Deeny and Others v Littejohn & Co and Others; Deeny and Others v Walker & Ors
The Times 19 January 1995, (Transcript:Beverley Nunnery)
HEARING-DATES: 7 December 1994
7 December 1994
G Vos QC and D Lord for the Plaintiffs; M Harvey QC and C Weston for the First, Second and Third Defendants in the Deeny/Littlejohn & Co action; M Pelling for the Second Defendant in the Deeny/Walker action; T Keith for the Fifth and Sixth Defendants in the Deeny/Walker action; Mr Harris for Mr Walker; M Howard for the Third and Fourth Defendants in the Deeny/Walker action
PANEL: Arden J
JUDGMENTBY-1: ARDEN J
ARDEN J: The 2,655 plaintiffs in these two actions are, or are the personal representatives of, Names on Lloyd's Syndicates 164 and 290 for the 1989 and 1990 years of account, on which they suffered losses. The defendants are in the first action (which I shall call "the auditors action"), are, so far as material, the auditors of the Syndicates. The defendants in the second action ("the brokers action") are insurance brokers, a representative of one of them, Mr Goodier, and the active underwriter of Syndicate 290 and the excess of loss underwriter on Syndicate 164, Mr Walker.
These actions concern in essence time and distance and roll over policies written by Syndicates 164 and 290 in the years 1980 to 1988, which in certain of those years materially increased profits or eliminated losses without what the plaintiffs say would have been proper disclosure in the Syndicates' accounts. In consequence the plaintiffs say that they were induced to continue or increase their participation on Syndicates 164 and 290.
The defendant brokers are said to have acted in breach of duty in negotiating these policies. The auditors are said to have been in breach of duty in relation to the audit in failing to consider the effect of the time and distance and roll over policies on the accounts on which they were reporting. The allegations include allegations of dishonesty against Mr Walker and the defendant brokers. It is, inter alia, alleged that the losses of a related loss making syndicate (Syndicate 295) were reinsured with a third party which in turn reinsured the losses with Syndicates 164 and 290 for an inadequate premium, and that to the knowledge of the brokers this was arranged so as to induce the Names to continue to underwrite in later years.
I have not been taken to the allegations in detail and I am concerned with them only in the barest outline.
The Court must now rule on two applications brought by the defendants in the auditors action and by two of the defendant brokers in the brokers action for the transfer of these actions to the Queen's Bench Division with a view to their being transferred to the Commercial Court. The application has been supported by other defendants in the brokers action.
I should explain that on the question of representation of Mr Vos QC and Mr Lord appeared for the plaintiffs in both actions. Mr Michael Harvey QC and Mr Clive Weston appeared for the defendant auditors in the auditors action. Mr Keith appeared for the two brokers who are applying for transfer of the brokers action. Mr Howard appeared for Willis Corroon Limited, one of the defendants in the brokers action, which supports Mr Keith's application. Mr Harris appeared for Mr Walker; and Mr Pelling appeared for Mr Goodier, one of the defendants in the brokers action.
The High Court is divided into three divisions. Each division has its own listing office and inevitably waiting times to trial can differ. Some cases are required to be heard in a particular division, but it has not been suggested that these cases constitute cases of that description. The Court has power to transfer actions from one division to another and the power is not limited to a case where an action is one of those required to be begun in a particular division but begun in error in the wrong division.
The Commercial Court is part of the Queen's Bench Division. It deals with commercial actions which are defined in the RSC O 72, r 1(2) as follows:
"In this Order 'commercial action' includes any cause arising out of the ordinary transactions of merchants and traders and, without prejudice to the generality of the foregoing words, any cause relating to the construction of a mercantile document, the export or import of merchandise, affreightment, insurance, banking, mercantile agency and mercantile usage."
I have been taken to four cases on the question of transfer. The first two authorities are Barclays Bank v Bemister and Pryke v Gibbs Hartly Corp, which are reported together at  1 All ER 10,  1 WLR 128. The second of those two cases was an action by Lloyd's underwriters against Lloyd's brokers in respect of breaches of a binding authority. The applicant for transfer sought to transfer the dispute from the Queen's Bench Division to the Chancery Division to get the advantage of an earlier hearing date. In Pantheon Ltd v Chandler Hargreaves Ltd  129 NLJ 329 the action was brought in the Chancery Division and concerned a claim by an insured against his brokers arising out of a loss suffered as a result of the theft of the stallion "Shergar". The brokers sought to have the action transferred to the Queen's Bench Division with a view to its being heard by the Commercial Court. In all these cases transfer was refused. It was held not to be a sufficient reason for transfer that an earlier hearing date could be obtained in the other division. An application for transfer should only be made if the action had been begun in a division, or in the case of the Commercial Court a sub-division, of the High Court to which "in accordance with the rules or generally accepted practice it [was] inappropriate" (per Sir John Donaldson, MR in  1 WLR 128 at 131). The fact that the dispute concerns insurance on Lloyd's policy wording is not enough (see the Pantheon case).
From these authorities it can be seen (1) that the courts do not encourage applications to transfer cases from one division from another; (2) that a high standard has to be met; and (3) that it has to be shown that it is "inappropriate" for the case to proceed in the division in which it has been commenced. This means, as I see it, that there must be special circumstances which not merely warrant but require transfer. I do not accept one submission by Mr Vos that the plaintiffs' choice of division is to be given some special weight. The authorities do not in my judgment support that approach.
I have referred to the fact that an application for transfer should not be made simply to obtain the benefit of an earlier hearing date in the division to which it is sought to have the action transferred. However, Mr Vos eschews any such motive on the part of the plaintiffs.
The third authority to which I was taken was a case called Boobyer v Holman  2 Lloyds Rep 436. This was an action bought by a name to prevent Lloyd's from drawing on his Lloyd's deposit to meet his losses. Mr Justice Mervyn Davies who heard that case directed the transfer of the case from the Chancery Division to the Queen's Bench Division. He said this at p 439:
"Having considered the submissions of Counsel I consider that it is inappropriate to leave these actions in the Chancery Division. There will be transfers to the Queen's Bench Division. I say that because, (1) I do not think that the claims involve breaches of trust that justify keeping the actions in the Chancery Division. I accept Mr Thomas's view that, in essence, the Court will be concerned with alleged breaches of contract; (2) the documents in the case seem to me to be likely to be more speedily mastered by a Judge who is familiar with Lloyd's work; (3) although there are now before me eight actions I am told that 700 writs in like cases have been issued. That situation suggests to me that matters will be more easily managed in the Commercial Court. That Court has its own administrative procedure, a procedure said to be more flexible than that of Chancery Division and more accustomed to dealing with multi-party actions; (4) (and this is my principal reason), there will at the hearing be a need for an understanding of the background. By that I mean an understanding of the practical working of Lloyd's methods of providing for the making of calls. These methods are likely not only to be referable to such documents as I have mentioned, but also to accepted custom and practice.
"It seems to me since that since the Commercial Court is accustomed to dealing with Lloyd's litigation, it is likely that a Judge of that Court will have the best practical insight into the working of the complicated aspects of insurance business that is thrown up by these actions. There will be orders accordingly. Of course, I make the orders with some regret because boni judicis est ampliare jurisdictionem."
I now turn to counsels' submissions. Mr Harvey QC for the auditors submitted first as follows: (1) that there are some 39 action groups arising out of losses made by Lloyd's syndicates who have commenced proceedings in the Commercial Court involving the issue of some 1,000 writs; (2) that those cases include actions in which one of the issues is the nature and scope of a duty of Lloyd's auditors, including their duty in relation to the reinsurance to close; (3) that the duty of Lloyd's auditors arises under rules made by Lloyd's and is not governed by the Companies Acts; and (4) that the Lloyd's litigation is being managed in an innovative and pro-active manner by Cresswell J in the Commercial Court.
I was taken to a number of directions issued by the Commercial Court and it is clear from them that the Commercial Court has divided the Lloyd's litigation into a number of categories. Those categories are LMX cases, long tail cases (sub-divided into run off contract cases and reinsurance to close cases) personal stop loss cases, portfolio selection cases, central fund litigation and other cases. Mr Justice Cresswell has held informal reviews of these categories of cases and has identified preliminary issues. One of the directions which I have been shown states as follows:
"The court has already identified and decided a number of preliminary issues which will assist in resolving issues of principle common to one or more categories of case. The court will continue to look for further appropriate preliminary issues."
In addition to ordering the trial of preliminary issues the Commercial Court has also selected pilot cases and here again I read from one of the directions shown to me:
"The court will continue to select from cases in a particular category, lead or pilot cases, for trial as to liability and principles as to quantum if appropriate in the hope that decisions in these cases may provide broad guidance in relation to other cases in the same category. Where appropriate in group cases the claims of sample names will be considered to save expense."
In addition, a liaison committee has been set up to facilitate the distribution of information to parties involved in the Lloyd's litigation. Clearly the work being done by the Commercial Court has involved the cooperation of a great number of parties.
Some of the directions that I have seen emanating from the Commercial Court refer specifically to reinsurance to close cases. What is said is of particular interest because it shows (as Mr Harvey indeed submitted) that the disputes in this category involve in some cases auditors who under the Lloyd's rules . . .
". . . play a part in the process of deciding whether or not a year should be closed. Thus apart from the question of whether or not particular years should have been closed, the question arises as to the existence and scope of any duty owed by auditors to the Names, whether in contract or in tort."
Mr Harvey further submitted that there is other Lloyd's litigation involving these plaintiffs and, in relation to a different syndicate, the defendants for whom he acts and that this litigation is already in the Commercial Court. So, submits Mr Harvey, transfer would make it easier for his clients and their legal representatives to defend this litigation. In addition, Mr Harvey pointed out that the parties to these actions have attended hearings before Cresswell J and that the Commercial judges have a particular expertise in matters concerning the Lloyd's market.
Mr Keith, who appeared for the defendant brokers who were applying for transfer of the brokers action, adopted Mr Harvey's submissions. He made some further submissions of his own, particularly that the case against the brokers involves technical questions relating to reinsurance, particularly syndicate management, reserves management and the role of brokers. He further submitted that complex questions of causation, foreseeability and quantum arise which overlap with issues in current litigation brought by the plaintiffs and pending in the Commercial Court.
Mr Howard for Willis Corroon Limited, the third defendant in the brokers' action, supports the submissions already outlined. He took me to the origins of the Commercial Court as explained in the Commercial Court Guide. This states:
"The Commercial Court was brought into existence in 1895 for the purpose of providing a court in which there was a greater familiarity with the subject matter of commercial and mercantile disputes and to provide procedures which would enable those disputes to be justly determined expeditiously, efficiently and without unnecessary formality."
Mr Howard further submitted that it was important that the defendant brokers should feel comfortable with the choice of division. I should say immediately that I do not think that the discomfort of the defendants is enough, nor do I think there would be reasonable grounds for a lack of confidence in the expertise of Chancery judges who these days commonly deal with substantial commercial cases, including but not limited to cases of related professional negligence.
Mr Vos QC for the plaintiffs responding to these submissions reminds me that these cases include an allegation of dishonesty and that these cases do not fall within one of the specified categories already identified by Cresswell J. In these circumstances, Mr Vos downplays the usefulness of the case management conducted by the Commercial Court to which I have already referred. He also says there is little identity of issue between this and other Lloyd's litigation. On his submission the allegations of breach of fiduciary duty are fundamental to the plaintiffs' allegations in these cases. He submits that the Chancery judges have the necessary expertise and that the question of convenience to the auditors and their legal representatives is irrelevant. I should add that I accept that last point.
I also accept that this case is one which could be brought in the Chancery Division. However, in my judgment the applicants meet the high burden required for an order for these cases to be transferred. The compelling reasons in my judgment are as follows: (1) the innovative and proactive case management by Cresswell J to which I have already referred; (2) the fact that virtually all Lloyd's related litigation arising out of the losses incurred on the 1989 and 1990 accounts and earlier years has been commenced in the Commercial Court. To my mind there is now a generally accepted practice that most of this litigation will be conducted in the Commercial Court; and (3) it is self-evident that the underlying facts involve technical aspects of reinsurance and the conduct of the business of Lloyd's syndicates, including the audit of their affairs and the adjustment of their profits and losses.
The first factor, the case management factor, was not present in 1992 when Mervyn Davies J considered the question of transfer in the Boobyer case,  2 Lloyd's Rep 436. But events since then have confirmed the decision which he reached in relation to a dispute which involves, at its heart, technical aspects of reinsurance. I therefore propose to make the order sought for the transfer.
Wilde Sapte; Cameron Markby Hewitt; Warner Cranston; Berwin Leighton; Burton Copeland; Richards Butler