COURT OF APPEAL (CIVIL DIVISION)
 Lloyd's Rep PN 178, The Times 25 January 1995, The Independent 25 January 1995, (Transcript: John Larking)
HEARING-DATES: 13 January 1995
COUNSEL: B Doctor and A Boswood QC for the Plaintiffs; J Rowland and A Temple QC for the Defendants (Managing Agents); C Edelman and R Toulson QC for the Defendants (Members' Agents); M Howard and C Clarke QC for the Auditors
PANEL: SIR THOMAS BINGHAM MR, HOFFMANN, SAVILLE LJJ
JUDGMENT-1: HOFFMANN LJ: This is the judgment of the court in an appeal from an order of Gatehouse J which declared, pursuant to RSC Ord 14A, that certain claims in tort by Lloyd's Names arising out of their losses as members of Syndicates 418/417 were statute-barred. The losses occurred because the syndicates became liable to meet very large claims arising principally out of industrial pollution and the use of asbestos in the United States.
The syndicates wrote US casualty business covering these risks on a large scale over a number of years but the claims of the plaintiffs in these actions relate specifically to two groups of contracts of reinsurance. The first consists of 11 run-off policies written in the period 1978 to 1983, by which the syndicates reinsured other Lloyd's syndicates against all their outstanding and future liabilities for, inter alia, US casualty business. The plaintiffs claim against the active underwriter Mr Merrett, the syndicates' Managing Agents and (where different) their Members Agents that the writing of these policies was negligent because the liability to which members of the syndicates was thereby exposed was potentially enormous and the underwriter did not have the material on which he could have formed any reasonable view of what it was likely to be.
The second group is the reinsurance to close (RITC) contracts by which the accounts for the years 1979 to 1984 were closed by the outstanding liabilities being reinsured by the members of the syndicate for the succeeding year. Since the members of the syndicate for the year being closed will not necessarily be the same as the members for the year into which its liabilities are reinsured, the duty of the underwriters is to fix a reinsurance premium which is fair as between the two groups. If the potential liabilities (which will cumulatively include those under previous RITCs) are not capable of being estimated with sufficient accuracy to permit of a fair premium being fixed, the underwriter may be obliged to leave the year open. This is what happened to the year 1985. The plaintiffs make much the same complaint about the RITCs as about the run-off contracts, namely that the underwriters did not have the material on which to make any rational assessment of the potential liabilities of the year being closed. In the case of the RITCs the claim is not only against the Managing and Members' Agents but also against the syndicate auditors, who are alleged for similar reasons to have been negligent in certifying that the accounts upon which the RITCs were based reflected a true and fair view of the incurred but not reported (IBNR) liabilities of the syndicates.
The first writ was issued in January 1993 and it follows that all the claims except the RITC by which 1984 was closed into 1985 (which took place in May 1987) are prima facie barred by the six year limitation period in the Limitation Act 1980. The plaintiffs however rely upon the s 32 (deliberate concealment) and s 14A (Special time limit for negligence actions where facts relevant to cause of action are not known at date of accrual) to extend the period.
This appeal is concerned only with s 14A, of which the material parts read as follows:
"(1) This section applies to any action for damages for negligence...where the starting date for reckoning the period of limitation under subsection (4)(b) falls after the date on which the cause of action accrued. .
(3) An action to which this section applies shall not be brought after the expiration of the period applicable in accordance with subsection (4) below.
(4) That period is either
(a) six years from the date on which the
cause of action accrued; or
(b) three years from the starting date as defined by subsection (5) below, if that period expires later than the period mentioned in paragraph (a) above.
(5) For the purposes of this section, the starting date for reckoning the period of limitation under subsection (4)(b) above
is the earliest date on which the plaintiff had both the knowledge required for bringing an action for damages in respect of the relevant damage and a right to bring such action.
6) In subsection (5) above the knowledge required for bringing an action for damages in respect of the relevant damage means knowledge both
(a) of the material facts about the damage in respect of which damages are claimed; and
(b) of the other facts relevant to the
current action mentioned in subsection (8) below.
(7) For the purposes of subsection (6)(a) above, the material facts about the damage are such facts about the damage as would lead a reasonable person to consider it sufficiently serious to justify his instituting proceedings for damages against a defendant who did not dispute liability and was able to satisfy a judgment.
(8) The other facts referred to in subsection (6)(b) above are:
(a) that the damage was attributable in whole or in part to the act or omission which is alleged to constitute negligence; and
(b) the identity of the defendant; and
(c) if it is alleged that the act or omission was that of a person other than the defendant, the identity of that person and the additional facts supporting the bringing of the action against the defendant.
(9) Knowledge that any acts or omissions did or did not, as a matter of law, involve negligence is irrelevant for the purposes of subsection (5) above.
(10) For the purposes of this section a person's knowledge includes knowledge which he might reasonably have been expected to acquire
(a) from facts observable or ascertainable by him; or
(b) from facts ascertainable by him with the help of appropriate expert advice which it is reasonable for him to seek;
but a person shall not be taken by virtue of this subsection to have knowledge of a fact ascertainable only with the help of expert advice so long as he has taken all reasonable steps to obtain (and, where appropriate, to act on) that advice."
The defendants contend that all the plaintiffs could reasonably have been expected to acquire the knowledge required for bringing an action for damages in respect of the relevant damage (as defined in subsection (6)) from documents sent to the Names (or their Members Agents for transmission to the Names) more than three years before the issue of the first writ. The documents principally relied upon are the annual syndicate reports and accounts for 1981 to 1988 and a letter from the Managing Agents to all Names dated 18 April 1985. The defendants issued summonses inviting the court to decide as a matter of construction under RSC Ord 14A that the documents supplied the necessary knowledge and to declare that the claims were therefore statute-barred. Gatehouse J accepted this invitation and made the appropriate declarations.
The judge found that the documents supplied to the Names would have told them that they had suffered losses sufficiently serious to justify instituting proceedings within the meaning of subsection (7) and that the knowledge requirement of subsection (6)(a) was therefore satisfied. It was argued before the judge that some Names might have been so rich that they would not have bothered to institute proceedings even if the defendants did not dispute liability, but this point has not been pursued before us. The dispute has been over subsection (6)(b) and in particular the requirement of subsection (8)(a) that the plaintiff must have had (or been deemed by virtue of subsection (10) to have had) knowledge that
"the damage was attributable in whole or in part to the act or omission which is alleged to constitute negligence."
There is no authority upon the meaning of these words in s 14A, but the section was inserted by the Latent Damage Act 1986 and is based upon ss 11 and 14, which concern personal injury actions. Section 14A(8)(a) and (9) together mirror the language of s 14(1)(b) ("Knowledge ..that the injury was attributable in whole or in part to the act or omission which is alleged to constitute negligence...and knowledge that any acts or omissions did or did not, as a matter of law, involve negligence is irrelevant.") It is therefore accepted that the authorities on s 14(1)(b), of which there are several, are equally applicable to s 14A(8)(a).
The most recent decisions of this court on s 14(1)(b) are Broadley v Guy Clapham & Co  4 All ER 439,  4 Med LR 328 and Dobbie v Medway Health Authority  4 All ER 450,  1 WLR 1234. In Broadley the plaintiff had an operation on her knee to remove a loose object in the course of which damage was caused to the nerve passing through the knee to her foot. On discharge from hospital she found that she could not flex her foot and the condition was not improved by physiotherapy. The question was whether this was enough to satisfy s 14(1)(b) or whether she only acquired the necessary knowledge two years later when a specialist instructed by her solicitors advised that the operation may have been negligent.
This court affirmed the judge's decision that the earlier knowledge was enough. A patient who goes into hospital for an operation on her knee and comes out with something wrong with her foot can reasonably be expected to ask her doctor why this should be so. If she had asked, she would have been told that the operation must have caused damage to the nerve. The court rejected the submission that she must have known how the nerve was damaged in sufficient detail to be able to say that it pointed to the doctor being at fault: eg. by excessive pressure or a slip of the scalpel.
In Dobbie the plaintiff was admitted to hospital for the removal of a lump in her breast. The surgeon who excised the lump formed the view that it was cancerous and removed the breast. Afterwards on microscopic examination the lump turned out to be benign. She knew shortly after the operation that the breast had been removed before the microscopic examination but was not advised until 17 years later that it may have been negligent to do so. Again this court held that she knew enough at the earlier stage to satisfy s 14(1)(b).
Gatehouse J interpreted these cases to mean that a plaintiff need only have known that he his damage had been caused by an act or omission of the defendant. He held that the reports, accounts and letters which the Names had received informed them that they had suffered substantial losses in consequence of the run-off contracts entered into by the managing agents. Likewise he held that the Names had knowledge that they had suffered losses in consequence of the liabilities incurred on the RITCs being substantially greater than the premiums fixed by the managing agents and that the RITCs were based upon the accounts certified by the auditors. Knowledge of these facts was, he said, sufficient to satisfy s 14A(8)(a).
In our judgment this is an over-simplification of the reasoning in Broadley and Dobbie. If all that was necessary was that a plaintiff should have known that the damage was attributable to an act or omission of the defendant, the statute would have said so. Instead, it speaks of the damage being attributable to the act or omission which is alleged to constitute negligence. In other words, the act or omission of which the plaintiff must have knowledge must be that which is causally relevant for the purposes of an allegation of negligence. There may be many acts, omissions or states which can be said to have a causal connection with a given occurrence, but when we make causal statements in ordinary speech, we select on common sense principles the one which is relevant for our purpose. In a different context it could be said that a Name suffered losses because some Members Agent took him to lunch and persuaded him to join Lloyd's. But this is not causally relevant in the context of an allegation of negligence.
It is this idea of causal relevance which various judges of this court have tried to express by saying the plaintiff must know the "essence of the act or omission to which the injury is attributable" (Purchas LJ in Nash v Eli Lilly & Co  4 All ER 383,  1 WLR 782, 799) or "the essential thrust of the case" (Sir Thomas Bingham MR in Dobbie  1 WLR 1238) or that "one should look at the way the plaintiff puts his case, distil what he is complaining about and ask whether he had in broad terms knowledge of the facts on which that complaint is based." (Hoffmann LJ in Broadley  4 Med LR 328, 332.)
If one asks on common sense principles what Mrs Dobbie was complaining about, the answer is that the surgeon had removed a healthy breast. It would in our view be a seriously incomplete statement of her case to say that it was simply that the surgeon had removed her breast. This is not a matter of elaborating the detail by requiring knowledge of precisely how he had come to do the act complained of, such as this court rejected in Broadley. It was part of the essence of her complaint. Nor is it requiring knowledge of fault or negligence. The court's emphatic rejection of such a requirement is entirely consistent with characterising the act complained of (and of which knowledge was therefore required) as the removal of a healthy breast. But the judge, as it seems to us, has read Dobbie to mean that knowledge that the surgeon had removed her breast would have been enough.
If one asks what is the principle of common sense on which one would identify Mrs Dobbie's complaint as the removal of a healthy breast rather than simply the removal of a breast, it is that the additional fact is necessary to make the act something of which she would prima facie seem entitled to complain. She was suspected of having a cancerous lump and if this had been the case, the removal of her breast would not have been a matter for complaint. Likewise Mrs Broadley's complaint was the surgeon had caused damage to her foot when he was supposed to be mending her knee. Mr Clarke QC, for the auditors, and Mr Toulson QC, for the Members' Agents, protested that such a principle was a back-door way of introducing a requirement that the plaintiff must have known that the defendant had been negligent (which s 14A(9) expressly declares to be irrelevant) or was by some other criterion at fault (which this court rejected in Broadley and Dobbie.) We do not agree. The plaintiff does not have to know that he has a cause of action or that the defendant's acts can be characterised in law as negligent or as falling short of some standard of professional or other behaviour. But, as Hoffmann LJ said in Broadley, the words "which is alleged to constitute negligence" serve to identify the facts of which the plaintiff must have knowledge. He must have known the facts which can fairly be described as constituting the negligence of which he complains. It may be that knowledge of such facts will also serve to bring home to him the fact that the defendant has been negligent or at fault. But that is not in itself a reason for saying that he need not have known them.
What, on these principles, are the facts which constitute the negligence of which the Names complain? It would in our view be incomplete to say that it was the writing of the run off reinsurance policies or the RITCs or the certification of the syndicate accounts. These facts in themselves do not amount to acts of which the Names would even prima facie be entitled to complain. It is necessary to add the allegation that the run off policies and RITCs exposed the Names to potentially huge liabilities and that the certified accounts attributed values to IBNRs, none of which were in fact capable of reasonable quantification.
Mr Toulson said that requiring knowledge of whether potential liabilities were capable of reasonable quantification was to introduce dangerously imprecise criteria. All potential liabilities were uncertain; that was the essence of insurance. Quantification was a matter of judgment on which reasonable people could differ. How much detail did the Names need to know? We think that these objections are largely met by the provisions of s 14A(10). It is true that quantification is a question of judgment, but in order to succeed, the Names will have to show, with the aid of expert evidence, that no reasonable underwriter would have regarded the risks as sufficiently quantifiable to enable a fair premium to be fixed. If this was the case, then under subsection (10) the Names will be deemed to have had the necessary knowledge if on the facts known to or ascertainable by them, it would have been reasonable for them to instruct an expert who could have discovered the circumstances in which the run off policies and RITCs were concluded and the syndicate accounts certified. Whether the Names knew enough to put them over this threshold is no doubt a question of degree but not one which requires a very detailed investigation of the actual circumstances in which the policies were written.
Mr Temple QC, in a submission which was all the more impressive for its brevity, drew attention to the facts ascertainable from the syndicate accounts and in particular from the Managing Agents' letter of 18 April 1985 and said that even if the plaintiffs were right about the knowledge needed to satisfy s 14A(8)(a), they were well over the threshold. We think that on a full investigation of what the plaintiffs knew or could reasonably have ascertained, he may well be right. But we do not think that the documents alone (which are all that can be considered for the purpose of Ord 14A) enable this court to make such a finding now. The accounts show that over successive years, the RITC premium was on each occasion substantially larger than in the year before. We do not however think that this should necessarily have led a Name to infer that the estimate in the previous year was wrong: it could have been because of business written in the pure year or for other reasons. And in any case, even if the previous estimates had been wrong, the fact that until 1985 was left open, RITCs continued to be written on the basis of certified accounts would have led Names to believe that the IBNRs were regarded as reasonably quantifiable. The defendants are, we think, on much stronger ground in relation to the run off policies. The letter of 18 April 1985 said:
"At the time of the underwriting, the terms were assessed as attractive and special reinsurance protection was arranged. That protection has turned out to be quite inadequate. The contracts were outside the traditional scope of our business and it is quite simply the fact that, in hindsight, they represent poor underwriting judgment."
This statement, with its references to hindsight and poor judgment, is not quite a confession of negligence but comes very close. We think it is well arguable that it should have prompted Names to inquire into the precise circumstances in which the policies were written. In the end however, we are unwilling to hold on the strength of the letter alone that it amounted to constructive knowledge that the risks reinsured were not reasonably quantifiable. We think that the Names are entitled to an investigation of the circumstances surrounding the writing of the letter and the other information which they were being given before it can be said that the letter made the relevant facts ascertainable.
Thus in our view Gatehouse J unduly restricted the facts which s 14A(8)(a) requires to be known and the material before him did not enable him or this court to decide under RSC Ord 14A or as a preliminary issue that the plaintiffs' claims were statute barred. We therefore allow the appeal, discharge the declarations made by the judge and make no orders on the defendants' summonses save as to costs.
DISPOSITION: Appeal allowed.
SOLICITORS: More Fisher Brown; Reynolds Porter Chamberlain; Oswald Hickson Collier & Co; McKenna & Co