|All England Reporter, 2005, May, Society of Lloyds v Henderson and others|
David Foxton (instructed by Freshfields Brukhaus Deringer) for Lloyds on the Henderson and Stockwell applications.
David Foxton and Jessica Mance (instructed by Lloyds Legal Services) for Lloyds on the Lowe applications.
Craig Barlow (instructed by Grower Freeman) for the UNO Names.
The remaining Names appeared in person.
|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.|
|i) The defendant is a public officer.
|i) The structure of Lloyds and the role of the Council and the Committee are described (paras 16-26).
|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: [Lloyds] have evinced a reckless disregard for their regulatory obligations as set out in the Lloyds Acts and the Insurance Company Acts under [European] Directive 73/239, both in so far as its implementation has been delegated to Lloyds by Her Majestys 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 Lloyds of government obligations was unlawful and that the steps taken by Lloyds to fulfil the obligations so delegated were unlawful. With regard to the first complaint they say, for example, that because Audit Instructions approved by Lloyds provided for auditors in some circumstances to report and obtain instructions from the Committee of Lloyds before issuing a certificate, that the Instructions unlawfully provided for Lloyds to determine questions of insurers solvency and that Lloyds took advantage of the Governments unlawful delegation in decisions that it took in light of the Neville Russell letter. As for the second complaint, they say that Lloyds permitted the accounting system in the market to be wholly inadequate to enable [Lloyds] 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 Lloyds, 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 Lloyds, the pleading does not so limit this part of the case.
| a. Failed to prohibit or restrict the use by syndicates of Time and Distance Policies and Roll-Over Policies.
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 Lloyds 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.,  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,  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:
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 Lloyds 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 Lloyds (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 Lloyds 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 Lloyds - 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 Lloyds (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 Lloyds (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:
61. The Court of Appeal concluded that the representations considered by Cresswell J were not made by or on behalf of Lloyds, but that there were representations in brochures issued by Lloyds 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 Lloyds (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, Lloyds 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 Lloyds is not liable for fraud by distinguishing the question whether Lloyds had an honest belief that there was a rigorous system of auditing from the question how Lloyds came to that belief and whether in doing so Lloyds, with reckless indifference, failed to take relevant considerations into account: specifically, it is suggested that Lloyds 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 Lloyds: 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,  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 Lloyds v Laws (loc cit at para 11): But this application must be placed in the context of the Lloyds 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 Lloyds 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 Lloyds for the tort of misfeasance in public office, the applicants would need to show that Lloyds 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. Lloyds has cited a number of decisions in which the courts have consistently held that Lloyds is not a public body, and therefore is not subject to judicial review, including the decision of the Court of Appeal in R v Lloyds of London ex p. West,  EWCA Civ. 506.
69. In that case Dr West sought to bring judicial review proceedings to impugn decisions of the Business Conduct Committee of Lloyds to approve minority buy-outs of his membership (or potential membership) of syndicates. The question before the Court of Appeal was whether Lloyds 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 Lloyds of London ex p. Briggs,  1 Lloyds Rep 176, in which it had been decided that Lloyds 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 Lloyds is a public authority within the meaning of section 6 of the Act. The court reached the decision that Lloyds 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,  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):
These considerations, it seems to me, strongly support Mr Foxtons submission that Lloyds is not a public body answerable for misfeasance in public office.
71. However, Mr. Barlow advances four arguments against this. First he says that Lloyds is vested with statutory powers under the Lloyds Act 1982 and by other acts to supervise, manage and regulate the Lloyds insurance market. This is so: for example, section 6 of the Lloyds Act 1982, which provides that the Council of Lloyds shall have the management and superintendence of the affairs of the Society and the power to regulate and direct the business of insurance at Lloyds. However, the argument is, in my judgment, answered by R v Lloyds ex. p. Briggs  1 Lloyds LR 176 at p185, in which Leggatt LJ said this:
As Slade LJ made it clear in Jones v Swansea City Council,  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 Councils 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:
Mr Barlow argues (although this is not reflected in the draft pleading) that most Names, as well as being underwriters at Lloyds, 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 Lloyds 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 Lloyds 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 Lloyds. 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 Lloyds is such a body, or at least analogous to one, and observes that this submission is not inconsistent with Lloyds 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 Lloyds 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 Lloyds, 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 Foxtons 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 Lloyds. 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 Lloyds, 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 Lloyds, 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 Lloyds 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 Lloyds. (Indeed, Mr Carter told me that the main burden of his complaint was what Lloyds 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 Lloyds failure to disclose the nature and extent of the markets liability for asbestos related claims. As Cooke J said in Lloyds 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 Lloyds 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 courts orders and strategy for managing of the Lloyds 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 Lloyds 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 workmens 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,  EWHC 1636. Thomas J concluded that the members of syndicate 103 for the year 1993 (the syndicates 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 Lloyds 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:
91. In their proposed amended pleading the claimants wish to bring a claim against Lloyds for damages for misfeasance in public office and for declarations as to Lloyds 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 Lloyds. Their case is that Lloyds was obliged by the provisions of the Lloyds Act 1982 to ensure that the business of the [insurance] market [at Lloyds] 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 Lloyds 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 [Lloyds] 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 Lloyds] committed the tort of misfeasance in public office. In support of this allegation, they say that:
94. Lloyds 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 Lloyds was a public office exercising public powers; (ii) that Lloyds acted unlawfully; (iii) that Lloyds had the requisite state of mind; (iv) that the matters complained of caused the Names loss.
95. Mr Foxton explained that Lloyds 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 Lloyds understanding is correct.
96. Before considering directly Lloyds 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 Lloyds 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 Lloyds Insurance Market in the 1980s is materially similar or akin to the PA spiral. The procedures and mechanisms in place at the Lloyds 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 Lloyds 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 Lloyds. He explains that Lloyds 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 Lloyds issued guidance with recommendations as to the best practice about identifying the potential impact of catastrophes. In 1993 Lloyds Regulatory Board was established, and Lloyds 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 Demerys statement.
100. Next, the new case involves criticisms of Lloyds 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 Lloyds 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 Js criticisms about coding are directed not against Lloyds, but against Lloyds underwriters (or, at para 229 of his judgment, many in the market).
101. I come to Lloyds 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 Lloyds 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 Lloyds 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 Lloyds 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 Lloyds regulatory function for the protection of policy holders, and sounds in public law, notwithstanding the challenge is made by a Name at Lloyds.
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. Lloyds 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 Lloyds 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 Foxtons submission. The matter can be stated shortly: firstly it is alleged in the draft pleading (at para 7) that the Lloyds Act, 1982 required Lloyds to ensure how syndicates and member conducted their business, but the Act imposed no such absolute duty upon Lloyds. Secondly, in so far as the pleading relies upon European Directives, they do not impose obligations upon Lloyds: see Lloyds v Pasco, 9 March 1998; Lloyds v Levy  EWHC 1860 (Comm). Thirdly, in so far as the pleading relies upon the Insurance Companies Act, 1982, Lloyds 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 Lloyds 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 Lloyds 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 Lloyds 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, Lloyds 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 Lloyds to be exercising public law powers (which, as I have explained, I do not consider to be the case), Lloyds cannot properly be said to have been recklessly indifferent in the early or middle 1990s 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 Lloyds 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 Lloyds 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 Lloyds 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 Lloyds 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 [Lloyds] 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, Lloyds has powerful arguments that the proposed claim has no real prospect of success. In so far as it is contended that Lloyds 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 Lloyds 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 Lloyds 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 Lloyds did not give Names information, nothing in the papers before me suggests that Lloyds had any relevant information at a time when losses could have been prevented. In so far as the complaint relates to Lloyds not requiring written plans, no business plan would have described the intended dishonesty and in so far as the complaint is that Lloyds 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 Lloyds 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.
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 Lloyds. In the Jaffray trial the court examined in detail allegations of fraud against Lloyds and the many named individuals for whom Lloyds 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 Barlows submission.
118. I shall hear submissions about the order that I should make in light of this judgment.
end of selection