under the Industrial and Provident Societies Acts', 'societies registered under the 'Friendly Societies Act' the association of underwriters known as Lloyd's.
Furthermore, Members States may set up, where appropriate, undertakings under any form of known public law provided that such institutions have as their object insurance operations in conditions equivalent to those undertakings under private law;
(b) Limit is business activities to the business of insurance and operation directly arising there from to the exclusion of all other commercial business;
(c) Submit a scheme of operations in accordance with the provisions of Article 9;
(d) Posses the minimum guarantee fund provided for in Article 17 (2).
Article 10
Each Member State shall require that an undertaking having its head office in the territory of another Member State and seeking an authorization to open an agency or branch shall:
(a) Submit its statutes and a list of its directors and managers;
(b) Produce a certificate issued by the competent authorities of the head office country, attesting the classes of insurance which the undertaking is entitled to carry on and that it possesses the minimum guarantee fund or, if higher, the minimum solvency margin calculated in accordance with Article 16 (3), and stating the risks which it actually covers and the financial resources referred to in Article 11 (1) (e);
(c) Submit a scheme of operations in accordance with Article 11;
(d) Designate an authorized agent having his permanent residence and abode in the host country, and possessing sufficient powers to bind the undertakings in relation to third parties and to represent it in relations with the authorities and courts of the host country; if the agent has a legal personality, it must have its head office in the host county and it must in its turn designate an individual to represent it who complies with the above conditions. The designated agent shall not be refused by the Member State except on grounds relating to repute or technical qualifications such as apply to directors of undertakings whose head offices are situated in the territory of the State in question.
With regard to Lloyd's, in the event of any litigation in the host country resulting from underwritten commitments, assured persons must not be more unfavourably treated than if the litigation had been brought against businesses of a more conventional type. The authorized agent must, therefore, possess sufficient powers to enable proceedings to be instituted against him and must in that capacity be able to bind the Lloyd's underwriters concerned.
Article 11
2. The scheme of operations shall be accompanied by the balance sheet and profit and loss account of the undertaking for each of the past three financial years. If, however, it has not yet been in business for three financial years it shall be required to furnish them only for the financial years completed.
With regard to Lloyd's, the publication of the balance sheet and the profit and loss account shall be replaced by the compulsory presentation of annual trading accounts covering the insurance operations, and accompanied by an affidavit certifying that auditors' certificates have been supplied in respect of each insurer and showing that the responsibilities incurred as a result of these operations are wholly covered by the assets. These documents must allow authorities to form a view of the state of solvency of the Association.
3. The scheme of operations, together with the observations of the authorities competent to issue authorizations, shall be forwarded to the competent authorities of the head office country. The latter authorities shall communicate their Opinion to the former within three months from the receipt of the documents; if their Opinion has not been communicated upon the expiry of this time, it shall be deemed to be favourable.
Article 14
The supervisory authority of the Member State in whose territory the head office of the undertaking is situated must verify the state of solvency of the undertaking with respect to its entire business. The supervisory authorities of the other Member States shall provide the former with all the information necessary to enable such verification to be effected.
Article 15
1. Each Member State in whose territory business is carried on shall require the undertaking to establish sufficient technical reserves.
The amount of such reserves shall be determined according to the rules fixed by the State, or, in the absence of such rules, according to the established practices in such State.
4. The supervisory authority of the Member State in whose territory of the head office of an undertaking is situated shall verify that its balance sheet shows in respect of the technical reserves assets equivalent to the underwriting liabilities assumed in all the countries where it undertakes business.
Article 16
1. Each Member State shall require every undertaking whose head office is situated in its territory to establish an adequate solvency margin in respect of its entire business.
The solvency margin shall correspond to the assets of the undertaking, free of all foreseeable liabilities, less any intangible items. In particular the following shall be considered:
5. In the case of Lloyd's, the calculation of the first result in respect of premiums, referred to in paragraph 3, shall be made on the basis of net premiums, which shall be multiplied by a flat-rate percentage fixed annually by the internal auditor. This flat-rate percentage must be calculated on the basis of the most recent statistical data on commission paid.
The details, together with the relevant calculations shall be sent to the authorities of the countries where Lloyd's is established.
Article 18
1. Member States shall not prescribe any rules as to the choice of the assets in excess of those representing the technical reserves referred to in Article 15.
Article 19
1. Each Member State shall require every undertaking whose head office is situated in its territory to produce an annual account covering all types of operation, of its financial situation and solvency.
2. Member States shall require undertakings operating in their territory to render periodically the returns, together with statistical documents, which are necessary for the purposes of supervision. The competent supervisory authorities shall furnish each other with the documents and information necessary for exercising supervision.
Article 30
4. An undertaking having a structure different from any of those listed in Article 8 may continue, for a period of three years from the notification of the Directive, to carry on their present business in the legal form in which they are constituted at the time of such notification. Undertakings set up in the United Kingdom 'by Royal Charter' or 'by private Act' or 'by special public Act' may continue to carry on their business in their present form for an unlimited period.
17. The Professor puts the argument this way at paragraph 51 of his skeleton argument:
"[The] Directive .. places a duty to regulate the insurance market within its territories upon the governments of the member states. In the case of the United Kingdom, this specifically includes Lloyd's Underwriters [Article 8.1(a)]. Lloyd's is responsible for the implementation of the Directive in the UK because it is liable as an organ or agent of the State because Lloyd's acted as such in instructing auditors, alternatively, a directly effective right arises under [the] Directive ..."
18. He submitted that Articles 15, 16 and 19 required the maintenance of adequate technical reserves and the maintenance of a specific solvency margin. Without a proper audit system no sensible estimate of outstanding ultimate liabilities and thus reserves or solvency margin could have been ascertained. Nor would it be possible to produce a correct or reliable certificate of solvency as required by Article 11. Under this head of claim an injunction would be an appropriate remedy. I was reminded that
"every national court must apply Community Law in its entirety and protect the rights which the latter confers on individuals and must accordingly set aside any provisions of national law which may conflict with it, whether prior or subsequent to the Community rule." [paragraph 60 of the Opinion of Advocate General Ruiz-Jarabo Colomer in the Skandia Case [1999] 2 CMLR 933 at page 9471.
The injunction remedy would be the proper protection for the Defendants'
rights. If I were not persuaded that the Defendants' point was inevitably good, then the matter should be referred to the European Court. It would be a waste of costs to refuse a reference at this stage but require the matter to proceed up the domestic court hierarchy. The draft questions for the reference were included in the pleadings bundle. I reproduce them here, simply as an indication of the questions which the defendants thought should be asked of the ECJ Were I to order a reference, then it is the Court's responsibility to settle the questions:
"1. Is the delegation of the duty to regulate the Claimant's market to the Claimant itself lawful under European Community Law and in particular Directive 73/239?
2. In the light of the decision of the Court of Appeal in Jaffray, did the UK Government or its delegate Lloyd's during that period comply with the requirements of Directive 73/239M
3. Does Lloyd's have a duty to regulate the Claimants' own reinsurance market and has it complied with that duty and the requirements of Directive 73/239?
4. If the answer to questions 1, 2 or 3 is "no" is it lawful for the Claimant to be permitted to enforce its claims against defendants?
5. If the answer to question 4 is "no", should interim relief be awarded by this court to protect the Defendant's regulatory rights under Community Law?"
19. Professor Watson-Gandy suggested a sixth question, namely whether the English Limitation Laws or the doctrine in Henderson v Henderson should, in the circumstances, be applicable so as to deprive the defendants of a valid claim under Community Law.
20. For Lloyd's, on this question, Mr Foxton submitted that for there to be direct effect the court must be able to identify on the basis of the relevant provisions alone rights whose content are precise, immediate and unconditional. The Directive in question has been added to, over the years, as described by the Advocate General in the Skandia case. The relevant Directive is that which applied during the relevant ten year period to 1988. Looking at the words of the Directive did it confer rights on the category of people who were seeking to claim them? Reference was made, in particular, the speech of Lord Hope in Three Rivers District Council v Governor and Company of the Bank of England [2000] 2 WLR 1220 at pages 1238-1239, & 1257. There, the House of Lords was considering the right of a depositor with BM to sue the Bank of England for their alleged failure to monitor BM properly in the discharge of their obligations under the First Council Banking Co-ordination Directive [77/780/EEC]. The House held that the Directive did not give the individual customer a right to sue; that the matter was acte clair and a reference was unnecessary. Mr Foxton submitted that the two Directives have similarities. Both were designed to harmonise the laws of member states to ensure equality of rights of establishment and the provision of banking or insurance services across the community. The House held that Article 57 [it was pursuant to this article that both Directives were made] did not say anything to suggest that the protection of individual depositors and potential depositors against loss "could be regarded as a purpose for which Directives were to be issued under it", despite the reference in Article 57(2) to the protection of savings. It is one thing for a Directive to recognise that to obtain recognition a Bank must demonstrate that it has the means to protect savings; and quite another for a saver to be given protection by Community Law to an extent greater than under domestic law, on the other [see page 1244]. There was nothing in the language of the Directive 73/239 to suggest that rights were being accorded to persons who were damaged by a failure to carry out proper supervision. In any event, the argument that the Directive had direct effect for Names was rejected by Tuckey J. in Society of Lloyd's v Pascoe 9 March 1998 at pages 8 & 9. When dismissing the appeal, the Court of Appeal expressed as dubious the proposition that the Directive had direct effect during the relevant period: Lloyd's v Fraser [1999] 1 Lloyd's Rep IR 156 at pages 174-5.
21. In any event, it is an abuse of process for the Levys or the Johnsons to seek to amend to raise this new case. Both parties participated in a lengthy hearing in the Laws case in which the court considered what counterclaims were open to Names following the Jaffray judgment. A range of possibilities were canvassed, including innocent misrepresentation, claims for restitution and (after judgment was handed down) a reference to the ECJ. Of the various suggestions, the Levys and the Johnsons espoused only the claim for innocent misrepresentation. When the proceedings before Cooke J had come to an end, the Levys and the Johnsons both relied on their limited participation and the fact that they were not to be associated with other points which had been unsuccessfully argued. The costs order reflected this. They maintained that position in the Court of Appeal which dismissed the appeals in December 2003. It is, so Mr Foxton submits, an obvious abuse of process for the directive point to be raised so late in the day after they had not adopted it during the Laws litigation. That litigation was designed to sweep up into one case all outstanding points which might be raised against Lloyd's following the Jaffray judgment.
Stamp Duty
22. This is a point which is solely relied upon by the Levys. They do not admit the assignment underlying the debt and assert that no adequate notice of the assignment was given to them. Professor Watson-Gandy submits as follows:
1. In order to make their case, Lloyd's must prove the assignment; any reliance on the documents evidencing the assignment will be unsustainable since Lloyd's will be unable to adduce in evidence documents which should have been but were not stamped.
2. Judges must have regard to the sufficiency of the stamp duty paid on a document before them and must ensure that proper duty is paid by refusing to admit into evidence an unstamped document.
3. The failure to pay duty does not render the document invalid, section 14(2) of the Stamp Act merely renders it inadmissible.
4. The fact that this point could have been taken in other Lloyd's litigation and was not is no answer because stamp duty points arise whenever the court is looking at an unstamped document and a court will not assume that a document has been properly admitted in evidence in the court below.
5. Lloyd's assert that the original assignment has been lost. If the original assignment was not stamped then secondary evidence of it would not be admissible.
6. If the original was stamped but has been lost then the commissioners will either re-stamp a duplicate free of charge or refund the money paid on the original.
7. The burden of proving that the document was unstamped lies on the Levys; but it is not Lloyd's case that ad valorem duty on the whole value of the cause of action was ever paid, the issue is rather whether no or merely nominal duty arose on the operative assignment, and the position is not clear.
23. The facts relating to stamp duty are set out in Mr Martin's witness statement.
"24. On 2 October 1996 the Completion Agreement was sent to the Stamp Office for adjudication.
25. Despite extensive searches by both Lloyd's and Freshfields Bruckhaus Deringer (Solicitors for Lloyd's) we have been unable to locate either the original Deed of Assignment or the stamped original Completion Agreement. I have been informed by Freshfields Bruckhaus Deringer that they have been able to ascertain from their account records/files whether a payment of fixed duty was made at this time. Despite this we have no reason to believe that the Completion Agreement was not adjudicated and stamped at this time.
26. Further I am informed by Freshfields Bruckhaus Deringer that they have made enquiries with the Stamp Office. However the Stamp Office has informed them that they do not retain records which date back as far as the period in which the Completion Agreement would have been adjudicated and stamped.
27. For the sake of completeness, and without prejudice to Lloyd's position that the concerns which had been raised by the Names regarding the stamping of these documents were without foundation, on 17 April 2002 four executed originals of the Completion Agreement were sent by Freshfields Bruckhaus Deringer to the Stamp Office for adjudication.
28. The Completion Agreement was returned by the Stamp Office stamped "adjudged not chargeable with any Stamp Duty". For the sake of clarity I can confirm that the Completion Agreements which were stamped by the Stamp Office at this time were original documents. I can confirm that the original stamped Completion Agreement is available for inspection at Lloyd's.
29. Notice of the Assignment was given to the Defendants by pro forma letters before action from Lloyd's Solicitors Dibb Lupton Alsop dated 24 February 1997.
24. Mr Foxton submits that the Stamp duty point has already been considered and decided by Cooke J. in Society of Lloyd's v Troostwyk [2003] EWHC 1980 (Comm). There, the Judge rejected a pleading point based on the difference in Lloyd's case between saying the assignment was effected by the Deed, on the one hand, and by the Completion Agreement, on the other. The position is clear: the assignment was effected by the completion Agreement and was repeated in and evidenced by the terms of the Deed. Permission to appeal in the case of Troostwyk was refused. The factual position was summarised by Jacob LJ in his judgment. He said this: "As far as the deed is concerned nobody knows whether it was stamped or not. The difficulty is that in those circumstances the law presumes that things have been carried out correctly."
The Registration point
25. The submission on the defendants' behalf can be summarised in this way. Section 396 of the Companies Act 1985 provides that certain charges which have not been registered are void. "(1) Subject to the provisions of this Chapter, a charge created by a company registered in England & Wales and being a charge to which this section applies is, so far as any security on the company's property or undertaking is conferred by the charge, void against the liquidator [or administrator] and any creditor of the company, unless the prescribed particulars of the charge is created or evidenced, are delivered or received by the registrar of companies for registration in the manner required by this Chapter within 21 days after the date of the charge's creation." "Charge" and "property" are widely defined in that section and it was assumed in the argument before me that they are apt to include the security granted by the Deed of Assignment and Completion Agreement.
26. Mr Foxton points out that section 396 comes into play only when the company concerned goes into administration or liquidation. Assuming for present purposes that the Equitas Premium is a 'book debt' there is nothing in the statute which entitles a debtor to rely on these provisions in relation to a solvent company. An unregistered security assignment is not void or invalid as against the assignor and non-registration in advance of bankruptcy or insolvency does not affect third party creditors, or debtors.
The Quantum point
27. This affects the Johnsons only. They say that the figures are manifestly wrong as there is a difference between the figures which Lloyd's have supplied them. The sum claimed "bears no resemblance to the finality statement of either Mr or Mrs Johnson". The court should not rely upon the sums where no proper audit was undertaken by Lloyd's. Mr Foxton relies on paragraph 5.10 of the reinsurance contract which provides that the record of Lloyd's Central Services Unit shall be conclusive evidence in the absence of manifest error. This provision was upheld by Tuckey J. in the Fraser litigation and by the Court of Appeal. Neither party here has put forward any case for saying that there has been manifest error. The accuracy of the figures has nothing to do with any failing by Lloyd's in relation to adequate reserves.
28. There is a sense of dj A vu about this case. The Levys and the Johnsons wish to raise arguments which have already failed and in the case of the European Directive point a case which could and should have been raised before. The Lloyd's litigation has been carefully managed to avoid a multiplicity of hearings and to avoid the risk that as each point was decided against a party it would think of another one to overcome the court's decision. But out of respect for the parties' arguments I shall deal with each point on its merits.
A. The European Directive point
29. In my view there is no merit in the point being raised. As it seems to me, the structure of the Directive is to require the national governments to arrange for the supervision of the insurance industry so as to ensure that 'foreign' companies were not discriminated against and by providing for common trading rules so that the prospective insureds would benefit from a competitive, properly regulated environment. There is nothing in the Directive which suggests that insureds would have any rights as against the regulator further than their existing domestic law rights if any. The insureds were not the 'targets' of the directive, although they might be the beneficiaries of a well regulated Community wide insurance industry. This is precisely the same position as in the Three Rivers Case. Under the Directive, Lloyd's were one of the insurance providers which fell under the regulatory system; they were not, as I understand the position, a delegate of the DTI for this purpose, they were regulated by that Department. The fact that the way Lloyd's were regulated was different because they were regulated with a lighter touch than insurance companies is neither here nor there. Not only is a case based on the direct effect of this Directive so far as an insured is concerned a hopeless contention, it is nonsense on stilts to suggest that a Name was given direct legal rights to complain about a lack of regulation. There is nothing in the Directive which comes anywhere near making that argument sustainable. Lloyd's was a special case because to some extent the Names are single insurers and to some extent the Society or Association of Lloyd's can be looked at as m entity: hence the Lloyd's Central Fund from which claims may be paid in the event of a loss. The Directive could not cover the insurance industry generally without making special reference to reflect the unique position of the Names/Syndicate/Society. The fact that they are mentioned in the Directive says nothing about whether the Directive was conferring individual enforceable rights on them.
30. The cases cited by Professor Watson-Gandy to show that insurance companies may be able to sue their Government do not help. In the Skandia case [1999] 2 CMLR 933, the insurance company took a 9.2% holding, by using its surplus funds, in another company. This infringed the 5% rule imposed by the Swedish authorities. The matter was referred to the ECJ Article 18(1) was relied upon by Skandia, who argued that the application of a national rule such as the 5% rule was not only contrary to that article but was also liable to distort competition. The court ruled in Skandia's favour. The Court held that Articles 18(1) and 21(1) of the directive "are sufficiently precise and unconditional to be relied upon before the national court as against the national authorities." There is no suggestion whatever that an interested third party such as an insured or a Name were given rights by this Directive. In the second case [Case C-109/99, ABBOI, [2000] ECR I-7247], the question was whether certain mutual benefit societies whose sole business was that of insurance were entitled, having regard to article 8(1)(b), to create a new entity which engages in commercial business. The Court ruled that it was entitled to do so out of the free capital and provided that their total liability did not exceed that capital contribution. The Court referred to its judgment in the Skandia case and said that "the primary purpose of the prohibition laid down in Article 8(1)(b) is to protect the interests of insured persons against the risks which engagement in such business could entail for the solvency of those undertakings." The protection given by the regulations to the 'end-user' is to be found in the provisions of the Directive and is derived from them rather than being created by them.
31. In any event, Lloyd's is not an emanation of the State and nor is it an 'agent of the State'. Lloyd's as a society is simply an insurer [in a loose sense] which is regulated by the DTI. There is high authority for saying that it is not an emanation of the State: see in particular the decision of the Court of Appeal in R v Lloyd's on the application of West [2004] EWCA 506. The nature of Lloyd's is essentially non-governmental; it exercises no public law functions and as such is not amenable to the application of the Human Rights Legislation.
32. At the end of the day, I regard the arguments based on the Directive as hopeless. In any event, the events upon which the Levys and the Johnsons wish to rely are those that occurred in the ten years leading up to 1988. This claim is founded on the findings by the Court of Appeal in the Jaffray case. It would be wrong, I think, to permit an amendment which raised matters which were long statute barred, and even had they been arguable, I would not have permitted an amendment on this ground as well. I do not consider that it is remotely arguable that by applying our Limitation Statute [6 year time limit] and/or our concept of abuse of process is improperly stifling a European point. The Levys and the Johnsons have had plenty of opportunity to argue this point before. Indeed, in theory they could still argue it now in the litigation brought against the UK Government in relation to its regulation of the insurance industry. None of these rules of procedure constitute an improper impediment on a party's rights to assert a claim under European Law. They have an effective but not unlimited right to make their case. It is not the law that the doctrine of res judicata [or its equivalent] is incompatible with Community Law. Contrary to the argument presented by Professor Watson-Gandy, the case of Kbler v The Austrian Republic (Case C-224/01) [2004] 2 WLR 976 on which he relied does not establish that res judicata is impermissible in relation to European Law points. There, a university professor alleged that his employers in Austria should have taken into account his university service in other European countries prior to his service in Austria in calculating a length of service increment. On a reference from the Supreme Court in Austria [the court of last instance], the ECJ ruled that service in Europe should have been taken into account. When the matter came back before the Supreme Court, it then held that the service increment was not an increment based on length of service, as it had previously held, but that, rather, it was in the nature of a loyalty bonus, and the court dismissed the claim; whereupon the professor brought an action against the Republic of Austria alleging that he had suffered loss as a result of the court's ruling. The ECJ upheld the complaint on the basis that the principle of state liability for damage caused to individuals as a result of breaches of Community Law applied in principle to any breach by a member state of community Law, whatever the state authority that was responsible, and extended to cases where the infringement stemmed from a decision of a court adjudicating at last instance. The United Kingdom intervened to argue that a decision of a Supreme Court of last instance should not give rise to such arguments and that the principle of res judicata should apply. But, in the context of the facts of this case, the ECJ said that the principle of res judicata did not preclude recognition of the principle of state liability for the decision of a court adjudicating at last instance. It was inevitable that that was so, otherwise the national court could pre-empt the ECJ from considering the claim.
33. Thus, my conclusions are that the Directive does not confer rights directly on the Names, nor on any class of individual. Second, Lloyd's is not an emanation of the State nor an agent under the Directive of the DTI. Third, this issue has been debated before the courts and the matter is finally settled. Fourth, there is nothing in our law or community Law to preclude either the operation of a time limit nor the principle of abuse of process. Five, permission to make the amendment sought should be refused. Sixth, the position under the Directive is acte clair and a reference is not appropriate.
B Stamp Duty
34. I regard this point as hopeless, also, for a number of reasons. In the first place, as Jacob LJ said, it is not known whether the original deed was stamped and therefore in the absence of any evidence that it was not stamped, but lost, a copy of the deed may be introduced into evidence. Second, four executed originals of the Completion Agreement have been submitted to the Stamp Office and have been stamped "adjudged not chargeable with any Stamp Duty". These documents are apt to prove the assignment of the debt to Lloyd's. It is not the function of the Court to question the validity of the stamp nor whether duty should have been charged nor why these documents were stamped the way they are. The stamp point is, admittedly, a purely technical point to which there is a perfectly sound technical argument in response. I will not permit the pleading to be amended to raise a point which is simply bad. I also regard the question under the Stamp Act as having been decided in circumstances where the Levys are now precluded from raising it.
C The Registration Point
35. This point is quite unarguable. The answer to it is to be found in the following passage from Professor Roy Goode's book "Legal Problems of Credit and Security", third edition at paragraph 3-30
"Failure to register a charge on book debts renders the charge void against a liquidator or administrator and creditors, by which is meant creditors in a winding-up or administration or secured creditors as opposed to unsecured creditors where no winding-up or administration has occurred. Non-registration does not avoid the charge as against a next line purchaser of the debt, but if he acquires the legal title without notice of the unregistered charge he has priority under the normal priority rules.
The effect of non-registration is exhausted if the debts are collected before anyone has acquired a locus standi to complain of non-registration, ie before winding-up or administration or the grant of specific security."
36. I am satisfied that this extract correctly summarises section 396 of the Companies Act and is the law. On this basis, the defendants have no locus standi to resist paying the debts, whether registered or not. I will not grant permission to add this point to the pleadings.
D The Quantum point
37. There is no evidence of 'manifest error' in the figures. In the absence of such an error, the figures provided from the records of Lloyd's Central Services Unit are conclusive. This conclusion was adopted by Tuckey J in the Fraser litigation and approved by the Court of Appeal. The figures relied on for settlement purposes were different and nothing turns on that alleged 'discrepancy'.
38. It follows, therefore, that I refuse permission to make the various amendments and, in those circumstances there is no arguable defence shown to Lloyd's claims. Professor Watson Gandy submitted that there was nonetheless some good reason why a trial should take place after Lloyd's have been required to make full disclosure of their documents. He criticizes the way in which Lloyd's have made partial disclosure. When inspection was carried out by the defendants, parts of the Completion Agreement had been covered over and they were not permitted to examine the parts which had been concealed from them. This has led to a submission that Lloyd's are declining to disclose material on the grounds of commercial confidence. This submission is wrong. First, the stage for discovery has not formally been reached. If the matter were to proceed to trial then disclosure would take place in the usual way. However, Lloyd's have made available for inspection the various formal documents which were made at the R & R stage; but they are not willing or obliged to disclose irrelevant material, whether that is contained in a separate document or in a document, part of which has been disclosed. Whereas Lloyd's would prefer to disclose the whole of the Completion Agreement, if only to avoid unfounded suspicion that they have something to hide, they are not prepared to do so for reasons of commercial confidentiality. They are not seeking and have not sought to cover up anything that is material to the issues with which this judgment has been concerned. What has happened over the documentation does not provide any reason why, even though there are no arguable defences a trial should take place.
39. It follows, therefore, that there must be judgment for Lloyd's on their claims. Whilst I have considerable sympathy with the defendants, I reach my conclusion on the basis of the law and the submissions made to me.