11 January 1994

Times Law Reports

Queen's Bench Division

Society of Lloyd's v Clementson,

Same v Mason

Before Mr Justice Saville

(Judgment December 16)

Insurance - Lloyd's members' underwriting obligations - Society entitled to repayment from members

Lloyd's entitled to repayment

Where the Society of Lloyd's had discharged its members' underwriting obligations from the central fund, it was entitled to reimbursement from the respective members who had failed to meet their commitment.

Mr Justice Saville so held in the Queen's Bench Division when giving judgment on preliminary issues raised in two actions brought by the plaintiffs, the Society of Lloyd's, against two defendants, John Stewart Clementson and Gian Carlo Alessandro Mason.

Lloyd's alleged that it had discharged liabilities of the defendant members through payments from the central fund as a result of the defendants having failed to discharge their respective underwriting obligations. The central fund consisted of annual contributions from each member of the society.

Mr V V Veeder, QC and Mr Peter Duffy for Lloyd's; Mr Michael Burton, QC and Mr Paul Griffin for Mr Clementson; Mr Anthony Hooper, QC and Mr Craig Orr for Mr Mason.

MR JUSTICE SAVILLE

said that before becoming a member of Lloyd's it was necessary for an individual to enter into agreement with the society known as a general undertaking.

The object of the agreement was to ensure that those wishing to become or continue to be members of the society bound themselves by contract with the society to comply with all the rules and regulations of the society and with the agreements which formed an integral part of the way in which the insurance market at Lloyd's operated.

In those circumstances it seemed to his Lordship that the undertaking was wholly efficacious as it was expressed and wholly carried through its objects, namely contractually to bind the individual to the rules of the society. The contract was not incomplete. Its nature did not require that further unexpressed rights and obligations should be implied into it.

It was contended, inter alia, that by virtue of section 13 of the Sale of Goods and Services Act 1982, there was an obligation upon the society to carry out its services with reasonable care and skill. His Lordship agreed with Mr Veeder that the society did not supply services within the meaning of that Act.

The defendants contended that the society had been guilty of anti-competitive practices contrary to the EEC Treaty (Cmnd 5179-II), that they had sustained loss as a result of that breach of Community Law and that accordingly either the defendants had a defence to the claims for reimbursement or could set off or counterclaim the amount of their loss.

Not every entity constituted an undertaking or association of undertakings, nor could every joint activity amount to concerted practices within the meaning of article 85 of the Treaty.

What was required was that the entity or association be engaged in some activity which could be described as being of an economic nature. The reason for that was the reason for article 85 itself, namely the protection of trade, industry and commerce, including, of course, service industries, from unjustifiable restrictions of competition within the common market.

His Lordship failed to see how on any sensible basis it could be suggested that in discharging the underwriting obligations of members who had failed to honour their commitment and in seeking reimbursement of such payments from those members, the society was somehow engaged in either economic activities, or was doing something which might affect trade between member states, or which could to any degree whatever prevent, restrict or distort competition in the common market or indeed elsewhere. What the society was doing was, in fact, the precise opposite of those things.

The society was, in fact, endeavouring by the exercise of its regulatory powers to ensure that the Lloyd's insurance market was maintained, by in effect enforcing the underwriting obligations of the members who had failed themselves to honour their own underwriting commitments.

Unless such commitment were honoured then there would indeed be prevention, restriction or distortion of competition, for then that important part of the Community insurance market would not be able to function properly so as to compete with other insurers who were able and willing to fulfil their promises.

In his Lordship's judgment, therefore, the action of the society to recover sums disbursed from the central fund to discharge the obligations of the defendants did not, in the context of the present proceedings, constitute an activity subject to article 85 of the Treaty.

Section 14 of the Lloyd's Act 1982 did not in itself amount to something which could have the object or effect of preventing, restricting or distorting competition within the common market. The object of the section was to provide a measure of immunity to the society in carrying out its functions, which of course did not include the actual conduct of underwriting, as opposed to the regulations of the Lloyd's insurance market.

Were such immunity not provided, then to his Lordship's mind the market for individual underwriters at Lloyd's would be prevented, distorted or restricted, for claims for damages against the society by one member would have to be met by other members, since the society's resources came from the members.

Solicitors: Mr John Mallinson; Michael Freeman & Co; Lawrence Graham.

Correction

In Society of Lloyd's v Clementson; Same v Mason (The Times January 11) Mr Michael Burton, QC, Mr Paul Griffin and Mr Nicholas Green, instructed by S J Berwin & Co (not Lawrence Graham), appeared for Mr Clementson; and Mr Anthony Hooper, QC, Mr Craig Orr and Mr Nicholas Green, instructed by Michael Freeman & Co, appeared for Mr Mason.