Current Law Cases

 

Scope

Lloyd's; underwriters; contracts; rescission of contracts for fraudulent misrepresentation; set off of counterclaim for damages

Case

Society of Lloyds v Wilkinson (No.2)

Court

(QBD (Comm Ct)) Commercial Court

Jurisdiction

 

Judgment

April 23, 1997

Judges

Colman, J.

Legislation

Insurance Companies Act 1982 s.2(1); Misrepresentation Act 1967 s.3

Reported

[[1997] 6 Re L.R. 214; [1997] C.L.C. 1012

Reference

 

Abstract

SL sued W, an SL underwriter, for his portion of the amount payable to SL in respect of reinsurance premium originally due to Equitas, E, under the reconstruction and renewal, R&R, regime. On the assumption that W was induced to become an SL's member by signing the 1986 General Undertaking, or by subsequent fraudulent misrepresentations by SL or their agents, W argued he was entitled to rescind and had rescinded his membership, thereby avoiding it ab initio, and was therefore not liable to pay the E premium; in the alternative W claimed to be able to set off damages for fraudulent misrepresentation against SL's claim for the premium or stay the same; SL claimed the reinsurance contract between E and W prevented both.

 

Held, deciding against W on each of the issues, (1) rescission for fraud would be ordered in the interests of justice even where resitutio was impossible, provided that a just result could be obtained by ancillary orders for monetary adjustments for benefits, detriments and changes in the subject matter during the course of the contract. However the benefit of SL's administrative facilities had been irretrievably consumed in the course of W's underwriting business, substantial restitutio was not therefore possible. Further, restitutio could not be partially achieved to create a just and equitable dissolution of the contract given that (a) withdrawal of administration of run-off from that of the syndicate would be so disruptive as to be prejudicial to the administration of SL as a whole, and (b) if W conducted run-off business otherwise than as a member of SL it would be unlawful as contrary to the Insurance Companies Act 1982 s.2(1), Spence v Crawford [1939] 3 All E.R. 271 considered; (2) SL could as assignee take advantage of the contractual anti set off cl.5.5, whose words were clear enough to cover set offs for fraud or equitable defence; and the Misrepresentation Act 1967 s.3 did not apply to it as it did not exclude or restrict any remedy "by reason of such misrepresentation" and it could not be suggested that the alleged fraud induced the contract with E. In any event, W's claim was not available as a set off to the claim assigned to SL from E, as it related to a different contract to which E was not a party, the connection with R&R and E was too remote, and (3) the court ought not to exercise its discretion to stay of execution pending determination of the counterclaim since W had, by cl.5.5(a) waived any claim to any stay and consented to immediate enforcement of any judgment for unpaid premium.

Subject

Insurance

Keywords

Contracts, Members, Misrepresentation, Rescission, Underwriters

Counsel

For SL: A Grabiner Q.C. and R Jacobs. For W: R Tager Q.C. and I Newman

Solicitors

For SL: Freshfields. For W: Epstein Grower

Cases cited

Spence v Crawford [1939] 3 All E.R. 271