2 Lloyd's Rep 436
HEARING-DATES: 27 February, 3 March 1992
3 March 1992
Practice -- Transfer of proceedings -- Actions brought in Chancery Division against defendants -- Applications to transfer proceedings to Queen's Bench Division -- Whether inappropriate to leave actions in Chancery Division.
The plaintiff was a name at Lloyd's and the defendant was an underwriting agent referred to as a Member's Agent at Lloyd's.
The plaintiff applied for an injunction restraining the first defendant from taking steps to pay, in respect of any outstanding cash call made on him arising out of his membership of eight named syndicates at Lloyd's, any funds held on the plaintiff's behalf or in trust for him or to call upon any security held or given by the plaintiff. The second defendants were added as defendants to the action.
The defendants applied for the action to be transferred to the Queen's Bench Division in that the Judges of the Commercial Court were the better experienced in dealing with Lloyd's affairs.
-- Held, by Ch (MERVYN DAVIES J), that (1) it was inappropriate to leave the action in the Chancery Division; the claims did not involve breaches of trust that justified keeping it in the Chancery Division and the Court would in essence be concerned with alleged breaches of contract; the documents in the case seemed to be likely to be more speedily mastered by a Judge who was familiar with Lloyd's insurance work, although there were eight writs before the Court some 700 writs in like cases had been issued and the situation suggested that matters would be more easily managed in the Commercial Court with its own flexible administrative procedure and more accustomed in dealing with multi-party actions; and there would be at the hearing a need for the understanding of the background (see p 439, cols 1 and 2);
(2) since the Commercial Court was accustomed to dealing with Lloyd's litigation it was likely that a Judge of that Court would have the best practical insight into the working of the complicated insurance business that was thrown up by these actions; there would be orders accordingly (see p 439, col 2).
Barclays Bank Plc v Bemister (CA)  1 All ER 10;
Pantheon Ltd v Chandler Hargreaves Ltd, 139 NLJ 329.
This was an application by the defendants, David Holman & Co Ltd and the Society of Lloyd's that the action brought against them by the plaintiff Mr Boobyer be transferred from the Chancery Division to the Queen's Bench Division.
Mr Michael Burton, QC and Miss Marion Smith for the plaintiff; Mr Neville Thomas, QC and Mr Christopher Butcher for the first defendants in the other four lead actions; Mr Neville Thomas QC, Mr Roy Phillips and Mr Christopher Butcher for David Holman & Co.
PANEL: MERVYN DAVIES J
JUDGMENTBY-1: MERVYN DAVIES J
MERVYN DAVIES J: This is an application to transfer proceedings from the Chancery Division to the Queen's Bench Division. There are eight writs before me, two of them issued on Feb 19 and the others on Feb 20. In each case the plaintiff is a Name at Lloyd's and, again in each case, the first defendant an underwriting agent referred to as a Member's Agent. The second defendant in each writ is the Society of Lloyd's. Lloyd's applied to be joined as defendants and were joined, as I understand it, without any objection being made.
It is sufficient for present purposes to refer to one action only. A decision as to one action will govern what would happen to the other Actions. I take the action of Boobyer v David Holman & Co Ltd, CH 1992 No B 1308. A copy of the claim endorsed on the writ in that Action will be annexed to the judgment.
One sees that the plaintiff's claim is, in brief, for an injunction restraining the defendant, David Holman, from taking steps to pay -- in respect of any outstanding cash call made upon him arising out of his membership of eight named syndicates at Lloyd's -- any funds held on the plaintiff's behalf or in trust for him, or to call upon any security held or given by the plaintiff; and in particular the defendant is then sought to be restrained from:
(a) causing funds in a Lloyd's Security and Trust Deed to be paid to the Premiums' Trust Fund;
(b) authorising the Committee of Lloyd's to direct the funds of the said Trust Deed to be transferred to the Premiums' Trust Fund; and
(c) directing the trustee of the Personal Reserve Trust Fund and the Special Reserve Trust Fund to make the payments therein specified.
The plaintiffs issued notices of motion against the first defendant for interlocutory injunctions in the terms claimed in the writs. The Boobyer notice of motion is dated Feb 20, 1992. The motions came before me on Feb 21, 1992. Certain undertakings were given by the plaintiffs and the (then) defendants. The motions were stood over to come on as motions by order, not before Mar 26; and it was ordered that Lloyd's be added as defendants.
The next step was the issue of notices of motion by the defendants seeking transfer of the actions to the Queen's Bench Division. There are in all 16 transfer motions. In the Boobyer Action there is a transfer motion dated Feb 21, 1992 by the first defendant. In the same action there is a separate transfer motion by Lloyd's. The Lloyd's motion seeks to transfer to the Commercial Court but I think I must regard that as an application to transfer to the Queen's Bench Division.
At the transfer hearing before me I was referred to some of the evidence filed for the purposes of the main motion for interlocutory injunctions, and in particular to a long affidavit (with exhibits) sworn on Feb 19, 1992 by Mr Michael Freeman, who is the solicitor acting for the plaintiffs.
In becoming a Member of Lloyd's a Name (in a syndicate) is obliged to sign a member's agreement. Version of some member's agreements are in Exhibit MDF 1 to Mr Freeman's affidavit. Thus there is or should be, for example, a member's agreement between Mr Boobyer and Holman. The effect of the agreement is, I am told, to give complete control to the Member's Agent in matters concerning underwriting done on behalf of the Name as a member of the syndicate. The theme of the Name's complaint in the action is that Members' Agents have not exercised that control in a satisfactory fashion.
Onwards from the Member's Agent is a Managing Agent. A Managing Agent organises the underwriting business of a syndicate. A Name is required to contract direct with the Managing Agent of his syndicate. There is a standard form. There is then another standard form of agreement between the Member's Agent and the Managing Agent. Alongside the agreements I have mentioned there is the security which a Name must give to secure his underwriting obligations. A sum is fixed as a "deposit" and the deposit (in a way of cash of other security, for example, a bank guarantee) is then held on trusts set out in a Deposit Trust Deed (see MDF 1 p 91 to 94). The premiums received for underwriting are held in one or other of three Premiums Trust Funds. There are three Premiums Trust Deeds because United States dollar premiums have to go into an American Fund, Canadian dollars into a Canadian Fund and other premiums into a third fund. The Names are the ultimate beneficiaries under those Funds. One next mentions the Personal Reserve Fund and the Special Reserve Fund. Those funds are built up inter alia by retentions made by a Member's Agent from profits due to a Name.
So it is that in par 27 of his affidavit Mr Freeman says that the funds that a Name has to meet his liabilities are: (1) the Premiums Trust Fund; (2) the Personal Reserve Fund; (3) the Special Reserve Fund; (4) the Lloyd's deposit and, (5) the Name's other wealth. Number (5) is there because, as is well known, Names have an unlimited liability for all their underwriting obligations.
When calls, as opposed to ascertained losses, are made and there are insufficient funds in a syndicate's Premium Trust Fund, there is a prescribed procedure for having recourse to the Trust Deed. Some calls are specified in paragraph 35 of the affidavit. As to those, Mr Freeman's evidence at paragraph 36 is:
With the exception of Edwards William Coutts & Partners and possibly David Evers Limited, I am not aware of any Member's Agents who made enquiries of Managing Agents with regard to the propriety of the calls and even they do not appear to have raised queries with regard to expenses in paragraphs 32 and 33 hereof. I believe that in any event it is the duty of the Member's Agent, on receipt of a call from a Managing Agent, to investigate the propriety of it and to make all such enquiries as are necessary to satisfy itself that it is properly made before sending it to the Name with a request for payment.
In the case of these syndicates I believe this duty is the greater because all the syndicates have been referred by Lloyd's to Loss Review Committees (except Syndicates 216/832, where it has been announced that it intends to do so) set up by Lloyd's under the provisions of the Loss Review Byelaw No 8 of 1991 to investigate the circumstances giving rise to the huge liabilities for which the calls are being made. In addition, on the face of the documents produced by the Managing Agents to the Member's Agents, there are matters which call for inquiry, to which I refer specifically below.
Mr Freeman, at par 38, said:
I would respectfully seek to summarise the position in relation to the Draw Downs which are threatened in respect of each of these Syndicates by duly authorised Member's Agents. I deal with the position where a Substitute Agency has not being validly appointed or may not have been validly appointed in place of a Member's Agent who has ceased to be an authorised underwriting agent at Lloyd's at paragraph 52 to 55. Provided that cash call have been made in proper form. (i) if and, in so far as the calls relate to unpaid claims, they would be payable; (ii) if and in so far as the calls relate to expenses and outgoings they would be payable only if necessary and reasonable but not against Lloyd's Deposit Trust Fund or Lloyd's Security and Trust Fund (see paragraphs 32-34); (iii) if and in so far as the calls relate to unauthorised payments by GW Run-off Limited of liabilities of Gooda Walker Limited in Liquidation, they would not be payable (see paragraphs 40 and 41); (iv) most importantly, in so far as the calls relate to attempted reimbursement of unlawful misappropriation in breach of trust of funds in the American Trust Fund, the Canadian Trust Fund and the Premium Trust Fund, they would not be payable (paragraphs 56 to 58).
There is then over many pages some particulars of the complaints. I do not refer to them now but will do so briefly later. Under RSC, O 4, r 3, a cause or matter may at any stage of the proceedings be transferred from one Division to another by order of the Court made in the Division in which the cause or matter is proceeding.
In that connection I was referred to Barclays Bank v Bemister,  1 All ER 10 and Pantheon Limited v Chandler Hargreaves Limited, 139 NLJ 329. In the Bemister case the Master of the Rolls said, at p 12:
. . . it is only necessary to draw attention to the overlap in experience of the "commercial" judges of the Queen's Bench Division and the judges of the Chancery Division in relation to commercial disputes which do not arise in the context of shipping.
At p 13 he says:
If an Action has been begun in a division . . . to which, in accordance with the rules, or generally accepted practice, it is inappropriate, either party can and should apply for a transfer to the appropriate division.
In the Pantheon case Lord Justice Glidewell said:
Only if an Action has been begun in a division in which it is inappropriate that the trial should take place should there be a transfer.
Thus it is that one must consider whether or not it is inappropriate that the trial of the actions now under consideration should take place in the Chancery Division. To do that means that one must consider what claims the plaintiffs are making. Mr Pollock appeared for Lloyd's. Referring to Mr Freeman's affidavit he said that the plaintiffs' claims fall under five heads: (1) there is first the claim that the Member's Agents owe a duty to his Names to see that a Managing Agent's calls are properly made, (see par 36 above and par 6 of the Member's Agent/Names Agreement at p 407 of v 2, with its reference to "Duties of the Agent" and "Fiduciary Duty"); (2) it is said that the agent's expenses, if reasonable, may be charged against premiums, but not against a Deposit Trust Fund or a Securities Trust Fund (see par 38(a) above); (3) a Managing Agent called Gooda Walker Ltd, went into creditors' voluntary winding-up on Oct 4, 1991. Lloyd's appointed GW Run-off Ltd to be the substitute Managing Agent. There is then the suggestion in evidence that Run-off Limited have paid substantial debts left by Gooda Walker Ltd out of post-liquidation receipts, with the result that calls on Names in affected syndicates have been inflated; (4) it is said that there have been irregularities in the appointments of substitute Member's Agents (see Mr Freeman at par 52);
(5) there is the complaint that syndicates have allowed the Lloyd's American Trust Fund to be overdrawn in breach of trust (see Mr Freeman at par 56).
Mr Burton, for the plaintiff, said that the claims being made were wholly appropriate to the Chancery Division in that there are allegations that Member's Agents have acted in breach of trust and in breach of fiduciary duty. Mr Thomas, for the first defendant and Mr Pollock for Lloyd's, submitted that it was inappropriate to leave the Actions in the Chancery Division.
All Counsel agreed that a decision in favour of Division X rather than Division Y may not be based on the prospect that a hearing in Division X will take place sooner than a hearing in Division Y. In any event, I had no indication whether a hearing would be earlier in the Chancery Division than in the Queen's Bench Division or vice versa. There was also recognition on all sides that commercial disputes are now familiar fare in the Chancery Division, (see the Bemister case).
But Counsel for the defendants said that it was inappropriate to leave the actions in the Chancery Division. The reason for this is said to be that the Judges of the Commercial Court are the better experienced in dealing with Lloyd's affairs. It is said that virtually every disputed case of any importance concerning Lloyd's underwriting is heard in the Commercial Court. So it follows that the Judges of that Court have become familiar with Lloyd's documents, customs and jargon.
This case, it is said, while indeed not directly concerning underwriting as such, is nevertheless much related to a consideration of how Lloyd's works in the matter of its internal payments mechanism; that is to say, the action involves considering relationships between Lloyd's, the Managing Agents, the Member's Agents, the Names and the policy holders. These relationships are interlocking and emerge partly from the documents by which one or other of the parties that I mentioned bind themselves, and partly from the customs and practice of the Lloyd's insurance world.
The documents I have in mind include the agreement between Member's Agent and Name (eg vol 2, p 400), and the Managing Agent's agreement (eg p 457), and the various Trust Deeds. No doubt other documents will be said to bear on the plaintiffs' claims. Mr Thomas said that the obligations arising under the documents were wholly contractual, so that the breach of such obligations may not, for practical purposes, be regarded as breaches of trust or breaches of fiduciary relationship. Mr Thomas went on to say that one must bear in mind that the Member's Agent, in making the call, is acting as a mere conduit for the Managing Agent, the Managing Agent being the person who instigates all calls.
Having considered the submissions of Counsel I consider that it is inappropriate to leave these actions in the Chancery Division. There will be transfers to the Queen's Bench Division. I say that because, (1) I do not think that the claims involve breaches of trust that justify keeping the actions in the Chancery Division. I accept Mr Thomas's view that, in essence, the Court will be concerned with alleged breaches of contract; (2) the documents in the case seem to me to be likely to be more speedily mastered by a Judge who is familiar with Lloyd's insurance work; (3) although there are now before me eight actions I am told that 700 writs in like cases have been issued. That situation suggests to me that matters will be more easily managed in the Commercial Court. That Court has its own administrative procedure, a procedure said to be more flexible than that of Chancery Division and more accustomed to dealing with multi-party actions; (4) (and this is my principal reason), there will at the hearing be a need for an understanding of the background. By that I mean an understanding of the practical working of Lloyd's methods of providing for the making of calls. These methods are likely not only to be referable to such documents as I have mentioned, but also to accepted custom and practice.
It seems to me since that since the Commercial Court is accustomed to dealing with Lloyd's litigation, it is likely that a Judge of that Court will have the best practical insight into the working of the complicated aspects of the insurance business that is thrown up by these actions. There will be orders accordingly. Of course, I make the orders with some regret because boni judicis est ampliare jurisdictionem.
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION CH-1992-E No B64
-- and --
DAVID HOLMAN & CO LTD
AND THE SOCIETY OF LLOYDS
To the Defendant David Holman & Co Ltd whose registered office is at Three Quays, Tower Hill, London EC3R 6EN
THIS WRIT OF SUMMONS has been issued against you by the above-named Plaintiff in respect of the claim set out on the back.
Within 14 days after the service of this Writ on you, counting the day of service, you must either satisfy the claim or return to the Court Office mentioned below the accompanying Acknowledgment of Service stating therein whether you intend to contest these proceedings.
If you fail to satisfy the claim or to return the Acknowledgment within the time stated, or if you return the Acknowledgment without stating therein an intention to contest the proceedings, the Plaintiff may proceed with the action and judgment may be entered against you forthwith without further notice.
Issued from the Chancery Chambers of the High Court this 20th day of February 1992.
THE claim endorsed to the writ stated:
The Plaintiff's claim is for:
1. An Injunction restraining the Defendant whether acting by themselves, their directors, officers, employees or agents or any of them or otherwise howsoever from doing or authorising or procuring or causing any other person to do the following acts or any of them namely taking any steps to pay or apply towards any alleged indebtedness of the Plaintiff in respect of any outstanding/unpaid cash calls made or purported to be made upon him arising out of his membership of the following Syndicates at Lloyd's namely:
Rose Thomson Young Syndicate 255
Gouda Walker Syndicate 164
Gooda Walker Syndicate 290
Gooda Walker Syndicate 298
Devonshire Syndicate 216
Devonshire Syndicate 833
Feltrim Syndicate 540
Feltrim Syndicate 542
any funds held on the Plaintiff's behalf or in trust for his or to enforce or call upon any security held or given by the Plaintiff or on his behalf or to his order and in particular
(a) giving to the Trustees of the trusts created by the Lloyd's Security and Trust Deed between the Plaintiff and Lloyd's written notification supported by a certificate or report as provided for in clause 5(a)(ii)(a) of such deed, purporting to entitle the Trustees to pay or apply the Trust Fund or its income or any part thereof in any manner directed by the Premiums Trust Deed for the payment or application of the Premiums Trust Fund or to pay the same to the Premiums Trustees as an accretion to the Premiums Trust Fund.
(b) giving to the Committee of Lloyd's as Trustees of the trusts created by the Lloyd's Security and Trust Deed between the Plaintiff and Lloyd's written notification supported by a certificate as provided for in clause 5(a) of such deed, purporting to entitle the Committee to direct that the Trust Fund or any part thereof shall be realised and paid to or shall be transferred to the Trustees of the Premiums Trust Deed to be held by such Trustees upon the Trusts declared by such Deed of the moneys received or receivable by such Trustees.
(c) directing or causing the trustees of the Personal Reserve Trust Fund and the Special Reserve Trust Fund and of any other trust fund or other funds required or permitted to be maintained by the Plaintiff in connection with the Plaintiff's affairs at Lloyd's to pay all or part of the sums therein claimed.
2. Further or other relief.
Michael Freeman; Elborne Mitchell; Cameron Markby Hewitt