Society of Lloyds v Clementson; Society of Lloyds v Mason
Court of Appeal (Civil Division)
 LRLR 307, The Independent 11 November 1994, (Transcript: John Larking)
HEARING-DATES: 10 November 1994
10 November 1994
M Beloff QC, P Duffy and P Stanley for the Respondent; J Lever QC, N Green and R Slowe for the Appellant Clementson; J Beveridge QC and C Orr for the Appellant Mason
PANEL: Sir Thomas Bingham MR, Steyn, Hoffmann LJJ
JUDGMENTBY-1: SIR THOMAS BINGHAM MR
SIR THOMAS BINGHAM MR: On 29 October 1993 Saville J ordered the trial of three preliminary issues. One of them is no longer contentious. The other two issues were framed in these terms :
ISSUE 2 Implied Terms
The issue raised in (A), paras 29 and 30 of the Amended Points of Defence (pages 24 to 29) and (B), paras 176 and 178 of the Amended Points of Defence (pages 85 to 88): ie whether any of the alleged implied terms are to be implied into the contractual relationship between each Defendant and the Society of Lloyds.
Facts and Documents on Issue 2
The Society of Lloyds admits the legal texts cited in para 4 of the Statement of Facts etc served by the Defendants in both actions; but reference will be made to the full texts at the trial. (The Society of Lloyds does not admit the legal gloss or arguments advanced by the Defendants on the meaning or effect of these texts).
As to paras 5 to 7 of the said Statement, the Society of Lloyds is content, for the purpose only of the trial fixed for 15 November 1993, to argue this issue on the basis of factual hypotheses; ie without putting the Defendants to proof of all the facts alleged in the said Statement (but reserving all arguments relating to relevance, admissibility and law). In the circumstances, no discovery is required from any party.
(For the avoidance of doubt, the Society of Lloyds does not admit and should not be taken as admitting the facts alleged in the said Statement).
ISSUE 3: European Law
In relation to the European Law Defences raised in (A), paras 34 to 48 of the Amended Points of Defence (Pages 31 to 45) and (B), paras 213 to 223 (sic) of the Amended Points of Defence (pages 120 to 135), the following issues, namely:-
Issue 3(a):-Is the Society of Lloyds performing regulatory functions when acting pursuant to its statutory powers under the Lloyds Acts and pursuant to ss 83 to 86 of the Insurance Companies Act 1982 and the requirements of Directive 73/239?
Issue 3(b):-Do any of the above functions of the Society of Lloyds ( and, if so, which) constitute activities subject to arts 3(f), 5, 85 and 90 of the EC Treaty as alleged by the Defendants?
Issue 3(c):-Specifically, whether the following matters are capable, as a matter of law, of infringing arts 3(f), 5, 85 and 90 of the EC Treaty:-
i)s 14 of the Lloyds Act 1982 [see (A), para 40(9) of the Amended Points of Defence (pages 40 to 41) and (B), para 220 (9) of the Amended Points of Defence (page 130)];
ii)The Membership Byelaw (No. 9 of 1984) [see (A), para 40(4) of the Amended Points of Defence (pages 36 to 37) and (B), para 220 (4) of the Amended Points of Defence (page 126]; and
iii)The Agency Agreements Byelaw (No. 1 of 1985) [see (A), para 40(5) of the Amended Points of Defence (pages 37 to 38) and (B), para 220(5) of the Amended Points of Defence (pages 125 to 127)].
Facts and Documents on Issue 3
The Plaintiff has prepared for the trial draft Court bundles containing relevant documents including those documents that the Defendants have indicated that they will rely upon. The draft Court bundles constitute the Plaintiffs discovery on this preliminary issue.
In relation to the European Law preliminary issues 3(a) and (b) above, the Society of Lloyds will refer, to the draft trial bundle and in particular to the Lloyds Acts 1871 to 1982, the Central Fund Byelaw (No. 4 of 1986), the Insurance Companies Act 1982, EC Directive 73/239, particularly arts 10, 11 and 16 thereof and to the Fisher and Neill Reports.
In relation to preliminary issue 3(c), the Society of Lloyds will refer, to the draft trial bundle and in particular to s 14 of the Lloyds Act and to the Byelaws in issue and to the Lloyds Consultative Documents: Underwriting Agency Agreement (July 1984) and Underwriting Agency Agreements Working Group
(April 1988); together with the documents disclosed in the draft Court bundles.
After lengthy argument the judge delivered judgment on 16 December 1993. He answered these two issues as follows :
Issue No. 2
None of the implied terms alleged by the Defendants is to be implied into the contractual relationship between each Defendant and the Society of Lloyds.
Issue No. 3(a)
In bringing the present proceedings under the Central Fund Byelaw, the Society of Lloyds is acting in a regulatory capacity or performing a regulatory function.
Issue No. 3(b)
In exercising its powers to seek reimbursement for sums paid out of the Central Fund, the Society of Lloyds is not engaged in activities which are subject to arts 3(g), 5, 85 and 90 of the European Community Treaty.
Issue No. 3(c)(i)
In the context of the present proceedings, s 14 of the Lloyds Act 1982 is not legally capable of infringing arts 3(g), 5, 85 and 90 of the European Community Treaty.
Issue No. 3(c)(ii)
In the context of the present proceedings, the Membership Byelaw No. 9 of 1984 is not legally capable of infringing arts 3(g), 5, 85 and 90 of the European Community Treaty.
Issue No. 3(c)(iii)
In the context of the present proceedings, the Agency Agreement Byelaw No 1 of 1985 is not legally capable of infringing arts 3(g), 5, 85 and 90 of the European Community Treaty.
Mr Clementson and Mr Mason challenge the judges rulings on these issues.
The background facts giving rise to these proceedings are clearly and helpfully described by Saville J in his judgment of 16 December 1993 and need not be repeated. As Names at Lloyds Mr Clementson and Mr Mason incurred substantial liabilities. They failed to discharge those liabilities. Their premium trust funds, constituted under s 83(2) of the Insurance Companies Act 1982, are exhausted. Lloyds paid monies out of the Central Fund, created by the Central Fund Byelaw, to discharge the liabilities of Mr Clementson and Mr Mason. Lloyds took that action under para 7 of the Central Fund Byelaw. It seeks reimbursement from the two Names under para 10 of the Central Fund Byelaw. It is now common ground that the Central Fund Byelaw was validly promulgated under the Lloyds Act 1982. In other words, it is intra vires the relevant primary legislation. It is further common ground that paras 7 and 10 were prima facie applicable. Subject to what is described as a fraud issue, and subject to the issues in this appeal, Mr Clementson and Mr Mason have no answer to the claims made by Lloyds.
On 1 January 1987 Mr Mason executed a standard form of General Undertaking between himself as Member and Lloyds. The terms of this were as follows :
(A) The Lloyds Acts 1871-1982 conferred powers on the Council of Lloyds (the Council) to make byelaws for the purposes provided in such Acts.
(B) Pursuant thereto the Council duly made the Membership Byelaw (No. 9 of 1984) on 12th November, 1984 (the Byelaw) prescribing inter alia requirements to be satisfied or complied with as a continuing condition of membership of, and of underwriting insurance business at, Lloyds.
(C) The Member is or, as the case may be, is to become a member of Lloyds
(D) Pursuant to the provisions of the Byelaw and in consideration of the Members admission to membership of, and/or of underwriting insurance business at, Lloyds or, as the case may be, continuing membership of, and/or of underwriting insurance at, Lloyds, the Member and Lloyds consider that it is in their respective interests to become parties to this Undertaking.
NOW THEREFORE IT IS AGREED as follows :-
1. Throughout the period of his membership of Lloyds the Member shall comply with the provisions of Lloyds Acts 1871-1982, any subordinate legislation made or to be made thereunder and any direction given or provision or requirement made or imposed by the Council or any person(s) or body acting on its behalf pursuant to such legislative authority and shall become a party to, and perform and observe all the terms and provisions of, any agreements or other instruments as may be prescribed and notified to the Member or his underwriting agent by or under the authority of the Council.
2.1 The rights and obligations of the parties arising out of or relating to the Members membership of, and/or underwriting of insurance business at, Lloyds and any other matter referred to in this Undertaking shall be governed by and construed in accordance with the laws of England.
2.2 Each party hereto irrevocably agrees that the courts of England shall have exclusive jurisdiction to settle any dispute and/or controversy of whatsoever nature arising out of or relating to the Members membership of, and/or underwriting of insurance business at, Lloyds and that accordingly any suit, action or proceeding (together in this Clause 2 referred to as Proceedings) arising out of or relating to such matters shall be brought in such courts and, to this end, each party hereto irrevocably agrees to submit to the jurisdiction of the courts of England and irrevocably waives any objection which it may have now or hereafter to (a) any Proceedings being brought in any such court as is referred to in this Clause 2 and (b) any claim that any such Proceedings have been brought in an inconvenient forum and further irrevocably agrees that a judgment in any Proceedings brought in the English courts shall be conclusive and binding upon each party and may be enforced in the courts of any other jurisdiction.
2.3 The choice of law and jurisdiction referred to in this Clause 2 shall continue in full force and effect in respect of any dispute and/or controversy of whatsoever nature arising out of or relating to any of the matters referred to in this Undertaking notwithstanding that the Member ceases, for any reason, to be a Member of, or to underwrite insurance business at, Lloyds.
3. If any term of this Undertaking shall to any extent be invalid or unenforceable, the remainder of the Undertaking shall not be affected thereby and each term of this Undertaking shall be valid and be enforceable to the fullest extent permitted by law and a substitute provision shall be negotiated by the parties hereto to preserve as nearly as possible the original intent of this Undertaking.
This form was also signed on behalf of Lloyds.
For Mr Mason it was argued that terms should be implied into the contract made between him and Lloyds by signature of this form of General Undertaking that Lloyds should
(1) regulate and direct the business of insurance at Lloyds in good faith ; and/or
(2) exercise its powers of regulation and direction for the purposes for which they were given under the contract, namely the objects set out in s 4 of the Lloyds Act 1911 ; and/or
(3) regulate and direct the business of insurance at Lloyds with reasonable care.
Before Saville J Mr Mason contended for terms which were in substance the same as these. The judge held that no term should be implied into the contract, for reasons which he gave at pages 8-12 of the transcript of his judgment. He said (at page 9) :
In these circumstances it seems to me that whatever test is applied, there is no need for the implication of any of the suggested terms. The undertaking is wholly efficacious as it is expressed and wholly carries through its object, namely contractually to bind the individual to the rules etc. of the Society. Since this is the bargain that the parties were making, they could not on any sensible view have regarded the suggested implied terms as a necessary part of the individuals promise to comply with the rules. The contract is not incomplete : its nature does not require that further unexpressed rights and obligations should be implied into it.
In this Court Mr Masons advisers, having been offered the opportunity to address written in addition to oral submissions, took full advantage of the opportunity. I am not, however, persuaded that the judges reasoning or conclusions were wrong.
He was right to regard necessity as the primary test for implying a term into the contract by law and to find no such necessity. This was not a case in which the suggested terms were so obviously necessary to the efficacy of the contract as to obviate the need to express them. Nor is there any ground for regarding the contract as incomplete.
I would be content to accept the judges reasoning as my own. The clear and simple purpose of this agreement, aptly called an undertaking, was to ensure that on his becoming a Name Mr Mason became subject to the regulatory regime of Lloyds. The clauses governing choice of law and venue were ancillary to that object. No other obligation was assumed by Lloyds because no other obligation was needed to achieve that object. No contractual obligation was needed to restrain Lloyds from acting unlawfully, ultra vires or in bad faith because it had no power to do so and could be restrained from doing so without the need to rely on any contract. It was in no way necessary to the efficacy of the contract that Lloyds should regulate and direct the business in its market with reasonable care, and bearing in mind the terms of s 14 of the Lloyds Act 1982 it is plain that such a term would not have been unquestioningly accepted. Mr Mason was subjecting himself to the regulatory jurisdiction of a body of which he was becoming a member and consisting of his fellow-members. For the management of his underwriting business he would look to his own agents and not to Lloyds. In contractual terms there was no more to it than that.
It was argued before this Court, as before the judge, that an implied obligation on Lloyds to carry out its services with reasonable care and skill was imposed by s 13 of the Supply of Goods and Services Act 1982. The judge held that Lloyds did not supply a service within the meaning of this Act. I agree. No separate argument was addressed to us on these points on behalf of Mr Clementson.
I would dismiss the appeal on this issue.
The regulatory background.
Before turning to the Community law issues it is perhaps helpful to touch, briefly and far from comprehensively, on the regulatory background to the Lloyds insurance market.
Under a contract of insurance the insured pays a premium to the insurer and in return the insurer undertakes a risk of loss which would otherwise fall on the insured. To perform his contractual obligation the insurer must have the means to meet any valid claim by the insured if and when it is made (together, of course, with other claims made by other insureds). If the insurer misjudges the extent of his potential liabilities, he may be unable to meet the claim of the insured and this risk is compounded by the considerable time-lag which may well occur between the time when the premium is received and the time when the insureds loss is known or its extent ascertained. These peculiar features of insurance business, and the bitter experience of insurance company failures, have triggered a series of regulatory measures both in this country and abroad.
The London insurance market comprises a companies market and the Lloyds market. The capital of insurance companies is ordinarily provided by shareholders whose liability is limited for each shareholder to the amount of capital that he has subscribed. Lloyds, in contrast, is a Society of individual underwriting Names, grouped in syndicates : each Name is liable to meet debts incurred in his underwriting to the extent of his personal fortune, but each underwrites risks for his own part and not for anyone else. These differing forms of organisation would not readily lend themselves to an identical regulatory regime, and have not in practice done so. The Assurance Companies Act 1909 required insurance companies to deposit sums in a specified amount with the Paymaster General on behalf of the Supreme Court. Lloyds underwriters were exempted from these requirements, but only on condition that they complied with a somewhat different regulatory regime applicable to them. This regulatory regime required each Lloyds underwriter also to deposit a sum of money, to be held so long as any liability under any policy remained unsatisfied, and to deliver an annual statement to the Board of Trade showing the extent and character of various classes of insurance business undertaken by him. Since then these differences of treatment have persisted and increased.
Until the accession of the United Kingdom to the European Economic Community the regulation of British insurance undertakings in the UK was a domestic matter. But in July 1973 the Council adopted the First Insurance Directive 73/239, addressed to member states which by this time included the UK. The recitals of this Directive referred to the desirability of co-ordinating in particular provisions relating to the financial guarantees required of insurance undertakings ; to the need to extend supervision in each member state to all relevant classes of insurance ; to the need for insurance undertakings to possess a solvency margin, related to their overall volume of business and determined by reference to two indices of security, one based on premiums and the other on claims ; and to the importance of guaranteeing the uniform application of co-ordinated rules and of providing for close collaboration between the Commission and member states. The Directive recognised the existence of Lloyds underwriters as a form of organisation not found elsewhere. Article 14 (in the original version) placed the responsibility for supervising undertakings solely on the home member state, which was by art 16 to require each undertaking to establish an adequate solvency margin in respect of its whole business. Detailed rules were laid down for calculating the required solvency margin, part of which was to constitute a guarantee fund.
The Insurance Companies Act 1982 was enacted in part to give effect to the obligation of the UK under the Directive. Most of the detailed regulatory provisions of the Act are directed to the companies market. Members of Lloyds are exempted by s 2(2) from the prohibition in s 2(1) on carrying on insurance business in the UK without the authority of the Secretary of State and Pt II of the Act, dealing with the regulation of insurance companies, does not (by s 15 (4)) apply to a member of Lloyds who carries on insurance business of any class, provided that he complies with the requirements set out in s 83 and applicable to business of that class.
The requirements referred to in s 15(4) were specified in subsections (2) to (7) of s 83, which provide :
(2) Every underwriter shall, in accordance with the provisions of a trust deed approved by the Secretary of State, carry to a trust fund all premiums received by him or on his behalf in respect of any insurance business.
(3) Premiums received in respect of long term business shall in no case be carried to the same trust fund under this section as premiums received in respect of general business, but the trust deed may provide for carrying the premiums received in respect of all or any classes of long term business and all or any classes of general business either to a common fund or to any number of separate funds.
(4) The accounts of every underwriter shall be audited annually by an accountant approved by the Committee of Lloyds and the auditor shall furnish a certificate in the prescribed form to the Committee and the Secretary of State.
(5) The said certificate shall in particular state whether in the opinion of the auditor the value of the assets available to meet the underwriters liabilities in respect of insurance business is correctly shown in the accounts, and whether or not the value is sufficient to meet the liabilities calculated -
(a) in the case of liabilities in respect of long term business, by an actuary ; and
(b) in the case of other liabilities, by the auditor on a basis approved by the Secretary of State.
(6) Where any liabilities of an underwriter are calculated by an actuary under subsection (5) above, he shall furnish a certificate of the amount thereof to the Committee of Lloyds and to the Secretary of State, and shall state in his certificate on what basis the calculation is made ; and a copy of his certificate shall be annexed to the auditors certificate.
(7) The underwriter shall, when required by the Committee of Lloyds, furnish to them such information as they may require for the purpose of preparing the statement of business which is to be deposited with the Secretary of State under section 86 below.
Reference should also be made to s 84 of the Act, which provides :
(1) Subject to such modifications as may be prescribed and to any determination made by the Secretary of State in accordance with regulations, sections 32,33 and 35 above shall apply to the members of Lloyds taken together as they apply to an insurance company to which Part II of this Act applies and whose head office is in the United Kingdom.
(2) The powers conferred on the Secretary of State by sections 38 to 41,44 and 45 above shall be exercisable in relation to the members of Lloyds if there is a breach of an obligation imposed by virtue of subsection (1) above.
Section 32 governs the margin of solvency which an insurance undertaking is required to maintain. Section 33 applies where an undertaking fails to maintain the minimum margin of solvency. Section 35 provides for the making of regulations to govern the form and situation of the assets of an insurance undertaking. Section 38-41, 44 and 45 confer certain reserve powers on the Secretary of State. Section 85 of the Act governs transfers of business to and from members of Lloyds, and s 86 provides for the deposit by the Committee of Lloyds with the Secretary of State of an annual statement summarising the extent and character of the insurance business done by the members of Lloyds in the preceding twelve months.
In these provisions repeated reference is made to the Committee of Lloyds. This is a body established when Lloyds was incorporated in 1871. Under the Lloyds Act 1982 the Committee consisted of the working members of Lloyds who had been elected to the Council. The Council was itself established by the 1982 Act and included a minority of external members of Lloyds and nominated members. Section 6(1) and (2) of the Act provide :
6.-(1) The Council shall have the management and superintendence of the affairs of the Society and the power to regulate and direct the business of insurance at Lloyds and it may lawfully exercise all the powers of the Society, but all powers so exercised by the Council shall be exercised by it in accordance with and subject to the provisions of Lloyds Acts 1871 to 1982 and the byelaws made thereunder.
(2) The Council may-
(a) make such byelaws as from time to time seem requisite or expedient for the proper and better execution of Lloyds Acts 1871 to 1982 and for the furtherance of the objects of the Society, including such byelaws as it thinks fit for any or all of the purposes specified in Schedule 2 to this Act ; and
(b) amend or revoke any byelaw made or deemed to have been made hereunder.
The Lloyds Act 1982, although a private Act of Parliament, must be read in conjunction with the Insurance Companies Act 1982 which became law three months later. The two Acts reflect a quite deliberate decision, that Lloyds should (subject to the reserved powers and duties of the Secretary of State) be exempted from the ordinary regime of regulation to which insurance companies were subjected and should (subject to these powers and duties) be left to regulate itself. Consistent with this legislative policy of self-regulation for Lloyds, section 42 of the Financial Services Act 1986 also provides that Lloyds and persons permitted by the Council of Lloyds to act as underwriting agents at Lloyds are exempted persons as respects investment business carried on in connection with or for the purpose of insurance business at Lloyds.
On 24 February 1983 the Minister of State at the Department of Trade made The Insurance (Lloyds) Regulations 1983. These laid down certain rules governing calculation of the solvency margin of Lloyds members, the form of the audit certificate required by section 83(4) of the Act and the statement of business required by section 86(1) of the Act.
The Community law issues
The issues of Community law which the Court has been asked to answer are issues of law, to be answered in the context of such facts as are uncontentious or obvious beyond the possibility of reasonable contradiction. If the answer to the issues is dependent on other facts, the issues cannot be answered at this stage. Nor, even if the relevant facts were clear enough, would it ordinarily be appropriate for the Court to rule on a disputed question of Community law without seeking a ruling from the European Court of Justice under Article 177 of the EC Treaty unless the Court were able properly to conclude that the answer to the legal question was also clear. It is against that background that the familiar provisions of Article 85 of the EC Treaty must be considered.
The parties agree that a Name at Lloyds is an undertaking within the meaning of Article 85.
Mr Clementson argues that Lloyds is an association of undertakings within the meaning of the Article. Lloyds does not accept that it is. It seems to me at least arguable that it is. It may be an undertaking itself also, but I think it is capable of being regarded as an association of undertakings. In one version of Directive 73/239 reference was made to the association of underwriters known as Lloyds.
Mr Clementson identifies four acts of Lloyds which are in his contention, if Lloyds is an association of undertakings, to be regarded as decisions made by that association of undertakings. These are : Lloyds decisions to adopt the Central Fund Byelaw ; to make payment out of the Central Fund of his alleged debt under para 7 ; to sue him under para 10; and to adopt the reinsurance provision. He concentrates attention, for purposes of argument, on the first and the last of these. I would not feel able, as a matter of law, to say that these were not capable of being decisions within the meaning of art 85.
Even if these are arguably decisions by an association of undertakings it does not avail Mr Clementson unless they may affect trade between member states. It could scarcely be said, in the case of any individual Name, that the decision to make payment under para 7 or to sue under para 10, might affect trade between member states. I am not, however, able, as a matter of law and in the absence of economic or other evidence, to reach the same conclusion about the decisions to adopt the Central Fund Byelaw and the reinsurance provision. Given the substantial share of the European insurance market which Lloyds has traditionally enjoyed, it seems to me at least possible that these decisions (if they are such) have and have had economic effects of more than purely domestic significance.
Then one comes to the last and most crucial of the provisions of art 85 : even assuming that these are decisions of an association of undertakings with a potential effect on trade between member states, the operation of art 85 is only attracted if the decisions additionally have as their object or effect the prevention, restriction or distortion of competition within the common market. The terms of the Article and the jurisprudence of the Court of Justice establish a series of unchallengeable principles :
(1) Decisions fall within the prohibition of the Article if they have either the object or the effect of preventing, restricting or distorting competition ; it is not necessary to show that they have this object if they have this effect.
(2) Decisions fall within the prohibition of the Article if they have the object or effect of preventing or restricting or distorting competition ; it is, again, not necessary to show prevention or restriction of competition if distortion is shown.
(3) Any decision by an association of undertakings which may affect trade between member states and which has as its object or effect the prevention, restriction or distortion of competition within the common market is automatically void.
(4) art 85 has direct effect and national courts are accordingly bound to apply it.
(5) The power in paragraph (3) of art 85 to declare inapplicable the prohibition in paragraph (1) in any given case is exercisable only by the Commission. It is not exercisable by a national government or a national court. Any association of undertakings seeking to show that any of its decisions which may affect trade between member states and which has as its object or effect the prevention, restriction or distortion of competition within the common market must accordingly notify the Commission and obtain exemption. If a decision falls within the prohibition in paragraph (1) of the Article, a national court cannot relieve the association from the consequences in paragraph (2) on the ground that the decision is in all the circumstances beneficial or economically justified.
(6) The conduct of insurance business falls within the scope of art 85.
It is against the background of these principles that the alleged decisions on which argument has particularly focused must be examined.
The Central Fund Byelaw
Lloyds invites the Court to rule, as a matter of law, that the Central Fund Byelaw cannot have the object or effect of preventing, restricting or distorting competition within the common market. Unless the Court can properly and confidently do so, it cannot answer all these preliminary issues favourably to Lloyds.
For Mr Clementson it is argued that the Central Fund Byelaw has, or at least may have, the effect of preventing, restricting or distorting competition within the common market. In support of this contention reliance is placed on, among other things, Sir David Walkers June 1992 Report of an inquiry into Lloyds syndicate participations and the LMX spiral. In para 8.4 he wrote :
8.4 First, because of the assurances that valid Lloyds policies will always be paid, cedents, whether other Lloyds syndicates or corporates, are under no sense of obligation to undertake a credit risk assessment of a Lloyds syndicate providing reinsurance cover for their exposures. The availability of this assurance is a great competitive strength for Lloyds, in particular against the background of the fragility and failure of some corporate reinsurers in the 1980s. But it also means that a major market discipline present in other financial service business is not present in Lloyds, and thus an underwriter can gear up with what may be under-priced and relatively unattractive business without the brake of any form of credit constraint by his client base. This problem is compounded by the solvency provisions that predispose Lloyds syndicates to seek to meet their reinsurance protection requirements within the Lloyds market by limiting the credit that can be taken for reinsurances obtained outside Lloyds.
The existence of the Central Fund as a source from which, in the last resort, policy-holders would be paid enabled Lloyds underwriters (so it was argued for Mr Clementson) to neglect the ordinary disciplines of prudent underwriting and so capture business which would otherwise have gone to others. It also encouraged Lloyds to vet less carefully than would otherwise have been appropriate the means of those in whose names large obligations were undertaken.
I do not feel able, as a matter of law, to reject Mr Clementsons contentions. One may imagine a party in (say) New York considering whether to place a risk with (say) a corporate insurer in Frankfurt or with Lloyds in London. The New York party will no doubt be influenced by many considerations in making his choice, among them the terms of the cover and the assurance of payment if the risk materialises. It seems reasonable to suppose that his decision may also be influenced by the level of premium payable. If it is possible that Lloyds underwriters have been able to attract business by offering lower premiums, in effect gambling on the chance that a risk will not materialise, in knowledge that, if all else fails, the Central Fund will be used to indemnify the assured, then that would in my view make it arguable that the existence and mode of operation of the Central Fund have had the effect of distorting competition within the common market.
The Court of Justice has more than once pointed out, and it cannot be doubted, that art 85 of the EC Treaty concerns only the conduct of companies and is not directed at legislative or regulatory measures emanating from the member states: see Case C-2/91 Meng, para 14 of the judgment; Case C-245/91 Ohra Schadeverzekeringen NV, para 10 of the judgment. If, therefore, it appeared that the adoption or terms of the Central Fund Byelaw were required of Lloyds by the express or implied terms of national legislation, that would enable the Court to rule that the relevant decision (if it was such) fell outside the scope of art 85. But Lloyds were unable to point to any national legislation which required that the Central Fund should be established in the way or on the terms it was. It was Lloyds which adopted the Central Fund Byelaw and Lloyds which operated the Central Fund. If the Secretary of State had any relevant reserve powers, it is not suggested that he exercised them.
Lloyds position would of course be stronger still if adoption of the Central Fund Byelaw and operation of the Central Fund were steps (or decisions) required by Community law. Lloyds suggested that this was so, and drew attention to Council Directive 91/674 which dealt with the accounts of insurance undertakings. It was pointed out, quite correctly, that in the preamble to that Directive reference was made to the need for special provisions for the association of underwriters known as Lloyds, because of its particular nature ; that in art 4 the Directive was stipulated to apply to the association of underwriters known as Lloyds subject to the adaptations set out in the Annex to the Directive, to take account of the particular nature and structure of Lloyds; and that in the Annex reference was made to the net assets of the Central Fund as part of the central resources of Lloyds. This shows, if it were open to doubt, that the Community authorities know of the existence of the Lloyds Central Fund. But even if it be true, as Lloyds argues, that the role of the Central Fund in the chain of security was thereby recognised and endorsed by Community legislation, I do not feel able to hold as a matter of law at this stage and on the evidence before the Court that the Community thereby sanctioned any competition-distorting effects which the terms of the Central Fund Byelaw or its mode of operation might be found to have had.
Community authority appears to make clear that in certain circumstances decisions taken by those engaged in a trade may fall outside the ambit of art 85. Our attention was drawn to Case C-185/91 Bundesanstalt fur den Guterfernverkehr v Gebruder Reiff GmgH KG and Case C-153/93 Federal Republic of Germany v Delta Schiffahrts – und Speditionsgesellschaft mbH These two decisions are to very much the same effect, although arising on different facts. In the second of the two cases the ratio was expressed in this way :
Article 3(f), 5 and 85 of the Treaty do not preclude rules of a Member State from providing that tariffs for commercial inland waterway traffic be determined by freight commissions and made compulsory for all economic operators, after approval by the public authorities, if the members of those commissions, although chosen by the public authorities acting on a proposal from the professional circles concerned, are not representatives of those circles, called upon to negotiate and conclude an agreement on prices, but are responsible for fixing tariffs independently and on the basis of considerations relating to the public interest and if the public authorities, by ensuring that the commissions determine tariffs on the basis of those considerations and by substituting, if need be, their own decision for that of the commissions, do not relinquish their powers.
This ratio, as I understand it, requires among other things (1) that those who make the relevant decisions should be chosen by the public authorities, (2) that those persons should not be representatives of the circles from which they are drawn, (3) that those persons should make their decisions independently on the basis of considerations relating to the public interest and (4) that the public authorities, by ensuring that decisions are made on the basis of these considerations and substituting, if need be, their own decisions, do not relinquish their powers.
These cases were concerned with fixing tariffs, an activity which prima facie falls very squarely within the prohibition of art 85. It may no doubt be that other, somewhat less restrictive, conditions would be thought appropriate to other, less obviously competition-distorting, activities. But I do not think we have been referred to Community authority which gives clear guidance on that issue, and it is not an issue on which this Court is competent to make a ruling. What is in my view clear is that these conditions cannot be said to be met in the present case. Only a small minority, if any, of those who made the relevant decisions were chosen by any public authority. The decision-makers were representative of Lloyds Names, mostly elected by them. There was no obligation on the decision-makers to make their decisions independently on the basis of considerations relating to the public interest. They were obliged to act in pursuance of the objects of Lloyds which, as set out in s 10 of the 1871 Act, included
The carrying on by Members of the Society of the business of insurance of every description .
The advancement and protection of the interests of Members of the Society in connection with the business carried on by them as Members of the Society .
Under para 7 of the Central Fund Byelaw the Central Fund could be applied for certain specified purposes or any other purpose where (in each case) in the opinion of the Council it is expedient for the advancement and protection of the interests of the members of the Society in connection with the business carried on by them as such members. It may of course be that these objects coincide with furtherance of the public interest, but I do not think it can be held as a matter of law that they necessarily do. Nor do I think that this Court can at this stage and on existing materials conclude that the public authorities ensure that the relevant decisions are taken on the basis of public interest considerations.
In relying on the Central Fund Byelaw as one ground for challenging the judges answer to these preliminary issues, Mr Clementson does in my view derive some help from the judgment of the Court of Justice in Case 45/85 Verband der Sachversicherer e.V v Commission of the European Communities  ECR 405. In that case it was argued that art 85 did not apply in an unrestricted way to the insurance industry. The Court did not agree :
14 Consequently, it must be concluded that the Community competition system, as set out in particular in Articles 85 and 86 of the EEC Treaty and in the provisions of Regulation No 17, applies without restriction to the insurance industry.
15 That conclusion in no way implies that Community competition law does not permit the special characteristics of certain branches of the economy to be taken into account. It is for the Commission, within the framework of its power under Article 85(3) to grant exemption from the prohibitions contained in Article 85 (1), to take account of the particular nature of different branches of the economy and the problems peculiar to them.
It was also argued that the Communitys competition rules could not operate to frustrate national measures of economic or competition policy. Again the Court did not agree :
22. With regard to the application of national laws concerning the supervision of insurance companies, it must be pointed out that those laws have a different objective from that of Community competition law and that they may continue to be operative regardless of the manner in which the competition law is applied. The applicant has not been able to show that in this case the application of the prohibitions contained in Articles 85 and 86 of the EEC Treaty might be such as to impede the proper functioning of the national system of supervision of insurers
23. It must be added that, whilst it is true that the legislation of a Member State may establish a close link between the application of competition law and the law relating to the supervision of the insurance industry, Community law does not, however, make the implementation of the provisions of Articles 85 and 86 of the EEC Treaty dependent upon the manner in which the supervision of certain areas of economic activity is organized by national legislation.
I do not feel able to reject Mr Clementsons argument insofar as it is based on the Central Fund Byelaw as plainly wrong in law. Nor am I persuaded it is right in law. It seems to me at least possible that the correct answer in law may turn on facts which, because of the procedure adopted, have not yet been fully explored or decided.
The reinsurance provision
In the quotation from Sir David Walkers report already given, reference is made to Lloyds solvency provisions that predispose Lloyds syndicates to seek to meet their reinsurance protection requirements within the Lloyds market by limiting the credit that can be taken for reinsurance obtained outside Lloyds. This is, in a nutshell, the point which Mr Clementson makes. The instructions given by Lloyds for the annual solvency test of underwriting members of Lloyds discriminated in its treatment of those who reinsured within and those who reinsured outside the Lloyds market, to the advantage of the former. If it was not the object of the provision to encourage the placing of reinsurance in the Lloyds market, a factual possibility which Mr Clementson wished to explore, that was certainly (so it was argued) its effect. In the event, it was said, the provision had had the disastrous effect of concentrating risk in the Lloyds market instead of dispersing it as widely as possible. But what perhaps matters most in this context is not whether the provision was wise or unwise, or proved beneficial or disastrous, but whether it arguably had as an object or effect the distortion of competition within the common market. In Mr Clementsons submission, it did, or arguably did.
Lloyds was able to advance a number of attractive justifications for the provision. Since there was no risk of non-payment under a Lloyds policy of reinsurance, there was no need to make any allowance for the risk of non-payment under such a policy. Lloyds as the regulator of its own market, was in a position to know that. It was not in the same position vis-a-vis corporate reinsurers at home or abroad, and could not assume the responsibility of assessing the chance that any such reinsurer might default under a policy to which it was party.
In the absence of evidence, not all these points are self- evidently true. But even if, for purposes of argument, they are treated as being so, it does not in my view meet Mr Clementsons point. If the provision is capable, as it stands, of objective justification, then it may be that Lloyds would have strong grounds for claiming exemption under art 85(3). Such exemption, if granted, would relieve Lloyds from the consequence specified in art 85(2) from the date of notification, but until then the prohibition in art 85(1) remains in effect if the decision in question has the object or effect of preventing, restricting or distorting competition. Even if the Court were able to conclude that the provision did not have that object (a bold course in the absence of evidence) I do not see how it could possibly conclude as a matter of law that the provision might not have the proscribed effect.
In this instance, I do not think our attention has been drawn to any provision of national or Community law which could be said to require or sanction this provision. It is true that Pt 6 of the Lloyds instructions, one of the appendices to which contains the provision, is said on its face to have been approved by the Secretary of State for the purposes of s 83(5)(b) of the Insurance Companies Act 1982. But it seems clear from Case 123/83 BNIC v Clair  ECR 391 and Case 136/86 BNIC v Aubert  ECR 4789 that ministerial approval or ratification cannot save a measure which otherwise falls foul of the Community competition rules and there is nothing in the present case to suggest that the Secretary of State did more than approve rules submitted to him for approval.
I do not feel able to give an answer favourable to Lloyds in this issue. Nor, as a matter of law and in the absence of evidence, would I give an answer favourable to Mr Clementson. I do not think it possible to resolve the matter as a question of law at this stage.
Having reached these conclusions, I do not think it useful or necessary to address in detail the sub-heads of preliminary issue 3(c). I comment on these only briefly.
If Mr Clementson is able to establish that Lloyds has acted in breach of art 85, then it seems to me at least arguable that he has a good counterclaim for damages on which he is entitled to rely by way of set-off and that s 14 of the Lloyds Act 1982 cannot be effective to deprive him of that right. If it were otherwise I do not see how national courts could help to enforce the Communitys competition regime, as I understand they are expected to do. Whether s 14 may itself amount to an infringement of art 85, and not simply an ineffective defence to a claim for breach of art 85, seems to me more problematical. In the absence of evidence, however, I do not think one can dismiss as fanciful the suggestion made by the Commission in its Notice on Cooperation between national courts and the Commission in applying arts 85 and 86 of the EEC Treaty :
Companies are more likely to avoid infringements of the Community competition rules if they risk having to pay damages or interest in such an event.
The challenge to the Membership Byelaw rested on its prohibition of Names acting as underwriters otherwise than at Lloyds. Under existing Community rr Names could not act (personally) as underwriters elsewhere in the Community anyway. But there would, apart from this Byelaw, be nothing to prevent them doing business in any other country of the world where personal conduct of underwriting business was permitted, so the effect of the Byelaw was to restrain potential competition. To Lloyds argument that this was a measure to protect the solvency of Names Mr Clementson answered that there was no prohibition on the conduct of equally hazardous business in the UK or elsewhere. This is not, in my view, the most convincing of Mr Clementsons points, but I do not feel able in the absence of evidence to hold that this Byelaw is incapable of distorting competition in the common market.
A decision which obliges all the traders in a market to trade on common terms is prima facie capable of restricting or distorting competition. The restriction may be fully justified ; if so, it may earn exemption under art 85(3). Given the complex terms of the standard Agency Agreement I could not hold as a matter of law and in the absence of evidence that none of its terms was capable of distorting competition in the common market.
I am not, as I wish to emphasise, concluding that Lloyds is wrong on any of these points. It may be, or it may not be. I am only concluding that it is not, in my judgment, shown to be right. The same is true of Mr Clementson. I do not think these issues can be answered favourably to one side or the other at this stage.
I differ from the judge with diffidence, reluctance and regret. In answering the sub-heads of this issue, he prefaced his answers with the words In bringing the present proceedings ., In exercising its powers to seek reimbursement ., In the context of the present proceedings .. He assumed as a fact that the payments made by Lloyds were made purely to meet the legitimate claims of policy-holders, and he confined his attention to the conduct of Lloyds in making payment and seeking reimbursement from Names. There is obvious force in his view that paying a policy-holders claim and seeking to enforce a contract debt do not offend against art 85. But the judges factual assumption is not accepted and may not be entirely true. The legal issues were not framed in this very limited way. And I do not think the payment by Lloyds and the recovery by Lloyds can properly be regarded in law as isolated acts independent of closely interrelated provisions on which their operation depended. Mr Clementson is, I think, entitled to complain that the answers the judge gave were not answers to the issues as framed. For reasons I have tried to give, I do not think the judge could properly have answered the issues as framed in favour of Lloyds at this stage.
The correspondence shows that no attempt was made to conceal these arrangements from the Commission. It seems that at an earlier stage Lloyds accepted a need to notify and intended to notify and seek exemption. If Lloyds had notified, it may be that exemption would have been granted. Or it may be that the Commission would have insisted on changes. Had Lloyds notified the arrangements, some at least of the present difficulties might never have arisen. But that is an unhappy result which the Court can do nothing to cure. I would decline to answer issue 3 at this stage, and would accordingly allow Mr Clementsons appeal on this issue. Since Mr Mason adopts Mr Clementsons argument on this issue, the same result must follow in his case.
JUDGMENTBY-2: STEYN LJ
STEYN LJ: I agree. I add only a few observations.
Like Saville J I regard the proposed implied terms put forward on this appeal by Mr Beveridge QC, on behalf of Mr Mason, and adopted by Mr Clementson, as unsustainable. I am also in agreement with what Sir Thomas Bingham has said about this aspect. In deference to Mr Beveridges detailed arguments I will, however, briefly summarize the main points that influenced me to conclude that these arguments were devoid of merit.
In English law terms may be implied into a contract by one of three separate routes. One such route is terms implied by usage. That is not relied on in this case. That leaves the categories of the terms implied in fact and implied by law. It is not analytically right to say that there is an independent fourth category, namely incomplete contracts. Cases of so-called incomplete contracts are covered by the principles governing terms implied in fact or by law. If the legal requirements for the implication of terms in fact or by law are not fulfilled, the proposed terms cannot be implied. That brings me to the terrain occupied respectively by terms implied in fact or by law. Terms implied in fact are individualized gap-fillers, depending on the terms and circumstances of a particular contract. Terms implied by law are in reality incidents attached to standardized contractual relationships, or, perhaps more illuminatingly, such terms can in modern United States legal terminology be described as standardized default rules.
That brings me to the question whether any of the implied terms put forward before Saville J, or the refinements of those implied terms put before us on this appeal, are capable of satisfying the legal requirements for the implication of terms in fact. It is horn-book law that a term may only be implied on this basis if it satisfies the legal test of strict necessity. That is how Saville J approached the matter. To his observations I would only add that the so-called officious bystander and business efficacy tests are merely useful practical aids evolved by the courts to explain the criterion of necessity and to determine whether the single legal test of necessity has been satisfied.
Applying the test of necessity, I take the view that there are four reasons which cumulatively make it impossible to imply any of the suggest implied terms. The first consideration is, as Saville J explained, that the sole object of the General Undertaking is to secure from the Name a contractual undertaking to abide by the rules, regulations and prescribed standard agreements of Lloyds. The General Undertaking achieves this purpose and it has no other purpose. The General Undertaking is fully efficacious. Secondly, Lloyds is an association of members and it is prima facie not appropriate that the proposed terms should be implied vis-a-vis other individual members of Lloyds. Thirdly, the Lloyds system operates on the fundamental premise that a Name entrusts his affairs, and in the process his fortune, to his managing agents. The Name has remedies both in contract and in tort against the managing agent: Henderson v Merrit Syndicates Ltd  WLR 71. Names assume substantial risks but at all material times Names have done so in return for the advantage of their money, by way of underwriting and investment, working twice, added to which there have been the prospect of substantial taxation advantages. Historically becoming a Name at Lloyds proved very profitable business. But the negative side of the bargain has always been that the Name relies on, and assumes the risk of, the honesty and skill of his managing agent. Manifestly in the Lloyds system there is no assumption of responsibility by Lloyds to supervise the investment or underwriting decisions of managing agents. That does not mean that Lloyds has a licence to act in bad faith, for improper purposes or otherwise in an unlawful manner. But that merely means that such action would be ultra vires. Fourthly, the idea of terms being implied in fact, necessarily postulates different gap-fillers in the case of different Names. But that is intrinsically objectionable because the Lloyds system postulates that the relationship between Names and Lloyds (or more precisely between a Name and all other individual members) must be the same. Cumulatively, I regard these factors as destructive of the proposed implication of terms in fact.
That brings me to the question whether any of the proposed implied terms are sustainable as terms to be implied by law. In a sense of course the General Undertaking evidences a standardized contractual relationship. I would also accept Mr Beveridges proposition that historically terms implied by law have emerged which did not satisfy a test of necessity in the ordinary sense, eg. the implied term of fitness for purpose in the sale of goods which is now contained in s 14 (3) of the Sale of Goods Act 1979. I also agree that in truth wider policy considerations play a role. Holmes, The Path of the Law, 1987, 10 Harvard LR 457, revealed the complexity of the process of implication by saying (at 466):
But why do you imply it? It is because of some belief as to the practice of the community or of a class, or because of some opinion as to policy, or, in short, because of some attitude of yours upon a matter not capable of exact quantitative measurement, and therefore not capable of founding exact logical conclusions.
Given the premise that broad considerations of policy are sometimes relevant to this process, I would reject the argument that any of the terms put forward in this case are capable of being implied. I am driven to this conclusion by three distinctive features of the relationship between a Name and Lloyds, which I have already mentioned, namely (1) that the sole purpose of the General Undertaking is to commit a Name to the regulatory system of Lloyds; (2) that it is prima facie inappropriate to imply such terms in a relationship between Names inter se; and (3) that the Lloyds system operates on the basis that Names look for protection of their interests solely to their managing agents and not to Lloyds. While the Council and Committee of Lloyds are empowered to regulate the market Lloyds does not assume any responsibility to protect Names from the breaches of duty of their agents. The suggested implied terms are not needed. On the contrary, the Lloyds system, as underpinned by the Lloyds Act, would be rendered unworkable if such terms were to be implied. That does not mean that Lloyds is above the law. Lloyds like any other statutory body, must act within the law. But the proposed contractual implications are not necessary to achieve the objects of the Lloyds system, and neither policy factors nor fairness support them.
Before I leave the subject of implied terms, I must refer to a submission of Mr Beveridge that it was wrong and unfair to Mr Mason for the judge to decide the issues regarding implied terms on preliminary issues. I understood him to say that extensive discovery - the tyranny of modern English commercial litigation - was necessary before the implied term issue could be decided. I disagree. Confining myself to the implied terms, I have to say that, in the potentially mammoth Lloyds litigation, Saville J in my view rightly decided to try preliminary issues. I am also satisfied that there was no unfairness since none of the implied terms put forward on behalf of Mr Mason are sustainable as a matter of law.
Section 13 of the Supply of Goods and Services Act 1952
Mr Beveridge submitted that Lloyds are engaged in the rendering of services within the meaning of s 13 of the Supply of Goods and Services Act 1982 and are thus
subject to a statutory duty to render its services with reasonable care and skill. Saville J described the regulatory role of Lloyds, both in relation to the operation of the market and a disciplinary sense, in respect of the Lloyds community. I agree with his description of the function of the Society of Lloyds. And I agree with his conclusion that Lloyds does not render services within the meaning of the Act.
European Community Law
At the end of the oral argument my provisional view was that Mr Clementson should fail on all community law issues. In taking that view I was influenced by the judgment of Saville J and the arguments of Mr Beloff, QC I have, however, been persuaded since then by the judgment of Sir Thomas Bingham, the Master of the Rolls, that it is not a position that I can maintain. I still consider that Mr Clementsons community law defences will ultimately to fail. But on reflection I cannot on a principled basis conscientiously hold that the submissions of Mr Lever QC, on the community law defences are entirely unarguable.
I concur in the orders proposed.
JUDGMENTBY-3: HOFFMANN LJ
HOFFMANN LJ: I agree with the judgment of the Master of the Rolls and add only a few observations.
1. Implied terms
Mr Beveridge said that agreements by which members of an organisation agreed to be bound by its rules and regulated by a committee or similar body were a type of contract into which certain obligations on the part of the organisation (if corporate) or its committee were customarily implied. He said that the powers of regulation were regarded as fiduciary and had to be exercised in good faith and for the purpose intended by the rules. From this he said it was a short step to the implication of a duty to members to exercise regulatory powers with reasonable care.
In my view the fallacy of this argument is to confuse the extent of the powers conferred on the organisation or committee with its contractual obligations to its members. The fiduciary nature of the powers means that a purported exercise of those powers in bad faith or for an improper purpose will be invalid. It does not follow that the mere invalid exercise of the power will be a breach of contract for which the organisation is liable in damages, although it may mean that the organisation will be unable to justify an act (such as depriving an expelled member of the benefits of membership) which would be wrongful in the absence of a valid exercise of the power. Once it is appreciated that an improper exercise of the power is not in itself a breach of contract but simply a nullity, the basis for implying a contractual obligation not to act otherwise than in good faith and for a proper purpose disappears. A fortiori, there can be no foundation on which to build an implied term to exercise the power with reasonable care.
In Liverpool City Council v Irwin  AC 239,  2 All ER 39 at pages 257-8 of the former report, Lord Cross of Chelsea said that in laying down a general rule that some provision should be implied in all contracts of a certain type, a court will ask itself whether in the general run of cases the term in question is one which it would be reasonable to insert. I would have no hesitation in saying that in a contract between members of an association formed for their mutual benefit such as Lloyds, it would be quite unreasonable to imply the terms for which Mr Beveridge contends. It is no doubt the case, as Mr Beveridge emphasised, that Names were led to believe that Lloyds was a highly reputable organisation and that its affairs would be properly run. But it does not by any means follow that they would think it reasonable that if a particular member suffered loss because of regulatory failures on the part of a body which all the members (including himself) had elected, the other members should be liable to pay him compensation.
2. Article 85.
The doubts which exist about the compatibility of various Lloyds by-laws and directions with European competition law seem to me to stem from the ambiguous nature of Lloyds in the insurance world. For some purposes it presents itself as a single institution seeking to preserve or increase its market share against outsiders and for other purposes it acts as an association of individual insurers, each competing with each other as well as with outside insurers. Rules which are entirely acceptable on the first hypothesis may well be anti-competitive on the second. Lloyds could have resolved this identity crisis by notifying its rules to the Commission, as it repeatedly said it would do. But for reasons which have never been explained, it decided not to. It may appear at trial that there was in fact no need to do so. But I agree with the Master of the Rolls that we are not in a position to say so now. SIR THOMAS BINGHAM : As far as Issue 1 is concerned, we shall not disturb the Judges order. So far as Issue 2, the implied terms, is concerned, we consider that Lloyds is entitled to its costs in the court below against both Mr Mason and Mr Clementson and in this court against Mr Mason. So far as Issue 3 is concerned, we consider that both Mr Clementson and Mr Mason should have their costs against Lloyds in this court and below. We shall not grant a certificate for three counsel.
We shall not grant leave to Mr Mason to appeal to the House of Lords on Issue 2. It is, of course, open to Mr Mason to apply to their Lordships for leave, and their Lordships may of course give leave, but there is an identity of view between ourselves and the Judge below and, rightly or wrongly, we have entertained little doubt on this issue. We shall not, therefore, grant leave to appeal.
So far as the European Law issue is concerned, we have felt more difficulty. I am speaking in terms which are being recorded and which can be drawn to their Lordships attention in due course. We entertain no doubt at all about the importance of this issue, nor do we entertain doubt about the amount of money that is involved. We are furthermore conscious that there is a division of opinion between ourselves and a very highly respected commercial Judge.
So far as time is concerned, this seems to us to be a somewhat double-edged sword because while, if an appeal to the House of Lords is to take place, it would save time if we were to grant leave, it would lead to a waste of time if there were to be an appeal to the House of Lords that their Lordships felt was inappropriate. In the result we feel that, given the basis upon which our own opinion has been expressed, namely that the whole question is arguable, it is inappropriate that we should grant leave to appeal to the House of Lords, although it is of course open to Lloyds to seek their Lordships leave. No doubt, if their Lordships think that the point may be arguable they will grant leave. For our part, however, we would refuse it while emphasising that the decision that we have reached is not one that we have reached with any degree of enthusiasm. We are entirely happy that these observations should be drawn to their Lordships attention on any application for leave.
Solicitors Department, Lloyds of London; SJ Berwin & Co; Epstein Grower & Michael Freeman