Society of Lloyd's v. Henderson
All England Reporter, 2005, May, Society of Lloyd’s v Henderson and others
Society of Lloyd’s v Henderson and others
[2005] EWHC 850 (Comm)
QUEEN’S BENCH DIVISION (COMMERCIAL COURT)
ANDREW SMITH J
11 MAY 2005
[2005] All ER (D) 155 (May)
Practice and procedure - Defence - Application to amend - Lloyd’s litigation - Application by Names to amend pleadings to allege misfeasance in public office and bad faith - Limitation - Real prospect of success.
The proceedings involved applications by former Lloyd’s Names to amend pleadings to assert claims against Lloyd’s alleging misfeasance in public office. The first group of applications (the Henderson applications) were to introduce a pleading in the form of a draft amended defence and counterclaim. The action had been tried in 2000 (see [2000] All ER (D) 1674). There were also three applications brought by Lloyd’s for summary judgment (the Stockwell applications). Thirdly, in an action against Lloyd’s brought by three Names asserting a claim for misfeasance in public office, the claimants sought to amend their points of claim, having regard to a judgment in a separate action which held that members of a syndicate were the victims of fraudulent trading. Lloyd’s in turn applied to strike out the action or for summary judgment, on the ground, inter alia, that the particulars disclosed no reasonable grounds for the claim. It was accepted by those three Names that Lloyd’s would succeed unless their (the Names’) application for an amendment was allowed (the Lowe applications). The applications by Names for permission to amend sought to ‘plead misfeasance in public office ... because it is just and equitable for such permission to be given’.

Lloyd’s argued, inter alia, that the period of limitation in the Henderson application had expired, and there was no basis for extending it under CPR 17.4. It further denied that it was a public body capable of being sued for misfeasance in public office.
The court ruled:
(1) The Henderson applications were time barred and did not satisfy the requirements of CPR 17.4. In any event, the new case did not have a prospect of success nor would it have been permitted as a matter of discretion. The Stockwell applications would fail also.

It had not been specified which passages of the draft proceedings would be relied upon. In those circumstances, it was not for the court to formulate a case for the Names. The matters described as 'extraneous or peripheral’ by the Names were not discrete or confined to specific passages of the draft, but permeated most if not all of the proposed pleading. Further, some of the allegations were specifically disavowed by Names at the earlier trial. Fourthly, the claim of misfeasance itself depended on facts not previously in issue. Moreover, the Names had no realistic prospect of succeeding in their argument that Lloyd’s held public office and exercised public powers in the sense that would be required if it were to be held liable for the tort of misfeasance in public office. As to discretion, the draft pleading was long, unstructured and in places confused and repetitious; further, the applicants had had ample opportunity in the past to make the allegations now sought to be advanced, and they had not done so.

(2) On the facts, the Lowe applications would fail also, due to no realistic prospect of success.

The pleading based on the prior case had no prospect of success; the instant case was not made the same basis as that prior action. Lloyd’s was not a public office. As to bad faith, the Names had not formulated a sufficient case that Lloyd’s knew that its decision making was unlawful or was recklessly indifferent about whether it was.
All applications by the Names would be refused.
Sphere Drake Insurance Ltd and another v Euro International Underwriting Ltd and others [2003] All ER (D) 160 (Jul) considered.
David Foxton (instructed by Freshfields Brukhaus Deringer) for Lloyd’s on the Henderson and Stockwell applications.
David Foxton and Jessica Mance (instructed by Lloyd’s Legal Services) for Lloyd’s on the Lowe applications.
Craig Barlow (instructed by Grower Freeman) for the UNO Names.
The remaining Names appeared in person.
James Wilson Barrister (NZ).
Judgment
[2005] EWHC 850 (Comm)
QUEEN’S BENCH DIVISION (COMMERCIAL COURT)
11 MAY 2005

MR JUSTICE ANDREW SMITH
APPROVED JUDGMENT
I DIRECT THAT PURSUANT TO CPR PD 39A PARA 6.1 NO OFFICIAL SHORTHAND NOTE SHALL BE TAKEN OF THIS JUDGMENT AND THAT COPIES OF THIS VERSION AS HANDED DOWN MAY BE TREATED AS AUTHENTIC.

MR. JUSTICE ANDREW SMITH:
1. These applications are made in litigation between the Society of Lloyd’s (“Lloyd’s”) and “Names” who are or were underwriting members of Lloyd’s. The central issue is whether the Names should be permitted to assert claims against Lloyd’s alleging misfeasance in public office.
2. The first group of applications, to which I shall refer as “the Henderson applications”, are to introduce a pleading in the form of a draft amended defence and counterclaim in proceedings between Lloyd’s and John Trevor Howard Henderson. These are made in the long-running litigation in which Lloyd’s v Jaffray was tried in 2000.
3. Secondly, there are three applications (“the Stockwell applications”) brought by Lloyd’s for summary judgment made against Ms Philadelphia Stockwell and the estates of Oliver Buckley and David Northey Richardson. The respondents to these applications accept, through their counsel, that in principle Lloyd’s is entitled to summary judgment unless they are permitted to amend their pleading in order to pursue a claim for misfeasance in public office. I therefore decide in this judgment whether they should be permitted to do so, and I have deferred further consideration of Lloyd’s applications until after I have delivered this judgment.
4. Thirdly, proceedings against Lloyd’s have been brought by the three names, Mr. Raymond Douglas Lowe, Dr Alan Geraint Simpson and Mr. Kevin John Lloyd James, asserting a claim for relief for misfeasance in public office. They seek to amend their Points of Claim, and Lloyd’s has applied to have their pleadings struck out or for summary judgment on the grounds that the particulars of claim disclose no reasonable grounds for the claim, or that they are an abuse of process, or that the claim is so weak that the Names have no reasonable prospect of success and there is no reason for the trial. The Names accept that unless their application for permission to amend succeeds, they cannot resist Lloyd’s application to strike out the claim. I shall refer to these applications as the “Lowe applications”.
5. Lloyd’s is represented by Mr. David Foxton, who is instructed with Ms Jessica Mance in the Lowe applications. All but six of the Names are members of the United Names Organisation (“UNO”) and are represented by Mr. Craig Barlow, who is instructed by Messrs Grower Freeman. The other six Names are Mrs. Heather Adams, Mr. Alexander Bums, Mr. Sydney Michael Butler, Mr. R H Carter, Mr. Jeffray Paull Johnstone, and Mrs. Elizabeth Anne Reisz. Mr. Butler, Mr. Carter and Mrs. Reisz represented themselves at the hearing before me. Mrs. Adams’ husband spoke on her behalf. Mrs. Reisz spoke on behalf of Mr. Johnston. Mr. Burns initially represented himself but on the last day of the hearing Mrs. Reisz represented him.
The Henderson applications
6. The applications made by the UNO names for permission to amend their pleadings are in these terms: for permission to “plead misfeasance in public office on the basis of the attached witness statement because it is just and equitable for such permission to be given”. The witness statement referred to a draft amended defence and counter-claim running to 143 pages and 312 paragraphs. On 9 February 2005 Messrs Grower Freeman served another draft pleading with 210 pages and 409 paragraphs. Mr. Barlow made it clear that the UNO Names seek permission to amend their pleadings in accordance with the latter draft, and they do not seek permission to rely upon the draft pleading originally referred to in their applications.
7. The Names who were not legally represented apply for permission to amend their pleadings to plead misfeasance in public office on the grounds that “Equity requires that such permission be given and equity is a basic principal of English law introduced to temper too rigid interpretations of the law”. Mr Carter has served a draft pleading in which, among other things, he “adopts the arguments put forward by the lead litigant(s) in this case, except insofar as that may involve specific reliance on the Human Rights Act or to European Law”. None of the other applicants who are not legally represented has served a draft pleading setting out the terms of the proposed amendment, but none of them suggested in submissions to me that a claim for misfeasance in public office could be pleaded in terms significantly different from the pleading of the UNO Names or so as to avoid objections to it which have been advanced by Lloyd’s.
8. The UNO Names have served in support of their applications a witness statement dated 4 March 2005 and made by Mr. Ian Hay Davison, a former chief executive of Lloyd’s. Mrs. Adams relies in support of her application upon five affidavits sworn in proceedings in the Supreme Court of New York between Aldrich and Marsh & McLennan Cos Inc. and ors by Mr. Roger Krapfl, Mr. Walter Curtner, Mr. Robin Jackson, Ms Elizabeth Luessenhop and Mr. RHM Outhwaite. Mr. Carter also relies upon the affidavits of Mr. Curtner, Mr. Jackson and Mr. Outhwaite. However, in view of how the issues between the parties developed, this evidence is not of great importance to the questions that I have to decide.
Misfeasance in public office
9. The tort of misfeasance in public office was considered in detail in Three Rivers DC v Bank of England (No 3) [2003] 2 AC 1, and Mr. Barlow also referred me to the judgment of Hale LJ in Ammoo-Gottfried v Legal Aid Board (unrep) 1 December 2000, in which she said this (at para 27):
“Reading the recent cases, one has the sense that all the judges that have wrestled with this problem [of defining the tort] have felt that they know what they are trying to describe-and do so seeking analogies from their own areas of the law-but recognise the difficulty of formulating propositions which would encapsulate that principle without including other actions by public officers which may cause just as much damage, be just as susceptible to judicial review, but do not (in the present state of the law) give rise to a claim for damages. What in my view they are trying to describe is the exercise of power by a public official, not for the purpose for which it was given, but for some ulterior or impermissible purpose, knowing or being reckless as to whether it will damage the plaintiff’.
10. In the Three Rivers DC case, Lord Steyn (loc cit at p191B et seq) identified the following six “ingredients” or “requirements” of the tort.
i) The defendant is a public officer.
ii) Power as a public officer is exercised either by the defendant himself or by someone for whom he is vicariously liable.
iii) Either (i) the defendant, or officer for whom the defendant is vicariously liable, acts out of targeted malice, in the sense of a specific intention to injure a person or persons, or (ii) the “public officer acts knowing that he has no power to do the act complained of and that the act will probably injure the plaintiff’ (loc cit at p.191E/F). The latter alternative (which is an ingredient of what I shall call the “second” form of the tort) involves bad faith in as much as the public officer does not have “an honest belief that his act is lawful” (per Lord Steyn at p.191 F) and it suffices if “the public officer acted with a state of mind of reckless indifference to the illegality of his act” (at p.193C/D) and about the consequences of his act (at p.196B/C).
iv) The claimant has a sufficient interest to have legal standing to sue.
v) There is damage caused by the wrongful act.
vi) That damage is not too remote to be recoverable.
11. I emphasise the third ingredient, the intentional or subjectively reckless nature of the tort. I have cited from Lord Steyn’s speech. Similarly, Lord Hutton (at page 227F) said that “dishonesty is a necessary ingredient of the tort, and it is clear from the authorities that in this context that dishonesty means acting in bad faith”. Lord Millet said (at p.235B/C) that the tort is an “intentional” tort that “cannot be committed negligently or inadvertently”, and that “the core concept is abuse of power. This in turn involves other concepts, such as dishonesty, bad faith, and improper purpose. These expressions were often used interchangeably; in some contexts one will be more appropriate, in other contexts another. They are all subjective states of mind.” He went on to emphasise that excessive power is not the same as abuse of power and that “even a deliberate excess of power is not necessarily an abuse of power”.
12. Mr Barlow explained in his oral submissions that the Names whom he represents advance a claim only of the second form of the tort and confine their allegation to reckless indifference on the part of Lloyd’s, submitting (as I accept) that it is clear from the judgment of Hale LJ (loc cit) that reckless indifference is a sufficient mental element. The other applicants did not suggest that their allegations are different in this respect.
The Lloyd’s litigation
13. The events at Lloyd’s in the 1980’s and 1990’s, leading to the reconstruction and renewal plan (“R&R”) in 1996, have been explained in other judgments of this court and in particular in the judgment of Cresswell J in Lloyd’s v Jaffray, 3 November 2000. I do not seek to summarise them in my judgment, but I must set out something of the history of this Lloyd’s litigation. As Mr. Barlow says in his skeleton argument, “this case is a continuation of the same litigation previously described by reference to other defendant Names, notably Jaffray and Laws.”
14. After some 1,552 Names did not accept R&R in 1996, Lloyd’s began to bring claims against them in respect of premium for reinsurance of their liabilities to Equitas, and many Names brought claims or cross-claims against Lloyd’s. Early in those proceedings some Names were considering a claim for damages for misfeasance: on 21 March 1997 at a hearing before Colman J in Lloyd’s v Leighs and ors, Mr. R. Tager QC, who appeared for defendant Names instructed by Messrs Epstein Grower & Michael Freeman, said, “...insofar as we claim damages for misfeasance, it will be our submission that Lloyd’s sufficiently discharges a public office for the purpose of that rather special tort...”. However that complaint was not then pursued. (Mr. Tager also mentioned in passing an argument “that there exists a novel tort not yet recognised by the law but nevertheless there to be recognised, namely misfeasance by a regulator whereby we shall be submitting... that fraudulent misfeasance by private regulator is itself tortious”. That argument has never been developed.)
15. A common theme of Names’ allegations was that Lloyd’s was liable for misrepresentations that were said to have induced them to become or remain Names or to increase their underwriting capacity. Section 14 of the Lloyd’s Act 1982 exempted Lloyd’s in some circumstances from liability for damages at the suit of “a member of the Lloyd’s community” (including Names and persons seeking to become Names). However, the exemption did not apply to claims where “the act or omission complained of ... was done or omitted to be done in bad faith”, and it provided no defence in respect of the period before the 1982 Act came into force.
16. By an order made on 30 June 1998 for the efficient management of the burgeoning Lloyd’s litigation Colman J ordered that four actions be tried together and identified a “Threshold Fraud Point”, namely “the issue whether Lloyd’s made misrepresentations which it knew to be untrue and or as to which it was reckless whether they were true or false and whether such misrepresentations were communicated to the Names, and if so when”. Directions were given for the trial of the Threshold Fraud Point.
17. At a case management hearing held a year later Cresswell J was concerned to define more specifically the Names’ misrepresentation complaint that was to be advanced in respect of the Fraud Threshold Point. Mr Simon Goldblatt QC, who was representing Names, explained the limits of the case that his clients were advancing “in these proceedings” (which must, I think, mean upon the Fraud Threshold Point, since this explanation did not include the complaint of negligent misrepresentation in respect of the period before the Lloyd’s Act came into force). By an order dated 1 July 1999, Cresswell J stipulated in light of that explanation how the allegations of fraud made against Lloyd’s and those for whom Lloyd’s was said to be responsible were “confined”. In their judgment of 21 January 2002 in the Lloyd’s v Jaffray appeal, the Court of Appeal said (at para 18), “ [Cresswell J’s] order of 1st July 1999 identified precisely against whom any charge of fraud had been made and precisely what the case was. When the threshold issue was being debated and when consideration was being given as to whether there should be a threshold issue, the Names had the opportunity to put forward any different preliminary point which they considered it would be right to be heard. Although some Names here present before us may not have been parties to the action at that time, Sir William Jaffray, for example, was represented by counsel when the matter was fully debated”.
18. At a further case management conference on 29 October 1999, Cresswell J made an order which was designed to achieve what he called “binding in”: that the determination of the Threshold Fraud Point should authoritatively determine the question whether Lloyd’s was fraudulent, and that it should not be open to other Names who were not party to the litigation to dispute matters determined in the trial of the Threshold Fraud Point in subsequent proceedings (or indeed for Lloyd’s to dispute them against other Names). He therefore made an order that “Any individuals, being present or former members of Lloyd’s, who wish to reserve the right to advance allegations that they were fraudulently induced to become or remain underwriting members of the Lloyd’s market by reason of Lloyd’s failure to disclose the nature and extent of the market’s liability for asbestos-related claims, must provide written notice to Lloyd’s solicitors... [by specified dates] confirming that they wish-to become parties to the litigation”. Those who did not serve such a notice were precluded “from advancing such allegations without leave of the Commercial Court”. Those who did so were bound by the determination of the Threshold Fraud Point.
19. In their judgment in Lloyd’s v Jaffray, [2002] EWCA Civ 1101 at para 500, the Court of Appeal said of this order, “Such an order was plainly appropriate since it would be unthinkable for either Names or indeed Lloyd’s to be able to use valuable court resources twice (or many times) in order to have the same issues determined”. In his judgment in Lloyd’s v Laws, [2003] EWHC 873 (Comm) Cooke J summarised the position that has been reached by the order of 1 November 1999 (at para 4): “As a result of this order (as appears from the statement sent on the Court’s instructions to Names who were in dispute with Lloyd’s) the Court hoped to ensure that all fraud arguments would be enshrined in the Threshold Fraud Trial and would be determined once and for all, between Lloyd’s and non-accepting Names, however such fraud claims were framed, whether by reference to misrepresentation or non-disclosure of information”. Cooke J reiterated this in his judgement in Noel v Lloyd’s, [2004] EWHC 1170 (Comm) at para 39, adding “any Names who wished to advance allegations of fraudulent concealment in relation to asbestos should therefore have brought those in the Jaffray proceedings”.
20. The Threshold Fraud Point was- tried before Cresswell J between February and July 2000. The trial had been confined to allegations of fraudulent misrepresentations during the so-called “Relevant Period”, the years 1978 to 1988. To summarise the Names’ case at the risk of over-simplification, it was that Lloyd’s had made representations about the quality of its regulatory and auditing procedures in brochures that it issued and in Aggregate Results and Global Reports and Accounts as at the end of the years 1981 to 1987; and that those representations were untrue for two principal reasons: (i) that the market was under-reserved for asbestos-related losses, and (ii) that there were systemic problems affecting the market’s ability to quantify accurately future losses of that kind, such that the ultimate cost which would affect the Lloyd’s market was not capable of quantification. The Names alleged that the representations were fraudulent in that Lloyd’s had no honest belief in the truth of the representations, and that the Names relied upon them. They alleged fraud on the part of 33 identified individuals as well as Lloyd’s. The Names relied in particular upon the so-called “Neville Russell letter”, written on 24 February 1982 on behalf of a number of panel auditors, which referred to “the impossibility of determining the liability in respect of asbestosis”.
21. On 14 March 2000, the ninth day of the trial of the Threshold Fraud Point, a question arose whether the Names were advancing an allegation that Lloyd’s was liable to them because it had failed to disclose information (in contradistinction to making false representations). Cresswell J was concerned about paragraphs of the Names’ pleading which might be understood to be asserting that Lloyd’s were under a duty of disclosure (although in June/July 1999 they had indicated that they would not be doing so). Mr Goldblatt made it clear on that day and the following day that no such allegation was intended, subject only to an argument that Lloyd’s was obliged to correct any misrepresentation that it had made without knowing it to be false but that it later learned to be so. Accordingly, an amended Points of Defence was served on 20 March 1999 in which there were deleted allegations that Lloyd’s was under a duty to “bring home” to Names the nature of risks involved in the Lloyd’s insurance market and to “ensure that those Names were made aware of any special circumstances liable to threaten the solvency of individual Names or the global security of the Lloyd’s market”, and other such allegations of a duty to provide information to Names. Permission so to amend was given on 9 May 1999. (In fact, the pleading did not delete all the paragraphs that might have been interpreted as asserting an independent duty to make disclosure, but the purpose of the amended pleading is clear.)
22. On 3 November 2000 Cresswell J delivered his judgment on the Threshold Fraud Point. He rejected the Names’ claims, and concluded in particular (i) that the pleaded representations were not made by Lloyd’s; and (ii) that the Names had not proved that Lloyd’s was fraudulent. In his own “headnote” to his judgment, Cresswell J observed that the Names’ case was confined to asbestos-related losses, and these had to be singled out from other losses suffered by the market in and after the Relevant Period, including (i) pollution and other long-tail claims; (ii) the North European storms in 1987, Piper Alpha and Hurricane Gilbert in 1988, Hurricane Hugo, the San Francisco Earthquake, Exxon Valdez and Phillips Petroleum in 1989 and the North European storms in 1990; and (iii) the so-called London Market Excess of Loss (“LMX”) spiral.
23. Shortly before Cresswell J handed down his judgment, Names served an amended pleading which asserted a claim that Lloyd’s was liable to them for negligent advice, negligent misrepresentation and negligent regulation of the market. They argued that Lloyd’s was not protected from such liability by section 14 of the Lloyd’s Act, 1982 because the exemption from liability contravened the Human Rights Act, 1998. An application to introduce that pleading was heard in April 2001, but it was conceded that the pleading could not at that time be advanced in light of the judgment of Cresswell J on the Threshold Fraud Point, and the application was dismissed. By an order dated 27 April 2001 Cresswell J ordered that the Names’ claim for damages for misrepresentation be struck out and that the claims and counterclaims in the litigation be dismissed.
24. Thereafter, a number of Names purported to serve a further pleading (referred to as “the draft Harris pleading” because it was drafted in an action brought by Lloyd’s against David John Harris), which set out a claim against Lloyd’s alleging bad faith, negligent regulation and breach of duty. It was conceded at a hearing in July 2001 that the Harris pleading was a nullity (as I understand it, because of the order of 27 April 2001). As Mr Foxton points out, there is a substantial overlap between the draft Harris pleading and the draft that the applicants now seek permission to introduce.
25. Meanwhile, Names had sought permission to appeal from the judgment on the Threshold Fraud Point, and on 8 October 2001 the Court of Appeal granted them permission to do so. The appeal was set down for March 2002. Before that hearing, the Names made it clear that they would seek to advance new claims in the Court of Appeal: claims of misfeasance in public office, of negligent misrepresentation, and of a failure, through bad faith or negligence, properly to regulate the market.
26. At a hearing on 21 January 2002, the Court of Appeal ordered that “The appeal shall be limited to an appeal against the decision of Cresswell J on the Threshold Fraud Issue. Accordingly, the claims for negligence/breach of duty and/or misfeasance in public office... and any other claims that did not form part of the Threshold Fraud Issue shall not form part of the appeal by any of the Appellants against the judgment of Cresswell J”. In their judgment on the substantive appeal, [2002] EWCA 1101, the Court of Appeal said (at para 20): “The names ...sought to include in the appeal for which they had permission a number of points which were not advanced before the judge. However, on 21 January 2002, having heard and read detailed submissions on all sides, we directed that the appeal be limited to an appeal on the threshold fraud point. ... it will ultimately be a matter for the judge to decide the extent to which (if at all) further points can be raised by the names in light of this judgment.”
27. In his skeleton argument Mr Barlow suggested that at that hearing Lloyd’s, through its counsel, Mr C Aldous QC, agreed not a raise procedural objections to any application by the Names to amend its pleadings to introduce a claim of misfeasance in public office. Mr Foxton pointed out that Mr Aldous conceded only that, and the Court of Appeal understood Mr Aldous to be conceding only that, Lloyd’s would not resist an application to amend on the technical ground that Cresswell J had struck out the claim for damages and dismissed the Names’ claim by his order of 27 April 2001, and that there had been no appeal against that order. Lloyd’s has advanced no argument of that sort. When this was explained, Mr Barlow properly and promptly abandoned this point.
28. The appeal from the judgment of Cresswell J on the Threshold Fraud Point was heard in March 2002, and judgment was delivered on 26 July 2002. The Court of Appeal held that Lloyd’s had made representations to Names in brochures that it issued (albeit not the precise representations pleaded by Names and considered by Cresswell J), and that those representations were untrue. However, the Court dismissed the appeal because it “came to the clear conclusion that the names’ case at trial fell far short of the heavy burden of proof required to establish dishonesty” (at para 429) and “the names had failed to show to the necessary high standard that those at the centre of Lloyd’s ...at any stage knew or were reckless as to whether the representations in the brochures were untrue” (at para 481).
29. The applications before me are not applications that were made to the Court of Appeal and stood over or referred to the Commercial Court. The Court of Appeal simply ruled that the appeal from the judgment of Cresswell J was limited to the Threshold Fraud Point and observed that any application to amend to make new points would be determined by the Commercial Court if and when such application was made.
30. On 25 October 2002 Names belonging to the UNO applied to the Court of Appeal for a stay of execution or enforcement against them on the grounds that they wished to amend their pleading. The draft amendment, which was a new pleading and had not been before the Court of Appeal in January 2002, did not include a claim for misfeasance in public office or any other claim based on dishonesty, but did include a claim of negligent misrepresentation. Similar applications were made by another group of Names referred to as the Lloyd’s Misrepresentation Group (or LMG): they sought to advance claims against Lloyd’s for damages for breach of a statutory duty to exercise its powers for the benefit of the Names and to provide information to Names; for damages for breach of a common law duty of care; and for damages for breach of a statutory or common law duty to ensure that an appropriate audit was undertaken and to determine necessary reserves.
31. These applications were heard by Cooke J in March and April 2003. By his judgment of 17 April 2003 in Lloyd’s v Laws (loc cit) and an order dated 23 May 2003, he adjourned pending the provision of further specified particulars of the applications of some Names to amend in order to advance claims for negligent misrepresentation which accrued before 23 July 1982, the date that the Lloyd’s Act came into force, and otherwise the applications were refused. Names sought permission to appeal from the judgment of Cooke J and were granted permission to do so on certain points. However, by their judgment of 19 December 2003 ([2003] EWCA Civ 1887) the Court of Appeal upheld the judgment of Cooke J.
32. Thereafter Lloyd’s went about pursuing bankruptcy proceedings against Names. On 20 February 2004 the Court ordered that Lloyd’s was entitled present bankruptcy petitions, which were, however, stayed pending, among other things, the determination of applications by Names to amend to plead misfeasance in public office. These applications to amend to plead misfeasance in public office were made in and after July 2004, and the draft setting out the amendment that the UNO Names now seek to make was served on 9 February 2005.
The proposed amendment
33. I should next give some description of the new pleading that the Names wish to introduce by these amendments, although my summary will necessarily be incomplete. The case that Lloyd’s is liable for misfeasance in public office is set out in a draft counterclaim. In a passage of the pleading headed “The Nature of the Counterclaim”, it is pleaded (at para 11) that “the Name does not seek to re-litigate issues comprised within the Threshold Fraud Issue”, which is described as “ [embracing] the issue whether or not Names were fraudulently induced to become or remain underwriting members of the Lloyd’s market by reason of Lloyd’s failure to disclose the nature and extent of the market’s liability for asbestos-related claims. Accordingly the Threshold Fraud Point embraced the allegation that Lloyd’s had been guilty of fraudulent misrepresentations between 1978 and 1988 in relation to the Lloyd’s market to asbestos-related claims and losses”. The pleading then states (at para 12) that the Name “pursues causes of action that arise out of the same or substantially the same facts and matters as in issue in the Jaffray/Laws proceedings”.
34. I make three observations: first, it is rightly recognised that the Threshold Fraud Point was directed to asbestos related losses. Secondly, the pleading does not acknowledge that a case based upon a failure to disclose was disavowed by Mr Goldblatt at the trial of the Threshold Fraud Point and that this was reflected in amendments to the pleadings. Thirdly, although the pleading refers to the “the Jaffray/Laws proceedings”, the Names’ contention before me was that the claim of misfeasance in public office arises out of the same or substantially the same facts and matters as were in issue in the Threshold Fraud Point trial. (Indeed, in view of the limited success of the Laws application, it would not be open to Mr Henderson, the Name in whose action the exemplar pleading is made, to rely upon anything from the Laws pleading that Cooke J permitted to be pursued because he is said to have joined Lloyd’s in 1986.)
35. The pleading then sets out a number of matters of background to the complaint:
i) The structure of Lloyd’s and the role of the Council and the Committee are described (paras 16-26).
ii) The effect of the Lloyd’s Acts 1871-1982 is set out under the headings “Statutory Provisions Governing Lloyd’s” (paras 27-32) and “Self-Regulation by Lloyd’s” (paras 48-57).
iii) The “Reinsurance to Close” procedure adopted by Lloyd’s syndicates is set out (paras 33-39 and 75-86).
iv) There is a description of R&R and the Equitas companies through whom the plan was implemented (paras 40-44).
v) “Obligations imposed on Lloyd’s by EC Law” (through Directives and domestic legislation to implement them) are pleaded (paras 45-47).
vi) A long description is given of how knowledge about the perils of insuring asbestos risks built up during the 1970’s and 1980’s (paras 67-74 and 89-202).
36. Under the headings “Particular Obligations Owed by Lloyd’s to Names” (paras 58-66) and “Particulars of Public Law Obligations” (para 87) there are pleaded obligations said to be owed by Lloyd’s. It is said that the 1982 Act imposed upon Lloyd’s “a statutory obligation to exercise its powers of management, superintendence and self-regulation so as to protect and advance the interests of Names and to provide them with market intelligence and information or, alternatively, to do so (in each case) so far as was reasonably practicable”; and that members of the Committee and Council were under a statutory or common law duty with regard to the exercise of powers to ensure that the interests of “Names and other stakeholders” were protected and advanced and that “they were provided with market intelligence and information”. In support of this part of the case, reliance is placed, among other things, upon the Cromer Report, the Fisher Report, and payments by Names to the Central Fund. It is also said that “the conclusion that section 6(1) of the 1982 Act created public law obligations upon Lloyd’s derives further support from EC directives”; and that because of its conduct since 1 January 1983 Lloyd’s is estopped from denying that it was under the pleaded obligations.
37. In this passage of the pleading the Names make reference to debate in Parliament before the Lloyd’s Act 1982 was passed, and specifically to what was said by Lord Mackay and Lord Wilberforce (a slip, I suspect, for Lord Windlesham). In his speech Lord Mackay, the Lord Chancellor, said this: “The very basis of self-regulation - which is accepted by all in the community - is that Lloyd’s own institutions are best equipped to reach such decisions [sc. decisions requiring judgment and discretion over the operation of the Lloyd’s market]. It has been pointed out that that is a very different matter from preventing other people, not members of the Lloyd’s community as defined in the Bill, from taking court action; for example, policyholders are in no way affected by clause 14. At the same time, it is right that the authorities’ interpretation of their statutory functions should be open to scrutiny by the courts. Judicial review will be available as a remedy for oppressive or unfair acts, and nothing in the Bill affects that. Compliance with all the requirements of natural justice will be necessary. In our view of the matter it is quite wrong to suggest that the Bill would put Lloyd’s above the law. As we see it, Lloyd’s will not be placed above the law”. The Names have also produced a letter written by Lord Mackay and dated 16 May 1997, in which he confirmed that when he spoke in the debate, he did so as a member of the Government speaking on behalf of the department with the principal responsibility for the Lloyd’s legislation, and that he did feel that judicial review would be available in view of the fact that the provisions recognised the “public character of the responsibility” of the Council of Lloyd’s.
38. There is then a section of the pleading headed “Misfeasance in Public Office” (paras 203-212), which contains a paragraph (para 210) that was said by Mr Barlow to encapsulate the claim that his clients seek to pursue. I shall set out that paragraph and the first sentence of paragraph 211: “The Defendant contends that the failures to regulate are so grotesque that they evidence an abuse of power. At the very least the CA finding in Jaffray demonstrates legal error in Lloyd’s decision making processes. If Lloyd’s did not appreciate that the representations were untrue when made, it logically follows that Lloyd’s left out of account a key factor or took into an account an irrelevant factor when regulating the market. Lloyd’s reliance on the “rigorous” audits was not merely misplaced but reckless. Notwithstanding Lloyd’s knowledge [that because] of the unquantifiable/uncertain nature of the asbestos related liabilities as pleaded [the] Names would suffer losses as a consequence of steps set out in above [sic] were not taken the Committee/Council knowingly or recklessly and in bad faith failed to take the said regulatory action and turned a blind eye to unquantifiable/uncertain nature of asbestos related liabilities. Lloyd’s motives in acting as pleaded above were improper and unlawful and in the premises Lloyd’s decision makers acted with reckless indifference.”
39. The next section is headed “The circumstances surrounding Lloyd’s failures in Self-Regulation” (paras 213-238), and in it various criticisms are made of Lloyd’s including the following: that the Committee and the Council failed to have proper regard to the risks involved in “Lloyd’s syndicates operating indiscriminately both as direct insurers (particularly at high levels) and as reinsurers”; that Lloyd’s failed to impose specific coding for personal stop loss policies; that Lloyd’s was aware that there were underwritten at Lloyd’s policies for unlimited liability “and that legal developments in the USA were turning previously limited liabilities into effectively unlimited ones”; that although the Cromer report was delivered to the Committee of Lloyd’s in 1969, “In breach of statutory obligations, Lloyd’s concealed the Cromer Report until 1987 and thereafter did not distribute it”; and that it concealed “the Neville Russell letter”.
40. There are then five passages under the general heading of “The failures in self-regulation and breaches of obligation by Lloyd’s”:
i) The first passage (paras 239-254) complains of failure to implement the requirements of European Directives, and in particular Directive 73/239, and is introduced by this allegation: “[Lloyd’s] have evinced a reckless disregard for their regulatory obligations as set out in the Lloyd’s Acts and the Insurance Company Acts under [European] Directive 73/239, both in so far as its implementation has been delegated to Lloyd’s by Her Majesty’s Government, if it has been, but in any event as required by the Directive of all undertakings regulated by the Directive”. The Names complain both that the delegation to Lloyd’s of government obligations was unlawful and that the steps taken by Lloyd’s to fulfil the obligations so delegated were unlawful. With regard to the first complaint they say, for example, that because Audit Instructions approved by Lloyd’s provided for auditors in some circumstances to report and obtain instructions from the Committee of Lloyd’s before issuing a certificate, that the Instructions unlawfully provided for Lloyd’s to determine questions of insurers’ solvency and that Lloyd’s “took advantage of the Government’s unlawful delegation” in decisions that it took in light of the Neville Russell letter. As for the second complaint, they say that Lloyd’s permitted the accounting system in the market to be “wholly inadequate to enable [Lloyd’s] to fulfil their obligations under the Directive”, in support of which allegation they rely upon the judgment of the Court of Appeal in Jaffray case; and again relying upon the Neville Russell letter, that Lloyd’s, abusing “their powers and responsibilities with a reckless indifference as to the consequences” allowed reserves to be set at too low a level. I observe that, although the reliance upon the Neville Russell letter might suggest that these allegations are directed to how asbestos liabilities were treated at Lloyd’s, the pleading does not so limit this part of the case.
ii) The second passage (paras 255 - 288) is headed “Long tail liabilities of an APH [asbestos, pollution and health liabilities] Nature”. As is apparent from the heading, this passage too is directed not only to asbestos but also to other long tail liabilities. It includes an allegation that Lloyd’s failed to ensure that members’ agents observed their obligations to Names and prospective Names to make proper disclosure about “significant exposure of particular syndicates to long tail liabilities” (para 266). Lloyd’s is alleged to have “evinced a reckless disregard for complying” with its obligations during the period 1979 to 1996, and to have been “recklessly indifferent as to whether the measures that it had implemented complied with the obligations imposed upon them”, and have shown a “reckless disregard for whether Lloyd’s Names would suffer harm if the measures were unlawful” (para 287).
iii) The third of these sub-sections (paras 289 to 329) is headed “The provision of information relating to, and the regulation of, LMX business and PA [Personal Accident]”. It is alleged that as a result of Lloyd’s failures, members’ agents and managing agents failed to give proper advice or to make proper disclosure to Names or prospective Names, and that “Lloyd’s acted in “bad faith” within the meaning of section 14(3) of the 1982 Act in failing to regulate LMX business and in breach of the requirements of Directive 73/239 as amended over the years because Lloyd’s could not have ... genuinely have (sic) believed that the regulatory steps that it had taken were properly compliant with the Directive and its obligation to regulate the market. Further, in this regard, Lloyd’s evinced a reckless disregard for the economic welfare of the Names” (para 323). With regard to PA business, the pleading refers (at paras 326/7) to the judgment of Thomas J in Sphere Drake v EIU and Stirling Cooke Browne, [2003] EWHC 1636 Comm and the underwriting of Workers Accident Compensation business and the “PA spiral” that are the subject of that judgment. It also refers (at para 328) to “the judgments of Phillip J in the Gooda Walker and Feltrim cases and other Court Judgments, Loss Reviews and Disciplinary Investigations as proof of the inadequacy of Lloyd’s regulation of agents and maintenance of underwriting standards”; and it refers (at para 329) to the judgment of Saville J in Boobyer v David Holman (1992) to support an allegation that Lloyd’s failed to learn lessons from the LMX spiral and therefore failed to prevent the development of other spirals, allowing “the exposure of Names and the market to risk that was never envisaged or understood by Names, but which individual decision-makers at Lloyd’s understood and ignored in bad faith and in abuse of their obligations and powers”.
iv) Next, a passage (paras 330 to 354) headed “Failure to supervise and regulate the activities of member’s agents, brokers and Managing Agents”. Here it is said that Lloyd’s failed to prohibit or to restrict the following practices of managing agents: use of Time and Distance Policies (alleged to have been taken out to cover shortfalls in reserves); reliance on the Central Fund; and the creation of “Baby Syndicates”.
v) The last of these passages (paras 355 to 366) is headed “The removal of the requirement of Errors and Omissions Cover for Agents”. It complains about decisions of Lloyd’s Council to reduce and then to remove the requirement upon agents to hold errors and omissions cover. Amongst other allegations it is said that this was contrary to an assurance that Lloyd’s gave to Parliament when the Lloyd’s Bill was before a Parliamentary Select Committee. It is alleged the Lloyd’s acted in bad faith in failing to ensure that agents were covered by adequate and effective errors and omissions insurance.
41. There is then a passage (paras 367 to 381) headed “Bad faith on the part of Lloyd’s”. The passage includes complaints with regard to asbestos related risks, including allegations of failure to give information to Names and of permitting syndicate years to reinsure to close although there was no way of determining whether the reinsurance was equitable between reinsuring and reinsured years. However, when the direct and express allegations of bad faith are made directly, there is no specific reference to asbestos related risks, and the complaints (at para 378) are that Lloyd’s:
“a. Failed to prohibit or restrict the use by syndicates of Time and Distance Policies and Roll-Over Policies.”
b. Failed to prohibit or restrict the practice by which syndicates wrote and conducted business in reliance upon the existence of the Central Fund.
c. Failed to make clear to Names the extent to which they were assuming the credit risk of other Names and the extent to which their obligations were effectively mutualised by the existence of the Central Fund.
d. Failed to prohibit or restrict the creation of baby syndicates and/or to ensure that members’ agents or managing agents informed all Names potentially affected thereby of the existence or former existence of such syndicates.
e. Failed to regulate the amount of reinsurance that could be used to cover the risks being contracted for as required by Article 15 of Directive 73/239.
f. Failed to ensure the maintenance of administrative and accounting procedures and adequate internal control mechanisms as required by Article 13 of Directive 73/239.
g. Failed generally to act with any or any proper regard for the interests of those Names affected by the above practices or to ensure compliance with Article 19 of Directive 73/239”.
It is then pleaded that in 1986 Mr Peter Miller, the Chairman of Lloyd’s, encouraged Names to sign a new General Form of Undertaking for 1987 although he and Members of the Council of Lloyd’s had been advised (in an advice written by Mr Robert Alexander QC for PCW names) of potential exposure to claims under American RICO legislation, and it is contended “that the representation by Mr Miller to Names that the signing of the New General Undertaking would not prejudice their legal rights was a further illustration of bad faith on the part of the Council, having regard to their knowledge of the advice being received by PCW Names, and their failure to disclose that to all Names”; and it is said that accordingly Lloyd’s acted in bad faith “in relation to its failure to regulate the practice of Reinsurance to Close”. Accordingly, it is alleged that “it is properly to be inferred that Lloyd’s acted in bad faith within the meaning of section 14(3) of the 1982 Act in relation to its failure to reduce and then remove the requirement for E&O cover”.
42. In a passage headed “The consequences for the Defendant of the breaches by Lloyd’s of its obligations” (paras 382 to 386), it is pleaded that loss resulted from inter alia underwriting APH liabilities, writing spiral business and the absence of satisfactory errors and omissions cover for agents. In his oral submissions, Mr Barlow explained that with regard to causation the contention is that individual Names suffered losses not only because they became or remained members of Lloyd’s or particular syndicates or increased their underwriting capacity, but also because Syndicates suffered underwriting losses that should not have been incurred.
43. Finally, in a passage headed “Reconstruction and Renewal” (paras 387 to 409), it is alleged that Lloyd’s implemented R&R negligently and in breach of obligations owed to Names.
Civil Procedure Rules Part 17
44. Part 17 of the Civil Procedure Rules is concerned with amendments to statements of case: specifically, CPR17.3 deals with amendments to statements of case with the permission of the court. The approach adopted by the court to such applications is described by Peter Gibson LJ in Cobbold v London Borough of Greenwich, (CA) 9 August 1999, as follows: “The overriding objective is that the court should deal with cases justly. That includes so far as practicable ensuring that each case is dealt with not only expediently but also fairly. Amendments in general ought to be allowed so that the real dispute between the parties can be adjudicated upon, provided that any prejudice to the other party or parties caused by the amendment can be compensated for in costs and the public interest in the efficient administration of justice is not significantly harmed”.
45. Mr. Foxton does not dispute that this is, at a general level, the correct approach to applications to amend such as one made in this case. He opposes the Henderson applications essentially on four grounds, arguing:
Limitation
46. Where a party applies to amend his statement of case and an applicable period of limitation stipulated by the Limitation Act 1980 has expired, the provisions of CPR 17.4 apply. In my judgment it is clear that the period of limitation applicable to the proposed new claim for misfeasance in public office has expired, and therefore the application to amend cannot succeed unless the conditions of CPR 17.4 are satisfied. Indeed, Mr. Barlow did not, I think, really dispute this in his oral submissions, and none of the other applicants suggested otherwise, but I should refer to three points that Mr Barlow made in his skeleton argument.
47. First, it is said that before 1996 when R&R took place, the Names could not have known the facts relevant to the claim of misfeasance in public office. I do not really understand either the significance of this assertion or why R&R is said to be crucial to Names’ knowledge relevant to the misfeasance that they allege. In any case R&R took place over 8 years ago, and indeed, as I have observed, Names were contemplating a misfeasance claim in March 1997.
48. Secondly, the Names assert that there was concealment of relevant facts. This assertion was not developed or particularised. It cannot succeed for reasons explained by Cooke J and the Court of Appeal in their judgments upon the Laws application (where the argument was disavowed by the UNO Names but was advanced by litigants in person). It suffices to cite the Court of Appeal (loc cit at para 75): “... we agree with the Judge that it is inherent in the Jaffray appeal that Lloyd’s did not know that it had committed any wrongdoing at any time between 1978 and 1988 and that in reality there is no evidence to support a case of deliberate concealment of a fact relevant to the Names’ cause of action”. In my judgment, this applies also to any cause of action for misfeasance in public office.
49. Thirdly, it is said that the “amendment issue” has been before the court since October 2001 (when permission to appeal from the judgment in Jaffray was sought from the Court of Appeal). This is not in point: the question whether a cause of action is statute-barred does not depend either upon when an “amendment issue” is raised or upon when an application to amend is made but upon when it is determined: see Welsh Development Agency v Redpath Dorman Long Ltd., [1994] 1WLR 1409.
50. CPR 17.4 provides that, when the applicable limitation period has expired, “The court may allow an amendment whose effect will be to add or substitute a new claim, but only if the new claim arises out of the same facts or substantially the same facts as a claim in respect of which the party applying for permission has already claimed a remedy in the proceedings”. The rule reflects, with a slight variation of language, section 35 of the Limitation Act, 1980, which refers to the new cause of action arising out of “the same facts or substantially the same facts are already in issue on any claim previously made in the original action”.
51. This case is unusual in that the trial upon the Threshold Fraud Point has already taken place. On one view, facts are not now “in issue”, but Mr Foxton did not argue that, because judgment has been given on the Threshold Fraud Point, therefore the new cause of action does not arise from facts “already in issue” within the meaning of section 35. I therefore consider how far the proposed pleading of a claim for misfeasance in public office arises out of the same facts as arose upon the Threshold Fraud Point or otherwise in the previously pleaded claims. Of course, even if I conclude that the proposed amendments fall within the constraints of CPR 17.4, separate questions arise, as I have indicated, about whether the proposed amendment is consistent with the findings in Jaffray, and whether in view of the history of this litigation the amendments should be permitted.
52. Mr Barlow argues that the proposed amendment to plead a claim for damages for misfeasance in public office arises out of the same facts and matters as the Threshold Fraud Point. He submits, citing the decision of the Court of Appeal in Goode v Martin, [2002] 1 WLR 1828, that the proper approach is to look a the substance of the matter and to ask whether essentially the same factual issues are to be litigated, looking beyond the “straightjacket” of the previously pleaded causes of action and the particular expressions used by the pleader of the previous pleading.
53. I am quite unable to accept that the misfeasance in public office claim set out in the draft pleading arises from the same or substantially the same facts as have already been in issue. The proposed pleading would introduce new areas of inquiry, including the following:
i) The case about the duties and functions of Lloyd’s and its nature as a public office. If it be said that these are to be regarded as questions of law, it should be observed that Names allege that Lloyd’s is estopped by its conduct since 1 January 1983 from denying its obligations.
ii) Various allegations that Lloyd’s failed to provide to Names information that it should have distributed or made available.
iii) Complaints about the treatment of long-tail pollution and health risks other than those related to asbestos.
iv) Complaints about the LMX spiral and the PA spiral.
v) Allegations about agents’ involvement with time and distance policies.
vi) Allegations about reliance upon the Central Fund.
vii) Complaints about agents’ use of “Baby Syndicates”.
viii) Complaints about the implementation of R&R.
ix) The claim by Names for damage caused not by their reliance upon representations for which Lloyd’s is responsible, but through underwriting losses themselves, and Lloyd’s responsibility for them.
54. In his closing submissions Mr Barlow came close to accepting that the draft pleading contained “peripheral and extraneous matters” that did not arise from what had previously been in issue, but he submitted that “It is the cause of action that matters. Whether the Statement of Case contains peripheral and extraneous matters is neither here nor there for determining the question in relation to the cause of action”. He contended that it was possible to construct a claim for misfeasance in public office substantially upon the basis of the facts examined in the Jaffray trial and by picking out from the draft pleading the allegations directed to asbestos-related risks, and that therefore the court should not dismiss the Names’ applications, but, if necessary, adjourn them so as to allow the proposed pleading to be reformulated.
55. There are, of course, occasions when the court will indicate that an amendment will, or might, be permitted in principle and allow the applicant an opportunity to modify a proposed pleading to meet specific objections that have been raised. But here, as Mr Foxton rightly complained at the start of his submissions, the UNO Names argued in oral submissions for an amendment that appeared to be far removed from the pleading in the draft before the court, which is not even confined to complaints of misfeasance in public office, still less to such a claim directed to how Lloyd’s dealt with the problem of asbestos related risks. I do not consider that it would be right to adopt the course suggested by Mr Barlow.
56. First, Mr Barlow did not specify which passages of the draft would be abandoned as pleading “peripheral and extraneous matters”. It is not obvious what parts of the pleading are to be regarded as unnecessary to the case that the applicants seek to advance, and it is not apparent which allegations are directed to a complaint of misfeasance in public office in respect of asbestos related matters. It is certainly not for the court in these circumstances to formulate a case for Names, particularly, perhaps, in view of the nature of the tort alleged and the responsibilities of a pleader who alleges bad faith on behalf of his clients. For example, if the passage headed “Bad faith on the part of Lloyd’s” (on the face of it, an important passage of the draft pleading) were to be restricted to asbestos related matters, it is unclear to me what, if anything, would remain.
57. Secondly, the “extraneous or peripheral matters” are not discrete or confined to specific passages of the draft, but permeate most if not all of the proposed pleading.
58. Thirdly, even if the pleading were confined to allegations directed to asbestos related risks, there are allegations of Lloyd’s failure to give Names information, allegations which were specifically disavowed by Names at the trial before Cresswell J.
59. Fourthly and in any case, on any view the claim of misfeasance presented by Mr Barlow in his submissions itself depends upon facts not previously in issue: one significant example is the case in causation, which does not simply rest upon how Names were induced to act.
60. Moreover, the complaint of misfeasance is presented on the basis that assertions about the mental element required for the tort which are different from what was previously alleged against Lloyd’s - necessarily so because otherwise the claim that they seek to advance would undeniably be answered by the decision of the Court of Appeal in Jaffray. When the allegations of fraud were made in the trial of the Threshold Fraud Point, the question was whether Lloyd’s (or those for whom they were vicariously liable) had an honest belief in the truth of the representations made to Names. Accordingly, Cresswell J considered whether Lloyd’s (or those for whom they were responsible) had a genuine belief when they were made in the truth of the representations alleged by the Names, namely the following:
i) That a Name joining Lloyd’s could have confidence in Lloyd’s as an institution to safeguard the Name’s interests. That a Name joining Lloyd’s could trust those who regulate the Lloyd’s market and manage its affairs.
iii) That a Name joining Lloyd’s could, because of the way in which Lloyd’s regulated and monitored underwriting accounts year by year, (a) rely on syndicate accounts, (b) in underwriting and/or deciding whether to remain a member of Lloyd’s, have confidence in the audited syndicate results for past years, and (c) be sure that Lloyd’s as part of its regulatory duties would ensure that, when the prospective liabilities were reinsured by one syndicate year into another, such liabilities were being fairly assessed and quantified as between the two syndicate years.
iv) That the Lloyd’s market was in a sound financial condition.
v) That Names could safely join Lloyd’s and/or continue their memberships of Lloyd’s and/or increase their Premium Income Limit with confidence that known and projected claims had been prudently and adequately reserved to ultimate.
61. The Court of Appeal concluded that the representations considered by Cresswell J were not made by or on behalf of Lloyd’s, but that there were representations in brochures issued by Lloyd’s that there was in place a rigorous system of auditing which involved the making of a reasonable estimate of outstanding liabilities including unknown and unnoted losses. Accordingly the issue considered by the Court of Appeal was whether Lloyd’s (or those for whom they were responsible) had a genuine belief in the truth of that representation when it was made.
62. In seeking to pursue a claim for misfeasance in public office, the Names, or at least the UNO Names, disavow any intention to re-litigate matters decided as part of the Threshold Fraud Point. At the same time, an allegation of bad faith or dishonesty is a necessary ingredient in the tort of misfeasance and, indeed, an allegation of bad faith is necessary if the claim is not to be defeated by section 14 of the 1982 Act. In his skeleton argument Mr. Barlow put the matter thus: “The concept of “bad faith” within [misfeasance in public office] is founded in a consideration of the exercise of public law powers. There can be no [misfeasance in public office] without a corollary, abuse of “public law power”. One element of [misfeasance in public office] is “improper, ulterior or collateral motive”. As a matter of law, this is arguably regarded as “bad faith”.” In paragraph 210 of the draft pleading, upon which Mr Barlow placed particular reliance, the allegation appears to be that in reaching its belief about the adequacy of audits, Lloyd’s acted in bad faith in disregarding proper consideration about the nature of asbestos related liabilities.
63. Thus, as I understand it, the Names seek to circumvent the decision in Jaffray that the Lloyd’s is not liable for fraud by distinguishing the question whether Lloyd’s had an honest belief that there was a rigorous system of auditing from the question how Lloyd’s came to that belief and whether in doing so Lloyd’s, with reckless indifference, failed to take relevant considerations into account: specifically, it is suggested that Lloyd’s left out of account whether the tests (or audits) that it required for solvency tests were adequate. I shall consider later in this judgment whether this attempt to circumvent the decision of the Court of Appeal stands a realistic prospect of succeeding. However, the corollary of this argument is that, in seeking to bring their new complaint of misfeasance in public office, the Names are not asserting the same facts as were in issue upon the Threshold Fraud Point.
64. Furthermore, a claim for misfeasance in public office would raise another new issue about the state of mind of those at Lloyd’s: it is a requirement of the tort that the public officer acts in the knowledge that his act will probably injure the claimant or persons of the class of the claimant and this is not an element of the tort of deceit.
65. I therefore conclude that the amendment put forward in the Henderson applications does not satisfy CPR17.4, and I should therefore refuse the applications.
Prospects of success: (1) public officer and the exercise of power as a public officer
66. I would, in any case, have refused the applications both because I do not consider that the new case has a sufficient prospect of success, and because in view of the history of this matter, as a matter of discretion I would not permit the amendments.
67. An application for permission to amend a pleading will not be allowed when the proposed amendment has no realistic prospect of success, the test being the same as that in CPR Part 24 with regard to summary judgment. Mr Barlow rightly emphasised that the court is not encouraged to enter upon detailed examination of complex questions in order to determine whether an applicant has a sufficient case for the court to permit amendment. He cited the judgment of Brooke LJ in Equitable Life Assurance Society v Ernst & Young, [2003] EWCA Civ 1114, who said (at para 40) that “it is not appropriate to strike out a claim in an area of developing jurisprudence since decisions on novel points of law should be based on actual findings of fact”. I accept this general principle, but consider that I should still examine the proposed pleading with some care, not least because of the protracted history of this litigation. The Court of Appeal said in their judgment in the appeal in Lloyd’s v Laws (loc cit at para 11): “But this application must be placed in the context of the Lloyd’s litigation as a whole. It follows many court battles and in particular the massive threshold fraud trial identified as the point to be tried at least in major part as the basis that other claims in negligence following the coming into force of the Lloyd’s Act could not succeed. If the amendments were allowed, a further substantial trial would result, covering in large measure the same period but with a different focus. The court is entitled to be astute as to whether the amendments have any real prospect of success and spend some little time doing so”.
68. In order to succeed in a claim against Lloyd’s for the tort of misfeasance in public office, the applicants would need to show that Lloyd’s is a public officer, and exercised powers as a public officer. In the Three Rivers DC case, Lord Steyn said (at p.191), “It is the office in a relatively wide sense on which everything depends”. Lloyd’s has cited a number of decisions in which the courts have consistently held that Lloyd’s is not a public body, and therefore is not subject to judicial review, including the decision of the Court of Appeal in R v Lloyd’s of London ex p. West, [2004] EWCA Civ. 506.
69. In that case Dr West sought to bring judicial review proceedings to impugn decisions of the Business Conduct Committee of Lloyd’s to approve minority buy-outs of his membership (or potential membership) of syndicates. The question before the Court of Appeal was “whether Lloyd’s was amenable to judicial review, whether by virtue of the section 6 of the Human Rights Act 1998 (“HRA”) or otherwise”. The court had identified this question for decision because there had been a series of cases, starting with R v Lloyd’s of London ex p. Briggs, [1993] 1 Lloyd’s Rep 176, in which it had been decided that Lloyd’s did not operate in the public sphere, at any rate in relation to those of its functions under consideration. The enactment of the HRA added, as Brooke LJ put it, “a new dimension to the debate”, because the court also had to consider whether Lloyd’s is a “public authority” within the meaning of section 6 of the Act. The court reached the decision that Lloyd’s is not amenable to judicial review, whether by virtue of section 6 or otherwise, in regard to the functions under scrutiny in that case.
70. Brooke L.J., with whom Mummery and Dyson LJJ agreed, referred to principles derived from the judgment of Lord Woolf CJ in Poplar Housing Association Ltd v Donoghue, [2001] EWCA 595 including this: “The fact that the acts are supervised by a public regulatory body does not necessarily indicate that they are of a public nature”. Brooke LJ then said this (at paras 38 and 39):
“The objectives of Lloyd’s are wholly commercial. The nature of Lloyd’s is not governmental, even in the broad sense of that expression. If any question arises as to the performance of any obligation on the part of the state to protect investors, it is the [Financial Services Authority] which is the governmental organisation which will be answerable to the Strasbourg Court and not Lloyd’s. The sixth of the principles identified by Lord Woolf in the Poplar case (which I have set out above) ... is particularly in point. It is the FSA which performs governmental functions in these matters, not Lloyd’s. The fact that Lloyd’s regulates its members’ activities in the way it does as a result, in part, of its desire to avoid a more intrusive governmental regulatory regime cannot possibly convert it into a body exercising public law function within the meaning of the Strasbourg case law”.
These considerations, it seems to me, strongly support Mr Foxton’s submission that Lloyd’s is not a public body answerable for misfeasance in public office.
71. However, Mr. Barlow advances four arguments against this. First he says that Lloyd’s is vested with statutory powers under the Lloyd’s Act 1982 and by other acts to supervise, manage and regulate the Lloyd’s insurance market. This is so: for example, section 6 of the Lloyd’s Act 1982, which provides that the Council of Lloyd’s shall have “the management and superintendence of the affairs of the Society and the power to regulate and direct the business of insurance at Lloyd’s”. However, the argument is, in my judgment, answered by R v Lloyd’s ex. p. Briggs [1993] 1 Lloyd’s LR 176 at p185, in which Leggatt LJ said this:
“Lloyd’s is not a public body which regulates the insurance market... Lloyd’s operates within one section of the market. Its powers are derived from a private act which does not extend to any persons in the insurance market other than those who wish to operate in the section of the market governed by Lloyd’s and who, in order to do so, have to commit themselves by entering into the uniform contract prescribed by Lloyd’s. In our judgment, neither the evidence nor the submissions in this case suggest that there is such a public law element about the relationship between Lloyd’s and the Names as places it within the public domain and so renders it susceptible to judicial review.”
As Slade LJ made it clear in Jones v Swansea City Council, [1990] 1 WLR 54, the focus is on the nature of the office: “It is not the judicial nature of the relevant power but the nature of the Council’s office which is the important consideration” (at p71).
72. Next Mr Barlow drew attention to paragraph 3 of the judgment of Brooke LJ in ex. p. West to argue that the decision did not apply to this case. Brooke LJ said this:
“It needs to be stressed at the outset that this case is concerned only with the functions performed by the Council of Lloyd’s and its committees when they are exercising their regulatory powers in relation to the affairs of the members of Lloyd’s and of other people, such as members’ agents or managing agents of Lloyd’s syndicates, who are involved in different aspects of the transaction of business at Lloyd’s. It is not concerned with the exercise of disciplinary functions, nor with the exercise of regulatory functions for the protection of policy holders”.
Mr Barlow argues (although this is not reflected in the draft pleading) that most Names, as well as being underwriters at Lloyd’s, were also policyholders: they would either have been members of syndicate years which had been reinsured to close, or have had stop loss policies or estate protection plans or other policies.
73. I cannot accept that this argument means that the decision in West does not apply in this case, or that the applicants have a reasonable prospect of succeeding in this argument. If there is to be liability for misfeasance in public office, the defendant must both be a public officer and the relevant exercise of power must be that of a public officer. Here the complaint is that Lloyd’s did not fulfil its obligations to its underwriting members. That they were, or might have been, policyholders is quite incidental to the complaint.
74. Thirdly, Mr. Barlow argued that the Government has inferentially claimed to the European Commission that the “regulatory” activities of Lloyd’s are by way of implementation of the requirements laid upon the Government by European Directive 73/239. This submission was not developed with any particularity and I cannot see how it assists the applicants.
75. Finally, it is said that the implementation of measures required by the Insurance Companies Acts 1974 and 1982 in relation to the solvency of insurance undertakings and their ability to cover their liabilities was delegated to the Council of Lloyd’s. This argument is answered by the judgment in ex p. Briggs to which I have referred, and indeed the decision in ex. p. West itself.
76. I add that Mrs Reisz submitted, with the support of information that she produced from a Cabinet Office website, that public bodies include “Executive Non-Departmental Public Bodies”, which are described as follows: “established by statute and carrying out administrative, regulatory and commercial functions, they employ their own staff and are allocated their own budgets”. She argues that Lloyd’s is such a body, or at least analogous to one, and observes that this submission is not inconsistent with Lloyd’s commercial activities. However, as Mr Foxton pointed out, it is a distinctive feature of these bodies that their funding derives from government.
77. I conclude that the Names have no realistic prospect of succeeding in their argument that Lloyd’s holds public office and exercises public powers in the sense, as would be required if it were to be liable for the tort of misfeasance in public office.
Prospects of success: (2) bad faith
78. Mr. Foxton argued that in light of the decisions of Cresswell J and the Court of Appeal in Jaffray that the Names had not proved bad faith on the part of Lloyd’s, the applicants have no realistic prospect of succeeding in their allegations of bad faith, or reckless indifference, which are a necessary part of their complaint of misfeasance in public office. The difficulty in this argument is that the allegations of bad faith which the applicants make are, unlike those made in the trial of the Threshold Fraud Point, not confined to the treatment of asbestos related exposure between 1978-1988. Therefore, it does not seem to me that the case in the draft amendment is answered by the findings in Jaffray, and so I do not consider this, in itself, to be a reason to refuse the applications for permission to amend in the form that they are made.
79. However, as I have explained, in his submissions Mr Barlow, in an attempt to answer the argument that the applications fall outside the confines of CPR Part 17.4, suggested that the complaint was really confined, or could be confined, to one about the treatment of asbestos related risks. In this context, it seems to me that Mr Foxton’s argument has force. I have explained how Mr Barlow seeks to reconcile the applicants’ case with the decision in Jaffray. However, I reject that argument, and do not consider that it would have a real prospect of success. It does not recognise fully the findings that were made in favour of Lloyd’s. In particular, at paragraph 374 of their judgment, where the Court of Appeal was considering the truth of the representation that there was a rigorous system of auditing, it is said, “It is clear that detailed consideration was given each year by the audit department at Lloyd’s, the Audit Committee and the Committee as to the instructions to be given to underwriters and auditors. All this was intended to produce a system that enabled proper RITCs [reinsurances to close] to be produced and proper certification of solvency...”. This was said, of course, in the context of a complaint about the treatment of asbestos related risks. In my judgment, it is unrealistic to suppose that a court might, consistently with the judgment of the Court of Appeal, conclude that Lloyd’s, when forming a view about the adequacy of the audit system, had acted in bad faith in disregarding proper considerations about how it dealt with asbestos related problems.
Abuse of process and discretion
80. Even if I am wrong both about the limitation question and the prospects of success of the proposed claim, I should in any case have refused permission to amend for two main reasons.
81. First, both the draft pleading originally put forward and the recent draft in respect of which the application is now pursued are long, unstructured and in places confused and repetitious. What are acknowledged to be “extraneous and peripheral matters” dominate the drafts. Perhaps most importantly, it is difficult, and sometimes impossible, to discern with any proper certainty the basis for allegations of bad faith. Particularly bearing in mind that Lloyd’s has already defeated allegations of bad faith made by Names against the Corporation and many individuals in it, it is entitled to have new allegations of this kind made much more clearly and specifically than they are in these drafts.
82. Of the applicants who are not legally represented, only Mr Carter has himself presented a draft pleading, and that largely adopts the draft relied upon by the UNO Names. None of these applicants indicated that the case that they would seek to advance differs significantly from that in the draft pleading of the UNO Names, although Mr Adams emphasised the “audit issue”. In so far as they might disown or distance themselves from the draft pleadings of the UNO Names, I would take the view that, in a case of this kind, it would not be right to permit an amendment without a draft pleading setting out the new case.
83. Secondly, and perhaps even more importantly, the applicants have had ample opportunity in the past to make the allegations that they now seek to advance, and have not previously done so. They seek permission to make them more than eight years after R&R. No proper reason has been given for the delay in pursuing these claims. If Names thought that they would or might advance a claim of misfeasance in public office involving allegations of this kind (or indeed at all), it should have been mentioned at the case management conferences before the trial of the Threshold Fraud Point. They should also have advanced the claim as part of the Laws application.
84. For example, the proposed claim would involve allegations of non-disclosure against Lloyd’s. (Indeed, Mr Carter told me that the main burden of his complaint was what Lloyd’s did not tell him, not what they did tell him.) These allegations clearly should have been advanced at the trial of the Threshold Fraud Point, if they were to be pursued at all. The order of Cresswell J made on 29 October 1999 referred to allegations of fraudulent inducement by “Lloyd’s failure to disclose the nature and extent of the market’s liability for asbestos related claims”. As Cooke J said in Lloyd’s v Laws (loc cit at para 38), “Any fraudulent misrepresentation or fraudulent non-disclosure in relation to asbestos related losses was, as the Court informed all the Names, intended to be dealt with on the Threshold Fraud Trial”.
85. I do not overlook that Mr. Adams told me that he, representing his wife, failed to appreciate the significance of the concession about non-disclosure made by Mr. Henderson and others Goldblatt on the ninth and tenth day of the trial of the Threshold Fraud Point, and he did not realise that an allegation of non-disclosure was not to be argued in that trial by Names who were legally represented. I do not find that point persuasive. The fact remains that the time for any Names, whether or not legally represented, to argue a case based upon fraudulent non-disclosure in relation to asbestos related losses was at the trial of the Threshold Fraud Point, and it would be wrong to permit these applicants to pursue the allegation at a separate trial.
86. I also acknowledge that Mrs. Adams and Mr. Carter did not themselves make applications to amend that were heard in Lloyd’s v Laws. However they knew about the applications, and they could then have brought forward their applications to plead misfeasance in public office.
87. Mr. Foxton submits that in these circumstances these applications offend against the principle in Henderson v Henderson (1843) 3 Hare 100 at pp 114-115, and should be dismissed as an abuse of the process of the court. For my part, I do not consider it necessary so to characterise the applications. I simply consider that, given the court’s orders and strategy for managing of the Lloyd’s litigation, the long and unexplained delay in pursuing the claims of misfeasance in public office itself means that the applications to amend should be refused.
The Stockwell applications
88. As for the Stockwell applications, I do not, for the reasons that I have explained, permit the Names to amend their pleadings. I shall hear further submissions upon Lloyd’s applications for summary judgment.
The Lowe applications
89. The three claimants in the Lowe proceedings became Names in 1983 and 1987, and joined Syndicates 718 and 103. Those syndicates participated in writing the risks in relation to workmen’s compensation cover that were the subject of the judgment of Thomas J in Sphere Drake Insurance Ltd and ors v Euro International Underwriting Ltd and ors, [2003] EWHC 1636. Thomas J concluded that the members of syndicate 103 for the year 1993 (the syndicate’s last year of account) and of syndicate 718 for years 1993 and 1994 were the victims of fraudulent trading by their underwriters and others inside and outside the Lloyd’s market who created a spiral known as “the PA spiral”.
90. The fraud, as is apparent from the judgment of Thomas J, had the following features:
i) In 1993 the PA Spiral involved syndicates 103 and 718 and other insurers. In 1994 the PA Spiral included Syndicate 718 and other insurers.
ii) In each case, business known to be gross loss-making business was written.
iii) Both spirals were created deliberately, in order to transfer the loss-making business to reinsurers writing cover at higher levels.
iv) Those involved in the fraud deceived their capital providers as to the nature of the business in which they were engaged and did not commit their activities to writing because the activities were dishonest and unauthorised.
91. In their proposed amended pleading the claimants wish to bring a claim against Lloyd’s for damages for misfeasance in public office and for declarations as to Lloyd’s failures to regulate the insurance market and their liability to indemnify the claimants against losses. Like the Henderson applicants, they allege the second form of the tort, asserting bad faith on the basis of reckless indifference on the part of Lloyd’s. Their case is that Lloyd’s was obliged by the provisions of the Lloyd’s Act 1982 to ensure that “the business of the [insurance] market [at Lloyd’s] complied with the relevant laws, byelaws and administrative provisions applicable to it”. The implications of this obligation are set out, and it is said that the Council of Lloyd’s was required to maintain an accounting system that made reasonable estimates of outstanding liabilities.
92. In paragraph 17 of the draft pleading, allegations are adopted from the proposed pleading in Henderson with regard to “Particulars of the regulatory scheme and process of assessment of liability and reserves (RITC, IBNR, etc), the alleged failures of [Lloyd’s] to collect and disseminate information”.
93. Against this background, the claimants allege in the draft pleading (at para 27) that “From 1989 and in any event during [the period from 1991 to 1994 Lloyd’s] committed the tort of misfeasance in public office”. In support of this allegation, they say that:
i) Lloyd’s “exercised power as a public official” and “wielded public law power” under the Lloyd’s Acts, because it had statutory power to regulate the Lloyd’s Insurance Market; because “the statutory authority to self regulate bestowed on [Lloyd’s] is part of system of governmental regulation of the insurance market”, relying upon the Insurance Act 1982 and European Directive 73/239; because Lloyd’s regulatory authority was and is regarded by the Government as “part and parcel of its compliance with the ... directive”; and because Lloyd’s “has thereby been woven into the governmental control and regulation of the insurance market such that its statutory power to “regulate” is a public law power”.
ii) Lloyd’s unlawfully abused its public law power in that it failed to appreciate that its regulatory powers created by section 6 of the Lloyd’s Act 1982 were public law powers and “having failed to recognise that the said powers were “public law powers” it must as a logical concomitant have failed to appreciate that those powers must be considered and exercised within traditional Administrative Law constraints” (namely, that Lloyd’s must consider from time to time their exercise, must direct itself according to law, must reach any decisions with procedural and substantive fairness, must “obey the principle of relevancy”, taking account only of relevant factors, and must reach a rational decision within a margin of reasonable appreciation).
iii) That Lloyd’s decision “not to exercise its regulatory powers” (presumably so as to prevent spirals) and its decision that “a sufficient regulatory framework was already in place to prevent a recurrence of something akin to the LMX spiral” were unlawful.
iv) Lloyd’s failed to “exercise any proper regulatory control over the Lloyd’s Insurance Market as described in the Sphere Drake judgment and the subject matter of complaint in The Society of Lloyd’s v Henderson”. More specific details of this complaint are set out.
v) The abuses of power “occurred whilst [Lloyd’s] was being recklessly indifferent as to whether (a) its decision-making was lawful and (b) its decisions were likely to inflict harm on Lloyd’s Names”. In support of the former allegation it is said that Lloyd’s was “recklessly indifferent as to the legality of its actions because at no stage in the process did [Lloyd’s] ask itself whether the said decisions were lawful in the public law sense”, adopting “the firm and inflexible stance that its control of the market was both (i) adequate and (ii) founded in private law and that no public law considerations applied to its decision making processes”. In support of the latter allegation it is said that by failing to implement proper controls Lloyd’s was “either i) Grossly incompetent in the discharge of its regulatory functions; or ii) Prepared to turn a “blind eye” to the nature of the problem and the risks that it posed to Lloyd’s Names, so as to be recklessly indifferent about the inflection of harm on the Lloyd’s names”.
vi) The claimants suffered loss and damage by reason of the matters of which they complain.
94. Lloyd’s opposes the application to amend on the grounds that the Names have no realistic prospect of succeeding in the proposed claim. More specifically, it is said that the applicants have no realistic prospect of showing (i) that Lloyd’s was a public office exercising public powers; (ii) that Lloyd’s acted unlawfully; (iii) that Lloyd’s had the requisite state of mind; (iv) that the matters complained of caused the Names loss.
95. Mr Foxton explained that Lloyd’s understanding of the proposed claim is that the claimants sue as members of the syndicates for the 1993 and 1994 years and for losses suffered by those years and not in relation to earlier underwriting years; and that, provided this understanding is correct, it did not advance an argument that the new claim would be time barred and that these applications are governed by CPR part 17.4. Mr Barlow confirmed that Lloyd’s understanding is correct.
96. Before considering directly Lloyd’s four arguments about the prospects of success, it is convenient first to say something about two matters which, as I read the draft pleadings, lie at the heart of the complaint.
97. First, it is said that Lloyd’s did nothing to prevent a recurrence of the LMX spiral. Thus it is said (at para 23 of the draft amendment) that “the LMX spiral that had detrimentally affected the Lloyd’s Insurance Market in the 1980’s is materially similar or akin to the PA spiral. The procedures and mechanisms in place at the Lloyd’s Insurance Market that permitted the LMX spiral were effectively the same as those that permitted the PA spiral to arise”; and it is said (at para 29(c)(i)) that Lloyd’s decided “to exercise no regulatory control to prevent a recurrence”.
98. I cannot accept this reflects the true picture or anything resembling it. First, the LMX spiral was entirely different from the PA spirals: the latter cannot properly be presented as a recurrence of the former. The LMX spiral was not caused deliberately or dishonestly. The losses were caused when the results of major catastrophes had to be borne by underwriters who had failed to recognise their aggregate exposure and to protect themselves by reinsurance. I cannot accept that there is any real prospect of the applicants establishing a complaint on the basis that their losses were the result of a recurrence of the problems experienced in the LMX spirals. That suggestion is properly to be regarded as fanciful.
99. Moreover, while I have well in mind the dangers of entering upon an inquiry that should properly be conducted at a trial, my view that the applicants have no prospect of establishing this part of their case is reinforced by the (undisputed) evidence of Mr Nicholas Demery, a solicitor employed by Lloyd’s. He explains that Lloyd’s took the following (amongst other) steps in response to the LMX spiral losses. It commissioned loss reviews into the syndicates involved in the spiral, and also the Walker report (published in 1992) into the mechanics of the LMX spiral and the problems which it caused. In December 1992 the Chairman of Lloyd’s issued guidance with recommendations as to the best practice about identifying the potential impact of catastrophes. In 1993 Lloyd’s Regulatory Board was established, and Lloyd’s issued a business plan that identified steps to safeguard against unrecognised aggregation of risk. In December 1993, there were passed the Underwriting Agents’ Qualifications Byelaw, which stipulated qualifications for active underwriters and others, and the Underwriting Agents’ Qualifications (Miscellaneous Amendments) Byelaw, which added a “commitment to continued professional training and development” as a qualification to be an underwriting agent. The applicants do not criticise these steps as inappropriate, inadequate or untimely either in their proposed pleading or in evidence in response to Mr Demery’s statement.
100. Next, the new case involves criticisms of Lloyd’s in respect of coding of risks for reserving purposes. The applicants allege (at paragraph 25 (j)) that business had unjustifiably been given a code that classified it as short tail business, and (at paragraph 29 (e)) that Lloyd’s failed “to maintain a proper accounting system that made reasonable estimates of outstanding liabilities [and] ... a proper account coding system”. They rely upon findings of Thomas J, but appear to overlook the crucial point that Thomas J’s criticisms about coding are directed not against Lloyd’s, but against Lloyd’s underwriters (or, at para 229 of his judgment, “many in the market”).
101. I come to Lloyd’s specific arguments that the Names do not have a realistic prospect of establishing the necessary elements of the tort of misfeasance in public office. First, Mr Foxton submits that they have no realistic prospect of establishing that Lloyd’s is a public office exercising public powers. I accept that submission for the same reasons I have already given in relation to the Henderson applications.
102. Mr Barlow advances a further argument in respect of these applications: that here the complaints against Lloyd’s essentially relate to its decisions concerning the nature or type of insurance business written in the London Insurance Market. As Mr. Barlow put it, “Whether Lloyd’s had unlawfully wielded regulatory powers over syndicates 103 and 718 to permit them to trade in “gross losses” as described [by] Thomas J...lies at the heart of this application”. Accordingly, it is argued that the decision that is challenged relates to Lloyd’s regulatory function for the protection of policy holders, and sounds in public law, notwithstanding the challenge is made by a Name at Lloyd’s.
103. I am not persuaded that this argument could possibly succeed. It is a distortion to refer to “gross losses” as a “type” of business or the “nature” of the business as categorised for regulatory purposes. They are simply the (deliberate) result of the business underwritten in the name of the Syndicates.
104. Lloyd’s second argument is that the second form of the tort of misfeasance in public office assumes there to be an unlawful act (or omission) by the public officer. Mr Foxton submits that the applicants have not identified such unlawfulness on the part of Lloyd’s that they have any a realistic chance of demonstrating. As I understand the speeches in the House of Lords in the Three Rivers DC case, the second form of the tort does indeed require an unlawful act or omission.
105. Again I accept Mr Foxton’s submission. The matter can be stated shortly: firstly it is alleged in the draft pleading (at para 7) that the Lloyd’s Act, 1982 required Lloyd’s to “ensure” how syndicates and member conducted their business, but the Act imposed no such absolute duty upon Lloyd’s. Secondly, in so far as the pleading relies upon European Directives, they do not impose obligations upon Lloyd’s: see Lloyd’s v Pasco, 9 March 1998; Lloyd’s v Levy [2004] EWHC 1860 (Comm). Thirdly, in so far as the pleading relies upon the Insurance Companies Act, 1982, Lloyd’s is, as Mr. Foxton submits, a commercial body regulated by statute, and not the statutory regulator.
106. If this had been the only objection to the proposed pleadings, I might well have given the applicants time to reformulate their complaint to see whether they could meet this objection. But as it stands, this argument reinforces the submission that the proposed case stands no reasonable prospect of success.
107. I also consider that the proposed pleading does not set out a case of bad faith that has any reasonable prospect of success. More specifically, it does not set out a sufficient case that Lloyd’s knew that its decision making was unlawful or was recklessly indifferent about whether it was. (Mr. Foxton also suggested that no sufficient case was set out that Lloyd’s was recklessly indifferent as to whether its decisions were likely to inflict harm on Names, but I do not need to consider that criticism separately.)
108. The fundamental reasoning of the draft pleading appears to be that because Lloyd’s failed to appreciate that it was exercising public law powers, therefore it necessarily acted outside the proper constraints which control the lawful exercise of such powers; and because it did not ask itself whether its powers were public law powers, Lloyd’s was “recklessly indifferent” as to whether it was acting within such proper constraints. No other allegation of bad faith, or the necessary mental element of the tort of misfeasance in public office, is pleaded with proper particularity, and the proposed amendment depends on this reasoning.
109. I consider it to be entirely unconvincing for a number of reasons: first, even supposing Lloyd’s to be exercising public law powers (which, as I have explained, I do not consider to be the case), Lloyd’s cannot properly be said to have been “recklessly indifferent” in the early or middle 1990’s if it thought otherwise, not least in view of the decision of the Division Court in ex p. Briggs (cit sup), which was delivered on 17 July 1992.
110. Secondly, it does not follow that if Lloyd’s did not appreciate that it had public law powers, therefore it disregarded or contravened what the draft pleading calls “traditional Administrative Law constraints”. It does not follow that therefore Lloyd’s regarded itself as free from any obligation properly to consider from time to time whether it should exercise its regulatory functions, or free from any obligation to direct itself in accordance with the law, to act fairly and to reach its decisions only in accordance with relevant considerations. Nor does it follow that Lloyd’s was “recklessly indifferent” about these matters. For example, many private bodies (rightly) consider themselves to be obliged to act fairly.
111. Thirdly, it is in any case not alleged in the draft pleading that Lloyd’s knew or was recklessly indifferent as to whether it had “public law powers”. The complaint is that it “failed to recognise or appreciate” this (at para 29), and that “at no stage in the process did [Lloyd’s] ask itself whether [its] decisions were lawful in the public law sense” (at para 31). These are not allegations of the state of mind required for the tort of misfeasance in public office.
112. Finally, causation: again, Lloyd’s has powerful arguments that the proposed claim has no real prospect of success. In so far as it is contended that Lloyd’s should by regulation have prevented a recurrence of the LMX spiral, no such regulation would have prevented the dishonest conspiracy between brokers and underwriters (including Lloyd’s underwriters) that is alleged to have caused the PA spirals, and was found by Thomas J to have caused them. In so far as the complaint against Lloyd’s relates to the coding given to risks for reserving purposes, since the losses suffered by Names related to risks first underwritten by the 1993 and 1994 syndicates (and not risks written by prior years and re-insured by the 1993 and 1994 years in order to close prior years account), such criticisms cannot have caused loss: coding involved the classification of business for the purpose of assessing reserves to be carried when years of accounts closed. In so far as the complaint is that Lloyd’s did not give Names information, nothing in the papers before me suggests that Lloyd’s had any relevant information at a time when losses could have been prevented. In so far as the complaint relates to Lloyd’s not requiring written plans, no business plan would have described the intended dishonesty and in so far as the complaint is that Lloyd’s did not ensure that the syndicates were run by “fit and proper” persons with appropriate qualifications, there is nothing in the proposed pleadings that indicates how regulation by Lloyd’s in this regard might or should have affected the management of the syndicates or prevented the alleged dishonesty.
113. If the only objection to the proposed amendment were the difficulties in the applicants’ case on causation, the decision on the application would have been nicely balanced. Although I recognise the dangers of taking a view about questions of causation without a full trial, nevertheless on balance I conclude that I would not have given permission to amend. However, on any view these arguments confirm my conclusion that overall the claim which the applicants seek to introduce does not stand any real prospect of succeeding.
114. I conclude therefore that the claim which the Lowe applicants seek to bring by the proposed amendment stands no realistic prospect of success, and for that reason I refuse permission to amend.
115. Mr. Foxton also justifiably complains about the proposed pleading adopting or incorporating wholesale the draft pleading advanced upon the Henderson applications, but if this was the only objection to the Lowe application, I should have given the applicants the opportunity to put forward an amended draft that might meet this criticism.
Conclusion
116. I therefore refuse all the applications that the Names have made.
117. I add that Mr. Barlow submitted that, apart from the matters that I have considered in this judgment, Names should be permitted to bring their claims so that there can be judicial examination of the affairs of Lloyd’s. In the Jaffray trial the court examined in detail allegations of fraud against Lloyd’s and the many named individuals for whom Lloyd’s were said to be vicariously liable. The conclusion of Cresswell J that the Names had not proved bad faith was upheld by the Court of Appeal. Against this background, I do not accept Mr Barlow’s submission.
118. I shall hear submissions about the order that I should make in light of this judgment.
end of selection